Chapter 13, Chapter 14, Chapter 15
Ratification has to be expressly made only in written form.
False
Statutes that require proof of character and skill and impose penalties for violation are considered to be revenue raising in nature.
False
Generally, the age of majority for contracting purposes is 21 years.
False
The threat to institute a criminal prosecution against another party in order to force that party into a contract is almost always duress.
T
Undue influence cases often involve a relationship of trust and confidence between the contracting parties.
T
When one of the parties offers a disproportionately small amount of money in settlement of a debt and refuses to pay more, it is a form of economic duress.
T
Ratification makes a contract valid from its inception.
True
A person who commits fraud may be liable for punitive damages for the tort of: A. deceit. B. fraud. C. misrepresentation. D. assertion.
A
A person who seeks to recover damages for deceit has to establish, apart from the elements of rescission, an additional element of: A. injury. B. injustice. C. fraud. D. materiality.
A
Contracts that are induced by misrepresentation are considered: A. voidable. B. enforceable. C. material. D. fraudulent.
A
David entered into a contract to sell Ruth a parcel of land fully aware that Ruth's intention of purchase was to construct a high-rise commercial building. David was also aware that the subsurface soil condition of the property would prevent such construction. The soil condition was not readily discoverable in the course of normal inspections or soil evaluations. David did not disclose the existence of the condition to Ruth, nor did Ruth make any inquiry of David as to the suitability of the land for the intended development. David's silence as to the soil condition: A. renders the contract voidable at Ruth's discretion. B. entitles Ruth only to monetary damages. C. makes the contract a case of a mutual mistake. D. does not affect the validity of the contract.
A
Sue wanted to purchase a car. She went to "Honest Bob's" used car sales. She was interested in a classic 1956 Jaguar XK 140 Roadster. Bob told her "this is a great car-it runs like a dream, it is a sweet ride." Bob's statements are legally considered to be: A. opinion statements. B. material representations. C. innocent misrepresentations. D. fraudulent, if they are false.
A
The main difference between concealment and nondisclosure is that: A. concealment is always regarded as an assertion of fact, while nondisclosure may or may not amount to such an assertion. B. a tort suit is possible in a concealment case, but not in a nondisclosure case. C. punitive damages are available in a nondisclosure case, but not a concealment case. D. nondisclosure is always regarded as an assertion of fact, while concealment may or may not be an assertion of fact.
A
Which of the following is a remedy in the case of an erroneous expression of an agreement due to an error in drafting? A. Reformation B. Rescission C. Avoidance D. Tort of deceit
A
Which of the following CANNOT be disaffirmed until after the age of majority? A. A contract that affects title to real estate. B. A contract for a necessary. C. A contract that is fully executed. D. A contract for the sale of goods.
A. A contract that affects title to real estate.
_____ is the ability to incur legal obligations and acquire legal rights. A. Capacity B. Emancipation C. Necessity D. Disaffirmance
A. Capacity
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.
Rebecca, a minor, rented an apartment from Jones for a period of one year when she had no place to stay. She disaffirmed the contract after four months, though she paid rent only for the first two months. Which of the following is true of the case? A. Jones can recover the unpaid rent for two months. B. Jones can recover rent for the whole year because he has suffered a loss. C. Rebecca need not pay any rent because she has disaffirmed the contract. D. Rebecca is not liable to pay any rent if she can prove that she is a minor.
A. Jones can recover the unpaid rent for two months.
Pat is a rich boy whose parents supply him with every conceivable necessity of life. While still a minor, Pat buys a coat on credit from a men's store for $5,000. After wearing the coat for a while, Pat decides that it bores him and that he would like to disaffirm. Which of the following is most likely to be true? Assume that Pat is still a minor. A. Pat can disaffirm the contract, and he must return the coat. B. Pat cannot disaffirm the contract, but he is liable only for the reasonable value of the coat. C. Pat cannot disaffirm the contract, and he is liable for the full price of the coat ($5,000). D. Pat can disaffirm the contract, but the store will sue him for deceit.
