D216 Business Law for Accountants - Set 2 - Part 1

Correct Answer: The common law of contracts

Advisory services are the S in SREI, and the UCC governs only the sale or lease of goods. Because this deal is for labor rather than movable goods, the common law of contracts controls. Option b is incorrect because Article 2 reaches only contracts transferring ownership of tangible, movable goods for a price. A consulting engagement delivers professional labor, not goods, so this sales article never touches the arrangement. Option c is incorrect because Article 2A applies when someone leases goods, transferring a right to possess movable property for a period. No equipment changes hands here, so the lease article is simply irrelevant. Option d is incorrect because securities regulation deals with the offer and sale of investment instruments to the public. A private consulting contract raises no securities question, and that regime has nothing useful to say about it.

Correct Answer: A unilateral contract

A unilateral contract is a promise exchanged for a completed act, accepted only by performing the requested task. Rivera's reward promise can be accepted solely by finding and returning the briefcase, which is exactly what the finder did. Option a is incorrect because a bilateral contract forms the instant two parties trade promises, before any performance occurs. The finder never promised to search; he became entitled only by actually completing the act Rivera requested. Option b is incorrect because a formal contract requires a special method of creation, such as a negotiable instrument. A casual public reward notice needs no such form, so this label misidentifies the arrangement entirely. Option d is incorrect because executory describes how far performance has progressed, not how acceptance happens. Once the finder returns the briefcase and Rivera pays, the deal is fully executed, so this term names a different classification axis.

Correct Answer: Void with no legal effect

An agreement to commit an illegal act like vandalism lacks a lawful purpose, so it is void and has no legal effect from the start. Neither party can enforce it because no contract ever existed. Option a is incorrect because voidable status describes a real contract that one party may choose to cancel, such as a minor's deal. An illegal bargain was never valid at all, so there is nothing to avoid. Option b is incorrect because validity requires all four elements, including a legal purpose. Since vandalizing property is criminal, the legality requirement fails outright, and a court treats the arrangement as having no binding force whatsoever. Option c is incorrect because unenforceable describes a valid contract blocked by an outside rule like the Statute of Frauds. An illegal-purpose agreement is not merely blocked; it never achieved legal life to begin with, which is a different problem.

Correct Answer: Yes, under the objective theory of contracts

The objective theory judges intent by outward facts a reasonable person would read, not secret thoughts. A signed order plus a handshake are outward acts signaling genuine agreement, so her private bluff is irrelevant and a binding contract formed. Option a is incorrect because the law does not probe hidden mental states when deciding whether intent existed. Her outward conduct controls, and a reasonable observer would treat the signature and handshake as real assent despite any secret reservation. Option c is incorrect because acceptance here came from her affirmative signing and handshake, not from anyone's silence. Silence rarely operates as acceptance, and invoking it misreads how this particular agreement was actually reached. Option d is incorrect because informality does not defeat a contract; most contracts need no special form. The handshake merely reinforced the signed writing, and its casual nature cannot prevent a fully binding agreement from arising.

Correct Answer: A revocation of the offer

Revocation is the offeror's own withdrawal of an offer, permitted any time before acceptance under the common law. Because Quill had not yet accepted, Acme was free to call the offer off, and that act is a revocation. Option b is incorrect because a counteroffer proposes different terms and comes from the offeree, not the offeror. Acme suggested no new terms; it simply took its own offer back, which is a withdrawal rather than a fresh proposal. Option c is incorrect because rejection is the offeree turning an offer down. Quill, the offeree, said nothing at all, so no rejection occurred; the action came entirely from Acme, the party that originally made the offer. Option d is incorrect because accord and satisfaction discharges an existing duty by substituting a new performance. No contract had even formed yet, so there was no duty to discharge through any such arrangement here.

Correct Answer: No, because of the preexisting duty rule

The contractor already owed a duty to build that identical wall under the original contract. Promising to do what you are already bound to do is not consideration, so the extra payment lacks support and is unenforceable. Option a is incorrect because willingness alone cannot substitute for consideration in a service contract. Without the contractor giving up something new, the owner's added promise is a bare gift promise that no court will compel him to honor. Option b is incorrect because completing the wall was merely doing what the contractor already had to do. Performing an existing obligation adds no fresh value, so finishing the same job cannot transform the unsupported bonus into a binding one. Option d is incorrect because an illusory promise commits the promisor to nothing. The owner's pledge of a definite two thousand dollars was concrete; the true defect is the contractor's lack of any new consideration, not vagueness.

Correct Answer: Unenforceable under the Statute of Frauds

A sale of an interest in land falls within the Statute of Frauds, which demands a signed writing. Without that writing the otherwise real agreement is unenforceable, so a court will not compel the reluctant seller to convey the lot. Option a is incorrect because although many oral contracts are valid, land sales are a specific exception the Statute of Frauds carves out. This agreement needed a signed writing, so its purely oral form blocks enforcement here. Option b is incorrect because the missing writing makes the deal unenforceable, not void. A void agreement never had legal life; this land contract is genuine and would bind the seller if only a signed writing had existed. Option c is incorrect because voidable status turns on a defect like minority or fraud that lets one side escape. Both parties had capacity and consented; the sole problem is the absent writing, producing unenforceability rather than a cancellation option.

