Section 2 - Contracts Flashcards
Which of the following penalties is usually imposed against an accountant who, in the course of performing professional services, breaches contract duties owed to a client?
Money damages
The client can sue the accountant for monetary damages if the accountant breaches contract duties
What law governs the sale of real estate?
Common Law
On May 25, Year 1, Smith contracted with Jackson to repair Smith’s cabin cruiser. The work was to begin on May 31, Year 1. On May 26, Year 1, the boat, while docked at Smith’s pier, was destroyed by arson. Which of the following statements is correct with regard to the contract?
Jackson would not be liable to Smith because performance by the parties would be impossible.
When an event occurs that makes it impossible to carry out the terms of the contract, the contract is discharged
A substituted contract involves the original parties to an agreement whereby all parties agree to ____of a new or amended contract in the place of the original contract. As such, the parties are released from their duties to abide by and act upon the original contract, but continue ____relationship with each other in the substituted contract.
substitute the terms and conditions
in a contractual
A novation, by definition, requires at least one party of the original contract be ____by a new party, and the new party assumes all of the ____of the original party as if that original party was never part of the contract (i.e., a discharge of that original party).
substituted
responsibilities
On December 1, Gem orally contracted with Mason for Mason to manage Gem’s restaurant for one year starting the following January 1. They agreed that Gem would pay Mason $40,000 and that Mason would be allowed to continue to work for Gem if “everything worked out.” On June 1, Mason quit to take a better-paying job, alleging that the contract violated the statute of frauds. What will be the outcome of a suit by Gem for breach of contract?
Gem will lose because the contract could not be performed within one year.
Since the contract could not be performed within one year, the oral contract would not be enforceable in court.
A contract for the sale of goods for a price of $___ or more must be in ___to be enforceable.
4 exceptions
500, writing
- Oral contract is enforceable if other merchant sends written confirmation wthin 10 days
- Goods pecially manufactures and manufacturer has made substantial progress
- Goods paid for and receiced
- Other person admits in court the oral contract
Any contract for the sale of ____must be in writing to be enforceable.
securities
Sale of intangible personal property (e.g., _____) for more than $5,000 must be in writing.
a patent, copyright, or royalty right
The concept of ____of damages generally requires that compensation for damages is given only in those situations where the breaching party could reasonably have foreseen the probable result of their breach.
____of damages is a concept that imposes a duty upon the innocent injured party to reduce (___) their damages resulting from a breach of contract.
foreseeability
Mitigation, (mitigate)
Yost contracted with Egan for Yost to buy certain real property. If the contract is otherwise silent, Yost’s rights under the contract are:
assignable only with Egan’s consent.
nonassignable because they are personal to Yost.
nonassignable as a matter of law.
generally assignable.
Generally Assignable.
Rights (legal ability to get something from the other party) are almost always assignable.
NONASSIGNABLE CONTRACTS
1; Nonassignable contracts generally involve ___
2; Contracts that involve the ____of one of the parties.
personal service
personal satisfaction
____is a required element of a contract.
___ is an element of the contract that supports the promise given, causing the promise to be enforceable
____must be mutual for a valid contract
Consideration
____is a legal rule of contract interpretation that states that extrinsic (oral or written) evidence (i.e., outside the contract) is not admissible to add to, alter, or vary the terms of a written contract.
Parol evidence
Despite the parol evidence rule, oral evidence may be admitted as proof: (4)
Fraud
Oral condition or failure of oral condition(NOT PRIOR WRITTEN AGREEMENTS) to enter contract (must do something first before entering contract)
Explain omission/contractual capacities
Subsequent Modification
Which of the following statements is correct regarding the effect of the expiration of the period of the statute of limitations on a contract?
Once the period of the statute of limitations has expired, the contract is void.
The expiration of the period of the statute of limitations extinguishes the contract’s underlying obligation.
A course of action barred by the statute of limitations may not be revived.
