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Business Law and the Legal Environment for a New Century Alternate Edition ... Business Law and the Legal Environment for a New Century Alternate Edition ...

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CHAPTER 13

Legality


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Quote of the Day

“Gambling is the child of avarice, the brother of iniquity, and the father of mischief.”

George Washington,

United States President


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Contracts that May Violate a Statute

  • Wagers

    • Investments

    • Insurance

  • Licensing Statutes

  • Usury

These types of contracts will be discussed further on the next slides.


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Wagers

  • A gambling contract is illegal unless it is specifically authorized by state statute.

  • In some cases, wagers have been disguised as “investments” where the gambler places a bet on the price of stock, but never actually buys the stock.

  • Someone taking out a policy on the life of another must have an insurable interest in that person -- or else it becomes a “wager” on their life.


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Licensing Statutes

  • When a licensing requirement protects the public, any contract made by an unlicensed worker is unenforceable.

  • When a licensing requirement is designed merely to raise revenue, a contract made by an unlicensed person is generally enforceable.

Usury

  • Usury laws prohibit charging excess interest on loans.


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Contracts that May Violate Public Policy

  • Restraint of Trade

  • Exculpatory Clauses

  • Bailment Cases

  • Unconscionable Contracts

  • Adhesion Contracts

These types of contracts will be discussed further on the next slides.


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Restraint of Trade

  • To be valid, an agreement not to compete must be ancillary to a legitimate bargain.

  • Sale of a Business

    • When a noncompete agreement is ancillary to the sale of a business, it is enforceable if reasonable in time, geographic area, and scope of activity.

  • Employment


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Exculpatory Clauses

Part of a contract that attempts to release you from liability for injury to another party.

  • Generally enforceable when

    • the affected activity is in the public interest, such as medical care, public transportation, or some essential service.

  • Generally unenforceable when

    • it attempts to exclude an intentional tort or gross negligence.

    • the parties have generally unequal bargaining power.

    • it is not clearly written and readily visible.


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Bailment Cases

  • Bailment means giving possession and control of personal property to another person.

  • The person giving up possession is the bailor, and the one accepting possession is the bailee.


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Unconscionable Contracts

  • An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness.

  • The two factors that most often led a court to find unconscionability were:

    • oppression -- meaning that one party used its superior power to force a contract on the weaker party; and

    • surprise --meaning that the weaker party did not fully understand the consequences of its agreement.


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Adhesion Contracts

  • Adhesion contracts are standard form contracts prepared by one party and given to the other on a “take it or leave it” basis.

  • They are generally enforced when the two parties are of equal power, but when the parties are unequal, the contract may be ruled unconscionable.


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“No matter how profitable a particular contract clause may appear to be, it is worthless if it is illegal. Make sure your agreement is lawful.”


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