Contracts

MC Questions
1. Seller delivers goods to Buyer who agrees to pay the $5,000 price in 60 days.
Seller transfers its right to receive the price to Bank at a 10% discount. Which of
the following is false?
A. Seller is obligated to pay the assignee in the event the obligor fails to pay,
unless the assignment was specifically without recourse.
B. After notice of the assignment, Bank (the assignee) can sue Buyer directly
if Buyer does not pay.
C. Seller (the assignor) has no right to make further assignments or collect
payments for its own benefit.
D. Upon receipt of notice of the assignment, Buyer (the obligor) must pay
Bank to discharge its obligations.
2. In September, Cobb Company contracted with Thrifty Oil Company for the
delivery of 100,000 gallons of heating oil at the price of $.75 per gallon at regular
specified intervals during the forthcoming winter. Due to an unseasonably warm
winter, Cobb took delivery of only 70,000 gallons. In a suit against Cobb for
breach of contract, Thrifty will
A.
Win, because this is a requirements contract.
B. Win, because the change of circumstances could have been contemplated
by the parties.
C. Lose, because Cobb acted in good faith.
D. Lose, because both parties are merchants and the UCC recognizes
commercial impracticability.
3. On June 1, 20X1, Decker orally guaranteed the payment of a $5,000 note
Deckers cousin owed Baker. Deckers agreement with Baker provided that
Deckers guarantee would terminate in 18 months. On June 3, 20X1, Baker wrote
Decker confirming Deckers guarantee. Decker did not object to the confirmation.
On August 23, 20X1, Deckers cousin defaulted on the note and Baker demanded
that Decker honor the guarantee. Decker refused. Which of the following
statements is true?
A. Decker is liable under the oral guarantee because Decker did not object to
Bakers June 3 letter.
B. Decker is not liable under the oral guarantee because it expired more than
1 year after June 1.
C. Decker is liable under the oral guarantee because Baker demanded
payment within 1 year of the date the guarantee was given.
D. Decker is not liable under the oral guarantee because Deckers promise
was not in writing.

4. Mary agrees to sell her home to Marisol for $100,000. The contract is silent
regarding the time of payment and the time of delivery of the deed. Thus,
payment or tender of the price is a condition of tender or delivery of the deed and
vice versa. The conditions involved are
A.
B.
C.
D.

Implied in law.
Subsequent.
Implied in fact.
Express.

5. Bill Cratchett leased an apartment from Grendel. Cratchett was a person of

limited means in a locality where low-income housing was scarce. Shortly after
signing the agreement, he fell in an unlit stairwell when a step unexpectedly gave
way. In a suit for damages, Grendel relied on a clause in the lease stating, Tenant
agrees to hold Owner harmless from any claims for damages no matter how
caused. Cratchett should
A. Lose because exculpatory clauses are usually upheld in the interest of
freedom of contract.
B. Win because the exculpatory clause was unenforceable as a violation of
public policy.
C. Lose because nothing indicates that the lease was unconscionable as a
whole.
D. Win because the lease was a contract of adhesion.
6. Phil Fairbanks was approached by Nickle Corporation to write the history of
Nickle for $15,000. The president of Nickle told Fairbanks the job was his if he
would agree to cleverly defame Nickles leading competitor, Mogul Corporation,
using sly innuendo and clever distortion of the facts. Fairbanks wrote the history.
It turned out that the Mogul passages were neither sly nor clever, although they
were defamatory, and Mogul obtained a judgment against Nickle. Fairbanks is
seeking to collect the final $5,000 installment of the contract. Nickle refuses to
pay and seeks to recover the $10,000 it has paid. In the event of a lawsuit,
A.
B.
C.
D.

Fairbanks will recover in quantum meruit for the value of his services.
The court will deny relief to either Fairbanks or Nickle.
Nickle will recover $10,000.
Fairbanks will recover $5,000.

7. On June 15, 20X1, Alpha, Inc. contracted with Delta Manufacturing, Inc. to buy a
vacant parcel of land Delta owned. Alpha intended to build a distribution
warehouse on the land because of its location near a major highway. The contract
stated: Alphas obligations hereunder are subject to the vacant parcel being
rezoned to a commercial zoning classification by July 31, 20X2. Which of the
following statements is true?

A. If the parcel is not rezoned by July 31, 20X2, and Alpha refuses to
purchase it, Alpha would not be in breach of contract.
B. If the parcel is rezoned by July 31, 20X2, and Delta refuses to sell it,
Deltas breach would not discharge Alphas obligation to tender payment.
C. The contract is not binding on either party because Alphas performance is
conditional.
D. If the parcel is rezoned by July 31, 20X2, and Alpha refuses to purchase it,
Delta would be able to successfully sue Alpha for specific performance.
8. Kay, an art collector, promised Hammer, an art student, that if Hammer could
obtain certain rare artifacts within 2 weeks, Kay would pay for Hammers
postgraduate education. At considerable effort and expense, Hammer obtained the
specified artifacts within the 2-week period. When Hammer requested payment,
Kay refused. Kay claimed that there was no consideration for the promise.
Hammer would prevail against Kay based on
A.
B.
C.
D.

Quasi-contract.
Unjust enrichment.
Unilateral contract.
Public policy.

