Chapter 12

In most states, if a contract is disaffirmed due to intoxication, both parties must be returned to the status quo.

true

Anthony contracted with a company to participate in a shark feeding excursion. He signed an exculpatory clause as one of the contract provisions at the time that he signed up. He was later injured by a shark during the dive. He wants to sue the company for his injuries. What is the most likely result?

The company will not be liable because the exculpatory clause will most likely release the company from liability.

Juan owns a house in a poor area of a large city. A salesman visits his home, selling aluminum siding. Juan buys and signs a contract, which calls for a price of $25,000 to be paid in monthly installments of $500 for 20 years. Juan only earns $700 per month. In addition, Juan's home is only worth about $35,000. The aluminum siding put on is worth no more than $1,500. Juan speaks and reads very little English and Juan thought he was signing a receipt for a free gift. Which of the following best describes this contract?

The contract is unenforceable because it is unconscionable.

Bob sells Frank some cocaine, but Frank thinks he received baking soda. In this case:

The court won't order either party to pay the other, regardless of whether Frank has already paid Bob.

John hires Jane to steal a particular type of car for him. Jane demands $2,000 payment in advance, which John pays. Jane does not deliver the stolen car at the appointed time. John sues Jane. Which of the following is most likely?

The courts will not do anything

The most prevalent age of majority for contractual purposes in the United States is 18 years of age for both males and females.

true

Under the infancy doctrine, a minor can disaffirm a contract by his actions.

true

What constitutes a necessity for a minor will depend on the particular minor's own individual circumstances.

true

When a person is adjudged insane, that person loses the ability to enter into contracts.

true

An exculpatory clause releasing a white water adventure rafting company from liability for all injuries it causes is:

usually valid for negligence, not for intentional acts

The contract of a person who has been adjudicated insane, but enters into a contract during a lucid interval, is:

void

Contracts entered into by persons adjudicated insane are ___________, and those entered into by nonadjudicated insane persons are _____________.

void;voidable

A computer retailer sells some computer games to a minor. This contract is:

voidable

A contract provision that relieves a party to the contract from liability is known as:

exculpatory clause

A contract must be found to violate a specific statute in order for the contract to be void due to illegal subject matter.

false

A court's only remedy upon finding that a contract is unconscionable is to not enforce it.

false

A law that sets an upper limit on the interest rate that can be charged is unconscionable.

false

A minor may not ratify a contract.

false

A minor's ratification of a contract must be express and cannot be implied.

false

All states allow gambling contracts to be enforced in the courts.

false

An unlicensed contractor who performs services is entitled to payment for his services even if the licensing statute in question is regulatory in nature.

false

Each state has its own list of the items that are considered necessaries and such a list would then apply to all minors in that state.

false

Even though a minor returns goods or property received from the adult at the time the minor disaffirms the contract, the adult is under no duty to place the minor in the status quo.

false

Exculpatory clauses often are found illegal because they violate state statutes.

false

If a court finds that the subject matter of a contract is not legal, the court will undo the contract and place the parties in the status quo.

false

In most states, if a minor misrepresents her age when entering into a contract, that contract cannot be disaffirmed.

false

Minors are liable for the contract price of any necessaries of life for which they contract.

false

Parents still owe a legal duty to provide food, clothing, and shelter for their children regardless of emancipation.

false

Someone who is not yet a licensed real estate agent can legally collect a fee for real estate services.

false

The adult party to a contract with a minor has the option of choosing whether to enforce the contract.

false

The doctrine of unconscionability is available in most cases when a party has made a bad bargain.

false

The level of intoxication allowing a party to disaffirm a contract is the same as that considered too intoxicated to legally operate a motor vehicle.

false

To disaffirm a contract, a minor must act before reaching the age of majority.

false

Where a contract has been found to violate a specific statute, the goal of contract law is to impose the appropriate criminal penalty on the party or parties found to violate the statute.

false

necessaries of life

food, clothing, shelter, medical care, and other items considered necessary to life. minors must pay the reasonable value of necessaries of life for which they contract

Persons with _________ competence make enforceable contracts.

full

If a minor buys an item and then disaffirms the contract, and a court orders the minor to merely return the item in its present condition in order to get a refund, this minor has the duty of:

restoration

A minor, unable to live at home, contracts to rent an apartment for one year at $600 per month. After living there for three months, he disaffirms the contract. The reasonable value of that apartment was only $500 per month. Assuming no rent has been paid, the minor must pay which of the following?

$1,500; the reasonable value for three months.

