BLW 1001 Lecture Notes - Lecture 15: Quasi-Contract, Usury, Fiduciary

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Chapter 15 notes: Legality
Illegality
An otherwise valid contract is unenforceable if its performance is illegal or contrary
to the public interest.
The public welfare is more important than the right to bargain freely.
Courts presume parties wanted a legal result and all doubts are resolved in favor of
legality when interpreting agreements.
Types of Illegality
An agreement is illegal if:
- It calls for behavior that violates a statute or common law rule.
- It is contrary to a general rule of public policy.
The effect of illegality
Courts take a hands off position to illegal contracts and won’t enforce contracts.
Parties are left as the court finds them.
A party to an illegal agreement cannot sue for breach of contract, recover
consideration given to the other party, or recover in quasi contract for benefits
conferred.
Courts don’t get involved in order to protect the public (not because they want to
punish parties to an illegal contract.)
Special Situations with illegal contracts
Ignorance of fact
- Courts sometimes allow recovery if parties to an illegal contract were ignorant to
facts making the contract illegal.
- Recovery allowed if contract performed before parties knew it was illegal.
Rescission before illegal act is performed.
- Courts allow someone who rescinds a contract before illegal acts are taken to
recover consideration.
- Goal is to discourage illegal acts.
Rights of protected parties
- Statutes protect certain classes of the public.
- A statutorily protected person who enters into an agreement that violates the
statute can enforce the agreement or recover consideration.
Illegality and divisible contracts.
- Contracts may call for several promises to be performed.
- If contract can be divided into legal and illegal parts, courts will enforce the legal
parts of the contract.
Contracts to commit illegal acts
Agreements to commit crimes.
- A contract that requires committing a crime is illegal.
- An agreement can be illegal if its net effect is criminal.
Agreements to commit torts
- A contract that requires committing a tort is illegal.
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