Deck 14: Capacity and Legality

Question 1

Every state has a statute that sets the maximum rate of interest for different types of transactions.

Answer 1

True

Question 2

For a minor to disaffirm a contract, he or she must present the contract to a court.

Answer 2

False

Question 3

A minor who enters into a contract for necessaries may disaffirm the contract without liability for the value of the goods.

Answer 3

False

Question 4

A person who is intoxicated can avoid liability on any contract due to the intoxication.​

Question 5

Any contract to commit a crime is unenforceable.

Question 6

Food is a "necessary."

Question 7

A contract entered into by an intoxicated person is always valid.

Question 8

Executed contracts are presumed ratified.

Question 9

A contract to commit a tortious act is unenforceable.

Question 10

Some states impose a duty on a minor who disaffirms a contract to restore the adult party to the position he or she held before the contract was made.

Question 11

If a minor disaffirms a contract, he or she must disaffirm the entire contract.

Question 12

Disaffirmance is the legal avoidance, or setting aside, of a contractual obligation.

Question 13

If a person has been determined by a court to be mentally incompetent, any contract entered into by that person is void.

Question 14

Parents who sign a contract made by their minor child with an adult have the same option to disaffirm as the child.

Question 15

A contract entered into by a mentally incompetent person can be valid if the person had capacity at the time the contract was formed.

Question 16

Contractual capacity includes the financial ability to pay for the benefits of a contract.

Question 17

Ordinarily, minors can disaffirm contracts even when they have misrepresented their age.

Question 18

In contract law, ratification is the act of accepting and giving legal force to an obligation that was previously not enforceable.

Question 19

Contractual capacity refers to the legal ability to enter into a contract.

Question 20

A minor has a reasonable time, after the minor reaches the age of majority, to disaffirm a contract.

Question 21

A covenant not to compete included in the sale of an ongoing business is always unenforceable.

Question 22

If one of the wrongdoers in an illegal contract is unjustly enriched at the expense of the other, the courts are usually not concerned.

Question 23

Gambling involves the distribution of property by chance.

Question 24

All states require that members of certain professions obtain licenses allowing them to practice.

Question 25

Even in states that permit certain types of gambling, courts find that gambling contracts are illegal.

Question 26

If an illegal contract is executory, either party can always enforce it.

Question 27

Chet, a minor, signs a contract with Denise, an adult. The contract is voidable at the option of

A) ​neither party.
B) ​Chet only.
C) ​either party.
D) ​Denise only.

Question 28

A contract involving an unlicensed practitioner is generally illegal and unenforceable.

Question 29

All gambling contracts are legal but voidable.

Question 30

A covenant not to compete is enforceable only if it is necessary to restrain trade.

Question 31

Statutes often specify what is prohibited in contracts.

Question 32

Rosa, a seventeen-year-old, signs a contract to sell her car to Street Fleet Cars. Later, Rosa decides not to sell the car. Rosa is liable to Street Fleet for

A) ​the cost of a car of comparable value.
B) ​the value of her performance under the contract.
C) ​the amount of the buyer's profit on the deal.
D) ​nothing.

Question 33

Contracts in restraint of trade are contrary to the public policy that favors competition in the economy.

Question 34

Bobbie is a minor subject to her parents' care and control. She signs a contract to rent a lake cabin from Cleve for one year. Before the end of the term, Bobbie moves out. She can

A) ​avoid liability for the rent but not disaffirm the contract.
B) ​disaffirm the contract and avoid liability for the rent.
C) ​disaffirm the contract but not avoid liability for the rent.
D) ​neither disaffirm the contract nor avoid liability for the rent.

Question 35

A covenant not to compete is enforceable only if it is reasonable in duration and geographic area.

Question 36

A bargain is unconscionable if it is grossly unfair.

Question 37

A usurious contract involves the purchase and sale of usable goods.

Question 38

In an employment contract, a covenant not to compete is unenforceable.​

Question 39

Laurel enters into a contract to sell her bike to Melanie. Melanie takes possession of the bike as a minor and continues to use it well after reaching the age of majority. She has

A) ​expressly ratified the contract.
B) ​impliedly ratified the contract.
C) ​expressly disaffirmed the contract.
D) ​impliedly disaffirmed the contract.

Question 40

Jeff is seventeen years old. Legally, Jeff is considered

A) ​an adult.
B) ​a minor.
C) ​ratified.
D) ​emancipated.

Question 41

Leon relinquishes the right to his daughter Meredith's control, care, custody, and earnings. This is

A) ​disaffirmance.
B) ​emancipation.
C) ​ratification.
D) ​severability.

Question 42

A court adjudicates Henry mentally incompetent and appoints Inez to be his guardian. Later, without Inez's knowledge, Henry signs a contract to sell his farm to Jason for its real market value. The contract is

A) ​enforceable if Henry comprehended the consequences.
B) ​enforceable if Henry knew the market value of the farm.
C) ​enforceable if Henry was the record owner of the farm.
D) ​void.

