Deck 10: Legality

Question 1

What is the reasoning behind why an illegal contract is not enforceable in a court of law?

Answer 1

An Illegal Contract refers to a contract whose parties, conditions, or the performance, are so morally wrong and unfair, that it disables even the system of law, to enforce it.
There are certain reasons due to which an illegal contract is not enforceable in a court of law. These reasons are as follows:
1. It would go against the grain of the law system in place. Since the agreement would lead to an illegal act being committed, it wouldn't make sense for the law to execute it.
2. A court of law can act upon, or enforce only those decisions which have a means to an end, as well as could be performed legally.
3. Law does not rectify the mistakes committed by two or more wrongdoers i.e. the parties to an illegal contract.
Thus, due to some reasons like above, an illegal contract is enforceable by a court of law.

Question 2

Singletary, as owner of a multistory building, leased the first floor to Topp Copy Products. A toilet in an apartment above Topp Copy Products developed a leak and did substantial damage to Topp Copy's inventory in the leased space. Topp Copy sued Singletary for water damages based on negligence. Singletary claimed that his defense was an exculpatory clause in the lease agreement that stated that he was released from any and all liability for damages that "may result from the bursting, stoppage, and leakage of any water pipe... and from any damage caused by the water... and contents of said water pipes." Topp Copy disagreed with Singletary, stating that an exculpatory clause did not relieve Singletary from negligence caused by his or her own negligence. Is Topp Copy correct? (Topp Copy Products, Inc. v. Singletary, 626 A.2d 98)

Answer 2

Issue:
Is specific language negating liability for negligence on the part of the contract maker exculpatory or adhesive?
Agreements that Disclaim Liability for Negligence:
An agreement that disclaims liability for negligence is an effort by one party to be excused in advance for any liability due to its own negligence. The term in a contract that negates culpability is called an exculpatory clause.
Exculpatory clauses are generally against public policy and rarely enforced by courts. These types of clauses are found in take-it-or-leave it contracts.
Contracts of Adhesion:
A contract of adhesion is written by in favor of the authoring party, which is in a superior bargaining position.
Exculpatory Clause:
An exculpatory clause is only valid under the following circumstances:
1. The clause must not contravene public policy.
2. The contract must be between persons relating entirely to their own private affairs.
3. Each party must be a free bargaining agent to the agreement so that the contract is not one of adhesion.
Opinion:
In this case, Topp Copy Products Inc. v. Singletary, 533 Pa. 468, 626 A.2d 98, 99 (1993), the court granted summary judgment in favor of Singletary. The Superior Court reversed. The Supreme Court of Pennsylvania reversed the Superior Court's holding and reinstated the Court of Common Pleas granting summary judgment in favor of Singletary.
The Superior court reasoned that the exculpatory clause in the contract created by Singletary was not specific enough to immunize him from liability for his own acts of negligence.
The Supreme Court of Pennsylvania determined that Singletary's exculpatory clause did not create a contract of adhesion.
Therefore, Topp Copy is not correct.

Question 3

What are covenants not to compete? What is the standard used to judge their legality?

Answer 3

Non-Compete Covenants:
A covenant not to compete is an agreement signed by an employee that states s/he will not compete against his/her employee in the same industry and the same capacity for a specified period of time.
Enforcing covenants not to compete ensures that legitimate company interests are protected from unlawful distribution to competitors. Additionally covenants are necessary when they protect an employer's interest in trade secrets or other confidential information, and when they protect the good will generated between a customer and a business.
Because covenants are restrictive contracts where the sole beneficiary is the company, non-compete covenants are in restraint of trade and are not favored in the law. Non-competition agreements are strictly construed against the employee and are to be enforced only if reasonable and in the public's interest.
Standard to Test Legality:
The guidelines that a court usually uses include the following:
1. Invalidate the overly restrictive term in the contract and hold the rest of the contract valid.
2. Use the blue pencil doctrine, wherein the court has the power to rewrite the covenant so that it is less restrictive.
Most courts prefer the first option.

Question 4

In the state of Hawaii, a person must meet certain educational requirements and pass a written exam to be granted a license to practice architecture. Once the initial license is received, an annual license fee is required to maintain the license. Wilson was granted an architecture license and paid the first annual fee. One year he failed to pay this fee. During this time, he contracted with clients for approximately $34,000 of architectural services Wilson had not renewed his license. Wilson sued for his fees. Could he collect even though he had not renewed his license? (Wilson v. Kealakekua Ranch, Ltd., and Gentry Hawaii, 551 P.2D 525)

Question 5

Manix paid the local district attorney $1,500 a month for a year not to prosecute him for operating an illegal gambling establishment. Manix then decided to quit the business. He now seeks to recover the money paid to the district attorney on the grounds that his payment over the year amounted to a bribe and was therefore illegal. Can Manix recover the money?

