Chapter 13 Capacity and Legality. All Answers

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Chapter 13 Capacity and Legality N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows. N A question new to this edition of the Test Bank. + A question mod... ified from the previous edition of the Test Bank. = A question included in the previous edition of the Test Bank. TRUE/FALSE QUESTIONS A1. When both parties to a contract are minors, neither of them may disaf¬firm the contract. : F PAGE: 256 TYPE: = NAT: AACSB Reflective AICPA Legal A2. A minor’s right to disaffirm a contract terminates sixty days after the contract’s date. : F PAGE: 256 TYPE: = NAT: AACSB Analytic AICPA Legal A3. Contractual capacity includes the financial ability to pay for the benefits of a contract. : F PAGE: 256 TYPE: N NAT: AACSB Analytic AICPA Legal A4. The age of majority in most states is eighteen years. : T PAGE: 256 TYPE: = NAT: AACSB Analytic AICPA Legal A5. All contracts between adults and minors are void. : F PAGE: 256 TYPE: = NAT: AACSB Analytic AICPA Legal A6. A minor may disaffirm a contract only if the subject matter is illegal. : F PAGE: 256 TYPE: = NAT: AACSB Reflective AICPA Legal A7. Parents are required by law to provide neces¬saries for their minor children. : T PAGE: 257 TYPE: = NAT: AACSB Analytic AICPA Legal A8. Parents are always liable for the contracts made by their minor chil¬dren. : F PAGE: 258 TYPE: N NAT: AACSB Analytic AICPA Legal A9. A contract is void if one of the parties was intoxicated at the time of its formation. : F PAGE: 258 TYPE: N NAT: AACSB Analytic AICPA Legal A10. A contract to do something that is prohibited by statutory law is void. : T PAGE: 260 TYPE: N NAT: AACSB Analytic AICPA Legal A11. A contract to commit a crime is a contract and therefore enforceable. : F PAGE: 260 TYPE: N NAT: AACSB Analytic AICPA Legal A12. A party who uses the benefits of a contract before paying for them commits usury. : F PAGE: 261 TYPE: N NAT: AACSB Reflective AICPA Legal A13. Federal law bars electronic payments, such as credit-card transactions, at online gambling sites. : T PAGE: 261 TYPE: N NAT: AACSB Reflective AICPA Legal A14. Whether a contract with an unlicensed professional is enforceable depends on the purpose of the statute that requires the license. : T PAGE: 263 TYPE: N NAT: AACSB Analytic AICPA Legal A15. In an employment contract, a covenant not to compete can be enforceable. : T PAGE: 263 TYPE: N NAT: AACSB Reflective AICPA Legal A16. The lack of an opportunity to read a contract may be unconscionable. : T PAGE: 265 TYPE: N NAT: AACSB Reflective AICPA Legal A17. An exculpatory clause in an employment contract is usually enforceable. : F PAGE: 268 TYPE: = NAT: AACSB Analytic AICPA Legal A18. If an illegal contract is executory, either party can enforce it. : F PAGE: 269 TYPE: = NAT: AACSB Analytic AICPA Legal A19. Portions of a divisible contract may be enforced. : T PAGE: 270 TYPE: N NAT: AACSB Reflective AICPA Legal A20. When a statute protects a certain class of people, a member of that class cannot enforce an otherwise illegal contract. : F PAGE: 270 TYPE: = NAT: AACSB Analytic AICPA Legal MULTIPLE CHOICE QUESTIONS A1. Dante enters into a contract with Rosalinda, who does not have contractual ca¬pacity. Dante can enforce the contract if Rosalinda a. does not choose to avoid the contract. b. is a minor. c. can obtain the funds to pay for the benefits of the contract. d. is intoxicated or men¬tally incompetent. : A PAGE: 256 TYPE: + NAT: AACSB Reflective AICPA Legal A2. Yvon and Zach are minors who marry each other. Their minority status may be terminated under the laws of a. all states. b. most states. c. some states. d. no states. : C PAGE: 256 TYPE: = NAT: AACSB Reflective AICPA Legal A3. Orin relinquishes the right to his daughter Neko’s control, care, custody, and earnings. This act is a. disaffirmance. b. emancipation. c. ratification. d. severability. : B PAGE: 256 TYPE: + NAT: AACSB Reflective