exam 2

____ 1. The most common way to discharge a contract is by breach.

1. ANS: F

____ 10. Under the UCC, an agreement modifying a contract needs no consideration to be binding.

10. ANS: T

Bartleby owes $5,000 to Countryside Credit Union. As a prejudgment remedy to collect the debt, Countryside could use a. attachment. b. contribution. c. execution. d. subrogation.

88. ANS: A

____ 48. Lenders are required to charge prepayment penalties on most subprime mortgages and home equity loans.

48. ANS: F

____ 49. A lender can make a higher-priced mortgage loan based on the value of the consumer's home without verifying the consumer's ability to repay the loan.

49. ANS: F

____ 5. If a party breaches a contract, the other party can choose one or more of several remedies.

5. ANS: T

____ 50. Forbearance is a process that allows a lender to legally repossess and auction off the property securing a loan.

50. ANS: F

____ 47. A mortgage must be in writing to comply with the Statute of Frauds.

47. ANS: T

Denise borrows $90,000 from Clear Lake Credit Union to buy a home. Denise loses her job and fails to make payments on the mortgage, but assures Clear Lake Credit that she will soon secure a new job. The lender agrees to postpone the payments. This is a. a bridge loan. b. forbearance. c. a reamortization. d. a restructure.

100. ANS: B

____ 11. A seller has an insurable interest in goods as long as he or she retains title to the goods.

11. ANS: T

____ 12. If goods identified to a contract are destroyed through no fault of either party, both parties are excused from performance.

12. ANS: T

____ 13. To constitute an express warranty, a representation must be in writing.

13. ANS: F

____ 14. A seller who makes a statement that relates to the value or worth of the goods creates an express warranty.

14. ANS: F

____ 15. Merchants are required to warrant that the goods they sell or lease are fit for the particular purpose for which a buyer or lessee will use the goods.

15. ANS: F

____ 16. An e-contract must meet the same basic requirements as a paper contract.

16. ANS: T

____ 17. The purpose of tort law is to punish criminal wrongdoers.

17. ANS: F

____ 18. Perpetrator is the term for a person who commits a tort.

18. ANS: F

____ 19. A person may not be liable for a defamatory statement if he or she enjoys a privilege.

19. ANS: T

____ 2. Complete performance occurs when conditions in a contract are fully satisfied.

2. ANS: T

____ 20. The use of a person's likeness for commercial purposes without permission is not an invasion of privacy.

20. ANS: F

____ 21. If it can be shown that a trespass to personal property was warranted, a complete defense exists.

21. ANS: T

____ 22. A failure to return personal property may be conversion even if the rightful owner consented to the initial taking.

22. ANS: T

____ 23. Under the theory of negligence, a breach of the duty of care requires a careless act.

23. ANS: F

____ 24. A business that invites persons to come onto its premises is charged with a duty to exercise reasonable care to protect those invitees.

24. ANS: T

____ 25. Causation in fact exists if an injury would not have occurred without the defendant's act.

25. ANS: T

____ 26. Assumption of risk can be raised as a defense in a negligence suit.

26. ANS: T

____ 27. The basis for applying strict liability is an intentional wrongful act.

27. ANS: F

____ 28. Strict liability is imposed based on fault.

28. ANS: F

____ 29. A person who keeps a domestic animal may be strictly liable for any harm that the animal inflicts.

29. ANS: T

____ 3. Anything less than complete performance is a material breach of contract.

3. ANS: F

____ 30. A manufacturer's duty of care does not extend to the inspection and testing of products bought to incorporate in the final product.

30. ANS: F

____ 31. Due care must be exercised in designing a product.

31. ANS: T

____ 32. A public policy underlying the imposition of strict product liability is that a manufacturer who makes an unsafe product should be put out of business.

32. ANS: F

____ 33. To succeed in a product liability suit based on strict liability, a plaintiff must prove that a product was defective.

33. ANS: T

____ 34. A seller must warn those who purchase its product of the harm that can result from the foreseeable misuse of the product.

34. ANS: T

____ 35. The holder of an artisan's lien can foreclose and sell the property subject to the lien to satisfy the debt.

35. ANS: T

____ 36. Under federal law, an employer can dismiss an employee because his or her wages are being garnished.

36. ANS: F

____ 37. A creditor can garnish almost all types of property.

37. ANS: T

____ 38. Personal property that is most often exempt from satisfaction of judgment debts does not include livestock.

38. ANS: F

____ 39. An involuntary bankruptcy occurs when the debtor's credit does not cover all of his or her debts.

39. ANS: F

____ 4. A contractual obligation may not be discharged through novation.

4. ANS: F

____ 40. An individual debtor is allowed to exempt certain property from the bankruptcy.

40. ANS: T

____ 41. A bankruptcy court may deny a discharge based on the debtor's conduct.

41. ANS: T

____ 42. A reorganization plan is a plan to conserve and administer the debtor's assets in the hope that all of the creditors will eventually be paid in full.

42. ANS: F

____ 43. To refinance is to pay off an original mortgage and obtain a new one at more favorable terms.

43. ANS: T

____ 44. An adjustable-rate mortgage is a standard mortgage with an unchanging rate of interest.

44. ANS: F

____ 45. With an interest-only mortgage, the borrower can choose to pay only the interest portion of the monthly payment for a specified period of time.

45. ANS: T

____ 46. A subprime mortgage is a loan made to a borrower who does not qualify for a standard mortgage.

46. ANS: T

Dylan enters into a contract to manage the operations of Cash's accounting office for one year, renewable for subsequent one-year terms. If this contract is discharged like most contracts, it will be a. canceled. b. compromised. c. altered. d. performed.

51. ANS: D

Juana contracts to sell Ignacio her MP3 player for $30. This contract will be fully discharged when Juana and Ignacio a. agree to sign a bill of sale. b. exchange the player for the $30. c. sign a receipt. d. shake hands and go their separate ways.

52. ANS: B

Red's Plumbing Service substantially performs its contract with Shady Grove Condominiums, Inc. Shady Grove is entitled to a. damages. b. nothing more. c. repudiation. d. alteration.

53. ANS: A

Building Restoration, Inc. (BRI), enters into a contract to refurbish an old train depot for Casual Dining, Inc., to open as Eat Up Restaurant. If BRI completes most of the work promised in the contract, its performance will be a. absolute. b. complete. c. material. d. substantial.

54. ANS: D

3D FX, LLC, and Vivid Star CG, Inc., are parties to a contract. They subsequently agree that Pixellated Inc. should take 3D's place and assume all of its rights and duties under the contract. This is a. a mutual agreement to rescind. b. an accord and satisfaction. c. a novation. d. commercial impracticability.

55. ANS: C

GroundSwell Pools, Inc., agrees to build a swimming pool for Francis, but fails to complete the job. Francis hires EquiAqua, Inc., to finish the project. Francis may recover from GroundSwell a. the contract price less costs of materials and labor. b. the contract price. c. the costs needed to complete construction. d. profits plus the costs incurred up to the time of the breach.

56. ANS: C

Lava Excavators, Inc., needs a drill to continue its operations and orders one for $3,000 from Mining Supplies Company. Lava tells Mining that it must receive the drill by Tuesday or it will lose $10,000. Mining ships the drill late. Lava can recover a. $13,000. b. $10,000. c. $3,000. d. $0.

57. ANS: B

Tristan hires Stefani to perform at Tristan's Club, but she breaches the agreement to accept a higher-paying job at Rock Star Arena. Tristan files a suit against her. The court will most likely a. award damages to Tristan. b. cancel Stefani and Rock Star's contract. c. order Stefani to perform the contract. d. reform Tristan and Stefani's contract.

58. ANS: A

Rikki and Sid enter into a sales contract for tennis equipment. With respect to the specific contractual provisions set out in the UCC, Rikki and Sid may a. agree to different terms only to a reasonable extent. b. agree to different terms unless they "get caught." c. agree to whatever terms they wish. d. not agree to different terms.

59. ANS: C

____ 6. Punitive damages are almost never available in contract disputes.

6. ANS: T

Radiant Phone Company and Precision Works, Inc. (PWI), enter into a contract for the sale of a certain quantity of cell-phone parts, with PWI to determine the price. The price must be fixed according to a. the concept of good faith. b. the principle of fair trade. c. the predominant-factor test. d. the doctrine of unconscionability.

