ch.18 - public policy and illegality

Question 1

freedom of contract

Answer 1

private parties should be able to create contracts w/o any interference by the state

Question 2

Public policy and illegality

Answer 2

Contract or provision of a contract may be void or voidable if the subject matter or consideration of the contract is either illegal or against an established public policy at the time of contract formation

Question 3

types of contracts against public policy

Answer 3

• Contracts involving illegality (torts or crimes)
• Contracts that restrain trade
• Contracts that impair family relations
• Contracts that violate licensing laws

Question 4

public policy balancing test

Answer 4

Balancing the importance of enforcing the contract against the importance of the public policy

Question 5

factors to determine the importance of enforcing the contract

Answer 5

1. What were the parties justified expectations as to the benefits they would receive if the contract were enforced?
2. Will one party experience significant forfeiture if the contract or clause is made void?

Question 6

factors to determine the importance of furthering public policy

Answer 6

1. Special public interest?
2. Strength of public policy?
3. Will voiding K further the public policy?
4. Seriousness of misconduct?

Question 7

remedies for contracts against public policy

Answer 7

• Rescission
• Severing offending term
• Reformation: inserts different term to replace severed term

Question 8

is restitution available?

Answer 8

If the contract is rescinded bc it violates a public policy then restitution is generally not available

Question 9

exception to general restitution rule

Answer 9

restitution available if it would be unjust to not make restitution available

Question 10

is a promise enforceable if it places a restraint on trade?

Answer 10

A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of trade

Question 11

what does it mean for the promise to be in restraint of trade?

Answer 11

A promise is in restraint of trade if its performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation

Question 12

reasonability factors for a noncompete

Answer 12

1. A legitimate interest of the promisee (employer)
   a. Protecting trade secrets
   b. Limit competition
2. Hardship to the promisor (employee)
   a. He would be unable to make a living in a comparable occupation
3. Injury to the public
   a. If results in fewer innovations
   b. Public will not have needs for goods and services met

Question 13

extent of restraint of a noncompete

Answer 13

1. scope of activity
2. geography
3. time

Question 14

unrsbl contracts that prohibit marriage

Answer 14

If the purpose of the contract is only to prevent marriage, then courts may void the contract

Question 15

rsbl contracts that prohibit marriage

Answer 15

If there’s some rational purpose
1. Ex. Promise for support of a spouse pursuant to a will or divorce provided that the spouse does not remarry

Question 16

contracts affecting custody of a child

Answer 16

must be in the best interest of the child

Question 17

contracts that violate licensing laws

Answer 17

• Voidable if operating w/o a license is strongly against public policy
• Depends on the purpose of that license
  1. Ex. Regulate an industry, tax-revenue raising aspect, health and safety