Accounting Law & Ethics - EXIT EXAM REVIEW
Eric bought a new snowmobile from the North Pole Manufacturing Company. After buying the machine, Eric then modified the spark plugs and a few other things in order to soup it up. In February, just after a snowfall, Eric was driving the snowmobile, when it tipped over, trapping him beneath it. His leg was severely burned when it lodged against one of the spark plugs. Eric now wants to sue North Pole for strict liability in tort. Which of the following is correct?
Eric will likely lose the suit, because the machine has been altered since its manufacture.
Tate enters into a contract with Smith under the terms of which Smith is to pay Tate $7,000 and Tate is to build a garage, repair a boat, and build a doghouse. If the garage has been built, the boat has been repaired, the doghouse has been finished, and the $7,000 thus has been paid, which term describes the type of contract in existence?
Executed contract
Clint induces David, by fraud in the inducement, to make an instrument payable to the order of Clint. Clint then negotiates the instrument to Eric, a holder in due course, and later reacquires it from Eric.
Clint does not succeed to Eric's rights as a holder in due course and remains subject to the defense of fraud.
True or False? A defendant will be liable for all harm/injury that can be traced back to the defendant's negligence.
False
True or False? If a client sues her accountant for negligence as a result of injuries sustained by the client after slipping on an icy sidewalk in front of the accountant's office, the following elements are the elements that the client must prove: duty of care and breach of that duty, factual (actual) cause, proximate cause (scope of liability or so-called "zone of danger"), comparative negligence, and harm/injury/damage/loss.
False
Community Hospital in Atlanta entered into a contract to buy delicate lab equipment from D & D Company in Denver. The contract states shipping terms as FOB, Denver. While in transit the equipment was damaged beyond repair by the carrier, Fly-by-Nite Air Lines. The carrier is in weak financial condition and refused to pay for the equipment.
Community Hospital has risk of loss.
Fay, age 17, ordered a pair of skis from the Ski Hut on the installment plan. She paid $20 every month until she turned 18, the age of majority. The next day, she sold the skis to Sharon and disaffirmed the contract with the Ski Hut. What result?
Fay is still liable because selling the skis amounts to a ratification.
Growingreen, a gourmet fresh food store, orders 100 lbs. of peaches from Western Fruits "on approval." Growingreen has never dealt with Western before this transaction. Since it only sells the highest quality fruits, Growingreen asked for and received these special terms. The peaches arrived on Saturday, but the owners of Growingreen were too busy to open the crates. Sunday they are closed. Monday at 4 p.m., they opened the boxes and inspected the peaches. They did not meet the high standards of Growingreen, so they nailed the crates shut and ordered a truck to return them the next day. They arrived at Western on Thursday, totally spoiled, a week after they were sent. This is the first time Western knew they were not being accepted. Who is responsible for the damages to the peaches?
Growingreen, since it did not, within a reasonable time, notify Western of its election to return the peaches
Pedro ordered a custom-made suit from Rooks & Sons to be delivered by Friday at 5 p.m. When it is delivered to his office on Friday afternoon, he is in conference with a client. His secretary hangs the suit in the office closet. When Pedro tries on the suit Saturday evening, he discovers that the pants are cuffed. He had ordered cuffless trousers, so he called Rooks & Sons on Monday and informed them that he was returning the suit. What can he do?
He can reject the goods since he had not yet accepted them prior to inspection.
If a holder presents a note for payment to the maker, which one of the following warranties is given?
Holder is entitled to enforce the note or is authorized to obtain payment on behalf of the person entitled to enforce the note.
Sam is a sales representative for the INC Corporation. Sam has a terrible driving record and has had his driver's license revoked, but nevertheless he continues to drive the company car for his job. One day he drives too fast for conditions, goes through a red light, and strikes a pedestrian. The accident happened despite the fact Sam's supervisor at INC had repeatedly reprimanded him and advised him to drive more cautiously.
INC is liable even though it did not authorize Sam to drive carelessly, because it employed an improper person as its agent.
Gary, a partner in G & R Enterprises, went to a trade show and discussed with a manufacturer's representative of Foods 4 U, Inc. the purchase of three dozen food processors. A week after the trade show Gary received a signed letter from the representative thanking Gary for visiting his booth and saying Gary's order for three dozen Style 418B food processors at $90 each would be shipped to his business address within 30 days. Can Gary be contractually bound to accept and pay for the food processors?
If Gary does not object in writing within ten days after receiving the letter, he can be bound to accept and pay for the three dozen food processors.
Which of the following is correct with regard to the capacity of an agent?
If an incompetent person who is not under guardianship appoints an agent, contracts made by that agent are voidable.
Akeya sells and delivers goods to Wayne for $10,000. Wayne executes and delivers a negotiable note to Akeya for $10,000 payable to Akeya's order in sixty days. A week later, Akeya duly negotiates the note to Maria. Which of the following is correct?
If the goods are defective, Wayne's defense against Akeya is not available against Maria if Maria acquired the note in good faith and for value and had no knowledge of Wayne's defense against Akeya and took the note without reason to question its authenticity.
Arthur fired a gun in the middle of the desert. He intended to fire the gun, but had no reason to believe that anyone else was in the area. The bullet hit Tom, who happened to be riding his ATV across the desert.
It is unlikely that Arthur has committed either the tort of assault or the tort of battery.
