Contracts and Sales Law Final Exam
Course Introduction
Contracts and Sales Law provides an in-depth examination of the legal principles governing the formation, interpretation, enforcement, and termination of contracts, with a particular focus on commercial transactions involving the sale of goods. The course covers essential elements such as offer, acceptance, consideration, capacity, legality, and the statute of frauds. It also explores the Uniform Commercial Code (UCC) provisions relating to the sale of goods, including issues of title, risk of loss, warranties, and remedies for breach of contract. Case studies and real-world examples are used to develop analytical skills for resolving contractual disputes within both consumer and business contexts.
Recommended Textbook Law for Business 11th Edition by A. James Barnes
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Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) Sociological jurisprudence maintains that:
A)statutes should be interpreted based on their plain meaning.
B)courts must look beyond the plain meaning of a statute to consider the law's legislative purpose.
C)courts should not consider the legislative purpose as well as their perceptions of the prevailing public policies in interpreting statutes.
D)the law is the command of legitimate political institutions and must be enforced to the letter.
Answer: B
Q2) Describe the four steps in the process of legal interpretation.
Answer: The four steps in the process of legal interpretation are: 1)look to the plain meaning of the language,2)examine the legislative history of the rule,3)consider the purpose to be achieved by the rule,and 4)try to accommodate public policy.
Q3) Unlike legal positivists,legal sociologists stress the need for law to change and keep pace with the evolution of society.
A)True
B)False
Answer: True
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Chapter 2: Dispute Settlement
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Q1) Small claim courts are courts of record.
A)True
B)False
Answer: False
Q2) A motion to dismiss made by the defendant is granted when:
A)the defendant is scared of losing the case.
B)it is clear that the plaintiff does not have a case and it would be wasteful to continue.
C)either party feels that the judge is not impartial.
D)people or groups other than the parties involved are interested in the outcome of a certain appeal.
Answer: B
Q3) Minitrial is also known as a summary jury trial.
A)True
B)False
Answer: False
Q4) Mediators make decisions based on the merits of a dispute.
A)True
B)False Answer: False
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Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) Law may not be up to the task of forcing corporations to engage in ethical behavior for a number of reasons,including that:
A)it is not clear that all corporations will respond to the threat of financial penalties imposed by law.
B)judges are likely to be sympathetic to corporations.
C)Sarbanes-Oxley decreases the likelihood that illegal behavior will be detected.
D)corporations voluntarily elect to pursue ethical ends.
Answer: A
Q2) Critics of capitalism and Corporate America increasingly argue that corporations should follow socially responsible standards higher than that imposed by law.
A)True
B)False
Answer: True
Q3) Under Kantianism,an ethical decision is one that maximizes utility for society as a whole.
A)True
B)False
Answer: False
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Chapter 4: Business and the Constitution
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Q1) The Fifth Amendment Due Process Clause prohibits the federal government from depriving any person "of life,liberty,or property,without due process of law."
A)True
B)False
Q2) When regulatory programs interfere with the exercise of individual rights,they are subject only to a procedural due process challenge.
A)True
B)False
Q3) Substantive due process means that the government must accomplish its objectives only by the use of fair procedures,such as reasonable notice and the right to a hearing before an impartial tribunal.
A)True
B)False
Q4) Explain the process followed by the courts in accordance with the Chevron Doctrine to determine whether to sustain an agency's interpretation of the statutory scheme it is charged with administering.
Q5) When is strict scrutiny analysis triggered?
Q6) Briefly discuss the constitutional safeguards of "pure" or political speech.
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Chapter 5: Crimes
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Q1) The Foreign Corrupt Practices Act makes it a crime for any American firm to offer a gift to a foreign official.
A)True
B)False
Q2) Voluntary intoxication is a complete defense to a crime.
A)True
B)False
Q3) Alex had planned to murder his business partner,Bard,and acquire Bard's shares.When he performed the deed,he was in a highly intoxicated state.The court:
A)will hold him incapable of forming intent and give a bail.
B)will hold him capable of forming intent and punish him for first-degree murder.
C)will hold him incapable of forming intent and punish him for second-degree murder.
D)will hold him capable of forming intent and give him a death penalty.
Q4) Ex post facto laws are statutes that would punish someone for an act that was considered criminal when the act was committed.
A)True
B)False
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Chapter 6: Intentional Torts
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Q1) Under the tort of invasion of privacy:
A)some widespread dissemination of information is necessary for liability.
B)true,but public facts about a person can be an invasion of privacy.
C)truth is a defense to "publication of private facts."
D)newsworthy items can be the basis of a successful suit.
Q2) Which of the following is an example of invasion of privacy?
A)A tenant continuing to stay in a house even after the lease period has expired.
B)The act of wrongfully selling or mortgaging the goods of another.
C)The act of putting an ad in the paper saying that a person does not pay his or her bills.
D)A person providing false statements on a seller's ownership of goods offered for sale.
