1. According to the text, most advertisements are treated as offers, rather than as invitations to negotiate.
a.
True
b.
False
2. An objective standard is used in determining whether an offer has been made.
a.
True
b.
False
True
1
Easy
3. Generally, prior to upholding a contract, a court will carefully scrutinize the value of consideration to be sure that the
contract is a fair one.
a.
True
b.
False
False
1
Moderate
4. Generally, an offeror may not revoke an offer before the offeree has had a reasonable time in which to consider it.
a.
True
b.
False
False
1
Moderate
5. A counteroffer does not terminate the original offer.
False
1
Moderate
a.
True
b.
False
6. .Whether a contract is a bilateral or unilateral contract depends upon whether the sale of goods is involved.
a.
True
b.
False
False
1
Moderate
7. A minor may ratify a contract after reaching the age of majority.
a.
True
b.
False
True
1
Moderate
8. Generally, if Tom’s factory unforeseeably burns down through no fault of his own, Tom is discharged from his
contractual obligation to manufacture widgets for Jerry.
a.
True
b.
False
True
1
Moderate
7-12 Change Circumstances
9. The Statute of Frauds requires certain types of contracts to be evidenced by some form of written communication.
a.
True
b.
False
False
1
Moderate
10. Consideration can be either a promise to do a certain act or the performance of the act itself.
a.
True
b.
False
True
1
Moderate
11. In certain cases a court may order specific performance rather than monetary damages.
a.
True
b.
False
True
1
Moderate
7-17 Remedies
12. Many states have professional licensing statutes which provide that if a party to a contract does not have a required
license, the other party must still pay and can sue in court for damages.
a.
True
b.
False
False
1
Moderate
13. A merger agreement is an agreement between two companies to combine into a single entity.
a.
True
b.
False
True
1
True
1
Moderate
7-10 Statute of Frauds
14. In a unilateral contract, a promise is given in exchange for another promise.
a.
True
b.
False
False
1
Moderate
15. Void means the same thing as voidable in contract law.
a.
True
b.
False
False
1
Moderate
16. Only a licensed attorney can hold a power of attorney.
a.
True
b.
False
False
1
Easy
7-10 Statute of Frauds
17. When entering into contracts with companies in other nations, a manager should understand whether that company’s
laws are based civil codes, rather than on case–by-case common law.
a.
True
b.
False
True
1
Moderate
Moderate
7-18 Contracts Relating to Mergers and Acquisitions
18. Mutuality of obligation applies only to bilateral contracts.
a.
True
b.
False
True
1
Moderate
19. Reliance damages are awarded in addition to expectation damages.
a.
True
b.
False
False
1
Moderate
7-17 Damages
20. Courts enforce liquidated damages as a form of a penalty.
a.
True
b.
False
False
1
Moderate
7-17 Remedies
21. A promise that neither confers any benefit on the promisee nor subjects the promisor to any detriment is an illusory
promise
a.
True
b.
False
True
1
Moderate
22. An illegal contract is generally considered a voidable contract.
a.
True
b.
False
False
1
Moderate
NATIONAL STANDARDS:
United States – AACSB: Diversity
ACCREDITING STANDARDS:
DISC: – AICPA: BB-Legal
7-3 Consideration
Blooms: Comprehension
23. __________ damages compensate a party for losses that occur as a foreseeable result of the breach.
a.
Quantum meruit
b.
Reliance
c.
Restitution
d.
Consequential
d
1
Moderate
NATIONAL STANDARDS:
United States – BUSBROG: – Analytic
ACCREDITING STANDARDS:
DISC: – AICPA: BB-Legal
7-17 Remedies
Blooms: Comprehension
24. Commercial transactions involving the sale of goods, movable personal property, are governed by which of the
following?
a.
Article 2 of the Uniform Commercial Code
b.
Articles 1-3 of the Uniform Sale of Goods Code
c.
Article 1 of the Federal Sales Code
d.
