Test Bank Docx Chapter 14 Capacity To Contract

Business Law, 17e (Langvardt)

Chapter 14 Capacity to Contract

1) Contract law provides those without the capacity to contract with the right to escape the legal consequences of contracts they enter during incapacity.

2) When a person asserts he lacked capacity as the basis for a claim or defense, it is his responsibility for alleging and proving it.

3) Minors have the capacity to enter into contracts.

4) A contract made by a person who has been adjudicated to be insane and institutionalized or put under a guardian's care is void rather than voidable.

5) The terms infants and minors refer to the same class of people.

6) Generally, the age of majority for contracting purposes is 21 years.

7) Emancipation is a formal agreement in writing to terminate a parent's right to control a child and receive services from him.

8) Ratification of a contract with a minor has to be expressly made only in written form.

9) Once a contract made by a minor has been effectively ratified, it cannot be disaffirmed.

10) Ratification makes a contract valid from its inception.

11) A minor has the right to recover any consideration, including goods transferred to third parties. This includes even good faith purchasers.

12) The traditional rule is that, when the consideration given by the adult party under a minor's contract has been lost, damaged, destroyed, or has depreciated in value, the minor can disaffirm without compensating the adult for the loss in any way.

13) A minor's contract for necessaries makes the minor liable for the reasonable value of the necessaries furnished to him.

14) Ordinarily, an item is not considered to be a necessary if a parent or guardian already supplies the minor with similar items.

15) A person who lacked capacity to contract due to mental impairment can ratify the contract once he/she regains his/her normal mental faculties.

16) When a person lacks capacity to contract due to a mental impairment, the contract is void. In contrast, when a person lacks capacity to contract due to intoxication, the contract is voidable.

17) Under the Restatement (Second) of Contracts, intoxication will make a contract voidable if the other party has reason to know that the intoxicated person is so intoxicated that he/she cannot understand or act reasonable in relation to the transaction.

18) Under the theory that alcohol and drug use should not be rewarded, today most courts say that contracts made by intoxicated people are perfectly binding, no matter how severe the intoxication is.

19) A minor can disaffirm agreements to support their children.

20) A person younger than the legal age of majority is generally held to lack capacity to enter a contract, even if he is married and employed full time.

21) ________ is the ability to incur legal obligations and acquire legal rights.

A) Capacity

B) Emancipation

C) Necessity

D) Disaffirmance

22) Who among the following have the capacity to enter into a contract?

A) Persons suffering from mental illness

B) Adults that have divorced

C) Minors

D) Individuals severely intoxicated at the time of entering into a contract

23) Which of the following contracts is void?

A) A contract made by an unemancipated minor.

B) A contract made by a person who has been adjudicated insane and institutionalized.

C) A contract made by a person under the influence of mind-altering drugs.

D) A contract made by a minor who receives no support from a parent or guardian.

24) What is the term for affirming a contract and surrendering the right to avoid a contract made while being a minor?

A) Ratification

B) Emancipation

C) Impairment

D) Duress

25) A minor entered into a contract with GAM & Co. When he attains the age of majority, he wishes to enforce the contract. The adult party must:

A) perform the contract.

B) rescind the contract.

C) abandon the contract.

D) ratify the contract.

26) A bargain is considered to be void if a court has ________ a person to be mentally incompetent at the time the bargain was formed.

A) ratified

B) adjudicated

C) disaffirmed

D) emancipated

27) The right of minors to avoid a contract as a means of protecting themselves against their own improvidence and against overreaching adults is called:

A) emancipation.

B) ratification.

C) adjudication.

D) disaffirmance.

28) What is emancipation?

A) Termination of a case of fraud and misrepresentation.

B) Termination of a bargain that is considered void.

C) Termination of parental rights to control a child.

D) Termination of necessaries in a quasi-contractual case.

29) Which of the following characterizes emancipation?

A) It allows parents to receive services from the child.

B) It occurs only through parents' consent.

C) Most states grant an emancipated minor the capacity to contract.

D) There are no formal requirements for it.

