12: Capacity and Legality

What does the term in pari delicto mean with reference to contracts? A) Both parties are considered equally at fault for an illegal contract. B) One party has unknowingly signed a contract to commit a crime. C) It is a minor's right to disaffirm a contract. D) It is a special exemption right to circumvent state usury law.

A) Both parties are considered equally at fault for an illegal contract.

Which of the following is correct regarding a minor's ratification of a contract? A) He can only ratify a contract after reaching the age of majority. B) She cannot ratify a contract for the necessaries of life. C) She can ratify a contract during the period of minority. D) He can ratify a contract under the control of a parent or legal guardian.

A) He can only ratify a contract after reaching the age of majority.

How is the doctrine of unconscionability related to public policy? A) The doctrine of unconscionability is based on public policy. B) All contracts contrary to public policy are considered unconscionable. C) Both are used to save a contracting party from a bad bargain. D) Both are very distinctly defined by law.

A) The doctrine of unconscionability is based on public policy.

Which of the following is an example of a contract contrary to law by its very existence? A) a usurious loan contract B) a contract between two minors C) a contract where one party is insane but not adjudged insane D) a contract of adhesion

A) a usurious loan contract

If a minor ratifies a contract while still a minor, the ________. A) contract can still be disaffirmed by the minor B) minor is bound by the terms of the contract C) minor is exempt from the duty of restitution D) minor must place the other party in status quo upon disaffirmance

A) contract can still be disaffirmed by the minor

Preprinted forms whose terms the consumer cannot negotiate and must sign in order to obtain a product or service are referred to as ________. A) contracts of adhesion B) quasi-contracts C) contracts in restraint of trade D) voidable contracts

A) contracts of adhesion

Which of the following states that a minor is obligated only to return the goods or property he has received from the adult in the condition it is in at the time of disaffirmance? A) the duty of restoration B) the duty of restitution C) the infancy doctrine D) the emancipation doctrine

A) the duty of restoration

A(n) ________ is a contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust. A) unconscionable contract B) contract of adhesion C) contract in restraint of trade D) quasi-contract

A) unconscionable contract

A person who has alternating periods of mental competence and mental incompetence can enter into a contract ________. A) when she is in a lucid interval B) when there is a legal guardian appointed by the court for that person C) once he has been adjudged mentally incompetent D) only once she has been adjudged mentally incompetent

A) when she is in a lucid interval

16-year-old Frank bought a video game console from John for $150. While Frank is a minor, John is a competent adult. A month later, the console started malfunctioning. Frank returned the console to John. If Frank disaffirms his contract with John for purchasing the console, which of the following is correct? A) John is not bound by the contract any more, since the exchange has been completed. B) Frank can reclaim a full refund for the amount he paid. C) Frank can only ask for a full refund once he has reached the age of majority. D) Frank is legally obligated to repair the console before returning it to John.

B) Frank can reclaim a full refund for the amount he paid.

According to the infancy doctrine, which of the following is correct regarding a minor? A) He is bound to an adult's decisions in a contract between them. B) She can disaffirm contracts she has entered into with adults. C) She cannot enter into a legal contract with another minor. D) He cannot choose to enforce a contract at his discretion.

B) She can disaffirm contracts she has entered into with adults.

Which of the following is correct regarding a contract where one of the parties is mentally incompetent but not adjudged mentally incompetent? A) The contract is voidable by the mentally competent party. B) The contract is only voidable by the mentally incompetent person. C) Only the court-appointed legal guardian of the mentally incompetent person can modify the contract. D) The mentally incompetent person must be placed in status quo if the mentally competent person voids the contract.

B) The contract is only voidable by the mentally incompetent person.

Which of the following is correct regarding a contract involving an adjudged mentally incompetent person? A) The person is bound by the terms of the contract. B) The contract is void. C) Only the competent party can enforce the contract. D) The competent party is legally obligated to uphold the contract.

B) The contract is void.

Darren is a certified interior designer with a lucrative client list in Tucson, Arizona. His business affords him a substantial amount of goodwill from his clients. Darren sells his accounting interior designing business to Glenda. When he sells his business to Glenda, Darren agrees not to open another interior designing firm in Tucson for a 25-year period. What kind of agreement exists between Darren and Glenda? A) a contract in restraint of trade B) a covenant not to compete C) an unconscionable contract D) a quasi-contract

B) a covenant not to compete

Damien, a first-year law student, offers his services to Mr. Jenkins to help draft his will. Mr. Jenkins agrees to Damien's offer, and promises to pay him $400 for his services. Damien writes the will; however, when Damien attempts to collect his payment, Mr. Jenkins refuses to pay. Damien knew that he had no legal recourse to enforce the contract. What statute had Damien violated in his contract with Mr. Jenkins? A) a revenue-raising statute B) a regulatory licensing statute C) a usury statute D) a ratification statute

