Business Law, 8e (Cheeseman) Chapter 14 Statute of Frauds and Equitable Exceptions
69) If a provision in a contract refers to the subject matter as "dollars," which of the following specific terms would qualify the general term? A) currency B) pounds C) bills D) Australian dollars
D) Australian dollars
1) Statute of Frauds is a state statute that requires certain types of contracts to be in writing
TRUE
74) ________ is an equitable doctrine that permits enforcement of oral contracts that should have been in writing. A) Promissory estoppel B) Merger clause C) Main purpose exception D) Leading object exception
A) Promissory estoppel
52) Good Faith Consultants partnered with QuickFind IT Solutions for a period of six months. After three months, they wanted to extend the contract by two years. According to the Statute of Frauds, which of the following holds true for the contract? A) The modification to the duration of the contract should be in writing. B) A new contract must be formed. C) The contract can be oral both before and after modification. D) Only the original contract should be in writing.
A) The modification to the duration of the contract should be in writing.
42) Which of the following is considered "real property?" A) a fixture permanently affixed to a building B) fifty-one percent partnership in a firm C) a club membership D) diamond jewelry
A) a fixture permanently affixed to a building
37) Which of the following is an exception to the Statute of Frauds? A) contracts under promissory estoppel B) agents' contracts C) merger clause D) prenuptial agreement
A) contracts under promissory estoppel
45) Ida moves to New York from Poland and wants to live in an apartment. However, she does not have sufficient money to buy one. Her colleague Henry allows Ida to live in his old apartment for a year, if she pays him $25,000. This contract would be considered a(n) ________. A) lease B) mortgage C) installment D) easement
A) lease
49) Which of the following grants a person the right to use real property for a specified period of time? A) lease B) mortgage C) sale D) barter
A) lease
70) Any oral or written words outside the four corners of a written contract are termed as ________. A) parol evidence B) exclusive integration C) leading object exception D) main purpose exception
A) parol evidence
65) The doctrine of ________ allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if it has been partially performed and performance is necessary to avoid injustice. A) part performance B) undue performance C) equitable performance D) promissory estoppel
A) part performance
60) Section 2-201(1) of the Uniform Commercial Code is the basic Statute of Frauds provision for ________. A) sales contracts B) lease contracts C) all contracts involving interests in real property D) mortgage contracts
A) sales contracts
75) Under which of the following conditions does a promissory estoppel provide for the enforceability of an oral contract? A) when the promise induces action or forbearance of action by another B) when the reliance on the oral promise was unforeseeable C) when enforcing the oral promise provides for faster resolution of the case D) when the oral promise provides for reduced damages to the defendant
A) when the promise induces action or forbearance of action by another
76) Explain the creation and working of guaranty contracts.
Answer: A guaranty contract occurs when one person agrees to answer for the debts or duties of another person. Guaranty contracts are required to be in writing under the Statute of Frauds. In a guaranty situation, there are at least three parties and two contracts. The first contract, which is known as the original contract, or primary contract, is between the debtor and the creditor. It does not have to be in writing (unless another provision of the Statute of Frauds requires it to be). The second contract, called the guaranty contract, is between the person who agrees to pay the debt if the primary debtor does not (i.e., the guarantor) and the original creditor. The guarantor's liability is secondary because it does not arise unless the party primarily liable fails to perform.
78) How are contract words and terms interpreted?
Answer: If the parties have not defined the words and terms of a contract, the courts apply the following standards of interpretation: 1) Ordinary words are given their usual meaning according to the dictionary. 2) Technical words are given their technical meaning, unless a different meaning is clearly intended. 3) Specific terms are presumed to qualify general terms. For example, if a provision in a contract refers to the subject matter as "corn," but a later provision refers to the subject matter as "feed corn" for cattle, this specific term qualifies the general term. 4) If both parties are members of the same trade or profession, words will be given their meaning as used in the trade (i.e., usage of trade). If the parties do not want trade usage to apply, the contract must indicate that. 5) Where a preprinted form contract is used, typed words in a contract prevail over preprinted words. Handwritten words prevail over both preprinted and typed words. 6) If there is an ambiguity in a contract, the ambiguity will be resolved against the party who drafted the contract.
79) When is parol evidence admitted in court?
Answer: Parol evidence may be admitted in court if it: 1) shows that a contract is void or voidable (e.g., evidence that the contract was induced by fraud, misrepresentation, duress, undue influence, or mistake). 2) explains ambiguous language. 3) concerns a prior course of dealing or course of performance between the parties or a usage of trade. 4) fills in the gaps in a contract (e.g., if a price term or time of performance term is omitted from a written contract, the court can hear parol evidence to imply the reasonable price or time of performance under the contract). 5) corrects an obvious clerical or typographical error. The court can reform the contract to reflect the correction.
