During the early period of American history the state governments issued special
charters that created corporations.
Corporations are generally liable on preincorporation contracts signed by their
promoters.
A corporation may not declare and distribute dividends unless it has excess solvency.
Loans made by partners to a partnership are partnership capital.
Brennan sues Melissa for breach of contract. In her reply, Melissa claims, among other
things, that she should not be liable as she only entered the contract because Brennan
defrauded her. This assertion is called an affirmative defense.
If one party threatens to commit battery on another individual tomorrow, then this is an
assault.
As per common law, landlords make no implied warranties regarding the condition or
quality of leased properties.
The owner of a sole proprietorship assumes personal liability for the actions of the
business.
A cashier’s check is a check for which the same bank is both drawer and drawee.
A check is a contract for money that is payable on demand.
Government action that discriminates on the basis of illegitimacy receives full strict
scrutiny.
Partners in a partnership cannot turn over sole authority to one partner to run the
business.
Once a party properly delegates a duty to the delegatee, that party is relieved of any
obligation to perform the duty.
The termination of an agency terminates the agent’s express authority, but not his
implied authority.
An LLC member has no individual liability on LLC contracts, unless he/she also signs
LLC contracts in his/her personal capacity.
The relationship between a depositor and a bank are governed by a deposit agreement
and Articles 3 & 4 of the UCC.
When a promisor’s performance is an express condition of the promisee’s duty to
perform, that performance must meet a strict performance standard.
Whatever the type of injury experienced by the plaintiff, the usual rule is that only
punitive damages are recoverable in a negligence case.
According to the NEPA, every business contemplating a project must file an
environmental impact statement.
In order to prevent debtors from misusing the provisions of the Bankruptcy Code, the
scope of dismissal of a bankruptcy petition has been widened to a broader interpretation
of abuse, and not just restricted to substantial abuse.
The total fairness test permits a shareholder to require the corporation to purchase his
shares at a fair price.
Under the UCC the parties to a contract can shorten the statute of limitations on a
breach of contract but cannot extend it longer than four years.
An organizer is the individual that incorporates a business.
Under the UCC an injured party in a contract dispute cannot recover punitive damages.
Joe Smith is a recent graduate from Sunset College. While at Sunset College he
majored in Business. In his interview for an auditor position at Supermart Inc. Mr.
Smith convinced the hiring manager he knew enough accounting to perform the job, but
in fact Mr. Smith does not understand Generally Accepted Auditing Standards (GAAS).
Mr. Smith has failed to show professional care and could be liable for his actions as an
auditor because of his lack of skills.
The Clean Water Act sets up a permit system for any dredging or filling activity in
wetlands that is administered by the Army Corps of Engineers.
State governments establish the standard for drinking water in the United States.
A trademark is any word or symbol used by a seller to identify its products from the
competition.
A justice theorist would choose the alternative that allocates society’s benefits and
burden most fairly.
Under the Uniform Transfers Act a minor is an individual under the age of 18.
A corporation with a reasonable debt-to-equity ratio will not have its veil pierced on the
grounds of thin capitalization.
The first corporation is liable for its debt, even after a merger.
Professionals’ tort liability to their clients may be based only on the common law
concepts of negligence and fraud.
Why does a rejection by the offeree terminate his power to accept the offer?
A. It indicates his inability to perform the contract.
B. It indicates that the offeree is uninterested.
C. It allows the offeror to approach a different offeree.
D. It indicates a lack of intent making any future contract illegal.
Which of the following is most likely to involve both defamation liability and liability
for putting a person in a false light?
A. Saying that a philosopher favors Plato’s philosophy over Aristotle’s, when in fact the
reverse is true.
B. Falsely saying that an anti-abortion activist favors a candidate that is conservative
and is anti-abortion.
C. Falsely saying that an anti-abortion activist favors giving parents a right of
infanticide for all children less than one year old.
D. Signing a conservative Christian clergyman’s name to a petition advocating greater
sexual freedom for homosexuals which the clergyman supports the petition in private.
A bargain is considered to be void if a court has _____ a person to be mentally
incompetent at the time the bargain was formed.
A. ratified
B. adjudicated
C. disaffirmed
D. emancipated
When property ownership is discussed in the United States, which one of the following
is true?
A. We are talking about the bundle of rights that the law recognizes and enforces.
B. We are only talking about property held as Life Estates.
C. We are talking about all claims to property including those that the law recognizes
and those the law doesn’t.
