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48 Cards in this Set

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  • Back

Which of the following is an example of an acceptance? I. An offer is withdrawn prior to acceptance; the offer is then accepted. II. In her acceptance, the offerree adds an additional term.

A I only
B II only
C Both I and II are acceptances.
D Neither I nor II is an acceptance.

The correct answer was D.

An offeree who purports to “accept” an offer after the offer has been withdrawn is, in effect, making a new offer or counteroffer. An offeree who purports to “accept” an offer, but changes one of the terms or adds a new term has made a counteroffer.
Alexander Architects, Inc., was the project manager for the construction of an apartment complex involving 380 units. Bradednham Partners had hired the Alexander firm to oversee construction in accordance with very specific plans and specifications. Prior to the final payment of $50,000, Bradenham partners learned that the Alexander firm had inadvertently approved the use of 33 windows which were several inches narrower than called for in the plans. Bradenham Partnership had paid Alexander Architects $350,000 up to this point. Under the circumstances, Alexander Architects, Inc.,

A is in material breach and is therefore not entitled to any further payment, but may retain what it has been paid.
B is in material breach and is therefore not entitled to any further payment and must return what it has been previously paid.
C is in minor breach and is therefore not entitled to any further payment, but may retain what it has been paid.
D is in minor breach and is therefore is entitled to the $50,000 payment, minus damages.
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 the final payment, less damages. The fact that damages may be difficult to calculate does not affect the underlying rights of the parties.
Karnes contracted with Peterson Construction Company for the demolition of Karnes’s existing office building and the construction of a new office about twice the size. The contract price was $550,000. Peterson Construction Company completed most of the demolition, but was unable to do any further work because it was experiencing severe financial difficulties. Karnes had given Peterson Construction Company a $10,000 deposit to begin work, but has not paid anything further. Karnes hired Billing Co. to complete the work at a price of $675,000. In a suit by Peterson Construction Company against Karnes for the cost of demolition, Peterson will

A prevail if the costs to Peterson in connection with the demolition exceeded $10,000.
B prevail if the value of the demolition work exceeded $10,000.
C not prevail since it is in material breach of contract.
D not prevail because of the doctrine of partial performance in contracts involving real estate.
The correct answer was C.

When a party to a contract is in material breach, (as Peterson is) s/he is barred from recovering for breach of contract. If Peterson Construction Company had substantially performed, or if the contract specified payment amounts for portions completed, then Peterson Construction Company might have a claim for damages, depending upon the facts.
Bruce, a 16 year old whose appearance was somewhat older, purchased a used refrigerator for use in his apartment from Blue Jay Appliance Sales, Inc., for $400. Two weeks later, Bruce decided to move back home to his parents’ house. The next day, the refrigerator was stolen from his apartment. At his mother’s insistence, Bruce telephoned Blue Jay Appliance Sales, Inc., and demanded the return of his $400. In a court action, Bruce would

A prevail against Blue Jay Appliance Sales, Inc., but only if he disaffirmed within 30 days of the purchase.
B prevail against Blue Jay Appliance Sales, Inc., regardless whether he returns the refrigerator.
C not prevail against Blue Jay Appliance Sales, Inc., since he appeared to be over 21 years old.
D not prevail against Blue Jay Appliance Sales, Inc., since the refrigerator would be deemed a “necessary.”
Bruce can avoid contractual obligations entered into while he was a minor. But if the contract involved goods or services which would be considered “necessaries,” Bruce 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, Bruce 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.
For a contract to be valid, legally sufficient consideration must be bargained for and exchanged. In which of the following instances is consideration legally sufficient?

A A party to the contract acknowledges receipt of consideration which was not actually paid.
B A contract for the sale of patent for $1,000,000 when the patent’s actual value is about $300,000.
C A party to a contract for services agrees to a modified fee because of financial difficulties he is experiencing.
D A sheriff’s agreement to perform a levy expeditiously in exchange for an additional $20 fee.
The correct answer was B.

What is bargained for and exchanged in a contract does not have to of equal value. It is not unusual for one party to a contract to realize far more (or less) than what s/he paid for. Consideration, however, must be actually paid. Thus, merely reciting the receipt of payment is not sufficient. Lastly, a public official has a pre-existing duty to perform. Therefore, a promise of additional consideration for the same official service is not valid consideration.
Eagle promised to pay Morton, a 22 year old graduate student, $1,000 in four equal monthly installments, beginning in 30 days. Which of the following would be valid consideration in the formation of a contract between Morton and Eagle:

A Morton’s promise to refrain from smoking for four months.
B Previous research which Morton performed for Eagle without any agreement.
C Morton’s solemn vow to keep in touch with Eagle in the coming years.
D Morton’s agreement to represent Eagle in a legal matter in a venue which requires Morton to have a law license.
The correct answer was A.

