New Agency. Debby just got a job as an assistant in a new federal agency called the
Accounting Commission that was set up to regulate the accounting and auditing
profession. The agency is headed by commissioners who serve for fixed terms and
cannot be removed for cause. Additionally, no more than a majority of the
commissioners may be from the same political party. Her agency is getting ready to
issue rules. The enabling legislation that set up the Accounting Commission specified
that the agency could make rules but said nothing about the form of the rules. Debby’s
boss, Blaire, gave her some proposed rules and asked her to be sure that they were
published and to take care of the next step in the approval process. Blaire also told her
that at this point she was not very interested in hybrid rule making. What would be the
next step in obtaining enactment of the rules after publication?
A. A vote in Congress
B. Approval by the president by executive order
C. A public hearing
D. Opportunity for all interested parties to submit written comments
E. A hearing before an administrative law judge
For an instrument to be negotiable, the instrument must indicate that it was created for
the purpose of being ______.
A. transferred
B. paid
C. maintained
D. banked
E. retained
In a conditional sales contract, a _____ occurs when the seller and buyer agree that the
buyer may return the goods at a later time.
A. sale-on-approval contract
B. sale-or-return contract
C. condition-or-sale contract
D. return-or-purchase
E. return-or-sale
How many states engage in at least some regulation of gambling?
A. 50
B. 47
C. 40
D. 35
E. 10
Machine Malfunction. Bruno, the president of a corporation operating work out
facilities, convinced the board of directors to approve a large purchase of a type of
fitness machine called “Perfect Body.” Bruno had carefully investigated the machine
and did a presentation to the board on its purported benefits. Unfortunately, after the
purchase, it was announced that “Perfect Body” was actually a very dangerous machine
that should not be used. The manufacturer of “Perfect Body” went bankrupt, and the
corporation lost $200,000 on the purchase of the machines. The shareholders are furious
and want to sue Bruno and the directors. The board of directors agrees to allow Frances,
the ringleader of the shareholders, to purchase stock of the company at below its fair
market value. She purchases a considerable amount of stock on that basis, but says that
the shareholders plan to continue with an action against Bruno and the board members.
Which of the following is true regarding liability of Frances, if any, for purchasing the
stock at below its fair market value?
A. If the board wanted to offer it to her, they had that right; and there is no consequence
to Frances because she proceeded with complaints of the shareholders.
B. She is liable for double the stated corporate value of the stock in addition to any
price she already paid.
C. She is liable for the stated corporate value of the stock in addition to any price she
already paid.
D. She is liable for paying the difference between the price she paid for the shares and
the stated corporate value of the shares.
E. She is liable for paying the difference between the price she paid for the shares and
the stated corporate value of the shares plus a $10,000 penalty.
Which of the following was the result on appeal in Colette Bohatch v. Butler & Binion,
the case in the text in which the plaintiff, the partner in a law firm, sued after she was
expelled from the partnership following her complaint that one of the other partners was
overbilling a client?
A. That as a matter of public policy, the law firm was liable to her for damages.
B. That under federal law, the law firm was liable to her for damages because she was
given insufficient notice of her expulsion.
C. That under state law, the law firm was liable to her for damages because she was
given insufficient notice of her expulsion.
D. That she was properly expelled because the partner about whom she complained was
senior to her in seniority.
E. That the law firm had a right to expel her regardless of her status as a whistleblower.
Which of the following are damages for lost profits a buyer or lessee may recover in the
event of a breach?
A. Approved damages
B. Consequential damages
C. Remedial damages
D. Approved, consequential, and remedial damages
E. Approved and consequential damages, but not remedial damages
Which of the following was the result on appeal in Mary Kay Inc., a/k/a Mary Kay
Cosmetics Inc., v. Janet Isbell, the case in the text in which it was claimed that Mary
Kay, Inc. wrongfully terminated Isbell’s franchise in violation of the Arkansas Franchise
Practices Act on the basis that Isbell used retail store space to sell products as opposed
to only conducting sales in customers’ homes?