Question 43

Rita, a minor, misrepresents her age as twenty-one and signs a contract with Sporty Motors to buy a sport utility vehicle (SUV. In most states, Rita may

A) ​disaffirm the contract.
B) ​disaffirm the contract only if she makes full payment.
C) ​disaffirm the contract only if she returns the SUV in good condition.
D) ​not disaffirm the contract due to the misrepresentation.

Question 44

The state of Illinois enacts a usury statute. The purpose is to

A) ​establish a maximum rate of interest that may be charged for loans.
B) ​establish a minimum rate of interest that may be charged for loans.
C) ​prevent the misuse of money advanced as loans.
D) ​prevent the misuse of money paid back on loans.

Question 45

Intoxicated but capable of comprehending the consequences of her actions, Cricket signs a contract to sell her phone app design to Download, Ltd. This contract is

A) ​unenforceable because Cricket was intoxicated.
B) ​enforceable.
C) ​unenforceable if Cricket disaffirms it.
D) ​unenforceable if Download disaffirms it.

Question 46

Ohio charges Pablo, an architect, a fee to practice his profession in the state. This is

A) ​usurious.
B) ​unconscionable.
C) ​a license.
D) ​exculpatory.

Question 47

Elena, a minor, obtains fruits and vegetables on credit from Fred at Growers' Market. Later, Elena disaffirms the purchase. She owes Fred

A) ​the reasonable value of the goods.
B) ​the retail value of the goods.
C) ​the goods.
D) ​nothing.

Question 48

Geri is a minor. Without her parents' knowledge, she signs a contract to buy an airline ticket to Hawaii for spring break. Geri's parents are liable for

A) ​the entire price of the ticket.
B) ​no part of the price of the ticket.
C) ​up to half of the price of the ticket.
D) ​up to two-thirds of the price of the ticket.

Question 49

Emma, a minor, buys a water bottle, a set of weights, and a treadmill from Fitness Warehouse. Later, Emma disaffirms the deal. If the goods are still in her possession or control, she can keep

A) ​the water bottle, but not the weights or the treadmill.
B) ​none of the goods.
C) ​only the damaged or used goods.
D) ​all of the goods.

Question 50

Orin signs a covenant not to compete with his employer, Product Distribution, Inc. The covenant will be enforced if it

A) ​does not require either party to obtain a business license.
B) ​is reasonable with respect to geographic area and duration.
C) ​relieves the employer from liability for any injury to Orin.
D) ​none of the choices.

Question 51

Baylor obtains a loan from City Bank at 4.5 percent interest. Their state's usury statute limits interest rates to a 3.5 percent maximum. Baylor's contract with the bank is enforceable only if

A) ​Baylor does not attempt to disaffirm it.
B) ​the bank does not attempt to disaffirm it.
C) ​both Baylor and the bank knew of the state limit.
D) ​none of the choices.

Question 52

Shannon signs a contract with Tevin, an unlicensed contractor, to build a deck and gazebo at the rear of her house. This contract is enforceable by

A) ​Shannon.
B) ​any supplier of tools and materials with whom Tevin deals.
C) ​Tevin.
D) ​no one.

Question 53

Justin is mentally incompetent but has not been so adjudged by a court. Any contract Justin enters into is voidable if, at the time of contracting, Justin

A) ​has a lucid interval.
B) ​lacks the capacity to comprehend the consequences.
C) ​does not inform the other party that he is incompetent.
D) ​none of the choices.

Question 54

Service Corporation markets its service to less educated consumers. In considering the unconscionability of a Service contract, a court will likely consider all of the following except

A) ​a buyer's level of education.
B) ​the parties' relative bargaining power.
C) ​the price of a service.
D) ​the seller's level of education.

Question 55

Holly, a real estate broker licensed only in Iowa, concludes a sale of farmland in Illinois. Holly can

A) ​collect the commission if it has not been paid.
B) ​keep the commission if it has already been paid.
C) ​foreclose on the property to obtain any unpaid amount.
D) ​none of the choices.

Question 56

Intoxicated and not aware of the consequences, Grady agrees to a two-year phone service contract with Horizon, Inc., at more than the average market price. This contract is

A) ​enforceable.
B) ​not enforceable because contracting parties can change their minds.
C) ​not enforceable because the contract favors Horizon.
D) ​not enforceable if Grady was intoxicated enough to lack mental capacity.

Question 57

Floyd signs a contract to buy a drum kit just before reaching the age of majority. After reaching the age of majority, Floyd does not take possession or make payments. With respect to the contract, most courts would hold that this is

A) ​disaffirmance.
B) ​emancipation.
C) ​ratification.
D) ​restitution.

