09 Key 1. When only one of the parties drafts (writes) a contract, courts will interpret ambiguous or vague terms against the party that drafts them. Answer: True When only one of the parties drafts (writes) a contract, courts will interpret ambiguous or vague terms against the party that drafts them. 2. The parol evidence rule states that parties to a complete and final written contract can introduce oral evidence in court that changes the intended meaning of the written terms. Answer: False The parol evidence rule influences the form of contracts. This rule states that parties to a complete and final written contract cannot introduce oral evidence in court that changes the intended meaning of the written terms. 3. Oral evidence that changes the meaning of written terms can be given if necessary to prevent fraud. Answer: True Oral evidence that changes the meaning of written terms can be given if necessary to prevent fraud. 4. A party to a contract is discharged when that party is relieved from all further responsibility of performance. Answer: True A party to a contract is discharged when that party is relieved from all further responsibility of performance. 5. If something must take place in future, before a party has a duty to perform, it is a condition subsequent. Answer: False If something must take place in future, before a party has a duty to perform, it is a condition precedent. 6. A contracting party has no duty to perform prior to a condition precedent being satisfied. Answer: True A contracting party has no duty to perform prior to a condition precedent being satisfied. 7. Paying for the items purchased at a store, as the store delivers the items is an example of implied concurrent conditions of performance. Answer: True Most of our everyday purchases involve implied concurrent conditions of performance. While shopping you take items to a cashier and expect to pay and take the items with you. Your contractual duty to pay and the store's contractual duty to deliver are exchanged simultaneously. 8. When parties fail to provide details, the law states the buyer's payment is a condition that must be satisfied after the seller has performed his/her duty to deliver. Answer: False When the parties fail to provide this level of detail, the law states the buyer's payment is a condition that must be satisfied before the seller has the duty to deliver. 9. Once the seller transfers the goods to the shipper, the burden of damages in transit also rests with him/ her. Answer: False The UCC states the seller satisfies its obligation to ship goods once they are transferred to the shipper for transportation. If the goods are damaged in transit, the liability rests on the buyer, not the seller. 10. If a contract is silent as to delivery, there is a presumption that the buyer is responsible for picking up the goods at the seller's location. Answer: True The phrase tender of delivery means the seller must make the goods available to the buyer. If, as in our example, the contract makes no statement about delivery, the presumption is the buyer must make arrangements to pick up the goods at the location the seller designates. 11. One party's tender of performance may satisfy a required condition leading to the other party's duty to perform. Answer: True To tender performance means to offer to perform. 12. Complete performance discharges a party to a contract. Answer: False Complete Performance recognizes that a contracting party has fulfilled every duty required by the contract. 13. Material breach represents a less-than-complete performance. Answer: False Material breach is a level of performance below what is reasonably acceptable. 14. Homer hired Bob Builders Pvt. Ltd to construct his house. They signed a contract, which stated that Bob Builders wouldill complete the work by April 4th 2012, and Homer wouldill pay them in full. Homer has the right to deny them payments if they miss the date. Answer: False Substantial performance is a middle ground between full performance and a breach due to nonperformance. A construction contractor who gets a home built but has not finished all the landscaping and finishing details by the due date is not denied a financial recovery. This builder can recover under the contract but remains liable for any damages to the homeowner for delays. 15. An employment contract is an example of divisibility of performance. Answer: True One party (the employee) performs services for a period of time followed by the other party (the employer) paying the wages that are due. This pattern of recurring conditions precedent allows the employment contract to be divided into parts. This contract is considered to be divisible. 16. Increased difficulty of performance or reduced profitability will constitute valid grounds for claiming impossibility of performance. Answer: False A party's nonperformance is excused because of impossibility of performance. This may occur because of the death of an essential party, the destruction of essential materials, or the subject matter of the contract becomes illegal. Mere increased difficulty or reduced profitability, however, does not constitute impossibility of performance. 17. Under the UCC a party to a sale-of-goods contract receives discharge from performance because of commercial impracticability. Answer: True Under the UCC a party to a sale-of-goods contract receives discharge from performance because of commercial impracticability. 18. Sheena is a week late in paying her rent. She requests her landlord to not charge her the late payment fees, and the landlord agrees. This is an example of a waiver. Answer: True Waivers generally occur after a contracting party fails to perform. In this situation, nonperformance by one party may cause the other party to waiver its right to enforce the contract. The waiver typically is unilateral. The non breaching party grants the waiver. A landlord may waive the right to collect a late payment fee when the rent is only two days overdue. 19. Releases usually occur after a contracting party fails to perform. Answer: False Releases usually occur before a contracting party fails to perform. 20. Rescission is a court-awarded damage arising from unusual losses which the parties knew would result from breach of the contract. Answer: False Rescission requires each party to return the consideration given the other. It is often used in fraud or misrepresentation cases. 