In a partnership agreement, partners are not criminally liable when a partner commits a
crime in the course and scope of transacting partnership business, even if they knew of
the partner’s criminal tendencies and placed him or her in a position in which he or she
could commit a crime.
A novation is said to take place when continuing partners release a dissociated partner
from liability but creditors do not release him.
Arthur and Brian have entered into a contract with an enforceable liquidated damages
provision that states that Ben’s recovery will be $10,000 in the event of Arthur’s breach.
Arthur breaches the contract. Ben loses $50,000 in consequential damages as a result.
Ben’s recovery is limited to $10,000.
The principal of constructive eviction is applicable only to commercial property.
If property is controlled by the government, like a park, then it is private property.
Much of the information contained in a typical monthly credit card statement sent to a
consumer is compulsorily required by the Truth in Lending Act.
Bob authorizes Steward to borrow money on his behalf. Steward signs his name on a
note in his individual capacity i.e. without disclosing that the signature is on behalf of
Bob. Then Steward becomes liable for the note.
A person cannot be a holder in due course of a negotiable instrument if, when she takes
it, the instrument is irregular or some important or material term is blank.
In the eyes of law, breach of any contract is of equal seriousness.
Section 2 of the Sherman Act outlaws monopolies because monopolists have the power
to fix prices unilaterally.
One may also challenge a patent’s validity without first being sued for infringement by
filing a declaratory judgment action that seeks a court ruling of invalidity.
A bicycle manufacturer sells 100 bikes to Bill’s Bike Shop. The contract says that Bill’s
may return any bike not sold within six months, and he will be reimbursed for them.
Bill’s Bike Shop burns down in one week after the delivery of the bikes, which are
destroyed in the fire. Bill’s bears the risk of loss for the 100 bikes.
The term codicil refers to an amendment to will.
In order to pierce the corporate veil, a creditor needs to show that each shareholder does
not actively participate in the management of the corporation.
Proximate causation presupposes the existence of actual or but-for causation; you can’t
have the former without the latter.
The negotiable instruments of a corporation have to be signed by an agent of the
corporation who is authorized to sign the instrument.
As in the case of an assignee, the sublessee also acquires similar rights and duties under
the lease between the landlord and the tenant.
Abby promises to pay Brian $50 if he mows her lawn. Brian does not promise to mow
Abby’s lawn; however, later that day, Brian completely and satisfactorily does mow
Abby’s lawn. This is an example of a unilateral contract.
When one of the parties offers a disproportionately small amount of money in
settlement of a debt and refuses to pay more, it is a form of economic duress.
If there is no time specified in contract by the parties, then it is presumed that
performance shall be completed whenever possible.
Minors are considered to lack capacity to contract.
Delta Corporation’s board of directors is considering a resolution that may cause severe
liability to the directors. Wayne, a board member, disagrees with the decision. Unless he
clearly registers his dissent, he may be liable.
The damages recoverable by an insured for the insurer’s breach of the insurance
contract cannot exceed the dollar limits set forth in the insurance contract.
If a bank maintains an electronic deposit and provides the customer with a statement
indicating the amount of principal held on a certificate of deposit (CD), such a CD is
negotiable.
The only person with the legal power to accept an offer and create a contract is the
original offeree.
A minor’s contract for necessaries makes the minor liable for the reasonable value of the
necessaries furnished to him.
Alan and Ben have a contract. Alan has performed 100 percent and Ben has performed
50 percent of it. This contract is now executory.
In order to meet the requirements to form a contract the parties must have a future
intent to agree and form a contract.
Under the doctrine of cy pres, the trust will not fail if the settlor indicated a general
intention to devote the property to charitable purposes.
There is no tort liability for fraud or deceit where the defendant did not actively make a
false statement, but instead merely failed to disclose something.
A proxy is appointed by the corporation to discuss corporate matters with the public.
Shareholders have a right of full participation in board of directors’ meetings.
Generally, the terms of a standardized contract are negotiable.
Anyone other than a bank, who purchases a check indorsed “for deposit only,” has
converted it; unless the indorser received the amount paid for the check or the bank
deposited the check in the indorser’s account.
Unemployment compensation is provided entirely at the federal level, and the states
have no role to play in this matter.
Many agency proceedings are settled by a consent order after completion of the
adjudication process.
A warranty that amounts to a guarantee that house is free of latent defects that would
render it unsafe or unsuitable for human habitation is called implied warranty of
habitability.
