Essentials of Business Law 9th Edition Anthony Liuzzo Test Bank

Essentials of Business Law 9th Edition
Anthony Liuzzo Test Bank

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Chapter 007 Introduction to Contracts
True / False Questions
1. An enforceable contract results from an agreement that imposes a legal obligation.

Answer: True
LO: 07-02 Identify the sources of contract law.
Topic: Sources of Contract Law
Blooms: Remember
Difficulty: 1 Easy
AACSB: Reflective Thinking
Feedback: If an agreement imposes a legal obligation, an enforceable contract results.
2. One reason for creating a contract is for employment.

Answer: True
LO: 07-03 Distinguish between agreements and contracts.
Topic: Purpose of a Contract
Blooms: Remember
Difficulty: 1 Easy
Feedback: Contracts may be created for any number of reasons. They may relate, for example,
to the sale of merchandise or services, to employment, or to the transfer of ownership of land
(real property) or personal property such as a sailboat.
3. A contract may be extended and revised as needed to reflect the wishes of the parties.
Answer: True
Topic: Purposes of a Contract
Blooms: Remember
Difficulty: 1 Easy
Feedback: A contract also may be extended and revised as needed to reflect the wishes of the
parties.
4. A contract must show mutual agreement, which is also referred to as "a meeting of the
minds."
Answer: True
LO: 07-04 Explain the purpose of a contract.
Topic: Elements of an Enforceable Contract
Blooms: Remember
Difficulty: 1 Easy
Feedback: The contract must show mutual agreement, sometimes referred to as “a meeting of
the minds.”
5. A promise to give up something of value that a person has a legal right to keep or to agree
to do something that a person is not legally required to do is known as consideration.
Answer: True
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Blooms: Remember
Difficulty: 1 Easy
Feedback: In most cases, each party to a contract must promise either to give up something of
value that he or she has a legal right to keep, or to do something that he or she is not otherwise
legally required to do. This exchange of promises is called consideration.
6. Competent parties can be of any age as long as they understand the terms of a contract.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Feedback: The parties to a contract must be of legal age and normal mentality.
7. Proper form is the requirement that the form of a contract be correct for the terms of the
contract to be enforceable.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Feedback: Proper form is the requirement that the form of a contract be correct for the terms
of the contract to be enforceable.
8. A person who discusses the terms of a purchase with a salesperson, pays cash for the
purchase, and takes the item with him, is making an unenforceable written contract.
Answer: False
LO: 07-05 Identify the six elements of an enforceable contract.
Topic: Kinds of Contracts
Blooms: Remember
Difficulty: 1 Easy
Feedback: A person who discusses the terms of a purchase with a salesperson, pays cash for
the purchase, and takes the item with him or her is making an enforceable oral contract.
9. It is usually advisable to put a contract in writing if the transaction is important,

complicated, involves a large amount of money, or will extend over a long period of time.
Answer: True
Topic: Kinds of Contracts.
Blooms: Remember
Difficulty: 1 Easy
Feedback: It is usually advisable to put a contract in writing if the transaction is important,
complicated, involves a large amount of money, or will extend over a long period of time.
10. A written contract can be a handwritten note.

Answer: True
Blooms: Remember
Difficulty: 1 Easy
Feedback: A written contract can be simply a handwritten note.
11. An express contract must be in writing and specifically state the agreement of the parties.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Feedback: A contract that specifically states the agreement of the parties, either orally or in
writing, is called an express contract.
12. A simple contract is defined as an informal contract made under seal.

Answer: False
Blooms: Remember
Difficulty: 1 Easy
Feedback: A simple contract is an informal contract made without seal.
13. A transaction that is neither oral nor written but is still legally binding is considered an
implied contract.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Feedback: Certain business and personal transactions are neither oral nor written but are
nevertheless legally binding. A transaction of this kind is considered an implied contract.
14. It is not required for a formal contract to be written under seal.