Time paper that states it is due on July 1, a Sunday, is overdue on:
July 3
Amanda ordered fifty personalized sweatshirts from King Manufacturing Company. After the shirts were specially imprinted, but before they were mailed, Amanda called King Manufacturing to disavow the contract. The next day the sweatshirts were stolen. Who must bear the loss?
King must first seek payment from its insurance carrier, and then collect from Amanda for any amount not covered by insurance.
Joanne had a paycheck from Pizza Plaza for $54 made out to her. She indorsed it with her name and gave it to Larry, who in return agreed to paint her living room next Saturday.
Larry is not a "holder in due course."
Jack was fired by Larry but decided to try to win back his job as agent by getting a big new contract. He approached Sharon, a new client, and made a pitch to sell Larry's product. Sharon agreed to buy 100. Jack tells Larry. What are the legal consequences?
Larry would have to ratify the deal to get the benefit of the contract.
Karen decided to sell her stair step exercise machine, because she wasn't using it as much as she thought she would. Her friend Lydia bought it from Karen for $100. The first day that Lydia used the stair stepper it fell apart, injuring Lydia's ankle.
Lydia cannot sue Karen for warranting that the stair stepper is reasonably fit for its ordinary purpose, because Karen is not a merchant.
Which of the following will destroy negotiability?
Making the right to payment subject to the terms of another agreement
Harry said to Marge, "I have a ring once owned by Marilyn Monroe. Would you like to buy it for $500?" Marge pays for the ring, but the next day a friend tells her that Harry had recently purchased the ring at a local department store. Marge enjoys wearing the ring and wears it constantly for twelve months. Finally, she goes to Harry and says, "Here is the ring you lied about. Give me my $500." Most likely:
Marge will not get her money back since she has affirmed the contract by taking an unduly long time to disaffirm.
J & J Co. offers a "subscription" for baby toys to be delivered every two months from the birth of a child. Payment must be made within two weeks of delivery. The Markham family accepted the J & J plan when their son, Timmy, was born. When Timmy was four months old, one J & J toy arrived, smashed to pieces.
Markham can reject the installment and refuse to pay if J & J cannot cure it.
Miller has a contract to sell 1,000 bushels of wheat to a bakery. The wheat is stored in a grain elevator and has become infested with insects. What is the consequence?
Miller is not discharged, but must substitute wheat or pay damages to the bakery for breach of contract.
Milton owns a business delivering coffee and donuts within the downtown area of the city. Smith Co. calls him to deliver a large quantity of his products to their local office. While taking a coffee urn through the Smith Co.'s office, Milton drops it on Lester, scalding him. Who is liable?
Milton alone is liable
Mr. Homayer hired Blake Painters to paint his house. Blake decides it has too many jobs and delegates the duties to the Andrews Company. Andrews does a poor job, and drips paint on Mr. Homayer's flowers and windows.
Mr. Homayer can sue both Blake and Andrews.
Phillip purchased a new forklift for his business from Brown's Equipment Co. He paid a $14,500 down payment and signed a promissory note for $17,500. Brown's sold the note to Corporate Bank and received $16,800. After using the forklift for two weeks, it broke down and could not be repaired. Phillip refuses to make any more payments to Corporate Bank.
Corporate Bank is a holder in due course if it took the note in good faith and had no notice of defenses against the note.
Which of the following would be considered a material breach of a contract? A. Partial performance that omits some essential part of the contract. B. Delivery of 50 chairs in a contract that calls for 100 chairs. C. An intentional breach of the contract. D. All of the above would be material breaches. E. Only (a) and (b) above would be material breaches.
D
Mark is out sailing in his boat one evening on Flathead Lake when he hears a young girl crying for help in the lake. Which of the following is true? A. Mark MUST help the girl or he will be liable for negligence. B. Mark MUST help the girl if he knows her. C. Mark MUST help the girl if he is the girl's uncle and was entrusted with her care. D. Mark MUST help the girl if he begins to rescue her and moves her to a position farther from the shore. E. Both (C) and (D).
D. Mark MUST help the girl if he begins to rescue her and moves her to a position farther from the shore.
Scott buys a television set from Joe's TV Store, giving Joe a check for $550. Joe uses a special indorsement and negotiates the check to Tom. Tom carefully changes the amount to read $1550 and loses the check on the way to the bank. Harry picks it up and tries to cash it. What will he get?
No one will have to pay Harry.
Greg has been in the business of selling encyclopedias for twenty years. Margaret agreed to buy a set if Greg would also bring her a bookcase for them. Greg bought one and sold it to Margaret along with the books. While shelving the books, she ran her hand over the back edge of the shelves and cut herself severely. The wood was not finished on that side and nails were protruding through the shelf. Can Margaret sue Greg under strict liability?
No, because Greg is not a seller under Section 402A.
Miller does the payroll for XYZ Company. In between Adams and Bates, he inserts the name Appleton and makes out a weekly paycheck in that name. He keeps the check for himself, signing "Appleton" and cashing it at a local bank. Auditors discovered the fake payee many months later. May XYZ require the bank to recredit?
