Deck 13: Illegal Bargains

Question 1

A covenant not to compete is a type of restraint of trade that courts today will enforce under certain circumstances.

Answer 1

True

Question 2

Bill is currently enrolled in law school.He expects to graduate and take the bar exam in order to be able to practice law.Before Bill becomes a lawyer, he promises to represent his friend, Tom, in a breach of contract action if Tom will pay him 25% of the settlement.Bill negotiates and the case settles for $50,000.Tom refuses to pay Bill.Bill then graduates and attempts to sue Tom.Bill has a legal right to enforce the agreement.

Answer 2

False

Question 3

As a general rule, illegal contracts are unenforceable and neither party can successfully sue the other for breach or recover for any performance rendered.

Answer 3

True

Question 4

Specific lender usury statutes rather than the general usury statute generally apply to real estate mortgages and small consumer loans.

Question 5

Maximum rates of interest that are permitted under usury statutes are uniform from state to state.

Question 6

Bargains are illegal if they involve a crime or tort but not if they are merely against public policy.

Question 7

An exculpatory clause attempts to excuse one from liability for her own tortious conduct.

Question 8

Regulation of gambling is solely under federal jurisdiction, through Congressional legislation and U.S.court enforcement.

Question 9

The Code and the Restatement both contain definitions of what constitutes "unconscionable" conduct.

Question 10

An exculpatory clause excusing a party from liability for harm caused by reckless conduct will generally make a contract unenforceable as a violation of public policy.

Question 11

Noncompete agreements for Internet-related jobs have the same limitations in determining what is reasonable as to time and place restrictions as other types of jobs.

Question 12

A contract to commit a tort will be enforced by the courts.

Question 13

Stuart promises to act as a guide and fishing instructor on a trip for a group of visiting dignitaries.The dignitaries agree to pay him $200 for his services.Stu completes his duties, but when they discover that Stu does not have a fishing license, they refuse to pay him.The agreement between Stu and the dignitaries is an illegal one, which is not enforceable.

Question 14

The courts readily enforce a covenant not to compete during the period of employment.

Question 15

An adhesion contract is offered on a "take-it-or-leave-it" basis.

Question 16

Many states impose no limit on the rate of interest which may be charged on loans to corporations.

Question 17

At common law, a valid contract may not be entered into on Sunday.

Question 18

Although wagering is generally illegal, some states permit certain kinds of regulated gambling, especially wagering conducted by governmental agencies.

Question 19

Where a stipulation in restraint of trade is a part of the contract for the sale of a business, it may be valid if the
restraint is within reasonable limitations to protect the business's goodwill.

Question 20

The term "public policy" is precisely and narrowly defined in the Restatement and by state statutes.

Question 21

In cases where one party to an illegal agreement is less at fault than the other, he will be allowed to recover payments made or property transferred.

Question 22

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

Question 23

Divided Parcel (DP) includes the following on its mailing receipts: "We are not responsible for any damages to packages whether or not through the fault or negligence of our employees.Send packages at your own risk." Mary reads this clause but sends her watch back to its manufacturer to be repaired anyway.The watch is destroyed when the DP driver negligently drops and runs over the package.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 is a common carrier.

Question 24

The courts will enforce an agreement declared illegal by statute.

Question 25

Nell gives 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.

Question 26

Edward, an engineer, is working on a new design for some highly technical equipment which XYZ, Inc.hopes to market within the next five years.The employment agreement between Edward and XYZ 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 XYZ, Inc.This agreement is void and unenforceable, because it would make it difficult for Edward to find other employment.

Question 27

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.

Question 28

Courts require that for a contract to be unenforceable based on unconscionability, both substantive and procedural unconscionability must be equally present.

Question 29

William recently sold his successful business to Janice.The contract for the sale contained an unreasonable restriction that did not allow William to open a similar business for fifteen years.In this instance, the courts would likely:

A)reform the contract to make it reasonable and enforceable.
B)require the parties to draft a new contract.
C)enforce the contract as it is written.
D)void the contract on grounds of unconscionability.

Question 30

"Blue laws" usually apply to activities of necessity and charity.

Question 31

One type of restraint of trade is a covenant not to compete.

Question 32

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 para delicto.
B)partial illegality.
C)substantive unconscionability.
D)procedural unconscionability.

