Business Law Exam #2

A promise not to sue another party is not consideration, because the promise does not convey any legal value to the other party. Assume the person who made the promise had a valid claim.

False

A threat to file a civil suit against someone to get that person to contract with you is never duress.

False

An assignee must give consideration to the assignor in exchange for the assignment.

False

Ratification of a contract made by a minor must be express (in words).

False

A promises to mow B's lawn "at such times as I desire," in exchange for B's promise to pay A $20 per mowing. There is no consideration for B's promise.

True

Parol evidence can be used to resolve ambiguities in a completely integrated written contract.

True

Ratification ends the right to rescind a contract.

True

Anti-assignment clauses in contracts generally are:

Enforceable but read narrowly.

A party who has the right to rescind a contract may do so at any time.

False

Which of the following cannot be disaffirmed until after the age of majority?

A contract that affects title to real estate.

In general, which of the following is most true regarding duress?

A threat to initiate a frivolous (ill-founded) criminal prosecution is usually duress

In order to satisfy the Statute of Frauds, the parties' writing must:

Be signed by the "party to be charged."

Why does the fraud-misrepresentation distinction matter?

Because materiality is not required in a fraud case.

Cindy Smith, age 16, buys a 1973 Chevy Camaro from Mike Mason, age 23, for $400. Cindy's indulgent parents, who give her everything she wants, loaned her the money for the car. The reason for Cindy's purchase is that all her friends have cars and she feels left out without one. One week after buying the car, however, Cindy changes her mind and tells Mike that she wants to disaffirm the contract. When Mike comes to pick up the car and give Cindy her money, though, Cindy changes her mind again, telling Mike that "I'll stick by the deal." But when Cindy's parents gave her a new car for her seventeenth birthday, she finally decides to disaffirm once again. Which of the following is true?

Cindy can still disaffirm.

Wanda buys a car on credit from Friendly Motors. Wanda assigns the car and her contract with Friendly to Betty. In this case:

D) A and B are true.

Which of the following kinds of third-party beneficiaries normally can enforce a contract?

D) A and B.

Norm Hefty was a door-to-door salesman for Toothrot Candy Company. His duties were to call on customers and make sales in Bedford, Indiana, which is located in the southern part of the state. Toothrot's business territory covers the entire state of Indiana. Hefty and Toothrot had entered into a written employment contract at the time he joined the firm. One of the clauses in the contract stated that if Hefty ceased working for Toothrot, he could not work as a salesman for a competing company anywhere in Indiana for a period of five years. Hefty left his employment with Toothrot and promptly went to work as a salesman for a candy company that competed with Toothrot. His duties with the new employer were confined to the town of Elkhart, which is located in northern Indiana. Toothrot has sued Hefty in an effort to obtain an injunction against further violation of the non-competition clause in the parties' employment contract. Which of the following is most true?

D) Hefty will win, because the clause restricts him from engaging in a common calling.

Ace Construction Company contracts to build a retirement community on land owned by Smith. Jones, an adjoining landowner, expects the value of his land to increase greatly once the retirement community is built. Ace Construction Company then breaches the contract to build the retirement community. In this case:

D) None of the above is true.

Apple assigns the same contract rights to Enzo, and then to Sam. Sam immediately notifies the obligor of the assignment to him; Enzo never notifies the obligor. When Sam notified the obligor, he did not know about the earlier assignment to Enzo. Sam will have the better right under the:

English rule

A contract of adhesion is one that the court will refuse to enforce, per se, because such a contract deprives the party being presented with it with the right to negotiate the terms and conditions of the agreement.

False

Dr. Wilson, an orthopedic surgeon worked for the Medical Group in Utah. He signed an agreement when hired to not "compete with the Group after leaving it for 2 years and within a radius of 5 miles." After leaving the group, and in violation of the covenant against competition, Dr. Wilson set up an orthopedic practice. The Medical Group did not replace Dr. Wilson with another orthopedic surgeon and none was practicing medicine within 35 miles. If the Medical Group sued to enforce the covenant, a court would rule in its favor.

False

In Skebba v. Kasch, the Court found that Skebba was not entitled to the promised $250,000 because no contract had been created.

False

In order to satisfy the writing requirement of the statute of frauds, both parties must sign the writing.

False

In virtually all the states today, a minor's misrepresentation of his age has no effect on his ability to disaffirm a contract.

False

Once a party properly delegates a duty to the delegatee (assignee), that party is relieved of any obligation to perform the duty.

False

Parol evidence can be used to contradict the terms of a partially integrated contract.

False

The statute of frauds applies to all contracts of $500 or more.

False

The statute of frauds covers all contracts that are for an indefinite period of time.

False

Under federal law, electronic transactions transmitted through e-mail will not satisfy the Statute of Frauds.

False

While economic pressure may amount to undue influence, it cannot constitute duress.

