CH-11-12 Business Organizations – Essentials of the Legal Environment Today : Exam Guide

This Document Contains Chapters 11 to 12 Chapter 11 Business Organizations True/False 1. In choosing a form of business organization for a new enterprise, important factors include the ease of creation. A. True B. False Answer: True 2. In choosing a form of business organization for a new enterprise, important factors include the liability of the owner. A. True B. False Answer: True 3. A sole proprietor may own and manage any type of business. A. True B. False Answer: True 4. A sole proprietor must create a separate business organization to create a sole proprietorship. A. True B. False Answer: False 5. The federal government regulates franchising through laws that apply to specific industries. A. True B. False Answer: True 6. The franchise relationship is defined by a contract. A. True B. False Answer: True 7. As a general rule, the validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable. A. True B. False Answer: False 8. Good faith and fair dealing are important in terminating a franchise relationship. A. True B. False Answer: True 9. A sharing of profits from the ownership of property is enough to create a partnership. A. True B. False Answer: False 10. A partner who pursues his or her own interest automatically violates his or her fiduciary duties to the partnership. A. True B. False Answer: False 11. Partners are subject to personal liability for partnership obligations. A. True B. False Answer: True 12. A partnership ends if one partner dissociates from the firm. A. True B. False Answer: False 13. In a limited liability partnership, a partner is personally liable for the malpractice of other partners. A. True B. False Answer: False 14. In a limited partnership, a limited partner has full responsibility for the partnership and for all its debts. A. True B. False Answer: False 15. A limited partner has every right to participate in the management and operation of a limited partnership. A. True B. False Answer: False 16. A limited liability company is operated in compliance with state law. A. True B. False Answer: True 17. The members of a limited liability company enjoy limited liability. A. True B. False Answer: True 18. Foreign investors cannot participate in a limited liability company. A. True B. False Answer: False 19. If there is no limited liability company (LLC) agreement covering a topic under dispute, the state LLC statute will govern the outcome. A. True B. False Answer: True 20. In many states, an operating agreement is not required for a limited liability company to exist. A. True B. False Answer: True 21. One of the key advantages of the corporate form is the unlimited liability of its owners. A. True B. False Answer: False 22. The Revised Model Business Corporation Act gives a close corporation less flexibility in determining its rules of operation. A. True B. False Answer: False 23. An S corporation is treated the same as a regular corporation for tax purposes A. True B. False Answer: False 24. The primary document needed to incorporate a business is the articles of incorporation. A. True B. False Answer: True 25. Bonds represent the borrowing of funds by firms. A. True B. False Answer: True 26. Express powers of a corporation are found in its articles of incorporation. A. True B. False Answer: True 27. To pierce the corporate veil means to ignore the corporate structure, exposing the shareholders to personal liability. A. True B. False Answer: True 28. Directors have a right to participate in all board of directors’ meetings. A. True B. False Answer: True 29. Officers hire the directors and other executive employees. A. True B. False Answer: False 30. A director or officer is not liable to the corporation for a bad business decision. A. True B. False Answer: True 31. A director must make a full disclosure of any potential conflict of interest that might arise in any corporate transaction. A. True B. False Answer: True 32. Shareholders must approve fundamental changes affecting the corporation before the changes can be implemented. A. True B. False Answer: True 33. Shareholders’ meetings need not occur at any certain interval. A. True B. False Answer: False 34. Before shareholders can bring a derivative suit, they must submit a written demand to the corporation, asking the board of directors to take action. A. True B. False Answer: True 35. Shareholders are personally liable for the debts of a corporation. A. True B. False Answer: False Multiple Choice 36. Julia owns and operates Collectable Dolls without creating a separate business organization. She receives all the profits from the doll sales. Collectable Dolls is most likely a A. a corporation. B. a limited liability