Business Law - Chapter 13 Introduction to Contracts

The term "consideration" in relation to contracts involves parties acting in an ethical manner. 
FALSE

Consideration is the bargained-for exchange or what each party gets in exchange for his or her promise under the contract.

The Restatement of the Law Second, Contracts is not actually the law itself. 
TRUE

The Restatement (Second) is not actually the law itself, although judges frequently cite it because it is an authoritative statement of what the law is.

Whether a contract is bilateral or unilateral depends upon what response the offeror expects from the offeree. 
TRUE

If the offeror wants a promise from the offeree to form a binding contract, the contract is a bilateral contract, commonly defined as a promise in exchange for a promise. In a unilateral contract, the offeror wants the offeree to do something, not to promise to do something.

Today, courts hold that once an offeree begins performance on a unilateral contract, the offeror must hold the offer open for a reasonable time to allow the offeree to complete the performance. 
TRUE

Today, the courts hold that once an offeree begins performance, the offeror must hold the offer open for a reasonable time to allow the offeree to complete it.

Quasi-contracts are actual contracts. 
FALSE

Quasi-contracts are sometimes called implied-in-law contracts, but they are not actually contracts.

If a quasi-contract is imposed, the amount of damages for a breach is based upon the fair market value of any service provided to the defendant. 
TRUE

When the court imposes a quasi-contract, the defendant is required to pay the fair market value of the benefit bestowed.

In order to recover under quasi-contract, there is no requirement that enrichment be unjust. 
FALSE

There are limits to the quasi contract doctrine; specifically, the enrichment must be unjust.

If a contract is valid, then it is enforceable. 
FALSE

Sometimes a contract may be valid yet unenforceable when a law prohibits the courts from enforcing it.

Any contract that is not a formal contract is an informal contract, also called a simple contract. 
TRUE

Any contract that is not a formal contract is an informal contract, also called a simple contract. Informal contracts may in fact be quite complex, but they are called "simple" because no formalities are required in making them.

In the employer/employee context, the purpose of a covenant not to compete is to restrict what an employee may do after leaving a company. 
TRUE

Covenants not to compete restrict what an employee may do after leaving a company.

Which of the following was the result in the Case Opener in which Hallmark claimed that an arbitration ruling against a former employee should be upheld? 
A. The former employee was barred from proceeding in court because of the binding arbitration clause.
B. The former employee was barred from proceeding in court based on the statute of limitations which expired while she was pursuing her remedies in arbitration.
C. The former employee was allowed to proceed in court because she had exhausted her remedies in the arbitration arena.
D. The former employee could proceed with an action in court because there was no consideration for the arbitration agreement and, therefore, no valid agreement.
E. The former employee could proceed with an action in court because, as a matter of law, arbitration agreements are barred in the arbitration context.

According to the court, "because there was no consideration from Hallmark, there was no binding contract to submit disputes to arbitration."

A[n] ___________ is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty. 
A. Contract
B. Offer
C. Consideration
D. Acceptance
E. Legal object

The Restatement (Second) of Contracts defines a contract as "a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty."

Which of the following consists of an offer by one party and an acceptance of the terms by another party? 
A. Legal object
B. Agreement
C. Coherence
D. Alliance
E. Concurrence

The agreement consists of an offer by one party, called the offeror, to enter into a contract, and an acceptance of the terms of the offer by the other party, called the offeree.

The person who makes an offer is called a ___________. 
A. Offeree
B. Offeror
C. Agreeor
D. Agree
E. Inquiror

The agreement consists of an offer by one party, called the offeror, to enter into a contract, and an acceptance of the terms of the offer by the other party, called the offeree.

The person who agrees to the terms of an offer made by the other party is called the _________. 
A. Offeree
B. Offeror
C. Agreeor
D. Agree
E. Inquiror

The agreement consists of an offer by one party, called the offeror, to enter into a contract, and an acceptance of the terms of the offer by the other party, called the offeree.

Which of the following is a definition for consideration? 
A. Being cordial in the negotiation of contracts.
B. Refraining from unethical behavior in the negotiation of contracts.
C. Being cordial and refraining from unethical behavior in the negotiation of contracts.
D. A bargained-for exchange.
E. A contract negotiated in person as opposed to by telephone or e-mail.

Consideration is the bargained-for exchange or what each party gets in exchange for his or her promise under the contract.

