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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
a. The store is required to sell a Swirl Brand Blender to Martha for $49.99.
b. Martha can force the store to acquire a Juicy Brand Blender and sell it to her for $49.99.
c. The store is guilty of a bait and switch.
d. The advertisement contains an offer of a unilateral contract.
e. The store is legally obligated to sell a Juicy Brand Blender to Martha for $49.99.
32) The phrase quid pro quo means
a. something for something in return.
b. agreement on point.
c. professional services.
d. a thing of value.
e. an intention to contract.
33) The phrase consensus ad idem means
a. one idea in two minds.
b. value for the agreement.
c. agreement on that previously mentioned.
d. offer of agreement.
e. less than the value of that.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
34) In late April, Harper Corp placed an advertisement in a newspaper that said: "We cater
parties. Up to 150 people for only $3000. No hidden fees or costs." The manager of Martin
Inc telephoned Harper and left a voice message that said, "We are calling to place an order
to have a party for 150 people on the first of June." The next day, the manager of Harper
called Martin and explained that, due to a scheduling conflict, it could not stage a party on
the first of June. Martin now says that a contract had been created and that Harper has
breached that agreement. Which of the following statements is TRUE?
a. Because a contract cannot be created between corporations, Harper Corp cannot be held
liable to Martin Inc.
b. A contract was created between the parties as soon as Martin left its message on Harper's
answering machine, regardless of when Harper listened to that message.
c. Because an advertisement is generally presumed to be an invitation to treat, Martin's
telephone message probably was not a contractual acceptance.
d. In classifying the nature and effect of Martin's telephone message, a judge would focus
exclusively on the intention that Martin had at the time.
e. If it did not actually have a scheduling conflict, Harper Corp would be obligated to
satisfy Harper Inc's order.
35) Garfield owns and operates a wholesale business called the Overseas Sporting Goods
Store (OSGS). He recently delivered a box of cricket balls to his twenty-year-old son,
Imran, and a box of cricket outfits to another sporting goods store called Hit-for-Six.
Because Garfield's store went into financial difficulties shortly after making those
deliveries to Imran and Hit-for-Six, questions have arisen regarding the nature of those
deliveries and in particular whether they were contractual sales. Which of the following
statements is TRUE?
a. Neither transaction can be a contract unless money was exchanged for the balls and
outfits.
b. As a matter of law, Garfield could not have had an intention to create legal relations
when he entered into the transaction with Imran because Imran is his son.
c. As a matter of law, the transaction with Hit-for-Six could not be an enforceable contract
unless it was sufficiently evidenced in writing.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
d. Depending upon the facts, a court might be persuaded that the delivery to Hit-for-Six
was not made with an intention to create legal relations.
e. Even if it did not request the outfits, and even though it has not had any communication
with Garfield, OSGS will be required to pay for the outfits unless it immediately sends
them back to Garfield.
36) An invitation to treat
a. can only occur within the context of a call for tenders.
b. is a type of offer.
c. always occurs in response to an offer.
d. is a part of some tenders.
e. constitutes a significant risk when it occurs in the context of sale negotiations.
37) A firm offer is
a. always supported by consideration.
b. always placed under seal.
c. the same thing as an option.
d. freely revokable.
e. always found, among other times, in a tender situation.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
38) Layton Fine Fashions had a shipment of orange ties that it wished to sell. It therefore
placed an advertisement, on Monday, in the town newspaper that said, "Fine silk orange
ties. The season's hottest fashion trend. This week only—Come to Layton Fine Fashions
and we guarantee that you'll pay no more than $35." The advertisement was such a success
that the ties were almost entirely sold out within two days. Which of the following
statements is TRUE?
a. Layton has nothing to worry about because a court certainly would find that the
advertisement was an invitation to treat rather than an offer.
b. Layton's offer, if it is an offer, will be revoked if it places a notice in the same newspaper
that says "Sorry, gentlemen— the orange silk ties are all sold out," even if some
disappointed customers failed to read that notice before they came to the store.
c. because of the wording of the advertisement, the offer must be held open for one week,
and Layton will be held liable to every potential customer who unsuccessfully tries to
purchase one of the ties.
d. The advertisement can be properly classified as an option.
e. The situation probably is governed by the special rules that apply to tenders.
