Bus 250 Test 2 Schafer Ch.14 2

The person accepting possession.

Bailee

Giving possession and control of personal property to another person.

Bailment

The person giving up possession of personal property.

Bailor

A contract most likely will be declared unconscionable if a. it contains a cancellation clause. b. it is signed by a minor for an item of luxury. c. it is oppressive and one-sided. d. it allows for an extremely high rate of interest to be charged.

C

An unconscionable contract is one that a court refuses to enforce because of a. overt vagueness. b. illegality. c. fundamental unfairness. d. its limit to free trade.

C

T/F The UCC's unconscionability rule makes it harder for a plaintiff to recover.

False

A(n) -- contract is one that a court refuses to enforce because of --.

Unconscionable Fundamental unfairness

-- laws prohibit charging excess interest on loans.

Usury

Guyan Machinery, a North Carolina manufacturing corporation, hired Albert Voorhees as a salesman and required him to sign a contract stating that if he left Guyan he would not work for a competing corporation anywhere within 250 miles of North Carolina for a two-year period. Later, Voorhees left Guyan and began working at Polydeck Corp., another North Carolina manufacturer. The only product Polydeck made was urethane screens, which comprised half of 1 percent of Guyan's business. Is Guyan entitled to enforce its noncompete clause? a. No, because it is not essential to the employer. b. Yes, because the noncompete clause is fair to the employer. c. Yes, because the noncompete clause is essential to the employee. d. No, because the noncompete clause was not fair to the employer.

A

In bailment cases, exculpatory clauses a. are somewhat more likely to be enforced than in other types of cases. b. ordinarily involve an attempt to limit liability for damage to persons rather than property. c. are not enforced because any harm is to property and not persons. d. are very rarely used.

A

Richard and Michelle Kommit live in California, where gambling on credit is illegal. They travel to Atlantic City, where they used their credit card to withdraw cash from an ATM conveniently located in the "pit"— the gambling area of a casino. They ran up debts of $5,500 and did not pay. The California National Bank sued for the money in a California court. Who wins? a. Richard and Michelle Kommit. b. The California National Bank. c. The casino in Atlantic City. d. None of these answers is CORRECT.

A

When Tremaine arrived in Cincinnati, he rented an SUV from a car rental company in the airport terminal. A month after the trip, he noticed that the charge on his credit card for the SUV was much higher than he anticipated because the rental company had charged him $30 per gallon to refill the gas tank. He reviewed the eleven-page rental contract and noticed on page seven a provision about the gas charge. He saw another provision on page ten stating that in order to file a dispute with the company he would be charged a $750 "Investigation Fee" for his claim to be reviewed. Tremaine sues the rental company. Which of the following outcomes is most likely? a. Tremaine will win because the contract was procedurally and substantively unconscionable. b. Tremaine will lose because transportation is a public necessity. c. Tremaine will lose because the contract was not substantively unconscionable. d. Tremaine will lose because he signed the contract and agreed to the terms.

A

Which of the following is an example of an exculpatory clause? a. Seller is not responsible for property damage regardless of the cause of the injury b. Employee agrees to never work for a competing company c. Buyer agrees to pay any costs of litigation d. Creditor charges 38% interest on a loan

A

Zazzles Jewelry sells Chic Boutique 150 necklaces. Zazzles sues when Chic defaults on its payments, and the court finds that some of the repayment terms in the contract are unconscionable because they place undue burdens on Chic. Zazzles is willing to make the repayment terms more favorable to Chic but wants the rest of the contract enforced. What is likely to occur? a. The contract is governed by the UCC, so the court may choose to enforce the remainder of the contract. b. The contract is governed by the UCC, so the unconscionable terms will mean the entire contract must be void. c. The contract violates usury laws, so the court will refuse to enforce it. d. The contract will be decided under common law, so the court will refuse to uphold the unconscionable contract.

A

Which of the following are statements that, if true, would have strengthened the plaintiff's case in American Express Travel Related Services Company, Inc. v. Assih? a. Payments on the credit card are mailed to Utah b. Most of Assih's charges on his American Express card took place in Utah c. Assih owed American Express less than $5,000 d. Assih lived in Massachusetts e. Assih owes a large balance on two other credit cards f. American Express is incorporated in Utah

A,B,F

Which of the following are examples of what a lender who charges usurious rates of interest may forfeit? a. The illegal interest b. Their right to a fair trial c. All interest d. The entire loan

A,C,D

An insurance contract is NOT considered to be an illegal form of "wagering" because a. insurance activities are regulated by the state department of insurance. b. one must have an insurable interest in the person being insured. c. insurance contracts are underwritten by reputable companies. d. the money being paid out comes from premiums collected over time.

B

KwikKash is a payday loan company that gives cash to borrowers for a large fee. KwikKash recently loaned Claudette $1000 and required that she pay back $1500 within 30 days. Claudette fails to repay the loan and KwikKash sues. What is the most likely result? a. Claudette will win because the contract was unconscionable. b. Claudette will win because the loan violates usury laws. c. KwikKash will win because loans are necessary for the public good. d. KwikKash will win because the loan was not ancillary to a legitimate agreement.

