Business Law Final Fall 1999 Multiple Choice Questions

Business Law Final Fall 1999
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____
1. Bob claims that Carol breached their contract. Carol responds that she never intended to enter into a contract
with Bob. The intent to enter into a contract is determined with reference to
a. the conscious theory of contracts.
b. the objective theory of contracts.
c. the personal theory of contracts.
d. the subjective theory of contracts.
____
2. Kate begins to perform, intending that the completion of her performance act as an acceptance of Lyle's offer.
Under the modern-day view, an offer that can only be accepted by completion of a specific act can
a. be revoked any time after the offer is made.
b. be revoked any time before the completion of performance.
c. not be revoked once performance has substantially begun.
d. not be revoked once the promisee indicates he or she will perform.
____
3. Ann promises to buy a house from Ben, who promises to vacate the property on July 1. If these promises are
in writing, they are most likely
a. enforceable.
b. unenforceable.
c. void.
d. voidable.
____
4. Pete, a judge, can apply the doctrine of quasi contract to a dispute between Quality Service Company and
Regulated Office Systems
a. only if there is a valid contract covering the area in question.
b. only if there is not a valid contract covering the area in question.
c. whether or not there is a valid contract covering the area in question.
d. under no circumstances.
____
5. An officer of International Sales Corporation makes overtures to a representative of Global Distribution, Inc.,
regarding a business deal. Under the objective theory of contracts, the officer's words and conduct are held to
mean whatever
a. the officer subjectively intended them to mean.
b. a reasonable person in the officer's position would think they meant.
c. a reasonable person in the representative's position would think they meant.
d. the representative subjectively thought they meant.
____
6. Owen announces that he plans to sell his business, Payroll Service Company (PSC), at a price below its
market value. Quality Bookkeeping, Inc., gives Owen a check for the stated amount. Owen
a. is bound to sell PSC to Quality Bookkeeping.
b. may refuse to accept the check, because he only expressed an intent to do something in the
future.
c. may refuse to accept the check, because he only expressed an opinion as to the worth of
the business.
d. may refuse to accept the check, because he only expressed a willingness to discuss a
possibility of entering into a contract.
____
7. Ed advertises a reward for the return of his lost dog. Flo, who does not know of the reward, finds and returns
the dog. Flo cannot recover the reward because she
a. did not confer a benefit on Ed by returning the dog.
b. did not know of the reward when she found and returned the dog.
c. does not need the money.
d. returned the dog.
Fact Pattern 12-1
Central Construction Company (CCC) begins building a restaurant for Diners Cafe Corporation, but after two
months demands an extra $100,000. Diners agrees to pay.
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8. Refer to Fact Pattern 12-1. If CCC offers no reason for the extra $100,000, but says only that it will otherwise
stop construction, the agreement is
a. enforceable as an accord and satisfaction.
b. enforceable because of unforeseen difficulties.
c. unenforceable as an illusory promise.
d. unenforceable due to the preexisting duty rule.
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9. Refer to Fact Pattern 12-1. If CCC offers, as a reason for the extra $100,000, that extraordinary unforeseen
difficulties will add considerable cost to the project, the agreement is
____ 10. National Business Company and One-State Sales, Inc., agree to simultaneously rescind their contract and
enter into a new agreement under which their duties are the same. National later sues One-State to enforce the
new agreement. The court
a. may apply the preexisting rule or allow the rescission.
b. must allow the rescission.
c. must apply the preexisting duty rule.
d. must not apply the preexisting rule or allow the rescission.
____ 11. Betty pledges to donate $1,000 to the Children's Hospital. On the basis of the pledge, the hospital orders
additional equipment. Betty reneges on the pledge. The hospital sues Betty. If the court enforces the pledge, it
will be
a. because Betty's performance is uncertain.
b. because of the unforeseen difficulties.
c. because the pledge is a gift.
d. under the doctrine of promissory estoppel.
____ 12. Don enters into a contract with Edie, who does not have contractual capacity. The law will permit Don to
enforce the contract only if Edie
a. elects not to avoid the contract.
b. is a minor.
c. is a minor, intoxicated, or mentally incompetent.
d. is intoxicated or mentally incompetent.
____ 13. Nora signs a contract to buy a car just before reaching the age of majority. After reaching the age of majority,
Nora does not take possession or make payments. Most courts would hold that she had
a. disaffirmed the contract.
b. executed the contract.
c. ratified the contract.

d. rescinded the contract.
____ 14. Greg works for Hi-Tech Corporation. A covenant not to compete restricts Greg, on leaving Hi-Tech's employ,
from working for a Hi-Tech competitor for one year in six states, including a few in which Hi-Tech does not
do business. Greg quits Hi-Tech to work for Internet-Work, Inc., a Hi-Tech competitor, using a Hi-Tech
customer list to obtain new business for Internet-Work. According to the reasoning of the court in Case 13.2,
Moore v. Midwest Distribution, Inc., the covenant is most likely
a. enforceable because covenants not to compete are always enforceable when
accompanying an employment agreement.
b. enforceable because it reasonably protects Hi-Tech's legitimate business interest.
c. unenforceable because covenants not to compete are never enforceable when
accompanying an employment agreement.
d. unenforceable because it does not reasonably protect Hi-Tech's legitimate business
interest.
____ 15. A contract between Lou and Val requires a transfer of stolen goods for counterfeit currency. This contract is
a. enforceable.
b. void.
c. voidable at the option of either party.
d. voidable at the option of the party having less bargaining power.
Fact Pattern 14-1
Dina, an employee of Eagle Industries, is injured in a work-related accident. Based on the diagnosis of Frank,
a doctor, Dina accepts $50,000 from Eagle and waives the right to future claims. Frank's diagnosis later
proves to have been wrong.
____ 16. Refer to Fact Pattern 14-1. According to the reasoning of the court in Case 14.1, Roberts v. Century
Contractors, Inc., Frank's misdiagnosis is, in terms of its impact on Dina's agreement with Eagle,
a. a mutual mistake of fact.
b. a unilateral mistake of fact.
c. fraudulent misrepresentation.
d. nonfraudulent misrepresentation.
____ 17. Gary threatens physical harm to force Hugh to sell his business, Imported Goods, Inc., to Gary for a
below-market price. This is
a. duress.
b. fraud.
c. puffery.
d. undue influence.
____ 18. Delta, Inc., agrees to assume a debt of Excel Company to First State Bank. The agreement is not in writing.
To be enforceable, the promise must be for the benefit of
a. any party.
b. Delta.
c. Excel.
d. First State.
____ 19. Management Associates Corporation wants to sell its office building and furnishings to National Properties,
Inc. (NPI). A writing is not required for
a. a two-year lease during which NPI has an option to buy the building.
b. the sale of an office chair, valued at $50, to NPI.
c. the sale of art, displayed in an office and valued at $100,000, to NPI.

d. the sale of the building.
____ 20. Nina and Owen enter into an oral contract for Nina's sale to Owen of a laser printer for $400. Before Owen
takes possession of the printer, the contract is enforceable by
a. either party.
b. Nina only.
c. neither party.
d. Owen only.
____ 21. Eagle Corporation and Finest Products, Inc., enter into a contract. To be enforceable, the contract must
include
a. no particular signatures.
b. the signatures of all parties to the deal.
c. the signature of the party against whom enforcement is sought.
d. the signature of the party who is seeking enforcement.
____ 22. Property Development Company and Quality Land Corporation sign a written contract for a sale of land. In
some states, to be enforceable, this contract must include
a. a correct title, such as "Land Transfer" or "Real Estate Agreement."
b. a declaration of the subject matter.
c. a statement of the consideration.
d. the parties' names.
Fact Pattern 15-1
Macro Marketing, Inc., and National Food Corporation (NFC) discuss the terms of a contract. Macro then
faxes NFC a memo on Macro's letterhead that summarizes the items on which they agreed, including a
two-year term. NFC begins to perform, but Macro refuses to pay.
____ 23. Refer to Fact Pattern 15-1. In line with the decision of the court in Case 15.1, Coca-Cola Co. v. Babyback's
International, Inc., between Macro and NFC, there is
a. an oral contract only.
b. a pre-contract only.
c. a written contract.
d. no contract.
____ 24. Refer to Fact Pattern 15-1. Under the decision of the court in Case 15.1, Coca-Cola Co. v. Babyback's
International, Inc., the transaction between Macro and NFC falls within the Statute of Frauds'
a. collateral-promise provision.
b. one-year rule.
c. sales-of-goods stipulation.
d. secondary-contracts section.
____ 25. Deb and Eve sign a written contract. Deb claims that the parties later orally agreed to modify the contract.
Any oral modification is likely not enforceable if it falls under
a. the doctrine of promissory estoppel.
b. the "main purpose" exception.
c. the "partial performance" exception.
d. the Statute of Frauds.
____ 26. National Steel, Inc., and Overland Transport Company enter into a contract. Superior Oil Corporation, which
will indirectly benefit from the deal, is prevented from having rights under the contract by the principle of
a.
b.
c.
d.
assignment.
delegation.
privity.
vesting.
____ 27. Jill and Kurt enter into a contract under which Jill agrees to pay Kurt $125 for a new briefcase. Kurt's transfer
of his right to receive this payment is
a. a delegation.
b. an assignment.
c. a third party beneficiary contract.
d. not a delegation, an assignment, or a third party beneficiary contract.
____ 28. A contract between Lee and Mary may not be assigned if it
a. does not expressly permit assignment.
b. involves a sale of goods.
c. involves personal services.
d. is oral.
____ 29. Abby and Bob enter into a contract. This contract may not be delegated if
a. performance depends on the personal skills or talents of the obligor.
b. special trust has been placed in the obligor.
c. performance by a third party will vary materially from the performance expected by the
obligee under the contract.
d. any of the above.
Fact Pattern 16-1
AAA Properties, Inc., contracts with Best Builders, Inc., to construct an office building. AAA agrees to obtain
insurance to cover the project, after which the parties waive their rights against the subcontractors. AAA
obtains the policy from City Insurance Company. When the new building is destroyed in a storm, City pays
AAA and then files a suit against the subcontractors.
____ 30. Refer to Fact Pattern 16-1. Under the reasoning of the court in Case 16.3, Midwestern Indemnity Co. v.
Systems Builders, Inc., in relation to the waiver in AAA's contract with Best, the subcontractors are
a. incidental beneficiaries and thus liable to City.
b. incidental beneficiaries and thus not liable to City.
c. intended beneficiaries and thus liable to City.
d. intended beneficiaries and thus not liable to City.
____ 31. Jay and Kim enter into a contract by which Jay agrees to sell Kim his laptop computer for $500. The contract
will be fully discharged when
a. Jay and Kim sign the contract.
b. Jay gives possession of the computer to Kim.
c. Kim pays Jay $500.
d. both b and c.
____ 32. Fred and Ed sign a contract by which Fred agrees to deliver a washing machine on July 31 in exchange for
Ed's promise to pay the $500 purchase price on July 31. The delivery of the washing machine and the
payment of $500 are examples of
a. conditions precedent.
b. concurrent conditions.
c. conditions subsequent.
d. illegal conditions.
____ 33. AAA Autos contracts to sell a customized car to Barb. AAA installs a slightly used engine in the car, arguing
that a new engine would be too costly. Barb sues AAA. The court will most likely rule in favor of
a. AAA, because a used engine is the same quality as a new engine.
b. AAA, if the difference between the used and new engines is trivial.
c. Barb, because the engine is not precisely what Barb wanted.
d. Barb, if there is any difference between the used and new engines.
____ 34. Jean contracts to sell her car to Kyla for $2,000. Before performing, Jean and Kyla decide to cancel the deal.
This is an example of
a. a material breach.
b. an anticipatory repudiation.
c. a novation.
d. a rescission.
____ 35. Luke is a farmer. When bad weather destroys Luke's crop, his obligation to deliver that crop under an
outstanding contract with Macro Food Corporation is
a. discharged.
b. enforced completely.
c. enforced only to the extent of finding an alternative supply.
d. enforced only to the extent of transferring to the next year's crop.
____ 36. Sam contracts to harvest Tina's crop on August 1. Due to bad weather, Sam cannot perform on the specified
date. In this situation
a. Sam is in breach of contract.
b. the contract is discharged.
c. the contract is suspended.
d. Tina is in breach of contract.
____ 37. Mona contracts to repair a computer for New Data, Inc. (NDI). Mona knows that without the computer, NDI
will lose a sale. Mona does not perform as promised. NDI files a suit against Mona. As consequential
damages, NDI can recover
a. the cost of a new computer.
b. the difference between Mona's price and the actual cost of repair.
c. the loss of profit from the lost sale.
d. nothing.
Fact Pattern 18-1
AAA Properties, Inc., leases an office building to Business Corporation (BC). At the time, the amount of
damages on BC's default is difficult to determine, so the parties reasonably estimate, and the lease provides,
that if BC defaults, AAA is entitled to $50,000 as "liquidated damages."
____ 38. Refer to Fact Pattern 18-1. BC defaults, and AAA asks for the $50,000. Under the decision in Case 18.2,
Green Park Inn, Inc. v. Moore, this amount is most likely
a. an unenforceable penalty because at the time of the lease, the amount of damages on
default was too difficult to determine.
b. an unenforceable penalty because the amount is excessive.
c. liquidated damages because at the time of the lease, the amount of damages on default was
difficult to determine and the estimate is reasonable.
d. liquidated damages because the lease refers to the amount as "liquidated damages."
____ 39. Fred files a suit against Gail. To recover from Gail in quasi contract, Fred must show all of the following
except
a. Fred conferred a benefit on Gail, reasonably expecting to be paid.
b. Fred did not act as a volunteer in conferring a benefit on Gail.
c. Gail was in a better financial position than Fred.
d. Gail would be unjustly enriched if she kept the benefit without paying.
____ 40. Outstate Properties, Inc. (OPI), agrees to sell certain acreage to Pia. OPI repudiates the deal. Pia sues OPI and
recovers damages. Pia can now obtain
a. an amount in a quasi-contractual recovery.
b. damages representing restitution.
c. specific performance of the deal.
d. nothing more.
____ 41. Jody owns Kappa Sales, a sole proprietorship. Jody's liability is
a. limited by state statute and varies from state to state.
b. limited to the extent of capital expenditures.
c. limited to the extent of his or her original investment.
d. unlimited.
____ 42. Events Promotion Corporation licenses trademarks to Fine Souvenirs, Inc., to use in selling caps, sweatshirts,
and similar goods. This is
a. a franchise.
b. an entrepreneur.
c. a principal-agent relationship.
d. a sole proprietorship.
____ 43. Roller Rinks, Inc. (RRI) grants a franchise to Sven to operate an RRI rink. RRI may require Sven to pay a
percentage of his
a. annual sales only.
b. annual sales or annual volume of business.
c. annual volume of business only.
d. neither annual sales nor annual volume of business.
____ 44. Art is a franchisee of Bee Treats, Inc. Their contract gives Bee a right to control certain aspects of Art's
operation, but assigns responsibility for employees to Art. Art hires Clay, who commits a crime against some
of Art's customers, including Dina. Dina files a suit against Bee. With respect to Clay's crime, under the
decision of the court in Case 35.2, Kerl v. Dennis Rasmussen, Inc., Bee is most likely
a. liable because Bee exercises control over some of Art's operations.
b. liable because Dina was Bee's customer.
c. not liable because Art is responsible for his employees.
d. not liable because Dina was Art's customer.
____ 45. Dick, a partner in Eagle Dental Associates, applies for a loan with First State Bank allegedly on Eagle's behalf
but without the authorization of the other partners. First State knows that Dick is not authorized to take out the
loan. Dick's default on the loan results in
a. Dick and Eagle's joint liability for the amount.
b. Dick's sole liability for the amount.
c. Eagle's sole liability for the amount.
d. neither Dick's nor Eagle's liability.
____ 46. Ben is admitted to Consolidated Associates, an existing partnership. A partnership debt incurred before the
date of his admission comes due. Ben is
a.
b.
c.
d.
not liable for the debt.

only liable for the debt up to the amount of his capital contribution.
personally liable only to the extent the other partners do not pay.
personally liable to the full extent of the debt.
Fact Pattern 36-2

Hal, Ira, and Jill are partners in Kappa Accessories, a computer peripherals firm.
____ 47. Refer to Fact Pattern 36-2. Hal signs a contract with Macro Chips, a retail component supplier, allegedly on
Kappa's behalf. The contract is binding on
a. Hal, Ira, Jill, and Kappa.
b. Hal only.
c. Kappa only.
d. no one.
____ 48. Refer to Fact Pattern 36-2. After Ira's dissociation, Hal and Jill dissolve Kappa. To avoid liability for any later
purported Kappa obligations, all affected third parties
a. absolutely must be notified.
b. absolutely need not be notified.
c. could, but need not, be notified.
d. should, but need not, be notified.
____ 49. Refer to Fact Pattern 36-2. Ira dissociates from Kappa. Jill signs a contract with Micro Drives, a wholesale
component supplier, allegedly on Kappa's behalf. Micro knows of Ira's dissociation. The contract is binding
on
a. Hal, Jill, and Kappa only.
b. Jill only.
c. Kappa only.
d. no one.
____ 50. A-1 Capital, LP, is a limited partnership. An A-1 limited partner loses his or her limited liability if he or she
a. acts as the firm's manager.
b. has full awareness of the firm's business activities.
c. invests in the firm's competitor.
d. votes on the firm's sale or dissolution.
____ 51. Lee is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lee is
personally liable for the debts
a. in proportion to the number of partners in the firm.
b. to no extent.
c. to the extent of his capital contribution.
d. to the full extent.
____ 52. Quad-State Sales, LLC, is a limited liability company. Rita, a Quad-State salesperson, is in an accident in
South Dakota with Tim, a citizen of Montana. Tim files a suit against Quad-State in a federal district court.
For purposes of federal court jurisdiction, the citizenship of the firm is the same as the citizenship of
a. Quad-State's members.
b. Rita.
c. the state in which the accident occurred.
d. the state of Quad-State's formation.
____ 53. Fred is considering forms of business organization for his chain of general-merchandise retail stores. One
advantage of the limited liability company form, with respect to tax options, is its
a. flexibility.
b. lack of accountability.
c. limited liability.
d. rigidity.
____ 54. Jay is a member of Kappa, LLC, a limited liability company. Jay is liable for Kappa's debts
a. in proportion to the total number of members.
b. to the extent of his capital contribution.
c. to the extent that the other members do not pay the debts.
d. to the full extent.
____ 55. Ace Property, Inc., and Build-Rite Construction Corporation combine their efforts to build an office and
warehouse complex. Their form of business organization is
a. a business trust.
b. a joint stock company.
c. a joint venture.
d. a syndicate.
____ 56. Digitech is a foreign corporation, which means that Digitech
a. is an alien corporation.
b. is chartered in a country other than the U.S., such as Japan.
c. may be required to obtain a certificate of authority to do business in states where it is not
chartered.
d. may transact business only in foreign nations.
____ 57. To qualify as a professional corporation, Smith & Jones, P.C.,
a. must be a corporation formed by professionals.
b. must grant all shareholders voting rights.
c. must have at least thirty-five shareholders.
d. all of the above.
____ 58. Stan incorporates his engineering supply business as Technical Instruments, Inc. This firm could have
perpetual existence in
a. a few states.
b. all states.
c. most states.
d. no states.
____ 59. Carol and Dan are preferred stockholders in Eagle Corporation. Carol and Dan have the same rights as most
preferred stockholders, which means, as regards Eagle, they have
a. no right to an annual dividend and no right to vote.
b. no right to an annual dividend but do have the right to vote.
c. the right to an annual dividend and the right to vote.
d. the right to an annual dividend but not the right to vote.
____ 60. Lou and Mary act as the incorporators for National Corporation. After the first board of directors is chosen,
subsequent directors are elected by a majority vote of National's
a. board of directors.
b. incorporators.
c. officers.
d. shareholders.
____ 61. Rita is a director of Standard Corporation. Rita's rights, as a director, do not include a right to
a. indemnification.
b. inspection of books.
c. participation.
d. preemption.
____ 62. Fran is a director of Global Enterprises, Inc. To the corporation, Fran owes a duty of
a. care and loyalty.
b. care only.
c. loyalty only.
d. neither care nor loyalty.
____ 63. Edie is a shareholder of Fast Food, Inc. As a shareholder, she must approve
a. amending the articles of incorporation.
b. declaring a corporate dividend.
c. hiring a chief executive officer.
d. issuing additional shares.
____ 64. Fiona owns one share of stock in Great Corporation, as evidenced by a stock certificate. Fiona loses the
certificate. Her ownership of the stock is
a. forfeited immediately.
b. forfeited within ten days of a third party's claim to ownership.
c. forfeited within thirty days if she cannot find the certificate.
d. not affected.
Fact Pattern 39-1
Ray is a shareholder of Small Business Company (SBC). When the directors fail to undertake an action to
redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.
____ 65. Refer to Fact Pattern 39-1. Any damages recovered by Ray's suit will go to
a. Ray.
b. SBC.
c. SBC's directors.
d. the state in which SBC is incorporated.
Fact Pattern 40-1
AAA Apartments, Inc., merges with Better Rentals, Inc. Only AAA remains.
____ 66. Refer to Fact Pattern 40-1. Better Rentals, Inc., held rights in certain real property. After the merger, AAA
acquires the rights
a. automatically.
b. only after completing certain additional statutory procedures.
c. only Better Rental's former shareholders expressly approve.
d. only if the acquisition is a specified result of the merger.
____ 67. Ada files a suit against Brand Name Company. While the suit is pending, Brand Name merges with
Conglomerate Corporation, with Conglomerate absorbing Brand Name. Now, liability in the suit, if any, rests
with
a. Ada.
b. Brand Name.
c. Conglomerate.
d. the court.
Fact Pattern 40-2
Ample Corporation combines its assets and debts with those of Xantha Corporation to form AXCorp.
____ 68. Refer to Fact Pattern 40-2. AXCorp assumes
a. all of Ample's and Xantha's debts.
b. half of Ample's and Xantha's debts.
c. none of Ample's and Xantha's debts.
d. only debts that Ample and Xantha incurred after their combination was proposed.
____ 69. Big Blow Bubble Gum, Inc., decided to merge with its subsidiary, Not-So-Big Bubble Gum, Inc. Big Blow
owned 95 percent of the stock of Not-So-Big. The board of directors of each firm agreed on a short-form
merger. There was no evidence of fraud on the part of the directors or the corporation. When Bob and other
minority shareholders of Not-So-Big heard about the merger and the exchange ratio of their stock, they sued
Big Blow for breaching its fiduciary duty. Based on the decision in Case 40.2, Glassman v. Unocal
Exploration Corp., the court in this case would most likely rule that Bob was entitled to
a. punitive damages, based on Big Blow's breach of its fiduciary duty.
b. an appraisal of his shares, to determine whether fair value was given for them.
c. dissolution of the corporation.
d. nothing.
Fact Pattern 48-1
Holly owns land in Iowa. Her ownership rights include the right to sell or give away the property without
restriction, and the right to commit waste, if she chooses.
____ 70. Refer to Fact Pattern 48-1. Holly's ownership interest is
a. a fee simple absolute.
b. a leasehold estate.
c. a life estate.
d. an easement.
____ 71. Refer to Fact Pattern 48-1. Holly conveys some of her land to Jake with the right to possess and use the
property for a certain period of time. Holly has given Jake
c. a life estate.
d. an easement.
Fact Pattern 48-2
Jay owns two adjacent buildings, leased to Kelly and Leo, respectively. A driveway between the buildings
leads to a parking lot in the back. Jay sells Kelly's leased building to Kelly, under an agreement to transfer an
easement in the driveway. The agreement does not use the word "permanent." Leo buys Leo's leased building,
which includes title to the driveway.
____ 72. Refer to Fact Pattern 48-2. Suppose that the agreement between Jay and Kelly does not expressly bind Jay's
"heirs and assigns," Jay says nothing to Leo about the easement, and Leo's deed does not mention it. Under
those circumstances, as the court held in Case 48.1, Webster v. Ragona, Kelly has in the driveway
a. an easement appurtenant.
b. no easement, because Jay and Kelly's agreement did not bind Jay's successors.
c. no easement, because Jay said nothing to Leo about the easement.
d. no easement, because Leo's deed did not mention it.

____ 73. Elsa, the owner of Fertile Farm, sells Gina a right to camp on Fertile land overnight. Gina's right is
a. a leasehold estate.
b. a license.
c. an easement.
d. a profit.
____ 74. Bud, a landlord, does not rent apartments to men because he believes that women are better housekeepers.
Bud can
a. discriminate, because Bud is the apartments' owner.
b. discriminate, because freedom of contract is a constitutional right.
c. not discriminate, because the law prohibits discriminating against prospective tenants on
the basis of gender.
d. not discriminate, because women are not better housekeepers.
____ 75. Diners Cafe, Inc., leases a building from Eagle Corporation. When the lease expires, Diners moves out,
leaving the building in a seriously damaged condition. Eagle makes repairs, and leases the building to Fine
Pizza Company. For all damage beyond ordinary wear and tear,
a. Diners and Eagle are each liable for half of the cost.
b. Diners is liable for the entire cost.
c. Eagle is liable for the entire cost.
d. Fine Pizza is liable for the entire cost.
Business Law Final Fall 1999

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Business Law 201 Spring 2008

Professor Isler
Tuesday/Thursday
March 27, 2008
True/False
Indicate whether the sentence or statement is true or false.
____
1. For a completed battery to occur there must be actual contact made with the person that is alleging
assault.
____
2. Attendance- In one of my examples Billy was thrown from a car into a gasoline pump
____
3. Unlike larceny, robbery does not require force or fear.
____
4. Felonies include serious crimes, such as murder, that are punishable by imprisonment for more that
one year or death.
____
5. In personam jurisdiction is a courts power to render a decision affecting the rights of the specific
persons before the court.
____
6. In mediation, the disputing parties select a neutral party to help facilitate communication and suggest
ways for the parties to solve their dispute. The mediator then issues a decision that the parties must
agree to.
____
7. The Supreme Court has ruled that to protect citizens of the United States law enforcement officers must
read citizens their Miranda Rights and obtain search warrants before conducting any search because
most people do not understand their Fourth and Fifth Amendment rights.
____
8. At a minimum, procedural due process entitles a person to notice of any legal action against her and to
a hearing before an impartial tribunal.
____
9. A minor's right to disaffirm a contract terminates automatically when the person reaches the age of
majority.
____ 10. Some states provide for the termination of minority status on marriage.
____ 11. A person who enters into a contract when he or she is intoxicated can void the contract only if the
intoxication was involuntary.
____ 12. If the purpose of a licensing statute is to raise government revenues, a contract with an unlicensed
professional will normally be enforceable.
____ 13. Consideration is the value given in return for a promise.
____ 14. The courts sometimes allow exceptions to the preexisting duty rule.
____ 15. A promise to pay for an act that has already occurred is enforceable.
____ 16. An agreement is usually evidenced by an offer and an acceptance.
____ 17. An invitation to negotiate always constitutes a valid offer.
____ 18. An advertisement is generally treated as an offer to contract.
____ 19. An express contract must be in writing.
Multiple Choice
____ 20. The state of Iowa (Iowa Code Ann. . 595.11) defines a common law marriage as
A relationship between two parties whereby:
1. The two parties must: agree that they are married;
2. The two parties must live together;
3. The two parties must hold themselves out as husband and wife; and
4. The marriage need not satisfy any time requirement
Rafael and Shaniqua lived in Iowa and complied with the above-referenced statute for ten years. After
Rafaels company moved to California he and Shaniqua moved to San Francisco. When Rafael applied
for medical benefits for Shaniqua his request was denied as the medical provider stated Under the
laws of California you are not married.
What is true about the medical providers statement?
a. The medical providers statement is
correct in every way.
b. the medical providers statement is
correct because California does not
recognize common law marriages
c. The medical providers statement is

incorrect in every way.
d. the medical providers statement is
incorrect because California
recognizes common-law marriages
that were valid in other states
____ 21. Officer Jones received a report of loud music coming from 1313 Mockingbird Lane in San Mateo.
Officer Jones responded to the call and knocked on the door. Doobie Rollemtite, who was not the
homeowner, opened the door. Officer Jones noticed cocaine on the coffee table two feet from the door
but refused to enter the home because he did not have a warrant.
What is true about the above facts?
a. A seizure of the cocaine would have

c. A seizure of the cocaine would have
been unreasonable because no
been reasonable since no automobile
automobile was involved.
was involved.
b. A seizure of the cocaine would have
d. A seizure of the cocaine would have
been unreasonable because there were
been reasonable since the cocaine was
no exigent circumstances.
in plain view.
____ 22. The Grand Wizard of the KKK wants to speak in San Mateo in Central Park. The Permits Clerk at City
Hall recognized the Grand Wizard and said I cannot give you a permit unless you agree to speak at
midnight because we do not want any trouble.
The Grand Wizard files a law suit against the City of San Mateo arguing that his First Amendment
rights were violated. Judge Big Booty Betty agrees to hear the case and has asked you for your advice.
Which of the following sentences would provide the best advice?
a. Judge Betty you should rule that the
clerks restriction is unreasonable
because he must be content neutral.
d. Judge Betty you should rule that the

clerks restriction is reasonable
because he need not be content
neutral.
b. Judge Betty you should rule that the
e. Judge Betty, how did you get your
clerks restriction is unreasonable as to
name?
time.
c. Judge Betty you should rule that the
clerks restriction is reasonable
because he must be make sure that the
public is safe.
____ 23. Attendance question- In my example about extreme and outrageous conduct I spoke about:
a. Pretending to be a policeman and
calling my neighbor about a relative
that had driven off the San Mateo
bridge.
b. Threatening to jab a customer service
clerk in the eye with a screwdriver
c. Giving a person a drug that renders

them unconscious and then filming
them nude
d. None of the above
____ 24. Attendance question- My favorite music to listen to is performed by Frank Reyes. What is true about
Frank Reyes?
a. He sings rap
c. He sings without music
b. He sings Bachata
d. He sings smooth jazz
____ 25. The Intermediate Scrutiny Test applies to:
a. Gender and Bastards
c. Fundamental rights and gender
b. Gender
d. women
____ 26. Attendance- What is an ass monitor.

