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TRUE/FALSE
1. A contract with a minor is voidable at the minor's option.
ANS: T
TOP: capacity
PTS: 1
PTS: 1
3. The contracts of a person who has been declared legally incompetent are void.
ANS: T
TOP: capacity
PTS: 1
PTS: 1
5. Material information is something that would affect the decision to buy or sell.
ANS: T
PTS: 1
TOP: misrepresentation
7. Puffing is sufficient grounds for setting aside a contract on the basis of misrepresentation.
ANS: F
PTS: 1
TOP: misrepresentation
PTS: 1
PTS: 1
PTS: 1
TOP: duress
11. Contracts by minors to enter the military are generally viewed as unenforceable.
ANS: F
TOP: minors
PTS: 1
13. Competency licensing statutes do not prevent enforcement of contracts by unlicensed parties.
ANS: F
TOP: illegality
PTS: 1
PTS: 1
PTS: 1
18. Conditions precedent are events that must happen before contract performance is required.
ANS: T
TOP: conditions
PTS: 1
20. A force majeure clause is one that provides excuses for nonperformance.
ANS: T
PTS: 1
TOP: force majeure
21. Liquidated damages are void as penalties.
ANS: F
PTS: 1
TOP: liquidated damages
22. Incidental damages are the costs of being compensated and are nonrecoverable.
ANS: F
PTS: 1
TOP: incidental damage
23. A bilateral contract is one in which one side promises to perform in exchange for the other side's
actions.
ANS: F
TOP: bilateral
PTS: 1
24. Void and voidable contracts are one and the same.
ANS: F
PTS: 1
TOP: void | voidable
25. Exculpatory clauses are generally considered void as against public policy.
ANS: T
TOP: exculpatory
PTS: 1
26. Covenants not to compete are generally considered void as against public policy.
ANS: F
PTS: 1
TOP: public policy
27. A force majeure clause is a clause that prevents additional terms in acceptances from becoming part of
the contract.
ANS: F
PTS: 1
TOP: force majeure
28. Incidental and consequential damages are the same types of damages.
ANS: F
TOP: damages
PTS: 1
PTS: 1
30. A television rent-to-own contract that requires 24 payments of $30 each before the renter owns the
$199 television set is unconscionable.
ANS: T
PTS: 1
TOP: unconscionability
31. An architect who fails to pay her annual license renewal fee will be unable to collect fees for work
done until the renewal fee is paid.
ANS: F
TOP: licensing
PTS: 1
32. Only those on the cutting edge of technology have this product, is an example of puffing.
ANS: T
PTS: 1
TOP: misrepresentation
PTS: 1
34. Morals clauses in contracts are typically held as unenforceable because reasonable people can differ on
what is moral.
ANS: F
PTS: 1
TOP: morals clauses
35. The types of statements that qualify for express warranties also qualify as a basis for
misrepresentation.
ANS: T
PTS: 1
TOP: misrepresentation
40. The seller's cost of running another ad in order to sell the car that a buyer breached a contract on is an
example of consequential damages.
ANS: F
TOP: damages
PTS: 1
PTS: 1
TOP: misrepresentation
42. Compensatory damages are in addition to liquidated damages.
ANS: T
TOP: damages
PTS: 1
PTS: 1
PTS: 1
PTS: 1
46. Because of Ben Roethlisbergers criminal conviction he was sanctioned by the NFL Commissioner for
violating the leagues personal conduct policy.
ANS: F
PTS: 1
TOP: morals clauses
47. The failure to deal fairly with a party to a contract can result in damages for breach.
ANS: T
PTS: 1
TOP: performance
48. In a relationship of dependence, the failure to deal fairly can result in liability for the party controlling
the contract term.
ANS: T
PTS: 1
TOP: performance
PTS: 1
PTS: 1
PTS: 1
PTS: 1
54. An example of a condition precedent in a home purchase contract is that the buyer must qualify for
financing first.
ANS: T
PTS: 1
TOP: performance
55. An example of a condition precedent in an audit contract is access by the auditor to financial
information.
