Unformatted text preview: Chapter 16
LEGALITY AND POLICY 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.
2 General Principles
Good Faith and Fairness. Every contract has an implied duty of good faith
and fair dealing. Unconscionable Clauses. Contracts of adhesion. 3 Effect of Illegality
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.
4 Exceptions to Effect of Illegality
Protectio n of One Party Society, speaking through Relief Relief lawmakers or judges, deems voiding illegal contract unjust when the party meant to be protected is harmed or harshly treated. Unequal Guilt Relief Knowledg e of Illegal Purpose of Other Party 5 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. 6 Agreements Affecting Public Welfare
Illegal Wagers and Lotteries Prejudice to Public Policy Evasions of Statutory Protection Illegal Discrimination Agreements Negatively Affecting Society Injuries to Public Service Obstructions to Legal Process Conflicts of Interests Illegal Lobbying 7 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.
8 Regulation of Business
Contracts with Unlicensed Persons in Licensed Callings or Dealings Fraudulent Sales Usurious Agreements Agreements Impacting Business Agreements Restraining Trade Obstructions to Legal Process Conflicts of Interests Agreements Not to Compete 9 Agreements Not to Compete 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. Sale of Business. Employment Contract. Effect of Invalidity. 10 Usurious Agreements
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.
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