1. Chapter 11
Legality of Contracts

2. A contract is . . .
An agreement that courts will enforce, the bases for all economic activity.

3. What are the major parts of a contract?
Offer and Acceptance
Genuine Assent
Legality
Consideration
Capacity
Writing

4. Which Agreements are illegal?
Anything that tries to contract for illegal acts:
Murder
Sex
Drugs
Some technically illegal acts are enforceable.

5. 5 ways to tell if a contract is unenforceable do to illegality

6. 1. Contracts made illegal by specific Statute:
State legislature enact laws making certain contracts illegal.
Illegal gambling
Usurious interest
Above maximum rate of interest
Illegal discrimination

7. 2. Agreements that obstruct legal procedures:
Any agreement that delay or prevent justice are void and are not contracts.
Pay non-expert witnesses
Bribe jurors
Not telling info. For money

8. 3. Agreements made without a required competency license
Persons in certain occupations in which a skilled trade or profession is involved must pass tests and be certified by the state.
Failure to have this makes all contracts entered into by the person not enforceable.

9. 4. Agreements that affect marriage negatively:
The law thinks that marriage is good and any contract that hurts the union is illegal.
Promise to pay for not marrying
Paying for marrying an illegal immigrant.

10. 5. Agreements that restrain trade unreasonably:
No monopolies or restricted competition
Price fixing
Allocation of markets
Covenants not to compete

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12. 11-2 Enforceability of Illegal Agreements

13. Courts and parties to illegal contracts
Fall under two different cases, common law and the UCC.

14. Common Law ***Contracts for the sale of services or realty***
Courts generally never help either party
Will not enforce the agreement
Will leave the parties where they are
Even if one party has performed and the other has not

15. Example:

16. 4 exceptions: Protected Victims
–where the agreement was created by fraud, duress, misrepresentation, or undo influence

17. 2. The Excusably Ignorant
Can either enforce the enforceable part or obtain restitution
Must have these three things:
Not know the contract is illegal
The other party does know the transaction is illegal
The illegality is minor

18. 3. Rescission Before the illegal act
If a party rescinds before the illegal act occurs

19. 4. Divisible Contracts
Legal parts of contracts are always enforceable.
Separate consideration for legal parts versus the illegal parts.

20. UCC

21. UCC Covers the sale of goods
Unconscionability – makes agreements or contract clauses that are this unenforceable as well as provides remedies for such ageements

22. Unconscionability
Procedural unconscionability – shown by how the contract is created
Very fine print
Fraud duress undo influence
No alternatives
Time pressured
Unequal bargaining power
Substantive unconscionabilty – established by the terms of the agreement
Price so high it shocks the conscience
One sided terms

23. Remedies
Courts can:
Refuse to enforce the contract or part of the contract
Modify terms of the agreement to make it fair.

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