Legal Purpose and Proper Form Chapter 10

Section 10-1 Goals – Identify various forms of illegal agreements. – Distinguish agreements that, although illegal, the courts will enforce.

Hot Debate page 168 Where Sanford’s actions ethical? Would a statute that allowed “honest lotteries for a good cause” be applicable? Why or why not?

Illegal Activities Agreements that involve contracting for illegal acts are generally unenforceable. However there are exceptions to this rule.

What’s Your Verdict page 169 Were any of Razer’s agreements illegal?

Illegal Lotteries Most states forbid or regulate gambling. A non-regulated gambling agreement is an illegal lottery.

Lotteries Lotteries have three elements: – Prize (something of value for one or more winners.) – Chance (the winner is determined by luck.) – Consideration (payment to participate)

Wager One of the most common forms of gambling. A wager is a bet on an uncertain outcome or event.

Legal and regulated forms of gambling. Casinos – a place where games of chance are used to gamble. Pari-mutual betting – a form of gambling in which those who bet on the winner of a horse race share the total prize pool. State-run lotteries – like the PA lottery, scarily run and managed by Gus the talking groundhog. Bingo games and pull-tab betting – permitted in many states when conducted by licensed institutions for financial charitable, religious, or educational projects.

Economic Impact (Think Critically) on page 169 What’s your opinion of Native American tribes raising revenue through casino gambling? Do you think the benefits of gambling, for example increased tax dollars, outweigh the negative impact gambling can have on a community?

What do you think? How do we distinguish prohibited gambling contracts from similar legal ones? – For instance: Both betting on the horses and investing in a start up company involves risk.

Agreements to pay Usurious Interest Almost all states provide that, with certain exceptions, lenders of money may not charge more than a specified maximum rate of interest. For most states 18% is a common maximum. If not rate is specified the rate to be paid is the legal rate of interest.

Agreements to pay Usurious Interest Many states allow licensed loan and pawnbrokers to charge a small loan of interest with a rate of typically up to 36% per year for loans under $2,000. The theory is the loans are high risk with high overhead for such small loans. These laws protect people from loan sharks.

What do you think? Terrance needs a loan of $750 to buy a new bicycle. The bank will not give him the money, either will any of his friends. So Terrance goes to Parrish who offers to loan him the money at 50% interest. Terrance pays Parrish back the $750 but decided the 50% interest was way “way way too high” and only pays Parrish 15% in interest. Can Terrance do that?

Agreements Involving Illegal Discrimination Some agreements are illegal because they illegal discriminate against people.

What do you think? Jones is a real estate agent. One of Jones clients are the Rojewskis who recently emigrated from Poland. Though the Rojewskis have a lot of money, Jones keeps showing the Rojewskis cheap housing where most Polish immigrants live in the town, because as Jones puts it, “They would be happier with their kind.” The Rojewskis get sick of looking at the cheap condos and finally buy one of the cheap condos that Jones is showing them. Was what Jones did legal? Are the Rojewski’s bound to the contract?

Agreements that Obstruct Legal Procedures Agreements that delay or prevent justice are void. Examples of such agreements are: – Pay non-expert witness in a trial to testify, or pay for false testimony. – Bribe jurors. – Refrain from informing on or prosecuting an alleged crime in exchange for compensation. These are examples of compounding a crime.

Agreements Made Without Required Competency License Competency license – all states require that persons in certain occupations and business pass exams to make sure they are competent in their profession. – People without a competency license may not enforce the contracts they make in doing their regulated work.

Revenue License Revenue License – a revenue license is a license whose purpose is only to raise revenue. Contracts made by those who do not possesses a revenue license and should are valid.

Think Critically Though Visuals page 170 Who benefits from mandatory competency licensing of trades people and professionals?

Analyze Real Cases page 186 Question 27.

Agreements that Affect Marriage Negatively Agreements that affect marriage negatively are unenforceable. Examples: – An agreement to marry for money so someone could obtain citizenship. – An agreement of forbearance of marriage.

