© South-Western Educational Publishing GOALS LESSON 2.4 LEGALITY OF CONTRACTS Identify contracts that are illegal Know when a writing is required to prove a contract
© South-Western Educational Publishing Illegal Contracts Illegal gambling Usurious interest NEW JERSEY, the legal rate of interest is 6%; the general usury limit is 30% for individuals, 50% for corporations. "But my car loan is higher than that"; "But I'm paying way more than that on my credit cards." That's right! Banks have separate rules. In fact, due to high inflation, in 1980, the federal government passed a special law which allowed national banks (the ones that have the word "national" or the term "N.A." in their name, to ignore state usury limits and pegged the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers (like car financing companies) have their own rules. The usury limit which is stated as the general usury limit is the rate that can be charged by one person or corporation to another, in other words, if you lend your next door neighbor $ , the rate stated is the limit. To charge more you must get a banking or pawnbroker license.
© South-Western Educational Publishing Illegal Contracts Illegal discrimination Obstruction of legal procedures Pay non-expert witnesses in a trial to testify, or pay for false testimony Bribe jurors Refrain from prosecuting an alleged crime in exchange for money Lack of required competency license Negative effects on marriage Unreasonable restraint of trade
© South-Western Educational Publishing Illegal Contracts Lack of required competency license Plumbers, physicians, teachers, lawyers, pharmacists, real estate brokers, contractors, insurance agents, nurses, and others must have a license to perform their trade Negative effects on marriage Marrying someone who is an illegal immigrant for money in order to obtain citizenship is unenforceable A father promising to pay his daughter for not marrying someone is unenforeceable
© South-Western Educational Publishing Unreasonable Restraint of Trade Price fixing When competing firms agree on the same price to be charged for a product or service This deprives consumers of price competition Bid rigging Competitors agree on a price for a job and take turns being the lowest bid
© South-Western Educational Publishing Unreasonable Restraint of Trade Resale price maintenance Manufacturers cannot set a mandatory price to sell their product Suggested retail price is legal Allocation of markets Dividing the markets up Example: landscaper will only cut lawns in one particular development Customers must use that landscaper (no one else will work there) thereby fixing the price
Covenants Not to Compete ( Non-Compete Contracts) Generally unenforceable Termination clauses in employment contracts are enforceable Must be a limitation on the time period Limitation on the geographic area Limits the employer’s interest (such as trade secrets) Secret sauce recipe at McDonalds KFC seasoning in breading © South-Western Educational Publishing
When is a Written Contract Required? Statute of Frauds requires written document Real property Term is longer than one year Sale involves more than $500 When someone makes a promise to provide credit for the debt of another When someone is in charge of an estate and promises to be responsible for the estates’ debts When promises other than the exchange of traditional vows are given in consideration of marriage © South-Western Educational Publishing
Covenants Not to Compete ( Non-Compete Contracts) Generally unenforceable Termination clauses in employment contracts are enforceable Agreement not to compete for 20 years anywhere in the U.S. is not enforceable Agreement not to open a bagel store across the street from the bagel store you worked at for one year would be legal and enforceable © South-Western Educational Publishing