Chapter 12—Consideration

TRUE/FALSE

	1.	A new promise to perform a voidable obligation that has not been avoided previously is enforceable without new consideration.

ANS:	T	PTS:	1

	2.	In some states a promise under seal is binding without consideration.

ANS:	T	PTS:	1

	3.	Past actions unbargained for by the parties in an agreement can become valid consideration for a contract.

ANS:	F	PTS:	1

	4.	Dana gives care to Marnie's dog when Dana finds Marnie's dog ill on the side of the road. After Marnie locates her dog, Marnie promises to reimburse Dana for the cost of treating the dog. Marnie's promise is binding, because there is a bargained-for-exchange.

ANS:	F	PTS:	1

	5.	In most, if not all, cases where there is a legal detriment to the promisee, there is also a legal benefit to the promisor.

ANS:	T	PTS:	1

	6.	The central idea behind consideration is that the parties have intentionally entered into a bargained exchange with one another and have given each other something in exchange for a promise or performance.

ANS:	T	PTS:	1

	7.	The Code has changed the common law rule regarding modification of a preexisting contract by providing that a contract for the sale of goods can be effectively modified by the parties without new consideration, provided they intend to do so and act in good faith.

ANS:	T	PTS:	1

	8.	Sandy's private secretary promises to keep the contents of a letter she typed secret if Sandy will give her the next day off with pay. If the secretary takes the day off, Sandy has to pay her for the day.

ANS:	F	PTS:	1

	9.	A modification of a contract for the sale of goods must always be supported by additional consideration.

ANS:	F	PTS:	1

	10.	The parties to a contract may modify the agreement with no additional consideration by simply substituting a new contract.

ANS:	T	PTS:	1

	11.	Contracts generally require adequacy of consideration where the consideration given by both parties is of fair value and equitable.

ANS:	F	PTS:	1

	12.	In a unilateral contract, a promise is exchanged for an act or forbearance to act.

ANS:	T	PTS:	1

	13.	"Consideration" does not require an actual benefit to both sides of an agreement.

ANS:	T	PTS:	1

	14.	If Sam agrees to sell to Thomas all of the tomatoes he wants at $25 a bushel, there is no contract for lack of consideration.

ANS:	T	PTS:	1

	15.	A few states provide by statute that the parties need to provide no new consideration when modifying any contract.

ANS:	T	PTS:	1

	16.	The element of exchange is absent where a promise is given for an act that has already been done.

ANS:	T	PTS:	1

	17.	According to the UCC, only a merchant can make a firm offer to a buyer.

ANS:	T	PTS:	1

	18.	An exclusive dealing contract is one type of contract which is illusory because it lacks consideration.

ANS:	F	PTS:	1

	19.	An agreement to sell the entire production of a particular plant to a particular purchaser is a requirements contract.

ANS:	F	PTS:	1

	20.	The Abbot Corporation contracts with the Baker Corporation to sell to Baker its entire production. After signing the agreement, Abbot can increase its production from one shift to two shifts and Baker will have to buy all of the doubled production.

ANS:	F	PTS:	1



	21.	The performance of a pre-existing contractual duty which is neither doubtful nor the subject of an honest dispute is legally sufficient consideration to support a second contract.

ANS:	F	PTS:	1

	22.	Under the common law, in order to be enforceable, a modification of an existing contract must be supported by mutual consideration.

ANS:	T	PTS:	1

	23.	The Restatement provides that a promise following the rendering of emergency services is binding even if not supported by consideration if necessary to prevent injustice.

ANS:	T	PTS:	1

	24.	In settling a liquidated debt, payment of a smaller amount before the due date would constitute consideration, but paying a lesser amount on the due date at an agreed-upon different place of payment would not be legally sufficient consideration.

ANS:	F	PTS:	1

	25.	Legal sufficiency of consideration and adequacy of consideration are virtually synonymous terms.

ANS:	F	PTS:	1

	26.	In a bilateral contract, if one party is not bound, neither party is bound.

ANS:	T	PTS:	1

	27.	Jerry received a bill for $300 from Johnson for a tune-up Johnson had performed on Jerry's car. Jerry called Johnson and told him, "The car runs no better now than before the tune-up. I am sending you $100 and no more." Johnson received the $100 check which was marked "paid in full" and cashed it. Jerry is still liable to Johnson for $200.

ANS:	F	PTS:	1

	28.	Legal detriment means the obtaining by the promisor of that which he had no prior legal right to obtain.

ANS:	F	PTS:	1

	29.	A conditional promise is a promise the performance of which depends upon the happening or nonhappening of an event not certain to occur.

ANS:	T	PTS:	1

	30.	Charitable subscriptions are one of the most frequently occurring applications of the doctrine of promissory estoppel.

ANS:	T	PTS:	1



	31.	Consideration exchanged for a promise does not require both legal detriment to the promisee and legal benefit to the promisor.

ANS:	T	PTS:	1

	32.	If a promise is illusory, mutuality of obligation is lacking.

ANS:	T	PTS:	1

	33.	An illusory promise has the form of a promise but imposes no real obligation.

ANS:	T	PTS:	1

	34.	Under the UCC, exclusive dealing contracts are binding because sufficient consideration is deemed to be present.

ANS:	T	PTS:	1

	35.	Otherwise illusory promises may be transformed by some courts into actual promises by implying an obligation of good faith and fair dealing.

ANS:	T	PTS:	1

	36.	A promise to pay $1,000 a year to a local police officer not to have your store vandalized is legally unenforceable under the rule that makes performance of a pre-existing legal obligation legally insufficient consideration.

ANS:	T	PTS:	1

	37.	D owes C a past-due undisputed debt of $500. D sees C in a bar and pays him $400. C then says to D, "Forget about the other $100 you owe me. I'm glad to get the $400." C's promise to discharge the remainder of the debt is binding.

ANS:	F	PTS:	1

	38.	The term "past consideration" is not really consideration at all because the law will not find a contract where there is no bargained-for-exchange.

ANS:	T	PTS:	1

	39.	Contracts binding without consideration include promises to pay debts barred by a statute of limitations and debts discharged in bankruptcy.

ANS:	T	PTS:	1

	40.	In most states, a contract under seal is binding without consideration.

ANS:	F	PTS:	1

	41.	A liquidated debt is an obligation the existence or amount of which is in dispute.

ANS:	F	PTS:	1


	42.	Consideration has only one basic element, which is a bargained-for exchange.

ANS:	F	PTS:	1

	43.	A unilateral contract may consist of a promise exchanged for an act or forbearance.

ANS:	T	PTS:	1

	44.	Pablo promises to sell to Candice an automobile for $20,000, for which Candice promises $20,000. A bilateral contract exists.

ANS:	T	PTS:	1

	45.	A modification of a preexisting contract occurs when the parties agree to change one or more of its terms.

ANS:	T	PTS:	1

MULTIPLE CHOICE

	1.	Aunt Ellie promises her 21-year-old nephew, Robbie, that she will pay him $100 if he quits smoking for a month. If Robbie does, is there a binding contract?
D.
Yes, because Robbie gave up a legal right


ANS:	D	PTS:	1

	2.	Janet promises Eli $4,000 for one of his original paintings on the condition that she receive $1 million from her mother's will.
b.
Janet's promise is legally sufficient unless Janet knew at the time she made the promise that she could not inherit the $1 million.


ANS:	B	PTS:	1

	3.	Stan purchased 400 pairs of gloves from Isaac at a contract price of $800. Fifty of the gloves were defective, and a dispute arose as to the amount due and owing under the contract. Stan refuses to pay the $800, and Isaac is threatening to sue. Which of the following is correct with regard to this transaction?
a.
If Isaac agrees to accept $600 to settle the dispute and Stan agrees to pay that amount, the substitute agreement is enforceable.
b.
If Isaac agrees to accept $600 to settle the dispute and Stan pays that amount, Isaac can still sue for the balance of $200 and will win the lawsuit.
c.
Stan is under a pre-existing legal obligation to pay the $800.
d.
Both (b) and (c).


ANS:	A	PTS:	1

	4.	Which of the following would most likely be enforceable?
a.
An agreement supported by past consideration
b.
A substitute agreement to settle an undisputed debt
c.
A debt agreed to seven years ago in a state where the statute of limitations is six years
d.
A promise following the rendering of emergency services that is not supported by new consideration


ANS:	B	PTS:	1

	5.	Marilyn contracted with Bravo Builders to build an addition to her house for $15,000. After digging the foundation, Bravo decides that it will take more work and more concrete than it had originally thought and that it will need to charge an additional $5,000 for the job. Assuming Marilyn agrees, which of the following is correct?
a.
Marilyn will have to pay $20,000.
b.
This is a contract under seal which is enforceable.
c.
This is a modification of a preexisting contract, which under common law must be supported by additional consideration on the part of Bravo Builders.
d.
This is the settlement of a disputed debt that requires no additional consideration on the part of Bravo Builders.


ANS:	C	PTS:	1

	6.	Carlos ordered an aluminum storm door for $249.99. Before it was delivered, the same store from which he ordered the door ran an ad in the paper for the same storm door at $179.99. Carlos calls the store and demands the advertised price. They say okay.
a.
Carlos must pay $179.99.
b.
Carlos must pay $249.99.
c.
There is no contract.
d.
There is a contract for the reasonable value of the door.


ANS:	A	PTS:	1

	7.	Mary agrees to sew Georgia's prom dress for $50 plus costs. Georgia decides that she wants ruffles around the neck and calls Mary who says it will now cost $60. When Mary finishes the dress (with ruffles), Georgia must pay:
a.
$50, since that is the original agreement.
b.
$50, since a modification must be in writing.
c.
$60, since the modified agreement is supported by additional consideration.
d.
$60, since any subsequent agreement is enforceable.


ANS:	C	PTS:	1

	8.	Sue owes $5,000 to the First National Bank for a student loan which will come due on January 1 next year. She has been offered a two-year graduate fellowship, but she will not be able to pay the loan back if she accepts the fellowship. The bank manager tells Sue that if she pays $3,000 now, they will forgive the loan. Should Sue accept the offer?
a.
No, because the bank can still sue for the remaining $2,000
b.
No, because the manager's promise is not binding on the bank
c.
Yes, because the early payment of the loan is consideration that makes the bank's promise binding
d.
Yes, because the bank must do whatever the manager says


ANS:	C	PTS:	1

	9.	Jack moved from New Hampshire to Florida and decided to have an air conditioner installed in his car. After it was installed, Jack received a bill for $1,200. Jack called the dealer and told him he'd never heard of this service costing more than $500. They argued, but the dealer finally agreed to take $900. Is the agreement enforceable?
a.
Yes, there is no way for the dealer to get the extra money anyway
b.
Yes, there is consideration for the modified amount
c.
No, there is no consideration and the dealer can sue for the extra $300
d.
No, there is an implied contract to pay the dealer whatever he billed Jack


ANS:	B	PTS:	1

	10.	Wayne helped Hank study all night for an important exam. After Hank got an A on the exam, he told Wayne, "I will give you $10 for helping me get a good grade." Wayne said, "Thanks, I'll take it."
a.
There is no contract because there is no mutual assent.
b.
There is no contract because there is no valid consideration.
c.
There is no contract because $10 is reasonably inadequate consideration.
d.
There is a contract with sufficient consideration.