21. Liquidated damages can simplify disputes when a breach occurs. Answer: True Liquidated, or agreed-upon, damages can simplify disputes when a breach occurs. 22. A principal interacts with someone (or some organization) for the purpose of obtaining an agent's assistance. Answer: True A principal interacts with someone (or some organization) for the purpose of obtaining that second party's assistance. This second party is the agent. 23. Apparent authority can be inferred from the acts of an agent who holds a position of authority or who had actual authority in previous situations. Answer: False Implied authority can be inferred from the acts of an agent who holds a position of authority or who had actual authority in previous situations. 24. A partner in a trading partnership, such as an accounting or other service firm, has no implied power to borrow money. In the latter case, such authority must be actual before the firm will be bound. Answer: False A partner in a nontrading partnership, such as an accounting or other service firm, has no implied power to borrow money. In the latter case, such authority must be actual before the firm will be bound. 25. Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. Answer: True Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. 26. An employee who is on a frolic or detour is no longer acting for the employer. Answer: True An employee who is on a frolic or detour is no longer acting for the employer. 27. If it is established in court that an employer warned the employee against the tortious behavior, the employer will not be held liable for the employee's actions. Answer: False The employer is strictly liable once the employee's fault is established. And it does not matter that the employer warned the employee against the tortious behavior. 28. Jimmy, a cashier at Maker Stores, gets into a heated argument with a customer over which party will win the upcoming elections, which results in a fight. Maker Stores is liable for Jimmy's tortious actions. Answer: False If a store's service representative strikes a customer during an argument over the return of merchandise, the store will be liable under respondeat superior. But if the argument concerns football instead of the return of merchandise, the store will not be liable. The difference is that the argument over football is not within the scope of employment. 29. An employer who must pay for an employee's tort under respondeat superior may legally sue the employee for reimbursement. Answer: True An employer who must pay for an employee's tort under respondeat superior may legally sue the employee for reimbursement. 30. Shareholders of corporations and members of LLCs are protected from tort liability that exceeds the amount of their investment. Answer: True Shareholders of corporations and members of LLCs are protected from tort liability that exceeds the amount of their investment. 31. If a word of a term in a written contract has ________, particular to the industry to which the parties belong, the court will give the term or word that meaning. A. ambiguous terms B. a handwritten term C. business banter D. a trade usage E. common words Answer: D. a trade usage If the meaning of the word is clear on the face of the contract, courts will usually reject a party's attempt to reinterpret it later. However, if there is evidence that a word has a particular trade usage, courts will give it that meaning. 32. Which of the following is true in cases where only one party drafts the contracts, which contain terms that appear vague and ambiguous to the other party? A. The court will give the terms the meaning as per trade usage. B. The court will reject the non-drafting party's attempt to reinterpret the terms after the contract has been signed. C. The court will declare the drafting party's behavior as a tort due to intentional ambiguity of terms. D. The court will interpret the terms as they mean in the common language. E. The court will interpret the ambiguous and vague terms against the party that drafts them. Answer: E. The court will interpret the ambiguous and vague terms against the party that drafts them. Another rule is that when only one of the parties drafts (writes) a contract, courts will interpret ambiguous or vague terms against the party that drafts them. 33. Which of the following states that parties to a written contract may not introduce oral evidence to change written terms? A. The statute of frauds B. Concurrent conditions C. The parol evidence rule D. Conditions subsequent E. Conditions precedent Answer: C. The parol evidence rule Like the statute of frauds, the parol evidence rule influences the form of contracts. This rule states that parties to a complete and final written contract cannot introduce oral evidence in court that changes the intended meaning of the written terms. 34. Which of the following is an exception to the parol evidence rule? A. Evidence of oral agreement that merely explains the meaning of written terms without changing them. B. Evidence of oral agreements made at the time of the written contract. C. Evidence of oral agreements made before signing a written contract. D. Evidence of oral modifications arising after the parties have made the written contract. E. Evidence of oral agreements that changes the meaning of written terms. Answer: A. Evidence of oral agreement that merely explains the meaning of written terms without changing them. An exception to the parol evidence rule allows evidence of oral agreement that merely explains the meaning of written terms without changing the terms. 35. If a contract contains a condition precedent it means that: A. performance will be due upon the happening of some specified future event. B. performance will be excused upon the happening of some specified future event. C. performance must be completely done according to contract specifications or the contract is breached. D. impossibility of performance will not be an acceptable excuse for nonperformance. E. performance will be due upon the simultaneous duty to perform of the parties. Answer: A. performance will be due upon the happening of some specified future event. If something must take place in future, before a party has a duty to perform, it is a condition precedent. 