Legality

1. CHAPTER 12 Legality

2. Click your mouse anywhere on the screen when you are ready to advance the text within each slide. After the starburst appears behind the blue triangles, the slide is completely shown. You may click one of the blue triangles to move to the next slide or the previous slide.

3. Quote of the Day “Gambling is the child of avarice, the brother of iniquity, and the father of mischief.” George Washington, United States President

4. Contracts that May Violate a Statute • Wagers • Investments • Insurance • Licensing Statutes • Usury These types of contracts will be discussed further on the next slides.

5. Wagers • A gambling contract is illegal unless it is specifically authorized by state statute. • In some cases, wagers have been disguised as “investments” where the gambler places a bet on the price of stock, but never actually buys the stock. • Someone taking out a policy on the life of another must have an insurable interest in that person -- or else it becomes a “wager” on their life.

6. Licensing Statutes • When a licensing requirement protects the public, any contract made by an unlicensed worker is unenforceable. • When a licensing requirement is designed merely to raise revenue, a contract made by an unlicensed person is generally enforceable. Usury • Usury laws prohibit charging excess interest on loans.

7. Contracts that May Violate Public Policy • Restraint of Trade • Exculpatory Clauses • Bailment Cases • Unconscionable Contracts • Adhesion Contracts These types of contracts will be discussed further on the next slides.

8. Restraint of Trade • To be valid, an agreement not to compete must be ancillary to a legitimate bargain. • Sale of a Business • When a noncompete agreement is ancillary to the sale of a business, it is enforceable if reasonable in time, geographic area, and scope of activity. • Employment • A noncompete clause in an employment contract is enforceable when it protects trade secrets, confidential information or customer lists developed over a long period of time.

9. Exculpatory Clauses Part of a contract that attempts to release you from liability for injury to another party. • Generally enforceable when • the affected activity is in the public interest, such as medical care, public transportation, or some essential service. • Generally unenforceable when • it attempts to exclude an intentional tort or gross negligence. • the parties have generally unequal bargaining power. • it is not clearly written and readily visible.

10. Bailment Cases • Bailment means giving possession and control of personal property to another person. • The person giving up possession is the bailor, and the one accepting possession is the bailee.

11. Unconscionable Contracts • An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness. • The two factors that most often led a court to find unconscionability were: • oppression -- meaning that one party used its superior power to force a contract on the weaker party; and • surprise --meaning that the weaker party did not fully understand the consequences of its agreement.

12. Adhesion Contracts • Adhesion contracts are standard form contracts prepared by one party and given to the other on a “take it or leave it” basis. • They are generally enforced when the two parties are of equal power, but when the parties are unequal, the contract may be ruled unconscionable.

13. “No matter how profitable a particular contract clause may appear to be, it is worthless if it is illegal. Make sure your agreement is lawful.”