Which of the following factors is irrelevant in determining whether an instrument is
negotiable?
a. the fact that it is in writing
b. the fact that it is notarized
c. the fact that it is unconditional
d. the fact that it calls for payment of a definite sum of money
The U.S. Constitution has been amended:
a. only expressly.
b. only by interpretation.
c. only by practice.
d. by all of the ways listed above.
When an accountant negligently prepares a financial statement knowing that the client
intends to use it in obtaining a loan from a bank, the accountant will be liable to
whichever lender actually makes the loan under the __________rule.
a. known user
b. contact
c. foreseeable user.
d. privity
Which of the following terms would make an instrument nonnegotiable?
a. It specifies collateral as security for a debt.
b. It is undated.
c. It is payable in foreign money.
d. It gives the holder the right to receive goods or money.
Which of the following contract defenses cannot be raised as a defense against
suretyship obligations?
a. lack of capacity
b. fraud
c. mistake
d. The surety may raise any defense that a party to an ordinary contract may raise.
When a testator provides for a bequest of his gold watch to his nephew, but the gold
watch is not owned by the testator at the time of death:
a. the nephew is entitled to an equivalent amount of cash.
b. the executor must purchase a similar gold watch for the nephew if funds are
available.
c. the bequest to the nephew fails by ademption.
d. all legacies in the estate abate to provide funds to purchase a gold watch for the
nephew.
When a person makes a contract as an agent for another but lacks authority to do so, the
contract:
a. binds the principal but not the agent.
b. binds the principal and the agent.
c. does not bind the principal.
d. none of the above.
Which party to an illegal agreement may get relief from the court?
a. plaintiff
b. defendant
c. the less-guilty party, when public interest is advanced by granting relief
d. a doctor who was unlicensed at the time of the making of an agreement for the
provision of medical services, but who later obtained a proper license
The Litigation Reform Act of 1995 was passed because of:
a. congressional concern over an excess of frivolous private securities lawsuits.
b. the financial burdens placed on accountants and other professional advisors due to an
excess of frivolous private securities lawsuits.
c. concern that the investors in a class action lawsuit have their interests fairly
represented.
d. all of the above.
Where a corporation is properly formed, it is called a corporation:
a. di giorno.
b. de facto.
c. de jure.
d. by estoppel.
The Blanchard and Peale three-part test for resolving ethical dilemmas consists of the
following questions:
a. Is it legal? Is it ethical? Is it moral?
b. Is it legal? Is it balanced? How does it make me feel?
c. Is it ethical? Is it right? Does it pass the “front page of the newspaper” test?
d. Is it right? Is it balanced? Is it fair?
Roberts leased a duplex from Hughes. Later, without Hughes’ knowledge, Roberts
sublet half of the duplex to Carrera. Carrera did not take proper care of the premises and
her part of the duplex was substantially damaged as a result of her negligent use and
abuse. Upon discovering the situation, Hughes notified Roberts that he was holding him
responsible for any and all damages to Carrera’s portion of the duplex, and that Roberts
was to bear the costs of returning the premises to the original state of repair. Roberts
replied that he had sublet to Carrera in good faith, had no further dealings with Carrera
after the sublet agreement, had no knowledge of negligence, and could not be held
liable for damages caused by another. Can Roberts be held liable?
To be eligible for FMLA leave, an employee must have been employed by a covered
employer for at least __________ months and have worked at least __________ hours
during the 12-month period preceding the leave.
a. 6; 1,250
b. 6; 1,500
c. 12; 1,250
d. 12; 1,500
Under what type of warranty is the seller obligated to fix or replace a defective product
within a reasonable time at no cost to the buyer?
a. full
b. express
c. limited
d. implied
What is the purpose of the Securities Act of 1933?
a. to assure investors a fair return
b. to give the SEC the opportunity to approve or disapprove securities as good
investments
c. to provide interested investors with truthful, detailed information about
originally-issued securities
d. to support compliance with the 1934 act
The FTC rule, which provides that a notice provision must be included in all consumer
credit contracts, requires that the notice:
a. limit recovery under the contract to amounts paid by the debtor plus a reasonable
charge for incidental damages.
b. be in italic type.
c. be at least 20 points in size.
d. have the effect of treating any holder of the contract as an assignee of the seller.
The importance of trust as a fundamental principle underlying business transactions is
illustrated by expectations that:
a. investors will be able to earn a return on their investments.
b. employees may be discharged at any time for any reason without notice.
c. litigation is inevitable because parties to agreements usually break promises.
d. insider trading proves that the economic system underlying business is flawed.
The people in a corporation responsible for the management of the business are the:
a. partners.
b. shareholders.
c. directors.
d. licensees.
An innocent person who is unjustly convicted of a crime may:
a. never receive indemnification.
b. receive indemnification, but only for the time spent awaiting trial.
c. receive indemnification.
d. none of the above.
