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1. Alice signs a contract with Bob to buy Bob's house for $150,000, with the clause, "if I am able to obtain a mortgage
loan for $125,000, at no more than 7% interest, payable over 15 years." Assume that Alice tries but is unable to obtain the
described loan, and therefore refuses to proceed with the purchase. Alice is in breach of the contract.
a.
True
b.
False
2. The statement, “You will have a job with Snelling & Snelling as long as you complete your degree in business
administration this May” does not create a condition because it does not include the phrase “provided that.”
a.
True
b.
False
3. Most contracts are discharged by mutual agreement of the parties.
a.
True
b.
False
4. An employment contract is an example of a personal satisfaction contract.
a.
True
b.
False
5. Assume that Jessie and Lester have formed a contract whereby Jessie agrees to deliver 10,000 dozen "Grade A Large
Eggs" to be shipped in paper cartons. A shortage of paper makes paper cartons much more expensive, so Jessie uses
styrofoam cartons and ships the eggs. Lester is entitled to cancel the contract based on a material breach of the contract.
a.
True
b.
False
6. A wholesaler of coffee notifies a retailer that it cannot fulfill its contractual obligation to deliver 1,000 pounds of coffee
at the agreed upon price of $2.00 per pound next month because of recent price increases in coffee. The retailer may treat
the wholesaler as having breached the contract and sue for damages even though the wholesaler's performance is not due
until next month.
a.
True
b.
False
7. The legal right to sue for a breach of contract is subject to a statute of limitations.
a.
True
b.
False
8. A court may, at times, discharge a party who has not performed.
a.
True
b.
False
9. Concurrent conditions arise when there is both a condition precedent and a condition subsequent.
a.
True
b.
False
10. Generally, neither a "time is of the essence" clause nor a "force majeure" clause will be recognized by the courts
because these types of clauses are seen as a violation of public policy.
a.
True
b.
False
11. Monumental, Inc. contracts with Champion Builders to erect a three-story office building on a parcel of land it has
purchased. Before construction begins, the local zoning board changes the zoning of the parcel and those adjoining it to
residential use only. Monumental’s contract with Champion is discharged.
a.
True
b.
False
12. In negotiating the purchase of a vehicle, the sales representative told Karla, "I guarantee that you will be personally
satisfied with this car." The guarantee was written on the contract when Karla purchased the car. If a controversy arises
over Karla's satisfaction, the court will apply a subjective standard, which means Karla's judgment must be reasonable.
a.
True
b.
False
13. Ramon purchased 5,000 pounds of coffee from Quick Jump Coffee. The coffee was to be delivered on September 1.
Since the contract included a date for performance, time is of the essence and the delivery date is strictly enforceable.
a.
True
b.
False
14. Abdulla hired Granite Construction to build an addition onto his home. Granite Construction dug the foundation but
then abandoned the project. Granite Construction is entitled to receive the full contract price minus the value of the
defects.
a.
True
b.
False
15. Commercial impracticability means some event has occurred that neither party anticipated and fulfilling the contract
would now be extraordinarily difficult and unfair to one party.
a.
True
b.
False
16. M & E contracted to sell 500 music stands to Coda, Inc. M & E shipped the stands in accordance with the agreement.
Coda paid for the stands as promised. The contract between M & E and Coda is discharged by
a.
full performance.
b.
agreement.
c.
rescission.
d.
accord and satisfaction.
17. Al contracted to sell his house to Bev. Subsequently, they both changed their minds and agreed to cancel the contract.
The contract between Al and Bev is discharged by
a.
full performance.
b.
rescission.
c.
accord and satisfaction.
d.
novation.
18. Melody is a recent graduate of State Law School. She lands an impressive employment contract with the firm of
Dewey, Cheathem, and Howe, Attorneys at Law, on the stated provision that she pass the upcoming bar exam. This
provision in the employment agreement is a(n)
a.
condition precedent.
b.
condition subsequent.
c.
implied condition.
d.
concurrent condition.
19. Sam enters into a contract agreement to buy Betty Lou's house on the condition that he is able to secure financing at or
below 6% per year. This is a
a.
condition precedent.
b.
condition subsequent.
c.
novation condition.
d.
concurrent condition.
20. Jennifer substantially performs her service contract with Gretchen. Due to Jennifer's failure to render complete
performance, Gretchen
a.
is discharged from any further contractual obligations.
b.
is required to pay the full contract price, minus the value of Jennifer's defective performance.
c.
is required to pay the full contract price.
d.
may declare a material breach and pay only for the value received.
21. Statutes of limitations
a.
define how much money the injured party can sue for under a breach of contract claim.
b.
define whether there has been substantial performance of a contract or a material breach.
c.
limit the time in which an injured party may sue.
d.
only apply to the sale of goods. There is no statute of limitations on a service contract.
