CHAPTER EIGHT
True-False
Any element of falsity renders the statement false.
1. The statement “If you wash my car, I will pay you $10” is an example of an offer to form a bilateral
contract.
2. A “contract under seal” is an example of a formal contract.
3. An executory contract is one that has been performed by both parties.
4. A quasi-contract is another term for a bilateral contract.
5. An express contract is always in writing.
6. The offeror makes an offer by mail. Generally, unless otherwise specified, the offeree may accept
the offer by using the same or faster means of communication.
7. A contract is a legally binding agreement to do or not to do a certain thing, and is enforceable in
court.
8. To create a valid, enforceable contract, the first party must use the expression “I offer…” and the
second party must write or say “I accept…”
9. In a single contract, there must always be a minimum of two parties, but there may be more parties
to the contract.
2 Chapter Eight
10. A minor generally may disaffirm a contract before reaching majority. The minor may also do so
within a reasonable time after reaching majority, but if he or she fails to do so, the contract is
ratified and binding.
11. Contracts entered into as a result of duress or undue influences are always void.
12. Genuine, abiding love is priceless and as such is the highest form of valid consideration in
contracts.
13. Contracts with unlicensed persons are enforceable by the unlicensed person if the purpose of the
licensing statute is to simply raise revenue rather than to protect the public from unqualified
practitioners.
14. The validity of a contract that has been fully performed cannot be challenged for failure to comply
with the statute of frauds.
15. When there is a valid novation, one of the original parties to the contract is completely relieved of
all former obligations under the contract.
16. Details of contract law are found in the U.S. Constitution and in federal statutes.
17. Performance of a single contract (e.g., the sale/purchase of a pizza in a fast food outlet) requires the
prior performance of many other contracts by other persons.
18. The definition of an executed contract is an illegal agreement calling for harm to another person for
a specified fee or price.
19. A promise to make a gift to a charity can not be enforceable because the promisor receives no
consideration in return.
Test Bank 3
20. Numerous statutes have been enacted to protect buyers and sellers in sales transactions before,
during, and after their related negotiations.
21. An executed contract is one that has been performed by both parties.
22. An agreement that may be either legally enforced or rejected by one party is an enforceable but
voidable contract.
23. Contracts with unlicensed persons are unenforceable by the unlicensed person if the purpose of the
licensing statute is to protect the public from unqualified practitioners.
24. Many state laws relating to regulation of interest and usury are based on religious principles found
in major religions including Judaism and Islam.
25. Wrongful persuasion and persistent pressure is a definition of duress and a common example is a
pushy salesperson in a computer store.
26. The holding in the end of chapter case of Hamer v. Sidway was that oral testimony of prior
negotiations cannot be introduced to vary the terms of a integrated contract.
27. The end of chapter case of Lucy v. Zehmer provided a good example of the objective person
standard used to establish the necessary intent to create a contract
28. Under the federal Magnuson-Moss Warranty Act no seller is required to give a written warranty,
but the seller who elects to do so must label it as either full or limited.
29. Even though a sale by a merchant, an implied warranty of merchantability does not arise if the
goods are sold used.
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30. From the cardholder’s point of view there are no differences in the statutory protections available
between credit cards and debit cards.
Fill-ins
Complete each sentence or statement.
1. A(n) __________________ is the party to a contract who makes a promise to do something.
2. If a contract has not been fully performed, it is called a(n) __________________ contract.
3. There are two parties to a contract; the __________________ is the person to whom the offer is
made.
4. An agreement that cannot be enforced is __________________ and is not really a contact at all.
5. A contract that is oral and/or in written form is a(n) __________________.
6. A(n) __________________ is a legally enforceable agreement to do or not do a specified act.
7. Sometimes, the parties to a contract specify in advance what the damages shall be in the case of
breach. These provisions are called __________________ clauses.
8. Although the Uniform Commercial Code (UCC) has been adopted, at least in part, by
__________________ states, important __________________ exist among the adopters in its
application to commerce.
9. If no time is stated, an offer lapses after a(n) __________________.
Test Bank 5
10. In terms of legal effect, contracts are classified as __________________, __________________, or
__________________.
11. __________________ exists when one party is prevented from exercising judgment and free will
by some wrongful act or threat of the other party.
