Fundamentals of Business Law Summarized Cases 8th Edition Miller Test Bank

Fundamentals of Business Law
Summarized Cases 8th Edition Miller

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Chapter 8
Agreement and Consideration
TRUE/FALSE QUESTIONS
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.

+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
1. A valid offer requires reasonably certain terms.
ANSWER: T PAGE: 167 TYPE: N

NAT: AACSB Analytic AICPA Legal
2. An offer is sufficient to evidence an agreement.
ANSWER: F PAGE: 167 TYPE: N

NAT: AACSB Reflective AICPA Legal
3. An offeror’s subjective intent determines the validity of an offer.

4. A valid offer requires a reasonable price related to market value.

5. An invitation to negotiate—“can you afford this?”—is an offer.
123
124 UNIT THREE: CONTRACTS

6. An expression of opinion—“your customers will like this”—is an offer.

7. An advertisement—“this property for sale”—is an offer.

8. An offer must be communicated by mail or in person.

9. The communication of an offer can be done by any effective means.

10. An offeror cannot revoke an option contract until the time specified in the offer has
expired.

11. An acceptance that materially changes a term in the offer still creates a valid
agreement.

12. A counteroffer does not terminate but continues an offer.

13. If the subject matter of an offer is destroyed, the offer will continue to exist for a rea-
sonable time to permit the seller to acquire replacement goods.
CHAPTER 8: AGREEMENT AND CONSIDERATION 125

14. An offer made illegal by a statute terminates only after a reasonable time.

15. No offer can be accepted by silence.

16. Under the mailbox rule, an acceptance is not valid until it is received.

17. If an acceptance of an offer is received after the offer has been rejected, there is no
contract.

18. In contract law, “consideration” refers to the courtesy that one party shows another
in negotiating a deal.

19. A transaction that lacks a bargained-for exchange lacks an element of consideration.

20. If a promise is made, it will be enforced.

NAT: AACSB Analytic AICPA Critical Thinking
21. Inadequate consideration may reflect a lack of bargained-for exchange.

22. Parties are not generally free to make bad bargains.

NAT: AACSB Analytic AICPA Critical Thinking
23. Normally, a court of law will not question the adequacy of consideration.

24. To be legally sufficient, consideration must include something of economic value.

25. A promise to do something that one has a prior legal duty to do is not consideration.

26. Ordinary difficulties that could have been foreseen at the time a contract was formed
do not justify a demand for additional compensation.

27. Rescission is the substitution of one party to a contract for a third party, who agrees
to assume the contractual duties.

28. A promise made with respect to a past event is enforceable because the event is cer-
tain—it has already occurred.

29. Two parties can mutually agree to rescind a contract if it is executory.

30. An illusory promise is a promise that is enforceable without consideration.

31. An accord and satisfaction requires that the amount of a debt must not be in dispute.

32. A release does not require consideration to be legally binding.

33. A covenant not to sue does not always bar further recovery.

34. A covenant not to sue is an agreement to substitute a contractual obligation for a

legal action.

35. Promissory estoppel requires reliance of a substantial and definite character.

MULTIPLE CHOICE QUESTIONS
1. Lolly offers to deliver to My-T-Fine Store’s customers their purchases for a certain
price. Lolly’s intent to extend a serious offer to My-T-Fine is determined by reference
to Lolly’s
a. assumptions.
b. beliefs.
c. intentions.
d. words and conduct.
ANSWER: D PAGE: 168 TYPE: N

2. Hick, a representative of Interim Care Items, Inc., makes an offer to Jaqi, the owner of
Kleen Hospice, Inc. The offer is effective even if
a. Hick does not communicate it to Jaqi.

b. Hick secretly does not intend to be bound by the offer.
c. Jaqi is not capable of accepting the offer.

d. the terms of the offer are not reasonably definite.
ANSWER: B PAGE: 168 TYPE: N

3. An officer of International Sales Corporation makes overtures to a representative of

Global Distribution, Inc., regarding a business deal. Under the objective theory of
contracts, the officer’s words and conduct are held to mean whatever
a. the officer subjectively intended them to mean.

b. a reasonable person in the officer’s position would think they meant.
c. a reasonable person in the representative’s position would think they meant.
d. the representative subjectively thought they meant.
ANSWER: C PAGE: 168 TYPE: N

