REG 7 - Contracts 4 - Third Party Rights/Remedies

Question 1

Which of the following, if intentionally misstated by a seller to a buyer, would be considered a fraudulent inducement to make a contract?
	A.  	Nonexpert opinion.
	B.  	Appraised value.
	C.  	Prediction.
	D.  	Immaterial fact.

Answer 1

B. This answer is correct because to constitute fraud the seller must intentionally state a false statement of fact to the buyer. Appraisals are performed by experts and are considered as a factual representation of the value of the property.
Therefore, a seller’s intentional misrepresentation of an appraised value is fraud.

Question 2

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 voidable.
	B.  	All contracts are valid.
	C.  	All contracts are void.
	D.  	All contracts are enforceable.

Answer 2

C. This answer is correct because once a person has been adjudicated incompetent by a court with proper jurisdiction all future contracts with that person are void.

Adjudicated = the legal process by which an arbiter or judge reviews evidence and argumentation including legal reasoning set forth by opposing parties or litigants to come to a decision which determines rights and obligations between the parties involved.
Deemed…

Question 3

Maco, Inc. and Kent contracted for Kent to provide Maco certain consulting services at an hourly rate of $20. Kent’s normal hourly rate was $90 per hour, the fair market value of the services. Kent agreed to the $20 because Kent was having serious financial problems. At the time the agreement was negotiated, Maco was aware of Kent’s financial condition and refused to pay more than $20 per hour for Kent’s services. Kent has now sued to rescind the contract with Maco, claiming duress by Maco during the negotiations. Under the circumstances, Kent will
A. Win, because Maco refused to pay the fair market value of Kent’s services.
B. Win, because Maco was aware of Kent’s serious financial problems.
C. Lose, because Maco’s actions did not constitute duress.
D. Lose, because Maco cannot prove that Kent, at the time, had no other offers to provide consulting services.

Answer 3

C. This answer is correct because for duress to be proved Kent would have to show that Maco’s actions were threats that overcame Kent’s free will forcing Kent into a contract at the $20 rate. Kent needed money and willingly agreed to the $20 rate. Although Maco benefited from the contract rate, it did not force Kent to enter into the $20 rate contract.

Question 4

Which of the following types of conduct renders a contract void?
A. Mutual mistake as to facts forming the basis of the contract.
B. Undue influence by a dominant party in a confidential relationship.
C. Duress through physical compulsion.
D. Duress through improper threats.

Answer 4

C. Physical threats do render a contract void.

Question 5

To prevail in a common law action for fraud in the inducement, a plaintiff must prove that the
A. Defendant was an expert with regard to the misrepresentations.
B. Defendant made the misrepresentations with knowledge of their falsity and with an intention to deceive.
C. Misrepresentations were in writing.
D. Plaintiff was in a fiduciary relationship with the defendant.

Answer 5

B. A common law fraud action requires four proofs: a false statement of fact or misrepresentation by the defendant, knowledge of the false statement by the defendant, reliance by the plaintiff, and a loss suffered by the plaintiff. If these elements are present, the plaintiff is a winner.

Question 6

What type of conduct generally will make a contract voidable?
A. Fraud in the execution.
B. Fraud in the inducement.
C. Physical coercion.
D. Contracting with a person under guardianship.

Answer 6

B. This creates a voidable contract. If someone misrepresents information about the contract subject matter, you are free to go ahead with the contract or rescind it—it is voidable.

Question 7

T/F: Proving the defense of duress requires proof of threats of physical force.

Answer 7

False.
Duress is a defense when one party in the formation stage is deprived of their free will or choice for entering into the contract.
Forms of duress include:
* physical force or threats
* threats to disclose private info
* economic pressure - if a party doesn’t enter into a contract the other party threatens to ruin their business.

Question 8

T/F: If two parties enter into a contract for the sale of land for $100,000, both honestly believing that the tract consists of 100 acres, when in fact it consists of 95 acres, the contract cannot be enforced by either party.

Answer 8

True

Question 9

Which of the following types of conditions affecting performance may validly be present in contracts?
Conditions precedent
Conditions subsequent
Concurrent Conditions

Answer 9

Yes, yes, yes

Any of these may be inserted into a contract.

Question 10

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

Answer 10

Yes, yes
Both are correct because two methods of discharge of the original contract are by accord (agreement to accept a different performance) and satisfaction whereby the substituted performance is performed, and mutual rescission, whereby both parties agree to the discharge of their obligations (mutual rescission).

Question 11

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.  	Material breach of the contract.
	B.  	Delay in performance.
	C.  	Tender.
	D.  	Assignment of rights.

Answer 11

A. If a party is in material breach of a contract, the non-breaching party is discharged from his or her performance of the contract

Question 12

To cancel a contract and to restore the parties to their original positions before the contract, the parties should execute a
	A.  	Novation
	B.  	Release
	C.  	Rescission
	D.  	Revocation

Answer 12

C. A rescission is the undoing of a contract. Both sides are returned to their original positions, and the contractual obligations on both sides are discharged.

A NOVATION takes place when one person takes over another’s contractual obligations, and the other is discharged. For example, a father might call a bank and say, “If you let my son out of his loan payments, I will make them.”
In a RELEASE, one party is let out of his or her contractual obligations. This does not necessarily return the parties to their previous positions and, in fact, is unlikely to do so unless the contract performance has not been started yet.
A REVOCATION is the taking back of an offer to make a contract and not the undoing of a contract itself. If an offeror says, for example, “The offer no longer stands,” a revocation has taken place.

