B. Law Exam 3 ch. 13
Al has a tax service and accounting business in Redwood City. He decides to move to Center City, which is 150 miles away and sells his accounting practice to Able and Baker, a CPA firm. In the sales contract, he agrees that he will refrain from practicing accounting anywhere within a 20-mile radius of Redwood City for a period of two years. However, on weekends he returns to his house in Redwood City, and when clients call him, he meets with them in his home. a. Al is in violation of the sales agreement. b. The agreement is invalid, because it is an illegal restraint of trade. c. The agreement is illegal, because it is a violation of public policy. d. The two-year provision is likely to be held invalid, because it is too long a period of time.
A
Andrew owns a store in Polk County. His trade extends throughout River City, but not beyond the county limits. He sells his store to Betty and, as part of the transaction, agrees not to engage in the same business anywhere in River City for a period of five years. a. The geographic restraint is reasonable. b. This agreement is unreasonable. c. The agreement unduly interferes with the interest of the public. d. Both (b) and (c).
A
Custom Sales and Rentals uses a four-page contract with important contract terms buried in the fine print. This is an example of: a. procedural unconscionability. b. a reasonable, legal business practice. c. a "Blue law." d. substantive unconscionability.
A
Under which of the following circumstances would a court be likely to enforce an illegal contract? a. Under certain circumstances in which the aggrieved party was unaware of the illegality b. Where, although the contract is unconscionable, there is only procedural unconscionability c. Where the agreement is with an unlicensed attorney d. A court will never enforce an illegal contract.
A
State and local governments require licenses for certain business and professional activities. Explain the difference between a regulatory licensing statute and a licensing statute enacted to raise revenue. b. Explain the significance in contract law between a regulatory license and a revenue raising license. c. Give an example of each type of licensing statute.
A regulatory licensing statute is enacted to protect the public against unqualified persons. A revenue-raising statute does not seek to provide protection against the unqualified but is enacted merely to collect a licensing fee as revenue. b. In the case of a regulatory license, an unlicensed person may not collect for his or her services. In the case of a revenue-raising license, an unlicensed person may collect for his or her services. c. Regulatory: Doctors, lawyers, CPA's, and other professionals who must prove their competency based on established criteria of education and/or examinations. Revenue raising: Individuals and businesses who merely complete a form and pay a fee to obtain a license, such as a bar completing a liquor license.
What is the legal effect of an agreement that is criminal, tortious, or otherwise contrary to public policy, and why does it have that effect?
Agreements that are criminal, tortious, or otherwise contrary to public policy are illegal and unenforceable (as opposed to void). An illegal bargain is made unenforceable to discourage such undesirable conduct and to preclude the inappropriate use of the judicial process in carrying out such socially undesirable bargains
Bill bets his friend $100 that the Patriots will win the next Super Bowl. a. This is an unconscionable contract and therefore illegal. b. This is an illegal wagering agreement. c. This is an agreement to obstruct justice and therefore illegal. d. This is an illegal restraint of trade.
B
Don has an employment contract with Dunkirk Ice Cream. He sells ice cream and novelty ice cream products. He has nine children and doesn't make enough money, so he decides to see if another dairy will hire him, too. "After all," he reasons, "most stores carry four or five different brands." His employment contract prohibits him from competing. If Don sells for another dairy in addition to Dunkirk, will he be in trouble under his contract? a. No, it is unenforceable as against public policy. b. Yes, it is likely to be enforceable during employment. c. No, the prohibition against competing is enforceable only after he quits Dunkirk. d. A court would have to rule on the enforceability of the covenant not to compete since courts are reluctant to enforce such covenants during a period of employment
B
Non-compete agreements drafted for employees of Internet companies: a. are interpreted no differently in terms of standards of reasonableness than are agreements for other types of companies. b. are subject to larger geographic restrictions than for other types of companies. c. are subject to longer periods of reasonable duration. d. are irrelevant.
