Chapter 10: Capacity and Legality: The Final Elements

True or false: A minor who enters into a contract to purchase a computer, and later disaffirms the contract, may keep the computer.

false

States in which gambling is legal, borrowing money to gamble is also legal.

False

The reasonable period of time during which a minor may disaffirm a contract

varies based on type of contract and state law.

A contract that has valid offer, acceptance, mutual assent, and consideration, but involves something illegal is

void

A contract that violates criminal or tort law, a statute, and/or public policy as established by the court is

void

An agreement to obstruct justice is

void

An agreement to hide assets from a creditor is a(n)

void or illegal attempt to defraud a creditor.

An agreement that interferes with public service is:

void, against public policy, illegal

A contract that involves one or both of the parties committing a tort is considered

void.

In general, age ______ is the age of majority.

18

The following are examples of agreements that interfere with public service.

An agreement to bribe a public official, an agreement to influence a lawmaker for personal gain, an agreement to obtain political preference, an agreement to obtain a political appointment

Which of the following is true of disaffirmance of a contract?

It is always a good idea to disaffirm in writing, It may be oral or in writing, It may be implied by conduct

______ are items such as food, clothing, medical and dental services, shelter, etc.

Necessaries

For public policy reasons, certain contracts of minors may not be disaffirmed. These include:

a payment for items required to secure a visa for travel, a payment for a vaccination required to attend a college, enlistment contracts, valid marriage contracts

If a mentally impaired person enters into a contract with a party who is aware of the mental incapacity, and later disaffirms the contract,:

any consideration received may be kept or returned, the other party need not be returned to his or her original position

The court may decide not to provide any aid or damages to either of the two parties who enter into an illegal agreement and:

are both wrong in their understanding of the operation of the contract, are equally wrong in their knowledge of the effect of the contract, are said to be in pari delicto.

If you make an agreement to transfer your home to your cousin for less than fair market value when you still owe money on it, this may constitute a(n)

attempt to defraud a creditor.

An exculpatory clause is a way of:

attempting to escape liability for wrongdoing, avoiding liability for physical injuries that a party caused, limiting liability for economic losses under a contract.

State usury laws are designed to protect

borrowers

The status of a contract entered into by a mentally impaired individual is impacted by:

c

The practice of charging an interest rate on a loan that is higher than is permitted by the applicable state law is

called usury.

A contract entered into by a mentally impaired individual:

can be valid, void or voidable

Minors have the privilege to disaffirm a contract because, based on their age or inexperience, they may not fully understand the responsibilities that are a part of the agreement. Said another way, they do not have the ______ to enter into a contract.

capacity

When the parties are in pari delicto, the court may not give ______.

damages

Sometimes a party is unaware that the party they are entering into a contract with suffers from a mental impairment. When that occurs and the mentally impaired person _________ the contract, any consideration given must be returned.

disaffirms

A(n) ______ contract is one in which parts are legal and parts are illegal, and the parts can be separated and can stand alone. The legal parts can be enforced, and the illegal parts disaffirmed.

divisible

The court may issue an injunction to prevent the use of trade secrets if the employer can provide evidence that the:

employer has the right to use the trade secret, information is actually a trade secret, information is crucial to the operation of the business

A mentally impaired person's capacity to enter into a contract that he or she later disaffirmed will be measured at the time that the person:

entered the contract.

States in which gambling is legal, borrowing money to gamble is also legal

false

True or false: A worker who has signed a restrictive employment contract has agreed to not work for a reasonable period of time following his or her separation from service.

false

True or false: If one party to a contract presumes that the other has the capacity to enter into the agreement, that presumption cannot be challenged in court.

false

Agreements to obstruct justice include agreements to:

give false testimony, avoid prosecution of someone, bribe a juror

A cosignor becomes a(n) ______ of a contract. In essence, they have promised to pay the debt of the person they cosigned for if that person does not pay the debt personally.

guarantor

If a person enters into a contract at a time when they are under the influence of alcohol or drugs, he or she:

has entered into a voidable contract, may later disaffirm the contract, may later affirm the contract

Parents are responsible for the contractual obligations of their minor children

if the contract is for necessaries and the parent has neglected or abandoned the child, if they are a cosignor to the contract

Parents are responsible for the contractual obligations of their minor children:

if the contract is for necessaries and the parent has neglected or abandoned the child, if they are a cosignor to the contract

An employer may request that the court issue a(n) ______ to prevent a former employee from disclosing trade secrets.

injunction

An agreement or promise that involves a wager or some other form of gambling is ______ under most state laws.

invalid

A rebuttable presumption regarding capacity to contract:

is not absolute, may be challenged by the one claiming incapacity

An agreement made for illegal purposes:

is unenforceable, may constitute conspiracy, is against public policy.