D. We are only talking about land over one acre in size or over a certain value.
If an order instrument is transferred without indorsement, then the instrument:
A. is deemed to have been negotiated and the bank can qualify as a holder.
B. has not been negotiated and the transferee cannot qualify as a holder.
C. is deemed to have been negotiated and the transferee can qualify as a holder.
D. has been transferred and the bank and the transferee can qualify as a holder.
Which of the following ethical theories judges our actions as good or bad depending on
their consequences and is expressed as “the ends justify the means”?
A. Rights theory
B. Utilitarianism
C. Kantianism
D. Deontological theory
S agrees to specially manufacture a machine for B. After S finishes the job, B breaches
the contract. Knowing that there is no market for the machine, S does not try to resell it.
Instead, S sues B for the price of the machine. Which of the following is true? Assume
that there truly was no market for the machine.
A. S can recover only the input price invested in making the machine.
B. No recovery, because S was obligated to make an effort to resell the partially
completed machine for scrap.
C. No recovery, because here S was obligated to sue B for his lost profit on the deal.
D. S can recover the price of the machine from B.
According to the Supreme Court of the United States, a foreign corporation may be
brought into a state’s court in connection with its activities within the state, provided
that the state does not violate the corporation’s due process rights under the Fourteenth
Amendment of the Constitution and its rights under the:
A. Foreign Business Clause.
B. Domestic Business Clause.
C. Commerce Clause.
D. Doing Business Clause.
Which of the following promises is subject to a “strict performance” standard? Assume
that performance of the promise is not an express condition of the promisee’s duty to
perform.
A. A promise to build a road
B. A promise to paint a house
C. A promise to destroy a building
D. A promise to deliver a deed
When a person procures the transfer of property by means of fraud or duress, he
becomes a(n) _____ and is under an obligation to return the property to its original
owner.
A. constructive trustee
B. implied trustee
C. executor
D. administrator
West & Co., a large CPA firm, was engaged by Sand Corp. to audit its financial
statements. West issued an unqualified opinion on Sand’s financial statements. Reed is a
securities investor who relied upon the statements when purchasing Sand stocks. After
incurring major losses on Sand stocks, Reed accused Sand of making negligent
misrepresentations in the financial statements. West was not aware of the
misrepresentations nor was it negligent in performing the audit. If Reed sues West for
damages, based on Section 10(b) and Rule 10b-5 of the Securities Exchange Act of
1934, West will:
A. lose, because Reed relied upon the financial statements.
B. lose, because the statements contained negligent misrepresentation.
C. prevail, because some element of scienter must be proved.
D. prevail, because Reed was not in privity of contract with West.
The 20th century product liability law is best characterized by the phrase:
A. res ipsa loquitur.
B. caveat venditor.
C. caveat emptor.
D. laissez-faire.
Which of the following is not an option for the buyer if the goods delivered by the seller
do not conform to the contract?
A. Reject all of the goods
B. Accept all of them
C. Accept only part of a commercial unit and reject the rest
D. Accept any commercial units and reject the rest
The term “Superfund” refers to:
A. the Resource Conservation and Recovery Act.
B. the pool of money collected to compensate victims of nuclear reactor disasters.
C. the Comprehensive Environmental Response Compensation and Liability Act
(CERCLA).
D. the fund that the automobile industry must maintain to develop alternative-fuel
vehicles.
Insolvency occurs when a debtor:
A. is unable to pay his/her debts as they become due.
B. has a larger number of unsecured creditors than secured creditors.
C. is unemployed for two consecutive years.
D. is declared bankrupt by a Certified Accountant.
A fact is considered to be material in a misrepresentation case when:
A. the misrepresentation is considered to be innocent.
B. it plays an important role in inducing a person to enter into a contract.
C. it is relied upon by a person, even though it could not possibly be true.
D. it is similar to an opinion or promise about some future happening.
Damages that are agreed upon at the time the contract is entered into are called _____.
A. compensatory damages
B. consequential damages
C. liquidated damages
D. mitigation of damages
In which of the following cases does a finder have no rights at all to the property?
A. Abandoned property
B. Lost property
C. Mislaid property
D. Inherited property
Mike signs a note payable to a bank. The bank indorses and negotiates the note to Fay,
who then indorses and negotiates it to Sam. Sam presents the note to Mike, who
dishonors it. Then Sam decides to pursue Fay and the bank on their secondary indorsers’
liability. Against whom can Sam proceed?
A. Fay.
B. The bank.
C. Both Fay and the bank.
D. Neither Fay nor the bank.
Shelly, aged 15, sells a car to Fiona, aged 25. Fiona in turn sells the car to Raphael.
