Essentials Of Business Law Chapter 10 Legal Purpose Of Contracts McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Essentials of Business LawChapter 10-2 Illegal Agreements Agreements that are contrary to the common law Agreements that have been declared illegal by statute Agreements against the security or welfare of the general public

Essentials of Business LawChapter 10-3 Effect Of Illegality Agreement with an illegal purpose  Usually void and unenforceable Divisible contracts  Contracts with several unrelated parts Parts with legal purpose are enforceable Parts with illegal purpose are not enforceable

Essentials of Business LawChapter 10-4 Agreements That Violate Statues Not enforceable by the courts Agreements made on Sundays or legal holidays Gambling and wagering agreements Usurious agreements Unlicensed transactions

Essentials of Business LawChapter 10-5 Gambling And Wagering Agreements All states have legislation that regulates gambling  Performance by one party depends on the occurrence of an uncertain event  Examples: horse or dog races, state-run lotteries Closely regulated Some states allow legal gambling on Native American reservations

Essentials of Business LawChapter 10-6 Usurious Agreements Interest  Charged for the use of borrowed money  Percentage of the amount of the loan Usury  Charging interest higher than the law permits  Agreements are illegal and void  Usually apply to retail installment credit sales and credit card transactions

Essentials of Business LawChapter 10-7 Unlicensed Transactions Some businesses, professions, and occupations require licenses  Typically have to paying an annual fee and pass an examination Ensures competency  Examples include: doctors, dentists, lawyers, nurses, certified public accountants, and teachers Unlicensed transactions  Agreements with a person who does not have the required license  Generally illegal

Essentials of Business LawChapter 10-8 Agreements That Violate Public Policy Agreements to obstruct or pervert justice  Conceal a crime or not to prosecute a criminal  Champerty Lawsuit in which one or more party has no legitimate interest  Give false testimony or suppress evidence  Bribe a juror or a court official  Refrain from testifying as a witness in a legal action Agreements to restrain marriage  A promise to pay money to ones child if they do not marry would be unenforceable

Essentials of Business LawChapter 10-9 Agreements That Violate Public Policy Agreements that interfere with public service  Bribe or interfere with public officials  Obtain political preference in appointments to office  Pay an officer for signing a pardon  Require one of the parties to break a law  Influence a law-making body for personal gain Agreements to defraud creditors and other persons

Essentials of Business LawChapter Illegal Restrains Of Trade Restraint of trade  Agreements to suppress or eliminate competition are illegal and unenforceable  Exception is when specifically permitted by law Monopoly power  One or more people or firms control the market in a particular area or product  Results in a restraint of trade

Essentials of Business LawChapter Sherman Antitrust Act Federal Antitrust Act passed In 1890 Enforced against large and small businesses Disallows agreements that:  Unreasonably inhibit competition  Fix prices  Allocate territories  Limit production Punished by heavy fines and imprisonment Federal government can require dominant firms to be split into smaller businesses  Most states also have antitrust statues

Essentials of Business LawChapter Robinson-Patman Act Passed in 1936 to amended earlier antitrust legislation Makes it unlawful to discriminate  Product pricing, advertising, and promotion No one customer has an advantage over others Does allow large buyers to retain advantages resulting from greater efficiency  Limits the use of the economic power that may result from large size

Essentials of Business LawChapter Legal Restrains Of Trade Government-granted franchise  State or the federal government grants a firm or person a license to conduct a specific business  Form of legal monopoly  Bus line  Railroad In the public interest to limit the number of companies operating in an area Subject to a greater degree of regulation than other businesses  Electric power co  TV cable service

Essentials of Business LawChapter Legal Restrains Of Trade Private franchise  Contractual relationship Franchisor – parent firm Franchisee – independent company  Examples: fast-food chains, motels, automobile dealerships, gasoline stations

Essentials of Business LawChapter Zoning regulations  Community designates certain areas for specific purposes  Examples: light industrial, industrial, commercial, and residential  Restrict where and how businesses may operate Environmental and safety regulations  Protect the health and welfare of the general population from pollution  Limit how firms may operate Legal Restrains Of Trade