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”). Previous research which Morton performed for Eagle without any agreement would be past consideration, which is not valid consideration. Morton’s solemn vow to keep in touch with Eagle in the coming years is in the nature of “love and affection” which is not valid consideration. Morton’s agreement to represent Eagle in a legal matter in a venue which requires Morton to have a law license is not a legal agreement since Morton, a graduate student, would not have a law license.
Young, a licensed practical nurse, had been unemployed for several months when she was hired for a thirty day assignment at a rate of pay which was about half her usual contract rate. Young agreed to the low rate as she was seriously delinquent in paying rent on her apartment. Upon completion of the assignment, Young demanded to be paid her usual rate. With respect to her claim for additional pay, Young will

A succeed if she felt under actual duress.
B succeed if she proves that the agreed rate was below the custom of the profession.
C not succeed even though the value of her services exceeded the agreed upon rate of pay.
D not succeed unless the court deems the contract was unilateral.
The correct answer was C.

Young will not succeed -- even though the value of her services exceeded the agreed upon rate of pay -- because courts generally do not weigh consideration. In other words, courts do not review the consideration which is bargained for and exchanged in a contract to ensure the two are equivalent. Sometimes, when there is gross disparity between consideration paid and consideration received, this is evidence of possible fraud or duress. But here, her employer did nothing that would be considered coercive.
The Wellingford Company offered, in a signed writing, to purchase a 1.9 acre parcel of commercial property from Oxford, Inc. The property was in the heart of downtown Springfield. The offer was for $660,000, all cash payable at closing. Oxford, Inc., signed the agreement upon receipt and faxed it to Wellingford’s headquarters. Prior to the closing, the President of Wellingford learned that the assessed value of the property was actually $200,000 less than the purchase price. The Wellingford Company wishes to void the contract. The Wellingford Company will

A succeed since fraud in the factum is apparent on the face of the transaction.
B succeed because of the parol evidence rule.
C succeed because the disparity between the assessed value and the contract price results in a failure of consideration.
D not succeed.
The correct answer was D.

A gross disparity between a contract price and actual value can be an indication of fraud underlying the contract. Even though there is a disparity between the assessed value of the property and the agreed purchase price, there is no other indication of fraud in this transaction. Therefore, the contract is binding on both parties.
On April 5, Marx entered into a contract with Raj whereby Raj agreed to paint a mural on Marx’s building which depicted the Marx’s business -- a veterinary clinic for household pets. Raj agreed to create animal images which would fill one outside wall and three interior waiting room walls. The agreed price was $6,000. When Raj’s paintings were about 60% complete he approached Marx and explained that the work was taking him about twice as long as expected and demanded a that his fee be doubled. Marx agreed to this. Upon completion of the work, Marx was willing to pay no more than $7,000. If Raj files suit for the $5,000 balance claimed, Raj will

A succeed, but only if Marx agreed to the higher fee in writing.
B succeed, but only for an amount which represents an hourly rate at minimum wage for the additional time expended.
C fail unless Raj performed additional work beyond the scope of the original contract.
D fail if the agreement was not in writing since it involved real estate.
The correct answer was C.

This question illustrates the concept known in contract law as the “pre-existing duty rule.” This rule comes up in two different situations: pre-existing duty of a public official, and pre-existing contractual duty. This is an example of the latter. Once a valid contract exists, unless it involves the sale of goods (UCC rules are different from common law contract rules) modofocations of a contract are not binding unless both parties will receive new or additional consideration. In this case, Raj agreed to paint three murals of designated sizes and types; he cannot demand additional consideration unless he gives additional consideration.
Penny Corporation is a wholesaler of industrial metals. On November 1, Penny contracted with Tyne Enterprises, Inc., a manufacturer of various auto parts, to supply Tyne with all of it’s copper needs for the upcoming calendar year and Tyne agreed to purchase copper only from Tyne. The agreed price was $3.05 per pound. Thirty days later a Penny representative faxed Tyne a memo stating that since Penny anticipates wild fluctuations in copper prices for the upcoming year, it is not willing to honor its price commitments to any of its customers. Penny

A must honor its price commitment to Tyne under any circumstances.
B must honor its price commitment to Tyne if its quote was given in a signed writing.
C need not honor its price commitment to Tyne because quantity is unknown.
D need not honor its price commitment to Tyne because there was no consideration given by Tyne Enterprises, Inc.
The correct answer was B.

Penny must honor its price commitment to Tyne if its quote was given in a signed writing. This is an example of an output contract. At first, there may appear to be a problem relating to consideration. Penny is agreeing to sell copper at a certain price, but Tyne has not agreed to purchase any specified amount. Courts have determined that the parties are probably aware of the approximate needs of a buyer in situations like this, so that the expectation of certain level of sales is sufficient consideration to support a contract. Also, the contract does not fail even though quantity is unknown because Tyne has agreed to purchase all of its copper needs from Penny and the parties have some idea as to about how much this will be. Finally, since the contract cannot be performed within one year from its execution it must be supported by a signed writing.
For a person to make a valid offer, the terms of the offer must be stated or reasonably ascertainable. Which of the following statements is incorrect regarding when the terms of an offer can be inferred?

A Price of the item(s) offered may be inferred if the items are not unique, and a ready market exists from which price can be determined.
B Time for performance can be inferred and is usually determined as what is reasonable under the circumstances.
C Quantity can often be inferred.
D Under some circumstances, the subject matter of an offer can be inferred.
The correct answer was C.

