The __________________ defense requires that the defendant demonstrates that she
investigated the registration statement and had reasonable grounds to believe that the
statement was accurate.
A. restricted securities
B. red-herring
C. insider trading
D. due diligence
E. proxy
Inattentive Driving. While cutting class and driving off campus to check on her new
dress for the upcoming formal, Molly, a busy college student, is busy talking on her cell
phone with her friend Sharon in an attempt to talk Sharon into going to the dance with
Molly’s brother, who has a big crush on Sharon. Unfortunately for Molly, there is a
statute in her state outlawing talking on a cell phone while operating a motor vehicle.
Molly crashes into the side of Sam’s new convertible when she looks down to pick up a
can of soda she just dropped onto her new jeans. A police officer just down the street
comes over to investigate. Molly explains to him that it was difficult to hold the cell
phone in one hand, the soda in the other, and also drive. The officer was not impressed.
Around that time Sam comes along. He is furious regarding the significant dent in his
new car. Molly says she has insurance and that she will cover the whole incident. Sam
says that is insufficient. The officer is annoyed because it is his lunch break. He tells
Molly that she must obey the law, and proceeds to write several citations to her. Which
of the following is true regarding Molly’s predicament?
A. Molly can be given a ticket and prosecuted criminally by government officials, but
she may not be sued for a civil violation.
B. Molly can be sued for a civil action and must pay for Sam’s car, but she cannot be
prosecuted for a criminal violation.
C. Molly can be sued in a civil action by Sam, and the government for a criminal
violation can also prosecute her.
D. So long as Molly has insurance and can pay for Sam’s vehicle damage, she cannot be
prosecuted in a civil or criminal action.
E. Sam can prosecute Molly in a criminal action, but he cannot sue her in a civil action.
If the plaintiff wants a court order that requires the defendant to fulfill the terms of the
contract, the plaintiff is seeking _______________________.
A. specific performance
B. directive
C. instructional edict
D. demand
E. injunction
Maurice offered to sell his used computer to Mike for $300, and Mike accepted. Both
Maurice and Mike believed that the computer was one year old. When the receipt was
found, however, it was discovered that the computer was actually 18 months old. Mike
wants out of the agreement based on mutual mistake. Which of the following is
Maurice’s best position in an attempt to enforce the contract?
A. That the mistake did not have a material effect on the agreement.
B. That the mistake should be allocated equally between the parties.
C. That a mutual mistake was involved.
D. That a unilateral mistake was involved.
E. None of these because, as a matter of law, Mike can get out of the contract with this
type of mistake.
Which of the following are rules regarding the internal operations of an agency?
A. Procedural
B. Interpretive
C. Legislative
D. Adjudicative
E. Judicial
Which of the following applies to cases in which the defendant has violated a statute
enacted to prevent a certain type of harm from befalling a specific group to which the
plaintiff belongs?
A. Res ipsa loquitur.
B. Negligence per se.
C. Statutory shop act.
D. Comparative negligence.
E. Assumption of the risk.
A third party who is not part of an original contract but who is transferred a duty to
perform contained in the original contract is called a(n) ______.
A. delegatee
B. delegator
C. assignor
D. assignee
E. transferor
In a sales contract, how can payment by the buyer be made?
A. Cash and negotiable instruments
B. Credit arrangements and negotiable instruments
C. Cash and credit arrangements
D. Negotiable instruments and cash
E. Cash, credit arrangements, and negotiable instruments
If a legal contract is formed and the subject of the contract then becomes illegal under a
new statute, the contract is _____.
A. discharged
B. enforced
C. disregarded
D. executed
E. executory
A(n) _____ arises when a person acknowledges in court that he or she will perform
some specified act or will pay a price upon failure to do so.
A. contract under seal
B. voidable contract
C. recognizance
D. implied-in-fact
E. informal contract
Distinguishing between unilateral and mutual mistakes is important because the
classification bears on which contracts _____.
A. are void
B. are voidable
C. lack consideration
D. lack legality
E. none of these because mutual mistakes are not recognized in the area of contracts
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 is true regarding
whether Samantha made an express warranty to Rebecca that the blender would make
smoothies?
A. Samantha made an express warranty by not speaking up regarding problems with
blender.
B. Samantha made an express warranty by not speaking up regarding problems with the
blender only if Rebecca can prove that Samantha knew about the problems.
C. Samantha made an express warranty by not speaking up regarding problems with the
blender only if Rebecca cannot prove that Samantha knew about the problems.
