Business Law Practice Exam #2

One purpose of contract law is to make business matters more predictable.

true

The elements of a contract are agreement, consideration, legality, and capacity.

true

Robert offers to buy a car from Jane for $400. Jane must accept this offer in order to form an enforceable
contract.

true

A valid contract can legally be voided by either party.

false

Lucy and Rick sign a contract in which Lucy agrees to deliver 10 boxes of chocolates in exchange for Rick’s promise to pay $5 per box. Lucy delivers the candy. Rick pays for the goods. This contract is fully executory.

false

Upon the recommendation of a friend, Hope hires Joey to rewire her kitchen and he completes the work within the time agreed. Then Hope finds out that Joey is not a licensed electrician, and she refuses to pay him for the work. A court will enforce the agreement because otherwise Hope would be unjustly enriched.

false

When promissory estoppel is used by the courts, it is because there is NOT an enforceable contract present.

true

Under a contract, Danielle is required to make a set of draperies out of fabric chosen by the homeowners, the Flynns. After Danielle makes the draperies according to the contract requirements, her duties under the contract are discharged.

true

Alex promises to pay $100 to anyone who finds his lost watch. Kate finds and returns the watch to Alex after hearing of the reward money. Alex and Kate have an enforceable unilateral contract.

true

When Olga asks Sven if he wishes to sell his Harley motorcycle, he replies that he would not sell it "for less than $2,000. "Olga replies, "I accept," and hands him $2,000. A contract exists.

false

Revocation is the withdrawal of an offer by the offeror.

true

In seeking to ascertain whether there is a meeting of the minds, the courts look to how a reasonable person would objectively view the language or actions of the parties.

true

Vern Valve Company makes valves for plumbing fixtures. At the beginning of the year, it sends out a price list addressing each one, "To our valued customers." Honest Hank Hardware orders a variety of valves at the prices quoted on the price list. Vern Valve must sell the valves to Honest Hank for the prices quoted on the list.

false

Society enforces all promises in the interests of simple morality.

false

Boris sky dives out of a plane and gets hung up in a tree, hopelessly suspended and swinging precariously in his parachute from the branches of the tree. Natasha sees that he is in trouble and comes to his rescue. Once Boris is safely on the ground, he gratefully promises to give Natasha half of his life savings account. When he changes his mind, Natasha will probably be unsuccessful in enforcing his promise.

true

An illusory promise is not consideration.

true

An agreement may violate public policy even if the agreement does not require a party to commit a crime, tort, or violate a statute.

true

If a contract is made with a person required by law to hold a license, and the purpose of the license is protection of the public, the contract made by an unlicensed person will generally be unenforceable.

true

Roger parked his car at a garage that has a large sign at the entrance saying, "This garage is not liable for items stolen from a car." This type of notice is referred to as an exculpatory clause.

true

A gambling contract is legal unless it is specifically prohibited by state statute.

false

To be valid, an agreement not to compete must be ancillary to a legitimate bargain.

true

Spencer, an adult of sound mind, has the legal capacity to contract.

true

If a minor can cancel a contract, it can be done at any time during minority or within a reasonable time after reaching majority.

true

After her 18th birthday Lora may, by words or action, ratify a contract she made during the previous year.

true

A party injured by fraud generally has the choice of suing for damages or rescinding the contract.

true

A party to a contract has a duty to investigate the other party’s factual statements.

false

Contract rescission can sometimes be based upon a unilateral mistake.

true

Hannah orally agrees to sell her house to Brett for $175,000. If she delivers the deed to Brett with the expectation of payment in two weeks and he fails to pay, most courts will not enforce the contract since it was not in writing.

false

Parol evidence refers to anything (other than the written contract itself) that was said, done, or written before or as the parties signed the contract.

true

Amanda, a recent university graduate, needed a car to get to her new job. To help Amanda secure a loan for the car, Ted, a friend, agreed to pay the loan should Amanda default. Ted’s promise to pay the loan is a collateral promise. His promise must be in writing to be enforceable.

