The reasoning in innocent misrepresentation cases resembles the reasoning in a[n]
______ case.
A. Duress
B. Unilateral mistake
C. Mutual mistake
D. Fraudulent misrepresentation
E. Negligent misrepresentation
“Overextended Debtor.” For his home, Dennis purchased a big screen television from
ABC Electronics and financed the purchase through ABC Electronics. Later, because
Dennis had bought a boat, a new car, an expensive engagement ring for his girlfriend,
and some other items, he was unable to continue making payments on the television.
The manager from ABC Electronics called 60 days after the sale and asked Dennis to
return the television. Dennis refused on the basis that ABC Electronics never perfected
its interest in the television. He also explained that he had later granted a secured
interest in the television along with his other goods to XYZ Credit in return for a loan.
No financing statement was filed on behalf of ABC Electronics although XYZ Credit,
with no knowledge of any interest of ABC Electronics, did file a financing statement.
Which of the following is the proper designation for any equipment subject to the
bank’s security interest that Molly obtains after the initial loan agreement?
A. After-acquired property.
B. Post-dated property.
C. Cover property.
D. Post-security property.
E. There is no title for such property because such property may not validly be the
subject of the security interest.
Which of the following are the categories protected by Title VII?
A. Race and color
B. Race, color, and religion
C. Race, color, religion, and sex
D. Race, color, religion, sex, and national origin
E. Race, color, religion, sex, national origin, and age
Which of the following occurs when a contracting party refuses to complete the
contract before the actual time of performance?
A. Preemptive repudiation
B. Anticipatory repudiation
C. Advance refusal
D. Advance repudiation
E. Preparatory refusal
Which of the following person signs an instrument to restrict payment of it, negotiate it,
or incur liability?
A. Maker
B. Acceptor
C. Drawer
D. Endorser
E. Promisor
When a bailment is for the purpose of transportation or storage of goods, certain _____,
governed by Article VII of the Uniform Commercial Code, may be issued in
conjunction with the bailment.
A. Proofs of title
B. Agreements of title
C. Illustrations of title
D. Documents of title
E. Evidence of title
“Pet Pig Farm.” Marcy wanted to buy Lucy’s land and use it to breed small pigs to be
kept as pets. Marcy told Lucy that having water on the property was very important
although she did not mention to Lucy her plan to breed small pigs. Lucy assured her
that a spring ran through one corner of the property. Therefore, Marcy agreed to buy the
farm. Marcy, who loved pigs, assumed that the neighbors would be pleased with the
pigs being in the area. Lucy also agreed to sell Marcy a used truck for $5,000. After the
contract for the land sale was entered into, Marcy had a land survey done, and it was
discovered that actually the spring did not run through the corner of Lucy’s property.
The area in which the spring ran actually belonged to a neighbor. Additionally, when
Lucy brought Marcy the used truck, Marcy said, “That’s not the truck!” It was
discovered that Lucy, who had two trucks, thought that Marcy had bought the older
truck although Marcy thought she had purchased the newer truck. Marcy was also
surprised when she received a petition signed by all surrounding landowners objecting
to the presence of the pigs and threatening to sue Marcy for nuisance. It will cost Marcy
more than she had agreed to pay Lucy in order for Marcy to obtain a similar farm which
actually has a spring on it.
Assuming that Lucy fraudulently made a misrepresentation regarding the spring
running through the corner of the farm knowing the statement was not correct, which of
the following is true, considering only the lack of a spring issue, if Marcy does not want
to go through with the sale?
A. Marcy may rescind the contract and recover compensatory damages.
B. Marcy may rescind the contract, but she may not recover damages.
C. Marcy may sue for damages, but she may not rescind the contract.
D. Marcy may rescind the contract, or she may keep the contract and sue for damages.
E. Marcy must allow Lucy an opportunity to cure, or fix, the problem; and in the event
that is not done, she may not rescind the contract although she can sue for damages.
Which of the following consists of acting on the basis of the recognition that certain
actions are right or wrong, regardless of their consequences?
