Bcom Bachelor of Commerce Business Law 1 — Questions and Answers
Question 1: Which element distinguishes a bilateral contract from a unilateral contract?
- A bilateral contract requires a written offer, while a unilateral contract may be oral
- In a bilateral contract, both parties exchange promises, whereas a unilateral contract is accepted only by performance (Correct answer)
- A bilateral contract must involve consideration from only one party
- A unilateral contract requires mutual assent from both parties at signing
Correct answer: In a bilateral contract, both parties exchange promises, whereas a unilateral contract is accepted only by performance
In a bilateral contract, each party makes a promise to the other, creating mutual obligations from the moment of acceptance. A unilateral contract, by contrast, calls for performance as the sole method of acceptance — the offeree's act, not a return promise, closes the agreement.
Question 2: What is the legal doctrine of 'promissory estoppel' primarily designed to prevent?
- A promisor from revoking a promise when the promisee has reasonably relied on it to their detriment (Correct answer)
- Courts from enforcing verbal agreements without written evidence
- Businesses from including penalty clauses in commercial contracts
- A party from claiming frustration of purpose after signing a long-term deal
Correct answer: A promisor from revoking a promise when the promisee has reasonably relied on it to their detriment
Promissory estoppel (also called detrimental reliance) allows a court to enforce a promise even without consideration when the promisee reasonably relied on that promise and suffered a loss as a result. It prevents injustice by stopping the promisor from backing out after reliance has occurred.
Question 3: Under the 'parol evidence rule', which type of evidence is generally INADMISSIBLE to vary the terms of a fully integrated written contract?
- Evidence of fraudulent misrepresentation made during negotiations
- Prior oral agreements that contradict the written contract's express terms (Correct answer)
- Evidence that a condition precedent was never satisfied
- Subsequent written modifications agreed to by both parties
Correct answer: Prior oral agreements that contradict the written contract's express terms
The parol evidence rule bars the introduction of prior or contemporaneous oral statements that would contradict or vary the terms of a complete written contract. Courts treat the written document as the final word. Fraud, conditions precedent, or later modifications are recognized exceptions to this rule.
Question 4: When a court 'pierces the corporate veil', what is the primary legal consequence?
- The corporation is dissolved and its assets are auctioned to creditors
- Shareholders lose voting rights but retain limited liability protection
- Shareholders are held personally liable for the corporation's debts and obligations (Correct answer)
- The board of directors is removed and replaced by a court-appointed trustee
Correct answer: Shareholders are held personally liable for the corporation's debts and obligations
Piercing the corporate veil removes the liability shield that normally separates a corporation from its owners. Courts apply this remedy when shareholders abuse the corporate form — for example, by commingling personal and corporate funds, undercapitalizing the entity, or using the corporation to perpetrate fraud — holding them personally responsible for corporate debts.
Question 5: In agency law, what is the key difference between 'actual authority' and 'apparent authority'?
- Actual authority arises from the principal's conduct toward third parties, while apparent authority is granted by written contract
- Actual authority is expressly or impliedly granted by the principal to the agent, while apparent authority is created by the principal's representations to third parties who reasonably rely on them (Correct answer)
- Apparent authority requires the agent to act within the written scope of an employment agreement
- Actual authority can only be created by a power of attorney, while apparent authority requires notarization
Correct answer: Actual authority is expressly or impliedly granted by the principal to the agent, while apparent authority is created by the principal's representations to third parties who reasonably rely on them
Actual authority (express or implied) flows directly from the principal's communication to the agent. Apparent authority, by contrast, arises when the principal's words or conduct lead a reasonable third party to believe the agent has authority to act, even if that authority was never actually granted. Both can bind the principal.
Question 6: Which remedy for breach of contract aims to restore the non-breaching party to the position they were in BEFORE the contract was formed?
- Expectation damages
- Reliance damages (Correct answer)
- Consequential damages
- Specific performance
Correct answer: Reliance damages
Reliance damages reimburse the innocent party for expenses incurred in reasonable reliance on the contract, placing them back in their pre-contract position. Expectation damages, by contrast, aim to put the party where they would have been had the contract been fully performed. Specific performance compels actual completion of the agreement.
Bcom Bachelor of Commerce Business Law 1
Which element distinguishes a bilateral contract from a unilateral contract?