Deck 14: Capacity and Legality

Question 1

A lender who makes a loan at an interest rate above the lawful maximum commits usury.

Answer 1

True

Question 2

All persons can make legally binding contracts in all situations.

Answer 2

False

Question 3

A minor can enter into any contract an adult can, without exception.

Answer 3

False

Question 4

A minor can disaffirm a contract at any time but remains legally obligated to perform it.

Question 5

A party may have the capacity to enter into a valid contract and the right to avoid liability under it.

Question 6

A contract entered into by an intoxicated person can be voidable.

Question 7

A minor can ratify a contract and thus make it enforceable.

Question 8

A contract to do something that is prohibited by statutory law is illegal but not void from the outset.

Question 9

The lack of a license in certain occupations bars the enforcement of work-related contracts.

Question 10

If intoxication is purely voluntary, the intoxicated person's contracts are not voidable.

Question 11

A contract that calls for an action contrary to public policy is illegal but not unenforceable.

Question 12

Contracts entered into by mentally incompetent persons are not valid under any circumstances.

Question 13

A contract to do something that is prohibited by statutory law is void from the outset.

Question 14

The contracts entered into by a minor are voidable at the option of that minor.

Question 15

Any contract entered into with an unlicensed party is enforceable.

Question 16

The performance of a contract cannot be rendered illegal by a statute after the parties have already entered into the contract.

Question 17

If a person was sufficiently intoxicated to lack mental capacity, his or her contracts are void.

Question 18

Goods and services that are reasonably needed to maintain a minor's standard of living, such as food, clothing, shelter, and medical services, are known as utilities .

Question 19

To disaffirm a contract is to deny its existence.

Question 20

Contracts entered into by mentally incompetent persons may be disaffirmed.

Question 21

A contract clause that releases an employer from liability for any injury to an employee, no matter who is at fault, is generally enforceable.

Question 22

A landlord can avoid liability for injuries that occur on rental property by including an exculpatory clause in the lease.

Question 23

A court usually will enforce a covenant not to compete provided its restrictions are reasonable.

Question 24

Bianca, a minor, enters into a contract to buy two all-season passes from Chalet Ski Park. The contract will be made enforceable if Bianca

A)ratifies it.
B)disaffirms it.
C)nullifies it.
D)voids it.

Question 25

A contract provision that deprives one party of the benefits of the agreement may seem unfair but a court is not likely to consider it unconscionable.

Question 26

A party to a contract who has no reason to know that the contract is illegal can often obtain restitution on a partially executed contract.

Question 27

Generally neither party to an illegal contract can sue for breach.

Question 28

If an illegal contract is executory, either party can enforce it.

Question 29

Twig is fifteen. In most states, for contractual purposes, Twig would be considered a minor until she is

A)sixteen.
B)seventeen.
C)eighteen.
D)twenty-one.

Question 30

When a covenant not to compete is unreasonable in its essential terms, a court will refuse to reform the covenant.

Question 31

Generally, any party to an illegal contract can recover for performance rendered.

Question 32

Contracts in restraint of trade always violate one or more federal or state statutes.

Question 33

Among the requirements for a valid contract, courts generally presume the existence of

A)none of the choices.
B)minority.
C)mental incompetence.
D)contractual capacity.

Question 34

Evelyn is a minor. As a minor, she

A)is not usually legally bound by a contract.
B)has the right to avoid liability under a valid contract.
C)has the capacity to enter into a valid contract.
D)all of the choices.

Question 35

Restraints of trade interfere with free competition.

Question 36

Opal is a minor. In at least some states, Opal can enter into a legally binding contract when she

A)reaches the age of majority.
B)gets married.
C)is emancipated from her parents.
D)all of the choices.

Question 37

A promise to refrain from competing in business with another is considered to be unconscionable.

Question 38

The general rule is that any party to an illegal contract can recover for performance rendered.

Question 39

An unconscionable contract is one in which the terms of the agreement are oppressive, unscrupulous, or grossly unfair.

Question 40

The general rule is that no party to an illegal contract can sue for breach.

Question 41

Intoxicated, Hans enters a contract for the sale of ten acres of timberland to Ira for less than its market value. Later, Hans seeks to cancel the deal. In determining whether Hans can avoid his duties under the contract, a court is most likely to look at

A)only Hans's intoxicated mental state.
B)only factors other than the Hans's intoxicated mental state.
C)Hans's intoxicated mental state and other factors.
D)none of the choices.

Question 42

Bern, a minor, signs a contract to buy a Caterwauler jet boat from Dahl, an adult. Dahl

A)can avoid the contract without Bern's consent.
B)cannot avoid the contract.
C)can avoid as much of the contract as Bern elects to avoid.
D)must obtain Bern's consent to avoid the contract.