ANS:	B	PTS:	1

	11.	Rob repairs a door for Howard. In return, Howard is supposed to pay Rob $75 on November 1 at Howard’s house. Which of the following would constitute legally sufficient consideration?
a.
Howard pays Rob $60 on November 1 but, after checking with Rob, brings payment to Rob’s house.
b.
Rob comes to Howard’s house to collect the $75 on November 1, but Howard only has $50. Rob tells Howard to forget the other $25.
c.
Since this is an unliquidated debt, the only legally sufficient consideration is Howard’s payment of $75 to Rob on November 1 at Howard’s house.
d.
Since this is a liquidated debt, the only legally sufficient consideration is Howard’s payment of $75 to Rob on November 1 at Howard’s house.


ANS:	A	PTS:	1

	12.	Which of the following are the two basic elements to consideration?
a.
Bargained-for exchange and legal sufficiency
b.
Legal detriment and legal benefit
c.
Legal sufficiency and legal adequacy
d.
Promise and forbearance


ANS:	A	PTS:	1

	13.	Which of the following is enforceable without consideration?
a.
A new promise to pay a debt barred by the statute of limitations.
b.
An illusory promise.
c.
Under the common law, a promise made to satisfy a preexisting moral obligation.
d.
A promise by a father to pay someone for rendering emergency services to his injured son before the father had arrived at the accident scene.


ANS:	A	PTS:	1

	14.	Alice says to Brian, "If I decide to buy a word processor next year, I will buy it from you." This is an example of:
a.
an illusory promise.
b.
past consideration.
c.
the pre-existing duty rule.
d.
good consideration.


ANS:	A	PTS:	1

	15.	Nancy, who lives in Birdville, wants to open a McHenry Roast Chicken franchise. Mark, a representative of McHenry, told Nancy, "If you will buy a lot and build a building in River City, we will give you a franchise." Nancy bought the lot and built the building as instructed, only to discover that McHenry had awarded the franchise to a large corporation. McHenry claims no liability to Nancy since there was no consideration. Which statement is most accurate?
a.
McHenry is not liable to Nancy since there is no consideration.
b.
McHenry is not liable to Nancy since there is past consideration.
c.
McHenry is liable to Nancy since adequate consideration is given by both parties.
d.
McHenry is liable to Nancy based on the concept of promissory estoppel.


ANS:	D	PTS:	1

	16.	Which of the following statements is most accurate concerning charitable subscription promises?
a.
They are generally not enforceable.
b.
The courts equate them with gifts.
c.
They are generally enforceable if there is reliance by the charity.
d.
The Restatement uses a strict reliance requirement in relation to charitable subscriptions.


ANS:	C	PTS:	1

	17.	Which of the following gratuitous promises are enforceable by statute?
a.
A good-faith contract modification in a contract for the sale of goods
b.
A written offer signed by a merchant to buy or sell goods that assures it will be kept open for one month
c.
A renunciation of a claim in a written waiver that is signed and delivered by the aggrieved party when the contract involves a sale of goods
d.
All of the above are enforceable by statute.


ANS:	D	PTS:	1

	18.	Which of the following will support a contract?
a.
An illusory promise
b.
Past consideration
c.
Forbearance to do an act
d.
A pre-existing public obligation


ANS:	C	PTS:	1

	19.	A purchaser’s agreement to buy from a particular seller all the materials of a particular kind he needs is a(n) ____ contract.
a.
illusory
b.
requirements
c.
output
d.
exclusive dealing


ANS:	B	PTS:	1

	20.	Darla offers to pay Edward $6,000 for Edward's car, provided that Darla receives that much from her uncle's estate, which is currently being probated. She expects to know for sure how much she will receive within a week or so.
a.
This is an illusory contract, because Darla doesn't know whether she will receive the money for sure.
b.
The consideration moving from Darla to Edward is the promise of $6,000 subject to a condition.
c.
Darla's conditional promise is sufficient consideration unless Darla knows she cannot receive at least $6,000 from her uncle's estate.
d.
Both (b) and (c).


ANS:	D	PTS:	1

	21.	Jason's mother would like him to go to college, so in June he enrolls at State University. He also quits his job and tells his mother his plans to continue taking classes. His mother says, "I'm so happy that you are going to college that I want to pay for your books." Jason then sends her a bill for $485. Which of the following is true regarding his mother's promise?
a.
It is enforceable, because Jason returned to college.
b.
It is enforceable, because Jason is giving up the right to do something else.
c.
It is unenforceable, because it is a unilateral contract.
d.
It is unenforceable, because Jason had already enrolled in school and there is no consideration.


ANS:	D	PTS:	1

	22.	Which of the following requires consideration in order to be binding upon the parties?
a.
A written promise by a merchant to keep an offer to buy goods open for 14 days
b.
Material modification of a sale of goods contract under Article 2 of the UCC
c.
Material alteration of a personal service contract
d.
Settlement of a disputed debt


ANS:	C	PTS:	1

	23.	A bank robbery has occurred, and the banker's association has offered a $1,000 reward for information leading to the arrest and conviction of the robber. Several people are claiming to be entitled to the money. Which of them is eligible?
a.
The employees of the bank
b.
An on-duty sheriff's deputy in the county where the arrest occurred
c.
An off-duty deputy sheriff from a county other than the one where the arrest occurred
d.
None of the above are eligible.


ANS:	C	PTS:	1

	24.	In which of the following situations will a smaller sum be unable to discharge a larger debt?
a.
If the smaller sum is paid before the due date of the larger debt.
b.
If an additional article or service is given together with the payment of the smaller sum.
c.
If the smaller sum is paid when the larger sum would ordinarily be due, but the debtor is on the verge of insolvency.
d.
A smaller sum is never able to discharge a larger debt.


ANS:	C	PTS:	1

	25.	Andrew agrees to paint Betty's house for $500. Two days after he starts the job, he decides that $500 isn't enough money. He refuses to finish the job unless Betty agrees to pay him $100 more. What law applies to this fact situation?
a.
The acceptance of additional money to settle a disputed claim is supported by consideration.
b.
A past obligation is sufficient consideration for a new promise.
c.
Andrew gives no additional consideration in return for modification of a preexisting contract.
d.
Betty has made a promise in exchange for a forbearance.


ANS:	C	PTS:	1

	26.	William agrees to drill a well up to 200 feet deep for John's rural cabin. The contract price is $3,000. After drilling 100 feet, William strikes solid granite rock. He talks to John and explains that this is highly unusual for the area and could not have been anticipated at the time of entering into the contract. He offers to get a special drill, but says it will cost him more money, so that he will be unable to complete the project for the agreed price. Because John is anxious to have the well, he agrees to pay William an additional $1,000 to complete the job. However, once the well is finished, he changes his mind and now says he will pay only the originally agreed-upon amount.
a.
The parties have agreed to a substitute contract which discharges the original contract. John is obligated to pay the additional $1,000.
b.
Under the UCC, the substitute contract is binding, because there is the payment of additional money.
c.
William is in breach of contract. John need not pay any additional money.
d.
William is under a pre-existing moral duty to perform at the originally agreed-upon price.


ANS:	A	PTS:	1

	27.	Barbara, a wealthy widow, promises the pastor of her church that she will donate $20,000 to the church to help pay off its mortgage if the stewardship committee can obtain enough pledges for the balance of the $80,000 mortgage. Other pledges are obtained to pay off the mortgage, but now Barbara has changed her mind and plans to take an around-the-world cruise instead.
a.
The doctrine of promissory estoppel can be applied to this case.
b.
The promise to pay $20,000 is a promise to give a gift and is therefore not enforceable.
c.
Under the Restatement, Barbara's promise is enforceable.
d.
Both (a) and (c).


ANS:	D	PTS:	1

	28.	Doug obtains an exclusive franchise to sell widgets for the Acme Widget Company. The exclusive franchise covers the entire State of Wisconsin for a period of three years.
a.
Acme is obligated to use its best efforts to supply the goods even if no such clause appears in the written franchise agreement.
b.
According to the UCC, unless otherwise agreed, Doug must use his best efforts to promote the sale of the widgets in his territory.
c.
Under the UCC, such an agreement lacks consideration.
d.
Both (a) and (b).


ANS:	D	PTS:	1

	29.	Tyler contracts to build a garage for Wilbur for a price of $6,000. Because of an increase in the cost of labor and materials, Tyler refuses to perform. Wilbur wants the garage, so he agrees to pay an additional $500.
a.
Wilbur must pay the additional $500.
b.
Tyler has given no additional consideration, and under the common law must perform at the agreed upon original price.
c.
The substitute agreement is an illusory contract.
d.
The debt is a disputed one, and therefore Wilbur is obligated to pay the additional money.


ANS:	B	PTS:	1

	30.	The requirement of legally sufficient consideration:
a.
is that the parties have agreed to an exchange and it imposed a legal detriment upon the promisee or conferred a legal benefit upon the promisor.
b.
has nothing to do with the value of what is exchanged.
c.
means the subject matter that the parties agree to exchange has to have the same value.
d.
is the same as the requirement of adequacy of consideration.


ANS:	A	PTS:	1

Chapter 13—Illegal Bargains

TRUE/FALSE

	1.	An agreement for sale of an illegal substance will be enforced by the courts if all other elements of the contract are present.

ANS:	F	PTS:	1

	2.	Bargains are illegal if they involve a crime or tort but not if they are merely against public policy.

ANS:	F	PTS:	1

	3.	Maximum rates of interest that are permitted under usury statutes are uniform from state to state.

ANS:	F	PTS:	1

	4.	Specific lender usury statutes rather than the general usury statute generally apply to real estate mortgages and small consumer loans.

