Contracts Problems from the 2008 Medgar Evers College Business Law I Final Exam
1. Around St. Louis, the Eversounds insured their house with Neverfear Insurance against water damage from the Mississippi River. After a terrorist organization detonated a series of dams, and flooded the area, Neverfear Insurance and the Eversounds disputed over whether the insurance clauses covered this type of water damage. A federal court first decided that the clause about coverage was ambiguous. Using traditional rules of contract interpretation, the federal court judge should:
a. make the most equitable decision as if the clause did not exist.
b. decide for Neverfear Insurance because Al Qaeda caused the damage
c. decide for the Eversounds and construe the contract against Neverfear who drafted it.
d. decide for Neverfear unless the Eversounds can find an expert to show that Neverfear knew of the potential for damage and kept it confidential.
2. After a Harlem landowner, Gloria Davis, extended a Long Island Mining Company an offer to mine quartz on her property, the Long Island Mining Company asked for a sound promise to keep the offer open for six months while the Long Island Mining Company searched for the best place to sell the quartz rock. By the end of six months, the Long Island Mining Company would, according to its promise, negotiate for a good deal with Gloria Davis. Gloria Davis assented. If a Queens Mining Company presents a great offer to Gloria Davis, she:
a. cannot accept the Queens offer because she has to keep her offer open to the Long Island Mining Company.
b. cannot accept the Queens offer unless the Long Island Mining Company did not make any effort to search for better quartz prices.
c. can accept the Queens offer after giving the Long Island company notice and adequate time to immediately respond.
d. can accept the Queens offer because the Long Island Mining Company did not buy an option contract to keep the offer open.
3. The acceptance of an offer is generally valid when deposited in a mailbox unless:
a. The above is FALSE. An acceptance is valid when received as a clear rule for deciding cases.
b. the offeror stipulates in the offer that acceptance is valid upon receipt.
c. the offeree sends a rejection and acceptance depends on whether the rejection or acceptance arrives first
d. (b) and (c) are both correct.
4. On the Judge Mathis Show, a plaintiff claimed that the defendant wrote a bad check to him for a gambling debt. The defendant admitted the check was bad but asserted that he would have made full payment on the debt if the plaintiff had not called the police on the defendant. Judge Mathis decided for:
a. the plaintiff because writing bad checks is fraudulent behavior.
b. the plaintiff in enforcement of the entire debt.
c. the defendant because the gambling basis of the contract was illegal.
d. the defendant because calling the police was harassment.
5. A new university received an endowment of $2.5 million to begin its new program. The university invested $2 million in a construction technology stock that both the university and its broker thought would sky-rocket in value. However, after foreclosures accelerated and housing sales slumped, the construction technology stock lost 80% of its value. When the university sued the broker to recover the stock’s lost value, the court should have decided in favor of the:
a. university because of a mutual mistake.
b. university because the stock broker was in a better position to understand the market.
c. stock broker because not pulling out of the market was the university’s unilateral mistake.
d. stock broker because mistakes of value do not form the basis for contract avoidance.
6. Kids’ Playworld ordered 1000 mini-pots of lilacs from Flowers-R-Us for the Rochester, NY Lilac Festival in the 3rd week of May. Flowers-R-Us knew about Kids’ Playworld’s festival plans but did not deliver the lilacs until the 4th week of May because the lilacs did not grow in their greenhouses as quickly as planned. After Kids’ Playworld did not accept the delivery, Kids’ Playworld also sued Flowers-R-Us for lost profits. Flowers-R-Us counterclaimed for the contract price of the lilacs plus the cost of bringing the lilacs back to the greenhouse after Kids’ Playworld’s rejection. A judge should decide in favor of:
a. Kids’ Playworld for lost profits because they were foreseeable.
b. neither party because neither side has performed under the contract.
c. Flowers-R-Us for the contract price of the flowers because Flowers-R-Us performed as soon as practicable.
d. Flowers-R-Us for the contract price plus transportation costs after the wrongful rejection.
7. Ann hires Ben to construct fifteen oil storage tanks over a period of five years, with payment for each tank to be made as it is completed, but they do not put their agreement in writing. Ann breaches the contract when she refuses to pay Ben for the first tank. To redress the breach, Ben’s best choice is
a. damages
b. quasi-contractual recovery
c. rescission
d. specific performance
8. Dr. Roddick pulled over from the highway to assist a bleeding passenger who was in a car accident. After Dr. Roddick arrived at his medical practice, he sent the passenger a bill. Under what theory, can Dr. Roddick be paid?
a. quasi contract
b. consideration
c. acceptance of his services by passenger
d. none of the above
9. National Drilling Company ships its only pimp to American Hydraulics Corp, the manufacturer for repair. National hires overland transport Inc to take the pump to American Hydraulics and to return it to National as soon as the repair is complete. National is forced to suspend operations without a pump, but overland does not know this. National expects to be without a pump for five days and to lose profits at a cost of $5,000. When the pump is not returned by the end of the fifth day, National rents a pump at $100 a day. Overland delays five more days before returning the pump. National files suit against Overland asking for compensatory, consequential and punitive damages. Will National recover?
10. NASA contracts with a Chicago Engineering Group to build a space arm for an upcoming space shuttle mission to the international space station. The Chicago Engineering Group will install the arm in the space shuttle, train astronauts about the arm’s use, and monitor its safety during the mission. A Florida A&M engineering group develops an untested but revolutionary and widely acclaimed robotic technology that enables the Florida A&M group to build a more flexible robotic arm. In exchange for future collaborations, the Chicago Engineering Group would like to delegate the duty of building the robotic arm to Florida A&M. Discuss whether the Chicago Engineering Group can delegate its NASA contract to Florida A&M.
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