False

D wants to borrow $1000 from C. C, however, wants some additional security. Thus, D gets S to agree to pay D's debt in the event that D first defaults. This agreement:

Is covered by the Statute of Frauds because it is a collateral contract.

Which of the following best illustrates duress?

Len has contracted to sell goods to Mel. Knowing that Mel needs the goods to be delivered on a specific date, Len threatens to withhold delivery on that date unless Mel agrees to pay a higher price.

Unconscionability:

Makes a contract voidable

An important difference between duress and undue influence is that:

None of the above.

The assignee's notification to the obligor that an assignment has occurred is important because:

Otherwise the obligor might perform to the assignor rather than the assignee, in which case the obligor is relieved of all liability to the assignee.

Smith and Benson make an oral contract for the sale of some land at a price of $500,000. After paying Smith $400,000 of the purchase price, Benson takes possession of the land. One month later, Smith wants to boot Benson off the land. His argument is that the parties' oral agreement is unenforceable under the Statute of Frauds. Which of the following is most correct?

Smith is incorrect, because Benson paid part of the purchase price and took possession.

Which of the following is not a requirement for avoiding a contract on the basis of mutual mistake?

That the mistake makes it unconscionable to enforce the contract.

Which of the following is not one of the implied warranties that the assignor gives to the assignee?

That the obligor is solvent.

In a fraud (as opposed to misrepresentation) case:

The misstatement need not always be material.

V promises to pay Bully $100 per week, in exchange for Bully's promise not to beat Victim up.

There is legal value to Victim's promise but not to Bully's promise

Of the following statements about exculpatory clauses, which is accurate?

They cannot relieve a party from liability for battery

A contract made by a person who has been adjudicated to be insane and institutionalized or put under a guardian's care is void rather than voidable.

True

A induces B's consent to contract under duress. A later assigns his rights under the contract to C. B may assert the doctrine of duress against C as a ground for avoiding the contract.

True

A material mistake involving a collateral fact will not allow the mistaken party to avoid the contract.

True

An exculpatory clause relieving a person from liability for her fraud will not be enforced.

True

An incidental beneficiary of a contract cannot recover under that contract.

True

Bruce and Raj make a bet regarding whether Syracuse University will win the NCAA Men's Basketball Championship this year. Neither has any economic interest in the championship other than that which he has created through the bet. This is a wagering contract, and will be illegal if the state has the normal kind of statute forbidding wagering contracts.

True

Contracts that affect title to real estate cannot be disaffirmed until the age of majority.

True

Exculpatory clauses, regardless of how specifically drafted and clear in content, will not be enforced if the party seeking exculpation owes a duty to the public and the clause, if enforced, will adversely affect the public interest.

True

If a promisor fails to ask for anything in return, then the promise is not enforceable.

True

If the elements of promissory estoppel are proven, a promise is binding even though there is no consideration for that promise.

True

In almost all states today, the age of contractual capacity is eighteen.

True

One example of substantive unconscionability is a grossly excessive price for a product.

True

The assignor impliedly warrants to the assignee that the obligor has capacity to contract.

True

The parol evidence rule does not block evidence of subsequent agreements that modify a completely integrated written contract.

True

The statute of frauds covers contracts in which marriage is the consideration.

True

The statute of frauds covers real estate mortgages.

True

The threat to institute a criminal prosecution against another party in order to force that party into a contract is almost always duress.

True

Undue influence cases often involve a relationship of trust and confidence between the contracting parties.

True

Unless the language or the circumstances indicate the contrary, an assignment of contract rights is also a delegation of duties.

True

Paul is hired by Soprano as a security guard. At the time of hiring, Paul signs an agreement that relieves Soprano from workers' compensation liability. This agreement is most likely:

Unenforceable as a violation of public policy.

Pip owns Great Expectations, a trendy restaurant in Manhattan. He enters into a contract with Estella, who makes and sells pastries. The contract states that Estella will "supply all of Great Expectation's needs" for pastries for the next year. Is this contract enforceable?

Yes, because this is a requirements contract.

The Electronic Signatures in Global and National Commerce Act (E-Sign):

clarifies that a contract may not be denied legal effect or enforceability solely because an electronic transaction was used in its formation.

In Nasc Services, Inc. v. Jervis, the court held that the restrictive covenant was:

unenforceable because a balancing of the equities favor the defendants

Which of the following is a true illusory promise?

"I promise to mow your lawn on such occasions as I designate"

Which of the following is most likely to constitute undue influence?

A clergyman's using his position and a parishioner's emotional susceptibility to get the parishioner to contract with the clergyman.

Which of the following contracts or contract provisions is most likely to be enforced?

A contract that violates a licensing contract whose aim is to raise revenue.

Which of the following duties is most likely to be delegable?

