Ethics Chapter 6

If someone offers $50 to anyone who returns her lost cat, then returning the cat is an acceptance of a(n) ________ contract. A) unilateral B) bilateral C) implied-in-fact D) express

A A unilateral contract ordinarily involves a situation in which one party makes a promise and the other acts in response to that promise. Unilateral offers are accepted by performance; no communication of acceptance beyond that performance ordinarily is necessary.

Skye, who is unaware of Nathan's mental incompetency, enters into an agreement with Nathan to paint her house. Skye does not know that Nathan has been adjudged insane by a court of law and, therefore, is angry at him for not finishing the work on time. This agreement between Skye and Nathan is an example of a(n) ________ contract. A) void B) option C) enforceable D) voidable

A An agreement involving a mentally incompetent person is either void or voidable. The transaction would be void—that is, no contract would exist—where the impaired party had been adjudged insane. In this scenario, Skye, who is unaware of Nathan's mental incompetency, enters into an agreement with Nathan to paint her house and hence they enter into a void contract.

Intentional untruths constitute ________ and allow the deceived party to seek rescission and restitution. A) fraud B) falsification C) misrepresentation D) unconscionability

A An innocent untruth is a misrepresentation. Intentional untruths constitute fraud. In either case, a party to a contract who has been deceived may rescind the deal, and restitution may be secured if benefits were extended to the party issuing the untruth.

________ refers to the bargained-for legal value that one party agrees to pay or provide to secure the promise of another. A) Consideration B) Agreement C) Reformation D) Restitution

A Consideration refers to the bargained-for legal value that one party agrees to pay or provide to secure the promise of another. All contracts require legal consideration to be valid; thus, legally binding.

If a mentally incompetent person is unable to understand the purpose and effect of a contract but has not been legally adjudged insane, ________. A) the impaired party would have to pay the reasonable value of any necessaries received under the contract B) the impaired party has entered into a contract that is rendered void due to his impairment C) the impaired party would not be able to declare the contract voidable due to his incompetence D) the competent party has an absolute right to rescind the contract upon discovering the other party's incompetence

A If a mentally impaired party was unable to understand the purpose and effect of a contract but had not been legally adjudged insane, the contract would be voidable (void in some states) at the option of the impaired party. The competent party cannot void the contract, and the impaired party would have to pay the reasonable value of any necessaries received under the contract.

Which of the following statements is true of implied-in-law conditions? A) The court imposes these conditions on the contract to avoid unfairness. B) They are often prefaced by words such as when, if, and provided. C) They are derived by the court from the conduct of the parties and the circumstances surrounding the bargain. D) The parties have no binding duties until the specified event occurs.

A Implied-in-law conditions (also called constructive conditions) are those that, although not expressly provided for in the contract or not able to be reasonably inferred from the facts, the court imposes on the contract to avoid unfairness.

Which of the following statements is not true of the Uniform Commercial Code (UCC)? A) It governs contracts for services, particularly the specific performance of personal services. B) It covers cars, clothing, and appliances. C) It regulates transactions involving the sale of goods. D) It does not govern contracts for real estate, stocks, or bonds.

A Section 2-105 of the Uniform Commercial Code (UCC) defines goods as tangible, movable, things. Hence cars, clothing, appliances, and the like are covered. Real estate, stocks, bonds, money, and so forth are not covered. Nor are contracts for services governed by the UCC.

The doctrine of ________ states that a promisor is stopped from denying the existence of a contract even though consideration is clearly lacking, where a promisee has detrimentally relied on that promise. A) promissory estoppel B) promissory note C) substantial performance D) material performance

A The doctrine of promissory estoppel, in which a promisor is "stopped" from denying the existence of a contract where a promisee has detrimentally relied on that promise. Promissory estoppel requires the following elements: a) A promise on which the promisor should expect the promisee to rely, b) The promisee did justifiably rely on the promise, and c) Injustice can be avoided only by enforcing the promise.

Minors who have the option, under the law, of either disaffirming or fulfilling most contracts have the ability to enter into this type of contract. A) Quasi-contract B) Voidable contract C) Void contract D) Unenforceable contract

B A voidable contract is enforceable but can be canceled by one or more of the parties. The most common voidable contracts are those entered by minors who have the option, under the law, of either disaffirming or fulfilling most contracts.