a. A person that use to stand on a train
c. A person in Hollywood that has been
platform in Japan and push your butt
given the task of determining whether
until you were safely in a train.
an actress meets J-Los standard
b. A person that use to stand outside a
d. A person who works in New York
nightclub in Harlem called The
City schools that smacks bad kids on
Round Bottom who would measure
the ass if they wanted to leave
people to see if they qualified for entry
detention early.
in the club.
____ 27. Attendance- My father had trouble pronouncing the word:
a. Electricity
b. Battery
c. Justice
d. Assault
____ 28. Attendance- While on a recent plane ride to Florida I saw a movie that reminded me of this class called:
a. Michael Clayton
b. Beautiful Mind
c. Crash
d. A Brave One
e. Summer School
____ 29. As most of you know I have an alter ego named Little Billy. Billy helps me to explain complex areas
of law. From time to time Billy has problems, most of which result in his instant death. Which of the
following things, if any, happened to Little Billy?
a. He drowned in Lake Merrit
d. a, b, and c
b. He was decapitated by a Safeway
e. a and b
truck
c. He was killed when a truck landed on
his head
____ 30. Little Billy is so stupid that he tried to put M&M's in alphabetical order! On day he decided to use a
hammer that he purchased at Sears to nail two boards together. While hammering a nail into one of the
boards Billy smashed his thumb. Billy was not amused because the hammer did not have a warning
label on it! Billy went to the famous law firm of Dewey, Cheatem & Howe and asked the head attorney,
Curley for advice. Curley said You should sue Sears on the basis of strict products liability.
If Curley files such a lawsuit for Little Billy what is the likely result?
a. Curley will win because Sears place a

defective product into the stream of
commerce
b. Curley will lose if Sears did not make
the hammer
c. Curley will win because a hammer is

dangerous and requires a warning
label
d. Curley will lose because there is no
need to label a hammer because of the
commonly known dangers associated
with hammering nails.
____ 31. Davelle is walking down the street and sees Skinny Judy. Judy is so skinny that she once swallowed
a meatball and thought she was pregnant. Anyway, Judy was about to step in front of an oncoming
bus. Davelle realizes that Judy has not seen the bus and that she is unaware of the danger. The bus hits
Judy so hard that she flew in front of an oncoming train and the impact of the train sent Judys bones
flying two hundred yards away. Judy was killed instantly.
What is true with regard to Davelles duty?
a. Davelle had a duty to warn Skinny
c. Davelle had an absolute duty to warn
Judy
under the Good Samaritan Rule
b. Davelle had no duty to warn as tort
d. Davelle had a duty to warn under the
law does not impose a general duty to
English Rule
rescue
____ 32. The EZ Wide Trucking Company hired Doobie Rollemtite to be a truck driver. Doobie was to deliver
paper products to students all over San Mateo County. One day while Doobie was making a delivery to
the College of San Mateo he noticed Bad Breath Bobbette walking across campus. Doobie started
staring at Bad Breath Bobbette. Bobbettes breath is so bad that when she yawns her teeth duck.
Anyway, Bobbette was gorgeous and Doobie kept staring. Doobie was starring so hard that he failed to
stop at the stop sign near Building 17. Doobie hit a motorcycle that was being driven Flava Flave. The
truck hit Flave so hard that he was stopped in Los Angeles for speeding.
Flave sues EZ Wide and requests one million dollars in damages. Can Flave sue EZ Wide?
a. Only if the truck was defective
b. Yes under the theory of Res Ipsa
Loquitur because the accident speaks
for itself
c. No
d. Yes under the doctrine of respondeat
superior
____ 33. Dewey Cheatem is Xenia Onatopps attorney. Onatopp gave Dewey 45,000 to put in escrow, an account
to where Dewey will have access to the money, although the money is not his to use as he pleases.
Dewey takes some of the money out of the account to gamble and he fixes the records to cover up the
fact that he used some of the money for his personal use. Two days later Dewey wins one million
dollars and returns the escrow money.
What crime, if any, has Dewey committed?
a. No crime since there was never an
c. Larceny
attempt to steal
b. No crime since he returned the money d. Embezzlement
before Onatopp found out
____ 34. Honey Rider goes door-to-door selling vacuum cleaners at an amazing discount. To obtain the
discount, customers must pay immediately, and the vacuum cleaner will be delivered in three to five
business days. Plenty OToole purchases one of the vacuum cleaners. Honey Rider possesses no
vacuum cleaners and does not plan on delivering any.
What crime or tort, if any, has Honey Rider committed?
a. Conversion
b. Larceny
c. False Pretenses
d. Burglary if the payment was accepted
inside Plenty OTooles house.
____ 35. Which of the following is true?

a. Actus reus is wrongful behavior, mens c. Mens rea is wrongful behavior, actus
rea is a wrongful state of mind, and
reus is a wrongful state of mind, and
misdemeanors are crimes for which
misdemeanors are crimes for which
the punishment is imprisonment for
the punishment is imprisonment for
one year or less.
one year or more
b. You may use deadly force to protect
d. You may never use deadly force to
personal property
protect a third person
____ 36. The U.S. Constitution requires:
a. Federal District Courts
b. The U.S. Supreme Court
c. Federal Courts of Appeal

d. All of the above
____ 37. The Federal Aviation Administration has banned the use of all cell phones on airplanes. If a Missouri
law permitted cell phone usage on airplanes, it would be:
a. Constitutional
b. Constitutional according to the
commerce clause
c. Unconstitutional according to the

supremacy clause
d. Unconstitutional according to the full,
faith and credit clause
____ 38. In a recent case Justice Isler wrote an opinion of the court that said:
The Court finds that in the case before us there is a justifiable reason
reason to believe that the classification scheme that we are to rule on
advances a legitimate government interest so we have decided that
the rational basis test applies
Based on the above, what is probably true?
a. State action was involved and the law c. federal action was not involved and
was declared constitutional
the law was declared constitutional
b. State action was not involved and the d. federal action was involved and the
law was declared constitutional
law was declared unconstitutional
____ 39. Little Billy was riding his bike down the sidewalk minding his own business. In this contributory
negligence state, it is illegal to ride on a public sidewalk. Billy approached an intersection and started to
walk his bike across the street within the crosswalk. Big head Rihanna is driving down the street
talking to Biggie Smalls on the phone. Rihannas head is so big that she has to go around the corner to
change her mind! Anyway, Rihanna fails to stop at a stop sign and drove her car over Little Billy.
Rihanna did not realize what had happened because she never saw Billy but she wanted to get out and
check out the situation. Rihanna decided to back into a parking spot to clear the intersection so she put
the car in reverse and rolled over Little Billy again, killing him instantly.
Billys mom sues Rihanna for damages. What type of damages, if any, should the court award?
a. No damages because this is a
contributory negligence jurisdiction
b. Compensatory damages to
compensate for the harm caused
c. Nominal Damages since Billy was

partially at fault
d. Extreme Compensatory damages
because she rolled over Billy twice
____ 40. Today courts generally hold that individuals:

a. have a duty to rescue strangers in peril c. can be held liable for the tort of
if they can be rescued safely
slander if they write something that is
untrue
b. have a duty to act as reasonably
d. must prove criminal cases by a
prudent people under the same or
preponderance of the evidence
similar circumstances
____ 41. Attendance
Professor Isler had his house painted. As part of the deal, the painter was to paint the outside of the
house for $2,500. After completing half of the job the painter said If I had known that you had this
trim around the bedroom, I would have charged you more.
What type of bedroom was the painter referring to?
a. The master bedroom
b. The billiard room
c. The Italian bedroom

d. The pantry
____ 42. Professor Isler had his house painted. As part of the deal, the painter was to paint the outside of the
house for $2,500. After completing half of the job the painter said I did not know about this upstairs
bedroom so I must charge you an additional $500 to perform further.
Must Professor Isler pay the additional $500?

a. Yes, the Professor has a preexisting
duty to pay
b. Yes, under the doctrine of Quantum
Meruit
c. No
d. No because the painter is under a
preexisting duty to perform
____ 43. Attendance

Professor Isler had his house painted. As part of the deal, the painter was to paint the outside of the
house for $2,500. After completing half of the job the painter said I did not know about this upstairs
bedroom so I must charge you an additional $500 to perform further.
What did Professor Isler do?
a. He paid the additional $500 because
d. He gave the painter a $500 tip and the
he knew it was a good deal and
painters son a $250 tip
because he did not want to upset the
painter who happened to be his
former wifes father
b. He paid the $500 after dropping a few e. He went upstairs, got his 44 Magnum
F Bombs
and promptly busted a cap in the
painters ass
c. He refused to pay the additional $500
because he knew the painter would
have to complete the job under the
theory of Accord & Satisfaction.
____ 44. Attendance
Professor Isler recently saw a magician in an unusual show. What was unusual about it?
a. The magician had no arms
b. The magician was a lady who
performed naked
c. The magician was ten years old

d. The magician was blind
____ 45. Attendance

Professor Isler recently saw an unusual magician. Where did he witness this event?
a. On You Tube
b. In New York City
c. In Las Vegas
d. On Red Tube
e. In his dining room
____ 46. Daisy Duke, nicknamed Big Cheeks was seriously in debt. She owed American Express $50,000 and
decided to be proactive. Daisy called Sam at American Express and said Sam, I cant pay you $50,000
but I can pay $10,000. How about taking $10,000 in exchange for the full amount owed? Sam
immediately said Sure.
Daisy mailed a check and wrote Paid in full on the memo line. American Express promptly cashed
the check.
One month later American Express sent Daisy a bill for the remaining $40,000. Daisy was not amused.
Daisy called Sam and said Hey buddy we had a deal, what the hell is wrong with you Then Daisy
dropped a few F Bombs. Sam said Pay up witch or we will sue your ass!
Must Daisy pay the $40,000?
a. No because she wrote Paid in full
on the memo line
c. Yes, because the debt was liquidated

which means that she did not properly
negotiate an accord and satisfaction
b. No because she had a deal with Sam d. Yes because it is the correct thing to do
and Sam represents American Express
under the past consideration rules
____ 47. Chris, a minor, signs a contract to purchase alcoholic beverages for Dine & Drink, his parents'
restaurant. The contract is
a. valid but may be disaffirmed.
b. valid but may not be disaffirmed.
c. void as a matter of law.
d. void unless it is also signed by Ed, the manager of Dine & Drink.
____ 48. Nora signs a contract to buy a car just before reaching the age of majority. After reaching the age of
majority, Nora does not take possession or make payments. Most courts would hold that she had
a. disaffirmed the contract.
b. executed the contract.
c. ratified the contract.
d. rescinded the contract.
____ 49. On Tad's eighteenth birthday, he decides that he no longer wants to keep a car he bought from U-Pick
Autos, Inc., when he was seventeen. His right to disaffirm the deal will depend on
a. the car's condition when Tad bought it.
b. the car's current condition.
c. whether Tad acts within a reasonable period of time.
d. whether U-Pick has the right to disaffirm.
____ 50. Gina, a minor, signs a contract to buy a car from Hi-Valu Motors by misrepresenting her age as twentyone. Gina fails to make the payments. Hi-Valu sues. In most states, Gina can
a. not return the car nor avoid further liability.
b. not return the car but can avoid further liability.
c. return the car and avoid further liability.
d. return the car but cannot avoid further liability.
____ 51. While intoxicated, Tim contracts to buy a bicycle for double its normal price. Regarding this contract,
Tim is
a.
b.
c.
d.
liable even if he did not understand its legal consequences.

liable only if he understood its legal consequences.
not liable because the contract obviously favors the other party.
not liable under any circumstances.
____ 52. Jay is mentally incompetent but has not been so adjudged by a court. Any contract Jay enters into is
voidable
a. only if he does not know he is entering into the contract.
b. only if he lacks the mental capacity to comprehend the consequences.
c. if he either does not know it is a contract or does not comprehend the
consequences.
d. none of the above
____ 53. Edie obtains a consumer loan from First State Bank at an interest rate that exceeds the state's maximum.
First State has
a. calculated the optimum rate that the market will bear.
b. engaged in a restraint of trade.
c. underestimated the risk of the loan's nonpayment.
d. violated the usury laws.
____ 54. Joy signs a contract with Kent, an unlicensed physician, to perform a medical procedure. This contract
is enforceable by
a. Joy only.
b. Joy or Kent.
c. Kent only.
d. no one.
____ 55. Alan promises to pay Beth $500 to install a pump in his factory. Beth completes the installation. The act
of installing the pump
a. imposes a moral obligation on Alan to pay Beth.
b. imposes no obligation on Alan unless he is satisfied with the job.
c. is not sufficient consideration because it is not goods or money.
d. is the consideration that creates Alan's obligation to pay Beth.
____ 56. Ida promises to pay Jon, her son, $15,000 if he obtains his degree at Kappa University, where he is
currently in his second year. Jon graduates. Ida is
a. not required to pay, because Jon was already at Kappa.
b. not required to pay, because obtaining a degree benefits Jon.
c. required to pay, because a job can be hard to find after college.
d. required to pay, because Jon obtained a degree at Kappa.
____ 57. Paul offers Rita $1,000 for her $5,000 computer. Rita knowingly and voluntarily agrees to the offer but
later sues Paul. A court would likely
a. set aside the agreement as unfair.
b. set aside the agreement because the consideration is inadequate.
10
c. not question the adequacy of the consideration.

d. consider such a suit to be frivolous.
Fact Pattern 58-1
Central Construction Company (CCC) begins building a restaurant for Diners Cafe Corporation, but
after two months demands an extra $100,000. Diners agrees to pay.
____ 58. Refer to Fact Pattern 58-1. If CCC offers no reason for the extra $100,000, but says only that it will
otherwise stop construction, the agreement offered by CCC is
____ 59. Refer to Fact Pattern 58-1. If CCC offers, as a reason for the extra $100,000, that ordinary business
expenses have increased, the agreement offered by CCC is
____ 60. Refer to Fact Pattern 58-1. If CCC offers, as a reason for the extra $100,000, that extraordinary
unforeseen difficulties will add considerable cost to the project, the agreement offered by CCC is
____ 61. Mary promises to pay her assistant Ned $10,000 in consideration of the services he provided over the
years. Mary never pays Ned. Mary is
a. liable for payment of the $10,000.
b. liable only if Ned still works for Mary.
c. not liable, because the consideration is in the past.
d. not liable, because the consideration was unintentional.
____ 62. Gamma Corporation promises to pay its employees a year-end bonus "if management thinks it is
warranted." This is
a. an enforceable contract.
b. an illusory contract.
c. an unconscionable contract.
d. a unilateral contract.
____ 63. Betty pledges to donate $1,000 to the Children's Hospital. On the basis of the pledge, the hospital
orders additional equipment. Betty reneges on the pledge. The hospital sues Betty. If the court enforces
the pledge, it will be
11

____ 64. Owen announces that he plans to sell his business, Payroll Service Company (PSC), at a price below its
market value. Quality Bookkeeping, Inc., gives Owen a check for the stated amount. Owen
a. is bound to sell PSC to Quality Bookkeeping.
b. may refuse to accept the check, because he only expressed an intent to do
something in the future.
c. may refuse to accept the check, because he only expressed an opinion as to the
worth of the business.
d. may refuse to accept the check, because he only expressed a willingness to discuss
a possibility of entering into a contract.
____ 65. Ed advertises a reward for the return of his lost dog. Flo, who does not know of the reward, finds and
returns the dog. Flo cannot recover the reward because she
a. did not confer a benefit on Ed by returning the dog.
b. did not know of the reward when she found and returned the dog.
c. does not need the money.
d. returned the dog.
____ 66. Ace Sales Corporation plans to move to a new office. Ace offers to sell its office furniture to Beta
Marketing, Inc., but does not specify a time for Beta to respond. The offer expires
a. after a reasonable period of time.
b. after thirty days.
c. after thirty minutes.
d. never.
____ 67. Bill offers to sell his Consumer Service Center business to Dina for $100,000. Dina replies, "The price is
too high. I will offer to buy it for $90,000." Dina has
a. accepted the offer.
b. made a counteroffer without rejecting the offer.
c. rejected the offer and made a counteroffer.
d. rejected the offer without making a counteroffer.
____ 68. A-One Pavers, Inc., contracts with Best Building Corporation to repave Best's parking lot. The elements
of a contract do not include
a. consideration.
b. contractual capacity.
c. legality.
d. practicality.
____ 69. Jay tells Kim that he will buy her textbook from the last semester for $80. Kim agrees. Jay and Kim have
a. an express contract.
b. an implied-in-fact contract.
c. an implied-in-law contract.
d. a quasi contract.
12
____ 70. Ann promises to buy a house from Ben, who promises to vacate the property on July 1. If these
promises are in writing, they are most likely
a. enforceable.
b. unenforceable.
c. void.
d. voidable.
____ 71. Alex, a physician, renders aid to Burt, who is injured and unconscious. Alex can recover the cost of the
aid from Burt
a. even if Burt was not aware of the aid.
b. only if Burt recovers because of the aid.
c. only if Burt was aware of the aid.
____ 72. Phil enters into a contract with Quality Resorts, Inc., to work as a chef. Under the plain meaning rule,
the meaning of this contract must be determined by reference to
a. any available evidence.
b. any relevant extrinsic evidence.
c. the face of the instrument.
d. the later testimony of the parties.
____ 73. Dave pushes Ella to the ground, grabbing her purse as she falls. The use of force or fear is required for
this act to constitute
a. burglary.
b. forgery.
c. larceny.
d. robbery.
____ 74. Jay is charged with embezzlement. Embezzlement is not robbery because embezzlement may be
committed without
a. a criminal act.
b. a criminal intent.
c. taking property from its owner.
d. the use of force of fear.
____ 75. Nick sees Opal, a stranger, in peril, but does not attempt to rescue her. Opal could successfully sue
Nick for
a. negligence per se.
b. nothing.
c. a violation of the "danger invites" rescue doctrine.
d. a violation of a Good Samaritan statute.
13
Business Law 201 Spring 2008 MW

Answer Section
TRUE/FALSE
1. ANS: F
Remember, you can spit on another or kick their cane and you would still commit the tort of battery.
2. ANS: T
Indeed he was when his car was hit by Snoop.
3. ANS: F
Robbery is larceny plus fear or force
4. ANS: T
5. ANS: T
6. ANS: F
7. ANS: F
There are several exceptions where warrants are not necessary.
8. ANS: T
9. ANS: F
10. ANS: T
11. ANS: F
12. ANS: T
13. ANS: T
14. ANS: T
15. ANS: F
16. ANS: T
17. ANS: F
18. ANS: F
19. ANS: F
14
MULTIPLE CHOICE
20. ANS: D
States Without Common-Law Status That Recognize
Other States Common-Law Marriages
Arizona, Arkansas,
California, Delaware,
Hawaii, Maryland,
Minnesota, Missouri,
Nebraska, New York,
North Carolina, Oregon,
Tennessee, Virginia,
Washington, West Virginia
21. ANS: C
DIF: Moderate
NOT: The question has nothing to do with the auto exception. The officer need not get a warrant if the
drugs were in plain view.
22. ANS: C
DIF: Difficult
NOT: The clerks restriction is unreasonable as to time. Remember, the state can restrict but the
restriction must be reasonable as to time and manner.
23. ANS: A
DIF: Easy- Attendance question
NOT: Remember Layla's cat dumping on my yard and my calling her pretending to be a cop?
24. ANS: B
DIF: Attendance- Easy
NOT: My favorite music is Bachata
25. ANS: A
The test applies to illegitimate children and gender.
26. ANS: A
In Tokyo there once was a person that would stand on a train platform in Japan and push your butt
until you were safely in a train. i discussed this when explaining what constituted a harmful or
offensive contact.
27. ANS: B
My father, God rest his soul, would say Bat-Tree.
DIF: Easy- Attendance
28. ANS: B
DIF: Easy
29. ANS: D
30. ANS: D
15
DIF: Moderate
31. ANS: B
This very example is in your book under No Duty To Rescue.
32. ANS: D
Doobie was acting within the course and scope of his normal duties so his employer may be sued.
33. ANS: D
Embezzlement is the wrongful conversion on anothers property by one who is lawfully in possession.
34. ANS: C
False pretenses is the illegal obtainment of property, belonging to another through materially false
representations of an existing fact, with knowledge of the falsity of the representations and with the
intent to defraud. Here Honey had no vacuums and never intended to deliver any.
35. ANS: A
36. ANS: B
The Constitution only requires One Supreme Court.
37. ANS: C
38. ANS: A or C
39. ANS: B
40. ANS: B
41. ANS: C
Indeed he was talking about what once was an Italian bedroom
42. ANS: D
The painter has a preexisting duty to paint the house for $500
43. ANS: D
I gave the painter a $500 tip and the son received $250
44. ANS: B
45. ANS: A
46. ANS: C
There can be no accord and satisfaction with a liquidated debt
47. ANS: C
48. ANS: A
16
49. ANS: C
50. ANS: C
51. ANS: B
52. ANS: C
53. ANS: D
54. ANS: D
55. ANS: D
56. ANS: D
57. ANS: C
58. ANS: D
59. ANS: D
60. ANS: B
61. ANS: C
62. ANS: B
63. ANS: D
64. ANS: B
65. ANS: B
66. ANS: A
67. ANS: C
68. ANS: D
69. ANS: A
70. ANS: A
71. ANS: A
17
72. ANS: C
73. ANS: D
74. ANS: D
75. ANS: B
18
1
Interactive Quiz for ALT-12e, Chapter 12
Chapter 12 Consideration
1.
Often, consideration is broken down into two parts, something of legal

value and:
a. some kind of income redistribution.
b. some kind of coercive behavior.
c. a clear moral hazard.
d. a bargained-for exchange.
Answers:
a. Incorrect. This is not the second part of consideration (although a
promise might involve a voluntary redistribution of income).
b. Incorrect. Consideration is a necessary component of a contract, and
contracts are only valid if they are entered into voluntarily.
c. Incorrect. Moral hazards are not the second part of consideration.
d. Correct. The second part of consideration is a bargained-for exchange.
2.
Liz contracts with Brian. Liz agrees to cook twenty dinners for Brian, in
exchange for which Brian will repair all of the plumbing in Lizs house. In
this consideration legally sufficient?
a. No, because it is clear that one dinner is not worth as much as
repairing all of the plumbing in Lizs house.
b. No, because this kind of bargain violates public policy.
c. Yes, based on the clear lack of any bargain.
d. Yes, because Liz has promised something of value.
Answers:
a. Incorrect. We are not able to say that this is legally insufficient
consideration because Liz may be a superb cook, whose services are
worth a great deal..
b. Incorrect. This bargain does not violate public policy in any way.
c. Incorrect. There is a bargain in this casean exchange of plumbing
services for a free dinner. For all we know, Lizs dinner could be
incredibly wonderful, perhaps a once-in-a-lifetime dining experience.
d. Correct. Liz has promised something of legal value; she must obtain
the food, pay for it, and prepare the dinner for Brian. Also, realize that
Liz may be a superb chef whose efforts in creating one exquisite meal
may well be equal (in Brians mind) to Brians efforts in repairing Lizs
plumbing.
3.
Rescission may be defined as:
2
a.
b.
c.
d.
the substitution of one contract party for another.

the revision of a contracts terms to reflect trade usage.
the full performance of a contract.
the unmaking of a contract to return the contract parties to the
positions they were in before the contract was formed.
Answers:
a.
b.
c.
d.
4.
Incorrect. This describes a novation.

Incorrect. This describes a kind of contract reformation.
Incorrect. Performance is not the same thing as rescission.
Correct. This is a definition of rescission.
Assume that Binta has been harmed seriously while walking down an aisle
in Mckenzies store. Binta claims that her injuries have resulted in $12,000
worth of medical expenses, plus another $12,000 for emotional distress.
Mckenzie offers to pay Binta $16,000 if Binta promises, in return, not to
bring a lawsuit against him. Binta accepts Mckenzies offer. What is this
agreement called?
a. A covenant not to sue.
b. A reformation.
c. A release.
d. A covenant not to compete.
Answers:
a. Correct. This is a covenant not to sue.
b. Incorrect. This is not a reformationthere is no contract to reform.
c. Incorrect. This agreement does not meet the requirements for a
release, which bars any further recovery.
d. Incorrect. This is not a covenant not to compete.
5.
Which of the following is required for an accord and satisfaction to take

place?
a. The amount of the debt must be in dispute.
b. The amount of the debt must be agreed on and settled.
c. The debt must be liquidated.
d. The accord must be sealed.
Answers:
a. Correct. The amount of the debt must be in dispute for an accord and
satisfaction to take place.
b. Incorrect. If the amount of the debt is agreed upon, there can be no
accord and satisfaction.
3
c. Incorrect. The debt must be unliquidated for an accord and satisfaction
to take place.
d. Incorrect. The accord does not need to be sealed.
6.
A covenant not to sue is:

a. an agreement to substitute a contractual obligation for some other type
of legal action based on a valid claim.
b. used only by medical doctors in malpractice cases.
c. against public policy.
d. permitted only if the party involved is represented by an attorney.
Answers:
a. Correct. This is the definition of a covenant not to sue.
b. Incorrect. These covenants are used by many types of people and
businesses.
c. Incorrect. These covenants are not against public policy.
d. Incorrect. These covenants may be used even if one party is not
represented by an attorney.
7.
In order for a court to apply the doctrine of promissory estoppel, which of

the following elements IS NOT required?
a. Justice must not be served by enforcing the promise.
b. There must be a clear and definite promise.
c. Just must be served by enforcing the promise.
d. The promisee must have relied on the promise.
Answers:
a.
b.
c.
d.
8.
Correct. This element is not requiredthe opposite is required.

Incorrect. This element is required.
Incorrect. This element is required for promissory estoppel.
Incorrect. This is a required element.
Assume that Carol Rogers (a local millionaire) promises to donate

$500,000 to the Springfield Humane Society, which the society plans to
use to build a new animal hospital. Based on Carols promise, the society
begins work on the hospital. Carol, however, reneges on her offer. In this
case:
a. Carol may be sued for the money under a theory of promissory
estoppel.
b. Carol has clearly violated the terms of a formal contract.
c. Nothing can be done. Carols donation was a gift.
d. Carol will suffer from a bad conscience, but not from any lawsuit.
Answers:
4
a. Correct. Because there was a clear promise that the Springfield
Humane Society was justified in relying on, and because the reliance
was substantial and justice would be better served by enforcing the
promise, Carol could be sued under a theory of promissory estoppel.
b. Incorrect. There is no formal contract here.
c. Incorrect. In this case, Carol could be sued.
d. Incorrect. Carol may have to deal with both a lawsuit and a bad
conscience.
9.
Which of the following types of promises normally DOES NOT lack

consideration?
a. A promise to do what one already has a legal duty to do.
b. A promise to do what one does not already have a legal duty to do.
c. A promise made in return for an action or event that has already taken
place.
d. A promise of uncertain performance.
Answers:
a. Incorrect. This type of promise normally is deemed to lack
consideration.
b. Correct. This type of promise normally constitutes valid consideration.
c. Incorrect. Normally, such a promise does lack consideration in what
what is being promised is past considerationor no consideration at
all.
d. Incorrect. Normally, promises of uncertain performance (often called
illusory promises) do lack consideration.
10.
In the interests of fairness and equity, the courts may allow an exception
to the preexisting duty rule:
a. when the consideration given for a contract is past consideration.
b. when the promise is illusory.
c. when the consideration is defined as inadequate.
d. when contract performance involves unforeseen difficulties.
Answers:
a. Incorrect. The courts would not allow an exception to the preexisting
duty rule in this situation.
b. Incorrect. The courts would not allow an exception to the preexisting
c. Incorrect. The courts would not allow an exception to the preexisting
d. Correct. The courts may allow an exception to the preexisting duty rule
in this situation.
Business Law Midterm Spring 2007

March 27, 2007
True/False
____
1. Frances has lived in an apartment for ten years when she decides to buy a house. Her one-year lease
will end on May 1. On April 15, she orally contracts to buy Smith's house for $100,000, with the closing
(transfer of the deed) to take place on June 1. Smith's lawyer, who is out of town on vacation, is to draft
a written contract of sale on his return to his office on May 15. Because Frances's lease is terminating,
Smith agrees to let her take possession of the house on May 1 if Frances gives him a "down payment"
on the house of $5,000. Frances agrees and gives Smith the $5,000. She moves into the house on May 2
and the following weekend plants trees in the back yard. On May 10, Smith receives a written offer
from Green to buy Smith's house for $120,000. Smith accepts Green's offer, asks Frances to move out of
the house, and tries to return the $5,000 to Frances. Frances claims that she has an enforceable contract
to buy the house. Smith claims that any such contract must be in writing to be enforceable under the
Statute of Frauds. Smiths statement is:
____
2.
____
3. An oral defamatory statement must be communicated to a third party to be actionable.
____
4. Parents are ordinarily liable for the contracts made by their minor children, whether or not the children
acted on their own.
____
5. All collateral promises must be in writing to be enforceable.
____
6. Mistakes in judgment as to value or quality will permit one to avoid a contract.
____
7. A superseding cause is an intervening event that imposes liability on a defendant for injuries caused by
the intervening event.
____
8. Under the doctrine of strict liability, a defendant is liable for the results of his or her acts only if he or
she intended those results.
____
9. The federal equivalent of a state trial court is a U.S. court of appeals.
Criminal law spells out the rights and duties that exist between persons and their governments and the
relief available when a persons rights are violated. Civil law, in contrast, is concerned with wrongs
committed against the public as a whole.
____ 10. Alternative dispute resolution refers to any method for resolving a dispute outside the court system.
____ 11. An expression of opinion is not a valid offer.
____ 12. An advertisement is generally treated as an offer to contract.
____ 13. In an auction in which the seller reserves the right to accept or reject any bid, there is no binding
contract until the seller accepts a bid, even if the auctioneer accepts a bid during the auction.
____ 14. A counteroffer does not terminate but continues an offer.

