Contracts Outline: Defenses to Enforcement, Good Faith, and Public Policy

Vocabulary flashcards covering legal doctrines, defenses to contract enforcement, UCC provisions, standard form agreements, unconscionability, good faith, and public policy rules.

Unfairness

An affirmative defense where, weighing the consideration at the time the contract was formed, one side's consideration is grossly disproportionate to the other's, such that granting equitable relief would impose unreasonable harshness.

Equitable Remedies

Court-ordered remedies such as specific performance and injunctions, which incorporate fairness into their analysis, unlike damages awarded as a matter of law.

Standard Form Contract

A non-individualized contract used across multiple transactions, such as residential leases, click-through agreements, airline tickets, and parking or valet claim stubs.

Contract of Adhesion

A standardized form contract presented on a take-it-or-leave-it basis that a party must either accept exactly as written or refuse to enter into at all.

Reasonable Expectations Test

The first prong of adhesion contract analysis, assessing whether an challenged term aligns with what the adhering party would reasonably anticipate within the agreement.

Standardized Agreements Rule (Restatement)

The principle that if the drafting party has reason to believe that the adhering party would not accept the agreement if they knew it contained a specific term, that term is excluded from the contract.

Duty to Read

The traditional common law rule establishing that, absent fraud, a person who signs a written agreement is bound by its terms regardless of whether they read, understood, or were capable of reading it.

Exculpatory Clause

A contractual provision designed to relieve a party, such as a landlord, from tort liability for negligence, which is now declared void by statute in most states for residential leases.

UCC § 2-302

The statutory provision allowing a court as a matter of law to refuse enforcement of an unconscionable contract, sever the unconscionable clause, or limit its application, judged at the time of formation.

Procedural Unconscionability

The unconscionability element focusing on unfair surprise and the absence of meaningful choice, evaluated by unequal bargaining power, manner of execution, inconspicuous terms, and educational or language barriers.

Substantive Unconscionability

The unconscionability element focusing on commercial oppression and one-sided terms that shock the conscience, are unreasonably favorable to one side, or that no sane person would make and no fair person accept.

Federal Arbitration Act (FAA)

A federal law that establishes a strong policy favoring the enforcement of arbitration clauses, preempting contrary state laws and rules that condition arbitration enforcement on class arbitration availability.

Duty of Good Faith and Fair Dealing

An implied-in-law obligation under UCC § 1-304 and the Restatement requiring honesty and fair dealing in the performance and enforcement of every contract, without providing an independent cause of action.

Good Faith (Current UCC § 1-201(b)(20))

A standard applicable to all contracting parties requiring honesty in fact (subjective) and the observance of reasonable commercial standards of fair dealing (objective).

Public Policy Defense

An affirmative defense that prevents enforcement of a contract to protect the public, applicable when an agreement is directly illegal or when the interest in enforcement is clearly outweighed by policy concerns.

Illegal Contract

A contract whose formation or required performance directly violates a specific statute, such as agreements involving commercial bribery, inducing official action, or violating licensing requirements.

Restraints of Trade

Contractual restrictions on economic competition or individual livelihood, such as non-compete agreements and perpetual employment contracts, that are historically disfavored by courts.

Non-Compete Agreement

An employment agreement restricting a former employee's right to compete, presumed unenforceable unless proven necessary to protect legitimate business interests and reasonable in duration and geographic scope.

All or Nothing Approach

A judicial remedy for an unreasonable non-compete agreement under which the entire covenant is held void to eliminate the employer's incentive to draft overly broad restrictions.

Blue Pencil Rule

A method of modifying an overbroad non-compete agreement where the court strikes offending grammatical words while leaving the remaining enforceable text intact without active rewriting.

Liberal Blue Pencil (Partial Enforcement)

An approach in which a court actively rewrites or reforms an unreasonable non-compete covenant to make its scope, duration, and geographic limits reasonable.

Surrogacy Agreement

A contract concerning gestational services and child custody that is held unenforceable if it involves financial profit or requires an irrevocable surrender of parental rights prior to birth.