Business Law with UCC Applications
14th Edition by Sukys ISBN
0077733738 9780077733735
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Chapter 07
The Essentials of Contract Law
True / False Questions
1. A contract results in an obligation or a duty that can be enforced in a court of law.
True False
2. Capitalism is a complex, adaptive system of overlapping economic agents that operates on the basis of competition and a free market that responds to the movement of supply and demand.
True False
3. Admiralty courts were empowered to hear cases involving commercial disputes, and since the juries were made up of merchants, the law merchant was used to adjudicate the cases.
True False
7-1
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
4. A person who makes an offer is called an offeree.
True False
5. Mutual assent involves the legal ability to make a contract.
True False
6. Kayla provides consideration when she gives up her right to sue in exchange for a settlement payment.
True False
7. Courts typically award punitive damages in breach of contract cases.
True False
8. Equitable remedies are those that are imposed by the courts on innocent parties to prevent them from taking advantage of the breach by deliberately raising the amount of damages that the other party has to pay.
True False
9. The (Uniform Commercial Code) UCC is a model code designed to unify statutes governing almost all commercial transactions.
True False
10. Not all contracts are agreements.
True False
11. The courts have never been inclined to enforce social agreements.
True False
12. Vivian, Ewell's friend, believes that Ewell's contract with Mickey is unfair to Ewell. Even though Vivian does not have any tangible stake in the contract, she may sue since she has privity due to her interest in Ewell.
True False
13. Gregory sells his land to Tim. Under the Statute of Frauds, Gregory and Tim must enter a written contract to be enforceable in the court of law.
True False
14. Matthew agrees with a friend to divide the proceeds from a bank robbery that the two will commit. This agreement is void.
True False
15. When there is a breach of contract, the injured party has the right to ask a court to somehow remedy the situation.
True False
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
7-2
16. Clark promises to pay Mike $30 if Mike will mow Clark's yard. This is an example of a bilateral contract.
True False
17. When contracting parties accept mutual obligations through oral discussion, they have created an implied contract.
True False
18. Pumping gas into a car at a self-service gas station would be an example of an implied-in-law contract.
True False
19. In case of an implied-in-law contract, the court will apply reasons of justice and fairness and may obligate one who has unfairly benefited at the innocent expense of another.
True False
20. The quasi-contract concept involves the mutual assent of the parties.
True False
Multiple Choice Questions
21. ____________ outlines the historical laws and the procedures that were followed by merchants in commercial transactions.
A. Contract law
B. Commercial law
C. Trade law
D. Lex mercatoria
22. The doctrine of ____________ restricts a party from denying that a promise was made under certain conditions, even though consideration has not been exchanged to bind an agreement.
A. enforceability
B. privity
C. Statute of Frauds
D. promissory estoppel
7-3
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
23. Fair courts, established in 11th century England, were:
A. tribunals set up in seaport towns to handle disputes involving maritime law.
B. composed of judges who applied fair and equitable principles to commercial transactions.
C. composed of legal scholars who applied common law to all commercial cases.
D. courts in which juries were composed of merchants who were empowered to hear cases involving commercial disputes.
24. ____________ exists when an offeror communicates a valid offer with clear and unambiguous terms to the offeree, and the offer has been accepted properly by the offeree.
A. Legality
B. Capacity
C. Consideration
D. Mutual assent
25. A proposal made by Braxton to his friend Mike, indicating a willingness to enter a contract to buy Mike's old car for $4,000, fulfills the element of ____________ in contract law.
A. capacity
B. consideration
C. mutual assent
D. legality
26. An non-breaching party in a breach of contract case has a ____________ and cannot take advantage of the breach that increases the amount of damages the breaching party must pay.
A. duty to mitigate damages
B. right to punitive damages
C. duty to mitigate equities
D. right to specific performance
27. In contract law, the non-breaching party is compensated by the payment of ____________ damages to make up for their real financial losses.
A. punitive
B. compensatory
C. consequential
D. incidental
28. Article 2 of the ____________ is a model set of laws designed to govern the sale of goods in commercial transactions in the United States.
A. Uniform Contract Law Code
B. Uniform Common Code
C. Uniform Civil Code
D. Uniform Commercial Code
7-4
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
29. All ____________ are ____________, but not all agreements are ____________ because an agreement may not be ____________.
