ACTG 355 Chapter 13

Illegal Bargains

that for a promise or agreement to be valid, it must have a legal purpose. If making or carrying out the agreement involves breaking the law, committing a wrongdoing, or going against public policy, the agreement is illegal and cannot be enforced.

General Rule(Violations of Statutes)

the courts will not enforce agreements declared illegal by statute.

Licensing Statutes(Violations of Statutes)

require formal authorization to engage in certain trades, professions, or businesses.

Regulatory License

licensing statute that is intended to protect the public against unqualified persons; an unlicensed person may not recover for services she has performed.

Revenue License

licensing statute that seeks to raise money; an unlicensed person may recover for services he has performed.

Gambling Statutes(Violations of Statutes)

prohibit wagers, which are agreements that one party will win and the other lose depending on the outcome of an event in which their only interest is the gain or loss.

Usury Statutes (Violations of Statutes)

establish a maximum rate of interest

Sunday Statutes (Violations of Statutes)

prohibition of certain types of commercial activity on Sunday (also called Blue Laws).

Common Law Restraint of Trade(Violations of Public Policy)

unreasonable restraints of trade are not enforceable.

Sale of a Business

the promise by the seller of a business not to compete in that particular business in a reasonable geographic area for a reasonable period of time is enforceable.

Employment Contracts

an employment contract prohibiting an employee from competing with his employer for a reasonable period following termination is enforceable provided the restriction is necessary to protect legitimate interests of the employer.

Exculpatory Clauses(Violations of Public Policy)

the courts generally disapprove of contractual provisions excusing a party from liability for her own tortious conduct.

Unconscionable Contracts(Violations of Public Policy)

unfair or unduly harsh agreements are not enforceable.

Procedural Unconscionability

unfair or irregular bargaining

Substantive Unconscionability

oppressive or grossly unfair contractual terms.

Tortious Conduct (Violations of Public Policy)

An agreement that requires a person to commit a tort is unenforceable.

Corrupting Public Officials

Agreements that corrupt public officials are not enforceable.

Unenforceability (Effect of Illegality)

Neither party may recover under an illegal agreement where both parties are in pari delicto (in equal fault).

Exceptions (Effect of Illegality)

Permit one party to recover payments.

Restitution (Effect of Illegality)

Provides that a person who renders performance under an agreement that is illegal or otherwise unenforceable may obtain restitution as necessary to prevent unjust enrichment.