Public Policy Flashcards
Public Policy (General Limitations on Contracts)
Validly formed Contracts may be UNENFORCEABLE because they:
- violate or run contrary to PUBLIC POLICY.
ORIGIN OF RULE = COMMON LAW PROHIBITIONS OF:
1) USURY
2) Restraints on Trade.
Contrary PUBLIC INTEREST = FREEDOM TO CONTRACT
- Public policy strongly favors freedom to contract.
- Courts will refuse to enforce a contract only if it is CLEARLY contrary to Public Policy. L
PUBLIC POLICY CONSIDERATIONS IN CONTRACTS
May be based on Statutes
Declarations of Public Policy are usually made by the Legislature.
Statutes that EXPLICITLY provide certain contracts are UNENFORCEABLE = will not be enforced by courts.
REGULATORY STATUTES - Contracts that violate Regulatory Statutes intended to protect the PUBLIC INTEREST = Unenforceable (generally).
Restraints on Trade
Common Law Provided that Restrains on Trade are generally Unenforceable b/c
1) they restrain COMPETITION
2) Restraining competition harms the PUBLIC INTEREST.
Restraints on Trade (Generally Upheld, if:)
REASONABLY NECESSARY:
1) to the enjoyment of the buyer of the PROPERTY, GOODWILL, or INTEREST in the Partnership.
2) To the Legitimate Ends of the Existing Partnership
3) To the Prevention of possible injury or loss to the BUSINESS of the Seller from use by the thing sold.
4) to protect the employees business from harm caused by unjust use on the part of the employee of confidential knowledge acquired by the business.
NON PROFESSIONAL EMPLOYMENT
not involving lawyers or doctors
Burden on Party Attempting to Enforce Covenant:
Enforceable if:
1) Employer’s have a protectible interest
2) the restraints are REASONABLE in:
- Duration
- Geographical Extent
- Restricted Activities
ANCILLARY AGREEMENTS
Covenant not to Compete is UNENFORCEABLE,
UNLESS it is ANCILLARY to a Valid Transaction:
Examples of Ancillary Agreements:
1) Promise by seller of a business not to compete so as to injure the business sold
2) Promise by an employee not to compete w/ principal
3) Promise by a partner not to compete w/ Partnership.
REASONABLENESS OF A RESTRICTIVE COVENANT:
General Considerations:
1) SCOPE of the Agreement:
- duration, geographic limitations, activities protected
2) Hardship imposed on Promisor, and
3) Public Interest
SALE OF PARTNERSHIP / BUSINESS COVENANTS
V.
COVENANTS RELATED TO EMPLOYMENT
COVENANTS RELATED TO PARTNERSHIP / BIZ:
- Not as strictly scrutinized
- depends on the nature of the Biz protectible interest
COVENANTS RELATED TO EMPLOYMENT:
- STRICTLY SCRUTINIZED b/c:
1) Employees have less bargaining power compared to employers / drafters of the agreement
2) Need more protection by the courts.
Blue Pencil Rule
reduction of Objectionable Covenants
Mechanical Approach:
Severance is allowed if it can be grammatically severed from the agreement (lined-out with pencil)
Modern Approach (Restatement 184, rejects traditional approach) .
- allows reduction of scope or effect of a clause to make it REASONABLE IF:
- NO EVIDENCE OF OVERREACHING OR BAD FAITH BY THE PROMISEE.
General Rule: Blue Pencil Rule cannot be used to rewrite covenants.
VALLEY MEDICAL V. FARBER
Public Policy and Restrictive Covenants
1) Contracts are valid when the restraint proposed is REASONABLE:
Unreasonable, if:
- Restraint is greater than necessary to protect employer’s legitimate interest
- Employer’s interest is outweighed by hardship to the employee, and likely to injure the Public Interest
2) Restraint is fair to party in favor of whom it is given, and not so RESTRICTIVE as to Interfere with the Public Interest.
R. R. V. M. H.
Surrogacy Case
STATUTORY BASIS FOR FINDING SURROGACY CONTRACT UNENFORCEABLE:
1) Adoption statute required consent of mother
2) consent may not be signed until 4 days after birth
- Policy Reasons: Allow mother time to reflect on decision to give up baby for adoption (give up custody in surrogacy case)
3) Agreement may not be induced by payment of money.
