Deck 12: The Legality of Agreements

Question 1

If a state permits certain types of gambling, then it almost always permits gambling contracts as well.

Answer 1

False

Question 2

Any scheme that involves the distribution of property by chance among persons who have paid valuable consideration for the opportunity to receive the property is usury .

Answer 2

False

Question 3

When the performance of a contract is rendered illegal by a statute, the contract remains enforceable for a reasonable time.

Answer 3

False

Question 4

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

Question 5

Statutes may prohibit certain contracts based on their subject matter.

Question 6

A contract entered into with an unlicensed party is always unenforceable.

Question 7

Licenses provide a means of protecting the public against actions that could threaten the general welfare.

Question 8

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

Question 9

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

Question 10

Traditionally, the states considered gambling contracts legal and enforceable.

Question 11

For a contract to be valid and enforceable, it must be formed for a legal purpose.

Question 12

Restraint of trade involves interfering with free competition.

Question 13

In some states, the lack of a license in certain occupations bars the enforcement of work-related contracts.

Question 14

Statutes rarely set forth rules affecting the terms of contracts.

Question 15

All states require members of certain professions to have licenses.

Question 16

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

Question 17

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

Question 18

Licenses provide a means of regulating and taxing certain businesses.

Question 19

All states allow certain forms of gambling.

Question 20

A contract that calls for an action contrary to public policy is illegal but enforceable.

Question 21

A vast disparity of bargaining power between the parties to a contract may result in a court deeming the contract unconscionable.

Question 22

Some contracts are not enforceable because of the negative impact they would have on society.

Question 23

The state of New York 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 24

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 25

Exculpatory clauses are often held to be unenforceable.

Question 26

A contract to commit a crime is

A) enforceable if the parties entered into the contract after the statute.
B) enforceable if the parties entered into the contract before the statute.
C) enforceable if the contract does not negatively affect society.
D) unenforceable.

Question 27

Ordinarily, a court does not look at the fairness, or equity, of a contract.

Question 28

A contract to do something that is prohibited by federal or state 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 29

A court usually will reform a covenant only when it is necessary to prevent undue burdens or hardships.

Question 30

Lionel obtains a loan from Mortgage Company at an interest rate that exceeds the state's maximum. The lender has

A) imposed a scheme that involves the distribution of property by chance.
B) engaged in a restraint of trade.
C) violated a licensing statute.
D) committed usury.

Question 31

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

Question 32

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

Question 33

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 34

For a contract to be valid and enforceable, it must be formed for

A) any purpose, whether or not the purpose is legal.
B) any purpose or no purpose, legal or otherwise.
C) a legal purpose.
D) a financially beneficial purpose.

Question 35

An unconscionable contract is one in which the terms of the agreement are so unfair as to "shock the conscience" of the court.

Question 36

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

Question 37

Substantive unconscionability has to do with how a term becomes part of a contract.

Question 38

When a statute protects a certain class of people, a member of that class can enforce a contract in violation of that statute.

Question 39

Procedural unconscionability describes contracts, or portions of contracts, that are oppressive or overly harsh.

Question 40

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

Question 41

A contract between Mia and Niles to lease residential property contains an ex-culpatory clause. Such clauses are

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) often held to be unenforceable.

Question 42

Skylar enters into a contract to buy a car from Truck & Auto Sales Inc. on an installment payment plan. In considering whether this deal is unconscionable, a court would most likely look at

A) the geographic area of the relevant market.
B) the parties' relative bargaining power.
C) the quality of related products in the general market.
D) the relation of this deal to those of other customers.

Question 43

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

A) none of these.
B) any provision left one party without a remedy for the other's nonperformance.
C) any provision deprived one party of the benefits of the agreement.
D) the buyer had an opportunity to read the contract and ask questions about it.

Question 44

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 for nine years. 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 45

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 46

Rosa signs a covenant not to compete with her employer, Sales Corporation. A court decides that the covenant is unreasonably restrictive. Most likely, the court will

A) enforce it.
B) evaluate its effect over time.
C) reform it to prevent any undue burden.
D) refuse to enforce it unless the employer pays additional consideration.

Question 47

Members of certain professions are required to have licenses. Most likely, the requirements to obtain a license do not include

A) extensive schooling and examinations.
B) good character.
C) a fee.
D) an ongoing business.

Question 48

Jack enters into a contract with Kris, 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 Kris'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 49

Generally, licenses of certain professions

A) provide a means of regulating certain businesses.
B) provide a means of taxing certain businesses.
C) protect the public against actions that threaten the general welfare.
D) all of the choices.

