• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/33

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

33 Cards in this Set

  • Front
  • Back
Chapter 13
Legality

-In this chapter we examine a variety of contracts that may be void, or unenforceable.
The two groups that illegal agreements fall into.
1. Those that violate a statue

2. Those that violate public policy
Contracts That Violate A Statue Are The Cards Underneath!
Contracts That Violate A Statue Are The Cards Underneath!
Gambling
A gambling contract is illegal unless it is a type of wagering specifically authorized by the state.

In most states (not Nevada), it is illegal to lend money to help someone wager (gambling on credit).
What does "Void" really mean?
A court will not intercede to assist either party to an illegal agreement, even if its refusal leaves one party shortchanged.
Insurance
A market that "wagering" unexpectedly pops up.

You can insure your own life for any amount you choose, but you can only insure someone else's life in you have insurable interest in that person.

The most common insurable interest is family connection.

Other insurable interests include creditor-debtor (the creditor wants payment if the debtor dies), and business association (an executive in the company is so valuable that the company will need compensation if something happens to him).

If there is no insurable interest, generally there is no contract.
Licensing Statutes
States require licenses for anyone who practices a profession, such as law or medicine, works as a contractor or plumber, and for many other kinds of work.

These licenses are required in order to protect the public.

When a licensing requirement is designed to protect the public (i.e. electrician working on someones home), any contract made by an unlicensed worker in unenforceable.

When a licensing requirement is designed merely to raise revenue, a contract made by an unlicensed person is generally enforceable.
(i.e. most states require a license to open certain kinds of stores. This requirement does not protect the public because the state will not investigate the store owner the way it will examine a prospective lawyer or electrician. Thus is you open a stationary store and forget to pay your state licensing fee, your contract with a wholesaler for 10,000 envelopes is still enforceable.)
Usury
Usury laws prohibit charging excess interest on loans.

Some states have strict limits, other states have virtually no limits.

A lender who charges a usurious rate of interest may forfeit the illegal interest, all interest, or in some states, the entire loan.
Credit Card Debt
The supreme court ruled that when national banks issue a credit card, the can use the rate of their own state, or the state of the consumer, whichever is higher.

Many card issuers require borrowers to sign contracts that say the laws of a lender-friendly state will be applied to all future disputes. (i.e New York customers might agree to live by Utah laws.)
Blue Laws
Blue laws, or Sunday statutes, prohibit certain types of commercial activity
on Sunday, including some making of contracts.
Contracts That Violate Public Policy Are The Cards Underneath!
Contracts That Violate Public Policy Are the Cards Underneath!
Public Policy
There is no precise definition of “public policy”.
Free Trade
Most restraint on free trade is barred by antitrust law.

However, common law still regulates one restriction on trade: agreements to refrain from competition.
Restraint of Trade
A restraint of trade is any contract or agreement that eliminates or tends to
eliminate competition or obstructs trade or commerce. Unreasonable restraints of
trade are not enforceable.
Noncompete Agreements
I.E. A Miami news anchor might agree to not anchor for another Miami station for the first year after she leaves her job.

Noncompetes are often valid but common law places some restrictions on them.

To be valid, an agreement not to compete must be ancillary to a legitimate bargain. ("Ancillary" means that the noncompete agreement must be part of a larger agreement.

The two most legitimate noncompetition agreements are the sale of a business and an employment relationship.

When a noncompete agreement is ancillary to the sale of a business, it is enforceable if reasonable in time, geographic area, and scope of activity.

A noncompete clause in an employment contract is generally enforceable only if it is essential to the employer, fair to the employee, and harmless to the general public. Judges usually enforce these agreements to protect trade secrets and confidential information.
Exculpatory Clauses
A form that attempts to release you from liability in the event of injury to another party.

Exculpatory Clauses are common.

Courts frequently - but no always - ignore exculpatory clauses, finding that one party was forcing the other party to give up legal rights that no one should be forced to surrender.

An exculpatory clause is generally unenforceable when it attempts to exclude an intentional tort or gross negligence.

