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This Document Contains Chapters 11 to 15 Chapter 11—Cyberlaw TRUE/FALSE 1. The term “cyberlaw” refers to laws and precedent applicable to Internet transactions and communications. Answer: True 2. Cyberlaw is a completely new area of law, unrelated to any established field of law. Answer: False 3. The term “cyberspace” describes the World Wide Web and Internet communication. Answer: True 4. Legal issues in cyberspace include appropriation and competition issues. Answer: True 5. The law of real property is included in those categories of legal issues covered by cyberlaw. Answer: False 6. Employers have access and control rights to their employees' e-mail. Answer: True 7. Employers are required to give notice to employees that they will monitor their employees' e-mail. Answer: False 8. Employers are accountable when employee use e-mails to defame competitors. Answer: True 9. The Electronic Communications Privacy Act of 1986 (ECPA) is useful in resolving privacy issue questions. Answer: False 10. Potential employers are free to do pre-hiring monitoring of applicants without their knowledge. Answer: False 11. Cleaning up your name on Google using one of several services is a good way to eliminate any suspicions perspective or current employers may have about you. Answer: False 12. The tort of invasion of privacy has some application to cyberspace communication. Answer: True 13. Employees may waive their attorney-client privileges when using their work computers for communication. Answer: True 14. The key to being able to have Internet Service Providers (ISPs) release identities of those who post statements on the Internet is whether the posters were engaged in illegal or harmful activities. Answer: True 15. It is a crime to post nasty opinions about someone in an Internet chat room. Answer: False 16. Web site operators are free to plant “cookies” on computers with no fear of action for breach of unauthorized access or privacy. Answer: False 17. Appropriation involves taking an image, likeness, or name for purposes of commercial advantage. Answer: True 18. Sock-puppeting is anonymous blogging that flatters the blogger’s company and bashes one or more competitors. Answer: True 19. Contract formation in cyberspace is the result of a desire for businesses to use a common language to form contracts. Answer: False 20. The formation of contracts in cyberspace is always governed by the law of the United States. Answer: False 21. The distinction between offer and acceptance is no longer relevant in cyberlaw. Answer: False 22. Federal law now recognizes the validity of electronic signatures. Answer: True 23. Misrepresentation and fraud on the Internet raises a variety of new legal issues. Answer: False 24. Federal law requires all companies who market search engines on the Internet to create and abide by a search engine code of ethics. Answer: False 25. The Internet Tax Freedom Act (ITFA) prohibits companies from charging sales tax on Internet transactions. Answer: False MULTIPLE CHOICE 1. __________ refers to laws and precedent applicable to Internet transactions and communications. A. Cyberlaw B. Cyborglaw C. Silicalaw D. Simlaw Answer: A 2. Legal issues of Cyberspace include: A. employment issues. B. user issues. C. contract issues. D. all of the above. Answer: D 3. Describe the rights of employers to monitor the e-mail of employees who are using their employers’ email system. A. Employers may monitor employees' e-mails, but only if the employees have consented. B. Employers may monitor employees' e-mails, regardless of whether employees have consented. C. Employers may monitor employees' e-mails, but only if notice is given. D. Employers may not monitor employees' e-mails. Answer: B 4. Employee e-mail is: A. spontaneous. B. candid. C. discoverable. D. all of the above. Answer: D 5. When employers allow employees to reimburse the employer for private use of text services, employer monitoring and disclosure of those texts is: A. always legal. B. only legal if the employee gives his or her consent. C. only legal for texts that are sent and received during work hours. D. a violation of the law. Answer: D 6. The Federal Trade Commission (FTC) has begun to take positions on Internet issues that are: A. tailored to Cyberspace. B. specific to the type of website that has the issue. C. identical to its stances of other types of commerce issues. D. none of the above. Answer: C 7. Plaintiffs can successfully subpoena Internet Service Providers (ISPs) to obtain the identify of individuals who make defamatory remarks: A. in all cases. B. only when the information posted is false. C. only when the information posted is true. D. ISPs are never required to disclose identity. Answer: B 8. Statutory protections for privacy in cyberspace: A. include state laws that are difficult to enforce against web sponsors with no presence in the state. B. often address specific issues such as financial information rather than general protections. C. may not protect an individual from federal agency “routine use”. D. all of the above. Answer: D 9. The taking of an image off someone's web site and using it for commercial advantage is called: A. appropriation. B. defamation. C. gleaning. D. subordination. Answer: A 10. Contracts in cyberspace: A. are formed as a result of the desire for speed. B. are formed using purchase orders and invoices submitted via computer. C. require both an offer and an acceptance. D. all of the above. Answer: D 11. The formation of contracts in cyberspace is governed today largely by: A. international contract law principles. B. traditional contract law principles. C. federal contract law principles. D. uniform state laws. Answer: B 12. __________ is a federal law that recognizes digital signatures as authentic for purposes of contract formation. A. Cyber-sign B. We-sign C. Electra-sign D. E-sign Answer: D 13. The majority of fraud complaints received by the FBI relate to: A. sales from large online only retailers. B. sales from traditional retailers who also operate on the Internet. C. private Internet sales (one individual to another). D. Internet auctions. Answer: D 14. Companies who have misrepresented the capabilities of their search engines or failed to disclose the methods whereby they give preference to certain links: A. may be liable for fraud, but are not responsible for either rescission or damages. B. may be liable for fraud, but if so are only responsible for rescission. C. may be liable for fraud, but if so are only responsible for damages. D. may be liable for fraud, and if so might be responsible for rescission or damages. Answer: D 15. Sales tax on Internet sales: A. is never collected. B. is always collected. C. is collected if the seller has a physical presence in the state of sale. D. follow the same rules for sales tax collected in brick and mortar stores. Answer: C CASE 1. Roxy is employed as a manager at "com.com," an Internet-based company attempting to compete successfully in the highly competitive software development industry. Roxy is concerned that one of her employees, Randy, is not performing at an acceptable level. While Roxy has noticed that Randy spends considerable time using the computer at his workstation, his productivity is lacking. Roxy suspects Randy is using the company's e-mail system for personal use instead of working on company business. Is Roxy permitted to monitor Randy's email? Answer: Private communications are usually protected by the tort of invasion of privacy. At work, however, an employee's expectation of privacy substantially declines. Further, because Randy is using his employer's e-mail system, all messages sent or received may be reviewed - without notice - by the employer. 