AICPA Legal A4. Chris, a minor, signs a contract to buy alcoholic beverages for Dine & Drink, his parents’ restaurant. The contract is a. valid but may be disaffirmed. b. valid but may not be disaffirmed. c. void as a matter of law. d. void unless it is also signed by Ed, the manager of Dine & Drink. : C PAGE: 256 TYPE: = NAT: AACSB Reflective AICPA Legal A5. Olga, a minor, signs a contract to buy a computer from Phil, the owner of Quality Computer Store. Olga’s right to disaffirm the contract a. does not change the fact that Phil is bound by the contract. b. does not yet exist because Olga is still a minor. c. gives Phil, an adult, the right to disaffirm the contract. d. is not valid because a computer is a “necessary.” : A PAGE: 256 TYPE: = NAT: AACSB Reflective AICPA Legal A6. Elmo, a minor, misrepresents his age to be twenty-one and contracts to buy a car from Fine New Autos. Ordinarily, Elmo can disaffirm the contract a. only if he can prove that Fine New Autos did not know his true age. b. only if he can prove that Fine New Autos knew his true age. c. under any circumstances. d. under no circumstances. : C PAGE: 257 TYPE: = NAT: AACSB Reflective AICPA Legal A7. Jenna, a minor acting on her own, signs a contract to buy a horse and its tack from Field Equine Ranch. Later, after taking possession of the horse and tack, Jenna disaffirms the deal. She a. can keep the horse and the tack. b. can keep the horse but not the tack. c. can keep the tack but not the horse. d. must return both the horse and the tack. : D PAGE: 257 TYPE: N NAT: AACSB Reflective AICPA Legal A8. Ruth, a minor, charges groceries at Sam’s Mini-Mart. Two days later, Ruth disaffirms the purchase. Ruth owes Sam’s a. the reasonable value of the groceries. b. the retail value of the groceries. c. the wholesale value of the groceries. d. nothing. : A PAGE: 257 TYPE: = NAT: AACSB Reflective AICPA Legal A9. Jacquie signs a contract to buy a car just before reaching the age of major¬ity. After reaching the age of majority, Jacquie does not take possession or make payments. Most courts would hold, with respect to the contract, that this is a. disaffirmance. b. emancipation. c. ratification. d. rescission. : A PAGE: 257 TYPE: + NAT: AACSB Reflective AICPA Legal A10. Max, a minor subject to his parents’ care and control, signs a contract to rent an apartment from Noel for one year. Before the end of the term, Max moves out. Noel sues for the rent for the rest of the term. Max can a. avoid liability for the rent but not disaffirm the contract. b. disaffirm the contract and avoid liability for the rent. c. disaffirm the contract but not avoid liability for the rent. d. not disaffirm the contract nor avoid liability for the rent. : B PAGE: 257 TYPE: = NAT: AACSB Reflective AICPA Legal A11. Lindsey, an emergency medical technician, is called to an accident scene by Nicole and renders medical care to Marvin, a mi¬nor. Lindsey may recover the cost from a. the state. b. Marvin. c. Nicole. d. no one. : B PAGE: 257 TYPE: N NAT: AACSB Communication AICPA Legal A12. On Tim’s eighteenth birthday, he decides that he no longer wants to keep a car he bought from Woody’s Autos, Inc., when he was seventeen. His right to disaffirm the deal will depend on a. the car’s condition when Tim bought it. b. the car’s current condition. c. whether Tim acts within a reasonable period of time. d. whether Woody’s has the right to disaffirm. : C PAGE: 257 TYPE: = NAT: AACSB Reflective AICPA Legal A13. Delia enters into, and fails to disaffirm soon after reaching the age of ma-jority, a contract with Electronics Stores, Inc. (ESI). Later Delia attempts to disaffirm the contract. ESI files a suit against her. The court will most likely consider the contract ratified if it is a. executed. b. exculpatory. c. disaffirmed. d. rescinded. : A PAGE: 258 TYPE: + NAT: AACSB Reflective AICPA Legal A14. Intoxicated but fully aware of the consequences, Uri agrees to a two-year cell-phone service contract with