Under section 2-403 of the Uniform Commercial Code, if Shelly chooses to disaffirm
the contract with Fiona:
A. Shelly can get the car back from Raphael.
B. Raphael will have to sell it back to Shelly.
C. Shelly can do so, since she is a minor.
D. Shelly needs to file a breach of contract against both Fiona and Raphael.
Raider Corporation (RC) attempted to take over Targetnorth Corporation (TC) using a
tender offer. The tender offer price was twice the market price for TC shares. As a
defense to this, TC proposed to buy its shares owned by RC at triple the market price
provided RC agreed not to purchase any more TC shares for the next five years. This
kind of tender offer defense is called:
A. Greenmail.
B. the lock-up option.
C. White Knight.
D. Pac-Man.
The maximum penalty for a criminal violation of the 1933 Act is a:
A. $20,000 fine and one year imprisonment.
B. $10,000 fine and five years’ imprisonment.
C. $20,000 fine and five years’ imprisonment.
D. $10,000 fine and one year imprisonment.
The stakeholder theory of corporate social responsibility:
A. strives to maximize profits for its shareholders.
B. tries to balance the interests of shareholders and stakeholders.
C. advocates the use of legal remedies to check corporate misbehavior.
D. advocates the freedom of corporations to run as they wish.
Toywood Inc., headquartered in Vermont, specializes in manufacturing non-toxic
wooden toys in its two mechanized units in Vermont and New Hampshire. Its flagship
store is located in Philadelphia, PA. It will be considered a(n) _____ corporation in PA.
A. domestic
B. alien
C. domicile
D. foreign
In order for a purchaser of land to avoid a contract with the seller based on duress, it
must be shown that the seller’s improper threats:
A. were due to his relationship with the purchaser.
B. actually induced the purchaser to assent to the contract.
C. were due to his position of dominance with the purchaser.
D. influenced the purchaser to assent as there were no reasonable alternatives.
Dave tells Dora that Phil, a financial advisor, has been stealing money from his clients.
Dora then repeats Dave’s statement to Tom, telling Tom that the information comes
from Dave. All these statements are oral, defamatory, and false. Phil sues Dave and
Dora for defamation. Which of the following is true? (Don’t consider defenses and
privileges).
A. Phil can recover against Dave and Dora without proving special damages.
B. Because Dora only repeated Dave’s statement and identified Dave as its author, she
can’t be liable to Phil.
C. Because Dave only communicated his statement to Dora, and not to an appreciable
number of people, he can’t be liable to Phil.
D. Phil must prove special damages in order to recover against Dave and Dora.
Except for _____, to be negotiable an instrument must be “payable to order or to
bearer.”
A. promissory notes
B. bonds
C. checks
D. certificates of deposit
Homer’s negligence caused an automobile accident with Bart. As a result of the
collision, Bart’s car collides with a telephone pole, causing it to fall. The falling pole
then takes out some electrical power lines. The resulting power outage leaves Patty
without any light in her apartment. As she fumbles in the darkness, she trips over her
cat, falls, and is injured. Patty sues Homer. In order to avoid liability, Homer’s best
defense is that:
A. there is no actual cause between the negligence and the injury.
B. there is no proximate cause between the breach of duty and the injury.
C. Bart’s car was the one that collided with the telephone pole.
D. the electrical power lines should not have fallen under the force of a car.
Cathy Young, age 16, buys a 1973 Chevy Camaro from Mark Watson, age 23, for $400.
Cathy’s indulgent parents, who give her everything she wants, loaned her the money for
the car. The reason for Cathy’s purchase is that all her friends have cars and she feels
left out without one. One week after buying the car, however, Cathy changes her mind
and tells Mark that she wants to disaffirm the contract. When Mark comes to pick up
the car and give Cathy her money, though, Cathy changes her mind again, telling Mark,
“I’ll stick by the deal.” However, when Cathy’s parents gave her a new car for her 17th
birthday, she finally decides to disaffirm once again. Which of the following is correct?
A. Cathy cannot disaffirm because the car is a necessary.
B. Cathy cannot disaffirm because she ratified the contract by saying “I’ll stick by the
deal.”
C. Cathy cannot disaffirm because we have a sale of goods and Article 2 of the UCC
says that 16 is the age of contractual capacity.
D. Cathy can still disaffirm.
How are limited liability companies (LLCs) taxed?
A. They are always taxed the same as general partnerships.
B. They are always taxed the same as corporations.
C. They are taxed either as partnerships or as corporations, at the option of the LLC.
D. They are taxed either as partnerships or sole proprietorships, at the option of the
LLC.
