Deck 15: Illegality

Question 1

The courts allow one who rescinds the contract before any illegal act has been performed to recover any consideration given.

Answer 1

True

Question 2

Usury laws prohibit the performance of certain work and the transaction of certain business on Sunday.

Answer 2

False

Question 3

If no duty to the public is involved and the parties have freely and knowingly agreed, an exculpatory clause may be enforceable.

Answer 3

True

Question 4

The failure to obtain a license required by a statute whose sole purpose is to raise revenue does not affect the legality of unlicensed persons' agreements.

Question 5

Even though it is often said that ignorance of the law is no excuse, the courts have sometimes allowed recovery if one or both parties to an illegal bargain are ignorant of the facts that made the bargain illegal.

Question 6

Contracts of adhesion refer to contracts in which the only choice for one of the parties is between "adhering" to the terms dictated by the other party or not contracting at all.

Question 7

When one or both parties to an illegal bargain are ignorant of the facts that made the bargain illegal, the court is most likely to:

A) never allow either party to recover damages for breach of the agreement.
B) allow recovery for performance rendered before the parties learned of the illegality.
C) declare the bargain unconscionable.
D) regard the contract a serious threat to public welfare and declare it void.

Question 8

Even if the parties to an agreement have met every other requirement for a valid contract, their agreement is unenforceable if either its formation or its performance is illegal or contrary to the public interest.

Question 9

A party that enters into an illegal contract can recover the considerations given if the party:

A) reports the illegal act to law enforcement after committing it.
B) rescinds the contract before any illegal act has been performed.
C) demonstrates an unequal bargain due to the illegal contract.
D) rescinds the contract immediately after the illegal act has been performed.

Question 10

An agreement that calls for the commission of a crime is illegal, while an agreement that calls for the commission of a tort is not illegal.

Question 11

Agreements designed solely to restrict trade are legal.

Question 12

Ali enters into a contract with Billy's Brewpub to be a bartender. Ali is not aware that Billy's does not have a liquor license. Under these circumstances, it is most likely that Ali:

A) can recover the wages only for emotional distress.
B) can recover the wages for bartending before he learned of the violation.
C) cannot recover the wages for bartending because the license and his employment are not related.
D) cannot recover any of his wages as illegality makes the contract void.

Question 13

When determining the legality of an agreement, the courts do not presume the parties intended a legal result.

Question 14

When a person whom a regulatory statute seeks to protect enters into an agreement in violation of the statute, the protected person:

A) is only allowed to enforce the agreement.
B) cannot recover in quasi contract for benefits conferred on the other party.
C) cannot recover for any loss but may enforce the agreement.
D) may either enforce the contract or recover any consideration he or she has parted with.

Question 15

The courts have no power over unconscionable contracts.

Question 16

As a general rule, statutes that require proof of character and skill and impose a penalty for violation are considered revenue-raising statutes.

Question 17

A party to an illegal agreement generally cannot recover damages for breach of the agreement, recover consideration given to the other party, or recover in quasi contract for benefits conferred on the other party.

Question 18

Which of the following is a reason for voiding a contract based on illegality?

A) Both of the parties are ignorant of the facts that made the bargain illegal.
B) It is in violation of the Code alone, not the common law.
C) It is contrary to public policy.
D) The court does not allow the recovery of damages.

Question 19

Rent control laws are implemented to limit the exercise of private bargaining power.

Question 20

Usury laws allow charging more than a stated amount of interest for the use of money.

Question 21

Phil joins Sky-High Designs as a designer. He signs an employee agreement that says he will not engage in design work in the city for six months after termination of his employment with the firm. Phil works with the firm for two years and then resigns to immediately join as a designer in another firm in the same city. Sky-High Designs sues him for breach of contract, and is likely to:

A) lose because employee contracts that restrict trade are illegal.
B) lose because Phil has free will to do as he chooses.
C) win because Phil's act is a violation of the Blue laws.
D) win because the restriction has reasonable geographic and time restrictions.

Question 22

Which of the following statements is true of the idea of public policy?

A) A court's view of public policy is determined by what the court believes is in the best interests of society.
B) Public policy is not affected by any social or economic change.
C) Courts have limited discretion in ruling on questions of public policy.
D) The discretion of courts provide the legal system less flexibility that ensures a strict adherence to policies.

Question 23

The legal concept of unconscionability:

A) is part of the doctrine of freedom of contract.
B) rules that certain sections of contracts are voidable.
C) pertains to unequal bargains.
D) comes into effect only during contracts between consumers and large companies.

Question 24

Regulatory statutes are designed primarily to:

A) regulate betting and gambling.
B) protect the public from dishonest persons.
C) prohibit charging more than a stated amount of interest for the use of money.
D) prohibit the performance of certain work and the transaction of certain business on Sunday.

Question 25

Exculpatory clauses are generally unenforceable if they seek to avoid liability for:

A) better monetary benefit for one side.
B) accidental damages.
C) fraud or willful misconduct.
D) negligence.

Question 26

_____ prohibit charging more than a stated amount of interest for the use of money.

A) Sunday laws
B) Wagering laws
C) Usury laws
D) Blue laws

Question 27

Statutes that require proof of character and skill and impose a penalty for violation are considered:

A) regulatory.
B) usury.
C) wagering.
D) revenue raising.

Question 28

Which of the following statements is true of contracts made illegal by statutes?

