Business Law Final Exam With Complete Solution

Contract law demonstrates which excuses our society accepts for breaking certain types of promises. - Answer t Contract law does not distinguish between promises that create only moral obligations and promises that are legally binding - Answer f In contract law, intent is determined by the personal or subjective intent, or belief, of a party - Answer f One of the four requirements of a valid contract is an adequate price - Answer f The term consideration refers to the legality of the subject matter of a contract. - Answer f A bilateral contract comes into existence at the moment promises are exchanged. - Answer t A unilateral contract is formed at the moment when the contract is performed. - Answer t Informal contracts include all contracts other than formal contracts. - Answer t A negotiable instrument is a formal contract. - Answer t In an express contract, the terms are fully and explicitly stated in words - Answer t A contract that has been fully performed by the parties is called an executory contract. - Answer f If a voidable contract is avoided, the promisee, but not the promisor, is released from it. - Answer f An unenforceable contract is one that cannot be enforced because of cer¬tain legal defenses against it. - Answer t A void contract imposes certain legal obligations on the parties but is not otherwise enforceable - Answer f A quasi contract is an actual contract. - Answer f A party who has conferred a benefit on someone else unnecessarily can invoke the principle of quasi contract to recover the cost. - Answer f The doctrine of quasi con¬tract generally can only be used when there is an actual contract that covers the matter in controversy. - Answer f When a contract's writing is not clear, a court will enforce it according to its obvious terms. - Answer f If a contract term is ambiguous, a court can consider extrinsic evidence. - Answer t A court will normally interpret the language of a contract according to what the parties claim their intent was when they made it. - Answer f Sal assures Tom that she will deliver a truckload of hay to his cattle ranch. A person's declaration to do a certain act is part of the defini¬tion of a. an expectation. b. a moral obligation. c. a prediction. d. a promise. - Answer d Smith & Jones, Accountants, agrees to perform an audit for Brick & Mortar Stores, Inc. Whether or not this agreement meets all of the requirements of a contract, the parties are likely to follow the rules of contract law because they a. want to avoid potential disputes. b. are conscious of those rules. c. are not conscious of those rules. d. have a moral obligation to do so. - Answer a Lark promises to buy Mac's used textbook for $60. Lark is a. an offeror. b. an offeree. c. a promisee. d. a promisor. - Answer d Gilbert promises to buy Hadley's iPod for $75. Hadley is a. an offeree. b. an offeror. c. a promisee. d. a promisor. - Answer c Brady accepts what he believes is an offer to work for Canyon River Adventures, Inc., as a tour and fishing guide. In determining whether a contract has been formed, an element of prime importance is a. the price to be paid. b the duration of the work. c. the intent of the parties. d. the subject of the contract. - Answer c Cellphones & Calltime, Inc., makes an offer to Delores to enter into a contract to work as a salesperson for a certain base salary plus commission for ninety days subject to a one-year renewal based on her performance. Delores accepts the offer. A valid contract requires a. a price and a subject. b. a duration and termination provision. c. an offer and an acceptance. d. specific quality standards. - Answer c Jonah tells Levi he will give him an Xbox if Levi does Jonah's chores for a month. Levi promises to do the chores. Jonah and Levi have formed a a. a bilateral contract. b. a formal contract. c. a unilateral contract. d. no contract. - Answer a Wilson buys a lottery ticket at his local gas station. Wilson has accepted an offer for a a. bilateral contract. b. unilateral contract. c. void contract. d. unenforceable contract. - Answer b A letter-of-credit agreement between Rural Feed Corporation and Soybean Farms, Inc., requires Rural Feed's bank to pay Soybean Farms on receipt of invoices. This letter of credit is a. a formal contract. b. no contract. c. an implied contract. d. a quasi contract. - Answer a Following negotiations, Office Park, Inc., enters into an informal contract with Quality Janitorial Company for