true

Under the statute of frauds, the writing must: be signed by the defendant; and must state with reasonable certainty the name of each party, the subject matter of the agreement, and all of the essential terms and promises.

true

A party may make either an assignment or a delegation, but cannot make both an assignment and a delegation simultaneously.

false

Most, but not all, contract rights are assignable.

true

Claims for personal injury are generally assignable.

false

Generally, the assignment of the obligation to perform personal services is invalid.

true

Contract prohibitions against assignments are invalid as a matter of public policy.

true

The legal right to sue for a breach of contract is subject to a statute of limitations.

true

Concurrent conditions arise when there is both a condition precedent and a condition subsequent.

false

Injunctions are commonly used by courts to force employees to complete their contractual obligations with their employers.

false

Expectation interest can best be described as money spent in reliance upon the agreement.

false

Nominal damages are awarded in contract cases in which a damage amount was named in the contract.

false

The common law governs contracts for:
A. services.
B. real estate.
C. employment.
D. All of the above.

d

When Myrtle comes home from work one evening, she finds that her yard has been mowed and trimmed. Later, a man comes to collect for the yard work done. Myrtle refuses to pay for the work since she has never seen the man before and did not hire him to do her yard work. Which of the following answers is most accurate?
A. This is an implied, unilateral contract and she must pay the price requested by the man.
B. This is an express, voidable contract that either party may avoid.
C. The court would order Myrtle to pay the reasonable value of the yard work because of the benefit conferred on her.
D. Myrtle would not have to pay for the yard work.

D. Myrtle would not have to pay for the yard work.

Mike made the following offer to Mick: "I will pay you $500 if you agree to paint my house." Mick replied that he would. At this point, the contract is an:
A. executed, bilateral, express contract.
B. executory, bilateral, implied-in-law contract.
C. executory, unilateral, express contract.
D. executory, bilateral, express contract.

D. executory, bilateral, express contract.

What is not required to establish promissory estoppel?
A. A promise made by the defendant.
B. A promise made by the plaintiff in response to the defendant’s promise.
C. Reliance on the defendant’s promise.
D. Enforcing the promise is the only way to avoid injustice.

B. A promise made by the plaintiff in response to the defendant’s promise.

Shelly offers to sell Jane goods both parties know are stolen. Jane accepts the offer, and agrees to pay for the goods. Later, Jane refuses to accept or pay for the goods. If Shelly sues Jane for breach of contract, what is the probable result?
A. Shelly would win as this is a valid, enforceable contract.
B. Jane would win as this is a voidable contract.
C. Shelly would win as this is a unilateral contract.
D. The law would not enforce Jane’s promise, as it does not have a lawful purpose.

D. The law would not enforce Jane’s promise, as it does not have a lawful purpose.

Robert, a minor, buys a stereo from Jane for $200. State law allows a minor to disaffirm contracts within a reasonable time after turning 18. Robert disaffirms the contract the day after turning 18 and returns the stereo.
A. This contract was a valid contract, Robert cannot disaffirm.
B. This contract was a voidable contract, Robert can disaffirm.
C. This contract was a void contract.
D. This contract was unenforceable because it needed to be in writing to be enforceable.

B. This contract was a voidable contract, Robert can disaffirm.

The basic distinction between a bilateral contract and a unilateral contract is that:
A. only one promise is involved in a bilateral contract.
B. only one promise is involved in a unilateral contract.
C. the Statute of Frauds applies to one and not the other.
D. one is enforceable, the other is not.

B. only one promise is involved in a unilateral contract.

Which of the following represents a unilateral offer?
A. "I will pay you $50 if you mow my lawn."
B. "I will pay you $50 if you promise to trim that tree."
C. "I will pay you $50 for your CD player."
D. "I will pay you $50 for your backpack."

A. "I will pay you $50 if you mow my lawn."

Contracts that do not arise from mutual agreement but are created by courts to avoid unjust enrichment are:
A. express contracts.
B. implied contracts.
C. quasi-contracts.
D. unilateral contracts.

