Regulation

Question 1

mailbox rule

Answer 1

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.

Question 2

Kay, an art collector, promised Hammer, an art student, that if Hammer could obtain certain rare artifacts within two weeks, Kay would pay for Hammer’s postgraduate education. At considerable effort and expense, Hammer obtained the specified artifacts within the two-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 2

Unilateral contract.

A unilateral contract is formed when a promise is exchanged for an act. This is what occurred here: Kay promised to pay for Hammer’s education in exchange for Hammer’s obtaining rare artifacts and Hammer performed. Thus, a unilateral contract was formed.

Question 3

A cash-basis taxpayer made a bona fide, nonbusiness loan to an acquaintance in Year 1. At the end of Year 2, it is determined that the taxpayer will likely be able to collect only 20 percent of the principal, and no interest has been or will be collected. How should the loss be treated for tax purposes in Year 2?

Answer 3

None of the loss is deductible in Year 2.

None of the loss is deductible. A nonbusiness bad debt must be totally worthless to be deductible. A nonbusiness bad debt is treated as a short-term capital loss in the year the debt becomes totally worthless.

Question 4

Which of the following statements is true with regard to the Statute of Frauds?

The statute of frauds is a legal doctrine requiring that certain types of contracts be in written form.

Answer 4

The contract terms may be stated in more than one document.

There is no requirement that the terms of a written contract be contained in a single writing.

Question 5

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

Answer 5

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

Anything having legally recognized value can constitute consideration. If parties legitimately disagree as to the amount owed under their contract, a promise to compromise, such as the parties are doing here, has legal value and constitutes consideration since both parties are giving up the right to litigate the dispute.

Question 6

Which of the following contracts is governed by the Sales Article of the UCC?

Article 2 of the Uniform Commercial Code (UCC)

Answer 6

A sale of a used car by a nonmerchant.

A contract for the sale of a used car by a nonmerchant is governed by the Sales Article of the UCC.

The Sales Article of the UCC (Article II) applies to sales of goods. Goods are defined as tangible, movable personal property. UCC Article II is not limited to merchants, although a number of UCC rules depend on whether one or more of the parties are merchants.

Choice “B” is incorrect. Contracts for intangible personal property, such as stock sold on the stock exchange, is covered by common law contracts, not the Sales Article of the UCC.

Question 7

Orr gives North power of attorney. In general, the power of attorney:

Answer 7

May limit North’s authority to specific transactions.

A power of attorney is simply a principal’s written authorization granting an agent authority to enter into binding contracts on the principal’s behalf. The power of attorney authorization may limit the agent’s authority to specific transactions, and usually does.

Question 8

Which of the following defenses would a surety be able to assert successfully to limit the surety’s liability to a creditor?

Answer 8

The incapacity of the surety.

A surety may raise his or her own contract defenses to limit his or her liability; thus, the surety’s own incapacity is a defense to the surety promise.

Question 9

Which of the following qualifies as a tax-exempt political organization?

Answer 9

Campaign committee for candidate for public office.

A campaign committee for a candidate for federal, state, or local public office is a type of Section 527 tax-exempt political organization.

A fraternal society or lodge is a tax-exempt organization, but it is not a tax-exempt political organization.

A veterans’ organization of past or present members of the U.S. Armed Forces is a tax-exempt organization, but it is not a tax-exempt political organization.

A federal credit union is a tax-exempt organization, but it is not a tax-exempt political organization.

Question 10

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 rate 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:

Answer 10

Lose, because Maco’s actions did not constitute duress.

Duress occurs when a person overcomes the will of another through wrongful force or threats of imminent force. Economic duress generally is not recognized as a defense to contract, and even where it is, it is usually required that the party taking advantage of the other party’s poor financial condition must have caused the poor condition.

Question 11

If a person is induced (succeed in persuading or influencing someone to do something) 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?

Answer 11

Undue influence.

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.

Question 12

If a buyer accepts an offer containing an immaterial unilateral mistake, the resulting contract will be:

Answer 12

Valid as to both parties.

