Test Bank For Business Law 15th Edition by Jane P. Mallor

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Business Law 15th Edition by Jane P. Mallor – Test Bank 

 

Chapter 02

The Resolution of Private Disputes

 

True / False Questions

1. Minor criminal cases and civil disputes are decided in the appellate courts.

True    False

 

2. For a state trial court to have the power to decide a civil case, it must have both in personam jurisdiction and in rem jurisdiction.

True    False

 

3. The assertion of specific in personam jurisdiction satisfies federal due process guarantees so long as the defendant has sufficient “minimum contacts” with the forum state.

True    False

 

4. In rem jurisdiction is based only on the fact that property of the defendant is located within the state.

True    False

 

5. Generally, forum selection clauses in form agreements are unenforceable.

True    False

 

6. For federal district court diversity jurisdiction to exist, the amount in controversy must exceed $500,000.

True    False

 

7. Often, federal district courts have concurrent jurisdiction with state courts.

True    False

 

8. The doctrine of certiorari jurisdiction makes it mandatory for the U.S. Supreme Court to hear appeals from federal and state courts.

True    False

 

9. Brennan sues Melissa for breach of contract. In her reply, Melissa claims, among other things, that she should not be liable as she only entered the contract because Brennan defrauded her. This assertion is called an affirmative defense.

True    False

 

10. The defendant must wait until after the pleadings have been completed before making a motion to dismiss.

True    False

 

11. Interrogatories are a form of discovery requiring a party to file written answers to questions submitted to that party.

True    False

 

12. As in a criminal case, a defendant in a civil case may not be compelled by the plaintiff to testify.

True    False

 

13. Normally, a motion for summary judgment requires that a court decide both questions of fact and questions of law.

True    False

 

14. The losing party usually can appeal a trial court’s decision to grant a motion for a directed verdict against that party.

True    False

 

15. The judgment winner can seek to enforce the judgment by obtaining a writ of execution or by garnishment.

True    False

 

 

Multiple Choice Questions

16. What is a court’s power to hear a case and to issue a decision binding on the parties called?

A. Jurisdiction

 

B. Prerogative

 

C. Venue

 

D. Assignment

 

17. A “long-arm” statute allows:

A. criminal courts jurisdiction over civil cases.

 

B. state courts more power than federal ones.

 

C. courts jurisdiction over out-of-state defendants.

 

D. appellate courts to hear new cases.

 

18. Calvin, a resident of South Park, Colorado, creates a Web site called “But Seriously” which acts as an electronic billboard for posting funny stories. Ted, a resident of Northridge, California, posts a story on the Web site. Stu, a San Diego, California resident, files a lawsuit against Calvin in a federal district court in California, claiming that Calvin had defamed him on his Web site. Based on these facts, does Calvin have sufficient “minimum contacts” to give the California federal district court in personam jurisdiction over him?

A. No, Ted’s posting alone is not enough to create sufficient “minimum contacts.”

 

B. Yes, Ted’s posting creates sufficient “minimum contacts.”

 

C. Yes, by creating a Web site that is accessible in California, Calvin has sufficient minimum contacts with that state.

 

D. Calvin has sufficient “minimum contacts” with California only if Stu’s claim is in excess of $75,000.

 

19. Bubble Wrap Co. (BWC), an Atlanta corporation, has its principal place of business in New York. John, a resident of Florida, asserted on his Web site that BWC is engaged in ongoing criminal activity, scams, and phishing. BWC sued John in the U.S. District Court for the District of New York, alleging defamation and injury to BWC’s business in New York. John filed a motion to dismiss the case alleging that neither subject-matter nor in personam jurisdiction existed. The court granted the defendant’s motion and dismissed the case because:

A. BWC could not meet its burden of establishing sufficient minimum contacts.

 

B. BWC did not have subject-matter jurisdiction.

 

C. BWC neither had subject-matter jurisdiction nor in personam jurisdiction.

 

D. publishing of those statements did not amount to defamation and thus no injury was caused to BWC’s business.

 

20. Jurisdiction based on the presence of property within the state is called _____ jurisdiction.

A. in rem

 

B. personam

 

C. sui iuris

 

D. subject-matter

 

21. Jack, a resident of Texas, sued Jill, a resident of Kentucky, alleging breach of contract. Jack may attach Jill’s bank account in Kentucky to recover the amount of the judgment from the account, if his suit is successful. This is an example of:

A. in rem jurisdiction.

 

B. in personam jurisdiction.

 

C. quasi in rem jurisdiction.

 

D. venue.

 

22. In general, a court has _____ if it is a territorially fair and convenient forum in which to hear the case.

A. venue

 

B. original jurisdiction

 

C. limited jurisdiction

 

D. standing

 

23. Contracts sometimes contain a provision reciting that disputes between the parties regarding matters connected with the contract must be litigated in the courts of a particular state. What is such a provision called?

