Which of the following are foreseeable damages within the contemplation of the parties
at the time the contract was made, and that result from special facts and circumstances
arising outside the contract itself?
A. Consequential
B. Punitive
C. Liquidated
D. Nominal
E. Repugnant
An instrument that reads, “Pay to the order of Jones and Green,” establishes ________
payees.
A. Joint
B. Concurrent
C. Consecutive
D. Alternative
E. Alternate
Under which of the following is the breach of warranty theory of liability established?
A. The Uniform Commercial Code.
B. The Federal Contract Guide.
C. The Federal Commercial Code.
D. The Restatement (Second) of Torts.
E. The Restatement (Third) of Torts.
A[n] ______ is a false representation of a material fact that is consciously false and
intended to mislead the other party.
A. Negligent misrepresentation
B. Fraudulent misrepresentation
C. Scienter misrepresentation
D. Acknowledged misrepresentation
E. True misrepresentation
The term ______ covers a variety of legal instruments a person can use to express his or
her wishes about efforts to prolong life.
A. Medical directives
B. Prolonging directives
C. Advance instructions
D. Advance directives
E. Actual prohibitions
The ______ is the term used for the date an insurance policy begins coverage of an
insured.
A. Insured date
B. Effective date
C. Application date
D. Acceptance date
E. Covered date
Which of the following is true regarding state approval of consolidations?
A. There is no requirement that the state approve consolidations.
B. After reviewing the plan to see that legal requirements are met, the secretary of state
issues a certificate to grant approval.
C. The secretary of state must approve consolidations so long as the corporate entity at
issue has sufficient assets.
D. The secretary of state must approve consolidations so long as creditors of the
corporate entity at issue do not remain unpaid.
E. The secretary of state must approve consolidations so long as no more than 10% of
either company’s shareholders object.
How is a determination made regarding the identity of the trustee in a Chapter 7
proceeding?
A. The bankruptcy judge appoints the trustee.
B. The district court judge appoints the trustee.
C. The court clerk appoints the trustee.
D. The debtor appoints the trustee.
E. The creditors elect the trustee.
Yolanda agrees to bathe and groom Wendy’s dog, Fluffy Puff, for $30. Yolanda agreed
to the price before seeing Fluffy Puff who is a chubby dog with lots of hair. Yolanda
tells Wendy that if she is going to groom Fluffy Puff, the price will be $40. Wendy
reluctantly agrees but tells Yolanda that she should not have been surprised that a dog
named Fluffy Puff would have lots of hair. Yolanda bathes and grooms Fluffy Puff, but
Wendy will only pay $30. Which of the following is correct regarding Yolanda’s
entitlement to the extra $10?
A. Yolanda is entitled to the extra $10 because a valid bilateral contract existed.
B. Yolanda is entitled to the extra $10 because a valid unilateral contract existed.
C. Assuming the unforeseen circumstances rule does not apply, Yolanda is not entitled
to the extra $10 because she had a preexisting duty to bathe and groom Fluffy Puff for
$30.
D. Assuming the unforeseen circumstances rule does not apply, Yolanda is not entitled
to the extra $10 because Wendy’s promise to pay $30 was illusory.
E. Assuming the unforeseen circumstances rule does not apply, Yolanda is not entitled
to the extra $10 because past consideration was involved.
“Not So Rich Uncle.” Bruce is attempting to convince Sally to marry him. He promises
her that if she will marry him, he will buy a new Mercedes automobile for her within
six months of the marriage and take her on a world tour within a year of the marriage
date. Sally reluctantly agrees, and they sign an agreement by which Bruce agrees to
provide the Mercedes and world tour. Bruce and Sally marry on January 1.
Unexpectedly, on March 1, Bruce’s supposedly rich uncle, Frank, dies. Frank has no
living relatives other than Bruce and has a will leaving everything to Bruce who is also
appointed executor. In attempting to settle the estate, Bruce agrees orally to pay out of
his own pocket debts of Frank totaling $10,000. Sally is concerned about Bruce’s doing
so. Bruce tells her not to worry because he will get all the money back when the estate
settles. Bruce admits to a number of friends that he agreed to settle the debts out of his
own pocket because he needed to obtain assets from the estate in a hurry and did not
want anything to slow down probate. The assets were needed in large part to satisfy his
obligations to Sally. Surprisingly, it later came to light that prior to his death Frank had
signed away all his assets to his girlfriend in Argentina. There was nothing left in the
estate for Bruce to inherit. Bruce disavowed his agreement to pay the $10,000 to
various creditors of Frank.