12. A minor’s contracts are generally __________________ by the minor, but are valid and
__________________ on the adult with whom the minor is dealing.
13. A(n) __________________ mistake about a(n) __________________ fact will enable either party
to rescind the contract.
14. When a party to a contract honestly performs most essentials of the contract, but there is some
minor omission or deviation which can be corrected, or compensated for in a reduction of the price
the doctrine of __________________ exists.
15. In sales of new or used goods by merchants, probably the most important warranty is that of
__________________, unless it was expressly __________________ by stating that the goods
were sold __________________.
16. A breach of contract leads to a claim of __________________ damages by the innocent party to the
contract.
17. __________________ consists of two parts: bargained-for exchange and something of legal value.
18. A(n) __________________ agreement gives one of the parties the right to buy (or sell) something
at a certain price within a specified future time.
19. A(n) __________________ is a rejection of the original offer, which is also a new offer.
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20. A contract that includes a promise for an act is called __________________, while a contract that
includes a promise in exchange for a promise is called __________________.
21. __________________ exists when one vulnerable party is convinced to enter into a contract by
someone who because of his or her relationship as trusted individual deprives the party of freedom
of will in making a contract.
22. After a minor becomes an adult failure to __________________ within a reasonable _______by the
minor, will turn a __________________ into a ______________..
23. A bargain so unfair to a party that no reasonable or informed person should agree to it and a court
may decline to enforce is considered to be a(n) ____________________.
24. Two very different legal concepts are related to need for or treatment of written contracts. Those
rules are __________________ and __________________________.
25. A contract drafted by a dominant party and then presented to the other party—the adhering party—
on a “take it or leave it” basis is called a ________________ and it is generally _______________.
Multiple Choice
Select the one best answer.
1. Race horse breeder Melinda Smartay and sportsman Santé Sharpe had engaged in intermittent
discussion and friendly argument over the sale price of “Intermittent Lightning,” a thoroughbred.
After they finally signed a contract transferring ownership to Sharpe, he confessed, “Y’know, I was
prepared to offer you another 100 grand for that beauty.” Smartay replied, “Well, I was prepared to
let you steal it for a 100 grand less.” Accordingly,
a. there was no valid contract since there was no meeting of the minds.
b. there was a valid contract under the objective theory of contracts.
c. horse-trading is a field unto itself where unique and special rules apply; their deal should be
submitted to the official State Racing Board for review and approval.
d. contracts for the sale of goods require specific court approval and because none had yet
occurred the agreement can be rescinded.
Test Bank 7
2. A valid offer to contract is terminated before acceptance
a. after a reasonable lapse of time, if no specific time is stated.
b. by destruction of the subject matter of the offer.
c. by death or incompetence of the offeror or offeree.
d. any of the above
3. Steve Shredder promised to move all practice sessions of his high-volume group the “Scan Jet
Fondue” to a location far from his home in exchange for his neighbor Osgood Wheet’s promise to
pay the music group $300 a month for nine months, commencing immediately. The mutual
promises are
a. enforceable, because each party enjoys some resulting legal benefit and each suffers some legal
detriment.
b. unenforceable, because playing of music wherever, whenever, and however one pleases is
guaranteed as human expression under the Bill of Rights.
c. unenforceable, because tastes in music—or in other art forms—are not to be disputed, and the
simple absence of music (or noise) is too intangible to have measurable value.
d. enforceable if in writing, but not if the agreement is oral.
4. Generally, a minor is liable under contract law for purchases of necessaries (e.g., food, clothing,
shelter, and medical care). However,
a. the necessary that is bought must truly be needed and must not be something that is provided
by, or is readily available from, the parent or guardian.
b. the price charged must be reduced to the seller’s out-of-pocket costs, plus no more than 10% of
gross profit on the item.
c. the goods must be guaranteed to last at least until the minor becomes an adult.
d. none of the above
5. Although the parties failed to comply with the applicable statute of frauds, a contract that was fully
executed
a. is a valid contract.
b. is subject to rescission because of failure to comply with the statute of frauds.
c. subjects one or both parties to criminal prosecution.
d. subjects one or both parties to civil damages for the tort of fraud.