If a minor wishes to be bound to a contract after becoming an adult, she must:

ratify the contract

On your first spring break, you go in a bar after reading a large sign outside saying, "Beers $1.00 each all night long. If you can drink 30, they're all freewe'll pay for a taxi." You pay for your beers as you drink, and you manage to drink 30 beers. The bar agrees that you drank 30 beers, but refuses to refund your money. You sue the bar. Which is most likely true?

A court would ignore this contract on the basis of illegality even if it does not violate a specific statute.

Mary, age 16, buys a car from Friendly Auto Dealers. She pays $1,500 for the car. It turns out that the car is really worth $2,500. Friendly wants to disaffirm the contract and get the car back. Which of the following best describes this situation?

Because Mary is a minor, this contract is voidable, but only at the option of Mary, not at the option of Friendly.

Mary is a bartender at a local pub. The state in which Mary works requires all bartenders to be licensed. No special education or experience is required, but one must pay $25 per year for the license. Mary was not aware of this, so she did not obtain a license. When her boss found out about this, he refused to pay Mary for the two weeks of work that she had done. Mary sues. What results?

Because this is a revenue raising statute, Mary can collect her wages.

Generally speaking, a minor must return goods or property he or she has received from the adult in the condition it is in at the time of disaffirmance.

true

_____________ clauses and __________________ agreements sometimes violate public policy and sometimes do not.

Exculpatory;noncompete

Andrea is a real estate agent; however, she does not have a license as required by statue. Andrea sells a piece of property for George, but George refuses to pay her the agreed commission. Andrea sues George. What results?

If the licensing statute is a regulatory statute, Andrea cannot collect her commission.

Gertrude wants to buy a new car, but is short of money. She promises the salesperson that she will grant him sexual favors for the next year if he will give her an automobile. He agrees. She later changes her mind, and he seeks to enforce the contract. How will a court most likely rule on the matter?

It is a void contract in violation of public policy.

Marsha bought a car from Indy Auto Sales when she was 16. Marsha's parents had given their consent for Marsha to purchase the car. However, in order to buy the car, Marsha lied about her age. A few months later, Marsha was intoxicated, driving too fast, and caused an accident with Mr. Jones. Marsha's car was totally destroyed, and Mr. Jones' car was badly damaged. Marsha wishes to minimize her liability for this accident. Which of the following best describes this situation?

Marsha can disaffirm the auto sales contract and get back all her money, but she is still liable to Mr. Jones for damages.

A computer that is the subject of a contract has the capability to be programmed to embezzle funds in a way that no other computer is able to do. The contract to sell such a computer:

Might be considered an illegal contract that is void as against public policy even if there is no statute prohibiting the sale of such a computer.

Julie buys an auto from John when she is 17. When she turns 21, Julie decides that she does not want the automobile. The age of majority in Julie's state is 18. Can Julie disaffirm this contract?

No; Julie had a "reasonable time" within which to disaffirm the contract, but a "reasonable time" has passed.

At age 16, Phil bought a car from Acme Auto Co. for $2,500. Phil drove the car for about six months, and then he had an accident. The damage to the auto was $1,500. In addition, the value of the auto before the accident was only $2,000. The accident was not Phil's fault. Phil wishes to disaffirm the contract. Which of the following best describes this situation?

Phil can disaffirm the contract and recover the entire $2,500.

A noncompete agreement will be found not to violate public policy so long as it meets the required tests for reasonableness.

TRUE

Arthur had been adjudicated insane. During his period of insanity, Arthur sold some unimproved real estate to Katrina for $5,000, its fair value. Katrina did not know that Arthur was insane. In fact, he acted perfectly normal in every way. Arthur spends this $5,000. Arthur's guardian learns of this transaction and sues to void the contract and recover the land. What results?

The guardian can get the land back, but Arthur must pay Katrina the $5,000.

contract contrary to public policy

a contract that has a negative impact on society or that interferes with the public's safety and welfare

illegal contract

a contract that has an illegal object, such contracts are void.

infancy doctrine

a doctrine that allows minors to disaffirm most contracts they have entered into with adults

effect of illegality

a doctrine that states that the courts will refuse to enforce or rescind an illegal contract and will leave the parties where it finds them

usury law

a law that sets an upper limit on the interest rate that can be charge on certain types of loans

intoxicated person

a person who is under contractual incapacity because of ingestion of alcohol or drugs to the point of incompetence

duty of restitution

a rule that states that if a minor has transferred money, property, or other valuables to the competent party before disaffirming the contract, that party must place the minor in status quo.

ratification

act of a minor after the minor has reached the age of majority by which he or she accepts a contract enter into when he or she was a minor.

disaffirm

act of a minor to rescind a contract under the infancy doctrine. Disaffirmance may be one orally, in writing, or by the minor's conduct.

