Business Law Chapter 11 Section 1-2 Mr. Whisel
Section 11.1 Goals <ul><li>Describe general features of contracts which make them illegal. </li></ul><ul><li>Describe part...
HOT DEBATE <ul><li>A friend offered Stacy $100 if he would “get rid of” a neighbor’s barking dog. “you’ll be the hero of t...
What’s Your Verdict? <ul><li>Razer agreed with several published articles that criticized laws prohibiting the production,...
Illegal Agreements <ul><li>Illegal Agreement happens when a contract is designed to commit an  Illegal Act </li></ul><ul><...
4 Ways to Distinguish Illegal Agreements <ul><li>Statutes sometimes explicitly state that certain contracts are unenforcea...
Contract Made Illegal by Specific Statute <ul><li>Illegal Gambling </li></ul><ul><ul><li>Most state forbid or regulate </l...
Contract Made Illegal by Specific Statute <ul><li>Gambling Agreements </li></ul><ul><ul><li>Wager </li></ul></ul><ul><ul><...
Contract Made Illegal by Specific Statute <ul><li>Agreements to Pay Usurious Interest </li></ul><ul><ul><li>Almost all sta...
Contract Made Illegal by Specific Statute <ul><li>Agreements to Pay Usurious Interest </li></ul><ul><ul><li>No interest ra...
Contract Made Illegal by Specific Statute <ul><li>Agreements Involving Illegal Discrimination </li></ul><ul><ul><li>Unenfo...
Agreements That Obstruct Legal Procedures <ul><li>Agreements that delay or prevent justice become void based on: </li></ul...
Agreements Made Without a Required Competency License <ul><li>All states require that persons in certain occupations and b...
Agreements That Affect Marriage Negatively <ul><li>Anything that would effect marriage is unenforceable. </li></ul><ul><ul...
Agreements That Restrain Trade Unreasonably <ul><li>Pricing Fixing </li></ul><ul><ul><li>Companies getting together and se...
Agreements That Restrain Trade Unreasonably <ul><li>Allocation of Markets </li></ul><ul><ul><li>Only selling in your area ...
Section 11.1 Goals <ul><li>Describe general features of contracts which make them illegal. </li></ul><ul><li>Describe part...
End of Section 11.1 Questions <ul><li>Think About Legal Concepts </li></ul><ul><li>Think Critically About Evidence </li></ul>
Section 11.2 Goals <ul><li>Describe how courts help parties to illegal contracts under the common law. </li></ul><ul><li>D...
How Do Courts Treat Parties To Illegal Contracts? <ul><li>Courts have two ways depending on Common Law and UCC </li></ul><...
Common Law <ul><li>Generally courts will not help neither party to a illegal agreement. </li></ul><ul><li>Courts will not ...
Four Exceptions <ul><li>Protected Victims </li></ul><ul><ul><li>Cases of Blue Sky law </li></ul></ul><ul><ul><li>Fraud, Du...
Four Exceptions <ul><li>Rescission Before the Illegal Act </li></ul><ul><ul><li>Incentive to stop illegal act by allowing ...
The UCC <ul><li>UCC makes some contracts unconscionable unenforceable </li></ul><ul><li>Unconscionability </li></ul><ul><u...
Two Elements of Unconscionability <ul><li>Procedural Unconscionability </li></ul><ul><ul><li>How the contract is created? ...
What’s Your Verdict? <ul><li>A young couple, the Guptas, wanted to provide for the college education of their infant daugh...
Section 11.2 Goals <ul><li>Describe how courts help parties to illegal contracts under the common law. </li></ul><ul><li>D...
End of Section 11.2 Questions <ul><li>Think About Legal Concepts </li></ul><ul><li>Think Critically About Evidence </li></...
