The FTC decides whether an advertisement is deceptive on a case-by-case basis.
The UCC prohibits bank customers from postdating checks.
Different countries have different ethical standards.
Under Title VII of the Civil Rights Act, employers may not be held liable for
harassment of their employees by nonemployees.
An S corporation has the tax status of a partnership.
A decision from the New Jersey Supreme Court is binding on the New York trial court,
if New Jersey has no applicable law on the issue involved.
Crimes are prosecuted by individuals.
What constitutes a valid writing in the UCC is the same in the statute of frauds.
Administrative agencies create more rules than Congress and the courts combined.
The Federal Trade Commission is an independent federal agency whose goal is to
protect consumers.
Cooperatives must be incorporated.
The most frequently awarded damages are compensatory damages.
An automated signature satisfies the UCC requirement that the signature of the creator
appear in order for an instrument to be negotiable.
Federal laws include rules passed by federal administrative agencies.
All exculpatory clauses are illegal as a matter of law.
Assumption of the risk is a doctrine, which makes it easier for a plaintiff to prevail in a
lawsuit.
Sabbath laws and blue laws limit the types of certain activities on Sundays.
The “bankruptcy estate” consists of the debtor’s debts.
If an instrument is silent as to the time of payment, the UCC presumes that it is a
demand instrument.
The primary type of rule making used by administrative agencies is informal rule
making.
An express warranty is any description of the goods’ physical nature or its use, either in
general or specific circumstances that become part of the contract.
There is no right to a jury in administrative agency disputes.
If an instrument has been refused by a bank despite a holder’s presenting it in a timely
and proper manner, that payment has been dishonored.
Scienter is a required element of innocent misrepresentation.
Under the due diligence defense, the defendant must show that she investigated the
registration statement and had reasonable grounds to believe that the statement was
accurate.
An administrative law judge’s decision may be directly appealed to the court.
The passing of title from a seller to a buyer for a price is known as a sale under UCC
law.
An individual who lacks contractual capacity may hire an agent to make contracts on
his or her behalf.
All contracts are either formal contracts or informal contracts, which are also called
simple contracts.
Blue sky law regulates the offering and sale of intrastate securities.
Used-car sales laws are uniform in every state.
In the check collection process, the depositary bank cannot also be the payor bank.
The FTC guidelines provide that if an advertisement is a half-truth, the information
presented is true but incomplete, the advertiser committed no wrong.
Historically married women were in the category of those lacking contractual capacity.
Hot Toaster. Rebecca bought a toaster from Super Store and brought it home. A friend
of hers, Greg, was at her house making toast. The toaster malfunctioned and shocked
Greg resulting in a small burn to his hand requiring medical attention. At a garage sale,
Rebecca also purchased a blender from a friend, Samantha. When she paid for the
blender, Rebecca said that it would be great for making smoothies. Samantha said
nothing and just smiled while taking Rebecca’s money. Unfortunately, the blender was
not powerful enough to make smoothies. Which of the following rights, if any, does
Greg have against Super Store in most states?
A. None because he did not buy the toaster.
B. None because he is not married to Rebecca.
C. None because he was not married to Rebecca nor was he a relative of Rebecca.
D. He may sue but only if Rebecca joins in the suit with him.
E. He may sue Super Store for his injuries.
___________________ are profits made from the sale of company stock within a
six-month period by a statutory trader.
A. Short-swing profits
B. Short-term profits
C. Insider profits
D. Insider profiting profits
E. Contempt profits
Irresponsible Teen. At age 17, in a state in which the age of majority is 18, Sally
purchased a prom dress from Formal Stuff. She wore it to the prom and then attempted
to return it to the store claiming that she was a minor and that she was entitled to a
refund. The dress had clearly been worn and had a purple stain that Sally claimed was
from grape juice. Additionally, a few days before she turned 18, Sally purchased a used
car from Dings and Dents used cars. She had a deal whereby she paid $100 per month
on the car. She drove the car and made payments for fourteen months after she turned
18. Then, she returned the car to Dings and Dents and told them that she wanted all her
money back. Dings and Dents claimed the car was a necessity. Sally and her parents
claimed that the parents were ready and willing to provide a car to Sally and that she
only purchased the car from Dings and Dents because she liked that particular style and
color. When purchases of the dress and car were made, the sellers knew that Sally was
under the age of 18. In the dispute between Sally and the owner of Dings and Dents,
which of the following is true regarding any claim that Sally affirmed the contract?