____ 15. Under the mailbox rule, an acceptance can be valid as soon as it is sent.
____ 16. An oral contract for a transfer of an interest in land is never enforceable.
____ 17. Evidence of prior negotiations over a contract can be introduced in court only if that evidence
contradicts the contract's written terms.
Multiple Choice
____ 18. Shoeless Joe Jackson comes to Barbs rescue and promises to support Barbs three year old daughter
Cookie with a yearly $10,000 payment for the rest of Cookies life.
The above oral promise is:
a. Within the Statute of Frauds and must c. Within the Statute of Frauds but need
be evidenced by a writing.
not be evidenced by a writing.
b. Not within the Statute of Frauds and d. Not within the Statute of Frauds but
neednt be evidenced by a writing.
must be evidenced by a writing.
____ 19. On March 26th Anthony Fenech (who once climbed over a glass wall to see what was on the other side)
made his daily drive to the mall in his 1977 orange Ford Pinto to see his girlfriend Tiffany de Epiphany.
Tiffany is a red-headed freckled-faced 400 pound mannequin who is on display in the window at the
big girls store commonly referred to as Lane Bryant. Mr. Fenech, dressed in yellow spandex pants, a
purple tank top and a Flava Flav clock around his neck was standing in front of the store pretending to
read the latest copy of Teenwire Magazine. In reality he was whispering sweet nothings to Tiffany
and fogging up the Lane Bryant window.
While all of the Lane Bryant employees were helping customers Mr. Fenech grabbed Tiffany de
Epiphany and started running toward his getaway car- the Pinto. One of Tiffanys legs fell off in the
food court and witnesses said Mr. Fenech began singing Big Girls Dont Cry as he dragged Tiffany
through the mall.
Mr. Fenech made it out of the mall but he did not make it through the San Mateo Bridge Toll Booth.
Mr. Fenech was stopped as he went through the carpool lane when police officers noticed what
appeared to be a distressed looking female passenger with lipstick smeared all over her face riding in
the passenger seat. Mr. Fenech was arrested and many items were recovered from the truck of the Pinto
including two sets of handcuffs, a lone ranger mask and a CD of Rickey Martins greatest hits.
The police officers provided the above information to the District Attorney, Professor Isler, so the
Professor could charge Mr. Fenech.
Presuming that Mr. Fenech is not insane, what is a real stretch but please use your imaginations, what
should the Professor, who is too cool to catch a cold, charge Mr. Fenech with?
a. Burglary
b. Conversion
c. Larceny
d. Receiving stolen goods

e. I dont know but Im glad I wasnt in
the food court eating when Fenech ran
by in spandex
____ 20.
The above picture of Eva and Professor Isler was taken on Professor Islers balcony at his get-a-way
condo in Rio. These were happy times but not long after these pictures were taken Eva filed for a
divorce when she caught the Professor kissing Jessica Alba. In truth, the Professor was administering
mouth-to mouth resuscitation to Jessica who fainted with joy after she accidentally saw Professor Isler
naked but Eva would not listen.
During the California divorce proceedings the judge ruled that the prenuptial agreement that the
Professor asked Eva to sign was invalid because Eva and the professor used the same attorney.
With respect to the Judges decision:
a. The judges ruling was correct
b. The judge was incorrect
c. The judge was correct because he was

following the ruling from the Barry
Bonds case.
d. The judge was incorrect because is
was permissible for Eva and the
Professor to use the same attorney;
however, the courts would prefer that
people use separate counsel
____ 21. A dispute arises over the ownership of a boat in dry dock in Fort Lauderdale, Florida. The boat is
owned by an Ohio resident, over who a Florida court normally cannot exercise jurisdiction. The other
party to the dispute is a Nebraska resident.
In this situation, a lawsuit concerning the boat could be:
a. filed in a Florida state court on the
basis of the courts in personam or
personal jurisdiction
b. filed in a Florida state court on the
theory of nunc pro tunc
c. filed in a Florida state court on the

basis of the courts long arm
jurisdiction
d. filed in a Florida state court on the
basis of the courts in rem jurisdiction
____ 22. What do probate courts and bankruptcy courts have in common?
a. Both are federal courts
c. Both are state courts
b. Both are courts of general jurisdiction d. Both are courts of limited jurisdiction
____ 23. Standing to sue means:
a. The plaintiff has decided to stand
before the court and take an oath that
she is about to tell the truth.
b. The plaintiff has decided to stand
before the court and take an oath that
the complaint that she filed stands on
firm legal precedent.
c. A party has satisfied all elements

necessary to be in federal court.
d. A party has a sufficient stake in a
matter to justify seeking relief through
the court system.
____ 24. The difference between arbitration and mediation is that arbitration is binding while mediation is not.
The above statement is:
a. True
b. False because arbitration is never
binding
c. False with respect to nonbinding

arbitration and mediation
d. False because mediation is binding
____ 25. Anthony, Fenech, who is all foam and no beer, wanted to divorce Rosie ODonnell so he sent his little
brother Nimrod, who is seventeen years old, over to Rosies house to serve her with divorce papers.
Rumor has it that Nimrod fell out of a stupid tree and hit every branch on the way down. Apparently
the tree was planted near the family home. Anyway, Nimrod boldly walked up to Rosie and said hey
Rosie I heard that when you got on the scale this morning it said One at a time please. Rosie was not
amused. Nimrod handed Rosie the divorce papers and said you have been served. When Nimrod
turned to walk away Rosie kicked him in the rear end so hard that the impact was heard for blocks.
What is true about the above set of facts?
a. Rosie was improperly served and may c. Rosie was improperly served and may
be sued for assault
be sued for battery
b. Rosie was properly served and may be d. Rosie was improperly served, but may
sued for assault and battery
be sued for assault, for battery and
mayhem
____ 26. Written questions for which written answers are prepared and then signed under oath are:
a. Admissions
b. Interrogatories
c. Depositions
d. Circular motions ad litham
____ 27. The process by which a jury is selected is called:

a. Selection by cause
b. Nunc pr tunc
c. Voir dire
d. Duces tacum
____ 28. Kirby sues Carvello in the Superior Court for the County of Santa Clara, a trial court in California.
Carvello loses and decides to appeal the verdict in Kirbys favor. What should Carvello do?
a. File a notice of appeal in the trial court c. File a notice of appeal en banc
b. File a notice of appeal in the appeals
d. File a notice of appeal in pari delicto
court
____ 29. Anthony Fenech, and his girlfriend, Dumey Somore, drove to Idaho in Anthonys Ford Pinto. When
Anthony and Dumey arrived they were charged $2,500 for a shrimp fishing license, while Idaho
residents were charged $25. Dumey paid the fee because it takes Anthony four months to earn $2,500
working at McDonalds. Anthony does intend to move up in the world and apply for a job at Jack-InThe-Box. His twin brother, Jack, has yet to hire him but Anthony knows he will be hired one day.
Dumey wants to file a lawsuit against the state of Idaho and thought about asking Anthony but
remembered that he is as smart as fish bait. Instead she has asked you for advice. What of the following
would be the best advice?
a. Dumey should file a lawsuit alleging c. Dumey should file a lawsuit alleging
that her Commerce Clause rights have
that her rights under the Full Faith
been violated.
and Credit Clause have been violated
b. Dumey should file a lawsuit alleging d. Dumey should file a lawsuit alleging
that her rights under the Privileges
that her rights under the Equal
and Immunities Clause have been
Protection Clause have been violated
violated
and request that the court use the
Compelling State Interest test.
____ 30. The Establishment Clause:
a. Prohibits the government from

c. Allows states to establish traditional
establishing a state-sponsored
religions when there is a Rational
religion.
Basis.
b. Prohibits the government from forcing d. Allows states to establish traditional
a seventeen year old Jehovahs
religions when there is a Compelling
Witnesses to receive a blood
need to do so.
transfusion.
____ 31. The Equal Protection Clause of the U.S. Constitution
a. Prohibits people from denying
c. Prohibits individuals from engaging
another persons fundamental rights
in race discrimination unless there is a
like privacy.
compelling reason for doing so
b. Prohibits states from engaging in race d. None of the above.
discrimination unless there is a
rational basis for doing so.
____ 32. Anthony decided to take his girl Big Booty Bobbette out for a night on the town. Anthony had the
evening all planned. First he would take Bobette out for dinner at Burger King and he would let
Bobbette super size any order. Then Anthony was going to take Bobette shopping at the Ninety-Nine
Cent Store Outlet and then he would take Bobette out to a concert to see the Queen Reunion Tour
with special musical guest The Village People. While at Burger King, Anthony believes that he was
overcharged and shoves Wally, a Burger King waiter. Wally sues Anthony, alleging that the shove was
a battery. Anthony is liable if
a. Burger King did not overcharge him.
b. The shove was offensive.
c. Anthony acted out of malice.
d. Wally did not wait on Anthony
e. he merely shows his face in the place as his presence alone is a harmful or
offensive contact
____ 33. Ace Corporation uses, in its radio ads, a recording by Blair, who owns the rights, without paying for
the use. Over time, the song comes to be associated with Ace's products. Blair sues Ace. Ace is liable to
Blair for
a. Appropriation.
b. Conversion.
c. Wrongful interference with a customary relationship.
d. None of the above.
____ 34. Kelly is an appliance salesperson. Kelly commits fraud if, to make a sale, she
a. discloses the truth.
b. represents as a fact something that she knows is untrue.
c. states an opinion concerning something that she knows nothing about.

d. uses puffery.
____ 35. Kay files a suit against Larry based on one of Larry's statements that Kay alleges is fraudulent. To give
rise to fraud, the statement must be one of
a. delusion.
b. fact.
c. opinion.
d. truth.
____ 36. Curt, a dairy goods salesperson, follows Dona, a competitor's salesperson, as she visits convenience
stores to make sales. Curt solicits each of Dona's customers. Curt is likely liable for
a. conversion.
b. trespass to personal property.
c. wrongful interference with a business relationship.
d. wrongful interference with a contractual relationship.
____ 37. Anthony Fenech has always had problems connecting so Joy invited Anthony over to her apartment to
help Anthony prepare for his new job. Anthony is worried about being around a real life girl because
he does not log in very well so he asks the coolest person that he knows, Professor Isler, for advice.
After a short conversation the Professor determined that Anthony suffered from Connectile
Dysfunction which was brought about because of a bad hard drive. The Professor charged Anthony
$500 and then suggested that Anthony go to a computer repair shop to fix the problem.
When Anthony was on the way to the computer repair shop he decided to practice for his new job
which he was to start the next day. He rolled the windows down in his Pinto and started yelling:
Welcome to Jack in the Box, Im Jack, may I take your order?
When Anthony arrived at the repair shop he was dismayed to learn that the store was closed so
Anthony decided to earn some real money by robbing a man selling hotdogs on the street. Anthony
approached the man and said:
Welcome to Jack in the Box, Im Jack, may I take your order? I mean, hand
over the cash or Ill shoot you with the gun that is in my pocket.
Anthony did not really have a gun. Truth to tell, according to Tiffany his gun shoots blanks but the
hotdog vendor feared for his life and gave Anthony $3.00, Anthony went to the liquor store bought a
bottle of Mickeys Malt Liquor, drank it quickly and fell asleep. Anthony woke up in jail and found that
he was charged with robbery.
Was the robbery a charge against Anthony correct?
a.
b.
c.
d.
No because Anthony did not hit anyone

Yes because Anthony threatened bodily harm
No because Anthony did not enter a dwelling
Yes because Anthony formed Actus Reus
____ 38. Lola files a suit against Mac, a medical doctor, alleging negligence. As a physician, Mac is held to the
standard of
a. an average human being.
b. a reasonable person.
c. a reasonable physician.
d. a typical professional.
____ 39. Nick sees Opal, a stranger, in peril, but does not attempt to rescue her. Opal could successfully sue
Nick for
a. negligence per se.
b. nothing.
c. a violation of the "danger invites" rescue doctrine.
d. a violation of a Good Samaritan statute.
____ 40. Driving his sport utility vehicle negligently, Bart crashes into a streetlight. The streetlight falls,
smashing through the roof of a house, killing Chris. But for Bart's negligence, Chris would not have
died. Regarding the death, the crash is the
a. cause in fact.
b. intervening cause.
c. proximate cause.
d. superseding cause.
____ 41. In Case 7.2, Palsgraf v. Long Island Railroad Co., the court decided that the railroad employee's conduct
was not wrong in relation to Palsgraf but did not decide whether the conduct was negligent toward the
man with the package (that led to Palsgraf's injury). If the court determined that the railroad employee
was negligent with regard to the man with the package, would the railroad have been liable for the
injury to Palsgraf?
a. Yes, because negligence to one party creates negligence to all other parties injured
as a result.
b. No, because Palsgraf's injury was still not foreseeable.
c. Yes, because of the doctrine of assumption of risk.
d. No, because Palsgraf was also negligent.
____ 42. Beth is injured in a car accident and sues Carl, alleging negligence. Carl claims that Beth was driving
more carelessly than he was. Comparative negligence may reduce Beth's recovery
a. even if Beth was only slightly at fault.
b. only if Beth was as equally at fault as Carl.
c. only if Beth was less at fault than Carl.
d. only if Beth was more at fault than Carl.
____ 43. An Iowa state statute requires amusement parks to maintain equipment in specific condition for the
protection of patrons. Jack's Fun Park fails to maintain its equipment. Kay, a patron, is injured. Jack's
has committed
a. a dram shop act.
b. contributory negligence.
c. negligence per se.
d. res ipsa loquitur.
____ 44. In an emergency situation, Lori renders aid to Mike, who needs help. Mike would most likely be
prohibited from suing Lori for negligence under
a. any circumstances.
b. a Good Samaritan statute.
c. a social host statute.
d. no circumstances.
____ 45. Gail is a "payday" lender charged with filing false claims in bankruptcy proceedings against her
debtors. The standard of proof to find a defendant who has been charged with a crime guilty is
a. a preponderance of the evidence.
b. beyond all doubt.
c. beyond a reasonable doubt.
d. clear and convincing evidence.
____ 46. Cathy causes a disturbance at Diners Cafe. She is arrested and charged with disorderly conduct, a
misdemeanor. A misdemeanor is a crime punishable by imprisonment up to
a. one year.
b. six months.
c. ten years.
d. thirty days.
____ 47. Ira signs Jill's name, without her authorization, to the back of a check made out to her. This is
a. burglary.
10
b. forgery.
c. larceny.
d. robbery.
____ 48. Jack receives an MP3 player stolen from Kate. To be criminally liable, Jack
a. must know only that the player is stolen.
b. must know only that Kate is the true owner.
c. must know that the player is stolen and that Kate is the true owner.
d. need not know that the player is stolen or that Kate is the true owner.
____ 49. Phil sets fire to his house. At common law, the crime of arson could be committed only if a person
burned down
a. a commercial building.
b. an unoccupied structure.
c. his or her own house.
d. the house of another person.
____ 50. Jay is charged with embezzlement. Embezzlement is not robbery because embezzlement may be
committed without
a. a criminal act.
b. a criminal intent.
c. taking property from its owner.
d. the use of force of fear.
____ 51. Helen points a gun at Irma, threatening to shoot her. Irma hits Helen, causing her death. Charged with
homicide, Irma can most likely successfully claim as a defense,
a. consent.
b. duress.
c. entrapment.
d. self-defense.
____ 52. Harry, a computer programmer for Inventory Control Corporation, is arrested in his employer's
parking lot on suspicion of larceny. Harry must be informed of his right to
a. a trial by jury.
b. punishment.
c. question witnesses.
d. remain silent.
____ 53. Britney, an employee of Computer Associates, is arrested at work. A grand jury issues a formal charge
against Britney for larceny. This charge is
a. an arraignment.
11
b. an indictment.
c. an information.
d. an inquisition.
____ 54. Bob offers to sell Carol his computer but conditions the sale on Carol accepting the offer by May 1. Bob
may revoke the offer
a. before Carol accepts the offer.
b. before May 1, whether or not Carol has accepted the offer.
c. only after Carol accepts the offer.
d. only after May 1.
____ 55. Ace Sales Corporation plans to move to a new office. Ace offers to sell its office furniture to Beta
Marketing, Inc., but does not specify a time for Beta to respond. The offer expires
a. after a reasonable period of time.
b. after thirty days.
c. after thirty minutes.
d. never.
____ 56. Kim sends an offer to Leo to cut down and remove a tree for $400. Kim says, "If you say nothing, I will
consider you to have accepted my offer." If Leo does not respond, he will be deemed to
a. accept the offer.
b. make a counteroffer.
c. reject the offer.
d. none of the above.
____ 57. Paul offers Rita $1,000 for her $5,000 computer. Rita knowingly and voluntarily agrees to the offer but
later sues Paul. A court would likely
a. set aside the agreement as unfair.
b. set aside the agreement because the consideration is inadequate.
c. not question the adequacy of the consideration.
d. consider such a suit to be frivolous.
____ 58. Mary promises to pay her assistant Ned $10,000 in consideration of the services he provided over the
years. Mary never pays Ned. Mary is
a. liable for payment of the $10,000.
b. liable only if Ned still works for Mary.
c. not liable, because the consideration is in the past.
d. not liable, because the consideration was unintentional.
____ 59. Ann is injured in an accident caused by Bob. Bob agrees to pay Ann $2,500 if she agrees to release Bob
from further liability. Ann agrees. If Ann's damages ultimately exceed $2,500, Ann can
12
a.
b.
c.
d.
collect the balance from Bob in a breach-of-contract suit.

collect the balance from Bob in a tort suit.
collect the balance from Bob on the ground of unforeseen difficulties.
not collect the balance from Bob.
____ 60. After an accident with a driver for General Transport Company (GTC), Paul signs a covenant not to sue
GTC for damages in a tort action if it pays for the damage to his car. This covenant
a. bars recovery only if GTC pays.
b. is an illusory contract.
c. is barred by the preexisting duty rule.
d. is unconscionable.
____ 61. Betty pledges to donate $1,000 to the Children's Hospital. On the basis of the pledge, the hospital
orders additional equipment. Betty reneges on the pledge. The hospital sues Betty. If the court enforces
the pledge, it will be
____ 62. Jill agrees to build a warehouse for Ken and orders supplies from Larry for the job. Ken promises Larry
that Ken guarantees payment for the supplies. Ken's promise is
a. enforceable only if it is in writing.
b. enforceable only if it is oral.
c. enforceable whether it is oral or in writing.
d. not enforceable.
____ 63. AAA Loans, Inc. is one of Beta Business Corporation's creditors. AAA guarantees Beta's debt to City
Bank to forestall litigation. To be enforceable, this guarantee must be in writing
a. to allow Beta to stay in business and pay AAA and City Bank.
b. to allow Beta to stay in business and pay AAA only.
c. to allow Beta to stay in business and pay City Bank only.
____ 64. When an actual contract exists:
a. The doctrine of Quasi Contract cannot c. detrimental reliance can be used
be used
b. The doctrine of Quasi Contract can be d. estoppel may be used
used
____ 65. Professor Islers favorite music is:
a. Latin Jazz
b. Jazz
13
c. Hip Hop
d. Bachata
____ 66. Till the cops come Knocking was performed by:
a. Snoop Dogg
d. Mr. Fenechs favorite group- The
Beach Boys
b. Dr. Dre
e. Johnny Padilla
c. Maxwell
____ 67. Where was Professor Isler over the Presidents Day Holiday last February?
a. In Las Vegas at the NBA All-Star
c. In Carmel
Game
b. In Florida at the Daytona 500
d. In Phoenix
____ 68. The singer that was found guilty of statutory rape for having sex with an under aged minor was:
a. Tony Orlando
c. Earl Scheib
b. Eddie Kenderson
d. Johnny Paycheck
____ 69. Believe it or not Professor Isler loves a broad range of music. In fact his favorite song in 2006 was:
a. I Know You See It by Yung Joc
c. Too Little Too Late by Jojo
b. What Hurts The Most by Rascal
d. I Want To Love You by Akon
Flatts
____ 70. When I think of this class I think:
a. of a walk on a sandy beach with Eva
Mendes
b. of breaking my foot off in your......
c. of You Better Be Ready by Yung MC

d. Of a song called Ay Ven by
Anthony Santos
____ 71. All evidence obtained in violation of the constitutional rights spelled out in the Fourth, Fifth, and Sixth
Amendments normally is not admissible at trial. All evidence derived from the illegally obtained
evidence is known as the fruit of the poisonous tree, and such evidence normally cannot be used in
the trial proceedings. For example, if a confession is obtained after an illegal arrest, the arrest is the
poisonous tree and the confession, if tainted by the arrest, is the fruit.
The above statement is:
a. Incorrect with respect to the
poisonous tree portion.
b. Incorrect with respect to the fruit
portion.
14
c. Correct and is called the

Exclusionary Rule.
d. Correct and called The Miranda Tree
Doctrine.
____ 72. Anthony, who is a convicted felon, was threatened by an acquaintance Pee Wee Herman with a gun.
Anthony, who was afraid and started crying, grabbed the gun and fled the scene, but subsequently he
was arrested under a statute that prohibits convicted felons from possessing firearms.
In this situation Anthonys best defense is:
a. There was no actus reus
c. Necessity
b. Mistake
d. Justifiable use of force
____ 73. Little Billy, who is seven years of age carried a loaded gun to school and shot Rachel, who was
eighteen, with a gun.
What crime can Little Billy be charged with?
a. First Degree Murder
c. None
b. Second Degree Murder
d. Assault With A Deadly Weapon
____ 74. Patents, copyrights, trademarks and trade secrets are all:
a. property rights covered by the Statute c. personal property
of Fraud
b. Real property
d. intellectual property
____ 75. In the Bible, specifically in the Book of Acts, the inhabitants of Malta were called "barbaroi" meaning
that they did not speak a civilized tongue. Obviously this is not true of all people from Malta but sadly
we know this to be true with respect to a certain person from Malta who is in this very class. At this
point there is no need to mention this truculent, somewhat jealous malicious malcontent posing as a
student by name, but I can tell you that his girlfriend Tiffany calls him the Maltese Minute. I wonder
why! We shall call him MM for short
Anyway, one day MM left his apartment in the projects in his freshly painted 1972 purple Ford Pinto
(the one with eight inch rims) to repair cracks at Tiffanys house and also repair other things that were
broken. It turns out that there were many cracks to be fixed. MM wanted to repair the cracks but didnt
know how. He asked Tiffany who suggested that he ask a real pro. MM called up Professor Isler who
advised MM to fill the cracks with caulk. MM had no idea how to do this so the Professor said Use
your caulk gun. Armed with his new-found knowledge MM announced to Tiffany Im going to repair
the cracks by filling them with caulk. Tiffany said how are you going to do that? MM said with my
caulk gun. Tiffany said Come on now, Bobette, and I both know that you dont know how to fill a
crack with caulk. Ill tell you what; do something your good at. Go in the kitchen and make us some
dinner while you do my laundry. MM said ok.
15
By the way, in determining whether a contract has been formed we look at intent based on:
a. The parties personal subjective intent

b. The facts and circumstances after the
contract was formed
c. the objective theory of contracts
d. The facts and circumstances before the

contract was formed
e. I dont know but I hope you-knowwho continues to call you Farmer John
so you can fry him again on the final!
Do not place your names on the Scantron, Student ID Numbers only.
16
Business Law Midterm Spring 2007

Answer Section
TRUE/FALSE
1. ANS: F
This situation involves a contract for a sale of land, which in most circumstances must be in writing to
be enforceable. In this case, however, the buyer has paid part of the price, taken possession, and made
permanent improvements (planted trees), and arguably the parties cannot be returned to their precontract status quo. A court would therefore grant the remedy of specific performance to the buyer.
Whether a court would enforce this oral contract would be determined by the degree of injury that the
court perceived would be suffered if the court did not enforce it. Being homeless is a serious
consequence.
2. ANS: F
The reverse is true. Civil law spells out the rights and duties that exist between persons and their
governments and the relief available when a persons rights are violated. Criminal law, in contrast, is
concerned with wrongs committed against the public as a whole.
3. ANS: T
4. ANS: F
5. ANS: F
6. ANS: F
7. ANS: F
8. ANS: F
9. ANS: F
10. ANS: T
11. ANS: T
12. ANS: F
13. ANS: T
14. ANS: F
15. ANS: T
16. ANS: F
17
17. ANS: F
MULTIPLE CHOICE
18. ANS: B
Any contract, which by its terms is incapable of being performed within one year, is falls within the
Statute of Frauds. If there is any possibility, no matter how statistically remote, no matter how
improbable, that the contract obligations could be performed within a year, then the subject matter was
never within the Statute of Frauds, though in actual experience it takes fifty years to carry out the terms
of the bargain. Here, Cookie might die before attaining her fourth birthday and although the mortality
table suggest that the chance of that happening are small, there is a statistical chance that Shoeless Joe
could fully perform on that promise within a year and Shoeless Joe would be bound to make the
payment even as Cookie is qualifying for Social Security.
19. ANS: C
20. ANS: D
21. ANS: D
This example is on page 31 of your text.
22. ANS: D
23. ANS: D
24. ANS: C
25. ANS: C
26. ANS: B
27. ANS: C
28. ANS: A
29. ANS: B
30. ANS: A
31. ANS: D
32. ANS: B
33. ANS: A
34. ANS: B
18
NOT: Neither nonbinding arbitration or mediation are binding.
35. ANS: B
36. ANS: C
37. ANS: B
38. ANS: C
39. ANS: B
40. ANS: A
41. ANS: B
42. ANS: A
43. ANS: C
44. ANS: B
45. ANS: C
46. ANS: A
47. ANS: B
48. ANS: A
49. ANS: D
50. ANS: D
51. ANS: D
52. ANS: D
53. ANS: B
54. ANS: A
55. ANS: A
56. ANS: D
57. ANS: C
58. ANS: C
19
59. ANS: D
60. ANS: A
61. ANS: D
62. ANS: C
63. ANS: D
64. ANS: A
65. ANS: D
NOT: I mentioned this on 3/22
66. ANS: C
NOT: I mentioned this many times. If you got it incorrect, slap yourself!
67. ANS: B
68. ANS: D
NOT: I discussed this when I talked about strict liability with respect to crimes
69. ANS: B
NOT: Believe it or not this was my favorite song last year
70. ANS: D
NOT: 3/22 Lecture
71. ANS: CA
72. ANS: C
NOT: I gave this very example in class.
73. ANS: C
NOT: Billy cannot form mens rea
74. ANS: D
75. ANS: C
20
Business Law for the Entrepreneur and Manager

By Frank J. Cavico and Bahaudin G. Mujtaba
International ILEAD Academy (2008)
Objective Questions (True and False) by Chapter with Answers
Chapter 1 Introduction to Law and Legal Reasoning, Constitutional Law, and
ADR
1. _____ The stability and predictability in the law created by the doctrine of stare
decisis and the system of precedents are essential to business activities. (T)
2. _____ A state supreme court decision that conflicts with the U.S. Constitution
will prevail since the states originally formed the United States. (F)
3. _____ Uniform business laws apply in all states in the United States,
including those states where the laws were originally adopted. (F)
4. _____ Common law is a term for law that is common throughout the world in
all major legal systems. (F)
5. _____ Money damages is the normal remedy at law today. (T)
6. _____ Equitable remedies include injunctions and decrees of specific
performance. (T)
7. _____ Judges use precedent when deciding a case in a common law legal
system. (T)
8. _____ Courts do not ever depart from precedents in the United States since
precedents are the heart of the common law system. (F)
9. _____ Alternative dispute resolution refers to methods for resolving a dispute
outside the traditional court system. (T)
10. _____ An arbitrator can never render a legally binding decision since
arbitrators are not traditional judges. (F)
11. _____ Most online dispute resolution services automatically apply the laws of
Switzerland since that country is well known as a neutral forum and also has
high-tech centers. (F)
12. _____ The time and costs of a lawsuit are usually not significant concerns to a
business person doing business in the United States since most businesses
have in-house counsel. (F)
13. _____ A federal form of government is one in which sovereign power is
vested entirely in a central governing authority. (F)
14. _____ The federal government in the U.S. retains all powers not specifically
delegated to the states. (F)
15. _____ The state governments in the U.S. retain all powers not specifically
delegated to the federal government. (T)
16. _____ The federal government in the U.S. cannot regulate commerce within a
state, even if the commerce concerns more than one state, since states existed
before the federal government. (F)
17. _____ The U.S. Constitution expressly prohibits state regulation of commerce.
(F)
18. _____ When state regulations in the U.S. impinge on interstate commerce,
commerce must yield to the state regulations, no matter how heavy the burden
placed on the commerce, since states have the right to control activities within
their border. (F)
19. _____ When there is a direct conflict between a federal and state law in the
U.S., the state law is rendered invalid. (T)
20. _____ Some constitution protections in the U.S. apply to business entities
such as corporations. (T)
21. _____ The Bill of Rights in the U.S. Constitution confers absolute rights, not
subject to interpretation by the U.S. Supreme Court. (F)
22. _____ Political speech that would otherwise be protected by the U.S.
Constitutions First Amendment loses that protection if its source is a
corporation since many corporations are big and powerful. (F)
23. _____ The First Amendment to the U.S. Constitution does not protect
commercial speech as extensively as it does political speech. (T)
24. _____ A government law in the U.S. that restricts a fundamental right will be
held to violate substantive due process unless it promotes a compelling or
overriding state interest. (T)
25. _____ Any law that distinguishes between or among individuals violates the
Equal Protection Clause to the U.S. Constitution since discrimination in any
form is wrong. (F)
26. _____ There is no specific guarantee of a right to privacy in the U.S.
Constitution. (T)
27. _____ Generally, a state court can exercise jurisdiction over anyone within the
boundaries of the state. (T)
28. _____ Generally, a state court can exercise jurisdiction over a nonresident by
showing that he or she had minimum contacts with the state. (T)
29. _____ Any lawsuit involving a federal question can originate in a federal
court. (T)
30. _____ The United States Supreme Court has automatic appellate authority
over all cases decided in the state courts. (F)
31. _____ An answer to a lawsuit can admit to allegations made in a complaint.
(T)
32. _____ Only a plaintiff in a lawsuit can file a motion for judgment on the
pleadings. (F)
33. _____ Only a defendant may file a motion for summary judgment. (F)
34. _____ A summary judgment will be granted when there are genuine issues of
fact in a trial and no questions of law. (F)
35. _____ There is a difference between depositions and interrogatories in the
discovery part to a lawsuit. (T)
36. _____ Voir dire is the process for presenting evidence in a case. (F)
37. _____ Testimony given in court about what someone heard someone else said
is ordinarily not admissible as evidence. (T)
38. _____ An appellate court usually will elect to hear new evidence in a case so
as to develop its own factual record. (F)
39. _____ Most trial court decisions are appealed in the U.S. and are successfully
retried anew in the appellate courts. (F)
40. _____ The incorporation doctrine allows businesses to operate freely and
without restrictions in interstate commerce among the states. (F)
41. ____ Arbitration is rarely used to resolve business disputes. (F)

42. _____ By means of their constitutionally granted police powers, states have
the exclusive authority to regulate all commerce occurring within their states.
(F)
43. _____ The U.S. legal system guarantees a trial by a jury in all legal
proceedings. (F)
44. _____ The use of alternative dispute resolution is decreasing rapidly in
comparison to traditional court litigation. (F)
45. _____ In civil jury trials, questions of law are definitely resolved by the jury
after receiving guidance from the judge. (F)
46. _____ Arbitration is a process in which the disagreeing parties devise their
own solution to a problem with the help of expert facilitators. (F)
47. _____ A federal form of government is one in which sovereign power is
vested entirely in a central governing authority. (F)
48. _____ The federal government in the U.S. retains all powers not specifically
delegated to the states. (F)
49. _____ The state governments in the U.S. retain all powers not specifically
delegated to the federal government. (T)
50. _____ The federal government in the U.S. cannot regulate commerce within a
state, even if the commerce concerns more than one state, since states existed
before the federal government. (F)
51. _____ The U.S. Constitution expressly excludes all state regulation of
interstate commerce. (F)
52. _____ When state regulations in the U.S. impinge on interstate commerce,
commerce must yield to the regulations, no matter how heavy the burden
placed on the commerce since states have the right to protect their citizens and
residents. (F)
53. _____ When there is a direct conflict between a federal and state law in the
U.S., the state law is rendered invalid. (T)
54. _____ Some constitution protections in the U.S. apply to business entities
such as corporations. (T)
55. _____ The Bill of Rights in the U.S. Constitution confers absolute rights, not
subject to interpretation or limitation by the U.S. Supreme Court. (F)
56. _____ Political speech that would otherwise be protected by the U.S.
Constitutions First Amendment loses that protection if its source is a
corporation. (F)
57. _____ The First Amendment to the U.S. Constitution does not protect
commercial speech as extensively as it does political speech. (T)
58. _____ A government law in the U.S. that restricts a fundamental right will be
held to violate substantive due process unless it promotes a compelling or
overriding state interest. (T)
59. _____ Any law that distinguishes between or among individuals violates the
Equal Protection Clause to the U.S. Constitution since the Declaration of
Independence states that all are created equally. (F)
60. _____ There is no specific guarantee of a right to privacy in the U.S.
Constitution. (T)
61. _____ The incorporation doctrine in the U.S. allows businesses to operate
freely without any state restrictions as long as businesses are operating in
interstate and not intrastate commerce. (F)
62. _____ By means of their constitutionally granted police powers, states in the
U.S. have exclusive authority to regulate commerce within their states. (F)
63. _____ The U.S. federal constitution and most state constitutions provide a
right to privacy which protects all prospective and current employees
including private sector ones from drug testing in the absence of probable
cause. (F)
64. _____ Commercial speech receives greater protection under the U.S.
Constitution than political or religious speech since the U.S. democratic
system is based on capitalism. (F)
65. _____ The Bill of Rights in the federal constitution protects the citizenry
from abuses of power in both the public and private sectors. (F)
66. _____ The Bill of Rights protects only individual interests, not the interests of
corporations or other businesses. (F)
67. _____ Generally speaking, state governments can regulate the context of
speech, but not the content of speech. (T)
68. _____ The Fourth Amendment to the U.S. Constitution prohibits all
warrantless searches. (F)
69. _____ Commercial speech is accorded the same level of constitutional
protection as political speech. (F)
70. _____ Businesses as well as individuals may be protected by the Fourth
Amendment. (T)
71. _____ In order to constitutionally restrict commercial speech, a state must
only show that the speech would produce some harm in that state. (F)
72. _____ The constitutional right to procedural due process generally entitles a
person or business to notice and a fair hearing before the government can
impose a fine or other sanction. (T)
73. _____ Federalism in the U.S. refers to the division of power between the
federal or national government and the states. (T)
74. _____ The First Amendment sets up the executive branch of government. (F)
75. _____ It is likely that a federal constitutional challenge to required drug
testing of employees will be unsuccessful unless the employer is an agency of
the federal or state or local government. (T)
76. _____ The exclusionary rule means that no evidence obtained in violation of
the Fourth Amendment is admissible in a court of law. (F)
77. _____ Title VII of the Civil Rights Act only affects companies doing business
within the U.S. and cannot be used to reach business activities of U.S.
companies doing business outside the U.S. (F)
78. _____ The U.S. Supreme Court has ruled that consideration of race is
permissible for university admissions if necessary for the university to fill a
racial quota of applicants. (F)
79. _____ The individual states generally can regulate areas affecting interstate
commerce as long as the law does not discriminate against and does not
unduly burden interstate commerce. (T)
80. _____ States and the federal government have joint jurisdiction over foreign
commerce, as provided for under the Constitutions commerce clause. (F)
81. _____ The Supremacy Clause, by Supreme Court interpretation, provides that
state and local laws are unconstitutional if they conflict irreconcilably with
federal law. (T)
82. _____ Under the Takings Clause of the Constitution, the government may
take private property for public use, but only with the consent of the property
owner. (F)
83. _____ Under the Commerce Clause, all state restrictions on interstate
commerce are forbidden since the federal Congress in Article I was granted
the power to regulate interstate commerce. (F)
84. _____ If there is a contradiction among a constitutional provision, a state
statute, and an administrative regulation, the administrative regulation prevails
because an administrative agency typically is closer to the people and deals
with people on a daily basis. (F)
85. _____ The First Amendment to the U.S. Constitution sets up the judicial
branch of government. (F)
86. _____ The exclusionary rule in the U.S. holds that evidence obtained in
violation of the Fourth Amendment to the Constitution is generally not
admissible in a court of law. (T)
87. _____ The common law is so called because it is strictly the same in all
states. (F)
88. _____ Stare decisis makes the law less predictable. (F)
89. _____ When there is a case with no binding precedent, a court can refuse to
decide the case since it will have no rules to apply. (F)
90. _____ In most states, courts can grant either equitable or legal remedies. (T)
91. _____ A state law which violates the U.S. Constitution can only be enforced
by the federal government. (F)
92. _____ For a court to exercise valid authority over a case, the court must have
jurisdiction. (T)
93. _____ A long arm statute generally enables a state court to decide certain
claims against out of state residents. (T)
94. _____ The key difference between original and appellate jurisdiction lies in
whether a case is heard for the first time. (T)
95. _____ The Supreme Court of the United States was established by
congressional legislation. (F)
96. _____ Appellate courts can review the records of cases to determine if a lower
court made an error as to the law. (T)
97. _____ The federal court system is composed of trial and appellate courts and a
supreme court as well as specialized courts. (T)
98. _____ The United States Supreme Court justices are appointed by the attorney
general and then approved by the Justice Department. (F)
99. _____ Federal courts characteristically have exclusive jurisdiction in cases
involving patents and copyrights. (T)
100. _____ The U.S. Supreme Court may review a lower court decision that
held that a state law was unconstitutional on federal constitutional grounds.
(T)
101. _____ An arbitration clause in a contract usually requires that any disputes
arising under the agreement be resolved by binding arbitration. (T)
102. _____ If there is no precedent upon which a court can base a decision, the
court can refer to past cases which are somewhat similar to the case at issue.
(T)
103. _____ A remedy, generally speaking, is a means given to a party to
compensate for the violation of a right. (T)
104. _____ For a court to take any binding action, it ordinarily must have
jurisdiction over the person and subject matter before the court. (T)
105. _____ The difference between general and special jurisdiction lies in
whether a case is being heard for the first time. (F)
106.
_____ A state court system can include a supreme court. (T)
107.
_____ Federal trial courts are called circuit courts. (F)
108.
_____ Most federal cases originate in the U.S. Claims Court. (F)
109. _____ Federal district court judges are appointed by Congress and
approved by the President. (F)
110. _____ Diversity of citizenship is a basis for the federal district courts to
exercise original jurisdiction. (T)
111. _____ When hearing an appeal from the highest court of a state, the U.S.
Supreme Court can overturn a decision whenever the court concludes that an
error in regard to state law has been made. (F)
112. _____ Mediation is not a method of alternative dispute resolution since
nothing may be resolved pursuant to mediation. (F)
113. _____ When a dispute is brought before the American Arbitration
Association, the case typically is heard by an expert or a panel of neutral
experts. (T)
Chapter 2 Torts and Business
1. _____ Tort law provides legal remedies for both personal injury and property
damages intentionally or negligently caused. (T)
2. _____ To commit an intentional tort, a person typically must either intend the
consequences of his or her act or know with substantial certainty that certain
consequences will occur. (T)
3. _____ To commit an intentional tort, a person must act with an evil motive. (F)
4. _____ A battery occurs only if the victim suffers actual serious physical harm.
(F)
5. _____ One cannot recover damages for severe emotional distress absent a
showing of serious personal injury. (F)
6. _____ An oral defamatory statement must be communicated to a third party to
be actionable but not a written one. (F)
7
_____ An individuals right to privacy under the common law typically

