A severable contract is a contractunenforceable that can still remain in effect despite those provisions which are void. In order for the blue pencil test to be satisfied, the phrase stricken by the court must not result in a change to the purpose for which the contract was created by the parties. The contract must still make grammatical sense after the edits have been made to the contract. Otherwise the contract will not be considered to have become a severable contract.

A severable contract can be formed if the parties who entered into the contract do not consider it essential that all the actions be performed together. Divisible contracts may exist if a convenience store orders the soda, chips and candy it sells from the same company in three separate clauses. An indivisible contract is formed if the store hired a vendor to provide the soda, chips, and candy in a single clause. 

Whether divisible contracts or indivisible contracts have been formed can often be determined by examining the terms under which consideration has been provided. If the set of contracts provide the consideration in a lump sum, it is usually an indivisible contract. If consideration is itemized for each thing exchanged, a severable contract often exists.

If a contract contains both legal and illegal clauses, the court will attempt to enforce only the legal clauses in the event the contract is already a severable contract. If the court can employ a blue pencil test to create a severable contract, it will.

Contracts that are adjudicated to be contrary to public policy may result in portions of the contract being declared unenforceable.

An exculpatory clause is a provision of a contract that releases one party of the contract from all liability no matter who is at fault. Exculpatory clauses are normally permitted to remain in effect if the contracted party is engaged in an enterprise that is not considered essential to the public good, such as the operation of a recreational facility. However, with a clause that releases a company from liability which functions in a business that is considered essential to the public good, the courts w

During the contract drafting process every attention must be paid to ensuring that an illegal contract is not created. As a result, individuals responsible for contract drafting employ several safeguards to attempt to decrease the probability that they create an illegal contract.

Some of these preventative methods include using boilerplate language, which are terms used in a majority of contract drafting negotiations, as well as employing lawyers or people with a legal background in the contract drafting. However, even when these safeguards are employed, illegal contracts can still result.

Even if illegality is found to exist in a contract, it may still be enforceable in pari delicto, then a legal contract will not be ruled to exist.

If the violation of the law in question is not of a serious nature, then the illegal contract may be enforced as if it were a legal contract. If the compensation that would have to be provided in the event the contract was declared illegal would be out of proportion to the infraction of the concerned law, then the contract may be enforced as if it were a legal contract. The agreement may also be treated as a legal contract if the court determines that there would be an unjust enrichment to one of the parties in the event that the contract drafting was set aside.

If a contract is ruled to be illegal after actions have been done by one of the parties which cost money, the idea of quantum meruit may come into play. Under quantum meruit, which means “as much as deserved,” an individual may be able to recoup expenses in proportion to their outlay of money for services performed in an illegal contract if they performed the actions under the belief they were executing a legal contract.

Unlike in a legal contract, quantum meruit does not entitle the individual invoking it to hold the other person liable for the terms of the contract. This legal concept only allows the individual to recoup their losses.

A mistake of fact which affects the genuineness of the assent given to the terms of a contract may be bilateral or unilateral. Mistakes of fact apply when the party concerned was operating under a mistaken understanding of the facts involved in the contract.

A mistake of fact is unilateral when only one party is mistaken. A bilateral mistake of fact occurs when both parties to the contract are operating under a mistaken reality. Bilateral mistakes are also known as mutual mistakes or common mistakes.

A mistake of fact that is unilateral in nature is not normally a reason to set aside a contract or a reason that will allow a plaintiff in a civil trial to seek damages. A unilateral mistake of fact will result in an enforceable voidable contract.

For example, a contract would be voidable at Luke’s discretion if Ben took advantage of Luke’s unilateral mistake regarding the purchase of a painting Luke thought was genuine. If Ben did not know that Luke thought he was buying the genuine painting, then Luke’s unilateral mistake would not prevent the contract from being enforceable.

A bilateral mistake would result in a contract that could be voided by both individuals in the event that Luke and Ben both believed the forgery was a genuine work by Dali. If Ben believed Luke intended to buy an artificial Dali painting, and Luke believed Ben was selling a genuine work by Dali, a mutual mistake has again been made because there was no intention to defraud and both parties made a mistake of fact.

Mistakes of fact should not be confused with mistakes of value. A mistake of value would occur if Jim sold Jack a random painting that he believed had only a slight value for $50. If Jim later learns that the painting was in fact done by a famous artist and worth $500, he cannot sue Jack to make up the $450. This sort of mistake is not permitted because the value of an object is not a fact. It can change. In order for a mistake to provide the basis to overturn a contract, the mistake must be of a fixed and provable nature.

 

A contract may be ruled to be illegal by any court of law. Illegality can become an issue even if the normal requirements of acceptance of offers, consideration, contractual capacity, are present. Illegal contracts typically do not result in any liability for the involved parties. The courts may rule an illegal contract exists regardless of whether or not the parties involved in the suit raise the issue, even if the two parties believe the contract to be legal.

A severable or divisible contract may be formed by the parties to the contract or may result from actions of the courts. The parties can create a severable contract by including a severence clause into the original contract. A severance clause is a clause which states that if there is one other contractual clause that would cause the contract to be considered illegal, then the offending phrase should be stricken from the contract, so long as the removal of the clause does not substantially alter the original nature of the contract. 

Divisible contracts are similar contracts entered into by the same parties which have similar terms but can be completed independently of each other. A court may form a severable contract by utilizing a blue pencil test. If the offending phrase in a contract can be removed from the contract without enacting any change besides turning an illegal contract into a legal one, then the change passes the blue pencil test.

Contract laws generally prohibit contracts that restrain trade. Contracts restraining trade are defined as contracts that reduce the level of competition involved in the commercial exchange of goods or services. Contracts that restrain trade are considered a classification of contracts that are contrary to public policy.

These kinds of contracts are sometimes defined by contract laws as covenants not to compete and sometimes as non-competition contracts. Whichever they are known as, though, they are illegal and are thus considered unenforceable. 

Elements of contracts that restrain trade are generally permissible if they are limited in scope or duration. A contract is permissible if it compels a party to the contract to relinquish the right to make a particular thing, but not if it attempts to force one of the parties to the contract to not compete with the other in any way in the future.

Contracts are permitted to contain non-competition clauses if the clause exists in order to protect business secrets of the employer, or if the non-competition element of the contract seeks to limit a former employee from utilizing business contacts which are considered essential to the operations of the company with which the original contract was signed.

Fraudulent misrepresentation by silence may result during a long contract negotiation if one of the parties to the contract withholds material information they learned during the negotiation process.