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Business Law Chapter 15

Marty, a 16-year-old, contracts with Cream-of-the-Crop Cycles to buy an $8,000 motorcycle. Marty agrees to make monthly payments until the purchase price plus interest are paid in full. Which of the following is correct? a. The contract is voidable by Marty. b. The contract is void as soon as it is made. c. The contract is voidable by Cream-of-the-Crop Cycles. d. The contract is voidable by either Marty or Cream-of-the-Crop Cycles. a. The contract is voidable by Marty.
Marty, a 16-year-old, contracted with Cream-of-the-Crop Cycles to buy an $8,000 motorcycle. He agreed to make monthly payments until the purchase price plus interest were paid in full. It is three years later and Marty has not disaffirmed the contract and has made regular payments on the cycle since turning 18. Which of the following is correct? a. The contract is void and Marty has no obligation. b. The contract is now voidable by Cream-of-the-Crop Cycles. c. Marty has ratified the contract and is now bound by its terms. d. Marty has ratified the contract but can still get a return of the payments made while he was a minor. c. Marty has ratified the contract and is now bound by its terms.
When courts consider economic duress, they consider all the following factors EXCEPT a. relative bargaining power. b. financial distress. c. legitimate business purpose. d. relative size of the contract. d. relative size of the contract.
Which of the following is most likely to constitute fraud? a. A false prediction that a painting’s value will rise. b. A false statement that a used car is “the best deal in town.” c. A false statement that a $30,000 car attracts members of the opposite sex. d. Silence as to a toxic waste problem on real property that the buyer would not reasonably find. d. Silence as to a toxic waste problem on real property that the buyer would not reasonably find.
Angie, a minor, wants to avoid a contract she made with Cumberland Cycles. Which is a valid way for Angie to disaffirm the contract? a. by notifying Cumberland orally that she will not honor the agreement b. by filing a lawsuit to have a court formally cancel the contract c. by just refusing to perform her obligations under the contract d. All of the answers are correct. d. All of the answers are correct.
Deborah purchased a boat from Sun ‘N Surf Marine. She later learned that the salesman had made misrepresentations to induce her to make the purchase. Under UCC Section 2-721, Deborah can rescind the contract a. only if the misrepresentation was fraudulent. b. and sue for damages if the misrepresentation was fraudulent. c. but cannot sue for damages even if the misrepresentation was fradulent. d. but must forego all other remedies. b. and sue for damages if the misrepresentation was fraudulent.
Mark’s home had burned to the ground. When he met with his insurance adjuster, she accused him of burning down the house, and said she would have him criminally prosecuted if he didn’t settle the claim for much less than the house was worth. Mark agreed to the settlement. If he changed his mind, he can probably rescind the settlement on the basis of a. fraud. b. duress. c. undue influence. d. mistake. b. duress.
Larson entered Forrester’s Auto Mart to purchase a used car. Larson found a vehicle with a sales price of $11,000. After Forrester answered all of Larson’s questions, Forrester and Larson agreed to a sale. As Larson was leaving to get the money to pay for the car, Forrester told Larson that he thinks Robert Redford formerly owned the car. Larson later learned that Robert Redford had never owned the car. If Larson seeks to rescind the deal based on Forrester’s statement, Larson will a. win because he relied on the misrepresentation. b. win because there was a misrepresentation of a material fact. c. lose because he will not be able to prove reliance on the misrepresentation. d. lose because Forrester made a unilateral mistake. c. lose because he will not be able to prove reliance on the misrepresentation.
Which of the following terms designates the legal ability of a party to enter into a contract? a. Consent b. Affirmation c. Materiality d. Capacity d. Capacity
Ryan, a minor, contracted to sell his auto to Ed, a 28-year-old. Ryan later refused to complete the sale. If Ed sues to enforce the contract, Ed will a. win because Ryan was the seller. b. win because minors can only avoid contracts for the sale of land. c. lose, as the contract is void. d. lose, because the contract is voidable by Ryan. d. lose, because the contract is voidable by Ryan.
Ron, a minor, goes to the hospital for treatment of the flu. On the new-patient form Ron signs, he agrees to pay for any care or treatment he receives. When billed for the treatment a. Ron must pay for the value of the benefit he received, because medical care is a necessary. b. Ron must pay for the benefit he received because the contract is fully executory. c. Ron must pay for the benefit he received because he ratified the contract. d. Ron does not have to pay for the benefit he received. a. Ron must pay for the value of the benefit he received, because medical care is a necessary.
Mentally infirmed Sasha contracts to purchase a piano for $2,500 in 60 monthly installment payments. Six months later she tries to void the contract on grounds of mental impairment. A court will a. normally void the contract without requiring anything further on Sasha’s part. b. normally void the contract but will require Sasha to return the piano. c. ordinarily not void the contract unless Sasha had a court-appointed guardian at the time she entered into the contract. d. not void the contract unless Sasha agrees to have the court appoint a guardian for her. b. normally void the contract but will require Sasha to return the piano.
