Review R4, R5

Question 1

Bob telephoned Samantha, an electronics supplier, and ordered 600 small flashlights at $1.00 per flashlight. Bob planned to give the flashlights away at the grand opening of his electronics store. A week before the grand opening, Samantha sold most of her flashlights to a third party. She telephoned Bob and explained she would be able to send him only 200 flashlights. Bob insisted on delivery of all 600 flashlights. Upset, Samantha sent Bob a signed letter again explaining that she could not deliver the 600 flashlights for $1.00 each as promised but would be happy to deliver 200. Bob did not respond. The day before the grand opening, Samantha delivered 200 flashlights. To meet his grand opening obligations, Bob gave away 400 medium-size flashlights which cost him $1.75 each.

Is Bob entitled to recover damages for Samantha’s failure to deliver all 600 flashlights?

Answer 1

Yes, because Samantha delivered only 200 flashlights.

Samantha was obligated to deliver 600 flashlights and delivered only 200. Generally, under the Statute of Frauds, a contract for the sale of goods for $500 or more is unenforceable unless evidenced by a writing signed by the party sought to be held liable and containing the material terms of the contract. Here, the contract was oral and it was for $600 worth of flashlights. However, it was also evidenced by a writing signed by the party sought to be held liable (Samantha). Samantha sent Bob a letter explaining why she could not deliver the 600 flashlights he ordered. The letter was signed by Samantha and included the quantity and price term of the contract. Thus, it was sufficient evidence of the contract under the Statute of Frauds. Since Samantha contracted to deliver 600 flashlights and she delivered only 200, she can be held liable for Bob’s damages.

Question 2

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.

Answer 2

Statute of Frauds: a state law that requires that certain contracts be evidenced in writing in order for them to be valid or enforceable. Not all contracts need to be in writing but 6 essential types where writing are essential:
1-Long Term Contract: more than 1 year. Enforceability begins at the contract’s signing not the start work.
2-Contract involving marriage
3-Real Estate Contracts:
4- Sale of goods over $500. Sale of land or long term service
5- Surety contract: agreement where 1 person agrees to be responsible to another debts

corporate bylaws vs articles of incorporation: Articles of incorporation are public records that need to be filed with your secretary of state. Bylaws, on the other hand, are regarded as private records.

Question 3

A company instructed Smith, its computer software salesperson, to make presentations to prospective customers. Smith was not supposed to leave the demonstration copy (demo) of the software with customers, but on one occasion a customer insisted on keeping the demo. If this customer were to purchase the software, the sale would be very lucrative for Smith and the company. After Smith’s repeated attempts to reach a supervisor failed, Smith decided to allow the customer to keep the demo. Smith obtained a large deposit from the customer and a written agreement that the customer would not attempt to reproduce the demo. The customer reproduced the demo. The company sued Smith for breach of duty. What is Smith’s best defense to the action?

Answer 3

The agent acted in good faith and in a reasonable manner.

Smith acted in good faith and in a reasonable manner in carrying out his duties as an agent for the company. Smith made repeated attempts to reach a supervisor before allowing the customer to keep the demo. Smith also obtained a large deposit from the customer and a written agreement that the customer would not reproduce the demo, and he reasonably relied on the customer’s agreement not to reproduce the demo.

Question 4

A limited liability partnership must:

Answer 4

File registration documents with the state in which it is formed.

Question 5

Which of the following claims will not be discharged in bankruptcy?

Answer 5

A claim that arises from alimony or maintenance.

Money owed as alimony is not discharged in bankruptcy.

Question 6

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:

Answer 6

Prior to Grove’s promise, Brook had already performed the requested act.

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.

Question 7

Rolf, an individual, filed a voluntary petition in bankruptcy. A general discharge in bankruptcy will be denied if Rolf:

Answer 7

Unjustifiably failed to preserve Rolf’s books and records.

A voluntary petition in bankruptcy will be denied if the debtor failed to keep or preserve adequate books and records.

Question 8

Under the federal Bankruptcy Code, which of the following rights or powers does a trustee in bankruptcy not have?

Answer 8

The right to avoid any statutory liens against the debtor’s property that were effective before the filing of the bankruptcy petition.

A trustee in bankruptcy is treated as a hypothetical lien creditor on all of the debtor’s property as of the date the bankruptcy petition is filed. The trustee is subordinate to all prior perfected security interests, including statutory liens that were effective prior to the filing of the bankruptcy petition.

Question 9

Which of the following statements is true regarding contract damages?

Answer 9

Punitive damages are not available for intentional breaches of contract.

Punitive damages are not available in a contract action, even if the breach was intentional. So choice “C” is a true statement.

Question 10

Which of the following statements is correct regarding the filing of a voluntary petition under Chapter 7?

Answer 10

If the petitioner is an individual consumer debtor, his case may be dismissed or converted to a Chapter 13 case if he does not pass the means test or the general abuse test.

If an individual files a voluntary petition under Chapter 7, the case may be dismissed or converted to a Chapter 13 case if abuse is found. Abuse may be found under the means test or the general abuse test.

Question 11

Under the common law, what type of mistake is usually a defense to enforcement of a contract?

Answer 11

A mutual mistake of material fact

Generally, a mutual mistake (i.e., a mistake by both parties) of material fact can be used as a defense by one of the parties to avoid the contract.

Question 12

The Social Security tax base is calculated on:

Answer 12

A self-employed person’s net profit from self-employment.

The Social Security tax is based on a self-employed person’s net profit (subject to certain maximum limitations). For employees, this tax is based on gross wages (with some adjustments). The employer also pays the tax.