6. Written contracts made by a person who, at the time, is intoxicated by alcoholic beverages
a. are always void.
b. are always voidable by the intoxicated person after becoming sober.
c. are always valid if he or she voluntarily started and continued drinking the alcoholic beverages.
d. are valid if the person was sober enough to understand the nature of the contract at the time he
or she signed it.
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7. Sara Sou is “bearish” and is of the opinion that the price of Muggle Company stock will drop
within a few weeks; Stefan Gordon is “bullish” and thinks the price will go up. Sara sells her 1,000
shares of Muggle Co. stock to Stefan for $100 a share. If, within a few weeks, the price of a share
of Muggle Co. stock
a. does not change, both Sara and Stefan can legally rescind because of their mutual mistake as to
the value of the stock.
b. drops sharply to $1, Stefan alone can rescind because of Sara’s fraud.
c. rises sharply to $200 a share, Stefan can rescind because of his unilateral mistake
d. None of the above is correct. Different expectations of the future value of a good (e.g., the
Muggle Co. stock) do not affect the validity of a contract for its sale.
8. When officials of your city government make contracts for construction of a recreation center in
your neighborhood park, complete with swimming pool, tennis courts, and baseball diamond, you
and your fellow residents become
a. third-party donor beneficiaries if you pay state income and wholesale taxes.
b. third-party donee beneficiaries if you do not pay city real-property taxes.
c. incidental beneficiaries.
d. third-party creditor beneficiaries.
9. Parties to a contract may specify in advance the amount of damages that must be paid in case of
breach. These liquidated damages
a. are generally payable in a liquid form (for example oil, or solvents, or alcoholic beverages).
b. are enforceable if they are a penalty designed to frighten parties into performance as agreed.
c. must be reasonable and not a penalty. They reflect the difficulty of assessing the actual or
anticipated damages that would be caused by any future breach.
d. are most appropriate when actual damages will be easy to calculate.
10. Early one morning at New York’s Kennedy airport, Professor Kevin Calandry, an economist and
frequent flyer to Dallas (for consultations) is afraid he will miss his plane. As he races past a
newsstand he grabs a copy of the New York Times from a stack, and waves it at a clerk. The clerk
smiles, mouths the words “Late again?” and waves him on. This three-second drama illustrates
a. shoplifting.
b. an implied in fact contract, on credit.
c. a bilateral contract.
d. a quasi-contract.
Test Bank 9
11. After ten years of marriage and months of searching, Jan and Jon find what they think is their
“dream house.” Actually, they want to confirm the availability of required financing. What should
they do?
a. “Bite the bullet,” and sign the purchase contract immediately.
b. Tell the seller “We’ll be back; please hold this house for us and for our twins.”
c. Offer to purchase the home contingent upon their ability to obtain reasonable financing within a
couple of weeks.
d. Keep on looking; there’s always a “better deal” somewhere, if you shop long enough.
12. In which of the following cases will an agreement be enforced even though reciprocal consideration
is lacking?
a. an agreement between close relatives related by common heritage or marriage
b. a promise to purchase season tickets to a major league baseball team.
c. a promise by a student to a teacher that from now on the student will read the textbook before
attending class
d. a new promise to pay a debt where collection has been legally blocked by running of a statute
of limitations
13. The law recognizes all of the following as fiduciary relationships except that of
a. lawyer or doctor, with client or patient.
b. spouse with other spouse, regardless of the duration of the marriage.
c. dating couples in a happy monogamous relationship.
d.
members of a general partnership in their dealings with each other related to the business of the firm.
14. The statute of frauds,
a. requires all-important contracts to be in writing and signed by the party against whom action is
brought.
b. specifically states in great detail the nature and amount of written information that must be
included in the formal contract, if it is to be enforceable.
c. as its name indicates, is designed to prevent all varieties of fraudulent conduct in contracting.
d. if not complied with, renders some otherwise valid contracts unenforceable.
15. Which of the following is a warranty implied by law in contracts for the sale of goods?
a. warranty of conformity to description, sample, or model
b. warranty of merchantability
c. warranty of conformity to seller’s statement or promise
d. warranty that the goods are made with union labor
10 Chapter Eight
16. A quasi-contract is
a. a bilateral contract.
b. a contract that meets four of the six basic requirements of a contract.
c. not a contact at all, but an improper attempt at a contract that is void.
d. not a true contract at all, but an obligation created by law.
