ACCT 324 Exam 1 Practice Questions

_______ are best described as foreseeable damages that result from special facts and circumstances arising outside a contract itself.

-Compensatory damages -Nominal damages -Consequential damages -Equitable damages Answer: Consequential damages

When an agreement is deemed illegal, courts will label the contract

voidable. void. exculpatory. conscionable. Answer: void

In which of the following situations does an express ratification by a minor occur?

-An express ratification occurs when, after reaching the age of majority, a person enters into another contract in order to ratify the original contract. -An express ratification occurs when, after reaching the age of majority, a person goes to court in order to have the contract ratified. -An express ratification occurs when, after reaching the age of majority, a person states orally or in writing that he or she intends to be bound by the contract entered into as a minor. -An express ratification occurs when, after reaching the age of majority, a person takes some action consistent with the intent to ratify the contract. Answer: An express ratification occurs when, after reaching the age of majority, a person states orally or in writing that he or she intends to be bound by the contract entered into as a minor.

_______ performance occurs when nearly all of the terms of the agreement have been completed, the obligor has made a good faith effort to complete all of the terms of the agreement, and no "willful departure" from the terms of the agreement has occurred.

-Conditional -Substantial -Contractual -Absolute Answer: Substantial

Which of the following statements most accurately reflects the preexisting duty rule?

-Consideration given before a promise is made is not good consideration. -Performance of an act in exchange for a promise is not good consideration. -Performance of a duty you are obligated to do under the law is not good consideration. -An illusory promise is no promise at all. Answer: Performance of a duty you are obligated to do under the law is not good consideration.

Which of the following conditions must be present for an offer to have a legal effect?

-Expression of interest in an exchange. -Definite and certain terms. -Invitation to negotiate. -Neutral third parties. Answer: Definite and certain terms.

Macon is planning to buy Kevin's car for $15,000. He gives Kevin $1,500 to keep the offer open for 30 days. Kevin will deduct the $1,500 from the price of the car if Macon purchases the car within the 30 days. If Macon does not buy the car during that time, Kevin will keep the $1,500 and may then offer the car to someone else. Which of the following contracts does this scenario best illustrate?

-Implied contract -Option contract -Quasi-contract -Unenforceable contract Answer: Option Contract

_______ terms in an offer and its resulting contract allow a court to determine damages in the event that one of the parties breaches the contract. They include the subject matter, price, quantity, quality, and parties.

-Material -Nonnegotiable -Customary -Salient Answer: Material

_______ is when the means by which acceptance can occur is expressly stated in the offer.

-Objective authorization -Implied authorization -Subjective authorization -Express authorization Answer: Express authorization

With regard to the enforceability of a present promise, which of the following is an accurate statement regarding past consideration?

-Past consideration is conditional consideration to support the enforceability of a present promise. -Past consideration is equitable consideration to support the enforceability of a present promise. -Past consideration is sufficient consideration to support the enforceability of a present promise. -Past consideration is no consideration at all. Answer: Past consideration is no consideration at all.

If someone suffering from dementia has been appointed a guardian, which of the following is true regarding that person's ability to enter into a contract?

-Provided the court approves the contract the person with dementia entered into, the contract is considered valid. -Because dementia affects people intermittently, the contract will be voidable by the person suffering from dementia. When the contract is entered into by a person under the age of majority. -If the guardian ratifies the contract entered into by the person with dementia, the contract is considered valid. -When someone has been appointed a guardian, that person's contracts are considered void. Answer: When someone has been appointed a guardian, that person's contracts are considered void.

_______ is the preferred remedy for nonbreaching sellers as it provides an easy means to determine damages in a breach of sales contract by buyers.

-Suing to get benefit of the bargain -Obtaining cover -Revocation of contract -Resale of goods Answer: Resale of goods

Which of the following must occur when nonbreaching buyers or lessees obtain specific performance under the Uniform Commercial Code (UCC)?

-The buyers or lessees will be able to recover an amount equal exactly to their monetary losses. -The buyers or lessees will receive the precise goods ordered in addition to the specific amount of monetary losses they incurred due to the breach. -The sellers or lesser must pay the exact amount of damages the buyer or lessee sustained. -The sellers or lessors must deliver the goods identified in the contract. Answer: The sellers or lessors must deliver the goods identified in the contract.

Maya pays $5,000 and purchases a car from her friend, Jane. Later, Maya realizes that the car is worth less than $3,000. Which of the following statements will be true if Maya plans to sue her friend?

-The court will hold Jane liable as she made an illusory promise. -Maya cannot sue Jane because the court seldom considers adequacy of consideration. -The court will hold the contract to be invalid as it involves falsification of data. -Jane will be held guilty because her action is a breach of promissory estoppel. Answer: Maya cannot sue Jane because the court seldom considers adequacy of consideration.