When a court issues an order that may either require or forbid a party to perform a specified act, the court has issued a(n) ________. A) rescission B) injunction C) reformation D) quasi-contract

B An injunction is a court order that may either require or forbid a party to perform a specified act. Injunctions are granted only under exceptional circumstances. Perhaps the most common of those are the noncompetition agreements.

Which of the following statements is true of consideration? A) It must meet the court-determined test for adequacy. B) It is generally used by the courts to distinguish a contract from a gratuitous promise. C) It is always settled in terms of tangible goods. D) It is always settled in terms of personal services.

B Courts use consideration to distinguish a contract from a gratuitous promise. Consideration consists of a detriment to the promisee that is bargained for by the promisor. The promisee must suffer a legal detriment; that is, the promisee must give up something of value (an act or a promise) or must refrain from doing something that she or he has a legal right to do in order to enforce the promise offered by the promisor.

________ is required for a contract to be legally enforceable, which means parties must have the legal ability to enter the contract; that is, they must be sane, sober, and of legal age. A) Legality B) Capacity C) Genuineness of assent D) Consideration

B Legally enforceable contracts must exhibit capacity, which means parties must have the legal ability to enter the contract; that is, they must be sane, sober, and of legal age.

Michael borrowed $8000 from Amanda to start a new business and, therefore, owes her that amount. Michael sells his car to Alan. Alan agrees to pay Kathy the $8000 that Michael owes her. In this scenario, Amanda is a(n) ________. A) donor beneficiary B) creditor beneficiary C) incidental beneficiary D) executory beneficiary

B Normally, those not a party to a contract have no rights under that contract; however, a third party may enforce a contract where that contract was expressly intended to benefit the third party. When two people enter into a contract in order to pay the debt that one of them owes to a third party, that third party is a creditor beneficiary. In general, creditor and donee beneficiaries can enforce contracts made by others for their benefit.

Which of the following statements is true of incidental beneficiaries? A) Often a second party receives benefit from a contract. B) The benefit received was not the contracting parties' primary purpose or intent. C) The primary purpose in entering a contract is to make a gift to another. D) The beneficiary can sue the contracting party for payment.

B Often a third party receives benefit from a contract although conferring that benefit was not the contracting parties' primary purpose or intent. If the contracting parties fails to execute the contract, an incidental beneficiary would have no legal rights against either of them.

Which of the following exceptional circumstances allows the admission of parol evidence? A) To establish grounds that would validate a written contract B) To explain ambiguities in a written, integrated contract C) To delete terms from a written, signed contract D) To infer the terms of an offer to give effect to an oral contract

B Parol evidence may be admissible under the following exceptional circumstances: to add missing terms to an incomplete written contract, to explain ambiguities in a written contract, and to prove circumstances that would invalidate a written contract. The written agreement is presumed to be the best evidence of the parties' intentions at the time they entered the contract.

________ is an equitable remedy that permits the court to rewrite a contract because it initially did not express the parties' true intentions. A) Restitution B) Reformation C) Injunction D) Rescission

B Reformation is an equitable remedy that permits the court to rewrite the contract where it imperfectly expressed the parties' true intentions. Typically such situations involve a mutual mistake or fraud.

________ are agreements that are so thoroughly one-sided that fairness precludes enforcing them. A) Void contracts B) Unconscionable contracts C) Voidable contracts D) Quasi-contracts

B Unconscionable contracts are so thoroughly one-sided that fairness precludes enforcing them. Problems of unconscionability often arise in situations in which the bargaining power of one of the parties is much superior to the bargaining power of the other party—where one can, in effect, twist the arm or otherwise take advantage of the other.

Which of the following statements is true of the conditions concurrent clause? A) Each performance is independent of the other. B) It specifies that the parties are to perform their duties at the same time. C) An event must occur before one or both parties are obligated to perform. D) It excuses performance if a future event transpires such that one or both parties are relieved of performance.

B Under the conditions concurrent clause, the contract simply specifies that the parties are to perform their duties at the same time. Each performance is dependent on the other.

Jim makes an agreement to play live music at Rusty's Tavern every Thursday night. Last Thursday, he had the flu and could not perform at Rusty's. What can be concluded about the agreement with respect to Jim's condition? A) His performance can be excused due to a condition concurrent. B) His performance can be excused due to a condition precedent. C) His performance can be excused due to a condition subsequent. D) His absence can be penalized because personal service contracts are never excused.

