Quiz Answers and Explanations
Capacity and Legality
1. A definition of the term "contractual capacity" would be:
  1. the ability to enter a void contract.
    Incorrect. If you enter a void contract, you may lack contractual capacity.

  2. the ability to enter into a contractual relationship.
    Correct. You have contractual capacity if you are legally able to enter into a contractual relationship.

  3. the ability to mitigate contractual damages.
    Incorrect. A child or someone adjudged insane might be able to mitigate damages, but they would not have contractual capacity.

  4. the ability to physically write a contract.
    Incorrect. Again, someone who lacks contractual capacity might be able to physically write a contract.

2. The general rule with regards to minors who enter into contracts is:
  1. a. all such contracts are void.
    a. Incorrect. Minors may enter into valid contracts.

  2. b. all such contracts are always valid.
    b. Incorrect. Minors may void contracts within a certain time period and under certain circumstances.

  3. c. some contracts may be voided by the minor.
    Correct. If minors follow the rules of disaffirmance, they may void some contracts.

  4. d. such contracts may be voided by the adult party to the contract.
    d. Incorrect. Minors, not the adult parties to such contracts, may void certain contracts.

3. The general rule for disaffirmance of a contract by a minor is:
  1. the disaffirmance must take place within 60 days of making the contract.
    Incorrect. This is not a general rule and would apply only to minors who turn 18 or 21 within 60 days of making a contract.

  2. the disaffirmance must be signed by a court of law.
    Incorrect. Disaffirmances do not need to be signed by a judge or court.

  3. the disaffirmance may take place at any time during minority.
    Correct. So long as the contract does not involve certain goods or services (necessities), the minor may disaffirm at any time during minority.

  4. the disaffirmance may only take place after the minor reaches his or her majority (age 18 or 21).
    Incorrect. Disaffirmance may take place during a minority.

4. Lara, who is 16 but looks like she's 22, enters a jewelry store. She buys a beautiful diamond bracelet with the money she has been saving for college. If she decides, 18 months later, that the it was stupid to use the money for the bracelet, what can she do?
  1. Lara can return the bracelet and get her money back.
    Correct. Because she was a minor when she entered into the contract, Lara can disaffirm and get her money back, but she will be responsible for returning the bracelet.

  2. Lara can return the bracelet but she will only get 50% of what she paid for it.
    Incorrect. Lara will get the full price of bracelet back.

  3. Lara cannot return the bracelet because she has kept it too long.
    Incorrect. Because she is still a minor, Lara may disaffirm.

  4. Lara can only disaffirm this contract after she turns 21.
    Incorrect. Lara may disaffirm while she is still a minor.

5. Now suppose that Lara waits until she is 18 and 2 months old before she tries to disaffirm her contract for the bracelet. What will happen?
  1. She will be out of luck, she waited much too long.
    Incorrect. Lara has probably not waited too long. Two months is probably a reasonable period after reaching her majority within which to disaffirm.

  2. She will have to get court approval to disaffirm.
    Incorrect. Lara does not need court approval to disaffirm.

  3. She will only be able to disaffirm if she also pays a fine.
    Incorrect. Lara will not need to pay a fine.

  4. She will probably be able to disaffirm because it comes within a reasonable time after she reaches her majority.
    Correct. Because she only waited two months to disaffirm, Lara will probably be able to get her money back.

6. In the case of Quality Motors, Inc. v. Hays:
  1. a boy was able to disaffirm a contract for a car, even after the car was wrecked.
    Correct. Hays tried to return a car he purchased as a minor but the dealer wouldn't accept it. Despite the fact that the car was wrecked, the court held that he was able to disaffirm.

  2. a boy was not able to disaffirm a contract for a car because it crashed.
    Incorrect. Hays was able to disaffirm despite the crash.c. Incorrect. Hays' father did not force him into the contract.

  3. a boy was able to void a contract because his father forced him to buy a car.
    Incorrect. Hays' father did not force him into the contract.

  4. a boy was able to void a contract five years after he purchased a car.
    Incorrect. Hays did not disaffirm after reaching his majority.

7. The general rule concerning the ability of a minor to disaffirm a contract for necessities is:
  1. it can happen anytime during the minority.
    Incorrect. The general rule is that minors may not disaffirm contracts for necessities.

