Business Law

Which of the following statements expresses an illusory promise?

"I will go to your violin recital on Saturday if there is nothing good on television."

Which of the following statements is true about contracts in which $1 is offered as consideration?

$1 is accepted in the business community as consideration for a signed option contract. $1 is accepted as consideration in contracts that transfer title to deeds.

Juan, a retail merchant of tires and auto parts, phoned his supplier to order $12,000 worth of tires for his big July sale. Supplier sent Juan a written confirmation of the order. The confirmation will meet the writing requirement of the Statute of Frauds and the contract will be enforceable against Juan unless he sends a written objection to the supplier within __________days of receiving the confirmation.

10

A merchant's firm offer will automatically terminate after _____________.

3 months

Which of the following is an unliquidated debt?

A bill from a divorce lawyer for $8,000 that is past due, interest to run at 5%. Client is actively disputing the number of hours billed and other charges.

Which of the following is not a cloud on the title of real property because it is not recorded in the land records?

A license

The literal translation of locus poenitentiae is

A place of repentance

The mailbox rule is a timing rule under which

Acceptances are effective when they are put in the mail.

The purposes of nominal damages is to

Acknowledge that a right has been violated even though no monetary loss. resulted

Insurance policies, leases and other standardized contracts that are prepared by one party and submitted to the other party on a take-it-or-leave- it basis are __________________.

Adhesion contracts.

In which of the following situations may parole evidence not be used?

As evidence to contradict the terms of a fully integrated contract.

Bob promised to pave Sue's driveway and Sue promised to pay him $5000 when the work was completed. The contract between Bob and Sue is a __________________contract.

Bilateral

Vivian offered to buy Ben's violin for $2,000 and Ben accepted. Three days later Vivian gave Ben $2,000 in cash and Ben gave Vivian possession of the violin. Which of the following sets of terms best describes the contract between Vivian and Ben?

Bilateral, express, valid and executed

Which of the following actions by a buyer is least likely to persuade a court to enforce an oral contract for the sale of land?

Buyer pays seller the full purchase price

Another term for special damages is _______________ damages.

Consequential

Contacts between businesses that impede free competition within a market or industry are called___________.

Contracts in restraint of trade

Although usury laws vary from state to state, most state laws do not cap the interest rate that lenders can charge________________________.

Corporations

Will manufactures widgets and Sam is one of his major parts suppliers. Will and Sam have done business together for over 10 years, with Will placing orders four or five times a year. If a court were called upon to interpret ambiguous language in a contract between Will and Sam, the court would look to see how their previous contracts were executed as evidence of__________.

Course of dealing

Janet, a physician, is one of 12 partners in Oakwood Surgical Associates. A provision in the partnership agreement prevents any doctor who leaves the partnership from establishing a surgical practice, or joining an existing practice, within a 100 mile radius of Oakwood. The restriction would last for 2 years. This provision in the partnership agreement is called a (n) ___________.

Covenant not to compete

The mailbox rule is also known as the ________________rule.

Deposited acceptance

Once a contract has been ratified, the ratifying party loses the right to ________.

Disaffirm the contract.

Dan Dentist was selling the building in which his office was located so that he could relocate to a larger space. Ron, a very aggressive commercial real estate broker, told Dan that unless he gave Ron an exclusive one year contract to list the property, he would spread word in the community that Dan was selling his building to pay a large malpractice claim and that Dan had been liable in so many malpractice suits that no company would insure him. Dan believed that Ron would carry out this threat and signed the contract. Dan can rescind the contract based on

Duress

Another term for the doctrine of part performance is

Equitable estoppel

The third party who holds the signed deed until the buyer has paid the purchase price is the _____________.

Escrow agent

In construing contracts, courts may use several forms of parole evidence in addition to the contract itself. Which answer below represents the courts' order of preference for using these different forms of evidence?

Express terms, course of performance, course of dealing

The town of Delmar acquired 100 acres of property from an unwilling seller to construct a new high school and athletic complex. The seller received just compensation for the value of his land. Delmar acquired this property by exercising its power of __________________.