A. So long as, after reaching the age of majority, Sally did not state orally or in writing
that she intended to be bound by the contract, then she did not commit the type of
express ratification required for her to be bound.
B. Sally may have impliedly ratified the contract by making payments for so long after
she turned 18.
C. An implied ratification occurs when parents agree to accept the debt entered into by
a minor.
D. If Sally caused any damage whatsoever to the car, she was said to have impliedly
ratified the contract.
E. Sally was required to expressly ratify the contract before she could be bound to it so
long as no damage was done; but if she did any damage to the car, as a matter of law,
she is said to have expressly ratified it.
Who wrote the opinion for the landmark 1803 U.S. Supreme Court case Marbury v.
Madison?
A. John Marshall
B. Thomas Jefferson
C. Abraham Lincoln
D. Louis Brandeis
E. George Washington
Garage sale. Richard, who is cleaning out his garage, offers to sell Dawn a used
computer for $200. Dawn replies that “I’ll think about it and buy it if I decide to do so.”
Richard also calls Denise and offers to give Denise a used business law book. She is
excited to receive the book and tells him that she will pick it up the next day. Richard
also agrees to sell a communications book for $50 to Jill who promises to pick it up the
next day. Meanwhile, Sam comes to visit, offers Richard $20 for the business law book
and Richard sells it to him. Sam also offers Richard $50 for the used computer. Richard
sells it to Sam because he does not expect to hear from Dawn. Sam sees the
communications book and offers Richard $60 for it. Richard decides to forget about Jill
and proceeds to sell the book to Sam for $60. Denise is very angry because Richard did
not save the book for her and claims that he breached a contract because she had
accepted his offer. Jill is also angry because Richard sold the communications book and
informs him that he breached the contract he had with her. Exactly 31 days later, Dawn
tells Richard that she would like the computer. She tells him that her response
constituted consideration in that it bound him to an option contract and that he should
have awaited her final decision. Richard tells Sam that he needs to return everything for
a full refund. Sam refuses. Which of the following is true regarding Dawn’s statement
that her response was sufficient consideration to bind Richard to an option contract and
that he should have awaited her final decision?
A. She is correct. Her statement bound him to an option contract, and he should have
awaited her final decision.
B. She is incorrect in that her response bound Richard to an option contract, but she is
correct that he should have awaited her final decision.
C. She is correct that her response bound Richard to an option correct, but she is
incorrect that he should have awaited her final decision.
D. She is correct that her statement bound him to an option contract, but he should have
awaited her final decision only if she can prove that they have had significant business
dealings in the past.
E. She is incorrect on both counts. Her statement did not create an option contract nor
was Richard bound to await her final decision.
___________ damages are compensation awarded to punish the defendant.
A. Nominal
B. Compensatory
C. Punitive
D. Retaliatory
E. Revenge
The person who agrees to the terms of an offer by another party is called the _____.
A. offeree
B. offeror
C. agreeor
D. agree
E. inquirer
To be binding, a treaty must be approved by:
A. The Supreme Court
B. Congress
C. The Senate
D. The U.S. Constitution
E. Voters
The UCC requires that buyers are obligated to accept and pay for ______ in accordance
with the contract.
A. reasonably conforming goods
B. select conforming goods
C. materially conforming goods
D. significantly conforming goods
E. conforming goods
What do courts generally rule regarding ambiguous assignment language such as “I
assign the contract”?
A. When ambiguous language is used, the court usually considers the assignment to be
of both rights and duties.
B. When ambiguous language is used, the court usually considers the assignment to be
of rights but not duties.
C. When ambiguous language is used, the court usually considers the assignment to be
of duties but not rights.