Quantity can never be inferred. The price, subject matter, time for performance and, sometimes, even the parties can be 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.
NewStyles, Inc., tendered a written offer to Midwest Garage, Inc., to purchase from Midwest “land, buildings thereon, and all other improvements owned by Midwest Garage, Inc., and located at the northwest corner of Fulton Avenue and Wayne Street in the town of Leadville.” The offer provided that “acceptance of this offer must be received by NewStyles at its office on College Street on or before 3 PM, October 12.” On October 11, Midwest Garage, Inc., delivered a signed letter to NewStyles stating: “Your offer is accepted, provided that we be given five days after completing the sale to remove our equipment.” The letter was signed by the president of Midwest. On the morning of October 12, NewStyles faxed Midwest Garage advising it had decided against purchasing the property. Which statement is correct?

A Midwest Garage has no recourse against NewStyle Builders, Inc.
B NewStyles, Inc, may ignore the contingency regarding removal of equipment.
C Midwest Garage can seek specific performance of the contract, but not money damages.
D Midwest Garage can enforce the contract with NewStyle, if Midwest delivers an unconditional acceptance before before 3PM on October 12.
The correct answer was A.

When New Styles made its offer, Midwest could unconditionally accept and a contract would have been formed. But Midwest’s insertion of a new condition into its “acceptance” constituted a counter-offer which News Styles rejected. Once a counter-offer is made the origianl offer is no longer in effect and cannot be accepted. This is the effect of a counter offer.
Pierce hired Peyton to pave a parking lot which was adjacent to a strip shopping center owned by Pierce. The contract provided that the asphalt be “five inches in thickness prior to rolling” and that the finished pavement be “sealed and lined for not less than 800 vehicles of standard size.’” Peyton died after starting the job, but before its completion. With respect to the legal rights and responsibilities of Pierce and Peyton,

A because of his death, Peyton is released from his obligation under the contract.
B if Peyton had fully performed everything other than lining the parking lot, his estate would be entitled the contract price minus the cost of completing the job.
C if Peyton, before his death, had substantially performed the contract, his heirs could fully recover under the contract.
D the only remedy which will no longer be available to Pierce is specific performance by Peyton.
The correct answer was B.

If a party to a contract dies, s/he is not released from the contract. 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.
PrimeTime Networking, Inc., was hired by the Town of Chambers to install a wireless computer network in the newly constructed Chambers Town Meeting Hall. The written contract required completion by May 15, and function testing by Chambers officials within seven days thereafter. The contract included a clause which provided: “For each day after May 21 the network is not complete, PrimeTime Networking, Inc., shall forfeit $400 per day as liquidated damages.” Which statement is correct?

A Liquidated damages, like punitive damages, are generally not permitted in breach of contract cases.
B Because the $400 per day constitutes a penalty, a court would not enforce this sum.
C Liquidated damages are permissible if they are reasonable in amount and if the calculation of actual damages would be difficult.
D This contract would be governed by Article 2 of the Uniform Commercial Code.
The correct answer was C.

Liquidated damages are permitted in breach of contract cases if they are reasonable in amount and if the calculation of actual damages would be difficult. Both of these elements exist here. This contract would not be governed by Article 2 of the Uniform Commercial Code since it is not for the sale of goods, even though goods are included in the contract.
The City of Springfield contracted with Blanford Waste Removal, LLC, for the transport of “all waste accumulated at the Springfield Downtown Dump” to Springfield’s new waste site in Garden County. The project was estimated to take 75 days to complete. The contract, which provided for payment to Blanford Wasted Removal, LLC, of $400,000 in two installments of $200,000, also included a clause that penalized Blanford Wasted Removal, LLC, at a rate of $5,000 per day for any failure to complete the project, other than for reasons outside the parties’ control. Such a liquidated damages clause

A is enforceable if it is reasonable and the calculation of actual damages would be difficult.
B is enforceable under all circumstances as long as the parties are of equal bargaining power.
C is enforceable under all circumstances as long as there is no evidence of duress.
D is not enforceable since it would be a penalty, and contract law does not permit an award of damages which are in the nature of a penalty.
The correct answer was A.

Liquidated damages, that is, damages which are predetermined and fixed, are permitted if they are reasonable in amount and either bear a reasonable relationship with the amount of actual damages, or the calculation of actual damages would be difficult.
Pool made an oral offer to purchase premises from Light for the purpose of operating a restaurant. The parties agreed upon a price of $142,000 and a closing date of June 4. A detailed written contract was drawn up and signed by Pool but was not signed by Light. The contract to purchase the restaurant building

A is enforceable against Pool but not against Light.
B cannot be enforced against Light even if Pool made a down payment and took possession.
C is not enforceable even if both parties fully perform.
D is enforceable since Pool’s written contract constitutes a firm offer.
The correct answer was A.