36. If a contract contains a condition subsequent it means that: A. performance must be completely done according to contract specifications or the contract is breached. B. performance will be excused upon the happening of some specified future event. C. impossibility of performance will not be an acceptable excuse for nonperformance. D. performance will not be excused due to an unexpected event in the future. E. performance will be due upon the happening of some specified future event. Answer: B. performance will be excused upon the happening of some specified future event. A condition subsequent excuses contractual performance if some future event takes place. 37. Most of our every day purchases involve: A. implied concurrent conditions. B. express conditions precedent. C. express conditions subsequent. D. implied conditions precedent. E. implied conditions subsequent Answer: A. implied concurrent conditions. Most of our everyday purchases involve implied concurrent conditions of performance. 38. __________ is a legal term referring to the transfer of possession from the seller to the buyer. A. Performance B. Condition C. Delivery D. Waiver E. Release Answer: C. Delivery Delivery is a legal term referring to the transfer of possession from the seller to the buyer. 39. In a __________, the seller must put the goods in the possession of a carrier and contract with that carrier for their transportation. A. destination contract B. tender of performance C. seller's contract D. shipment contract E. tender of deliver Answer: A. destination contract To avoid the assumption of risk, experienced buyers may insist on what is called a destination contract. This contract requires the seller to get the goods shipped and delivered to a specific place of business designated by the buyer. 40. In a situation where a buyer and seller have not mentioned details about delivery, which of the following can be applied? A. The seller will have to personally deliver the goods to the buyer. B. The seller will have to ship the goods, assuming the risks of damages that take place in transit. C. The buyer and the seller will have to enter into another contract stating the details of the delivery of the goods. D. The buyer will have to make arrangements to pick up the goods at the location the seller designates. E. The contract will be held as a void contract by the court, since it contains indefinite, unclear terms. Answer: D. The buyer will have to make arrangements to pick up the goods at the location the seller designates. If the contract makes no statement about delivery, the presumption is the buyer must make arrangements to pick up the goods at the location the seller designates. 41. Which of the following is true of the assumption of risks during delivery of goods? A. The seller is always responsible for shipping the goods to the buyer. B. The seller is liable for any damages incurred to the goods during shipment. C. The buyer is liable for damages incurred to the goods during shipment. D. The buyer is responsible for damages to goods when the seller is about to transfer for shipment. E. The buyer assumes the risk of loss till he/she receives the goods, as per destination contracts. Answer: C. The buyer is liable for damages incurred to the goods during shipment. The UCC states the seller satisfies its obligation to ship goods once they are transferred to the shipper for transportation. If the goods are damaged in transit, the liability rests on the buyer, not the seller. 42. An offer to perform one's required duties under a contract is called a: A. conditional performance. B. qualified performance. C. substantial performance. D. tender of performance. E. complete performance. Answer: D. tender of performance. To tender performance means to offer to perform. 43. is a level of performance below what is reasonably acceptable. A. Breach of contract B. Material breach C. Complete performance D. Substantial performance E. Quantitative performance Answer: B. Material breach Material Breach is a level of performance below what is reasonably acceptable. 44. Finishing the construction of a home two days after the contract called for completion (no injury occurs) most likely will be considered: A. significant performance. B. implied performance. C. breach of contract. D. substantial performance. E. material breach. Answer: D. substantial performance. Substantial performance is a middle ground between full performance and a breach due to nonperformance. Substantial performance is much more than some performance. It is even greater than significant performance. 45. If performance of a party to a contract only slightly deviates from contract requirements, this will be considered: A. complete performance. B. substantial performance. C. breach of contract. D. waiver of performance. E. divisibility of performance Answer: B. substantial performance. Substantial performance is a middle ground between full performance and a breach due to nonperformance. Substantial performance is much more than some performance. It is even greater than significant performance. 46. Jessica hires Bob Builders to construct a house for her. The contract specifies that grade A+ carpeting is to be installed on the entire second floor. Bob accidentally installs grade A shag carpeting instead. Few people except for carpeting experts can tell the difference. Jessica, however, refuses to pay for the construction citing that Bob has breached the contract. Which of the following is true of this situation? A. This would likely be considered complete performance and Jessica will have to pay the contractor. B. Jessica can claim a breach of contract and refuse to pay for the construction of the house. C. This will be considered a substantial performance and Jessica would be entitled to monetary damages. D. Jessica has materially breached the contract by refusing to pay Bob's, and hence cannot sue Bob's for the carpeting. E. The court is likely to declare that Bob's has breached the contract, and will ask Jessica to pay half the cost decided as per contract. Answer: C. This will be considered a substantial performance and Jessica would be entitled to monetary damages. Substantial performance is a middle ground between full performance and a breach due to nonperformance. Substantial performance is much more than some performance. It is even greater than significant performance. Bob can recover the payment under the contract but is liable for damages to Jessica. 