How is an offeror's intent to be bound by an agreement demonstrated?

-The courts determine an offeror's intent based upon his or her demonstrated acceptance of the offer when negotiations began. -The courts determine an offeror's intent based upon what the offeror's belief was at the time negotiations began. -The courts determine an offeror's intent based upon how a reasonable person would interpret the offeror's words and actions. Correct -The courts determine an offeror's intent based upon what that person's subjective principles are. Answer: The courts determine an offeror's intent based upon how a reasonable person would interpret the offeror's words and actions.

When a minor enters into a contract, the minor has which of the following rights?

-The minor has the right to disaffirm the contract before or within a reasonable time of reaching the age of majority. -The minor has the right to disaffirm the contract only after reaching the age of majority. -The minor may disaffirm part of the contract before reaching the age of majority and then ratify the remaining provisions of the contract after reaching the age of majority.minor can choose to disaffirm only a portion of the contract. -The minor has a right to ratify the contract before reaching the age of majority if the adult party agrees. Answer: The minor has the right to disaffirm the contract before or within a reasonable time of reaching the age of majority.

All but which of the following demonstrate an acceptance by the offeree?

-The offeree performs an act the offeror requests. -The offeree demonstrates acceptance by completing an action the offer requires. -The offeree makes a return promise to the offeror. -The offeree makes a new offer to the offeror to continue negotiations which ultimately lead to a contract. Answer: The offeree makes a new offer to the offeror to continue negotiations which ultimately lead to a contract.

In a novation, the original parties to the contract agree to which of the following?

-The original parties to the contract agree to cancel the contract. -The third-party beneficiary agrees to assume both parties obligations under the contract. -The assignee and delegatee promise to fulfill all the responsibilities of the original parties to the contract. -The original parties to the contract and a third party all agree that the third party will replace one of the original parties and that the original party will then be discharged from his or her obligations under the contract. Answer: The original parties to the contract and a third party all agree that the third party will replace one of the original parties and that the original party will then be discharged from his or her obligations under the contract.

When is a contract voidable?

-When the contract is entered into by a minor. -When the contract is entered into by an emancipated minor. -When the contract is entered into by an intoxicated person who understands his or her contractual obligations. -When the contract is entered into by a person adjudicated insane. Answer: When the contract is entered into by a minor.

Consideration can be anything, as long as it is the product of a(n) _______.

-bargained-for exchange. -assignment. -unilateral contract. -bilateral contract. Answer: bargained-for exchange.

UCC Sections 2-703(f) and 2A-523(1)(a) allow a seller or lessor to cancel the contract if the buyer or lessee is in

-breach. -agreement. -concurrence. -abeyance. Answer: breach

A _______ is a particular event that must occur in order for a party's duty to arise.

-condition subsequent -concurrent condition -material condition -condition precedent Answer: condition precedent

If nothing is stated to the contrary in the terms of an auction, the auction is presumed to be _______, which means that the seller is merely expressing intent to receive offers.

-conditional -unconditional -with reserve -without reserve Answer: with reserve

A(n) _______ damages clause in a contract is one that identifies a remedy before a breach occurs.

-equitable -liquidated -hypothetical -projected Answer: liquidated

Money damages are also known as _______ damages while remedies that result in nonmonetary damages are known as _______.

-equitable; legal -legal; equitable -material; nonmaterial -complete; substantial Answer: legal; equitable

A "severable" contract is also known as a _______ contract.

-exculpatory -voidable -void -divisible Answer: divisible

Nominal damages are primarily

-granted when parties to a contract need any remedy other than money damages. -designed to compensate the plaintiff for the loss he or she suffered due to a breach of contract. -designed to signify that the plaintiff has been wronged by the defendant. -foreseeable damages that result from special facts and circumstances arising outside a contract itself. Answer: designed to signify that the plaintiff has been wronged by the defendant.

Kevin is offered a job by a reputable company in a different city. To take the new job, Kevin quits his previous job and moves to the new city along with his family. When he shows up at work, he is told that there is no job. Kevin can sue the employer under the theory of

-illusory promise. -preexisting duty. -promissory estoppel. -recognizance. Answer: promissory estoppel

Brian offers to sell Rachel his computer for $200. Rachel says that she will look at the computer in the morning, and if she likes it she will buy it for $200. At this point, Rachel has not committed to doing anything. This is an example of a(n)

-illusory promise. -promissory estoppel. -option contract. -recognizance. Answer: illusory promise

When a debt is _______, the parties may enter into a(n) _______.

-liquidated; accord and satisfaction -liquidated; civic satisfaction -unliquidated; accord and satisfaction -unliquidated; civic satisfaction Answer: unliquidated; accord and satisfaction

According to the _______ rule, an acceptance is valid when the offeree places it in the mailbox, whereas a revocation is effective only when the offeree receives it.