60. ANS: A

Equipment Rental Corporation and Family Farm, Inc., are parties to an oral agreement for a lease of farm equipment with payments in excess of $10,000. They may satisfy the Statute of Frauds by a. mutually agreeing not to commit fraud. b. repeating the terms in a phone call. c. setting out the terms in a memo. d. shaking hands on the deal.

61. ANS: C

Elegant Carpets, Inc., and Fantastic Floors Stores enter into a contract for a sale of carpeting. Under a shipment contract, the seller must a. allow the buyer to reject the goods for any reason. b. deliver the goods to a particular destination. c. inspect the goods before shipping them. d. place the goods into the hands of a carrier.

62. ANS: D

Nu-Tec Company contracts to sell fiber optic cable to Online Services, Inc. Nu-Tec ships the cable, which Online accepts but does not pay for. Nu-Tec can a. sue to recover the purchase price plus incidental damages. b. sue to recover the purchase price minus incidental damages. c. resell the cable to any buyer willing to reclaim it from Online. d. require Online to revoke its acceptance of the cable.

63. ANS: A

Parker, a salesperson for Quality Textiles, Inc., shows Rosa, a fabric buyer for Style Clothing Company, samples of cloth, stating that any shipment will match the samples. This statement is a. an express warranty. b. an implied warranty. c. a warranty of title. d. puffery.

64. ANS: A

Mica buys "Nature," a movie, through Open View, an online entertainment vendor. Before completing the purchase and downloading "Nature," Mica is asked to review a warning not to make and sell a copy of it but is not required to click "I agree." This warning is a. a browse-wrap term. b. a click-on agreement. c. a shrink-wrap agreement. d. none of the choices.

65. ANS: A

Ghangzhou, Ltd., in China and Hot Togs, Inc., in the United States enter into a contract for a sale of casual clothing. Under the United Nations Convention on Contracts for the International Sale of Goods (CISG), on a breach of the contract, the nonbreaching party can normally recover as damages the difference between a. any loss avoided and any profit gained. b. the actual price and the hoped-for price. c. the contract price and the market price. d. the current prices in the parties' two countries.

66. ANS: C

Toni files a suit against Universal Media Corporation for defamation. Actual malice must be shown for recovery of damages if Toni is a. a corporate officer. b. a non-employee. c. a private individual. d. a public figure.

67. ANS: D

Teresa is a celebrity. Without her permission, Sinclair Enterprises includes in an ad an image that resembles her. Sinclair does not use Teresa's name or actual likeness. This is most likely a. appropriation. b. conversion. c. no tort. d. slander of quality.

68. ANS: A

Nesbit publishes in a newspaper an account of the sex life of Merinda, who is not a public figure. The information is true. This is most likely a. an invasion of privacy. b. defamation. c. trespass to personal property. d. wrongful interference with a contractual relationship.

69. ANS: A

____ 7. Consequential damages are foreseeable damages that arise from a party's breach of a contract.

7. ANS: T

Obie accuses Portia, a broker with QT Financial Services, of fraudulently inducing him to invest in Riske Development Company, whose stock price declines in value. The reliance that gives rise to liability for fraud requires a. a subjective, not an objective, statement. b. misrepresentation of a fact knowing that it is false. c. puffery. d. seller's talk.

70. ANS: B

Superior Health Club's marketing strategies entice many of Tone-Up Exercise Club's members to change clubs. After less than a year in business, Superior surpasses Tone-Up in numbers of members. Superior is liable for a. appropriation. b. conversion. c. no tort. d. wrongful interference with a business relationship.

71. ANS: C

Federico enters Gunther's property to read an electric meter. Gunther charges Federico with trespass to land. Federico has a. a complete defense. b. a partial defense. c. a possible defense. d. no defense.

72. ANS: A

Hilliard, a clerk at a Games Unlimited store, takes a video game player from the store without permission. Hilliard is liable for a. appropriation. b. conversion. c. disparagement of property. d. wrongful interference with a business relationship.