Question 6

Berner and a number of other investors purchased stock from a San Francisco-based stock brokerage firm known as Bateman Eichler by getting an inside tip from one of the brokers employed by the firm (an illegal practice called trading on insider information). Based on the tip, the stock would rise in value, and the investors would make a large profit. When the tip turned out to be false, Berner and the other investors sued the stock brokerage firm for its losses because the market price of the stock fell far below the prices they paid for it. The trial court dismissed the complaint, concluding that the agreement to purchase the stock was illegal because the parties to the lawsuit were in pari delicto. Consequently, the plaintiffs were absolutely barred from recovery. An appeals court reversed the lower court's ruling and claimed that, regardless of the in pari delicto ruling by the lower court, Berner and the investors could still collect. Bateman Eichler appealed this decision to the U.S. Supreme Court. Should the Supreme Court decide in favor of Bateman Eichler, the stock brokerage firm? (Bateman Eichler, Hill Richards Inc. v. Berner, 472 U.S. 299, 310)

Question 7

Karns leases his small private plane to others interested in recreational flying. One Sunday morning, Ashbery rented the plane for the day. Karns was unaware that Ashbery rented the plane to haul illegal drugs from one location to another, which is in violation of both state and federal law. Can Ashbery refuse to pay Karns the rental fee claiming that the agreement was illegal?

Question 8

The University of California Medical Center admitted Tunkl as a patient. While under sedation and unable to read, Tunkl was required, as a condition for admission, to sign a document containing a clause releasing the hospital from any and all liability for the negligent or wrongful acts of its employees. Alleging personal injuries from the negligence of two physicians at the Medical Center, Tunkl sued the hospital for damages. Can the hospital excuse itself from any and all liability from the wrongful acts? (Tunkl v. Regents of University of California, 383 P.2d 441)

Question 9

Moran owned a woodcarving business situated in a plaza in Valley Forge, Pennsylvania. He carved unique items such as toys, picture frames, and miniature model cars that would sell quickly. His products were very popular, and people would come to his plaza store to make purchases. Moran also traveled to various parts of Pennsylvania selling his items at various town events. Because his items were unique, he had no competition. Ritz, a person who worked for Moran and possessed the same talents, offered to buy the business if Moran would sign the following statement as part of the contract of sale: "I agree not to reenter my current business in Valley Forge, Pennsylvania, or to travel anywhere in the state of Pennsylvania to sell the items that I currently make and sell or to compete in any manner; I further agree to refer all business contacts that call me to Ritz. This clause is valid for ten years." In violation of this agreement, Moran opened a similar business in competition with Ritz and in violation of the noncompete agreement. Is the covenant not to compete valid and enforceable in this case?

Question 10

Beaver participated in the annual Elkhart Grand Prix go-kart races in Elkhart, Indiana. She signed an exculpatory agreement containing the release of the race organizers from all liability associated with the races unless a claim at issue involved willful misconduct. During the event in which she drove, a piece of polyurethane foam padding used as a course barrier was torn from its base, and it ended up on the track. One portion of the packing struck Beaver in the head, and another portion was thrown into oncoming traffic, causing a multikart collision, during which Beaver sustained severe injuries. Beaver filed an action against the race organization, claiming that the foam padding used on the course was defective. She further claimed that because of the defects in the padding, the exculpatory agreement was illegal and void. The race organizers contended that the exculpatory agreement released her from any liability. Who is correct? (U.S. Court of Appeals, 7th Circuit, 246 F. 3d 905)

Question 11

Madison took his Porsche to the Downtown Repair Shop for some major repairs that would take three days. The repair order form prepared by the repair shop that he signed contained the following statement: "Not responsible for loss or damage to cars or articles left in cars in case of fire, theft, or any other cause beyond our control." While at the repair shop and under its control, Madison's car was stolen. Madison sued Downtown Repair Shop for failing to deliver the car to him. Is Downtown Repair Shop liable?

Question 12

Jorge Arrospide Sr. gave his son, Jorge Arrospide Jr., power of attorney to act on his behalf. To pay his father's medical bills, Jorge Jr. borrowed $4,000 on behalf of his father from Carboni, giving Carboni a secured note. There was no other source of funding available. Carboni said, "Take it or leave it." Carboni added on interest at the rate of 200 percent per year. (This loan was exempt from the usury laws in California because Carboni was a licensed real estate broker.) The 200 percent interest rate was ten times the interest rate then prevailing in the credit market for similar loans. Carboni also advanced additional funds to Jorge Sr. When Jorge Sr. failed to make any payments on the note after demand, Carboni sought to foreclose on Jorge Sr.'s real property. By this time, the amount of the debt with interest was 100 times the original debt. Jorge Sr. argued that the loan agreement was unconscionable and that the original debt should be re-formed to reflect a lower rate of interest. Carboni argued that the loan was legitimate and that Jorge Sr., should not have borrowed the money if he could not pay. What do you think the outcome should be? (Carboni v. Arrospide, 2 Cal. Rptr. 2d 845)

Question 13

You and Higgins made a $50 bet on the outcome of the Super Bowl. After your team won, Higgins refused to pay you the $50. Could you legally sue Higgins for the $50?

