Download LAW

CHAPTER 10
Legal Purpose and
Proper Form
10-1 Illegal Agreements
10-2 The Statute of Frauds
LAW for Business and Personal Use
Chapter 10
© 2012 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Slide 1
10-1
Illegal Agreements
 GOALS
 Identify various forms of unenforceable illegal
agreements
 Specify agreements that, although illegal, the
courts will enforce
 Agreements that involve contracting for an
illegal act generally are void and
unenforceable.
LAW for Business and Personal Use
Chapter 10
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Slide 2
Illegal Agreements
 Illegal lotteries
 Lottery—3 elements
 a prize
 Chance—winner determined solely by luck
 Consideration—a payment is required to win
 Wager—bet on the uncertain outcome of an
event.
LAW for Business and Personal Use
Chapter 10
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Slide 3
Regulated Gambling
 Casinos
 Must be run for the benefit of a charitable
organization in the State of Indiana.
 Only a qualified organization can conduct
charitable gaming in the State of Indiana
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Regulated gambling (con’t)
 Casinos (con’t)
 “Qualified organization”
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Religious
Educational
Senior citizens
Veterans
Civic organizations
 Been in existence in state for 5 or more years
 Non-profit by IRS standards
 Way money is distributed
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Regulated gambling (con’t)
 Pari-mutuel betting
 Those who bet on the winner of a horse race
share the total prize after taxes and other
expenses have been removed.
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Regulated Gambling (con’t)
 State-Run Lotteries
 Hoosier Lottery
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Voted in by voters in November, 1988
Ratified by general assembly in May 1989
73% to Build Indiana Fund
13.5% to local police and firefighters pensions
13.5% to public school teachers pensions
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Regulated Gambling
 Bingo Games and Pull-Tab Betting
 Card Rooms—Poker Rooms
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Winning: Life after the Lottery
 https://www.youtube.com/watch?v=IHibsmLv
ohc
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Lottery winners
 https://www.youtube.com/watch?v=ot-DbxB5UY
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Illegal Agreements
 Agreements to pay usurious interest
 Usury interest rates: lending money at a rate
higher than allowed by state law.
 Currently no usury rate law in Indiana
 Principal: the primary part of the loan. The part of
the loan that you’ve actually borrowed.
 “Payday” Loans: charge much higher interest
rates.
 Higher risk to lender means higher interest charged to
borrower
 No interest rate stated = legal rate of interest
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Illegal Agreements
 Agreements involving illegal discrimination
 Violate anti-discrimination laws
 May also be unconstitutional
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Illegal Agreements
 Agreements that obstruct legal procedures
 Pay for non expert testimony or pay for false
testimony (perjury)
 Bribe jurors
 Compounding a crime: accepting something of
value for a promise not to inform on or prosecute
a suspected criminal
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Illegal Agreements
 Agreements made without a required
competency license
 Competency license: state requirements for
certain occupations. Must pass exams to receive
a license.
 Cannot enforce the contract unless you have the correct
license.
 Revenue license:
 State of Indiana: must have license from state to collect
state sales tax and food/beverage tax
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Illegal Agreements
 Agreements that affect marriage negatively
 Agreements that harm or interfere with marriage
are unenforceable
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Illegal Agreements
 Agreements that restrain trade unreasonably
 Free trade is encouraged in a free market
economy
 Anti-Trust Laws: laws that prohibit competing
companies from price fixing or dividing up sales
regions
 Sherman Act
 Clayton Act
 Federal Trade Commission Acts
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Sherman Act
 Passed in 1890. First anti-trust act passed
 It provides that no person shall monopolize,
attempt to monopolize or conspire with
another to monopolize interstate or foreign
trade or commerce.
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Clayton Act
 Passed in 1914
 Regulates general practices that may be
detrimental to fair competition
 Price discrimination
 Exclusive dealing contracts
 Mergers and acquisition
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Federal Trade Commission Act
 Prevents unfair competition methods and
unfair or deceptive business practices
 Proven by showing bad faith, fraud,
oppression, or violation of public policy
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Definitions involved in Anti-trust
legislation
 Price fixing: when competing firms agree on the
same price to be charged for a product or
service.
 injures competition
 Bid rigging: competitors bid on the same project
and agree which bidder will have the lowest bid
for the job
 Resale price maintenance: may not contract with
a retailer to set the price for the product
 Allocation of markets: competitors dividing a
market between themselves.
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Illegal Agreements
 Agreements not to compete
 Legal as part of an employment contract
 Non-compete agreements are legal unless
unreasonable in:
 Length of time
 Geographic area within which the limitations apply
 Employer’s interest protected by the limitation
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CHECKPOINT