includes the exclusive use of his or her likeness. (T)
8. _____ Legitimate competitive behavior can constitute wrongful interference

with a contractual relationship if ones competitor cannot compete successfully.
(F)
9. _____ Unintentionally causing a party to break a contract with another will
constitute wrongful interference with a contractual relationship. (F)
10. _____ An Internet service provider generally cannot be held liable in tort for
disseminating others defamatory remarks. (T)
11. _____ To determine whether a duty of care has been breached, a judge makes
the determination by asking how the judge would have acted in the same
circumstances. (F)
12. _____ A reasonable and ordinary person standard is the key common law test
to measure a persons conduct to ascertain if it breached the duty of care. (T)
13. _____ The degree of care to be exercised in a situation can vary with a
persons profession or occupation. (T)
14. _____ If a person breaches a duty of care and another person is injured,
causation need not be established due to the original persons carelessness. (F)
15. _____ Punitive damages are intended to punish a wrongdoer and to serve as a
deterrent to potential wrongdoers. (T)
16. _____ In theory and as a matter of physics, causation is in fact limitless. (T)
17. _____ A person assumes all risks associated with any activity he or she
decides to undertake since one does not have to act and by acting one is the
equivalent of an insurer. (F)
18. _____ The assumption of the risk defense does not require knowledge of the
risk. (F)
19. _____ A superseding or efficient cause is an intervening event that usually
imposes liability on a defendant for injuries caused by the intervening event.
(F)
20. _____ Under the doctrine of comparative negligence, both the plaintiffs and
defendants negligence are taken into consideration. (T)
21. _____ The doctrine of res ipsa loquitur typically applies if an event causing
the harm normally does not occur in the absence of negligence. (T)
22. _____ The breach of duty element in the test for negligence in the U.S. is
governed by the reasonably prudent person standard. (T)
23. _____ Negligence is the label applied to legal wrongs that applies when
parties breach contracts and suffer economic losses. (F)
24. _____ The doctrine of res ipsa loquitur permits a court or jury to infer that the
defendant was negligent even though that fact was not conclusively proven.
(T)
25. _____The doctrine of comparative negligence will act as a complete bar to

recovery in a negligence case where the defendant can demonstrate that the
plaintiff contributed in some way to his or her own harm. (F)
26. _____ Proximate cause basically deals with whether the plaintiffs injuries are
sufficiently connected to the defendants careless conduct in order to impose
legal liability on the defendant. (T)
27. _____ To establish a successful negligence action, the plaintiff must first
establish that the defendant owed the plaintiff a duty of care. (T)
28. _____ The basis of all torts is breach of contracts and damages. (F)
29. _____ A person who detains someone for shoplifting may be liable for false
imprisonment if the detainee is held for an unreasonable amount of time
and/or in an unreasonable manner. (T)
30. _____ If a communication is conditionally privileged, to recover damages for
defamation, the plaintiff usually must show that the privilege was abused. (T)
31. _____ The elements of fraud include justifiable or reasonable reliance by the
deceived party on the misrepresentation that results in damages. (T)
32. _____ The reasonable person standard is used in tort actions to determine how
the victim of an intentional tort should have acted under the circumstances.
(F)
33. _____ For the purposes of establishing negligence, there is proximate cause if
there is a connection between the defendants act and the injury, even if it is
remote and unforeseen. (F)
34. _____ Wrongful interference with contractual relations usually requires a
valid, enforceable contract between the parties. (T)
35. _____ The use of one persons name or likeness by another constitutes the
invasion of privacy tort of appropriation if the use is without the others
permission and for the benefit of the user. (T)
36. _____ Defamation can be a business tort when the defamatory matter injures
someone in a business, trade, or profession. (T)
37. _____ When a plaintiff fails to make a reasonable effort to preserve his or her
own welfare, the defendant may claim that the plaintiff was contributorily or
comparatively negligent. (T)
38. _____ Slanderous per se statements include statements that a person has
committed improprieties while engaging in a profession or trade. (T)
39. _____ Libel consists defamatory statements in written form. (T)
40. _____ The reliance by a plaintiff that gives rise to the tort of fraud is normally
based on the expression of an opinion. (F)
41. _____ The elements of fraud include an intent to induce another to rely on the
misrepresentation. (T)
42. _____ For the purposes of establishing negligence, there is causation in fact if
the connection between the defendants act and the plaintiffs injury is
morally sufficient to warrant holding the defendant legally responsible. (F)
43. _____ To be held liable for wrongful interference with a contractual
relationship, a party must have intended to interfere with a contract between
two other parties. (T)
44. _____ The use of ones person name and likeness by another constitutes the
tort of misappropriation only if its use is malicious or motivated by ill will and
spite. (F)
45. _____ When erroneous information in a computer database about a persons
business reputation impairs that persons ability to do business, a defamation
lawsuit usually will result against the manufacturer of the computer. (F)
46. _____ The standard of care used to determine whether a persons actions
constitute negligence is whether the actions were morally appropriate based
on prevailing ethical norms. (F)
47. _____ The duty of care of a manufacturer of a product includes the design of
the product. (T)
Chapter 3 Products Liability
1. _____ Under the doctrine of strict liability, a defendant is liable for the results
of his or her acts only if he or she intended those results. (F)
2. _____ One of the requirements for a suit based on strict liability is a failure to
exercise utmost care. (F)
3. _____ The doctrine of strict liability applies only to abnormally dangerous
activities, such as construction blasting with explosives, but not to products
and goods manufactured and sold to consumers since that would not be fair to
careful manufacturers. (F)
4. _____ To succeed in a products liability lawsuit based on negligence, the

plaintiff must prove that there was a failure to exercise due care by the
manufacturer or seller of the product. (T)
5. _____ One essential requirement for a products liability lawsuit based on
strict liability is clear and convincing evidence of a failure to exercise
reasonable care. (F)
6. _____ To succeed in a products liability lawsuit based on strict liability, the
plaintiff must prove that the product was in a defective condition when the
defendant sold it and that it reached the consumer in this defective condition.
(T)
7. _____ To succeed in a products liability lawsuit based on a design defect, the
plaintiff must show that there was a reasonable and feasible and cost-effective
alternative design available when the product was made. (T)
8. _____ To succeed in a products liability lawsuit based on strict liability, the
plaintiff must be more than a mere injured bystander who was injured
somehow by the product. (F)
9. _____ A product manufacturer is acting illegal if it does not incorporate the
very latest safety features, regardless of cost, since U.S. law puts a premium
on consumer safety. (F)
10. _____ Under strict liability law, a manufacturer may be deemed liable even if
it has exercised all possible care in the making of the product. (T)
11. _____ Product liability law does not encompass strict liability torts. (F)
12. _____ The duty of care of a manufacturer of a product includes warning
potential users of the consequences of unforeseeable product misuses. (T)
13. _____ Strict liability does not require that a product be defective, only that it
causes harm. (F)
14. _____ Misuse or abuse of products can be a defense in a strict liability
lawsuit. (T)
15. _____ Defenses to product liability suits include disregarding instructions. (T)
16. _____ In contrast to actions based on negligence and strict liability, in a suit
based on fraudulent misrepresentation, the plaintiff does not have to show that
the product was defective or that the manufacturer was careless in any way.
(T)
17. _____ The doctrine of strict liability generally applies to products without
adequate warnings of risks of use. (T)
18. _____ Strict liability can be imposed for defects in the design or construction
of motor vehicles that increase the extent of injuries to passengers if an
accident occurs. (T)
19. _____ Holding manufacturers and sellers strictly liable for the costs of injuries
to consumers from defective and harmful products is based on a policy that
manufacturing and selling are unscrupulous, money-grubbing, profitaggrandizement activities. (F)
20. _____ A retailer can be held liable pursuant to the doctrine of strict liability
for selling a defectively designed product produced by a manufacturer even if
the retailer was not negligent in any way in the creation and sale of the
product. (T)
Chapter 4 Contracts
1. _____ All promises are legally binding contracts. (F)
2. _____ The common law governs all types of agreements without exception.
(F)
3. _____ A contract is an agreement between two or more parties that can be
enforced in court. (T)
4. _____ Pursuant to the objective theory of contracts, the intention to enter into
a contract is determined by objective facts that are interpreted by the
reasonable prudent person standard. (T)
5. _____ The agreement component of a contract consists of an offer and an
acceptance. (T)
6. _____ The offeree is the person who makes an offer. (F)
7. _____ A void contract is enforceable if it is in writing. (F)
8. _____ A contract can be created only when it is accepted by the offerees full
performance. (F)
9. _____ A unilateral contract is usually formed when the one receiving the offer
fully completes the requested act or performance. (T)
10. _____ Offers may not be legally revoked before they are accepted since it
would be unethical to do so. (F)
11. _____ An express contract must be in a writing prepared by an attorney and
affixed with a seal. (F)
12. _____ Parties can form a contract without putting the terms in writing. (T)
13. _____ An executed contract is one that has been fully performed by all the
parties to the contract. (T)
14. _____ A voidable contract is a valid contract but one that can still be
disaffirmed and avoided by at least one of the parties to it. (T)
15. ____ A quasi-contract has no legal efficacy since it is a pretend contract. (F)
16. _____ Pursuant to the common law mirror-image rule, an offer must be
accepted in its entirety without modification or condition or else no contract
can be formed. (T)
17. _____ An advertisement is generally treated as an offer to enter into a contract
pursuant to U.S. law. (F)
18. _____ An invitation to negotiate usually will be construed as constituting an
offer to enter into a contract. (F)
19. _____ An offer ordinarily does not need to be communicated to the offeree to
be effective. (F)
20. _____ An agreement usually consists of an offer and a counteroffer. (F)
21. _____ In most states in the U.S., the revocation of a contract is not legally
effective until it is actually received by the offeree. (F)
22. _____ To exercise the power of acceptance, the common law requires an
offeree to accept the offerors offer unconditionally and unequivocally. (T)
23. _____ The death of a party to a contract will always result in the automatic
termination of that contract. (F)
24. _____ The common law mirror image rule requires an acceptance to adhere
exactly to the terms of the offer. (T)
25. _____ A counteroffer under the common law does not terminate an offer, but
rather continues it. (F)
26. _____ The offerees rejection of an offer usually terminates it forever. (T)
27. _____ An offeror can revoke an option contract if the offeror decides that the
consideration given for it was inadequate. (F)
28. _____ Revocation of an offer made to the general public must be
communicated in the same manner as the original offer was communicated.
(T)
29. _____ There is no such thing as an irrevocable offer. (F)
30. _____ A person who does not know of a reward offer cannot claim it. (F)
31. _____ For consideration to be legally sufficient, it does not have to consist of
money or goods. (T)
32. _____ A promise by one party to pay another for refraining from performing a
legal act can be enforceable. (T)
33. _____ Normally, a court in the U.S. applying the common law of contract will
not question the adequacy of consideration to ascertain if it is legally
sufficient. (T)
34. _____ The pre-existing rule of common law contracts allows a party who is
bound by a prior contract to perform a duty to use that same duty as
consideration for a second contract. (F)
35. _____ The parties to a contract can mutually rescind a contract unless it is
executory. (F)
36. _____ A later promise to do what one already has a legal duty to do is legally
sufficient consideration. (F)
37. _____ A promise to pay for an act that has already occurred is enforceable.
(F)
38. _____ A contract that one party retains the exclusive right to cancel at any
time with no notice is unenforceable. (T)
39. _____ When both parties to a contract are minors, neither of them can
disaffirm the contract since they are at the same level. (F)
40. _____ A minors right to disaffirm a contract terminates automatically when
the minor exactly reaches the age of majority. (F)
41. _____ Disaffirmance is term to indicate the legal avoidance of a contractual

obligation. (T)
42. _____ When a statute protects a certain class of people, a member of that class
cannot enforce an otherwise illegal contract. (F)
43. _____ A covenant not to compete that is part of an employment contract will
be held invalid in most states of the U.S. since it restrains competition and can
cause hardship to employees. (F)
44. _____ A covenant not to compete between ongoing businesses is always
enforceable since they are at the same level. (F)
45. _____ If the purpose of a licensing statute is to raise government revenues, a
contract with an unlicensed professional will normally be enforceable against
the professional. (T)
46. _____ Damages under contract law are designed primarily to compensate an
aggrieved, nonbreaching party for his or her loss of the bargain. (T)
47. _____ Specific performance is the remedy customarily used when one party
has breached a contract for the sale of goods. (F)
48. _____ When an employer breaches an employment contract, the aggrieved
employee is under no legal obligation to find another job but can sit back and
plan his or her legal strategy. (F)
49. _____ Consequential damages are awarded in breach of contract cases to
cover all the damages, even if remote, that resulted from the original wrongful
breach of contract. (F)
50. _____ A condition subsequent clause in a contract will require that the
condition must be met before a partys performance can be continued or
otherwise the contract is null and void. (T)
51. _____ Despite deviations from the specifications of a construction contract, a
builder can be considered to have substantially performed the contract so long
as no bad faith was present. (T)
52. _____ The formation of a contract whose performance will discharge a
previous contract is called a novation. (T)
53. _____ When both parties to a contract are mistaken as to the same material
fact, such as the identity of the subject matter, neither party can rescind the
contract. (F)
54. _____ A contract is always enforceable even if one party is aware the other
party made a mistake. (F)
55. _____ Mistakes in judgment by contract parties as to the value or quality of
the subject matter of a contract usually will permit one party to avoid the
contract. (F)
56. _____ A statement of opinion is usually subject to a lawsuit for fraud if the
opinion turns out to be a wrong one. (F)
57. _____ Reliance on a non-experts statement of an erroneous prediction will
not ordinarily entitle a party to relief. (T)
58. _____ One of the elements of a fraudulent misrepresentation lawsuit is
evidence of intent to deceive. (T)
59. _____ A sellers failure to volunteer certain pertinent information about a
product for sale will usually not give rise to an action for fraud. (T)
60. _____ Pursuant to the Statute of Frauds in the U.S., a contract that is not in
writing is void and a nullity. (F)
61. _____ A contract for a transfer of an interest in land must be in writing to be
enforceable. (T)
62. _____ A contract that by its own terms cannot be performed within a year
must be in writing to be enforceable under the Statute of Frauds. (T)
63. _____ To be enforceable, a contract in the U.S. for the sale of goods priced
$500 or more must be in writing. (T)
64. _____ A partys oral agreement to pay anothers debt is always enforceable
since the law puts a premium on the repayment of debts. (F)
65. _____ All collateral or secondary promises to pay the debts of another party
must be in writing to be enforceable. (F)
66. _____ A party to a contract generally may transfer his or her contract rights to
another party. (T)
67. _____ The rights of a contract for personal service normally can be assigned.
(F)
68. _____ A contract that contains a clause prohibiting its assignment always will
prevent it from being assigned since the parties intent is clear. (F)
69. _____ An incidental beneficiary of a contract can sue directly to enforce a

promisees promise. (F)
70. _____ A donee beneficiary can never sue to enforce the promise of a promisor
in the original contract since gifts can always be revoked. (F)
71. _____ A creditor beneficiary can sue directly to enforce a promisors promise
made in an original contract. (T)
72. _____ Generally, a contract party cannot delegate his or her contract duties.
(F)
73. _____ An assignment is effective only after notice of the assignment has been
given to the obligor. (F)
74. _____ Generally, under the common law, silence does not constitute fraud and
thus there is no duty to disclose. (T)
75. _____ A promise cannot create a moral obligation without being legally
enforceable. (F)
76. _____ Contract law is uniform among the states due to its preemption by
federal statute in the U.S. (F)
77. _____ Any promises made by the parties unless they are close relations or
friends must be supported by legally sufficient and bargained-for
consideration. (F)
78. _____ In deciding whether a valid contract was formed, the courts generally
will not look at the subjective beliefs of the contract parties. (T)
79. _____ A party who makes a promise is the promisee. (F)
80. _____ In a unilateral contract offer situation, the offer typically cannot be
revoked if both contract parties promise to perform. (F)
81. _____ Usually, quasi-contracts are imposed by a court when the amount of
money at issue is less than $100. (F)
82. _____ The expectation by a party that he or she will be paid for performing
some service because it is the fair thing to do is alone sufficient for an implied
contract. (F)
83. _____ Under the plain meaning rule, the meaning of a contract must
initially and mainly be determined by reference to the face of the instrument.
(T)
84. _____ The primary purpose of the common law rules of contract
interpretation is to give effect to the contracts law of Article I, Section 10, of
the U.S. Constitution. (F)
85. _____ For an agreement to serve as the basis for a binding contract, there
characteristically must be an acceptance of an offer. (T)
86. _____ Statements of intention to commence negotiations usually will be
construed as offers. (F)
87. _____ The intent of the offeror to extend a serious offer to the offeree
typically is determined by reference to the assumptions of the offeror. (F)
88. _____ Under the Parole Evidence rule, contracts normally cannot be modified
by evidence of prior agreements even if in writing. (T)
89. _____ Option contracts are irrevocable if the consideration is only a token
sum. (F)
90. _____ The concept of reasonable and detrimental reliance on a promise is
known as unequivocal acceptance. (F)
91. _____ If no time for acceptance is specified in the offer, then the offer will
terminate within 60 business days according to state statute. (F)
92. _____ Performance that is legally sufficient detriment for consideration may
consist of forbearance from a legal act. (T)
93. _____ The courts generally will not evaluate the adequacy of consideration in
an agreed-on exchange unless the consideration is in the form of a service by a
working person. (F)
94. _____ Under the common law, an agreement modifying a contract usually
requires new consideration. (T)
95. _____ A promise based on past consideration generally is unenforceable
under the common law since consideration must be a bargained for exchange.
(T)
96. _____ An illusory contract is unenforceable by either party because it is not
really supported by consideration. (T)
97. _____ A promise to pay a debt barred by a statute of limitations always will
require new consideration to revive the obligation. (F)
98. _____ Minors who misrepresent their age are always treated contractually as
adults since they must be sanctioned by lying. (F)
99. _____ A minors right to disaffirm a contract is absolutely dependent on the
minor paying for the reasonable value of the goods acquired or services
rendered since to hold otherwise would be unfair to an adult merchant. (F)
100. _____ Transportation in the form of an SUV vehicle normally would not
be viewed as a necessary in a minors contract. (T)
101. _____ A contract entered into by an intoxicated person who is otherwise
mentally competent is always considered to be void since alcohol obviously
can impair ones judgment. (F)
102. _____ A unilateral mistake affording relief ordinarily occurs when a
contract party makes a mistake about the value of the subject matter of the
contract. (F)
103. _____ Failure to disclose a material fact constitutes fraud in any
transaction since to hold otherwise would be unfair to ignorant party. (F)
104. _____ In contracts induced by fraud, the innocent party can sue for
damages only but must still perform the contract since it was agreed to. (F)
105. _____ The use of exaggeration and hyperbole by a seller to persuade a
buyer to enter into a contract usually will be considered duress or at least
undue influence. (F)
106. _____ If a transaction involves an innocent misrepresentation, then the
injured party has no legal recourse. (F)
107. _____ Economic need generally is inadequate to constitute duress unless
the party exacting the very high price also created the need. (T)
108. _____ A covenant not to compete in the sale of a business will be enforced
but only if it does not unreasonably impair the ability of the covenantor to
make a good living for his or her family. (F)
109. _____ A contract that requires the performance of an act prohibited by the
law is voidable at the option of either party. (F)
110. _____ The Statute of Frauds requires that all contracts must be in writing
in order to be enforceable unless two witnesses are present and attest the
contract. (F)
111. _____ The writing evidencing a contract must include a quantity term to
the contract unless the parties agree to decide later on the quantity involved.
(F)
112. _____ An exception to the parole evidence rule includes evidence of
subsequent modification of a written contract. (T)
113. _____ A contract involving personal services is assignable under most
circumstances. (F)
114. _____ A contract that expressly prohibits any transfer of rights may
nevertheless still be assigned if the assignment involves the right to receive
money. (T)
115. _____ A contract ordinarily may not be delegated when performance
depends on the personal skills or talents of the obligor. (T)
116. _____ When X assigns her right to payment of a loan to Y, Y is an
incidental beneficiary. (F)
117. _____ In exchange for benefits under a contract, a donee beneficiary
usually gives consideration. (F)
118. _____ An assignee does not have any rights under a contract since he or
she was not even a party to the original contract. (F)
119. _____ An incidental beneficiary may enforce the contract against either of
the contracting parties. (F)
120. _____ A condition precedent is a type of conditional clause in a contract
that is used to determine whether a contract partys duty of performance
arises. (T)
121. _____ Complete performance still can occur when a partys performance
is slightly below reasonable contract expectations but the party made a good
faith effort to perform. (T)
122. _____ An accord is an executory contract to perform an act to satisfy an
existing contract duty. (T)
123. _____ Statutes of Limitation restrict the extent to which unfair consumer
contracts can be enforced. (F)
124. _____ Compensatory damages typically are assessed against the breaching
party to penalize that party for intentionally failing to carry out its contractual
obligations and to act as a deterrent to other potential purposeful breaching

parties. (F)
125. _____ Punitive damages are not typically awarded in breach of contract
actions because the law generally only compensates the nonbreaching party
for the loss of the bargain and attempts to make him or her whole. (T)
126. _____ Liquidated damage provisions in contracts may be enforceable even
if the actual damages are less than the specified liquidated damage amount.
(T)
127. _____ Fraud will provide a basis for rescission of a contract by the
innocent aggrieved party. (T)
128. _____Specific performance is a very appropriate remedy for enabling a
buyer in a breached real estate contract to recover the benefit of his or her
bargain. (T)
129. _____ When a party seeks to recover in quasi-contract, he or she must
show that the other partys conduct indicated acceptance of agreement. (F)
130. _____ An action to cancel a contract and to return the parties to the
positions that they held prior to the contract formation is called specific
performance. (F)
131.
_____ The remedy of rescission undoes a contractual agreement. (T)
132. _____ Contract law exists to demonstrate to what extent society ethically
allows people to make promises that are morally binding. (F)
133. _____A social promise is never enforceable under modern contract law
since no business relations are involved. (F)
134. _____ Defenses to the formation or enforcement of a contract now
typically include the lack of a formal seal. (F)
135. _____ The apparent intent to enter into a contract is determined by
reference to the objective theory of contracts. (T)
136.
_____ An offeror is also always the promisor. (F)
137. _____A bilateral contract is created when one party gives a promise in
return for the requested performance of an act by the other party. (F)
138. _____ In an implied contract, the conduct of the parties is examined to

determine whether they intended to form a contract and to ascertain the terms
of the contract. (T)
139. _____ Express contracts do not arise from mutual agreement, but are
imposed by a court in order to prevent unjust enrichment. (F)
140. _____ Under a voidable contract, either one or both contract parties may
be able to legally disaffirm or avoid the contract. (T)
141. _____ When ambiguities appear in a contract, they will be construed
against the party with greater economic bargaining power. (F)
142. _____To clarify the meaning of an ambiguously worded contract, a court
ordinarily may admit evidence of the course of dealings of the parties. (T)
143. _____When considering custom and usage, in interpreting a contract, a
court usually will look at what is common in the particular business and
industry. (T)
144. _____Under the objective theory of contracts, a partys words and conduct
are held to mean whatever the offeror subjectively intended them to mean. (F)
145. _____ Advertisements generally are not offers to contract, but invitations
to make offers to merchants. (T)
146. _____A poster that advertises a reward for the return of a lost dog is never
a real offer because it is not directed to a specific individual known to the
offeror. (F)
147. _____The offeree has the power to revoke an offer before it is accepted.
(F)
148. _____ If no time is specified for the holder of an option to exercise it, the
option expires after 30 calendar days based on common law precedent. (F)
149.
_____An offer is terminated automatically by the death of the offeror. (T)
150. _____Under the traditional view of a unilateral contract offer, acceptance

is not complete until the act has been fully performed by the offeree. (T)
151. _____The bargained for exchange element necessary to form a binding
contract is found if the detriment of the promisee induces the promisors
promise. (F)
152. _____Inadequate consideration may be found by the operation of the preexisting duty rule. (T)
153. _____ If two parties rescind their initial agreement and enter into a new
agreement at the same time, most courts will apply the pre-existing duty rule
and refuse to enforce the new promises. (F)
154. _____A promise made with respect to an event that has already taken
place is unenforceable unless it is supported by a strong moral obligation. (F)
155. _____ The doctrine of promissory estoppel involves a promisors
justifiable refusal to fulfill a promise. (F)
156. _____In most states, a minor is one who is under the age of twenty-one.
(F)
157. _____Under some circumstances, a minor can disaffirm a contract for a
car. (T)
158. _____Most states that allow a person to disaffirm a contract made while
intoxicated do not require that full restitution be made to the innocent
disaffirming party. (F)
159. _____Mentally incompetent persons not so adjudged by a court never may
enter into even a voidable contract. (F)
160. _____Failure to disclose a material fact constitutes fraud if the amount of
consideration received is grossly inadequate. (F)
161.
_____ Scienter, that is, bad intent, is not an element of fraud (deceit). (F)
162. _____ In a fraudulent contract transaction, the innocent party may rescind
the contract, but typically will not be able to recover any money damages. (F)
163. _____The use of threats of physical harm to force a party to enter into a
contract is known as duress. (T)
164. _____A contract with an unlicensed lawyer by which the lawyer agrees to
represent the client in court is not enforceable by the lawyer unless the lawyer
is successful. (F)
165. _____ A contract that contains an exculpatory clause releasing one of the
parties from any liability for negligent or wrongful behavior is generally
unenforceable as a matter of public policy. (T)
166. _____ A contract that requires the performance of an illegal act is voidable
at the option of the victim. (F)
167. _____Usury laws generally are enacted to establish a minimum rate of
interest that may be charged for a loan. (T)
168. _____The main purpose or benefit to promisor exception to Statute of
Frauds bars the enforcement of any oral promise by a person to pay the debt
of another. (F)
169. _____The Statute of Frauds requires that all contracts must be evidenced
by a formal written contract prepared by a licensed attorney. (F)
170. _____To satisfy the requirement of a writing, the Statute of Frauds
generally requires the signature of the party against whom enforcement is
sought. (T)
171. _____Gratuitous assignments can be revoked by the subsequent
assignment of the same right to another party. (T)
172. _____A contract may not be assigned when the contract is uniquely
personal in nature. (F)
173. _____Intended third party beneficiaries of contracts must give
consideration for their contracts rights. (F)
174. ____Most creditor beneficiaries are only incidentally related to the
original contract. (F)
175. _____A delegation typically relieves the delegator of any further contract
duties. (F)
176. _____A contract may be discharged by frustration of purpose, even
though performance is still technically possible. (T)
177. _____A duty to perform a contract may be discharged by the occurrence
of a condition subsequent. (T)
178. _____The legal effect of an accord is to discharge the duty to perform the
original contractual obligation. (F)
179. _____To discharge contractual obligations, one method is to demonstrate
that it unexpectedly would take longer and be more costly to perform. (F)
180. _____Specific performance may be available as a contract remedy when
the subject matter of the contract involves personal services. (F)
181. _____Compensatory damages are typically assessed against the contract