Article 1 of the Uniform Credit Code
a
1
Moderate
NATIONAL STANDARDS:
United States – BUSBROG: – Analytic
ACCREDITING STANDARDS:
DISC: – AICPA: BB-Legal
Introduction: Why Contract Law is Important
Blooms: Knowledge
25. Which of the following is NOT one of the basic elements for formation of a valid contract?
a.
Consideration
b.
Promissory estoppel
c.
An offer and acceptance
ACCREDITING STANDARDS:
DISC: – AICPA: BB-Legal
7-3 Consideration
Blooms: Comprehension
d.
A legal purpose
26. Which of the following is true regarding the effect of death and incapacity on an offer?
a.
Death or incapacitation of either party terminates an offer.
b.
Death of either party terminates an offer, and incapacity on the part of the offeror terminates an offer, but
incapacity on the part of an offeree does not terminate an offer.
c.
Death of either party terminates an offer, and incapacity on the part of an offeree terminates an offer, but
incapacity on the part of the offeror does not terminate an offer.
d.
Neither death nor incapacity on either the part of the offeror or offeree terminates an offer.
1
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-2 Agreement
Blooms: Comprehension
27. An agreement between two parties that provides that the buyer will buy all of a particular product from a particular
seller is called a(n):
a.
illusory promise.
b.
requirements contract.
c.
output contract.
d.
fulfillment contract.
b
1
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-3 Consideration
Blooms: Analysis
28. Which of the following is true regarding acceptance?
a.
In the absence of a provision in an offer regarding how acceptance is to be made, acceptance is effective upon
dispatch into a mailbox.
b.
Acceptance is never effective until it is received.
c.
An offeror may not by law specify that an offer can be accepted only by facsimile to a stated fax number and
that the acceptance is not effective until actually received.
d.
An offeror may revoke an offer so long as the revocation is made before an acceptance is received.
1
b
1
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-6 Promissory Estoppel
Blooms: Comprehension
29. Ann promises to give Carlos $50 if he promises to sell her a business law book. This is an example of a(n)
__________ contract.
a.
unilateral
b.
bilateral
c.
void
d.
conditional
b
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-3 Consideration
Blooms: Comprehension
30. A third party beneficiary is someone who is not:
a.
a legal and recognized type of beneficiary.
b.
intended to benefit from the contract.
c.
a party to the original contract.
d.
intended to enforce the contract.
c
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-16 Third-Party Beneficiaries
Blooms: Knowledge
31. Which of the following are damages that give the plaintiff the benefit of its bargain, putting the plaintiff in the case
position it would have been in if the contract had been fulfilled?
a.
Expectation damages
b.
Reliance damages
c.
Restitution damages
d.
In kind damages
a
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-17 Remedies
Blooms: Comprehension
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-2 Agreement
Blooms: Application
32. In CASE 7.1 SIGA Technologies, Inc. v. PharmAthen, Inc. (2013) the main issue before the Supreme Court of
Delaware was whether:
a.
the pre-contractual letter of intent was enforceable.
b.
Pharmathene had breached its obligation to negotiate the licensing agreement in good faith.
c.
SIGA had breached its obligation to negotiate the licensing agreement in good faith.
d.
the Delaware court had properly applied New York law in the case.
33. Which of the following are damages that compensate the plaintiff for any expenditures it made in reliance on a
contract that was subsequently breached?
a.
Expectation damages
b.
Reliance damages
c.
Restitution damages
d.
In kind damages
b
1
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
Blooms: Application
34. Liquidated damages are damages that:
a.
punish the breaching party.
b.
fluctuate with the market conditions.
c.
are agreed upon.
d.
none of these choices.
1
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
Blooms: Application
35. Which of the following is a type of conditional promise?
a.
Condition concurrent
b.
Condition subsequent
c.
Condition illusory
1
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-7 Precontractual Liability for Failure to Negotiate in Good Faith
Blooms: Analysis
d.
