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BLTS-10e Practice Quiz

CHAPTER 11:

CONSIDERATION, CAPACITY, AND LEGALITY

1. A definition of the term contractual capacity would be:

a. The ability to enter into a void contract.

b. The ability to enter into a contractual relationship.

c. The ability to mitigate contractual damages.

d. The ability to physically write a contract.

ANS:

a. Incorrect. If you enter into a void contract, you may lack contractual capacity.

b. Correct. You have contractual capacity if you are legally able to enter into a contractual relationship.

c. Incorrect. A child or someone adjudged insane might be able to mitigate damages, but they would not have contractual capacity.

d. Incorrect. Again, someone who lacks contractual capacity might be able to physically write a contract.

2. In virtually all states, the age of majority (when a person is no longer a minor) is:

a. Eighteen years, for both sexes.

b. Twenty-one years, for both sexes.

c. Eighteen years for males and twenty-one years for females.

d. Twenty-one years for males and twenty-five years for females.

ANS:

a. Correct. This is the age of majority in virtually all states for both sexes.

b. Incorrect. The age of majority in virtually all states if eighteen years, for both sexes.

c. Incorrect. The age of majority in virtually all states if eighteen years, for both sexes.

d. Incorrect. The age of majority in virtually all states if eighteen years, for both sexes.

3. The general rule with respect to minors who enter into contracts is:

a. All such contracts are void.

b. All such contracts are valid.

c. Some contracts may be avoided by the minor.

d. Such contracts may be avoided by the adult party to the contract.

ANS:

a. Incorrect. Minors may enter into valid contracts.

b. Incorrect. Minors may avoid contracts within a certain time period and under certain circumstances.

c. Correct. If minors follow the rules of disaffirmance, they may avoid some contracts.

d. Incorrect. Minors, not the adult parties to such contracts, may avoid certain contracts.

4. Suppose that James goes out to the local pub, has seven shots of whiskey, and then proceeds to the local radio store and buys a $2,500 stereo system. What will James need to prove if he wants to void the contract based on intoxication?

a. He will need to prove that his capacity to act was unchanged.

b. He will need to prove that he lacked the mental capacity to enter the contract.

c. He will need to prove that the store clerk knew he was drunk.

d. He will need to prove that a reasonable person would have known he was intoxicated.

ANS:

a. Incorrect. If he proved this, the contract would be valid.

b. Correct. James must show that he was so severely intoxicated that he lacked mental capacity to enter this contract.

c. Incorrect. The store clerk's perception is not the key issue here; rather, it is James's ability to understand what he was doing.

d. Incorrect. The reasonable person standard does not apply in this case.

5. Suppose that Cara truly believes she is a space alien from the planet Zelnor. She walks into a car dealership one day and buys a brand-new Volkswagen, telling the salesperson that she needs a sample of Earthling transportation to beam back to her home planet. If Cara later wants to avoid her contract, she must:

a. Forget about it; she may not avoid a contract.

b. Prove that she lacked mental capacity at the time that she bought the car.

c. Prove that the salesperson talked her into the sale.

d. Prove that Volkswagen did not take adequate precautions to prevent sales to mentally disturbed individuals.

ANS:

a. Incorrect. If she can prove that she lacked adequate mental capacity, Cara may be able to void this contract.

b. Correct. If Cara can prove that she did not understand the nature of her actions at the time she bought the car, she may be able to avoid the contract.

c. Incorrect. Cara does not need to prove that the salesperson talked her into buying.

d. Incorrect. Cara does not need to prove that Volkswagen failed to take precautions of this sort.

6. A usurious contract is one that involves:

a. Hazardous chemical materials.

b. An illegally high rate of interest.

c. Prostitution.

d. Surrogate motherhood contracts.

ANS:

a. Incorrect. Usury does not involve dangerous chemicals.

b. Correct. Usury means charging an illegally high rate of interest.

c. Incorrect. Prostitutes may charge high rates, but this is not usury.

d. Incorrect. Usury involves illegal interest rates, not surrogate motherhood contracts.

7. Laws that prohibit the formation or performance of certain contracts on Sunday are sometimes referred to as:

a. Adhesion laws.

b. Blue laws.

c. Exculpatory laws.

d. Licensing laws.

ANS:

a. Incorrect. These laws are referred to as blue laws (or Sabbath laws or Sunday laws), not adhesion laws.

b. Correct. Sunday (Sabbath) laws are often called blue laws (from the name of the blue paper on which an early town ordinance was written).

c. Incorrect. These laws are referred to as blue laws (or Sabbath laws or Sunday laws), not exculpatory laws.

d. Incorrect. These laws are referred to as blue laws (or Sabbath laws or Sunday laws), not licensing laws.

