Legal Purpose and Proper Form CHAPTER 10 Legal Purpose and Proper Form

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements that involve contracting for an illegal act generally are void and unenforceable. Example: Agreements to commit a felony will be an illegal agreement.

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Illegal Lotteries Gambling agreements (illegal lotteries) are void Elements to a lottery: prize (something of value) chance (winner determined by luck) consideration (payment to participate)

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Illegal Lotteries Wager – a bet on the uncertain outcome of an event One of the most common forms of gambling

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Legalized gambling (wagers – a bet on the uncertain outcome of an event) Casinos Currently permitted in 20 states 2008 revenue $60.4 billion Pari-mutuel betting A form of betting on horse races 2008 revenue $ 35.5 billion State-run lotteries 2008 revenue $24.8 billion Bingo games & pull-tab betting 2008 revenue $2.2 billion Card rooms (poker rooms) 2008 revenue $1.2 billion

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements to Pay Usurious Interest Lenders of money may not charge more than a specified maximum rate of interest (typically 18%) Usury – lending money at a higher rate than legally allowable Exceptions: Payday loans (Interest rate is generally 250%) Pawnshops

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements Involving Illegal Discrimination Agreements that violate anti-discrimination statutes are illegal (Civil Rights Act of 1964) Agreements that violate the Constitution are also illegal.

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements That Obstruct Legal Procedures Agreements that delay or prevent justice are VOID Pay non-expert witnesses to testify Pay for false testimony Bribe jurors Refrain from informing on or prosecuting an alleged crime in exchange for money (compounding a crime)

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements Made Without a Required Competency License A competency license is required to ensure that they can perform adequately. Physicians Teachers Electricians Lawyers Contracts made by an unlicensed person for the purposes of revenue are valid (revenue contracts).

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements That Affect Marriage Negatively The law encourages marriage and family life. By making agreements that harm or interfere with marriage unenforceable. It would be illegal to pay a U.S. citizen in exchange for marriage to gain citizenship.

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements That Restrain Trade Unreasonably Antitrust laws (Sherman, Clayton, and Federal Trade Commission Acts) preserve competition. Price Fixing (crime under federal law) When competing firms agree on the same price to be charged for a product or service, this injures consumers. Bid rigging – when competitors who bid on jobs agree that on bidder will have the lowest bid for a particular job. Allocation of Markets When competitors divide markets between themselves Illegal and unenforceable

Which Agreements Are Illegal? 10-1 Illegal Agreements Which Agreements Are Illegal? Agreements Not to Compete Agreements not to compete will be upheld if they are part of a termination clause (employment). They can become illegal if they are unreasonable in the following areas: Time period Geographic area Employer’s interest protected (Trade Secrets)

When Will the Courts Enforce Illegal Agreements Protected Victims In some cases the law that was violated was designed to protect a party to the agreement. Blue-skys laws – prohibits sales of worthless stocks and bonds. In pari delicto – of equal fault

When Will the Courts Enforce Illegal Agreements The Excusably Ignorant The excusably ignorant party can either enforce the legal part of the contract or obtain restitution. A person is excusably ignorant who: does not know the contract is illegal, but the other party knows the transaction is illegal, and the illegality is minor

When Will the Courts Enforce Illegal Agreements Rescission Prior to Illegal Act If a party rescinds before the illegal act occurs, then restitution will be available. This creates an incentive to stop illegal acts.

When Will the Courts Enforce Illegal Agreements Divisible Contracts Divisible – separate consideration is given for the legal and illegal parts of the contract. A contract is held to be unconscionable when is it so grossly unfair that parties under ordinary circumstances would not accept it.

Why Have a Statute of Frauds 10-2 The Statute of Frauds Why Have a Statute of Frauds Contracts Within the Statute of Frauds Contracts to buy and sell goods for a price of $500 or more contracts to buy and sell real property or any interest in real property contracts that require more than one year to complete promises to stand good for the debts of another or of an estate promises to give something of value in return for a promise of marriage

Why Have a Statute of Frauds Statute of Frauds Requirements 10-2 The Statute of Frauds Why Have a Statute of Frauds Requirements of the Writing Statute of Frauds Requirements Name of the parties A description of the subject matter Price Quantity Signature Other essential terms (time or method of deliver, terms of payment, methods of financing, date for transfer of possessions)

Why Have a Statute of Frauds 10-2 The Statute of Frauds Why Have a Statute of Frauds Requirements of the Writing UCC Requirements The quantity of goods That a contract has been created between the parties

Why Have a Statute of Frauds Special Rules for Signatures 10-2 The Statute of Frauds Why Have a Statute of Frauds Requirements of the Writing Special Rules for Signatures The signature may be written, stamped, engraved or printed Only parties whose signatures actually appear on the contract may be sued for enforcement.