Since the contract involves the transfer of an interest in real estate, it must be in writing and signed in order to be enforceable. Since the parties have reached an oral agreement, and since Pool has signed the agreement, the contract is enforceable against Pool. Since Light has not signed, it is not enforceable against Light.
Vance orally contracted with Forbes to purchase various quantities of Schedule III drugs for distribution over the internet. Neither Vance nor Forbes was licensed to buy, sell or possess such drugs. The agreed price was $40,000, with $20,000 paid in advance, $10,000 upon delivery and $10,000 within six months thereafter. Shortly after delivering the drugs to Vance, Forbes was arrested and charged with various felonies. The charges were dismissed, however, because a defect in the search warrant. Forbes thereafter filed suit against Vance for the $10,000 still due. The court will

A give judgment in favor of Forbes if the drugs were delivered as agreed, and 6 months has passed since delivery.
B not give judgment in favor of Forbes since the contract was not in writing and involved goods in excess of $500.
C not give judgment in favor of Forbes because the transaction was illegal.
D give judgment in favor of Forbes, but only for an equitable portion of the $10,000, so as to avoid unjust enrichment.
The correct answer was C.

One of the elements of a valid contract is that the bargain must be legal. Contracts which involve the commission of a crime are illegal and void. Unjust enrichment is an equitable principal which does not apply to illegal contracts. Answer B is incorrect because the goods (the drugs) were received and accepted; thus, the Statute of Frauds would not apply.
Holly, who is 16 years old but appears to be in her early 20s, rented a two bedroom apartment from Mitchell under a written lease with a term of 12 months. Rent was $680 per month plus utilities. Both parties signed the lease. Holly later decided that she missed home and, in the middle of the night on the 90th day of the lease, she vacated the apartment, leaving written notice taped to Mitchell’s door that she intended to immediately terminate her lease. Holly had given no security deposit, but has paid a total of four months rent. Which is correct?

A Holly is entitled to nothing from Mitchell.
B Holly is entitled to $680 from Mitchell.
C Holly is entitled to $2,720 from Mitchell.
D Holly is indebted to Mitchell for the remainder due under the lease.
The correct answer was B.

A minor may void a contract at any time, but if the contract was for necessaries (food, shelter, tools of the trade, employment agency fees) must pay reasonable value for what was received. Since Holly has received the benefit of the apartment for three months, she cannot recover for those months, but can cancel the remaining nine months of the lease, entitling her to $680 for the month she has paid in advance.
After prolonged negotiations, Goren entered into a written contract with Spade whereby Goren agreed to buy and Spade agreed to sell land known as Diamond Estates where Goren anticipated construction of a golf, tennis and country club resort. Spade made no representations with respect to the property but was aware that drainage problems would make construction of a golf course prohibitively expensive. Spade was aware of Goren’s intended use of the property but remained silent as to the drainage problem. After both parties signed the contract, but before closing, Goren suffered a fatal heart attack. Goren’s heirs refused to go forward with the purchase. Which statement is correct with regard to the contract of sale between Goren and Spade?

A Since Goren is deceased, there is no obligation for Goren’s heirs to honor the contract.
B Goren would be excused from performance, but his heirs would not be excused.
C Goren’s heirs are excused from performance because Spade has made a material misrepresentation with respect to the property.
D Goren’s heirs must honor the contract.
The correct answer was C.

Death does not excuse a party from a contractual obligation other than for personal services. (Be sure to distinguish this from the rule that death of an offeror terminates the offer.) The question presents a fully executed contract, rather than an unaccepted offer. Goren’s heirs are excused from performance because Spade has made a material misrepresentation with respect to the property. Spade’s failure to disclose a material fact constitutes a misrepresentation which excuses Goren and his heirs, but would not excuse Spade. Note that this is an instance in which a contract is enforceable by one party but not the other.
Relliable WEB-Hosting, Inc., entered into a contract with United Realtor Association to construct and maintain a website where all United’s member realtors could post audio and video materials relating to their current listings. The agreement, which was to run one year and was renewable for two additional years, provided for a flat rate of $30 per posting. Six months into the agreement, Relliable WEB-Hosting, Inc., encountered expenses related to unforeseen equipment repair costs. Relliable WEB-Hosting, Inc., contacted United Realtors and required it immediately sign an addendum to their agreement which raised the posting charge to $33. United signed the addendum, but later its members refused to pay more than the original $30 posting charge. The addendum is

A not enforceable.
B fully enforceable regardless of Relliable WEB-Hosting, Inc.’s ability to establish it acted in good faith.
C enforceable only if entered into by both parties in good faith.
D enforceable only if the court waives the parol evidence rule.
The correct answer was A.

A modification of an existing contract must be supported by new consideration (unless the contract is for the sale of goods, in which case good faith is the main requirement). In this case, United Realtor Associates (through its members) agreed to pay additional fees -- over and above the fees agreed to in the original contract -- but received no additional consideration for the extra fees.
An offer may be terminated by any of the following EXCEPT:

A lapse of time.
B withdrawal of the offer before acceptance.
C death of the offeror after acceptance.
D counteroffer by the offeree.
The correct answer was C.

An offer can terminate due to 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.
Pine offered, in writing, to sell to Beech his small farm on which Beech planned to build an automobile dealership. The writing recited a price of $1.35 million, was signed by Pine and provided that acceptance would only be valid upon receipt by Pine’s realtor on or before 5 PM April 9th. On April 8 Beech telephoned Pine accepting Pine’s offer and advised that the written acceptance would be delivered the following day. On the morning of April 9, Pine received a written offer from Aspen to purchase the property for $1.55 million. Pine immediately accepted Aspen’s offer by signing it, and faxing it to Aspen. Pine immediately informed Beech that Pine was withdrawing his offer. At 4:45 PM the same day, Pine received from Beech the original offer which Beech signed as accepting. Under the circumstances

A Pine’s acceptance of the Aspen offer created a binding contract.
B Pine’s offer was binding on Pine and a contract was formed with Beech when Beech telephoned his acceptance.
C A contract was formed with Beech when Beech delivered the signed acceptance within the designated time limit.
D Pine would have three days within which to cancel, without obligation, any contract with Aspen.
The correct answer was A.