Correct Answer: UCC governs under the predominant-factor test

This mixed contract blends goods and services, so courts apply the predominant-factor test. Because the furnace dominates the price and purpose while labor is secondary, the deal counts as mostly goods, and the UCC governs the whole contract. Option a is incorrect because the predominant-factor test looks at what mainly drives the deal, not the mere presence of labor. Since the furnace dominates value and purpose, the goods aspect controls and the UCC applies. Option b is incorrect because courts do not split a single hybrid contract between two bodies of law. They pick the predominant purpose and apply one regime to the whole agreement, so a half-and-half treatment is wrong. Option d is incorrect because a hybrid contract is always assigned to one regime rather than left ungoverned. The predominant-factor test exists precisely to resolve such cases, and here it points clearly to the UCC because goods predominate.

Correct Answer: UCC Article 2, because it sells goods

Laptops are tangible, movable property, which makes them goods. A contract transferring ownership of goods for a price is a sale governed by UCC Article 2, so the code's flexible formation rules, not the common law, apply. Option a is incorrect because the governing law turns on the subject of the deal, not on whether a business participates. Since the transaction transfers movable goods, Article 2 controls even though both parties are commercial firms. Option c is incorrect because real estate law covers land and things permanently attached to it, which are not movable. Laptops are inventory that moves freely, so they are goods under the UCC rather than real property. Option d is incorrect because insurance law governs policies allocating risk, not the underlying sale of goods. The presence of shipping risk does not convert a laptop purchase into an insurance contract; the deal remains a sale under Article 2.

Correct Answer: No, it is a firm offer

A merchant's firm offer is a signed written promise by a merchant to hold an offer open, irrevocable for the stated time with no consideration required. Because Acme signed a thirty-day firm offer, it cannot revoke early. Option a is incorrect because the firm-offer rule exists precisely to make a merchant's signed written offer binding without consideration. The absence of payment is exactly what the UCC excuses, so it gives Acme no ground to escape. Option b is incorrect because merchant status does not grant a free right to revoke; it triggers special duties instead. A merchant who signs a written promise to keep an offer open is bound for the stated period. Option c is incorrect because nothing in the facts shows Quill accepting anything yet. The offer binds not through acceptance but because it qualifies as a merchant's firm offer, irrevocable during the thirty-day window on its own.

Correct Answer: It becomes part of the contract

Between merchants, additional terms in an acceptance automatically become part of the contract unless the offer limited acceptance, the term materially alters the deal, or the offeror objects. None apply, so the delivery term joins the contract. Option a is incorrect because the UCC abandons the mirror image rule for sales of goods. An acceptance that adds a term still forms a contract rather than becoming a counteroffer, so the agreement survives. Option b is incorrect because the between-merchants rule needs no separate signature for the added term to take effect. Silence by the offeror is precisely what lets a nonmaterial addition slip into the contract automatically under Article 2. Option d is incorrect because the UCC does not require fresh consideration for terms to enter a contract between merchants. The additional-terms rule works on the offeror's failure to object, not on any payment exchanged for the provision.

Correct Answer: Yes, because no new consideration is required

Under the UCC, a good-faith modification of a sales contract needs no new consideration to be binding. Because this is a sale of goods and both parties agreed to the lower price honestly, the modification holds even without anything extra. Option b is incorrect because leaving a price open is a different rule about forming a contract with gaps. Here the price was already set and then changed by agreement, so the binding force comes from the modification rule instead. Option c is incorrect because requiring fresh consideration for a modification is the common-law rule, which the UCC discards for goods. Applying it to a sales contract reverses the code's approach and reaches the wrong conclusion here. Option d is incorrect because a firm offer concerns keeping an offer open before a contract exists. This dispute involves changing an already-formed contract, so the firm-offer concept is beside the point when judging the modification.

Correct Answer: Substantial performance by the builder

Substantial performance occurs when a party performs in good faith with only a minor deviation that still delivers the promised benefit. The builder acted honestly and the house works, so he may enforce the contract, minus any small value difference. Option a is incorrect because a material breach defeats the essential purpose of the contract. A functional house with merely a substituted equivalent pipe is a trivial deviation, not the serious failure that would relieve Rivera of paying. Option b is incorrect because anticipatory repudiation means announcing in advance that one will not perform. The builder actually completed the house rather than refusing, so nothing about his conduct fits an advance refusal to perform. Option c is incorrect because a failed condition requires an express condition, read strictly, that did not occur. The pipe brand was an ordinary specification, not a stated express condition, so its minor substitution is not a complete failure.

Correct Answer: Novation substituting a new party

A novation substitutes a brand-new contract, usually by bringing in a new party and releasing the original one. Here Acme discharges Dana and accepts Rivera as the new obligor with everyone's consent, the defining structure of a novation. Option a is incorrect because accord and satisfaction discharges a duty by agreeing to a different performance and then rendering it. No substitute performance was arranged; instead a new party replaced Dana, which is the hallmark of novation. Option b is incorrect because mutual rescission cancels the deal and restores both parties to their pre-contract positions. Nobody is calling this contract off; the obligation continues, with Rivera simply stepping into Dana's shoes. Option d is incorrect because a substituted agreement keeps the same two original parties and merely replaces the old contract between them. The decisive feature here is that a third party joins and Dana exits, pointing to novation.

