Ch 14 Legality Flashcards
Contracts That Violate a Statute
It is not enough to bargain effectively and obtain a contract that gives you exactly what you want.
If the bargain’s performance or consideration violates a statute, the agreement is unenforceable. We examine statutes relating to criminal activity, gambling, insurance, and usury.
Criminal Statutes
Let’s start with the obvious: To discourage people from making illegal deals, courts will not ratify them. In the chapter opener, the Metsches wanted to capitalize on the booming marijuana market. As it turned out, their contract was only half-baked—and also illegal.
Gambling
A gambling contract is illegal unless it is a type of wagering specifically authorized by state statute.
Insurance
Anyone taking out a policy on the life of another must have an insurable interest in that person.
Licensing Statutes
-When a licensing requirement is designed to protect 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
(Credit Card Debt)
Usury laws prohibit charging excess interest on loans
* Credit Card Debt
The Supreme Court has ruled that when national banks issue a credit card, they can use the rate of their own state or of that of the consumer’s, whichever is higher. Also, many card issuers require borrowers to sign contracts that say the laws of a lender-friendly state will be applied to all future disputes.
Contracts That Violate Public Policy
A judge may declare a contract void even if it does not violate a statute. Contracts that promote immorality or illegality are unenforceable. One court refused to enforce a contract for the sale of a company because its main business was the manufacture of illegal drug paraphernalia
Restraint of Trade: Non-compete Agreement
(Sale of a Business, Employment,
To be valid, an agreement not to compete must be part of a larger agreement.
- Sale of a Business
-When a non-compete agreement is ancillary to the sale of a business, it is enforceable if reasonable in time, geographic area, and scope of activity. - Employment
-In the absence of specific state statutes, non-compete agreements are enforceable only if they meet all of the following standards:
+They are reasonably necessary for the protection of the employer.
+They provide a reasonable time limit.
+They have a reasonable geographic limit.
+They are not harsh or oppressive to the employee
+They are not contrary to public policy.
Exculpatory Clauses
(Bailment Cases)
The form on which you are relying is an exculpatory clause, that is, one that attempts to release you from liability in the event of injury to another party.
-An exculpatory clause is generally unenforceable when it attempts to exclude an intentional tort or gross negligence.
-An exculpatory clause is usually unenforceable when the affected activity is in the public interest, such as medical care, public transportation, or some essential service.
-An exculpatory clause is generally unenforceable when the parties have greatly unequal bargaining power.
-An exculpatory clause is generally unenforceable unless the clause is clearly written and readily visible.
- Bailment Cases
-Bailment: Giving possession and control of personal property to another person
-bailor: One who creates a bailment by delivering goods to another
-bailee: A person who rightfully possesses goods belonging to another
Unconscionable Contracts
(The UCC: Unconscionability and Sales Law,
An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness.
-Procedural unconscionability: One party uses its superior power to force a contract on the weaker party.
-Substantive unconscionability: A contract with extremely one-sided and unfair terms
- The UCC: Unconscionability and Sales Law
With the creation of the Uniform Commercial Code (UCC), the law of unconscionability got a boost. The Code explicitly adopts unconscionability as a reason to reject a contract.