B

Larry has the largest pizza business in the city. He learns that Henry is thinking of opening a competing pizza and pasta delivery business. Larry gives Henry $25,000 to not open his proposed business in the same city. Which statement is correct? a. The contract is void for lack of consideration. b. The contract is illegal and void. c. The contract is voidable at Larry's option. d. The contract is enforceable.

B

When Mohammed was hired by Pomico, Inc., he signed the following agreement, "Upon termination of my employment with Pomico, I agree not to work for a competing company within 20 miles of Pomico's headquarters for one year." This agreement, important to protecting secret information developed in the employer's business, is a. an unenforceable usurious agreement. b. an enforceable agreement not to compete. c. an unenforceable exculpatory agreement. d. an enforceable bailment agreement.

B

When hearing a case involving an illegal and void contract, a court will: a. decide whether or not to enforce the contract, a decision usually based on ethics. b. will not intercede to assist either party. c. intercede and make a ruling that maximizes overall fairness to both parties. d. impose mandatory arbitration.

B

Which of the following are factors that favor upholding a noncompete agreement? a. It is not essential to the employer b. It involves trade secrets c. It was not part of another agreement d. It is harmless to the public e. It is fair to the employee f. It is ancillary to a legitimate bargain g. It involves customer lists that are derived from public sources h. It is not overly broad

B,D,E,F,H

For 20 years, Art's Flower Shop relied almost exclusively on advertising in the Yellow Pages to bring business to its shop in a small West Virginia town. One year, the Yellow Pages printer accidentally did not print Art's ad, and Art's suffered an enormous drop in business. Art's sued for negligence and won a judgment of $50,000 from the jury. The printing company appealed, claiming that under an exculpatory clause in the contract, the company could not be liable to Art's for more than the cost of the ad (about $910). Art's claimed that the exculpatory clause was unconscionable. Please rule. a. The clause is valid and enforceable. b. The clause is enforceable because both parties are sophisticated corporations. c. The clause is unenforceable because it is unconscionable. d. The clause is enforceable because $50,000 is an unconscionable claim.

C

Mike owns a house in a poor area of a large city. Mike is on disability and his total monthly income is $700. A sales representative visits his home, selling a water purification system. Mike signs a contract that calls for monthly payments of $500 for the next 10 years. The water system is worth no more than $1000. Mike thought he was signing a permission slip allowing the salesman to conduct a free water test to determine the toxins in the water. How would a court most likely describe this contract? a. The contract is fully enforceable as written. b. The contract is unenforceable because it is exculpatory. c. The contract is unenforceable because it is unconscionable. d. The contract is enforceable, but only up to the value of the water system.

C

Over her objections, Carlene's husband Silvio borrows $10,000 from his friend Evan so that he can achieve his dream of swimming with great white sharks in South Africa. Carlene knows Silvio has a reputation for being reckless, but she still finds it pretty alarming that Evan and Silvio's friend Constantine and Silvio's business partner Persephone each take out a life insurance policy on Silvio a month before his trip. Who can legally have an insurance policy on Silvio? a. Carlene and Persephone. b. Evan and Constantine. c. Evan, Persephone and Carlene. d. Carlene, Constantine, Evan and Persephone.

C

Sophie is an accomplished plastic surgeon who has lost her medical license due to her addiction to illegal drugs. Vanessa hires Sophie for a "Filler party" in which Sophie, using a simple medical procedure designed to reduce wrinkles, injects a filler into the foreheads of Vanessa and ten of her friends. Vanessa fails to pay Sophie and Sophie sues. What result? a. Sophie will win because she and Vanessa had a binding contract. b. Sophie will win if her license has been reinstated by the time she sues Vanessa. c. Sophie will lose because she does not have a medical license. d. Sophie will lose because Filler parties are legal but immoral.

C

The UCC deals with unconscionability in a contract by providing that a court may: a. limit the application of any unconscionable clause as to avoid any unconscionable result. b. enforce the remainder of the contract without the unconscionable clause. c. All of the above. d. refuse to enforce the contract.

C

When Alistair drops off his tuxedo at Whett Dry Cleaners for dry-cleaning, he signs Whett's standard exculpatory clause, which releases Whett from all liability in the event that any item of clothing is damaged, lost, or stolen while in its care. When Alistair returns to pick up his tuxedo, he is informed that the garment tore during the dry cleaning process. Alistair sues. Which of the following results is most likely? a. Alistair wins because bailees owe a high duty of care to bailors. b. Alistair wins because dry-cleaning is vital to the public. c. Alistair loses because this is a valid exculpatory clause. d. Alistair wins because his tuxedo could have ripped only as a result of an intentional tort.