A. Pat can disaffirm the contract, and he must return the coat.
Which of the following is true of necessaries? A. The liability for necessaries is quasi-contractual. B. A minor is liable for the necessaries that he/she did not receive. C. In case of a disaffirmance, the minor need not pay for any necessary. D. An item is considered a necessary even if the minor already possesses it.
A. The liability for necessaries is quasi-contractual.
Which of the following is true of contracts involving intoxicated parties? A. The rules are similar to the ones for people with a mental incapacity. B. Courts are generally sympathetic to people involved in such contracts. C. A person incapacitated by intoxication can disaffirm at any period of time. D. In most such cases, people have escaped their contractual obligations.
A. The rules are similar to the ones for people with a mental incapacity.
Tracy, age 12, is named the sole inheritor of her family mansion which is valued to be worth millions. She has disaffirmed the agreement on the advice of her uncle and guardian Pete. This automatically transfers the title to the latter. Which of the following statements is true of the case? A. Tracy cannot disaffirm until she has reached majority. B. Tracy's decision will be allowed by the family courts. C. Pete has every right to Tracy's property and can take legal possession of it. D. Tracy's decision is valid as long as it is in writing.
A. Tracy cannot disaffirm until she has reached majority.
_____ 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
In general, contracts made by insane (mentally impaired) persons: A. can sometimes be ratified. B. are unconditionally void. C. are unconditionally voidable. D. are voidable only if they involve necessaries.
A. can sometimes be ratified.
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.
A minor entered into a contract with GAM & Co. On attaining majority, he wishes to enforce the contract. The adult party must: A. perform the contract. B. rescind the contract. C. abandon the contract. D. ratify the contract.
A. perform the contract.
Ted failed to disaffirm a contract during his minority. The contract was automatically: A. ratified. B. rescinded. C. set aside. D. made voidable at the option of the minor.
A. ratified.
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.
In January 2002, a court with the necessary subject-matter jurisdiction holds Marvin mentally incompetent and appoints a guardian for him. In November 2002, Marvin escapes his guardian's care and takes off on his own. While eating lunch with Clara, who knows about Marvin's condition, Marvin signs an agreement to sell a valuable property he owns. When he signs the contract, Marvin believes that he is the President of the United States signing an important treaty. The agreement between Marvin and Clara is best described as: A. void. B. voidable. C. unenforceable. D. perfectly valid, if the price Clara pays for the property is fair.
A. void.
A fact is considered to be material in a misrepresentation case when: A. the misrepresentation is considered to be innocent. B. it plays an important role in inducing a person to enter into a contract. C. it is relied upon by a person, even though it could not possibly be true. D. it is similar to an opinion or promise about some future happening.
B
Assuming that the economic condition of the country is progressing, Peter entered into a contract with John for the sale of substantial amount of shares of his company for consideration of $1,000,000. However, due to a slump in the market in the next few months, Peter lost heavily. This would lead to: A. avoidance of the contract. B. enforcement of the contract. C. rescission of the contract. D. reformation of the contract.
B
Bob's threat to breach an existing contract unless Lauren makes another contract with Bob is considered: A. an element of duress, because breach of an existing contract violates a criminal statute. B. an element of duress, depending mainly on the coerciveness of the threat. C. not an element of duress, because it does not involve physical force. D. not an element of duress, because breaking a contract normally does not violate a criminal statute.
B
Jerry owns a parcel of land. Nate, one of Jerry's closest friends and an attorney, has persuaded Jerry to sell the land to Nate at a price substantially below fair market value. At the time Jerry sold the land, he was resting in a nursing home recovering from a serious illness. If Jerry desires to set aside the sale, which of the following causes of action is most likely to be successful? A. Duress B. Undue influence C. Fraud D. Misrepresentation
B
Jim, the CEO of Maple Inc., had to sign a few papers that Amanda, his secretary, presented to him. Unknown to Jim, Amanda had carefully slipped in a contract for the sale of Jim's home to her in the papers which he signed. If Amanda seeks to enforce the contract, Jim's best defense to have the contract declared void would be: A. innocent misrepresentation. B. fraud in the execution. C. mistake. D. duress.