Q3) Jim Slim sued Acme Smelting for trespass because microscopic,airborne particles of heavy metals from its copper smelter four miles away had been deposited on his property.The smelter's emissions met all federal,state,and regional regulations,and had caused no actual damage.Is the deposit of microscopic particles on a person's property,without damage,a trespass?
Q4) Explain the tort of battery.
Q5) Define and discuss the tort of trespass to land.
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Page 8
Chapter 7: Negligence and Strict Liability
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Q1) While fishing in the lake,George anchored his new motorboat and went ashore to make an important phone call.He accidently left the key in the boat and Jeb stole the boat.While driving the boat recklessly,Jeb hit Angela,who was water skiing and severely injured her.Should George be responsible for Angela's injuries?
Q2) To recover for negligent infliction of emotional distress as a third party,the plaintiff does not always have to establish some physical symptoms resulting from the said distress.
A)True
B)False
Q3) Third parties are not entitled to recover for emotional distress resulting from witnessing harm caused to another person by a defendant's negligent acts.
A)True
B)False
Q4) A defendant is free of liabilities if the intervening force was foreseeable.
A)True
B)False
Q5) What are the main factors necessary for third parties to claim recovery for negligent infliction of emotional distress?
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Chapter 8: Licensing and Intellectual Property
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Q1) Patents,trademarks,copy rights,and trade secrets are basic types of:
A)intellectual property.
B)community property.
C)business property.
D)patented property.
Q2) An individual can freely use the trade secrets of another if he discovers them through means such as reverse engineering.
A)True
B)False
Q3) The risk of a licensee producing inferior goods or inferior service is drastically reduced if the licensor closely monitors his/her activities.
A)True
B)False
Q4) A business can reduce the risk of suffering devastating losses in the event of an expropriation through licensing.
A)True
B)False
Q5) What are technology transfer agreements?
Q6) How can a plaintiff recover for trademark infringement?
Page 10
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Chapter 9: The Nature and Origins of Contracts
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Q1) Which of the following is a change that took place in the legal system that led to the development of contract law in the process?
A)Courts began to shift their emphasis from protecting consumers and workers to protecting business and promoting industrialization.
B)Courts today are not willing to consider defenses based on inequality of bargaining power between the parties.
C)Courts tend to view with great suspicion,attempts by manufacturers to limit their responsibility for their products by contract.
D)Legislation does not control any contractual relationships.This has been left to private bargaining.
Q2) The drafters of the U.C.C intended for the code to establish complete uniformity.
A)True
B)False
Q3) Explain the differences and similarities of the categories used to classify contracts by their enforceability: valid,unenforceable,voidable,void.
Q4) What is a quasi-contract?
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Chapter 10: Creating a Contract: Offers
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Q1) The courts have generally held that ads for the sale of goods at a specified price are treated as invitations to negotiate or to make an offer.
A)True
B)False
Q2) In deciding a contract dispute,courts look to the subjective intent of the parties.
A)True
B)False
Q3) Ads for the sale of goods at a specified price are considered as ________ by the courts.
A)giving everyone who sees the ad the power to bind into a contract
B)solicitation of an offer
C)an unfair offer
D)invitations to negotiate
Q4) If an offeree accepts the offer but complains about the terms of the offer,a rejection is implied.
A)True
B)False
Q5) What are the factors that influence the reasonable length of an offer?
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Chapter 11: Creating a Contract: Acceptances
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Q1) An acceptance sent by stipulated means is effective when dispatched.
A)True
B)False
Q2) A contract that is impliedly accepted by doing something that objectively indicates agreement can be considered as a bilateral contract.
A)True
B)False
Q3) The UCC requires application of the "mirror image" rule in cases where contract for the sale of goods are made by exchanging forms.
A)True
B)False
Q4) An acceptance is effective as soon as it is dispatched:
A)if the offeree uses only an authorized means of communication.
B)if the offeree uses only a stipulated means of communication.
C)if the offeree uses an authorized or a stipulated means of communication.
D)if the offeree uses any reasonable means of communication.
Q5) Explain the similarity and difference between click-on and browse-wrap contracts.
Q6) Explain the UCC's "battle of the forms" rule.
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Chapter 12: Consideration
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Q1) Shoddy Roofing Company agrees to do the roofing on a building owned by Tacky Construction Company for $50,000.One week after Shoddy finishes work,over 20% of the shingles fall off due to improper installation.Tacky promises Shoddy an additional $10,000 to reinstall the fallen shingles,and Shoddy does so.Then Tacky refuses to pay Shoddy more than $50,000 for the work.Identify the true statement with regard to this situation.
A)Shoddy is not entitled to any more than $50,000 for its work.
B)Tacky owes Shoddy the additional $10,000.
C)Shoddy would still be entitled only to $50,000 if the shingles had fallen off due to an unforeseeable earthquake hitting the building.
D)Shoddy would still be entitled only to $50,000 if the parties had voluntarily cancelled their original contract and entered a new one for $60,000.
