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Business Law: Ch 10. Legal Purpose and Proper Form. Which Agreements are illegal. Agreements that involve contracting for an illegal act generally are void and unenforceable. Which Agreements are illegal. Illegal Lotteries Three elements Prize – something of value for one or more winners

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Business law ch 10

Business Law: Ch 10

Legal Purpose and Proper Form

Which agreements are illegal
Which Agreements are illegal

Agreements that involve contracting for an illegal act generally are void and unenforceable

Which agreements are illegal1
Which Agreements are illegal

  • Illegal Lotteries

    • Three elements

      • Prize – something of value for one or more winners

      • Chance – winner decided solely by luck

      • Consideration – payment is required to participate

  • Wager – is a bet on the uncertain outcome of an event

Legalized forms of gambling
Legalized forms of Gambling

Casinos – permits traditional games such as keno, blackjack, roulette and the like

Pari-mutuel betting – form of betting where the winner of the horse race share the total prize pool

State-run lotteries – winner split the jackpot

Bingo games and pull-tab betting

Which agreements are illegal2
Which Agreements are illegal

  • Agreements to pay usurious interest

    • Lenders of money may not charge more than a specified interest rate

    • 18% is the common maximum but it may vary from state to state

    • Usury – lending money at a rate higher then state allows

    • State allow higher rates for “payday” loans – under $1500.

Which agreements are illegal3
Which Agreements are illegal

  • Agreements involving illegal discrimination

  • Agreements that obstruct legal procedures

    • Pay non-expert witnesses in a trial to testify or pay for false testimony

    • Bribe jurors

    • Compound a Crime – Refrain from informing on or prosecuting an alleged crime in exchange for money

Which agreements are illegal4
Which Agreements are illegal

  • Agreements made without a required competency license

    • License required for people of certain occupations and businesses – must pass exam

    • Person who lacks license may not enforce the contracts that make

    • Revenue Raising License – license people who raise money

      • Contracts are valid

Which agreements are illegal5
Which Agreements are illegal

  • Agreements that affect marriage negatively

    • Pay someone to promise to marry you

    • Pay someone not to marry

    • Pay someone to divorce

Which agreements are illegal6
Which Agreements are illegal

  • Agreements that restrain trade unreasonably

    • Price Fixing – Competing firms agree on the same price

      • Unenforceable

    • Bid Rigging – Competitors agree that one bidder will have the lowest bid

    • Resale Price Maintenance

    • Allocation of Markets – divide the market are illegal and unenforceable

When will courts enforce illegal agreements
When will courts enforce illegal agreements

  • Protected Victims

  • The Excusably Ignorant – Can enforce legal part of contract or obtain restitution

    • Excusably ignorant is:

      • Does not know the contract is illegal

      • The other party knows the transaction is illegal

      • The illegality is minor

  • Rescission Prior to Illegal Act

  • Divisible Contracts – Contain combination of legal and illegal provisions


Occurs when there is a grossly unfair contract parties under ordinary circumstances would not accept

To show unconscionability
To show Unconscionability

  • The victim must show:

    • He or she was presented with a take it or leave it contract

    • The other party had overwhelming bargaining power

    • There is no viable alternative in the marketplace

    • Injustice can only be avoided by holding certain terms or the whole contract unconscionable.

Contracts within statute of fraud
Contracts within Statute of Fraud

Required to be in writing

Contracts to buy and sell goods for a price over $500

Contracts to buy and sell real property or any interest in real property

Contracts that require more than one year to complete

Promises to stand good for the debts of another or of an estate

Promises to give something of value in return for a promise of marriage

Executed contracts
Executed Contracts

  • A contract that has been fully performed

    • Both parties have done all they promised to do

Executory contracts
Executory Contracts

Contract that has not been fully performed

Something agreed upon remains to be done

If the contract falls within statute of fraud in unenforceable

Any consideration exchanged can be recovered by suing based on Quasi-Contract

Quasi contract

Exists when some element of an enforceable contract is missing, yet the courts award money to prevent the unjust enrichment of one party