A. agreements; contracts; enforceable; in writing
B. agreements; contracts; contracts; equitable
C. contracts; agreements; contracts; legally enforceable
D. contracts; agreements; contracts; in writing
30. Matrix, Inc. contracts with Smalltown Economic Development Corp. to build a factory in Smalltown that will employ 1,000 workers from Smalltown. Matrix later breaches this contract, and Smalltown citizens who were expecting to be employed sue Matrix for breach of its contract. Smalltown citizens' best argument for damages involves the legal doctrine of:
A. quasi contracts.
B. privity of contracts.
C. intended beneficiaries.
D. implied-in-fact contract.
31. Which of the following contracts should be in writing to be enforceable in courts under the Statute of Frauds?
A. Contracts that can be completed within one year.
B. Contracts to pay the debt of another.
C. Contracts involving sale of all types of goods.
D. Contracts in consideration to employment.
32. Some parties, when entered into a(n) ____________ contract may choose to cancel the contract.
A. unenforceable
B. void
C. voidable
D. valid
33. Beth and Joan, both 15 years of age, enter into a written contract. In the contract, Beth agrees to do Joan's math homework for two weeks for $50, and Joan agrees to pay Beth at the end of the two-week period. This contract is:
A. implied-in-law.
B. void.
C. unenforceable.
D. voidable.
7-5
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
34. A(n) ____________ cannot be upheld by a court of law, although it may have all the elements of complete contract.
A. unenforceable contract
B. valid contract
C. voidable contract
D. void contract
35. Henrietta offers a $500 reward for the return of Fifi, her lost dog. Silas finds and returns the dog. This is an example of a(n):
A. bilateral contract.
B. unilateral contract.
C. quasi-contract.
D. unenforceable contract.
36. Webtel Services, Inc. and Acme Co. sign a document which states that Webtel Services will create a web page for Acme and that Acme will pay for this work. This is an example of a:
A. bilateral, voidable contract.
B. quasi, unilateral contract.
C. bilateral, express contract.
D. unilateral, implied-in-law contract.
37. To be enforceable under the Statute of Frauds, a:
A. written contract has to be a formal, preprinted agreement.
B. written contract cannot be keystroked or scrawled.
C. sales slip or a receipt does not qualify as forms of written contracts.
D. written contract can be a notation or a memorandum.
38. A(n) ____________ contract is implied by the direct or indirect acts of the parties.
A. express
B. implied-in-fact
C. unilateral
D. void
39. A(n) ____________ contract does not exist, but is imposed by the court as an equitable remedy in the interests of fairness and justice.
A. quasi-
B. implied-in-fact
C. informal
D. executory
7-6
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
40. An informal contract is also known as a(n):
A. void contract.
B. quasi-contract.
C. implied-in-fact contract.
D. simple contract.
41. Eloise made a contract in January that gave her until the end of the year to complete her work on a new computer system for Dexter. In mid-July, Eloise is working on the computer system. The contract in July is considered:
A. executory.
B. unenforceable.
C. being expressed.
D. executed.
Essay Questions
42. Mark was speeding on the highway when he and John had a car accident and suffered serious head injuries. As a result, John's memory was affected, and he could not remember any of the incidents on the day of the crash, including the fact that Mark's rash driving caused the car crash. At the hospital, Mark, who suffered minor injuries, convinces John that the crash was no one's fault and just bad luck. John is empathetic and signs a contract with Mark stating that neither party would sue the other for damages. However, Lily, who was with John in the car and was also injured, knows that Mark was responsible and challenges the contract in court, in addition to filing a lawsuit against Mark. Analyze the case.
7-7
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
43. Donita, 34, and Terry, 25, enter into a contract which stipulates that Donita will allow Terry to occupy her apartment for six months, beginning next month. Terry has agreed to pay a rent of $100 per month. Discuss the elements that make this contract legally binding for Terry and Donita.
44. Ruben promises to pay Talana $200 if she steals Jessica's business law textbook. Talana steals the business law book, but Ruben, who now feels guilty for his act, refuses to pay Talana and asks her to return the book. Discuss ways in which Reuben has breached the contract.
45. Georgia purchases what proves to be a defective product from ZBest Enterprise to give to her best friend, Sarah, on her birthday. Georgia refuses to take legal action against ZBest because she is afraid of confrontation. Sarah, wanting to help Georgia, and angry at ZBest, wants to sue ZBest. Discuss the options Sarah has to sue the company.
7-8
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46. Alan persuades Charles to buy his truck by falsely telling Charles that the truck has just had a new engine installed. In fact, the truck has an old engine that has been cleaned to look new. Charles buys the truck and finds out the truth about the engine. Discuss the situation.