Legal restrictions of U.S. firms doing business abroad in regard to payments made to
foreign officials for obtaining business are set forth in the:
a. International Corruption Prohibition Act.
b. Global Anti-bribery Control Act.
c. Foreign Corrupt Practices Act.
d. International Graft Prohibition Act.
An agent’s duty of loyalty to the principal is breached by:
a. the agent accepting a secret gift from a third person in connection with the agency.
b. the agent acting as agent for both parties to a transaction without disclosure.
c. the agent aiding a principal’s competitors.
d. all of the above.
Most courts hold that when a customer takes an item from the shelf in a self-service
store, there is:
a. no sale.
b. a sale.
c. a contract to sell.
d. a conditional sale.
Laws that prohibit defamation, invasions of privacy, and discrimination exist primarily:
a. for protection of the person.
b. for protection of public health, safety, and morals.
c. for protection of property.
d. for protection of the state.
Sam accesses the Internet and secures information (including credit history) on another
person. If that information is used to purchase products in the other person’s name,
Sam’s actions constitute:
a. contract interception.
b. identity theft.
c. character assassination.
d. none of the above.
The GATT:
a. is a multilateral treaty
b. is subscribed to by the United States
c. has as its goal the liberalization of world trade
d. all of the above
John Smyth is an agent for L. T. Adams. To avoid becoming a party to any contract that
Smyth signs for Adams, Smyth should sign in which of the following ways?
a. John Smyth, agent
b. John Smyth, for the principal
c. John Smith, as agent for the principal
d. L. T. Adams, per John Smyth
An agreement is not binding when:
a. one party makes a mistake regarding a material fact.
b. both parties make a mistake regarding a material fact.
c. one party makes a mistake of law.
d. all of the above.
Companies who have misrepresented the capabilities of their search engines or failed to
disclose the methods whereby they give preference to certain links:
a. may be liable for fraud, but are not responsible for either rescission or damages.
b. may be liable for fraud, but if so are only responsible for rescission.
c. may be liable for fraud, but if so are only responsible for damages.
d. may be liable for fraud, and if so might be responsible for rescission or damages.
Which exemption to registration requirements exempts offerings of less than $5 million
to no more than 35 nonaccredited purchasers over a 12-month period?
a. Rule 504 exemption
b. Rule 505 exemption
c. Rule 506 exemption
d. Rule 507 exemption
As a general rule, courts will __________ in recovering money or property transferred
under an illegal agreement.
a. assist a commercial buyer
b. assist a non-commercial buyer
c. assist an institutional buyer
d. not aid either party
Disparate impact exists when facially neutral employment practices:
a. adversely impact a protected group.
b. intentionally discriminate against a protected group.
c. favorably impact a protected group.
d. intentionally and unfavorably impact a protected group, but the practices are
business-related.
Which of the following is not a question business ethicist Laura Nash has developed to
help businesspeople reach the right decision in ethical dilemmas?
a. Have you defined the problem accurately?
b. How would you define the problem if you stood on the other side of the fence?
c. How did the situation occur in the first place?
d. Does your proposed solution to the problem effectively balance the competing
objectives of ethical decision-making and corporate profitability?
The subject matter of a contract may relate to:
a. the performance of personal services.
b. the construction of a house.
c. the transfer of ownership of property.
d. all of the above.
Fraud requires a misstatement of either a fact or an opinion.
The “necessaries” of minors are precisely defined by law.
A coinsurance clause requires the insured to maintain insurance on the covered property
up to a certain amount or a certain percent of the value, generally 80 percent.
“Right-to-know” laws in some states guarantee employees the right to know if there are
hazardous substances in their workplaces.
Instruments are negotiable when they contain the terms required by contract law.
A seller’s inability to obtain from any supplier the goods called for by the contract
generally discharges the contract for impossibility of performance.
In a security agreement, the creditor and the debtor agree that the creditor has a security
interest.
The effect of an implied contract is not the same as the effect of an express contract.
Punitive damages are generally recoverable in contract actions.
A claim of undue influence will be unsuccessful unless the contracting parties have a
close relationship of trust.
A contract obtained by physical duress is void.
If there is a breach of contract, the law requires that the other party terminate the
contract and bring a lawsuit.
If a trust is created to take effect within the lifetime of the settlor, it is a testamentary
trust.
A bona fide purchaser of stock is shielded from the claim that the transfer was made in
violation of a transfer restriction that was unknown to the purchaser and that was not
noted conspicuously on the certificate.
If a corporation assumes a contract made by a promoter with knowledge that the
promoter had fraudulently induced the other party to enter into the contract, the
corporation is liable to such other party for the fraud of the promoter.
A will is very informal and may be created in any reasonable manner.
An “encryption” warranty is a warranty made by any party who encodes electronic
information on an instrument.
A trespass to personal property is any unpermitted entry below, on, across, or above the
land of another.
The CISG governs all contracts between parties in the countries that have ratified it.