Preview Extract
CHAPTER 12-PRACTICAL CONTRACTS
TRUE/FALSE
1. If you have an established relationship with a buyer, you can sell small tracts of land
without a written contract.
Answer: False
2. In business law, a lawyer’s primary job is to represent the client in contract litigation.
Answer: False
3. Because details can always be added later, it’s better to not overwhelm a contract with
specifics in the beginning.
Answer: False
4. Ricardo has agreed to sell his family farm to Walter for a price of $450,000. Even though
both sides agree on the terms, it is still worth the money for Ricardo to hire a lawyer to write
the contract.
Answer: True
5. It is unethical to use your lawyer as an excuse for a provision of a contract, such as, “My
lawyer insists that I have a liquidated damages clause...”
Answer: False
6. You should hire a lawyer to review any legal papers you have to sign, including such
papers as lease agreements or car purchases.
Answer: False
7. Lucky, a contractor, enters into a contract with Penny, a homeowner, to remodel her
kitchen. The contract provides a specific completion date, but does not specify what will
happen if Lucky does not have the job finished by the date. So, Penny may deduct $100 per
day from the contract price until the job is finished, because this is the industry norm.
Answer: False
8. Emily runs a children’s clothing boutique which takes in local homemade items on a
consignment basis. Her standard form contract indicates that Emily has the right to put items
on sale without prior approval, but does not specify what effect the sale has on the
consignor’s payment percentage. Her intent is to keep the same profit she would have had
without the sale. She is using ambiguity in her contract to increase her sales and profit.
Answer: False
9. Some contracting parties are intentionally vague in contract terms.
Answer: True
10. Ambiguities in contracts are always interpreted in favor of the side that wrote the
contract, since they are the ones who know what the provision is supposed to mean.
Answer: False
11. Typos are almost always detrimental to the validity of a contract because they cause the
contract to not reflect the true agreement of the parties.
Answer: False
12. “Scrivener’s error” is another (fancier) name for a typo.
Answer: True
13. Contracts must begin with the word, “whereas” in order to be legal.
Answer: False
14. A contract should have a descriptive title, which is generally in all capital letters,
underlined and centered at the top of the page.
Answer: True
15. The legal term for a promise in a contract is “provision.”
Answer: False
MULTIPLE CHOICE
1. One reason you may not need a written contract is:
a. you are dealing with a party you do not know well, so you need to remain flexible.
b. you are buying land from a member of your family.
c. the terms of the agreement are simple and the value of the transaction is small.
d. you have negotiated enough that you both know what the other person intends.
Answer: C
2. Which of the following is NOT one of the four focused steps in reading a contract?
a. Pre-reading.
b. The first read.
c. Re-write with a lawyer.
d. The second read.
Answer: C
3. When a party to a contract intentionally makes the terms of a contract unclear, it is called:
a. vagueness.
b. duress.
c. ambiguity.
d. mistake.
Answer: A
4. In determining whether parties intended to reduce their agreement to writing, which of the
following factors would normally NOT be considered:
a. whether the type of agreement is one that is normally put into writing.
b. the complexity of the agreement.
c. whether or not the terms are complete.
d. the amount of money involved in the agreement.
Answer: C
5. In the case of scrivener’s errors (commonly known as typos), a court will usually:
a. reform the contract if it is clear that the mistake is not what the parties intended.
b. instruct the parties to rewrite the contract without the errors.
c. enforce the contract as written.
d. throw out the contract completely.
Answer: A
6. If the subject of the contract includes issues that may be controversial, it is best to:
a. keep lawyers out of the negotiation, so relationships are not strained.
b. deal with them up front before the relationship is strained.
c. deal with them one at a time, as the problems arise.
d. state your position up front and stand firm when the other party objects.
Answer: B
7. The title of a contract should be:
a. general, like “Memorandum of Agreement.”.
b. written like a sentence, with only the first letter capitalized.
c. short -- no more than five words.
d. descriptive of the agreement, and typed in all capital letters.
Answer: D
8. When one party to a contract fails to perform as promised, it is called:
a. litigation.
b. breach.
c. liquidated damages.
d. bad faith.
Answer: B
9. If each party’s promises are listed separately in the contract, the are probably:
a. covenantal promises.
b. conditional promises.
c. reciprocal promises.
d. material promises.
Answer: C
10. Statements of facts about the past and present are called:
a. provisions and terms.
b. promises and covenants.
c. representations and warranties.
d. damages and remedies.
Answer: C
11. Standard provisions in a contract that are often listed under the heading “Miscellaneous”
are called:
a. boilerroom.
b. boilerplate.
c. boilerpot.
d. boilertape.
Answer: B
12. Which of the following is NOT a standard provision frequently found in contracts?
a. choice of forum.
b. choice of law.
c. choice of compensation..
d. arbitration.
Answer: C
13. In a contract modification, the phrase, “charged with such amendment” means:
a. the party who suggested the change.
b. the party who will benefit from the change.
c. the party who will be adversely affected by the change.
d. the party who did NOT suggest the change.
Answer: C
14. Which of the following is NOT one of the three ways to amend a written contract?
a. write and sign an amendment document.
b. verbally agreeing to the changes and shaking hands on the deal.
c. crossing out the mistakes and writing in the corrections.
d. writing a totally new contract with the correct provisions.
Answer: B
15. Bob, a house builder, contracts with Ollie to build a house on Ollie's lot. Bob hires Rob to
take his place as the builder on this contract. What has Bob done?
a. Subcontracted Rob.
b. Breached the contract.
c. Delegated his duties.
d. Assigned his rights.
Answer: C
16. Which of the following statements is incorrect concerning arbitration?
a. The losing party in an arbitration can file an appeal in a District Appellate Court.
b. Arbitration is almost always cheaper and faster than litigation.
c. Arbitrators may be biased toward the “larger” party who may be a repeat client.
d. Parties to a contract cannot be forced to arbitrate unless the contract specifies it.
Answer: A
17. Ralph is a professional football player. He signs a valid contract with the Jets. Later, he
claims that he was also promised free use of the Jets’ private jet, but this was not in the
contract. What type of clause in his contract would prevent him from flying away with this
claim?
a. A complete agreement clause.
b. A “no additional terms” clause.
c. An integration clause.
d. A severability clause.
Answer: C
18. A force majeure event is:
a. anything that makes the contract unprofitable for either party.
b. a natural disaster that claims human life or leads to the declaration of a state of emergency.
c. a disruptive, unexpected occurrence for which neither party is to blame that prevents one or
both parties from complying with the contract.
d. any happening that fulfills one of the conditions in the contract, making it enforceable.
Answer: B
19. A+ Modeling Agency signs a contract with Sandi to do a photo shoot for the local used
car dealer’s advertising. The contract was probably written by:
a. The owner of A+ Modeling Agency.
b. Sandi.
c. A+ Modeling Agency’s lawyer.
d. Sandi’s lawyer.
Answer: C
20. Rich and Archie sign an agreement in which Archie agrees to deliver ten cases of
champagne in 5 days. The parties negotiated and meant to say in the written agreement,
delivery in 50 days. If the evidence is clear that the two parties intended to agree to 50 days,
the courts will probably apply the remedy of:
a. reformation.
b. rescission.
c. restitution.
d. reliance.
Answer: A
21. A letter of intent is not likely to be enforceable unless:
a. there is a clearly stated start date for the contract.
b. both parties agree on compensation.
c. it is clear that both parties intended to be bound by the letter.
d. conditions in the letter are met.
Answer: C
22. Nate works as a carnival barker. His employment contract specifies that he can be fired if
he “loses his voice.” This is an example of:
a. vagueness.
b. extortion.
c. ambiguity.
d. duress.
Answer: C
23. Farmer’s Fortune Insurance has a contract with Farmer Fran to insure her crops against
insect damage. The contract does not specify which insects are covered or how much damage
is necessary to make a claim. The contract will probably be enforced in favor of:
a. Farmer Fran.
b. Farmer’s Fortune Insurance.
c. Neither side, as it is ridiculous to try to insure against insects.
d. Cannot determine... would have to go through litigation to decide.