emancipation

act or process of a minor voluntarily leaving home and living apart from his/her parents

Lisa has been a dentist in Elmville for several years. She is now ready to retire and she sells her practice to Angie. As part of the sales agreement, Lisa agrees not to practice dentistry within 20 miles of Elmville for a period of three years. After 2 years, Lisa is bored, so she opens up a dental practice in her home. This practice is very small and Lisa wants to keep it that way. Angie sues on the noncompete agreement. What is the most likely result?

agreement is fully enforceable

exculpatory clause (release of liability clause)

contractual provision that relieves one or both of the parties to a contract from tort liability for ordinary negligence. Also known as a release of liability clause

insane by not adjudged insane

being insane but not having been adjudged insane by a court or an administrative agency. A contract entered into by such a person is generally voidable. Some states hold it a void contract.

Generally, the courts will not enforce an illegal contract, but will leave the parties where it finds them.

true

In most states, where a minor wants to disaffirm a contract and the minor has caused damage to the consideration received by gross negligence, the minor:

can disaffirm, and owes a duty of restitution to the competent party

unconscionable contract

contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust.

lawful contract

contract that has a lawful object

convenant not to compete (noncompete clause)

contract that provides that a seller of a business or an employee will not engage in a similar business or occupation within a specified geographical area for a specified time following the sale of the business or termination of employment.

contract in restraint of trade

contract that unreasonable restrains trade

immoral contract

contract who's objective is the commission of an act that society considers immoral

If a person is insane at the time of signing a contract, but has not been adjudged insane, that contract is voidable.

true

adjudged insane

declared legally insane by a proper court of administrative agency. A contract entered into by a person adjudged insane is void.

You and Gary enter a contract where you will receive $1,000 if you tamper with a slot machine in the "Bye-Bye Bucks Casino" in Las Vegas so that Gary can make it pay out a jackpot whenever he wants it to. You perform your part of the contract, but Gary doesn't pay. In your breach of contract suit against Gary, the court will:

ignore the contract and dismiss the case

Where a contract calls for action that violates a statute, in a breach of contract case the court will:

ignore the contract and leave the parties where they are

A minor buys a car and continues to drive the car for a reasonable time after reaching majority. This action would constitute a(n):

implied ratification

Under common law, the parties to an illegal contract were considered to be:

in pari delicto

The duties of restoration and restitution are affected by the type of_____________ suffered.

incapacity

Usury laws are concerned with:

interest rates

Generally speaking, the contract of a minor:

is voidable at the minor's option

In order to be enforceable, a covenant not to compete must be reasonable in what aspects?

length of time the restriction is in effect, scope of the restriction, and geographic area of the restriction

regulatory licensing statute

licensing statue enacted to protect the public

revenue-raising statute

licensing statue with the primary purpose of raising revenue for the government

Sid is a 15-year-old sophomore at East High School. He purchases a computer at a local store for a computer class, but wants to return it after using it for a couple of weeks because his classmates have nicer computers than his and he wants to get one of the better models. Sid can:

not return the computer but only be liable for its fair value if the computer is considered to be a necessary

minor

person who has not reached the age of majority

When the provider of a service provides that service without obtaining a required license, with which kind(s) of license(s) can the service provider collect her fee as provided in a contract?

revenue raising licenses only

duty of restoration

rules that states that a minor is obligated only to return the goods or property he or she has received form the adult in the condition it is in at the time of the disaffirmance

in pari delicto

situation in which both parties are equally at fault in an illegal contract

In order for someone to avoid a contract on the grounds of intoxication, the level of intoxication must have been:

so great that he didn't comprehend the nature of the agreement he was entering into

legal insanity

state of contractual incapacity, as determined by law

gambling statutes

statues that make certain from of gambling illegal

licensing statute

statute that requires a person or business to obtain a license form the government prior to engaging in a specified occupation or activity

The main purpose for making contracts involving minors voidable at the minor's option is:

to protect the minor from unscrupulous adults

A contract in which one party agrees to get divorced will usually not be enforced even if the contract does not call for the violation of any specific statute.

true

A contract to discriminate against somebody on the basis of race is illegal because it usually violates state and or federal statutes; if not, it is illegal as being contrary to public policy.

true

A life insurance policy on a complete stranger is considered a gambling contract.

true

A minor may not affirm one part of a contract and disaffirm another part.

true

A minor may still be obligated to pay for tools of trade and education.

true

A party who has been induced to enter into an illegal contract because of fraud, duress, or undue influence can sue the other party and recover whatever consideration he has paid.

true

For a person who has alternating periods of sanity and insanity, any contracts made during a lucid interval are enforceable.

true