2. Bon, located in Florida, desires to enter into a contract with Jon, a resident of Maine. Neither wishes to meet face-to-face, as both are busy with a variety of business interests. Instead, they wish to form a contract over the Internet. Would a contract formed over the Internet be valid? Answer: The formation of a contract over the Internet is governed by the same laws that apply when a contract is formed face-to-face. Perhaps the only issue of significance peculiar to entering into a contract in cyberspace is the validity of "E-signing." Federal law recognizes the validity of digital signatures, but states are assigned the responsibility for regulating the authenticity and validity of signatures on contracts. Chapter 12—Nature and Classes of Contracts: Contracting on the Internet TRUE/FALSE 1. A contract is essentially an agreement that creates an obligation. Answer: True 2. Because transfer of value is essential to a valid contract, contracts cannot arise in the performance of personal services. Answer: False 3. A contract can only involve two parties. Answer: False 4. A person who makes a promise is the promisor, while a person to whom the promise is made is the promise. Answer: True 5. Only the parties who signed the original contract can have rights with respect to that contract. Answer: False 6. An offeror makes an offer to an offeree. Answer: True 7. The law requires parties to be fair and reasonable in the making of a contract. Answer: False 8. Negotiable instruments are examples of formal contracts. Answer: True 9. A contract for an amount greater than $1 million must be made under seal or it is not binding. Answer: False 10. A recognizance is an agreement by which one party admits or recognizes that a specified sum of money is owed to another party. Answer: False 11. An express contract is one in which the agreement is shown by the acts and conduct of the parties. Answer: False 12. An implied contract is one in which the agreement is shown not by words, written or spoken, but by the acts and conduct of the parties. Answer: True 13. The effect of an implied contract is not the same as the effect of an express contract. Answer: False 14. A void contract is one that is otherwise valid but may be rejected or set aside by one of the parties. Answer: False 15. An agreement that contemplates the performance of an act prohibited by law is usually void. Answer: True 16. An executory contract is an agreement by which something remains to be done by one or both parties. Answer: True 17. An executed contract is an agreement that has been completely performed. Answer: True 18. When a contract is fully performed by one party, it is called a unilateral contract. Answer: False 19. A bilateral contract is essentially an exchange of promises. Answer: True 20. With regard to a unilateral contract, the offeree does not accept the offer by express agreement, but rather by performance. Answer: True 21. A contract never can be both executory and unilateral. Answer: False 22. An option contract gives one of the parties an absolute right to enter into a second contract at a later date. Answer: True 23. Quasi contracts are contracts. Answer: False 24. The principle behind the quasi contract is to prevent unjust enrichment. Answer: True 25. A quasi contract may arise in a situation in which no contract exists. Answer: True 26. Whenever a person receives a benefit for which payment has not been made, there is an unjust enrichment and the value of such benefit must be paid to the person conferring the benefit. Answer: False 27. Quasi-contractual liability will generally be imposed when the cost of performing a contract is greater than had been expected. Answer: False 28. When a contract sets a price for services rendered, a plaintiff cannot sue for reasonable value. Answer: True 29. The greatest risk to purchasing online is providing your credit card information to the seller. Answer: False 30. When purchasing from a website, the website terms generally become the contract of the parties and are legally enforceable. Answer: True MULTIPLE CHOICE 1. A contract is: A. a binding agreement. B. an agreement creating an obligation. C. an agreement that creates enforceable duties and obligations. D. all of the above. Answer: D 2. The elements of a contract include all of the following except: A. an agreement. B. two or more competent parties. C. consideration. D. an illegal purpose. Answer: D 3. The subject matter of a contract may relate to: A. the performance of personal services. B. the construction of a house. C. the transfer of ownership of property. D. all of the above. Answer: D 4. The promisor in a contract may also be called the: A. obligor. B. grantor C. obligee D. grantee Answer: A 5. A party to a contract may be: A. an individual. B. a partnership. C. a corporation. D. all of the above. Answer: D 6. A contract requires: A. an offer. B. an acceptance. C. both an offer and an acceptance. D. an agreement manifested by the written or spoken words of the parties. Answer: C 7. An agreement arises when one person, the __________, makes an offer and the other person to whom the offer is made, the __________, accepts. A. grantor; grantee B. grantee; grantor C. offeror; offeree D. offeree; offeror Answer: C 8. A contract of record is also referred to as a: A. recognizance. B. reconnaissance. C. recording contract. D. none of the above. Answer: A 9. Negotiable instruments are: A. formal contracts. B. informal contracts. C. option contracts. D. first-refusal agreements. Answer: A 10. An implied contract is shown by: A. a writing. B. the acts and conduct of the parties. C. statements made in open court. D. an exchange of oral promises. Answer: B 11. A legally binding agreement that can be rejected at the option of one of the parties is called a(n): A. void agreement. B. revoked contract. C. voidable contract. D. optional agreement. Answer: C 12. An executory contract is: A. void if neither party has performed. B. voidable. C. entered into but not fully performed. D. always unilateral in