Wander Talk, Inc., at more than the average market price. This contract is a. enforceable. b. not enforceable because contracting parties can change their minds. c. not enforceable because the contract clearly favors Wander Talk. d. not enforceable because Uri was intoxicated when he agreed to it. : A PAGE: 258 TYPE: = NAT: AACSB Reflective AICPA Legal A15. Fay is mentally incompetent but has not been so adjudged by a court. Any contract Fay enters into is a. voidable if Fay has a lucid interval at the time of contracting. b. voidable if Fay lacks the capacity to comprehend the consequences. c. voidable if the other party does not realize that Fay is incompetent. d. unavoidable. : B PAGE: 259 TYPE: = NAT: AACSB Reflective AICPA Legal A16. Fernando obtains a consumer loan from Greater Regional Credit Union at an interest rate that exceeds the state’s maximum. Greater Regional has a. created a risk for the purpose of assuming it. b engaged in a restraint of trade. c. violated a licensing statute. d. committed usury. : D PAGE: 261 TYPE: N NAT: AACSB Reflective AICPA Legal A17. Jolie signs a contract with Keaton, an unlicensed physician, to perform plastic surgery—a medical procedure. This contract is enforceable by a. Jolie. b. Jolie’s medical insurance company. c. Keaton. d. no one. : D PAGE: 263 TYPE: + NAT: AACSB Reflective AICPA Legal A18. Brasilia, a real estate broker licensed only in Connecticut, con¬cludes a land sale in Delaware. She can a. collect the commission if it has not been paid. b. keep the commission if it has already been paid. c. foreclose on the property to obtain any unpaid amount. d. not collect the commission, keep it, or foreclose on the property. : D PAGE: 263 TYPE: N NAT: AACSB Reflective AICPA Legal A19. Cross-Country Trucking Company contracts with Baldwin to transport crated goods to a certain destination for $5,000. Cross-Country delivers the crates, but Baldwin does not pay. Cross-Country learns that the crates contained stolen goods. Cross-Country can a. do nothing with respect to the contract. b. recover $5,000 from Baldwin. c. recover the goods but not the $5,000 from Baldwin. d. recover the goods or the $5,000 from Baldwin. : B PAGE: 269 TYPE: N NAT: AACSB Reflective AICPA Legal A20. Smitty enters into an illegal bargain with Taylor. Smitty can enforce the con¬tract or re¬cover for its value if he has been induced to enter into the bar¬gain as a result of a. fraud. b. his desire to obtain the object of the deal. c. a persuasive “sell” by Taylor. d. his belief that Taylor would do right by him. : A PAGE: 270 TYPE: N NAT: AACSB Reflective AICPA Legal ESSAY QUESTIONS A1. In State X, persons must be at least eighteen years old before they can purchase alcoholic beverages. The state also has passed a law requiring that persons who prepare and serve liquor in the form of drinks in com¬mercial establishments be licensed. The only requirement for obtaining a yearly license is that the person be at least eighteen years old. Moffitt, aged thirty-five, is hired as a bartender for the Lone Star Restaurant. Bekins, a staunch alumnus of a nearby university, brings twenty of his friends to the restaurant to celebrate a football victory. Bekins has or¬dered four rounds of drinks, and the bar bill exceeds $200. Bekins learns that Moffitt has failed to renew his bartender’s license, and Bekins re¬fuses to pay, claiming the contract is unenforceable. Is Bekins correct? A2. Baby Products, Inc., hires Cole to develop and implement an e-commerce strategy for marketing Baby’s products. Cole signs a contract that in¬cludes a clause prohibiting him from competing with Baby during and af¬ter the employment. Before the strategy is implemented, Cole resigns from Baby’s employ and opens a business to compete with Baby. In Baby’s suit against Cole, to determine whether Cole may compete with Baby, what is the most important factor the court should consider? [Show More]

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