Chapter 13 - Illegal Bargains

Johnson and Wilson were the principal shareholders in Matthew Corporation, located in the city of Jonesville, Wisconsin. This corporation was engaged in the business of manufacturing paper novelties, which were sold over a wide area in the Midwest. The corporation was also in the business of binding books. Johnson purchased Wilson's shares of the Matthew Corporation and, in consideration thereof, Wilson agreed that for a period of two years he would not (a) manufacture or sell in Wisconsin any paper novelties of any kind that would compete with those sold by the Matthew Corporation or (b) engage in the bookbinding business in the city of Jonesville. Discuss the validity and effect, if any, of this agreement.

Common Law Restraint of Trade. (a) The agreement to refrain from doing business in the State of Wisconsin was no more than necessary to prevent competition upon the part of Wilson. The restraints as to both time and territory are reasonable. See Restatement, Second, Sections 186 and 188. The view has been taken, however, in some cases that agreements to refrain from doing business in an entire state, even though no more than necessary to prevent competition, are invalid and unenforceable for the reason that it is against the policy of the state that the people of the whole state should be deprived of the industry and skill of a person in an employment useful to the public, or that such person should be compelled either to engage in another business or move from the state and cease to be a citizen thereof. (b) Even if contracts in general restraint of trade are deemed void, as being contrary to public policy, contracts in partial restraint of trade are valid if the restraint imposed is reasonable both as to time and as to limits of the area in which such restraint is imposed. Agreements not to engage in a particular business within a city for a period of two years have generally been held to be valid and enforceable. The second portion of Wilson's agreement would be binding upon him.

Charles Leigh, engaged in the industrial laundry business in Central City, employed Tim Close, previously employed in the home laundry business, as a route salesperson. Leigh rents linens and industrial uniforms to commercial customers; the soiled linens and uniforms are picked up at regular intervals by the route drivers and replaced with clean ones. Every employee is assigned a list of customers whom she services. The contract of employment stated that in consideration of being employed, on termination of his employment, Close would not "directly or indirectly engage in the linen supply business or any competitive business within Central City, Illinois, for a period of one year from the date when his employment under this contract ceases." On May 10 of the following year, Close's employment was terminated by Leigh for valid reasons. Close then accepted employment with Ajax Linen Service, a direct competitor of Leigh in Central City. He began soliciting former customers he had called on for Leigh and obtained some of them as customers for Ajax. Will Leigh be able to enforce the provisions of the contract?

Common Law Restraint of Trade. Leigh is entitled to the relief sought. Close was permitted, under the contract, to engage in the home laundry business in which he was previously employed before entering Leigh's employment. He was not being deprived of this means of earning a living. The restriction was held to be reasonable in that it was only for one year and applied only to laundry business with commercial customers. In Bailey v. King, 398 S.W. 2d 906, the court stated: "To say that this contract was unreasonable would actually have the effect of saying that no employment agreement in the laundry or linen supply business could be upheld * * *." "Whether a provision in an employment contract restraining an employee from competing with his employer after termination of employment is reasonable and thus valid is a matter to be determined under the particular circumstances involved." "Numerous cases support the enforceability or protective covenants where the consideration is based simply upon employment." In accord: Restatement,2nd, Contracts, Sect 188. The breach of a covenant not to compete is, of course, of a continuing nature, and an action for damages, is hardly adequate, mainly because of the extreme difficulty in determining the amount of damage caused by a loss of business. It appears that the only realistic relief for a breach of this type of contract is by injunction. One further question which may be discussed is whether the fact that Close was terminated by Leigh should alter the result. The facts only state that Close was discharged for valid reasons and thus the equities involved are not known.

Michael is interested in promoting the passage of a bill in the State legislature. He agrees with Christy, an attorney, to pay Christy for her services in drawing the required bill, procuring its introduction in the legislature, and making an argument for its passage before the legislative committee to which it will be referred. Christy renders these services. Subsequently, upon Michael's refusal to pay her, Christy sues Michael for damage for breach of contract. Will Christy prevail? Explain.

Corrupting Public Officials. Yes. Decision in favor of Christy. There is nothing in the agreement which offends public policy. It is perfectly legitimate for a citizen to seek to have a bill introduced in the legislature and to promote its passage. Here, Christy merely agreed to engage in what she considered services for procuring the legislation desired. The services were legal in nature and Christy is entitled to remuneration from Michael.