47. Shannon offered a $50 reward for the return of a lost kitten. When Mark found the kitten and returned it to Shannon, she refused to give him the reward because he had not promised to find the kitten before he went looking for it. Analyze the case.
48. Charleen goes to Big Basket Supermarket and fills her cart with food, pushing it up to a checkout line. Discuss the type of contract between Charleen and Big Basket that would obligate Charleen to pay for the food prior to leaving Big Basket, even if Charleen and the clerk never say a word to each other.
7-9
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49. Jackie takes her car to the All Clean Car Wash and watches the employees while they mistakenly give her car a special $30 hand wax treatment, rather than the $5 spray wax she requested. Jackie refuses to pay $30 saying that she requested a service that would cost her only $5. Analyze the case.
50. Emerson, a wealthy man, has a special seal made that contains his family crest and motto. Emerson places the seal impression next to his name on every contract that he signs in order to prove that other contracts containing a signature without the impression are forgeries. Discuss the type of contract Emerson makes.
51. Fraser entered into a written contract with the Plastica Company to purchase 100 plastic black bats for a Halloween party he was hosting. The terms of the contract called for Plastica to deliver all 100 bats by October 25. On October 20, Fraser received from Plastica 85 plastic bats and 15 paper red bats. A letter accompanying the shipment stated, "We no longer make plastic black bats. For the inconvenience, we will charge you 15 percent less than the price we originally agreed upon." Was the contract between Fraser and Plastica an executed contract? Explain.
7-10
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Chapter 07 The Essentials of Contract Law Answer Key
True / False Questions
1. A contract results in an obligation or a duty that can be enforced in a court of law.
TRUE
A contract is an agreement between two or more competent parties based on mutual promises and an exchange of things of value, to do or refrain from doing some particular thing that is neither illegal nor impossible.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-01 Define contract.
Topic: The History of Contract Law
2. Capitalism is a complex, adaptive system of overlapping economic agents that operates on the basis of competition and a free market that responds to the movement of supply and demand.
TRUE
The authors note that capitalism started centuries before the Protestant Reformation with the Roman Catholic Church, which helped provide a moral and rational guidance for its all the merchants and consumers across Europe, with legal traditions referred to as canon law guiding the courts.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 Explain the origin of the law merchant.
Topic: The History of Contract Law
7-11
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
3. Admiralty courts were empowered to hear cases involving commercial disputes, and since the juries were made up of merchants, the law merchant was used to adjudicate the cases.
FALSE
Admiralty courts were tribunals set up in seaport towns to handle disputes involving maritime law, shipping contracts, contests over docking rights, collisions at sea, and the like. Fair courts (also known as "pie powder" courts) were empowered to hear cases involving commercial disputes, and since the juries were made up of merchants, the law merchant was used to adjudicate the cases.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-03 Discuss the relationship between common law and the law merchant.
Topic: The History of Contract Law
4. A person who makes an offer is called an offeree. FALSE
A valid offer requires that the offeror make a definite expression of the desire to enter a contract in terms that are clear and unambiguous and that are communicated to the offeree.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Identify the four elements of a contract.
Topic: The Multidimensional Nature of Contract Law
5. Mutual assent involves the legal ability to make a contract.
Mutual assent exists when there has been a meeting of the minds between the offeror and the offeree. To have a meeting of the minds, the offeror must make a valid offer and communicate said offer to the offeree. When the offeree communicates an acceptance of the offer to the offeror, the parties have mutually assented to the agreement.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-04 Identify the four elements of a contract.
Topic: The Multidimensional Nature of Contract Law
7-12
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
FALSE
6. Kayla provides consideration when she gives up her right to sue in exchange for a settlement payment.
TRUE
Consideration is the thing of value promised to the other party in exchange for something else of value promised by the other party.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Identify the four elements of a contract.
Topic: The Multidimensional Nature of Contract Law
7. Courts typically award punitive damages in breach of contract cases.
FALSE
Punitive damages are designed to punish the wrongdoer for his or her outrageous conduct. As a general rule, the courts do not award punitive damages in contract cases; rather, those are more appropriate in tort law cases. However, there are exceptions; for example, in cases involving fraud a court may approve punitive damages because a party who commits fraud has attempted to undermine the entire contract system.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-05 Explain the objectives of contract law.
Topic: The Multidimensional Nature of Contract Law
8. Equitable remedies are those that are imposed by the courts on innocent parties to prevent them from taking advantage of the breach by deliberately raising the amount of damages that the other party has to pay.