An offer can be withdrawn any time prior to acceptance (unless the offer is supported by consideration). Pine would have had breach of contract issues had both Beech and Aspen accepted the separate offers, but Pine withdrew his offer to Beech prior to Beech’s acceptance. With regard to choice D, the three day right of rescission involves consumer transactions only.
Bio-Sphere Ltd, a company which is a leader in fuel economy technology, contacted Billups, a research consultant, proposing that if Billups could perfect the technology for power storage, namely: “create a storage medium with 100% recharge/discharge properties within 24 months of the date of this correspondence,” Bio-Sphere Ltd would pay Billups $2 million for the technology. Eighteen months later, Billups forwarded plans for an advanced battery with “100% recharge/discharge capabilities.” Which of the following statements is correct?

A Bio-Sphere Ltd has not made an offer since Billups could only accept by performing.
B Bio-Sphere Ltd has not made an offer since it lacked intent.
C If Bio-Sphere Ltd refuses to pay Billups it will be in breach of contract.
D No contract exists between Bio-Sphere Ltd and Billups.
The correct answer was C.

Bio-Sphere Ltd has made an offer to Billups. It is a unilateral offer since Billups could only accept by performance. Billups has accepted the offer by performance and therefore, if Bio-Sphere Ltd refuses to pay Billups, Bio-Sphere will be in breach of contract.
Kent Corporation, a distributor of fuel oils, placed the following advertisement on its web-site: “INTERESTED IN AN EXCITING CAREER? QUALIFIED CPA WILL EARN $200K PLUS! GUARANTEED!! Johnson, a CPA with 10 years experience in the fuel oil industry e-mailed her application to Kent Corporation. Kent Corporation

A has not made an offer to Johnson, but has made an offer to the first qualified applicant for the position.
B has made an offer to Johnson if the position is still available when Johnson applies.
C has made an offer to Johnson if Johnson is fully qualified.
D has not made an offer to Johnson.
The correct answer was D.

Kent Corporation has not made an offer. Advertisements are generally not considered offers because the advertiser does not have the requisite 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.
Dask and Blaine have negotiated for several months over Dask’s purchase of Blaine's business. On October 1, Dask presented Blaine with a signed, written offer which recited the identity of the business, its real estate, fixtures, inventory and good will, and a purchase price of $1,000,000, all cash. The offer included a provision whereby Blaine would agree not to compete for a period of three years from the date the agreement was signed. Blaine reviewed the offer and signed it, striking out “three years” in the noncompete provision and writing in “two years” and placing his initials next to the change. Blaine forwarded the signed agreement to Dask with a cover letter indicating his satisfaction with “all its terms.”

A Blaine has made a counteroffer.
B Dask’s initial written offer remained in effect up and until receipt of the signed agreement from Blaine.
C Blaine and Dask have entered into a binding contract.
D Even though the transfer of real estate is a part of the agreement between Blaine and Dask, an oral contract would be binding on the parties since the “primary consideration” is sale of a business.
The correct answer was A.

Blaine has made a counteroffer since his “acceptance” did not mirror the terms of Dask’s offer. There is no binding contract at this point, only a new offer (a counteroffer) by Blaine. Since a the transfer of real estate is a part of the agreement between Blaine and Dask, an oral contract would not be binding on the parties.
Zeeg offered, in writing, to purchase a warehouse and adjacent parking lot from Klint for $750,000 with Klint to hold $500,000 in financing. Klint counter-offered to sell the property to Zeeg for $850,000, all cash. Zeeg responded to the counteroffer agreeing to the new price and terms, but inserting a provision that gave Zeeg 60 days to locate a willing lender. Klint demanded, and Zeeg thereafter agreed, that Zeeg would pay Klint $1,500 within 30 days for Klint to keep the offer open. Under the circumstances

A an enforceable option has been created.
B Zeeg will not be bound to complete the transaction even if he finds an agreeable lender.
C Klint may sell the property to another buyer, without liability to Zeeg, if he signs a contract prior to receiving $1,500 from Zeeg.
D Because the terms of the agreement are unreasonably vague, no contract has been formed between Zeeg and Klint.
The correct answer was A.

An enforceable option has been created because a promise in exchange for a promise is valid consideration to support an option contract. If Zeeg finds a lender, he will be bound to complete the transaction.
Carter contracted with Fox Demolition, Inc., to demolish and remove a dilapidated structure on property which Carter intended to construct an office building. The signed, fully integrated contract provided that Fox Demolition, Inc., “remove the entire structure.” During demolition, Fox Demolition, Inc., discovered a large oil storage tank below the basement level. Fox Demolition, Inc., demanded additional money for the removal of the oil storage tank. Carter refused, contending that Fox Demolition, Inc., had stated during negotiations that it would remove “skeletons or anything else below ground -- we go ‘till we hit solid ground.” In determining whether this statement would be introduced into evidence in court, a judge would

A preclude it under the statute of frauds.
B admit it as an exception to the statute of frauds.
C only admit the statement if Fox Demolition, Inc., was guilty of fraud.
D admit the statement if the judge determines that the phrase “entire structure” was ambiguous.
The correct answer was D.

