Chapter 11 Legality

I. Legality:  The sixth and final requirement of a contract that states that an agreement must have a legal purpose

  1. Contracts are illegal if their purpose or manner in which they are carried out illegal, violates a statute, or is contrary to public policy
    • This varies in different states becayse state legislature of each state decide on the statutes, and public policy (health, safety, general welfare) of the individual state
    1. Agreements that Violate Statutes: These agreements are illegal and void because they violate individual state statutes such as:
      • Civil and Criminal Statutes
      • Usury Statutes- laws that provide guidelines to the maximum interest rate that can be charged
        • “Lone Shark” 30% maximum
      • Gambling Statutes- an activity off chance that can not be statistically proven
        • Must apply for a permit for individual events (charity fundraisers) it is regulated by the state
      • Sunday Statutes- (Blue Laws) state statutes(laws) that regulate the type of contractual rights that can occur on a given Sunday
      • Liscensing Statutes- all independent individuals working in a trade must be
    2. Agreements Contrary to Public Policy: An Agreement that requires the performance of an act harmful to the public benefit
      • Agreements in Unreasonable Restraint of trade- any act that deprives a business from fair competition
        1. Contracts not to compete- good will: the interest or value in a business that is intangible (customers, reputation)
        2. Restrictive covenent (promise)- not to compete, geographic area (1-2 miles), time period
        3. Price fixing- agreements by competitors, wholesalers, or manufacturers to set prices on products
        4. Competitive bidding- a bid is a private/secret proposal to offer services or products at a set price
          • Buyer has the option to select the best offer/bid
          • Competitors can’t enter into a contract with other competitors to set the bid price: illegal= contract void
      • Agreements to obstruct justice- any agreement which interferes with the legal process is illegal. VOID
        • Bribes- influence
        • Money- Witnesses
      • Agreements interfering with marriage

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