Think Critically About Evidence page 185 Questions 20 & 21.

Agreements that Restrain Trade Unreasonably The U.S. economy is based on the concept of free and open competition. The courts seek to prevent monopolies and combinations that restrict competition unreasonably.

Price Fixing Price fixing is when normally competing firms agree on the same price to be charged for a product or service. Price fixing is a crime under federal law.

Bid Rigging Bid rigging occurs when competitors who bid on jobs agree that one bidder will have the lowest bid for a particular job. Bid rigging is a form of price fixing.

Resale Price Maintenance Resale price maintenance is when manufactures try to get retailers to sell their products at a particular price. (aka that suggested retail price) Manufactures may not contract with retailers to sell the particular product at a set price. HOWEVER: Manufactures can refuse to sell to retailers who will not charge the suggested retail price.

Allocation of Markets Competitors may not divide markets between themselves. Manufactures can sell to sell to only one distributor in a given area, but that distributor has to sell to anyone who travels from an outside area.

Agreements Not to Compete Price fixing and market allocation are agreements not to compete, and are not enforceable. HOWEVER: Sometimes agreements not to compete are enforceable.

Agreements Not to Compete Agreements not compete against an employer once you are hired may be enforceable. However, an agreement to compete may become unenforceable if they are unreasonable in: – Time period for the limitation. – Geographic area to which the limitation applies. – Employer’s interest is protected by the limitation.

Think Critically Through Visuals page 172 Is this an legal agreement?

Assessment 10-1 (Part #1) Think Critically Through Legal Concepts. – Questions 1 through 6 on page 174 Think Critically About Evidence – Questions 8, 9, & 12 on page 174

When Will The Courts Enforce Illegal Agreements? Most illegal contracts are void. In some cases a party may receive restitution (recovery of your consideration) or the agreement to be enforced.

Protected Victims In some case the law that was violated was designed to protect a party to the agreement. The “Blue-sky laws” prohibit the sales of worthless stocks and bonds. – The Blue-sky laws are named the blue-sky laws because such worthless stocks and bonds have no more value than the blue sky.

The Excusable Ignorant A person is considered excusable ignorant if: – They do not know the contract is illegal but…. – The other party knows the transaction is illegal, and – The illegality is minor.

What’s Your Verdict page 172 Can the Guptas recover their $25,000.00?

Rescission Prior to Illegal Act If a party rescinds before an illegal act occurs, then restitution will be available.

Divisible Contracts Illegal contracts often contain a combination of legal and illegal provisions. Courts may enforce the legal part of a contract if it is divisible.

Divisible Divisible in a contact generally means that separate consideration is given for the legal and illegal parts of the contract.

Unconscionability Unconscionability occurs when there is a grossly unfair contract that parties under ordinary circumstances would not accept. The UCC governing the sale of goods makes agreements or contract clauses that are unconscionable unenforceable.

Procedural Unconscionability Procedural Unconscionability is shown how the contract is created.

Substative Unconscionability Substative Unconscionability arises from unfair terms in the agreement.

Assessment 10-1 (part 2) Think Critically Through Legal Concepts. – Question 7 on page 174 Think Critically About Evidence – Questions 10, 11, & 13 on page 174

Section 10-2 statute of Frauds Goals – Explain why the statute of Frauds in necessary and what it requires. – Distinguish agreements that, although illegal, the courts will enforce.

What’s Your Verdict page 175 Is Haka’s contract with Simon enforceable?

Why Have a statute of Frauds The law requires some contracts to be in writing to be enforceable. This is because those contracts can be subject to fraudulent claims. Most states determine what contracts must be in writing which is covered under a law entitled the statute of Frauds.

Contracts Within the statute of Frauds A contract is said to be within the statute of Frauds if it is required to be in writing. If the contract is not required to be in writing it is said to be without the statute of Frauds.

