CPCU 530 COMPREHENSIVE EXAM UPDATED QUESTIONS
AND ANSWERS GRADED A+
✔✔Katie purchased several hundred acres and was considering building houses on the
land and turning it into a residential subdivision. Katie made a contract with Leah,
whereby Leah promised to do all plumbing work Katie needed in the subdivision, and
Katie promised to only hire Leah if she decided to build houses on the land. This
contract is - ✔✔Unenforceable, for lack of valid consideration. (This contract is
unenforceable, for lack of valid consideration. A party's promise to pay for any work it
might request of another party is not binding because the promisor might ask for no
work. (Requirements contracts and output contracts can be exceptions.)
✔✔Which one of the following most accurately describes the ability of an offeror to
revoke an offer made to an individual offeree? - ✔✔An offeror can revoke an offer any
time before acceptance, but the revocation is effective only when communicated to the
offeree and the offeree actually receives the communication. (An offeror can revoke an
offer any time before acceptance, but the revocation is effective only when
communicated to the offeree and the offeree actually receives the communication.)
✔✔Carolina was a counterfeiter. She sought a property insurance policy on the
warehouse where her counterfeiting operations took place, as well as a business
interruption insurance policy on the operations themselves. Both Carolina and her
insurance producer believed that these policies would be valid and enforceable. They
also both incorrectly believed that the property insurance policy covered lightning
strikes. Lightning was extremely rare in Carolina's area and had never caused damage
to any buildings in the past. Which one of the following statements is true? - ✔✔The
property policy is enforceable, and the business interruption policy is void. (The property
policy is enforceable, and the business interruption policy is void. Insurance contracts
must involve legal subject matter. But if the insurance is only incidental to an illegal
purpose, then the contract is enforceable.)
✔✔Margaret, who had been drinking all evening at a business meeting, signed and
mailed a written offer to sell 1,000 shares of a particular stock to Frank which, unknown
to her, would make Frank the majority shareholder in that company's stock. Frank was
unaware that Margaret had been intoxicated at the time she formed the contract. Under
these circumstances Margaret - ✔✔Cannot avoid the contract. (Margaret can attempt to
avoid the contract but Frank can claim lack of knowledge of Margaret's condition and
most likely the contract will be enforced.)
✔✔Brenda offered to sell her collection of gemstones to Jolene for $25,000, and Jolene
told her brother Kevin about Brenda's offer. When Jolene died in an auto accident,
Kevin, as executor of Jolene's estate, tried to accept Brenda's offer to sell the collection.
Kevin's acceptance on behalf of the estate is - ✔✔Not enforceable because the offeror
has the right to choose with whom to contract. (Kevin's acceptance on behalf of the
,estate is not enforceable because the offeror has the right to choose with whom to
contract.)
✔✔A contract has been formed for the construction of a shopping mall. The company
representing the shopping mall has made a payment of $10,000. Which one of the
following is the type of consideration is this payment? - ✔✔Valuable (This is a valuable
consideration; necessary and sufficient to support a valid contract. Other types of
consideration: forbearance, present consideration, future consideration, and binding
promise (ex., a promisor's agreement to buy from the promisee all the coal the promisor
requires during a specified period).
✔✔Franklin says to Dorian: "I will sell you 15 dog collars in any color at $10.00 each if
you give me the money by Saturday." Which one of the following statements constitutes
an unconditional and unequivocal acceptance by Dorian? - ✔✔I accept. I will buy the
collars on or before Saturday with the color of the collars to be worked out. (Acceptance
must be unconditional and unequivocal; meaning that the acceptance follows the terms
of the offer and the provisions regarding time, place, or manner of acceptance. When
it's unclear, as it arguably is here, whether the parties intended a unilateral or bilateral
contract, courts usually rule in favor of bilateral. With bilateral, acceptance is complete
when the offeror provides the requested return promise.)
✔✔On June 1, Tobias mailed a signed offer to Emilia to purchase her set of antique
ivory forks. The offer stated that it was open for one week. Emilia received the offer on
June 4, thought the price was fair, and signed her name on the offer to indicate her
acceptance. On June 6, Emilia died. The executor of Emilia's estate found the offer with
Emilia's signature of acceptance on June 7 and mailed it to Tobias that day. On June 8,
a law went into effect that prohibited the sale of ivory in any form from that day forward.