9. Steele, Inc. wanted to purchase Kalps distribution business. On March 15, 20X2,
Kalp provided Steele with copies of audited financial statements for the period
ended December 31, 20X1. The financial statements reflected inventory in the
amount of $1.2 million. On March 29, 20X2, Kalp discovered that the December
31 inventory was overstated by at least $400,000. On April 3, 20X2, Steele,
relying on the financial statements, purchased all of Kalps business. On April 29,
20X2, Steele discovered the inventory overstatement. Steele sued Kalp for fraud.
Which of the following statements is true?
A. Steele will lose because Kalp was unaware that the inventory valuation
was incorrect at the time the financial statements were provided to Steele.
B. Steele will prevail but will not be able to sue for damages.
C. Steele will lose because it should not have relied on the inventory
valuation in the financial statements.
D. Steele will prevail because Kalp had a duty to disclose that the inventory
value was overstated.
10. Axel rented from Lester a room overlooking the main thoroughfare of Coastal
City. The purpose of the transaction, known to Lester, was to provide Axel with a
view of a large parade that was a highlight of the holiday season. Unexpectedly, a
late season hurricane struck Coastal City, causing cancelation of the event. Axel
refuses to pay the agreed rental. If Lester sues, who should prevail?
A. Lester, because the subject matter of the contract was not destroyed.

B. Lester, because the lease was commercially practicable.

C. Axel, because the contract was impossible to perform.
D. Axel, because of frustration of purpose.
11. With regard to an agreement for the sale of real estate, the statute of frauds
A. Does not apply if the value of the real estate is less than $500.
B. Requires that the purchase price be fair and adequate in relation to the
value of the real estate.
C. Does not require that the agreement be signed by all parties.
D. Requires that the entire agreement be in a single writing.
12. Jones, CPA, entered into a signed contract with Foster Corp. to perform
accounting and review services. If Jones repudiates the contract prior to the date
performance is due to begin, which of the following is false?
A. Foster could successfully maintain an action for breach of contract prior to
the date performance is due to begin.
B. Foster can obtain a judgment for the monetary damages it incurred as a
result of the repudiation.
C. Foster can obtain a judgment ordering Jones to perform.
D. Foster could successfully maintain an action for breach of contract after
the date performance was due to begin.
13. Which of the following statements correctly applies to a typical statute of
limitations?
A. The statute limits the right of a party to recover damages for
misrepresentation unless the false statements were intentionally made.
B. The statute prohibits the admission into evidence of proof of oral
statements about the meaning of a written contract.
C. The statute provides that only the party against whom enforcement of a
contract is sought must have signed the contract.
D. The statute requires that a legal action for breach of contract be
commenced within a certain period of time after the breach occurs.
14. A CPA was engaged by Jackson & Wilcox, a small retail partnership, to audit its
financial statements. The CPA discovered that, because of other commitments, the
engagement could not be completed on time. The CPA therefore unilaterally
delegated the duty to Vincent, an equally competent CPA. Under these
circumstances, which of the following is correct?
A. Jackson & Wilcox must accept the delegation if Vincent is equally
competent.
B. The duty to perform the audit engagement is nondelegable, and Jackson &
Wilcox need not accept Vincent as a substitute.

C. If Jackson & Wilcox refuses to accept Vincent because one of the partners
personally dislikes Vincent, Jackson & Wilcox has breached the contract.
D. The duty to perform is delegable in that it is determined by an objective
standard.
15. All of the following are effective methods of ratifying a contract entered into by a
minor except
A. Impliedly ratifying the contract after reaching the age of majority.
B. Ratifying the contract before reaching the age of majority.
C. Failing to disaffirm the contract within a reasonable time after reaching the
age of majority.
D. Expressly ratifying the contract after reaching the age of majority.
16. If a buyer accepts an offer containing an immaterial unilateral mistake, the
resulting contract will be
A.
B.
C.
D.

Valid as to both parties.

Void as a matter of law.
Void at the election of the buyer.
Voidable at the election of the seller.

17. Union Bank lent $200,000 to Wagner. Union required Wagner to obtain a life
insurance policy naming Union as beneficiary. While the loan was outstanding,
Wagner stopped paying the premiums on the policy. Union paid the premiums,
adding the amounts paid to Wagners loan. Wagner died and the insurance
company refused to pay the policy proceeds to Union. Union may
A. Recover the policy proceeds because it is a creditor beneficiary.
B. Recover the policy proceeds because it is a donee beneficiary.
C. Not recover the policy proceeds because it is only an incidental
beneficiary.
D. Not recover the policy proceeds because it is not in privity of contract with
the insurance company.
18. In which of the following situations does the first promise serve as valid
consideration for the second promise?
A. A debtors promise to pay $500 for a creditors promise to forgive the
balance of a $600 liquidated debt.
B. A debtors promise to pay $500 for a creditors promise to forgive the
balance of a $600 disputed debt.
C. A police officers promise to catch a thief for a victims promise to pay a
reward.
D. A builders promise to complete a contract for a purchasers promise to
extend the time for completion.

19. When there has been no performance by either party, which of the following
events generally will result in the discharge of a partys obligation to perform as
required under the original contract?
A.
B.
C.
D.

Accord and satisfaction

No
Yes
No
Yes

Mutual rescission
No
Yes
Yes
No

20. On April 6, Apple entered into a signed contract with Bean, by which Apple was
to sell Bean an antique automobile, having a fair market value of $150,000, for
$75,000. Apple believed the auto was worth only $75,000. Unknown to either
party, the auto had been destroyed by fire on April 4. If Bean sues Apple for
breach of contract, Apples best defense is
A.
B.
C.
D.

Unconscionability.
Lack of adequate consideration.
Risk of loss borne by Bean.
Mutual mistake.