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In Trouble. Bruno, an issuer of stock, may be in trouble. He sold stock in a new health
club venture before the effective date of registration. He did so because he was in
financial trouble involving other ventures of his and needed additional funds. Bruno
thought that the health club venture would be such a success that he would never get
caught in regard to the stock sale. Unfortunately, he was wrong. The health club venture
was going very poorly and investors were looking for some way to hold Bruno
responsible. Another problem Bruno has is that he inflated information regarding the
prospects of the health club in the prospectus. Investors bitterly complained. Rick, a
new lawyer, told Bruno that as far as he knew, the SEC could fine Bruno under the
Securities Act of 1933 but could not send him to jail. Bruno told Rick that was good
news and that no one should feel sorry for the investors because none of them made any
effort to check on information contained in the prospectus or to investigate the future
profitability of the health club venture. Bruno says that he plans to rely on the due
diligence defense. Bruno also asks Rick if he is aware of any other defenses. Bruno says
that he has never previously been in trouble with the SEC. Which of the following, if
any, may be defenses for Bruno?
A. Except for the violation of selling securities before the effective registration date,
Bruno could raise the defense that an omitted or false statement was immaterial to the
sale of the security.
B. Except for the violation of selling securities before the effective registration date,
Bruno could raise the defense that the plaintiff was aware of the omission or false
statement when the security was purchased.
C. Except for the violation of selling securities before the effective registration date,
Bruno could raise the defense that a plaintiff was aware of the omission or false
statement when the security was purchased, and that any omitted or false statement was
immaterial to the sale of the security.
D. For any alleged violations Bruno could raise the specific filing rule.
E. No defenses are available to Bruno because he had already been held liable to the
SEC once.
Which of the following is true regarding discrimination based on sexual orientation?
A. There is a federal law specifically prohibiting discrimination based on sexual
orientation providing back pay, attorney fees, and punitive damages as available
remedies.
B. There is no federal law specifically prohibiting discrimination based on sexual
orientation, but it is considered by most courts to be included within Title VII's ban of
discrimination based on gender.
C. There is a federal law specifically prohibiting discrimination based on sexual
orientation, but it only provides for back pay as an available remedy.
D. There are no federal and no state laws specifically prohibiting discrimination based
on sexual orientation.
E. While there is no federal law specifically prohibiting discrimination based on sexual
orientation, some states do have laws prohibiting discrimination based on sexual
orientation.
If a contract is rescinded, it is _____.
A. renewed
B. a mistake
C. cancelled
D. temporarily stopped
E. a misrepresentation
The Federal Trade Commission has _____ commissioners each of whom serves a
______-year term.
A. 5; 7
B. 7; 3
C. 9; 4
D. 8; 5
E. 3; 4
Beauty Shop Woes. When Janice went to work as a hair stylist in Rick's beauty shop,
she entered into an agreement with Rick, whereby, if she left she would not work for
another beauty shop within 50 miles for 2 years. Rick trained Janice in a number of new
techniques. After nine months, Janice was offered a great job down the street at a new
beauty shop, quit Rick, and had a number of customers follow her down the street to
her new job. Rick claimed that she had signed a contract and had no right to go to work
at the new shop. Janice disagreed and told Rick that no judge in the country would
enforce such an agreement. Janice told Rick that she was more worried about a
customer, Treena, who was threatening to sue her because her hair turned green after
Janice worked on it. Janice agreed that Treena's hair was damaged. Janice pointed out,
however, that she told Treena that odd results could result from a dye attempt, and she
required that Treena sign a contract releasing Janice from all liabilities before she did
anything with Treena's hair. Treena, however, sued anyway. Which of the following is
true regarding Janice's claim that no judge in the country would enforce such an
agreement?
A. She is correct because such agreements are considered in restraint of trade in every
state.
B. She is incorrect because such agreements are criminally illegal in every state.
C. She is incorrect because while no court would approve a geographical restriction,
some courts recognize time restrictions as being valid.
D. She is incorrect because all courts approve such agreements so long as it can be
shown the employee gained a benefit other than pay from the employment.
E. She is incorrect because courts across the country vary in regards to the
enforceability of such agreements.
Which of the following is an example of the state's exercise of its police power?
A. The enactment of state criminal codes.
B. The enactment of state criminal codes and zoning laws.
C. The enactment of criminal laws, building codes, zoning laws, sanitation standards for
restaurants, and regulations for the practice of medicine.
D. The enactment of criminal laws, building codes, zoning laws, and regulations for the
practice of medicine, but not sanitation standards for restaurants.