47. Alan's Saddles makes high level seats for racing bicycles and sells to many of the top bicycle manufacturers. There are eight available sources of the type of rubber that Alan's uses; however, Alan's has always dealt with a company in the Republic of Anaerobia exclusively due to their reasonable cost. Porter's company has a contract with Alan's for 10,000 seats. Porter has just received a letter from Alan's explaining that due to turmoil in Anaerobia, their supplier cannot export their product so Alan's cannot complete the contract. Which of the following is true of this situation? A. Alan's can get out of the contract based on impossibility of performance. B. Alan's can get out of the contract based on commercial impracticality since they can't be forced to buy from suppliers they have not dealt with before. C. Porter can sue for breach since the raw materials are reasonably available from another source, and Alan's cannot be discharged due to impracticality. D. Porter can sue for specific performance if the seats are typical of all bicycle seats and not special or unique in any way. E. Porter can rightfully file a lawsuit, and Alan's will be liable to pay Porter damages for nonperformance. Answer: A. Alan's can get out of the contract based on impossibility of performance. A party's nonperformance is excused because of impossibility of performance. This may occur because of the death of an essential party, the destruction of essential materials, or the subject matter of the contract becomes illegal. 48. Great year Tires orders 50 tons of rubber from a Bill, a rubber broker. The broker has a number of rubber plantations that it can deal with but does almost all of its business with Ritchie's Rubber Farm. The delivery of the rubber is due on September 1st. On August 1st, a fire destroys Ritchie's Rubber Farm. A. Bill's performance is excused due to impossibility of performance. B. Bill's performance is excused due to commercial impracticality. C. Bill's performance will not be excused if obtaining rubber from another plantation is reasonable and possible. D. Bill's performance will not be excused if he can get the rubber from another source even if a higher cost cuts his profit margin. E. Bill's performance will be excused even if Great year proves that rubber from other plantations is reasonably available. Answer: C. Bill's performance will not be excused if obtaining rubber from another plantation is reasonable and possible. A manufacturer may be discharged from an obligation to make goods for a buyer when the manufacturer's major source of raw materials is unexpectedly interrupted. But if the raw materials are reasonably available from another supplier, the manufacturer may not receive discharge because of impracticability. 49. When a party intentionally relinquishes a right to enforce a contract, it is called a/an _________. A. agreement B. waiver C. breach D. disclaimer E. release Answer: B. waiver When a party intentionally relinquishes a right to enforce the contract, a waiver occurs. 50. A exists when a party announces that the other party does not have to perform as promised. A. release B. waiver C. surrender D. breach E. condition Answer: A. release When a party announces the other party does not have to perform as promised, a release exists. 51. Which of the following is true of a waiver? A. It occurs when a party announces the other party does not have to perform as promised. B. It occurs before a contracting party fails to perform. C. It can take the form of a negotiated contract. D. It is bargained for and is supported by consideration. E. It occurs after a contracting party fails to perform. Answer: E. It occurs after a contracting party fails to perform. Waivers generally occur after a contracting party fails to perform. In this situation, nonperformance by one party may cause the other party to waiver its right to enforce the contract. 52. Ian owes $5000 to Shirley, which is payable in five instalments at an interest. However, after two instalments, Ian offers to pay Shirley the entire debt to avoid paying the interest. Which of the following will take place if Shirley announces that Ian does not have to pay the debt in further instalments? A. Waiver B. Negotiation C. Release D. Arbitration E. Rescission Answer: C. Release Releases usually occur before a contracting party fails to perform. A release often takes the form of a negotiated contract. The release is bargained for and is supported by consideration. A borrower may seek the lender's release to avoid having to make an interim payment. 53. Kent and Turner get into an argument over the money Turner had loaned Kent. They decide to allow Erika, their friend and a professor, to make a decision. Turner and Kent agree to abide by whatever decision Erika makes. This is an example of ________. A. a negotiated settlement B. compensatory damage C. arbitration D. specific performance E. a rescission Answer: C. arbitration Arbitration is when the parties agree to abide by the decision of a neutral third party or parties. 54. are court-awarded damages to put the plaintiff in the same position as if the contract had been performed. A. Nominal damages B. Consequential damages C. Liquidated damages D. Compensatory damages E. Specific damages Answer: D. Compensatory damages Compensatory damages are court-awarded damages to put the plaintiff in the same position as if the contract had been performed. 55. Daniel's failure to deliver ice-cream makers and waffle makers on time, resulted in a two-week delay in the opening of Sheena's new ice-cream parlor. Sheena incurred a heavy loss since she had to pay the rent for those two weeks, as well as salaries to the personnel hired. Which of the following damages can Sheena claim from Daniel for breach of contract? A. Liquidated damages B. Consequential damages C. Compensatory damages D. Nominal damages E. Negotiated damages Answer: B. Consequential damages Consequential damages are court-awarded damages arising from unusual losses which the parties knew would result from breach of the contract. Example: plaintiff's losses due to closing of business when defendant knew that failure to deliver ordered equipment would cause the losses. 