AIC 301 Exam 1 Questions and Correct
Answers
What are the elements of a legally binding contract?
To be legally binding, contracts must:
• Contain an agreement between all parties
• Involve parties with the legal capacity to contract
• Contain mutual assent
• Involve consideration
• Have a legal purpose
• Be in the form prescribed by law
What are the similarities and differences between bilateral and unilateral contracts?
In bilateral contracts, each party promises to perform an act in exchange for the act of the
other party. In a unilateral contract, one party promises to pay for an act of the other party. If
the act isn't performed, no payment is required
What are the similarities and differences between voidable and void contracts?
A voidable contract is a valid contract that can continue in force, and the parties can execute
it completely unless an innocent or injured party chooses to avoid it. The behavior of one of
the contracting parties, such as an act of fraud or illegal deceit, can also make a contract
voidable. A void contract is an agreement that never met the necessary criteria to be
considered a contract
What are the two remedies available to the plaintiff if fraud is proved in a given case?
If fraud is proved, the plaintiff can seek one of two remedies: •
,Rescission—If the court rescinds the contract, the plaintiff has no further duties under it and
is entitled to reimbursement of all payments made to the defendant. The plaintiff also must
return anything of value received under the contract. The court's goal is to restore the parties
to the condition they were in before they entered the contract.
• Sue for damages—If rescission wouldn't make the plaintiff whole, the plaintiff can sue for
damages in a tort action. The plaintiff can seek compensatory damages for quantifiable harm
and punitive damages to further punish the defendant and deter future, similar fraudulent
actions. The plaintiff must prove the extent of the loss to receive damages.
What are two things the insurer must prove to establish that fraudulent concealment
occurred?
To establish that fraudulent concealment occurred, the insurer must prove two things:
• The insured knew that the fact concealed was material.
• The insured concealed the fact with the intent to defraud.
What is the difference between unilateral and bilateral mistakes in a contract?
A unilateral mistake is made by one party to a contract. Bilateral mistakes occur when both
parties to a contract make the same mistake involving a material fact.
On what grounds can a person who has reasonably relied on an innocently
misrepresented material fact later avoid a contract?
A person who relies on a misrepresented material fact can later avoid a resulting contract
because he or she didn't achieve mutual assent
, What is the purpose of the parol evidence rule?
The parol evidence rule serves three purposes:
• Carry out the parties' presumed intention.
• Achieve certainty and finality as to the parties' rights and duties
. • Exclude fraudulent and perjured claims
How do courts resolve doubts and ambiguities in the language of a contract?
Courts use well-accepted interpretation guidelines to resolve doubts and ambiguities in an
existing contract. These guidelines are not strict legal rules, and they aren't designed to create
a new contract or rewrite an old one
. What's the difference between entire and divisible contracts?
Contracts can be characterized as entire or divisible. In an entire contract, one party must
fulfill all terms of the contract to be entitled to the other party's specified act. In a divisible
contract, one party is entitled to payment for each portion of the contract completed
How do courts prioritize the types of changes that can be made to printed contract
forms?
Courts prioritize any changes to printed contract forms in this order:
• Handwriting prevails over printing.
• Words prevail over numbers
Why might contract rights be unassignable?
Contract rights are unassignable if:
• Laws restrict prior assignment of such rights as veterans disability benefits, government
pensions, wages, inheritances, and workers compensation benefits.
• The parties to an agreement specify that they cannot, under the contract, assign the rights.
Answers
What are the elements of a legally binding contract?
To be legally binding, contracts must:
• Contain an agreement between all parties
• Involve parties with the legal capacity to contract
• Contain mutual assent
• Involve consideration
• Have a legal purpose
• Be in the form prescribed by law
What are the similarities and differences between bilateral and unilateral contracts?
In bilateral contracts, each party promises to perform an act in exchange for the act of the
other party. In a unilateral contract, one party promises to pay for an act of the other party. If
the act isn't performed, no payment is required
What are the similarities and differences between voidable and void contracts?
A voidable contract is a valid contract that can continue in force, and the parties can execute
it completely unless an innocent or injured party chooses to avoid it. The behavior of one of
the contracting parties, such as an act of fraud or illegal deceit, can also make a contract
voidable. A void contract is an agreement that never met the necessary criteria to be
considered a contract
What are the two remedies available to the plaintiff if fraud is proved in a given case?
If fraud is proved, the plaintiff can seek one of two remedies: •
,Rescission—If the court rescinds the contract, the plaintiff has no further duties under it and
is entitled to reimbursement of all payments made to the defendant. The plaintiff also must
return anything of value received under the contract. The court's goal is to restore the parties
to the condition they were in before they entered the contract.
• Sue for damages—If rescission wouldn't make the plaintiff whole, the plaintiff can sue for
damages in a tort action. The plaintiff can seek compensatory damages for quantifiable harm
and punitive damages to further punish the defendant and deter future, similar fraudulent
actions. The plaintiff must prove the extent of the loss to receive damages.
What are two things the insurer must prove to establish that fraudulent concealment
occurred?
To establish that fraudulent concealment occurred, the insurer must prove two things:
• The insured knew that the fact concealed was material.
• The insured concealed the fact with the intent to defraud.
What is the difference between unilateral and bilateral mistakes in a contract?
A unilateral mistake is made by one party to a contract. Bilateral mistakes occur when both
parties to a contract make the same mistake involving a material fact.
On what grounds can a person who has reasonably relied on an innocently
misrepresented material fact later avoid a contract?
A person who relies on a misrepresented material fact can later avoid a resulting contract
because he or she didn't achieve mutual assent
, What is the purpose of the parol evidence rule?
The parol evidence rule serves three purposes:
• Carry out the parties' presumed intention.
• Achieve certainty and finality as to the parties' rights and duties
. • Exclude fraudulent and perjured claims
How do courts resolve doubts and ambiguities in the language of a contract?
Courts use well-accepted interpretation guidelines to resolve doubts and ambiguities in an
existing contract. These guidelines are not strict legal rules, and they aren't designed to create
a new contract or rewrite an old one
. What's the difference between entire and divisible contracts?
Contracts can be characterized as entire or divisible. In an entire contract, one party must
fulfill all terms of the contract to be entitled to the other party's specified act. In a divisible
contract, one party is entitled to payment for each portion of the contract completed
How do courts prioritize the types of changes that can be made to printed contract
forms?
Courts prioritize any changes to printed contract forms in this order:
• Handwriting prevails over printing.
• Words prevail over numbers
Why might contract rights be unassignable?
Contract rights are unassignable if:
• Laws restrict prior assignment of such rights as veterans disability benefits, government
pensions, wages, inheritances, and workers compensation benefits.
• The parties to an agreement specify that they cannot, under the contract, assign the rights.
