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Business Law Contracts Part1

Exam: - Contracts, Part 1

Questions 1 to 40: Select the best answer to each question. Note that a question and its answers may be split across

a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1. Ty and Cher were discussing a business venture over dinner. Cher had several glasses of wine and became

visibly intoxicated. Ty and Cher continued to discuss the venture and formed a contract in which Ty received 80%

of the profits resulting from the venture and Cher received 20%, even though Cher agreed to invest the majority of

the money. Ty agreed to contribute his expertise and services to the venture. The next morning, Cher realized her

terrible mistake. Cher's best chance to avoid the contract with Ty is to say that

A. the contract is fraudulent.

B. she was drunk at the time the contract was formed.

C. Ty doesn't have the expertise and services required for the venture.

D. the contract is unconscionable.

2. Dave is declared insane and committed to an asylum. Dave escapes and goes to a car dealership, where he enters

into a contract with Larry to buy a sports car. Which of the following statements is true?

A. Only Larry can void the contract.

B. To void the contract, Dave must prove he is insane.

C. Only Dave can void the contract.

D. Because Dave is legally insane, the contract is void.

3. Esther lives with a caregiver on whom she is greatly dependent and trusts. The caregiver persuades Esther to sign

a contract with the caregiver that greatly favors the caregiver. If the contract is set aside, it will likely be on what

grounds?

A. Duress

B. Mistake

C. Fraud

D. Undue influence

4. Jacques offers to paint Alisha's house for $100. Before Alisha responds, Jacques dies. Which of the following

statements is true?

A. There's no contract because Alisha failed to accept Jacques's offer before he died.

B. Jacques's offer has been revoked.

C. A representative of Jacques's estate must find someone to paint Alisha's house.

D. A representative of Jacques's estate must paint Alisha's house for $100.

5. Which of the following is a necessary element both for fraud and for misrepresentation?

A. A fiduciary relationship

B. The intent to deceive

C. A hidden problem

D. A false statement

6. Jack is a mature-looking 17-year-old who lives at home with his parents. Jack wants to purchase an automobile.

Jack goes to Discount Car Sales, where Bud, the car salesman, never considers that Jack may be a minor. Bud sells

Jack a car, with the agreement that Jack will pay Bud $100 per month over the next five years for the car. Which of

the following is true?

A. Despite Jack's status as a minor, Bud can prohibit Jack from disaffirming a contract for a necessary (or basic)

need.

B. Bud can hold Jack's parents liable for Jack's contract, because Jack was a minor living in their home at the time

the contract was formed.

C. Jack can disaffirm the contract because of his status as a minor at the time the contract was formed.

D. Bud can disaffirm the contract because of Jack's status as a minor at the time the contract was formed.

7. Jackie tells a group of friends that she plans to sell her home. Meg asks how much Jackie hopes to get for the

house, and Jackie replies, "$50,000." Meg says, "I accept your offer. I'll purchase your house for $50,000." No

contract exists because

A. Jackie's statements are merely preliminary negotiations.

B. the terms of the offer aren't reasonably certain.

C. Jackie doesn't seriously intend to enter a contract.

D. the offer isn't properly communicated.

8. Candice hires Otto to work as a tax preparer in Candice's tax return business. The employment contract restricts

the ability of Otto to set up a competing business or engage in tax preparation services if Otto leaves Candice's

employ. Otto discovers he likes this kind of work and wants to set up his own tax return business. He asks you

whether the restrictions in his contract with Candice will be enforceable. You should tell him that

A. any restriction regarding employment is unenforceable as against public policy.

B. any restriction regarding employment will be enforceable as long as there was adequate consideration.

C. restrictive covenants regarding future employment will be enforceable if the value of the consideration given for

the covenant equals the value of the income loss that would be caused by enforcing the agreement.

D. restrictive covenants regarding future employment will be enforceable if they're reasonable.

9. Josh runs over Barbara's dog. Barbara promises not to sue Josh if he pays her $200. Josh pays $200. Then

Barbara sues, claiming an agreement not to sue doesn't constitute consideration. Which of the following is true?

A. Agreement not to sue is consideration only if it approximates what a court would have awarded.

B. Agreement not to sue isn't consideration.

C. Such contracts violate public policy and therefore are unenforceable.

D. Agreement not to sue is consideration.

10. Finn agrees to pay $100 to anyone who will paint his house. Will hears about the offer and paints. Finn refuses

to pay, saying Will never formally accepted Finn's offer. Which of the following is true?

