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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.

Based on the number of requests, we’ve updated our system to provide an individual email alert each time a contract receives a signature. This feature is now part of our core product offering. Thanks to those users who submitted it as a feature request – we appreciate your feedback!

The validity of a contract depends on a number of different factors, including but not limited to the competency and capacity of each party to enter into the contract.  Though the details of the law differs between jurisdictions, fundamentally, contracts are rendered void or voidable in the event that a party was not competent to contract in the first place.

 

At SignatureConfirm, users such as yourself have the opportunity to prepare, execute, and share contracts with the relevant contracting parties.  Before you attempt to enter into a contract, however, it’s critical that you understand the limitations of contracting with a person who may not be fully competent.

 

Legal Competency

 

Under the law of most states, a party is deemed legally competent to enter into a contract with another party (or parties) if and only if the party fully understands the nature and consequences of the agreement.  If a court of law finds that one or more contracting parties failed to understand the nature and consequences of the agreement, then they may be adjudged as having lacked the mental competency (alternatively, the mental “capacity”) necessary to form a valid, binding contract.

 

Whether a party understands the nature and consequences of an agreement depends on a number of different factors, including but not limited to the party’s: a) age; b) experience; c) mental health; d) intoxication; and e) relationship to the other contracting parties.

 

Age

 

Contracting parties who are legal minors are deemed inherently unable to fully understand the nature and consequences of an agreement and to negotiate the terms of said agreement on equal standing with adults.  Minors may void a contract at any point.

 

Experience

 

If one party is experienced in a particular industry, and another isn’t, then a contract for which negotiation of the terms is highly dependent on experience in the industry may be unfair.  For example, suppose that there is a contract for the sale of goods to a medical supply company.  One of the parties has no experience in the medical supply industry and therefore does not understand the unique expectations, customs, etc. of the industry.  If these factors were important to the contract itself, then the party lacking experience may be deemed incompetent.

 

Mental Health

 

Parties with significant mental health issues that prevent them from appreciating or understanding the nature and consequences of an agreement will be deemed legally incompetent for the purposes of the contract.

 

Mental health issues run the gamut, from bipolar disorder (i.e., a party might enter into a contract while having a high-energy manic episode), to autism, to severe depression, among many other possibilities.  Generally speaking, if you are concerned about one or more of the other parties having mental health issues that could affect their ability to fully comprehend the nature and consequences of the agreement, either avoid entering into a contract or take the time to help the parties understand — if possible, consult with an attorney for additional guidance.

 

Intoxication

 

Intoxication can seriously affect the determination of legal competency.  In most jurisdictions, an intoxicated person who enters into a contract can void the contract at their discretion — there is, however, a requirement that the other party knew or should have known about the legal capacity-affecting intoxication at the time that the contract was signed and executed.

 

It’s worth noting that juries do not frequently support the side of the intoxicated party.  To succeed, the intoxicated party will most likely have to demonstrate to the court that the other party too advantage of them while they were intoxicated.  It is not usually enough for there to have been an intoxicated party — the advantage must be pressed.

 

Bear in mind that intoxication does not always involve alcohol or other recreational drugs.  A person who is rendered intoxicated by virtue of their pharmaceutical intake, for example, may be deemed legally incompetent to contract during certain periods of the day.

 

Relationship to Contracting Parties

 

Special relationships between contracting parties can lead to a situation wherein one of the contracting parties is deemed to lack the legal capacity to contract — this is particularly common when the special relationship involves one party who is vulnerable to manipulation.

 

Suppose, for example, a senior in a nursing home may enter into a contract with their attending nurse.  The contract guarantees that the attending nurse will receive all of the estate distributions of the senior.  In most states, this type of contract would be suspect due to the potential for abuse.  The relationship — and the special vulnerability of the senior in such circumstances — leads to legal incompetency for the purposes of the contract.

 

Other special relationships that may lead to a determination of legal incapacity include teacher-student relationships, doctor-patient relationships, and more — though these situations depend a great deal on particular circumstances and whether the relationship exposed a vulnerable party to potential manipulation.

 

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if you’re planning to enter into a contract with other parties, it’s important to understand the limits of your agreement.  Depending on the circumstances surrounding the contract — more specifically, depending on whether you or one of the other parties could be adjudged legally incompetent pursuant to the law of the applicable jurisdiction — the contract may be rendered void or voidable.

Modifying Your Contract

 

Contracts do not always remain consistent with the actual desires of each party over the term of the contract.  Circumstances change, and projections confidently made at the time of contract execution may reveal themselves to have been significantly off-base.  In some cases, you may have executed a contract in a rush, without considering all the implications – had you been properly informed of your rights and responsibilities under the contract, perhaps you would have negotiated different terms.

 

Contract modification is an all-encompassing term and covers minor and major modifications, as well as waiver/consent agreements that excuse pre-existing duties under the original contract.