nature. Answer: C 13. A contract under which one or both parties have not yet fully performed is termed a(n): A. void agreement. B. executory contract. C. executive contract. D. executed contract. Answer: B 14. A bilateral contract consists of a: A. promise for an act. B. promise for refraining from acting. C. promise for a promise. D. promise to contract. Answer: C 15. An offer of a reward for the arrest and conviction of a criminal is an example of a: A. unilateral contract. B. bilateral contract. C. quasi contract. D. formal contract. Answer: A 16. In a bilateral contract, each party will be a promisor and, therefore, each party will: A. be an obligor. B. be able to avoid the contract. C. not be in privity of contract. D. be an agent for the other side. Answer: A 17. The main thrust of the quasi contract is to: A. encourage the making of written contracts. B. prevent enrichment. C. compensate those who voluntarily help others. D. prevent unjust enrichment. Answer: D 18. An obligation to pay for the reasonable value of services rendered when there is no contract would be called: A. quasi-contractual. B. quasi-enforceable. C. semi-lawful. D. valid. Answer: A 19. A right of __________ refusal is the right of a party to meet the terms of a proposed contract before it is executed, such as a real estate purchase agreement. A. concomitant B. conditional C. formal D. first Answer: D 20. The plaintiff in a quasi-contractual action can recover: A. lost profits. B. damages for mental distress. C. the reasonable value of the benefit conferred upon the defendant. D. for all the damages sustained. Answer: C CASE 1. The Martin family owned a home that was badly in need of repair. Mrs. Martin worked outside the home and Mr. Martin took care of the household responsibilities and cared for the two young Martin children. One day, Mrs. Martin left for work and a home repair crew drove up and began to put aluminum siding on the Martin house. Mr. Martin telephoned his wife, told her, and inquired about whether she had hired the workers. When the Martins realized that they never had ordered this work done, Mr. Martin sneaked out the back with the children. He later met his wife at work and they returned home for dinner. By that time, the entire front of the house had been aluminum-sided. The foreman asked, "Mr. and Mrs. Wolf, how do you like the job?" The Martins replied that they loved the job, but the Wolfs lived next door. When it became clear that the repair crew had made an error, the foreman insisted that the Martins had to pay. A. Decide the case, and explain the reason(s) for your decision. B. Decide the case, assuming that the Martins were away on vacation when the improvements were made, and then returned home to discover the improvements. Answer: A. Because it was clear that the workers would be seeking payment for the work and had made an error, the Martins had the obligation to stop the work or be responsible for payment. This is a quasi-contractual obligation imposed by the law to prevent one party from being unjustly enriched at the expense of another. The Martins are obligated to pay for the reasonable value of the improvements. B. If the Martins were unaware of the fact that the improvements were being made, it is unlikely that a judge would order them to pay for the improvements. In this scenario, because the Martins would have had no opportunity to stop the work from being performed, the Martins would not be unjustly enriched. 2. When Gordon told Hanson that he was considering selling his house, Hanson offered to buy it. Gordon and Hanson entered into a contract in which Hanson paid Gordon $1,000 in cash for the right to buy Gordon's house for $150,000 in the event Gordon decided to sell it. Two weeks later, Jones offered Gordon $200,000 for his house, and Gordon agreed to sell it to her for that amount. Hanson sued Gordon to force Gordon to sell the house to him for $150,000, rather than to Jones for $200,000. Identify the probable result of the action. What type of contract, if any, was entered into between Gordon and Hanson? Answer: Judgment would be for Hanson. Gordon and Hanson entered into a first-refusal contract providing that if Gordon decided to sell his house to anyone, Hanson would have an option to buy it for $150,000. Hanson's right to buy the house arose at the time Gordon decided to sell his house to Jones. Gordon breached his contract with Hanson by not offering to sell Hanson the house and instead entering into an agreement with Jones. 3. Louise owned a house next to Robert's house. Robert made a contract with Midcity Painters to paint his house. The painters arrived to paint Robert's house, but mistakenly painted Louise's house. She saw the painters at work and made no comment. Later, Midcity Painters sent Louise a bill for painting her house. She claimed that she was not liable because she had not made any contract with them. Is this a valid defense? Answer: No. Although Louise did not enter into an actual contract for the painting of her house, this does not necessarily mean that she is not required to make any payment. She received a benefit, the painting of her house, with the knowledge that she was not legally entitled to it because she had no contract. Louise has therefore been unjustly enriched, and she is under a duty to pay the painters for the reasonable value of their services. As Louise had no contractual duty to pay for the painting, her duty to pay is quasi-contractual. Chapter 13—Formation of Contracts: Offer and Acceptance TRUE/FALSE 1. To make an offer, the offeror must appear to intend to create a binding obligation. Answer: True 2. Generally, advertisements, catalog prices, and circulars are offers that can be accepted. Answer: False 3. Social invitations can be offers. Answer: False 4. Advertisements that call for an act may be deemed to be a unilateral contract. Answer: True 5. If an offer is indefinite or vague, no contract arises from an attempt to accept it. Answer: True 6. Contractual intention is determined by objective standards. Answer: True 7. An otherwise vague contract may be clarified by references in the contract to other documents or agreements. Answer: True 8. An agreement cannot be enforced if it does not set forth every contractual detail. Answer: False 9. Contract terms may not be implied from conduct. Answer: False 10. When it is claimed that a contract is too indefinite to be enforced, a court will do its best to find the intent of the parties and thereby reach the conclusion that the contract is not too indefinite. Answer: True 11. A “best efforts” clause is always deemed too indefinite to be enforceable. Answer: False 12. A requirements contract is too vague to be a legally-enforceable agreement. Answer: False 13. An output contract is too vague to be a legally-enforceable agreement. Answer: False 14. An offer is effective only if it is communicated by the