company. C. a partnership. D. a sole proprietorship. Answer: D 37. Leigh wants to go into the business of construction contracting. Among the reasons that would probably convince Leigh to set up his business as a sole proprietorship would be A. its greater organizational flexibility. B. its limited liability. C. its perpetual existence. D. the ease of transferring the business to other family members. Answer: A 38. FreezE Yogurt Corporation provides its prospective franchisees with projected earnings figures based on actual data. FreezE Yogurt must also disclose A. the number and percentage of franchisees that achieved the figures. B. hypothetical examples of potential earnings. C. an answer to the entrepreneur’s question, “How much will I make?” D. none of the choices. Answer: A 39. Sylvester buys a franchise from Resistance Athletic Shoes Inc. This relationship, like all other franchise relationships, is governed by A. contract law. B. no law. C. the Franchise Disclosure Document, or FDD. D. the Uniform Commercial Code. Answer: A 40. Tumble Gymnastics & Karate, Inc., grants a franchise to Stefan to operate a Tumble gym. Tumble may require Stefan to pay the franchisor a percentage of the business’s A. annual sales or volume. B. weekly payroll expense. C. monthly overhead savings. D. none of the choices. Answer: A 41. Sasha contracts to buy a franchise from TrustMe Financial Consultants Inc. The contract is silent on the issue of territorial rights. When TrustMe allows a competing franchise to be established near Sasha’s office, she suffers a significant loss in profits. This is most likely a violation of A. no law. B. the Franchise Disclosure Document. C. the Federal Trade Commission’s Franchise Rule. D. the implied covenant of good faith and fair dealing. Answer: D 42. A franchise agreement between Software2 Company and Games3, Inc., is silent on a time for termination of the franchise. Software2 may A. never terminate. B. terminate at any time. C. terminate on reasonable notice. D. terminate on three days notice. Answer: C 43. Ed, Jon, and Phoebe do business as Reliable Movers. Phoebe develops a debilitating illness and can no longer work. Phoebe A. may dissociate from the partnership. B. may not dissociate from the partnership without Ed and Jon’s consent. C. must pay damages to Ed and Jon for the loss of her work. D. may terminate the partnership. Answer: A 44. Mead, Nero, and Olen do business as Pipe & Plumbing Services. After Mead’s relationship to the firm ends, Nero and Olen A. must dissolve the partnership. B. can continue to do business. C. must dissociate from the firm. D. can refuse to purchase Mead’s interest in the partnership. Answer: B 45. Reale Properties, LP, is a limited partnership. Its limited partners include more than sixty sophisticated investors and investment professionals. Each Reale limited partner A. must participate in the firm’s management. B. has no right to participate in the firm’s management. C. is personally liable for all partnership debts. D. has no liability for any partnership debts. Answer: B 46. Greta is a member of Hovercraft LLC. As a member, Greta is A. a manager or officer, but not an owner. B. an investor, but not a manager, officer, or owner. C. an owner. D. a participant, but not an investor, manager, officer, or owner. Answer: C 47. Dani is considering forms of business organization for her financial advisory firm. Like most states, Dani’s state requires that to form a limited liability company, she must file with a central state agency A. articles of certification. B. articles of formation. C. articles of organization. D. no specific documents. Answer: C 48. Coco is considering forms of business organization for her concessions business—Coco’s Cupcakes. Most states require that a limited liability company have at least A. no minimum number of members. B. at least one member. C. at least two members. D. at least three members, including at least one general partner. Answer: B 49. Farm2Fork, LLC, is a limited liability company. Rather than distribute its profits to its members, Energy wants to reinvest the profits in its business. For this reason, Energy may prefer to be taxed as A. a corporation. B. a partnership. C. a sole proprietorship. D. a franchise. Answer: A 50. Jeri and Knute are members of Lighthouse Tours LLC, a limited liability company. With respect to Lighthouse Tours’s liability, as members, Jeri and Knute are shielded from A. all liability. B. no liability. C. personal liability. D. “alter ego” liability. Answer: C 51. Qatar Global Investments is a foreign entity—a firm owned and operated by investors in a foreign country. With respect to a limited liability company in the United States, Qatar Global can A. act as a creditor, but