Contractually Bound, Litigation of Business | Business of Litigation

CONTRARY TO PUBLIC POLICY–Unenforceable and Void Contracts

“Judicial decision on one contract can rarely help us to the understanding of another.”  Lord O’Hagan, Rhodes v. Forwood, L. R. 1 Ap. Ca. 275 (1876).

contract imageI think one of my favorite contract clauses is when the drafter inserts language that tries to make the agreement exempt from any laws whatsoever. They usually go something like this:

 

“Party A agrees to pay this ‘service/labor/consulting/alternative/termination/whatever’ fee, despite any statutes or law to the contrary.”

 

When I see one of these clauses, I just know there’s something fishy in the agreement.

Why else would anyone go to all the trouble of trying to make it so no laws can apply to the contract? Or even wanting such an application? I suppose, after all, those pesky laws always get in the way and . . . just won’t let me get my way!

 

I have litigated a number of contract cases with similar clauses that purport to contract around the law. And not once have I ever ran across an attorney willing to argue the clause to the court. Just think about trying to make that argument with a straight face.

 

Courts commonly call these types of contract provisions that try to skirt an established law or statute an illegal contract or that the clause is contrary to public policy. When found to be illegal or contrary to public policy, the clause is usually found to be void and unenforceable. In other words, don’t waste your time and any ink or paper writing one of these up and thinking you can bind someone with it.

 

This issue does come up for me from time to time. Usually I get a situation where someone has committed a crime and wants the victim to agree to a contract prohibiting the victim from reporting the crime. I always shoot these down because I won’t draft a contract that is clearly an illegal contract, unenforceable and void anyways.

 

On the flip side, certain statutes specifically permit “drafting around” it. A perfect example is in Minnesota’s Business Corporation Act (“MBCA”) found at Minnesota Statutes, Section 302A.111 (2013). The first section of this statute sets out provisions that are required to be in a corporation’s articles of incorporation. Then in Subdivision 2, the statute explicitly lists particular sections of the MBCA that will apply, unless you modify them in the corporation’s articles of incorporation or in a shareholder control agreement.

 

So, don’t waste your time, money or energy on drafting a contract that would clearly violate a statute or other law making it contrary to public policy/illegal. After all, it will be declared void and won’t be enforceable. However, like most legal issues, there are always exception that  may apply and it could be worth it to figure that out in advance of getting into any agreements where the exception could apply.

 

MKT

www.mktlawoffice.com

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