56. Jenna has contracted with Ebenezer to buy his land for $50,000. Jenna has paid the amount in full. However, Ebenezer has not transferred the land to Jenna. Which of the following remedies is the court most likely to enforce in case Jenna files a suit? A. Arbitration B. Consequential damages C. Rescission D. Liquidated damages E. Specific performance Answer: E. Specific performance Specific performance is a court-ordered remedy when subject matter of the contract is unique. Example: If the seller does not deed contracted-for land to the buyer, the buyer can get a court to order seller to transfer the land. 57. Which of the following is true of liquidated damages? A. A small amount is awarded by the court to the plaintiff for a breach of contract which causes no financial injury to the plaintiff. B. Damages awarded by the court arising from unusual losses, which the parties knew would result from breach of contract. C. Damages awarded by the court to put the plaintiff in the same position as if the contract had been performed. D. Damages specified in the contract, where real damages for breach of contract are likely to be uncertain. E. Courts will enforce these "liquidated" damages to penalize the defendant. Answer: D. Damages specified in the contract, where real damages for breach of contract are likely to be uncertain. Where real damages for breach of contract are likely to be uncertain, parties sometimes specify in the contract what the damages should be. Courts will enforce these "liquidated" damages unless they seem to penalize the defendant instead of merely compensating the plaintiff for uncertain losses. 58. Which of the following remedies is used in fraud or misrepresentation cases? A. Arbitration B. Rescission C. Consequential damages D. Liquidated damages E. Specific performance Answer: B. Rescission Rescission requires each party to return the consideration given the other. It is often used in fraud or misrepresentation cases. 59. damages are awarded by the court to the plaintiff for a breach of contract which causes no financial injury to the plaintiff. A. Specific B. Consequential C. Nominal D. Liquidated E. Compensatory Answer: C. Nominal Nominal damages are awarded by the court - a small amount, often $1 - to the plaintiff for a breach of contract which causes no financial injury to the plaintiff. 60. The purposeful reduction of damages, usually the responsibility of the nonbreaching party, is known as __________. A. mitigation B. negotiation C. waiver D. release E. novation Answer: A. mitigation The victim of a contract breach must mitigate damages when possible. Mitigating damages requires the victim to take reasonable steps to reduce them. 61. Principals hire to do tasks and represent them in transactions. A. contractors B. agents C. third parties D. organizations E. suppliers Answer: B. agents Principals hire agents to do tasks and represent them in transactions. 62. Radford Co. hired Leeds Associates, a law firm, to manage their legal matters. In this contract, Leeds Associated is a/an _________. A. principal B. agent C. third party D. independent contractor E. cyber agent Answer: D. independent contractor All employees are agents of the employer/principal, but not all agents are employees. For example, a principal may hire an independent contractor to perform a task. Principals do not directly control independent contractors and independent contractors generally work for more than one principal. Examples of independent contractors include attorneys (other than in-house counsel), outside accountants and subcontractors hired to perform construction projects. 63. Which of the following is true according to the Uniform Electronic Transactions Act? A. A principal can be bound by a contract created by a cyber agent, only if the principal is aware of the contract. B. A principal can be bound by a contract created by a cyber agent, even if the principal is unaware of the contract. C. A principal can be bound by a contract created by a cyber agent, only if the principal is aware of the contract and manifests assent to the contract. D. A principal can be bound by a contract created by a cyber agent, even if the principal is unaware of the creation of a cyber agent. E. A principal can be bound by a contract created by a cyber agent, only if the action of one electronic agent is involved. Answer: B. A principal can be bound by a contract created by a cyber agent, even if the principal is unaware of the contract. The Uniform Electronic Transactions Act (UETA), adopted by 48 states, provides that "A contract may be formed by the interaction of electronic agents of the parties, even if no individual was aware of or reviewed the electronic agents' actions or the resulting terms and agreements." 64. Herman writes a note to Gerard, the manager of the neighborhood grocery store, asking him to allow Bernard, Herman's restaurant manager, to charge $500 worth of groceries to the restaurant's account at the grocery store. This is an example of which of the following? A. Nontrading partnership B. Apparent authority C. Implied authority D. Expressed authority E. Actual authority Answer: E. Actual authority Specific instructions, whether spoken or written, given by an employer to an employee create actual authority. 65. can be inferred from the acts of an agent who holds a position of authority or who had actual authority in the previous situation. A. Principal authority B. Legal authority C. Situational authority D. Implied authority E. Apparent authority Answer: D. Implied authority Implied authority can be inferred from the acts of an agent who holds a position of authority or who had actual authority in previous situations. 66. Acme Corporation is being sued by Howard Bank for $50,000 borrowed by Samantha, the Chief Financial Officer of Acme. Acme had granted a written authority to Samantha to borrow only $50,000. However, a week later, Samantha resigns from the company, and in the name of Acme, borrows an additional $50,000 for personal reasons. If Acme denies the liability of this debt and files a lawsuit against Samantha, which of the following is most likely to be the court's decision? A. Acme will be excused from the liability based upon the fact that it had authorized Samantha only for $50,000. B. Acme will be excused from the liability based upon the fact that Samantha was not an agent for Acme. C. Samantha was not granted authority by Acme to enter into this specific transaction, hence Samantha will be held liable for a tort. D. Samantha will be liable to pay the debt, since she did not take the loan for the benefit of the company. E. Acme will have to pay the debt as it allowed Samantha to have apparent authority to borrow the additional amount. Answer: E. Acme will have to pay the debt as it allowed Samantha to have apparent authority to borrow the additional amount. Remember to notify third parties if an agent no longer works for you; this notice is essential to cut off apparent authority. 