Tobias received the signed offer on June 10. Which one of the following best explains
why Tobias and Emilia do not have an enforceable contract? - ✔✔Tobias's offer lapsed
because Emilia did not communicate her acceptance before June 8. (Tobias's offer
lapsed because Emilia did not communicate her acceptance before June 8. An estate
cannot accept the pre-death offer.)
✔✔Which one of the following is true regarding the capacity of a minor to contract? -
✔✔A minor must fulfill his or her obligation under a contract for necessaries. (A minor
must fulfill his or her obligation under a contract for necessaries. A minor who is
misrepresenting age can generally avoid a contract, but the other party can, too. A
minor avoiding a contract must make restitution in most states. A parent is not liable for
a minor's contracts, with some exceptions)
✔✔Public policy requires that the insured have an insurable interest in any property or
life to be covered by the policy. A person has an insurable interest in property if its
destruction would cause direct monetary loss. In order to be covered, this insurable
interest must exist - ✔✔At the time of loss. (The insurable interest must exist at the time
of loss. (In property-casualty insurance, the insurable interest must exist at the time the
, loss occurs. In contrast, the insurable interest in a life must exist at the time the
applicant obtains insurance coverage.)
✔✔In January, Sue verbally agrees to sell one of two her houses to Scott for $250,000
before the end of the year. In November, Scott asks Sue for a written contract and
receives a signed handwritten note restating their prior verbal agreement, but it does not
say which house is being sold. Is this an enforceable contract? - ✔✔Yes, because it
reflects the essential elements of a contract. (Yes, this is an enforceable contract
because it reflects the essential elements of a contract. Oral evidence is always
admissible to help interpret or explain a written agreement, but not to alter its terms.
(Even though "parol" means "oral," the parol evidence rule applies to all forms of
extrinsic evidence, not just oral evidence.)
✔✔Alex contracted with Joshua to sell Joshua 14 barges of a certain type for an agreed
upon price. Alex's supplier then called to announce their bankruptcy and to suggest an
alternate supplier. The alternate supplier is a foreign company that Alex refused to use
in the past. He told Joshua that it was impossible for him to sell the barges to him.
Regardless of how the court responds to a breach of contract lawsuit, this is an example
of - ✔✔Subjective impossibility that does not discharge the obligation. (This is an
example of subjective impossibility that does not discharge the obligation. Subjective
impossibility means that the promisor will not perform even though performance is
conceivable. Subjective impossibility does not discharge the obligation because the
promisor has assumed the change of personal inability to perform.)
✔✔Contracts subject to the statute of frauds include - ✔✔Contracts for the sale of an
interest in land and contracts for the sale of personal property for at least $500.
(Contracts for the sale of an interest in land and contracts for the sale of personal
property for at least $500, plus agreements that cannot be performed within one year,
agreements to pay a debt owed by another person, and agreements in which an
executor of an estate promises to pay estate debts from personal funds.)
✔✔Susie agreed to sell grocer Marcus 1,000 jars of jelly for a total price of $2,000.
Marcus breached the contract, and Susie had to find an alternate buyer. She found one
who would purchase the jelly for $1,500. Susie, therefore, lost $500 because of Marcus'
breaching their contract of sale. Susie has which one of the following remedies available
for this breach of contract? - ✔✔Damages (Damages, as a remedy, are available if a
seller appropriately resells the goods and receives less than the contract price. The
difference between the contract price of $2,000 and the price on resale of $1,500 (which
is $500) is the damages. These were compensatory damages which would be used to
indemnify Susie for the actual harm cause by the breach of contract by Marcus.)
