Clem Had Wanted a Piano for a Long Time

question 96

Multiple Choice

Clem had wanted a piano for a long time. Although he was a minor, his mom gave him $300 and he took this with some savings and made a $500 down payment on a $3000 piano. The balance was to be paid over a three-year period. His mom signed the contract as a guarantor. Clem made the first three payments, but he damaged the piano trying to move it from the living room to his upstairs bedroom. He didn't have the money to get it fixed. He quit playing, lost interest, and quit making his payments. On these facts, which of the following is False?

• A) Although the contract is unenforceable against Clem, if he affirms the contract after he reaches the age of majority, the seller will be able to sue him for breach of contract.
• B) Unless Clem affirms the contract or partly performs the contract after he reaches the age of majority, the seller cannot get any compensation from him.
• C) If Clem's mother guaranteed the deal, she would be liable on her guarantee even if the contract were unenforceable against Clem.
• D) Because Clem is an infant, he cannot sue the seller, even if the piano is defective.
• E) Clem's mother will be liable on the guarantee only if it is in writing.

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Definitions:

Cost of Equity

The return a company requires to decide if an investment meets capital return requirements, often used in the capital asset pricing model to determine the risk-adjusted costs of financing.

Pre-tax Cost

The cost of an investment or expense before the effect of taxes is taken into account.

Flotation Costs

The expenses incurred by a company in issuing new securities, including underwriting, legal, and registration fees.