Business Law 10th Edition Cheeseman Test Bank

Business Law 10th Edition Cheeseman
Test Bank
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Business Law, 10e (Cheeseman)
Chapter 10 Agreement
1) A(n) ________ is a voluntary exchange of promises between two or more legally competent
persons to do, or refrain from doing, an act.
A) offer
B) advertisement
C) agreement
D) proposal
Answer: C
Diff: 1
LO: 10.1 Define agreement.
AACSB: Analytical thinking
Classification: Concept
2) What is the key difference between an agreement and a contract?

A) A contract is always enforceable in the court of law, while an acceptance may or may not be.
B) A contract can only be between two individuals, while an acceptance can have two or more
people involved.
C) A contract requires mutual assent from all parties, while an acceptance needs only to be
accepted by a majority of people involved.
D) A contract need not be legally binding, while an agreement must be legally binding.
Answer: A
Diff: 2
3) A contract requires an offer and an acceptance.

Answer: TRUE
Diff: 1
4) An agreement is created when the offeree receives the offer.

Answer: FALSE
Diff: 1
1
Copyright © 2019 Pearson Education, Inc.
5) Without mutual assent, there is no contract.
Answer: TRUE
Diff: 1
6) Section 24 of the Restatement (Second) of Contracts defines a(n) ________ as the

manifestation of willingness to enter into a bargain, so made as to justify another person in
understanding that his assent to that bargain is invited and will conclude it.
A) order
B) offer
C) advertisement
D) revocation
Answer: B
Diff: 1
LO: 10.2 Define offer and describe express and implied terms of an offer.
7) Which of the following statements is true of an offer that was not communicated?
A) The offer stays valid for 30 days from the date of creation.
B) The offer cannot be accepted by the offeree if not communicated.
C) The offeree can claim an offer that was not communicated.
D) The offer is considered to be an implied term.
Answer: B
Diff: 1
8) A term in a contract that can reasonably be supplied by the courts is referred to as a(n)
________.
A) intent term
B) unconditional term
C) objective term
D) implied term
Answer: D
Diff: 1
2
9) An offer is not effective until it is actually received by the offeree.
Answer: TRUE
Diff: 1
10) The offeree must objectively intend to be bound by the offer for the offer to be effective.
Answer: FALSE
Diff: 1
11) The offer must be communicated to the offeree for the offer to be effective.
Answer: TRUE
Diff: 1
12) Identification of the subject matter and quantity would be an implied term.
Answer: FALSE
Diff: 1
13) Identification of the parties of a contract would be an express term.

Answer: TRUE
Diff: 1
14) Implied terms in a contract can be supplied by the courts.

Answer: TRUE
Diff: 1
3
15) Give an account of the express terms that are parts of an offer.
Answer: The terms of an offer must be clear enough for the offeree to be able to decide whether
to accept or reject the terms of the offer. To be considered definite, an offer generally must
contain the following terms: (1) identification of the parties, (2) identification of the subject
matter and quantity, (3) consideration to be paid, and (4) time of performance. Complex
contracts usually state additional terms. Most offers and contracts set forth express terms that
identify the parties, the subject matter of the contract, the consideration to be paid by the parties,
and the time of performance, as well as other terms of the offer and contract. If the terms are
indefinite, the courts usually cannot enforce the contract or determine an appropriate remedy for
its breach.
Diff: 2
16) The Restatement (Second) of Contracts states that the terms of the offer should be
"reasonably certain." Accordingly, courts can supply some missing terms. What terms might be
supplied? What terms CANNOT usually be implied?
Answer: A court can supply a missing term if a reasonable term can be implied. The definition
of reasonable depends on the circumstances. Generally, time of performance can be implied.
Price can be implied if there is a market or source from which to determine the price of the item
or service (e.g., the Carfax or Kelley Blue Book for a used automobile price).
The parties or subject matter of the contract usually cannot be implied if an item or a service is
unique or personal, such as the construction of a house or the performance of a professional
sports contract.
Diff: 2
17) An invitation to make an offer for the sale of goods is a(n) ________.
A) proposal
B) reward
C) advertisement
D) bid
Answer: C
Diff: 1
LO: 10.3 List and describe special types of offers, including advertisements and auctions.
4
18) Which of the following would be considered an offer to form a unilateral contract?
A) an advertisement
B) an auction without reserve
C) a reward offer
D) an auction with reserve
Answer: C
Diff: 1
19) Which one of the following would constitute a reward?

A) a person buying a car after seeing an ad about it
B) a person returning a lost item after seeing an ad about it
C) a seller accepting a bid for an item
D) a seller making an invitation for offers
Answer: B
Diff: 1
20) Which of the following is true for legally claiming a reward?

