CONT

Question 1

Which of the following remedies is available to party who had entered into contract in reliance upon the other contracting party’s innocent misrepresentations as to material facts?

a. Neither
b. Compensatory damages and Rescission
c. Rescission
d. Compensatory damages and Punative damages

Answer 1

Rescission

Question 2

Which of the following contract rights can generally be assigned?

a. The right of an insured to coverage under fire insurance policy.
b. The right to receive a sum of money.
c. The right to receive personal services.
d. A right whose assignment is prohibited by statute.

Answer 2

The right to receive a sum of money.

Question 3

Which of the following requires consideration in order to be binding on the parties?

a. Material modification of a sale of goods contract under the UCC.
b. Ratification of a contract by a person after reaching the age of majority.
c. Material modification of a contract involving the sale of real estate.
d. A written promise signed by a merchant to keep an offer to sell goods open for 10 days.

Answer 3

Material modification of a contract involving the sale of real estate.

Question 4

Diel entered into a written contract to sell a building to Stone. The contract was properly recorded. Stone breached the contract and Diel has brought an action for breach of contract. Stone pleads the statute of limitations as a defense. The

Answer 4

Remedy sought by Diel will be barred when the period of time provided by the statute of limitations has expired.

Question 5

Lark, CPA, entered into a signed contract with Sale Corp. to perform management advisory services for Sale. If Lark repudiates the contract prior to the date performance is due to begin, which of the following is not correct?

a. Sale can obtain judgment ordering Lark to perform.
b. Sale can obtain a judgment for the monetary damages it incurred as result of the repudiation.
c. Sale could successfully maintain an action for breach of contract after the date performance was due to begin.
d. Sale could successfully maintain an action for breach of contract prior to the date performance is due to begin.

Answer 5

Sale can obtain judgment ordering Lark to perform.

Question 6

Quick Corp. has $270,000 of outstanding accounts receivable. On March 10, Quick assigned a $30,000 account receivable due from Pine, one of Quick’s customers, to Taft Sank for value. On March 30, collect $30,000 from

Answer 6

Quick only.

Question 7

Silvers entered into contract which contains substantial arithmetical error. Silvers asserts mistake as defense to his performance. Silvers will prevail

Answer 7

If the error was unilateral and the other party knew of it.

Question 8

Assuming all other requirements have been met, which of the following terms generally must be included in writing in order to satisfy the UCC Statute of Frauds regarding the sale of goods for?

a. Price, Quantity, and Time of payment
b. Quantity
c. Price and Time of payment
d. Price and Quantity

Answer 8

Quantity

Question 9

On reaching majority, minor may ratify contract in any of the following ways except by

a. Affirming, in writing, some of the terms of the contract.
b. Failing to disaffirm within a reasonable time after reaching majority.
c. Acting in a manner that amounts to ratification.
d. Orally ratifying the entire contract.

Answer 9

Affirming, in writing, some of the terms of the contract.

Question 10

After substantial oral negotiations, Ida Frost wrote Jim Lane on May I offering to pay Lane $160,000 to build a warehouse. The writing contained the terms essential to form a binding contract. It also provided that the offer would remain open until June I and that acceptance must be received to be effective. On May 20, Lane mailed a signed acceptance. This was received by Frost on May 22. Lane completed the warehouse on July 15. On July 30, Lane assigned his right to receive payment to Reid Sank which did not notify Frost of the assignment. Two weeks later, Frost paid Lane $155,000 after deducting $5,000 in satisfaction of a dispute between them unrelated to the construction contract. If Reid sues Frost on the contract, Reid will be entitled to recover

Answer 10

Nothing, because notice of the assignment was not given to Frost.

Question 11

Kram sent Fargo, a real estate broker, a signed offer to sell a specified parcel of land to Fargo for $250,000. Kram, an engineer, had inherited the land. On the same day that Kram’s letter was received, Fargo telephoned Kram and accepted the offer. Which of the following statements is correct under the common-law statute of frauds?

a. A contract was formed but would be enforceable only against Kram.
b. No contract could be formed because Kram’s letter was signed only by Kram.
c. No contract could be formed because Fargo’s acceptance was oral.
d. A contract was formed and would be enforceable against both Kram and Fargo.

Answer 11

A contract was formed but would be enforceable only against Kram.

Question 12

West, Inc. and Barton entered into a contract. After receiving consideration from Egan, West assigned its rights under the Barton contract to Egan. In which of the following circumstances would West not be liable to Egan?

a. Egan released Barton.
b. West breached the contract.
c. Barton paid West.
d. West released Barton.

Answer 12

Egan released Barton.

Question 13

Sand sold a warehouse he owned to Quick Corp. The warehouse was encumbered by an outstanding mortgage securing Sand’s note to Security Sank. Quick assumed Sand’s note and mortgage at the time it purchased the warehouse from Sand. Within 3 months, Quick defaulted on the note and Security Sank commenced a mortgage foreclosure action. The proceeds of the resulting foreclosure sale were less than the outstanding balance on the note. As to the contract between Sand and Quick, Security is

Answer 13

A third-party creditor beneficiary.

Question 14

In an action for breach of contract, the statute of limitations time period would be computed from the date of the

Answer 14

Breach of the contract.

Question 15

Foster Co. and Rice executed a contract by which Foster was to sell a warehouse to Rice for $270,000. The contract required Rice to pay the entire $270,000 at the closing. Foster has refused to close the sale of the warehouse to Rice. If Rice commences a lawsuit against Foster, what relief would Rice likely be entitled to?