Expropriation

$1 is never legally adequate consideration in a contract because no one will willingly incur a legal detriment for $1.

False

A license to use land must be in writing, but an easement can be created orally.

False

A seller who fills a motor with heavy grease to keep it from knocking is engaged in mere "sales dressing" and is not liable for fraudulent misrepresentation.

False

All contracts of adhesion are unconscionable and therefor unenforceable.

False

An option contract is valid for a maximum of three months.

False

Another term for promissory estoppel is restitution.

False

Anti-price fixing laws apply only to the cost of goods, not to the cost of services.

False

Courts are more likely to enforce covenants not to compete in employment contracts than in contracts for the sale of a business.

False

During a violent storm, Nelson saved Reggie's boat from being destroyed. Reggie was so grateful that he promised to give Nelson $100. Reggie's promise is unenforceable because it is based on moral obligation.

False

Enforceable agreements not to compete may be standalone contracts or provisions in another contract.

False

Food, shelter, cell phone service and medicine are examples of necessaries.

False

Giving up a legal right is adequate consideration for a contract governed by the Uniform Commercial Code, but not for contracts under common law.

False

Hadley v. Baxendale is the famous British case that created the equitable remedy of specific performance.

False

If a unilateral mistake of fact is apparent to one party, he or she may take advantage of that knowledge and profit from the other party's ignorance.

False

If both parties to a contract are uncertain or consciously ignorant of facts about the item to be sold, either party can rescind the contract based on a mutual mistake of fact.

False

If it is unclear whether a co-tenancy is a joint tenancy or a tenancy in common, the law presumes that it is a joint tenancy.

False

In a bilateral contract, each party must gain a legal benefit, but only one party need incur a legal detriment.

False

In a community property state, property that is inherited by one spouse during the course of the marriage becomes community property.

False

In a majority of states, a minor can disaffirm a contract only by returning all the property originally purchased.

False

In most states, the test of mental competence for entering into a contract is the same as the test for making a valid will.

False

Jill's new car kept stalling. In exasperation, she said to her passenger: "I'd sell this stupid piece of junk for $10." Jill has made a valid offer because the terms were definite and the offer was communicated to a specific offeree.

False

Locus poenitentiae refers to the situs of a contract and indicates which court will have jurisdiction.

False

Lost profits cannot be used in calculating damages because profits are always uncertain and speculative.

False

Mary sold her home freezer to a neighbor. Mary qualifies as a merchant of consumer goods under the Uniform Commercial Code.

False

Only liquidated debts can be discharged in an accord and satisfaction

False

Ron offered to sell his Harley to John for $10,000. Before John could accept the offer, Ron died. If John decides to accept the offer, the executor of Ron's estate must sell the Harley to him for $10,000.

False

Sham consideration is sufficient for a unilateral contract, but not for a bilateral contract.

False

Since it is up to the parties to determine the dollar amount in a liquidated damages clause, courts will enforce any amount called for in the contract.

False

The Uniform Commercial Code governs the sale of all commercial services and goods.

False

The Uniform Commercial Code requires that any modification to a contract for the sale of goods must be supported by new consideration.

False

The firm offer of a merchant is enforceable whether it is oral or in writing.

False

The innocent party in a contract breach must choose between collecting punitive damages or compensatory damages because a court cannot grant both.

False

The purpose of usury laws is to protect creditors from debtor defaults.

False

The revocation of an offer can only be made by direct communication to the offeree.

False

The type of deed that gives the grantee the fewest protections against problems with the title is the grant deed.

False

The victim of fraudulent misrepresentation may rescind the contract, but the victim of merely negligent misrepresentation may not.

False

The victim of innocent misrepresentation may sue to recover contract damages.

False

The winning party in a breach of contract case is normally entitled to attorney's fees, witness fees and filing costs.

False

Under state usury laws, creditors cannot collect the legal maximum interest allowed in advance, but only month by month as the interest accrues.

False

Under the Uniform Commercial Code, courts may gap fill terms in a contract if the terms in the original contract are either missing or vague.

False

When a tenant stays over after the lease expires without the consent of the landlord, a tenancy at will is created.

