1. Carlton executed and delivered to Raymond a $1,000 negotiable note payable to Raymond or bearer. Raymond then negotiated it to Fred and endorsed it on the back by merely signing his name. Which of the following is a true statement?
a. The instrument is bearer paper, and Fred can convert it to order paper by writing “pay to the order of Fred” above Raymond’s signature.
b. Raymond’s endorsement was a special endorsement.
c. The instrument was initially bearer paper and cannot be converted to order paper.
d. Raymond’s endorsement was necessary to Fred’s qualification as a holder.
2. Under the Secured Transactions Article of the UCC, which of the following remedies is available to a secured creditor when a debtor fails to make a payment when due?
Proceed Obtain a General
against the Judgment against
Collateral__ the Debtor_
a. Yes Yes
b. Yes No
c. No No
d. No Yes
3. On July 27, 2011 Summerson sent Fallson a letter offering to sell Fallson a vacation home for $150,000. On August 2, 2011 Fallson replied by mail agreeing to buy the home for $145,000. Summerson did not reply to Fallson. Do Summerson and Fallson have a binding contract?
a. Yes, because Summerson’s silence is an implied acceptance of Fallson’s letter.
b. No, because Fallson failed to sign the letter that was sent by Fallson.
c. No, because Fallson’s letter was a counteroffer.
d. Yes, because Summerson’s offer was validly accepted.
4. Cindy, Odsen Corp.’s agent, needs a written agency agreement to
a. Hire an attorney to collect a business debt owed Odsen.
b. Purchased an interest in undeveloped land for Odsen.
c. Retain an independent general contractor to renovate Odsen’s office building.
d. Enter into a series of sales contracts on Odsen’s behalf.
5. A party who filed a financing statement covering inventory on April 1, 2010 would have a superior interest to which of the following parties?
a. A holder of a mechanic’s lien whose lien was filed on March 15, 2010.
b. A judgment lien creditor who filed its judgment on April 15, 2010.
c. A holder of a purchase money security interest in after-acquired inventory filed on March 20, 2010.
d. A purchaser in the ordinary course of business who purchased on April 10, 2010.
6. In determining whether the consideration requirement to form a contract has been satisfied, the consideration exchanged by the parties to the contract must be
a. Fair and reasonable under the circumstances.
b. Legally sufficient.
c. Exchanged simultaneously by the parties.
d. Of approximately equal value.
7. Pavers Roadway, Inc., contracts with Best Building Corporation to repave Best Building Corporation’s parking lot. The elements of a contract do not include
b. contractual capacity.
8. Holly writes a check on her account at Investment Bank to Jerry to pay a debt. Jerry negotiates the check by indorsement to Kelly, who negotiates the check by indorsement to Lisa, who presents it for payment to Interstate Bank. Holly is
a. not liable for payment under any circumstances.
b. primarily liable.
c. secondarily liable.
d. simultaneously liable.
9. Holly writes a check on her account at Investment Bank to Jerry to pay a debt. Jerry negotiates the check by indorsement to Kelly, who negotiates the check by indorsement to Lisa, who presents it for payment to Interstate Bank. If Investment Bank dishonors the check, Lisa can obtain payment from Jerry
a. if Lisa timely notifies Jerry.
b. only if Holly refuses to pay the check.
c. only if Holly and Kelly refuse to pay the check.
d. under no circumstances.
10. Nora enters into a contract with Owen’s Transport Company for the delivery of a shipment of fresh produce. If ambiguities appear in the contract, they will be construed against
a. the party who drafted the contract.
b. the party with the greater bargaining power.
c. the promisor.
d. the promisee.
11. On November 1, 2013, Ted sent by overnight mail a letter to Zena in which Ted offered to sell a rare vase. The offer requested that Zena’s respond by telegram and that the response be sent on or before 5:00 p.m. on November 2, 2013. On November 2, 2013 at 3:00 p.m., Zena sent an acceptance by overnight mail. It did not reach Ted until November 5, 2013. Ted refused to complete the sale to Zena. Is there an enforceable contract?
a. No, because Zena did not accept by telegram.
b. No, because the offer required receipt of the acceptance within the time specified.
c. Yes, because the acceptance was effective when sent.
d. Yes, because the acceptance was made within the time specified.
12. Mary promises to pay her assistant Ned $10,000 in consideration of the services he provided over the years. Mary never pays Ned. Mary is
a. liable for payment of the $10,000.
b. liable only if Ned still works for Mary.
c. not liable, because the consideration is in the past.
d. not liable, because the consideration was unintentional.
13. Collection of EZ Sales Company’s debt to First Storage Corporation is barred by a statute of limitations. A new promise by EZ to pay the debt
a. may become enforceable if payments are made.
b. must be in writing.
c. requires consideration.
d. will not revive the obligation.
