CPCU 530 - A2 PRACTICE QUESTIONS & ANSWERS
Elements of a legally binding contract - Answers :-Agreement (includes the offer and
acceptance)
-Capacity (or competence) of all involved parties
-Mutual assent
-Consideration
-Legal purpose
-Proper, legally required form
-pg. 1.4
Offeror - Answers :The party to a contract who promises to give something in return for
a promise or an act by another party
-pg. 1.4
Offeree - Answers :The party to a contract who makes a promise or acts in return for
something offered by another party
-pg. 1.4
For an agreement to be valid, it must include an offer and acceptance - Answers :-Offer:
intent to contract, definite terms, and communication to the offeree
-Acceptance: acceptance by the offeree, unconditional and unequivocal acceptance,
and the offeree's communication of acceptance
-pg. 1.4
Five circumstances under which genuine asset to a contract may be considered lacking
- Answers :-Fraud
-Mistake
-Duress
-Undue influence
-Innocent misrepresentation
-pg. 1.5
Fraud - Answers :-The intentional misrepresentation of facts that causes harm to a
person or an organization.
-The offended party usually has the option of rescinding the contract or suing for
damages
-pg. 1.5
Mistake - Answers :-Mistakes can be made regarding the facts of a transaction or laws
affecting an agreement
-Some mistakes don't affect the parties' rights, but others can make an agreement
voidable or unenforceable
-pg. 1.5
,Duress - Answers :A party who enters a contract under duress may not have given
genuine asset
-pg. 1.5
Undue influence - Answers :-The improper use of power or trust to deprive a person's
free will and to substitute that person's objective w someone else's can remove the
possibility of genuine asset
-Ex. an attorney who gives advice to a client that benefits the attorney rather than
ensures the best possible outcome for the client
-pg. 1.5
Innocent misrepresentation - Answers :-Important facts are incorrectly portrayed
-Can lead to a contract being voided, but monetary damages aren't awarded for it
-pg. 1.5
Consideration - Answers :-Something of value or bargained for and exchanged by the
parties to a contract
-The promisor must receive a legal benefit, such as money, or the promisee must suffer
a legal detriment, such as inconvenience, loss, or relinquishment of something of value
-Consideration necessary to make a promise enforceable can be a return promise, an
act performed, or giving up a legal right
-pg. 1.5
Bilateral contract - Answers :-A contract in which each party promises a performance
-pg. 1.6
Unilateral contract - Answers :-A contract in which only one party makes a promise or
undertakes the requested performance
-One party promises to pay for an act of the other party. If the act isn't performed, no
payment is required.
-pg. 1.6
Executed contract - Answers :-A contract that has been completely performed by both
parties
-Requires nothing more of either party to be fulfilled
-pg. 1.6
Executory contract - Answers :-A contract that hasn't been completely performed by one
or both of the parties
-Hasn't been fully executed
-Ex. fire insurance policy (insurer's promise to perform (provide coverage) is conditional
on the occurrence of a fire. As long as no fire occurs, the contract remains executory
-pg. 1.6
Express contract - Answers :-A contract whose terms and intentions are explicitly stated
orally or in writing
,-pg. 1.7
Implied contract - Answers :-A contract whose terms and intentions are indicated by the
actions of the parties to the contract and the surrounding circumstances
-Created by the nonverbal, nonwritten conduct of the parties
-Can be implied-in-fact contracts or implied-in-law contracts
-pg. 1.7
Sales contracts - Answers :-Legally enforceable agreement between a buyer and seller
that involves transferring ownership of goods for a price
-It needs to be signed by the party facing legal action
Title and risk of loss as a component of sales contract performance: - Answers :-When
title to a good is transferred from the seller to the buyer, the risk also transfers to the
buyer.
-Not true when goods remain at the seller's residence or place of business and the
buyer has to pick them up
Delivery as a component of sales contract performance: - Answers :-If the time for
delivery isn't stated in or can't be inferred from the contract or the parties' past practices,
delivery must occur within a reasonable time
-Unless a seller inserts an obligation into the contract, such as "time is of the essence,"
a delay in a delivery isn't a breach of contract if performance becomes impractical bc of
an occurrence that neither party could foresee
Inspection as a component of sales contract performance: - Answers :-Buyer has the
right to inspect all goods upon delivery
-Often a condition of acceptance and payment and include testing at the buyer's
expense
-A buyer who rejects goods for failure to conform to the contract specs may be able to
recover testing costs from seller
Conforming and nonconforming goods as a component of sales contract performance: -
Answers :-Goods that don't meet contract obligations are nonconforming goods
-Shipping nonconforming goods to a buyer is a breach of contract
Warranties as a component of sales contract performance: - Answers :-Contracts for the
sale of goods can contain statutory warranties, as well as the seller's express warranties
or implied warranties
Breach of Sales Contracts - Answers :-To be able to sue for breach of contract, the
buyer must first give reasonable notice of rejection to the seller, stating the defect
-Notice gives the seller the opportunity to cure the defect
-If seller has no agent or place of business in the buyer's market area, the buyer must
follow the seller's instructions for what to do w the rejected goods
, -If goods are perishable, the buyer can sell them on the seller's behalf. If they're not
perishable and the buyer doesn't receive instructions within a reasonable time, the
buyer can sell them or store them or ship them to the seller.