breaching party to compensate the nonbreaching party for emotional distress.
(F)
182. _____Generally, when a contract is breached, punitive damages are
recoverable if the breaching party intentionally breached the contract in order
to secure a better deal elsewhere. (F)
183. _____When a court awards nominal damages in a case, it generally will
not specify whether a particular party has prevailed since the amount is a
token one. (F)
184. _____To be enforceable, a liquidated damage clause must represent a
reasonable estimate of the amount of damages that would result from a breach
of contract and not be a penalty. (T)
185. _____Restitution refers to the recapture of a benefit conferred on a
contracting party through which the party has been unjustly enriched. (T)
186. _____Specific performance would be a most useful remedy if the subject
matter of a breached contract involved a famous painting. (T)
187. _____A contract which includes a provision excluding liability as a result
of fraud is not enforceable due to the Statute of Frauds. (F)
Chapter 5 Sales Law
1. _____ For an item to be classified as a good pursuant to the Uniform
Commercial Code, it must be intangible. (F)
2. _____ Pursuant to the UCC, an agreement modifying a contract needs no
consideration to be binding. (T)
3. _____ An oral contract for goods over $500 in price that are specially
manufactured for a particular buyer may be enforceable even without a
writing. (T)
4. _____ Pursuant to the Uniform Commercial Code, a merchant who sells one
type of good will be considered a merchant for any other type of good that he
or she sells. (F)
5. _____ If a contract for the sale of goods does not include a price term, it
nonetheless may still be enforceable pursuant to the Uniform Commercial
Code. (T)
6. _____ If a contract for the sales of goods does not include the exact terms for
payment, it will be unenforceable since it is impermissibly vague. (F)
7. _____ When an offer for the sale of goods does not specify a means of
acceptance, the offer can be accepted by any manner reasonable under the
circumstances. (T)
8. _____ A warranty is an assurance by the buyer to the seller that he or she sill
pay valid consideration for a product. (F)
9. _____ Statements of fact regarding a product that are made during the
bargaining process that become part of the basis of the bargain are not express
warranties since they are just factual statements. (F)
10. _____ A seller must use the words warrant or warranty or guaranty in
order to create an express warranty. (F)
11. _____ An implied warranty of merchantability arises in every sale of goods by
a merchant who deals in the kind of goods sold unless it is properly
disclaimed. (T)
12. _____ A seller must provide a written warranty for every sale of consumer
goods pursuant to the UCC. (F)
13. _____ A merchant can disclaim the implied warranty of merchantability. (T)
14. _____ If the seller is not a merchant, then the risk of loss passes to the buyer
on tender of delivery of the goods. (F)
15. _____ If the seller is not a merchant, the seller holds the goods, and the buyer
is to pick them up, then the risk of loss passes to the buyer when the title to
the goods is transferred. (F)
16. _____ If a seller is a merchant, the risk of loss passes to a buyer when the
buyer takes physical possession of the goods. (T)
17. _____ Pursuant to a destination contract, the risk of loss passes to the buyer
when the goods are duly delivered to the carrier. (F)
18. _____ Pursuant to a shipment contract, the risk of loss passes to the buyer
when the seller places conforming goods in the possession of the carrier. (T)
19. _____ A seller who ships nonconforming goods always has the right to cure
the shipment within the contract time for performance. (T)
20. _____ Goods may be rejected only if they are substantially nonconforming
with the terms of the contract. (F)
21. _____ A buyer may reject a sellers goods only if they fail to conform to a
material term of the contract. (F)
22. _____ If the buyer wrongfully refuses to accept goods that conform to a
contract, the seller may sue for breach of contract and recover damages. (T)
23. _____ If the buyer repudiates a contract that has not yet been performed, the
seller cannot sue for damages until the contract date arrives. (F)
24. _____ If the buyer breaches a contract, and the seller sells goods to another
party, the seller cannot recover any loss from the breaching buyer, since the
seller should consider himself or herself fortunate to have found another
buyer. (F)
25. _____ If before time for performance, the buyer clearly and unequivocally
communicates his or her intent not to perform the contract, the seller can
consider the buyer in breach and pursue a contract remedy. (T)
26. _____ A seller can terminate a contract based on commercial impracticality if
increases in the sellers costs threaten to undercut the sellers profits. (F)
27. _____ A mere opinion, even if given by an expert, is only puffing or sales
talk, and therefore can never be classified as a warranty. (F)
28. _____ The implied warranty of merchantability typically can be disclaimed by
such expressions such as sold AS IS. (T)
29. _____ Specially manufactured goods fall within the UCCs definition of
goods. (T)
30. _____ Minerals and timber can never be considered goods under the UCC
since they come from the land. (F)
31. _____ X and Y enter into a U.C.C. contract that does not specify the payment
terms. Payment will be due at the time and place where the buyer is to receive
the goods. (T)
32. _____ The omission of the price term generally will cause a UCC contract to
be rendered void for vagueness. (F)
33. _____ The mirror image rule relating to offer and acceptance applies only to
merchants under the UCC. (F)
34. _____ In a UCC transaction between merchants, additional proposed contract

terms automatically become part of the contract unless the offeror objects to
the new terms within a reasonable period of time. (T)
35. _____ The parties to a contract for the sale of goods may satisfy the Statute of
Frauds by filing a notice of their oral contract in the public records. (F)
36. _____ Unless an agreement is explicitly made, title of the goods passes to the
buyer at the time and place the seller performs the physical delivery of the
goods. (T)
37. _____ A steals Bs watch and later sells the watch to C. B can recover the
watch from C only if C knew or should have known that the watch was stolen.
(F)
38. _____ A leaves a pair of recently purchased shoes at a shoe store so that they
might be dyed for a wedding. The shoe store in the regular course of business
accidentally sells As shoes to B, who has no knowledge that the shoes belong
to someone else. A can recover from both the shoe store and B. (F)
39. _____ A purchases a bicycle from B, who is a used car dealer. B agrees to
keep the bike at his house until A picks it up. A tree falls on Bs garage and
destroys the bike. The loss is suffered by A. (F)
40. _____ The UCCs good faith requirement may be disclaimed if the disclaimer
is conspicuous and supported by consideration. (F)
41. _____ If the seller can cure an imperfect tender within the time allotted for
performance under the contract, an exception to the perfect tender rule
arises. (T)
42. _____ Adequate assurances may be demanded by a party to a contract when
he or she has not yet paid for goods provided to the other party. (T)
43. _____ S contracts for a sale of restaurant supplies to the Buyer Caf. To
comply with its contract responsibilities under a shipment contract, S must put
the goods in the hands of the carrier and inform the carrier of Buyer Cafs
address. (T)
44. _____ The right of a buyer of goods to reject those goods if they fail to
conform to the contract in any respect is called the assurance and
cooperation rule. (F)
45. _____ Increased cost resulting from inflation probably will not excuse a
supplier from performing a contract on the grounds of commercial
impracticality. (T)
46. _____ A buyer of goods generally is required to inspect any goods he or she
receives. (F)
47. _____ S Engineering contracts for a sale of flight instruments to B Aircraft
Company. S notifies B that regrettably it would not be able to perform the
contract as agreed prior to the date on which performance is due. This is an
example of rescission. (F)
48. _____ A seller can cancel a contract if the buyer wrongfully rejects or revokes
acceptance of conforming goods. (T)
49. _____ S contracts to sell diving equipment to the B Diving Company. S may
bring an action to recover the purchase price and incidental damages if B does
not pay for the equipment and B accepted the goods and does not revoke its
acceptance. (T)
50. _____ When a buyer is forced to cover, he or she can recover from the
breaching seller the cover price minus the contract price as well as
consequential and incidental damages. (T)
51. _____ Consequential damages include any loss suffered by the buyer as a
result of the breach that the seller could have reasonably foreseen at the time
of contracting. (T)
52. _____ B Products Company orders 22 hard-drives from S, Inc. For B to
revoke acceptance of the hard-drives, revocation must occur within a
reasonable time after B accepted the goods. (T)
53. _____ S, a gardening tool merchant, sells a lawnmower to B. Under most
circumstances, S will be presumed to have warranted that he has good title to
the mower. (T)
54. _____ An express warranty may exist in the form of a sample of the goods.
(T)
55. _____ A statement by a seller that his bolts of fabric are the finest money can
buy is very likely an express warranty since the seller is a merchant. (F)
56. _____ Merchantable goods are of average, fair, or medium-grade quality. (T)
57. _____ X goes to a gas station and has the oil in her car changed. The service
technician learns that X plans to take a long trip, and advises the use of a
particular type of oil to which X agrees. The oil breaks down while X is on
her trip, causing damage to her car engine. X may recover from the gas station
for breaching an implied warranty of fitness for a particular purpose. (T)
58. _____ X visits an auto dealer and declares that he will only buy a car that gets
at least 30 miles to a gallon. The salesperson considers Xs statement before
recommending a car that he asserts gets at least 40 miles to the gallon. The
salespersons statement is an implied warranty of merchantability. (F)
59. _____ A buys a hammer at the hardware store without examining it. The clerk
knows, but does not say, that the handle is cracked. Later, A is injured while
using the hammer. In a suit against the store, A will lose because A had a legal
duty to carefully examine the product. (F)
60. _____ S sells B a case of crystal goblets, but B is too busy and refuses to
examine the crystal for defects at the time of the sale. B accepts the crystal
and later discovers an obvious defect. B can now reject the crystal due to the
defects. (F)
61. _____ Article 2 governs the sale of real estate with personal property located
on it. (F)
62. _____ X, the owner of a bicycle store, sells a pre-owned motorcycle to Y. X is
a merchant for purposes of the UCC if he holds himself out by occupation or
training as having knowledge and skill unique to motorcycles. (T)
63. _____ A and B form a contract in which no mention is made of how the goods
are to be delivered. In general, the UCC requires that the delivery take place at
the buyers place of business. (F)
64. _____ A merchants firm offer can be made only to another merchant.(F)
65. _____ X Corporation offers to buy for prompt and immediate shipment from
the X Pencil Company 100,000 pencils for a total of $10,000. Y can accept
the offer by promising to ship the pencils or promptly shipping them. (T)
66. _____A offers to sell B 50 bushels of corn. B responds, I agree to purchase
50 bushels only if the corn is Grade A quality Under these circumstances,
Bs statement can be construed as an acceptance, presuming B is a merchant.
(T)
67. _____The identification of goods to a UCC contract permits the buyer to
obtain insurance on the goods. (T)
68. _____ A contract that requires a seller to deliver goods to the buyers place of
business is a shipment contract.(F)
69. _____A seller has a voidable title if the goods he or she is selling were
obtained by fraud. (T)
70. _____A buys 100 bags of oranges from B Citrus Company. The parties agree
to ship the oranges F.O.B. Destination As restaurant. The oranges rot
while in normal transit. The loss is suffered by the B Citrus Company. (T)
71. _____In order to achieve a bulk transfer effective against the transferors
creditors, the seller first must furnish to the buyer a list of the sellers existing
creditors. (T)
72. _____Under the UCC, when the goods fail to conform to the terms of the
contract, a buyer generally may reject the entire shipment of goods. (T)
73. _____The UCC allows a buyer who has received goods that are
nonconforming in some small way, when the time for performance has
passed, to reject the goods, but only if the buyer honestly believes that the
nonconformity is significant. (F)
74. _____When a shipment of goods is destroyed in transit while being sent to the
buyer, the risk of loss almost invariably falls upon the party who is deemed to
be a merchant. (F)
75. _____ S agrees to sell B 50 bales of cotton, but they fail to specify in the
contract where the goods are to be delivered. If B is expected to pick up the
goods, then the place of delivery is Ss place of business. (T)
76. _____The right of a buyer to reject goods that fail to conform to the contract
is called the mirror image rule. (F)
77. _____Produce Company contracts with W Restaurant to ship 600 heads of
lettuce in three separate equal installments. The first installment arrives and 30
heads of lettuce are rotten. W Restaurant ordinarily may cancel the entire
contract. (F)
78. _____Except for goods shipped C.O.D., a buyer is entitled to exercise his or
her prior right of inspection. (T)
79. _____ S Computer Company agrees to ship seven cases of computer disks to
B Computer City. A valid acceptance of the goods occurs if B Computer City
fails to reject the disks after having had a reasonable time to inspect them. (T)
80. _____When a buyer breaches a contract governed by the UCC, depending on
the circumstances, the seller has the right to resell goods identified to a
contract. (T)
81. _____ When X breaches her contract with Y to buy handmade furniture, Y is
forced to reclaim the furniture from a shipping company. Y may recover from
X the difference between the contract price and market price as well as
incidental expenses in reclaiming and reselling the furniture. (T)
82. _____ Specific performance of a sales contract is the most appropriate remedy
on the breach of a contract for the sale of grain. (F)
83. _____ B, a merchant, rightfully rejects a shipment of razorblades but is unable
to obtain instructions from the merchant seller. B may resell the razorblades
and receive a commission on the sale. (T)
84. _____ B orders six carpets from S India Imports and accepts them when they
are delivered. Bs later rightful withdrawal of her acceptance is known as
nullification. (F)
85. _____ A steals Bs computer and resells it to C. In Bs suit to recover the
computer from C, B will lose if C purchased the computer in good faith and in
ignorance of the wrongdoing. (F)
86. _____ The implied warranty of fitness for a particular purpose cannot arise in
a sales contract but only a service one. (F)
87. _____ S, the owner of an appliance store, sells a vacuum cleaner to B, and
declares, prior to the parties signing a contract, the vacuum cleaner will make
wool rugs so good, that they will look like new. Ss statement is very likely
an express warranty. (F)
88. _____ B buys spiked mountain-climbing shoes from S Mountaineering Store.
The spikes come out of the shoes when B is on the side of a mountain, causing
B to fall fifty feet onto a ledge and sustain injuries. B can recover from S on
the ground that the store breached a contractual condition precedent of selling
good shoes. (F)
89. _____ In deciding whether food is unwholesome or unmerchantable under
UCC warranty law, the courts typically focus on whether the alleged defect is
a natural incident to the food or not natural to the food. (T)
90. _____ The old common law principle that one who is not a party to a contract
has no rights under that contract is known as privity of contract. (T)
91. ______ X wishes to sell his car, but does not want to be held liable for any
implied warranties. To definitely avoid such warranties, the sales agreement
should clearly note that the car is sold by a nonmerchant and sold WITH
ALL FAULTS. (T)
92. _____ Under the UCC, an agreement modifying a contract always requires
consideration. (F)
Chapter 6 Agency and Employment

1. _____ There are no exceptions to the employment at will doctrine. (F)
2. _____ Firing a worker who refuses to commit an illegal act most likely will
violate the public policy doctrine. (T)
3. _____ Whistleblower statutes can protect employees who disclose to
government agencies their employers legal wrongdoing. (T)
4. _____ An agency relationship is a fiduciary one. (T)
5. _____ An officer of a corporation cannot possess the power to bind the
corporation contractually. (F)
6. _____ An employee also may act in the capacity of an agent. (T)
7. _____ An independent contractors physical manner of doing a job is
controlled, or is subject to the control, by his or her employer. (F)
8. _____ A principal has a duty to cooperate with his or her agent. (T)
9. _____ A principal is required to indemnify an agent for liabilities and costs
incurred because of authorized acts by the agent in fulfilling the agency. (T)
10. _____ Building contractors and subcontractors are usually not regarded as
independent contractors. (F)
11. _____ An agency relationship can be formed only by a formal writing. (F)
12. _____ There generally does not need to be a written agreement between the
principal and agent in order to create an agency relationship. (T)
13. _____ An agent owes to his or her principal a duty to act in good faith. (T)
14. _____ A principal owes to his or her agent a duty to act in good faith. (T)
15. _____ If an agents contract with a third party is required to be in writing, then
the agents authority from the principal to enter into that contract must be in
writing too. (T)
16. _____ An agents authority to act on behalf of a principal derives exclusively
from the agents express authority. (F)
17. _____ A principal may confer authority on an agent only in writing. (F)
18. _____ Pursuant to the theory of respondeat superior, liability for the wrongful
acts of employees with the scope of their employment is ordinarily imposed
on their employers too. (T)
19. _____ If an agent acts within the scope of his or her authority, an undisclosed
principal is liable to third parties for contracts made by the principals agent.
(T)
20. _____ A disclosed principal is not liable to a third party for contracts made by
the agent acting outside of the scope of his or her authority. (T)
21. _____ When an agent enters into any contract on behalf of a principal, the
principal must ratify the contract in order to be bound by it. (F)
22. _____ If a principal does not ratify an unauthorized contract made by his or
her agent, the principal normally is not bound on the contract. (T)
23. _____ The failure of a principal to affirm promptly a known unauthorized
transaction by an agent is typically a ratification of the transaction. (T)
24. _____ Apparent authority exists if a principal causes a third party to
reasonably believe that the principals agent has the authority to act. (T)
25. _____ Since an agent is a fiduciary represents his or her principal, an agent
can create his or her own apparent authority. (F)
26. _____ An employer can be held vicariously liable for harm to third parties
caused by the negligent conduct of its employees acting in the scope of
employment even if the employer itself is not negligent. (T)
27. _____ Historically, at-will employees in the U.S. ordinarily could be fired
simply because their employers did not like the clothes they were wearing or
the friends they were associating with. (T)
28. _____ The terms of company personnel manuals have at times been construed
by the courts to constitute implied employment contracts. (T)
29. _____ Firing an employee because the employee is dating the boss daughter
against the boss will ordinarily is legal under the common law employment at
will doctrine. (T)
30. _____ A critical issue in any case of employer vicarious liability for a
workers conduct is whether the worker is an independent contractor or an
employee. (T)
31. _____ By using agents, contracts that bind the principal can be made at
different places with different persons at the same time. (T)
32. _____ A court seeking to determine whether an employer-independent
contractor relationship exists would not consider how much control the
employer exercised over the details of the work. (F)
33. _____ A is the agent for P, an opera singer. A makes a deal for P to sing
exclusively at the Metropolitan Opera. A, P, and the Opera all must sign the
contract in order for it to be binding. (F)
34. _____ X and Y may be able to create their agency agreement orally. (T)
35. _____ Only adult business persons and business firms can be principals that
retain agents. (T)
36. _____ Any person can be an agent. (T)
37. ______ X introduces Y to his business suppliers as my associate. Although
X has not given Y actual authority, Y purports to act as Xs agent in several
deals with the suppliers. An agency relationship may be found to exist
between X and Y according to the doctrine of estoppel or the apparent agency
doctrine. (T)
38. _____ The agent owes the principal a duty of loyalty. (T)
39. _____ An agent who owns property cannot sell the property to the principal
without revealing the ownership prior to the sale. (T)
40. _____ P grants its agent A an exclusive territory to which to sell Ps products.
P cannot compete with A in that territory under the principals duty of
indemnification. (T)
41. _____ An agent who holds a power of attorney is called an attorney in fact.
(T)
42. _____ If a contract being executed by an agent must be in writing, the agents
authority must also be in writing. (T)
43. _____ X may hire part-time employees to work in the toy shop she manages
despite the fact that her employment agreement with the owner says nothing
about her being able to hire employees. This is an example of the equal
management authority doctrine. (F)
44. _____ Without authorization, A contracts on the behalf P to have B paint the
interior and exterior of Ps house. P wishes to have B paint only the interior.
Ps attempt to rescind that part of the contract relating to the exterior and
ratify that part of the contract relating to the interior will be unsuccessful. (T)
45. _____ The test of whether it was reasonable for a third party to believe that
the agent he or she had dealt with had the power to enter into a particular
contract often occurs when one is considering the doctrine of apparent
authority. (T)
46. _____ If a principal is able to rescind an unauthorized contract executed by an
agent, then the agent will have no liability to the third party. (F)
47. _____ X hires Y to act as her agent in the purchase of a home. A does not
want the seller to know that X is the buyer, so she asks B to represent that he
is making the purchase totally for himself. A is a partially disclosed principal.
(F)
48. _____ In deciding whether an employee was acting within the scope of his or
her employment when he or she committed a tort against a third party, a court
will only consider whether the act was authorized by the employer. (F)
49. _____ An employee driving a delivery truck would probably be considered
acting within the scope of his or her employment if he or she carelessly ran
down an attendant while stopping at a gas station to refill the truck and use the
bathroom. (T)
50. _____ Vicarious liability very likely will be imposed on an employer who
hires an independent contractor to engage in the storage of poisonous gases.
(T)
51. ______ An agency coupled with an interest is an agency created for the
benefit of the agent. (T)
52. _____ A sales agent may terminate his or her agency relationship by the
achievement of the stated purpose of the agreement. (T)
53. _____ The employment at will doctrine generally allows the employer to
terminate an employees employment at any time and for any reason and
without any notice or warning. (T)
54. _____ To protect workers and society from unfair and arbitrary discharge, the
courts have created exceptions to the employment at will doctrine based on
public policy. (T)
55. _____ An agency relationship can never exist between an employer and an
employee. (F)
56. _____ A worker whose physical conduct is controlled or subject to control by

an employer is an independent contractor. (F)
57. _____ Paying and collecting unemployment compensation applies to the
employer independent contractor relationship. (F)
58. _____ A court in seeking to determine whether an employer independent
contractor relationship exists, generally will not consider how much money
the employee paid the worker. (T)
59. _____ Independent contractors generally can include truck drivers who own
their own trucks and hire themselves out on a per job basis. (T)
60. _____ Agency agreements that must be evidenced by a writing include
contracts to sell real estate. (T)
61. _____ X is appointed as sales agent for Y, but the agency agreement is silent
as to the level of sales that X is expected to achieve. X is required to use
reasonable skill and diligence and good faith efforts in selling. (T)
62. _____ A, an agent for P, signs an agreement on Ps behalf, but neglects to tell
P that the agreement requires the payment of certain taxes. The government
fines P for failing to pay the taxes. P is liable because As knowledge is
imputed to P. (T)
63. _____Ordinarily, the acquired skills and basic knowledge that an agent learns
during the course of the agency relationship can be used for his or her own
personal gain following the termination of the agency relationship. (T)
64. _____ When a written agency agreement exists that describes the rights and
duties of both parties, then the agent may be said to have primarily apparent
authority. (F)
65. _____ An agency agreement must be evidenced by a writing whenever the
contract executed by the agent is required to be in writing. This is required by
the Equal Dignity rule. (T)
66. _____ An agency agreement that authorizes a person to act on behalf of a
principal and perform specified acts usually is known as a special power of
attorney. (T)
67. _____ An agent with express authority can ratify an unauthorized contract. (F)
68. _____ The test of whether it was reasonable for a third party to believe that
the agent had the authority to enter into a particular contract often occurs
when one is considering the doctrine of apparent authority. (T)
69. _____ An unauthorized contract between a purported agent and a third party
that is not ratified is ordinarily binding on the agent only. (T)
70. _____ A principal may not rescind an unauthorized contract executed by his
or her agent if the agent caused the third party to reasonably believe that the
agent was authorized to enter into the contract on behalf of the principal. (F)
71. _____ A principal may confer apparent authority on an agent by giving the
agent possession and apparent ownership of the principals property. (T)
72. _____ A principal may be liable for the deceitful conduct of his or her agent if
such conduct results from the agents unauthorized and fraudulent
misrepresentations made within the course and scope of the agency
relationship. (T)
73. _____ Generally, an employer is vicariously liable for the harm caused to a
third party by his or her employee acting in the course and scope of
employment under the doctrine of respondeat superior. (T)
74. _____ Vicarious liability likely will be imposed on an employer who hires an
independent contractor to engage in the transportation of highly volatile
chemicals. (T)
75. _____ X hires Y, a real estate broker, to sell his house, but the house burns
down before being sold. The existing agency agreement likely is still in force
if the broker says nothing about the fire to prospective customers. (F)
Chapter 7 Business Organizations

1. _____ A sole proprietorship is a separate legal entity for tax purposes and thus
the entity must file its own tax return. (F)
2. _____ A franchise is an association of members comparable to a union
organized to provide an information sharing exchange among the members
about economic issues. (F)
3. _____ Franchisors that firmly fix the prices at which the franchisees can resell
products or perform services may violate antitrust laws. (T)
4. _____ A franchisor can always establish an additional franchisee in a territory
allotted to a franchisee if the franchisee agreement is silent as to exclusivity of
the territory. (F)
5. _____ A franchisor cannot impose quality standards on a franchisee. (F)
6. _____ All corporate business forms and organizations in the U.S. offer limited
liability to their owners and investors. (F)
7. _____ Virtually all states in the U.S. now permit the business person to
operate as a limited liability company. (T)
8. _____ No capital can be raised through an offering of stock in the U.S.
without the principals first registering the shares with the Securities and
Exchange Commission and obtaining the agencys approval. (F)
9. _____ Corporate income can be taxed twice when it is distributed to
shareholders. (T)
10. _____ A limited liability company limits the liability of the entity in the
United States for business debts and obligations. (F)
11. _____ A general partnership for liability purposes is not usually considered a
legal entity apart from its owners. (T)
12. _____ Agreements to form a partnership always must be written. (F)
13. _____ The fiduciary obligations of principals and agents also apply to
partners. (T)
14. _____ Unless the general partnership agreement states otherwise, general
partners share losses in the same ratio as profits. (T)
15. _____ A partner does not have the right to an accounting to enforce rights of
the partnership relationship. (F)
16. _____ In a limited liability limited partnership, the liability of the general
partner is limited to the amount of capital he or she has invested in the
partnership. (F)
17. _____ In a limited partnership, the liability of the limited partner is limited to
the amount of capital he or she has invested in the partnership. (T)
18. _____ In a limited liability partnership, a limited partner can be exempt from
personal liability for partnership obligations. (T)
19. _____ In winding up a general partnership, creditors are paid before partners
receive their capital contributions. (T)
20. _____ A partnership technically legally dissolves when a partner ceases to
be associated with the carrying on of partnership business. (T)
21. _____ A partner does not have the power to wrongfully dissolve and
disassociate from a partnership. (F)
22. _____ A general partner is personally and unlimitedly liable for partnership
debts if the assets of the partnership are insufficient to pay its creditors. (T)
23. _____ A partner owes to the partnership but not the other partners a duty of
loyalty and good faith. (F)
24. _____ Each partner has the right to sell any partnership property as if he or
she was originally the exclusive owner thereof. (F)
25. _____ A limited liability company offers the limited liability of a corporation.
(T)
26. _____ A limited liability company must be formed in accordance with federal
corporate law in the United States. (F)
27. _____ The states in the U.S. usually do not permit one-member limited
liability companies. (F)
28. _____ Unless otherwise agreed, the members of a joint venture share profits
and losses equally. (T)
29. _____ In a limited liability company, members cannot participate in
management. (F)
30. _____ In a limited liability company members must participate in
management. (F)
31. _____ The typical limited liability company (LLC) statute in the U.S. would
provide that unless the members agree otherwise, all profits of the LLC will
be divided equally. (T)
32. _____ Corporations do not possess any rights under the U.S. Constitution
since corporations are artificial legal entities and not real persons. (F)
33. _____ A corporation is liable for the torts of its officers committed within the
course and scope of their employment. (T)
34. _____ Those shareholders who own preferred stock are the sole owners of that
corporate firm. (F)
35. _____ A certificate of incorporation or corporate charter represents in the U.S.

a states authorization for a corporation to conduct business as a corporation.
(T)
36. _____ Every corporation must identify a specific person as an agent to receive
legal documentation on behalf of the corporation. (T)
37. _____ Promoters, not incorporators, must execute the articles of
incorporation. (F)
38. _____ Most states in the U.S. limit the duration of a corporation to fifty years
plus a day. (F)
39. _____ The articles of incorporation of a corporation can state that the
corporation is organized to do any and all legal business. (T)
40. _____ In some states in the U.S., a close or closely held corporation can
operate without formal director meetings. (T)
41. _____ A director is elected by majority vote of the other directors. (F)
42. _____ A director usually can be removed from a corporate board for good
cause. (T)
43. _____ Shareholders may not act to remove directors from the board of
directors until the next annual shareholders meeting. (F)
44. _____ Par value shares do not have a specific face value. (F)
45. _____ When the shareholders and directors of a corporation are deadlocked, a
court may order the dissolution of a corporation if assets are being wasted. (T)
46. _____ When shares are transferred, the new owner obtains the right to vote
the shares before the new ownership is recorded in corporate stock books. (F)
47. _____ Dividends may be paid from any corporate funds so long as the board
of directors approves the payment of the dividends. (F)
48. _____ Preemptive rights entitle the shareholders to bring a derivative lawsuit
against the corporation in their own name. (F)
49. _____ Shareholders ordinarily cannot vote by proxy in the United States. (F)
50. _____ Directors are required to use a reasonable amount of care and ordinary
prudence in their supervision of corporate officers. (T)
51. _____ Corporate officers are the governing body of the corporation
empowered to govern the corporation and make major corporate decisions. (F)
52. _____ In a consolidation, the consolidating corporations become subsidiaries
of the new corporation. (F)
53. _____ A short-form merger can be used when a parent corporation owns 5%
of the stock of its subsidiary. (F)
54. _____ Appraisal rights usually are available pursuant to state corporate law
even when a state statute does not provide for them. (F)
55. _____ Shareholders alone can initiate the dissolution of a corporation by
majority vote. (F)
56. _____ Shareholder approval generally is required when a corporation buys
most of the assets of another company. (F)
57. _____ Shareholder approval generally is required when a corporation sells all
of its assets of another company. (T)
58. _____ After a consolidation, the new corporation inherits all of the
consolidating companies obligations. (T)
59. _____ Stockholders who are directors and officers of publicly traded
companies are required to report their stock trades of their firms stocks. (T)
60. _____ If a partner commits a negligent act in driving a partnership vehicle in
the course of doing partnership business, only the careless partner and the
partnership are liable since to hold otherwise would be unfair to the other
partners. (F)
61. _____ A person who wants to offer a small issue of stock in his or her
business to the residents of just one state, which is the only state where this
person does business, most likely does not have to comply with the Security
Act of 1933. (T)
62. _____ So-called double taxation is one of the major drawbacks in choosing
to incorporate as a traditional corporation in the United States. (T)
63. _____ One negative factor about a Sub-chapter S corporation is that it pays a
double tax. (F)
64. _____ In general, courts and creditors cannot reach a shareholders personal
assets to satisfy corporate obligations. (T)
65. _____ Among the reasons that would convince a person to set up his or her
business as a sole proprietorship would be the limited liability involved. (F)
66. _____ E and W agree over the phone to go into business as partners. The fact
that they have not yet reduced their agreement to a writing will violate the
Statute of Frauds since all partnerships agreements must be in writing. (F)
67. _____ For tax purpose, a partnership is a tax-paying entity. (F)
68. _____ A form of business that is owned by its shareholders is a limited
partnership. (F)
69. _____ Corporations provide limited liability for their owners. (T)
70. _____ A joint venture may be distinguished from a partnership by the fact that
a joint venture can issue stock to increase capitalization. (F)
71. _____ Paying a percentage of the profits of a business each month to a
creditor to pay off an obligation normally makes the business and the creditor
partners.(F)
72. _____ When a creditor obtains a judgment against the partnership, the liability
of the partnership must be first paid out of the assets owned by the
partnership. (T)
73. _____ Under federal law, a partnership will be treated as a separate legal
entity when it is involved in bankruptcy proceedings. (T)
74. _____ It is necessary for all partners to join in a transaction to transfer any
partnership property. (F)
75. _____ If a partner commits fraud in furtherance of the partnerships business,
the other partners may be personally liable to the aggrieved party, even if they
are innocent and ignorant of the fraud. (T)
76. _____ S, a partner in an architectural firm, owns $40,000 personally to
several creditors. To satisfy these debts, the creditors may obtain a charging
order entitling them to Ss profits as a partner. (T)
77. _____ J and S are partners in a computer business that is in the process of
dissolution. Both wish to keep a certain desk lamp after the business is wound
up. Because S paid for the lamp with partnership funds, she is entitled to keep
the lamp but only if it was her idea to buy the lamp and she was the one who
actually bought it. (F)
78. _____ In general, a partner who devotes a significant amount of his time and
energy to a partnership business will not be entitled to any compensation if the
partnership agreement is silent. (T)
79. _____ B is admitted to an existing partnership. Several debts and obligations
incurred prior to the date of his admission become due. B will not be required
to pay or contribute any money to the satisfaction of these debts and
obligations. (F)
80. _____ All property purchased on account of the partnership is considered
initially to be partnership property. (T)
81. _____ A partner always has the power, but not necessarily the right to
withdraw from a partnership. (T)
82. _____ R is forced to sell his partnership interest in a general partnership to
pay his largest single creditor. The transfer of his partnership interest will
enable the creditor to become a partner. (F)
83. _____ R and C are partners in an electronic appliance store. On the dissolution
of the partnership, the partners can complete transactions begun but not yet
finished at the time of the dissolution. (T)
84. _____ The liabilities of a partnership can include amounts owed to partners
for their capital contributions. (T)
85. _____ Limited partners are entitled to assign their interests in the partnership.
(T)
86. _____ A corporation as a business entity possesses all 5th Amendment
constitutional rights in criminal cases. (F)
87. _____ If the individual shareholders of an S Corporation are in a lower tax
bracket than the corporation, then the earnings of the corporation cannot be
distributed. (F)
88. _____ Soliciting subscriptions of corporate stock and making contracts for
offices and personnel are typical activities of a promoter. (T)
89. _____ The bylaws of a corporation ordinarily are submitted for approval to
the pertinent state public official. 9F)
90. _____ When an individual tricks another into believing that a corporation
exists, then a court may recognize a corporation by estoppel. (T)
91. _____ The holders of the common stock of a company are sometimes said to
have a residual position in the overall financial structure of the business,
because they have first priority to dividends and to assets if the company
becomes insolvent. (F)
92. _____ Stock represents a form of debt security. (F)
93. _____ Preferred stockholders have the right to payment of an annual dividend
and usually not have voting rights. (F)
94. _____ J and G are directors of A Corporation; thus they have the rights of
compensation and indemnification. (T)
95. _____ W is a director of F Lumber, Inc. Under the standard of care duty owed
by the directors of a corporation, W must attend all meetings and use perfect
judgment. (F)
96. _____ The business judgment rule allows a director to make a poor business
decision so long as it was an informed, honestly and rationally made, and
intended to be in the best interest of the corporation. (T)
97. _____ A voting list is a list of shareholders prepared by the corporation prior
to each shareholders meeting. (T)
98. _____ Z and T are shareholders of BV Company. As shareholders, they
cannot have preemptive rights. (F)
99. _____ Shareholders can be denied the right to vote at a shareholders meeting
if they do not properly inform themselves of all the issues and facts. (F)
100. _____ The effect of a preemptive right is to allow minority shareholders to
be represented on the board of directors. (F)
101. _____ Dividends always can be ordered by the shareholders, but with the
directors approval. (F)
102. _____ Generally, shareholders who receive illegal dividends must return
the dividends to the corporation if the dividends caused the corporation to go
insolvent. (T)
103. _____ A dividend will be illegal if it reduces the net profits of the
corporation. (F)
104. _____ The right to inspect corporate books and records is a virtually
absolute right of shareholders and cannot be restricted in any way. (F)
105.
_____ Shares are referred to as watered stock if they are no-par shares. (F)
106. _____ A shareholder who subscribes to par-value stock before the

formation of a corporation must pay the stated value of the stock or risk a law
suit for breach of contract. (T)
107. _____ D Corporation merges with E Corporation. It is agreed that E will
absorb D. Upon merging, a new distinct corporation must be formed. (F)
108. _____ B Company is completing a short-form merger with its subsidiary,
H Corporation. The only group that is required to approve the merger is the
board of directors and shareholders of B Company. (T)
109. _____ A shareholder is typically permitted to exercise a shareholders
appraisal right in regular mergers. (T)
110. _____ A written demand for payment usually is not required to enforce a
shareholders appraisal right. (T)
111. _____ Termination of a corporation has two main aspects: dissolution and
liquidation. (T)
112. _____ Generally speaking, with respect to corporate mergers, it is correct
to say that the shareholders of both companies will be informed and consulted,
but not be allowed to vote on merger unless they own a material number of
shares. (F)
113. _____ Shareholders typically will prevail in a lawsuit to force the board of
directors to declare a dividend if there are sufficient funds in retained earnings
to pay the dividends. (F)
114. _____ Funds that are legally available for paying dividends ordinarily are:
net profits, retained earnings, and surplus funds. (T)
115. _____ The de facto corporation doctrine may give the corporation legal
status against the world (except the relevant state of incorporation) even if the
articles of incorporation are improperly filed. (T)
116. _____ Cumulative voting is designed to allow minority shareholders to
control the board of directors. (F)
117. _____ Notice of special shareholder meetings must be in writing and
specify the date and time of the meeting as well as the purpose of the meeting.
(T)
118.
_____ Directors now can vote by proxy in virtually all states. (F)
119. _____ Corporations are entitled to complete 5th amendment freedom of

speech rights since corporations are regarded as persons under the law. (F)
120. _____ In a sole proprietorship, the liability of the owner theoretically is
unlimited. (T)
121. _____ M decides to go into business for herself. She wishes to avoid
unnecessary and expensive costs and legal fees by setting up a simple form of
business. Yet she is also worried about her unlimited personal liability. She
should establish a limited liability partnership. (F)
122. _____ A partnership is a separate business entity that is subject to levy for
federal income taxes. (F)
123.
_____ A limited partnership consists of at least one general partner. (T)
124. _____ Management by a trustee is a characteristic of most corporations.