Q2) Watten Construction contracted to build the Sillimans a house for $50,000.When Watten began digging the foundation,it hit bedrock,which was highly unusual in that area.Watten told the Sillimans that he required an extra $5000 to build the house.The Sillimans agreed,but when the house was done,refused to pay Watten any more than the original contract price.What can be the outcome if Watten sues the Sillimans for the extra $5000 and why?
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Chapter 13: Capacity to Contract
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Q1) A minor can disaffirm a contract made for ____.
A)real estate
B)life insurance
C)educational training
D)bank accounts
Q2) Under the common law,minors:
A)are entitled to the return of their property given as consideration only upon attaining majority.
B)are entitled to the return of their property given as consideration even if they have been ratified.
C)are entitled to the return of their property given as consideration,even if that property is possessed by a third party at the time of disaffirmation.
D)are not entitled to the return of their property given as consideration.
Q3) In a contract made by a minor:
A)adult parties to the contract can disaffirm.
B)the minor has the right to disaffirm.
C)his/her siblings who are also minors can disaffirm the contract on his/her behalf.
D)the minor can disaffirm the contract anytime even after attaining majority.
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Chapter 14: Voluntary Consent
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Q1) Why do courts require justifiable reliance in misrepresentation and fraud?
Q2) The victim of a fraud may be able to recover punitive damages.
A)True
B)False
Q3) Which of the following is an element of fraud?
A)Opinion
B)Undue influence
C)Duress
D)Scienter
Q4) Today,many courts recognize which of the following about the doctrine of "caveat emptor"?
A)That it is a necessary step to prevent a contract from being created.
B)That it enables the seller to rescind a contract.
C)That it often produces unfair results.
D)That it is wholly the duty of the buyer to be aware of all material facts about the subject of the contract.
Q5) The intent to deceive is also known as capacity.
A)True
B)False
Q6) Explain the difference between duress and undue influence.
Page 16
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Chapter 15: Illegality
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Q1) What factors do the courts consider in determining whether a contract is unconscionable?
Q2) Trade agreements are legal if:
A)their sole purpose is to restrict trade.
B)their ancillary purpose is to restrict trade indefinitely.
C)their purpose is to recover punitive damages.
D)their purpose is to protect interests created by the contract.
Q3) Which of the following reasons is applicable for voiding a contract based on illegality?
A)It requires the commission of a misdemeanor.
B)It is in violation of the Code alone; not the common law.
C)It is contrary to public policy.
D)It protects the interests created by the contract to a reasonable measure.
Q4) Statutes that require proof of character and skill are considered to be:
A)regulatory.
B)usury.
C)wagering.
D)revenue-raising.
Q5) Name the kinds of contracts courts often hold to be illegal because they violate public policy.
Page 17
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Chapter 16: The Form and Meaning of Contracts
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Q1) Helen was the president and 25 percent owner of two companies that served the Uptown Mall.At the request of the mall owner,Helen helped arrange the mall's sale to Saber.To ensure continuity in mall operations,Saber offered to hire Helen as vice-president of its retail division.The terms they allegedly negotiated included a five-year term of employment,renewable for another five years,with termination at the option of either party on six months' written notice.Helen wrote some of the terms up in a letter that Saber orally agreed to but never signed.Helen worked for Saber for 11 months and then was fired without notice.Can Helen enforce the contract?
Q2) Under the U.N.Convention on the International Sale of Goods:
A)a writing is required for contracts over $1,000.
B)a writing is not required.
C)a writing is always required.
D)a writing is required for contracts of specially manufactured goods.
Q3) Oral contracts that come under the provisions of the statute of frauds are: A)void.
B)illegal.
C)unenforceable.
D)valid.
Q4) What kind of writing is required under the statute of frauds?
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Chapter 17: Third Parties Contract Rights
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Q1) Unless an assignment agreement clearly indicates a contrary intent,courts today tend to interpret assignments as including a delegation of the assignor's duties.A promise on the part of the assignee to perform these duties:
A)is not implicit.
B)is enforceable by either the promisor or the assignor.
C)depends on the policy followed by the public.
D)is not enforceable by the assignor.
Q2) Ford owned an apartment complex and was converting the complex to a cooperative by selling individual units.Each purchaser was required to pay Ford an extra $30 per month for utilities,taxes,and insurance.Ford sold all his rights in the complex to Roberts and assigned the purchasers' contracts to him.Roberts failed to pay the applicable property tax,and Crowe,a purchasing tenant,sued him to compel payment of the tax.Roberts argued that in purchasing Ford's interest,all he bought was the right to collect the payments made by tenants and that he assumed no duties.Is Roberts liable for the property tax?
Q3) Who is a creditor beneficiary? Can he/she enforce the contract?
Q4) The creditor beneficiary has rights against the promisee,but not the promisor.
A)True
B)False
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Chapter 18: Performance and Remedies
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Q1) The doctrine of substantial performance applies when a promisor willfully fails to completely perform.
