CPCU 530 UPDATED TESTED QUESTIONS AND ANSWERS
GRADED A+
✔✔Types of Consideration: - ✔✔1. Valuable Consideration
2. Forbearance
3. Present Consideration
4. Future Consideration
5. Binding Promises
✔✔Nonperformance - ✔✔Right the insurer has against the insured when a material
breach occurs
✔✔Rights not assignable: - ✔✔1. Assignment of veterans' disability benefits,
government pensions, wages, inheritances, and WC benefits
2. Personal rights
3. When an assignment materially alters or varies the obligor's performance
4. When a judgment is pending in a personal injury case, generally the injured person
cannot assign a claim for damages resulting from the injury
5. The parties to an agreement might specify that they cannot, under the contract,
assign the rights.
✔✔Types of Damages: - ✔✔1. Compensatory - Payment awarded by a court to
reimburse a victim for actual harm
2. Consequential - Payment awarded to indemnify an injured arty for losses that result
indirectly from a wrong such as a breach of contract or tort
3. Punitive - Payment mean to punish defendant due to reckless, malicious, or deceitful
acts to deter similar conduct
4. Extracontractual - Payment awarded by a court that exceeds the usual contract
damages for a breach of contract (Grounds for assessing these damages are 1.)
Breach of the insurer's duty of good faith and fair dealing in insurance contracts, 2.)
Intentional infliction of emotional distress on the insured by the insurer's extreme and
outrageous conduct)
5. Liquidated - A reasonable estimation of actual damages, agreed to by the contracting
parties and included in the contract, to be paid in event of breach or negligence
✔✔*Parties to an illegal contract cannot - ✔✔recover damages for breach of contract or
seek recovery for partial performance they have made
✔✔When interpreting contract language - ✔✔courts give common word their ordinary
meanings and technical terms their technical meanings. Legal terms are given their
legal meaning under plain meaning rules of contract interpretation.
✔✔Factors of duration and termination - - ✔✔1. Lapse of time
2. Operation of law
3. Offeree's rejection
,4. Counteroffers
5. Offeror's revocation
✔✔2. Forbearance - ✔✔The act of giving up or the promise to give up a legal right
✔✔Parties who lack capacity to contract - ✔✔Minors, Insane persons, intoxicated
persons, artificial entities
✔✔Restitution - ✔✔The return of specific property by court order
✔✔Two classes of insane people - ✔✔Those adjudged insane and Those who claim to
be insane or mentally incompetent
✔✔To avoid a contract, person claiming insanity must prove one of two conditions: -
✔✔1. The person did not know that a contract was forming
2. The person did not understand the legal consequences of acts purporting to form the
contract
✔✔Sane person can enforce contract with insane person by proving - ✔✔1. The sane
party lacked knowledge of the insanity
2. The contract benefits the insane person
✔✔3 types of consideration are insufficient for forming a binding contract - ✔✔1. Past
consideration
2. Promises to perform existing obligations
3. Compromise and release of claims
✔✔Estoppel - ✔✔A legal principle that prohibits a party from asserting a claim or right
that is inconsistent with that party's past statement or conduct on which another party
has detrimentally relied
✔✔Types of illegal contracts: - ✔✔• Contracts to commit crimes or torts
• Contracts harmful to the public interest
• Usury contracts
• Wagering Contracts
• Contracts with unlicensed practitioners
• Contracts to transfer liability for negligence
• Contracts in restraint of marriage
• Contracts in restraint of trade
• Unconscionable bargains
✔✔Usury - ✔✔The charging of an illegally high rate of interest on a loan
✔✔Exculpatory Clause - ✔✔A contractual provision purporting to excuse a party from
liability resulting from negligence or an otherwise wrongful act
, ✔✔In pari delicto agreement - ✔✔Illegal transaction in which both parties are at fault
✔✔Severable contract - ✔✔A contract that includes 2 or more promises, each of which
a court can enforce seperately
✔✔A contract that might be illegal can still be totally or partially enforceable under: -
✔✔• When a specific group is protected by law, an illegal contract might be enforceable
• In the case of in pari delicto agreements
• In a severable contract
✔✔Genuine assent - ✔✔Contracting parties' actual assent to form a contract or their
indication of intent to contract by their actions and words / The demonstration that the
parties have actually intended to form a legally binding agreement
✔✔Statute of Frauds - ✔✔A law to prevent fraud and perjury by requiring by requiring
that certain contracts be in writing and contain the signature of the party responsible for
performing that contract
✔✔6 situations in which contracts must be written to guarantee enforceability: - ✔✔1.
Contracts for the sale of land or any interest in land
2. Contracts that cannot be performed within one year
3. Contracts to pay another's debt
4. Contracts in consideration of marriage
5. Contracts by executors of decedents' estates to pay estate debts from executors' own
funds
6. Contracts for the sale of goods for $500 or more
✔✔Parol Evidence Rule - ✔✔A rule of evidence that limits the terms of a contract
evidenced by a writing to those expressed in writing
✔✔Parol Evidence Rule serves 3 purposes - ✔✔1. To carry out the parties' presumed
intention
2. To achieve certainty and finality as the parties' rights and duties
3. To exclude fraudulent and perjured claims
✔✔Types of 3rd party beneficiaries - ✔✔1. Creditor beneficiaries - Is owed a debt that is
to be satisfied by performance of a contract
2. Donee Beneficiaries - Receives benefit of contract's performance as a gift from the
promise, with the intent of the contracting parties
3. Incidental beneficiaries - Has no contractual rights but benefits from a contract even
though that is not the intent of the parties to the contract
✔✔Insurance contracts have special characteristics beyond the four essential elements
of all contracts - ✔✔1. They are conditional
GRADED A+
✔✔Types of Consideration: - ✔✔1. Valuable Consideration
2. Forbearance
3. Present Consideration
4. Future Consideration
5. Binding Promises
✔✔Nonperformance - ✔✔Right the insurer has against the insured when a material
breach occurs
✔✔Rights not assignable: - ✔✔1. Assignment of veterans' disability benefits,
government pensions, wages, inheritances, and WC benefits
2. Personal rights
3. When an assignment materially alters or varies the obligor's performance
4. When a judgment is pending in a personal injury case, generally the injured person
cannot assign a claim for damages resulting from the injury
5. The parties to an agreement might specify that they cannot, under the contract,
assign the rights.