A. This is a bilateral contract, and Will didn't accept.

B. This is a unilateral contract and painting constituted acceptance.

C. Will has to formally accept, but can do so within a reasonable time after painting.

D. Offer and acceptance are irrelevant if one of the parties changes position.

11. Ed contracts with Nathan to kill Nathan's mother-in-law for $1,000. Which element of consideration is missing

from this contract?

A. Legality of consideration

B. Adequacy of consideration

C. Consideration wasn't a bargained-for exchange

D. All the elements of consideration are present

12. Daisy contracts with Mike that in exchange for $50 Daisy won't whistle for a week. This contract is

A. unenforceable due to fraud.

B. not enforceable due to lack of consideration.

C. enforceable.

D. enforceable only if Daisy is a musician who whistles for a living and would suffer significant income loss by not

whistling for a week.

13. Regan marries at age 17. Then, she enters into a contract with Art to purchase an automobile for $10,000. She

later changes her mind and wants to void the contract. Which of the following is true?

A. Regan can void the contract because she is married.

B. Regan can't void the contract because she is over 15.

C. Regan can't void the contract because she is married.

D. Regan can void the contract because she is a minor.

14. Carlos promises to pay $100 for someone to paint his house. Timothy hears about the offer and paints Carlos's

house on 123 Oak Street. However, Carlos intended that his other house, at 456 Maple Street, be the one to be

painted and refuses to pay Timothy, claiming that there's no contract because they never discussed which house

would be painted. If Carlos has a legal right to payment, it's most likely based on

A. implied-in-law contract.

B. implied-in-fact contract.

C. fraud.

D. express contract.

15. Lance e-mails Fred, offering to buy his motorcycle for $750. Fred replies, agreeing. Later, Fred declines to

honor the agreement, claiming that e-mail agreements aren't enforceable. In both the initial email and the reply

Lance and Fred typed their names. Which of the following is true?

A. There's no contract because e-mail agreements aren't enforceable.

B. There's no contract because the e-mails weren't witnessed.

C. The e-mails constitute a contract if Lance and Fred have agreed that electronic signatures can be used to create

the agreement.

D. There's no contract because contracts must have hand-written signatures to be enforceable.

16. Madison enters into a contract with a DVD club to purchase four DVDs during the coming year. The agreement

provided that she would receive an advertisement listing the main selections, which would be sent to her

automatically, unless she sent a reply to stop the shipment. The DVD club sent the first month's advertisement and

Madison did nothing. When Madison later received the main selection for that month she complained that she

hadn't accepted it. Must Madison pay for it?

A. No, because her silence in this case didn't constitute acceptance.

B. Yes, because the price is fair.

C. Yes, because her silence in this case constituted acceptance.

D. No, because Madison didn't specifically order the goods.

17. Patty visits Big Grocery store and sees a table with bananas on it. Patty picks up a bunch of bananas, walks to

checkout, and hands them to the cashier. This is

A. no contract.

B. an express contract.

C. an implied-in-fact contract.

D. an implied-in-law contract.

18. Camille and Paul go to a bar, and Camille has too much to drink. Camille agrees to paint Paul's house for an

agreed-on price. Camille sobers up the next day and decides she wants out of the contract. Which of the following

provide Camille with the best argument for getting out of the contract?

A. Camille's intoxication deprived her of the ability to understand she was entering into a contract.

B. Emotional duress

C. The contract price is too low.

D. Camille's judgment was impaired by the alcohol.

19. Carrie decides to offer Shelley the opportunity to purchase her motorcycle for just $500. Carrie told Jim, a

mutual friend of Shelley and her, that she intended to make the offer. Later, Carrie changes her mind. Shelley

approaches Carrie and says she accepts the offer. No contract was formed most likely because

A. the terms of the offer weren't definite enough to form a contract.

B. Carrie didn't possess a serious, objective intention.

C. Jim was acting as an agent for Shelley without telling Carrie.

D. Carrie never communicated the offer to Shelley.

20. Natalie contracts with Paula to paint her house for $100. Paula pays Natalie, but Natalie has yet to paint. This

contract is

A. executed.

B. executory as to Paula's duty.

C. executory.

D. executory as to Natalie's duty.

21. Under tenant Lester's lease contract with landlord Mary, Lester must pay an extra $25 if his rent is more than

five days late. This is an example of __________ damages.