  2. it can only happen after the minor turns 21.
    Incorrect. The minor generally cannot disaffirm a contract for necessities.

  3. it can't happen.
    Correct. Generally speaking, minors may not disaffirm such contract.

  4. it can happen only if the subject matter of the contract is illegal.
    Incorrect. The subject matter does not need to be illegal, what matters here is that the minor buys necessities. The public policy behind this rule is that merchants should be encouraged to sell these items to minors if they need them.

8. If James goes out to the local pub and has seven shots of whiskey then proceeds to the local radio store and buys a $2,500 stereo system, what will he need to prove if wants to void the contract based on intoxication?
  1. He will need to prove that he had more than 2 drinks in one evening.
    Incorrect. Two drinks would be unlikely to cause James to lose mental capacity and so this would not be enough to allow him to void the contract.

  2. He will need to prove that lacked the mental capacity to enter the contract.
    Correct. James must show he lacked mental capacity to enter this contract.

  3. He will need to prove that the store clerk knew he was drunk.
    Incorrect. The store clerk's perception is not the key issue here; rather, it is James' ability to understand what he was doing.

  4. He will need to prove that a reasonable person would have known he was drunk.
    Incorrect. The reasonable person standard does not apply in this case.

9. As a general rule, when one party to a contract attempts to void the contract by claiming that she was intoxicated at the time it was made, courts will:
  1. probably not allow the contracted to be avoided.
    Correct. Courts are very reluctant to allow contracts to be avoided based on intoxication, as was seen in the case of Lucy v. Zehmer.

  2. probably allow the contract to be avoided.
    Incorrect. Courts would be unlikely to allow a party to avoid a contract based on intoxication.

  3. allow the contract to be avoided only after a wait period.
    Incorrect. There is no wait period in this kind of situation.

  4. allow the contract to be avoided only if the person was over 21.
    Incorrect. The person's age would not be the key issue for this kind of claim.

10. Assume that Cara truly believes that she is a space alien from the planet Zelnor. She walks into a car dealership one day and buys a brand-new Volkswagen Jetta, telling the salesman that she needs a sample of Earthling transportation to beam back to her home planet. If Cara wants, later, to void her contract, she must:
  1. forget about it, she may not avoid a contract.
    Incorrect. If she can prove that she lacked adequate mental capacity, Cara may be able to void this contract.

  2. prove that she lacked mental capacity when she bought the car.
    Correct. If Cara can prove that she did not understand the nature of her actions at the time she bought the car, she may be able to avoid the contract.

  3. prove that the salesman talked her into the sale.
    Incorrect. Cara does not need to prove that the salesman talked her into buying.

  4. prove that Volkswagen did not take adequate precautions to prevent sales to mentally disturbed individuals.
    Incorrect. Cara does not need to prove that Volkswagen failed to take precautions of this sort.

11. Now assume that Cara escaped from a local mental hospital when she went to the Volkswagen dealership. She was put in the hospital after a judge found her to be mentally incompetent and appointed a guardian to oversee her care. In this case:
  1. Cara may not void her contract.
    Incorrect. Cara may void her contract based on mental incompetence.

  2. Cara may void her contract only if the salesperson knew she was mentally ill.
    Incorrect. Cara did not know what she was doing, according to a court of law, so her contract was void from the start.

  3. Cara's contract was void from the start.
    Correct. Cara lacked mental capacity because she was adjudged incompetent.

  4. Cara's contract was legal.
    Incorrect. Cara's contract is not legal, it is void.

12. A usurious contract is one that involves:
  1. hazardous chemical materials.
    Incorrect. Usury does not involve dangerous chemicals.

  2. an illegally high rate of interest.
    Correct. Usury means charging an illegally high rate of interest.

  3. prostitution.
    Incorrect. Prostitutes may charge high rates, but this is not usury.

  4. surrogate motherhood contracts.
    Incorrect. Surrogate motherhood contracts are not the same as usury.

13. The general rule concerning the legality of gambling contracts is:
  1. they are legal so long as the parties are over 21 years of age.
    Incorrect. In most states, gambling is illegal despite one's age.

  2. they are legal so long as the parties have capacity to contract.
    Incorrect. In most states gambling is illegal.

  3. they are illegal based on church law.
    Incorrect. While gambling may be against church law, this is not the primary reason for it's illegality.

