USA

CHAPTER 8 - UNENFORCEABILITY ON GROUNDS OF PUBLIC POLICY

Topic 1 - Unenforceability in General

178 When a Term Is Unenforceable on Grounds of Public Policy

1. A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

2. In weighing the interest in the enforcement of a term, account is taken of

  • the parties' justified expectations,
  • any forfeiture that would result if enforcement were denied, and
  • any special public interest in the enforcement of the particular term.

3. In weighing a public policy against enforcement of a term, account is taken of

  • the strength of that policy as manifested by legislation or judicial decisions,
  • the likelihood that a refusal to enforce the term will further that policy,
  • the seriousness of any misconduct involved and the extent to which it was deliberate, and
  • the directness of the connection between that misconduct and the term.

179 Bases of Public Policies Against Enforcement

A public policy against the enforcement of promises or other terms may be derived by the court from

  • legislation relevant to such a policy, or
  • the need to protect some aspect of the public welfare, as is the case for the judicial policies against, for example,
    • restraint of trade (§§ 186-188),
    • Impairment of family relations (§§ 189-191), and
    • interference with other protected interests (§§ 192-196, 356).

180 Effect of Excusable Ignorance

If a promisee is excusably ignorant of facts or of legislation of a minor character, of which the promisor is not excusably ignorant and in the absence of which the promise would be enforceable, the promisee has a claim for damages for its breach but cannot recover damages for anything that he has done after he learns of the facts or legislation.

181 Effect of Failure to Comply with Licensing or Similar Requirement

If a party is prohibited from doing an act because of his failure to comply with a licensing, registration or similar requirement, a promise in consideration of his doing that act or of his promise to do it is unenforceable on grounds of public policy if

  • the requirement has a regulatory purpose, and
  • the interest in the enforcement of the promise is clearly outweighed by the public policy behind the requirement.

182 Effect of Performance If Intended Use Is Improper

If the promisee has substantially performed, enforcement of a promise is not precluded on grounds of public policy because of some improper use that the promisor intends to make of what he obtains unless the promisee

  • acted for the purpose of furthering the improper use, or
  • knew of the use and the use involves grave social harm.

183 When Agreement Is Enforceable as to Agreed Equivalents

If the parties' performances can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents and one pair is not offensive to public policy, that portion of the agreement is enforceable by a party who did not engage in serious misconduct.

184 When Rest of Agreement Is Enforceable

1. If less than all of an agreement is unenforceable under the rule stated in § 178, a court may nevertheless enforce the rest of the agreement in favor of a party who did not engage in serious misconduct if the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange.

2. A court may treat only part of a term as unenforceable under the rule stated in Subsection (1) if the party who seeks to enforce the term obtained it in good faith and in accordance with reasonable standards of fair dealing.

185 Excuse of a Condition on Grounds of Public Policy

To the extent that a term requiring the occurrence of a condition is unenforceable under the rule stated in § 178, a court may excuse the non-occurrence of the condition unless its occurrence was an essential part of the agreed exchange.

186 Promise in Restraint of Trade

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.

187 Non-Ancillary Restraints on Competition

A promise to refrain from competition that imposes a restraint that is not ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade.

188 Ancillary Restraints on Competition

1. A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction or relationship is unreasonably in restraint of trade if

  • the restraint is greater than is needed to protect the promisee's legitimate interest, or
  • the promisee's need is outweighed by the hardship to the promisor and the likely injury to the public.

2. Promises imposing restraints that are ancillary to a valid transaction or relationship include the following:

  • a promise by the seller of a business not to compete with the buyer in such a way as to injure the value of the business sold;
  • a promise by an employee or other agent not to compete with his employer or other principal;
  • a promise by a partner not to compete with the partnership.

Topic 3 - Impairment of Family Relations

189 Promise in Restraint of Marriage

A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of marriage.

190 Promise Detrimental to Marital Relationship

1. A promise by a person contemplating marriage or by a married person, other than as part of an enforceable separation agreement, is unenforceable on grounds of public policy if it would change some essential incident of the marital relationship in a way detrimental to the public interest in the marriage relationship. A separation agreement is unenforceable on grounds of public policy unless it is made after separation or in contemplation of an immediate separation and is fair in the circumstances.

2. A promise that tends unreasonably to encourage divorce or separation is unenforceable on grounds of public policy.

191 Promise Affecting Custody

A promise affecting the right of custody of a minor child is unenforceable on grounds of public policy unless the disposition as to custody is consistent with the best interest of the child.

192 Promise Involving Commission of a Tort

A promise to commit a tort or to induce the commission of a tort is unenforceable on grounds of public policy.

193 Promise Inducing Violation of Fiduciary Duty

A promise by a fiduciary to violate his fiduciary duty or a promise that tends to induce such a violation is unenforceable on grounds of public policy.

194 Promise Interfering with Contract with Another

A promise that tortiously interferes with performance of a contract with a third person or a tortiously induced promise to commit a breach of contract is unenforceable on grounds of public policy.

Topic 5 - Restitution

197 Restitution Generally Unavailable see also Remedies

Except as stated in §§ 198 and 199, a party has no claim in restitution for performance that he has rendered under or in return for a promise that is unenforceable on grounds of public policy unless denial of restitution would cause disproportionate forfeiture.

198 Restitution in Favor of Party Who Is Excusably Ignorant or Is Not Equally in the Wrong see also Remedies

A party has a claim in restitution for performance that he has rendered under or in return for a promise that is unenforceable on grounds of public policy if

  • he was excusably ignorant of the facts or of legislation of a minor character, in the absence of which the promise would be enforceable, or
  • he was not equally in the wrong with the promisor.

199 Restitution Where Party Withdraws or Situation Is Contrary to Public Interest see also Remedies

A party has a claim in restitution for performance that he has rendered under or in return for a promise that is unenforceable on grounds of public policy if he did not engage in serious misconduct and

  • he withdraws from the transaction before the improper purpose has been achieved, or
  • allowance of the claim would put an end to a continuing situation that is contrary to the public interest.