Question 1

Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause?
A) Void as an illegal violation of a statute.
B) Valid as a reasonable restraint on trade.
C) Unenforceable as a violation of public policy.
D) Binding as fair protection.

Accepted Answer

The contract clause is unenforceable as a violation of public policy. Agreements that restrict an individual's right to work in their chosen profession or trade are generally frowned upon by courts as they are considered to limit competition and opportunities for the individual. In this case, Claudia's agreement not to open a hair salon in the state would limit her ability to work in her chosen profession and would be seen as an unfair restriction. Therefore, this clause is unenforceable.

Question 2

An agreement to refrain from a particular trade, profession, or business is enforceable if two requirements are met: that the purpose of the restraint is to protect a property interest of the promisee and the restraint is no more extensive than is reasonably necessary to protect that interest.

Accepted Answer

This statement is in accordance with the common law doctrine of restraint of trade, which recognizes that certain agreements imposing restraints on trade are enforceable if they satisfy the two requirements stated. However, the enforceability of such agreements may vary depending on jurisdiction and the specific circumstances of the case.

Question 3

John operates a small repair business and is in desperate need of a certain type of building material. He obtains the material from a large corporation, but is charged a grossly unreasonable price and is forced to buy other material he does not need. In view of the buyer's unequal bargaining power and unreasonable terms of the contract, this may be a case of:
A) in pari delicto .
B) partial illegality.
C) substantive unconscionability.
D) procedural unconscionability.

Accepted Answer

This situation appears to be an example of substantive unconscionability, where one party has a significant advantage in bargaining power over the other party and imposes unfair or overly harsh contract terms. The fact that John was forced to buy other material he did not need suggests that the terms of the contract were unreasonable.

Question 4

A(n) __________ is a measure designed to protect the public from unqualified practitioners.
A) exculpatory clause
B) revenue license
C) regulatory license
D) usury statute

Accepted Answer

A regulatory license is a type of license that is designed to protect the public from unqualified practitioners. It sets basic standards for entry into a profession, and those who have met those standards are deemed qualified to practice. This helps to ensure that members of the public receive competent and trustworthy services, and helps to prevent fraud and other forms of professional misconduct. Examples of professions that may require regulatory licenses include doctors, lawyers, and accountants.

Question 5

B& B, Inc. pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments. B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him. This is an agreement which is a violation of public policy.

Accepted Answer

Paying legislators to listen to a lobbyist's presentation goes against the public policy of fair and impartial decision-making by government officials.

Question 6

Where parties to a failed agreement are in pari delicto , a court will provide a remedy to the injured party.

Accepted Answer

In pari delicto is a legal doctrine that means "in equal fault." When both parties are equally responsible for an illegal or wrongful act, the courts will not provide a remedy to either party. Therefore, if an agreement fails due to both parties being in pari delicto, the injured party will not be able to seek recourse from the courts.

Question 7

Divided Parcel (DP) includes the following on its mailing receipts: "We are not responsible for any damages to packages whether or not through the intentional or reckless fault or negligence of our employees. Send packages at your own risk." Mary reads this clause but sends her watch back to the manufacturer to be repaired anyway. The watch is destroyed when the DP driver uses the package for a ball and tosses it to his buddy. Mary is:
A) out of luck because the clause was communicated to her.
B) out of luck because she should have insured the package.
C) likely to collect from DP since exculpatory clauses always violate public policy.
D) likely to collect from DP because it attempted to excuse intentional and reckless behavior.

Accepted Answer

The clause specifically states that DP is not responsible for damages caused by the intentional or reckless fault or negligence of its employees. In this case, the driver intentionally used the package in a way that caused damage, so DP cannot rely on the exculpatory clause to escape liability. Mary would therefore likely be able to collect from DP for the damage to her watch.

Question 8

Which of the following is true with regard to an exculpatory clause?
A) An exculpatory clause excuses one party from liability for her own tortious conduct.
B) Where one party has a superior bargaining position that has enabled him to impose an exculpatory clause upon the other, the courts are inclined to nullify the provision.
C) An exculpatory clause may be unenforceable for unconscionability.
D) All of these are true.

