Exam 3

Question 1

For an offer to confer the power to form a contract by acceptance, it must have all of the following elements except

Answer 1

Be communicated by words to the offeree by the offeror.

Question 2

On February 12, Harris sent Fresno a written offer to purchase Fresno’s land. The offer included the following provision: “Acceptance of this offer must be by registered or certified mail, received by Harris no later than February 18 by 5:00 p.m. CST.” On February 18, Fresno sent Harris a letter accepting the offer by private overnight delivery service. Harris received the letter on February 19. Which of the following statements is true?

Answer 2

Fresno’s letter constituted a counteroffer.

Question 3

Robert entered into a valid and enforceable contract with George. If a court finds that Robert breached one or more of his contractual obligations to George, it may

Answer 3

Provide a remedy to George.

Question 4

When a client accepts the services of an accountant without an agreement concerning payment, the result is

Answer 4

An implied-in-fact contract.

Question 5

Bill Cratchett leased an apartment from Grendel. Cratchett was a person of limited means in a locality where low-income housing was scarce. Shortly after signing the agreement, he fell in an unlit stairwell when a step unexpectedly gave way. In a suit for damages, Grendel relied on a clause in the lease stating, “Tenant agrees to hold Owner harmless from any claims for damages no matter how caused.” Cratchett should

Answer 5

Win because the exculpatory clause was unenforceable as a violation of public policy

Question 6

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

Answer 6

Price involved

Question 7

Adhesion contracts are sometimes held to be unconscionable, but their use is often justified. An adhesion contract is most appropriate if a seller

Answer 7

Realizes efficiencies that reduce transaction costs.

Question 8

In determining whether the consideration requirement to form a contract has been satisfied, the consideration exchanged by the parties to the contract must be

Answer 8

A Legally sufficient

Question 9

Certain contracts have absolutely no effect and are not recognized under law. If two or more parties enter into such an agreement, it is

Answer 9

Void

Question 10

Opal offered, in writing, to sell Larkin a parcel of land for $300,000. If Opal dies, the offer will

Answer 10

Automatically terminate prior to Larkin’s acceptance.

Question 11

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

Answer 11

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

Question 12

Mayker, Inc., and Oylco contracted for Oylco to be the exclusive provider of Mayker’s fuel oil for 3 months. The stated price was subject to increases of up to a total of 10% 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 12

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

Question 13

On April 1, Fine Corp. faxed Moss an offer to purchase Moss’s warehouse for $500,000. The offer stated that it would remain open only until April 4 and that acceptance must be received to be effective. Moss sent an acceptance on April 4 by overnight mail and Fine received it on April 5. Which of the following statements is true?

Answer 13

No contract was formed because Fine received Moss’s acceptance after April 4.

Question 14

Gudrun owned a 2,000-acre country estate. She signed a written agreement with Johann, selling the house on the property and “a sufficient amount of land surrounding the house to create a park.” The price was stated to be $200,000. When Gudrun refused to honor the agreement, Johann sued. Who will prevail and why?

Answer 14

Gudrun will win because the agreement is not reasonably definite.

Question 15

Question15) To satisfy the consideration requirement for a valid contract, the consideration exchanged by the parties must be

Answer 15

Legally sufficient

Question 16

In which of the following situations does the first promise serve as valid consideration for the second promise?

Answer 16

A debtor’s promise to pay $500 for a creditor’s promise to forgive the balance of a $600 disputed debt.

Question 17

Assuming exclusive dealing arrangements are lawful, which of the following agreements is unenforceable because of indefiniteness?

Answer 17

The seller agrees to supply a quantity of pears dependent upon the buyer’s will.

Question 18

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

Answer 18

Advertisement was not an offer.

Question 19

Which of the following will be legally binding despite lack of consideration?

Answer 19

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

Question 20

The Acme Corporation is having a “Happy Holiday Giveaway.” To win, a person must guess the number of marbles in a large jar. No purchase is necessary. This contest is probably not illegal because what element is lacking?