False

Plaintiff sued a National Football League team, alleging that she had been sexually assaulted by several team members in a hotel room after a game. Team offered the plaintiff a cash settlement in exchange for two promises: (1) plaintiff would never discuss publically the suit or the terms of the settlement; and (2) plaintiff would never again sue the team or the individual players on any claim connected with the incident. Agreeing not to exercise these legal rights constitutes ___________________.

Forbearance

All of the following remedies are available to landlords whose tenants stop paying rent except _____________.

Foreclosures

Which of the following would result in punitive as well as contract damages?

Fraudulent misrepresentation

Big Candy Maker One and Big Candy Maker Two agree that they will both charge $1 for each 1.6 ounce candy bar they produce and market. They further agree that neither will change the price without first consulting with the other. This arrangement between Big Candy One and Big Candy Two is an example of

Horizontal price fixing

Harry offered to sell Jim his Honda for $12,000. Jim said he would like a few days to think about it. The next day, Jim saw Phil driving the car. When asked, Phil said he had just bought it from Harry for $12,000. This is an example of a (n) ________________.

Indirect revocation of the offer

Hilary sold Meredith a broach that had belonged to her mother. She told Meredith, in good faith, that it was a genuine cameo from the 1880's. In fact, it was a copy manufactured in the 1980's out of polymers. Meredith can rescind the contract based on

Innocent misrepresentation

Sue and Jim formed a professional corporation for the practice of law. The PC bought a historic building next to the county courthouse and hired Local Builder to renovate it. Local planned to subcontract the electrical work to Ed's Electric, but Ed would not accept the job unless Sue and Jim personally guaranteed to pay him if Local did not. Although Jim and Sue are guarantors, their agreement with Ed Electric need not be in writing to be enforceable because of the ________exception to the Statute of Frauds.

Leading object

In her will Doris gave her brother the right to live in her home until he died. Upon his death the house would go to a local charity. Her brother's legal interest in the house is a (n)_________and the charity's legal interest is a (n)________________.

Life estate---------------------estate in remainder

When there is a time is of the essence clause in a contract, the parties will normally also include in the contract a dollar amount that will be paid the innocent party each day it takes to complete the work after the contract date. This is an example of a __________________damages clause.

Liquidated

Sam Student transferred to another college and had to leave his apartment with 5 months remaining on the lease. Landlord must try to find a suitable replacement tenant before he can sue Sam for damage because landlord has a duty to _____________damages.

Mitigate

Deeds of trust are used in some states as substitutes for ______________.

Mortgages

Ellen gave First Bank a security interest in her home to secure a loan of $400,000. In this transaction Ellen is the ______________and First Bank is the ______________.

Mortgagor-------mortgagee

Under common law, modifications to existing contracts require ___________to be enforceable.

New consideration

Having lost his job in the recent recession and facing property taxes that were past due, Ed was desperate for cash. He sold his prized 1969 Mustang to a good faith purchaser for value at a price that was well below its market value. Ed now regrets this decision and asks if he has any legal basis for rescinding the contract. Please advise Ed.

No, this was a valid bargained for exchange with a good faith purchaser for value.

Mike and Charlie are neighbors in a subdivision. There is an undeveloped lot between their homes that is owned by Charlie. Charlie offered to sell the lot to Mike for $100,000. Mike wanted time to see if could arrange financing, so he gave Charlie a check for $1000 to keep the offer open for 6 months. Charlie and Mike have entered into a (n) ______________contract.

Option

National Chip Company has contracts with numerous famers in which it agrees to buy all the potatoes the farmers harvest and the famers agree to sell their potatoes only to National Chip Company. The contracts between the farmers and National Chip Company are ________________contracts.

Output

Which of the following exceptions to the Statute of Frauds is not found in the Uniform Commercial Code?