A. punitive

B. liquidated

C. nominal

D. consequential

22. Robert contracts to paint Jake's house for $500. Robert then asks Elmer to perform the painting work for him.

Elmer does a bad job, and Jake wants to sue for breach of contact. Which of the following is true?

A. Robert is responsible for the breach of the contract.

B. Robert isn't responsible if he gave Jake notice of the delegation.

C. Robert is responsible for the breach of the contract only if there has been a novation.

D. Elmer, but not Robert, is responsible for the breach.

23. Collin purchases a house, using a loan from Big Bank. As a condition of the loan, Big Bank requires that Collin

purchase life insurance payable to Big Bank, to the extent of the outstanding mortgage, if Collin dies before fully

paying the mortgage. Big Bank is

A. both a creditor beneficiary and a donee beneficiary.

B. an incidental beneficiary but not a donee beneficiary.

C. an intended beneficiary but not a donee beneficiary.

D. a creditor beneficiary but not a donee beneficiary.

24. One name for a promise made by one party to pay another person's debts, if that person fails to pay the debt, is

A. condition precedent.

B. collateral contract.

C. signature requirement.

D. prenuptial agreement.

25. Sara purchases life insurance on her own life and makes her husband, Dean, the beneficiary. Sara dies. Dean

applies to the insurance company for payment of the proceeds. The insurance company denies payment, pointing

out that Dean didn't sign the contract and therefore doesn't have privity of contract. Dean is

A. not entitled to the proceeds because he doesn't have privity of contract.

B. entitled to the proceeds as an incidental beneficiary.

C. entitled to the proceeds as an intended beneficiary.

D. entitled to the proceeds because he was married to Sara.

26. Danielle purchases life insurance on her own life with Big Life Insurance and makes her husband, Walter, the

beneficiary. Which of the following statements is true?

A. Danielle is an intended third-party beneficiary.

B. Big Life Insurance is a creditor beneficiary.

C. Danielle is a donee beneficiary.

D. Walter is a donee beneficiary.

27. Tom and Zeke go out to a restaurant for dinner. Tom orders a steak, and Zeke orders lasagna. After they've

finished eating, they pay their bill. Assuming all parties performed in the order they were required to under this

contract, which of the following is true?

A. Payment was a condition precedent to service.

B. There was no contract.

C. Service and payment were conditions concurrent.

D. Service was a condition precedent to payment.

28. Horatio agrees to paint Stella's house for $1,000. Horatio fails to paint, and Stella hires Winston to paint the

house for $1,000. Stella sues Horatio for breach of contract. Stella likely will receive __________ damages.

A. liquidated

B. nominal

C. punitive

D. consequential

29. Elmer borrows money from Big Bank, who then assigns the promissory note and mortgage to Financial

Institution for valuable consideration. Elmer isn't given notice of the assignment and continues to pay Big Bank.

Financial Institution files suit, claiming Elmer is in default because Elmer failed to pay monthly payments to

Financial Institution. Which of the following statements is true?

A. Financial Institution must pay Big Bank for the payments Elmer made.

B. Big Bank must forgive Elmer's loan because they failed to notify him.

C. Elmer is in default to Financial Institution because he didn't pay them.

D. Financial Institution was obligated to give notice to Elmer of the assignment.

30. Which of the following is an example of discharge by operation of law?

A. Xavier agrees to paint Rita's house for $1,000. Rita changes her mind and asks Xavier not to paint. Xavier

agrees.

B. Xavier agrees to paint Rita's house for $1,000. Before Xavier can paint, Rita's house burns down.

C. Xavier agrees to paint Rita's house for $1,000. Xavier paints, but before Rita pays him, she files bankruptcy. As

a result, Xavier doesn't get paid.

D. Xavier agrees to paint Rita's house for $1,000. Rita later tells Xavier that she won't pay him. As a result, Xavier

decides not to paint.

31. Denise orally authorizes Shaun to sell her house. Shaun enters into a written agreement with Eric to sell him the

house for $140,000. Both Shaun and Eric sign the contract. Denise learns of the agreement after the fact and

decides she doesn't want to sell. If the contract is ruled unenforceable, the most likely reason is

the __________ rule.

