Contracts and Sales Law Review Questions
Course Introduction
Contracts and Sales Law provides an in-depth exploration of the fundamental principles governing the formation, interpretation, performance, and enforcement of contracts, with particular emphasis on agreements for the sale of goods. The course examines topics such as offer and acceptance, consideration, capacity, and remedies for breach, while integrating coverage of the Uniform Commercial Code (UCC) Article 2 and its impact on sales transactions. Students will analyze case law and statutory materials, gaining practical experience in identifying contractual issues and resolving disputes, preparing them for real-world application in both general and commercial settings.
Recommended Textbook
Business Law Principles for Todays Commercial Environment 4th Edition by David P. Twomey
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52 Chapters
2754 Verified Questions
2754 Flashcards
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Chapter 1: The Nature and Sources of Law
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Sample Questions
Q1) Uniform State Laws are used as a basis for laws by which of the following entities?
A)Congress
B)international trade associations
C)state legislatures
D)local governmental entities
Answer: C
Q2) A right is defined as:
A)an obligation of law imposed to perform an act.
B)a legal capacity to require another party to perform an action.
C)any written promise.
D)none of the above.
Answer: B
Q3) Administrative regulations are a type of law.
A)True
B)False
Answer: True
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Chapter 2: The Court System and Dispute Resolution
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Sample Questions
Q1) Arbitration procedures occur in a court of law.
A)True
B)False
Answer: False
Q2) Voir dire examination is used in connection with:
A)determining whether the pleadings are valid.
B)jury selection.
C)deciding whether to appeal a trial court decision.
D)none of the above.
Answer: B
Q3) Reversible errors are commonly made by supreme courts.
A)True
B)False
Answer: False
Q4) The answer to the complaint is filed by the:
A)defendant.
B)prosecutor .
C)plaintiff.
D)judge.
Answer: A
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Chapter 3: Business Ethics, social Forces, and the Law
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Sample Questions
Q1) An ethical duty of confidentiality could be breached where:
A)information obtained through research of the employer is disclosed.
B)customer lists or leads are disclosed to a competitor.
C)proprietary information or technology of a business is disclosed.
D)all of the above.
Answer: D
Q2) Maintaining confidentiality is an ethical issue for both employees and company management.
A)True
B)False
Answer: True
Q3) There is often a conflict between the goal of making money for shareholders and the goal of solving social problems through business.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Constitution As the Foundation of the Legal Environment
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Sample Questions
Q1) Because the power to regulate interstate commerce has been interpreted broadly,Congress has great power to adopt regulatory laws affecting the economy.
A)True
B)False
Q2) Which of the following is true about administrative agencies?
A)Administrative agencies exercise powers guaranteed to them in the U.S.Constitution.
B)Administrative agencies exercise powers allocated to them by the president.
C)Administrative agencies make decisions that are rarely reviewed by the courts.
D)Administrative agencies make decisions that are effectively reviewed by voters.
Q3) A system in which a central government is given power to administer to national concerns and individual states administer to local concerns is called:
A)bicameral.
B)constitutional.
C)federal.
D)tripartite.
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Chapter 5: Government Regulation of Competition and Prices
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Sample Questions
Q1) The Sherman Act applies to:
A)buying activities.
B)selling activities.
C)production activities.
D)all of the above.
Q2) Each of the states and the federal government have statutes and regulations that prohibit unfair methods of competition.
A)True
B)False
Q3) A person who is harmed by a conspiracy that violates the Sherman Antitrust Act may sue the wrongdoers for four times the actual damages.
A)True
B)False
Q4) Governments may regulate prices but not credit terms.
A)True
B)False
Q5) Criminal penalties are possible under the Sherman Act.
A)True
B)False
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Chapter 6: Administrative Agencies
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Sample Questions
Q1) When it comes to administrative agencies,courts:
A)regard agencies as able to perform their duties effectively.
B)accept rules that have been established by agencies using a rational basis.
C)do not substitute their own judgment in agency decisions.
D)all of the above.
Q2) An administrative agency has the power to investigate,to require persons to appear as witnesses,to require witnesses to produce relevant papers and records,and to bring proceedings against those who violate the law.
A)True
B)False
Q3) An administrative agency:
A)is not empowered to act as a court with regard to its own regulations.
B)acts as a specialized court of limited jurisdiction.
C)can hear complaints only in the presence of a jury.
D)cannot impose penalties for violation of its regulations.
Q4) Generally,which power(s)does (do)an administrative agency possess?
A)all powers necessary to effectively perform the duties entrusted to it
B)legislative only
C)judicial only
D)executive only
Page 8
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Chapter 7: The Legal Environment of International Trade
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Q1) Since 1947 and the end of the World War II era,the goal of the General Agreement on Tariffs and Trade (GATT)has been to restrict world trade.