-mailbox -certification -transmission -U.S. Postal Service Answer: mailbox

To recover damages in a breach-of-contract case, the nonbreaching party must demonstrate that she sought to _______ her damages.

-mitigate -rescind -substitute -liquidate Answer: mitigate

The UCC allows a seller or lessor to stop delivery of the goods if the goods are _______.

-nonconforming in part and conforming in part -substantially impaired -in transit -subject to resale Answer: in transit

If a buyer decides to terminate a contract because the seller changes the price of the contract without the knowledge of the buyer, then the contract is discharged by

-novation. -condition precedent. -mutual rescission. -operation of law. Answer: operation of law.

A valid offer includes

-offers communicated by the offeror to the offeree's agent. -preliminary negotiations and advertisements. -expressions of possible interest by the offeror. -vague and ambiguous proposals. Answer: offers communicated by the offeror to the offeree's agent.

If a condition requires each party's performance to occur at the same time, then the contract contains a(n):

-parallel performance -coexisting certificate -concurrent condition -simultaneous condition Answer: concurrent condition

Laurens, Inc. contracted with GSP, LLC to widen a four-lane road to a six-lane road for ten miles. When Laurens, Inc. and GSP, LLC drafted the contract, the agreement contained a provision that if either party breached the contract, that party was liable to pay $10 million dollars to the nonbreaching party. This scenario is an example of _______.

-pre-existing damages -liquidated damages. -punitive damages -equitable damages Answer: liquidated damages

Consequential damages include _______, as long as such damages are not too speculative.

-property loss -incidental damages -losses avoided -lost profits Answer: lost profits

When courts grant damages to a nonbreaching seller to recover the purchase price from the breaching buyer, the court is typically granting the seller the right to _______. When a seller sues a buyer for the breach of a sales contract to get the benefit of the bargain, and nothing more, courts typically

-recover all damages sustained by the nonbreaching seller -pursue liquidated damages -get the benefit of the bargain -reserve the right to seek punitive damages Answer: get the benefit of the bargain

When a court can void the illegal part of an agreement and enforce the rest if the terms represent the main purpose of the original agreement, it is a(n) _______ contract

-severable -unilateral -adhesion -quasi Answer: severable

When deciding whether an offeror intended to be bound by the offer, the courts use the _______ standard.

-subjective -objective -personal -judicial Answer: objective

Sections 2-716(1) and 2A-521(1) under the Uniform Commercial Code (UCC) allow nonbreaching buyers and lessees to seek the remedy of specific performance when

-the goods purchased are commodity goods. a breach of contract occurs due to commercial -impracticality. -the seller is proven to be insolvent. -a remedy at law is inadequate. Answer: a remedy at law is inadequate.

Section 2-718 under the Uniform Commercial Code (UCC) allows a nonbreaching seller to claim against a breaching buyer _______, whichever is less, as liquidated damages.

-the lost profits or 30 percent of the purchase price -50 percent of the purchase price or $2000 -20 percent of the purchase price or $500 -the resale costs or $1000 Answer: 20 percent of the purchase price or $500

Legal capacity is

-the physical ability of a person to understand his or her rights and obligations under a contract and comply with the terms. -the mental ability of a person to understand his or her rights and obligations under a contract and comply with the terms. -sufficient consideration to enter into a contract. -not required for a valid contract. Answer: the mental ability of a person to understand his or her rights and obligations under a contract and comply with the terms.

Restitution, as a primary equitable remedy for a breach of contract, is best described as

-the replacement of one of the parties to a contract. -an order for the breaching party to perform a new duty as a substitution to an old duty. -an order requiring the breaching party to pay some predetermined amount of money to the injured party. -the return of any property given up under the contract. Answer: the return of any property given up under the contract.

In a ________ contract, if one party's consideration is a promise, and the other party's consideration will be an act.

-third-party contract -unilateral -multilateral -bilateral Answer: unilateral

If a party to a contract asks for an additional amount of money and agrees to do more work than the contract requires, the result is that the promise

-to do the extra work is valid consideration. -becomes a part of the party's preexisting duty. -to do the extra work is an illusory promise. -becomes an option contract. Answer: to do the extra work is valid consideration.

In a(n) _______ debt, the parties either disagree about whether money is owed or dispute the amount.

-unliquidated -illiquid -liquidated -fluid Answer: unliquidated

A person who has legal _______ has the mental ability to understand his or her rights and obligations under a contract.

-validation -veracity -consideration -capacity Answer: capacity

As a general rule, any contract entered into by a minor is _______ by the minor until he or she _______.

-voidable; reaches the age of majority or a reasonable time thereafter -void; reaches the age of majority or a reasonable time thereafter -void; reaches the age of majority -voidable; reaches the age of majority Answer: voidable; reaches the age of majority or a reasonable time thereafter