30) Tracy, aged 12, is named the sole inheritor of her family mansion, which is valued to be worth millions. She has disaffirmed the agreement on the advice of her uncle and guardian Pete. This automatically transfers the title to the latter. Which of the following statements is true of the case?

A) Tracy cannot disaffirm until she has reached majority.

B) Tracy's decision will be allowed by the family courts.

C) Pete has every right to Tracy's property and can take legal possession of it.

D) Tracy's decision is valid as long as it is in writing.

31) The general rule is that, contracts entered into during minority can be disaffirmed as soon as they are formed. Which of the following is an EXCEPTION to the rule?

A) Contracts affecting investment.

B) Contracts affecting the title to real estate.

C) Contracts affecting necessary supplies to be provided to the minor.

D) Contracts affecting his/her employment as a child actor.

32) In almost all states, the age of majority for contracting is ________.

A) 18

B) 19

C) 20

D) 21

33) Mike, a minor, buys some real estate as an investment. The contract obligates Mike to make monthly installment payments for 10 years. Mike reaches the age of majority one month after making the contract. After this, Mike makes 25 monthly payments under the contract, but then decides that he wants to rescind the deal. Which of the following is most true?

A) Mike can disaffirm.

B) Mike cannot disaffirm because contracts for the sale of land can only be disaffirmed before the age of majority.

C) Mike cannot disaffirm because contracts for the sale of land must be disaffirmed within one year of the age of majority.

D) Mike cannot disaffirm because he has already ratified the contract.

34) ________ makes any contract valid from its inception and can be done effectively only after a minor reaches majority.

A) Disaffirmance

B) Emancipation

C) Ratification

D) Consideration

35) Ted failed to disaffirm a contract during his minority or within a reasonable time after reaching majority. The contract was automatically:

A) ratified.

B) rescinded.

C) set aside.

D) made voidable at the option of the minor.

36) At 17 years old, Otto signed a contract to purchase a new Hummer by advancing a payment of $50,000. However, when Otto turned 20, he wished to disaffirm this contract. Does the law permit this?

A) Yes, because he was a minor when he signed the contract.

B) Yes, because he is not yet 21 years of age.

C) No, because a car is a "necessary."

D) No, because Otto implied his ratification.

37) Betty, age 16, buys a car and wrecks it one week later. She takes it back to the seller and demands all of her money back. According to the traditional rule, is she entitled to get all of her money back?

A) Yes, regardless of the condition of the car, because this was a void contract.

B) Yes, regardless of the condition of the car, because this was a voidable contract.

C) No, she is entitled to no remedy in this situation.

D) No, she is entitled to get some money back but less the value of the damage to the car.

38) Which of the following is a criticism of the traditional rule of restitution in the case of minors who have disaffirmed a contract?

A) It allows adults to ratify a contract with a minor.

B) It allows a minor to be exploited in a contract.

C) It does not allow a minor to disaffirm a bargain.

D) It is harsh on innocent adults who have dealt fairly with minors.

39) Which of the following is most likely to constitute ratification of a contract made by a minor?

A) Not performing one's duties under the contract after reaching the age of majority.

B) Nonperformance of the other party to the contract after the age of majority.

C) Failing to disaffirm a completely executory contract within one month after the age of majority.

D) Making an oral statement that "I will ratify the contract."

40) Shelly, aged 15, sells a car to Fiona, aged 25. Fiona in turn sells the car to Raphael. Under section 2-403 of the Uniform Commercial Code, if Shelly chooses to disaffirm the contract with Fiona:

A) Shelly can get the car back from Raphael.

B) Raphael will have to sell it back to Shelly.

C) Shelly can do so, since she is a minor.

D) Shelly needs to file a breach of contract against both Fiona and Raphael.

41) On May 1, 1985, Mint, a 16-year-old, purchased a sailboat from Sly Boats. Mint used the boat for six months, at which time he advertised it for sale. Which of the following statements is correct?

A) The sale of the boat to Mint was void, thereby requiring Mint to return the boat and Sly to return the money received.

B) Sly Boats has the power to recover the boat from Mint because he has advertised it for sale.