E. The enactment of laws governing regulations for law enforcement only.
Sexual Harassment ADR. Jenny is very angry with her supervisor, Sleaze, at the
Mexican fast-food restaurant at which she works which is owned by an international
company located in Mexico. He has been making inappropriate sexual comments to her
and other employees. Jenny decides to sue and retains a lawyer, Brice. Brice talks with
the owners of the restaurant and is informed that Jenny signed an agreement to arbitrate
any claims. Brice tells Jenny that it is completely up to her and that if she wishes, she
can disregard the arbitration agreement and proceed to court. Jenny informed Brice
about other employees who had complained about sexual harassment and entered into
mediation agreements. Brice promises her that he will get copies of all documents and
everything that was taken down by the court reporter at those mediations. He also tells
Jenny in response to her question about the possibility of mediation in her case to forget
it because mediation is pretty much the same thing as arbitration. Can Brice obtain
information from the previous mediators regarding what occurred at the previous
mediations?
A. Yes, but only if a court reporter was present.
B. He can get copies of any written documents reviewed but not accounts of statements.
C. He can get accounts of statements but not copies of written documents.
D. He can get the information only if the mediators in the other cases want to cooperate.
E. He cannot get from the mediator copies of documents or accounts of what was said
because of the confidential nature of mediation proceedings.
Frank is building a home for Debby that under the original contract is to be completed
by December 31st. Debby found the plans for the home in a publication focusing on
unique houses and is excited because it will be the only home of its type in the area.
Because he underestimated the time needed for special and unique framing required for
Debby's house, Frank tells Debby that he needs to hire additional workers in order to
have the home done by that time and that she needs to pay him an extra $10,000. Debby
says that she will pay. Frank finishes the home and asks for his $10,000. Debby refuses
to pay. What is the likely result if Frank sues? Discuss whether you believe the result is
ethical and equitable.
The federal court system derives its authority from:
A. The Bill of Rights.
B. Article III of the U.S. Constitution.
C. The Supreme Court.
D. An Executive Order.
E. Congress.
What was the result in the case in the text Christy Brzonkala v. Antonio J. Morrison et
al. in which the defendants alleged the unconstitutionality of civil remedies available
under the federal Violence against Women Act?
A. Congress lacked the authority under the U.S. Constitution to enact the law.
B. Congress validly passed the law pursuant to the First Amendment to the U.S.
Constitution.
C. Congress validly passed the law pursuant to the Second Amendment to the U.S.
Constitution.
D. Congress validly passed the law pursuant to the Fourth Amendment to the U.S.
Constitution.
E. Congress validly passed the law pursuant to the Fourteenth Amendment to the U.S.
Constitution.
In a limited partnership which of the following assume unlimited personal liability for
the debts of the partnership?
A. General partners
B. Limited partners
C. Special partners
D. General partners, limited partners, and special partners
E. General and special partners, but not limited partners
A(n) ______ beneficiary is a third party who benefits from a contract in which a
promisor agrees to give a gift to a third party.
A. creditor
B. donee
C. incidental
D. promised
E. avowed
A person who has the legal ability to enter into a binding contract has _____.
A. capacity
B. understanding
C. ratification
D. history
E. consideration
Wedding Photos. Bobby took a number of wedding photos at Jill's wedding. He was
paid as the photographer. On all of the photographs, he appropriately noted in the
bottom right-hand corner the necessary information showing that he was claiming
copyright protection. Jill came to see Bobby three years after the initial photographs
were taken and requested that he grant her permission to run off as many copies as she
wanted at the local photo shop from the pictures that she initially purchased. The photo
shop had refused to reproduce the photographs without his permission. When he
refused to give her permission to do so, Jill started a heated argument. She told Bobby
that photographs are not entitled to copyright protection. She also told him that even if
he was correct that there was some copyright protection, she was engaged in fair use;
and that, in any event, damages for copyright infringement are unavailable. Which of
the following is correct regarding Jill's claim that photographs are not subject to
copyright protection?
A. She is correct. Photographs are not subject to copyright protection even if taken by a
professional photographer.
B. She is correct but only because family pictures are involved. Family pictures may
not be the subject of copyright, but landscape photographs may be the subject of
copyright protection.
C. She is partially correct. Bobby was entitled to copyright protection on the first
picture. After Jill purchased the first picture, however, she could make as many copies
as she wanted.
D. She is correct only because Bobby had not registered the photographs for copyright
protection.
