Multiple Choice Answers

1. In a fraud case, the misrepresentation must concern a material fact.

2. Normally, an illegal contract is:

3. Ordinarily, contracts entered into by mentally impaired people (not adjudged insane) are void, while contracts entered into by intoxicated people are voidable.

4. Why does the fraud-misrepresentation distinction matter?
Because rescission is not available in a misrepresentation case.
Because contracts induced by fraud are void, while contracts induced by misrepresentation are voidable.
Because justifiable reliance is not required in a fraud case.
Because materiality is not required in a fraud case.

5. Which, if any, of the underlying persons would be required to have a regulatory license as a condition of recovering damages in court for services provided under a contract?
A real estate broker
A dentist
A lawyer
An architect
All of the above

6. One example of procedural unconscionability is the statement of a contract’s provisions in “fine print.”

7. Assume that FIDO, a big and ugly dog, barked constantly thereby annoying the neighbors. FIDO belonged to Green. Red, who was Green’s next door neighbor, hired Canine Extinction Inc. to poison FIDO. Canine Extinction Inc. would be able to enforce the agreement assuming that it carried out its end of the bargain.  In other words, the agreement was legal.

8. Which of the following contracts or contract provisions is most likely to be enforced?
A gambling contract.
A contract that violates a licensing statute whose aim is regulatory.
A contract that violates a licensing contract whose aim is to raise revenue.
A loan agreement that charges an interest rate which exceeds the limit set by state law.

9. A contract made by a person who had prior to the contract been adjudicated to be insane and institutionalized or put under a guardian’s care is void rather than voidable.

10. Smith who is trying to sell his Porsche automobile to Rogers knows that Rogers idolizes professional basketball players. Smith lied to Rogers by telling him that Kobe Bryant always used the car when he was in town. Rogers bought the car believing this to be true. Rogers would be able to rescind the contract if he could prove that Smith made the statement.

11. A contract of adhesion is one that the courts will always enforce, because the strong public policies underlying the contract make it one to which courts must adhere.

12. In order for a unilateral mistake to make a contract voidable, either the nonmistaken party must have caused or had reason to know of the mistake, or enforcement of the contract must be unconscionable.

13. A and B, who own competing businesses, entered into a contract whereby each agreed to not solicit or sell to the other’s customers.
The agreement is legal and enforceable
The mutual promises to not compete do not restrain trade and the contract is therefore valid and enforceable
Since the mutual promises appear reasonable in scope, they will be enforced
The mutual promises to not compete are not ancillary to a contract of employment or one for the sale of a business, and as such, are illegal.

14. Which of the following is likely to constitute a misstatement that can give rise to fraud liability?
“I think that this car’s engine has been overhauled.”
“This is the best used car in town.”
Concealing a material fact.
Failing to disclose a material fact.

15. When attempting to prove innocent misrepresentation, a party must establish that her reliance was justifiable.
A person does not act justifiably if she relies on an assertion that is obviously false
A person does not act justifiably if she relies on an assertion that no reasonable person would take seriously
The concept of justifiable reliance has changed in meaning since common law
Modernly, a court would rule that the reliance was unjustifiable if the evidence established extreme fault amounting to bad faith on the part of the person who relied on the misrepresentation
All of the above

16. Agreements – between two unmarried people who are living together – to divide their assets if they end their relationship:
Are unenforceable regardless of their nature.
Are enforceable even if the parties to the agreement are each married to other people at the time of their agreement
Are unenforceable if one of the parties is married to someone else.
Are enforceable regardless of their nature.
None of the above

17. If a party to an illegal contract sues to rescind the contract before the illegal bargained for act is performed, he or she may successfully petition the court to recover any consideration already given to the other party.

18. Forgetting to voluntarily disclose a latent material fact to the other contracting party can result in the court deciding that the non-disclosing party is liable for innocent misrepresentation.

19. Bill and Wanda are living together without being married. They make an agreement that in the event they split up, Wanda will get the couple’s waterbed. In most states, this agreement is unenforceable because it is an agreement between unmarried cohabitors.