ANS:	T	PTS:	1

	5.	A covenant not to compete is a type of restraint of trade that courts today will enforce under certain circumstances.

ANS:	T	PTS:	1

	6.	An exculpatory clause attempts to excuse one from liability for her own tortious conduct.

ANS:	T	PTS:	1

	7.	The Code and the Restatement both contain definitions of what constitutes "unconscionable" conduct.

ANS:	F	PTS:	1

	8.	The term “public policy” is precisely and narrowly defined in the Restatement and by state statutes.

ANS:	F	PTS:	1

	9.	Regulation of gambling is solely under federal jurisdiction, through Congressional legislation and U.S. court enforcement.

ANS:	F	PTS:	1

	10.	The courts readily enforce a covenant not to compete during the period of employment.

ANS:	T	PTS:	1

	11.	Where a stipulation in restraint of trade is a part of the contract for the sale of a business, it may be valid if the restraint is within reasonable limitations to protect the business’s goodwill.

ANS:	T	PTS:	1

	12.	Many states impose no limit on the rate of interest which may be charged on loans to corporations.

ANS:	T	PTS:	1

	13.	Although wagering is generally illegal, some states permit certain kinds of regulated gambling, especially wagering conducted by governmental agencies.

ANS:	T	PTS:	1

	14.	Bill is currently enrolled in law school. He expects to graduate and take the bar exam in order to be able to practice law. Before Bill becomes a lawyer, he promises to represent his friend, Tom, in a breach of contract action if Tom will pay him 25% of the settlement. Bill negotiates and the case settles for $50,000. Tom refuses to pay Bill. Bill then graduates and attempts to sue Tom. Bill has a legal right to enforce the agreement.

ANS:	F	PTS:	1

	15.	Stuart promises to act as a guide on a fishing trip for a group of visiting dignitaries. The dignitaries agree to pay him $200 for his services. Stu guides them, but when they discover that Stu does not have a fishing license, they refuse to pay him. The agreement between Stu and the dignitaries is an illegal one, which is not enforceable.

ANS:	F	PTS:	1

	16.	Noncompete agreements for Internet-related jobs have the same limitations in determining what is reasonable as to time and place restrictions as other types of jobs.

ANS:	F	PTS:	1

	17.	A contract to commit a tort will be enforced by the courts.

ANS:	F	PTS:	1

	18.	An exculpatory clause excusing a party from liability for harm caused by reckless conduct will generally make a contract unenforceable as a violation of public policy.

ANS:	T	PTS:	1

	19.	At common law, a valid contract may be entered into on Sunday or on any other day.

ANS:	T	PTS:	1

	20.	An adhesion contract is offered on a "take-it-or-leave-it" basis.

ANS:	T	PTS:	1

	21.	One type of restraint of trade is a covenant not to compete.

ANS:	T	PTS:	1

	22.	Deanna, an attorney, has a personal injury case which is set for trial next week. She needs a good doctor to testify on behalf of her client, so she contacts Dr. Dogood who agrees to testify on behalf of Deanna's client at the trial. In return for Dr. Dogood's testimony, Deanna agrees to pay Dr. Dogood $10,000 if they win the case, and $5,000 if they lose. Dr. Dogood agrees. The agreement between Deanna and Dr. Dogood is unenforceable.

ANS:	T	PTS:	1

	23.	Courts require that for a contract to unenforceable based on unconscionability, both substantive and procedural unconscionability must be equally present.

ANS:	F	PTS:	1

	24.	In cases where one party to an illegal agreement is less at fault than the other, he will be allowed to recover payments made or property transferred.

ANS:	T	PTS:	1

	25.	“Blue laws” usually apply to activities of necessity and charity.

ANS:	F	PTS:	1

	26.	Edward, an engineer, is working on a new design for some highly technical equipment which XYZ, Inc. hopes to market within the next five years. The employment agreement between Edward and XYZ states that Edward will not go to work for another company in the same business for a period of two years after termination of his employment with XYZ, Inc. This agreement is void and unenforceable, because it would make it difficult for Edward to find other employment.

ANS:	F	PTS:	1

	27.	The usual means of enforcing an agreement prohibiting an employee from competing in a described territory for a stated period of time is by injunction.

ANS:	T	PTS:	1

	28.	An agreement in connection with the sale of a business that prohibits the seller from engaging in the same or similar business for a period of twenty-five years would be unreasonable.

ANS:	T	PTS:	1

	29.	The courts will enforce an agreement declared illegal by statute.

ANS:	F	PTS:	1

	30.	An agreement to refrain from a particular trade, profession, or business is enforceable if two requirements are met: that it protects a property interest of the promisee and that the restraint is no more extensive than is reasonably necessary to protect that interest.

ANS:	T	PTS:	1

MULTIPLE CHOICE

	1.	Nell gives Al $50 in return for Al's promise to defame Sara. Nell hopes to ruin Sara's chances at a promotion. Nell finds out that Al did not hold up his end of the agreement. Which of the following statements is true?
a.
Nell can get the money back from Al through litigation.
b.
Nell can get the money back and force Al to do as he promised.
c.
Legally, Nell can neither get the money back nor force Al to do as he promised.
d.
Nell can force Al to act through an appeal to the courts, but Al gets to keep the $50.


ANS:	C	PTS:	1

	2.	Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia agrees never to open a hair salon in the state. Which of the following best describes this contract clause?
a.
Void as an illegal primary restraint
b.
Valid as a reasonable restraint on trade
c.
An unenforceable restraint of trade contrary to public policy
d.
Binding as fair protection


ANS:	C	PTS:	1

	3.	Don has an employment contract with Dunkirk Ice Cream. He sells ice cream and novelty ice cream products. He has nine children and doesn't make enough money, so he decides to see if another dairy will hire him, too. "After all," he reasons, "most stores carry four or five different brands." His employment contract prohibits him from competing. If Don sells for another dairy in addition to Dunkirk, will he be in trouble under his contract?
a.
No, it is unenforceable as against public policy.
b.
Yes, it is likely to be enforceable during employment.
c.
No, the prohibition against competing is enforceable only after he quits Dunkirk.
d.
A court would have to rule on the enforceability of the covenant not to compete since courts are reluctant to enforce such covenants during a period of employment.


ANS:	B	PTS:	1

	4.	William recently sold his successful business to Janice. The contract for the sale contained an unreasonable restriction that did not allow William to open a similar business for fifteen years. The courts would, in this instance,
a.
reform the contract to make it reasonable and enforceable.
b.
require the parties to draft a new contract.
c.
enforce the contract as it is written.
d.
refuse to enforce the unreasonable restriction.
e.
Either (a) or (d).


ANS:	E	PTS:	1

	5.	Which of the following is true with regard to an exculpatory clause?
a.
An exculpatory clause excuses one party from liability for her own tortious conduct.
b.
Where one party has a superior bargaining position that has enabled him to impose an exculpatory clause upon the other, the courts are inclined to nullify the provision.
c.
An exculpatory clause may be unenforceable for unconscionability.
d.
All of the above are true.


ANS:	D	PTS:	1

	6.	If a restriction in an employment contract is found to be too harsh, a court may do any of the following EXCEPT:
a.
change the terms of the contract.
b.
refuse to enforce the whole contract.
c.
refuse to enforce that part of the contract.
d.
refuse to void the restriction.


ANS:	D	PTS:	1

	7.	Divided Parcel (DP) includes the following on its mailing receipts: "We are not responsible for any damages to packages whether or not through the fault or negligence of our employees. Send packages at your own risk." Mary reads this clause but sends her watch back to its manufacturer to be repaired anyway. The watch is destroyed when the DP driver uses the package for a ball and tosses it to his buddy. Mary is:
a.
out of luck because the clause was communicated to her.
b.
out of luck because she should have insured the package.
c.
likely to collect from DP since exculpatory clauses always violate public policy.
d.
likely to collect from DP because it is a common carrier.


ANS:	D	PTS:	1

	8.	A(n) ____ is a measure designed to protect the public from unqualified practitioners.
a.
exculpatory clause
b.
revenue license
c.
regulatory license
d.
usury statute


ANS:	C	PTS:	1

	9.	Before granting an injunction enjoining a former employee from competing in a described territory, the courts insist that the employer demonstrate that the restriction is:
a.
exculpatory.
b.
conscionable.
c.
necessary to protect the employer’s legitimate interest.
d.
in compliance with the state’s Blue Law.


ANS:	C	PTS:	1

	10.	John operates a small repair business and is in desperate need of a certain type of building material. He obtains the material from a large corporation, but is charged a grossly unreasonable price and is forced to buy other material he does not need. In view of the buyer's unequal bargaining power and unreasonable terms of the contract, this may be a case of:
a.
in para delicto.
b.
partial illegality.
c.
substantive unconscionability.
d.
procedural unconscionability.


ANS:	C	PTS:	1

	11.	Andrew owns a store in Polk County. His trade extends throughout River City, but not beyond the county limits. He sells his store to Betty and, as part of the transaction, agrees not to engage in the same business anywhere within the state for a period of three years.
a.
The agreement is reasonable.
b.
The agreement is unreasonable.
c.
The agreement unduly interferes with the interests of the public.
d.
Both (b) and (c).


ANS:	D	PTS:	1

	12.	Andrew owns a store in Polk County. His trade extends throughout River City, but not beyond the county limits. He sells his store to Betty and, as part of the transaction, agrees not to engage in the same business anywhere in River City for a period of five years.
a.
The geographic restraint is reasonable.
b.
This agreement is unreasonable.
c.
The agreement unduly interferes with the interest of the public.
d.
Both (b) and (c).


ANS:	A	PTS:	1

	13.	The UCC provides that if a court as a matter of law finds a contract for the sale of goods or a clause of such a contract to have been unconscionable at the time it was made, the court may:
a.
refuse to enforce the contract.
b.
enforce the part of the contract that is not unconscionable.
c.
limit the application of any unconscionable clause in order to avoid an unconscionable result.
d.
All of the above.


ANS:	D	PTS:	1

	14.	Sarah is working hard on the mayoral campaign of Timothy. She thinks that just a few more votes could win the election, so she promises to pay her friend Violet $50 to register and vote. Violet does so, but Timothy loses the election, and Sarah now refuses to pay.
a.
This agreement is enforceable.
b.
This agreement is unenforceable and opposed to public policy.
c.
This is an agreement to obstruct the administration of justice.
d.
This is an unconscionable contract covered by the UCC.


ANS:	B	PTS:	1

	15.	Which of the following would generally be considered to be a revenue-raising licensing law?
a.
A statute requiring that doctors be licensed
b.
A statute requiring that salespeople be licensed, but not establishing any educational or training requirements
c.
A statute requiring public school teachers to be licensed
d.
A statute that requires insurance agents to pass a test before selling insurance in a state


ANS:	B	PTS:	1

	16.	Numerous states impose no limit on the rate of interest that may be charged on:
a.
loans to corporations.
b.
credit card transactions.
c.
loans made by certain designated types of lenders.
d.
All of the above.