D. When ambiguous language is used, the court usually considers the assignment to be
void.
E. When ambiguous language is used, the court usually considers the assignment to be
voidable.
Book Payment. Molly and Pat signed a contract providing that “Pat will furnish the
correct used business law book for use in Molly’s business law class; and in return on
August 15, 2011, Molly promises to pay Pat $50 for the book.” Molly took the book
and planned to pay Pat. Meanwhile, Pat properly assigned the contract Molly had
signed to Jack. When Molly went to class, however, she discovered that the book was
the incorrect book. When Jack asked Molly for payment, Molly refused. Molly told
Jack that the book was useless to her and that she was not paying either him or Pat
anything for it. Jack told Molly that he had an enforceable assignment in the form of a
negotiable instrument and that he could collect regardless of whether the book was
useless. Molly did not believe him. Continuing with her attempt to save money on
books, Molly agreed to buy Tim’s U.S. history book for $40. She had an oral agreement
with Tim that he would give her the book and that she would pay him in three days.
This time Molly got the right book. Tim, in writing, properly assigned the right to the
$40 payment to Richard. Richard asked Molly for the money. Molly admitted her
agreement with Tim but told Richard that she was not going to pay him because he did
not have a negotiable instrument. Molly also purchased a communications book from
Sam promising in writing to give him in return the next day, to his order, a used DVD
player she owned. What is the effect of Molly agreeing to give Sam a DVD in return for
the book?
A. Molly and Sam have an enforceable contract, and Molly has also satisfied the
negotiability condition regarding the form of payment.
B. Because payment is not in a sum certain for money, Molly and Sam do not have an
enforceable contract nor does the agreement satisfy the negotiability requirement.
C. Molly and Sam have an enforceable contract, but the agreement fails to satisfy the
negotiability requirement that payment be in a sum certain in money.
D. Because payment is not in a sum certain for money, Molly and Sam do not have an
enforceable contract; but the requirement of negotiability regarding the form of
payment has been satisfied.
E. Unless Sam acknowledges in writing that the fair market value of the DVD is
equivalent to the value of the book he provided to Molly, there is no enforceable
contract nor is the agreement negotiable.
Which of the following most accurately sets forth ways into which law may be divided
and classified?
A. National versus international.
B. Federal versus state.
C. Public versus private.
D. National versus international, and federal versus state, but not public versus private.
E. National versus international, federal versus state, and public versus private.
If a buyer and seller execute a contract and the seller subsequently places the goods
with a common carrier for delivery to the buyer, which of the following is true
regarding the statue of the common carrier?
A. The common carrier is the agent of the seller.
B. The common carrier is the agent of the buyer.
C. The common carrier is the agent of both the seller and the buyer.
D. The common carrier is a fiduciary.
E. The common carrier is an independent contractor.
A(n) ______ beneficiary is a third party that benefits from a contract in which the
promisor agrees to pay the promisee’s debt.
A. creditor
B. donee
C. incidental
D. promised
E. avowed
Miracle Pill. Katie advertised that she had developed a pill for women that would result
in weight loss, wrinkle loss, and improved vitality; and for men would result in all those
things, plus hair growth. Her television advertisement showed miracle results allegedly
obtained by consumers. Katie cautioned, however, that ingestion of the pill for six
months was required before results would be evident. The pill was wildly popular. The
Federal Trade Commission, however, investigated and determined that Katie had failed
to have a reasonable basis for the claims she made in advertisements. Katie claimed that
she was merely involved in the use of generalities and clear exaggerations. The
Commission disagreed and issued a formal administrative complaint against her. After a
hearing, an order was issued by the Federal Trade Commission requiring that Katie stop
advertising and selling the pills. After losing all appeals, Katie continued selling the
pills until she was fined by the Federal Trade Commission. She has since left the
country and cannot be located. If a company violates a cease-and-desist order issued by
the Federal Trade Commission and upheld by the courts, which of the following is the
fine that the Federal Trade Commission may impose?
