Chapter 13
Capacity and Legality
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
B1. An adult may avoid any contract with a minor.
B2. Contractual capacity refers to the size or volume of a contract.
B3. A minor may disaffirm a contract only after attaining the age of majority.
B4. When a minor disaffirms a contract, he or she can keep whatever property is in his or
her possession as a result of the contract.
B5. A minor may avoid any contract with an adult.
B6. Clothing is not a “necessary.”
B7. Ordinarily, a minor who affirmatively misrepresents his or her age cannot disaffirm a
contract.
B8. A minor may disaffirm a contract for necessaries and avoid liability for the reasonable
value of the goods.
B9. Parents who cosign a contract with a minor have the same option to disaffirm.
B10. A person who enters into a contract when he or she is intoxicated can void the
contract even if he or she understood the legal consequences.
B11. Only a guardian can enter into legally binding contracts on behalf of a mentally
incompetent person.
B12. A usurious contract involves the purchase and sale of usable goods.
B13. The only purpose of a licensing statute is to protect the public from unlicensed
practitioners.
B14. A contract with an unlicensed professional is never enforceable.
B15. A covenant not to compete can be enforceable if it is part of the sale of an ongoing
business.
B16. An unconscionable contract is a contract entered into unconsciously.
B17. A party’s lack of understanding of contract terms can deprive him or her of any
meaningful choice.
B18. A contract that exculpates one party for wrongdoing no matter who is at fault can be
unconscionable.
B19. A court may refuse to enforce an exculpatory clause on the ground that it is
unconscionable.
B20. Discriminatory contracts are invalid.
MULTIPLE CHOICE QUESTIONS
B1. Boyd is a minor. As a minor, Boyd has the capacity to enter into
a. an invalid contract.
b. an unavoidable contract.
c. a valid contract.
d. no contract.
B2. Cary is fifteen. In most states, Cary would be considered a minor because she is under
the age of
a. sixteen.
b. eighteen.
c. twenty.
d. twenty-one.
B3. Stacy, a minor, charges the cost of an expensive leather jacket at a Girl’s Trend store. Two
nights later, Stacy loses the jacket at Minors Only Club. She disaffirms the jacket’s purchase.
Stacy owes Girl’s Trend the reasonable value of the jacket
a. if it is deemed a “necessary.”
b. if it is deemed unnecessary.
c. under any circumstances.
d. under no circumstances.
B4. Noni, a seventeen-year-old, signs a contract to sell her car to Metro Used Cars. The next
day, Noni tells Metro that she’s decided not to sell the car. Noni is
a. liable to Metro and must sell it a car of comparable value.
b. liable to Metro and must sell it her car.
c. liable to Metro for the amount of its profit on the deal.
d. not liable to Metro.
B5. Roxanne, a minor, is living at home with her parents, but signs a lease with a landlord
to rent an apartment. Roxanne can
a. disaffirm the lease because her parents can be held liable.
b. disaffirm the lease without liability.
c. not disaffirm the lease because an apartment is a “necessary.”
d. not disaffirm the lease because her parents could be liable.
B6. Jack, a minor, takes out an automobile insurance policy and pays a $1,000 premium. If
Jack disaffirms the contract, he can most likely recover
a. $500.
b. $1,000.
c. $1,500.
d. nothing.
B7. While a minor, Jason buys a large-screen HD TV and home theatre system that he continues
to use after reaching the age of majority. After a reasonable time has passed, Jason will be
considered to have
a. disaffirmed the contract.
b. ratified the contract.
c. rejected the contract.
d. rescinded the contract.
B8. Mica, a minor, signs a contract to pay National Fitness Club a monthly fee for twenty–
four months to use its facilities. Six months later, after reaching the age of majority,
Mica continues to use the club. This act is
a. disaffirmance.
b. emancipation.
c. ratification.
d. unconscionable.
B9. Solana, a minor, enters into a contract to buy a dozen movies from eHD TV Stream, Inc., an
Internet video service. Solana reaches the age of majority and does not disaffirm the
contract nor make payment on it. eHD files a suit against her. The court will most likely
consider the contract ratified if it is
a. executed.
b. executory.
c. express.
d. emancipated.