D. Samantha made an express warranty by not speaking up regarding problems with the
blender only if Samantha can prove that she did not know about the problems.
E. Samantha did not make an express warranty.
_____________________ created the Securities and Exchange Commission.
A. The Securities Act of 1933
B. The Securities Exchange Act of 1934
C. The Depression Act of 1932
D. The Oversight Act of 1935
E. The Stock and Bond Act of 1930
Which of the following is punishable by imprisonment for more than one year or death?
A. Misdemeanor.
B. Felony.
C. Petty offenses.
D. Tort offenses.
E. Any business related crime.
Billy knows that he can bring his case against Bob in a state court in Tennessee. He is
unsure, however, of which county in which to proceed. Which of the following
addresses the proper county?
A. In personam jurisdiction
B. Venue
C. Subject-matter jurisdiction
D. Diversity jurisdiction
E. Long-arm jurisdiction
How many circuits does the U.S. Courts of Appeal have?
A. 6
B. 50
C. 12
D. 10
E. 13
Which of the following occurs when a plaintiff expressly agrees, usually in a written
contract, to assume the risk posed by the defendant’s behavior?
A. Implied assumption of the risk.
B. Express assumption of the risk.
C. Express assumption of the last-clear-chance doctrine.
D. Implied assumption of the last-clear-chance doctrine.
E. Assumption by contract.
Which of the following is true regarding the privileges and immunities clause of the
U.S. Constitution?
A. Under the clause, a state cannot prohibit nonresidents from opening restaurants in
the state.
B. Under the clause, a state can allow state universities to charge higher tuition to
out-of-state students because residents pay taxes that fund state universities, while
out-of-state students do not.
C. Under the clause, states may not discriminate against citizens of other states in the
buying and selling of property.
D. Under the clause, a state cannot prohibit nonresidents from opening restaurants in
the state; a state can allow state universities to charge higher tuition to out-of-state
students because residents pay taxes that fund state universities, while out-of-state
students do not; and states may not discriminate against citizens of other states in the
buying and selling of property.
E. None of these. There is no privileges and immunities clause in the U.S. Constitution.
The privileges and immunities clause is contained in a statute passed by Congress.
Which of the following is a type of rule making done by agencies?
A. Formal and informal
B. Informal and hybrid
C. Hybrid and conditional
D. Formal, informal, and hybrid
E. None
A court acquires in personam jurisdiction over the plaintiff when:
A. Service of process is issued.
B. Plaintiff is given a copy of the complaint by the court.
C. Plaintiff files a lawsuit with the court.
D. Defendant files an answer.
E. Plaintiff is injured within the state’s border.
Insurance. Susan, a trained nurse, was recently elected to the U.S. Senate. Susan is very
concerned about the lack of insurance for many children and also working adults who
cannot afford the insurance premiums. She proposes legislation that states are taxed
sufficiently to provide health insurance coverage to children and that federal funds for
state highways are denied to any state that does not also provide insurance coverage for
uninsured adults. She also proposed that states with citizens earning higher than average
incomes be taxed at a higher rate than other states. Bill, a senator, tells Susan that
Congress lacks the authority to tax in this manner because the U.S. Constitution
expressly reserves that right to the states. Ellen, another senator, tells Susan that
Congress has no authority to link highway funds or any other funds with social welfare
objectives. Sam, an administrative assistant, tells Susan that Congress is prohibited
from taxing residents of one state at a higher rate than citizens of another state. Which
of the following is true regarding Sam’s statement?
A. Sam is incorrect. The U.S. Congress has complete discretion on taxation.
B. Sam is incorrect, but before the U.S. Congress taxes one state’s residents at a higher
rate than citizens of other states, a compelling need must be shown.
C. Sam is incorrect, but before the U.S. Congress taxes one state’s residents at a higher
rate than citizens of other states, an important need must be shown.
D. Sam is incorrect, but before the U.S. Congress taxes one state’s residents at a higher
rate than citizens of other states, a disparity of income of over 30% must be shown.
E. Sam is correct.
A voluntary association between two or more persons who co-own a business for a
profit is a ___________________.
A. co-owned business
B. partnership
C. joint proprietorship
D. joint corporation
E. joint entity
Under the UCC, lease contracts that require payments of _____ or more must be in
writing in order to be enforceable.
A. $100
B. $500
C. $1,000
D. $1,500
E. $5,000
A(n) _______________ is s party that an agent’s authority can bind or act on behalf of.