cannot otherwise invest or participate. B. become a member. C. not become a member, but can participate in its operations. D. not become a member or otherwise participate in its operations. Answer: B 52. Kirby is a manager of Jumpstart Fitness LLC, a limited liability company. Kirby owes fiduciary duties to A. Jumpstart and its members. B. Jumpstart’s suppliers. C. Jumpstart’s customers. D. all of the choices. Answer: A 53. Charlie is the founder of Dream Job Apps Corporation. Eloise is a shareholder and director, and Francie is an officer. The day-to-day business operations of Dream Job Apps are overseen by A. Charlie. B. Eloise. C. Francie. D. Charlie and Eloise. Answer: C 54. Skyla and Terry want to form and do business as Unbound Games Corporation. Most statutes governing the formation and use of corporations are guided by A. city or county corporate codes. B. the Entrepreneur’s Corporate Handbook. C. the federal Administrative Procedure Act. D. the Revised Model Business Corporation Act. Answer: D 55. Ruby Red Restaurant Corporation is incorporated in South Carolina. In that state, Ruby Red is A. a domestic corporation. B. a foreign corporation. C. an alien corporation. D. a de jure corporation. Answer: A 56. Frida and Gregor want to market a new line of fishing gear. To avoid income taxes at the corporate level, they should form A. a C corporation. B. a close corporation. C. an S corporation. D. a private corporation. Answer: C 57. Like the bylaws of other corporations, the bylaws of Farmland Equipment, Inc., A. establish the operating name of the corporation. B. establish the value and classes of corporate stock. C. were adopted at its first organizational meeting. D. were submitted for approval to the public official in charge. Answer: C 58. Wild & Scenic River Tours, Inc., is a corporation. Wild & Scenic has the implied power to A. issue stocks and bonds. B. execute contracts and negotiable instruments. C. buy and sell (or lease) property. D. perform all acts reasonably appropriate and necessary to accomplish its corporate purposes. Answer: D 59. Niki owns O.K. Oil Corporation. Niki uses O.K.’s funds to pay her personal expenses, creates Pure Fuel Corporation to engage in the same business as O.K., transfers O.K.’s assets to Pure Fuel, and petitions O.K. into bankruptcy. This most likely warrants A. a bonus to Niki for financial maneuvers. B. a discharge for O.K. in bankruptcy. C. a pierce of O.K.’s corporate veil. D. a review of Pure Fuel’s articles of incorporation. Answer: C 60. Bret and Courtney form Delite Day Care, Inc. Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Delite’s A. board of directors. B. incorporators. C. officers. D. shareholders. Answer: A 61. Sophie and Tiny incorporate their beverage-container business as U-Twist Products, Inc. The first board of directors may be appointed by the firm’s A. board of directors. B. incorporators. C. officers. D. shareholders. Answer: B 62. Reba is a director of Quantum Mechanix Corporation. Reba’s rights, as a director, do not include a right to A. indemnification. B. inspection. C. participation. D. self-dealing. Answer: D 63. Raul is chairman of the board of Swif-Vac Corporation. Pinky, a consumer, is injured while using a Swif-Vac product. Pinky sues Swif-Vac, and Raul individually. Swif-Vac may pay Raul’s legal fees under A. the director’s right to certification. B. the director’s right to compensation. C. the director’s right to indemnification. D. no circumstances. Answer: C 64. VeriVisual Company makes HD 3D film and video equipment. VeriVisual is like most corporations in that its officers are hired by the firm’s A. board of directors. B. incorporators. C. other officers. D. shareholders. Answer: A 65. Genna is a director of Fab Stuff Corporation. Without informing Fab, Genna starts up Evertrendy, Inc., to compete with Fab. Genna is liable for breach of A. no duty or rule B. the business judgment rule. C. the duty of loyalty. D. the right of participation. Answer: C 66. Naomi and Ogden are shareholders of MediCare Residences, Inc. As shareholders, they must approve A. conducting a merger. B. deciding to pursue new business opportunities. C. terminating a managerial employee. D. negotiating a contract between management and labor. Answer: A 67. Gladys is a shareholder of Frozen Yogurt, Inc. As a shareholder, Gladys must approve A. amending the bylaws. B. declaring a corporate dividend. C. hiring a chief executive officer. D. issuing additional shares. Answer: A 68. Heidi and Ian are directors and shareholders of Globe Software, Inc. Heidi’s written authorization to Ian to vote Heidi’s shares at a Globe shareholders’ meeting is A. a close corporation. B. a fiduciary. C. a proxy. D. a quorum. Answer: C 69. Zero