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Introduction to Contracts                  The Agreement: Offer            The Agreement: Acceptance                      ...
Capacity to Contract                                Illegality                                  Writing                  R...
Illegality         In a free society the state does not           administer the affairs of men. It            administers...
Learning Objectives Meaning   of illegality Types of illegal agreements Effect on contracts Special doctrines15 - 4
Illegality    An agreement will be unenforceable     because of illegality if the agreement     involves an act or promis...
Coma Corporation v. Kansas Dep    Facts & Procedural History:          Coma Corp. (Coma) entered into employment        ...
Coma Corporation v. Kansas          Department of Labor    The Appeal to Kansas Supreme Court:       Coma’s argument: em...
Agreements That Violate              Statutes  Sometimes government legislatures enact   statutes that declare certain ty...
Agreements That Violate          Public Policy    Agreements that violate public policy     include:       Agreements to...
Licensing Statutes  A common regulatory statute requires a   person to obtain a license, permit, or   registration before...
Riggs v. Woman to Woman, P.C.     Facts & Procedural History:        Riggs joined defendant medical practice         aft...
Riggs v.           Woman to Woman, P.C.     Issue & Court’s Discussion:        Was the employment agreement void        ...
Riggs v.               Woman to Woman, P.C.         Court’s Analysis & Ruling:           Purpose of the licensing       ...
Agreements in Restraint of          Competition  If the sole purpose of an agreement is to   restrain competition, it vio...
Non-competition clauses Courts enforce a non-competition clause if:    It serves a legitimate business purpose,    The ...
Exculpatory Clauses  An exculpatory clause (a release or liability   waiver) in a contract attempts to protect one   part...
Unconscionable Agreements  Under the doctrine of unconscionability,   courts refuse to grant the equitable remedy   of sp...
Unconscionable Agreements  UCC 2–302 gives courts power to refuse to   enforce all or part of a contract for the sale of ...
Contracts of Adhesion  A contract of adhesion is   a contract, usually on a   standardized form,   offered by a party who...
Test Your Knowledge    True=A, False = B       An agreement that promotes violating an        environmental permit is il...
Test Your Knowledge   Multiple Choice     A contract of adhesion:           (a) is always illegal           (b) are cont...
Thought Question    Do you think enforcing non-competition     clauses in employment agreements is good     public policy...
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Chapter 15 – Illegality

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Powerpoint from textbook Business Law - the ethical, global, and e-commerce environment to accompany BA 330 course at the University of Alaska Fairbanks.

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Chapter 15 – Illegality

  1. 1. Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Capacity to Contract Illegality Writing Rights of Third Parties Performance and Remedies© 2010 The McGraw-Hill Companies, Inc. All rights reserved.
  3. 3. 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.
  4. 4. Learning Objectives Meaning of illegality Types of illegal agreements Effect on contracts Special doctrines15 - 4
  5. 5. Illegality 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 agreement15 - 5
  6. 6. Coma Corporation v. Kansas Dep Facts & Procedural History:  Coma Corp. (Coma) entered into employment contract with undocumented worker for above-minimum wage, but paid less than agreed amount, then fired worker  Worker filed claim with Dept. of Labor (DOL), which awarded above-minimum wages  Coma appealed; court reduced DOL’s award to minimum wage due to illegality of contract15 - 6
  7. 7. Coma Corporation v. Kansas Department of Labor The Appeal to Kansas Supreme Court:  Coma’s argument: employment contract unenforceable and federal immigration laws preempt state wage laws  Court: federal preemption not presumed, and to deny enforceability of employment contract would contravene Kansas public policy to protect wages and wage earners  Reversed in favor of KS Dept. of Labor15 - 7
  8. 8. Agreements That Violate Statutes  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 areas15 - 8
  9. 9. Agreements That Violate Public Policy 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 competition15 - 9
  10. 10. Licensing Statutes  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 license15 - 10
  11. 11. Riggs v. Woman to Woman, P.C.  Facts & Procedural History:  Riggs joined defendant medical practice after assurances that the medical practice was a licensed professional corporation  Employment agreement contained a covenant not to compete  Riggs discovered that defendant was not a licensed professional corporation15 - 11
  12. 12. Riggs v. Woman to Woman, P.C.  Issue & Court’s Discussion:  Was the employment agreement void because defendant was not licensed?  Defendant properly attempted to obtain the license and when it determined it was not properly licensed, it remedied the situation and obtained the license  Had operated as a de facto corporation15 - 12
  13. 13. Riggs v. Woman to Woman, P.C.  Court’s Analysis & Ruling:  Purpose of the licensing act is permissive – to allow a medical practice the protections of a corporation; not to protect the public  Since defendant did nothing illegal, the contract is not void15 - 13
  14. 14. Agreements in Restraint of Competition  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 competition15 - 14
  15. 15. Non-competition clauses 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 employees15 - 15
  16. 16. Exculpatory Clauses  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.15 - 16
  17. 17. Unconscionable Agreements  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 parties15 - 17
  18. 18. Unconscionable Agreements  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 unenforceable15 - 18
  19. 19. Contracts of Adhesion  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 oppressive15 - 19
  20. 20. Test Your Knowledge  True=A, False = B  An agreement that promotes violating an environmental permit is illegal  A person can demand restitution for breach of an illegal agreement  Non-competition agreements are illegal agreements15 - 20
  21. 21. Test Your Knowledge Multiple Choice  A contract of adhesion: (a) is always illegal (b) are contrary to public policy (c) is a “take it or leave it” agreement  An exculpatory clause: (a) Protects one party from liability for damages (b) Promotes violation of a civil law (c) Is contrary to public policy and illegal15 - 21
  22. 22. Thought Question Do you think enforcing non-competition clauses in employment agreements is good public policy?15 - 22

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