Which of the following represents the legal ability to enter into a binding agreement? 
A. Majority
B. Emancipation
C. Contractual knowledge
D. Contractual capacity
E. Informed consent

Capacity is the legal ability to enter into a binding agreement.

Which of the following are examples of people who do not have the capacity to enter into legally binding contracts? 
A. Those under the age of majority.
B. People suffering from mental illness.
C. Intoxicated persons.
D. People under the age of majority and people suffering from mental illness, but not intoxicated persons.
E. People under the age of majority, people suffering from mental illness, and intoxicated persons.

Most adults over the age of majority have capacity; those under the age of majority, people suffering from mental illness, and intoxicated persons do not have the capacity to enter into legally binding contracts.

Which of the following references the requirement that a contract not be either illegal or against public policy? 
A. Consideration
B. Capacity
C. Legal object
D. Illegal prohibition
E. Ethical requirement

The term "legal object" means that to be enforceable, the contract cannot be either illegal or against public policy.

Which of the following represents a lack of genuine assent? 
A. Acceptance secured through fraud.
B. Acceptance secured through undue influence.
C. Acceptance secured through misrepresentation.
D. Acceptance secured through fraud or undue influence but not through misrepresentation.
E. Acceptance secured through fraud, undue influence, or misrepresentation.

Sometimes the offeror (the party proposing the contract) secures acceptance of the agreement through improper means such as fraud, duress, undue influence, or misrepresentation. In these situations, there is no genuine assent to the contract, and the offeree (the person who agreed to or accepted the contract) may be able to raise that lack of genuine assent as a defense to enforcement of the agreement.

An attorney who says that a contract lacks "the proper form" is typically referencing which of the following? 
A. The agreement lacked a proper offer.
B. The contract lacked a proper acceptance.
C. The contract lacked consideration.
D. The contract lacked a writing.
E. The contract lacked both an appropriate offer and an appropriate acceptance.

The defense that a contract lacks the proper form typically means it lacks a writing.

Contract law is said to be based on a[n] ___________ theory, meaning that the existence and interpretation of the contract is based on the outward manifestations of intent by the parties. 
A. Subjective
B. Objective
C. Interpretive
D. Appearing
E. Unilateral

Contract law is based on an objective theory of contracts, which means we base the existence of a contract on the parties' outward manifestations of intent and we base its interpretation on how a reasonable person would interpret it.

As a general rule, the ________ intent of the parties is not relevant when determining whether a contract exists; rather, what is relevant is how they represented their intent through their actions and words. 
A. Objective
B. Subjective
C. Unilateral
D. Comprehensive
E. Considered

The subjective intent of the parties is not usually relevant; what matters is how they represented their intent through their actions and words.

If a _____________ misunderstanding between the parties exists, and as a result of that misunderstanding the parties do not really come to a meeting of the minds, there is no contract. 
A. Mutual
B. Unilateral
C. Comprehensive
D. Subjective
E. Reasonable

If a mutual misunderstanding between the parties exists, and if as a result they did not come to a meeting of the minds, there is no contract.

Which of the following are the two most important sources of contract law? 
A. Case law and the Restatement of Law.
B. Case law and the Uniform Commercial Code.
C. The Uniform Commercial Code and the Convention on Contracts for International Sales of Goods.
D. Case law and the Convention on Contracts for International Sales of Goods.
E. The Convention on Contracts for International Sales of Goods and the Restatement of the Law, Contracts.

The two most important sources of contract law are case law and the Uniform Commercial Code (UCC).

Today's law of contracts originated from judicial decisions in ______. 
A. France
B. Italy
C. Spain
D. England
E. Switzerland

Today's law of contracts actually originated in judicial decisions in England, later modified by early courts in the United States.

The law of contracts is primarily _______________ law. 
A. Comprehensive
B. Statutory
C. Common
D. Restated
E. Modified

The law of contracts is primarily common law.

Which of the following was propounded by prominent legal scholars, recruited by the American Law Institute? 
A. The Restatement of the Law Second, Contracts.
B. The Convention on Contracts for the National Sales of Goods.
C. Common law.
D. Common law and the Convention on Contracts for International Sales of Goods.
E. The Convention on Contracts for the National Sales of Goods and the Restatement of the Law Second, Contracts.

Prominent legal scholars, recruited by the American Law Institute, organized the principles of the common law of contracts into the original Restatement of the Law, Contracts. The compilation has been revised and published as Restatement of the Law Second, Contracts.