20. Mutual mistake is more likely to make a contract voidable than is unilateral mistake.

21. Which of the following is true about the relationship between mutual mistake and unilateral mistake?
It’s easier to avoid a contract on the basis of unilateral mistake than on the basis of mutual mistake.
To avoid a contract on the basis of unilateral mistake, one must prove the elements needed for mutual mistake, plus something else.
Mutual mistake makes a contract void, while unilateral mistake makes a contract voidable.
There’s little difference between mutual mistake and unilateral mistake; in particular, each requires the same things to be proven.

22. Exculpatory clauses:
That relieve a party from liability for the intentional tort of battery are unenforceable
Always are enforceable if they are clearly and conspicuously stated in the agreement.
May relieve an employer from liability for workers’ compensation benefits.
Are effective only when the party benefited by them owes a duty to the public.

23. Dr. Jones, an excellent surgeon, received his license to practice medicine in 1970 after graduating from Harvard Medical School. Since 2009 he has failed to pay to the AMA his annual dues. A contract between the doctor and his patient would nevertheless be enforceable if he performed the surgery in a competent manner.

24. Misrepresentations made with scienter make a contract void, while negligent misrepresentations make a contract voidable.

25. Which of the following is most likely to constitute undue influence?
A firm’s bribing someone to break a contract with a competitor.
A clergyman’s using his position and a parishioner’s emotional susceptibility to get the parishioner to contract with the clergyman.
Threatening to commence a frivolous criminal prosecution against someone, in order to get her to contract with you.
Grabbing someone’s hand and forcing him to write an “x” on a contract you have prepared.

26. The act of turning back the odometer of a car so that a lower mileage is shown, for purposes of sale, would be:
Fraudulent misrepresentation
Acceptable because the buyer would be able to discover this by conducting a reasonable investigation
Innocent misrepresentation
A circumstance that would enable the innocent party to prove that the contract lacked real consent
A and D

27. Which of the following cannot be disaffirmed until after the age of majority?
A contract that affects title to real estate.
An executory contract for a necessary.
A contract that is fully executed.
A contract for the sale of goods.

28. Unconscionability:
Exists only under Article 2 of the UCC.
Requires a jury trial.
Makes a contract voidable.
Exists both at common law and under Article 2 of the UCC.

29. An agreement with a third person to divorce one’s spouse is illegal. For example, John said to Jane, if you divorce Simon, I’ll divorce Rachel. Jane agreed. This is an illegal contract.

30. Cindy Smith, age 16, buys a 1995 Chevy Camaro from Mike Mason, age 23, for $4000. Cindy’s indulgent parents, who give her everything she wants, loaned her the money for the car. The reason for Cindy’s purchase is that all her friends have cars and she feels left out without one. One week after buying the car, however, Cindy changes her mind and told Mike that she wants to disaffirm the contract. When Mike comes to pick up the car and give Cindy her money, Cindy changes her mind again, telling Mike that “I’ll stick by the deal.” But when Cindy’s parents gave her a new car for her seventeenth birthday, she finally decides to disaffirm once again. Which of the following is true?
Cindy cannot disaffirm because the car is a necessary.
Cindy cannot disaffirm because she ratified the contract by saying “I’ll stick by the deal.”
Cindy cannot disaffirm because we have a sale of goods and Article 2 of the UCC says that 16 is the age of contractual capacity.
Cindy can still disaffirm.

31. The term ‘mistake’ in ordinary conversation means an error in judgment or an unfortunate act. In contract law, however, mistake is a belief about a fact that is not in accordance with the truth.

32. In violation of a state licensing statute, Jones purports to be an attorney. After making that allegation, he contracts to perform legal service for Smith. Smith then pays Jones a $500 retainer. Later, after discovering that Jones is not licensed and therefore cannot get the job done, Smith sues Jones for the $500. What is the most likely result, and why?
Smith definitely wins, because here we have a revenue-raising statute.
Smith probably wins, because parties for whose protection a regulatory statute has been enacted often can recover amounts paid under a contract declared illegal by the statute.
Smith definitely loses, because here we have a regulatory statute.
Smith probably loses, because the law obligates one to check the licensure of a professional with whom one deals.