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Chapter 11sections 1-2

  1. 1. Business Law Chapter 11 Section 1-2 Mr. Whisel
  2. 2. Section 11.1 Goals <ul><li>Describe general features of contracts which make them illegal. </li></ul><ul><li>Describe particular illegal contracts. </li></ul><ul><li>Standards </li></ul><ul><ul><li>Reading and Writing </li></ul></ul><ul><ul><ul><li>1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11 BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC </li></ul></ul></ul><ul><ul><li>Civics and Government </li></ul></ul><ul><ul><ul><li>5.1.12 ABCDEFHIJM, 5.2.12 ABCDEFG, 5.3.12 AB </li></ul></ul></ul>
  3. 3. HOT DEBATE <ul><li>A friend offered Stacy $100 if he would “get rid of” a neighbor’s barking dog. “you’ll be the hero of this whole block,” said the friend. The dog had bitten a young boy who was teasing it. When the neighbors reported the barking to the animal control office, the owners were always able to make the dog stop barking just before the officers arrived on the scene. Stacey agreed. He “got rid of” the dog and asked for the money. His friend refused to pay. Stacey sued his friend. </li></ul><ul><li>1. Why should Stacey be able to collect the money? </li></ul><ul><li>2. Why shouldn’t Stacey be able to collect the money? </li></ul>
  4. 4. What’s Your Verdict? <ul><li>Razer agreed with several published articles that criticized laws prohibiting the production, possession, and use of marijuana. The authors of the articles claimed such legislation was unrealistic and often violated civil rights. Razer agreed so heartily that he bought several dozen marijuana plants from a friend, Sara. Then he rented a patch of isolated land and persuaded the owner to accept a share of the anticipated crop as rent. After harvesting the first crop, Razer sold his share to Sara. </li></ul><ul><li>Were any of his agreements illegal? </li></ul>
  5. 5. Illegal Agreements <ul><li>Illegal Agreement happens when a contract is designed to commit an Illegal Act </li></ul><ul><ul><li>Always void and unenforceable </li></ul></ul><ul><ul><li>Ex. </li></ul></ul><ul><ul><ul><li>Hiring someone to commit murder </li></ul></ul></ul><ul><li>Sometimes contracts can have a violation of the law and yet be enforceable </li></ul><ul><ul><li>Ex. </li></ul></ul><ul><ul><ul><li>Buying something from a company whose license to sell is expired. </li></ul></ul></ul><ul><li>Almost all agreements to commit a felony (serious crime) will be an illegal agreement. </li></ul>
  6. 6. 4 Ways to Distinguish Illegal Agreements <ul><li>Statutes sometimes explicitly state that certain contracts are unenforceable. </li></ul><ul><ul><li>Private Betting </li></ul></ul><ul><li>Courts look at the impact of violation of a statute on the public welfare </li></ul><ul><ul><li>Murder-loss of life </li></ul></ul><ul><li>Courts look at how directly the contract and the violation of the statute are connected. </li></ul><ul><ul><li>What the contract was for? </li></ul></ul><ul><li>Courts look at how involved the parties are in the violation of a statute </li></ul><ul><ul><li>Involvement </li></ul></ul>
  7. 7. Contract Made Illegal by Specific Statute <ul><li>Illegal Gambling </li></ul><ul><ul><li>Most state forbid or regulate </li></ul></ul><ul><ul><li>Statutes that make gambling agreements void </li></ul></ul><ul><li>Gambling Agreements </li></ul><ul><ul><li>Three Elements </li></ul></ul><ul><ul><ul><li>Payment to participate </li></ul></ul></ul><ul><ul><ul><li>Chance to win based on luck rather than on skill </li></ul></ul></ul><ul><ul><ul><li>A prize for one or more winners </li></ul></ul></ul>
  8. 8. Contract Made Illegal by Specific Statute <ul><li>Gambling Agreements </li></ul><ul><ul><li>Wager </li></ul></ul><ul><ul><ul><li>A bet on the uncertain outcome of an event, such as a football game. </li></ul></ul></ul><ul><ul><li>Most states have legalized some form of gambling under regulated conditions </li></ul></ul><ul><ul><ul><li>Pari-Mutuel </li></ul></ul></ul><ul><ul><ul><li>State-Run Lotteries </li></ul></ul></ul><ul><ul><ul><li>Bingo </li></ul></ul></ul>