Answer: A
24. Which of the following is generally NOT in the introductory paragraph of a contract?
a. The date of contracting.
b. The location of contracting.
c. The parties to the contract.
d. The nature of the contract.
Answer: B
25. Which statement is true about definitions in a contract?
a. All ambiguous terms must be defined.
b. Definitions must be grouped together in a separate section of the contract.
c. Definitions must be located on the same page where the term is first used.
d. The parties to the contract may be defined with shorter designations than their actual
names.
Answer: D
ESSAY
1. Identify and explain at least four situations where a written contract is either necessary or
recommended.
Answer: There are times when you should definitely sign an agreement:
a. The Statute of Frauds requires it.
b. The deal is crucial to your life or the life of your business.
c. The terms are complex.
d. You do not have an ongoing relationship with the other party.
2. Compare and contrast the perspectives of a lawyer and a client when approaching the
negotiation of a contract.
Answer: Businesspeople are optimists – they believe they have negotiated a great deal and
everything is going to go well – sales will boom, the company will prosper. Lawyers have a
different perspective – their primary goal is to protect their clients by avoiding litigation, now
and in the future. For this reason, lawyers are trained to be pessimists – they try to foresee
and protect against everything that can possibly go wrong. Businesspeople sometimes view
this lawyering as a waste of time and a potential deal-killer. What if the two parties cannot
agree about what to do in the event of a very unlikely circumstances? The deal might just
collapse.
3. Outline the focused, multi-step process recommended for reading a contract before you
agree to it.
Answer: Pre-reading. Before you begin reading the first draft of a contract, spend some time
thinking about the provisions that are important to you. If you skip this step you may find
that, as you read, your attention is so focused on the specific language of the contract that you
lose sight of the larger picture.
The first read. Read through once, just to get the basic idea of the contract – its structure and
major provisions.
What-ifs. This is the time to think about various outcomes, good and bad. What happens,
under the terms of the contract, if all goes according to your plan? Also consider worst case
scenarios. In both situations, does the contract produce the result that you want? What
happens if sales are higher than you expect? Or if the product causes unexpected harm?
The second read. Now read the contract to make sure that it handles the what-ifs in a manner
that is satisfactory to you. Think about the relationship between various provisions – does it
make sense?
4. Define and compare the terms “vagueness” and “ambiguity.”
Answer: Vagueness occurs when the parties do not want the contract to be clear. They want to
keep their options open, so they don’t clearly define some terms.
Ambiguity is different --- it means that the provision is accidentally unclear. It occurs in
contracts when the parties think only about what they want a provision to mean, without
considering the literal meaning or the other side’s perspective. Any ambiguity is interpreted
against the drafter of the contract.
5. When a party to a contract fails to fulfill all of her promises, she has breached the contract.
What response does a court typically have for a breach?
Answer: Typically, a court would not impose sanctions over minor issues. To constitute a
violation of the contract, the breach must be material. A material breach is important enough
to defeat an essential purpose of the contract.
Sometimes, contracts state the consequences of a breach, such as the amount of damages. A
damages clause can specify a certain amount or a limitation on the total, or other variations.
In these cases, the court would probably enforce the provision of the contract. But the vast
majority of contracts have neither liquidated damages nor damage caps.
When the contract does not specify the damages, the courts would make a judgment of
expectation damages based on precedent. Courts typically divide the expectation damages
into three parts: (1) direct (or “compensatory”) damages, which represent harm that flowed
directly from the contract’s breach; (2) consequential (or “special”) damages, which represent
harm caused by the injured party’s unique situation. ; and (3) incidental damages, which are
minor costs such as storing or returning defective goods, advertising for alternative goods,
and so forth.
6. Outline the parts of a typical contract.
Answer: The Structure of a Contract
a) Title
b) Introductory Paragraph
c) Definitions
d) Covenants
e) Conditions
f) Representations and Warranties
g) Remedies
h) Boilerplate
Test Bank For Introduction to Business Law
Jeffrey F. Beatty, Susan S. Samuelson
9781133188155