A) Barbers and beauty operators do not require licenses to work.
B) Blue laws prohibit certain work and the transaction of certain business on Monday.
C) Sunday laws do not vary across states in a country.
D) Forfeiture of excess or all interest is a common penalty for violation of usury laws.

Question 29

If a contract is divisible, the court:

A) voids the entire contract.
B) enforces the legal parts of the contract.
C) enforces the entire contract.
D) rules that the entire contract is unenforceable.

Question 30

Whether a statute is classed as a regulatory or revenue-raising statute depends on the:

A) intent of the legislature.
B) enforceability of the contract.
C) flexibility of the license.
D) duration of the license.

Question 31

Which of the following remedies is used in cases involving illegal wagering contracts?

A) Forfeiture of excess interest
B) Enforceability of the contract in such cases
C) Weekday ratification of contracts
D) No remedies in such cases

Question 32

Mayor Magnus wants to recruit a Harvard economist, Milton, as the chief developer for the Small Town's economic development division. The legal cap on the job of chief developer is $60,000. Magnus offers Milton $100,000. The contract is:

A) voidable.
B) unlawful.
C) exculpatory.
D) enforceable.

Question 33

The failure to obtain a license required by a statute for revenue-raising purposes:

A) affects the legality of the unlicensed person's agreements and it will be considered void.
B) results in generally unenforceable contracts.
C) does not affect the legality of unlicensed persons' agreements.
D) automatically declares the contract void for the protection of the public.

Question 34

A(n) _____ clause is a provision in a contract that attempts to relieve one party to the contract from liability for the consequences of his or her negligence.

A) exculpatory
B) indemnification
C) arbitration
D) severability

Question 35

_____ is an example of an illegal wager.

A) Stock transactions on a daily basis
B) Betting on the future performance of a stock
C) Commodity transactions
D) Risk-shifting agreements

Question 36

A restraint that is merely ancillary to a contract may be legal if:

A) it attempts to relieve one party from liability for willful misconduct.
B) its purpose is to restrict trade indefinitely.
C) its purpose is to recover punitive damages.
D) it is designed to protect interests created by the contract.

Question 37

Which of the following statements is true of exculpatory clauses?

A) Exculpatory clauses are always illegal and cannot be taken up in court.
B) Exculpatory clauses, when enforced, can effectively relieve a party of liability for the consequences of his own negligence.
C) Exculpatory clauses are effective only when the party which benefits by the clause owes a duty to the public.
D) Exculpatory clauses that seek to avoid liability for willful misconduct or fraud, however, are generally enforceable.

Question 38

Timothy is a construction worker in one of the leading firms of a city. His employment contract includes a clause which says he cannot work as a construction worker within the city for fifteen years once he leaves the company. This clause is:

A) illegal as it is injurious to public service.
B) only illegal if it violates state or federal antitrust laws.
C) illegal as a contract in restraint of trade.
D) legal because the employer can add any constraint to the agreement.

Question 39

Which of the following statements is true of contracts having fiduciaries?

A) Agreements by fiduciaries that favor the interests of a third person at the expense of their principals' interests are considered legal.
B) Any agreement that tends to induce a fiduciary to breach his or her fiduciary duties is considered legal.
C) A fiduciary is a provision in a contract that attempts to relieve one party to the contract from liability for the consequences of his or her own negligence.
D) A fiduciary can lawfully enter an agreement by fully and fairly disclosing the conflict to his or her principal or beneficiary in advance.

Question 40

Which of the following is true of blue laws?

A) They prohibit the performance of certain work on Sunday.
B) They were passed to regulate betting.
C) They regulate the amount of interest charged for the use of money.
D) They do not vary across states in a country.

Question 41

Contracts of adhesion are:

A) contracts from unequal bargains.
B) contracts injurious to public service.
C) contracts to influence fiduciaries.
D) contracts in restraint of trade.

Question 42

What is an exculpatory clause?

Question 43

_____ are defined as contracts in which the only choice for one of the parties is between agreeing to the terms dictated by the other party or not contracting at all.

A) Contracts of expression
B) Contracts of adhesion
C) Aleatory contracts
D) Bilateral contracts

Question 44

Which of the following is true of unconscionable contracts?

A) The doctrine of unconscionability can be used to relieve people of their bad bargains.
B) The courts do not have the freedom to remedy unconscionable contracts.
C) The courts do not define unconscionable, leaving it instead for the Code to define.
D) A court may refuse to enforce an unconscionable contract as contrary to public policy.

Question 45

What is the legal effect of a contract of adhesion?

Question 46

Which of the following types of contracts is created when a party with superior bargaining power imposes unfair terms on the other party?

A) Executory contracts
B) Unconscionable contracts
C) Bilateral contracts
D) Express contracts

Question 47

What is the legal effect of a contract that is designed to influence a fiduciary?

Question 48

If a court finds a contract to be unconscionable, the Uniform Commercial Code (UCC) gives it the power to:

A) enforce only the legal obligations of the superior party involved.
B) relieve one party from liability for the consequences of his or her own negligence.
C) relieve a party of liability under willful misconduct or fraud.
D) enforce the contract in a way that avoids an unconscionable result.

Question 49

What is the legal effect of a contract that is injurious to public service?

Question 50

Distinguish between illegal wagering contracts and legal risk-shifting and speculative bargaining agreements.