Contracts Within the statute of Frauds Contract 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 pay the debt of answer for the legal obligations of another person. Promises to give something of value in return for a promise of marriage.

Contracts Within the State of Frauds Note: If a contract is within the statute of Frauds, there is either no writing or no signature, how courts will treat the parties depends on the extent of contractual performance.

Executed Contract An executed contract is one that has been fully performed. (aka a contract where both parties have fulfilled their promises.)

Executory Contract An executory contract is a contract that has not been fully performed. NOTE: That an executory contract that falls within the Statute of Frauds, but is not signed or is not in writing, is unenforceable.

Executory Contracts Though like an illegal contract, an executory contract in violation of the statute of Frauds is unenforceable, there is a difference. Restitution is available for an injured party. If a benefit has conferred (transferred) in reliance on an oral agreement, its value can be recovered. (It is recovered by suing under a quasi-contract)

Quasi-Contracts A quasi-contract exists when some element of an enforceable contract is missing, yet courts award money to prevent the unjust enrichment of one party.

Requirement of the Writing States usually have two sets of requirement for contracts in writing. – The Uniform Commercial Code (UCC) – The Statute of Frauds.

statutes of Frauds Requirements statutes of Frauds vary widely from state to state. Some states only require that there be a contract in writing. Other states require: – Name of the parties – Subject matter description – Price – Quantity – Signature – Other essential items.

Think Critically Through Visuals page 176 Write up a contract that contains all of the essential terms required to create a valid offer for one of the statutes. Assume that the sale is taking place in a state that uses the most demanding statute of Frauds standards.

UCC Requirements The UCC establishes a uniform content standard. Under the UCC the writing in the contract must indicate only: – The quantity of goods. – That a contract has been created between the parties.

Special Rules for Signatures Under the statute of Frauds only the persons who signed the contract may be sued for enforcement. – The signature may consist of any mark that is intended as a signature or authentication of the writing.

Special Rues for Signatures Under the UCC the rule is changed for those who regularly deal in the type of goods being sold in the contract. Under this rule a writing signed by one party and sent to the other party is enforceable, unless the other party objects within 10 days upon receipt of the contract.

Contracts For The Sale Of Goods For $500 Or More If the sale of goods is over $500 the contract must be in writing.

Contracts For The Sale Of Goods For $500 Or More The UCC provides exceptions to the $500 or more rule. In the following cases the contract under the UCC writing and a signature is not required: – When the goods are ordered to be specially manufactured and they are not suitable to be sold to others in the ordinary course of the seller’s business. – When goods have been ordered and paid for and the seller has accepted payment. – When goods have been received and accepted by the buyer. – When the party against whom enforcement is sought admits during legal proceedings that that oral contract was made.

Contracts To Sell An Interest In Real Property Transfers of real property or leases of real property (aka real estate) generally must be in writing. Exceptions to this are: – In most states oral leases of less than one year are enforceable. – If the seller has delivered the deed to the buyer. – If the buyer has done all of the following: Made partial or full payment. Occupied the land. Made substantial improvements to the land.

Think Critically Through Visuals page 177 How do the statute of Frauds requirements for signatures differ from the UCC requirements?

Contracts That Require More Than One Year To Complete Courts will not enforce a contract that cannot be performed within one year unless there is a signed writing to prove the agreement. – The year begins when the contract is made, not when performance is set to begin.

Contracts That Require More Than One Year To Complete NOTE: The test is not that the agreement is actually performed in one year, just that it can be performed within one year.

What’s Your Verdict page 177 Are they legally bound to remain partners in business until one of them dies?

Contracts To Pay A Debt Or Answer For Another’s Debt If you promise to pay a debt or a default of someone else it must be in writing. Collateral promise - when you promise to pay if someone defaults on a loan. (for instance if you cosign for a loan) Primary promise – when you promise to pay for the debt of another.

Main Purpose Rule HOWEVER: there is an exception to the rule: – Main purpose rule – a third party is liable for an oral promise to pay another’s debt if the main purpose of the promise serves the promisor’s own interest.

