Reg Cpa Contracts Memorize

Front 1

An agency coupled with an interest occurs only when

Back 1

the agent has been granted a lien (the legal right to keep or sell somebody else's property as security for a debt) or security interest in property. An agreement to pay a commission does not involve such a property interest.

Front 2

A written agency agreement is required any time

Back 2

An agency contract must be in writing if the agent is empowered to buy, sell or lease real estate, or if the agency, by the terms of the agreement, is to last for more than one year from the date of the agency agreement.

Front 3

1) An offeree who purports to “accept” an offer after the offer has been withdrawn is, in effect,_____
2) An offeree who purports to “accept” an offer, but changes one of the terms or adds a new term has made _______

Back 3

1) making a new offer or counteroffer.
2)a counteroffer.

Front 4

Alexander Architects has substantially performed the contract and therefore, even though it is in breach of contract, it is entitled to recover under the contract. Since it has committed a minor breach, Alexander Architects is entitled to________

Back 4

to the final payment, less damages. The fact that damages may be difficult to calculate does not affect the underlying rights of the parties.

Front 5

When a party to a contract is in material breach____

Back 5

s/he is barred from recovering for breach of contract

Front 6

A 16 y.old can avoid contractual obligations entered into while he was a minor. But if the contract involved goods or services which would be considered “necessaries,”

Back 6

16 y. old would be liable for the fair market value as long as he returns the item. Necessaries generally include food, shelter, clothing, tools of the trade and employment services. Even though the purchase of the refrigerator would be considered a necessary, s/he would be permitted to void the contract if he returned the refrigerator, or must pay the fair value which, in most instances, would be the purchase price.

Front 7

Consideration is valid when

Back 7

actually paid.
An agreement to refrain from doing something that a person otherwise has the right to do (e.g., smoking) is valid consideration for a contract (referred to as “legal detriment”).

Front 8

Courts generally do not weigh consideration. In other words,____

Back 8

courts do not review the consideration which is bargained for and exchanged in a contract to ensure the two are equivalent.

Front 9

Once a valid contract exists, unless it involves the sale of goods (UCC rules are different from common law contract rules) modifications of a contract are not binding unless both parties will receive new or additional consideration is _________ rule

Back 9

pre-existing contractual duty rule

Front 10

Quantity can never be inferred. The price, subject matter, time for performance and, sometimes, even the parties can be _______

Back 10

inferred in an otherwise valid offer, but quantity must be stated. In addition, a contract is enforceable only to the extent of the stated quantity.

Front 11

What is the effect of a counter offer.

Back 11

Once a counter-offer is made the original offer is no longer in effect and cannot be accepted.

Front 12

If a party to a contract dies, s/he is ________ from the contract.

Back 12

not released
His/her estate will either be entitled to recovery (if the contract has been substantially performed) or will be liable for breach. This is different from the situation in which an offeror dies. If the offer has not been accepted, death terminates the offer.

Front 13

Liquidated damages are permitted in breach of contract cases if they are

Back 13

reasonable in amount and if the calculation of actual damages would be difficult.

Front 14

One of the elements of a valid contract is that the bargain must be legal. Contracts which involve the commission of a crime are _____

Back 14

illegal and void.

Front 15

Death does not excuse a party from _______ other than for personal services.

Back 15

a contractual obligation
(Be sure to distinguish this from the rule that death of an offeror terminates the offer.)

Front 16

A modification of an existing contract must be supported by _________

Back 16

new consideration - additional servi ces for the extra fees.
(unless the contract is for the sale of goods, in which case good faith is the main requirement). New consideration must flow to both parties to support a modification of an existing contract. Note, however, that the rule under UCC article 2 (sale of goods) is different.

Front 17

An offer can terminate due to _________

Back 17

lapse of time,
a counteroffer by the offeree,
rejection by the offeree,
withdrawl of the offer before acceptance,
or death of the offeror prior to acceptance.

Front 18

An offer can be withdrawn ______

Back 18

any time prior to acceptance
(unless the offer is supported by consideration).

Front 19

the three day right of rescission
(three days within which to cancel, without obligation, any contract) involves _________

Back 19

consumer transactions only.

Front 20

Advertisements are generally not considered offers because

Back 20

the advertiser does not have the requisite (obligatory) intent to make an offer. Specific, limited advertisements may be offers. For example, an advertisement that offers something to the “first to respond” may be deemed an offer.

Front 21

An enforceable option has been created when ________

Back 21

there is a promise in exchange for a promise which is valid consideration to support an option contract.