14. Auto Body Repair Shop (ABRS) promises to pay Ben $1,000 a week to work for ABRS. Ben accepts and quits his job with Car Care Service. ABRS fails to provide a job for Ben. Ben has a cause of action based on
a. an illusory promise.
b. a release.
c. past consideration.
d. promissory estoppel.
15. Pat, a world famous musician and composer, agrees to give ten piano lessons to Quinn in exchange for $1,000. Pat’s attempt to delegate his contract to Ruth, an inexperienced pianist, will probably be
a. permitted because contracts may be freely delegated.
b. permitted because the contract is concerned with music lessons.
c. prohibited because contracts may not be freely delegated.
d. prohibited because Pat and Ruth have very different skill levels.
16. Jill and Karl contract for the sale of Jill’s horse for $1,000. Unknown to either party, the horse has died. Karl is
a. entitled to another horse of equivalent value.
b. not required to pay due to the mutual mistake.
c. not required to pay due to the unilateral mistake.
d. required to pay because he assumed the risk the horse might die.
17. Alpha Company offers to sell Beta, Inc., 1,000 computers for a $1 million, states that the offer will be open for six days, and asks for a response by fax. On the fourth day, Beta sends an acceptance to Alpha via the mail, which is received on the sixth day. In this deal
a. a contract is formed.
b. no contract is formed, because Alpha asked for a response by fax.
c. no contract is formed, because Alpha received the acceptance late.
d. no contract is formed, because Beta sent the acceptance late.
18. Holly writes a check on her account at Investment Bank to Jerry to pay a debt. Jerry negotiates the check by indorsement to Kelly, who negotiates the check by indorsement to Lisa, who presents it for payment to Interstate Bank. If Investment Bank dishonors the check, Lisa can obtain payment from Kelly
a. if Lisa timely notifies Kelly.
b. only if Holly refuses to pay the check.
c. only if Holly and Jerry refuse to pay the check.
d. under no circumstances.
19. Furnishings, Inc., agrees to lease a desk to Better Resources, Inc. (BRI), which requests that the desk be left outside City Warehouse for BRI to pick up. Before BRI retrieves the desk, it is stolen. The loss is suffered by
a. A-1 Furnishings and BRI, but not City Warehouse.
b. A-1 Furnishings, BRI, and City Warehouse.
c. A-1 Furnishings only.
d. BRI only.
20. John, the secured party, perfects its security interest by filing a financing statement. What is the effect of perfection of John’s security interest?
a. The secured party has priority in the collateral over most creditors who acquire a security interest in the same collateral after the filing.
b. The security interest becomes enforceable against the debtor.
c. The debtor is protected against all other parties who acquire an interest in the collateral after the filing.
d. None of the above.
21. Ample Country Stables contracts to buy 1,000 horseshoes from Blacksmith, Inc., for $1 per shoe. When the market price decreases to 50 cents per shoe, Ample refuses to go through with the deal. Blacksmith can recover
22. Farm Equipment, Inc., makes farming machinery. Gail discovers that her Farm Equipment tractor is defective and sues the maker for product liability based on negligence. To win, Gail must show that
a. Farm Equipment sold the tractor to Gail.
b. Gail knew and appreciated the risk caused by the defect.
c. Gail suffered an injury caused by the defect.
d. the “defect” was a commonly known danger.
23. Ida signs a check payable to Jane and gives it to her. Jane indorses the back, and transfers the check to Kyle. To negotiate the check to Leo, Kyle must
a. indorse “Kyle” on the back and deliver the check to Leo.
b. indorse “pay to the order of Leo [signed] Kyle” on the back and deliver the check to Leo.
c. only deliver the check to Leo.
d. transfer the check through the drawee bank.
24. Local Appliance Store, the secured party, sells a refrigerator to John, a consumer, for the use of John’s family. John signs a sales agreement, a loan note, and a security agreement. Local Appliance Store fails to file either the security agreement or a financing statement with the secretary of state. Which of the following statements is accurate?
a. The secured party has priority in the collateral over most creditors who subsequently acquire a security interest in the same collateral.
b. The security interest is not enforceable against the debtor.
c. The security interest is not enforceable against subsequent creditors.
d. The assets subject to the security interest cannot become part of the bankruptcy estate in the event the creditor files an involuntary petition against the debtor.
25. Ruth, a minor, charges groceries at Sam’s Mini-Mart. Two days later, Ruth disaffirms the purchase. Ruth owes Sam’s Mini Mart
a. the reasonable value of the groceries.
b. the retail value of the groceries.
c. the wholesale value of the groceries.
26. With regard to a prior perfected security interest in goods for which a financing statement has been filed, which of the following parties is most likely to have a superior interest in the same collateral?
a. The trustee in bankruptcy of the debtor.
b. Lien creditors of the debtor.
c. A buyer of goods in the ordinary course of business.
d. A subsequent buyer of consumer goods who purchased the goods from another consumer.
