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Ed 15 - Kenneth Clarkson Roger Leroy Miller - Test Bank...

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Ch14: Capacity and Legality True / False 1. All persons can make legally binding contracts in all situations. a. True b. Fals e ANSWER: Fals e 2. A party may have the capacity to enter into a valid contract and the right to avoid liability under it. a. True b. Fals e ANSWER: True 3. A minor can enter into any contract an adult can, without exception. a. True b. Fals e ANSWER: Fals e 4. The contracts entered into by a minor are voidable at the option of that minor. a. True b. Fals e ANSWER: True 5. A minor can disaffirm a contract at any time but remains legally obligated to perform it. a. True b. Fals e ANSWER: Fals e 6. To disaffirm a contract is to deny its existence. a. True b. Fals e ANSWER: Fals e 7. A minor can ratify a contract and thus make it enforceable. a. True b. Fals e Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality ANSWER: True 8. Goods and services that are reasonably needed to maintain a minor’s standard of living, such as food, clothing, shelter, and medical services, are known as utilities. a. True b. Fals e ANSWER: Fals e 9. If intoxication is purely voluntary, the intoxicated person’s contracts are not voidable. a. True b. Fals e ANSWER: Fals e 10. If a person was sufficiently intoxicated to lack mental capacity, his or her contracts are void. a. True b. Fals e ANSWER: Fals e 11. A contract entered into by an intoxicated person can be voidable. a. True b. Fals e ANSWER: True 12. Contracts entered into by mentally incompetent persons are not valid under any circumstances. a. True b. Fals e ANSWER: Fals e 13. Contracts entered into by mentally incompetent persons may be disaffirmed. a. True b. Fals e ANSWER: True 14. A contract to do something that is prohibited by statutory law is illegal but not void from the outset. a. True Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality b. Fals e ANSWER: Fals e 15. Any contract entered into with an unlicensed party is enforceable. a. True b. Fals e ANSWER: Fals e 16. A contract to do something that is prohibited by statutory law is void from the outset. a. True b. Fals e ANSWER: True 17. A lender who makes a loan at an interest rate above the lawful maximum commits usury. a. True b. Fals e ANSWER: True 18. The performance of a contract cannot be rendered illegal by a statute after the parties have already entered into the contract. a. True b. Fals e ANSWER: Fals e 19. The lack of a license in certain occupations bars the enforcement of work-related contracts. a. True b. Fals e ANSWER: True 20. A contract that calls for an action contrary to public policy is illegal but not unenforceable. a. True b. Fals e ANSWER: Fals e 21. Restraints of trade interfere with free competition. Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality a. True b. Fals e ANSWER: True 22. A promise to refrain from competing in business with another is considered to be unconscionable. a. True b. Fals e ANSWER: Fals e 23. Contracts in restraint of trade always violate one or more federal or state statutes. a. True b. Fals e ANSWER: Fals e 24. A court usually will enforce a covenant not to compete provided its restrictions are reasonable. a. True b. Fals e ANSWER: True 25. When a covenant not to compete is unreasonable in its essential terms, a court will refuse to reform the covenant. a. True b. Fals e ANSWER: Fals e 26. An unconscionable contract is one in which the terms of the agreement are oppressive, unscrupulous, or grossly unfair. a. True b. Fals e ANSWER: True 27. A contract provision that deprives one party of the benefits of the agreement may seem unfair but a court is not likely to consider it unconscionable. a. True b. Fals e ANSWER: Fals e Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality 28. A contract clause that releases an employer from liability for any injury to an employee, no matter who is at fault, is generally enforceable. a. True b. Fals e ANSWER: Fals e 29. A landlord can avoid liability for injuries that occur on rental property by including an exculpatory clause in the lease. a. True b. Fals e ANSWER: Fals e 30. Generally neither party to an illegal contract can sue for breach. a. True b. Fals e ANSWER: True 31. Generally, any party to an illegal contract can recover for performance rendered. a. True b. Fals e ANSWER: Fals e 32. If an illegal contract is executory, either party can enforce it. a. True b. Fals e ANSWER: Fals e 33. The general rule is that no party to an illegal contract can sue for breach. a. True b. Fals e ANSWER: True 34. The general rule is that any party to an illegal contract can recover for performance rendered. a. True b. Fals e Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality ANSWER: Fals e 35. A party to a contract who has no reason to know that the contract is illegal can often obtain restitution on a partially executed contract. a. True b. Fals e ANSWER: True Multiple Choice 36. Among the requirements for a valid contract, courts generally presume the existence of a. none of the choices. b. minority. c. mental incompetence. d. contractual capacity. ANSWER: d 37. Evelyn is a minor. As a minor, she a. is not usually legally bound by a contract. b. has the right to avoid liability under a valid contract. c. has the capacity to enter into a valid contract. d. all of the choices. ANSWER: d 38. Twig is fifteen. In most states, for contractual purposes, Twig would be considered a minor until she is a. sixteen. b. seventeen. c. eighteen. d. twenty-one. ANSWER: c 39. Opal is a minor. In at least some states, Opal can enter into a legally binding contract when she a. reaches the age of majority. b. gets married. c. is emancipated from her parents. d. all of the choices. ANSWER: d 40. Bianca, a minor, enters into a contract to buy two all-season passes from Chalet Ski Park. The contract will be made enforceable if Bianca Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality a. ratifies it. b. disaffirms it. c. nullifies it. d. voids it. ANSWER: a 41. Bern, a minor, signs a contract to buy a Caterwauler jet boat from Dahl, an adult. Dahl a. can avoid the contract without Bern’s consent. b. cannot avoid the contract. c. can avoid as much of the contract as Bern elects to avoid. d. must obtain Bern’s consent to avoid the contract. ANSWER: b 42. Deb is a minor. She can enter into any contract an adult can, provided a. the adult is willing to enter into contracts with minors. b. Deb is willing to disaffirm the contract. c. the contract is not one prohibited by law for minors. d. an adult is willing to ratify the contract. ANSWER: c 43. Quest enters into a contract to buy a thoroughbred from Rancho Mesa. Quest can disaffirm the contract a. only by words. b. only by conduct. c. by words or conduct. d. none of the choices. ANSWER: c 44. Les, a minor, enters into a contract to buy a dirt bike from Motocross LLC. Les can ordinarily disaffirm the contract a. in a timely manner. b. at any time during minority. c. for a reasonable time after coming of age. d. all of the choices. ANSWER: d 45. Dari, a minor, wants to disaffirm a contract that she entered into with Echo, a cell service company. The law in Dari’s state, as in all states, permits minors to disaffirm a. fully executed contracts only. b. executory contracts only. c. executory and fully executed contracts. Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality d. none of the choices. ANSWER: c 46. Von, a minor, wants to return a set of skis that he bought from Winter Sports. He used—and wrecked—the skis. In a state in which a duty of restitution is imposed, Von most likely a. can return the skis “as is” and avoid further liability. b. is not required to return the skis due to his or her minority. c. must return the skis and pay for the damage. d. cannot return the skis unless they can be fully restored. ANSWER: c 47. Accepting and giving legal force to an obligation that previously was not enforceable is a. disaffirmance. b. emancipation. c. ratification. d. illegal. ANSWER: c 48. The purpose of the right to disaffirm a contract is to a. recognize the legitimate interests of those who contract with minors. b. protect minors. c. restore persons to positions they held before contracting. d. ratify a contract and make it enforceable. ANSWER: b 49. Foy, a minor, misrepresents his age when entering into a contract to buy a car from Gas Hogs Inc. Foy takes possession of the car, but makes no payments on the contract and tries to disaffirm it. Most likely, Gas Hogs can recover a. an amount equal to the wholesale value of the car. b. the car, but not any of the balance due on the contract. c. the balance due on the contract. d. nothing. ANSWER: c 50. Intoxicated, Efron enters a contract for the sale of his business, Freight Dispatch, to Gretel for less than its market value. This contract is enforceable if, at the time, a. Efron’s intoxication was purely voluntary. b. Gretel fraudulently induced Efron to become intoxicated. c. Gretel was also intoxicated. d. Efron understood the legal consequences. ANSWER: d 51. Intoxicated, Obo enters a contract for the sale of his business, Precision Parts, to Quad for less than its market value. This contract is voidable if, at the time, Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality a. Obo’s intoxication was purely voluntary. b. Quad fraudulently induced Obo to become intoxicated. c. Quad was also intoxicated. d. Obo understood the legal consequences. ANSWER: b 52. Intoxicated, Hans enters a contract