Question 13

Which of the following claims would have the highest priority in the distribution of a bankruptcy estate in an involuntary proceeding under Chapter 7 of the Bankruptcy Code filed on June 1, Year 1, with the order for relief granted on June 30, Year 1?

Answer 13

Alimony payment due.

After secured creditors are paid, the unsecured creditors entitled to a priority are paid. Claims for alimony have the first priority among unsecured creditors.

Question 14

Which of the following defenses will release a gratuitous surety from liability to a creditor?

Answer 14

The creditor and debtor enter into a binding agreement to extend the debtor’s time for payment without the surety’s consent.

A gratuitous surety will be released when the creditor commits fraud, when there is duress or breach, when the surety lacks capacity or goes bankrupt, or when there is a material change (e.g., an extension of time) without the surety’s consent. (Note: A compensated surety would be released only to the extent harmed.)

Question 15

Do the following business entities offer all of their owners protection from personal liability for contracts entered into by the business?

Answer 15

NO, Sole Proprietorship
NO, Partnership
NO, Limited Partnership

None of the business entities listed offer its owner(s) protection from personal liability for contracts entered into by the business. A sole proprietorship is a business owned and run by one person, and that person is personally liable for all the obligations of the business. A partnership is an association of two or more persons to run a business for profit. All partners are personally liable for obligations of the partnership. A limited partnership has at least one general partner who is liable for obligations of the partnership and at least one limited partner who has no personal liability for obligations of the partnership.

Question 16

Under the UCC Secured Transactions Article, which of the following events will always prevent a security interest from attaching?

Answer 16

Failure of the debtor to have rights in the collateral.

For a security interest to attach (i) there must be an agreement to create the security interest evidenced by either an authenticated security agreement or the creditor’s taking possession or control of the collateral, (ii) the creditor must give value, and (iii) the debtor must have rights in the collateral. Thus, a debtor must always have rights in the collateral in order for a security interest to attach.

Question 17

A “tax return preparer” is any person who prepares for compensation, or who employs one or more persons to prepare for compensation, all or a substantial portion of any tax return required under the Internal Revenue Code or claim for refund of income tax.

A “tax return preparer” does not include a person who (1) merely furnishes typing, reproducing, or other mechanical assistance; (2) prepares a return or claim for refund of the employer; or (3) prepares as a fiduciary a return or claim for refund for any other person.

Answer 17

A signing tax return preparer is a “tax return preparer” if the individual has the primary responsibility for the overall substantive accuracy of the preparation of the return. A nonsigning tax return preparer is a “tax return preparer” if the individual prepares all or a substantial portion of the return or offers advice to a taxpayer when that advice leads to a position or entry that constitutes a substantial portion of the return.

Question 18

What term is used to describe a partnership without a specified duration?

Answer 18

A partnership at will.

A partnership at will is a partnership with no definite term (i.e., without specified duration). Such a partnership can be terminated at any time.

A partnership by estoppel is the appearance of a partnership when there is no formal partnership. If parties who are not partners give the appearance to third parties that they are partners, the law may deem the parties to be a partnership by estoppel. The parties will be treated as partners, even though they are not.

Question 19

Knox, president of Quick Corp., contracted with Tine Office Supplies, Inc. to supply Quick’s stationery on customary terms and at a cost less than that charged by any other supplier. Knox later informed Quick’s board of directors that Knox was a majority stockholder in Tine. Quick’s contract with Tine is:

Answer 19

Valid because the contract is fair to Quick.

If a corporation enters into a contract and a director has a conflict of interest in the transaction, the contract is voidable unless the director makes full disclosure of all of the facts to the disinterested directors or the shareholders, who then approve the transaction, or the director can prove that the transaction was fair to the corporation. The stationery purchase was fair to Quick, since it was purchased at a below-market price. Thus, the contract is valid.

Question 20

A parent corporation owned more than 90% of each class of the outstanding stock issued by a subsidiary corporation and decided to merge that subsidiary into itself. Under the Revised Model Business Corporation Act, which of the following actions must be taken?

Answer 20

The subsidiary corporation’s dissenting stockholders must be given an appraisal remedy

In a short form merger (one between a parent and a subsidiary 90% of which is owned by the parent), the subsidiary’s shareholders have a right to dissent and take advantage of the appraisal remedy.

Question 21

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:

Answer 21

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.

Question 22

Which, if any, of the following statements are true under Chapter 15 of the United States Bankruptcy Code?

I.
A foreign entity may file only under Chapter 15.

II.
The automatic stay is not available under Chapter 15.

Answer 22

Neither I nor II.

A foreign entity may file an ancillary proceeding under Chapter 15, and may also file a proceeding under Chapter 7 or Chapter 11. Thus, I is not true. The automatic stay arises after a petition for recognition is granted by the court. Thus, II is not true.

Question 23

Shipment of nonconforming good constitutes a breach of contract. When there is a breach, risk of loss pass to the breaching party no matter whether the contract is shipment or destination.

Answer 23

If the goods were conforming, the risk of loss in a “shipment contract” would pass to the buyer as soon as the goods were placed in the hands of the carrier. The contract here was a shipment contract because it provided that delivery was F.O.B. Cey’s warehouse, which means risk of loss passed as soon as the goods left Cey’s warehouse.

Question 24

If a taxpayer withdraws money from an IRA before the age of 59½, is unemployed, and has received 12 consecutive weeks of unemployment compensation under federal or state law, and purchases medical insurance, there is no penalty for the early withdrawal. Pam is subject to an early withdrawal penalty because she is fully employed.

Answer 24

There is no penalty on a premature distribution from an IRA (before age 59½) if the distribution was used to pay for a first-time home purchase. The maximum exclusion is $10,000 and the home purchase must be within 120 days of the distribution.