ANS:	D	PTS:	1

	17.	Non-compete agreements drafted for employees of Internet companies:
a.
are interpreted no differently in terms of standards of reasonableness than are agreements for other types of companies.
b.
are subject to larger geographic restrictions than for other types of companies.
c.
are subject to longer periods of reasonable duration.
d.
are irrelevant.


ANS:	B	PTS:	1

	18.	Patrick agrees to sell two different goods to his friend Ron, a retailer. One item is legal, and one item is illegal. The contract price is $2,000.
a.
Patrick may not recover payment for either of the goods if delivered.
b.
Patrick may recover for the legal item, but he may not recover for the illegal item.
c.
This is an unconscionable contract under the UCC.
d.
The court may view the contract as in (a) or (b).


ANS:	D	PTS:	1

	19.	A contract prepared on a standard form and offering terms on a take-it-or-leave-it basis is called:
a.
exculpatory.
b.
a usurious contract.
c.
an illegal restraint of trade.
d.
an adhesion contract.


ANS:	D	PTS:	1

	20.	Custom Sales and Rentals uses a four-page contract with important contract terms buried in the fine print. This is an example of:
a.
procedural unconscionability.
b.
a reasonable, legal business practice.
c.
a “Blue law.”
d.
substantive unconscionability.


ANS:	A	PTS:	1

	21.	R&R, Inc. entered into a contract with Scott, an agent, under the terms of which Scott would receive $20,000 if he stole trade secrets from the leading competitor of R&R. Scott performed his end of the agreement by delivering the trade secrets. R&R now refuses to pay Scott for his services.
a.
Scott may recover based upon the express contract of the parties.
b.
Scott may recover based upon a quasi-contractual theory in order to prevent the unjust enrichment of R&R.
c.
Scott will be unable to recover, because this is an illegal contract.
d.
Scott will be able to recover based upon promissory estoppel, because he has detrimentally relied upon the promises made by R&R.


ANS:	C	PTS:	1

	22.	Which of the following is correct with regard to an enforceable restraint of trade?
a.
The restraint should be no more extensive than is required to protect a specified property interest.
b.
Restraints typically arise in connection with the sale of a business.
c.
A typical restraint is a covenant not to compete.
d.
All of the above.


ANS:	D	PTS:	1

	23.	Under which of the following circumstances would a court be likely to enforce an illegal contract?
a.
Under certain circumstances in which the aggrieved party was unaware of the illegality
b.
Where, although the contract is unconscionable, there is only procedural unconscionability
c.
Where the agreement is with an unlicensed attorney
d.
A court will never enforce an illegal contract.


ANS:	A	PTS:	1

	24.	Which of the following would always be considered to be contrary to public policy?
a.
A contract which contains a covenant not to compete
b.
A contract offered on a take-it-or-leave-it basis
c.
An agreement to pay someone to make false, negative statements about a competitor's product
d.
An agreement which contains an exculpatory clause


ANS:	C	PTS:	1

	25.	Which of the following would be considered a valid and legally enforceable agreement?
a.
An agreement to pay a legislator to vote for a particular bill
b.
An agreement under which Arthur agrees to pay Barbara $3,000 to disparage the product of Arthur's competitor
c.
An agreement by the seller of a service station not to enter the service station business in Ohio for a period of 30 years after the sale of his business
d.
An agreement by a car salesman not to sell automobiles or automobile parts in Marin County for a period of one year after terminating his employment


ANS:	D	PTS:	1

	26.	Bill bets his friend $100 that the Patriots will win the next Super Bowl.
a.
This is an unconscionable contract and therefore illegal.
b.
This is an illegal wagering agreement.
c.
This is an agreement to obstruct justice and therefore illegal.
d.
This is an illegal restraint of trade.


ANS:	B	PTS:	1

	27.	Carl and Rob are both engaged in road construction work. They know that several jobs are going to be up for public bids, and agree between themselves that Carl will bid on one job and Rob will bid on the other, so that they both have work for the summer. When the bids are opened, Carl realizes that Rob has bid on both jobs. Rob is awarded both contracts. Carl now wants to sue Rob for breach of contract.
a.
Carl would probably win on the basis of promissory estoppel since he has detrimentally relied upon Rob's representation that he would not bid.
b.
Since Carl is less at fault than Rob, the court will likely award Carl damages.
c.
This is an agreement in violation of public policy that will not be enforced by the courts.
d.
This is an agreement obstructing the administration of justice that will not be enforced by the courts.


ANS:	C	PTS:	1

	28.	Al has a tax service and accounting business in Redwood City. He decides to move to Center City, which is 150 miles away and sells his accounting practice to Able and Baker, a CPA firm. In the sales contract, he agrees that he will refrain from practicing accounting anywhere within a 20-mile radius of Redwood City for a period of two years. However, on weekends he returns to his house in Redwood City, and when clients call him, he meets with them in his home.
a.
Al is in violation of the sales agreement.
b.
The agreement is invalid, because it is an illegal restraint of trade.
c.
The agreement is illegal, because it is a violation of public policy.
d.
The two-year provision is likely to be held invalid, because it is too long a period of time.


ANS:	A	PTS:	1

	29.	Theresa is a travel agent at the Fly Away Travel Agency. She has signed an agreement with her employer which prohibits her from working in any similar business in any town within a 100-mile radius of where she works. If she wants to quit her job and go to work for another travel agency, it is likely that:
a.
a court would uphold these restrictions.
b.
if no trade secrets are involved, and she has no dominion over customers, a court would rule the restrictions to be invalid.
c.
if the period of time of the agreement is under five years, it will be upheld by the court.
d.
Both (a) and (c).


ANS:	B	PTS:	1

Chapter 14—Contractual Capacity

TRUE/FALSE

	1.	Kris, age 17, who looks 18 or older, makes a contract to buy a car from Maisie, who is the age of majority. Maisie finds out Kris's age. Maisie may avoid the contract even if Kris did not misrepresent his age.

ANS:	F	PTS:	1

	2.	Sally goes away to college at 17, lives on her own, and pays her own rent and electric bills. If she makes a contract to buy a television set, in most jurisdictions, she may assert her minority status and set aside the contract.

ANS:	T	PTS:	1

	3.	Beth, at age 17, sells an antique pin she inherited. Even if the buyer resells the pin to someone who did not know that it was purchased from a minor, Beth can recover the pin from the third person if she changes her mind about wanting to sell it.

ANS:	F	PTS:	1

	4.	Seventeen-year-old Teresa wants to disaffirm her student loan agreements. Most states will not allow her to avoid such contracts.

ANS:	T	PTS:	1

	5.	In a contract to sell necessaries to a minor, these goods and services are limited to medical care, food, and shelter.

ANS:	F	PTS:	1

	6.	If Carrie, age 14, contracted to buy a fur coat by mail, the coat manufacturer would not have to send it since the contract was void.

ANS:	F	PTS:	1

	7.	Jessica at the age of 15 entered into a contract to sell five acres of land to her uncle. She may disaffirm this contract at any time before reaching her majority.

ANS:	F	PTS:	1

	8.	In general, if a minor lies about her age in order to induce the seller to contract with her, she cannot disaffirm that contract.

ANS:	F	PTS:	1

	9.	In general, a contract made by a mentally incompetent person is void when no guardian has been appointed.

ANS:	F	PTS:	1

	10.	The doctrine of necessaries applies in the same way to minors and mental incompetents.

ANS:	T	PTS:	1

	11.	If a person is adjudicated insane and placed in care of a guardian, that person's contracts are void.

ANS:	T	PTS:	1

	12.	Sean had two beers and felt tipsy. He made a deal with Yoko to buy her stereo. He can avoid the contract because of lack of capacity.

ANS:	F	PTS:	1

	13.	By the majority view, a minor need only return any property he has received from the other party if the minor wishes to disaffirm the contract. He has no duty to return the property in the same condition in which he received it.

ANS:	T	PTS:	1

	14.	In general, a minor may only disaffirm a contract after he has reached the age of majority.

ANS:	F	PTS:	1

	15.	All states agree that a minor who has fraudulently misrepresented her age when entering into a contract has no power to disaffirm the contract.

ANS:	F	PTS:	1

	16.	In general, minors have liability for their torts.

ANS:	T	PTS:	1

	17.	A person under guardianship by court order has no contractual capacity.

ANS:	T	PTS:	1

	18.	At common law, a minor was a person who was under twenty-one years of age.

ANS:	T	PTS:	1

	19.	An intoxicated person must have been so intoxicated as to have been unable to understand the consequences of his actions or have been unable to act in a reasonable manner in order to avoid a contract.

ANS:	T	PTS:	1

	20.	Ratification makes a contract void from the beginning.

ANS:	F	PTS:	1

	21.	Disaffirmance may be express, but it may not be implied.

ANS:	F	PTS:	1

	22.	An automobile may be considered a necessary item for a minor.

ANS:	T	PTS:	1

	23.	Ratification need not be express; it may be implied from the minor's conduct.

ANS:	T	PTS:	1

	24.	In some states, minors are liable for contracts involving bank accounts and student loans and cannot avoid these contracts even though they can avoid other types of contracts.

ANS:	T	PTS:	1

	25.	Emancipated minors have no ability to avoid contracts based upon their minority.

ANS:	F	PTS:	1

	26.	Michael, a minor, rents a car to attend the senior prom at his high school. He signs an agreement stating that he will not take the car more than 100 miles from the rental agency. At 2:00 a.m., after he has had a few beers, his friends talk him into driving 200 miles to Chicago for the weekend. On the way, the car is involved in a minor traffic accident that damages the vehicle. Because the tort of negligence is related to the rental contract for the vehicle, Michael has no liability to the rental agency.

ANS:	F	PTS:	1

	27.	Darrell goes to lunch with an office equipment salesman. After drinking two beers and eating a Reuben sandwich, Darrell signs a contract to purchase a $1200 machine for the office. Two hours later, he has second thoughts and decides a different machine might be a better buy, so he calls the salesman and wants to disaffirm the contract based upon intoxication. Darrell can avoid the contract on this basis.

ANS:	F	PTS:	1

	28.	Intoxicated persons are liable in quasi contract for necessaries purchased during their incapacity.

ANS:	T	PTS:	1

	29.	All furniture, television sets, and appliances purchased by a minor for her apartment would be considered necessaries.