A) A promise of completing the requested act is sufficient for a claimant to claim the reward.
B) Knowledge of the reward before completing the requested act is necessary to claim the
reward.
C) The claimant can claim the reward even if he or she came to know of the reward subsequent
to completing the act.
D) The offeror cannot withdraw the reward once the offer has been placed in the public domain.
Answer: B
Diff: 1
21) In which of the following types of offers does the seller offer the goods for sale?
A) a revocation
B) a reward
C) an auction with reserve
D) an auction without reserve
Answer: D
Diff: 1
5
22) Which of the following is true for an auction with reserve?
A) The seller retains the right to refuse the highest bidder.
B) Invitations to make an offer are not allowed.
C) Goods cannot be withdrawn from sale after the offer has been made.
D) A bid once made cannot be withdrawn and is legally binding.
Answer: A
Diff: 1
23) Which of the following is true for an auction without reserve?

A) The bidder is considered the offeror.
B) The seller need not accept the highest bid.
C) The goods on sale cannot be withdrawn.
D) The auctioneer is not allowed to set a minimum bid.
Answer: C
Diff: 1
24) An agreement that an offeror will not sell his property for a specified period subsequent to
the offeree paying consideration to the offeror is referred to as a(n) ________.
A) unequivocal acceptance
B) contract of adhesion
C) option contract
D) firm offer
Answer: C
Diff: 1
25) Advertisements are considered to be invitations to make an offer.

Answer: TRUE
Diff: 1
26) A reward is a form of bilateral contract.

Answer: FALSE
Diff: 1
6
27) Unless otherwise expressly stated, an auction is considered an auction with reserve.
Answer: TRUE
Diff: 1
28) In an auction with reserve, the seller retains the right to refuse the highest bidder.
Answer: TRUE
Diff: 1
29) In an auction with reserve, the bidder can withdraw his or her bid after an acceptance has
been indicated from the offeror.
Answer: FALSE
Diff: 1
30) In an auction with reserve, the bidder is the offeror.

Answer: TRUE
Diff: 1
31) In an auction without reserve, the seller is the offeree.

Answer: FALSE
Diff: 1
32) In an auction without reserve, the seller is obliged to sell the goods to the highest bidder.
Answer: TRUE
Diff: 1
7
33) Explain the difference between an auction with reserve and an auction without reserve. If not
specified, which is the default form of auction?
Answer: In an auction, the seller offers goods for sale through an auctioneer. Unless otherwise
expressly stated, an auction is considered an auction with reserve, that is, it is an invitation to
make an offer. The seller retains the right to refuse the highest bid and withdraw the goods from
sale. A contract is formed only when the auctioneer strikes the gavel down or indicates
acceptance by some other means. The bidder may withdraw the bid prior to that time.
If an auction is expressly announced to be an auction without reserve, the participants reverse the
roles: The seller is the offeror, and the bidders are the offerees. The seller must accept the highest
bid and cannot withdraw the goods from sale. However, if the auctioneer has set a minimum bid
that it will accept, the auctioneer has to sell the item only if the highest bid is equal to or greater
than the minimum bid.
Diff: 3
34) A response by an offeree that contains terms and conditions different from or in addition to
those of the offer is called a(n) ________.
A) rejection
B) counteroffer
C) revocation
D) acceptance
Answer: B
Diff: 1
LO: 10.4 Describe how offers are terminated by acts of the parties and define counteroffer.
35) Which of the following statements is true of a counteroffer?

A) An offeree that makes the counteroffer is still considered the offeree.
B) A counteroffer terminates the existing offer.
C) A counteroffer can only be made by the offeror.
D) A counteroffer need not be communicated to the offeror.
Answer: B
Diff: 1
8
36) Luke offered to sell his farm to Kent at $75,000, an offer which Kent declined. A week later,
Luke offered to sell the farm for $65,000, stating it was the final offer that would be valid for one
month only. Two days later, Kent offered to pay $60,000 for the farm. Luke received Kent's
offer a week later and he declined it. After ten days, Kent agreed to buy the farm for $65,000, but
Luke refused to sell the farm. Kent decided to sue Luke for a breach of contract. The judge ruled
in favor of Luke. Which one of the following is the reason for the ruling in Luke's favor?
A) Luke's original offer of $75,000 is still valid, even though rejected.
B) Kent's counteroffer of $60,000 had rendered the offer for $65,000 invalid.
C) Kent's acceptance was past the set time period in the offer.
D) Kent acted in an incompetent manner toward the offer.
Answer: B
Diff: 3
AACSB: Application of knowledge
Classification: Application
37) A(n) ________ is a withdrawal of an offer by the offeror that terminates the offer.
A) rejection
B) advertisement
C) revocation
D) counteroffer
Answer: C
Diff: 1
38) Which of the following statements is true of a revocation?