Maria and Joe entered into a contract for the sale of Maria’s car. Delivery of the car and
payment were to be made on March 1. Joe clarified that he needed the car so that he can
commute between San Francisco and Oakland to his new job that is starting on March
2. Maria broke the contract and failed to deliver the car on March 1. Joe needed a car to
commute so he rented a car at $30 per day for 20 days, which was the reasonable
amount of time it took him to locate and buy another car. Joe sued Maria for his losses,
including the $600 car rental. The $600 makes up the _____ damages.
A. liquidated
B. consequential
C. punitive
D. specific performance
Which of the following characterizes a coinsurance clause with regard to property
insurance?
A. It prohibits the insured from obtaining an amount of insurance which would be less
than the coinsurance percentage multiplied by the fair market value of the property.
B. It encourages the insured to be more careful in preventing losses since the insured is
always at least partially at risk when a loss occurs.
C. It permits the insured to receive an amount in excess of the policy amount when
there has been a total loss and the insured carried the required coverage under the
coinsurance clause.
D. It will result in the insured sharing in partial losses when the insured has failed to
carry the required coverage under the coinsurance clause.
The Sherman Act provides that individuals criminally convicted of violating it may be:
A. fined up to $1 million per violation and may be imprisoned for as long as 5 years.
B. fined up to $500,000 per violation and may be imprisoned for as long as 10 years.
C. fined up to $500,000 per violation and may be imprisoned for as long as 5 years.
D. fined up to $1 million per violation and may be imprisoned for as long as 10 years.
Why is the contract for the insurance of a building not covered within the real estate
provision of the statute of frauds?
A. It does not involve the transfer of interests in land.
B. It involves a physical asset.
C. It involves two or more parties.
D. It need not be in writing.
Max’s credit card was stolen last week. By the time Max reported this theft and got his
card canceled, the thief had already withdrawn $10,000 using his card. Under the TILA,
what is Max’s maximum liability for this unauthorized use of his card?
A. $100
B. $50
C. $500
D. $10,000
Why does negotiability matter? Hint: To what is negotiability a prerequisite?
Furthermore, why does this matter? Also, why is it important to society?
Pete tells Alice, his sales agent, that under no circumstances does she have authority to
make any warranties covering goods she sells for Pete. No third party knows about
Pete’s limitation on Alice’s authority. Alice goes out and provides warranties in a sale to
Tom. The warranties that Alice makes are customary in the trade, Tom knows this, and
Tom knows nothing about the limitation on Alice’s authority. Did Alice have implied
authority to bind Pete? Discuss Alice’s apparent authority?
Alice did not have implied authority, because a principal’s express statements limit
implied authority that otherwise would exist, and Pete cut off Alice’s actual authority to
make warranties.
Sandra starts a new LLLP for her gelato business. She becomes the general partner of
the LLLP and her friend Katy becomes a limited partner. There are no other general or
limited partners in the LLLP. Apart from being a general partner, Sandra wishes to
become a limited partner in the LLLP to increase her share of profit. Can she do it? If
not, suggest a method by which she might be able to do it.
Harold and Dorothy own all of the shares of Ace Corporation. Robert, Ace’s landlord,
sued Ace for unpaid rent. Robert received a $10,000 judgment against Ace. When
Robert tried to collect on the judgment, he discovered that Ace Corporation had no
assets. He then discovered that Harold and Dorothy no longer operate Ace Corporation.
They now operate Optimus Corporation as the only shareholders. Harold and Dorothy
had no assets in their names. However, upon further investigation, Robert discovered
that Optimus had numerous assets. He reviewed the financial documentation,
discovering that Optimus pays for Harold and Dorothy’s mortgage, medical bills, and
grocery bills. Can a court pierce the corporate veil? Discuss.
Why are 20th century contract law rules so often fuzzy and discretionary rather than
precise and rigid?
The basic reason is the perceived need for government intervention and, more
importantly, intervention in a complex social environment in which one situation differs
from another. How can anyone frame precise, technical rules to deal equitably with
situations that cannot readily be foreseen and that almost certainly should be dealt with
differently?
Who are party to a deed of trust?
Overbearing, Inc., which manufactures ball bearings, has built up a network of
wholesale dealers. Under agreements between Overbearing and various dealers, each
dealer has an established geographical territory of operation. These agreements also call
for the individual dealers not to compete in another Overbearing dealer’s exclusive
territory. An appropriate plaintiff has sued Overbearing on the theory that these
agreements violate Section 1 of the Sherman Act. What treatment will the court give the
agreements? Why? Under that treatment, is it possible for Overbearing to avoid liability
even if the existence of the agreements is established by the plaintiff? If so, how?