An immaterial unilateral mistake is not a defense to a contract. A material unilateral mistake can be a defense if the nonmistaken party either knew or should have known of the mistake.

Question 13

Merchantability

Answer 13

is an implied warranty that arises in every sale of goods by a merchant. Among other things, it is a warranty that the goods sold will be fit for their ordinary purposes.

The warranty of fitness for particular purpose arises when a seller knows of a particular purpose for the goods being sold and the buyer relies on the seller to choose goods suitable for that purpose.

Question 14

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

Answer 14

A mutual mistake of fact.

A mutual mistake of a material fact will make a contract voidable at the option of the adversely affected party.

Question 15

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

Answer 15

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

The term “ratification” refers to the process by which a minor by his/her action or “inaction” legally accepts an entire contract after he/she reaches the age of majority. Accepting some of the terms is not “ratification.”

Question 16

Maureen is 15 years old. She buys a $2,000 bicycle that she continues to use and keep in repair after reaching the age of majority. Maureen has:

Answer 16

Ratified the contract.

Upon reaching the age of majority, a person can become bound on contracts entered into as a minor through ratification by retaining the benefits of the contract.

Question 17

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, and returned it to Elco, demanding an $800 refund. Elco refused, claiming that Rail no longer had a right to disaffirm the contract. Elco’s refusal is:

Answer 17

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

A minor may disaffirm a contract within a reasonable time after reaching majority, and two days is certainly a reasonable time.

Question 18

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

Answer 18

All contracts are void.

Contracts entered into by one who has been adjudicated mentally incompetent are void rather than voidable

Question 19

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?

Answer 19

Material breach of the contract.

A material breach generally will discharge the nonbreaching party.

Question 20

Payne entered into a written agreement to sell a parcel of land to Stevens. At the time the agreement was executed, Payne had consumed alcoholic beverages. Payne’s ability to understand the nature and terms of the contract was not impaired. Stevens did not believe that Payne was intoxicated. The contract is:

Answer 20

Legally binding on both parties.

Formation of a contract requires capable parties. Therefore, intoxication may be a defense to formation. However, merely drinking alcoholic beverages, particularly when there is no serious impairment of judgment, will not interfere with the ability of parties to enter into a contract.
Choice “A” is incorrect. A contract will be voidable due to intoxication only if a party was intoxicated. Here, the facts indicate that Payne was not intoxicated and that Stevens did not believe that Payne was intoxicated. Therefore, the contract is not voidable on intoxication grounds.

Question 21

Under the Sales Article of the UCC, the warranty of title:

Answer 21

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.

Question 22

Brasher, who owns an office building, hires a real estate agent to find a buyer for the building. Shortly thereafter, Jaxson hires the same real estate agent to find an office building for purchase. If the agent sells Brasher’s office building to Jaxson without disclosing the agency relationship with Brasher, the real estate agent has breached which of the following duties?

Answer 22

Duty of loyalty.

The agent owes the principal a duty of loyalty and must act solely in the principal’s interest. The duty of loyalty is breached when the agent has interests adverse to the principal. The real estate agent breached the duty of loyalty by not disclosing the agency relationship with Brasher.

Question 23

Which of the following is(are) available to a principal when an agent fraudulently breaches a fiduciary duty (Is a legal obligation to act in the best interests of another partyor principal. the word )

Fiduciary means trust

Answer 23

f an agent breaches her fiduciary duty, the principal can terminate the agency and receive the remedy of a constructive trust to ensure that the principal can recover secret profits obtained by the agent because of the wrongful conduct.

Question 24

Generally, an agency relationship is terminated by operation of law in all of the following situations, except the:

Answer 24

Agent’s renunciation of the agency.

Either party has the power (but not necessarily the right) to terminate an agency relationship; the agent’s termination is called renunciation. Renunciation would terminate the agency not by operation of law but by the act of a party.

Question 25

Which of the following events will always terminate an agent’s apparent authority?

Answer 25

The principal’s death.

Both an agent’s actual authority and apparent authority are terminated automatically, by operation of law, on the death of either the principal or the agent, although in some states the termination by death of the principal is not effective until the agent learns of the principal’s death.

