What Are Unfair Contracts?

In many jurisdictions, a valid contract simply requires an offer, an acceptance, and consideration. Common law legal systems, such as in the United States and the United Kingdom, lean toward allowing the parties to determine the terms of a contract without interference from the courts. There are, however, exceptions to the freedom to contract in some legal systems, which are intended to protect a party to the contract. In the United Kingdom, for example, the Unfair Contract Terms Act of 1977 address unfair contracts by making certain terms ineffective or subject to a reasonableness test. While the United States does not address "unfair contracts," U.S. law does have the equivalent legal provisions by making some contracts void and others voidable.

Within the United Kingdom, certain provision in a contract are considered to be inherently unfair or highly questionable. In an effort to protect consumers from what may be considered unfair contracts, Parliament passed the Unfair Contract Terms Act (UCTA) in 1977. Under the UCTA, certain terms are considered ineffective, or invalid, such as a term that excludes liability for negligence for death or personal injury, or a term that attempts to exclude the implied terms of title to the subject of the contract. If a contract contains one of the terms listed in the Act as ineffective, then the term may be stricken from the contract, or the contract may be deemed invalid in its entirety.

In addition to ineffective terms, unfair contracts under the UCTA also include contract with terms that are subject to a reasonableness test. For example, if the drafter of a contract includes a term that excludes liability on his or her part for breach of the contract, and the other party is a consumer, then the reasonableness test must be passed in order for the term to stand. The reasonableness test will look at the totality of the circumstances to determine whether the term was fair to the party who did not draft the contract.

Within the United States, there are no legally unfair contracts; however, U.S. courts will declare some contracts void on their face and others may be voidable. If the subject of a contract is illegal, such as the sale of illegal drugs, then the contract is void. Contracts with impossible terms or contracts where one, or both, or the parties are legally incapacitated are other examples of void contracts.

A voidable contract is actually a valid contract that may be voided at the discretion of one of the parties. In most states within the United States, a minor cannot legally enter into a contract. As a result, if a party does enter into a contract with a minor, then the minor has the option to void the contract if he or she chooses. The other party, however, is bound by the contract unless the minor chooses to void it.