Business Law and Legal Consequences Test Questions

Business Law and Legal Consequences Test Questions

 
Question Description




Question 13 Points While intoxicated, Holt Richter contracts to buy a motorcycle for double its normal price. The contract is:

Enforceable only if Holt understood its legal consequences.
Enforceable even if Holt did not understand its legal consequences.
Unenforceable under any circumstances; this contract is void.
Unenforceable because the contract illegally favors the other party.


Question 23 PointsAlice offers Richard a chance to work in her affiliate-marketing program which, she claims, will make him a millionaire in three months. Richard makes the "mandatory investment" of $1,500 and becomes an affiliate. Soon, he realizes that such a program does not exist, and that Alice has disappeared with the money. This is an instance of:

lack of capacity
none of the above
undue influence
mistake


Question 33 PointsEdgar entered into a contract with a local mortuary to provide the funeral and burial of his beloved Cousin Tumbleweed, recently deceased. The name of the establishment is "You-Kill-Em, We-Plant-Em". Edgar was assured by the funeral director, Mr. Rigor Mortis, that Tumbleweed's final resting place would be under a shade tree next to a babbling brook. After the burial, Edgar found to his revulsion that Tumbleweed's remains were thrown into a mass grave that the mortuary also rents out as a landfill. If Edgar sues the mortuary (and we know he will), his best chance is to prove:

Incompetence
Duress
Undue Influence
Fraud


Question 42 PointsJunior is suffering from the increasing effects of mental illness, and has not been declared mentally incompetent by any court. Right now, he is at the point where he is perfectly lucid some days and in a complete fog on other days. On one of his good days, he entered into a contract to buy a motor home in a trailer park for $35,000. Later that month, when Junior has to perform, he is in a fog and doesn’t even know what a park is (let alone a trailer park). Junior is liable for this contract.

True
False


Question 53 PointsMelvina is a mentally unstable individual. She was officially declared by the court in her state to be mentally incompetent five years ago, and the court appointed her mother to be Melvina’s legal guardian. If Melvina purchases a Business Law textbook today, although she has never attended college, her purchase of the book is legally:

Void
Voidable by the book store merchant.
Voidable by Melvina.
Valid as long as the price is reasonable, & Melvina can pay the bill.


Question 63 PointsRatchet & his wife, Spongebobeesha, were preparing their joint Federal Income Tax return for this year with their tax preparer, Slimy Sal, when they decided that they would not have enough money to pay the taxes they owed. They decided that they needed to do something to reduce their liability. The threesome decided to write off their four goldfish (Moe, Larry, Curly, & Shemp) as their dependents, even though they weren’t legally entitled to do so, and agreed to give Slimy Sal a percentage of their refund, in addition to his $950 fee. Is Slimy Sal entitled to receive any payment under these facts?

No, even if the business expenses were deductible.
No, because he knowingly committed income tax fraud.
Yes, because Slimy Sal provided a service based on his knowledge, experience, and skill.
Yes, because he did not know he was committing fraud.


Question 73 PointsMurray runs a drug selling ring and contracts to pay several law enforcement officers $1,000,000 not to interfere with his operation. The illicit payments are subsequently discovered and the officers and Murray are sent to prison. Murray can:

Successfully sue for the return of the money paid to the officers that was not spent.
Successfully sue for the return of all of the money paid to the officers.
Not sue unless he can prove that the contract was voidable.
Do nothing.


Question 82 PointsA contract with a minor is voidable at the minor's option unless the minor is legally emancipated.

