Chapter 15- Illegal Contracts

Illegal Contracts

-Contracts that are illegal are unenforceable -3 Categories for Illegal Contracts 1) Violates a Statute 2)Contract that is illegal b/c contrary to public policy determined by courts 3) Unconscionable/adhesion

Contract that is illegal because a law says it is illegal (violates a statute)

A) Expressly violates a statute o Surrogacy contract - couple wants a child but can't conceive one, so they hire a surrogate o Is this contract enforceable? - Depends on the state - in New York it is illegal B) Violates the public policy of the statute o Straub Case • Male and female couple that is dating; she wants a baby, he does not • He is cheating on his wife with her, says he will have a baby if he doesn't have to pay for it (she said have a baby or the relationship is over) • Enter a contract that says he won't have to pay at all, but after she has the baby she wants him to pay for it, he refuses • Contract is not enforceable because it is contrary to public policy • If you are the biological parent of the child and able to financially support them you must pay for the child • Determined he had an obligation to support his child

Unconscionable Contracts (grossly unfair)

• 1) Procedural unconscionability - deals with the negotiating process, was it unfair? o High pressure sales tactics • 2) Substantive - are the terms of the contract actually unfair? o Courts usually don't care if it's unfair, but will get involved if it is a consumer contract, and if it is grossly unfair the court made say it is substantively unconscionable and in that case, is illegal Can decide three things o 1) Contract is unenforceable if even parts of it are unconscionable o 2) Split it up - some is unenforceable other parts are enforceable o 3) Can rewrite unconscionable part to make it fair and enforceable

Contract that is illegal because it is contrary to public policy as determined by the courts

• Agreement to commit a crime (contract to have you kill a coworker) • Has to do with licensing (Accountant - CPA, Doctor) - what if you're not licensed when you should be and then you enter a contract to perform those services o Is this contract illegal? - it depends on the primary purpose of the licensing law • If purpose was to protect the public then this contract will be illegal • If purpose is to raise revenue then it is legal and ok to be in violation of the statute (bar dues) • Restrictive employment covenants o Sets restrictions on what you can and can't do when you leave a company and go work somewhere else - three types • 1) Non-compete - you can't go and work for a company that is a competitor after you leave - sometimes this is valid other times it is not - three factors • 1) Does restriction have legitimate business purpose • 2) Is the restriction reasonable regarding time and geographic area (how long does it last) (does it prevent you from working anywhere in the US) • 3) Does the restriction create an undue hardship for the employee (will they be able to find work in their field) • 2) Confidentiality or non-disclosure provision - you can't give out our confidential information to our competitors • 3) No soliciting • Trying to convince both employees you work with as well as customers to move companies with you • Exculpatory clause - business is trying to get out of liability from when they harmed a customer - sometimes valid sometimes not - three ways o 1) If provision said we are not liable for negligence that is ok - anything more is illegal o 2) Business that owes a duty to the general public can't use those provisions - transportation / public hospitals o 3) Can't use exculpatory clause as a business as a way to avoid worker's compensation obligation

Contract of Adhesion

• Consumer contract where you have no opportunity to negotiate on a take it or leave it basis • Contract of adhesion is illegal if it is substantively unconscionable - is the contract grossly unfair to the consumer

Riggs Case

• Entered a physician contract in gynecology • Woman trying to get out of contract with OBGYN because they didn't pay the registration fee • She said they were unlicensed, appeal court said no because the registration law they didn't comply with has a revenue raising purpose • The contract between the woman and the medical practice was legal

McCume Case

• Signed waiver that she assumed any danger • Went to a paintball shooting range, was given a loose mask even though she asked for a different mask and employees tried to fit her for it • Ran into a tree and the mask got ripped off, then was shot in the eye and became blind in that eye • She lost because contract covered things up to negligence - courts decided that if paintball place wasn't able to uphold contract then they could be sued for "playing paintball" • She lost because she signed the waiver that covered for negligence