LENB Chapter 16

Statutory regulation of contracts-

Statutory regulation of contracts- to establish uniformity or to protect one of the parties to a contract, statues frequently provide that contracts of a given class must follow a statutory model or must contain specific provisions.

Agreements affecting public welfare-

Agreements affecting public welfare- agreements that may harm the public welfare are condemned as contrary to public policy and are not binding. Agreements that interfere with public service or the duties or public officials, obstruct legal process, or discriminate against classifications of individuals may be considered detrimental to public welfare and as such, are not enforceable.

Agreements not to complete

Agreements not to complete- in the absence of a valid restrictive covenant, the seller of a business may compete with the buyer, or an ex employee may solicit customers of the former employer. A noncompetition covenant may be held invalid because of vagueness concerning the duration and geographic area of the restriction.

An agreement is illegal either when its....

An agreement is illegal either when its formation or performance is a crime or a tort or when it is contrary to public policy.

Contract of adhesion

Contract of adhesion- contract offered by a dominant party to a party with inferior bargaining power on a take to leave it basis

Contracts in restraint of trade

Contracts in restraint of trade- an agreement that unreasonably restrains trade is illegal and void on the ground that it is contrary to public policy. Such agreements take many forms, such as a combination to create a monopoly or to obtain a corner on the market or an association of merchants to increase prices. In addition to the illegality of the agreement based on general principles of law, statutes frequently declare monopolies illegal and subject the parties to various civil and criminal penalties.

Crimes and civil wrongs-

Crimes and civil wrongs- an agreement is illegal, and therefore void, when it calls for the commission of any act that constitutes a crime. To illustrate, one cannot enforce an agreement by which the other party is to commit an assault, steal property, burn a house or kill a person. A contract to obtain equipment for committing a crime is illegal and cannot be enforced. Thus, a contract to manufacture and sell illegal slot machines is void. An agreement that calls for the commission of a civil wrong is also illegal and void. Examples are agreements to slander a third person, defraud another, and infringe another's patent, trademark or copyright.

Determination of unconscionablility

Determination of unconscionablility- some jurisdictions analyze unconscionablility as having two separate elements: procedural and substantive. Both elements must be present for a court to refuse to enforce a contract provision.

Effect of illegality

Effect of illegality - ordinarily, an illegal agreement is void. When an agreement is illegal, the parties are usually not entitled to the aid of the courts. If the illegal agreement has not been performed, neither party can sue the other to obtain performance or damages. If the agreement has been performed, neither party can sue the other to obtain damages or to se the agreement aside. Even if a contract appears to be legal on its face, it may be unenforceable if it was entered into for an illegal purpose.

Effect of individuality

Effect of individuality- when a restriction of competition agreed to by the parties is invalid because its scope as to time or geographic area is too great, how does this affect a contract? Some courts trim the restrictive covenant down to a scope they deem reasonable and require the parties to abide by that revision. Other courts refuse to apply the blue pencil rule and hold that the restrictive covenant is void or that the entire contract is void. There is also authority that a court should refuse to apply the blue pencil rule when the restrictive covenant is manifestly unfair and would virtually keep the employee from earning a living.

Effect of violation

Effect of violation - whether an agreement made in connection with business constructed in violation of the law is binding or void depends on how strongly opposed the public policy is to the prohibited act. Some courts take the view that the agreement is not void unless the statue expressly specifies this. In some instances, a statute expressly preserves the validity of the contract.

Employment contract

Employment contract- restrictions to prevent competition by a former employer are held valid when reasonable and necessary to protect the interest of the former employer. Public policy requires that noncompeting covenants be strictly constructed in favor of freedom of action of the employee. A restrictive covenant is not binding when it places a restriction on the employee that is broader than reasonably necessary to protect the employer.

Gambling, wagers and lotteries

Gambling, wagers and lotteries- gambling contracts are illegal. In many states public lotteries have been legalized by stature. Raffles are usually regarded as lotteries. An activity is not gambling when the result is solely a matter of skill. It is gambling when the result it solely a matter of luck.

Good faith and fairness

Good faith and fairness- every contract has an implied obligation that neither party shall do anything that will the effect of destroying or injuring the right of the other party to receive the fruits of the contract. This means that in every contract there exists an implied covenant of good faith and fair dealing.

Good faith

Good faith- absence of knowledge of any defects or problems

In pari delicto

In pari delicto- equally guilty; used in reference to a transaction as to which relief will not be granted to either party because both are equally guilty of wrongdoing.

Licensed callings or dealings

Licensed callings or dealings- statutes frequently require that a person obtain a license, certificate, or diploma before practicing certain professions, such as law and medicine. A license may also be required before carrying on a particular business or trade, such as that of a real estate broker, stockbroker, hotelkeeper or pawnbroker.

Lottery

Lottery- any plan by which a consideration is given for a chance to win a prize; it consist of three elements (1) there must be a payment of money or something of value for an opportunity to win (2) a prize must be available (3) the prize must be offered by lot or chance.

Partial illegality

Partial illegality - an agreement may involve the performance of several promises, some of which are illegal and some legal. The legal parts of the agreement may be enforced provided that they can be separated from the parts that are illegal. When the illegal provision of a contract may be ignoring without defeating the contracts basic purpose, a court will merely ignore the illegal provision and enforce the balance of the contract. If a contract is susceptible to two interpretations, one legal and the other illegal, the court will assume that the legal meaning was intended unless the contrary is clearly indicated.

Procedural unconscionablility

Procedural unconscionablility- has to do with maters of freedom of assent resulting from inequality of bargaining power and the absence of real regulations and meaningful choices or a surprise resulting from hiding a disputed term in an unduly long document or fine print.

Protection of one party

Protection of one party- when the law that the agreement violates is intended to protect one of the parties, that party may seek relief.

Public policy

Public policy- certain objectives relating to health, morals, and integrity of government that the law seeks to advance by declaring invalid any contract that conflicts with those objectives even though there is not statute expressly declaring such a contract illegal.

Sale of business

Sale of business- when a going business is sold, it is commonly states in the contract that the seller shall not go into the same or a similar business again within a certain geographic area or for a certain period of time, or both. To modern courts, the question is whether, under the circumstances, the restriction imposed on one party is reasonably necessary to protect the other party. If the restriction is reasonable, it is valid and enforceable.

Substantive unconscionablility-

Substantive unconscionablility- focuses on the actual terms of the contract itself. Such unconscionablility is indicated when the contract terms are so one sided as to shock the conscience or are so extreme as to appear unconscionable according to the mores and business practices of the time and place.

Unconscionable clauses

Unconscionable clauses- ordinarily, a court will not consider whether a contract is fair or unfair, is wise or foolish, or operates unequally between the parties. However, in certain unusual situations, the law may hold a contract provision unenforceable because it is too harsh or oppressive to one of the parties. This principle may be applied to invalidate a clause providing for the payment by one party of an excessive penalty on the breaking of a contract or a provision inserted by the dominant party that it should not be liable for the consequences of intentional torts, fraud, or gross negligence.

Unequal guilt

Unequal guilt- when the parties are not in pari delicto- equally guilty- the least guilty party is granted relief when public interest is advanced by doing so.

Usury

Usury- lending money at an interest rate that is higher than the maximum rate allowed by law.

What constitutes unconscionablility?

What constitutes unconscionablility? A provision in a contract that gives what the court believes is too much of an advantage over a buyer may be held void as unconscionable.