This is Capacity/ Reality/ Illegality Chapters

Choose only 1 right answer

1. When Buster sold his store to Brandy, Buster lied and said that the store was very profitable. Brandy knew that Buster was lying but bought the business anyway. Under these circumstances, Brandy will not have a fraud claim because:

A) the false statement was not a statement of a past or existing fact.

B) the false statement was not material.

C) the false statement was not actually relied upon.

D) the false statement was not knowingly made.

2. Eric submitted a bid to Johnson to perform work on a new house that Johnson was building. Eric was in a hurry to submit his bid and made a mathematical error that caused his bid to be substantially lower than those of the other bidding subcontractors. Johnson accepted Eric's bid and awarded him the subcontract for the work. Eric learned of the error and wants to rescind the contract. In this case:

A) the contract is void because of Johnson's fraud.

B) Eric cannot rescind.

C) Eric will be able to rescind the contract because he made a mistake.

D) Eric will be able to rescind the contract if Johnson had reason to know that Erie had made a mistake.

3. Which of the following is NOT an element of innocent misrepresentation?

A) justifiable reliance.

B) intent to deceive (scienter)...

C) materiality.

D) actual reliance

4. Mike innocently says that his guitar was twenty years old. In fact, the guitar was thirty-five years old. John, who bought the guitar from Mike, admits that he would have bought the guitar so long as it was not more than fifty years old. However, John still wants to rescind the deal. Under these circumstances:

A) John can rescind the contract under the theory of mutual mistake.

B) John can rescind the contract because of unilateral mistake of fact.

C) John can rescind the contract under the theory of fraudulent misrepresentation.

D) John cannot rescind the contract because the misrepresentation was not material.

5. Little Dave, age 15, bought some toy drums from a music store. A week later, Little Dave got tired of playing the drums so he called the store to disaffirm. Which of the following is true?

A) Little Dave can disaffirm and can keep the drums.

B) Little Dave can disaffirm but must return the drums.

C) Little Dave cannot disaffirm because he has already played the drums.

D) Little Dave cannot disaffirm because he is a minor.

6. An adult may disaffirm a contract:

A) if he or she enters into a contract with an intoxicated individual.

B) All of these answers.

C) because of their mental impairment.

D) if he or she enters into a contract with a minor.

7. Normally an illegal contract is:

A) Voidable

B) Unconscionable

C) Unenforceable

D) None of these answers

8. Exculpatory clauses:

A) are always illegal.

B) are always enforced because of freedom to contract.

C) can relieve a party from liability for wrongdoing no matter what the reason.

D) can never relieve a party from liability for any wrongdoing greater than negligence.

9. Covenants (agreements) not to compete:

A) are never enforced against individuals.

B) are always enforced against individuals and businesses because they serve an important economic function.

C) must have, at a minimum, reasonable limitations.

D) are always enforced against businesses.

10. A person who is older than the age of majority may disaffirm a contract if:

A)The other party is a minor who lied about his age.

B) The contract is for necessaries.

C) None of these answers

D) The other party is an emancipated minor.

11. Shelley celebrates her eighteenth birthday and decides that she no longer wishes to keep a car that she bought when she was seventeen. Her right to disaffirm will depend on whether:

A) the other party wants to go ahead with the contract or not

B) None of these answers

C) the car is in good condition

D) she acts within a reasonable period of time after reaching the age of majority

12. Ken, an unmarried seventeen-year-old, signs a contract to sell his car to the Regal Used Car Co. Ken receives a better offer the next day from another car dealership and accepts the new offer. Ken is :

A) liable on the contract with Regal and must sell it his car

B) liable on the contract with Regal and must sell it a car of comparable value

C) None of these answers

D) not liable to Regal and does not have to sell them his car

13. Joe, a minor, is living at home with his parents, but signs a lease with a landlord to rent an apartment. Joe can:

A) disaffirm the contract

B) not disaffirm the contract because he indicated an intent to live on his own

C) disaffirm the contract because his parents can be held liable for the lease.

D) not disaffirm the contract because the apartment is a necessary