80) Explain the doctrine of equitable estoppel.
Answer: The doctrine of promissory estoppel, or equitable estoppel, is an equitable exception to the strict application of the Statute of Frauds. The version of promissory estoppel in the Restatement (Second) of Contracts provides that if parties enter into an oral contract that should be in writing under the Statute of Frauds, the oral promise is enforceable against the promisor if three conditions are met: (1) The promise induces action or forbearance of action by another, (2) the reliance on the oral promise was foreseeable, and (3) injustice can be avoided only by enforcing the oral promise. Where this doctrine applies, the promisor is estopped (prevented) from raising the Statute of Frauds as a defense to the enforcement of the oral contract.
67) ________ refers to the integration made by express reference in one document that refers to and incorporates another document within it. A) Implied integration B) Incorporation by reference C) Executory contract D) Merger clause
B) Incorporation by reference
61) Section 2A-201(1) of the Uniform Commercial Code states which of the following? A) All lease contracts must be in writing. B) Lease contracts involving payments of $1,000 or more must be in writing. C) All sales contracts must be in writing. D) Sales contracts involving payments of $500 or more must be in writing.
B) Lease contracts involving payments of $1,000 or more must be in writing.
72) ________ stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement. A) Promissory estoppel B) Merger clause C) Main purpose exception D) Leading object exception
B) Merger clause
64) Jim's landlord insists on a written agreement to lease his apartment for $25,000 in order to comply with ________ of the UCC. A) Section 2-201(1) B) Section 2A-201(1) C) the merger clause D) the equal dignity rule
B) Section 2A-201(1)
41) Jonas enters into an oral contract with Chelsea to lease his house to her for $100,000. Chelsea pays him $100,000 and moves in. A month later, Jonas learns that his state requires contracts for the lease of goods with payments of $1,000 or more to be writing. Which of the following options does either party have? A) Jonas can evict Chelsea as the contract does not comply with the Statute of Frauds and is hence void. B) The contract cannot be rescinded by either party as it has already been executed. C) Chelsea can rescind the contract on the grounds of noncompliance with the Statute of Frauds. D) Jonas can rescind the contract on the grounds of noncompliance with the Statute of Frauds.
B) The contract cannot be rescinded by either party as it has already been executed.
66) Which of the following statements is true of signature on a written contract? A) The contract should be signed by the party who seeks enforcement. B) The signature of the person who is enforcing the contract is not necessary. C) The signature must appear at the end of the writing. D) A person's nickname or initials are not binding legal signatures.
B) The signature of the person who is enforcing the contract is not necessary.
55) In a guaranty situation, the original contract is between the ________. A) creditor and the guarantor B) debtor and the creditor C) debtor and the guarantor D) creditor and the lessee
B) debtor and the creditor
47) A right to use someone else's land without owning or leasing it is called ________. A) mortgage B) easement C) life estate D) leasehold
B) easement
58) The ________ states that if the main purpose of a transaction and an oral collateral contract is to provide pecuniary benefit to the guarantor, the collateral contract does not have to be in writing to be enforced. A) merger clause B) leading object exception C) collateral contract rule D) parol evidence rule
B) leading object exception
43) Which of the following is an interest in real property given to a lender as security for the repayment of a loan? A) lease B) mortgage C) life estate D) easement
B) mortgage
73) In which of the following cases is parol evidence admitted by a court? A) when the plaintiff reduces the value of damages he expects B) when the evidence explains ambiguous language C) when the defendant does not wish to appeal D) when the defendant takes the case to the appellate court
B) when the evidence explains ambiguous language
51) Which of the following does the one-year rule state? A) Every contract in writing is subject to yearly renewal. B) The terms of a written contract can be modified within a year of its formation. C) A contract that cannot be performed on its own terms within a year should be in writing. D) Valid contracts cannot be rescinded by either party until a year after their formation.
C) A contract that cannot be performed on its own terms within a year should be in writing.
71) ________ says that if a written contract is a complete and final statement of the parties' agreement, any prior or contemporaneous oral or written statements that alter, contradict, or are in addition to the terms of the written contract are inadmissible in court regarding a dispute over the contract. A) Main purpose exception B) Leading object exception C) Parol evidence rule D) Promissory estoppel
C) Parol evidence rule
48) Which of the following is an instance of a mortgage? A) Richard pays Ellen $1000 a month to live in her apartment. B) Richard pays Ellen $12,000 a year to live in her apartment. C) Richard gives his country estate as collateral to a bank from where he has borrowed money to buy an apartment. D) Richard lives in an apartment for thirty years and upon his death, the apartment is transferred to somebody else.
