– Contracts to do something prohibited by federal or state statutory law are illegal and
therefore void (never existed)
– As such, they are unenforceable in the courts
Contracts That May Violate a Statute
~Wagers
~Insurance Policies
~Licensing Statutes
~Usury
~Credit Card
Wagers
~A gambling contract is illegal unless it’s specifically authorized by state statute (top 3 states
benefitting from gambling include Nevada, Pennsylvania, & NJ)
~Internet gambling sites often operate from a legal location, but most states outlaw online
bettering
~Somone taking out a policy on the life of another MUST have an insurable interest in that
person – or else it becomes a “wager” on their life
– There is no federal law against gambling online.
– Some states might have laws against online gambling, but even there, prosecution against
players is rare.
– It’s against federal law for websites to take sports bets over the Internet
– It’s against federal law for banks to handle online gambling transactions
– Publishing advertisements for online gambling isn’t specifically illegal, and it would be
quite a stretch to make a case under a different statute
– If there’s no insurable interest, there’s no contract
Licensing Statutes
~When a licensing requirement protects the public, any contract made by an unlicensed worker is
unenforceable
*E.G.: You sue your neighbor in small claim charging that he keeps a kangaroo in his backyard
and disrupted your family BBQ by leaping over the fence, stealing salad and even punching you
in the face. Your friend offers help to prepare the case for you and earn 10% of whatever you
win. He did a great job, Can he enforce his contract for 10%?
– Your friend is not licensed to practice law. He can not enforce the contract
~When a licensing requirement is designed merely to raise $$, a contract made by an unlicensed
person is usually enforceable (e.g. if you open a store and forget to pay the state’s licensing fee,
you can still enforce a contract from a wholesaler at a bargain price)
Usury
~Usury laws prohibit charging excess interest on loans
~Credit card debt:
– Even if a state’s usury statute applies to credit cards, sneaky lenders can avoid limits on
interest rates
– The SC has ruled that when national banks issue a credit card, they can use the rate of
their own state or of that the consumer, whichever is higher (NY = strict limits; Utah =
allows for any rate)
*E.G.: A lender who makes a loan at an interest rate above the lawful maximum commits usury.
However, many states exempt corporate loans from usury laws
– The California Constitution allows parties to contract for interest on a loan primarily for
personal, family or household purposes at a rate not exceeding 10% per year. As with