C A conditions subsequent clause excuses performance if a future event transpires. In this scenario, Jim's inability to perform at Rusty's Tavern on a Thursday night can be excused as per a conditions subsequent clause.

A(n) ________ contract means that all parties have yet to fully perform their responsibilities. A) anticipatory B) statutory C) executory D) declaratory

C A contract is labeled executory until all parties fully perform. When all parties have completed their performances, the contract is executed. The term "executed" denotes the performance of a contract.

Which of the following typically are prohibited by a state's blue laws? A) Blue laws forbid the practice of certain professions without a license. B) Blue laws forbid usury. C) Blue laws forbid conducting of certain kinds of business on Sundays. D) Blue laws forbid gambling.

C A contract to commit a crime or a tort is illegal and unenforceable. The states have also specified certain other agreements that are illegal. Those provisions vary from state to state, but they commonly include antigambling laws, laws forbidding the conduct of certain kinds of business on Sundays (blue laws), laws forbidding usury, and laws forbidding the practice of certain professions (law, real estate, hair care) without a license.

Which of the following kinds of contracts must be in writing to be enforceable? A) A contract to build a personal residence on one's own land B) The mutual exchange of promises to marry C) A promise by an executor to use his or her personal funds to pay the debts of the estate D) Securing a bank loan to start your own business within one year

C A promise by an executor or administrator to pay an estate's debts must be in writing if the payment will be made from the executor or administrator's personal funds. Thus, where the executor of an estate contracts with an auctioneer to dispose of the decedent's personal property, the executor's promise to pay the auctioneer must be in writing if the funds are to come from the executor's personal resources.

The UCC, rather than common law, governs a contract in all of the following situations except A) where the contract involves the sale of a good. B) where the contract falls under Article 2 of the UCC. C) where the contract involves the specific performance of a bargained-for personal service. D) where the contract concerns the purchase of tangible, movable property.

C Article 2 of the Uniform Commercial Code (UCC) governs all transactions involving the sale of goods, defined as tangible, movable things, such as cars, clothing, and appliances. Real estate, stocks, bonds, money, and so forth are not covered. Additionally, contracts for services are not governed by the UCC.

If Macon owes Alexa $250 for work that Alexa has performed, Alexa can assign her right to receive this payment to Catherine. Catherine approaches Macon for the $250, which Macon is obligated to pay. In this scenario, Catherine is the ________. A) assignor B) delegatee C) assignee D) obligor

C Ordinarily, a party to a contract is free to transfer her or his contractual rights to a third party. The person to whom the right is assigned is called the assignee while the person who assigns the right is the assignor. Once an assignment is completed, the assignor's contractual rights are extinguished.

Which of the following statements indicates a material breach of contract? A) Before performance is due, a party indicates in a signed written statement that she or he may be unable to perform. B) Each party performs some but not all of the bargained-for obligations. C) A party falls beneath the level of substantial performance and does not have a lawful excuse for that failure. D) Complete performance is not achieved because of minor deviations from the agreed-upon performance by one party.

C When a party falls beneath substantial performance and does not have a lawful excuse for that failure, a material breach of contract has occurred. No clear line separates substantial performance (a nonmaterial breach) from unacceptable performance (a material breach). Such decisions must be made on a case-by-case basis.

When a promisee enters into a contract with the primary purpose of making a gift to a third party, that third party is a(n) ________ of the contract. A) contingent beneficiary B) creditor beneficiary C) donee beneficiary D) incidental beneficiary

C When a promisee's primary purpose in entering a contract is to make a gift to another, that third party is a donee beneficiary of the contract. The most common of these situations involves an ordinary life insurance policy for which the owner (the promisee) pays premiums to the life insurance company (the promisor), which is obliged to pay benefits to the third party upon the death of the promisee or policy owner.

Which clause specifies that an event must occur before the parties to a contract are obligated to perform? A) A conditions concurrent clause B) An express conditions clause C) An implied conditions clause D) A conditions precedent clause

D A conditions precedent clause specifies that an event must occur before the parties to the contract are obliged to perform. Sometimes a contract is useful to one or more of the contracting parties only if some future event occurs or fails to occur. Under those circumstances, the parties may write into the contract a clause providing that performance is required only if the specified condition occurs or fails to occur. Otherwise, the duty to perform is discharged.