Front 22

The issue of whether statements outside the final written contract should be admitted is governed by the Parol Evidence Rule. Under the Parol Evidence Rule, outside oral or written statements made prior to or contemporaneous with the written agreement can be

Back 22

admitted as evidence of fraud, duress and the like or to explain an ambiguous term. (The words “fully integrated” in the text of the question are a tip-off that the question deals with the Parol Evidence Rule. “Fully integrated” means that the contract is intended as a complete statement of everything the parties agreed upon.) The parol evidence rule keeps from evidence any prior or contemporaneous statements which add to, modify or vary a complete final written agreement. The discussion of a mediation clause at the time the contract was signed would be such a contract modification. Evidence of fraud, duress, undue influence, or of post-contract modifications are not excluded by the parol evidence rule, nor is evidence which is presented to explain an ambiguity.

Front 23

The statute of Frauds requires that contracts which cannot, by their terms, be performed within one year, must be

Back 23

in writing and signed in order to be enforceable. The “terms” of the contract in question were that the internship would begin on the following June 1st and last three months. Since this (oral) contract was made on August 16 of the year prior to when work would begin, and work could not be completed before the end of August (more than a year later) the contract must be in writing.

Front 24

If a party to a contract omits material information
of which s/he is aware
at the time the contract was entered into,
the other party can

Back 24

aviod the contract on the ground of misrepresentation.
The parol evidence rule does not exclude evidence of misrepresentations or fraud. Cancellation of a contract due to misrepresentation is subject to time limits (statute of limitations) just as suits for breach of contract are.

Front 25

For one who is not a party to a contract to enforce the contract, s/he must be

Back 25

a donee beneficiary, creditor beneficiary or an assignee. To qualify as a donee beneficiary, the main purpose of the contract must be to bestow a gift to the third party. To qualify as a creditor beneficiary the purpose of the contract must be to pay an obligation which was owed to the third party.

Front 26

To void the contract as having been made under undue influence,

Back 26

Emma could show the existence of a trust relationship (her father) and an abuse of that trust (excessive fees).

Front 27

An offer of a reward is a unilateral offer which means

Back 27

that it can only be accepted by performance.
A contract is not formed until performance is completed.
A unilateral offer can be withdrawn before acceptance in most instances. He would not be entitled to the reward if he was unaware of the reward.

Front 28

If one of the parties to a contract acts under a mistaken belief, the mistaken party

Back 28

cannot avoid the contract unless the other party knew, or had reason to know of the mistake. In this case, it appears that Cyprus Country Club’s agent mistakenly believed the special offer price to be $1,000, but Stephens had no reason to know that the offer was a mistake.

Front 29

A contract which must be in writing to be enforceable and
can be enforceable against one of the parties and not the other if

Back 29

only one party signs the contract. A contract which involves a transfer of real estate must be in writing to be enforceable, but if it is not in writing it is simply unenforceable (rather than void). If one of the parties to a contract is a minor, only the minor can void the contract.

Front 30

Which of the following statements regarding validity, enforceability and avoidance of contracts is correct?


A A statute of limitations can render a valid contract unenforceable.
B A contract entered into by a minor is voidable by either party.
C A unilateral mistake renders a contract void.
D Minor breach of contract by one party excuses all duty of performance by the other party.

Back 30

A
If suit is not filed within the time set by a statute of limitations, an otherwise valid contract is unenforceable, but not void or invalid.
A contract entered into by a minor is voidable only by the minor.
A unilateral mistake renders a contract voidable, but not automatically void.
Material breach of contract by one party excuses all duty of performance by the other party, but minor breach does not.

Front 31

Which of the following would affect the validity of a contract?


A A contract for the sale of real estate is agreed to orally, but is signed by only one party.
B The agreement violates law.
C The statute of limitations has run for filing suit for enforcement or for damages.
D One of the parties has committed a material breach of contract.

Back 31

The correct answer was B.

Validity of a contract is affected when one of the elements of a contract (offer, acceptance, consideration, legality, capacity, mutuality) is lacking. Absence of an offer, acceptance or consideration, or the illegality of the contract’’s purpose, will result in a void contract. If one of the parties lacks capacity, the contract is voidable by that party. If there has been a misrepresentation or a unilateral mistake (i.e., lack of mutuality) then the contract is voidable by the innocent party. In the rare case of mutual mistake (again, lack of mutuality) either party may void the contract. Answers A, C and D relate to the enforceability rather than the validity of the contract.