67. A partner in a partnership is one engaged in the business of buying and selling commodities, has the implied authority to borrow money in the usual course of business and to pledge the credit of the firm. A. trading B. superior C. traditional D. business E. nontrading Answer: A. trading A partner in a trading partnership, that is, one engaged in the business of buying and selling commodities, has the implied authority to borrow money in the usual course of business and to pledge the credit of the firm. 68. occurs when a principal voluntarily decides to honor an agreement, which otherwise would not be binding due to an agent's lack of authority. A. Novation B. Ratification C. Negotiation D. Release E. Waiver Answer: B. Ratification Ratification occurs when a principal voluntarily decides to honor an agreement, which otherwise would not be binding due to an agent's lack of authority. 69. Omi works as a cashier for Trinity Grocery Store. Omi believes that a customer is attempting to use counterfeit money to make a purchase and gets into a fist fight with the customer who truthfully denies using counterfeit money. Is Trinity liable for injuries the customer received in the fist fight? A. Yes, if Omi reasonably intended to further Trinity's business interests. B. Yes, since Trinity gave Omi apparent authority. C. No, since this was a personal incident not related to work. D. Yes, since Trinity supplied the instrumentality for the action. E. No, since a fist fight is outside the scope of employment. Answer: A. Yes, if Omi reasonably intended to further Trinity's business interests. Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. This is because of the tort doctrine of respondeat superior. 70. An agent who causes harm to a third party may create legal liability owed by the principal to the third party. This liability is known as: A. product liability B. contractual liability C. principal liability D. professional liability E. vicarious liability Answer: E. vicarious liability An agent who causes harm to a third party may create legal liability owed by the principal to the third party. The legal test for imposing this "vicarious liability" depends on whether the agent was acting within the scope of employment when the tort occurred. 71. Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. This is because of the tort doctrine of __________. A. negotiation B. juriscience C. respond eat superior D. frolic and detour E. liability Answer: C. respond eat superior Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. This is because of the tort doctrine of respond eat superior. 72. Which of the following is true of the doctrine of respond eat superior? A An employee may be held liable under tort law for the torts committed by his/her employer, while the employee was working at the organization. B. An employer will be held liable for the actions of an employee who is on a frolic and detour. C. An employee working with an organization and having committed a tort can be held liable for even though he/she did not intend the harm. D. Torts committed by an employee working for an organization will result in the employee and the employer being held liable under tort law. E. An organization is not held liable under tort law for the torts committed by its employees during their work tenure at the organization. Answer: D. Torts committed by an employee working for an organization will result in the employee and the employer being held liable under tort law. Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. This is because of the tort doctrine of respondeat superior. 73. Which of the following is an example of a tortious act in the scope of employment? A. At a law firm, a lawyer and his client get into a heated argument over the passing of a women's bill. B. A professor hits a student each time the student fails to finish his schoolwork. C. A store manager and a customer have a fist fight over which football team will win the World Cup. D. An executive gets involved in an argument with another business associate over vegetarianism. E. A seller and a buyer argue over the price of a washing machine, trying to arrive at a discounted amount. Answer: B. A professor hits a student each time the student fails to finish his schoolwork. If a store's service representative strikes a customer during an argument over the return of merchandise, the store will be liable under respondeat superior. But if the argument concerns football instead of the return of merchandise, the store will not be liable. The difference is that the argument over football is not within the scope of employment. 74. Leslie is on his way to meet his girlfriend, when he meets with a car accident. Leslie's over speeding causes the accident and injures two other people involved in it. Which of the following is true of this situation as per the doctrine of respondeat superior? A. Leslie was acting within the scope of employment; hence his employer is liable for Leslie's tort. B. Since this was an accident, no one will be held liable. C. Leslie was on a frolic and detour when the accident occurred; hence the employer is not liable for the accident. D. Since the accident was an intentional tort by Leslie, the employer will not be held liable. E. Leslie's employer will be held liable for all of Leslie's actions, but can sue Leslie for a reimbursement. Answer: C. Leslie was on a frolic and detour when the accident occurred; hence the employer is not liable for the accident. An employee who is on a frolic or detour is no longer acting for the employer. If, for example, an employee is driving to see a friend when an accident occurs, the employer is not liable. 