Question 33

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

Question 34

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.

Question 35

Deanna, 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.Dogood who agrees to testify on behalf of Deanna's client at the trial.In return for Dr.Dogood's testimony, Deanna agrees to pay Dr.Dogood $10,000 if they win the case, and $5,000 if they lose.Dr.Dogood agrees.The agreement between Deanna and Dr.Dogood is unenforceable.

Question 36

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

Question 37

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.

Question 38

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:

A)exculpatory.
B)conscionable.
C)necessary to protect the employer's legitimate interest.
D)in compliance with the state's Blue Law.

Question 39

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 primary restraint
B)Valid as a reasonable restraint on trade
C)An unenforceable restraint of trade contrary to public policy
D)Binding as fair protection

Question 40

A number of states have enacted statutes exempting the following types of lenders from their usury laws:

A)eligible lenders of installment loans.
B)lenders for large consumer loans.
C)lenders of unsubsidized educational loans.
D)None of these.Only certain types of transactions rather than types of lenders are exempted.

Question 41

Custom Sales and Rentals uses a four-page contract with important contract terms buried in the fine print.This is an example of:

A)procedural unconscionability.
B)a reasonable, legal business practice.
C)a "Blue law."
D)substantive unconscionability.

Question 42

Andrew owns a store in Polk County.His trade extends throughout River City, but not beyond the county limits.He sells his store to Betty and, as part of the transaction, agrees not to engage in the same business anywhere in River City for a period of five years.The agreement:

A)is reasonable regarding the geographic restraint.
B)is unreasonable.
C)unduly interferes with the interest of the public.
D)is reasonable only if the agreement was made without duress.

Question 43

A court would be likely to enforce an illegal contract:

A)under certain circumstances in which the aggrieved party was unaware of the illegality.
B)where, although the contract is unconscionable, there is only procedural unconscionability.
C)where the agreement is with an unlicensed attorney.
D)under no circumstances.

Question 44

Numerous states impose no limit on the rate of interest that may be charged on:

A)loans to corporations.
B)credit card transactions.
C)loans made by certain designated types of lenders.
D)All of these.

Question 45

Andrew owns a store in Polk County.His trade extends throughout River City, but not beyond the county limits.He sells his store to Betty and, as part of the transaction, agrees not to engage in the same business anywhere within the state for a period of three years.The agreement:

A)is reasonable.
B)is unreasonable, but enforceable since Andrew agreed to it.
C)unduly interferes with the interests of the public.
D)is reasonable, but only if Betty paid Andrew enough for the store to compensate him for lost business for three years.

Question 46

Carl and Rob are both engaged in road construction work.They know that several jobs are going to be up for public bids, and agree between themselves that Carl will bid on one job and Rob will bid on the other, so that they both have work for the summer.When the bids are opened, Carl realizes that Rob has bid on both jobs.Rob is awarded both contracts.If Carl now wants to sue Rob for breach of contract:

A)Carl would probably win on the basis of promissory estoppel since he has detrimentally relied upon Rob's representation that he would not bid.
B)the court will likely award Carl damages since Carl is less at fault than Rob.
C)the agreement is in violation of public policy and will not be enforced by the courts.
D)the agreement obstructs the administration of justice and will not be enforced by the courts.

Question 47

Bill bets his friend $100 that the Patriots will win the next Super Bowl.This is an:

A)unconscionable contract and therefore illegal.
B)illegal wagering agreement.
C)agreement to obstruct justice and therefore illegal.
D)illegal restraint of trade.

Question 48

Courts usually will require evidence of what factors for a transaction to be usurious?

Question 49

Which of the following would generally be considered to be a revenue-raising licensing law?

A)A statute requiring that doctors be licensed
B)A statute requiring that salespeople be licensed, but not establishing any educational or training requirements
C)A statute requiring public school teachers to be licensed
D)A statute that requires insurance agents to pass a test before selling insurance in a state

Question 50

Al has a tax service and accounting business in Redwood City.He decides to move to Center City, which is 150 miles away and sells his accounting practice to Able and Baker, a CPA firm.In the sales contract, he agrees that he will refrain from practicing accounting anywhere within a 20-mile radius of Redwood City for a period of two years.However, on weekends he returns to his house in Redwood City, and when clients call him, he meets with them in his home.The sales agreement:

A)is being violated by Al.
B)is invalid, because it is an illegal restraint of trade.
C)is illegal, because it is a violation of public policy.
D)will be divided into an enforceable, valid portion and an unenforceable, invalid portion, which is the time provision, because the two-year period is too long.

