Question 1

Jon agrees to sell his K9 Sports Equipment store to Lacy. As part of the sale, Jon promises never to open a similar, competing store anywhere. Jon's 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 because Jon and Lacy apparently have the capacity to contract.

Accepted Answer

Jon's promise is most likely invalid because it contains unreasonable terms of area and time. Non-compete clauses are only enforceable if they are reasonable in scope, meaning that the restrictions on the employee's ability to compete must be limited in duration and geographic area. In this case, it is unclear how long Jon is prohibited from opening another store or how large the area of his restriction is, making it difficult to determine whether the promise is reasonable or not. Therefore, it is most likely invalid.

Question 2

A court adjudicates Huck mentally incompetent and appoints Inez to be his guard?ian. Later, without Inez's knowledge, Huck signs a contract to sell his farm to Kyle for its real market value. The contract is
A) enforceable if Huck comprehended the consequences.
B) enforceable if Huck knew the market value of the farm.
C) enforceable if Huck was the record owner of the farm.
D) void.

Accepted Answer

Since the court has adjudicated Huck mentally incompetent and appointed a guardian for him, Huck lacks the legal capacity to enter into a contract. Any contract he signs without the knowledge or consent of his guardian is considered void.

Question 3

U-Can-Own-It Corporation sells appliances to less educated consumers, including Viv, on installment plans. U-Can-Own-It files a suit against Viv when she stops making payments. Viv 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 products in the general market.
D) the relation of this deal to those of other customers.

Accepted Answer

The court will most likely consider the parties' relative bargaining power, as Viv is claiming that the deal is unconscionable, indicating that she may not have had equal bargaining power in the transaction with U-Can-Own-It Corporation.

Question 4

Lara is a real estate broker licensed only in Minnesota. Lara concludes a sale in North Dakota. She can successfully sue to
A) collect the commission only.
B) collect the commission or keep it if it has already been paid.
C) keep the commission if it has already been paid but not to collect it.
D) neither collect the commission nor keep it.

Accepted Answer

Lara is only licensed to practice real estate in Minnesota, so she cannot legally earn a commission in North Dakota. Therefore, she cannot collect the commission or keep it if it has already been paid.

Question 5

Through fraudulent means, Fred induces Gail to sign a contract to in?vest with him the profits from High Styles, her clothing store. When Gail learns the truth, she may
A) do nothing with respect to the contract.
B) enforce the contract or recover the payment.
C) only enforce the contract.
D) only recover the payment.

Accepted Answer

Gail has the option to either enforce the contract or recover the payment because the contract was induced by fraud, making it voidable at her discretion.

Question 6

Eli obtains a consumer loan from First State Bank at an interest rate that exceeds the state's maximum. First State has
A) calculated the optimum rate that the market will bear. 
B) engaged in a restraint of trade.
C) underestimated the risk of the loan's nonpayment.
D) violated the usury laws.

Accepted Answer

First State Bank has violated the usury laws by charging an interest rate that is higher than the state's maximum allowed rate. Usury laws set a limit on the amount of interest that lenders can charge on loans. This is to protect consumers from being charged excessive interest rates and falling into debt traps.

Question 7

Odell owns Payroll Company, a bookkeeping service losing market share to Quik Work, Inc. Odell pays Remy $5,000 to steal a list of Quik's clients, to whom Odell 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.

Accepted Answer

The deal is void because it involves illegal activity (stealing confidential information) and violates Quik Work's rights to privacy and protection of their intellectual property. Contracts that involve illegal activities are automatically void and unenforceable.

Question 8

A contract between Eppie and Fab to lease real property contains an ex?cul?patory clause. This clause is
A) enforceable as a matter of public policy.
B) enforceable if either party is in a business important to the pub?lic.
C) enforceable if the lease involves residential property.
D) generally unenforceable.

Accepted Answer

Exculpatory clauses are generally unenforceable by the courts as they attempt to waive or limit a party's liability for their own negligence or intentional wrongdoing. Such clauses are deemed against public policy, and will only be enforced in limited circumstances, such as when they do not involve essential public services or affect residential leases. However, as the question does not mention any such exceptions, the best answer choice is D, indicating that the exculpatory clause in the lease between Eppie and Fab is generally unenforceable.

Question 9

Ralph signs a covenant not to compete with his employer, Super Sales Company. A court decides that the covenant is overly restrictive. The court will most likely
A) enforce it so as not to interfere with the parties' freedom to contract.
B) enforce it but evaluate its effects over time.
C) reform its terms to prevent any undue burdens.
D) refuse to enforce it unless Super pays additional consideration.