Question 58

Kevin obtains a loan from Liberty Credit Bank at an interest rate that exceeds the state's maximum. Liberty has

A) ​created a risk for the purpose of assuming it.
B) ​engaged in a restraint of trade.
C) ​violated a licensing statute.
D) ​committed usury.

Question 59

Gina, a minor, enters into a contract to buy a tractor from Herb, an adult. The deal is set aside. Restoring Herb to the position he held before the contract is the duty of

A) ​ratification.
B) ​emancipation.
C) ​disaffirmance.
D) ​restitution.

Question 60

At age seventeen, Eve enters into a contract with Fit Health Club. Two years later, when Eve attempts to disaffirm the contract, Fit files a suit against her. The court will most likely consider the contract ratified if it is

A) ​executed.
B) ​executory.
C) ​disaffirmed.
D) ​rescinded.

Question 61

Bay City Mall requires its tenants to sign a lease that includes a clause releasing Metro from liability in the event of monetary or physical injury no matter who is at fault. Coco's Chocolate signs a lease with Bay City that contains the clause. This is

A) ​a covenant not to compete.
B) ​an adhesion contract.
C) ​an exculpatory clause.
D) ​an illusory promise.

Question 62

Betty sells her Clothes Shop to Diane. In the sale agreement, there is a covenant not to compete that prohibits Betty from opening another clothing store within a certain distance. If a court concludes that this restriction is unreasonable, it will most likely

A) ​award Betty damages equal to the speculative profit of a closer store.
B) ​order Diane to stop doing business.
C) ​reform the covenant.
D) ​prohibit both parties from opening clothing stores.

Question 63

Research Data Corporation sells access to its database of scientific research to users for a certain price per month. Research Data files a suit against its user Tom when, in violation of their contract, he stops making payments. Tom claims that the deal is unconscionable. The court will most likely consider

A) ​the geographic area of the relevant market.
B) ​the parties' relative bargaining power.
C) ​the quality of related services in the general market.
D) ​the relation of this deal to those of other users.

Question 64

First Business Solutions, Inc., develops and implements online sales strategies for its clients. First Business hires Gideon to plan and execute an e-commerce strategy for marketing Western Skye Company's products. Gideon signs a contract that includes a clause prohibiting him from competing with First Business during and after the employment. After the plan is formed but before it is implemented, Gideon resigns from First Business's employ and opens a competing business. In First Business's suit against Gideon, what is the most important factor the court should consider in determining whether Gideon should be allowed to compete with First Business?

Question 65

Jake and Kline make an illegal contract that unjustly enriches Jake at the expense of Kline. A court will

A) ​not be concerned with the unjust enrichment of Jake.
B) ​award damages to Kline.
C) ​reform the contract to prevent undue burdens.
D) ​enforce the contract as it was originally written.

Question 66

A contract between Kim and Larry to lease residential property contains an exculpatory clause. This clause is

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) ​generally unenforceable.

Question 67

Oscar owns Payroll Company, a bookkeeping service. Oscar pays Remy $5,000 to steal a list of a competitor's clients, to whom Oscar will aggressively market Payroll's services. This deal is

A) ​enforceable.
B) ​void.
C) ​voidable at the option of either party.
D) ​voidable at the option of the party having less bargaining power.

Question 68

Countrywide Trucking Inc. contracts with Dewey to transport crated goods to a certain destination for $5,000. Countrywide delivers the crates, but Dewey does not pay. Countrywide learns that the crates contained stolen goods. Countrywide can recover from Dewey

A) ​none of the choices.
B) ​$5,000, but not the goods.
C) ​the goods but not $5,000.
D) ​the goods and $5,000.

Question 69

Omni Insurance Company violates a state licensing statute when selling a policy to Petra, in whose state Omni is not licensed to sell insurance. As a member of the class of persons protected by the statute, Petra can

A) ​do nothing with respect to the policy.
B) ​enforce the policy or recover the amount of the premiums paid.
C) ​only enforce the policy.
D) ​only recover the amount of the premiums paid.

Question 70

Games Galore Corporation hires Haley, a minor, to create new customized game software for certain clients. Haley signs a contract that requires her to work for Games Galore for eighteen months. Before beginning work, however, Haley tells Games Galore that she will not create new software for Games Galore and that she is going to work for Ideal Worldcraft, Inc., a Games Galore competitor. Is Games Galore's contract with Haley enforceable? Why or why not?

Question 71

Fagin and Gage agree to hijack a truck carrying a load of almonds. If Fagin later refuses to go through with the crime, Gage can

A) ​enforce the agreement.
B) ​obtain damages in the amount of his partner's share of the illegal profits.
C) ​obtain damages in the amount of his own share of the illegal profits.
D) ​none of the choices.

Question 72

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 Reed and Taylor are reasonably intelligent.