FALSE
Equitable remedies are generally non-monetary remedies that are imposed by the courts when the payment of money would not compensate for the loss suffered by the innocent party. A court can award both monetary and equitable remedies in a breach of contract case.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-05 Explain the objectives of contract law.
Topic: The Multidimensional Nature of Contract Law
7-13
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
9. The (Uniform Commercial Code) UCC is a model code designed to unify statutes governing almost all commercial transactions.
The UCC is a model set of laws designed to govern almost all commercial transactions.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-06 Explain the place of the UCC in contract law.
Topic: The Multidimensional Nature of Contract Law
10. Not all contracts are agreements. FALSE
All contracts are agreements, but not all agreements are contracts. An agreement may or may not be legally enforceable. To be enforceable, an agreement must conform to the law of contracts.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-07 Distinguish contracts from other agreements.
Topic: The Multidimensional Nature of Contract Law
11. The courts have never been inclined to enforce social agreements.
The courts have never been agreeable to the enforcement of social agreements like dates, dinner arrangements, and so on. Many states have extended this concept to agreements to marry and agreements to live together without the benefit of a marriage contract.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-07 Distinguish contracts from other agreements.
Topic: The Multidimensional Nature of Contract Law
7-14
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
TRUE
TRUE
12. Vivian, Ewell's friend, believes that Ewell's contract with Mickey is unfair to Ewell. Even though Vivian does not have any tangible stake in the contract, she may sue since she has privity due to her interest in Ewell.
FALSE
Privity means that all parties must have a legally recognized interest in the subject of the contract if they are to be bound by it. Parties who do not have an interest in the subject matter of the contract may not be bound by it. Their right to bring a lawsuit in the event of a breach may also be questioned.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 07-08 Explain the role of privity and agency in contract law.
Topic: The Multidimensional Nature of Contract Law
13. Gregory sells his land to Tim. Under the Statute of Frauds, Gregory and Tim must enter a written contract to be enforceable in the court of law.
TRUE
The Statute of Frauds is a law that outlines those contracts that must be in writing to be enforceable in court. Six types of contracts must be in writing to be enforceable. These six include (1) contracts that cannot be completed within one year; (2) contracts involving land; (3) contracts in consideration of marriage; (4) contracts made by executors to pay a debt of the estate out of his or her own finances; (5) a promise to pay the debt of another; and (6) contracts for the sale of goods valued at $500 or more.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard Learning Objective: 07-09 List the contracts that must be in writing to be enforceable.
Topic: The Multidimensional Nature of Contract Law
14. Matthew agrees with a friend to divide the proceeds from a bank robbery that the two will commit. This agreement is void.
TRUE
A void contract is one that has no legal effect whatsoever, and legally never existed. For example, a contract to perform an illegal act would be void.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-15
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
15. When there is a breach of contract, the injured party has the right to ask a court to somehow remedy the situation.
TRUE
A breach of contract occurs when one of the parties fails to keep a promise. When this happens, the injured party has the right to ask the court of law to somehow remedy the situation.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
16. Clark promises to pay Mike $30 if Mike will mow Clark's yard. This is an example of a bilateral contract.
FALSE
A unilateral contract is an agreement in which one party promises to do something in return for an act of some sort. A bilateral contract is formed when both parties make promises to each other.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
17. When contracting parties accept mutual obligations through oral discussion, they have created an implied contract.
FALSE
An implied contract is created by the non-verbal actions or gestures of the parties involved in the transaction. Oral discussions are express, not implied.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-16
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
18. Pumping gas into a car at a self-service gas station would be an example of an implied-in-law contract. FALSE
This would be an example of an implied-in-fact contract because the parties to a contract enter that contract by an exercise of free will and the court follows the objective concept rule in interpreting the acts and gestures of the party. An implied-in-law contract is imposed by a court on the parties when one party is unjustly enriched, and there is no enforceable contract, or no actual written, oral, or implied-in-fact agreement.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
19. In case of an implied-in-law contract, the court will apply reasons of justice and fairness and may obligate one who has unfairly benefited at the innocent expense of another.
A court imposes an implied-in-law contract when someone is unjustly enriched, applying reasons of justice and fairness that may obligate one who has unfairly benefited at the innocent expense of another.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
20. The quasi-contract concept involves the mutual assent of the parties.
A quasi-contract is another name for an implied-in-law contract, and cannot apply to a situation where one party wants to obtain payment for an act that the other party simply feels should be done. A quasi-contract is not a contract in the true sense of the word, because it is created by the court. It does not result from the mutual assent of the parties, as do express or implied-in-fact contracts.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
Multiple Choice Questions
7-17
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
TRUE
FALSE
21. ____________ outlines the historical laws and the procedures that were followed by merchants in commercial transactions.