(F)
125. _____ Unlike the members of a partnership, the liability of a corporations
shareholders is limited to the amount of their investment in the corporation.
(T)
126. _____ Advantages of limited liability companies include the fact that
generally members are allowed to participate in management activities. (T)
127. _____ In ascertaining whether a business enterprise is a partnership, a
court will look to see whether the existing business relationship involves a
sharing of profits and losses. (T)
128. _____ The joint ownership of personal property by two people will, by
itself, create a presumption that a partnership exists. (F)
129. _____ Under federal law, a partnership will be treated as a separate legal
entity when it is involved in federal bankruptcy proceedings. (T)
130. _____ X and Y operate a partnership. The partnership is a legal entity for
purposes of filing lawsuits. (T)
131. _____ If a partnership agreement fails to specify a termination date for the
partnership, then the partnership ordinarily may be dissolved by any partner at
any time. (T)
132. _____ A decision by the members of a partnership to enter into an entirely

new business would probably have be approved by the managing partner
alone. (F)
133. _____ X is a junior partner in an accounting firm. As a partner, she has a
right of inspection that permits her to review the personal tax returns filed by
other partners. (F)
134. _____ A partners interest in his or her firm is a personal asset consisting
of a proportionate share of all partnership property real and personal. (T)
135. _____ All property purchased on account of a partnership is considered to
be partnership property unless clearly shown otherwise. (T)
136. _____ X and Y sign a five year partnership agreement. At the end of the
fifth year, they decide to continue working together. This partnership is
terminable at will by either party. (T)
137. _____ A wants to join the partnership of B, E, and M. If the partners agree
to continue in the firms business after admitting A, then a new partnership
technically arises. (T)
138. _____ A dissolved partnership continues until partnership business is
finished in the winding up stage. (T)
139. _____ Partners who contribute in excess of their capital contribution to the
partnership may compel partners who have not paid their required
contributions work longer hours for the partnership. (F)
140. _____ X and Y are limited partners in a limited partnership. To avoid
personal liability for partnership obligations, they must not undertake any
managerial responsibilities. (T)
141. _____ Corporations are entitled to the constitutional right against selfincrimination. (F)
142. _____ A close or closely-held corporation is exempt from all corporate
legalities such as filing an articles of incorporation. (F)
143. _____ A promoter is personally liable for preincorporation contracts as a
general rule. (T)
144. _____ The exact date of the corporations annual meeting very likely will
appear as a provision in its charter. (F)
145. _____ If a corporation has complied with all legal condition precedents to
incorporation, the corporation is said to have ultra vires existence. (F)
146. _____ Commingling of corporate and personal interests to the extent that
the corporation has no separate identity is an important factor that may cause a
court to disregard the corporate entity and hold the shareholders personally
liable for corporate debts and obligations. (T)
147. _____ X purchases a1000 shares of common stock in Y Tour Company.
As a shareholder of record, X owns a proportionate interest with regard to
corporate control, net assets, and earnings. (T)
148. _____ Stock ownership must first be approved by either a federal or state
securities agency. (F)
149. _____ A and B are directors of the C Paper Company. D and E are
corporate officers. F and G, as well as the directors and officers, are
shareholders. C companys stock dividends are ordered by a majority of the
shareholders. (F)
150. _____ J is a director of T Toys, Inc. Without informing the company, J
goes into business with a competing firm. J is liable for violating the business
judgment rule. (F)
151. _____ Notice of special shareholder meetings must be in writing and
specify the date, but typically need not specify the purpose of the meeting. (F)
152. _____ Cumulative voting is designed to allow corporate directors to
decide who will be nominated to run as candidates for the board of directors.
(F)
153. _____ A and B are shareholders of C corporation. A and B can be denied
the right to vote at a shareholders meeting if they do not properly inform
themselves of all the issues and facts. (F)
154. _____ The preference given to a shareholder, over all other purchasers, to
subscribe to a prorated share of a new issue of stock is called a preemptive
right. (T)
155.
_____ Dividends must be payable in cash only. (F)
156.
_____ Dividends need not be paid automatically year after year. (T)
157. _____ Funds that are legally available for paying dividends include net
profits, retained earnings, but not surplus funds. (F)
158. _____ Shareholders may prevail in a lawsuit to force the board of directors
to declare a dividend if the company is making money and the board does not
have any immediate plans on where or how to invest it. (F)
159. _____ A shareholders derivative suit is a suit brought by a shareholder
who also is a director of the corporation being sued. (F)
160. _____ A shareholder incurs personal liability for corporate obligations if
he or she purchases no-par shares. (F)
161. _____ X Company and Y Corporation combined so that all that remains
after the legal documents have been signed is X Company. This is a merger.
(T)
162. _____ With regard to large corporate mergers, it is correct to say that
eventually the purpose and rationale of the merger must be approved by the
U.S. Court of Claims. (F)
163. _____ A short-form merger only can be used when the parent corporation
owns at least 51% of the outstanding shares of each class of stock of the
subsidiary. (F)
164. _____ The right of a shareholder to force the corporation to buy his or her
stock after a merger is an appraisal right. (T)
165. _____ Termination of a corporation has two phases. They are first
liquidation and then dissolution. (F)
166. _____ The liabilities of a partnership may include amounts owed to
partners for their capital contributions. (T)
167. _____ Limited partners are entitled to assign their interests in the
partnership. (T)
168. _____ Articles of incorporation are drawn up at the first organizational
meeting of the corporation. (F)
169. _____ As a general rule, a promoter is personally liable for
preincorporation contracts unless a novation is made. (T)
170. _____ A corporation and its officers and employees possess all 5th
amendment rights in criminal cases. (F)
171. _____ The bylaws of a corporation usually establish the values and classes
of corporate stock. (F)
172. _____ When an individual tricks another into believing a corporation

exists, a court may recognize a corporation by estoppel. (T)
173. _____ Preferred stockholders have the right to a payment of annual
dividends and typically have voting rights too. (F)
174. _____ Directors, but not officers, owe a duty of loyalty to the corporation.
(F)
175. _____ The business judgment rule always makes directors personally
liable to the corporation when the directors inaccurate business discernment
results in losses to the corporation. (F)
176. _____A sole proprietorship cannot have employees. The owner is the only
one who can be involved in the work of the business. (F)
177. _____ Claims of directors for loans made to the corporation have the
highest priority for payment upon dissolution and winding up of the
corporation. (F)
178. _____ The directors of a corporation made a decision to introduce a new
product line, which turned out to be a poor decision as the product did not sell
nearly as well as anticipated. The shareholders can sue to hold the directors
personally liable since directors are always personally liable for the results of
their business decisions. (F)
179. _____ A director of a corporation does not have a duty to avoid
competition with the corporation since directors usually serve on more than
one corporate board. (F)
Chapter 8 Commercial Paper
1. _____ A negotiable instrument cannot serve as a substitute for cash since cash
is legal tender. (F)
2. _____ On a trade acceptance, the drawee is also the payee of the instrument.
(F)
3. _____ A promissory note cannot be a negotiable instrument since it lacks an
order to pay. (F)
4. _____ An undated instrument cannot be a negotiable instrument. (F)
5. _____ An instrument payable to the order of a specified person is negotiable.
(T)
6. _____ A promissory note is not negotiable unless it states that it is payable in

one year or less according to the Statute of Frauds. (F)
7. _____ An instrument payable to the order of a specified person is not
negotiable. (F)
8. _____ An instrument that promises to pay in gold is negotiable since gold is
a very valuable commodity. (F)
9. _____ Stating on an instrument that it was made as per contract renders the
instrument non-negotiable. (F)
10. _____ An instrument that states IOU is negotiable since a debt is clearly
acknowledged. (F)
11. _____ To be negotiable, an instrument must contain an unconditional promise
or order to pay. (T)
12. _____ An instrument does not have to be signed by a maker or drawer or the
agent of the maker or drawer to be negotiable. (F)
13. _____ The writing evidencing a negotiable instrument must be reproduced on
a formal document or at least on a legal size yellow pad. (F)
14. _____ For an instrument to be in writing, it must be negotiable. (F)
15. _____ A bearer instrument can be negotiated by delivery alone. (T)
16. _____ An order instrument can be negotiated by delivery alone if there is a
witness to the delivery. (F)
17. _____ A holder in due course (HDC) cannot acquire more rights in a
negotiable instrument than his or her transferor had since that would be unfair
to any party obligated to pay the instrument. (F)
18. _____ The party that holds an instrument payable to bearer is entitled to
present the instrument for payment or to transfer it to another party. (T)
19. _____ The Shelter Doctrine may apply to any transferee who can trace his or
her title to a negotiable instrument back to an HDC. (T)
20. _____ A person who accepts an instrument that has been completed without
knowing that it was incomplete when originally issued cannot be an HDC. (F)
21. _____ A person who acquires a check stamped insufficient funds is not put
on notice of a problem with the instrument if he or she honestly does not
know that that term means. (F)
22. _____ Acquiring a negotiable instrument after its maturity date may prevent a
party from becoming an HDC. (T)
23. _____ A holder of an instrument takes it for value if he or she pays for the
instrument with a check. (T)
24. _____ A promise to give value in the future is normally sufficient to confer
the rights of an HDC on one in possession of a negotiable instrument. (F)
25. _____ A person who receives a negotiable instrument as a gift ordinarily
possesses the status and rights of an HDC. (F)
26. _____ A negotiable instrument payable to two persons jointly typically only
requires the indorsement of one in order to further negotiate the instrument.
(F)
27. _____ A blank indorsement can consist of a mere signature. (T)
28. _____ An indorsement is required to negotiate an order instrument. (T)
29. _____ Signature liability pursuant to negotiable instrument law generally can
extend to any person who signs a negotiable instrument. (T)
30. _____ A maker is secondarily liable on an instrument since the maker only
makes a promise to pay it. (F)
31. _____ When a person is compelled to sign a negotiable instrument under
severe duress, an HDC can still recover on the instrument since HDC status is
a very elevated legal position to have under commercial paper law. (F)
32. _____ A personal defense to a negotiable instrument can defeat the claims of
an HDC. (F)
33. _____ A drawers discharge in bankruptcy will defeat the claim of an HDC
for payment of a check issued by the drawer. (T)
34. _____ A person who transfers a negotiable instrument impliedly warrants to
any other person who accepts it in good faith that the transferor has good title
to the instrument. (T)
35. _____ A drawer who is induced by an imposter to issue a check in the name
of the impersonated person usually can avoid payment on the check to an
innocent and ignorant holder. (F)
36. _____ A forged signature normally binds the person whose name is forged if
the forgery is very expertly done. (F)
37. _____ An authorized agent may be liable on a negotiable instrument if the
agent signs the instrument in his or her own name and does not specify the
principals name. (T)
38. _____ An accommodation maker is secondarily liable on an instrument. (F)
39. _____ To properly present a draft for payment, the holder must first present it
to the drawer. (F)
40. _____ A cashiers check is one in which a bank draws the check on itself. (T)
41. _____ A bank that has a certified check is under no obligation to accept it. (F)
42. _____ A drawee/payor bank may be liable to its drawer/customer if the bank
refuses to honor the drawers check when there are sufficient funds in the
account. (T)
43. _____ A customer has sixteen months from the date of receipt of a statement
of an electronic transfer to notify the financial institution of any errors. (F)
44. _____ Generally, the funds represented by a local check deposited in a bank
must be available for withdrawal within one business week. (F)
45. _____ A bank that pays a drawer/customers check with a forged indorsement
typically must recredit its customers account. (T)
46. _____ A stale check is one that has been outstanding for longer than one
month. (F)
47. _____ A drawer may be liable to the holder of a check if the check is not
honored by the bank. (T)
48. _____ A bank usually can ignore its customers stop-payment order on a
check without any liability since a bank is typically too busy to notice such
orders. (F)
49. _____ A bank can recover from an ordinary holder who cashes a check
bearing a forged drawers signature if the holder knew of the forgery. (T)
50. _____ The defense of minority is usually a real or universal defense to the
payment of a negotiable instrument. (T)
51. _____ To purchase office supplies for her medical clinic, B executes a draft in
favor of S. A draft is a conditional promise to pay money. (F)
52. _____ On December 1, as payment for a truck to be delivered on January 1, M
executes a draft payable to L on January 1. A draft payable at a definite time
in the future is a sight draft. (F)
53. _____ D writes a check for $100 payable to C on her account at the First
National Bank. D is the drawer and the bank is the drawee. (T)
54. _____ If there are only two parties to a negotiable instrument, it very likely is
a promissory note. (T)
55. _____ For an instrument to be negotiable, it need not recite the consideration
given in exchange for the promise or order to pay. (T)
56. _____ For a promissory note to be negotiable, the makers signature must be
placed on the lower right hand corner of the document. (F)
57. _____ C writes on a piece of paper, I owe you $100, signs it, and gives it to
S. This is a negotiable instrument if a promise to pay can be logically inferred.
(F)
58. _____ E signs a promissory note in favor of W that includes the statement: E
plans to satisfy the note from the sale of the Tower Office Building in
Toronto. The note is not negotiable because it is too inconvenient to travel to
Toronto. (F)
59. _____ The requirement that the amount referred to in the instrument be a
fixed amount is met if the amount is to be paid with stated interest or by stated
installments. (T)
60. _____ An instrument is negotiable if the payment of interest is at the legal
rate. (T)
61. _____ An extension clause giving the holder the right to extend payment for
an indefinite period of time renders a note not negotiable. (F)
62. _____ An acceleration clause which allows a holder of a note to demand
payment of the entire amount due, with interest, if the maker fails to make a
payment renders the note not negotiable since the time period is uncertain. (F)
63. _____ If an instrument is payable at a definite time, the secondary parties

must be held liable on it within that time period. (F)
64. _____ The omission of a date (other than a definite time for payment)
adversely affects an instruments negotiability. (F)
65. _____ M wishes to negotiate a bearer instrument in his possession to S in
exchange for an order instrument that S holds. Indorsements are always
required to negotiate both bearer and order instruments. (F)
66. _____ J signs a check payable to M and gives it to M. After M properly
indorses the back by signing is name, the check can be negotiated by delivery.
(T)
67. _____ J receives a check from the E Company, and indorses it without
recourse. This is a restrictive indorsement. (T)
68. _____ As payment for a new computer purchased at S Computers, R makes a
check payable to S Computers. A proper indorsement of the check can be
S Computers. (T)
69. _____ Payment of value is not required of a holder to qualify as a holder in
due course. (F)
70. _____ To qualify as a holder in due course, a person must be a payee of the
instrument. (F)
71. _____ B purchases a time instrument from G. B takes the instrument the day
after its expressed due date. B is on notice that the instrument is no longer
negotiable. (F)
72. _____ N acquires a negotiable instrument by promising to pay its face value
in one month when Ns certificate of deposit matures. N can become a holder
in due course when he pays the consideration due. (T)
73. _____ To acquire a negotiable instrument as a holder in due course, a holder
can take an instrument as payment for an antecedent claim. (T)
74. _____ The selling price of a time instrument will sometimes vary from its face
amount because it is usually discounted to allow for various transaction costs
and charges. (T)
75. _____ A holder may give value by giving a negotiable instrument as payment.
(T)
76. _____ A holder can acquire an instrument for value but still not be accorded
the status of a holder in due course if the instrument was acquired when the
holder was a minor. (F)
77. _____ One night, at midnight, W buys a $1,000 promissory note for $200 out
of the trunk of Fs car in an alley. The maker of the note, when presented with
a demand for payment by W, would likely claim that W did not acquire the
instrument in good faith and had notice of a problem. (T)
78. _____ C, an employee, is authorized to use a signed company check to
purchase office supplies. C alters the check, before reaching the office supply
store, so that it states an amount $100 in excess of the purchase price. When
the office supply store presents the check for payment, it may recover the
amount stated in the check. (T)
79. _____ C receives a check from a homeowner for painting a house. She
transfers the check to a paint store to pay for her account. The store owner
gives the check to his nephew as a gift. The nephew is not a holder in due
course (HDC), but acquires HDC rights under the shelter principle. (T)
80. _____ Universal or real defenses may be raised by the maker of a negotiable
instrument to avoid payment to both holders and holders in due course. (T)
81. _____ Fraud in the execution or inception is not a universal or real defense.
(F)
82. _____ Prior payment of an instrument is a real or universal defense. (F)
83. _____ Breach of contract is not a personal defense. (F)
84. _____ Changing the amount of an instrument by 10 cents is considered to be a
material alteration of an instrument. (T)
85. _____ Rs Appliances sells shoddy products to consumers in exchange for
promissory notes, then sells the notes to F Finance Company, and goes out of
business. The consumers may be able to avoid payment on the notes because
of a Federal Trade Commission rule. (T)
86. _____ The obligation of a party who is secondarily liable on an instrument
arises whenever the instrument is presented for payment to the secondary
party by the holder. (F)
87. _____ J indorses a check by indorsing the instrument and adding the words
without recourse. J undertakes no further obligation to pay the instrument.
(F)
88. _____ B writes a check to H that is drawn on his account at the First National
Bank. H presents the check to the bank for payment, and the bank accepts the
check. The bank is secondarily liable for payment. (F)
89. _____ A acquires a negotiable instrument drawn on the N State Bank. To
present the instrument for payment, she must attached a notarized statement
that she is the holder. (F)
90. _____ E is the authorized agent for N. To avoid personal liability on any
negotiable instruments that she signs on the behalf of N, E cannot sign her
name at all, only Ns. (F)
91. _____ W, the president of E Tool Company, habitually leaves the payroll
checks in the open. L, an employee, forges Ws signature on a check and
cashes it. W is not obligated to pay any party who may later acquire the check
due to the forgery. (F)
92. _____ The fact that an instrument has not been altered is not a presentment
warranty. (F)
93. _____ The failure of a drawee bank to certify a check is a dishonor of the
check. (F)
94. _____ B writes a check to Q on her account at the State Bank. The bank
refuses to honor the check even though B has adequate funds in her account.
Qs suit against the bank would likely fail since State Bank is accorded
sovereign immunity by the Federal Deposit Insurance Corporation. (F)
95. _____ A stale check is one which is presented for payment six months after
issue. (T)
96. _____ A cashiers check will not be affected by the issuance of a stop
payment order. (T)
97. _____ Unless a bank is negligent, it will not be liable for paying a check with
a forged drawers signature if the drawer was negligent in reporting the theft
of the check or the existence of the forgery. (T)
98. _____ The Electronic Fund Transfer Act is essentially a disclosure law
designed to benefit small banks. (F)
99. _____ For an instrument to operate as a substitute for money or as a credit
device, it is a prerequisite that it be payable only on demand. (F)
100. _____ To pay a purchase obligation, X writes a check to the appropriate
vendor. X is a drawer. (T)
101. _____The X Company issues a trade acceptance with itself and the Y
Company as parties. A trade acceptance is a promise to accept delivery of
goods. (F)
102. _____ A makes a promissory note in favor of B. A may create the note so
that it is payable at a certain definite time in the future. (T)
103. _____ As oral promise to pay $300 to B is not a negotiable instrument
only because the promise does not recite the consideration that was given by
B to A in exchange for the promise to pay $300. (F)
104. _____ X signs a promissory note using an X with a circle around it.
With this mark for a signature, the instrument is not negotiable because a
signature must be in full to completely identify the party to whose name
appears on the instrument. (F)
105. _____ The phrase, payment of this note must be made from the proceeds
of next years crop, renders the note nonnegotiable. (T)
106. _____ X signs a promissory note that states in part that it is being
executed in accordance with a contract for the sale of 550 dozen widgets
dated July 1. The note is negotiable. (F)
107. _____ A signs a promissory note in favor of B that states the note is
subject to a certain security agreement between A and C. The note is
negotiable because it merely refers to the security agreement. (F)
108. _____ X signs a promissory note in which she promises to pay 100 bags
of grain to Y by July 1. The note is not negotiable only because it does not
indicate a specific type of grain and thus the subject matter is vague. (F)
109. _____ M signs a promissory note promising to pay $5,000 in gold bullion
to P. The note is negotiable because gold supports several currencies. (F)
110. _____ M executes an installment promissory note in favor of P that allows
a holder to demand payment of the entire amount due, with interest, if M fails
to make an installment payment. This is a valid acceleration clause. (T)
111. _____ An instrument is payable at a definite time if it states that it is
payable within a definite period of time after sight or acceptance. (T)
112. _____ M executes a note in favor of P that states, the holder of this note
at the date of maturity, August 15, 2009, can extend the time of payment
indefinitely, if the holder so desires. This language will result, after August
15, in the instrument being treated as a demand instrument. (T)
113. _____ D signs a check made payable to P and gives it to P. P indorses the
check over to I to satisfy a prior debt. I indorses the check over to Y as a
birthday present. Y indorses the check over to Z. The instrument was issued
when D gave the check to P. (T)
114. _____ X possesses an instrument payable to bearer. She loses the
instrument, but it is found by Y. Y cannot transfer the instrument because he
gave no value for it. (F)
115. _____ B receives a check from C. B indorses the check to H by writing
pay to the order of H and signing his (Bs) name. The indorsement is a
restrictive indorsement. (F)
116. _____ X indorses a check, pay to ABC Trucking Company if they deliver
the steel by May 1, 2000. This indorsement is a qualified indorsement. (F)
117. _____ To claim the rights of a holder of a negotiable instrument, a person
need only have possession of it. (F)
118. _____ A an attorney gives his nephew a check for $500 as a graduation
present. The check was given to A as payment for work to be done for a
client. A, who indorses the check without recourse, knows the work has not
yet been done, but the nephew does not. The nephew is a holder in due course
of the check. (F)
119. _____ M owes P $1,000. M executes a note to P as security for the debt.
This security does not constitute sufficient value for holder in due course
status. (F)
120. _____ A is the payee of a bearer promissory note in the amount of
$10,000. B offers to irrigate As ranch next week in exchange for the note. A
agrees and delivers the note to B. B is not a holder in due course because the
note is a bearer instrument. (F)
121. _____ W inherits a promissory note previously held by his deceased
grandparents. W can never be a holder. (F)
122. _____ Parties who sign commercial paper are potentially liable for
payment of the amount of consideration received on the signing of the
instrument. (F)
123. _____ A holder may give value by taking an instrument in payment of, or
as security for, an antecedent debt. (T)
124. _____ Good title in a negotiable instrument, for purposes of acquiring the
rights of a holder, means that the title must be free of forgeries of those names
necessary to the chain of title. (T)
125. _____ R indorses a check marked insufficient funds to J to satisfy a
prior debt. J fails to notice the marking. J presents the check for payment, but
the drawee refuses to honor it. J very likely can successfully claim the rights
of a holder in due course. (F)
126. _____ A careful forgery of the makers or drawers signature that cannot
be detected by means of a reasonable inspection will preclude a party who
acquires the check from asserting the rights of a holder in due course. (F)
127. _____ A transferee of a negotiable instrument may never acquire holder in
due course rights under the shelter principle if he or she is aware of a claim or
defense against the instrument. (F)
128. _____ Personal defenses may be raised by the maker of a negotiable
instrument to avoid payment to both holders and holders in due course. (F)
129. _____ Unauthorized completion of an incomplete instrument is not a real
or universal defense. (T)
130. _____ B, a mentally impaired person, is asked by C to sign a piece of
paper that C says is an autograph book. In fact, the document is a note. If later
sued by an HDC, Bs best defense would be fraud in the inducement. (F)
131. _____ M, a salesperson, convinces E, who does not understand English, to
sign a $1000 note that E believes is an application to open a bank account. M
negotiates the note to Ace Financial Company. E can avoid payment of the
note even if Ace is a holder in due course. (T)
132.
_____ Breach of contract is not a real or universal defense. (T)
133. _____ The requirement that a negotiable instrument be signed is

predominantly based on the need to know who is liable under the transfer
warranty doctrine. (F)
134. _____ The drawer is primarily liable on a negotiable draft because he or
she originally drafted the instrument. (F)
135.
A is Gs authorized agent. To avoid personal liability on any negotiable
instrument that A signs on Gs behalf, A should possess proper authority and
indicate that A is signing on Gs behalf and name G in the instrument. (T)
136.
_____ A party who agrees to cosign a promissory note is an indorser. (F)
137. _____ An imposters indorsement will be effective against at least the

drawer. (F)
138. _____ The fictitious payee rule arises most often in situations in which a
dishonest employee deceives an employer into signing an instrument payable
to a party with no right to receive the instrument. (T)
139. _____ When a bank agrees to accept a check by setting aside sufficient
funds to cover the amount of the check, the check is considered provisionally
credited to the depositors account. (T)
140. _____ J writes a check for $50 and presents it to R, who indorses it to A,
who subsequently indorses it to K. The bank dishonors the check after it is
presented by K. K may sue the bank for dishonoring the check. (F)
141. _____ E writes a check to P on January 1 that is drawn on the account of
State Bank. P presents the check on October 15. The bank is not obligated to
pay the check under any circumstances. (T)
142.
_____ An oral stop payment order, if permitted, is valid for forty days. (F)
143. _____ When the bank knows of the death of its customer, it can pay or
certify checks drawn on or prior to the date of death for no time after the
knowledge of death. (F)
144. _____ Government checks must be made available on the next business
week under the Expedited Funds Availability Act of 1987. (F)
Chapter 9 Creditors and Debtors
1. _____ A mechanics lien can be enforced to obtain payment for work that
adds value only to personal property. (F)
2. _____ A creditor with a mechanics lien on property usually can force a sale
of the property to satisfy the debt. (T)
3. _____ An attachment is a court ordered seizure and taking into custody of
property prior to the securing of judgment for past-due debt. (T)
4. _____ A court may not order an employer, as a result of a garnishment
proceeding, to turn over a debtor/employees property to pay a debt. (F)
5. _____ The law limits the amount of money that can be garnished from a
debtors weekly take-home pay. (T)
6. _____ A surety is generally secondarily liable on an obligation. (F)

7. _____ A surety becomes primarily liable only when a debtor cannot pay a
debt. (F)
8. _____ Homestead exemptions are designed to permit debtors to retain some
part of all of the value of their homes, free of the claims of some creditors. (T)
9. _____ A release by the creditor of the principal debtor, without the consent of
the surety, will, without more, release the surety. (T)
10. _____ Before a guarantor of a debt can be required to answer for the debt of a
debtor, the debtor must have defaulted on the underlying obligation. (T)
11. _____ A security interest in personal property is enforceable only if the
collateral is in the secured partys possession. (F)
12. _____ The person who owes payment of a secured obligation is called the
secured party. (F)
13. _____ To create an enforceable security interest, the secured party must give
value. (T)
14. _____ On default, unless the security agreement states otherwise, the secured
party has the right to repossess the collateral. (T)
15. _____ When two secured parties have perfected security interests in the same
collateral, the first one to perfect always has priority. (F)
16. _____ A perfected security interest will ordinarily have priority over an
unperfected security interest. (T)
17. _____ Filing a financing statement with the appropriate public office is the
only way to perfect a purchase money security interest in consumer goods. (F)
18. _____ To be valid, a financing statement must contain a description of the
collateral. (T)
19. _____ Bankruptcy proceedings are conducted in federal bankruptcy courts.
(T)
20. _____ A bankruptcy court can examine a debtors income to determine
whether the debtors petition for bankruptcy relief constitutes substantial
abuse. (T)
21. _____ The filing of a petition for bankruptcy will automatically stay most
legal actions against the debtor. (T)
22. _____ The principal duty of a trustee in bankruptcy is to liquidate and close
out the debtors estate as soon as possible. (T)
23. _____ A trustee in bankruptcy has the power to avoid the sale of the debtors
property. (T)
24. _____ Generally, pursuant to bankruptcy law, the claims of all creditors of an
estate must be satisfied before any remaining amounts can be given to the
debtor. (T)
25. _____ If the assets in a debtors estate in bankruptcy are insufficient to pay all
of his or her creditors, none of the creditors are paid. (F)
26. _____ Under Chapter 13 of the bankruptcy code, only voluntary bankruptcies
by businesses are permitted. (F)
27. _____ It is not necessary for a security interest to attach for a proper filing to
occur. (F)
28. _____ A purchase money security interest may be created when a lender
agrees to lend most of the purchase price for consumer goods. (T)
29. _____ The most common method of perfecting a security interest under the
UCC is for the creditor to retain possession of the collateral. (T)
30. _____ When a secured party takes the possession of the collateral to perfect
the security interest, the transfer is a purchase money security interest. (F)
31. _____ A financing statement is valid for seven years, but can be renewed for
one more year. (F)
32. _____ Priority among competing security interests is determined by the time
the security agreement was signed. (F)
33. _____ Attorneys fees stemming from the preparation and conducting of the
sale of a secured collateral have the highest priority in the application of
proceeds from the disposition of collateral. (F)
34. _____ If a lien is foreclosed, the party having the lowest priority claim to the
proceeds ordinarily is the auctioneer. (F)
35. _____ The primary function of the bankruptcy courts is to hold proceedings
regarding the discharge of debts. (T)
36. _____ M Mining Company files a petition in bankruptcy. It receives an

automatic stay which discharges all its debts until the formal hearing when
creditors will have to prove the validity of the obligation. (F)
37. _____ S files a petition for bankruptcy. Ss creditors must file with the court
their proof of claims against Ss assets within 190 days of the creditors
meeting. (F)
38. _____ M files a petition for discharge in bankruptcy. Ms failure to appear at
the meeting of creditors listed in Ms schedule may result in M being held in
contempt of court and fined. (T)
39. _____ O files for bankruptcy. On behalf of Os estate, a trustee ordinarily
could reclaim Os recent payment of last months usual phone bill. (F)
40. _____ The creditors of a debtor usually will have a much better chance of
being repaid if, instead of Chapter 7, a debtor is required to file under Chapter
13. (T)
41. _____ In order to create an enforceable security interest, there should be a
written security agreement regarding the security interest unless the person
acquiring the interest plans to maintain possession of the property. (T)
42. _____ A security interest in collateral is enforceable when attachment occurs.
(T)
43. _____ A financing statement must contain the signature of the creditor. (F)
44. _____ In general, a financing statement may be filed with the local chamber
of commerce. (F)
45. _____ The initial effective term of a financing statement is a period of five
months. (F)
46. _____ Among secured parties, the general rule of priority is the first security
interest to be filed or perfected has priority over other filed or perfected
security interests. (T)
47. _____ When the repossessing creditor intends to sell the collateral, the debtor
has the right to notice and redemption. (T)
48. _____ To collect a debt, F Loan Company could use execution as a
prejudgment remedy. (F)
49. _____ A debtors savings account may be subject to garnishment, but not the
debtors certificate of deposit. (F)
50. _____ The primary objective of the bankruptcy code is repossess property for
creditors. (F)
51. _____ Ms voluntary petition for bankruptcy is found to be proper. The order
for relief is effective only when the debtor posts a bond to cover the costs of
proceedings. (F)
52. _____ The bankruptcy plan that cam provide for liquidation of all non-exempt
assets for cash in return for discharge of debts is Chapter 7. (T)
53. _____ E files a petition for discharge in bankruptcy. Exempt from the claims
of Es creditors are such property as the right to receive alimony and child
support. (T)
54. _____ W files a petition for a discharge in bankruptcy. Property received by
W that is subject to creditors claims can include inheritances. (T)
55. _____ S transfers property and makes payments that favor one creditor over
another. These are preferences that ordinarily will be upheld if the creditor is a
close family relation or friend. (F)
56. ____ Chapter 12 plans are designed in part to aid small farmers. (T)
Chapter 10 Internet Law
1. _____ Under federal law in the U.S., employers can monitor employees
personal communications without the employees consent. (F)
2. _____ Doing substantial business in a jurisdiction exclusively over the
Internet is never enough to support jurisdiction over a non-resident defendant.
(F)
3. _____ There are not statutes regulating the use of spam since it is speech
which is absolutely protected by the U.S. Constitution. (F)
4. _____ Federal law in the U.S. permits the use of unsolicited commercial email
but prohibits certain types of spamming activities. (T)
5. _____ The terms in a shrink-wrap agreement may be enforced if they are
construed as parts of the contract. (T)
6. _____ The terms in a click-on agreement may be enforced if they are
construed as parts of the contract. (T)
7. _____ The UETA statute in the U.S. supports the enforcement of e-contracts.
(T)
8. _____ Electronic signatures are not legal in the United States. (F)
9. _____ The Internet Corporation for Assigned Names and Numbers is
authorized to arbitrate domain name disputes. (T)
10. _____ Since spam is a form of electronic junk mail, it can be totally
prohibited by the government. (F)
11. _____ Both federal and state laws now strictly prohibit any employer
monitoring of employees on the job. (F)
12. _____ Under the UCITA act, when an electronic offer is accepted, the
electronic acceptance is effective on dispatch. (F)
13. _____ The UCITA act preserves the common law contract rules regarding the
effect of a counteroffer. (F)
14. _____ The E-Sign law is a federal law that specifies the type of computer
hardware and software contracting parties must use to have a valid electronic
signature on a contract. (F)
Chapter 11 Intellectual Property