17. Legally sufficient consideration may consist of which of the following?
a. an act
b. a promise to do something
c. a promise to not do something
d. all the above
18. An executory contract between a minor and an adult is
a. absolute.
b. voidable by the adult.
c. voidable by the minor only.
d. a void agreement.
19. The running of the statute of limitations on a contract between Martha, the debtor, and Zelda, the
creditor
a. extinguishes Martha’s duty (the contract is void).
b. acts as an accord.
c. bars Zelda’s remedy (the contract is unenforceable).
d. is unilateral performance.
20. Sean and Janine sign an agreement that provides for the payment of $3,000 by the party that
commits a material breach of the contract. It appears at the time the clause is signed that a breach
by either party will create substantial damages. This clause is a
a. rescission clause.
b. liquidated damage clause.
c. penalty clause.
d. nominal damage clause.
Test Bank 11
21. The famous heart surgeon Dr. Ardmeyer entered into an agreement with Brenda Thrope to do heart
surgery on Brenda immediately after her University final examination. Unfortunately, the time of
the operation conflicted with Dr. Ardmeyer’s bowling tournament, and the doctor assigned the
operation to Muckinfuss, a licensed doctor and recent graduate of an unaccredited medical school,
Cashcow University of the Somewhat Offshore Islands. Brenda, under anesthesia, was unaware of
the switch in surgeons. The surgery was successful and Brenda has completely recovered. Brenda
has decided not to pay. No contract terms covered any transfer of responsibility for the surgery.
a. The operation was successfully performed, so Brenda has to pay.
b. Any task under a contract may be assigned as long as the assignor has confidence in the
assignee.
c. Dr. Ardmeyer had the right to delegate the physical aspects of the operation to any other
licensed doctor.
d. Dr. Ardmeyer had contracted to perform a unique individualized service for Brenda, and
because of this, Brenda is not obligated to accept, or pay for services rendered by any other
person.
22. Broadnorf Warbeagle appears to be a
a. incidental beneficiary.
b. creditor beneficiary.
c. assignor.
d. donee beneficiary.
23. Cantwell, by entering into his agreement with Ferd, has
a. extinguished his obligation to Broadnorf.
b. made a partial delegation of his duty to pay Broadnorf.
c. made an partial assignment of his duty to pay Broadnorf.
d. created a three-party novation, also referred to by Justice Baadoza in Marbury v. Madison as a
“three-legged monte.”
24. The fact situation suggests the existence of
a. third-party rights and a delegation of duties.
b. an accord and satisfaction.
c. a substantial performance of a liquidated damage clause.
d. a statutory mutual assent.
12 Chapter Eight
25. Which of the below is an example of a novation?
a. Art and Burt agree to terminate their supply contract.
b. Art and Burt enter into an agreement supported by consideration wherein Art agrees to pay a
debt Burt owes Carstairs.
c. Art, Burt and Carstairs all agree that Burt will assume Art’s rights and duties in a contract
between Art and Carstairs.
d. All of the above are examples of a novation.
26. Janquese attended a meeting on March 4, 2004, where he met Bradshaw. Janquese orally contracted
to hire Bradshaw as a service representative for ten months. Bradshaw was required to begin work
on June 26, 2004. Before Bradshaw begins performance,
a. Written evidence of the contract is not necessary for its enforcement.
b. The Statute of Frauds renders this agreement unenforceable.
c. This agreement is an example of the substantial performance rule.
d. This is a firm offer under the UCC.
27. The Uniform Commercial Code governs contracts for
a. services.
b. bicycles.
c. real estate.
d. employment.
28. When one party has vastly superior bargaining power over another, they often draft their contracts
without consultation with the other party. These contracts are called
a. adhesion contracts.
b. unconscionable contracts.
c. unenforceable contracts.
d. torts.
29. The federal statute which requires a full disclosure of the comparative costs of buying goods for
cash or on credit is called the
a. Uniform Commercial Code.
b. Uniform Credit Code.
c. Consumer Credit Protection Act of 1968.
d. Complete Credit Reform Act of 2001.