75. Which of the following is true in case an employee carries a respondeat superior insurance? A. The employer can sue the employee for reimbursements. B. The employee will be held liable for the employer's torts, while working with the employer. C. The insurer who has paid the respondeat superior claim will sue the employee who caused the claim. D. The employee is entitled to receive respondeat superior claims from the employer. E. An employer will be held liable for an employee's tortious acts whether or not they are in the scope of employment. Answer: C. The insurer who has paid the respondeat superior claim will sue the employee who caused the claim. An employer who must pay for an employee's tort under respondeat superior may legally sue the employee for reimbursement. In practice, this seldom happens because the employer carries insurance. Occasionally, an insurer who has paid a respondeat superior claim will sue the employee who caused the claim. 76. When may oral evidence be introduced after a written contract has been agreed to? Answer: Although the parol evidence rule prohibits the introduction of evidence of oral agreements once the contract has been reduced to writing, should the written agreement contain an ambiguous or incomplete term, oral evidence may then be introduced to explain and clarify the written contract. Oral evidence may also be introduced to evidence a fraud in the contract. 77. If a contract contains ambiguous terms, how will the court interpret and resolve the ambiguities? Answer: If both parties equally contributed to the writing of the contract the courts would allow oral testimony to be presented to explain the ambiguities. This is permitted under the parol evidence rule. If one party wrote the contract unilaterally, the courts will usually interpret any ambiguities against the writer and in favor of the other party. 78. Discuss the parol evidence rule? Answer: Like the statute of frauds, the parol evidence rule influences the form of contracts. This rule states that parties to a complete and final written contract cannot introduce oral evidence in court that changes the intended meaning of the written terms. The parol evidence rule applies only to evidence of oral agreements made at the time of or prior to the written contract. It does not apply to oral modifications coming after the parties have made the written contract. 79. Sosa signs a health club membership contract based on the salesperson's statements that the contract is cancellable at any time. Later, when Sosa applies for a cancellation of the membership, she is informed that the contract is non-cancellable. Discuss if Sosa can give oral evidence in the court for a written contract in this case. Answer: The parol evidence rule applies only to evidence of oral agreements made at the time of or prior to the written contract. It does not apply to oral modifications coming after the parties have made the written contract. In this case, however, the exception to parol evidence rule applies. Oral evidence that changes the meaning of written terms can be given if necessary to prevent fraud. 80. Explain how condition precedent and condition subsequent affect a contract? Answer: When a contract contains a condition precedent, some specifically named event must occur before performance is required. A condition subsequent means that should a specifically named event occur in the future, performance will be excused. 81. What are UCC gap-filling provisions? Give an example and explain how and why they are applied? Answer: In a contract between merchants, should the contract fail to specify a necessary condition of performance, the courts can apply UCC gap-filling provisions to complete the contract. One example might be if the delivery terms of a contract are omitted. The courts can apply reasonable standards under the UCC and insert them into the existing contract. Gap-fillers are applied to allow business to function more smoothly and to encourage the enforceability of contracts. 82. What is delivery? Answer: Delivery is a legal term referring to the transfer of possession from the seller to the buyer. The buyer and seller may presume to know implicitly how and when the goods will be delivered. 83. What does tender performance mean? Answer: To tender performance means to offer to perform. When the consultants offer to send a team to your plant next week, they are tendering performance. 84. Discuss substantial performance? Answer: Substantial performance is a middle ground between full performance and a breach due to nonperformance. Substantial performance is much more than some performance. It is even greater than significant performance. A very typical example of substantial performance is applicable when it occurs in service oriented contracts. The consultants in the software installation/implementation contract should recover for work performed even if the entire contract is not completed on time. 85. Explain what is impossibility of performance. Answer: A party's nonperformance is excused because of impossibility of performance. This may occur because of the death of an essential party, the destruction of essential materials, or the subject matter of the contract becomes illegal. If the subject matter of the contract is destroyed, the contract becomes impossible to perform. 86. What is the difference between a waiver and a release? Answer: When a party intentionally relinquishes a right to enforce the contract, a waiver occurs. When a party announces the other party does not have to perform as promised, a release exists. 87. Mention the most common ways to achieve a discharge. Answer: The most common ways to achieve a discharge follow complete performance of the contract; tendering performance if that tender is rejected; substantial performance; performance of part of a divisible contract. 88. Explain divisibility of performance. Answer: A contract may call for both parties to perform concurrently. It is possible, and indeed quite common, for a contract to be divided into segments or installments. An employment contract is a good example. One party (the employee) performs services for a period of time followed by the other party (the employer) paying the wages that are due. This pattern of recurring conditions precedent allows the employment contract to be divided into parts. This contract is considered to be divisible, typically into segments timed as pay periods. 89. Name a few remedies available for breach of contract. Answer: There are several remedies or solutions available for a breach of contract. These include the following: negotiated settlement, arbitration, various awards, including compensatory, consequential, liquidated, and nominal damages, specific performance, and rescission. 