LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 1 Which Agreements are Illegal? Describe general features of contracts which make them illegal Describe particular illegal contracts LESSON 11-1 GOALS

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 2 HOT DEBATE Why should Stacey be able to collect the money? Why shouldn’t Stacey be able to collect the money?

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 3 ILLEGAL AGREEMENTS Agreements can be void and unenforceable because they involve contracting for an illegal act.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 4 ILLEGAL AGREEMENTS Four ways to distinguish if an agreement is illegal. 1.(#14) Statues sometimes explicitly state that certain contracts are unenforceable. Example: most states have statutes which make private betting contracts unenforceable.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 5 ILLEGAL AGREEMENTS 2. (#14) Courts look at the impact of violation of a statue on the public welfare is large. Example: Contract to murder, courts would rule them void because they have a big impact (possible loss of a life) on the public welfare.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 6 ILLEGAL AGREEMENTS 3. (#14) Courts look at how directly the contract and the violation of the statute are connected. 4. (#14) The courts look at how involved the parties are in the violation of a statute. Almost any agreement to commit a felony (a serious crime) will be an illegal agreement.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 7 ILLEGAL AGREEMENTS (#15) Contracts made illegal by specific statute Agreements that obstruct legal procedures Agreements made without a required competency license Agreements that affect marriage negatively Agreements that restrain trade unreasonably

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 8 CONTRACTS MADE ILLEGAL BY SPECIFIC STATUTE Illegal gambling Gambling-activity involving an agreement with the following: payment to participate, chance to win based on luck rather than skill, and a prize for one or more winners. Wager-bet on the uncertain outcome of an event Pair-Mutuel betting is a form of betting in which those who bet on the winner share the total prize pool.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 9 CONTRACTS MADE ILLEGAL BY SPECIFIC STATUTE Agreements to pay usurious interest Maximum rate of interest –The highest interest rate lenders of money may charge. Usury-Lending money at a rate higher than the state’s maximum allowable rate. Legal rate of interest – An interest rate specified by state and charged when a rate is not specified in an agreement. Small loan rate of interest –An interest rate higher than the maximum rate of interest that some states permit licensed loan companies and pawnbrokers to charge on small loans.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 10 CONTRACTS MADE ILLEGAL BY SPECIFIC STATUTE Agreements involving illegal discrimination Some agreements are unenforceable because they violate anti-discrimination Statutes. Agreements may also be illegal as violations of the Constitution.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 11 #16 - A Different states enact different statutes forbidding specific contracts such as gambling and wagering, usury, and discrimination; some states, however, have legalized some forms of gambling and regulated them, such as pari-mutuel betting and state lotteries.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 12 AGREEMENTS THAT OBSTRUCT LEGAL PROCEDURES (#16 – B) Agreements that delay or prevent justice are void. Examples include Promises to pay non-expert witnesses in a trial to testify or pay for false testimony Promises to bribe jurors Promises to refrain from informing on or prosecuting an alleged crime in exchange for money or other valuable consideration (called compounding a crime)

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 13 AGREEMENTS MADE WITHOUT A REQUIRED COMPETENCY LICENSE Competency License – A license required by a state to ensure that persons in certain occupations and businesses are competent. (#16-C) Persons in certain occupations or professions must have a competency license to make a valid contract. Persons who lack the required competency license may not enforce the contracts they make in doing the regulated work.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 14 AGREEMENTS MADE WITHOUT A REQUIRED COMPETENCY LICENSE Revenue License – required license imposed by governments on certain occupations for the sole purpose of raising money. (16-C) Parties required to have a revenue license who do not have one can make a valid contract.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 15 AGREEMENTS THAT AFFECT MARRIAGE NEGATIVELY (#16-D) Marriage is protected by the law and agreements that harm or interfere with marriage are unenforceable, such as bribing someone to marry or not to marry.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 16 AGREEMENTS THAT RESTRAIN TRADE UNREASONABLY Price fixing – The act when competing firms agree on the same price to be charged for a product or service. Bid rigging – The act when competing firms who bid on jobs agree that one bidder will have the lowest bid for a particular job. Resale price maintenance – The act when manufacturers agree or contract with retailers to sell the product at a particular price. Allocation of markets – Competitors’ agreement to split market areas between themselves. Covenants not to compete

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 17 #16-E Laws generally protect the concept of free and open competition to create greatest profit for producers and lowest prices for consumers. Price fixing, bid rigging, agreements to maintain resale prices, allocation of markets, and covenants not to compete cannot be valid contracts because they reduce competition. An employer and employee may agree to a non- compete contract and it would be enforceable if it is reasonable.

LAW FOR BUSINESS AND PERSONAL USE © SOUTH-WESTERN PUBLISHING Chapter 11Slide 18 WHAT’S YOUR VERDICT? Were any of his agreements illegal?