National American University

BUSINESS L 3100

Chapter 16-LEGALITY AND PUBLIC POLICY

TRUE/FALSE

1)An agreement is illegal when either its formation or performance is a crime or a tort, or it is contrary to public policy.

 

                                           

 

2. When an agreement is illegal, parties are usually not entitled to help from the courts.

 

                                           

 

3. If an illegal agreement has already been performed parties can sue for damages.

 

                                           

 

4. If a contract appears to be legal on its face, it will be enforceable even if it was entered into for an ille- gal purpose.

 

                                           

 

5. When parties are not equally guilty, the least guilty party is granted relief when it is in the public inter- est.

 

                                           

 

6. Even if part of a contract is illegal, the court may enforce a divisible, legal part of the contract.

 

                                           

 

7. If a contract can be interpreted in two ways, one legal and the other illegal, the court will assume that the legal meaning was intended unless the contrary is clearly indicated.

 

                                           

 

8. An agreement that calls for the commission of a civil wrong is illegal and void.

 

                                           

 

9. In every contract there exists an expressed covenant of good faith and fair dealing.

 

                                           

 

10. A provision in a contract that gives what the court believes is too much of an advantage over a buyer may be held void as unconscionable.

 

                                           

 

11. Ordinarily, a court will not consider whether a contract is fair or unfair.

 

                                           

12. Companywide standardized form contracts imposed on a “take-it-or-leave it” basis by a party with su- perior bargaining strength are called contracts of collusion.

 

                                           

 

13. Substantive unconscionability has to do with matters of freedom of assent.

 

                                           

 

14. When a court finds a clause of a contract unconscionable at the time it was made, it may enforce the remainder of the contract.

 

                                           

 

15. Agreements that are contrary to public policy are not binding.

 

                                           

 

16. Courts are quick to invalidate contracts on the ground that they are contrary to public policy because such contracts are so offensive to society.

 

                                           

 

17. Legislation commonly requires that an installment-sale contract specify the cash price, down payment, finance charges, and insurance costs.

 

                                           

 

18. An unlicensed doctor can sue a patient for the doctor's fee if the patient in fact recovered because of the doctor's care.

 

                                           

 

19. An unlicensed insurance broker who cannot personally recover a fee because of the absence of a li- cense can effectively circumvent the statutory requirements by having a friend who is a licensed bro- ker bill for the services and collect the payment for him.

 

                                           

 

20. To stabilize the industry, manufacturers of the same or similar products may agree that each will mar- ket its product in a specified geographic area of the country and will not market its product in the terri- tory assigned to other manufacturers.

 

                                           

 

21. Agreements not to compete are always void.

 

                                           

 

22. A noncompetition covenant may be held invalid because of vagueness concerning the duration and ge- ographic area of the restriction.

                                           

 

23. When a nationally-known neurosurgeon in Chicago, Illinois sells her practice, the contract may specify that the seller will not practice within a 100-mile radius of Chicago for one year.

 

                                           

 

24. Fees charged by a lender for the reasonable expense of making a loan, such as the cost of appraising property, are treated as interest for purposes of the usury law.

 

                                           

 

25. In most states the usury laws apply to loans made to both individuals and corporations.

 

                                           

 

MULTIPLE CHOICE

 

1. In the case of an illegal contract, both parties usually are prohibited from seeking relief in the courts:
   1. if the illegal contract has not been performed.
   2. if the contract has been partially performed.
   3. if the contract has been fully performed.
   4. all of the above.

                                           

 

2. Agreements that are illegal are:
   1. enforceable if one party acted in good faith.
   2. voidable by one of the parties.
   3. void.
   4. voidable by either party.

                                           

 

3. Which party to an illegal agreement may get relief from the court?
   1. Plaintiff
   2. Defendant
   3. the less-guilty party, when public interest is advanced by granting relief
   4. a doctor who was unlicensed at the time of the making of an agreement for the provision of medical services, but who later obtained a proper license

                                           

 

4. An illegal provision in a contract:
   1. causes the entire contract to be voidable.
   2. causes the entire contract to be rescinded.
   3. can be ignored by the parties in their performance of the remaining provisions of the con- tract, assuming that the remaining portions of the contract can stand on their own.
   4. can be ignored by the parties, because an illegal provision in a contract is not deemed sub- stantial.

                                           

5. An agreement to slander a third person would not be enforceable because slander is a(n):
   1. crime.
   2. civil wrong.
   3. infringement of privacy.
   4. assault.

