1-1) In general, what is the effect of one party being mistaken about the subject matter of
a contract?
a. The mistaken party can rescind the contract.
b. Either party can rescind the contract, and the mistaken party can recover damages.
c. Neither party can rescind the contract or recover damages.
d. Either party can rescind the contract and/or recover damages.
e. Either party can rescind the contract.

2-5) In Wilson v. Western National Life Insurance Company, involving the party who lied
allegedly regarding prior drug abuse in order to obtain life insurance, what was
the holding of the court when the party later died from a drug overdose?
Unit 3 Examination
a. The life insurance company had to pay the proceeds because if the plaintiff’s medical
records had been consulted, the drug abuse would have been discovered.
b. The life insurance did not have to pay the proceeds only because the deceased’s wife
was unaware of the misrepresentation.
c. The life insurance had to pay the proceeds because the deceased’s wife actually paid
the premiums.
d. The life insurance company had to pay the proceeds because the plaintiff was not
using drugs during the time the application for insurance was made.
e. The life insurance company did not have to pay the proceeds because of the concealment
of the drug abuse.

3-8) Frank had a bicycle that he advertised for sale, honestly believing it to be a 1999
model even though it was actually a 1996 model. There were significant improvements
in the frame material, not readily apparent, made between 1996 and 1999 to
this model bicycle. The buyer believed Frank’s statement that it was a 1999 model,
and was excited to be getting a model incorporating the improvements. After discovering
that the bike was actually a 1996 model, the buyer could avoid the contract on
the basis of:
a. unilateral mistake.
b. fraud.
c. mutual mistake.
d. B and C.
e. none of the above.
Unit 3 Examination
Business Law

4-9) The owner of a gym tells Ruppert that if he joins the gym for a year and hires a personal
trainer, his body will be more attractive to women and his life will change forever.
Ruppert joins and hires a personal trainer, but otherwise his life remains the
same. The statements of the gym owner could be described as:
a. statements of fact.
b. statements of opinions.
c. predictions about the future.
d. both B and C.
e. A, B and C.

5-10) Which of the following is the false statement?
a. A legal right arising from a breach of contract may be assigned.
b. The same right can be assigned more than once.
c. You must get everyone’s consent to make a novation.
d. Purely mechanical duties are not delegable.
e. There is a guarantor in a delegation.

6-11) When there has been an assignment of rights under a contract, who has a duty to
notify the obligor of the assignment?
a. The assignor.
b. The assignee.
c. Both the assignor and the assignee.
d. Neither the assignor nor the assignee.
e. Whichever party is nearer the obligor geographically.

7-12) When an obligor transfers her obligation to perform a contract duty to another, this is
known as a(n):
a. delegation.
b. accord.
c. denigration.
d. assignment.
e. stipulation.

8-13) When there is an accord and satisfaction, when are the duties under the original contract
discharged?
a. When the accord is formed.
b. When the duties of the original contract are fully performed by one of the parties.
c. When the original contract is breached.
d. When the duties under both the original contract and the accord are fully performed
by both parties.
e. When the duties under the accord are fully performed by both parties.
Unit 3 Examination
211
Business Law

9-15) WorldRest Hotels has contracted with QuickBuild Construction to build a 650-bed
hotel in Downtown Dallas. Marty has entered into a lease agreement for retail space
in an adjacent building to open a gift shop catering to the hotel guests. QuickBuild
was aware of Marty’s lease agreement. QuickBuild breached its contract with WorldRest
by not completing the hotel until seven months after the contractual due date.
Because the hotel was late opening and there were seven months when the hotel had
no guests, Marty lost considerable profi ts in the retail shop. Marty has sued Quick-
Build to recover these lost profi ts. Which of the following is true?
a. Marty is a donee benefi ciary of QuickBuild’s contract to build the hotel.
b. Because QuickBuild is now in debt to Marty for the lost profi ts, Marty is a creditor
benefi ciary of the hotel construction contract.
c. Marty can recover in the situation on the basis of an assignment of rights.
d. Marty cannot recover because Marty is an incidental benefi ciary of the hotel construction
contract.
e. The court would likely order QuickBuild to delegate its duties on future contracts so
that they are fi nished on time.

Unit 3 Examination
212
Business Law

10-21) In Reno, Attorney General of the United States v. American Civil Liberties Union,
involving a law restricting the sending of certain sexually oriented information over the
Internet, the U.S. Supreme Court ruled that:
a. the Telecommunications Act of 1996 violated the U.S. Constitution for its restrictions
on the transfer of indecent material over the Internet.
b. the Communications Decency Act violated the U.S. Constitution for its restrictions on
the transfer of indecent material over the Internet.
c. the Internet had grown to a point that it should be placed into private ownership that
could contract regarding sexual content with individual service providers.
d. the Communications Decency Act did not violate the U.S. Constitution in any manner.
e. individual states could decide whether the Telecommunications Act of 1996 violated
the U.S. Constitution.
Unit 3 Examination
213
Business Law

11-23) The Counterfeit Access Device and Computer Fraud and Abuse Act makes it illegal to
do each of the following except:
a. access a computer to knowingly obtain fi nancial records of fi nancial institutions.
b. access a computer to knowingly obtain grades and personal information pertaining to
students at a college or university.
c. access a computer to knowingly obtain restricted governmental information.
d. access a computer to knowingly obtain consumer reports of consumer reporting agencies.
e. all of the above are illegal under the Counterfeit Access Device and Computer Fraud
and Abuse Act.

12-24) Under the Uniform Computer Information Transactions Act, the licensee can revoke
acceptance of the information if:
a. there is a material breach and discovery of the nonconformity was diffi cult at the time
of delivery but was later discovered.
b. there is a breach of any kind and discovery of the nonconformity was diffi cult at the
time of delivery but was later discovered.
c. there is a material breach and after discovering the nonconformity at the time of
delivery, the licensor agreed to cure the defect, but has not done so.
d. there is a breach of any kind, and after discovering the nonconformity at the time of
delivery, the licensor agreed to cure the defect, but has not done so.
e. A or C will allow the licensee to revoke acceptance.