Albert Bennett, an amateur cyclist, participated in a bicycle race conducted by the United States Cycling Federation. During the race, Bennett was hit by an automobile. He claims that employees of the Federation improperly allowed the car onto the course. The Federation claims that it cannot be held liable to Bennett because Bennett signed a release exculpating the Federation from responsibility for any personal injury resulting from his participation in the race. Is the exculpatory clause effective?

Exculpatory Clause. Judgment for Bennett; the clause in not effective. A valid exculpatory clause must be clear, explicit, unambiguous and comprehensible to both of the parties. The terms of the agreement also must apply to the specific misconduct of the defendant. In this case, Bennett waived the right to sue based on foreseeable misconduct on the part of the Federation. He did not, however, waive the Federation's liability for actions deviating from normal race procedures, including the presence of automobiles on the course. Bennett v. United States Cycling Federation, 193 Cal. App. 3d 1485, 239 Cal. Rptr. 55 (1987).

Anthony promises to pay McCarthy $10,000 if McCarthy reveals to the public that Washington is a Communist. Washington is not a Communist and never has been. McCarthy successfully persuades the media to report that Washington is a Communist and now seeks to recover the $10,000 from Anthony, who refuses to pay. McCarthy initiates a lawsuit against Anthony. What result?

Violation of Public Policy: Tortious Conduct. Decision for Anthony. The promise is unenforceable on grounds of public policy. A promise to commit, or induce commission of, a tort is unenforceable. Restatement, Second, Contracts, Section 192. In this case the tort is defamation and both parties would be liable to Washington. Although McCarthy cannot recover the money from Anthony, that doesn't leave Anthony in the clear. Both Anthony and McCarthy may find themselves in trouble for inducing commission of a tort under these facts.

The Dear Corporation was engaged in the business of making and selling harvesting machines. It sold everything pertaining to its business to the ABC Company, agreeing "not again to go into the manufacture of harvesting machines anywhere in the United States." The Dear Corporation, which had a national and international goodwill in its business, now begins the manufacture of such machines contrary to its agreement. Should the court enjoin it?

Common Law Restraint of Trade. The question is whether the restraint is reasonable and therefore binding upon Dear Corporation. Since Dear Corp. sells harvesting machines throughout the country, the nationwide restraint arguably amounted merely to reasonable protection to the purchaser of the business, the ABC Company. The purchaser of a business may protect the good will by exacting a restrictive covenant that is reasonable with respect to the area within which it operates. The controlling fact that determines the reasonableness of the area is the territorial extent of the business of the purchased company. Restatement, Second, Contracts, Section 188. A more serious problem to the validity of the restraint is the fact that the covenant is not limited as to its duration, but lasts into perpetuity. Thus, the covenant is of dubious validity. An argument that can be raised in favor of its validity is the fact that it prohibits the manufacture but not the sale of machines in the United States.

16. Robert McCart owned and operated an H&R Block tax preparation franchise. When Robert became a district manager for H&R Block, he was not allowed to continue operating a franchise. So, in accordance with company policy, he signed over his franchise to his wife June. June signed the new franchise agreement, which included a covenant not to compete for a two-year period within a fifty-mile radius of the franchise territory should the H&R Block franchise be terminated, transferred, or otherwise disposed of. June and Robert were both aware of the terms of this agreement, but June chose to terminate her franchise agreement anyway. Shortly thereafter, June sent out letters to H&R Block customers, criticizing H&R Block's fees and informing them that she and Robert would establish their own tax preparation services at the same address as the former franchise location. Each letter included a separate letter from Robert detailing the tax services to be offered by the McCarts' new business. Should H&R Block be able to obtain an injunction against June? Against Robert?

Common Law Restraint of Trade. Yes on both injunctions. Judgment for H&R Block. A covenant in general restraint of trade is void as against public policy. However, a covenant which is clear, specific, and reasonable as to duration and geographic limitation will be enforced. Both the two-year duration and the fifty-mile radius of this covenant not to compete, in this situation, are reasonable. Nonetheless, Robert contends that since he was not a party to the new franchise agreement containing the covenant not to compete, such a restraint of trade should not apply to him. The rule, however, that a stranger to a covenant may be enjoined from aiding and assisting the covenanter in violating the covenant is supported by the overwhelming weight of authority. Robert had knowingly participated and aided June in violating her contract with H&R Block. Robert, as well as June, is therefore properly within the scope of the injunction. McCart v. H&R Block, Inc. 70 N.E.2d 756 (1984).