A. Contract law
B. Commercial law
C. Trade law
D. Lex mercatoria
Mercantile law, often referred to alternately as the law merchant or lex mercatoria, outlines the laws and the procedures followed by merchants in commercial transactions. The mercantile law originated among the merchants themselves who needed a formalized way to deal with one another when disputes arose.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-02 Explain the origin of the law merchant.
Topic: The History of Contract Law
22. The doctrine of ____________ restricts a party from denying that a promise was made under certain conditions, even though consideration has not been exchanged to bind an agreement.
A. enforceability
B. privity
C. Statute of Frauds
D. promissory estoppel
To be effective, promissory estoppel requires that the party making the promise know, or be presumed to know, that the other party will rely on that promise and as a result, take action that depends on the promise being fulfilled. The party relying on the promise must actually take that action and suffer a financial loss as a result.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-02 Explain the origin of the law merchant. Learning Objective: 07-03 Discuss the relationship between common law and the law merchant.
Topic: The History of Contract Law
7-18
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
23. Fair courts, established in 11th century England, were:
A. tribunals set up in seaport towns to handle disputes involving maritime law.
B. composed of judges who applied fair and equitable principles to commercial transactions.
C. composed of legal scholars who applied common law to all commercial cases.
D. courts in which juries were composed of merchants who were empowered to hear cases involving commercial disputes.
These fair courts were empowered to hear cases involving commercial disputes, and since the juries were inevitably made up of merchants, the law merchant was used to adjudicate the cases.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-03 Discuss the relationship between common law and the law merchant.
Topic: The History of Contract Law
24. ____________ exists when an offeror communicates a valid offer with clear and unambiguous terms to the offeree, and the offer has been accepted properly by the offeree.
A. Legality
B. Capacity
C. Consideration
D. Mutual assent
A valid offer requires that the offeror make a definite expression of the desire to enter a contract in terms that are clear and unambiguous, and that are communicated to the offeree. Once the offer has been properly made by the offeror and accepted properly by the offeree, then mutual assent exists between them.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-04 Identify the four elements of a contract.
Topic: The Multidimensional Nature of Contract Law
7-19
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
25. A proposal made by Braxton to his friend Mike, indicating a willingness to enter a contract to buy Mike's old car for $4,000, fulfills the element of ____________ in contract law.
A. capacity
B. consideration
C. mutual assent
D. legality
A valid contract requires four elements: mutual assent, consideration, capacity, and legality. Here, Braxton's proposal contains consideration, the $4,000, as legal value in exchange for the car. Since there is no acceptance from Mike, there is no mutual assent; since there is no indication of the ages, we do not know the capacity of the parties; and since we cannot be sure that the car has "legal title", we cannot be sure of the legality.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 07-04 Identify the four elements of a contract.
Topic: The Multidimensional Nature of Contract Law
26. An non-breaching party in a breach of contract case has a ____________ and cannot take advantage of the breach that increases the amount of damages the breaching party must pay.
A. duty to mitigate damages
B. right to punitive damages
C. duty to mitigate equities
D. right to specific performance
There are built-in limits to the measure of the damages awarded in a breach of contract case. For example, the non-breaching party cannot take advantage of the breach by doing anything that raises the amount of damages that the other party must pay. This principle is called the duty to mitigate the damages or just the duty to mitigate.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-05 Explain the objectives of contract law.
Topic: The Multidimensional Nature of Contract Law
7-20
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27. In contract law, the non-breaching party is compensated by the payment of ____________ damages to make up for their real financial losses.
A. punitive
B. compensatory
C. consequential
D. incidental
Generally, compensatory damages are equal to the real financial loss suffered by the innocent victim. Incidental damages are indirect losses. Consequential damages are indirect damages that result because of special circumstances that exist with a particular contract. Although rare in breach of contract cases, punitive damages are designed to punish the wrongdoer for his or her outrageous conduct.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-05 Explain the objectives of contract law.
Topic: The Multidimensional Nature of Contract Law
28. Article 2 of the ____________ is a model set of laws designed to govern the sale of goods in commercial transactions in the United States.
A. Uniform Contract Law Code
B. Uniform Common Code
C. Uniform Civil Code
D. Uniform Commercial Code
The Uniform Commercial Code (UCC ) is a model set of laws designed to govern almost all commercial transactions. Article 2 relates to the "Sale of Goods" in commercial transactions.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-06 Explain the place of the UCC in contract law.