Which of the following is the reason the Uniform Commercial Code was drafted? 
A. Different states had different laws governing contracts which did not result in a smooth flow of interstate commerce.
B. Some states had no law governing contracts.
C. Federal law governing contracts was difficult to apply.
D. The Uniform State Act on laws was not working.
E. The Restatement of the Law Second, Contracts was not being evenly and fairly applied.

To remedy some of the difficulties created by a patchwork of different laws governing commercial transactions, the National Conference of Commissioners on Uniform State Laws and the American Law Institute drafted a set of commercial laws that could be applicable to all states. This effort was called the Uniform Commercial Code (UCC).

Which of the following articles are parts of the Uniform Commercial Code relevant to contracts? 
A. 2 and 2A
B. 3 and 4
C. 4 and 1B
D. 5 and 8
E. 6 and 10

A part of the Uniform Commercial Code relevant to contracts is Article 2, which governs contracts for the sale (exchange for a price) of goods (tangible, movable objects). Also relevant to contract law is UCC Article 2A, which governs contracts for the lease of goods.

All contracts can be categorized as either ___________ or __________. 
A. Unilateral, complete
B. Unilateral, trilateral
C. Bilateral, trilateral
D. Unilateral, bilateral
E. Bilateral, complete

All contracts are either unilateral or bilateral.

A ______________ contract is commonly defined as a promise in exchange for a promise. 
A. Unilateral
B. Trilateral
C. Complete
D. Bilateral
E. Classified

A bilateral contract is commonly defined as a promise in exchange for a promise.

Harry and Frank are in agreement that Harry will pay Frank $2,000 for a used car. At what point is there a binding contract?
A. When the agreement is made.
B. When the money is paid.
C. When the car is delivered.
D. Ten days after the car is delivered and approved.
E. Twenty days after the car is delivered and approved.

As soon as promises are exchanged, a contract is formed and the parties' legal obligations arise.

In a _____________ contract, the offeror wants a performance to form the contract. 
A. Trilateral
B. Bilateral
C. Unilateral
D. Complete
E. Anticipatory

In a unilateral contract, the offeror wants the offeree to do something, not to promise to do something.

Which of the following have all their terms clearly set forth in either written or spoken words? 
A. Implied contracts
B. Express contracts
C. Liquidated contracts
D. Bilateral contracts
E. Unilateral contracts

The terms of express contracts are all clearly set forth in either written or spoken words.

In which of the following does a contract arise not from words but from the conduct of the parties? 
A. Implied contracts
B. Express contracts
C. Liquidated contracts
D. Bilateral contracts
E. Unilateral contracts

Implied contracts arise not from words but from the conduct of the parties.

Which of the following is sometimes referred to as an implied-in-law contract? 
A. Quasi-contracts
B. Express contracts
C. Implied-in-fact contracts
D. Express contracts and implied-in-fact contracts
E. Express contracts and quasi-contracts

Quasi-contracts are sometimes called implied-in-law contracts, but they are not actually contracts.

Which of the following is the most likely measure of recovery when a quasi-contract is involved? 
A. The amount set forth in the contract.
B. The fair market value of the matter involved.
C. The wholesale price of any good involved.
D. The amount sought by the plaintiff in the Complaint.
E. Damages will be computed the same way as they are computed for any other contract.

In situations in which the court imposes a quasi-contract, the amount awarded will probably be based on fair market value.

A[n] _____________ contract is one that contains all the legal elements of a contract. 
A. Voidable
B. Executed
C. Formal
D. Valid
E. Approved

A valid contract may be _____________ when there is some law that prohibits the courts from enforcing it. 
A. Executed
B. Executory
C. Unenforceable
D. Novated
E. Condoned

Sometimes a contract may be valid yet unenforceable when a law prohibits the courts from enforcing it.

Which of the following is in effect not a contract at all? 
A. A voidable contract
B. An executory contract
C. An implied contract
D. An executed contract
E. A void contract

A void contract is in effect not a contract at all.

A contract is ______________ if one or both of the parties have the ability to either withdraw from the contract or enforce it. 
A. Voidable
B. Executory
C. Implied
D. Executed
E. Void

Which of the following contracts are usually voidable? 
A. Contracts entered into as a result of fraud.
B. Contracts entered into as a result of duress.
C. Contracts entered into as a result of undue influence.
D. Contracts entered into as a result of fraud or duress, but not undue influence.
E. Contracts entered into as a result of fraud, duress, or undue influence.

Contracts entered into as a result of fraud, duress, or undue influence may be voided by the innocent party.