ANS:	F	PTS:	1

	30.	John is 17 years old and earns extra money by repairing cars. Nathan, who is 21, brings his car to John for repairs, and John ruins the brake system of the car, because of his inexperience. If Nathan sues John for negligence in performing the auto repair contract, in most states John will have no liability, because the tort of negligence and the auto repair contract are connected.

ANS:	T	PTS:	1

	31.	If a person is unable to understand the nature and effect of entering into a contract, he or she can avoid it.

ANS:	T	PTS:	1

	32.	An incompetent person who lacks understanding of a contract and its consequences can avoid it even if the other party had no reason to know of the incompetent's mental condition.

ANS:	T	PTS:	1

	33.	A mental condition that impairs a person’s ability to act in a reasonable manner is one type of mental incompetence.

ANS:	T	PTS:	1

	34.	Courts treat contracts of incompetents and intoxicated persons essentially the same, except they are stricter with intoxicated persons because of intoxication’s voluntary nature.

ANS:	T	PTS:	1

	35.	A person taking a prescription medication will be treated the same as an incompetent under the cognitive ability test.

ANS:	T	PTS:	1

	36.	A minor can ratify part of a contract and disaffirm another part of it.

ANS:	F	PTS:	1

	37.	Ratification of a contract, once effected, is final and cannot be withdrawn.

ANS:	T	PTS:	1

	38.	Persons who lack mental capacity at the time they enter into a contract may avoid liability under the agreement.

ANS:	T	PTS:	1

	39.	Lydia makes a contract to purchase a used car on her seventeenth birthday. Six months later, her ratification of the contract can be effectively implied by her continuing payments.

ANS:	F	PTS:	1

	40.	A mental illness or defect of one of the parties to a contract automatically makes a contract void.

ANS:	F	PTS:	1

MULTIPLE CHOICE

	1.	Anna is 88 years old and under the legal guardianship of her daughter. One day Anna receives a telephone call from a health insurance salesman and purchases a $400-a-month Medigap insurance policy.
a.
This contract is valid.
b.
This contract is voidable.
c.
This contract is void.
d.
This contract is voidable only at the option of Anna.


ANS:	C	PTS:	1

	2.	Fay, age 17, ordered a pair of skis on the installment plan. She paid $20 every month until she turned 18, the age of majority. The next day, she sold them to Sharon and disaffirmed the contract. What result?
a.
Fay is still liable since she had to disaffirm before her 18th birthday.
b.
Fay is still liable because selling the skis amounts to a ratification.
c.
Fay is not liable because she disaffirmed the contract.
d.
Fay is not liable because skis are not necessaries.


ANS:	B	PTS:	1

	3.	Ann, a minor, disaffirmed her agreement to buy $127 worth of cosmetics from Facial Glo Company. She had used up all the eye shadows, lipsticks, and powders. The general rule is that she may:
a.
disaffirm, but she must pay the asking price of the cosmetics used.
b.
disaffirm, but she has to return the makeup that is not used up.
c.
not disaffirm without paying the value of used makeup.
d.
not disaffirm because she has used the goods.


ANS:	B	PTS:	1

	4.	Mary, age 17, sold Mark, age 22, the briefcase she got for graduation. Mark's father liked it and bought it from him. If Mary decides to disaffirm the contract, will Mark's father have to return the briefcase to her?
a.
Yes, the briefcase is not a necessary.
b.
Yes, if Mark's father still has it.
c.
No, her contract was with Mark and he cannot return goods he does not have.
d.
No, if Mark's father bought it without knowing that Mary was a minor.


ANS:	D	PTS:	1

	5.	Ratification can occur in which of the following ways?
a.
Through express language
b.
As implied from conduct
c.
Through failure to make a timely disaffirmance
d.
All of the above.


ANS:	D	PTS:	1

	6.	Tim, who is a minor, enters into a contract with Violet, who is an adult. Which of the following is correct?
a.
Violet may not disaffirm the contract.
b.
Violet may disaffirm the contract at any time.
c.
Violet may disaffirm the contract when Tim becomes an adult.
d.
Tim may ratify the contract at any time during his minority.


ANS:	A	PTS:	1

	7.	Todd, a minor, rents an automobile from Rosa, an adult. Todd damages the vehicle when he negligently backs into a pole. Under the majority view, can Rosa recover damages from Todd?
a.
Yes, Todd breached his duty to exercise reasonable care and diligence to protect the automobile.
b.
Yes, although Todd is a minor, it is well settled that minors are generally liable for their torts.
c.
No, minors generally cannot be held liable for their torts.
d.
No, his contractual immunity protects him from legal action by Rosa.


ANS:	D	PTS:	1

	8.	Steve purchases a four-wheel drive truck from Belk Auto Sales. Steve is only 17 years of age. He wrecks the vehicle and attempts to disaffirm the contract and have Belk repay him all that he has paid. In the majority of jurisdictions, what would happen?
a.
Steve would be out of luck.
b.
Steve must have the truck repaired.
c.
Steve will receive his money less the depreciation in value of the vehicle.
d.
Steve may simply return the vehicle and get his money.


ANS:	D	PTS:	1

	9.	Randy, a minor, buys a new four-wheel drive truck from the Jones Dealership. Randy sells this truck to his cousin, Steve, who is an adult. Steve conveys this vehicle to Arthur Smith. Arthur does not personally know Steve or Randy. Which of the following expresses the status of this situation?
a.
Randy may recover the vehicle from Mr. Smith.
b.
Randy may not recover the vehicle from Mr. Smith.
c.
Randy may hold Steve liable in tort.
d.
Randy may recover the reasonable value of the vehicle from Mr. Smith but not the vehicle itself.


ANS:	B	PTS:	1

	10.	Robert is 17 years old. He lies to Bouyers Auto in order to induce it to sell him a new pickup. Bouyers falls for this lie and sells him the pickup. In most jurisdictions, which of the following is correct?
a.
Robert may disaffirm and get his money back.
b.
Robert may not disaffirm since he lied.
c.
Robert must restore Bouyers to its position before contracting with him.
d.
Robert will receive his money less depreciation.


ANS:	A	PTS:	1

	11.	Which of the following is not true regarding the contracts of incompetent persons?
a.
An incompetent person is liable for necessaries.
b.
Unlike a minor, an incompetent person can never ratify a contract.
c.
To avoid a contract, a person need not be permanently incompetent.
d.
A person is competent unless he is unable to understand the nature and effect of his act.


ANS:	B	PTS:	1

	12.	Which of the following is not true regarding the contracts of intoxicated persons?
a.
If an intoxicated person is unable to understand the nature and consequences of his act, then the contract is voidable.
b.
The effect of intoxication is generally the same as that given to contracts that are voidable because of incompetency.
c.
Slight intoxication will destroy one's contractual capacity.
d.
Contracts made while a person is too intoxicated to act in a reasonable manner may be ratified when the intoxicated person regains his capacity.


ANS:	C	PTS:	1

	13.	The exercise of the power to avoid a contract is known as:
a.
ratification.
b.
disaffirmance.
c.
ab initio.
d.
restitution.


ANS:	B	PTS:	1

	14.	Sixteen-year-old Laura’s disaffirmance of a contract:
a.
for a sale of land by her is not effective until after she reaches the age of majority.
b.
is only effective if expressed in words in the particular form required by statute.
c.
can only be effective if she is an “emancipated” minor.
d.
must take place after she reaches the age of majority, regardless of the type of contract, since only then does she have capacity.


ANS:	A	PTS:	1

	15.	Which of the following is least likely to be classified as a necessary for which a minor will be held liable on a contract?
a.
A camera
b.
School supplies
c.
Boots for a snowy climate
d.
An automobile


ANS:	A	PTS:	1

	16.	In which of the following situations would a minor be unable to disaffirm a contract which he had made?
a.
Upon restoring the consideration received in a situation involving a fully executed contract
b.
Where the minor wishes to affirm part of a contract and disaffirm another part of the same contract
c.
During the time of his minority or for a reasonable time thereafter
d.
None of the above.


ANS:	B	PTS:	1

	17.	Which of the following would be a valid ratification?
a.
Two weeks after his eighteenth birthday, Jerry sells the motorcycle he contracted to buy when he was seventeen.
b.
Two weeks after attaining his eighteenth birthday, Jerry calls the bank to assure them that he will continue making payments on the loan agreement he signed a month before his eighteenth birthday.
c.
Two weeks after his eighteenth birthday, Jerry makes a payment on the installment contract he signed a month before.
d.
All of the above


ANS:	D	PTS:	1

	18.	Percy, age 17, purchased a used mobile home from a mobile home dealer for $20,000. This price, however, was twice the reasonable value of the mobile home. One month later, Percy wishes to disaffirm the contract. If the mobile home is considered a necessary, then:
a.
Percy can disaffirm the contract based on the wrongful act of the dealer.
b.
Percy can disaffirm the contract because the minor can live in an apartment rather than a mobile home.
c.
Percy may keep the mobile home but is only liable for the reasonable value of the mobile home.
d.
Percy must keep the mobile home and abide by the original terms of the contract.


ANS:	C	PTS:	1

	19.	Cheryl, age 16, ordered a new dress to wear to the school prom. She has contracted to pay $500 when the dress arrives. Before the dress arrives, Cheryl decides that the dress is too expensive and now wishes to cancel the order.
a.
Cheryl must pay $500 for the dress because the dress was specially ordered for Cheryl.
b.
Cheryl must pay $500 for the dress because clothing is classified as a necessity.
c.
Cheryl may disaffirm this executory contract.
d.
Cheryl must accept the dress and pay the reasonable value of the dress.


ANS:	C	PTS:	1

	20.	Wanda at age 17 purchased an expensive stereo system from Stereo Sales. If Wanda wishes to ratify this contract, Wanda:
a.
must reach the age of majority and ratify the contract as a whole.
b.
may do so by express notification at any time before reaching the age of majority.
c.
may at any time keep the stereo but avoid any remaining debt owed on the stereo.
d.
may do so at any time by express or implied action before or after reaching the age of majority.


ANS:	A	PTS:	1

	21.	Donald, a minor, makes a contract with Albert, an adult, to buy a computer. One week later, Donald has his eighteenth birthday and shortly thereafter tells Albert he will pick up the computer next week.
a.
Donald has expressly ratified the contract.
b.
The contract must be renegotiated, because Donald was a minor when it was made.
c.
Donald can change his mind and avoid the contract, because it was made when he was a minor.
d.
The contract is void ab initio, because Donald was a minor at the time it was made.


ANS:	A	PTS:	1

	22.	A contract by which of the following is void?
a.
A fourteen-year-old girl.
b.
A thirty-six-year-old man under a court-ordered guardianship for mental incompetency.
c.
A thirty-year-old woman who, because of intoxication, is unable to understand the nature and consequences of signing the contract.
d.
A twenty-five-year-old woman who is unable to understand the nature and effect of signing a contract because of a mental illness.