✔✔Charlie contracted to purchase an old barn from Page. Charlie breached the
contract and forfeited a deposit to Page. Henry wanted to buy the barn but learns about
Charlie's forfeited deposit. Henry does not know Charlie but believes that Page should
not keep Charlie's deposit. Henry agrees to purchase the barn only if Page promised to
AND ANSWERS GRADED A+
✔✔Katie purchased several hundred acres and was considering building houses on the
land and turning it into a residential subdivision. Katie made a contract with Leah,
whereby Leah promised to do all plumbing work Katie needed in the subdivision, and
Katie promised to only hire Leah if she decided to build houses on the land. This
contract is - ✔✔Unenforceable, for lack of valid consideration. (This contract is
unenforceable, for lack of valid consideration. A party's promise to pay for any work it
might request of another party is not binding because the promisor might ask for no
work. (Requirements contracts and output contracts can be exceptions.)
✔✔Which one of the following most accurately describes the ability of an offeror to
revoke an offer made to an individual offeree? - ✔✔An offeror can revoke an offer any
time before acceptance, but the revocation is effective only when communicated to the
offeree and the offeree actually receives the communication. (An offeror can revoke an
offer any time before acceptance, but the revocation is effective only when
communicated to the offeree and the offeree actually receives the communication.)
✔✔Carolina was a counterfeiter. She sought a property insurance policy on the
warehouse where her counterfeiting operations took place, as well as a business
interruption insurance policy on the operations themselves. Both Carolina and her
insurance producer believed that these policies would be valid and enforceable. They
also both incorrectly believed that the property insurance policy covered lightning
strikes. Lightning was extremely rare in Carolina's area and had never caused damage
to any buildings in the past. Which one of the following statements is true? - ✔✔The
property policy is enforceable, and the business interruption policy is void. (The property
policy is enforceable, and the business interruption policy is void. Insurance contracts
must involve legal subject matter. But if the insurance is only incidental to an illegal
purpose, then the contract is enforceable.)
✔✔Margaret, who had been drinking all evening at a business meeting, signed and
mailed a written offer to sell 1,000 shares of a particular stock to Frank which, unknown
to her, would make Frank the majority shareholder in that company's stock. Frank was
unaware that Margaret had been intoxicated at the time she formed the contract. Under
these circumstances Margaret - ✔✔Cannot avoid the contract. (Margaret can attempt to
avoid the contract but Frank can claim lack of knowledge of Margaret's condition and
most likely the contract will be enforced.)
✔✔Brenda offered to sell her collection of gemstones to Jolene for $25,000, and Jolene
told her brother Kevin about Brenda's offer. When Jolene died in an auto accident,
Kevin, as executor of Jolene's estate, tried to accept Brenda's offer to sell the collection.
Kevin's acceptance on behalf of the estate is - ✔✔Not enforceable because the offeror
has the right to choose with whom to contract. (Kevin's acceptance on behalf of the
,estate is not enforceable because the offeror has the right to choose with whom to
contract.)
✔✔A contract has been formed for the construction of a shopping mall. The company
representing the shopping mall has made a payment of $10,000. Which one of the
following is the type of consideration is this payment? - ✔✔Valuable (This is a valuable
consideration; necessary and sufficient to support a valid contract. Other types of
consideration: forbearance, present consideration, future consideration, and binding
promise (ex., a promisor's agreement to buy from the promisee all the coal the promisor
requires during a specified period).
✔✔Franklin says to Dorian: "I will sell you 15 dog collars in any color at $10.00 each if
you give me the money by Saturday." Which one of the following statements constitutes
an unconditional and unequivocal acceptance by Dorian? - ✔✔I accept. I will buy the
collars on or before Saturday with the color of the collars to be worked out. (Acceptance
must be unconditional and unequivocal; meaning that the acceptance follows the terms
of the offer and the provisions regarding time, place, or manner of acceptance. When
it's unclear, as it arguably is here, whether the parties intended a unilateral or bilateral
contract, courts usually rule in favor of bilateral. With bilateral, acceptance is complete
when the offeror provides the requested return promise.)
✔✔On June 1, Tobias mailed a signed offer to Emilia to purchase her set of antique
ivory forks. The offer stated that it was open for one week. Emilia received the offer on
June 4, thought the price was fair, and signed her name on the offer to indicate her
acceptance. On June 6, Emilia died. The executor of Emilia's estate found the offer with
Emilia's signature of acceptance on June 7 and mailed it to Tobias that day. On June 8,
a law went into effect that prohibited the sale of ivory in any form from that day forward.