A)True
B)False
Q2) The main purpose of the International Monetary Fund (IMF)is to:
A)provide easy access to money for multinational corporations.
B)facilitate the expansion and balanced growth of international trade.
C)create a model simplified lending system.
D)facilitate currency exchanges.
Q3) Licensing involves the transfer of title of goods to a distributor who bears the financial and commercial risks for the subsequent sale of the goods.
A)True
B)False
Q4) Law is the result of the desire of the lawmaker to achieve certain goals.
A)True
B)False
Q5) The U.S.dollar is considered the international currency.
A)True
B)False
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Chapter 8: Crimes
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Sample Questions
Q1) Which of the following is NOT a common law crime?
A)Larceny
B)Robbery
C)Blackmail
D)Arson
Q2) Corporations are entitled to Fifth Amendment protection.
A)True
B)False
Q3) Larceny is best defined as the taking of personal property from the presence of the victim by the use of force or fear.
A)True
B)False
Q4) Perjury occurs:
A)only in federal court.
B)only in written form.
C)only in state courts.
D)none of the above.
Q5) Generally,misdemeanors are more serious than felonies.
A)True
B)False
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Chapter 9: Torts
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Sample Questions
Q1) A shopkeeper may lose the shopkeeper's privilege if:
A)the customer is kept an unreasonable amount of time.
B)the shopkeeper acted with reasonable suspicion.
C)the shopkeeper acted with necessary force.
D)all of the above.
Q2) The degree of care required of a person is:
A)that degree of care the person exercised in the situation at hand.
B)that degree of care an extraordinary person would exercise under similar circumstances.
C)that degree of care an ordinarily prudent person would exercise under similar circumstances.
D)none of the above.
Q3) Without meaning to,Alice carelessly strikes Mary.Mary may be able to sue Alice for:
A)an intentional tort.
B)negligence.
C)strict liability
D)absolute liability.
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11
Chapter 10: Intellectual Property Rights
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Sample Questions
Q1) The Semiconductor Chip Protection Act of 1984 created a new form of industrial intellectual property by protecting mask works and the semiconductor chip products in which they are embodied against chip piracy.
A)True
B)False
Q2) Although processes and machines are eligible for patent protection,manufactures and compositions of matter are not.
A)True
B)False
Q3) Under the Semiconductor Chip Protection Act reverse engineering exemption,competitors may study mask works but may not use the results of that study to design their own semiconductor chip.
A)True
B)False
Q4) Trade dress refers to the packaging look and overall image of a product. A)True
B)False
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12
Chapter 11: Cyberlaw
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Sample Questions
Q1) Employee e-mail is:
A)spontaneous.
B)candid.
C)discoverable.
D)all of the above.
Q2) Bon,located in Florida,desires to enter into a contract with Jon,a resident of Maine.Neither wishes to meet face-to-face,as both are busy with a variety of business interests.Instead,they wish to form a contract over the Internet.Would a contract formed over the Internet be valid?
Q3) __________ is a federal law that recognizes digital signatures as authentic for purposes of contract formation.
A)Cyber-sign
B)We-sign
C)Electra-sign
D)E-sign
Q4) Appropriation involves taking an image,likeness,or name for purposes of commercial advantage.
A)True
B)False
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Chapter 12: Nature and Classes of Contracts: Contracting
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Sample Questions
Q1) When a contract is fully performed by one party,it is called a unilateral contract.
A)True
B)False
Q2) An obligation to pay for the reasonable value of services rendered when there is no contract would be called:
A)quasi-contractual.
B)quasi-enforceable.
C)semi-lawful.
D)valid.
Q3) An agreement that contemplates the performance of an act prohibited by law is usually void.
A)True
B)False
Q4) In a bilateral contract,each party will be a promisor and,therefore,each party will: A)be an obligor.
B)be able to avoid the contract.
C)not be in privity of contract.
D)be an agent for the other side.
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Q1) The fact that there has been a series of contracts between the parties and that one party's offer has always been accepted before by the other does not create any legal obligation to continue to accept subsequent offers.
A)True
B)False
Q2) If an offeree dies before the offer has been accepted,the offer:
A)may be rejected by the surviving spouse of the offeree.
B)may be accepted by the surviving spouse of the offeree.
C)is automatically revoked by the death of the offeree.
D)may be accepted by the guardian appointed for any minor children of the offeree.
Q3) In an auction __________,the auctioneer takes bids as agent for the seller with the understanding that no contract is formed until the seller accepts the transaction.