ANS: T
PTS: 1
TOP: performance
56. Parents of minors can be held liable for the reasonable value of necessaries that their minor children
contracted for.
ANS: T
TOP: capacity
PTS: 1
57. A multi-million dollar contract between a manufacturer and a parts supplier provides for damages of
$300 per day for late delivery is void as a penalty contract.
ANS: F
TOP: damages
PTS: 1
58. A mortgage broker who sells mortgage contracts to mortgage companies has created a third party
beneficiary contract.
ANS: F
TOP: TPR
PTS: 1
PTS: 1
60. A minor who has received medical care can never be responsible for payment for those services.
ANS: F
TOP: capacity
PTS: 1
61. In the iParadigms case (Turnitin case), the court ruled that the students who submitted papers to
Turnitin who did not want to submit their papers were victims of duress.
ANS: F
PTS: 1
TOP: duress
MULTIPLE CHOICE
1. Bob, age 17, has entered into a contract to buy a car. The contract is:
a. voidable.
b. void.
c. voidable only if Bob can return the car.
d. enforceable since it is for a necessary.
e. none of the above
ANS: A
TOP: minors
PTS: 1
PTS: 1
PTS: 1
5. A provision in a contract requiring that a buyer obtain financing before a deal can go through is an
example of:
a. a contract with no consideration.
b. economic duress.
c. a condition precedent.
d. none of the above
ANS: C
TOP: conditions
PTS: 1
ANS: C
PTS: 1
TOP: force majeure
7. A seller recovering the difference between his resale price and the buyer's original contract price is an
example of:
a. compensatory damages.
b. incidental damages.
c. liquidated damages.
d. none of the above
ANS: A
TOP: damages
PTS: 1
8. James Krieg has finished law school but has unsuccessfully taken the bar exam twice. Krieg is running
low on patience and cash. He has begun writing wills to see him through this time of crisis and is
charging $200 per will. Some of his will clients have refused to pay Krieg and he wishes to take them
to a small claims court. Which of the following statements is true?
a. Krieg could recover the fees on a quasi-contract theory.
b. Krieg could recover the fees since the licensing after the bar exam is simply to raise funds.
c. Krieg agreements are voidable.
d. Krieg agreements are void.
ANS: D
TOP: illegality
PTS: 1
PTS: 1
10. The seller of a dry cleaning business has agreed not to open another dry cleaning business for two
years within a one-mile radius of the sold business. Such an agreement:
a. is void as against public policy.
b. is void as unconscionable.
c. is void as usurious.
d. is valid and enforceable.
ANS: D
TOP: illegality
PTS: 1
11. Clothing For Accountants is a popular retail store owned by I.M. Material. Material has just sold the
business to Phil Forma. Phil has asked that a covenant not to compete be inserted into the agreement.
Such covenants are:
a. void as against public policy.
b. only valid in employment contracts.
c. valid if reasonable in time and geographic scope.
d. none of the above
ANS: C
TOP: illegality
PTS: 1
12. Cindy Nanson had a contract with Bob Greenly for Bob to repay Cindy $2000 plus interest by July
1986. It is now August 1990 and Cindy has not received any payment. Cindy wishes to file suit to
collect the $2000. Bob reminds her that the statute of limitations for contract suits is four years.
Cindy's contract with Bob is:
a. unenforceable.
b. void.
c. voidable.
d. all of the above
ANS: A
PTS: 1
TOP: types of contracts
PTS: 1
15. Which of the following statements (if later established as untrue) would constitute a misrepresentation
defense to contract formation?
a. "You are going to love this house as we have."
b. "This farm's well is adequate for household, ranch, and crop needs."
c. "The school system here is very fine."
d. "Our buyers are the happiest customers around."
ANS: B
PTS: 1
TOP: misrepresentation
16. If entered into by a minor, which of the following contractual situations may be enforceable against the
minor?
a. Student loan agreements
b. Military obligations
c. Payment for reasonable value for necessities
d. All of the above
ANS: D
PTS: 1
TOP: performance
17. Paddock Pools constructed a swimming pool and deck for the Jensens' home. Paddock installed the
wrong trim on the pool. It would cost $2800 to change the trim - one-fifth the total cost of the pool.
