Alice signs a contract with Bob to buy Bob’s house for $150,000, with the clause, “if I
am able to obtain a mortgage loan for $125,000, at no more than 7% interest, payable
over 15 years.” Assume that Alice tries but is unable to obtain the described loan, and
therefore refuses to proceed with the purchase. Alice is in breach of the contract.
a. True
b. False
A contract between a company in the U.S. and one in China, contained a clause that
stated: “If an event happens which is extraordinary and out of the control of the parties
such as a strike, act of God, fire, accident, or transportation difficulties, then the
affected party shall be relieved of its obligations under the contract.” This type of clause
is:
a. an objective impossibility clause.
b. a force majeure clause.
c. a concurrent condition clause.
d. a condition precedent clause.
Incorporators are required to sign the charter, deliver it to the proper state officials, and
purchase a certain percentage of the initial stock offering.
a. True
b. False
The equal dignities rule relative to agency law applies to an agent:
a. hired to contract for a booth at a trade show scheduled to occur in two years.
b. selling real estate for the principal.
c. authorized to enter into a two-year lease for her principal.
d. All the above.
Which of the following forms of organization is a compromise between starting one’s
own business as an entrepreneur and working for someone else as an employee?
a. Limited liability company.
b. Business trust.
c. Close corporation.
d. Franchise.
You cannot be held liable for the actions of your agents if the agents are violating your
instructions.
a. True
b. False
George’s Wholesale agrees to purchase 1,000 pounds of bananas from Chickadee
Exports at 39 cents per pound. George’s does not have the money for the bananas now,
but promises to pay in two months. Chickadee Exports wants to make the sale, but is
worried about waiting for the payment, knowing the bananas are not “appealing
collateral. So, Chickadee prepares an instrument claiming Georges $400 sorting
machine as collateral. George’s never signs the agreement, but accepts the shipment of
bananas. This is an example of a:
a. check.
b. security interest.
c. promissory note.
d. None of the above.
The Bill of Rights refers to:
a. the inalienable rights found at the beginning of the Constitution.
b. the first ten amendments to the Constitution.
c. a specific listing of individual rights found in the original text of the Constitution.
d. a grouping of individual rights set forth by the United States Supreme Court shortly
after the Constitution was ratified by the states.
Bugs R Us, an organic gardening merchant, sells and delivers 100 units of live lady
bugs to eat the bad bugs on the buyer’s award-winning vegetables. The buyer ordered
the lady bugs without consultation with Bugs R Us for suggestions. Although the buyer
correctly knew that lady bugs were the appropriate bugs for eating bad bugs on
vegetables, when the lady bugs were delivered, they refused to eat the bad bugs. The
merchant has breached which warranty?
a. Implied breach of fitness for a particular purpose.
b. Implied breach of merchantability.
c. No warranty, as you cant control the behavior of insects.
d. Implied warranty against infringement.
Sullivan Consumer Products Co. asks its employees to apply four tests in determining
whether their behavior violates Title VII with respect to sexual harassment. Which of
the following is one of the four tests?
a. Would your friends be impressed with your behavior?
b. Do you think your behavior is humorous?
c. Would your behavior help you to get a promotion?
d. Would you like your behavior reported in your local newspaper?
The Magnuson-Moss Warranty Act covers all consumer products regardless of their
cost.
a. True
b. False
The FTC may consider an act unfair if it simply violates public policy.
a. True
b. False
First Federal had a perfected security interest in Vicor’s printing press. Second Credit
had a security interest in the same press, but its interest was not perfected. First Federal
takes priority over Second Credit.
a. True
b. False
The doctrine of stare decisis, though vital to the creation of the common law when this
country was settled, is not important to our modern, complex society.
a. True
b. False
A bailment relationship can be created with respect to either real or personal property.
a. True
b. False
To be valid, an agreement not to compete must be ancillary to a legitimate bargain.
a. True
b. False
Agreeing not to open a competing business could be consideration.
a. True
b. False
Some contracting parties are intentionally vague in contract terms.
a. True
b. False
Denzil was one of 50,000 people defrauded of $40 in an advertising scam. His best
course of action to recover his money is to:
a. mediate the claim with the advertiser.
b. bring an individual lawsuit against the advertiser in a state appellate court.
c. bring an individual lawsuit in a U.S. District Court.
d. become part of a class action lawsuit, which might include plaintiffs who are
unaware of the lawsuit or are even unaware they were harmed.