B) a regulatory licensing statute

Bouakham voluntarily enrolls in a skydiving course at OpenSkies Pvt. Ltd. (OpenSkies), an adventure firm. She signs a contract that relieves OpenSkies of liability. After receiving proper instruction, she jumps from an airplane. Unfortunately, Bouakham is injured when she could not steer her parachute toward the target area while landing. She sues the parachute center for damages. But the court found that the contract protected OpenSkies from damages, as Bouakham had voluntarily joined the course knowing all the risks involved. What kind of contractual provision protected OpenSkies from having to pay Bouakham damages? A) a noncompete clause B) an exculpatory clause C) the duty of restitution D) disaffirmance

B) an exculpatory clause

Which of the following is the act of a minor to rescind a contract under the infancy doctrine either orally, in writing, or by the minor's conduct? A) ratification B) disaffirmance C) nullification D) adherence

B) disaffirmance

If a minor voluntarily leaves home and lives apart from her parents, this is referred to as ________. A) restitution B) emancipation C) restoration D) adhesion

B) emancipation

A(n) ________ is a contractual provision that relieves one or both of the parties to a contract from tort liability. A) liquidated damages clause B) exculpatory clause C) duty of restitution D) fundamental breach

B) exculpatory clause

According to the regulatory licensing statute, ________. A) unlicensed persons can recover payment for services B) only licensed persons can recover payment for services C) persons breaching a revenue-raising statute cannot recover payment for services D) all government-licensed persons have to pay an annual fee to renew their licenses

B) only licensed persons can recover payment for services

Which of the following groups is legally deprived from directly entering into contracts? A) minors B) persons adjudged mentally incompetent C) persons with alternating states of mental competence and mental incompetence D) intoxicated persons

B) persons adjudged mentally incompetent

Which of the following establish an upper limit on the interest rate that lenders can charge for certain types of loans? A) federal usury laws B) state usury laws C) contracts in restraint of trade D) contracts contrary to public policy

B) state usury laws

Which of the following is correct regarding minors and contracts for the necessaries of life? A) Minors need to reach the age of majority to enter into contracts for the necessaries of life. B) Minors are exempt from paying for contracts for the necessaries of life. C) Minors must pay the reasonable value of the necessaries of life for which they contract. D) Parents are liable to provide the necessaries of life to their minor children if they become

C) Minors must pay the reasonable value of the necessaries of life for which they contract.

The equitable doctrine of ________ obligates a minor to pay only the reasonable value of goods or services received that are necessaries of life. A) emancipation B) frustration of purpose C) commercial impracticability D) quasi-contract

D) quasi-contract

The state of New Jersey has established a maximum interest rate of 12 percent for loans occurring in the "Garden State." Matt borrows $10,000 from Tony to pay off a gambling debt. Both are residents of New Jersey. They sign a contract obligating Matt to pay 25 percent interest on the loan. Later, Matt learns of New Jersey's usury law and sues Tony. What is the nature of the contract between Matt and Tony? A) It is illegal because it violates gambling statutes. B) It is legal because both parties were competent when the contract was signed. C) The contract is void because it violates state usury law. D) The contract is void because it is a contract for a loan between two individuals.

C) The contract is void because it violates state usury law.

Which of the following is correct regarding a contract, the object of which has become unlawful after the contract's creation? A) The contract is still legal, since the object of the contract was legal at the time of the contract's creation. B) The contract is illegal, even if the parties do not complete the terms of the agreement. C) The parties to the contract will be discharged. D) Both parties are still required to complete their contractual obligations.

C) The parties to the contract will be discharged.

Which of the following is correct regarding a contract entered into by an intoxicated person? A) The contract is void. B) Only the sober party may disaffirm the contract. C) When the intoxicated person becomes sober, he may ratify the contract. D) The contract is fully enforceable by the sober party.

C) When the intoxicated person becomes sober, he may ratify the contract.

A ________ is a contract that provides that a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for a specified time following the sale of the business or termination of employment. A) quasi-contract B) contract in restraint of trade C) covenant not to compete D) contract of adhesion

C) covenant not to compete

Which of the following is the act of a minor after she has reached the age of majority, by which she accepts a contract entered into when she was a minor? A) exculpation B) restitution C) ratification D) emancipation

C) ratification

For a minor to be bound by a contract with an adult after reaching the age of majority, he must ________. A) disaffirm the contract before reaching the age of majority B) complete his contractual duties of restitution and restoration C) ratify the contract after reaching the age of majority D) place the adult in status quo until reaching the age of maturity

C) ratify the contract after reaching the age of majority

Which of the following states that if a minor has transferred money, property, or other valuables to the competent party before disaffirming the contract, that party must place the minor in status quo? A) the emancipation doctrine B) the infancy doctrine C) the duty of restitution D) the duty of restoration

C) the duty of restitution

In which of the following situations would a party be able to use the court system to sue for damages or recover consideration paid under an illegal contract? A) when both parties sign the agreement B) when both parties are in pari delicto C) when that party is justifiably ignorant of the law or fact that made the contract illegal D) when that party completes an illegal act but is not paid for his consideration

C) when that party is justifiably ignorant of the law or fact that made the contract illegal

Which of the following is correct regarding a minor's right to disaffirm a contract? A) A minor must reach the age of majority to disaffirm a contract. B) Contracts that provide necessaries of life can be disaffirmed by minors. C) Minors are exempt from the duty of restoration during the period of minority. D) A minor can expressly disaffirm a contract orally or in writing.

