Public Policy and Illegality : Contract Law

1. Public Policy and Illegality
   1. Clouse v. Myers
      1. Facts: Π and Δ entered an agreement to jointly run a tavern. Π paid money to Δ as an investment in the venture, with more to pay at a later date. However, it was not legal for Π to operate a tavern in the manner propsed, and the authorities halted the operation. Π then sued Δ for return of the payment made.
      2. Analysis: Essential elements of actionable fraud (Failure to prove all of the essential elements is fatal to a claim of fraud):
         1. That a representation was made as a statement of fact, which was untrue and known to be untrue by the party making it, or else recklessly made,
            1. That the representation was made with intent to deceive and for the purpose of inducing the other party to act upon it
            2. That the other party relied on the statement and was induced to act by it, AND
            3. Was damaged thereby.
         2. In the instant case, there is nothing to suggest that D induced P or misrepresented anything to P; further, even though the representation in the contract about the lease was false there is nothing in the record to show P relied on that representation to P’s detriment 
         3. Court twists the knife a bit, says “neither law nor equity can be invoked to redress a wrong that has resulted from the injured party’s own wrongful and illegal conduct.” 
            1. Calls contract “subterfuge;” the parties were both shady.
      3. Held: Because Π and Δ were violating the law when they entered the K, the action is denied. 
   2. Hopper v. All Pet Animal Clinic, Inc.
      1. Facts: Π worked for Δ for a time under a K that disallowed her working as a small animal veterinarian within the 5 miles surrounding the city for 3 years. Π left and then worked at another animal hospital and depleted some of Δ’s business. 
      2. Issue: Are covenants such as these enforceable?
      3. Analysis:
         1. The enforceability of a covenant not to compete depends upon a finding that the correct balance exists b/w the competing interests of employer and employee
         2. Rst. 2d, Sec. 185-188: Traditional disfavor of restraints of trade means covenants not to compete are construed against the party seeking to enforce them: the initial burden is on the employer to prove the covenant is reasonable and necessary
            1. Rst. 2d, Sec. 188: “A restraint is reasonable only if it 1) is no greater than is required for the protection of the employer, 2) does not impose undue hardship on the employee, and 3) is not injurious to the public.”
               1. In the instant case, enforcement of practice restrictions does not create an unreasonable restraint on trade; the public will not suffer hardship from enforcement of the covenant (H’s skill not unique) b/c the public can receive complete and satisfactory services from other sources; and the five-mile geographic restriction is also reasonable.
         3. The question is the DURATIONAL restriction.
            1. Rst. 2d, Sec. 188, cmt. b: Time must be reasonable; if the restraint is for the purpose of protecting customer relationships, its duration is reasonable only “if it is no longer than necessary for the employer to put a new person on the job and for the new employee to have a reasonable opportunity to demonstrate her effectiveness to the customers.”
         4. Rst. 2d, Sec. 184: Enforceability: CB 403: If less than all of an agreement is unenforceable, the court may still enforce the reasonable terms; also, “a court may treat only part of a term as unenforceable,” and therefore narrow its scope to make it reasonable, but the court cannot ADD to the terms of the agreement.
            1. In the instant case, narrowing the three years down to one as a durational limit is reasonable in light of the circumstances.
         5. Damages: Coulthard: “A fundamental principle of damage assessment declares that a person injured receives only compensation for his loss and no more.”
            1. Lost profits are calculated based on a “net” figure requiring proof that:
               1. Net profits were lost
               2. The amount of those profits can be determined with a reasonable degree of certainty, and
               3. Defendant’s breach was the proximate cause of the lost profits. 
         6. Rst. 2d, Sec. 186
            1. A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of trade.
            2. A promise is in restraint of trade if its performance would limit competition in any business or restrict the promisor in the exercise of a gainful occupation.
      4. Result: The Court held that the 3 year duration was unreasonable, and reduced it to 1 year. The Court affirmed the remaining terms of the covenant. Did not award damages to All-Pet b/c of lack of proof.
      5. Bottom Line:
         1. A noncompetition covenant is okay if the enforcing agent can prove it is necessary for business interests.
         2. A covenant cannot deprive a community of a unique skill.
         3. A covenant cannot impose undue hardship on the terminating worker
         4. Geography constraints are upheld when the business serves a limited geographical area
         5. Time constraints should be reasonably related to the legitimate interest which the employer is seeking to protect.
   3. A.Z. v. B.Z.
      1. Facts: Π and Δ divorced after going through artificial insemination and storing pre-embryos. Δ wants to have the pre-embryos implanted; Π does not. 
      2. Issue: Can an individual be compelled to procreate? Does a consent form constitute a contract between the couple?
      3. Analysis: The effect of a consent form between a married couple and an in vitro fertilization clinic concerning the disposition of frozen preembryos is void when the effect of enforcing said form would require AZ to become a parent over his present objection to such an undertaking, which the court will not do. 
      4. Court finds the agreement does not represent the intent of AZ and BZ regarding disposition of the embryos in the event of a dispute between them, and should not be enforceable.
         1. Court stated other independent reasons that the form should not be enforced
            1. The form is for the benefit of the clinic, to provide the clinic with guidance if the donors as a unit no longer wish to use frozen embryos
            2. Form does not contain duration provision
            3. No definition of “become separated.”
            4. Doubtful that the form conveyed the clear intention of both donors
            5. The consent form is not a separation agreement that is binding on the couple in a divorce proceeding pursuant to statute. 
               1. It is legally insufficient, does not contain provisions for custody, support and maintenance in the event that BZ actually conceives, and the form does not approach the level of completeness needed to denominate it as an enforceable contract in a dispute b/w husband and wife
      5. Held: A person cannot be compelled by court to procreate. Also, the purpose of the consent form was not to bind the couple to an agreement, but was only meant to direct the clinic. 
      6. Dicta: Public Policy
         1. Even if AZ and BZ entered into an unambiguous agreement, the court would not enforce an agreement that would compel one donor to become a parent against his or her will. 
            1. “As a matter of public policy, forced procreation is not an area amenable to judicial enforcement.”
         2. public policy will also not force an abortion of the child, even if a couple agrees that the woman would go on birth control and does not.