Chapter 15

Which of the following is most likely to be done by a court if it finds that a contract or a term in a contract is unconscionable? A. It will refuse to enforce the entire agreement. B. It will impose punitive damages on the guilty party. C. It will allow the injured party to recover damages. D. It will ask for arbitration in the matter.

A. It will refuse to enforce the entire agreement.

Joe is the owner of the restaurant "Yummy Bites." Neil is an employee of a competitor's restaurant "Mom's Kitchen." Joe pays Neil $1000 to obtain recipes from "Mom's Kitchen." However later, Joe has second thoughts and forbids Neil to obtain such recipes. Joe wants to get his money back. Identify the most accurate statement that might help Joe. A. Joe can recover the amount because he has rescinded the contract before any illegal act has been done by Neil. B. Joe cannot recover the amount because he has entered into an illegal contract. C. Joe cannot recover the amount because such contracts are unenforceable and illegal. D. Joe can recover the amount because the contract between him and Neil is a quasi-contract.

A. Joe can recover the amount because he has rescinded the contract before any illegal act has been done by Neil.

_____ is generally taken to mean the absence of meaningful choice together with terms unreasonably advantageous to one of the parties. A. Unconscionability B. Illegality C. Adhesion D. Rescission

A. Unconscionability

A(n) _____ clause is a provision in a contract that purports to relieve one of the parties from tort liability. A. exculpatory B. implied-in-fact C. quasi D. expressed

A. exculpatory

Which of the following is also termed a "liability waiver"? A. exculpatory clause B. nondisclosure agreement C. confidentiality clause D. noncompetition clause

A. exculpatory clause

A court has held that a certain contract violates public policy. This contract will be treated the same as a(n): A. illegal contract. B. contract between a minor and an adult. C. private contract. D. adhesive contract.

A. illegal contract.

Todd is a licensed real estate broker in Ohio. One of Todd's largest clients, Sun Corp., contracted in writing with Todd to find a purchaser for its plant in New York and agreed to pay him a 6% commission if he were successful. Todd located a buyer who purchased the plant. Unknown to Todd, New York has a real estate broker's licensing statute which is regulatory in nature, intended to protect the public against unqualified persons. Todd violated the licensing statute by failing to obtain a New York license. If Sun refuses to pay Todd any commission and Todd brings an action against Sun, he will be entitled to recover: A. nothing. B. a fee based on the actual hours spent. C. the commission agreed upon. D. out of pocket expenses only.

A. nothing.

If a statute is considered to be _____, the purpose of the legislation is to protect the public against dishonest or incompetent practitioners. A. regulatory B. enforceable C. adhesive D. ancillary

A. regulatory

In an employment contract, the noncompetition clause might be the only part of the contract: A. that the parties put in writing. B. that would be valid. C. that would be unenforceable. D. that would be illegal.

A. that the parties put in writing.

Under the doctrine of _____, courts would refuse to grant the equitable remedy of specific performance for breach of a contract if they found the contract to be oppressively unfair. A. unconscionability B. mirror image C. community-of-interest D. contract bar

A. unconscionability

Roger and Erick make a bet concerning whether a certain rich citizen will die within the next year. Neither party has any economic interest in this person's fate, except for that created by the bet. This agreement is: A. unenforceable if the statutes prohibit wagering agreements. B. unenforceable because it tends toward the commission of a crime. C. unconscionable because it contemplates the destruction of life. D. a valid and enforceable risk-allocation agreement.

A. unenforceable if the statutes prohibit wagering agreements.

Which of the following is most true regarding noncompetition clauses in contracts? A. Such clauses are not used during employment contracts. B. If they have a legitimate business purpose, such clauses will be enforced. C. Such clauses are enforced only for protecting the environment and conserving resources. D. Such clauses help in promoting free trade.

B. If they have a legitimate business purpose, such clauses will be enforced.

Which of the following is true regarding an exculpatory clause? A. It is illegal in nature. B. It is also termed a "release." C. It is invalid in negligence cases. D. It imposes strict liability on the guilty party.

B. It is also termed a "release."

Which of the following terms refers to a widely shared view about what ideas, interests, institutions, or freedoms promote welfare of people? A. Void contract B. Public policy C. Implied-in-fact policy D. Express contract

B. Public policy

Which of the following is NOT a requirement in the enforceability of a noncompetition clause? A. The noncompetition clause must serve a legitimate business purpose. B. The noncompetition clause must be regarding the sale of goods. C. The restriction on competition must be reasonable in time, geographic area, and scope. D. The noncompetition clause should not impose an undue hardship.

