Business Law

Ellen gave First Bank a security interest in her home to secure a loan of $400,000. In this transaction Ellen is the ______________and First Bank is the ______________.


John got a loan from First Bank for $600,000 to purchase a new home. He executed two documents with First Bank: one document acknowledged his debt of $600,000 and his obligation to pay it in 15 years at 5%interest; the second document gave First Bank a se

Promissory note--------------mortgage

Which of the following is not a cloud on the title of real property because it is not recorded in the land records?

A license

Deeds of trust are used in some states as substitutes for ______________.


All of the following remedies are available to landlords whose tenants stop paying rent except _____________.


The third party who holds the signed deed until the buyer has paid the purchase price is the _____________.

Escrow agent

The town of Delmar acquired 100 acres of property from an unwilling seller to construct a new high school and athletic complex. The seller received just compensation for the value of his land. Delmar acquired this property by exercising its power of _____


In her will Doris gave her brother the right to live in her home until he died. Upon his death the house would go to a local charity. Her brother's legal interest in the house is a (n)_________and the charity's legal interest is a (n)________________.

Life estate---------------------estate in remainder

Ann donated a large parcel of land to an animal protection society. Under the deed, the land would belong to the society "so long as it was used as an animal sanctuary." When the society no longer used the land for this purpose, the land would go to Ann's

Qualified fee simple estate

In a foreclosure proceeding, a court of equity will order the sale of the real estate at a public auction.


The type of deed that gives the grantee the fewest protections against problems with the title is the grant deed.


When a tenant stays over after the lease expires without the consent of the landlord, a tenancy at will is created.


In a distress for rent, the landlord takes the personal property of the tenant as payment for the unpaid rent.


A deed is not effective until delivered to the grantee or to a 3rd party.


Estates in remainder can be mortgaged or sold.


A license to use land must be in writing, but an easement can be created orally.


The party who transfers title to land by executing a deed is called the grantor


Absent a specific limitation in the instrument that created it, a life estate can be mortgaged or sold.


In a community property state, property that is inherited by one spouse during the course of the marriage becomes community property.


If it is unclear whether a co-tenancy is a joint tenancy or a tenancy in common, the law presumes that it is a joint tenancy.


If the possessor of a life estate does not make needed repairs and the value of the property declines, the possessor has committed waste.


Fixtures in residences become part of the real estate and will transfer to the buyer when the house is sold.


Jack and Jill own Hilltop as tenants in common. On Jill's death, her one-half interest in Hilltop will pass to her heirs.


The purposes of nominal damages is to

Acknowledge that a right has been violated even though no monetary loss. resulted

When there is a time is of the essence clause in a contract, the parties will normally also include in the contract a dollar amount that will be paid the innocent party each day it takes to complete the work after the contract date. This is an example of


A court will order the remedy of specific performance only if

The subject matter of the contract is unique and the innocent party cannot be made whole with money damages.

June was hired to be the store manager of Big Kahuna Surf Shop in Ocean City. The law governing this employment contract is

State common law

Todd bought a lawn tractor from LawnToysRus. The law that governs this sales contract is

The Uniform Commercial Code

Vivian offered to buy Ben's violin for $2,000 and Ben accepted. Three days later Vivian gave Ben $2,000 in cash and Ben gave Vivian possession of the violin. Which of the following sets of terms best describes the contract between Vivian and Ben?

Bilateral, express, valid and executed

Bob promised to pave Sue's driveway and Sue promised to pay him $5000 when the work was completed. The contract between Bob and Sue is a __________________contract.


Another term for special damages is _______________ damages.


An offeree is

The person to whom the offer to form a unilateral or bilateral contract is made.

Mary left her iPad at a local restaurant and offered a reward for its return. Mary made an offer to form a (n) _________________contract.


Exemplary damages are also known as _________________ damages.


Sam Student transferred to another college and had to leave his apartment with 5 months remaining on the lease. Landlord must try to find a suitable replacement tenant before he can sue Sam for damage because landlord has a duty to _____________damages.


The Uniform Commercial Code governs the sale of all commercial services and goods.


The amount of damages sustained in a breach of contract case is a question of fact to be presented to the jury.


