Chapter 15
Legality and Public Policy
Twomey, Business Law and the
Regulatory Environment (14th Ed.)
Exceptions to Effect of Illegality [15-1]
Protection
of one
party
Society,
Relief
speaking through
lawmakers or judges,
deems voiding illegal contracts
unjust when the party meant to be
protected is harmed or harshly treated
Relief
Unequal
Knowledg
e of illegal
Relief
Purpose of
other party
Guilt
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Non-Enforceable Agreements [15-2]
Illegal Wagers
and Lotteries
Illegal
Discrimination
Prejudice to
Public Policy
Agreements
Negatively
Affecting
Society
Evasions of
Statutory
Protection
Injuries
to Public
Service
Illegal
Lobbying
Obstructions to
Legal Process
Conflicts of
Interest
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Illegal Agreements Affecting
Public Welfare
Agreements Contrary to Public Policy
Agreements Evading Statutes
Agreements Injuring Public Service
Agreements Involving Conflicts of Interest
Agreements Obstructing Legal Process
Agreements Involving Illegal Discrimination
Wagers and Private Lotteries
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Illegal Agreements Affecting Business
Contracts with Unlicensed Persons in
Licensed Callings or Dealings
Fraudulent Sales
Agreements Restraining Trade
Agreements Not to Compete
Usurious Agreements
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Chapter 15 Summary
When an agreement is illegal, it is ordinarily
void, and no contract arises from it. Courts will
not allow one party to an illegal agreement to
bring suit against the other party. There are some
exceptions to this, such as when the parties are
not equally guilty or when the law’s purpose in
making the agreement illegal is to protect the
person who is bringing suit.
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Chapter 15 Summary
[2]
When possible, an agreement will be interpreted
as being lawful. Even when a particular
provision is held unlawful, the balance of the
agreement will generally be saved, so that the
net result is a contract minus the clause that was
held illegal.
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Chapter 15 Summary
[3]
The term illegality embraces situations in
which a statute declares that certain conduct is
unlawful or a crime; contracts requiring the
commission of a tort; contracts that are
contrary to public policy; contracts that are
unconscionable; and, to some extent, contracts
that are oppressive, unfair, or made in bad
faith.
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Chapter 15 Summary
[4]
The question of the legality of an agreement is
not considered in the abstract, but the effect of
the decision on the rest of society is considered.
Increasingly, a given contract is not considered
to be in a class by itself but is the same as
thousands and even millions of other contracts.
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Chapter 15 Summary
[5]
Whether a contract is contrary to public policy
may be difficult to determine because public
policy is not precisely defined. That which is
harmful to the public welfare or general good
is contrary to public policy.
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Chapter 15 Summary
[6]
Contracts condemned as contrary to public policy include
those designed to deprive the weaker party of a benefit that
the lawmaker desired to provide; agreements injuring
public service, such as an agreement to buy a government
job for an applicant; agreements involving conflicts of
interest, such as when the purchasing officer of a
government buys from a company that the officer privately
owns; agreements obstructing legal process, such as an
agreement with a witness to disappear; illegal
discrimination contracts; and wagers and private lotteries.
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Chapter 15 Summary
[7]
Statutes commonly make the wager illegal, as a
form of gambling. The lottery is any plan under
which, for a consideration, a person has a
chance to win a prize.
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Chapter 15 Summary
[8]
Illegality may consist of the violation of a statute or
administrative regulation adopted to regulate
business. Statutes may make it illegal to do
business unless a particular form of contract is used
or unless the party promoting the transaction is
licensed. The protection of buyers from fraud by
sellers may make it unlawful to sell under certain
circumstances or without making certain
disclosures.
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Chapter 15 Summary
[9]
Contracts in restraint of trade are generally
illegal as violating federal or state antitrust laws.
An agreement not to compete is illegal as a
restraint of trade except when reasonable in its
terms and when it is incidental to the sale of a
business or to a contract of employment.
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Chapter 15 Summary
[10]
The charging by a lender of a higher rate of
interest than allowed by law is usury. Courts
must examine transactions carefully to see if
there is a usurious loan disguised as a legitimate
transaction.
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Chapter 15 Summary
[11]
When sellers of goods offer their buyers one
price for a cash sale and another, higher price for
a credit sale, the higher price is lawful. The
credit price is not usurious even though the
difference between the cash price and the credit
price is greater than the amount that could be
charged as interest on a loan equal to the cash
price.
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Chapter 15 Summary
[12]
This concept is called the time-price differential.
A minority of states reject or abolish it or limit
the increase of the credit price over the cash
price to a specified percentage or to the
maximum amount that could be charged on a
loan equal to the cash price.
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Chapter 15 Summary
[13]
Most states do not apply the usury law to a
revolving charge account. A minority do so, with
the result that the charges imposed on the
account must not exceed the amount that could
be charged as interest on a loan of the amount
due on the account.
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