Agreements That Violate Statutes Sometimes government legislatures enact

Agreements That Violate Statutes • Sometimes government legislatures enact statutes that declare certain types of agreements unenforceable, void, or voidable • Examples: – New law changes the limits allowed for interest to be charged on a loan – New law prohibiting creation of a landfill in environmentally sensitive areas 15 - 1

Agreements That Violate Public Policy • Agreements that violate public policy include: – Agreements to commit a crime – Agreements promoting an illegal purpose – Agreement to perform an act for which the person is not properly licensed – Agreements in restraint of competition 15 - 2

Licensing Statutes • A common regulatory statute requires a person to obtain a license, permit, or registration before engaging in a certain business or profession • If the purpose of the statute is to protect the public against dishonest or incompetent practitioners, then an agreement is unenforceable if an 15 - 3 unlicensed person agrees to do an

Riggs v. Woman to Woman, P. C. • Facts & Procedural History: – Riggs joined defendant medical practice after assurances that the medical practice was a licensed professional corporation • Employment agreement contained a covenant not to compete – Riggs discovered that defendant was not a licensed professional corporation 15 - 4

Riggs v. Woman to Woman, P. C. • Issue & Court’s Discussion: – Was the employment agreement void because defendant was not licensed? – Defendant properly attempted to obtain the license and when it determined it was not properly licensed, it remedied the situation and obtained the license • Had operated as a de facto corporation 15 - 5

Riggs v. Woman to Woman, P. C. • Court’s Analysis & Ruling: – Purpose of the licensing act is permissive – to allow a medical practice the protections of a corporation; not to protect the public – Since defendant did 15 - 6 nothing illegal, the

Agreements in Restraint of Competition • If the sole purpose of an agreement is to restrain competition, it violates public policy and is illegal • If the restraint on competition was part of an otherwise legal contract, the result may be different because the parties may have a legitimate interest to be protected by the 15 - 7 restriction on competition

Non-competition clauses • Courts enforce a non-competition clause if: – It serves a legitimate business purpose, – The restriction is reasonable in time, geographic area, and scope – It does not impose an undue hardship • Example: Jay’s Custom Stringing, v. Yu in which the clause was 15 -Inc. 8

Unconscionable Agreements • Under the doctrine of unconscionability, courts refuse to grant the equitable remedy of specific performance for breach of contract if the contract is oppressively unfair • Unconscionability means the absence of meaningful choice together with terms unreasonably 15 - 9 advantageous to one of the parties

Unconscionable Agreements • UCC 2– 302 gives courts power to refuse to enforce all or part of a contract for the sale of goods or to modify such a contract if it is found to be unconscionable • Example: Circuit City Stores, Inc. v. Mantor – Company pressured and threatened employee to sign an agreement to arbitrate 15 - 10

Contracts of Adhesion • A contract of adhesion is a contract, usually on a standardized form, offered by a party who is in a superior bargaining position on a “take-it-or-leaveit” basis 15 • - 11 Courts will enforce

Exculpatory Clauses • An exculpatory clause (a release or liability waiver) in a contract attempts to protect one party from liability for damages • Exculpatory clauses are perhaps suspect on public policy grounds, but courts do not want to interfere with the agreement if it does not threaten 15 - 12 public health or safety