Regulation Flashcards
mailbox rule
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.
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:
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.
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?
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.
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.
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.
In which of the following situations does the first promise serve as valid consideration for the second promise?
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.
Which of the following contracts is governed by the Sales Article of the UCC?
Article 2 of the Uniform Commercial Code (UCC)
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.
Orr gives North power of attorney. In general, the power of attorney:
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.
Which of the following defenses would a surety be able to assert successfully to limit the surety’s liability to a creditor?
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.
Which of the following qualifies as a tax-exempt political organization?
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.
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:
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.
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?
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.
If a buyer accepts an offer containing an immaterial unilateral mistake, the resulting contract will be:
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.
Merchantability
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.
Which of the following types of mistake will generally make a contract unenforceable and allow it to be rescinded?
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.
On reaching majority, a minor may ratify a contract in any of the following ways, except by:
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.”
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:
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.
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:
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.
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?
All contracts are void.
Contracts entered into by one who has been adjudicated mentally incompetent are void rather than voidable