A. parol evidence

B. fairness

C. equal dignities

D. best evidence

32. On June 29, Henry contracts to purchase American flags, which Henry intends to sell at the annual Fourth of

July fireworks event, from Liz. The contract doesn't specify a delivery date. Liz delivers the flags on July 7. Henry

sues for breach of contract. Which of the following will most likely happen?

A. Henry will win because of the equal dignities rule.

B. Liz will win because the contract didn't specify a delivery date.

C. Liz will win because she delivered within a reasonable time.

D. Henry will win because of the standard construction rule.

33. Will contracts with Grace to sell her 100 lamps for $1,000. Will breaches his contractual duty to deliver the

lamps, and Grace buys 100 lamps for $2,000 from another dealer. Grace sues Will for breach of contract. She will

most likely receive what type of damages?

A. Compensatory damages in the amount of $2,000

B. Compensatory damages in the amount of $1,000

C. Nominal damages of $100

D. Consequential damages of $3,000

34. Paul enters into a contract with Harry. Paul agrees to put a new roof on Harry's house, and Harry agrees to pay

Paul $5,000. Paul is late on a payment to Sam's Supply House and tells Sam's Supply House that he will pay when

he receives money from Harry. Sam's Supply House has heard this from Paul before and didn't receive money. To

ensure Paul pays his payment from the money Harry pays him, Sam's Supply House can

A. tell Harry that Paul is indebted to Sam's Supply House, which automatically makes them a creditor beneficiary

entitled to the payment.

B. have Paul assign his interests under the contract with Harry to Sam's Supply House.

C. require an accord and satisfaction be entered into.

D. have Harry assign his interests under the contract with Paul to Sam's Supply House.

35. Under the _______ rule, courts generally accept into evidence only the original of a writing, not a copy.

A. parol evidence

B. equal dignities

C. best evidence

D. standard construction

36. Bella and Connie are struggling to find jobs. They decide they want to open a child daycare center together.

They see a house in the perfect neighborhood with a "For Sale by Owner." They talk to the owner, reach an

agreement, and shake hands. Just before the closing on the house, at which they'll take ownership of the house, the

owner decides not to sell to Bella and Connie. They tell the owner they're going to sue him for breach of contract.

Bella and Connie most likely

A. will win because the owner shouldn't have entered into a contract with them if he wasn't sure he wanted to sell

the house.

B. won't win because they can find another house that will work just as well.

C. will win because the owner breached his agreement to sell them the house.

D. won't win because they shouldn't have entered into an oral contract to buy the house.

37. Which of the following is an example of discharge by impossibility?

A. Jason agrees to paint Sheila's house for $1,000. Before Jason can paint, Sheila's house burns down.

B. Jason agrees to paint Sheila's house for $1,000. Jason paints, but before Sheila pays him, she files bankruptcy.

As a result, Jason doesn't get paid.

C. Jason agrees to paint Sheila's house for $1,000. Sheila later tells Jason that she won't pay him. As a result, Jason

decides not to paint.

D. Jason agrees to paint Sheila's house for $1,000. Sheila changes her mind and asks Jason not to paint. Jason

agrees.

38. Tom and Zeke enter into a contract for Tom to paint Zeke's house for $1,000 by August 5th. Tom paints half of

the house on August 6th, then demands pay. Which of the following is false?

A. Zeke may have to pay if payment is a condition precedent to the duty to paint.

B. Tom's duties are discharged under the doctrine of substantial performance.

C. Tom may not be in breach if the contract doesn't make time of the essence.

D. The contract doesn't violate the statute of frauds.

39. Barb and Ned exchange e-mails in which Barb agrees to paint Ned's house for $1,000. Which of the following

statements is true?

A. The contract can't be enforced because there's no handwritten signature.

B. The contract can't be enforced because electronic contracts aren't legally binding.

C. The contract is enforceable.

D. The contract is unenforceable due to the statute of frauds.

40. Kevin, a world-renowned violinist, agrees to play at the reception for Jay's wedding. Something comes up at the

last minute, and Kevin delegates his duty to perform to Susan, a mediocre but professional violinist. This

delegation is

A. impermissible.

B. permissible if Kevin also assigns to Susan the right to be paid for playing.

C. permissible if Susan performs well.

D. permissible.