Accepted Answer

A) An exculpatory clause can excuse one party from liability for her own tortious conduct.
B) Where one party has a superior bargaining position that has enabled him to impose an exculpatory clause upon the other, the courts are inclined to nullify the provision.
C) An exculpatory clause may be unenforceable for unconscionability. 
Therefore, all of these statements are true.

Question 9

Courts will never limit freedom of contract.

Accepted Answer

Courts will limit freedom of contract in certain circumstances, such as if the contract violates public policy, is unconscionable, or is illegal.

Question 10

Some states require the lender to forfeit two or three times the amount of usurious interest charged.

Accepted Answer

Some states have laws that require lenders to forfeit two or three times the amount of usurious interest charged in order to deter them from charging excessive interest rates.

Question 11

Permissible lender's expenses, which would not be considered in determining the rate of interest under usury statutes, include all but which of the following?
A) Cost of title examination.
B) Reasonable cost of drawing up the necessary documents.
C) A charge to the borrower of $500 to investigate the borrower's credit, when it actually cost the lender $75.
D) All of these charges would be considered in determining the rate of interest under usury statutes.

Accepted Answer

The cost of title examination and reasonable cost of drawing up necessary documents are permissible lender's expenses that would not be considered in determining the rate of interest under usury statutes. However, charging the borrower an amount that is significantly higher than the actual cost of investigating the borrower's credit would be considered a hidden fee and would be in violation of usury laws.

Question 12

Before granting an injunction enjoining a former employee from competing in a described territory, the courts insist that the employer demonstrate that the restriction is __________ to protect the employer's legitimate interest.
A) exculpatory
B) unconscionable
C) necessary
D) usurious

Accepted Answer

The word "necessary" in option C is the most appropriate choice, as it reflects the legal standard that courts typically use in evaluating whether to grant an injunction. The employer must demonstrate that the restriction is necessary to protect a legitimate interest, such as trade secrets or customer lists, in order for the court to grant the injunction. Option A (exculpatory) is not relevant to the question, option B (unconscionable) describes an opinion on the restriction rather than a legal standard, and option D (usurious) pertains to interest rates on loans, and therefore does not apply in this context.

Question 13

Edward, an engineer, is working on a new design for some highly technical equipment which Martus, Inc. hopes to market within the next five years. The employment agreement between Edward and Martus states that Edward will not go to work for another company in the same business for a period of two years after termination of his employment with Martus, Inc. This agreement is void and unenforceable because, although Martus is a very specialized company, it would make it difficult for Edward to find other employment.

Accepted Answer

The statement is false. Non-compete agreements are enforceable if they are deemed reasonable in scope, duration, and geographic area. The fact that it may make it difficult for Edward to find other employment does not automatically make the agreement void and unenforceable. It would depend on the specific circumstances and the reasonableness of the agreement.

Question 14

Andria, an attorney, has a personal injury case which is set for trial next week. She needs a good doctor to testify on behalf of her client, so she contacts Dr. Wood who agrees to testify on behalf of Andria's client at the trial. In return for Dr. Wood's testimony, Andria agrees to pay Dr. Wood $10,000 if they win the case, and $5,000 if they lose. Dr. Wood agrees. The agreement between Andria and Dr. Wood is unenforceable.

Accepted Answer

The agreement is unenforceable because it is contingent upon the outcome of the case, which could potentially influence the testimony of Dr. Wood, compromising the integrity of the trial and violating ethical standards.

Question 15

The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.

Accepted Answer

This is true. An injunction is a court order that directs a party to do or refrain from doing a specific act. In this case, an injunction would direct the former employee to refrain from competing in the specified territory for the designated period of time.

Question 16

The legal effect of a usurious loan varies from state to state.

Accepted Answer

Usury laws are state laws and therefore the legal effect of a usurious loan varies depending on the state in which it was made.

