Chapter 10Chapter 10

11-1 Illegal Agreements

Four ways to distinguish cases between void agreements because of contracting for an illegal act or contracts require a violation of the law and yet be enforceable are:1. Statutes sometimes explicitly state that certain contracts are unenforceable. 2. Courts look at the impact of violation of a state on the public welfare.3.Courts look at how directly the contract and the violation of the statute are connected. 4. Courts look at how involved the parties are in the violation of a statute.

Contracts Made Illegal by Specific Statute.

Most states forbid gambling.

Gambling involves an agreement with three elements:

1. Payment to participate

2. Chance to win, based on luck rather than skill.

3. Prize for one or more winners.

Wager

Wager is one of the most common forms of gambling.

With certain exceptions, lenders of money may not charge more than a specified maximum rate of interest.

Usury is lending money at a rate higher than the states maximum allowable rate.

Legal Rate of Interest

Legal rate of interest-interest is charged but no exact rate is stated.

States permit licensed loan companies and pawn brokers to charge a small loan rate of interest.

Agreements that Obstruct Legal Procedures

Agreement that delay or prevent justice are void promises to:1. Pay non-expert witnesses in a trial to testify or pay or false testimony. 2. Bribe jurors3. Refrain from informing on or prosecuting an alleged crime in exchange for money or other valuable consideration.(Called compounding a crime)

Competency License

Competency License – received after people in certain occupations pass tests to ensure their competency.

Revenue License – purpose only to raise revenue rather than to protect their public.

Penalty for failing to get license-higher fee when license is obtained.

Law encourages marriage and family life my making agreements that harm or interfere with marriage unenforceable.

Both state and federal laws seek to prevent monopolies and

combinations that restrict competition unreasonably.

-Continued-

Price fixing –competing firms agree on the same price to be charged for a product or service.

Crime under federal law

Bid Rigging-competitors would bid on jobs agree that one bidder will have the lowest bid for a particular job.

Set bid price higher than if there were real competition.

Resale Price Maintenance-identify a “suggested retail price”(legal)

Happens when manufactures want retailers to sell their product at a suggested price

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Allocation of Markets-competitors divide markets between themselves.

Covenants not to Compete

price fixing and allocation of markets illegalbut

-employer can have employee agree not to create competition after employment terminates but become illegal when:

-time period for the limitation-Geographic area to which the limitation applies -employer’s interest protected by the limitation-Trade Secrets are the most commonly recognized

employer interests

Common Law

Restitution-recovery of your payment.

Protected Victims

Parties to an illegal agreement are not often equally blame worthy.

When the illegal agreement was created by the fraud, duress,misrepresentation or undue influence the victim may obtain restitution.

The Excusably Ignorant

The excusably ignorant can either enforce the legal part of the contract or obtain restitution.

The people who are excusably ignorant are who

1. Does not know the contract is illegal.

2. The other party knows the transition is illegal.

3. The illegality is minor.

Recission Before the Illegal Act

If a party rescinds before the illegal act occurs then restitution will be available.

Division Contracts

Illegal contracts often contain combinations of illegal and legal provisions.

THE UCC

-A major provision in the UCC Governing the sale of good makes agreements or contract causes that are unconscionable unenforceable

UCC established an additional remedy for courts when dealing with such agreements.

Unconscionability occurs when there is a grossly unfair contract that parties under ordinary circumstances would not accept.

UnconscionabilityThe UCC makes unconscionable contracts for sale of goods subject to the rules for illegality.-Unconscionability has two elements:

Procedural Unconscionability is shown by how the contract is created.Substantive Unconscionability is established by terms of the agreement.

Most courts require both procedural and substantive unconscionability before the contract is deemed unconscionable and illegal.

UNCONSCIONABILITY(CONTINUED)

Procedural unconscionability arises when contracts contain very fine print, light typesetting or elements of fraud, duress, undue influence, or misrepresentation.Substantive unconscionability arises when contracts are from unfair terms in the agreement.Additional Remedy - when the court finds a contract illegal or unconscionable, it can refuse to enforce the contract, or it can enforce the legal part and refuse to enforce the illegal part