Business Law and the Regulation of Business Chapter 13: Illegal Bargains

1. Business Law and the Regulation of BusinessChapter 13: Illegal Bargains By Richard A. Mann & Barry S. Roberts

2. Topics Covered in this Chapter A. Violations of Statutes B. Violations of Public Policy C. Effect of Illegality

3. Violations of Statutes • General Rule–the courts will not enforce agreements declared illegal by statute. • Licensing Statutes–require formal authorization to engage in certain trades, professions, or businesses. • Regulatory License–licensing statute that is intended to protect the public against unqualified persons; an unlicensed person may not recover for services she has performed. • Revenue License–licensing statute that seeks to raise money; an unlicensed person may recover for services he has performed.

4. Violations of Statutes • Gambling Statutes–prohibit wagers, which are agreements that one party will win and the other lose depending upon the outcome of an event in which their only interest is the gain or loss • Usury Statutes–establish a maximum rate of interest • Sunday Statutes–prohibition of certain types of commercial activity on Sunday (also called Blue Laws)

5. Violations of Public Policy • Common Law Restraint of Trade–unreason-able restraints of trade are unenforceable. • Sale of a Business–a promise by a seller of a business not to compete in that particular business in a reasonable geographic area for a reasonable period of time is enforceable. • Employment Contracts–a contract prohibiting an employee from competing with his employer for a reasonable period following termination is enforceable if the restriction is necessary to protect legitimate interests.

6. Violations of Public Policy • Exculpatory Clauses–the courts generally disapprove of contractual provisions excusing a party from liability for her own tortious conduct. • Unconscionable Contracts–unfair or unduly harsh agreements are not enforceable. • Procedural Unconscionability–unfair or irregular bargaining. • Substantive Unconscionability–oppressive or grossly unfair contractual terms.

7. Violations of Public Policy • Tortious Conduct–an agreement that requires a person to commit a tort is unenforceable. • Corrupting Public Officials–agreements that corrupt public officials are not enforceable.

8. Effect of Illegality • Unenforceability–neither party may recover under an illegal agreement where both parties are in pari delicto (in equal fault). • Exceptions–permit one party to recover payments. • Party Withdrawing before Performance • Party Protected by Statute • Party Not Equally at Fault • Excusable Ignorance • Partial Illegality