Law Business and Society 11th Edition McAdams Test Bank Download

Chapter 06 — Contracts
Test Bank for Law Business and Society 11th Edition

McAdams 0078023866 9780078023866
Download full test bank at:
https://testbankpack.com/p/test-bank-for-law-business-and-society-11th-
edition-mcadams-0078023866-9780078023866/
Download full solution manual at:
https://testbankpack.com/p/solution-manual-for-law-business-and-society-
11th-edition-mcadams-0078023866-9780078023866/
Chapter 06
Contracts
True/False Questions
1. Contract law is a necessary foundation for a capitalist, free market-system.

Answer: True
AACSB: Analytical Thinking
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-01 Explain the importance of contracts to a capitalist, free-market
system.
Topic: Preface: The Role of Contracts in a Complex Society
Feedback: A capitalist, free-market system cannot operate effectively and fairly without a
reliable foundation in contract law. At the practical level, all buyers and sellers must be
confident that the deal they are about to make will be completed as specified, or that they will
have a remedy available if it is not completed.
2. Contracts for services are governed by the Uniform Commercial Code (UCC).
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-02 Determine whether the Uniform Commercial Code or common
law governs a contract dispute.
Topic: Introduction
© 2015 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated,
forwarded, distributed, or posted on a website, in whole or part.
Feedback: Section 2-105 of the Uniform Commercial Code (UCC) defines goods as tangible,
movable things. Hence cars, clothing, appliances, and the like are covered. Real estate,
stocks, bonds, money, and so forth are not covered. Nor are contracts for services governed
by the Uniform Commercial Code (UCC).
3. In an implied-in-fact contract, the contract is inferred on the basis of the behavior of the
parties.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-04 Classify a contract as bilateral or unilateral; express or implied;
executory or executed.
Topic: Classification of Contracts
Feedback: In an implied-in-fact contract, the contract is inferred on the basis of the behavior
of the parties. The contract is inferred on the basis of the facts—that is, by the behavior of the
parties.
4. A contract is labeled executory when all parties have completed their performances.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Feedback: A contract is labeled executory until all parties fully perform. When all parties
have completed their performances, the contract is executed.
5. Contracts entered by minors are voidable contracts.

Answer: True
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-05 Distinguish between valid, unenforceable, void, and voidable
contracts.
Feedback: The most common voidable contracts are those entered by minors who have the
option, under the law, of either disaffirming or fulfilling most contracts. A voidable contract
is enforceable but can be canceled by one or more of the parties.
6. A valid offer must include the present intent to enter a contract.

Answer: True
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-06 Describe the elements of a valid offer.

Topic: The Agreement: Offer
Feedback: A valid offer must include the present intent to enter a contract along with
reasonable definiteness in the terms of the offer and communication of the offer to the
offeree.
7. An effective offer must be the product of a present intent, it must be definite, and it must
be communicated to the offeree.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Feedback: An effective offer must be the product of a present intent, it must be definite, and
it must be communicated to the offeree. Communication of an offer expresses the offeror’s
intent to make that offer.
8. An offeror cannot revoke an offer any time prior to acceptance.

Answer: False
Blooms: Remember
Difficulty: 1 Easy
Feedback: An offeror may revoke an offer any time prior to acceptance. Normally, revocation
is effective on receipt by the offeree. Under common law, the offeror has the right to revoke
at any time prior to acceptance, even if he or she expressly promised to keep the offer open
for a specified period.
9. Unilateral offers are not accepted by performance.

Answer: False
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-07 Describe the elements of a valid acceptance.
Topic: The Agreement: Acceptance
Feedback: Unilateral offers are accepted by performance and no communication of
acceptance beyond that performance ordinarily is necessary. In the case of a bilateral contract
(a promise for a promise), acceptance is not effective until communicated.
10. The mailbox rule states that an acceptance is effective when sent even if never received.
Answer: True
Blooms: Remember
Difficulty: 1 Easy

Topic: The Agreement: Acceptance
Feedback: The mailbox rule states that an acceptance is effective when sent even if never
received. Acceptance is effective upon dispatch by whatever mode of communication has
been explicitly or implicitly authorized by the offeror.
11. Consideration is used by the courts to distinguish a contract from a gratuitous promise.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-08 Explain the significance of consideration as an element of a
legally enforceable contract.
Topic: Consideration
Feedback: Consideration is used by the courts to distinguish a contract from a gratuitous
promise. The promisee must suffer a legal detriment; that is, the promisee must give up
something of value or must refrain from doing something that she or he has a legal right to do
in order to enforce the promise offered by the promisor.
12. Legal sufficiency for consideration depends not on whether a promisee suffered a
detriment in some way but on the value of the consideration.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Feedback: Legal sufficiency depends not on the value of the consideration but on whether the
promisee suffered a detriment in some way. To hold otherwise would put the courts in the
place of the market in deciding the value of transactions.
13. A fully performed oral contract, not in compliance with the Statute of Frauds, will be
rescinded by the courts.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Topic: Legality of Purpose
Feedback: A fully performed oral contract, even though not in compliance with the Statute of
Frauds, will not be rescinded by the courts. However, incomplete oral contracts that fail to
comply with the statute are unenforceable.
14. A third party cannot enforce a contract where that contract was expressly intended to
benefit the third party.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-10 Compare and contrast different types of third-party beneficiaries
to a contract.
Topic: Third Parties
Feedback: A third party may also enforce a contract where that contract was expressly
intended to benefit the third party. An agreement of that nature is a third-party beneficiary
contract.
15. Failure to fully perform without a lawful excuse for that failure results in a breach of
contract.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-11 Explain how a contract may be discharged.
Topic: Discharge
Feedback: Failure to fully perform without a lawful excuse for that failure results in a breach
of contract. The consequences of both full performance and breach of contract can be
described in four parts: complete performance, substantial performance, unacceptable
performance, and advance refusal to perform.
16. According to discharge by operation of law, the contractual responsibilities of a debtor

may be discharged by a bankruptcy decree.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Topic: Discharge
Feedback: According to discharge by operation of law, the contractual responsibilities of a
debtor may be discharged by a bankruptcy decree. It arises when contractual duties are
discharged by the legal system itself.
17. Anticipatory breach of contract occurs when a party, before performance is due, indicates
by word or deed that she or he will not perform.
Answer: True
Blooms: Remember
Difficulty: 1 Easy
Topic: Discharge
Feedback: Anticipatory breach of contract occurs when sometimes one of the parties, before
performance is due, indicates by word or deed that she or he will not perform. Normally an
anticipatory breach (also called anticipatory repudiation) is the equivalent of a material
breach, discharging the nonbreaching party from any further obligations and allowing the
nonbreaching party to sue for damages, if any.
18. The victim of a breach can recover just the direct losses from the breach and not any
indirect losses that were incurred as a consequence of that breach.
Answer: False
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-12 Describe the remedies available for breach of contract.
Topic: Remedies
Feedback: The victim of a breach may be able to recover not just the direct losses from the
breach but also any indirect losses that were incurred as a consequence of that breach. Such
consequential damages are recoverable only if they were foreseen or were reasonably
foreseeable by the breaching party.
19. The point of nominal damages is to illustrate the wrongfulness of a breach.

Answer: True
Blooms: Remember
Difficulty: 1 Easy
Topic: Remedies
Feedback: The point of nominal damages is to illustrate the wrongfulness of a breach. In
some cases of breach, the court will award only an insignificant sum, perhaps $1.00 (plus
court costs), because the nonbreaching party has suffered no actual damages.
Multiple Choice Questions
20. Which of the following statements is true of the Uniform Commercial Code (UCC)?
A. It governs contracts for services.
B. It covers cars, clothing, and appliances.
C. It regulates transactions not involving the sale of goods.
D. It covers real estate, stocks, and bonds.
Answer: B
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 06-02 Determine whether the Uniform Commercial Code or common
law governs a contract dispute.
Topic: Introduction
Feedback: Section 2-105 of the Uniform Commercial Code (UCC) defines goods as tangible,
movable, things. Hence cars, clothing, appliances, and the like are covered. Real estate,
stocks, bonds, money, and so forth are not covered. Nor are contracts for services governed
by the UCC.
21. _____ refers to the bargained-for legal value that one party agrees to pay or provide to
secure the promise of another.
A. Discharge
B. Consideration
C. Agreement
D. Reformation
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 06-03 Identify the elements of a legally enforceable contract.
Topic: What Is a Contract?
Feedback: Consideration refers to the bargained-for legal value that one party agrees to pay
or provide to secure the promise of another. All legally enforceable contracts must exhibit
this feature to become meaningful.
22. Problems of unconscionability often arise in situations in which:

A. a contract to commit a crime or a tort is illegal and unenforceable.
B. the contract, if enforced, would not be in the best interest of the public.
C. the bargaining power of one of the parties is much superior to the other.
D. a party participates in any potentially hazardous activity.
Answer: C
Blooms: Understand
Feedback: Certain agreements are so thoroughly one-sided that fairness precludes enforcing
them. Problems of unconscionability often arise in situations in which the bargaining power
of one of the parties is much superior to the other—where one can, in effect, “twist the arm”
or otherwise take advantage of the other.
23. Which of the following kinds of contracts must be in writing to be enforceable?

A. A contract to construct a building on one’s own land
B. Mutual exchange of marriage promises
C. Promises that can be performed within a year
D. A promise by an executor where the payment comes from his or her personal funds
Answer: D
Blooms: Understand

