Drill Makers, Inc., and Edge Mine & Mill Supply Stores enter into a contract for a sale
of mining drill bits. The contract indicates that the price includes transportation costs to
a specific destination by including the term
a. C.I.F.
b. delivery ex-ship.
c. F.A.S.
d. F.O.B.
Through careless manufacturing practices, Metalworks Company makes and distributes
unsafe products that are sold to Nabi and other consumers. This may be subject to
sanctions under
a. federal and state law.
b. federal law only.
c. no law, according to the principles of freedom to contract.
d. state law only.
Like other corporations, Restwell Hotels Inc. can extend its operations through
a. liquidating and distributing its assets.
b. buying the assets of, or a controlling interest in, another corporation.
c. filing articles of dissolution with the state.
d. appointing a receiver to wind up the corporate affairs.
Lamont applies for a health insurance policy with MedInsure, Inc., an insurance
company, through Netta, an agent who works for MedInsure. Lamont pays the initial
premium. Netta writes a binder, which
a. acknowledges the application and promises to consider it.
b. attests to the truth of each statement in the application
c. evidences receipt of the payment of the initial premium.
d. indicates that a policy is pending and states its essential terms.
Sauces n” Syrups, Inc., and Thad’s Sweet & Spicy Bottling Plant have a manufacturing
franchise arrangement. This involves the transfer of
a. a license.
b. a trade name.
c. the formula to make a certain product.
d. the ownership of the business.
Fact Pattern 15-1B
Dana takes her car to Efficient Auto Repair Service, which repairs the car and bills
Dana for $500. She writes out a check drawn on First Choice Bank, but later, believing
that Efficient Auto did not repair the car properly, issues a stop-payment order.
Refer to Fact Pattern 15-1B. If First Choice pays the check, the bank
a. can sue Dana for a wrongful stop-payment order.
b. can sue Efficient Auto for breach of contract.
c. is liable to Efficient Auto for the time and trouble to return the payment.
d. is liable for Dana’s loss due to the wrongful payment.
Karissa’s will states, “I give to my sister Lexy my condominium in Miami, Florida.”
This is
a. a general legacy.
b. a residuary.
c. a specific bequest.
d. a specific devise.
Buck owns five acres of land in California. On the land Buck has a house and a
toolshed. There are ten large maple trees around the house. The real property includes
a. the land only.
b. the land and the house only.
c. the land, the house, and the toolshed, but not the trees.
d. the land, the house, the toolshed, and the trees.
Norman is an accountant. Norman’s violation of generally accepted accounting
principles and generally accepted auditing standards
a. does not indicate that Norman was negligent.
b. is prima facie evidence that Norman was negligent.
c. precludes Norman from raising any defense against a negligence claim.
d. is embarrassing but will never subject Norman to liability.
Jackson pays Phil in good faith for a promissory note. Phil warrants that the draft has
not been altered. This is
a. a presentment warranty.
b. a transfer warranty.
c. a signature warranty.
d. a breach of warranty.
Felicia goes through an involuntary bankruptcy proceeding. An involuntary bankruptcy
occurs when
a. creditors are forced to accept a discharge of a debtor’s debts.
b. a debtor is unable to pay his or her debts as they come due.
c. a debtor’s creditors force the debtor into bankruptcy proceedings.
d. a debtor’s debts exceed the fair market value of his or her assets.
At 1 a.m., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben
buys a $500 promissory note for $50 from Curt. When presented with Ben’s demand for
payment, Diane, the maker of the note, could successfully claim that Ben
a. acquired the note with notice that it was overdue.
b. did not acquire the instrument in good faith.
c. did not give value for the instrument.
d. none of the choices.
Nature’s Products, Inc., sends its standard order form to Omni Distribution Corporation
to evidence a sale of packing materials. Omni responds with its own standard purchase
order form. Additional terms in the purchase order automatically become part of the
contract unless
a. the terms materially alter the original contract.
b. the original offer expressly limited acceptance to its terms.
c. the offeror objects to the new terms within a reasonable time.
d. any of the choices.
Luxuro Furniture & Floors, Inc., files a petition in bankruptcy for relief through
reorganization. Luxuro’s reorganization plan must contain
a. a plan to turn over its future income to the trustee.
b. a certificate proving attendance at a credit-counseling briefing.
c. a provision of adequate means for the plan’s execution.
d a statement of preference for one creditor over another.
Gift Basket Company’s liabilities exceed its assets. Gift Basket hires Hill & Dale, an
accounting firm, to prepare a balance sheet. Through Hill & Dale’s negligent omissions,
the sheet shows a net worth. Investment Bank relies on the balance sheet to make a loan
to Gift Basket. When Gift Basket defaults, the bank files a suit against Hill & Dale.
Under the Restatement rule, Hill & Dale is most likely
a. liable because Hill & Dale owed a duty of care to Gift Basket.
b. liable because Hill & Dale owed a duty to any foreseeable user.
c. liable if Hill & Dale knew that the bank would rely on the balance sheet.
d. not liable because Hill & Dale and the bank were not in privity.