B10. Intoxicated, Clio agrees to sell her restaurant, Diners Café, to Evan for half of its real
market value. This deal is most likely voidable if Clio
a. appears intoxicated to Evan.
b. disaffirms the contract after becoming sober.
c. is so intoxicated as to have no memory of the deal.
d. is so intoxicated as to lack comprehension of the legal consequences.
B11. Opie enters into a contract with Belle. Later, Opie is adjudged mentally incompetent.
Raye, Opie’s daughter, attempts to void Opie’s contract with Belle on the ground of
Opie’s incompetency. The contract is
a. enforceable if Opie had capacity at the time the contract was formed.
b. enforceable if Belle is also incompetent.
c. enforceable if Raye knew of the contract when it was formed.
d. void.
B12. A court adjudicates Huck mentally incompetent and appoints Inez to be his guardian.
Later, without Inez’s knowledge, Huck signs a contract to sell his farm to Galen for its
real market value. The contract is
a. enforceable if Huck comprehended the consequences.
b. enforceable if Huck knew the market value of the farm.
c. enforceable if Huck was the record owner of the farm.
d. void.
B13. Bree is a real estate broker licensed only in Minnesota. She concludes a sale in North
Dakota on O’Reilly’s behalf. Bree’s contract with O’Reilly to be paid a certain
commission for the sale is
a. enforceable if O’Reilly comprehended the consequences.
b. enforceable if O’Reilly knew Bree was not licensed in North Dakota.
c. enforceable if the amount of her commission is reasonable.
d. unenforceable.
B14. Koko signs a covenant not to compete as part of a sale of her ongoing medical equipment
business to Laurel Valley Medico, Inc., in exchange for a bonus payment. The covenant is
most likely enforceable by
a. both parties.
b. Koko, but not Laurel Valley.
c. Laurel Valley, but not Koko.
d. no one.
B15. U-Can-Own-It Corporation sells appliances to less educated consumers, including Viv,
on installment plans. U-Can-Own-It files a suit against Viv when she stops making
payments. Viv 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 products in the general market.
d. the relation of this deal to those of other customers’.
B16. A contract between Eppie and Fab to lease real property contains an exculpatory
clause. This clause is most likely
a. enforceable as a matter of public policy.
b. enforceable if either party is in a business for essential services.
c. enforceable if the lease involves residential property.
d. unenforceable.
B17. Boz runs an illegal gambling business and pays Colin, a law enforcement officer, not to
interfere. The payments are discovered. Boz and Colin are sent to prison. With respect
to the amount of the payments, Boz can recover
a. all of it.
b. none of it.
c. only as much as Colin has not spent.
d. only as much as Colin has spent.
B18. A deal between Lou and Mike requires a transfer of stolen body building equipment for
counterfeit currency that Mike will attempt to spend at Now! Discount Mart. This contract
is
a. enforceable.
b. void.
c. voidable at the option of Lou or Mike.
d. voidable at the option of Now!
B19. Desiree signs a contract with Elena to kill Francois. Desiree pays Elena but she refuses
to perform. Desiree can
a. do nothing with respect to the contract.
b. enforce the contract or recover the payment.
c. only enforce the contract.
d. only recover the payment.
B20. Regular Insurance Company violates a state statute when selling an insurance policy
to Simone. As a member of the class of persons protected by the state statute,
Simone can
a. do nothing with respect to the contract.
b. enforce the contract or recover the payment.
c. only enforce the contract.
d. only recover the payment.
ESSAY QUESTIONS
B1. Inventory Control Corporation (ICC) hires Jim, a minor, to create customized software
for ICC’s clients. Jim signs a contract that requires him to work for ICC for eighteen
months. Before beginning work, Jim tells ICC that he will not work for ICC but is going
to work for Kwik Kounts, Inc., an ICC competitor. Is ICC’s contract with Jim en–
forceable? Why or why not?
B2. Airway International, Inc., is a commercial passenger airline. Airway includes on its
tickets a clause that states the airline is not liable for any injury to, or the death of,
any passenger caused by its, or its employees’, negligence. An Airway flight from
Boston to New York crashes into Long Island sound, resulting in the deaths of all
passengers. The cause of the accident is found to be due to Airway’s negligence.
Based on the clause on its tickets, can Airway avoid liability?