Answer 20

Consideration

Question 21

Fact Pattern: 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.
For this item only, assume that on April 13 Ard sent a letter to Jet withdrawing the acceptance and rejecting Jet’s offer and that Jet received the letter on April 15. Under the circumstances,

Answer 21

A contract was formed on April 14

Question 22

For there to be consideration for a contract, there must be

Answer 22

A bargained-for detriment to the promisor(ee) or a benefit to the promisee(or).

Question 23

The remedy of quasi-contract is available

Answer 23

Although no contract was ever formed.

Question 24

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

Answer 24

There is mutuality of consideration

Question 25

On September 27, Summers sent Fox a letter offering to sell Fox a vacation home for $150,000. On October 2, Fox replied by mail agreeing to buy the home for $145,000. Summers did not reply to Fox. Do Fox and Summers have a binding contract?

Answer 25

No, because Fox’s letter was a counteroffer.

Question 26

An express contract

Answer 26

Explicitly states its terms.

Question 27

Ann Mayer wrote Tom Jackson and offered to sell Jackson a building for $200,000. The offer stated it would expire 30 days from July 1. Mayer changed her mind and does not wish to be bound by the offer. If a legal dispute arises between the parties regarding whether there has been a valid acceptance of the offer, which of the following is true?

Answer 27

If Jackson categorically rejects the offer on July 10, Jackson cannot validly accept within the remaining stated period of time.

Question 28

If a court finds a contract to be voidable,

Answer 28

A party may choose either to enforce or nullify the contract.

Question 29

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

Answer 29

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

Question 30

On June 15, Peters orally offered to sell a used lawn mower to Mason for $125. Peters specified that Mason had until June 20 to accept the offer. On June 16, Peters received an offer to purchase the lawn mower for $150 from Bronson, Mason’s neighbor. Peters accepted Bronson’s offer. On June 17, Mason saw Bronson using the lawn mower and was told the mower had been sold to Bronson. Mason immediately wrote to Peters to accept the June 15 offer. Which of the following statements is true?

Answer 30

Peters’ offer had been revoked and Mason’s acceptance was ineffective

Question 31

Which of the following statements is correct regarding the formation of a unilateral contract?

Answer 31

Only one party to a unilateral contract makes a promise.

Question 32

The president of Deal Corp. wrote to Boyd, offering to sell the Deal factory for $300,000. The offer was sent by Deal on June 5 and was received by Boyd on June 9. The offer stated that it would remain open until December 20. The offer

Answer 32

May be revoked by Deal any time prior to Boyd’s acceptance.

Question 33

Mildred saw a vase in a store. A tag on the vase said, “Genuine Crystal, $125.” Mildred said to the owner of the shop, “I’ll buy this vase for $125.” Milford, the owner of the shop, refused to sell the vase. In a lawsuit brought by Mildred against Milford,

Answer 33

Milford will win because he rejected Mildred’s offer.

Question 34

Which of the following represents the basic distinction between a bilateral contract and a unilateral contract?

Answer 34

Only one promise is involved if the contract is unilateral, but two are involved if it is bilateral.

Question 35

Andrea Grove is seeking to avoid performing a promise to pay James Brook $1,500. Grove is relying on lack of consideration on Brook’s part. Grove will prevail if she can establish that

Answer 35

Prior to Grove’s promise, Brook had already performed the requested act.

Question 36

The following conversation took place between Mary and Ed. Mary: “Ed, if you wanted to sell your table, what would you ask for it?” Ed: “I suppose $400 would be a fair price.” Mary: “I’ll take it, if you will have it refinished.” Ed: “Sold.” Thus,

Answer 36

A contract was formed when Ed said, “Sold.”

