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Chapter 14
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. A contract entered into by a minor is voidable at the option of either of the
contracting parties.
B2. A person who has been determined by a court to be mentally competent
cannot form a legally binding contract with another party.
B3. For business purposes, an adult may petition a court to treat minors as adults.
B4. All states’ laws permit minors to disaffirm contracts.
2 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B5. If a minor can return only damaged goods, the minor cannot disaffirm the
contract and obtain a full refund of the purchase price.
B6. Clothing is a “necessary.”
B7. In some states, misrepresentation of age is enough to prevent disaffirmance.
B8. A minor who enters into a contract for necessaries may disaffirm the contract
but remains liable for the reasonable value of the goods.
B9. A contract entered into by an intoxicated person is never valid.
B10. It is easy to prove that an intoxicated person’s judgment was so severely
impaired that he or she could not comprehend the legal consequences of
entering into a contract.
B11. An intoxicated person, after becoming sober, may ratify a contract expressly or
impliedly.
B12. If the illegal part of a bargain has not yet been performed, the party rendering
performance must fulfill the contract before seeking damages.
CHAPTER 14: CAPACITY AND LEGALITY 3
B13. A contract with an unlicensed person is enforceable if the person is otherwise of
good moral character.
B14. Contracts in restraint of trade usually positively affect the public policy that
favors competition in the economy.
B15. In certain circumstances, bargains are so oppressive that the courts relieve
innocent parties of part or all of their duties.
B16. All adhesion contracts are unconscionable.
B17. In a contract, an exculpatory clause releases a party from liability in the event
of monetary or physical injury no matter who is at fault.
B18. In general, an illegal contract is void.
B19. In most illegal contracts, both parties are considered to be equally at fault, and
neither party can enforce it or recover damages under it.
B20. When one party uses fraud to induce another party to enter into an illegal bargain,
the second party will be allowed to recover for the performance or its value.
4 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
MULTIPLE-CHOICE QUESTIONS
B1. Becca is a minor. As a minor, Becca
a. is not usually legally bound by a contract.
b. has the right to avoid liability under a valid contract.
c. has the capacity to enter into a valid contract.
d. all of the choices.
B2. Stella is fifteen. In most states, for contractual purposes, Stella would be
considered a minor until she is
a. sixteen.
b. eighteen.
c. seventeen.
d. twenty-one.
B3. Lydia, a minor, charges the cost of a smartphone at a Mobile Devices & Minutes
store. Two nights later, Lydia loses the phone at Natural Foods restaurant. She
disaffirms the phone’s purchase. Lydia owes Mobile Devices the reasonable value
of the phone
a. if it is deemed a necessary.
b. if it is deemed a luxury.
c. if it is deemed unique.
d. under no circumstances.
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B4. Rosalind, a seventeen-year-old, signs a contract to sell her car to Street Fleet Used
Cars. The next day, Rosalind tells Street Fleet that she’s decided not to sell the car.
Rosalind 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 its profit on the deal.
d. nothing.
B5. Lucy, a minor, disaffirms a contract for necessaries without returning the
goods. To Manny’s Food Mart, the seller, Lucy is required to pay
a. nothing.
b. the reasonable value of the goods.
c. the sales price of the goods.
d. the ultimate worth of the goods.
B6. Vijay enters into a contract to sell his laptop to Winnie. Winnie takes
possession of the laptop as a minor and continues to use it well after reaching
the age of majority. Winnie has
a. expressly ratified the contract.
b. impliedly ratified the contract.
c. disaffirmed the contract.
d. none of the choices.
B7. While a minor, Uri misrepresents his age as twenty-one to purchase a motorbike
from Van’s Dirt Bikes & Scramblers. Ordinarily, Uri can
a. disaffirm the contract but must return the motorbike.
b. none of the choices.
c. ratify the contract, keep the motorbike, and recover any payments that he
made to Van’s.
d. reject the contract, keep the motorbike, and recover any payments that he
made to Van’s.
6 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B8. 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.
B9. At age seventeen, Daryl enters into a contract to buy a dozen movies from eHD
Stream, Inc., an online video service. Soon after reaching the age of majority,
Daryl attempts to disaffirm the contract. eHD files a suit against him. The court
will most likely consider the contract ratified if it is
a. executed.
b. exculpatory.
c. express or implied.
d. emancipated.