                                           

 

6. Dealing honestly, reasonably, and in good faith:
   1. is implied in every contract for services.
   2. is implied in every contract for the sale of goods.
   3. is an expressed obligation in every contract.
   4. both a and b.

                                           

 

7. A contract that is deemed to be too harsh or oppressive to one of the contracting parties may be unen- forceable under the concept of:
   1. unilateral influence.
   2. bilateral influence.
   3. unconscionability.
   4. conscionability.

                                           

 

8. One element involved in the determination of unconscionability is:
   1. the comparative bargaining power of the parties.
   2. the opportunity to make a contract for better terms with someone else.
   3. the course of the economy after the contract is made.
   4. whether a loss will be sustained by performance of the contract.         
9. The validity of a contract is not affected by:
   1. the effect of the contract on the community.
   2. unconscionability.
   3. the absence of good faith.
   4. the fact that the contract turned out to be a bad bargain for one of the parties.        
10. Today, what is an important element in determining the validity of a contract?
    1. the Uniform Contract Code
    2. whether the agreement might harm the public welfare
    3. whether the contract is wise or foolish
    4. whether the contract operates unequally between the parties        
11. Which of the following types of contracts might be unenforceable as contrary to public policy?
    1. a contract that is contrary to the protection of the public welfare, health, or safety
    2. a contract that is contrary to the protection of the person
    3. a contract that is contrary to the protection of recognized social institutions
    4. all of the above

                                           

12. Public policy:
    1. can be precisely defined
    2. is frequently used by the courts as a reason to invalidate contracts
    3. is protections from that which violates any established interest of society
    4. all of the above

                                           

 

13. Private lotteries, which generally are held to be illegal, involve three elements:
    1. prize, chance, and consideration.
    2. return, skill, and wager.
    3. prize, skill, and consideration.
    4. attractive return, minimal involvement, and skill.         
14. Which of the following is not illegal?
    1. an office football "pool" with a cash entry fee and cash prize
    2. a raffle with an entry fee to win a car
    3. a "giveaway" to every tenth person who buys meat at a butcher shop
    4. a "giveaway" to every tenth person entering a department store        
15. The failure to have a license will not render agreements void if the license:
    1. is based on formal education
    2. is required for engaging in a particular business or trade
    3. is a regulatory license
    4. is readily obtainable by anyone who offers payment of a required fee        
16. Which of the following agreements represent(s) an unreasonable restraint of trade?
    1. a combination to create a monopoly
    2. an agreement to obtain a “corner” on a market
    3. an association of merchants to increase prices
    4. all of the above

                                           

 

17. An agreement to restrain trade may be void on the grounds that it is:
    1. fraudulent.
    2. contrary to public policy.
    3. illegal lobbying.
    4. unfair to merchants.

                                           

 

18. An agreement not to compete is enforceable:
    1. in the sale of a business.
    2. between competitors.
    3. in contracts for the sale of goods.
    4. in contracts for the sale of securities.                

19. In an employment contract, agreements not to compete are:
    1. illegal
    2. uniformly held to be in the public interest and therefore legal
    3. valid only if the restriction protects the employee
    4. valid, if the restriction is reasonable and necessary for the protection of the former em- ployer

                                           

 

20. When money is loaned at a greater rate of interest than is allowed by law,                     is committed.
    1. Usury
    2. credit misfeasance
    3. petty theft
    4. credit malfeasance

                                           

 

21. Which of the following is not an example of a state penalty for violating usury law?
    1. restricting the lender to the recovery of the loan but no interest whatsoever
    2. allowing the lender to recover the loan principal and interest up to the maximum contract rate
    3. restricting the lender to the recovery of the loan plus seventy-fifty percent (75%) of the in- terest
    4. requiring the lender to pay, as a penalty, double the interest the borrower paid on a usuri- ous loan

                                           

 

CASE

 

1. An agreement between Jim and his 18-year-old daughter, Betty, provides that he will give her $25,000 if she does not marry until after her 22nd birthday. One month after reaching the age of 22, Betty, still unmarried, claims the $25,000.

Jim refuses to pay, claiming that the agreement was illegal. Is Jim correct?

 

 

2. Sam Wilson often goes to the horse races, participates in his state’s lottery, and invests heavily in the stock of major U.S. companies. At work, Wilson is approached by his coworkers and asked to partici- pate in a football pool. "It's totally based upon skill," his friends claim. In addition, Wilson's philan- thropic club is holding a raffle in which an individual could win a new car. Are these activities gam- bling and therefore illegal activities?