Lost profits cannot be used in calculating damages because profits are always uncertain and speculative.


Tamara left her car in a line of other cars waiting to be washed. Tamara expects to pay for the service and the car wash expects to be paid. The contract that exists between Tamara and the car wash is an implied in fact contract.


General damages are also called compensatory damages.


Excessive punitive damage awards may violate the constitutional protection of due process.


The winning party in a breach of contract case is normally entitled to attorney's fees, witness fees and filing costs.


Hadley v. Baxendale is the famous British case that created the equitable remedy of specific performance.


Restitution is used by courts of equity to prevent unjust enrichment in actions based on quasi-contract.


Failure to rescind a contract within a reasonable time amounts to an affirmation of the contract.


The Uniform Commercial Code is an important source of contract law for businesses in the United States.


The innocent party in a contract breach must choose between collecting punitive damages or compensatory damages because a court cannot grant both.


Since it is up to the parties to determine the dollar amount in a liquidated damages clause, courts will enforce any amount called for in the contract.


Courts generally cannot order specific performance when the contract is for personal services because of the Thirteenth Amendment.


Cal Contractor did extensive work renovating Hailey Homeowner's kitchen. The construction work has been completely finished, but Hailey has not yet paid Cal. This is an example of a partially executed contract.


The source of law for construction contracts, employment contracts and contracts for the sale of land is_____________________.

State common law

Mike and Charlie are neighbors in a subdivision. There is an undeveloped lot between their homes that is owned by Charlie. Charlie offered to sell the lot to Mike for $100,000. Mike wanted time to see if could arrange financing, so he gave Charlie a check


The mailbox rule is also known as the ________________rule.

Deposited acceptance

Joey is a Boston-based dealer in industrial sewing equipment. He offers to sell to Sal, who is also a dealer in industrial sewing equipment, 3 buttonhole machines for $6,000. Sal accepts the offer and adds that he wants Joey to have the machines delivered

There is a contract that includes the terms in the acceptance. Joey is responsible for delivering the machines unless he objects in a timely manner or the delivery will constitute a material hardship.

Under common law, the offeror loses the right to revoke the offer in a unilateral contract when

The offeree begins to perform the requested act.

If the owner of an item that is to be sold at auction wants the right to withdraw it if the bids are too low, the item would be auctioned

With reserve

Mary offered to sell a daybed to Ann for $ 50. Ann said that, yes, she would buy the daybed but "only on the condition that Mary include the coverlet and matching curtains" in the $50 sale price. Is there a contract between Mary and Ann? If so, what are t

There is no contract because, under the Uniform Commercial Code, acceptances that are conditional on the inclusion of new terms act as rejections of the offer.

Under the Uniform Commercial Code, which of the following terms could a court supply if the term were missing from a contract for the sale of goods?

The time for performance
The price of the goods

Harry offered to sell Jim his Honda for $12,000. Jim said he would like a few days to think about it. The next day, Jim saw Phil driving the car. When asked, Phil said he had just bought it from Harry for $12,000. This is an example of a (n) _____________

Indirect revocation of the offer

The mailbox rule is a timing rule under which

Acceptances are effective when they are put in the mail.

A merchant's firm offer will automatically terminate after _____________.

3 months

A revocation occurs when

The offeror withdraws his offer

The mirror image rule is the common law requirement that

The acceptance contains exactly the same terms as the offer.

Under the Uniform Commercial Code, courts may gap fill terms in a contract if the terms in the original contract are either missing or vague.


Elderly Aunt signed a contract for the sale of her home at well below market value. Aunt had not read the contract before signing it because her niece, who is both her lawyer and caretaker, had told her to sign the contract. Aunt has a defense to the cont


Jill's new car kept stalling. In exasperation, she said to her passenger: "I'd sell this stupid piece of junk for $10." Jill has made a valid offer because the terms were definite and the offer was communicated to a specific offeree.


In an auction without reserve, the auctioneer is the offeror.


The intent of the parties in a contract is determined by what their outward conduct would lead a reasonable person to believe.


The firm offer of a merchant is enforceable whether it is oral or in writing.


Ron offered to sell his Harley to John for $10,000. Before John could accept the offer, Ron died. If John decides to accept the offer, the executor of Ron's estate must sell the Harley to him for $10,000.