Which of the following is the most likely result of Bruce’s attempt to avoid his
agreement to pay creditors of the estate out of his own pocket?
A. He will be able to avoid the agreement because it was not in writing.
B. He will be able to avoid the agreement because a promise to pay the debts of an
estate would not come within the statute of frauds.
C. A promise to pay debts of an estate out of an executor’s own funds would come
within the statute of frauds, but the oral agreement Bruce made will likely be
enforceable under the substantial-purpose rule.
D. A promise to pay debts of an estate out of an executor’s own funds would come
within the statute of frauds, but the oral agreement Bruce made will likely be
enforceable under the main-purpose rule.
E. A promise to pay debts of an estate out of an executor’s own funds would come
within the statute of frauds; but regardless of whether the debtors can establish reliance,
the oral agreement Bruce made will likely be enforceable because he admitted he had
agreed to pay.
“Wrong Deck.” Penny hires Jackson to paint her back deck. She agrees to pay him $200
for the job, and he accepts sight unseen. They enter into the agreement on Tuesday, and
he is to paint the deck on Saturday. When Jackson arrives, neither Penny nor her
neighbor is at home. He mistakenly paints the neighbor’s deck. Penny calls him the next
day and asks him why he did not paint her deck. He informs her that he did paint the
deck. It is then discovered that he mistakenly painted the neighbor’s deck. Penny tells
him not to worry because the neighbor will be required to pay him. Jackson says that if
the neighbor does not pay, then he expects all of his funds from Penny, because the
contract is executed.
Which of the following is correct regarding Penny’s assertion that the neighbor will be
required to pay Jackson?
A. She is correct. The neighbor will be required to pay Jackson under a theory of
quasi-contract.
B. She is correct. The neighbor will be required to pay Jackson based upon an
implied-in-fact contract.
C. She is correct. The neighbor will be required to pay Jackson based upon an
implied-in-law contract.
D. She is correct. The neighbor will be required to pay Jackson based upon an express
contract.
E. She is incorrect. The neighbor will not be required to pay Jackson.
“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 whether XYZ Bank can recover against
Selena based upon the loan to Bob?
A. XYZ Bank will not be able to recover because it was not in privity with Selena.
B. XYZ Bank will not be able to recover because Selena did not know that Bob planned
to get a loan from XYZ Bank.
C. XYZ Bank will not be able to recover $100,000 from Selena because the transaction
went from $10,000 to $100,000, increasing materially the audit risk.
D. XYZ Bank will be able to recover from Selena because there was privity of contract.
E. XYZ Bank will be able to recover from Selena only if they have been a client of hers
in the past.
Under the UCC, if the customer does not notify the bank of an unauthorized signature
within ______ after the statement has been made available, she cannot hold the bank
liable for the payment.
A. 10 Days
B. 20 Days
C. 30 Days
D. 45 Days
E. 60 Days
“Hawaiian Adventure.” Beverly decides to go on a great trip to Hawaii. She needs
someone, however, to take care of her two dogs, Creaky and Toady, while she is gone.
She hires Frank three months in advance and they reach a contractual arrangement
whereby he will be paid $200 for keeping the dogs for two weeks. Frank comes over
two months before Beverly is set to leave, takes one look at Creaky and Toady, and
declares that they are too creepy to be around. Beverly hires Alice who agrees to care
for Creaky and Toady. Two weeks before Beverly is set to leave, however, Alice calls
and tells her that she just broke both her legs in an automobile accident and has been
put on bed rest for two months. Finally, Beverly hires Betty to care for the dogs and
heads off to Hawaii where she has a great time. Unfortunately, when Beverly returns
home, she finds that Betty has absconded with Creaky and Toady. They were later
found in good health in an exclusive resort visited by Betty. Betty refuses to return
Creaky and Toady to Beverly claiming that they were all enjoying the resort and that
she had become quite attached to them.
Which of the following is true regarding Alice’s refusal to keep Creaky and Toady?
A. She is discharged from performance because of frustration of purpose.
B. She is discharged from performance because of impossibility of performance.
C. She committed a material breach.
D. She failed to substantially perform but only committed an immaterial breach.
E. She is guilty of only a nominal breach because she had a good excuse for breaching.
Which of the following is a term for stock issued to individuals below its fair market
value?