A)without reserve
B)with reserve
C)without preserve
D)with preserve
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Chapter 14: Capacity and Genuine Assent
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Sample Questions
Q1) Generally,when a person of legal age makes a contract with a minor,the contract is voidable by either party.
A)True
B)False
Q2) Fraud requires intent that the listener rely on the false statement of fact.
A)True
B)False
Q3) The obligation of a cosigner is discharged by:
A)the minority status of one of the parties.
B)the majority status of one of the parties.
C)the court's declaration of the contract's provision of necessaries.
D)the payment of the debt.
Q4) John,a 17-year-old,purchased a ping-pong table and four new ping-pong paddles.A week after he turned 18,John tried to return the ping-pong paddles.He told the seller that he had decided to keep the table.Can John avoid the contract in this way?
Q5) When a minor avoids contracts,the minor always must return the other contracting parties to their original financial positions.
A)True
B)False
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Chapter 15: Consideration
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Sample Questions
Q1) A promise that in fact does not impose any obligation on the promisor is known as an elusive promise.
A)True
B)False
Q2) Dave Tompkins was up late one night watching a television campaign for a charitable organization.The organization was seeking donations in order to construct a new building that would serve as the organization's headquarters.One of Tomkins' favorite performers appeared to promote the campaign,and this prompted Dave to telephone in a pledge.Tomkins pledged $10,000 to the charity and,feeling good about his action,finally went to sleep.The next morning,Tomkins regretted making the pledge because its enforcement would cause great personal financial hardship.Will the charity be able to legally enforce the pledge Tomkins made? If so,why might the charity choose not to enforce a lawful pledge?
Q3) If a merchant receives and cashes a check for partial payment of a debt and the check bears the notation that the amount is in full payment of a disputed sum,the total debt is released.
A)True
B)False
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Chapter 16: Legality and Public Policy
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Sample Questions
Q1) Dealing honestly,reasonably,and in good faith:
A)is implied in every contract for services.
B)is implied in every contract for the sale of goods.
C)is an expressed obligation in every contract.
D) both a and
Q2) Substantive unconscionability has to do with matters of freedom of assent.
A)True
B)False
Q3) An unlicensed doctor can sue a patient for the doctor's fee if the patient in fact recovered because of the doctor's care.
A)True
B)False
Q4) An agreement that calls for the commission of a civil wrong is illegal and void.
A)True
B)False
Q5) Private lotteries,which generally are held to be illegal,involve three elements:
A)prize,chance,and consideration.
B)return,skill,and wager.
C)prize,skill,and consideration.
D)attractive return,minimal involvement,and skill.
Page 18
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Chapter 17: Writing, electronic Forms, and Interpretation of Contracts
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Q1) When there is full disclosure and representation,promises made in consideration of marriage:
A)can be written or oral.
B)generally cannot be set aside unless they are unconscionable.
C)are only valid if they are signed after the marriage actually takes place..
D)all of the above.
Q2) The one-year performance requirement for an oral contract begins:
A)on the day of the agreement.
B)on the first day of performance.
C)on the day following the agreement.
D)the day on which the agreement was placed in writing.
Q3) Customs and trade usage can override the express provisions of a contract.
A)True
B)False
Q4) A writing required by the statute of frauds may be a signed note or memorandum.
A)True
B)False
Q5) Parol evidence is not admissible to show fraud,duress or mistake.
A)True
B)False
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Chapter 18: Third Persons and Contracts
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Sample Questions
Q1) Whenever a contract is intended to benefit a third person,this person is referred to as a delegator.
A)True B)False
Q2) When a lease is assigned,the assignee becomes the sole obligor for rent payments,and the original lessee is discharged from the lease.
A)True B)False
Q3) If there is a time limitation or any other restriction in a contract,a third-party beneficiary:
A)may ignore it.
B)may void it.
C)is bound thereby.
D)must consent to be bound thereby before it is effective.
Q4) A cause of action may not be assigned. A)True B)False
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Chapter 19: Discharge of Contracts
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Sample Questions
Q1) By operation of law,a party can be discharged in bankruptcy from debts.
A)True
B)False
Q2) Sales of goods transactions are subject to a statute of limitations period of:
A)one (1)year.
B)two (2)years.
C)three (3)years.
D)four (4)years.
Q3) If a debtor with multiple debts specifies the debt to which a payment is to be applied and the creditor accepts the money,the creditor is bound to apply the money as specified.
A)True
B)False
Q4) An agreement that does not specify the time for performance is not binding because it is too indefinite.
A)True
B)False
Q5) A condition subsequent can alter but not terminate a contract.
A)True
B)False
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Chapter 20: Breach of Contract and Remedies
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Sample Questions
Q1) When one party has broken a contract,there are several remedies available to the non-breaching party,including:
A)bringing an action for money damages.