73. ANS: B

Kelly is injured when she slips and falls on Lee's sidewalk. To determine whether Lee owed a duty of care to Kelly, Lee is subject to the standard of a. a realistic person. b. a reasonable person. c. a recognizable person. d. a reliable person.

74. ANS: B

Pier shops in a Rowdy Ranch & Farm Store store. Enticed by a display, Pier takes an item to examine it and, when she is done, places it on the floor. Tanner, a consumer enticed by the same display, does not see the item on the floor, trips over it, falls, and suffers an injury. With respect to the danger, Rowdy had a. a duty to advise its patrons that they assume all such risks. b. a duty to discover and remove the hazard. c. a duty to carry insurance to cover such risks. d. no duty.

75. ANS: B

Dirk is driving a sport utility vehicle in which Elin is a passenger when they are involved in a traffic accident, and Elin is injured. Liability may be imposed on Dirk for Elin's injury if Dirk's driving is a. neither the causation in fact nor the proximate cause of the injury. b. only the causation in fact of the injury. c. only the proximate cause of the injury. d. the causation in fact and the proximate cause of the injury.

76. ANS: D

Leo slips and falls in Mornin' Breakfast Café and is injured. Leo files a suit against Mornin' for $50,000. If Leo is 20 percent at fault and Mornin' is 80 percent, under a contributory negligence doctrine, Leo would recover a. $0. b. $25,000. c. $40,000. d. $50,000.

77. ANS: A

Drake pushes Evon into the path of an oncoming car driven by Flip. Gina tries to rescue Evon, but the car hits both of them. Drake is liable for the injuries of a. Evon and Gina. b. Evon only. c. Gina only. d. neither Evon nor Gina.

78. ANS: A

Breakfast Foods Corporation markets waffle irons, one of which proves defective and injures Chelsea. Breakfast Foods's strict liability to Chelsea for the harm caused by the defective waffle iron is based in part on the fact that a. Breakfast Foods profits from the sale of its waffle irons. b. Chelsea is a person, not a corporation like Breakfast Foods. c. marketing is an "abnormally dangerous activity." d. the doctrine of strict liability is the norm rather than the exception.

79. ANS: A

____ 8. Rescission advances the contracting parties to the position they would have been in if the contract had been fully executed.

8. ANS: F

Canyon Construction Company uses blasting in its operations. This is subject to strict liability because a. blasting is an abnormally dangerous activity. b. blasting is a negligent activity. c. Canyon is a construction company. d. construction can be done without blasting.

80. ANS: A

Jean is playing a computer game on a bad disk that melts in her drive, starting a fire that injures her hands. Jean files a suit against K-Tech, Inc., the game's manufacturer. K-Tech is held liable under the doctrine of strict liability. A significant application of this doctrine is in the area of a. cyber crime. b. negligence. c. product liability. d. res ipsa loquitur.

81. ANS: C

Universal Assembly Company makes espresso machines and sells one to Vim through a misrepresentation on the label on which Vim relies and that results in an injury to Vim. Universal is most likely liable for a. a commonly known danger. b. fraud. c. privity. d. puffery.

82. ANS: B

Horizon Corporation makes cell phones. Ginvera files a product liability suit against Horizon, alleging a design defect. Under the Restatement (Third) of Torts: Products Liability, in deciding whether to hold Horizon liable, the court may consider the "reasonableness" of a. the manufacturer's intentions. b. the seller's method of accounting. c. the manufacturer's quality control efforts. d. an available alternative design.

83. ANS: D

The brakes on a Central & Coastal Railroad train malfunction and it rolls towards maintenance workers on the tracks. Everyone gets out of the way except Dick, who wants to show off. The train hits Dick, who sues EZ Hydraulics, Inc., the brakes' manufacturer. EZ can raise the defense of a. a component-part manufacturer. b. assumption of risk. c. consumer expectations. d. product misuse.

84. ANS: B

Toyoda Company buys gas pedals and other parts from subcontractors and puts them in its vehicles without changing their composition. If the pedals or other parts are defective, strictly liable for any damage caused by the defects are a. neither Toyoda nor the subcontractors. b. Toyoda and the subcontractors. c. the subcontractors only. d. Toyoda only.

