Clark 12e TBA Ch10

CHAPTER 10: NATURE AND TERMINOLOGY 113
Chapter 10
Nature and Terminology
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.
TRUE/FALSE QUESTIONS
A1. Some promises are not legally binding.
ANSWER: T PAGE: 206 TYPE: +

NAT: AACSB Analytic AICPA Critical Thinking
A2. Resolving whether a promise should be enforced is a function of

contract law.
ANSWER: T PAGE: 206 TYPE: N

NAT: AACSB Analytic AICPA Legal
A3. If a contractual promise is not fulfilled, the person who made it may
be required to perform the promised act.

A4. The intention to enter into a contract is judged by outward, objective

facts as interpreted by a reasonable person.
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accessible website, in whole or in part.
114 TEST BANK A—UNIT THREE: CONTRACTS AND E-CONTRACTS
ANSWER: T PAGE: 207 TYPE: +

A5. The only requirement of a valid contract is that it be voluntarily

entered into.
ANSWER: F PAGE: 208 TYPE: N

A6. Every contract involves at least three parties.

NAT: AACSB Reflective AICPA Legal
A7. “Consideration” refers to the voluntary consent of all of the parties

to a contract.
ANSWER: F PAGE: 208 TYPE: +

A8. A unilateral contract is formed when the one receiving the offer com-
pletes the requested act or performance.
ANSWER: T PAGE: 209 TYPE: =

A9. No offer may be revoked before it is accepted.
ANSWER: F PAGE: 210 TYPE: =

A10. A check is a formal contract.

A11. Informal contracts are usually based on their substance rather than
their form.

A12. An express contract must be in writing.

A13. An implied contract is not an actual contract.
ANSWER: F PAGE: 210 TYPE: +

A14. If a voidable contract is ratified, the parties must fully perform their
respective legal obligations.

A15. An executed contract is one that has been fully performed.

A16. A quasi contract is a fictional contract.

A17. A void contract is enforceable if it is in writing.

A18. The doctrine of quasi contract can be used only when there is an
actual contract that covers the matter in controversy.

A19. Plain language laws regulate some types of contracts to require

“legalese.”

A20. A reasonable, lawful, and effective meaning will normally be given to

all of a contract’s terms.

MULTIPLE CHOICE QUESTIONS
A1. Phil agrees to work for Vacation Resorts, Inc., as a chef. In

determining whether a contract has been formed, an element of
prime importance is
a. the parties’ intent.

b. Phil’s rate of pay.
c. the duration of the work.
d. Vacation Resorts’s facilities.
ANSWER: A PAGE: 207 TYPE: N

A2. Crosby believes that he and Dakota agreed he would act as her
personal sports trainer for seven workout sessions. In a later dispute,
the existence of any contract can be judged by
a. the parties’ statements at the time of their alleged contract.

b. what the defendant claims was the parties’ intent.
c. what the plaintiff claims was the parties’ intent.
d. what the parties agree they intended.

A3. Expert Pavers, Inc., contracts with Fabricated Building Corporation to

repave Fabricated’s parking lot for which Fabricated agrees to pay.
The elements of this, and any other, contract include
a. capability.
b. consideration.
c. formation.
d. practicality.
ANSWER: B PAGE: 208 TYPE: +

A4. Mona asserts that a deal she entered into with Nate is an unenforce-
able contract. Defenses to the enforcement of a contract include
a. a desire not to perform.

b. adverse economic consequences.
c. results that do not match expectations.
d. the lack of a party’s voluntary consent.
ANSWER: D PAGE: 208 TYPE: =

A5. Freida and Gail enter into a bilateral contract, which is created when
Freida gives a promise in exchange for Gail’s
a. payment of money only.

b. performance of a particular act only.
c. promise only.
d. prudent awareness only.
ANSWER: C PAGE: 208 TYPE: =

A6. Clay offers to pay Dorianne $50 for a golf lesson for Estee. They
agree to meet the day after tomorrow to exchange the cash for the
lesson. These parties have
a. a bilateral contract.
b. a trilateral contract.
c. a unilateral contract.
d. no contract.
ANSWER: A PAGE: 208 TYPE: =

A7. Opie offers to sell his guitar to Pinky for $100. Pinky agrees. They
complete and sign a printed form, and Pinky gives Opie a check for
the price. This check is
a. a formal contract.
b. an informal contract.
c. a simple contract.
d. no contract.
ANSWER: A PAGE: 210 TYPE: +

A8. On Monday, Neil tells Outdoor Landscaping, Inc., that he will pay
Outdoor $500 if a variety of tasks are completed by Friday. On
Wednesday, when Outdoor is more than half done with the work, Neil
says that he has changed his mind. Under the present-day view,
these parties had
a. an expired contract when Neil said that he had changed his

mind.
b. a quasi contract when Neil said that he would pay for certain
work.
c. a unilateral contract as soon as Outdoor began to perform.
d. no contract.