No, because Miller is an XYZ employee and the fictitious payee rule applies
Abby needs some quick cash, so she hits upon a scheme. She tells Frank that she is collecting for foreign refugees, so Frank makes out a check for $100 payable to the order of Abby. Abby indorses it and delivers it to Joanne for $90 cash. Joanne gives it to Margaret as a present. Frank discovers Abby's deception and refuses to pay Margaret. Will he win?
No, because of the shelter rule
Bob, a guest in Jim's house, goes into Jim's desk and writes a check to himself on Jim's checking account, forging Jim's signature. He indorses the check "Bob Westin" and presents it to Jim's bank for payment. If the bank pays, can it collect from Jim's account?
No, because the bank should have known the signature was forged
Mark, a college student, agreed to sell his horse to Henry for $1,000. The contract required Mark to take the horse on that same day to Idlewild Stables where Henry was going to board the horse. Henry paid Mark the money, patted the horse and said, "I'm glad you're mine, you beauty," and drove off. Mark then led the horse into the trailer and set off for the two-hour drive to Idlewild. Has there been a sale?
No, not until delivery to Idlewild.
Although he knows the ring is really valuable, Alex tells Mona her ring contains artificial gems, but he would be willing to buy it for $50. Mona agrees. Alex quickly takes the ring to Hanna's Antique Jewelry Shop and sells it for $1,000. A month later, Mona sees her ring on sale for $2,000 at the shop. Is Mona entitled to get the ring back?
No, since Alex had voidable title to the ring and Hanna was a good faith purchaser.
Kay borrowed $200,000 for her business. First Bank loaned the money but required a surety and collateral. Kay put up her boat, valued at $110,000, and Anson agreed to guarantee the entire loan. After Kay had paid $50,000 of the loan, she asked First Bank to release the collateral since she wanted to sell it to her brother. The bank looked at her perfect payment record and agreed. Two weeks later, she sold the business, took the boat to Brazil, and never was heard from again. Can First Bank collect from Anson?
No, since they released the collateral
Mark hires Joe's real estate agency to sell his estate, telling Joe he has lost too much money playing the stock market to afford to keep it up. Then Mark wins the three million-dollar lottery! Joe reads this in the newspaper and that afternoon makes a contract with Sharon to sell the estate. Is the contract valid?
No, the agency terminated because of the change in conditions.
A definite time required for negotiability would NOT be satisfied in which instance?
Payable 1 year from the completion of the building
Perry is building his house and orders a hot water heater from Jones Co. to be installed by them. The hot water heater they sent has a 45-gallon capacity when Perry ordered a 60-gallon capacity. Jones cannot provide a 60-gallon heater for two months, so Perry cancels the contract and gets a heater from Stosill's. Jones Co. says it must be allowed to install the heater purchased from Stosill's. What result?
Perry wins since the contract breach goes to the whole contract.
Which of the following generally is not grounds for discharge of a contract by operation of law?
Running of the statute of limitations
Sam agrees to sell Bill one 18-cubic-foot, yellow refrigerator for $700. It is to be delivered to Bill's home on July 7. Under the perfect tender rule, which one of the following cases would be a rightful rejection of the goods?
Sam delivered an 18-cubic-foot, blue refrigerator on July 7, and Bill calls Sam to complain.
Richard writes a letter to Sarah authorizing her to sell his car and sends a copy of the letter to Timothy, a prospective purchaser. The next day, Richard sends a letter to Sarah revoking her authority, but he fails to notify Timothy.
Sarah has apparent authority with respect to Timothy to sell the car.
R&R, Inc. entered into a contract with Scott, an agent, under the terms of which Scott would receive $20,000 if he stole trade secrets from the leading competitor of R&R. Scott performed his end of the agreement by delivering the trade secrets. R&R now refuses to pay Scott for his services.
Scott will be unable to recover, because this is an illegal contract.
Alice loans George $500 and Sue acts as surety under the loan agreement. When George defaults, Alice comes to Sue to collect the $500. Sue reaches a settlement to pay $400 to Alice in complete satisfaction of the loan. What recourse does Sue have against George?
She can require reimbursement of $400.
When an injured party is required to elect remedies, which of the following would be mutually exclusive?
Specific performance and restitution
Art signs a promissory note payable to the order of Swains Jewelers for $8,000 for a wedding ring. The owner of Swains simply signs "Swains Jewelers."
The note is negotiable by delivery.
Wanda makes a note payable to Henry in return for Henry's car. Henry negotiates the note to his cousin, Sharon, who accidentally drops it on the floor where it is swept into the garbage. What effect?
The obligation is not affected.
Fred is a concert cellist who is scheduled to perform at Carnegie Hall for the first time. He buys what he is told is a Cremona cello from a well-known, reputable dealer in quality cellos, and he pays the going rate for a Cremona. Fred later learns that the cello is an imitation, although it is such a good imitation that even the dealer thought it was an authentic Cremona.
The sale is voidable by Fred for mutual mistake.
Blane indorsed his paycheck in blank and cashed it at a store where he was a well-known customer. The check was then stolen from the store. The store immediately notified Blane's employer, who gave the drawee bank a stop payment order. The thief indorsed the check in a false name and transferred the check to a gas station/convenience store, which took the check in good faith and for value. The check was dishonored when presented to the drawee bank. Which of the following statements is true?
The thief was a holder within the Code definition and could negotiate the check.