Question 43

Accepting and giving legal force to an obligation that previously was not enforceable is

A)disaffirmance.
B)emancipation.
C)ratification.
D)illegal.

Question 44

Seth is mentally incompetent but has not been adjudged by a court to be incompetent. Seth enters into a contract with Toby for the cleaning and maintenance of Seth's warehouse. Most likely, the contract is

A)voidable if Seth did not comprehend the consequences.
B)enforceable if Toby did not know that Seth was mentally incompetent.
C)enforceable if the warehouse needs cleaning and maintenance.
D)void.

Question 45

Deb is a minor. She can enter into any contract an adult can, provided

A)the adult is willing to enter into contracts with minors.
B)Deb is willing to disaffirm the contract.
C)the contract is not one prohibited by law for minors.
D)an adult is willing to ratify the contract.

Question 46

Intoxicated, Obo enters a contract for the sale of his business, Precision Parts, to Quad for less than its market value. This contract is voidable if, at the time,

A)Obo's intoxication was purely voluntary.
B)Quad fraudulently induced Obo to become intoxicated.
C)Quad was also intoxicated.
D)Obo understood the legal consequences.

Question 47

Les, a minor, enters into a contract to buy a dirt bike from Motocross LLC. Les can ordinarily disaffirm the contract

A)in a timely manner.
B)at any time during minority.
C)for a reasonable time after coming of age.
D)all of the choices.

Question 48

Gretchen is adjudged by a court to be mentally incompetent. Gretchen

A)can enter into a valid contract and cannot avoid liability under it.
B)can enter into a valid contract but has the right to avoid liability under it.
C)cannot form a legally binding contract with another party.
D)is presumed to have contractual capacity.

Question 49

Dari, a minor, wants to disaffirm a contract that she entered into with Echo, a cell service company. The law in Dari's state, as in all states, permits minors to disaffirm

A)fully executed contracts only.
B)executory contracts only.
C)executory and fully executed contracts.
D)none of the choices.

Question 50

A contract to do something that is prohibited by statute is

A)enforceable if the parties are aware of the prohibition.
B)enforceable if the parties are ignorant of the prohibition.
C)enforceable if the contract does not negatively affect society.
D)unenforceable.

Question 51

Jac enters into a contract with Knut, an unlicensed contractor. This contract may be enforceable if

A)the statute's purpose is to protect the public from unauthorized practitioners.
B)the lack of a license in Knut's occupation bars the enforcement of work-related contracts.
C)the statute expressly affirms the barring of a contract's enforceability.
D)the statute does not expressly affirm the barring of a contract's enforceability.

Question 52

Cass agrees to sell her Daily Donut shop to Ernie. In the agreement, there is a covenant not to compete that prohibits Cass from operating a donut shop within a certain distance. If the restriction is unreasonable, a court will most likely

A)award Cass damages.
B)order Ernie to stop doing business.
C)reform the covenant.
D)prohibit both parties from operating donut shops.

Question 53

Intoxicated, Efron enters a contract for the sale of his business, Freight Dispatch, to Gretel for less than its market value. This contract is enforceable if, at the time,

A)Efron's intoxication was purely voluntary.
B)Gretel fraudulently induced Efron to become intoxicated.
C)Gretel was also intoxicated.
D)Efron understood the legal consequences.

Question 54

In determining procedural unconscionability, a court is most likely to consider whether

A)none of the choices.
B)any provision left one party without a remedy for nonperformance.
C)any provision deprived one party of the benefits of the agreement.
D)the buyer had an opportunity to ask questions about the contract.

Question 55

Quest enters into a contract to buy a thoroughbred from Rancho Mesa. Quest can disaffirm the contract

A)only by words.
B)only by conduct.
C)by words or conduct.
D)none of the choices.

Question 56

Horse racing, video poker games, and charity-sponsored bingo are

A)forms of gambling not allowed or regulated by any state.
B)forms of gambling allowed and regulated by many states.
C)forms of gambling allowed and regulated by all states.
D)not forms of gambling.

Question 57

Reed agrees to sell his Sports Equipment store to Taylor. As part of the sale, Reed promises not to open a similar, competing store anywhere. This promise is most likely

A)invalid because it is part of a sale of an ongoing business.
B)invalid because of the unreasonable terms of area and time.
C)valid because it is part of a sale of an ongoing business.
D)valid if both parties are justifiably ignorant of the facts.