 Name four of the eight illegal agreements
discussed in this section.
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Chapter 10
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Slide 22
WHEN WILL THE COURTS ENFORCE
ILLEGAL AGREEMENTS?
 Most illegal contracts are VOID and
unenforceable.
 If connection between the illegality and
agreement is minor or a party is relatively
innocent
 Restitution is allowed
 Agreement may be enforced
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Chapter 10
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May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Slide 23
WHEN WILL THE COURTS
ENFORCE ILLEGAL
AGREEMENTS?
 Protected victims
 Blue Sky laws: prohibits selling of worthless
stocks and bonds
 Victims would receive restitution
 In pari delicto: “of equal guilt.”
 Party at lesser fault may be able to receive
restitution
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WHEN WILL THE COURTS
ENFORCE ILLEGAL
AGREEMENTS?
 The excusably ignorant
 May be able to either enforce the contract or
receive restitution
 Described as
 Not knowing the contract is illegal, however
 The other party does know the contract is illegal
and
 The illegality is minor
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WHEN WILL THE COURTS
ENFORCE ILLEGAL
AGREEMENTS?
 Rescission prior to illegal act
 Party rescinds before the illegal act, can receive
restitution
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WHEN WILL THE COURTS
ENFORCE ILLEGAL
AGREEMENTS?
 Divisible contracts
 Separate consideration is given for the legal and
illegal parts of the contract
 if the contract is divisible, the courts can
uphold the legal part.
 Unconscionable: UCC: contract is so
grossly unfair that parties under ordinary
circumstances would not accept it.
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 Unconscionable
 Presented with a “take it or leave it” contract
 Other party had overwhelming bargaining power
 There was no viable alternative in the
marketplace
 Injustice can only be avoided by holding certain
terms or the whole contract void.
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CHECKPOINT

 Under what circumstances will the courts
enforce illegal agreements?
LAW for Business and Personal Use
Chapter 10
© 2012 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Slide 29
10-2
The Statute of Frauds
 GOALS
 Explain why the Statute of Frauds is necessary
and what it requires
 Identify the main instances when the Statute of
Frauds requires a writing
 Understand the rules of contract interpretation
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Slide 30
What is the Statute of Frauds
 Law stating that certain agreements are not
enforceable in court unless they are
evidenced by a signed writing.
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Must all contracts be in writing?
 No; however, if a dispute comes up or if the
contract is within the Statute of Frauds, the
chances of enforcement by the court will be
greatly increased if the contract is in written
form.
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WHY HAVE A STATUTE OF
FRAUDS?
 Contracts within the Statute of Frauds
 If a contract is required to be in writing
 Contracts without the Statute of Frauds
 If the contract is not required to be in writing
 What happens if the contract is within the
Statute of Frauds, but not written?
 Executed: leave parties alone
 Executory: unenforceable
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Slide 33
 Quasi-contract:
 An obligation that is enforced as if it were a
contract in order to prevent unjust enrichment of
one party
 Enforces restitution or other remedy against one of the
parties to the contract
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WHY HAVE A STATUTE OF
FRAUDS?
 Requirements of the writing-key elements
 Statute of Frauds requirements (strictest)
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Name of the parties
Description of the subject matter
Price
Quantity
Signature
Other essential terms
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 UCC requirements
 Not as strict
 Only requires quantity of goods and that a contract had
been formed.
 Special rules for signatures
 Only those who signed the contract will be held liable.
 Form of signature doesn’t matter as long as it is intended
as a signature or authentication of the writing.
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CHECKPOINT