Mary and Renaldi Co. have dealt with each other for many, many years. Mary's Boutique orders 100 assorted lipsticks at $3.00 each from Renaldi Co. Renaldi sends back a confirmation letter stating that the shipment will be made by UPS rather than by U.S. mail as usual.
There is a contract for shipment by UPS unless Mary objects.
Albert found a stone in his yard and took it to Bob, a jeweler, for evaluation. Although Bob knew what the stone was, he told Albert that he wasn't sure as to the nature of the stone, but that he thought it was a topaz. Bob then offered to buy the stone for $25 and Albert agreed. Later Albert found out the stone was an uncut diamond worth about $700.
This contract can be avoided based upon fraud in the inducement.
Maxine offered to sell her video camera to Tom for $200 and also stated to Tom, "I will give you two weeks to accept my offer." One week later, Tom learned that Maxine had sold the video camera to Cindy.
This fact pattern is an example of revocation.
True or False? Sam, a student, goes to the movies one Friday evening. The movie is boring, and Sam falls asleep. At 2:00 AM, the security guard locks the building, Sam awakens the next morning when the cleaning crew opens the door. Sam will be unable to recover for false imprisonment.
True
True or False? X knows that Y has offered to sell wheat to Z at a certain price per bushel. Hoping to get Z for a customer, X offers Z wheat at $.50 less a bushel than Y offered. X gets the contract. X is not liable to Y for the tort of interference with contractual relations.
True
Sarah offers to pay Allison $150 if Allison will paint her apartment while she is out of town on vacation for two weeks. Allison makes no promise but tells Sarah that she will think about it. While Sarah is out of town, Allison paints the apartment. This is best described as a(n):
Unilateral contract
Steven intentionally makes a material misrepresentation of fact regarding his motorcycle to Thelma who agrees to buy the motorcycle based upon the misrepresentation. This contract is:
Voidable by Thelma
In which of the following situations would the seller's right to stop delivery continue?
When a bailee of the goods has not yet acknowledged to the buyer that he holds the goods for the buyer
When is delivery alone insufficient to negotiate an instrument?
When it is payable to the order of John Jones and is not indorsed
Lynn, who is a tailor, agrees to sew a pair of drapes for Zach's living room. Zach promises to pay Lynn $300. Lynn completes the drapes using material selected by Zach, but Zach is not satisfied and refuses to pay for them.
Whether Zach will have to pay for the drapes depends upon whether as a reasonable man he ought to be satisfied.
Jack is a guest in Harry's home. While there, he goes into the library and picks up a music box that is part of Harry's collection. Jack overwinds the stem and it breaks. Hoping Harry won't notice, Jack takes the music box for repair to a jeweler who sells similar ones. The jeweler fixes it, but forgets to tag it and an unsuspecting clerk sells it to Robert. Jack is frantic. Can Harry get the music box from Robert?
Yes, Robert has assumed only Jack's title, which is no title at all
Aunt Ellie is worried about the health of her 21-year-old nephew, Robbie. She promises that she will pay him $1,000 if he quits smoking for a month. If Robbie does, is there a binding contract?
Yes, because Robbie gave up a legal right.
Fred agreed to loan George $10,000 for his retail store for which George signed a promissory note. Two months later, Fred heard that George's business was in trouble and that he might not be able to repay the loan. As a result of hearing this information, Fred asked Herman to guarantee the loan. Herman gave a glowing oral endorsement of George and of George's business and then orally promised to pay the $10,000 if George did not. Herman has done business with George for 10 years and George buys his entire inventory from Herman's wholesale outlet. Herman adds that George is his major customer. Is Herman's agreement to pay the $10,000 if George does not pay it enforceable?
Yes, because even though the statute of frauds applies, the main purpose rule exception will probably make the agreement enforceable
For $100 each, Helen agrees with Troy Tech to knit 14 sweaters for the soccer team in their school colors with their names on the front and "Go Tech" on the back. After Helen has almost finished the last sweater, Troy Tech decides it should spend the money on repairs to the locker room instead of on the sweaters. Does Helen's contract have to be in writing for her to enforce it?
Yes, because they are specially manufactured sweaters
Geoff's fiancée, Susan, comes to meet his parents for the weekend. On Saturday morning, while using Geoff's mother's hair dryer, the blower short-circuits sending sparks across the guest room. Susan's angora sweater and her hands are covered with tiny burns. Susan's mother is a lawyer and wants her to sue the seller of the dryer for breach of warranty. Can she?
Yes, since she is a guest in the home of the buyer, the warranties would extend to her in most states.
Wes, who is an art collector, offered to buy a print from Le Monde Gallery. Le Monde balked at the price, sending Wes a letter of rejection by U.S. mail. An hour later, Le Monde reconsidered its position and immediately telephoned Wes to accept his offer. Is there a contract?
Yes, since the acceptance was received before the rejection.
Steve issues a negotiable promissory note to Bob in exchange for Bob's promise to build an addition to Steve's home. The promissory note indicates this reason when Bob negotiates it to Willard for value. Can Willard be a holder in due course?
Yes, unless he knows that Bob has not built the addition
Brad wrote a check to Clara for $1,000 on his account at First Bank. He then took it to his bank for certification. The bank wrote "certified" on the face of the check. Brad then gave the check to Clara. When Clara took the check to First Bank, they refused to pay, claiming that there was not enough money in Brad's account to cover the check. Which of the following is correct?
a. First Bank is primarily liable on the check, because it has already accepted it.
