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CHAPTER 13
CAPACITY AND LEGALITY
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 13.1—QUESTIONS (PAGE 263)
THE GLOBAL DIMENSION
Does the global reach of the Internet justify a court’s assertion of authority over activities that occur in
another jurisdiction? Why or why not? One reason in favor of the assertion of such authority is the
rationale that supports the exercise of jurisdiction under long-arm statutes. If a party is violating the
laws of a jurisdiction, and his or her “minimum contacts’ with that jurisdiction can be proved, then he or
she should expect to be hauled into court for those violations. Reasons against the exercise of such
authority include the practicalities affected by the sheer numbers of jurisdictions and laws, and the vast
reach of the Internet.
THE ETHICAL DIMENSION
Do you think that civil forfeiture statutes, like the one involved in this case, are effective deterrents of
future criminal violations? Explain. Yes. Disentitlement of a claim is a serious step because of its
CASE 13.2—QUESTIONS (PAGE 265)
THE ETHICAL DIMENSION
Should companies affiliated with CCI be subject to the covenant not to compete? Would it be unethical
to impose such a requirement? Discuss. A contract may bind non-parties such as an intended third party
beneficiary, an agent, or an assignee. But generally contracts do not bind non-parties in the absence of
112 UNIT THREE: CONTRACTS AND E-CONTRACTS
such extraordinary relationships. Thus, in this case, the arbitrator might legally bind CCI’s agents,
employees, or people in active concert or participation with it to the terms of the covenant not to
compete, but would not have the authority to prohibit most non-parties from owning or operating
comedy-related businesses or restaurants. From an ethical perspective, it would likewise seem
unreasonable to impose such restrictions on most non–parties (the grandmother of a shareholder’s ex–
spouse, for example, or any other party who is not likely to be in privity with any of the principals).
THE LEGAL ENVIRONMENT DIMENSION
Why would a business such as Improv West include a covenant not to compete in such an agreement as
the contract at issue in this case? One significant consideration would be the protection of its trade
CASE 13.3—QUESTIONS (PAGE 268)
1A. What did the judge mean when he said that GeoEx’s one–sided arbitration scheme “may well
guarantee that GeoEx wins even if it loses”? The court was referring to a hypothetical outcome that
would occur should the case be arbitrated in accordance with the release terms and GeoEx lost in that
proceeding. Suppose that a panel of arbitrators found that GeoEx was liable for the maximum amount
of damages. According to the release, this sum would be the cost of the land and air fare paid by the
plaintiffs for the trip, which was $16,831. Because of the terms of the release, GeoEx would be out few
travel expenses for the arbitration forum was in California. Additionally, in accordance with the release,
2A. Did the fact that the terms of the release were nonnegotiable contribute to its procedural
unconscionability or its substantive unconscionability? Explain. The court discussed the
CHAPTER 13: CAPACITY AND LEGALITY 113
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Capacity
Yes, she could enter the contract but as a minor could later disaffirm it. A minor can enter into any
contract an adult can, provided that that contract is not one prohibited by law for minors (such as the
2A. Disaffirmance or ratification
She disaffirmed it by filing a suit against the race organizers. A minor may disaffirm a contract at any
time by expressing an intent in words or conduct not to be bound. Filing a suit would certainly indicate
an intent not to be bound. If Beaver had reached the age of eighteen a reasonable time before
attempting to disaffirm, however, she could be held to have impliedly ratified the contract.
3A. Age of majority
Beaver’s misrepresentation of age would not usually affect her right to disaffirm the contract. In some
4A. Implied contract
Exculpatory clauses found in certain types of agreements, such as those relating to property leases and
employment, are typically not enforced. They may be enforced when the parties seeking enforcement
are not involved in businesses considered important to the public interest. Businesses such as health
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT THE END OF THE
CHAPTER
After agreeing to an exculpatory clause or purchasing some item, such as a computer, minors
often seek to avoid the contracts. Today’s minors are far from naïve and should not be allowed to avoid
114 UNIT THREE: CONTRACTS AND E-CONTRACTS
their contractual obligations. Today, teenagers, and most certainly, those just under the age of majority,
are exposed to what is happening in the business world on a constant basis because of the ubiquity of
media outlets—at home, at school, and everywhere there is a Wi-Fi connection. When a minor avoids
ANSWERS TO QUESTIONS AND CASE PROBLEMS
AT THE END OF THE CHAPTER
13-1A. Intoxication
(Chapter 13—Pages 258–259)
13-2A. QUESTION WITH SAMPLE ANSWER: Covenants not to compete
Contracts in restraint of trade are usually illegal and unenforceable. An exception to this rule applies to
a covenant not to compete that is ancillary to certain types of business contracts in which some fair
protection is deemed appropriate (such as in the sale of a business). The covenant, however, must be
13-3A. Capacity
(Chapter 13—Pages 259–260)
Contracts made by mentally incompetent persons can be void, voidable, or valid. The chief circumstance
on which this status depends is whether a court has judged a person incompetent. A contract is void if a
13-4A. Unconscionability
(Chapter 13—Pages 266–268)
The court entered a judgment in favor of Waffco. Rodziewicz appealed to a state intermediate appellate
court, which reversed the judgment of the lower court and ordered the entry of a judgment in
13-5A. Covenant not to compete
(Chapter 13—Pages 263–265)
The court issued an order finding the covenant not to compete in Forsee’s employment agreement
unenforceable under Georgia law. BellSouth appealed to a state intermediate appellate court, which
13-6A. CASE PROBLEM WITH SAMPLE ANSWER: Misrepresentation of age
The court should not dismiss the Millennium Club’s complaint against the minors. (In some states, a
minor may disaffirm a contract that was entered into under a false representation of the minor’s age but
remain liable in tort—the defrauded party can sue the minor for misrepresentation or fraud. That is
13-7A. Licensing statutes
(Chapter 13—Page 263)
A contract with an unlicensed practitioner may be enforceable if a state does not expressly provide that
the lack of a license prohibits the enforcement of a work-related contract. If the underlying purpose of a
licensing statute is to raise revenue, then a contract with an unlicensed practitioner may be enforceable.
13–8A. Unconscionable contracts or clauses
(Chapter 13—Pages 265–268)
The arbitration agreement in this case was both procedurally and substantively unconscionable.
Procedural unconscionability concerns the manner in which a contract is entered into. Here, the buyers
13-9A. Substantive unconscionability
(Chapter 13—Pages 266–268)
The terms of the lease are not unconscionable. The “basic test of unconscionability is whether, in light of
13-10A. A QUESTION OF ETHICS: Covenants not to compete
(a) The appellate court did not uphold the non-compete clause because it was invalid and
unenforceable because it contained no time or territorial limitations.