True
False


Question 93 PointsElaine & Nicole have just created a contract in which Nicole is to provide consulting services for Elaine at a price of $95 per hour. Nicole’s usual fee is $220 per hour, but agreed to the lower fee because the business was in severe financial difficulty and she needed the contract with Elaine in order to keep her business solvent. Elaine was aware of Nicole’s situation all along, but the contract was created as a result of tough, but fair, good faith negotiations. Later, Nicole contacted Elaine and told her that she couldn’t perform this contract for anything less than $140 per hour. Elaine hung up on Nicole. Nicole then sues to have the contract thrown out, alleging economic duress. In this case, Nicole will:

Win because the significant difference between the contract price and Nicole’s usual fee automatically constituted economic duress.
Win because this contract is unconscionable & illegal.
Win because the facts of this case render the contract void.
Lose.


Question 102 PointsDisaffirmance is a party’s legal right to break a contract.

True
False


Question 113 PointsThe state of Georgia runs a lottery. Biff, who lives in Tuscaloosa, Alabama, sees that the Georgia lottery is wildly successful, so he begins running his own lottery business and runs the operation from his home. Biff makes $5,000,000 profit in his first year of operations. Alabama does not have a statute authorizing gambling. On these facts:

Biff can continue running his business as long as he has a license.
Any contracts Biff creates relating to this business are voidable.
Biff can continue running his business as long as he does not embezzle any funds.
None of the above.


Question 123 PointsWhich of the following constitutes undue influence?

the knowledge that a representation is false or that it was made without sufficient knowledge of the truth
a situation in which one person takes advantage of another person's mental, emotional, or physical weakness and unduly persuades that person to enter into a contract
a threat to commit extortion unless someone enters into a contract
an event that occurs when one person consciously decides to induce another person to rely and act on a misrepresentation


Question 132 PointsA minor may legally disaffirm one part of a contract and simultaneously ratify another part of the same contract.

True
False


Question 142 PointsPushy Paul, a very loud, obnoxious, overbearing salesman, convinced Insecure Ira to make a purchase he didn’t really want. There was no force in Pushy Paul’s making the sale. Insecure Ira could still have the contract thrown out on the grounds of physical duress.

True
False


Question 152 PointsIf Marge purchases a car at age 17 and continues to make payments on the car until she reaches age 20, she will be most likely deemed to have ratified the contract.

True
False


Question 1610 PointsPatsy is a seventy-seven-year-old widow who lives quite comfortably on both her late husband’s pension and her Social Security benefits. Recently, Patsy has become increasingly absent minded, and her family fears that she may be suffering from the early stages of Alzheimer's Disease. No physician has diagnosed her, however, and no court has ruled on Patsy’s legal competence. One day while she is out shopping, Patsy stops by a store having a sale on pianos and enters into a three-year installment contract to buy an antique piano for $7,400. When the piano arrives the next week, Patsy claims that she does not recall buying a piano and repeatedly asks the deliverymen why they are delivering a piano to her house. Patsy comes to you, her family attorney, and wants your advice regarding the enforceability of this contract. What do you tell her? Can she disaffirm this contract or is the contract enforceable? Be sure to explain the reasons for your answer.
Question 173 PointsJim is trustee for his elderly cousin Mary Ann’s $500,000,000 trust. Mary Ann is elderly & housebound, and most of her friends are deceased. Thus, Mary Ann relies on Jim to do her grocery shopping, pay her bills, & walk her dog, among other things. Jim also makes monthly payments to Mary Ann from trust funds, pursuant to the terms of the trust agreement. Jim also knows that Mary Ann is independently wealthy aside from the trust. One day, Jim shows up unexpectedly at Mary Ann’s house and delivers an ultimatum: “Look here you stupid old witch, unless you sign this will naming me the sole beneficiary of your estate, I will not do anything else for you ever again. No groceries, no distribution checks, NO NOTHING!!! I also disconnected your phone in case you had any ideas about calling anyone else! Mary Ann realizes that Jim is quite serious and signs the will naming her no good, avaricious cousin as her sole beneficiary. On these facts, the will is:

Voidable due to undue influence.
Voidable due to duress.
Void due to duress.
Void due to fraud.


Question 182 PointsFraud is a situation in which one party threatens to do a wrongful act unless the other party enters into a contract.

