Exam 13: Illegal Bargains

The courts readily enforce a covenant not to compete during the period of employment.

Maximum rates of interest that are permitted under usury statutes are uniform from state to state.

Rorzex, Inc. entered into a contract with Denzil under the terms of which Denzil would receive $20,000 if he stole trade secrets from the leading competitor of Rorzex. Denzil performed his end of the agreement by delivering the trade secrets. Rorzex now refuses to pay Denzil for his services. Denzil:

B& B, Inc. pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments. B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him. This is an agreement which is a violation of public policy.

Al, an accountant, has a tax service and accounting business in Redwood City. He decides to move to Center City, which is 150 miles away and sells his accounting practice to Able and Baker, a CPA firm. In the sale contract, he agrees that he will refrain from practicing accounting anywhere within a 60-mile radius of Redwood City for a period of two years. However, on weekends he returns to his house in Redwood City, and when clients call him, he meets with them in his home. In this case:

Identify five exceptions to the general rule that illegal contracts are unenforceable.

The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.

A(n) __________ is a measure designed to protect the public from unqualified practitioners.

a. State and local governments require licenses for certain businesses and professional activities. Explain the difference between a regulatory licensing statute and a licensing statute enacted to raise revenue. b. Explain the significance in contract law between a regulatory license and a revenue raising license. c. Give an example of each type of licensing statute.

An agreement for the purchase of an illegal substance will be enforced by the courts if all other elements of the contract are present.

Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause?

Andria, an attorney, has a personal injury case which is set for trial next week. She needs a good doctor to testify on behalf of her client, so she contacts Dr. Wood who agrees to testify on behalf of Andria's client at the trial. In return for Dr. Wood's testimony, Andria agrees to pay Dr. Wood $10,000 if they win the case, and $5,000 if they lose. Dr. Wood agrees. The agreement between Andria and Dr. Wood is unenforceable.

A bargain by a candidate for public office to make a certain appointment following the election is legal.

Distinguish between procedural and substantive unconscionability.

John operates a small repair business and is in desperate need of a certain type of building material. He obtains the material from a large corporation, but is charged a grossly unreasonable price and is forced to buy other material he does not need. In view of the buyer's unequal bargaining power and unreasonable terms of the contract, this may be a case of:

Carlos owns a store in Polk County. His trade extends throughout River City, but not beyond the county limits. He sells his store to Virginia and, as part of the transaction, agrees not to engage in the same business anywhere within the state for a period of four years. The agreement:

Don has an employment contract with Dunkirk Ice Cream. He sells ice cream and novelty ice cream products. He has nine children and doesn't make enough money, so he decides to see if another dairy will hire him, too. "After all," he reasons, "most stores carry four or five different brands." His employment contract prohibits him from competing. If Don sells for another dairy in addition to Dunkirk, will he be in trouble under his contract?

Where a stipulation in restraint of trade is part of the sale of a business, it may be valid if the restraint is within reasonable limitations to protect the business's goodwill.

The legal effect of a usurious loan varies from state to state.

Mel has a neighborhood grocery store that he would like to sell. Casey is interested in purchasing the business, but he is concerned because he knows that Mel has built up a lot of goodwill over the years, and he wonders whether Mel might not just open another store down the block and take all of the business from the old store with him. Casey asks for and receives from Mel a clause in the sale agreement that Mel will not open another grocery store within a 150-mile radius of the old store for a period of at least ten years. a. What is this agreement called? b. Is the negotiated clause a valid one? Explain why or why not. c. What guidelines would a court ordinarily use in determining whether to enforce such a clause?