E. She is incorrect.
Ann chipped a tooth on a peach pit while eating a can of mixed fruit. She wants to sue
the manufacturer of the fruit mix. Which of the following would be the manufacturer's
best defense?
A. That food products do not come with a warranty of merchantability.
B. That no express warranty was made.
C. That no implied warranty of fitness for a particular purpose was made.
D. That the presence of the peach pit should not have been unexpected.
E. That the injury was minor.
The legal ability to enter into a binding agreement is known as _____.
A. majority
B. emancipation
C. contractual knowledge
D. contractual capacity
E. informed consent
Which of the following is false regarding franchises?
A. The franchisee often receives help from the franchisor in starting the franchise.
B. The franchisor has the legal authority to ensure that the franchisee maintains the
quality of goods and services associated with the franchise.
C. The franchisor is not liable for torts of the franchisee's employees regardless of the
amount of control exerted by the franchisor.
D. A franchise is a contractual relationship between the franchisor and the franchisee.
E. The Federal Trade Commission has a franchise rule requiring franchisors to present
prospective franchisees with material facts necessary for the franchisee to make an
informed decision about entering a franchise relationship.
Which of the following is a person who has a duty to act primarily for another person's
benefit?
A. Principal
B. Employer
C. Fiduciary
D. Trustor
E. Benefitor
When courts rely on precedent, they are obeying ______.
A. common analysis
B. res judicata
C. stare decisis
D. in rem process
E. federal law
What was the result in the case in the text Alaska Pacific Trading Co. v. Eagon Forest
Products Inc. in which the defendant rejected a shipment of logs?
A. That by not shipping the logs in a timely manner according to the contract, the seller
failed to satisfy the perfect tender rule thereby releasing the defendant buyer from its
duty to accept the logs.
B. That the seller satisfied the perfect tender rule although the logs were late and that
the defendant buyer breached the contract by refusing to accept the logs.
C. That the seller was entitled to rely on the common law doctrine of material breach
but that the seller did not substantially perform thereby releasing the buyer from
contractual duties.
D. That the seller was entitled to rely on the common law doctrine of material breach,
that the seller substantially performed, and that the buyer was in breach.
E. That the seller was entitled to rely on the perfect tender rule and that the buyer
materially breached the contract by refusing to accept the logs.
Which of the following is an unforeseeable event, which interrupts the causal chain
between the defendant's breach of duty and the damages the plaintiff suffered?
A. A surprise event.
B. A superseding cause.
C. A relative cause.
D. An unusual cause.
E. None of these because an unforeseeable event may not interrupt a chain of causation.
Which of the following refers to the right of an offeror to revoke an offer?
A. The offeror is the "originator of his offer."
B. The offeror is the "master of his offer."
C. The offeror is the "proponent of his offer."
D. The offeror is the "adjudicator of his offer."
E. The offeror is the "arbiter of his offer."
Which of the following is false regarding executive agencies at the federal level?
A. The administrative head of an executive agency is appointed by the president with
the advice and consent of the U.S. House of Representatives.
B. Executive-agency heads may be discharged by the president at any time, for any
reason.
C. Executive agencies are usually under one of the cabinet-level departments.
D. Executive agencies are generally located within the executive branch.
E. Executive agencies tend to have responsibility for making rules covering a broad
spectrum of industries and activities.
Which of the following is the making of threats for the purpose of obtaining money or
property?
A. Bribery
B. Criminal Fraud
C. Extortion
D. Both bribery and extortion
E. Importation
Saturday Auction. Barry, an auctioneer, was holding an auction on a Saturday morning.
At the beginning of the auction, Barry announced that the auction was being held
without reserve. Helen, Mary, and Chris were all in attendance. Helen saw an old cash
register with a stuck drawer that she thought would look great in her den. The
auctioneer put the cash register up for sale, noting that the drawer was stuck and that no
one really knew what was inside. Helen bought it for $20. At the same auction, Mary
saw a great deal on a used table. She bid $20 on it. No one else bid anything. Barry
announced that $20 was clearly insufficient for the table, that it was worth much more
than that, and that he was taking it out of the auction. Chris started bidding on a
diamond ring for his girlfriend. He bid $2,000. Just as Barry was getting ready to say
"Sold", Chris looked over at his girlfriend, decided that he was not sure about marriage,
and leaped up yelling, "I revoke." Barry, however, immediately yelled "Sold." When
she got it home and broke into it, Helen discovered that the cash register actually
contained $5,000. Unfortunately, Helen had a teenage son named Tad who started
bragging to his friends about the family's good fortune. Barry heard about what had
happened and sued Helen for return of the $5,000. Mary sues Barry attempting to
obtain possession of the table. Barry sues Chris attempting to enforce a contract for the
sale of the engagement ring. What is the likely result in the lawsuit Barry brought
against Chris?