The running of the statute of limitations bars access to judicial remedies.
The running of the statute of limitations bans/bars access to judicial remedies.
The statute of limitations is a statute that provides certain specified periods of time within which matured claims may be asserted by legal action.
Contract ISNT voided - but it’s not enforceable. Same with obligation.
Green was adjudicated incompetent by a court having proper jurisdiction. Which of the following is correct regarding contracts subsequently entered into by Green?
All contracts are voidable.
All contracts are valid.
All contracts are void.
All contracts are enforceable.
All contracts are void.
A ___contract is one that never had any legal status.
void
A ____contract is valid only until one party exercises a right to avoid the contract.
____ contracts can be made valid by (1) ___or (2) ___by the party with the right to avoid the contract.
voidable, voidable, ratification(signing), silence
STATUTE OF FRAUDS
It specifies that certain contracts must be in ____and signed by the party to be charged in order to be enforceable.
Applies in only 4 scenarios
- Sale of goods exeeding $___
- Contracts that take longer ___
- Sale of ___or ___
- Promise to ___the debt of another
writing
The statute applies only to the following:
- $500
- Longer than a year
- Real property or securities
- Answer/Pay the debt of another
If the problems don’t fall under the statute of frauds, then it falls under ____
common law
In the law of real property, ____describes a situation in which a landlord either does something or fails to do something that the landlord has a legal duty to provide
constructive eviction
The guarantee must be in writing, oral, or doesnt matter?
Writing
If the contractual obligations to be performed are ____, the contractual obligations are automatically discharged.
Contractual obligations for the personal services of one person are not affected by the ___of the other person to receive, increased cost of performance, or bankruptcy of the party who is to ____the performance.
illegal
death
receive
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
Both
Mutual rescission is a joint agreement to call off the contract and/or replace w/ new one.
Accord&Satisfaction - they’re mutually satisfied that the contract hasn’t been performed.
A contract between a minor and an adult is ___only by the ___. The adult is bound by the contract.
voidable,minor.
On May 25, Fresno sold Bronson, a minor, a used computer. On June 1, Bronson reached the age of majority. On June 10, Fresno wanted to rescind the sale. Fresno offered to return Bronson’s money and demanded that Bronson return the computer. Bronson refused, claiming that a binding contract existed.
When could bronson disffirm(reaffirm)
What would happen if Bronson ratified(changed terms) of the contract after being 18?
Anytime while being a minor OR a reasonable time after turning 18
Ratifying after turning 18, he would be bound by the contract as an adult.
Insurable interest is any legally recognized or substantial economic interest in the safety and preservation of the insured property; the right to collect on ____
insurance;
Title passes from the seller to the buyer only if the goods are ____in the sales contract. A buyer has an ____ interest from the time the goods are identified in the contract.
identified
insurable interest
Define:
unjust enrichment.
public policy.
quasi contract.
Unjust Enrichment: court readdresses a situation where one party has performed some act for the benefit of another person and should receive compensation in the name of justice.
Public Policy - No specific law or prior case dealt with same facts, but action can be taken with a basis of common sense
Quasi Contract - Courts apply contractual remedy when no legal contract exists, but is enforced in law.
Under contract law, one of the parties can sometimes have a third party perform the contracting party’s obligations under the contract; this is called a ___
Can all duties be delegated?
delegation of duties
NO -performance by the delegate would vary materially from performance by the delegator.
((((For example, if the contract is based on the artistic skill or unique ability of the delegator, the duty to perform is nondelegable.))))
___ is a significant change in a contract that changes its interpretation or effect
Material alteration
____is an agreement between two contracting parties where some different performance will replace the original performance; __is the carrying out of the accord.
Accord
satisfaction
An accord and satisfaction discharges the contractual obligation.
Agreements made in consideration of marriage, is this enforceable under the statute of frauds?
Yep
If it is possible to perform a contract within one year, then an oral contract is ____
enforceable and is not required to be written.
