Legality & Capacity

In: Business and Management

Submitted By thatguytrav21
Words 1934
Pages 8
Chapter 12: Capacity and Legality (Only pages 221-228 On Legality)
Legality (221)
• One requirement to have an enforceable contract is that the object of the contract must be lawful. Most contracts that individuals and businesses enter into are lawful contracts that are enforceable.
• These include contracts for the sale of leases; licenses; and other contracts.
• Some contracts have illegal objects. That such contract is VOID and therefor unenforceable. These are called Illegal contracts.
Contracts Contrary to statutes
• Federal and State legislatures have enacted statutes that prohibit certain types of conduct. Contracts to perform activities that are prohibited by statute are illegal contracts.
• Ex. An agreement between two companies to engage in price fixing in violation of federal antitrust statutes is illegal and therefore void. Thus, neither company to this illegal contract can enforce the contract against the other company.
Usury Laws
• State usury laws – set an upper limit on the annual interest rate that can be charged on certain types of loans.
• Vary from state to state, Lenders who charge a higher rate that the state limit is guilty of usury.
• Laws intended to protect unsophisticated borrowers from loan sharks and others who charge exorbitant rates of interest.
• Most states have criminal and civil penalties for making usurious loans. o Some states make lenders remit the difference between the interest rate charged on the loan and the usury rate to the borrower. Other States say lenders can collect any interest at all. o Usury Loan = Void contract.
• Ex. State has a usurious rate of interest as any interest rate above 15%. Chris borrows 1,000 from tony which require paying 4000 in one year to pay off loan. This is a usurious loan because that amount of interest -3000$- calculates a 300% annual interest rate.
• Exceptions

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