Question 1

The legal effect of a usurious loan varies from state to state.

Accepted Answer

The legal consequences of a usurious loan, which is a loan with an interest rate exceeding the legal limit, can differ significantly across various states due to differences in state laws and regulations regarding usury.

Question 2

The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.

Accepted Answer

This statement is true. An injunction is a court order that requires a person to stop doing a certain activity, such as competing with a former employer in a designated territory for a specific period of time.

Question 3

Don has an employment contract with Dunkirk Ice Cream. He sells ice cream and novelty ice cream products. He has nine children and doesn't make enough money, so he decides to see if another dairy will hire him, too. "After all," he reasons, "most stores carry four or five different brands." His employment contract prohibits him from competing. If Don sells for another dairy in addition to Dunkirk, will he be in trouble under his contract?
A) No, it is unenforceable as against public policy.
B) Yes, it is likely to be enforceable during employment.
C) No, the prohibition against competing is enforceable only after he quits Dunkirk.
D) A court would have to rule on the enforceability of the covenant not to compete since courts are reluctant to enforce such covenants during a period of employment.

Accepted Answer

Don's employment contract likely includes a valid and enforceable covenant not to compete while employed with Dunkirk Ice Cream. This type of provision is common in many employment contracts, particularly for sales positions where an employee has access to confidential information and customer relationships. Whether or not a court would enforce the covenant not to compete would depend on the specific language of the contract and the circumstances surrounding Don's potential violation of the provision.

Question 4

Courts will never limit freedom of contract.

Accepted Answer

Courts may limit freedom of contract to protect against unfair practices, enforce statutory or regulatory requirements, or uphold public policy, ensuring contracts are not illegal, unconscionable, or unjust.

Question 5

B& B, Inc. pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments. B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him. This is an agreement which is a violation of public policy.

Accepted Answer

Paying legislators directly for their time to listen to a lobbyist is considered bribery, which is illegal and a clear violation of public policy. Lobbying with the intent to influence legislation through legal means, such as drafting a bill, is permissible, but direct payment to legislators for their attention or influence is not.

Question 6

Where parties to a failed agreement are in pari delicto , a court will provide a remedy to the injured party.

Accepted Answer

When parties are in pari delicto, meaning they are equally at fault, courts typically refuse to intervene or provide a remedy to either party, as both parties are deemed equally responsible for the wrongdoing.

Question 7

Abner operates a small repair business and is in desperate need of a certain type of building material. He obtains the material from a large corporation, but is charged a grossly unreasonable price and is forced to buy other material he does not need. In view of the buyer's unequal bargaining power and unreasonable terms of the contract, this may be a case of:
A) in pari delicto .
B) partial illegality.
C) substantive unconscionability.
D) procedural unconscionability.

Accepted Answer

Substantive unconscionability refers to situations where the terms of a contract are extremely unfair or one-sided, particularly in cases where there's a significant imbalance in bargaining power between the parties, as described in the scenario with Abner.

Question 8

Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause?
A) Void as an illegal violation of a statute.
B) Valid as a reasonable restraint on trade.
C) Unenforceable as a violation of public policy.
D) Binding as fair protection.

Accepted Answer

This contract clause is likely unenforceable as a violation of public policy because it imposes an unreasonable restriction on Claudia's ability to earn a living in her field by prohibiting her from opening a hair salon anywhere in the state, which is generally considered too broad and restrictive.

Question 9

Permissible lender's expenses, which would not be considered in determining the rate of interest under usury statutes, include all but which of the following?
A) Cost of title examination.
B) Reasonable cost of drawing up the necessary documents.
C) A charge to the borrower of $500 to investigate the borrower's credit, when it actually cost the lender $75.
D) All of these charges would be considered in determining the rate of interest under usury statutes.

Accepted Answer

Charging the borrower $500 for a credit investigation that actually cost the lender $75 is not permissible as it significantly exceeds the actual cost incurred by the lender. This would likely be considered in determining the rate of interest under usury statutes, as it could be seen as an attempt to circumvent interest rate limits by disguising additional interest charges as fees.

Question 10

Which of the following is NOT true with regard to an exculpatory clause?
A) An exculpatory clause excuses one party from liability for her own tortious conduct.
B) Where one party has a superior bargaining position that has enabled him to impose an exculpatory clause upon the other, the courts are inclined to nullify the provision.
C) An exculpatory clause may be unenforceable for unconscionability.
D) Exculpatory clauses are almost always against public policy.

Accepted Answer

Exculpatory clauses are not almost always against public policy. While they are scrutinized and sometimes found unenforceable due to issues like unconscionability or being against public interest, they are not inherently against public policy. Their enforceability can depend on the context, such as the nature of the service provided and the fairness of the agreement.

Question 11

An agreement to refrain from a particular trade, profession, or business is enforceable if two requirements are met: that the purpose of the restraint is to protect a property interest of the promisee and the restraint is no more extensive than is reasonably necessary to protect that interest.

Accepted Answer

Such agreements, often found in employment contracts or business sale agreements, are enforceable when they aim to protect legitimate business interests (like trade secrets or customer relationships) and are reasonable in scope, duration, and geographic area, ensuring they don't impose undue hardship on the individual or harm the public interest.

Question 12

A contract of adhesion:
A) is automatically unenforceable.
B) consists largely of boilerplate provisions, such as a standard-form insurance policy.
C) is a contract that exhibits either procedural or substantive unconscionability.
D) is a contract containing multiple exculpatory clauses.

Accepted Answer

Contracts of adhesion typically consist of pre-drafted provisions, often found in standard-form agreements like insurance policies, where the terms are set by one party with little or no negotiation.

