132 MODULE 23 CONTRACTS

(2) An agreement to not press criminal charges for consideration is illegal

EXAMPLE: A has embezzled money from his employer. The employer agrees to not press charges if A pays
back all of the money.

(3) Services rendered without a license when statute requires a Iicense

(a) Two types of licensing statutes
1] Regulatory licensing statute-one that seeks to protect public from incapable, un-
skilled, or dishonest persons

a] Contract is unenforceable by either party

b) Even if work done, other need not pay because not a contract
EXAMPLE: X,falsely claiming to have a CPA license, performs an audit for ABC Company.
Upon learning the true facts, ABC may legally refuse to pay X any fees or expenses .

. 2] Revenue-seeking statute-purpose is to raise revenue for government

a] Contract is enforceable
EXAMPLE: Y, based on a contract, performed extensive yard workfor M. M then finds out
that Y failed to obtain a license required by the local government to raise revenue. M is obli-
gated to pay Y the agreed-upon amount. '

(4) Usury (contract for greater than legal interest rate)

(5) Contracts against public policy

(a) Contracts in restraint of trade such as covenant not to compete after end of an employment
contract

1] Courts must balance need of former employer such as protection of trade secrets or
customer base with need of employee to practice his/her line of work

2] Typically, contract will restrict employee from competing in named areas for stated
period of time .
3] Employer must show that covenant not to compete is needed to protect interests of
employer and that restraints are reasonable as to geographical area and as to time pe-
riod

(b) Upon sale of business, seller agrees to not compete with sold type of business in named
areas for stated period of time

1] Courts will look at reasonableness as to geographical area, reasonableness as to time,

and whether covenant is unduly restrictive for public's
need
, ,

(c) Exculpatory clauses are clauses found in contracts in which one party tries to avoid liabil-
ity for own negligence '
1] These are generally against public policy and not enforceable unless both parties have
relatively equal bargaining power
EXAMPLE: An automobile dealership agrees to fix the engine of a car brought in by a consumer
for repair. A clause in the contract provides that the dealer will not be liable for any mistakes it
may make during the repair.

Reality of Consent-If one of the following concepts is present, a contract may be void (i.e., no con-
t~act) or voidable (i.e., enforceable until party having right decides to pull out).

a. Fraud-includes following elements

(1) Misrepresentation of a material fact
(a) Can be falsehood or concealment of defect
(b) Silence is not misrepresentation unless there is duty to speak, for example,
1] Fiduciary relationship between parties
2] Seller of property knows there is a dangerous latent, (hidden) defect
(c) Must be statement of past or present fact
1] Opinion (e.g., of value) is not fact
a] Experts' opinion does constitute fraud