Answer: False

Blooms: Remember
Difficulty: 1 Easy
Feedback: A formal contract, or specialty contract, is a written contract under seal.
15. An entire or indivisible contract can contain only two parts, and each is required to be
independent of the other.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Feedback: An entire contract, or indivisible contract, has two or more parts.
16. A divisible contract is made up of two or more parts, each part being independent of the
others.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Feedback: A divisible contract is one that is made up of two or more parts, each part being
independent of the others.
17. An executory contract is one in which the terms of the agreement have not yet been fully
performed.
Answer: True
LO: 07-06 Distinguish between the different classifications of contracts, including oral and
written, express and implied, formal and simple, and entire and divisible.
Topic: Status of Contracts
Blooms: Remember
Difficulty: 1 Easy
Feedback: An executory contract is one in which some future act or obligation remains to be
performed under its terms.
18. An executed contract is one in which all terms of the agreement have been fully
performed by at least one party.
Answer: False
Topic: Status of contracts.
Blooms: Remember
Difficulty: 1 Easy
Feedback: A contract in which all of the terms of the agreement have been fully performed by
both parties is an executed contract.
Multiple Choice Questions
19. The part of the Uniform Commercial Code (UCC) that is relevant to contract law is
Article number:
A. 1
B. 2
C. 3
D. 4
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Feedback: The part of the UCC that is relevant to contract law is Article 2.
20. All contracts are agreements, but not all agreements are contracts. The PRIMARY reason
is that:
A. certain agreements cannot be enforced by law.
B. certain agreements cannot be licensed under law.
C. agreements do not fall under any classification of contracts.
D. terms of an agreement usually are different from those of a contract.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Feedback: All contracts are agreements, but not all agreements are contracts. The reason is
that agreements very often deal with personal or social matters that cannot be enforced by
law.
21. If an agreement imposes a legal obligation, then it is a(n):

A. enforceable contract.
B. unenforceable contract.
C. a negated concurrence.
D. a void contract.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Feedback: If an agreement imposes a legal obligation, an enforceable contract results.
22. Contracts can be created for:

A. only one specific purpose.
B. one or two purposes.
C. only for agreements that involve monetary transactions.
D. any number of purposes.
Answer: D
Topic: Purpose of a Contract
Blooms: Remember
Difficulty: 1 Easy
Feedback: Contracts may be created for any number of reasons.
23. To be legally enforceable, a contract must contain the six elements. If one of these
elements is missing, the court will usually:
A. enforce the contract.
B. refer the matter to the superior courts.
C. refuse to enforce the contract.
D. validate the contract.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Feedback: To be legally enforceable, a contract must contain six elements. If one of these
elements is missing, the courts will usually refuse to enforce the contract.
24. All but one of the following elements is required of an enforceable contract. The
exception is:
A. offer and acceptance.
B. mutual agreement.
C. consideration.
D. malafide intention.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
Feedback: To be legally enforceable, a contract must contain six elements: (1) offer and
acceptance; (2) mutual agreement, (3) consideration, (4) competent parties, (5) legality of
purpose, and (6) proper form.
25. Legality of purposes is the requirement that a contract:

A. must not violate the law.
B. can be void.
C. may contain a malafide intention.
D. need not be valid.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Feedback: Legality of purposes is the requirement that the intent of a contract be legal for the
contract to be enforceable.
26. The element of consideration in a contract refers to the:

A. competence of the parties.
B. purpose of the contract.
C. parties' exchange of promises.
D. form of the contract.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Feedback: In most cases, each party to a contract must promise either to give up something of
value that he or she has a legal right to keep or to do something that he or she is not otherwise
legally required to do. This exchange of promises is called consideration.
27. An offer is a proposal made by one party (offeror) to another (offeree) that indicates
willingness to:
A. enter into a contract.
B. negotiate a service or exchange.
C. consider a service or exchange.
D. reject an offer.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Feedback: An offer is a proposal made by one party, the offeror, to another party, the offeree,
that indicates a willingness to enter into a contract.
28. An indication made by the offeree that he or she agrees to be bound by the terms of the
offer is known as:
A. an enforceable offer.
B. a mutual agreement.
C. free consent.
D. acceptance.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
Feedback: An acceptance is an indication made by the offeree that he or she agrees to be
bound by the terms of the offer.
29. If only one party promises something, such as paying a certain amount of money, and the
other party promises nothing, then the agreement lacks:
A. consideration.
B. competence.
C. legality of purpose.
D. offer and acceptance.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Feedback: If only one party promises something, such as paying a certain amount of money,
and the other party promises nothing, then the agreement lacks consideration.
30. The parties to a contract must have a clear understanding of what they are undertaking;
that is, the contract must show:
A. mutual agreement.
B. legality of purpose.
C. consideration.
D. competency of the parties.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Feedback: The parties to a contract must have a clear understanding of what they are
undertaking. The contract most show mutual agreement, sometimes referred to as a “meeting
of the minds.”
31. Entering into a contract with persons of legal age and normal mentality is considered
within the element of:
A. legality of purpose.
B. competency of the parties.
C. mutual agreement.
D. proper form.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Feedback: The parties to a contract must be competent; that is, be capable of understanding
what they are doing. They must be of legal age and normal mentality.
32. Certain contracts, such as those involving the sale of personal property for $500 or more,:
A. must be orally accepted to be enforceable.
B. must be written to be enforceable.
C. need not be signed to be enforceable.
D. must be divisible in nature.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Feedback: Certain contracts, such as those involving the sale of personal property for $500 or
more, or those that cannot be fulfilled within a year, must be in writing to be enforceable.
33. The requirement that the form of a contract be correct for the terms of the contract to
enforceable is the element of:
A. written form.
B. legal wording.
C. proper form.
D. consideration.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Feedback: Proper form is the requirement that the form of a contract be correct for the terms
of the contract to be enforceable.
34. A telephone conversation can result in a(n):

