Deck 16: Legality and Public Policy

Question 1

It generally is incorrect to use the phrase "illegal contract" because, if an agreement is illegal, the courts do not recognize it as a contract and the agreement is void.

Answer 1

True

Question 2

The social consequences of a contract are important in determining the contract's validity.

Answer 2

True

Question 3

Where a court recognizes an agreement to be illegal, a lawsuit based on that agreement may be dismissed by the court even if neither plaintiff nor defendant raised the issue of illegality.

Answer 3

True

Question 4

If a contract can be interpreted in two ways, one legal and the other illegal, the court will assume that the legal meaning was intended unless the contrary is clearly indicated.

Question 5

Companywide standardized form contracts imposed on a "take-it-or-leave it" basis by a party with superior bargaining strength are called contracts of collusion.

Question 6

Unconscionability is determined in the light of the circumstances existing at the time that the contract was made.

Question 7

A provision in a contract that gives what the court believes is too much of an advantage over a buyer may be held void as unconscionable.

Question 8

Courts are quick to invalidate contracts on the ground that they are contrary to public policy because such contracts are so offensive to society.

Question 9

Unconscionability and fraud are synonymous terms.

Question 10

An agreement that calls for the commission of a civil wrong is illegal and void.

Question 11

If a contract appears to be legal on its face, it will be enforceable even if it was entered into for an illegal purpose.

Question 12

Ordinarily, a court will not consider whether a contract is fair or unfair.

Question 13

Even if part of a contract is illegal, the court may enforce a divisible, legal part of the contract.

Question 14

In every contract there exists an expressed covenant of good faith and fair dealing.

Question 15

Legislation commonly requires that an installment-sale contract specify the cash price, down payment, finance charges, and insurance costs.

Question 16

An agreement is illegal when either its formation or performance is a crime or a tort, or it is contrary to public policy.

Question 17

An unlicensed doctor can sue a patient for the doctor's fee if the patient in fact recovered because of the doctor's care.

Question 18

To stabilize the industry, manufacturers of the same or similar products may agree that each will market its product in a specified geographic area of the country and will not market its product in the territory assigned to other manufacturers.

Question 19

An unlicensed insurance broker who cannot personally recover a fee because of the absence of a license can effectively circumvent the statutory requirements by having a friend who is a licensed broker bill for the services and collect the payment for him.

Question 20

Agreements not to compete are always void.

Question 21

An illegal provision in a contract:

A)causes the entire contract to be voidable.
B)causes the entire contract to be rescinded.
C)can be ignored by the parties in their performance of the remaining provisions of the contract, assuming that the remaining portions of the contract can stand on their own.
D)can be ignored by the parties, because an illegal provision in a contract is not deemed substantial.

Question 22

Which of the following types of contracts might be unenforceable as contrary to public policy?

A)a contract that is contrary to the protection of the public welfare, health, or safety
B)a contract that is contrary to the protection of the person
C)a contract that is contrary to the protection of recognized social institutions
D)all of the above

Question 23

In the case of an illegal contract, both parties usually are prohibited from seeking relief in the courts:

A)if the illegal contract has not been performed.
B)if the contract has been partially performed.
C)if the contract has been fully performed.
D)all of the above.

Question 24

An agreement to restrain trade may be void on the grounds that it is:

A)fraudulent.
B)contrary to public policy.
C)illegal lobbying.
D)unfair to merchants.

Question 25

Agreements that are illegal are:

A)enforceable if one party acted in good faith.
B)voidable by one of the parties.
C)void.
D)voidable by either party.

Question 26

Which of the following agreements represent(s) an unreasonable restraint of trade?

A)a combination to create a monopoly
B)an agreement to obtain a "corner" on a market
C)an association of merchants to increase prices
D)all of the above

Question 27

Private lotteries, which generally are held to be illegal, involve three elements:

A)prize, chance, and consideration.
B)return, skill, and wager.
C)prize, skill, and consideration.
D)attractive return, minimal involvement, and skill.

Question 28

Penalties for violating usury laws are uniform from state to state.

Question 29

A contract that is deemed to be too harsh or oppressive to one of the contracting parties may be unenforceable under the concept of:

A)unilateral influence.
B)bilateral influence.
C)unconscionability.
D)conscionability.

Question 30

Which party to an illegal agreement may get relief from the court?

