illegal provision in an agreement


Question 1
Amy is hired by BigMart as a cashier. At the time of hiring, Amy is required to sign an arbitration agreement under which she agreed to settle any and all claims she might have relating to her employment by final and binding arbitration before a neutral arbitrator and in accordance with BigMart’s “Dispute Resolution Rules and Procedures,” which is a separate ten-page document containing complex procedural details. Under the agreement, Amy is required to pay for all arbitration-related costs, and BigMart can still sue Amy in civil court for claims arising from her employment. A court will most likely view this agreement as:

unconscionable because it is an adhesion contract.

unconscionable because it is arbitration agreement.

unconscionable because it is an adhesion contract that is oppressive and defeats the reasonable expectations Amy would have.


Question 2

A clearly illegal provision in an agreement:

infects the whole agreement and makes it unenforceable.

means criminal liability for the party who drafted it.

may be divisible from the rest of the agreement, which means that the court will enforce the agreement without it.

can be rescinded if the weaker party voluntarily waives it.
Question 3

Helga owns an insurance business in Idaho. Her clients are all Idaho residents. She later sells her business to Carlos. As part of the deal, the contract contains a non-compete clause that prevents Helga from operating an insurance business anywhere in Idaho, Washington or Oregon for a period of five years. Six months after this sale, Helga opens an insurance business in Oregon. If Carlos seeks to enforce the non-compete agreement against Helga, will he probably be successful?

Yes, because this agreement is reasonable

Yes, because non-compete agreements that are part of the sale of a business are always enforced

No, because this agreement is not reasonable

No, because non-compete agreements that are part of the sale of a business are seldom enforced

Question 4

Normally, an illegal contract is_____________.






Question 5

A(n) _____________ is a provision in a contract that purports to relieve one of the parties from tort liability.

non-compete clause

contract of adhesion

ancillary covenant

exculpatory clause

Question 6

Tell, an Ohio real estate broker, misrepresented to Allen that Tell was licensed in Michigan under Michigan’s statute regulating real estate brokers. Allen signed a standard form listing contract agreeing to pay Tell a 6% commission for selling Allen’s home in Michigan. Tell sold Allen’s home. Under the circumstances, Allen is

not liable to Tell for any amount because Allen signed a standard form contract.

not liable to Tell for any amount because Tell violated the Michigan licensing requirements.

liable to Tell only for the value of services rendered under a quasi-contract theory.

liable to Tell for the full commission under a promissory estoppel theory.


Question 7

Which of the following is an example of substantive unconscionability?

Terms, that are stated in “fine print.”

A disparity in bargaining power between the parties.

High-pressure sales tactics.

A penalty clause obligating the buyer to pay five times the product’s price for failing to accept the goods when delivered.
4 points
Question 8

So-called “contracts of adhesion”_________________.

may be unconscionable

are absolutely binding

are always unenforceable

are voidable at the option of the weaker party



Question 9

ABC Corp. hired Wolfgang to fill an Accounting position. ABC is in the recycling business and operates only in New York City. Wolfgang signed an employment contract that contained a non-compete provision. This provision states that Wolfgang will not work for another recycling company for six years anywhere in the State of New York. After five years Wolfgang quit and accepted a position with a recycling company in Buffalo N.Y., four hundred miles away from N.Y. City. ABC is suing Wolfgang to enforce the non-compete agreement. The likely outcome of this lawsuit is:

Wolfgang will win, because this non-compete agreement is not reasonable.

Wolfgang will win, because non-compete agreements that are part of employment contracts are never enforced.

Wolfgang will lose, because this non-compete agreement is reasonable.

Wolfgang will lose, because public policy requires the general enforceability of non-compete agreements.

Question 10

In violation of a state licensing statute, Jones purports to be an attorney. After making that allegation, he contracts to perform legal service for Smith. Smith then pays Jones a $500 retainer. Later, after discovering that Jones is not licensed and therefore cannot get the job done, Smith sues Jones for the $500. What is the most likely result, and why?

Smith definitely wins, because here we have a revenue-raising statute.

Smith probably wins, because parties for whose protection a regulatory statute has been enacted often can recover amounts paid under a contract declared illegal by the statute.

Smith definitely loses, because here we have a regulatory statute.

Smith probably loses, because the law obligates one to check the licensure of a professional with whom one deals.


Question 11

You are the attorney for WABC, a New York City television news outfit, and you are in charge of drafting a non-compete agreement for the new anchorperson Bob Bobswell. Bobswell was born and raised in New York, but educated in California. His most recent job was as an anchor man in Minnesota. Using the principles you learned in this Unit, and assuming that non-compete agreements are valid in this state, draft a valid non-compete agreement that can be used by the parties should Bobswell part ways with the company. Explain each clause and why it is reasonable under the principles of a successful non-compete agreement.

Question 12

Jan works in a sandwich shop run by Amy. Amy makes Jan sign a noncompete contract that states if Jan quits, she is not to engage in a similar business within a three state radius of Amy’s business for 5 years. Is this contract legal and enforceable? Why or why not? If the agreement is not enforceable, how might Jan and Amy restructure it to increase its chances of being legal?

Question 13

Noncompetition Clause and Public Policy
A man entered into a contract to buy a small business from the entrepreneur who had started it. Before completing the formalities, the buyer learned that the entrepreneur had taken a job with a larger rival company. The buyer now fears that the seller is taking vital business information with him to the rival business, and that this will affect the prospects of the small business. How can the buyer protect his interests? What legal protection does he have? Can the contract be declared illegal?
Write your analysis in 300 words.





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