Tobias received the signed offer on June 10. Which one of the following best explains
why Tobias and Emilia do not have an enforceable contract? - ✔✔Tobias's offer lapsed
because Emilia did not communicate her acceptance before June 8. (Tobias's offer
lapsed because Emilia did not communicate her acceptance before June 8. An estate
cannot accept the pre-death offer.)
✔✔Which one of the following is true regarding the capacity of a minor to contract? -
✔✔A minor must fulfill his or her obligation under a contract for necessaries. (A minor
must fulfill his or her obligation under a contract for necessaries. A minor who is
misrepresenting age can generally avoid a contract, but the other party can, too. A
minor avoiding a contract must make restitution in most states. A parent is not liable for
a minor's contracts, with some exceptions)
✔✔Public policy requires that the insured have an insurable interest in any property or
life to be covered by the policy. A person has an insurable interest in property if its
destruction would cause direct monetary loss. In order to be covered, this insurable
interest must exist - ✔✔At the time of loss. (The insurable interest must exist at the time
of loss. (In property-casualty insurance, the insurable interest must exist at the time the
, loss occurs. In contrast, the insurable interest in a life must exist at the time the
applicant obtains insurance coverage.)
✔✔In January, Sue verbally agrees to sell one of two her houses to Scott for $250,000
before the end of the year. In November, Scott asks Sue for a written contract and
receives a signed handwritten note restating their prior verbal agreement, but it does not
say which house is being sold. Is this an enforceable contract? - ✔✔Yes, because it
reflects the essential elements of a contract. (Yes, this is an enforceable contract
because it reflects the essential elements of a contract. Oral evidence is always
admissible to help interpret or explain a written agreement, but not to alter its terms.
(Even though "parol" means "oral," the parol evidence rule applies to all forms of
extrinsic evidence, not just oral evidence.)
✔✔Alex contracted with Joshua to sell Joshua 14 barges of a certain type for an agreed
upon price. Alex's supplier then called to announce their bankruptcy and to suggest an
alternate supplier. The alternate supplier is a foreign company that Alex refused to use
in the past. He told Joshua that it was impossible for him to sell the barges to him.
Regardless of how the court responds to a breach of contract lawsuit, this is an example
of - ✔✔Subjective impossibility that does not discharge the obligation. (This is an
example of subjective impossibility that does not discharge the obligation. Subjective
impossibility means that the promisor will not perform even though performance is
conceivable. Subjective impossibility does not discharge the obligation because the
promisor has assumed the change of personal inability to perform.)
✔✔Contracts subject to the statute of frauds include - ✔✔Contracts for the sale of an
interest in land and contracts for the sale of personal property for at least $500.
(Contracts for the sale of an interest in land and contracts for the sale of personal
property for at least $500, plus agreements that cannot be performed within one year,
agreements to pay a debt owed by another person, and agreements in which an
executor of an estate promises to pay estate debts from personal funds.)
✔✔Susie agreed to sell grocer Marcus 1,000 jars of jelly for a total price of $2,000.
Marcus breached the contract, and Susie had to find an alternate buyer. She found one
who would purchase the jelly for $1,500. Susie, therefore, lost $500 because of Marcus'
breaching their contract of sale. Susie has which one of the following remedies available
for this breach of contract? - ✔✔Damages (Damages, as a remedy, are available if a
seller appropriately resells the goods and receives less than the contract price. The
difference between the contract price of $2,000 and the price on resale of $1,500 (which
is $500) is the damages. These were compensatory damages which would be used to
indemnify Susie for the actual harm cause by the breach of contract by Marcus.)
✔✔Charlie contracted to purchase an old barn from Page. Charlie breached the
contract and forfeited a deposit to Page. Henry wanted to buy the barn but learns about
Charlie's forfeited deposit. Henry does not know Charlie but believes that Page should
not keep Charlie's deposit. Henry agrees to purchase the barn only if Page promised to