  4. they are illegal because they violate many state statutes.
    Correct. Many states prohibit gambling in their statutes.

14. If Letisha losses $50,000 on the stock market, which of the following applies?
  1. She may void the contract based on the general gambling rule.
    Incorrect. Letisha's losses are the price she pays for taking risks in a market economy. This is not considered illegal gambling.

  2. She may void the contract because stock market transactions are against public policy.
    Incorrect. Stock market transactions promote social well being generally - even if not in this specific case - and so are not contrary to public policy.

  3. She can't do anything. A loss, in this case, is a loss.
    Correct. Letisha's only option is to invest more wisely in the future.

  4. She may appeal to her governor for clemency.
    Incorrect. A governor grants clemency to convicted criminals, not to people who lose money in the stock market.

15. If Larry contracts with Greg for Greg to defend him in a lawsuit, and if it turns out that Greg is not a lawyer, this contract:
  1. will be enforced unless Greg loses.
    Incorrect. Because the alleged purpose of licensing lawyers is to protect the public from bad practitioners, this contract with an unlicensed person will not be legal.

  2. will be enforced despite Greg's winning or losing.
    Incorrect. Greg is not licensed to practice law, so this contract is illegal.

  3. will be enforced only if Greg wins.
    Incorrect. Even if Greg wins, Larry may not have to pay him because this contract is illegal.

  4. will not be enforced.
    Correct. This contract is illegal and unenforceable because Greg is not licensed to practice law.

16. Which of the following IS NOT a contract contrary to public policy?
  1. A contract for the sale of live farm animals.
    Correct. There is not a public policy argument against selling farm animals.

  2. A contract for the sale of body parts.
    Incorrect. Many states would find it against public policy to sell body parts.

  3. A contract for a surrogate mother.
    Incorrect. Many states find it against public policy to allow women to chose to be surrogate mothers.

  4. A contract in restraint of trade.
    Incorrect. Contracts that restrain trade, and limit competition, are held against public policy.

17. In an exculpatory clause:
  1. one party agrees that the other party is not mentally incompetent.
    Incorrect. An exculpatory clause is not concerned with mental incompetence.

  2. one party releases the other party from liability in the event of monetary or physical injury, no matter who is at fault.
    Correct. An exculpatory clause involves one party releasing another party from future liability.

  3. one party is able to sue the other party based on the clear fault of the other party.
    Incorrect. In an exculpatory clause fault is not an issue.

  4. both parties agree to use arbitration, not adjudication.
    Incorrect. An exculpatory clause does not involve arbitration.

18. State laws that regulate the offer and sale of securities are known as:
  1. blue sky laws.
    Correct. Blue sky laws protect consumers from the fraudulent sale of securities.

  2. exculpatory laws.
    Incorrect. There are not exculpatory laws, only exculpatory clauses.

  3. invasive laws.
    Incorrect. While some laws may invade our privacy or our rights, this term does not accurately reflect the definition offered.

  4. adhesion laws.
    Incorrect. There are adhesion clauses, but not adhesion laws.

19. As a general rule, an illegal contract:
  1. is bad but valid.
    Incorrect. Illegal contracts are, generally, void.

  2. is valid only if the parties knew the subject matter was illegal.
    Incorrect. If both parties knew the contract was illegal a court will not hold it valid.

  3. is valid only if both parties were not aware that the contract was illegal.
    Incorrect. Ignorance on the part of both parties will not make an illegal contract valid.

  4. is void.
    Correct. Generally speaking, illegal contracts are void.

20. Zina puts a gun to Melissa's head and tells her to sign on the dotted line a gambling contract, which causes her to lose money. In the state where Melissa lives gambling is not legal. In this case:
  1. Melissa is out of luck, illegal contracts are always void.
    Melissa will be able to argue duress only if she was a minor at the time.

  2. Melissa may argue that she signed the contract under duress and so she should be able to recover whatever she paid to Zina.
    Correct. Duress is a valid argument for the recovery of goods lost under an illegal contract.

  3. Melissa will not be able to use a duress argument because the underlying contract was illegal.
    Incorrect. Even though the gambling contract was illegal, Melissa acted under duress and so may recover her money.

  4. Melissa will be able to argue duress only if she was a minor at the time.
    Incorrect. Melissa's age is not the important issue here. What's important is that she acted against her will.

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