A. informal contract.
B. statutory contract.
C. contingent contract.
D. enforceable oral contract.
Answer: D
Topic: Kinds of contracts
Blooms: Remember
Difficulty: 1 Easy
Feedback: Even a telephone conversation can result in an enforceable oral contract.
35. A simple contract is not:

A. written.
B. oral.
C. implied.
D. formal
Answer: D
LO: 07-05
Blooms: Remember
Difficulty: 1 Easy
Feedback: A contract that is not formal, whether it is written, oral, or implied, is called a
simple contract.
36. The meaning of an implied contract is drawn from the:

A. actions and conduct of the parties.
B. interpretations of a written contract.
C. interpretations of an oral contract.
D. actions of third parties.
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Feedback: An implied contract is a contract that does not explicitly state the agreement of the
parties but is one in which the terms of the agreement can be inferred from the conduct of the
parties, the customs of the trade, or the conditions or circumstances.
37. When a customer asks a merchant to deliver an article to his home with no mention of
payment, the buyer implies that he or she will pay the market price of the article when it is
delivered or when the bill is presented. This is an illustration of:
A. a simple contract.
B. consideration.
C. an implied contract.
D. a formal contract.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Feedback: An implied contract results when a customer asks a merchant to deliver an article
to his or her home with no mention of payment. The buyer implies that he or she will pay the
market price of the article when it is delivered or when the bill is presented.
38. The seal on a formal contract may consist of any of the following, EXCEPT:
A. the word “Seal..”
B. the letters “L.S.”
C. an impression on the paper.
D. a stamped signature.
Answer: D
Blooms: Remember
Difficulty: 1 Easy
Feedback: The seal on a formal contract may consist of simply the word “Seal” or “L.S.”
(which means locus sigilli, the place of the seal), a scroll, a wafer, or an impression on the
paper.
39. An entire contract is also known as a(n):

A. simple contract.
B. indivisible contract.
C. specialty contract.
D. executed contract.
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Feedback: An entire contract, or indivisible contract, has two or more parts.
40. In divisible contracts, the law of sales provides that, "where the circumstances give either
party to a contract for sale the right to make or demand delivery in lots, the price, if it can be
apportioned, may be demanded for each lot." This is stated under which of the following
provisions of the Uniform Commercial Code?
A. UCC 2-305.
B. UCC 2-306.
C. UCC 2-307.
D. UCC 2-308.
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Feedback: Article 2 of the UCC, dealing with the law of sales, provides that “where the
circumstances give either party to a contract for sale the right to make or demand delivery in
lots, the price, if it can be apportioned, may be demanded for each lot” (UCC 2-307).
41. A contract in which some future act or obligation remains to be performed under its terms
is known as a(n):
A. executed contract.
B. statutory contract.
C. contingent contract.
D. executory contract.
Answer: D
Topic: Status of contracts
Blooms: Remember
Difficulty: 1 Easy
Feedback: An executory contract is one in which some future act or obligation remains to be
performed under its terms.
42. A(n) _____ contract is an agreement that results in an obligation that is legally
enforceable.
A. void
B. valid
C. voidable
D. invalid
Answer: B
LO: 07-07 Explain the status of contracts and differentiate between executory and executed
contracts.
Topic: Enforceability of Contracts
Blooms: Remember
Difficulty: 1 Easy

Feedback: A valid contract is an agreement resulting in an obligation that is legally
enforceable.
43. An agreement that lacks one or more of the essential elements of a contract from the very
beginning is a:
A. voidable and unenforceable contract.
B. void and unenforceable contract.
C. valid and enforceable contract.
D. void, but enforceable contract.
Answer: B
contracts.
Blooms: Remember
Difficulty: 1 Easy
Feedback: An agreement that lacks one or more of the essential elements of a contract is a
void contract from the very beginning. That is, it is not a true contract at all and is, therefore,
unenforceable.
44. An agreement that may be rejected by one of the parties for a legally acceptable reason is
a(n):
A. implied contract.
B. void contract.
C. voidable contract.
D. valid contract.
Answer: C
contracts.
Blooms: Remember
Difficulty: 1 Easy
Feedback: An agreement that may be rejected by one of the parties for a legally acceptable
reason is a voidable contract.
Short Answer Questions
45. Define "contract" and state the elements of a valid contract.