Why Have a Statute of Frauds 10-2 The Statute of Frauds Why Have a Statute of Frauds Contract for the Sale of Goods for $500 or More goods are personal property that are tangible UCC EXCEPTIONS When goods are ordered to be specially manufactured & they are not suitable to be sold to others When goods have been paid for and the seller has accepted payment When goods have been received & accepted by the buyer When the party against whom enforcement is sought admits during legal proceedings that an oral contract was made

Why Have a Statute of Frauds 10-2 The Statute of Frauds Why Have a Statute of Frauds Contract to Sell an Interest in Real Property Land and buildings permanently attached to land The right to profit from real property must be in writing (pumping for oil or cutting timber) Oral contracts for one year or less are enforceable (most states) EXCEPTIONS TO ENFORCE ORAL CONTRACTS If the seller delivered the deed If the buyer has done all of the following: made partial or full payment occupied the land made substantial improvements to the land

10-2 The Statute of Frauds Why Have a Statute of Frauds Contracts that Require More Than One Year to Complete The year begins the time the contract was made The test is whether there is a possibility of performance within one year

Why Have a Statute of Frauds Contracts to Pay a Debt of Another 10-2 The Statute of Frauds Why Have a Statute of Frauds Contracts to Pay a Debt of Another collateral promise – must be in writing primary promise – enforceable without a writing Dad says: “I’ll cosign a rental agreement for my son” EXCEPTION – MAIN PURPOSE RULE A third party is liable for an oral promise to pay if the main purpose of the promise serve the promisor’s own interest.

10-2 The Statute of Frauds Why Have a Statute of Frauds Contracts for Which the Consideration is Marriage Prenuptial Agreement – Jill promises to marry James in exchange for the deed to his house. This must be in writing. 6 Famous Prenup Screw-Ups

How Are Contracts Interpreted? Acknowledgement of Final Agreement 10-2 The Statute of Frauds How Are Contracts Interpreted? Acknowledgement of Final Agreement Issues can develop preceding oral agreements not reflected in the ultimate contract. Writings will include a contract clause stating that both parties agree that the terms in the written contract constitute the entire and final agreement.

How Are Contracts Interpreted? Specific Rules of Interpretation 10-2 The Statute of Frauds How Are Contracts Interpreted? Specific Rules of Interpretation Analysis The first thing a court will do is interpret the contract in in terms of the parties’ principal objective. If an agreement can be interpreted in two ways, the courts will choose the way that renders the agreement a contract.

How Are Contracts Interpreted? Specific Rules of Interpretation 10-2 The Statute of Frauds How Are Contracts Interpreted? Specific Rules of Interpretation Conflicting Terms Conflict between printed-form and something typewritten or handwritten, the later writings determine the contract’s meaning. When contracts refer to amounts of money, the written expression prevails over the numerical expression.

How Are Contracts Interpreted? Specific Rules of Interpretation 10-2 The Statute of Frauds How Are Contracts Interpreted? Specific Rules of Interpretation Words The plain and normal meaning of ordinary words will be used to determine the meanings of the contract Where both parties are member of a trade or profession, they are presumed to know the trade custom or practice.

How Are Contracts Interpreted? Specific Rules of Interpretation 10-2 The Statute of Frauds How Are Contracts Interpreted? Specific Rules of Interpretation Ambiguities Courts will interpret ambiguities against the party who drafted the contract.

How Are Contracts Interpreted? Specific Rules of Interpretation 10-2 The Statute of Frauds How Are Contracts Interpreted? Specific Rules of Interpretation Implied Reasonableness Payments for cash can be satisfied by check When no time for performance is mentioned, a reasonable time is allowed.

How Are Contracts Interpreted? Specific Rules of Interpretation 10-2 The Statute of Frauds How Are Contracts Interpreted? Specific Rules of Interpretation Parol Evidence Rule This rule makes the final writing the source of evidence about the terms of the contract.   Parol Evidence Words spoken prior to the execution of the final writing or at the time of the signing parol evidence is generally inadmissible in court

How Are Contracts Interpreted? Specific Rules of Interpretation 10-2 The Statute of Frauds How Are Contracts Interpreted? Specific Rules of Interpretation EXCEPTIONS TO THE PAROL EVIDENCE RULE  To clarify ambiguities in the 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 the parties reached another agreement or terminated the contract under consideration after executing the written contract To show that the contract is voidable because a party lacked contractual capacity