Ch 15 Illegality include Straub v BMT contrary to public policy Q 2 5 8 9 Chapter 15 Illegality Meaning of Illegality An agreement is illegal either because the legislature has declared that particular type of contract to be unenforceable or void or because the agreement violates a public policy that has been developed by courts or that has been manifested in constitutions statues administrative regulations or other sources of law Public policy a widely shared view about what ideas interests institutions or freedoms promote public welfare Determining Whether an Agreement is Illegal If a statue states that a particular type of agreement is unenforceable or void courts will apply the statue and refuse to enforce the agreement In determining whether to hold an agreement illegal a court will consider Importance of the public policy involved and the extent to which enforcement of the agreement would interfere with that policy The seriousness of any wrongdoing involved in the agreement and how directly that wrongdoing was connected with the agreement Illegal agreements will be classified into three main categories 1 Agreements that violate statues 2 Agreements that violate public policy developed by courts 3 Unconscionable agreements and contracts of adhesion Agreements in Violation of Statue Agreement declared Illegal by Statue In a case in which a legislature has specifically stated that a particular type of contract is void a court need only interpret and apply the statue Agreement That Violate the Public Policy of a Statute An agreement can be illegal even if no statue specifically states that particular sort of agreement is illegal If courts enforced agreements that involve the violation of a statue they would frustrate the purpose of which the legislature passed the statute o They would also promote disobedience of law and disrespect of the courts Agreements to commit a Crime o Contracts that require the violation of a criminal statute are illegal Agreements That Promote Violations of Statutes o A contract of a type that is usually perfectly legal say a contract to sell goods is deemed to be illegal under the circumstances of the case because it promotes or facilitates the violation of a statue o When a person is aware of the other s illegal purpose and actively helps to accomplish that purpose an otherwise legal agreement such as a sale of goods might be labeled illegal Licensing Laws Agreement to Perform an Act for Which a Party is Not Properly Licensed o Common types of regulatory statues is one that requires a person to obtain a license permit or registration before engaging in a certain business or profession o What is the status of an agreement in which one of the parties agrees to perform an act regulated by state law for which they are not properly licensed To be determine by looking at the purpose of the legislation that the unlicensed party has violated If the statute is regulatory that is the purpose of the legislation is to protect the public against dishonest or incompetent practitioners An agreement by an unlicensed person is generally held to be unenforceable On The other hand where the licensing statute was intended primarily as a revenue raising measure that is as a means of collecting money rather than as a means of protecting the public an agreement to pay a person for performing an act for which she in not licensed will generally be enforced o The person is licensed but forgot to renew their licensed Agreement in Restraint of Competition Policy against restriction on competition is the basis of federal and state antitrust statutes The policy is based on the economic judgment that the public interest is best served by free competition If the sole purpose of an agreement is to restrain competition it violates public policy and is illegal Ancillary covenant not to compete noncompete a contractual clause that would provide that the seller or employee agrees not to engage in a particular competing activity in a specified geographic area for a specified time after the sale of the business or the termination of employment has to be in writing Such clauses frequently appear in employment contracts contracts for the sale of a business partnership agreements and small business buy sell agreement Enforceability of Noncompetition Clauses Courts enforce noncompetition clauses if they meet the following three criteria 1 Clause must serve a legitimate business purpose a The person protected by the clause must have some justifiable interest such as an interest in protecting goodwill or trade secrets that is to be protected by the noncompetition clause b The clause must be ancillary to or part of an otherwise valid contract c A promise not to compete would not be enforced if the employee made the promise after he had already resigned his job because the promise not to compete was not ancillary to any existing contract 2 The restriction on competition must be reasonable in time geographic area and scope a Restrictions must not be any greater than necessary to protect a legitimate interest 3 The noncompetition clause should not impose an undue hardship a Unduly burdensome either on the public or on the party whose ability to compete would be retrained Noncompetition Clauses in Employment Contract Noncompetition clauses are one form of agreement that places restriction on an employee s conduct after the employment is over o Other restrictions can include confidentiality or nondisclosure agreements which constrain the employee from divulging or using certain information gained during their employment and no solicitation agreements which forbid an employee from soliciting the employer s employees clients or customer Many courts refuse to enforce noncompetition clauses if they restrict employees from engaging in a common calling o An occupation that does not require extensive or highly sophisticated training but instead involves relatively simple repetitive task Salespersons barber auto trim repairperson The Effect of Overly Broad Noncompetition Clauses Some courts will strike the entire restriction if they find it to be unreasonable and will refuse to grant the buyer or employer any protection Other courts will refuse to enforce the restraint as written but will adjust the clause and impose such restraint as would be reasonable Exculpatory Clause Exculpatory clause release or liability waiver a provision in a contract that purports to relieve one of the parties form tort
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