Bài giảng Business Law - Chapter 15: Illegality

Learning Objectives Explain the concept of illegality as it pertains to contract law Identify illegal agreements and discuss the effect of illegality Analyze effect of non-compete and exculpatory clauses Explain unconscionability

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Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin3Introduction to ContractsThe Agreement: OfferThe Agreement: AcceptanceConsiderationReality of ConsentContractsPART3Capacity to ContractIllegalityWritingRights of Third PartiesPerformance and RemediesContractsPARTIllegalityPAETRHC15In a free society the state does not administer the affairs of men. It administers justice among men who conduct their own affairs. Walter Lippman Learning ObjectivesExplain the concept of illegality as it pertains to contract lawIdentify illegal agreements and discuss the effect of illegalityAnalyze effect of non-compete and exculpatory clausesExplain unconscionabilityAn agreement will be unenforceable because of illegality if the agreement involves an act or promise that violates a law or is against public policy Even if voluntary consent existed between two parties with capacity to contractEffect: no remedy for breach of an illegal agreementIllegality Sometimes government legislatures enact statutes that declare certain types of agreements unenforceable, void, or voidableExamples: New law changes the limits allowed for interest to be charged on a loanNew law prohibiting creation of a landfill in environmentally sensitive areasAgreements That Violate StatutesThese agreements violate public policy:Agreements to commit a crimeAgreements promoting an illegal purposeAgreement to perform an act for which the person is not properly licensedAgreements in restraint of competitionAgreements That Violate Public PolicyA common regulatory statute requires a person to obtain a license, permit, or registration before engaging in a certain business or profession If the purpose of the statute is to protect the public against dishonest or incompetent practitioners, then an agreement is unenforceable if an unlicensed person agrees to do an act that requires a licenseLicensing StatutesIf the sole purpose of an agreement is to restrain competition, it violates public policy and is illegalIf the restraint on competition was part of an otherwise legal contract, the result may be different because the parties may have a legitimate interest to be protected by the restriction on competitionAgreements in Restraint of CompetitionCourts enforce a non-competition clause if:It serves a legitimate business purpose, The restriction is reasonable in time, geographic area, and scopeIt does not impose an undue hardshipExample: Nasc Services, Inc. v. Jervis in which the clause would “create an oppressive and unfair scenario” for former employeesNon-competition clausesAn exculpatory clause (a release or liability waiver) in a contract attempts to protect one party from liability for damagesExculpatory clauses may be suspect on public policy grounds, but courts will not interfere if waiver is not a threat to public health or safetyExample of a clause in contravention of public policy: Marcinczyk v. State of New Jersey Police Training Commission Exculpatory ClausesUnconscionability means the absence of meaningful choice together with terms that are unreasonably advantageous to one of the partiesUnconscionable AgreementsCourts refuse to grant equitable remedy of specific performance for breach of contract if contract is oppressively unfair UCC 2–302 gives courts power to refuse to enforce all or part of a contract for the sale of goods or to modify such a contract if it is found to be unconscionableExample: Moore v. Woman to Woman Obstetrics & GynecologyUnconscionable AgreementsA contract of adhesion is a contract, usually on a standardized form, offered by a party who is in a superior bargaining position on a “take-it-or-leave-it” basisCourts will enforce the contracts unless the term is harsh or oppressiveContracts of AdhesionThought QuestionIs the enforcement of non-competition clauses in employment agreements a good public policy?