Business Law Study Set 1

Business

Quiz 16 :

Legality and Public Policy

Quiz 16 :

Legality and Public Policy

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Siddle purchased a quantity of fireworks from Red Devil Fireworks Co. The sale was illegal, however, because Siddle did not have a license to make the purchase, which the seller knew because it had been so informed by the attorney general of the state. Siddle did not pay for the fireworks, and Red Devil sued him. He defended on the ground that the contract could not be enforced because it was illegal. Was the defense valid [Red Devil Fireworks Co. v Siddle, 648 P2d 468 (Wash App)]
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Refer to the case Red Devil Fireworks Co. v Siddle (648 P2d 468).
Facts
1) Plaintiff is a seller of fireworks that sold to defendant who did not had the required license to purchase fireworks as required in the State of Washington. Plaintiff was aware of defendant's lack of license and delivered it to him.
2) Plaintiff was unable to receive payment from defendant and sued. Defendant argued contract is void based on illegality.
3) Trial court granted damages for plaintiff. Defendant appealed
Relevant Terms, Laws, and Cases
Illegal Contract contracts with illegal terms (e.g. hire for murder, corporate espionage) are not enforceable. However, if only one part of the provision of a contract is illegal and does not affect the contract as a whole the other parts of the contract may still be enforced.
RCW 70.77.480 a Washington state regulation prohibiting sale, transport, or delivery of fireworks without a license.
Opinion
The contract is illegal. It is clear that plaintiff and defendant violated the by their act. Hence, the court denied recovery for damages based on the fact that plaintiff knowingly acted illegally. The only remedy is return of the fireworks from the defendant restoring both to their positions before the sale.
Appeals court reversed the decision.

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A state law required builders of homes to be licensed and declared that an unlicensed contractor could not recover compensation under a contract made for the construction of a residence. Although Annex Construction, Inc., did not have a license, it built a home for French. When he failed to pay what was owed, Annex sued him. He raised the defense that the unlicensed contractor could not recover for the contract price. Annex claimed that the lack of a license was not a bar because the president of the corporation was a licensed builder and the only shareholder of the corporation, and the construction had been properly performed. Was Annex entitled to recover
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F hired company A to construct homes in a state requiring contractor license. However, A's builders did not have a contractor license while A 's owner did. This is a public policy issue as the state clearly wants home builders to be licensed and regulated, F may defend on the ground that they did not have the proper license required by the state. For example, a doctor can't tell his secretary to perform medical work and be billed for medical services as regulation require these work to be done by the medical professional.

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When are the parties to an illegal agreement in pari delicto
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In pari delicto refers to in equal fault, e.g. means both parties at equally at fault for committing to an illegal agreement. For example, a woman contracting a hitman for killing her husband will be equally guilty as the hitman. Both the woman and hitman are guilty of murder.

