Chapter 13. Illegal Bargains
1. As a general rule, illegal contracts are unenforceable and neither party can successfully sue the other for breach or
recover for any performance rendered.
a. True
b. False
2. Bargains are illegal if they involve a crime or tort but not if they are merely against public policy.
a. True
b. False
3. Maximum rates of interest that are permitted under usury statutes are uniform from state to state.
a. True
b. False
4. Specific lender usury statutes rather than the general usury statute generally apply to real estate mortgages and small
consumer loans.
a. True
b. False
5. A covenant not to compete is a type of restraint of trade that courts today will enforce under certain circumstances.
a. True
b. False
6. An exculpatory clause attempts to excuse one from liability for her own tortious conduct.
a. True
b. False
7. The Code and the Restatement both contain definitions of what constitutes “unconscionable” conduct.
a. True
b. False
8. The term “public policy” is precisely and narrowly defined in the Restatement and by state statutes.
a. True
b. False
9. Regulation of gambling is solely under federal jurisdiction, through Congressional legislation and U.S. court
enforcement.
a. True
b. False
10. The courts readily enforce a covenant not to compete during the period of employment.
a. True
b. False
11. Many states impose no limit on the rate of interest which may be charged on loans to corporations.
a. True
b. False
12. Where a stipulation in restraint of trade is a part of the contract for the sale of a business, it may be valid if the
restraint is within reasonable limitations to protect the business’s goodwill.
a. True
b. False
13. Although wagering is generally illegal, some states permit certain kinds of regulated gambling, especially wagering
conducted by governmental agencies.
a. True
b. False
14. Bill is currently enrolled in law school. He expects to graduate and take the bar exam in order to be able to practice
law. Before Bill becomes a lawyer, he promises to represent his friend, Tom, in a breach of contract action if Tom
will pay him 25% of the settlement. Bill negotiates and the case settles for $50,000. Tom refuses to pay Bill. Bill then
graduates and attempts to sue Tom. Bill has a legal right to enforce the agreement.
a. True
b. False
15. Stuart promises to act as a guide and fishing instructor on a trip for a group of visiting dignitaries. The dignitaries
agree to pay him $200 for his services. Stu completes his duties, but when they discover that Stu does not have a
fishing license, they refuse to pay him. The agreement between Stu and the dignitaries is an illegal one, which is not
enforceable.
a. True
b. False
16. Noncompete agreements for Internet-related jobs have the same limitations in determining what is reasonable as to
time and place restrictions as other types of jobs.
a. True
b. False
17. A contract to commit a tort will be enforced by the courts.
a. True
b. False
18. An exculpatory clause excusing a party from liability for harm caused by reckless conduct will generally make a
contract unenforceable as a violation of public policy.
a. True
b. False
19. At common law, a valid contract may not be entered into on Sunday.
a. True
b. False
20. An adhesion contract is offered on a “take-it–or–leave-it” basis.
a. True
b. False
21. One type of restraint of trade is a covenant not to compete.
a. True
b. False
22. Deanna, an attorney, has a personal injury case which is set for trial next week. She needs a good doctor to testify
on behalf of her client, so she contacts Dr. Dogood who agrees to testify on behalf of Deanna’s client at the trial. In
return for Dr. Dogood‘s testimony, Deanna agrees to pay Dr. Dogood $10,000 if they win the case, and $5,000 if
they lose. Dr. Dogood agrees. The agreement between Deanna and Dr. Dogood is unenforceable.
a. True
b. False
23. Courts require that for a contract to be unenforceable based on unconscionability, both substantive and procedural
unconscionability must be equally present.
a. True
b. False
24. In cases where one party to an illegal agreement is less at fault than the other, he will be allowed to recover
payments made or property transferred.
a. True
b. False
25. “Blue laws” usually apply to activities of necessity and charity.