A) It can be made by the offeree.
B) It needs to be received by the offeree to be effective.
C) It can be done even after acceptance of the offer.
D) It can be applied to an option contract.
Answer: B
Diff: 1
9
39) After losing her watch, Jennifer had put up a reward offer in the local newspaper for anyone
who could find and return her watch. However, after two weeks she decides to buy a new watch
and not pay the reward anymore. Betty, who found the watch and saw the reward offer, returns
the watch to Jennifer after 20 days. Which of the following would be true about Betty receiving
or not receiving the reward?
A) Betty will not receive the reward as Jennifer had already revoked it.
B) Betty will not receive the reward as Jennifer had stopped publishing the reward offer.
C) Betty cannot claim the reward because she had not performed all the requested acts.
D) Betty can claim the reward because Jennifer had not published a notice of revocation.
Answer: D
Diff: 2
40) Which of the following is true of an option contract?

A) If the offeree chooses not to buy the property, then money paid in consideration must be
returned.
B) If money is paid as consideration, then that is not applied to the sale price.
C) Death or incompetency of either party terminates an option contract.
D) The offer cannot be revoked during the option period.
Answer: D
Diff: 2
41) Ron uses his status message on his Facebook account to invite his friends to buy his desktop
computer. His friend Carl is interested and calls Ron to express his interest. Ron tells him that he
is selling the computer for $400. Carl offers to pay $350 and Ron accepts the offer. Carl's
response to Ron's offer to sell for $400 is considered as a(n) ________.
A) mirror image rule acceptance
B) rejection
C) unequivocal acceptance
D) counteroffer
Answer: D
Diff: 2
10
42) An offeror can revoke his or her offer even after an agreement or acceptance has been
reached.
Answer: FALSE
Diff: 1
43) A rejection of an offer is not effective until it is actually received by the offeror.
Answer: TRUE
Diff: 1
44) A counteroffer is a rejection of the original offer.

Answer: TRUE
Diff: 1
45) During a counteroffer, the previous offeror remains the offeror.

Answer: FALSE
Diff: 1
46) How can an offeror revoke an offer?

Answer: Under the common law, an offeror may revoke (i.e., withdraw) an offer any time prior
to its acceptance by the offeree. Generally, an offer can be so revoked even if the offeror
promised to keep the offer open for a longer time. The revocation may be communicated to the
offeree by the offeror or by a third party and made by (1) the offeror's express statement or (2) an
act of the offeror that is inconsistent with the offer. Generally, a revocation of an offer is not
effective until it is actually received by the offeree.
Diff: 2
11
47) If a fire destroys an office building that has been listed for sale, the offer is automatically
terminated due to ________.
A) supervening illegality
B) death or incompetency of the offeror
C) destruction of the subject matter
D) lapse of time
Answer: C
Diff: 1
LO: 10.5 Describe how offers are terminated by operation of law.
48) Peter plans to sell his two houses, numbered Lot 1 and Lot 2, at $800,000 each. David, who
was interested in buying Lot 2, could not make up his mind on the final offer and asks Peter to
give him a week to decide. Peter accepts, but David takes two weeks to decide the counteroffer.
Before he could give David a reply to his counteroffer, Peter is killed in a fire that burned down
Lot 1. Which of the following would be true in this case?
A) The offer is terminated due to lapse of time.
B) The offer is terminated due to destruction of the subject matter.
C) The offer is terminated due to death of the offeror.
D) David can still buy the house for Peter's original offer.
Answer: C
Diff: 2
49) An offer is terminated on the grounds of "supervening illegality" when ________.

A) the set period in the offer has expired
B) the subject matter in the offer has been destroyed
C) a statute or court decision deems an object of the offer unlawful
D) the offeror or offeree passes away prior to the offer being accepted
Answer: C
Diff: 1
12
50) Techstate, a hardware manufacturer in the United States, has an existing contract with a
client based in the Republic of Karthasia, which is going through a domestic political crisis. The
resulting upheaval in that country has led to some of the shipments to the client being destroyed
by warring factions. As a sanction against the country, the United States government places an
embargo on all exports to that country by U.S. firms. What will be the state of the contract
between Techstate and the client in Karthasia after the embargo?
A) It will be terminated due to destruction of subject matter.
B) It will be terminated due to incompetency of the offeror.
C) It will be terminated due to lapse of time.
D) It will be terminated due to supervening illegality.
Answer: D
Diff: 2
51) An offer is terminated on the grounds of "lapse of time" if ________.

