Business Law Exam 4

Question 1

A lender who makes a loan at a rate above the lawful maximum commits usury.

Answer 1

True

Question 2

The maximum rate of interest is the same in every state.

Answer 2

False

Question 3

A blue law is a state statute that prohibits the formation or performance of certain contracts on Sunday

Answer 3

True

Question 4

If the underlying purpose of a licensing statute is to raise revenues, then a contract with an unlicensed professional will normally be enforceable.

Answer 4

True

Question 5

If a person enters into a contract with an unlicensed professional, the contract will always be unenforceable.

Answer 5

False

Question 6

A contract may not be enforceable because of the negative impact it would have on society.

Answer 6

True

Question 7

A contract in restraint of trade is never enforceable

Answer 7

False

Question 8

Covenants not to compete are always struck down because they are unreasonable restraints of trade

Answer 8

False

Question 9

A contract in which the stronger party dictates the terms is an adhesion contract.

Answer 9

True

Question 10

An exculpatory clause on a ticket to a ride in an amusement park is enforceable.

Answer 10

True

Question 11

Overestimating the value of an object being bought is a mistake for which a court will normally provide relief.

Answer 11

False

Question 12

If the subject matter of a contract turns out to be more valuable than one of the parties believed it would be, that party can rescind the contract.

Answer 12

False

Question 13

If a contract is tainted by fraud, the innocent party may enforce the contract and seek damages for any injuries resulting from the fraud.

Answer 13

True

Question 14

Reliance on a statement of opinion by a non-expert will generally entitle the party who relied on the statement to relief.

Answer 14

False

Question 15

Scienter exists if a party makes a statement that he or she does not believe is true.

Answer 15

True

Question 16

Reliance on a misrepresentation is not justified if the misrepresentation is an obviously extravagant statement.

Answer 16

True

Question 17

Undue influence typically arises in a situation in which there is a family or fiduciary relationship between the parties.

Answer 17

True

Question 18

Under the Statute of Frauds, a contract that is not in writing is void.

Answer 18

False

Question 19

An oral contract for a transfer of land is never enforceable.

Answer 19

False

Question 20

When the terms of a written agreement are clear, and there is no fraud or deceit, the parol evidence rule bars oral evidence that contradicts those terms.

Answer 20

True

Question 21

A third party beneficiary contract is formed when the parties to a contract intend to confer a benefit on a third party.

Answer 21

True

Question 22

Banks may assign their loan contracts to other firms.

Answer 22

True

Question 23

The rights under a contract for personal service normally can be assigned.

Answer 23

False

Question 24

As a general rule, any duty can be delegated.

Answer 24

True

Question 25

An intended beneficiary is entitled to sue the promisor directly to enforce his or her promise.

Answer 25

True

Question 26

Dave signs a contract with Mac to kill a prominent official but refuses to go ahead with the job after having been paid a substantial sum of money by Mac. Mac can

Answer 26

c. not enforce the contract in a court.

Question 27

Jane, an accountant, convinces her elderly client Howard to sign a contract to give her his life savings as part of a phony investment scheme. When Howard learns the truth, he may

Answer 27

c. enforce the contract or recover what he gave to Jane.

Question 28

Paula and Quinn contract for the sale of Paula’s horse for $1,000. Unknown to either party, the horse has died. Quinn is

Answer 28

b. not required to pay due to the mutual mistake.

Question 29

Mike and National Computer Service (NCS) enter into an oral contract under which Mike agrees to program computers for NCS for two years. This contract is

Answer 29

d. not enforceable.

Question 30

Rob’s transfer of rights he has under a contract with Sam to Tina is

Answer 30

b. an assignment.

Question 31

Delegation Essay

Answer 31

The delegator is NOT relieved of her responsibility to perform.
If the performance is “bad,” the obligee can sue:
The delegetee
or
The delegator

Question 32

One Year Rule Essay

Answer 32

A contract that cannot, by its own terms, be performed within one year from the date it was formed must be in writing to be enforceable.
The one-year period begins to run the day after the contract is made

Question 33

Mistake Essay

Answer 33

An erroneous belief about a material fact concerning the subject matter of the contract
No relief when the mistake involves an erroneous opinion or judgment
Unilateral mistake
A unilateral mistake is where only one party to a contract is mistaken as to the terms or subject-matter contained in a contract.
Courts will generally uphold the contract.
Bilateral (mutual) mistake
A bilateral or mutual mistake occurs when the parties to a contract are both mistaken but about the same material fact within their contract.
The contract is void.
Collateral mistakes will NOT afford the right of rescission. A collateral mistake is one that ‘does not go to the heart’ of the contract.