C. quasi-contracts.

John owns a thoroughbred horse named Prince Charming that just ran in the Kentucky Derby. Prince Charming came in last, much to John’s frustration and embarrassment. John exclaims in a loud voice, "I’m selling that horse to the first person who hands me $100 bucks!" John has:
A. made an offer to anyone within hearing distance and will be bound by his offer to the first person who produces $100.
B. made a firm offer and will be bound by his offer for a reasonable period of time.
C. made an acceptance to the first person who can produce $100.
D. not made an offer because under the circumstances a reasonable person would not conclude that John had intent to make an offer.

D. not made an offer because under the circumstances a reasonable person would not conclude that John had intent to make an offer.

Which of the following are generally considered to be legal offers?
A. Placing an item up for auction.
B. Catalog advertisements.
C. Price lists.
D. None of the above are generally considered offers.

D. None of the above are generally considered offers.

The Johnsons decided to sell their summer cabin on Beech Lake. They sent flyers out to all who previously had expressed an interest in buying the cabin stating that they were planning on selling their cabin. The flyer described the location of the property, the size of the lot, and the price. If one of the recipients responds by sending a letter accepting, an agreement:
A. will not be formed because the flyer was sent out as an invitation to negotiate.
B. will be formed because the first to respond gets the property.
C. will be formed because the price is included.
D. will not be formed because of the parol evidence rule.

A. will not be formed because the flyer was sent out as an invitation to negotiate.

Collector Carl displays his beer can collection at the local swap meet. Mary sees the collection and is interested in buying it. Carl says he will sell the collection for $1,500. Mary says she really likes the collection but is only willing to pay $1,000. Which of the following is correct?
A. Mary’s counteroffer terminates Carl’s offer of $1,500.
B. If Carl rejects Mary’s counteroffer, she can still accept Carl’s offer of $1,500.
C. Neither offer is valid. Who would ever pay $1,000 or $1,500 for a beer can collection?
D. Mary’s offer is a firm offer. Carl has an exclusive right to consider her offer for a reasonable period of time.

A. Mary’s counteroffer terminates Carl’s offer of $1,500.

Jaime offered to buy Kevin’s bike. Jamie is the:
A. offeree.
B. offeror.
C. mortgagor.
D. trustee.

B. offeror.

An agreement to pay a lesser amount to settle an unliquidated debt is:
A. enforceable, as there is consideration.
B. unenforceable, as there is no consideration.
C. enforceable in only some states.
D. unenforceable as a violation of public policy.

A. enforceable, as there is consideration.

An unliquidated debt can be described as:
A. a debt in which both its existence and amount is in dispute.
B. a debt in which the existence or amount is in dispute.
C. a debt disputed by the debtor but not the creditor.
D. a debt undisputed by either party.

B. a debt in which the existence or amount is in dispute.

"I’ll sell you my car if I decide to sell it" is an example of:
A. a conditional offer.
B. an unliquidated offer.
C. a unilateral contract.
D. an illusory promise.

D. an illusory promise.

Police Officer Paul apprehends a wanted criminal and then demands the $10,000 reward offered by Crime Stoppers. Which of the following statements is true?
A. Police Officer Paul is not entitled to the reward because past consideration is never valid consideration.
B. Police Officer Paul is entitled to the reward because he puts his life on the line every day.
C. Police Officer Paul is not entitled to the reward because he was under a pre-existing duty to make the arrest.
D. Police Officer Paul is not entitled to the reward but may have an argument under promissory estoppel.

C. Police Officer Paul is not entitled to the reward because he was under a pre-existing duty to make the arrest.

Virginia borrowed money from G & L Lending at 35% interest per year. The state maximum interest rate is 20% per year. Virginia defaulted on the loan. What amount can G& L collect from Virginia?
A. G & L will be able to collect the principal plus 20% interest per year.
B. G & L will be able to collect the principal but not any interest.
C. G & L will not be able to collect either the principal or interest.
D. All of the above may be correct. The answer depends on the particular state law.

D. All of the above may be correct. The answer depends on the particular state law.

Which of the following exculpatory clauses will most likely be enforceable?
A. An exculpatory clause that relieves a riding stable of negligence.
B. An exculpatory clause that relieves a riding stable of gross negligence.
C. An exculpatory clause that relieves a riding stable from intentional torts.
D. A riding stable’s exculpatory clause that is hidden in an eight-page document that all riders are required to sign.

