Rely Credit Company loans Standard Manufacturing Company $50,000 and takes a se-
curity interest in the equipment that Standard buys with the funds and receives on July
1. Standard files for bankruptcy on July 12.Rely does not perfect its security interest
before Standard files for bankruptcy. With respect to the equipment, Rely will be an
unsecured creditor and the trustee of Standard’s estate will
a. have priority over Rely’s interest only until Rely perfects it.
b. have priority over Rely’s interest only if Rely knew of the impending bankruptcy.
c. have priority over Rely’s interest under any circumstances.
d. not have priority over Rely’s interest.
Erte, a partner in Fluoride Dental Associates, applies for a loan with Great State Bank
allegedly on Fluoride’s behalf but without the authorization of the other partners. Great
State knows that Erte is not authorized to take out the loan. Erte’s default on the loan
results in
a. Erte and Fluoride’s joint liability for the amount.
b. Erte’s sole liability for the amount.
c. Fluoride’s sole liability for the amount.
d. neither Erte’s nor Fluoride’s liability.
Fact Pattern 23-3
Mike loses his National Bank access card. He realizes his loss the next day but waits a
week to call National. Meanwhile, Opal finds and uses Mike’s card to withdraw $3,000
from Mike’s account.
Refer to Fact Pattern 23-3. When Mike receives his National statement, he demands
that the bank investigate the matter and recredit his account. The bank
a. has no duty to investigate.
b. must investigate and, if the dispute is not resolved within ten days, recredit Mike’s
account (at least until the dispute is resolved).
c. must investigate and immediately recredit Mike’s account (at least until the dispute is
resolved).
d. must investigate but need not recredit Mike’s account.
Marquis Company’s liabilities exceed its assets, but the firm’s employees falsify its
books to reflect a positive net worth. Marquis hires Nan & Ollie, an accounting firm, to
prepare a balance sheet, which is certified to show a positive net worth. Pure Credit
Corporation relies on the balance sheet to make a loan to Marquis. When the firm
defaults, Pure Credit files a suit against Nan & Ollie. Under the Ultramares rule, the
accounting firm is most likely
a. liable because Nan & Ollie owed a duty of care to all third parties.
b. liable because Nan & Ollie owed a duty of care to Marquis.
c. liable because Nan & Ollie owed a duty to any foreseeable user.
d. not liable because Nan & Ollie and Pure Credit were not in privity.
Dreem Land Corporation and EZ Investments Company transfer their property to
Financial Managers, Inc., which manages the property and distributes the profits to
Dreem and EZ. This form of a business organization is
a. a business trust.
b. a joint stock company.
c. a joint venture.
d. a syndicate.
Paris knowingly divulges to Media Exposure magazine information about Randy’s
e-money payments to City Bank. The payments were in transmission to City Bank
when Paris, without the consent of Randy or City Bank, discovered and revealed them.
This may be a violation of
a. the Electronic Communications Privacy Act.
b. the Federal Reserve Board’s Regulation E.
c. the Right to Financial Privacy Act.
d. the Uniform Electronic Transactions Act.
Sari buys a new sport utility vehicle (SUV) from Terrific Cars & Trucks, Inc. The most
important factor in determining whether an express warranty is created is whether
a. Sari expresses to Terrific what she wants warranted.
b. Sari’s desire for the SUV becomes part of her motivation to deal.
c. Terrific expresses to Sari what it expects of its customers.
d. Terrific promise becomes part of the basis of the bargain.
To acquire the ownership of a mountain cabin by adverse possession, Cody must
occupy the cabin exclusively, continuously, and peaceably for a specified period of time
a. in an, open, hostile, and adverse manner.
b. until the owner files a suit.
c. without the owner’s knowledge.
d. with the state’s permission.
Leslie, an accountant, enters into a contract to provide services to Marty. Leslie does
not finish the work within the contract’s deadline. Leslie is
a. liable for breach of contract.
b. not liable, because Leslie is a professional.
c. not liable, because Leslie’s failure must have been Martys fault.
d. not liable, because the work took longer than foreseen.
