BUS Law Test 4

BIOC

Someone who buys goods in good faith from a seller who deals in such goods

Maker

Someone who issues a promissory note

Representation

Statement of fact about the past or present

Attachment

Steps necessary to make a security interest valid against the debtor, but not against third parties

Perfection

Steps necessary to make a security interest valid against the whole world

When a debtor defaults, a secured party may seize the collateral and hold it, using reasonable care, but may not sell or lease it. Select one: True False

false

Manufacturer sells a brand-new, solar-powered refrigerator. Because the technology is new, Manufacturer sells the product "as is." Plaintiff later sues Manufacturer for breach of warranty and wins. Plaintiff is probably a. A distributor with no understanding of legal terminology b. A retailer who had previously relied on Manufacturer c. A retailer who had never done business before with Manufacturer d. A retailer who failed to notice the "as is" label e. A consumer

A consumer

PMSI

A security interest taken by the person who sells the collateral or advances the money so the debtor can buy it

Merchantability

An implied warranty that goods are fit for their ordinary purpose

Holder

Anyone in possession of an instrument if it is endorsed to her

Daniel and Annie signed a contract providing that Daniel would lend $50,000 to Annie's craft beer business at an interest rate of 8 percent. During negotiations, Daniel and Annie agreed that the interest rate would go down to 5 percent once she had sold 25,000 cases. This provision never made it into the contract. After the contract was signed, Daniel agreed to reduce the interest rate to 6 percent once volume exceeded 15,000 cases. The contract had an integration provision but no modification clause. Annie has sold 30,000 cases. What interest rate must she pay? a. 8 percent b. 6 percent c. 5 percent d. The contract is void because the terms are unclear

B: 6%

Which case does not represent a purchase money security interest? a. Auto dealer sells a consumer a car on credit b. Wholesaler sells Retailer 5,000 pounds of candy on credit c. Bank lends money to Retailer, using Retailer's existing inventory as collateral d. Bank lends money to Auto Dealer to purchase 150 new cars, which are the collateral e. Consumer applies to Credit Agency for a loan with which to buy a yacht

Bank lends money to Retailer, using Retailer's existing inventory as collateral

Written express warranties

Cannot be disclaimed

Mars, Inc., manufactures and sells VCRs on credit directly to wholesalers, retailers, and consumers. Mars can perfect its security interest in the VCRs it sells without having to file a financing statement or take possession of the VCRs if the sale is made to which of the following: a. Retailers b. Wholesalers that sell to distributors for resale c. Consumers d. Wholesalers that sell to buyers in ordinary course of business

Consumers

In a contract for the sale of goods, the offer may include any terms the offeror wishes; the offeree must accept on exactly those terms or reject the deal Select one: True False

False

Sellers can be bound by written warranties but not by oral statements. Select one: True False

Fasle

Additional terms

Generally become parts of a contract between merchants

Different terms

Generally cancel each other out

Reciprocal promise

Promises that are each enforceable independently,

The possessor of a piece of commercial paper always has an unconditional right to be paid. Select one: True False

false

The same states must be named in the Choice of Law and Choice of Forum provisions. Select one: True False

false

To be negotiable, bearer paper must be indorsed and delivered to the transferee. Select one: True False

false

A contract for the sale of $300 worth of decorative stone must be in writing to be enforceable. Select one: True False

False

Which of the following conditions must be met for an implied warranty of fitness for a particular purpose to arise? I. The warranty must be in writing II. The seller must know that the buyer was relying on the seller in selecting the goods. a. I only b. II only c. Both I and II d. Neither I nor II

II only

Jim's birth certificate lists him as "James Brown Smith;" his driver's license identifies him as "Jim Smith;" his business card reads "J.B. Smith" and his friends call him Jimbo. How should the financing statement list this debtor's name? a. James Smith b. J.B. Smith c. Jim Smith d. James Brown Smith

Jim Smith

Marion orally agrees to sell Ashley her condominium in Philadelphia for $700,000. The parties have known each other for 20 years and do not bother to put anything in writing. Based on the agreement, Marion hires a moving company to pack up all her goods and move them to a storage warehouse. Ashley shows up with a cashier's check, and Marion says, "You're going to love it here." But at the last minute, Marion declines to take the check and refuses to sell. Ashley sues and wins a. Nothing b. The condominium c. $700,000 d. The difference between $700,000 and the condominium's market value e. Damages for fraud

Nothing

Covenant

Promise about what a party will do in the future

Conditional promise

Promises that a party agrees to perform only if the other side has first done what it promised

Issuer

The maker of a promissory note or the drawer of a draft

Priority

The order in which creditors will be permitted to seize the property of a bankrupt debtor

Drawer

The person who issues a draft

Drawee

The person who pays a draft

Assignment of rights

Transfer of benefits under a contract,

Delegation of duties

Transfer of obligations under a contract

The description of products in promotional materials can create express warranties. Select one: True False

True

Under Article 9 of the UCC, perfection of a security interest by a creditor provides added protection against other parties in the event the debtor does not pay its debts. Which of the following parties is not affected by perfection of a security interest? a. Other prospective creditors of the debtor b. The trustee in a bankruptcy case c. A BIOC d. A subsequent personal injury judgment creditor

a BIOC

A party may take a security interest in tangible things, such as goods, but not in intangible things, such as bank accounts. Select one: True False

false

A contract provided, "On January 5, Purchaser shall provide Seller with a certified check in the amount of $100,000. Seller shall transfer a deed for the Property to Purchaser." What is wrong with this provision? a. It is not clear who the purchaser and seller are b. The number $100,000 should be written in words c. The promises are reciprocal d. The promises are conditional

a. It is not clear who the purchaser and seller are

A contract states (1) that Buzz Co. legally exists and (2) will provide 2,000 lbs. of wild salmon each week. Which of the following statements is true? a. Clause 1 is a covenant and Clause 2 is a representation. b. Clause 1 is a representation and Clause 2 is a covenant. c. Both clauses are representations. d. Both clauses are covenants.

b. Clause 1 is a representation and Clause 2 is a covenant

An instrument is negotiable unless: a. It is in writing. b. It is signed only by the drawee. c. It contains an order to pay. d. It is payable on demand. e. It is payable only to bearer.

b. It is signed only by the drawee.

