Contracts Against Public Policy - Jan. 25

Question 1

What is the economic rationale for enforcing contracts? (DeLong)

Answer 1

The economic rationale for enforcing contracts, i.e. that they reduce the cost of economic exchange between the parties, may not apply when the contracts create significant negative externalities. (126)

Question 2

What are the two findings that courts must make before invalidating a contract on public policy grounds? (DeLong)

Answer 2

That a valuable societal interest exists and that enforcement of this contract will materially harm that interest, directly or indirectly. (126)

Question 3

When is a promise or other term of an agreement is unenforceable on grounds of public policy? (R)

Answer 3

If legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms. (178)

Question 4

In weighing the interest in the enforcement of a term, what account is taken? (R)

Answer 4

In weighing the interest in the enforcement of a term, account is taken of:

(a) the parties’ justified expectations,

(b) any forfeiture that would result if enforcement were denied, and

(c) any special public interest in the enforcement of the particular term. (178)

Question 5

In weighing a public policy against enforcement of a term, what account is taken? (Chinen)

Answer 5

In weighing a public policy against enforcement of a term, account is taken of:

(a) the strength of that policy as manifested by legislation or judicial decisions,

(b) the likelihood that a refusal to enforce the term will further that policy,

(c) the seriousness of any misconduct involved and the extent to which it was deliberate, and

(d) the directness of the connection between that misconduct and the term. (R178)

Question 6

What is a “yellow dog” contract? (DeLong)

Answer 6

“Yellow dog contracts” are employment agreements under which laborers must promise not to join a union. Yellow dog contracts are unenforceable and illegal under federal labor legislation. (127)

Question 7

What are externalities? (DeLong)

Answer 7

Both positive and negative effects on specific third-parties and on the community at large. (126)

Question 8

What is an example of a judge denying to enforce a contract for the dignity of the court? (DeLong)

Answer 8

For a court to enforce a contract is to put the power of the state at the service of a gambler or loan shark. (127)

Question 9

Why would a court uphold a prenuptial agreement today? (DeLong)

Answer 9

Many courts now enforce them because they support a public policy in favor of domestic autonomy and planning. (128)