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GOALSGOALS

LESSON 2.4 LEGALITY OF CONTRACTS

Identify contracts that are illegal Know when a writing is required to prove

a contract

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Illegal Contracts Illegal gambling Usurious interest

NEW JERSEY, the legal rate of interest is 6%; the general usury limit is 30% for individuals, 50% for corporations.

"But my car loan is higher than that"; "But I'm paying way more than that on my credit cards." That's right! Banks have separate rules. In fact, due to high inflation, in 1980, the federal government passed a special law which allowed national banks (the ones that have the word "national" or the term "N.A." in their name, to ignore state usury limits and pegged the rate of interest at a certain number of points above the federal reserve discount rate. In addition, specially chartered organizations like small loan companies and installment plan sellers (like car financing companies) have their own rules.

The usury limit which is stated as the general usury limit is the rate that can be charged by one person or corporation to another, in other words, if you lend your next door neighbor $ 100.00, the rate stated is the limit. To charge more you must get a banking or pawnbroker license.

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Illegal Contracts Illegal discrimination Obstruction of legal procedures

Pay non-expert witnesses in a trial to testify, or pay for false testimony

Bribe jurors Refrain from prosecuting an alleged crime in exchange for

money

Lack of required competency license Negative effects on marriage Unreasonable restraint of trade

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Illegal Contracts Lack of required competency license

Plumbers, physicians, teachers, lawyers, pharmacists, real estate brokers, contractors, insurance agents, nurses, and others must have a license to perform their trade

Negative effects on marriage Marrying someone who is an illegal immigrant for money in

order to obtain citizenship is unenforceable A father promising to pay his daughter for not marrying

someone is unenforeceable

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Unreasonable Restraint of Trade

Price fixing When competing firms agree on the same

price to be charged for a product or service

This deprives consumers of price competition

Bid rigging Competitors agree on a price for a job and

take turns being the lowest bid

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Unreasonable Restraint of Trade

Resale price maintenance Manufacturers cannot set a mandatory

price to sell their product Suggested retail price is legal

Allocation of markets Dividing the markets up

Example: landscaper will only cut lawns in one particular development

Customers must use that landscaper (no one else will work there) thereby fixing the price

Covenants Not to Compete(Non-Compete Contracts) Generally unenforceable Termination clauses in employment contracts

are enforceable Must be a limitation on the time period Limitation on the geographic area Limits the employer’s interest (such as trade

secrets) Secret sauce recipe at McDonalds KFC seasoning in breading

http://www.kfc.com/about/secret.asp http://www.youtube.com/watch?v=JiuNvhJsIZQ

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When is a Written Contract Required? Statute of Frauds requires written document

Real property Term is longer than one year Sale involves more than $500 When someone makes a promise to provide

credit for the debt of another When someone is in charge of an estate and

promises to be responsible for the estates’ debts When promises other than the exchange of

traditional vows are given in consideration of marriage

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Covenants Not to Compete(Non-Compete Contracts) Generally unenforceable Termination clauses in employment contracts

are enforceable Agreement not to compete for 20 years

anywhere in the U.S. is not enforceable Agreement not to open a bagel store

across the street from the bagel store you worked at for one year would be legal and enforceable

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