Rosario is a chef and caterer who hires out on a per-project basis to companies with
on-location work sites, as well as to hosts of banquets, corporate meetings, concerts,
weddings, and other events. In this capacity, Rosario is
a. an agent.
b. an employee.
c. an independent contractor.
d. a principal.
Payday Loans, Inc., signs an instrument payable to the order of Qiana that states, “The
maker of this note at the date of maturity, April 1, 2016, can extend the time of pay-
ment, but for no more than a reasonable time.” This instrument is
a. negotiable.
b. nonnegotiable, because it includes an extension clause.
c. nonnegotiable, because it is not payable within a definite time.
d. nonnegotiable, because it is payable to a specific payee.
Sweet Selections is a general partnership that sells candy, cards, and flowers. Sweet
Selections has ten partners. Jill and Amy each have a 25 percent interest in the
partnership. All the other members have a 10 percent interest. To pass a management
decision
a. a majority of the partners must agree to the decision.
b. both Jill and Amy must agree to the decision.
c. Jill or Amy must agree to the decision.
d. 30 percent of the partners must agree to the decision.
Lewis makes a note payable to MaxiFinance Corporation. MaxiFinance indorses the
back of the note and negotiates it to Notes & Drafts Investments, Inc. Primarily liable
on the note is
a. none of the choices.
b. MaxiFinance.
c. Notes & Drafts Investments.
d. Lewis.
Bayside Marina Company and Canoes & Kayaks Inc., share officers, directors,
employees, property, and equipment. In reliance on Bayside Marina’s reputation,
Delivery Transport, Inc., contracts to perform services for Canoes & Kayaks, but the
firm does not pay. In terms of liability to Delivery Transport, a court is most likely to
treat Bayside Marina and Canoes & Kayaks as
a. a pass-through entity.
b. a natural person.
c. a tax-paying entity.
d. a partnership by estoppel.
Donato is Equipment Repair Service Company’s chief executive officer. On Equipment
Repair’s behalf, Donato solicits business, hires and fires workers, and handles finances.
Equipment Repair pays Donato varying amounts, depending on his “needs.” Donato is
most likely
a. a principal.
b. an employee.
c. an employer.
d. an independent contractor.
Quaff n” Quench Café buys twenty-five crates of oranges from Reynaldo Produce, Inc.
The parties agree to ship the oranges “F.O.B. Quaff n” Quench ” via Swiftline Trucking
Company. The oranges rot in transit. The loss is suffered by
a. Quaff n” Quench.
b. Swiftline.
c. Columbia.
d. Reynaldo Produce.
Johan steals Krispin’s car and sells it to Lemar. Krispin can recover the car from Lemar
a. only if Lemar did not know that the car was stolen.
b. only if Krispin pays to Lemar the amount that Lemar paid to Johan for the car.
c. only if Lemar knew that the car was stolen.
d. under any circumstances.
Hadley, an accountant, accumulates working papers while performing an audit for Ilene.
After the audit, these documents belong to
a. Hadley, with Ilene having a right of access to the papers.
b. Ilene, with Hadley having a right of access to the papers.
c. neither Hadley nor Ilenethe papers must be disposed of.
d. the Public Company Accounting Oversight Board.
Replay Sports Stores and SportsPower Products, Inc., enter into a contract for a sale of
trampolines. SportsPower Products is a merchant who deals in goods of the kind sold.
Under the UCC, an implied warranty of merchantability arises
a. automatically.
b. only if the buyer asks for such a warranty.
c. only if the seller expresses such a warranty.
d. only in conjunction with lease contracts, not sales contracts.
Fact Pattern 15-1B
Dana takes her car to Efficient Auto Repair Service, which repairs the car and bills
Dana for $500. She writes out a check drawn on First Choice Bank, but later, believing
that Efficient Auto did not repair the car properly, issues a stop-payment order.
Refer to Fact Pattern 15-1B. First Choice
a. is liable to Efficient Auto for the amount of the check.
b. must stop payment if First Choice has a reasonable time to act.
c. need not follow Dana’s order because it was issued after the check.
d. need not follow Dana’s order unless the check was certified.
Shop n” Pay Convenience Stores, Inc., is a franchisor. Tonya operates a Shop n” Pay
franchise. Ulysses is one of Tonya’s employees. As a franchisor, if Shop n” Pay controls
the day-to-day operations of the business to a significant degree, it may be liable for
tortious acts by
a. no one.
b. Shop n” Pay only.
c. Shop n” Pay and Tonya, but not Ulysses.
d. Shop n” Pay, Tonya, or Ulysses.
Boni, the owner of Café Rico, knows about, but does not take any action to prevent, the
sexual harassment of employees. Boni and the café may be liable for such harassment
by
a. an employee’s previous employer.
b. a customer or a co-worker.
c. an employee’s spouse or other close relative.
d. none of the choices.
Brendan signs a check “pay to the order of City College Bookstore” drawn on his
account in Delta Bank to pay for his current semester’s textbooks. The bookstore
deposits the check in its account in Eagle Bank. Like most checks, this check is
a. a one-party instrument.
b. a nonnegotiable instrument.
c. a special type of draft.
d. not a substitute for cash.