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?
Pierce only
Lodge only
Both Pierce and Lodge
Neither Pierce nor Lodge
Both
Pierce is still liable to Duke for $3,000. Since Lodge agreed to pay Duke $3,000 if Pierce would paint Lodge’s house, Lodge is now also liable to Duke for $3,000
Either accord or satisfaction by itself will discharge the contractual obligation.
t/f
FALSE – NEED BOTH
Fraud in the inducement is a false representation of a ____intentionally made, justifiably relied upon, and resulting in injury
material fact
Omega Corp. owned a factory that was encumbered by a mortgage securing Omega’s note to Eagle Bank. Omega sold the factory to Spear, Inc., which assumed the mortgage note. Later, Spear defaulted on the note, which had an outstanding balance of $15, 000. To recover the outstanding balance, Eagle:
Who do you sue?
Either spear or omega
There does not appear to be a novation (substituted contract that dissolves a previous contractual duty) of the original contract in this problem. The creditor has not agreed to release Omega from the contract, so both Spear and Omega continue to be liable for debt.
For Duress, a purchaser of land to avoid a contract with the seller based on duress, it must be shown that the seller’s improper threats actually ____
induced the purchaser to assent to the contract.
Note: Important to prove the threats actually caused, rather than the threats would have caused.
An act of God will only terminate the offer if the subject matter of the contract was ___.
actually destroyed
A discharge is the end of a contractual obligation. Which of the following is not a discharge of a contractual obligation?
Complete performance
Partial performance
Condition precedent not happening
Condition subsequent happening
Complete Performance - contract is completed and exactly as agreed upon
Partial Performance - Contract is not complete. Therefore NOT A DISCHARGE
Condition Precedent not happening - Need a condition precedent to happen for a contract to happen. If this doesn’t happen, then no contract, then no contract obligation
Condition Subsequent - Ends existing contract obligation
Wilcox Co. contracted with Ace Painters, Inc., for Ace to paint Wilcox’s warehouse. Ace, without advising Wilcox, assigned the contract to Pure Painting Corp. Pure failed to paint Wilcox’s warehouse in accordance with the contract specifications. The contract between Ace and Wilcox was silent with regard to a party’s right to assign it. Which of the following statements is correct?
Ace remained liable to Wilcox despite the fact that Ace assigned the contract to Pure….WHY?
Contracts are ordinarily assignable. Nonassignable contracts generally involve personal service, personal satisfaction of one of the parties, contracts that state that the contract is not assignable, or contracts that would treat the nonassigning party unfairly. Since this contract involves personal services, it is not assignable and Ace remains liable.
A person’s promise to pay a real estate agent $1,000 in return for the real estate agent’s earlier act of not charging commission for selling the person’s house
Is this enforceable?
No - past consideration is NO consideration.
No consideration was from the real estate agent.
Breach by one party discharges the duty of performance by the other party….T/F
True
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?
White’s recovery will be limited to monetary damages because Ames’ breach of the construction contract was not material…. WHY?
Since Ames’ breach of contract was inadvertent (a mistake), a remedy of compensatory monetary damages (i.e., the difference in cost between the two fixtures) is appropriate because the breach is not material.
Requiring Ames to replace the fixtures per the contract would be the remedy of specific performance. This remedy is awarded only if monetary damages would be inadequate. In this case, since the Perfection fixtures were substantially as good as the required Ace fixtures, specific performance would not be required.