Henrioulle, an unemployed widower with two children, received public assistance in the form of a rent subsidy. He entered into an apartment lease agreement with Marin Ventures that provided "INDEMNIFICATION: Owner shall not be liable for any damage or injury to the tenant, or any other person, or to any property, occurring on the premises, or any part thereof, and Tenant agrees to hold Owner harmless for any claims for damages no matter how caused." Henrioulle fractured his wrist when he tripped over a rock on a common stairway in the apartment building. At the time of the accident, the landlord had been having difficulty keeping the common areas of the apartment building clean. Will the exculpatory clause effectively bar Henrioulle from recovery? Explain.

Exculpatory Clause. No. Judgment for Henrioulle. The criteria used to identify when an exculpatory clause is invalid as against public policy include whether: (1) it concerns a business of a type generally thought suitable for public regulation; (2) the party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public; (3) the party seeking exculpation is in a superior bargaining position; (4) the exculpatory clause is part of a standard adhesion contract in which the terms of the contract are put on a "take-it-or-leave-it" basis. Here, the transaction, a residential rental agreement, meets these criteria and, therefore, the exculpatory clause is invalid as contrary to public policy. Accordingly, Henrioulle is entitled to recover for his injuries. Henrioulle v. Marin Ventures, Inc., 20 Cal.3d 512, 573 P.2d 465, 143 Cal.Rptr. 247 (1978).

Adrian rents a bicycle from Barbara. The bicycle rental contract Adrian signed provides that Barbara is not liable for any injury to the renter caused by any defect in the bicycle or the negligence of Barbara. Injured when she is involved in an accident due to Barbara's improper maintenance of the bicycle, Adrian sues Barbara for her damages. Will Barbara be protected from liability by the provision in their contract?

Exculpatory Clauses. Decision for Adrian; Barbara is still liable to Adrian. Most courts would hold that this exculpatory clause is void against public policy. In deciding this question courts look at such factors as: "(1) It concerns a business of a type generally thought suitable for public regulation. (2) The party seeking exculpation is engaged in performing a service of great importance to the public which is often a matter of practical necessity for some members of the public. (3) The party holds himself out as willing to perform this service for any member of the public who seeks it, or at least any member coming within certain established standards. (4) As a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services. (5) In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional fees and obtain protection against negligence. (6) Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents." See Tunkl v. Regents of the University of California (1963) 60 Cal.2d 92, 32 Cal. Rptr. 33, 383 P. 2d 441.

On April 30, 2013, Barack and George entered into a bet on the outcome of the 2013 Kentucky Derby. On January 28, 2014, Barack, who bet on the winner, approached George, seeking to collect the $3,000 George had wagered. George paid Barack the $3,000 wager but now seeks to recover the funds from Barack. Result?

Gambling Statutes. Decision for Barack. As the wager was illegal, the contract was unenforceable on grounds of public policy. Neither party can successfully sue the other for breach nor recover for any performance rendered. So, if George had never paid, Barack would not have been able to enforce payment, but since George DID pay, he cannot force recovery either. The courts will not aid one wrongdoer by granting him restitution of a benefit conferred upon another party.

Wilkins, a Texas resident licensed by that state as a certified public accountant(CPA), rendered service in his professional capacity in Louisiana to Coverton Cosmetics Company. He was not registered as a CPA in Louisiana. His service under his contract with the cosmetics company was not the only occasion on which he had practiced his profession in that state. The company denied liability and refused to pay him, relying on a Louisiana statute declaring it unlawful for any person to perform or offer to perform services as a CPA for compensation until he has been registered by the designated agency of the state and holds an unrevoked registration card. The statute provides that a CPA certificate may be issued without examination to any applicant who holds a valid unrevoked certificate as a CPA under the laws of any other state. The statute provides further that rendering services of the kind performed by Wilkins, without registration, is a misdemeanor punishable by a fine or imprisonment in the county jail or by both fine and imprisonment. Discuss whether Wilkins would be successful in an action against Coverton seeking to recover a fee in the amount of $1,500 as the reasonable value of his services.