custodial services for Office Park's buildings. This means that the parties' contract a. requires no special form. b. is freely open to either party's interpretation. c. is subject to change by either party, within reason. d. is not yet completely formed. - Answer a When Hester's car breaks down, she asks Insta-Tow, Inc., to tow it to Jerry's Repair Shop. There is no discussion of a price, and Hester and Insta-Tow do not sign any documents. Later, Insta-Tow sends Hester a bill. With respect to Hester's obligation to pay the bill, this is a. an express contract. b. an implied contract. c. no contract. d. a quasi contract. - Answer b Bilbo signs a lease agreement for an apartment with Cato, who owns and manages the Deer Creek Apartments complex. These parties have a. an express contract. b. an implied contract. c. a quasi contract. d. no contract. - Answer a Avatar, Inc., agrees to deliver t-shirts emblazoned with video game characters for a certain price to Bling Bling Corporation. To consti¬tute a contract, the terms of this deal a. must all be express. b. must all be implied. c. may be express, implied, or a mixture of both. d. may be express or implied, but not both. - Answer c Francie drives into Gage's Auto Service and asks Hong, a Gage's employee, to replace a tire on Francie's car. After Hong replaces the tire, but before Francie pays for it, any contract between Francie and Gage's is a. executed. b. executory. c. void. d. unenforceable. - Answer b Robin claims that her contract with Stroud for tennis lessons is voidable. If their contract is avoided, a. both parties are released from it. b. both parties must fully perform their obligations under it. c. both parties will agree to a wholly different contract. d. a wholly different contract is imposed "as if" the parties had agreed. - Answer a Sales Marketing Corporation and Tech Support, Inc., negotiate a contract. If the contract has all of the elements necessary for one of the parties to enforce it in court, it is a. a valid contract. b. a voidable contract. c. a void contract. d. an unenforceable contract. - Answer a Mallory promises to buy illegal digital copies of movies from Napoleon, who promises to deliver on October 31. These promises are most likely a. enforceable. b. valid. c. void. d. voidable. - Answer c In a one-care auto accident, Carmel is rendered unconscious and otherwise injured. At the scene, Dana, a physician, acts to save Carmel's life. Later, Dana seeks to recover for the cost of the aid. She is most likely to recover a. nothing. b. on a theory of an express contract. c. on a theory of an implied contract. d. on a theory of a quasi contract. - Answer d Otto mistakenly pays property taxes that should have been assessed against Pip. Otto can recover the amount from Pip in quantum meruit a. even if Pip was not aware of the error. b. only if Pip tried to conceal the error. c. only if Pip was aware of the error. d. only if Pip consents. - Answer a Sunny enters into a contract with Trey to act as his personal sports trainer. If a dispute later arises and the contract contains un¬clear terms, the rules of contract interpretation will give effect to a. the parties' intent as expressed in their contract. b. what the promisor claims was the parties' intent. c. what the promisee claims was the parties' intent. d. what the parties now agree they intended. - Answer a An offer must be practical to be effective. - Answer f A request or invitation to negotiate is an offer. - Answer f A price list is a form of invitation to negotiate or trade. - Answer t An advertisement is generally considered an offer. - Answer f An "offer" to sell an item on an online auction site generally is treated an invitation to negotiate. - Answer t In an auction, a bidder is an offeree. - Answer f Generally, a contract must express its terms—no reasonable inferences are permissible. - Answer f An offer may invite an acceptance to be worded in specific terms but that cannot make the contract definite. - Answer f If an offer does not specify a time for acceptance, the offer terminates at the end of a reasonable time. - Answer t A statute or court decision that makes an offer illegal automatically terminates the offer - Answer t An acceptance can impose new conditions or change the terms of the original offer without rejecting it. - Answer f No offer can be accepted by silence. - Answer f An e-contract must meet basic requirements that are different from those required of a paper contract. - Answer