Question 34

Promissory Estoppel Essay

Answer 34

(1) A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
(2) A charitable subscription or a marriage settlement is binding under Subsection (1) without proof that the promise induced action or forbearance.

Elements

In general, the elements of promissory estoppel are:

1) a promise reasonably expected by the promissor to induce action or forbearance,
2) action or forbearance by the promisee in justifiable reliance on the promise (i.e. “detrimental reliance”), and
3) injustice can be avoided only through enforcement of the promise.

Remedy

The available remedy is usually limited to only that which is necessary to avoid injustice.

Question 35

A sells his business to B for $50,000, and in consideration of $10,000 more, agrees not to engage in a similar business again anywhere in the State. What result?

Answer 35

The second agreement is illegal, because it is an unnecessary restraint of trade, but as it rests on a separate consideration and can be separated from the legal part, the agreement to sell the business may be enforced.

Question 36

B agrees to pay A $50,00 in exchange for A’s business. A also agrees not to engage in business in the State. What result?

Answer 36

The whole agreement falls. The contract is indivisible, it would be impossible to say how much of the $50,000 was for the sale of the business and how much for the agreement not to engage in the business again.

Question 37

For instance, a marriage broker induces an ignorant foreigner to pay him money to secure a wife for the latter.

Answer 37

The court will permit the foreigner to recover the money, holding that the parties are not in equal guilt, since the foreigner is ignorant and has been induced by the broker’s superior ability to part with his money.

Question 38

Don agrees to sell to Jill, for $150, a 150-acre parcel of land in the desert that they both believe to be worthless but which in fact sits on top of a huge oil deposit. The contract is:

Answer 38

c. enforceable.

Question 39

Steven, who is Wesley’s guardian, convinces Wesley that buying a certain parcel of land from Steven’s brother-in-law at a price that is greatly inflated is a good deal. If in fact it is not a good deal, Steven may be liable for:

Answer 39

d. undue influence.

Question 40

In selling networking software to Wide World Sales Corporation, Beth tells Wide World’s purchasing agent that the software is “excellent.” This is:

Answer 40

c. puffery.

Question 41

Rob owns two motorcycles, worth $1,000 and $500, respectively. Rob and Sally enter into a contract for the sale of “Rob’s motorcycle” for $750. Rob believes, in good faith, that he is selling the $500 motorcycle while Sally believes, also in good faith, that she is buying the $1,000 motorcycle. Due to their mistake:

Answer 41

d. there is no contract.

Question 42

I agree to buy your car for $5,000 but only if my mechanic can inspect the car first. You agree and quickly draft a contract of sale that we both sign. The contract does not reference our agreement regarding an inspection. I take the car to my mechanic who, after a lengthy inspection, advises me not to buy it. You sue. You move to suppress evidence of our oral agreement regarding the inspection. What result?

Answer 42

The agreement admissible.

Question 43

Curtis gave Jeanette, a well-known portrait artist whose work he admired, a prepaid fee of $2,000 to paint a portrait of his wife from a favorite photograph. When Curtis saw the completed portrait, however, he did not like it and noticed that the style was nothing like Jeanette’s. When Curtis questioned Jeanette, she informed him that her work load had been heavy when she agreed to paint the portrait, so she had let one of her students paint it for her. She refused to return the $2,000. Curtis sued to recover the prepaid fee, claiming that he had hired only Jeanette and no one else to paint the portrait. Could Curtis win his suit?

Answer 43

Curtis could win the suit. Portrait painting by a recognized artist is not an assignable duty because the party who contracts with the artist presumes to have bought a special or unique skill that no one else has. In theory at least, Jeanette’s artistic skill could not be duplicated by anyone else, so she had no right to assign her duty to paint the portrait without the express knowledge and consent of Curtis.