C) Richard gives his country estate as collateral to a bank from where he has borrowed money to buy an apartment
68) Which of the following statements is true of interpreting contract words and terms? A) Where a preprinted form contract is used, preprinted words prevail over typed words. B) Preprinted words prevail over handwritten words. C) Specific terms are presumed to qualify general terms. D) If there is an ambiguity in a contract, the ambiguity will be resolved in favor of the party who drafted the contract.
C) Specific terms are presumed to qualify general terms.
56) Which of the following statements is true of a guaranty contract? A) The guaranty contract is between the guarantor and the debtor. B) A guaranty contract need not be in writing. C) The guarantor's liability is secondary. D) The original contract is between the creditor and the guarantor.
C) The guarantor's liability is secondary.
63) Santos told his friend Ernesto that he would sell Ernesto his car for $5,000. However, on the day of the sale, Santos refused to sell the car for the agreed-upon price and demanded more money. Which of the following statements is true in this context? A) Ernesto can sue Santos as their oral sales contract was binding. B) Santos has violated Section 2-201(1) of the UCC. C) The oral contract to trade a car for $5,000 is not binding, according to the UCC. D) Santos has violated Section 2A-201(1) of the UCC.
C) The oral contract to trade a car for $5,000 is not binding, according to the UCC.
57) Nina wants to borrow money from Tina but Tina refuses to lend the money unless another person promises to pay the money in case Nina cannot clear the debt. James agrees to pay the debt if Nina does not. James is the ________ in this transaction. A) creditor B) debtor C) guarantor D) facilitator
C) guarantor
53) A(n) ________ occurs when one person agrees to answer for the debts or duties of another person. A) main purpose exception B) mortgage C) guaranty contract D) implied integration
C) guaranty contract
38) Which of the following contracts is required to be in writing in most states? A) contracts for the sale of goods for $100 B) contracts for the lease of goods with payments of $500 C) promises to write a will D) contracts falling under the promissory estoppel
C) promises to write a will
44) Which of the following phrases explains the term lease? A) an interest in real property given to a lender as security for the repayment of a loan B) an interest in real property for a person's lifetime C) the transfer of the right to use real property for a specified period of time D) a right to use someone else's land without owning or hiring it
C) the transfer of the right to use real property for a specified period of time
40) Which of the following statements is true of the Statute of Frauds? A) An executory contract that is not in writing even though the Statute of Frauds requires it to be is enforceable by either party. B) Executed oral contracts that should have been in writing under the Statute of Frauds can be rescinded. C) If an oral contract that should have been in writing under the Statute of Frauds is already executed, either party may seek to rescind the contract. D) Most states require contracts to pay compensation for services rendered in negotiating the purchase of a business to be in writing.
D) Most states require contracts to pay compensation for services rendered in negotiating the purchase of a business to be in writing.
39) Which of the following statements is true of the writing requirement of contracts, according to the Statute of Frauds? A) Contracts for the sale of goods for $500 need not be in writing. B) Contracts for the lease of goods with payments of $101 must be in writing. C) Finder's fee contracts need not be in writing. D) Promises made in consideration of marriage must be in writing.
D) Promises made in consideration of marriage must be in writing.
62) Section 2-201(1) of the Uniform Commercial Code states which of the following? A) All lease contracts must be in writing. B) Lease contracts involving payments of $1,000 or more must be in writing. C) All sales contracts must be in writing. D) Sales contracts involving payments of $1,000 or more must be in writing.
D) Sales contracts involving payments of $1,000 or more must be in writing.
36) The ________ requires certain contracts to be in writing. A) part performance exception B) common law of contracts C) equal dignity rule D) Statute of Frauds
D) Statute of Frauds
59) The ________ says that agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable. A) merger clause B) common law of contracts C) doctrine of equity D) equal dignity rule
D) equal dignity rule
54) A ________ is a person who agrees to pay a debt if the primary debtor does not. A) secondary contractor B) third-party contractor C) lessee D) guarantor
D) guarantor
46) Which of the following interests in real property transfers to another person after the present holder's death? A) easement B) mortgage C) EMI D) life estate
D) life estate
50) The ________ states that an executory contract which cannot be performed by its own terms within one year of its formation must be in writing. A) parol evidence rule B) common law of contracts C) merger clause D) one-year rule
D) one-year rule
11) An easement is a form of real property security given by a borrower to a lender.
