Month: June 2019

Certain contracts are disallowed on the basis of public policy — not because they are unconscionable or illegal. Public policy limitations are extremely diverse and highly dependent on the circumstances, and on your particular jurisdiction. If you believe that your contract may involve some conflicts with public policy, make sure to assess the applicable law in your jurisdiction and consult with an attorney.

For example, some jurisdictions allow couples to enter postnuptial agreements that will affect property distribution in the event that the marriage comes to an end. Other jurisdictions believe that allowing postnuptial agreements will promote divorce, and as such, they disallow them on the basis of their public policy of promoting marriage and discouraging divorce.

A contract will be deemed void and unenforceable if the contract was designed to promote an unlawful purpose.

For example, you cannot enter into a contract with someone to pay them to be your getaway driver after you finish robbing a bank. These are crimes and therefore any contract that involves such unlawful purpose cannot be enforced.

Importantly, the unlawful purpose limitation is not specific to crimes, nor is it applicable only in situations where the unlawful purpose forms the core of the contractual bargain. The legal jargon may be getting a bit complicated, so let’s jump right back in to a few more examples.

Suppose that you are a food truck operator, and you enter into a contract with a venue wherein you pay the venue a monthly “rental fee” to allow you to park your food truck on the premises and sell to attendees. Unfortunately, you do not have a valid food truck license. As such, operation of your food truck without a valid license is technically illegal. Despite the fact that the license was not the core of the contractual bargain, the contract necessarily touches upon an unlawful purpose — if it were enforced, it would be promoting an unlawful purpose (e.g. operation of a food truck without a license). By necessity, the contract would therefore be rendered void and unenforceable.

Now, alternatively, suppose that you are selling a non-fiction, short-form biographical narrative to a magazine. The magazine purchased the story on the basis that it contained purportedly true, if controversial and scandalous revelations about a local businessperson. The magazine does not have its own editorial staff — it purchases fully edited stories for publishing. You enter into a contract with the magazine to purchase the story. Unfortunately, it is later revealed that the statements made in the story were false and defamatory. The contract would likely be declared void, as defamation is unlawful (though it is a civil wrong, not a criminal wrong).

Unconscionable contracts will be declared void by a court of law, and are therefore unenforceable.

So, what is an unconscionable contract?

An unconscionable contract is essentially a contract that is so unfair and one-sided that it would be a serious injustice for the law to allow the contract to be enforced. Generally, this unfairness is not tied to the mere “business” of the contract itself (for example, a contract that requires a poor strategic decision by one party is not necessarily unconscionable). Instead, whether a contract is unconscionable is usually tied to questions of choice and bargaining power.

Understanding what constitutes an unconscionable contract can be a bit difficult when just reading about the theory, so let’s crack open a few examples to help illustrate the concept in more practical terms.

Suppose, for example, that someone approaches you with a contract that you’re not particularly interested in signing. Instead of simply asking you if you’d like to enter into a contract, however, the person threatens you with violence if you do not relent. The addition of a threat — whether physical, economic, or psychological — constitutes “duress” and thus makes the contract, even if signed and executed, void and unenforceable.

Alternatively, imagine that you are in the hospital recovering from a serious illness when your doctor approaches you with a contract to sign. The doctor heard that you run a small restaurant and would like to enter into an agreement for the sale of goods to your restaurant. The circumstances are quite odd, clearly, and the doctor’s actions likely constitute “undue influence” given your vulnerable state. If you are put in a position of vulnerability where a person can exercise unreasonable pressure to get you to enter into the contract, then the contract is most likely unconscionable and therefore void and unenforceable under the law.

Generally speaking, American contract law allows parties a great deal of freedom to enter into highly customized agreements with one another, and in fact, the ability to freely structure a contract is so extensive that there are literally an infinite number of permutations.

Though incredible contractual flexibility is afforded by the law, this flexibility is not uncontrolled or unlimited. Each and every state imposes specific limits to prevent the creation of contracts that are fundamentally abusive, illegal, or that otherwise run contrary to public policy. To put it in simpler terms: depending on the circumstances and/or nature of the contract itself, some contracts are prohibited by law.

If you’re interested in drafting and executing a contract, you’ll want to make absolutely sure that your contract is actually enforceable under the law. An illegal or otherwise prohibited contract will not be enforceable by any legal mechanism — it will be void on its face. Avoid them!

Let’s take a look at a few important contract prohibitions that are uniformly imposed by jurisdictions across the United States. By understanding the legal limits of contract in the United States, you’ll be better prepared to draft and execute an enforceable agreement.