Legal Purpose & Proper Form Chapter 10

Objectives Identify various forms of unenforceable illegal agreements Section 10-1 Identify various forms of unenforceable illegal agreements Specify agreements that, although illegal, the courts will enforce

Illegal Agreements Illegal Lotteries Usurious Loans Discriminatory agreements Agreements that obstruct legal procedures Agreements made without a competency license Agreements that affect marriage negatively Agreements that restrain trade unreasonably Agreements not to compete

Which Agreements are Illegal? Illegal Lotteries 3 elements: Prize Chance Consideration Wager Bet on uncertain outcome of event Legalized lotteries: Casino Pari-mutuel betting State-run lotteries Bingo games & pull- tab betting

Which Agreements are Illegal? Agreements to pay usurious interest Lenders of money may not charge more than a specified max rate of interest 18% is common max Lending higher than state max = usury Agreements involving illegal discrimination Unenforceable b/c violate statutes

Which Agreements are Illegal? Agreements that obstruct legal procedures Delay or prevent justice Pay non-expert witnesses Bribe jurors Refrain from informing on alleged crime in exchange for money Compounding a crime

Which Agreements are Illegal? Agreements made w/o a required competency license Persons in certain occupations & business pass exams & receive license Contrasting = revenue license Purpose is only to raise revenue rather than protect public Made by unlicensed persons are valid

Which Agreements are Illegal? Agreements that affect marriage negatively

Which Agreements are Illegal? Agreements that restrain trade unreasonably Price fixing Competing firms agree on same price Bid rigging – competitors bid on jobs agree that 1 bidder will have the lowest bid for a particular job Resale Price Maintenance “suggested retailers price” – may refuse to sell if won’t charge that amt Allocation of markets Same injury to competition produced by price fixing can be achieved if competitors divide markets b/w themselves

Which Agreements are Illegal? Agreements not to compete When persons are hired they may agree that they will not compete with employer after the employment terminates Illegal if: Time period for the limitation is too long Geographic area to which limitation applies Employer’s interest protected by limitation (trade secrets)

When will the Courts Enforce Illegal Agreements? Most illegal agreements are void and unenforceable Illegality is slight or a party is relatively innocent of wrongdoing – court will allow restitution Examples include: Rescind before prohibition act Contract is divisible Protected Victims Excusably Ignorant

When will the Courts Enforce Illegal Agreements? Protected Victims Purchase something that doesn’t exist Restitution Restoring of the party involved to his or her original position Excusably Ignorant Don’t know that contract is illegal Other party knows transaction is illegal Illegality is minor

When will the Courts Enforce Illegal Agreements? Rescission prior to illegal act Divisible Contracts Courts can enforce legal part of contract if it is divisible Unconscionability occurs when there is a grossly unfair contract that parties under ordinary circumstances would not accept s/he was presented w/ a take it or leave it contract Other party had overwhelming bargaining power No viable alternative in marketplace Injustice can only be avoided by holding certain terms

Ch. 10 Legal Purpose Assignments: P.176 1-7, 9, 11 Reteach 10-1 worksheet

Objectives Section 10-2 Explain why the Statute of Frauds is necessary and what it requires Identify the main instances when the Statute of Frauds requires a writing Understand the rules of contract interpretation

Why have a Statute of Frauds? Several types of contracts are required to be in writing to be enforceable… Contracts to buy & sell goods more $500 Contracts to buy & sell real property Contracts require more 1yr to complete Promises to stand good for debts of another Promises to give something of value in return for a promise of marriage

Contracts within the Statute of Frauds Executed contracts One that has been fully performed Executory contract One that has not been fully performed Statute of Frauds not signed, not in writing is unenforceable Quasi-contract Exists when some element of an enforceable contract is missing, yet courts award money to prevent the unjust enrichment of one party

Why have a Statute of Frauds? Requirements of the writing State’s version of the UCC & applied only to sale of goods Applied to all other contracts & is contained in a state’s Statute of Frauds

Statute of Frauds Requirements - Writing Names of parties Description of the subject matter Price Quantity Signature Other essential terms Time, method of delivery, terms of payment, date of transfer

Statute of Frauds Requirements - Writing UCC requirements Writing must indicate Quantity of goods That a contract has been created b/w parties Special rules for signatures Only parties whose signatures actually appear on contract may be sued for enforcement

Types of Contracts within Statute of Frauds Contract for Sale of Goods for $500 or more Personal property (not real property) UCC provides exceptions Goods are ordered specially & aren’t suitable to be sold to others Goods have been ordered & paid for & seller accepted $ Goods have been received & accepted by buyer Party against whom enforcement is sought admits during legal proceedings that oral was made

Types of Contracts within Statute of Frauds Contract to sell an interest in real property Oral leases for 1 yr or less = enforceable Exceptions if seller delivered deed or if buyer: Made partial or full payment Occupied the land Made substantial improvements to land

Types of Contracts within Statute of Frauds Contracts that require more than 1yr to compete Yr begins at time contract is made

Types of Contracts within Statute of Frauds Contract to pay a debt or answer for another’s debt or the debts of an estate Collateral promise Oral agreement (father pays daughter’s rent) Needs to be in writing to be enforceable Primary promise Cosigner on a lease Doesn’t need to be in writing Exception – Main Purpose Rule 3rd party liable for oral promise to pay another’s debt if the main purpose of promise servers the promisor’s own interest

Types of Contracts within Statute of Frauds Contract for which the consideration is marriage Signed writing required for agreement in which one party promises to marry in return for something more than the other’s promise to marry

How are Contracts Interpreted? Acknowledgement of final agreement Both parties agree terms in written contract constitute the entire & final agreement

How are Contracts Interpreted? Specific rules of Interpretation Analysis Courts interpret terms of parties’ principal objective Conflicting terms b/w printed or typewritten/handwritten Whichever seems to have been done last is what courts will base decision on

How are Contracts Interpreted? Specific rules of Interpretation Words Plain & normal meaning of ordinary words will be used to determine meaning Ambiguities Courts will interpret against party who drafted contract Implied Reasonableness “payment in cash” = use of a check

How are Contracts Interpreted? Parol Evidence Rule Courts feel that it is reasonable expectation that parties consider terms carefully Rule makes final writing source of evidence about the terms Consists of words spoken prior to the execution of final writing or at time of signing

How are Contracts Interpreted? Parol Evidence Rule Exceptions to rule Clarify ambiguities in written agreement If the written contract was not intended to be a complete agreement If a condition necessary to the existence of the contract never occurred If fraud, forgery, illegality, mistake, or misrepresentation occurred To show parties reached another agreement or terminated To show that the contract is voidable b/c a party lacked contractual capacity

Ch. 10 Proper Form Assignments: Review: Case P.185 1-4, 6, 7 Reteach 10-2 worksheet Review: P 186 1-9, 20 Case P 189

Ch. 10 Quiz (12pts +8EC) What are 3 elements of a lottery? Define compounding a crime. T/F A company may ask an employee to not work for a competitor for over 20yrs. What are the 5 types of contracts that must be in writing? Define parol evidence rule. Extra Credit: Name the 8 illegal agreements.