Hi please, see the attached

LEGALITY AND PUBLIC POLICY


A. Illegal contracts

1. The agreement is void, and no court relief exists
a. When an agreement is illegal, the parties are not entitled to any relief from the courts.
Example: Sam enters into an agreement with Jason to buy $10,000 worth of illegal fireworks in
Massachusetts where the purchase and sale of fireworks is illegal. Jason requires Sam to pay
him the $10,000 in advance and Sam delivers the money. Jason never delivers the fireworks
and Sam sues. Will he recover the money?
Answer: No, Sam was aware that it was illegal to purchase fireworks. Therefore, Sam is equally
guilty of entering an illegal contract. The courts will not enforce the contract because both parties
have “unclean hands”. The “Clean Hands Doctrine” means that a person coming to court must
not have done anything wrong (must have clean hands)

B. Exceptions to effect of illegality

1. Protection of one party –
a. Protection of one party -- If a statute is clearly designed to protect a certain class, a member of
the class can enforce a contract in violation of the statute.
Example: State statutes limit employers from forcing their employees to work an excessive
number of hours. However, an employee who has been forced to work overtime can recover
overtime pay because the statute exists to protect the worker even if the employer forces them
to work beyond the time allowed by law.

2. Unequal guilt

a. The least guilty party may recover when the public interest is served -- An innocent party who has
fully performed may be able to enforce the contract
Example: I enter a contract with Krysten to make a delivery to North Carolina. Once the delivery is
made, I refuse to pay because the shipment contained illegal merchandise and I state that the
Krysten knew the products were illegal. Can she collect the money owed? Answer: The first
question to ask is if the contract was for something that is legal. In this case a contract for the
shipment of goods is legal; it is the product that is illegal. The second question is if there is
independent evidence that the other party knew about the illegal merchandise. In this case there is
no proof, other than my word, that the driver was aware the products were illegal. Based on these
facts, Krysten has “clean hands” and he can recover the money owed for delivering the product.

C. Partial illegality – A contract may involve the performance of several promises, some of which are legal, and
some illegal.

1. Legal parts are enforced if possible
Example: Andrew entered a contract with 7-11 for 150 Big Gulps for $2.00 each to be delivered on March
15. He also ordered $500 of CBD Edibles (with THC) for delivery on March 22. He received both orders
but refused to pay claiming that the contract with 7-11 was illegal (due to the edibles) and unenforceable.
Will the court enforce the contract?
Answer: Since the contract that Andrew made with 7-11 calls for separate performance (delivery of Big
Gulps and separate delivery of CBD edibles), the courts will enforce the legal parts of the contract and
ignore the illegal parts. Therefore, the courts will force Andrew to pay for the $300.00 for the drinks and
ignore the contract for the edibles.

D. Crimes and civil wrongs

1. An agreement that calls for the commission of a crime are illegal.
Example: Peter hires Carl to rear-end his car so that he can file a claim with his insurance company for
medical bills. He promises to pay Carl part of his settlement. This agreement is unenforceable because
it is illegal to file a false report.

2. An Agreement that calls for the commission of a civil wrong are illegal.
Example: A contract to infringe on the patent of another company is also illegal and unenforceable.


The previous discussion centers on contracting for something that is illegal. However, Illegality takes many
forms. The discussion below outlines other issues that may be encountered and may make a contract
unenforceable.

A. Unconscionable and oppressive contracts -- A contract is unconscionable when it is too harsh or
oppressive to one of the parties who were left with no opportunity for negotiation at the time the contract was
agreed to. A contract or clause is determined to be unconscionable on the basis of the circumstances existing
at the time the contract is made. If a contract or portions of a contract is unconscionable, it will be set aside
as void.
1. Provision in contract or bargain which is so unfair to a party that no reasonable or informed person would
agree to it. In a lawsuit for breach of contract, a court will not enforce an unconscionable contract. The
court in such a case will determine that to enforce the contract would be grossly unfair to one of the parties
based upon their being misled, lacking information or signing under duress or misunderstanding, often
due to the acts of the person seeking enforcement

2. Determination of unconscionability

a. Procedural unconscionability: Procedural unconscionability occurs when one party is incapable of
understanding the terms or is surprised by a hidden term or fine print in the contract.
Example: A Motorcycle dealer creates a standardized contract that contains fine print which makes
the buyer responsible for any defects in the motorcycle. The average person would not understand
this clause and the courts would rule that it is unconscionable and unenforceable.
b. Substantive unconscionability: Substantive unconscionability occurs when the contract terms are so
one-sided that they shock the conscience. This usually happens when one party has superior
bargaining power, which allows them to dictate the terms.
Example: A clause in a credit card agreement that limits the cardholder to arbitration as their only
remedy to settle a dispute but allows the credit card company to seek a remedy through the courts.