Correct Answer: No, this is mere subjective impossibility

Only objective impossibility, meaning no one could perform, discharges a duty. Dana can still deliver the units; the deal is merely costlier. That is subjective impossibility, essentially I cannot afford it, which does not excuse performance. Option a is incorrect because increased cost that makes a deal unprofitable does not render performance pointless in the legal sense. Dana can physically deliver the units, so the contract's purpose survives and mere loss of profit never triggers discharge. Option c is incorrect because foreseeability alone cannot excuse a duty when performance remains possible. Even treating the price spike as a surprise, Dana can still perform, so the objective-impossibility standard simply is not met. Option d is incorrect because Quill has no duty to renegotiate a signed contract. A counterparty's refusal to adjust terms creates no excuse; Dana bore the risk of rising costs and stays obligated to deliver the agreed units.

Correct Answer: Sue immediately for anticipatory repudiation

Quill's advance announcement that it will not perform is anticipatory repudiation, which the law treats as a present breach. Acme need not wait for June; it may sue immediately or wait while lining up a substitute supplier. Option b is incorrect because anticipatory repudiation frees the non-breaching party from waiting for the performance date. Once Quill clearly announced it would not deliver, Acme could treat that as a breach at once rather than sitting idle. Option c is incorrect because cure is the seller's right to fix a defective tender, not a limit on the buyer after a flat refusal. Quill refused entirely, so Acme's options include immediate suit, well beyond requesting a cure. Option d is incorrect because this is a sale of goods, and specific performance is reserved for unique items, not ordinary units. Courts also never compel personal services, so forcing Quill to perform is not available here.

Correct Answer: Acme, because risk passed at shipment

FOB shipping point signals a shipment contract, so title and risk of loss pass to the buyer once goods reach the carrier. Because the wreck happened after delivery to the carrier, Acme bears the loss. Option a is incorrect because the UCC assigns transit risk to one party based on the shipping term, not by dividing it. A shipment contract puts the entire loss on the buyer once goods reach the carrier. Option b is incorrect because the carrier's possible liability is a separate matter from who bears risk between buyer and seller. As between these parties, the shipment term places transit loss on Acme, who may pursue the carrier. Option c is incorrect because merely arranging the carrier does not keep risk on the seller in a shipment contract. Under FOB shipping point, risk shifts to the buyer once the carrier takes possession, regardless of who booked transport.

Correct Answer: Quill, because risk stayed until arrival

FOB destination makes this a destination contract, so risk of loss stays with the seller until the goods are tendered at the named place. Since the fire struck before the furniture reached Texas, Quill bears the loss. Option a is incorrect because ordering the goods does not by itself place transit risk on the buyer. Under a destination contract, risk remains on the seller until arrival, so Acme's status as purchaser does not shift the loss. Option b is incorrect because risk does not shift at shipment in a destination contract; that describes the opposite arrangement. FOB destination keeps risk on the seller during transit, so the Missouri fire falls on Quill instead. Option d is incorrect because the carrier's mere possession does not determine loss between buyer and seller. The destination term assigns transit risk to Quill until tender in Texas, leaving the allocation on the seller, not the carrier.

Correct Answer: The implied warranty of merchantability

The implied warranty of merchantability arises automatically when a merchant sells goods of that kind and assures fitness for ordinary purposes. A ladder that collapses in normal use is not fit for ordinary use, so the merchant breached it. Option a is incorrect because the warranty of good title concerns whether the seller actually owns and can lawfully transfer the goods. Acme's problem is a physically defective ladder, not a dispute over ownership, so title is not at issue. Option b is incorrect because the no-infringement warranty protects buyers against third-party intellectual-property claims on the goods. A collapsing ladder raises a quality defect, not a patent or trademark issue, so this warranty has no bearing. Option c is incorrect because an express warranty requires a specific factual statement or promise by the seller. Nothing indicates the store affirmed anything about durability; recovery rests on an implied warranty that attaches automatically to a merchant's sale.

Correct Answer: Fitness for a particular purpose

The implied warranty of fitness for a particular purpose arises when the seller knows the buyer's specific purpose and that the buyer relies on the seller's judgment. The clerk knew both here, so that warranty was breached. Option a is incorrect because merchantability covers fitness for ordinary purposes, and ordinary paint is not meant for permanent underwater use. Rivera's need was a special purpose the clerk selected for, which triggers the fitness warranty instead. Option c is incorrect because the good-title warranty addresses ownership and the right to sell, not product performance. The paint's failure underwater is a suitability problem, so a title warranty simply does not fit Rivera's complaint. Option d is incorrect because the clerk gave a specific recommendation for a stated purpose while knowing Rivera relied on it. That reliance-based selection creates a fitness warranty; it is not mere puffery that would leave her without recourse.