chapter 13 - capacity and legality - national...

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Chapter 13 - Capacity and Legality

Indicate whether the statement is true or false.

1. Contracts entered into by persons lacking the capacity to do so may be voidable. a. True b. False

2. Contracts entered into by persons lacking the capacity to do so may be voidable. a. True b. False

3. All contracts between adults and minors are voidable, without exception. a. True b. False

4. A contract entered into by a minor is voidable at the option of either of the contracting parties. a. True b. False

5. For business purposes, an adult may petition a court to treat a minor as an adult. a. True b. False

6. A minor “avoids” a contract by disaffirming it. a. True b. False

7. For a minor to disaffirm a contract, he or she must petition a court. a. True b. False

8. When a minor disaffirms a contract, he or she must return whatever he or she received as a result of the contract. a. True b. False

9. For public policy reasons, a minor’s contract to enlist in the armed services cannot be avoided. a. True b. False

10. A minor who enters into a contract for necessaries is liable for the reasonable value of the goods unless he or she disaffirms the contract. a. True b. False

11. Parents are liable for the contracts made by their minor children acting on their own. a. True b. FalseCopyright Cengage Learning. Powered by Cognero.

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12. Ordinarily, minors can disaffirm their contracts even when they have misrepresented their age. a. True b. False

13. Food is a “necessary.” a. True b. False

14. Ratification is the act of accepting and giving force to an obligation that previously was not enforceable. a. True b. False

15. If a contract is fully performed by all parties to it, then it is presumed to have been ratified. a. True b. False

16. A contract entered into by an intoxicated person is never valid. a. True b. False

17. To avoid a contract, an intoxicated person’s judgment must be proved to have been so severely impaired that he or she could not comprehend the legal consequences of entering into a contract. a. True b. False

18. If a court has determined that a person is mentally competent, any contract made by that person is void. a. True b. False

19. Any contract to commit a crime is unenforceable. a. True b. False

20. A contract that is void from the outset can be enforced in some circumstances. a. True b. False

21. Usury statutes set minimum rates of interest that can be charged for different types of transactions. a. True b. False

22. Statutes often prescribe the terms of contracts. a. True b. False

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23. Courts often find that gambling contracts are illegal. a. True b. False

24. If there is a statute that prohibits a certain action, a contract to do it is unenforceable. a. True b. False

25. Gambling involves the distribution of property by chance. a. True b. False

26. A contract with an unlicensed person is enforceable if the person is otherwise of good moral character. a. True b. False

27. All states require members of certain professions to have licenses. a. True b. False

28. Contracts in restraint of trade generally are enforceable because they positively affect public policy. a. True b. False

29. In an employment contract, a covenant not to compete is unenforceable. a. True b. False

30. A covenant not to compete is enforceable only if it is necessary to restrain trade. a. True b. False

31. A covenant not to compete included in the sale of an ongoing business is unenforceable. a. True b. False

32. In certain circumstances, bargains are so oppressive that the courts relieve innocent parties of part or all of their duties. a. True b. False

33. An exculpatory clause in an employment contract is usually enforceable. a. True b. False

34. In general, an illegal contract is void. a. TrueCopyright Cengage Learning. Powered by Cognero.

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b. False

35. If an illegal contract has been executed, either party can recover damages. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Rosalind, a seventeen-year-old, signs a contract to sell her car to Street Fleet Used Cars. The next day, Rosalind tells Street Fleet that she’s decided not to sell the car. Rosalind is liable to Street Fleet for a. the cost of a car of comparable value. b. the value of her performance under the

contract. c. the amount of its profit on the deal. d. nothing.

37. Stella is fifteen. In most states, for contractual purposes, Stella would be considered a minor until she is a. sixteen. b. eighteen. c. seventeen. d. twenty-one.

38. Jody, a minor, is living at home with her parents, but signs a lease with Idyll Grove Apartments, a landlord, to rent an apartment. Jody can a. disaffirm the lease because her parents can be held liable for it. b. disaffirm the lease without liability. c. not disaffirm the lease because an apartment is a "necessary." d. not disaffirm the lease because she intended to live on her

own.