A) the offeror dies before the offeree has accepted the offer
B) the offer is not communicated to the offeree
C) the offeror has communicated to the offeree a set time which is not mentioned in the offer
D) the offer is not accepted within a stated time period
Answer: D
Diff: 1
52) George made an offer to Jacob to sell his house for $1 million. The offer was received by
Jacob on May 1, 2014, and he stipulated that he had 13 days to accept it. But Jacob could not
arrange the money, and on May 16, 2014 he made a counteroffer to buy the house for $850,000.
Which of the following is true of the original offer made by George to Jacob?
A) It is terminated by the counteroffer.
B) It is still valid as the house has not been sold.
C) It is invalid due to lapse of the stated time.
D) It is invalid due to incompetency of the offeree.
Answer: C
Diff: 2
53) An option contract is terminated upon the death of the offeror.

Answer: FALSE
Diff: 1
13
54) An offer is terminated if the subject matter of the offer is destroyed.
Answer: TRUE
Diff: 1
55) If the object of an offer is made illegal prior to the acceptance of the offer, then the offer
terminates.
Answer: TRUE
Diff: 1
56) An offer terminates upon the expiration of a stated time in the offer.
Answer: TRUE
Diff: 1
57) If no time is stated in an offer, then the offer stays valid indefinitely.
Answer: FALSE
Diff: 1
58) Give an account of termination of offer due to lapse of time.

Answer: An offer expires at the lapse of time of an offer. An offer may state that it is effective
only until a certain date. Unless otherwise stated, the time period begins to run when the offer is
actually received by the offeree and terminates when the stated time period expires. If no time is
stated in an offer, the offer terminates after a "reasonable time" dictated by the circumstances.
Diff: 1
14
59) In the above question, Ron's response, agreeing to sell the computer to Carl, is considered as
a(n) ________.
B) rejection
C) counteroffer
D) equivocal response
Answer: A
Diff: 1
LO: 10.6 Define acceptance and apply the mirror image rule.
60) A(n) ________ is a manifestation of assent by the offeree to the terms of the offer in a
manner invited or required by the offer as measured by the objective theory of contracts.
A) acceptance
B) revocation
C) proposal
D) counteroffer
Answer: A
Diff: 1
61) The legal power to accept an offer belongs to the ________.

A) offeror
B) offeree
C) agent
D) seller
Answer: B
Diff: 1
15
62) Mandy decided to sell her iPad and made an offer for $250 to her friend Shelly. Shelly told
Mandy she was willing to buy the iPad, but she would be glad if Shelly could lower her asking
price. Mandy lowered the price to $210 and Shelly bought it. Which of the following would
describe Shelly's response to Mandy for her first offer?
A) counteroffer
B) rejection
C) equivocal response
D) grumbling acceptance
Answer: C
Diff: 2
63) Quentin is a member of the Album of the Month Club and receives a new music CD every
month without fail. The Club usually gives its members a time period within which they can
reject the selection and stop shipment of the CD, failing which the CD will be shipped. Last
month, Quentin received a CD from Album of the Month Club, a copy of which a friend had
already gifted him. As he was away, Quentin had not found time to reject the selection and had
to buy the CD. What kind of an offer-acceptance model does Album of the Month Club have?
B) silence as acceptance
C) acceptance-upon-dispatch
D) unequivocal acceptance
Answer: B
Diff: 2
64) The mirror image rule states that ________.

A) the offeree's counteroffer should match the value of the offeror's offer
B) the offeree is allowed to modify the terms of the offer
C) the offeror can modify the terms of the offer even after the offeree has accepted them
D) the offeree must accept the terms as stated in the offer
Answer: D
Diff: 1
16
65) Which of the following contradicts the mirror image rule?
A) silence as acceptance
B) option contract
C) counteroffer
D) acceptance-upon-dispatch
Answer: C
Diff: 2
66) The ________ states that an acceptance is effective when it is dispatched, even if it is lost in
transmission.
A) rule of silence as acceptance
B) mirror image rule
C) mailbox rule
D) mutual assent rule
Answer: C
Diff: 1
67) Which of the following is a difference between acceptance and revocation?