Automatic perfection would occur in which situation (assuming a written security agreement)?
a. Mary buys a refrigerator for her apartment on credit.
Sarah has a checking account at First Bank. Orrin steals one of her blank checks, writes a check for $250 to himself, and then forges Sarah's signature. Orrin then indorses the instrument to Paul in payment of a debt. Paul presents the instrument to First Bank for payment. At First Bank's request, Paul indorses the instrument, and the bank then pays him $250. Which of the following is correct?
a. Paul has breached the warranties on presentment if he knew of Orrin's forgery. b. Orrin has breached the warranties on presentment. c. Sarah has breached the warranties on presentment. d. All of the above are correct. e. Both (a) and (b) are correct.
Zelda signs a note for $500 to First Bank. At the request of both Zelda and the Bank, Ann also signs the note as an accommodation maker.
a. Zelda is primarily liable on the note. b. Ann is primarily liable on the note. c. Ann has secondary liability on the note d. Two of the above, (a) and (b), are correct. e. Two of the above, (a) and (c), are correct.
Adam took and properly perfected a security interest in certain collateral belonging to Deck Corp. on March 1, 2007. On February 1, 2007, Olin had taken a security interest in the same collateral. Olin can have priority over Adam if Olin files within 20 days after receiving possession of the collateral if:
a. the collateral is not inventory. b. Olin takes a purchase money security interest. c. the collateral is inventory. d. Both (a) and (b) are required for Olin to have priority over Adam's interest.
A(n) ____ signs an instrument to lend his credit to an instrument, and his liability is determined by the capacity in which he signs.
accommodation party
Henry was burning leaves in his backyard. One of the burning leaves was lifted by the wind into Emilio's yard next door. It landed on the lawn mower, which exploded and set fire to the wooden lawn furniture. Henry's best argument against liability would be:
an argument based on a lack of proximate causation, in that it was not foreseeable that the lawn mower would explode.
A(n) ____ indorsement is an indorsement made by a person that is not the holder of the instrument. The effect of this indorsement is to make the signer liable on the instrument as an indorser.
anomalous
Donald, a minor, makes a contract with Albert, an adult, to buy a computer. One week later, Donald has his eighteenth birthday and shortly thereafter tells Albert he will pick up the computer next week.
Donald has expressly ratified the contract.
The fair market value of a 10-foot fishing boat is $1,000. In a special promotion, J's Marina purchases a 10-foot fishing boat for $900. The boat is badly scratched when it arrives. J's Marina, however, accepts the shipment and notifies the seller of the defect. The boat as delivered has a value of $800. If the damaged boat is a breach of warranty by the seller, the buyer may recover from the seller:
$200 plus incidental and consequential damages.
Alice Jones receives a bonus of $500 from her boss. She needs cash for her vacation, so she indorses the check to Charlie who gives her $300 cash and an IOU for $200. When Charlie presents the check to Alice's company for payment, her boss says the check was meant for Alex Jones instead; it was all a big mistake. What will Charlie be able to collect from the company?
$300
Mary agrees to sew Georgia's prom dress for $50 plus costs. Georgia decides that she wants ruffles around the neck and calls Mary, who says it now will cost $60. When Mary finishes the dress (with ruffles), Georgia must pay:
$60, since the modified agreement is supported by additional consideration.
A, a wholesale distributor, sells to B, a retail dealer, a set of defective tires manufactured by X, a reputable manufacturer. Both A and B believed the tires to be in perfect condition, although neither party has inspected the tires. C purchases the tires from B and is injured because the defective tires blew out. Who, if anyone, is liable to C in strict liability?
A, B, and X share liability to C under strict liability.
Which of the following is generally NOT a defense to a claim against a manufacturer under 402A?
A. Contributory negligence on the part of the plaintiff
Which of the following is not a factor used to determine whether an agent is an employee or an independent contractor?
A. Whether the employer or the employee/independent contractor designates the person and the tasks to be accomplished
Which of the following would be admissible under the parol evidence rule? Assume the written contract was made on June 1, 2007, and that it is an integrated document (i.e., contains a merger clause).
ANSWER: A A. A letter signed by the parties and dated June 2, 2007, agreeing to new delivery terms. B. A chart showing the dates for delivery written on August 16, 2006. C. A copy of two letters while the parties were in the negotiation stage of their contract which showed agreement to a term not included in the June 1, 2007 contract. D. A copy of common carrier rules on the duty of delivery persons for uncrating merchandise, which is dated December 1, 2003. E. None of the above would be admissible under the parol evidence rule.
Sixteen-year-old Laura's disaffirmance of a contract:
ANSWER: A A. for a sale of land by her is generally not effective until after she reaches the age of majority. B. is only effective if expressed in words in the particular form required by statute. C. can only be effective if she is an "emancipated" minor. D. must take place after she reaches the age of majority, regardless of the type of contract, since only then does she have capacity. E. All of the above.
Which of the following promises does not have to be evidenced by writing in order to be enforceable?
ANSWER: D A. Jones' agreement with Smith to sell his condominium for $350,000. B. Stewart's promise to work for Austin for a two-year period. C. Dad's promise to the credit union that he will make payments on his son's truck if his son does not pay. D. Lou the Landscaper agrees with ACME, Inc. to landscape the lot surrounding ACME's office building for $600. E. Mindy's agreement with Susan to buy her bike for $500. F. All of the above promises must be in writing to be enforceable.
