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CHAPTER 13 LEGALITY OF SUBJECT MATTER AND PROPER FORM OF CONTRACTS. DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.). REQUIREMENTS OF LEGALITY OF SUBJECT MATTER AND PROPER FORM.

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CHAPTER 13LEGALITY OF SUBJECT MATTER AND PROPER FORM OF CONTRACTS

DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8th Ed.)


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REQUIREMENTS OF LEGALITY OF SUBJECT MATTER AND PROPER FORM

  • Subject matter and purpose of the contract must be legal at the time the contract is entered into to be valid.

  • If not contract is void and unenforceable.

  • Legality under the Statute of Frauds.


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REQUIREMENTS OF LEGALITY OF SUBJECT MATTER AND PROPER FORM

  • Components of Illegality.

    • Bargain is illegal if its performance is criminal, tortious, or otherwise opposed to public policy.

    • Both subject matter and realization of its objectives must be permissible under state and federal statutes.


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MALA IN SE AND MALA PROHIBITA BARGAINS

  • Court distinguish between mala in se and mala prohibita.

    • Mala in se: bargains that violate statutes because they are evil in themselves.

    • Mala prohibita: bargains that have been merely forbidden by statute.


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AGREEMENTS THAT VIOLATE STATUTES

  • Price-Fixing Agreements: generally to restrain competition so as to create a monopoly or oligopoly in order to control price fluctuations.

  • Performance of Services Without a License: absence of license bargain is unenforceable. License is to protect public from unqualified persons.


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AGREEMENTS THAT VIOLATE STATUTES

  • Sunday Closing Laws: prohibit the formation or performance of contracts on Sundays.

  • Wagering Statutes: wagering contracts and lotteries are illegal because of statutes prohibiting gambling, betting and other games of chance. Illegal wager if activity involves a person’s paying consideration or value in the hope of receiving a prize or other property by chance. Legal if consists of a scheme involving artificial creation of risk.


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AGREEMENTS THAT VIOLATE STATUTES

  • Usury Statutes: loaning money at a greater profit (or interest rate) than the law permits. Usury to exist, there must be a loan of money for which the debtor agrees to repay the principal at a rate that exceeds the legal rate of interest.


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AGREEMENTS THAT VIOLATE STATUTES

  • Covenant Not to Compete: also called restrictive covenants, express promises that a seller of a business or an employee who leaves a company will not engage in the same or similar business or occupation for a period of time in a certain geographic area.


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AGREEMENTS THAT VIOLATE STATUTES

  • Exculpatory Clauses: legality of bargains made in which a person agrees in advance to exonerate another person’s activities from liability, can be legal or illegal.


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EXCEPTIONS: UPHOLDING ILLEGAL AGREEMENTS

  • Parties Not in Pari Delicto: parties not equally at fault.

  • Repentance: parties try and undo or rescind illegal agreement before consummation.

  • Partial Illegality: unenforceable parts of the bargain that are illegal.


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THE IMPORTANCE OF FORM

  • The law places certain requirements on the form of contracts: agreement (offer and acceptance), consideration, capacity, reality of consent, and legality.

  • The law also places certain limitations on the interpretation of what is meant by contract language.


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THE IMPORTANCE OF FORM

  • Requiring contracts to be in writing to be enforced by the law.

  • Writing is evidence that contract was formed and avoids perjury.


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STATUTE OF FRAUDS

  • Requires certain types of contracts to be in writing to be enforceable.

  • Valid contract exists.

  • Affirmative defense: defense to a cause of action that the defendant must raise. Used by a person who wants to avoid the enforcement of a contract.


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STATUTE OF FRAUDS

  • Types of Contracts.

    • Contracts answering for the debts of others if person defaults.

    • Contracts for interests in land.

    • Contracts not to be performed within one year of their making.


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STATUTE OF FRAUDS

  • Types of Contracts:

    • Promises of executors and administrators of estates.

    • Contracts made in consideration of marriage.

    • Contracts for sale of goods priced at $500 or more or the lease of goods for $1,000 or more.


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STATUTE OF FRAUDS

  • Writing: may take the form of letters, telegrams, receipts or memoranda. And must identify the parties to the agreement, the subject matter of the agreement, and all material terms and conditions.

  • Signature: parties written signatures, also may include, stamped signatures or stationery letterheads.


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PAROL EVIDENCE RULE

  • Law predicates that oral evidence should not be admissible to alter, add to, or vary the terms of an integrated, written contract.

  • Facilitates judicial interpretation by having a single, clear source of proof as to the terms of the agreement between the parties.

  • Emphasizes the importance of writings.

  • Rule of Substantive Law.


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EXCEPTIONS TO THE PAROL EVIDENCE RULE

  • Partially Integrated Contracts.

    • Writing is an incomplete statement of the contract.

  • Mistake, Fraud, and Other “Reality-of-Consent” Situations.

    • Casts doubts on the validity of the integrated writing.


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EXCEPTIONS TO THE PAROL EVIDENCE RULE

  • Ambiguities and Conditions Precedent.

    • To clear up ambiguities and show an agreement was not binding on parties until condition precedent.

  • Uniform Commercial Code.

    • Evidence of course dealing, usage of trade, and course of performance is admissible.


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