offeror in person. Answer: False 15. An offer gives the offeror the power to bind the offeree by contract. Answer: False 16. A revocation of an offer is ordinarily effective only when it is communicated to the offeree. Answer: True 17. Offers, acceptances of offers, and revocations of offers are all effective when mailed in a properly-addressed envelope bearing the proper amount of postage. Answer: False 18. An option contract is a binding promise to keep an offer open for a stated period of time or until a specified date. Answer: True 19. An option is itself a contract to refrain from revoking an offer. Answer: True 20. A firm offer is an offer that states that it is to be irrevocable, or irrevocable for a stated period of time. Answer: True 21. If the offeree purports to accept an offer but in so doing makes any change to the terms of the offer, such action is a counteroffer that rejects the original offer. Answer: True 22. If no time is stated for the duration of an offer, it continues indefinitely if the offer relates to durable goods or land. Answer: False 23. If an offer does not state how long it shall remain open, it remains open for ten days. Answer: False 24. If either the offeror or offeree dies or becomes mentally incompetent before the offer is accepted, the offer is automatically terminated. Answer: True 25. An acceptance must be absolute and unconditional. Answer: True 26. The fact that there has been a series of contracts between the parties and that one party’s offer has always been accepted before by the other does not create any legal obligation to continue to accept subsequent offers. Answer: True 27. A party to an existing contract can modify the agreement without the other party’s actual acceptance or approval. Answer: False 28. Acceptance of an offer to form a unilateral contract need not be communicated to the offeror to be effective. Answer: True 29. A properly mailed acceptance takes effect when mailed, even if it never is received by the offeror. Answer: True 30. At an auction sale, a statement made by the auctioneer to draw forth bids constitutes an offer. Answer: False MULTIPLE CHOICE 1. The willingness of an offeror to enter into a contractual agreement regarding a particular subject is expressed by a(n): A. offer. B. acceptance. C. contract. D. agreement. Answer: A 2. If not an offer, the first statement made by one of two persons is most properly termed a(n): A. option. B. acceptance. C. invitation to negotiate. D. contract. Answer: C 3. A customer went into a store and saw a beautiful leather jacket bearing a price tag of $29. The customer handed the cashier a $50 bill and said, "I accept. We have a deal." The cashier then noticed the price tag and told the customer an error had been made and that the price was $229. In this case: A. the customer validly accepted the store’s offer. B. the price tag was a firm offer. C. no contract was formed because the customer's offer was refused. D. the customer is the offeree. Answer: C 4. A customer requested a price from a carpenter on a teak cabinet to be built according to the buyer's specifications. Because teak wood is difficult to obtain, the customer agreed to pay the cost of the wood plus $175 and the carpenter agreed to build it. Which of the following is correct? A. Although the price is somewhat unclear, the parties have entered into a contract. B. This is an agreement to agree, and is not binding. C. This agreement fails for indefiniteness. D. The carpenter is bound by the agreement, but not the customer. Answer: A 5. An offer that is indefinite may be clarified by reference to another writing through: A. incorporation. B. reference. C. annotation. D. indexing. Answer: A 6. An agreement that consists of two or more parts and calls for corresponding performances of each part by the parties is called a: A. partial contract. B. divisible contract. C. performance contract. D. divided contract. Answer: B 7. If an offeree accepts an offer before it is effectively revoked: A. a void contract is formed. B. a voidable contract is formed. C. an unenforceable contract is formed. D. a valid contract is formed. Answer: D 8. A(n) __________ contract is a contract to buy all requirements of the buyer from the seller. A. output B. essentials C. necessaries D. requirements Answer: D 9. Under the Uniform Commercial Code (UCC), a firm offer applies to: A. a written, signed offer by a merchant to buy or sell goods. B. an unwritten but definite offer to buy or sell goods. C. a written, signed offer by anyone to buy or sell goods. D. an unlimited, stipulated period of time. Answer: A 10. A counteroffer is a(n): A. acceptance of the original offer. B. rejection of the original offer. C. acceptance of the original offer and an invitation to further negotiate. D. a revocation of the original offer. Answer: B 11. A said to B, "I'll give you $100 for that bracelet." B replied, "$135." A said, "No thanks." B then said that B accepted the $100, but A was no longer interested and said there was no contract. B insists there is a contract. Result? A. A's offer of $100 was open and accepted by B, thereby forming a contract. B. B's counteroffer of $135 terminated A's offer of $100. C. B's statement, "$135" was a negotiating statement that did not terminate A’s original offer of $100. D. A's offer of $100 was irrevocable. Answer: B 12. An offer is terminated upon rejection by the offeree unless: A. the period of time for which the offeror agreed to keep the offer open has not yet expired. B. the offeror renews the offer. C. the offeree revokes the rejection. D. the offeree makes a counteroffer. Answer: B 13. If no termination date is specified for an offer, the offer will remain open: A. for one year. B. for six months. C. for a reasonable period of time. D. until someone accepts the offer. Answer: C 14. If an offeree dies before the offer has been accepted, the offer: A. may be rejected by the surviving spouse of the offeree. B. may be accepted by the surviving spouse of the offeree. C. is automatically revoked by the death of the offeree. D. may be accepted by the guardian appointed for any minor children of the offeree. Answer: C 15. In general, an acceptance occurs when: A. a particular form of words is stated to the offeror. B. a particular mode of expression is made to the offeror. C. the offeree reserves the right to reject the offer. D. a clear expression of the offeree’s agreement to be bound by the terms of the offer occurs. Answer: D 16. When an offer has been accepted: A. a subsequent revocation of the offer may serve to nullify the resulting contract. B. a contract is formed, assuming that all of the other elements of a contract are present. C. either party may withdraw from the resulting contract without consent. D. the acceptance is executory. Answer: B 17. If an offer requires that acceptance be communicated by a specific date and the acceptance is