R6-1 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.
All contracts are enforceable.
b.
All contracts are void.
c.
All contracts are voidable.
d.
All contracts are valid.
Choice “b” is correct. Contracts entered into by one who has been adjudicated mentally incompetent are void rather than voidable. Thus, choice “c” is incorrect. Note that choices “d” (all contracts are valid) and “a” (all contracts are enforceable) are the same answer. Since both cannot be correct, both must be wrong.
Which of the following actions if taken by one party to a contract generally will discharge the performance required of the other party to the contract?
a.
Tender.
b.
Assignment of rights.
c.
Delay in performance.
d.
Material breach of the contract.
Choice “d” is correct. A material breach generally will discharge the nonbreaching party.
Choice “c” is not as good an answer as “d”. While a delay in performance could cause a discharge, it will do so only in a UCC Sales contract, a contract stating that time is of the essence, or if the delay otherwise materially breaches the contract.
Choice “a” is incorrect. Generally if a party tenders performance, the other party will also have to perform. Tender of performance does not discharge the other party.
Choice “b” is incorrect. Generally, contracts are assignable, and an assignment of rights will not discharge the other party from performing.
Which of the following will release all original parties to a contract but will maintain a contractual relationship between the original parties?
~Novation
~~Substituted contract
a.
Yes
No
b.
Yes
Yes
c.
No
No
d.
No
Yes
Choice “d” is correct. In a novation, the agreement is unchanged but one of the original parties is released and a new party is substituted into their place. In a substituted contract, the original parties are both released from the original agreement but areboth bound by a new agreement.
Which of the following concepts affect(s) the amount of monetary damages recoverable by the nonbreaching party when a contract is breached?
~~Forseeability of damages
~~Mitigation of damages
a.
Yes
Yes
b.
No
Yes
c.
Yes
No
d.
No
No
Choice “a” is correct. Consequential damages are recoverable for breach of contract only to the extent they are foreseeable. And in every case, a nonbreaching party has a duty to mitigate damages-a duty to make reasonable efforts to cut down on losses resulting from the breach. Failure to do so will preclude the party from collecting damages that might have been avoided.
Under the Sales Article of the UCC, when a written offer has been made without specifying a means of acceptance but providing that the offer will only remain open for ten days, which of the following statements represent(s) a valid acceptance of the offer?
I.
An acceptance sent by regular mail the day before the ten-day period expires that reaches the offeror on the eleventh day.
II.
An acceptance faxed the day before the ten-day period expires that reaches the offeror on the eleventh day, due to a malfunction of the offeror’s printer.
a.
Both I and II.
b.
Neither I nor II.
c.
I only.
d.
II only.
Choice “a” is correct. Under UCC 2-206, an offer that does not specify the means of acceptance may be accepted by any means reasonable under the circumstances; thus the attempt to accept by mail or fax was a proper means. Generally under the mailbox rule, an acceptance will be effective on dispatch (including sending a fax) unless the offer specifies that acceptance will be effective only upon receipt. Here, the offer merely says that it will remain open for 10 days; it does not require receipt of the acceptance within 10 days. Thus, the mailbox rule applies and both the letter and the fax are valid acceptances.
Which of the following facts must be proven for a plaintiff to prevail in a common law negligent misrepresentation action?
a.
The plaintiff justifiably relied on the misrepresentations.
b.
The defendant made the misrepresentations with a reckless disregard for the truth.
c.
The misrepresentations were in writing.
d.
The misrepresentations concerned opinion.
Choice “a” is correct. To make out an action for negligent misrepresentation, the plaintiff must show both actual and justifiable reliance on the misrepresentation.
Choice “b” is incorrect. In negligent misrepresentation, the misrepresentation can arise out of conduct that is negligent (i.e., simple carelessness); reckless disregard for truth is considered the equivalent of fraud and is a much higher standard of misconduct.
Choice “c” is incorrect. Misrepresentations need not be in writing to give rise to a cause of action.
Choice “d” is incorrect. The misrepresentation must be of a material fact; misrepresentation of an opinion generally will not support a cause of action for negligent misrepresentation.
A building subcontractor submitted a bid for construction of a portion of a high-rise office building. The bid contained material computational errors. The general contractor accepted the bid with knowledge of the errors. Which of the following statements best represents the subcontractor’s liability?
a.
Not liable because the contractor knew of the errors.
b.
Not liable because the errors were a result of gross negligence.
c.
Liable because the errors were material.
d.
Liable because the errors were unilateral.
Choice “a” is correct. Unilateral mistake is a defense to a contract if the nonmistaken party knew or should have known of the mistake. Here, the contractor knew of the error.
