§ 1.8 Unenforceable Contracts

The term ''unenforceable contract'' would seem to be as self-contradictory as is the term ''void contract,'' but the law affords a variety of remedies by which a contract is recognized. Some of these are non-judicial in character, while others may be described as judicial remedies. In addition to the usual direct means of enforcement of a promise, there are also various indirect means of enforcement. There are certain agreements with respect to which the most commonly used direct means of enforcement are not available, but which cannot properly be called either void or voidable. They create duties of imperfect obligationn1 and have some effect upon the legal relations of the parties. They are enforceable by various indirect and non-judicial remedies. It is agreements of this sort that have commonly been grouped together under the heading of unenforceable contracts.n2 The term has rendered some useful service and it will not be abandoned here; but it should be observed that there are important differences in the legal relations that are created by the various agreements that are called unenforceable contracts.

A perfectly valid contract may become unenforceable by virtue of the statute of limitations-a statute that provides that one or more of the direct judicial remedies shall not be available unless asked for within a specified period of time.n3 The expiration of the period fixed by the statute, however, does not make such a contract void. If a promisee holds goods in pledge or a mortgage on land as collateral security for the performance of a promise, the barring of direct judicial remedies by the statute of limitations will not prevent the use of this collateral security as a means of enforcement.n4 Furthermore, the original contract, even though direct remedies are barred by the statute, is still operative to create in the promisor a power of creating a new directly enforceable duty, by a mere expression of will, without any act of assent by the other and without any new consideration. A contract cannot properly be said to have become void if it is still operative to create such a power of validation. Neither can such a contract properly be described as voidable after its direct enforcement has been barred by the statute, because the promisor has no power of avoidance whatever. The promisor cannot destroy the rights of the other party or create new rights or privileges in himself or herself.

A contract may be unenforceable, also, by reason of the statute that is commonly called the statute of frauds. If there is no written memorandum sufficient to satisfy the requirements of that statute, the direct judicial remedies at common law are not available to the plaintiff if the defendant chooses to take advantage of the statute. Such oral agreements, however, are far from being without legal operation. The parties have the legal power to make the contract directly enforceable as against themselves, by signing proper written memoranda, but they cannot by such a process make the contract enforceable in their own favor. In the subsequent chapters dealing with the statute of frauds, there will be found a full discussion of the legal operation of an oral contract that is made directly unenforceable by the statute.n5

Also unenforceable are some contracts tainted by illegality but which are not wholly void or voidable.n6 Contracts with governmental units that can be met with the defense of sovereign immunity also may be classified as unenforceable.n7 No doubt the catalog of unenforceable contracts given in this section is incomplete and new members will be found to fit this class.

Legal Topics:

For related research and practice materials, see the following legal topics:

Contracts LawNegotiable InstrumentsEnforcementDefensesStatutes of LimitationsContracts LawNegotiable InstrumentsEnforcementGeneral OverviewContracts LawStatutes of FraudsRequirementsGeneral OverviewContracts LawStatutes of FraudsRequirementsPerformanceContracts LawDefensesStatutes of LimitationsContracts LawTypes of ContractsOral Agreements

FOOTNOTES:

(n1)Footnote 1. Frederick Pollock, Principles of Contract *608.

(n2)Footnote 2. The definition of the Restatement of Contracts (Second) § 8 is: ''An unenforceable contract is one for the breach of which neither the remedy of damages nor the remedy of specific performance is available, but which is recognized in some other way as creating a duty of performance, though there has been no ratification.''

(n3)Footnote 3. The first statute of limitations, passed in the 21st year of James I, provided that the action of debt should not be maintainable after the lapse of six years. In form, this was not applicable to other legal writs; much less was it applicable to a bill in equity.

(n4)Footnote 4. In the case of Weems v. Carter, 30 F.2d 202 (4th Cir.1929) , certain bonds and stocks had been assigned as collateral security for the payment of a promissory negotiable note. The direct enforcement of the note became barred by the statute of limitations; but in spite of this, it was held that the creditor might properly sell the bonds and stocks to secure repayment of the debt. The court said: ''The plaintiffs are third persons who have pledged their property to secure the debt of another, a debt for which they are in no way personally liable. They are asking the relief of a court of equity because the statute of limitations has run against the debt. In order to enforce his remedy against the collateral in his hands, the creditor does not ask or need the aid of a court. The question to be considered is whether the running of the statute of limitations in favor of a principal extinguishes the right of the creditor to proceed, as agreed, against the collateral. On this question there is some conflict of authority, but we agree with the learned judge below when he says that both 'the weight of authority and the better reason lead to the conclusion that the running of the statute of limitations in favor of the principal, does not extinguish the obligation of a surety on a promissory note in whose favor limitation has not run.'

''Though a debt has been declared barred in an action on it, yet the security is unaffected. Brent v. Bank of Washington, 35 U.S. 596, 9 L.Ed. 547 (1836) ; Gage v. Riverside Trust Co., 86 Fed. 984 (C.C.Cal.1898) . 2 Samuel Williston on Contracts, § 1231; Johnson v. Planters' Bank, 12 Miss. 165 (Miss.1843); Minter v. Branch Bank of Mobile, 23 Ala. 762, 58 Am.Dec. 315 ; Ashby v. Johnston, 23 Ark. 163, 79 Am.Dec. 102 ; Bull v. Coe, 77 Cal. 54, 18 P. 808, 11 Am.St.Rep. 235, 239 ; Willis v. Chowning, 90 Tex. 617, 40 S.W. 395, 59 Am.St.Rep. 842, 845, 846 ; Darby v. Berney Nat. Bank, 97 Ala. 643, 11 So. 881, 882 ; Johnson v. Success Brick Mach. Co., 104 Miss. 217, 61 So. 178, 179, 62 So. 4 ; Charbonneau v. Bouvet, 98 Tex. 167, 82 S.W. 460, 461 ; Eickhoff v. Eikenbary, 52 Neb. 332, 72 N.W. 308, 310 .''

(n5)Footnote 5. Oral contracts within the statute of frauds may be used to show that services rendered were not rendered gratuitously: Downey v. Guilfoile, 96 Conn. 383, 114 A. 73 (1921) ; Schempp v. Beardsley, 83 Conn. 34, 75 A. 141 (1910) ; or as evidence of the reasonable value of the services rendered: Clark v. Terry, 25 Conn. 395 (1856) ; Ryan v. Dayton, 25 Conn. 188 (1856) ; Grantham v. Grantham, 205 N.C. 363, 171 S.E. 331 (1933) ; Bennett Leasing Co. v. Ellison, 15 Utah 2d 72, 387 P.2d 246, 21 A.L.R.3d 1 (1963) . See further § 328. In Nanos v. Harrison, 97 Conn. 529, 117 A. 803 (1922) , it was held that although an oral agreement for a five-year lease was unenforceable, a tort action would lie for a false representation of power to execute such a lease, which, along with the oral agreement, induces the plaintiff to incur expenditures in preparation to occupy. Some other effects of an oral contract within the statute of frauds are discussed in §§ 282, 286, 296-300.

(n6)Footnote 6. Restatement of Contracts (Second) § 8, comment b.

(n7)Footnote 7. Restatement of Contracts (Second) § 8, comment c.