4. Luna tells Kofi, who has no knowledge of literary thrillers, that she will tutor him in the
subject for $50. As an offer, this is
a. effective.
b. not effective, because thrillers are not literature.
c. not effective, because Luna’s tutoring will be subjective.
d. not effective, because Kofi has no knowledge of the subject.
ANSWER: A PAGE: 168 TYPE: N

5. Nate tells Opal, “I might sell the skis that I bought last fall since I haven’t used them
and the skiing season is almost over.” This is
a. an acceptance of an offer.
b. an invitation to accept an offer.
c. an offer.
d. a statement of future intent.

6. Craig decides to sell his Double-C Ranch in an auction “without reserve.” If Craig
changes his mind at the auction, he can withdraw his property
a. only before the auctioneer announces that the ranch is sold.

b. only before the auctioneer delivers the deed to the buyer.
c. under no circumstances.
d. within thirty days after the auction.

7. Royal Properties, Inc., mails a flyer to hundreds of firms, advertising a building for sale.
Super Soup Brewing Company responds by saying, “We accept your offer.” Between
Royal and Super, there is
a. a contract for the sale of the building.

b. a contract to consider the offer before any others.
c. a contract to negotiate a sale of the building.
d. no contract.

8. Yvon asks Zack, “Do you want to buy one of my fishing rods?” This is
a. a valid offer.
b. not a valid offer because the terms are not definite.
c. not a valid offer because Yvon did not state an intent.
d. not a valid offer because Zack did not respond.

9. Corner Convenience Store (CCS) takes out a full-page ad in a local newspaper and runs
a thirty-second commercial on a local television station, offering a reward for
information leading to the apprehension of the person who robbed the store. CCS
could normally terminate the offer by
a. running a full-page ad in the paper and a thirty-second commercial on the local

station.
b. placing a notice in the “Legal Announcements” section of the paper.
c. sending a notice to the news department of the local stations.
d. any of the choices.

10. Ritzy Property, Inc., offers to sell a warehouse to Self-Storage Company. Self-Storage
says that it will pay Ritzy $100 to hold the offer open for three business days. This
a. creates an illegal contract by adding a clause to Ritzy’s offer.

b. makes the offer irrevocable for three days if Ritzy accepts.
c. negates Ritzy’s offer by changing the price term.
d. voids Ritzy’s offer by extending the time term.

11. Geof offers to sell his Honda for $10,000 to Ilsa, who says, “I’ll pay no more than
$5,000.” Geof says, “Forget it. I changed my mind.” Geof’s offer was terminated by
a. Geof and Ilsa.

b. Geof.
c. Ilsa.
d. the market prices of similar vehicles.

12. Callie owns two trucks. She offers to sell the Dodge for $20,000 to Evan, who accepts.
She offers to sell the Ford for $20,000 to Gwen, who says, “Too much.” Callie’s offer
to Gwen was terminated by
a. Evan and Gwen.

b. Evan only.
c. Gwen only.
d. neither Evan nor Gwen.

13. Quix Fix-It, Inc., offers Polly a job as a plumber. No time for acceptance is specified in
the offer. The offer will terminate
a. after a reasonable period of time.

b. after a typical work week (five business days).
c. after a usual month (thirty calendar days).
d. never.

14. Tomato Farms (TF) offers to sell Unified Grocers, Inc., a boxcar load of tomatoes. The
offer is sent via overnight delivery because an acceptance is required urgently. It
would be most reasonable for Unified to accept via
a. a fax, a letter, or a phone call to TF within two weeks.

b. a fax sent to TF as soon as the offer is received.
c. a letter mailed to TF within two days.
d. a phone call to TF within five business days.

15. Jane offers to sell Kyle three desks for his Lights & Lamps Company administrative
office. Kyle sends a rejection first, then changes his mind and sends an acceptance.
Whether they have a contract is determined by
a. Kyle’s rejection.
b. Kyle’s subjective intent.
c. whatever Jane decides.
d. whether Kyle’s rejection or acceptance is received first.

