Business Law: Text & Cases, Chapter 14

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1

Jeff is seventeen years old. Legally, Jeff is considered

a. ​an adult.

b. ​a minor.

c. ​ratified.

d. ​emancipated.

b. ​a minor.

2

Chet, a minor, signs a contract with Denise, an adult. The contract is voidable at the option of

a. ​neither party.

b. ​Chet only.

c. ​either party.

d. ​Denise only.

b. ​Chet only.

3

Rosa, a seventeen-year-old, signs a contract to sell her car to Street Fleet Cars. Later, Rosa decides not to sell the car. Rosa is liable to Street Fleet for

a. ​the cost of a car of comparable value.

b. ​the value of her performance under the contract.

c. ​the amount of the buyer’s profit on the deal.

d. ​nothing.

d. ​nothing.

4

Laurel enters into a contract to sell her bike to Melanie. Melanie takes possession of the bike as a minor and continues to use it well after reaching the age of majority. She has

a. ​expressly ratified the contract.

b. ​impliedly ratified the contract.

c. ​expressly disaffirmed the contract.

d. ​impliedly disaffirmed the contract.

b. ​impliedly ratified the contract.

5

Bobbie is a minor subject to her parents’ care and control. She signs a contract to rent a lake cabin from Cleve for one year. Before the end of the term, Bobbie moves out. She can

a. ​avoid liability for the rent but not disaffirm the contract.

b. ​disaffirm the contract and avoid liability for the rent.

c. ​disaffirm the contract but not avoid liability for the rent.

d. ​neither disaffirm the contract nor avoid liability for the rent.

b. ​disaffirm the contract and avoid liability for the rent.

6

Floyd signs a contract to buy a drum kit just before reaching the age of majority. After reaching the age of majority, Floyd does not take possession or make payments. With respect to the contract, most courts would hold that this is

a. ​disaffirmance.

b. ​emancipation.

c. ​ratification.

d. ​restitution.

a. ​disaffirmance.

7

Gina, a minor, enters into a contract to buy a tractor from Herb, an adult. The deal is set aside. Restoring Herb to the position he held before the contract is the duty of

a. ​ratification.

b. ​emancipation.

c. ​disaffirmance.

d. ​restitution.

d. ​restitution.

8

Emma, a minor, buys a water bottle, a set of weights, and a treadmill from Fitness Warehouse. Later, Emma disaffirms the deal. If the goods are still in her possession or control, she can keep

a. ​the water bottle, but not the weights or the treadmill.

b. ​none of the goods.

c. ​only the damaged or used goods.

d. ​all of the goods.

b. ​none of the goods.

9

Rita, a minor, misrepresents her age as twenty-one and signs a contract with Sporty Motors to buy a sport utility vehicle (SUV. In most states, Rita may

a. ​disaffirm the contract.

b. ​disaffirm the contract only if she makes full payment.

c. ​disaffirm the contract only if she returns the SUV in good condition.

d. ​not disaffirm the contract due to the misrepresentation.

a. ​disaffirm the contract.

10

Elena, a minor, obtains fruits and vegetables on credit from Fred at Growers’ Market. Later, Elena disaffirms the purchase. She owes Fred

a. ​the reasonable value of the goods.

b. ​the retail value of the goods.

c. ​the goods.

d. ​nothing.

a. ​the reasonable value of the goods.

11

At age seventeen, Eve enters into a contract with Fit Health Club. Two years later, when Eve attempts to disaffirm the contract, Fit files a suit against her. The court will most likely consider the contract ratified if it is

a. ​executed.

b. ​executory.

c. ​disaffirmed.

d. ​rescinded.

a. ​executed.

12

Geri is a minor. Without her parents’ knowledge, she signs a contract to buy an airline ticket to Hawaii for spring break. Geri’s parents are liable for

a. ​the entire price of the ticket.

b. ​no part of the price of the ticket.

c. ​up to half of the price of the ticket.

d. ​up to two-thirds of the price of the ticket.

b. ​no part of the price of the ticket.