B)rescinding the contract.
C)seeking specific performance.
D)all of the above.
Q2) When the plaintiff seeks the remedy of specific performance,the plaintiff wants the other party to carry out the terms of the contract and not pay damages.
A)True
B)False
Q3) If a liquidated damages clause demands an unusually large sum that is not related to reasonably-anticipated actual damages,the clause will be held to be void as a(n): A)penalty.
B)unliquidated damages clause.
C)Extortion
D)Blackmail
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Chapter 21: Personal Property and Bailments
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Q1) Humberto called his friend John and asked him to come over immediately because Humberto had suffered a stroke and might be dying.In their telephone conversation,Humberto advised John that he wanted to give John his gold watch.Immediately after their telephone conversation,Humberto wrote out a will that left his share in Blackacre to John.Blackacre was the marital home of Humberto and Connie,who owned the home as tenants by the entirety.Humberto died before John arrived at Blackacre.John claims the watch and a share in the home.Connie contests both matters.Decide.
Q2) A bailee's lien gives the bailee the right to keep possession of the bailed property until reasonable charges for storage and/or repairs are paid.
A)True
B)False
Q3) At common law,a tenancy by entirety or a tenancy by the entireties is created when property is transferred to both husband and wife.
A)True
B)False
Q4) An ordinary gift made between two living persons is an inter vivos gift.
A)True
B)False
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Chapter 22: Legal Aspects of Supply Chain Management
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Q1) To be engaged in warehousing,an enterprise must have appropriate storage buildings.
A)True
B)False
Q2) The relationship of guest and hotelkeeper ends when the guest:
A)pays his or her bill.
B)advises the hotelkeeper of his or her departure .
C)leaves or ceases to be a transient.
D)has stayed for 30 days and becomes a boarder.
Q3) What is not included in a common carrier's lien on goods that it transports?
A)consequential damages
B)demurrage
C)costs of preserving the goods
D)costs of a sale to enforce the lien
Q4) The common law rights and duties of a warehouser,in the absence of modifying statutes,are for the most part those of a bailee in:
A)a bailment for the sole benefit of the bailee.
B)an ordinary mutual-benefit bailment.
C)a bailment for the sole benefit of the bailor.
D)none of the above.
Page 24
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Chapter 23: Nature and Form of Sales
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Q1) An oral contract to sell custom-made goods to a buyer is binding if the goods are not suitable for sale to anyone else in the ordinary course of the seller's business,and the seller has made a substantial beginning in manufacturing or procuring the goods.
A)True
B)False
Q2) A bailment is a special form of sale in which possession is transferred to a bailee.
A)True
B)False
Q3) Consumer protection statutes may require a writing that is more detailed than the writing required by the statute of frauds provision of the Uniform Commercial Code.
A)True
B)False
Q4) The parol evidence rule does not apply to the sale of goods.
A)True
B)False
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25
Chapter 24: Title and Risk of Loss
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Q1) The expense and the risk of return in a sale or return situation is on the:
A)seller.
B)buyer.
C)lienholder.
D)secured creditor.
Q2) When a person picks out a specific necktie and purchases it,the transaction involves identified goods.
A)True
B)False
Q3) __________ reserve auctions are those in which the goods must be sold regardless of whether the auctioneer is satisfied with the levels of the bids.
A)With
B)Without
C)Unqualified
D)Unrestricted
Q4) A consignment sale is treated as a sale or return under UCC Article 2. A)True
B)False
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Chapter 25: Product Liability: Warranties and Torts
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Q1) The requirement of privity of contract to allow recovery in a sales contract has been widely rejected.
A)True
B)False
Q2) Which of the following is not a product liability theory that protects buyers and allows them to recover for injury and economic loss?
A)express warranty
B)implied warranty
C)strict tort liability
D)assumption of the risk
Q3) A merchant has greater potential warranty liability than does a casual seller.
A)True
B)False
Q4) A warranty is limited if:
A)only the original buyer is covered by the warranty.
B)the buyer must pay any cost for repair or replacement of a defective product.
C)it covers only part of the product purchased.
D)all of the above.
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Chapter 26: Obligations and Performance
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Q1) An acceptance of goods can be done either expressly or by implication.
A)True
B)False
Q2) Substantial impairment:
A)only requires proof that goods do not conform to the contract.
B)requires that the goods are shown to be worthless.
C)requires proof that the use to the buyer is materially different than the contract promised.
D)none of the above.
Q3) In a cash sale not requiring the movement of goods,each party has the right to demand that the other perform at the same time.
A)True
B)False
Q4) A delivery is sufficient if it is made in accordance with the terms of the contract to sell.