Feedback: A promise by an executor or administrator to pay an estate’s debts must be in
writing if the payment will be made from the executor or administrator’s personal funds.
Thus, where the executor of an estate contracts with an auctioneer to dispose of the
decedent’s personal property, the executor’s promise to pay the auctioneer must be in writing
if the funds are to come from the executor’s personal resources.
24. Legally enforceable contracts must exhibit _____, which means parties must have the
legal ability to enter the contract; that is, they must be sane, sober, and of legal age.
A. genuineness of assent
B. consideration
C. legality
D. capacity
Answer: D
Blooms: Remember
Difficulty: 1 Easy
Feedback: Legally enforceable contracts must exhibit capacity, which means parties must
have the legal ability to enter the contract; that is, they must be sane, sober, and of legal age.
25. If a mentally incompetent person is unable to understand the purpose and effect of a
contract but has not been legally adjudged insane, _____.
A. the competent party has an absolute right to rescind the contract
B. the contract would not be voidable at the option of the impaired party
C. the contract would not be void at the option of the impaired party
D. the impaired party would have to pay the reasonable value of any necessaries received
under the contract
Answer: D
Blooms: Understand
Topic: Capacity
Feedback: If a mentally impaired party was unable to understand the purpose and effect of a
contract but had not been legally adjudged insane, the contract would be voidable (void in
some states) at the option of the impaired party. The competent party cannot void the
contract, and the impaired party would have to pay the reasonable value of any necessaries
received under the contract.
26. Which of the following refers to the term blue laws?

A. They are laws forbidding the practice of certain professions without a license.
B. They are laws forbidding usury.
C. They are laws forbidding the conduct of certain kinds of business on Sundays.
D. They are laws forbidding gambling.

Answer: C
Blooms: Remember
Difficulty: 1 Easy
Feedback: A contract to commit a crime or a tort is illegal and unenforceable. The states have
also specified certain other agreements that are illegal. Those provisions vary from state to
state, but they commonly include antigambling laws, laws forbidding the conduct of certain
kinds of business on Sundays (blue laws), laws forbidding usury, and laws forbidding the
practice of certain professions (law, real estate, hair care) without a license.
27. _____ are agreements that are so thoroughly one-sided that fairness precludes enforcing
them.
A. Yellow dog contracts
B. Quasi-contracts
C. Voidable contracts
D. Unconscionable contracts
Answer: D
Blooms: Remember
Difficulty: 1 Easy
Feedback: Unconscionable contracts are so thoroughly one-sided that fairness precludes
enforcing them. Problems of unconscionability often arise in situations in which the
bargaining power of one of the parties is much superior to the other—where one can, in
effect, twist the arm or otherwise take advantage of the other.
28. Which of the following exceptional circumstances admits parol evidence?

A. To prove circumstances that would validate a written contract
B. To delete terms from a complete written contract
C. To explain ambiguities in a written contract
D. To infer the terms of a contract in a one-sided manner
Answer: C
Blooms: Understand
Feedback: Parol evidence may be admissible under the following exceptional circumstances:
to add missing terms to an incomplete written contract, to explain ambiguities in a written
contract, and to prove circumstances that would invalidate a written contract. The written
agreement is presumed to be the best evidence of the parties’ intentions at the time they
entered the contract.
29. A person offers a $100 reward to anyone who finds his lost dog. This is an example of
a(n) _____ contract.
A. bilateral
B. unilateral
C. express
D. implied-in-fact
Answer: B
Blooms: Understand
Feedback: A unilateral contract ordinarily involves a situation in which one party makes a
promise and the other acts in response to that promise. Unilateral offers are accepted by
performance, no communication of acceptance beyond that performance ordinarily is
necessary.
30. Meg, who is on the lookout for a temporary security officer, approaches a security
agency. The agency sends one of its reserve security officers to guard Meg’s commercial
building. Which of the following types of contract does Meg enter into with the security
agency?
A. Bilateral contract
B. Implied-in-fact contract
C. Unilateral contract
D. Quasi contract
Answer: B
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Feedback: An implied-in-fact contract is inferred on the basis of the facts—that is, by the
behavior of the parties. In this scenario, Meg enters into an implied-in-fact contract with the
security officer sent by the agency. The court infers a promise by Meg to pay a reasonable
price in return for the security officer’s promise to make a commercially reasonable effort in
guarding the building.
31. A contract is labeled _____ until all parties fully perform.

A. anticipatory
B. executory
C. contributory
D. declaratory
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Feedback: A contract is labeled executory until all parties fully perform. When all parties
have completed their performances, the contract is executed. The term “executed” denotes
the performance of a contract.
32. Which of the following types of contracts refers to those entered by minors who have the
option, under the law, of either disaffirming or fulfilling most contracts?
A. Unenforceable contracts
B. Void contracts
C. Unconscionable contracts
D. Voidable contracts
Answer: D
Blooms: Remember
Difficulty: 1 Easy
Feedback: A voidable contract is enforceable but can be canceled by one or more of the
parties. The most common voidable contracts are those entered by minors who have the
option, under the law, of either disaffirming or fulfilling most contracts.
33. Skye, who is unaware of Nathan’s mental incompetency, enters into an agreement with
Nathan to paint her house. Skye does not know that Nathan has been adjudged insane by a
court of law and therefore is angry at him for not finishing the work on time. This agreement
between Skye and Nathan is an example of a(n) _____ contract.
A. voidable
B. option
C. enforceable
D. void
Answer: D
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 06-05 Distinguish between valid, unenforceable, void, and voidable
contracts.
Topic: Capacity
Feedback: An agreement involving a mentally incompetent person is either void or voidable.