Strict liability makes people liable irrespective of their fault. What can justify this? That
is, what is the standard rationale for strict liability?
Pesky, Inc. employs numerous sales representatives who attempt to sell the company’s
products door-to-door. All of the products sold in this manner are designed for use in
the home. They range in price from $29.95 to $149.95. Each Pesky sales representative
has been instructed to provide customers the address from which warranty information
about Pesky’s products may be obtained. The sales representatives give customers this
address before the sale of any product takes place. The FTC has sued Pesky in federal
court, requesting appropriate injunctive relief on the theory that Pesky’s practices (as
just described) do not comply with the Magnuson-Moss Act and its implementing
regulations. Is the FTC’s position correct? Explain.
Duress involves threats and coercion while undue influence involves persuasion to
susceptible individuals.
The term for an individual outside of a contract but who is envisioned to be benefited
by a contract is a third-party beneficiary.
What are the three significant effects resulting from the indorsement of a negotiable
instrument?
Wilma, who thought she had a terminal disease, signed over the title to her new
Cadillac to her cousin, Kenny, and told him that she wanted him to have the car “after
I’m gone.” Kenny took the keys and began to use the car. A week later, Wilma was told
that her diagnosis had been an error, and that she was not terminally ill. Wilma wants
her car back. Can she recover it from Kenny? Why or why not?
Rockchalk Paving Co., a Kansas firm, paves public streets and highways in Kansas and
the surrounding states of Nebraska, Colorado, Oklahoma, and Missouri. Wildcat Pavers,
Inc., a paving contractor that competes with Rockchalk in Kansas, Oklahoma, and
Missouri, filed suit against Rockchalk and Jayhawk Corp., another paving contractor.
Wildcat alleges that Rockchalk owns 65 percent of the outstanding stock of Jayhawk
and that the defendants violated Sections 1 and 2 of the Sherman Act by engaging in
collusive bid-rigging practices. The defendants have moved to dismiss for failure to
state a cause of action. Should their motion be granted? Explain your reasoning.
What is patent infringement?
B.G. Disco purchased a property insurance policy and named himself as the beneficiary.
Disco had no ownership interest in the house at the time he purchased the policy. The
house was in fact owned by his aunt, Polly Espy. He procured the insurance, however,
because he hoped to inherit the house at some future date and thus wanted to protect
that potential interest. A month after Disco purchased the policy; Aunt Polly’s house
was destroyed by fire, a covered peril. Is Disco entitled to collect under the insurance
policy? Explain your reasoning.
After consuming a mind-altering drug, Hal buys some real estate from Edith for
$100,000. Hal was completely wrecked when he made the deal, and could not
understand what he was doing. Due to the after effects of the drug, Hal goes into a
coma that lasts for one year. As soon as he awakes from the coma, Hal tries to disaffirm
his contract with Edith. Edith maintains that Hal cannot disaffirm because he has
ratified the contract. What should Hal argue in return?
ABC is a nonprofit corporation formed by Alex. As its promoter, Alex made a few
contracts with Johnsons Inc. The following year, Alex formed another for-profit
company. Meanwhile, Johnsons Inc., claimed that Alex has not honored the contracts he
made with them as promoter of ABC. Is Alex liable for those contracts? If not, what
remedies are available for Johnsons Inc.?
Beginning in 1998 and continuing until Aug. 1, 2003, Aromatic Co. promoted the sale
of its Essence of Terre Haute (ETH) brand perfume by encouraging ETH buyers to save
the proof of purchase seals on ETH labels. Consumers with at least 25 proofs of
purchase seals could redeem them for fabulous prizes. This promotion had caused the
sales of ETH since 1998 to be well in excess of ETH sales levels from 1993 through
1998. In nationally televised announcements on Aug. 1, 2003, Aromatic stated that it
was ceasing the proof of purchase program and that effective immediately, no more
proof of purchase seals would be accepted for redemption. This left millions of ETH
buyers with worthless proof of purchase seals, many of which came from bottles of
ETH purchased within one week before Aromatic’s Aug. 1 announcement. Assume that
the Federal Trade Commission has brought an adjudicative proceeding against
Aromatic on the theory that the Aug. 1 announcements (and the underlying decision to
halt the program without giving consumers a reasonable period of time within which to
redeem their seals) constituted an unfair practice in violation of section 5 of the FTC
Act. Aromatic argues, in defense, that its Aug. 1 announcements were easily
understandable and contained no deceptive statements. It also argues that the elements
of unfairness are not present here. Analyze and evaluate Aromatic’s arguments.