A. An exculpatory clause that relieves a riding stable of negligence.

Barb has been a children’s day care provider for several years in the small town of Sallton. She has decided to give it all up and move to the big city for excitement and adventure. She sells her business to Ken, agreeing not to open a competing business within five miles of Sallton for a period of nine months. After five months of the big city life, Barb is broke and moves back to Sallton. She opens a small day care business. Ken sues on the noncompete clause. What is the most likely result?
A. Ken wins. The agreement is enforceable.
B. Barb wins. The agreement is denying her the right to do the only thing she knows how to do.
C. Barb wins. The agreement is not enforceable because it is not ancillary to a legitimate bargain.
D. Barb wins. The agreement is not reasonable as to time.

A. Ken wins. The agreement is enforceable.

Larry has the largest pizza business in the city. He learns that Henry is thinking of opening a competing pizza and pasta delivery business. Larry gives Henry $25,000 to not open his proposed business in the same city. Which statement is correct?
A. The contract is voidable at Larry’s option.
B. The contract is void for lack of consideration.
C. The contract is illegal and void.
D. The contract is enforceable.

C. The contract is illegal and void.

A contract most likely will be declared unconscionable if:
A. it is unfair to one party.
B. it contains a cancellation clause.
C. it is oppressive and the weaker party did not fully understand the consequences of the agreement.
D. it is signed by a minor.

C. it is oppressive and the weaker party did not fully understand the consequences of the agreement.

An insurance contract is not considered to be a legalized form of gambling because:
A. one must have an insurable interest in the person being insured.
B. insurance contracts are underwritten by reputable companies.
C. insurance activities are regulated by the state department of insurance.
D. All of the above.

A. one must have an insurable interest in the person being insured.

Marty, a 16-year-old, contracts with Cream-of-the-Crop Cycles to buy an $8,000 motorcycle. Marty agrees to make monthly payments until the purchase price plus interest are paid in full. Which of the following is correct?
A. The contract is voidable by Marty.
B. The contract is void as soon as it is made.
C. The contract is voidable by Cream-of-the-Crop Cycles.
D. The contract is voidable by either Marty or Cream-of-the-Crop Cycles.

A. The contract is voidable by Marty.

When courts consider economic duress, they consider all the following factors EXCEPT:
A. relative bargaining power.
B. financial distress.
C. legitimate business actions.
D. relative size of the contract.

D. relative size of the contract.

Which of the following is most likely to constitute fraud?
A. A false prediction that a painting’s value will rise.
B. A false statement that a used car is "the best deal in town."
C. A false statement that a $30,000 car attracts members of the opposite sex.
D. Silence as to a toxic waste problem on real property that the buyer would not reasonably find.

D. Silence as to a toxic waste problem on real property that the buyer would not reasonably find.

Angie, a minor, wants to avoid a contract she made with Cumberland Cycles. She may disaffirm the contract by:
A. notifying Cumberland orally that she will not honor the agreement.
B. filing a lawsuit to have a court formally cancel the contract.
C. just refusing to perform her obligations under the contract.
D. All of the answers are correct.

D. All of the answers are correct.

When a party to a contract makes a unilateral mistake, the contract:
A. generally can be rescinded by the mistaken party.
B. is void.
C. can be rescinded by either party.
D. generally cannot be rescinded by the mistaken party unless the contract is unconscionable or it is proven that the nonmistaken party knew of the error.

D. generally cannot be rescinded by the mistaken party unless the contract is unconscionable or it is proven that the nonmistaken party knew of the error.

Mentally infirm Sasha contracts to purchase a piano for $2,500 in 60 monthly installment payments. Six months later she tries to void the contract on grounds of mental impairment. A court will:
A. normally void the contract without requiring anything further on Sasha’s part.
B. normally void the contract but will require Sasha to return the piano.
C. ordinarily not void the contract unless Sasha had a court-appointed guardian at the time she entered into the contract.
D. not void the contract unless Sasha agrees to have the court appoint a guardian for her.