A)True
B)False
Q5) A buyer has a right to insist that all the goods be delivered at one time.
A)True
B)False
28
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Chapter 27: Remedies for Breach of Sales Contracts
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Q1) When a buyer materially breaches a contract,the seller may cancel it.
A)True
B)False
Q2) In the absence of an agreement for the extension of credit to the buyer for the purchase of goods,and until the buyer pays for the goods or performs whatever actions the contract requires,the seller has the right to retain possession of the goods.
A)True
B)False
Q3) A liquidation of damages clause in a consumer contract is enforceable if it:
A)is not in excess of twice the provable damages.
B)is agreed to by both parties to the contract.
C)reasonably attempts to estimate the actual harm caused by a breach.
D)is a reasonable amount designed to punish the breaching party.
Q4) When a plaintiff sues on the basis of strict tort liability,the action is subject to:
A)the UCC statute of limitations.
B)the appropriate state's tort statute of limitations.
C)no statute of limitations.
D)FTC approval.
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Chapter 28: Kinds of Instruments, parties, and Negotiability
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Q1) A person who becomes a party to an instrument to add strength to the instrument for the benefit of another party to the instrument is called a:
A)benefactor.
B)secondary obligor.
C)collateral obligor.
D)contingent beneficiary.
Q2) Antedating an instrument affects an instrument's negotiability.
A)True
B)False
Q3) A payee has no rights in an instrument until:
A)the drawer or the maker has delivered the instrument to the payee.
B)an acceptor has been established.
C)an accommodation party has signed the instrument.
D)a guarantor has signed the instrument.
Q4) An instrument is payable on demand if it is payable:
A)on or before a stated date.
B)at sight or presentation.
C)at a fixed time after acceptance.
D)all of the above.
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) A __________ indorsement consists of the signature of the indorser and words specifying the person to whom the indorser makes the instrument payable.
A)qualified
B)restrictive
C)special
D)blank
Q2) Sue is an employee at an ABC store.One of Sue's duties is to prepare the bank deposit at the end of the business day.Sue had a very busy day and made a few mistakes.All of the checks,except two,were indorsed with the stamp "ABC,Inc." that ABC had provided.The bank received the deposit and noticed the lack of indorsement on the two checks.In addition,three of the checks that Sue was to include with the deposit were lost in the parking lot after closing.Phil found the checks and deposited them into his personal account.What is the effect of ABC's indorsement on the lost checks and the lack of indorsement on the two deposited checks?
Q3) Under the UCC,a negotiation is not effective when it is made by a minor or any other person lacking capacity.
A)True
B)False
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Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) Manuel sued Patricia on a promissory note.Patricia admitted signing the note,but raised the defense that Manuel was not a holder in due course.Can Manuel recover without proving that he is a holder in due course?
Q2) A holder having the rights of a holder in due course is subject to the defense of fraud in the inducement.
A)True
B)False
Q3) Fraud as to the nature or essential terms of an instrument is a limited defense not available against a holder in due course.
A)True
B)False
Q4) Generally defenses that could be raised in a breach of contact claim cannot be raised against a holder in due course.
A)True
B)False
Q5) The primary party on a note or certificate of deposit is the drawer. A)True
B)False
32
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Chapter 31: Checks and Funds Transfers
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Q1) A bank always is liable to the depositor on a counterfeit check that the bank has paid.
A)True
B)False
Q2) The fact that payment on a check has been stopped does not affect its negotiable character.
A)True
B)False
Q3) Sondra realized on Tuesday that she had dropped her bank EFT card after using it at an automatic teller machine.She telephoned the bank on the following Monday to notify it of the loss.By that time,someone had used the card to withdraw $800 from Sondra's account.The bank said it would cover $300 of that amount.Sondra sued for the full amount,claiming that she had exercised reasonable care in reporting the loss,especially because the card was lost on bank premises.Will she be able to recover the full $800?
Q4) A check is drawn on the assumption that the bank has sufficient funds in the drawer's account for payment.
A)True
B)False
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Page 33
Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) When a surety pays a claim that it is obligated to pay,it automatically acquires the claim and the rights of the creditor which is known as subrogation.
A)True
B)False
Q2) Letter of credit transactions involve ______ contract(s).
A)one (1)
B)two (2)
C)three (3)
D)four (4)
Q3) Under an indemnity contract,one person pays another consideration in return for a promise to pay a specified sum of money in the event that a specified loss is suffered.
A)True
B)False
Q4) Sureties have no rights to protect them from loss,to obtain their discharge because of the conduct of others that would be harmful to them,or to recover money that they were required to pay because of the debtor's breach.
A)True
B)False
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34
Chapter 33: Consumer Protection
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Q1) It is lawful to refuse to extend credit to a consumer based on the consumer's:
A)race.