B
Sarah is working hard on the mayoral campaign of Timothy. She thinks that just a few more votes could win the election, so she promises to pay her friend Violet $50 to register and vote. Violet does so, but Timothy loses the election, and Sarah now refuses to pay. a. This agreement is enforceable. b. This agreement is unenforceable and opposed to public policy. c. This is an agreement to obstruct the administration of justice. d. This is an unconscionable contract covered by the UCC.
B
Theresa is a travel agent at the Fly Away Travel Agency. She has signed an agreement with her employer which prohibits her from working in any similar business in any town within a 100-mile radius of where she works. If she wants to quit her job and go to work for another travel agency, it is likely that: a. a court would uphold these restrictions. b. if no trade secrets are involved, and she has no dominion over customers, a court would rule the restrictions to be invalid. c. if the period of time of the agreement is under five years, it will be upheld by the court. d. Both (a) and (c).
B
Which of the following would generally be considered to be a revenue-raising licensing law? a. A statute requiring that doctors be licensed b. A statute requiring that salespeople be licensed, but not establishing any educational or training requirements c. A statute requiring public school teachers to be licensed d. A statute that requires insurance agents to pass a test before selling insurance in a state
B
A(n) ____ is a measure designed to protect the public from unqualified practitioners. a. exculpatory clause b. revenue license c. regulatory license d. usury statute
C
Before granting an injunction enjoining a former employee from competing in a described territory, the courts insist that the employer demonstrate that the restriction is: a. exculpatory. b. conscionable. c. necessary to protect the employer's legitimate interest. d. in compliance with the state's Blue Law.
C
Carl and Rob are both engaged in road construction work. They know that several jobs are going to be up for public bids, and agree between themselves that Carl will bid on one job and Rob will bid on the other, so that they both have work for the summer. When the bids are opened, Carl realizes that Rob has bid on both jobs. Rob is awarded both contracts. Carl now wants to sue Rob for breach of contract. a. Carl would probably win on the basis of promissory estoppel since he has detrimentally relied upon Rob's representation that he would not bid. b. Since Carl is less at fault than Rob, the court will likely award Carl damages. c. This is an agreement in violation of public policy that will not be enforced by the courts. d. This is an agreement obstructing the administration of justice that will not be enforced by the courts.
C
Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause? a. Void as an illegal primary restraint b. Valid as a reasonable restraint on trade c. An unenforceable restraint of trade contrary to public policy d. Binding as fair protection
C
John operates a small repair business and is in desperate need of a certain type of building material. He obtains the material from a large corporation, but is charged a grossly unreasonable price and is forced to buy other material he does not need. In view of the buyer's unequal bargaining power and unreasonable terms of the contract, this may be a case of: a. in para delicto. b. partial illegality. c. substantive unconscionability. d. procedural unconscionability.
C
Nell gives Al $50 in return for Al's promise to defame Sara. Nell hopes to ruin Sara's chances at a promotion. Nell finds out that Al did not hold up his end of the agreement. Which of the following statements is true? a. Nell can get the money back from Al through litigation. b. Nell can get the money back and force Al to do as he promised. c. Legally, Nell can neither get the money back nor force Al to do as he promised. d. Nell can force Al to act through an appeal to the courts, but Al gets to keep the $50.
C
R&R, Inc. entered into a contract with Scott, an agent, under the terms of which Scott would receive $20,000 if he stole trade secrets from the leading competitor of R&R. Scott performed his end of the agreement by delivering the trade secrets. R&R now refuses to pay Scott for his services. a. Scott may recover based upon the express contract of the parties. b. Scott may recover based upon a quasi-contractual theory in order to prevent the unjust enrichment of R&R. c. Scott will be unable to recover, because this is an illegal contract. d. Scott will be able to recover based upon promissory estoppel, because he has detrimentally relied upon the promises made by R&R.
C
Which of the following would always be considered to be contrary to public policy? a. A contract which contains a covenant not to compete b. A contract offered on a take-it-or-leave-it basis c. An agreement to pay someone to make false, negative statements about a competitor's product d. An agreement which contains an exculpatory clause
C
A contract prepared on a standard form and offering terms on a take-it-or-leave-it basis is called: a. exculpatory. b. a usurious contract. c. an illegal restraint of trade. d. an adhesion contract.
