CHAPTER 13 LEGALITY OF SUBJECT MATTER AND PROPER FORM OF CONTRACTS

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

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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.

19. 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.