B)marital status.
C)credit history.
D)age.
Q2) Despite consumer protection legislation,for most consumers pursing their rights in court is not cost beneficial.
A)True
B)False
Q3) The FTC requires that only descriptive and non-ambiguous terms such as jumbo,giant,or full be used in product labeling.
A)True
B)False
Q4) Anyone promoting the sale of a real estate development that is divided into fifty (50)or more parcels of less than five (5)acres each must file a development statement with the secretary of Housing and Urban Development.
A)True
B)False
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Chapter 34: Secured Transactions in Personal Property
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Q1) If the collateral is in the possession of the creditor:
A)a financing statement must be filed to perfect the interest.
B)the security interest is perfected.
C)only a security interest has been obtained.
D)the type of goods will determine the method of perfection.
Q2) Generally,a secured creditor who has repossessed collateral may retain the collateral and cancel the debt.
A)True
B)False
Q3) Under Revised UCC Article 9,a financing statement must be signed by the debtor. A)True
B)False
Q4) The property that is subject to the security interest is called collateral. A)True
B)False
Q5) When a security interest in property is inferior to other interests and claims to the property,it is said to be perfected.
A)True
B)False
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Chapter 35: Bankruptcy
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Q1) The filing of an involuntary bankruptcy case petition results in an order of relief.
A)True
B)False
Q2) In a Chapter 7 bankruptcy,the debtor's nonexempt assets are liquidated to pay debts.
A)True
B)False
Q3) Peter is employed as a shop electrician for ABC,Inc.Peter has a car being repaired and a home on which he is paying mortgage payments.Peter is contemplating filing for bankruptcy,but he is not sure which type of petition to file.Peter also wonders whether the auto repair costs and the mortgage payments are dischargeable.Which bankruptcy filing is most appropriate for Peter? Are Peter's debts dischargeable?
Q4) If the debtor is generally not paying debts as they become due,the debtor may be subject to an involuntary bankruptcy petition.
A)True
B)False
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Page 37
Chapter 36: Insurance
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Q1) What type of insurance is written for a specified number of years and terminates at the end of that period?
A)term insurance
B)whole life insurance
C)endowment insurance
D)universal insurance
Q2) A professor knew a colleague who was quite ill.The professor applied for life insurance on the colleague's life and named himself as beneficiary.Because of a similarity in the names of the professor and the colleague,an error was made and the policy was issued.
The professor also sold his car to a student.When the student drove away,it was clear that the student was an extremely reckless driver.The professor decided not to cancel his property insurance policy that he had maintained on the vehicle that he sold to the student.Shortly thereafter,the colleague died and the student demolished the car.The professor applied for insurance benefits under both policies and each of the insurers resisted payment.Decide both cases.
Q3) Any false statement in an application binds the insured.
A)True
B)False
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Page 38
Chapter 37: Agency
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Q1) An agent has implied __________ authority to do any act that usually accompanies the transaction for which the agent is authorized to act.
A)express
B)apparent
C)customary
D)incidental
Q2) Agency is a relationship by which the principal is authorized to act on behalf of an agent in negotiating and making contracts with third persons.
A)True
B)False
Q3) Which of the following is true?
A)An agent has the power to contract on behalf of a principal.
B)An employee generally does not have the power to contract on behalf of the employer.
C)An independent contractor controls the work he or she performs.
D)All of the above are true.
Q4) An agency may arise by appointment,conduct,ratification,or operation of law.
A)True
B)False
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Chapter 38: Third Persons in Agency
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Questions
Q1) In which of the following scenarios is the agent exposed to the greatest risk of liability?
A)disclosed principal and authorized contract
B)undisclosed principal and authorized contract
C)partially disclosed principal and authorized contract
D)authorized receipt of money from third person remitted to disclosed principal
Q2) Even after there is an effective ratification,the original action of an agent still is treated as unauthorized.
A)True
B)False
Q3) Which of the following parties has the power to bind an organization to a contract?
A)A soliciting agent for the organization.
B)A contracting agent for the organization.
C)A sales agent for the organization.
D)None of the above.
Q4) An agent's liability as a party to a contract with a third person is not affected by the degree of disclosure.
A)True
B)False
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Chapter 39: Regulation of Employment
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Q1) Which of the following is a permissive subject of bargaining as opposed to a mandatory subject of bargaining?
A)wages
B)hours
C)benefits for already retired workers
D)no-strike no-lockout clauses
Q2) Employment law is based on a combination of contract law and the law established by courts,lawmakers,and administrative agencies.
A)True
B)False
Q3) An employment contract always will state a time or duration for the contract's applicability.