f An important rule to keep in mind is that the offeree (the buyer) controls the acceptance and thus the resulting contract. - Answer f Terms in a shrink-wrap agreement have been enforced in the same way as the terms of other contracts. - Answer t Browse-wrap terms are often unenforceable. - Answer t Under federal law, an e-document is not as enforceable as a paper one. - Answer f Contracting parties cannot opt out of the terms of the UETA. - Answer f The UETA does not apply to all writings and signatures. - Answer t Only the United States has created regulations for global Internet transactions. - Answer f Naomi tells Ogden, who has no knowledge of Shakespearean comedy, that she will tutor him in the subject for $50. As an offer, this is a. effective. b. not effective because comedy is not a serious subject. c. not effective because Naomi's tutoring will be subjective. d. not effective because Ogden has no knowledge of the subject. - Answer a Lon says to Milli, "I would like to sell you my comic book collec¬tion." This is not an offer because it a. does not describe the subject matter specifically. b. does not include a price term. c. only expresses an opinion. d. only invites Milli to negotiate. - Answer d Octavio receives from Pastry Dough, Inc., its catalogue and a "person¬alized" letter inviting Octavio to buy any item at the advertised price. This is a. an offer because of the "person¬alized" letter. b. an offer because there is no room for price negotiation. c. an offer only if Octavio previously bought items from Pastry Dough. d. not an offer. - Answer d Barrett files a suit against City Moving Service for breach of contract, based on what Barrett claims was City Moving's offer. For a court to de¬termine if a contract has been breached, under the common law, the offer must include terms that are a. exactly precise. b. reasonably definite. c. unequivocally approximate. d. vague or uncertain. - Answer b Casey offers to sell a certain used forklift to DIY Lumber Outlet, but Casey dies before DIY ac¬cepts. Most likely, Casey's death a. did not affect the offer. b. shortened the time of the offer but did not terminate it. c. extended the time of the offer. d. termi¬nated the offer. - Answer d Signe offers to sell Thomas her textbook but conditions the sale on Thomas ac-cepting the offer by March 1. Signe may revoke the offer a. before Thomas accepts the offer. b. before March 1, whether or not Thomas has accepted the offer. c. only after Thomas accepts the offer. d. only after March 1. - Answer a Liz offers to sell Max her iPad for $200. Max says, "Okay, but only if you include the case and other accessories." Max has a. accepted the offer. b. made a counteroffer without rejecting the offer. c. rejected the offer and made a counteroffer. d. rejected the offer without making a counteroffer. - Answer c Farmland County Bank offers to lend money to Gino, the owner of Home Hardware Store, at 15 percent interest. Before Gino accepts, a state statute is enacted prohibiting loans at rates greater than 12 percent. Gino and the bank have a. a contract for a loan at 15 percent interest. b. a contract for a loan at 12 percent interest. c. a contract for a loan at 0 percent interest. d. no contract for a loan. - Answer d Shasta offers to sell a used hay baler to Roberto, but receives a letter of accep-tance from Quito, who has no relation to Roberto. A valid contract exists between a. Shasta and Roberto. b. Shasta and Quito. c. Roberto and Quito. d. none of the choices. - Answer d Quay Trucking Service tells Rafe that it will pay him $50 if he unloads a certain truck at the Shipping Warehouse. Rafe's acceptance is complete a. as soon as Rafe says he will unload the truck. b. once Rafe starts to unload the truck. c. only after Rafe unloads the truck. d. when Rafe hears Quay's offer. - Answer c Crafted Metal Works, Inc., offers to design, make, and sell Downtown Transit Agency fourteen streetcars. Crafted Metal authorizes a particular mode of communication, but Downtown Transit sends an acceptance via a substituted means. This acceptance is effective when it is a. in transit. b. received. c. sent. d. written. - Answer b Mark is creating Nu2U.com, a Web site through which he will enter into contracts over the Internet. Important terms to include in his offers include a. provisions specifying the remedies if the contract is breached. b. a detailed history of his business. c. glowing reviews from former customers. d. his educational background. - Answer