A) Revocation is valid only if the offeree receives it, while an offeree's acceptance is valid when
dispatched.
B) Revocation can be done by the offeror or offeree, while an acceptance can only be done by
the offeree.
C) An acceptance must be received by the offeror to be valid, while a revocation need not be
received by the offeree.
D) A revocation can be made after acceptance, while an acceptance cannot be made after
revocation.
Answer: A
Diff: 2
17
68) ________ is a stipulation in an offer that says the acceptance must be by a specified means of
communication.
A) An option contract
B) The mirror image rule
C) Implied authorization
D) Express authorization
Answer: D
Diff: 1
69) The term ________ refers to a mode of acceptance that is indicated from what is customary
in similar transactions, usage of trade, or prior dealings between the parties.
A) express authorization
B) implied authorization
C) option contract
D) unequivocal acceptance
Answer: B
Diff: 1
70) Bilateral contracts are accepted only upon the offeree's performance of the required act.
Answer: FALSE
Diff: 1
71) Only the offeree has the legal power to accept an offer and create a contract.
Answer: TRUE
Diff: 1
72) An offer that is made to two or more persons jointly must be accepted jointly.
Answer: TRUE
Diff: 1
18
73) A contract is created upon an equivocal response to an offer from the offeree.
Answer: FALSE
Diff: 1
74) An unequivocal acceptance must not contain conditions or exceptions.

Answer: TRUE
Diff: 1
75) To meet the mirror image rule, the offeree must accept the terms of the offer without
modification.
Answer: TRUE
Diff: 1
76) Under the mailbox rule, an acceptance is only effective when it is received.
Answer: FALSE
Diff: 1
77) If an offeree dispatches a rejection before an acceptance, then the rejection will not be
applicable.
Answer: FALSE
Diff: 1
78) An offer cannot stipulate that acceptance must be by a specified means of communication.
Answer: FALSE
Diff: 1
19
79) Explain the importance of "time of acceptance" of contracts.
Answer: Under the common law of contracts, acceptance of a bilateral contract occurs when the
offeree dispatches the acceptance by an authorized means of communication. This rule is called
the acceptance-upon-dispatch rule or, more commonly, the mailbox rule. Under this rule, the
acceptance is effective when it is dispatched, even if it is lost in transmission. If an offeree first
dispatches a rejection and then sends an acceptance, the mailbox rule does not apply to the
acceptance. The problem of lost acceptances can be minimized by expressly altering the mailbox
rule. The offeror can do this by stating in the offer that acceptance is effective only upon actual
receipt of the acceptance.
Diff: 2
80) Explain implied and express authorizations.

Answer: An acceptance must be properly dispatched. The acceptance must be properly
addressed, packaged in an appropriate envelope or container, and have prepaid postage or
delivery charges. Most offers do not expressly specify the means of communication required for
acceptance. The common law recognizes certain implied means of communication. Implied
authorization may be inferred from what is customary in similar transactions, usage of trade, or
prior dealings between the parties. An offer can stipulate that acceptance must be by a specified
means of communication. Such stipulation is called express authorization. If the offeree uses an
unauthorized means of communication to transmit the acceptance, the acceptance is not
effective, even if it is received by the offeror within the allowed time period, because the means
of communication was a condition of acceptance.
Diff: 2
20

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Business Law 10th Edition Cheeseman

2) What is the key difference between an agreement and a contract?

3) A contract requires an offer and an acceptance.

4) An agreement is created when the offeree receives the offer.

6) Section 24 of the Restatement (Second) of Contracts defines a(n) ________ as the

13) Identification of the parties of a contract would be an express term.

14) Implied terms in a contract can be supplied by the courts.

19) Which one of the following would constitute a reward?

20) Which of the following is true for legally claiming a reward?

23) Which of the following is true for an auction without reserve?

25) Advertisements are considered to be invitations to make an offer.

26) A reward is a form of bilateral contract.

30) In an auction with reserve, the bidder is the offeror.

31) In an auction without reserve, the seller is the offeree.

35) Which of the following statements is true of a counteroffer?

38) Which of the following statements is true of a revocation?

40) Which of the following is true of an option contract?

44) A counteroffer is a rejection of the original offer.

45) During a counteroffer, the previous offeror remains the offeror.

46) How can an offeror revoke an offer?

49) An offer is terminated on the grounds of "supervening illegality" when ________.

51) An offer is terminated on the grounds of "lapse of time" if ________.

53) An option contract is terminated upon the death of the offeror.

58) Give an account of termination of offer due to lapse of time.

61) The legal power to accept an offer belongs to the ________.

64) The mirror image rule states that ________.

67) Which of the following is a difference between acceptance and revocation?

74) An unequivocal acceptance must not contain conditions or exceptions.

80) Explain implied and express authorizations.

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