CH15 IllegalityFULLSlide PDF

Meaning of Illegality An agreement will be unenforceable due to illegality if the agreement involves an act or promise that violates a law or is against public policy. Three types of illegal agreements: – Agreements that violate statutes. – Agreements that violate public policy. –...

Meaning of Illegality An agreement will be unenforceable due to illegality if the agreement involves an act or promise that violates a law or is against public policy. Three types of illegal agreements: – Agreements that violate statutes. – Agreements that violate public policy. – Agreements that are unconscionable and contracts of adhesion. Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 1 EX Book; Illegality: Coma Corp. v Kansas Department of Labor (Kan. 2007) Q: Does a worker's immigration status affect their right to receive fair wages as a matter of public policy? Flores v. Amigon case holds under FLSA that an undocumented worker is entitled to payment of unpaid wages. States enjoy broad authority under their police powers to regulate employment relationships to protect workers within the state. HELD For Kansas DoL: Denying earned but unpaid wages on grounds an employment contract is “illegal,” would directly contravene state law. Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 2  Agreements in Violation of Statute Federal and state legislatures enact statutes that declare certain types of agreements unenforceable, void, or voidable. Examples: Agreements Declared Illegal by Statute. – Surrogate birth contracts are void (Indiana). – New laws prohibiting creation of a landfill in environmentally sensitive areas. Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 3  Agreements in Violation of Statute Agreements that Violate Public Policy: – Agreements to commit a crime. – Agreements promoting an illegal purpose. – Agreement to perform an act for which a person is not properly licensed. – Agreements in restraint of trade (competition). Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 4  Agreements in Violation of Statute Licensing Laws: Agreement to Perform an Act for Which a Party Is Not Properly Licensed. – Statutes require a person to obtain a license, permit, or registration before engaging in a certain business or profession. – If statute’s purpose is to protect the public, the contract is unenforceable. – If statute’s purpose is to raise revenue, the contract IS ENFORCEABLE. Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 5  Agreements That Violate Public Policy Agreements in Restraint of Trade (Competition). – If sole purpose of an agreement is to restrain competition, it violates public policy and is illegal. BUT…If restraint on competition was part of an otherwise legal contract, result may vary because parties may have a legitimate interest to be protected by restriction on competition. Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 6  Agreements in Restraint of Competition Courts will enforce a non-competition clause (noncompete) if: – It is ancillary to the employment contract. – It serves a legitimate business purpose, – Restriction is reasonable (limited) in time, geographic area, and scope, and – Does not impose an undue hardship. – Generally, overly broad noncompetes will not be enforced. Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 7  Exculpatory Clauses Exculpatory clause (a release or liability waiver) in a contract attempts to protect one party from liability for damages. Exculpatory clauses may be suspect on public policy grounds. Courts will not interfere IF waiver is not a threat to public health or safety. A court may still refuse to enforce a contract that is unconscionable as a contract of adhesion (abuse of bargaining power). → Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 8  Contracts of Adhesion and Unconscionability Unconscionability: UCC 2–302 gives courts power to refuse to enforce all or part of a contract for sale of goods or to modify such a contract if it is found to be unconscionable. – Meaning: the absence of meaningful choice together with terms unreasonably advantageous to one of the parties, case-by-case basis. Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 9  Contracts of Adhesion and Unconscionability Procedural Unconscionability. – Usually a process involving serious inequality of bargaining power between parties. Substantive Unconscionability. – Usually contract terms themselves found to be oppressive, unreasonably one-sided, or unjustifiably harsh. [“Shock the conscience of the court”…aka not the conscience of the sensitive or empathetic individual] Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 10  Contracts of Adhesion 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 [“Shock the conscience of the court”…aka not the conscience of the sensitive or empathetic individual] Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 11  Effect of Illegality General rule: courts will refuse to give any remedy for breach of an illegal agreement. – Very limited Exceptions Excusable Ignorance of Facts or Legislation Rights of Parties Not Equally in the Wrong Rescission before Performance of Illegal Act Copyright ©2022 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 12