  9. 9. Contract Made Illegal by Specific Statute <ul><li>Agreements to Pay Usurious Interest </li></ul><ul><ul><li>Almost all states provide that, with certain exceptions, lenders of money may not charge more than a specified maximum rate of interest. </li></ul></ul><ul><ul><ul><li>If happens, still must pay principle </li></ul></ul></ul><ul><ul><li>What is PA’s Maximum Rate of Interest? </li></ul></ul><ul><li>Usury </li></ul><ul><ul><li>Lending money at a rate higher than the state’s maximum allowable rate. </li></ul></ul>
  10. 10. Contract Made Illegal by Specific Statute <ul><li>Agreements to Pay Usurious Interest </li></ul><ul><ul><li>No interest rate stated? </li></ul></ul><ul><ul><ul><li>Must pay legal rate or interest. </li></ul></ul></ul><ul><ul><ul><ul><li>What is the legal rate of interest? 7 percent or less per year </li></ul></ul></ul></ul><ul><ul><li>Small Loan Rate of Interest </li></ul></ul><ul><ul><ul><li>Typically as high as 36% or more </li></ul></ul></ul><ul><ul><ul><li>Based on small loans about as much as $2000 </li></ul></ul></ul><ul><ul><ul><ul><li>Based on high overhead of small loan amounts </li></ul></ul></ul></ul>
  11. 11. Contract Made Illegal by Specific Statute <ul><li>Agreements Involving Illegal Discrimination </li></ul><ul><ul><li>Unenforceable because the violate anti-discrimination statutes </li></ul></ul><ul><ul><ul><li>Ex. Only selling something to a certain race </li></ul></ul></ul><ul><ul><li>Any agreements that violate the Constitution are also illegal </li></ul></ul>
  12. 12. Agreements That Obstruct Legal Procedures <ul><li>Agreements that delay or prevent justice become void based on: </li></ul><ul><ul><li>Pay non-expert witnesses in a trail to testify, or pay for false testimony </li></ul></ul><ul><ul><li>Bribe Jurors </li></ul></ul><ul><ul><li>Refrain from informing on or prosecuting an alleged crime in exchange for money or other valuable consideration(Compounding a Crime) </li></ul></ul>
  13. 13. Agreements Made Without a Required Competency License <ul><li>All states require that persons in certain occupations and businesses pass exams and receive a license to ensure that they are competent </li></ul><ul><ul><li>Teachers, Doctors, Lawyers, Accountants </li></ul></ul><ul><li>In contrast, </li></ul><ul><ul><li>Revenue License </li></ul></ul><ul><ul><ul><li>License to generate revenue rather than protect public </li></ul></ul></ul><ul><ul><ul><ul><li>Contracts made by these people are valid and enforceable. </li></ul></ul></ul></ul>
  14. 14. Agreements That Affect Marriage Negatively <ul><li>Anything that would effect marriage is unenforceable. </li></ul><ul><ul><li>Illegal immigrant paying a citizen for a promise to marry in order to get into the country. </li></ul></ul>
  15. 15. Agreements That Restrain Trade Unreasonably <ul><li>Pricing Fixing </li></ul><ul><ul><li>Companies getting together and setting the price all the same. </li></ul></ul><ul><li>Bid Rigging </li></ul><ul><ul><li>Multiple companies bidding on a job and bidding high so that the lowest gets the job but in turn still makes a considerable profit. The next time another company would get the job and they would do the same for them. </li></ul></ul>
  16. 16. Agreements That Restrain Trade Unreasonably <ul><li>Allocation of Markets </li></ul><ul><ul><li>Only selling in your area and not allowing anyone from outside that area to purchase your product </li></ul></ul><ul><li>Covenants Not to Compete </li></ul><ul><ul><li>Doing Carpentry work for someone learning the trade and acquiring customers then breaking off and starting up your own carpentry business using your former employers customers. </li></ul></ul><ul><ul><ul><li>Usually regulated by time, area, and employers interest to protect self. </li></ul></ul></ul>
  17. 17. Section 11.1 Goals <ul><li>Describe general features of contracts which make them illegal. </li></ul><ul><li>Describe particular illegal contracts. </li></ul><ul><li>Standards </li></ul><ul><ul><li>Reading and Writing </li></ul></ul><ul><ul><ul><li>1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11 BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC </li></ul></ul></ul><ul><ul><li>Civics and Government </li></ul></ul><ul><ul><ul><li>5.1.12 ABCDEFHIJM, 5.2.12 ABCDEFG, 5.3.12 AB </li></ul></ul></ul>