Question 13

The statute of limitations for an alleged breach of contract
A. Does not apply if the contract was oral.
B. Requires that a lawsuit is commenced and a judgment rendered within a prescribed period of time.
C. Is determined on a case by case basis.
D. Generally commences on the date of the breach.

Answer 13

D. A statute of limitations sets a fixed period (usually four years) that is the maximum amount of time a party has to file a lawsuit. In a breach of contract case, the period begins at the time the contract is breached.

Question 14

Kaye contracted to sell Hodges a building for $310,000. The contract required Hodges to pay the entire amount at closing. Kaye refused to close the sale of the building. Hodges sued Kaye.

To what relief is Hodges entitled?
A. Punitive damages and compensatory damages.
B. Specific performance and compensatory damages.
C. Consequential damages or punitive damages.
D. Compensatory damages or specific performance.

Answer 14

D. This answer is correct because Hodges has a choice of these remedies. Because the subject of the contract (realty) is unique (no two pieces of property with the same legal description) and damages are really inadequate because performance is more valuable than money damages, Hodges can file a petition for specific performance requiring Kaye to deed the property to Hodges. Hodges could elect instead to file a lawsuit for breach of contract and seek damages (for the loss of the bargain) actually sustained.

Question 15

Which of the following statements is correct regarding the effect of the expiration of the period of the statute of limitations on a contract?
A. Once the period of the statute of limitations has expired, the contract is void.
B. The expiration of the period of the statute of limitations extinguishes the contract’s underlying obligation.
C. A cause of action barred by the statute of limitations may not be revived.
D. The running of the statute of limitations bars access to judicial remedies.

Answer 15

D. The statute of limitations is a period of time within which a plaintiff must file an action in an appropriate court to receive judicial remedies. The period of time limitation usually begins at the time the cause for action occurs. Failure to file within the time period removes from the court the ability to grant a remedy. In a contract for the sale of goods, the statute of limitations period is four years but by agreement can be reduced to one year. A, B, and C are incorrect because although the plaintiff cannot seek a judicial remedy, it is a valid contract that can still be voluntarily completed, and for debts (an underlying obligation, for example), can be revived.

Question 16

T/F: Generally, for breach of contract, the non-breaching party is entitled to punitive damages.

Answer 16

False.
The non-breaching party is entitled to a possible variety of damages - monetary recovery:
* nominal
*compensatory
* incidential damages
* consequential damages
* punitive damages (rarely given in these cases)
* liquidated damages

Question 17

West, Inc., and Barton entered into a contract. After receiving valuable 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.  	West released Barton.
	B.  	West breached the contract.
	C.  	Egan released Barton.
	D.  	Barton paid West.

Answer 17

C. Egan has all the rights of West based on the assignment. Thus, Egan can release Barton, discharging the Barton contract, and West has no further liability to Egan.

Question 18

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. Be in writing and signed by the assignor.
C. Not materially increase the other party’s risk or duty.
D. Not be revocable by the assignor.

Answer 18

C. Generally, any right can be assigned. One exception is an assignment that materially increases the risks of the obligor (party obligated to perform the contact). For example, if I have a grocery store in Dallas and have a contract with ABC under which they will deliver produce to me, I cannot assign that right to a store in Los Angeles. ABC’s shipping costs would rise substantially.

Question 19

Pierce owed Duke $3,000. Pierce contracted with Lodge to paint Lodge's house and Lodge agreed to pay Duke $3,000 to satisfy Pierce's debt. Pierce painted Lodge's house, but Lodge did not pay Duke the $3,000. In a lawsuit by Duke against Pierce and Lodge, who will be liable to Duke?
	A.  	Pierce only.
	B.  	Lodge only.
	C.  	Both Pierce and Lodge.
	D.  	Neither Pierce nor Lodge.

Answer 19

C. Pierce has made an assignment of his benefits under the contract or named Duke as a creditor beneficiary. Either way, Duke has contract rights against both of them as an assignee or a creditor beneficiary.

Question 20

Union Bank 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
A. Recover the policy proceeds because it is a creditor beneficiary.
B. Recover the policy proceeds because it is a donee beneficiary.
C. Not recover the policy proceeds because it is not in privity of contract with the insurance company.
D. Not recover the policy proceeds because it is only an incidental beneficiary.

Answer 20

A. A person is a creditor beneficiary if two things are in place: one party to a contract in question owed the creditor money, and the contract in question was made specifically to satisfy that debt. Here, Wagner owed Union money and named Union as beneficiary in the life insurance contract to partially satisfy that debt. A creditor beneficiary may sue to enforce the contract.

Question 21

Yost contracted with Egan for Yost to buy certain real property. If the contract is otherwise silent, Yost’s rights under the contract are
A. Assignable only with Egan’s consent.
B. Non-assignable because they are personal to Yost.
C. Non-assignable as a matter of law.
D. Generally assignable.

Answer 21

D. This answer is correct because unless the contract terms prohibit assignment, or the rights are personable to the person rendering them, or the assignment will materially increase or alter the risk or duties of the obligor, contract rights are generally assignable.

Question 22

Generally, which of the following contract rights are assignable?
Option contract rights
Malpractice insurance policy rights

Answer 22

Yes, No
This answer is correct because any contract can be assigned unless the contact or law prohibits assignment, or the assignment would alter or materially increase the risks or duties of the obligor.

Malpractice insurance is designed to fit a particular insured based on a person’s or firm’s reputation, type of practice, past performance and the like. An assignee might create entirely new or increased risks. Thus, these types of contracts are non-assignable.
Option contracts can be freely assigned, unless such is prohibited in the terms of the option contract. The rights and duties under an option contract do not change upon assignment.