Legal Purpose and Proper Form

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1 CHAPTER 10 Legal Purpose and Proper Form 10-1 Illegal Agreements 10-2 The Statute of Frauds Slide 1

2 10-1 Illegal Agreements GOALS Identify various forms of unenforceable illegal agreements Specify agreements that, although illegal, the courts will enforce Slide 2

3 WHICH AGREEMENTS ARE ILLEGAL? Illegal lotteries Agreements to pay usurious interest Agreements involving illegal discrimination Agreements that obstruct legal procedures Agreements made without a required competency license Agreements that affect marriage negatively Agreements that restrain trade unreasonably Agreements not to compete illegal contracts gann v morris Slide 3

4 WHEN WILL THE COURTS ENFORCE ILLEGAL AGREEMENTS? Protected victims The excusably ignorant Doesn t know contract is illegal, but other party does The illegality is slight Rescission prior to illegal act Divisible contracts Slide 4

You Decide? A young couple, the Guptas, wanted to provide for the college education of their infant daughter. They received this offer in the mail from the True Bonanza Mining Corp.

5 You Decide? A young couple, the Guptas, wanted to provide for the college education of their infant daughter. They received this offer in the mail from the True Bonanza Mining Corp., which seemed perfect for their need. Join us now for only 10 cents a share of stock. Become part owner of a gold and silver mine with already proven mineral deposits. In ten years, you will be rich enough to retire. The Gupta used all their savings to buy 250,000 shares of Bonanza stock. Months later they learned that Bonanza had violated the law. It s proven mineral deposits were commercially worthless aluminum oxide. The sales agreement was illegal. Can the Guptas recover their $25,000? Blue sky laws prohibit sales of worthless stocks and bonds. The Guptas would have restitution to recover money.

6 You Decide? Crump was coming up for trial on felony charges. He paid the judge in the case $10,000 to make errors in conducting the trial so that crump s conviction could be over turned on appeal. When the appeal failed, Crump sought to sue for restitution of the $10,000. Should he be allowed to recover the bribe? Why or Why not? No. However, the two are not of equal guilt (in pari delicto)

7 You Decide? Dixon, a wholesaler, was on the brink of bankruptcy. He bought fire insurance policies for more than twice the value of the. building and contents from two companies. Then he arranged to pay a character know only as Sparky $5000 to torch his business building. If Sparky did so but Dixon did not pay him, could Sparky enforce the contract for $5000? Could Dixon legally collect on his insurance policies if Sparky torched the building? No. The agreement with Sparky was void because it was a contract to commit a crime. No, Dixon could not recover the insurance money because he would have committed a crime in causing the burning of the insured buildings.

8 You Decide? A remote community and the surrounding countryside had no doctor. The city council advertised for help, offering free office space, a six-bed infirmary, and a three year contract. Glamorgan applied and was accepted. Three months later, the council learned that although Glamorgan had a medical degree, she had failed to pass the state examination required to practice medicine. No patients complained, but the council summarily discharged her. Glamorgan sued for breach of contract. Will she win the lawsuit? No, Glamorgan will lose because she does not have the required competency license

9 You Decide? Randy entered into a contract to provide a computer program to a New Jersey school district. He used without permission parts of a computer program copyrighted by another programmer. The portion of the program that violated the copyright law cost $12,000 and the part that didn t violated the copyright law cost $44,000. he delivered both parts to the school district. Can he recover anything for his work? If the contract is divisible he can collect $44,000

10 10-2 The Statute of Frauds GOALS Explain why the Statute of Frauds is necessary and what it requires Identify the main instances when the Statute of Frauds requires a writing Understand the rules of contract interpretation Slide 10

11 WHY HAVE A STATUTE OF FRAUDS? Contracts within the Statute of Frauds Executed contracts Executory contracts Requirements of the writing Statute of Frauds requirements UCC requirements Special rules for signatures Slide 11

12 TYPES OF CONTRACTS WITHIN THE STATUTE OF FRAUDS Contract for the sale of goods for $500 or more Contract to sell an interest in real property Contracts that require more than one year to complete Contract to pay a debt or answer for another s debt or the debts of an estate Exception main purpose rule Contract for which the consideration is marriage Slide 12

13 You Decide? While they were playing golf, Haka orally agreed to buy an apartment building from Simon. In a later telephone conversation, Haka promised Simon $100,000 as a down payment on the purchase price with the balance to be paid within five years. Simon promised to deliver the deed to the property at the time the down payment was made. Both parties were satisfied that all the terms had been completely negotiated. Later Haka found a better deal and told Simon he was backing out. Is Haka s contract with Simon enforceable? This was a transfer of real property and therefore needed to be in writing. This oral agreement would not be enforceable in court.