Choice “b” is incorrect. Whether the mistake was due to ordinary negligence or gross negligence is irrelevant in determining whether the mistake will constitute a contract defense.
Choice “d” is incorrect. Unilateral mistake is a defense to a contract if the nonmistaken party knew or should have known of the mistake.
Choice “c” is incorrect. While mistake is grounds for a defense only if the mistake is material, materiality is not all that is necessary. When the mistake is unilateral, as it is here, the nonmistaken party must also have known of the mistake (or had cause to know of the mistake).
Where the 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 agreements
a.
No
Yes
b.
Yes
No
c.
Yes
Yes
d.
No
No
Choice “b” is correct. The parol evidence rule prohibits introduction of prior written statements to vary the terms of a fully integrated contract, but it does not bar the introduction of subsequent oral agreements.
Which of the following types of conditions affecting performance may validly be present in contracts?
~~Conditions precedent
~~Conditions subsequent
~~Concurrent conditions
a.
No
Yes
Yes
b.
Yes
Yes
Yes
c.
Yes
Yes
No
d.
Yes
No
Yes
Choice “b” is correct. A contract can have conditions precedent, subsequent, or concurrent.
Grove is seeking to avoid performing a promise to pay Brook $1,500. Grove is relying on lack of consideration on Brook’s part. Grove will prevail if he can establish that:
a.
Prior to Grove’s promise, Brook had already performed the requested act.
b.
Brook’s only claim of consideration was the relinquishment of a legal right.
c.
Brook’s asserted consideration is only worth $400.
d.
The consideration to be performed by Brook will be performed by a third party.
Choice “a” is correct. A contract generally must be supported by valid consideration. Valid consideration will be present if there is a bargained for exchange of something of legal value. If the act promised has already been performed, the bargain element fails. Thus, it is said that past consideration is no consideration.
Choice “b” is incorrect. A contract generally must be supported by valid consideration. Relinquishment of a legal right constitutes something of legal value. Thus, this is not a good defense for Grove.
Choice “c” is incorrect. As long as the consideration is not a sham, the courts will not inquire into the adequacy of the consideration exchanged. $400 is not sham consideration; thus, the large disparity in value of the consideration exchanged here is not a defense.
Choice “d” is incorrect. The benefits of a contract need not flow to the parties to constitute consideration, the mere giving of a benefit or receipt of a detriment is sufficient.
Generally, which of the following contract rights are assignable?
~~Option contract rights
~~Malpractice insurance policy rights
a.
No
Yes
b.
Yes
Yes
c.
No
No
d.
Yes
No
Choice “d” is correct. Generally, all contract rights are assignable unless the assignment would result in a change in the obligor’s risk. Thus, option contract rights generally are assignable. Rights to malpractice insurance are not assignable because the insurer’s risk varies based on the identity (and characteristics) of the insured.
One of the criteria for a valid assignment of a sales contract to a third party is that the assignment must:
a.
Be supported by adequate consideration from the assignee.
b.
Not materially increase the other party’s risk or duty.
c.
Not be revocable by the assignor.
d.
Be in writing and signed by the assignor.
Choice “b” is correct. Generally, all contracts are assignable unless the assignment would result in a change in the obligor’s risk.
Choice “a” is incorrect. An assignment need not be supported by consideration; assignments may be gratuitous.
Choice “d” is incorrect. There is no requirement that an assignment of a contract for the sale of goods be in writing.
Choice “c” is incorrect. An assignment may be revocable or irrevocable.
Which of the following actions will result in the discharge of a party to a contract?
~~Prevention of performance
~~Accord and satisfaction
a.
No
No
b.
Yes
Yes
c.
Yes
No
d.
No
Yes
Choice “b” is correct. Prevention of performance results in a discharge for breach of the implied duty of cooperation. A party to a contract will also be discharged through an accord and satisfaction.
If a person is induced to enter into a contract by another person because of the close relationship between the parties, the contract may be voidable under which of the following defenses?
a.
Duress.
b.
Unconscionability.
c.
Fraud in the inducement.
d.
Undue influence.
Choice “d” is correct. Undue influence is when a person in a position of trust or confidence takes unfair advantage of the relationship such that the other party’s free will to contract is overcome.
Under a personal services contract, which of the following circumstances will cause the discharge of a party’s duties?
a.
Bankruptcy of the party who is to receive the services.
b.
Cost of performing the services has doubled.
c.
Illegality of the services to be performed.
d.
Death of the party who is to receive the services.
Choice “c” is correct. Illegality of the services to be performed always results in a discharge of duties. This assumes that the services were legal at the time the contract was formed. If the services had been illegal at the time of attempted formation, there would be no contract.
