Business Law 305 CH 8

In terms of intoxication, in the _______ case, even though the parties had been drinking alcohol, the contract to sell Zehmer's farm was upheld because of _______. (Choose two correct answers)

Lucy v. Zehmer objective intent

Suppose Bill (16 year old painter), promises Greg (20 years old) to paint Greg's house. The contract is _______ against Greg who is not protected by the capacity rule but is _______ by Bill.

voidable enforceable

Exceptions to the nonenforcement rule regarding illegal contracts include all of the following: ________. (Check all that are correct)

- if a party to an illegal contract rescinds before any part of the illegal purpose is carried out - when an insurance policy is illegal because the company did not use an approved form

If Karen is a schizophrenic under a doctor's care, she lacks capacity to sign a contract because of mental illness or defect if either: (1) _______ or (2) _______, and _______. (Choose three correct answers)

- she is unable to act in a reasonable manner in relation to the transaction - she is unable to understand the nature and consequences of the contract - the other party has reason to know of her condition

_______ is a legal doctrine used by courts to protect parties who may lack the ability to understand the terms of an agreement.

Capacity

_______ occurs when the minor attempts to avoid obligation under a contract, even though the contract has been partially performed.

Disaffirmance

Johnnie consumes his necessaries and then disaffirms his contract with a grocery store. Will he be successful if he demands return of his complete consideration?

No, Johnnie is liable for the reasonable value of the necessaries.

_______ includes any act that indicates that the minor intends to be bound by his promise; it can be expressed orally, in writing, or it can be implied.

Ratification

______ occurs when the minor, after reaching majority, begins to perform the contract, such as making an installment payment on a loan for a car.

Ratification by implication

Suppose Harry promises to paint Carol's home in exchange for Carol's promise to smuggle 500 Cuban cigars into the United States in violation of federal law. What is the result?

The contract is void and neither party may enforce it

If a statute declares that a specific type of contract is prohibited, such contract is _______.

absolutely void

Generally, a minor need not do any _______ act in order to derive the benefit of this general rule of _______. (Choose two correct answers)

affirmative voidability

Examples of contracts against public policy include all of the following except for a(n) _______.

contract for a reasonable restraint against trade

When a minor _______ a contract, the majority of states would that the minor is still entitled to the return of the consideration he parted with.

disaffirms

For a contract to be ________ it must meet the requirement of _______, and both the subject matter and the performance of the contract must be legal. (Choose two correct answers)

enforceable legality

Generally, contracts against public policy dictates that one cannot lawfully do something that has a tendency to be _______.

injurious to the public good

Generally, a contract that violates a statute _______ and thus will not be enforced by the courts.

is void

A person _______ because of a mental illness or defect if the person is unable to understand the nature or consequences of a contract or is unable to act in a reasonable manner.

lacks capacity

Before a party can be legally bound to a contract, he must have the capacity to understand and appreciate contract terms. There are capacity issues for: _______, _______, and _______. (Choose all correct answers)

mental incompetents intoxicated persons minors

An exception to the rule that the minor must return the consideration occurs in the case of _______.

necessaries

When a party to an agreement is a member of the class of persons for whose protection the contract was made illegal, he may either: _______ or _______. (choose two answers)

obtain restitution enforce the agreement

A contract for illegal gambling that is specifically barred by statute is ________ because its terms violate some _______ objective. (Choose two correct answers)

public policy void

Generally, the courts have the power to declare certain types of contracts _______ on the grounds that they are contrary to _______. (Choose two correct answers)

public policy void

The majority of states hold that contracts made by an incompetent are _______, not void. If the incompetent party regains her mental capacity, or has a guardian appointed, she may _______ the contract. (choose two correct answers)

ratify voidable

Courts will use a(n) ________ to determine whether a _______ person would have believed that an intoxicated person had sufficient capacity to enter into an agreement. (choose two correct answers)

reasonable objective standard

Mental competence means not just obvious cases such as mental disorders, but also the following: _______. _______, or _______. (Choose three correct answers)

severely depressed traumatic pressure highly intoxicated people

Generally, an illegal contract is automatically _______, so neither party may enforce it against the other.

void

If persons who lack capacity to contract make a promise, that promise is _______.

voidable

In general, the contracts of minors (persons younger than 18 years of age) are ________.

voidable at their option