The Jensens refuse to pay anything for the pool. Paddock's best defense is:
a. duress.
b. substantial performance.
c. mistake.
d. failure of conditions.
ANS: B
PTS: 1
TOP: performance
18. Dana Riley purchased a home in the Brentwood area of Los Angeles. After she purchased the home,
she learned that the home had been the residence of a long-time drug dealer. She experienced many
late-night visitors and often noticed cars parked outside near the street curb with the drivers and
passengers studying the home. The former owner has been convicted of drug charges. Dana has
become uncomfortable with the visitors and the surveillance. She just wants out of the house. Which of
the following statements is true?
a. Dana has no grounds for rescinding her agreement.
b. The information about the drug dealer was material and should have been disclosed to her.
c. Withholding information about the former drug-dealer owner is not misrepresentation.
d. none of the above
ANS: B
PTS: 1
TOP: misrepresentation
19. Dana Riley purchased a home in the Brentwood area of Los Angeles. After she purchased the home,
she learned that the home had been the residence of a long-time drug dealer. She experienced many
late-night visitors and often noticed cars parked outside near the street curb with the drivers and
passengers studying the home. The former owner has been convicted of drug charges. Dana has
become uncomfortable with the visitors and the surveillance. She just wants out of the house. Suppose
that the listing agent was aware of the home's history and the drug dealer's arrest and conviction. The
agent told the neighbors to cooperate by not disclosing any information to Dana. "Look," the agent told
them, "you can get the house sold and keep your values up or let it sit there and have the old druggies
come by and destroy it." Which of the following statements is true?
a. The real estate agent has committed fraud.
b. The real estate agent is under no obligation to disclose the information.
c. The most the real estate agent has committed is misrepresentation.
d. none of the above
ANS: A
TOP: fraud
PTS: 1
20. Alice, age 17, purchased a 2005 Kia auto at the Tempe Autoplex. After driving the vehicle for three
months, Alice returned to the Autoplex for her money. She did not, however, have the Kia. "It was
stolen at school last week." Which of the following statements is true?
a. Alice may not rescind the agreement.
b. Alice may rescind the agreement only if the stolen Kia is found.
c. Alice may rescind the agreement regardless of whether she has the car.
d. none of the above
ANS: C
TOP: capacity
PTS: 1
21. The Hoffmans were having their home remodeled by All-Right Contractors. The roof had to be
removed in order to build the second story the Hoffmans had contracted and designed to build. After
All-Right had removed the roof, but before a covering was placed over the exposed half of the home,
All-Right's foreman said the job would cost an additional $12,500. The Hoffmans refused to agree to
the additional fees and All-Right's foreman said, "Suit yourselves. Looks like rain for the next day or
two," and left. The Hoffmans called All-Right and agreed to pay the $12,500 extra and went in to sign
the paperwork. Which of the following statements is true?
PTS: 1
22. This is a name given to some people who write their own reviews for a web site concerning their
experiences with local businesses:
a. Whiners
b. Yelpers
c. Howlers
d. Yellow Dogs
ANS: B
TOP: ethics
PTS: 1
23. The court in the case involving Turnitin (iParadigms) held that:
a. duress was clearly involved.
b. the Clickwrap acceptance was valid.
c. the owners of Turnitin have unlimited liability to the students submitting papers.
d. the plaintiffs infancy defense was successful.
ANS: B
TOP: duress
PTS: 1
24. Which of the following statements would be a basis for claiming misrepresentation?
a. This car is a real honey.
b. This car has the finest road performance going.
c. This car has the fastest zero to 60 acceleration on the planet.
d. This car represents status.
e. All of the above could be a basis for misrepresentation.