FALSE
13) An easement contract occurs when one person agrees to answer for the debts or duties of another person.
FALSE
14) In a guaranty situation, there is only one contract among three parties.
FALSE
17) A guaranty contract between people with no bad credit history can be oral.
FALSE
2) In most states, contracts for the sale of goods for $900 do not require to be in writing
FALSE
20) Section 2-201(1) of the Uniform Commercial Code states that a unilateral promise to pay money or property in consideration for a promise to marry must be in writing.
FALSE
21) If Johnny made an oral contract with Peter to sell Peter his truck for $15,000, Johnny's eventual refusal to sell the truck is considered breach of contract.
FALSE
26) The signature of the person who is enforcing the contract is necessary
FALSE
27) A person's nickname or initials that indicate his or her intent are not considered binding signatures.
FALSE
28) The UCC does not permit several writings to be integrated to form a single written contract.
FALSE
32) If there is an ambiguity in a contract, the ambiguity will be resolved in favor of the party who drafted the contract.
FALSE
34) Parol evidence rule stipulates that the contract is a complete integration and the exclusive expression of the parties' agreement.
FALSE
4) If an oral contract that should have been in writing under the Statute of Frauds is already executed, neither party can seek to rescind the contract on the grounds of noncompliance with the Statute of Frauds.
FALSE
5) Trees, crops, minerals, and timber are barred from being included in contracts involving interests in real property.
FALSE
8) A lease is an interest in real property given to a lender as security for the repayment of a loan.
FALSE
77) Why is it a bad idea for Edward and his landlord to make an oral lease contract for $30,000?
Suggest an alternative and explain how it is beneficial to an oral contract. Answer: It is a bad idea for Edward and his landlord to make an oral lease contract for $30,000 as such a contract is vulnerable to fraud. Instead, they must create a written contract in accordance to Section 2A-201(1) of the Uniform Commercial Code, which is the Statute of Frauds provision that applies to the lease of goods. It states that lease contracts involving payments of $1,000 or more must be in writing. If a lease payment of an original lease contract is less than $1,000, it does not have to be in writing under the UCC Statute of Frauds. However, if a modification of the lease contract increases the lease payment to $1,000 or more, the modification has to be in writing to be enforceable. The most recent revision to UCC 2A-201 requires that lease contracts involving payments of $20,000 or more must be in writing to be enforceable.
10) The transfer of the right to use real property for a specified period of time is known as a lease.
TRUE
12) According to the Statute of Frauds, an executory contract that cannot be performed by its own terms within one year of its formation must be in writing.
TRUE
15) The primary contract in a guarantee situation is between the debtor and the creditor.
TRUE
16) In a guarantee situation, the guarantor's liability is secondary.
TRUE
18) The main purpose exception to the Statute of Frauds allows oral collateral contracts to be enforced if there is a monetary benefit to the guarantor.
TRUE
19) Equal dignity rule says that agents' contracts to sell property covered by the Statute of Frauds must be in writing to be enforceable.
TRUE
22) Section 2A-201(1) of the Uniform Commercial Code states that lease contracts involving payments of $1,000 or more must be in writing.
TRUE
23) If a modification of the lease contract increases the lease payment to $1,000 or more, the modification has to be in writing to be enforceable.
TRUE
24) The doctrine of part performance allows the court to order an oral contract for the sale of land or transfer of another interest in real property to be specifically performed if performance is necessary to avoid injustice.
TRUE
25) Any writing—including letters, telegrams, invoices, sales receipts, checks, and handwritten agreements written on scraps of paper—can be an enforceable contract.
TRUE
29) Incorporation by reference is an integration made by express reference in one document that refers to and incorporates another document within it.
TRUE
3) In most states, contracts for the lease of goods with payments of $2000 require to be in writing
TRUE
30) Placing several documents in the same envelope indicates implied integration.
TRUE
31) While interpreting contract words and terms, specific terms are presumed to qualify general terms
TRUE
33) Any oral or written words outside the four corners of the written contract are called parol evidence.
TRUE
35) Promissory estoppel is an equitable doctrine that permits enforcement of oral contracts that should have been in writing.
TRUE
6) Built-in cabinets in a house would be considered as permanent parts of the real property
TRUE
7) Under the Statute of Frauds, any contract that transfers an ownership interest in real property must be in writing to be enforceable.
TRUE
9) A life estate will be transferred to another party in the event of the holder's death.
TRUE