Jackie hires Charles to lay new carpet in her bedroom. Charles does such a bad job, that
the only way to fix the carpet is to start over and relay the carpet. Which of the
following best describes this situation?
a. This is substantial performance. Jackie must still pay something to Charles.
b. This is a material breach. Jackie must still pay something to Charles.
c. This is substantial performance. Jackie owes nothing to Charles.
d. This is a material breach. Jackie owes nothing to Charles.
Dana hires Paris to paint a portrait of her poodle, “Mack.” The painting is to be done to
Dana’s personal satisfaction. Upon completion of the painting, which of the following
will be true?
a. Dana may refuse to accept the painting if she really does not like it.
b. Dana may refuse to accept the painting only if a reasonable person would not like it.
c. Dana may refuse to accept the painting if she cannot afford to pay for it.
d. Dana may not refuse to accept the painting.
Which of the following is generally NOT in the introductory paragraph of a contract?
a. The date of contracting.
b. The location of contracting.
c. The parties to the contract.
d. The nature of the contract.
Under which of the following warranties must the seller be a merchant?
a. Express warranties.
b. Implied warranty of merchantability.
c. Implied warranty of fitness for a particular purpose.
d. Both b and c.
The first step a court takes in choosing a remedy is to determine:
a. what interest it is trying to protect.
b. if the damages can be quantified with reasonable certainty.
c. if punitive damages should be awarded.
d. whether the injured party mitigated its damages.
The identification of goods permits the buyer to:
a. obtain insurance on the goods.
b. take title to the goods in any manner that the parties agree upon.
c. enter into a contract with the seller.
d. Both a and b.
In the Zion Temple First Pentecostal Church of Cincinnati, Ohio, Inc. v. Brighter Day
Bookstore & Gifts case, the court found that, because of an error in the catalog, there
was no right to cure a nonconformity with the sleeves of the robes.
a. True
b. False
All of the following are characteristics of a closely held corporation EXCEPT:
a. the shares are publicly traded.
b. the corporation can typically operate without a board of directors.
c. the shareholders usually restrict share transfer.
d. minority shareholders are provided more protection than in regular corporations.
In order to disclaim a warranty of fitness for a particular purpose, a merchant:
a. need do nothing; such a warranty will not exist unless the merchant intends to create
the warranty.
b. must make the disclaimer orally and directly to the buyer.
c. may disclaim the warranty with any language that is clear and conspicuous.
d. None of the above. Implied warranties cannot be disclaimed.
Mary owes $3,800 on her credit card. She sends the credit card company a check for
$800 with the notation “payment in full on the check. If the credit card issuer cashes the
check:
a. Marys balance will automatically be paid in full if the $3,800 amount was a
liquidated debt.
b. Marys balance will automatically be paid in full regardless of whether the amount of
$3,800 was liquidated or unliquidated.
c. the check may be subject to a UCC exception to the general rules for accord and
satisfaction cases involving checks.
d. Marys balance will automatically be paid in full if the $3,800 amount was an
unliquidated debt.
Fact Pattern 39-1
Two universities located within 30 miles of each other agree to divide their market so as
to help them both. The two schools draw a line down a map and each university agrees
to accept students only on their side of the line.
This agreement violates the:
a. Sherman Act.
b. Clayton Act.
c. Robinson-Patman Act.
d. None of the above.
In Chapter 11 only the debtor may propose plans of reorganization.
a. True
b. False
The doctrine of precedent requires:
a. that the victim testify.
b. that the defendant testify.
c. a 12-member jury of the defendants peers.
d. judges to base rulings on previous cases.
Even if a statutes words have ordinary, everyday significance, the court will look at the
legislative history of the law and public policy in order to interpret the statute.
a. True
b. False
The term F.O.B.:
a. can indicate a destination or shipment contract.
b. stands for “freight on board.”
c. requires the seller to insure the goods for the buyer’s benefit.
d. shifts the risk of loss to the buyer when the goods are identified.