Answer: A contract is a legally enforceable agreement. All contracts are agreements, but not
all agreements are contracts because some agreements deal with personal and social matters
that cannot be enforced by law. To be legally enforceable, a contract must contain six basic
elements: offer and acceptance, mutual agreement, consideration, competent parties, legality
of purpose, and proper form.
LO: 07-01 Describe the nature of a contract
Topic: The Nature of a Contract

Blooms: Understand
Difficulty: 2 Medium
Feedback: A contract is a legally enforceable agreement. All contracts are agreements, but not
all agreements are contracts because some agreements deal with personal and social matters
that cannot be enforced by law. To be legally enforceable, a contract must contain six basic
elements: offer and acceptance, mutual agreement, consideration, competent parties, legality
of purpose, and proper form.
46. Briefly explain the kinds of contracts.

Answer: Contracts may be classified into many categories. An oral contract is created by
conversation while a written contract is reduced to writing. An express contract is either oral
or in writing and an implied contract is inferred by the acts of the parties. A formal contract is
written under seal and a simple contract is an informal contract made without seal. In an entire
contract, each part is dependent upon the other, while each part of a divisible contract is
independent of the other parts.
Blooms: Understand
Feedback: Contracts may be classified into many categories. An oral contract is created by
conversation while a written contract is reduced to writing. An express contract is either oral
or in writing and an implied contract is inferred by the acts of the parties. A formal contract is
written under seal and a simple contract is an informal contract made without seal. In an entire
contract, each part is dependent upon the other, while each part of a divisible contract is
independent of the other parts.
47. In the event of a dispute involving an oral agreement for the sum of $500, that was entered
into for a period of one year , how would the parties establish exactly what was agreed to
between them?
Answer: The parties would attempt to establish exactly what the terms of the contract were,
and they must rely on circumstances or on the testimony of witnesses to determine exactly
what they agreed to.
Blooms: Understand
Feedback: The parties would attempt to establish exactly what the terms of the contract were
and must rely on circumstances or on the testimony of witnesses to determine exactly what
they agreed to.
48. Describe the conditions that determine the enforceability of a contract.
Answer: All contracts are not enforceable. Only those contracts that fulfill all the elements of
a contract are legally enforceable and are called valid contracts. An agreement that lacks one
or more of the essential elements of a contract is a void and unenforceable contract. An
agreement that may be rejected by one of the parties for a legally acceptable reason is a
voidable contract. Such a contract is valid and enforceable unless and until it is rejected by the
party who has the right to withdraw from the contract.
LO: 07-04 Explain the Purpose of a Contract.
Blooms: Understand
Feedback: All contracts are not enforceable. Only those contracts that fulfill all the elements
of a contract are legally enforceable and are called valid contracts. An agreement that lacks
one or more of the essential elements of a contract is a void and unenforceable contract. An
agreement that may be rejected by one of the parties for a legally acceptable reason is a
voidable contract. Such a contract is valid and enforceable unless and until it is rejected by the
party who has the right to withdraw from the contract.

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Essentials of Business Law 9th Edition

Anthony Liuzzo Test Bank

True / False Questions

1. An enforceable contract results from an agreement that imposes a legal obligation.

2. One reason for creating a contract is for employment.

LO: 07-04 Explain the purpose of a contract.

9. It is usually advisable to put a contract in writing if the transaction is important,

10. A written contract can be a handwritten note.

12. A simple contract is defined as an informal contract made under seal.

14. It is not required for a formal contract to be written under seal.

LO: 07-05 Identify the six elements of an enforceable contract.

Multiple Choice Questions

21. If an agreement imposes a legal obligation, then it is a(n):

22. Contracts can be created for:

25. Legality of purposes is the requirement that a contract:

26. The element of consideration in a contract refers to the:

34. A telephone conversation can result in a(n):

35. A simple contract is not:

36. The meaning of an implied contract is drawn from the:

39. An entire contract is also known as a(n):

AACSB: Reflective Thinking

Short Answer Questions

45. Define "contract" and state the elements of a valid contract.

Topic: The Nature of a Contract

46. Briefly explain the kinds of contracts.

48. Describe the conditions that determine the enforceability of a contract.

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