Topic: The Multidimensional Nature of Contract Law
7-21
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
29. All ____________ are ____________, but not all agreements are ____________ because an agreement may not be ____________.
A. agreements; contracts; enforceable; in writing
B. agreements; contracts; contracts; equitable
C. contracts; agreements; contracts; legally enforceable
D. contracts; agreements; contracts; in writing
All contracts are agreements, but not all agreements are contracts because an agreement may not be legally enforceable. To be enforceable, an agreement must conform to the law of contracts and possess the four elements of a contract: mutual assent, consideration, capacity, and legality.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 07-07 Distinguish contracts from other agreements.
Topic: The Multidimensional Nature of Contract Law
30. Matrix, Inc. contracts with Smalltown Economic Development Corp. to build a factory in Smalltown that will employ 1,000 workers from Smalltown. Matrix later breaches this contract, and Smalltown citizens who were expecting to be employed sue Matrix for breach of its contract. Smalltown citizens' best argument for damages involves the legal doctrine of:
A. quasi contracts.
B. privity of contracts.
C. intended beneficiaries.
D. implied-in-fact contract.
The Smalltown citizens' best legal theory would be that they had rights as intended beneficiaries in the contract between Matrix and Smalltown Economic Development Corp. giving them future employment.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation Blooms: Evaluate Difficulty: 3 Hard Learning Objective: 07-08 Explain the role of privity and agency in contract law.
Topic: The Multidimensional Nature of Contract Law
7-22
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
31. Which of the following contracts should be in writing to be enforceable in courts under the Statute of Frauds?
A. Contracts that can be completed within one year.
B. Contracts to pay the debt of another.
C. Contracts involving sale of all types of goods.
D. Contracts in consideration to employment.
Six types of contracts must be in writing to be enforceable. These six include (1) contracts that cannot be completed within one year; (2) contracts involving land; (3) contracts in consideration of marriage; (4) contracts made by executors to pay a debt of the estate out of his or her own finances; (5) a promise to pay the debt of another; and (6) contracts for the sale of goods valued at $500 or more.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-09 List the contracts that must be in writing to be enforceable.
Topic: The Multidimensional Nature of Contract Law
32. Some parties, when entered into a(n) ____________ contract may choose to cancel the contract.
A. unenforceable
B. void
C. voidable
D. valid
A voidable contract is one that may be avoided or canceled by one of the parties. Contracts made by minors or induced by fraud or misrepresentation are examples of voidable contracts.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-23
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
33. Beth and Joan, both 15 years of age, enter into a written contract. In the contract, Beth agrees to do Joan's math homework for two weeks for $50, and Joan agrees to pay Beth at the end of the two-week period. This contract is:
A. implied-in-law.
B. void.
C. unenforceable.
D. voidable.
Contracts made by minors or induced by fraud or misrepresentation are examples of voidable contracts.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
34. A(n) ____________ cannot be upheld by a court of law, although it may have all the elements of complete contract.
A. unenforceable contract
B. valid contract
C. voidable contract
D. void contract
Although an unenforceable contract may have all the elements of a complete contract, it can still be unenforceable due to some legal defect.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-24
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
35. Henrietta offers a $500 reward for the return of Fifi, her lost dog. Silas finds and returns the dog. This is an example of a(n):
A. bilateral contract.
B. unilateral contract.
C. quasi-contract.
D. unenforceable contract.
A unilateral contract is an agreement in which one party makes a promise to do something in return for an act of some sort.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
36. Webtel Services, Inc. and Acme Co. sign a document which states that Webtel Services will create a web page for Acme and that Acme will pay for this work. This is an example of a:
A. bilateral, voidable contract.
B. quasi, unilateral contract.
C. bilateral, express contract.
D. unilateral, implied-in-law contract.
This is an example of a bilateral, express contract, in which both parties have made written promises to each other.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 3 Hard Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-25
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
37. To be enforceable under the Statute of Frauds, a:
A. written contract has to be a formal, preprinted agreement.
B. written contract cannot be keystroked or scrawled.
C. sales slip or a receipt does not qualify as forms of written contracts.
D. written contract can be a notation or a memorandum.
A written contract does not have to be a long, formal, preprinted agreement. Al-though such lengthy, preprinted forms are common in some businesses, other less formal written documents are frequently used to show that a contract exists, e.g., a letter, sales slip and receipt, notation, or memorandum.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
38. A(n) ____________ contract is implied by the direct or indirect acts of the parties.
A. express
B. implied-in-fact
C. unilateral
D. void
A contract implied by the direct or indirect acts of the parties is known as an implied-in-fact contract.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-26
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
39. A(n) ____________ contract does not exist, but is imposed by the court as an equitable remedy in the interests of fairness and justice.