Which of the following is correct with respect to negotiability?
An order or promise to pay only out of a particular fund is permissible.
Andrew agrees to paint Betty's house for $500. Two days after he starts the job, he decides that $500 isn't enough money. He refuses to finish the job unless Betty agrees to pay him $100 more. What law applies to this fact situation?
Andrew gives no additional consideration in return for modification of a pre-existing contract.
Andrew noticed Michael and Michael's pregnant wife, Georgette, walking down the street. To "get in their heads" and to show off for Andrew's girlfriend, who was in the passenger seat, Andrew drove his car within inches of Michael. Michael wasn't injured, but Georgette "freaked out" at what she had witnessed and needed to be hospitalized to save the pregnancy.
Andrew likely has committed the tort of intentional infliction of emotional distress against Georgette.
Arnold wrote a defamatory letter regarding Bill, copies of which he handed to laundromat patrons on a busy weekend afternoon. Shortly afterward, Arnold saw Bill and told him what he had done and orally shared with Bill a description of the contents of the defamatory letter.
Arnold has committed the tort of libel.
Zoron Company purchased a truck from Ace Motors. The sales personnel at Ace know that Anton Green is an executive at Zoron. To pay for the truck, Anton delivered a $30,000 note to Ace and signed it "Anton Green, Agent."
As long as Ace Motors remains holder of the note, Zoron Company is liable for payment.
Which of the following would not be a remedy available to the seller on account of buyer's breach?
B. Require the financially sound buyer to return the goods
Kelly wrote a check to Trish, which Trish immediately changed from $20 to $120. She negotiated the check to Carl for value, who in turn took it to Kelly's bank for certification. Kelly's bank checked his account and certified the check since there were sufficient funds to cover the check. Thereafter, Carl gave the check to Central Motors (CM) as part of the down payment for his car. CM presents the check to Kelly's bank for payment and they discover the alteration. What consequence?
Bank must pay CM $120 and cannot sue them for breach of warranty.
Leonard is a traveling salesman for Bighorn, Inc. He calls on Ralphyl, one of his regular accounts, in order to solicit another order. While in the store, Leonard collects a past due account for Bighorn, but he doesn't get another order. It has been a bad day in which Leonard hasn't had any orders. He is so angry about this when he leaves the store that he drives negligently and hits a pedestrian with his car.
Bighorn will be liable for Leonard's negligence under the doctrine of respondeat superior.
Which of the following statements is true? A. The "reasonable person" standard - assuming adults are involved - makes allowance for physical disability, mental deficiency, emergency conditions, and superior skill/knowledge. B. A defendant has the burden of proof - by a preponderance of the evidence, or more than 50% - that his negligent conduct did not proximately cause harm. C. A plaintiff must prove that the defendant's negligent conduct proximately caused harm to a legally protected interest. D. Both (A) and (C).
C. A plaintiff must prove that the defendant's negligent conduct proximately caused harm to a legally protected interest.
Which of the following remedies are available to either a buyer or seller following a breach by the other party?
Canceling the contract and recovering incidental damages
William draws a check on City Bank payable to the order of Tara. Tara indorses it to Rebecca. Rebecca deposits it to her account in Town Bank. Town Bank properly presents it to City Bank, the drawee. City Bank dishonors it because William did not have enough funds on deposit to cover the check. In this case:
City Bank has until midnight of the following day to notify Town Bank, Rebecca, or Tara of the dishonor.
Jan Arthur writes a $200 check to Bruce Nole who indorses it "Bruce Nole." Bruce gives the check to Anne Tate who indorses it "Without Recourse. Anne Tate." Anne sends the check to Joe Black, MD to pay her medical bill. If the bank refuses to honor the check, Black:
can only collect from Jan Arthur or Bruce Nole.
On June 1, Supertread Tire Company entered into a contract to provide 100 tires per month to ZYX Cycle Company at $30 per tire for the next two years. The October shipment consisted of 100 badly defective tires. ZYX Cycle Company:
can reject the October shipment if it cannot be cured in a timely manner by Supertread.
A dealer sells goods on credit to a buyer who uses the goods as equipment. The dealer keeps a purchase money security interest in the goods. The dealer then borrows against the security agreement of the buyer along with the dealer's security interest in the collateral. The collateral provided by the dealer to his lender in this type of transaction is:
chattel paper.
Erin stole a paycheck from Carl prior to his indorsing it. She then forged Carl's signature and transferred the check to a gas station which took it in good faith, for value, without notice, and without reason to question its authenticity. The gas station:
could not be a holder.
Personal defenses include all but which of the following?
d. Fraud in the execution
Dr. Wells purchased a refrigerator to use for storing medications at his office. The refrigerator will be classified as:
equipment.
A transfer of order paper:
for value creates a presumption by the courts that a negotiation was intended by the parties unless the parties have agreed that the transfer is to be an assignment, which requires no indorsement.
A buyer of goods who buys without knowledge of a security interest, for value, and primarily for personal, family, or household purposes takes the goods:
free of any purchase money security interest automatically perfected.
One who is in possession of a negotiable instrument that is drawn, issued, or indorsed to him or to his order or that is indorsed in blank is a(n):
holder.
