Written Homework Solution
Name the general rule regarding how a court treats parties to an
illegal contract where one of them subsequently sues the other for
breach of contract.
Generally, the courts will
give no remedy to parties who have entered into an illegal contract
where a “breach” of its terms has subsequently occurred.
List the exceptions to the rule stated above.
a party has rescinded the contract prior to the doing of an illegal act,
he/she may be able to get damages (i.e. a refund of the money they put
the parties are not in parti delicto (equally guilty) but, in fact,
there is a very large difference in degree of wrong-doing between them.
one party was excusably ignorant of the illegality (in which case he/she
can receive damages up to and through the time when they were excusably
ignorant. IF he stayed on after discovering the illegal nature of the
contract, he will not be able to recover for that period…)
both parties were excusably ignorant
a party enters into a valid and legal contract with someone else but
they know or may have known that the other party was using their
otherwise legal service, say, for illegal purposes, but the party suing
for breach did not benefit from or participate in the illegality,
the contract is divisible (& the illegal portion can be separated
Define what an exculpatory clause is.
Under what circumstances does a court limit their application
(when will a court refuse to apply it)?
A contract provision which releases another from any liability
for damages arising from the other party’s negligence in performing
courts will not enforce it as to any intentional wrongs (i.e. fraud,
battery, etc.) Some states, like California, also will not allow parties to
escape liability for gross negligence. (i.e. drunk driving would
be an example of gross negligence – getting distracted by a good
looking member of the opposite sex while driving is an example of
negligence where it results in an accident…)
some kinds of parties cannot contractually exculpate themselves
from liability for negligence:
Medical care providers & hospitals
Common carriers (public transportation providers)
Parties that render a public duty/service (not that they merely
sell to or interact with the public)
Those who have a statutory duty toward another (i.e. parent to
child, employer to employee re: maintaining a safe workplace; landlord
to tenant re: keeping common areas in safe repair, etc.)
Define ancillary covenants against competition.
Under what circumstances are they upheld?
(I’m looking for the rule/formula which the courts use in
scrutinizing such provisions).
Anti-competition clauses that are part of a greater legitimate
agreement. (They cannot
stand alone –i.e. be the sole reason/purpose of the parties’
are typically found in either employment contracts or in contracts in
which one person is selling their business to another (buy-sell
agreements). If upheld,
they must bear a reasonable relationship to a legitimate interest owed
to the party who drafted that clause and must be no greater than
necessary in scope (breadth of what is being restricted), time, and
geographic area. In
addition, there must be no over-riding public policy at stake.
Are there certain kinds of covenants against competition which
the courts refuse to enforce? Which
courts refuse to enforce them in employment contracts, even if the
restrictions appear reasonable on their face.
(California, for example, by statute, prohibits any such
in those jurisdictions which uphold them in employment contracts, common
callings are exempt from any such restrictions.
(Review your text for why.)
sometimes an otherwise reasonable restriction will be void or
unenforceable because the public interest is better served by
competition in that area. (i.e.
a covenant against competition in a medical employment agreement between
hospital & doctor where there aren’t enough doctors in that
sparsely populated state…)
Define the difference between violators of revenue raising
licensing statutes and violators of regulatory licensing statutes and
its impact on that violator’s attempt to enforce a contract with
another for whom they provided an (unlicensed) service?
Answer: Those who have violated a “revenue raising licensing
statute” have merely failed to pay fees whose purpose is to provide
money for the government entity giving out those licenses.
If someone has violated a revenue-raising licensing statute by
failing to obtain that kind of license, it will not preclude them from
enforcing an otherwise valid contract for those services.
the other hand, where someone has failed to get a license that is
required by a regulatory kind of licensing statute, because the public
interest involved in regulating that kind of person’s
activities/services is so strong (usually public health, safety or
welfare concerns), that unlicensed person will not be able to enforce a
contract for such services with another person – even if properly
good example of the latter is where someone in the state of California
provides contractor’s services for building an addition to someone’s
house, but they are not a licensed contractor.
When is a contract unconscionable?
Are all “one-sided” contracts unconscionable?
A contract (or provision within that contract) must be SO grossly
unfair that it “shocks the conscience of the court” (a difficult
thing to do, as they’ve seen it all)!
contracts (take-it-or-leave-it contracts), called “contracts of
adhesion” are not automatically unconscionable.
Some states deem that contracts of adhesion raise a rebuttable
presumption of unconscionability – in California, this is not the
case. A contract of
adhesion is not presumptively unconscionable.
To be unconscionable it must meet the definition/tests described
here & in your text.
“A” sues “B” for breach of contract for services that in
themselves, were legal, but that “B” then used for illegal purposes.
“B” raises the defense that the contract is illegal, and therefore
void. If “A” shows that
she was perhaps aware that the other party might have been engaged in
something illegal but that she herself did not benefit from or
participate in the illegality, will she be able to recover damages for
breach of contract?
Yes. As long as the
services/goods she provided were, themselves, legal, she is not
responsible for or tainted by the other party’s subsequent illegal use
for them…as long as they didn’t directly benefit from (i.e. take a
percentage cut of) or participate in the illegality/fruits of the