1. Legal Purpose and Proper Form
CHAPTER 10
Legal Purpose and Proper Form

2. 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.

3. 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)

4. 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

5. 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

6. 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

7. 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.

8. 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)

9. 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).

10. 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.

11. 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

12. 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)

13. 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

14. 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

15. 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.

16. 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.

17. 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

18. 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)

19. 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

20. 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.

21. 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

22. 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

23. 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

24. 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.

25. 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

26. 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.

27. 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.

28. 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.

29. 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.

30. 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.

31. 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.

32. 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

33. 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