Contracts often have unenforceable provisions in them. Therefore, parties are not bound by every provision in a contract. In our previous blog, we talked about what makes a contract. In this blog, we talk about what is excluded from a contract.

 

Court Interpretation

When we say something is excluded from a contract or held unenforceable by a court, we mean that a court has reviewed the contract language and decided that a particular provision, or series of provisions, is not allowed under North Carolina’s laws. Generally speaking, a court’s ruling like this does not effect future rulings unless the court’s written order includes language to that effect. This means that a provision can be unenforceable in one circumstance yet still enforceable in another.

For example, if you have all your employees sign the same non-compete agreement, a court may find it unenforceable as applied to a receptionist but still enforceable in a later case against a manager.

 

Illegal Actions

One of the most obvious types of unenforceable provisions pertains to illegal actions. You obviously cannot contract to have someone commit a crime nor anything else illegal. Alone, a contract provision that requires one party to commit a crime would be void as to public policy. However, depending on the provision, the remainder of the contract may or may not continue to be enforceable.

 

Illusory Contracts

An “illusory contract” is one where one or more parties can choose whether or not they need to perform under the contract or, for whatever reason, gave nothing up in the contract. There are a lot of nuances in this field and whether a contract is illusory or not is a source of great contention.

Illusory contracts fail on their face. They are automatically unenforceable because there was never a valid contract.

For example, it would be illusory for you to sell me your bike, but after I pay, you can, at your choosing, take back my bike and keep the money.

 

Restrictive Covenants

Under North Carolina law, restrictive covenants are looked at unfavorably under the law. They’re frowned upon largely because they take away a substantial right of one party. Therefore, their terms must be very clear and within the legal limits. When a restrictive covenant falls outside the legal limits, it is referred to as “overly broad” and it held unenforceable.

You see these being held unenforceable mostly in employment contracts. Non-competes can be used for your employees; however, these must be reasonable as to time, territory, and scope.

 

Public Policy

If a contract provision violates public policy, the provision is automatically held unenforceable under North Carolina law. What does that mean? Violating public policy is more like a catchall provision that makes a provision unenforceable. Some things, like unfair and deceptive trade practices are laid out in statute whereas other public policy restrictions are laid out in common law through cases.

 

Sample Unenforceable Provisions

In addition to the contract provisions that are void as to public policy, many provisions will simply be held unenforceable by our courts.

 

Conclusion

  • Just because you signed something does not mean it is valid and enforceable.
  • Things against the law or against public policy will automatically be unenforceable.
  • An illusory contract is one that has the illusion of a contract but isn’t enforceable because one or more parties isn’t actually bound to anything in it.

If you are unsure whether your contract, or any provisions in it, are enforceable, feel free to contact us at info@lawplusplus.com.

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