“Leaky Tub and Flaming Watercraft.” Charles finished college, got a good job, and
decided to sell some used toys and buy newer ones. A used hot tub with a leak in it and
a personal watercraft were at the top of the list. Charles offered to sell to Constance the
hot tub for $500. Constance was interested but not willing to pay $500. She said “I’ll
give you $400.” Charles said that he would think about it. Later, the same day, Charles
offered to sell Donna the hot tub for $500. Donna said “Would you consider $450?”
Charles said he would think on it. A few minutes later, Everett who had heard that
Charles wanted to sell the hot tub accepted Charles’ offer to sell for $500, and they
agreed that the transfer would be made the next day. A few minutes later, Constance
called saying that she accepted Charles’ offer to sell the hot tub for $500. A few minutes
after that, Donna called and told Charles that she accepted his offer to sell the hot tub
for $500. Charles told Constance and Donna that he had already sold it, and they are
angry, threatening to sue. Charles offered to sell the personal watercraft to Joan for
$800. She said that she would think it over and let him know the next day.
Unfortunately, through no fault of anyone, there was a fire at Charles’ home that night
and the personal watercraft burned. Joan called the next day and accepted before
Charles could tell her the watercraft burned. When she found out about the fire, Joan
told Charles that he had better come up with another watercraft, or she was going to
sue.
What effect does the accidental destruction of the personal watercraft have on the deal
between Charles and Joan?
A. Charles is in breach of contract and must pay Joan damages because she accepted
before he could tell her about the fire.
B. Charles is in breach of contract and must purchase a similar watercraft to transfer to
Joan.
C. Charles is not in breach of contract because an insufficient material term involving
who would move the watercraft was omitted.
D. Charles is not in breach of contract because the offer was not sufficiently definite.
E. Charles is not in breach of contract because of destruction of the subject matter.
“Scuba Diving.” Marcy invented a new type of mask that was not subject to fogging for
scuba divers and obtained a patent on it. She agrees to allow Jenny to manufacture and
sell the mask. She receives a sum of money for every mask that Jenny sells. Marcy also
entered into an agreement with Frank to allow him to sell the masks, but only if he also
purchased non-patented diving suits from Marcy. All parties proceeded to do very well
with their sales.
Payments that Marcy would receive from Jenny for the sale of the mask are referred to
as which of the following?
A. Profits
B. Receipts
C. Royalties
D. Payoffs
E. Illegal
A[n] ______ is the right to go onto someone’s land and take part of the land or a
product of it away from the land.
A. Appurtenance
B. Profit
C. Easement
D. Fixation
E. Joint use
“Mortuary Blues.” Barry and Elaine had a partnership running a mortuary. Elaine died,
and after her death Barry decided to shut down the mortuary. It was too depressing
without Elaine who was a very vivacious person. Elaine also did great makeup on the
deceased clients while Barry struggled with enhancing the appearance of the deceased.
Barry incurred expenses in closing the business affairs of the mortuary. He sought
compensation for that, but the executor of Elaine’s estate objected. The executor also
claimed that Barry had no rights in Elaine’s share of the partnership property and that
he, the executor, had the right to confiscate her share of the property and sell it at
auction. Barry, however, took the position that all interests of Elaine passed to him and
that he owed her estate nothing. The articles of partnership did not address death.
Is Barry correct that he owed Elaine’s estate nothing?
A. Yes, because all rights passed to him at the time of her death.
B. He is correct only if Elaine’s will was silent on the matter.
C. He is correct only if he, not Elaine, was the managing partner.
D. He is incorrect because he had a duty to account to Elaine’s estate for the value of
Elaine’s interest in specific property.
E. He is incorrect because he had a duty to give the executor half the caskets, etc. on
hand when Elaine died as well as half of all accounts due.
Which of the following would be stored electronically on microchips, magnetic strips,
or other computer media and would allow for the elimination of physical currency?
A. Electronic funds.
B. Electronic medium.
C. Digital cash.
D. Digital resources.
E. Electronic resources.
Which of the following references the type of conglomerate merger that occurs when a
firm attempts to extend the market for one of its current products by merging with a
firm already active in the target market?
A. Horizontal extension
B. Market extension
C. Diversification target
D. Vertical extension target
E. Product extension
Property that the original owner has discarded is ______ property.
A. Mislaid
B. Tossed
C. Discarded
D. Abandoned
E. Terminated
Which of the following is the appropriate term for a requirement by the Federal Trade
Commission that a company run advertisements in which the company explicitly states
that formerly advertised claims were untrue?
