Legal Environment Today Business in Its Ethical Regulatory e Commerce and Global Setting 7th Edition Miller Test Bank

Legal Environment Today Business In
Its Ethical Regulatory E-Commerce and

Global Setting 7th Edition Miller Test
Bank
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t-bank/
Chapter 9
Fomation of
Traditional and E-Contracts
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.

= A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. Contract law shows what excuses our society accepts for breaking certain types of
promises.
ANSWER: T PAGE: 235 TYPE: N

NAT: AACSB Analytic AICPA Legal
2. The intention to enter into a contract is judged by objective facts as interpreted by a

reasonable person.

3. One of the requirements of a valid contract is its acceptance.

159
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.
160 UNIT TWO: THE COMMERCIAL ENVIRONMENT
CHAPTER 9: FORMATION IN TRADITIONAL AND E-CONTRACTS 161
4. There are no exceptions to the rule that contracts voluntarily entered into will be
enforced.
ANSWER: F PAGE: 238 TYPE: N

5. An offer to form a bilateral contract is accepted only by completing the contract

performance.

6. A unilateral contract is formed when the one receiving the offer completes the re-
quested act or performance.

7. Offers may not be revoked before they are accepted.

8. A letter of credit is a formal contract.

NAT: AACSB Reflective AICPA Legal
9. An implied contract is implied from the conduct of the parties.

10. Parties can form a contract without putting the terms in writing.

11. An executory contract is one that has been fully performed.

12. To be valid, a contract must be enforceable by all of the parties to it.

13. If a voidable contract is avoided, the parties to it are released from it.

14. A void contract is enforceable if it is in writing.

15. An effective offer requires reasonably certain terms.

16. An offer must be practical to be effective.

17. An expression of opinion—“your customers will like this”—is an offer.

18. An invitation to negotiate—“can you afford this?”—is an offer.
19. A person who does not know about a reward can still claim it.

20. An acceptance that materially changes a term in the offer will still be considered an
acceptance.

21. An e-contract must meet the same basic requirements as a paper contract.

22. An online offer should include provisions relating to dispute settlement.

23. The terms of a shrink-wrap agreement may be enforced in the same way as the terms
of other contracts.

24. A partnering agreement can indicate the parties’ intent with respect to subsequent
contracts.

25. A partnering agreement reduces the likelihood that a dispute will arise under a
contract.

NAT: AACSB Reflective AICPA Critical Thinking
26. The Uniform Electronic Transactions Act does not create rules for e-transactions.

27. The E-SIGN Act preempts the uniform version of the Uniform Electronic Transactions
Act.

28. In contract law, “consideration” refers to the courtesy that one party shows another
in negotiating a deal.

29. Parties are not usually free to bargain as they wish.

NAT: AACSB Analytic AICPA Critical Thinking
30. Inadequate consideration may reflect a lack of bargained-for exchange.

31. An obligation is enforceable only if it is supported by past consideration.

32. Contractual capacity refers to the size or volume of a contract.

33. Legally, a minor may not contract with an adult.

34. A contract is void if one of the parties was intoxicated at the time of its formation.

35. A contract to do something that is prohibited by law is void.

MULTIPLE CHOICE QUESTIONS
1. InTown Delivery Service promises to deliver a certain couch to Kurt, who promises to
pay for the service. If InTown does not perform, the firm may be required to
a. do nothing.
b. make another promise.
c. pay damages.
b. perform a different service.
ANSWER: C PAGE: 236 TYPE: N

2. Bobbie claims that Carl breached their contract. Carl responds that he never intended
to enter into a contract with Bobbie. The intent to enter into a contract is determined
with reference to
a. the conscious theory of contracts.

b. the objective theory of contracts.
c. the personal theory of contracts.
d. the subjective theory of contracts.
ANSWER: B PAGE: 237 TYPE: N

3. Digital Architecture, Inc., enters into a contract to design robotic software for Chassis
Assembly Corporation. The freedom to enter into contracts is
a. a fundamental public policy of the United States.

b. an ambiguous business goal that is irrelevant in terms of the law
c. a philosophical concept that underlies international law.
d. a principle that describes contracting parties’ intent.
ANSWER: A PAGE: 237 TYPE: N

4. On Monday, Neil tells Outdoor Landscaping, Inc., that he will pay Outdoor $500 if a
variety of tasks are completed by Friday. On Wednesday, when Outdoor is more than
half done with the work, Neil says that he has changed his mind. These parties had
a. an expired contract when Neil said that he had changed his mind.
b. a bilateral contract when Neil said that he would pay for certain work.
c. a unilateral contract as soon as Outdoor began to perform.
d. no contract.