A duty to deliver goods to a manufacturer.

Which of the following is an example of substantive unconscionability?

A penalty clause obligating the buyer to pay five times the product's price for failing to accept the goods when delivered.

A minor may disaffirm her contract:

All of the above

Baron provided a necessity to Conrad pursuant to a contract between them. Baron would be able to recover the reasonable value of the necessity even if:

All of the above

In the case of Gottlieb v. Tropicana Hotel and Casino (THC), identify what it was that Gottlieb did, if anything, that amounted to legal detriment to her:

All of the above

In which, if any, of the underlying examples would there be no consideration?

All of the above

Which of the following makes a contract voidable?

All of the above

This question concerns the statute of frauds provision for contracts that can't be performed within one year. In most states, which of the following is not covered by this provision of the statute of frauds?

All of the above are outside this provision of the statute of frauds.

To which of the following situations does the common law "preexisting duty" rule not apply?

All of the above.

A contract made by a mentally impaired person who HAS NOT been adjudged insane by a court of law:

B) Can only be ratified after the person has regained his mental capacity.

X sells a house to Y for $300,000. Before selling the house, X forgets to tell Y about a leaky faucet in a little-used sink in the basement (which would cost about $10 to fix). Y inspected the house but just didn't notice the faucet. Later, Y wants to rescind the deal on the basis of fraud or misrepresentation because of the leaky faucet. Which of the following is the best reason why Y cannot rescind?

Because X's failure to disclose the condition of the faucet is not material.

A and B entered into a completely integrated written contract. Before the written contract was completed, A made an oral statement to B regarding the terms of the contract. This statement was not contained in the written contract. Under the parol evidence rule, evidence of A's oral statement would be admissible if it were used to:

Clarify an ambiguous term in the written contract.

Which of the following is not admissible with respect to a partially integrated contract?

Evidence that contradicts the contract's provisions.

A liquidated debt is a debt that has been fully paid.

False

A promise to refrain from smoking can not be legal consideration because it does not convey anything of economic value to the other party.

False

Duress usually makes a contract void, while undue influence makes a contract voidable.

False

In Coma Corporation v. Kansas Department of Labor, the Kansas Supreme Court held that the employment contract was illegal and therefore unenforceable because it involved the hiring of an undocumented worker.

False

In most states today, minors have the right to disaffirm medical insurance contracts.

False

In the case of Riggs v. Woman to Woman, P.C. (WTW), the plaintiff sued WTW for breach of contract. WTW counter-sued to enforce the covenant against competition that plaintiff signed. The covenant against competition that plaintiff Riggs signed was ruled illegal by the appellate court because WTW violated a regulatory statute (Professional Registration Act).

False

Individuals who engage in a "common calling" are the most likely to have a covenant against competition enforced against them.

False

Procedural unconscionability exists when a term in a contract is extremely harsh or grossly one-sided in effect.

False

Though the law regarding minors' contracts is designed to encourage adults to deal with minors, the opposite is true if the subject matter of the contract involves a necessity. In other words, the law regarding minors' contracts for necessities is designed to discourage adults from dealing with minors.

False

Today, the "justifiable reliance" requirement in fraud and misrepresentation cases imposes a bigger obstacle to liability than it did in the 19th century. In other words, a greater duty to inspect and investigate (by the party claiming lack of real consent) is required modernly than at common law.

False

Under the UCC, agreements in which one party promises to supply another party's requirements of some commodity are not contracts because they involve illusory promises.

False

Under the theory that alcohol and drug use should not be rewarded, today most courts say that contracts made by intoxicated people are perfectly binding, no matter how severe the intoxication.

False

Once an assignment is complete, the assignee cannot assign the contract rights to another.

Flase

Employer promises to pay Retiree a $10,000 per year pension for the remainder of Retiree's life in return for Retiree's promise to pay Employer $1 per year. Retiree foreseeably relies on the promise by taking out a mortgage on a small vacation home. Later Employer, who never intended to pay the pension, unfairly reneges on his promise. Employer's promise:

Is binding under these circumstances.

A and B have a written contract whereby A agrees to sell B a plot of land for $100,000. Later, without terminating the first contract, the parties modify the deal so that A sells B the same plot of land for $125,000. The second agreement:

Is not a contract because there is no consideration for B's promise.

D owes C a debt the amount of which is subject to a good faith dispute. The parties agree to settle the debt, with D promising to pay C $15,000 and C promising to release D on the $25,000 debt. The settlement agreement:

Is supported by consideration.

A contract entered into by a person who was PREVIOUSLY adjudged insane by a court of law:

Is void

So-called "contracts of adhesion":

May be unconscionable

S and B make an oral contract whereby S agrees to sell B 480 widgets (goods) at a price of $480. Later, the parties want to modify the contract so that the price would become $520. This modification:

Must be in writing.