A)plaintiff
B)defendant
C)the less-guilty party, when public interest is advanced by granting relief
D)a doctor who was unlicensed at the time of the making of an agreement for the provision of medical services, but who later obtained a proper license

Question 31

Which of the following is not an example of an agreement injuring public service?

A)agreements to sell public offices
B)agreements to obtain pardons through offers of money
C)agreements to submit a bid on a construction project
D)agreements by public officers to accept less in pay than stipulated by law

Question 32

The validity of a contract is not affected by:

A)the effect of the contract on the community.
B)unconscionability.
C)the absence of good faith.
D)the fact that the contract turned out to be a bad bargain for one of the parties.

Question 33

The failure to have a license will not render agreements void if the license:

A)is based on formal education.
B)is a real estate license.
C)is a regulatory license.
D)is readily obtainable by anyone who offers payment of a required fee.

Question 34

A noncompetition covenant may be held invalid because of vagueness concerning the duration and geographic area of the restriction.

Question 35

Fees charged by a lender for the reasonable expense of making a loan, such as the cost of appraising property, are treated as interest for purposes of the usury law.

Question 36

One element involved in the determination of unconscionability is:

A)the comparative bargaining power of the parties.
B)the opportunity to make a contract for better terms with someone else.
C)the course of the economy after the contract is made.
D)whether a loss will be sustained by performance of the contract.

Question 37

Today, what is an important element in determining the validity of a contract?

A)the Uniform Contract Code
B)whether the agreement might harm the public welfare
C)whether the contract is wise or foolish
D)whether the contract operates unequally between the parties

Question 38

Which of the following is not illegal?

A)an office football "pool" with a cash entry fee and cash prize
B)a raffle with an entry fee to win a car
C)a "giveaway" to every tenth person who buys meat at a butcher shop
D)a "giveaway" to every tenth person entering a department store

Question 39

An agreement to slander a third person would not be enforceable because slander is a(n):

A)crime.
B)civil wrong.
C)infringement of privacy.
D)assault.

Question 40

When a nationally-known neurosurgeon in Chicago, Illinois sells her practice, the contract may specify that the seller will not practice within a 100-mile radius of Chicago for one year.

Question 41

An agreement between Jim and his 18-year-old daughter, Betty, provides that he will give her $25,000 if she does not marry until after her 22nd birthday. One month after reaching the age of 22, Betty, still unmarried, claims the $25,000.
Jim refuses to pay, claiming that the agreement was illegal. Is Jim correct?

Question 42

In an employment contract, agreements not to compete are:

A)illegal.
B)uniformly held to be in the public interest and therefore legal.
C)never questioned by the court.
D)valid, if the restriction is reasonable and necessary for the protection of the benefited party.

Question 43

Sam Wilson often goes to the horse races, participates in his state's lottery, and invests heavily in the stock of major U.S. companies. At work, Wilson is approached by his coworkers and asked to participate in a football pool. "It's totally based upon skill," his friends claim. In addition, Wilson's philanthropic club is holding a raffle in which an individual could win a new car. Are these activities gambling and therefore illegal activities?

Question 44

When money is loaned at a greater rate of interest than is allowed by law, __________ is committed.

A)usury
B)credit misfeasance
C)petty theft
D)credit malfeasance

Question 45

Art and Mary were good friends who went through high school and college together. Art eventually became a college philosophy professor and Mary went into the business world. Mary became a senior vice-president of a management firm and learned many of the company's trade secrets. Both Art and Mary signed one-year contracts with their respective employers. The contracts contained clauses that provided that they would not compete against their former employers for a period of one year after leaving their jobs. The area covered by the restrictions for both Art and Mary was a radius of 500 miles from the place of employment.
Both Art and Mary resigned and within two months took other jobs. Art went to work for another college 50 miles away, teaching philosophy. Mary took a job 75 miles from her former employment. Her new position was similar to her former job. The former employers sued to enforce the anticompetitive covenants in the original contracts. Discuss the probable outcome of the lawsuits.

Question 46

An agreement not to compete is enforceable:

A)in the sale of a business.
B)between competitors.
C)in contracts for the sale of goods.
D)in contracts for the sale of securities.

Question 47

Which of the following is not an example of a state penalty for violating usury law?

A)restricting the lender to the recovery of the loan but no interest whatsoever
B)allowing the lender to recover the loan principal and interest up to the maximum contract rate
C)restricting the lender to the recovery of the loan plus seventy-fifty percent (75%) of the interest
D)requiring the lender to pay, as a penalty, double the interest the borrower paid on a usurious loan