20 terms

MGMT 643 - Legality

For Exam 2
Subject matter of the contract has to be legal
Violative of Law
● Crimes
● Wagering
● Public Safety Licenses
● Revenue Licenses
● 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
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