1. Contracts are:

A. legally enforceable promises.

B. always required to be written.

C. a form of a circular.

D. enforceable only in the supreme court.

E. informal agreements.

2. A(n) _____ is an agreement containing mutual promises.

A. unilateral contract

B. quasi-contract

C. express-in-fact contract

D. bilateral contract

E. implied-in-fact contract

3. The courts enforce the concept of _____ to remedy situations of unjust enrichment.

A. illusory contracts

B. implied-in-law (quasi) contracts

C. divisible contracts

D. bilateral contracts

E. unilateral contracts

4. The ultimate purpose of a contract is the creation of an agreement that courts will order parties to perform or to pay consequences for the failure of performance. When courts uphold the validity of such promises, the resulting agreement is a(n) "_____ contract."

A. absolute

B. differentiated

C. void

D. relative

E. enforceable

5. A(n) _____ contract is an agreement when one party has the right to withdraw from the promise made without incurring any legal liability.

A. executory

B. voidable

C. void

D. implied-in-fact

E. reciprocal

6. According to the mirror image rule, _____.

A. the acceptance must exactly match the offer

B. to be enforceable, a contract must be accepted in writing by both the parties involved

C. the acceptance of an offer involves changing the terms of offer or adding new terms

D. terms of contract must be definite to be clear and enforceable

E. the contract becomes enforceable by performing a requested act, not by making a promise

7. Valid consideration can include any promise to do something one has no obligation to do, refrain from doing something one has the right to do, or in the case of a unilateral contract, a performance when there is no obligation to do so. This is called as a(n) _____.

A. accord

B. legal detriment

C. release

D. negotiation

E. promissory estoppel

8. An important exception to the rule requiring consideration to support a promise is the doctrine of _____. This doctrine arises when a promisee justifiably relies on a promisor's promise to his or her economic injury.

A. firm offer

B. consideration

C. termination

D. promissory estoppel

E. accord and satisfaction

9. Which of the following terms refers to a person's ability to be bound by a contract?

A. Legality

B. Capacity

C. Usability

D. Negotiability

E. Measurability

10. Which of the following involves an intentional misstatement of a material fact that induces one to rely justifiably to his or her injury?

A. Duress

B. Misrepresentation

C. Undue influence

D. Mutual mistake

E. Fraud

11. 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.

12. 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

13. Most of our everyday purchases involve:

A. implied concurrent conditions.

B. express conditions precedent.

C. express conditions subsequent.

D. implied conditions precedent.

E. implied conditions subsequent

14. _____ 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

15. 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.

16. 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

17. Principals hire _____ to do tasks and represent them in transactions.

A. contractors

B. agents

C. third parties

D. organizations

E. suppliers

18. _____ 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

19. _____ 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

20. 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

21. "Creation" means:

A. the legal steps required to form a particular business organization.

B. the concept of a business.

C. the intent to create a business.

D. a paradigm shift in a business.

E. the relation of the organization's existence to its owners.

22. In a(n) _____, the shareholders are taxed only on income distributed.

A. limited partnership

B. corporation

C. Limited liability company

D. sole proprietorship

E. S corporation

23. When one person, or a very few persons, own all the shares of stock in a corporation, it is considered a _____ organization.

A. publicly held

B. narrowly held

C. closely held

D. tightly held

E. minority held

24.When a court finds that the shareholders of a corporation are using the corporate structure to shield themselves from liability when acting for purely personal purposes, the court may disregard the corporate structure and impose personal liability on the shareholders treating them like partners. This is called:

A. cracking the corporate shell.

B. piercing the corporate veil.

C. breaking the corporate shield.

D. breaching the corporate defense.

E. rupturing the corporate law.

25. If a corporate entity is disregarded by officers or directors so that there is such a unity of ownership and interest that separateness of the corporation has ceased to exist, the corporate veil may be pierced based on the:

A. alter-ego theory.

B. negligent conduct theory.

C. corporate confusion theory.

D. corporate envelopment theory.

E. corporate doppelganger theory.

26. Which of the following is a taxable entity?

A. A partnership

B. An S corporation

C. A limited liability company

D. A corporation

E. A sole proprietorship

27. Which of the following is an activity that a limited partner may NOT engage in?

A. Acting as an agent of the partnership

B. Approving an amendment to the partnerships' certificate

C. Participating in management

D. Inspecting any of the partnership's financial records

E. Advising or consulting with a general partner

28. Which of the following is true about an S corporation?

A. It has the same legal characteristics as any other corporation except for the issue of taxation.

B. It is the official designation for a corporation with 500 or less employees.

C. It is the same as any other corporation except for management participation by stockholders.

D. It is exactly the same as any other corporation.

E. It need not file an information return with the IRS since it does not pay any taxes.

29. An LLC is created through filing the _____ with a state official, usually the secretary of state.

A. articles of confederation

B. articles of incorporation

C. articles of organization

D. articles of association

E. articles of integration

30. The owners of LLCs are called:

A. shareholders.

B. partners.

C. proprietors.

D. members.

E. directors.