D
Andrew owns a store in Polk County. His trade extends throughout River City, but not beyond the county limits. He sells his store to Betty and, as part of the transaction, agrees not to engage in the same business anywhere within the state for a period of three years. a. The agreement is reasonable. b. The agreement is unreasonable. c. The agreement unduly interferes with the interests of the public. d. Both (b) and (c).
D
Divided Parcel (DP) includes the following on its mailing receipts: "We are not responsible for any damages to packages whether or not through the fault or negligence of our employees. Send packages at your own risk." Mary reads this clause but sends her watch back to its manufacturer to be repaired anyway. The watch is destroyed when the DP driver uses the package for a ball and tosses it to his buddy. Mary is: a. out of luck because the clause was communicated to her. b. out of luck because she should have insured the package. c. likely to collect from DP since exculpatory clauses always violate public policy. d. likely to collect from DP because it is a common carrier.
D
If a restriction in an employment contract is found to be too harsh, a court may do any of the following EXCEPT: a. change the terms of the contract. b. refuse to enforce the whole contract. c. refuse to enforce that part of the contract. d. refuse to void the restriction.
D
Numerous states impose no limit on the rate of interest that may be charged on: a. loans to corporations. b. credit card transactions. c. loans made by certain designated types of lenders. d. All of the above.
D
Patrick agrees to sell two different goods to his friend Ron, a retailer. One item is legal, and one item is illegal. The contract price is $2,000. a. Patrick may not recover payment for either of the goods if delivered. b. Patrick may recover for the legal item, but he may not recover for the illegal item. c. This is an unconscionable contract under the UCC. d. The court may view the contract as in (a) or (b).
D
The UCC provides that if a court as a matter of law finds a contract for the sale of goods or a clause of such a contract to have been unconscionable at the time it was made, the court may: a. refuse to enforce the contract. b. enforce the part of the contract that is not unconscionable. c. limit the application of any unconscionable clause in order to avoid an unconscionable result. d. All of the above.
D
Which of the following is correct with regard to an enforceable restraint of trade? a. The restraint should be no more extensive than is required to protect a specified property interest. b. Restraints typically arise in connection with the sale of a business. c. A typical restraint is a covenant not to compete. d. All of the above.
D
Which of the following is true with regard to an exculpatory clause? a. An exculpatory clause excuses one party from liability for her own tortious conduct. b. Where one party has a superior bargaining position that has enabled him to impose an exculpatory clause upon the other, the courts are inclined to nullify the provision. c. An exculpatory clause may be unenforceable for unconscionability. d. All of the above are true.
D
Which of the following would be considered a valid and legally enforceable agreement? a. An agreement to pay a legislator to vote for a particular bill b. An agreement under which Arthur agrees to pay Barbara $3,000 to disparage the product of Arthur's competitor c. An agreement by the seller of a service station not to enter the service station business in Ohio for a period of 30 years after the sale of his business d. An agreement by a car salesman not to sell automobiles or automobile parts in Marin County for a period of one year after terminating his employment
D
William recently sold his successful business to Janice. The contract for the sale contained an unreasonable restriction that did not allow William to open a similar business for fifteen years. The courts would, in this instance, a. reform the contract to make it reasonable and enforceable. b. require the parties to draft a new contract. c. enforce the contract as it is written. d. refuse to enforce the unreasonable restriction. e. Either (a) or (d).
E
"Blue laws" usually apply to activities of necessity and charity.
F
A contract to commit a tort will be enforced by the courts.
F
An agreement for sale of an illegal substance will be enforced by the courts if all other elements of the contract are present.
F
Bargains are illegal if they involve a crime or tort but not if they are merely against public policy.
F
Bill is currently enrolled in law school. He expects to graduate and take the bar exam in order to be able to practice law. Before Bill becomes a lawyer, he promises to represent his friend, Tom, in a breach of contract action if Tom will pay him 25% of the settlement. Bill negotiates and the case settles for $50,000. Tom refuses to pay Bill. Bill then graduates and attempts to sue Tom. Bill has a legal right to enforce the agreement.
