Exam 13: Legality

Cherise contacted her insurance agent and said she was interested in purchasing several life insurance policies: (a)a policy on her own life for $100,000,naming her son and daughter as beneficiaries; (b)a policy on her neighbor's life for $100,000,since she had observed him engaging in reckless behavior,naming herself as beneficiary; (c)a $5,000 policy on another neighbor to cover a loan Cherise made to him,naming herself as beneficiary; and (d)a $250,000 policy on her business partner,naming herself as beneficiary.Discuss the legality of each of these potential contracts.

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Question 1

Correct Answer:

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A person may insure her own life for any amount and may name any beneficiary.Anyone who takes out a life insurance policy on the life of another must have an insurable interest in that person.The policy in (a)would be legal,as Cherise is insuring her own life.The potential policy in (b)is lacking in insurable interest; therefore there could be no enforceable contract.The policy in (c)would be legal because the debtor-creditor relationship creates an insurable interest.The potential policy in (d)would be legal,as the business relationship creates an insurable interest; Cherise would need compensation if her business partner dies.

E-mation entered into a contract with a consumer,Ezra,a recent immigrant to the United States,who spoke very little English,and had no formal education.The contract provided for Ezra to pay $2500 for a computer system.The system was worth $400.If E-mation sued Ezra for enforcement the contract,what is the most likely result?

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Question 2

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Virginia borrowed money from G & L Lending at 35% interest per year.The state maximum interest rate is 20% per year.Virginia defaulted on the loan.What amount can G& L collect from Virginia?

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Question 3

Correct Answer:

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Mabel,an 85-year-old widow who is in poor health,signs a contract with the only nursing home in Anytown (the nearest alternative facility is 75 miles away).The contract obligates Mabel to pay $4,000 per month for the rest of her life and for her estate to pay the same amount for the period of time that the unit sits empty upon her death.Mabel's daughter believes this agreement amounts to an adhesion contract.What is an adhesion contract? What factors will a court look at in determining whether an adhesion contract exists?

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Question 4

In the case of Worldwide Insurance v.Klopp,the Supreme Court of Delaware found that:

(Multiple Choice)

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Question 5

A gambling contract is legal unless it is specifically prohibited by state statute.

(True/False)

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Question 6

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?

(Multiple Choice)

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Question 7

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?

(Multiple Choice)

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Question 8

Rudolph overhears Macy's plans to go skydiving over spring break.Not really knowing Macy,but figuring it's worth a chance,Rudolph rushes out and buys an insurance policy for $100,000 on Macy's life.Macy does in fact meet her demise jumping out of the airplane.Rudolph can collect the $100,000.

(True/False)

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Question 9

Cynthia and Brian were friends.Brian was a dare devil.Because of his antics,Cynthia thought that Brian wasn't long for this life.Cynthia purchased a life insurance policy on Brian's life.Subsequently,Brian was killed in a car accident.Since Cynthia and Brian were friends,Cynthia had an insurable interest in his life and will be entitled to the insurance proceeds.

(True/False)

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Question 10

John was a licensed physician in Michigan.When he retired to Florida,he started providing medical services to the people in his condo,relying on his Michigan license.Isaac,John's next-door neighbor,owed John $2000 for medical services.John will be able to enforce the contract he made with Isaac.

(True/False)

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Question 11

Mark works as a bartender at The Little Nipper,a local bar.Under state law,bartenders are required to be licensed.The licensing requires filling out an application and submitting a $50 application fee.The application does not require any special education or experience,just the $50 fee.Craig enters Mark's bar,orders a round of drinks for the house,then notices that Mark's license is not on display behind the bar.Craig learns that Mark is not licensed and refuses to pay for the round of drinks.The Little Nipper sues.What result?

(Multiple Choice)

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Question 12

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 noncompete clause.What is the most likely result?

(Multiple Choice)

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Question 13

Which of the following relationships will ordinarily not create an insurable interest?

(Multiple Choice)

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Question 14

To raise revenues,the City of St.Cloud required restaurants to purchase a special permit if they wanted to serve food in an open-air patio.(This is in addition to he sanitation inspection license.)While at Hola Taco,a restaurant in St.Cloud,a customer notices that Hola Taco's permit expired.This mean the customer is not legally required to pay for her food.

(True/False)

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Question 15

Barbara,a skilled welder,was hired at Mainco Enterprises for a welding position.She was asked to sign noncompete clauses limiting future employment if she left Mainco.A court would be very likely to enforce the noncompete clause unless the time or geographic restriction is unreasonable.

(True/False)

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Question 16

When Mohammed was hired by Pomico,Inc.,he signed the following agreement,"Upon termination of my employment with Pomico,I agree not to work for a competing company within 30 miles of Pomico's headquarters for one year." This agreement,important to protecting secret information developed in the employer's business,is:

(Multiple Choice)

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Question 17

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?

(Multiple Choice)

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Question 18

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 noncompete clause restricting Judith from opening a similar business for two years 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:

(Multiple Choice)

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Question 19

If a court finds as a matter of law that a clause of a contract was unconscionable at the time the contract was made,the court must refuse to enforce the contract.

(True/False)

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Question 20

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Exam 13: Legality

Virginia borrowed money from G & L Lending at 35% interest per year.The state maximum interest rate is 20% per year.Virginia defaulted on the loan.What amount can G& L collect from Virginia?

In the case of Worldwide Insurance v.Klopp,the Supreme Court of Delaware found that:

A gambling contract is legal unless it is specifically prohibited by state statute.

Rudolph overhears Macy's plans to go skydiving over spring break.Not really knowing Macy,but figuring it's worth a chance,Rudolph rushes out and buys an insurance policy for $100,000 on Macy's life.Macy does in fact meet her demise jumping out of the airplane.Rudolph can collect the $100,000.

John was a licensed physician in Michigan.When he retired to Florida,he started providing medical services to the people in his condo,relying on his Michigan license.Isaac,John's next-door neighbor,owed John $2000 for medical services.John will be able to enforce the contract he made with Isaac.

Which of the following relationships will ordinarily not create an insurable interest?

Barbara,a skilled welder,was hired at Mainco Enterprises for a welding position.She was asked to sign noncompete clauses limiting future employment if she left Mainco.A court would be very likely to enforce the noncompete clause unless the time or geographic restriction is unreasonable.

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?

If a court finds as a matter of law that a clause of a contract was unconscionable at the time the contract was made,the court must refuse to enforce the contract.

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