Section 9.2
Agreements Contrary to Public Policy
Section 9.2 Agreements Contrary to
Public Policy
Illegal Contracts
A 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
The 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.
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Section 9.2 Agreements Contrary to
Public Policy
Violations of Public Policy
If an activity harms the health, safety,
welfare, or morals of the public, that
activity violates public policy.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Violations of Public Policy
The most common agreements that
violate public policy include:
agreements that unreasonably
restrain trade
 contracts not to compete
 price fixing agreements
 agreements to defeat competitive bidding
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Section 9.2 Agreements Contrary to
Public Policy
Violations of Public Policy
More common agreements include:
agreements to obstruct justice
agreements inducing breach of duty
or fraud
contracts interfering with marriage
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements that Unreasonably
Restrain Trade
Three types of contracts that violate
this rule:
1. agreements not to compete
2. price fixing
3. agreements to defeat competitive
bidding
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright Contracts
Not to Compete
The court will uphold such a restriction
if it is reasonable in time and
geographic location.
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Legality
Section 9.2 Agreements Contrary to
Public Policy
Outright 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Price Fixing
Price fixing occurs when
competitors agree on certain price
ranges within which they set their
prices.
Price fixing discourages competition
and raises prices.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements to Obstruct Justice
Any contract that interferes with the
administration of justice is illegal.
Such agreements include:
protecting someone from arrest
encouraging lawsuits
giving false testimony
bribing a juror
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Section 9.2 Agreements Contrary to
Public Policy
Agreements 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.
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Section 9.2 Agreements Contrary to
Public Policy
Agreements 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements Interfering
with Marriage
The law encourages marriages and
protects family relationships.
Contracts that discourage, harm, or
interfere with good family relationships
are illegal and unenforceable in court.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Agreements Interfering
with Marriage
For example, a contract promising
money in exchange for not marrying
would be void.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Effect of Illegality
In 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.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
SECTION 10.1
THE STATUTE OF FRAUDS
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Purpose of a Writing
In early England contracts did not
have to be written to be fully
enforceable. Persons could be
brought to trial for breach of written or
oral contracts.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Purpose of a Writing
A breach of contract is a wrongful
failure to perform one or more
promises of a contract.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Purpose of a Writing
Only persons who were not parties to
the contract could be witnesses in
court. To protect their friends or selfinterests, witnesses often made false
statements under oath in court.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Purpose of a Writing
Making such false statements is called
perjury and is a crime.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Purpose of a Writing
To discourage such practices,
Parliament passed the “Act for the
Prevention of Frauds and Perjuries,”
which became known as the Statute
of Frauds. It required certain contracts
to be in writing to be enforceable.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Purpose of a Writing
Most states now have a Statute of
Frauds, which are state laws requiring
that certain contracts be evidenced by
a writing.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Elements of a Writing
A memorandum is the written
evidence of an agreement, need not
be formal, and could be:
a letter
a sales slip
an invoice
Understanding Business and Personal Law
a telegram
words written on a
check
Legality
Section 9.2 Agreements Contrary to
Public Policy
Elements of a Writing
Elements of a writing should identify
the:
place
date
parties involved
subject matter
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Legality
Section 9.2 Agreements Contrary to
Public Policy
Elements of a Writing (Cont.)
price and terms
intent of the parties
signature of the party who may be
charged
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Evaluating Contradictory Terms
If changes are made to a contract, the
court will uphold the most recent
terms.
If handwritten changes are made to
a typewritten or printed contract, the
handwritten terms will prevail.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Evaluating Contradictory Terms
Typewriting prevails over printing.
A dollar amount written in words will
prevail over the amount written in
figures.
Understanding Business and Personal Law
Legality
10.1
Section 9.2 Agreements Contrary to
Public Policy
Contradictory Terms
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Evaluating Ambiguous Clauses
When a written contract can be
understood in different ways, the court
will lean in favor of the party who did
not draft the contract and against the
one who drafted it.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts That Must Be in Writing
Every state has a law requiring that
certain kinds of contracts be in writing
to be enforceable.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts to Pay Debts of Others
A contract that one person makes with
another to pay the debts of someone
else must be in writing to be
enforceable.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts to Pay Debts of
Deceased Persons
An executor uses property from the
estate to pay off any debts.
If the estate lacks the money to pay
the debt, the executor may promise to
pay them with his or her own money.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts to Pay Debts of
Deceased Persons
Such an agreement, which is actually
an agreement to pay another’s debts,
must be in writing to be enforceable.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts Requiring More Than
a Year to Perform
All contracts must be written if they
cannot be performed within one year
of the date they are made. The year
legally begins when the contract is
made, not when performance is to
start.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts in Consideration
of Marriage
When two persons agree to marry, a
written contracts is not required.
The promises they make to one
another serve as the consideration for
the contract.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts in Consideration
of Marriage
However, if one person agrees to
marry another person in return for a
third person’s promise of money or
property, the agreement must be in
writing.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts to Sell Real Property
Contracts for the sale of real
property, which is land and anything
permanently attached to it, must be in
writing to be enforceable.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts for Sale of goods
of $500 or More
A contract for the sale of Goods for
the price of $500 or more must be in
writing to be enforceable.
Understanding Business and Personal Law
Legality
Section 9.2 Agreements Contrary to
Public Policy
Contracts for Sale of goods
of $500 or More
Goods consist of movable items,
including specially manufactured
items. Furniture, books, livestock,
cultivated crops, clothing,
automobiles, and personal effects of
any kind are considered Goods.
Understanding Business and Personal Law
Legality