Tom offered to sell his complete home gym to Megan for $500. Megan accepted the offer but died before giving Tom the money. The executor of Megan's estate must pay Tom the $500.


An offer that terminates because too much time has passed is said to have lapsed.


The offeree accepts a bilateral contract by making a promise.


The revocation of an offer can only be made by direct communication to the offeree.


Mary sold her home freezer to a neighbor. Mary qualifies as a merchant of consumer goods under the Uniform Commercial Code.


Sellers cannot bid at the auctions in which their goods are offered for sale unless they give notice to other bidders of their intent to bid.


In an auction with reserve, the bidders are the offerors


An option contract is valid for a maximum of three months.


Allison, who raises horses, promised to give her friend Gil a pony for his daughter. She advised Gil that he would need to enclose a section of his property and recommended a specific type of fencing. Gil bought the recommended materials and had the fence

Promissory estoppel

Plaintiff sued a National Football League team, alleging that she had been sexually assaulted by several team members in a hotel room after a game. Team offered the plaintiff a cash settlement in exchange for two promises: (1) plaintiff would never discus


Law enforcement officers are normally not allowed to collect reward money offered for the capture and conviction of criminals because

The officers have a preexisting legal duty to apprehend criminals.

An accord and satisfaction can take place only if

There are unliquidated debts based on contract or tort claims.

Under common law, modifications to existing contracts require ___________to be enforceable.

New consideration

Cashing a check marked "paid in full" will create an accord and satisfaction only if

The debt is unliquidated
Both parties know that the amount of the debt is in dispute.

Detrimental reliance is another term for

Promissory estoppel

In an accord and satisfaction, the satisfaction is

The performance of the action called for in the substitute agreement.

National Chip Company has contracts with numerous famers in which it agrees to buy all the potatoes the farmers harvest and the famers agree to sell their potatoes only to National Chip Company. The contracts between the farmers and National Chip Company


Which of the following statements is true about contracts in which $1 is offered as consideration?

$1 is accepted in the business community as consideration for a signed option contract.
$1 is accepted as consideration in contracts that transfer title to deeds.

Which of the following statements expresses an illusory promise?

I will go to your violin recital on Saturday if there is nothing good on television.

Which of the following is an unliquidated debt?

A bill from a divorce lawyer for $8,000 that is past due, interest to run at 5%. Client is actively disputing the number of hours billed and other charges.

The Uniform Commercial Code requires that any modification to a contract for the sale of goods must be supported by new consideration.


Giving up a legal right is adequate consideration for a contract governed by the Uniform Commercial Code, but not for contracts under common law.


In a bilateral contract, each party must gain a legal benefit, but only one party need incur a legal detriment.


Only liquidated debts can be discharged in an accord and satisfaction


In an accord and satisfaction, the accord is the new agreement.


Another term for consideration is a bargained-for exchange.


Another term for promissory estoppel is restitution.


Under an output contract, the seller loses the right to sell his goods to anyone but the buyer named in the output contract.


Under the Uniform Commercial Code, provisions in a contract will not be enforced if they are so one-side and unfair that the provisions are unconscionable.


$1 is never legally adequate consideration in a contract because no one will willingly incur a legal detriment for $1.


Sham consideration is sufficient for a unilateral contract, but not for a bilateral contract.


For promissory estoppel to be granted as a remedy, the promisor must have known or expected that the promisee would rely on the promise.


A firm offer that is in writing and signed by a merchant cannot be revoked even though the other party gave no consideration.


During a violent storm, Nelson saved Reggie's boat from being destroyed. Reggie was so grateful that he promised to give Nelson $100. Reggie's promise is unenforceable because it is based on moral obligation.


One method for proving that a contract has been rescinded is to tear up the contract


Dan Dentist was selling the building in which his office was located so that he could relocate to a larger space. Ron, a very aggressive commercial real estate broker, told Dan that unless he gave Ron an exclusive one year contract to list the property, h


The contract remedy that requires that each party return whatever has already been received of value is____________.


