Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent

1. Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent

2. Capacity to Contract Illegality Writing Rights of Third Parties Performance and Remedies

3. Illegality 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

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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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: Nasc Services, Inc. v. Jervis in which the clause would �create an oppressive and unfair scenario� for former employees Court: �Plaintiffs argue that the covenants are reasonable both as to duration and geographic extent�. Defendants provide no unique services nor possess any extraordinary skills that could harm plaintiffs if they continue to work for the Red Bull or for any other employer in the soccer industry.�Plaintiffs have no legitimate protectable interest in preventing defendants from continuing to teach children how to play soccer�. In the current case, however, the balancing of the equities supports denial of plaintiffs� application for injunctive relief. If plaintiffs� application is granted, defendants will be �barred from working for any comparable business in any capacity in any part of the world. Five of the six defendants will also be forced to leave the United States because their visas depend upon their employment. This would create an oppressive and unfair scenario for defendants.� . Court: �Plaintiffs argue that the covenants are reasonable both as to duration and geographic extent�. Defendants provide no unique services nor possess any extraordinary skills that could harm plaintiffs if they continue to work for the Red Bull or for any other employer in the soccer industry.�Plaintiffs have no legitimate protectable interest in preventing defendants from continuing to teach children how to play soccer�. In the current case, however, the balancing of the equities supports denial of plaintiffs� application for injunctive relief. If plaintiffs� application is granted, defendants will be �barred from working for any comparable business in any capacity in any part of the world. Five of the six defendants will also be forced to leave the United States because their visas depend upon their employment. This would create an oppressive and unfair scenario for defendants.� .

11. 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 Example: McCune v. Myrtle Beach Indoor Shooting Range, Inc. Case Example: McCune v. Myrtle Beach Indoor Shooting Range, Inc. Christine McCune went to the Myrtle Beach Indoor Shooting Range to participate in a paintball game with her husband and friends. Before being allowed to participate, McCune signed and dated a waiver that purported to release the Range from liability for all known or unknown dangers for any reason with the exception of gross negligence on the part of the Range�. While playing in a match, McCune caught the mask on the branch of a tree. The tree was obscured from her field of vision by the top of the mask. The mask was raised off her face because it was loose, and provided no protection against an incoming paintball pellet. The pellet struck McCune in the eye, rendering her legally blind in the eye. McCune brought a negligence suit against the Range. The Range filed a motion for summary judgment, alleging the waiver barred liability on its part. The court granted the Range�s motion, and McCune appealed. Court: �It is clear McCune voluntarily entered into the release in exchange for being allowed to participate in the paintball match. Additionally, she expressly assumed the risk for all known and unknown risks while participating�.. We find the release entered into by the parties does not contravene public policy.� Case Example: McCune v. Myrtle Beach Indoor Shooting Range, Inc. Christine McCune went to the Myrtle Beach Indoor Shooting Range to participate in a paintball game with her husband and friends. Before being allowed to participate, McCune signed and dated a waiver that purported to release the Range from liability for all known or unknown dangers for any reason with the exception of gross negligence on the part of the Range�. While playing in a match, McCune caught the mask on the branch of a tree. The tree was obscured from her field of vision by the top of the mask. The mask was raised off her face because it was loose, and provided no protection against an incoming paintball pellet. The pellet struck McCune in the eye, rendering her legally blind in the eye. McCune brought a negligence suit against the Range. The Range filed a motion for summary judgment, alleging the waiver barred liability on its part. The court granted the Range�s motion, and McCune appealed. Court: �It is clear McCune voluntarily entered into the release in exchange for being allowed to participate in the paintball match. Additionally, she expressly assumed the risk for all known and unknown risks while participating�.. We find the release entered into by the parties does not contravene public policy.�

12. 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

13. 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 Mantor began working for Circuit City. When hired, Circuit City had no arbitration program. In 1995, Circuit City instituted an arbitration program called the �Associate Issue Resolution Program� (AIRP). Circuit City emphasized to managers the importance of full participation in the AIRP, and stressed that employees had little choice in this matter. They suggested that employees should sign the agreement or prepare to be terminated. Although Circuit City circulated the forms regarding the AIRP in 1995, Mantor was able to avoid either signing up or openly refusing to participate in the AIRP for three years. In 1998, two Circuit City managers arranged a meeting with Mantor to discuss his participation in the AIRP. During this meeting, Mantor asked the two Circuit City managers what would happen should he decline to participate in the arbitration program. They responded to the effect that he would have no future with Circuit City. In February 1998, Mantor agreed to participate in the AIRP, acknowledging in writing his receipt of (1) an �Associate Issue Resolution Handbook,� (2) the �Circuit City Dispute Resolution Rules and Procedures,� and (3) a �Circuit City Arbitration Opt-Out Form.� Two years later, Mantor was terminated and he filed suit. Court: �Circuit City management impliedly and expressly pressured Mantor not to opt-out, and even resorted to threatening his job outright should Mantor exercise his putative �right� to opt-out. The fact that Circuit City management pressured and even threatened Mantor into assenting to the arbitration agreement demonstrates that he had no meaningful opportunity to opt-out of the program. . . . . Because any earnest attempt to ameliorate the unconscionable aspects of Circuit City�s arbitration agreement would require this court to assume the role of contract author rather than interpreter, we hold that this agreement is unenforceable in its entirety.� Mantor began working for Circuit City. When hired, Circuit City had no arbitration program. In 1995, Circuit City instituted an arbitration program called the �Associate Issue Resolution Program� (AIRP). Circuit City emphasized to managers the importance of full participation in the AIRP, and stressed that employees had little choice in this matter. They suggested that employees should sign the agreement or prepare to be terminated. Although Circuit City circulated the forms regarding the AIRP in 1995, Mantor was able to avoid either signing up or openly refusing to participate in the AIRP for three years. In 1998, two Circuit City managers arranged a meeting with Mantor to discuss his participation in the AIRP. During this meeting, Mantor asked the two Circuit City managers what would happen should he decline to participate in the arbitration program. They responded to the effect that he would have no future with Circuit City. In February 1998, Mantor agreed to participate in the AIRP, acknowledging in writing his receipt of (1) an �Associate Issue Resolution Handbook,� (2) the �Circuit City Dispute Resolution Rules and Procedures,� and (3) a �Circuit City Arbitration Opt-Out Form.� Two years later, Mantor was terminated and he filed suit. Court: �Circuit City management impliedly and expressly pressured Mantor not to opt-out, and even resorted to threatening his job outright should Mantor exercise his putative �right� to opt-out. The fact that Circuit City management pressured and even threatened Mantor into assenting to the arbitration agreement demonstrates that he had no meaningful opportunity to opt-out of the program. . . . . Because any earnest attempt to ameliorate the unconscionable aspects of Circuit City�s arbitration agreement would require this court to assume the role of contract author rather than interpreter, we hold that this agreement is unenforceable in its entirety.�

14. 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