ANS:	B	PTS:	1

	23.	When a minor falsely advises the other party that he is of the age of majority and based upon that misrepresentation, the other party in good faith enters into a contract with the minor:
a.
the minor has lost his right to disaffirm the contract because of the misrepresentation.
b.
the adult party can recover damages from the minor in tort.
c.
the minor is required to restore the other party to the position occupied before the making of the contract.
d.
There is no uniform rule. States differ, and depending upon the state, any of the above could be correct.


ANS:	D	PTS:	1

	24.	Which of the following is correct regarding the contractual liability of incompetent persons?
a.
An incompetent person's responsibility upon disaffirmance is the same as for a minor.
b.
For executed, fair contracts with a mentally incompetent person who understands but cannot control his behavior to act rationally, the incompetent must restore the competent party to the status quo before the transaction by a return of the consideration received or its equivalent in money.
c.
The contracts of a person under guardianship by court order are voidable.
d.
The contracts of a ward are binding without the approval of the guardian.


ANS:	B	PTS:	1

	25.	In most states, whether the time within which a minor disaffirms a contract constitutes a reasonable time is determined by:
a.
state statute.
b.
the UCC.
c.
the facts and circumstances of the case.
d.
common law, without regard to the unique facts of the case at hand.


ANS:	C	PTS:	1

Chapter 17—Performance, Breach, and Discharge

TRUE/FALSE

	1.	The law assumes that respective performances under a contract are concurrent conditions, unless there is an agreement to the contrary.

ANS:	T	PTS:	1

	2.	A condition may be inserted into a contract to terminate the duty to perform.

ANS:	T	PTS:	1

	3.	In building a $30,000 addition to the Murphys’ house, the contractor used the wrong flooring, causing the Murphys $2,000 in damages. Under the substantial performance doctrine, the contractor’s performance is substantial and therefore he is entitled to the contract price of $30,000, but if the deviation from the specifications were considered material, the Murphys would not have to pay for the addition.

ANS:	F	PTS:	1

	4.	Mark agrees to a three-year employment contract with State University as long as they become accredited after one year. This contract contains a "condition subsequent."

ANS:	T	PTS:	1

	5.	"Discharge" has to do with the termination of contractual duties.

ANS:	T	PTS:	1

	6.	A breach of contract always discharges the injured party from performance under the contract.

ANS:	F	PTS:	1

	7.	Robert and John entered into a contract. If Robert agrees to a rescission of the contract, he will be unable to sue John for damages.

ANS:	T	PTS:	1

	8.	The UCC is substantially the same as the common law with regard to the doctrine of material breach of contract.

ANS:	F	PTS:	1

	9.	The "perfect tender rule" would allow a buyer to keep merchandise that deviates from the contract without having to perform himself.

ANS:	F	PTS:	1

	10.	Any unauthorized alteration of the material terms in a written contract discharges the entire contract.

ANS:	F	PTS:	1

	11.	An obligee's promise to accept a stated performance in satisfaction of the obligor's existing contractual duty creates an accord.

ANS:	T	PTS:	1

	12.	Substituted contracts discharge the original duties immediately.

ANS:	T	PTS:	1

	13.	In rescinding an executory, bilateral contract, no consideration is furnished.

ANS:	F	PTS:	1

	14.	An accord and satisfaction discharges an existing debt.

ANS:	T	PTS:	1

	15.	In all substituted contracts there must be an agreement among three parties where a new promise is substituted for an existing promise or a new promisor is substituted for an existing promisor.

ANS:	F	PTS:	1

	16.	If there is a novation, the original promisor remains liable to the original promisee if the new promisor fails to perform.

ANS:	F	PTS:	1

	17.	Lou and David have an executory contract that is supposed to be performed on June 1. On May 1, David indicates that he has no intention of performing the contract as agreed. Lou must wait until June 1 before he can pursue any remedies for breach of contract against David.

ANS:	F	PTS:	1

	18.	A material breach by the seller will discharge the buyer from his obligations under a contract.

ANS:	T	PTS:	1

	19.	A person who has made a financially unsound contract may be relieved from performance under the doctrine of commercial impracticability.

ANS:	F	PTS:	1

	20.	Discharge by performance is the most frequent method of discharging a contractual duty.

ANS:	T	PTS:	1

	21.	Breach of a contractual promise and failure of a condition have fundamentally the same effect.

ANS:	F	PTS:	1

	22.	Belinda has a household insurance policy, which requires that she notify the insurance company within thirty days of any loss before she is eligible to receive payment for her loss. The notification requirement is a condition precedent to the insurance company's obligation to perform, even though the notification must occur subsequent to the loss.

ANS:	T	PTS:	1

	23.	The Code and the Restatement have no provisions for discharge of contractual duties in cases involving commercial impracticability.

ANS:	F	PTS:	1

	24.	Forrest has a contract with Denzel to construct a new condominium complex. The contract provides that Forrest must furnish a certificate of occupancy and conformity with the local fire code before Denzel has an obligation to pay. The furnishing of the certificate is an implied in fact condition subsequent to the construction of the building.

ANS:	F	PTS:	1

	25.	The Restatement and the Code have made the traditional test of objective impossibility more stringent by requiring that the performance must be actually or literally impossible.

ANS:	F	PTS:	1

	26.	Marie owes Nathan $300 and the parties agree that Marie will paint Nathan's house in satisfaction of the debt. The debt is not discharged until Marie performs the substituted agreement by painting Nathan's house.

ANS:	T	PTS:	1

	27.	A novation is an agreement between two parties to have one substitute for the other in a contract.

ANS:	F	PTS:	1

	28.	After the coronation of Edward VII did not take place on the scheduled date and parties who had entered into contracts in anticipation of the event filed numerous suits, the doctrine of frustration of purpose was added to the law of contracts.

ANS:	T	PTS:	1

	29.	Cora and Bruce have an executory contract for the sale of some goods. Cora files for bankruptcy and is then discharged by the bankruptcy court. Cora has no obligation to perform under the contract.

ANS:	T	PTS:	1

	30.	There is only one way to completely and legally discharge a contract.

ANS:	F	PTS:	1

	31.	An intentional breach of contract is generally held to be material.

ANS:	T	PTS:	1

	32.	A contract may condition the duty to accept and pay for the performance of the other party upon the approval of a third party.

ANS:	T	PTS:	1

	33.	An implied-in-law condition and constructive condition are the same.

ANS:	T	PTS:	1

	34.	Concurrent conditions occur when mutual duties of performance are to take place simultaneously.

ANS:	T	PTS:	1

	35.	A change in Sal’s financial condition, making it impossible for him to fulfill a contractual obligation, would be considered objective impossibility, which would discharge his contractual duty.

ANS:	F	PTS:	1

MULTIPLE CHOICE

	1.	A contract contains the provision, “Walter Hamilton promises to pay Faye Weeks $1,200 for a 2003 V-6 motor provided that Phelps’ Garage approves the quality of the motor.” This provision:
a.
makes the contract unenforceable since Walter’s promise is illusory.
b.
creates an express condition which must be met before Walter’s duty to pay arises.
c.
cannot create an express condition because it lacks the necessary words “on condition that.”
d.
cannot be valid since it makes Walter’s duty to pay dependent upon the opinion of a third party.


ANS:	B	PTS:	1

	2.	William has a contract to build a new office building for Angela. The contract contains a provision requiring William to furnish a certificate of occupancy from the building inspector before Angela is required to pay. This provision is:
a.
an express condition.
b.
an implied-in-fact condition.
c.
an implied-in-law condition.
d.
a condition subsequent.


ANS:	A	PTS:	1

	3.	Which of the following is a contract with a condition subsequent?
a.
Rhonda enters into a contract to buy a new car conditional upon her getting a loan from her bank.
b.
Roger bought a VCR, but he may return the VCR within ten days and get all of his money back.
c.
Both (a) and (b) are examples of a condition subsequent.
d.
Neither (a) nor (b) is an example of a condition subsequent.


ANS:	B	PTS:	1

	4.	A(n) ____ is a substituted contract that involves an agreement among three parties to substitute a new promisee in place of an existing promisee, or to replace an existing promisor with a new one.
a.
accord
b.
satisfaction
c.
novation
d.
mutual rescission


ANS:	C	PTS:	1

	5.	A(n) ____ is a contract between a promisee and a promisor by which the promisee agrees to accept and the promisor agrees to render a substituted performance in satisfaction of an existing contractual duty.
a.
accord
b.
mutual rescission
c.
material alteration
d.
novation


ANS:	A	PTS:	1

	6.	Which of the following is/are correct with regard to conditions subsequent?
a.
Conditions subsequent are quite common in contracts.
b.
A "sale or return" contract is an example of a contract with a condition subsequent.
c.
A condition subsequent must occur before performance is due under a contract.
d.
All of the above are correct.


ANS:	B	PTS:	1

	7.	Bill recently borrowed $50 from Ricardo for a couple of weeks. Bill, still short of cash, tells Ricardo, "I will wash and wax your car in exchange for the $50 I owe you." Ricardo tells Bill, "OK, that's great!" Ricardo's performance of his new duty will be a(n):
a.
accord.
b.
novation.
c.
rescission.
d.
satisfaction.


ANS:	D	PTS:	1

	8.	On November 1, Paula and Roberta enter into a contract where both parties are obligated to perform on December 31. On December 1, Paula tells Roberta, "I can, in no way, perform my duties in our contract." This statement is a(n):
a.
material alteration.
b.
anticipatory repudiation.
c.
nonmaterial breach since the statement is made before December 31.
d.
accord.


ANS:	B	PTS:	1

	9.	A and B enter into a contract on January 1 of this year. A's friend C tells A, "The law generally restricts the time within which an action can be brought by either party to a contract." C's statement is:
a.
false.
b.
true, because of statutes of limitation.
c.
true, because of the law of repudiation.
d.
true, because of covenants not to sue.


ANS:	B	PTS:	1

	10.	The Code greatly alters the common law doctrine of material breach by adopting what is known as the:
a.
perfect tender rule.
b.
anticipatory repudiation rule.
c.
prevention of performance rule.
d.
discharge by operation of rule law.