Answer 15

Specific performance or compensatory damages.

Question 16

Sable Corp. has $500,000 of outstanding accounts receivable. On July 10, year I, Sable assigned a $50,000 account receivable due from Baker, one of Sable’s customers, to Rich Sank for value. On July 15, Baker paid Sable the $50,000. On July 17, Rich notified Baker of the July 10 assignment from Sable to Rich. Rich is entitled to collect $50,000 from

Answer 16

Sable only.

Question 17

Graham contracted with the city of Harris to train and employ high school dropouts residing in Harris. Graham breached the contract. Long, resident of Harris and a high school dropout, sued Graham for damages. Under the circumstances, Long wil

Answer 17

Lose, because Long is merely an incidental beneficiary of the contract.

Question 18

Wilson sold his factory to Glenn. As part of the contract, Glenn assumed the existing mortgage on the property which was held by Security sank. Regarding the rights and duties of the parties, which of the following is correct?

a. The promise by Glenn need not be in writing to be enforceable by Security.
b. Security is a mere incidental beneficiary since it was not party to the assignment.
c. Wilson has no further liability to Security.
d. Security is creditor beneficiary of Glenn’s promise and can recover against him personally in the event of default.

Answer 18

Security is creditor beneficiary of Glenn’s promise and can recover against him personally in the event of default.

Question 19

On May 1, Dix and Wilk entered into an oral agreement by which Dix agreed to purchase a small parcel of land from Wilk for $450. Dix paid Wilk $100 as a deposit. The following day, Wilk received another offer to purchase the land for $650, the fair market value. Wilk immediately notified Dix that Wilk would not sell the land for $450. If Dix sues Wilk for specific performance, Dix will

Answer 19

Lose, because the agreement was not in writing and signed by Wilk.

Question 20

Pam orally agreed to sell Jack her used car for $400. At the time the contract was entered into, the car had been stolen and its whereabouts were unknown. Neither party was aware of these facts at the time the contract was formed. Jack sues Pam for her failure to deliver the car in accordance with their agreement. Pam’s best defense would be that the

Answer 20

Parties were under a mutual mistake of a material fact at the time the contract was entered into.

Question 21

On December I, Gem orally contracted with Mason for Mason to manage Gem’s restaurant for one year starting the following January I. They agreed that Gem would pay Mason $40,000 and that Mason would be allowed to continue to work for Gem if “everything worked out.” On June I, Mason quit to take a better paying job, alleging that the contract violated the Statute of Frauds. What will be the outcome of a suit by Gem for breach of contract?

Answer 21

Gem will lose because the contract could not be performed within one year.

Question 22

On May 25, Fresno sold Bronson, a minor, a used computer. On June I, Branson reached the age of majority. On June 10, Fresno wanted to rescind the sale. Fresno offered to return Bronson’s money and demanded that Bronson return the computer. Bronson refused, claiming that a binding contract existed. Bronson’s refusal is

Answer 22

Justified, because Fresno must perform under the contract regardless of Bronson’s minority.

Question 23

Stone engaged Parker to perform personal services for $1,000 a month for a period of 3 months. The contract was entered into orally on August I, year I, and performance was to commence on January I, year 2. On September 15, year I, Parker anticipatorily repudiated the contract. As a result, Stone can

Answer 23

Immediately sue for breach of contract.

Question 24

Kent, 15-year old, purchased used car from Mint Motors, Inc. Ten months later, the car was stolen and never recovered. Which of the following statements is correct?

a. Kent effectively ratified the purchase because Kent used the car for an unreasonable period of time.
b. Kent may disaffirm the purchase because Mint, a merchant, is subject to the UCC.
c. The car’s theft is a de facto ratification of the purchase because it is impossible to return the car.
d. Kent may disaffirm the purchase because Kent is minor.

Answer 24

Kent may disaffirm the purchase because Kent is minor.

Question 25

Aqua, Inc., a Florida corporation, entered into a contract for $30,000 with Sing, Inc., to perform plumbing services in a complex owned by Sing in Virginia. After the work was satisfactorily completed, Sing discovered that Aqua violated Virginia’s licensing law by failing to obtain a plumbing license. Virginia’s licensing statute was regulatory in nature, serving to protect the public against unskilled and dishonest plumbers. upon Sing’s request, independent appraisals of Aqua’s work were performed, which indicated that the complex was benefited to the extent of $25,000. Sing refuses to pay Aqua. If Aqua brings suit it may recover

Answer 25

Nothing.

Question 26

For which of the following contracts will court generally grant the remedy of specific performance?

a. A contract for the sale of stock that is traded on national stock exchange.
b. A contract for the sale of a patent.
c. A contract of employment.
d. A contract for the sale of fungible goods.

Answer 26

A contract for the sale of a patent.

Question 27

Green purchased a business from Tanner. During negotiations, Tanner told Green that it was a wonderful business that Green will love. He also told Green that he was sure she will make at least $150,000 next year. At the end of the next year, it turns out that Green only makes a profit of $75,000, even though she worked very hard putting in 90 to 100 hours per week. She sues Tanner for fraud. Who wins?

Answer 27

Tanner, because none of the statements constitute actionable fraud.

Question 28

Barret contracted in writing to purchase land from Gott to build a hotel. Riggo was pleased because he owned a restaurant next door. However, shortly after the contract was made, Barret breached the contract. Both Riggo and Gott have sued Barret for the breach of contract. Which parties can win in a law suit against Barret?

