Round 2 Lecture 6 (Illegal Bargains)

Question 1

what makes a contract’s subject matter “illegal”?

Answer 1

1. violation of statutes

2. violation of public policy

Question 2

violation of statutes

Answer 2

if a court enforced agreements that involve the violation of a statute they would frustrate the purpose for which the legislature passed the statute in the first place

Question 3

common examples of violation of statutes

Answer 3

• statutes prohibiting gambling
• licensing statutes
• usury statutes
• criminal statutes

Question 4

usury statutes

Answer 4

a statute that prohibits charging interest on borrowed money in excess of a maximum rate

Question 5

criminal statutes

Answer 5

statutes defining certain conduct as crime

Question 6

violation of public policy

Answer 6

what is “good” public policy that should not be violated by the performance of contracT? what is in the best interest of society?

Question 7

exculpatory clauses/provisions/agreements

Answer 7

• a provision that is intended to relieve a party for liability for a tort that the party committed (can’t sue gym for getting hurt using their equipment)
• not all exculpatory clauses are unenforceable because they violate public policy, but they are disfavored and examined carefully

Question 8

factors to consider when determining if exculpatory clause is enforceable

Answer 8

1. was the clause conspicuous?
2. was there an opportunity to negotiate the applicability of the clause or was the clause offered on a take it or leave it basis
3. what type of misconduct was involved in the event?
4. did the clause arise in the context of a consumer contract or commercial setting?
5. did the clause make specific reference to relieving the party for acts of negligence?
6. was the clause party of an agreement addressing other issues?
7. does the clause give adequate notice as to the nature/sig of the waiver?

Question 9

exculpatory clauses for intentional/reckless acts

Answer 9

will never preclude liability for harm caused by these acts

Question 10

is consumer contract or commercial setting more likely to have exculpatory clauses enforced?

Answer 10

commercial setting

Question 11

non-compete provisions/clauses/agreements

Answer 11

• a provision that is intended to prohibit a person from being employed doing certain things or from investing in certain activities
• not all of them are enforceable, but carefully scrutinized

Question 12

factors in determining whether non-compete is enforceable

Answer 12

1. there must be a salutary (good) purpose for the provision
2. the provision cannot be overly broad with respect to what are the prohibited competitive activities
3. the geographical scope of the provision must be reasonable
4. the duration of the provision must be reasonable

Question 13

employment agreement

Answer 13

employee’s access to confidential business info, training of the employee, all acquired skills, access to customers, etc.

Question 14

sale- of-business agreement

Answer 14

the purchase includes the goodwill of the seller which is deserving of protection by a non-compete agreement

Question 15

examples of good (salutary) purpose for non-compete

Answer 15

employment agreement

sale-of-business agreement

Question 16

how is geographical scope determined

Answer 16

by looking at the market that could be adversely effected in a material way by the prohibited competitive activities

Question 17

reasonable duration for employment agreement

Answer 17

9-18 months

Question 18

reasonable duration for business sale setting

Answer 18

5-20 years

Question 19

what is required if current employee is asked to sign a non-compete agreement?

Answer 19

• consideration

- a bonus, continued employment if at-will employee,

Question 20

examples of violations of public policy

Answer 20

• exculpatory clauses
• non-compete provisions
• unconscionable agreements

Question 21

what happens if the contracts subject matter is illegal?

Answer 21

• courts generally refuse to give remedy for a breach
• exculpatory clauses are unenforceable
• non-compete provisions are unenforceable

Question 22

divisible contracts

Answer 22

part legal part illegal

-court will enforce the legal part is the two parts can be reasonably separated

Question 23

situations involving unenforceable exculpatory clauses

Answer 23

-clause is not enforced and the party who suffers the loss will be free to seek and available remedy against the wrongdoer

Question 24

blue-lining

Answer 24

the court will rewrite the non-compete with terms that are legally reasonable