Sum Games Corporation has forty-three shareholders. The minimum number that must be present at a meeting for a shareholders’ vote is A. all of the shareholders. B. a quorum. C. a proxy. D. three of the shareholders. Answer: B 70. Ricardo is a shareholder of Speedy Bikes Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ricardo files a suit on the firm’s behalf. Any damages recovered by Ricardo’s suit will normally go to A. Ricardo. B. SBC. C. SBC’s directors. D. the state in which SBC is incorporated. Answer: B Essay 71. Owen plans to open Owen’s Pets Store, a pet sales and pet supplies outlet, and to hire Quimby and Ruth. Owen will invest only his own money. He does not expect to make any profit for at least two years and to make almost no profit for the first three years, but he hopes to expand eventually. Which form of business organization would be most appropriate? What are the chief characteristics, advantages, and disadvantages of this form of business organization? If Owen wants to obtain additional capital to expand the business, but does not want to lose control of the firm, what is his best option? Answer: When a business is relatively small and is not diversified, employs relatively few people, has modest profits, and is not likely to expand significantly or require extensive financing in the immediate future, the most appropriate form for doing business may be a sole proprietorship. A sole proprietorship is easier and less costly to start than other forms of business, because few legal forms are involved. The owner is free to make business decisions without consulting others. Taxes are paid on the business’s income as the owner’s personal income. In a sole proprietorship, the owner and the business are the same. Anyone who creates a business without designating a specific form for its organization is doing business as a sole proprietorship. An advantage of the sole proprietorship is its greater organizational flexibility over other forms of business organization. The owner can operate the enterprise without any formalities. A significant disadvantage of this form of organization, however, is that unlike most other forms of business organization, there are no limits on the liability of the owner for the debts and obligations of the firm. Another disadvantage of the sole proprietorship form can be the ability of a sole proprietor to raise capital while maintaining control and retaining the same form. This course may be limited chiefly to borrowing funds. Bringing in partners would convert the business to a partnership. Issuing stock would require incorporating or establishing another form of business. Selling the business would sacrifice all control. The only way to obtain additional business capital without accumulating it through business profit is by borrowing funds. 72. International Exports, L.P., is a limited partnership, with $100,000 in declared but unpaid profits. International’s creditors include Friendly Credit Corporation for $5,000 and Gwen, one of International’s limited partners, also for $5,000. When Harry, one of International’s general partners, decides to retire, the other general partners vote to liquidate and dissolve the firm. The limited partners, who are not asked their opinions, want International to continue in business and file a suit against the general partners to compel this result. Can the court order International to continue? If not, what is the priority of the distribution of International’s assets on its dissolution? Answer: A court cannot order a partnership to continue in business if all of its general partners do not consent. Thus, the court in this problem could not order International to continue even if all of its limited partners outnumbered its general partners and wanted the firm to continue. The priority of the distribution of a limited partnership’s assets on its dissolution is: first, creditors, including partner-creditors, for outstanding debts; second, partners and former partners for unpaid distributions of declared profit; third, partners for their capital contributions; and fourth, partners for the remaining assets, which would be undeclared profit, in proportion to their shares of distributions. Here, this would mean that on International’s dissolution, Friendly and Gwen would be paid first. All of the partners would then receive their shares of the remaining $100,000 in declared but unpaid profit and next the amounts of their capital contributions. Any remaining assets would be divided among the partners according to their shares of the profit. Chapter 12 The Formation of Traditional and E Contracts True/False 1. Some promises are not legally binding. A. True B. False Answer: True 2. If a contractual promise is not fulfilled, the person who made it is not subject to the sanctions of a court. A. True B. False Answer: False 3. In contract law, intent is determined by the personal or subjective intent, or belief, of a party. A. True B. False Answer: False 4. The only requirement for a valid contract is that the parties voluntarily entered into it. A. True B. False Answer: False 5. In contract law, the term consideration refers to the serious thought that underlies a party's intent to enter into a contract. A. True B. False Answer: False 6. To be legally sufficient, consideration must be evidenced by something tangible. A. True B. False Answer: False 7. The element of bargained-for exchange distinguishes contracts from gifts. A. True B. False Answer: True 8. A promise to do what one already has a legal duty to do constitutes legally sufficient consideration. A. True B. False Answer: False 9. A contract entered into by a minor is voidable at the option of either of the contracting parties. A. True B. False Answer: False 10. A person who has been determined by a court to be mentally competent cannot form a legally binding contract with another party. A. True B. False Answer: False 11. A contract entered into by an intoxicated person is never valid. A. True B. False Answer: False 12. A contract to do something that is prohibited by statutory law is void. A. True B. False Answer: True 13. Every state has a statute that stipulates what types of contracts must be in writing. A. True B. False Answer: True 14. A contract involving property of any kind must be in writing to be enforceable. A. True B. False Answer: False 15. The writing requirement under the Statute of Frauds means that an agreement must be a formal written contract. A. True B. False Answer: False 16. A unilateral contract is formed when the party receiving the offer completes the requested act or performance. A. True B. False Answer: True 17. A bilateral contract comes into existence at the moment promises are exchanged. A. True B. False Answer: True 18. An implied contract is not an actual contract. A. True B. False Answer: False 19. An executed contract is one that has been fully performed. A. True B. False Answer: True 20. An implied contract must be in writing to be enforceable. A. True B. False Answer: False 21. If a voidable contract is ratified, the parties must fully perform their respective legal obligations. A. True B. False Answer: True 22. If a voidable contract is avoided, the promisee, but not the promisor, is released from it. A. True B. False Answer: False 23. A statement of future intent—“I plan to sell my car”—is an offer. A. True B. False Answer: False 24. A request or invitation to negotiate is an offer. A. True B. False Answer: False 25. An advertisement—“we buy gold”—is an offer. A. True B. False Answer: False 26. No offer may be revoked before it is accepted. A. True B. False Answer: False 27. A counteroffer is a rejection of the original offer and the simultaneous making of a new offer. A. True B. False Answer: True 28. An acceptance can impose new conditions or change the terms of the original offer without rejecting it. A. True B. False Answer: False 29. An acceptance that changes the terms of the original offer may be considered a counteroffer. A. True B. False Answer: True 30. Under the mailbox rule, an acceptance takes effect at the time it is sent. A. True B. False Answer: True 31. An acceptance sent by means not expressly or impliedly authorized is not effective until it is received. A. True B. False Answer: True 32. Under federal law, an electronic signature is as valid as a signature on paper. A. True B. False Answer: True 33. An e-contract must meet basic requirements that are different from those required of a paper contract. A. True B. False Answer: False 34. An important rule to keep in mind is that the offeree (the buyer) controls the acceptance and thus the resulting contract. A. True B. False Answer: False 35. In certain circumstances, bargains are so oppressive that the courts relieve innocent parties of part or all of their duties. A. True B. False Answer: True Multiple Choice 36. Lucy agrees to work for Mung Manufacturing, Ltd., as a Chinese/ English/ French translator. In determining whether a contract has been formed, an element of prime importance is A. the parties’ intent. B. Mung’s base of operations. C. the duration of the work. D. Lucy’s language capabilities. Answer: A 37. Ethan believes that he and Fiorina agreed that he would find the best location for a well on her ranch and then dig the well. In a later dispute, whether a contract was formed can be determined by A. the parties’ statements at the time of their alleged contract. B. what Ethan claims was the parties’ intent. C. what Fiorina claims