Answer 28

Gott.

Question 29

Ward is attempting to introduce oral evidence in an action relating to written contract between Ward and Weaver. Weaver has pleaded the parol evidence rule. Ward will be prohibited from introducing parol evidence if it relates to

Answer 29

A change in the meaning of an unambiguous provision in the contract.

Question 30

Paco Corp., a building contractor, offered to sell Preston several pieces of used construction equipment. Preston was engaged in the business of buying and selling equipment. Paco’s written offer had been prepared by a secretary who typed the total price as $10,900, rather than $109,000, which was the approximate fair market value of the equipment. Preston, on receipt of the offer, immediately accepted it. Paco learned of the error in the offer and refused to deliver the equipment to Preston unless Preston agreed to pay $109,000. Preston has sued Paco for breach of contract. Which of the following statements is correct?

Answer 30

Paco will be able to rescind the contract because Preston should have known that the price was erroneous.

Question 31

On March I, Mirk Corp. wrote to Carr offering to sell Carr its office building for $280,000. The offer stated that it would remain open until July I. It further stated that acceptance must be by telegram and would be effective only upon receipt. On May 10, Mirk mailed a letter to Carr revoking its offer of March I. Carr did not learn of Mirk’s revocation until Carr received the letter on May 17. Carr had already sent a telegram of acceptance to Mirk on May 14, which was received by Mirk on May 15. Which of the following statements is correct?

Answer 31

Carr’s telegram of acceptance was effective on May 15.

Question 32

Card communicated an offer to sell Card’s stereo to Send for $250. Which of the following statements is correct regarding the effect of the communication of the offer?

a. Send may not reject the offer for reasonable period of time.
b. Card is required to mitigate any loss Card would sustain in the event Send rejects the offer.
c. Send should immediately accept or reject the offer to avoid liability to Card.
b. Card is not obligated to sell the stereo to Send until Send accepts the offer.

Answer 32

Card is not obligated to sell the stereo to Send until Send accepts the offer.

Question 33

Generally, which one of the following transfers will be valid without the consent of the other parties?

a. The assignment by purchaser of goods of the right to buy on credit without giving security.
b. The assignment by an architect of a contract to design a building.
c. The assignment by the lessee of a lease contract where rent is a percentage of sales.
d. The assignment by patent holder of the right to receive royalties.

Answer 33

The assignment by patent holder of the right to receive royalties.

Question 34

In order for an offer to confer the power to form contract by acceptance, it must have all of the following elements except

a. Be communicated by words to the offeree by the offeror.
b. Be communicated to the offeree and the communication must be made or authorized by the offeror.
c. Manifest an intent to enter into a contract.
d. Be sufficiently definite and certain.

Answer 34

Be communicated by words to the offeree by the offeror.

Question 35

Rice contracted with Locke to build an oil refinery for Locke. The contract provided that Rice was to use United pipe fittings. Rice did not do so. United learned of the contract and, anticipating the order, manufactured additional fittings. United sued Locke and Rice. United is

Answer 35

Not entitled to recover because it is an incidental beneficiary

Question 36

Girard Corporation has entered into written agreement to lease building from Laird Corporation. This type of contract is referred to as

Answer 36

Executory

Question 37

Price and White entered into an all-inclusive written contract involving the purchase of a building. Their written agreement contained provisions concerning renovation work to the building to be completed by Price. This aspect of the written contract was modified by a contemporaneous oral agreement between the parties. Price relies upon the parol evidence rule to support his position that the written contract is binding on the parties. Which of the following is correct?

a. Since the oral agreement related to the same subject matter as the written contract, the parol evidence rule does not apply.
b. White will be precluded from introducing into evidence proof of the oral agreement because of the parol evidence rule.
c. Since the Statute of Frauds was satisfied in respect to the contract for the purchase of the building, the parol evidence does not apply.
d. The parol evidence rule does not apply to contemporaneous oral agreements.

Answer 37

White will be precluded from introducing into evidence proof of the oral agreement because of the parol evidence rule.

Question 38

Wren purchased a factory from First Federal Realty. Wren paid at the closing and gave a note for the balance secured by a 20-year mortgage. Five years later, Wren found it increasingly difficult to make payments on the note and defaulted. First Federal threatened to accelerate the loan and foreclose if Wren continued in default. First Federal told Wren to make payment or obtain an acceptable third party to assume the obligation. Wren offered the land to Moss, Inc. for $10,000 less than the equity Wren had in the property. This was acceptable to First Federal and at the closing Moss paid the arrearage, assumed the mortgage and note, and had title transferred to its name. First Federal released Wren. The transaction in question is a

Answer 38

Novation.

Question 39

John Dash, an accountant, entered into a written contract with Kay Reese to perform certain tax services for Reese. Shortly thereafter, Reese was assessed additional taxes and she wanted to appeal the assessment. Reese was required to appeal immediately and the workpapers held by Dash were necessary to appeal. Dash refused to furnish Reese with the workpapers unless he was paid a substantially higher fee than was set forth in the contract. Reese reluctantly agreed in order to meet the filing deadline. The contract as revised is

Answer 39

Voidable at Reese’s option based on duress.

Question 40

A common law duty is delegable even though the

Answer 40

Duty delegated is the payment of money and the delegatee is not of as equal creditworthiness as the delegator.