A. Act utilitarianism
B. Rule utilitarianism
C. Situational ethics
D. Virtue ethics
E. Deontology
Which of the following is the person or party that holds the interest in the secured
property?
A. A debtor.
B. A transaction party.
C. An approved party.
D. A secured party.
E. An attached party.
Which of the following entitles a creditor to a partner’s profits?
A. A garnishment order
B. A charging order
C. A reimbursement order
D. An accounting order
E. An entitlement order
“Squirt Gun Mishap.” Zora decided to purchase a large squirt gun for her son, Rambo,
to use while playing in the pool. The squirt gun was of the very elaborate variety and
had a number of different attachments for different sprays of water. The squirt gun came
with instructions for assembly and use, and provided warnings against various types of
misuse. The pamphlet that came with the squirt gun advised that the squirt gun should
be used only under adult supervision, that it must not be used by children under eleven,
and that nothing should be put into the squirt gun except water. Rambo had a party for
his tenth birthday at the pool. A number of children came. One of the children, Sam,
who was ten years old at that time, decided to load pebbles along with water into the
gun. He began shooting with the pebbles and hit Alice in the eye, requiring an
emergency room visit. Alice required some minor surgery, but sustained no permanent
injury. Alice’s parents complained that they looked at the squirt gun when they initially
arrived at the party but did not notice any warnings whatsoever affixed directly to the
product. Alice’s parents want to sue someone for something, but they do not particularly
want to sue Rambo’s mother.
Which of the following is true regarding any assertion by Alice’s parents that a warning
should have been affixed to the product to warn adults as well as children?
A. There is a federal law that provides that manufacturers are not required to affix
warnings directly to a product.
B. Most state laws provide that manufacturers are not required to affix warnings
directly to a product.
C. Alice’s parents cannot complain because they did not purchase the squirt gun.
D. If parties other than the original purchasers will likely use the product, a warning
should be placed directly on the product itself.
E. Court cases hold that warnings on a product are not required so long as the purchaser
is given an instructional pamphlet setting forth warnings.
“Trick or Treat?” Penny has significant credit card debt following her diving trip with
her boyfriend, Sam, to the Grand Cayman islands. Some of the diving trips cost more
than she expected, and these extra expenses were unforeseen. Penny recently took a
business law class and thought that she might be able to find a way out of her troubles.
She owed $2,000 to Credit Card Company A and $3,000 to Credit Card Company B.
She also owed $2,000 to the local dive shop for diving equipment she purchased for the
trip. Penny is in negotiations with the dive shop over that amount because she had a
problem with a mask fogging on the trip and had to replace it while on the trip at a
charge of $100. While the mask issue did not significantly interfere with the trip, Penny
thought that she should get at least some deduction on the overall bill. Penny called
Credit Card Company A and told them that she was a poor student and could not afford
to pay the entire $3,000 she owed. The representative of Credit Card Company A, who
was working her last day, told Penny just to pay $50, and that would be considered
payment in full. The representative sent Penny an e-mail to that effect. Penny was very
pleased and went right out and quit her job at the campus bookstore because she did not
really like dealing with student problems and thought that with the reduction from
Credit Card Company A, she would have no problem in regard to having extra money.
Although her parents supplied her with a large monthly allowance, Penny had the job at
the bookstore so that she would have more money for clothes shopping and fun
activities. In relation to Credit Card Company B, Penny called up and once again pled
her case as a poor student. She talked Credit Card Company B into taking a used car
with a blown-up engine worth around $1,000 in exchange for the debt. Penny did not lie
about the value of the car, but she made it sound as good as possible. Transfer details
regarding the car were worked out through e-mail. Finally, Penny sent the dive shop a
check for $1,000 marked “paid in full.” Much to her surprise and pleasure, the dive
shop did indeed cash the check. Penny, however, was distraught to find that within 30
days, Credit Card Company A sent her a bill for $1,950; Credit Card Company B sent
her a bill for $3,000; and from the dive shop she received a check for $1,000 along with
a bill for $2,000. Faced with all these claims, Penny decided to look for work. She
ended up two weeks later with a job selling beauty products that she liked much better
than the bookstore job. It did not require dealing with pesky students. Assume all credit
card company representatives had authority to make the agreements at issue.
