Chapter 12 ILLEGALITY

General rule: We will not enforce through the courts those contracts which threaten public welfare or are contrary to social goals we strive to achieve. Effects of illegality General rule: Courts will aid neither party to an illegal agreement; the law will leave the parties as it finds them. If contract is still executory: neither party can tender performance and demand it from the other. If executed: Neither party can rescind. Related contracts: Contracts of adhesion Standard form contracts; so great a disparity of bargaining power that weaker party has no choice but to accept; not void but are subject to heightened scrutiny. Exculpatory clauses Aim is to exempt a contracting party from the payment of damages for his own misconduct; courts will not enforce a clause that relieves party of responsibility for criminal conduct, intentional tort or gross negligence. Clause providing relief for simple negligence: Usually enforced if clause was freely consented by parties of substantial equal bargaining power, often not enforced in the context of contracts of adhesion, generally not enforced if exculpated party is charged with a public interest. Common types of illegal contracts Unconscionable contracts So grossly unfair as to shock the conscience of the court procedural unconscionabilitysubstantive unconscionability Agreement (or covenant) not to compete Agreement by seller of a business will be enforced if restraint is reasonable; is reasonable if it is so limited in duration and territory as to protect only the goodwill purchased: time test and geography test Agreement by an employee to be enforceable such agreements must be reasonable, may not deprive the employee of the opportunity to support his dependents and should not deprive public of benefits of competition. Generally not enforced for common callings. Divisibility of contracts not to compete Blue laws Agreements in violation of licensing statutes depends on whether the statutes are intended to raise revenue or to protect the public Usury: exceeding maximum allowable interest (loan sharking) Exceptions to this general rule Parties are not equally at faultWithdrawal from illegal activity: locus poenitentiae = opportunity to repent, also called the golden bridge.Justifiable ignorance of facts: A, a (foreigner) buys a computer from B (U.S.), makes down payment, A innocently doesnt know it is forbidden, wants his down payment back.

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