When Is A Contract Unenforceable? (2025 Updated)

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Contracts are an essential part of any business relationship. Whether you’re engaging with suppliers, employees or entering into a joint venture with another business, it’s always recommended to have the details set out in writing. Clear contracts not only protect your interests but also provide a solid foundation for resolving disputes.

This way, if something goes amiss in 2025 or beyond, you have a documented agreement to refer to. A well-drafted contract clearly sets out the process to follow in the event of a dispute and identifies each party’s rights and obligations, including what happens if property or assets are involved.

However, for a contract to serve its intended purpose, it must be enforceable. In other words, it needs to comply with the legal criteria required by Australian law so that if a party fails to meet their obligations, legal action can be pursued.

If those requirements aren’t met, the contract may be deemed unenforceable, meaning its terms have no legal effect.

So, how do you know if a contract might be unenforceable?

Let’s first explore what makes a contract legally binding.

What Makes A Contract Legally Binding?

For a contract to be legally binding, it must meet certain criteria recognised under Australian law. For more detailed guidance, you can also view our overview of contracts.

Generally, a legally binding contract must contain the following elements:

Offer and Acceptance – One party makes a clear offer and the other accepts it.
Intention – Both parties must intend to be legally bound by the contract.
Consideration – There must be an exchange of value, whether it’s money, services or benefits.
Capacity – All parties involved need to have the legal capacity and full understanding of what they are agreeing to.

Finally, a contract generally requires the signature of the parties to certify that they have accepted the terms. In 2025, digital signing is more prevalent than ever, making it easier to execute contracts remotely.

At Sprintlaw, we offer an E-Signature tool that allows you to sign and send legal documents electronically. This seamless solution is part of your Sprintlaw Membership and integrates perfectly with our cloud-based document management system. For additional digital solutions, you might also want to explore our IT and digital services page.

What Are Unenforceable Contracts?

Unenforceable contracts are agreements that do not satisfy one or more of the essential legal requirements. This means that if a party fails to meet their obligations, the other party cannot take legal action to enforce the contract.

Let’s look at common scenarios where a contract may be deemed unenforceable.

Capacity

Every party entering a contract must have the capacity to understand the terms being agreed upon. For instance, a contract signed by someone with impaired mental capacity, or where a minor enters into an agreement (except in cases of necessity), may be considered unenforceable.

Duress

If you are forced or coerced into signing a contract—whether due to threats or undue pressure—the contract becomes unenforceable. Consent must be freely given for any agreement to stand up in court.

Mistake

A significant mistake made by one or all parties during the signing process can render a contract unenforceable. Whether you mistakenly sign the wrong document or there is a substantive error in the terms, the contract may not be legally upheld.

Unconscionability

Contracts formed under unfair or oppressive terms, particularly where one party has significantly less bargaining power, can be declared unenforceable. This might occur in agreements where one party is heavily reliant on the other for guidance or economic support.

Misrepresentation

Misrepresentation occurs when one party makes a false statement, and the other party relies on it when entering the contract. This lack of genuine acceptance results in an agreement that is not fairly constituted. For additional insights on this topic, check out our article on misleading and deceptive conduct.

Public Policy

If the terms of a contract threaten public policy—for instance, by involving illegal activities or undermining public interests—the contract will be deemed unenforceable. This ensures that no agreement can be used to circumvent the law.

Void vs. Unenforceable Contracts: What’s the Difference?

While the terms ‘void’ and ‘unenforceable’ are sometimes used interchangeably, they have distinct meanings. A void contract is invalid from the outset and cannot be enforced by law, whereas an unenforceable contract initially appears valid but cannot be enforced due to a legal defect.

For example, a void contract might still allow a court to order specific performance if the parties choose to affirm the agreement, while an unenforceable contract does not lend itself to legal remedies such as specific performance.

Are Verbal Contracts Binding In Australia?

Yes, verbal promises can be legally binding, provided they contain the essential elements of a contract. However, proving the details of a verbal contract in court can be challenging without supporting evidence such as emails, texts, or other documentation.

While verbal contracts do have legal validity, your safest option is to always have agreements in writing. This approach provides clarity and strengthens your position if any disputes arise.

What Happens If There’s a Breach of a Verbal Contract?

A breach of a verbal contract is treated similarly to a breach of a written contract. If one party fails to meet its obligations, the contract may be rescinded or, in some cases, the court may order specific performance of the agreed terms.

What Are Unfair Contract Terms?

The Australian Consumer Law protects consumers and small businesses from unfair practices. In the context of contracts, terms that create a significant imbalance between the rights and obligations of the parties, or that cause detriment, may be deemed ‘unfair’ and subsequently void. For further reading, our unfair contract terms article explains this in detail.

If a term is deemed unfair, it will be declared void, meaning the parties are not bound by it.

This highlights why reviewing contracts carefully—and seeking legal advice when needed—is essential. Our contract review packages are designed to help you identify and address any potentially unfair terms.

Can I Make My Contracts Internationally Enforceable?

As businesses expand their operations globally in 2025, it is increasingly important to draft contracts that are enforceable across borders. One effective method is to include an international arbitration clause in your contracts.

This clause should specify details such as the location of arbitration, the language used, and the number of arbitrators. The Australian Centre for International Commercial Arbitration (ACICA) offers a recommended model clause that you can adapt for your agreement.

If you prefer not to include an arbitration clause, you might instead agree on the governing law and jurisdiction where disputes will be resolved. For more guidance, see our international contract drafting guide.

How Can I Ensure My Contracts Are Enforceable?

When drafting a contract, it’s critical to ensure that all the essential legal elements are in place. Having a lawyer review your documents is one of the safest ways to protect your interests. Besides our contract redraft services, regular updates and reviews of your contracts help keep them compliant with the latest laws and market conditions.

In today’s fast-paced digital environment, integrating solutions like digital signatures and secure online storage not only modernises your documentation process but also ensures continuity and compliance. Learn more about our comprehensive legal support and digital services on our All Services page.

Key Takeaways

Contracts are invaluable for securing your business arrangements and ensuring that all parties’ interests are safeguarded. Their enforceability, however, depends on meeting all essential legal requirements.

Remember to include all key elements—offer and acceptance, intention, consideration, capacity, and proper signing procedures. Avoid pitfalls such as duress, mistakes, unconscionable terms, misrepresentation, and any provisions that conflict with public policy.

Whether you’re dealing with a verbal agreement or a detailed written contract, having your terms clearly documented and regularly reviewed by legal professionals is paramount. For further assistance, our team at Sprintlaw offers expert guidance on contract reviews, drafting, and redrafting, ensuring your agreements are robust and compliant with 2025 standards.

If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

Important Note: As business practices and legislation continuously evolve in 2025, it is crucial to keep your contracts and legal strategies up-to-date. Be sure to regularly consult our legal guides and explore our comprehensive resources, including our tips on starting a business from home and changing your business structure, to stay ahead in today’s dynamic legal landscape.

Rowan Gardoce

Rowan is the Marketing Coordinator at Sprintlaw. She is studying law and psychology with a background in insurtech and brand experience, and now helps Sprintlaw help small businesses

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