A. quasi-
B. implied-in-fact
C. informal
D. executory
A quasi-contract is another name for an implied-in-law contract. It is not a contract in the true sense of the word, because it is an equitable remedy created by the court to avoid injustice. It does not result from the mutual assent of the parties, as do express or implied-in-fact contracts.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
40. An informal contract is also known as a(n):
A. void contract.
B. quasi-contract.
C. implied-in-fact contract.
D. simple contract.
An informal contract generally has no requirements as to language, form, or construction. It comprises obligations entered into by parties whose promises are expressed in the simplest and usually most ordinary, nonlegal language.
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-27
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
41. Eloise made a contract in January that gave her until the end of the year to complete her work on a new computer system for Dexter. In mid-July, Eloise is working on the computer system. The contract in July is considered:
A. executory.
B. unenforceable.
C. being expressed.
D. executed.
A contract that has not yet been fully performed by the parties is called an executory contract, regardless of whether nothing has been done, or it may be partly executory, in which case the contract is partially complete.
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
Essay Questions
7-28
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
42. Mark was speeding on the highway when he and John had a car accident and suffered serious head injuries. As a result, John's memory was affected, and he could not remember any of the incidents on the day of the crash, including the fact that Mark's rash driving caused the car crash. At the hospital, Mark, who suffered minor injuries, convinces John that the crash was no one's fault and just bad luck. John is empathetic and signs a contract with Mark stating that neither party would sue the other for damages. However, Lily, who was with John in the car and was also injured, knows that Mark was responsible and challenges the contract in court, in addition to filing a lawsuit against Mark. Analyze the case.
Although Lily is a third party to the contract, she is an intended beneficiary, since she is also one of the victims of the accident caused by Mark. Hence, she can challenge the contract between Joan and Mark, and file a lawsuit. The contract signed between John and Mark is not legally binding to John because an essential element that makes up the contract is missing capacity. John's memory has been affected due to physical injuries; this can be classified as mental impairment. If Lily proves that John was not in the capacity to understand the nature or purpose of the contract, the court will make the contract void. The contract is voidable also because it was induced by fraud, when Mark lied about the cause of the accident. Lily can sue Mark for fraud and negligence under tort law and claim damages. The court is likely to give a judgment is favor of Lily and John.
AACSB: Analytical Thinking
Blooms: Evaluate
Difficulty: 3 Hard
Learning Objective: 07-04 Identify the four elements of a contract.
Learning Objective: 07-08 Explain the role of privity and agency in contract law.
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
Topic: The Multidimensional Nature of Contract Law
43. Donita, 34, and Terry, 25, enter into a contract which stipulates that Donita will allow Terry to occupy her apartment for six months, beginning next month. Terry has agreed to pay a rent of $100 per month. Discuss the elements that make this contract legally binding for Terry and Donita.
There are four elements that make up a contract mutual assent, consideration, capacity, and legality. Each element must be present to make the contract legally binding on all parties. In the absence of any element, the contract is just an agreement that cannot be vindicated in the court of law. In this case, Donita and Terry have a mutual assent since the offer seems to have been properly made and has been accepted. The rent Terry will pay Donita is a consideration in exchange of an accommodation in her apartment. Both the parties have also assumed, as per law, that each possesses the capacity to make a contract. The contract contains the legal actions of renting an apartment, hence making the contract binding to Donita and Terry.
AACSB: Analytical Thinking Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 07-04 Identify the four elements of a contract.
Topic: The Multidimensional Nature of Contract Law
7-29
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
44. Ruben promises to pay Talana $200 if she steals Jessica's business law textbook. Talana steals the business law book, but Ruben, who now feels guilty for his act, refuses to pay Talana and asks her to return the book. Discuss ways in which Reuben has breached the contract
An agreement to steal is void and illegal; since it lacks the essential element of legality, it is unenforceable. Talana cannot force Reuben to abide by his promise.
AACSB: Analytical Thinking Blooms: Evaluate Difficulty: 2 Medium
Learning Objective: 07-04 Identify the four elements of a contract.