In the case of substantial performance, remedy is limited to the damages caused by the ___.
reduced performance
Required performance - Actual Performance = Compensation damage
To cancel a contract and to restore the parties to their original positions before the contract, the parties should execute a:
Rescission
A revocation occurs when a party informs the other party that their offer is ____
no longer valid
Johns leased an apartment from Olsen. Shortly before the lease expired, Olsen threatened Johns with eviction and physical harm if Johns did not sign a new lease for twice the old rent. Johns, unable to afford the expense to fight eviction, and in fear of physical harm, signed the new lease. Three months later, Johns moved and sued to void the lease claiming duress. The lease will be held:
void because of the unreasonable increase in rent.
voidable because of Olsen’s threat to bring eviction proceedings.
void because of Johns’ financial condition.
voidable because of Olsen’s threat of physical harm.
voidable because of Olsen’s threat of physical harm. ————The lease will be held voidable because of Olsen’s threat of physical harm. Duress is a defense to a contract that may be held voidable.
Courts do not attempt to measure the value of consideration and will not hold the lease void because of the “unreasonable increase in rent.” Olsen’s threat to evict the tenants if they do not sign a new lease is perfectly legal
Long purchased a life insurance policy with Tempo Life Insurance Co. The policy named Long’s daughter as beneficiary. Six months after the policy was issued, Long died of a heart attack. Long had failed to disclose on the insurance application a known preexisting heart condition that caused the heart attack. Tempo refused to pay the death benefit to Long’s daughter. If Long’s daughter sues, Tempo will:
win, because of Long’s failure to disclose the preexisting heart condition….WHY?
Failing to disclose the preexisting condition would be considered fraud in the execution of the life insurance contract. Even if the misrepresentation is innocent, the life insurance may rescind the contract.
Minors cannot ratify contracts until ____
they reach a majority age, which is usually 18.
All of the following are effective methods of ratifying a contract entered into by a minor, except:
expressly ratifying the contract after reaching the age of majority.
failing to disaffirm the contract within a reasonable time after reaching the age of majority.
ratifying the contract before reaching the age of majority.
impliedly ratifying the contract after reaching the age of majority.
ratifying the contract before reaching the age of majority.
Minors cannot ratify contracts until they reach a majority age, which is usually 18.
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? Fresno’s letter constituted a counteroffer….WHY?
Fresno’s letter constituted a counteroffer because it was received after the deadline imposed by the terms of the offer. Recall that Harris’ offer required receipt by February 18. Under common law contract law, Fresno’s failure to ensure receipt on or before February 18 meant that a late acceptance could only be a counteroffer. The “mailbox” rule which states that an acceptance is effective when mailed does not apply because the offeror placed specific terms on proper acceptance.
What is the mailbox rule?
The “mailbox” rule which states that an acceptance is effective when mailed does not apply because the offeror placed specific terms on proper acceptance.
A tenant renting an apartment under a 3-year written lease that does not contain any specific restrictions may be evicted for:
counterfeiting money in the apartment.
keeping a dog in the apartment.
failing to maintain a liability insurance policy on the apartment.
making structural repairs to the apartment.
counterfeiting money in the apartment.
A tenant may not use the leased property for unlawful purposes. If the tenant does so, the landlord may terminate the lease, evict the tenant, and sue for damages.
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: win unless the liquidated damage provision is detremined to be a
penalty
Excessive liquidated damages are void (because
If the courts find the liquidated damage provision to be a ____, they will disregard the provision and make the party try to prove ____ damages.
because they are seen to represent a penalty
penalty, compensatory damages
Which of the following, if intentionally misstated by a seller to a buyer, would be considered a fraudulent inducement to make a contract?
Nonexpert opinion
Appraised value
Prediction
Immaterial fact
Appraised Value.
fraudulent inducement must be factual and material. Opinions and predictions are not facts. Immaterial facts cannot affect an inducement. An intentionally misstated appraised value is a material fact
Which one of the following is not consideration for purposes of contract law?
A return promise to do something that the promisee isnot legally obligated to do
An act other than a return promise that the promisee is not legally obligated to do
A forbearance—promising not to do something that the promisee has a legal right to do
A moral obligation
Moral Obligation
A moral obligation is not consideration; even though the person may be obligated, that does not make the contract legal.
