chapter 15 – illegality
DESCRIPTION
Powerpoint from textbook Business Law - the ethical, global, and e-commerce environment to accompany BA 330 course at the University of Alaska Fairbanks.TRANSCRIPT
Introduction to ContractsThe Agreement: Offer
The Agreement: AcceptanceConsideration
Reality of Consent
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Capacity to ContractIllegality
WritingRights of Third Parties
Performance and Remedies
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Illegality
In a free society the state does not administer the
affairs of men. It administers justice among men who
conduct their own affairs.
Walter Lippman
© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Learning Objectives
Meaning of illegalityTypes of illegal agreementsEffect on contractsSpecial doctrines
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An 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 there was voluntary consent
between two parties who have capacity to contract
Effect: no remedy for breach of an illegal agreement
Illegality
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Coma Corporation v. Kansas Department of Labor
Facts & Procedural History: Coma Corp. (Coma) entered into employment
contract with undocumented worker for above-minimum wage, but paid less than agreed amount, then fired worker
Worker filed claim with Dept. of Labor (DOL), which awarded above-minimum wages
Coma appealed; court reduced DOL’s award to minimum wage due to illegality of contract
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Coma Corporation v. Kansas Department of Labor
The Appeal to Kansas Supreme Court: Coma’s argument: employment contract
unenforceable and federal immigration laws preempt state wage laws
Court: federal preemption not presumed, and to deny enforceability of employment contract would contravene Kansas public policy to protect wages and wage earners
Reversed in favor of KS Dept. of Labor15 - 7
Sometimes government legislatures enact statutes that declare certain types of agreements unenforceable, void, or voidable
Examples: New law changes the limits allowed for
interest to be charged on a loan New law prohibiting creation of a landfill
in environmentally sensitive areas
Agreements That Violate Statutes
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Agreements that violate public policy include: Agreements to commit a crime Agreements promoting an illegal
purpose Agreement to perform an act for which
the person is not properly licensed Agreements in restraint of competition
Agreements That ViolatePublic Policy
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A 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 license
Licensing Statutes
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Riggs v. Woman to Woman, P.C.
Facts & Procedural History: Riggs joined defendant medical practice
after assurances that the medical practice was a licensed professional corporation Employment agreement contained a
covenant not to compete Riggs discovered that defendant was not
a licensed professional corporation
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Issue & Court’s Discussion: Was the employment agreement void
because defendant was not licensed? Defendant properly attempted to obtain
the license and when it determined it was not properly licensed, it remedied the situation and obtained the license Had operated as a de facto corporation
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Riggs v. Woman to Woman, P.C.
Court’s Analysis & Ruling: Purpose of the licensing
act is permissive – to allow a medical practice the protections of a corporation; not to protect the public
Since defendant did nothing illegal, the contract is not void
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Riggs v. Woman to Woman, P.C.
If the sole purpose of an agreement is to restrain competition, it violates public policy and is illegal
If 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 competition
Agreements in Restraint of Competition
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Courts enforce a non-competition clause if: It serves a legitimate business purpose, The restriction is reasonable in time,
geographic area, and scope It does not impose an undue hardship
Example: Nasc Services, Inc. v. Jervis in which the clause would “create an oppressive and unfair scenario” for former employees
Non-competition clauses
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An exculpatory clause (a release or liability waiver) in a contract attempts to protect one party from liability for damages
Exculpatory clauses are perhaps suspect on public policy grounds, but courts do not want to interfere with the agreement if it does not threaten public health or safety Example: McCune v. Myrtle Beach Indoor
Shooting Range, Inc.
Exculpatory Clauses
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Under the doctrine of unconscionability, courts refuse to grant the equitable remedy of specific performance for breach of contract if the contract is oppressively unfair
Unconscionability means the absence of meaningful choice together with terms unreasonably advantageous to one of the parties
Unconscionable Agreements
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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 unconscionable
Example: Circuit City Stores, Inc. v. Mantor Company pressured and threatened employee to
sign an agreement to arbitrate in the event of dispute, but court believe it had gone too far
Clause was unconscionable, therefore the contract was unenforceable
Unconscionable Agreements
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A 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” basis
Courts will enforce the contracts unless the term is harsh or oppressive
Contracts of Adhesion
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Test Your Knowledge
True=A, False = B An agreement that promotes
violating an environmental permit is illegal
A person can demand restitution for breach of an illegal agreement
Non-competition agreements are illegal agreements
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Test Your Knowledge
Multiple Choice A contract of adhesion:
(a) is always illegal(b) are contrary to public policy(c) is a “take it or leave it” agreement
An exculpatory clause: (a) Protects one party from liability for
damages (b) Promotes violation of a civil law(c) Is contrary to public policy and illegal
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Thought Question
Do you think enforcing non-competition clauses in employment agreements is good public policy?
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