Licensing Statute. Decision in favor of Coverton Cosmetics Company. The statute is a regulatory measure designed to protect the public by permitting only persons with the necessary qualifications to practice accounting. The statute declares that it shall be unlawful for a person to perform services as a CPA for compensation without a license, and prescribes a penalty for its violation. Contracts for the rendition of services as a CPA by an unlicensed person are void and incapable of enforcement. Where the statute does not contain an express provision rendering void a contract entered into by one not qualified under its provisions but, as in the problem, imposes a penalty for its violation, it is generally held that the penalty implies the prohibition. Restatement, Second, Contracts, Section 181.

Tovar applied for the position of resident physician in Paxton Community Memorial Hospital. The hospital examined his background and licensing and assured him that he was qualified for the position. Relying upon the hospital's promise of permanent employment, Tovar resigned from his job and began work at the hospital. He was discharged two weeks later, however, because he did not hold a license to practice medicine in Illinois as required by state law. He had taken the examination but had never passed it. Tovar claims that the hospital promised him a position of permanent employment and that by discharging him, it breached their employment contract. Discuss.

Licensing Statute. Judgment for Paxton Hospital. The purpose of the licensing statute is not to generate revenue but rather to protect the public by assuring them of adequately trained physicians. Since the purpose of the licensing requirements is to protect the public from unqualified persons, any contract relating to the licensed activity and entered into with an unlicensed person is illegal. The contact between the hospital and Tovar was illegal, and therefore is unenforceable as against public policy. Tovar v. Paxton Community Memorial Hospital, 29 Ill. App. 3d 218, 330 N.E.2d 247 (1975).

In February, Brady contracted to construct a house for Fulghum for $206,850. Brady began construction on March 13. Neither during the negotiation of this contract nor when he began performance was Brady licensed as a general contractor as required by North Carolina law. Brady was awarded his builder's license on October 22, having passed the examination on his second attempt. At that time, he had completed two-thirds of the work on Fulghum's house. Fulghum paid Brady $204,000. Brady brought suit, seeking an additional $2,850 on the original contract and $29,000 for "additions and changes" Fulghum requested during construction. Is Fulghum liable to Brady? Explain.

Licensing Statute. No-- Fulghum is not liable. Generally, contracts entered into by unlicensed general contractors, in violation of a statute passed for the protection of the public, are unenforceable by the contractor. Since a contractor must rely on his illegal act (contracting and working without a license) to enforce the contract, courts have held that there is no legal remedy for that which is illegal itself. Furthermore, the contract cannot be validated by the subsequent procurement of a license. Even though Brady eventually obtained his license before completing the house, he did not have one when he negotiated the contract or began construction. Also, Brady is not entitled to recover for extras, additions, or changes made pursuant to this contract. However, it must be noted that the contract is not void. Others, such as the Fulghums or subcontractors, not regulated by the licensing contract, which was passed for their own protection, do not act illegally in becoming parties to such contracts. Therefore, other parties may enforce the contract against the unlicensed contractor. Brady v. Fulghum, 308 S.E.2d 327 (N.C. 1983).

Universal City Studios, Inc. (Universal) entered into a general contract with Turner Construction Company (Turner) for the construction of the Jurassic Park ride. Turner entered into a subcontract with Pacific Custom Pools, Inc. (PCP), for PCP to furnish and install all water treatment work for the project for the contract price of $959,131. PCP performed work on the project from April 2011 until June 2012 for which it was paid $897,719. PCP's contractor's license, however, was under suspension from October 12, 2011, to March 14, 2012. In addition, PCP's license had expired as of January 31, 2011, and it was not renewed until May 5, 2012. California Business and Professions Code Section 7031 provides that no contractor may bring an action to recover compensation for the performance of any work requiring a license unless he or she was "a duly licensed contractor at all times during the performance of that [work], regardless of the merits of the cause of action brought by the contractor." The purpose of this licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. PCP brought suit against Universal and Turner, the defendants, for the remainder of the contract price. Explain who should prevail.

