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 Agreements That Violate Statutes

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 Agreements That Violate Public Policy

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 unlicensed person agrees to do an act that requires a license Licensing Statutes

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

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

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 nothing illegal, the contract is not void

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 restriction on competition Agreements in Restraint of Competition

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, Inc. v. Yu in which the clause was impermissibly broad and unenforceable Non-competition clauses

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 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 in the event of dispute, but court believe it had gone too far –Clause was unconscionable, therefore the contract was unenforceable Unconscionable Agreements

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-leave- it” basis Courts will enforce the contracts unless the term is harsh or oppressive Contracts of Adhesion

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 public health or safety Exculpatory Clauses