A. fiduciary
B. principal
C. independent contractor
D. agency relationship
E. creditor
Surprise Arrival. Gracie was surprised and pleased to find she was pregnant. She
worked as a waitress at Good Food and was aware that Groucho, her employer, had
allowed employees who were ill for reasons that were not work related to take paid time
off. For example, her friend Craig was off with pay for two months after suffering a
mild heart attack, and her friend Bonnie was off of work for three months when she ran
her personal watercraft into a dock and broke her leg. Gracie told her employer
Groucho about her pregnancy. He very angrily told her that pregnancy was completely
voluntary, that he was not paying her a dime when she was off work, and that she would
be lucky if he even allowed her to continue working at all because she would not be as
cute when she gained weight. He also said that he serves families, and he does not want
the kids to ask embarrassing questions of their parents regarding Gracie’s condition.
Gracie was very angry and threatened to sue. Groucho told her, however, that he had
business law back in 1980 and that discrimination based on pregnancy is not even
covered by Title VII. The employee handbook did not address the issue. Which of the
following is true regarding Gracie’s entitlement to be paid for time she is medically
required to be off for pregnancy?
A. Gracie is not entitled to be paid because courts have ruled that while an employer
cannot fire a pregnant employee based on the pregnancy, employers do not have to pay
the employee for time off because pregnancy is a voluntary condition.
B. Gracie is entitled to be paid because all employers covered by Title VII must pay
employees for the time they are medically required to be off work for pregnancy.
C. Gracie is entitled to some pay because employers covered by Title VII must pay
employees half their pay for the time they are medically required to be off work for
pregnancy.
D. Gracie is entitled to be paid because employers under Title VII must treat temporary
disability caused by pregnancy the same as any other temporary disability and Groucho
paid other employees who were off based upon temporary disabilities.
E. Gracie is not entitled to be paid because courts have ruled that employers only have
to pay employees for time they are medically required to be off for pregnancy if the
employee handbook provides for such payments.
A partnership in which the partners divide profits and management responsibilities and,
share unlimited personal liability for the partnership debts is a ___________.
A. limited partnerships
B. general partnerships
C. limited liability partnerships
D. corporation
E. limited liability company
In a consolidation, shareholders of the new corporation create new articles of
incorporation called _____.
A. revised articles of incorporation
B. merged articles of incorporation
C. articles of consolidation
D. revised articles of consolidation
E. none of these because new articles of incorporation are not created in a consolidation
The bank upon which a check is drawn is the ________________.
A. payor
B. payee
C. depositary
D. transfer
E. acceptor
The quality of a negotiable instrument that ensures it is mobile and available is called
____________________.
A. relative permanence
B. movability
C. alteration
D. allonge
E. negotiation
Coffee shops. Bernice wants to open a chain of coffee shops and begins by asking her
friends in various states around the country to invest through the purchase of securities
in the coffee shops. Her friend Robbie says that he would like to invest but that she
should be sure that she satisfies requirements of the SEC. He tells her that she has to
provide information to the SEC involving a description of the securities, an explanation
of how proceeds will be used, information regarding the management of the company,
and other matters. He tells her that she also has to provide a document to the SEC that
will be provided as an advertising tool to potential investors who can rely on it to
decide whether they should buy securities. Bernice says that she does not want to do
that. She explains to Robbie that insofar as the coffee shop venture is concerned, she
does not want to advertise; and she wants to offer securities only to a limited number of
wealthy friends. Particularly, she has in mind Scott who has a net worth of at least $3
million and Mary, a psychiatrist. Mary recently filed bankruptcy because of some bad
decisions involving an elaborate decoration of her office. Although her income for the
past couple of years has been in the range of $80,000, business is improving based on
her recent involvement with a number of patients suffering anxiety based upon a fear of
alien invasion. Considering only the information available, which of the following is a
term that would describe Mary as an investor?
A. Approved
B. Sophisticated
C. Accredited
D. Unapproved
E. Unaccredited
Which of the following is an act passed by Congress and serves as a major limitation on
how federal agencies are run?
A. The Agency Restriction Act
B. The Regulatory Agency Act
C. The Agency Regulation Act
D. The Administrative Procedures Act
E. The Regulatory Restriction Act
Which of the following requires that the seller make proper shipping arrangements and
deliver goods to the buyer via a common carrier but not require a guarantee of the
safety of goods to their destination?
A. Origin contracts
B. Destination contracts
C. Transfer contracts
D. Origin contracts, destination contracts, and transfer contracts
E. Shipment and destination contracts, but not transfer contracts