F
Courts require that for a contract to unenforceable based on unconscionability, both substantive and procedural unconscionability must be equally present.
F
Edward, an engineer, is working on a new design for some highly technical equipment which XYZ, Inc. hopes to market within the next five years. The employment agreement between Edward and XYZ states that Edward will not go to work for another company in the same business for a period of two years after termination of his employment with XYZ, Inc. This agreement is void and unenforceable, because it would make it difficult for Edward to find other employment.
F
Maximum rates of interest that are permitted under usury statutes are uniform from state to state.
F
Noncompete agreements for Internet-related jobs have the same limitations in determining what is reasonable as to time and place restrictions as other types of jobs.
F
Regulation of gambling is solely under federal jurisdiction, through Congressional legislation and U.S. court enforcement.
F
Stuart promises to act as a guide on a fishing trip for a group of visiting dignitaries. The dignitaries agree to pay him $200 for his services. Stu guides them, but when they discover that Stu does not have a fishing license, they refuse to pay him. The agreement between Stu and the dignitaries is an illegal one, which is not enforceable.
F
The Code and the Restatement both contain definitions of what constitutes "unconscionable" conduct.
F
The courts will enforce an agreement declared illegal by statute.
F
The term "public policy" is precisely and narrowly defined in the Restatement and by state statutes.
F
Courts usually will require evidence of what factors for a transaction to be usurious?
For a transaction to be usurious, courts usually require evidence of: (a) a loan or forbearance (b) of money, (c) which is repayable absolutely and in all events (d) for which an interest charge is exacted in excess of the interest rate allowed by law.
What does it mean that an agreement is void because it violates public policy? a. Explain the meaning of "public policy" in this context. b. List the most common forms of agreements that violate public policy.
Judicially declared public policy is very broad in scope, it often being said that agreements having "a tendency to be injurious to the public or public good" are contrary to public policy. b. Agreements that violate public policy include those that contain unreasonable restraints of trade or exculpatory clauses, unconscionable contracts, contracts involving tortious conduct, contracts that tend to corrupt public officials, contracts that obstruct the administration of justice, or contracts that impair the legislative process or family relationships.
A covenant not to compete is a type of restraint of trade that courts today will enforce under certain circumstances.
T
Although wagering is generally illegal, some states permit certain kinds of regulated gambling, especially wagering conducted by governmental agencies.
T
An adhesion contract is offered on a "take-it-or-leave-it" basis.
T
An agreement in connection with the sale of a business that prohibits the seller from engaging in the same or similar business for a period of twenty-five years would be unreasonable.
T
An agreement to refrain from a particular trade, profession, or business is enforceable if two requirements are met: that it protects a property interest of the promisee and that the restraint is no more extensive than is reasonably necessary to protect that interest.
T
An exculpatory clause attempts to excuse one from liability for her own tortious conduct.
T
An exculpatory clause excusing a party from liability for harm caused by reckless conduct will generally make a contract unenforceable as a violation of public policy.
T
At common law, a valid contract may be entered into on Sunday or on any other day.
T
Deanna, an attorney, has a personal injury case which is set for trial next week. She needs a good doctor to testify on behalf of her client, so she contacts Dr. Dogood who agrees to testify on behalf of Deanna's client at the trial. In return for Dr. Dogood's testimony, Deanna agrees to pay Dr. Dogood $10,000 if they win the case, and $5,000 if they lose. Dr. Dogood agrees. The agreement between Deanna and Dr. Dogood is unenforceable.
T
In cases where one party to an illegal agreement is less at fault than the other, he will be allowed to recover payments made or property transferred.
T
Many states impose no limit on the rate of interest which may be charged on loans to corporations.
T
One type of restraint of trade is a covenant not to compete.
T
Specific lender usury statutes rather than the general usury statute generally apply to real estate mortgages and small consumer loans.
T
The courts readily enforce a covenant not to compete during the period of employment.
T
The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.