Accepted Answer

The court is most likely to reform the terms of the covenant to prevent any undue burdens because it is overly restrictive. This means the court will modify the terms of the covenant to make it more reasonable and fair to prevent any negative effects on the employee's ability to earn a living.

Question 10

Neil represents himself as a contractor in Ohio, but he is not licensed in that state. A contract between Pam and Neil by which Neil agrees to build a warehouse for Pam in Ohio is
A) enforceable only if Pam does not object after learning of Neil's status.
B) enforceable only if Pam knows that Neil is unlicensed.
C) enforceable only if the outcome is successful.
D) not enforceable.

Accepted Answer

In most states, a contractor must be licensed in order to enter into a contract for construction services. Since Neil is not licensed in Ohio, any contract he enters into for construction services in Ohio is not enforceable in court. Therefore, the contract between Pam and Neil for building a warehouse in Ohio is not enforceable.

Question 11

Nora signs a contract to buy a car just before reaching the age of major?ity. After reaching the age of majority, Nora does not take possession or make payments. Most courts would hold that she had
A) disaffirmed the contract.
B) executed the contract.
C) ratified the contract.
D) rescinded the contract.

Accepted Answer

Nora signed the contract before reaching the age of majority, which means she was considered a minor and could void the contract. After reaching the age of majority, Nora did not take possession or make payments, which suggests she did not accept the terms of the contract. Therefore, most courts would hold that Nora disaffirmed the contract.

Question 12

Intoxicated but fully aware of the consequences, Uri agrees to a two-year cell-phone service contract with Wander Talk, 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 clearly favors Wander Talk.
D) not enforceable because Uri was intoxicated when he agreed to it.

Accepted Answer

Intoxication alone does not necessarily render a contract unenforceable. As long as Uri was aware of the consequences and understood the terms of the contract, it can be enforced. Additionally, contracting parties have the ability to enter into and be legally bound by agreements, even if they later regret the terms or wish to change their minds. The fact that the contract may be at a higher price than the market average does not automatically make it unenforceable either. Therefore, the contract is enforceable.

Question 13

On Tad's eighteenth birthday, he decides that he no longer wants to keep a car he bought from U-Pick Autos, Inc., when he was seventeen. His right to disaffirm the deal will depend on
A) the car's condition when Tad bought it.
B) the car's current condition.
C) whether Tad acts within a reasonable period of time.
D) whether U-Pick has the right to disaffirm.

Accepted Answer

Tad's right to disaffirm the contract will depend on whether he acts within a reasonable period of time after reaching the age of majority. As Tad is now eighteen, he can disaffirm the contract and return the car if he does so within a reasonable period of time after turning eighteen. The car's condition at the time of purchase or its current condition is not relevant, and U-Pick Autos does not have the right to disaffirm in this situation.

Question 14

National Insurance Company violates a state statute when selling an insur?ance policy to Opal. The policy may be enforced by
A) National Insurance only.
B) National Insurance or Opal.
C) no one.
D) Opal only.

Accepted Answer

Opal is the only party who can enforce the policy because the statute was enacted to protect policyholders like Opal.

Question 15

Fay is mentally incompetent but has not been so adjudged by a court. Any contract Fay enters into is
A) voidable if Fay has a lucid interval at the time of contracting.
B) voidable if Fay lacks the capacity to comprehend the consequences.
C) voidable if the other party does not realize that Fay is incompetent.
D) unavoidable.

Accepted Answer

The answer of Fay is mentally incompetent but has not...

Question 16

Joy signs a contract with Kent, an unlicensed physician, to perform a medical procedure. This contract is enforceable by
A) Joy only.
B) Joy or Kent.
C) Kent only.
D) no one.

Accepted Answer

Kent is an unlicensed physician, which means he does not have the legal authority to perform the medical procedure. Any contract Joy signs with Kent for medical services would be considered illegal and unenforceable by law. Therefore, no one can enforce the contract.

Question 17

Jock and Kyla decide to wager, in violation of a state statute, on the out?come of a football game. They each deposit money with Len, who agrees to pay the winner of the bet. Before the game begins, Kyla tells Len that she changed her mind about the bet. Kyla can recover
A) the amount of her bet and the amount of Jock's bet.
B) the amount of her bet minus Len's expenses.
C) the amount of her bet only.
D) nothing.

Accepted Answer

Kyla can only recover the amount of her bet since she withdrew before the game began. The illegal nature of the wager would prevent her from recovering Jock's bet or any extra expenses Len incurred.