Question 37

Kay, an art collector, promised Hammer, an art student, that if Hammer could obtain certain rare artifacts within 2 weeks, Kay would pay for Hammer’s postgraduate education. At considerable effort and expense, Hammer obtained the specified artifacts within the 2-week period. When Hammer requested payment, Kay refused. Kay claimed that there was no consideration for the promise. Hammer would prevail against Kay based on

Answer 37

Unilateral contract

Question 38

Fact Pattern: 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.

For this item only, assume that on April 11 Jet sent a letter to Ard revoking its offer and that Ard received the letter on April 12. Under the circumstances,

Answer 38

Jet’s revocation effectively terminated its offer on April 12

Question 39

A valid contract is formed when

Answer 39

It has all the elements of a contract, and the law provides a remedy if breached.

Question 40

An offer is not terminated by operation of law solely because the

Answer 40

Subject matter is sold to a third party.

Question 41

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

Answer 41

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

Question 42

Which of the following is not a required element of a contract?

Answer 42

A writing

Question 43

Which legal standard is used by U.S. courts to determine whether a contract is validly formed or breached?

Answer 43

An objective standard of law

Question 44

Which of the following statements concerning the effectiveness of an offeree’s rejection and an offeror’s revocation of an offer are ordinarily true?

An Offeree’s
Rejection Is
Effective When

An Offeror’s
Revocation Is
Effective When

Answer 44

Received by offeror

Received by offeree

Question 45

On July 1, Silk, Inc., sent Blue a letter offering to sell Blue a building for $80,000. In the letter, Silk stated that it would give Blue 30 days to accept the offer. On July 15, Blue sent Silk a letter that included the following statement: “The price for your building seems too high. Would you consider taking $75,000?” This letter was received by Silk on July 16. 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 45

Win because Blue effectively accepted Silk’s offer on July 27.

Question 46

Nix sent Castor a letter offering to employ Castor as controller of Nix’s automobile dealership. Castor received the letter on February 19. The letter provided that Castor would have until February 23 to consider the offer, and, in the meantime, Nix would not withdraw it. On February 20, Nix, after reconsidering the offer to Castor, decided to offer the job to Vick, who accepted immediately. That same day, Nix called Castor and revoked the offer. Castor told Nix that an acceptance of Nix’s offer was mailed on February 19. Under the circumstances,

Answer 46

Castor’s acceptance was effective when mailed.

Question 47

Dunne and Cook signed a contract requiring Cook to rebind 500 of Dunne’s books at 80¢ per book. Later, Dunne requested, in good faith, that the price be reduced to 70¢ per book. Cook agreed orally to reduce the price to 70¢. Under the circumstances, the oral agreement is

Answer 47

Unenforceable because Dunne failed to give consideration, but proof of it is otherwise admissible into evidence.

Question 48

When parties have entered into a written contract intended as the final expression of their agreement, which of the following agreements will be admitted into evidence because they are not prohibited by the parol evidence rule?

Subsequent Oral
Agreements

Prior Written
Agreement

Answer 48

Yes

No

Question 49

Carson agreed orally to repair Ivey’s rare book for $450. Before the work was started, Ivey asked Carson to perform additional repairs to the book and agreed to increase the contract price to $650. After Carson completed the work, Ivey refused to pay and Carson sued. Ivey’s defense was based on the statute of frauds. What total amount will Carson recover?

Answer 49

$650

Question 50

Rail, who was 16 years old, purchased an $800 computer from Elco Electronics. Rail and Elco are located in a state where the age of majority is 18. On several occasions, Rail returned the computer to Elco for repairs. Rail was very unhappy with the computer. Two days after reaching the age of 18, Rail was still frustrated with the computer’s reliability. He returned it to Elco, demanding an $800 refund. Elco refused, claiming that Rail no longer had a right to disaffirm the contract. Under general contract law and the Sales Article of the UCC, Elco’s refusal is

Answer 50

Incorrect, because Rail disaffirmed the contract within a reasonable period of time after reaching the age of 18.

