Business and Ethics Test 3 Ch. 10

An otherwise valid contract maybe unenforceable if the parties have not genuinely agreed to its terms. True or False?
True False

Generally a party who demonstrates that he or she did not truly agree to the terms of a contract does NOT have one of the following choices:
A) Rescind (cancel) the contract.
B) Carry out the contract.
C) Sue under the statue of limitations.

Contract law allows a contract to be ___ on the basis of mistake.
Only a mistake of ___ makes a contract voidable.
The mistake must involve some ___ fact.

A mistake made by both parties. If both parties are mistaken about a material fact, such as the identity of the subject matter, either party can avoid the contract. If the mistake relates to the value or quality of the subject matter, either party can enforce the contract.

A mistake made by only one of the parties. Generally, the mistaken party is bound by the contract, unless the other party knows or should have known of the mistake, or the mistake is an inadvertent mathematical error in addition, subtraction, or the like that is committed without gross negligence.

Alicia offers to sell a purebred cat for $200. Neither Alicia not the buyer discusses the cat's ancestry, but the buyer believes that it comes from a championship line and agrees to the price. Upon discovering that the cat is only worth $50, can the buyer rescind the contract based on her mistake?
A) Probably yes, because the buyer made a mistake about a material fact.
B) Yes, because the cat was clearly not worth $200.
C) Probably not, because the buyer made a mistake about the cat's value, not a mistake about a material fact.

When both parties are mistaken about a material fact, ___ party can avoid the contract.
In a bilateral mistake situation, if the mistake relates to the value or quality of the subject matter, either party can ___ contract.
If the parties to a contract attach material different meanings to a term, a court may allow the contract to be ___ because there has been no true "meeting of the minds."

When parties form a contract, their agreement establishes the value of the object of their transaction, not only for the moment, but for several years in the future. True or False?
True False

When an innocent party is fraudulently induced to enter into a contract, the contract normally can be avoided because that party has voluntarily consented to its terms. True or False?
True False

When a party is fraudently induced into a contract, that party can ___.
Misrepresentations of a material fact can be made by __.

What is NOT an element of fraud.

Beatrice sells Claudia an exotic bird that Beatrice knows is on the endangered species list, but tells Claudia that it isn't. When the government confiscates the bird and fines her, Claudia sues Beatrice for...

A contract entered into under excessive or undue influence lacks voluntary consent and is therefore voidable. True or False?
True False

Which of the following classes of individuals are NOT usually susceptible to undue influence.
A) Those attending community college
B) Those under the care of psychologists
C) Minors
D) Elderly people
E) Those under the care of physicians
F) Those under the care of psychiatrists
H) Mentally incompetent people

Duress is both a defense to the enforcement of a contract and a ground for the rescission of a contract. True or False?
True False

The use of threats to force a party to enter into a contract is referred to as...

In most contracts, promises of performance are not expressly conditioned or qualified; instead, they are absolute promises.
True False

A termination of an obligation. In contract law, discharge occurs when the parties have fully performed their contractual obligations or when events, conduct of the parties, or operation of the law releases the parties from performance.

A possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract.

In contract law, the fulfillment of one's duties arising under a contract with another.

The most common way to terminate contractual duties is by:
A) Rescission
B) Novation
C) Performance

The duty to perform under a contract...

An assertion or action by a party indicating that he or she will not perform an obligation that the party is contractually obligated to perform at a future time.

The failure, without legal excuse, of a promisor to perform the obligations of a contract.

An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.

The two basic types of performance are:
A) Complete and substantial
B) Remote and local
C) Future and past

Most contracts require that all aspects be completed as expressly stated in the contract. Any deviation from strict performance breaches the contract and ___ the other party's obligations to perform.

The Basic Requirements for Performance to Qualify as Substantial Performance:
1. The party must have performed in good faith. ___ failure to comply with the contract terms is a ___ of the contract.
2. The performance must not vary greatly from the performance promised in the contract. An ___, variance, or defect in performance is considered minor if it can easily be ___ by compensation (monetary damages).
3. The performance must create substantially the same ___ as those promised in the contract.

