Chapter 16

In the context of contracts, the legal capacity of a party refers to ______.

the mental ability to understand his or her rights

in pari delicto

in equal fault

What occurs when a party gives a loan at an interest rate exceeding the legal maximum?

Usury

An indivisible contract requires ______ performance by both parties, even if it appears to contain multiple parts.

complete

Capacity is an element of a legally binding: _______.

contract

Generally, contracts made by intoxicated persons are ______.

voidable

A divisible contract is also known as a(n) ______ contract.

severable

The enforceability of covenants not to compete in employment contracts: _______.

varies from state to state

Indivisble Contract

A contract that cannot be divided and must be preformed completely

Ratification may be either ______ or ______.

express; implied

Adhesion contracts are : _______.

legal

What does a minor need to do to disaffirm a contract?

Show an intention by words or action to rescind the contract

Identify the activities that are forms of gambling? (Check all that apply.)

State-run lotteries Horse tracks

______ unconscionability occurs when an agreement is overly harsh or lopsided.

Substantive

Which of the following terms refers to an agreement that is overly harsh or lopsided?

Substantive unconscionability

An implied _______ occurs when a former minor takes some action after reaching the age of majority consistent with intent to ratify a contract.

ratification

Which of the following is true of anticompetitive agreements? (Check all that apply.)

They are against public policy. They restrain trade.

Which of the following are true of states where the purpose of licensing is to provide government control over the profession or generate revenue?

They require unlicensed professionals to pay fine. They enforce contracts with unlicensed professionals.

Which of the following statements is correct regarding the legal exceptions to usury statutes?

To facilitate business, most states with usury statutes allow corporations to borrow at rates exceeding the maximum.

gambling

Agreements in which parties pay consideration (money placed during bets) for the chance, or opportunity, to obtain an amount of money or property.

Which of the following is not a recognized purpose of licensing statutes?

Government protection of the public's constitutional rights

exculpatory clause

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

adhesion contract

A contract created by a party to an agreement that is presented to the other party on a take-it-or-leave-it basis. Such contracts are legal but are sometimes rescinded on the grounds of unconscionability and the absence of one party's free will to enter a contract.

A minor would be most likely able to disaffirm which of the following contracts?

A contract for stereo equipment

In which of the following situations is a contract enforceable? (Check all that apply.)

A contract that can perform legally A contract with a legal subject matter

severable contract

A contract whose terms can be divided.

Sabbath Laws

A law that prohibits the performance of certain activities on Sundays.

Which of the following is a correct statement regarding a minor's obligations on disaffirmance?

A minor's obligations on disaffirmance vary from state to state

Which of the following businesses would most likely be able to enforce an exculpatory clause?

A nightclub

Which of the following statements is most accurate regarding a restrictive covenant made in conjunction with the sale of an ongoing business?

A restrictive covenant made in conjunction with the sale of an ongoing business is enforceable.

unconscionable

A term applied to a contract in which one party has so much more bargaining power than the other party that the powerful party dictates the terms of the agreement and eliminates the other party's free will.

Which of the following is not typically considered a necessary?

A vacation

Which of the following is a legally-recognized way to expressly ratify a contract?

After reaching majority, a person states orally or in writing that he or she intends to be bound by the contract entered into as a minor.

covenant not to compete

An agreement not to compete against a party for a set period of time within a designated geographic area.

Which of the following statements is correct regarding the legality and enforceability of contracts?

Both a contract that requires an illegal act for performance and a contract for an illegal purpose are unenforceable.

What happens if a legal contract is formed and its subject later becomes illegal under a new statute?

Both parties are discharged from their obligations.

Which of the following activities are allowed on Sundays in most states under the Sabbath law? (Check all that apply.)

Charity work Obtaining necessities Executing contracts

Identify the types of contracts that minors do not have the right to disaffirm in most states, as determined by courts or state legislatures in the interest of public policy. (Check all that apply.)

Child support contracts Marriage contracts Enlistment in the armed services

Identify the legal exception whereby loans may exceed the predetermined maximum in a state despite usury statute.