properly dispatched by the offeree on the final date, A. no contract is formed, since the offeror will undoubtedly receive the dispatched acceptance after the deadline for acceptance. B. a contract is formed, but the contract is voidable at the election of the offeror. C. the acceptance is timely and a contract is formed, even though the offeror actually receives the acceptance well after the specified date has passed. D. the acceptance is timely and a contract is formed, but only if the offeror actually receives the acceptance by the deadline specified for acceptance. Answer: C 18. In an auction __________, the auctioneer takes bids as agent for the seller with the understanding that no contract is formed until the seller accepts the transaction. A. without reserve B. with reserve C. without preserve D. with preserve Answer: B 19. At an auction sale, each bid is: A. a counteroffer to the auctioneer's offer of the merchandise. B. an acceptance of the auctioneer's offer. C. an invitation to negotiate. D. an offer. Answer: D 20. Arthur made a bid at an auction by calling out the amount of $250. The auctioneer acknowledged Arthur's bid. There were no higher bids, and before the fall of the auctioneer’s hammer, Arthur announced that he was withdrawing the bid. The auctioneer said that it was too late for Arthur to withdraw his bid, because the bid had already been acknowledged. What is the result? A. Arthur's bid is an ordinary offer that can be revoked. B. Arthur's bid is firm and cannot be withdrawn. C. Since the auctioneer had in fact acknowledged Arthur’s bid, the bid became an option exercisable at the election of the seller. D. Since the auctioneer had in fact acknowledged Arthur’s bid, a contract had been formed by way of offer and acceptance; accordingly, Arthur’s subsequent attempt to withdraw his bid was ineffective. Answer: A CASE 1. Mary offered to sell Mike several pieces of rare Chinese art at a very good price because they were duplicates in her own collection. Mike could not accept the offer at that time, but he did give Mary $500 in return for her promise to keep her offer open for three (3) weeks. Mike returned with the agreed-upon balance two weeks later to find that Mary already had sold the pieces she had offered to sell to him. Mary explained that she had been able to get a better price from another buyer. She offered to return Mike's $500 and insisted that this was all she was obligated to do. Is Mary right? Answer: Mary is incorrect. By offering and accepting consideration, Mike and Mary had entered into an option contract. Mary was obligated to honor her offer to Mike for the three-week period-that is, she gave him the option to purchase at the agreed-upon price. 2. Bart owned 100 shares of a stock that was actively traded on a national stock exchange. Bart wanted to sell the shares but felt that his profit would be seriously diminished by selling through a broker and paying the customary brokerage commission. Bart offered the 100 shares to any of a group of six people in a conversation at a party. The offered price was $72.50 per share, the price at which the shares had closed that day. No one really responded to the offer at that time. Ten days later when the shares were trading at $76.25, Marie, one of the offerees at the party, appeared at Bart's office saying that she accepted the offer. Bart claimed the offer no longer was available. Evaluate the legal outcome of this dispute. Answer: When an offer is made and the offeror does not indicate how long it is to remain open, the offer expires within a reasonable period of time. In the case of an actively-traded stock, a reasonable amount of time would be relatively short. Further, Bart’s offer was not a firm offer, nor did Bart extend a right of first refusal to the six (6) people at the party, so Bart had the right to sell the stock to another investor before Marie came forward to accept his offer. 3. On April 15, Morgan sent a letter to Clark offering to sell her business to Clark for $200,000. The offer stated that it would expire on May 1. On April 30, Morgan sent another letter to Clark that stated that she was withdrawing the offer. Clark received that letter on May 1. Also on April 30, Clark sent a letter to Morgan accepting the offer. Morgan received that letter of acceptance on May 1. Morgan refused to sell the business to Clark, claiming that no contract had been formed. Clark brought suit to enforce the contract against Morgan. Based on what you have learned in this chapter, decide the probable outcome of the case. Answer: Judgment would be for Clark. Per the mailbox rule, a valid contract was formed on April 30 when Clark mailed the letter of acceptance without being aware of Morgan's attempted revocation. The revocation by Morgan was not effective, since it was not received by Clark until the day after the contract was formed Chapter 14—Capacity and Genuine Assent TRUE/FALSE 1. Certain persons cannot make contracts that will bind them. Answer: True 2. Contractual capacity can exist even though a party does not understand every provision of the contract. Answer: True 3. Ordinarily, every party to a contract is presumed to have contractual capacity until the contrary is shown. Answer: True 4. Discriminatory and punitive incapacities have largely disappeared. Answer: True 5. Factual incapacity is imposed because of the class or group to which a person belongs. Answer: False 6. A factual incapacity may exist when, because of a mental condition caused by medication, drugs, alcohol, illness, or age, a person does not understand that a contract is being made or understand its general nature. Answer: True 7. Generally, when a person of legal age makes a contract with a minor, the contract is voidable by either party. Answer: False 8. When a minor avoids contracts, the minor always must return the other contracting parties to their original financial positions. Answer: False 9. The "necessaries" of minors are precisely defined by law. Answer: False 10. When necessary medical care is provided to a minor, a parent is liable at common law for the medical expenses provided the minor child. Answer: True 11. At common law, a minor cannot be held contractually liable for his or her necessary medical expenses when the parent is unable or unwilling to pay. Answer: False 12. Ratification consists of any words or conduct of a former minor manifesting an intent to be bound by the terms of a contract made while a minor. Answer: True 13. A contract made by an incompetent person after a guardian has been appointed is voidable. Answer: False 14. An incompetent person may ordinarily avoid a contract in the same manner as a minor. Answer: True 15. A person who has drunk too much alcohol at a party and signs a contract may be able to rescind that contract. Answer: True 16. A unilateral mistake as to a fact does not affect the contract when the mistake is unknown