13

Leon relinquishes the right to his daughter Meredith’s control, care, custody, and earnings. This is

a. ​disaffirmance.

b. ​emancipation.

c. ​ratification.

d. ​severability.

b. ​emancipation.

14

Intoxicated and not aware of the consequences, Grady agrees to a two-year phone service contract with Horizon, Inc., at more than the average market price. This contract is

a. ​enforceable.

b. ​not enforceable because contracting parties can change their minds.

c. ​not enforceable because the contract favors Horizon.

d. ​not enforceable if Grady was intoxicated enough to lack mental capacity.

d. ​not enforceable if Grady was intoxicated enough to lack mental capacity.

15

Intoxicated but capable of comprehending the consequences of her actions, Cricket signs a contract to sell her phone app design to Download, Ltd. This contract is

a. ​unenforceable because Cricket was intoxicated.

b. ​enforceable.

c. ​unenforceable if Cricket disaffirms it.

d. ​unenforceable if Download disaffirms it.

b. ​enforceable.

16

A court adjudicates Henry mentally incompetent and appoints Inez to be his guardian. Later, without Inez’s knowledge, Henry signs a contract to sell his farm to Jason for its real market value. The contract is

a. ​enforceable if Henry comprehended the consequences.

b. ​enforceable if Henry knew the market value of the farm.

c. ​enforceable if Henry was the record owner of the farm.

d. ​void.

d. ​void.

17

Fay is mentally incompetent but has not been so adjudged by a court. Any contract Fay enters into is

a. voidable if Fay has a lucid interval at the time of contracting.

b. voidable if Fay lacks the capacity to comprehend the consequences.

c. voidable if the other party does not realize that Fay is incompetent.

d. unavoidable.

b. voidable if Fay lacks the capacity to comprehend the consequences.

18

Kevin obtains a loan from Liberty Credit Bank at an interest rate that exceeds the state’s maximum. Liberty has

a. ​created a risk for the purpose of assuming it.

b. ​engaged in a restraint of trade.

c. ​violated a licensing statute.

d. ​committed usury.

d. ​committed usury.

19

The state of Illinois enacts a usury statute. The purpose is to

a. ​establish a maximum rate of interest that may be charged for loans.

b. ​establish a minimum rate of interest that may be charged for loans.

c. ​prevent the misuse of money advanced as loans.

d. ​prevent the misuse of money paid back on loans.

a. ​establish a maximum rate of interest that may be charged for loans.

20

Baylor obtains a loan from City Bank at 4.5 percent interest. Their state’s usury statute limits interest rates to a 3.5 percent maximum. Baylor’s contract with the bank is enforceable only if

a. ​Baylor does not attempt to disaffirm it.

b. ​the bank does not attempt to disaffirm it.

c. ​both Baylor and the bank knew of the state limit.

d. ​none of the choices.

d. ​none of the choices.

21

Shannon signs a contract with Tevin, an unlicensed contractor in a state that requires all contractors to be licensed for safety reasons, to build a deck and gazebo at the rear of her house. This contract is enforceable by

a. Shannon.

b. any third party who is not aware that Tevin is not licensed.

c. Tevin.

d. no one.

d. no one.

22

Holly, a real estate broker licensed only in Iowa, concludes a sale of farmland in Illinois. Holly can

a. ​collect the commission if it has not been paid.

b. ​keep the commission if it has already been paid.

c. ​foreclose on the property to obtain any unpaid amount.

d. ​none of the choices.

d. ​none of the choices.

23

Ohio charges Pablo, an architect, a fee to practice his profession in the state. This is

a. ​usurious.

b. ​unconscionable.

c. ​a license.

d. ​exculpatory.

c. ​a license.

24

Service Corporation markets its service to less educated consumers. In considering the unconscionability of a Service contract, a court will likely consider all of the following except

a. ​a buyer’s level of education.

b. ​the parties’ relative bargaining power.

c. ​the price of a service.

d. ​the seller’s level of education.

d. ​the seller’s level of education.

25

Orin signs a covenant not to compete with his employer, Product Distribution, Inc. The covenant will be enforced if it

a. ​does not require either party to obtain a business license.

b. ​is reasonable with respect to geographic area and duration.

c. ​relieves the employer from liability for any injury to Orin.

d. ​none of the choices.

b. ​is reasonable with respect to geographic area and duration.

