Deck 12: Legality

Question 1

E-mation,Inc hires Marvin to steal trade secrets from one of its competitors for $10,000.Marvin demands half of the money up front.E-mation pays Marvin $5000 but Marvin decides not to pursue theft of the trade secrets.E-mation sues Marvin for the return of the $5000.What will the court do with this contract?

A)The court will order Marvin to return the $5000.
B)The court will order Marvin to return the $5000 with interest.
C)The court will order Marvin to obtain the trade secrets.
D)The court will not do anything to help E-mation get its money back.

Answer 1

D

Question 2

In many states it is legal to lend money to help someone gamble as gambling is legal.

Answer 2

False

Question 3

If a contract is made with a person required by law to hold a license,and the purpose of the license is protection of the public,the contract made by an unlicensed person will generally be unenforceable.

Answer 3

True

Question 4

Jane and Aaron were friends.Aaron has always loved dangerous sports and activities.Jane has always thought that he wasn't long for this life.Jane purchased a life insurance policy on her friend's life.One day,as he was rock climbing,Aaron fell 100 feet and died.Since Jane and Aaron were friends,Jane had an insurable interest in his life and will be entitled to the insurance proceeds.

Question 5

To be valid,an agreement not to compete must be ancillary to a legitimate bargain.

Question 6

When Jeff accepted a job with Gast Electrics,he signed the following agreement,"Upon termination of my employment with Gast Electrics,I agree never to work for another employer as an electrician." If Jeff resigns from Gast Electrics,this agreement would be unenforceable as it is an illegal restraint of trade.

Question 7

L & M loaned Joan $400 so that she could buy her textbooks for the current semester.L & M's terms for repayment of the loan are,$200 in two months,$200 in four months,and another $100 at the end of the fifth month.The legal rate of interest on this type of loan is six percent per annum.L & M's loan is usurious.

Question 8

An agreement may violate public policy even if the agreement does not require a party to commit a crime,tort,or violate a statute.

Question 9

Best Furniture,Inc.entered into a contract with a consumer,Piotr.He was a recent immigrant to the United States,his English skills were limited and he quit school when he was 16.The contract provided for Piotr to pay $1500 for a sofa,which was worth $400.If Best Furniture sues Piotr under the contract,what is the most likely result?

A)The contract is unenforceable because of the Statute of Frauds.
B)The contract is enforceable because of the parole evidence rule.
C)The contract is unenforceable because it is unconscionable.
D)The contract is enforceable because Piotr agreed to its terms.

Question 10

In the case King v.Head Start Family Hair Salons,Inc.,the court decided that the noncompetition agreement was entirely valid.

Question 11

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.While at Hola Taco,a restaurant in St.Cloud,a customer notices that Hola Taco's permit expired.Because Hola's Taco's permit expired,the customer is not legally required to pay for her food.

Question 12

Roger parked his car at a garage that has a large sign at the entrance saying,"This garage is not liable for items stolen from a car." This type of notice is referred to as an exculpatory clause.

Question 13

Morality plays no part of gambling contract legality.

Question 14

Which of the following exculpatory clauses will most likely be enforceable?

A)An exculpatory clause that relieves a windsurf school of gross negligence.
B)An exculpatory clause that relieves a windsurf school of negligence.
C)An exculpatory clause that relieves a windsurf school from intentional torts.
D)None of the above as exculpatory clauses are illegal.

Question 15

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?

A)Since this is an illegal contract, the courts will not enforce it.
B)Since Mark violated a regulatory statute, the contract is unenforceable.
C)Since this is a revenue-raising statute, The Little Nipper wins.
D)Since this is a revenue-raising statute, the licensing law is unconstitutional.Craig wins.

Question 16

Mike overhears his class mate Billy's plans to sail across the Atlantic Ocean by himself over the summer break.Even though he does not really know Billy,Mike rushes out and buys an insurance policy for $100,000 on Billy's life.Billy never makes it to the other side of the Ocean and his boat is found upside down 2,000 miles from the coasts of Ireland.Mike can collect the $100,000.

Question 17

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

Question 18

John did not have a license to practice medicine in Florida.Nevertheless,when he retired to Florida,he started providing medical services to the people in his condo.Isaac,John's next-door neighbor,owed John $2000 for medical services.John will not be able to enforce the contract he made with Isaac.

Question 19

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?