Question 41

In June, Mullin, a general contractor, contracted with a town to renovate the town square. The town council wanted the project done quickly and the parties placed a clause in the contract that for each day the project extended beyond go working days, Mullin would forfeit $100 of the contract price. In August, Mullin took a three- week vacation. The project was completed in October, 120 working days after it was begun. What type of damages may the town recover from Mullin?

Answer 41

Liquidated damages because of the clause in the contract.

Question 42

Mayker, Inc. and Oylco contracted to have Oylco be the exclusive provider of Mayker’s fuel oil for 3 months. The stated price was subject to increases of up to 10% a total of if the market price increased. The market price rose 25% and Mayker tripled its normal order. Oylco seeks to avoid performance. Oylco’s best argument in support of its position is that

Answer 42

Mayker ordered amounts of oil unreasonably greater than its normal requirements.

Question 43

Which of the following will be legally binding on all parties despite lack of consideration? ]

a. A promise to pay for the college education of the child of a person who saved the promisor’s life.
b. A signed modification to a contract to purchase a parcel of land.
c. An irrevocable oral promise by a merchant to keep an offer open for 60 days.
d. A promise to donate money to a charity which the charity relied upon in incurring large expenditures.

Answer 43

A promise to donate money to a charity which the charity relied upon in incurring large expenditures.

Question 44

Kent Construction Company contracted to construct four garages for Magnum, Inc., according to specifications provided by Magnum. Kent deliberately substituted 2 x 4s for the more expensive 2 x 6s called for in the contract in all places where the 2 x 4s would not be readily detected. Magnum’s inspection revealed the variance and Magnum is now withholding the final payment on the contract. The contract was for $100,000, and the final payment would be $25,000. Damages were estimated to be $15,000. In a lawsuit for the balance due, Kent will

Answer 44

Lose all rights under the contract because it has intentionally breached it.

Question 45

On April 2, Jet Co. wrote to Ard, offering to buy Ard’s building for $350,000. The offer contained all of the essential terms to form a binding contract and was duly signed by Jet’s president. It further provided that the offer would remain open until May 30 and an acceptance would not be effective until received by Jet. On April 10, Ard accepted Jet’s offer by mail. The acceptance was received by Jet on April 14. Assume that on April 11 Jet sent a telegram to Ard revoking its offer and that Ard received the telegram on April 12. Under the circumstances,

Answer 45

Jet’s revocation effectively terminated its offer on April 12.

Question 46

On July 1, Silk, Inc. sent Blue a telegram offering to sell Blue a building for $30,000. In the telegram, Silk stated that it would give Blue 30 days to accept the offer. On July 15, Blue sent Silk a telegram that included the following statement: “The price for your building seems too high. Would you consider taking $75,000?” This telegram was received by Silk on July 15. On July 19, Tint made an offer to Silk to purchase the building for $82,000. Upon learning of Tint’s offer, Blue, on July 27, sent Silk a signed letter agreeing to purchase the building for $80,000. This letter was received by Silk on July 29. However, Silk now refuses to sell Blue the building. If Blue commences an action against Silk for breach of contract, Blue will

Answer 46

Win, because Blue effectively accepted Silk’s offer of July I.

Question 47

When there has been no performance by either party, which of the following events generally will result in the discharge of party’s obligation to perform as required under the original contract?

a. Accord and satisfaction and Mutual rescission
b. Accord and satisfaction
c. Neither
d. Mutual rescission

Answer 47

Accord and satisfaction and Mutual rescission

Question 48

Walker tells Side that she will hire him for 10 months’ work for $6,000 per month starting 6 months from now. Side accepts. When Side proceeds to work for Walker, Walker refuses, pointing out that their contract was not in writing. Side admits the lack of a written contract but claims they still have an enforced contract. Who wins?

Answer 48

Walker because this contract needed to be in writing.

Question 49

To satisfy the UCC Statute of Frauds, written agreement for the sale of goods must

Answer 49

Indicate that a contract for sale has been made.

Question 50

On September 10, Smut, Inc., a new car dealer, placed a newspaper advertisement stating that Smut would sell ten cars at its showroom for a special discount only on September 12, 13, and 14. On September 12, King called Smut and expressed an interest in buying one of the advertised cars. King was told that five of the cars had been sold and to come to the showroom as soon as possible. On September 13, Smut made a televised announcement that the sale would end at 10:00 PM that night. King went to Smut’s showroom on September 14 and demanded the right to buy a car at the special discount. Smut had sold the ten cars and refused King’s demand. King sued Smut for breach of contract. Smut’s best defense to King’s suit would be that Smut’s

Answer 50

Advertisement was not an offer.

Question 51

All of the following statements regarding compliance with the statute of frauds are correct except:

a. Contract terms must be contained in only one document.
b. Contracts that by their terms cannont be completed within one year must be in writing.
c. Contracts involving the sale of goods in an amount greater than $500 must be in writing.
d. Any necessary writing must be signed by all parties against whom enforcement is sought.

Answer 51

Contract terms must be contained in only one document.

Question 52

Meek & Co., CPAs, was engaged by Reed, the president of Sulk Corp., to issue by June 15, year I, an opinion on Sulk’s financial statements for the fiscal year ended March 31, year I. Meek’s engagement and its fee of $20,000 were approved by Sulk’s board of directors. Meek did not issue its opinion until June 30 because of Sulk’s failure to supply Meek with the necessary information to complete the audit. Sulk refuses to pay Meek. If Meek sues Sulk, Meek will

Answer 52

Prevail based on the contract.

