Chapter 16 Business Law

As a general rule, any contract entered into by a minor is _____.

voidable

In a contract made by a minor:

the minor has the right to disaffirm.

A(n) _____ occurs when, after reaching the age of majority, the person states orally or in writing that he or she intends to be bound by the contract entered into as a minor.

express ratification

Continuing to act in accordance with the contract, such as continuing to make regular payments after reaching the age of majority, constitutes:

implied ratification.

If a person has been adjudicated insane and has a guardian appointed, any contract the person attempts to enter into is:

void.

If a person suffers from delusions that may impair his judgment but he can still understand that he is entering into a contract and understands the contract, his contract is:

valid

Section 16 of the Restatement of Contracts, provides that contracts of an intoxicated person are _____ if the other party had reason to know that intoxication rendered the person unable to understand the nature and consequences of the transaction.

voidable

_____ occurs when a party gives a loan at an interest rate exceeding the legal maximum.

Usury

Which of the following 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 true of Sabbath laws?

These laws typically do not apply to contracts for obtaining necessities, anything related to health or survival.

Which of the following refers to a heavily one-sided agreement?

An unconscionable contract

Large differences between cost and price in a sales agreement is an example of:

substantive unconscionability.

The legal principle of _____ means, both parties are equally responsible for the illegal agreement.

in pari delicto

Which of the following is true of severable contracts?

They are like numerous contracts in one.

A(n) _____ requires complete performance by both parties, even if it appears to contain multiple parts. These contracts must be enforced or rejected in their entirety and these are generally unenforceable.

indivisible contract

Today, married women have been removed from the category of those lacking contractual capacity, although in a few states their capacity to enter into certain kinds of contracts is still limited.

True

Both a minor and the adult with whom the minor contracted may disaffirm a contract based upon the minor’s lack of majority.

false

In all states, parents are responsible for the torts of their minor children.

false

As a general rule, parents are not liable for contracts entered into by their minor children.

true

If a person’s mental deficiencies have resulted in his being adjudicated insane and a guardian has been appointed for him, he has no capacity to enter into contracts; and any contract he attempts to enter into is void.

true

For purposes of determining capacity, intoxicated persons include those under the influence of alcohol, but not drugs.

false

A contract of an intoxicated person for necessaries will be enforced for the reasonable value of the necessaries.

true

A contract overturned due to having illegal subject matter or being illegal to perform is generally declared voidable.

false

All exculpatory clauses are unlawful.

false

In the law, when both parties are equally responsible for an illegal agreement, it is known as in pari delicto.

true

Which of the following is an element of a legally binding contract?

capacity

A person who has legal ______ to contract is one who has the mental ability to understand his or her rights and obligations under a contract and, therefore, will presumably be able to understand how to comply with the terms of the agreement.

capacity

Which of the following is some sort of mental or physical defect that prevents a person from being able to enter into a legally binding contract?

Incapacity

Historically, which of the following were considered people with limited or no capacity?

Minors, insane persons, and married women

In most states, a person is given full legal capacity to enter into contracts when he or she becomes ______ before reaching the age of majority.

Emancipated

Which of the following occurs when a minor’s parents or legal guardians give up their right to exercise legal control over the minor, typically when the minor moves out of the parents’ house and begins supporting himself or herself?

Emancipation

In most cases, when a minor marries, she or he is considered ______.

Emancipated

Because their contracts are ______, minors have the right, until a reasonable time after reaching the age of majority, to _____ or avoid their contracts.

Voidable, disaffirm

Which of the following is true regarding the obligation of a minor on disaffirmance?

The obligations of a minor upon disaffirmance vary from state to state.

When must a disaffirmance of a contract based on minority occur?

Before or within a reasonable time of the minor reaching the age of majority.

As a general rule, most states will not allow a minor to disaffirm contracts for which of the following?

Psychological counseling Health insurance Life insurance

Which of the following is the majority rule regarding a minor’s misrepresentation of his or her age?

That misrepresentation does not affect the minor’s right to disaffirm the contract.

Which of the following is false regarding contracts for necessaries entered into by minors?

A minor cannot disaffirm contracts for necessaries.

Which of the following occurs when a person reaches the age of majority and states, either orally or in writing, that he or she intends to be bound by the contact entered in to as a minor?

Express ratification

A[n] ______ occurs when a former minor does not specifically state that he affirms a contract entered into as a minor but takes some action that is consistent with intent to ratify the contract.

Implied ratification

Which of the following is true regarding the ability of persons suffering from a mental illness to enter into a binding contract?

Persons suffering from a mental illness may have full, limited, or no legal capacity to enter into a binding contract depending on the nature and extent of their mental deficiency.

Guardians may be appointed for which of the following?

Those who are adjudicated insane. Those who are adjudicated habitual drunkards. Those whose judgment has been impaired because of a condition such as Alzheimer’s.

Which of the following is true if a contract is disaffirmed on the basis of intoxication?

Each party to the contract must return the other to the condition he or she was in at the time the contract was entered into.

Because ______ does not favor intoxication, the courts tend to be unsympathetic to intoxicated parties and will fairly liberally interpret behavior that seems like ratification as ratifying the contract.

Public policy

Which of the following is true regarding an agreement to commit a crime or a tort?

An agreement to commit a crime is unenforceable, and an agreement to commit a tort is unenforceable.

If a legal contract is formed and the subject of the contract then becomes illegal under a new statute, the contract is ______.

Discharged

How many states have statutes requiring that people working in certain professions obtain a license before practicing their craft?

50

Which of the following is a purpose of licensing statutes?

To give the government some control over which people, and how many people, can perform certain jobs. To give the government a source of revenue. To protect the public’s health, safety, and welfare.

If a licensing statute is intended to protect the public’s health, safety, and welfare, an agreement with an unlicensed professional is typically deemed _____.

Illegal and unenforceable

Which of the following occurs when a party gives a loan at an interest rate exceeding the legal maximum?

Usury

Which of the following is the maximum interest rate?

It varies depending on the state involved.

How many states engage in at least some regulation of gambling?

50

Which of the following is a term for laws that limit the types of business activities in which parties may legally engage on Sundays?

Sabbath and blue laws, but not true laws

Bob is hired to do computer sales for an electronics store. He agrees that if he leaves his employment, he will not work for another computer store within 25 miles for a period of two years. That type of agreement is called a[n] ______.

Covenant not to compete

The term ______ refers to the fact that an agreement is so unfair that it is void of conscience.

Unconscionable

A party who claims that he or she could not understand contractual terms because of tiny, hard-to-read print on the back of an agreement and the excessive use of legalese is referring to which of the following?

Procedural unconscionability

Which of the following involves overly harsh or lopsided substance in an agreement?

Substantive unconscionability

A[n] ______ contract is a contract created by a party to an agreement that is presented to the other party on a take-it-or-leave-it basis.

Adhesion

A statement releasing one of the parties to an agreement from all liability, regardless of who is at fault or what the injury suffered is, would be referred to as a[n] ______ agreement.

Exculpatory

In the law, when both parties are equally responsible for an illegal agreement, it is known as ______.

In pari delicto

Which of the following are contracts that contain multiple parts which can each be performed separately and for which separate consideration is offered?

Severable contracts

A[n] ______ contract is one requiring complete performance by both parties, even if it appears as if the contract contains multiple parts.

Indivisible

Which of the following was the result in the case in the text William Cavanaugh v. Margaret McKenna, the case in which the plaintiff was sued for opening a funeral home after she agreed to refrain from doing so in her divorce as part of a covenant not to compete with her ex-husband?

That the covenant was reasonable and valid and construed liberally because it was most analogous to the sale of a business.