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 admitted as evidence of fraud, duress and the like (which are not present here) or to explain an ambiguous term, which is arguably the situation at hand. (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.)
Perry has filed suit against Baron for breach of contract. Perry is claiming that Baron had agreed convey certain mineral rights to Perry under a contract whereby Perry purchased from Baron a sole proprietorship known as “Double Q Enterprises.” The contract provided that sale was for “the business enterprise known as Double Q Ranch and all ranch buildings and real estate but not of any other business ventures of Colonel Baron.” The contract included a provision that it was the complete and final statement of all understandings of the parties. In resolving the dispute between Perry and Baron, what evidence may the court exclude under the parol evidence rule?

A Evidence explaining any ambiguous term.
B A conversation at the time the agreement was signed that the parties agreed that any disputes would be resolved only by mediation.
C Evidence of subsequent modifications to the contract.
D Evidence that Colonel Baron, Perry’s uncle, exercised undue influence over Perry by assuring him that the wording was sufficient to guaranty the conveyance of mineral rights.
The correct answer was B.

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.
On August 16, Butcher Adverti-Zing Agency, LLC, offered Lloyd a summer internship beginning the following June 1st and lasting three months at a salary of $2,100 per month. Cosby, the firm’s head of human resources, advised Lloyd that he would receive confirmation of the internship and salary by mail. Lloyd did not receive the promised confirmation. When Lloyd reported for work the following June he learned that, while some of the internships were paid positions, his was not. Butcher Adverti-Zing Agency, LLC,

A will be required to pay Lloyd the promised salary.
B will not be required to pay Lloyd the promised salary because the amount in question exceeds $500.
C will not be required to pay Lloyd the promised salary because of the Statute of Frauds.
D must pay Lloyd a reasonable salary for the summer.
The correct answer was C.

The statute of Frauds requires that contracts which cannot, by their terms, be performed within one year, must be 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.
Klauss purchased a farmhouse, barns and silo, along with 152 acres from Font. Many terms of the purchase agreement, including price, repairs, and the inclusion of certain personal property were vigorously negotiated by the parties prior to the signing of a contract. Thereafter, Klauss discovered that the silo was resting on ground which was not sufficiently stable for its long term support and stability. If Klaus files suit alleging that Font failed to disclose this problem

A the parol evidence rule will preclude evidence that Font, aware of the problem, assured Klaus of the silo’s stability during contract negotiations.
B the Statute of Frauds will preclude such action because the contract involves real estate.
C Font could raise the statute of limitations as a defense if too much time has passed since Klauss discovered the condition.
D any alleged misrepresentations will be considered extinguished by the merger doctrine.
The correct answer was C.

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 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.
Kepler was indebted to Star in the sum of $3,000 under a contractual obligation which Star had previously performed. Unable to pay Star, Kepler assigned to Star an undisputed liquidated claim against Astrid which was in the amount of $3,000. With respect to Kepler’s assignment to Star

A Astrid is immediately bound by the assignment.
B Star has immediate rights against Astrid.
C Since there has been no agreement by Astrid to the assignment, the assignment is not valid.
D Star’s acceptance of the assignment constitutes full satisfaction of Star’s claim against Kepler.
The correct answer was B.

Even though Astrid is not bound by the assignment until he receives notice of it, Star has immediate rights against Astrid. Once Astrid receives notice of the assignment he is bound by it and must make payment to Star. Astrid need not consent to the assignment for it to be valid.
Comet Deli, a retail seller of fine foods, contracted with Trey Electric to install floodlights in the rear of its building to deter crime at night. Comet Deli paid Trey Electric in full for the job before work began. Trey Electric was unable to comply with the terms of the contract because its license to do business had expired due to unpaid business taxes. Diggs Dry Cleaning, whose property was adjacent to Comet Deli, stood to benefit from the new lighting. Comet Deli has decided not pursue its breach of contract claim against Trey Electric. Diggs Dry Cleaning

A could pursue the claim as an intended beneficiary.
B could pursue the claim as an incidental beneficiary.
C could pursue the claim as a third party beneficiary.
D has no standing to pursue the claim against Trey Electric.
The correct answer was D.

Even though Diggs Dry Cleaning stood to benefit from Trey Electric’s performance, Diggs has no standing to pursue the claim against Trey Electric because Diggs is merely an incidental beneficiary of the contract. For one who is not a party to a contract to enforce the contract, s/he must be 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.
James hired Guido, an independent contractor and professional bricklayer, to construct an outdoor patio and brick fireplace at James’s summer home. The contract required the job be completed before July 1st. Because Guido had lined up more bricklaying jobs than he would be able to complete, he assigned the contract to Phillipe, an experienced brickmason. James

A can require Guido to return any deposit paid by James.
B can require Guido to perform the contract, relying upon court ordered specific performance.
C cannot recover from Guido if Phillipe fails to complete the patio and fireplace by July 1.
D must accept performance from Phillipe.
The correct answer was D.

