When is a contract enforceable?

My friend Nicholas Lovell of Gamesbrief got in touch with me today to ask me about when a contract is enforceable and when it isn’t – he’d been discussing with some other Tweeters that sometimes contract aren’t enforceable in a consumer context.  They were also interested in what happens in a business context.  So I thought I’d blog about it.
Consumer contracts:
In a consumer context, just because it is in a contract doesn’t make it enforceable.  There are a wide range of legal ways in which a clause in a contract might be unenforceable, especially if it is contrary to consumer protection law.  Under UK law (and the law of most other EU member states), a clause is unfair if it causes a “significant imbalance” between  the rights of the supplier and the consumer AND that imbalance is unreasonable.  This is an extremely wide power than potentially bites on any clause in a contract which causes harm to consumers.  For more info on how it applies to EULAs, have a look at my slides here: http://www.slideshare.net/jaspurewal/eulas-and-terms-of-service-what-works-and-what-doesnt-9873163.
Business contracts:
Those wide powers don’t apply in a business context, because the law takes the view that businesspeople are more able to negotiate for themselves compared to consumers.  The exception is where you’re forced to use someone else’s standard T&Cs with no option to negotiate them.  In those circumstances, under UK law, any attempt by the supplier to limit their liability to you is subject to a reasonableness test.  This is therefore a lower level of protection than in consumer contracts, which subjects ALL clauses to a test of reasonableness.
More generally, there are other circumstances in which any kind of contract might be unenforceable.  For example, if the contract contains a misrepresentation or just doesn’t make any sense.
Tips when writing, reading or signing contracts:  
Contracts aren’t just a bit of paper.  They are the way you record the deal you’ve reached – it doesn’t matter how good or how bad a deal you think you’ve entered into unless the contract is faithful to that deal.  From this lawyer’s perspective therefore, based on his experience of dealing with lots of businesses over the last 7 or so years, the ones which are most successful and have the least problems are the ones who took care over their contracts.  So here’s a few tips about how to approach contracts:
  • A contract is only as good as the person who drafted it and the guy who signed it.  If it’s been badly drafted, without an understanding of the law, or if you’ve contracted with someone who is not trustworthy or creditworthy, then you’re in trouble. 
  • If you’re drafting the contract, you need to make sure you know what you’re doing, otherwise you won’t really get what you want and it may not be enforceable anyway. 
  • If you’re a consumer or businessperson signing a contract, you do have some legal protections in place if things go wrong – especially if you’re a consumer.  But that doesn’t mean you can ignore the contract – you should still read it and try to understand it, because those parts which are legally enforceable will be binding on you.
  • One more for good luck: 50% of the problems I see from games, media and technology clients is that they have mucked up their contracts.  One in two times you have to see a lawyer with a problem, it’s because your contracts have mucked up.  So it makes sense to think a bit about them now, hopefully.
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