Section 9.1

1. Section 9.1

2. Chapter 9 Legality Section 9.1 Agreements that Violate Statutes Section 9.2 Agreements Contrary to Public Policy

3. What You’ll Learn • How to explain what makes a contract illegal (p. 186) • How to identify the consequences of illegality in relation to contract law (p. 186)

4. What You’ll Learn • How to identify contracts that are illegal by statutory law (p. 188) • How to identify different types of licenses (p. 191)

5. Why It’s Important By understanding the concept of illegality in contract law, you will be able to avoid problems that might arise when you consider entering a contract.

6. Legal Terms • conspiracy (p. 186) • interest (p.189) • usury (p. 189) • lottery (p. 190) • license (p. 191)

7. Section Outline The Nature and Consequences of Illegality Illegality in Entire Agreement In Pari Delicto and Divisible Contracts

8. Section Outline Agreements that Violate Statutes Civil and Criminal Statutes Usury Statutes Gambling Statutes Sunday Statutes Licensing Statutes

9. Pre-Learning Question What are the consequences of being party to an illegal contract?

10. The Nature and Consequences of Illegality • Legality is the last of the six elements that make up a valid contract. • Even if a contract has all the other elements, it may still be invalid if it lacks a legal purpose.

11. The Nature and Consequences of Illegality A contract can be made illegal in many ways. It may be illegal if it involves an agreement to do something that violates statutory law.

12. The Nature and Consequences of Illegality Making the agreement itself could be illegal. For example, individuals who agree to commit crimes for a promised consideration are involved in what criminal law calls conspiracy.

13. Illegality in Entire Agreement If it’s impossible to separate a contract into isolated promises and acts, each of which can be performed independently of the others, then the entire contract is rendered illegal.

14. Illegality in Entire Agreement If any part of the agreement is contaminated by illegality, a valid contract cannot result.

15. In Pari Delicto and Divisible Contracts If certain promises and actions in a contract can be successfully performed by themselves, then the contract is said to be divisible.

16. In Pari Delicto and Divisible Contracts In such cases, the courts may enforce those parts of the agreement that are legal and revoke the parts that are not.

17. In Pari Delicto and Divisible Contracts Parties are said to be in pari delicto (in equal fault) if they both know that the agreement is illegal. In such cases, the court will aid neither party.

18. In Pari Delicto and Divisible Contracts However, if one of the parties is unaware of wrongdoing, then the parties are not in pari delicto and courts may grant relief to the innocent party.

19. Pre-Learning Question What type of agreements do you think would violate state statutes?

20. Agreements that Violate Statutes State legislatures pass laws declaring that certain types of agreements are illegal and void because they violate: • Civil and criminal statutes • Usury statutes

21. Agreements that Violate Statutes • Gambling statutes • Licensing statutes • Sunday statutes

22. Civil and Criminal Statutes • Agreements that require one party to commit a tort or a crime are illegal. • Agreements to protect one party from the consequences of torts or crimes committed are also illegal.

23. What does in pari delicto mean and how does it relate to illegal contracts?

24. ANSWER It means “in equal fault” and refers to both parties of a contract who know that an agreement is illegal.

25. Usury Statutes Each state sets a maximum interest rate that lenders can charge for loans by statute. Interest is the fee the borrower pays to the lender for using the money.

26. Usury Statutes The interest rate the lender and borrower agree upon must not exceed the maximum rate allowed by state law. Charging more than the maximum legal interest rate is usury.

27. Gambling Statutes State statutes also prohibit gambling agreements—agreements in which one party wins and another party loses, even if some skill may be involved.

28. Gambling Statutes Gambling agreements include: • Playing cards for money. • Money wagers or bets on elections or sports events. • Buying tickets in a sports pool.

29. Gambling Statutes In the past, most states prohibited gambling. Recently, however, many states changed their laws to allow some regulated gambling, such as

30. Gambling Statutes • Betting at racetracks. • Certain forms of off-track betting. • State-run lotteries.

31. Gambling Statutes A lottery is a game that consists of drawing lots, typically tickets with different combinations of numbers printed on them, in which prizes are distributed to the winners among persons buying a chance.

32. Sunday Statutes • In some states, it is illegal to make or perform contracts on Sunday. • These are called Sunday statutes or blue laws. • The statutes vary greatly from state to state.

33. Licensing Statutes A license is a legal document stating that the holder has permission from the proper authorities to carry on a certain trade or profession.

34. Licensing Statutes All states have statues that require persons to have a license to practice certain trades or professions and engaging in such a trade or profession without a license is illegal.

35. Licensing Statutes • Some licenses are designed to protect the public from dealing with unqualified persons. • Some state statutes require licenses simply to raise revenue.

36. Licensing Statutes In most states the following trade and professional workers must be licensed: • Nurses • Surveyors • Funeral directors • Barbers • Plumbers

37. Section 9.1Assessment Reviewing What You Learned • What makes a contract illegal?

38. Section 9.1Assessment Reviewing What You Learned Answer Illegal contracts may be created in many ways. A contract may be illegal if it involves an agreement to do something that violates statutory law.

39. Section 9.1Assessment Reviewing What You Learned • What are the consequences of illegality in relation to contract law?

40. Section 9.1Assessment Reviewing What You Learned Answer If the contract cannot be separated into isolated promises and acts that can be performed independently, the entire contract is rendered illegal. If any part of the agreement is illegal, a valid contract cannot result.

41. Section 9.1Assessment Reviewing What You Learned Answer If the contract is divisible the court may enforce the legal parts of the agreement and revoke the illegal parts.

42. Section 9.1Assessment Reviewing What You Learned • What contracts are illegal by statutory law?

43. Section 9.1Assessment Reviewing What You Learned Answer Contracts that violate a state’s civil or criminal statutes, usury statutes, gambling statutes, licensing statutes, or Sunday statutes.

44. Section 9.1Assessment Reviewing What You Learned • What are the different types of licenses?

45. Section 9.1Assessment Reviewing What You Learned Answer Some licenses raise revenue, other are designed to protect the public.

46. Section 9.1Assessment Critical Thinking Activity Illegal Contracts Why does the law usually refuse to uphold illegal contracts?

47. Section 9.1Assessment Critical Thinking Activity Answer Illegal Contracts Answers will vary, but should recognize that in the eyes of the law, an illegal agreement is void. It has no legal effect.

48. Section 9.1Assessment Legal Skills in Action Discouraging Illegal Contracts Inez and Chris have been in business together for three years. Their business is doing badly, so Chris comes up with a plan.

49. Section 9.1Assessment Legal Skills in Action Discouraging Illegal Contracts The plan involves contractual arrangements with illegal aliens willing to work for low pay. How would you help Inez talk Chris out of this scheme?

50. Section 9.1Assessment Legal Skills in Action Answer Discouraging Illegal Contracts Answers will vary, but should recognize that an agreement to hire illegal aliens is illegal, and there would be no valid contract.