D) A minor can expressly disaffirm a contract orally or in writing.

Which of the following is a licensing statute with the primary purpose of increasing earnings for the government? A) a usury statute B) a ratification statute C) a regulatory licensing statute D) a revenue-raising statute

D) a revenue-raising statute

If a contract is ________, a court will refuse to enforce or rescind the contract, and the court will leave the parties as it found them. A) valid B) voidable C) executory D) illegal

D) illegal

Any age below the statutory age of majority is called the period of ________. A) ratification B) disaffirmance C) restitution D) minority

D) minority

Which of the following elements must exist for a contract to be deemed unconscionable? A) the weaker party did not enter the contract under duress B) the parties had equal bargaining power C) the dominant party justly used its bargaining power D) the adhering party had no reasonable alternative

D) the adhering party had no reasonable alternative

If a minor entered into a contract and subsequently ratified the contract after reaching the age of majority, from which of the following is he exempt? A) the duty of restoration B) the duty of restitution C) contractual obligations for the necessaries of life D) the infancy doctrine

D) the infancy doctrine

Contracts entered into by intoxicated persons are ________. A) fully enforceable at the option of either party B) voidable by both parties C) void D) voidable only by the intoxicated person

D) voidable only by the intoxicated person

A lender can charge an interest rate higher than the state limit.

FALSE

A minor can disaffirm a contract any time after reaching the age of majority.

FALSE

A person can sue for nonperformance even if it is an illegal contract.

FALSE

A person who disaffirms a contract based on intoxication is not legally obligated to return to the competent party the consideration she received under the contract

FALSE

A person who is mentally incompetent but not adjudged mentally incompetent cannot void a contract.

FALSE

A person who is mentally incompetent but not adjudged mentally incompetent is appointed a legal guardian to act on his behalf.

FALSE

A ratified contract can be disaffirmed even after the minor reaches the age of majority

FALSE

According to the minor's duty of restoration, the goods received from an adult must be returned in status quo after the contract has been disaffirmed by the minor.

FALSE

An exculpatory clause must be reciprocal to be considered enforceable.

FALSE

If a minor ratifies a contract while still a minor, the contract cannot be disaffirmed.

FALSE

In a contract involving a mentally competent person and a person adjudged mentally incompetent, either party can enforce the contract.

FALSE

In a contract involving a mentally competent person and a person who is mentally incompetent but not adjudged mentally incompetent, the competent party can void the contract.

FALSE

Judges can define morality based on their individual views.

FALSE

Minors are not obligated to pay for contracts they enter into for the necessaries of life.

FALSE

The duty of restitution states that a minor must place a competent party in status quo upon the minor's disaffirmance of their contract.

FALSE

The emancipation doctrine assists a minor in holding his parents responsible for the necessaries of life.

FALSE

The infancy doctrine gives adults the right to disaffirm contracts entered with minors

FALSE

A contract with an intoxicated person is not voidable by the other party if that party had contractual capacity.

TRUE

A minor may not affirm one part of a contract and disaffirm another part.

TRUE

A person who disaffirms a contract based on intoxication must be returned to status quo.

TRUE

A person who was legally mentally incompetent at the time of entering into a contract is relieved of his duties under the contract.

TRUE

After becoming sober, the formerly intoxicated person can ratify the contracts he entered into while intoxicated.

TRUE

An exculpatory clause that results from superior bargaining power is usually found to be void.

TRUE

An unconscionable contract can be enforced if the unconscionable clause is removed from it.

TRUE

Any age below the statutory age of majority is called the period of minority.

TRUE

Any contract entered into by a person who has been adjudged mentally incompetent is void.

TRUE

If a minor does not disaffirm a contract upon reaching the age of majority, the contract is considered ratified.

TRUE

If both parties to a contract are minors, both have the right to disaffirm the contract

TRUE

If the object of a contract becomes illegal after the contract is entered into, the parties are discharged from the contract.

TRUE

In common law, parties to an illegal contract are considered in equal fault.

TRUE

Intoxicated persons are liable in quasi-contract to pay the reasonable value for necessaries they receive.

TRUE

People below the age of majority are considered minors.

TRUE

Persons who entered into an illegal contract but withdrew before the illegal act was performed can sue to recover consideration.

TRUE

The court-appointed guardian is the only person who has the legal authority to enter into contracts on behalf of a person who has been adjudged mentally incompetent.

TRUE

The infancy doctrine binds an adult to a minor's decision on a contract.

TRUE

The parental duty of support is terminated if a minor becomes emancipated.

TRUE

Unlicensed persons cannot recover payment for services where they do not have the required license.

TRUE