Power Construction builds a new house for Sonja. In the contract, all of the windows must be made by Pella. Power, unable to find all the Pella windows needed, installs comparable windows from a competing window company. If Sonja refuses to pay Power, a court might decide that:
A) Sonja is not required to pay Power because performance deviated from the contract.
B) Sonja would have to pay the contract price in full because Power acted in good faith and its performance was substantial.
C) Sonja would only have to pay half of the contract price

Some contracts specify that the contract need to be performed to the satisfaction of another. The "other: is typically a(n)...

In the case of a material breach of contract,
A) The parties must cancel the contract and create a new one.
B) The breaching party has a cause of action to sue for damages resulting from the breach.
C) The nonbreaching party has the right to sue for damages resulting from the breach.

Anticipatory repudiation can occur when:
A) One party experiences a sudden increase in business that makes it worthwhile to drop an existing valid contract.
B) A discharge by agreement is fully accepted.
C) Sharp fluctuations in market prices make it extremely difficult to perform as promised.

The substitution by agreement, of a new contract for an old one, with the rights under the old one being terminated. Typically, there is a substitution of a new person who is responsible for the contract and the removal of an original party's rights and duties under the contract.

An agreement between the parties to cancel their contract, releasing the parties from further obligations under the contract. The object of this new agreement is to restore the parties to the positions they would have occupied had not contract ever been formed.

The release of a debtor from all debts that are provable, except those specifically expected by statue from discharge.

Requirements for a Novation:
1. A ___ valid obligation.
2. An ___ by all parties to a new contract.
3. The ___ of the old obligation (discharge of the prior party).
4. A ___ contract is valid.

A doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes impossible or totally impracticable (through no fault of either party).

A court-created doctrine under which a party to a contract will be relieved of his or her duty to perform when the objective purpose for performance no longer exists (due to reasons beyond that party's control).

A doctrine under which a seller may be excused from performing a contract when (1) a contingency occurs, (2) the contingency's occurrence makes performance impracticable, and (3) the nonoccurrence of the contingency was a basic assumption on which the contract was made.

What is NOT a type of discharge by operation of law?

When one party breaches a contract, the nonbreaching party can choose one or more of several ____.
A remedy is the relief provided by the ___ party when the other party has breached the contract.
Today, the remedy at law for breach of contract is normally ___ damages.
Usually a court will not award an equitable remedy unless the remedy at law is ____

A money award equivalent to the actual value of injuries or damages sustained by the aggrieved party.

Expenses that are caused directly by a breach of contract, such as those incurred to obtain performance from another source.

A small monetary award (often one dollar) granted to a plaintiff when no actual damage was suffered or when the plaintiff is unable to show such loss with sufficient certainty.

Special damages that compensate for a loss that is not direct or immediate (for example, lost profits). The special damages must have been foreseeable at the time the breach of injury occurred in order for the plaintiff to collect them.

Kipp agrees to sell Lucio 500 copies of a book for $3.50 each. Kipp does not deliver the books. At the time of the breach, the books are available at $4.50 each. Lucio's damages are...

A sum into a contract, not as a measure of compensation for its breach but rather as punishment for a default.

A rule requiring a plaintiff to have done whatever was reasonable to minimize the damages caused by the defendant.

An amount, stipulated in the contract, that the parties to a contract believe to be a reasonable estimation of the damages that will occur in the event of a breach.

An equitable remedy requiring the breaching party to perform as promised under the contract.

An equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position he or she would have been in had the breach not occurred.

A court-ordered correction of a written contract so that it reflect the true intentions of the parties.

Sometimes monetary damages are ___ for a breach of a contract.
In these situations, the nonbreaching party may ask the court for a(n) ____ remedy.
Equitable remedies are typically based on ____

Contracts for the sale of goods usually qualify for specific performance.
True False

What is typically NOT present when the courts order reformation of a contract?

Remedies Available to Nonbreaching Party:
- Damages: ____, Consequential, Punitive (rare), Normal, and Liquidated
- Rescission and ____
- ____ Performance
- Reformation

A knowing relinquishment of a legal right is called a: