P A R T P A R T Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

P A R T P A R T Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Illegality PA E TR HC 15 “In a free society the state does not administer the affairs of men. It administers justice among men who conduct their own affairs.” Walter Lippman

Learning Objectives  Meaning of illegality  Types of illegal agreements  Effect on contracts  Special doctrines

 An agreement will be unenforceable because of illegality if the agreement involves an act or promise that violates a law or is against public policy  Even if there was voluntary consent between two parties who have capacity to contract  Effect: no remedy for breach of an illegal agreement Illegality

 Agreements that violate a statute  Agreements that violate public policy:  Agreements to commit a crime  Agreements promoting an illegal purpose  Agreement to perform an act for which the person is not properly licensed  Example: Riggs v. Woman to Woman P.C.  Agreements in restraint of competition Types of Illegal Agreements

 If sole purpose of an agreement is to restrain competition, it violates public policy  A non-competition clause restrains competition, but courts enforce the clause if :  It serves a legitimate business purpose,  Restriction is reasonable in time, scope, and geographic area  It does not impose an undue hardship Agreements in Restraint of Competition

 In general, courts refuse to enforce and unconscionable contract  A contract with the absence of meaningful choice and terms unreasonably advantageous to one of the parties  UCC 2–302 gives courts power to refuse to enforce or modify unconscionable contracts for sale of goods  See Circuit City Stores, Inc. v. Mantor Unconscionable Agreements

 A contract of adhesion, usually a contract on a standardized form, is offered by a party who is in a superior bargaining position on a “take-it-or-leave-it” basis  An exculpatory clause (release, liability waiver) in a contract attempts to protect one party from liability for damages  Courts enforce these contracts unless effect is overly harsh or oppressive Adhesion & Exculpatory Clauses

Test Your Knowledge  True=A, False = B  An agreement that promotes violating an environmental permit is illegal  A person can demand restitution for breach of an illegal agreement  Non-competition agreements are illegal agreements

Test Your Knowledge  Multiple Choice  A contract of adhesion:  (a) is always illegal  (b) are contrary to public policy  (c) is a “take it or leave it” agreement  An exculpatory clause:  (a) Protects one party from liability for damages  (b) Promotes violation of a civil law  (c) Is contrary to public policy and illegal

Thought Question  Do you think enforcing non-competition clauses in employment agreements is good public policy?