 

All states let you modify a contract after it has been executed.  Contracts are meant to be flexible tools for parties to use to reach an agreement (and to enforce the terms of said agreement).  Though various legal protections are built-in to contract law to discourage manipulation, oppression, or fraud by any party, these protections do not necessarily prevent modification of an existing contract, so long as the parties unanimously consent to the modification.

 

As contract modification is a rather broad issue, let’s go ahead and tackle some of the basics first.

 

Partially-Performed Duties

 

If you or any party to the contract has partially performed their duties under the pre-existing contract, then it can be a bit more complicated to properly modify the contract without opening the door to potential conflict down the line.  To ensure that everything goes smoothly, be highly communicative in your dealings with the other contracting parties.

 

As you draft the modifications, carefully assess the duties already performed under the existing contract, and whether such performance will receive due consideration.  Similarly, if a modification will affect pre-existing duties (i.e., if it will heighten or reduce a party’s responsibility), then it may be necessary to revisit the compensation scheme to ensure that fairness is preserved.

 

Confused?  Consider the following.

 

Suppose that you are a craft hobbyist and occasionally take bulk orders for clients over the internet.  You received an order for a shipment of hand-crafted toys from one client.  Before the delivery date, however, the client requests a modification of the original contract terms.  In the original contract, you agreed to use a certain type of wood for the toys.  The client changed their mind, however, and would like to use a different type of wood.  You agree to the request, and thus, the contract must be modified to reflect this new agreement.

 

The situation is likely to be complicated if enough time has passed since the original contract was executed, however.  Perhaps you already purchased a supply of the original wood type.  Perhaps you even built some of the toys using that wood.  Your contract modification must therefore take into account your efforts and expenditures.  If possible, the modified contract should compensate you for supplies already purchased and toys already crafted.

 

Minor and Major Modifications

 

Contracts are highly flexible, and as such, there are a range of modifications that can be made, both minor and major.

 

Generally speaking, a contract assigns each party certain duties.  If the intended modification simply means to excuse an existing duty or permit certain acts that were otherwise prohibited under the contract, then you do not have to directly modify the existing contract.  Instead, you can execute a separate waiver or consent that references the existing contract.

 

Suppose, for example, that you have a contract for the provision of IT services to a small business client.  The contract contains a boilerplate confidentiality provision that prevents you from revealing the fact of your service engagement to a third-party.  As a freelance IT service provider, however, it would help you if you could reveal to potential clients that you worked with this particular business.

 

After some negotiation, the client agrees to waive the confidentiality provision, but only in a limited manner.  You can reveal that you performed IT services for the client to potential clients only, in a private setting.  You cannot reveal the service engagement on a public forum.  Rather than modifying the existing contract, you and the client would simply execute a separate consent or waiver that clearly states the specific constraints of the consent or waiver.

 

Both minor and major changes can lead to a contract amendment, which is the direct modification of the existing contract.  A contract amendment can be implemented in various ways.

 

Some parties prefer to strikethrough the original contract language and make “bubble” additions where necessary.  This is fine for minor modifications, but can become quite sloppy when the modifications are more significant.  Others prefer to write a full replacement section, where certain modified provisions are rewritten.  So long as the modification language is distinct, clear, and readable, there should not be an issue with enforcement.

 

Modifications Are Subject to the Same Law

 

Contract modifications must satisfy the same legal requirements as a written-from-scratch contract.  The legal requirements are not “relaxed” by virtue of the modification being minor.  An enforceable modification necessarily integrates with the original contract, and as such, is subject to the same laws.

 

A contract modification must therefore be signed by all parties, each party must be properly informed of their modified rights and responsibilities, each party must be capable of legally entering into a contract (i.e., a contracting party cannot be manipulated or otherwise forced into executing the modification) and the modification must not result in a contract with an illegal purpose, among many other default contract requirements.

If you’re a freelancer – or if you’re interested in hiring a freelance worker for some contract work – you may feel somewhat overwhelmed by the prospect of drafting and executing a contract that fully encapsulates all the material terms.

 

Do bear in mind that while you may be able to setup a workable oral contract (so long as the agreement does not require the provision of services for a length of time greater than a year), it is not recommended.  Written contracts provide both parties with shared, foundational understanding of the terms, and serve as evidence in the event of a dispute.

 

As you begin the process of drafting and executing a freelance work contract, there are several different provisions worth keeping in mind to ensure that your interests are protected.  What provisions you choose to include in your contract (and thus give legitimacy to) are subject to the agreement of all involved parties.

 

Consider the following.

 

Setting an Hours Maximum and Deadline

Having an explicit deadline is important for many projects, from the perspective of both the freelancer and the hiring client.  A deadline protects the client, as it ensures that the work will be completed in a time-sensitive manner, and if not, then the client is legally entitled to recover damages based on the resultant breach of contract.  It also protects the freelancer, as it ensures that the freelancer has an anchor with which to resist excessive scope creep and various organizational issues from the client-side.

