Cengage Advantage Books Business Law The First Course Summarized Case Edition 1st Edition Miller Test Bank

Chapter 11
Nature and Terminology
TRUE/FALSE QUESTIONS
B1. Contract law demonstrates which excuses our society accepts for breaking
certain types of promises.
ANSWER: T PAGES: Introduction

BUSPROG: Analytic AICPA: BB-Critical Thinking
B2. Contract law does not distinguish between promises that create only moral
obligations and promises that are legally binding.
ANSWER: F PAGES: Introduction

BUSPROG: Analytic AICPA: BB-Legal
B3. In contract law, intent is determined by the personal or subjective intent, or

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

B4. One of the four requirements of a valid contract is an adequate price.

B5. The term consideration refers to the legality of the subject matter of a contract.

1
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accessible website, in whole or in part.
2 TEST BANK B—UNIT THREE: CONTRACTS AND E-CONTRACTS
B6. A bilateral contract comes into existence at the moment promises are
exchanged.
ANSWER: T PAGES: Section 3

B7. A unilateral contract is formed at the moment when the contract is performed.

B8. Informal contracts include all contracts other than formal contracts.

B9. A negotiable instrument is a formal contract.

BUSPROG: Reflective AICPA: BB-Legal
B10. In an express contract, the terms are fully and explicitly stated in words.

B11. A contract that has been fully performed by the parties is called an executory
contract.

B12. If a voidable contract is avoided, only the promisee, but not the promisor, is
released from it.

CHAPTER 11: NATURE AND TERMINOLOGY 3
B13. An unenforceable contract is one that cannot be enforced because of certain

legal defenses against it.

B14. A void contract imposes certain legal obligations on the parties but is not
otherwise enforceable.

B15. A quasi contract is an actual contract.

B16. A party who has conferred a benefit on someone else unnecessarily can invoke
the principle of quasi contract to recover the cost.

B17. The doctrine of quasi contract generally can only be used when there is an
actual contract that covers the matter in controversy.

B18. When a contract’s writing is not clear, a court will enforce it according to its
obvious terms.

B19. If a contract term is ambiguous, a court can consider extrinsic evidence.

B20. A court will normally interpret the language of a contract according to what the
parties claim their intent was when they made it.

MULTIPLE-CHOICE QUESTIONS
B1. Sal assures Tom that she will deliver a truckload of hay to his cattle ranch. A
person’s declaration to do a certain act is part of the definition of
a. an expectation.
b. a moral obligation.
c. a prediction.
d. a promise.
ANSWER: D PAGES: Introduction

BUSPROG: Reflective AICPA: BB-Critical Thinking
B2. Smith & Jones, an accounting firm, agrees to perform an audit for Brick &
Mortar Stores, Inc. Whether or not this agreement meets all of the
requirements of a contract, the parties are likely to follow the rules of contract
law because they
a. want to avoid potential disputes.

b. are conscious of those rules.
c. are not conscious of those rules.
d. have a moral obligation to do so.
ANSWER: A PAGES: Section 1

B3. Lark promises to buy Max’s used textbook for $60. Lark is
a. an offeror.
b. an offeree.
c. a promisee.
d. a promisor.
ANSWER: D PAGES: Section 1

B4. Gilbert promises to buy Hadley’s iPod for $75. Hadley is
a. an offeree.
b. an offeror.
c. a promisee.
d. a promisor.
ANSWER: C PAGES: Section 1

B5. Brady accepts what he believes is an offer to work for Canyon River
Adventures, Inc., as a tour and fishing guide. In determining whether a contract
has been formed, an element of prime importance is
a. the price to be paid.

b the duration of the work.
c. the intent of the parties.
d. the subject of the contract.

B6. 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.

B7. 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.

B8. Wilson buys a lottery ticket at his local gas station. Wilson has accepted an
offer for a
a. bilateral contract.
b. unilateral contract.
c. void contract.
d. unenforceable contract.
ANSWER: B PAGES: Section 3

B9. A letter-of-credit agreement between Rural Feed Corporation and Soybean

Farms, Inc., requires Rural Feed’s bank to pay Soybean Farms on receipt of
invoices. This letter of credit is
a. a formal contract.
b. no contract.
c. an implied contract.
d. a quasi contract.

B10. 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.

B11. When Hester’s car breaks down, she asks Insta-Tow, Inc., to tow it to Jerry’s
Repair Shop. There is no discussion of a price, and Hester and Insta-Tow do
not sign any documents. Later, Insta-Tow sends Hester a bill. With respect to
Hester’s obligation to pay the bill, this is
a. an express contract.
b. an implied contract.
c. no contract.
d. a quasi contract.

B12. 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 quasi contract.
d. no contract.

B13. Avatar, Inc., agrees to deliver t-shirts emblazoned with video game characters
for a certain price to Bling Bling Corporation. To constitute a contract, the terms
of this deal
a. must all be express.

b. must all be implied.
c. may be express, implied, or a mixture of both.
d. may be express or implied, but not both.

B14. Francie drives into Gage’s Auto Service and asks Hong, a Gage’s employee, to
replace a tire on Francie’s car. After Hong replaces the tire, but before Francie
pays for it, any contract between Francie and Gage’s is
a. executed.
b. executory.
c. void.
d. unenforceable.

B15. Sales Marketing Corporation and Tech Support, Inc., negotiate a contract. If
the contract has all of the elements necessary for one of the parties to enforce
it in court, it is
a. a valid contract.
b. a voidable contract.
c. a void contract.
d. an unenforceable contract.