Front 32

On February 1, Blaze-X submitted a proposal to Black for the complete installation of a fire suppression system in an office building which Black was renovating. The proposal provided that “to ensure performance at the specified price of $45,100, this proposal must be signed in duplicate and received by our Westport office within 10 days.” Black signed the proposal and gave it to his secretary to deliver to Blaze-X. Which of the following is correct?


A If the proposal is misdelivered to Sure-X Exterminators on February 9, delivery to Blaze-X the next day will result in no contract.
B If Black faxes a memo to Blaze-X on February 7 agreeing to the proposal, this will bind Black.
C If the proposal is mailed to Blaze-X on the 10th and received on the 13th, Blaze-X will be bound by the price quoted.
D A telephone call by Black to Blaze-X accepting the offer at the price of $45,100 will bind Blaze-X.

Back 32

The correct answer was B.

An offer may specify the terms under which it can be accepted. (This means that an offeror can modify the mailbox rule.) When an offeror specifies that an acceptance will only be valid if actually received, this governs the particular contract in question. Since Black did not comply with the requirements of the offer, Blaze-X is not bound. However, Black may be bound to the contract even though Blaze-X is not. This is a somewhat difficult concept, but one seen often on the CPA exam. Where all the elements of a valid contract exist, it may be enforceable against one party even though it is unenforceable against the other.

Front 33

Jake has accepted the shipment even though he had not inspected it until Tuesday since he has had a reasonable opportunity to inspect. Once acceptance occurs the buyer

Back 33

must pay the contract price for any goods accepted.

Front 34

Any statement by a party to a contract of an unwillingness or inability to perform the contract constitutes

Back 34

an anticipatory repudiation (breach) of the contract, entitling the nonbreaching party to file suit immediately, or to demand adequate assurance of performance.

Front 35

Under Article 2 of the UCC, parties to a contract for the sale of goods (other than consumer contracts) can change the statute of limitations to

Back 35

not more than 4, nor less than 1, year.

Front 36

A clause in a contract whereby one of the parties is exonerated (held harmless) for his/her own negligence is known as

Back 36

an exculpatory clause. Such clauses are generally unenforceable in consumer contracts, but are permitted in contracts between businesses.

Front 37

A contract can only be modified if new consideration flows _____

Back 37

to both parties.
(Note that the rules are different for modifications of contracts involving the sale of goods.)

Front 38

Contracts can be described by several attributes, such as:
1. method of formation
a)________ b)_______ c)______
2 whether there is one promise or two
a)________ b)_______
3. and the stage of performance
a)________ b)_______

Back 38

1. method of formation
a) Express contract - oral or written
b) Implied-in-fact contract - formed by conduct
c) Implied-in-law contract OR Quasi-contract - remedy to prevent unjust enrichment
2. whether there is one promise or two
a) Unilateral contract- not formed until performance is completed
b) Bilateral contract - promise for a promise and contract is formed
3. and the stage of performance
a) Executory contract - if duties remain to be performed
b) Executed contract - all duties have been performed

Front 39

Creation of a contract - elements in general:
(3)

Back 39

1. Offer and acceptance
2. and exchange of Consideration
3. a lack of defenses
NOTE : "a writing" is NOT a general element of a contract
If 3 elements are present, there an enforceable contract and remedies are available if one party breaches.

Front 40

To be an offer, the commungication must crate a reasonable expectation in the Offeree that the offeror intends to make a contract. 3 questions should be considered :

Back 40

1. Was there a manifestation of INTENT to contract? - Intent - would the reasonable person believe the offer was serious
2. Were the Terms Definite and Certain? Terms must include:
a) parties
b) price
c) time
d) quantity
e) nature/type of work
3. Was there COMMUNICATION of the above to the offeree?

Front 41

Termination of Offer
To create a contract, an offer must be accepted before it is terminated. It can be terminated in 3 ways:

Back 41

1 Revocation
2 Rejection
3. by Operation Law

Front 42

Revocation by Offeror - can be done any time before _______

Back 42

Acceptance, except for Irrevocable offers

Front 43

Irrevocable offers: (3)

Back 43

1 Option contract - the offeree gives CONSIDERATION $$$ to keep the offer open
2 Merchant's firm offers under UCC sales
3 Unilateral contracts

Front 44

Under the Mailbox rule, a contract is formed on _________ even if the acceptance letter is never received by the offeror, but It must be properly addressed!

Back 44

DISPATCH
The acceptance is valid when sent

Front 45

Offeror may opt-out mailbox rule by stating that the acceptaince must be __________ to be effective.