Question 14

Max was adjudicated incompetent by a court having proper jurisdiction. Which of the following statements is correct regarding contracts subsequently entered into by Max? (a) All contracts are voidable. (b) All contracts are enforceable. (c) All contracts are void. (4) All contracts are valid.

Question 15

Rene, who came from a wealthy family, was a teacher in what was considered a rural school district. She and her friend Curtis, an attorney, lived together, although they were not married. Rene got pregnant. She got frightened that a nonmarital pregnancy would prevent her from getting tenure (a permanent appointment) on her job. She and Curtis agreed to get married and stay married until after she had the baby and received tenure on her job, both of which would occur in approximately one year. For doing this, Rene promised to give Curtis $35,000. They wrote up an agreement specifying the conditions under which they would marry and then divorce. Rene had her child and also got a permanent appointment at her school. The conditions having been fulfilled, they then divorced, but Rene refused to pay Curtis the $35,000. Can Curtis legally collect this money?

Question 16

Facts
Jennings and her two children, Matthew, age 11 and Benjamin, age 17, leased an apartment in a subsidized housing complex with very strict rules. Strict rules were required because the rent was low and the amount paid was predicated on the number of people occupying the apartment. The stipulations in the lease allowed Jennings to remain in the complex but only under these conditions: (1) that only she and her two children could live in the apartment; (2) that the landlord must be immediately notified if one or both of the children move out; (3) that she was responsible for the actions of all members of the household, including any criminal activity involving any member of the household. Benjamin was arrested and convicted of robbery at a local grocery store. The incident was reported in the local newspaper. The landlord gave Jennings thirty days notice to vacate the apartment because of a lease violation. She refused to move so the landlord had her evicted. Jennings sued to have her lease reinstated.
At Trial
Jennings introduced evidence that Benjamin had moved away from the apartment complex three months before the robbery occurred. Based on the testimony of two persons in neighboring apartments, the landlord offered evidence that Benjamin had been to the mother's apartment and stayed overnight for two evenings prior to the time that the robbery was committed. The trial court ruled that because Benjamin had stayed in the apartment for the two evenings prior to the robbery, he was considered a member of the household and that Jennings therefore had violated the conditions of the lease. The court further ruled that Jennings had to move from the premises. Jennings appealed the case. She contended that the contents of the lease were unconscionable.
Questions
1. Define the term unconscionable, in terms of a lease.
2. Are the terms of Jennings lease unconscionable? Explain why or why not.

Question 17

Lando, chairwoman of an environmental group, was interested in the passage of a bill that banned smoking in all public places. For $2,000, she hired an attorney to draft the bill and argue for its passage before a senator interested in environmental matters. This senator was convinced of the value of the bill and urged other senators to vote in favor of its passage. The bill was passed by the legislature and became law. The attorney then demanded payment. Can Lando refuse payment on the grounds that what the attorney did was illegal?

Question 18

Rissone received a letter from a magazine publisher inviting her to enter the company's $10,000,000 sweepstakes promotion by simply returning a book of certificates with her name already typed on them. In the same envelope was an invitation to buy one of the company's new books, Eat Better, Live Better, at a reduced price. She did not have to buy the book in order to enter the sweepstakes, however. Rissone returned the certificates, but she did not win anything. She was so irritated that she notified the company that they were carrying on an illegal gambling activity.
Questions
1. Was the magazine publisher carrying on an illegal gambling activity? Explain your answer.
2. Are giveaways used for promotional purposes lawful? Explain.

Question 19

Eelbode, who applied for a job at the Travelers Inn, was required to take a preemployment physical exam. He was sent to the Chec Medical Center. As part of his physical, he met with Grothe, a physical therapist, who put him through certain tests involving bending exercises in which he had to use his back and his knees. Prior to the physical, he was required to sign a document releasing the Chec Medical Center and the Washington Readicare Medical Group and its physicians from all liability arising from injury to him while participating in the exam. During the exam, he did suffer an injury to his back and his right leg. Eelbode filed a suit against Chec and Grothe, claiming that he was injured because of a strength test that was improperly administered. Grothe and Chec filed a motion of summary judgment asking that the case be settled in their favor because of the statement that Eelbode signed. Should Eelbode be successful in his lawsuit? (Eelbode v. Chec Medical Centers, Inc., 984 P.2d 436)