Business Law
Chapter 4: What is a Contract?
Concepts Review and Application
Directions: Place a T for True or an F for False on the blank provided to show whether each
of the following statements is true or false.
_______
1. The terms of a contract must be accepted by the party to whom it was
communicated.
_______
2. An agreement to commit a crime can be considered a contract.
_______
3. An arrangement between two friends to attend an opera performance is not a
contract.
_______
4. An offeror must appear to be serious when making an offer.
_______
5. Words spoken in anger are not considered an offer.
_______
6. Preliminary negotiations are considered to be offers.
_______
7. A purported offer that lacks essential information is legally ineffective.
_______
8. Advertisements are usually considered legal offers.
_______
9. A person who is not the intended offeree can accept the offer.
_______ 10. Advertisements that ask the offeree to perform an act as a way of accepting
cannot be considered offers.
_______ 11. An offer made to one person can be accepted by another.
_______ 12. The mirror image rule requires that the terms in the acceptance must be close
to the terms contained in the offer.
_______ 13. An offer can be made to a particular group or to the public.
_______ 14. Any variation made to a contract dealing with the sale of goods is a
counteroffer if agreed in advance.
_______ 15. A bilateral acceptance occurs when an offeree indicates acceptance by
performing his or her obligations under the contract.
_______ 16. A unilateral acceptance occurs when an offeree indicates acceptance by giving
a promise.
_______ 17. Contractual communications such as offers and counteroffers can only be
communicated in writing.
_______ 18. An acceptance is the only form of contractual communication that is effective
when sent.
_______ 19. Oral acceptances are effective the moment the words are spoken directly to the
offeror.
_______ 20. A telegram becomes an effective acceptance when it is handed to the clerk at
the telegraph office.
Directions: Fill in the blank(s) with the most appropriate term or phrase to complete the
sentence.
21. The right of ___________________ allows an offeror to withdraw an offer before it is
accepted.
22. An acceptance to an offer must be received within the _________________ stated in the
offer.
23. When an offeree rejects the offer, the offer is __________________________.
24. A(n) ______________________________ results when the offeree changes the offeror’s terms.
25. Death or _________________________ on the part of the offeror or the offeree terminates
their offer.
Legal Applications
26. Cheya asks her college roommate how much money she would give her for a scientific
graphing calculator that she no longer needs. The roommate replies, “I’d probably
give you around $50 for it.” Has Cheya made a legal offer? Explain your answer.
27. Duane Johnston raises Angus beef. A representative from a large meat plant visits the
farm and looks over a large herd of two-year-old steers. He agrees to pay Duane a
down payment of $30 per animal for fifty of the steers. Duane is to receive the
remaining money when the cattle are shipped in two weeks. Did Duane and the
representative make a binding contract? Explain your answer.
28. Jennifer offers to sell her collection of radio-controlled cars to Tess for $1500. Tess
tells Jennifer she wants to think it over. Tess later phones Jennifer and says, “I think
$1500 is too high for your cars. I’ll give you $1200 for them.” Jennifer tells Tess that
she’ll think about it. Tess later learns that the cars are actually worth more than
$1500, and she calls Jennifer back and accepts the original offer. Is Jennifer legally
obligated to sell the cars to Tess for $1500? Explain your answer.
29. Juan was vacationing at a Mexican resort when he lost a valuable necklace. He put a
notice in the local newspaper that promised a $500 reward for finding and returning
the necklace. Because Juan had to leave the resort two days later, he included his
home address and phone number. Two months later, Mia found his necklace and
contacted him. Juan told her he would give her only $300 for returning the necklace
since he had to wait so long for it. Can Juan revoke his $500 offer for this reason?
Explain your answer.
PRACTICE ACTIVITY
Read the following cases and answer the questions about them.
30. The widow of the widely published author, John Cheever, entered into a written
contract with Academy Chicago Publishers. The contract terms stated that Mrs.
Cheever (along with Franklin H. Dennis, an Academy editor) was to permit and assist
in publishing a collection of Mr. Cheever’s short stories. (These stories, though
previously published, had never been collected into a single anthology.) Under the
contract, the publisher was to maintain control over the contents of the book. Cheever
and Dennis received a partial advance and Academy began locating and gathering the
necessary stories. Within a few months, they had gathered more than 60 uncollected
stories and sent them to Mrs. Cheever. Mrs. Cheever then told them that she did not
want to go through with the contract, she objected to publication of the book, and she
attempted to return the partial advance. Do the parties have an enforceable contract?