Test Bank 13
30. Which statement based on textbook discussion is true about debit or credit cards?
a. A debit card draws against either an account the user has with a financial institution or a prior
payment of money made to the card issuer.
b. credit card transactions provide the greater profit to financial institutions.
c. debit cards provide greater protection as a matter of law to the consumer.
d. debit and credit cards are treated identically by the law.
31. Which of the following choices best completes this sentence? An adhesion contract is one
a. the terms of which are prepared by one party with superior bargaining power, usually in a
standardized form, and presented to the other prospective contracting party on a “take-it-or-
leave-it” basis.
b. that “adheres to” both parties; that is, legally binds both parties.
c. that is only recognized only under sales law in Louisiana and Florida. In all other states but
Maine it is recognized under sell law. In Maine it is recognized when incarcerated under cell
law.
d. so one-sided that courts will ordinarily refuse to enforce it.
32. Chad, who owns the only coffee shop in Rivercity, learns that Jose is about to open a competing
coffee shop in the same small town, just a few blocks from Chad’s. Chad offers Jose $10,000 in
return for Jose’s promise not to open a coffee shop in the Rivercity area for six months. Jose
accepts the $10,000 but goes ahead with his plans, even though he had agreed not to do so. When
Jose opens his coffee shop for business, Chad sues to enjoin Jose’s continued operation or to
recover the $10,000.
a. As this contract is not part of an otherwise legal contract it is an illegal anti-competition
agreement and is not enforceable.
b. As this contract is reasonable as to time and scope it is enforceable.
c. Although the agreement is not enforceable Chad will get his $10,000 back because he did
what he promised.
d. This is enforceable as a narrow exception to enforcement of anti-competitive clause
33. Morse, age 35, is a bartender for the Nordic Restaurant in Nevada. Craig brought twenty of his
friends to the restaurant to celebrate a rare soccer victory and he ordered four rounds of drinks.
The bill totaled $250. Craig later learned that Morse failed to renew her bartender’s license, and
Nevada requires a license to be a bartender. Craig refuses to pay, claiming the contract is
unenforceable because Morse lacks a license. Requirements for such a license in Nevada include
that the applicant be 21 years old, a non-felon, and pay a $100 fee.
a. The contract is voidable at Craig’s option.
b. This contract must be in writing to be enforceable.
c. The contract is valid and Craig must pay the bill.
d. The contract is void because Morse lacks the appropriate state license.
14 Chapter Eight
34. In the historic case of Hamer v. Sidway, the nephew:
a. lost, as there was no consideration.
b. lost, as the uncle was dead.
c. won, as there was consideration.
d. won, as there was a completed gift.
35. Promising to do something that one does not have an obligation to do in reply to a request from
another usually constitutes:
a. consideration
b. promissory estoppel
c. capacity
d. detrimental reliance
36. Sara and Rizwan enter into a contract by which Rizwan agrees to pay Sara $200 for a new
digital player, Sara’s subsequent transfer of her right to receive payment for the new digital player
is known as:
a. a delegation.
b. an assignment.
c. a novation.
d. a quasi-contract.
37. Adrian sent an offer to Sehar by mail to sell him a used computer monitor for $125. An
appropriate response accepting this offer is first effective to form a contract when
a. Sehar’s acceptance arrives at the Adrian’s.
b. Sehar decides to accept.
c. Sehar’s acceptance is put in an envelope to mail.
d. Sehar mails his letter of acceptance.
Short Answer Essays
1. Distinguish between an assignment and delegation.
Test Bank 15
2. When the Statute of Frauds requires that a contract be in writing, how much of a writing is
required? Is a complete, written and signed contract necessary? If not, what satisfies the
requirement?
3. Bill owns a rare vintage Ford Mustang automobile. Jack, one of Bill’s closest friends and a
physician, has persuaded Bill to sell the car to Jack at a price substantially less than market value.
At the time Bill sold the car, he was resting in a nursing home recovering from a serious illness. If
Bill desires to set aside the sale, what arguments might he make?
