Copyright © 2014 by the McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
15-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
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Transcript of 15-1 Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
15-2
3•Introduction to Contracts•The Agreement: Offer
•The Agreement: Acceptance•Consideration
•Reality of Consent
Contracts
PART
15-3
3•Capacity to Contract
•Illegality•Writing
•Rights of Third Parties•Performance and Remedies
Contracts
PART
15-4
Illegality
PA ET RHC 15
In a free society the state does not administer the affairs of men. It administers justice among men who conduct their own affairs.
Walter Lippman
15-5
Learning Objectives
• Explain the concept of illegality as it pertains to contract law
• Identify illegal agreements and discuss the effect of illegality
• Analyze effect of non-compete and exculpatory clauses
• Explain unconscionability
15-6
• An agreement will be unenforceable because of illegality if the agreement involves an act or promise that violates a law or is against public policy – Even if voluntary consent existed between
two parties with capacity to contract
• Effect: no remedy for breach of an illegal agreement
Illegality
15-7
• Sometimes government legislatures enact statutes that declare certain types of agreements unenforceable, void, or voidable
• Examples: – New law changes the limits allowed for
interest to be charged on a loan– New law prohibiting creation of a landfill
in environmentally sensitive areas
Agreements That Violate Statutes
15-8
• These agreements violate public policy:– Agreements to commit a crime– Agreements promoting an illegal purpose– Agreement to perform an act for which the
person is not properly licensed– Agreements in restraint of competition
Agreements That Violate Public Policy
15-9
• A common regulatory statute requires a person to obtain a license, permit, or registration before engaging in a certain business or profession
• If the purpose of the statute is to protect the public against dishonest or incompetent practitioners, then an agreement is unenforceable if an unlicensed person agrees to do an act that requires a license
Licensing Statutes
15-10
• If the sole purpose of an agreement is to restrain competition, it violates public policy and is illegal
• If the restraint on competition was part of an otherwise legal contract, the result may be different because the parties may have a legitimate interest to be protected by the restriction on competition
Agreements in Restraint of Competition
15-11
• Courts enforce a non-competition clause if:– It serves a legitimate business purpose, – The restriction is reasonable in time,
geographic area, and scope– It does not impose an undue hardship
• Example: Nasc Services, Inc. v. Jervis in which the clause would “create an oppressive and unfair scenario” for former employees
Non-competition clauses
15-12
• An exculpatory clause (a release or liability waiver) in a contract attempts to protect one party from liability for damages
• Exculpatory clauses may be suspect on public policy grounds, but courts will not interfere if waiver is not a threat to public health or safety– Example of a clause in contravention of
public policy: Marcinczyk v. State of New Jersey Police Training Commission
Exculpatory Clauses
15-13
• Unconscionability means the absence of meaningful choice together with terms that are unreasonably advantageous to one of the parties
Unconscionable Agreements
• Courts refuse to grant equitable remedy of specific performance for breach of contract if contract is oppressively unfair
15-14
• UCC 2–302 gives courts power to refuse to enforce all or part of a contract for the sale of goods or to modify such a contract if it is found to be unconscionable
• Example: Moore v. Woman to Woman Obstetrics & Gynecology
Unconscionable Agreements
15-15
• A contract of adhesion is a contract, usually on a standardized form, offered by a party who is in a superior bargaining position on a “take-it-or-leave-it” basis
• Courts will enforce the contracts unless the term is harsh or oppressive
Contracts of Adhesion