was the parties’ intent. D. what the parties agree they intended. Answer: A 38. Cellphones & Calltime, Inc., makes an offer to Delores to enter into a contract to work as a salesperson for a certain base salary plus commission for ninety days subject to a one-year renewal based on her performance. Delores accepts the offer. A valid contract requires A. a price and a subject. B. a duration and termination provision. C. an offer and an acceptance. D. specific quality standards. Answer: C 39. Home & Barn Construction, Inc., contracts with Idyll Farms to build a new dairy barn on Idyll’s property for which Idyll agrees to pay. The elements of this, and any other, contract include A. the parties’ capability. B. consideration. C. necessity of purpose. D. price. Answer: B 40. Omar asserts that a deal he entered into with Patty to sponsor and host a motivational conference for independent sales representatives is an unenforceable contract. Defenses to the enforcement of a contract include A. a desire not to perform. B. insufficient capital. C. preliminary indications of unsatisfactory results. D. the lack of a party’s voluntary consent. Answer: D 41. Chicken & Egg Farms promises to pay Dex $500 to install a sump pump in its warehouse. Dex completes the installation. The act of installing the pump A. imposes a moral obligation on Chicken & Egg to pay Dex. B. imposes no obligation on Chicken & Egg unless it is satisfied with the job. C. is not sufficient consideration because it is not goods or money. D. is the consideration that creates Chicken & Egg’s obligation to pay Dex. Answer: C 42. Henry promises not to open his Hank’s Lunchbox Café before 10:00 A.M. if Isis, who owns Isis’s Danish & Donuts next door, promises to close by 4:00 P.M. Henry’s consideration is A. the destruction of a legal relationship. B. the creation of a legal relationship. C. a forbearance. D. an exchange of money. Answer: C 43. Esmeralda promises to pay Fiorello $400 because “he does not have as much money as other people.” Esmeralda’s promise is not enforceable because A. society does not want gifts cheapened by making them legally enforceable. B. the redistribution of wealth on a one-to-one basis is not a valid social goal. C. Esmeralda could have paid more. D. Fiorello has not given consideration in return. Answer: D 44. Genovese Contracting, Inc., agrees to build a warehouse for Hawthorne Wholesale Distributors. When Genovese runs into the types of difficulties that contractors ordinarily confront, Hawthorne agrees to pay extra compensation to over-come them. Regarding the agreement to pay more, a court would likely A. enforce it. B. rescind it. C. order the parties to renegotiate it. D. not enforce it. Answer: D 45. Under a contract with Bucolic Farms, Agro Excavation, Inc., begins digging an agricultural pond. In mid-project, Agro asks for $15,000 over the contract price, claiming an increase in the “cost of doing business.” Bucolic agrees but later refuses to pay. Their agreement is A. unenforceable because Agro’s performance was a preexisting duty. B. unenforceable because Bucolic’s promise was illusory. C. enforceable. D. unenforceable because its performance is unforeseeably difficult. Answer: A 46. Mariah promises to pay her assistant Nadine $10,000 in consideration of the services she provided over the years. Mariah never pays Nadine. Mariah is A. liable for payment of the $10,000. B. liable only if Nadine still works for Mariah. C. not liable, because the consideration is in the past. D. not liable, because the consideration was unintentional. Answer: C 47. Stella is fifteen. In most states, for contractual purposes, Stella would be considered a minor until she is A. sixteen. B. eighteen. C. seventeen. D. twenty-one. Answer: B 48. Intoxicated but still capable of comprehending the consequences of her actions, Cricket signs a contract to sell her phone app design to Downloads, Inc. This contract is A. unenforceable because Cricket was intoxicated. B. enforceable. C. unenforceable if Cricket disaffirms it. D. unenforceable if Downloads disaffirms it. Answer: B 49. Sonya and Taylor enter into an oral contract that is required to be in writing to be enforceable. Such a contract is normally A. voidable by a party who does not wish to follow through with it. B. void. C. valid. D. voidable but only by consent of both parties. Answer: A 50. On Monday, O’Shea tells Patterson that she will pay Patterson $1,000 if O-Shea’s bill processing and office filing are completed by Friday. On Wednesday, when Patterson has finished more than half of the work, O’Shea says that she has changed his mind. Under the modern-day view, these parties had A. an expired contract when O’Shea said that she changed her mind. B. a bilateral