Question 17

Don has an employment contract with Dunkirk Ice Cream. He sells ice cream and novelty ice cream products. He has nine children and doesn't make enough money, so he decides to see if another dairy will hire him, too. "After all," he reasons, "most stores carry four or five different brands." His employment contract prohibits him from competing. If Don sells for another dairy in addition to Dunkirk, will he be in trouble under his contract?
A) No, it is unenforceable as against public policy.
B) Yes, it is likely to be enforceable during employment.
C) No, the prohibition against competing is enforceable only after he quits Dunkirk.
D) A court would have to rule on the enforceability of the covenant not to compete since courts are reluctant to enforce such covenants during a period of employment.

Accepted Answer

Don's employment contract likely includes a valid and enforceable non-compete clause that prohibits him from working for a competing dairy while he is still employed by Dunkirk Ice Cream. This is because non-compete clauses are often enforceable during the period of employment, especially if they are reasonable in terms of the duration, scope, and geographic area covered.

Question 18

An agreement in connection with the sale of a business that prohibits the seller from engaging in the same or similar business for a period of twenty-five years would be unreasonable and unenforceable.

Accepted Answer

A non-compete agreement that lasts for twenty-five years is generally considered to be too long and therefore unreasonable and unenforceable. Most non-compete agreements are valid for a shorter period of time, typically one to five years.

Question 19

A contract of adhesion:
A) is automatically unenforceable.
B) consists largely of boilerplate provisions, such as a standard-form insurance policy.
C) is a contract that exhibits either procedural or substantive unconscionability.
D) is a contract containing multiple exculpatory clauses.

Accepted Answer

A contract of adhesion refers to a standardized contract that is offered on a take-it-or-leave-it basis, where the individual with less bargaining power has little to no ability to negotiate terms. Many of these contracts, such as standard-form insurance policies, contain largely boilerplate provisions. However, not all contracts of adhesion exhibit unconscionability or contain multiple exculpatory clauses.

Question 20

Nell gives Big Al $50 in return for Al's promise to defame Sara. Nell hopes to ruin Sara's chances at a promotion. Nell finds out that Al did not hold up his end of the agreement. Which of the following statements is true?
A) Nell can get the money back from Al through litigation.
B) Nell can get the money back and force Al to do as he promised.
C) Legally, Nell can neither get the money back nor force Al to do as he promised.
D) Nell can force Al to act through an appeal to the courts, but Al gets to keep the $50.

Accepted Answer

The agreement between Nell and Al is illegal and unenforceable as it involves defaming someone in return for money. Therefore, Nell cannot get the money back from Al, nor can she force him to defame Sara.

Quiz 13: Illegal Bargains

Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause?

An agreement to refrain from a particular trade, profession, or business is enforceable if two requirements are met: that the purpose of the restraint is to protect a property interest of the promisee and the restraint is no more extensive than is reasonably necessary to protect that interest.

A(n) __________ is a measure designed to protect the public from unqualified practitioners.

B& B, Inc. pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments. B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him. This is an agreement which is a violation of public policy.

Where parties to a failed agreement are in pari delicto , a court will provide a remedy to the injured party.

Which of the following is true with regard to an exculpatory clause?

Courts will never limit freedom of contract.

Some states require the lender to forfeit two or three times the amount of usurious interest charged.

Permissible lender's expenses, which would not be considered in determining the rate of interest under usury statutes, include all but which of the following?

Before granting an injunction enjoining a former employee from competing in a described territory, the courts insist that the employer demonstrate that the restriction is __________ to protect the employer's legitimate interest.

The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.

The legal effect of a usurious loan varies from state to state.

An agreement in connection with the sale of a business that prohibits the seller from engaging in the same or similar business for a period of twenty-five years would be unreasonable and unenforceable.

A contract of adhesion:

Nell gives Big Al $50 in return for Al's promise to defame Sara. Nell hopes to ruin Sara's chances at a promotion. Nell finds out that Al did not hold up his end of the agreement. Which of the following statements is true?