Business Law Test #6

Illegal Contracts

court will not allow any litigation associated with illegal contracts.

If executory: neither party may enforce performance

If executed: neither party may recover from what has been given in performance

*court will leave the parties where they found them

Agreements not to compete

1. Sale of a going business

2. Leaving a business

3. employment

*above agreements not compete will be enforced IF:

1. reasonable in point of time

2. reasonable in area of restraint

3. is necessary to protect goodwill

4. not place undue burden on coventor

5. not in violation of public interest

Conditions

an act or event other then lapse of time that unless excused must occur before performance under the contract is due

written agreements

oral contract is just as valid as written contract, however some oral contracts are unenforceable under the statute of frauds (SOF) b/c of a concern for fraudulent proofs and perjured testimony

3 exceptions to illegal contracts

1. Those for who the contract was made illegal

2. Induced by fraud to enter into illegal contract

3. Locus Poenitentiae (to change one’s mind)

Course of dealing

 sequence of previous conduct between the same parties to a particular transaction

Usage in trade

 practice or method of dealing so regularly observed in a place, vocation, trade that the practice or method may justly be expected in the transaction in question

Course of performance

expectation of the parties who have had a history of agreements that require replaced performances

Parol Evidence

prevents the introduction of prior or contemporaneous oral or written statements that vary or contradict the final written contract

Usury

 any contract by which the lender is to receive more than the maximum interest allowed by statute

Exculpatory clause

 clause that provides a party has no liability in tort even if at fault

Mistake

a wrong belief about a material (important) fact at the time of the contract.

Bilateral Mistake

Both parties are wrong about the same important fact

Unilateral mistake

one sided mistake only one party labors under the mistake

Exceptions for mistakes (UOM)

1. Unconscionable (extremely unfair)

2. Mistake is obvious (other party knew or should have known)

3. Major math/clerical error

Remember UOM

Exceptions to statute of frauds if Oral

1. Partial performance (especially land contracts)

2. Reliance (promissory estoppel)

3. Admission in court

Integration Clause

An integration clause (also called a merger clause) states that the written contract is the complete and final agreement between the parties.

Statute of frauds

Certain contracts must be in writing and signed to be enforceable

UCC Course of performance

Under the UCC, contracts for the sale of goods ≥ $500 must be in writing to be enforceable

*Course of performance is how the parties have actually carried out the contract through their actions.

• Looks at what they DO, not just what they said

Even if there is no proper writing, a contract may still be enforced based on performance.

Key Rule

• If one or both parties have performed, the contract may be enforceable to the extent of that performance