A)True
B)False
Q2) Ronny hires a car from Greens Transport with global positioning system (GPS)for his holiday in Las Vegas.The rent for the car was $175 a day and was hired for 7 days.The contract did not state anything regarding speed.At times Ronny drove at a high speed of which the GPS kept a record and Greens imposed damages worth $4000 for the wear and tear caused due to high speed.What kind of damage is this?
A)Compensatory damages.
B)Penalty damages.
C)Liquidated damages.
D)Punitive damages.
Q3) Punitive damages are recoverable for breach of contract.
A)True
B)False
Q4) Maxwell construction made an apartment block for Riverside.After 5 years of the construction Riverside sued Maxwell for the leakages in its ceiling.Is this lawsuit valid?
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Page 20
Chapter 19: Formation and Terms of Sales Contracts
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Q1) Article 2A of the UCC deals exclusively with leases of goods.
A)True
B)False
Q2) Anyone who entrusts goods to a merchant who regularly deals in such goods gives that merchant the power to give good title to a buyer in the ordinary course of business.
A)True
B)False
Q3) In an FAS contract,the seller:
A)must deliver the goods alongside the vessel at his own risk and expense.
B)must deliver the goods alongside the vessel at the buyer's risk and expense.
C)must deliver the goods alongside the vessel at his own expense but at the buyer's risk.
D)has title to goods till they are delivered alongside a vessel.
Q4) In a return contract,goods are delivered to buyers:
A)primarily for personal use.
B)primarily for resale.
C)primarily for trial.
D)primarily to assign the risk of loss to the buyer.
Q5) What happens if a buyer rejects the tender of goods?
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Chapter 20: Warranties and Product Liability
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Q1) It does not matter whether or not the buyer dealt directly with the manufacturer because:
A)the obvious danger rule is not used anymore as defense.
B)liability based on negligence does not involve a contractual relationship.
C)liability based on negligence involves a contractual relationship.
D)the obvious danger rule is used as a complete defense.
Q2) When a seller uses descriptive terms and the buyer takes them into consideration when making the purchase,the seller has nonetheless made no warranty that the goods she delivers will meet the description.
A)True
B)False
Q3) Under the UCC,the implied warranty of merchantability applies to the sale of food or drink.
A)True
B)False
Q4) Which of the following is an outgrowth of strict product liability?
A)Industry wide liability
B)Privity
C)Negligence
D)Product misuse
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Chapter 21: Performance of Sales Contracts
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Q1) A commercial unit is:
A)comprised of any unit of goods,even set of articles that is treated by commercial usage as a single whole.
B)comprised only of single articles treated by commercial usage as a single whole.
C)comprised only of set of articles contained in a commercially recognized measurement (such as a bushel,ton,or truckload).
D)comprised of units of articles which can also be accepted as one single article.
Q2) If the buyer wrongfully rejects goods,he is liable to the seller for breach of the sales contract.
A)True B)False
Q3) Goods may be delivered in installments,even if not stated so in the contract.
A)True B)False
Q4) In a COD contract,the buyer may fully inspect the goods before accepting them.
A)True
B)False
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Chapter 22: Remedies for Breach of Sales Contracts
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Q1) If the seller has justifiably withheld delivery of the goods because of the buyer's breach,the buyer is entitled to:
A)recover any money or goods he has delivered to the seller over and above the agreed amount of liquidated damages.
B)an amount in excess of $500 or 20% of the value of total performance.
C)recover any money or goods he has delivered to the seller only to the agreed amount of liquidated damages.
D)an amount in excess of $1,000 or 20% of the value of total performance or whichever amount is higher.
Q2) Under the UCC,list three remedies available to a seller when a buyer breaches a contract.
Q3) In which of the following ways can a seller breach a contract?
A)By entrusting goods are in buyer's possession.
B)By delivering goods that do not conform to the contract.
C)By repudiating a contract.
D)By indicating an intention to fulfill the obligations under the contract.
Q4) Under the UCC,list five remedies available to a buyer when the seller has breached a contract.
Q5) Name the most common ways a buyer may breach a contract.
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Chapter
23: The Agency Relationship-Creation, Duties, and Termination
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Q1) A person has the capacity to act as an agent only if he/she has the legal capacity to contract.
A)True
B)False
Q2) An agent may be able to bind the principal on contracts with third persons after termination of the agency if the third person is unaware that the agency has ended.
A)True
B)False
Q3) If an agent indulges in commingling:
A)he probably will not be liable for loss to the principal.
B)he bears the risk of any loss to the principal.
C)he will not be liable for any loss to the principal if the property is not wrongfully used.
D)he is breaching the duty to communicate information.
Q4) The duty of the principal to keep records from which the compensation due to the agent can be determined is reinforced by tax laws that require such recordkeeping.
A)True
B)False
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) Which of the following statements is true about apparent authority?
A)Only a general agent can have apparent authority.
B)Only a special agent can have apparent authority.
C)If the agent justifiably believed he had authority,his authority would be apparent.
D)If a third party justifiably believed the agent had authority,the agent's authority would be apparent.