A. Up to $3,000 per violation
B. Up to $5,000 per violation
C. Up to $10,000 per violation
D. Up to $50,000 per violation
E. Up to $100,000 per violation
The Federal Trade Commission requires ________________ if a company wishes to
claim that its products are “Made in the U.S.A.”.
A. that the claim not be used unless all, or virtually all, of the product’s components and
labor are of U.S. origin
B. that the claim not be used unless absolutely all of the components and labor of the
product are of U.S. origin
C. that the claim not be used unless at least 75% of the product’s components and labor
are of U.S. origin
D. that the claim not be used unless at least 50% of the product’s components and labor
are of U.S. origin
E. that the claim not be used unless at least 55% of the product’s labor and components
are from Canada, Mexico, or the United States
__________________ permit(s) the SEC to exempt persons, securities, and transactions
from securities regulations.
A. The Sarbanes-Oxley Act of 2002
B. The Securities Acts Amendments of 1990
C. The Market Reform Act of 1990
D. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990
E. The National Securities Markets Improvement Act of 1996
Which chapter of the Bankruptcy Code is used for a sale of a debtor’s assets by a trustee
and the distribution of money to creditors?
A. Chapter 7
B. Chapter 9
C. Chapter 11
D. Chapter 13
E. Chapter 15
Wrecked Furniture. Ralph buys new furniture for his living room from Good Times
Furniture. It is agreed that the goods will be placed with a common carrier for delivery.
The contract between Ralph and Good Times is ambiguous regarding whether the seller
had the duty to deliver the goods only to the common carrier’s hands or whether the
seller had the duty to deliver the goods to Ralph’s home. Unfortunately, on the way to
Ralph’s home, through no fault of the delivery driver, the delivery truck got wrecked
and the furniture was significantly damaged. Which of the following is a type of
contract that Ralph and Good Times Furniture entered into?
A. A common-carrier delivery contract
B. A trucking contract
C. A goods-in-bailment contract
D. A conditional sales contract
E. A conditional delivery contract
Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon
in Tennessee. They would all like to avoid personal liability for debts of the business
and for wrongful acts of each other. They would also like to avoid taxation as much as
possible. Mona is in favor of a corporation and asks if there is any problem with that
form of business. Jack and Bobby say that they want to receive profit distributions and
that they are concerned about excessive taxation with a corporation. Jack and Bobby
urged the formation of a partnership even in the face of personal liability. Mona did
some research and suggested an S corporation to Jack and Bobby. Would the proposed
business qualify as an S corporation if it were incorporated in Delaware?
A. No, because there must be at least 100 shareholders involved.
B. No, because a business must operate as a partnership for at least two years before
converting to an S corporation and also because it must be incorporated under the state
law of the location of the principal place of business.
C. No, because a business must operate as a regular corporation for at least two years
before converting to an S corporation.
D. Yes, so long as more than one class of shares is issued.
E. Yes, so long as only one class of shares is issued.
Which of the following states that in the case of multiple assignments of the same right,
the first party granted the assignment is the party correctly entitled to the contractual
right?
A. The first-assignment-in-time rule
B. The last-assignment-in-time rule
C. The English rule
D. The French rule
E. The American rule
The law of contracts is primarily _____ law.
A. civil
B. statutory
C. common
D. restated
E. modified
Which of the following is a term for laws that limit the types of business activities in
which parties may legally engage on Sundays?
A. Sabbath laws only
B. Blue laws only
C. True laws only
D. Sabbath and blue laws, but not true laws
E. Sabbath laws, blue laws, and true laws
Under what condition or conditions will a court now find nondisclosure as having the
same legal effect as an actual false assertion?
A. When a relationship of trust exists between the parties to the contract.
B. When there is a failure to correct assertions of fact that are no longer true in light of
events that have occurred since the initial consent to the terms of the agreement.
C. When the transaction at issue is the first dealing the parties have undertaken together.
D. When a relationship of trust exists between the parties to the contract and when there
is a failure to correct assertions of fact that are no longer true in light of events that have
occurred since the initial consent to the terms of the agreement.