8. Which of the following is not among the types of contracts that are often said to be contrary to public policy?

a. A contract for the sale of live farm animals.

b. An exculpatory contract.

c. An adhesion contract.

d. A contract in restraint of trade.

ANS:

a. Correct. There is no public policy argument against selling farm animals.

b. Incorrect. In order to promote public policy, many states prohibit exculpatory contracts.

c. Incorrect. In order to promote public policy, many states prohibit adhesion contracts.

d. Incorrect. Contracts that restrain trade and limit competition are often held to be contrary to public policy.

9. In an exculpatory clause:

a. One party agrees that the other party is not mentally incompetent.

b. One party releases the other party from liability in the event of monetary or physical injury, no matter who is at fault.

c. One party is able to sue the other party based on the clear fault of the other party.

d. Both parties agree to use arbitration, not adjudication, to settle any disputes arising under the contract containing the clause.

ANS:

a. Incorrect. An exculpatory clause is not concerned with mental incompetence.

b. Correct. An exculpatory clause involves one party releasing another party from future liability.

c. Incorrect. In an exculpatory clause, fault is not an issue.

d. Incorrect. An exculpatory clause does not involve arbitration.

10. A party can either enforce an illegal contract or recover for its value whenever he or she was induced to enter into the contract as a result of fraud, duress, or:

a. Undue influence.

b. Incompetence.

c. Usury.

d. An exculpatory clause.

ANS:

a. Correct. When a person is induced to enter into an illegal contract due to fraud, duress, or undue influence, that person can either enforce the contract or recover for its value.

b. Incorrect. Incompetence, in itself, would not induce a party to enter into a contract.

c. Incorrect. Usury, in itself, would not induce a party to enter into a contract.

d. Incorrect. An exculpatory clause would not induce a party to enter into a contract.

6. Consideration is usually broken down into two parts, something of legally sufficient value and:

a. Some kind of income redistribution.

b. Some kind of coercive behavior.

c. A clear moral hazard.

d. A bargained-for exchange.

ANS:

a. Incorrect. This is not the second part of consideration (though a promise might involve a voluntary redistribution of income).

b. Incorrect. Consideration is a necessary component of a contract, and contracts are only valid if they are entered into voluntarily.

c. Incorrect. Moral hazards are not the second part of consideration.

d. Correct. The second part of consideration is a bargained-for exchange.

7. Rescission may be defined as:

a. The substitution of one contract party for another.

b. The revision of contract terms to reflect trade usage.

c. The full performance of a contract.

d. The unmaking of a contract to return the contract parties to their precontract positions.

ANS:

a. Incorrect. This describes a novation.

b. Incorrect. This describes a kind of reformation.

c. Incorrect. Performance is not the same thing as rescission.

d. Correct. Rescission is a remedy whereby a contract is canceled and the parties are returned to the positions they occupied before the contract was made.

8. Which of the following is required for an accord and satisfaction to take place?

a. The amount of the debt must be in dispute.

b. The amount of the debt must be agreed upon and settled.

c. The debt must be liquidated.

d. The accord must be sealed.

ANS:

a. Correct. The amount of the debt must be in dispute for an accord and satisfaction to take place.

b. Incorrect. If the amount of the debt is agreed upon, there can be no accord and satisfaction.

c. Incorrect. The debt must be unliquidated for an accord and satisfaction to take place.

d. Incorrect. The accord does not need to be sealed.

9. Assume that Binta has been harmed seriously while walking down an aisle in Mckenzie’s store. Binta claims that her injuries have resulted in $12,000 worth of medical expenses plus another $12,000 for emotional distress. Mckenzie agrees to pay Binta a total of $15,000 over twelve months if Binta agrees that she will not bring any further legal action against Mckenzie concerning this incident. This agreement is:

a. A delimited accord.

b. A concerted satisfaction.

c. A release.

d. A covenant not to compete.

ANS:

a. Incorrect. This is not a delimited accord.

b. Incorrect. This is not a concerted satisfaction.

c. Correct. This is known as a release.

d. Incorrect. This is not a covenant not to compete.

10. In order for a court to apply the doctrine of promissory estoppel, four requirements must be met. Which of the following elements is not required?

a. Justice must not be served by enforcing the promise.

b. There must be a clear and definite promise.

c. There must have been substantial reliance on this promise.

d. The promisee must have justifiably relied on the promise.

ANS:

a. Correct. For the doctrine of promissory estoppel to be applied, courts require that justice will be better served by enforcing the promise.

b. Incorrect. This element is required.

c. Incorrect. This element is required to show promissory estoppel.

d. Incorrect. This is a required element.

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