  18. 18. End of Section 11.1 Questions <ul><li>Think About Legal Concepts </li></ul><ul><li>Think Critically About Evidence </li></ul>
  19. 19. Section 11.2 Goals <ul><li>Describe how courts help parties to illegal contracts under the common law. </li></ul><ul><li>Describe how courts help parties to illegal contracts under the UCC. </li></ul><ul><li>Standards </li></ul><ul><ul><li>Reading and Writing </li></ul></ul><ul><ul><ul><li>1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11 BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC </li></ul></ul></ul><ul><ul><li>Civics and Government </li></ul></ul><ul><ul><ul><li>5.1.12 ABCDEFHIJM, 5.2.12 ABCDEFG, 5.3.12 AB </li></ul></ul></ul>
  20. 20. How Do Courts Treat Parties To Illegal Contracts? <ul><li>Courts have two ways depending on Common Law and UCC </li></ul><ul><ul><li>Common Law (Sale of Services or Realty) </li></ul></ul><ul><ul><li>UCC (Sale of Goods) </li></ul></ul>
  21. 21. Common Law <ul><li>Generally courts will not help neither party to a illegal agreement. </li></ul><ul><li>Courts will not enforce the agreement </li></ul><ul><li>Courts will leave the person(s) where they are. </li></ul><ul><ul><li>Restitution </li></ul></ul><ul><ul><ul><li>Recovery of Payment </li></ul></ul></ul><ul><li>Four exceptions to the above </li></ul>
  22. 22. Four Exceptions <ul><li>Protected Victims </li></ul><ul><ul><li>Cases of Blue Sky law </li></ul></ul><ul><ul><li>Fraud, Duress, Misrepresentation, or Undue Influence </li></ul></ul><ul><li>The Excusably Ignorant </li></ul><ul><ul><li>Enforce legal parts or obtain restitution </li></ul></ul><ul><ul><li>Person must not know illegal and other party does know it is illegal or illegality is minor </li></ul></ul>
  23. 23. Four Exceptions <ul><li>Rescission Before the Illegal Act </li></ul><ul><ul><li>Incentive to stop illegal act by allowing party to rescind. </li></ul></ul><ul><li>Divisible Contracts </li></ul><ul><ul><li>Knowing and Contracting with Illegal and Legal Parts </li></ul></ul><ul><ul><ul><li>Courts may enforce legal parts- Divisible </li></ul></ul></ul>
  24. 24. The UCC <ul><li>UCC makes some contracts unconscionable unenforceable </li></ul><ul><li>Unconscionability </li></ul><ul><ul><li>When there is a grossly unfair contract that parties under ordinary circumstance would not accept </li></ul></ul><ul><ul><li>Subject to the rules of illegality </li></ul></ul>
  25. 25. Two Elements of Unconscionability <ul><li>Procedural Unconscionability </li></ul><ul><ul><li>How the contract is created? </li></ul></ul><ul><ul><li>Fine Print </li></ul></ul><ul><li>Substantive Unconscionability </li></ul><ul><ul><li>The terms of the agreement </li></ul></ul><ul><ul><li>Unfair terms/One-sided terms </li></ul></ul><ul><li>Most courts require both before the contract is deemed unconscionable and illegal </li></ul><ul><li>When found Unconscionable </li></ul><ul><ul><li>Refuse to enforce or enforce legal part </li></ul></ul><ul><ul><li>May modify to make terms fair </li></ul></ul>
  26. 26. What’s Your Verdict? <ul><li>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 Corporation, 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 Guptas used all their savings to buy 10,000 shares of Bonanza stock. Months later they learned that Bonanza had violated the law. Its “proven mineral deposits” were commercially worthless aluminum oxides. The sales agreement was illegal. </li></ul><ul><li>Can the Guptas recover their $1,000? </li></ul>
  27. 27. Section 11.2 Goals <ul><li>Describe how courts help parties to illegal contracts under the common law. </li></ul><ul><li>Describe how courts help parties to illegal contracts under the UCC. </li></ul><ul><li>Standards </li></ul><ul><ul><li>Reading and Writing </li></ul></ul><ul><ul><ul><li>1.1.11 CDEFG, 1.2.11 AB, 1.3.11 C, 1.4.11 BCD, 1.5.11 ACE, 1.6.11 ACDF, 1.7.11 AC, 1.8.11 ABC </li></ul></ul></ul><ul><ul><li>Civics and Government </li></ul></ul><ul><ul><ul><li>5.1.12 ABCDEFHIJM, 5.2.12 ABCDEFG, 5.3.12 AB </li></ul></ul></ul>
  28. 28. End of Section 11.2 Questions <ul><li>Think About Legal Concepts </li></ul><ul><li>Think Critically About Evidence </li></ul><ul><li>Chapter in Review </li></ul>

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