Back 45

RECEIVED

Front 46

Defenses can make a contract unenforceable.Very few defenses make a contract ________, most contracts only ______

Back 46

VOID - unenforceable by either party
VOIDABLE - it may be avoided at the option of the party adversely affected.

Front 47

Defenses to the contract are :
lack of an agreement
lack of consideration
FRAUD - list 5 items

Back 47

MAIDS
1 Misrepresentation of Material fact
2 Actual and justifiable Reliance
3 Intent to Induce plaintiff's reliance
4 Damages
5 Scienter - disregard for truth

Front 48

VOID or VOIDABLE?
1 fraud in the Execution - deceived into signing something you didn't know
2 fraud in the Inducement - you know you are making contract, but TERMS are materially misrepresented
3 Duress - a) physical force b) economic or social
4 Undue Influence - taking unfair advantage of the relationship
5 Mutual mistake - both parties are mistaken
6 Unilateral Mistake

Back 48

1 fraud in the Execution - VOID
2 fraud in the Inducement - VOIDABLE
3 Duress - a) physical force- VOID b) economic or social - VOIDABLE
4 Undue Influence -VOIDABLE
5 Mutual mistake -VOIDABLE
6 Unilateral Mistake - generally it is NOT a defense, only if the other party KNEW about the mistake - it is VOIDABLE

Front 49

One of the DEFENSES is STATUTE OF FRAUDS - six contracts req, a writing:

Back 49

" MY LEGS"
Marriage - is a consideration
Year - cannot be performed withing a year
Land - and lease for more than year
Executor contract to pay estate debts
Goods for >$500
Suretyship - to pay the debt of another
Note: contracts for services can be oral regardless of price as long as they can be done w/n 1 year.

Front 50

________ rule that prohibits the admission of oral or written evidence to CONTRADICT the TERMS of a Written contract

Back 50

PAROL (oral) EVIDENCE RULE
- NOTE: ONLY subsequent modification are admissible under this rule

Front 51

Which is legally binding despite lack of consideration?

Back 51

A promise to donate money to a charity on which the charity relied in incurring large expenditures

Front 52

One of the criteria for a valid assignment of a sales contract to a third party is that the assignment must

Back 52

Not materially increase the other party's risk or duty

Front 53

To cancel a contract and to restore the parties to their original positions before the contract, the parties should execute a

Back 53

RESCISSION

Front 54

the goal of contract remedies is to put the Nonbreaching party in as good position as _________

Back 54

he would have been had there been no breach

Front 55

list 6 types of damages

Back 55

1 Compensatory
1a Consequantial
2 Specific performance
3 Liquidated damages
4 Punitive d-ge
5 Rescission or Cancellation
6 Quasi-Contract damages

Front 56

1 Compensatory Damages are ____
1a Consequantial

Back 56

1D-ges for PERSONAL SERVICE contract to obtain substitute performance.
1a - D-ges that are reasonably foreseeable

Front 57

2 Specific performance damages

Back 57

Used with land or Unique Items
Cannot be used for personal service contract

Front 58

3 Liquidated damages are enforceable if the $$$ is reasonable in relation to the actual harm done and _________

Back 58

it is Not a PENALTY

Front 59

4 Punitive d-ge for breach of contract are

Back 59

not available, for FRAUD ONLY

Front 60

5 Rescission or Cancellation damages restore parties to ______

Back 60

their former position.
Contract cannot be cancel if it has been substantially performed

Front 61

6 Quasi-Contract damages used to ______

Back 61

prevent unjust enrichmet

Front 62

In order to fairly compensate parties for harm done the law imposes the limitations of __________ and __________ on Monetary Damages

Back 62

FORSEEABILITY AND MITIGATION

Front 63

the person OWING THE DUTY under a third party beneficialry contract is called the _________
The one bargaining for the performance is the

Back 63

PROMISOR
PROMISEE

Front 64

An Intended beneficiary can SUE the ______.
Creditor beneficiaries can also SUE the _________
Donee beneficiaries generally ________

Back 64

1. primisor
2 promisee
3 cannot sue the promisee.

Front 65

New party to an old contract is ________

Back 65

NOVATION - defense

Front 66

A condition is an event the occurrence or nonoccurrence of which will end a party's duty to perform. There are 3 types of conditions _____

Back 66

PRECEDENT
CONCURRENT
SUBSEQUENT

Front 67

Same parties, but new contract is

Back 67

ACCORD AND SATISFACTION
AND
SUBSTITUTED CONTRACT
original contract is discharged immediately