1. Section 9.2

2. What You’ll Learn
How to explain the legal doctrine of public policy (p. 194)
How to identify agreements that are contrary to public policy (p. 195)

3. What You’ll Learn
How to identify contracts that involve an unreasonable restraint of trade (p. 196)
How to explain the nature of a restrictive covenant (p. 197)

4. Why It’s Important
By understanding public policy and contracts that are contrary to public policy, you will be able to avoid common problems associated with violations of this important legal doctrine.

5. Legal Terms
restraint of trade (p. 195)
restrictive covenant (p. 197)
price fixing (p. 197)
competitive bidding (p. 197)

6. Section Outline The Nature of Public Policy
Violations of Public Policy
Agreements that Unreasonably Restrain Trade
Agreements to Obstruct Justice
Agreements Inducing Breach of Duty or Fraud
Agreements Interfering with Marriage
Effect of Illegality

7. Illegal Contracts
A contract may be illegal if it involves an agreement to do something that violates statutory law. In addition, a contract may be illegal if it violates public policy.

8. Illegal Contracts 9.2 Illegal contracts that violate public
violate state
statutes
violate public
policy
civil and criminal statutes
usury statutes
gambling statues
Sunday statutes
licensing statutes
agreements that
unreasonably restrain trade
agreements to obstruct
justice
agreements inducing breach
of duty or fraud
agreements interfering
with marriage

9. Pre-Learning Question
What is public policy?

10. The Nature of Public Policy
Public Policy is a time-honored legal doctrine. The basis for making public policy decisions is the underlying principle that nobody should get away with doing something that harms the public at large.

11. Pre-Learning Question
How would some agreements violate public policy?

12. Violations of Public Policy
If an activity harms the health, safety, welfare, or morals of the public, that activity violates public policy.

13. Violations of Public Policy
The most common agreements that violate public policy include:
Agreements that unreasonably restrain trade
contracts not to compete
price fixing agreements
agreements to defeat competitive bidding

14. Violations of Public Policy
More common agreements include:
Agreements to obstruct justice
Agreements inducing breach of duty or fraud
Contracts interfering with marriage

15. Agreements that Unreasonably Restrain Trade
The law protects our rights to make a living and do business in a market economy.
A restraint of trade is a limitation on the full exercise of doing business with others.

16. Agreements that Unreasonably Restrain Trade
Three types of contracts that violate this rule:
Agreements not to compete
Price fixing
Agreements to defeat competitive bidding

17. Outright Contracts Not to Compete
When a business owner sells a business, sometimes the sales contract will include a provision called a restrictive covenant, which is a promise not to compete.

18. Outright Contracts Not to Compete
This means that the seller of the business will not open a competing business within a certain area for a period of time after the sale.

19. Outright Contracts Not to Compete
The court will uphold such a restriction if it is reasonable in time and geographic location.

20. Outright Contracts Not to Compete
Promises not to compete are also sometimes found in employment contracts.
Such contracts are enforced only as necessary to protect the former employer from unfair competition.

21. Price Fixing
Price fixing occurs when competitors agree on certain price ranges within which they set their prices.
Price fixing discourages competition and raises prices.

22. Are restrictive covenants legal? Why or why not?

23. ANSWER
Yes, if it is reasonable in time and geographic location.

24. Agreements to Defeat Competitive Bidding
A bid is an offer to buy or sell goods or services at a stated price. Laws often require governments to construct public works or buy goods and services through competitive bidding.

25. Agreements to Defeat Competitive Bidding
In the process of competitive bidding, rivals submit bids for a project. The firm with the lowest qualified bid wins the contract.

26. Agreements to Defeat Competitive Bidding
If the bidders get together and agree not to bid lower than a certain price, then they are not bidding fairly. These agreements and contracts are not enforceable.

27. Agreements to Obstruct Justice
Any contract that interferes with the administration of justice is illegal. Such agreements include:
Protecting someone from arrest
Encouraging lawsuits
Giving false testimony
Bribing a juror

28. Agreements Inducing Breach of Duty or Fraud
Congressional and state representatives and all other public officials hold positions of trust.
These officials owe a duty to work for the best interest of the public.

29. Agreements Inducing Breach of Duty or Fraud
Any contract that tries to influence the representatives to use their positions for private gain is unenforceable.
This rule also applies to private persons who are in positions of trust.

30. Agreements Interfering
with Marriage
The law encourages marriages and protects family relationships.
Contracts that discourage, harm, or interfere with good family relationships are illegal and unenforceable in court.

31. Agreements Interfering
with Marriage
For example, a contract promising money in exchange for not marrying would be void.

32. Pre-Learning Question
How does the illegality of a contract affect the parties to that contract?

33. Effect of Illegality
In general, a court will not aid either party to an illegal contract.
Neither party can enforce the agreement.
Nor can they receive aid from the court.

34. Reviewing What You Learned
Section 9.2 Assessment
Reviewing What You Learned
What is the legal doctrine of public policy?

35. Reviewing What You Learned Answer
Section 9.2 Assessment
Reviewing What You Learned
Answer
No one should be permitted to do anything that harms the public at large.

36. Reviewing What You Learned
Section 9.2 Assessment
Reviewing What You Learned
What contracts are considered to be agreements that are contrary to public policy?

37. Reviewing What You Learned Answer
Section 9.2 Assessment
Reviewing What You Learned
Answer
Agreements that involve an unreasonable restraint of trade, agreements to obstruct justice, agreements inducing fraud or breach of duty; and contracts interfering with marriage.

38. Reviewing What You Learned
Section 9.2 Assessment
Reviewing What You Learned
What types of contracts involve an unreasonable restraint of trade?

39. Reviewing What You Learned Answer
Section 9.2 Assessment
Reviewing What You Learned
Answer
Contracts not to compete, price fixing, and agreements to defeat competitive bidding.

40. Reviewing What You Learned What is a restrictive covenant?
Section 9.2 Assessment
Reviewing What You Learned
What is a restrictive covenant?

41. Reviewing What You Learned Answer
Section 9.2 Assessment
Reviewing What You Learned
Answer
Agreement by the seller of a business not to open a competing business within a certain geographic area for a certain period of time.

42. Critical Thinking Activity Philosophy of Law
Section 9.2 Assessment
Critical Thinking Activity
Philosophy of Law
What is the legal philosophy behind public policy?

43. Critical Thinking Activity Answer Philosophy of Law
Section 9.2 Assessment
Critical Thinking Activity Answer
Philosophy of Law
The belief that no one should be permitted to do anything that harms the public at large.

44. Legal Skills in Action Restrictive Employment Covenants
Section 9.2 Assessment
Legal Skills in Action
Restrictive Employment Covenants
Your Uncle Larry has just been offered a job at a computer software company.

45. Legal Skills in Action Restrictive Employment Covenants
Section 9.2 Assessment
Legal Skills in Action
Restrictive Employment Covenants
His employer asked him to sign a restrictive covenant that would not permit him to work for another software company located anywhere in the United States for the next seven years.

46. Legal Skills in Action Restrictive Employment Covenants
Section 9.2 Assessment
Legal Skills in Action
Restrictive Employment Covenants
Write a letter to your uncle telling him whether this restrictive employment covenant would be upheld in court.

47. Legal Skills in Action Answer
Section 9.2 Assessment
Legal Skills in Action Answer
Restrictive Employment Covenants
Answers will vary, but should address whether the geographic region and time periods specified would be considered reasonable.

48. End of Section 9.2