Fred goes to Carla, a knowledgeable dog breeder, and tells her that he wants to get a
dog that will be good with small children. Carla sells Fred a dog. When Fred takes the
dog home, it bites both his small children and causes them serious injuries. Fred can sue
Carla for breach of
a. an express warranty.
b. an implied warranty of fitness for a particular purpose.
c. an implied warranty of merchantability.
d. a warranty of title.
Dixie May enters into a contract to buy one hundred pounds of pecans from Margaret.
The contract must be in writing if the pecans cost
a. $100.
b. $150.
c. $250.
d. $500.
Standard Business Company appeals a decision against it, in favor of Top Flight
Corporation, from a lower court to a higher court. Standard is
a. the appellant.
b. the appellee.
c. the defendant.
d. the plaintiff.
Lou and Mira want to rescind their contract under which Lou sold an MP3 player to
Mira for $50. To rescind the contract
a. Lou must return the $50 and Mira must return the player.
b. Lou must return the $50 only.
c. Mira must return the player only.
d. the parties can keep the “benefits” of their bargain.
A contract between E-Debits, Inc., and First Credit Corporation includes a provision
excluding liability as a result of fraud. This provision is
a. enforceable because the parties are protected from liability.
b. enforceable because the parties consented to it.
c. enforceable if the parties have equal bargaining power.
d. not enforceable.
Peter, an agent for Zippy Cars, Inc., writes a letter to Cassandra on March 1 stating that
he will sell her a 2011 Suburu Outback for $20,000 between March 1 and April 30.
Peter’s letter to Cassandra is
a. a firm offer.
b. an acceptance.
c. a bilateral contract.
d. a breach.
Starlight Café brings a suit, seeking a remedy at law. A remedy at law is
a. the payment of money or property as compensation for damages.
b. a decree of specific performance.
c. a judicial proceeding for the resolution of a dispute.
d. an injunction.
LaDonna signs a one-year lease with Mae to occupy an apartment in Ames, Iowa, near
the University of Iowa. LaDonna needs the apartment only for two semesters and may
have to sublet it for the rest of the term. LaDonna’s tenancy is
a. a periodic tenancy.
b. a tenancy at will.
c. a tenancy at sufferance.
d. a fixed-term tenancy.
Ike pushes Joan, who falls and breaks her arm. Ike is liable for the injury
a. if Ike intended to push Joan.
b. only if Ike did not intend to break Joan’s arm.
c. only if Ike had a bad motive for pushing Joan.
d. only if Ike intended to break Joan’s arm.
Jack and Kyra are partners in Law Firm, LLP, a limited liability partnership. Jack
supervises Kyra, who negligently fails to appear in court on behalf of Milo, a client.
Liability to Milo rests with
a. Jack and Kyra.
b. Jack only.
c. Kyra only.
d. neither Jack nor Kyra.
Richly Merchandise, Inc., contracts with Stand-Rite Contractors to build a store.
Stand-Rite assigns the contract to Town Builders, which has a poor record of
completing projects. Richly could most successfully argue that the contract cannot be
assigned because
a. Richly did not consent to the assignment.
b. Richly did not receive adequate consideration for the assignment.
c. the assignment will materially increase the risk of nonperformance.
d. Town Builders was not an original party to the deal.
Pluto accuses Quark, an accountant, of committing defalcation. This is
a. embezzlement.
b. general misconduct.
c. professional negligence.
d. throwing something out of a window.
Telfonix Corporation, a U.S. firm, and Adex, Inc., a British firm, are parties to a
contract with a forum-selection clause. The forum specified in the clause
a. must be within the geographic boundaries of the United States.
b. must be within the geographic boundaries of Britain.
c. need not be within the geographic boundaries of either party.
d. must be within the geographic boundaries of either the United States or Britain.
The payment of Jose’s debt to Klint is guaranteed by Jose’s personal property. The
process by which Klint can protect himself against the claims of third parties to this
property is
a. attachment.
b. default.
c. perfection.
d. termination.
Cecilia’s Day Spa, LLC, is a member-managed limited liability company. If the law in
Cecilia’s state is like the law in most states, unless the members have agreed otherwise,
voting rights are apportioned according to
a. capital contributions.
b. participation in management.
c. the number of members.
d. transactions with the firm.
Daphne defaults on a debt to Country Loan Corporation (CLC). As a creditor, CLC can
place liens on all of Daphne’s property except
a. motor vehicles used to commute to work.
b. stock in various corporations.
c. items that the debtor selects.
d. vacant commercial property.
Fact Pattern 22-2
24-Hour Credit Corporation issues high-cost and high-fee mortgage products to people,
including Benny, who could not easily obtain credit under other loan programs.
Refer to Fact Pattern 22-2. Under federal law, if 24-Hour Credit fails to provide certain
material disclosures with respect to the loan, Benny’s right to rescind the loan
a. expires at midnight on the day the loan is finalized.
b. is immediately revoked.
c. is extended for up to three years.
d. is tolled for the duration of the loan payments.
Nouveau Riche Corporation’s officers, directors, and shareholders buy and sell
securities. SEC Rule 10b-5 applies to
a. only the purchase or sale of a security by a financial corporation.
b. only the purchase or sale of a security involving an officer or director.
c. only the purchase or sale of a security involving a shareholder.
d. the purchase or sale of any security.