39. Gina, a minor, enters into a contract to buy a tractor from Herb, an adult. If the deal is set aside, restoring Gina and Herb to their original positions prior to a contract is a. ratification. b. emancipation. c. disaffirmance. d. restitution.

40. Neil, a minor, attempts to return to its former owner, a set of skis that he bought, used, and wrecked, in a state in which a duty of restitution is imposed. Neil 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.

41. Cray, a minor, returns a digital music player that he bought from Discount City, which refunds the price. Their Copyright Cengage Learning. Powered by Cognero.

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exchange involves a. emancipation. b. ratification. c. restitution. d. misrepresentation.

42. Alexis, a minor acting on her own, signs a contract to buy a motorcycle and accessories from Bad Bikes dealership. Later, after taking possession, Alexis disaffirms the deal. She a. can keep the motorcycle and accessories. b. can keep the motorcycle but not the accessories. c. can keep the accessories but not the motorcycle. d. must return both motorcycle and accessories.

43. Nelson, a minor, misrepresents his age when agreeing to a contract to buy a restored, antique soda vending machine from Old Is New Again, Inc. Ordinarily, Nelson can disaffirm the contract a. only if he can prove that the seller did not know his true

age. b. only if he can prove that the seller knew his true age. c. under any circumstances. d. under no circumstances.

44. Serenity, a minor, obtains fruits and vegetables on credit from Virgil at Growers’ Market. Later, Serenitydisaffirms the purchase. Serenityowes Virgil a. the reasonable value of the goods. b. the retail value of the goods. c. the wholesale value of the goods. d. nothing.

45. Rosie, a minor subject to her parents’ care and control, signs a contract to rent a lake cabin from Sinclair for one year. Before the end of the term, Rosie moves out. Sinclair sues for the rent for the rest of the term. Rosie can a. avoid liability for the rent but not disaffirm the contract. b. disaffirm the contract and avoid liability for the rent. c. disaffirm the contract but not avoid liability for the rent. d. neither disaffirm the contract nor avoid liability for the rent.

46. Mica, a minor, signs a contract to pay Natural Health Club a monthly fee for twenty-four months to use its facilities. Six months later, after reaching the age of majority, Mica continues to use the club. This act is a. disaffirmance. b. emancipation. c. ratification. d. restitution.

47. Jerome relinquishes the right to his daughter Meredith’s control, care, custody, and earnings. This act is a. disaffirmance. b. emancipation.


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c. ratification. d. severability.

48. Intoxicated and not aware of the consequences, Umberto agrees to a two-year cell-phone service contract with Wander Talk, Inc., at more than the average market price. This contract is a. enforceable. b. notenforceable because contracting parties can change their minds. c. notenforceable because the contract clearly favors Wander Talk. d. notenforceable because Umberto was intoxicated enough to lack mental capacity when he agreed to it.

49. Intoxicated, Clio agrees to sell her restaurant, Diners Café, to Evan for half of its real market value. This deal is most likely void if a. Clio appeared intoxicated to Evan. b. Clio disaffirms the contract after becoming sober. c. Clio was so intoxicated as to have no memory of the

deal. d. Evan fraudulently induced Clio to become intoxicated.

50. Intoxicated but fully aware of the consequences, Cory agrees to a two-year service contract with Signal Maintenance, Inc., at more than the average market price. This contract is a. enforceable. b. notenforceable because contracting parties can change their minds. c. notenforceable because the contract clearly favors Signal. d. notenforceable because Cory was intoxicated when he agreed to it.

51. Orin enters into a contract with Natalie. Later, Orin is adjudged mentally incompetent and Moseby is appointed Orin’s guardian. Lila, Orin’s daughter, attempts to void Orin’s contract with Natalie on the grounds of Orin’s incompetency. The contract is a. enforceable if Orin does not attempt to disaffirm it. b. enforceable if Natalie is also incompetent. c. enforceable if Moseby knew of the contract when he was

appointed. d. void.