a Diverse Diversions, Inc., makes computer, video, and mobile device games. Ember buys a hard copy of Final Infinity. Inside the package is a shrink-wrap agreement. With respect to the contract for the game's purchase, the shrink-wrap agreement may not be enforced if a. Ember does not read it. b. Ember learns of it after contracting. c. Ember learns of it before contracting. d. the play of the game is poor. - Answer b Deb buys a song through eSongs, an online music vendor. Before completing the purchase and downloading the song, Deb must review a provision stating that she will not make and sell copies of the song and is required to click "I agree." This provision is a. a browse-wrap term. b. a click-on agreement. c. a shrink-wrap agreement. d. none of the choices. - Answer b Standard Purchasing Corporation and Topmost Sales, Inc., enter into a part-nering agreement. Under a partnering agreement, parties agree a. in advance to terms that apply to their future e-transactions. b. to become partners. c. to conduct transactions solely in electronic form. d. to resolve all disputes without involving a third party. - Answer a Kay and Leo enter into a contract that falls within the provisions of the UETA. Under the UETA, "an electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record" is a. an e-document. b. an e-signature. c. an e-transaction. d. a record. - Answer b World Shipping Corporation enters into contracts with distributors and other buyers in e-commerce and in traditional commerce. The UETA applies, if at all, only to those transactions in which the parties agree to use a. electronic means. b. paper documents. c. updates and cross-checks to orally verify any e-terms. d. notarized documents. - Answer a On behalf of Bobble Head Manufacturing Company, Carmela types her name at the bottom of an e-mail purchase order and submits the order to Designer Parts Company. Under the UETA, Carmela's typed name qualifies as a. a "signature." b. a statement of future intent. c. a partnering agreement. d. a preliminary negotiation. - Answer a Lewis offers to make digital copies of Motivational Sales Company's business conference videotapes, CDs, DVDs, and other media for $500. Under the mailbox rule and the UETA, Motivational Sales' acceptance by e-mail will be considered effective when a. received. b. sent. c. followed up by a confirmation letter sent by regular mail. d. composed on a Motivational Sales computer. - Answer b Medical Billing Collection Corporation and Naturopath Clinic make a deal for Medical Billing's services via e-records. Under the UETA, an e-record is considered received when a. it enters the recipient's processing system in a readable form. b. the recipient is aware of its receipt. c. the recipient is aware that it has been sent. d. it leaves the sender's control. - Answer d In contract law, the term consideration refers to the serious thought that underlies a party's intent to enter into a contract. - Answer f If a promise is made, it can be enforced. - Answer f To be legally sufficient, consideration must be evidenced by something tangible. - Answer f A determination of whether consideration exists depends on a comparison of the values of the things exchanged. - Answer f The element of bargained-for exchange distinguishes contracts from gifts. - Answer t A promise to do what one already has a legal duty to do constitutes legally sufficient consideration. - Answer f Essentially, adequacy of consideration concerns the fairness of the bargain. - Answer t Risks ordinarily assumed in business constitute consideration for the modification of a contract. - Answer f A court is not likely to allow an exception to the preexisting duty rule even if extraordinary difficulties arise that were totally unforeseen at the time a contract was formed. - Answer f Rescission is the substitution of one party to a contract for a third party, who agrees to assume the contractual duties. - Answer f An obligation is enforceable only if it is made in return for actions or events that have already taken place. - Answer f Even if the terms of a contract express such certainty of performance that the promisor has not definitely promised to do anything, the promise binds the promisor. - Answer f For accord and satisfaction to occur, the amount of the debt cannot be in dispute. - Answer f A release bars any further recovery beyond the terms stated in the release. - Answer t In many states, a release contract must be in a signed writing. - Answer t