to the other contracting party. Answer: True 17. The seller of a painting is not bound by the sales contract if the painting purchased was considered of little value and only later discovered to be valuable to the surprise of both buyer and seller. Answer: True 18. A party who speaks with a reckless disregard for the truth not knowing of the falsity of his or her words cannot be liable for fraud. Answer: False 19. Fraud requires a misstatement of either a fact or an opinion. Answer: False 20. Fraud requires intent that the listener rely on the false statement of fact. Answer: True 21. In order for fraud liability to arise, the listener must actually rely on the false statement of fact. Answer: True 22. Ordinarily, a party to a contract has no duty to volunteer information to the other party. Answer: True 23. As a general rule, the nondisclosure of information that is not asked for does not impose fraud liability or impair the validity of a contract. Answer: True 24. A claim of undue influence will be unsuccessful unless the contracting parties have a close relationship of trust. Answer: True 25. A contract obtained by physical duress is void. Answer: False MULTIPLE CHOICE 1. Contractual capacity is the ability to: A. read and write. B. sign a written contract. C. understand that a contract is being made and to understand its general nature. D. understand the legal meaning of the contract being made. Answer: C 2. A person lacks contractual capacity if: A. the person is a chronic alcoholic. B. the person is a drug addict. C. because of mental impairment, the person does not comprehend that a contract is being made or understand its consequences. D. all of the above. Answer: C 3. The key time for determining whether a party lacked contractual capacity is: A. the time the contract was made. B. the time the value of the bargain becomes clear. C. the time set for performance of the contract. D. the time the plaintiff expresses dissatisfaction with the contract terms. Answer: A 4. The maximum amount of time that a minor has to disaffirm a contract is: A. one year from the date of the agreement. B. 30 days from learning of his or her right to disaffirm. C. the age of majority. D. a reasonable period of time after reaching the age of majority. Answer: D 5. A minor cannot avoid a contract to purchase a car if the: A. car has been destroyed. B. car has been damaged. C. car is used for non-commercial purposes. D. minor is able to return the car but does not do so. Answer: D 6. A minor cannot avoid a contract that has been: A. ratified. B. signed. C. processed. D. disallowed by the court. Answer: A 7. When a minor avoids a contract to purchase a car: A. the parents of the minor are liable for the purchase price. B. a relative who cosigned the contract is liable for the purchase price. C. a friend to whom the minor loaned the car is liable for the purchase price. D. the automobile insurance company is liable for the purchase price. Answer: B 8. The obligation of a cosigner is discharged by: A. the minority status of one of the parties. B. the majority status of one of the parties. C. the court's declaration of the contract's provision of necessaries. D. the payment of the debt. Answer: D 9. In which of the following cases is a contract between A and B binding? A. A makes a mistake of material fact, and the mistake is unknown by B. B. A and B make the same mistake of material fact. C. A recklessly but honestly misrepresents a material fact. D. A innocently misrepresents a material fact. Answer: A 10. An agreement is not binding when: A. one party makes a mistake regarding a material fact. B. both parties make a mistake regarding a material fact. C. one party makes a mistake of law. D. all of the above. Answer: B 11. A contract based on a mutual mistake in judgment is: A. voidable by the adversely affected party. B. not voidable by the adversely affected party. C. void ab initio. D. none of the above. Answer: B 12. All of the following statements refer to an element of fraud except: A. the defendant desired to obtain a financial benefit. B. the defendant made a false statement. C. the defendant knew that the statement was false or was recklessly indifferent regarding its truth. D. the defendant intended for the other party to rely on the false statement. Answer: A 13. Jack sells Jim a used car that Jack falsely described as having been driven only 12,000 miles. Fraud has occurred if: A. Jim bought the car solely because of its color. B. Jim knew that the mileage was more than 12,000 miles. C. Jim relied upon Jack's statement. D. Jack is a merchant. Answer: C 14. I believe that I own a very valuable vase. I tell you this information and state that I will sell it to you for $800. I sell the vase to you, and you later find out that the vase is worth only $200. Fraud: A. has occurred. B. has not occurred. C. can always be based upon a statement of opinion or value. D. none of the above. Answer: B 15. A finding of undue influence would most likely not occur in a contract between: A. parent and child. B. attorney and client. C. neighbor and neighbor. D. guardian and ward. Answer: C 16. An apparently voluntary agreement may in fact not be voluntary if: A. undue influence is present. B. physical duress is present. C. economic duress is present. D. all of the above. Answer: D CASE 1. John, a 17-year-old, purchased a ping-pong table and four new ping-pong paddles. A week after he turned 18, John tried to return the ping-pong paddles. He told the seller that he had decided to keep the table. Can John avoid the contract in this way? Answer: John may avoid the contract only by returning both the ping-pong paddles and the table. To avoid a contract, a minor must disaffirm the entire contract. The minor cannot ratify or affirm part of a voidable contract and avoid or disaffirm the rest. The entire contract must either be ratified or avoided. 