Question 26

Nontaxable Income

Answer 26

1-Social Security (at low income level)
2-Tax-exempt interest income (state and municipal interest income)
3-Tax exempt scholarchip

Question 27

Qualifying Relatives, Qualifying child (Support Test)

Answer 27

Taxpayer must have supplied more than half (greater than 50%)

Question 28

Itemized Deduction (from AGI) reported on schedule A

Answer 28

DEDUCTIBLE COST:
1- Medical expense in excess of 7.5% AGI.
2- Medical and accident insurance premiums (qualify long-term care premiums base on age of taxpayer)
NON DEDUCTIBLE COST:
1- Elective surgery
2- Life insurance
INSURANCE REIMBURSEMENT:
Must reduce allowance before the % of the AGI floor applied

Question 29

Jen offers to sell Bob her laptop computer for $500. Bob is not sure he can afford it and asks Jen if she will keep the offer open until noon the next day. Jen tells Bob that she will keep her offer open if he gives her his promise that he won’t buy another computer before that time. Bob gives Jen his promise not to buy another computer. Is Jen obligated to keep the offer open until noon the next day?

Answer 29

Yes, because there is a valid option contract in place.

Generally, a promise to keep an offer open for a specified time is unenforceable unless it is made in writing by a merchant (i.e., a merchant’s firm offer) or consideration supports the promise, in which case, an option contract is formed. Here, Bob gave his promise to not purchase another computer in exchange for Jen’s promise to keep the promise open. Bob was not legally obligated to forgo purchasing another computer, and giving up the right to do so is valid consideration. Thus, the parties created an option contract to keep the offer open.

Although an offer generally may be revoked if not accepted “right away,” an exception to this rule exists if the offer is an option. The offer here is an option contract because Bob gave consideration to keep it open (his promise to not buy another computer before noon the following day).

Question 31

On April 1, Fine Corp. e-mailed 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?

Answer 31

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

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.

Question 32

Under common law, 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?

Answer 32

.

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 e-mailed the day before the ten-day period expires that reached the offeror on the eleventh day, due to a server malfunction.

Under common law, if the offer does not state that acceptance is effective upon receipt and does not specify the means of acceptance, the offeree may invoke the “mailbox rule” and make the acceptance effective upon dispatch by using any reasonable means of acceptance. Both regular mail and e-mail transmission appear to be reasonable means of acceptance. Here, the offer did not state that the acceptance had to be received within 10 days, but rather only that the offer was open for 10 days. Neither did the offer specify any method for accepting. Thus, the mailbox rule applies and the acceptances are effective upon dispatch; it is irrelevant that they were received on the eleventh day.

Question 33

On November 1, Yost sent an e-mail to Zen offering to sell a rare vase. The offer required that Zen’s acceptance e-mail be sent on or before 5:00 P.M. on November 2. On November 1, 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 33

No, because Zen did not accept by e-mail.

Generally, an acceptance by any reasonable means will be effective on dispatch. However, the offeror is the master of his or her offer and may attach any conditions that he or she desires to the offer. Here, Yost’s offer stated that an acceptance e-mail must be sent by November 2. Thus, acceptance by overnight mail was invalid.
Choice “A” is incorrect. Although the acceptance letter was mailed on time, a letter was not a proper means of acceptance here because the offer stated that an acceptance e-mail must be sent.
Choice “B” is incorrect. The offer required a timely mailing of an e-mail acceptance and not actual receipt.

Question 34

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 correct?

Answer 34

Fresno’s letter constituted a counteroffer.

No contract was formed. The letter was not a valid acceptance because it was not in a proper form (by private overnight delivery rather than by registered or certified mail, as required in the offer) and was not received on time. The mailbox rule does not apply here because the offeror opted out of the rule by stating that the acceptance had to be received by a specific time. Since the attempted acceptance arrived late, it will be deemed a counteroffer.

Question 35

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

Answer 35

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

Anything having legally recognized value can constitute consideration. If parties legitimately disagree as to the amount owed under their contract, a promise to compromise, such as the parties are doing here, has legal value and constitutes consideration since both parties are giving up the right to litigate the dispute.