B. normally void the contract but will require Sasha to return the piano.

If Jane persuades Linda to buy her horse by telling Linda that the horse runs "like the wind," then Jane’s statement is:
A. fraud.
B. misrepresentation.
C. a unilateral mistake.
D. puffery.

D. puffery.

Tuan is president and sole shareholder of Entertainment, Inc. Entertainment, Inc. wishes to borrow money, but to do so, the bank requires Tuan to orally agree to pay the debt of the corporation if Entertainment, Inc. cannot. Tuan’s guarantee to repay is:
A. enforceable under the parol evidence rule.
B. enforceable because there is an insurable interest.
C. enforceable because of the leading object rule.
D. unenforceable because it is a collateral promise.

C. enforceable because of the leading object rule.

In order to satisfy the statute of frauds, a writing must:
A. be a formal written document drafted by an attorney.
B. be signed by the defendant and contain the name of each party, the subject matter of the agreement, and the essential terms and promises.
C. be notarized.
D. All of the above.

B. be signed by the defendant and contain the name of each party, the subject matter of the agreement, and the essential terms and promises.

Which of the following types of contracts cannot be either contradicted or supplemented by evidence of prior agreements or expressions?
A. Totally integrated contracts.
B. Incomplete contracts.
C. Ambiguous contracts.
D. All of the above.

A. Totally integrated contracts.

A third party beneficiary’s status occurs:
A. after an assignment and delegation.
B. when the third party is informed of the contract.
C. when the third party beneficiary agrees to the contract terms.
D. when the contract is created.

D. when the contract is created.

Which of the following duties can probably be delegated?
A. An agreement to perform an operation.
B. A contract to paint a picture.
C. An agreement by an attorney to draft a contract.
D. An agreement to paint a house.

D. An agreement to paint a house.

Al contracted to sell his house to Bev. Subsequently, they both changed their minds and agreed to cancel the contract. The contract between Al and Bev is discharged by:
A. full performance.
B. rescission.
C. accord and satisfaction.
D. novation.

B. rescission.

Statutes of limitations:
A. define how much money the injured party can sue for under a breach of contract claim.
B. define whether there has been substantial performance of a contract or a material breach.
C. limit the time in which an injured party may sue.
D. only apply to the sale of goods. There is no statute of limitations on a service contract.

C. limit the time in which an injured party may sue.

A condition:
A. is created only when the phrase "provided that" or a similar phrase introduces it.
B. is an event that must occur before a party becomes obligated under a contract.
C. must be expressly stated, although it can be created by informal language.
D. will not be enforced by the courts unless formal language is used, regardless of the intent of the parties to create a condition.

B. is an event that must occur before a party becomes obligated under a contract.

Specific performance may be available for the breach of a contract to sell:
A. an original painting.
B. 20 shares of AT&T stock.
C. a red "Radio Flyer" wagon, available at toy stores.
D. a 2007 Lexus in mint condition.

A. an original painting.

A contract clause which specifies the amount of damages to be paid in the event of a breach is called:
A. a covenant of damages clause.
B. a reliance interest of damages clause.
C. a liquidated damages clause.
D. an incidental damages clause.

C. a liquidated damages clause.

In a promissory estoppel case, a court will generally award:
A. only reliance damages.
B. specific performance.
C. both reliance and punitive damages.
D. only nominal damages.

A. only reliance damages.

The remedy of reformation:
A. applies only when money damages are inadequate.
B. can be used to correct mistakes in the original contract
C. is available if fraud is involved.
D. is a commonly used remedy.

B. can be used to correct mistakes in the original contract

Bob, a house builder, contracts with Ollie to build a house on Ollie’s lot. The total price of the construction is $100,000, $20,000 of which will be Bob’s profit. After Bob has put $10,000 worth of materials into the house, Ollie wrongfully refuses to let him finish the house. If Bob sues for damages, he will be able to collect:
A. $10,000.
B. $20,000.
C. $30,000.
D. $100,000.

C. $30,000.