B
Martin Nowak, an accountant, entered into a written contract with Jane Gibson to perform certain tax services for Jane. Shortly thereafter, Jane was assessed additional taxes and she wanted to appeal the assessment. Jane was required to appeal immediately and the workpapers held by Martin were necessary to appeal. Martin refused to furnish Jane with the workpapers unless he was paid a substantially higher fee than was set forth in the contract. Jane reluctantly agreed in order to meet the filing deadline. The contract as revised is: A. voidable at Jane's option based on undue influence. B. voidable at Jane's option based on duress. C. void on the ground of undue influence. D. void on the ground of duress.
B
One of the differences between fraud and misrepresentation is that: A. there is a requirement of materiality in fraud cases. B. in fraud cases, the injured party has the option of suing for monetary damages. C. misrepresentation requires scienter. D. a false statement of opinion cannot be the basis for a claim of misrepresentation.
B
Paco Corp., a building contractor, offered to sell Roy several pieces of used construction equipment. Roy, engaged in the business of buying and selling equipment, accepted the offer. Paco's written offer had been prepared by a secretary who typed the total price as $10,900, rather than $109,000, which was the approximate fair market value of the equipment. Paco learned of the error in the offer and refused delivery of the equipment unless Roy agreed to pay $109,000. Roy has sued Paco for breach of contract. Which of the following scenarios is the likely outcome? A. Paco will not be liable because there has been a mutual mistake of fact. B. Paco will be able to rescind the contract because Roy should have known that the price was erroneous. C. Roy will prevail because Paco is a merchant. D. The contract is enforceable because Roy had accepted it.
B
Which of the following ends the right to rescind a voidable contract? A. Acquiescence B. Ratification C. Concealment D. Assertion
B
Which of the following is a ground for avoidance of contract based on a unilateral mistake? A. Both parties are mistaken about a fact. B. Nonmistaken party caused the mistake. C. The mistaken party had reason to know of the mistake. D. Person affected by the mistake does not bear the risk for it.
B
Which of the following is most likely to constitute undue influence? A. A firm demanding more in terms of pricing by withholding essential supplies. B. A clergyman using a parishioner's emotional susceptibility to get the parishioner to contract with the clergyman. C. Threatening to commence a frivolous criminal prosecution against someone, in order to get them to contract with you. D. Grabbing someone's hand and forcing them to sign on a contract you have prepared.
B
Which of the following is often taken to be the equivalent of an assertion? A. Oversight B. Concealment C. Reliance D. Materiality
B
_____ is a ground for lack of capacity only when it is so extreme that the person is unable to understand the nature of the business at hand. A. Infancy B. Intoxication C. Misrepresentation D. Duress
B. Intoxication
Which of the following statements, if false, is most likely to create liability for fraud or misrepresentation? A. "This rare antique chair probably is worth $10,000." B. "This crane will lift a 10,000-pound load." C. "This car is a perfect gem." D. "In my opinion, this car is in flawless mechanical condition."
B
Sarah is 16 years old. She left home at age 15; her parents no longer support her. Sarah entered into a contract with Best Groceries for the purchase of $100 of groceries on credit. The groceries consisted of basic, necessary items. However, their reasonable value is only $80. If Sarah discovers that she has been overcharged and refuses to pay, Best Groceries is entitled to collect: A. nothing. B. $80. C. $100. D. $90.
B. $80.
Which of the following contracts is void? A. A contract made by an unemancipated minor. B. A contract made by a person who has been adjudicated insane and institutionalized. C. A contract made by a person under the influence of mind-altering drugs. D. A contract made by a minor who receives no support from a parent or guardian.