1. _____ In determining whether copyright protection should be granted, the key
issue is the manner and style in which a particular idea is expressed. (F)
2. _____ A formula for a chemical compound cannot be a trade secret. (F)
3. _____ A business plan or strategy cannot be the basis for a trade secret since
such information is too soft as opposed to hard scientific and technical
info. (F)
4. _____ Theft of confidential information by industrial espionage can be the
theft of a trade secret and a very serious federal crime in the United States. (T)
5. _____ Under the TRIPS agreement, each member country must include in its
domestic laws broad intellectual property rights. (T)
6. _____ The Berne Convention is an international copyright treaty. (T)
7. _____ Without patent, copyright, trademark, or trade secret protection for a

product, a competitor may be able to copy it legally but unethically. (T)
8. _____ Patent, trademarks, and copyrights are all government granted
monopolies. (T)
9. _____ Non-compete clauses in employment contracts may be enforceable if
they are reasonable in time and place and necessary to protect a legitimate
business interest of the employer even if the former employee is economically
harmed. (T)
10. _____It is not possible to legally reverse engineer a patented product if the
same result is achieved. (F)
11. _____ Computer programs cannot be patented since they are based on
mathematics which is known and discoverable by anyone. (F)
12. _____ Computer programs and software cannot be copyrighted since they are
not the equivalent of literary works. (F)
13. _____ A companys slogan can be protected pursuant to federal trademark
law. (T)
14. _____ Trade secret law can protect information that has even potential
economic values. (T)
15. _____In order for a companys confidential information to rise to the level of
a legally protected trade secret, the information cannot be revealed to anyone
outside the company. (F)
16. _____ In order to create a legally protected trade secret, a company needs to
maintain reasonable security measures to keep the information secret. (T)
17. _____ Covenant not to compete laws do not apply to high-tech employees in
the U.S. since federal law wants to encourage entrepreneurial technology
initiatives by former employees. (F)
18. _____ Confidentiality agreements in employee contracts with their corporate
employers will usually not be enforced since they are an infringement on the
employees freedom of speech. (F)
19. _____Non-solicitation agreements whereby a former employee is not allowed
to solicit his or her former customers may be legal even if the employee
produced the business-customer relationship. (T)
20. _____ Any invention an employee invents that relates to his or her work even
indirectly belongs completely to the employer who is paying the employees
salary. (F)
21. _____ In order to take advantage of trade secret law, an employer must have
all its employees sign confidentiality and non-disclosure agreements. (F)
Chapter 12 Real Property
1. _____ A tenancy at will is created by an express contract by which property is
leased for a specific period of time. (F)
2. _____ A quitclaim deed warrants more than any other deed. (F)
3. _____ Adverse possession is a means of obtaining ownership and title of
property without any delivery of a deed. (T)
4. _____ Government taking of private property for public use or purpose in the
U.S. requires the payment of just compensation. (T)
5. _____ Ownership by one person in fee simple of property is called a tenancy
by the entirety since the single individual owns the whole property. (F)
6. _____ Real property consists of land, that is, the earths surface, but not
buildings and structures attached to is, as they are considered things. (F)
7. _____The closing is a real estate term indicating the transaction where the real
estate contract is signed, sealed, and witnessed. (F)
8. _____ A special warranty deed is one in which the grantor specially warrants
that he or she has good title to the property and all prior grantors also had
good title. (F)
9. _____ The delivery of the deed is an essential requirement to the transfer of
real property in the United States. (T)
10. _____ There is no right to survivorship in a tenancy in common. (T)
11. _____ An easement by prescription is similar to acquiring property by adverse
possession. (T)
12. _____ In the typical purchase money mortgage situation, the seller agrees to
take back a mortgage from the buyer for part of the purchase price to the
property. (T)
13. _____A mortgage agreement must be evidenced by a writing. (T)
14. _____ A mortgage operates as a lien on personal property. (F)

15. _____ Real estate developers need only be concerned with federal permitting
since federal law supersedes state and local law. (F)
Chapter 13 International
1. _____ When a forum-selection or choice-of-law clause is included in an
international contract, legal proceedings are more complex and attended by
more uncertainty. (F)
2. _____ In an international transaction between parties in two different
countries where the parties have not designated a choice of law for their
contract, the law to be applied would generally be the law of Switzerland
since it is regarded as a neutral county. (F)
3. _____ Bribery of foreign government officials is both a moral and a legal
issue for U.S. business today. (T)
4. _____ International law is a body of law that governs relations among nations.
(T)
5. _____ Under the principle of comity, a foreign business that deals with a U.S.
business may be subject to U.S. law. (T)
6. _____ Most legal systems around the world are divided into generally into
common law and civil law systems. (T)
7. _____ Restrictions on imports may include tariffs. (T)
8. _____ The most basic way for a U.S. firm to do business in a foreign market
is to export its products directly to that market. (T)
9. _____ The clearest source of international public law is a treaty. (T)
10. _____ Civil law is based predominantly on cases from judges who issue
general legal precepts. (F)
11. _____ There is no such thing as customary international law since who is to
say exactly what the prevailing customs are. (F)
12. _____ The Convention on Contracts for the International Sale of Goods
closely follows Anglo-American common law. (F)
13. _____ The U.S. government strictly forbids the export of company trade
secrets by a company disclosing them to foreign nationals including the
companys own employees working overseas. (F)
14. _____ In the U.S., most export transactions require specific approval in the
form of licenses from the federal government. (F)
15. _____ Letters of credit are often used as a method of paying for exports in
international transactions. (T)
16. _____ The Convention on Contracts for the International Sale of Goods
closely follows Article II of the UCC. (T)
Chapter 14 Accountants Liability

1. _____ Securities include only stocks and bonds and not other forms of
investment contracts pursuant to U.S. legal interpretation. (F)
2. _____ The least common types of securities are stocks and bonds issued by
corporations. (F)
3. _____ After a security is sold to the public, the Securities and Exchange
Commission then requires that investors be provided with a prospectus. (F)
4. _____ Blue sky laws refer to federal securities laws in the United States. (F)
5. _____ Scienter or the presence of a bad motive is a requirement for liability
under Section 10(b) of the Securities Act of 1934. (T)
6. _____ Anyone who knowingly receives inside information as a result of an
insiders breach of a fiduciary duty or duty of loyalty or confidentiality can be
liable under Rule 10b-5 if the recipient trades on such information. (T)
7. _____ A key feature to liability under SEC Rule 10b-5 is whether the
undisclosed inside information is material. (T)
8. _____ Private offerings of securities that are not generally solicited or
advertised may be exempt from the registration requirements of the Securities
Act of 1933. (T)
9. _____ No securities that are offered for sale in the U.S. are exempt from the
registration requirements of the Securities Act of 1933. (F)
10. _____ Regarding negligence, an accountant is subject to no greater legal
standard than the average, reasonably prudent person. (F)
11. _____ An accountants violation of generally accepted accounting principles

and generally accepted auditing standards is prima facie evidence of
negligence. (T)
12. _____ An accountant who prepares a financial statement for a client, knowing
that the client will use the statement to prepare a loan, can be liable to the
lender. (T)
13. _____ Some jurisdictions in the U.S. hold accountants liable to users whose
reliance on the accountants statements was reasonable foreseeable. (T)
14. _____ A failure by an accountant to follow generally accepted accounting
principles and generally accepted auditing standards is evidence of a lack of
due diligence. (T)
15. _____ The Securities and Exchange Commission is a government agency that
itself can impose, after an agency trial, criminal penalties on accountants,
imprisonment for legal violations. (F)
16. _____ The 2002 Sarbanes-Oxley Act significantly increased criminal
penalties for corporate securities fraud. (T)
17. _____ The SECs primary goal is to protect investors from foolish
investments by requiring prior approval of stock offerings. (F)
18. _____ Corporate managerial employees might be considered to be insiders
with potential liability for insider trading pursuant to securities laws. (T)
19. _____ The definition of a security for purposes of U.S. federal securities law
is very broad and includes many types of investments in addition to traditional
stocks and bonds. (T)
20. _____ Every sale of a security in the U.S. is subject to registration with the
SEC under the Securities Act of 1933. (F)
21. _____ A prospectus is a primary source of factual information about a security
for potential investors. (T)
22. _____ The definition of who is an insider for the purposes of insider trading
regulations is very clearly set forth in U.S. securities law. (F)
23. _____ Under the Securities Act of 1933, one of the primary objectives of the
Act is to allow the SEC to determine whether or not the proposed security is
reasonably safe and offers the prospect of a decent return to potential
investors. (F)
24. _____ An outside auditor discovers a company she is auditing is about to

make a major acquisition and, as a result, buys stock in the target company.
Since the auditor is not an employee of either firm, this purchase is legal
under U.S. insider trading rules. (F)
25. _____ Professionals in the accounting profession are subject to standards of
conduct established by the law as well as codes of professional ethics. (T)
26. _____ An accountants violation of generally accepted accounting principles
and generally accepted auditing standards will be considered prima facie
evidence that the accountant was fraudulent. (F)
27. _____ Under the Restatement (Second) of Torts, accountants are subject to
liability for negligence only to their clients whom they owe a contract duty.
(F)
28. _____ An accountant can avoid liability under Section 11 of the Securities Act
of 1933 by showing that he or she was truly ignorant of information that was
omitted in the preparation of financial statements included in the registration
statement. (F)
29. _____ For a plaintiff to recover from an accountant under the anti-fraud
provisions of the 1934 Securities Exchange Act and Rule 10b-5 of the
Securities and Exchange Commission, the plaintiff must prove the plaintiffs
status as a client of the accountant. (F)
30. _____ Under Rule 10b-5, corporate insiders only include directors, officers,
and high level executives and managers. (F)
31. _____ Anyone who knowingly receives inside information as a result of an
insiders breach of his or her fiduciary duty can be liable under Rule 10b-5.
(T)
32. _____ The Securities Act of 1933 provides that non-exempt securities must be
registered before they are offered to the public. (T)
33. _____ The Securities Exchange Act of 1934 applies only to big corporations
with assets of more than $50 million and more than 5000 shareholders. (F)
34. _____ SEC Rule 10b-5 applies in all stock transactions except purely private
transactions. (F)
35. _____ If an individual wrongfully obtains inside information by wiretapping,
and trades thereon, then he or she is a misappropriator and is subject to civil
and criminal liability. (T)
36. _____ Section 16(b) of the Securities Exchange Act applies to short swing
profits. (T)
37. _____ Section 16(b) applies to insiders only. (F)
38. _____ State laws enacted to regulate intrastate offerings of securities typically
are known as blue sky laws. (T)
39. _____ Tipees are not covered by Section 16(b) but are by Rule 10b-5. (F)
40. _____ Anyone who knowingly trades on inside information, regardless of
how acquired, commits a legal wrong, because the goal of the law is to ensure
a level playing field. (F)
41. _____ Federal securities laws require a registration statement to be filed for
public offerings of stock unless the stock or offering can qualify for an
exemption. (T)
42. _____ Generally, stock offerings that involve either a small amount of money
or are made in a limited manner during any 12 month period are exempt from
securities registration requirements. (T)
43. _____ All persons who sign a registration statement may be liable for
materially false and misleading statements contained in it. (T)
44. _____ Under SEC Rule 10b-5, corporate insiders include executives,
directors, officers, and majority shareholders only. (F)
45. _____ The primary purpose of the Securities Act of 1933 is to reduce
commodity speculation. (F)
46. _____ If a corporate offer of stock is governed by the Securities Act of 1933,
a registration statement is not required but a prospectus is. (F)
47. _____ If a securities registration statement contains misleading information,
liability may be imposed on all involved except the accountant who checked
the statement since he or she merely added up the numbers. (F)
48. _____ The Securities Exchange Act of 1934 regulates the activities of
stockbrokers, securities exchanges, but not national securities associations. (F)
49. _____ An insider need not disclose information that is, in fact, truly public,
even if the other party is not aware of the information. (T)
50. _____ Section 16(b) of the Securities Exchange Act of 1934 limits insiders
with respect to short-swing profits, even if made without inside information.
(T)
51. _____ Profits made by an insider who purchases and sells or sells and
purchases the corporations stock within any 6 month period, standing alone,
are a firm basis for criminal prosecution. (F)
52. _____ Section 16(b) applies to accountants only. (F)
53. _____ Section 14(a) of the Securities Exchange Act of 1934 regulates the
declaration of dividends by corporate boards. (F)
54. _____ Mutual fund activities are regulated primarily by international financial
treaty law. (F)
55. _____ If a professional fails to perform as agreed in contract with a client, the
professional may be held liable for reasonable and foreseeable monetary
losses that arise from the professionals breach. (T)
56. _____ Under the common law, professionals may be held liable to clients for
breach of contract, negligence, and/or fraud. (T)
57. _____ An accountant may successfully defend against a negligence claim if
he or she can establish that scienter, or an intent to harm, was lacking. (F)
58. ______ An accountants violation of generally accepted accounting principles
and generally accepted auditing standards will be considered prima facie
evidence that the accountant breached a fiduciary duty. (F)
59. _____ Under securities laws, accountants may be subject to civil and criminal
penalties. (T)
60. _____ Section 10(b) of the 1934 Securities Exchange Act and Rule 10b-5 of
the Securities and Exchange Commission do not apply to accountants
employed by corporations. (F)
61. _____The Internal Revenue Code makes aiding and assisting in the
preparation of a false tax return a felony punishable only by a fine. (F)
62. _____ Working papers, such as notes and computations, which are created by
an accountant when preparing financial reports or documents for a client are
owned by the client. (F)
63. _____ As a general rule, before a security can be sold to the public,
prospective investors must be provided with a prospectus. (T)
64. _____ Generally, stock offerings that involve a small amount of money may
be exempt from federal security registration requirements. (T)
65. _____ All persons who sign a registration statement may be liable for false
and misleading statements contained in it. (T)
66. _____ Stock splits ordinarily are exempt from registration requirements so
long as no commissions are paid. (F)
Chapter 15 Wills and Trusts
1. _____ One who dies without a valid will dies intestate. (T)
2. _____ A lapsed legacy in a will occur if the testator predeceases the legatee
(that is, the intended recipient of the legacy). (F)
3. _____ In a spendthrift trust, a beneficiary can transfer his or her right to the
trusts principal if the transfer is deemed to be a thrifty and prudent one. (F)
4. _____ An express trust arises by operation of the law. (F)
5. _____ Once executed, a will cannot be revoked. (F)
6. _____ A will may be declared invalid due to undue influence. (T)
7. _____ Divorce automatically revokes the entire will of a spouse who executed
the will prior to the divorce. (T)
8. _____ When assets are insufficient to pay in full all the bequests provided for
in a will, as well as the taxes, debts, and expenses of administering the estate,
the assets of the estate are distributed under intestacy laws. (F)
9. _____ A will that is completely in the handwriting of the testator is a
holographic will. (T)
10. _____ The publication of a will is the formal publication of the will in a
newspaper in the county where the testator resided on the testators death. (F)
11. _____ A separate written instrument that amends or revokes a prior will is a
constructive will. (F)
12. _____ Under intestacy laws, the debts of an intestates estate are paid by the
administrator personally, who is later proportionately reimbursed by the legal
heirs. (F)
13. _____ Express trusts include testamentary trusts and resulting trusts. (F)
14. _____ Implied trusts include constructive trusts and inter vivos trusts. (F)
15. _____ An executor typically is the person who makes a will. (F)
16. _____ The process by which the validity of a will is established is called
probate. (T)
17. _____ A lapsed legacy occurs when the legatee dies prior to the death of the
testator or before the legacy is payable. (T)
18. _____ The residuary of an estate consists of the assets of a decedents estate
that are subject to estate taxes. (F)
19. _____ If a child is born after a will has been executed and if it appears that the
testator would have made a provision for the child, the will is automatically
revoked, and if no subsequent will was created, the entire estate will pass
under intestacy laws. (F)
20. _____ Under intestacy laws, if there is no surviving spouse or child, the estate
will pass to lineal descendants, who are next in line to share in the estate. (F)
21. _____ A trust created by a will to come into existence upon the settlers death
is a testamentary trust. (T)
22. _____ A trust that protects the beneficiary against his or her improvident use
of the bestowed funds is a constructive trust. (F)
Chapter 16 Personal Property, Gifts, Bailment
1. _____ If the bailee fails to return bailed property to the bailor, the bailee may
be liable for breach of contract. (T)
2. _____ For a legally effective bailment, the bailor must retain control, but not
necessarily possession, of the bailed property. (F)
3. _____ For a legally effective bailment, the bailor must retain possession of the
bailed property. (T)
4. _____ Property voluntarily placed by its owner with no intention of
reclaiming it is considered by the law to be abandoned property. (T)
5. _____ A finder immediately acquires title to lost property good against the
whole world, including the original owner of the property. (F)
6. _____ Property voluntarily placed by the owner and inadvertently forgotten is

mislaid property. (T)
7. ______ Delivery of intangible personal property must by accomplished by
symbolic delivery in order to have a valid gift. (T)
8. _____ The donee of a gift must be given consideration to make the gift legally
effective. (F)
9. ____ It is possible to obtain title to personal property by mistakenly making
substantial improvements to it. (T)
10. _____No one will be able to acquire title to mislaid property except the true
owner since eventually he or she will remember where the property was left.
(F)
11. _____ An inter vivos gift requires consideration to be legally effective. (F)
12. _____ A gift causa mortis is one that the donor intends to be effective only on
his or her death. (F)
13. _____ A bailment is not effective unless the bailee/recipient knowingly
accepts the personal property. (T)
14. _____ If the bailee is not compensated by the bailor for holding the goods, the
bailee is not required to exercise any care for safeguarding the goods. (F)
15. _____ Today, pursuant to most states laws, innkeepers are absolutely liable
for the loss of any of their guests property since innkeepers can get insurance.
(F)
Chapter 17 - Conclusion
Sample Test Questions, Final Exam, Fall 2003, Professor Isler

True/False
____
1. When an obvious clerical error exists in a written contract, the contract may not be enforceable.
____
2. If the subject matter of a contract turns out to be more valuable than one of the parties believed it would be,
that party can rescind the contract.
____
3. A fraudulent contract may be enforced by the innocent party.
____
4. An act of concealment, with an affirmative misrepresentation, will not be sufficient to give rise to an action
for fraud.
____
5. A statement by a nonexpert seller to a nonexpert buyer about the setback restrictions on a parcel of property
must be true or the buyer can cancel the contract.
____
6. The fact that certain material information is not volunteered by the seller of a product will usually give rise to
an action for fraud.
____
7. Scienter exists if a party makes a statement that he or she does not believe is true.
____
8. Undue influence will typically arise in situations in which there is a fiduciary relationship between the parties.
____
9. A contract entered into under undue influence is voidable.
____ 10. A contract entered into under duress is voidable.

____ 11. The Statute of Frauds requires that fraud must be proved by a writing.
____ 12. The Statute of Frauds requires that statutes must be in writing.
____ 13. A contract must be in writing to be enforceable if performance is improbable or unlikely within one year.
____ 14. An oral contract for a transfer of land is enforceable.
____ 15. A party's oral agreement to pay another's debt is enforceable if the party's main purpose is to derive a benefit
for himself or herself.
____ 16. To be enforceable, a contract for a sale of goods priced at $500 or more must be in writing.
____ 17. An oral contract that must be in writing to be enforceable is not enforceable even if the party against whom
enforcement is sought admits, in pleadings, to its existence.
____ 18. Parol evidence is only oral evidence that is outside a written contract and not incorporated into the contract
expressly or by reference.
____ 19. The parol evidence rule permits the introduction at trial of evidence of the parties' prior negotiations even if
they differ from the terms of the parties' written contract.
____ 20. When the terms of a written agreement are clear, and there is no fraud or deceit, the parol evidence rule bars
oral evidence that contradicts those terms.
____ 21. Privity of contract refers to the fact that only the actual parties to a contract should have rights and liabilities
under the contract.
____ 22. An unconditional assignment of rights in a contract will extinguish the rights of the assignor.
____ 23. Banks may assign their loan contracts to other firms.
____ 24. A right to receive income can be assigned.

____ 25. A contract that contains language stating that any assignment is "void" may still be assigned.
____ 26. An assignment of an insurance policy cannot be prohibited.
____ 27. Third parties have no rights to contracts to which they are not a party, even if the contracting parties made the
contract with the intent to benefit a third party.
____ 28. The vesting of contractual rights in a third party will not prevent the original parties to the contract from
modifying the contract as long as the contract expressly reserves their right to do so.
____ 29. If a contract expressly reserves to the contracting parties the right to cancel, rescind, or modify the contract,
then the rights of the third party beneficiary are subject to any changes made by the contracting parties.
____ 30. The fact that a contract does not require performance rendered directly to a third party will make it very likely
the third party will be considered an intended beneficiary.
____ 31. When a condition operates to terminate a party's absolute promise to perform, it is a condition precedent.
____ 32. A buyer's duty to pay becomes absolute once a contract is formed.
____ 33. Contracts for works of art, medical or dental work, and tailoring are considered to be personal service
contracts in which performance must personally satisfy the party to which performance is owed.
____ 34. Anything less than complete performance is a material breach of contract.
____ 35. In the event of a material breach of contract, the nonbreaching party is excused from further performance of
his or her contractual duties and has a cause of action to sue for damages caused by the breach.
____ 36. A party is entitled to cancel a contract based on the other party's minor breach.
____ 37. A party's refusal to perform an executory contract is anticipatory repudiation.
____ 38. Anticipatory repudiation of a contract whose performance has not begun discharges the contract.
____ 39. A novation occurs when a contract is canceled and the parties are returned to the positions they occupied
before the contract.
____ 40. Foreseeable bad weather conditions can excuse a party from performing a contract on the ground of
commercial impracticability.
____ 41. Damages are designed to compensate a nonbreaching party for the loss of the bargain.
____ 42. The usual measure of compensatory damages is the difference between the contract price and the market
price.
____ 43. In fashioning a remedy for a breach of contract involving the sale of goods, a court will typically award the
nonbreaching party the difference between the contract price and the market price of the goods.
____ 44. Consequential damages are awarded for whatever injury a nonbreaching party suffers, whether or not the
breaching party could have foreseen the injury.
____ 45. When a party fails to deliver goods contracted for, the nonbreaching party may be awarded consequential
damages for a loss of profit from a planned resale.
____ 46. In rescinding a contract, the parties essentially return to the positions they occupied prior to the formation of
the contract.
____ 47. The only contractual remedy not available in cases involving fraud is rescission.
____ 48. Courts generally grant specific performance of personal service contracts.
____ 49. Recovery under quasi contract may be used when one party partially performs under a contract that is
unenforceable.
____ 50. The UCC provides that in a contract for the sale of goods, remedies cannot be limited.
____ 51. Agreements to form a partnership can be oral, written, or implied by conduct.
____ 52. A majority vote of the members of a partnership is usually adequate to amend the partnership agreement.
____ 53. Creditors can use partnership property to satisfy the personal debts of a partner.
____ 54. The insolvency of a partner will generally result in the dissolution of the partnership.
____ 55. The death of a partner will normally result in the dissolution of the partnership.
____ 56. Any third person that has extended credit to a partnership must receive actual notice of the dissolution of the
partnership.
____ 57. In winding up a partnership, partners can create new obligations on behalf of the partnership.
____ 58. When considering the priority of distribution of partnership assets, capital contributions will usually be repaid
before loans made to the firm by a partner.
____ 59. When a partnership is dissolved, partners and former partners are entitled to receive distributions of
partnership assets before third party creditors are paid.
____ 60. Partners are subject to liability for partnership obligations only if they participate in the management of the
partnership.
____ 61. The express powers of a corporation are found, in part, in its articles of corporation, its bylaws, and the
resolutions of its board of directors.
____ 62. Only illegal acts of the corporation are ultra vires.
____ 63. In some states, a close corporation can operate without formal shareholders' or directors' meetings.
____ 64. A close corporation may restrict the right of a shareholder to transfer stock by means of a shareholder
agreement.
____ 65. S corporations avoid federal income taxes at the corporate level.
____ 66. As a general rule, a promoter is personally liable for preincorporation contracts until a novation is made.
____ 67. A corporate name can be deceptively similar to, but not the same as, the name of an existing corporation
doing business in the state.
____ 68. No state requires a minimum capital investment for ordinary business corporations.
____ 69. Bylaws are the primary documents that are needed to begin the incorporation process.
____ 70. To a corporation, bonds represent ownership.
____ 71. A director who does not dissent on an issue at a board of directors' meeting is presumed to have assented.
____ 72. A contract between a director of a corporation and the corporation is always voidable at the option of the
corporation.
____ 73. Shareholders have legal title to corporate property.
____ 74. Shareholders may not vote by proxy.
____ 75. The ownership right to stock exists independently of the stock certificate.
____ 76. If a stock certificate is lost or destroyed, the shareholder automatically loses his or her ownership interest in
the corporation.
____ 77. A corporation cannot refuse a shareholder's request to inspect corporate records.
____ 78. Shareholders have a right to inspect corporate books and records but only for a proper purpose and only if the
request to do so is made in advance.
____ 79. When shares are transferred, the new owner obtains the right to vote the shares before the new ownership is
recorded in corporate stock books.
____ 80. Shares issued by a corporation for less than their stated values are no-par shares.
____ 81. A wall leaning onto a neighbor's land does not violate the property rights of the neighbor unless the wall is
actually touching the neighbor's land.
____ 82. One can only possess rights in real property, not the land itself.
____ 83. The rights that accompany a fee simple absolute include the right to use the land for whatever purpose the
owner sees fit.
____ 84. In a fee simple absolute, the owner has the greatest aggregation of rights, privileges, and power possible.
____ 85. A leasehold estate is created when a property owner agrees to convey the right to possess and use the property
to another for a certain period of time.
____ 86. A grantor is a person to whom property is transferred.
____ 87. A deed, like a contract, must be supported by sufficient consideration.
____ 88. Adverse possession has the same legal result as a tenancy at sufferance.
____ 89. Any taking of private property for a public use requires the payment of just compensation.
____ 90. Privity of estate is not required for the enforcement of a restrictive covenant.
Multiple Choice
____ 91. John and Nancy enter into a contract for the sale of John's collie, Rex, for $1,000. Unbeknownst to either John
or Nancy, Rex dies half an hour before the contract is signed. Nancy
a. must be provided another collie of equivalent value by John.
b. is still obligated to pay $1,000 to John because she assumed the risk that Rex might die at
any time.
c. is not required to pay anything due to the mutual mistake.
d. is not required to pay anything due to the unilateral mistake.
____ 92. John agrees to buy thirty-seven hard drives from Whitney. If the hard drives have less capacity than Whitney
and he believe, John may
a. only enforce the contract.
b. only avoid the contract.
c. either enforce or avoid the contract.
____ 93. Through fraudulent means, Frank induces Ethel to sign a contract to invest with him the profits from her
business. When Ethel learns the truth, she may
____ 94.
____ 95.
____ 96.
____ 97.
____ 98.
____ 99.
a. only enforce the contract.