52. Fay is mentally incompetent but has not been so adjudged by a court. Any contract Fay enters into is a. voidable if Fay has a lucid interval at the time of contracting. b. voidable if Fay lacks the capacity to comprehend the

consequences. c. voidable if the other party does not realize that Fay is incompetent. d. unavoidable.

53. William obtains a loan from a bank at 4.5 percent interest. The state where he obtains the loan has a usury statute that limits interest rates to a 3.5 percent maximum. William’s contract with the bank is a. enforceable only if William does not attempt to disaffirm it. b. enforceable only if the bank does not attempt to disaffirm it.


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c. enforceable only if both William and the bank knew of the statute when the contract was signed.

d. not enforceable.

54. Shannon signs a contract with Tevin, an unlicensed contractor, to build a deck and gazebo at the rear of her house. This contract is enforceable by a. Shannon. b. any third party who is not aware that Tevin is not

licensed. c. Tevin. d. no one.

55. Oklahoma charges Dewey, a design engineer and the owner of Windfarm Energy Corporation, a fee to practice his profession in the state. This is a. usurious. b. unconscionable. c. a license. d. an adhesion contract.

56. Nyoko signs a covenant not to compete with her employer, Midstate Distribu-tion, Inc. The covenant will be enforced if it a. does not require either party to obtain a business license. b. is reasonable with respect to geographic area and time. c. relieves Midstate from liability for any injury to Nyoko due to simple

negligence. d. none of the choices.

57. Presley agrees to sell his Omni Sports Center facility to Nola. As part of the sale, Presley promises never to open a similar, competing business 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 Presley and Nola are reasonably intelligent.

58. U-Can-Own-It Corporation sells appliances to less educated consumers, including Vi, on installment plans. U-Can-Own-It files a suit against Vi when she stops making payments. Vi claims that the deal is unconscionable. The court will most likely consider 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.

59. At Glamour Mattress Store, Robbie signs a contract to buy a suite of bedroom furniture. The contract sets a schedule of $500 monthly payments, subject to a late fee of 150 percent. Glamour’s salesperson hurries Robbie through the deal, giving her no opportunity to read the contract. This is most likely


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a. an adhesion contract. b. procedural unconscionability. c. substantive unconscionability. d. an enforceable contract.

60. Machine Parts Corporation requires its customers to sign contracts with uncon-scionable terms or the company, which has few competitors, will not do busi-ness with them. Machine Parts can normally enforce a. a covenant not to compete. b. an adhesion contract. c. a contract to restrain trade. d. none of the choices.

61. A contract between Kim and Larry to lease residential property contains an exculpatory clause. This clause is a. nforceable as a matter of public policy. b. enforceable if either party is in a business important to the pub-

lic. c. enforceable if an event occurs to which the clause applies. d. generally unenforceable.

62. Gloria, the owner of a manufacturing company with declining sales, pays Sandra $10,000 in exchange for her written agreement to murder the president of a competi-tive company with increasing sales. Sandra keeps the money without doing anything more. Gloria will be able to recover the $10,000 a. under no circumstances. b. if Sandra never in-tended to carry out the crime. c. if Gloria fully complied with the terms of the agreement. d. if Gloria’s sales continue to decline.

63. With the intent to avoid liability for negligence, Mall 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.

64. Oscar owns Payroll Company, a bookkeeping service losing market share to Quik Bookwork, Inc. Oscar pays Remy $5,000 to steal a list of Quik’s clients, to whom Oscar will aggressively market Payroll‘s services. 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.

65. Cross-Country Trucking Company contracts with Baldwin to transport crated goods to a certain destination for $5,000. Cross-Country delivers the crates, but Baldwin does not pay. Cross-Country learns that the crates contained stolen goods. Cross-Country can


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a. do nothing with respect to the contract. b. recover $5,000 from Baldwin. c. recover the goods but not the $5,000 from Baldwin. d. recover the goods and the $5,000 from Baldwin.