33. Which of the following is true about situations where a minor misrepresents his age to get an adult to contract with him?
Today, some courts let a minor disaffirm despite the misrepresentation.
Traditionally, the courts would not let a minor disaffirm in such cases, since to allow disaffirmance would be to reward dishonesty.
Today, the courts all agree that a minor can disaffirm despite the misrepresentation.
Today, the courts all agree that a minor cannot disaffirm where the minor has misrepresented his age.

34. State X has a statute requiring that one must be licensed in order to engage in the profession of selling real estate. The statute also imposes a $500 annual license fee on anyone who would engage in this business. Billy completed his educational requirements, passed the required exam, and obtained his license. However, Billy did not pay his annual dues of $500.00 in the year that he contracted with Joe to list Joe’s home for sale; the commission is 6%. Joe would not liable to Billy for the commission if the house sold because the contract violates public policy.
False (The $500.00 that was required was not for a regulatory purpose. It was an annual amount that was required to raise revenue. Thus, the contract does not violated public policy.)

35. In most states today, the age of contractual capacity remains 21.

36. Usury statutes have fallen out of favor; virtually no states have such statutes today.

37. We live in an era in which the lengthy, complex, standardized, pre-printed contract is quite common. When a consumer is presented with this type of adhesion contract and signs it without fully understanding it, a judge will be likely to not enforce it if there also exists a lack of bargaining power and a substantial cost – price disparity.

38. Which of the following is an example of substantive unconscionability?
Terms that are stated in “fine print.”
A disparity in bargaining power between the parties.
High-pressure sales tactics.
A penalty clause obligating the buyer to pay five times the product’s price for failing to accept the goods when delivered.

39. Non-competition clauses in employment contracts are less likely to be enforced than noncompetition clauses in other kinds of contracts.

40. Contracts made by severely intoxicated people:
Are void rather than voidable.
Cannot be disaffirmed until the person has regained his mental faculties.
Cannot be ratified until the person has regained his mental faculties.
Are always binding, because the law does not want to reward drug or alcohol abuse.

41. Non-competition clauses in employment contracts are especially unlikely to be enforced where they restrict employees from engaging in a common calling.

42. Which of the following is true about situations where a minor tries to disaffirm an executed contract in which the consideration furnished to the minor has been lost, stolen, or dissipated?
The traditional rule here is that the minor cannot disaffirm because the minor has nothing to give back to the other party.
The traditional rule here is that the minor cannot disaffirm because the contract is executed, and only executory contracts can be disaffirmed.
Today, the courts all agree that a minor can disaffirm here–without giving anything back to the adult.
None of the above.

43. Contracts that affect title to real estate cannot be disaffirmed until the age of majority.

44. In order to have any chance of being enforced, an illegal agreement must be indivisible.

45. Sam, a minor, bought a pleasure yacht from Marine Boats Inc. Under the terms of the contract, Sam agreed to make monthly payments. About six months after reaching his 18th birthday, Sam became bored with boating and wanted to disaffirm the contract. He had made five (5) payments up to the point that he decided to rescind.
Sam could not disaffirm because the yacht was a necessity
Sam, most likely, could not disaffirm because he ratified the contract
Sam could not disaffirm because the yacht was now used and worth much less than when he bought it
None of the above

46. Which of the following is most true regarding non-competition clauses in contracts?
Such clauses are less likely to be enforced when they occur in an employment contract.
If they have a legitimate business purpose, such clauses will be enforced–no matter what their other provisions.
Such clauses only are enforced when they restrict one or both parties from engaging in a common calling.
A competitor cannot use such a clause to protect trade secrets, because this would inhibit competition.

47. Generally speaking, courts do not enforce illegal agreements or compensate parties who have performed under such agreements. Instead, the court leaves the parties where it finds them.

48. Once a court finds a contract or a term of the contract to be unconscionable, it may:
Refuse to enforce the entire agreement.
Enforce the contract without the unconscionable provision.
Change the unconscionable term so as to avoid any unconscionable result.
All of the above.

49. In some states, a contract in which the consideration is only partially illegal will be enforced if the court is able to delete the illegal part without changing the basic purpose and intent of the contracting parties.

50. A voidable contract is not a contract at all, and in such cases the courts will leave the parties where they find them.