39) As Bennie entered The Big Table restaurant, he noticed a sign that said "All-U-Can-
Eat—At Our Reasonable Price." Because the restaurant was busy, and because the staff was
all tied up with other customers, Bennie found a table for himself and then began eating
from the self-serve buffet. After finishing his meal, he paid an appropriate amount to the
cashier and left the building. Bennie had not spoken, or been spoken to, at any point. Which
of the following statements is TRUE?
a. While he undoubtedly was required to pay for his meal, the lack of communication
means that Bennie's obligation to pay could not have arisen in the law of contract.
b. Assuming that the general rules apply, no contract was formed until Bennie paid for his
meal.
c. The facts of this case provide a clear illustration of the concept of a unilateral contract.
d. If a court was required to decide how much Bennie had to pay for his meal, it would rely
on the concept of quantum meruit.
e. because he ate without first receiving permission to do so from the restaurant, Bennie
probably committed a crime.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
40) Hiram Brody worked as a research assistant for Rheem Shareef, who was one of his
professors. Rheem regularly asked Hiram to proofread documents that she had written.
Hiram therefore was not especially excited when he was asked to proofread a research
proposal that Rheem had drafted in connection with a major project for which she had
recently received generous funding from the government . He did, however, become very
excited when he read paragraph 14 of the document: "I will offer Hiram Brody the position
of joint-investigator. That position will require him to both resign from his present post as
my research assistant and take a leave of absence from his current studies. Given the nature
of the project and given his outstanding qualifications, Hiram will be paid $8000 per month
for a period of eighteen months." After Hiram hurriedly finished proofreading the
document, he unsuccessfully tried to contact Rheem to talk about his new position. He
learned, however, that she had left town, on very short notice, to be with a sick relative who
lived outside of Canada. He then wrote a letter to the Chair of his University Department in
which he both resigned as Rheem's research assistant and took a two-year leave of absence
from school. He also left a message on Rheem's telephone answering machine in which he
said, "I accept. I can't wait to begin working as your joint investigator." Hiram
consequently was very angry when Rheem said, after she had returned from abroad, that
she had changed her mind and had hired another person to serve as her joint investigator.
Hiram insists that she cannot do so because he had already accepted her offer. A court,
however, would say that Hiram could not create a contract by leaving a telephone message
for Rheem because
a. she had communicated her offer to him in writing.
b. she had given the document to Hiram as a proofreading assignment, rather than as a
contractual offer.
c. it is impossible to accept an offer while the offeror is outside of the country.
d. he was already contractually required to work for her as a research assistant.
e. the document contained an invitation to treat, rather than an offer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
41) Ronan asked his friends, Siobhan and Jeff, to help him move, and said he would give
them each $10. Siobhan tells him maybe and Jeff tells him he will be there. Which of the
following is true?
a. Ronan and Siobhan have a contract only if Siobhan shows up and helps Ronan move.
b. Siobhan and Jeff have a contract only if Jeff shows up to help Ronan move.
c. Ronan does not have a contract with either Jeff or Siobhan because friends cannot enter
into contracts.
d. Ronan has a contract with Jeff but not with Siobhan.
e. There is no contract with either because Ronan did not pay enough money.
42) Doug posted notices all over the neighborhood offering a reward of $100 to anyone
who found his lost border collie, Lyla. Dr. Davidson who lived down the street was
walking his dog in the river valley when he saw Lyla, who plays with his dog frequently.
He returned Lyla back to Doug. Doug thanked him and Dr. Davidson returned home. He
explained what he had done and then his children asked him if he had received the $100
reward being offered by Doug. When he stated he had not, Dr. Davidson’s children insisted
that he return to Doug’s home and ask for the reward. When Dr. Davidson asked Doug for
the reward, Doug told him that it was too late and he did not have to pay it. Which of the
following is true?
a. Doug must pay the reward because Dr. Davidson accepted his offer by performing the
act of finding Lyla, so there is a contract consisting of offer and acceptance.
b. Doug does not have to pay the reward because the offer was a unilateral offer open to the
public at large and Dr. Davidson was unaware of the offer when he returned Lyla to Doug.
c. Doug must pay the reward because Dr. Davidson accepted his offer when he learned of it
from his children.
d. Doug must pay the reward because there was a bilateral contract of offer and acceptance
and, therefore, a contract was formed.
e. Doug does not have to pay the reward because Doug and Dr. Davidson are friends (even
their dogs are friends) and friends cannot enter into unilateral contracts, only bilateral
contracts.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
43) The municipal government has a new contract and is accepting tenders. Your company,
Epsilon Management, enters a tender to get the contract. Which of the following statements
describes the relationship between the government and Epsilon?
a. The government is the offeror and Epsilon is the offeree.
b. This is an invitation to treat, so neither entity is offeror or offeree.
c. Because this is a firm offer, Epsilon becomes the offeror.
d. This is an invitation to treat, so each act as both offeror and offeree.
e. This is an invitation to treat, so Epsilon is the offeror and the government is the offeree.