A. Corrective advertising
B. Repeal advertising
C. Notice publication
D. Notice advertising
E. Action publication
Which of the following is a payment made by an insolvent debtor that gives preferential
treatment to one creditor over another?
A. An unfair payment
B. An unequal payment
C. A preferential payment
D. An unendorsed payment
E. An unapproved payment
“On the Town.” Benny began taking people on tours of historic sites in his town. That
had not been done before because no one thought there was very much in the way of
historical significance there. Benny, however, did some research; and, with a very
active imagination on his part, came up with some good stories. He started to make a
nice profit with the tours, particularly with tourists passing through the town on the way
to the mountains. Benny began to hear of some rival tour groups that were planning to
start giving tours in the area. Benny sent a memo to his secretary asking, “How can we
shut down other potential tour groups because we want all the business?” One rival
company had started operations, but Benny still had 85 percent of the business. His plan
was to run the rival out of business and prevent the start-up of any other tour operations
in his town. Benny decided that he would offer to do a free advertising brochure to any
business that would put up a poster advertising his tour group and agree not to advertise
or mention in any way any other tour group. Benny was particularly successful in
reaching that agreement with hotels and restaurants in his town because of his likeable
personality. When Prudence, who ran a rival tour group heard about Benny’s actions,
she was furious and accused him of an antitrust violation because he was trying to keep
all the tour action for himself. Benny told Prudence she was nuts and that the only
reason she had no business was that she stuck to dry historical fact on her tours and did
not do research on romantic relationships between individuals in the area in order to
‘spice-up” her tours. He also told her that he was not a monopolist because he did not
have all the business as evidenced by Prudence’s own tour service.
The type of service Benny provides, tours, would be referred to as which of the
following markets for purposes of determining the relevant market?
A. Product
B. Consumer
C. Offered
D. Utilized
E. Disputed
“International Expansion.” Zach wants to expand his coffee business internationally –
into Zeno, a small remote country. He moves there temporarily in order to oversee
operations. His best friend Zora asks him if he plans to hire legal counsel for the
expansion. Zach replies, “Of course not. The U.S. has the strictest laws regarding
contracts, employment, and business practices in the world. So long as I’m legal in the
U.S., I’m legal anywhere. Besides, I studied up on Zeno law ten years ago, and I know it
all.” Zach proceeds and lands in jail in Zeno for violating recently passed laws
protecting employees and mandating certain benefits. Authorities there claim that he
sexually harassed an employee, failed to pay sufficient wages, and failed to give
employees Zeno’s mandated 12 weeks of paid vacation per year.
Which of the following is true regarding Zach’s defense that he thought he knew the law
of Zeno because he had studied it some years before and that the laws under which he
was arrested were new? (Assume the law of Zeno is the same as the U.S. on this issue.)
A. Rules change and Zach had a duty to stay current. It is not a defense that he studied
the law at one time and that the laws at issue were new.
B. Zach is entitled to rely as a defense on the fact that he had studied the law at one
time. Officials in Zeno were charged with publicizing any changes.
C. If Zach can prove that the laws at issue were passed within the last twelve months
before he was arrested, he will get out of jail because there is a twelve month grace
period for new laws.
D. If Zach can prove that the laws at issue were passed within the last six months before
he was arrested, he will get out of jail because there is a six month grace period for new
laws.
E. Zach cannot be prosecuted so long as he was not aware he was violating the law. He
did not have the requisite intent to perform a criminal act regardless of whether the laws
were new.
Which of the following is true regarding the requirement that a party take an instrument
for value in order to be considered a holder in due course?
A. The party must provide consideration.
B. The party must have provided a bargained-for promise.
C. The party must take the instrument in exchange for a promise that has already been
performed.
D. The party must have begun performance on a promise and have provided
consideration.
E. The party must have provided consideration or received the note as a gift.
“Rough Start.” Debby, who just graduated from college, wanted to buy a new car. She,
however, did not have much of a credit history, and the bank would not give her a loan
unless she had a cosigner who agreed to be liable on the loan along with Debby.
Debby’s father cosigned with Debby on her loan at the bank. Debby also wanted to start
a real estate business. She needed funds with which to do so. Her boyfriend, George,
agreed in a signed writing with the bank that he would pay Debby’s start-up loan for the
real estate business if Debby did not do so. Unfortunately, Debby did not make any
money in the real estate business. She went bankrupt as did George who had been
acting as her receptionist.
Which of the following is the correct term for the agreement entered into between
Debby’s father and the bank?