Explain. [Academy Chicago Publishers v. Cheever, 578 N.E. 2d 981 (1991)]
31. Treece is vice-president, board of director member, and 50 percent stockowner of
Vend-A-Win, a Washington corporation in the business of distributing punchboards.
He spoke before the Washington State Gambling Commission in support of
punchboard legitimacy and Vend-A-Win’s application for a temporary license to
distribute punchboards. During the testimony, Treece stated that if anyone found a
crooked board, he would pay them one hundred thousand dallars. The audience
laughed. Barnes heard the statement on the television news and in the newspaper the
next day. Barnes telephoned Treece, announced that he had two crooked
punchboards, and asked Treece if his earlier statement had been made seriously.
Treece said yes, advised Barnes that the statement was firm, and informed Barnes
that the $100,000 was safely being held in escrow. Treece directed Barnes to bring the
punchboard to the Seattle office of Vend-A-Win for inspection. Barnes did so and
received a receipt for the board written on Vend-A-Win stationery, signed by Treece
and witnessed by Vend-A-Win’s secretary-treasurer. Barnes was informed that the
punchboard would be taken to Chicago for inspection. Barnes produced his second
punchboard at a later meeting before the Gambling Commission. Treece and the
Corporation refused to pay, and Barnes brought suit for breach of contract. Did
Treece’s speech create an enforceable contract? Explain. [Barnes v. Treece, 15 Wash.
App. 437 (1976)]
32. The Simmons’ son is deceased. When their son was in college, he took out a life
insurance policy valued at $5,000, which was offered free by the alumni association
for nine months. The policy gave the option of continuing as a $25,000 policy after the
initial coverage for an amount to be determined at a later date. Acceptance of the
additional coverage was to be done by paying the premium, which the son did. Shortly
before the policy expired, he received a letter offering him the additional coverage
and stating the amount of the premium. He had been injured the day before he
received the letter and died several weeks later without regaining consciousness. His
lawyer later returned the premium, and the Simmons then filed for the $25,000. The
insurance company refused to pay. Can the parents recover from the insurance
company? Explain. [Simmons v. All American Life Ins. Co., 838 P. 2d 1088 (Ore. Ct. App.
1992)]
33. Donald mailed a written offer and a deposit to Dwayne for a piece of property Dwayne
owned that Donald wanted to buy. In his written offer, Donald stipulated that his offer
would expire on February 4, at which time Dwayne was to return the deposit if
Dwayne had not accepted Donald’s offer. When Dwayne received the offer, he made
several changes to it, including extending the acceptance date until February 14.
Donald received the counteroffer before the 14th but did not sign the contract until
February 18. He returned the contract to Dwayne on February 19. On February 14,
when Dwayne had not received an acceptance from Donald, Dwayne considered the
negotiations terminated and sold the property to someone else. Donald sued claiming
breach of contract. Is Donald’s claim correct? Explain. [Sullivan v. Economic Research
Properties, 455 So. 2d 630 (Fla. Ct. App. 1984)]
34. Hall sponsored a boat race in which the first prize was advertised as a 14-foot boat
trailer and a 20-horsepower motor. After verifying with Hall that the prizes
advertised were correct, Bean entered the race and won. When he went to collect the
prizes, he was told that there had been a mistake and was offered a 6-horsepower
motor as first prize. Bean sued, alleging that he had a contract for the prizes offered.
Does Bean get to have the 20-horsepower boat? Explain. [Hall v. Bean, 582 S.W. 2d 263
(Tex. 1979)]
35. Schiff is the author of several books advocating that citizens are not required by any
law to pay income taxes. While appearing on an evening television show, he said, “If
anybody calls this show…and cites any section of this Code [the Internal Revenue
Code] that says an individual is required to file a tax return, I will pay them $100,000.”
The next morning, John Newman saw the offer rebroadcast on a morning show, found
several sections of the IRS code that required the filing of a tax return, and demanded
the money from Schiff. Schiff refused to pay Newman, alleging that he could only
accept his offer if he called into the show the night it was broadcast. Who is right?
Explain. [Newman v. Schiff, 778 F. 2d 460 (8th Cir. 1985)]