The transaction would be void—that is, no contract would exist—where the impaired party
had been adjudged insane. In this scenario, Skye, who is unaware of Nathan’s mental
incompetency, enters into an agreement with Nathan to paint her house and hence they enter
into a void contract.
34. When an offeror promises to keep an offer open for a specified period and, in return, the
offeree pays consideration, the parties have created a(n) _____ contract.
A. voidable
B. void
C. option
D. unenforceable
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Feedback: When an offeror promises to keep an offer open for a specified period and, in
return, the offeree pays consideration (usually money), the parties have created an option
contract, which is a separate agreement and is enforceable by its terms. It refers to a type of
offer that cannot be revoked.
35. Sometimes genuine assent is not secured and a contract may be rescinded because one of
the parties is forced to agree, for fear of harm. The legal defense available in this situation is
_____.
A. duress
B. undue influence
C. fraud
D. mistake
Answer: A
Blooms: Remember
Difficulty: 1 Easy
Topic: Genuineness of Assent
Feedback: Sometimes genuine assent is not secured and a contract may be rescinded because
one of the parties is forced to agree. Fear lies at the heart of a duress claim. The party seeking
to escape the contract must establish that a wrongful act was threatened or had occurred,
causing the party to enter the contract out of fear of harm such that free will was precluded.
36. Intentional untruths constitute _____.

A. misrepresentation
B. falsification
C. fraud
D. mistake
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Topic: Genuineness of Assent
Feedback: An innocent untruth is a misrepresentation. Intentional untruths constitute fraud. In
either case, a party to a contract who has been deceived may rescind the deal, and restitution
may be secured if benefits were extended to the party issuing the untruth.
37. Which of the following statements is true of consideration?

A. It is the universally accepted legal value that a party agrees to pay to another.
B. It is always settled in terms of tangible goods.
C. It consists of a legal detriment to the promisee that is bargained for by the promisor.
D. It is received by a promisee from a promisor.
Answer: C
Blooms: Understand
Feedback: Consideration consists of a detriment to the promisee that is bargained for by the
promisor. The promisee must suffer a legal detriment; that is, the promisee must give up
something of value (an act or a promise) or must refrain from doing something that she or he
has a legal right to do in order to enforce the promise offered by the promisor.
38. The doctrine of _____ states that a promisor is stopped from denying the existence of a
contract where a promisee has detrimentally relied on that promise.
A. ultra vires
B. promissory estoppel
C. substantial performance
D. promissory note
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Feedback: The doctrine of promissory estoppel, in which a promisor is “stopped” from
denying the existence of a contract where a promisee has detrimentally relied on that
promise. Promissory estoppel requires the following: a) A promise on which the promisor
should expect the promisee to rely. b) The promisee did justifiably rely on the promise.
c) Injustice can be avoided only by enforcing the promise.
39. When a promisee’s primary purpose in entering a contract is to make a gift to another,
that third party is a(n) _____ of the contract.
A. incidental beneficiary
B. contingent beneficiary
C. creditor beneficiary
D. donee beneficiary
Answer: D
Blooms: Remember
Difficulty: 1 Easy
to a contract.
Feedback: When a promisee’s primary purpose in entering a contract is to make a gift to
another, that third party is a donee beneficiary of the contract. The most common of these
situations involves an ordinary life insurance policy for which the owner (the promisee) pays
premiums to the life insurance company (the promisor), which is obliged to pay benefits to
the third party upon the death of the promisee or policy owner.
40. Which of the following statements is true of incidental beneficiaries?

A. Often a second party receives benefit from a contract.
B. The benefit received was not the contracting parties’ primary purpose or intent.
C. The primary purpose in entering a contract is to make a gift to another.
D. The beneficiary can sue the contracting party for payment.
Answer: B
Blooms: Understand
to a contract.
Feedback: Often a third party receives benefit from a contract although conferring that
benefit was not the contracting parties’ primary purpose or intent. If the contracting parties
fails to make payment, an incidental beneficiary would have no legal rights against either of
them.
41. Jim makes an agreement to play live music at Rusty’s Tavern every Thursday night. Last
Thursday, he had the flu and hence could not go to Rusty’s. What can be concluded about the
agreement with respect to Jim’s condition?
A. His performance can be excused due to a condition precedent.
B. His performance can be excused due to a condition subsequent.
C. His absence should be penalized because personal service contracts are never excused.
D. His absence should be penalized because there was a nonmaterial breach of contract.
Answer: B
Blooms: Apply
Difficulty: 3 Hard
Topic: Discharge
Feedback: A conditions subsequent clause excuses performance if a future event transpires.
In this scenario, Jim’s inability to perform at Rusty’s Tavern on a Thursday night can be
excused as per a conditions subsequent clause.
42. Identify the clause that specifies that an event must occur before the parties to a contract
are obliged to perform.
A. An express conditions clause
B. A conditions concurrent clause
C. A conditions precedent clause
D. An implied conditions clause
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Topic: Discharge
Feedback: A conditions precedent clause specifies that an event must occur before the parties
to the contract are obliged to perform. Sometimes a contract is useful to one or more of the
contracting parties only if some future event occurs or fails to occur. Under those
circumstances, the parties may write into the contract a clause providing that performance is
required only if the specified condition occurs or fails to occur. Otherwise, the duty to
perform is discharged.
43. Which of the following statements indicates a material breach of contract?