Stark enters into a contract with a contractor to build a large shopping mall in Zoo City. Donner will benefit from this contract since his restaurant is adjacent to the planned mall. In this instance, Donner is a(n) __________ beneficiary, and privity of contract exists between the contractor and __________.
incidental; Stark
Parties that are usually secondarily liable for an instrument are:
indorsers and drawers.
David enters into a contract to give Edward the right of first refusal to purchase a tract of land owned by David. David subsequently offers the land to Fred without first offering it to Edward. An appropriate remedy for Edward to seek would be:
injunction.
Jill owns and operates a donut shop. Under the Code, the flour, sugar, and other goods used by Jill to make donuts are classified as:
inventory.
In bringing a warranty action, the buyer must prove:
that breach of the warranty proximately caused the loss suffered.
"Attachment" occurs when a secured party has given value, the debtor acquires rights in the collateral, and:
the debtor and secured party have an agreement.
Where there is no course of performance, usage of trade, or course of dealing, and where a contract is silent as to the place of delivery, the place for delivery is:
the seller's place of business.
A ____ is a form of time draft, which is frequently used as a credit device in a commercial transaction.
trade acceptance
Amanda goes to American Bank where she uses $2,000 of her savings to purchase a six-month certificate of deposit.
American Bank is the maker.
Franz signs a $1,000 note payable to ABC Bank. To help Franz get the loan approved, Amy also signs the note as an accommodation maker.
Amy and Franz both have primary liability on the note.
Taylor agrees to sell Pedro goods for $2,000. The value of the goods accepted is $1,500. If the goods had been as warranted, their value would have been $2,600. What are the buyer's damages for breach of warranty?
$1,100
Amanco is to deliver to D & R Wholesalers 50 dozen wire-rim glasses frames by October 15. On October 2, Amanco delivers 30 dozen wire-rim frames and 20 dozen plastic frames. If D & R rejects the frames:
Amanco has until October 15 to cure the defect if it notifies D & R of its intention to do so.
Andrew owns a store in River City, Polk County. His trade extends throughout the city and county, but not beyond the county limits. He sells his store to Betty and, as part of the transaction, agrees not to engage in the same business anywhere in River City for a period of fifteen (15) years.
ANSWER: D A. The agreement meets the Restatement of Contracts' definition of substantive unconscionability, but not the Uniform Commercial Code's definition of procedural unconscionability. B. Neither the purported duration of the agreement nor the purported geographic restraint is likely reasonable. C. Both the purported duration of the agreement and the purported geographic restraint are likely reasonable. D. None of the above.
Theresa has a contract to teach eighth grade at Washington Middle School. She decided she could make more money writing a book, so she assigns her teaching contract to her friend, Stephanie, who is also a licensed teacher.
ANSWER: D A. The duties under the teaching contract are nondelegable. B. The duties which Theresa has attempted to delegate are personal in nature. C. If the school district agrees to accept Stephanie's services, a novation would occur, which would relieve Theresa of her obligation to the school district. D. All of the above are correct.
Drapery Makers has signed a contract to make and sell to Hyer curtains for 20 windows by March 31. Hyer, however, delays in giving Drapery Makers the dimensions it needs to know in order to do the work. In this case, Drapery Makers:
ANSWER: D A. may proceed to do the work when it receives the information if it performs reasonably. B. may treat Hyer's failure to cooperate as a breach if it does not receive the information by March 31. C. has no remedies under the Code. D. Both (a) and (b).
Based on your reading of and any class discussion regarding Chapter 13 ("Illegal Bargains"):
ANSWER: E A. An agreement to pay a legislator to vote for a particular bill most likely would never be a valid and legally enforceable agreement. B. An agreement under which Arthur agrees to pay Barbara $3,000 to vandalize products of Arthur's competitor most likely would never be a valid and legally enforceable agreement. C. An agreement by the seller of a service station not to enter the service station business in that particular state for a period of twenty years after the sale of the business most likely would never be a valid and legally enforceable agreement. D. An agreement by which a contestant in a school-sponsored "fun run" marathon receives in the mail, and then completes and signs and mails back, an entry blank conspicuously stating, "I hereby release the sponsors from liability for any injury occurring as a result of my participation in this event that results from the intentional misconduct of the sponsors," most likely would never be a valid and legally enforceable agreement. E. All of the above examples represent fact patterns that most likely would never be considered valid and legally enforceable agreements.
Which of the following statements is most accurate?
ANSWER: E - None of the above A. Fraud in the inducement will render an agreement void. B. Fraud in the execution will render an agreement voidable. C. Actionable fraud would be likely to be based on the falsity of a car owner's statement to a prospective purchaser that "this car is the best buy you will find." D. Both (A) and (B). E. None of the above.
Based on your reading of and any class discussion regarding Chapter 15 ("Contracts in Writing"), which of the following statements is NOT true?