Kadija, a 16-year-old minor, enters into a contract to build a computer for her uncle. Her uncle pays Kadija $300, and the computer is to be delivered three weeks later. Until the computer is delivered, this contract is ________. A) valid and executed B) unenforceable and executory C) valid and executory D) voidable and executory

D A voidable contract is enforceable but can be canceled by one or more of the parties. The most common voidable contracts are those entered by minors who have the option, under the law, of either disaffirming or fulfilling most contracts. A contract is considered executory until such time that all parties fully perform their contractual responsibilities.

Meg, who is on the lookout for a temporary security officer, asks a security agency to send someone. The agency sends one of its reserve security officers to guard Meg's commercial building. Which of the following types of contract does Meg enter into with the security agency? A) Bilateral contract B) Quasi-contract C) Unilateral contract D) Implied-in-fact contract

D An implied-in-fact contract is inferred based on the facts—that is, by the behavior of the parties. In this scenario, Meg enters into an implied-in-fact contract with the security officer sent by the agency. The court infers a promise by Meg to pay a reasonable price in return for the security officer's promise to make a commercially reasonable effort in guarding the building.

Problems of unconscionability often arise in situations in which: A) the parties have contracted to perform an ultra-hazardous activity. B) the parties have contracted to commit a crime or a tort. C) the best interest of the public would not be served. D) one party's bargaining power is much superior to the bargaining power of the other party.

D Certain agreements are so thoroughly one-sided that fairness precludes enforcing them. Problems of unconscionability often arise in situations in which one party's bargaining power is much superior to that of the other party—where one can, in effect, "twist the arm" or otherwise take advantage of the other.

If one of the parties to a contract is forced to agree out of fear of harm, then genuineness of assent has not been achieved. The legal defense of ________ is available here, and the contract may be rescinded. A) mistake B) fraud C) undue influence D) duress

D Sometimes genuine assent is not secured and a contract may be rescinded because one of the parties is forced to agree. Fear lies at the heart of a duress claim. The party seeking to escape the contract must establish that a wrongful act was threatened or had occurred, causing the party to enter the contract out of fear of harm such that free will was precluded.

Contractual duties may be delegated to someone who is not a party to the contract. If the person to whom the duties are delegated does not perform them as specified, then A) he or she is solely responsible for nonperformance of the duty. B) the delegator is solely responsible for nonperformance of the duty. C) neither the delegator nor the delegatee is responsible because the duties were delegated which rendered the contract void. D) the delegatee is primarily responsible and the delegator is secondarily responsible for performance of the duties.

D The parties to a contract may delegate their contractual duties to one or more third parties. The person to whom the duty is delegated is called the delegatee while the person who delegates the duty is the delegator. The delegatee is primarily responsible for performance of the delegated duty. The delegator is secondarily liable if the delegatee does not perform the delegated duty.

A(n) ________ contract is created when an offeror promises to keep an offer open for a specified period and, in return, the offeree pays consideration. A) valid B) UCC C) unenforceable D) option

D When an offeror promises to keep an offer open for a specified period and, in return, the offeree pays consideration (usually money), the parties have created an option contract, which is a separate agreement and is enforceable by its own terms. It refers to a type of offer that cannot be revoked.

A valid offer must include the intent to enter a contract either at the present time or at some point in the future.

False A valid offer must include the present intent to enter a contract along with reasonable definiteness in the terms of the offer and communication of the offer to the offeree.

An effective offer must be the product of an intent to consider creating clear and definite terms, which may then be communicated to the offeree.

False An effective offer must be the product of a present intent, it must be definite, and it must be communicated to the offeree. Communication of an offer expresses the offeror's intent to make that offer.

Anticipatory breach of contract occurs only when a party, before performance is due, orally communicates that she or he will not perform.

False Anticipatory breach of contract occurs sometimes when one of the parties, before performance is due, indicates by word or deed that she or he will not perform. Normally an anticipatory breach (also called anticipatory repudiation) is the equivalent of a material breach, discharging the nonbreaching party from any further obligations and allowing the nonbreaching party to sue for damages, if any.

Consideration is used by the courts to determine if the contract has had an economic impact on the parties in an equal and objective manner.

