Question 1

Metro 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 Creations signs a lease with the mall that contains the clause. This is
A) ​a covenant not to compete.
B) ​an adhesion contract.
C) ​an exculpatory clause.
D) ​an illusory promise.

Accepted Answer

This is an exculpatory clause, which attempts to release one party (Metro City Mall) from liability in the event of injury or damages, regardless of fault. Such clauses are often found in adhesion contracts, which are contracts where one party has significantly more bargaining power than the other and little opportunity to negotiate the terms of the contract.

Question 2

Nyoko signs a covenant not to compete with her employer, Midstate 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 Midstate from liability for any injury to Nyoko due to simple negligence.
D) ​none of the choices.

Accepted Answer

A covenant not to compete is a type of contract that restricts an employee from working with a competing employer or starting their own competing business for a specific period, usually within a geographic boundary. Such a covenant may or may not be enforceable, depending upon their reasonableness with respect to time, scope, and place. A covenant that is too harsh and restrains an individual's career growth opportunities may not be upheld by the court. Thus, the covenant not to compete should be reasonable in scope, such as geographic area and duration, to be enforceable. Choice A is not relevant, and choice C is unreasonable as it relieves the employer from their negligence. Therefore, the best option is B.

Question 3

Boz runs an illegal gambling business and pays Colin, a police 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's illegal gambling business and payment to a police officer to turn a blind eye are both illegal activities. As such, Boz cannot recover any of the payment made to Colin. It is important to note that the court cannot facilitate the recovery of funds obtained through illegal activities.

Question 4

John 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.

Accepted Answer

Usury refers to the practice of charging excessive interest on a loan, which is typically above the legal limit set by the state. In this case, Liberty Credit Bank is charging interest rates that exceed the maximum allowed by the state. Therefore, the bank has committed usury by violating the state's regulations.

Question 5

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 this is a key factor in determining whether a contract is unconscionable. If U-Can-Own-It Corporation took advantage of Viv's lack of education or economic power to create an unfair contract, the court may rule that the contract is unconscionable and unenforceable. The other options listed are not as relevant in determining whether a contract is unconscionable.

Question 6

Country Trucking Company contracts with Baldwin to transport crated goods to a certain destination for $5,000. \Country delivers the crates, but Baldwin does not pay. Country learns that the crates contained stolen goods. Country can
A) ​do nothing with respect to the contract.
B) ​recover $5,000 from Baldwin.
C) ​recover the goods but not the $5,000 from Baldwin.
D) ​recover the goods and the $5,000 from Baldwin.

Accepted Answer

Although the goods turned out to be stolen, the contract between Country Trucking Company and Baldwin was still valid and Baldwin still owes the agreed upon payment of $5,000. Country may not be responsible for the stolen goods, but that does not absolve Baldwin from their payment obligations. Therefore, Country can recover the $5,000 from Baldwin.

Question 7

Through fraudulent means, Finlay induces Ethel to sign a contract to in-vest with him the profits from her business. When Ethel learns the truth, she may
A) ​only enforce the contract.
B) ​only recover what she invested with Finlay.
C) ​enforce the contract or recover what she invested with Finlay.
D) ​do nothing.

Accepted Answer

Ethel can choose to enforce the contract, but since it was induced by fraudulent means, she also has the right to rescind the contract and recover what she invested with Finlay. Therefore, option C is the best choice.

Question 8

Odina signs a covenant not to compete with her employer, Penultimate Sales Corporation. A court decides that the covenant is overly restrictive. The court will likely
A) ​enforce it as written so as not to undercut the freedom of contract.
B) ​enforce it but evaluate its effects over time.
C) ​reform its terms to prevent any undue burden.
D) ​refuse to enforce it unless Penultimate pays additional consideration.

Accepted Answer

When a court finds that a covenant not to compete is overly restrictive, it may reform its terms to prevent any undue burden on the person subject to it. This means that the court will modify the covenant in a way that makes it reasonable and fair, without completely throwing it out. The court recognizes the importance of freedom of contract, but also wants to ensure that people are not unfairly restricted in their ability to work and make a living.

Question 9

Centre City Properties, Inc., owns and manages a warehouse. DIY Home Improvement Stores agrees to lease the warehouse for six years. Under the lease, DIY is obligated to pay all of the utility costs. Two years into the term, DIY asks Centre City to modify the lease to provide that the utility costs will be split equally between them. The landlord agrees, but later decides it does not want to share the costs and refuses to pay. Is Centre City bound to its agreement to share the utility costs? Why or why not?​

Accepted Answer

The answer of Centre City Properties, Inc., owns and manages...

Question 10

Dean, the president of Billing & Credit Company, promises to pay his employee Ewing, who is dangerously obese, $10 for every pound that he loses within the next two years. Ewing agrees, diets and exercises, loses 154 pounds, and asks Dean for $1,540. Dean refuses to pay, saying that he does not remember the promise, but that even if he did make it, there was no consideration, and Ewing's improved health is a sufficient benefit for his effort and sacrifice. Ewing files a suit against Dean. In whose favor is the court likely to rule, and why?

Accepted Answer

The answer of Dean, the president of Billing & Credit...

Question 11

To avoid liability for negligence, Mall Mart Discount Stores can normally obtain a court order to enforce
A) ​a covenant not to compete.
B) ​an adhesion contract.
C) ​an exculpatory clause.
D) ​none of the choices.

Accepted Answer

The answer of To avoid liability for negligence, Mall Mart...

Question 12

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 third party who is not aware that Tevin is not licensed.
C) ​Tevin.
D) ​no one.

Accepted Answer

The answer of Shannon signs a contract with Tevin, an...

Quiz 12: Consideration, Capacity, and Legality

Metro 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 Creations signs a lease with the mall that contains the clause. This is

Nyoko signs a covenant not to compete with her employer, Midstate Distribution, Inc. The covenant will be enforced if it

Boz runs an illegal gambling business and pays Colin, a police 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

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

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

Country Trucking Company contracts with Baldwin to transport crated goods to a certain destination for $5,000. \Country delivers the crates, but Baldwin does not pay. Country learns that the crates contained stolen goods. Country can

Through fraudulent means, Finlay induces Ethel to sign a contract to in-vest with him the profits from her business. When Ethel learns the truth, she may

Odina signs a covenant not to compete with her employer, Penultimate Sales Corporation. A court decides that the covenant is overly restrictive. The court will likely

To avoid liability for negligence, Mall Mart Discount Stores can normally obtain a court order to enforce

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