Business Law Chapter 15: Illegality

Vocabulary and legal concepts from Chapter 15 covering contract illegality, licensing, noncompete clauses, unconscionability, and relevant case law.

Illegality (Contract Law)

A condition where an agreement is unenforceable because it involves an act or promise that violates a law or is against public policy.

Agreements that violate statutes

One of the three types of illegal agreements where federal or state legislatures declare certain agreements unenforceable, void, or voidable.

Agreements that violate public policy

Agreements such as those to commit a crime, promote an illegal purpose, perform acts without a proper license, or restrain trade.

Coma Corp. v Kansas Department of Labor (2007)

A case holding that an undocumented worker is entitled to payment of unpaid wages, as denying them would contravene state law and public policy.

Regulatory Licensing Laws

Statutes requiring a license to protect the public; if a person is unlicensed, the contract they perform is generally unenforceable.

Revenue-Raising Licensing Laws

Statutes requiring a license primarily to raise state money; if a person is unlicensed, the contract they perform is typically still enforceable.

Non-competition clause

An agreement in restraint of competition that is enforceable if it is ancillary to a contract, serves a legitimate purpose, is reasonable in time/geographic area, and lacks undue hardship.

Clarks Sales & Service v Smith (2014)

An Indiana case where an overly broad noncompete covenant was found unenforceable because it was not clearly separated into divisible or severable parts.

Exculpatory clause

A release or liability waiver in a contract that attempts to protect one party from liability for damages.

Walters v YMCA (2014)

A case where the court held that a health club cannot insulate itself through an exculpatory clause from the ordinary common law duty of care owed to its invitees.

UCC 2–302

The Uniform Commercial Code section that gives courts the power to refuse to enforce or to modify contracts for the sale of goods found to be unconscionable.

Procedural Unconscionability

Unconscionability involving the process of reaching an agreement, usually characterized by a serious inequality of bargaining power.

Substantive Unconscionability

Unconscionability involving contract terms that are oppressive, unreasonably one-sided, or unjustifiably harsh enough to 'shock the conscience of the court.'

Singh v Uber Technologies (2017)

A case where an arbitration clause was upheld because the 'click contract' included a 30-day 'opt-out' provision, preventing it from being unconscionable.

Contract of adhesion

A standardized form contract offered on a 'take-it-or-leave-it' basis by a party in a superior bargaining position.

Effect of Illegality (General Rule)

The principle that courts will refuse to give any remedy for the breach of an illegal agreement.

Excusable Ignorance of Facts or Legislation

An exception to the general rule of illegality where a party may have a remedy despite the contract's illegality.

Gamboa v. Alvarado (2011)

A case where the court reversed a dismissal, allowing plaintiffs to seek the return of money paid for illegal citizenship documents based on a fraudulent contract.