contract when O’Shea offered to pay for the work. C. a unilateral contract as soon as Patterson began to perform. D. no contract. Answer: C 51. Jonah tells Levi he will give him an Xbox if Levi does Jonah’s chores for a month. Levi promises to do the chores. Jonah and Levi have formed A. a bilateral contract. B. an implied contract. C. a unilateral contract. D. no contract. Answer: A 52. Lamar offers to pay Melanie $150 for a hot-air balloon ride for Nina. They agree to meet at dawn the next day to exchange the cash for the ride. At this point, these parties have A. a bilateral contract. B. an implied contract. C. a unilateral contract. D. no contract. Answer: A 53. Avatar, Inc., and Bling Corporation sign a contract in which Avatar agrees to deliver t-shirts emblazoned with video game characters in exchange for Bling’s promise to pay. Avatar delivers. The contract is A. voidable. B. executed. C. executive. D. executory. Answer: D 54. Bilbo signs a lease agreement for an apartment with Cato, who owns and manages the Deer Creek Apartments complex. These parties have A. an express contract. B. an implied contract. C. a unilateral contract. D. no contract. Answer: A 55. Scot and Tiffany enter into an implied contract. The parties’ conduct A. defines the contract’s terms.defines the contract’s terms. B. finds the contract’s facts. C. terminates any unintended consequences. D. undercuts any terms based on the facts. Answer: A 56. Bruce, a minor, enters into a contract with Coralee to buy her car. Later, Bruce opts to avoid the deal. With respect to the contract, this releases A. both parties. B. neither party. C. only Bruce. D. only Coralee. Answer: A 57. Iggy tells Jade, “I might sell the snowboard that I bought this winter since I haven’t used it and the season is almost over.” This is A. an acceptance of an offer. B. a preliminary negotiation. C. an offer. D. a statement of future intent. Answer: D 58. Dewey asks Ember, “Do you want to buy my bike?” This is A. a valid offer. B. not a valid offer because the terms are not definite. C. not a valid offer because Dewey did not state an intent. D. not a valid offer because Ember did not respond. Answer: B 59. Signe offers to sell Thomas her textbook but conditions the sale on Thomas accepting the offer by March 1. Signe may revoke the offer A. before Thomas accepts the offer. B. before March 1, whether or not Thomas has accepted the offer. C. only after Thomas accepts the offer. D. only after March 1. Answer: A 60. Fabien offers to sell his Graphic Signs, LLC, business to Hana for $100,000. Hana replies, “The price is too high. I will buy it for $75,000.” Hana has A. accepted the offer. B. made a counteroffer without rejecting the offer. C. rejected the offer and made a counteroffer. D. rejected the offer without making a counteroffer. Answer: C 61. Deluxe Awnings, Inc., offers Elbert a job as an installer. No time for acceptance is specified in the offer. The offer will terminate A. after a reasonable period of time. B. after a typical workweek (five business days). C. after a usual month (thirty calendar days). D. never. Answer: A 62. Ricci, a user of SmartPhoneApps.com’s Web site, can download apps for free if she first clicks on “I accept” after viewing certain terms. This is A. a contract that does not include the terms. B. a contract that includes the terms. C. not a contract but the terms are enforceable. D. unenforceable. Answer: B 63. Mark is creating Nu2U.com, a Web site through which he will enter into contracts over the Internet. Important terms to include in his offers include A. provisions specifying the remedies if the contract is breached. B. a detailed history of his business. C. glowing reviews from former customers. D. his educational background. Answer: A 64. Deb buys a song through eSongs, an online music vendor. Before completing the purchase and downloading the song, Deb must review a provision stating that she will not make and sell copies of the song and is required to click “I agree.” This provision is A. a browse-wrap term. B. a click-on agreement. C. a shrink-wrap agreement. D. none of the choices. Answer: B 65. On behalf of Bobble Head Manufacturing Company, Carmela types her name at the bottom of an e-mail purchase order and submits the order to Designer Parts Company. Under the UETA, Carmela’s typed name qualifies as A. a “signature.” B. a statement of future intent. C. an assignment. D. a preliminary negotiation. Answer: A 66. Bret buys a subscription to the catalog of music provided by Concerto, an online music vendor. Before accessing the catalog, Bret must agree to a provision stating that she will not make and sell copies of the music. This provision is A. a browse-wrap term. B. a click-on agreement. C. a