Q2) After Bart and Veronica were involved in an automobile accident,Bart retained Rhonda as an attorney to negotiate an out-of-court settlement.After a lengthy discussion with Veronica's insurance company,Rhonda settled the case for $5,000.However,Bart personally rejected the $5,000 offer.Veronica filed suit to enforce the settlement,claiming that Rhonda was authorized to accept the settlement on behalf of Bart.Discuss Rhonda's express,implied and apparent authority.
Q3) An agent does not possess the implied authority to do whatever is reasonably necessary to accomplish the objectives of the agency.
A)True
B)False
Q4) Explain the concept of apparent authority.
Q5) Briefly describe the doctrine of respondeat superior.
Page 26
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Chapter 25: Employment Laws
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Q1) Under the ADEA and its amendments:
A)employers of 10 or more people are prohibited from discriminating against their employees on the basis of age.
B)it is permissible for employees to take early retirement on the grounds of inability to do work.
C)it is legal for employees less than 70 years of age to retire under a mandatory pension plan.
D)a BFOQ exemption is not provided. Under the ADEA and its amendments it is permissible for employees to take early retirement on the grounds of inability to do work.Retirement of employees less than 70 years old under a mandatory pension plan was made illegal by the 1978 amendments.There is an exception for executives and others receiving very high pension benefits.A BFOQ exemption is provided under the AEDA.
Q2) Under the GINA,genetic information includes family medical history.
A)True
B)False
Q3) The Age Discrimination in Employment Act (ADEA)is enforced by the EEOC.
A)True
B)False
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Chapter 26: Which Form of Business Organization
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Q1) The formation of a general partnership requires:
A)filing appropriate paperwork with the secretary of state.
B)a formal certificate of cancellation when the partnership is terminated.
C)no express agreement.
D)that each partner be liable for losses depending on the individual partner's contribution to the enterprise.
Q2) S Corporations are similar to partnerships in that corporate tax is paid.
A)True
B)False
Q3) The advantages of sole proprietorship and partnership taxation include:
A)The tax burden can be lessened if the shareholders are active in the operation of the business.
B)The tax burden experienced by shareholders can be reduced by keeping the dividend rate constant.
C)The owners can reduce their tax liability on their other income by the amount of they lose individually.
D)Exemption of privilege taxes for doing intrastate business in another state.
Q4) Explain the difference between a partnership and a limited partnership.
Q5) What are the factors to be considered in the creation of an LLC?
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Chapter 27: Partnerships
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Q1) The liability of partners for torts committed by the partnership:
A)is on the partner who committed the tort.
B)is joint and several,permitting the injured person to sue any partner individually or all of them together.
C)depends on whether a partner or an employee commits the tort and if it is a partner the injured person has to sue all of the partners together.
D)is nonexistent since a partnership cannot commit a tort.
Q2) In terms of a partnership at will,the partnership can be dissolved:
A)at any time by the major share holder even without the consent of the other partners.
B)at a specific time by any partner.
C)at any time by any partner by the notification to other partners.
D)at a specific time with the consent of both partners.
Q3) If a partnership has been dissolved in violation of the partnership agreement:
A)the court,by itself,liquidates the assets of the business.
B)the court appoints a representative as receiver to wind up the business.
C)the remaining partners forfeit the right to wind up the business.
D)the innocent partners have the right to liquidate the partnership assets.
Q4) Describe the rights and general duties of partners.
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Chapter 28: Formation and Termination of Corporations
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Q1) A de facto corporation exists where:
A)the promoters had substantially complied with all mandatory provisions.
B)an honest attempt was made to comply with the mandatory provisions of the corporate statue,yet the attempt still failed in some material respect.
C)a person holds himself out to be a representative of a corporation,yet no real attempt to incorporate has been made.
D)the corporation can be challenged by a third party.
Q2) Nonprofit corporations:
A)are similar to nontaxing governmental corporations.
B)are formed and operated by public persons.
C)do not permit officers and employees to receive salaries.
D)have the power to tax.
Q3) Foreign corporations doing business in the U.S.are protected against discriminatory treatment by bilateral investment treaties.
A)True
B)False
Q4) Why might a U.S.investor choose to incorporate its business in the country where it is conducting its overseas operations? What special constraints might exist?
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Page 30
Chapter 29: Management of the Corporate Business
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Q1) Who is considered the owner of the corporation?
A)The directors
B)The shareholders
C)The chairman of the board
D)The chief executive officer
Q2) When a corporate manager makes an honest error in judgment,the business judgment rule directs that:
A)the manager will be liable for corporate losses.
B)the manager will not be liable and a court will step in to correct the manager's mistake.
C)the manager will not be liable if he acted with care and in good faith.
D)the manager will be liable for all losses resulting from the error.
Q3) Officers who,in good faith,enter into an ultra vires transaction are not held personally liable.
A)True
B)False
Q4) What are the duties of directors and officers of a corporation?
Q5) Trading on inside information is in violation of fiduciary duties.