There can be no satisfaction unless there is first an accord. - Answer t A covenant not to sue does not always bar further recovery. - Answer t Under the doctrine of promissory estoppel, a promise will not be enforced unless it is supported by consideration. - Answer f For the doctrine of promissory estoppel to be applied, there must be a clear and definite promise. - Answer t Statutes of limitations in all states require a debtor to pay a debt within a specified period of time. - Answer t Chicken & Egg Farms promises to pay Dex $500 to install a sump pump in its warehouse. Dex com¬pletes the installation. The act of installing the pump a. imposes a moral obligation on Chicken & Egg to pay Dex. b. imposes no obligation on Chicken & Egg unless it is satisfied with the job. c. is not sufficient consideration because it is not goods or money. d. is the consideration that creates Chicken & Egg's obligation to pay Dex. - Answer c Henry promises not to open his Hank's Lunchbox Café before 10:00 A.M. if Isis, who owns Isis's Danish & Donuts next door, promises to close by 4:00 P.M. Henry's consideration is a. the destruction of a legal relationship. b. the creation of a legal relationship. c. a forbearance. d. an exchange of money. - Answer c Esmeralda promises to pay Fiorello $400 because "he does not have as much money as other people." Esmeralda's promise is not enforceable because a. society does not want gifts cheapened by making them legally enforceable. b. the redistribution of wealth on a one-to-one basis is not a valid social goal. c. Esmeralda could have paid more. d. Fiorello has not given consideration in return. - Answer d Quentin questions whether there is consideration for his contract with Rainey to exchange his performance with the Symphonic Saxophone Sextet for her payment of a certain amount. To constitute consideration, there must be a. a payment. b. a performance. c. a bargained-for exchange. d. serious thought underlying each party's intent to contract. - Answer c Valley Paragliders Association files a suit against Wing Designers, Inc., claiming that the consideration for their contract is inadequate. The court will most likely not examine the adequacy of the considera¬tion if a. there is a large disparity in the amount of consideration exchanged. b. the consideration involves the performance of services. c. something of value passed between the parties. d. the consideration is worth less than $100. - Answer c Mobile Minutes Company offers Nate an unlimited number of monthly phone minutes for $4.50 per month. Nate ac¬cepts. If a dispute arises, a court would likely a. enforce the deal after questioning the adequacy of the consideration. b. not question the adequacy of the consideration. c. rewrite the deal after questioning the adequacy of the consideration. d. set aside the deal after questioning the adequacy of the consideration. - Answer b Genovese Contracting, Inc., agrees to build a warehouse for Hawthorne Wholesale Distributors. When Genovese runs into the types of difficulties that contrac¬tors ordinarily confront, Hawthorne agrees to pay extra compensation to over¬come them. Regarding the agreement to pay more, a court would likely a. enforce it. b. rescind it. c. order the parties to renegotiate it. d. not enforce it. - Answer d Todos, Ltd., agrees to market the products of United Sales, Inc., in Venezuela. When the gov¬ern¬ment is unexpectedly overthrown in a revolution, Todos can continue to fulfill its contract but only for a much higher price. United agrees to pay but later files a suit to recover the difference. The court will most likely rule that a. a change in government is a risk ordinarily assumed in business. b. an unforeseen difficulty supported the contract modification here. c. Todos engaged in extortion or the so-called holdup game. d. Todos had a preexisting duty to supply the goods at the initial price. - Answer b B9. Refer to Fact Pattern 13-B1. The next day, Quik again offers to deliver Rico's products. Rico's is willing to deal, but for a new price. Quik and Rico's a. may agree to a new contract, but it cannot include a new price. b. may agree to a new contract that includes the new price. c. must perform their original contract. d. must perform the part of their original contract that is executory. - Answer b Refer to Fact Pattern 13-B1. Quik and Rico's a. may rescind their entire contract. b. may rescind their contract to the extent that it is executory. c. must perform their entire contract. d. must