B16. Robin claims that her contract with Stroud for tennis lessons 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. both parties will agree to a wholly different contract.
d. a wholly different contract is imposed “as if” the parties had agreed.

B17. Mallory promises to buy illegal digital copies of movies from Napoleon, who
promises to deliver on October 31. These promises are most likely
a. enforceable.
b. valid.
c. void.
d. voidable.

B18. In a one-care auto accident, Carmel is rendered unconscious and otherwise

injured. At the scene, Dana, a physician, acts to save Carmel’s life. Later, Dana
seeks to recover for the cost of the aid. She is most likely to recover
a. nothing.
b. on a theory of an express contract.
c. on a theory of an implied contract.
d. on a theory of a quasi contract.
ANSWER: D PAGES: Section 4

B19. Otto mistakenly pays property taxes that should have been assessed against
Pip. Otto can recover the amount from Pip in quantum meruit
a. even if Pip was not aware of the error.

b. only if Pip tried to conceal the error.
c. only if Pip was aware of the error.
d. only if Pip consents.

B20. Sunny enters into a contract with Trey to act as his personal sports trainer. If a
dispute later arises and the contract contains unclear terms, the rules of
contract interpretation will give effect to
a. the parties’ intent as expressed in their contract.

b. what the promisor claims was the parties’ intent.
c. what the promisee claims was the parties’ intent.
d. what the parties now agree they intended.

ESSAY QUESTIONS
B1. On behalf of Meadow’s Edge Golf Course & Club, Norton signs and returns a
letter from Oralee, referring to her services as a resident golf pro and their
price. When Norton attempts to complete the deal, however, Oralee refuses,
claiming that they have no contract. Norton claims that they do. What standard
determines whether these parties have a contract?
ANSWER: The objective theory of contracts is the standard to determine

whether the parties have a contract. Under this standard, if a reasonable
person would have thought that the offeree (Norton) accepted a legitimate offer
by the offeror (Oralee) when the offeree signed and returned the letter, a con-
tract was made, and both parties are bound. This assessment is determined, in
part, by what was said in the letter (did the letter constitute a valid offer?) and
what was said in response (did the response constitute a valid acceptance?).
Under any circumstances, the issue is not whether either party

subjectively believed that they did, or did not, have a contract.
PAGES: Section 1
BUSPROG: Reflective AICPA: BB-Decision Modeling
B2. 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 for sale signs on the building, places ads in real estate
pamphlets and one 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 3
BUSPROG: Reflective AICPA: BB-Decision Modeling

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Chapter 11

Nature and Terminology

ANSWER: T PAGES: Introduction

ANSWER: F PAGES: Introduction

B3. In contract law, intent is determined by the personal or subjective intent, or

ANSWER: F PAGES: Section 1

B4. One of the four requirements of a valid contract is an adequate price.

ANSWER: F PAGES: Section 2

ANSWER: F PAGES: Section 2

ANSWER: T PAGES: Section 3

ANSWER: T PAGES: Section 3

ANSWER: T PAGES: Section 3

B9. A negotiable instrument is a formal contract.

ANSWER: T PAGES: Section 3

ANSWER: T PAGES: Section 3

ANSWER: F PAGES: Section 3

ANSWER: F PAGES: Section 3

B13. An unenforceable contract is one that cannot be enforced because of certain

ANSWER: T PAGES: Section 3

ANSWER: F PAGES: Section 3

B15. A quasi contract is an actual contract.

ANSWER: F PAGES: Section 4

ANSWER: F PAGES: Section 4

ANSWER: F PAGES: Section 4

ANSWER: F PAGES: Section 5

B19. If a contract term is ambiguous, a court can consider extrinsic evidence.

ANSWER: T PAGES: Section 5

ANSWER: F PAGES: Section 5

ANSWER: D PAGES: Introduction

a. want to avoid potential disputes.

ANSWER: A PAGES: Section 1

ANSWER: D PAGES: Section 1

B4. Gilbert promises to buy Hadley’s iPod for $75. Hadley is

ANSWER: C PAGES: Section 1

a. the price to be paid.

ANSWER: C PAGES: Section 1

a. a price and a subject.

ANSWER: C PAGES: Section 2

ANSWER: A PAGES: Section 2

ANSWER: B PAGES: Section 3

B9. A letter-of-credit agreement between Rural Feed Corporation and Soybean

ANSWER: A PAGES: Section 3

a. requires no special form.

ANSWER: A PAGES: Section 3

ANSWER: B PAGES: Section 3

ANSWER: A PAGES: Section 3

a. must all be express.

ANSWER: C PAGES: Section 3

ANSWER: B PAGES: Section 3

ANSWER: A PAGES: Section 3

a. both parties are released from it.

ANSWER: A PAGES: Section 3

ANSWER: C PAGES: Section 3

B18. In a one-care auto accident, Carmel is rendered unconscious and otherwise

ANSWER: D PAGES: Section 4

a. even if Pip was not aware of the error.

ANSWER: A PAGES: Section 4

a. the parties’ intent as expressed in their contract.

ANSWER: A PAGES: Section 5

ANSWER: The objective theory of contracts is the standard to determine

Under any circumstances, the issue is not whether either party

ANSWER: The court is likely to issue a judgment in Bobbi-Ann’s favor on the

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