5. On behalf of the rock group Uno, their manager Thalia agrees to a performance in
Seaside Amphitheatre on July 4. Rex, acting for Seaside Productions, sends a written
copy of the agreement to Thalia to be signed. Typically, businesspersons put their
contracts in writing to
a. ensure proof of the contracts’ existence.

b. create substance from form.
c. obtain a check.
d. practice their “letters of credit.”

6. When Jeff’s car breaks down, he asks Kwik Tow, Inc., to tow it from its location to
Loyal Repair Shop. There is no discussion of a price, and Jeff and Kwik do not sign any
documents. After the tow, Kwik sends Jeff a bill. With respect to Jeff’s obligation to
pay the bill, this is
a. an express contract.
b. an implied contract.
c. a formal contract.
d. no contract.

7. GR8 Marketing Company and Hot Tunes, Inc., sign a document that states GR8 agrees
to create a marketing campaign for Hot and Hot agrees to pay GR8 for the service.
GR8 and Hot have
a. an executed contract.
b. an express contract.
c. an implied contract.
d. no contract.

8. Lou claims that he and Myra entered into an implied contract. To establish this
contract, it is not necessary to show that
a. a court imposed a promise in the interest of fairness.

b. Lou expected to be paid for providing services or property.
c. Lou provided Myra with services or property.
d. Myra failed to reject services or property provided by Lou.

9. Scot and Tiffany enter into an implied contract. The parties’ conduct
a. defines the contract’s terms.

b. finds the contract’s facts.
c. terminates any unintended consequences.
d. undercuts any terms based on the facts.

10. Vernon claims that his contract with Ulani is voidable. If their contract is avoided
a. both parties are released from it.

b. both parties must fully perform their obligations under it.
c. a wholly different contract is agreed to.
d. a wholly different contract is imposed “as if” the parties had agreed.

11. Employment Sources, Inc., enters into a contract with Fred. If Fred is a minor, this
contract is most likely
a. enforceable.
b. unenforceable.
c. void.
d. voidable.
ANSWER: D PAGE: 242 TYPE: N

12. Demi promises to buy a house from Caleb, who promises to vacate the property on
June 1. If these promises are in writing, they are most likely
a. enforceable.
b. unenforceable.
c. void.
d. voidable.

13. Greco promises to buy illegal copies of CDs and DVDs from Fava, who promises to
deliver on April 15. These promises are most likely
a. enforceable.
b. valid.
c. void.
d. voidable.

14. Wanda tells Vito that she would like to buy his Chocolate Goodies store. Vito declines,
but later decides to sell and sends to Wanda, and others, a flyer describing the details.
Wanda responds with a letter of “acceptance.” Wanda and Vito have
a. a contract.
b. no contract, because Vito sent the letter to more than one party.
c. no contract, because Vito was only inviting bids.
d. no contract, because the letter was an invitation to negotiate.

15. Jane offers to sell Kyle three desks for his Lights & Lamps Company administrative
office. Kyle sends a rejection first, then changes his mind and sends an acceptance.
Whether they have a contract is determined by
a. Kyle’s rejection.
b. Kyle’s subjective intent.
c. whatever Jane decides.
d. whether Kyle’s rejection or acceptance is received first.

16. Business Properties, Inc. (BPI), offers to sell a warehouse to Corporate Investments.
Corporate says that it will pay BPI $100 to hold the offer open for three business days.
This
a. creates an illegal contract by adding a clause to BPI’s offer.

b. makes the offer irrevocable for three days if BPI accepts.
c. negates BPI’s offer by changing the price term.
d. voids BPI’s offer by extending the time term.

17. Lovett County Bank offers to lend money to Kino, the owner of Java Stop, at 15
percent interest. Before Kino accepts, a state statute is enacted prohibiting loans at
rates greater than 12 percent. Kino and the bank have
a. a contract for a loan at 15 percent interest.

b. a contract for a loan at 12 percent interest.
c. a contract for a loan at 0 percent interest.
d. no contract.