perform the part of their contract that is executory. - Answer b Industrial Engineering, Inc., promises to give stock options to Jasmine for processes she has already designed for the firm. This promise is enforceable a. because it is a new contract. b. because it is an illusory promise. c. because it is supported by past consideration. d. under no circumstances. - Answer d Dave's uncle tells Dave that if "he feels that Dave deserves it," he will give Dave $10,000 when Dave graduates from college. Dave's uncle's promise is a. illusory. b. a contract. c. a forbearance. d. a preexisting duty. - Answer a Produce Packaging Company promises its employees a 10 percent raise at the end of the year if productivity has increased and management feels the raise is warranted. Produce Packaging must a. do nothing. b. give the employees a 10 percent raise only at the end of the year. c. give the employees a 10 percent raise only if produc¬tivity increases. d. give the employees a 10 percent raise under any circumstances. - Answer a Apples & Pears Orchards contracts to hire Brigit for one year to tend the fruit in its commercial orchards but reserves the right to cancel the employment on thirty days' notice at any time after Brigit begins work. This promise is a. enforceable. b. illusory. c. unliquidated. d. unforeseen. - Answer a Qiana writes a check to Payday Loans, Inc., in an amount that represents half of her debt to the lender. On the back of the check, Qiana includes the words "payment in full." Payday agrees to accept the lesser sum and cashes the check. This dis¬charges the entire debt a. if the debt is liquidated. b. if the debt is past due. c. if the debt is unliquidated. d. under no circumstances. - Answer c While sailboarding, Jolene is injured when Kilroy carelessly crosses her path. Kilroy's insurance company offers Jolene $50,000 to release Kilroy from liability, and she accepts. Later, she learns that her injuries are more serious than she realized. The release is a. enforceable. b. unenforceable because Jolene's injuries are unforeseeably difficult. c. unenforceable because Kilroy has a preexisting duty to pay. d. unenforceable because the release is an illusory promise. - Answer a Gustaf and Hilltop Country Club disagree as to the exact amount Hilltop owes Gustaf for his landscaping work. They form a new agreement that, on fulfillment, will discharge the prior obli¬gation. This is a. a covenant not to sue. b. an accord and satisfaction. c. a release. d. promissory estoppel. - Answer b After an accident with a vehicle licensed to Guardian Security Company, Heidi signs a covenant not to sue Guardian Security for damages in a tort action if it pays for the damage to her car. This covenant is a. a bar to recovery only if Guardian Security pays. b. an illusory contract. c. barred by the preexisting duty rule. d. barred by the doctrine of promissory estoppel. - Answer a Rudy files a suit against Shakes & Shingles, Roofing Contractor, Inc., under the doctrine of prom¬issory estoppel. Rudy must show that a. he justifiably refused to fulfill a promise to Shakes & Shingles. b. he justifiably relied on Shakes & Shingles' promise to his detriment. c. Shakes & Shingles justifiably refused to fulfill a promise to him. d. Shakes & Shingles justifiably relied on his promise to its detriment. - Answer b Readymade Credit Company loans Start-Up Enterprise, Inc., $150,000 to invest in new equipment. If Start-Up fails to pay the loan within a specified period, Readymade's recovery of the debt will be barred by a. the preexisting duty rule. b. the doctrine of promissory estoppel. c. a statute of limitations. d. none of the choices. - Answer d A contract entered into by a minor is voidable at the option of either of the contracting parties. - Answer f A person who has been determined by a court to be mentally competent cannot form a legally binding contract with another party. - Answer f For business purposes, an adult may petition a court to treat minors as adults. - Answer f All states' laws permit minors to disaffirm contracts. - Answer t If a minor can return only damaged goods, the minor cannot disaffirm the contract and obtain a full refund of the purchase price. - Answer f Clothing is a "necessary." - Answer t In some states, misrepresentation of age is enough to prevent disaffirmance. - Answer t A minor who enters into a contract for necessaries may disaffirm the contract but remains liable for the reasonable value of the goods. - Answer t