B. A contract made by a person who has been adjudicated insane and institutionalized.
Beth has just turned 17 years of age. She entered into a contract with ABC Corp. for the purchase of a used car, with full payment due in 30 days. The purchase price was $5,000. This car is necessary for Beth to use as transportation to her job, which she needs in order to pay tuition at the university where she is a freshman. Beth's parents have refused to help her pay for college. Three days later Beth changes her mind; she now wants to return the car because she has learned that it is worth only $4,000. $4,000 is in fact the reasonable value of this car. If Beth does not pay, and the seller sues, the outcome of this lawsuit will be that: A. Beth must pay $5,000. B. Beth must pay $4,000. C. Beth does not have to pay for the car; she is entitled to the remedy of rescission because she is a minor. D. Beth does not have to pay for the car; she is entitled to the remedy of punitive damages because ABC overcharged her.
B. Beth must pay $4,000.
The general rule is that, contracts entered into during minority can be disaffirmed as soon as they are formed. Which of the following is an EXCEPTION to the rule? A. Contracts affecting investment. B. Contracts affecting the title to real estate. C. Contracts affecting necessary supplies to be provided to the minor. D. Contracts affecting his/her employment as a child actor.
B. Contracts affecting the title to real estate.
Which of the following characterizes the effect of incapacity caused by mental impairment? A. A person formerly incapacitated by mental impairment cannot ratify a contract if he/she regains his capacity. B. If a contract is found to be voidable on the ground of mental impairment, the person who lacked capacity at the time the contract was made has the right to disaffirm the contract. C. If a court has found a person mentally incompetent after holding a hearing on his mental capacity and has appointed a guardian for him, the contract is considered voidable. D. The contracts of people who are suffering from a mental defect at the time of contracting are usually considered to be void.
B. If a contract is found to be voidable on the ground of mental impairment, the person who lacked capacity at the time the contract was made has the right to disaffirm the contract.
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."
Marlene, a self-employed 16-year-old whose parents are dead, buys a dress on credit for $50. After receiving the dress and discovering that its reasonable value is only $25, Marlene tries to disaffirm the deal before paying the $50. In this case: A. Marlene can disaffirm, and she is bound to pay the full $50. B. Marlene can disaffirm, but she is only bound to pay $25. C. Marlene can disaffirm, and she can return the dress without paying for it. D. Marlene can disaffirm, and she can keep the dress without paying for it.
B. Marlene can disaffirm, but she is only bound to pay $25.
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
Three days before she was judicially declared mentally incompetent and institutionalized, Irma bought a $50,000 automobile by cash and took delivery of it. Which of the following is true about this contract? A. It is voidable at the discretion of the seller. B. The contract is voidable due to Irma's institutionalization. C. The contract cannot be disaffirmed because it is fully executed. D. Irma ratified the contract by paying the price of the car.
B. The contract is voidable due to Irma's institutionalization.
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.
Betty, age 16, buys a car and wrecks it one week later. She takes it back to the seller and demands all her money back. According to the traditional rule, is she entitled to get all her money back? A. Yes, regardless of the condition of the car, because this was a void contract. B. Yes, regardless of the condition of the car, because this was a voidable contract. C. No, she is entitled to no remedy in this situation. D. No, she is entitled to get some money back but less the value of the damage to the car.
B. Yes, regardless of the condition of the car, because this was a voidable contract.
A bargain is considered to be void if a court has _____ a person to be mentally incompetent at the time the bargain was formed. A. ratified B. adjudicated C. disaffirmed D. emancipated
B. adjudicated
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
Payne entered into a written agreement to sell a parcel of land to Stevens. At the time the agreement was executed, Payne had consumed alcoholic beverages. Payne's ability to understand the nature and terms of the contract was not impaired. Stevens did not believe that Payne was intoxicated. The contract is: A. void as a matter of law. B. legally binding on both parties. C. voidable at Payne's option. D. voidable at Stevens' option.
B. legally binding on both parties.
A(n) _____ is something that is essential for the minor's continued existence and general welfare that has not been provided by the minor's parents or guardian. A. disaffirmance B. necessary C. estoppel D. capacity
B. necessary
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.
A party to a contract who seeks to rescind the contract because of that party's reliance on the unintentional but materially false statements of the other party will assert: A. reformation. B. actual fraud. C. misrepresentation. D. constructive fraud.
C
According to contract law, a(n) _____ is a belief about a fact that is not in accordance with the truth. A. assertion B. concealment C. mistake D. material
C
Hally took advantage of a confidential, trusting relationship with Gwyn when they entered into a contract. Now, Gwyn can seek remedy based on: A. duress. B. unconscionability. C. undue influence. D. fraud in the execution.
C
Joe sells his business to Shirley. During the negotiations, Joe negligently tells Shirley that the business has earned a profit for the last five years. In reality, the business operated at a loss for each of those years. However, Shirley did not hear Joe's misstatement. Shirley cannot rescind the contract because: A. Joe's false statement was negligent rather than intentional. B. Joe's misstatement was not material. C. Shirley did not actually rely on Joe's misstatement. D. an untrue assertion of fact was made.
C
On May 6, Robbie entered into a signed contract with Ed, whereby Robbie was to sell Ed a painting having a fair market value of $350,000 for $130,000. Robbie believed the painting was worth only $130,000. Unknown to either party, the painting had been destroyed by fire on May 4. If Ed sues Robbie for breach of contract, Robbie's best defense is: A. risk of loss had passed to Ed. B. lack of adequate consideration. C. mutual mistake. D. unconscionability.
C
Bill is 17 years old. His parents no longer support him. He purchases bread and eggs from a grocer on credit, and then does not pay. Does the grocer have a right to payment from Bill for these items? A. No, because Bill is a minor. B. No, because these items are "necessaries." C. Yes, because these items are "necessaries." D. Yes, because Bill is emancipated.
C. Yes, because these items are "necessaries."
To establish a cause of action based on fraud in the inducement, one of the elements the plaintiff must generally prove is that: A. it is impossible for the plaintiff to fulfill the terms of the contract. B. the contract is unconscionable. C. the defendant made a false representation of a material fact. D. there has been a mutual mistake of a material fact by the plaintiff and defendant.
C
Which of the following elements establishes a case of duress? A. An assertion was made with knowledge of its falsity. B. There is an untrue assertion of a fact. C. The contract was induced by improper threat. D. There is a mistake about the basic assumption of the contract.
C
Which of the following is most likely to constitute a misstatement that can give rise to fraud or misrepresentation liability? A. A broker says to his client, "I think that this car's engine has been overhauled." B. A customer sales representative of the most popular brand of car says to the customer, "This is the highest selling car in town." C. An owner of a house gets his ceiling painted to conceal a leaking roof and says, "I got the ceiling painted recently." D. The owner of an unencumbered horse states, "I am selling the horse to raise funds for my ranch."
C
Which of the following is true of the remedies for misrepresentation and fraud? A. All states allow a victim of fraud to rescind and sue for damages. B. A person can claim punitive damages for fraud under the tort of misrepresentation. C. The contractual remedy for innocent misrepresentation is rescission. D. Ratification enables the right to rescind a contract.
C
Which of the following must a person prove to rescind a contract if the misrepresentation was innocent? A. That the fact was asserted B. That the fact was disclosed C. That the fact was material D. That the fact was ratified
C
Which of the following is true of contracts involving people suffering from mental illnesses? A. Contracts of people suffering from a mental defect at the time of contracting are usually considered to be enforceable. B. A person disaffirming on the ground of mental impairment need not return any consideration given by the other party. C. A person disaffirming on the ground of mental impairment is liable for the reasonable value of necessaries. D. A person incapacitated by mental impairments cannot ratify a contract if he/she regains his capacity.
C. A person disaffirming on the ground of mental impairment is liable for the reasonable value of necessaries.
Which of the following is most likely to constitute ratification of a contract made by a minor? A. Not performing one's duties under the contract after reaching the age of majority. B. Nonperformance of the other party to the contract after the age of majority. C. Failing to disaffirm a completely executory contract within one month after the age of majority. D. Making an oral statement that "I will ratify the contract."