Topic: The Multidimensional Nature of Contract Law
45. Georgia purchases what proves to be a defective product from ZBest Enterprise to give to her best friend, Sarah, on her birthday. Georgia refuses to take legal action against ZBest because she is afraid of confrontation. Sarah, wanting to help Georgia, and angry at ZBest, wants to sue ZBest. Discuss the options Sarah has to sue the company.
While it may be argued that Sarah lacks privity of contract and thus her suit should be dismissed, if a court concludes that Sarah is an intended beneficiary of Georgia's contract and that the defect involves a breach of warranty, the court will not dismiss Sarah's suit.
AACSB: Analytical Thinking Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 07-08 Explain the role of privity and agency in contract law.
Topic: The Multidimensional Nature of Contract Law
46. Alan persuades Charles to buy his truck by falsely telling Charles that the truck has just had a new engine installed. In fact, the truck has an old engine that has been cleaned to look new. Charles buys the truck and finds out the truth about the engine. Discuss the situation.
The contract between Alan and Charles is executed if Charles has paid for the truck and taken possession of the truck. Charles can sue Alan and the contract can be held to be voidable, since the agreement was induced by fraud.
AACSB: Analytical Thinking Blooms: Analyze Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-30
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
47. Shannon offered a $50 reward for the return of a lost kitten. When Mark found the kitten and returned it to Shannon, she refused to give him the reward because he had not promised to find the kitten before he went looking for it. Analyze the case.
This is a case of unilateral agreement. Shannon must pay the reward because she made a promise to do something in return for an act of some sort. In this type of contract, a person does not expect a promise in return, rather an act. If Shannon fails to provide the reward, Mark can sue her for breach of contract.
AACSB: Analytical Thinking Blooms: Analyze Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
48. Charleen goes to Big Basket Supermarket and fills her cart with food, pushing it up to a checkout line. Discuss the type of contract between Charleen and Big Basket that would obligate Charleen to pay for the food prior to leaving Big Basket, even if Charleen and the clerk never say a word to each other.
They have an implied-in-fact contract, created by actions rather than language. A contract implied by the direct or indirect acts of the parties is called as an implied-in-fact contract. Because the parties to a contract enter that contract by an exercise of free will, the court follows the objective concept rule in interpreting the acts and gestures of a party.
AACSB: Analytical Thinking Blooms: Evaluate Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
49. Jackie takes her car to the All Clean Car Wash and watches the employees while they mistakenly give her car a special $30 hand wax treatment, rather than the $5 spray wax she requested. Jackie refuses to pay $30 saying that she requested a service that would cost her only $5. Analyze the case.
Jackie must pay since she watched the employees hand wax her car and did not object. Jackie has also benefited from the car wash's service. In such a case, the court will apply the rules of an implied-in-law contract (quasi-contract) for reasons of justice and fairness, and will not allow Jackie to benefit at the expense of the car wash.
AACSB: Analytical Thinking Blooms: Evaluate Difficulty: 3 Hard Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-31
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
50. Emerson, a wealthy man, has a special seal made that contains his family crest and motto. Emerson places the seal impression next to his name on every contract that he signs in order to prove that other contracts containing a signature without the impression are forgeries. Discuss the type of contract Emerson makes.
Emerson is making formal contracts under seal. While rarely required today, Emerson is free to use a personal seal. Under common law principles, a formal contract differs from other types of contracts in that it has to be (1) written; (2) signed, witnessed, and placed under the seal of the parties; and (3) delivered.
AACSB: Analytical Thinking
Blooms: Evaluate Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
51. Fraser entered into a written contract with the Plastica Company to purchase 100 plastic black bats for a Halloween party he was hosting. The terms of the contract called for Plastica to deliver all 100 bats by October 25. On October 20, Fraser received from Plastica 85 plastic bats and 15 paper red bats. A letter accompanying the shipment stated, "We no longer make plastic black bats. For the inconvenience, we will charge you 15 percent less than the price we originally agreed upon." Was the contract between Fraser and Plastica an executed contract? Explain.
After a contract has been negotiated, all obligations must be satisfactorily performed in order for the contract to be executed. Since Plastica Company did not satisfactorily carry out the contract's terms, the contract was not executed. It is a partly executory contract, since the contract is partially complete. However, if Fraser uses all the bats, he has ratified the "defect" in the delivery and owes Plastica for the entire contract, less 15%.
AACSB: Analytical Thinking Blooms: Apply Difficulty: 3 Hard
Learning Objective: 07-10 List the characteristics of a contract.
Topic: Contractual Characteristics in Contract Law
7-32
Copyright © 2017 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