 

Suppose, for example, that a freelancer has signed onto a project that will take 2 months to complete.  The project requires that the client regularly email certain internal details to the freelancer.  As the contract begins, however, the client fails to open the lines of communication.  The client falls behind and does not regularly relay the necessary details to the freelancer.  In such circumstances, the freelancer can breach the deadline provision, as the client has not done their part.

 

Deadlines are not limiting, though they may appear to be at first glance.  If a deadline must later be changed due to various factors, it can be altered without issue.  Contracts can be modified as circumstances change.

 

Payment Details

Neither clients nor freelancers should accept a wait-and-see approach to payment.  Payment details should be explicitly written into the service contract: pricing, invoice scheduling, and more.  To prevent late payments, some freelancers choose to integrate late fee provisions into their contracts.  This is a fairly common protection – and highly recommended – though most freelancers also give their clients a grace period before the fee is levied.

 

Revision Handling

Revisions to the work-product may be necessary, no matter what type of project the contract governs.  Though many clients are reasonable and will not demand excessive revision of completed work, there will occasionally be very picky – and thus costly – clients.  Freelancers can protect themselves by limiting the number of total revisions allowed, or by charging for additional revisions (perhaps after one or two free revisions).

 

Limiting the Scope of a Project

The client-freelance relationship is unusually vulnerable to the expansion of the original scope agreed to by both parties.  Often, once a freelancer has started to submit work for a client, the client may begin to develop additional ideas regarding the project.  These ideas may expand the original scope of the project, of course, and may require additional time and effort.  Freelancers who have already invested into the relationship may end up feeling squeezed – they would like to continue working with a client, but would also like to avoid doing additional work “for free.”

 

To avoid this situation (and the difficult position that scope expansion requests puts a freelancer in), it is best to clearly define the scope of the project in the contract itself.  The contract can include language indicating that any expansion of scope must be met with a corresponding re-negotiation of the existing payment/scheduling scheme.

 

Confidentiality Provision

Incorporating a confidentiality clause into the freelance service contract is extremely important for clients with valuable technology or processes (or for clients who are working on marketing projects or products whose existence they intend to hide from competitors).  Freelancers – especially those with a particular specialization or focus on the client’s industry –  are likely to work with competitors at some point.  If a freelancer is given access to private technology or processes, then this information could be disclosed to competitors (unintentionally or intentionally), thus hurting the client’s business.

 

To prevent information leakage, you can either incorporate a confidentiality clause into the existing service contract, or draft a separate contract known as a non-disclosure agreement (NDA).  The NDA makes clear that the freelancer Confidential Information – related to the project, technology, processes, and any other covered information – is protected.  Generally, NDAs (and confidentiality clauses) also include indemnification language that requires the freelancer to pay for the losses or expenses suffered by the client as a result of a the disclosure of Confidential Information.

 

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SignatureConfirm provides both freelancers and their clients the tools necessary to draft and execute a comprehensive service contract.  Each party is empowered to enter into a digital contract that has the same effect under the law as a paper contract.  The laws of every state give full legal force to digital contracts.

When including an arbitration clause in a contract, try to be as explicit and specific as possible. At the very least, your arbitration clause should include whether the arbitration is to be binding or non-binding, the jurisdiction (i.e., state or country) under which the arbitration will be conducted, and information regarding confirmation of an arbitration decision/award.

Standardized, form arbitration clauses will be sufficient for most contracts – and can be modified to suit the particular circumstances of your contract – but if you believe that you will require a more complex arbitration clause, it is recommended that you seek the counsel of a qualified attorney.

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Arbitration is an effective, alternative means for resolving contract disputes that avoids the inefficiencies, expense, and frustrations commonly associated with the traditional litigation process. To make use of either binding or non-binding arbitration, just include a proper arbitration clause in your SignatureConfirm contract – do discuss this decision with the other contracting parties to ensure that arbitration is acceptable to all parties.

An arbitration clause covers only those claims arising from or related to the content of the contract itself. An arbitration clause in a contract governing home renovation, for example, would likely not apply to potential personal injury claims between the contracting parties.

For those claims covered by the arbitration clause, there are a number of benefits afforded by arbitration. Arbitration is generally fast, cheap, low conflict, and flexible as compared to traditional litigation. For those with privacy concerns, arbitration is far superior to traditional litigation. Arbitration is a private matter, and the content of an arbitration is also deemed private (and parties typically sign a confidentiality agreement). With court litigation, on the other hand, the content of the lawsuit may be accessible to the public.

Contracting parties may also feel that having an informed, neutral arbitrator is better than having an uninformed judge. If the contract is related to a specific industry, technology, or service, the parties select an arbitrator with experience in such matters.