C. Failing to disaffirm a completely executory contract within one month after the age of majority.
Russell, age 45, has been suffering from mental impairment for a long time. He signs a contract to sell his villa for $1 million to Andre. When Russell's wife Katie, who is also his appointed (by the court) guardian, gets to know of the deal, she wants to ends the contract. Which of the following statements is true? A. Andre cannot claim the villa until he has paid for it. B. Russell has the right to enter into such a contract. C. Katie need not worry because the contract is void. D. The court will give primary preference to Russell's opinion.
C. Katie need not worry because the contract is void.
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.
_____ makes any contract valid from its inception and can be done effectively only after a minor reaches majority. A. Disaffirmance B. Emancipation C. Ratification D. Consideration
C. Ratification
Shelly, age 15, sells a car to Fiona, age 25. Fiona in turn sells the car to Raphael. Under section 2-403 of the Uniform Commercial Code, if Shelly chooses to disaffirm the contract with Fiona: A. Shelly can get the car back from Raphael. B. Raphael will have to sell it back to Shelly. C. Shelly can do so since she is a minor. D. Shelly needs to file a breach of contract against both Fiona and Raphael.
C. Shelly can do so since she is a minor.
What is emancipation? A. Termination of a case of fraud and misrepresentation. B. Termination of a bargain that is considered void. C. Termination of parental rights to control a child. D. Termination of necessaries in a quasi-contractual case.
C. Termination of parental rights to control a child.
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.
What remedy is provided by states that allow disaffirmance to adults who suffer losses due to a minor's misrepresentation of age? A. There is no remedy B. Tort of necessaries C. Tort of deceit D. Emancipation
C. Tort of deceit
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.
Contracts made by severely intoxicated people: A. are void rather than voidable. B. can be disaffirmed anytime after he/she has regained his/her mental faculties. C. cannot be ratified until the person has regained his mental faculties. D. are always binding, because the law does not want to reward drug or alcohol abuse.
C. cannot be ratified until the person has regained his mental faculties.
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.
An important difference between duress and undue influence is that: A. duress occurs in a relationship of trust, while undue influence employs improper threat. B. duress involves physical compulsion, while undue influence involves economic compulsion. C. the scope of duress has contracted since the 19th century, while the scope of undue influence has expanded since the 19th century. D. duress is wrongful coercion, while undue influence is unfair persuasion.
D
Identify the difference between a case involving intentional fraud and innocent misrepresentation. A. The contractual remedy of rescission is not available in a misrepresentation case. B. A person committing innocent misrepresentation is liable for punitive damages for the tort of deceit. C. Reasonable reliance of the complaining party is not required in a fraudulent case. D. Materiality is not required in a fraudulent case.
D
Geometry Co. manufactures microchips for electrical products. Jojoba monopolizes the supply of gallium arsenide, which is used heavily in the manufacturing of microchips. Because of this monopoly and the demand for microchips, Geometry enters into a long-standing agreement with Jojoba for 20 years. For the first couple of years, due to the huge demand for the microchips, Geometry insisted on timely delivery of the raw material. However, once the demand slumped, Geometry asserted economic duress to avoid the contract. Will Geometry be successful? A. Yes, because Geometry was forced to enter the contract due to Jojoba's monopoly over the supply of the raw material. The consent was not free. B. No, because the facts prove that Jojoba had not caused any undue duress. C. Yes, because there was economic duress and thus the contract is voidable at Geometry & Co.'s discretion. D. No, because Geometry has already taken benefits under the contract for two years.
D
In order for a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller's improper threats: A. were due to his relationship with the purchaser. B. actually induced the purchaser to assent to the contract. C. were due to his position of dominance with the purchaser. D. influenced the purchaser to assent as there were no reasonable alternatives.
D
In which of the following cases can the remedy of rescission be invoked by the affected party? A. Mistake of tort B. Mistake of contract C. Mistake of law D. Mistake of fact
D
James has entered into a contract to sell his house to Mikhael. James knows that the house has a bad termite infestation that significantly reduces the value of the house. However, the topic of termites never came up and James did not volunteer any information about the termites. Mikhael is not aware of the termite problem. Under the law of most states, has legal misrepresentation occurred here? A. No, because James made no statement that was false. B. No, because a seller does not have a duty to reveal all faults. C. Yes, because a seller must always inform a buyer about defects that are not obvious. D. Yes, because James is concealing the termite infestation from Mikhael.