Carson Corp., a retail chain, asked Alto Construction to fix a broken window at one of Carson’s stores. Alto offered to make the repairs within three days at a price to be agreed on after the work was completed. A contract based on Alto’s offer would fail because of indefiniteness as to the: Price involved…..WHY?
valid offer must include agreement (offer and acceptance), consideration, contractual capacity, and legal object. The terms of a valid offer must be definite and certain. The subject matter, parties to the contract, and time for performance are obvious. However, the price in this problem is indefinite.
Under the parol evidence rule, oral evidence will be excluded if it relates to:
a contemporaneous oral agreement relating to a term in the contract.
failure of a condition precedent.
lack of contractual capacity.
a modification made several days after the contract was executed.
a contemporaneous oral agreement relating to a term in the contract…..this should be written in the agreement if it is during the writing stage.
Which of the following would be unenforceable because the subject matter is illegal?
An employer’s promise not to press embezzlement charges against an employee who agrees to make restitution….WHY?
A contract must have a legal purpose. Since the subject of the contract, embezzlement, is a criminal act, the contract does not have a legal purpose and is not enforceable.
Jerry’s House of Jewelry, Inc., took out an insurance policy with the Old Time Insurance Company that covered the stock of jewelry displayed in the store’s windows. Old Time agreed to indemnify Jerry’s House for losses due to window smashing and theft of the jewels displayed. The application contained the following provision: “It is hereby warranted that the maximum value of the jewelry displayed shall not exceed $10,000.” The insurance policy’s coverage was for $8,000. The application was initialed alongside the warranty and attached to the policy. Subsequently, thieves smashed the store window and stole $4,000 worth of jewels. The total value of the display during that week, including the day of the robbery, was $12,000. Which of the following is correct? Jerry’s House will recover nothing…why?
In this case, the contract includes the application along with the policy. Jerry’s House of Jewelry was displaying jewelry in excess of the agreed-upon amount. Since it violated the terms of the contract, no recovery is required.
On June 15, Peters orally offered to sell a used lawn mower to Mason for $125. Peters specified that Mason had until June 20 to accept the offer. On June 16, Peters received an offer to purchase the lawn mower for $150 from Bronson, Mason’s neighbor. Peters accepted Bronson’s offer. On June 17, Mason saw Bronson using the lawn mower and was told the mower had been sold to Bronson. Mason immediately wrote to Peters to accept the June 15 offer. Which of the following statements is correct?
Mason’s acceptance would be effective when received by Peters.
Mason’s acceptance would be effective when mailed.
Peters’s offer had been revoked and Mason’s acceptance was ineffective.
Peters was obligated to keep the June 15 offer open until June 20.
Peters’s offer had been revoked and Mason’s acceptance was ineffective.
A sale of the property to another entity would be a termination. An indirect revocation by the offerer, such as Mason being told by Bronson that Bronson bought the mower, is a valid termination.
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?
Proof of the existence of a subsequent oral modification of the contract
Proof of the existence of a prior oral agreement that contradicts the written contract
II only
The parol evidence rule excludes from evidence proof of a prior or contemporaneous statement (written or oral) or agreement that contradicts the final written contract.
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?
Not liable because the contractor knew of the errors..WHY?
If the other party knows or should reasonably know of the existence of the error, no acceptance is permitted
If a unilateral mistake occurs and the offeree isn’t aware of theerror, is the offeror is liable for that amount?
TRUE
Long was a purchasing agent for Frost, a sole proprietor. Long had express authority to place purchase orders with Frost’s suppliers. Long conducted business on the Internet and had little contact with Frost. After Frost was declared incompetent in a judicial proceeding, Long placed an order with Grant Corp. on Frost’s behalf. Both Long and Grant were unaware of Frost’s incompetence. Will Frost or Frost’s legal representative be liable to Grant?
No b/c long didn’t have authority to enter into the contract b/c the mental incapacity principal automatically terminates the agency