Both a condition concurrent and a condition subsequent
36. An agreement between two parties that provides that the seller will sell all of a product that he produces to the buyer is
called a(n):
a.
illusory promise.
b.
requirements contract.
c.
output contract.
d.
fulfillment contract.
c
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-3 Consideration
Blooms: Comprehension
37. A contract entered into by a minor is:
a.
void.
b.
voidable.
c.
binding.
d.
illusory.
b
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-4 Capacity
Blooms: Comprehension
38. Under traditional common law, the acceptance must be the __________ of the offer.
a.
essential terms
b.
consideration
c.
understanding
d.
mirror image
d
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
d
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-3 Consideration
Blooms: Comprehension
39. In CASE 7.2, Kurashige v. Indian Dunes, Inc. (1988), plaintiff Kurashige, used Indian Dunes Park for motorcycle
dirtbike riding. Prior to entering the park he signed a general release. Kurashige was injured and sued Indian
Dunes. How did the court rule and why?
a.
For the defendant, holding that the release was not unconscionable, and that all the risk was on the plaintiff.
b.
For the plaintiff, holding that the release was unconscionable, and that all the risk was on the defendant.
c.
For the defendant, holding that the release was enforceable, and that plaintiff should have been insured.
d.
For the plaintiff, because the release was enforceable based on the plaintiffs age in that he could not legally
contract.
a
1
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-8 Unconsionability
Blooms: Analysis
40. __________ of a contract occurs when one party knows ahead of time that the other party will __________.
a.
Anticipatory repudiation, breach the contract
b.
Anticipatory repudiation, perform the contract
c.
Mutual performance repudiation, breach the contract
d.
Conditional performance, breach the contract
a
1
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-14 Discharge of a Contract
Blooms: Analysis
41. Under the doctrine of __________, a court may invalidate an agreement if one party had sufficient influence and
power over the other as to make genuine assent impossible.
a.
fraud
b.
mistake
c.
undue influence
d.
detrimental reliance
c
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-9 Genuineness of Assent
Blooms: Application
7-2 Agreement
Blooms: Comprehension
42. Which of the following does NOT generally make a contract voidable?
a.
Fraud
b.
Duress
c.
Unilateral mistake of fact
d.
Misrepresentation
43.
a.
b.
c.
d.
a
1
Easy
United States – BUSBROG: – Analytic
44. Which of the following is true regarding a mistake of judgment?
a.
It is a valid defense to enforcement of a contract.
b.
It is not a valid defense to enforcement of a contract.
c.
Whether it is a valid defense to enforcement of a contract depends upon the substantiality of the mistake.
d.
Whether it is a defense to enforcement of a contract depends upon: (1) the substantiality of the mistake, (2)
whether the risks were allocated, and (3) timing.
b
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-9 Genuineness of Assent
Blooms: Comprehension
45. If the promisee entered into the contract in order to discharge a duty he or she owed the third party, then the third party
is a(n) __________ beneficiary.
a.
express
b.
implied
c.
creditor
d.
donee
c
1
Moderate
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-9 Genuineness of Assent
Blooms: Comprehension
46. Conditions __________ occur when the mutual duties of performance are to take place simultaneously.
a.
precedent
b.
concurrent
c.
subsequent
d.
consequential
b
1
Moderate
United States – BUSBROG: – Analytic
47. To which of the following does the statute of frauds apply?
a.
A promise to pay the debt of another person
b.
A contract that cannot be performed within the space of six months
c.
Any contract of employment
d.
Any contract involving commerce
a
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-10 Statute of Frauds
Blooms: Knowledge
48. As a birthday gift, Ben’s uncle promised Ben that he would pay Ben’s business school tuition for the next semester. In
reliance on that promise, Ben quit his part time job at a fast food restaurant. When the tuition bill became due, Ben’s uncle
told Ben that he was sorry but that he would not be able to pay the tuition because he just built a new swimming pool at
his house, and funds were running short. Ben asks you if there is any basis upon which he could win in litigation against
his uncle. Which of the following would be the best advice?
a.
That Ben should sue for breach of contract because an offer, acceptance, and consideration are all present.
b.
That Ben should sue for breach of contract because an offer and acceptance are present, and his reliance would
substitute for consideration.
c.
