2What You’ll LearnHow to explain the legal doctrine of public policy (p. 194)How to identify agreements that are contrary to public policy (p. 195)
3What You’ll LearnHow to identify contracts that involve an unreasonable restraint of trade (p. 196)How to explain the nature of a restrictive covenant (p. 197)
4Why It’s ImportantBy 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.
6Section Outline The Nature of Public Policy Violations of Public PolicyAgreements that Unreasonably Restrain TradeAgreements to Obstruct JusticeAgreements Inducing Breach of Duty or FraudAgreements Interfering with MarriageEffect of Illegality
7Illegal ContractsA 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.
8Illegal Contracts 9.2 Illegal contracts that violate public violate statestatutesviolate publicpolicycivil and criminal statutesusury statutesgambling statuesSunday statuteslicensing statutesagreements thatunreasonably restrain tradeagreements to obstructjusticeagreements inducing breachof duty or fraudagreements interferingwith marriage
10The 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.
11Pre-Learning Question How would some agreements violate public policy?
12Violations of Public Policy If an activity harms the health, safety, welfare, or morals of the public, that activity violates public policy.
13Violations of Public Policy The most common agreements that violate public policy include:Agreements that unreasonably restrain tradecontracts not to competeprice fixing agreementsagreements to defeat competitive bidding
14Violations of Public Policy More common agreements include:Agreements to obstruct justiceAgreements inducing breach of duty or fraudContracts interfering with marriage
15Agreements 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.
16Agreements that Unreasonably Restrain Trade Three types of contracts that violate this rule:Agreements not to competePrice fixingAgreements to defeat competitive bidding
17Outright 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.
18Outright 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.
19Outright Contracts Not to Compete The court will uphold such a restriction if it is reasonable in time and geographic location.
20Outright 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.
21Price FixingPrice fixing occurs when competitors agree on certain price ranges within which they set their prices.Price fixing discourages competition and raises prices.
22Are restrictive covenants legal? Why or why not?
23ANSWERYes, if it is reasonable in time and geographic location.
24Agreements 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.
25Agreements 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.
26Agreements 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.
27Agreements to Obstruct Justice Any contract that interferes with the administration of justice is illegal. Such agreements include:Protecting someone from arrestEncouraging lawsuitsGiving false testimonyBribing a juror
28Agreements 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.
29Agreements 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.
30Agreements Interfering with MarriageThe law encourages marriages and protects family relationships.Contracts that discourage, harm, or interfere with good family relationships are illegal and unenforceable in court.
31Agreements Interfering with MarriageFor example, a contract promising money in exchange for not marrying would be void.
32Pre-Learning Question How does the illegality of a contract affect the parties to that contract?
33Effect of IllegalityIn 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.
34Reviewing What You Learned Section 9.2 AssessmentReviewing What You LearnedWhat is the legal doctrine of public policy?
35Reviewing What You Learned Answer Section 9.2 AssessmentReviewing What You LearnedAnswerNo one should be permitted to do anything that harms the public at large.
36Reviewing What You Learned Section 9.2 AssessmentReviewing What You LearnedWhat contracts are considered to be agreements that are contrary to public policy?
37Reviewing What You Learned Answer Section 9.2 AssessmentReviewing What You LearnedAnswerAgreements that involve an unreasonable restraint of trade, agreements to obstruct justice, agreements inducing fraud or breach of duty; and contracts interfering with marriage.
38Reviewing What You Learned Section 9.2 AssessmentReviewing What You LearnedWhat types of contracts involve an unreasonable restraint of trade?
39Reviewing What You Learned Answer Section 9.2 AssessmentReviewing What You LearnedAnswerContracts not to compete, price fixing, and agreements to defeat competitive bidding.
40Reviewing What You Learned What is a restrictive covenant? Section 9.2 AssessmentReviewing What You LearnedWhat is a restrictive covenant?
41Reviewing What You Learned Answer Section 9.2 AssessmentReviewing What You LearnedAnswerAgreement by the seller of a business not to open a competing business within a certain geographic area for a certain period of time.
42Critical Thinking Activity Philosophy of Law Section 9.2 AssessmentCritical Thinking ActivityPhilosophy of LawWhat is the legal philosophy behind public policy?
43Critical Thinking Activity Answer Philosophy of Law Section 9.2 AssessmentCritical Thinking Activity AnswerPhilosophy of LawThe belief that no one should be permitted to do anything that harms the public at large.
44Legal Skills in Action Restrictive Employment Covenants Section 9.2 AssessmentLegal Skills in ActionRestrictive Employment CovenantsYour Uncle Larry has just been offered a job at a computer software company.
45Legal Skills in Action Restrictive Employment Covenants Section 9.2 AssessmentLegal Skills in ActionRestrictive Employment CovenantsHis 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.
46Legal Skills in Action Restrictive Employment Covenants Section 9.2 AssessmentLegal Skills in ActionRestrictive Employment CovenantsWrite a letter to your uncle telling him whether this restrictive employment covenant would be upheld in court.
47Legal Skills in Action Answer Section 9.2 AssessmentLegal Skills in Action AnswerRestrictive Employment CovenantsAnswers will vary, but should address whether the geographic region and time periods specified would be considered reasonable.