Legality

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CHAPTER 13
Legality
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Quote of the Day

• Gambling is the child of avarice, the brother of
  iniquity, and the father of mischief.
• George Washington,
• United States President

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Contracts that May Violate a Statute

• Wagers
• Investments
• Insurance
• Licensing Statutes
• Usury

These types of contracts will be discussed
further on the next slides.
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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.

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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.

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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.
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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

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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.

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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.

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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.

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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.

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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.