16. Retail Investment Company offers to sell a certain mall to Shopping Stores, Inc., if it
accepts before 10 A.M. Monday. A contract is formed if Shopping Stores’ acceptance is
received
a. any time on Monday.

b. before 10 A.M. Monday.
c. before 11 A.M. Monday.
d. within twenty-four hours of 10 A.M. Monday.

17. Eastside Warehouse offers to sell a forklift to Forest Lumber Company, but it is stolen
before Forest accepts. Eastside must obtain
a. a forklift for Forest, if Eastside’s insurance covers the loss.

b. a forklift for Forest, if it wants one.
c. nothing for Forest, because that would extend the time of the offer.
d. nothing for Forest, because the theft terminated the offer.

18. First State Bank offers to lend money to Greco at 15 percent interest. Before Greco
accepts, a statute is enacted prohibiting loans at interest rates greater than 12
percent. Greco and the bank have
a. have a contract for a loan at 15 percent interest.

b. have a contract for a loan at 12 percent interest.
c. have a contract for a loan at 0 percent interest.
d. no contract for a loan.

Fact Pattern 8-1 (Questions 19–20 apply)

Dave’s Hobby Town and Eva’s Yarn Shoppe are adjacent stores with adjoining parking lots.
Dave offers Eva a discount on purchases from Dave’s store if Eva will not tow the cars of
Dave’s customers who park in Eva’s lot.
19. Refer to Fact Pattern 8-1. Dave’s discount is legally sufficient consideration
a. because it is a promise of something of value.

b. only if Dave adds a cash rebate.
c. only if Eva uses it.
d. under no circumstances.

20. Refer to Fact Pattern 8-1. Eva’s forbearance from towing is legally sufficient consid-
eration
a. because it is a promise of something of value.

b. only if Dave’s customers park in Eva’s lot.
c. only if Eva’s customers cannot park in her lot because it is full.

21. Sugar promises to perform, for a price, alteration services in affiliation with Togs ‘n
Things, a clothing store. To support a contract, the consideration exchanged by the
parties must be
a. adequately considerate.
b. equally valuable.
c. legally sufficient.
d. wisely priced.

22. Marco promises to pay his assistant Naomi $10,000 in consideration of the services
she has provided over the years. Marco is
a. liable for payment of the $10,000.

b. liable only if Naomi continues to work for Marco.
c. not liable, because the consideration is past.
d. not liable, because the consideration is unintentional.

23. Quality Steel Corporation files a suit against Rite Tool Company, claiming that the
consideration for their contract is inadequate. The court will most likely not examine
the adequacy of the consideration if
a. it is obvious that the consideration is adequate.

b. Rite Tool asserts that there is adequate consideration.
c. something of value passed between the parties.
d. the consideration is worth more than $100.

24. Baked Stuff Company agrees to supply Comida Café with all the corn chips that it re-
quires for a year. A sudden blight caused by an organism hitherto unknown in the
United States results in a shortage of corn, and the price rises sharply. Baked Stuff
asks Comida to pay a higher price for the chips. This request is
a. invalid as an attempt at extortion or the so-called holdup game.

b. invalid under the preexisting duty rule.
c. valid as a risk ordinarily assumed in business.
d. valid due to the unforeseen difficulty of the sudden price increase.


Brad defends against a breach-of-contract suit by College Credit Corporation by claiming that
their deal—a student loan accruing interest at a certain rate and payable beginning on a
certain date—was unfair because the consideration for their contract was inadequate.
25. Refer to Fact Pattern 8-2. A court is most likely to evaluate the adequacy of considera-
tion if
a. a thing exchanged has no intangible value to one of the parties.

b. something exchanged is not of direct economic or financial value.
c. the items exchanged were of unequal value.
d. there is a gross disparity in the value of the consideration exchanged.

26. Refer to Fact Pattern 8-2. “Adequacy” of consideration refers to
a. “how much” consideration is given.

b. legally sufficient value in the eyes of the law.
c. the intangible value to a contracting party of a thing exchanged.
d. the substantiality of the consideration exchanged.

27. Refer to Fact Pattern 8-2. If, as Brad claims, the consideration in this problem is
inadequate, it may indicate a lack of
a. accord in Brad’s satisfaction with the value of the deal.

b. bargained-for exchange or mutual assent.
c. flexibility on the part of College Credit to accommodate Brad’s needs.
d. “heft,” “substance,” or “weight” in the terms of the contract.