Question 53

With regard to an agreement for the sale of real estate, the Statute of Frauds

Answer 53

Does not require that the agreement be signed by all parties.

Question 54

Water Works had a long-standing policy of offering employees $100 for suggestions actually used. Due to inflation and a decline in the level and quality of suggestions received, Water Works decided to increase the award to $500. Several suggestions were under consideration at that time. Two days prior to the public announcement of the increase to $500, a suggestion by Farber was accepted and put into use. Farber is seeking to collect $500. Farber is entitled to

Answer 54

100 in accordance with the original offer.

Question 55

Omega Corp. owned a factory that was encumbered by a mortgage securing Omega’s note to Eagle Sank. Omega sold the factory to Spear, Inc., which assumed the mortgage note. Later, Spear defaulted on the note, Which had an outstanding balance of $15,000. To recover the outstanding balance, Eagle

Answer 55

May sue either Spear or Omega.

Question 56

Baxter agreed in writing to sell Faxton some land for $150,000. A few days after both signed the contract, Baxter said he would not sell Faxton the land unless she agreed to pay an additional $10,000. She agreed in writing and received title and possession of the land after paying $160,000. She later brings suit to get back the $10,000. Does Faxton win the suit?

Answer 56

Yes, because the original contract was for $150,000.

Question 57

Taylor signed and mailed letter to Peel which stated: “Ship promptly 600 dozen grade A eggs.” Taylor’s offer

Answer 57

May be accepted by Peel either by a prompt promise to ship or prompt shipment with notice.

Question 58

Carson Corp. asked Alto Construction to fix a broken window at one of Carson’s stores. Alto offered to make repairs within 3 days at price to be agreed upon after the work was completed. A contract based on Alto’s offer would fail because of the indefiniteness as to the

Answer 58

Price involved.

Question 59

Samm, a plumber, entered into a contract for $75,000 with Orr, Inc. to perform certain plumbing services in a building owned by Orr. After Samm had satisfactorily performed the work, Orr discovered that Samm had violated the state licensing statute by failing to obtain a plumbing license. The licensing statute was enacted merely to raise revenue for the state. An independent appraisal of Samm’s work indicated the building’s fair market value increased by $70,000 as a result of Samm’s work. The cost of the materials Which Samm supplied was $35,000. If Samm sues Orr, Samm will be entitled to recover

Answer 59

$75,000

Question 60

Tell, an Chic real estate broker, misrepresented to Allen that Tell was licensed in Michigan under Michigan’s statute regulating real estate brokers. Allen signed a standard form listing contract agreeing to pay Tell a 6% commission for selling Allen’s home in Michigan. Tell sold Allen’s home. Under the circumstances, Allen is

Answer 60

Not liable to Tell for any amount because Tell violated the Michigan licensing requirements.

Question 61

Bond and Spear orally agreed that Sand would buy a car from Spear for $475. Bond paid Spear a $100 deposit. The next day, Spear received an offer of $575, the car’s fair market value. Spear immediately notified Sond that Spear would not sell the car to Sond and returned Bond’s $100. If Bond sues Spear and Spear defends on the basis of the Statute of Frauds, Bond will probably

Answer 61

Win, because the agreement was for less than $500.

Question 62

Marglow Supplies, Inc. mailed a letter to Wilson Distributors on September 15, offering a 3-year franchise dealership. The offer stated the terms in detail and at the bottom stated that the offer would not be withdrawn prior to October I. Which of the following is correct?

Answer 62

The offer can not be assigned to another party by Wilson if Wilson chooses not to accept.

Question 63

Macy agreed orally to repaint Rich’s home for $2,000. Rich required that it be done in 16 months although Macy said he might have it done in 10 months. The work actually took 14 months. Does this contract fall within the Statute of Frauds?

Answer 63

No, because the work could have been completed within I year.

Question 64

Union Sank lent $200,000 to Wagner. Union required Wagner to obtain a life insurance policy naming Union as beneficiary. While the loan was outstanding, Wagner stopped paying the premiums on the policy. Union paid the premiums, adding the amounts paid to Wagner’s loan. Wagner died and the insurance company refused to pay the policy proceeds to Union. Union may

Answer 64

Recover the policy proceeds because it is a creditor beneficiary.

Question 65

Miser Corp. owned a factory which was encumbered by a mortgage securing Miser’s note to City Sank. Miser sold the factory to Sting, Inc. which assumed the mortgage note. Subsequently, Sting defaulted on the note Which had an outstanding balance of $15,000. In order to recover the outstanding balance, City

Answer 65

May sue Sting or Miser.

Question 66

Beal offered in writing to sell Crane parcel of land for $150,000. If Beal dies, the offer will

Answer 66

Automatically terminate prior to Crane’s acceptance.

Question 67

On June I, year I , Nord Corp. engaged Milo & Co., CPAs, to perform certain management advisory services for 9 months for a $45,000 fee. The terms of their oral agreement required Milo to commence performance any time before October I, year I. On June 30, year 2, after Milo completed the work to Nord’s satisfaction, Nord paid Milo $30,000 by check. Nord conspicuously marked on the check that it constituted payment in full for all services rendered. Nord has refused to pay the remaining $15,000 arguing that, although it believes the $45,000 fee is reasonable, it had received bids of $30,000 and $38,000 from other firms to perform the same services as Milo. Milo endorsed and deposited the check. If Milo commences an action against Nord for the remaining $15,000, Milo will be entitled to recover

Answer 67

$15,000 because it is the balance due under the agreement.