Which of the following would be the result in a majority of states in regard to Penny’s
obligation to the dive shop?
A. That because the debt was unliquidated and the dive shop cashed the check, an
accord and satisfaction occurred, and Penny owes nothing.
B. That because the debt was liquidated, no accord and satisfaction occurred, and Penny
owes the full $2,000.
C. That in order to satisfy equitable principles, the parties would split the remaining
debt with Penny owing $1,000.
D. That under the UCC, Penny would be required to pay the full amount, but the dive
shop would be estopped from charging any interest.
E. That because the dive shop offered, through issuance of the check, full repayment, no
accord and satisfaction existed; Penny owes the full $2,000.
Which of the following is false regarding civil law and a power of attorney in
Luxembourg?
A. In civil law countries, a power of attorney authorizes the agent only to conduct a
series of transactions under instruction from the principal.
B. In Luxembourg, the person on whose behalf the power of attorney is created is called
a donor, instead of a principal.
C. One type of power of attorney in Luxembourg is a power of attorney that is valid
until death.
D. One type of power of attorney in Luxembourg is a power of attorney that has
unlimited validity even after death.
E. The law in Luxembourg requires that the power of attorney be authenticated by a
public authority or a public notary.
“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 action brought by ABC Bank against
Selena based upon the loss of funds on Carl’s loan?
A. The bank will be able to recover because there was privity of contract.
B. The bank will be able to recover because no more than $10,000 was involved.
C. The bank will be able to recover because Selena was aware of how her work would
be used even if she did not know the exact name of the bank involved.
D. The bank will not be able to recover because the identity of the bank was not known
to Selena.
E. The bank will not be able to recover unless it can establish that it had dealt with
Selena in the past.
Which of the following was the result on appeal in Heartland State Bank v. American
Bank & Trust, the case in the text involving whether the defending payor bank timely
sent notice of dishonor of a check when it sent notice before midnight on April 11 for a
check received on April 10?
A. That the defending bank had no right to return the check because the check had
already gone through the Federal Reserve System.
B. That the defending bank had no right to return the check because by accepting the
check, it became accountable for it.
C. That the bank had no right to return the check because the check was written by one
of its customers.
D. That the defending bank had until midnight on April 10 in which to return the check
and that it, therefore, did not act in a timely manner.
E. That the defending bank had until midnight on April 11 in which to return the check
and that it, therefore, acted in a timely manner in doing so.
Which of the following occurs when a party to a contract transfers his or her rights to a
contract to a third party?
A. Assignment
B. Referral
C. Disgorgement
D. Privity
E. Transfer
“Lost Check.” Susan Jones teaches business law at Learn-A-Lot University.
Learn-A-Lot requested that all of the teachers ask the students to wear on the day of the
first football game T-shirts with “Learn-A-Lot University Football” printed on the front.
All of the teachers were asked to sell the shirts in class. A student, Bobby, wrote a check
to Susan for $10 for payment for one of the shirts. Bobby, however, put Susan Jones as
the payee. Susan wanted to turn the check over to the school, so on the back of the
check, she wrote, “Susan Jones, without recourse.” She then gave the check to the
treasurer for Learn-A-Lot University. Unfortunately, the treasurer for Learn-A-Lot
dropped the check on the ground as she was going to the bank. A student, Shifty, found
the check and promptly took it to the bank and cashed it. The treasurer, Bernice, did not
want to get into trouble, so she asked Susan to personally cover the check because she
said that Susan had endorsed the check on the back guaranteeing payment.
What type of endorsement did Susan make on the back of the check?
A. A special endorsement.
B. A special qualified endorsement.
C. A blank endorsement.
D. A blank qualified endorsement.
E. An ineffective endorsement because the words “without recourse” have no effect.
Which of the following is true regarding the definition of default under the UCC?
A. The UCC defines default as failure to make any payment when due.
B. The UCC defines default as failure to make a payment within 30 days after a
payment is due.
C. The UCC defines default as failure to make a payment within 60 days after a
payment is due.