Question 44

John’s Auto Supply had a contract with Belted Tire Company to purchase 50 tires a month at a specified price. Belted Tire Company was to deliver the tires to John’s Auto Supply on the 15th of each month. After several months, John’s Auto Supply sold its right to purchase the tires to a body shop in a town that was 60 miles away, which meant that Belted Tire Company would have to drive 60 miles further (or 120 miles round-trip) to deliver the tires. Belted Tire Company could not do this and maintain its schedule of other delivery commitments, so it sued John’s Auto Supply to have the assignment overturned. John’s Aut9 Supply responded that it had the right to transfer its right to purchase to a third party. Who won?

Answer 44

Belted Tire Company won the case. John’s Auto Supply did have the right to assign its right to purchase to a third party, but not if it would materially change the burden of the obligor. In effect, Belted Tire Company would have been required to give a performance different from that which it contracted to make; therefore, the assignment was not allowable.

Question 45

Carson Manufacturing had a contract with Casco Company to receive shipments of machine tools every month for a period of one year. After two months, Carson Manufacturing found it necessary to cut back its operations, so it assigned its right to receive the machine tool shipments to Bessemer, Inc. Bessemer, Inc., notified the Casco Company that further shipments were to be made to their warehouse. For three months, Casco Company made the deliveries, but then it went out of business. Bessemer, Inc., was unable to find another supplier, so it 9rought suit to have Carson Manufacturing find them another supplier, claiming that Carson Manufacturing bore the ultimate responsibility for Casco Company’s failure to fulfill the contract. Would Bessemer, Inc., win the suit?

Answer 45

Bessemer, Inc., would not win the suit. Carson Manufacturing would not be held liable for the failure of Casco Company to fulfill the contract. When rights are assigned, an implied warranty exists between the assignor and assignee, put that warranty does not extend to any liability for the performance or lack of performance of the obligor. Bessemer, Inc., however, “stands in the shoes” of the assignor (Carson Manufacturing) and would be allowed to seek any damages from Casco Company.

Question 46

Esther bought a life insurance policy for $50,000 from a vending machine in an airport lounge just before she boarded a flight. In her hurry, she forgot to name a beneficiary on the insurance form before turning it in. Unfortunately, an hour after takeoff, the plane crashed and Esther was killed. Some of her belongings were found and sent to her daughter, Joanna. Among them was a copy of the insurance policy. Joanna contacted the insurance company and claimed the money on the grounds that she was Esther’s only living relative. However, the insurance company refused to pay her, claiming that she was not named as a beneficiary on the policy. Would the company’s argument be upheld in court?

Answer 46

The company’s argument would not be upheld in court. Joanna could make a valid claim to be the third-party beneficiary of the insurance policy even though she was not named in the policy. The policy could only have been taken out for the benefit of someone other than Esther herself and, even though no beneficiary was expressly named, there clearly was intended to be a beneficiary. As Esther’s only living relative, Joanna is entitled to the money.

Question 47

Reuben sold his car to Carol for $2,000, payable in six months. In three months, however, Reuben needed cash, so he sold the right to collect this debt to Sam for $1,500. Carol, however, paid Reuben the $2,000 before she was notified that Reuben had sold Sam the right to collect the debt. Could Sam sue Carol to collect the debt under these circumstances?

Answer 47

Answer: Sam could not sue Carol to collect the debt under these circumstances. An assignment of a right is binding on the obligor only if the obligor is notified of the assignment. Since Carol paid Reuben the $2,000, believing that Reuben still had the right to collect the debt, she would not be required to pay the money twice. Sam would have the right, however, to sue Reuben for the $2,000 if refused to turn it over to him. Sam could have protected himself from this type of situation by notifying Carol of the assignment.

Question 48

Martha sold her house trailer to Agnes for $10,000, payable in One Monday, soon afterwards, Martha needed cash, so she’ sold the right to col1ectt to James for $9,500, On the next day, Tuesday, Martha dishonestly sold the right to collect the same debt to Charles for $9,000. On Wednesday, Charles notified Agnes that the right to collect the debt was now his. On Thursday, however, James notified Agnes that he too had the right to collect the debt. To whom should Agnes pay the $10,000?

Answer 48

Answer: The majority position on this question in the United States is that the first person to whom a debt is assigned has the right to collect it. This is called the “American First in Time” rule. Under this rule, James would have the right to collect the debt since he was the first one to whom Martha assigned that right. A few states, however, still follow an English practice called the “English First to Notify” rule. Under this rule, the first assignee who notifies the debtor of the assignment has the right to collect the debt. If this rule were applied in this case, Charles would have the right to collect Agnes’s debt.