ANS: C
PTS: 1
TOP: misrepresentation
25. Andy Seagroves purchased a computer from Best Buy. Best Buy did not disclose to him that the
computer was a return item. There was no indication of any price difference between the computer
Andy bought and the unopened computers. Andy experiences significant difficulties with the computer
and returns it to Best Buy. Andy indicates that he would like to have a new computer and that the price
is now $150 more. Best Buy indicates that it is happy to take the return on the computer and credit
Andy's account, but that it has no further liability.
a. Best Buy's position is correct.
b. Andy has no damages since Best Buy took back the computer.
c. Andy is entitled to recover the price difference so that he can replace the computer.
d. Andy is entitled to the return, but no additional damages.
e. none of the above
ANS: C
TOP: damages
PTS: 1
26. Angela, age 17, is injured in a car accident and receives $5,200 in medical treatment at the emergency
room. The hospital sends a bill to Angela, who signed the admitting form in which she agreed to pay
for the treatment. Angela:
a. is a minor and need not pay the bills.
b. is liable for the bill as a necessity.
c. can rescind the agreement.
d. none of the above
ANS: B
TOP: minors
PTS: 1
27. Suppose, with reference to #26 above, that Angela turned 18 between the time of the accident and
when she received the bill. Angela:
a. is a minor and need not pay the bills.
b. is liable for the bill as a necessity.
c. can rescind the agreement.
d. none of the above
ANS: B
TOP: minors
PTS: 1
29. Ralph Deuschle owned an ice sculpture company. Ralph provides ice sculptures for private weddings,
parties, and receptions. The Canasta Resort was a large hotel located near Ralph that was not satisfied
with its current catering companys ice sculptures and its events manager liked Ralphs work. The
events manager approached Ralph and indicated the Canasta would like to have an ongoing supply
contract but that its needs would require Ralph to expand his business, both with additional space and
3 new employees. Ralph entered into a supply contract with the Canasta and the events manager told a
lending officer at the bank where Ralph got his construction mortgage for the business expansion that
the Canasta would be sending all of its business to Ralph. The Canasta then began to rethink its events
focus and marketing and decided to cut back on ice sculptures. Ralph could not use the additional
space and the three employees had to be laid off. The Canasta:
a. has no liability to Ralph for the downturn in amount of ice sculptures ordered if it did not
guarantee a minimum amount to be purchased.
b. may be liable to Ralph under a theory of a lack of good faith.
c. is entitled to refocus its business and has not breached its contract.
d. none of the above
ANS: B
PTS: 1
TOP: performance
30. Sue and Kevin Kellman signed a contract for the construction of a cabin near Pinetop. In building the
$562,000 cabin, the builder discovered that it had to put the vent for the heating system in the area
where the hall closet is located. The result was that the Kellmans had a half-closet there instead of a
full-length closet that was open to the floor. The Kellmans:
a. need not pay for the cabin because of this material breach.
b. can be compensated under the doctrine of force majeure.
31. RaeAnn and Rick Telford purchased an existing home in a neighborhood of multi-million-dollar
homes. After moving in, the Telfords learned that the home had been owned formerly by a couple that
was indicted for drug trafficking. The home had been raided by DEA agents, and there had been a
shoot-out before the couple was taken into custody. The couples youngest child was killed in the
house during the shoot-out. RaeAnn and Rick:
a. have no recourse if there is nothing physically wrong with the house.
b. have a remedy of damages or rescission if this information was withheld from them.
c. have no remedy because neither sellers nor brokers are required to disclose psychological
issues with properties.
d. none of the above
ANS: B
PTS: 1
TOP: misrepresentation
32. Costco, Inc. had a contract to purchase 300,000 electric mini-Mercedes from HUMBENZ Toy Co. The
toy cars were to be delivered by November 1. On October 23, the Consumer Product Safety
Commission announced a recall of the toy cars as well as a ban on their sales because of electrical
shorts and a high risk of fire in the cars. HUMBENZ has not delivered the cars to Costco. HUMBENZ:
a. has breached its contract with Costco.
b. has a void contract with Costco because the subject matter is now illegal.
c. must still deliver the cars because its contract predated the recall and ban.
d. none of the above
ANS: B
TOP: illegality
PTS: 1
ESSAY
1. The Jameses were negotiating the purchase of the Smith's home but requested a termite inspection.
The inspection came back clear from ABC Bug, Inc. The Jameses bought the house and immediately
began to notice signs of termite infestation. They called Goodbye Bug, Inc., and their technician
confirmed significant termite infestation and damage. The technician said he had inspected the home
for the Smiths just a few weeks earlier, but was never asked to repair and exterminate. The Jameses
want out of the house and the contract. Do they have a basis?