Question 68

Race entered into a written agreement to sell a parcel of land to Lark for $50,000. At the time the agreement was executed, Race had consumed a large amount of alcoholic beverages which significantly impaired Race’s ability to understand the nature and terms of the contract. Lark knew Race was very intoxicated and that the land had been appraised at $95,000. Race wishes to void the contract. The contract is

Answer 68

Voidable at Race’s option.

Question 69

Ketchum Builders, Inc. contracted with Samson to construct a high-rise office building for $300,000. Ketchum inadvertently used materials which were not in accordance with the contract specifications. Although the breach resulted in minor damages, Samson has refused to pay Ketchum the $100,000 balance due on the contract. Ketchum

Answer 69

Is entitled to the $100,000 less damages.

Question 70

Foster offered to sell Lebow his garage for $27,000. The offer was in writing and signed by Foster. Foster gave Lebow 5 days to decide. On the fourth day Foster accepted a better offer from Dilby, who was unaware of the offer to Lebow. Foster subsequently conveyed the property to Dilby. Unaware of the sale to Dilby, Lebow telephoned Foster on the fifth day and unconditionally accepted the offer. Under the circumstances, Lebow

Answer 70

Is entitled to damages.

Question 71

On August I, Neptune Fisheries contracted in writing with West Markets to deliver to West 3,000 pounds of lobsters at $4.00 a pound. Delivery of the lobsters was due October I with payment due November I. On August 4, Neptune entered into a contract with Deep Sea Lobster Farms which provided as follows: “Neptune Fisheries assigns all the rights under the contract with West Markets dated August I to Deep Sea Lobster Farms.” The best interpretation of the August 4 contract would be that it was

Answer 71

An assignment of rights and a delegation of duties by Neptune.

Question 72

Banner pays Gray Company $40,000 under a written contract signed by Banner and Gray. In the contract, Gray is to deliver a specified car to Banner’s son as a present for having passed the CPA examination. Gray then breaches and will not deliver the car. Against which party(i.s) does Banner’s son have legal rights?

Answer 72

Against Gray only.

Question 73

In year I, Dart bought an office building from Graco under a written contract signed only by Dart. In year 27, Dart discovered that Graco made certain false representations during their negotiations concerning the building’s foundation. Dart could have reasonably discovered the foundation problems by year 7. Dart sued Graco claiming fraud in the formation of the contract. Which of the following statements is correct?

a. The parol evidence rule will prevent the admission into evidence of proof concerning Dart’s allegations.
b. Dart will be able to rescind the contract because both parties did not sign it.
c. The statute of limitations would likely prevent Dart from prevailing because of the length of time that has passed.
d. Dart must pave that the alleged misrepresentations were part of the written contract because the contract involved real estate.

Answer 73

The statute of limitations would likely prevent Dart from prevailing because of the length of time that has passed.

Question 74

Which of the following types of mistake will generally make contract unenforceable and allow it to be rescinded?

a. A unilateral mistake of value.
b. A mutual mistake of fact.
c. A mutual mistake of value.
d. A unilateral mistake of fact.

Answer 74

A mutual mistake of fact.

Question 75

Jones owned an insurance policy on her life, on which she paid all the premiums. Smith was named the beneficiary. Jones died and the insurance company refused to pay the insurance proceeds to Smith. An action by Smith against the insurance company for the insurance proceeds will be

Answer 75

Successful because Smith is a third-party donee beneficiary

Question 76

In deciding whether consideration necessary to form contract exists, court must determine whether

Answer 76

There is mutuality of consideration.

Question 77

The intent, or scienter, element necessary to establish cause of action for fraud will be met if the plaintiff can show that the

Answer 77

Defendant made a misrepresentation with a reckless disregard for the truth.

Question 78

On May 5, Maple entered into a signed contract with Ard, whereby Maple was to sell Ard a painting having a fair market value of $350,000 for $130,000. Maple believed the painting was worth only $130,000. Unknown to either party the painting had been destroyed by fire on May 4. If Ard sued Maple for breach of contract, Maple’s best defense is

Answer 78

Mutual mistake.

Question 79

John Tuck entered into contract with Jack Doe. Doe asserts that he entered into the contract under duress. Which of the following best describes necessary element of duress?

Answer 79

Doe entered into the contract with Tuck because of Tuck’s improper threats.

Question 80

Under the Negotiable Instruments Article of the UCC, which of the following defenses generally may be used against all holders of negotiable instruments?

a. Lack of consideration.
b. Breach of warranty.
c. Minority of the maker.
d. Fraud in the inducement.

Answer 80

Minority of the maker.

Question 81

King sent Foster, a real estate developer, a signed offer to sell a specified parcel of land to Foster for $200,000. King, an engineer, had inherited the land. On the same day that King’s letter was received, Foster telephoned King and accepted the offer. Which of the following statements is correct under the Statute of Frauds?

a. A contract was formed, although it would be enforceable only against King.
b. No contract was formed because Foster did not sign the offer.
c. A contract was formed and would be enforceable against both King and Foster because Foster is merchant.
d. No contract was formed because King is not merchant, and, therefore, King’s letter is not binding on Foster.

Answer 81

A contract was formed, although it would be enforceable only against King.