Licensing Statute. Universal and Turner should prevail. As a general rule, the failure to comply with a regulatory license prevents the noncomplying party from recovering for services rendered if (1) the statute provides that a noncomplying agreement is unenforceable or (2) the public policy behind the regulatory purpose clearly outweighs the noncomplying party's interest in being paid for services rendered. In this case, the statute expressly provides that a noncomplying agreement is unenforceable. This problem is based on the case of Pacific Custom Pools, Inc. v. Turner Construction Company, Court of Appeal, Second District, Division 4, California, 2000, 79 Cal.App.4th 1254, 94 Cal.Rptr.2d 756, which held: California law (Section 7031) provides that a contractor may not maintain an action for the recovery of compensation for the performance of work requiring a license unless it was "a duly licensed contractor at all times during the performance of that" work. The purpose of the licensing law is to protect the public from incompetence and dishonesty in those who provide building and construction services. Section 7031 advances this purpose by withholding judicial aid from those who seek compensation for unlicensed contract work. The statutory intent is to discourage persons who have failed to comply with the licensing law from offering or providing their unlicensed services for pay. It is well settled that Section 7031 applies despite injustice to the unlicensed contractor. An exception may be made if the contractor proves that it had been licensed before performing work, acted reasonably in trying to maintain a license, and did not know or reasonably should not have known that it was not licensed. Such a case might occur where noncompliance with licensure requirements was the result of inadvertent clerical error or other error or delay not caused by the negligence of the licensee. In this case, however, (1) PCP was aware in November 1995 that its license was suspended for failure to file a judgment bond and that the deadline date for license renewal was January 31, 1996; (2) PCP knew shortly after February 23, 1996, that a renewal application sent in February 1996 was untimely; and (3) PCP was advised on April 22, 1996, that its license had not been renewed because PCP's filing fee check had been dishonored. The court found under these facts that PCP did not act reasonably or in good faith to maintain its license. Pacific Custom Pools, Inc. v. Turner Construction Company, Court of Appeal, Second District, Division 4, California, 2000, 79 Cal.App.4th 1254, 94 Cal.Rptr.2d 756]

Emily was a Java programmer employed with Sun Microsystems in Palo Alto, California. Upon beginning employment, Emily signed a contract which included a noncompetition clause that prevented her from taking another Java programming position with any of five companies Sun listed as "direct competitors" within three months of terminating her employment. Later that year Emily resigned and two months later accepted a position with Hewlett-Packard (HP) in Houston, Texas. HP was listed in Emily's contract as a "direct competitor," but she argues that due to the significant geographic distance between both jobs, the contract is not enforceable. Explain whether the contract is enforceable.

Noncompete clause/Employment Relationship. In National Business Services, Inc. v. Wright, courts determined that geographic location is not a factor when considering Internet-related non-compete clauses. The three-month non-compete time also appears reasonable. If Sun can show that it acted reasonably to protect its interest it will prevail. Nevertheless, it may be very difficult to show how Emily going to work for HP can injure them.

Michelle Marvin and actor Lee Marvin began living together, holding themselves out to the general public as man and wife without actually being married. The two orally agreed that while they lived together they would share equally any and all property and earnings accumulated as a result of their individual and combined efforts. In addition, Michelle promised to render her services as "companion, homemaker, housekeeper and cook" to Lee. Shortly thereafter, she gave up her lucrative career as an entertainer in order to devote her full time to being Lee's companion, homemaker, housekeeper, and cook. In return he agreed to provide for all of her financial support and needs for the rest of her life. After living together for six years, Lee compelled Michelle to leave his household but continued to provide for her support. One year later, however, he refused to provide further support. Michelle sued to recover support payments and half of their accumulated property. Lee contends that their agreement is so closely related to the supposed "immoral" character of their relationship that its enforcement would violate public policy. The trial court granted Lee's motion for judgment on the pleadings. Decision?

Public Policy. Judgment for Michelle Marvin. Adults who voluntarily live together and engage in sexual relations can, nonetheless, make arrangements concerning their earnings and property rights. They cannot, however, contract to pay for the performance of sexual services; such a contract is essentially an agreement for prostitution and is illegal. Here, the Marvins' agreement does not rest, explicitly or entirely, upon a promise of sexual services or any other illicit consideration. The allocation of their finances and property rights as they choose does not violate public policy. Therefore, their agreement furnishes a suitable basis upon which a trial court can render relief. Marvin v. Marvin, 18 Cal.3d 660, 557 P.2d 106 (1976).