Fact Pattern 35-1
Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake
an action to redress a wrong suffered by SBC, Ray files a suit on the firm’s behalf.
Refer to Fact Pattern 35-1. Any damages recovered by Ray’s suit will go to
a. Ray.
b. SBC.
c. SBC’s directors.
d. the state in which SBC is incorporated.
Garden & Yard Landscaping enters into an oral contract with Penelope under which she
agrees to work on a Garden & Yard project on Valley Country Club’s golf course for
sixteen months. The contract is enforceable by
a. Garden & Yard.
b. Penelope.
c. any interested third party, such as Valley Country Club.
d. none of the choices.
The payment of Eden’s debt to Flem is guaranteed by Eden’s personal property. This
property is
a. a secured party.
b. a secured transaction.
c. a security interest.
d. collateral.
Clyde enters Desert Decathlon, an athletic competition in which Clyde has often
competed. Regarding the risk of injury, Clyde assumes the risks
a. attributable to the Decathlon in any way.
b. different from the risks normally associated with the Decathlon.
c. greater than the risks normally associated with the Decathlon.
d. normally associated with the Decathlon.
Suchin’s debt to Trixie is past due. Trixie obtains a judgment against Suchin to collect
the debt, but Suchin refuses to pay. Trixie asks the court to order the seizure and sale of
Suchin’s property. This is a request for
a. a guaranty (or suretyship) contract.
b. an order that would violate most states’ laws.
c. an order of receivership.
d. a writ of execution.
Candy enters into a contract under which she agrees to pay Dino for a business survey
and review of her competitors. Dino agrees to deliver the survey by July 1. Candy’s
offer, on July 1, to pay Dino is
a. complete.
b. substantial.
c. tender.
d. tough.
Omni Corporation is a Pennsylvania-based firm that does business throughout the
United States. With respect to this circumstance, the UCC has been adopted by, and
applies in,
a. a few of the states.
b. all of the states, in whole or in part.
c. half of the states.
d. none of the states, to date.
Xavier owns a duplex that he leases to Yvon and Zack. Xavier may sell
a. the duplex at any time.
b. the duplex, but only after the lease expires and the tenants move out.
c. the duplex, but only with the tenants’ permission.
d. the lease, but not the duplex.
Seaside Cannery, Inc., is one of many producers of canned seafood. Seaside refuses to
sell its products to Port Harbor Restaurant Corporation. This refusal is most likely
a. an anticompetitive practice in violation of the Clayton Act.
b. a per se violation of the Sherman Act.
c. a violation of the Sherman Act under the rule of reason.
d. not a violation of antitrust law.
Regular Insurance Company violates a state statute when selling an insurance policy to
Simone. As a member of the class of persons protected by the state statute, Simone can
a. do nothing with respect to the contract.
b. enforce the contract or recover the payment.
c. only enforce the contract.
d. only recover the payment.
Industry Processes Corporation generates solid waste considered hazardous. Industry
labels and packages properly all waste to be transported to a disposal site. Under the
Resource Conservation and Recovery Act, this is most likely
a. not a violation.
b. a violation because Industry generates solid waste.
c. a violation because the waste is transported off-site.
d. a violation because the waste is considered hazardous.
Earl holds 1,000 pounds of perishable fruit in storage for Fresh Food Corporation. Fresh
Food does not pay for the storage. Earl sells the fruit to Green Grocers, Inc. This sale
represents
a. a breach of contract.
b. a mitigation of damages.
c. rescission and restitution.
d. specific performance.
Fiorella and Midwest Agri-Ship, Inc., enter into a contract for Midwest to transport a
silo of corn for which Fiorella agrees to pay Midwest. Due to schedule conflicts,
Midwest contacts Hybrid Crop Transport Company, to which Midwest “assigns all
rights under the contract.” This transfer is
a. an assignment and a delegation.
b. an alienation and a negotiation.
c. an obligation and a cancelation.
d. prohibited.