Analyze Real Cases page 186 Question 30.

Contract For Which Consideration Is Marriage A signed writing is required for agreements in which one party promises to marry. (This covers dowrys, promises to deed houses, etc…)

Think Critically About Evidence page 185 Questions 23 & 24.

Acknowledgement of Final Agreement Sometimes conversations preceding the contract are not reflected in the contract itself. Therefore, most written contracts will have a clause in them stating that the written contract is the entire contract. – This prevents confusion later on.

Specific Rules of Interpretation. If a contract comes into dispute the courts look for specific things within the contract and about the agreement in general.

Analysis The courts will look for the parties’ original intent upon entering into the contract. Basically asking what was the purpose of the contract in the first place?

Conflicting Terms in the Contract Sometimes in contracts the terms may conflict with each other. For instance. – If there is typewritten text and handwritten text inserted into the contract the courts will usually enforce the handwritten text. (The theory is the handwritten text was probably added after the Typewritten) Text.

Conflicting Terms in the Contract Sometimes in contracts the terms may conflict with each other. For instance. – If there is a number written and spelled out, which conflict; the courts will enforce the less ambiguous text. Example $2,500 and “Twenty hundred, five hundred”.

What do You Think? Look at and read the real estate mortgage agreement on page 182. What are the conflicting numbers on this agreement and which numbers would the courts enforce?

Words Usually the plain and ordinary meanings of words are used to interpret the meanings of the words in contracts. HOWEVER: Legal and technical terms are given their technical meaning unless the contract as a whole shows that a different meaning is intended. ALSO, prior relationships of the parties may indicate how the words should be interpreted.

Ambiguities Courts will often interpret ambiguities against the party who drafted the contract.

Ambiguities Sometimes the consumer is asked to accept and sign a “take it or leave it” contract. Since these contracts are viewed as being prepared by the stronger parties (usually sellers with resources such as lawyers) they generally favor the stronger party. As such the courts usually favor against the stronger party.

Assessment 10-2 (part 2) page 183 Think Critically About Evidence – Question 6

Implied Reasonableness Contracts often include implied terms as a matter of reasonableness. Promised services must be performed with reasonable care and skill even when this is not stated in the contract.

Think Critically Through Visuals page 180 What can you do to protect yourself against contract terms that strongly favor the interests of the offering parties?

The Parole Evidence Rule Generally conversation before signing of the contract is not admissible in court as evidence about the contract. – The courts assume the written contract is full and complete, explaining both parties’ intentions.

Parole Evidence Parole Evidence – consists of words spoken prior to the execution of the final writing or at the time of signing.

Exceptions to the Parole Evidence Rule To clarify ambiguities in the written contract. If the written contract was not intended to be a complete agreement. If a condition necessary to the existence of the contract never occurred.

Even More Exceptions to the Parole Evidence Rule If fraud, illegality, mistake, or misrepresentation occurred. To show the parties reached 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.

Think Critically Through Visuals page 182 Stan and Lauretta attended an open house for a home they are interested in buying. They tell the agent that they would be serious about buying this house if the owner would remove some of the bushes in front of the house. The salesperson says that would not be a problem. Later they sign a contract to buy the house, but it doesn’t mention removing the bushes. If the couple later sued to make the homeowners remove the bushes, would they win the case? Why or why not?

What’s Your Verdict page 179 (yes waaaayyy back on page 179) Can Highman recover the refund? Why or why not?

Assessment 10-2 (part 3) page 183 Think About Legal Concepts – Questions 1 though 4 Think Critically About Evidence – Questions 5 and 7

Think Critically About Evidence page 185 Questions 22 and 24

Analyze Real Cases Page 188 Questions 26, 28, and 29

Sports and Entertainment Law Copolla vs. Warner Brothers – Should the contract have been under the Statute of Frauds? Why or Why not? – Should the punitive damages awarded have been allowed? Why or Why not?