LEB FINAL STUDY GUIDE I Chapter 13 Illegality A Contracts contrary to statute contracts that are illegal on either statutory or public policy grounds are void 1 in cases where the contract is entirely executory neither party is bound by the agreement 2 in cases where one of the parties has performed his or her part of the bargain such party cannot recover the consideration or the value of the consideration that has passed to the other party 1 Licensing Statutes regulatory the purpose of the statue is the protection of the general public against unqualified persons contract illegal recovery denied revenue raising recovery allowed 2 Usury usury charging interest rates in excess of the permitted maximum rate of interest that can be charged on ordinary loans generally range from 10 percent to 16 percent per annum B Contracts contrary to public policy 1 Contracts in restraint of trade contracts that unreasonably restrain trade or competition in interstate commerce are in violation of one or more federal antitrust statues Sherman or Clayton acts covenants not to compete agreements in which one party promises not to compete with another lawful under certain conditions 1 agreement must be of an ancillary nature 2 the promisee must have a legitimate business interest that warrants temporary protection from competition 3 the agreement must be reasonable in its scope so that it does not limit competition more than is reasonably necessary to protect the promisee s legitimate interest blue pencil rule courts finding that a contract s restrictions on competition serve an employer s legitimate interests but are unreasonably broad will simply rewrite the covenant so that the restrictions are reasonable in scope 2 Exculpatory Clause exculpatory clause clauses that purport to excuse businesses and others from liability resulting from their own negligence generally though not always held to be contrary to public policy most courts give effect to exculpatory clauses where they involve only recreational or other completely optional activities rafting skydiving etc public interest will render an exculpatory clause unenforceable when 1 the party protected by the clause intentionally causes harm or engages in acts of reckless wanton or gross negligence 2 the bargaining power of one party to the contract is so grossly unequal as to put that party at the mercy of the other s negligence 3 the transaction involves the public interest 3 Unconscionable contracts unconscionable contracts contracts that are so extremely unfair to one of the parties in light of common mores and businesses practices that they shock one s conscience procedural unconscionability exists when there is a lack of meaningful choice on the part of one of the parties substantive unconscionability exists when the terms of the contract are oppressive involve unfair disclaimers of warranty inflated prices penalty clauses etc C Effect of Illegal Contracts 1 Rights of protected parties contracts made in violation of statues that have as their clear purpose the protection of a certain class of persons are enforceable by persons within that class despite its illegality 2 Parties not equally at fault exception applies particularly where the plaintiff was ignorant of essential facts when the contract was made through no fault of his or her own 3 Severable contracts the fact that one of the agreements of a contract may be illegal does not prevent the other clauses of the agreement from being enforced II Chapter 15 Contracts in Writing A The Statue of Frauds in a situation where the law requires a contract to be in writing any contract that does not meet that requirement is an unenforceable contract rather than void or voidable certain types of contracts or promises must be in writing 1 a contract calling for the sale of an interest in land 2 a contract that cannot be performed within one year of its making 3 a promise by one person to pay the debt of another 4 a promise made in consideration of marriage 5 a promise by the administrator or executor of an estate to pay a debt of the estate out of his or her own funds B Contracts that Must be In Writing 1 Contracts calling for the sale of land unwritten agreements of this kind with one exception are absolutely unenforceable easement the right of one person to do something on someone else s land if created in an express manner must be evidenced by writing if created by implication need not be evidenced by writing 2 Effect of part performance estoppel limited exceptions to the rules embodied in the statue of frauds oral contracts are generally held to be enforceable if the buyer has 1 paid all or part of the consideration for the land 2 taken possession of the land 3 added substantial improvements to it 3 Castillo v Rios oral contract for the purchase of real property is enforceable if the purchaser 1 pays the consideration whether it be in money or services 2 takes possession of the property 3 makes permanent and valuable improvements of the property with the consent of the seller 4 Contracts not performable within one year agreements not to be performed within one year of the making therof are to be in writing courts typically try to determine whether it was reasonably possible for the contract in question to have been performed within one year from the time it was made if so contract need not be in writing 5 Promises to pay debts of another guaranty contract A promises B that he will pay C s debt to B if C does not guaranty promise is made for the benefit of the debtor if the guarantor s main purpose in making the promise is to benefit himself it is not a guaranty contract need not be in writing guaranty promise is made to the creditor not to the debtor C Contract Calling for Sale of Goods 1 UCC statue of frauds a contract for the sale of goods for a price of 500 or more must be in writing to be enforceable the writing must be signed by the party against whom enforcement is sought Modification Contracts agreements that modify existing sales contracts must be in writing in order to be enforceable in two situations 1 if the original agreement provided that it could be modified only by a writing 2 if the whole contract as modified is required to be in writing D When is the Writing Sufficient General Contract Law even if the full contract is not in writing a sufficient written memorandum may satisfy the statue of fraud s requirements The writing generally must include the following 1 names of both