CH6 Legality

- Illegal contracts are void (never existed) and unenforceable.

- Pari delicto: equally at fault. [when both parties are aware of the crime]
 Agreements are illegal when its purpose, or the manner in which it is carried out is:-
1. forbidden by state statue
A. Agreements that violate Civil and Criminal Statutes:
o If it requires one party to commit a tort or a crime.
B. Agreements that violate Licensing Statutes:
o If it requires individuals to have a license or permit to practice their occupations.
C. Agreements that violate Usury Statutes:
o If the interest rate charged by the lender exceeds the legal rate allowed by state
law its usuary. [usuary applies to loans not merchandise]
o Interest is the compensation or fee that a borrower pays to a lender for the use
of money.
2. opposed to the public policy.
A. Agreements that disclaim liability for negligence:
o If it includes exculpatory clauses [excusing themselves in advance for any
payment for injury or damages caused by their acts.]
o If it is a contract of adhesion [those in superior bargaining position]
B. Agreements that interfere with the administration of justice:
o If it interferes with the proper administration of justice that prevent the law from
being applied fairly are illegal.
C. Agreements that interfere with the performance of a public duty:
o If it is to bribe a judge , a police officer or the district attorney in return for a
favor is illegal.
D. Agreements that harm marriage:
o If it places unreasonable restraints or tend to discourage marriage completely
are generally illegal.
o legal detriment -> when they postpone a marriage till majority age.
E. Agreements that unreasonable restrain competition and trade:
o If it includes clauses/covenants which is a promise not to compete for a specified
time in a certain geographic area.
F. Agreements that create a monopoly or limit competition:
o If one party controls nearly all the trade or supply of a particular item within an
area. [antitrust laws]
G. Agreements that are unconscionable:
o If it is entered into under the following circumstances:
I. A party lacks the knowledge or understanding of the terms of the agreement
II. The agreement is to grossly unfair or harsh.
 Exceptions of “Pari Delicto”:-
A. Court may rule in favor of the more innocent party if recovery serves the public interest
in some way. [recover money paid]
B. Ignorance of the facts as to the illegality of an agreement [recover fees to be received]
- Partially illegal agreements:-
 An agreement may be partially legal and partially illegal. The legal part of the
agreement may e enforced if it ca be separated from the illegal part.
 If the agreement is so complicated that it is not possible to separate the illegal part,
the entire agreement is void and unenforceable.