18. Kim sends an offer to Leo to cut down and remove a tree for $200. Kim says, “If you
say nothing, I will consider you to have accepted my offer.” If Leo does not respond,
he will be deemed to
a. accept the offer.

b. make a counteroffer.
c. reject the offer.
d. none of the choices.

19. Shelby offers to make digital copies of Relay Company’s business conference
videotapes, CDs, DVDs, and other media for $500. Under the mailbox rule, Relay’s
acceptance by e-mail will be considered effective when
a. received.
b. sent.
c. followed up by a confirmation letter sent by regular mail.
d. composed on a Relay computer.

NAT: AACSB Technology AICPA Legal
20. Mayfair Company offers to sell a certain mall to Galleria Stores, Inc., for a certain price
if it accepts before 10 A.M. Monday. A contract is formed if Galleria’s acceptance is
received
a. before 10 A.M. Monday.

b. before midnight Monday.
c. before twenty-four hours of 10 A.M. Monday.
d. within a reasonable time of 10 A.M. Monday.

21. Deb buys a song through eSongs, an online music vendor. Before completing the
purchase and downloading the song, Deb must agree to a provision not to sell copies
of the song. This provision is
a. a browse-wrap term.
b. a click-on agreement.
c. a shrink-wrap agreement.

22. Lightspeed Corporation makes computers, each of which is packaged with a shrink-
wrap agreement. Milo buys a Lightspeed desktop. The shrink-wrap agreement is most
likely enforceable if
a. Milo buys the computer directly from Lightspeed.

b. Milo expressly agrees to the terms in the shrink-wrap agreement.
c. Milo reads the shrink-wrap agreement.
d. the terms in the shrink-wrap agreement concern warranties.

23. Mica buys “Nature,” a movie, through Open View, an online entertainment vendor.
Before completing the purchase and downloading “Nature,” Mica must review a
warning not to make and sell a copy of it. This warning is
a. a browse-wrap term.
b. a click-on agreement.
c. a shrink-wrap agreement.

24. Nero and Oona negotiate a contract. Nero prints out a hard copy to review before
both parties sign the electronic form of the contract. Neither party signs the hard
copy. Under the Electronic Signatures in Global and National Commerce Act (E-SIGN
Act), the signatures can
a. be denied effect because they are in electronic form.

b. be denied effect because Nero has not signed a hard copy.
c. be denied effect because Oona has not signed a hard copy.
d. not be denied effect because they are in electronic form.

25. Lively Toys Store and Movin’ Products Company (MPC) enter into an e-contract under
which MPC agrees to ship a case of electronic, remote-controlled bugs to Lively Toys,
which agrees to pay on delivery. The Uniform Electronics Transactions Act (UETA)
a. denies the enforcement of such contracts.

b. does not apply to such contracts.
c. preempts all other laws with respect to such contracts.
d. supports the enforcement of such contracts.

26. Michelle gives out a business card with an e-mail address on it. According to the
comments that accompany the UETA, it may be reasonable to infer that Michelle has
consented to
a. transact business electronically.

b. submit to the jurisdiction of any selected forum.
c. accept and respond to any correspondence sent to that address.
d. nothing.

NAT: AACSB Technology AICPA Legal
27. Quality Aluminum Corporation files a suit against Rite Tool Company, claiming that
the consideration for their contract is inadequate. The court will most likely not
examine the adequacy of the consideration if
a. it is obvious that the consideration is adequate.

b. Rite Tool asserts that there is adequate consideration.
c. something of value passed between the parties.
d. the consideration is worth more than $100.
ANSWER: C PAGE: 259 TYPE: =

28. Rollo promises to perform, for a price, shoe repair services in affiliation with Togs ‘n
Things, a clothing store. To support a contract, the consideration exchanged by the
parties must be
a. adequately considerate.
b. equally valuable.
c. legally sufficient.
d. wisely priced.

29. Chip’s Chips Company agrees to supply Delicioso Café with all the corn chips that it re-
quires for a year. A sudden demand for ethanol results in a shortage of corn, and the
price rises sharply. Chip’s asks Delicioso to pay a higher price for the chips. This
request is
a. invalid as an attempt at extortion or the so-called holdup game.

b. invalid under the preexisting duty rule.
c. valid as a risk ordinarily assumed in business.
d. valid due to the unforeseen difficulty of the sudden price increase.
ANSWER: D PAGE: 260 TYPE: =

30. Under a contract with Bucolic Farms, Agro Excavation, Inc., begins digging an
agricultural pond. In mid-project, Agro asks for $15,000 over the contract price,
claiming an increase in the “cost of doing business.” Bucolic agrees but later refuses to
pay. Their agreement is
a. unenforceable because Agro’s performance was a preexisting duty.

b. unenforceable because Bucolic’s promise was illusory.
c. enforceable.
d. unenforceable because its performance is unforeseeably difficult.

31. Panini Vittles, Inc., contracts with Qino to deliver its sandwiches. Later, the parties
decide to cancel their contract. They can
a. rescind their entire contract.

b. rescind their contract to the extent that it is executory.
c. rescind their contract if they make a new contract at the same time.
d. not rescind their contract.

32. Jenna, a minor acting on her own, signs a contract to buy a horse and its tack from
Field Equine Ranch. Later, after taking possession of the horse and tack, Jenna
disaffirms the deal. She
a. can keep the horse and the tack.

b. can keep the horse but not the tack.
c. can keep the tack but not the horse.
d. must return both the horse and the tack.
ANSWER: D PAGE: 262 TYPE: =

33. Jolie signs a contract with Keaton, an unlicensed physician, to perform plastic
surgery—a medical procedure. This contract is enforceable by
a. Jolie.
b. Jolie’s medical insurance company.
c. Keaton.
d. no one.

34. Kylie signs a covenant not to compete as part of a sale of her ongoing medical
equipment business to Lake Valley Medico, Inc., in exchange for a bonus payment.
The covenant is most likely enforceable by
a. both parties.
b. Kylie, but not Lake Valley.
c. Lake Valley, but not Kylie.
d. no one.

35. U-Can-Own-It Corporation sells appliances to less educated consumers, including Viv,
on installment plans. U-Can-Own-It files a suit against Viv when she stops making
payments. Viv claims that the deal is unconscionable. The court will most likely
consider
a. the geographic area of the relevant market.

b. the parties’ relative bargaining power.
c. the quality of related products in the general market.
d. the relation of this deal to those of other customers.
ANSWER: B PAGE: 265 TYPE: =

ESSAY QUESTIONS
1. On May 1, Brand Name Industries, Inc. (BNI), sent Carol a letter, via overnight delivery,
offering to employ her to audit BNI’s financial statements for the current year for
$10,000. In the letter, BNI stated that Carol had ten days to accept. On May 5, Carol
sent BNI a fax that stated, “The price for the audit seems too low. Would you consider
paying $12,000?” BNI received the fax. The next day, Dan offered to conduct the audit
for $8,000. On learning of Dan’s offer, Carol immediately e-mailed BNI, agreeing to do
the work for $10,000. BNI received this e-mail on May 7. Explain why BNI and Carol
do, or do not, have a contract.
ANSWER: BNI and Carol have a contract. Carol effectively accepted BNI’s offer to
perform an audit of BNI’s financial statements. Carol’s fax was merely an inquiry
about BNI’s offer. An attempt to change the terms of an offer is a rejection of that
offer, terminates it, and makes a counteroffer. Here, however, the fax did not
indicate an intent to reject the offer, and a reasonable person in BNI’s position would
not conclude that the fax was a rejection. Carol was still considering the offer. Her
learning of Dan’s offer did not act as a revocation of BNI’s offer (although the offer
would have been revoked if BNI had accepted Dan’s offer, and Carol had learned of
this acceptance). Also, in accepting BNI’s offer, Carol used a medium that was
reasonable under the circumstances because BNI did not expressly specify any
particular method of acceptance. Carol’s acceptance was timely sent and received,
and consequently, was effective on dispatch.
PAGES: 247 & 250–251 TYPE: =

NAT: AACSB Reflective AICPA Decision Modeling
2. Myra owns a house, which she advertises for sale for $200,000. On May 1, Nicole
offers Myra $180,000 for the house. On May 5, Myra delivers to Nicole a form that
includes additional terms but does not state a price. At 9 A.M. on May 6, Nicole signs
the form and gives it to Odell, her administrative assistant, with instructions to mail it.
At 10 A.M., Myra calls to tell Nicole that the deal is off. The next day, Odell mails the
signed form to Myra. When Myra refuses to sell the house, Nicole files a suit against
her, alleging breach of contract. Myra claims that there was no contract. What are
arguments supporting each party’s position? What is the court likely to rule? Explain.
ANSWER: Nicole might assert her intent to accept, and point to her signature on
Myra’s form as proof of the assertion. Nicole might claim that she accepted Myra’s
counteroffer (including the additional terms) before it was revoked. Nicole might
argue that she put her acceptance into the “stream of commerce,” or the “route of
response,” or the “transmission of delivery,” or some similar phrase, when she gave it
to Odell, her administrative assistant.
Myra might contend that there was no contract, because she revoked the offer
before Nicole’s acceptance was received. Myra might argue that Nicole did not place
her acceptance into any “mode of dispatch” because Nicole could still control the
form—she had only given it to her administrative assistant, who did not mail it until
the next day, long after Myra had revoked the offer. A court would most likely agree
with Myra and hold that the acceptance was not effective. Nicole still controlled this
acceptance at the time that Myra revoked the offer. Nicole’s mailed acceptance was
too late.
PAGES: 247 & 250–251 TYPE: N

NAT: AACSB Reflective AICPA Decision Modeling

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Legal Environment Today Business In

Its Ethical Regulatory E-Commerce and

N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.

N A question new to this edition of the Test Bank.

ANSWER: T PAGE: 235 TYPE: N

2. The intention to enter into a contract is judged by objective facts as interpreted by a

ANSWER: T PAGE: 237 TYPE: N

3. One of the requirements of a valid contract is its acceptance.

ANSWER: T PAGE: 237 TYPE: N

NAT: AACSB Analytic AICPA Legal

ANSWER: F PAGE: 238 TYPE: N

5. An offer to form a bilateral contract is accepted only by completing the contract

ANSWER: F PAGE: 238 TYPE: N

ANSWER: T PAGE: 239 TYPE: N

7. Offers may not be revoked before they are accepted.

ANSWER: F PAGE: 241 TYPE: N

8. A letter of credit is a formal contract.

ANSWER: T PAGE: 241 TYPE: N

9. An implied contract is implied from the conduct of the parties.

ANSWER: T PAGE: 241 TYPE: N

ANSWER: T PAGE: 241 TYPE: N

11. An executory contract is one that has been fully performed.

ANSWER: F PAGE: 242 TYPE: N

12. To be valid, a contract must be enforceable by all of the parties to it.

ANSWER: F PAGE: 242 TYPE: N

ANSWER: T PAGE: 242 TYPE: N

14. A void contract is enforceable if it is in writing.

ANSWER: F PAGE: 242 TYPE: N

15. An effective offer requires reasonably certain terms.

ANSWER: T PAGE: 243 TYPE: N

16. An offer must be practical to be effective.

ANSWER: F PAGE: 243 TYPE: N

17. An expression of opinion—“your customers will like this”—is an offer.

ANSWER: F PAGE: 244 TYPE: N

18. An invitation to negotiate—“can you afford this?”—is an offer.

ANSWER: F PAGE: 244 TYPE: N

NAT: AACSB Analytic AICPA Legal

ANSWER: F PAGE: 246 TYPE: N

ANSWER: F PAGE: 247 TYPE: N

ANSWER: T PAGE: 251 TYPE: N

22. An online offer should include provisions relating to dispute settlement.

ANSWER: T PAGE: 252 TYPE: N

ANSWER: T PAGE: 254 TYPE: N

ANSWER: T PAGE: 255 TYPE: N

ANSWER: T PAGE: 255 TYPE: N

ANSWER: T PAGE: 256 TYPE: N

ANSWER: F PAGE: 257 TYPE: N

ANSWER: F PAGE: 258 TYPE: N

29. Parties are not usually free to bargain as they wish.

ANSWER: F PAGE: 258 TYPE: N

30. Inadequate consideration may reflect a lack of bargained-for exchange.

ANSWER: T PAGE: 259 TYPE: N

31. An obligation is enforceable only if it is supported by past consideration.

ANSWER: F PAGE: 261 TYPE: N

32. Contractual capacity refers to the size or volume of a contract.

ANSWER: F PAGE: 261 TYPE: N

33. Legally, a minor may not contract with an adult.

ANSWER: F PAGE: 262 TYPE: N

ANSWER: F PAGE: 262 TYPE: N

35. A contract to do something that is prohibited by law is void.

ANSWER: T PAGE: 263 TYPE: N

MULTIPLE CHOICE QUESTIONS

ANSWER: C PAGE: 236 TYPE: N

a. the conscious theory of contracts.