E. When a relationship of trust exists between the parties to the contract, when there is a
failure to correct assertions of fact that are no longer true in light of events that have
occurred since the initial consent to the terms of the agreement, and when the contract
at issue is the first contract the parties have undertaken together.
Which of the following is true regarding actions that may be taken while an automatic
stay is in effect in a Chapter 7 proceeding?
A. Creditors cannot attempt to repossess property during bankruptcy proceedings.
B. A creditor who received a judgment against a debtor prior to the bankruptcy filing
may act to enforce the judgment.
C. Legal actions to collect child support payments are not subject to the stay.
D. Once a filing is allowed and a stay is in effect, the rules are the same regardless of
previous bankruptcies.
E. All of these are true.
Carpet Woes. Beau went shopping at ABC Carpet. He saw some carpet he liked but
could not make up his mind. The manager at ABC Carpet wrote down the proposed
purchase price for him along with a statement that the price would be good for three
months. Two months later Beau went back to ABC Carpet to purchase the carpet.
Unfortunately, the price had gone up. Beau showed the manager his writing and
guaranteed price, but the manager said that the offer was no longer good. Although he
had to pay more than the ABC manager had initially promised, Beau proceeded to
purchase his carpet from ABC Carpet, and he also contracted with ABC to do the
installation. Unfortunately, Beau almost immediately started to have problems with the
carpet. Beau told the sales manager of ABC Carpet that he was planning on bringing
suit for breach of warranty. The sales manager, however, told him that the breach of
warranty provisions only applied to sales of goods and that the carpet purchase was for
installation, a service. What kind of offer did the manager at ABC Carpet make to
Beau?
A. An unenforceable offer
B. A firm offer
C. A consideration offer
D. An illusory offer
E. A mirror offer
Which type of damages would occur if the parties specify in advance the amount of
losses or a formula in assessing the losses against the breaching party?
A. Consequential
B. Punitive
C. Liquidated
D. Nominal
E. Repugnant
Which of the following is using fraudulent means to obtain information about
someone’s phone use?
A. Pretexting
B. Ponzi scheme
C. False pretenses
D. False token
E. Defalcation
Nails. Mona and her friends Jack and Bobby, all U.S. citizens, want to open a nail salon
in Tennessee. They would all like to avoid personal liability for debts of the business
and for wrongful acts of each other. They would also like to avoid taxation as much as
possible. Mona is in favor of a corporation and asks if there is any problem with that
form of business. Jack and Bobby say that they want to receive profit distributions and
that they are concerned about excessive taxation with a corporation. Jack and Bobby
urged the formation of a partnership even in the face of personal liability. Mona did
some research and suggested an S corporation to Jack and Bobby. Would an S
corporation provide the favorable tax treatment that the parties desire in a corporate
form of business?
A. No, because an S corporation is taxed in the same way as a regular corporation.
B. Yes, but the S corporation is not needed because either a partnership or a regular
corporation in their situation would provide the same benefits as an S corporation.
C. Yes, with the only tax benefit being the avoidance of double taxation.
D. Yes, because the S corporation would avoid the double taxation problem involved
with a regular corporation and provide other tax benefits as well.
E. No, because while the parties could form an S corporation, the tax benefits of an S
corporation are only available to corporations with at least 100 shareholders.
Which of the following is true regarding a buyer’s acceptance of goods?
A. Goods may be accepted in total even if nonconforming.
B. The seller may presume acceptance if the buyer fails to reject goods within a
reasonable period of time.
C. The buyer may make a partial acceptance of nonconforming goods when the seller
has failed to cure defects.
D. Goods may be accepted in total even if nonconforming, the seller may presume
acceptance if the buyer fails to reject goods within a reasonable period of time, and the
buyer may make a partial acceptance of nonconforming goods when the seller has
failed to cure defects.
E. Goods may be accepted in total even if nonconforming, and the seller may presume
acceptance if the buyer fails to reject goods within a reasonable period of time; but the
buyer may not make a partial acceptance of nonconforming goods when the seller has
failed to cure defects.