D. The UCC defines default as failure to make a payment within 90 days after a
payment is due.
E. The UCC does not define default.
“Refused Furniture.” Selina arranges to sell furniture from her furniture store to Roland
for $3,000. Roland was supposed to give Selina a $500 deposit on February 1 and pay
the remainder in monthly installments. Selina was to deliver the furniture by February
7. Roland did not pay Selina as promised on February 1. He asked her to wait until
March 1, but she refused. She told him that the contract was canceled, and she refused
to deliver the furniture at all. Selina was able to sell the furniture for only $2,500
because of a downturn in the economy. Roland told Selina that she had no right to
withhold or sell his furniture and that he was suing. Selina also incurred $100 in
additional amounts in advertising costs to advertise the furniture that Roland initially
purchased. Selina saved $40 in delivery costs because she did not have to deliver the
furniture to Roland. The subsequent purchaser picked up her own furniture.
Which of the following is true regarding whether Selina had a right to cancel the
contract?
A. Roland was in breach giving Selina the right to cancel the contract.
B. Roland was only in partial breach, and Selina had not right to cancel the contract.
C. Roland was in breach, but Selina had no right to cancel the contract because Roland
had the right to cover.
D. Roland was in breach, but Selina had no right to cancel the contract because a
consumer transaction was involved.
E. Roland was in breach, but Selina had no right to cancel the contract because Roland
was available for service of process.
Documents used as payments to facilitate commercial transactions were labeled as
______ under article 3 of the UCC.
A. Commerce paper
B. Commercial paper
C. Commerce notes
D. Negotiable instruments
E. Payment notes
Which of the following enables employees who lose their jobs or have their hours
reduced to a level at which they are no longer eligible to receive medical, dental or
optical benefits to pay to continue receiving benefits for themselves and their
dependents under the employer’s policy?
A. The Employee Income Security Act
B. The Consolidated Omnibus Budget Reconciliation Act
C. The Family and Medical Leave Act
D. The Fair Labor Standards Act
E. Workers’ compensation laws
What was the result in the case of U.S. v. Park, the case in which the defendant, the
president of a national food-chain corporation, claimed he should not be held liable for
allowing food in a warehouse to be exposed to rodent contamination because he had
delegated responsibility to subordinates?
A. The court dismissed all claims against him because of insufficient proof that he had
actively allowed contamination.
B. The court dismissed all claims against him because of insufficient proof of
negligence.
C. The court refused to dismiss claims against him because the offense was a strict
liability offense.
D. The court refused to dismiss claims against him because of insufficient proof of
delegation.
E. The court refused to dismiss claims against him because of proof that he had
responsibility and authority to prevent the contamination or to correct it and failed to do
so.
A[n] ______ is an institution created to facilitate banks in their exchange of checks and
drafts drawn on one another, as well as to enable banks to settle their daily balances.
A. Clearinghouse
B. Transferring institution
C. Facilitating institution
D. Acknowledging institution
E. Approval institution
Zack, the president of ABC Company, falsified documents to make it appear as if he
had been granted stock options on certain dates, and he selected the dates after the fact,
picking dates on which the stock price was low. Which of the following offenses, if any,
did he commit?
A. Insider trading
B. Pretexting
C. Defalcation
D. Stock option backdating
E. He did not commit any offense
Under the ______ program, generators of hazardous waste must maintain records that
list the amount and type of all hazardous waste produced, how it is to be transported,
and how it will ultimately be disposed.
A. Permit
B. Hazardous
C. Waste
D. Manifest
E. Specific
“Adult Floaters.” Bruce and Jimmy are both involved in businesses that manufacture
bathing suits for ladies with small personal flotation devices implanted to assist with
swimming. They both ship the suits to different states around the country. Bruce and
Jimmy get together and decide to raise their prices. They decide that since they are the
only two manufacturers of this type of suit, if they both stick together and raise prices to
an agreed upon amount, then consumers will be forced to pay that amount. They want
to make a lot of money before anyone else jumps into the market. A disgruntled
secretary of Bruce finds out about the agreement and sends out letters to consumers
revealing it.