A minor may not disaffirm a contract for goods or services required by ______, such as vaccinations required to secure a visa for travel in certain foreign countries.

law

When dealing with an unconscionable agreement, the court will

limit how that portion of the contract is carried out.

The legal term describing a person who has reached the age of 18 years is

majority

State usury laws provide for a

maximum rate of interest on loans.

If parties enter into an illegal agreement, they

may not ask the courts to enforce it.

If a minor enters into a contract for necessaries, he or she:

may not be liable if the necessaries were already provided by parents, may not have the right to disaffirm the contract, is liable for the fair value of the necessaries

A restrictive employment covenant is more commonly referred to as a(n) ______ agreement.

noncompete

Fred, a 16-year-old, agrees to purchase a television set from Bob's TV-O-Rama, with payments due over the next 36 months. Two months later, Fred decides he cannot keep up with the payments. To disaffirm the contract, Fred must:

notify Bob's that he disaffirms the contract, return the television to Bob's

Agreements that typically violate public policy involve:

obstruction of justice, restraint of trade, avoiding liability, defrauding creditors

An agreement to give false testimony is an agreement that:

obstructs justice, is contrary to public policy, is void

Exculpatory clauses are:

often found on the back of parking stubs, a legal way of escaping liability for wrongdoing, disfavored by the courts.

A minor may disaffirm a contract:

orally, by failing to make an installment payment when due, in writing

A conspiracy occurs when people agree to engage in criminal activity in exchange for

promised consideration

The reasons for state licensing laws include to:

protect citizens of the state, raise revenue

An agreement that does not violate criminal law may still be unenforceable if it is against ______ policy.

public

A(n) ______ presumption is one that is not absolute; it can be challenged in a court of law.

rebuttable

In a divisible contract,:

separate parts that are unenforceable will not enforced, some parts of the contract are enforceable, some parts of the contract are unenforceable, enforceable provisions that can stand on their own can be separated and enforced.

An agreement is unconscionable if it:

shocks the court's conscience, is grossly unfair

Public policy is a general legal principle that says people

should not be able to do something that injures the public at large.

Gambling or wagering is regulated by

state law.

The general rule is that contracts of minors are voidable. However, based on ______, minors are not permitted to disaffirm certain contracts. These vary from state to state.

statute and court decisions, public policy

When the parties to an illegal contract are said to be in pari delicto,:

the court may decide not to help either party, they are both equally at fault, the court will award no damages to either party.

If parties to a contract have entered into an illegal agreement that has been fully performed and one party argues that he did not receive full performance,

the court will leave the parties where they placed themselves

When a minor enters into a contract with an adult,

the minor can decide not to provide goods or services promised under the contract.

When a minor and an adult enter into a contract,:

the minor may repudiate the contract, the adult must perform under the contract if the minor does, the minor may decide to not perform under the contract

In addition to contractual capacity, laws set a minimum age for a person to be able to engage in:

the of alcohol and tobacco products, voting in federal and state elections, marriage without parental permission, the purchase of firearms

Minors have the right to disaffirm a contract because:

they may not yet have the ability to understand the responsibilities they are assuming, dishonest adults may try to take advantage of them, of a desire to protect them

If a person enters into a contract while under the influence of alcohol or drugs and later disaffirms it,

they must return any consideration received.

A non-disclosure agreement is an employee's promise:

to a current employer, not to disclose trade secrets, that is in writing

Most illegal contracts involve:

torts, crimes, unlawful activity

True or false: A contract may be disaffirmed by an individual who does not have the mental ability to understand the contractual obligations.

true

True or false: A state law the requires all dogs to be licensed is an example of a licensing statute enacted for revenue purposes. At least a part of the revenue raised will be used to supervise the process and to handle issues with unlicensed dogs.

true

A noncompete agreement limits a worker's options when they leave an employer in the following areas:

type of work, length of time, geographical area

An agreement that is so grossly unfair that it shocks the court's conscience is said to be ______.

unconscionable

Because of the impact to society in general, agreements that are contrary to public policy render a contract:

unenforceable, void

An innocent third-party purchaser for value who purchases goods from an individual who originally purchased the goods from a minor has ______ ownership rights.

valid

An individual that purchases goods from a minor has ______ ownership rights

voidable

An innocent third-party purchaser for value may obtain valid ownership of goods from an individual who has ______ ownership rights because he or she purchased the goods from a minor.

voidable

Parents are liable for the contracts of their minor children

when they guaranty as a cosignor.

A contract that satisfies the elements of agreement, consideration and capacity that also involves a crime or a tort

will not be enforced by the courts

An exculpatory clause often states that one of the parties to the contract, usually the one drafting it,

will not be liable for any economic loss or injury even if that party caused the loss or injury.