T
Where a stipulation in restraint of trade is a part of the contract for the sale of a business, it may be valid if the restraint is within reasonable limitations to protect the business's goodwill.
T
Mel owns a neighborhood grocery store that he would like to sell. Katrina is interested in purchasing the business, but she is concerned because she knows that Mel has built up a lot of goodwill over the years, and she wonders whether Mel might not just open another store down the block and take all of the business from the old store with him. Katrina asks for and receives from Mel a clause in the sales agreement that Mel will not open another grocery store within a 150-mile radius of the old store for a period of at least ten years. a. What is this agreement called? b. Is the negotiated clause a valid one? Explain why or why not. c. What guidelines would a court ordinarily use in determining whether to enforce such a clause?
The agreement is a covenant in restraint of trade in connection with the sale of a business or a covenant not to compete. b. The agreement is probably invalid, because the grocery store is only a neighborhood store, but the agreement calls for Mel not to open another grocery store within a 150-mile radius. This geographic restriction would seem to be unreasonable under the circumstances. A time period of ten years may be unreasonable. However, students may make good arguments to support upholding the agreement and should be given credit for their arguments if they show an understanding of the guidelines given in the book regarding whether a court will uphold such an agreement. c. A court examines the extent of time as well as the area or territory covered by the restraint. The restraint is reasonable if it is co-extensive only with the interest to be protected. The restraint is enforceable if (1) the purpose of the restraint is to protect a property interest of the promisee and (2) the restraint is no more extensive than is reasonably necessary to protect that interest. Each case must be considered on its own facts.
Philip has been in training for several months and now plans to run in the school-sponsored, ten-mile, fun run mini-marathon. He completes and signs an entry blank which contains the statement, "I hereby agree to hold the sponsors harmless for any injury sustained as a result of participation in this event no matter how such injury may be caused." a. What is the legal term for this clause in the agreement? b. Is the clause valid and legally enforceable? Explain its legal effect.
This is an exculpatory clause. b. This type of clause is generally looked upon with disfavor since there is a policy to discourage overreaching and to assure that wrongdoers will pay the damages caused by their tortious conduct. However, Philip should not automatically assume that the clause will not be upheld, because the policy of freedom of contract is also a factor in determining the validity of contractual clauses exempting a party from liability for his tortious conduct, and thus not all such clauses are held to be against public policy. Exculpatory clauses relieving a person from tort liability for harm caused intentionally or recklessly are generally unenforceable as violating public policy. Thus, the school would probably not be excused from intentional or reckless wrong conduct even though Philip signed the entry blank. Exculpatory clauses excusing negligent conduct are unenforceable on grounds of public policy if they exempt an employer from liability to an employee, a public service business from liability to a customer, or a person from liability to a party who is a member of a protected class. In this case, the fun run does not fit into these categories, so the exculpatory clause relating to the sponsor's negligent conduct might be enforceable.
Define "unconscionability" and distinguish between procedural and substantive unconscionability.
Unconscionability means contrary to the dictates of conscience; unscrupulous or unprincipled; exceeding that which is reasonable or customary; inordinate, unjustifiable. Procedural unconscionability involves scrutiny for the presence of unfair or irregular bargaining or negotiation. Substantive unconscionability involves the actual terms of a contract and whether they are oppressive or grossly unfair.
What is an illegal wagering contract? b. Larry takes out a $100,000 life insurance policy on his business partner, because his partner hasn't been well lately, and Larry thinks he might die. Is this a wagering contract? Explain. c. Shiloh's Department Store has a special promotion whereby anyone who buys $10 in merchandise is eligible to register for a trip to Europe. Is this an illegal lottery? Explain.
a. In a wagering contract, the parties stipulate that one shall win and the other lose depending upon the outcome of an event in which they have no "interest" other than that arising from the possibility of such gain or loss. b. No, this is not a wagering contract, because Larry has an "insurable interest" in the life of his business partner. c. This is an illegal wagering contract, because a purchase is required. It would be a legal promotion if no purchase were necessary to be eligible for the prize.