C

Which of the following are circumstances under which an exculpatory clause is generally unenforceable? a. If it is clearly written b. When it covers a recreational activity c. When the parties have unequal bargaining power d. When it covers public transportation e. When it attempts to exclude any tort

C,D

You have decided to take out insurance policies on as many people as possible. Of the individuals listed below, highlight the five on whom you can most likely take out a policy: a. Your professor b. Your best friend c. Your business partner d. Your landlord e. Your father f. An acquaintance who owes you money g. Yourself h. Your wife

C,E,F,G,H

T/F Rudolph overhears Macy's plans to go skydiving over spring break. Not really knowing Macy, but figuring it's worth a chance, Rudolph rushes out and buys an insurance policy for $100,000 on Macy's life. Macy does in fact meet her demise jumping out of the airplane. Rudolph can collect the $100,000.

False

Barb has been a children's day care provider for several years in the small town of Sallton. She has decided to give it all up and move to the big city for excitement and adventure. She sells her business to Ken, agreeing not to open a competing business within five miles of Sallton for a period of nine months. After five months of the big city life, Barb is broke and moves back to Sallton. She opens a small day care business. Ken sues on the noncompete clause. What is the most likely result? a. Barb wins. The agreement is denying her the right to do the only thing she knows how to do. b. Barb wins. The agreement is not enforceable because it is not ancillary to a legitimate bargain. c. Barb wins. The agreement is not reasonable as to time. d. Ken wins. The agreement is enforceable.

D

Eintz Corp. hired Jose to bribe a foreign government official into awarding a $3 million contract to Eintz. Eintz gave Jose $10,000 in cash to make the bribe payment and $2000 for Jose's efforts. Instead of paying the bribe, Jose pocketed all of the money. If Eintz sues Jose, Eintz will a. be able to recover the $3 million lost on the contract. b. be able to recover the $12,000. c. be able to recover the $2,000 but not the $10,000. d. not be able to recover the $12,000.

D

Giving possession and control of personal property to another person is referred to as a. usury. b. adhesion. c. unconscionability. d. bailment.

D

Rudolph hired Moe to walk his dog every weekday. Rudolph hands Moe a check for a month of excellent work. "Thanks!" says Moe. "This will help me pay for the silly citation I just got from the city, since I never licensed my dog walking business. They make us get licenses just to raise money for the city! What a scam." When Rudolph learns that Moe's business is unlicensed, he refuses to pay. What result? a. Rudolph does not owe Moe money because Moe is unlicensed. b. Rudolph does not owe Moe money because their contract was based on Moe's fraud. c. Rudolph does not owe Moe money because their agreement was not in writing. d. Rudolph owes Moe money because the licensing issue is irrelevant to their agreement.

D

Suppose that Lenny Lawyer enters into an agreement with Cindy Client that his fee will be a percentage of the recovery Lenny obtains for Cindy in her pending divorce. State law makes such a contingency fee arrangement illegal in divorce actions. What will be the probable outcome if Lenny attempts to enforce the agreement? a. The contract will be voidable at Cindy's option. b. The contract will be unenforceable if Lenny did not get the agreement in writing. c. The contract will be valid. Cindy would not have been able to afford an attorney otherwise and therefore Lenny was doing a public service. d. The contract will be void as violating a statute. Lenny will not be able to recover anything.

D

Usury laws are designed to protect consumers from a. professionals practicing a trade without a valid license. b. taking insurance polices out on the life of another. c. obtaining loans to gamble on credit. d. companies charging excess interest on loans.

D

Which of the following relationships generally fails to create an insurable interest? a. Husband and wife b. Debtor and creditor c. Chief executive officer and corporation d. Doctor and patient

D

T/F Students should go to Las Vegas and incur large gambling debts because the debt will not be enforced against them.

False

T/F According to section 2-302 of the UCC, if a court finds as a matter of law that a clause of a contract was unconscionable at the time the contract was made, the court must refuse to enforce the contract.

False

T/F Gambling on credit is always illegal.

False

T/F Morality plays no part of gambling contract legality.

False

T/F When Randy, an electrician, accepted a job with Buren Construction, Randy signed the following agreement, "Upon termination of my employment with Buren Construction, I agree never to work for another employer as an electrician." If Randy resigns from Buren Construction, this agreement would be upheld under the theory of freedom of contract.

False

T/F L & M loaned Joan $400 so that she could buy her textbooks for the current semester. L & M's terms for repayment of the loan (including interest) are $200 in two months, $200 in four months, and another $100 at the end of the fifth month. The legal maximum rate of interest on this type of loan is six percent per annum. L & M's loan is usurious.

True

Free trade is the basis of the US economy, and any bargain that restricts it is --

Suspect.

T/F Roger parked his car at a garage that has a large sign at the entrance saying, "This garage is not liable for items stolen from a car." This type of notice is referred to as an exculpatory clause.

True

T/F When a licensing requirement is designed merely to raise revenue, a contract made by an unlicensed person is generally enforceable.

True

T/F A contract may violate public policy even if the agreement does not violate a statute.

True

T/F An exculpatory clause is generally unenforceable unless the clause is clearly written and readily visible.

True

T/F If a contract is made with a person required by law to hold a license, and the purpose of the license is protection of the public, the contract made by an unlicensed person will generally be unenforceable.

True

T/F In many states it is illegal to lend money to help someone gamble.

True