a. True
b. False
26. Edward, an engineer, is working on a new design for some highly technical equipment which XYZ, Inc. hopes to
market within the next five years. The employment agreement between Edward and XYZ states that Edward will
not go to work for another company in the same business for a period of two years after termination of his
employment with XYZ, Inc. This agreement is void and unenforceable, because it would make it difficult for Edward
to find other employment.
a. True
b. False
27. The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a
stated period of time is by injunction.
a. True
b. False
28. An agreement in connection with the sale of a business that prohibits the seller from engaging in the same or a
similar business for a period of twenty-five years would be unreasonable.
a. True
b. False
29. The courts will enforce an agreement declared illegal by statute.
a. True
b. False
30. An agreement to refrain from a particular trade, profession, or business is enforceable if two requirements are met:
that it protects a property interest of the promisee and that the restraint is no more extensive than is reasonably
necessary to protect that interest.
a. True
b. False
31. Nell gives Al $50 in return for Al’s promise to defame Sara. Nell hopes to ruin Sara‘s chances at a promotion. Nell
finds out that Al did not hold up his end of the agreement. Which of the following statements is true?
a. Nell can get the money back from Al through litigation.
b. Nell can get the money back and force Al to do as he promised.
c. Legally, Nell can neither get the money back nor force Al to do as he promised.
d. Nell can force Al to act through an appeal to the courts, but Al gets to keep the $50.
32. Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon
in the state. Which of the following best describes this contract clause?
a. Void as an illegal primary restraint
b. Valid as a reasonable restraint on trade
c. An unenforceable restraint of trade contrary to public policy
d. Binding as fair protection
33. Don has an employment contract with Dunkirk Ice Cream. He sells ice cream and novelty ice cream products. He
has nine children and doesn’t make enough money, so he decides to see if another dairy will hire him, too. “After all,”
he reasons, “most stores carry four or five different brands.” His employment contract prohibits him from competing.
If Don sells for another dairy in addition to Dunkirk, will he be in trouble under his contract?
a. No, it is unenforceable as against public policy.
b. Yes, it is likely to be enforceable during employment.
c. No, the prohibition against competing is enforceable only after he quits Dunkirk.
d. A court would have to rule on the enforceability of the covenant not to compete since courts are reluctant to
enforce such covenants during a period of employment.
34. William recently sold his successful business to Janice. The contract for the sale contained an unreasonable
restriction that did not allow William to open a similar business for fifteen years. In this instance, the courts would
likely:
a. reform the contract to make it reasonable and enforceable.
b. require the parties to draft a new contract.
c. enforce the contract as it is written.
d. void the contract on grounds of unconscionability.
35. Which of the following is true with regard to an exculpatory clause?
a. An exculpatory clause excuses one party from liability for her own tortious conduct.
b. Where one party has a superior bargaining position that has enabled him to impose an exculpatory clause upon
the other, the courts are inclined to nullify the provision.
c. An exculpatory clause may be unenforceable for unconscionability.
d. All of these are true.
36. A number of states have enacted statutes exempting the following types of lenders from their usury laws:
a. eligible lenders of installment loans.
b. lenders for large consumer loans.
c. lenders of unsubsidized educational loans.
d. None of these. Only certain types of transactions rather than types of lenders are exempted.
37. Divided Parcel (DP) includes the following on its mailing receipts: “We are not responsible for any damages to
packages whether or not through the fault or negligence of our employees. Send packages at your own risk.” Mary
reads this clause but sends her watch back to its manufacturer to be repaired anyway. The watch is destroyed when
the DP driver negligently drops and runs over the package. Mary is:
a. out of luck because the clause was communicated to her.
b. out of luck because she should have insured the package.
c. likely to collect from DP since exculpatory clauses always violate public policy.
d. likely to collect from DP because it is a common carrier.
38. A(n) is a measure designed to protect the public from unqualified practitioners.
a. exculpatory clause
b. revenue license
c. regulatory license
d. usury statute