44) Jerry has made an offer to contract with Cosmo. If Cosmo returns to Kelowna from
Brandon before August 31, he can live in Jerry’s spare room for four months without
paying rent. Cosmo proposes for an option on the offer until August 1, which Jerry accepts.
In July, Jerry realizes his other friend, George, is willing to move in and pay twice what
Cosmo will pay. Therefore, Jerry wants to revoke the offer. Which of the following is true?
a. Jerry cannot revoke the offer until August 2.
b. Jerry can revoke the offer because George has offered higher consideration.
c. Jerry can only revoke the offer if he can prove Cosmo is insane.
d. Jerry must wait until September 1, when the offer has lapsed.
e. Jerry can only hope that Cosmo rejects the offer.
45) The Alberta Teachers’ Association (ATA) is negotiating a collective bargaining
agreement with the provincial government. The government offers a fixed 2% per year
wage increase for five years. The ATA considers this reasonable, but thinks it can get more,
so it makes a counter-offer for 3% per year for five years. The government fully rejects the
offer. Which of the following is true?
a. Because the ATA partially accepted the terms, they can still accept the 2% increase.
b. The ATA can only accept the 2% increase now if it conforms to their standard form.
c. The ATA must hope that the government repeats its offer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
d. The ATA can accept the 2% increase because the government implicitly repeated the
offer.
e. The ATA could not have made the counter-offer because the initial offer was firm.
46) Mohammed wants to buy his friend Khurram’s old computer, but he currently has no
money. He offers to pay Khurram $300 in a month at which time Khurram will give
Mohammed his computer. Khurram nods and says, “sure.” Two weeks later, Mohammed is
paid and buys a new computer. He then refuses to buy Khurram’s computer. Which of the
following statements is true?
a. Mohammed has breached the contract by refusing to buy Khurram’s computer.
b. Mohammed has breached the contract by buying a new computer.
c. There was never a contract; Mohammed has simply revoked the offer.
d. Khurram’s action did not constitute acceptance; he was too vague.
e. There was no breach because the computer was unsolicited.
47) Hare Corporation sends an offer to Tortoise Inc. to purchase a widget through the mail.
Hare hasn’t heard from Tortoise for two days, so when Fox Company calls them on the
phone and offers them the widget at a better price, they accept. They then call Tortoise to
revoke the offer, but find that they have already mailed an acceptance. Which of the
following is true?
a. Hare only has to pay Fox because the contract was created first.
b. Hare only has to pay Tortoise because the postal rule takes precedence.
c. Hare has to pay both companies because they have created contracts with both.
d. Hare does not have to pay Tortoise because they revoked the contract before receiving
the letter.
e. Hare does not have to pay Fox because their communication was non-instantaneous.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
48) Theta Foods has a promotion in which a customer can send in 600 bar codes and
receive an all-inclusive trip to Mexico, but the contest ends after only two weeks. Barry
realizes that six-packs of pudding are individually coded and are on sale 2-for-$1, so the
trip will cost only $300. He buys the pudding, but when he redeems it, Theta says because
he did not inform them of his participation, he isn’t eligible for the trip. Which of the
following is true?
a. If Barry eats the pudding, he can get the trip.
b. Barry accepted the contract by performance.
c. Theta is correct; acceptance is required for a contract to be created.
d. Barry cannot show proof that he had the intention of accepting the offer.
e. Because of the postal rule, Barry accepted when he mailed the bar codes in.
Essay Questions
1) How is the concept of a meeting of the minds related to the concepts of offer and
acceptance? Illustrate your answer by reference to the phenomenon of a cross-offer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
2) It is presumed that people who create agreements in commercial contexts do intend to
create legal relations, while people who create agreement in social or family contexts do
not intend to create legal relations. Provide an explanation for each of those presumptions.
3) From a risk management perspective, explain why it may be better for a business to use
an invitation to treat, rather than an offer, when seeking someone to buy its product.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
4) If you insert a coin into a vending machine and receive a chocolate bar in exchange, have
you entered into a contract? If so, is that contract unilateral or bilateral? Give reasons for
your answer.