A. No-par stock
B. Reduced stock
C. Watered stock
D. Less-value stock
E. Unapproved stock
“Diving fiasco.” Mike, who owns a dive shop in the U.S., takes a group of his
customers diving in U.S. waters. Mike is aware that the area where the divers will be
visiting is occasionally visited by sharks. He is also aware that, while sting rays are
usually tame, they can become aggressive when fed. Mike did not reveal that
information to the group of divers going with him because in his experience, as soon as
customers hear of even a hint of danger, they refuse to pay and go on the trip. The
divers go down into the water, and some have squid with which to feed the sting rays.
During the dive, one of the sting rays becomes agitated and latches onto diver Susie’s
arm. Susie is so disconcerted that she drops her regulator (her breathing device) from
her mouth and is in considerable difficulty. Another diver, Billy, encounters a shark
which snaps at him. Fortunately, the shark does not bite him but does damage his diving
equipment. He is also in distress. Mike, who is in charge of the dive, does nothing but
return to the boat because the dive turned out to be more trouble than expected. Wendy,
another diver on the trip, also returns to the boat without doing anything to help the
divers in distress. Sam, on the other hand, goes to rescue the divers who are in distress.
He manages to assist them, but in the process, he pulls his back and requires medical
care. All divers return to the boat and are very unhappy with Mike.
Billy and Susie are annoyed that Mike did not come to their assistance. Which is true
regarding Mike’s duty to provide assistance during the dive?
A. Mike had no duty to provide any assistance to them.
B. Mike had a duty to come to their aid because he arranged the dive and was charging
them.
C. Mike had a duty to come to their assistance only if he had specifically agreed to do
so prior to the dive.
D. Mike had a duty to come to their assistance only if they were minors.
E. Mike had a duty to come to their assistance only if no one else did so.
Which of the following is the term for the activity of completing unfinished partnership
business, collecting and paying debts, collecting partnership assets, and taking
inventory?
A. Closing up
B. Winding up
C. Delineating
D. Reallocating
E. Terminating
Which of the following parties must sign a document coming within the statute of
frauds?
A. The party against whom action is sought
B. The offeror only
C. The offeree only
D. Only a person who has agreed to pay the debt of another
E. Any party to the contract
Which of the following is true regarding examples of securities?
A. Debentures, warrants, bonds, and stocks are all securities.
B. Warrants and stocks are securities, but debentures and bonds are not.
C. Stocks, warrants, and bonds are securities, but debentures are not.
D. Stocks, warrants, and debentures are securities, but bonds are not.
E. Stocks and bonds are securities, but debentures and warrants are not.
Which of the following is true regarding the federal appellate court system’s use of
ADR?
A. All federal courts use arbitration but few have mediation programs.
B. While ADR is popular at the district court level, few federal appellate courts use it.
C. Almost all federal circuit courts of appeal have mediation programs underway.
D. By law ADR is outlawed at the federal appellate court level.
E. All federal appellate courts use early neutral case evaluation but none use mediation.
“Shaky Bicycles.” Rhonda, an incorporator who filed the articles of incorporation for
ABC Corporation, a corporation set up to sell bicycles, incorrectly put the wrong street
address in the document. Helen, a manufacturer of bicycle parts, had sold a number of
parts to ABC Corporation. Unfortunately, the corporation was not making any profit,
and Helen was not paid in a timely manner. She checked the status of the corporation
and discovered Rhonda’s error. Helen then claimed that the shareholders of ABC
Corporation were personally liable to her. Bernice, another creditor of ABC
Corporation, also claimed that a shareholder, Slick, was personally liable to her. Bernice
alleged that Slick committed fraud against her when he told her that ABC Corporation
was making large amounts of money, that if she would only loan $50,000 to the
corporation he would marry her, and that the corporation would make so much money
that she would be wealthy in six months. She loaned the funds, but the corporation has
been unable to pay her. Slick told her that he is sorry, but that her only avenue of
recovery is through the corporation.
Which of the following is the likely result of Helen’s attempt to hold the shareholders
primarily liable for her debt?
A. She will likely be successful.
B. She will be successful only if ABC Corporation proceeds to file for bankruptcy
protection.
C. She will be successful only if ABC Corporation is insolvent and remains so for at
least six months.
D. She will be successful only if ABC Corporation is insolvent and remains so for at
least one year.