Olsen's contract with Archer obligated Olsen to pay Archer $10,000. Archer properly assigns the contract to Able. At that time, Able notifies Olsen about the assignment. Olsen, however, forgets and pays the $10,000 to Archer rather than to Able. By this time, Able is screaming for his money. But then Archer goes into bankruptcy. In this case:

Olsen is liable to Able for $10,000.

In violation of a state licensing statute, Jones purports to be an attorney. After making that allegation, he contracts to perform legal service for Smith. Smith then pays Jones a $500 retainer. Later, after discovering that Jones is not licensed and therefore cannot get the job done, Smith sues Jones for the $500. What is the most likely result, and why?

Smith probably wins, because parties for whose protection a regulatory statute has been enacted often can recover amounts paid under a contract declared illegal by the statute.

Which of the following is true about the relationship between mutual mistake and unilateral mistake?

To avoid a contract on the basis of unilateral mistake, one must prove the elements needed for mutual mistake, plus something else.

Which of the following is true in a situation wherein a minor lies about her age in order to induce the adult to enter into the contract with her?

Today, some courts will allow the minor to disaffirm the contract despite the lie.

A and B contracted for A to mow B's lawn once a week for 20 weeks, at a price of $20 per week. Later, without terminating the first contract, the parties modify the contract as follows: A will mow B's lawn in exactly the same way for exactly the same time period, in exchange for B's promise to pay A $22 per week. There is no consideration for B's promise.

True

A novation discharges the original obligor and substitutes a new obligor in his place.

True

A party injured by fraud in a contract for the sale of goods can both rescind the contract and sue for damages.

True

A person who at the time of the contract lacked capacity due to mental impairment can ratify the contract once he regains his normal mental faculties.

True

An agreement can be illegal even if no statute specifically states that such an agreement is illegal.

True

D owes a debt to C. S contracts with D to pay D's debt to C. C is a creditor beneficiary of the S-D contract.

True

In the case of Young v. Weaver, Judge Murdock ruled that the apartment furnished to Young was not a necessity under the circumstances of this particular case and that Young would therefore not be required to pay the landlord for unpaid rent or damage done to the apartment by Young's dog.

True

Legal value exists when one performs a requested act that involves either doing something the actor had no prior legal duty to do, or refraining from something that the forbearer had a legal right to do.

True

Ordinarily, an item is not considered to be a necessary if a parent or guardian already supplies the minor with similar items.

True

Some courts allow promissory estoppel to bind parties to oral contracts that otherwise would be unenforceable under the statute of frauds.

True

The traditional rule is that, where the consideration given a minor under a minor's contract has been lost, stolen, or dissipated, the minor can disaffirm without compensating the adult for the loss in any way.

True

Under the "American Rule" governing successive assignments, the first assignee in time has the superior right.

True

In January 2002, a court with the necessary subject-matter jurisdiction holds Mick mentally incompetent and appoints a guardian for him. In November 2002, Mick escapes his guardian's care and takes off on his own. While eating lunch with Carol, who knows about Mick's condition, Mick signs an agreement to sell a valuable property he owns. When he signs the contract, Mick believes that he is the President of the United States signing an important treaty. The agreement between Mick and Carol is best described as:

Void

Bruce told Adam that he was selling his house in Syracuse, New York. Adam sent Bruce an e-mail containing an offer of $300,000 for the house. Bruce responded via e-mail that he wanted $315,000 for the house. After further e-mails, the parties finally agreed on a sale with a price of $310,000. A series of e-mails contained the terms of the sale, and all included a salutation containing their typewritten names. However, Bruce later decided to sell the house to Marty for $325,000. Adam sued Bruce, claiming that Bruce breached their contract for the sale of the house. Most likely, Adam will:

Win, because the essential terms of the contract were set forth in the signed e-mails.

Chica, a women's clothing store, held a "prize drawing" for a $500 shopping spree on Saturday that it had advertised throughout the week. Participation in the drawing required being at the store by noon and completing a form that included personal information and placing it in a box. The information would then be put into a database for marketing purposes. "Fashion consultants" offering merchandise for sale greeted customers arriving at the store on Saturday morning. Joy was the winner of the drawing. Has she given "consideration" for the prize?

Yes: she made an effort to come to the store and give information that was for the store's use.

The effect of a valid delegation of duties is that it:

appoints the delegatee to perform the delegator's duty to the obligee.

Big Bank is a major creditor of Bonwill Department Store. After a major loss in profits due to poor holiday sales, Big Bank decides to help keep Bonwill from bankruptcy by orally promising Mary Tudor, a supplier to Bonwills, that it will guarantee Bonwill's payment for goods that Mary sells to Bonwill. Most likely, Big Bank's oral agreement:

is enforceable under the "main purpose" or "leading object" exception to the statute.