D
Jean agrees to lease Steven the fourth floor of his house. Jean himself resides on the second floor. The person typing the contract strikes the wrong key, and the contract reads the leased portion as the "second floor." Neither Jean nor Steven notices this error when they read and sign the contract. What will the courts do in the case of a dispute? A. Avoid the contract B. Rescind the contract C. Enforce the contract D. Reform the contract
D
Morton Reeves, a building subcontractor, submitted a bid for construction of a portion of a high-rise office building. The bid contained material errors in computation. Lago Corp., the general contractor, accepted the bid with the knowledge of Reeves' errors. Reeves: A. must perform the contract unless he can show that Lago acted fraudulently. B. must perform the contract according to the stated terms since his errors were unilateral. C. can avoid liability on the contract only if his errors were not due to his negligence. D. can avoid liability on the contract since Lago knew of his errors.
D
The primary distinction between an action based on innocent misrepresentation and an action based on common law fraud is that, in the former, a party need not allege and prove: A. that there has been a false representation. B. the materiality of the misrepresentation. C. reasonable reliance on the misrepresentation. D. that the party making the misrepresentation had actual or constructive knowledge that it was false.
D
_____ is a wrongful coercion that induces a person to enter or modify a contract. A. Deceit B. Mistake C. Fraud D. Duress
D
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
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 characterizes the traditional rule regarding a minor who misrepresents his/her age? A. He/she can be prosecuted for such an offense. B. An adult can file a tort of deceit against such a minor. C. An adult can seek compensation for any losses caused by such a minor. D. A minor's right to disaffirm is valid in such a case.
D. A minor's right to disaffirm is valid in such a case.
Cathy Young, age 16, buys a 1973 Chevy Camaro from Mark Watson, age 23, for $400. Cathy's indulgent parents, who give her everything she wants, loaned her the money for the car. The reason for Cathy's purchase is that all her friends have cars and she feels left out without one. One week after buying the car, however, Cathy changes her mind and tells Mark that she wants to disaffirm the contract. When Mark comes to pick up the car and give Cathy her money, though, Cathy changes her mind again, telling Mark, "I'll stick by the deal." However, when Cathy's parents gave her a new car for her 17th birthday, she finally decides to disaffirm once again. Which of the following is correct? A. Cathy cannot disaffirm because the car is a necessary. B. Cathy cannot disaffirm because she ratified the contract by saying "I'll stick by the deal." C. Cathy cannot disaffirm because there is a sale of goods and Article 2 of the UCC says that 16 is the age of contractual capacity. D. Cathy can still disaffirm.
D. Cathy can still disaffirm.
Which of the following is a criticism of the traditional rule of restitution in the case of minors? A. It allows adults to ratify a contract with a minor. B. It allows a minor to be exploited in a contract. C. It does not allow a minor to disaffirm a bargain. D. It is harsh on innocent adults dealing with minors.
D. It is harsh on innocent adults dealing with minors.
Mike Minor buys some real estate as investment. The contract obligates Mike to make monthly installment payments for 10 years. Mike reaches the age of majority one month after making the contract. After this, Mike makes 25 monthly payments under the contract, but then decides that he wants to rescind the deal. Which of the following is most true? A. Mike can disaffirm. B. Mike cannot disaffirm because contracts for the sale of land can only be disaffirmed before the age of majority. C. Mike cannot disaffirm because contracts for the sale of land must be disaffirmed within one year of the age of majority. D. Mike cannot disaffirm because he has already ratified the contract.