for the sale of ten acres of timberland to Ira for less than its market value. Later, Hans seeks to cancel the deal. In determining whether Hans can avoid his duties under the contract, a court is most likely to look at a. only Hans’s intoxicated mental state. b. only factors other than the Hans’s intoxicated mental state. c. Hans’s intoxicated mental state and other factors. d. none of the choices. ANSWER: c 53. Seth is mentally incompetent but has not been adjudged by a court to be incompetent. Seth enters into a contract with Toby for the cleaning and maintenance of Seth’s warehouse. Most likely, the contract is a. voidable if Seth did not comprehend the consequences. b. enforceable if Toby did not know that Seth was mentally incompetent. c. enforceable if the warehouse needs cleaning and maintenance. d. void. ANSWER: a 54. Gretchen is adjudged by a court to be mentally incompetent. Gretchen a. can enter into a valid contract and cannot avoid liability under it. b. can enter into a valid contract but has the right to avoid liability under it. c. cannot form a legally binding contract with another party. d. is presumed to have contractual capacity. ANSWER: c 55. A contract to do something that is prohibited by statute is a. enforceable if the parties are aware of the prohibition. b. enforceable if the parties are ignorant of the prohibition. c. enforceable if the contract does not negatively affect society. d. unenforceable. ANSWER: d 56. Horse racing, video poker games, and charity-sponsored bingo are a. forms of gambling not allowed or regulated by any state. b. forms of gambling allowed and regulated by many states. c. forms of gambling allowed and regulated by all states. d. not forms of gambling. Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality ANSWER: b 57. Jac enters into a contract with Knut, an unlicensed contractor. This contract may be enforceable if a. the statute’s purpose is to protect the public from unauthorized practitioners. b. the lack of a license in Knut’s occupation bars the enforcement of work-related contracts. c. the statute expressly affirms the barring of a contract’s enforceability. d. the statute does not expressly affirm the barring of a contract’s enforceability. ANSWER: d 58. Reed agrees to sell his Sports Equipment store to Taylor. As part of the sale, Reed promises not to open a similar, competing store anywhere. This promise is most likely a. invalid because it is part of a sale of an ongoing business. b. invalid because of the unreasonable terms of area and time. c. valid because it is part of a sale of an ongoing business. d. valid if both parties are justifiably ignorant of the facts. ANSWER: b 59. Cass agrees to sell her Daily Donut shop to Ernie. In the agreement, there is a covenant not to compete that prohibits Cass from operating a donut shop within a certain distance. If the restriction is unreasonable, a court will most likely a. award Cass damages. b. order Ernie to stop doing business. c. reform the covenant. d. prohibit both parties from operating donut shops. ANSWER: c 60. In determining procedural unconscionability, a court is most likely to consider whether a. none of the choices. b. any provision left one party without a remedy for nonperformance. c. any provision deprived one party of the benefits of the agreement. d. the buyer had an opportunity to ask questions about the contract. ANSWER: d 61. At Mattress Store, Nate signs a contract to buy bedroom furniture. The contract sets a schedule of $500 monthly payments, subject to a late fee of 150 percent. Nate finds the language of the contract difficult to understand. This is most likely a. an exculpatory contract. b. procedural unconscionability. c. substantive unconscionability. d. an enforceable contract. ANSWER: b Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality 62. A lease between Mia and Niles for residential property contains an exculpatory clause. This clause is most likely a. enforceable as a matter of public policy. b. enforceable if either party is in a business important to the public. c. enforceable if an event occurs to which the clause applies. d. unenforceable. ANSWER: d 63. The state of Nevada enacts a usury statute. With respect to different types of transactions, including ordinary loans, the purpose of the statute is to a. set a maximum rate of interest. b. regulate certain forms of gambling. c. specify clauses that must be included in certain contracts. d. prohibit certain contracts based on their subject matter. ANSWER: a 64. Fagin and Gretel agree to hijack a truck carrying a load of almonds. If Fagin later refuses to go through with the crime, Gretel can a. enforce the agreement. b. obtain damages in the amount of her partner’s share of the illegal profits. c. obtain damages in the amount