Corporate loans for facilitating business transactions

Which of the following occurs when a minor's parents or legal guardians give up their right to exercise legal control over the minor?

Emancipation

Identify the examples of procedural unconscionability. (Check all that apply.)

Excessive use of legalese Hard-to-read print on the back of an agreement A person's inability to fully read a contract

Which of the following terms refers to a clause that releases one of the contracting parties from all liability, regardless of who is at fault or what injury is suffered?

Exculpatory

Which of the following is a type of legal capacity a person suffering from a mental illness may have, depending on the nature and extent of their deficiency?

Full

______ refers to agreements in which parties pay consideration for the chance, or opportunity, to obtain an amount of money or property.

Gambling

Which of the following is not a recognized purpose of licensing statutes?

Government retribution

Which of the following is a correct statement regarding a minor's power to disaffirm or void a contract?

If a minor chooses to disaffirm a contract, he or she must void the entire contract.

Which of the following legal principles holds both contracting parties equally responsible for an illegal agreement?

In pari delicto

____________, or incompetence, is the possession of a mental or physical defect that prevents a natural person from being able to enter into a legally binding contract.

Incapacity

Which of the following contracts requires complete performance by both parties, even if it appears to contain multiple parts?

Indivisible

Which of the following terms refers to a contract that must be enforced or rejected in its entirety?

Indivisible

Julie, a 16-year-old student, enters a three-year modeling contract with a local ad agency. After two months, she realizes that the modeling schedule is too hectic and interferes with her school and other activities. She does not want to continue modeling. Which of the following statements is true in the given scenario?

Julie can void the contract immediately.

Which of the following is a type of legal capacity a person suffering from a mental illness may have, depending on the nature and extent of their deficiency?

Limited

Which of the following states allows casino gambling?

Louisiana

In the context of contracts for necessaries, which of the following statements is true of the liability of minors? (Check all that apply.)

Minors can disaffirm contracts for necessaries. Minors can be held liable for the reasonable value of necessaries.

Which of the following is a correct statement regarding minors and contracts?

Minors may enter into only voidable contracts.

As a general rule, when an agreement is deemed illegal, courts will usually label it void, meaning neither party can enforce the agreement, and neither is entitled to recovery. Which of the following is not a recognized exception to this rule?

One of the parties withdraws from an illegal agreement after an illegality occurs.

______ unconscionability describes conditions that impair one party's understanding of a contract, as well as the integration of terms into a contract.

Procedural

Which of the following aspects are guaranteed government protection under licensing statutes? (Check all that apply.)

Public safety Public health

Rules against unconscionable contracts exist in both the ______ (Second) of Contracts and the Uniform ______ Code.

Restatement; Commercial

Which of the following terms refers to a contract that may have both illegal and legal portions, allowing a court to void the illegal portions and enforce the rest?

Severable

Which of the following is a correct statement regarding a competent party's recourse against a minor who disaffirms when the consideration the minor received is damaged or destroyed?

The competent party has no recourse against the minor.

Which of the following is true of severable contracts? (Check all that apply)

Their legal portion can be enforced by the court. They can be partially voided by the court.

Some types of agreements that are not illegal per se, are nevertheless unenforceable because courts deemed them to be against public policy.

True This is true. Some types of agreements are not illegal per se, as they are not in violation of any statute or legal code, but are nevertheless unenforceable because courts have deemed them to be against public policy.

Which of the following terms refers to an agreement so unfair that it is void of conscience?

Unconscionable

In which of the following situations are covenants not to compete enforceable?

When it is in conjunction with the sale of a business

When can a minor be given full legal capacity to enter into contracts? (Check all that apply.)

When the minor marries When the minor moves out of the parents' house and begins supporting himself or herself When the minor's parents or legal guardians give up their right to exercise legal control over the minor

A(n) ______ contract is an agreement presented on a take-it-or-leave-it basis.

adhesion

An agreement presented as the only chance the presented party will have to enter into it is known as a(n) ______ contract.

adhesion

Agreements that restrain trade, called ______ agreements, are viewed as being harmful to consumers and against public policy.

anticompetitive

Public policy involves: _______.

both the government's concern for its citizens and the beliefs people hold regarding the proper subject of business transaction

A severable contract is also known as a(n) ______ contract.

divisible

Covenants not to compete in connection with the sale of a business are generally: _______.

enforceable

Usury occurs when a party gives a loan at an interest rate ______ the legal ______.

exceeding; maximum

A(n) ______ clause releases one of the contracting parties from all liability, regardless of who is at fault or what injury is suffered.

exculpatory

A(n) ______ ratification occurs when, after reaching the age of majority, the person states she intends to be bound by the contract entered into as a minor. (Select BEST answer)

express

In many states, parents may be liable when a child causes harm if it can be proved that the parents: _____.

failed to properly supervise the child

The public policy argument in favor of supporting the enforceability of a restrictive covenant regarding the sale of a business involves the ______.

fairness of the sale

Industry officials prefer to use the term ______, rather than gambling, to refer to agreements in which parties pay consideration for the chance, or opportunity, to obtain an amount of money or property.

gaming

Most courts find that continuing to act in accordance with a contract, such as continuing to make regular payments after reaching the age of majority, constitutes a(n) _______.

implied ratification

According to the Restatement (Second) of Contracts, if a court -- as a matter of law -- finds a contract or any clause of the contract to have been unconscionable at the time it was made, the court may do all of the following except: _______.

impose statutory sanctions on the party who drafted the contract

According to the legal principle of ______ both contracting parties are equally responsible for an illegal agreement.

in pari delicto

Another term for incapacity is: _______.

incompetence

A(n) ______ contract must be enforced or rejected in its entirety.

indivisible

capacity

legal ability to enter into a contract

Once a person reaches the age of majority, she may ratify, or ______ contracts made as a minor.

legally affirm

Usury

lending money at an extremely high rate of interest

In terms of the effect of entering into an agreement with a person who is unlawfully unlicensed, in some states the rule is "no ______, no ______." These states will not enforce any agreement with an unlawfully licensed professional.

license; contract

Sabbath laws typically do not apply to contracts for obtaining ______, including prescription medication, food, and anything else related to health or survival.

necessities

As a general rule, parents are ______ liable for contracts entered into by their minor children.

not

If no exception allows a usurious loan, a few states declare all usurious loans void, which means that the lender is ______.

not entitled to recover either principal or interest

When a court determines a restraint on trade is reasonable and the restraint is part of a subordinate, or ancillary, clause in a contract, the restraint is typically allowed. Such restraints are known as a ______.

not to compete covenant

If intoxication causes a person to exercise poor judgment in making a contract, the contract is ______ unless the other party unfairly capitalized on the impaired judgment.

not voidable

As a general rule, covenants not to compete in employment contracts are: _______.

permissible

A party seeking enforcement of an exculpatory clause must be a(n) ______ business or individual not important to the ______ interest.

private; public

A covenant not to compete is also known as a(n): _______.

restrictive covenant

In the context of general rules for illegal agreements, a party is allowed to sue for performance if ______.

the violated statute is intended to protect the specific class to which the party belongs

Substantive __________ occurs when an agreement is overly harsh or lopsided.

unconscionability

Procedural Unconscionability

unconscionability that derives from the process of making a contract

The common law would not enforce contracts the courts deemed ______.

unconscionable

Under common law, a(n) ______ contract is unenforceable.

unconscionable

Heavily one-sided agreements are known as ______.

unconscionable contracts

A contract overturned for illegal subject matter or for being illegal to perform is generally declared: _______.

void

Courts will usually consider an illegal agreement: _______.

void

If no exception allows a usurious loan, a few states declare all usurious loans ______, which means the lender is not entitled to recover either interest or principal from the borrower.

void

When an agreement is deemed illegal, courts will usually label it ______.

void