Cengage Advantage Books Business Law Principles and Practices 9th Edition Goldman Test Bank Download

Test Bank for Cengage Advantage Books Business Law
Principles and Practices 9th Edition by Goldman

Sigismond ISBN 1133586562 9781133586562
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Chapter 10—Legality
TRUE/FALSE
1. If both parties to an illegal agreement are in pari delicto, neither party can successfully sue the other to
seek enforcement of the agreement.
ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 184-185 OBJ: LO: 10-1 NAT: BUSPROG: Reflective Thinking
STA: AICPA: BB-Legal KEY: Bloom's: Knowledge
2. To say that an illegal contract is void means that by law, the contract never existed.

REF: p. 184 OBJ: LO: 10-1 NAT: BUSPROG: Reflective Thinking
3. While illegal contracts have civil penalties, the parties involved may also be subject to criminal
penalties.

4. If a person unknowingly deals with an unlicensed individual, the courts will usually allow the person
to recover any money paid to the unlicensed individual.

5. Gaming is an activity that has been legalized and therefore allows participants to make a profit without
being subject to criminal penalties.

6. Usury laws protect borrowers from paying excessively high interest rates.

7. A contract of adhesion places one party in a superior position because of its unfavorable clauses.

8. Exculpatory clauses relieve a party in advance for liability for the tort of negligence.

9. A public garage's disclaimer of liability for a car lost or stolen because of the garage owner's
negligence is likely to be unenforceable.
ANS: T PTS: 1 DIF: Difficulty: Moderate

STA: AICPA: BB-Legal KEY: Bloom's: Comprehension
10. A business person paid his influential state senator $25,000 to influence other legislators to pass a bill
favorable to his business. This payment would not be illegal if the bill related to prescription drugs.
ANS: F PTS: 1 DIF: Difficulty: Moderate

STA: AICPA: BB-Legal KEY: Bloom's: Application
11. An unconscionable agreement is one that is grossly unfair.

12. An agreement not to compete is legal if time and territory restrictions are reasonable.

13. An agreement to create a monopoly is illegal and violates antitrust laws.

14. Any agreement that limits competition by controlling or fixing prices is illegal.

15. If an agreement contains an illegal part that can be separated, the entire agreement is void.
ANS: F PTS: 1 DIF: Difficulty: Easy
MULTIPLE CHOICE
1. Martinson used his van to deliver illegal drugs to users throughout a particular city. Because the van
was old, he decided to trade it in for a new van. The contract that Martinson makes with the car agency
to purchase a new van is
a. illegal; therefore, Martinson would not have to pay for the van when it is delivered to him.
b. legal; therefore, Martinson would have to pay for the van when it is delivered to him.
c. illegal; therefore, when Martinson receives the van, he must return it to the car agency.
d. illegal; therefore, Martinson would not have to pay for the van when it is delivered to him,
but when Martinson receives the van, he must return it to the car agency.
ANS: B PTS: 1 DIF: Difficulty: Moderate
2. An agreement is illegal and void if it violates

a. state usury statutes.
b. state licensing statutes.
c. state criminal statutes.
d. all of these.
ANS: D PTS: 1 DIF: Difficulty: Moderate
3. If the purpose of a licensing statute is to raise money, an agreement with an unlicensed person is
a. void.
b. valid.
c. unenforceable.
d. voidable.
ANS: B PTS: 1 DIF: Difficulty: Easy
4. Anderson agreed to pay Dawes for acting as a real estate agent. Dawes was not properly licensed. This
agreement was
a. illegal and voidable.
b. legal and valid.
c. illegal and void.
d. permissible.
ANS: C PTS: 1 DIF: Difficulty: Moderate
5. A state's gaming statute is most likely to be violated by

a. a state-run lottery.
b. an all-night poker game at a private party in which one participant in the game takes a
"cut" of the winnings of the other game participants.
c. parimutuel betting at racetracks.
d. all of these.
6. A contract may be considered legal although it

a. is specifically prohibited by statute.
b. involves gaming legalized by the state.
c. is contrary to public policy.
d. results in a crime if the person committing the criminal act is given a prison sentence.
7. Usury statutes apply only to

a. loans of money.
b. pawnbrokers.
c. loans to corporations.
d. real estate mortgage loans.
ANS: A PTS: 1 DIF: Difficulty: Easy
8. Courts will allow recovery based on an illegal agreement when

a. the parties to the agreement are not equally at fault.
b. both parties are in pari delicto.
c. a tort is not involved.
d. there is not more than one illegal clause.
9. Which of the following would be unenforceable because the subject matter is illegal?
a. An employer promises not to press charges against her employee for embezzlement
because the employee agreed to make restitution.
b. An attorney charges a fee to represent a client in a civil court action.
c. A restrictive covenant in an employment contract prohibiting a former employee from
using the original employer's trade secrets at his or her new job.
d. An agreement to pay an expert in a particular field to present a case to a legislative body
seeking favorable legislation but leaving it up to the legislative body to decide on the
issue.
ANS: A PTS: 1 DIF: Difficulty: Challenging
10. The First National Bank lends Simmons $1,000. Simmons agrees to pay the bank the original loan plus
$1,500 interest within a six-month period. This is an example of a(n)
a. revolving loan.
b. usurious loan by the First National Bank.
c. price-fixing agreement.
d. exculpatory clause in a contract involving a loan of money.
11. A provision excusing one party from liability for negligence is