4. Under long-established law, minors generally have the power to avoid liability for their contracts.
They seldom exercise this power, even though they make annual purchases measured in the billions
of dollars. What are some possible explanations for this seemingly strange state of affairs?
16 Chapter Eight
5. Under the Statute of Frauds, some specified contracts must be in writing and signed by the party
against whom enforcement is sought. State several benefits or advantages that result from this
statute for the contracting parties.
6. Andorra orally agrees to work on Brook’s farm in the Matanuska Valley near Fairbanks, Alaska.
Under their contract, Andorra will remain through two growing seasons, for a period of 15 months.
Compensation will be room and board plus $500 paid each month and $50,000 paid at the end of
the 15-month term. All goes well for six months, through the first harvest. Then Brook, because of
domestic difficulties, sells the farm and fires Andorra. What legal remedy, if any, does Andorra
have?
7. Kay Kirk had paid the outstanding balance on her MasterCard credit card, and had made no further
purchases with the card for three months. Then, she was shocked when a statement arrived by mail
showing assorted charges on the card for a total of $2,700. She quickly checked her wallet and
found her card. Must she pay the $2,700?
Test Bank 17
8. Warbeagle was hired by Barge Brothers Diet Center to give advice as to how to best market the
Diet Center’s new “Starvation Diet.” Warbeagle was to be paid for the development of a marketing
plan based on the number of days he worked in preparation of the plan ($1,000 a day). When he had
completed about half of his intended work (five days), Warbeagle received an offer to tour the great
restaurants of Russia with all expenses paid. He left Barge Brothers, but he did not leave them high
and dry. He provided a computer disk and hard copy of all work he had completed to the date of
departure. He also left a bill for $5,000.
9. Sandy Cowden inherited $700,000 from her grandfather. Reginald LaRocco is a local businessman
who operates an almond ranch and is an insurance salesperson. He owns several land parcels in the
local community and wants to sell some of this land to Sandy. He convinces Sandy to buy
Riveracres, Reginald’s ranch on the outskirts of town. Reginald tells Sandy that there are 130 acres
on the ranch. In fact there are only 90. Sandy has the ranch surveyed before buying and learns that
it has only 90 acres. Reginald tells Sandy that he paid $50,000 for the land 40 years earlier and it is
worth 10 times that today. He actually only paid $25,000 for the land which he purchased 53 years
ago. He sells it to Sandy for $380,000 and three months later Sandy finds out a similar adjoining
parcel sold for $210,000. Sandy wants to get out of the Riveracres contract. Will she be able to do
so? Why or why not? Explain.
18 Chapter Eight
10. Is an advertisement generally considered to be an offer? Why? Why Not? Explain.
Test Bank 19
11. The band “The Colorfast Tattoo” signs a contract to sing at the Hornet Theatre. The band and the
owner agree that they will include a liquidated damage clause in the contract. Let’s really make the
penalty stiff: so whoever breaches has to pay the other guy one hundred grand.” This sum was far
above either “The Colorfast Tattoo’s” usual payment or the profits the promoter expected from the
performance. Is this clause valid? Explain your answer
12. Fill in the appropriate term.
( ) consists of two parts: something of legal value given in exchange for the promise and a
part of a bargained-for exchange.
A(n) ( ) gives one of the parties the right to buy (or sell) something at a certain price at a
certain time.
A rejection of the original offer which is also a new offer is called a ( ) .
A ( ) mistake about a ( ) fact will enable either party to rescind the contract.
When there is a valid (___________), one of the original parties to the contract is completely relieved of
all former obligations under the contract.
The validity of a contract that has been fully performed cannot be challenged for failure to comply with
the (______________________).
bilateral unenforceable anticipatory breach
unilateral novation revocation
material third party beneficiary promissory estoppel
minor assignment option
void statute of frauds counteroffer
voidable parol evidence rule consideration
20 Chapter Eight
13. What are three essential elements of an offer?
Answer:
14. Rosemary and Ronald were engaged in dispute over a contract. Rosemary claimed she was owed
$53,000 and Ronald claimed much less was owed because of a breach by Rosemary. Rosemary agreed
to accept a promissory note for $28,000 from Ronald in lieu of her claim under the contract. Assuming
the note is not yet paid what is the advantage of this transaction being an accord and satisfaction?