A)True
B)False
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Under which of the following conditions would a shareholder be liable to the corporation or its creditors?
A)If he/she buys stock that was fully paid for when issued.
B)If he/she deals only with dividends and not shares.
C)If he/she is involved in "watered stock" situations.
D)If he/she was unaware of the illegality of the dividends.
Q2) Under the MBCA,a subscription to buy stock in a corporation that is not yet in existence is usually treated as a(n)______ until incorporation is completed.
A)offer
B)promissory bid
C)acceptance
D)void
Q3) What requirements must be met if a shareholder meeting is to be conducted remotely?
Q4) With preferred stocks,the right to vote is usually granted to a shareholder only in the event that dividends due are not paid.
A)True
B)False
Q5) How does common stock differ from preferred stock?
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Chapter 31: Securities Regulation
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Q1) What strategies has the SEC pursued to protect U.S.investors throughout the world?
Q2) The Securities Act of 1933 is a one-time disclosure statute,although some of its liability provisions purport to cover all fraudulent sales of securities.
A)True
B)False
Q3) Identify the statement which is true of Rule 10b-5.
A)Securities need not be registered under the 1933 Act or the 1934 Act for Rule 10b-5 to apply.
B)The rule applies only to transactions executed on a securities exchange.
C)The rule applies only to face-to-face transactions.
D)A misstatement or omission of material fact,scienter,and reliance are not elements of Rule 10b-5.
Q4) A wash sale:
A)is a lawful manipulation of a security's price.
B)occurs when new securities are issued.
C)comes under liability provisions of the 1934 Act.
D)is a violation under Section 10(b)of the 1934 Act.
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Chapter 32: Legal Liability of Accountants
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Q1) Identify the true statement concerning communications between clients and accountants.
A)In most states,communications between clients and accountants are treated the same way communications between clients and attorneys are treated.
B)Communications between clients and accountants are treated by courts as privileged in the vast majority of states.
C)Even if a state has a statute creating an accountant-client privilege,federal courts are inclined not to give such statutes any effect in cases involving federal taxes.
D)The accountant may not be forced to testify about the client's records and about conversations that the accountant had with the client.
Q2) Generally accepted accounting principles:
A)limit recovery to those with a direct contractual relationship to the accountant.
B)apply to the way business transactions should be recorded.
C)give directions to accountants in auditing the books of an enterprise.
D)protect the investor who is unknown to the accountant when the financial statements are prepared.
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Chapter 33: Personal Property and Bailments
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Q1) While staying at Fancy Hotel,Marie asked her son to take her two diamond rings to the hotel clerk for safekeeping.The rings were shown to the clerk and then placed in a "safe-deposit envelope" which was sealed.The son received a depositor's check stub,which had a number corresponding to the number on the envelope.The envelope was kept in a safe,located in the hotel's front desk,which was used to keep the hotel's cash as well as the valuables of guests.Though equipped with a combination lock,the safe was usually kept unlocked as there would always be a clerk on duty at the reception desk.The following night,the hotel was robbed by two armed men and Marie's rings were taken.She sued the hotel for the value of the rings.The hotel claimed that the robbery was an "act of a public enemy" that relieved the hotel of liability.If the safe-deposit envelope is analyzed in the way that safety deposit boxes are,was the hotelkeeper liable for the theft of property left with it for safekeeping?
Q2) A person who finds lost property has a better right to that property than anyone,other than the true owner.
A)True
B)False
Q3) A promise to make a gift is usually enforceable.
A)True
B)False
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Page 35
Chapter 34: Real Property
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Q1) The lien created by unpaid taxes assessed on real property is secondary to all other claims of other persons to the land.
A)True
B)False
Q2) Which of the following statements is true of a life estate?
A)It is the right to have someone who owns an adjoining piece of property refrain from making certain uses of his or her land.
B)A person owning a life estate cannot be held liable if he commits acts that will result in permanent injury to the property.
C)It gives a person the right to use property for an indefinite period.
D)It gives a person the right to use property only for his own lifetime or for a time that is measured by the lifetime of somebody else.
Q3) An oral contract for the sale of real estate is generally enforceable under the statute of frauds.
A)True
B)False
Q4) Describe how a person acquires title by adverse possession and give an example.
Q5) Describe the purpose of the Fair Housing Act.
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Chapter 35: Landlord and Tenant
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Q1) The duty not to commit waste means:
A)the landlord has a duty not to do any act that would harm the property.
B)the tenant is responsible for the care and upkeep of the property.
C)the tenant has a duty to protect the property and take reasonable care to protect it from other's criminal conduct.
D)the tenant has the duty to make repairs irrespective of whether the damage was caused by his negligence or not.
Q2) Sam Jackson rented an apartment from Landlords Inc.Sam invited Susie Brenner over for dinner.Susie slipped on a banana peel as she entered the apartment building on the common stairway.Under these circumstances:
A)Sam is liable for Susie's injury since he invited her to the apartment.