A)True
B)False
Q4) Under the common law,an employer is under a duty to furnish an employee with a sufficient number of competent fellow employees for the work involved.
A)True
B)False
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Chapter 40: Equal Employment Opportunity Law
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Q1) Disparate impact exists when facially neutral employment practices:
A)adversely impact a protected group.
B)intentionally discriminate against a protected group.
C)favorably impact a protected group.
D)are shown to be job-related.
Q2) Generally,the EEOC attempts to remedy an unlawful practice through conciliation.
A)True
B)False
Q3) The two principal legal theories under which a plaintiff may prove a case of unlawful employment discrimination are disparate treatment and disparate impact.
A)True
B)False
Q4) Employers may avoid liability for "hostile work environment" sexual harassment by following a program that includes expressing strong disapproval of such conduct,advising employees how to inform the employer of complaints,and disciplining wrongdoers.
A)True
B)False
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Chapter 41: Types of Business Organizations
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Q1) An unincorporated association cannot sue or be sued in its own name.
A)True
B)False
Q2) Franchise agreements frequently contain an arbitration provision under which a neutral party is to make a final and binding determination whether there has been a breach of the contract sufficient to justify cancellation of the franchise.
A)True
B)False
Q3) The major advantage to investors in a corporation stems from the fact that their risk of loss is limited to the amount of their investment.
A)True
B)False
Q4) The Federal Trade Commission has adopted a franchise disclosure rule that requires franchisors to give prospective franchisees a full disclosure statement thirty (30)days before a franchisee signs a contract or pays any money for a franchise.
A)True
B)False
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Page 43
Chapter 42: Partnerships
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Q1) A partner's authority to act for the partnership is similar to the authority of a(n):
A)agent to act for a principal.
B)independent contractor to act for an employer.
C)shareholder to act for a corporation.
D)employee to act for another employee.
Q2) A partnership involves partners' contributions of capital,services,or a combination of these.
A)True
B)False
Q3) The burden of proving the existence of a partnership will always fall on one of the partners.
A)True
B)False
Q4) When a partner executes an agreement outside the limitations of that partner's agreed scope of power,the other partners are always able to set aside the contract.
A)True
B)False
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44
Chapter 43: LPs, LLCs, and LLPs
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Q1) A limited liability partnership protects partners from liability for the wrongful acts of those whom they directly supervise and control.
A)True B)False
Q2) The dissolution of a limited partnership is governed by unique rules quite different from those applicable to the dissolution of a general partnership. A)True B)False
Q3) A limited liability company pays federal income tax. A)True B)False
Q4) Even limited partners are completely liable for debts of the business. A)True B)False
Q5) In a limited partnership,general partners are not responsible for the debts of the firm. A)True B)False
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Page 45
Chapter 44: Corporate Formation
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Q1) Bylaws are typically adopted by the managers of a corporation.
A)True
B)False
Q2) If two firms consolidate,the new corporation usually succeeds to the rights,powers and immunities of its component parts.
A)True
B)False
Q3) A merger is subject to antitrust law,while a consolidation is not.
A)True
B)False
Q4) Osvaldo was attempting to promote a corporation to be named Xavier,Inc.In that capacity,Osvaldo signed a lease in the name of Xavier and ordered furniture in the company's name.The corporation was in fact formed and the board of directors,knowing of the actions of Osvaldo,moved into the space Osvaldo had leased.Upon delivery and inspection of the furniture Osvaldo ordered,numerous defects were discovered,and the furniture was accordingly rejected and returned to the seller.The corporation was not successful,and as a result,the rent was not paid.Osvaldo was sued for the unpaid rent and for breach of contract concerning the furniture.The corporation was sued on the same grounds.Decide the cases against Osvaldo and Xavier,Inc.
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Chapter 45: Shareholder Rights in Corporations
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Q1) The net assets of a corporation may be referred to as:
A)debentures.
B)stock.
C)capital.
D)bonds.
Q2) Preferred stock cannot have priority over common stock with respect to dividends.
A)True
B)False
Q3) A preincorporation subscription to stock is generally treated as an offer to the corporation to buy the stock when the corporation is formed and the stock is thereafter issued.
A)True
B)False
Q4) A bond:
A)that is unsecured is called a debenture bond.
B)is a negotiable security
C)generally has a life of five years or longer.
D)all of the above.
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Chapter 46: Securities Regulation
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Q1) Which of the following powers is not available to the SEC pursuant to the Remedies Act?
A)The SEC may start administrative proceedings against any person or entity regulated by the SEC.
B)The SEC may start administrative proceedings against any person or entity not regulated by the SEC.
C)The SEC may order an accounting and disgorgement of ill-gotten gains.