Question 51

To prevail in an action for innocent misrepresentation, the plaintiff must prove

Answer 51

The misrepresentations concerned material facts.

Question 52

Phil Fairbanks was approached by Nickle Corporation to write the history of Nickle for $15,000. The president of Nickle told Fairbanks the job was his if he would agree to cleverly defame Nickle’s leading competitor, Mogul Corporation, using sly innuendo and clever distortion of the facts. Fairbanks wrote the history. It turned out that the Mogul passages were neither sly nor clever, although they were defamatory, and Mogul obtained a judgment against Nickle. Fairbanks is seeking to collect the final $5,000 installment of the contract. Nickle refuses to pay and seeks to recover the $10,000 it has paid. In the event of a lawsuit,

Answer 52

The court will deny relief to either Fairbanks or Nickle.

Question 53

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 statute of frauds?

Answer 53

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

Question 54

Two individuals signed a written contract that was intended to be their entire agreement. The parol evidence rule will prevent the admission of evidence that is offered to

Answer 54

Prove the existence of a contemporaneous oral agreement that modifies the contract.

Question 55

Green was adjudicated incompetent by a court having proper jurisdiction. Which of the following statements is true regarding contracts subsequently entered into by Green?

Answer 55

All contracts are void.

Question 56

Parr is a CPA licensed to practice in State A. Parr entered into a contract with Jet, Inc., to perform an audit in State B for $50,000 (including expenses). After Parr had satisfactorily performed the audit, Jet discovered that Parr had violated State B’s licensing statute by failing to obtain a CPA license in State B. Parr incurred $10,000 in expenses in connection with the audit. Jet refuses to pay any fee to Parr, arguing that it could have engaged a local CPA licensed in State B to perform the same services for $35,000 (including expenses). If Parr sues Jet based on breach of contract, Parr will be entitled to recover a maximum o

Answer 56

$0

Question 57

Able hired Carr to restore Able’s antique car for $800. The terms of their oral agreement provided that Carr was to complete the work within 18 months. Actually, the work could be completed within 1 year. The agreement is

Answer 57

Enforceable because the work could be completed within 1 year.

Question 58

Which of the following defenses is likely to be successful in a suit alleging negligence by a CPA?

Answer 58

Due care.

Question 59

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

Answer 59

A contemporaneous oral agreement relating to a term in the contract.

Question 60

Egan, a minor, purchased Baker’s used computer for Egan’s personal use. Egan paid $200 down on delivery and was to pay $200 thirty days later. Twenty days later, the computer was damaged seriously as a result of Egan’s negligence. Five days after the damage occurred and 1 day after Egan reached the age of majority, Egan attempted to disaffirm the contract with Baker. Egan will

Answer 60

Be able to disaffirm even though Egan was not a minor at the time of disaffirmance.

Question 61

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

Answer 61

Void because of Olsen’s threat of physical harm.

Question 62

The statute of frauds

Answer 62

Requires a secondary promise to pay the debt of another to be in writing.

Question 63

On June 25, Farnsworth sold Jordan, a minor, a used computer. On July 1, Jordan reached the age of majority. On July 10, Farnsworth wanted to rescind the sale. Farnsworth offered to return Jordan’s money and demanded that Jordan return the computer. Jordan refused, claiming that a binding contract existed. Jordan’s refusal is

Answer 63

Justified because Farnsworth must perform under the contract regardless of Jordan’s minority.

Question 64

For a purchaser of land to void a contract with the seller based on duress, it must be proven that the seller’s improper threats

Answer 64

Actually induced the purchaser to assent to the contract.

Question 65

Joe Minorca purchased a motorcycle from Big Rig Company on May 1. Joe’s birthday is June 17, at which time he will have attained his majority. Which of the following actions is ineffective as a ratification of the contract of purchase?

Answer 65

On June 16, Joe remitted an installment payment.