Parole confirmation in consumer-to-consumer sales

Allison, who raises horses, promised to give her friend Gil a pony for his daughter. She advised Gil that he would need to enclose a section of his property and recommended a specific type of fencing. Gil bought the recommended materials and had the fence built on his property. Allison now refuses to give Gil the pony. Allison will be liable to Gil for the cost of fencing his property based on the theory of

Promissory estoppel

Detrimental reliance is another term for

Promissory estoppel

John got a loan from First Bank for $600,000 to purchase a new home. He executed two documents with First Bank: one document acknowledged his debt of $600,000 and his obligation to pay it in 15 years at 5%interest; the second document gave First Bank a security interests in the property. The document acknowledging the debt is a________________; the document granting the security interest is a __________________.

Promissory note--------------mortgage

Exemplary damages are also known as _________________ damages.

Punitive

Ann donated a large parcel of land to an animal protection society. Under the deed, the land would belong to the society "so long as it was used as an animal sanctuary." When the society no longer used the land for this purpose, the land would go to Ann's niece. The legal interest the protection society has in this land is a (n) __________________.

Qualified fee simple estate

Big Equipment Company sold a tractor-scraper to Ace Paving for $125,000. Ace made a down payment of $25,000 and agreed to pay the balance to Big Equipment in monthly installments at 4% interest. In typing up the contract, some of the digits in the vehicle identification number were inadvertently transposed. Ace has stopped making its monthly payments and Big Equipment wants to sue Ace, but it must first put the correct VIN in the contract. The remedy courts use to correct contract errors like this is _______________.

Reformation

The contract remedy that requires that each party return whatever has already been received of value is____________.

Restitution

In a fraudulent misrepresentation suit, the plaintiff must prove that the defendant knowingly misrepresented a material fact. The legal term for the defendant's knowing or reckless misrepresentation is __________.

Scienter

June was hired to be the store manager of Big Kahuna Surf Shop in Ocean City. The law governing this employment contract is

State common law

The source of law for construction contracts, employment contracts and contracts for the sale of land is_____________________.

State common law

Todd bought a lawn tractor from LawnToysRus. The law that governs this sales contract is

The Uniform Commercial Code

The mirror image rule is the common law requirement that

The acceptance contains exactly the same terms as the offer.

Cashing a check marked "paid in full" will create an accord and satisfaction only if

The debt is unliquidated Both parties know that the amount of the debt is in dispute.

Which of the following contracts creating an interest in land would not have to be in writing to be enforceable?

The lease of a vacation home for the three months of June, July and August

Which of the following statements about a minor's purchase of necessaries is false?

The minor must pay the contract price of the goods or services.

The most basic purpose of construing a contract is to determine

The objective intention of the parties to the contract.

Under common law, the offeror loses the right to revoke the offer in a unilateral contract when

The offeree begins to perform the requested act.

A revocation occurs when

The offeror withdraws his offer

Law enforcement officers are normally not allowed to collect reward money offered for the capture and conviction of criminals because

The officers have a preexisting legal duty to apprehend criminals.

In an accord and satisfaction, the satisfaction is

The performance of the action called for in the substitute agreement.

An offeree is

The person to whom the offer to form a unilateral or bilateral contract is made.

Which of the following statements about the Statute of Limitations is true?

The statute does not apply to executed contracts. The statute does not apply to contracts that could be performed within one year of their making.

A court will order the remedy of specific performance only if

The subject matter of the contract is unique and the innocent party cannot be made whole with money damages.

Under the Uniform Commercial Code, which of the following terms could a court supply if the term were missing from a contract for the sale of goods?

The time for performance The price of the goods

An accord and satisfaction can take place only if

There are unliquidated debts based on contract or tort claims.

Joey is a Boston-based dealer in industrial sewing equipment. He offers to sell to Sal, who is also a dealer in industrial sewing equipment, 3 buttonhole machines for $6,000. Sal accepts the offer and adds that he wants Joey to have the machines delivered to his warehouse in Boston. Is there a contract between Joey and Sal? If so, what are the terms of the contract?

There is a contract that includes the terms in the acceptance. Joey is responsible for delivering the machines unless he objects in a timely manner or the delivery will constitute a material hardship.