Kristal is a member of Laboratory CSI Services, LLC, a limited liability company.
Kristal can participate in the firm’s management
a. only to the extent that she assumes liability for the firm’s debts.
b. only to the extent of her investment in the firm.
c. to any extent.
d. to no extent.
Ramon sets fire to his house. At common law, the crime of arson could be committed
only if a person burned down
a. a commercial building.
b. an unoccupied structure.
c. his or her own house.
d. the house of another person.
The United States is a member of the World Trade Organization, which, among its
members,
a. does not affect trade barriers.
b. maximizes trade barriers.
c. minimizes trade barriers.
d. outlaws trade barriers.
Stuffed Fauna, Inc., and Taxidermy Storage Company enter into a long-term lease for a
warehouse. To be enforceable, the lease
a. must be in writing.
b. must be in writing only if the lease is valued at $500 or more.
c. must be in writing only if the lease is for longer than one year.
d. need not be in writing.
Levi, a citizen of Maryland, obtains a federal license to operate a commercial fishing
boat in Chesapeake Bay. The Maryland state legislature enacts a law that bans all
commercial fishing in the bay. The state law most likely violates
a. no provision in the U.S. Constitution.
b. the commerce clause.
c. the due process clause.
d. the supremacy clause.
Owen, Paula, Quinn, and Rita combine to finance the building of Super Stores, a
shopping mall. Their selected form of business organization is an investment group, or
a. a business trust.
b. a joint stock company.
c. a joint venture.
d. a syndicate.
Gelato Ice, Inc., is incorporated in the state of New Jersey and is doing business in the
state of New York. In New York, Gelato is properly referred to as
a. a domestic corporation.
b. a foreign corporation.
c. an alien corporation.
d. a de jure corporation.
Leo buys an exclusive territory in which he is authorized to set up a plant to make
Midwest Dairy, Inc., products. After receiving the formula, Leo begins making
Nice-brand ice cream and other Midwest products. This is
a. a chain-style franchise.
b. a distributorship franchise.
c. a manufacturing franchise.
d. no franchise.
Vladimir negotiates a bearer instrument to Wendy by
a. assignment.
b. delivery.
c. presenting it in response to a demand by Wendy.
d. promising to pay.
Manny wants to transfer his right to buy $400 of pistachio nuts under a contract with
Nila to Opie. To ensure that the transfer of the right is valid, Manny must
a. designate Opie as a “delegate.”
b. file a notice of assignment in the public records.
c. tell Nila that he has no right and no liability under the contract.
d. none of the choices.
A partner may not pursue his or her own interest without violating the fiduciary duties
that he or she owes to the firm.
A promise to do something that one has a prior legal duty to do is not consideration.
A reasonable, lawful, and effective meaning will normally be given to all of a contract’s
terms.
A business incorporated in one state has an automatic right to do business in any other
state.
A preemptive right is a preference over other shareholders to cast the determining vote
on fundamental changes affecting the corporation.
In most states, the courts no longer grant “equitable” remedies.
Any product may be made entirely safe for all consumption.
A firm can have monopoly power without violating antitrust law.
If a contract for a sale of goods does not include the delivery date, there is no basis for
enforcing it.
Under a destination contract, a seller must deliver the goods via a carrier.
The word “Mom” can qualify as a signature on a will.
Under the Equal Pay Act of 1963, all of the women on an employer’s staff must be paid
the same as all of the men.
An advertisement that contains an endorsement by a celebrity may be deemed deceptive
if the celebrity does not actually use the product.
A court will not pierce the corporate veil of a corporation that is formed merely to
evade an existing legal obligation.
A product is not so unreasonably dangerous as to support the imposition of liability in a
strict product liability suit solely because a less dangerous alternative was commercially
feasible but was not produced.