Question 50

Orin signs a covenant not to compete with his employer, Product Distribution, Inc. The covenant will be enforced if it

A) requires both parties to obtain business licenses.
B) is reasonable with respect to geographic area and duration.
C) relieves the employer from liability for any injury to Orin.
D) is enforced by a notarized writing.

Question 51

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

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

Question 52

To avoid liability for negligence, Mart Discount Stores can normally obtain a court order to enforce

A) a covenant not to compete.
B) an adhesion contract.
C) an exculpatory clause.
D) none of the choices.

Question 53

Bay Mall requires its tenants to sign a lease that includes a clause releasing the landlord from liability in the event of injury to any person or property no matter who is at fault. This is

A) a covenant not to compete.
B) an adhesion contract.
C) an exculpatory clause.
D) an illusory promise.

Question 54

A covenant not to compete

A) is usurious.
B) protects the public from unauthorized practitioners of certain professions.
C) is a promise to refrain from competing in business with another.
D) protects the public against actions that threaten the general welfare.

Question 55

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

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

Question 56

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

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

Question 57

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 58

Ohio charges Pablo, an architect, a fee to practice his profession in the state. This is

A) usurious.
B) unconscionable.
C) a license.
D) exculpatory.

Question 59

At Mattress Store, Nate signs a contract to buy bedroom furniture. Nate finds the language of the contract difficult to understand. This is a factor in determining

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

Question 60

Pharma Corporation requires its customers to sign contracts with uncon-scionable terms or Pharma, which has few competitors, will not do business with them. Pharma can normally enforce

A) a covenant not to compete.
B) an adhesion contract.
C) a contract to restrain trade.
D) none of the choices.

Question 61

Countrywide Trucking Inc. contracts with Dewey to transport crated goods to a certain destination for $5,000. Countrywide delivers the crates, but Dewey does not pay. Countrywide learns that the crates contained stolen goods. Countrywide can recover from Dewey

A) none of the choices.
B) $5,000, but not the goods.
C) the goods but not $5,000.
D) the goods and $5,000.

Question 62

Doug agrees with Elin to sell prescription drugs illegally to Elin's friends for 25 percent of the take. Doug sells the drugs but keeps all of the money. Elin can

A) recover her share of the money.
B) not enforce the deal.
C) recover the total amount of the sales.
D) recover her costs but none of the illegal profit.

Question 63

Jim is an emergency medical technician (EMT). EMTs are prohibited by statute from working more than a certain number of consecutive hours. One month, Jim works more than the legal limit. He can get paid for

A) the hours up to the statutory maximum but not more.
B) the hours up to the statutory maximum and the extra hours.
C) the hours up to the statutory maximum or the extra hours.
D) nothing.

Question 64

Jake and Kline make an illegal contract that unjustly enriches Jake at the expense of Kline. A court will

A) not be concerned with the unjust enrichment of Jake.
B) award damages to Kline.
C) reform the contract to prevent undue burdens.
D) enforce the contract as it was originally written.

Question 65

Boz runs an illegal gambling business and pays Colin, a police officer, not to interfere. With respect to the amount of the payments, Boz can recover

A) all of it.
B) none of it.
C) only as much as Colin has not spent.
D) only as much as Colin has spent.

Question 66

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 67

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 68

Bev and Chuck negotiate a deal to transfer stolen goods for counterfeit currency that Chuck will attempt to spend at Discount Mart. This contract 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 69

In State X, persons must be at least eighteen years old before they can purchase alcoholic beverages. The state also has passed a law requiring that persons who prepare and serve liquor in the form of drinks in commercial establishments be licensed. The only requirement for obtaining a yearly license is that the person be at least eighteen years old. Moffitt, aged thirty-five, is hired as a bartender for Lone Star Restaurant.  Bekins, an alumnus of State X University, brings twenty of his friends to the restaurant to celebrate State X U's football victory. Bekins orders four rounds of drinks, and the bar bill exceeds $200. When Bekins learns that Moffitt has failed to renew his bartender's license, Bekins refuses to pay, claiming the contract is unenforceable. Is Bekins correct? Explain.

Question 70

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 71

Gold Mines Inc. sells stock in a nonexistent gold mine to Harry in violation of a blue-sky law. Harry can sue the seller to recover

A) the purchase price of stock.
B) the value of the investment if it did exist.
C) the profit that the seller realized from all investors in the mine.
D) nothing.

Question 72

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.