A. A suretyship
B. A guaranty
C. A certified agreement
D. An acknowledged agreement
E. An executory promise
A[n] ______ agreement is an agreement two parties enter into before marriage that
clearly states the ownership rights each party enjoys in the other party’s property.
A. Preliminary
B. Planned
C. Approved
D. Prenuptial
E. Arranged
“Grooming Losses.” Wally, Beverly, and Matthew formed a partnership to groom dogs.
Because they were good friends and anticipated making a profit sufficient to
compensate all partners well, the articles of partnership did not allocate profit or losses.
Beverly was appointed managing partner. Unfortunately, the business did not go as well
as expected and the partnership incurred some losses. Matthew claimed that he should
not have to share in losses because he had groomed more dogs than anyone. Matthew
also claimed that although the partnership did not reference compensation for additional
duties, he was entitled to compensation because of his excessive work. Beverly claimed
that she should not have to share in losses because she contributed more capital than did
either of the others. Wally claimed that he should not have to cover the losses because
both Beverly and Matthew had been hiding the books from him. He demanded to
inspect the books and also to review a listing of all partnership assets and profit
statements listing distributions to partners. Beverly and Matthew denied that they had
been hiding the books and claimed complete innocence of any wrongdoing.
Which of the following is correct regarding how the partnership losses should be
allocated?
A. Losses would be allocated first based on a judicial determination as to whether
losses should be allocated to a partner because of poor decisions, and, if not, then
equally.
B. Losses would be allocated in proportion to the amount of work done in the business,
with a partner who contributed more work being allocated less in the way of losses.
C. Losses would be allocated in proportion to the right to share in management.
D. Losses would be allocated equally.
E. Losses would be allocated in proportion to the capital contribution, with partners
who contributed more capital being allocated less in the way of losses.
Which of the following is certification by an official of the state that he or she saw the
signing of a deed and was provided evidence that the signatories were who they
claimed to be?
A. Acknowledgement
B. Certification
C. Notarization
D. Sealing
E. Execution
Which of the following is true regarding the liability in tort of employers for the actions
of employees and independent contractors?
A. Employers are generally liable in tort for the actions of their employees, while they
are generally not liable for the actions of independent contractors.
B. Employers are generally liable in tort for the actions of independent contractors,
while they are generally not liable for the actions of employees.
C. Employers are not generally liable in tort for the actions of independent contractors
or the actions of employees.
D. Employers are generally liable in tort for the actions of independent contractors and
for the actions of employees.
E. Employers are generally liable in tort for the actions of independent contractors and
for the actions of employees, but only if the employer has agreed to be liable in a
written contract with the employee or independent contractor.
“Wedding Plans.” Selena, a certified public accountant, is hired by Bob to do an audit
on his business. He tells her that the audit results will be used by him in an attempt to
obtain a $10,000 loan, probably from ABC Bank. Later, however, Bob changes his
mind and uses the approved financial statements from Selena to get a loan for $100,000
from XYZ Bank. On the same day that she was hired by Bob, Selena, who specializes
in reviewing financial statements for companies seeking loans, was approached by Carl
who asked her to review his financial statements so that he could get a loan for $10,000
from an unspecified bank. Selena approved the statements, and he got a loan from ABC
Bank. Additionally, Alice requested that Selena review her financial statements so that
she could get a loan of $25,000 from a rich uncle. Selena is a bit uneasy about Alice
because she believes that Alice is somewhat untrustworthy. Therefore, Selena requires
that Alice agree in writing that the report will be transmitted only to the uncle, not to
any other potential lenders. Selena approved the financial statements but, in fact, Alice
uses the approved statements to get a loan for $25,000 from XYZ Bank. During the
time that she had set aside to audit and review the financial statements of Bob, Carl, and
Alice, Selena was also preparing for her wedding. She was engaged in choosing menus,
dress fittings, and parties. All of this negatively affected her work and she negligently
approved all financial statements referenced. Unfortunately, Bob, Carl, and Alice ended
up defaulting on the loans. The lenders sued Selena.
Under the Restatement Test, as discussed in the case in the text, Bily v. Arthur Young &
Co., which of the following is true regarding the effort by XYZ Bank to recover against
Selena based upon Alice’s default?
A. The bank will be able to recover because it was in privity with Selena.
B. The bank will be able to recover because it was in privity with Alice, and Alice was
in privity with Selena.
C. The bank will be able to recover because Selena was aware that her audit would be
used to obtain a loan.