27. Beth is convicted of arson for burning down her warehouse.. On an application for insurance from Cover-All Insurance Company on a new building, in answer to a question about prior convictions, Beth does not disclose her conviction. This makes the contract
a. binding because the omission is immaterial to Cover-All’s decision to issue coverage.
b. binding due to Cover-All’s failure to discover Beth’s conviction.
c. voidable by Beth because the omission is immaterial to Cover-All’s decision to issue coverage.
d. voidable by Cover-All because the omission is material to its decision to issue coverage.
Fact Pattern for Question 28
Fred enters into a contract under Gene’s threats. Later, Fred refuses to perform, claiming that he acted under duress.
28. Refer to Fact Pattern B. Gene sues to enforce the contract. In order for Fred to establish duress, Gene must have threatened
a. a civil suit.
b. a lost opportunity.
c. a social snubbing.
d. a wrongful act.
e. none of the above.
29. Century Properties. Inc., and Dandy Capital Corporation enter into a contract for a sale of land. To be enforceable, the contract must be in writing
a. Only if the land is valued at $50 or more.
b. Only if the land is valued at $500 or more.
c. Only if the land is valued at $5,000 or more.
d. In any case.
30. Timber Trees, Inc., and Land Corporation enter into an oral contract for Timber Trees, Inc. to sell its lumber mill to Land Corporation . Before Land Corporation takes possession, this contract is enforceable by
a. either party.
b. neither party.
c. Timber Trees only.
d. Land Corporation only because only the buyer can get specific performance.
31. Lola agrees to pay Mira’s debt to New Sales Corporation if Mira does not pay it. Lola does not get any personal benefit for or from the agreement. To be enforceable against Lola, the promise must be in writing
a. if the debt is paid by Mira.
b. if the debt is for at least $50.
c. if the debt is for at least $500.
d. in any case.
Fact Pattern for Question 32
Macro Marketing, Inc. (Macro), and National Food Corporation (NFC) discuss the terms of a contract under which NFC is to provide personal services to Macro. The next day, Macro faxes NFC a memo on Macro’s letterhead that summarizes the items on which they agreed, including a two-year term. NFC immediately begins to perform, but Macro refuses to pay. NFC promptly institutes a law suit seeking damages.
32. Refer to Fact Pattern for question 32. The contract between Macro and NFC is
a. subject to the Statute of Frauds’ collateral-promise provision, and is probably unenforceable.
b. subject to the Statute of Frauds’ services rule, and is probably enforceable.
c. barred by the statute of limitations, and is therefore probably unenforceable.
d. subject to the Statute of Frauds’ one-year rule, and is probably unenforceable.
Fact Pattern for Question 33
Jeff and Kris sign a written contract for the sale of Jeff’s Koffee Kiosk to Kris. The parties intend their written contract to be a final statement of the terms of their agreement.
33. Refer to Fact Pattern for question 33. Kris later disputes some of the provisions of the deal with Jeff. The dispute results in litigation, and the court finds the terms of the agreement are ambiguous. The court will most likely
a. exclude evidence that buttresses the written terms.
b. exclude evidence that contradicts the written terms.
c. allow evidence that explains the terms.
d. dismiss the action because there was a lack of mutual asset and no contract was formed.
34. Tom dies owning stock as joint tenant with right of survivorship with his son, having bank accounts in his name in trust for his daughter, and owning real estate as tenants by the entirety with his wife. The trustee of Tom’s revocable trust holds title the rest of his assets. Under the terms of the revocable trust, all assets of the trust will be distributed to Tom’s son and daughter on Tom’s death. Tom’s wife, son and daughter survive him. Under the terms of Tom’s will, Tom leaves all of his property to his mother, who also survived him. Tom died
b. without any probate assets.
c. with a last will that will controls the disposition of his assets.
d. None of the above.
35. Manny, as buyer, wants to transfer his rights under a written real estate contract with Nila, as seller, to Opie. To ensure that the transfer of rights is valid, Manny must
a. have this right expressly stated in the contract.
b. file a notice of assignment in the public records.
c. have the contract recorded in the public records.
d. none of the choices.
36. Rural Development Corpor
ation (RDC) and Sid enter into a contract for the clear-cutting of RDC’s fifty-acre tract for which RDC agrees to pay Sid. Sid is the owner of Timber Logging Company. Sid transfers his duty to log the tract under the contract to Timber Logging Company. Timber Logging Company is
a. a delegatee and is subject to the terms of the agreement between RDC and Sid.
b. a delagetee and is not entitled to collect under the contract from RDC for services provided by Timber.
c. an obligee and is not required to perform under the contract.
d. a prohibitee.