14 You Decide? Cervante and Joan were good friends. When they graduated from high school, bother were 18. They planned to marry, but first they wanted to become financially secure. So they shook hands and agreed to become partners in operating a small restaurant serving Indian cuisine. This just beginning Joan said. I ll death do us part both said. Are they legally bound to remain partners in business until one of them dies? This does not need to be in writing because it can be completed within one year (unknown). Missing essential elements such as defined time period. Either party can withdraw at any time.

15 You Decide? Jason s father, Phil died. He left credit card bills totaling $17,000 and some additional small bills. His only asset at the time of death was a savings account with $6,000 in it. One of the credit card companies called Jason. In his grief, Jason orally promised to pay them the balance of his dad s account $2,000. Is this promise enforceable in court? No, this oral promise to pay the debt of the father is not enforceable, if Jason was going to pay with his own money.

16 HOW ARE CONTRACTS INTERPRETED? Acknowledgement of final agreement Specific rules of interpretation Analysis Conflicting terms Words Ambiguities Implied reasonableness Parol evidence rule Exceptions to the parol evidence rule Slide 16

17 You Decide? A salesperson tries to persuade you to buy an electonic, musical instrument. The price is $499, plus carrying charges of $72. The sales person says, You ll soon be the life of the party. If not, just return it and get your money back. You sign an installment payment contract, which includes or integration clause but which says nothing about a return privilege. Can you hold the seller to the promise to accept to return? No, the parol evidence rule will bar testimony about the prior and statements regarding written policy.

18 You Decide? Under a written contract, Cabrera bought a used sedan from Sharpe s Previously Owned Cars, Inc. The salesperson had knowingly falsely assured her that the car was in tip-top condition with just 45,000 miles driven by only one previous owner. Later in checking official registration records, Cabrera discovered that the sedan had three previous owners and that the odometer had been set back from 70,000 miles. In court, Sharpe s attorney claims that under the parol evidence rule, introduction of the salesperson s oral statement is barred because there was an integration clause in the written contract. Is this parol evidence admissible? Parol evidence is admissible because it shows fraud.

19 PREVENT LEGAL DIFFICULTIES In making contracts... Deal only with persons who are reputable and properly licensed when contracting for professional or skilled services. Do not rush into a decision. Take time to review and understand the advantages and disadvantages of the contract. Legitimate proposals usually will survive a delay. Continued on the next slide Slide 19

20 PREVENT LEGAL DIFFICULTIES If the contract is complex or involves much time or money, put it in writing even when the Statute of Frauds does not require this. Try to anticipate and provide for all possible problems. If needed, obtain the assistance of a qualified lawyer. If a prepared contract is presented to you for your signature read it carefully, especially if it is a contract of adhesion. If the contract involves a large sum of money, or if it is complex, have your lawyer review it before you sign. Continued on the next slide Slide 20

21 PREVENT LEGAL DIFFICULTIES Insist that all terms of the contract that you do not understand be defined and explained. Make necessary changes, or reject the entire contract. Make sure that all changes are written into a contract on all copies as well as on the original, and that all changes are initialed by both parties. Retain a copy with the other party s signature on it. Be sure all desired terms are expressed in writing or included by specific reference to any other relevant document(s). Continued on the next slide Slide 21

22 PREVENT LEGAL DIFFICULTIES When any payments have been made in cash, be sure to get a receipt if payment is not acknowledged in the contract. Continued on the next slide Slide 22

CHAPTER 11. Legality. Wednesday, May 23, :03:55 PM ET

CHAPTER 11. Legality. Wednesday, May 23, :03:55 PM ET CHAPTER 11 Legality LEGALITY v The agreement must have legal purpose. AGREEMENTS THAT VIOLATE STATUTES Civil and Criminal Statutes v Agreements that require one party to commit a tort or a crime are illegal.