Legality

Question 1

True/False: An agreement may violate public policy even if the agreement does not require a party to commit a crime, tort, or violate a statute.

Answer 1

True

Question 2

True/False: If a court finds as a matter of law that a clause of Superior Siding’s contract was unconscionable at the time the contract was made, the court must refuse to enforce the contract.

Answer 2

False

Question 3

True/False: In many states it is illegal to lend money to help someone gamble.

Answer 3

True

Question 4

True/False: 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.

Answer 4

True

Question 5

True/False: To raise revenues, the City of St. Cloud required restaurants to purchase a special permit if they wanted to serve food in an open-air patio. While at Hola Taco, a restaurant in St. Cloud, a customer notices that Hola Taco’s permit expired. Because Hola’s Taco’s permit expired, the customer is not legally required to pay for her food.

Answer 5

False

Question 6

True/False: 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.

Answer 6

False

Question 7

True/False: 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.

Answer 7

True

Question 8

True/False: Morality plays no part of gambling contract legality.

Answer 8

False

Question 9

True/False: 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 are, $200 in two months, $200 in four months, and another $100 at the end of the fifth month. The legal rate of interest on this type of loan is six percent per annum. L & M’s loan is usurious.

Answer 9

True

Question 10

True/False: When Randy 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.

Answer 10

False

Question 11

True/False: A gambling contract is legal unless it is specifically prohibited by state statute.

Answer 11

False

Question 12

True/False: Barbara, a skilled welder, was hired at Mainco Enterprises for a welding position. Steve, a recent graduate with few job skills, was also hired and was expected to develop general skills on the job. Both were asked to sign noncompete clauses limiting future employment if they left Mainco. A court would be very likely to enforce the noncompete clauses unless the time or geographic restriction is unreasonable.

Answer 12

False

Question 13

True/False: Cynthia and Brian were friends. Brian was a dare devil. Because of his antics, Cynthia thought that Brian wasn’t long for this life. Cynthia purchased a life insurance policy on Brian’s life. Subsequently, Brian was killed in a car accident. Since Cynthia and Brian were friends, Cynthia had an insurable interest in his life and will be entitled to the insurance proceeds.

Answer 13

False

Question 14

True/False: John did not have a license to practice medicine in Florida. Nevertheless, when he retired to Florida, he started providing medical services to the people in his condo. Isaac, John’s next-door neighbor, owed John $2000 for medical services. John will not be able to enforce the contract he made with Isaac.

Answer 14

True

Question 15

True/False: To be valid, an agreement not to compete must be ancillary to a legitimate bargain.

Answer 15

True

Question 16

Virginia borrowed money from G & L Lending at 35% interest per year. The state maximum interest rate is 20% per year. Virginia defaulted on the loan. What amount can G& L collect from Virginia?

Answer 16

ALL OF THE ABOVE MAY BE CORRECT. THE ANSWER DEPENDS ON THE PARTICULAR STATE LAW

Question 17

E-mation, Inc hires Marvin to steal trade secrets from one of its competitors for $10,000. Marvin demands half of the money up front. E-mation pays Marvin $5000 but Marvin decides not to pursue theft of the trade secrets. E-mation sues Marvin for the return of the $5000. What will the court do with this contract?

Answer 17

THE COURT WILL NOT DO ANYTHING TO HELP E-MATION GET ITS MONEY BACK

Question 18

Which of the following exculpatory clauses will most likely be enforceable?

Answer 18

AN EXCULPATORY CLAUSE THAT RELIEVES A RIDING STABLE OF NEGLIGENCE

Question 19

E-mation entered into a contract with a consumer, Ezra. Ezra was a recent immigrant to the United States, spoke very little English, and had no formal education. The contract provided for Ezra to pay $2500 for a computer system. The system was worth $400. If E-mation sued Ezra under the contract, what is the most likely result?

Answer 19

THE CONTRACT IS UNENFORCEABLE B/C IT IS UNCONSCIONABLE

Question 20

Mark works as a bartender at The Little Nipper, a local bar. Under state law, bartenders are required to be licensed. The licensing requires filling out an application and submitting a $50 application fee. The application does not require any special education or experience, just the $50 fee. Craig enters Mark’s bar, orders a round of drinks for the house, then notices that Mark’s license is not on display behind the bar. Craig learns that Mark is not licensed and refuses to pay for the round of drinks. The Little Nipper sues. What result?

Answer 20

SINCE THIS IS A REVENUE-RAISING STATUTE, THE LITTLE NIPPER WINS

Question 21

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?

Answer 21

KEN WINS. THE AGREEMENT IS ENFORCEABLE

Question 22

In the case of Worldwide Insurance v. Klopp, the Supreme Court of Delaware found that:

Answer 22

A CONTRACT PROVISION REQUIRING ARBITRATION AND THEN PERMITTING APPEAL BY EITHER PARTY WAS VOID AS UNCONSCIONABLE

Question 23

Which of the following is an example of an exculpatory clause?

Answer 23

SELLER IS NOT RESPONSIBLE FOR PROPERTY DAMAGE REGARDLESS OF THE CAUSE OF THE INJURY

Question 24

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?

Answer 24

THE CONTRACT IS ILLEGAL AND VOID

Question 25

The UCC deals with unconscionability in a contract by providing that a court may:

Answer 25

ALL OF THE ABOVE

Question 26

A contract most likely will be declared unconscionable if:

Answer 26

IT IS OPPRESSIVE AND THE WEAKER PARTY DID NOT FULLY UNDERSTAND

Question 27

Which of the following relationships will ordinarily not create an insurable interest?

Answer 27

DOCTOR AND PATIENT

Question 28

An insurance contract is not considered to be a legalized form of gambling because:

Answer 28

ONE MUST HAVE AN INSURABLE INTEREST IN THE PERSON BEING INSURED

Question 29

Suppose that Lenny Lawyer enters into an agreement with Cindy Client that his fees 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?

Answer 29

THE CONTRACT WILL BE VOID AS VIOLATING A STATUTE. LENNY WILL NOT BE ABLE TO RECOVER ANYTHING

Question 30

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 30 miles of Pomico’s headquarters for one year.” This agreement, important to protecting secret information developed in the employer’s business, is:

Answer 30

AN ENFORCEABLE AGREEMENT NOT TO COMPETE

Question 31

AAA and XXX companies are both major international conglomerates. They are negotiating a contract whereby AAA will install a computer system for XXX. One clause in the contract states that AAA will not be liable for damages caused by the negligent installation of the computer system, except that AAA warrants the system and will fix any problem for a period of two years following installation. AAA completes the installation of the computer system. XXX loads extensive amounts of information on the system, but all of it is destroyed because AAA negligently installed the memory chips. AAA fixes the memory, but XXX incurred significant expenses in recreating the lost information. XXX sues for these expenses. AAA defends with the noted clause in the contract.

Answer 31

AAA WINS; THIS EXCULPATORY CLAUSE IS ENFORCEABLE

Question 32

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 buys and 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 did not understand what he was signing and thought it was a permission slip allowing the salesman to conduct a free water test to determine the number of toxins in the water. How would a court most likely describe this contract?

Answer 32

THE CONTRACT IS UNENFORCEABLE BECAUSE IT IS UNCONSCIONABLE

Question 33

Eintz Corp. hired Jose to bribe a foreign government official. 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:

Answer 33

NOT BE ABLE TO RECOVER THE 12000

Question 34

In bailment cases, exculpatory clauses:

Answer 34

ARE SOMEWHAT MORE LIKELY TO BE ENFORCED THAN IN OTHER TYPES OF CASES

Question 35

Judith is a CPA with an excellent reputation and client base. She sells her tax preparation business to Shawn, and the sales contract includes a noncompete clause restricting Judith from opening a similar business for two years within a 10-mile radius of her former office. If she opens a tax preparation office five miles away after one year, a court would probably:

Answer 35

GRANT AN INJUNCTION BARRING HER FROM OPERATING THE NEW OFFICE

Question 36

An exculpatory clause is generally unenforceable when:

Answer 36

IT INVOLVES PUBLIC TRANSPORTATION

Question 37

Public policy means the law that comes from the:

Answer 37

COURTS THAT DECIDE WHAT WOULD HAVE A NEG. IMPACT ON SOCIETY

Question 38

To be valid, a noncompete clause must be:

Answer 38

ALL OF THE ABOVE

Question 39

The Tavern’s secret recipe for its pizza sauce would be considered:

Answer 39

A TRADE SECRET, AND AN EMPLOYMENT NONCOMPETE CLAUSE WOULD BE ENFORCEABLE TO PROTECT IT

Question 40

Wendell, new to the area, selects a doctor from the telephone book and visits that doctor to have a splinter extracted. Unbeknownst to Wendell, the doctor has never passed the state licensing exams. Later, when Wendell discovers the truth, he refuses to pay his bill. If the doctor sues for recovery of the fee, will the court support the doctor’s claim?

Answer 40

NO, THE COURT IS LIKELY TO TAKE THE POSITION THAT IT IS NOT IN THE PUBLIC’S BEST INTERESTS TO ENFORCE CONTRACTS W/ UNLICENSED DOCTORS