Texas Causes of Action & Affirmative Defenses

Texas Causes of Action & Affirmative Defenses

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Tuesday, May 3, 2011

Public policy defense to contract enforcement in Texas


State's public policy may provide grounds for avoidance of contract

ILLEGAL CONTRACT – PUBLIC POLICY AS BAR TO JUDICIAL ENFORCEMENT OF A CONTRACT - CONTRACT MAY NOT BE IN VIOLATION OF PUBLIC POLICY
  
The Legislature determines public policy through statutes. Fairfield Ins. Co. v. Stephens Martin Paving, LP, 246 S.W.3d 653, 665 (Tex. 2008). In addition, the Texas Supreme Court has determined that certain agreements violate public policy. Id. “[T]o determine whether a contract violates public policy, we consider the policies underlying any applicable statutes.” Lawrence v. CDB Servs., Inc., 44 S.W.3d 544, 555 (Tex. 2001) (superseded by statute on other grounds).

In examining an agreement to determine if it is against public policy, we look to see whether the agreement has a tendency to injure the public good. Sacks v. Dallas Gold & Silver Exch., Inc., 720 S.W.2d 177, 180 (Tex. App.—Dallas 1986, no writ).

Whether a contract is contrary to public policy is a question of law. Hoover Slovacek LLP v. Walton, 206 S.W.3d 557, 562 (Tex. 2006).

A RELEASE IS A CONTRACT AND THUS SUBJECT TO STATE'S PUBLIC POLICY

In general, Texas law favors voluntary settlement of disputes and, thus, will give a properly executed release legal force. See Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 178 (Tex. 1997); see also In re Prudential Ins. Co. of Am., 148 S.W.3d 124, 129 & n.11 (Tex. 2004) (orig. proceeding) (“As a rule, parties have the right to contract as they see fit as long as their agreement does not violate the law or public policy.”).

A release, just as any other contract, however, is subject to the public policy of the State. Ranger Ins. Co. v. Ward, 107 S.W.3d 820, 827 (Tex. App.—Texarkana 2003, pet. denied).

SOURCE: Houston Court of Appeals 14-09-00641-CV 5/3/11
LEGAL TERMS: Illegal contract defense | public policy | illegal contract | enforceability avoidance of contracts