A. A party falls beneath substantial performance and does not have a lawful excuse for that
failure.
B. Complete performance is not achieved because of minor deviations from the agreed-upon
performance.
C. Before performance is due, a party indicates by word or deed that she or he will not
perform.
D. A party performs the tasks and completes the contract.
Answer: A
Blooms: Understand
Topic: Discharge
Feedback: When a party falls beneath substantial performance and does not have a lawful
excuse for that failure, a material breach of contract has occurred. No clear line separates
substantial performance (a nonmaterial breach) from unacceptable performance (a material
breach). Such decisions must be made case by case.
44. Which of the following statements is true of the conditions concurrent clause?
A. Each performance is independent.
B. It specifies that the parties are to perform their duties at the same time.
C. An event must occur before the parties are obliged to perform.
D. It excuses performance if a future event transpires.
Answer: B
Blooms: Understand
Topic: Discharge
Feedback: Under the conditions concurrent clause, the contract simply specifies that the
parties are to perform their duties at the same time. Each performance is dependent on the
other.
45. Which of the following statements is true of implied-in-law conditions?

A. The court imposes these conditions on the contract to avoid unfairness.
B. They are often prefaced by words such as when, if, and provided.
C. They are derived by the court from the conduct of the parties and the circumstances
surrounding the bargain.
D. The parties have no binding duties until the specified event occurs.
Answer: A
Blooms: Understand
Topic: Discharge
Feedback: Implied-in-law conditions (also called constructive conditions) are those that,
although not expressly provided for in the contract or not able to be reasonably inferred from
the facts, the court imposes on the contract to avoid unfairness.
46. _____ is an equitable remedy that permits the court to rewrite a contract where it
imperfectly expressed the parties’ true intentions.
A. Assignment
B. Reformation
C. Injunction
D. Rescission
Answer: B
Blooms: Remember
Difficulty: 1 Easy
Topic: Remedies
Feedback: Reformation is an equitable remedy that permits the court to rewrite the contract
where it imperfectly expressed the parties’ true intentions. Typically such situations involve a
mutual mistake or fraud.
47. A court order that may either require or forbid a party to perform a specified act is a(n)
_____.
A. rescission
B. reformation
C. injunction
D. quasi-contract
Answer: C
Blooms: Remember
Difficulty: 1 Easy
Topic: Remedies
Feedback: An injunction is a court order that may either require or forbid a party to perform a
specified act. Injunctions are granted only under exceptional circumstances. Perhaps the most
common of those are the noncompetition agreements.
Essay Questions
48. What are the features to be exhibited by a legally enforceable contract? Explain how
contracts can be discharged on the basis of conditions.
Answer: Legally enforceable contracts must exhibit all of the following features:
(a) Agreement: A meeting of the minds of the parties based on an offer by one and an
acceptance by the other. The determination as to whether the parties have actually reached
agreement is based on the objective evidence (the parties’ acts, words, and so on) as a
“reasonable person” would interpret it rather than on an effort to ascertain the subjective or
personal intent of the parties. (b) Consideration: The bargained-for legal value that one party
agrees to pay or provide to secure the promise of another. (c) Capacity: The parties must have
the legal ability to enter the contract; that is, they must be sane, sober, and of legal age.
(d) Genuineness of assent: The parties must knowingly agree to the same thing. Their minds
must meet as shown by the objective evidence. If that meeting does not occur because of, for
example, mistake or fraud, or the like, a contract does not exist because the parties’ assent
was not real. (e) Legality of purpose. The object of the contract must not violate the law or
public policy. Contracts embracing these five features are enforceable by law; therefore, they
are distinguishable from unenforceable promises. Some contracts must also be in writing to
be enforceable.
Sometimes a contract is useful to one or more of the contracting parties only if some future
event occurs or fails to occur. Under those circumstances, the parties may write into the
contract a clause providing that performance is required only if the specified condition occurs
or fails to occur. Otherwise, the duty to perform is discharged. They are of three forms:
conditions precedent, conditions subsequent, and conditions concurrent. A conditions
precedent clause specifies that an event must occur before the parties to the contract are
obliged to perform. A conditions subsequent clause excuses performance if a future event
transpires. In a conditions concurrent clause the contract simply specifies that the parties are
to perform their duties at the same time. Each performance is dependent on the other.
Blooms: Understand
Topic: Discharge
49. Explain the difference between a unilateral contract and a bilateral contract and give a
concrete example of each. Highlight the different types of contracts that denote the
performance and enforceability of a contract.
Answer: A bilateral contract emerges from a situation in which both parties make promises.
A unilateral contract ordinarily involves a situation in which one party makes a promise and
the other acts in response to that promise.
An offer may be accepted only by the offeree—that is, the person to whom the offer was
directed. Because unilateral offers are accepted by performance, no communication of
acceptance beyond that performance ordinarily is necessary. In the case of a bilateral contract
(a promise for a promise), acceptance is not effective until communicated.
Students’ examples may vary.
For example, in beginning to establish your new restaurant you promise a college friend that
if he completes his degree, you will hire him. He can accept your offer or promise by the act
of completing college.
The performance of a contract is denoted by:
a) Executory contracts. A contract is labeled executory until all parties fully perform. b)
Executed contracts. When all parties have completed their performances, the contract is
executed.
The various types of enforceable contracts include: a) Valid contracts. A valid contract meets
all of the established legal requirements and thus is enforceable in court. b) Unenforceable
contracts. An unenforceable contract meets the basic contractual requirements but remains
faulty because it fails to fulfill some other legal rule. For example, an oral contract may be
unenforceable if it falls in one of those categories of contracts, such as the sale of land, which
must be in writing. c) Void contracts. A void contract is, in fact, no contract at all because a
critical legal requirement is missing; usually it is either an agreement to accomplish an illegal
purpose (such as to commit a crime) or an agreement involving an incompetent (such as an
individual judged by a court to be insane). In either case what is otherwise an enforceable
contract is in fact void. d) Voidable contracts. A voidable contract is enforceable but can be
canceled by one or more of the parties. The most common voidable contracts are those
entered by minors who have the option, under the law, of either disaffirming or fulfilling
most contracts
Blooms: Apply
Difficulty: 3 Hard
50. Describe some of the elements of a valid offer with examples.