Merrill Lynch employed Post and Maney as account executives. Both men elected to be paid a salary and to participate in the firm's pension and profit-sharing plans rather than take a straight commission. Thirteen years later, Merrill Lynch terminated the employment of both Post and Maney without cause. Both men began working for a competitor of Merrill Lynch. Merrill Lynch then informed them that all of their rights in the company-funded pension plan had been forfeited pursuant to a provision of the plan that permitted forfeiture in the event an employee directly or indirectly competed with the firm. Is Merrill Lynch correct in its assertion?

Restrictive Covenants/Employment Relationship. No, Merrill-Lynch is not correct; Judgment for Post and Maney. Employment contracts prohibiting competition create a tension between the freedom of individuals to contract and the reluctance to see one barter away his freedom. Nevertheless, the state will enforce limited restraints on an employee's employment mobility where a mutuality of obligation is freely bargained for by the parties. An essential aspect of that relationship, however, is the employer's continued willingness to employ the party while he does not compete. Where the employer terminates the employment relationship without cause, his action necessarily destroys the mutuality of obligation on which the covenant rests as well as the employer's ability to impose a forfeiture. Thus the forfeiture of the pension benefits is unreasonable as a matter of law, and Post and Maney are entitled to the benefits due. Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84, 397 N.B.2d 358, 421 N.Y.S.2d 847 (1979).

18. Richard Brobston was hired by Insulation Corporation of America (ICA) in 2003. Initially, he was hired as a territory sales manager but was promoted to national account manager in 2007 and to general manager in 2011. In 2013, ICA was planning to acquire computer-assisted design (CAD) technology to upgrade its product line. Prior to acquiring this technology, ICA required that Brobston and certain other employees sign employment contracts that contained restrictive covenants or be terminated and changed their employment status to "at will" employees. These restrictive covenants provided that in the event of Brobston's termination for any reason, Brobston would not reveal any of ICA's trade secrets or sales information and would not enter into direct competition with ICA within three hundred miles of Allentown, Pennsylvania, for a period of two years from the date of termination. The purported consideration for Brobston's agreement was a $2,000 increase in his base salary and proprietary information concerning the CAD system, customers, and pricing. Brobston signed the proffered employment contract. In October 2013, Brobston became vice president of special products, which included responsibility for sales of the CAD system products as well as other products. Over the course of the next year, Brobston failed in several respects to properly perform his employment duties and on August 13, 2014, ICA terminated Brobston's employment. In December 2014, Brobston was hired by a competitor of ICA who was aware of ICA's restrictive covenants. Can ICA enforce the employment agreement by enjoining Brobston from disclosing proprietary information about ICA and by restraining him from competing with ICA? If so, for what duration and over what geographic area?

Restrictive Covenants/Employment Relationship. Preliminary injunction affirmed to the extent it enjoins Brobston from disclosing trade secrets and reversed to the extent that it restricts Brobston from competing with ICA. In order for a "non-competition" covenant to be valid, it must relate to a contract for employment, be supported by adequate consideration and be reasonably limited in both time and territory. More specifically, where a restrictive covenant has been entered into between an employer and its employee, courts have permitted the enforcement of post-employment restraints only where they are ancillary to an employment relationship between the parties, the restrictions are reasonably necessary to protect the employer, and the restrictions are reasonably limited in duration and geographic extent. Brobston's agreement was ancillary since it was supported by new consideration in the form of the $2,000 raise and a change in employment status from "at-will" to a written year to year contract. The more salient issue in this case is whether the restrictions in Brobston's contract were reasonable. The determination of reasonableness involves the weighing of competing interests--that of the employer's need for protection--against the hardship of the restriction upon the employee. Notably, there is a significant factual distinction between the hardship imposed by the enforcement of a restrictive covenant on an employee who voluntarily leaves his employer and that imposed upon an employee who is terminated for failing to do his job. In this case, Brobston was terminated for poor performance. Where an employer determines that an employee has failed to promote the employer's legitimate business interests, it clearly suggests an implicit decision on the part of the employer that its business interests are best promoted without the employee in its service. Such a determination by an employer diminishes the employer's need to protect itself and it is unreasonable as a matter of law to permit the employer to retain unfettered control over that which it has effectively deemed worthless to its business interests. Moreover, the non-disclosure agreement in this case renders the non-competition agreement unnecessary. As the agreement states, its purpose was to protect the proprietary CAD technology. However, Brobston never actually received sufficient training to operate the CAD technology. He had access only to sales and profit margin information, the security of which is addressed adequately by the non-disclosure agreement. Therefore in this case, ICA's interests are sufficiently protected without enforcement of the non-competition agreement. Insulation Corporation of America v. Brobston, 667 A.2d 729 (1995).

