Chp 16: Contracts- Legality and Public Policy

Contracts of Illegality

1. contracts requiring commission o/ a tort 2. contracts contrary to public policy 3. contracts that are unconscionable

Illegal Agreements Negatively Impacting Business

1. fraudulent sales 2. agreements restraining trade 3. agreements not to complete 4. conflicts o/ interests 5. obstructions to legal process 6. usurious agreements 7. contracts w/ unlicensed persons in licensed callings/ dealings

Illegal Agreements Negatively Affecting Society

1. prejudice to public policy 2. evasions of statutory protection 3. injuries to public service 4. illegal lobbying 5. conflicts o/ interests 6. obstructions to legal process 7. illegal discrimination 8. illegal wages and lotteries

What constitutes unconscionability?

1. procedural unconscionability 2. contracts of adhesion 3. substantive unconscionability

Exceptions to Effect o/ Illegality

1. unequal guilt 2. protection of one party 3. knowledge o/ illegal purpose o/ other party

Illegality

A statute or court action that makes a previously valid offer illegal will automatically terminate the offer.

Agreements not to compete always are void. 1. True 2. False

FALSE

Courts are quick to invalidate contracts on the ground that they are contrary to public policy because such contracts are so offensive to society. 1. True 2. False

FALSE

To stabilize the industry, manufacturers of the same or similar products may agree that each will market its product in a specified geographic area of the country and will not market its product in the territory assigned to other manufacturers. 1. True 2. False

FALSE

When a law forbids the issuance of securities or notes by certain classes of corporations, a person who has purchased them may not recover the money paid. 1. True 2. False

FALSE

A charge added to the unpaid balance due on a revolving charge account generally is not subject to the law of usury. 1. True 2. False

TRUE

An agreement not to compete that is unrelated to either the sale of a business or an employment contract is illegal. 1. True 2. False

TRUE

Legislation commonly requires that an installment-sale contract specify the cash price, down payment, finance charges, and insurance costs. 1. True 2. False

TRUE

The social consequences of a contract are important in determining the contract's validity. 1. True 2. False

TRUE

When a nationally known neurosurgeon in Chicago, Illinois, sells her practice, the contract may specify that the seller will not practice within a 100-mile radius of Chicago for one year. 1. True 2. False

TRUE

Where a court recognizes an agreement to be illegal, a lawsuit based on that agreement may be dismissed by the court even if neither plaintiff nor defendant raised the issue of illegality. 1. True 2. False

TRUE

Which of the following is not illegal?

a "giveaway" to every tenth person entering a department store

Contracts of Adhesion

a contract so imbalanced in favor o/ one party over the other that there is strong implications that it wasn't freely bargained

Which of the following is not an example of an agreement injuring public service?

agreements to submit a bid on a construction project

In the case of an illegal contract, both parties usually are prohibited from seeking relief in the courts:

all of the above.

Dealing honestly, reasonably, and in good faith:

both b and c

An agreement to slander a third person would not be enforceable because slander is a(n):

civil wrong.

An agreement to restrain trade may be void on the grounds that it is:

contrary to public policy.

Good Faith and Fairness

every contract has an implied duty o/ good faith in fair dealing

Contracts in restraint of trade are generally:

illegal and voided

Non-compete Agreements are:

illegal unless the terms are reasonable and it's incidental to the sale o/ business or to a contract o/ employment

If a contractual provision entered into by a regulated industry violates an administrative rule, the provision is:

illegal.

Legality of an agreement is considered:

in light o/ the effect on the rest of society

An agreement not to compete is enforceable:

in the sale of a business.

A provision in a promissory note which provides that interest will not exceed the lawful rate of interest:

is enforceable as the legal rate may be determined at any time.

The failure to have a license will not render agreements void if the license:

is readily obtainable by payment of a fee.

When agreement is illegal:

it's void and no contract arises from it

An agreement which is contrary to public policy:

may be deemed unenforceable by judicial determination.

Substantive Unconscionability

oppressive or grossly unfair contractual terms

Private lotteries, which generally are held to be illegal, involve three elements:

prize, chance, and consideration.

Today, what is an important element in determining the validity of a contract?

social consequence of a contract

One element involved in the determination of unconscionability is:

the comparative bargaining power of the parties.

The validity of a contract is not affected by:

the fact that the contract turned out to be a bad bargain for one of the parties.

Usury

the illegal process of the charging by a lender o/ a higher interest than allowed by law

Which party to an illegal agreement may get relief from the court?

the less guilty party when public interest is advanced by granting relief

Procedural Unconscionability

unconscionability that derives from the process of making a contract

A contract that is deemed to be too harsh or oppressive to one of the contractual parties may be unenforceable under the concept of:

unconscionability.

When money is loaned at a greater rate of interest than is allowed by law, ____ is committed.

usury

In an employment contract, agreements not to compete are:

valid, if the restriction is reasonable and necessary for the protection of the benefited party.

A provision in a contract which is illegal:

will be ignored by the parties if the remaining portions of the contract can stand on their own.