a. an exculpatory clause.
b. a revocation clause.
c. a disaffirmatory clause.
d. forbearance.
12. The Harrow Health Club placed a clause in a contract with a patron that relieved the club of liability
for intentional wrongdoing by its employees. One evening near closing time, an employee struck and
injured a patron for her (the patron's) failure to leave on time. The Harrow Club refused to pay the
patron for her injuries because of the disclaimer of liability clause in the contract. Is the Harrow Health
Club liable to the patron for injuries she (the patron) suffered?
a. No; it was the patron's fault.
b. No; health clubs generally do not have liability even though they are at fault.
c. Yes; courts will generally not enforce clauses in contracts that attempt to relieve a
contracting party such as the Harrow Club from injuries it caused to another party to the
contract.
d. Yes; courts are generally not sympathetic to health clubs.
ANS: C PTS: 1 DIF: Difficulty: Challenging
13. Knebel's parents promised her $3,000 if she would not marry before age twenty-one. Knebel agreed.
This agreement is
a. void.
b. valid.
c. unenforceable.
d. illegal.
14. Which contract would ordinarily be considered illegal?

a. Paying a fee for a license in a state where the purpose of the licensing statute was merely
to raise revenue for the state.
b. A contract between a minor and an adult for the sale of real estate.
c. A contract made by an intoxicated person.
d. Paying your state senator $10,000 to vote in favor of a bill you have an interest in.
ANS: D PTS: 1 DIF: Difficulty: Moderate
15. Maile agrees to sell his retail men's shop in Cleveland, Ohio, to Lunger. Lunger wishes to have a
restrictive clause against competition by Maile included in the sales contract. Which restrictive clause
against the seller would be enforceable?
a. Never to engage in a similar business in Cleveland
b. Not to engage in a similar business for the next two years anywhere in the state of Ohio
c. Not to engage in any type of business anywhere in Cleveland for the next year
d. Not to engage in a men's shop business within a radius of one mile for the next year
ANS: D PTS: 1 DIF: Difficulty: Challenging
16. Covenants not to compete are generally upheld in court if

a. the agreements interfere with the proper administration of justice.
b. goodwill is present.
c. the territory and time restrictions are reasonable.
d. a minor is not part of the business transaction.
ANS: C PTS: 1 DIF: Difficulty: Easy
17. Which of the following would be unenforceable because the subject matter is illegal?
a. An employer promises not to press criminal charges for stealing money from the company
safe, if the employee agrees to pay back the money
b. A fee paid to an attorney to defend a person in criminal court against an assault charge
c. A restrictive clause in an employment contract prohibiting a former employee from using
the employer's trade secrets
d. An arbitration clause appearing in a warranty agreement given to the purchaser of an iPod
in a large retail establishment
ANS: A PTS: 1 DIF: Difficulty: Moderate
18. Billings and Durick, who are competing distributors, made an agreement whereby Billings promised
that he would not sell his goods in a specified area, and Durick promised that she would not sell her
goods in another specified area. The agreement was made to keep prices high by eliminating
competition. This arrangement was
a. legal because it was made in reasonable restraint of trade in order to control prices and
territory.
b. legal because a binding contract was made willingly by both parties.
c. illegal because it called for unreasonable restraint of trade by controlling prices and
territories.
d. illegal because agreements that allow manufacturers to set prices are voidable.
ANS: C PTS: 1 DIF: Difficulty: Moderate
19. A contract is unconscionable if

a. both parties are in pari delicto.
b. one party is in pari delicto and the other party is not.
c. it favors one party over another.
d. both parties to a contract are wealthy.
ANS: C PTS: 1 DIF: Difficulty: Easy
20. If an agreement is partially legal and partially illegal, the

a. legal part of the agreement may be enforced if it can be separated from the illegal part.
b. entire agreement is considered to be illegal.
c. entire agreement is considered to be legal.
d. parties to the agreement have a choice of declaring it legal or illegal.
COMPLETION
1. An agreement is ____________________ if its performance requires one party to commit a tort or a

crime.
ANS: illegal
PTS: 1 DIF: Difficulty: Easy REF: p. 186

OBJ: LO: 10-2 NAT: BUSPROG: Reflective Thinking STA: AICPA: BB-Legal
KEY: Bloom's: Knowledge
2. If two parties enter into an agreement that both know is illegal, the parties are said to be
____________________.
ANS: in pari delicto
PTS: 1 DIF: Difficulty: Easy REF: p. 184-185

3. Unlicensed workers are generally permitted to recover money they earn if the licensing statute is
merely intended to obtain ____________________.
ANS: revenue money

4. ____________________ laws require persons to have permits to practice their occupations.
ANS: Licensing

5. ____________________ is the fee paid by a borrower for the use of money.