66. Boz runs an illegal gambling business and pays Colin, a police officer, not to interfere. The payments are discovered. Boz and Colin are sent to prison. 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.

67. Jimenez is an emergency medical technician. Medical personnel such as Jimenez are pro-hibited by state statute from working more than a certain num-ber of consecutive hours. One month, Jimenez works more than the legal limit. Jimenez can recover 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.

68. Through fraudulent means, Finlay induces Ethel to sign a contract to in-vest with him the profits from her business. When Ethel learns the truth, she may a. only enforce the contract. b. only recover what she invested with Finlay. c. enforce the contract or recover what she invested with Finlay. d. do nothing.

69. Jack and Jill bet illegally on the outcome of a sporting event. Before the event is held, Jack changes his mind about the wager. Jack can a. not withdraw from the deal without Jill’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 Jill’s

expenses.

70. Omni Insurance Company violates a state licensing statute when selling an insurance policy to Petra, in whose state Omni is not licensed to sell insurance. As a member of the class of persons protected by the statute, Petra can a. do nothing with respect to the policy. b. enforce the policy or recover the amount of the premiums paid. c. only enforce the policy. d. only recover the amount of the premiums paid.

71. Games Galore Corporation hires Haley, a minor, to create new customized game software for certain clients. Haley signs a contract that requires her to work for Games Galore for eighteen months. Before beginning work, however, Haley Copyright Cengage Learning. Powered by Cognero.

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tells Games Galore that she will not create new software for Games Galore and that she is going to work for Ideal Worldcraft, Inc., a Games Galore competitor. Is Games Galore’s contract with Haley en-forceable? Why or why not?

72. Best Products, Inc., hires Cole to develop and implement an e-commerce strategy for marketing Best’s products. Cole signs a contract that in-cludes a clause prohibiting him from competing with Best during and af-ter 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, what is the most important factor the court should consider in determining whether Cole should be allowed to compete with Best?


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Answer Key

1. True

2. True

3. False

4. False

5. False

6. True

7. False

8. True

9. True

10. False

11. False

12. True

13. True

14. True

15. True

16. False

17. True

18. False

19. True

20. False

21. False

22. True

23. True

24. True

25. True


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26. False

27. True

28. False

29. False

30. False

31. False

32. True

33. False

34. True

35. False

36. d

37. b

38. b

39. d

40. c

41. c

42. d

43. c

44. a

45. b

46. c

47. b

48. d

49. d

50. a

51. aCopyright Cengage Learning. Powered by Cognero.

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52. c

53. d

54. d

55. c

56. b

57. b

58. b

59. b

60. d

61. d

62. a

63. d

64. b

65. b

66. b

67. b

68. c

69. c

70. b

71. The contract is not enforceable. Haley is a minor, so any con-tract that she enters is voidable by her. In other words, Haley had the option to disaffirm the contract.A contract entered into by a minor can be disaffirmed at any time during minority, or for a reasonable time after the minor comes of age. Haley’s announcement that she would not be bound by the contract was sufficient to disaffirm it.Haley had not re-ceived any-thing under the contract with Games Galore, so there is nothing to return under a duty of res-titution. Also, there is no significance to Haley’s agreeing to work for Ideal Worldcraft, Games Galore’s competitor.

72. In determining whether Cole may compete with Best, the court should consider, most importantly, whether the covenant not to compete is necessary to protect Best’s legitimate business interests. A covenant not to compete can violate the public policy to promote competi-tion in the economy. If it does, it would be an unreasonable restraint of trade. To be enforceable, a covenant not to compete should be ancillary to an oth-erwise enforceable contract, which, in


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this question, is the employ-ment contract. The restriction in a covenant not to compete should be reasonable in terms of duration and geographic area. The covenant should not unreasonably burden the party who is prohibited from com-peting. If the restrictions are unreasonable, a court can void or reform the cove-nant. Whether a party resigns under an employment contract does not affect the enforce-ability of a covenant not to compete.


chapter 13 - capacity and legality - national...

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