Chapter 15 Legality and Public Policy

1. Chapter 15Legality and Public Policy Twomey, Business Law and the Regulatory Environment (14th Ed.)

2. Exceptions to Effect of Illegality [15-1] Protection of one party Society, speaking through lawmakers or judges, deems voiding illegal contracts unjust when the party meant to be protected is harmed or harshly treated Relief Relief Knowledge of illegal Purpose of other party Unequal Guilt Relief Chapter 15

3. Non-Enforceable Agreements [15-2] Prejudice to Public Policy Illegal Wagers and Lotteries Evasions of Statutory Protection Agreements Negatively Affecting Society Illegal Discrimination Injuries to Public Service Illegal Lobbying Obstructions to Legal Process Conflicts of Interest Chapter 15

4. Illegal Agreements Affecting Public Welfare Agreements Contrary to Public Policy Agreements Evading Statutes Agreements Injuring Public Service Agreements Involving Conflicts of Interest Agreements Obstructing Legal Process Agreements Involving Illegal Discrimination Wagers and Private Lotteries Chapter 15

5. Illegal Agreements Affecting Business Contracts with Unlicensed Persons in Licensed Callings or Dealings Fraudulent Sales Agreements Restraining Trade Agreements Not to Compete Usurious Agreements Chapter 15

6. Chapter 15 Summary When an agreement is illegal, it is ordinarily void, and no contract arises from it. Courts will not allow one party to an illegal agreement to bring suit against the other party. There are some exceptions to this, such as when the parties are not equally guilty or when the law’s purpose in making the agreement illegal is to protect the person who is bringing suit. Chapter 15

7. Chapter 15 Summary[2] When possible, an agreement will be interpreted as being lawful. Even when a particular provision is held unlawful, the balance of the agreement will generally be saved, so that the net result is a contract minus the clause that was held illegal. Chapter 15

8. Chapter 15 Summary[3] The term illegality embraces situations in which a statute declares that certain conduct is unlawful or a crime; contracts requiring the commission of a tort; contracts that are contrary to public policy; contracts that are unconscionable; and, to some extent, contracts that are oppressive, unfair, or made in bad faith. Chapter 15

9. Chapter 15 Summary[4] The question of the legality of an agreement is not considered in the abstract, but the effect of the decision on the rest of society is considered. Increasingly, a given contract is not considered to be in a class by itself but is the same as thousands and even millions of other contracts. Chapter 15

10. Chapter 15 Summary[5] Whether a contract is contrary to public policy may be difficult to determine because public policy is not precisely defined. That which is harmful to the public welfare or general good is contrary to public policy. Chapter 15

11. Chapter 15 Summary[6] Contracts condemned as contrary to public policy include those designed to deprive the weaker party of a benefit that the lawmaker desired to provide; agreements injuring public service, such as an agreement to buy a government job for an applicant; agreements involving conflicts of interest, such as when the purchasing officer of a government buys from a company that the officer privately owns; agreements obstructing legal process, such as an agreement with a witness to disappear; illegal discrimination contracts; and wagers and private lotteries. Chapter 15

12. Chapter 15 Summary[7] Statutes commonly make the wager illegal, as a form of gambling. The lottery is any plan under which, for a consideration, a person has a chance to win a prize. Chapter 15

13. Chapter 15 Summary[8] Illegality may consist of the violation of a statute or administrative regulation adopted to regulate business. Statutes may make it illegal to do business unless a particular form of contract is used or unless the party promoting the transaction is licensed. The protection of buyers from fraud by sellers may make it unlawful to sell under certain circumstances or without making certain disclosures. Chapter 15

14. Chapter 15 Summary[9] Contracts in restraint of trade are generally illegal as violating federal or state antitrust laws. An agreement not to compete is illegal as a restraint of trade except when reasonable in its terms and when it is incidental to the sale of a business or to a contract of employment. Chapter 15

15. Chapter 15 Summary[10] The charging by a lender of a higher rate of interest than allowed by law is usury. Courts must examine transactions carefully to see if there is a usurious loan disguised as a legitimate transaction. Chapter 15

16. Chapter 15 Summary[11] When sellers of goods offer their buyers one price for a cash sale and another, higher price for a credit sale, the higher price is lawful. The credit price is not usurious even though the difference between the cash price and the credit price is greater than the amount that could be charged as interest on a loan equal to the cash price. Chapter 15

17. Chapter 15 Summary[12] This concept is called the time-price differential. A minority of states reject or abolish it or limit the increase of the credit price over the cash price to a specified percentage or to the maximum amount that could be charged on a loan equal to the cash price. Chapter 15

18. Chapter 15 Summary[13] Most states do not apply the usury law to a revolving charge account. A minority do so, with the result that the charges imposed on the account must not exceed the amount that could be charged as interest on a loan of the amount due on the account. Chapter 15