Once all the terms of the contract have been fully performed, the contract is said to be ___________. 
A. Executory
B. Executed
C. Anticipatory
D. Ended
E. Stopped

Once all the terms of the contract have been fully performed, the contract has been executed.

As long as some of the duties under a contract have not yet been performed, the contract is considered ________________. 
A. Executory
B. Executed
C. Anticipatory
D. Ended
E. Stopped

As long as some of the terms have not yet been performed, a contract is executory.

Which of the following is an example of a formal contract? 
A. Contracts under seal.
B. Executed contracts.
C. Letters of credit.
D. Contracts under seal and also letters of credit.
E. Contracts under seal, letters of credit, and also executed contracts.

The Restatement (Second) of Contracts identifies the following four types of formal contracts: (1) contracts under seal, (2) recognizances, (3) letters of credit, and (4) negotiable instruments.

The reference to __________________ comes from the days when the contract was literally sealed by a piece of soft wax into which an impression was made. 
A. Implied-in-fact contracts
B. Implied-in-law contracts
C. Contracts under wax
D. Contracts under seal
E. Contracts under pressure

When people hear the term formal contract, what often comes to mind is a contract under seal, named in the days when contracts were sealed with a piece of soft wax into which an impression was made.

How many states still allow a contract without consideration to be enforced if it is under seal? 
A. Five
B. Eight
C. Ten
D. Twenty
E. Thirty

U.S. states today do not require that contracts be under seal. However, 10 states still allow a contract without consideration to be enforced if it is under seal.

A _______________ arises when a person acknowledges in court that he or she will perform some specified act or will pay a price upon failure to do so. 
A. Contract under seal
B. Voidable contract
C. Recognizance
D. Implied-in-fact
E. Informal contract

A recognizance arises when a person acknowledges in court that he or she will perform some specified act or pay a price upon failure to do so.

A ________________ is an agreement by the person who issues a letter to pay a sum of money on receipt of an invoice and other documents. 
A. Letter of agreement
B. Letter of credit
C. Letter of acknowledgement
D. Negotiated credit instrument letter
E. Letter of simple contract

A letter of credit is an agreement by the issuer to pay another party a sum of money on receipt of an invoice and other documents.

Which of the following are written documents signed by a party that makes an unconditional promise to pay a specific sum of money on demand or at a certain time to the holder of the instrument? 
A. Negotiable instrument
B. Informal contracts
C. Simple contracts
D. Letters of credit
E. Formal contracts

Negotiable instruments are unconditional written promises to pay the holder a specific sum of money on demand or at a certain time.

Which of the following states that if a writing, or term in question, appears to be plain and unambiguous on its face, its meaning must be determined from the four corners of the instrument without resort to intrinsic evidence, with the words being given their ordinary meaning? 
A. The Interpretation Rule
B. The Simple Rule
C. The Understandable Rule
D. The Plain Meaning Rule
E. The Comprehensive Rule

The plain-meaning rule states that if a writing, or a term in question, appears to be plain and unambiguous on its face, we must determine its meaning from just "the four corners" of the document, without resorting to outside evidence, and give the words their ordinary meaning.

What was the result on appeal in the case of D.L. Peoples Group, Inc., v. Hawley, in which heirs of the defendant's deceased employee claimed entitlement to workers' compensation benefits based on a contract of employment entered into in Florida by the deceased employee, but the trial court ruled that Florida law was inapplicable? 
A. Because the last act necessary for the formation of the contract occurred in Florida, Florida workers' compensation law applied.
B. The workers' compensation law of Florida was inapplicable because the last act necessary for the formation of the contract occurred in a state other than Florida.
C. The workers' compensation law of Florida applied because the defendant performed most of his work in Florida.
D. The workers' compensation law of Florida was inapplicable because the defendant performed most of his work outside of Florida.
E. Florida workers' compensation law applied because the contract at issue specifically designated the application of Florida law.

Because the last act necessary to complete the agreement was performed in Florida, the contract was made in Florida. Accordingly, Florida workers' compensation law was applied.

Which of the following was the result in In Re Zappos.com Inc., v. Customer Data Security Breach Litigation, the case in the text in which customers of Zappos claimed that they were not bound to an arbitration agreement contained in a contract with Zappos?

The court ruled for the plaintiffs for the following two reasons: (1) there was no contract because plaintiffs did not assent to it, and (2) even if a contract existed, the contract was illusory and unenforceable because Zappos could avoid promises at any time.