A. That the Arkansas Franchise Practices Act was inapplicable because it applied only
to businesses with a fixed geographical location, and the plaintiff’s claim of wrongful
termination was dismissed.
B. That the Arkansas Franchise Practices Act was inapplicable because insufficient
sales were involved, and the plaintiff’s claim of wrongful termination was dismissed.
C. That the Arkansas Franchise Practices Act was applicable but that it allowed the
franchisor to terminate the agreement.
D. That the Arkansas Franchise Practices Act was applicable and rendered void the
contract at issue.
E. That the Arkansas Franchise Practices Act was applicable and rendered voidable the
contract at issue based upon the choice of the franchisee.
Under common law, when does formation of an agreement begin?
A. When the offeree makes an offer to the offeror.
B. When consideration is provided.
C. When funds are transferred.
D. When a writing is entered into.
E. When the offeror makes an offer to the offeree.
If a person notifies the credit card company of a stolen card before unauthorized
charges are made, for how much can the person be held liable to the credit card
company for later unauthorized charges?
A. $500
B. $300
C. $250
D. $200
E. 0
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. What type of clause did
Janice have Treena sign to the effect that she would not hold Janice liable for any bad
results?
A. Adhesion
B. Exculpatory
C. Procedural
D. Substantive
E. Malfeasance
Which of the following prepares Restatements?
A. State legislatures
B. The federal Congress
C. Local governing bodies
D. The Uniform Restatement Association
E. The American Law Institute
In most states, a minor is someone under the age of _____.
A. 21
B. 18
C. 19
D. 23
E. 25
Which of the following is true regarding the rights of an employer who is held liable
and pays a third party, not because of the employer’s negligence, but under the doctrine
of respondeat superior based upon negligence of an employee?
A. The employer has no right to receive any reimbursement from the negligent
employee.
B. The employer has a right to recover only 50% of any amounts paid from a negligent
employee.
C. The employer has a right of indemnification from the negligent employee.
D. The employer can recover 100% of any amounts paid from a negligent employee but
only if it can be shown that the employee’s negligence was based upon the violation of a
statute.
E. The employer can recover 50% of any amounts paid from a negligent employee but
only if it can be shown that the employee’s negligence was based upon the violation of a
statute.
Which of the following is true regarding the status of an agent as a fiduciary?
A. Although the principal is a fiduciary, an agent is not a fiduciary.
B. An agent is only a fiduciary if the principal and agent agreed by written contract that
the agent would be a fiduciary.
C. An agent is only a fiduciary if the principal and agent agreed by written or oral
contract that the agent would be a fiduciary.
D. An agent is only a fiduciary to the principal if a transaction in excess of $10,000 is
involved.
E. An agent is a fiduciary to the principal.
Employers are required to provide a(n) ______________ to employees under ERISA
containing information as to how their benefit plan operates, the benefits under the plan,
how to apply for such benefits, and other information.
A. summary plan description
B. benefits glossary
C. ERISA benefits guide
D. complete plan explanation
E. complete plan document
The UCC is divided into sections known as _____.
A. divisions
B. articles
C. subsections
D. clauses
E. amendments
A(n) ________ is a distinctive mark, word, design, picture, or arrangement that is used
by a producer in conjunction with a product and tends to cause consumers to identify
the product with the producer.
A. copyright
B. patent
C. trade secret
D. trademark
E. intellamark
Dream Home. Maurice finds a dream home on the lake. He wants to buy it but is unsure
whether he can get a loan. He signs a contract with the seller that he will buy the home
if he can get a loan. Maurice also includes a contractual clause into the contract with the
seller that if the purchase goes through but he loses his job within one year, the seller
will repurchase the house for the same price Maurice paid for it. After getting a loan
and buying the home, Maurice decided that he wanted new windows put into the home.
He entered into a contract with a window contractor. The window contractor visited the
home, but Maurice was always gone. The contractor made several attempts to reach
Maurice, but Maurice would not return phone calls and made no attempt to assist the
contractor with installation. The provision that Maurice did not have to buy the house
unless he was able to get a loan is referred to as which of the following?