Since the contract does not involve unique personal services, the obligor (Guido) can assign his obligation to another party to perform. This will not, however, excuse Guido from his duty to perform. But if the assignee, Phillipe, fully performs, James must pay the agreed price.
Thirteen months ago Harris, Emma’s father, convinced Emma to sign a contract to further Emma’s tennis career. Under the contract, Harris would be paid an unusually high agent’s fee. Emma was 24 years old at the time. To void this contract, Emma’s best argument would be based upon

A the statute of limitations.
B the Statute of Frauds.
C undue influence.
D duress.
To void the contract as having been made under undue influence, Emma could show the existence of a trust relationship (her father) and an abuse of that trust (excessive fees). Other defenses would be less viable: Proof of duress would require evidence of physical coercion. The statute of limitations would not apply because the contract is only 13 months old, and statutes of limitations go to enforceability rather than validity of a contract. The statute of frauds would not be a defense since Emma signed the contract.
In the early morning hours of January 2nd, thieves broke into the offices of Sirius Shredders, LLC, and made off with equipment valued at over $100,000. Sirius Shredders, LLC, placed an ad in the local newspaper the following morning offering a $5,000 reward for information leading to the return of the equipment. Yancy located the missing equipment and advised Sirius Shredders, LLC, of its whereabouts. Which is correct?

A Yancy would not be entitled to the reward if he was unaware of the reward.
B A contract was created when Yancy agreed to locate the equipment.
C An offer of a reward creates a bilateral contract if accepted by an offeree.
D Sirius Shredders, LLC, could not withdraw the reward once it was offered.
The correct answer was A.

An offer of a reward is a unilateral offer which means that it can only be accepted by performance. A unilateral offer can be withdrawn before acceptance in most instances.
Stephens, while home from work recovering from the flu, received a telephone call from Cyprus Country Club offering him a full membership for $1,000. Stephens was told that this was a one day special promotion. Stephens knew that full memberships to this prestigious club were generally sold for about $12,000. Stephens accepted the caller’s offer. Later that day, a representative from Cyprus called Stephens and advised that the caller had made a mistake and that the offer should have been for $10,000 rather than $1,000. Which is correct?

A Cyprus Country Club will be bound only if Stephens had put his check in the mail prior to receiving the second telephone call.
B Cyprus Country Club will be bound because Cyprus made the mistake, not Stephens.
C Cyprus Country Club will not be bound because Stephens should have realized the caller was making a mistake.
D Cyprus Country Club will be bound, but the amount of the discounted fee will be set by a court.
The correct answer was B.

This is an example of unilateral mistake. If one of the parties to a contract acts under a mistaken belief, the mistaken party 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.
Brant entered into a contract with Lorne to purchase Lorne’s pest control business, X-Terminator, Inc. With respect to this contract, which of the following statements would be true?

A If the sale includes real estate, the contract is void unless it is in writing and signed by the parties.
B If the contract gives Brant the option to pay cash or make payments over a period of five years, the contract must be in writing and signed by Brant to be enforceable against Brant.
C If Brant signs the contract but Lorne does not, the contract will be enforceable against Brant even if it includes the transfer of real estate.
D If Brant is a minor, either party may void the contract.
The correct answer was C.

A contract which must be in writing to be enforceable can be enforceable against one of the parties and not the other if 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.
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.
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.
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.
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.
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.
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.
Weir, Incorporated, Research Enterprises (WIRE) was hired by Bristol Bank to conduct a detailed review and assessment of the Bank's delinquent consumer loans. The review was expected to take eight months. After six months, WIRE requested a 5% increase in the agreed fee in order to "assure the completeness of our review." The Bank initially balked at the request, but later agreed when WIRE advised that the extra fee was necessary "to get the job done right." Bristol Bank

A is obligated to pay WIRE the additional 5% fee, but only if it agreed to it in writing.
B must pay WIRE the additional fee even if there is no signed agreement.
C is NOT obligated to pay the additional 5% fee to WIRE regardless of a signed agreement.
D must pay WIRE the additional 5% fee as long as it is reasonable under the circumstances.
The correct answer was C.

Since Bristol Bank is not receiving any new consideration for the additional 5% fee to WIRE, it is not obligated to pay the additional fee. 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.
Jake received goods at his warehouse which he purchased form Pennington, FOB Jakes loading dock. delivery was received on a Friday, shortly after noon. Jake was, however, was unable to open the boxes and take count of the items until the following Tuesday due to his busy schedule. Over the weekend, thieves broke into Jakes warehouse and opened some of the boxes received from Pennington. Jake asserts that several items are missing from the shipment. Pennington, who learned of the break-in, asserted that the shipment was complete as contracted and that thieves must have stolen the items. Which of the following statements is correct under UCC article 2?

A Pennington has the burden of proof that thieves stole the items.
B Jake has accepted the items and therefore must pay the contract price.
C Although Jake has the burden of proof regarding any theft, Pennington would be liable for the missing items on the basis of breach of warranty.
D Although Jake has accepted the goods, he may revoke his acceptance if he does so immediately.
The correct answer was B.