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Vodra was employed as a salesperson and contracting agent for American Security Services. As part of his contract of employment, Vodra signed an agreement that for three years after leaving this employment, he would not solicit any customer of American. Vodra had no experience in the security field when he went to work for American. To the extent that he became known to American's customers, it was because of being American's representative rather than because of his own reputation in the security field. After some years, Vodra left American and organized a competing company that solicited American's customers. American sued him to enforce the restrictive covenant. Vodra claimed that the restrictive covenant was illegal and not binding. Was he correct [American Security Services, Inc. v Vodra, 385 NW2d 73 (Neb)]
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Sutcliffe Banton, dba Nemard Construction, furnished labor and materials (valued at $162,895) for improving Vicky Deafeamkpor's New York City residential property. She paid only $41,718, leaving $121,987 unpaid. Banton sued her and the jury awarded $90,000 in damages. Deafeamkpor moved for an order setting aside the jury's verdict because Banton was not properly licensed by New York City. Under NYC Code an unlicensed contractor may neither enforce a home improvement contract against an owner or recover in quantum meruit. The jury heard all the evidence regarding the materials and labor expended on Deafeamkpor's residence and concluded that the plaintiff performed satisfactory work valued at $90,000 for which he was not paid. Should the court allow the owner to take advantage of Banton and his employees and suppliers What public policy would support such an outcome Decide. [Nemard Construction Corp. v Deafeamkpor, 863 NYS2d 846]
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Blue purchased a travel agency business from Drye. The purchase price included payment for Drye's goodwill. The agreement contained a covenant prohibiting Drye from competing with Blue in the travel agency business. Which of the following statements regarding the covenant is not correct a. The restraint must be no more extensive than is reasonably necessary to protect the goodwill purchased by Blue. b. The geographic area to which it applies must be reasonable. c. The time period for which it is to be effective must be reasonable. d. The value to be assigned to it is the excess of the price paid over the seller's cost of all tangible assets. (11/87, Law, #2)
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West, an Indiana real estate broker, misrepresented to Zimmer that West was licensed in Kansas under the Kansas statute that regulates real estate brokers and requires all brokers to be licensed. Zimmer signed a contract agreeing to pay West a 5 percent commission for selling Zimmer's home in Kansas. West did not sign the contract. West sold Zimmer's home. If West sued Zimmer for nonpayment of commission, Zimmer would be: a. Liable to West only for the value of services rendered b. Liable to West for the full commission c. Not liable to West for any amount because West did not sign the contract d. Not liable to West for any amount because West violated the Kansas licensing requirements (5/92, Law, #25)
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The Minnesota adoption statute requires that any agency placing a child for adoption make a thorough investigation and not give a child to an applicant unless the placement is in the best interests of the child. Tibbetts applied to Crossroads, Inc., a private adoption agency, for a child to adopt. He later sued the agency for breach of contract, claiming that the agency was obligated by contract to supply a child for adoption. The agency claimed that it was required only to use its best efforts to locate a child and was not required to supply a child to Tibbetts unless it found him to be a suitable parent. Decide. [Tibbetts v Crossroads, Inc., 411 NW2d 535 (Minn App)]
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Eugene McCarthy left his position as director of sales for Nike's Brand Jordan division in June 2003 to become vice president of U.S. footwear sales and merchandising at Reebok, one of Nike's competitors. Nike sought a preliminary injunction to prevent McCarthy from working for Reebok for a year, invoking a noncompete agreement McCarthy had signed in Oregon in l997 when Nike had promoted him to his earlier position as a regional footwear sales manager. The agreement stated in pertinent part: During EMPLOYEE'S employment by NIKE... and for one (1) year thereafter, ("the Restriction Period"), EMPLOYEE will not directly or indirectly... be employed by, consult for, or be connected in any manner with, any business engaged anywhere in the world in the athletic footwear, athletic apparel or sports equipment and accessories business, or any other business which directly competes with NIKE or any of its subsidiaries or affiliated corporations. McCarty contends that such a contract is a restraint of trade and should not be enforced. Nike contends that the agreement is fair and should be enforced. Decide. [Nike, Inc. v McCarthy, 379 F3d 576 (9th Cir)]
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Potomac Leasing Co. leased an automatic telephone system to Vitality Centers. Claudene Cato signed the lease as guarantor of payments. When the rental was not paid, Potomac Leasing brought suit against Vitality and Cato. They raised the defense that the rented equipment was to be used for an illegal purpose-namely, the random sales solicitation by means of an automatic telephone in violation of state statute; that this purpose was known to Potomac Leasing; and that Potomac Leasing could therefore not enforce the lease. Was this defense valid [Potomac Leasing Co. v Vitality Centers, Inc., 718 SW2d 928 (Ark)]