ANS:
Yes, the case appears to be one of fraudulent misrepresentation. The Smiths knew of the damage and
failed to disclose it. The Jameses can rescind the contract.
PTS: 1
TOP: misrepresentation
2. Weldon Newfield was having a custom home built. He had a list of certain materials the contractor was
to use in building the $270,000 home. Newfield was in Europe and the contractor could not find
"Reading Copper Pipe" - one of the required materials. Since Newfield could not be reached and the
contractor was under a time schedule, the decision was made to use another brand of copper pipe.
When Newfield returned and learned of the problem, he refused to pay any remaining amounts due on
the contract ($235,000). Can Newfield do that?
ANS:
No, doctrine of substantial performance.
PTS: 1
3. Ann wrote a $500 check to Art as a deposit on Art's 240Z car. The memo section of the check read:
"Deposit on 1978 240Z car of Art Mole. Sale price $4500." Art initialed the memo section. When Ann
returned the next day with the remaining $4000, Art said, "Sorry, I sold the car for $4,000 cash
yesterday and sent your check back." The cheapest 240Z Ann can find is $5200. What are Ann's
rights? Discuss the following:
a. Was a contract formed?
b. Are there statute of frauds problems?
c. Could Ann collect damages? If so, what?
ANS:
a. There was a contract.
b. The check and memo satisfy the statute of frauds.
c. Art did Ann a big favor by returning the check. Ann's damages:
$5200
-4500
$ 700 plus incidental damages
PTS: 1
4. A weight-loss ad claims, "Lose up to five pounds per week." Is this statement a basis for
misrepresentation?
ANS:
Yes, the statement could be a basis for misrepresentation, but it is open-ended enough that there may
not be any action against the company for making it. The statement does not guarantee five pounds per
week - it is only "up to." If anything, the statement is only placing a maximum on weight loss.
PTS: 1
TOP: misrepresentation
5. Dee's Caterers contracted with Glen Allen Peanut Farms for the purchase of a one year's supply of
peanuts for Dee's business. The price was $1.21 per pound. The Glen Allen Peanut Farms was hit by a
frost that damaged most of its crops and left what remained with an odd taste. Because other peanut
farms also fell victim to the frost, the price of peanuts rose to $3.37 per pound. Dee's demanded
delivery. Glen Allen said it would cost too much to perform. Must Glen Allen perform? What damages
would Dee's have?
ANS:
Glen Allen has tried the defense of commercial impracticability. But, expense alone is not sufficient
grounds for the use of this excuse. Dee's damages would be the difference between $3.37 per pound
and $1.21 per pound.
PTS: 1
TOP: damages
6. Discuss the students use of the infancy defense in the Turnitin (iParadigms) case.
ANS:
The students use of the infancy defense was unsuccessful in this case because the students received a
benefit from using Turnitin - a grade in the course - which kept them in school. The court ruled that
the students could not receive this benefit while also trying to avoid their contractual obligations of
using Turnitin.
PTS: 1
TOP: duress
8. Discuss why a morals clause in contracts for professional athletes is a sound strategic business tactic.
ANS:
If an athlete is convicted of a crime - such as Michael Vick - or accused of heinous acts without
prosecution - like Ben Roethlisberger - it affects the team, the owners, the league, the fans, and even
the city where the person plays. NFL Commissioner Goodell said he must protect the integrity and
reputation of the league. If an athlete is suspended under a morals clause (or personal conduct policy),
the team does not have to pay the player and it distances the player from the game until some
articulated level of remorse, responsibility, and change has occurred.
PTS: 1
TOP: ethics