2. Roberta, an educated person, purchased real estate from Maurice. Roberta did not read entirely the contract that she signed. As a result, she did not notice the provision in the contract about the interest imposed on the unpaid portion of the purchase price. She refused to pay the interest specified in the contract. Maurice sued her. Could he recover? Answer: Yes. Persons ordinarily are bound by contracts that they sign even though they have not read them. Roberta cannot thereafter successfully claim that she had not agreed to its terms because she did not know what they were. The law “will not protect those who have eyes who choose not to see.” 3. A young stockbroker was rather overwhelmed by a flood of new clients. Assunta, one of his clients, had purchased XYZ Corp. stock through the broker at a price of $35 per share. The price had gone down to $29 by the time Assunta telephoned the broker. Assunta told the broker that she wanted to sell the stock if it went below $30 and inquired as to the price. The broker did not check the price, but thinking it could not have fallen below the $30 threshold, simply reassured Assunta that it was still "in the low 30s." Marta, Assunta's cousin, also had purchased XYZ stock at $35 per share and made a similar call to the broker and received the same response. Marta, however, coincidentally saw the price on a stock ticker tape when she hung up and realized the broker had made an error. Both Assunta and Marta held the stock and did not sell. Later that same day, the stock price fell an additional $7 per share. Facing sizable losses, both Assunta and Martha decided to sue for fraud when Marta told Assunta of the broker's misstatement. Discuss the probable outcome of the lawsuits. Answer: The broker's reckless disregard for the truth constituted fraud in the case of Assunta, because it was a material misstatement of fact that was relied upon causing damages. Marta, however, will not be successful, because she did not rely on the misstatement and knew that it was false. Chapter 15—Consideration TRUE/FALSE 1. Generally, a promise is legally enforceable even if nothing is given or received for the promise. Answer: False 2. Consideration is what a promisor demands and receives as the price for a promise. Answer: True 3. The fact that the consideration supplied by one party is slight when compared with the burden undertaken by the other party is immaterial. Answer: True 4. Consideration always must be an act or the promise to perform an act. Answer: False 5. Consideration is the bargained-for exchange between the parties to a contract. Answer: True 6. One promise may serve as consideration for many return promises. Answer: True 7. A promise to make a gift is enforceable. Answer: False 8. Charitable subscriptions by which individuals make pledges to finance the construction of a college building, a church or another structure for charitable purposes are binding to the extent that the donor should have reasonably realized that the charity was relying on the promise in undertaking the building program. Answer: True 9. True consideration occurs only when the value of one promise is equal to the value of the promise given by the other party. Answer: False 10. The promise of a creditor to refrain from collecting a debt is consideration for a promise by the debtor to modify the terms of the transaction. Answer: True 11. Forbearance may constitute consideration. Answer: True 12. An illusory promise creates a bilateral contract. Answer: False 13. A promise that in fact does not impose any obligation on the promisor is known as an elusive promise. Answer: False 14. A binding contract cannot contain a cancellation provision. Answer: False 15. Ordinarily, doing or promising to do what one is already under a legal obligation to do is not consideration. Answer: True 16. A second promise to pay a contractor a higher amount on the original contract may be enforceable. Answer: True 17. In a contract for the sale of goods, any modification made by the parties to the contract must be supported by consideration to be binding. Answer: False 18. With regard to an unliquidated debt, payment by the debtor of less than the amount claimed by the creditor is consideration for the latter’s agreement to release or settle the claim. Answer: True 19. If a merchant receives and cashes a check for partial payment of a debt and the check bears the notation that the amount is in full payment of a disputed sum, the total debt is released. Answer: True 20. Sara Student wished to pay off her $5,000 student loan. If she sends in a check for $3,000 and the creditor cashes the check, the debt will be fully satisfied provided the check is marked "paid in full." Answer: False 21. In a composition of creditors, the various creditors of a single debtor mutually agree to accept a fractional part of their claims in full satisfaction of the claims. Answer: True 22. Past benefits already received by a promisor cannot be consideration for a later promise. Answer: True 23. In most states, promises made to another based on moral obligation lack consideration and are not enforceable. Answer: True 24. The doctrine of promissory estoppel is also known as the doctrine of beneficial reliance. Answer: False 25. Under the doctrine of promissory estoppel, a promisor may be prevented from asserting that his or her promise is unenforceable because the promise gave no consideration for the promise. Answer: True 26. Damages recoverable in a case of promissory estoppel are determined by the profits that the promise expected. Answer: False MULTIPLE CHOICE 1. Will the law enforce every promise? A. Yes, in all cases. B. Yes, with or without consideration. C. Generally yes, if consideration is given for the promise. D. Yes, but only if there is no consideration. Answer: C 2. Consideration is: A. the concern shown by the other contracting party. B. what is demanded by the promisor as the price for the promise. C. a stated number of dollars. D. the concern of both contracting parties for the protection of the environment. Answer: B 3. Under the __________ approach, consideration is defined as a benefit received by the promisor or a detriment incurred by the promise. A. pro-con B. I win, you lose C. gain-loss D. benefit-detriment Answer: D 4. When there is no consideration for a promise, the agreement is: A. a quasi contract. B. equitable. C. not binding. D. unethical. Answer: C 5. Courts will consider the adequacy of the consideration when: A. one party clearly has the better of the deal. B. one party has more business experience than the other. C. one party claims to have been defrauded. D. one party shows a much lower price nationally-advertised on television. Answer: C 6. Which of the following can be consideration for a promise? A. Refraining from beating one's spouse. B. Promising to refrain from beating one's spouse. C. Refraining from smoking cigarettes. D. Refraining from using cocaine. Answer: C 7. For a bilateral contract to be enforceable there must be: A. mutuality of obligation. B. an illusory promise. C. forbearance. D. adequacy of consideration. Answer: A 8. Examples of illusory promises include: A. cancellation provisions. B. apparent promises. C. conditional obligations. D. real obligations. Answer: B 9. A cancellation provision: A. makes a promise illusory. B. gives a person a free way out. C. is limited to the terms set forth by the provision. D. none of the above. Answer: C 10. A contract in which one party agrees to purchase goods from another contingent upon the purchaser's ability to locate suitable financing is said to: A. be illegal. B. result from undue influence. C. contain a waiver. D. contain a conditional promise. Answer: D 11. Ordinarily, a promise to perform an existing legal obligation is: A. not consideration. B. binding if the promisor promises to perform with extra care. C. binding if the promisor promises to perform