Einar owns a 1967 Ford Mustang, which Ginny customizes and details to Einar’s
specifications. The car earns an award at the Regional Motorsports Customizing
Convention. The result of Ginny’s efforts is
a. accession.
b. confusion.
c. conversion.
d. production.
Bill’s Barber Supplies, Inc., is the major distributor of barber supplies in the state of
Colorado. Bill’s closest competitor is Dona’s Beauty Products Company, another
Colorado firm. They agree that Bill’s will distribute its products in western Colorado
and Dona’s will distribute its products in the eastern part of the state. This is
a. a group boycott.
b. a market division.
c. none of the choices.
d. a tying arrangement.
Brie wants one of Cari’s purebred Dalmations. Brie signs an instrument in which she
promises to pay Jasmine for a puppy. The instrument will be negotiable if it is payable
in
a. goods of equal market value.
b. money.
c. any of the choices.
d. shares of stock.
Fact Pattern 15-2B
Belle draws a check on her account in Capital Credit Bank in New York, payable to
Distribution Marketing, Inc., in San Francisco. Distribution Marketing deposits the
check in its account at Equity Bank. Equity Bank deposits the check in the Federal
Reserve Bank of San Francisco, which transfers it to the Federal Reserve Bank of New
York. That Federal Reserve Bank sends the check to Capital Credit.Refer to Fact
Pattern 15-2B. Central City, Distribution Marketing’s bank, is
a. the cashing bank.
b. the depositary bank.
c. the intermediary bank.
d. the payor bank.
Mason creates a trust to prevent his son, Newt, the beneficiary, from assigning his rights
to future payments of income from the trust. This is
a. a charitable trust.
b. a constructive trust.
c. a spendthrift trust.
d. an illegal trust.
A court awards a judgment to Loan Collection Agency, who is the creditor, against
Margret, who is the debtor. After the judgment, the creditor requests a court order to
seize Margret’s property to ensure that the judgment will be collectible. This is
a. a judicial lien.
b. a writ of attachment.
c. a writ of execution.
d. a violation of most state laws.
An accountant’s liability under the Securities Act of 1933 requires privity of contract
with the purchaser of a security.
Donatello is a director and officer of Enzio’s Pizza Corporation. Donatello selects an ad
campaign that consumers find offensivea marketing decision that results in a dramatic
decrease in profits for the firm and its shareholders. The shareholders accuse Donatello
of breaching his fiduciary duty to the corporation. What is Donatello’s best defense
against this accusation? Later, a resolution comes before Enzio’s board to expand its
menu to compete with Fabio’s Pasta Palace Restaurants Inc. Donatello is a director and
shareholder of Fabio’s. What is Donatello’s responsibility in this situation?
Community property it is created when a real property owner or lessor agrees to convey
the right to possess and use the property to a lessee (tenant) for a certain period of time.
Recording a mortgage perfects the lender’s security interest in the mortgaged property.
For federal income tax purposes, one-member limited liability companies are not taxed.
Equity Credit Company has in its possession an instrument dated May 1, 2014. The
instrument is payable to the order of First Choice Moving & Storage Company “on June
1, 2015,” for $5,000. In the upper left corner is an address for Greater Metro
Development Corporation10 Corporate Park Avenue, Chicago, Illinoisand in the lower
right corner is the signature of “Hilltop Investments, Inc., By Ida, President.” In the
lower left corner is stamped “ACCEPTED: Greater Metro Development Corporation by
John, President, May 5, 2014.” On the back is the signature of “First Choice Moving &
Storage Company by Kathleen, President.” Who, if anyone, is primarily liable on this
instrument on May 1? On May 5? Who, if anyone, is secondarily liable on this
instrument?
U.S. antitrust laws may be applied to protect foreign consumers and competitors from
violations committed by U.S. business firms.
When a seller keeps the goods for pickup, if the seller is not a merchant, the risk of loss
passes to a buyer on tender of delivery.
Public water systems operators must come as close as possible to meeting the
Environmental Protection Agency’s standards by using any available technology that is
economically and technologically feasible.
Warranties of title do not arise in most sales contracts.
In general, it is sufficient to provide only the debtor’s trade name (or fictitious name) in
a financing statement for perfection.
Creditors who have a perfected security interest in a debtor’s property normally take
priority over mechanic’s and artisan’s liens.
Whenever a work-related injury or disease occurs, employers must make reports
directly to the Occupational Safety and Health Administration.
The forgery of a signature on an instrument is a valid defense against all holders except
HDCs and holders through HDCs.
The Securities and Exchange Commission cannot exempt persons, securities, and
transactions from the requirements of the securities laws.
The lender does not have to strictly comply with the state statute governing
foreclosuresubstantial compliance is sufficient.
A person who is obtaining insurance from an insurance company’s agent is not usually
protected until a formal written policy is issued.
Only a statement made after a contract is entered into can be an express warranty.
Under the Age Discrimination in Employment Act of 1967 permits private cause of
action against employers for age discrimination.
All transactions involving the delivery of property from one person to another create a
bailment.