-These cases of the buyer's acceptance of nonconforming goods doesn't waive or forfeit
any right to sue for the breach. The buyer must have notified the seller of the
nonconformity within a reasonable time and must prove that the goods were
nonconforming
Documents of Title - Answers :-A title is any document that, in the course of business or
financing, adequately proves that the possessor is entitled to receive, hold, and dispose
of the document and the goods it covers
Bill of Lading Purposes - Answers :-Serves as a contract for the transportation
(carriage) of the goods
-Serves as a receipt of the goods by the carrier for delivery
-Can serve as title to the goods under certain circumstances
-Can identify the terms of the agreement, including goods by: type and amount,
consignor, carrier, provisions of the agreement for shipping, any special instructions,
consignee, date shipped, terms of delivery, freight terms (prepaid, collect, or from a third
party)
-pg. 1.12
Bailment - Answers :-The temporary possession by one party (the bailee) of personal
property owned by another party (the bailor) for a specific purpose, such as cleaning or
repair
-Ex. Storage arrangement of goods in a warehouse
-Bailee: warehouse operator
-Bailor: person/entity storing goods
warehouse receipt (type of title) - Answers :-Warehouse operators provide the goods'
owner w a receipt that describes the amount, type, and condition of the goods and the
conditions of storage
-Can be considered a document of title to the goods, which, if properly worded,
becomes a negotiable instrument that can be traded, sold, swapped, or used as
collateral for borrowing
-UCC Article 7 allows warehouse operator to limit liability through terms in the
warehouse receipt or storage agreement. (may specify an amount per article, item, or
unit of weight)
-pg. 1.12
The Federal Trade Commission (FTC) Act - Answers :-Fair trade law
-Prohibits unfair methods of competition and unfair or deceptive acts or practices that
restrict interstate commerce
-Broader than antitrust laws. It prohibits unfair or deceptive acts that have no
relationship to competition
-pg. 1.13
Elements of a legally binding contract - Answers :-Agreement (includes the offer and
acceptance)
-Capacity (or competence) of all involved parties
-Mutual assent
-Consideration
-Legal purpose
-Proper, legally required form
-pg. 1.4
Offeror - Answers :The party to a contract who promises to give something in return for
a promise or an act by another party
-pg. 1.4
Offeree - Answers :The party to a contract who makes a promise or acts in return for
something offered by another party
-pg. 1.4
For an agreement to be valid, it must include an offer and acceptance - Answers :-Offer:
intent to contract, definite terms, and communication to the offeree
-Acceptance: acceptance by the offeree, unconditional and unequivocal acceptance,
and the offeree's communication of acceptance
-pg. 1.4
Five circumstances under which genuine asset to a contract may be considered lacking
- Answers :-Fraud
-Mistake
-Duress
-Undue influence
-Innocent misrepresentation
-pg. 1.5
Fraud - Answers :-The intentional misrepresentation of facts that causes harm to a
person or an organization.
-The offended party usually has the option of rescinding the contract or suing for
damages
-pg. 1.5
Mistake - Answers :-Mistakes can be made regarding the facts of a transaction or laws
affecting an agreement
-Some mistakes don't affect the parties' rights, but others can make an agreement
voidable or unenforceable
-pg. 1.5
,Duress - Answers :A party who enters a contract under duress may not have given
genuine asset
-pg. 1.5
Undue influence - Answers :-The improper use of power or trust to deprive a person's
free will and to substitute that person's objective w someone else's can remove the
possibility of genuine asset
-Ex. an attorney who gives advice to a client that benefits the attorney rather than
ensures the best possible outcome for the client
-pg. 1.5
Innocent misrepresentation - Answers :-Important facts are incorrectly portrayed
-Can lead to a contract being voided, but monetary damages aren't awarded for it
-pg. 1.5
Consideration - Answers :-Something of value or bargained for and exchanged by the
parties to a contract
-The promisor must receive a legal benefit, such as money, or the promisee must suffer
a legal detriment, such as inconvenience, loss, or relinquishment of something of value
-Consideration necessary to make a promise enforceable can be a return promise, an
act performed, or giving up a legal right
-pg. 1.5
Bilateral contract - Answers :-A contract in which each party promises a performance
-pg. 1.6
Unilateral contract - Answers :-A contract in which only one party makes a promise or
undertakes the requested performance
-One party promises to pay for an act of the other party. If the act isn't performed, no
payment is required.