Jake has accepted the shipment even though he had not inspect ed it until Tuesday since he has had a reasonable opportunity to inspect. Once acceptance occurs the buyer must pay the contract price for any goods accepted.
Harvey Marine Supply, Inc., in a written and signed contract with Williams, agreed to supply Williams all the fuel for his three ship fleet for the upcoming Codfish season at a price of $2.99 per gallon. One week prior to the start of the season, Harvey Marine Supply, Inc., faxed Williams a note stating that Due to the age of our fuel storage tanks, we will not be selling any fuel during the upcoming cod season. We apologize for any inconvenience. Which of the following statements is correct. Harvey Marine Supply, Inc.s letter

A constitutes an anticipatory repudiation of its contract, entitling Williams for file suit for damages before the fishing season begins.
B gives rise to a valid claim by Williams for punitive damages.
C is not a breach of contract since the amount of fuel has not been agreed to.
D would give Williams a grounds for claiming damages, but no right to require Harvey Marine Supply, Inc., provide adequate assurance of future performance.
The correct answer was A.

Any statement by a party to a contract of an unwillingness or inability to perform the contract constitutes an anticipatory repudiation (breach) of the contract, entitling the nonbreaching party to file suit immediately, or to demand adequate assurance of performance.
Billings Steel Company is negotiating a contract with FXX Railways set rates for the high grade steel produced at its Billingstown mill. One of the issues that has arisen is whether the parties can include a provision in the contract relating to dispute resolution which alters the statute of limitation (time for filing suit). Noel and Co., CPAs has correctly advised the parties that the statute of limitations

A is a state law which cannot be altered by contracting parties.
B can be altered to less than four, but not less than one, year.
C can be eliminated altogether.
D can be reset to between one year and five years.
The correct answer was B.

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 not more than four, nor less than one, year.
Kline offered in writing to sell 1.3 acres of undeveloped commercial real estate to Rolfe for $66,000. The offer stated that it would remain open for 14 days "to provide Rolfe an opportunity to fully consider the terms." Kline's offer

A will terminate if Kline withdraws the offer on day 12.
B is an option contract since Kline has agreed not to withdraw his offer for 14 days.
C may be accepted by Rolfe on day 7 even if Kline dies on day 3.
D may be accepted by Rolfe on day 13 at the original price of $66,000 even if Rolfe made a counteroffer of $60,000 on day 2.
The correct answer was A.

Kline's offer is not supported by any consideration being received from Rolfe and is therefore not an option contract. Thus, Kline's offer may be withdrawn at any time prior to acceptance regardless of the mention of 14 days. The offer would also be terminated if Kline, the offeror, died prior to acceptance by Rolfe. Likewise, a counteroffer by Rolfe terminates Kline's offer, so that subsequent "acceptance" by Rolfe (after Rolfe's counteroffer) would in effect be a new offer, which Kline could then accept (or not).
Bean Management Group, which is in the business of managing medical practices, includes in its management contracts a clause whereby its clients agree not to hold Bean Management liable for negligence by Bean employees. Such a clause is commonly known as

A an exculpatory clause.
B an indemnity provision.
C an ipso fact clause
D a penalty clause.
The correct answer was A.

A clause in a contract whereby one of the parties is exonerated (held harmless) for his/her own negligence is known as an exculpatory clause. Such clauses are generally unenforceable in consumer contracts, but are permitted in contracts between businesses.
Gordon Enterprises contracted with Preston under a written agreement whereby Preston agreed to install a security alarm system in a new commercial building which Gordon Enterprises was constructing. Even though the contract specified that Preston use wiring manufactured by US Wire, Preston instead used comparable wire manufactured by Fischer, Inc. With respect to a breach of contract claim by Gordon Enterprises against Preston, which is correct?

A Preston will NOT be require to remove and replace the wiring if it would be economically unfeasible to do so.
B Preston will only be liable for damages if its failure to use US Wire was intentional.
C The proper measure of damages is the cost of replacing the incorrect wire.
D Damages will only be awarded if a liquidated amount is specified in the contract.
The correct answer was A.

The correct measure of damages for breach of contract is the difference between the value of the alarm system that Preston actually installed versus the value of the system he should have installed. Courts will not require a breaching party to pay damages which are not economically feasible. Requiring Preston to pay for removing walls, etc, in order to replace wiring which is adequate would be unreasonable. A contract may provide liquidated damages as long as they are reasonable.
Quinn offered to provide Lancaster with computer programming services which would allow Lancaster to fully automate his deliveries. The agreement was reduced to writing and signed by both parties. Thereafter, Quinn requested the agreement be modified to extend the time for completion and to increase the payment to Quinn. If the modifications were made in an addendum signed by both parties, which is correct with respect to the modifications?

A Only the agreement to increase the price is enforceable.
B Only the agreement to extend the time is enforceable.
C Both the price and time modifications are enforceable.
D Neither the price nor the time modifications are enforceable.
The correct answer was D.

A contract can only be modified if new consideration flows to both parties. In this case, the time extension and the price increase benefit only one party (Quinn). Therefore, even though the parties signed an addendum, the addendum would be unenforceable due to lack of consideration. (Note that the rules are different for modifications of contracts involving the sale of goods.)