22. In January 2014, Professor Noe entered into a contract with State University. She agreed to teach full time during the
2014-2015 academic year. Professor Noe died on May 31, 2014. Her estate
a.
is obligated to find another person who will agree to teach during the academic year.
b.
is discharged from any further obligations under the contract.
c.
will be discharged from any obligations under the contract only if it can be shown that her death was
unexpected.
d.
will not be discharged. If the University has to pay more in order to hire a comparable substitute professor at
the last minute, then the estate will be responsible for the difference in pay.
23. Mary contracted to buy 100 table lamps. Under the terms of the agreement, Mary is to pay for the lamps upon
delivery. This is an example of
a.
a condition precedent.
b.
a concurrent condition.
c.
a condition subsequent.
d.
a service condition.
24. Oxtron, Inc. substantially performed its obligations under a service contract. Oxtron is entitled to receive
a.
the full contract price.
b.
substantially nothing.
c.
the fair market value of its performance.
d.
the full contract price minus the value of the defects.
25. Jackie hires Charles to lay new carpet in her bedroom. Charles does such a bad job, that the only way to fix the carpet
is to start over and relay the carpet. Which of the following best describes this situation?
a.
This is substantial performance. Jackie must still pay something to Charles.
b.
This is a material breach. Jackie must still pay something to Charles.
c.
This is substantial performance. Jackie owes nothing to Charles.
d.
This is a material breach. Jackie owes nothing to Charles.
26. Dana hires Paris to paint a portrait of her poodle, "Mack." The painting is to be done to Dana's personal satisfaction.
Upon completion of the painting, which of the following will be true?
a.
Dana may refuse to accept the painting if she really does not like it.
b.
Dana may refuse to accept the painting only if a reasonable person would not like it.
c.
Dana may refuse to accept the painting if she cannot afford to pay for it.
d.
Dana may not refuse to accept the painting.
27. The Grand Performance Hall is in the process of remodeling and is scheduled to open for business after being closed
for 50 years. As part of the remodeling, it is installing a new sound system. The sound system is to be installed by Sound
Systems, Inc. on or before April 10. Opening night of the hall is May 1. The contract states that "time is of the essence"
because of the opening-night deadline. Sound Systems has some financial difficulties and doesn’t deliver the system until
April 20. Grand Hall refuses to accept it, and Sound Systems sues. What will be the result?
a.
Grand Hall wins; the contract date was strictly enforceable.
b.
Sound Systems wins; the contract was substantially performed.
c.
Grand Hall wins; there was commercial frustration.
d.
Sound Systems wins; there was a true impossibility.
28. Dodger bought an insurance contract from Liberty Farm Co. The policy contained a clause stating that all claims for
losses had to be reported within 45 days after the date of the loss or the claim would be barred. Time is stated to be of the
essence. Dodger sustained a covered farm loss, but did not report it to Liberty Farm until 50 days later. Liberty Farm
denied coverage for the claim. If Dodger sues, who wins?
a.
Dodger wins; the contract was substantially performed.
b.
Liberty Farm wins; there was failure of a condition subsequent.
c.
Dodger wins; courts will not enforce a time-of-the-essence clause.
d.
Liberty Farm wins; the impossibility doctrine applies.
29. Which of the following statements is accurate regarding a condition?
a.
A condition is created only when the phrase “provided that” or a similar phrase introduces it.
b.
A condition is an event that must occur before a party becomes obligated under a contract.
c.
A condition must be expressly stated in order to be enforced.
d.
A condition will not be enforced by the courts unless formal language is used, regardless of the intent of the
parties to create a condition.
30. Harry agreed to pay $100 to rent a rooftop spot in downtown Seattle to watch the New Year's Eve festivities. The
festivities were unexpectedly canceled because of concern over a terrorist attack. Harry is
a.
obligated to pay the $100.
b.
not obligated to pay under the commercial impracticability doctrine.
c.
not obligated to pay under the force majeure doctrine.
d.
not obligated to pay under the frustration of purpose doctrine.
31. What does it mean if a party to a contract has been discharged?
a.
It means that person has been "let go" and has terminated the contract.
b.
It means that person has "transferred" by assigning his or her duties to another party.
c.
It means that person is "finished" and has no more duties under the contract.
d.
It means that person has "delegated" and chosen to give up his or her contract rights.
32. Ron operates a garbage pickup business. He contracts to pick up garbage from an apartment complex for the next 52
weeks at a price of $150 per week. Unexpectedly, the landfill center where Ron takes the garbage to dispose of it, files for
bankruptcy. As a result, Ron must travel an additional 100 miles to the nearest landfill center, turning Ron's expected
profit into a loss of $40 per week. Ron's best argument in support of his petition to be discharged from the contract is
a.
the mail box rule.
b.
commercial impracticability.
c.
frustration of purpose.
d.
true impossibility.
