Section 9.2
Agreements Contrary to Public Policy
Section 9.2 Agreements Contrary to
Public Policy
What You’ll Learn
How to explain the legal doctrine of
public policy (p. 194)
How to identify agreements that are
contrary to public policy (p. 195)
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
What You’ll Learn
How to identify contracts that involve an
unreasonable restraint of trade (p. 196)
How to explain the nature of a restrictive
covenant (p. 197)
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Why It’s Important
By understanding public policy and
contracts that are contrary to public policy,
you will be able to avoid common problems
associated with violations of this important
legal doctrine.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Legal Terms
restraint of trade (p. 195)
restrictive covenant (p. 197)
price fixing (p. 197)
competitive bidding (p. 197)
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section Outline
The Nature of Public Policy
Violations of Public Policy
Agreements that Unreasonably Restrain
Trade
Agreements to Obstruct Justice
Agreements Inducing Breach of Duty or
Fraud
Agreements Interfering with Marriage
Effect of Illegality
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Illegal Contracts
A contract may be illegal if it involves
an agreement to do something that
violates statutory law. In addition, a
contract may be illegal if it violates
public policy.
Understanding Business and Personal Law
Legality
9.2
Section
9.2 Agreements Contrary to
Public Policy
Illegal Contracts
Illegal contracts that
•
•
•
•
•
violate state
statutes
violate public
policy
civil and criminal statutes
usury statutes
gambling statues
Sunday statutes
licensing statutes
• agreements that
unreasonably restrain trade
• agreements to obstruct
justice
• agreements inducing breach
of duty or fraud
• agreements interfering
with marriage
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Pre-Learning Question
What is public policy?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
The Nature of Public Policy
Public Policy is a time-honored legal
doctrine. The basis for making public
policy decisions is the underlying
principle that nobody should get away
with doing something that harms the
public at large.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Pre-Learning Question
How would some agreements violate
public policy?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Violations of Public Policy
If an activity harms the health, safety,
welfare, or morals of the public, that
activity violates public policy.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Violations of Public Policy
The most common agreements that
violate public policy include:
Agreements that unreasonably
restrain trade
 contracts not to compete
 price fixing agreements
 agreements to defeat competitive bidding
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Violations of Public Policy
More common agreements include:
Agreements to obstruct justice
Agreements inducing breach of duty
or fraud
Contracts interfering with marriage
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements that Unreasonably
Restrain Trade
The law protects our rights to make
a living and do business in a market
economy.
A restraint of trade is a limitation on
the full exercise of doing business
with others.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements that Unreasonably
Restrain Trade
Three types of contracts that violate
this rule:
1. Agreements not to compete
2. Price fixing
3. Agreements to defeat competitive
bidding
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright Contracts
Not to Compete
When a business owner sells a
business, sometimes the sales
contract will include a provision called
a restrictive covenant, which is a
promise not to compete.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright Contracts
Not to Compete
This means that the seller of the
business will not open a competing
business within a certain area for a
period of time after the sale.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright Contracts
Not to Compete
The court will uphold such a restriction
if it is reasonable in time and
geographic location.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright Contracts
Not to Compete
Promises not to compete are also
sometimes found in employment
contracts.
Such contracts are enforced only as
necessary to protect the former
employer from unfair competition.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Price Fixing
Price fixing occurs when
competitors agree on certain price
ranges within which they set their
prices.
Price fixing discourages competition
and raises prices.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Are restrictive covenants legal? Why
or why not?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
ANSWER
Yes, if it is reasonable in time and
geographic location.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements to Defeat
Competitive Bidding
A bid is an offer to buy or sell goods or
services at a stated price. Laws often
require governments to construct public
works or buy goods and services
through competitive bidding.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements to Defeat
Competitive Bidding
In the process of competitive bidding,
rivals submit bids for a project. The
firm with the lowest qualified bid wins
the contract.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements to Defeat
Competitive Bidding
If the bidders get together and agree
not to bid lower than a certain price,
then they are not bidding fairly. These
agreements and contracts are not
enforceable.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements to Obstruct Justice
Any contract that interferes with the
administration of justice is illegal.
Such agreements include:
Protecting someone from arrest
Encouraging lawsuits
Giving false testimony
Bribing a juror
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements Inducing
Breach of Duty or Fraud
Congressional and state
representatives and all other public
officials hold positions of trust.
These officials owe a duty to work for
the best interest of the public.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements Inducing
Breach of Duty or Fraud
Any contract that tries to influence the
representatives to use their positions
for private gain is unenforceable.
This rule also applies to private
persons who are in positions of trust.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements Interfering
with Marriage
The law encourages marriages and
protects family relationships.
Contracts that discourage, harm, or
interfere with good family relationships
are illegal and unenforceable in court.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements Interfering
with Marriage
For example, a contract promising
money in exchange for not marrying
would be void.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Pre-Learning Question
How does the illegality of a contract
affect the parties to that contract?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Effect of Illegality
In general, a court will not aid either
party to an illegal contract.
Neither party can enforce the
agreement.
Nor can they receive aid from the
court.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
1. What is the legal doctrine of public
policy?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
Answer
No one should be permitted to do anything
that harms the public at large.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
2. What contracts are considered to be
agreements that are contrary to
public policy?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
Answer
Agreements that involve an unreasonable
restraint of trade, agreements to obstruct
justice, agreements inducing fraud or
breach of duty; and contracts interfering
with marriage.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
3. What types of contracts involve an
unreasonable restraint of trade?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
Answer
Contracts not to compete, price fixing, and
agreements to defeat competitive bidding.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
4. What is a restrictive covenant?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Reviewing What You Learned
Answer
Agreement by the seller of a business not
to open a competing business within a
certain geographic area for a certain period
of time.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Critical Thinking Activity
Philosophy of Law
What is the legal philosophy behind public
policy?
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Critical Thinking Activity Answer
Philosophy of Law
The belief that no one should be permitted
to do anything that harms the public at
large.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Legal Skills in Action
Restrictive Employment Covenants
Your Uncle Larry has just been offered a
job at a computer software company.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Legal Skills in Action
Restrictive Employment Covenants
His employer asked him to sign a
restrictive covenant that would not permit
him to work for another software company
located anywhere in the United States for
the next seven years.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Legal Skills in Action
Restrictive Employment Covenants
Write a letter to your uncle telling him
whether this restrictive employment
covenant would be upheld in court.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Section 9.2 Assessment
Legal Skills in Action Answer
Restrictive Employment Covenants
Answers will vary, but should address
whether the geographic region and time
periods specified would be considered
reasonable.
Understanding Business and Personal Law
Legality
End of Section 9.2
Agreements Contrary to Public Policy