B. The noncompetition clause must be regarding the sale of goods.

A _____ is a contract, usually on a standardized form, offered by a party who is in a superior bargaining position on a "take-it-or-leave-it" basis. A. quasi-contract B. contract of adhesion C. executory contract D. bilateral contract

B. contract of adhesion

Which of the following constrains the employee from divulging or using certain information gained during his employment? A. nonsolicitation agreement B. nondisclosure agreement C. noncompetition clause D. deed of trust

B. nondisclosure agreement

Toby, an Ohio real estate broker, misrepresented to Allen that Toby was licensed in Michigan under Michigan's statute regulating real estate brokers. Allen signed a standard form listing contract agreeing to pay Toby a 6% commission for selling Allen's home in Michigan. Toby sold Allen's home. Under the circumstances, Allen is: A. not liable to Toby for any amount because of the rule of mirror image which needs to be fulfilled for creating a binding contract. B. not liable to Toby for any amount because Toby violated the Michigan licensing requirements. C. liable to Toby only for the value of services rendered under the quasi-contract theory. D. liable to Toby for the full commission under the promissory estoppel theory.

B. not liable to Toby for any amount because Toby violated the Michigan licensing requirements.

Helga owns an insurance business in Idaho. Her clients are all Idaho residents. She later sells her business to Carlos. As part of the deal, the contract contains a non-compete clause that prevents Helga from operating an insurance business anywhere in Idaho, Washington or Oregon for a period of five years. Six months after this sale, Helga opens an insurance business in Oregon. If Carlos seeks to enforce the non-compete agreement against Helga, will he probably be successful? A. Yes, because this agreement is reasonable. B. Yes, because the clause is not imposing an undue hardship. C. No, because this agreement is not reasonable. D. No, because the agreements is not yet converted into a treaty.

C. No, because this agreement is not reasonable.

In which of the following situations, a court is most likely to refuse to enforce a noncompetition clause? A. The clause is not ratified by the employer. B. The employment contract which contains the clause is an implied-in-fact contract. C. The clause restricts employees from engaging in a "common calling." D. The employment contract which contains the clause is a quasi-contract.

C. The clause restricts employees from engaging in a "common calling."

Which of the following statements is true regarding noncompetition clauses in the employment contracts? A. These clauses are illegal. B. Employments contracts with these clauses are voidable. C. These clauses put postemployment restrictions on the employees. D. These clause need to be ratified by the employer.

C. These clauses put postemployment restrictions on the employees.

An exculpatory clause that protects a person from liability for fraud is: A. valid but unenforceable. B. valid if it is in writing. C. against public policy. D. valid if both parties agree.

C. against public policy.

Agreements made by unmarried people who are living together: A. are unenforceable regardless of their nature. B. are enforceable if they do not involve the division of property. C. are unenforceable if one of the parties is married to someone else. D. are considered to be against public policy.

C. are unenforceable if one of the parties is married to someone else.

If part of an agreement is legal and part is illegal, the courts will: A. declare the entire agreement to be void. B. ask both the parties to ratify the agreement before considering it for evaluation. C. enforce the legal part so long as it is possible to separate the two parts. D. impose punitive damages on both the parties.

C. enforce the legal part so long as it is possible to separate the two parts.

Where no separate consideration is exchanged for the legal and illegal parts of an agreement, the agreement is said to be _____. A. unconscionable B. rescind C. indivisible D. adhesive

C. indivisible

In technical legal terms, a party not equally in the wrong is said to be not in _____. A. res ipsa loquitur B. ab initio C. pari delicto D. ad idem

C. pari delicto

To determine _____ unconscionability, courts will scrutinize the contract terms themselves to determine whether they are oppressive, unreasonably one-sided, or unjustifiably harsh. A. procedural B. voidable C. substantive D. associative

C. substantive

Amy is hired by BigMart as a cashier. At the time of hiring, Amy is required to sign an arbitration agreement under which she agreed to settle any and all claims she might have relating to her employment by final and binding arbitration before a neutral arbitrator and in accordance with BigMart's "Dispute Resolution Rules and Procedures" which is a separate ten-page document containing complex procedural details. Under the agreement, Amy is required to pay for all arbitration-related costs, and BigMart can still sue Amy in civil court for claims arising from her employment. A court will most likely view this agreement as: A. unenforceable since it is a quasi-contract. B. enforceable because it is an arbitration agreement. C. unconscionable because it is an adhesion contract that is oppressive. D. enforceable because it is part of a valid employment agreement.

C. unconscionable because it is an adhesion contract that is oppressive.

Normally, an illegal contract is: A. a quasi-contract. B. implied-in-fact. C. unenforceable. D. voidable.