A. Chris will win because he properly revoked his bid before it was accepted.
B. Chris will win because bids made at an auction may be revoked at any time within
ten days after the auction.
C. Chris will win because bids made at an auction may be revoked at any time within
five days after the auction.
D. Chris will win because bids made at an auction may be revoked at any time within
one day after the auction.
E. Barry will win because Chris had no right to revoke the bid.
Which of the following is false regarding cooperatives?
A. Unincorporated cooperatives are treated like partnerships.
B. In unincorporated cooperatives, members share joint liability for the cooperative's
actions.
C. Members of incorporated cooperatives enjoy limited liability just as do the
shareholders of a corporation.
D. Cooperatives are usually formed as syndicates.
E. A cooperative is usually formed to market products.
An agency relationship be terminated through ______________________.
A. fulfillment of purpose
B. occurrence of a specific event
C. revocation of authority
D. fulfillment of purpose, occurrence of a specific event, and by revocation of authority
E. fulfillment of purpose and occurrence of a specific event, but not revocation of
authority
Chewer. The state in which Susan lives has a statute prohibiting dogs running at large.
All dogs are required to be on a leash whenever they are off the owner's premises.
Susan's dog, while not on a leash, visits the home of a neighbor down the street. While
there, the dog carries off an expensive pair of shoes belonging to Robert. The shoes are
chewed and destroyed. A neighbor informed Robert of what had happened. Robert
commented that he never should have left his $300 shoes lying on the deck in the first
place but that he expects to be repaid by Susan. Robert found out that the dog had
carried away a number of shoes and other articles in the neighborhood, chewing them to
pieces. Susan did nothing to warn anyone. Robert thinks that she should be punished for
her activities, which would perhaps deter her from allowing the dog to run loose. Upon
which of the following theories will Robert likely rely in seeking recovery for the shoes
against Susan?
A. Negligence per se.
B. Res ipsa loquitur.
C. Stare decisis.
D. Both negligence per se and res ipsa loquitur.
E. None of these.
How are directors chosen after incorporation?
A. By majority vote of the shareholders.
B. By majority vote of all officers.
C. By a two-thirds vote of shareholders.
D. The president appoints them in his or her discretion.
E. By a unanimous vote of the shareholders.
Which of the following is false regarding a limited liability partnership?
A. A limited liability partnership is considered a separate legal entity.
B. Limited liability partnerships are fairly new.
C. The business name must include "Limited Liability Partnership" or an abbreviation
in the name.
D. The parties must file a form with the secretary of the state to create a limited liability
partnership.
E. Each partner pays taxes on his or her share of the income of the business.
Which of the following usually requires that the seller or lessor deliver the particular
goods identified in the contract?
A. Absolute order
B. Absolute performance
C. Specific performance
D. Specific order
E. None of these
Susan purchased a refrigerator from ABC Appliance store for $700 giving the store a
promissory note for that amount. She takes the refrigerator home and discovers that it is
defective. She calls ABC Appliance store and tells them that she would like to return
the refrigerator. ABC Appliance store tells her that they have assigned the promissory
note she provided the store in order to purchase the refrigerator to a finance company.
The finance company tells her that it is a holder in due course not subject to her claim
of defect. Which of the following is true regarding the rights of parties?
A. The finance company is subject to the defenses of Susan because of a Federal Trade
Commission (FTC) rule created to protect consumers.
B. ABC Appliance store is correct in that Susan cannot assert her defenses against the
finance company.
C. Susan can assert her defenses against the finance company only if she can prove that
the finance company had knowledge that ABC Appliance store sold defective
equipment from time to time.
D. Susan can assert her defenses against the finance company only because she gave
notice of the problem within 5 days of the sale.
E. Susan can assert her defenses against the finance company only if she agrees to
arbitrate the dispute.
Which of the following are examples of goods?
A. Consumer goods.
B. Farm products.
C. Documents of title.
D. Consumer goods, farm products, and documents of title.
E. Consumer goods and farm products, but not documents of title.
When the government or private parties get a court order to dissolve a corporation it is
a(n) _________________________.
A. consolidation
B. voluntary dissolution
C. involuntary dissolution
D. hostile takeover
E. leveraged buyout
Which of the following articles of the UCC governs lease contracts?
A. 2
B. 2(A)
C. 4
D. 4(A)
E. 6
