shapes , reflecting society's values and protecting public welfare. Courts may deem contracts violating public policy unenforceable, even if other elements are valid. This exception to freedom of contract prioritizes over individual rights.
Contracts against public policy include , those promoting divorce, involving illegal activities, or waiving . Courts use a to weigh competing interests, considering factors like violation severity and potential public harm.
Public Policy and Contract Enforceability
Public policy and contract enforceability
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Fundamental principles, values, and interests that guide a society or state
Reflects collective moral, social, and economic standards of a community
Aims to protect public welfare and prevent harm to society
Contracts contravening public policy may be deemed unenforceable by courts
Occurs even if all other elements of a valid contract are present (offer, acceptance, consideration)
Courts prioritize public interest over individual contractual rights in these cases
Unenforceability due to violation of public policy serves as an exception to the general principle of freedom of contract
Contracts against public policy
Restraint of trade agreements
unreasonably restricting an employee's ability to work in their chosen field after leaving a company
Agreements between businesses stifling competition (price-fixing, market allocation)
Agreements incentivizing or encouraging the dissolution of marriage
Contract offering a financial reward for getting divorced
Agreements to engage in criminal acts (drug trafficking, prostitution)
Agreements requiring a party to give up essential legal rights
Right to sue for damages
Right to a fair trial
Balancing test for policy violations
Courts weigh competing interests involved in the contract
Public interest in enforcing the contract
Public policy considerations against enforcement
Factors considered in the balancing test
Severity of the violation of public policy
of the parties
if the contract is enforced
Extent to which the contract has already been performed
Balancing test is case-specific and depends on unique circumstances of each contract dispute
Consequences of policy-violating contracts
Contract found to violate public policy may be deemed unenforceable in its entirety
Court will not aid either party in enforcing the agreement
Parties are left in the position they were in before entering the contract
In some cases, courts may partially enforce a contract by severing offending provisions
allows court to remove unenforceable clauses while enforcing remainder of contract
Only possible if offending provisions are not central to contract and can be separated without altering essential nature of agreement
may be available to prevent unjust enrichment
If one party has conferred a benefit to the other under the unenforceable contract, they may be entitled to restitution to recover the value of the benefit conferred