D)All of the above powers are available to the SEC under the Remedies Act.
Q2) Mark Hubbard has been very successful in the cattle business over a number of years.Hubbard has decided to establish a cattle program as an investment tool.He will purchase cattle with investors' money and then provide medical care,feed,and transportation on a service contract basis.The profits then will be divided proportionately among the investors.An investment company,Money Ventures,Inc.,is interested in the entire offering of Hubbard's cattle program.Hubbard is unsure as to whether the securities acts apply to him.In addition,he wonders whether his venture,as structured,is exempt if the activity is within the securities acts.Should Hubbard be concerned?
Q3) Rule 10b-5 only applies to registered securities.
A)True
B)False
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Page 48
Chapter 47: Accountants Liability and Malpractice
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Q1) For accountants,fraudulent malpractice always involves upgrading the financial condition of the firm.
A)True
B)False
Q2) Sara and Sally rely on the statements of Alice,an accountant.In a lawsuit brought by Sara and Sally against Alice for fraud,Alice seeks to avoid liability based on the fact that neither Sara nor Sally was in privity of contract with Alice.Alice knew Sara might rely on the financial information provided,but Alice did not know of Sally or anyone in her position.Can Sara and Sally recover against Alice?
Q3) Under the "known-user" rule,it is sufficient if a user is a member of a known class,even if the identity of the particular user is not known to the accountant.
A)True
B)False
Q4) Accountants are equally liable to interlopers and rightful third parties.
A)True
B)False
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49
Chapter 48: Management of Corporations
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Q1) What is not part of the presumptions of the business judgment rule concerning directors?
A)that the decision they reached was profitable to the corporation
B)that they acted on an informed basis
C)that they acted in good faith
D)that they acted in the honest belief that the action taken was in the best interest of the corporation
Q2) Officers that cause a corporation to break a contract with third party are liable to the third party even if they acted in good faith to advance the interests of the corporation.
A)True
B)False
Q3) Which of the following is an incorrect statement about officers?
A)Their duties are generally set forth in the corporation's bylaws.
B)They have a fiduciary obligation to the corporation.
C)They are agents of the corporation.
D)Their authority as agents is increased if they are shareholders.
Q4) In dealing with the corporation,directors act in a fiduciary capacity.
A)True
B)False
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Chapter 49: Real Property
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Q1) In general,any form of property that may be sold or conveyed may be mortgaged.
A)True
B)False
Q2) A deed,like a contract,must be supported by consideration to be effective.
A)True
B)False
Q3) An easement may be created only by deed.
A)True
B)False
Q4) The rights of the mortgagor after default include the right to obtain a stay of foreclosure to prevent undue hardship and a right of redemption.
A)True
B)False
Q5) An easement is a right to use another's property that belongs to the land that is benefited.
A)True
B)False
Q6) A deed is not effective to pass title unless it is properly recorded.
A)True
B)False
Page 51
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Chapter 50: Environmental Law and Land Use Controls
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Q1) Solid waste disposal regulations today deal almost entirely with recycling.
A)True
B)False
Q2) Valid restrictive covenants will bind future owners of the land if:
A)they are published in the Federal Register.
B)there is a notation in the deed referencing the restrictive covenants.
C)they are published in a newspaper of general circulation.
D)they are filed with the attorney general of the state in which the land is located.
Q3) Federal environmental laws can be enforced through:
A)penalties.
B)criminal sanctions.
C)suits by private citizens.
D)all of the above.
Q4) A civil nuisance may be terminated by abatement or closure by government authority,while a criminal nuisance is not subject to such action.
A)True
B)False
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Chapter 51: Leases
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Q1) The assignment of a lease discharges the original tenant from the duty to pay rent.
A)True
B)False
Q2) An act or omission of the landlord that substantially deprives the tenant of the use and enjoyment of the premises is a constructive eviction.
A)True
B)False
Q3) A provision in a residential lease stating that the landlord cutting off heat or water will not constitute an eviction is:
A)valid.
B)a stipulation.
C)a covenant.
D)unconscionable.
Q4) If the tenant uses the property for any purpose other than the one specified in the lease,the landlord has the option to declare the lease terminated.
A)True
B)False
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Chapter 52: Decedents Estates and Trusts
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Q1) A will,to be effective,always must be dated.
A)True
B)False
Q2) A holographic will is an unwitnessed will that is written by the testator entirely by hand.
A)True
B)False
Q3) A will may be contested on grounds of:
A)lack of mental capacity of the testator.
B)undue influence,duress,or mistake.
C)forgery.
D)all of the above.
Q4) If the trustee breaches the trust,which of the following remedies might be available?
A)a money judgment
B)an injunction
C)a criminal prosecution
D)all of the above
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