90. On April 1st, Billy Bob passes a gun store and sees an AK-47 automatic rifle in the window on sale. Answer: Thinking that it would be perfect for hunting squirrels, he asks about the gun and the store owner says that he has a crate of them. He tells Billy Bob that the sale is good for one more week. Billy Bob gives the owner a deposit of $100 to hold one for him till payday. On April 4th, the state legislature passes a statute banning private ownership of automatic weapons. When Billy Bob goes into the store on April 5th is he entitled to purchase the weapon? Explain. No, the contract will terminate due to impossibility of performance. Should the law change before a contract is executed making the contract illegal, the contract is discharged. Billy Bob gets his money back but can't legally get the weapon. 91. Discuss mitigation. Answer: Mitigation is the purposeful reduction of damages; it usually is the responsibility of the nonbreaching party. The victim of a contract breach must mitigate damages when possible. Mitigating damages requires the victim to take reasonable steps to reduce them. 92. With regard to remedies available for breach of contract, when would compensatory and consequential damages apply and when might an injured party seek specific performance? Answer: When a party has been injured due to breach of contract, legal remedies in the form of damages will always apply. Compensatory damages will be awarded to bring the injured party back to status quo, where they would be had the contract been properly performed. Consequential damages would be awarded should there be unusual losses that the parties could have anticipated due to the breach. Both compensatory and consequential damages result in the payment of money. Sometimes however, money is not an adequate remedy. If the breach of contract involves a rare or unique item that money cannot substitute for or be used to obtain a replacement, the equitable remedy of specific performance will be permitted. Specific performance is a court ordered remedy in which the court forces the breaching party to go through with the contract and turn the consideration over to the non-breaching party. 93. How do legal remedies differ from contractual remedies regarding breach of contract? Answer: Legal remedies provide for the payment of money to cure injuries due to breach of contract. Courts will impose legal remedies ordering consequential and compensatory damages unless the payment of money is not sufficient to rectify the breach. If the contract is for a rare, unique or specially made item that cannot be found and purchased anywhere else, the courts may impose equitable remedies such as specific performance to require the breaching party to go through with the contract. 94. Explain the three fold approach to the agency relationship. Answer: First, a principal interacts with someone (or some organization) for the purpose of obtaining that second party's assistance. This second party is the agent. Principals hire agents to do tasks and represent them in transactions. All employees are agents of the employer/principal, but not all agents are employees. Next, the agent (on behalf of the principal) interacts with a third party. Third, the usual legal purpose of the agent is to create a binding relationship between the principal and third party. 95. Discuss implied and apparent authority. Answer: Implied authority can be inferred from the acts of an agent who holds a position of authority or who had actual authority in previous situations. Third parties should be notified if an agent no longer works with the company. This is essential to cut off apparent authority. Apparent authority is a legal concept that (in agency agreements) a principal is liable for the acts of the agent if the principal (by his or her actions or by a failure to act) gives an impression to a third party that the agent acts or speaks for the principal. 96. What is trading and nontrading partnership? Answer: A partner in a trading partnership, that is, one engaged in the business of buying and selling commodities, has the implied authority to borrow money in the usual course of business and to pledge the credit of the firm. A partner in a nontrading partnership, such as an accounting or other service firm, has no implied power to borrow money. In the latter case, such authority must be actual before the firm will be bound. 97. What is ratification? Answer: Ratification occurs when a principal voluntarily decides to honor an agreement, which otherwise would not be binding due to an agent's lack of authority. 98. Explain the theory of respondeat superior. Answer: An agent who causes harm to a third party may create legal liability owed by the principal to the third party. The legal test for imposing this "vicarious liability" depends on whether the agent was acting within the scope of employment when the tort occurred. Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. This is because of the tort doctrine of respondeat superior ("let the master reply"). 99. How can frolic and detour be used as a defense by an employer in case of respondeat superior? Answer: Usually, the only defense the employer has to the strict liability of respondeat superior is that the employee was outside the scope of employment. Sometimes this defense is made using the language frolic and detour. An employee who is on a frolic or detour is no longer acting for the employer. If, for example, an employee is driving to see a friend when an accident occurs, the employer is not liable. 100. Andrea was injured when her car was hit by a truck driven recklessly. The driver, Antonio, an employee of the Azo Trucking Company fled the scene. On what basis may Andrea sue the Azo Trucking Company when Antonio was the individual being reckless? Answer: Respondeat superior makes the employer liable for torts committed in the course and scope of employment. Andrea's lawsuit will likely be based upon the negligence of Antonio that is imputed to the Azo Trucking Company. Test Bank for The Legal and Regulatory Environment of Business O. Lee Reed, Marisa Pagnattaro, Daniel Cahoy, Peter Shedd, Jere Morehead 9780073524993, 9780077437336, 9781260161793
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