CPCU 530 EXAM QUESTIONS WITH
100% CORRECT ANSWERS
The type of contract that has not been completely performed by one or both of the
parties is - Answer-An executory contract. (The type of contract that has not been
completely performed by one or both of the parties is an executory contract. An
executed contract is one that has been completely performed by both parties.)
Which one of the following best explains why most advertisements are not legally
enforceable offers? - Answer-Most advertisements express no present intent to contract
with the viewer of the advertisement.
Ordinarily an illegal contract is void, and neither party can sue under the contract.
Consequently, the parties to an illegal contract can neither recover damages for breach
of contract - Answer-Nor seek recovery for the partial performance they have made.
(The parties to an illegal contract can neither recover damages for the breach of
contract nor seek recovery for the value of any partial performance they have made.
Although this rule can result in a wrongdoer's unjust enrichment, it deters parties from
entering illegal contracts.)
Mr. Jones promises to pay his neighbor Alex $25 if he mows his lawn. Which one of the
following types of contract was created? - Answer-Unilateral contract (Mr. Jones has
created a unilateral contract. Under a unilateral contract, a promise is exchanged for an
act. When (and if) Alex mows the lawn, a contract will be formed and Mr. Jones will be
required to pay him $25. A bilateral contract requires the agreement of both the buyer
and seller.)
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? - Answer-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.)
Merve filed for bankruptcy a few years ago. One of the debts included in her bankruptcy
was a car loan financed by Lending Bank for $8,000. Which one of the following
,correctly describes whether Merve must do anything before Lending Back can enforce a
new promise by Merve to pay this debt and make payments once again on this
contract? - Answer-Merve need provide no additional consideration. (A new promise to
pay a debt barred by bankruptcy is enforceable without any additional consideration.
The promise must clearly express the promise to pay, and some states require renewal
promises to be in writing.)
After becoming intoxicated at a party, William agreed to sell Tom a car for $1,000. Tom
was aware that he and William were both intoxicated. Nevertheless, William knowingly
signed the contract with full knowledge of the legal consequences of the agreement.
The next day he called Tom and told him to tear up the contract and that he no longer
wanted to sell the car because he learned he could sell it for at least $5,000. Which one
of the following statements is true regarding William's contract with Tom? - Answer-The
contract is valid and not voidable. (Contracts made by people under the influence of
alcohol who know they are making a legal contract are valid and not voidable. Since
Tom did not purposely cause William to be intoxicated to obtain an unfair advantage
William has no basis for avoiding the contract.)
For contract purposes, an offer is valid if it includes an intent to contract, definite terms,
and - Answer-Communication to the other party.(For contract purposes, an offer is valid
if it includes an intent to contract, definite terms, and communication to the other party)
ABC Nuclear Company hired Ben to collect and dispose of their radioactive waste. The
contract was to last three years, and Ben was to be paid $100,000 a year in a lump sum
at the end of the contract. For the first year, Ben worked without any issues. At the end
of the first year, the state government passed a law that required people who disposed
of radioactive waste to acquire a license. Neither ABC nor Ben paid attention to this law
and Ben kept on working for another year. At the end of the second year, the law was
repealed. Again, Ben and ABC ignored these legal developments and Ben continued
working for his final year. At the end of the third year, Ben demanded $300,000. ABC
refused to pay and argued that because the contract had been illegal for the second
year, Ben had no legal standing to seek recovery. How much of the contract can Ben
enforce against ABC? - Answer-Ben can only enforce the first year of the contract, and
ABC must pay $100,000. (Ben can only enforce the first year of the contract, and ABC
must pay $100,000. There was a supervening illegality. The parties can recover the
value of the performance while the contract was still legal.)
Corporation X contracted to sell shares owned by a corporate director. Upon learning of
the sale, the director asserted that the attempted contract was not within the corporate
powers of Corporation X. The term most descriptive of this type of contract is which one
of the following? - Answer-An ultra vires contract (It would be an ultra vires contract.
Most states have abolished the defense of ultra vires, but courts often use the term
when discussing corporate concepts in written decisions. Traditionally, an attempted
contract that was not within corporate powers was voidable as an ultra vires contract,
meaning a contract "beyond its power.")
, Someone contracting while under the influence of alcohol or drugs can either - Answer-
Avoid or ratify the contract upon becoming sober. (A person who was intoxicated when
entering a contract can either avoid or ratify the contract upon becoming sober. The
intoxicated party is the only one with the right of avoidance.)
