C H A P T E R 7
Contracts
TRUE-FALSE QUESTIONS
1. Most advertisements are treated as invitations to negotiate, not offers.
2. An objective standard is used in determining whether an offer has been made.
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.
4. An offeror may not revoke an offer before the offeree has had a reasonable time in which to consider
it.
5. A counteroffer does not terminate the original offer.
6. .Whether a contract is a bilateral or unilateral contract depends upon whether the sale of goods is
involved.
7. A minor may ratify a contract after reaching the age of majority.
8. The statute of frauds requires certain types of contracts to be evidenced by some form of written
communication.
9. Consideration can be either a promise to do a certain act or the performance of the act itself.
10. In certain cases a court may order specific performance rather than monetary damages.
11. A merger agreement is an agreement between two companies to combine into a single entity.
12. In a unilateral contract, a promise is given in exchange for another promise.
13. Void means the same thing as voidable in contract law.
14. Only an attorney can hold a power of attorney.
15. To develop rules for behavior, civil law countries rely primarily on civil codes, or statutes, rather
than on case-by-case common law.
16. Mutuality of obligation applies only to bilateral contracts.
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17. Reliance damages are awarded in addition to expectation damages.
18. Courts enforce liquidated damages as a form of a penalty.
19. A promise that neither confers any benefit on the promisee nor subjects the promisor to any
detriment is an illusory promise
20. An illegal contract is generally considered a voidable contract.
MULTIPLE-CHOICE QUESTIONS
1. ________ damages compensate a party for losses that occur as a foreseeable result of the breach.
A. Quantum meruit
B. Reliance
C. Restitution
D. Consequential
2. Contract law is based on which of the following?
A. Case law
B. Statutes
C. Tradition
D. All the responses are correct
3. 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
4. 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
D. A legal purpose
5. 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.
6. 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
7. 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
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received.
8. 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
9. 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.
10. 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
11. 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
12. Liquidated damages are damages that
A. punish the breaching party
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B. fluctuate with the market conditions
C. are agreed upon
D. none of the above
13. Which of the following is a type of conditional promise?
A. Condition concurrent
B. Condition subsequent
C. Condition illusory
D. Both a condition concurrent and a condition subsequent
14. 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
15. A contract entered into by a minor is
A. void
B. voidable
C. binding
D. illusory
16. Under traditional common law, the acceptance must be the ________ of the offer.
A. essential terms
B. consideration
C. understanding
D. mirror image
17. 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.
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A. fraud
B. mistake
C. undue influence
D. detrimental reliance
18. Which of the following does not generally make a contract voidable?
A. Fraud
B. Duress
C. Unilateral mistake of fact
D. Misrepresentation
19. Which of the following was the result in Copeland v. Baskin Robbins, the case in the text involving
the issue of whether a party may be held liable on the theory that the party wrongfully failed to
engage in contract negotiations?
A. That a party may not recover damages based upon breach of an agreement to engage in
negotiations because reliance damages are impossible to compute in such situations.
B. That a party may not recover damages based upon breach of an agreement to engage in
negotiations because no actual contract was ever agreed upon.
C. That a party may be held liable for breaching an agreement to engage in negotiations regardless
of whether the plaintiff establish damages based on reliance on any such agreement.
D. That a party may be held liable for breaching an agreement to engage in negotiations but that the
plaintiff must establish damages based on reliance on any such agreement.
20. A(n) ________ is any agreement to accept performance that is different from what is called for in
the contract.
A. accord and satisfaction
B. anticipatory repudiation
C. frustration of purpose
D. mutual rescission
21. 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.
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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.
22. 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
23. Conditions ________ occur when the mutual duties of performance are to take place simultaneously.
A. precedent
B. concurrent
C. subsequent
D. consequential
24. 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.
25. 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.
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26. 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
27. 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
28. 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. ABC could likely recover on a theory of quantum meruit.
D. ABC could likely recover against Alice based on a negligence theory.
29. 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
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Fact Pattern 7-1 (Questions 30-32 apply)
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, 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.
30. 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.
31. Refer to fact pattern 7-1. What damages, if any, could Danny likely collect against Prudence 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
32. 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
Fact Pattern 7-2 (Questions 33-34 apply)
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
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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.
33. 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.
34. 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.
35. 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.
ESSAY QUESTIONS
1. What are the four basic elements necessary for a valid contract?
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2. Define the term “consideration” as it is used in contract law.
3. 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.
4. 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.
5. List the elements necessary for the doctrine of promissory estoppel to be applied.
6. 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
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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.
7. 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?
8. Identify and discuss the two elements focused on in relation to procedural unconscionability.