D. Mike cannot disaffirm because he has already ratified the contract.
On May 1, 1985, Mint, a 16-year-old, purchased a sailboat from Sly Boats. Mint used the boat for six months, at which time he advertised it for sale. Which of the following statements is correct? A. The sale of the boat to Mint was void, thereby requiring Mint to return the boat and Sly Boats to return the money received. B. Sly Boats has the power to recover the boat from Mint because he has advertised it for sale. C. Mint's use of the boat for six months after the sale on May 1 constituted a ratification of that contract. D. Mint may disaffirm the May 1 contract at any time prior to reaching majority.
D. Mint may disaffirm the May 1 contract at any time prior to reaching majority.
At 17, Otto signed a contract to purchase a new Hummer by advancing a payment of $50,000. However, when Otto turned 20, he wished to disaffirm this contract. Does the law permit this? A. Yes, because he was a minor when he signed the contract. B. Yes, because he is not yet 21 years of age. C. No, because a car is a "necessary." D. No, because Otto implied his ratification.
D. No, because Otto implied his ratification.
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 characterizes emancipation? A. It allows parents to receive services from the child. B. It occurs only through parents' consent. C. Most states grant an emancipated minor the capacity to contract. D. There are no formal requirements for it.
D. There are no formal requirements for it.
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.
The right of minors to avoid a contract as a means of protecting themselves against their own improvidence and against overreaching by adults is called: A. emancipation. B. ratification. C. adjudication. D. disaffirmance.
D. disaffirmance.
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 famous journalist predicted the result of an NBA match between the LA Groves and LA Phantoms in favor of the Phantoms, based on the present form of Groves. Accordingly, Mark placed a huge bet on the Phantoms and lost heavily. This is an example of misrepresentation of a material fact of a contract.
F
A party who has the right to rescind a contract may do so at any time.
F
Generally, if there is a good faith dispute over a matter, a person's threat to file a lawsuit to resolve that dispute is considered to be improper.
F
The legal term for innocent misrepresentation is "scienter."
F
Threats to institute legal actions cannot be considered improper threats that constitute duress
F
While economic pressure may amount to undue influence, it cannot constitute duress.
F.
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 minor has the right to recover property transferred to third parties. This includes even good faith purchasers.
False
A noncompetition clause is also known as a "liability waiver."
False
Courts provide remedy for the breach of illegal agreements.
False
Emancipation is a formal agreement in writing to terminate a parent's right to control a child and receive services from him.
False
In order to have any chance of being enforced, an illegal agreement must be indivisible.
False
Once a contract made by a minor has been effectively ratified, it cannot be affirmed.
False
Ordinarily, contracts entered into by mentally impaired people are void, while contracts entered into by intoxicated people are voidable.
False
Under the theory that alcohol and drug use should not be rewarded, today most courts say that contracts made by intoxicated people are perfectly binding, no matter how severe the intoxication.
False
A party injured by fraud in a contract for the sale of goods can both rescind the contract and sue for damages.
T
Concealment involves the active hiding of a fact, while nondisclosure is the failure to volunteer information.
T
In order for a unilateral mistake to make a contract voidable, either the nonmistaken party must have caused or had reason to know of the mistake, or enforcement of the contract must be unconscionable
T
Mutual mistake is more likely to make a contract voidable than is unilateral mistake
T
Ratification ends the right to rescind a contract
T
A contract made by a person who has been adjudicated to be insane and institutionalized or put under a guardian's care is void rather than voidable.
True
A minor's contract for necessaries makes the minor liable for the reasonable value of the necessaries furnished to him.
True
A person who at the time of the contract lacked capacity due to mental impairment can ratify the contract once he/she regains his/her normal mental faculties.
True
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
Minors are considered to lack capacity to contract.
True
One example of procedural unconscionability is the use of "fine print" in stating a contractual provision.
True
Ordinarily, an item is not considered to be a necessary if a parent or guardian already supplies the minor with similar items.
True
The traditional rule is that, where the consideration given a minor under a minor's contract has been lost, stolen, or dissipated, the minor can disaffirm without compensating the adult for the loss in any way.
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 Restatement (Second) of Contracts, intoxication will make a contract voidable if the other party had reason to know that the intoxicated person was so intoxicated that he/she did not understand the transaction.
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