R5, M2 Contract Flashcards
Green was adjudicated incompetent by a court having proper jurisdiction. Which of the following statements is correct regarding contracts subsequently entered into by Green?
“A court can adjudicate someone as incompetent when they lack the legal ability to do something”
All contracts are void.
Contracts entered into by one who has been adjudicated mentally incompetent are void rather than voidable.
Brown cosigned Royal’s $50,000 note to State Bank. If Royal is later adjudicated mentally incompetent, what would be Brown’s liability on the note?
Liable to pay State on the due date of the note.
A surety is a person who agrees to be liable on someone else’s debt. The cosigner of a note is a surety. A surety is liable on the date just like a principal, and the surety is not discharged by the principal debtor’s bankruptcy or by the fact that the principal debtor became incapacitated.
Parent gave securities with an adjusted basis of $10,000 and fair market value of $9,000 to a child. Later the child sold the securities for $7,000. What is the child’s basis for the securities sold?
$9,000
Gifted property generally retains the cost basis it had in the hands of the donor at the time of the gift. An exception applies, however, if the fair market value at the date of the gift is lower than the cost basis. In such situations, the donee’s basis depends on the donee’s future selling price of the asset. If the sales price exceeds the donor’s cost basis, the donee’s basis equals the donor’s cost basis. If the sales price is less than the donor’s cost basis but is greater than the fair market value at gift, the donor’s basis equals the sales price. If the sales price is less than donor’s cost basis and fair market value, the donee’s basis equals fair market value, which is applicable to this situation. The child’s basis is $9,000 (fair market value at date of the gift) because the sales price of $7,000 is less than both the adjusted basis of $10,000 and the fair market value of $9,000.
The basis in gifted property equals fair market value if the donor’s basis exceeds fair market value at the date of the gift, and the sales price of the asset is less than the donor’s basis and fair market value at the date of the gift.
Under the Sales Article of the UCC, the warranty of title:
Provides that the seller deliver the goods free from any lien of which the buyer lacked knowledge when the contract was made.
The warranty of title is a guarantee from the seller that the goods are delivered free of all liens of which the buyer is unaware.
Under the Federal Insurance Contributions Act (FICA), which of the following acts will cause an employer to be liable for penalties?
Failure to
supply taxpayer
identification
numbers and Failure to
make timely
FICA
deposits.
Webstar Corp. orally agreed to sell Northco Inc. a computer for $20,000. Northco sent a signed purchase order to Webstar confirming the agreement. Webstar received the purchase order and did not respond. Webstar refused to deliver the computer to Northco, claiming that the purchase order did not satisfy the UCC Statute of Frauds because it was not signed by Webstar. Northco sells computers to the general public and Webstar is a computer wholesaler. Under the UCC Sales Article, Webstar’s position is:
Incorrect because it failed to object to Northco’s purchaser order.
Although the contract here requires a writing under the Statute of Frauds signed by the party to be charged, the Sales Article provides a “confirmatory memo” or “written confirmation” exception between merchants. If one merchant sends the other a memo of their contract sufficient to bind the sender, it will bind the recipient as well unless the recipient objects within a reasonable time. UCC 2-201
Although the contract here requires a writing under the Statute of Frauds signed by the party to be charged, the Sales Article provides a “confirmatory memo” exception. Between merchants, if one merchant sends the other a memo of their contract sufficient to bind the sender, it will bind the recipient as well unless the recipient objects within a reasonable time. UCC 2-201
Which of the following statements about the contract defense of impossibility is true?
Destruction of the specified source of the subject matter of the contract after the contract has been formed can be the basis for an impossibility defense.
The passing of the statute of limitations is a defense—a contract generally is unenforceable if the statute of limitations has run. But the defense is a defense separate and apart from impossibility.
Fred entered into a written contract with Joe to purchase a car. The written contract was intended to be the final and complete agreement of the parties. Fred is unhappy with the performance of the car and has commenced an action for breach of contract based on an oral representation made at the time the written contract was executed. Fred may introduce evidence of the representation if it:
Serves to clarify an ambiguous term in the written contract.
Under the parol evidence rule oral or written statements made before a fully integrated contract is executed, and oral statements made contemporaneous to execution are inadmissible to contradict the terms of the written contract. However, the rule does not bar evidence of such prior or contemporaneous statements that seek to clarify an ambiguous term.
The statute of frauds requires certain contracts to be evidenced by a writing to be enforceable. It does not prohibit introduction of oral evidence regarding the contents of contracts.
Wok Corp. has decided to expand the scope of its business. In this connection, it contemplates engaging several agents. Which of the following agency relationships is within the statute of frauds and thus should be evidenced by a signed writing?
An agency for the forthcoming calendar year that is entered into in mid-December of the prior year.
Most agencies do not require a writing. Agencies for the sale of land and agencies impossible to complete in one year do require a writing. An agency agreement entered into in mid-December and to last for the entire next year would require a writing because it would be impossible to complete in one year.
Under the Sales Article of the UCC, in an F.O.B. place of shipment contract, the risk of loss passes to the buyer when the goods:
Are delivered to the carrier.
In an F.O.B. place of shipment contract, risk of loss passes when the goods are placed in the hands of a carrier at the seller’s loading dock.