85. ANS: B

Summer Breeze, Inc., contracts for the sale of fifty ceiling fans to Island Décor store. Tyrone buys one of fans from the store. The applicable statute of limitations prescribes a period of four years. To bring a product liability claim against Summer Breeze, Tyrone must file a suit within four years of a. Tyrone's discovery of an injury. b. the date of the fan's sale to Island Décor. c. the year of the fan's manufacture. d. the date of the fan's sale to Tyrone.

86. ANS: A

Urbana performs a contract with Virgil to add a sun porch to Virgil's house, but Virgil does not pay. In most states, Urbana can create a lien and place it on Virgil's property by filing a. a written guaranty contract. b. a writ of attachment. c. a writ of execution. d. a written notice of lien.

87. ANS: D

Mike owes $12,000 to Nora, $6,000 to Owen, and $6,000 to Pat. The three creditors enter into an agreement with Mike to discharge the debts on payment of a sum of $12,000 to them, to be divided proportionately. This is a. a composition agreement. b. a guaranty agreement. c. a judicial lien. d. a suretyship agreement.

89. ANS: A

____ 9. UCC Article 2A covers any transaction that creates a lease of goods.

9. ANS: T

Fact Pattern 15-1B Rico signs a lease on behalf of Start-Up Games, Inc., with Tower Office Suites. As part of the lease, Rico signs a document titled "GUARANTY," which states that it is "an absolute guaranty" of the lease's performance. Refer to Fact Pattern 15-1B. If Start-Up stops paying the rent, it is most likely that liability or loss for the unpaid amount will rest with a. no one. b. Rico and Start-Up. c. Tower Office Suites. d. the other tenants on the same property.

90. ANS: B

Refer to Fact Pattern 15-1B. The reason for the result in the previous question is that a. Rico signed a "GUARANTY." b. Tower Office Suites owns the property and can re-rent the premises. c. the other tenants can equitably absorb a slight increase in rent. d. Start-Up will likely move out when it stops paying the rent.

91. ANS: A

Delilah files a petition in bankruptcy. The proceeding is governed by the Bankruptcy Code, which is part of a. state law. b. federal law. c. the U.S. Constitution. d. international law.

92. ANS: B

Seth files a petition for bankruptcy. Seth must include with the petition a. proof of each creditor's claim. b. a list of creditors and the amount of the debt owed to each. c. all of his debit and credit cards to be disposed of by the court. d. an affidavit testifying to his having read the Bankruptcy Code.

93. ANS: B

Mac files a petition for a discharge in bankruptcy. Mac's failure to appear at a meeting of the creditors listed in Mac's schedules may result in Mac being a. denied a discharge of bankruptcy. b. fined. c. held in contempt. d. imprisoned.

94. ANS: A

Abner borrows funds from Boomtown Credit Union (BCU) to buy real property. Abner signs a written instrument that gives BCU an interest in the property as security for the debt's payment. This instrument is a. a mortgage. b. a Treasury security. c. a workout agreement. d. homeowners' insurance.

95. ANS: A

Liberty Bank provides Michelle with a standard mortgage with an unchanging rate of interest to buy a home. Payments on the loan remain the same for the duration of the mortgage. This is a. a fixed-rate mortgage. b. an adjustable-rate mortgage. c. an interest-only mortgage. d. a violation of the law.

96. ANS: A

Franz asks Gateway Mortgage Credit for a loan to pay for the purchase of a home. With a poor credit score and a high current debt-to-income ratio, Franz does not qualify for a standard mortgage. Gateway is most likely to provide a. a deed in lieu of foreclosure. b. a reverse mortgage. c. a subprime mortgage. d. a workout agreement.

97. ANS: C

Community Trust Bank provides Devlin with a mortgage to buy a home. The rate of interest is fixed for seven years. At the end of that period, a large payment for the entire balance of the mortgage loan is due. This is a. a balloon mortgage. b. a hybrid mortgage. c. a reverse mortgage. d. a violation of the law.

98. ANS: A

Virgil borrows $175,000 from United Finance Bank to buy a home. Federal law regulates primarily a. mortgage terms that must be disclosed in writing. b. oral representations with respect to the terms of a loan. c. the lowest prices for which real property can be sold. d. who can buy real property, where they can buy it, and why.

99. ANS: A