Chapter 14: Contracts Contrary to Statue

Uniform Commercial Code

incorporates the concept of unconscionability in its provisions with regard to the sale and lease of goods. A contract can be unconscionable oneither procedural or substantive grounds.

Covenant Not to Compete in Employment Contracts

-Sometimes, agreements not to compete are included in employment contracts. -People in the middle-or upper-level management positions commonly agree not to work for competitors or not to start competing businesses for a specified period of time after termination of employement. -Such agreements are legal in most states so long as the specified period of time is not excessive in duration and the geographic restriction is reasonable. What constitutes a reasonable time period may be shorter in the online enviorment than in conventional employment contracts because the restrictions apply wordlwide. -Must be to protect a legitimate business interest.

Covenants Not to Compete and the Sale of an Ongoing Business

Many contracts involve a type of restraint called a covenant not to compete, or a restrictivecovenant. -A covenant not to compete may be created when a seller of a store agrees not to open a new store in a certain geographic area surrounding the old business. -The agreement enables the purchaser to buy, and the seller to sell, the good will and reputation of an ongoing business without have to worry that the seller will open a competing business a block away.

Contracts Contrary To Statute

Statutes set forth rules specifing which terms and clauses may be included in contracts and which are prohibited.

Unconscionable Contracts or Clauses

-A court ordinarily does not look at the fairness or equity of a contract. Persons are assumed to be reasonably intelligent, and the courts will not cmome to their aid just ecause they have made a foolish or unwise bargain. -Some bargains are deemed unconscionable because they are so unscrupulous or grossly unfair as to be void of conscience.

Licensing Statutes(contracts contrary to civil statutes)

-All states require members of certain professions to have licenses. -Some licenses are obtained only after extensive schooling and examinations, which indicate to the public that special skill has been acquired. Others require only that the applicant be of good moral character and pay a fee. -Whether a contract with an unlicensed person is legal and enforceable depends on the purpose of the licensing statute.

Usury(contracts contrary to civil statutes)

-Almost every state has a statute that sets the maximum rate of interest that can be charged for different types of transactions, including ordinary loans. -Usury statutes place a ceiling on allowable rates of interest, but states can make exceptions to facilitate business transactions.

Contracts Contrary to Public Policy

-Although contracts involve private parties, some are not enforceable because of the negative impact they would have on society. -Examples: a contract to commit an immoral act, such as selling a child, and a contract that prohibits marriage.

Contracts in restraint of trade

-Contracts in restraint of trade usually adversely affect the public policy that favors competition in the economy. -Usually such contracts also violate one or more federal or state antitrust statutes. -An exception is recognized when the restraint is reasonable is contained in ancillary clause in a contract.

Substantive Unconcsionability

-occurs when contracts ,or portions of contracts, are oppressive or overly harsh. -Courts generally focus on provisions that deprive one party of the benfits of the agreement or leave that party without a remedy for nonperformance by the other.

Procedural Unconscionability

-often inovoles inconscpiuous print, unitelligent language, or the lack of an opportunity to read the contract or ask questions about its meaning. -This type often rises when a party's lack of knowledge or understanding of the contract terms deprived him or her of any meaningful choice. -Can often occur when there is such disparity in bargaining power between the two parties that the weaker party's consent is not voluntary. This type of situation often involves adhesion contract, which is a contract written exclusively by one party and presented to the other on take-it-or-leave-it basis.

Contracts to commit a crime( contracts with illegal purpose)

Any contract to commit a crime is in violation of statute. -Examples: contract to sell drugs is in violation of criminal laws, a contract to cover up a corporations violation of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a contract to dump hazardous waste in violation of the enviormental laws. -The object or performance of a contract is rendered illegal by a statue after the parties entered in the contract. In this situation, a contract is considered to be discharged by law.

Gambling(contracts contrary to civil statutes)

The creation of risk for the purpose of assuming it. -Any scheme that involves the distribution of property by chance among persons who have paid valuable consideration for the oppurtunity to receive the property is gambling. -Gambling that is legal: poker machines, horse races, charity stated bingo.

Enforcement Problems

The laws governing enforcebaility of covenants not to compete ary significantly from state to state. -In some states, such a covenant will not be enforced unless the employee has received some benefit in return for signing the noncompete agreement. If the employee receives no benefit, the covenant will be deemed void. -Depending on jurisdiction, courts will reform covenants not to compete. If a covenant if ound to be unreasonable in time or geographic area, the court may cover the terms into reasonable onces and than enforce the reformed covenants. -Courts usually resort to contract reformation only when necessary to prevent undue burdens or hardships.