B10. Intoxicated but still capable of comprehending the consequences of her
actions, Cricket signs a contract to sell her phone app design to Downloads,
Inc. This contract is
a. unenforceable because Cricket was intoxicated.
b. enforceable.
c. unenforceable if Cricket disaffirms it.
d. unenforceable if Downloads disaffirms it.
B11. A court adjudicates Jimi mentally incompetent and appoints Krispin to be his
guardian. Later, without Krispin’s knowledge, Jimi signs a contract to sell his
lake cabin to Lazar for its real market value. The contract is
CHAPTER 14: CAPACITY AND LEGALITY 7
a. enforceable if Jimi comprehended the consequences.
b. enforceable if Jimi knew the market value of the farm.
c. enforceable if Lazar has been recorded to be the owner of the cabin.
d. void.
B12. Jolie signs a contract with Keaton, an unlicensed physician, to perform a
medical procedure. This contract is enforceable by
a. Jolie.
b. Jolie’s medical insurance company.
c. Keaton.
d. no one.
B13. Brasilia, a real estate broker licensed only in Connecticut, concludes a land
sale in Delaware. She 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. not collect the commission, keep it, or foreclose on the property.
B14. Odina signs a covenant not to compete with her employer, Penultimate Sales
Corporation. A court decides that the covenant is overly restrictive. Depending
on the jurisdiction, the court will likely
a. enforce it as written so as not to undercut the freedom of contract.
b. enforce it but evaluate its effects over time.
c. reform its terms to prevent any undue burden.
d. refuse to enforce it unless Penultimate pays a fine to the court.
Fact Pattern 14-B1 (Questions B15–B16 apply)
8 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
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 Creations signs a lease with Bay City that contains the clause.
B15. Refer to Fact pattern 14-B1. This clause is
a. a covenant not to compete.
b. an adhesion contract.
c. an exculpatory clause.
d. an illusory promise.
B16. Refer to Fact pattern 14-B1. The clause is most likely
a. enforceable as a matter of public policy.
b. enforceable if either party is considered to be a business for essential
services.
c. enforceable if the lease also involves residential property.
d. unenforceable.
B17. Duffy and Elbert agree to hijack a truck carrying a load of almonds. Duffy later
refuses to go through with the crime. Elbert can
a. enforce the agreement.
b. obtain damages from Duffy in the amount of Duffy’s probable share of
the illegal profits.
c. recover in quasi contract for the loss of his share of the illegal profits.
d. not enforce the agreement or recover damages.
B18. Lou and Mike negotiate a deal to transfer stolen body building equipment for
counterfeit currency that Mike will attempt to spend at Now! Discount Mart. This
contract is
a. enforceable.
b. void.
CHAPTER 14: CAPACITY AND LEGALITY 9
c. voidable at the option of Lou or Mike.
d. voidable at the option of Now!
B19. Jimenez is an emergency medical technician. Medical personnel such as
Jimenez are prohibited by state statute from working more than a certain num-
ber of consecutive hours. One month, Jimenez works more than the legal limit.
Jimenez can recover for
a. the hours up to the statutory maximum but not more.
b. the hours up to the statutory maximum and the extra hours.
c. the hours up to the statutory maximum or the extra hours.
d. nothing.
B20. Omni Insurance Company violates a state licensing statute when selling an
insurance 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.
ESSAY QUESTIONS
B1. Games Galore Corporation hires Haley, a minor, to create new customized
game software for certain clients. Haley signs a contract that requires her to
work for Games Galore for eighteen months. Before beginning work, however,
Haley tells Games Galore that she will not create new software for Games
Galore and that she is going to work for Ideal Worldcraft, Inc., a Games Galore
competitor. Is Games Galore’s contract with Haley enforceable? Why or why
not?
10 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B2. Global Airline, Inc., is a commercial passenger airline. Global Airline includes
on its tickets a clause stating that the airline is not liable for any injury to, or the
death of, any passenger caused by its, or its employees’, negligence. A Global
Airline flight from Los Angeles to New York crashes into Long Island Sound,
resulting in the deaths of all passengers. The accident is found to be due to
Global Airline’s negligence. Based on the clause on its tickets, can Global
Airline avoid liability?