D. The bank will not be able to recover because it cannot establish reliance upon
Selena’s work.
E. The bank will not be able to recover because Selena and Alice had specifically
agreed that the audit would only be used to obtain a loan from Alice’s uncle.
Which of the following is true regarding whether a contract may be assigned even in the
presence of an antiassignment clause?
A. Assignments made by operation of law may be assigned, but no other assignments
may be made in the presence of an antiassignment clause.
B. Assignments for the right to receive monetary payments may be assigned, but no
other assignments may be made in the presence of an antiassignment clause.
C. Assignments made by operation of law, assignments for the right to receive monetary
payments, and assignments for the right to receive damages for a breach of contract to
sell goods or services may be assigned even in the presence of an antiassignment
clause.
D. No contractual rights or duties may be assigned in the presence of an antiassignment
clause.
E. Antiassignment clauses are void as against public policy and have no effect on the
right of assignment.
Which of the following is true regarding what may be the subject of a patent?
A. Only products may be the subject of patents.
B. Only processes may be the subject of patents.
C. Only inventions may be the subject of patents.
D. An invention may be the subject of a patent, but a plant produced by asexual
reproduction may not be the subject of a patent.
E. A product, a process, an invention, or a plant produced by asexual reproduction may
be the subject of a patent.
Which of the following was the result in the case in the text Hamer v. Sidway, in which,
after performance by his nephew, an uncle reneged on a promise to the nephew to pay
him $5,000 if the nephew refrained from drinking liquor, using tobacco, swearing, and
playing cards or billiards for money until he was 21 years of age?
A. That because refraining from the conduct at issue benefited his character and health,
the nephew could not recover.
B. That no consideration was involved, and the nephew could not recover because the
consideration from him did not consist of money or goods.
C. That no consideration was involved, and the nephew could not recover because the
proof established that the nephew had no interest in engaging in the items at issue, and
avoiding them was no detriment to him.
D. That the nephew could recover because he supplied consideration.
E. That the nephew could recover, but only under promissory estoppel an amount
compensating him for his reliance on the promise.
Which of the following is true regarding exempt transactions?
A. Limited offers, intrastate issues, and resales of securities are all exempt transactions.
B. Intrastate issues and limited offers are exempt transactions, but resales of securities
are not.
C. Resales of securities and intrastate issues are exempt transactions, but limited offers
are not.
D. Limited offers and resales of securities are exempt transactions, but intrastate issues
are not.
E. Limited offers are exempt transactions, but intrastate issues and resales of securities
are not.
Which of the following is true regarding types of conditions?
A. There is only one type of condition: precedent.
B. There are two types of conditions: precedent and subsequent.
C. There are three types of conditions: precedent, subsequent, and concurrent.
D. There are four types of conditions: precedent, subsequent, concurrent, and
timeliness.
E. There are at least ten types of conditions, and their identification varies based upon
the subject matter.
What does the term “full dissolution” of a partnership mean in Spain?
A. That the partnership ends without litigation and without a waiting period.
B. That the partnership ends because all partners have requested its end.
C. That the partnership ends because the purposes of the partnership have been
satisfied.
D. That the partnership ends because a majority of the partnership has requested its end.
E. That the partnership ends because it has been wound up and liquidated.
Which of the following was the result on appeal in Donovan v. RRL Corporation, the
case in the text in which the plaintiff attempted to enforce a price for an automobile
contained in an ad, and the defendant car dealership claimed that a mistake was
involved?
A. The court ruled in favor of the dealership because ads can never constitute offers.
B. The court ruled in favor of the dealership because an intentional misrepresentation is
needed before an ad can be considered an offer, and there was no proof of an intentional
misrepresentation on the part of the dealership.
C. The court ruled in favor of the dealership on a combination of mistake and
unconscionability.
D. The court ruled in favor of the plaintiff because the ad constituted an enforceable
offer.
E. The court ruled in favor of the plaintiff on the basis of unilateral mistake and
unconscionability.
If the party that dishonors an instrument is a collecting bank, when must notice of the
dishonor be given to a secondarily liable party by the collecting bank?
A. Before midnight of the next day
B. Within 48 hours
C. Within 7 days
D. Within 10 days
E. Within 30 days
____ is the type of alternative dispute resolution procedure wherein disputes are
submitted for resolution to private, nonofficial persons selected in a manner provided
by law or the agreement of the parties.
A. Mediation
B. Arbitration
C. Neutral evaluation
D. International evaluation
E. Multi-cultural evaluation
When is an arbitrator’s decision called an “award”?
