Comprehensive Volume, 18th Edition
Chapter 16: Legality
and Public Policy
Illegality Defined
The term illegality embraces situations
in which a statute declares that certain
conduct is unlawful or a crime:
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contracts requiring the commission of a
tort
contracts that are contrary to public policy
contracts that are unconscionable
to some extent, contracts that are
oppressive, unfair, or made in bad faith
Illegal Agreements
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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.
Exceptions to Effect of Illegality
Protectio
n of
One
Party
Society,
speaking through
Relief
Relief
lawmakers or judges,
deems voiding illegal contract
unjust when the party meant to be
protected is harmed or harshly treated.
Unequal
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Guilt
Relief
Knowledg
e of Illegal
Purpose of
Other
Party
Effect on Society
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.
Whether a contract is contrary to
public policy may be difficult to determine
because public policy is not precisely defined.
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That which is harmful to the public welfare or
general good is contrary to public policy.
Non-Enforceable Agreements
Illegal Wagers
and Lotteries
Illegal
Discrimination
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Prejudice to
Public Policy
Agreements
Negatively
Affecting
Society
Obstructions to
Legal Process
Evasions of
Statutory
Protection
Injuries to
Public
Service
Illegal
Lobbying
Conflicts of
Interests
Non-Enforceable Agreements
Contracts with Unlicensed
Persons in Licensed Callings
or Dealings
Fraudulent Sales
Usurious
Agreements
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Agreements
Negatively
Affecting
Business
Obstructions to
Legal Process
Conflicts of
Interests
Agreements
Restraining
Trade
Agreements
Not to
Compete
Examples of Illegal Agreements
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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
wagers and private lotteries
Restraints of Trade
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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.
Usury
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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.
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 in most cases.