Which one of the following transactions is not governed by Article 2 of the UCC? a. Purchasing an automobile for $35,000 b. Leasing an automobile worth $35,000 c. Purchasing a sound system worth $501 d. Purchasing a sound system worth $499

b. Leasing an automobile worth $35,000

Chloe buys a motorcycle on eBay from Junior. In payment she gives him a promissory note for $7,000. He immediately negotiates the note to Terry. After the motorcycle arrives, Chloe discovers that it is not as advertised. One week later, she notifies Junior. She still has to pay Terry because: a. On eBay, the rule is "buyer beware." b. Terry's rights are not affected by Junior's misdeeds. c. Terry indorsed the note. d. Chloe is the drawee. e. Chloe waited too long to complain.

b. Terry's rights are not affected by Junior's misdeeds.

The possessor of a piece of order paper does not have an unconditional right to be paid if: a. The paper is negotiable b. The possessor is not the payee c. The paper has been indorsed to the possessor d. The possessor is a holder in due course e. The issuer changed his mind after signing the instrument

b. The possessor is not the payee

Seller's sales contract states that "The model 8J flagpole will withstand winds up to 150 mph, for a minimum of 35 years." The same contract includes this: "This contract makes no warranties, and any implied warranties are hereby disclaimed." School buys the flagpole, which blows down six months later, in a 105-mph wind. a. Seller is not liable because it never made any express warranties. b. Seller is not liable because it disclaimed any warranties. c. Seller is liable because the disclaimer was invalid. d. Seller is liable because implied warranties may not be disclaimed.

c. Seller is liable because the disclaimer was invalid.

Liesl purchased an insurance policy on her house. The policy stated that the insurance company was not liable for any damage to her house caused by vandalism or burglary. An arsonist burned down Liesl's house. Is the insurance company liable? a. No, because arson is a form of vandalism b. Yes, because arson is not a form of vandalism c. Yes, because the language is ambiguous and should be interpreted against the insurance company d. No, because the language is vague and should be interpreted against Liesl

c. Yes, because the language is ambiguous and should be interpreted against the insurance company

For a modification to a contract to be valid, both parties must sign it. Select one: True False

false

Michael and Scarlett cannot agree on the price he will pay her to manage his hotels in the third year of their contract. They agree to a provision stating that the price will be "reasonable." This provision is _____. Parties should never include such a provision in a contract unless _______. a. Ambiguous; they are sure they will be able to reach agreement later b. Vague; they are sure they will be able to reach agreement later c. Ambiguous; they would not mind if the other side's interpretation prevails in litigation d. Vague; they would not mind if the other side's interpretation prevails in litigation

d. Vague; they would not mind if the other side's interpretation prevails in litigation

Negotiation means that an instrument has been transferred to the holder by the issuer. Select one: True False

false

In order to be negotiate bearer paper, one must: a. Indorse the paper b. Indorse and deliver the paper with consideration c. Deliver the paper d. Deliver and indorse the paper

deliver the paper

Millie lends Arthur, her next-door neighbor, $25,000. He gives her his diamond ring as collateral for the loan. Which statement is true? a. Millie has no valid security interest in the ring because the parties did not enter into a security agreement. b. Millie has no valid security interest in the ring because she has not filed appropriate papers. c. Millie has an attached, unperfected security interest in the ring. d. Millie has an attached, unperfected security interest in the ring but can perfect her interest by filing. e. Millie has an attached, perfected security interest in the ring.

e. Millie has an attached, perfected security interest in the ring.

Donna gives a promissory note to C. J. Which of the following errors would make the note invalid? a. The instrument was written on a dirty sock. b. The instrument promised to pay 15,000 euros. c. The note stated that Donna owed C.J. "$1,500: One thousand and five dollars." d. Donna signed the note without reading it. e. The due date was specified as "three months after Donna graduates from college."

e. The due date was specified as "three months after Donna graduates from college."

The following list provides reasons why a party would strongly consider putting a contract in writing. Which of these reasons is least important? a. The Statute of Frauds requires it. b. The deal is crucial to your life or the life of your business. c. The terms are complex. d. The parties do not have an ongoing relationship. e. The parties reside in different jurisdictions.

e. The parties reside in different jurisdictions.

A buyer in the ordinary course of business takes goods free of an unperfected security interest but does not take them free of a perfected security interest. Select one: True False

false

A force majeure clause indicates who has the authority to write the first draft of the contract. Select one: True False

false

A party with a perfected security interest takes priority over a party with an unperfected security interest. Select one: True False

true

A promissory note may be valid even if it does not have a specific due date. Select one: True False

true

A severability provision asks the court simply to delete the offending clause and enforce the rest of the contract. Select one: True False

true

Three parties are involved in a draft. Select one: True False

true

Unless the contract provides otherwise, both sides in a contract dispute pay their own legal fees. Select one: True False

true

Without an agreement of the parties, there can be no security interest. Select one: True False

true