b. only recover what she invested with Frank.
c. enforce the contract or recover what she invested with Frank.
d. do nothing.
Ira persuades Jake to buy his sailboat by telling Ira that the boat sails "like the wind." Ira's statement is
a. duress.
b. fraud.
c. puffery.
d. undue influence.
Larry buys farmland from Al, an apple farmer, when Al states that it would be a prime site for high-density
housing. Larry subsequently learns that the local zoning laws permit the land to be used only for agricultural
purposes. Larry may
a. rescind the contract and recover his money.
b. rescind the contract only if Al knew about the zoning restrictions.
c. not rescind the contract.
Jed makes an honest but erroneous statement that misrepresents a material fact in a contractual transaction
with Cynthia. Jed is guilty of
a. fraud.
b. duress.
c. innocent misrepresentation.
d. a unilateral mistake.
Laura uses duress to induce Ron to enter into a contract. Ron may choose
a. only to carry out the contract.
b. only to avoid the entire transaction.
c. to carry out the contract or to avoid the entire transaction.
Mark induces Claude to sign a contract by placing a gun to Claude's head. The contract is void
a. only if it is unfair to Claude.
b. only if the contract is made to accomplish an illegal purpose.
c. under any circumstances.
Steven, who is Wesley's guardian, convinces Wesley that buying a certain parcel of land from Steven's
brother-in-law at a price that is greatly inflated is a good deal. If in fact it is not a good deal, Steven may be
liable for
a. duress.
b. fraud.
c. puffery.
d. undue influence.
Fact Pattern 14-2
Joe enters into a contract with Harry only because of Harry's threats. Later, Joe refuses to perform, claiming
that he entered into it under duress.
____ 100. Refer to Fact Pattern 14-2. Harry sues to enforce the contract. To be found guilty of duress, Harry must have
threatened to
a. harm Joe or Joe's family.
b. dominate Joe's mind or emotions.
c. intentionally misrepresent the facts to Joe.
____ 101. ABC Realty Company and Fine Investments, Inc., enter into a contract for a sale of land. To be enforceable,
the contract must be in writing if the land is valued at
a. $50.
b. $500.
c. $5,000.
____ 102. George and Martha enter into an oral contract for a sale of George's lumber mill. Before Martha takes
possession, under the Statute of Frauds this contract is
a. enforceable by George only.
b. enforceable by Martha only.
c. enforceable by either party.
d. not enforceable.
____ 103. Adam and Becky enter into an oral contract under which Becky agrees to work as Adam's assistant for two
weeks. This contract is
a. enforceable by Adam only.
b. enforceable by Becky only.
c. enforceable by either party.
d. not enforceable.
____ 104. Rick and Sue enter into an oral contract under which Rick agrees to assume Tina's debt if Tina does not pay.
Before Sue collects any money from Rick, who gets no personal benefit out of the deal, under the Statute of
Frauds this contract is
a. enforceable by Rick only.
b. enforceable by Tina only.
c. enforceable by any of the parties.
d. not enforceable.
____ 105. Rita agrees to assume a debt of Sam to City Credit Company. This promise is not for the benefit of Rita. To
be enforceable, the promise must be in writing if the debt is for
a. $50.
b. $500.
c. $5,000.
____ 106. Jack, an accountant, files a suit against Software Associates, Inc., asking the court to enforce a contract
between the parties under the doctrine of promissory estoppel. According to this doctrine, the court can
enforce the contract only if it is one that, under the Statute of Frauds, would otherwise be
a. enforceable only.
b. unenforceable only.
c. enforceable or unenforceable.
____ 107. Lee, a sales representative, files a suit against Worldwide Products Corporation asking the court to enforce a
contract between the parties under the doctrine of promissory estoppel. According to this doctrine, the court
can enforce the contract if
a. specific performance is the only possible remedy.
b. the parties cannot be returned to their pre-contract status quo.
c. Worldwide made a promise on which Lee justifiably relied to his detriment.
____ 108. Management Associates Corporation (MAC) wants to sell its office building and furnishings to Investment
Properties, Inc. (IPI). A writing is not required for
a. a two-year lease during which IPI has an option to buy the building.
b. the sale of an office chair, valued at $50, to IPI.
____ 109.
____ 110.
____ 111.
____ 112.
____ 113.
____ 114.
____ 115.
____ 116.
c. the sale of artwork, displayed in an office and valued at $1 million, to IPI.

d. the sale of the building.
Mary makes an oral contract with Paul that would ordinarily be unenforceable under the Statute of Frauds.
Under the doctrine of promissory estoppel, a court can enforce the contract
a. only if it involves a contract that can be performed within one year.
b. only if it involves a lease of real property.
c. only if it involves a sale of goods valued at more than $500.
National Manufacturing, Inc., files a suit against General Contractors Corporation to enforce a written
contract between the parties. Parol evidence will be admitted if
a. the contract requires extrinsic evidence to be understood.
b. the court wants to consider additional evidence.
c. the parties engaged in prior negotiations that vary the terms.
Dick makes a contract with Nora that indirectly benefits Frank, although neither Dick nor Nora intended that
result. This is
a. an assignment.
b. a delegation.
National Steel, Inc., and Overland Transport Company enter into a contract. Superior Oil Corporation, which
will indirectly benefit from the deal, is prevented from having rights under the contract by the principle of
a. assignment.
b. delegation.
c. privity.
d. vesting.
Sarah and Mike enter into a contract by which Sarah agrees to pay Mike $100 for a new watch. Mike's
transfer of his right to receive payment for the new watch is
a. a delegation.
b. an assignment.
c. both a and b.
Reese and Gregg enter into a contract by which Reese promises to deliver sand to Gregg. Reese subsequently
delegates his duty to deliver sand to Catherine. Reese is
a. the obligor.
b. the delegator.
c. the delegatee.
d. both a and b.
Roger and Jason agree that Jason can satisfy a preexisting debt owed to Roger by paying the money directly
to Peter. The designation of the contract as a third party beneficiary contract is determined by
a. the promisee's desire to discharge the debt.
b. the existence of a debt.
c. both a and b.
Mike makes a contract with Rich with the intent to benefit Mary. This is
a. an assignment.
b. a delegation.
____ 117. Rex takes out a life insurance policy that names his daughter, Susan, as the beneficiary. The insurance policy
is
a. an assignment of rights.
b. a delegation of duties.
c. a third party incidental beneficiary contract.
d. a third party donee beneficiary contract.
____ 118. In exchange for benefits under a contract, a donee beneficiary usually
a. gives consideration.
b. does not give consideration.
c. gives up the right to enforce the contract against either party.
d. does not give up the right to enforce the contract against either party.
Fact Pattern 16-1
Shade Tree Landscaping Company enters into a contract with Jill to landscape Jack's yard, using Fertile
Nursery to supply trees and bushes. Maria owns the lot next to Jack's property. The landscaping is a gift from
Jill to Jack.
____ 119. Refer to Fact Pattern 16-1. Jill and Jack are friends, but they are not related. Jack is
a. a creditor beneficiary.
b. a donee beneficiary.
c. an assignee.
d. an incidental beneficiary.
____ 120. Allison and Bob sign a contract that confers a benefit on Paula, an intended third party beneficiary. Paula's
rights will vest when she
a. materially alters her position in detrimental reliance on the contract.
b. demonstrates manifest assent to the contract.
c. both a and b.
____ 121. Paul signs a lease that provides any change in the zoning law will result in an automatic termination of the
lease. The zoning board adopts a new zoning classification before the lease expires. The change in zoning
satisfies the
a. condition precedent.
b. concurrent condition.
c. condition subsequent.
d. illegal condition.
____ 122. United Builders contracts to build a warehouse for Local Storage Corporation. If United completely performs,
Local Storage is entitled to
a. damages.
b. rescission.
c. specific performance.
____ 123. Local Service Provider (LSP) contracts to sell its business to Regional Cable Corporation (RCC). Before the
deal is completed, LSP and RCC contract to sell RCC's rights in the deal to National Communications, Inc.
This new contract will discharge the original contract if the new contract is supported by
a. consideration.
b. a mutual agreement to rescind.
c. performance by all of the parties.
____ 124. Al and Shelia are parties to a contract. They subsequently agree that Bill should take the place of Al and
assume all of his rights and duties under the contract. This is
____ 125.
____ 126.
____ 127.
____ 128.
____ 129.
a. a novation.
b. an accord and satisfaction.
c. an assignment.
d. a modification.
Dana enters into an agreement with Josephine to provide her with palm reading services for one hour each
month for one year. The state legislature subsequently passes a law making palm reading illegal. This law will
a. discharge the contract.
b. fulfill the terms and conditions of the contract.
c. not affect the contract.
Marvin and Betty sign a loan agreement in which Betty borrows $1,000 at a rate of interest of 20 percent. The
state legislature subsequently passes a law lowering the maximum permissible rate of interest from 20 percent
to 15 percent. Betty's best argument for avoiding the contract is
a. the law has rendered performance of the contract illegal.
b. the specific subject matter of the contract has been destroyed.
c. performance of the contract is commercially impossible.
d. the agreement violates the mirror image rule.
Tina and Melvin enter into a contract by which Melvin agrees to cut Tina's grass once a week for $30. Melvin
dies two weeks later. His estate
a. must find another person to cut Tina's lawn for $30 once a week.
b. is discharged from any further obligations under the contract.
c. is discharged from any further obligations under the contract only if Tina knew it was
unlikely that Melvin would live to complete the contract.
Frank agrees to work as George's personal accountant for one year but dies in the second month of the
contract. Frank's estate
a. is discharged from any contractual liability.
b. must find an equally competent accountant to serve for the remainder of the contract.
c. must refund any money already collected on the contract due to Frank's inability to
perform.
d. must pay liquidated damages.
If a farmer's crops are destroyed by adverse weather, then his or her obligations under any outstanding
contracts will be
a. discharged.
b. enforced.
c. enforced only to the extent of requiring the farmer to find alternative suppliers to satisfy
his or her contractual obligations.
Fact Pattern 17-1
Pitts, whose family owns and operates a farm, agrees to sell Armstrong ten bushels of strawberries.
____ 130. Refer to Fact Pattern 17-1. Pitts dies before the strawberries are delivered to Armstrong. This
a. discharges the obligations of both parties under the contract.
b. suspends the obligations of both parties until the contract can be performed.
c. has no effect on the obligations of both parties.
____ 131. Nora contracts to work for ABC Investments during June for $2,500. On May 31, ABC cancels the contract.
Nora refuses to accept a similar job with First State Bank, which would pay $2,000. Nora files a suit against
ABC. As compensatory damages, Nora can recover
____ 132.
____ 133.
____ 134.
____ 135.
____ 136.
____ 137.
____ 138.
a. $2,500.
b. $2,000.
c. $500.
d. nothing.
Werner agrees to purchase an Oracle-brand computer from an electronics store for $1,500, but the store fails
to deliver. Werner is forced to purchase the computer elsewhere for $1,700. Werner's measure of damages is
a. nothing.
b. $2,000 plus incidental damages.
c. $1,500 plus incidental damages.
d. $1,700 plus incidental damages.
Randolph agrees to build a swimming pool for Fox, but Randolph fails to finish the pool according to the
contract specifications. Fox is forced to hire others to do so. Fox may recover from Randolph
a. the contract price less the costs of materials and labor.
b. profits plus all costs incurred up to the time of the breach.
c. the contract price.
d. all costs incurred to complete construction.
Smothers hires Wilson to paint his house for $500, but Wilson fails to show up on the day he is scheduled to
start work. Smothers hires another painter who completes the job in a competent manner for $450. Smothers
is entitled to recover from Wilson
a. compensatory damages.
b. punitive damages.
c. nominal damages.
d. incidental damages.
A contract for the sale of a house from Bruce to Perry contains a clause providing that the failure of Perry to
close the contract on a particular day will result in the imposition of a fee that is equal to one-half of the sale
price of the house. This clause will not be enforceable because it
a. does not specifically state the amount of damages due if Perry fails to close the contract.
b. imposes a penalty on Bruce for failing to close the transaction.
c. is too vague.
Dick and Jane sign an agreement that provides for the payment of "$1,000 by whichever party commits a
material breach of the contract that creates damages difficult to estimate but approximately $1,000." This
clause is an example of
a. a penalty clause.
b. a liquidated damages clause.
c. a rescissionary clause.
d. a nominal damages clause.
A contract for a sale of land from U.S. Properties, Inc., to Commercial Investments Corporation contains an
erroneous legal description. The most appropriate remedy for these parties is
a. reformation.
b. rescission.
c. restitution.
d. specific performance.
Meyer hires Benson to construct fifteen oil storage tanks over a period of five years, with payment for each
tank to be made as it is completed, but they do not put their agreement in writing. Meyer breaches the contract
when he refuses to pay Benson for the first tank. To redress the breach, Benson's best choice is
a. rescission of the contract.
b. quasi-contractual recovery.
c. specific performance.
____ 139.
____ 140.
____ 141.
____ 142.
____ 143.
____ 144.
____ 145.
d. reformation of the contract.

International Holdings, Inc. (IHI), buys Midcap Corporation and its assets. If Midcap breaches the contract,
IHI should be aware that the doctrine of election of remedies has been eliminated in contracts involving a sale
of
a. goods.
b. intangible property rights.
c. land.
d. services.
To avoid liability for negligence, Personnel Services, Inc.-or any employer-can obtain a court order to enforce
a. a covenant not to compete.
b. an exculpatory clause.
c. an adhesion contract.
Joe operates a sole proprietorship, a corporation, and a partnership. If he wishes to obtain protection from the
demands of his creditors personally as well as for his corporation and partnership, he may file a petition for
each one under
a. Chapter 7.
b. Chapter 9.
c. Chapter 11.
d. Chapter 13.
Ansel files a petition for bankruptcy. To give the court the information it needs to decide whether to grant
Ansel's request for protection from his creditors, Ansel must include with his petition
a. a list of secured and unsecured creditors and the amount of debt owed to each.
b. a statement of Ansel's financial affairs.
c. a list of all the property owned by Ansel.
Maxine's voluntary petition for bankruptcy is found to be proper. The order for relief is effective as soon as
a. the petition is filed.
b. the creditors agree to the terms.
c. the debtor posts a bond to cover the costs of the proceedings.
Rob files for bankruptcy on August 1. He owes money to Jack, who has a valid security-interest in Rob's
computer. Jack, who is uneasy about Rob's ability to pay, but who does not know about the bankruptcy, tries
to repossess the computer on August 5. Jack
a. can successfully repossess the computer on August 5 only if he did not know that Rob
filed for bankruptcy.
b. can successfully repossess the computer on August 5 only if Rob filed for bankruptcy
under Chapter 11.
c. cannot repossess the computer on August 5 but may file suit against Rob for payment of
the debt.
d. cannot repossess the computer nor file suit on August 5; the bankruptcy court will be the
only place to make claims.
Klegg Mountain Brewery is forced into an involuntary bankruptcy proceeding by several creditors who wish
Klegg to pay off its debts more quickly, even though it has not defaulted on any of its financial obligations. If
the bankruptcy court rules that the creditors acted in bad faith, then it can award Klegg
a. the costs and attorneys' fees incurred by Klegg in defending against the involuntary
petition.
b. damages for injury to Klegg's reputation.
c. punitive damages.
____ 146.
____ 147.
____ 148.
____ 149.
____ 150.
____ 151.
____ 152.
____ 153.

Glade Farms cannot provide its creditors with adequate protection during the automatic stay. The bankruptcy
court is most likely to
a. remove the stay and permit the affected assets to be repossessed.
b. order the sale of the affected assets.
c. place the affected assets in the hands of a neutral third party for the remainder of the
proceedings.
Pete's Pizza declares bankruptcy, idling Pete's delivery vehicles. A creditor with a secured interest in the
vehicles can compel Pete's to pay a certain amount of money each month to offset the depreciation in the
value of the vehicles. This is
a. the mirror image rule.
b. the adequate protection doctrine.
c. the creditor safeguard rule.
d. the avoidance doctrine.
Don files a petition for bankruptcy. Don's creditors must file with the court their proof of claims against Don's
assets within
a. fifteen days of the creditors' meeting.
b. thirty days of the creditors' meeting.
c. sixty days of the creditors' meeting.
d. ninety days of the creditors' meeting.
Mark files a petition for a discharge in bankruptcy. Mark's failure to appear at a meeting of the creditors listed
in Mark's schedules may result in Mark being
a. fined.
b. held in contempt.
c. denied a discharge of bankruptcy.
d. imprisoned.
Mark is a trustee for a federal bankruptcy court. Mark's duties include
a. collecting a debtor's property.
b. establishing an order of priority for the payment of unsecured creditors.
c. submitting to an examination under oath by the creditors.
Amy wants to go into the business of construction contracting. Among the reasons that would probably
convince Amy to set up her business as a sole proprietorship would be
a. its greater organizational flexibility.
b. its limited liability.
c. its perpetual existence.
d. the ease of transferring the business to other family members.
Adam, the owner of Adam's Apples, a sole proprietorship, wishes to increase his business capital while
maintaining control. This objective can best be accomplished by
a. issuing stock.
b. borrowing funds.
c. bringing in partners.
d. selling the business.
Earl runs a livestock breeding business and owes the Circle R Ranch $1,000. Earl agrees to pay the Circle R a
percentage of his profits each month until the debt is paid. Because of this agreement, the Circle R is Earl's
a. creditor only.
b. partner only.
c. creditor and partner.
____ 154.
____ 155.
____ 156.
____ 157.

Bayside Restaurant is operated as a partnership. For tax purposes, Bayside
a. is required to file an information return but is not a tax-paying entity.
b. is a tax-paying entity.
c. pays 1/2 of the taxes if there are two partners.
d. pays 1/4 of the taxes if there are three partners.
Derrick holds himself out as the managing partner of Wembley Group, a partnership, even though Derrick has
no actual connection to Wembley. Derrick obtains a personal loan based on this misrepresentation. Derrick's
default on the loan will result in
a. Derrick being held solely liable for the amount of the obligation.
b. the Wembley Group being held solely liable for the amount of the obligation.
c. Derrick and the Wembley Group being held jointly liable.
Doug and Erin are partners in Ace Athletic Supplies, which sells sports equipment. In general, a partner who
devotes his time and energy to partnership business will
a. be entitled to compensation if he or she is an equity partner.
b. be entitled to compensation if the partnership agreement is silent.
c. not be entitled to compensation if the partnership agreement is silent.
Roberta is a junior partner in an accounting firm. As a partner, she has a right of inspection that permits her to
review
a. the attire worn by the staff.
b. partnership books and records.
c. the tax returns filed by other partners.
d. any client files.
Fact Pattern 33-2
Bob, Maria, Carlos, and Linda are general partners in a medical practice. When the area surrounding their
clinic is redeveloped, many of their patients move away and their revenues decline.
____ 158. Refer to Fact Pattern 33-2. Carlos's transfer of his partnership interest to Doris, his creditor, will result in
a. the automatic dissolution of the partnership.
b. the termination of the partnership's legal existence.
c. the temporary suspension of partnership activity.
Fact Pattern 33-3
Roy and Rex form a partnership and state in their agreement that the surviving partner shall continue the
business of the partnership with the decedent partner's estate. The sole asset of the partnership is a specialized
hot-dog pushcart.
____ 159. Refer to Fact Pattern 33-3. Rex dies three years later. The partnership
a. continues to operate as provided by the agreement.
b. becomes a sole proprietorship.
c. is dissolved.
____ 160. Refer to Fact Pattern 33-4. Hans, Werner, and Erwin decide to dissolve their partnership. Creditors of the
partnership must
a. be notified by a newspaper announcement or similar public notice.
b. receive actual notice.
____ 161.
____ 162.
____ 163.
____ 164.
____ 165.
____ 166.
____ 167.
____ 168.
c. receive constructive notice.

Federal Home Products, Inc. (FHP), is a corporation. The implied powers of FHP are powers necessary to
a. amend the corporate charter.
b. bring a derivative suit.
c. declare dividends.
d. perform all acts reasonably appropriate and necessary to accomplish its corporate
purposes.
Solid Appliances, Inc., is a private, for-profit corporation that (1) was formed for the purpose of
manufacturing and distributing a newly patented kitchen appliance, (2) is owned by five shareholders, (3) is
subject to double taxation, and (4) has made no public offering of its shares. Solid Appliances is
a. an S corporation.
b. a close corporation.
c. a nonprofit corporation.
d. a professional corporation.
Meadow Farms, Inc., is a close corporation. Meadow Farms is
a. exempt from corporate duties such as filing a certificate of incorporation.
b. taxed in the same manner as a partnership.
c. eligible to make public offerings of securities.
d. generally allowed to restrict transfer of stock.
As a promoter for Fine Wares Corporation, Delia is personally liable for any preincorporation contract until
Fine Wares
a. assumes the preincorporation contract by novation.
b. ratifies the contracts.
c. releases Delia from liability.
Soft Drinqs, Inc., distributes beverages in a certain state. Another corporation could do business in the same
state under the name
a. Soft Drinqs, Inc.
b. Soft Drinks, Inc.
c. either a or b.
Interstate Sales, Inc., obtains a corporate charter. Least likely to appear in the charter is
a. the corporate purpose of Interstate Sales.
b. the exact date of the annual meeting of the shareholders of Interstate Sales.
c. the name of the registered agent for Interstate Sales.
d. the value of the shares of Interstate Sales stock.
Tom is a registered agent for Telecorp, Inc., which incorporated in Delaware. As a registered agent, Tom
a. agreed to buy stock in Telecorp before it existed.
b. applied to Delaware on behalf of Telecorp to obtain its corporate charter.
c. receives legal documents on behalf of Telecorp.
d. took the preliminary steps in organizing Telecorp.
To obtain financing, International Products, Inc., can issue
a. bonds only.
b. stock only.
c. bonds and stock.
____ 169. Erin and Frank are holders of common stock in American Transport, Inc. (ATI). Like other holders of
common stock, Erin and Frank may be said to have a residual position in the overall financial structure of
ATI, because they
a. have first priority to any assets of the company if it becomes insolvent.
b. are entitled to a dividend not received by other classes of shareholders.
c. are the last to receive payment for their investment.
____ 170. Carl and Donna are preferred stockholders in U.S. Goods Corporation. Carl and Donna have the same rights
as most preferred stockholders, which means, as regards U.S. Goods, they
a. have the right to an annual dividend only.
b. have the right to vote only.
c. have the right to an annual dividend and the right to vote.
d. do not have the right to an annual dividend and may not have the right to vote.
____ 171. Ron and Nancy form Eagle Equipment Corporation. Eagle has a board of directors, a chief executive officer,
a chief operating officer, and fifty-two shareholders. Eagle is governed by its
b. incorporators.
c. officers.
d. shareholders.
____ 172. Mike and Dorothy incorporate their business as American Products, Inc. The first board of directors may be
appointed by American's
b. incorporators.
c. officers.
d. shareholders.
____ 173. Junior is a director of Massachusetts Manufacturing Corporation. Which of the following is not an automatic
right of Junior, as a director?
a. Participation
b. Inspection of books
c. Compensation
____ 174. Geotech, Inc., sells software by mail order. In most states, the minimum number of directors that must be
present before Geotech's board could transact its business is
a. the total number of directors authorized in the articles or bylaws.
b. a majority of the number of directors authorized in the articles or bylaws.
c. one director.
d. none of the directors.
____ 175. John and Gail are directors of Adams Corporation. With respect to Adams, the most important right of John
and Gail is the right of
a. compensation.
b. indemnification.
c. inspection.
d. participation.
____ 176. U.S. Electronics Company manufactures television sets. U.S. Electronics is like most corporations in that its
officers are hired by the firm's
b. incorporators.
c. shareholders.
____ 177. George is a director of Washington Corporation. Which of the following describes George's position with
regard to Washington?
a. Agent
b. Principal
c. Fiduciary
d. Trustee
____ 178. Great Stores, Inc., must hold a shareholders' meeting
a. once a month.
b. once a year.
c. once every two years.
d. only when it is called by the board of directors.
____ 179. Mary is a shareholder of Consumer Products Corporation. The right to inspect corporate books and records is
a. held by Mary, without restrictions.
b. held by Mary, subject to some restrictions.
c. held by Mary only if she is also a director.
d. not held by Mary.
____ 180. Ethan transfers shares of stock that he owns to Luigi. A shareholder's meeting takes place before Luigi's
ownership is entered in the corporate stock book, and Ethan and Luigi both want to exercise voting rights at
the meeting. Who is entitled to vote at the meeting, Ethan or Luigi?
a. Luigi
b. Ethan
c. Both a and b
____ 181. Quality Farms, Inc., owns land in Kansas. Attached to the land are natural products (crops, grasses, and trees)
and structures (houses and farm buildings). The "land" includes
a. the natural products only.
b. the structures only.
c. the natural products and the structures.
____ 182. Steve owns farmland on which there are growing crops. Steve sells the land to Tina under a contract that
specifically excludes the crops. The sale
a. does not include the crops, because of the sales contract.
b. does not include the crops, regardless of the sales contract.
c. includes the crops, because of the sales contract.
d. includes the crops, regardless of the sales contract.
____ 183. Rob deeds a plot of timberland to State University as a gift. The university pays nothing to Rob for the
property. Rob has given the university
c. a life estate.
____ 184. Owen has possession of a parcel of land. Owen has the right to use the property, including extracting copper
from the land through an existing mine, for life. Owen also has the right to lease the land for a period not to
exceed his life. This ownership interest is
c. a life estate.
____ 185. Eve possesses a city block. Eve has the right to use the property, as she sees fit, subject to local zoning laws.
She can lease the property, or dispose of it by selling or giving it away or letting it pass on her death to her
heirs. This ownership interest is
c. a life estate.
Fact Pattern 47-1
Roy owns the Double-R Ranch in Texas. His ownership rights include the right to sell or give away the
property without restriction, and the right to commit waste, if he chooses.
____ 186. Refer to Fact Pattern 47-1. Roy's ownership interest is
c. a life estate.
____ 187. Natural Foods, Inc., possesses a parcel of farmland. Natural Foods has the right to use the property, including
harvesting the crops, for ten years. Natural Foods does not have the right to extract the coal under the land.
This ownership interest is
c. a life estate.
____ 188. Joe, the owner of Orchard Farm, and Kay, the tenant of the farmhouse, may create a tenancy for years by
a. an express contract.
b. deed.
c. implication.
d. sufferance.
____ 189. A&B Storage Company signs a six-month lease to occupy a warehouse. This is
a. a periodic tenancy.
b. a tenancy at sufferance.
c. a tenancy at will.
d. a tenancy for years.
____ 190. Fertile Farms, Inc., sells half of its land to the Square G Ranch. On the land is a reservoir. In the deed, Fertile
Farms retains the right to remove from the reservoir a limited amount of water per day. This right is
a. a license.
b. an easement.
c. a profit.
d. a tenancy at sufferance.
____ 191. Commercial Construction Corporation (CCC) has a right to drive its trucks across Midstate Company's
property, which is adjacent to CCC's property. CCC's right is
a. a license.
b. an easement.
c. a profit.
d. a tenancy at will.
____ 192. Landscaping Enterprises, Inc., has a right to remove from the property of Timber Products, Inc., all of the
mulch that Landscaping Enterprises needs for its business. This right is
a. a license.
b. an easement.
____ 193.
____ 194.
____ 195.
____ 196.
____ 197.
____ 198.
____ 199.
Essay
c. a profit.
d. a tenancy for years.
Ann has the right to use Burt's driveway, which is next to Ann's property, to reach the street. Ann's right to
use the driveway is
a. a license.
b. an easement in gross.
c. a profit in gross.
Fallow Meadows, Inc., sells a group of hikers a right to camp on Fallow's property overnight. The group's
right is
a. a license.
b. an easement.
c. a profit.
d. a periodic tenancy.
Grant wants to transfer the ownership of his warehouse to Lee by deed. To do so, requires
a. the grantee's signature only.
b. the grantor's signature only.
c. the grantee's and the grantor's signatures.
Don sells a warehouse to Eastern Storage Company and, in a separate deal, sells the same building to
Westside Properties, Inc., which knows about Eastern's purchase. Westside files its deed to the building first.
Westside has superior rights to the property if the applicable recording statute is
a. a notice-race statute.
b. a pure notice statute.
c. a race statute.
To sell its orchard, Apple Farms retains Bill, a real estate broker. Bill can also act as an agent for the buyer
a. if only Apple Farms agrees.
b. if only the buyer agrees.
c. if both Apple Farms and the buyer agree.
Ben believes that he can acquire the ownership of a mountain cabin by adverse possession. To do so, Ben
must
a. buy the cabin and the surrounding acreage from the state.
b. occupy the cabin exclusively and continuously in a peaceable, open, hostile and adverse
manner for a specified period of time.
c. occupy the cabin, "for all the world to see," in uninterrupted use for a specified period of
time.
d. take sole physical possession of the cabin for a specified period of time.
Residential Construction Corporation wants to obtain a zoning variance for a part of its property. To be
entitled to a variance, the variance must not
a. be conveyed for "just compensation."
b. include a burden that has a connection to the property.
c. substantially alter the essential character of the property.
200. A-One Landscapers, Inc., owes Friendly Finance Company $5,000. A-One enters into a contract with
Suburban Office Park under which A-One promises to maintain the landscaping on Suburban's property.
Under the contract, Suburban promises to pay Friendly Finance the amount that will be due A-One until
A-One's debt to Friendly Finance is paid. A-One performs as promised, but Suburban does not pay Friendly
Finance. Can Friendly Finance succeed in a suit against Suburban? Why or why not?
Sample Test Questions, Final Exam, Fall 2003, Professor Isler

Answer Section
TRUE/FALSE
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
T
F
T
F
F
F
T
T
T
T
F
F
T
F
T
T
F
F
F
T
T
T
T
T
F
F
F
T
T
F
T
F
T
F
T
F
T
F
F
F
T
42.
43.
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
87.
T
T
F
T
T
F
F
T
F
T
F
F
F
T
T
F
F
F
F
T
F
T
T
T
T
F
F
F
F
T
F
F
F
T
F
F
T
F
F
F
T
T
T
T
F
F
88. F
89. T
90. T
MULTIPLE CHOICE
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.
C
C
C
C
C
C
C
C
D
A
D
D
C
D
D
C
C
B
D
A
D
C
B
D
D
C
D
B
B
C
C
D
A
A
A
A
B
A
A
C
131.
132.
133.
134.
135.
136.
137.
138.
139.
140.
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
151.
152.
153.
154.
155.
156.
157.
158.
159.
160.
161.
162.
163.
164.
165.
166.
167.
168.
169.
170.
171.
172.
173.
174.
175.
176.
C
B
D
C
B
B
A
B
A
D
A
D
A
D
D
A
B
D
C
A
A
B
A
A
A
C
B
D
C
B
D
B
D
A
D
B
C
C
C
D
A
B
C
B
D
A
177.
178.
179.
180.
181.
182.
183.
184.
185.
186.
187.
188.
189.
190.
191.
192.
193.
194.
195.
196.
197.
198.
199.
C
B
B
B
C
A
A
C
A
A
B
A
D
C
B
C
B
A
B
C
C
B
C
ESSAY
200. Friendly Finance could succeed in a suit against Suburban. When a party promises to perform under a
contract with the express intent that the other party's payment benefit a third party, the third party is a creditor
beneficiary. Assuming a contract is otherwise enforceable, a creditor beneficiary can successfully sue to
enforce the contract to which he or she is a third party. The contract between A-One and Suburban expressly
states that Suburban's payment for A-One's performance is to go directly to Friendly Finance. Thus, it is a
third party beneficiary contract. Friendly Finance, the third party beneficiary, is, under the terms of the
contract, a creditor beneficiary. As such, Friendly Finance can successfully sue Suburban to enforce
Suburban's promise to pay A-One's debt.

Business Law Final Fall 1999 Multiple Choice Questions

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Business Law Final Fall 1999 Multiple Choice Questions

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Business Law Final Fall 1999

c. ratified the contract.

c. the sale of art, displayed in an office and valued at $100,000, to NPI.

not liable for the debt.

Fact Pattern 36-2

d. no easement, because Leo's deed did not mention it.

Business Law Final Fall 1999

Business Law 201 Spring 2008

3. Unlike larceny, robbery does not require force or fear.

c. The medical providers statement is

a. A seizure of the cocaine would have

d. Judge Betty you should rule that the

c. Giving a person a drug that renders

____ 26. Attendance- What is an ass monitor.

a. Curley will win because Sears place a

c. Curley will win because a hammer is

____ 35. Which of the following is true?

c. Federal Courts of Appeal

c. Unconstitutional according to the

c. Nominal Damages since Billy was

____ 40. Today courts generally hold that individuals:

c. The Italian bedroom

Must Professor Isler pay the additional $500?

____ 43. Attendance

c. The magician was ten years old

____ 45. Attendance

c. Yes, because the debt was liquidated

liable even if he did not understand its legal consequences.

c. not question the adequacy of the consideration.

c. because the pledge is a gift.

Business Law 201 Spring 2008 MW

DIF: Attendance- Easy

NOT: My favorite music is Bachata

Often, consideration is broken down into two parts, something of legal

Rescission may be defined as:

the substitution of one contract party for another.

Incorrect. This describes a novation.

Which of the following is required for an accord and satisfaction to take

A covenant not to sue is:

In order for a court to apply the doctrine of promissory estoppel, which of

Correct. This element is not requiredthe opposite is required.

Assume that Carol Rogers (a local millionaire) promises to donate

Which of the following types of promises normally DOES NOT lack

Business Law Midterm Spring 2007

3. An oral defamatory statement must be communicated to a third party to be actionable.

5. All collateral promises must be in writing to be enforceable.

6. Mistakes in judgment as to value or quality will permit one to avoid a contract.

9. The federal equivalent of a state trial court is a U.S. court of appeals.

____ 14. A counteroffer does not terminate but continues an offer.

d. Receiving stolen goods

c. The judge was correct because he was

c. filed in a Florida state court on the

c. A party has satisfied all elements

c. False with respect to nonbinding

____ 27. The process by which a jury is selected is called:

a. Prohibits the government from

c. states an opinion concerning something that she knows nothing about.

No because Anthony did not hit anyone

collect the balance from Bob in a breach-of-contract suit.

c. of You Better Be Ready by Yung MC

c. Correct and is called the

a. The parties personal subjective intent