Which of the following terms in a contract for the sale of goods requires the seller to
insure the goods?
A. FOB
B. FAS
C. CIF
D. C & F
An oral contract for the sale of land that has been completely performed by the vendor:
A. is part of the statute of frauds.
B. can be enforced without any writing.
C. needs to be signed by the parties.
D. has to be testified by witnesses.
Which of the following is bearer paper?
A. A check payable to the order of X and specially indorsed to Y.
B. A check payable to the order of X and indorsed in blank by X.
C. A check payable to the order of cash and specially indorsed by the person who
received it.
D. A check payable to the order of cash to Y.
What level of care must a bailee exercise in a bailment for his own exclusive benefit?
A. Greater than ordinary care
B. Less than ordinary care
C. Ordinary care
D. The same level of care that a prudent person exercises over his/her own property
A buyer makes payment for goods accepted using a check. If the bank refuses to pay the
check, the buyer:
A. has still satisfied the duty to pay for the goods.
B. must give the goods back to the seller.
C. has the right to retain the goods.
D. can be excused from the obligation.
Sarah is 16 years old. She left home at age 15; her parents no longer support her. Sarah
entered into a contract with Best Groceries for the purchase of $100 of groceries on
credit. The groceries consisted of basic, necessary items. However, their reasonable
value is only $80. If Sarah discovers that she has been overcharged and refuses to pay,
Best is entitled to collect:
A. nothing.
B. $80.
C. $100.
D. $90.
In the context of commercial speech, the Supreme Court developed the _____ test
which amounts to intermediate scrutiny.
A. means-ends
B. still-controlling
C. proximate cause
D. rational basis
Which of the following is a relevant consideration?
A. A preexisting duty
B. Agreement to settle an unliquidated debt
C. A preexisting moral obligation
D. Nominal consideration
Which of the following is true of general agents and special agents?
A. General agents have the power to bind the principal by their actions, while special
agents do not.
B. A general agent is employed to conduct a series of transactions, while a special agent
is employed to conduct a small, simple group of transactions.
C. Special agents are gratuitous agents, i.e., they are not paid by the principal, while
general agents receive consideration for their services.
What does “present intent to contract” mean?
A. Intent to enter the contract upon acceptance
B. Intent to negotiate in case of rejection of offer
C. Intent to set contractual conditions
D. Intent to engage more than one partner in the deal
Which of the following must a person prove to rescind a contract if the
misrepresentation was innocent?
A. That the fact was asserted
B. That the fact was disclosed
C. That the fact was material
D. That the fact was ratified
In a _____ contract, the goods are delivered to the buyer primarily for the buyer’s use.
A. delivery
B. sale on approval
C. sale or return
D. supply of goods
Joan carefully completes and signs a $1,000 note payable to Pete. Pete skillfully
changes the amount of the note to $10,000, and negotiates it to Hilda for that amount.
Hilda qualifies as a holder in due course. When Hilda presents the altered note to Joan
for payment, Joan refuses to pay a penny more than $1,000. Which of the following is
true?
A. Joan is not liable to Hilda.
B. Joan is liable to Hilda for $1,000.
C. Joan is liable to Hilda for $10,000.
D. Joan’s liability to Hilda will be determined by the relative negligence of Joan and
Hilda.
The notice of lien typically must be filed within what period of time?
A. Within 24 hours
B. 30 to 90 days after the last work is performed
C. 136 days from when the last work is performed
D. 365 days from when the last work is performed
In January 2002, a court with the necessary subject-matter jurisdiction holds Marvin
mentally incompetent and appoints a guardian for him. In November 2002, Marvin
escapes his guardian’s care and takes off on his own. While eating lunch with Clara,
who knows about Marvin’s condition, Marvin signs an agreement to sell a valuable
property he owns. When he signs the contract, Marvin believes that he is the President
of the United States signing an important treaty. The agreement between Marvin and
Clara is best described as:
A. void.
B. voidable.
C. unenforceable.
D. perfectly valid, if the price Clara pays for the property is fair.
Big Bank is a major creditor of Bonwill Department Store. After a major loss in profits
due to poor holiday sales, Big Bank decides to help keep Bonwill from bankruptcy. Big
bank orally promises Mary Tudor, a supplier to Bonwills, that it will guarantee
Bonwill’s payment for goods that Mary sells to Bonwill. Most likely, Big Bank’s oral
agreement:
A. is unenforceable under the statute of frauds.
B. is unenforceable because it is a collateral contract.
C. is enforceable under the “main purpose” or “leading object” exception to the statute.
D. is enforceable because a collateral contract is not covered under the statute of frauds.
Forming a business with a high debt-to-equity ratio is an example of:
A. circumventing a statute.
B. thin capitalization.
C. creditor domination.
D. looting.
Ala Foreign Corporation is incorporated in the state of Alabama. However, it is running
90 percent of its operations from the state of Indiana. Such a type of corporation is
called a(n):
A. government-owned corporation.
B. foreign corporation.
C. alien corporation.
D. pseudo-foreign corporation.
For federal “diversity” jurisdiction to exist:
A. the case must begin in a federal court of appeals.
B. the amount in controversy must exceed $75,000.
C. both the plaintiff and the defendant must be citizens of the same state.
D. the case must pertain to the Constitution, laws, or treaties of the United States.
Ann is troubled with the noise of the old generator set up by her neighbor Jose at his
residence. The noise the generator makes is unbearable. Ann sues Jose for nuisance.
Will she succeed?
A. No, because it is reasonable noise.
B. No, because generator is not her personal property.
C. No, because she cannot interfere with Jose’s personal matters.
D. Yes, because the noise is interfering with plaintiff’s use and enjoyment of land.
Which of the following is a possible example of procedural unconscionability?
A. A clause excluding a seller’s liability for consequential damages from a defective
good.
B. A clause imposing a penalty for failure to deliver the goods on time.
C. A high price term in a contract.
D. A fine-print price term in a contract.
Submaterialmen are entitled to a lien only when:
A. they enter into a deed of trust with the contractor.
B. they act as the surety in the transaction.
C. they execute their right of exoneration.
D. the state statute specifically includes them.
Kurt is trying to decide whether or not he should drive to work every day and has a
number of questions. Will it save valuable time? Will he be adding to environment
pollution? Will it add to the problems of heavy traffic on the roads? Would carpooling
be a better idea? Which of the following ethical theories does Kurt adhere to?
A. Utilitarian ethics
B. Deontological ethics
C. Kant’s categorical imperative
D. Rights theory
Which of the following is true about continuation statements?
A. A continuation statement must be filled after the lapse of the five year period of the
financing statement.
B. The continuation statement must be signed by the secured party.
C. The effectiveness of the financing statement has nothing to do with the continuation
statement.
D. Continuation statements may be filed just once.
Today, trespassers who are injured while on someone else’s land:
A. never recover against the landowner in negligence.
B. recover against the landowner in negligence only when this is permitted by statute.
C. recover only when the possessor knows they are likely to trespass.
D. recover only when the owner willfully and wantonly injures them after their
presence is known.
The Administrative Procedure Act (APA) was passed by Congress to standardize
federal agency procedure.
Which of the following is a “real” defense that is good against a holder in due course of
a note?
A. The maker of the note is 15 years old.
B. The note was procured by the payee’s threat to prosecute the maker for drug dealing.
C. No consideration was given for the note.
D. The maker was in a seriously delusional state when he completed the note (but had
not been declared insane or institutionalized).
Which of the following is a common way in which a buyer may breach a contract?
A. By wrongfully returning goods
B. By agreeing to an extension of the credit period
C. By delivering a faulty product
D. By refusing to accept goods which are obviously damaged
John buys a machine for $10,000 under a contract that excludes consequential damages
and limits the buyer’s remedies to repair and replacement of defective parts. John later
discovers that the machine is not working properly. Under these circumstances if the
remedy of limitation is enforceable, then, to what extent will John be successful?
A. John can recover $10,000.
B. John will have to pay an additional amount for any repairing done.
C. John is entitled to any damages since he did not check the machine on purchase.
D. John can only get the machined replaced or repaired by the seller.
If a limited partner becomes a general partner as well in a limited partnership:
A. her share of profits will go down.
B. she will lose her managerial powers.
C. she will lose her limited liability.
D. she will lose her right to receive profits.
Ordinary nonphysical and nonviolent duress that causes the transfer of a negotiable
instrument:
A. prevents its negotiation.
B. is a good defense against a holder in due course of the instrument.
C. is subject to rescission before the instrument is transferred to a holder in due course.
D. is a good defense against the maker of a note.
In federal courts, a corporation is:
A. a citizen of only the place where is has been incorporated.
B. a citizen of only it principal place of business.
C. a citizen of both its place of incorporation and the state where it has its principal
place of business.