of her own share of the illegal profits. d. none of the choices. ANSWER: d 65. Ada agrees in writing to pay Bob to damage Ada’s car, which is fully insured. Bob damages the car, but Ada’s insurer refuses to pay for the damage. In Ada and Bob’s suit against each other for breach of contract, the court is most likely to a. enforce the contract. b. allow Ada to recover. c. allow Bob to recover. d. none of the choices. ANSWER: d 66. Owen, the owner of Parts Company, pays Quint to obtain a competitor’s design patent. Quint keeps the money but does not deliver. Owen can a. none of the choices. b. recover from Quint. c. enforce the contract with Quint. d. recover from the competitor. ANSWER: a 67. Oscar owns Payroll Company, a bookkeeping service. Oscar pays Remy $5,000 to steal a list of a competitor’s clients. This deal is a. enforceable. Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality b. void. c. voidable at the option of either party. d. voidable at the option of the party having less bargaining power. ANSWER: b 68. Through fraudulent means, Duke induces Emma to sign a contract to invest with him the profits from her business. When Emma learns the truth, she may a. withdraw from the deal. b. recover what she invested. c. enforce the contract. d. any of the choices. ANSWER: d 69. Lazlo and Mac bet illegally on the outcome of a sporting event. Before the event is held, Lazlo changes his mind about the wager. Lazlo can a. not withdraw from the deal without Mac’s consent. b. not withdraw from the deal under any circumstances. c. withdraw from the deal by giving notice. d. not withdraw from the deal without paying Mac’s expenses. ANSWER: c 70. Insurance Company violates a state licensing statute when selling a policy to Jay, in whose state it is not licensed to sell insurance. As a member of the class of persons protected by the statute, Jay can a. none of the choices. b. enforce the policy and recover from the insurer. c. obtain a license to sell insurance and a list of the insurer’s customers. d. collect benefits under the policy immediately. ANSWER: b Essay 71. Game Corporation hires Hale, a minor, to create new customized game software for certain clients. Hale signs a contract that requires her to work for Game for eighteen months. Before beginning work, however, Hale tells Game that she will not create new software for Game and that she is going to work for Imagine Inc., a Game competitor. Is Game’s contract with Hale enforceable? Why or why not? ANSWER The contract is not enforceable. Hale is a minor, so any contract that she enters is : voidable by her. In other words, Hale had the option to disaffirm the contract. A contract entered into by a minor can be disaffirmed at any time during minority, or for a reasonable time after the minor comes of age. Hale’s announcement that she would not be bound by the contract was sufficient to disaffirm it. Hale had not received anything under the contract with Game, so there is nothing to return under a duty of restitution. Also, there is no significance to Hale’s agreeing to work for Imagine, Game’s competitor. 72. Best Products Inc. hires Cole to develop and implement an e-commerce strategy for marketing Best’s products. Cole signs a contract that includes a clause prohibiting him from competing with Best during and after the employment. Before Copyright Cengage Learning. Powered by Cognero.

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Ch14: Capacity and Legality the strategy is implemented, Cole resigns from Best’s employ and opens a business to compete with Best. In Best’s suit against Cole, to determine whether Cole may compete with Best, what is the most important factor the court should consider? ANSWER In determining whether Cole may compete with Best, the court should consider, most : importantly, whether the covenant not to compete is necessary to protect Best’s legitimate business interests. A covenant not to compete can violate the public policy to promote competition in the economy. If so, it would be an unreasonable restraint of trade. To be enforceable, a covenant not to compete should be ancillary to an otherwise enforceable contract, which, in this question, is the employment contract. A covenant not to compete should contain reasonable restrictions in terms of duration and geographic area. The covenant should not unreasonably burden the party who is prohibited from competing. If the restrictions are unreasonable, a court can void or reform the covenant. Whether a party resigns under an employment contract does not affect the enforceability of a covenant not to compete. In this question, the covenant not to compete appears to be unreasonable, and thus it is not likely to be enforced. The covenant does not specify a limit of time—an open, unending period of tim...