Chapter 12 Legal Environment of Business

If the terms of an agreement seem to be very one-sided, which public policy could it be violating? Choose 2 answer choices

Substantive Unconscionability Restraint of Trade

A contract for a purpose that causes the parties to violate a law is:

illegal and void.

Covenants not to compete in employment contracts may be enforceable if they are: (Choose 2 answers)

reasonable in geographic restriction. reasonable in time duration.

A grossly unethical or unfair provision in a contract is called:

unconscionable

A contract to do something prohibited by law is:

void.

When are covenants not to compete in employment contracts considered to be against public policy? Choose 2 answers.

when the geographical restriction is too broad when the specified time of restraint is excessive

Which of the following contracts violate public policy?

A contract for the sale of a kidney

Which of the following contracts would be enforceable?

A contract with an unlicensed retail clothing store

What is true about contracts with an illegal purpose or subject matter? Choose 3 answers.

An illegal contract that has already been performed cannot be reversed. An illegal contract that is not fully performed cannot be enforced. The contract is void.

Freda purchases a living room set from Furniture Barn for $3,000 and agrees to pay for the furniture in installments. The usury rate in Freda's state is 10%. This means that:

Furniture Barn can charge no more than 10% interest without violating the law.

Melissa felt pressured into signing a contract that released her employer from any liability if she is injured on the job. What prohibited behavior under public policy could this be?

Exculpatory Clause

Hailey visits Rent-it-Your-Way Electronics and selects a big screen television to buy that costs $1,199. Hailey cannot afford to purchase the television outright, so she asks about financing. Ruby, the salesperson, assures Hailey that financing is available; Hailey can take the television home today and simply pay forty dollars each month until it is completely paid. Ruby shows Hailey their standard financing contract, which has three pages of tiny print. Hailey signs the contract and takes the television home. Hailey pays the monthly payment for ten months and then realizes that the balance has only gone down a small amount. Hailey looks closely at the monthly statement and realizes that the interest rate is thirty-five percent. At this rate, she will never get the television paid off. If Hailey tries to rescind the contract:

Hailey will win because the contract has unconscionable terms.

What function does a severability clause serve? Choose 2 answers.

It specifies what will happen with a potentially unenforceable part of a contract. It preserves the rest of the contract if one part is unenforceable.

Marco hires Franco to burn down a clothing store that belongs to one of Marco's competitors. Marco pays Franco $1,000 upfront and promises another $3,000 when the job is done. Franco burns down the clothing store and then asks Marco for the rest of the payment. Marco just laughs at Franco and walks away. If Franco sues Marco for payment under the contract:

Marco will not have to pay because the subject matter of the contract is illegal.

Willow has worked for Cloud Computing Inc. in Boulder, Colorado, for five years. When Willow joined Cloud Computing, she signed an employment contract that contained a covenant not to compete. The covenant states that if Willow leaves Cloud Computing, she will not work for any competitor for two years. Willow is approached by Centers for Computing Inc. with a job offer that she simply cannot refuse. Centers for Computing is located in Atlanta, Georgia. Willow accepts the job with Centers for Computing, and Cloud Computing sues Willow for violating the covenant not to compete. The result of this lawsuit will probably be that:

Willow will win, and the court will reform the contract to add a reasonable geographical restriction.

What types of contracts violate public policy? Choose 3 answers.

a candidate for public office paying his competitor to retire. conducting trade with a country that is an enemy to the United States. employment contracts that forbid membership in a union

Which of the following is a void contract?

a contract for prostitution

Which of the following is a voidable contract?

a contract in which the parties made a mutual mistake about the terms

An unfair contract that comes about because the parties have vastly different bargaining power is called an:

adhesion contract.

A clause that releases a party from liability in the event of monetary or physical injury, no matter who is at fault, is called:

exculpatory.

Anna, Sylvia, and Bonnie decide to purchase honey illegally from Canada and sell it in the United States. Each party contributes $500 to the venture, which has an expected return of $3,000 each. The morning they are to pick up the honey, Anna changes her mind; she does not want to be a part of any illegal deal. Sylvia and Bonnie proceed to purchase the honey and give the seller the agreed-upon $1,500. Because Anna withdrew from the deal before the illegal contract had been performed:

she is entitled to have her initial investment, $500, returned.