ANS:	A	PTS:	1

	11.	Unless one of the parties contractually assumes the risk, the ____ discharges a contract if supervening circumstances make fulfillment of the purpose which both parties had in mind impossible.
a.
bankruptcy law
b.
frustration of purpose doctrine
c.
perfect tender rule
d.
subjective impossibility doctrine


ANS:	B	PTS:	1

	12.	Meg has contracted to paint a portrait of Julio, but dies before completing the portrait. Which of the following is correct?
a.
Meg’s executor must find a capable artist to complete the work to Julio’s satisfaction.
b.
Meg’s contractual duty is discharged due to objective impossibility.
c.
A novation must be entered between Julio and a third person in order to discharge Meg’s duty under the contract.
d.
Meg’s contractual duty is discharged due to subjective impossibility.


ANS:	B	PTS:	1

	13.	Refusal of a tender of performance by one party to a bilateral contract will:
a.
be treated as a repudiation, excusing the tendering party from further duty of performance under the contract.
b.
not discharge either party from further duty of performance under the contract.
c.
be considered a condition subsequent.
d.
None of the above.


ANS:	A	PTS:	1

	14.	Conditions may be classified:
a.
by how they are imposed.
b.
by when they affect a duty of performance.
c.
Both (a) and (b); they are not mutually exclusive.
d.
Neither (a) nor (b).


ANS:	C	PTS:	1

	15.	Which of the following would be considered a material breach of a contract?
a.
Partial performance that omits some essential part of the contract.
b.
Delivery of 50 chairs in a contract that calls for 100 chairs.
c.
An intentional breach of the contract.
d.
All of the above would be material breaches.
e.
Only (a) and (b) above would be material breaches.


ANS:	D	PTS:	1

	16.	Russell promises Marty $1,500 if he will completely landscape Russell's yard. Which of the following would discharge Russell's obligations to pay under this contract?
a.
Marty leaves a one-foot strip of land barren.
b.
Marty doesn't begin work on the landscaping until after he finishes two other jobs.
c.
Marty doesn't plant any flowers, shrubs, or grasses.
d.
Russell isn't satisfied with Marty's design.


ANS:	C	PTS:	1

	17.	Fred contracts to sell a certain tract of land to Maria for $20,000, but the contract is silent as to the time of delivery of the deed and payment of the price.
a.
The payment of the $20,000 and the delivery of the deed are independent of each other.
b.
The delivery of the deed is a condition subsequent to the payment of the $20,000.
c.
The payment of the $20,000 and the delivery of the deed are mutually dependent and, in the absence of an agreement to the contrary, are concurrent conditions.
d.
The payment of the $20,000 is a condition precedent to the delivery of the deed.


ANS:	C	PTS:	1

	18.	Phil, the tax accountant, promises to do Marge's individual federal, state, local, and gift taxes for the year. He completes all but the gift taxes. Under the substantial performance doctrine:
a.
Marge will not have to pay Phil.
b.
Marge will not have to accept the work.
c.
Marge will have to pay Phil for all but the gift taxes.
d.
Marge will have to pay Phil the contract price.


ANS:	C	PTS:	1

	19.	Henry hires Ace Roofing to put a new roof on his house. When Ace comes, Henry refuses to let them on the roof, saying that he has a headache and doesn't want to listen to pounding. The next day, Henry still has a headache and he refuses to allow them on the roof. The day after, the baby is sleeping and Henry refuses to allow them to work. After four weeks of this, Ace:
a.
may be discharged, but Henry is not.
b.
may be discharged, and so would Henry.
c.
can sue for damages, but must perform when Henry is ready.
d.
has no choice but to keep coming back each day until Henry is ready.


ANS:	A	PTS:	1

	20.	Anita, who is a tailor, agrees to sew a suit for Bryan, who promises in return to pay Anita $500 for the suit if he is satisfied with it. Anita completes the suit, which fits Bryan perfectly. Nevertheless, he says that he is not satisfied and refuses to accept or pay for it. Bryan is honest in his dissatisfaction, but he is unreasonable.
a.
Bryan must pay for the suit even if he is dissatisfied.
b.
This is an illusory contract, because only Anita is bound.
c.
Bryan's approval is an objective standard.
d.
Anita has no recourse against Bryan, because she agreed to the subjective standard.


ANS:	D	PTS:	1

	21.	Lynn, who is a tailor, agrees to sew a pair of drapes for Zach's living room. Zach promises to pay Lynn $300. Lynn completes the drapes using material selected by Zach, but Zach is not satisfied and refuses to pay for them.
a.
Whether Zach will have to pay for the drapes depends upon whether as a reasonable man he ought to be satisfied.
b.
The standard applied here is a subjective standard of satisfaction.
c.
The condition of satisfaction is an implied-in-law condition.
d.
The condition of satisfaction is an express condition.


ANS:	A	PTS:	1

	22.	Jim contracted with Kevin to serve as a guide for Kevin on his three-week fishing trip to Canada. The contract was made on April 1 with the trip to begin on June 1. On May 1, Kevin notified Jim that he had changed his mind and would be unable to make the trip. He also refused to pay Jim any compensation.
a.
Because the contract is executory, Jim has suffered no damages, and Kevin has no obligation to pay any compensation.
b.
Kevin has anticipatorily repudiated the contract and is liable to Jim for damages.
c.
Jim is discharged from his duty to serve as guide, and he may bring suit immediately against Kevin.
d.
Both (b) and (c) above are correct.


ANS:	D	PTS:	1

	23.	Miller has a contract to sell 1,000 bushels of wheat to a bakery. The wheat is stored in a grain elevator and has become infested with insects. What is the consequence?
a.
Miller is discharged from performance because of impossibility.
b.
Miller is discharged because of frustration.
c.
Miller is not discharged, but must substitute wheat or pay damages to the bakery for breach of contract.
d.
Miller is discharged if he can prove that he did not cause the damages to his wheat.


ANS:	C	PTS:	1

	24.	Arnold and Doug make a contract for Arnold to manufacture five leather chairs of a specified design. Prior to their manufacture, the factory is destroyed in an accidental fire that is no one's fault. The chairs are available from other sources.
a.
Arnold must supply the chairs, even if he must buy them elsewhere.
b.
Arnold's duty to deliver the chairs is discharged by the destruction of the factory.
c.
Arnold has materially breached the contract if he fails to deliver the chairs.
d.
Both (a) and (c).


ANS:	B	PTS:	1

	25.	Louis agreed to provide all the apples that Cindy's Cider Mill will need at $3 per bushel unless weather conditions require additional labor to be hired. The rate would then be $3.50 per bushel. A freeze warning required Louis to hire 100 additional overtime workers, raising the cost per bushel to $4.75. Louis wants to get out of his contract. Can he?
a.
No, the parties expected the hardship and provided for it in their contract
b.
No, there is no hardship
c.
Yes, the contract is impracticable
d.
Yes, the freeze is a supervening event


ANS:	A	PTS:	1

	26.	Janice contracts to sell a certain tract of land to Anthony for $5,000, but the contract does not state a time for delivery of the deed and payment of the price. In this situation:
a.
the contract will be considered void for lack of essential terms.
b.
the law will imply that the respective performances are independent of each other and may occur whenever “reasonable under the circumstances.”
c.
courts will treat the promises to deliver the deed and to pay the $5,000 as mutually dependent. Anthony’s duty to pay is conditioned upon Janice’s delivery of the deed and Janice’s duty to deliver the deed is conditioned upon Anthony’s payment or tender of $5,000 to Janice.
d.
Janice’s duty to deliver the deed and Anthony’s duty to pay the $5,000 are “implied-in-fact” conditions.


ANS:	C	PTS:	1

	27.	Which of the following generally is not grounds for discharge of a contract by operation of law?
a.
Objective impossibility
b.
Subsequent illegality
c.
Running of the statute of limitations
d.
Bankruptcy


ANS:	C	PTS:	1

Chapter 18—Contract Remedies

TRUE/FALSE

	1.	An employee’s promise of providing ordinary personal services may be enforced by an injunction against serving another employer.

ANS:	F	PTS:	1

	2.	To fully compensate plaintiffs in breach of contract cases, courts always award punitive damages commensurate with the losses the plaintiffs have suffered.

ANS:	F	PTS:	1

	3.	Courts will usually uphold a liquidated damage clause that represents a reasonable approximation of the damages where the actual amount would be very difficult to determine.

ANS:	T	PTS:	1

	4.	Equitable remedies result in money awards to the plaintiff.

ANS:	F	PTS:	1

	5.	If Kenneth signs an employment contract for one year but is fired without cause after two months and spends $500 in reasonable fees trying to find a comparable job, he may recover $500 in incidental damages.

ANS:	T	PTS:	1

	6.	Equitable remedies are available any time the plaintiff chooses them over money damages.

ANS:	F	PTS:	1

	7.	Restitution involves a return of consideration or its value to the aggrieved party.

ANS:	T	PTS:	1

	8.	Restitution is available as an alternative remedy for a party's repudiation of the contract.

ANS:	T	PTS:	1

	9.	UCC "Election of Remedies" rules would require the aggrieved party to choose one remedy he wants to pursue and forego the others.

ANS:	F	PTS:	1

	10.	Where a contract is unenforceable because of the statute of frauds, a party may recover the benefits conferred on the other party in reliance on the contract.

ANS:	T	PTS:	1

	11.	If the parties to a contract stipulate an amount that will be paid in the event of a breach (a liquidated damages clause), the courts will always enforce it.

ANS:	F	PTS:	1

	12.	At its discretion, a court may grant the equitable remedy of injunction against breach of a contractual duty where damages would be inadequate.

ANS:	T	PTS:	1

	13.	Consequential damages include lost profits and injury to person or property resulting from defective performance.

ANS:	T	PTS:	1

	14.	The majority of states allow the injured party who has been induced to enter into a contract by fraud to recover only "out-of-pocket" damages equal to the difference between the value of what she has received and the value of what she has given for it.

ANS:	F	PTS:	1

	15.	The basic remedy for misrepresentation is restitution.

ANS:	F	PTS:	1

	16.	An action to recover damages for breach of contract may be maintained only if the plaintiff has sustained or can prove an injury or loss resulting from the breach.

ANS:	F	PTS:	1

	17.	Liquidated damages are an equitable remedy.

ANS:	F	PTS:	1

	18.	Under the rule in Hadley v. Baxendale, only foreseeable damages can be recovered.

ANS:	T	PTS:	1

	19.	Specific performance is the usual remedy for breach of contract.

ANS:	F	PTS:	1

	20.	Compensatory damages are intended to protect the injured party’s expectation interest.

ANS:	T	PTS:	1

	21.	When a breach of contract occurs, the nonbreaching party is required to take reasonable steps to lessen or mitigate the damages that he may sustain.

ANS:	T	PTS:	1

	22.	Even if a party has the power to avoid a contract for lack of capacity, duress, or undue influence, the party will lose that power by affirming the contract.