A9. On behalf of the jazz group Synco-Passion, their manager Raul

agrees to a performance in the Quay Club on May 1. Portia, acting
for Quay Club, sends a written copy of the agreement to Raul to be
signed. Typically, businesspersons put their contracts in writing to
a. ensure proof of the contracts’ existence.

b. create substance from form.
c. obtain a check or other negotiable instrument.
d. practice their “letters of credit.”

A10. Flo tells Gregor that she will buy his textbook from last semester for
$65. Gregor agrees. Flo and Gregor have
a. an executed contract.
b. an express contract.
c. an implied contract.
d. a quasi contract.
ANSWER: B PAGE: 210 TYPE: =

A11. When Jeff’s car breaks down, he asks Kwik Tow, Inc., to tow it from its
location to Loyal Repair Shop. There is no discussion of a price, and
Jeff and Kwik do not sign any documents. After the tow, Kwik sends
Jeff a bill. With respect to Jeff’s obligation to pay the bill, this is
a. an express contract.
b. an implied contract.
c. a quasi contract.
d. no contract.
ANSWER: B PAGE: 210 TYPE: =

A12. Following negotiations with Merchants Storage Company, Lonny

enters into an informal contract to clean the loading dock. This
means that the parties’ contract
a. requires no special form.

b. must be drafted “in form” to be valid.
c. is indefinite and imprecise.
d. does not exist.

A13. Sam and Tiffany enter into an implied contract. This is a contract in
which the parties’ conduct
a. defines the contract’s terms.

b. finds the contract’s facts.
c. terminates any unintended consequences.
d. undercuts any terms based on the facts.

A14. Scot enters into a contract with Tiffany that later proves voidable at
Tiffany’s option. If she elects to avoid any duty to perform under the
contract
a. both parties are released from it.

b. neither party is released from it.
c. only Scot is released from it.
d. only Tiffany is released from it.

A15. Holiday Sales Company and Global Distributors, Inc., enter into a
contract for the delivery of imported specialty goods. Until the goods
are delivered and paid for, these parties have
a. an executory contract.
b. no contract.
c. a quasi contract.
d. an informal contract.

A16. Mia, a physician, renders aid to Noel, who is injured and unconscious.
Mia can recover the cost of the aid from Noel
a. even if Noel was not aware of the aid.

b. only if Noel recovers because of the aid.
c. only if Noel was aware of the aid.
d. under no circumstances.

A17. Green Grocers, Inc., enters into a contract with Hiway Transport
Company for the delivery of a shipment of fresh produce. In a later
dispute between these parties over the delivery, the doctrine of
quasi contract cannot be used because
a. both of the parties involved are businesses.

b. at least one of the parties had greater bargaining power.
c. the subject of the contract was a service.
d. there is an actual contract covering the subject in dispute.
ANSWER: D PAGE: 214 TYPE: N

A18. Phil enters into a contract with Quality Resorts, Inc., to work as a
chef. Under the plain meaning rule, the meaning of this contract
must be determined by reference to
a. any available evidence.

b. any relevant extrinsic evidence.
c. the face of the instrument.
d. the later testimony of the parties.

A19. Diaz and Cuzco enter an express contract for the construction of a
warehouse. Express contract terms are given, in relation to the
parties’ course of performance,
a. less priority.
b. the same priority.
c. no priority.
d. more priority.
ANSWER: D PAGE: 217 TYPE: +

A20. National Grocers, Inc., enters into a contract with Overland Shipping
Company for the delivery of a shipment of fresh produce. If
ambiguities appear in the contract, they will be construed against
a. the party who drafted the contract.

b. the party with the greater bargaining power.
c. the promisor.
d. the promisee.

ESSAY QUESTIONS
A1. Ed, a businessperson, is a friend of Fran, the owner of a candy store.

Every day, Ed spends five minutes in Fran’s candy store, looking at
the candy and usually buying one or two candy bars. One afternoon,
Ed goes into the store, looks at the candy, and picks up a $1 candy
bar. Ed waves the candy at Fran without saying a word and walks
out. Is there a contract? If so, how would it be classified in terms of
formation, performance, and enforceability?
ANSWER: The facts presented here indicate the presence of all the
elements necessary for a valid contract. There are a serious offer
and acceptance, consideration is exchanged (a candy bar for $1),
both parties have capacity, the selling of the candy is legal, and
there is no particular form required for this type of contract. Thus, a
contract exists and for the reasons given here is classified as valid,
enforceable, and informal. In addition, this is a classic case of an

implied contract. There is no explicit agreement between the parties.
Rather, an agreement is implied by Ed’s action of waving the candy
bar and by his past conduct. By his conduct Ed is telling Fran that he
will pay for the candy later. The contract is also bilateral (as opposed
to unilateral), because Fran impliedly promises to sell the candy to
Ed in exchange for Ed’s implied promise to pay. The contract is
partially executory, as Ed has engaged to pay for the candy in the
future. Because the contract is for a legal purpose, both parties have
capacity, and voluntariness of consent is not an issue, the contract is
neither voidable nor void.
PAGES: 207–208 & 210–212 TYPE: =