26

Reed agrees to sell his Sports Equipment store to Taylor. As part of the sale, Reed promises not to open a similar, competing store anywhere. This promise is most likely

a. ​invalid because it is part of a sale of an ongoing business.

b. ​invalid because of the unreasonable terms of area and time.

c. ​valid because it is part of a sale of an ongoing business.

d. ​valid if Reed and Taylor are reasonably intelligent.

b. ​invalid because of the unreasonable terms of area and time.

27

Betty sells her Clothes Shop to Diane. In the sale agreement, there is a covenant not to compete that prohibits Betty from opening another clothing store within a certain distance. If a court concludes that this restriction is unreasonable, it will most likely

a. ​award Betty damages equal to the speculative profit of a closer store.

b. ​order Diane to stop doing business.

c. ​reform the covenant.

d. ​prohibit both parties from opening clothing stores.

c. ​reform the covenant.

28

Research Data Corporation sells access to its database of scientific research to users for a certain price per month. Research Data files a suit against its user Tom when, in violation of their contract, he stops making payments. Tom claims that the deal is unconscionable. The court will most likely consider

a. ​the geographic area of the relevant market.

b. ​the parties’ relative bargaining power.

c. ​the quality of related services in the general market.

d. ​the relation of this deal to those of other users.

b. ​the parties’ relative bargaining power.

29

Bay City Mall requires its tenants to sign a lease that includes a clause releasing Metro from liability in the event of monetary or physical injury no matter who is at fault. Coco’s Chocolate signs a lease with Bay City that contains the clause. This is

a. ​a covenant not to compete.

b. ​an adhesion contract.

c. ​an exculpatory clause.

d. ​an illusory promise.

c. ​an exculpatory clause.

30

A contract between Kim and Larry to lease residential property contains an exculpatory clause. This clause is

a. ​enforceable as a matter of public policy.

b. ​enforceable if either party is in a business important to the public.

c. ​enforceable if an event occurs to which the clause applies.

d. ​generally unenforceable.

d. ​generally unenforceable.

31

Fagin and Gage agree to hijack a truck carrying a load of almonds. If Fagin later refuses to go through with the crime, Gage can

a. ​enforce the agreement.

b. ​obtain damages in the amount of his partner’s share of the illegal profits.

c. ​obtain damages in the amount of his own share of the illegal profits.

d. ​none of the choices.

d. ​none of the choices.

32

Jake and Kline make an illegal contract that unjustly enriches Jake at the expense of Kline. A court will

a. ​not be concerned with the unjust enrichment of Jake.

b. ​award damages to Kline.

c. ​reform the contract to prevent undue burdens.

d. ​enforce the contract as it was originally written.

a. ​not be concerned with the unjust enrichment of Jake.

33

Oscar owns Payroll Company, a bookkeeping service. Oscar pays Remy $5,000 to steal a list of a competitor’s clients, to whom Oscar will aggressively market Payroll‘s services. This deal is

a. ​enforceable.

b. ​void.

c. ​voidable at the option of either party.

d. ​voidable at the option of the party having less bargaining power.

b. ​void.

34

Countrywide Trucking Inc. contracts with Dewey to transport crated goods to a certain destination for $5,000. Countrywide delivers the crates, but Dewey does not pay. Countrywide learns that the crates contained stolen goods. Countrywide can recover from Dewey

a. ​none of the choices.

b. ​$5,000, but not the goods.

c. ​the goods but not $5,000.

d. ​the goods and $5,000.

b. ​$5,000, but not the goods.

35

Omni Insurance Company violates a state licensing statute when selling a policy to Petra, in whose state Omni is not licensed to sell insurance. As a member of the class of persons protected by the statute, Petra can

a. ​do nothing with respect to the policy.

b. ​enforce the policy or recover the amount of the premiums paid.

c. ​only enforce the policy.

d. ​only recover the amount of the premiums paid.

a. ​do nothing with respect to the policy.