shrink-wrap agreement. D. a partnering agreement. Answer: B 67. Kelby enters into a contract with Lara on a social media network to buy her stock in Mobile Devices Corporation. Neither party prints out a hard copy. Under the Electronic Signatures in Global and National Commerce Act (E-SIGN Act), this contract can A. be “denied legal effect” if it falls under UCC Article 2. B. be “denied legal effect” unless a hard copy is printed. C. be “denied legal effect” until it is signed on paper. D. not be “denied legal effect” solely because it is in electronic form. Answer: D 68. Moby negotiates a contract with Nora via e-mail. It is reasonable to infer that Moby has consented to A. transact business electronically. B. submit to the jurisdiction of any selected forum. C. respond to any message sent to that e-mail address. D. nothing. Answer: A 69. Jolie signs a contract with Keaton, an unlicensed physician, to perform plastic surgery—a medical procedure. This contract is enforceable by A. Jolie. B. Jolie’s medical insurance company. C. Keaton. D. no one. Answer: D 70. Odina signs a covenant not to compete with her employer, Penultimate Sales Corporation. A court decides that the covenant is overly restrictive. Depending on the jurisdiction, the court will likely A. enforce it as written so as not to undercut the freedom of contract. B. enforce it but evaluate its effects over time. C. reform its terms to prevent any undue burden. D. refuse to enforce it unless Penultimate pays a fine to the court. Answer: C Essay 71. Philo, a businessperson, is a friend of Quiana, the owner of Rise n’ Shine, a coffee stand. Every day, Philo spends a few minutes at the stand, watching the brewing, considering the options, and usually buying a cup of coffee and something extra—a bagel, a muffin, a cookie, or a sandwich. One afternoon, Philo comes to the stand and picks up a bottle of iced coffee and a sandwich priced at $5 each. Philo waves the items at Quiana 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. A serious offer and acceptance are made, consideration is ex-changed (a bottle of iced coffee and a sandwich for $5 apiece), both parties have capacity, the selling of the items is legal, and no particular form is required for this type of contract. Thus, a contract exists. For the reasons given here, this contract 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 Philo’s action of waving the items and by his past con-duct. By his conduct Philo is telling Quiana that he will pay for the items later. The contract is also bilateral (as opposed to unilateral) because Quiana impliedly promises to sell the items to Philo in exchange for Philo’s implied promise to pay. The contract is partially executory, as Philo has engaged to pay for the items 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. 72. Corporate Code, Inc., sells business software—accounting and book-keeping programs, blank business forms, inventory control functions, and the like—in different combinations, in different packages, at different prices. Each package includes a shrink-wrap agreement that limits warranties and remedies. Developmental Research Corporation (DRC) buys a Corporate Code package and uses the product. Later, DRC files a suit against the software seller, claiming that the product was flawed and that the flaws caused DRC to suffer business losses. DRC asks for relief that exceeds the limits in the shrink-wrap agreement. What is a shrink-wrap agreement? Are such agreements always enforced? Under what circumstances is a court likely to enforce this agreement? Answer: A shrink-wrap agreement is an agreement whose terms are expressed inside a package that contains computer hardware or software. The terms usually focus on warranties, remedies, or other issues related to the product’s use. Shrink-wrap agreements have not always been enforced. The most important factor is the time at which the manufacturer communicates the terms to the end-user. A court is likely to enforce the agreement in this problem, and similar agreements, if the buyer had an opportunity to read the agreement before using the product. These agreements are enforced partly because from a business perspective, it is more practical to enclose the full terms of a sale in a pack-age rather than, for example, to read them over a phone while taking an order for a product. Such an agreement might not be enforced, however, if a court reasons that the buyer learned of the terms after the parties made their contract, and the buyer did not then agree to the terms. On this basis, the terms would be proposals for additions to the contract, which would require the buyer’s express assent. Test Bank for Essentials of the Legal Environment Today Roger LeRoy Miller 9781305262676