E. She will likely be unsuccessful.
“Convertibles.” Barry, a new car dealer, advertised that a new brand of convertible
called Wind would be available at his dealership for the price of $10,000 each. He had
only three Wind vehicles, however; and when those were sold, he tried to convince
shoppers to purchase a much more expensive new convertible at a price of $25,000.
Kathy, a customer who decided to purchase one of the more expensive vehicles needed
financing in order to do so. She had $10,000 to pay on the car and sought a loan from
ABC Bank for the remainder. She wanted the loan for a specific amount of time. ABC
Bank offered her the loan and she agreed. The only information she received from ABC
Bank was confirmation that she borrowed $15,000 at an 8% interest rate. After
receiving several complaints, the Federal Trade Commission disapproved of Barry’s
action in regard to the Wind vehicles. After appropriate proceedings, the Commission
proceeded to issue a cease-and-desist order involving Barry’s misleading advertisement
in regard to Wind vehicles and also in regard to any other vehicles he offered for sale.
What type of loan was Kathy seeking from ABC Bank?
A. An open-end credit line
B. A closed-end credit line
C. An approved line
D. A line of credit
E. A direct line
Who is responsible for upkeep of common areas?
A. The lessor
B. The lessees
C. Both the lessor and the lessee on a 50-50 basis
D. The lessor is responsible for the upkeep of all common areas except hallways.
E. The lessees are responsible for the upkeep of all common areas except hallways.
Which clause provides that the Constitution, laws, and treaties of the United States
constitute the supreme law of the land?
A. The First Amendment, clause three
B. The supremacy clause
C. The commerce clause
D. The Eighth Amendment, clause one
E. The federalism clause
A bank may determine that _____ or later is the cutoff hour for handling checks.
A. Noon
B. 1:00 p.m
C. 2:00 p.m
D. 3:00 p.m
E. 4:00 p.m
What does the term “float” in banking reference?
A. The time it takes for a check to go through the traditional check-clearing process and
be paid.
B. The time it takes for a bank authority to report a bad check to the issuing bank.
C. The time it takes to convert a nonnegotiable instrument to a negotiable instrument.
D. The time it takes to convert a time instrument to a demand instrument.
E. The time it takes to convert a demand instrument to a time instrument.
“Accountant Dissatisfaction.” Paul agreed to perform accounting services for Teresa,
and they entered into a contract setting forth the terms of their agreement. Teresa
wanted Paul to review her financial information and her system of internal controls.
Teresa became dissatisfied with Paul’s work after he reported some irregularities in her
financial statements. Paul, on the other hand, claimed that he had adequately performed
his duties and that, at the most, any mistakes that he made were minimal.
If Paul engaged in ____________ breach, he is not entitled to compensation for work
completed.
A. A substantial
B. An adequate
C. A material
D. Any type of
E. A comprehensive
______ taxes reference the taxation of environmentally harmful activities.
A. Lemon
B. Lime
C. Green
D. Red
E. Black
The ______ in a third-party beneficiary contract is the party to the contract who made
the promise that benefits the third party.
A. Promisee
B. Promisor
C. Obligor
D. Obligee
E. Assignor
Which of the following was the primary purpose of the Equal Pay Act?
A. To eliminate situations in which women, working alongside men or replacing men,
would be paid lower wages for doing substantially the same job.
B. To eliminate situations in which women and also men were not paid equally for
doing substantially the same job.
C. To eliminate situations in which women and men were being paid less that deserved
for certain types of work.
D. To eliminate situations in which both men and women were denied overtime
compensation and fair working conditions.
E. To eliminate situations in which men, women, and those of a different national origin
were denied overtime compensation and fair working conditions.
Which of the following is false regarding certified checks?
A. If a bank refuses to certify a check, the check is considered dishonored.
B. If a bank refuses to certify a check, the check lacks the extra protection of
certification.
C. If a bank certifies a check, the drawer of the check is no longer liable for the amount
of the check.
D. If a bank certifies a check, the bank has become primarily liable for the check.
E. Once a check is certified, funds of the customer are removed from his or her account
and placed in the bank’s certified check account.
Which of the following is false regarding bailments?
A. A bailment may be gratuitous.
B. A bailment may be for consideration.
C. A bailment agreement must be contained in a written agreement.
D. The parties to a bailment contract can limit or expand the liability of the bailee by
contract.
E. The standard of care varies depending on who benefits from the bailment.