Peter, a minor, purchased a car from ACME Motors. Using a fake ID, he misrepresented his age to be 18. The contract is fully executed. Which of the following is correct? a. Peter cannot disaffirm the contract because a car is a necessary. b. Peter cannot disaffirm the contract because of his misrepresentation. c. Peter can disaffirm the contract, because a minor must be saved from his own poor judgment, including his lie. d. Either b or c may be applicable depending on the law of the jurisdiction in which the contract was formed. d. Either b or c may be applicable depending on the law of the jurisdiction in which the contract was formed.
A(n) _______ contract is illegal from the beginning and may not be enforced by either party; a(n) _______ contract is legal but permits one party to escape, if he or she so wishes. a. disaffirmed; affirmed b. void; voidable c. affirmed; disaffirmed d. voidable; void d. voidable; void
Which of the following is NOT a true statement about fraud? a. The plaintiff must prove that the defendant has knowledge of the falsity of his or her statement. b. It is necessary for the plaintiff to show that he or she has suffered some type of detriment or injury because of his or her reasonable reliance on the defendant’s false statement. c. The defendant made the statement with the intent to induce the plaintiff to enter into the contract. d. The plaintiff must show that although the defendant acted in good faith, the statement was material because the defendant expected the plaintiff to rely on it and enter into the contract. d. The plaintiff must show that although the defendant acted in good faith, the statement was material because the defendant expected the plaintiff to rely on it and enter into the contract.
Which of the following statements, if made by a seller who knows the statement to be untruthful, would NOT be misrepresentation of material fact resulting in a cause of action for fraud? a. “This horse is only six years old.” b. “There is no better car in the world.” c. “The tires have less than 5,000 miles on them.” d. “This car gets 28 miles per gallon. “ b. “There is no better car in the world.”
Pamela is planning to sell her home decorating store to her daughter. Pamela has a. a greater duty to reveal problems in the business because her daughter assumes she will be honest. b. no duty to disclose hidden defects in the business. c. a lesser duty to reveal problems in the business because she has a relationship of trust with the buyer. d. a duty to report only any latent defects she knows about that her daughter should not be expected to discover herself. a. a greater duty to reveal problems in the business because her daughter assumes she will be honest.
A minor can undo a contract that has already been completed by having a court _______ the contract to formally cancel it. a. affirm b. rescind c. disaffirm d. ratify b. rescind
Duress occurs when a. the enforcement of a contract results in unconscionability. b. an improper threat is made to force another party to enter into a contract. c. both parties contract based on the same factual error. d. a party gives notice of refusal to be bound by an agreement. b. an improper threat is made to force another party to enter into a contract.
As it applies to minors, which of the following is LEAST likely to be regarded as a necessary? a. Rent b. Food c. Medical expenses d. Educational expenses d. Educational expenses
Which of the following is the MOST accurate statement regarding economic duress? a. It is never grounds for rescission. b. It is always grounds for rescission. c. It is a UCC concept only. d. It may be grounds for rescission. d. It may be grounds for rescission.
Vince has begun forgetting things and is becoming very difficult to get along with. He is 85, has been ill, and is very fond of his housekeeper Annie. He gives a deed to Annie for all of his real property. At Vince’s death, his children, who got only his photograph albums according to the will, ask that the deed be set aside and the land be put back in the estate for purposes of division among all the children. What will be the probable result in this case? a. Since Vince was 85 he was probably incompetent and the court would rule for the children. b. Clearly Annie used her position of dominance to persuade Vince to deed her the property, and it will be set aside. c. Unless the children can prove that Vince was unable to understand what he was doing, or that Annie used her position to improperly influence Vince, Annie can keep the property. d. Annie will not be able to keep the property since she is not a family member. c. Unless the children can prove that Vince was unable to understand what he was doing, or that Annie used her position to improperly influence Vince, Annie can keep the property.
If Jane persuades Linda to buy her horse by telling Linda that the horse runs “like the wind,” then Jane’s statement is a. fraud. b. reckless misrepresentation. c. a unilateral mistake. d. puffery. d. puffery.
Jeff was a subcontractor, bidding on a contract for ACE Corp., the general contractor. When adding up the total of materials and labor, Jeff’s secretary mistakenly moved the decimal point one place, ending up with a bid of $3500 rather than $35,000. ACE Corp. accepted Jeff’s bid, mostly because all the other bids were over $30,000. When Jeff learned of the mistake, he tells ACE Corp. that he cannot do the job for $3500. If ACE Corp. sues to enforce this contract, what is the most likely result? a. The contract is enforceable, since there was an offer, acceptance, and consideration. b. This is a bilateral mistake, so the contract can be rescinded by either party. c. This is a unilateral mistake, so the contract cannot be rescinded by Jeff. d. This is a unilateral mistake, but one where ACE Corp. knew that a mistake had been made. Jeff should be able to rescind the contract. d. This is a unilateral mistake, but one where ACE Corp. knew that a mistake had been made. Jeff should be able to rescind the contract.
An example of the type of relationship required to find undue influence would be a. a salesperson-purchaser relationship. b. a bartender-customer relationship. c. a doctor-patient relationship. d. a neighbor-neighbor relationship. c. a doctor-patient relationship.

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