Question 51

The UCC provides that if a court as a matter of law finds a contract for the sale of goods or a clause of such a contract to have been unconscionable at the time it was made, the court may:

A)refuse to enforce the contract.
B)enforce the part of the contract that is not unconscionable.
C)limit the application of any unconscionable clause in order to avoid an unconscionable result.
D)All of these.

Question 52

Sarah is working hard on the mayoral campaign of Timothy.She thinks that just a few more votes could win the election, so she promises to pay her friend Violet $50 to register and vote.Violet does so, but Timothy loses the election, and Sarah now refuses to pay.The agreement is:

A)enforceable.
B)unenforceable and opposed to public policy.
C)one to obstruct the administration of justice.
D)an unconscionable contract covered by the UCC.

Question 53

Which of the following would always be considered to be contrary to public policy?

A)A contract which contains a covenant not to compete
B)A contract offered on a take-it-or-leave-it basis
C)An agreement to pay someone to make false, negative statements about a competitor's product
D)An agreement which contains an exculpatory clause

Question 54

Theresa is a travel agent at the Fly Away Travel Agency.She has signed an agreement with her employer which prohibits her from working in any similar business in any town within a 100-mile radius of where she works.If she wants to quit her job and go to work for another travel agency, it is likely that:

A)a court would uphold these restrictions.
B)if no trade secrets are involved, and she has no dominion over customers, a court would rule the restrictions to be invalid.
C)if the period of time of the agreement is under five years, it will be upheld by the court.
D)a court would rule the restrictions invalid unless her work is done predominantly online.

Question 55

Patrick agrees to sell two different goods to his friend Ron, a retailer.One item is legal, and one item is illegal.The contract price is $2,000.In this case:

A)Patrick may not recover payment for either of the items, or in some cases, he may recover for the legal item, but not for the illegal item.
B)Patrick may only recover for the legal item, and he may not recover for the illegal item.
C)the contract is unconscionable under the UCC.
D)Patrick may not recover payment for either of the items.

Question 56

A contract prepared on a standard form and offering terms on a take-it-or-leave-it basis is called:

A)exculpatory.
B)a usurious contract.
C)an illegal restraint of trade.
D)an adhesion contract.

Question 57

R&R, Inc.entered into a contract with Scott, an agent, under the terms of which Scott would receive $20,000 if he stole trade secrets from the leading competitor of R&R.Scott performed his end of the agreement by delivering the trade secrets.If R&R now refuses to pay Scott for his services, Scott:

A)may recover based upon the express contract of the parties.
B)may recover based upon a quasi-contractual theory in order to prevent the unjust enrichment of R&R.
C)will be unable to recover, because this is an illegal contract.
D)will be able to recover based upon promissory estoppel, because he has detrimentally relied upon the promises made by R&R.

Question 58

Which of the following is correct with regard to an enforceable restraint of trade?

A)The restraint should be no more extensive than is required to protect a specified property interest.
B)Restraints typically arise in connection with the sale of a business.
C)A typical restraint is a covenant not to compete.
D)All of these.

Question 59

Which of the following would be considered a valid and legally enforceable agreement?

A)An agreement to pay a legislator to vote for a particular bill
B)An agreement under which Arthur agrees to pay Barbara $3,000 to disparage the product of Arthur's competitor
C)An agreement by the seller of a service station not to enter the service station business in Ohio for a period of 30 years after the sale of his business
D)An agreement by a car salesman not to sell automobiles or automobile parts in Marin County for a period of one year after terminating his employment

Question 60

Non-compete agreements drafted for employees of Internet companies:

A)are interpreted no differently in terms of standards of reasonableness than are agreements for other types of companies.
B)are subject to larger geographic restrictions than for other types of companies.
C)are subject to longer periods of reasonable duration.
D)are irrelevant.

Question 61

Define "unconscionability" and distinguish between procedural and substantive unconscionability.

Question 62

What is the legal effect of an agreement that is criminal, tortious, or otherwise contrary to public policy, and why does it have that effect?