Mark fails to reveal a material fact in a business deal with Nancy. This constitutes fraud
a. if Mark is unaware of the fact and the failure.
b. if the amount of consideration received is grossly inadequate.
c. if the fact concerns a serious defect known to Mark and unlikely to be known by
Nancy.
d. under any circumstances.
Edna and Flavia buy a boat that they dock in a marina near Gulfport, Mississippi. On
the death of either owner, that owner’s interest in the boat passes to her heirs. This is
a. a joint tenancy.
b. community property.
c. a tenancy in common.
d. ownership in fee simple.
Money Mortgage Mart makes a short-term loan to Natalie to allow her to make a down
payment on a new home before selling her current home. This is
a. a bridge loan
b. a home equity loan.
c. an equitable right of redemption.
d. a violation of federal law.
Everyday Loans, Inc., issues a line of credit in Glade Electronics Corporation under a
security agreement. Later, Glade buys new HD-TVs to add to its inventory. Everyday
has a security interest in the new inventory
a. if the security agreement included an after-acquired property clause.
b. if Everyday has not yet filed a financing statement.
c. if Glade bought the inventory with Everyday funds.
d. under no circumstances.
Beth is an accountant with Coffee Sales Corporation. Doral buys Coffee Sales stock and
loses money on the investment. To recover from Beth under Section 10(b) of the
Securities Exchange Act of 1934 and SEC Rule 10b-5, Doral must prove
a. none of the choices.
b. fraud and reliance only.
c. fraud, reliance, and materiality only.
d. scienter, fraud, reliance, materiality, and causation only.
The Texas Supreme Court decides the case of Livewire Co. v. Power Corp. Of nine
justices, five believe the judgment should be in Livewire’s favor. Justice Bellamy, one
of the five, writes a separate opinion. The four justices who believe the judgment should
be in Power’s favor join in a third separate opinion.
Refer to Fact Pattern 1-1. These opinions are collected and published in volumes called
a. citations.
b. codes.
c. regulations.
d. reporters.
Dependable Appliances, Inc., and Elaine enter into a contract for a sale of kitchen
appliances. Dependable, a merchant who deals in goods of the kind sold, notes that its
goods come with an implied warranty of merchantability. Under the UCC, this means
that the goods are reasonably
a. fit for the buyer’s particular purpose.
b. fit for the ordinary purpose for which such goods are used.
c. suitable for resale at an acceptable price.
d. the best quality that money can buy.
Philip is elected as a director for Fatless Foods, Inc. His term of office will most
probably last for
a. three months.
b. six months.
c. nine months.
d. one year.
Creditworthy Loan Company extends credit in the ordinary course of its business.
Under the Truth-in-Lending Act, Creditworthy must inform potential borrowers of
a. credit terms offered by other lenders.
b. comparative prices for goods to be bought with the borrowed funds.
c. Creditworthy’s credit terms.
d. the borrower’ credit scores.
Rural Power Utility, Inc., enters into a contract with Shovel Excavation Service to dig
up, replace, and rebury Rural’s cables in a certain location. Rural advances Shovel 10
percent of its cost. The parties rescind the contract. Shovel’s refund of the payment is
a. a penalty.
b. liquidated damages.
c. restitution.
d. a breach of contract.
Quik Collection Agency calls Pat several times a day, and sometimes in the middle of
the night, about an overdue bill that Regal Sporting Goods turned over to Quik for
collection. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
Fiona and Dora enter into an oral contract under which Fiona agrees to work on Dora’s
farm for not less than one week. This contract is enforceable by
a. Fiona only.
b. Dora only.
c. either party.
d. neither party.
The contract term “delivery ex-ship” means that the risk of loss does not pass to the
buyer until the goods are properly unloaded from the ship or other carrier.
Dividends can be paid only in stock in other corporations.
A de jure corporation is one that is not properly formed.
A voidable contract is a valid contract that can be avoided at the option of at least one
of the parties to it.
If an offeror does not expressly specify a certain mode of acceptance, then acceptance
can be made by any reasonable means.
The agreement resulting from a buyer clicking on a box containing the words “I agree”
is known as a click-on agreement.
The crime of bribery occurs when the bribe is offered.
In general, minors are personally liable for their contracts.
An exculpatory clause in an employment contract is not enforceable if it removes the
employer’s potential liability for injuries to employees.
For an effective bailment, the bailor must deliver possession of the bailed property with
its title.
A seller’s failure to disclose a serious defect about a product for sale may give rise to an
action for fraud.
Joy steals a check from Kyle, forges his signature, and transfers the check to Loco
Loans, Inc., for value. Unaware that the signature is not Kyle’s, Loco Loans presents the
check to Metro Bank, the drawee, which cashes the check. Kyle discovers the forgery
and insists that Metro recredit his account. Can Metro refuse? If not, from whom can
the bank recover?
In contracts involving a sale of unborn animals to be born within twelve months,
identification takes place when the animals are born.
If a seller is not a merchant, and the goods are not to be moved, the risk of loss passes
to a buyer on tender of delivery.
Any contract entered into with an unlicensed party is unenforceable.