Requirements of the writing
Requirements of the Writing

Writing need not utilize any special form to satisfy the Statute of Frauds as long as the writing contains certain key elements

Statute of frauds requirements
Statute of Frauds Requirements

  • Names of the parties

  • A description of the subject matter

  • Prices

  • Quantity

  • Signature

  • Other essential terms

    • Time or method of delivery

    • Terms of payment

    • Method of financing

    • Date for transfer of possession

Ucc requirements
UCC Requirements

The quantity of goods

That a contract has been created between the parties

Special rules for signatures
Special Rules for Signatures

Under the Statutes of Frauds, only the parties whose signatures actually appear on the contract may be sued for enforcement

Under the UCC, a contract proposal in writing signed by one party and sent to the other is enforceable against the other party unless the other party objects to the terms within 10 days of receipt.

Statute of frauds contracts
Statute of Frauds Contracts

  • Contract for the Sale of Goods for $500 or more

    • Modification of a contract that was below $500 and now the total price is above $500, then it must be in writing

Statute of frauds contracts1
Statute of Frauds Contracts

  • UCC exceptions to the Statute of Frauds:

    • When goods are ordered to be specially manufactured and they are not suitable to be sold to others

    • When goods have been ordered and paid for and the seller has accepted payment

    • When 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

Statute of frauds contracts2
Statute of Frauds Contracts

  • Contracts to Sell an Interest in Real Property

    • Includes land and buildings permanently attached to the land

    • Transfer of title, ownership of real property, or of lesser interests, must be in a properly signed writing to be enforceable.

      • Exception:

      • Made partial or full payment

      • Occupied the land

      • Made substantial improvements to the land

Statute of frauds contracts3
Statute of Frauds Contracts

  • Contracts that require more than one year to complete

    • Begins at the time the contract is made, not at the time contractual performance is to begin

Statute of frauds contracts4
Statute of Frauds Contracts

  • Contracts to pay a debt or answer for another’s debt or the debt of an estate

  • Collateral Promise – Promise to pay a debt or default of another

  • Primary Promise – Promise to pay another’s debt that is not conditioned upon the other person’s failure to pay.

  • Exception: Main Purpose Rule – Third party is responsible for an oral promise that serves the promisor’s own interest

Statute of frauds contracts5
Statute of Frauds Contracts

  • Contracts for which the consideration is marriage

  • A signed writing is required for agreements in which one party promises to marry in return for something more than the other’s promise to marry.

  • If one party breaches either an oral or written contract to marry, the victim of the breach may successfully sue for damages

How are contracts interpreted
How are Contracts Interpreted

  • Acknowledgement of Final Agreement

    • Issues develop involving preceding oral agreements not reflected in the ultimate contract.

    • Contract clause stating both parties agree that the terms in the written contract constitute the entire and final agreement

How are contracts interpreted1
How are Contracts Interpreted

  • Specific Rules of Interpretation

    • Court will interpret the contract in terms of the parties’ principal objective

    • Court can see which clauses should prevail over others

    • If agreement can be interpreted in two ways, the courts will choose the way that renders the agreement a contract

How are contracts interpreted2
How are Contracts Interpreted

  • Conflicting Terms

    • If there is a conflict between a printed form contract and something typewritten or handwritten theron, the later writings, not the conflicting typeset print, determines the contracts meaning

How are contracts interpreted3
How are Contracts Interpreted

  • Words

    • The plain and normal meaning of ordinary words will be used to determine the meaning of the contract

    • Prior relationships may indicate how the words should be interpreted

How are contracts interpreted4
How are Contracts Interpreted

  • Ambiguities – Things that can be understood in two or more possible ways

    • Courts will interpret against the party who drafted the contract

How are contracts interpreted5
How are Contracts Interpreted

  • Implied Reasonableness

    • Contracts often include implied terms as a matter of reasonableness

    • When no time for performance is mentioned, a reasonable time is allowed

How are contracts interpreted6
How are Contracts Interpreted

  • Parol Evidence Rule

    • Makes the final writing the source of evidence about the terms of the contract

How are contracts interpreted7
How are Contracts Interpreted

  • 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

    • 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