Mary offered to sell a daybed to Ann for $ 50. Ann said that, yes, she would buy the daybed but "only on the condition that Mary include the coverlet and matching curtains" in the $50 sale price. Is there a contract between Mary and Ann? If so, what are the terms of the contract?

There is no contract because, under the Uniform Commercial Code, acceptances that are conditional on the inclusion of new terms act as rejections of the offer.

A deed is not effective until delivered to the grantee or to a 3rd party.

True

A firm offer that is in writing and signed by a merchant cannot be revoked even though the other party gave no consideration.

True

A party to a contract who lacks mental capacity, but has not been adjudicated insane, is liable in quasi-contract for necessaries.

True

A party who misstates an important fact during contract negotiations has an affirmative duty to correct that misstatement before entering into the contract.

True

A real estate broker who is only licensed in Maryland cannot legally list and sell property located in Florida.

True

Absent a specific limitation in the instrument that created it, a life estate can be mortgaged or sold.

True

All forms of vertical price-fixing are subject to the rule of reason analysis.

True

An ambiguity in the language of a contact will be construed against the party who wrote the contract.

True

An offer that terminates because too much time has passed is said to have lapsed.

True

Another term for consideration is a bargained-for exchange.

True

Cal Contractor did extensive work renovating Hailey Homeowner's kitchen. The construction work has been completely finished, but Hailey has not yet paid Cal. This is an example of a partially executed contract.

True

Courts are more likely to enforce exculpatory clauses in contracts for optional activities, like recreation, than in contracts for necessities, like electric power.

True

Courts generally cannot order specific performance when the contract is for personal services because of the Thirteenth Amendment.

True

Elderly Aunt signed a contract for the sale of her home at well below market value. Aunt had not read the contract before signing it because her niece, who is both her lawyer and caretaker, had told her to sign the contract. Aunt has a defense to the contract she signed based on her reasonable reliance on a fiduciary.

True

Estates in remainder can be mortgaged or sold.

True

Excessive punitive damage awards may violate the constitutional protection of due process.

True

Failure to rescind a contract within a reasonable time amounts to an affirmation of the contract.

True

Fixtures in residences become part of the real estate and will transfer to the buyer when the house is sold.

True

For promissory estoppel to be granted as a remedy, the promisor must have known or expected that the promisee would rely on the promise.

True

General damages are also called compensatory damages.

True

Horizontal price fixing is generally more anti-competitive than vertical price fixing.

True

If a bidder seeks to withdraw a bid based on a unilateral mistake, courts require, at a minimum, that the bid was made in good faith, without gross negligence, and that the other party received prompt notice.

True

If the possessor of a life estate does not make needed repairs and the value of the property declines, the possessor has committed waste.

True

In a distress for rent, the landlord takes the personal property of the tenant as payment for the unpaid rent.

True

In a foreclosure proceeding, a court of equity will order the sale of the real estate at a public auction.

True

In an accord and satisfaction, the accord is the new agreement.

True

In an auction with reserve, the bidders are the offerors

True

In an auction without reserve, the auctioneer is the offeror.

True

Insurance policies are typically contracts of adhesion.

True

Jack and Jill own Hilltop as tenants in common. On Jill's death, her one-half interest in Hilltop will pass to her heirs.

True

One method for proving that a contract has been rescinded is to tear up the contract

True

One of the elements of fraudulent misrepresentation is that the victim's reliance on the false representation was justifiable.

True

Professionals who perform services without a required license lose the right to be compensated for those services.

True

Provisions printed on tickets that disclaim liability are binding if the ticket is purchased as admission to a business establishment.

True

Restitution is used by courts of equity to prevent unjust enrichment in actions based on quasi-contract.

True

Scienter includes not only actual knowledge that a statement is false, but also reckless disregard for whether the statement is true or false.

True

Sellers cannot bid at the auctions in which their goods are offered for sale unless they give notice to other bidders of their intent to bid.

True

Tamara left her car in a line of other cars waiting to be washed. Tamara expects to pay for the service and the car wash expects to be paid. The contract that exists between Tamara and the car wash is an implied in fact contract.

True

The Uniform Commercial Code is an important source of contract law for businesses in the United States.

