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For Exam 2

Legality

Subject matter of the contract has to be legal

Violative of Law

● Crimes
● Wagering
● Public Safety Licenses
● Revenue Licenses

Wagering

● Has to be legal in the state your in when contract was made
● Lotteries & Raffles

Public Safety Licenses

● No license = no contract
● Example: don't have to pay doctor if they don't have a license to practice medicine

Revenue Licenses

● No license = still a contract - why?
● Example: Amazon - doesn't have a sales tax permit - but purpose of business is to raise revenue

Usury

Illegal, excessive interest on borrowed money

Old Rule of Usury

● All interest (illegal and legal) and principal forfeited
● Lender is entitled to get nothing back

New Rule of Usury

● Punishment - 3x illegal interest and attorney fees
● But if more than 2x legal rate - Old Rule applies

Problem with 1 1/2 % per month

● People believe they can charge the same rate they are paying on their credit cards to people they lend money to
● But the most you can charge is 1/2 of 1% per month

Covenants Not To Compete

● Party agrees not to compete against former business
● Ok, if reasonable business necessity & REASONABLE as to
1) Time
2) Area
3) Subject Matter

Employment in Covenants Not to Compete

Not particularly favored by courts but reluctantly upheld by courts sometimes

Sale of Business in Covenants Not to Compete

More favorably looked upon by courts than employment contracts - bargaining position and consideration

Exculpatory Definition

Wrongdoer attempts to be excused from liability caused by HIS OWN NEGLIGENCE OR INTENTIONAL ACTS

Release Definition

Relieving person from or reducing liability for ANOTHER PERSON'S actions

Examples of Exculpatory & Release

● Parking lots, car repairs, apartment leases, school trip releases

Distinction between Exculpatory & Release

Your actions versus someone else's actions

Rule of Exculpatory & Release

Contracts which attempt to insulate 1 party from his/her own negligence or intentional acts ARE illegal - USUALLY - not always though

Unconscionable Contracts

● Contract is so grossly unfair it shocks the conscience of a reasonable person
● May be set aside by courts

In Pari Delicto

● Court won't enforce contract where both parties have "unclean hands"
● What if only 1 party has dirty hands?
● Clean hands can sue unclean hands

Severability Clause

"Cut off" or "sever" illegal parts of contract but keep remainder

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