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Business Law

Objectives. Identify contracts that are contrary to federal or state statutesIdentify contracts that are contrary to public policyState circumstances in which covenants not to compete are enforceableUnderstand the consequences of entering into an illegal agreement. Legality. For a contract to be

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Business Law

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    1. Business Law Chapter 12 The Legality of Agreements

    2. Objectives Identify contracts that are contrary to federal or state statutes Identify contracts that are contrary to public policy State circumstances in which covenants not to compete are enforceable Understand the consequences of entering into an illegal agreement

    3. Legality For a contract to be valid and enforceable, it must be formed for a legal purpose A contract to do something illegal is void from the outset and thus unenforceable

    4. Contrary to Statute Usury Charging an illegal rate of interest Gambling In general, wagers and games of chance are illegal Insurable interest Futures contracts and future purchase and sale contracts-not gambling

    5. Contrary to Statute Sabbath (Sunday) Laws Prohibit the formation or performance of certain contracts on a Sunday Blue Laws Licensing Statutes Certain professions require licensing Protect the public – illegal and unenforceable Raise revenues – enforceable, unlicensed practitioner fined

    6. Contrary to Public Policy Some contracts are not enforceable because of the negative impact on society Commit an immoral act Contract that prohibits marriage Restraint of Trade Covenant not to compete Sale of an ongoing business Employment contracts

    7. Contrary to Public Policy Unconscionable Contracts or Clauses Unethical or unfair Procedural unconscionability – how a term becomes part of the contract Substantive unconscionability – oppressive or overly harsh Adhesion Contract – stronger party dictates the terms

    8. Contrary to Public Policy Terms “shock the conscience” of the court Exculpatory Clauses A clause that releases a party from liability in the event of monetary or physical injury, no matter who is at fault. Public utilities, landlords, amusement parks, horse rental and golf cart rentals.

    9. Effect of Illegality Illegal contract is void Parties equally at fault – in pari delicto Executory – neither party can enforce Executed – neither party can recover

    10. Exceptions Justifiable ignorance of the facts Return to original position Innocent who has fully executed may enforce contract against the guilty party Member of protected classes Statutes that prohibit working more than a specified number of hours per month Blue Sky Laws State law that regulates the offer and sale of securities

    11. Exceptions Withdrawal from an illegal agreement If the illegal part has not been performed, the party tendering performance can withdraw Fraud, duress, or undue influence Plaintiff may enforce or recover Reformation of an illegal covenant not to compete Court-ordered correction of unreasonable terms

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