Answer: Students’ examples may vary. Characteristically, an offer consists of a promise to do
something or to refrain from doing something in the future. A valid offer must include:
a) Intent: Assume that you are the purchasing manager for a trucking firm, and you need a
small used van to do some local light hauling. Because time is of the essence, you decide to
bypass the normal bidding process and go directly to the local dealers to make a quick
purchase. At the first lot, you find a suitable van. In discussing it, the sales manager says,
“Well, we do not usually do this, but since you have been such a good customer, I will tell
you, we paid $10,000 for this one so I guess we are gonna need about $11,000 to deal with
you.” You say, “Fine. That is reasonable. I will take it.” The manager then says, “Now wait a
minute, I was just talking off the top of my head. I will have to punch up the numbers to be
sure.” Do you have a deal at that point? The core question is whether the sales manager made
an offer. Normally, language of that kind has been treated by the courts as preliminary
negotiation lacking the necessary intent to constitute an offer. Of course, if no offer exists,
you cannot accept, and no contract can emerge absent further negotiation.
b) Definiteness: Suppose you have completed a management training program for a “big
box” retailer. In your first assignment as an assistant manager, your boss asks you to seek
bids and make the other arrangements (subject to her approval) to resurface the store’s large
asphalt parking lot. You secure bids, and the lowest bidder offers to complete the work “later
this summer” for $120,000. You briefly explain the offer to your boss, who tells you to take
care of all the details. You are busy with other matters and you put off the parking lot project
for a couple of weeks. When you get back to the contractor, he says, “Sorry, man, we had not
heard from you, and we got another deal.” Can you hold that contractor to his initial offer?
One of the requirements of a binding offer is that all of its critical terms must be sufficiently
clear that a court can determine both the intentions of the parties and their duties. Clearly, in
the asphalt case, many critical details—such as precisely when the work would be done, the
quality of the surfacing material, its thickness, and the like—had not been established.
Consequently, no offer existed.
c) Communication: An effective offer must be the product of a present intent, it must be
definite, and it must be communicated to the offeree. Communication of an offer expresses
the offeror’s intent to make that offer. Suppose a friend tells you that your neighbor has
offered to sell his classic jukebox for $10,000. You call your neighbor and say, “I accept. I
will be right over with the $10,000.” Do you have a deal? No. The owner did not
communicate the offer to you. The fact that it was not communicated to you may suggest that
your neighbor does not want to sell or does not want to sell to you.
Blooms: Understand
51. Explain the three kinds of irrevocable offers with examples.