A. Choice of law clause

 

B. Forum selection clause

 

C. Substantive clause

 

D. Minimum contacts clause

 

24. Bob is a merchant in New York and Betty is a merchant in California. Bob wants to do business with Betty but he is concerned that if a lawsuit should result from their transaction, he might have to travel to California and hire a California litigation lawyer to litigate the dispute. What type of clause should Bob try to include in his contract with Betty that will probably assure him that if litigation ensues, it will take place in New York?

A. Confession of judgment clause

 

B. Forum selection clause

 

C. Choice of law clause

 

D. Substantive clause

 

25. Defending against a federal district court suit by Paul, Dan claims that Paul has sued him in the wrong federal district court. Dan has raised a question of:

A. long-arm jurisdiction.

 

B. in personam jurisdiction.

 

C. venue.

 

D. standing.

 

26. Infobox Online, an Internet services provider, includes in its “clickwrap” contract a clause stating that California courts have “exclusive jurisdiction” over subscribers’ disputes with Infobox Online. This clause will most likely be:

A. unenforceable because it was not the result of bargaining.

 

B. unenforceable against a subscriber in another state.

 

C. enforceable if the subscriber does not file a motion to dismiss.

 

D. enforceable if it is considered reasonable by a court.

 

27. For federal “diversity” jurisdiction to exist:

A. the case must begin in a federal court of appeals.

 

B. the amount in controversy must exceed $75,000.

 

C. both the plaintiff and the defendant must be citizens of the same state.

 

D. the case must pertain to the Constitution, laws, or treaties of the United States.

 

28. Under the doctrine of federal jurisdiction, a corporation is:

A. a citizen of only the place where is has been incorporated.

 

B. a citizen of only it principal place of business.

 

C. a citizen of both its place of incorporation and the state where it has its principal place of business.

 

D. a citizen of that state which has enacted a “long-arm” statute and thus has jurisdiction.

 

29. _____ jurisdiction exists when the case arises under the Constitution, laws, or treaties of the United States.

A. Original

 

B. Federal question

 

C. Diversity

 

D. Exclusive

 

30. Patent cases being litigated in the federal system are an example of:

A. concurrent jurisdiction.

 

B. original jurisdiction.

 

C. exclusive jurisdiction.

 

D. certiorari jurisdiction.

 

31. In a case where concurrent jurisdiction exists, a state court may decide a case involving federal questions if:

A. it is a criminal case.

 

B. it is a civil case.

 

C. the plaintiff asserts so.

 

D. the defendant belongs to that state.

 

32. Today, most appealable decisions from the lower courts fall within the Supreme Court’s _____ jurisdiction, under which the Court has discretion whether to hear the appeal.

A. appellate

 

B. certiorari

 

C. original

 

D. exclusive

 

33. In which of the following cases will the U.S. Supreme Court have original, but not exclusive, jurisdiction?

A. When the validity of any treaty has been questioned.

 

B. When the validity of a federal statute has been questioned.

 

C. When there is a controversy between two or more states.

 

D. When a state proceeds against citizens of another state.

 

34. Which of the following notifies the defendant that he, she, or it is being sued?

A. Summons

 

B. Complaints

 

C. Pleadings

 

D. Interrogatories

 

35. The _____ are the documents that the parties file with the court when they first state their respective claims and defenses.

A. summons

 

B. pleadings

 

C. appeals

 

D. clauses

 

36. A(n) _____ must state the remedy requested in the case.

A. summons

 

B. interrogatory

 

C. affirmative defense

 

D. complaint

 

37. Which of the following may contain an affirmative defense?

A. Summons

 

B. Interrogatory

 

C. Complaint

 

D. Answer

 

38. A counterclaim differs from an affirmative defense in that, a counterclaim:

A. is a new claim by the plaintiff.

 

B. does not permit a defendant to claim for damages caused by a fraud.

 

C. is merely an attack on the plaintiff’s claims.

 

D. attempts legal relief for the defendant.

 

