Name ______________________________________ Date __________ Class _______________
L ESSON 10-1 I LLEGAL A GREEMENTS
I. Which Agreements Are Illegal?
A. Illegal Lotteries
B. Agreements to Pay Usurious Interest
C. Agreements Involving Illegal Discrimination
D. Agreements that Obstruct Legal Procedures
E. Agreements Made Without a Required Competency License
F. Agreements that Affect Marriage Negatively
G. Agreements that Restrain Trade Unreasonably
1. Price Fixing
2. Resale Price Maintenance
3. Allocation of Markets
H. Agreements Not to Compete
II. When Will the Courts Enforce Illegal Agreements?
A. Protected Victims
B. The Excusably Ignorant
C. Rescission Prior to Illegal Act
D. Divisible Contracts
Chapter 10 Legal Purpose and Proper Form 55

Vocabulary Review
Define the following vocabulary terms.
1. lottery A prize or something of value won by chance.
2. wager A bet on the uncertain outcome of an event.
3. compounding a crime To refrain from informing on or prosecuting an alleged crime in exchange for money or other valuable consideration.
4. competency license A license required by a state to ensure that persons in certain occupations and businesses are competent.
5. revenue license A license required only to raise revenue rather than to protect the public.
6. price fixing Competing firms agree on the same price to be charged for a product or service.
7. bid rigging The act when competing firms who bid on jobs agree that one bidder will have the lowest bid for a particular job.
8. unconscionability Occurs when there is a grossly unfair contract that parties under ordinary circumstances would not accept.
Concept Review
9. When are agreements considered illegal?
Agreements that involve contracting for an illegal act generally are void and unenforceable.
Almost any agreement to commit a felony will be an illegal agreement.
10. Describe the three illegal agreements that unreasonably restrain trade.
(1) Price fixing: competing firms agree on the same price to be charged for a product of service, which injures consumers. (2) Resale price maintenance: manufacturers contract with retailers to sell their products at a particular price. (3) Allocation of markets: competitors divide markets between themselves. (4) Agreements not to compete: an employee has agreed not to compete with their employer after the employment terminates. These agreements become illegal if they are unreasonable in time period, geographic area, and the employer’s interest protected by the limitations.
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11. Explain how parties to an illegal agreement are often not equally to blame.
Parties to an illegal agreement are often not equally to blame when one party lies to another person to enter an illegal agreement. If the illegal agreement was created by fraud, duress, misrepresentation, or undue influence, the victim may obtain restitution.
Goals Review
12. What are the various forms of illegal agreements?
The various illegal agreements include those in which there may be a specific statute forbidding a contract, agreements that obstruct legal procedures, agreements that are made without a required competency license, agreements that affect marriage negatively, and agreements that unreasonably restrain trade.
13. Which agreements, although illegal, are enforceable in court?
Agreements made with protected victims, the excusably ignorant, those parties who rescind prior to an illegal act, and divisible contracts.
Chapter 10 Legal Purpose and Proper Form 57

Name ______________________________________ Date __________ Class _______________
L ESSON 10-2 T HE S TATUTE OF F RAUDS
I. Why Have a Statute of Frauds?
A.
Contracts Within the Statute of Frauds
1. Executed Contracts
2. Executory Contracts
B.
Requirements of the Writing
1. Statute of Frauds Requirements
(a) names of the parties
(b) subject matter description
(c) price
(d) quantity
(e) signature
(f) other essential terms
2. UCC Requirements
3. Special Rules for Signatures
58 Copyright © Thomson/South-Western Publishing

II. Types of Contracts Within the Statute of Frauds
A. Contract for the Sale of Goods for $500 or more
B. Contract to Sell an Interest in Real Property
C. Contracts that Require More Than One Year to Complete
D. Contracts to Pay a Debt or Answer for Another’s Debt
1. Exception—Main Purpose Rule
E. Contract for Which the Consideration is Marriage
III. How Are Contracts Interpreted?
A. Integration Clause
B. Specific Rules of Interpretation
1. Analysis
2. Conflicting Terms
3. Words
4. Authors of Ambiguity
5. Implied Reasonableness
C. Parol Evidence Rule
1. Exception to the Parol Evidence Rule
Chapter 10 Legal Purpose and Proper Form 59

Vocabulary Review
Define the following vocabulary terms.
1. Statute of Frauds Statutes that require certain contracts to be evidenced by a signed writing in order to be enforceable in court.
2. executed contract A contract that has been fully performed.
3. executory contract A contract that has not been fully performed.
4. quasi-contract A contract in which some element of an enforceable contract is missing but the court enforces it as if it were a contract in order to prevent unjust enrichment of one party.
5. integration clause A contract clause stating that both parties agree that the terms in the written contract constitute the entire and final agreement.
6. contracts of adhesion Contracts such as credit purchases of life insurance policies that are prepared by the stronger party in the contract, usually the seller, with the help of skilled lawyers who favor the interest of their clients.
7. parol evidence Words spoken prior to the execution of the final writing at the time of signing. Parol evidence generally is inadmissible in court.
Concept Review
8. Which key elements must be in a writing in order to satisfy the Statute of Frauds?
(1) Names of the parties, (2) subject matter description, (3) price, (4) quantity, (5) signature,
(6) other essential terms.
9. What are the special rules regarding signatures?
Under Statute of Frauds requirements only the parties whose signatures actually appear on the contract may be sued for enforcement. The signature may be written, stamped, engraved, or printed. It may consist of any mark that is intended as a signature or authentication of the writing.
60 Copyright © Thomson/South-Western Publishing

10. Briefly describe the five types of executory contracts that must be evidenced by a writing and signed by the party against whom the contract is to be enforced.
(1) Contract for the sale of goods for $500 of more:
If parties agree to buy and sell goods for a price or $500 dollars or more their contract must be evidenced by writing. If a modification to a sell of under $500 dollars brings the price above $500 dollars then a contract must be signed in writing.
(2) Contract to sell an interest in real property:
Transfers of real property or of lesser interest such as a lease or the right to pump oil or cut timber, must be in a properly signed writing to be enforceable. In most states oral leases for one year or less are enforceable. Some states require that contracts employing real estate brokers satisfy the Statute of Frauds.
(3) Contract that requires more than one year to complete:
Courts will not enforce a contact that takes more than one year to complete unless there is a signed writing to prove the agreement the year begins at the time the contract is made, not at the time the contractual performance is to begin.
(4) Contract to pay a debt or answer for another’s debt:
Contracts to pay a debt or answer for another’s debt must be in writing, An exception is the primary promise in which one person orally agrees to a contract and payment on behalf another person.
(5) Contract for which the consideration is marriage:
A signed writing is required for agreements in which one party promises to marry in return for something other than the other’s promise to marry
.
Goals Review
11. Describe why the Statute of Frauds is necessary.
Because oral contracts may be subject to fraudulent claims, the law requires that some of the most important contracts be placed in writing in order to be enforced in court. These laws are known as the Statute of Frauds.
12. On what occasions does the Statute of Frauds require a writing?
(1) Contracts to buy and sell good for a price of $500 or more; (2) contracts to buy and sell real property or any interest in real property; (3) contracts that require more than one year to complete; (4) promises to pay the debt or answer for a legal obligation of another person;
(5) promises to give something of values in return for a promise of marriage.
13. What are the rules of contract interpretation?
(1) Analysis (2) conflicting terms (3) words (4) authors of ambiguity (5) implied reasonableness.
Chapter 10 Legal Purpose and Proper Form 61