ANS: Interest

6. A(n) ____________________ gambler is one who participates in a gambling event socially and for
pleasure.
ANS: recreational

7. ____________________ govern the types of transactions that can be performed on Sunday.
ANS: Sunday laws; Blue laws

8. An agreement that harms marriage is illegal because it is opposed to ____________________.
ANS: public policy

KEY: Bloom's: Comprehension
9. A promise not to compete for a specified time in a certain geographic area is called a(n)
____________________.
ANS: covenant

10. An agreement too harsh or unfair to be upheld in a court of law is considered to be

____________________.
ANS: unconscionable

SHORT ANSWER
1. What happens if a contract whose purpose involves committing a crime is brought to a court of law?
ANS:
The contract is entirely illegal and as such is considered to be void and unenforceable; thus, the court
will refuse to hear the case.
PTS: 1 DIF: Difficulty: Easy REF: p. 184-185

2. Andrews made a $100 bet with Caruso on the World Series. When he lost, Andrews refused to pay
Caruso the $100. What are Caruso's rights?
ANS:
None. Making a bet on the outcome of the World Series violates a state's gambling statutes. The
agreement between Andrews and Caruso, therefore, cannot be enforced.
PTS: 1 DIF: Difficulty: Moderate REF: p. 188

KEY: Bloom's: Application
3. What makes an exculpatory clause illegal and against public policy?
ANS:
When the person or organization succeeds in its demand that an exculpatory clause be placed in a
superior bargaining position. (Refer to page 191 in the text for more details about exculpatory clauses.

4. Explain how legal gaming has expanded greatly in the United States.
ANS:
Gambling in the United States is popular, starting with the Native American and other commercial
casinos to online gambling. Other popular forms of gambling are lotteries, race horse betting, bingo,
raffles, and keno.
PTS: 1 DIF: Difficulty: Moderate REF: p. 187

KEY: Bloom's: Comprehension
5. Coyle sold her drugstore, located in a large city, to Rusk. Coyle signed an agreement stating that she
would not open a drugstore within one mile of Rusk's for a period of one year. Was Coyle legally
bound by this agreement?
ANS:
Yes. Agreements restraining trade are valid if the time and territory restrictions are reasonable. In this
case, they appear to be reasonable.
PTS: 1 DIF: Difficulty: Moderate REF: p. 193-194

KEY: Bloom's: Application

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Test Bank for Cengage Advantage Books Business Law

Principles and Practices 9th Edition by Goldman

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Moderate

ANS: F PTS: 1 DIF: Difficulty: Moderate

11. An unconscionable agreement is one that is grossly unfair.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

13. An agreement to create a monopoly is illegal and violates antitrust laws.

ANS: T PTS: 1 DIF: Difficulty: Easy

ANS: T PTS: 1 DIF: Difficulty: Easy

2. An agreement is illegal and void if it violates

5. A state's gaming statute is most likely to be violated by

6. A contract may be considered legal although it

7. Usury statutes apply only to

8. Courts will allow recovery based on an illegal agreement when

11. A provision excusing one party from liability for negligence is

14. Which contract would ordinarily be considered illegal?

16. Covenants not to compete are generally upheld in court if

19. A contract is unconscionable if

20. If an agreement is partially legal and partially illegal, the

1. An agreement is ____________________ if its performance requires one party to commit a tort or a

PTS: 1 DIF: Difficulty: Easy REF: p. 186

ANS: in pari delicto

PTS: 1 DIF: Difficulty: Easy REF: p. 184-185

ANS: revenue money

PTS: 1 DIF: Difficulty: Easy REF: p. 187

4. ____________________ laws require persons to have permits to practice their occupations.

PTS: 1 DIF: Difficulty: Easy REF: p. 186

5. ____________________ is the fee paid by a borrower for the use of money.

PTS: 1 DIF: Difficulty: Easy REF: p. 189

PTS: 1 DIF: Difficulty: Easy REF: p. 188

7. ____________________ govern the types of transactions that can be performed on Sunday.

ANS: Sunday laws; Blue laws

PTS: 1 DIF: Difficulty: Easy REF: p. 190

8. An agreement that harms marriage is illegal because it is opposed to ____________________.

ANS: public policy

PTS: 1 DIF: Difficulty: Easy REF: p. 193

PTS: 1 DIF: Difficulty: Easy REF: p. 193

10. An agreement too harsh or unfair to be upheld in a court of law is considered to be

PTS: 1 DIF: Difficulty: Easy REF: p. 196

PTS: 1 DIF: Difficulty: Easy REF: p. 184-185

PTS: 1 DIF: Difficulty: Moderate REF: p. 188

3. What makes an exculpatory clause illegal and against public policy?

PTS: 1 DIF: Difficulty: Easy REF: p. 191

PTS: 1 DIF: Difficulty: Moderate REF: p. 187

PTS: 1 DIF: Difficulty: Moderate REF: p. 193-194

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