Question 82

Wart, an employee of Salam Corp., signed an agreement not to compete with Salam during and after being employed with Salam. Wert is the director of research and has knowledge of many of Salam’s trade secrets. If Wart’s employment with Salam is terminated and Wert wishes to compete with Salam, which of the following statements is not correct?

a. The court will consider Wert’s ability to obtain other employment against Salam’s right to protect its business.
b. The agreement is only enforceable if Wert voluntarily terminates his employment with Salem.
c. The geographic area covered by the agreement must be reasonable in order to be enforceable.
d. The agreement must be necessary to patect Salam’s legitimate interests in order to be enforceable

Answer 82

The agreement is only enforceable if Wert voluntarily terminates his employment with Salem.

Question 83

Under the parol evidence rule, oral evidence will be excluded if it relates to

Answer 83

A contemporaneous oral agreement relating to a term in the contract

Question 84

Smith contracted to perform for $500 certain services for Jones. Jones claimed that the services had been performed poorly. Because of this, Jones sent Smith a check for only $425. Marked clearly on the check was “payment in full.” Smith crossed out the words “payment in full” and cashed the check. Assuming that there was a bona fide dispute as to whether Smith had in fact performed the services poorly, the majority of courts would hold that

Answer 84

The debt is unliquidated and the cashing of the check by Smith completely discharged the debt.

Question 85

Fiore owed Lutz $5,000. As the result of an unrelated transaction, Lutz owed Sing that same amount. The three parties signed an agreement that Fiore would pay Sing instead of Lutz and Lutz would be discharged from all liability. The agreement among the parties is

Answer 85

A novation.

Question 86

After substantial oral negotiations, Ida Frost wrote Jim Lane on May 1 offering to pay Lane $160,000 to build a warehouse. The writing contained the terms essential to form a binding contract. It also provided that the offer would remain open until June 1 and that acceptance must be received to be effective. On May 20, Lane mailed a signed acceptance. This was received by Frost on May 22. Lane completed the warehouse on July 15. On July 30, Lane assigned his right to receive payment to Reid Sank which did not notify Frost of the assignment. Two weeks later, Frost paid Lane $155,000 after deducting $5,000 in satisfaction of a dispute between them unrelated to the construction contract. Frost’s offer

Answer 86

Could have been revoked any time prior to the receipt of Lane’s acceptance on May 22.

Question 87

On November 1, Yost sent a telegram to Zen offering to sell a rare vase. The offer required that Zen’s acceptance telegram be sent on or before 5:00 P.M. on November 2. On November 2, at 3:00 P.M., Zen sent an acceptance by overnight mail. It did not reach Yost until November 5. Yost refused to complete the sale to Zen. Is there an enforceable contract?

Answer 87

No, because Zen did not accept by telegram.

Question 88

Rand Corporation and Hardy Corporation are attempting to create a contract over the Internet in which Rand Corporation will sell some land to Hardy Corporation for $350,000. Which of the following statements is correct regarding this attempt to make this contract?

a. This contract can be completed over the Internet.
b. Agents authorized by Rand Corporation and Hardy Corporation must meet together to sign this contract in person.
c. Only if this contract did not involve real estate could it be accomplished over the Internet.
d. The Statute of Frauds does not allow this contract to be made over the Internet.

Answer 88

This contract can be completed over the Internet.

Question 89

Stable Corp. offered in a signed writing to sell Mix an office building for $350,000. The offer, which was sent by Stable on April 1, indicated that it would remain open until July 9. On July 5, Mix mailed a letter rejecting Stable’s offer. On July 5, Mix sent a telegram to Stable accepting the original offer. The letter of rejection was received by Stable on July 8 and the telegram of acceptance was received by Stable on July 7. Which of the following is correct?

a. Although Stable’s offer on April I was firm offer under the UCC it will only remain open for 3 months.
b. Mix’s telegram resulted in the formation of a valid contract.
c. Mix’s letter of July 5 terminated Stable’s offer when mailed.
d. Stable was not entitled to withdraw its offer until after July 9.

Answer 89

Mix’s telegram resulted in the formation of a valid contract.

Question 90

Myers entered into a contract to purchase a valuable rare coin from Eisen. Myers tendered payment which was refused by Eisen. Upon Eisen’s breach, Myers brought suit to obtain the coin. The court will grant Myers

Answer 90

Specific performance.

Question 91

Which of the following promises is supported by legally sufficient consideration and will be enforceable?

a. A promise to pay a minor $500 to paint a garage.
b. A person’s promise to pay a real estate agent $1,000 in return for the real estate agent’s earlier act of not charging commission for selling the person’s house.
c. A parent’s promise to pay one child $500 because that child is not as wealthy as the child’s sibling.
d. A promise to pay the police $250 to catch thief.

Answer 91

A promise to pay a minor $500 to paint a garage.

Question 92

Yost contracted with Egan for Yost to buy certain real property. If the contract is otherwise silent, Yost’s rights under the contract are

Answer 92

Generally assignable.

Question 93

A party to contract who seeks to rescind the contract because of that party’s reliance on the unintentional but materially false statements of the other party will assert

Answer 93

Misrepresentation.

Question 94

Smith, an executive of Apex Corporation, became emotionally involved with Jones. At the urging of Jones, and fearing that Jones would sever their relationship, Smith reluctantly signed a contract which was grossly unfair to Apex. Apex’s best basis to rescind the contract would be

Answer 94

Undue influence.

