Business Law Chapter 13

A bargain by a candidate for public office to make a certain appointment following the election is legal.

False

An agreement for an illegal substance will be enforced by the courts if all other elements of the contract are present.

False

An agreement to pay a public officer something extra for performing his official duty is enforceable.

False

Bill is currently enrolled in law school, 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.

False

Oswald applied for a loan from Pointe Lenders. Pointe's reasonable cost of checking Oswald's credit will be considered as part of the financing charge when determining whether Pointe's rate of interest exceeds that allowable under the usury statute.

False

Where parties to a failed agreement are in pari delicto, a court will provide a remedy to the injured party.

False

A covenant not to compete is a type of restraint of trade that courts today will enforce under certain circumstances.

True

An exculpatory clause attempts to excuse one from liability for her own tortious conduct.

True

Andria, 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. Wood who agrees to testify on behalf of Andria's client at the trial. In return for Dr. Wood's testimony, Andria agrees to pay Dr. Wood $10,000 if they win the case, and $5,000 if they lose. Dr. Wood agrees. The agreement between Andria and Dr. Wood is unenforceable.

True

B& B, Inc. pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments. B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him. This is an agreement which is a violation of public policy.

True

Some states require the lender to forfeit two or three times the amount of usurious interest charged.

True

Specific lender usury statutes rather than the general usury statute generally apply to real estate mortgages and small consumer loans

True

The courts readily enforce a covenant not to compete during the period of employment.

True

The legal effect of a usurious loan varies from state to state.

True

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

True

Where a stipulation in restraint of trade is part of the sale of a business, it may be valid if the restraint is within reasonable limitations to protect the business's goodwill.

True

Al, an accountant, 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 sale contract, he agrees that he will refrain from practicing accounting anywhere within a 100-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 sale agreement. b. The agreement is invalid, because it is an illegal restraint on 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. Al is in violation of the sale agreement.

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 statute requiring that salespeople be licensed, but not establishing any educational or training requirements.

__________ is a provision excusing one party from liability. a. Procedural unconscionability b. An exculpatory clause c. Substantive unconscionability d. Tortious conduct

b. An exculpatory clause

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. Yes, it is likely to be enforceable during employment.

Archie bets his friend Jerry $100 that the Packers will win the next Super Bowl. This is an: a. unconscionable contract and therefore illegal. b. illegal wagering agreement. c. agreement to obstruct justice and therefore illegal. d. illegal restraint of trade.

b. illegal wagering agreement.

Rose is working hard on Arlin's mayoral campaign. She thinks that just a few more votes could win the election, so she promises to pay her friend Violet $50 if she will register and vote for Arlin. Violet does so, but Arlin loses the election, and Rose now refuses to pay. Rose's agreement to pay Violet: a. is enforceable. b. is unenforceable and opposed to public policy. c. is an agreement to obstruct the administration of justice. d. is an unconscionable contract covered by the UCC.

b. is unenforceable and opposed to public policy.

In the Pacific Custom Pools, Inc. v. Turner Construction Company case, the court found: a. that the trial court erred in granting a motion for summary judgment on the basis that PCP had not been licensed in California and thus could not bring suit. b. that the purpose of the relevant licensing law was to protect the public from incompetence and dishonesty in those who provide building and construction services. c. that, under the facts, PCP acted reasonably and in good faith to maintain its license. d. PCP met an exception to the California statute providing that a contractor may not maintain an action for the recovery of compensation for work requiring a license unless it had a license at all times during performance of the work.

b. that the purpose of the relevant licensing law was to protect the public from incompetence and dishonesty in those who provide building and construction services.

Permissible lender's expenses, which would not be considered in determining the rate of interest under usury statutes, include all but which of the following? a. Cost of title examination. b. Reasonable cost of drawing up the necessary documents. c. A charge to the borrower of $500 to investigate the borrower's credit, when it actually cost the lender $75. d. All of the above charges would be considered in determining the rate of interest under usury statutes.

c. A charge to the borrower of $500 to investigate the borrower's credit, when it actually cost the lender $75.

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 statements about a competitor's product. d. An agreement which contains an exculpatory clause.

c. An agreement to pay someone to make false statements about a competitor's product.

Nell gives Big 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. Legally, Nell can neither get the money back nor force Al to do as he promised.

c. Legally, Nell can neither get the money back nor force Al to do as he promised.

Carl and Ron 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 Ron will bid on the other, so that they both have work for the summer. When the bids are opened, Carl realizes that Ron has bid on both jobs. Ron is awarded both contracts. Carl now wants to sue Ron for breach of contract. a. Carl would probably win on the basis of promissory estoppel since he has detrimentally relied upon Ron's representation that he would not bid. b. Since Carl is less at fault than Ron, 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. This is an agreement in violation of public policy that will not be enforced by the courts.

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 violation of a statute. b. Valid as a reasonable restraint on trade. c. Unenforceable as a violation of public policy. d. Binding as fair protection.

c. Unenforceable as a violation of public policy.

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. substantive unconscionability.

Rorzex, Inc. entered into a contract with Denzil under the terms of which Denzil would receive $20,000 if he stole trade secrets from the leading competitor of Rorzex. Denzil performed his end of the agreement by delivering the trade secrets. Rorzex now refuses to pay Denzil for his services. Denzil: a. may recover based upon the express contract of the parties. b. may recover based upon a quasi-contractual theory in order to prevent the unjust enrichment of Rorzex. c. will be unable to recover, because this is an illegal contract. d. will be able to recover based upon promissory estoppel, because he has detrimentally relied upon the promises made by Rorzex.

c. will be unable to recover, because this is an illegal contract.

Which of the following is true with regard to an exculpatory clause? a. An exculpatory clause excuses one party from liability for her own tortuous 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. All of the above are true.

Carlos owns a store in Polk County. His trade extends throughout River City, but not beyond the county limits. He sells his store to Virginia and as part of the transaction agrees not to engage in the same business anywhere within the state for a period of four years. a. The agreement is reasonable. b. The agreement is unreasonable. c. The agreement unduly interferes with the interests of the public. d. Two of the above, (b) and (c).

d. Two of the above, (b) and (c).

The sole nursing home in the county offers a long-term care agreement. The contract is prepared on a standard form and offers terms on a take-it-or-leave-it basis. Such a contract is called: a. exculpatory. b. a usurious contract. c. an illegal restraint of trade. d. an adhesion contract.

d. an adhesion contract

Divided Parcel (DP) includes the following on its mailing receipts: "We are not responsible for any damages to packages whether or not through the intentional or reckless fault or negligence of our employees. Send packages at your own risk." Mary reads this clause but sends her watch back to the 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 attempted to excuse intentional and reckless behavior.

d. likely to collect from DP because it attempted to excuse intentional and reckless behavior.

The court in National Business Services, Inc. v. Wright found a non-compete agreement drafted for an employee of an Internet company was: a. no different in enforceability than non-compete agreements for other types of companies. b. subject to smaller geographic restrictions than for other types of companies. c. unreasonable in duration with a one-year time restriction. d. subject to larger geographic restrictions than for other types of companies. e. Both (c) and (d).

d. subject to larger geographic restrictions than for other types of companies.