Question 58

The purpose of the right to disaffirm a contract is to

A)recognize the legitimate interests of those who contract with minors.
B)protect minors.
C)restore persons to positions they held before contracting.
D)ratify a contract and make it enforceable.

Question 59

Foy, a minor, misrepresents his age when entering into a contract to buy a car from Gas Hogs Inc. Foy takes possession of the car, but makes no payments on the contract and tries to disaffirm it. Most likely, Gas Hogs can recover

A)an amount equal to the wholesale value of the car.
B)the car, but not any of the balance due on the contract.
C)the balance due on the contract.
D)nothing.

Question 60

Von, a minor, wants to return a set of skis that he bought from Winter Sports. He used-and wrecked-the skis. In a state in which a duty of restitution is imposed, Von most likely

A)can return the skis "as is" and avoid further liability.
B)is not required to return the skis due to his or her minority.
C)must return the skis and pay for the damage.
D)cannot return the skis unless they can be fully restored.

Question 61

A lease between Mia and Niles for residential property contains an exculpatory clause. This clause is most likely

A)enforceable as a matter of public policy.
B)enforceable if either party is in a business important to the public.
C)enforceable if an event occurs to which the clause applies.
D)unenforceable.

Question 62

Fagin and Gretel agree to hijack a truck carrying a load of almonds. If Fagin later refuses to go through with the crime, Gretel can

A)enforce the agreement.
B)obtain damages in the amount of her partner's share of the illegal profits.
C)obtain damages in the amount of her own share of the illegal profits.
D)none of the choices.

Question 63

Best Products Inc. hires Cole to develop and implement an e-commerce strategy for marketing Best's products. Cole signs a contract that includes a clause prohibiting him from competing with Best during and after the employment. Before the strategy is implemented, Cole resigns from Best's employ and opens a business to compete with Best. In Best's suit against Cole, to determine whether Cole may compete with Best, what is the most important factor the court should consider?

Question 64

At Mattress Store, Nate signs a contract to buy bedroom furniture. The contract sets a schedule of $500 monthly payments, subject to a late fee of 150 percent. Nate finds the language of the contract difficult to understand. This is most likely

A)an exculpatory contract.
B)procedural unconscionability.
C)substantive unconscionability.
D)an enforceable contract.

Question 65

The state of Nevada enacts a usury statute. With respect to different types of transactions, including ordinary loans, the purpose of the statute is to

A)set a maximum rate of interest.
B)regulate certain forms of gambling.
C)specify clauses that must be included in certain contracts.
D)prohibit certain contracts based on their subject matter.

Question 66

Lazlo and Mac bet illegally on the outcome of a sporting event. Before the event is held, Lazlo changes his mind about the wager. Lazlo can

A)not withdraw from the deal without Mac's consent.
B)not withdraw from the deal under any circumstances.
C)withdraw from the deal by giving notice.
D)not withdraw from the deal without paying Mac's expenses.

Question 67

Through fraudulent means, Duke induces Emma to sign a contract to invest with him the profits from her business. When Emma learns the truth, she may

A)withdraw from the deal.
B)recover what she invested.
C)enforce the contract.
D)any of the choices.

Question 68

Ada agrees in writing to pay Bob to damage Ada's car, which is fully insured. Bob damages the car, but Ada's insurer refuses to pay for the damage. In Ada and Bob's suit against each other for breach of contract, the court is most likely to

A)enforce the contract.
B)allow Ada to recover.
C)allow Bob to recover.
D)none of the choices.

Question 69

Owen, the owner of Parts Company, pays Quint to obtain a competitor's design patent. Quint keeps the money but does not deliver. Owen can

A)none of the choices.
B)recover from Quint.
C)enforce the contract with Quint.
D)recover from the competitor.

Question 70

Oscar owns Payroll Company, a bookkeeping service. Oscar pays Remy $5,000 to steal a list of a competitor's clients. This deal is

A)enforceable.
B)void.
C)voidable at the option of either party.
D)voidable at the option of the party having less bargaining power.

Question 71

Insurance Company violates a state licensing statute when selling a policy to Jay, in whose state it is not licensed to sell insurance. As a member of the class of persons protected by the statute, Jay can

A)none of the choices.
B)enforce the policy and recover from the insurer.
C)obtain a license to sell insurance and a list of the insurer's customers.
D)collect benefits under the policy immediately.

Question 72

Game Corporation hires Hale, a minor, to create new customized game software for certain clients. Hale signs a contract that requires her to work for Game for eighteen months. Before beginning work, however, Hale tells Game that she will not create new software for Game and that she is going to work for Imagine Inc., a Game competitor. Is Game's contract with Hale enforceable? Why or why not?