Also known as:unenforceable contract · unenforceable agreement · voidable contracts
Written by attorneys — see sources below.
A contract for the breach of which neither the remedy of damages nor the remedy of specific performance is available. Such a contract is nonetheless recognized in some other way as creating a duty of performance even without ratification.
See Our Sources
How its tested
Common Examples
2
Attorney Fee Recovery After Noncompliance
Stephen entered a contingency-fee retainer with Emily that omitted required disclosures and was never filed with the court. Stephen performed extensive work and secured a settlement that Emily accepted and retained. When Emily refused further payment, Stephen sought reasonable compensation. The retainer created no right to the contractual fee, yet Stephen could pursue restitution for the value of services rendered because the agreement was recognized as imposing a limited duty outside traditional contract remedies.
Policy-Based Employment Agreement
Employees signed individual arbitration agreements with their employer that waived collective proceedings. A later statute declared such waivers unenforceable when they conflicted with protections for concerted activity. The agreements could not be enforced through damages or specific performance. Courts nonetheless treated the agreements as creating a duty that could be recognized for limited purposes such as determining the scope of available dispute-resolution mechanisms without ratifying the prohibited terms.
Epic Systems Corp. v. Lewis584 U.S. __, __ (2018) (slip op., at 8)
In each of three consolidated cases, an employer and an employee entered into a written contract specifying that disputes arising from the employment relationship would be resolved through individualized arbitration proceedings rather than in court. The agreements in the Ernst & Young case, for example, allowed the employee to select the arbitration provider and permitted the arbitrator to grant any relief a court could grant, but required that claims pertaining to different employees be heard in separate proceedings.
After their employment ended, the employees filed suit in federal district court. They asserted claims under the Fair Labor Standards Act for unpaid overtime and related state-law claims, and they sought to litigate those claims on behalf of a nationwide class or collective group of similarly situated employees.
In the Ernst & Young matter, junior accountant Stephen Morris filed such a suit after leaving the firm. The employers responded by moving to compel arbitration under the terms of the contracts.
District courts in some of the cases granted the motions and ordered the employees to proceed in individual arbitrations. In the Ernst & Young case the district court compelled arbitration, but the Ninth Circuit reversed that order. Parallel proceedings occurred in the Seventh and Fifth Circuits, producing conflicting results on whether the arbitration agreements could be enforced.
In 2012 the National Labor Relations Board issued its first decision addressing agreements of this type, concluding that the National Labor Relations Act rendered unlawful any contractual requirement of individualized arbitration. Before that Board decision, courts and the Board's own general counsel had treated such agreements as enforceable. The three cases reached the Supreme Court after the Court granted certiorari in 2017 to resolve the disagreement among the circuits and between the Board and several courts of appeals.
When does an unenforceable contract still support restitution?
Restitution remains available when a party has conferred a measurable benefit that the other party accepted and retained. Recovery is measured by the reasonable value of services or expenses and does not enforce the contract itself. Courts deny restitution only when a statute expressly bars it or when allowing recovery would frustrate the statute's purpose.
Supporting sources
Does the statute of frauds automatically eliminate all remedies for an oral agreement?
No. The statute renders the contract unenforceable but does not bar restitution for benefits actually conferred. A party may recover the reasonable value of services performed in reliance unless the statute or its policy specifically precludes that relief.
Supporting sources
Can a party recover when the contract is unenforceable due to a guardianship adjudication?
The contract itself is unenforceable because the ward lacked capacity. Separate restitutionary claims for value conferred may still be available under principles outside the incapacity rule, though the rule itself supplies no exception based on notice or apparent competence.
Supporting sources
What distinguishes an unenforceable contract from a void contract?
A void contract produces no legal obligation at all. An unenforceable contract creates a duty that is recognized in limited ways even though ordinary remedies are unavailable. The distinction turns on whether the agreement is treated as never having existed or as having partial legal effect.
546 U.S. 440, 163 L. Ed. 2d 1038, 126 S. Ct. 1204 (2006)
…declining to apply Prima Paint ’s rule of severability, the Florida Supreme Court relied on the distinction between void and voidable contracts. “Florida public policy and contract law,” it concluded, permit “no severable, or salvageable, parts of a contract found illegal and void under Florida law.” 894 So. 2d, at 864 . Prima…