A. A condition subsequent
B. A condition precedent
C. An implied condition
D. An express condition
E. Both a condition precedent and an express condition
Which of the following are damages identified before the breach occurs?
A. Nominal damages
B. Compensatory damages
C. Reliance damages
D. Liquidated damages
E. Consequential damages
Which of the following is true regarding the effect of an automatic stay on claims of
secured creditors in a Chapter 7 proceeding?
A. The stay affects claims of secured creditors in the same way in which it affects
claims of unsecured creditors.
B. Secured creditors with claims of over $5,000 are not affected by the stay.
C. Secured creditors with claims of over $15,000 are not affected by the stay.
D. Secured creditors with claims of over $20,000 are not affected by the stay.
E. The court may exclude secured creditors from the stay if they petition the court to
show that they do not have adequate protection under the stay.
Which of the following is an exception to the general rule that rights to a contract
cannot be assigned when a contract is personal in nature?
A. When the only part of a contract left to be fulfilled is the payment.
B. When the sale of goods is involved.
C. When no more than half the contractual duties have been performed.
D. When no more than three-fourths of the contractual duties have been performed.
E. When at least one-third of the contractual duties have been performed.
When a donee beneficiary may enforce his rights under a contract, he may do so only
against the _____.
A. promisee
B. promisor
C. obligor
D. promisee and promisor, but not obligor
E. promisee, promisor, and obligor
The obligation to use reasonable efforts to minimize damage resulting from a breach are
referred as the duty to ______ one’s damages.
A. reduce
B. remit
C. reform
D. mitigate
E. None of these because there is no such obligation
Which of the following is a reason that an arbitration award may be set aside under the
Federal Arbitration Act?
A. The arbitrator failed to make a final and definite award.
B. The award was the basis of fraud.
C. The arbitrator displayed bias.
D. The arbitrator failed to make a final and definite award, the award was the basis of
fraud, or the arbitrator displayed bias.
E. None of these. There is no Federal Arbitration Act.
High Maintenance. Paul, who runs a retail jewelry store, went with Jane, to whom he
was engaged to be married, to a wholesale jewelry store. Paul had no express, written
agreement with Jane by which she was his agent. In fact, Paul had told Jane not to buy
anything at the store. The wholesale jeweler, Pam, asked Paul if Jane was buying for
him. Paul did not want to embarrass Jane so he nodded in agreement. A few minutes
later Paul reminded Jane, outside the hearing of the wholesaler, that she should not
make any purchases. Paul and Jane had a big disagreement over money that evening,
and Jane broke off their engagement. The next day Jane went back to the wholesale
jeweler and purchased a string of pearls for $2,000. Jane also purchased a fur jacket for
$3,000 from a store owned by Harry that was next door to the jewelry store. She told
Harry that Paul wanted a fur jacket for a model in his store and that Paul would be glad
to pay Harry for the jacket. Which of the following is the most likely result if Harry
sues Paul for the price of the jacket?
A. Paul will win because he did nothing to cause Harry to believe that he would pay for
the jacket.
B. Harry will win because Jane indicated that she had apparent authority to buy the
jacket for Paul.
C. Harry will win only if he can show that through reasonable investigative efforts on
his part Jane cannot be located.
D. Harry will win only if he can show that Jane has no assets with which to pay for the
necklace.
E. Paul will win on an implied agency theory.
Cheap Principal. Jason, who is very knowledgeable regarding computers, agrees to
purchase computers for Nick’s business. Jason is retained for that purpose only, he is
paid a set rate for the job, and Nick exercised no control over the manner in which
Jason did his work. Jason purchased computers on credit from ABC Computers without
any mention of Nick. The computers worked well and were not defective in any way.
Unfortunately, Nick did not pay ABC Computers on a timely basis. Jason, therefore,
paid ABC Computers out of his own pocket because he wanted to be able to do
business with ABC in the future and also because his name was on the invoice. Jason
asked Nick for reimbursement, but Nick refused. Nick claimed that if Jason had only
waited, ABC Computers might have agreed to take less. Which of the following is true
regarding any right of reimbursement Jason is due from Nick?
