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Exam 13: Illegal Bargains

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Question 31

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Which of the following would always be considered to be contrary to public policy?

A) A contract which contains a covenant not to compete.
B) A contract offered on a take-it-or-leave-it basis.
C) An agreement to pay someone to make false statements about a competitor's product.
D) An agreement which contains an exculpatory clause.

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Question 32

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In considering a covenant not to compete in an employment contract, the court in the case of Payroll Advance, Inc. v. Yates said in its opinion:

A) in order to obtain an injunction it is necessary for the employer to show that actual damage has occurred.
B) covenants not to compete are presumptively valid, and they are enforceable to the extent they are reasonable.
C) the question of reasonableness of a restraint requires consideration of such circumstances as the subject matter of the contract, the purpose to be served, the situation of the parties, the extent of the restraint, and the specialization of the business.
D) a non-compete agreement over 2 years in length is never reasonable.

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Question 33

Multiple Choice

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Al, an accountant, has a tax service and accounting business in Redwood City. He decides to move to Center City, which is 150 miles away and sells his accounting practice to Able and Baker, a CPA firm. In the sale contract, he agrees that he will refrain from practicing accounting anywhere within a 60-mile radius of Redwood City for a period of two years. However, on weekends he returns to his house in Redwood City, and when clients call him, he meets with them in his home. In this case:

American courts generally will enforce a gambling agreement if both parties are in agreement on the terms.

B& B, Inc. pays an attorney to draft and lobby for a bill which will greatly lessen B & B's tax liability to the state and federal governments. B&B gives the attorney $20,000 in cash to pay legislators for taking the time to listen to him. This is an agreement which is a violation of public policy.

Distinguish between procedural and substantive unconscionability.

An agreement for the purchase of an illegal substance will be enforced by the courts if all other elements of the contract are present.

Which statement is true about the limit on the rate of interest that a lender may charge?

Before granting an injunction enjoining a former employee from competing in a described territory, the courts insist that the employer demonstrate that the restriction is __________ to protect the employer's legitimate interest.

An agreement to pay a public officer something extra for performing his official duty is enforceable.

The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.

Many states impose no limit on the rate of interest that may be charged on loans to corporations.

Edward, an engineer, is working on a new design for some highly technical equipment which Martus, Inc. hopes to market within the next five years. The employment agreement between Edward and Martus states that Edward will not go to work for another company in the same business for a period of two years after termination of his employment with Martus, Inc. This agreement is void and unenforceable because, although Martus is a very specialized company, it would make it difficult for Edward to find other employment.

The Uniform Commercial Code provides that a court may scrutinize every contract for the sale of goods to determine whether, in its commercial setting, purpose, and effect, the contract is:

State and local governments require licenses for certain businesses and professional activities. a. Explain the difference between a regulatory licensing statute and a licensing statute enacted to raise revenue. b. Explain the significance in contract law between a regulatory license and a revenue raising license. c. Give an example of each type of licensing statute.

A covenant not to compete is a type of restraint of trade that courts today will enforce under certain circumstances.

Permissible lender's expenses, which would not be considered in determining the rate of interest under usury statutes, include all but which of the following?

Bargains are illegal if they violate a crime or tort but not if they are merely against public policy.

Specific lender usury statutes rather than the general usury statute generally apply to real estate mortgages and small consumer loans.

The sole nursing home in the county offers a long-term care agreement. The contract is prepared on a standard form and offers terms on a take-it-or-leave-it basis. Such a contract is called: