Legal Environment of Business Text and Cases 9th Edition Cross Test Bank

Legal Environment of Business Text
and Cases 9th Edition Cross Test Bank

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Chapter 9
Formation 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 does not distinguish between promises that create only moral
obligations and promises that are legally binding.
ANSWER: F PAGES: Introduction TYPE: N

BUSPROG: Analytic AICPA: BB-Legal
2. In contract law, intent is determined by the personal or subjective intent, or

belief, of a party.
ANSWER: F PAGES: Section 1 TYPE: N

3. A bilateral contract comes into existence at the moment promises are

exchanged.
ANSWER: T PAGES: Section 2 TYPE: N

1
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
2 TEST BANK—UNIT THREE: THE COMMERCIAL ENVIRONMENT
4. If a voidable contract is avoided, the promisee, but not the promisor, is

released from it.

BUSPROG: Reflective AICPA: BB-Legal
5. A request or invitation to negotiate is an offer.

6. An acceptance can impose new conditions or change the terms of the original
offer without rejecting it.

7. An e-contract must meet basic requirements that are different from those
required of a paper contract.

8. An important rule to keep in mind is that the offeree (the buyer) controls the
acceptance and thus the resulting contract.

9. In contract law, the term consideration refers to the serious thought that
underlies a party’s intent to enter into a contract.

10. To be legally sufficient, consideration must be evidenced by something

tangible.

CHAPTER 9: FORMATION OF TRADITIONAL AND E-CONTRACTS 3
11. The element of bargained-for exchange distinguishes contracts from gifts.

12. A promise to do what one already has a legal duty to does not constitute legally
sufficient consideration.

13. A contract entered into by a minor is voidable at the option of either of the
contracting parties.

14. A person who has been determined by a court to be mentally competent

cannot form a legally binding contract with another party.

15. A contract entered into by an intoxicated person is never valid.

16. In certain circumstances, bargains are so oppressive that the courts relieve
innocent parties of part or all of their duties.

17. Every state has a statute that stipulates what types of contracts must be in
writing.

18. The writing requirement under the Statute of Frauds means that an agreement
must be a formal written contract.

19. A contract that prohibits its assignment cannot be assigned.

20. Intended beneficiaries can sue to enforce a contract.

MULTIPLE-CHOICE QUESTIONS
1. Cellphones & Calltime, Inc., makes an offer to Delores to enter into a contract
to work as a salesperson for a certain base salary plus commission for ninety
days subject to a one-year renewal based on her performance. Delores
accepts the offer. A valid contract requires
a. a price and a subject.

b. a duration and termination provision.
c. an offer and an acceptance.
d. specific quality standards.
ANSWER: C PAGES: Section 1 TYPE: N

2. Jonah tells Levi he will give him an Xbox if Levi does Jonah’s chores for a
month. Levi promises to do the chores. Jonah and Levi have formed a
a. a bilateral contract.
b. a formal contract.
c. a unilateral contract.
d. no contract.
ANSWER: A PAGES: Section 2 TYPE: N

3. Following negotiations, Office Park, Inc., enters into an informal contract with
Quality Janitorial Company for custodial services for Office Park’s buildings.
This means that the parties’ contract
a. requires no special form.

b. is freely open to either party’s interpretation.
c. is subject to change by either party, within reason.
d. is not yet completely formed.

4. Bilbo signs a lease agreement for an apartment with Cato, who owns and
manages the Deer Creek Apartments complex. These parties have
a. an express contract.
b. an implied contract.
c. a unilateral contract.
d. no contract.

5. Signe offers to sell Thomas her textbook but conditions the sale on Thomas ac-
cepting the offer by March 1. Signe may revoke the offer
a. before Thomas accepts the offer.

b. before March 1, whether or not Thomas has accepted the offer.
c. only after Thomas accepts the offer.
d. only after March 1.

6. Mark is creating Nu2U.com, a Web site through which he will enter into
contracts over the Internet. Important terms to include in his offers include
a. provisions specifying the remedies if the contract is breached.

b. a detailed history of his business.
c. glowing reviews from former customers.
d. his educational background.

7. Deb buys a song through eSongs, an online music vendor. Before completing
the purchase and downloading the song, Deb must review a provision stating
that she will not make and sell copies of the song and is required to click “I
agree.” This provision is
a. a browse-wrap term.
b. a click-on agreement.
c. a shrink-wrap agreement.
d. none of the choices.
ANSWER: B PAGES: Section 4 TYPE: N

8. On behalf of Bobble Head Manufacturing Company, Carmela types her name

at the bottom of an e-mail purchase order and submits the order to Designer
Parts Company. Under the UETA, Carmela’s typed name qualifies as
a. a “signature.”
b. a statement of future intent.
c. an assignment.
d. a preliminary negotiation.

BUSPROG: Technology AICPA: BB-Legal
9. Chicken & Egg Farms promises to pay Dex $500 to install a sump pump in its
warehouse. Dex completes the installation. The act of installing the pump
a. imposes a moral obligation on Chicken & Egg to pay Dex.

b. imposes no obligation on Chicken & Egg unless it is satisfied with the
job.
c. is not sufficient consideration because it is not goods or money.
d. is the consideration that creates Chicken & Egg’s obligation to pay Dex.

