Question 1

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.

Accepted Answer

Employment contracts often provide that employees will not compete with or work for a competitor of their employer after they have ceased their employment. If such a restriction is reasonably necessary to prevent an employee from disclosing trade secrets or taking away the employer's customers, and it has reasonable geographic and time limitations, it is also likely to be upheld. Hence, Sky-High Designs is most likely to win.

Question 2

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.

Accepted Answer

A court's view of public policy is determined by what the court believes is in the best interests of society. Public policy may change with the times; changing social and economic conditions may make behavior that was acceptable in an earlier time unacceptable today, or vice versa.

Question 3

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.

Accepted Answer

The legal concept of unconscionability pertains to unequal bargains. Today's courts are responding to the problem by recognizing the idea of unconscionable contracts and contracts of adhesion-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 4

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.

Accepted Answer

Congress and the state legislatures have passed a variety of statutes regulating numerous kinds of activities. The basic purpose of such statutes is to protect the public from dishonest or unskilled persons.

Question 5

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.

Accepted Answer

An exculpatory 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 own negligence. Exculpatory clauses that seek to avoid liability for willful misconduct or fraud, however, are generally unenforceable.

Question 6

_____ 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

Accepted Answer

Usury laws prohibit charging more than a stated amount of interest for the use of money. The penalty for violation ranges from forfeiture of excess interest, through forfeiture of all interest, to forfeiture of interest and principal, depending on the state.

Question 7

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.

Accepted Answer

Whether a statute is classed as regulatory (for the protection of the public) or revenue raising depends on the intent of the legislature, which may not always be clearly expressed. As a general rule, statutes that require proof of character and skill and impose a penalty for violation are considered regulatory.

Question 8

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.

Accepted Answer

Usury laws prohibit charging more than a stated amount of interest for the use of money. The penalty for violation ranges from forfeiture of excess interest, through forfeiture of all interest, to forfeiture of interest and principal, depending on the state.

Question 9

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.

Accepted Answer

A contract may call for the performance of several promises, some legal and some illegal. If the contract is divisible-that is, if the legal parts can be separated from the illegal parts-the courts enforce the legal parts of the contract.

Question 10

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.

Accepted Answer

Whether a statute is classed as regulatory (for the protection of the public) or revenue raising depends on the intent of the legislature. As a general rule, statutes that require proof of character and skill and impose a penalty for violation are considered regulatory. Those that impose a significant license fee and allow anyone who pays the fee to obtain a license are classed as revenue raising.

Question 11

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

Accepted Answer

There are no remedies for cases involving illegal wagering contracts. For usury contracts, forfeiture of excess or all interest is recommended.

Question 12

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.

Accepted Answer

The public interest is best served when public officials fully and faithfully perform their duties. Agreements that induce public servants to deviate from their duties are illegal. For example, agreements to pay public employees more or less than their lawful salary, as Magnus does in this scenario, are unlawful.

Question 13

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.

Accepted Answer

It is generally held that agreements by unlicensed persons to perform regulated services or engage in regulated businesses are illegal and therefore unenforceable. One major exception to this general rule that must be noted is the case of revenue raising statutes. 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 14

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

Accepted Answer

An exculpatory 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 own negligence. Public policy generally favors holding people responsible for their own behavior. On the other hand, if no duty to the public is involved and the parties have freely and knowingly agreed, the exculpatory clause may be enforceable.

Question 15

_____ 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

Accepted Answer

When the parties create a new risk for the sole purpose of bearing it, it is an illegal wager. The difference between stock and commodity transactions and wagers lies in the fact that the parties to stock and commodities transactions are legally bound to the purchase agreement. In an illegal wager, such as a bet on the future performance of a stock or commodity, no purchase is involved.

Question 16

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.

Accepted Answer

Agreements whose sole purpose is to restrain trade are illegal. However, a restraint that is merely ancillary to a contract may be legal if it is designed to protect interests created by the contract and it is no broader than is reasonably necessary to protect those interests.

Question 17

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.

Accepted Answer

An exculpatory 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 own negligence. Public policy generally favors holding people responsible for their own behavior. On the other hand, if no duty to the public is involved and the parties have freely and knowingly agreed, the exculpatory clause may be enforceable.

Question 18

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.

Accepted Answer

If the restriction covers a reasonable geographic area and a reasonable time period, it will probably be upheld. Restricting employment in the field for fifteen years is an unreasonable period of time and is therefore illegal.

Question 19

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.

Accepted Answer

Any agreement that tends to induce a fiduciary (a person in a position of trust or confidence like a trustee, agent, or partner) to breach his or her fiduciary duties is illegal. The only way a fiduciary may lawfully enter such an agreement is by fully and fairly disclosing the conflict to his or her principal or beneficiary in advance.

Question 20

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.

Accepted Answer

Sunday laws (also called "Blue Laws") prohibit the performance of certain work and the transaction of certain business on Sunday. Such laws vary considerably from state to state.

Quiz 15: Illegality

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

The legal concept of unconscionability:

Regulatory statutes are designed primarily to:

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

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

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

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

If a contract is divisible, the court:

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

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

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:

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

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.

_____ is an example of an illegal wager.

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

Which of the following statements is true of exculpatory clauses?

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:

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

Which of the following is true of blue laws?