B. Agreements contrary to public policy -- Another form of illegal contract is one that affects the public welfare
or is contrary to public policy. An agreement is contrary to public policy when it is so offensive to society that
judicial intervention is needed to preserve the public good.

1. The concept of public policy – contract is offensive to society
Example: Selling public office -- Former Illinois Governor Ron Blagojevich was convicted for attempting
to sell, or trade, the U.S. Senate seat that was open when Senator Obama was elected president.
Blagojevich was sentenced to 14 years.
Example: Jasiel Correia, the former mayor of Fall River, Massachusetts, was convicted for taking bribes
from marijuana companies who were looking to open dispensaries in Fall River. In September he was
sentenced to six years in federal prison.
Example: The college admissions scandal where parents paid money to bribe coaches and
administrators and to facilitate cheating on entrance exams in an effort to gain admissions to colleges
and universities.


2. Gambling, wagers, and lotteries – Gambling contracts are illegal.

Gambling and Lotteries in many states are legalized by state law or statute (and are run by the state
government). Raffles and Bingo games are legalized by statute if the funds are used for a charitable
purpose (churches, schools). Most states require a permit for these types of activities

Promotions and Giveaway plans are lawful so long as you do not have to buy anything or give anything
of value to participate. Example: No purchase is necessary to enter contest.

Legality and Public Policy 3



C. Regulation of Business

1. Statutory regulation of contracts – Consumer Protection statutes require that a consumer can rescind the
contract in certain situations.

Laws related to truth-in-lending, installment sales, mortgages, and home improvement contracts require
that the contract specify the cash price, down payment, trade-in value (if any), the cash balance, interest,
and finance charges.

2. Licensed callings or dealings

A. Protective license -- Licensing exists to provide public protection in certain areas where expertise is
required.

A license may be required for a particular business, or trade such as lawyer, doctor, real estate
broker, electrician, and contractor. If a license is required, a contract made with an unlicensed
person is not enforceable.
Example: Anderson worked as a real estate broker even though he did not have a license. He
sold a house for $400,000 and was expecting a 5% commission of $20,000. The company refused
to pay the commission and Anderson sued. Is he entitled to the money? Answer: No, the law
requires him to be licensed. Because he is not, he cannot recover any money for the sale.

B. Revenue raising license -- If no expertise is required, or the license is easily obtainable, a party may
recover after obtaining the license. Example: fishing license, hunting license, or a building permit
obtained from town hall.


D. Contracts in restraint of trade – arrangements where companies agree to fix prices or not compete are void


E. Agreements not to compete – These agreements are enforceable in the following situations; however, they
must be reasonable in terms of time frame, geographic area, and scope of work in order to be enforced.

1. Sale of business – an agreement not to compete in the sale of a business is designed to protect the value
of the business that the party is buying. In general, you are not only purchasing the business and its
assets but the customers, or patients, and the goodwill

Example: Jennifer sold her business, Jennifer’s Tax Tips, to Stephanie. As part of the sale, Jennifer
signed a non-compete agreement stating that she would not operate another Tax business within 10
miles for one year. Three months after the sale, Jennifer opened another Tax business. Stephanie sued
for breach of the non-compete agreement. Will she win? Answer: The courts will enforce a non-compete
agreement as long as the restrictions are reasonable. Both the 10-mile restriction and the one-year time
frame are reasonable; therefore, the court will uphold the agreement.

2. Employment contract – Restrictions to prevent former employees from competing with your business are
enforceable if they are reasonably necessary to protect the employer. The agreement must also be
reasonable in terms of time frame, geographic area, and scope of work.

Example: The state of Massachusetts prevents employees who are in charge of awarding state contracts
to outside vendors from working, or consulting, for any of those vendors for one year after leaving state
employment.


F. Usurious agreements – Usury is committed when money is loaned at a higher rate than the maximum
allowed by law. In Massachusetts the rate is 20%. Please note that this law relates to legally lending money,
it does not relate to illegal practices of lending money.

1. The penalty for violating usury laws vary but may include: 1) allowing the loaner to recovering the amount
loaned but preventing the recovery of any interest, 2) allowing the loaner to recover the principal and
interest up to the maximum amount allowed by the state, 3) penalize the loaner by assessing a fee that

is double the interest charged. The penalty in Massachusetts is imprisonment for not more than 10 years,
or a fine of not more than ten thousand dollars, or both a fine and imprisonment.
Example: I lend you $100,000 for one year. At the end of the year, you must pay me $150,000. Is this
within the legal limit? Answer: No, $50,000 is a 50% interest rate which exceeds the maximum allowed.