1. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. Twomey & Jennings BUSINESS LAW Chapter 16 Legality and Public Policy Chapter 16 Legality and Public Policy

2. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 2 General Principles Illegality embraces situations in which a statute declares that certain conduct is unlawful or a crime: – contracts requiring the commission of a tort. –contracts that are contrary to public policy. –contracts that are unconscionable. – to some extent, contracts that are oppressive, unfair, or made in bad faith. Illegality embraces situations in which a statute declares that certain conduct is unlawful or a crime: – contracts requiring the commission of a tort. –contracts that are contrary to public policy. –contracts that are unconscionable. – to some extent, contracts that are oppressive, unfair, or made in bad faith.

3. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 3 General Principles Good Faith and Fairness. –Every contract has an implied duty of good faith and fair dealing. Good Faith and Fairness. –Every contract has an implied duty of good faith and fair dealing. El Paso Natural Gas Co. v Minco Oil & Gas Co. (1999) Natural Gas or Pure Deceit? Seller Beware.

4. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 4 General Principles Unconscionable Clauses. –Contracts of adhesion. Unconscionable Clauses. –Contracts of adhesion. Circuit City Stores, Inc. v Adam (2002) Arbitration Agreement Gets Short- Circuited.

5. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 5 Illegal Agreements When an agreement is illegal, it is ordinarily void, and no contract arises from it. Courts will not allow one party to an illegal agreement to bring suit against the other party. There are some exceptions to this, such as when the parties are not equally guilty or when the law’s purpose in making the agreement illegal is to protect the person who is bringing suit. When an agreement is illegal, it is ordinarily void, and no contract arises from it. Courts will not allow one party to an illegal agreement to bring suit against the other party. There are some exceptions to this, such as when the parties are not equally guilty or when the law’s purpose in making the agreement illegal is to protect the person who is bringing suit.

6. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 6 Exceptions to Effect of Illegality Protectio n of One Party Unequal Guilt Knowledg e of Illegal Purpose of Other Party Relief Society, speaking through lawmakers or judges, deems voiding illegal contract unjust when the party meant to be protected is harmed or harshly treated.

7. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 7 Agreements Affecting Public Welfare The legality of an agreement is considered in light of the effect on the rest of society. Whether a contract is contrary to public policy may be difficult to determine because public policy is not precisely defined. –That which is harmful to the public welfare or general good is contrary to public policy. The legality of an agreement is considered in light of the effect on the rest of society. Whether a contract is contrary to public policy may be difficult to determine because public policy is not precisely defined. –That which is harmful to the public welfare or general good is contrary to public policy.

8. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 8 Agreements Affecting Public Welfare Prejudice to Public Policy Illegal Wagers and Lotteries Evasions of Statutory Protection Injuries to Public Service Illegal Lobbying Conflicts of Interests Obstructions to Legal Process Illegal Discrimination Agreements Negatively Affecting Society

9. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 9 Examples of Illegal Agreements Agreements injuring public service, such as an agreement to buy a government job for an applicant. Agreements involving conflicts of interest, such as when the purchasing officer of a government buys from a company that the officer privately owns. Agreements obstructing legal process, such as an agreement with a witness to disappear. Illegal discrimination contracts. Wagers and private lotteries. Agreements injuring public service, such as an agreement to buy a government job for an applicant. Agreements involving conflicts of interest, such as when the purchasing officer of a government buys from a company that the officer privately owns. Agreements obstructing legal process, such as an agreement with a witness to disappear. Illegal discrimination contracts. Wagers and private lotteries.

10. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 10 Regulation of Business Contracts with Unlicensed Persons in Licensed Callings or Dealings Fraudulent Sales Agreements Restraining Trade Agreements Not to Compete Conflicts of Interests Obstructions to Legal Process Usurious Agreements Agreements Impacting Business

11. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 11 Restraints of Trade Contracts in restraint of trade are generally illegal as violating federal or state antitrust laws. Non-compete Agreements are illegal unless the terms are reasonable and it is incidental to the sale of a business or to a contract of employment. Contracts in restraint of trade are generally illegal as violating federal or state antitrust laws. Non-compete Agreements are illegal unless the terms are reasonable and it is incidental to the sale of a business or to a contract of employment. McGlothen v Heritage Environmental Service, LLC (1999) Are the confidentiality and non-compete agreements enforceable?

12. © 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 12 UsuryUsury The charging by a lender of a higher rate of interest than allowed by law is usury. Courts must examine transactions carefully to see if there is a usurious loan disguised as a legitimate transaction. When sellers of goods offer their buyers one price for a cash sale and another, higher price for a credit sale, the higher price is lawful in most cases. The charging by a lender of a higher rate of interest than allowed by law is usury. Courts must examine transactions carefully to see if there is a usurious loan disguised as a legitimate transaction. When sellers of goods offer their buyers one price for a cash sale and another, higher price for a credit sale, the higher price is lawful in most cases.