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Yarde Metals, Inc., owned six season tickets to New England Patriots football games. Gillette Stadium, where the games are played, had insufficient men's restrooms in use for football games at that time, which was the subject of numerous newspaper columns. On October 13, 2002, a guest of Yarde Metals, Mikel LaCroix, along with others, used available women's restrooms to answer the call of nature. As LaCroix left the restroom, however, he was arrested and charged with disorderly conduct. The Patriots organization terminated all six of Yarde's season ticket privileges, incorrectly giving as a reason that LaCroix was ejected "for throwing bottles in the seating section." Yarde sued, contending that "by terminating the plaintiff's season tickets for 2002 and for the future arbitrarily, without cause and based on false information," the Patriots had violated the implicit covenant of good faith and fair dealing of the season tickets contract. The back of each Patriots ticket states: This ticket and all season tickets are revocable licenses. The Patriots reserve the right to revoke such licenses, in their sole discretion, at any time and for any reason. How would you decide this case [Yarde Metals, Inc. v New England Patriots Ltd., 834 NE2d 1233 (Mass App Ct)]
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All new employees of Circuit City Stores were required to sign a Dispute Resolution Agreement (DRA) mandating that employees submit all employment-related disputes to arbitration. Under the DRA Circuit City was not obligated to arbitrate its claims against employees and may bring lawsuits against employees. Remedies are limited under the DRA, including one year back pay limit and a two-year front pay limit, with cap on punitive damages of an amount up to the greater of the amount of back pay and front pay awarded or $5,000. In a civil lawsuit under state law a plaintiff is entitled to all forms of relief. The DRA requires that employees split the cost of the arbitrator's fees with the employer. An individual is not required to pay for the services of a judge. Adams filed a sexual harassment case against his employer in state court. Circuit City filed a petition in federal court to compel arbitration. Decide. [ Circuit City Stores, Inc. v. Adams, 274 F.3d 889 (9th Cir.)]
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The English publisher of a book called Cambridge gave a New York publisher permission to sell that book any place in the world except in England. The New York publisher made several bulk sales of the book to buyers who sold the book throughout the world, including England. The English publisher sued the New York publisher and its customers for breach of the restriction prohibiting sales in England. Decide.
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Ewing was employed by Presto-X-Co., a pest exterminator. His contract of employment specified that he would not solicit or attempt to solicit customers of Presto-X for two years after the termination of his employment. After working several years, his employment was terminated. Ewing then sent a letter to customers of Presto-X stating that he no longer worked for Presto-X and that he was still certified by the state. Ewing set forth his home address and phone number, which the customers did not previously have. The letter ended with the statement, "I thank you for your business throughout the past years." Presto-X brought an action to enjoin Ewing fromsending such letters.He raised the defense that he was prohibited only from soliciting and there was nothing in the letters that constituted a seeking of customers. Decide. What ethical values are involved [Presto-X-Co. v Ewing, 442 NW2d 85 (Iowa)]
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Smith was employed as a salesman for Borden, Inc., which sold food products in 63 counties in Arkansas, 2 counties in Missouri, 2 counties in Oklahoma, and 1 county in Texas. Smith's employment contract prohibited him from competing with Borden after leaving its employ. Smith left Borden and went to work for a competitor, Lady Baltimore Foods. Working for this second employer, Smith sold in 3 counties of Arkansas. He had sold in 2 of these counties while he worked for Borden. Borden brought an injunction action against Smith and Lady Baltimore to enforce the noncompete covenant in Smith's former contract. Was Borden entitled to the injunction [Borden, Inc. v Smith, 478 SW2d 744 (Ark)]
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John Iwen sued U.S. West Direct because of a negligently constructed yellow pages advertisement. U.S. West Direct moved to stay litigation and compel arbitration under the yellow pages order form, which required advertisers to resolve all controversies through arbitration, but allowed U.S. West (the publisher) to pursue judicial remedies to collect amounts due it. Under the arbitration provision, Iwen's sole remedy was a pro rata reduction or refund of the cost of the advertisement. The order form language was drafted by U.S. West Direct on a take-it-or-leaveit basis and stated in part: Any controversy or claim arising out of or relating to this Agreement, or breach thereof, other than an action by Publisher for the collection of amounts due under this Agreement, shall be settled by final, binding arbitration in accordance with the Commercial Arbitration rules of the American Arbitration Association. If forced to arbitration, Iwen would be unable to recover damages for the negligently constructed yellow pages ad, nor could he recover damages for infliction of emotional distress and punitive damages related to his many efforts to adjust the matter with the company, which were ignored or rejected. Must Iwen have his case resolved through arbitration rather than a court of law [Iwen v U.S. West Direct, 977 P2d 989 (Mont)]
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Onderdonk entered a retirement home operated by Presbyterian Homes. The contract between Onderdonk and the home required Onderdonk to make a specified monthly payment that could be increased by the home as the cost of operations increased. The contract and the payment plan were thoroughly explained to Onderdonk. As the cost of operations rose, the home continually raised the monthly payments to cover these costs. Onderdonk objected to the increases on the ground that the increases were far more than had been anticipated and that the contract was therefore unconscionable. Was his objection valid
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