Question 1

Insurance Company violates a state licensing statute when selling a policy to Jay, in whose state it is not licensed to sell insurance. As a member of the class of persons protected by the statute, Jay can

Accepted Answer

A)  none of the choices.
B)  enforce the policy and recover from the insurer.
C)  obtain a license to sell insurance and a list of the insurer's customers.
D)  collect benefits under the policy immediately.E) A) and B)
F) B) and D)

Question 2

Gretchen is adjudged by a court to be mentally incompetent. Gretchen

Accepted Answer

A)  can enter into a valid contract and cannot avoid liability under it.
B)  can enter into a valid contract but has the right to avoid liability under it.
C)  cannot form a legally binding contract with another party.
D)  is presumed to have contractual capacity.E) C) and D)
F) B) and D)

Question 3

Deb is a minor. She can enter into any contract an adult can, provided

Accepted Answer

A)  the adult is willing to enter into contracts with minors.
B)  Deb is willing to disaffirm the contract.
C)  the contract is not one prohibited by law for minors.
D)  an adult is willing to ratify the contract.E) B) and D)
F) B) and C)

Question 4

The purpose of the right to disaffirm a contract is to

Accepted Answer

A)  recognize the legitimate interests of those who contract with minors.
B)  protect minors.
C)  restore persons to positions they held before contracting.
D)  ratify a contract and make it enforceable.E) B) and D)
F) A) and B)

Question 5

Contracts entered into by mentally incompetent persons may be disaffirmed.

Accepted Answer

A) True 
 B)False

Question 6

A contract to do something that is prohibited by statute is

Accepted Answer

A)  enforceable if the parties are aware of the prohibition.
B)  enforceable if the parties are ignorant of the prohibition.
C)  enforceable if the contract does not negatively affect society.
D)  unenforceable.E) B) and D)
F) A) and B)

Question 7

The general rule is that no party to an illegal contract can sue for breach.

Accepted Answer

A) True 
 B)False

Question 8

A minor can ratify a contract and thus make it enforceable.

Accepted Answer

A) True 
 B)False

Question 9

The contracts entered into by a minor are voidable at the option of that minor.

Accepted Answer

A) True 
 B)False

Question 10

All persons can make legally binding contracts in all situations.

Accepted Answer

A) True 
 B)False

Question 11

If an illegal contract is executory, either party can enforce it.

Accepted Answer

A) True 
 B)False

Question 12

A landlord can avoid liability for injuries that occur on rental property by including an exculpatory clause in the lease.

Accepted Answer

A) True 
 B)False

Question 13

A lease between Mia and Niles for residential property contains an exculpatory clause. This clause is most likely

Accepted Answer

A)  enforceable as a matter of public policy.
B)  enforceable if either party is in a business important to the public.
C)  enforceable if an event occurs to which the clause applies.
D)  unenforceable.E) A) and B)
F) B) and D)

Question 14

Quest enters into a contract to buy a thoroughbred from Rancho Mesa. Quest can disaffirm the contract

Accepted Answer

A)  only by words.
B)  only by conduct.
C)  by words or conduct.
D)  none of the choices.E) None of the above
F) B) and C)

Question 15

Cass agrees to sell her Daily Donut shop to Ernie. In the agreement, there is a covenant not to compete that prohibits Cass from operating a donut shop within a certain distance. If the restriction is unreasonable, a court will most likely

Accepted Answer

A)  award Cass damages.
B)  order Ernie to stop doing business.
C)  reform the covenant.
D)  prohibit both parties from operating donut shops.E) B) and C)
F) C) and D)

Question 16

A contract entered into by an intoxicated person can be voidable.