Choice “d” is incorrect. The death of the party who is to receive the services does not usually result in discharge of duties under a personal services contract. However, death might make performance impossible therefore causing a discharge (e.g., if doctor contracts to perform a bypass operation on patient and patient dies before the operation can be performed, doctor is discharged from performing).
Choice “b” is incorrect. A party can be discharged from a contract for impossibility or commercial impracticability, but a mere increase in costs does not make a performance impossible or impracticable.
Choice “a” is incorrect. Mere bankruptcy of the party to receive the services will not result in a discharge, although discharge is possible if the bankruptcy constitutes anticipatory repudiation, such as when it makes it very unlikely that the person receiving the services will be able to pay.
Ordinarily, in an action for breach of a construction contract, the statute of limitations time period would be computed from the date the:
a.
Contract is negotiated.
b.
Contract is breached.
c.
Contract is signed.
d.
Construction is begun.
Choice “b” is correct. The statute of limitations for breach of contract usually begins to run on the occurrence of the breach.
Egan, a minor, contracted with Baker to purchase Baker’s used computer for $400. The computer was purchased for Egan’s personal use. The agreement provided that Egan would pay $200 down on delivery and $200 thirty days later. Egan took delivery and paid the $200 down payment. Twenty days later, the computer was damaged seriously as a result of Egan’s negligence. Five days after the damage occurred and one day after Egan reached the age of majority, Egan attempted to disaffirm the contract with Baker. Egan will:
a.
Not be able to disaffirm because the computer was damaged as a result of Egan’s negligence.
b.
Be able to disaffirm only if Egan does so in writing.
c.
Not be able to disaffirm because Egan had failed to pay the balance of the purchase price.
d.
Be able to disaffirm despite the fact that Egan was not a minor at the time of disaffirmance.
Choice “d” is correct. A minor has a reasonable time after reaching the age of majority to disaffirm contracts. One day after reaching majority is within a reasonable time, and so Egan could disaffirm.
Choice “b” is incorrect. There is no requirement that a minor who wishes to disaffirm must do so in writing.
Choice “c” is incorrect. A minor may disaffirm a partially executed contract. The minor will only have a right to get back what he has paid.
Choice “a” is incorrect. A minor may disaffirm even if the subject matter of the contract has been destroyed; the minor’s only duty is to return whatever is left.
Teller brought a lawsuit against Kerr ten years after an oral contract was made and eight years after it was breached. Kerr raised the statute of limitations as a defense. Which of the following allegations would be most important to Kerr’s defense?
a.
The action was not timely brought because the contract was entered into ten years prior to the commencement of the lawsuit.
b.
The action was not timely brought because the contract was allegedly breached eight years prior to the commencement of the lawsuit.
c.
The contract was oral.
d.
The contract could not be performed within one year from the date made.
Choice “b” is correct. Generally, the statute of limitations runs from the time the contract was breached, not from the time the contract was entered (if the time the contract was entered were used, there would be no remedy for breaches that occurred late in long-term contracts). Consequently, choice “a” is incorrect.
Choice “c” is incorrect. Whether a contract is oral or written is most relevant to whether it is enforceable under the Statute of Frauds.
Choice “d” is incorrect. Whether a contract could be performed within a year is most relevant to the Statute of Frauds.
To prevail on the defense of fraud in the inducement, a victim must prove that the:
a.
Defrauder was in a fiduciary relationship with the victim.
b.
Misrepresentations were in writing.
c.
Defrauder was an expert with regard to the misrepresentations.
d.
Defrauder made the misrepresentations with knowledge of their falsity and with an intention to deceive.
Choice “d” is correct. The common law defense of fraud requires a showing of intent to deceive. Fraud in the inducement (as opposed to fraud in the execution) merely means that the victim was deceived as to the reason for the transaction.
Choice “c” is incorrect. A person need not be an expert concerning the subject matter of the deceit to be liable for misrepresentation. The person need only knowingly lie.
Choices “b” and “a” are incorrect. Fraud in the inducement means that the victim was deceived as to the reasons for entering into the fraudulent transaction; there is no requirement that the misrepresentation have been made in writing, so “b” is incorrect. Similarly, there is no requirement of a fiduciary relationship, so “a” is incorrect.
Which of the following offers of proof are inadmissible under the parol evidence rule when a written contract is intended as the complete agreement of the parties:
I.
Proof of the existence of a subsequent oral modification of the contract.
II.
Proof of the existence of a prior oral agreement that contradicts the written contract.
a.
Both I and II.
b.