That Ben should sue based on promissory estoppel.
d.
That Ben should hurry and try to get his job back because there is no basis upon which he would have a viable
case.
c
1
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
7-6 Promissory Estoppel
Blooms: Analysis
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-16 Third-Party Beneficiaries
Blooms: Application
49. Fraud in the __________ occurs when a party is persuaded to sign one document thinking that it is another.
a.
acceptance
b.
obligation
c.
factum
d.
inducement
50. Under the __________ rule, when a contract is unambiguous any evidence of contemporaneous statements are
__________in court.
a.
parol evidence, admissible
b.
parol evidence, inadmissible
c.
statute of frauds, inadmissible
d.
statute of frauds, admissible
b
1
Challenging
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
Blooms: Application
51. If a new law of general application indirectly affects a government contract, making the government’s performance
impossible, the __________ will protect the government in a subsequent suit for breach of contract.
a.
sovereign acts doctrine
b.
discretionary acts doctrine
c.
ministerial acts theory
d.
legislatively enacted principle
a
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-12 Changed Circumstances
Blooms: Comprehension
52. Alice typically mows her own lawn whereas her neighbor pays to have her yard mown by ABC Law Service. Alice
notices one day that an apparently new employee of ABC is mowing Alice’s yard by mistake. She says nothing. When the
employee asks for payment, Alice refuses on the basis that the yard mowing was a mistake and that she has no contract
with ABC. Which of the following is true regarding whether ABC could recover against Alice?
a.
ABC likely has no rights against Alice.
b.
ABC could recover against Alice based on breach of contract.
c
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-9 Genuineness of Assent
Blooms: Application
c.
ABC could likely recover on a theory of quantum meruit.
d.
ABC could likely recover against Alice based on a negligence theory.
53. Which of the following is a technique by which a new party is substituted for one of the old parties, and a new
contract is written (with the consent of all old and new parties) to effect the desired change?
a.
Novation
b.
Substitution
c.
Formal change
d.
Verified change
a
1
Moderate
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-13 Contract Modification
Blooms: Comprehension
Fact Pattern 7-1
Prudence offered to sell her car to Danny for $3,000. Danny was not sure what to do, so he asked Prudence if she would
hold the offer open for him for one week for $50. Prudence said sure, and the parties signed a contract to the effect that
Prudence would hold the car. A few hours later, Bobby unexpectedly offered Prudence $3,500 for the car, and Prudence
sold it to him on the spot. Danny decided to buy the car, but when he came by to pick it up the next day, it was gone.
Prudence gave Danny his $50 back telling him that was her only obligation and that if he had any complaints, he could
take it up with Bobby. Danny found a similar car the next week for $3,500 and purchased it.
54. Refer to Fact Pattern 7-1. Did Danny have any type of contract with Prudence, and if so what type?
a.
Danny did not have any type of contract with Prudence.
b.
Danny had an option contract with Prudence.
c.
Danny had a hold contract with Prudence.
d.
Danny had a conditional contract with Prudence.
b
1
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
7-2 Agreement
Blooms: Analysis
55. Refer to Fact Pattern 7-1. What damages, if any, could Danny likely collect against Prudence in litigation over the car?
c
1
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
7-17 Remedies
Blooms: Analysis
a.
None
b.
Reliance damages consisting of $500
c.
Incidental damages consisting of $50
d.
Compensatory damages consisting of $500
56. Refer to Fact Pattern 7-1. What damages, if any, could Danny likely collect against Bobby in litigation over the car?
a.
None
b.
Reliance damages consisting of $500
c.
Incidental damages consisting of $50
d.
Compensatory damages consisting of $500
a
1
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
7-17 Remedies
Blooms: Analysis
Fact Pattern 7-2
Hester offers to sell her house to Frank for $250,000. Frank says that he would like to think about it, and Hester says that
is fine. The next day, Martha, Hester’s friend, says that she will give Hester $240,000 for the house. Hester really likes
Martha more than Frank and signs a contract to sell the house to Martha. Later that day Hester sees Frank walking up her
driveway. She immediately opens the window and yells “I revoke the offer on the house” before Frank says anything.