✔✔Types of Damages: - ✔✔1. Compensatory - Payment awarded by a court to
reimburse a victim for actual harm
2. Consequential - Payment awarded to indemnify an injured arty for losses that result
indirectly from a wrong such as a breach of contract or tort
3. Punitive - Payment mean to punish defendant due to reckless, malicious, or deceitful
acts to deter similar conduct
4. Extracontractual - Payment awarded by a court that exceeds the usual contract
damages for a breach of contract (Grounds for assessing these damages are 1.)
Breach of the insurer's duty of good faith and fair dealing in insurance contracts, 2.)
Intentional infliction of emotional distress on the insured by the insurer's extreme and
outrageous conduct)
5. Liquidated - A reasonable estimation of actual damages, agreed to by the contracting
parties and included in the contract, to be paid in event of breach or negligence
✔✔*Parties to an illegal contract cannot - ✔✔recover damages for breach of contract or
seek recovery for partial performance they have made
✔✔When interpreting contract language - ✔✔courts give common word their ordinary
meanings and technical terms their technical meanings. Legal terms are given their
legal meaning under plain meaning rules of contract interpretation.
✔✔Factors of duration and termination - - ✔✔1. Lapse of time
2. Operation of law
3. Offeree's rejection
,4. Counteroffers
5. Offeror's revocation
✔✔2. Forbearance - ✔✔The act of giving up or the promise to give up a legal right
✔✔Parties who lack capacity to contract - ✔✔Minors, Insane persons, intoxicated
persons, artificial entities
✔✔Restitution - ✔✔The return of specific property by court order
✔✔Two classes of insane people - ✔✔Those adjudged insane and Those who claim to
be insane or mentally incompetent
✔✔To avoid a contract, person claiming insanity must prove one of two conditions: -
✔✔1. The person did not know that a contract was forming
2. The person did not understand the legal consequences of acts purporting to form the
contract
✔✔Sane person can enforce contract with insane person by proving - ✔✔1. The sane
party lacked knowledge of the insanity
2. The contract benefits the insane person
✔✔3 types of consideration are insufficient for forming a binding contract - ✔✔1. Past
consideration
2. Promises to perform existing obligations
3. Compromise and release of claims
✔✔Estoppel - ✔✔A legal principle that prohibits a party from asserting a claim or right
that is inconsistent with that party's past statement or conduct on which another party
has detrimentally relied
✔✔Types of illegal contracts: - ✔✔• Contracts to commit crimes or torts
• Contracts harmful to the public interest
• Usury contracts
• Wagering Contracts
• Contracts with unlicensed practitioners
• Contracts to transfer liability for negligence
• Contracts in restraint of marriage
• Contracts in restraint of trade
• Unconscionable bargains
✔✔Usury - ✔✔The charging of an illegally high rate of interest on a loan
✔✔Exculpatory Clause - ✔✔A contractual provision purporting to excuse a party from
liability resulting from negligence or an otherwise wrongful act
, ✔✔In pari delicto agreement - ✔✔Illegal transaction in which both parties are at fault
✔✔Severable contract - ✔✔A contract that includes 2 or more promises, each of which
a court can enforce seperately
✔✔A contract that might be illegal can still be totally or partially enforceable under: -
✔✔• When a specific group is protected by law, an illegal contract might be enforceable
• In the case of in pari delicto agreements
• In a severable contract
✔✔Genuine assent - ✔✔Contracting parties' actual assent to form a contract or their
indication of intent to contract by their actions and words / The demonstration that the
parties have actually intended to form a legally binding agreement
✔✔Statute of Frauds - ✔✔A law to prevent fraud and perjury by requiring by requiring
that certain contracts be in writing and contain the signature of the party responsible for
performing that contract
✔✔6 situations in which contracts must be written to guarantee enforceability: - ✔✔1.
Contracts for the sale of land or any interest in land
2. Contracts that cannot be performed within one year
3. Contracts to pay another's debt
4. Contracts in consideration of marriage
5. Contracts by executors of decedents' estates to pay estate debts from executors' own
funds
6. Contracts for the sale of goods for $500 or more
✔✔Parol Evidence Rule - ✔✔A rule of evidence that limits the terms of a contract
evidenced by a writing to those expressed in writing
✔✔Parol Evidence Rule serves 3 purposes - ✔✔1. To carry out the parties' presumed
intention
2. To achieve certainty and finality as the parties' rights and duties
3. To exclude fraudulent and perjured claims
✔✔Types of 3rd party beneficiaries - ✔✔1. Creditor beneficiaries - Is owed a debt that is
to be satisfied by performance of a contract
2. Donee Beneficiaries - Receives benefit of contract's performance as a gift from the
promise, with the intent of the contracting parties
3. Incidental beneficiaries - Has no contractual rights but benefits from a contract even
though that is not the intent of the parties to the contract
✔✔Insurance contracts have special characteristics beyond the four essential elements
of all contracts - ✔✔1. They are conditional