37. Mke, a physician, renders aid to Nancy, who is injured and unconscious after an avalanche. Mike can recover the cost of the aid from Nancy
a. even if Nancy was not aware of the aid when it was given.
b. only if Nancy recovers because of the aid.
c. only if Noel was aware of the aid at the time it was given.
d. under no circumstances.
38. Pat, a world famous musician, agrees to give ten piano lessons to Quinn in exchange for $1,000. Pat’s attempt to transfer his contract duties to Ruth, an inexperienced pianist, will probably be
a. permitted because contracts may be freely delegated.
b. prohibited in this case unless the contract expressly permits delegation.
c. permitted if the contract is silent on the issue.
d. prohibited in any case.
39. Chaz and Dolly enter into a five year contract under which Chaz agrees to provide maintenance services for Dolly’s Ski Resort. Chaz transfers his rights and obligations under the contract to Mark. Mark
performs under the contract, and Dolly is aware of the Mark’s performance of the contract. However, Dolly refuses to pay Mark. Assuming Mark’s services are properly performed and Mark sues Dolly, Mark
a. will be successful in enforcing the contract if performance depends on the personal skills or talents of the obligor.
b. will probably not be able to recover under the express terms of the contract.
. c. may be able to recover the value of his services.
d. may not recover.
40. On August 1, 2010 Delia and Edwin entered into an agreement for Edwin to lease Delia’s country home for two months during the following summer for $1000 per month. Delia promised to vacate the property for Edwin by July 1, 2011 with the lease to begin on July 1, 2011. If these promises are not in writing, they are most likely
d. none of the above.
41. To avoid liability for intentional injuries, Power Corporation includes in its contracts an exculpatory clause. This is
a. enforceable if the other parties are protected from liability.
b. enforceable if the other parties sign the contract.
c. enforceable if the other parties have equal bargaining power.
d. not enforceable.
42. MicroCorp hires Nick to work for one month at a weekly salary of $400. A MicroCorp representative orally agrees two weeks later to double Nick’s salary. This agreement is
a. enforceable because an employment contract is an adhesion contract.
b. enforceable because the parties have executed an accord and satisfaction.
c. unenforceable because Nick has incurred no additional detriment in exchange for MicroCorp’s promise.
d. unenforceable because Nick’s performance is uncertain.
43. Karen writes on a piece of paper, “I owe you $600,” signs it, and gives it to Lou. This instrument is
b. nonnegotiable, because it does not recite any consideration.
c. nonnegotiable, because it does not state any conditions to payment.
d. none of the above.
44. Pam signs an instrument payable to the order of Quick Credit, Inc., that allows a holder to demand payment of the entire amount due, with interest, if Pam fails to make a payment. This instrument is
b. nonnegotiable, because a holder can move up the payment date.
c. nonnegotiable, because moving up the payment date is conditional.
d. nonnegotiable, because the exact payment date cannot be determined from the face of the instrument.
45. Wyatt inherits a promissory note from Xena, his aunt. Wyatt has no notice that the note has been dishonored or is overdue. Wyatt has the rights of
a. a holder and an HDC.
b. a holder only.
c. an HDC only.
d. neither a holder nor an HDC.
46. Kettlecorn Investment Bank, Inc., and Lone Bank are secured parties with security interests in property owned by Metal Fabrication Corporation. Priority between these security interests is generally determined by
a. the amount of the claim.
b. the custom in the trade.
c. the time of perfection.
d. the date of the loan.
47. General Leasing Company (GLC) buys equipment for use as inventory, borrowing $1,000,000 from Helpful Finance Corporation (Helpful), with Helpful taking back a security interest in the equipment. The next day, GLC borrows $500,000 from Interstate Bank (Interstate), which loan is also secured by a security interest in the equipment. GLC defaults on both loans. Suppose that two weeks after GLC takes possession of the equipment, Helpful and Interstate file financing statements, with Interstate filing first. In that circumstance, the party with priority to the equipment is
b. Helpful and Interstate proportionately.
c. Helpful only.
d. Interstate Bank only
48. Which is not allowed as a federal exemption under the Federal Bankruptcy Code?
A. A specified amount of equity in one motor vehicle.
B. Unemployment compensation.
C. A specified amount of value in books and tools of one’s trade.
D. All of the above are allowed.
49. Under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code, a debtor will be denied a discharge in bankruptcy if the debtor
a. Fails to list a creditor.
b. Owes alimony or child support.
c. Cannot pay administration expenses.
d. Refuses to satisfactorily explain a loss of assets.
50. Which of the following transfers by a debtor, within 90 days prior to the filing for bankruptcy, could be set aside as a preferential payment?
a. Making a gift to charity.
b. Paying a business utility bill.
c. Borrowing money from a bank secured by a mortgage on the debtor’s business property.
d. Prepaying an installment loan on inventory.