Multiple Choice Questions
1.At a fraternity party, George mentions that he is going to learn to hang glide during spring break. Vicki, a casual friend, overhears him, and the next day she purchases a $100,000 life insurance policy on George’s life. George has a happy week of hang gliding.But on the way home, he is bitten by a parrot and dies of a rare tropical illness. Vicki files a claim for $100,000. The insurance company refuses to pay.
(a)Vicki will win $100,000 but only if she mentioned animal bites to the insurance agent.
(b)Vicki will win $100,000 regardless of whether she mentioned animal bites to the insurance agent.
(c)Vicki will win $50,000.
(d)Vicki will win nothing.
Answer: D. Vicki will win nothing. She has no insurable interest in George's life, and her policy is therefore an unenforceable wagering contract.
2.Now assume that Vicky has loaned George $50,000. George again mentions that he is going to learn to hang glide during spring break, so Vicki purchases the $100,000 life insurance policy on George’s life. If George dies and the insurance company refuses to pay…
(a)Vicki will win $100,000 but only if she mentioned animal bites to the insurance agent.
(b)Vicki will win $100,000 regardless of whether she mentioned animal bites to the insurance agent.
(c)Vicki will win $50,000.
(d)Vicki will win nothing.
Answer: C. Vicki has an insurable interest in George’s life, but only to the amount he owes her.
3.KwikFix, a Fortune 500 company, contracts with Allied Rocket, another huge company, to provide the software for Allied’s new Jupiter Probe rocket for $14 million. The software is negligently designed, and when the rocket blasts off from Cape Kennedy, it travels only as far as Fort Lauderdale. Allied Rocket sues for $200 million and proves that as a result of the disaster it lost a huge government contract, worth at least that much, which KwikFix was aware of. KwikFix responds that its contract with Allied included a clause limiting its liability to the value of the contract. Is the contract clause valid?
(a)The clause is unenforceable because it is unconscionable.
(b)The clause is unenforceable because it is exculpatory.
(c)The clause is enforceable because both parties are sophisticated corporations.
(d)The clause is enforceable because $200 million is an unconscionable claim.
Answer: C. The clause is enforceable. There is no unconscionability problem because this is not an adhesion contract and the terms were negotiated by sophisticated corporations that could have taken their business elsewhere if they were dissatisfied with the contract.
4. Ricki goes to a baseball game. The back of her ticket clearly reads: "Fan agrees to hold team blameless for all injuries – pay attention to the game at all times for your own safety!" In the first inning, a foul ball hits Ricki in the elbow. She ______sue the team over the foul ball. Ricky spends the next several innings riding the opposing team's first baseman. The very nicest thing she says to him is, "You suck, Franklin!" In the eighth inning, Franklin has had enough. He grabs the ball boy's chair and throws it into the stands, injuring Ricki's other elbow. Ricki ______sue the team over the thrown chair.
(a)can; can
(b)can; cannot
(c)cannot; can
(d)cannot; cannot
Answer: C.
5. Jim, about to start a pickup soccer game, asks Desiree if she will hold his wallet while he plays. Desiree, a law student, says, "Sure, if you'll sign this exculpatory clause holding me blameless for negligence." Jim is very surprised, but he signs the paper that Desiree holds out for him. A bailment ______been created. If Desiree is careless and loses the wallet, she ______be liable to Jim.
(a)has; will
(b)has; will not
(c)has not; will
(d)has not; will not
Answer: B.