28. Numeric Methods Corporation promises to give stock options to Orin, a project
schedule manager, for projects that have already been completed ahead of schedule.
This promise is
a. enforceable because it is a new contract.

b. enforceable because it is an illusory promise.
c. enforceable because it is supported by past consideration.
d. unenforceable.

29. Tom’s Terrific Assembly Company promises its employees a 10-percent raise at the
end of the year if productivity has increased and management feels it is warranted.
Tom’s 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 productivity increases.
d. give the employees a 10-percent raise under any circumstances.

30. George and Halle disagree as to the exact amount one owes the other. They form a
new agreement that, on fulfillment, will discharge the prior obligation. This is
a. a covenant not to sue.

b. an accord and satisfaction.
c. a release.
d. promissory estoppel.


Dag and Enita are in an auto accident. Dag offers Enita $2,000 if she promises not to pursue
her potential legal claim against him. Enita agrees. Later, Enita discovers that it will cost
$1,500 to repair her car and $4,000 to cover her medical expenses for a latent injury.
31. Refer to Fact Pattern 8-3. The agreement between Dag and Enita is
a. a covenant not to sue.

b. an accord and satisfaction.
c. a release.

32. Refer to Fact Pattern 8-3. In Enita’s suit against Dag to recover her repair and medical
expenses, Enita will most likely recover
a. half the amount to pay those costs over what Dag already paid her.
b. nothing.
c. the estimated amount to pay those costs and any other liability.
d. the exact amount to pay those costs and no more.

33. Mei writes a check to Nat in an amount that represents half of her debt to him. On the
back of the check, Mei includes the words “payment in full.” Nat cashes the check.
This discharges the entire debt
a. if the debt is liquidated.

b. if the debt is past due.
c. if the debt is unliquidated.

34. Milo files a suit against Neighbors Insurance Corporation under the doctrine of prom-
issory estoppel. Milo must show that
a. Milo justifiably refused to fulfill a promise to Neighbors.

b. Milo justifiably relied on Neighbors’s promise to his detriment.
c. Neighbors justifiably refused to fulfill a promise to Milo.
d. Neighbors justifiably relied on Milo’s promise to its detriment.

35. Auto Body Repair Shop (ABRS) promises to pay Ben $1,000 a week to work for ABRS.
Ben accepts and quits his job with Car Care Service. ABRS fails to provide a job for Ben.
Ben has a cause of action based on
a. an illusory promise.
b. a release.
c. past consideration.

ESSAY QUESTIONS
1. Myra owns a house, which she advertises for sale for $400,000. On May 1, Nico offers
Myra $380,000 for the house. On May 5, Myra has delivered to Nico at his office a
form that includes additional terms but does not state a price. At 9 A.M. on May 6,
Nico signs the form and gives it to Odell, his administrative assistant, with instructions
to mail it. At 10 A.M., Myra calls to tell Nico that the deal is off. The next day, Odell
mails the signed form to Myra. When she refuses to sell the house to Nico, he files a
suit against her, alleging breach of contract. Myra claims that there was no contract.
What are arguments supporting each party’s position? What is the court likely to rule?
Explain.
ANSWER: Nico might assert his intent to accept, and point to his signature on
Myra’s form as proof of the assertion. Nico might claim that he accepted Myra’s
counteroffer (including the additional terms) before it was revoked. Nico might argue
that he put his acceptance into the “stream of commerce,” or the “route of response,”
or the “transmission of delivery,” or some similar phrase, when he gave it to Odell, his
administrative assistant. Myra might contend that there was no contract, because
Myra revoked the offer before the acceptance was received. Myra might argue that
Nico did not place his acceptance into any “mode of dispatch” because Nico could still
control the form—he had only given it to his administrative assistant, who did not
mail it until the next day, long after Myra had revoked the offer. The court would most
likely agree with Myra and hold that the acceptance was not effective. Nico still
controlled this acceptance at the time that Myra revoked the offer. Nico’s mailed
acceptance was too late.
PAGES: 171, 172 & 173–175 TYPE:N