A. Jason is not due any reimbursement because he did not get permission from Jason
before paying ABC Computers.
B. Jason is only due 50% of whatever he paid because he did not get permission from
Jason before paying ABC Computers.
C. Jason is not due any reimbursement from Nick unless he can establish that Nick
signed a written contract authorizing him to personally pay debts incurred.
D. Jason is not due any reimbursement from Nick unless Jason can establish by a
preponderance of the evidence that ABC Computers would not have agreed to take a
lesser amount.
E. Jason is entitled to reimbursement from Nick.
How much must an employee pay in order to continue health benefits under COBRA?
A. One half the policy premiums.
B. All the policy premiums, plus up to a 5 percent administrative fee.
C. Only whatever percentage of policy premiums the employee paid prior to leaving the
job.
D. All the premiums, plus up to a 2 percent administration fee.
E. Nothing because the employer must cover all premiums.
What are the elements of a binding contract?
A. Offer, acceptance, consideration, and assent
B. Acceptance, consideration, assent, and legal object
C. Agreement, offer, acceptance, and consideration
D. Agreement, consideration, contractual capacity, and assent
E. Agreement, consideration, contractual capacity, and legal object
How are directors chosen during incorporation?
A. Either the incorporators appoint them or the corporate articles name them.
B. Either the incorporators appoint them or by a majority vote of the shareholders.
C. Only by the incorporators appointing them.
D. Only by the corporate articles naming them.
E. Only by the president appointing them.
Property that the original owner has discarded is ______ property.
A. mislaid
B. tossed
C. discarded
D. abandoned
E. terminated
Which of the following was the result on appeal in Campbell, Kessser, and Williams v.
Pothas Corporation, the case in the text in which the defendant alleged that golden
parachute agreements were not enforceable because they violated public policy?
A. That based on significant case law ruling such agreements in violation of public
policy, the agreements would be declared void under principles of stare decisis.
B. That based on a Congressional committee report, the contracts would be declared
void.
C. That the defendant did not receive its benefit in regard to the contracts and that the
golden parachute agreements were, therefore, voidable by the defendant.
D. That the agreements were valid and did not violate public policy.
E. That the agreements were valid but only because a merger was involved.
When a debtor uses borrowed money from the secured party to buy the collateral, a(n)
_____________________ interest is formed.
A. secured possessory
B. loaned money possessory
C. purchase-money security
D. purchase-cash consumer
E. perfected security
Which of the following is generally false regarding the surviving entity in a merger
situation?
A. The surviving entity remains a single corporation.
B. The shareholders of the surviving entity must amend its articles of incorporation
according to the specific conditions of the merger.
C. The surviving entity does not become liable for debts of the absorbed corporation.
D. The surviving entity obtains the absorbed corporation’s assets.
E. The surviving entity obtains the absorbed corporation’s rights, powers, and
privileges.
Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls
them “Molly’s Famous Chocolate Chips.” Some of her friends are interested in selling
her cookies. They want to use her name and identify the cookies as “Molly’s Famous
Chocolate Chips.” Molly says, however, that she does not have enough time to bake any
more cookies. She agrees, for a price, to allow her friends to use her recipe and her
name. Suzette, one of Molly’s friends who was selling the cookies, was not being
sufficiently careful and negligently put a harmful ingredient into the cookie dough
resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and
Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis
of aggravation although the franchise agreements provided that so long as requirements
were met, the franchise agreements were good for a period of two years, Molly took the
position that the cookies involved a personal service and that she could not be held
liable for discontinuation. Will Molly likely be held liable to Fred?
A. Yes, but only if Suzette has officially filed for bankruptcy protection.
B. Yes, but only if Suzette is insolvent.
C. Yes, because the cookies had her name on them.
D. No, because she was a franchisor.
E. It is unclear and depends on whether she exercised too much authority in the
day-to-day affairs of Suzette’s business.