Transcript CHAPTER 10 Legal Purpose and Proper Form

CHAPTER 10
Legal Purpose and
Proper Form
10-1 Illegal Agreements
10-2 The Statute of Frauds
LAW for Business and Personal Use
Chapter 10
© 2012 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Slide 1
10-1
Illegal Agreements
 GOALS
 Identify various forms of unenforceable illegal
agreements
 Specify agreements that, although illegal, the
courts will enforce
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Slide 2
WHICH AGREEMENTS ARE ILLEGAL?
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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
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Slide 3
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
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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.,
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.
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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)
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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.
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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
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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
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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
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Slide 10
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
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Slide 11
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
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Slide 12
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.
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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.
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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.
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HOW ARE CONTRACTS
INTERPRETED?
 Acknowledgement of final agreement
 Specific rules of interpretation
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Analysis
Conflicting terms
Words
Ambiguities
Implied reasonableness
 Parol evidence rule
 Exceptions to the parol evidence rule
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Slide 16
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.
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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.
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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
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Slide 19
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
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Slide 20
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
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Slide 21
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
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Chapter 10
© 2012 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Slide 22