A. Always.
B. Only if one party completely wins and there is no split decision.
C. Never.
D. Only if a money award is involved.
E. Only if both parties had lawyers because that terminology makes it easier for the
lawyers to be paid.
“Defective Windows.” Selina hired a contractor, Rex, to put new windows in her home
that she purchased herself from Good Windows. Unfortunately, Rex made a mess of the
windows. While the windows were initially in good shape, Rex cracked some,
scratched others, and did not get the windows properly fitted into their frames. Selina
received a bill for the windows from Good Windows, but she refused to pay. Selina was
told that Good Windows would file a lien, but she believed that there was no basis upon
which a lien would be granted. Rex, who refused responsibility for any problems, also
filed a lien after Selina refused to pay him.
Assuming the court follows the reasoning of Bates County Redi-Mix Inc. v. Windler,
which of the following is true regarding the type of lien, if any, that Good Windows is
entitled to obtain prior to going to court?
A. Good Windows is entitled to a mechanic’s lien.
B. Good Windows is entitled to an artisan’s lien.
C. Good Windows is entitled to a removal lien.
D. Good Windows is entitled to a judicial lien.
E. Good Windows is not entitled to any lien.
Which of the following is true regarding an agent’s liability when the agent commits a
tort while acting as an agent for a principal?
A. The agent is personally liable only if the agent was on a mission for an unidentified
principal.
B. The agent is personally liable only if the agent was on a mission for an identified
principal or a partially disclosed principal.
C. The agent is liable regardless of the classification of the principal or the liability of
the principal.
D. The agent is not liable if the principal is liable.
E. The agent is not liable unless the principal is insolvent.
Which of the following is true if a guarantor’s oral promise to pay a debt is not in
writing?
A. The guarantor may raise the absence of writing defense.
B. The guarantor may raise the statute-of-frauds defense.
C. The guarantor may raise the consolidation defense.
D. The guarantor may raise the UCC defense if a sale of a good is involved; otherwise,
no defenses are available to the debtor.
E. There are no defenses available because there is no legal requirement that a
guarantor’s oral promise be in writing.
“Run Around.” Millie issues a promissory note to Bob. Bob endorses the note and
transfers it to Anne. Anne endorses the note and transfers it to Henry. Henry presents
the note to Millie for payment. When Henry presents the note to Millie, she asks him
for reasonable identification. He did not have any identification with him and told her
that she had no right to dishonor the instrument. Millie continued to insist, so finally, on
the same day, Bob obtained clear identification and presented it to her. Nevertheless,
even with proper identification, Millie refused to pay the note, claiming that she lacked
the funds with which to do so. After properly providing notification of dishonor to both
Anne and Bob, Henry requested that Anne pay the note, but she told him that he would
have to get his money from Bob. Henry has been trying to call Bob for 35 days, but
Bob did not return his telephone calls. Henry is exasperated; and within 40 days of
when Millie refuses payment, he notifies Millie, Bob, and Anne that the promissory
note has been dishonored by Millie and that he is asserting liability on the note against
all of them. Millie calls him up and says that she never dishonored the note, she simply
lacks the funds with which to immediately pay and thinks that he should seek recovery
elsewhere.
Which of the following is true regarding when, and if, the note was initially
dishonored?
A. The note has never been dishonored because Henry’s right to receive payment on the
note from someone is acknowledged.
B. Millie initially dishonored the instrument when she asked for proper identification.
C. Millie initially dishonored the instrument when she refused to pay it on the basis that
she lacked funds with which to do so.
D. The note was not dishonored until Anne told Henry that he would have to seek
recovery from Bob.
E. The note was considered initially dishonored 30 days after Henry started seeking
Bob, but was unable to find him.
To resolve contract issues in cases in which a tangible good is mixed with something
intangible, most states employ some variation of the ______.
A. Mixed-purpose test
B. Unclear-purpose test
C. Goods-services test
D. Predominant-purpose test
E. Substantial-purpose test
Which of the following is the term for the concept that an employee may be fired for no
reason at all?
A. Fire-at-will
B. At-will employment
C. No-reason-firing
D. Without-reason-firing
E. Unsupported discharge
Which of the following is false regarding federal independent agencies?
A. Independent agencies are governed by a board of commissioners.
B. The president appoints the commissioners of independent agencies with the advice
and consent of the Senate.
C. The commissioners may be removed in the discretion of the president.
D. No more than a simple majority of an independent agency can be members of any
single political party.
E. The agencies are generally not located within any department.