C) Mint's use of the boat for six months after the sale on May 1 constituted a ratification of that contract.

D) Mint may disaffirm the May 1 contract at any time prior to or within a reasonable time after reaching majority.

42) Sarah is 16 years old. She left home at age 15; her parents no longer support her. Sarah entered into a contract with Best Groceries for the purchase of $100 of groceries on credit. The groceries consisted of basic, necessary items. However, their reasonable value is only $80. If Sarah discovers that she has been overcharged and refuses to pay, Best Groceries is entitled to collect:

A) nothing.

B) $80.

C) $100.

D) $90.

43) A(n) ________ is something that is essential for the minor's continued existence and general welfare that has not been provided by the minor's parents or guardian.

A) disaffirmance

B) necessary

C) estoppel

D) capacity

44) Beth has just turned 17 years of age. She entered into a contract with ABC Corp. for the purchase of a used car, with full payment of $5,000 due in 30 days. This car is necessary for Beth to use as transportation to her job, which she needs in order to pay tuition at the university where she is a freshman. Beth's parents have refused to help her pay for college. Three days later, Beth changes her mind; she now wants to return the car because she has learned that it is worth only $4,000, which is in fact the reasonable value of this car. Assuming the car is legally classified as a "necessary" and Beth does not pay, and ABC Corp. sues, the outcome of this lawsuit will be that:

A) Beth must pay $5,000.

B) Beth must pay $4,000.

C) Beth does not have to pay for the car; she is entitled to the remedy of rescission because she is a minor.

D) Beth does not have to pay for the car; she is entitled to the remedy of punitive damages because ABC overcharged her.

45) Bill is 17 years old. His parents no longer support him. He purchases bread and eggs from a grocer on credit and fails to pay. Does the grocer have a right to payment from Bill for these items?

A) No, because Bill is a minor.

B) No, because these items are "necessaries."

C) Yes, because these items are "necessaries."

D) Yes, because Bill is emancipated.

46) Marlene, a self-employed 16-year-old whose parents are deceased, buys a dress on credit for $50. After receiving the dress and discovering that its reasonable value is only $25, Marlene tries to disaffirm the deal before paying the $50. In this case:

A) Marlene can disaffirm, and she is bound to pay the full $50.

B) Marlene can disaffirm, but she is only bound to pay $25.

C) Marlene can disaffirm, and she can return the dress without paying for it.

D) Marlene can disaffirm, and she can keep the dress without paying for it.

47) Cathy, age 16, buys a 1973 Chevy Camaro from Mark, age 23, for $400. Cathy's indulgent parents, who give her everything she wants, loaned her the money for the car. The reason for Cathy's purchase is that all her friends have cars and she feels left out without one. One week after buying the car, however, Cathy changes her mind and tells Mark that she wants to disaffirm the contract. When Mark comes to pick up the car and give Cathy her money, Cathy changes her mind again, telling Mark, "I'll stick by the deal." However, when Cathy's parents gave her a new car for her 17th birthday, she finally decides to disaffirm once again. Which of the following is correct?

A) Cathy cannot disaffirm because the car is a necessary.

B) Cathy cannot disaffirm because she ratified the contract by saying "I'll stick by the deal."

C) Cathy cannot disaffirm because we have a sale of goods and Article 2 of the Uniform Commercial Code says that 16 is the age of contractual capacity.

D) Cathy can still disaffirm.

48) Pat is a rich boy whose parents supply him with every conceivable necessity of life. While still a minor, Pat buys a coat on credit from a men's store for $5,000. After wearing the coat for a while, Pat decides that it bores him and that he would like to disaffirm. Which of the following is most likely to be true? Assume that Pat is still a minor.

A) Pat can disaffirm the contract, and he must return the coat.

B) Pat cannot disaffirm the contract, but he is liable only for the reasonable value of the coat.

C) Pat cannot disaffirm the contract, and he is liable for the full price of the coat ($5,000).

D) Pat can disaffirm the contract, but the store will sue him for deceit.

49) Which of the following is true of necessaries?