Big Equipment Company sold a tractor-scraper to Ace Paving for $125,000. Ace made a down payment of $25,000 and agreed to pay the balance to Big Equipment in monthly installments at 4% interest. In typing up the contract, some of the digits in the vehicle


In a fraudulent misrepresentation suit, the plaintiff must prove that the defendant knowingly misrepresented a material fact. The legal term for the defendant's knowing or reckless misrepresentation is __________.


Hilary sold Meredith a broach that had belonged to her mother. She told Meredith, in good faith, that it was a genuine cameo from the 1880's. In fact, it was a copy manufactured in the 1980's out of polymers. Meredith can rescind the contract based on

Innocent misrepresentation

Having lost his job in the recent recession and facing property taxes that were past due, Ed was desperate for cash. He sold his prized 1969 Mustang to a good faith purchaser for value at a price that was well below its market value. Ed now regrets this d

No, this was a valid bargained for exchange with a good faith purchaser for value.

Which of the following would result in punitive as well as contract damages?

Fraudulent misrepresentation

Once a contract has been ratified, the ratifying party loses the right to ________.

Disaffirm the contract.

Which of the following statements about a minor's purchase of necessaries is false?

The minor must pay the contract price of the goods or services.

Kevin, a minor, sold his home gym to Buyer, who in turn sold it to a good faith purchaser for value (GFP). Under the Uniform Commercial Code, Buyer took ____________title from Kevin, and transferred _________________title to the GFP.


Jacob inherited his grandfather's farm when he was 16. He sold the farm to Buyer, who in turn sold it to a good faith purchaser for value (GFP). Under the common law, Buyer took ________ _____________title from Jacob, and transferred ___________title to t


The legal status of a contract entered into by someone who has been adjudicated insane is __________.


The legal status of a contract entered into by a minor is ___________.

Voidable only by the minor

A seller who fills a motor with heavy grease to keep it from knocking is engaged in mere "sales dressing" and is not liable for fraudulent misrepresentation.


A party who misstates an important fact during contract negotiations has an affirmative duty to correct that misstatement before entering into the contract.


One of the elements of fraudulent misrepresentation is that the victim's reliance on the false representation was justifiable.


The victim of innocent misrepresentation may sue to recover contract damages.


Scienter includes not only actual knowledge that a statement is false, but also reckless disregard for whether the statement is true or false.


The victim of negligent misrepresentation may recover contract damages, but not punitive damages.


The victim of fraudulent misrepresentation may rescind the contract, but the victim of merely negligent misrepresentation may not.


If a bidder seeks to withdraw a bid based on a unilateral mistake, courts require, at a minimum, that the bid was made in good faith, without gross negligence, and that the other party received prompt notice.


If a unilateral mistake of fact is apparent to one party, he or she may take advantage of that knowledge and profit from the other party's ignorance.


In a majority of states, a minor can disaffirm a contract only by returning all the property originally purchased.


In most states, the test of mental competence for entering into a contract is the same as the test for making a valid will.


A party to a contract who lacks mental capacity, but has not been adjudicated insane, is liable in quasi-contract for necessaries.


Food, shelter, cell phone service and medicine are examples of necessaries.


If both parties to a contract are uncertain or consciously ignorant of facts about the item to be sold, either party can rescind the contract based on a mutual mistake of fact.


The purpose of reformation is to correct the written contract to reflect the actual intentions of the parties.


Dora and Connie are college students in New York City. When Connie learned that Dora would be driving through North Carolina on her way back from spring break in Florida, she gave Dora money to buy 30 cartons of cigarettes. Connie knew she could easily se

Yes, a court will order rescission and restitution in these circumstances based on the doctrine of locus poenitentiae.

Gorgeous, Inc. is a major supplier of dyes, bleaches, gels and other chemical products used in hair salons. Gorgeous just acquired a subsidiary that makes small electrical products, like dryers and curling irons. Gorgeous now refuses to sell its chemical


Insurance policies, leases and other standardized contracts that are prepared by one party and submitted to the other party on a take-it-or-leave- it basis are __________________.

Adhesion contracts.

If a lender charges a debtor a greater interest rate than is allowed by state statute, the lender has committed____________.


Although usury laws vary from state to state, most state laws do not cap the interest rate that lenders can charge________________________.


Contacts between businesses that impede free competition within a market or industry are called___________.