Question 36

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

Answer 36

The parol evidence rule generally bars evidence of prior or contemporaneous oral statements offered to vary the terms of a fully integrated written contract. Oral evidence is permissible when the contract is incomplete, ambiguous, invalid, or subject to a condition precedent, or when modification is made after the original contract is written. A contemporaneous oral agreement will be excluded.

Question 37

Duress

Answer 37

Duress occurs when a person overcomes the will of another through wrongful force or threats of imminent force. Economic duress generally is not recognized as a defense to contract, and even where it is, it is usually required that the party taking advantage of the other party’s poor financial condition must have caused the poor condition

Question 38

UCC

Answer 38

Sale of goods anything movable (goods you can touch or move)

Question 39

Statute of Frauds
(Pass Key)

Answer 39

The Statute of Frauds requires contracts involving the sales of goods to be in writing if they exceed $500 (MYLEGS). However, if any of these exceptions apply, an oral contract will be enforceable:

SWAP - Specially Manufactured goods, Written merchant’s confirmatory memo, Admission in court, and Performance.

Question 40

Jefferson Hardware ordered three hundred Ram hammers from Ajax Hardware. Ajax accepted the order in writing. On the final date allowed for delivery, Ajax discovered it did not have enough Ram hammers to fill the order. Instead, Ajax sent three hundred Strong hammers. Ajax stated on the invoice that the shipment was sent only as an accommodation. Which of the following statements is correct?

Answer 40

Ajax’s shipment of Strong hammers is a breach of contract.

The examiners were trying to trick you here. Under the Sales Article, an offer can be accepted by shipment, and shipment of nonconforming goods can constitute both an acceptance and an immediate breach unless the seller had notified the buyer that nonconforming goods would be shipped as an accomodation. The accomondation rules does not apply here since reasonable notice was not provided that nonconforming goods would be shipped as an accomondation to the buyer. Thus, the shipment of a different brand of hammers constitutes a breach of contract.
the shipment here was not an accommodation because the contract had already been accepted by a letter. In any case, an accommodation shipment serves as a counteroffer; it does not cancel an existing contract.

Question 41

Under the Sales Article of the UCC, which of the following oral contracts for the sale of goods valued at more than $500 is most likely to be unenforceable?

Answer 41

A contract to sell a work of art.

Under the Sales Article, contracts for the sale of goods for $500 or more typically are unenforceable unless the material terms of the contract are evidenced by a writing signed by the party against whom enforcement is sought. There is no exception for works of art.

Choice “B” is incorrect. Although the Statute of Frauds typically requires a writing to make enforceable contracts for the sale of goods for $500 or more, there is an exception for specially manufactured goods. If the contract is for goods not suitable for sale to others, the contract will still be enforceable even if it is oral.

Question 42

To satisfy the UCC Statute of Frauds regarding the sale of goods, which of the following must generally be in writing?

Answer 42

Quantity of the goods.

Under the UCC (Article 2) a written contract for the sale of goods must contain some indication of the quantity of the goods being sold.

Question 43

Excusing performance of a contract due to very large unforeseen expenses not contemplated by the parties to the contract at the time of the formation of the contract is the definition of which of the following?

Answer 43

Anticipatory repudiation

Under the Sales Article of the UCC, a contract will be discharged for impracticability if it is extremely more burdensome than anticipated because of the occurrence of an unforeseen event.

Question 44

Under the Sales Article of the UCC, which of the following events will result in the risk of loss passing from a merchant seller to a buyer?

Answer 44

In a noncarrier case, risk of loss passes from a merchant seller on actual delivery of the goods into the buyer’s possession. Mere tender at the seller’s place of business does not pass the risk. Neither does the seller’s using its truck to deliver the goods. (Note that since the seller is using its own truck, this is a noncarrier case, no common carrier was involved.)

Question 45

Risk of Loss ( heavenly tested)

Question 46

Unilateral contract

Question 47

Bilateral contract

Answer 47

One promise was exchanged for another right. Ex: Lina promises to take you to see a snowman if you promise to pay her $100.