D. a citizen of that state which has enacted a “long-arm” statute and thus has
jurisdiction.
The party successful in a civil lawsuit can seek to enforce a judgment by obtaining a
writ of execution or by garnishment.
What two kinds of jurisdiction are necessary for a state court to have jurisdiction over a
case?
Arnold promised to sell his car to Adams in lieu of full payment of his debt. However in
the written contract, Adams had forgotten to specify which car he wants to sell. Is there
any remedy?
Kato checked out a book (Freeloading for Fun and Profit) from the library. While he
was reading it, he discovered three $50 bills that had been left in the book. Is the money
lost, mislaid, or abandoned property? Why is this determination significant?
The board of directors of Lorantan Corporation has 12 members. Lorantan’s bylaws
provide that a majority of seven or more directors is necessary to form a quorum. At a
meeting of the board of directors, a resolution is adopted authorizing the sale of a
substantial portion of the corporate assets to Pam Park, a director. Pam is one of the
eight directors present. What must the directors do for Pam to avoid liability for buying
the assets from the corporation?
Adam offers to sell Bill his house. The offer is complete and certain as to all material
terms. The offer also contains a promise that for a price of $100, Adam will keep the
offer open for 30 days. Bill never pays Adam the $100. Ten days after making the offer,
Adam telephones Bill to revoke it. Three days after that, Bill accepts. Is there a contract
here? Why or why not?
Give two reasons why the differences between fraud and misrepresentation are relevant.
Frazier and Roz are partners. Frazier contributes $30,000 to the partnership, and Roz
contributes $10,000. They agree that Frazier will assume 70 percent of partnership
losses and that Roz will assume 30 percent. They make no agreement about how to
share profits. The partnership has a profit of $60,000 in its first year. How much of the
profits is Frazier entitled to receive?
Babs, Mindy, and Eric decide to leave a large accounting firm and start their own
accounting business. What form of business should they elect?
There is no limit on the number of members in a Nonprofit Corporation.
TRUE
A nonprofit corporation may admit members whether they pay or not and there is no
statutory limit on the number of members a nonprofit corporation may have.
Allie is a licensed pilot who is nearsighted. She has 20/20 (perfect) vision when she
wears her contact lenses. Without her contact lenses, she cannot read or drive, but with
her contact lenses, she is able to engage in these activities. Acme Airlines has a
requirement that its pilots have 20/20 uncorrected vision. Allie applies for a pilot
position with Acme, and is rejected based on her need to wear contact lenses. Allie goes
to the EEOC to file a charge under the ADA against Acme Airlines. What is the likely
result?
E-Systems, Inc., a manufacturer of computer chips, offers to sell 1,000 chips to Swell
Computers for $2,000 in a signed memo that states the offer is good for one year. Four
months later, E-Systems revokes the offer, having never received an acceptance from
Swell. After receiving the revocation, Swell wants to accept E-Systems’s offer. What is
the result?
How can an indorser avoid secondary liability on the instrument? Can an indorser
disclaim transfer warranty liability?
Donald is the trustee of a trust set up by Simpson, with Adams as beneficiary. The trust
property consists almost entirely of income-producing real property—office buildings,
apartment complexes, etc. By putting a “P” or an “I” in the appropriate space, indicate
whether the following fund transactions should be allocated to principal (P) or to
interest (I).
___ 1. Rental income received from tenants on trust property.
___ 2. Capital gains realized from the sale of trust real estate.
___ 3. Property tax payments on trust property.
___ 4. Building management fees for trust property.
___ 5. Costs of ordinary repairs to trust property.
___ 6. Property insurance premiums on trust property.
___ 7. The cost of long-term permanent improvements to trust property.
Hannah is a managing partner of Andrusian Worldwide LLP, an accounting and
consulting partnership. Acting within her implied authority, Hannah makes a contract
for Andrusian to perform an audit for National Motors Company. The audit fee is
$325,000. The performance of the audit takes more hours than Hannah expected,
because Hannah has failed to determine the number of locations in which National
Motors does business prior to setting the audit fee. As a result, Andrusian loses $50,000
on the audit. Has Hannah breached a fiduciary duty?