A) The liability for necessaries is quasi-contractual.

B) A minor is liable for the necessaries that he/she did not receive.

C) In case of a disaffirmance, the minor need not pay for any necessary.

D) An item is considered a necessary even if the minor already possesses it.

50) Rebecca, a minor, rented an apartment from Jack for a period of one year when she had no place to stay. She disaffirmed the contract after four months, though she paid rent only for the first two months. Which of the following is true of the case?

A) Jack can recover the unpaid rent for two months.

B) Jack can recover rent for the whole year because he has suffered a loss.

C) Rebecca need not pay any rent because she has disaffirmed the contract.

D) Rebecca is not liable to pay any rent if she can prove that she is a minor.

51) Which of the following characterizes the traditional rule regarding a minor who misrepresents his/her age?

A) He/she can be prosecuted for such an offense.

B) An adult can file a tort of deceit against such a minor.

C) An adult can seek compensation for any losses caused by such a minor.

D) A minor's right to disaffirm is valid in such a case.

52) In January 2002, a court with the necessary subject-matter jurisdiction holds Marvin mentally incompetent and appoints a guardian for him. In November 2002, Marvin escapes his guardian's care and takes off on his own. While eating lunch with Clara, who knows about Marvin's condition, Marvin signs an agreement to sell a valuable property he owns. When he signs the contract, Marvin believes that he is the President of the United States signing an important treaty. The agreement between Marvin and Clara is best described as:

A) void.

B) voidable.

C) unenforceable.

D) perfectly valid, if the price Clara pays for the property is fair.

53) The law makes individuals suffering from a mental illness lack capacity to enter into contracts because:

A) the mentally impaired tend not to vote in large numbers.

B) those with a mental illness would be at a disadvantage in their ability to protect their own interest in bargaining.

C) an individual cannot be on public assistance and be legally competent to enter into a contract.

D) there is fear that those with a mental illness would manipulate and harm those that they would enter into contracts with.

54) What remedy is provided by the states that allow disaffirmance to adults who suffer losses due to a minor's misrepresentation of age?

A) There is no remedy

B) Tort of necessaries

C) Tort of deceit

D) Emancipation

55) Three days before she was judicially declared mentally incompetent and institutionalized, Irma bought a $50,000 automobile by cash and took delivery of it. Which of the following is true about this contract?

A) It is voidable at the discretion of the seller.

B) The contract is voidable due to Irma's institutionalization.

C) The contract cannot be disaffirmed because it was fully executed.

D) Irma ratified the contract by paying the price of the car.

56) Russell, 45, has been suffering from a mental impairment for a long time. He signs a contract to sell his villa for $1 million to Andre. When Russell's wife Katie, who is also his court-appointed guardian, gets to know of the deal, she wants to ends the contract. Which of the following statements is true?

A) Andre cannot claim the villa until he has paid for it.

B) Russell has the right to enter into such a contract.

C) Katie need not worry because the contract is void.

D) The court will give primary preference to Russell's opinion.

57) Which of the following characterizes the effect of incapacity caused by mental impairment?

A) A person formerly incapacitated by mental impairment cannot ratify a contract if he/she regains his capacity.

B) If a contract is found to be voidable on the ground of mental impairment, the person who lacked capacity at the time the contract was made has the right to disaffirm the contract.

C) If a court has found a person mentally incompetent after holding a hearing on his mental capacity and has appointed a guardian for him, the contract is considered voidable.

D) The contracts of people who are suffering from a mental defect at the time of contracting are usually considered to be void.

58) In general, contracts made by mentally impaired persons:

A) can sometimes be ratified.

B) are unconditionally void.

C) are unconditionally voidable.

D) are voidable only if they involve necessaries.

59) Which of the following is true of contracts involving people suffering from mental illnesses?

A) Contracts of people suffering from a mental defect at the time of contracting are usually considered to be enforceable.

B) A person disaffirming on the ground of mental impairment need not return any consideration given by the other party.

C) A person disaffirming on the ground of mental impairment is liable for the reasonable value of necessaries.

