BUSINESS LAW 101
Contract Legality
Occasionally a court will find portions of a contract illegal or invalid. If only portions of a contract are held illegal, the contract still may be valid if the illegal portions can be excised without destroying the basics of the agreement.
If a contract is unfair or unconscionable – this is, the terms are so egregious that it shocks the conscious, the courts may determine that the contract is invalid. Usually, these contracts arise because one party has power over the other party, or some other unfair advantage in the negotiations. If a party simply makes a bad bargain, it is not sufficient grounds to invalidate the contract.
A contract against the public welfare is generally not binding. This is true even if the contract is not illegal. Any contract hiring an unlicensed professional cannot be enforced. Any agreement to restrain trade violates public policy, such as an agreement between two stores to drive a third store out of business. Finally, contracts cannot be made where interest is charged in excess of amounts allowed by statute. These are called usurious contracts (In Florida, interest rates up to 18 percent are allowed).
Next, I want to cover the Statute of Frauds. This has nothing to do with fraud as most of us know it. The statute states that in certain circumstances a contract must be written to be valid. Generally, in Florida any lease for longer than a year; any guarantee or assurance made by a health care provider; any contract that cannot be completed within one year; any contract for sale of land; and any contract where one person agrees to pay the debts of another person all must be in writing. If any of these contracts are made by verbal agreement, they are not enforceable.
A Statute of Frauds contract is generally voidable, not void. It is what we call an affirmative defense. In other words, it must be specifically pled as a defense at the beginning of a lawsuit or it cannot later be raised.
There are some ways to get around the Statute of Frauds. If there has been partial performance of the contract, the court may disregard the writing requirement and also if a party has detrimentally relied on the oral contract the court may enforce it. Here you must generally show that substantial injury will occur and that the other party will be unjustly enriched. This is especially true when a party acts on an oral agreement with the belief that it will be reduced to writing.
Oral statements come up in one other context and that is the parole evidence rule. This rule states that verbal statements cannot be used to modify or contradict the terms of a written contract. If the agreement is in writing, any modifications must also be in writing and signed by the parties. The exception to the parole evidence rule is when verbal statements are used to clarify unclear portions of the agreement, to prove the existence of an agreement or to prove that the agreement was illegal.
Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law and labor law at St. Leo University. He is so the author of “Basics of Business Law” (Absolutely Amazing e-Books). This article is being offered as a public service and is not intended to provide specific legal advice. If you have any questions about legal issues, you should confer with a licensed Florida attorney.
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