Question 1

Judith is a CPA with an excellent reputation and client base.She sells her tax preparation business to Shawn,and the sales contract includes a non-compete clause restricting Judith from opening a similar business for one year within a 10-mile radius of her former office.If she opens a tax preparation office five miles away after one year,a court would probably

Accepted Answer

The answer of Judith is a CPA with an excellent...

Question 2

Larry has the largest pizza business in the city.He learns that Henry is thinking of opening a competing pizza and pasta delivery business.Larry gives Henry $25,000 to not open his proposed business in the same city.Which statement is correct?

Accepted Answer

This contract is illegal and void due to being against public policy. The agreement essentially amounts to a bribe or payment to prevent competition, which unfairly restricts trade and violates antitrust laws. Larry cannot lawfully prevent Henry from entering the pizza and pasta delivery market in the city.

Question 3

An unconscionable contract is one that a court refuses to enforce because of

Accepted Answer

An unconscionable contract is one that is characterized by fundamental unfairness, often because the parties have unequal bargaining power or because some terms are hidden or distorted in a way that deprives one party of reasonable options. Courts may refuse to enforce such contracts, especially when they involve essential goods or services, unequal distribution of risks, or other features that violate public policy. Illegality, limits to free trade, or overt vagueness may also be grounds for invalidating a contract, but they are not necessarily related to unconscionability.

Question 4

An exculpatory clause is generally unenforceable when

Accepted Answer

Exculpatory clauses are generally unenforceable when they involve public transportation because such services are considered essential and often subject to public interest and safety regulations, limiting the ability to waive liability.

Question 5

Wendell,new to the area,selects a doctor from the telephone book and visits that doctor to have a splinter extracted.Unbeknownst to Wendell,the doctor has never passed the state licensing exams.Later,when Wendell discovers the truth,he refuses to pay his bill.If the doctor sues for recovery of the fee,will the court support the doctor's claim?

Accepted Answer

The court is likely to take the position that it is not in the public's best interest to enforce contracts with unlicensed doctors. It is the responsibility of the doctor to ensure that they are properly licensed to practice medicine and the responsibility of the patient to verify the doctor's qualifications before seeking treatment.

Question 6

In a non-compete agreement,the term "ancillary" means that

Accepted Answer

The term "ancillary" in a non-compete agreement means that the agreement must be part of a larger agreement. This is because an ancillary non-compete agreement is a clause within a larger document or contract such as an employment agreement or a business sale agreement. The non-compete clause is ancillary to the larger agreement because it is not the primary purpose of the agreement. Instead, it is a secondary or incidental part of the larger agreement.

Question 7

An insurance contract is NOT considered to be an illegal form of "wagering" because

Accepted Answer

An insurance contract is not considered to be an illegal form of "wagering" because the insured must have an insurable interest in the person being insured. This means that the person must have a financial or other type of interest in the well-being of the insured, such as a parent-child relationship or a business partnership. Without an insurable interest, the contract would be considered a form of gambling or wagering, which is illegal in most states. The other choices may also contribute to why insurance is not considered a form of gambling, but they are not the primary reason.

Question 8

Asher buys a linen suit from Miriam and gives it to his father,Moises.Moises takes the suit to Vanessa,who runs a local dry cleaner,to have the suit cleaned and pressed.Who is the bailee?

Accepted Answer

Vanessa is the bailee because she has possession of the suit and has agreed to clean and press it for Moises.

Question 9

The UCC deals with unconscionability in a contract by providing that a court may

Accepted Answer

The UCC provides that a court may refuse to enforce the contract if it is found to be unconscionable. Alternatively, the court may enforce the remainder of the contract without the unconscionable clause, or limit the application of any unconscionable clause to avoid any unconscionable result. Therefore, all of these options are correct.

Question 10

A national bank based in New York issues credit cards to customers in all 50 states.What interest rate can the bank charge customers?

Accepted Answer

The bank can charge the interest rate of New York or that of the customer's state, whichever is higher. This is because national banks are allowed to charge interest at the rate allowed by the state in which the bank is located or the state in which the customer resides, whichever is higher.

Question 11

In bailment cases,exculpatory clauses

Accepted Answer

Exculpatory clauses in bailment cases are somewhat more likely to be enforced than in other types of cases because bailment involves a transfer of possession and not ownership, and the bailor retains a degree of control over the property. However, the enforceability of an exculpatory clause in a bailment case ultimately depends on the specific language of the clause and the circumstances surrounding the bailment. Exculpatory clauses in bailment cases may attempt to limit liability for damage to both persons and property.

Question 12

Which of the following relationships generally fails to create an insurable interest?

Accepted Answer

The relationship between a doctor and a patient generally fails to create an insurable interest since it is considered against public policy to allow someone to profit from another person's illness or death. Insurable interest generally requires an individual to have a financial or emotional stake in the insured person's welfare. While all of the other options may create such an interest, the doctor-patient relationship does not.

Question 13

A contract most likely will be declared unconscionable if

Accepted Answer

A contract is likely to be declared unconscionable if it is oppressive and one-sided, meaning that it heavily favors one party and imposes unfair or unreasonable terms on the other party. While high interest rates and contracts signed by minors for luxury items may raise red flags, they alone do not necessarily make a contract unconscionable. The presence of a cancellation clause does not necessarily make a contract unconscionable either, as long as it is not overly restrictive or unfairly imposes penalties on one party.

Question 14

A court is unlikely to enforce the non-compete agreement Kelly and Amber signed because of which of the following clauses?

Accepted Answer

A court is unlikely to enforce a non-compete agreement that requires someone to go into a completely different line of work, as it is overly restrictive and may be seen as unreasonable in limiting a person's ability to earn a livelihood.

Question 15

Barb has been a children's day care provider for several years in the small town of Sallton.She has decided to give it all up and move to the big city for excitement and adventure.She sells her business to Ken,agreeing not to open a competing business within five miles of Sallton for a period of nine months.After five months of the big city life,Barb is broke and moves back to Sallton.She opens a small day care business.Ken sues on the non-compete clause.What is the most likely result?

Accepted Answer

Ken is likely to win because the non-compete clause was agreed upon by both parties, and Barb violated it by opening a competing business within the restricted area before the nine-month period elapsed. The clause is enforceable as it is ancillary to a legitimate bargain, which is the sale of her business. The time restriction of nine months is also a reasonable period.

Question 16

Mike owns a house in a low-income area of a large city.Mike is on disability,and his total monthly income is $700.A sales representative visits his home to sell him a water purification system.Mike signs a contract that calls for monthly payments of $500 for the next 10 years.The water system is worth no more than $1,000.Mike thought he was signing a permission slip allowing the salesman to conduct a free water test to determine the toxins in the water.How would a court most likely describe this contract?

Accepted Answer

This contract is likely unconscionable, as it takes advantage of Mike's vulnerable situation and lack of understanding about the nature of the contract. The payments being almost all of his monthly income for an extended period of time also exacerbate this issue.

Question 17

Giving possession and control of personal property to another person is referred to as

Accepted Answer

Giving possession and control of personal property to another person is referred to as a bailment.

Question 18

The Tavern's secret recipe for its pizza sauce would be considered

Accepted Answer

The Tavern's secret recipe for its pizza sauce is considered a trade secret, which is information that provides a competitive advantage and is not generally known to the public. To protect this trade secret, the Tavern could include an employment non-compete clause in its contracts with employees to prevent them from taking the recipe and using it at a competing restaurant. Non-compete clauses are generally enforceable if they are reasonable in time, scope, and geographic area.

Question 19

What are the two most common settings for legitimate non-compete agreements?

Accepted Answer

The two most common settings for legitimate non-compete agreements are the sale of a business and an employment relationship. In the sale of a business, the buyer wants to ensure that the seller does not start a competing business, while in an employment relationship, the employer wants to protect their trade secrets and customer base from being taken by a departing employee.

Question 20

Suppose that Lenny Lawyer enters into an agreement with Cindy Client that his fee will be a percentage of the recovery Lenny obtains for Cindy in her pending divorce.State law makes such a contingency fee arrangement illegal in divorce actions.What will be the probable outcome if Lenny attempts to enforce the agreement?

Accepted Answer

The contract will be void as it violates a state statute that prohibits contingency fee arrangements in divorce cases. The fact that Cindy may not have been able to afford an attorney without this arrangement is irrelevant. The law is clear and must be followed.

Quiz 14: Legality