D) A person incapacitated by mental impairments cannot ratify a contract if he/she regains his capacity.

60) ________ is a ground for lack of capacity only when it is so extreme that the person is unable to understand the nature of the business at hand.

A) Infancy

B) Intoxication

C) Misrepresentation

D) Duress

61) Which of the following is true of contracts involving intoxicated parties?

A) The rules are similar to the ones for people with a mental incapacity.

B) Courts are generally sympathetic to people involved in such contracts.

C) A person incapacitated by intoxication can disaffirm at any period of time.

D) In most such cases, people have escaped their contractual obligations.

62) Contracts made by severely intoxicated people:

A) are void rather than voidable.

B) can be disaffirmed anytime after he/she has regained his/her mental faculties.

C) cannot be ratified until the person has regained his mental faculties.

D) are always binding, because the law does not want to reward drug or alcohol abuse.

63) Payne entered into a written agreement to sell a parcel of land to Stevens. At the time the agreement was executed, Payne had consumed alcoholic beverages. Payne's ability to understand the nature and terms of the contract was not impaired. Stevens did not believe that Payne was intoxicated. The contract is:

A) void as a matter of law.

B) legally binding on both parties.

C) voidable at Payne's option.

D) voidable at Stevens' option.

64) In the case in the text, J.T. ex rel Thode v. Monster Mountain, LLC, why did the court deny the defendant's motion for summary judgment?

A) The pre-injury waiver did not contemplate the circumstances of the minor's injuries.

B) The minor did not sign the pre-injury waiver.

C) The pre-injury waiver that was signed by the minor's coach cannot bind the minor because the waiver was in favor of a for-profit entity.

D) The pre-injury waiver was invalid because the minor's coach instead of his parent or legal guardian signed it.

65) Which of the following is an example of a type of transaction that a minor can disaffirm?

A) Automobile loan

B) Marriage

C) Education loan

D) Life insurance contract

66) What is the term for a person who candidly paid valuable consideration without any notice of another's claim or any defects in the seller's ability to sell?

A) Good faith purchaser

B) Holder in due course

C) Bona fide buyer

D) Value buyer

67) When a minor contracts for necessaries, he or she is liable for the ________ of the necessaries actually received.

A) reasonable value

B) actual value

C) estimated value

D) depreciated value

68) Which of the following would a court not likely consider when determining whether a given item is considered a necessary for a minor?

A) Age

B) Marital status

C) Family history

D) Station in life

69) In the case in the text, Zelnick v. Adams, why did the court decide legal services were not necessary for the minor's "position and condition" under the circumstances?

A) There were other methods of relief for the minor instead of costly legal action.

B) The evidence was clear that the minor did not have a claim against the trust.

C) Any interest the minor had in the trust would not be realized for many years.

D) The minor had parents willing and able to pay legal fees.

70) The test to determine whether a person has the mental capacity to contract is a(n) ________ one.

A) objective

B) reasonable person

C) cognitive

D) intellectual

71) When courts decide whether a person had the mental capacity to contract, they determine whether:

A) the person understands his actions on a day-to-day basis.

B) the person had a type of mental defect that would not allow him to appreciate the seriousness of his actions.

C) the person had sufficient mental capacity to understand the nature and effect of the contract.

D) the person has undergone any treatment.

72) In Rogers v, Household Life Insurance Co., the case in the text, why did the court decide that the insurance policy was void instead of voidable?

A) The appointment of a guardian with full powers represents that the ward lacks the capacity to contract as a matter of law.

B) The guardian cannot signup the ward for an insurance policy and make himself the sole beneficiary payable on death.

C) The guardian did not have the power to contract on his father's behalf.

D) Guardians can never signup the ward for an insurance policy.

73) ________ refers to the position a person was in before the creation of the contract.

A) Restitution

B) Status quo

C) Estoppel

D) Bargaining position

74) When a minor enters into a contract, who can disaffirm the contract?

A) Neither party

B) Either party

C) The minor only

D) A court

75) Which of the following occurs when a child under the age of 18 gets married?