True
False


Question 193 PointsIn a service contract, if Al hires Bill to kidnap Chester, which of the following is the correct statement of law? I) If Al already paid Bill, the court would compel Bill to refund Al’s money, but would not compel Bill to kidnap Chester. II) This is an example of a voidable contract.

Neither I nor II
I only
II only
Both I & II


Question 203 PointsVince flies airplanes for a living. He is an excellent pilot and creates a contract with Lester to work as his personal pilot, flying his Lear Jet. The contract stipulates that Vince will earn $144,602 per year. Six months into the contract, Lester discovers that Vince does not have a pilot's license, which is a felony. After Lester fires Vince, Vince sues to recover the balance of his salary. On these facts:

Vince can enforce the contract as long as the contract is not based on fraud.
Vince can enforce the contract if his not having the license was an honest mistake.
Vince can enforce the contract even if he doesn't have a license.
Vince is out of luck; this contract is unenforceable.


Question 213 PointsAl raises an extraordinarily attractive litter of beagle puppies. One of the puppies, Cindy, is especially breathtaking. She is 18 months old when Stella, who owns a champion male breeder, Spike, approaches Al and wants to know if this precious puppy has already been spayed. Al responds that the dog is in excellent health and will make a wonderful mother. Stella responds, “Excellent, I want to breed Spike immediately and Cindy will be just perfect.” Al sells Cindy for five thousand dollars. Two months later, Stella returns, positively apoplectic: it turns out that Cindy cannot have puppies. Al knew all along that Cindy had been neutered. In this case:

Al committed ordinary salesmanship.
Al committed fraud.
Al told a little white lie, but it was harmless.
Al did nothing wrong.


Question 223 PointsIn order for a minor to be bound by a contract with an adult after he or she becomes an adult, he or she must:

disaffirm the contract before reaching the age of majority
ratify the contract after reaching the age of majority
complete his or her contractual duties of restitution and restoration
place the adult in status quo until reaching the age of maturity


Question 232 PointsIf there is a close business or personal relationship between two people, any contract made by the servient party that benefits the dominant party is may be created as a result of undue influence.

True
False


Question 243 Points16-year-old Frank bought a video game console from John for $150. Frank is a minor, while John is a competent adult. A month later, the console started malfunctioning on its own. Frank returned the console to John. If Frank disaffirms his contract with John for buying the console, which of the following will be considered true?

Frank is legally obligated to fix the console before returning it to John.
John is not bound by the contract any more as the exchange has been completed.
Frank can reclaim a full refund on the amount he paid.
Frank can only ask for full refund once he has reached the age of majority.


Question 253 PointsAn example of a party who has the capacity to create a contract is:

A 16 year old high school honor student.
A 42 year old suffering the after effect of a stroke.
A 32 year old who is legally drunk, and does not know what is going on.
A 20 year old unemployed high school dropout.


Question 263 PointsGary and Mary Ann are siblings involved in a legal dispute over who gets possession of their deceased parents’ home. Gary threatens to kill Mary Ann's husband if she does not sign papers declaring Gary's sole ownership of the home. This is an instance of:

battery
undue influence
scienter
duress


Question 273 PointsMelvin & Raheim are negotiating a partnership agreement that would divide the profits 80%-20% in Melvin’s favor (with Raheim doing 100% of the work). Melvin’s bargaining chip is a meat cleaver, which he strategically places at Lulu’s throat. Lulu is Raheim’s Persian cat, which he loves more than people. Melvin tells Raheim that Lulu will become tonight’s special at the local restaurant if Raheim doesn’t agree to the partnership. Raheim becomes partners with Melvin in order to save his beloved Lulu. If Raheim sues to disaffirm the contract, what happens?

This contract will be deemed voidable because of physical duress.
This contract will be deemed voidable because of undue influence.
This contract will be deemed voidable because of the potential crime.
Absolutely nothing. Melvin can say “Hi, partner”, every time he sees Raheim, and Raheim must stand there and take it.