Contracts in restraint of trade

Big Candy Maker One and Big Candy Maker Two agree that they will both charge $1 for each 1.6 ounce candy bar they produce and market. They further agree that neither will change the price without first consulting with the other. This arrangement between B

Horizontal price fixing

Janet, a physician, is one of 12 partners in Oakwood Surgical Associates. A provision in the partnership agreement prevents any doctor who leaves the partnership from establishing a surgical practice, or joining an existing practice, within a 100 mile rad

Covenant not to compete

Anti-price fixing laws apply only to the cost of goods, not to the cost of services.


Provisions printed on tickets that disclaim liability are binding if the ticket is purchased as admission to a business establishment.


The literal translation of locus poenitentiae is

A place of repentance

Under state usury laws, creditors cannot collect the legal maximum interest allowed in advance, but only month by month as the interest accrues.


The purpose of usury laws is to protect creditors from debtor defaults.


Professionals who perform services without a required license lose the right to be compensated for those services.


A real estate broker who is only licensed in Maryland cannot legally list and sell property located in Florida.


Locus poenitentiae refers to the situs of a contract and indicates which court will have jurisdiction.


The power of a court to strike a contract or contract provision because it is unconscionable places a practical limit on freedom of contract.


Courts are more likely to enforce exculpatory clauses in contracts for optional activities, like recreation, than in contracts for necessities, like electric power.


Insurance policies are typically contracts of adhesion.


All contracts of adhesion are unconscionable and therefor unenforceable.


Enforceable agreements not to compete may be standalone contracts or provisions in another contract.


All forms of vertical price-fixing are subject to the rule of reason analysis.


Courts are more likely to enforce covenants not to compete in employment contracts than in contracts for the sale of a business.


Horizontal price fixing is generally more anti-competitive than vertical price fixing.


Which of the following exceptions to the Statute of Frauds is not found in the Uniform Commercial Code?

Parole confirmation in consumer-to-consumer sales

In which of the following situations may parole evidence not be used?

As evidence to contradict the terms of a fully integrated contract.

The most basic purpose of construing a contract is to determine

The objective intention of the parties to the contract.

Tucker designed a unique sled and conveyer mechanism to be used by deep sea trawlers. He had an oral contract with Metal Fabricators to produce special parts and frames to his design. Tucker agreed to pay Metal $10,000 and Metal agreed to an accelerated p

Yes, the Uniform Commercial Code recognizes specially manufactured goods as an exception to the writing requirement; the court will find for Metal.

Another term for the doctrine of part performance is

Equitable estoppel

Which of the following actions by a buyer is least likely to persuade a court to enforce an oral contract for the sale of land?

Buyer pays seller the full purchase price

Will manufactures widgets and Sam is one of his major parts suppliers. Will and Sam have done business together for over 10 years, with Will placing orders four or five times a year. If a court were called upon to interpret ambiguous language in a contrac

Course of dealing

A practice so regularly followed within a particular business or industry that business people expect that they will follow that practice too is called _________________.

Usage of trade

Sue and Jim formed a professional corporation for the practice of law. The PC bought a historic building next to the county courthouse and hired Local Builder to renovate it. Local planned to subcontract the electrical work to Ed's Electric, but Ed would

Leading object

Which of the following contracts creating an interest in land would not have to be in writing to be enforceable?

The lease of a vacation home for the three months of June, July and August

Which of the following statements about the Statute of Limitations is true?

The statute does not apply to executed contracts.
The statute does not apply to contracts that could be performed within one year of their making.

Juan, a retail merchant of tires and auto parts, phoned his supplier to order $12,000 worth of tires for his big July sale. Supplier sent Juan a written confirmation of the order. The confirmation will meet the writing requirement of the Statute of Frauds


In construing contracts, courts may use several forms of parole evidence in addition to the contract itself. Which answer below represents the courts' order of preference for using these different forms of evidence?

Express terms, course of performance, course of dealing

Todd owns and operates a vegetable market that specializes in fresh local produce. He has an agreement with Meg, a home gardener, to buy her entire crop of cucumbers for $400. Under the Code, this transaction is a sale of goods.


An ambiguity in the language of a contact will be construed against the party who wrote the contract.