Question 95

Parr is the vice president of research of Lynx, Inc. When hired, Parr signed an employment contract prohibiting Parr from competing with Lynx during and after employment. While employed, Parr acquired knowledge of many of Lynx’s trade secrets. If Parr wishes to compete with Lynx and Lynx refuses to give Parr permission, which of the following statements is correct?

a. In determining whether Parr may compete with Lynx, the court should not consider Parr’s ability to obtain other employment.
b. Parr has the right to compete with Lynx upon resigning from Lynx.
c. In determining Whether Parr may compete with Lynx, the court should consider, among other factors, whether the agreement is necessary to patect Lynx’s legitimate business interests.
d. Parr has the right to compete with Lynx only if fired from Lynx.

Answer 95

In determining Whether Parr may compete with Lynx, the court should consider, among other factors, whether the agreement is necessary to patect Lynx’s legitimate business interests.

Question 96

The mailbox rule generally makes acceptance of an offer effective at the time the acceptance is dispatched. The mailbox rule does not apply if

Answer 96

The offer provides that an acceptance shall not be effective until actually received.

Question 97

Elrod is attempting to introduce oral evidence in court to explain or modify a written contract he made with Weaver. Weaver has pleaded the parol evidence rule. In which of the following circumstances will Elrod not be able to introduce the oral evidence?

a. There was mutual mistake of fact by the parties regarding the subject matter of the contract.
b. The contract contains an obvious ambiguity on the point at issue.
c. The modification asserted was made several days after the written contract had been executed.
d. The contract indicates that it was intended as the “entire contract” between the parties, and the point is covered in detail.

Answer 97

he contract indicates that it was intended as the “entire contract” between the parties, and the point is covered in detail.

Question 98

In September, Cobb Company contracted with Thrifty Oil Company for the delivery of 100,000 gallons of heating oil at the price of $.75 per gallon at regular specified intervals during the forthcoming winter. Due to an unseasonably warm winter, Cobb took delivery on only 70,000 gallons. In a suit against Cobb for breach of contract, Thrifty will

Answer 98

Win, because the change of circumstances could have been contemplated by the parties.

Question 99

Johns leased an apartment from Olsen. Shortly before the lease expired, Olsen threatened Johns with eviction and physical harm if Johns did not sign a new lease for twice the old rent. Johns, unable to afford the expense to fight eviction, and in fear of physical harm, signed the new lease. Three months later, Johns moved and sued to void the lease claiming duress. The lease will be held

Answer 99

Voidable because of Olsen’s threat of physical harm.

Question 100

The primary distinction between an action based on innocent misrepresentation and an action based on common law fraud is that, in the former, party need not allege and prove

Answer 100

That the party making the misrepresentation had actual or constructive knowledge that it was false.

Question 101

To satisfy the consideration requirement for valid contract, the consideration exchanged by the parties must be

Answer 101

Legally sufficient.

Question 102

On March 1, Mirk Corp. wrote to Carr offering to sell Carr its office building for $230,000. The offer stated that it would remain open until July 1. It further stated that acceptance must be by telegram and would be effective only upon receipt. Carr telegrammed its acceptance on June 28 and it was received by Mirk on July 2. Which of the following statements is correct?

a. No contract was formed because 3 months had elapsed since offer was made.
b. A contract was formed when Carr telegrammed its acceptance.
c. No contract was formed since the acceptance was received after July 1.
d. A contract was formed when Mirk received Carr’s acceptance.

Answer 102

No contract was formed since the acceptance was received after July 1.

Question 103

On May 25, Smith contracted with Jackson to repair Smith’s cabin cruiser. The work was to begin on May 31. On May 26, the boat, while docked at Smith’s pier, was destroyed by arson. Which of the following statements is correct with regard to the contract?

a. Smith would be liable to Jackson for the profit Jackson would have made under the contract.
b. Smith would not be liable to Jackson because of mutual mistake.
c. Jackson would not be liable to Smith because performance by the parties would be impossible.
d. Jackson would be liable to repair another boat owned by Smith.

Answer 103

Jackson would not be liable to Smith because performance by the parties would be impossible.

Question 104

Love granted Nelson a written option to buy a tract of land in an industrial park. The option stated that it was irrevocable for 11 days and was given for $20 and other valuable consideration. The $20 was not paid and there was no other valuable consideration. Which of the following is a correct statement regarding the option in question?

a. It is unenforceable because it lacks consideration.
b. Acceptance must be received at Love’s place of business before expiration of the 11 days.
c. Since real property is involved, Nelson’s acceptance must be contained in a signed writing if Nelson is to enforce it against Love.
d. It is an option contract enforceable for the 11-day period.

Answer 104

It is unenforceable because it lacks consideration.

Question 105

Nancy is asserting rights as third-party donee beneficiary on contract made by Johnson and Harding. In order to prevail, Nancy must prove that

Answer 105

The terms of the contract and surrounding circumstances manifest clear intent to benefit her.

Question 106

Montrose sent Bilbo a written offer to sell his tract of land located in Majorsville for $50,000. The parties were engaged in a separate dispute. The offer stated that it would be irrevocable for 30 days if Bilbo would promise to refrain from suing Montrose during this time. Bilbo promptly delivered a promise not to sue during the term of the offer and to forego suit if she accepted the offer. Montrose subsequently decided that the possible suit by Bilbo was groundless and therefore phoned Bilbo and revoked the offer 10 days after making it. Bilbo mailed an acceptance on the 30th day. Montrose did not reply. Under the circumstances

Answer 106

Montrose’s offer was supported by consideration, and was irrevocable for the 30-day period.