Which one of the following is a circumstance that is likely to make an exculpatory clause
in a contract unenforceable? - Answer-When the complaining party has a bargaining
disadvantage (An exculpatory clause is typically unenforceable if contrary to public
policy or when the other party has a bargaining disadvantage.)
Sarah sent auto mechanic Stan a letter stating she would pay him $500 to repair her
car's transmission. Stan knew where Sarah lived and he stopped by her home and
began the repairs. Sarah brought Stan a drink of water and left him to his work. In this
situation, the contract between Sarah and Stan is - Answer-Valid since Stan can choose
to repair Sarah's car rather than to give a return promise. (There is an offer and Stan's
performance of the repair is his acceptance to terms mutually agreed upon. When it is
unclear whether a contract is unilateral or bilateral, courts lean toward bilateral. While
the usual response to a bilateral contract is a return promise, the offeree can choose to
perform the act requested instead. (It could be argued that the contract is unilateral, in
which case there is acceptance when repairs began. But Stan could not have been
forced to accept/perform the contract if he did not want to.)
Physician Betty administered medical services to stroke victim Karl who was
unconscious. She provided medication and direction and followed all procedures. When
Karl woke up, he refused other medical services and he also indicated that he could not
be held liable for any expenses that he did not personally authorize or to which he did
not consent. It is likely that Karl might be required to pay the reasonable value of the
services received based on - Answer-An implied-in-law contract (This is typical of an
implied-in-law contract and not of an implied-in-fact, unilateral, or executory contract. If
a doctor renders professional services to an unconscious person then the law might
obligate the patient to pay for those services based on an implied-in-law contract, to
avoid unjust enrichment.)
Some contracts are voidable, and some agreements are void because they are not
contracts. When a contract is voidable, the right of avoidance is available only to -
Answer-An innocent or injured party. (The right of avoidance is available only to an
innocent or injured party and not necessarily to the offerer, offeree or all parties privy to
the contract.)
A painting contractor painted a subdivision's fire hydrants red, white, and blue without
the community association's permission and knowledge. The association's subsequent
promise to pay is not enforceable because the painting is insufficient to support a
contract. This situation is an example of - Answer-Past consideration. (To be a valuable
consideration, an act or promise must involve a present or future commitment sufficient
to support a contract. Past consideration is insufficient to support a contract.)
100% CORRECT ANSWERS
The type of contract that has not been completely performed by one or both of the
parties is - Answer-An executory contract. (The type of contract that has not been
completely performed by one or both of the parties is an executory contract. An
executed contract is one that has been completely performed by both parties.)
Which one of the following best explains why most advertisements are not legally
enforceable offers? - Answer-Most advertisements express no present intent to contract
with the viewer of the advertisement.
Ordinarily an illegal contract is void, and neither party can sue under the contract.
Consequently, the parties to an illegal contract can neither recover damages for breach
of contract - Answer-Nor seek recovery for the partial performance they have made.
(The parties to an illegal contract can neither recover damages for the breach of
contract nor seek recovery for the value of any partial performance they have made.
Although this rule can result in a wrongdoer's unjust enrichment, it deters parties from
entering illegal contracts.)
Mr. Jones promises to pay his neighbor Alex $25 if he mows his lawn. Which one of the
following types of contract was created? - Answer-Unilateral contract (Mr. Jones has
created a unilateral contract. Under a unilateral contract, a promise is exchanged for an
act. When (and if) Alex mows the lawn, a contract will be formed and Mr. Jones will be
required to pay him $25. A bilateral contract requires the agreement of both the buyer
and seller.)
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? - Answer-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.)
Merve filed for bankruptcy a few years ago. One of the debts included in her bankruptcy
was a car loan financed by Lending Bank for $8,000. Which one of the following
,correctly describes whether Merve must do anything before Lending Back can enforce a
new promise by Merve to pay this debt and make payments once again on this
contract? - Answer-Merve need provide no additional consideration. (A new promise to
pay a debt barred by bankruptcy is enforceable without any additional consideration.
The promise must clearly express the promise to pay, and some states require renewal
promises to be in writing.)
After becoming intoxicated at a party, William agreed to sell Tom a car for $1,000. Tom
was aware that he and William were both intoxicated. Nevertheless, William knowingly
signed the contract with full knowledge of the legal consequences of the agreement.