An exculpatory clause is generally unenforceable when the affected activity is in the public interest, such as medical care, public transportation, or some essential service.

An exculpatory clause is generally unenforceable when the parties have greatly unequal bargaining power.

An exculpatory clause is generally unenforceable unless the clause is clearly written and readily visible.
Exculpatory Clauses in Bailment Cases
Exculpatory clauses are very common in bailment cases.

Bailment means giving possession and control of personal property to another person.

The person giving up possession is the BAILOR.

The person accepting possession is the BAILEE.

I.E. When you leave your laptop with a dealer to be repaired.

Bailees often try to limit their liability for damage to property by using an exculpatory clause.

Courts are SLIGHTLY more apt to enforce an exculpatory clause in a bailment case because any harm is to property and not persons.
Unconscionable Contracts
An unconscionable contract is one that a court refuses to enforce because of fundamental unfairness.

Even if a contract does not violate any specific statute or public policy, it may still be void if it "shocks the conscience" of the court.

There are two types of unconscionability: (1) procedural unconscionability, which means that the bargaining process was unfair or irregular; and (2) substantive unconscionability means that the actual terms, or substance, of the contract were oppressive or grossly unfair.

The two factors that most often led a court to find unconscionability were Oppression and Surprise.

These cases are controversial because it is tough to prove oppression and unfair surprise.

Further, anytime a court rejects a contract as unconscionable, it diminishes freedom of contract.

Some courts require both forms of unconscionability to be present, though not necessarily at the same time, for a contract to be held unconscionable.
Adhesion Contracts
Adhesion contracts are standard form contracts prepared by one party and given to the other on a "take it or leave it" basis.

These contracts are not automatically unconscionable or unfair, but are subject to greater scrutiny than freely negotiated ones.

When a form contract is vigorously negotiated between two equally powerful corporations, the resulting bargain is generally enforced.

However, when the contract is simply presented to a consumer who has no ability to bargain, it is an adhesion contract and subject to an unconscionability challenge.
In Pari Delicto
In equal fault
Chapter 14
Voidable Contracts: Capacity and Consent

-This chapter examines voidable contracts.
Voidable Contracts
When a contract is voidable, one party has the option either to enforce or terminate the agreement.

A voidable contract is legal.

Two main issues:

1. Capacity

2. Consent
Capacity
Capacity is the legal ability to enter into a contract.

An adult of sound mind has capacity.

Two groups of people usually lack legal capacity:

1. Minors

2. Those with a Mental Impairment

A voidable contract may be canceled only by the party who lacks capacity.
Disaffirm
To give notice of refusal to be bound by an agreement (due to being a minor).
Rescind
To formally cancel a contract (due to being a minor).
Restitution
Restoring an injured party to its original position.
Status Quo Rule
Only used by a few states.

Provides that if a minor cannot return the consideration, the adult or store is only required to return its profit margin to the minor.
Ratification
Words or actions indicating an intention to be bound by a contract.
Exception: Necessaries
A necessary is something essential to the minor's life and welfare.

On a contract for necessaries, a minor must pay for the value of the benefit received.

The minor may still disaffirm the contract and return whatever is unused, but he is liable to pay for whatever benefit he obtained from the goods while he had them.

Food, clothing, housing, and medical care are necessaries.
Exception: Misrepresentation of Age
The rules change somewhat if a minor lies about his age.

Courts struggle with this, but a majority of them prohibit minors from disaffirming the contract.
Mentally Impaired Persons
A person suffers from a mental impairment if, by reason of mental illness or defect, he is unable to understand the nature and consequences of the transaction.

Courts often struggle when deciding cases of mental competence.

A party suffering a mental impairment usually creates only a voidable contract.

If a person has been adjudicated insane, then all of his future agreements are void.
Consent
Four claims that parties make in an effort to rescind a contract based on lack of consent:

1. Fraud

2. Mistake

3. Duress

4. Undue Influence
Chapter 15
Written Contracts