Answer: Students’ examples may vary. a) Option contracts: When an offeror promises to
keep an offer open for a specified period and, in return, the offeree pays consideration
(usually money), the parties have created an option contract, which is a separate agreement
and is enforceable by its terms. For example, a friend has offered to sell to you his
customized car that you have long cherished, but you want to think about it for a few days.
You might enter an option contract with your friend under which you pay $100 for the
seller’s promise to keep the offer open for seven days. You are under no obligation to buy the
car, but the seller is under a binding obligation not to withdraw the offer or sell to another
during the seven days.
b) Under the Uniform Commercial Code (UCC), if the owner of that customized car is a
dealer (a merchant) and he made a written, signed offer to sell that car (a good) to you,
indicating that his offer would remain open for seven days, he is bound to that promise
whether you paid consideration for it or not. That situation is labeled a firm offer as specified
in UCC 2-205, which also provides that such offers will be kept open for a reasonable period
if the agreement does not mention a time, but that period cannot exceed three months.
c) Offers for unilateral contracts. A problem sometimes arises when the offeror attempts to
revoke a unilateral offer after the offeree has begun to perform. For example, your neighbor
invites you to rake her leaves for $10, and then, when you are virtually done, she yells from
the doorway, “Oh, sorry, I changed my mind. You go home now.” Historically, the offeror
(the neighbor, in this case) was free to revoke at any time, but the modern position holds that
the offeror normally cannot revoke if the offeree (you) has commenced performance. If that
performance is then completed (you ignore your neighbor’s admonition to go home, and you
finish the raking), the offeror (your neighbor) is bound to perform fully by paying the $10.
Blooms: Understand
52. Describe the purpose of the doctrine of promissory estoppel and list the three elements
required to prove it in court. Give an example to illustrate the use of a promissory estoppel.
Answer: When necessary to achieve justice, the courts sometimes conclude that a contract
exists even though consideration is clearly lacking. Moral obligation and quasi-contract are
two such instances; but the most prominent of these substitutes for consideration is the
doctrine of promissory estoppel, in which the promisor is stopped from denying the existence
of a contract where the promisee has detrimentally relied on that promise. Promissory
estoppel requires the following: a) A promise on which the promisor should expect the
promisee to rely. b) The promisee did justifiably rely on the promise. c) Injustice can be
avoided only by enforcing the promise.
Students’ examples may vary.
Greg is a part-time employee of a small fast-food chain restaurant while attending college.
Upon graduation, he tells the manager of the restaurant that he thinks he could handle his
own franchise. The manager says that Greg needs to get more experience and advises him to
take a full-time position with the company. Greg does so. Everything goes well, and when
Greg next approaches the manager, he says, “If you can come up with the $50,000 and a good
location, we will get you in a franchise right away. But you have gotta move on this. Maybe
you better quit your job with us and concentrate on this thing.” Greg takes his advice and
quits his job. He raises the $50,000 and finds a vacant building to rent in a good location for a
franchise. He shows the building to the manager, and he agrees that it looks like a favorable
location and one that can easily be converted to the company’s needs. He says, “Looks like
you have everything in place. If you can come up with $50,000 more we will make this thing
happen.” Greg refuses and decides to bring suit against the fast-food chain for breach of
contract. The chain defends by saying that Greg did not provide consideration for its promise.
No formal financing arrangement was ever agreed to, and he had not committed himself to
any franchising obligations. Under these circumstances Greg may well prevail using a
promissory estoppel claim.
Blooms: Understand
Learning Objective: 06-08. Explain the significance of consideration as an element of a
53. Explain the term accord and satisfaction and explain how it relates to the discharge of a
contract. What are the two ways in which contracts can be discharged by lawful excuses?
Answer: A contractual discharge is sometimes achieved by a new agreement arrived at after
entering the original contract. These agreements take a variety of forms such as accord and
satisfaction. Parties reach an accord when they agree to a performance different from the one
provided for in their contract. Performance of the accord is called satisfaction, at which point
the original contract is discharged. A binding accord and satisfaction must spring from a
genuine dispute between the parties, and it must include consideration as well as all of the
other ingredients in a binding contract.
Sometimes contracts are discharged lawfully even in the event of nonperformance. This can
occur when performance is either impossible or impractical.
Impossibility: After agreement is reached but performance is not yet due, circumstances may
be so altered that performance is a legal impossibility. In such situations nonperformance is
excused. Impossibility here refers not simply to extreme difficulty but to objective
impossibility; that is, the contracted-for performance cannot be accomplished by anyone.
Notable examples of such situations are a personal service contract where the promisor has
died or is incapacitated by illness, a contract where the subject of the agreement was rendered
illegal by a change in the law subsequent to the agreement but prior to its performance, or a
contract where an ingredient essential to performance has been destroyed and no reasonable
substitutes are available.
Commercial impracticability: Akin to the doctrine of impossibility is the situation in which
duties are discharged because of unforeseen events that render performance exorbitantly
expensive or thoroughly impractical. Commercial impracticability is specifically provided for
in Section 2-615 of the Uniform Commercial Code (UCC), which reads, “Delay in delivery
or nondelivery in whole or in part by a seller . . . is not a breach of his duty under a contract
for sale if performance as agreed has been made impracticable by the occurrence of a
contingency the nonoccurrence of which was a basic assumption on which the contract was
made. . . .” The UCC’s commercial impracticability standard is more easily established than
the impossibility doctrine of the common law, but note that only exceptional and
unforeseeable events fall within the impracticability excuse for nonperformance. Mere
changes in market conditions do not give rise to commercial impracticability.
Blooms: Understand
Topic: Discharge
54. Identify and define any three types of damages that may be available as remedies in law
in a contract action and give an example of each.
Answer: Compensatory damages: Fundamentally, the plaintiff in a breach of contract action
is entitled to recover a sum equal to the actual damages suffered. The plaintiff is compensated
for her losses by receiving a sum designed to “make her whole,” to put her where she would
have been had the contract not been breached. A breach involving a sale of goods would be
governed by the Uniform Commercial Code. Typically the measure of compensatory
damages would be the difference between the contract price and the market price of the
goods at the time and place the goods were to be delivered. Suppose an individual is working
for a newly established computer manufacturer, and he has contracted with the Internal
Revenue Service to deliver 1,000 laptop computers at $1,500 each, although the current
market price is $1,600. If he fails to make that delivery, damages could be assessed in the
amount of $100,000 ($100 x 1,000), which is the additional amount the IRS would need to
pay to make the substitute purchase.
Consequential damages: The victim of a breach may be able to recover not just the direct
losses from the breach but also any indirect losses that were incurred as a consequence of that
breach. Such consequential damages are recoverable only if they were foreseen or were
reasonably foreseeable by the breaching party. For example, if an individual contracts for a
well-known local band to play for the grand opening of his new bar and dance club, he may
be able to recover damages for any lost profits that he can attribute to the band’s failure to
appear. Those lost profits are a consequence of the breach.
Incidental damages: The costs incurred by the non-breaching party in arranging a substitute
performance or otherwise reducing the damages sustained because of the breach are
recoverable as incidental damages. They would include such items as phone calls and
transportation expenses.
Blooms: Understand
Topic: Remedies
55. Explain any two types of equitable remedies in contract cases with an example each.
Answer: Specific performance: In unusual circumstances the court may order the breaching
party to remedy its wrong by performing its obligations precisely as provided for in the
contract. Normally specific performance is required only where the subject matter of the
contract is unique and thus cannot be adequately compensated with money. Examples of such
subject matter might include a particular piece of land, an art work, or a family heirloom. By
contrast, specific performance would not be available in contracts involving conventional
personal property such as a television or a car unless those items were unique. Normally the
courts will not grant a specific performance remedy in personal service contracts (such as an
agreement by a cosmetic surgeon to perform a face-lift). If the surgeon refused to perform,
specific performance probably would not be ordered. The quality of the surgery likely would
not be equal to what had been bargained for; courts do not want to be in the position of
supervising the completion of contracts, and as a matter of public policy, we do not want to
put parties, in this case, the surgeon, in a position that amounts to involuntary servitude.
Injunction: An injunction is a court order that may either require or forbid a party to perform
a specified act. Injunctions are granted only under exceptional circumstances. Perhaps the
most common of those are the non-competition clauses in employment contracts. For
example, an individual takes a computer programming job that will afford him access to
company secrets. To protect itself, the company includes a clause in his employment contract
specifying that he will not take employment with a competing firm for one year after
departure from his employer. If he should quit and seek to work for a competitor within one
year, his former employer might be able to secure an injunction preventing him from doing so
until the year has passed. Reformation is an equitable remedy that permits the court to rewrite
the contract where it imperfectly expressed the parties’ true intentions. Typically such
situations involve a mutual mistake or fraud. Thus, if the parties sign a contract to sell a lot
in a housing development, but the contract is written with an incorrect street address for the
lot, an equity court could simply correct the error in the contract. Quasi-Contract: What
happens if one party has conferred a benefit on another, but a contract has not been created
because of a failure of consideration, the application of the statute of frauds, or something of
the sort? To prevent unjust enrichment, the court might then imply a contract as a matter of
law. For example, assume a lawn service mistakenly trims your shrubs and you watch them
do so, knowing that they are supposed to be caring for your neighbor’s lawn. You have not
entered a contract with the lawn service, but a court might well require you to pay the
reasonable value of trimming your shrubs. To do otherwise would unjustly enrich you.
Blooms: Understand
Topic: Remedies