10. Henry promises not to open his Hank’s Lunchbox Café before 10:00 A.M. if Isis,
who owns Isis’s Danish & Donuts next door, promises to close by 4:00 P.M.
Henry’s consideration is
a. the destruction of a legal relationship.

b. the creation of a legal relationship.
c. a forbearance.
d. an exchange of money.

11. Esmeralda promises to pay Fiorello $400 because “he does not have as much
money as other people.” Esmeralda’s promise is not enforceable because
a. society does not want gifts cheapened by making them legally

enforceable.
b. the redistribution of wealth on a one-to-one basis is not a valid social
goal.
c. Esmeralda could have paid more.
d. Fiorello has not given consideration in return.
ANSWER: D PAGES: Section 5 TYPE: N

12. Genovese Contracting, Inc., agrees to build a warehouse for Hawthorne

Wholesale Distributors. When Genovese runs into the types of difficulties that
contractors ordinarily confront, Hawthorne agrees to pay extra compensation to
overcome them. Regarding the agreement to pay more, a court would likely
a. enforce it.
b. rescind it.
c. order the parties to renegotiate it.
d. not enforce it.

13. Stella is fifteen. In most states, for contractual purposes, Stella would be
considered a minor until she is
a. sixteen.
b. eighteen.
c. seventeen.
d. twenty-one.

14. Intoxicated but still capable of comprehending the consequences of her

actions, Cricket signs a contract to sell her phone app design to Downloads,
Inc. This contract is
a. unenforceable because Cricket was intoxicated.

b. enforceable.
c. unenforceable if Cricket disaffirms it.
d. unenforceable if Downloads disaffirms it.

15. Jolie signs a contract with Keaton, an unlicensed physician, to perform a

medical procedure. This contract is enforceable by
a. Jolie.
b. Jolie’s medical insurance company.
c. Keaton.
d. no one.

16. Odina signs a covenant not to compete with her employer, Penultimate Sales
Corporation. A court decides that the covenant is overly restrictive. Depending
on the jurisdiction, the court will likely
a. enforce it as written so as not to undercut the freedom of contract.

b. enforce it but evaluate its effects over time.
c. reform its terms to prevent any undue burden.
d. refuse to enforce it unless Penultimate pays a fine to the court.

17. Sonya and Taylor enter into an oral contract that is required to be in writing to
be enforceable. Such a contract is normally
a. voidable by a party who does not wish to follow through with it.
b. void.
c. valid.
d. voidable but only by consent of both parties.

18. Illya owes Jenny $1,000. In a separate deal, Kasey owes Illya $1,000. Illya
unconditionally assigns his rights in the deal with Kasey to Jenny. Illya’s right to
the $1,000 is then
a. unchanged.
b. extinguished.
c. incidental.
d. assigned to a court.

19. Uri and Victor enter into a contract by which Uri promises to deliver business
cards, advertising banners, and other marketing materials to Victor. Uri later
transfers his duty under the contract to Wren. Uri is
a. a delegator.
b. a delegate.
c. an assignor.
d. none of the choices.

20. App Developers, Inc. (ADI), enters into a contract with Carmen, the chief
executive officer of SalesCorp, to create an app for the firm. To fulfill the
contract, ADI hires Max and ten other student interns. With respect to the
contract between ADI and Carmen, Max is
a. an intended beneficiary.
b. an incidental beneficiary.
c. a delegate.
d. an assignee.

ESSAY QUESTIONS
1. On May 1, Bobbi-Ann, a real estate agent, and Corporate Properties, Inc., a

commercial property owner, sign an agreement about the sale of Corporate
Properties’ office building. Under the terms, if a buyer makes a serious offer
within sixty days, Corporate Properties must pay Bobbi-Ann’s commission.
Bobbi-Ann puts signs on the building, ads in real estate pamphlets and a locally
focused Web site, and features the property in a “walking” tour online. On June
1, Corporate Properties tells Bobbi-Ann that it is canceling their arrangement.
Ten days later, Corporate Properties closes a sale on the building without
Bobbi-Ann’s participation. Bobbi-Ann files a suit against Corporate Properties
for the amount of her commission. In whose favor is the court likely to rule, and
why?
ANSWER: The court is likely to issue a judgment in Bobbi-Ann’s favor on the

basis that the parties in this situation had agreed to a unilateral contract. The
court would likely reason that Bobbi-Ann had begun performance under this
contract by putting up the signs, placing the ads, and featuring a tour of the
building on the Internet.
Under the present-day view of unilateral contracts, once a party to such
a contract has begun performance, the other party cannot legitimately revoke
or otherwise cancel the deal. Thus, Corporate Properties’ attempted revocation
in this problem—which was probably based on a desire to avoid paying a
commission to Bobbi-Ann—would constitute a breach of its contract with Bobbi-
Ann, and Corporate Properties would owe Bobbi-Ann her commission even
though Bobbi-Ann did not participate in the closing of the sale on the property.
The problem does not mention whether Bobbi-Ann found the buyer, but
Corporate Properties would most likely be liable for the payment of the
commission under the terms of the contract with Bobbi-Ann even if Corporate
Properties found the buyer herself.
PAGES: Section 2 TYPE: N

BUSPROG: Reflective AICPA: BB-Decision Modeling
2. Business Solutions Corporation (BSC) sells business application software—

wage, price, and inventory coordinating programs, for example—in different
combinations and packages, at different prices, downloadable online. To
complete a deal, a purchaser clicks on a button that, with reference to certain
terms, states, “I agree.” What is this sort of agreement called? Do the parties
have a binding, enforceable contract that includes the terms? Explain.
ANSWER: This is a click-on agreement, which occurs when a buyer, to

complete a transaction on a computer, indicates his or her assent to be bound
by the terms of an offer by clicking on a button that says, for example, “I
assent,” or, in this question, “I agree.” Such an agreement is likely to be
enforceable if the party who agreed to the terms had an opportunity to read
them before the contract was made (unless the terms are objectionable on
grounds that apply to contracts generally). If the terms were not revealed until
after the agreement was made, however, they are unlikely to be considered
part of the deal, as in cases involving shrink-wrap agreements.
In this question, the parties would probably have a binding contract that
includes the terms. The question states that the button referred to the terms,
meaning that the buyer knew, or should have known, what he was agreeing to.
PAGES: Section 4 TYPE: N

BUSPROG: Technology AICPA: BB-Decision Modeling

Legal Environment of Business Text and Cases 9th Edition Cross Test Bank

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Legal Environment of Business Text and Cases 9th Edition Cross Test Bank

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Legal Environment of Business Text

and Cases 9th Edition Cross Test Bank

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: F PAGES: Introduction TYPE: N

2. In contract law, intent is determined by the personal or subjective intent, or

ANSWER: F PAGES: Section 1 TYPE: N

3. A bilateral contract comes into existence at the moment promises are

ANSWER: T PAGES: Section 2 TYPE: N

4. If a voidable contract is avoided, the promisee, but not the promisor, is

ANSWER: F PAGES: Section 2 TYPE: N

5. A request or invitation to negotiate is an offer.

ANSWER: F PAGES: Section 3 TYPE: N

ANSWER: F PAGES: Section 3 TYPE: N

ANSWER: F PAGES: Section 4 TYPE: N

ANSWER: F PAGES: Section 4 TYPE: N

ANSWER: F PAGES: Section 5 TYPE: N

10. To be legally sufficient, consideration must be evidenced by something

ANSWER: F PAGES: Section 5 TYPE: N

11. The element of bargained-for exchange distinguishes contracts from gifts.

ANSWER: T PAGES: Section 5 TYPE: N

ANSWER: T PAGES: Section 5 TYPE: N

ANSWER: F PAGES: Section 6 TYPE: N

14. A person who has been determined by a court to be mentally competent

ANSWER: F PAGES: Section 6 TYPE: N

15. A contract entered into by an intoxicated person is never valid.

ANSWER: F PAGES: Section 6 TYPE: N

ANSWER: T PAGES: Section 7 TYPE: N

ANSWER: T PAGES: Section 8 TYPE: N

ANSWER: F PAGES: Section 8 TYPE: N

19. A contract that prohibits its assignment cannot be assigned.

ANSWER: T PAGES: Section 9 TYPE: N

20. Intended beneficiaries can sue to enforce a contract.

ANSWER: T PAGES: Section 9 TYPE: N

a. a price and a subject.

ANSWER: C PAGES: Section 1 TYPE: N

ANSWER: A PAGES: Section 2 TYPE: N

a. requires no special form.

ANSWER: A PAGES: Section 2 TYPE: N

ANSWER: A PAGES: Section 2 TYPE: N

a. before Thomas accepts the offer.

ANSWER: A PAGES: Section 3 TYPE: N

a. provisions specifying the remedies if the contract is breached.

ANSWER: A PAGES: Section 4 TYPE: N

ANSWER: B PAGES: Section 4 TYPE: N

8. On behalf of Bobble Head Manufacturing Company, Carmela types her name

ANSWER: A PAGES: Section 4 TYPE: N

a. imposes a moral obligation on Chicken & Egg to pay Dex.

ANSWER: C PAGES: Section 5 TYPE: N

a. the destruction of a legal relationship.

ANSWER: C PAGES: Section 5 TYPE: N

a. society does not want gifts cheapened by making them legally

ANSWER: D PAGES: Section 5 TYPE: N

12. Genovese Contracting, Inc., agrees to build a warehouse for Hawthorne

ANSWER: D PAGES: Section 5 TYPE: N

ANSWER: B PAGES: Section 6 TYPE: N

14. Intoxicated but still capable of comprehending the consequences of her

a. unenforceable because Cricket was intoxicated.

ANSWER: B PAGES: Section 6 TYPE: N

15. Jolie signs a contract with Keaton, an unlicensed physician, to perform a

ANSWER: D PAGES: Section 7 TYPE: N

a. enforce it as written so as not to undercut the freedom of contract.

ANSWER: C PAGES: Section 7 TYPE: N

ANSWER: A PAGES: Section 8 TYPE: N