B)Landlords Inc.will be liable to Sam only.
C)Susie can recover from Landlords if she can show that they did not use reasonable care in maintaining the stairway.
D)Susie cannot recover as she was not a tenant of Landlords Inc.
Q3) A valid surrender discharges the tenant from further liability under the lease. A)True B)False
Q4) Define "tenancy for a term" and show how it differs from "periodic tenancy".
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Chapter 36: Estates and Trusts
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Q1) A codicil is a(n):
A)amendment to a will.
B)automatic revocation of a will.
C)trust.
D)creditor's claim against the estate.
Q2) In the states that recognize holographic wills,such wills will be valid:
A)if they do not evidence testamentary intent.
B)if they are in the handwriting of the testator.
C)if only the material portions in the will are typed.
D)if they are typed and evidence testamentary intent.
Q3) A person who inherits property under a will takes the property free of all outstanding claims against the property.
A)True
B)False
Q4) Benny is the sole beneficiary of Paul's trust.In this trust,Benny can:
A)also serve as the sole trustee.
B)not serve as the sole trustee.
C)serve as both trustee and testator.
D)serve as trustee during the trustor's lifetime.
Q5) Name the basic formalities required by most states in the execution of a will.
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Chapter 37: Insurance
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Q1) The "incontestability clause" found in life insurance policies:
A)bars the insurer from objecting on the basis of the purchase of the policy with the intent to murder the insured.
B)bars the insurer from contesting its liability on the policy on the basis of the insured's misrepresentations if the policy has been in force for a specified period of time.
C)bars an insured from reinstating a lapsed policy that has not been surrendered for its cash surrender value.
D)bars the insurer from objecting on the basis of absence of insurable interest.
Q2) Some fire insurance policies contain a coinsurance clause that can operate to limit the insured's right to recovery.
A)True
B)False
Q3) As a general rule,contracts are assignable:
A)even if the policy's terms limit assignability.
B)if they are not life insurance policies.
C)even without an irrevocably designated beneficiary's consent.
D)if they are not property insurance policies.
Q4) Briefly explain the right of subrogation.
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Page 39
Chapter 38: Negotiable Instruments
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Q1) A certificate of deposit:
A)is an instrument in which the maker makes an unconditional promise to pay a fixed amount of money with interest to the payee on demand.
B)is the most widely used form of commercial paper that is a draft payable on demand and drawn on a bank.
C)is an instrument in which the maker makes an unconditional promise to pay a fixed amount of money without interest to the payee at the specified future time.
D)is an instrument containing an acknowledgment by a bank that it has received a deposit of money and a promise to repay the sum of money.
Q2) The attribute of negotiability means that an item can be readily transferred and accepted as a substitute for money.
A)True
B)False
Q3) To be negotiable,the only requirement is that the instrument be in writing.
A)True
B)False
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Chapter 39: Negotiation and Holder in Due Course
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Q1) Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself.This is known as the _______.
A)shelter rule
B)blue law
C)FTC rule
D)irregular paper law
Q2) If a person receives a check that has been signed but the space where the amount of the check is to be written is blank,then he/she cannot be a holder in due course of that check.
A)True
B)False
Q3) By indorsing an instrument,a person incurs an obligation to pay it if the person primarily liable on it fails to pay it.
A)True
B)False
Q4) If an instrument is made payable to cash,it is called bearer paper.
A)True
B)False
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Chapter 40: Liability of Parties
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Q1) Which of the following is true of the obligations of a maker?
A)The maker of a promissory note is secondarily liable for payment of it.
B)He makes a conditional promise to pay a fixed amount of money.
C)The obligation of the maker is to pay the negotiable instrument according to its terms at the time he issues it.
D)The obligation of the maker is owed to an indorser,who is a person entitled to enforce the instrument.
Q2) Liability on a negotiable instrument:
A)can arise only by transfer of an instrument.
B)cannot arise from non-presentment.
C)can arise from negligence relating to the issuance.
D)cannot arise from improper payment.
Q3) A person who is primarily liable has agreed to pay the negotiable instrument.
A)True
B)False
Q4) The terms of the contract of the parties to a negotiable instrument must be set out in the text of the instrument.
A)True
B)False
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Chapter 41: Checks and Electronic Fund Transfers
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Q1) The time requirements for notice of postdated checks are similar to those required for:
A)automatic transfers.
B)stop-payment orders.
C)drawer-depositor accounts.
D)stale checks.
Q2) For improper execution or failure to execute payment orders,banks can be liable:
A)to the originators,for their expenses in the transaction along with incidental expenses and interest losses.
B)to the beneficiaries,for their incidental expenses.
C)to the originators,for consequential damages.
D)to both the originators and beneficiaries,for consequential damages even though the written agreement of the receiving bank does not provide for it.
Q3) Which of the following is true of the Check 21 Act?
A)It is a time-consuming and costly process.
B)It is designed to enable banks to handle more checks electronically.
C)It completely discourages check truncation.
D)It requires banks to retain a legible copy of checks for fifteen years.