Law Business and Society 11th Edition McAdams Test Bank Download

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Law Business and Society 11th Edition McAdams Test Bank Download

Uploaded by

Copyright:

Available Formats

Chapter 06 — Contracts

Test Bank for Law Business and Society 11th Edition

Download full test bank at:

Download full solution manual at:

1. Contract law is a necessary foundation for a capitalist, free market-system.

5. Contracts entered by minors are voidable contracts.

6. A valid offer must include the present intent to enter a contract.

Learning Objective: 06-06 Describe the elements of a valid offer.

8. An offeror cannot revoke an offer any time prior to acceptance.

9. Unilateral offers are not accepted by performance.

Learning Objective: 06-07 Describe the elements of a valid acceptance.

16. According to discharge by operation of law, the contractual responsibilities of a debtor

19. The point of nominal damages is to illustrate the wrongfulness of a breach.

Multiple Choice Questions

22. Problems of unconscionability often arise in situations in which:

23. Which of the following kinds of contracts must be in writing to be enforceable?

Learning Objective: 06-03 Identify the elements of a legally enforceable contract.

26. Which of the following refers to the term blue laws?

D. They are laws forbidding gambling.

28. Which of the following exceptional circumstances admits parol evidence?

entered the contract.

31. A contract is labeled _____ until all parties fully perform.

Feedback: An agreement involving a mentally incompetent person is either void or voidable.

36. Intentional untruths constitute _____.

37. Which of the following statements is true of consideration?

40. Which of the following statements is true of incidental beneficiaries?

43. Which of the following statements indicates a material breach of contract?

45. Which of the following statements is true of implied-in-law conditions?

50. Describe some of the elements of a valid offer with examples.

51. Explain the three kinds of irrevocable offers with examples.

You might also like