-pg. 1.6
Executed contract - Answers :-A contract that has been completely performed by both
parties
-Requires nothing more of either party to be fulfilled
-pg. 1.6
Executory contract - Answers :-A contract that hasn't been completely performed by one
or both of the parties
-Hasn't been fully executed
-Ex. fire insurance policy (insurer's promise to perform (provide coverage) is conditional
on the occurrence of a fire. As long as no fire occurs, the contract remains executory
-pg. 1.6
Express contract - Answers :-A contract whose terms and intentions are explicitly stated
orally or in writing
,-pg. 1.7
Implied contract - Answers :-A contract whose terms and intentions are indicated by the
actions of the parties to the contract and the surrounding circumstances
-Created by the nonverbal, nonwritten conduct of the parties
-Can be implied-in-fact contracts or implied-in-law contracts
-pg. 1.7
Sales contracts - Answers :-Legally enforceable agreement between a buyer and seller
that involves transferring ownership of goods for a price
-It needs to be signed by the party facing legal action
Title and risk of loss as a component of sales contract performance: - Answers :-When
title to a good is transferred from the seller to the buyer, the risk also transfers to the
buyer.
-Not true when goods remain at the seller's residence or place of business and the
buyer has to pick them up
Delivery as a component of sales contract performance: - Answers :-If the time for
delivery isn't stated in or can't be inferred from the contract or the parties' past practices,
delivery must occur within a reasonable time
-Unless a seller inserts an obligation into the contract, such as "time is of the essence,"
a delay in a delivery isn't a breach of contract if performance becomes impractical bc of
an occurrence that neither party could foresee
Inspection as a component of sales contract performance: - Answers :-Buyer has the
right to inspect all goods upon delivery
-Often a condition of acceptance and payment and include testing at the buyer's
expense
-A buyer who rejects goods for failure to conform to the contract specs may be able to
recover testing costs from seller
Conforming and nonconforming goods as a component of sales contract performance: -
Answers :-Goods that don't meet contract obligations are nonconforming goods
-Shipping nonconforming goods to a buyer is a breach of contract
Warranties as a component of sales contract performance: - Answers :-Contracts for the
sale of goods can contain statutory warranties, as well as the seller's express warranties
or implied warranties
Breach of Sales Contracts - Answers :-To be able to sue for breach of contract, the
buyer must first give reasonable notice of rejection to the seller, stating the defect
-Notice gives the seller the opportunity to cure the defect
-If seller has no agent or place of business in the buyer's market area, the buyer must
follow the seller's instructions for what to do w the rejected goods
, -If goods are perishable, the buyer can sell them on the seller's behalf. If they're not
perishable and the buyer doesn't receive instructions within a reasonable time, the
buyer can sell them or store them or ship them to the seller.
-These cases of the buyer's acceptance of nonconforming goods doesn't waive or forfeit
any right to sue for the breach. The buyer must have notified the seller of the
nonconformity within a reasonable time and must prove that the goods were
nonconforming
Documents of Title - Answers :-A title is any document that, in the course of business or
financing, adequately proves that the possessor is entitled to receive, hold, and dispose
of the document and the goods it covers
Bill of Lading Purposes - Answers :-Serves as a contract for the transportation
(carriage) of the goods
-Serves as a receipt of the goods by the carrier for delivery
-Can serve as title to the goods under certain circumstances
-Can identify the terms of the agreement, including goods by: type and amount,
consignor, carrier, provisions of the agreement for shipping, any special instructions,
consignee, date shipped, terms of delivery, freight terms (prepaid, collect, or from a third
party)
-pg. 1.12
Bailment - Answers :-The temporary possession by one party (the bailee) of personal
property owned by another party (the bailor) for a specific purpose, such as cleaning or
repair
-Ex. Storage arrangement of goods in a warehouse
-Bailee: warehouse operator
-Bailor: person/entity storing goods
warehouse receipt (type of title) - Answers :-Warehouse operators provide the goods'
owner w a receipt that describes the amount, type, and condition of the goods and the
conditions of storage
-Can be considered a document of title to the goods, which, if properly worded,
becomes a negotiable instrument that can be traded, sold, swapped, or used as
collateral for borrowing
-UCC Article 7 allows warehouse operator to limit liability through terms in the
warehouse receipt or storage agreement. (may specify an amount per article, item, or
unit of weight)
-pg. 1.12
The Federal Trade Commission (FTC) Act - Answers :-Fair trade law
-Prohibits unfair methods of competition and unfair or deceptive acts or practices that
restrict interstate commerce
-Broader than antitrust laws. It prohibits unfair or deceptive acts that have no
relationship to competition
-pg. 1.13