A)G & L will be able to collect the principal plus 20% interest per year.
B)G & L will be able to collect the principal but not any interest.
C)G & L will not be able to collect either the principal or interest.
D)All of the above may be correct.The answer depends on the particular state law.

Question 20

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

Question 21

Eintz Corp.hired Jose to bribe a foreign government official.Eintz gave Jose $10,000 in cash to make the bribe payment and $2000 for Jose's efforts.Instead of paying the bribe,Jose pocketed all of the money.If Eintz sues Jose,Eintz will:

A)be able to recover the $12,000.
B)be able to recover the $10,000, but not the $2,000.
C)be able to recover the $2,000 but not the $10,000.
D)not be able to recover the $12,000.

Question 22

Suppose that Lenny Lawyer enters into an agreement with Cindy Client that his fees 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?

A)The contract will be valid.Cindy would not have been able to afford an attorney otherwise and therefore Lenny was doing a public service.
B)The contract will be voidable at Cindy's option.
C)The contract will be void as violating a statute.Lenny will not be able to recover anything.
D)The contract will be unenforceable if Lenny did not get the agreement in writing.

Question 23

Mike owns a house in a poor area of a large city.Mike is on disability and his total monthly income is $700.A sales representative visits his home,selling a water purification system.Mike buys and signs a contract that calls for monthly payments of $500 for the next 10 years.The water system is worth no more than $1000.Mike did not understand what he was signing and thought it was a permission slip allowing the salesman to conduct a free water test to determine the number of toxins in the water.How would a court most likely describe this contract?

A)The contract is fully enforceable as written.
B)The contract is unenforceable because it is unconscionable.
C)The contract is unenforceable because it is illusory.
D)The contract is unenforceable because it is exculpatory.

Question 24

In bailment cases,exculpatory clauses:

A)are very rarely used.
B)are somewhat more likely to be enforced than in other types of cases.
C)ordinarily involve an attempt to limit liability for damage to persons rather than property.
D)illegal by statute.

Question 25

Public policy means the law that comes from the:

A)state legislature.
B)executive branch of the government.
C)courts that decide what would have a negative impact on society.
D)Constitution.

Question 26

Edouardo Restaurant's secret recipe for its tomato onion chutney would be considered:

A)a trade secret, and an employment noncompete clause would be enforceable to protect it.
B)a trade secret, and an employment noncompete clause would NOT be enforceable to protect it.
C)just a secret recipe and not something the restaurant could protect in a noncompete clause.
D)a copyrighted property that is protected by statute, and a noncompete agreement would not strengthen the protection.

Question 27

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?

A)Ken wins.The agreement is enforceable.
B)Barb wins.The agreement is denying her the right to do the only thing she knows how to do.
C)Barb wins.The agreement is not enforceable because it is not ancillary to a legitimate bargain.
D)Barb wins.The agreement is not reasonable as to time.

Question 28

An insurance contract is not considered to be a legalized form of gambling because:

A)one must have an insurable interest in the person being insured.
B)insurance contracts are underwritten by reputable companies.
C)insurance activities are regulated by the state department of insurance.
D)All of the above.

Question 29

To be valid,a noncompete clause must be:

A)ancillary to a legitimate bargain.
B)reasonable in time, geographical area, and scope of activity when ancillary to the sale of a business.
C)necessary to protect trade secrets, confidential information, or customer lists developed over an extended time when ancillary to an employment contract.
D)All of the above.

Question 30

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?

A)Yes, it was up to Wendell to verify the doctor's qualifications prior to having the splinter extracted.
B)No, the court is likely to take the position that it is not in the public's best interests to enforce contracts with unlicensed doctors.
C)It depends on whether Wendell's injury healed properly.
D)No, but the doctor could probably recover under quasi-contract.

Question 31

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:

A)grant an injunction barring her from operating the new office.
B)order confiscation of all of her new client files and turn them over to Shawn.
C)refuse to become involved, as the noncompete clause was illegal.
D)refuse to enforce the noncompete clause, as it is unreasonable regarding time and geographic area.

Question 32

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

A)Husband and wife.
B)Doctor and patient.
C)Debtor and creditor.
D)Chief executive officer and corporation.

Question 33

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

A)an unenforceable exculpatory agreement.
B)an enforceable agreement not to compete.
C)an enforceable wager agreement.
D)an unenforceable restraint of trade agreement.