True

The amount of damages sustained in a breach of contract case is a question of fact to be presented to the jury.

True

The intent of the parties in a contract is determined by what their outward conduct would lead a reasonable person to believe.

True

The offeree accepts a bilateral contract by making a promise.

True

The party who transfers title to land by executing a deed is called the grantor

True

The power of a court to strike a contract or contract provision because it is unconscionable places a practical limit on freedom of contract.

True

The purpose of reformation is to correct the written contract to reflect the actual intentions of the parties.

True

The victim of negligent misrepresentation may recover contract damages, but not punitive damages.

True

Todd owns and operates a vegetable market that specializes in fresh local produce. He has an agreement with Meg, a home gardener, to buy her entire crop of cucumbers for $400. Under the Code, this transaction is a sale of goods.

True

Tom offered to sell his complete home gym to Megan for $500. Megan accepted the offer but died before giving Tom the money. The executor of Megan's estate must pay Tom the $500.

True

Under an output contract, the seller loses the right to sell his goods to anyone but the buyer named in the output contract.

True

Under the Uniform Commercial Code, provisions in a contract will not be enforced if they are so one-side and unfair that the provisions are unconscionable.

True

Gorgeous, Inc. is a major supplier of dyes, bleaches, gels and other chemical products used in hair salons. Gorgeous just acquired a subsidiary that makes small electrical products, like dryers and curling irons. Gorgeous now refuses to sell its chemical products to any salon or business that does not also buy its electrical products. Dryers and irons of equal quality are available at lower costs from other manufacturers. The condition that salons must buy one product from Gorgeous in order to buy another is an example of a ________________arrangement.

Tying

Mary left her iPad at a local restaurant and offered a reward for its return. Mary made an offer to form a (n) _________________contract.

Unilateral

A practice so regularly followed within a particular business or industry that business people expect that they will follow that practice too is called _________________.

Usage of trade

If a lender charges a debtor a greater interest rate than is allowed by state statute, the lender has committed____________.

Usury

The legal status of a contract entered into by someone who has been adjudicated insane is __________.

Void

The legal status of a contract entered into by a minor is ___________.

Voidable only by the minor

Kevin, a minor, sold his home gym to Buyer, who in turn sold it to a good faith purchaser for value (GFP). Under the Uniform Commercial Code, Buyer took ____________title from Kevin, and transferred _________________title to the GFP.

Voidable-------------------------------Good

Jacob inherited his grandfather's farm when he was 16. He sold the farm to Buyer, who in turn sold it to a good faith purchaser for value (GFP). Under the common law, Buyer took ________ _____________title from Jacob, and transferred ___________title to the GFP.

Voidable-------------------------------Voidable

If the owner of an item that is to be sold at auction wants the right to withdraw it if the bids are too low, the item would be auctioned

With reserve

Dora and Connie are college students in New York City. When Connie learned that Dora would be driving through North Carolina on her way back from spring break in Florida, she gave Dora money to buy 30 cartons of cigarettes. Connie knew she could easily sell the cigarettes because taxes in New York City had driven the cost of legal cigarettes sky high. It is a crime in New York to import and sell untaxed cigarettes. Before Dora left, Connie had an attack of conscience and wanted to cancel the arrangement, but Dora refuses to return Connie's money. Can Connie seek contract remedies of rescission and restitution in court?

Yes, a court will order rescission and restitution in these circumstances based on the doctrine of locus poenitentiae.

Tucker designed a unique sled and conveyer mechanism to be used by deep sea trawlers. He had an oral contract with Metal Fabricators to produce special parts and frames to his design. Tucker agreed to pay Metal $10,000 and Metal agreed to an accelerated production schedule. Tucker is now convinced that his design is unworkable and refuses to accept or pay for the parts. Metal can find no other customers for these unique pieces. Metal has filed a complaint against Tucker for breach of contract, and Tucker has pled the Statute of Frauds as an affirmative defense. Will Tucker be liable on this oral contract?

Yes, the Uniform Commercial Code recognizes specially manufactured goods as an exception to the writing requirement; the court will find for Metal.