ANS:	T	PTS:	1

	23.	Delay will have no effect on the power of avoidance.

ANS:	F	PTS:	1

	24.	There is no duty under the UCC to mitigate damages.

ANS:	F	PTS:	1

	25.	Costs incurred to acquire a nondelivered performance from some other source are consequential damages.

ANS:	F	PTS:	1

	26.	In relation to damages, the test of foreseeability is subjective.

ANS:	F	PTS:	1

	27.	Restitution can be obtained where a voidable contract is avoided.

ANS:	T	PTS:	1

	28.	Courts of equity will grant specific performance of contracts for personal service.

ANS:	F	PTS:	1

	29.	Monetary damages are the most frequently granted remedy for breach of contract.

ANS:	T	PTS:	1

	30.	The purpose of reliance damages is to place the injured party in a position as good as he would have held had there been no contract.

ANS:	T	PTS:	1

	31.	A liquidated damage is a provision by which the parties agree in advance to the damages to be paid in the event of breach.

ANS:	T	PTS:	1

	32.	A penalty is a contractual provision designed to deter a party from breaching a contract and to punish the party for doing so.

ANS:	T	PTS:	1

MULTIPLE CHOICE

	1.	The usual remedy for breach of contract is:
a.
injunction.
b.
specific performance.
c.
punitive damages.
d.
money damages.


ANS:	D	PTS:	1

	2.	If Jana, a minor, transfers property to Scott and Scott sells the property to a good faith purchaser for value before Jana avoids the transfer:
a.
Jana loses the right to recover the property if the transfer involved goods.
b.
Jana can recover the property as long as the property was a sale of goods.
c.
Jana can recover the property whether it was real or personal property.
d.
the good faith purchaser of goods for value receives a voidable title.


ANS:	A	PTS:	1

	3.	Miller made a contract to sell his condominium to Jefferson for $80,000. Two days later Miller changed his mind after discovering that he could have sold the property to another buyer for an additional $20,000. Jefferson sues and asks the court to have the property conveyed to him at the price of $80,000. Jefferson is seeking:
a.
restitution.
b.
punitive damages.
c.
specific performance.
d.
valid tender.


ANS:	C	PTS:	1

	4.	A contractor and Buckingham, Inc. have a contract, which calls for the contractor to build a building with the completion of it by June 15. If the building is not completed by that date, the contract calls for the contractor to pay $100 per day in damages. The $100 per day is:
a.
punitive damages.
b.
nominal damages.
c.
liquidated damages.
d.
an illegal penalty.


ANS:	C	PTS:	1

	5.	Garrett ordered 100 pieces of 2 × 6 lumber from his supplier and paid upon delivery. Later, when he unpacked the lumber, he discovered that the supplier had delivered 2 × 4 lumber. After being notified, the supplier picked up the lumber, apologized, and gave Garrett his money back. The response the supplier made to rectify the breach is:
a.
an injunction.
b.
mitigation.
c.
liquidation of damages.
d.
None of the above


ANS:	D	PTS:	1

	6.	When an injured party is required to elect remedies, which of the following would be mutually exclusive?
a.
Restitution and liquidated damages
b.
Specific performance and compensation for incidental damages
c.
Specific performance and restitution
d.
Incidental and consequential damages


ANS:	C	PTS:	1

	7.	The return to the aggrieved party of the consideration, or its value, which he gave to the other party is:
a.
injunction.
b.
restitution.
c.
specific performance.
d.
reformation.


ANS:	B	PTS:	1

	8.	The process whereby a court "rewrites" or "corrects" a written contract to make it conform to the true intentions of the parties is:
a.
injunction.
b.
reformation.
c.
specific performance.
d.
rescission.


ANS:	B	PTS:	1

	9.	The majority of states follow the ____ rule in awarding damages for fraud.
a.
benefit-of-the-bargain
b.
out-of-pocket
c.
liquidated
d.
restitution


ANS:	A	PTS:	1

	10.	Equitable remedies will not be granted where:
a.
the terms of the contract are fair.
b.
the consideration is adequate.
c.
the terms of the contract are sufficiently certain.
d.
the contract is tainted with fraud, duress, undue influence, mistake, or unfair practices.


ANS:	D	PTS:	1

	11.	David enters into a contract to give Edward the right of first refusal to purchase a tract of land owned by David. David subsequently offers the land to Fred without first offering it to Edward. An appropriate remedy for Edward to seek would be:
a.
injunction.
b.
liquidated damages.
c.
reformation.
d.
punitive damages.


ANS:	A	PTS:	1

	12.	A power of avoidance held by a party may be lost if:
a.
the contract is affirmed.
b.
there are unreasonable delays in exercising the power.
c.
the rights of third parties intervene.
d.
All of the above.


ANS:	D	PTS:	1

	13.	In which of the following situations is restitution available as a remedy?
a.
As an alternative remedy for a party injured by breach
b.
For a party in default
c.
For a party who may not enforce the contract because of the statute of frauds
d.
All of the above are situations where restitution is available.


ANS:	D	PTS:	1

	14.	Damages for reliance include expenses for:
a.
lost profits.
b.
injury to the person.
c.
preparing to perform.
d.
punishment of the breaching party.


ANS:	C	PTS:	1

	15.	In the case of Hadley v. Baxendale, the plaintiff was seeking damages for:
a.
restitution.
b.
lost profits.
c.
failure to convey land.
d.
failure to specifically perform a contract.


ANS:	B	PTS:	1

	16.	Which of the following is correct with respect to election of remedies?
a.
The Code rejects any doctrine of election of remedies; its remedies are cumulative.
b.
The remedy of specific performance is inconsistent with that of restitution.
c.
A person who seeks an injunction may also seek incidental damages for the breach.
d.
All of the above are correct.


ANS:	D	PTS:	1

	17.	In which of the following situations will a court grant specific performance?
a.
In a case involving breach of contract for the sale of real property.
b.
In contracts for personal services.
c.
Where goods are unique or rare.
d.
Both (a) and (c).


ANS:	D	PTS:	1

	18.	Restitution is available when:
a.
Elizabeth agrees to sell an acre of land to Vanessa, and after Vanessa makes a partial payment Elizabeth wrongfully refuses to transfer title.
b.
Lawrence makes an oral contract to provide physical training for Lee for fourteen months and Lee discharges Lawrence after six months.
c.
Gilbert uses undue influence to induce Cynthia to sell him an antique chair for $10.
d.
Restitution is available in all of the above cases.


ANS:	D	PTS:	1

	19.	Contract damages that put the injured party in as good a position as if the other party had performed are:
a.
compensatory damages.
b.
incidental damages.
c.
consequential damages.
d.
liquidated damages.


ANS:	A	PTS:	1

	20.	Barbara, an antique dealer, intentionally represents the value of an antique chest of drawers, as $6,000 when she has reason to know the value is considerably less. Margaret agrees to buy it for $5,500. It is worth $2,500. In a state that uses the "benefit-of-the-bargain" rule, Margaret's damage award would be:
a.
$3,500.
b.
$3,000.
c.
$500.
d.
$2,500.


ANS:	A	PTS:	1

	21.	A small damage amount fixed without regard to the amount of loss is known as:
a.
reliance damages.
b.
out-of-pocket damages.
c.
nominal damages.
d.
incidental damages.


ANS:	C	PTS:	1

	22.	Carolyn agrees to sell Marianne an antique handmade lace tablecloth for $1,500. When Carolyn discovers that her cousin wants it too, she breaks the contract with Marianne. Marianne can ask the court to order:
a.
nominal damages.
b.
specific performance.
c.
restitution.
d.
equitable rescission.


ANS:	B	PTS:	1

	23.	Bartow signed a contract to coach baseball for Washington High for a period of three years. After two years he is offered and accepts an assistant coach position at State University. Contract law will not allow Washington High to ask for:
a.
specific performance.
b.
payment of compensatory damages.
c.
an injunction.
d.
liquidated damages.


ANS:	A	PTS:	1

	24.	Vladimir entered into a contract to buy Daniel's collection of rare stamps. Vladimir mailed payment of $10,000 for the stamps to Daniel, but now Daniel tells Vladimir, "I'll never part with these stamps." Are the following remedies available to Vladimir?
a.
Restitution: Yes; Specific Performance: Yes
b.
Restitution: Yes; Specific Performance: No
c.
Restitution: No; Specific Performance: Yes
d.
Restitution: No; Specific Performance: No


ANS:	A	PTS:	1

	25.	Lynne agrees to buy Harriette's farm for $100,000 and puts $20,000 down. Then Lynne learns she is allergic to hay and repudiates the contract. If Harriette can sell the farm one month later for $90,000, she may:
a.
keep Lynne's $20,000.
b.
keep $10,000 of Lynne's down payment.
c.
not keep any of the down payment money.
d.
sue for specific performance.


ANS:	B	PTS:	1

	26.	Howard needs a truck to pull a 2,000-pound trailer. Gordon tells Howard, "My truck will pull a 2,000-pound trailer with ease." Relying on Gordon's statement, Howard buys the truck, but it will not pull a 2,000-pound trailer. If Gordon did not intend to deceive and Howard sues for nonfraudulent misrepresentation, he can recover:
a.
punitive damages, but not out-of-pocket damages.
b.
out-of-pocket and consequential damages, but not punitive damages.
c.
out-of-pocket damages plus punitive damages.
d.
nominal damages, because Howard should have known the capacity of the truck.


ANS:	B	PTS:	1

	27.	Harry said to Marge, "I have a ring once owned by Marilyn Monroe. Would you like to buy it for $500?" Marge pays for the ring, but the next day a friend tells her that Harry had recently purchased the ring at a local department store. Marge enjoys wearing the ring and wears it constantly for twelve months. Finally, she goes to Harry and says, "Here is the ring you lied about. Give me my $500." Most likely:
a.
Marge will get her money back since Harry's representation was fraudulent.
b.
Marge will not get her money back since she should have investigated the facts about the ring more carefully.
c.
Marge will get her money back since she is a good faith purchaser of merchandise.
d.
Marge will not get her money back since she has affirmed the contract by taking an unduly long time to disaffirm.


ANS:	D	PTS:	1

	28.	Busby contracts to build a house for Connell. Busby finishes approximately half of the house and quits. Connell files suit against Busby. Which remedy is not available to her?
a.
Compensatory damages
b.
Specific performance
c.
Special damages
d.
Incidental damages


ANS:	B	PTS:	1

	29.	What Article of the UCC governs sales of goods?
a.
1
b.
2
c.
3
d.
None of the above.


ANS:	B	PTS:	1