LAW for Business and Personal Use © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 1 Chapter 10 CHAPTER 10 Legal Purpose and Proper Form Illegal Agreements The Statute of Frauds

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 2 Chapter Illegal Agreements GOALS Identify various forms of unenforceable illegal agreements Specify agreements that, although illegal, the courts will enforce

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 3 Chapter 10 WHICH AGREEMENTS ARE ILLEGAL? 1.Illegal lotteries 2.Agreements to pay usurious interest 3.Agreements involving illegal discrimination 4.Agreements that obstruct legal procedures 5.Agreements made without a required competency license 6.Agreements that affect marriage negatively 7.Agreements that restrain trade unreasonably 8.Agreements not to compete

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 4 Chapter 10 CHECKPOINT Name four of the eight illegal agreements discussed in this section.     

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 5 Chapter 10 WHEN WILL THE COURTS ENFORCE ILLEGAL AGREEMENTS? Protected victims The excusably ignorant Does not know the contract is illegal the other party knows the transactions is illegal AND the illegality is minor Rescission prior to illegal act –if party rescinds before the illegal act occurs, then restitution will be available Divisible contracts – Separate consideration is given for the legal an illegal parts of the contract.

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 6 Chapter 10 CHECKPOINT Under what circumstances will the courts enforce illegal agreements?     

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 7 Chapter The Statute of Frauds GOALS Explain why the Statute of Frauds is necessary and what it requires Identify the main instances when the Statute of Frauds requires a writing Understand the rules of contract interpretation

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 8 Chapter 10 WHY HAVE A STATUTE OF FRAUDS? Contracts within the Statute of Frauds Executed contract – if already executed, neither party can reverse the contract Executory contracts – Neither party can reverse the contract. The courts will enforce the contract. Requirements of the writing Statute of Frauds requirements UCC requirements Special rules for signatures

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. WHY HAVE A STATUTE OF FRAUDS? Requirements of the writing 1.Statute of Frauds requirements 1.Names of the parties 2.A description of the subject matter 3.Price 4.Quantity 5.Signature 6.Other essential terms – can include time or method of delivery, terms of payment, methods of financing, date for transfer of possession and so on, depending on the nature of the contract

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. WHY HAVE A STATUTE OF FRAUDS? 2.UCC requirements – because the UCC is essentially the same in each state, it establishes a uniform content standard. Under the UCC, the writing must indicate only 2.The quanity of goods 3.That a contract has been made between the parties. 3.Special rules for signatures – only the parties whose signatures actually appear on the contract may be sued for enforcement.

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 11 Chapter 10 CHECKPOINT Name the six essential elements in a writing required by the most demanding Statutes of Frauds standards.     

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 12 Chapter 10 TYPES OF CONTRACTS WITHIN THE STATUTE OF FRAUDS Contract for the sale of goods for $500 or more Contract to sell an interest in real property Contracts that require more than one year to complete Contract to pay a debt or answer for another’s debt or the debts of an estate Exception—main purpose rule –A third party is liable for an oral promise to pay another’s debt if the main purpose of the promise serves the promisor’s own interest. Contract for which the consideration is marriage

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 13 Chapter 10 CHECKPOINT What amount must be exceeded to require a contract for the sale of goods to be in writing to be enforceable?     

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 14 Chapter 10 HOW ARE CONTRACTS INTERPRETED? Acknowledgement of final agreement Often, issues develop involving preceding oral agreements not reflected in the ultimate contract. As a consequence writings will include a contract clause stating that both parties agree that the terms in the written contract constitute the entire final agreement.

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. HOW ARE CONTRACTS INTERPRETED? Specific rules of interpretation Analysis – main objective Conflicting terms – in terms of money, numbers written long hand prevail over numeric symbols. Words – plain and normal meaning of ordinary words will be used to determine the meaning of the contract Ambiguities – courts will interpret ambiguities (things that can be understood in two or more possible ways) against the party who drafted the contract. Implied reasonableness – Promised services must be performed with reasonable care and skill even when this is not stated. When no time for performance is mentioned, a reasonable time is allowed

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. HOW ARE CONTRACTS INTERPRETED? Parol evidence rule. This rule makes the final writing the source of evidence about the terms of the contract. Parol Evidence -consists of words spoken prior to the execution of the final writing or at the time of signing. The rule keeps out preliminary inquiries, initial proposals, negotiations, and other discussions that are not the final agreement.

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Exceptions to the parol evidence rule 1.To clarify ambiguities in the written agreement. 2.If the written contract was not intended to be a complete agreement 3.If a condition necessary to the existence of the contract never occurred. 4.If fraud, forgery, illegality, mistake, or misrepresentation occurred. 5.To show the parties reached another agreement or terminated the contract under consideration after executing the written contract. 6.To show that the contract is voidable because a party lacked contractual capacity.

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 18 Chapter 10 CHECKPOINT Explain the parol evidence rule.     

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 19 Chapter 10 PREVENT LEGAL DIFFICULTIES In making contracts... Deal only with persons who are reputable and properly licensed when contracting for professional or skilled services. Do not rush into a decision. Take time to review and understand the advantages and disadvantages of the contract. Legitimate proposals usually will survive a delay. Continued on the next slide

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 20 Chapter 10 PREVENT LEGAL DIFFICULTIES If the contract is complex or involves much time or money, put it in writing even when the Statute of Frauds does not require this. Try to anticipate and provide for all possible problems. If needed, obtain the assistance of a qualified lawyer. If a prepared contract is presented to you for your signature read it carefully, especially if it is a contract of adhesion. If the contract involves a large sum of money, or if it is complex, have your lawyer review it before you sign. Continued on the next slide

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 21 Chapter 10 PREVENT LEGAL DIFFICULTIES Insist that all terms of the contract that you do not understand be defined and explained. Make necessary changes, or reject the entire contract. Make sure that all changes are written into a contract on all copies as well as on the original, and that all changes are initialed by both parties. Retain a copy with the other party’s signature on it. Be sure all desired terms are expressed in writing or included by specific reference to any other relevant document(s). Continued on the next slide

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Slide 22 Chapter 10 PREVENT LEGAL DIFFICULTIES When any payments have been made in cash, be sure to get a receipt if payment is not acknowledged in the contract. Continued on the next slide