Neither I nor II.
c.
II only.
d.
I only.
Choice “c” is correct. The parol evidence rule prohibits evidence of prior oral or written agreements that seek to contradict the terms of a fully integrated contract (i.e., one intended as the complete agreement). Thus, II is prohibited. However, the parol evidence rule does not prohibit introduction of subsequent agreements; thus, I is not prohibited.
Ames Construction Co. contracted to build a warehouse for White Corp. The construction specifications required Ames to use Ace lighting fixtures. Inadvertently, Ames installed Perfection lighting fixtures, which are of slightly lesser quality than Ace fixtures, but in all other respects meet White’s needs. Which of the following statements is correct?
a.
Ames must install Ace fixtures or White will not be obligated to accept the warehouse.
b.
White will not be able to recover any damages from Ames because the breach was inadvertent.
c.
Ames did not breach the construction contract because the Perfection fixtures were substantially as good as the Ace fixtures.
d.
White’s recovery will be limited to monetary damages because Ames’ breach of the construction contract was not material.
Choice “d” is correct. Contracts governed by the common law, especially construction contracts, do not allow rescission for minor breaches, but limit the nonbreaching party to recovery of damages.
Choice “b” is incorrect. Contract law generally does not differentiate between intentional and inadvertent breaches; damages are recoverable for both.
Choice “c” is incorrect. First, the facts say that Perfection fixtures were of a lesser quality than Ace fixtures, and even if this were not true, there still would be a breach; the contract called for Ace fixtures and so only the use of Ace fixtures would constitute full compliance with the contract.
Choice “a” is incorrect. Contracts governed by the common law, especially construction contracts follow the doctrine of substantial performance. A party who receives substantially all of the benefit of the bargain is bound to the contract and can seek only damages for any minor breaches.
All of the following are effective methods of ratifying a contract entered into by a minor, except:
a.
Expressly ratifying the contract after reaching the age of majority.
b.
Ratifying the contract before reaching the age of majority.
c.
Impliedly ratifying the contract after reaching the age of majority.
d.
Failing to disaffirm the contract within a reasonable time after reaching the age of majority.
Choice “b” is correct. A minor can disaffirm any contract until a reasonable time after reaching the age of majority. Thus, a “ratification” prior to reaching majority can be revoked and is not effective.
Choice “a” is incorrect. Express ratification after reaching the age of majority is one way to ratify a contract.
Choice “d” is incorrect. Failing to disaffirm a contract within a reasonable time after reaching the age of majority constitutes a ratification.
Choice “c” is incorrect. Impliedly ratifying after reaching the age of majority (e.g., by retaining the benefits of the contract or failing to timely disaffirm) effectively ratifies a minor’s contract.
Which of the following statements correctly applies to a typical statute of limitations?
a.
The statute limits the right of a party to recover damages for misrepresentation unless the false statements were intentionally made.
b.
The statute prohibits the admission into evidence of proof of oral statements about the meaning of a written contract.
c.
The statute requires that a legal action for breach of contract be commenced within a certain period of time after the breach occurs.
d.
The statute provides that only the party against whom enforcement of a contract is sought must have signed the contract.
Choice “c” is correct. A statute of limitations requires that actions to enforce rights under a contract be brought within a certain time after breach has occurred.
Choice “d” is incorrect. The Statute of Frauds, not statute of limitations, is concerned about who has signed a contract.
Choice “a” is incorrect. The right to recover if there was an intentional false statement involves the concept of scienter.
Choice “b” is incorrect. Oral statements offered to prove the meaning of a written contract involves the parol evidence rule.
On February 1, Burns contracted in writing with Nagel to sell Nagel a used car. The contract provided that Burns was to deliver the car on February 15 and Nagel was to pay the $800 purchase price not later than March 15. On February 21, Burns assigned the contract to Ross for $600. Nagel was not notified of the assignment. Which of the following statements is correct?
a.
The assignment to Ross is invalid because Nagel was not notified.
b.
By making the assignment, Burns impliedly warranted a lack of knowledge of any fact impairing the value of the assignment.
c.
Ross will not be subject to any contract defenses Nagel could have raised against Burns.
d.
By making the assignment, Burns impliedly warranted Nagel would pay the full purchase price.
Choice “b” is correct. Essentially, by the assignment, Burns sold the contract right to collect the $800 from Nagel. In such a case, the assignor warrants that he does not know of anything that would impair the value of the assignment; otherwise, people would attempt to assign contracts whenever they knew of a problem.
Choice “d” is incorrect. There is no implied warranty that the promisor will perform.