39. Paul sues Dan for “aesthetic pollution.” The basis for his suit is Dan’s habit of wearing clothes Paul considers ugly. Paul’s complaint offers details of Dan’s “ugly” clothing in many separate, numbered paragraphs. However, no law requires one to pay damages for wearing clothes that another considers ugly and for causing aesthetic dissatisfaction to some other party. Thus, Dan wants to defeat Paul’s claim as fast as possible. The best procedural device for doing so is the:

A. motion to dismiss.

 

B. motion for summary judgment.

 

C. motion for judgment not withstanding the verdict.

 

D. motion for a directed verdict.

 

40. The motion to dismiss for failure to state a claim upon which relief can be granted is sometimes called the:

A. deposition.

 

B. demurrer.

 

C. interrogatory.

 

D. directed verdict.

 

41. The right of _____ is available for information that is not subject to a recognized legal privilege and is relevant to the case or likely to lead to other information that may be relevant.

A. demurrer

 

B. counterclaim

 

C. discovery

 

D. affirmative defense

 

42. Which of the following characterizes discovery?

A. It begins before the pleadings are completed.

 

B. Information may be subject to discovery only if it is ultimately be admissible at trial under the legal rules of evidence.

 

C. It is an efficient and time-saving remedy for litigants.

 

D. Interrogatories are a commonly utilized form of discovery.

 

43. What are depositions?

A. Written questions directed to a party, answered in writing, and signed under oath.

 

B. Documentary evidence introduced at a trial.

 

C. Oral examinations of a party by the opposing party’s attorney.

 

D. Written statements made during arbitration.

 

44. Discovery generally takes place without a need for court orders or other judicial supervision. Which of the following is an EXCEPTION to this rule?

A. A request for written questions directed at the opponent.

 

B. Requests for admission directed at the opponent.

 

C. A request for a physical or mental examination of the opponent.

 

D. Requests for the production of documents in civil cases.

 

45. Malcolm has brought a lawsuit against Will. Malcolm feels that there is no genuine issue of material fact in dispute, and also that he is entitled to win this case as a matter or law. What legal procedure would allow Malcolm to win this case as quickly as possible?

A. Discovery

 

B. Voir dire

 

C. Jury trial

 

D. Summary judgment

 

46. At a _____, the judge meets informally with the attorneys for both litigants in an attempt to get the attorneys to stipulate, or agree to, a resolution of certain issues in order to simplify the trial.

A. demurrer

 

B. directed verdict

 

C. pretrial conference

 

D. minitrial

 

47. The American legal system gives considerable power to the jury; however, it also has devices for limiting that power. The _____ provides a judgment to one party before the jury gets a chance to decide the case.

A. motion to dismiss

 

B. motion for a new trial

 

C. motion for summary judgment

 

D. motion for a directed verdict

 

48. Abby gets a state court civil judgment against Casey, but Casey does not pay. Which of the following is one of the tools available to Abby to enforce the judgment against Casey?

A. Mediation

 

B. Long-arm jurisdiction

 

C. Writ of execution

 

D. In rem jurisdiction

 

49. Harvey is planning to file a case against a petrochemical giant which has a plant in his town. The petrochemical plant is dumping toxic wastes into its surrounding areas. Harvey is mobilizing the residents of the town, all of whom have suffered from various health problems due to the activities of the plant. Which of the following would be of most help to Harvey and the other residents?

A. Demurrer

 

B. Class action

 

C. Directed verdict

 

D. Affirmative defense

 

50. Which of the following helps a plaintiff to seize the property that belongs to the defendant but is in the hands of a third party?

A. Class action

 

B. Garnishment

 

C. Non obstante veredicto

 

D. Settlement

 

51. A party may win a judgment even after the jury has reached a verdict against it through the procedure of:

A. mens rea.

 

B. non obstante veredicto.

 

C. demurrer.

 

D. habeas corpus.

 

52. Dillon’s, a discount retailer with over 500 employees, includes a clause in its employment application stating that all future employment disputes will be resolved through binding arbitration. This clause most likely:

A. will be considered valid by federal courts.

 

B. will be considered unenforceable by all courts.

 

C. will result in employees having to mediate their employment-related claims against Dillon’s.

 

D. will require an employee to mediate employment-related disputes.

 

53. A method of alternative dispute resolution in which a neutral third party helps the parties reach a resolution of the dispute by facilitating communication, clarifying areas of agreement, helping see each other’s viewpoints, suggesting settlement options, but who cannot make decisions that bind the parties, is called:

A. conciliation.

 

B. mediation.

 

C. minitrial.

 

D. arbitration.

 

54. In the form of alternative dispute resolution (ADR) called court-annexed arbitration:

A. a neutral third party is called in to mediate.

 

B. courts decide on certain types of criminal lawsuits.

 

C. the losing party has the right to a regular trial.

 

D. civil lawsuits are sent to the Supreme Court for a hearing.

 

55. Which of the following is an informal alternative method for promoting settlement of disputes from a formal court trial?