Have Bruce and Jimmy violated the Sherman Act?
A. Yes, they violated Section 1.
B. Yes, they violated Section 2.
C. No, there is no violation because they are not engaged in intrastate commerce.
D. No, there is no violation because they have not established a monopoly.
E. No, there is no violation because at least three businesses must be involved in order
to establish a violation of the Sherman Act.
All contracts can be categorized as either ___________ or __________.
A. Unilateral; complete
B. Unilateral; trilateral
C. Bilateral; trilateral
D. Unilateral; bilateral
E. Bilateral; complete
Which of the following is true regarding liability on negotiable instruments?
A. Issuers and acceptors are primarily liable for a negotiable instrument, while drawers
and endorsers are secondarily liable.
B. Drawers and endorsers are primarily liable, while issuers and acceptors are
secondarily liable.
C. Issuers and drawers are primarily liable, while acceptors and endorsers are
secondarily liable.
D. Acceptors and endorsers are primarily liable, while issuers and drawers are
secondarily liable.
E. Drawers are primarily liable, while issuers, acceptors, and endorsers are secondarily
liable.
“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 due to other projects. Bruno thought that the health club venture would
be such a success that he would never get caught. Unfortunately, he was wrong. The
health club venture has significant problems, and investors are 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. Rick, a new lawyer, told
Bruno that as far as he knew, Bruno could be fined for violations under the Securities
Act of 1933, but he could not be sent 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 once before he was held liable for a violation of the Securities Act of 1933, and he
does not want to be in trouble again.
Is Rick correct in that the SEC would have no authority to send Bruno to jail?
A. Rick is correct because there are no criminal penalties for violating the 1933 act.
B. Rick is incorrect because the SEC criminally prosecutes some violators although the
action would only be a misdemeanor.
C. Rick is correct in that the SEC itself would not send Bruno to jail, but the SEC could
recommend criminal action to the Department of Justice resulting in imprisonment for
up to five years for a violation.
D. Rick is incorrect because the SEC criminally prosecutes some violators, and a
violation of the act is considered a felony.
E. Rick is correct in that the SEC itself would not send Bruno to jail, but the SEC could
recommend criminal action to the Federal Bureau of Investigation resulting in
imprisonment for up to ten years for a violation.
In a dissolution of a partnership that will be continued, if a noncontinuing partner holds
20% of the partnership in which the assets are valued at $10,000 how much will the
partner receive assuming the noncontinuing partner has taken no wrongful action
against the partnership?
A. $2,000
B. $2,000 minus any losses the noncontinuing partner’s leaving caused the partnership
to sustain.
C. $2,000 minus the noncontinuing partner’s share of loses, if any, in the first year after
dissolution.
D. $2,000 minus the noncontinuing partner’s share of expenses involved with
dissolution.
E. Nothing
Which of the following occurs when a minor’s parents or legal guardians give up their
right to exercise legal control over the minor, typically when the minor moves out of the
parents’ house and begins supporting himself or herself?
A. Ratification
B. Disaffirmance
C. Emancipation
D. Legal release
E. Reaffirmance
“Family Trust.” Gracie had made lots of money in the stock market. She was getting
older and was concerned about the integrity of her children and grandchildren who
seemed unwilling to work. She decided that she would place the majority of her money
in a trust and instruct that it be distributed only to family members who were gainfully
employed or attending school on a full-time basis throughout the next twenty years. The
remainder of the trust at that time was to be given to a local animal shelter. She also told
her lawyer, Joe, that although she was in good health and mind at the present time, she
would like a document drawn up giving her daughter Marcy the power to make
decisions for her, including financial decisions, should her health deteriorate to the
point that she could not handle her own affairs.
When a trust is terminated, which of the following is the appropriate term for a person
or entity that receives a portion of the trust corpus?
A. Terminator
B. Ender
C. Receiver
D. Transferor
E. Remainderman
Which of the following may be redeemed for a certain number of shares at a specified
price within a given time period?
A. Preemptive shares
B. Share allowances
C. Allocated shares
D. Stock warrants
E. Share grants