What are the limitations to legally binding contracts?

For instance, can you construct a legal contract that asks a person to swear they are telling the truth, and if it is they are discovered to be lying they must forfeit…everything they own and pay a percentage of all future income to you?

IANAL, but it can be tried. A court would have to decide whether or not it falls under “unenforceable” or violates some law or rights–and this can vary from jurisdiction to jurisdiction.

ready2003, you are basically asking for a summary of the law of contracts, which is the subject of several multivolume treatises, a full course in the basic law-school curriculum, and uncounted judicial opinions. If you are just interested in some basic general information, then you might try the Free Advice site. If you have a specific question about an actual or contemplated contract, then you should ask a lawyer licensed in your jurisdiction.

I just referred someone else to this: http://www.booksites.net/u01_intro_…_contract01.htm

It may help answer your question as well.

Probably not, because private penalties are generally not enforceable.

As far as your bigger question goes, there are a lot of different limitations on contracts; a lot of reasons why a contract might be unenforceable. A lot of different rules apply in a lot of different situations. Hopefully the links people have provided will prove helpful.

Oh, I dunno. I’ve seen contracts that specify damages for violation of the reps and warranties. I think “everything” is probably a little non-specific for a contract, but could one of the lawyer-types be so kind to give us a quick rundown on the cans and can’ts of liquidated damages clauses?

Short summary: liquidated damages are generally allowed when it looks like they are a genuine attempt to fix damages at the time of contract formation, rather than a penalty for breach, and where actual damages will be difficult to calculate. Courts still split as to what happens when the liquidated damages looked reasonable at time of contract formation, but turn out to be wildly off, but the trend is toward enforcement even in that situation.

What Opus1 said. In every acquisition I’ve been involved with, we always added to the liquidated damages section a provision that read something like “The parties hereby agree that these liquidated damages represent a reasonable estimation of actual damages and are not a penalty.” A court could still find the amount of damages to be a penalty, but it’s a lot harder for them to justify that finding if both parties have clearly expressed an intention that the opposite conclusion be reached.

One thing that hasn’t been pointed out: a valid contract has to have an exchange of something of value. If you gave me a document to sign like:

It would not legally qualify as a contract because I am being offered nothing of value in it; for it to be a valid contract, it would need to specify that you would do something for me in return before anyone would even need to worry about whether the penalties have problems.


I am considering a contract that requires a person honestly represent their current income in exchange for financial support from a charity and possibly voting power in an organization.

I simply am wondering what our options are for having a clause which will discourage lying as much as possible, and so I was wondering what are the options.

The money isn’t the biggest issue. I don’t want to give someone voting power in our organization based upon a lie. So anyone have any idea in this case what is the worst “threat” a contract used in the US nationwide could harbor for lying?

Thanks for all the replies so far. :slight_smile:

There’s a difference between liquidated damages and penalties. The hypothetical in the OP is pretty clearly a penalty (IMHO).

Dude, I know it gets said quite often when people ask legal questions, but call a lawyer and tell him what you want to do, and pay him or her.

There are lots of different ways to do what it appears you want to do, each with its own tax and non-tax (aka unimportant law :p) consequences.

You might simply have the people sign an authorization allowing you to obtain and review their tax returns. Most people don’t seriously overstate their incomes on their tax returns.

(standard disclaimer about legal advice)

Go enroll at Harvard Law and take Professor Kingsfield’s class. He will teach you all about contracts.

IANAL. I picked all my knowledge about contracts from watching “The Paper Chase.”

This explains why IANAL.

…just wanted to check in with a group of knowledgable people before I begin any talk with a lawyer or start making up drafts…

thanks for the advice.