Choice “a” is incorrect. The obligor need not be given notice to effectively assign a contract right. However, until the obligor receives notice, no liability is incurred by paying the assignor.
Choice “c” is incorrect. An assignee generally is subject to all of the defenses that the promisor would have against the assignor relating to the contract (e.g., that the car was stolen).
Master Mfg., Inc. contracted with Accur Computer Repair Corp. to maintain Master’s computer system. Master’s manufacturing process depends on its computer system operating properly at all times. A liquidated damages clause in the contract provided that Accur pay $1,000 to Master for each day that Accur was late responding to a service request. On January 12, Accur was notified that Master’s computer system failed. Accur did not respond to Master’s service request until January 15. If Master sues Accur under the liquidated damage provision of the contract, Master will:
a.
Win, because under all circumstances liquidated damage provisions are enforceable.
b.
Lose, because liquidated damage provisions violate public policy.
c.
Lose, because Accur’s breach was not material.
d.
Win, unless the liquidated damage provision is determined to be a penalty.
Choice “d” is correct. A liquidated damages clause is enforceable if at the time of contracting it appears that the amount of damages in case of breach would be difficult to assess and the amount is a reasonable approximation of damages and not a penalty.
Choice “a” is incorrect. A liquidated damages clause is not enforceable if it constitutes a penalty, if actual damages would be easy to assess at the time the contract was made, or if the liquidated damages amount is not a reasonable approximation of actual damages.
Choice “c” is incorrect. The agreement of the parties made time of the essence under the contract, since Master could not operate without its computer system and this fact was made clear to Accur. Thus, the delay is a material breach.
Choice “b” is incorrect. Liquidated damages provisions do not violate public policy if at the time of contracting it appears that the amount of damages in case of breach would be difficult to assess and the amount is a reasonable approximation of damages and not a penalty.
On September 10, Harris, Inc., a new car dealer, placed a newspaper advertisement stating that Harris would sell 10 cars at its showroom for a special discount only on September 12, 13, and 14. On September 12, King called Harris 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, Harris made a televised announcement that the sale would end at 10:00 PM that night. King went to Harris’ showroom on September 14 and demanded the right to buy a car at the special discount. Harris had sold the 10 cars and refused King’s demand. King sued Harris for breach of contract. Harris’ best defense to King’s suit would be that Harris’:
a.
Advertisement was not an offer.
b.
Offer was unenforceable.
c.
Television announcement revoked the offer.
d.
Offer had not been accepted.
Choice “a” is correct. Advertisements are generally not offers, but invitations to negotiate. An advertisement is an offer only if it is a promise to perform a very specific act conditioned upon acceptance. If Harris’ ad had stated that Harris would sell 10 specifically identified cars for a specified price during the sale, Harris’ advertisement would be an offer. Harris’ actual advertisement is too vague to be an offer.
Choice “b” is incorrect. The advertisement here is too vague to be considered an offer since it does not specify which cars or what the special discount is.
Choice “c” is incorrect. The announcement did not revoke an offer because the original ad was too vague to be considered an offer since it does not specify which cars or what the special discount is. Moreover, generally revocations must be made through the same means as the offer. If the newspaper ad were an offer, a television announcement would not be a sufficient way to revoke it.
Choice “d” is incorrect. The advertisement here is too vague to be considered an offer since it does not specify which cars or what the special discount is. Thus, there was no offer to be accepted or not accepted. Moreover, even if the ad were an offer, because all 10 cars had already been sold by the time King came in to accept, any attempted acceptance was too late; the offer had terminated because all 10 cars were sold.
On April 1, Fine Corp. faxed Moss an offer to purchase Moss’ 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 correct?
a.
A contract was formed when Moss sent the acceptance.
b.
A contract was formed when Fine received Moss’ acceptance.
c.
No contract was formed because Fine received Moss’ acceptance after April 4.
d.
No contract was formed because Moss sent the acceptance by an unauthorized method.
Choice “c” is correct. Generally, under the mailbox rule, acceptance is effective when sent. However, an offeror may opt out of the mailbox rule by stating that the acceptance must be received by a certain date to be effective. Fine’s offer here required receipt by April 4. Moss’ acceptance was received after the April 4th deadline.
Choice “d” is incorrect. The offer did not require any particular method of acceptance, only receipt within a specified time. Thus, any reasonable means of acceptance was authorized.
Choice “a” is incorrect. Since the offeror required that the acceptance be received to be effective, the mailbox rule would not be applicable.
Choice “b” is incorrect. The offer stated that an acceptance had to be received by April 4 and the attempted acceptance here was received on April 5. Thus, it was ineffective because the offer had already terminated on the date attempted acceptance was received.