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Chapter 11 LEGALITY

Chapter Outcomes:
1. State the effect of illegality on an
agreement.

2. Illustrate agreements to commit illegal or


wrongful acts.
Chapter 11 LEGALITY

Chapter Outcomes (continued):


3. Cite agreements that are illegal by statute.

4. Describe some agreements that are opposed


to public policy.

5. Explain the consequences of illegal


agreements.
11-1
Agreements to Engage in
Unlawful Activity
• Agreements to Engage in
Criminal Activity
• Agreements to Engage in
Tortious Activity
• Agreements made Illegal by
Statute
Chapter 11

LawLINKS
Information on the Consumer Credit
Protection Act can be found at
http://www.law.cornell.edu/uscode/15/ch41.
html
The site is maintained by the Cornell
University Law School Legal Information
Institute.
11-1
Topic Quiz
Answer the following true/false questions:

1. The illegal practice of charging


more than the amount of
interest allowed by law is
called usury. TRUE
11-1
Topic Quiz
Answer the following true/false questions:

2. All states have made all wagering


agreements illegal.

FALSE

Exceptions are horse racing, lotteries,


bingo, and casinos in some states!
11-1
Topic Quiz
Answer the following true/false questions:

3. If a license is required to raise revenue


the lack of a license will always void a
contract.
FALSE

Not necessarily.
11-2

Agreements Contrary to Public


Policy
• Agreements to Obstruct Justice
• Agreements to Interfere with Public
Service
• Agreements to Defraud Creditors
• Agreements to Escape Liability
• Agreements in Restraint of Trade
Chapter 11

LawLINKS
Sources of information about employment
law can be found at
http://www.law.indiana.edu/law/
v-lib/labor.html
The site is named Labor and Employment
Law from the WWW Virtual Law Library.
11-1
A Question of Ethics
Suppose in example 11-8, the members of the
board of directors of Hawthorne Savings and
Loan Association knew the job Angelitis had
taken with the Lithuanian Savings and Loan
Company would not in any way realistically hurt
their business. Suppose further that the
Hawthorne board members knew Angelitis had
been out of work for five weeks and that he and
his family had many past due bills that they could
not pay unless Angelitis remained at Lithuanian.
Legally, the Hawthorne board members can
prevent Angelitis from working for Lithuanian.
However, would it be ethical for them to do so?
Explain.
11-2
Topic Quiz
Answer the following true/false questions:

1. Exculpatory clauses are generally


favored by the law.

FALSE

No, because they generally permit less


than acceptable standards.
11-2
Topic Quiz
Answer the following true/false questions:

2. A restraint of trade is a
limitation on the full exercise
of doing business with others.
TRUE
11-2
Topic Quiz
Answer the following true/false questions:

3. Restrictive covenants are never upheld


by the courts.

FALSE

They will be upheld if reasonable in


time and geographic area.
11-3

Consequences of Illegality

• Illegality in Entire Agreements


and Divisible Contracts
• In Pari Delicto
11-3
Topic Quiz
Answer the following true/false questions:

1. A contract must violate criminal law to


be invalid.

FALSE

Agreements that do not violate criminal


law may also be invalid.
11-3
Topic Quiz
Answer the following true/false questions:

2. If a contract is partly legal and partly


illegal, the entire contract will always be
struck down by the courts.

FALSE

Not if it can be separated.


11-3
Topic Quiz
Answer the following true/false questions:

3. When the parties to an illegal


contract are not in pari delicto,
relief will often be granted if
sought by the more innocent
party.
TRUE
SUMMARY
11-1 An agreement might have offer, acceptance,
mutual assent, competent parties, and
consideration and still be invalid if the
objective of the agreement is to do something
that is illegal.

Agreements to commit crimes or torts are


illegal and void.
Some agreements are made illegal by statute
even though the activities are neither crimes
nor torts.
SUMMARY
(continued)

11-2 Public policy is a general legal


principle stating that no one should
be allowed to do anything that hurts
the public at large.

11-3 Contracts that involve illegal


agreements are invalid.
Chapter 11
Key Terms
Agreements in restraint of trade blue laws
conspiracy exculpatory clause
in pari delicto local option
public policy restraint of trade
restrictive covenants usury
Chapter 11

Investigating on the Internet


Sources of information about contract law
can be accessed at
http://www.law.indiana.edu/law/v-lib/contra
cts.html
As a research assignment, access this
website and report those sources of
information that might concern illegal
contracts.
End of Presentation

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