Formation: Defenses to Enforcement Flashcards
Illegality: When is K Unenforceable?
If consideration/performance under K is illegal.
Illegality: When is K Void?
If it contemplates illegal conduct.
Illegality: When is the Duty to Perform Discharged?
If K becomes illegal after formation.
True or False: A party does not need to be justifiably ignorant of facts making the K illegal or lack illegal purpose in order to recover.
False.
Five Exceptions to Illegality
- Ignorance of Illegality
- Lack of Illegal Purpose
- Divisible Ks
- Licensing Violation
- Restitution
Definition: Ignorance of Illegality
A party may recover if the party is justifiably ignorant of the facts making K illegal and the other party had knowledge of the illegality.
Lack of Illegal Purpose: A party who has substantially performed may recover if… (2)
- K does not involve illegal consideration/performance–the party is unaware of the other party’s illegal purpose.
- The party knows of the other party’s illegal use–unless the party furthered the illegal use or the use involves grave social harm.
Definition: Divisible Ks
If K can easily be divided into legal and illegal parts, a party may recover on the legal part(s).
Definition: Licensing Violation
Depends on the purpose of the licensing requirement.
Licensing Violation: Regulatory Purpose
The party who fails to comply cannot enforce the K.
Licensing Violation: Raise Revenue
The party who fails to comply can enforce the K.
Two Types of Restitution
- Not “in pari delicto”
2. Withdrawal
Restitution: Not “in pari delicto”
When parties are not equally at fault, the less guilty party may recover under restitution.
Restitution: Withdrawal
A party who withdraws from an illegal K before the improper purpose has been achieved may recover under restitution when the party has not engaged in serious misconduct.
Definition: Unconscionability
K is unconscionable when it is so unfair to one party that no reasonable person in the position of the parties would agree to it (e.g., hidden, complex boilerplate language, adhesion Ks).
Definition: Public Policy
K may be unenforceable if it violates significant public policy.