5) In a normal tendering process, is Contract A a unilateral contract or a bilateral contract?
Is Contract B a unilateral contract or a bilateral contract? Give reasons for your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
6) How does the death of either the offeror or the offeree affect an offer? Provide examples
to illustrate your answer.
7) As a matter of risk management, how can a business avoid becoming involved in a battle
of the forms?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
8) "If a contractual offer is accepted by conduct, rather than words, the parties must have a
unilateral contract, rather than a bilateral contract." Discuss that statement. Use examples to
prove your answer.
9) You have developed a business proposal called the Law Book Club. Your intention is to
send books to club members on a monthly basis. Under the proposal, each member would
then be charged a price for the book unless they specifically indicated, within a one-week
period, that they did not wish to purchase the selection. Discuss that proposal in terms of
the rules regarding the acceptance of offers.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
10) Acme Corp is a widget manufacturer that carries on business in Edmonton. Until
recently, it sold its products only within the province of Alberta. However, it now wants to
sell to customers in Manitoba as well. It is concerned, however, about the effect of the
Alberta Contracts Enforcement Act. That statute says that only specially licenced
companies are entitled to sell widgets under "contracts that are made within the province of
Alberta." Acme Corp is not specially licenced. The statute does not, however, affect
contracts that are created outside of Alberta. Bearing in mind the general rules regarding
offers and acceptances, suggest ways in which Acme Corp can go ahead with its proposal
without violating the Contracts Enforcement Act.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
11) On June 1, Maureen sent a letter to Joel that offered to sell 10 000 shares in Tadpole Inc
(a computer software company) for $5 each. Her letter did not require Joel to respond by
any particular date. On June 3, Tadpole Inc publicly announced that its engineers had
perfected a new technology that would revolutionize the electronic commerce industry. By
June 4, the price of a single share in the company had increased to $100. On June 6, Joel
returned from his cottage and learned of both Maureen's offer and the price of Tadpole Inc
shares. He promptly sent a letter to Maureen that said, "I accept your offer. I will pay a total
of $50 000 for 10 000 shares in Tadpole Inc." Maureen obviously no longer wants to sell
her shares under the price that she quoted in her offer. Discuss the factors that a court
would consider in deciding whether or not she and Joel had created a contract.
12) Explain what it means to say that the offeror is the "master of the offer." Provide
examples to support your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
13) Rosie placed an advertisement in a newspaper that said: "Five purebred Siamese kittens
for sale. $200 each. First come/first served. Respond in person or by email to
Rosie@netmail.com." Gig saw the advertisement and immediately sent an email message
that said, "I will pay $1000 for the five kittens." However, when Gig arrived at Rosie's door
with the cash in hand, she refused to hand over the kittens. She explained that while Gig's
message was the only reply that she had received in response to her advertisement, she had
changed her mind and had decided to keep the kittens for herself. Provide an argument on
behalf of Gig that would support the creation of a contract with Rosie.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
14) List five ways in which an offer can be terminated.
15) Gigagar Inc manufactures computer components. It wants to develop a new line of
product, but realizes that it cannot do so without a complicated device known as a "digital
phalange finger." It has tried to design that devise itself, but has failed. It therefore sent a
letter to Katenben Ltd, another high-tech company, that said: "We are willing to pay $100
000 for the design of a digital phalange finger." Katenben Ltd responded by saying that it
believed that it might be able to design the device. However, it also indicated that it could
not guarantee its results and said that it did not want to commit itself to a potentially
impossible project. Gigagar Inc then wrote back in a letter that said: "We understand your
concerns. We do not require any guarantee of success. We also appreciate that, given the
complexity of the project, you may decide to drop the matter after some preliminary
investigations. Nevertheless, our offer stands—we will pay $100 000 if you successfully
design a digital phalange finger." Katenben Ltd spent the next six months and a great deal
of money trying to design the device. As it neared successful completion, however, Gigagar
Inc announced that its own engineers had experienced an unexpected breakthrough and had
successfully created a digital phalange finger. Gigagar Inc therefore told Katenben Ltd that
its offer of $100 000 was revoked. Three days later, Katenben Ltd also successfully
produced a working digital phalange finger. It now demands payment of $100 000. Is it
entitled to that money? Give reasons for your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 7: The Nature and Creation of Contracts