 Name the six essential elements in a writing
required by the most demanding Statutes of
Frauds standards.
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Slide 37
TYPES OF CONTRACTS WITHIN
THE STATUTE OF FRAUDS
 Contract for the sale of goods for $500 or more
 Exceptions:
 Specially ordered and manufactured goods that are not
suitable to be sold to others in the normal course of
business
 Goods were ordered and payment was accepted by
seller
 Goods have been received and accepted by the buyer
 When the party against whom enforcement is sought
admits during legal proceedings that an oral contract was
made.
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Slide 38
TYPES OF CONTRACTS WITHIN
THE STATUTE OF FRAUDS
 Contract to sell an interest in real property
 Exceptions
 The seller has delivered the deed or if the buyer has
 Made partial or full payment and
 Occupied the land and
 Made substantial improvements to the land.
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TYPES OF CONTRACTS WITHIN
THE STATUTE OF FRAUDS
 Contracts that require more than one year to
complete
 Is there a possibility of performance within the year?
 Contract to pay a debt or answer for another’s debt
or the debts of an estate
 Collateral promise: promise to pay the debt of another—
must be in writing
 Primary promise: promise to pay another’s debt that is not
conditioned upon the other person’s failure to pay
 Exception—main purpose rule. Main purpose of the
promise serves the promisor’s own purpose.
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TYPES OF CONTRACTS WITHIN
THE STATUTE OF FRAUDS
 Contract for which the consideration is
marriage
 Pre-nuptial agreements: must be signed
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CHECKPOINT

 What amount must be exceeded to require a
contract for the sale of goods to be in writing
to be enforceable?
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Slide 42
HOW ARE CONTRACTS
INTERPRETED?
 Acknowledgement of final agreement
 Clause stating that both parties agree that the
terms in the written contract are complete and
constitute the entire agreement
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Slide 43
HOW ARE CONTRACTS
INTERPRETED?
 Specific rules of interpretation
 Analysis: principal objective
 Conflicting terms
 Typewritten and/or handwritten notes on contract take
precedence over printed forms
 Words: plain and normal meaning of words will
prevail
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HOW ARE CONTRACTS
INTERPRETED?
 Specific rules of interpretation
 Ambiguities
 Not clear
 Rule against party who formulated the contract
 Implied reasonableness
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HOW ARE CONTRACTS
INTERPRETED?
 Parol Evidence Rule
 Oral testimony cannot be used to contradict terms
in a complete, final, written contract
 Inadmissible in court proceedings
 Keeps out preliminary inquiries, initial proposals,
negotiations, etc.
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 Exceptions to 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.
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CHECKPOINT

 Explain the parol evidence rule.
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Slide 48
PREVENT
LEGAL
DIFFICULTIES
 In making contracts . . .
 Deal only with persons who are reputable and
properly licensed when contracting for
professional or skilled services.
 Do not rush into a decision. Take time to review
and understand the advantages and
disadvantages of the contract. Legitimate
proposals usually will survive a delay.
Continued on the next slide
LAW for Business and Personal Use
Chapter 10
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Slide 49
PREVENT
LEGAL
DIFFICULTIES
 If the contract is complex or involves much time
or money, put it in writing even when the Statute
of Frauds does not require this. Try to anticipate
and provide for all possible problems. If needed,
obtain the assistance of a qualified lawyer.
 If a prepared contract is presented to you for your
signature read it carefully, especially if it is a
contract of adhesion. If the contract involves a
large sum of money, or if it is complex, have your
lawyer review it before you sign.
Continued on the next slide
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Slide 50
PREVENT
LEGAL
DIFFICULTIES
 Insist that all terms of the contract that you do not
understand be defined and explained. Make
necessary changes, or reject the entire contract.
 Make sure that all changes are written into a
contract on all copies as well as on the original,
and that all changes are initialed by both parties.
Retain a copy with the other party’s signature on it.
 Be sure all desired terms are expressed in writing
or included by specific reference to any other
relevant document(s).
Continued on the next slide
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Slide 51
PREVENT
LEGAL
DIFFICULTIES
 When any payments have been made in cash, be
sure to get a receipt if payment is not
acknowledged in the contract.
Continued on the next slide
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Chapter 10
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Slide 52