A) Disaffirmance

B) Adjudication

C) Ratification

D) Emancipation

76) In most states, the mere fact that a minor is ________ does not give him the capacity to contract.

A) living on his own

B) emancipated

C) paying his own expenses.

D) not in contact with his parents.

77) Sixteen-year-old Brent has lived on his own for two years and is considered emancipated by implied consent. Brent contracts with Dave for the purchase of a new mattress for $150. Dave delivers the mattress and sends Brent a bill in the mail. In the meantime, Brent finds out the reasonable value of the mattress is only $100. Brent feels that Dave took advantage of him and refuses to pay. Dave sues him for $150. Assuming the bed is considered a necessary, what amount, if any, is Dave entitled to?

A) The difference between the reasonable and actual price, $50.

B) The actual price, $150.

C) The reasonable price, $100.

D) Dave is not entitled to any money.

78) If a state allows disaffirmance despite the minor's misrepresentation of age, which of the following would a court likely hold the minor responsible for?

A) Fines for fraud

B) Losses suffered by the adult

C) Punitive damages

D) Nothing

79) Section 15 of the Restatement (Second) of Contracts provides that a person's contracts are voidable if she is unable to ________ in a reasonable manner in relation to the transaction and the other party has reason to know of her condition.

A) plan

B) speak

C) think

D) act

80) A person is under ________ if a court has found him/her mentally incompetent after holding a hearing on his/her mental capacity and has appointed someone to make decisions about the ward's person or property.

A) custody

B) guardianship

C) institutionalized care

D) duress

81) What was the procedural posture of the case in the text Rogers v. Household Life Insurance Co.?

A) The plaintiff appealed the district court's dismissal for lack of jurisdiction.

B) The plaintiff appealed the district court's granting of the defendant's motion for summary judgment.

C) The defendant appealed the district court's award of $250,000.

D) The defendant appealed the district court's denial of its motion for summary judgment.

82) Which of the following is not considered when a court determines whether an incapacitated party can disaffirm a contract?

A) Whether the contract was fair and bargained for in good faith.

B) Whether the other party had reasonable cause to know of the incapacity.

C) Whether the contract was for goods or services.

D) Whether the other party can be placed in status quo.

83) Courts will ________ allow a person to escape his contractual obligations on the ground of intoxication.

A) rarely

B) often

C) always

D) never

84) Which of the following has the effect of discouraging adults from dealing with minors?

A) Ratification

B) Disaffirmance

C) Affirmance

D) Restitution

85) If an adult has given something of value to a minor under a contract, the minor must disaffirm within ________ after reaching majority, otherwise the minor runs the risk of ratifying the contract.

A) a month

B) a reasonable time

C) a year

D) 48 hours

86) Kenny, aged 17 years, 11 months, buys a used car on credit. The contract also includes a service agreement obligating the seller to perform certain maintenance on the car for one year. Kenny makes five monthly payments in the five months after he turns 18. In addition, he has the seller service the car on four separate occasions. After making the fifth payment, Kenny announces that he wants to disaffirm, i.e., return the car and get back the full price. Can Kenny disaffirm?

87) What is the justification for the rule that, generally speaking, a minor can disaffirm contracts for necessaries, if a parent or guardian supplies the minor with such necessaries?

88) Janet, age 15, has to make it on her own. To protect herself from the winter winds, Janet buys a coat on credit for $200 from the Lifestyle Clothing Store. The coat's reasonable value is $80. Before making any payments on the coat, Janet tells the store that she wants to disaffirm, i.e., she wants her money back in exchange for the coat. Can Janet disaffirm? If not, what must she pay?

89) Courts may sometimes be sympathetic to an adult who has suffered losses due to a minor who misrepresented his age. How so?

90) After consuming a mind-altering drug, Hal buys some real estate from Edith for $100,000. Hal was completely wrecked when he made the deal, and could not understand what he was doing. Due to the after effects of the drug, Hal goes into a coma that lasts for one year. As soon as he awakes from the coma, Hal tries to disaffirm his contract with Edith. Edith maintains that Hal cannot disaffirm because he has ratified the contract. What should Hal argue in return?