Question 18

Boz runs an illegal gambling business and pays Colin, a law enforcement officer, not to interfere. The payments are discovered. Boz and Colin are sent to prison. With respect to the amount of the payments, Boz can recover
A) all of it.
B) none of it.
C) only as much as Colin has not spent.
D) only as much as Colin has spent.

Accepted Answer

Boz cannot recover any of the payment because the payment was made for illegal activity and therefore against public policy. As such, it is considered an unenforceable contract and the court will not award damages to either party.

Question 19

Dina signs a contract with Ellen to kill Frank. Dina pays Ellen but she re?fuses to perform. Dina can
A) do nothing with respect to the contract.
B) enforce the contract or recover the payment.
C) only enforce the contract.
D) only recover the payment.

Accepted Answer

The contract is illegal and unenforceable because it involves a criminal act. Therefore, Dina cannot enforce the contract or recover the payment.

Question 20

Delia enters into, and fails to disaffirm soon after reaching the age of ma?jority, a contract with Electronics Stores, Inc. (ESI). Later Delia attempts to disaffirm the contract. ESI files a suit against her. The court will most likely consider the contract ratified if it is
A) executed.
B) executory.
C) executed or executory.
D) neither executed nor executory.

Accepted Answer

A contract is considered executed if all the terms have been fulfilled, whereas it is considered executory if some terms are yet to be fulfilled. In this case, if the contract with ESI is executed, meaning all the terms have been fulfilled, then Delia cannot disaffirm the contract and the court will likely consider it ratified. Therefore, choice A is the most appropriate answer.

Quiz 13: Capacity and Legality

Jon agrees to sell his K9 Sports Equipment store to Lacy. As part of the sale, Jon promises never to open a similar, competing store anywhere. Jon's promise is most likely

A court adjudicates Huck mentally incompetent and appoints Inez to be his guard?ian. Later, without Inez's knowledge, Huck signs a contract to sell his farm to Kyle for its real market value. The contract is

U-Can-Own-It Corporation sells appliances to less educated consumers, including Viv, on installment plans. U-Can-Own-It files a suit against Viv when she stops making payments. Viv claims that the deal is unconscionable. The court will most likely consider

Lara is a real estate broker licensed only in Minnesota. Lara concludes a sale in North Dakota. She can successfully sue to

Through fraudulent means, Fred induces Gail to sign a contract to in?vest with him the profits from High Styles, her clothing store. When Gail learns the truth, she may

Eli obtains a consumer loan from First State Bank at an interest rate that exceeds the state's maximum. First State has

Odell owns Payroll Company, a bookkeeping service losing market share to Quik Work, Inc. Odell pays Remy $5,000 to steal a list of Quik's clients, to whom Odell will aggressively market Payroll's services. This deal is

A contract between Eppie and Fab to lease real property contains an ex?cul?patory clause. This clause is

Ralph signs a covenant not to compete with his employer, Super Sales Company. A court decides that the covenant is overly restrictive. The court will most likely

Neil represents himself as a contractor in Ohio, but he is not licensed in that state. A contract between Pam and Neil by which Neil agrees to build a warehouse for Pam in Ohio is

Nora signs a contract to buy a car just before reaching the age of major?ity. After reaching the age of majority, Nora does not take possession or make payments. Most courts would hold that she had

Intoxicated but fully aware of the consequences, Uri agrees to a two-year cell-phone service contract with Wander Talk, Inc., at more than the average market price. This contract is

On Tad's eighteenth birthday, he decides that he no longer wants to keep a car he bought from U-Pick Autos, Inc., when he was seventeen. His right to disaffirm the deal will depend on

National Insurance Company violates a state statute when selling an insur?ance policy to Opal. The policy may be enforced by

Fay is mentally incompetent but has not been so adjudged by a court. Any contract Fay enters into is

Joy signs a contract with Kent, an unlicensed physician, to perform a medical procedure. This contract is enforceable by

Jock and Kyla decide to wager, in violation of a state statute, on the out?come of a football game. They each deposit money with Len, who agrees to pay the winner of the bet. Before the game begins, Kyla tells Len that she changed her mind about the bet. Kyla can recover

Boz runs an illegal gambling business and pays Colin, a law enforcement officer, not to interfere. The payments are discovered. Boz and Colin are sent to prison. With respect to the amount of the payments, Boz can recover

Dina signs a contract with Ellen to kill Frank. Dina pays Ellen but she re?fuses to perform. Dina can

Delia enters into, and fails to disaffirm soon after reaching the age of ma?jority, a contract with Electronics Stores, Inc. (ESI) . Later Delia attempts to disaffirm the contract. ESI files a suit against her. The court will most likely consider the contract ratified if it is