Frank replies that he accepts the offer and expects to purchase the home. Frank tells Hester that while he has not yet taken
steps to sell his own home or get a loan, he feels confident that there will be no problem with those matters and he is a
ready, willing, and able buyer.
57. Refer to Fact Pattern 7-2. Which of the following is true regarding the offer to Frank assuming Hester’s revocation was
ineffective?
a.
The offer was probably still open the next day because a reasonable length of time would not have expired.
b.
The offer would have terminated because Frank did not provide any consideration to leave it open.
c.
By operation of law, it would have terminated at midnight on the day it was made.
d.
By operation of law, it would still have been open because it would not have terminated until midnight on the
day after it was made.
a
1
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
d
1
Challenging
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
7-17 Remedies
Blooms: Analysis
58. Refer to Fact Pattern 7-2. Which of the following is true regarding whether Hester’s attempted revocation was
effective?
a.
It was effective because Hester had left the offer open the amount of time required by law regardless of
whether she revoked before Frank could accept.
b.
It was effective because Hester issued the revocation before Frank could accept.
c.
It was ineffective because the amount paid by Martha was less than the offer to Frank.
d.
It was ineffective because Hester attempted the revocation at too early a point in time.
b
1
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
7-2 Agreement
Blooms: Analysis
59. Helen tells her nephew, Bernard, that she will pay him $100 if he will stop smoking for six months. Helen was hopeful
that if Bernard stopped smoking for six months, he would stop altogether. Bernard stops smoking for six months but then
resumed his smoking. Helen will not pay him. She says that the type of promise she made cannot constitute a binding
contract and that, furthermore, it was at least implied that he would stop smoking for good. Can Bernard legally collect
$100 from Helen?
a.
No, because under the law his stopping smoking was not adequate consideration.
b.
No, because it was implied that he would stop smoking for good, and he only quit for six months.
c.
Yes, because his stopping smoking for six months, as agreed, was adequate consideration for the contract.
d.
Yes, because stopping smoking was good for his health even if he only did it for six months.
1
United States – BUSPROG: – ANALYTIC
DISC: – AICPA: BB-Legal
7-3 Consideration
Blooms: Analysis
60. What are the four basic elements necessary for a valid contract?
1
United States – BUSBROG: – Analytic
DISC: – AICPA: BB-Legal
7-1 Basic Requirements of a Contract
61. Define the term “consideration” as it is used in contract law.
7-2 Agreement
Blooms: Analysis
62. Describe the three standard measures as listed in the text that courts have developed to measure monetary damages in
contract cases. Explain how each would be measured.
63. S calls B and says, “I will sell my 1966 Mustang convertible to you for $3,000.” B knows that the car is worth $4,000.
B replies, “Would that include the trunk-mounted spare tire?” S hangs up without a word. B calls back in three days and
says, “I’ll buy the car for $3,000.” Is there a contract? Discuss fully.
64. List the elements necessary for the doctrine of promissory estoppel to be applied.
65. Jack is an accountant who works for the firm of Readum & Weep. Jack was approached by Ima Phool, who represents
one of Readum’s competitors, Numbers R Us. Jack was offered a substantial raise to leave his company and work for
Numbers. When Jack’s boss heard this he called him in and said, “If you agree to stay with us for at least five years, I
promise that next year you will receive a promotion with a 50% raise, and a 5-year contract.” Jack turned down the offer
and stayed with Readum. Nine months later Jack was dismissed due to corporate downsizing. Can Jack legally enforce his
boss’s promise? What theory or theories would Jack use? Discuss fully.
66. Penny found a billfold on a city street; looked inside to determine its owner and returned it to its true owner, Richard.
A few days later she found out that Richard had offered a reward in the amount of $100 for the return of the billfold. She
asks Richard for the reward money, but he refuses. Is Penny entitled to the reward, and why or why not?
67. Identify and discuss the two elements focused on in relation to procedural unconscionability.