NAT: AACSB Reflective AICPA Decision Modeling
2. Chris promises Dina $40,000 if she graduates from Eastern College. Dina enrolls in
Eastern, attends full-time for four years, and graduates. When Dina asks Chris for
$40,000, Chris says, “I don’t remember promising you $40,000. But if there was a
promise, it’s not enforceable, because we didn’t bargain for it. And even if there was a
promise that would otherwise be enforceable, I revoke it now.” Can Dina enforce
Chris’s “promise”? Why or why not?
ANSWER: Chris’s promise is binding and Dina is entitled to payment without

regard to whether their performance was bargained for. Under the doctrine of
promissory estoppel (or detrimental reliance), a person who relies on the promise of
another may recover in the absence of consideration if (1) the promise was clear and
definite, (2) reliance on the promise was justifiable, (3) the promisor knew or had
reason to believe that the promisee would rely on the promise, (4) the reliance
induced a change of a substantial and definite character, and (5) justice would be
better served by enforcement of the promise. In this question, there was a promise on
which the promisee relied, the reliance was substantial and definite (the promisee
went to college full-time for four years, incurring considerable expenses, and
graduated), and it would only be fair to enforce the promise.
PAGES: 175–176 & 179 TYPE: N

NAT: AACSB Reflective AICPA Decision Modeling

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Fundamentals of Business Law

Summarized Cases 8th Edition Miller

Agreement and Consideration

N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.

N A question new to this edition of the Test Bank.

1. A valid offer requires reasonably certain terms.

ANSWER: T PAGE: 167 TYPE: N

2. An offer is sufficient to evidence an agreement.

ANSWER: F PAGE: 167 TYPE: N

3. An offeror’s subjective intent determines the validity of an offer.

ANSWER: F PAGE: 168 TYPE: N

4. A valid offer requires a reasonable price related to market value.

ANSWER: F PAGE: 168 TYPE: N

5. An invitation to negotiate—“can you afford this?”—is an offer.

ANSWER: F PAGE: 169 TYPE: N

6. An expression of opinion—“your customers will like this”—is an offer.

ANSWER: F PAGE: 169 TYPE: N

7. An advertisement—“this property for sale”—is an offer.

ANSWER: F PAGE: 169 TYPE: N

8. An offer must be communicated by mail or in person.

ANSWER: F PAGE: 171 TYPE: N

9. The communication of an offer can be done by any effective means.

ANSWER: T PAGE: 171 TYPE: N

ANSWER: T PAGE: 171 TYPE: N

ANSWER: F PAGE: 172 TYPE: N

12. A counteroffer does not terminate but continues an offer.

ANSWER: F PAGE: 172 TYPE: N

ANSWER: F PAGE: 173 TYPE: N

ANSWER: F PAGE: 173 TYPE: N

15. No offer can be accepted by silence.

ANSWER: F PAGE: 174 TYPE: N

ANSWER: F PAGE: 174 TYPE: N

ANSWER: T PAGE: 174 TYPE: N

ANSWER: F PAGE: 175 TYPE: N

19. A transaction that lacks a bargained-for exchange lacks an element of consideration.

ANSWER: T PAGE: 175 TYPE: N

20. If a promise is made, it will be enforced.

ANSWER: F PAGE: 175 TYPE: N

21. Inadequate consideration may reflect a lack of bargained-for exchange.

ANSWER: T PAGE: 176 TYPE: N

22. Parties are not generally free to make bad bargains.

ANSWER: F PAGE: 176 TYPE: N

ANSWER: T PAGE: 176 TYPE: N

24. To be legally sufficient, consideration must include something of economic value.

ANSWER: F PAGE: 176 TYPE: N

ANSWER: T PAGE: 176 TYPE: N

ANSWER: T PAGE: 176 TYPE: N

ANSWER: F PAGE: 176 TYPE: N

ANSWER: F PAGE: 176 TYPE: N

29. Two parties can mutually agree to rescind a contract if it is executory.

ANSWER: T PAGE: 176 TYPE: N

30. An illusory promise is a promise that is enforceable without consideration.

ANSWER: F PAGE: 177 TYPE: N

ANSWER: F PAGE: 178 TYPE: N

32. A release does not require consideration to be legally binding.

ANSWER: F PAGE: 178 TYPE: N

ANSWER: F PAGE: 178 TYPE: N

34. A covenant not to sue is an agreement to substitute a contractual obligation for a