Accepted Answer

A) True 
 B)False

Question 17

Lazlo and Mac bet illegally on the outcome of a sporting event. Before the event is held, Lazlo changes his mind about the wager. Lazlo can

Accepted Answer

A)  not withdraw from the deal without Mac's consent.
B)  not withdraw from the deal under any circumstances.
C)  withdraw from the deal by giving notice.
D)  not withdraw from the deal without paying Mac's expenses.E) B) and C)
F) A) and B)

Question 18

At Mattress Store, Nate signs a contract to buy bedroom furniture. The contract sets a schedule of $500 monthly payments, subject to a late fee of 150 percent. Nate finds the language of the contract difficult to understand. This is most likely

Accepted Answer

A)  an exculpatory contract.
B)  procedural unconscionability.
C)  substantive unconscionability.
D)  an enforceable contract.E) A) and D)
F) None of the above

Question 19

Seth is mentally incompetent but has not been adjudged by a court to be incompetent. Seth enters into a contract with Toby for the cleaning and maintenance of Seth's warehouse. Most likely, the contract is

Accepted Answer

A)  voidable if Seth did not comprehend the consequences.
B)  enforceable if Toby did not know that Seth was mentally incompetent.
C)  enforceable if the warehouse needs cleaning and maintenance.
D)  void.E) A) and D)
F) B) and C)

Question 20

The state of Nevada enacts a usury statute. With respect to different types of transactions, including ordinary loans, the purpose of the statute is to

Accepted Answer

A)  set a maximum rate of interest.
B)  regulate certain forms of gambling.
C)  specify clauses that must be included in certain contracts.
D)  prohibit certain contracts based on their subject matter.E) None of the above
F) A) and D)

Exam 14: Capacity and Legality

The state of Nevada enacts a usury statute. With respect to different types of transactions, including ordinary loans, the purpose of the statute is to

Correct AnswerverifiedShow Answer

The contracts entered into by a minor are voidable at the option of that minor.

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A contract entered into by an intoxicated person can be voidable.

Correct AnswerverifiedShow Answer

Insurance Company violates a state licensing statute when selling a policy to Jay, in whose state it is not licensed to sell insurance. As a member of the class of persons protected by the statute, Jay can

Correct AnswerverifiedShow Answer

At Mattress Store, Nate signs a contract to buy bedroom furniture. The contract sets a schedule of $500 monthly payments, subject to a late fee of 150 percent. Nate finds the language of the contract difficult to understand. This is most likely

Correct AnswerverifiedShow Answer

Cass agrees to sell her Daily Donut shop to Ernie. In the agreement, there is a covenant not to compete that prohibits Cass from operating a donut shop within a certain distance. If the restriction is unreasonable, a court will most likely

Correct AnswerverifiedShow Answer

Quest enters into a contract to buy a thoroughbred from Rancho Mesa. Quest can disaffirm the contract

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A minor can ratify a contract and thus make it enforceable.

Correct AnswerverifiedShow Answer

If an illegal contract is executory, either party can enforce it.

Correct AnswerverifiedShow Answer

A contract to do something that is prohibited by statute is

Correct AnswerverifiedShow Answer

Contracts entered into by mentally incompetent persons may be disaffirmed.

Correct AnswerverifiedShow Answer

The purpose of the right to disaffirm a contract is to

Correct AnswerverifiedShow Answer

Seth is mentally incompetent but has not been adjudged by a court to be incompetent. Seth enters into a contract with Toby for the cleaning and maintenance of Seth's warehouse. Most likely, the contract is

Correct AnswerverifiedShow Answer

Deb is a minor. She can enter into any contract an adult can, provided

Correct AnswerverifiedShow Answer

Lazlo and Mac bet illegally on the outcome of a sporting event. Before the event is held, Lazlo changes his mind about the wager. Lazlo can

Correct AnswerverifiedShow Answer

Gretchen is adjudged by a court to be mentally incompetent. Gretchen

Correct AnswerverifiedShow Answer

A landlord can avoid liability for injuries that occur on rental property by including an exculpatory clause in the lease.

Correct AnswerverifiedShow Answer

The general rule is that no party to an illegal contract can sue for breach.

Correct AnswerverifiedShow Answer

All persons can make legally binding contracts in all situations.

Correct AnswerverifiedShow Answer

A lease between Mia and Niles for residential property contains an exculpatory clause. This clause is most likely

Correct AnswerverifiedShow Answer

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