Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent © 2010 The McGraw-Hill Companies, Inc. All rights reserved.
Nov 14, 2014
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
15 - 4
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
15 - 5
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
15 - 6
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
15 - 7
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
15 - 8
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
15 - 9
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
15 - 10
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
15 - 11
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
15 - 12
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
15 - 13
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
15 - 14