Section 9.2

1. Section 9.2

2. What You’ll Learn • How to explain the legal doctrine of public policy (p. 194) • How to identify agreements that are contrary to public policy (p. 195)

3. What You’ll Learn • How to identify contracts that involve an unreasonable restraint of trade (p. 196) • How to explain the nature of a restrictive covenant (p. 197)

4. Why It’s Important By understanding public policy and contracts that are contrary to public policy, you will be able to avoid common problems associated with violations of this important legal doctrine.

5. Legal Terms • restraint of trade (p. 195) • restrictive covenant (p. 197) • price fixing (p. 197) • competitive bidding (p. 197)

6. Section Outline The Nature of Public Policy Violations of Public Policy Agreements that Unreasonably Restrain Trade Agreements to Obstruct Justice Agreements Inducing Breach of Duty or Fraud Agreements Interfering with Marriage Effect of Illegality

7. Illegal Contracts A contract may be illegal if it involves an agreement to do something that violates statutory law. In addition, a contract may be illegal if it violates public policy.

8. 9.2 Illegal Contracts Illegal contracts that violate public policy violate state statutes • civil and criminal statutes • usury statutes • gambling statues • Sunday statutes • licensing statutes • agreements that • unreasonably restrain trade • agreements to obstruct • justice • agreements inducing breach • of duty or fraud • agreements interfering • with marriage

9. Pre-Learning Question What is public policy?

10. The Nature of Public Policy Public Policy is a time-honored legal doctrine. The basis for making public policy decisions is the underlying principle that nobody should get away with doing something that harms the public at large.

11. Pre-Learning Question How would some agreements violate public policy?

12. Violations of Public Policy If an activity harms the health, safety, welfare, or morals of the public, that activity violates public policy.

13. Violations of Public Policy The most common agreements that violate public policy include: • Agreements that unreasonably restrain trade • contracts not to compete • price fixing agreements • agreements to defeat competitive bidding

14. Violations of Public Policy More common agreements include: • Agreements to obstruct justice • Agreements inducing breach of duty or fraud • Contracts interfering with marriage

15. Agreements that Unreasonably Restrain Trade • The law protects our rights to make a living and do business in a market economy. • A restraint of trade is a limitation on the full exercise of doing business with others.

16. Agreements that Unreasonably Restrain Trade Three types of contracts that violate this rule: • Agreements not to compete • Price fixing • Agreements to defeat competitive bidding

17. Outright Contracts Not to Compete When a business owner sells a business, sometimes the sales contract will include a provision called a restrictive covenant, which is a promise not to compete.

18. Outright Contracts Not to Compete This means that the seller of the business will not open a competing business within a certain area for a period of time after the sale.

19. Outright Contracts Not to Compete The court will uphold such a restriction if it is reasonable in time and geographic location.

20. Outright Contracts Not to Compete Promises not to compete are also sometimes found in employment contracts. Such contracts are enforced only as necessary to protect the former employer from unfair competition.

21. Price Fixing • Price fixing occurs when competitors agree on certain price ranges within which they set their prices. • Price fixing discourages competition and raises prices.

22. Are restrictive covenants legal? Why or why not?

23. ANSWER Yes, if it is reasonable in time and geographic location.

24. Agreements to Defeat Competitive Bidding A bid is an offer to buy or sell goods or services at a stated price. Laws often require governments to construct public works or buy goods and services through competitive bidding.

25. Agreements to Defeat Competitive Bidding In the process of competitive bidding, rivals submit bids for a project. The firm with the lowest qualified bid wins the contract.

26. Agreements to Defeat Competitive Bidding If the bidders get together and agree not to bid lower than a certain price, then they are not bidding fairly. These agreements and contracts are not enforceable.

27. Agreements to Obstruct Justice Any contract that interferes with the administration of justice is illegal. Such agreements include: • Protecting someone from arrest • Encouraging lawsuits • Giving false testimony • Bribing a juror

28. Agreements Inducing Breach of Duty or Fraud Congressional and state representatives and all other public officials hold positions of trust. These officials owe a duty to work for the best interest of the public.

29. Agreements Inducing Breach of Duty or Fraud Any contract that tries to influence the representatives to use their positions for private gain is unenforceable. This rule also applies to private persons who are in positions of trust.

30. Agreements Interfering with Marriage The law encourages marriages and protects family relationships. Contracts that discourage, harm, or interfere with good family relationships are illegal and unenforceable in court.

31. Agreements Interfering with Marriage For example, a contract promising money in exchange for not marrying would be void.

32. Pre-Learning Question How does the illegality of a contract affect the parties to that contract?

33. Effect of Illegality • In general, a court will not aid either party to an illegal contract. • Neither party can enforce the agreement. • Nor can they receive aid from the court.

34. Section 9.2Assessment Reviewing What You Learned • What is the legal doctrine of public policy?

35. Section 9.2Assessment Reviewing What You Learned Answer No one should be permitted to do anything that harms the public at large.

36. Section 9.2Assessment Reviewing What You Learned • What contracts are considered to be agreements that are contrary to public policy?

37. Section 9.2Assessment Reviewing What You Learned Answer Agreements that involve an unreasonable restraint of trade, agreements to obstruct justice, agreements inducing fraud or breach of duty; and contracts interfering with marriage.

38. Section 9.2Assessment Reviewing What You Learned • What types of contracts involve an unreasonable restraint of trade?

39. Section 9.2Assessment Reviewing What You Learned Answer Contracts not to compete, price fixing, and agreements to defeat competitive bidding.

40. Section 9.2Assessment Reviewing What You Learned • What is a restrictive covenant?

41. Section 9.2Assessment Reviewing What You Learned Answer Agreement by the seller of a business not to open a competing business within a certain geographic area for a certain period of time.

42. Section 9.2Assessment Critical Thinking Activity Philosophy of Law What is the legal philosophy behind public policy?

43. Section 9.2Assessment Critical Thinking Activity Answer Philosophy of Law The belief that no one should be permitted to do anything that harms the public at large.

44. Section 9.2Assessment Legal Skills in Action Restrictive Employment Covenants Your Uncle Larry has just been offered a job at a computer software company.

45. Section 9.2Assessment Legal Skills in Action Restrictive Employment Covenants His employer asked him to sign a restrictive covenant that would not permit him to work for another software company located anywhere in the United States for the next seven years.

46. Section 9.2Assessment Legal Skills in Action Restrictive Employment Covenants Write a letter to your uncle telling him whether this restrictive employment covenant would be upheld in court.

47. Section 9.2Assessment Legal Skills in Action Answer Restrictive Employment Covenants Answers will vary, but should address whether the geographic region and time periods specified would be considered reasonable.

48. End of Section 9.2