Chapter 11: Legality

I. Legality: the sixth and final requirement of a contract that states that an agreement must have a legal purpose.

A. Contracts are illegal if their purpose or manner in which they are carried out illegal, violates a statute, or is contrary to public policy.

  1. Agreement that Violate Statutes: These agreements are illegal and void because they violate individual state statutes such as…
    1. Civil and Criminal Statutes
    2. Usury Statutes
      • Any contract the charges over the maximum allowable interest rate is illegal.
    3. Gambling Statutes
      • Any contract that participates in games of chance or risk that is not sanctioned by the state is illegal.
    4. Sunday Statutes
    5. Licensing Statutes
  2. Agreements Contrary to Public Policy: An agreement that requires the performance of an act harmful to the public  benefit.
    1. Agreements in unreasonable restraint or trade
      • Contracts not to compete
      • Price fixing
      • Competitive bidding.
    2. Agreements to obstruct injustice
    3. Agreements interfering with marriage.
  1.  agreements in unreasonable restraint of trade- if a contract arises that deprives an individual rights even if the contract seems legal; cannot conduct business because someone restrained you from doing so
    • contracts not to compete-
      • goodwill- along with the purchase of the business, you are buying the reputation/customers
      • restricted covenant- promise not to compete, reasonable time, place, and the geographic distance
    • price fixing-
      • competitors-set prices
      • manufacturers- set prices
      • discourages competition, innovation, and economic growth
    • competitive bidding- when the bidders have knowledge of each other’s bids and join to set the bid price
  2. agreements to obstruct justice- any contract that interferes with the administration of justice is illegal; ex. protecting someone from arrest,encouraging law suits, giving false testimony or bribing a juror. Includes agreements to pay a non expert to testify in trial or agreement to not prosecute a person in return for money
  3. agreements interfering with marriage- unenforceable, goes against public policy

 

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