Question 34

Which of the following is an example of an exculpatory clause?

A)Seller reserves the right to cancel the contract at any time.
B)Seller is not responsible for property damage regardless of the cause of the injury.
C)Buyer agrees to purchase as many products as it wishes.
D)Buyer agrees in advance to pay a specified amount in case of breach.

Question 35

Johnny has the largest tire selling business in the city.He learns that Hank is thinking of opening a competing tire selling business.Johnny gives Hank $25,000 to not open his proposed business in the same city.Which statement is correct?

A)The contract is voidable at Larry's option.
B)The contract is void for lack of consideration.
C)The contract is an illegal restraint of trade and void.
D)The contract is an enforceable noncompete agreement..

Question 36

AAA and XXX companies are both major international conglomerates.They are negotiating a contract whereby AAA will install a computer system for XXX.One clause in the contract states that AAA will not be liable for damages caused by the negligent installation of the computer system,except that AAA warrants the system and will fix any problem for a period of two years following installation.AAA completes the installation of the computer system.XXX loads extensive amounts of information on the system,but all of it is destroyed because AAA negligently installed the memory chips.AAA fixes the memory,but XXX incurred significant expenses in recreating the lost information.XXX sues for these expenses.AAA defends with the noted clause in the contract.

A)XXX wins; these types of clauses are never enforceable.
B)XXX wins; exculpatory clauses are sometimes valid, but this one would not be valid.
C)XXX wins; this exculpatory clause is not valid because it is unconscionable.
D)AAA wins; this exculpatory clause is enforceable.

Question 37

A contract most likely will be declared unconscionable if:

A)it is unfair to one party.
B)it contains a cancellation clause.
C)it is oppressive and the weaker party did not fully understand the consequences of the agreement.
D)it lacks valid consideration.

Question 38

The UCC deals with unconscionability in a contract by providing that a court may:

A)refuse to enforce the contract.
B)enforce the remainder of the contract without the unconscionable clause.
C)limit the application of any unconscionable clause as to avoid any unconscionable result.
D)All of the above.

Question 39

An exculpatory clause is generally unenforceable when:

A)it attempts to release a party from liability for ordinarily negligent behavior.
B)it involves public transportation.
C)it is written clearly and in bold, large print.
D)the affected activity is a recreational activity.

Question 40

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

A)a contract provision requiring arbitration and then permitting appeal by either party was void as unconscionable.
B)the contract provision requiring arbitration was clear, unambiguous, and fair to both parties.
C)the arbitration clause in Klopp's auto insurance contract was valid because it furthered the state policy favoring the use of arbitration to resolve disputes.
D)the automobile insurance policy was governed by UCC, Article 3.

Question 41

Discuss the pros and cons of gambling and whether there might be any reason for a court or legislature to treat gambling on credit any differently from gambling itself.

Question 42

In 1970,Continental Airlines agreed to buy a number of DC-10 airplanes from McDonnell Douglas Corporation (MDC).Their contract included a limited warranty in which MDC undertook certain servicing obligations and an exculpatory clause in which Continental waived "all other remedies" against MDC.On March 1,1978,one of these DC-10s was nearing takeoff at Los Angeles International Airport when the two front tires of its left-side landing gear blew out.The pilot aborted the takeoff,but the uncushioned landing gear tore through the tarmac and broke away from the plane.This ruptured the left wing fuel tank,which burst into flames.The emergency escape slides failed,apparently due to the heat of the fire.Some passengers evacuated through the copilot's window,others jumped from the exits.Four passengers died,and over 70 suffered injuries.The plane was destroyed.It should be noted that the exculpatory clause did not prevent the passengers from suing Continental and/or MDC.Continental sued MDC and MDC defended based on the exculpatory clause.Is this type of clause enforceable? Discuss exculpatory clauses,particularly the one involved here.

Question 43

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.

Question 44

Marcy and Elliot are both sophisticated merchants who deal in diamonds.Marcy contracted to purchase a diamond for $20,000.The day after the purchase,Marcy took the diamond to a jeweler's show but the highest offer for the diamond was only $10,000.Is Marcy's contract for purchase of the diamond for $20,000 unconscionable?

Question 45

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?

Question 46

Elias sold a auto body shop to Ben for $295,000.As part of the agreement,Elias promised not to open another auto body shop for five years within a 75-mile radius of the one sold.Is this agreement enforceable against Elias?