Carl, a salesperson for Smith, comes to Benson's home and sells him a complete set of "gourmet cooking utensils" that are worth approximately $300. Benson, an eighty-year-old man who lives alone in a one-room efficiency apartment, signs a contract to buy the utensils for $1,450 plus a credit charge of $145 and to make payments in ten equal monthly installments. Three weeks after Carl leaves with the signed contract, Benson decides he cannot afford the cooking utensils and has no use for them. What can Benson do? Explain.

Unconscionable Contracts. Benson is not bound to his obligation. The doctrine of "unconscionability" as set forth in the UCC would probably apply here. If it did, Benson could obtain release from the obligation for that reason. Smith may have used high pressure tactics and taken advantage of Benson's malleability as evidenced by the unreasonable price agreed to by Benson. As in Williams v. Walker-Thomas Furniture Company, 350 F. 2d 445: Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power. The manner in which the contract was entered is also relevant to this consideration.

Between 2009 and 2014, Williams purchased a number of household items on credit from Walker-Thomas Furniture Co., a retail furniture store. Walker-Thomas retained the right in its contracts to repossess an item if Williams defaulted on an installment payment. Each contract also provided that each installment payment by Williams would be credited pro rata to all outstanding accounts or bills owed to Walker-Thomas. As a result of this provision, an unpaid balance would remain on every item purchased until the entire balance due on all items, whenever purchased, was paid in full. Williams defaulted on a monthly installment payment in 2014, and Walker-Thomas sought to repossess all the items that Williams had purchased since 2009. Discuss.

Unconscionable Contracts. Judgment for Williams. In general, one who signs an agreement without knowledge of its terms is bound and is held to have assumed the risk that the bargain was one-sided. But if a party with little bargaining power and, therefore, no meaningful choice enters into a commercially unreasonable contract with little or no knowledge or understanding of its terms, one cannot say that the supposed acceptance was an objective manifestation of assent to all of the terms of the contract. In cases involving allegedly unconscionable terms, the court will examine the reasonableness or fairness of the term at the time that the contract was entered into to determine whether it should be enforced. Generally, the suspect term is evaluated in light of general commercial background and the particular reason for the term's inclusion. If the term is found to be so extreme as to be unconscionable, enforcement of that term should be denied. The contract provision as to prorating each payment on all purchases whenever made is unconscionable and therefore unenforceable Williams v. Walker-Thomas Furniture Co. United States Court of Appeals, District of Columbia Circuit, 1965 350 F.2d 445

Carolyn Murphy, a welfare recipient with very limited education and with four minor children, responded to an advertisement that offered the opportunity to purchase televisions without a deposit or credit history. She entered into a rent-to-own contract for a twenty-five-inch console color television set that required seventy-eight weekly payments of $16 (a total of $1,248, which was two and one-half times the retail value of the set). Under the contract, the renter could terminate the agreement by returning the television and forfeiting any payments already made. After Murphy had paid $436 on the television, she read a newspaper article criticizing the lease plan. She stopped payment and sued the television company. In response, the television company has attempted to take possession of the set. Decision?

Usury/Unconscionability. Judgment for Murphy. The contract was unconscionable because the television company failed to inform Murphy of the true purchase price and required her to pay two and one half times the retail sales price. Murphy was lured into a contract in which she had unequal bargaining power by the company's deceptive advertising. Moreover, it is usurious to charge a consumer with unequal bargaining power an excessive price; two and one half times the retail value of an item is excessive. Murphy v. McNamara, 36 Conn. Sup. 183, 416 A. 2d 170 (1979).