CP CP Contracts & Business Law 2 — Questions and Answers
Question 1: Under California law, a minor (under 18) who enters into a contract may generally:
- Never be held to any contractual obligation
- Disaffirm the contract until reaching the age of majority or within a reasonable time thereafter (Correct answer)
- Only enter contracts for necessities
- Be sued for breach of contract as if they were an adult
Correct answer: Disaffirm the contract until reaching the age of majority or within a reasonable time thereafter
California Family Code § 6710 allows minors to disaffirm contracts (with limited exceptions for necessities and statutory exceptions) before or within a reasonable time after reaching majority.
Question 2: The parol evidence rule in California contract law generally prevents:
- Oral testimony about prior negotiations that contradict a fully integrated written agreement (Correct answer)
- All oral testimony in contract disputes
- Written amendments to existing contracts
- Expert testimony about industry custom
Correct answer: Oral testimony about prior negotiations that contradict a fully integrated written agreement
The parol evidence rule bars introduction of prior oral or written negotiations that contradict or vary the terms of a fully integrated written contract.
Question 3: Which of the following best describes a California general partnership?
- A formal entity requiring Articles of Partnership filed with the Secretary of State
- An association of two or more persons to carry on a business for profit, which may be formed without any written agreement (Correct answer)
- A limited liability entity requiring annual reports
- An entity available only to licensed professionals
Correct answer: An association of two or more persons to carry on a business for profit, which may be formed without any written agreement
A California general partnership under Corp. Code § 16202 is formed automatically when two or more persons associate to carry on a business for profit, without requiring a formal filing.
Question 4: In California, the implied covenant of good faith and fair dealing applies to:
- Only insurance contracts
- Every contract, requiring each party to act honestly and not frustrate the other's right to contract benefits (Correct answer)
- Only government contracts
- Only contracts valued over $10,000
Correct answer: Every contract, requiring each party to act honestly and not frustrate the other's right to contract benefits
California courts impose an implied covenant of good faith and fair dealing on every contract, prohibiting parties from acting in ways that deprive the other of the contract's benefits.
Question 5: A paralegal assisting with corporate formation would typically prepare which document to establish a California corporation's internal governance rules?
- Articles of Incorporation
- Bylaws (Correct answer)
- Operating Agreement
- Partnership Agreement
Correct answer: Bylaws
Bylaws govern a corporation's internal affairs, including board structure, shareholder meetings, and officer duties; they are distinct from the Articles of Incorporation filed with the state.
Question 6: Under California law, which doctrine allows a court to impose liability on a corporate owner who has used the corporation to commit fraud or injustice?
- Respondeat superior
- Piercing the corporate veil (alter ego liability) (Correct answer)
- Promissory estoppel
- Indemnification
Correct answer: Piercing the corporate veil (alter ego liability)
California courts may pierce the corporate veil (alter ego doctrine) to hold shareholders or owners personally liable when the corporate form is used as a shield for fraud or injustice.
CP CP Contracts & Business Law 2
Under California law, a minor (under 18) who enters into a contract may generally: