Illegality Chapter 15

Exculpatory Clauses

A provision in a contract that attempts to relieve one party of liability due to his own negligence is illegal.

Wagering Statutes

Agreements in violation of a state statute to prohibit or regulate gambling are illegal.

Regulatory Statutes

Agreements in violation of regulatory licensing statutes are generally unenforceable; however, agreements in violation of a revenue-raising statute are often enforceable.

Contracts Injurious to Public Service

Agreements that induce public servants to deviate from their duties are illegal.

Contracts in Restraint of Trade

Agreements whose sole purpose is to restrain trade are illegal. However, a restraint that is ancillary to a contract may be legal if it is designed to protect interests created in the contract.

Types of Illegality

An agreement is illegal if it calls for behavior that violates a statute or rule of common law.

Contracts to Influence Fiduciaries

An agreement that tends to induce a fiduciary (person in a position of trust or confidence) to breach his fiduciary duties are illegal

Agreements to Commit Crimes

Any agreement that calls for the commission of a crime is illegal.

Agreements to Commit Torts

Any agreement that calls for the commission of a tort is illegal

General Rule

Courts generally will not enforce illegal agreements but leaves the parties as it finds them. Illegality is behavior that violates a statute or a rule of common law.

A person who makes a bad deal with a car dealer for the purchase of a new car could probably argue that the contract is unconscionable.

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An agreement in violation of a revenue-raising licensing statute is almost always unenforceable.

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June forgets to renew her city license for her business. Until she renews her license, all sales made by June's business are illegal.

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Illegality

If the formation or the performance of an agreement is illegal, the contract is void.

Illegality and Divisible Contracts

If the legal parts of the contract can be separated from the illegal parts, the courts will enforce the legal parts of the contract.

Rights of Protected Parties

Parties protected by regulatory statutes may be entitled to enforce the agreement if public policy is served.

The Idea of Public Policy

Public policy is determined by a court and reflects acceptable social or economic behavior

Ignorance of Fact or Special Regulation

Sometimes a court will permit recovery if the parties are ignorant of the facts.

Despite the "hands off" rule, in cases where a person whom a statute seeks to protect enters into an agreement in violation of the statute, the protected person is permitted to enforce the agreement

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Employee agreements not to compete are usually judged by a stricter standard than agreements for the sale of a business

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Exculpatory clauses that seek to avoid liability for willful misconduct are unenforceable.

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Illegal contracts are generally unenforceable.

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In some cases, a party who rescinds a contract before any illegal act has been performed will be allowed to recover the consideration he has given to the other party pursuant to the contract

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The legal parts of a divisible contract are enforceable.

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When a contract is illegal, courts usually will not allow even a quasi-contractual recovery

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Rescission Before Performance of Illegal Act

To encourage people to cancel illegal agreements, the courts allow one who rescinds the contract before any illegal act has been performed to recover any consideration given.

The Code and Unconscionable Contracts

UCC 2-302 is the UCC provision on unconscionability; the Restatement has adopted a similar approach

Unequal Bargains

Under this doctrine, a court may refuse to enforce a contract or contract clause it finds to be "unconscionable."

The Presumption of Legality

Unless the parties clearly intended an illegal bargain, the courts presume the parties intended a legal result.

Statutes Declaring Bargains Void or Voidable

Usury laws prohibit charging more that a stated amount of interest for the use of money. Sunday laws (Blue Laws) prohibit the performance of certain work and business transactions on Sunday.