Bell Ringer

• What is legality?

• What makes something legal/illegal?

• What could make a contract illegal?

CH 9: Legality

Legality• Legality is the last of the 6

elements that makes a legally binding contract

• For a contract to be binding it must be legal

• A contract can be illegal if– The agreement violates the law– The agreement results in

criminal penalty– Making an agreement that

would be illegal is in itself illegal

In Pari Delicto & Divisible Contract• If certain aspects of a contract can be successfully

performed by themselves the contract is said to be divisible

• The court can therefore rule on certain parts of a contract but not on others

• If both parties enter into a contract known to be illegal they are said to be in pari delicto (In equal fault)

Agreements that Violate Statutes• Criminal Statutes– Agreements that require one party to commit a

tort or a crime• Usury Statute– Charing more than the legally allowable amount of

interest (Usury)

• Gambling Statutes– Gambling when it is illegal (or the sport is illegal),

or when gambling is illegal using something that gives one side an unfair advantage

• Sunday Statutes– When a certain activity is illegal to perform on a

Sunday. (Blue light Laws)• Selling Alcohol on a Sunday (before a certain time)

Agreements Contrary to Public policy• Some agreements are not illegal because of the

action, however they may be illegal because they are contrary to public policy

• Examples of violating public policy– Unreasonable restraint of trade– Obstruct Justice– Commit Fraud– Interfere with marriage

Contract Not to Compete• In certain situations owners or employees

could agree to not seek active employment in a field or area for a certain amount of time

• This is known as a restrictive agreement, or a non-compete clause, and will be upheld by a could if the time limit and other restrictions are reasonable.

Price Fixing• Free market economies

allow for prices to rise and fall as necessary.

• Price fixing is when competitors agree on a price range, and only sell that item within that specific range.

• This is often against some state and federal law

Agreement to Obstruct Justice & Agreements for Breach of Duty/Fraud

• Agreement to Obstruct Justice– Any contract that interferes with justice is illegal.

Preventing someone from arrest, encouraging a lawsuit, or lying under oath

• Agreements for Breach of Duty/Fraud– When a public official fails to administer their office in

the best interest of their constituents, often for private personal gain.

Effect of Illegality• Courts tend to not aid either party in an illegal

contract• The parties are on their own to solve the problem• As the party is not enforceable a court will not rule

on it– The exception is when parties are not found to be at

equal fault for the situation.