Question 13

A(n) __________ is a measure designed to protect the public from unqualified practitioners.
A) exculpatory clause
B) revenue license
C) regulatory license
D) usury statute

Accepted Answer

A regulatory license is specifically designed to regulate and protect the public from unqualified practitioners by setting standards for qualifications and training. This ensures that individuals who hold a regulatory license have met those qualifications and are capable of safely and competently practicing in their field.

Question 14

An agreement in connection with the sale of a business that prohibits the seller from engaging in the same or similar business for a period of twenty-five years would be unreasonable and unenforceable.

Accepted Answer

Non-compete agreements must be reasonable in scope, geography, and duration to be enforceable. A period of twenty-five years is generally considered excessive and unreasonable, making such an agreement likely unenforceable.

Question 15

Some states require the lender to forfeit two or three times the amount of usurious interest charged.

Accepted Answer

Some states have laws that penalize lenders for charging usurious interest rates by requiring them to forfeit a multiple of the usurious interest charged, often two or three times the amount, as a way to deter predatory lending practices.

Question 16

Before granting an injunction enjoining a former employee from competing in a described territory, the courts insist that the employer demonstrate that the restriction is __________ to protect the employer's legitimate interest.
A) exculpatory
B) unconscionable
C) necessary
D) usurious

Accepted Answer

The correct answer is C) necessary. Courts require that the restriction, such as a non-compete clause, be necessary to protect the employer's legitimate interests, such as trade secrets or confidential information, to grant an injunction. This means the restriction must not be overly broad in terms of duration, geographic scope, and the type of work restricted, and must be justified by a legitimate business interest.

Question 17

Edward, an engineer, is working on a new design for some highly technical equipment which Martus, Inc. hopes to market within the next five years. The employment agreement between Edward and Martus states that Edward will not go to work for another company in the same business for a period of two years after termination of his employment with Martus, Inc. This agreement is void and unenforceable because, although Martus is a very specialized company, it would make it difficult for Edward to find other employment.

Accepted Answer

Non-compete agreements, like the one between Edward and Martus, Inc., are generally enforceable if they are reasonable in scope, geography, and duration, and protect legitimate business interests.

Question 18

Andria, an attorney, has a personal injury case which is set for trial next week. She needs a good doctor to testify on behalf of her client, so she contacts Dr. Wood who agrees to testify on behalf of Andria's client at the trial. In return for Dr. Wood's testimony, Andria agrees to pay Dr. Wood $10,000 if they win the case, and $5,000 if they lose. Dr. Wood agrees. The agreement between Andria and Dr. Wood is unenforceable.

Accepted Answer

The agreement is unenforceable because it is contingent upon the outcome of the case, which could potentially influence the testimony of Dr. Wood, compromising the integrity of the trial and violating ethical standards.

Question 19

Divided Parcel (DP) includes the following on its mailing receipts: "We are not responsible for any damages to packages whether or not through the intentional or reckless fault or negligence of our employees. Send packages at your own risk." Mary reads this clause but sends her watch back to the manufacturer to be repaired anyway. The watch is destroyed when the DP driver uses the package for a ball and tosses it to his buddy. Mary is:
A) out of luck because the clause was communicated to her.
B) out of luck because she should have insured the package.
C) likely to collect from DP since exculpatory clauses always violate public policy.
D) likely to collect from DP because it attempted to excuse intentional and reckless behavior.

Accepted Answer

Exculpatory clauses attempting to excuse a party from liability for their own intentional or reckless behavior are generally not enforceable, especially when it involves a public service or when it significantly affects public interest. In this case, the driver's intentional or reckless act of using the package as a ball directly led to the damage, making it likely that Mary could collect damages from DP despite the clause.

Question 20

Nell gives Big Al $50 in return for Al's promise to defame Sara. Nell hopes to ruin Sara's chances at a promotion. Nell finds out that Al did not hold up his end of the agreement. Which of the following statements is true?
A) Nell can get the money back from Al through litigation.
B) Nell can get the money back and force Al to do as he promised.
C) Legally, Nell can neither get the money back nor force Al to do as he promised.
D) Nell can force Al to act through an appeal to the courts, but Al gets to keep the $50.

Accepted Answer

Contracts that involve committing a crime or any illegal act are not enforceable by law. Since defamation is illegal, the agreement between Nell and Al is void, and the courts will not assist in enforcing it or in recovering the money.

Quiz 13: Illegal Bargains

The legal effect of a usurious loan varies from state to state.

The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.

Courts will never limit freedom of contract.

B& B, Inc. pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments. B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him. This is an agreement which is a violation of public policy.

Where parties to a failed agreement are in pari delicto , a court will provide a remedy to the injured party.

Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause?

Permissible lender's expenses, which would not be considered in determining the rate of interest under usury statutes, include all but which of the following?

Which of the following is NOT true with regard to an exculpatory clause?

An agreement to refrain from a particular trade, profession, or business is enforceable if two requirements are met: that the purpose of the restraint is to protect a property interest of the promisee and the restraint is no more extensive than is reasonably necessary to protect that interest.

A contract of adhesion:

A(n) __________ is a measure designed to protect the public from unqualified practitioners.

An agreement in connection with the sale of a business that prohibits the seller from engaging in the same or similar business for a period of twenty-five years would be unreasonable and unenforceable.

Some states require the lender to forfeit two or three times the amount of usurious interest charged.

Before granting an injunction enjoining a former employee from competing in a described territory, the courts insist that the employer demonstrate that the restriction is __________ to protect the employer's legitimate interest.

Nell gives Big Al $50 in return for Al's promise to defame Sara. Nell hopes to ruin Sara's chances at a promotion. Nell finds out that Al did not hold up his end of the agreement. Which of the following statements is true?