C. unenforceable.

Sam, a plumber, entered into a contract for $75,000 with Orr, Inc., to perform certain plumbing services in a building owned by Orr. After Sam had satisfactorily performed the work, Orr discovered that Sam had violated the state licensing statute by failing to obtain a plumbing license. As a result, Orr denied paying any money to Sam. The licensing statute was enacted merely to raise revenue for the state. An independent appraisal of Sam's work indicated that the building's fair market value increased by $70,000 as a result of Sam's work. The cost of the materials which Sam supplied was $35,000. If Sam sues Orr, Sam will be entitled to recover: A. nothing. B. $35,000. C. $70,000. D. $75,000.

D. $75,000.

Which of the following is a possible example of procedural unconscionability? A. A clause excluding a seller's liability for consequential damages from a defective good B. A clause imposing a penalty for failure to deliver the goods on time C. A high price term in a contract D. A fine-print price term in a contract

D. A fine-print price term in a contract

Which of the following was NOT taken into account by classical law in assessing contracts? A. Fraud B. Duress C. Misrepresentation D. Fairness

D. Fairness

Courts may decline to enforce unconscionable terms or contracts. This provision has been laid down in: A. Section 12 of UCC. B. Section 208 of UCC. C. Section 4 of UCC. D. Section 208 of Restatement (Second) of Contracts.

D. Section 208 of Restatement (Second) of Contracts.

Which of the following is an example of substantive unconscionability? A. Terms that are stated in "fine print" B. A disparity in bargaining power between the parties C. High-pressure sales tactics D. Unjustifiably harsh terms

D. Unjustifiably harsh terms

Wayne and Mia are friends in Idaho, where gambling is illegal and they are aware of it. Wayne and Mia bet $1,000 on which day Paradise Creek will flood its banks. They have no financial interest in Paradise Creek. Wayne wins this bet. Mia pays Wayne the $1,000, but later that day regrets it and sues Wayne to get her $1,000 back. The Court would probably rule in favor of: A. Mia, since gambling was illegal. B. Mia, because a bet is considered to a form of an implied-in-fact contract. C. Wayne, because he won the bet fair and square, so the court will enforce the wager. D. Wayne, since the court will "leave the parties where it finds them" in cases like this.

D. Wayne, since the court will "leave the parties where it finds them" in cases like this.

Non-compete clauses in contracts: A. are never enforced because they violate anti-trust laws. B. are never enforced because they are unethical. C. are always enforced under the doctrine of "freedom of contract". D. are enforced if found to be reasonable.

D. are enforced if found to be reasonable.

A contract is said to be __________ that is, the legal part can be separated from the illegal part—if the contract consists of several promises or acts by one party, each of which corresponds with an act or a promise by the other party. A. implied-in-fact B. voidable C. unenforceable D. divisible

D. divisible

An agreement that unreasonably tends to interfere with family relationships will be considered _____. A. implied-in-fact B. valid C. exculpatory D. illegal

D. illegal

Paul is hired by Soprano as a security guard. At the time of hiring, Paul signs an agreement that relieves Soprano from workers' compensation liability. This agreement is most likely: A. enforceable because Paul and Soprano have equal bargaining power. B. unenforceable because it includes intentional torts. C. enforceable so long as the terms of the agreement are conspicuously disclosed. D. unenforceable as a violation of public policy.

D. unenforceable as a violation of public policy.

When a court says that an agreement is illegal, it most likely means that the agreement: A. has not mentioned a time period for which the agreement is valid. B. does not identify the parties involved in the agreement. C. is related to buying and selling of trade secrets. D. violates public policy.

D. violates public policy.

A contract of adhesion is one that the courts will always enforce because of the strong public policy underlying such contract.

False

A contract to commit a serious crime is a legal contract.

False

A court will enforce a noncompetition clause even if its restraints are unduly burdensome either on the public or on the party whose ability to compete would be restrained.

False

A noncompetition clause is also known as a "liability waiver."

False

Courts provide remedy for the breach of illegal agreements.

False

In order to have any chance of being enforced, an illegal agreement must be indivisible.

False

Statutes that require proof of character and skill and impose penalties for violation are considered to be revenue raising in nature.

False

An agreement can be illegal even if no statute specifically states that such an agreement is illegal.

True

An agreement that violates legislative and court-made rules and creates threat to public policy shall be denied enforcement on the ground of illegality.

True

An agreement to divorce one's spouse is considered to be illegal.

True

An exculpatory clause is a provision in a contract that purports to relieve one of the parties from tort liability.

True

For a noncompetition clause to be enforceable, the clause must serve a legitimate business purpose.

True

One example of procedural unconscionability is the use of "fine print" in stating a contractual provision.

True

To encourage people to cancel illegal contracts, courts will allow a person who rescinds such a contract before any illegal act has been performed to recover any consideration that he has given.

True

Under the doctrine of unconscionability, the courts would refuse to grant the equitable remedy of specific performance for breach of contract if the contract is oppressively unfair.

True