The next day he called Tom and told him to tear up the contract and that he no longer
wanted to sell the car because he learned he could sell it for at least $5,000. Which one
of the following statements is true regarding William's contract with Tom? - Answer-The
contract is valid and not voidable. (Contracts made by people under the influence of
alcohol who know they are making a legal contract are valid and not voidable. Since
Tom did not purposely cause William to be intoxicated to obtain an unfair advantage
William has no basis for avoiding the contract.)
For contract purposes, an offer is valid if it includes an intent to contract, definite terms,
and - Answer-Communication to the other party.(For contract purposes, an offer is valid
if it includes an intent to contract, definite terms, and communication to the other party)
ABC Nuclear Company hired Ben to collect and dispose of their radioactive waste. The
contract was to last three years, and Ben was to be paid $100,000 a year in a lump sum
at the end of the contract. For the first year, Ben worked without any issues. At the end
of the first year, the state government passed a law that required people who disposed
of radioactive waste to acquire a license. Neither ABC nor Ben paid attention to this law
and Ben kept on working for another year. At the end of the second year, the law was
repealed. Again, Ben and ABC ignored these legal developments and Ben continued
working for his final year. At the end of the third year, Ben demanded $300,000. ABC
refused to pay and argued that because the contract had been illegal for the second
year, Ben had no legal standing to seek recovery. How much of the contract can Ben
enforce against ABC? - Answer-Ben can only enforce the first year of the contract, and
ABC must pay $100,000. (Ben can only enforce the first year of the contract, and ABC
must pay $100,000. There was a supervening illegality. The parties can recover the
value of the performance while the contract was still legal.)
Corporation X contracted to sell shares owned by a corporate director. Upon learning of
the sale, the director asserted that the attempted contract was not within the corporate
powers of Corporation X. The term most descriptive of this type of contract is which one
of the following? - Answer-An ultra vires contract (It would be an ultra vires contract.
Most states have abolished the defense of ultra vires, but courts often use the term
when discussing corporate concepts in written decisions. Traditionally, an attempted
contract that was not within corporate powers was voidable as an ultra vires contract,
meaning a contract "beyond its power.")
, Someone contracting while under the influence of alcohol or drugs can either - Answer-
Avoid or ratify the contract upon becoming sober. (A person who was intoxicated when
entering a contract can either avoid or ratify the contract upon becoming sober. The
intoxicated party is the only one with the right of avoidance.)
Which one of the following is a circumstance that is likely to make an exculpatory clause
in a contract unenforceable? - Answer-When the complaining party has a bargaining
disadvantage (An exculpatory clause is typically unenforceable if contrary to public
policy or when the other party has a bargaining disadvantage.)
Sarah sent auto mechanic Stan a letter stating she would pay him $500 to repair her
car's transmission. Stan knew where Sarah lived and he stopped by her home and
began the repairs. Sarah brought Stan a drink of water and left him to his work. In this
situation, the contract between Sarah and Stan is - Answer-Valid since Stan can choose
to repair Sarah's car rather than to give a return promise. (There is an offer and Stan's
performance of the repair is his acceptance to terms mutually agreed upon. When it is
unclear whether a contract is unilateral or bilateral, courts lean toward bilateral. While
the usual response to a bilateral contract is a return promise, the offeree can choose to
perform the act requested instead. (It could be argued that the contract is unilateral, in
which case there is acceptance when repairs began. But Stan could not have been
forced to accept/perform the contract if he did not want to.)
Physician Betty administered medical services to stroke victim Karl who was
unconscious. She provided medication and direction and followed all procedures. When
Karl woke up, he refused other medical services and he also indicated that he could not
be held liable for any expenses that he did not personally authorize or to which he did
not consent. It is likely that Karl might be required to pay the reasonable value of the
services received based on - Answer-An implied-in-law contract (This is typical of an
implied-in-law contract and not of an implied-in-fact, unilateral, or executory contract. If
a doctor renders professional services to an unconscious person then the law might
obligate the patient to pay for those services based on an implied-in-law contract, to
avoid unjust enrichment.)
Some contracts are voidable, and some agreements are void because they are not
contracts. When a contract is voidable, the right of avoidance is available only to -
Answer-An innocent or injured party. (The right of avoidance is available only to an
innocent or injured party and not necessarily to the offerer, offeree or all parties privy to
the contract.)
A painting contractor painted a subdivision's fire hydrants red, white, and blue without
the community association's permission and knowledge. The association's subsequent
promise to pay is not enforceable because the painting is insufficient to support a
contract. This situation is an example of - Answer-Past consideration. (To be a valuable
consideration, an act or promise must involve a present or future commitment sufficient
to support a contract. Past consideration is insufficient to support a contract.)
