Contract Law: Illegality and Enforcement

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Questions and Answers

What characterizes procedural unconscionability in contract law?

Serious inequality of bargaining power (correct)

Absence of meaningful choice

Unjustifiably harsh contract terms

Standardized form contracts

Which of the following best defines a contract of adhesion?

A contract created through mutual agreement

A standardized contract offered on a take-it-or-leave-it basis (correct)

A contract that is optional and negotiable

A contract where both parties have equal power

Which statement about substantive unconscionability is true?

It is less important than procedural unconscionability.

It deals with oppressive or one-sided terms of a contract. (correct)

It requires proof of equal bargaining power.

It involves the process of obtaining an agreement.

What is the general rule regarding illegal agreements in contract law?

They are unenforceable by courts, with few exceptions. Signup and view all the answers

Under what condition may a court provide relief despite a contract's illegality?

If one party shows excusable ignorance of relevant facts Signup and view all the answers

What does the term 'shock the conscience of the court' refer to?

Terms that are deemed excessively harsh or oppressive Signup and view all the answers

What is a key feature of contracts offered on a take-it-or-leave-it basis?

They are unnegotiable and standardized Signup and view all the answers

Which of the following circumstances can allow for rescission of an illegal contract?

If the illegal act has not yet been performed Signup and view all the answers

What type of agreement is considered unenforceable due to illegality?

An agreement that violates statutes or public policy. Signup and view all the answers

Which of the following is an example of a contract declared illegal by statute?

A surrogate birth contract in Indiana. Signup and view all the answers

Which of the following agreements would violate public policy?

An agreement to commit a crime. Signup and view all the answers

What is the legal result of contracts that are classified as unconscionable?

They are generally void or voidable. Signup and view all the answers

Which statement describes an agreement that is unenforceable due to licensing laws?

An agreement in which one party is not properly licensed to perform a service. Signup and view all the answers

What authority do states have regarding employment agreements with undocumented workers?

States can regulate employment relationships to protect workers' rights. Signup and view all the answers

Which is NOT considered to be a type of illegal agreement?

Agreements that promote a legal purpose. Signup and view all the answers

Which of the following represents a contract of adhesion?

An agreement drafted by one party and not negotiable. Signup and view all the answers

What is the primary reason a contract is unenforceable if it involves a required license or permit?

The statute's purpose is to protect the public. Signup and view all the answers

Under what condition are restrictive agreements in restraint of trade potentially enforceable?

If they are part of an otherwise legal contract. Signup and view all the answers

Which of the following criteria is NOT necessary for enforcing a non-competition clause?

It must offer a financial incentive. Signup and view all the answers

What aspect of an exculpatory clause might lead a court to refuse its enforcement?

It poses a threat to public health or safety. Signup and view all the answers

What can trigger a court to find a contract unconscionable under UCC 2–302?

The contract is overly favorable to one party. Signup and view all the answers

In which scenario would a non-competition clause most likely NOT be enforced?

It restricts the employee nationwide for five years. Signup and view all the answers

What is an important consideration for courts regarding exculpatory clauses?

They may be seen as contracts of adhesion. Signup and view all the answers

What defines an agreement in restraint of trade?

It restricts competition for its own sake. Signup and view all the answers

Study Notes

What is Illegality?

An agreement may be unenforceable if it violates a law or public policy.
Three types of illegal agreements:
- Agreements that violate statutes.
- Agreements that violate public policy.
- Agreements that are unconscionable and contracts of adhesion.

Comac Corp. v Kansas Department of Labor

Workers' immigration status should not influence their right to fair wages.
In the Flores v. Amigon case, undocumented workers were entitled to payment of unpaid wages under the Fair Labor Standards Act (FLSA).
States have the authority to regulate employment relationships and protect workers within their jurisdiction.
Denying wages earned due to an "illegal" contract violates state law.

Agreements in Violation of Statute

Federal and state legislatures declare certain agreements void, unenforceable, or voidable.
Examples:
- Surrogate birth contracts (void).
- New laws prohibiting landfill construction in sensitive areas.

Agreements in Violation of Public Policy

Agreements to commit a crime.
Agreements promoting illegal purposes.
Agreements to perform acts without proper licensing.
Agreements in restraint of trade (competition).

Agreements in Violation of Public Policy: Licensing Laws

Statutes often mandate a license, permit, or registration for certain professions or businesses.
If the purpose is to protect the public, a contract without proper licensing is unenforceable.
If the purpose is to raise revenue, the contract is enforceable.

Agreements in Violation of Public Policy: Restraint of Trade (Competition)

Agreements solely aimed at limiting competition violate public policy.
If restraints on competition are part of a larger legal contract, the legality might vary.
Parties may have legitimate interests requiring protection through restrictions on competition.

Non-competition Clauses

Courts may enforce non-competition clauses if:
- They are part of an employment contract.
- They serve a legitimate business purpose.
- The restrictions are reasonable in time, geographic area, and scope.
- They do not impose undue hardship.
- Overly broad non-competes are generally not enforced.

Exculpatory Clauses

Exculpatory clauses attempt to protect one party from liability for damages.
They may be illegal due to public policy concerns.
Courts will not interfere if the waiver does not threaten public health or safety.
Courts may refuse to enforce contracts deemed unconscionable or contracts of adhesion.

Unconscionability and Contracts of Adhesion

The Uniform Commercial Code (UCC) 2-302 empowers courts to modify or refuse to enforce unconscionable contracts for goods.
Unconscionability involves:
- Absence of meaningful choice.
- Terms excessively advantageous to one party.
- It's evaluated on a case-by-case basis.

Procedural Unconscionability

Significant inequality of bargaining power between parties.

Substantive Unconscionability

Terms oppressive, excessively one-sided, or harsh.

Contract of Adhesion

Standardized form contract offered by a party with superior bargaining power on a take-it-or-leave-it basis.
Courts will enforce these contracts unless the terms are harsh or oppressive.

Effect of Illegality

Courts generally refuse remedies for breach of illegal agreements.
Exceptions:
- Excusable ignorance of facts or legislation.
- Rights of parties not equally in the wrong.
- Rescission before performance of the illegal act.

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Description

Explore the concept of illegality in contract law through various cases and examples. Understand how agreements can become unenforceable when they conflict with statutes or public policy. Delve into specific cases like Comac Corp. v Kansas Department of Labor, highlighting the rights of workers in illegal agreements.