NAT: AACSB Reflective AICPA Decision Modeling
A2. On May 1, Local Cartage Company and Modern Computers, Inc.,

orally agree that Local Cartage will pick up from National Chip
Corporation and deliver to Modern Computers’ manufacturing plant
a certain number of computer chips on each Monday in May. Under
the agreement, Modern Computers will pay for the delivery services
on June 1. On May 1, is this contract express, implied in fact, or
implied in law? On May 31, after all of the deliveries have been
made, is the contract executed or executory?
ANSWER: An express contract is one in which the terms are fully

expressed, either in writing or orally. The contract between Local
Cartage and Modern Computers is an oral contract, in which the
terms are fully expressed. That means their contract is an express
contract. The contract between Local Cartage and Modern
Computers is an executory contract on May 31. An executed contract
is a contract that has been fully performed on both sides. An
executory contract is a contract that has not been fully performed. If,
as in this problem, one party (Local Cartage) has fully performed but
the other (Modern Computers) has not, the contract, although it is
executed on one side and executory on the other, is still classified as
executory.
PAGES: 210 & 211 TYPE: =

NAT: AACSB Reflective AICPA Decision Modeling

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CHAPTER 10: NATURE AND TERMINOLOGY 113

Nature and Terminology

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

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

A1. Some promises are not legally binding.

ANSWER: T PAGE: 206 TYPE: +

A2. Resolving whether a promise should be enforced is a function of

ANSWER: T PAGE: 206 TYPE: N

ANSWER: T PAGE: 207 TYPE: N

A4. The intention to enter into a contract is judged by outward, objective

ANSWER: T PAGE: 207 TYPE: +

A5. The only requirement of a valid contract is that it be voluntarily

ANSWER: F PAGE: 208 TYPE: N

A6. Every contract involves at least three parties.

ANSWER: F PAGE: 208 TYPE: N

A7. “Consideration” refers to the voluntary consent of all of the parties

ANSWER: F PAGE: 208 TYPE: +

ANSWER: T PAGE: 209 TYPE: =

A9. No offer may be revoked before it is accepted.

ANSWER: F PAGE: 210 TYPE: =

A10. A check is a formal contract.

ANSWER: T PAGE: 210 TYPE: N

ANSWER: T PAGE: 210 TYPE: =

A12. An express contract must be in writing.

ANSWER: F PAGE: 210 TYPE: =

A13. An implied contract is not an actual contract.

ANSWER: F PAGE: 210 TYPE: +

ANSWER: T PAGE: 211 TYPE: N

A15. An executed contract is one that has been fully performed.

ANSWER: T PAGE: 211 TYPE: =

A16. A quasi contract is a fictional contract.

ANSWER: T PAGE: 212 TYPE: =

A17. A void contract is enforceable if it is in writing.

ANSWER: F PAGE: 212 TYPE: =

ANSWER: F PAGE: 214 TYPE: =

A19. Plain language laws regulate some types of contracts to require

ANSWER: F PAGE: 215 TYPE: N

A20. A reasonable, lawful, and effective meaning will normally be given to

ANSWER: T PAGE: 217 TYPE: N

MULTIPLE CHOICE QUESTIONS

A1. Phil agrees to work for Vacation Resorts, Inc., as a chef. In

a. the parties’ intent.

ANSWER: A PAGE: 207 TYPE: N

a. the parties’ statements at the time of their alleged contract.

ANSWER: A PAGE: 207 TYPE: N

A3. Expert Pavers, Inc., contracts with Fabricated Building Corporation to

ANSWER: B PAGE: 208 TYPE: +

a. a desire not to perform.

ANSWER: D PAGE: 208 TYPE: =

a. payment of money only.

ANSWER: C PAGE: 208 TYPE: =

ANSWER: A PAGE: 208 TYPE: =

ANSWER: A PAGE: 210 TYPE: +

a. an expired contract when Neil said that he had changed his

ANSWER: C PAGE: 210 TYPE: =

A9. On behalf of the jazz group Synco-Passion, their manager Raul

a. ensure proof of the contracts’ existence.

ANSWER: A PAGE: 210 TYPE: N

ANSWER: B PAGE: 210 TYPE: =

ANSWER: B PAGE: 210 TYPE: =

A12. Following negotiations with Merchants Storage Company, Lonny

a. requires no special form.

ANSWER: A PAGE: 210 TYPE: N

a. defines the contract’s terms.