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Договор действителен, когда в нем отражены все существенные условия, предусмотренные законом, и условия на которых настаивает сторона договора. Сделка может быть признана судом недействительной, например, если она не соответствует закону или иным правовым актам, либо совершена с целью, заведомо противной основам правопорядка или нравственности (глава 9 ГК РФ).

List of key terms and word combinations:

– conspiracy – сговор (о совершении преступления)

– exculpatory agreement – оправдательное, оправдывающее соглашение

– in pari delicto – равная вина

– local option – право жителей округа контролировать или запрещать

– public policy – публичный порядок

– restraint of trade – ограничение свободы торговли

– usury – ростовщичество

An agreement may involve a valid offer, an effective acceptance, mutual assent, competent parties, and valid consideration and still be void because of illegality. Parties cannot be allowed to enforce agreements that are contrary to the law. The most obvious type of illegal contract is one in which the parties agree to perform some unlawful activity.

Some activities that are neither crimes nor torts have been made illegal by specific statutory enactments. Chief among these activities are usurious agreements, wagering agreements, unlicensed agreements, unconscionable agreements.

The illegal practice of charging more than the amount of interest allowed by law is called usury. To protect borrowers from excessive interest charges, jurisdictions have passed laws that specify the rate of interest that may be charged in lending money.

Any agreement or promise concerning gambling or a wager is invalid and may not be enforced. States make exceptions when bets are placed in accordance with laws that permit horse racing, lotteries, church-related or charitable games of bingo, and gambling casinos regulated by government authority.

Certain businesses and professions must be licensed before they are allowed to operate legally. One reason for requiring a license is to provide a source of revenue, part of which is used to supervise the business or profession being licensed. Another objective of licensing is to provide supervision and regulation of businesses and professions that might inflict harm on the public if they were allowed to operate without such controls. In this category are physicians, nurses, dentists, attorneys, engineers, architects, and others in public service who must be closely supervised for the protection of the public. Courts distinguish between a license for revenue and a license for protection of the public. If a license is required simply to raise revenue, the lack of a license will not necessarily void a contract. In contrast, if a licensing requirement is designed to protect the public, it is likely that unlicensed people will not be able to enforce their contracts.

A court is not required to enforce a contract or any part of a contract that it feels is unconscionable. An agreement is considered unconscionable if its terms are so grossly unfair that they shock the court's conscience. If the court so desires and if it can do so to avoid the unfair consequences, it can also limit how the unconscionable clause in an agreement is carried out.

The government has the power to regulate the health, safety, welfare, and morals of the public. Any action that tends to harm the health, safety, welfare, or morals of the people is said to violate public policy. Public policy is a general legal principle that says no one should be allowed to do anything that tends to injure the public at large. Agreements most commonly invalidated, as contrary to public policy are those to obstruct justice, interfere with public service, defraud creditors, escape liability, and restrain trade.

Agreements to obstruct justice include agreements to protect someone from arrest, to suppress evidence, to encourage lawsuits, to give false testimony, and to bribe a juror. The category also includes a promise not to prosecute someone or not to serve as a witness in a trial. Any agreement promising to perform any of these activities would be void.

Agreements interfering with public service are illegal and void. Contracts in this group include agreements to bribe or interfere with public officials, obtain political preference in appointments to office, pay an officer for signing a pardon, or influence a legislature illegally for personal gain.

Agreements to defraud creditors, that is, those that may remove or weaken the rights of creditors, are void as contrary to public policy. Thus, a debtor's agreement to sell and transfer personal and real property to a friend or relative for far less than the actual value would be void if it were done for the purpose of hiding the debtor's assets from creditors who had a legal claim to them.

A basic policy of the law is that all parties should be liable for their own wrongdoing. Consequently, the law looks with disfavor on any agreement that allows a party to escape this responsibility. One device frequently used to escape legal responsibility is the exculpatory agreement. An exculpatory agreement is usually found as a clause in a longer, more complex contract or on the backs of tickets and parking stubs. The exculpatory clause states that one of the parties, generally the one who wrote the contract, is not liable for any economic loss or physical injury, even if that party caused the loss or injury.

The law tries to be a constant protector of the rights of persons to make a living and to do business freely in a competitive market. If persons enter into contracts that take away these rights, the law will restore the rights to them by declaring such contracts void. A restraint of trade is a limitation on the full exercise of doing business with others.

Agreements made with the intent to suppress competition, fix prices, and the like are void as illegal restraints of trade.

When the entire agreement is tainted with illegality, no valid contract results. Even though specific sections of the agreement may be legally enforceable if standing alone, illegality of any part of the entire contract renders it void.

When an agreement is divisible and the illegal promises and acts are completely segregated from other sections that are not tainted by illegality, courts may enforce those parts that are legal and rescind those parts ruled illegal and invalid. Enforcement of parts determined to be valid and enforceable, of course, is tempered by the extent of illegality of the other divisible parts.

When both parties to an illegal agreement are equally wrong in the knowledge of the operation and effect of their contract, they are said to be in pari delicto (in equal fault). In such cases, the court will not give aid to either party in an action against the other and will not award damages to either.

When the parties are not in pari delicto, relief will often be allowed if sought by the more innocent of the two. Although this rule is not applicable when one party may be less guilty of premeditation (plotting or planning an illegal act) and intent to achieve a gain through known illegal acts, it may be applied when one party is unaware that a law is being broken and has no intent to do a wrong.

Exercise 1. Comprehension questions:

1. What is the most obvious type of illegal contract?

2. Explain the term usury.

3. What has been done to protect borrowers from excessive interest charges?

4. What are the objectives of licensing?

5. What does the term in pari delicto mean?

6. What does the exculpatory clause state?

7. What may be the consequences of illegal contracting?

Exercise 2. Find in the text English equivalents to the following:

Сговор; оправдывающее положение; равная вина; публичный порядок; ограничение свободы торговли; ростовщичество.

Exercise 3. Consult recommended dictionaries and give words or phrases to the following definitions:

Оспоримая сделка; притворная сделка; мнимая сделка; последствия недействительных сделок; двусторонняя реституция; сделка совершенная под влиянием заблуждения; сделка совершенная под влиянием обмана; сделка совершенная под влиянием угрозы; ограничение полномочий на совершение сделки; выход за пределы ограничений; пределы правоспособности; цель деятельности юридического лица; лицензия организации; недействительность по иску.

Exercise 4. Be ready to talk on one of the following topics:

1. Distinguish between licenses designed to raise revenue and those designed to provide supervision and regulation of a business or profession.

2. Determine the legal effect of a contract made by parties who are not licensed in a particular business or profession.

3. Describe when the courts might consider an agreement unconscionable and indicate how a party might defeat a claim of unconscionability.

4. Explain the legal principle of public policy and note how the courts usually treat agreements found contrary to public policy.

5. Distinguish between the application and effect of in pari delicto when an illegal contract is entire and indivisible and when it is divisible.

Exercise 5. Make up your own dialog on the case: In Toker v. Westerman, the defendant had purchased a refrigerator-freezer for a cash price of $899.98. The total price including interest, insurance, etc. was $1,299.76. At trial, an appliance dealer had testified that the freezer in question was known in the trade as a «stripped unit» and that a reasonable price at the time of the sale would have been between $350.00 and $400.00. The holding of the court rests exclusively on excessiveness of the price, and it reads as follows:

Suffice it to say that in the instant case the court finds as shocking and therefore unconscionable, the sale of goods for approximately two and one-half times their reasonable retail value. This is particular so where, as here, the sale was made by a door-to-door salesman for a dealer who therefore would have less overhead expense than a dealer maintaining a store or showroom.