ANSWER: G - ALL THE ABOVE STATEMENTS ARE TRUE A. Contracts that transfer real estate or any interests in real estate generally "fall within" the Statute of Frauds and must be written to be enforceable, provided, however, that two exceptions to this general rule are real estate contracts in which partial performance has occurred and oral leases for less than one year. B. One exception to the "parol evidence" rule is to allow in evidence to correct clerical errors and "typos." C. Guaranty or surety contracts generally "fall within" the Statute of Frauds and must be written to be enforceable, provided, however, that the "Main Purpose" Doctrine provides an exception to the general rule if the guarantor/surety is promising to pay the debt of another to benefit the guarantor/surety. D. As discussed in class, the important application of requiring promises made in consideration of marriage to be in writing to be enforceable is the pre-nuptial agreement; these agreements generally "fall within" the Statute of Frauds and must be written to be enforceable. E. According to the "parol evidence" rule - which applies to written contracts, regardless of whether they were required by the Statute of Frauds to be in writing - the written agreement usually supersedes any oral agree-ments; the rule assumes that all of the terms and conditions of the oral agreement(s) were included in the written agreement and that any terms or conditions omitted from the written agreement are presumed to have been omitted for good reason. F. Contracts that cannot likely be performed within one (1) year of formation generally "fall within" the Statute of Frauds and must be written to be enforceable, with the public policy supporting this rule based on memories becoming suspect as time passes. G. All of the above statements are true.
Albert read Gem City's ad in the local newspaper advertising one-quarter carat diamond rings for $89. Albert rushed to the store to buy a ring only to be told by the salesperson that the ad was a misprint and the price should have been $289. Albert gave the salesperson $89 plus sales tax and demanded a ring.
Albert is likely merely making an offer to Gem City to buy the ring for $89 plus sales tax.
Which of the following is true regarding an agent who is acting for an undisclosed principal?
The agent with actual authority will bind both himself and the principal on most contracts.
Bob took a check written by Jack to Jack's bank to be certified. The bank stamped "Certified" on it and gave it back to Bob. What consequence?
The bank is now primarily liable on the check.
If destruction or casualty to goods, total or partial, occurs after risk of loss has passed to the buyer, who is responsible for losses?
The buyer, who must pay the entire contract price of the goods
Z, a seller in Miami, enters into a contract which states that goods are to be delivered to X, a buyer, in New York. Title is to remain with Z until delivery to X. This is:
a destination contract.
The delivery of personal property to a creditor as security for the payment of a debt is:
a pledge.
Dayton Hardware Store and Leighton Bank enter a loan agreement in which Leighton agrees to lend $10,000 on the security of Dayton's existing store equipment. A security agreement is executed and a financing statement is filed, but no funds are advanced. A week later, Dayton enters a loan agreement with Ramos Bank in which Ramos agrees to lend $10,000 on the security of the same store equipment. The funds are advanced, a security agreement is executed, and a financing statement is filed. A week later, Leighton Bank advances the agreed $10,000. Dayton defaults on both loans. In this case:
between Leighton Bank and Ramos Bank, Leighton Bank has priority because priority among security interests perfected by filing is determined by the order in which the financing statements were filed.
Laura is in possession of a check which contains the following indorsement, "Sam Smith, without recourse, for collection only." The indorsement would be classified as:
blank, qualified, and restrictive.
Joel's car broke down on a dark, rainy night. Along came Andy in his four-wheel drive truck with tools and supplies in the back. Joel didn't have any credit cards and had only $3.25 cash, so Andy told him to write a check or an IOU. Neither Andy nor Joel had any paper, so Joel wrote on the cover of Andy's lunchbox: "If my car is fixed right by Andy Walcott, I will pay him $150. (Signed) Joel Boyd." Andy indorses the note and takes it to a commercial factor for negotiation. The factor refuses, saying it is non-negotiable because:
it is conditional on satisfactory repair of the car.
Ricardo is the holder of a check that contains the indorsement "Without Recourse, (signed) Mary Roberts." This indorsement:
limits the liability of Mary Roberts.
Henry hires Ace Roofing to put a new roof on his house. When Ace comes, Henry refuses to let them on the roof, saying that he has a headache and doesn't want to listen to pounding. The next day, Henry still has a headache and he refuses to allow them on the roof. The day after, the baby is sleeping and Henry refuses to allow them to work. After four weeks of this, Ace:
may be discharged, but Henry is not.
Howard needs a truck to pull a 2,000-pound trailer. Gordon tells Howard, "My truck will pull a 2,000-pound trailer with ease." Relying on Gordon's statement, Howard buys the truck, but it will not pull a 2,000-pound trailer. If Gordon did not intend to deceive and Howard sues for nonfraudulent misrepresentation, he can recover:
out-of-pocket and consequential damages, but not punitive damages.
A ____ is a formal appointment of an agent.
power of attorney
In determining whether a contract containing both a sale of goods and a service is a UCC or general contract, the majority of states follow the:
predominant purpose test.
Max pressured Madeline to cosign his car loan, telling her he would otherwise reveal secrets about her that would taint her reputation for honesty. When Max defaults and the creditor tries to collect from Madeline:
she must pay since duress will not be a defense.
Carolyn agrees to sell Marianne an antique handmade lace tablecloth for $1,500. When Carolyn discovers that her cousin wants it too, she breaks the contract with Marianne. Marianne can ask the court to order:
specific performance.
Because of the ____, the contractual promise of a surety to the creditor must be in writing to be enforceable.
statute of frauds
Upon the surety's payment of the principal debtor's entire obligation, the surety obtains all of the rights the creditor has against or through the principal debtor. The term for the surety's "stepping into the shoes" of the creditor is known as:
subrogation.