Q4) What are the different electronic funds transfer systems utilized by consumers?
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Chapter 42: Introduction to Security
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Q1) In a deed of trust transaction,when a trustee sells the property and the proceeds generate a deficiency:
A)the borrower is relieved of all obligations to the lender.
B)the lender may sue the borrower on the debt and recover a judgment.
C)the lender may sue the trustee.
D)the trustee may sue the borrower.
Q2) The right of a lienholder to possess goods automatically gives him/her the right to immediately sell the property if the charges are not paid.
A)True
B)False
Q3) If Jack is a surety for John,Jack's right to reimbursement would include:
A)the right to any collateral in the possession of the creditor.
B)the right to recover from the principal the costs paid on the principal's obligation.
C)the right to recover costs plus interest paid on the principal's obligation.
D)all the rights that the creditor had.
Q4) Define strict foreclosure.
Q5) What is a possessory lien? Give an example.
Q6) Describe the distinction between a surety and a guarantor.
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Chapter 43: Security Interests in Personal Property
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Q1) Explain the meaning of a purchase money security interest in consumer goods with an example.
Q2) A creditor who loans money to enable a consumer to buy goods can obtain perfection of a security interest by attaching the security interest to the goods.
A)True
B)False
Q3) Instruments are goods that will be so affixed to real property that they are considered a part of the real property.
A)True
B)False
Q4) The most common way of perfecting a security interest is by:
A)automatic perfection.
B)filing a financing statement in the appropriate public office.
C)posting private notice of the interest.
D)mere attachment of the security interest.
Q5) Define future advances and explain how covering future advances in the security agreement benefits the creditor.
Q6) Explain a creditor's three potential courses of action upon default.
Q7) Explain how a security interest is created.
Page 45
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Chapter 44: Bankruptcy
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Q1) When is a debtor allowed to void liens on his properties? What type of liens can be voided on this basis?
Q2) Objections to a discharge of bankruptcy can be filed by ___.
A)a creditor,the trustee,or the U.S.attorney
B)the U.S.attorney only
C)the trustee only
D)the secured creditors only
Q3) When a debtor files a bankruptcy petition,the creditor may be relieved from an automatic stay on his actions against the debtor:
A)if the creditor can show that his actions do not give adequate protection to the debtor.
B)if the debtors file a plan of reorganization that has a reasonable chance of being confirmed.
C)if his actions are aimed at obtaining possession of the debtor's property.
D)if the creditor can show that the stay jeopardizes his interest in certain property.
Q4) What are the primary purposes of the Bankruptcy Code?
Q5) Describe the creditor actions that are automatically stayed when the debtor files a bankruptcy petition.
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Chapter 45: The Antitrust Laws
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Q1) The Sherman Act:
A)makes contracts in restraint of trade and monopolization illegal.
B)does not provide criminal penalties for violations of its provisions.
C)does not give the federal courts any injunctive powers.
D)was specifically designed to attack tie-in,exclusive dealing,and requirements contracts.
Q2) Acme Candy,Inc.agrees to buy all the sugar it requires from one sugar refiner.Which type of contract is created in this case?
A)Requirements
B)Tie-in
C)Exclusive dealing
D)Interlocking
Q3) Horizontal (among competitors)price fixing is always per se illegal.
A)True
B)False
Q4) Section 1 of the Sherman Act applies to:
A)unilateral actions.
B)joint actions.
C)nonimport trade.
D)mergers.
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Chapter 46: Consumer Protection Laws
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Q1) One of the purposes of the TILA is to enable the consumer to understand all the charges made in connection with credit.
A)True
B)False
Q2) The Equal Credit Opportunity Act prohibits discrimination in credit transactions based on wealth.
A)True
B)False
Q3) The Holder in Due Course rule:
A)alters statutes of limitations or other state-created limitations on the consumer's enforcement of claims and defenses.
B)states that all defenses available to the purchaser against the seller can also be available against the holder in due course.
C)eliminates rights that the consumer may have as a matter of federal,state,or local law.
D)creates a warranty claim or defense where the product is sold "as is."
Q4) The FTC does not prohibit pre-recorded telemarketing sales calls.
A)True
B)False
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Chapter 47: Environmental Regulation
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Q1) Primary responsibility for enforcing air quality standards lies with:
A)the federal government.
B)the states.
C)local governments.
D)international agencies.
Q2) The Safe Drinking Water Act does not regulate disposal of wastes in wells.
A)True
B)False
Q3) The Resource Conservation and Recovery Act:
A)establishes a program governing the injection of wastes into wells.
B)has the responsibility for designating disposal sites and for establishing the rules governing ocean disposal.
C)provides the federal government and the states with the authority to regulate facilities that generate,treat,store,and dispose of hazardous waste.
D)requires identification and assessment of sites in the United States where hazardous wastes had been spilled,stored,or abandoned.
Q4) What are the major requirements a person who generates,treats,stores,or transports significant quantities of hazardous waste must meet?
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