Question 2810 PointsDISCLAIMER: Any resemblance to anyone you may know, living or otherwise, is purely coincidental. Thank you.1) Gilmore, a middle age law professor at Big Town University, wanted to take dancing lessons because he wanted to go to the college’s President’s & Dean’s list awards dinner dance. He purchased 10 lessons from the Arthur Quarry Dance Studio for $100. Lori Anne, the manager of the school, constantly praised Gilmore’s ability to learn so quickly and his lightness on his feet. Lori Anne continued to give Gilmore unabated praise. Lori Anne’s continued flattery induced Gilmore to purchase 2,655 additional dance lessons totaling $54,013. In actuality, Gilmore had 2 left feet and no sense of coordination. The owners of the Arthur Quarry Dance Studio were well aware of this, and encouraged Lori Anne to keep up the flattery routine because “we’ve got a great big gullible cash cow just begging us to take his money.” At the President’s & Dean’s list dinner, Gilmore was the first to run out onto the dance floor to do the Electric Slide. Unfortunately, Gilmore tripped and fell on his first dance step flat on his face, causing everyone in attendance to laugh unmercifully at him. Mortified, Gilmore runs from the dance floor and quits his teaching job, too mortified to show his face at the University, He sues the studio for damages, alleging contract fraud. The studio counters that Gilmore entered into this contract of his own free will, and that the studio did nothing wrong. Who is right, and why? Be sure to explain the reasons for your answer.
Question 292 PointsIf a minor disaffirms a contract while still being a minor, the contract can be ratified later.

True
False


Question 303 PointsAssume that your friend Terry is a bad credit risk. Regardless, you lend him $10,000 when you know that Terry has been rejected by every bank in town. The loan agreement calls for Terry to repay the principal in 3 years, and make periodic interest payments. In order to cover the riskiness of the loan, you charge Terry an interest rate of 10% per week. In this case:

The interest term is probably usury and therefore invalid.
The interest term is valid because it is based on Terry's creditworthiness.
The interest term is valid as long as other banks charge similar rates to people like Terry.
The interest rate is invalid as a gambling contract.


Question 313 PointsOn August 18, Peter, age 17, offered a local grocery store 2000 pounds of fresh cantaloupes from his parents’ farm. The store accepted Peter’s offer that day and the cantaloupes were ripe & ready for delivery. However, the store waited for two weeks before sending its delivery truck on September 1. In the meantime, Peter turned 18 on August 22. He sold the cantaloupes to a local supermarket on August 25 before they spoiled. The grocery store wants to sue Peter on the grounds that it cancelled its regular supply of cantaloupes in reliance on Peter’s offer. Will the grocery store prevail?

No. Peter’s offer should have contained a deadline. Since no deadline had been established, the court will construe the contract against the grocery store.
Yes. Once Peter turned 18, he lost his presumptive legal ability to disaffirm the contract on the ground that he was a minor.
Yes. Peter’s offer should have contained a deadline. Since no deadline had been established, the court will construe the contract against Peter.
No. A minor can disaffirm a contract within a reasonable time after reaching the age of majority. While a reasonable time depends on the circumstances in every case, the court will find that Peter correctly disaffirmed the contract within a reasonable time, considering that 2000 pounds of cantaloupes have a limited shelf life before going bad.


2 PointsMaximus leased an apartment from Caligula. Shortly before the lease expired, Caligula told Maximus that he will evict him early and also give him a severe beating if Maximus did not sign a new lease for twice the old rent. Elderly Maximus, unable to afford the legal fees to fight eviction, and intimidated by Caligula’s threat, signed the new lease. Two weeks after this turn of events, Maximus moved into a better neighborhood and also sued Caligula to disaffirm the new lease. The new lease is properly voidable by Maximus.




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