to suit the personal satisfaction of the promise. D. binding if the promise would experience substantial loss due to breach of the promise. Answer: A 12. Which of the following is not consideration for a present promise? A. a good faith adjustment B. compromise and release of claims C. the promise to pay one’s child support obligation, consistent with a pre-existing court order. D. the performance of a requested act Answer: C 13. A landowner’s promise to pay a contractor a bonus to complete construction of a building according to the terms of a pre-existing contract between the landowner and the contractor is: A. binding if the promise is in writing. B. binding, since the promise is made by a non-merchant. C. binding, since the promise is made to a merchant. D. ordinarily not binding on the promisor. Answer: D 14. An agreement to pay reasonable additional compensation to a contractor for the performance of a pre-existing contract when the contractor faces extraordinary circumstances caused by unforeseen difficulties is called a: A. good-faith adjustment. B. bribe. C. compensatory allowance. D. relief payment. Answer: A 15. The effect of the making of a partial payment to satisfy an admitted debt is an example of the rule that: A. past benefits cannot be consideration for a later promise. B. a conditional promise may be consideration. C. doing what one is already under a legal obligation to do is not consideration. D. consideration must be adequate to be binding. Answer: C 16. The rule that doing or promising to do what one is already legally bound to do is not consideration applies to a part payment made in satisfaction of a(n) __________ debt. A. unliquidated B. superfluous C. non-superfluous D. liquidated Answer: D 17. Consideration is not required in: A. contracts for the sale of goods. B. employment contracts. C. agreements to modify employment contracts. D. agreements to modify contracts for the sale of goods. Answer: D 18. When a debtor tender a check stating “paid in full” and the creditor cashes the check, the debt: A. is always discharged. B. may be discharged if it is a liquidated debt. C. may be discharged if it is a unliquidated debt. D. is never discharged. Answer: C 19. Which of the following is not a necessary element of promissory estoppel? A. The promisor and the promise must engage in a bargained-for exchange. B. The promisor must intend or should reasonably expect that the promise will rely on the promise. C. The promise must in fact rely on the promise in some definite and substantial manner. D. Enforcement of the promise is the only way to avoid injustice. Answer: A 20. What damages are recoverable in a case of promissory estoppel? A. profits that the promisor expected B. profits that the promise expected C. an amount necessary to restore the promise to the position he or she would have been in had the promise not relied on the promise D. an amount necessary to restore the promisor to the position he or she would have been in had the promisor not relied on the promise Answer: C CASE 1. Gerwin's daughter Mary was seeking a position as an associate attorney with Baker, Charles & Dixon, a large metropolitan law firm. The firm, after several meetings with Mary over a two-month period, made Mary an offer of employment on January 15. Mary accepted the offer that day and immediately left for Cape Cod to celebrate without telling Gerwin or anyone else about her new job. On January 17, two days after Mary had accepted the offer, Gerwin sent Baker, Charles & Dixon a letter in which she offered to give Baker all of her legal business (approximately $40,000 per year) if the law firm would hire Mary. The law firm accepted. After Gerwin learned that Mary already had been hired by Baker, Charles & Dixon, Gerwin refused to transfer her business to the law firm. The law firm has brought suit against Gerwin on the grounds that a valid contract exists between them. How will the case be decided? Answer: Judgment will be for Gerwin. A binding contract does not exist between Gerwin and Baker because the element of consideration is missing. The consideration for Gerwin's promise to transfer her legal business, which was Baker's hiring of Mary, already had been received at the time Gerwin's offer was made. Baker's promise to hire Gerwin's daughter was not consideration because Baker already was under a legal obligation to hire her. 2. John received a promotion at work and felt new clothes would be necessary in the new position. John went to a local store and charged three ties on his charge account at a cost of $60 each. Bill, a friend of John's, saw a sidewalk vendor selling ties at a cost of three for $10 and bought three at that price. The friends compared purchases that night and found that they had purchased identical ties. John became enraged and said that he would not pay the charge-account bill because the ties were clearly not worth $60 each. Bill indicated that he would testify on John's behalf if litigation ensued. What would be the probable outcome of the lawsuit? Answer: John will lose the case because John received three ties, the consideration for which he bargained. Courts generally do not get involved in determining the relative adequacy of the consideration exchanged. 3. Dave Tompkins was up late one night watching a television campaign for a charitable organization. The organization was seeking donations in order to construct a new building that would serve as the organization’s headquarters. One of Tomkins' favorite performers appeared to promote the campaign, and this prompted Dave to telephone in a pledge. Tomkins pledged $10,000 to the charity and, feeling good about his action, finally went to sleep. The next morning, Tomkins regretted making the pledge because its enforcement would cause great personal financial hardship. Will the charity be able to legally enforce the pledge Tomkins made? If so, why might the charity choose not to enforce a lawful pledge? Answer: Tomkins probably is bound by his pledge to the charitable organization. Charitable subscriptions by which individuals make pledges to finance the construction of a college building, a church, or another structure for charitable purposes are binding to the extent that the donor should have reasonably realized that the charity was relying on the promise in undertaking the building program. Some states do require proof that the charity has relied on the subscription. For the purpose of maintaining favorable public relations, a charitable group might choose not enforce its rights to claim payment of a pledge in this situation. What individual would look kindly on a charity that would take voluntary donors to court to force payment? Test Bank for Business Law: Principles for Today's Commercial Environment David P. Twomey, Marianne M. Jennings 9781133588245, 9781305575158, 9780324786699

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