False Courts will rarely inquire into the adequacy of consideration. Provided certain exceptions (fraud, duress, and the like) are not present, courts simply look to see if the promisee suffered a legal detriment; that is, the promisee gave up something of value or refrained from doing something that she or he had a legal right to do. If consideration is present, the promise offered by the promisor may be enforced. Consideration is also used by the courts to distinguish a contract from a gratuitous promise. A promise not accompanied by consideration is merely gratuitous and is not enforceable by the court in most circumstances.

The mailbox rule states that an acceptance is effective when the offeror receives it.

False The mailbox rule states that an acceptance is effective when sent even if never received. Acceptance is effective upon dispatch by whatever mode of communication has been explicitly or implicitly authorized by the offeror.

Minors always can enter into valid and enforceable contracts.

False The most common voidable contracts are those entered by minors who have the option, under the law, of either disaffirming or fulfilling most contracts. A voidable contract is enforceable but can be canceled by one or more of the parties.

The victim of a breach can recover the direct losses from the breach but not any indirect losses that were incurred as a consequence of that breach.

False The victim of a breach may be able to recover not just the direct losses from the breach but also any indirect losses that were incurred as a consequence of that breach. Such consequential damages are recoverable only if they were foreseen or were reasonably foreseeable by the breaching party.

Contract law is a necessary foundation for a capitalist, free-market system.

True A capitalist, free-market system cannot operate effectively and fairly without a reliable foundation in contract law. At the practical level, all buyers and sellers must be confident that the deal they are about to make will be completed as specified, or that they will have a remedy available if the deal is not completed.

A contract is said to be executed when all parties have completed their performances.

True A contract is labeled executory until all parties fully perform. When all parties have completed their performances, the contract is executed.

An oral contract that is not in compliance with the Statute of Frauds is enforceable if it has been fully performed.

True A fully performed oral contract, even though not in compliance with the Statute of Frauds, will not be rescinded by the courts. However, incomplete oral contracts that fail to comply with the statute are unenforceable.

A third party can enforce a contract where that contract was expressly intended to benefit the third party.

True A third party may also enforce a contract where that contract was expressly intended to benefit the third party. An agreement of that nature is a third-party beneficiary contract.

According to discharge by operation of law, the contractual responsibilities of a debtor may be discharged by a bankruptcy decree.

True According to discharge by operation of law, the contractual responsibilities of a debtor may be discharged by a bankruptcy decree. It arises when contractual duties are discharged by the legal system itself.

Under common law, the offer or may revoke an offer any time prior to acceptance.

True An offeror may revoke an offer any time prior to acceptance. Normally, revocation is effective on receipt by the offeree. Under common law, the offeror has the right to revoke at any time prior to acceptance, even if he or she expressly promised to keep the offer open for a specified period.

Failure to fully perform one's contractual duties without a lawful excuse for that failure results in a breach of contract.

True Failure to fully perform one's contractual duties without a lawful excuse for that failure results in a breach of contract. The consequences of both full performance and breach of contract can be described in four parts: complete performance, substantial performance, unacceptable performance, and advance refusal to perform (also known as anticipatory breach or anticipatory repudiation).

In an implied-in-fact contract, the contract is inferred based on the behavior of the parties.

True In an implied-in-fact contract, the contract is inferred based on the parties' behavior. The contract is inferred based on the facts—that is, by the behavior of the parties.

Consideration depends on whether a promisee suffered a detriment in some way rather than on the value of the consideration.

True Legal sufficiency depends not on the value of the consideration but on whether the promisee suffered a detriment in some way. To hold otherwise would put the courts in the place of the market in deciding the value of transactions.

The Uniform Commercial Code (UCC) governs contracts related to the sale of goods.

True Section 2-105 of the Uniform Commercial Code (UCC) defines goods as tangible, movable things. Hence cars, clothing, appliances, and the like are covered. Real estate, stocks, bonds, money, contracts for services, and so forth are not governed by the Uniform Commercial Code (UCC).

The point of nominal damages is to illustrate the wrongfulness of a breach.

True The point of nominal damages is to illustrate the wrongfulness of a breach. In some cases of breach, the court will award only an insignificant sum, perhaps $1.00 (plus court costs), because the nonbreaching party has suffered no actual damages.

Performance is the method of accepting a unilateral offer.

True Unilateral offers are accepted by performance, and ordinarily no communication of acceptance beyond that performance is necessary. In the case of a bilateral contract (a promise for a promise), acceptance is not effective until communicated.