33. Which of the following events would have the best chance of excusing performance of a contract based on
commercial impracticability?
a.
The price of a raw material increases slightly so that the contract will not be as profitable.
b.
An unforeseeable trade embargo causes prices to triple.
c.
The promisor of personal services dies.
d.
The subject matter of the contract is destroyed.
34. The distinction between a condition precedent and a condition subsequent
a.
is important because it determines whether the burden of proof is beyond a reasonable doubt or preponderance
of the evidence.
b.
seldom arises in insurance cases.
c.
determines who has the burden of proof.
d.
is important because it determines whether the condition must be express or whether it can be implied.
35. Which of the following statements is accurate concerning express conditions?
a.
A court will enforce any express conditions intended by the parties.
b.
A court may refuse to enforce an express condition intended by the parties if the court determines it is unfair
and harmful to the general public.
c.
A court requires strict performance if a clause of the contract expressly demands it.
d.
A court applies an objective standard whenever ruling on a personal satisfaction contract.
36. A contract between a company in the U.S. and one in China, contained a clause that stated: "If an event happens which
is extraordinary and out of the control of the parties such as a strike, act of God, fire, accident, or transportation
difficulties, then the affected party shall be relieved of its obligations under the contract." This type of clause is
a.
an objective impossibility clause.
b.
a force majeure clause.
c.
a concurrent condition clause.
d.
a condition precedent clause.
37. Linda agrees to buy Missy's Greyhound race dog for $2,000. Linda is to deliver the money and take possession of the
dog the next morning. That night, running his best race ever, the dog runs away from Missy, never to be seen again. What
will be the outcome in this case?
a.
Linda must give $2000 for the dog, but only if the dog was insured.
b.
Linda must give $2000 for the dog, but only if Missy can find a replacement dog within a reasonable time.
c.
Missy must find another dog for Linda or pay her $2000.
d.
Linda does not have to pay for the dog; the contract duties are discharged.
38. Sea Rovers, Inc. contracted to sell 1,000 pounds of shrimp to the Seafood Shack with delivery on June 1. On May 1,
Sea Rovers advised the Seafood Shack that it would not be able to deliver the shrimp. The Seafood Shack
a.
can sue Sea Rovers immediately for breach of contract.
b.
must wait until June 1 to see if Sea Rovers will perform before suing for breach of contract.
c.
cannot sue Sea Rovers because Sea Rovers gave adequate notice.
d.
must wait until actual damages are determined before it can sue.
39. What is the key to all conditional clauses?
a.
If a condition in a contract does not occur, public policy will require only substantial performance by the party
for whom the condition failed.
b.
If a contract contains a conditional clause, the requirement of good faith will be eliminated.
c.
If a condition in a contract does not occur, one party will probably be discharged without having to perform
his or her obligations under the contract.
d.
If a contract contains a conditional clause, it must be expressly written with specific language.
40. Identify four factors courts consider in deciding the validity of commercial impracticability and frustration of purpose
claims.
41. What does the term "substantial performance" mean? What factors are generally considered when determining
whether one of the parties has substantially performed?
42. Buddy was hired to play drums for a rock group scheduled to tour the Midwest. Part way through the tour, Buddy was
tragically killed in a plane crash. The tour had to be discontinued until a new drummer could be found. The band lost
money on the tour. Is Buddy's estate or agent responsible for the loss to the band?
43. In January, All Seasons, Inc. ordered $4000 of fireworks from Kaboom Ltd. with delivery to be on or before June 1.
On April 15, Kaboom notifies All Seasons that it will not be able to perform the contract as agreed. How will the law
characterize Kaboom's actions? Does All Seasons have to wait until June 1 before buying fireworks from another
supplier?
44. Southern Fuels Co. and Langham-Hill Petroleum, Inc. are both in the business of buying and selling large quantities of
petroleum products. In October, the parties entered into a fixed price contract wherein Southern agreed to purchase 4.2
million gallons of No.2 fuel oil at a specified price per gallon to be delivered in four monthly installments. The contract
included a force majeure clause. The first three monthly shipments of oil were purchased by Southern as agreed. In
January of the next year, the price of oil in the world market collapsed as a result of Saudi Arabian attempts to regain its
share of the world oil market. Southern refused to purchase the last shipment under the contract. Southern informed
Langham-Hill that because the drop in world oil prices was caused by Saudi Arabians who were "outside Southern's
control" that it was invoking the force majeure clause. Langham-Hill sued for damages in the amount of $306,075. What
is a force majeure clause? Southern's basic argument is that it can now buy oil at a substantially lower price. Will
Southern succeed on this basis?
45. Name and describe the types of conditions, explain how conditions are created, and discuss whether it is important to
identify the type of condition in a contract.
