BUS 204 Ch. 14

If the terms of an agreement seem to be very one-sided, which public policy could it be violating? Choose 2 answer choices

1. Substantive Unconscionability 2. Restraint of Trade

What types of contracts violate public policy? Choose 3 answers.

1. conducting trade with a country that is an enemy to the United States 2. employment contracts that forbid membership in a union 3. a candidate for public office paying his competitor to retire

When are covenants not to compete in employment contracts considered to be against public policy? Choose 2 answers.

1. when the geographical restriction is too broad 2. when the specified time of restraint is excessive

exculpatory clauses

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

reformation

A court-ordered correction of a written contract so that it reflects the true intentions of the parties.

Melissa felt pressured into signing a contract that released her employer from any liability if she is injured on the job. What prohibited behavior under public policy could this be?

Exculpatory Clause

emancipations

In regard to minors, the act of being freed from parental control; occurs when a child's parent or legal guardian relinquishes the legal right to exercise control over the child. Normally, a minor who leaves home to support himself or herself is considered emancipated.

When might a contract made by a mentally incompetent person be enforceable?

The incompetent person was lucid at the time the contract was made.

contractual capacity

The legal ability to enter into contracts; the threshold mental capacity required by law for a party who enters into a contract to be bound by that contract.

disaffirmance

The legal avoidance, or setting aside, of a contractual obligation.

What is the term for the legal ability to enter into a binding contract?

contractual capacity

Marie and Molly enter into a written contract to sell Marie's home to Molly. At the time the contract is executed, Marie tells Molly that for the last six months she has been sharing the home with a family of extraterrestrial beings. Marie states that she has asked the extraterrestrials to move out, but they won't; therefore, she is selling the family home to get rid of them and is willing to sell the home to Molly for well below market price. After the sale of the home is complete, Marie's children challenge the sales contract on the grounds that Marie did not have the mental capacity necessary to enter into a contract, even though Marie has not been declared incompetent by the courts. The contract between Marie and Molly can be rescinded:

if Marie's children can prove that Marie lacked the mental capacity to comprehend the nature, purpose, and consequences of the contract.

A contract for a purpose that causes the parties to violate a law is:

illegal and void.

What factors may cause a person to lack contractual capacity? Choose 3 answers.

1. severe intoxication 2. mental incompetence 3. being under the age of majority (usually 18)

Which type of lack of capacity is easiest to prove?

Minor status

necessaries

Necessities required for life, such as food, shelter, clothing, and medical attention; may include whatever is believed to be necessary to maintain a person's standard of living or financial and social status.

You go out drinking and playing cards with your buddies. After you have consumed a huge amount of alcohol, you agree to sell your motorcycle to your buddy. The next morning, after you sober up, your buddy tells you what you did. Do you think your buddy can legally hold you to the deal to sell him your motorcycle?

No, he can't, if you were so intoxicated that you could not form the mental capacity to enter into a contract, and your buddy knew you were intoxicated.

Ruby, a seventeen-year-old, purchases a car from Smitz Used Auto Sales and agrees to pay for it over a period of twenty-four months. Ruby makes the payments for four months but then decides the car payment is too much for her limited budget. Ruby tells Smitz that she wants to stop making payments and that she wants out of the contract completely. The contract between Ruby and Smitz can be canceled by:

Ruby, because she is a minor, but Ruby must return the car.

ratification

The act of accepting and giving legal force to an obligation that previously was not enforceable.

In what situation is a minor most likely to be able to terminate a contract?

When a minor orders books for school

A contract for an illegal purpose is:

void.

Gavin and Allison are having drinks after work. After several rounds, the topic of Gavin's sports car comes up. Gavin is extremely proud of his sports car and brags about it all the time. To impress Allison, Gavin offers to sell Allison his expensive sports car for $5,000. Allison jumps at the deal, because she knows the car is worth much more than $5,000. They even write the "deal" down on a napkin, and both Gavin and Allison sign the napkin. The next morning, when Allison brings $5,000 to purchase the sports car, Gavin explodes. Gavin tells Allison that he was just kidding and that he would never sell his expensive sports car for such a low price. When Allison tries to enforce the deal:

Gavin can either rescind the contract based on incapacity or ratify the contract.

age of majority

The age at which an individual is considered legally capable of conducting himself or herself responsibly and is entitled to vote. In contract law, the age at which one is no longer an infant and can no longer disaffirm a contract.

Isabel is 17 years old and wants to stop paying for the use of the local gym, but wishes to continue teaching classes. Her contract with the company includes terms regarding her employment and use of the facility. What must she do to properly disaffirm the contract? Choose 2 answer choices.

1. Isabel must disaffirm both the gym membership obligations and the employment terms in the contract. 2. Isabel must let gym staff know she is terminating the contract.

What function does a severability clause serve? Choose 2 answers.

1. It preserves the rest of the contract if one part is unenforceable. 2. It specifies what will happen with a potentially unenforceable part of a contract.

What factors may overturn a minor's right to disaffirm a contract? Choose 3 answers.

1. The contract is for necessaries. 2. The minor misrepresented the minor's age while engaging in business as an adult. 3. The minor ratifies the contract after reaching the age of majority.

Samuel has mental competency issues. Samuel entered into a contract with Beth, but now Samuel is petitioning the court to terminate the contract. What options does the court have in ruling in the case? Choose 2 answer choices.

1. The contract is voidable if Samuel was incompetent at the time the contract was formed. 2. The contract is void if Samuel has been previously determined to be mentally incompetent.

unconscionable

A contract or clause that is void on the basis of public policy because one party is forced to accept terms that are unfairly burdensome and that unfairly benefit the dominating party.

covenant not to compare

A contractual promise to refrain from competing with another party for a certain period of time and within a certain geographic area. Although covenants not to compete restrain trade, they are commonly found in partnership agreements, business sale agreements, and employment contracts. If they are ancillary to such agreements, covenants not to compete will normally be enforced by the courts unless the time period or geographic area is deemed unreasonable.

Which statement is true about the ability of minors to enter into contracts?

A minor may enter into any contract an adult can, except for contracts that are expressly prohibited for minors.

usury

Charging an illegal rate of interest.

Lupita enters into a contract with Faith to purchase a used car. At the time they sign the contract, Lupita appears to be very intoxicated. Faith notices this but signs the contract anyway. If Lupita later decides she wants to get out of the contract:

Ruby, because she is a minor, but Ruby must return the car.

Christiana is seventeen years old and has been emancipated. Christiana shares an apartment with a roommate and totally supports herself. Christiana purchases a stereo from Best Stereo Place, Inc. and signs an installment agreement to pay for the stereo over the next twelve months. After paying on the stereo for three months, Christiana decides she no longer wants the stereo. To avoid the rest of the payments on the stereo, Christiana can:

do nothing. Because Christiana signed the contract as an emancipated minor, she has no grounds to rescind the contract.