A. Minitrial

 

B. Summary judgment

 

C. Directed verdict

 

D. Peremptory challenges

 

 

Essay Questions

56. What two kinds of jurisdiction are necessary for a state court to have jurisdiction over a case? Describe each briefly.

 

 

 

 

57. Greg sues Ned in an effort to get title to some land claimed by Ned and located inside the state of Texas. Ned has never been to Texas in his life, has never had any contacts of any kind with the state, and refuses to appear in Texas to defend against Greg’s suit. Later, after Greg wins a default judgment against Ned, Ned shows up in Texas to claim that the judgment was invalid because he was totally outside Texas, hence Texas courts had no jurisdiction over him, and for this reason they could not affect his rights to the land. Is Ned right? Why or why not? Assume that subject-matter jurisdiction exists.

 

 

 

 

58. Dee sues Gerry for defamation. Dee thinks that the facts clearly are not as stated in Gerry’s complaint and that, given Dee’s version of the facts, Gerry cannot recover for defamation. What motion gives Gerry the best chance of winning the case early? What does it involve?

 

 

 

 

59. What are the consequences of document alteration or destruction that interferes with legitimate discovery requests?

 

 

 

 

60. Does the Federal Arbitration Act (FAA) override a state law vesting initial decision making authority to a court or administrative agency?

 

 

 

 

 

 

 

Chapter 02 The Resolution of Private Disputes Answer Key
 

True / False Questions

1. Minor criminal cases and civil disputes are decided in the appellate courts.

FALSE

Minor criminal cases and civil disputes involving small amounts of money or specialized matters frequently are decided in courts of limited jurisdiction. Appellate courts correct legal errors made by trial judges.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-01 Describe the basic structures of state court systems and the federal court system.
Topic: State Courts and Their Jurisdiction
 

 

2. For a state trial court to have the power to decide a civil case, it must have both in personam jurisdiction and in rem jurisdiction.

FALSE

In order to decide a civil case, a state trial needs to have either in personam or in rem jurisdiction.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

3. The assertion of specific in personam jurisdiction satisfies federal due process guarantees so long as the defendant has sufficient “minimum contacts” with the forum state.

TRUE

The assertion of specific in personam jurisdiction satisfies federal due process guarantees so long as the defendant has sufficient “minimum contacts” with the forum state, such that maintaining an action there comports with “traditional notions of fair play and substantial justice.”

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

4. In rem jurisdiction is based only on the fact that property of the defendant is located within the state.

TRUE

In rem jurisdiction is based on the presence of property within the state and it empowers state courts to determine rights in that property even if the persons whose rights are affected are outside the state’s in personam jurisdiction.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

5. Generally, forum selection clauses in form agreements are unenforceable.

FALSE

Forum selection clauses are generally enforced by courts unless they are shown to be unreasonable in a given set of circumstances.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

6. For federal district court diversity jurisdiction to exist, the amount in controversy must exceed $500,000.

FALSE

Diversity jurisdiction exists when (1) the case is between citizens of different states (2) the amount in controversy exceeds $75,000.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

7. Often, federal district courts have concurrent jurisdiction with state courts.

TRUE

Often, federal district courts have concurrent jurisdiction with state courts—meaning that both state and federal courts have jurisdiction over the case.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

8. The doctrine of certiorari jurisdiction makes it mandatory for the U.S. Supreme Court to hear appeals from federal and state courts.

FALSE

The doctrine of certiorari jurisdiction grants the U.S. Supreme Court the discretion to decide whether it wants to hear a case or not. The court hears only a small percentage of the many appeals that come to it.

 

AACSB: Ethics
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

9. Brennan sues Melissa for breach of contract. In her reply, Melissa claims, among other things, that she should not be liable as she only entered the contract because Brennan defrauded her. This assertion is called an affirmative defense.

TRUE

A successful affirmative defense enables the defendant to win the case even if all the allegations in the complaint are true and, by themselves, would have entitled the plaintiff to recover.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

10. The defendant must wait until after the pleadings have been completed before making a motion to dismiss.

FALSE

The motion to dismiss is often made after the filing of a complaint.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

11. Interrogatories are a form of discovery requiring a party to file written answers to questions submitted to that party.

TRUE

Interrogatories are written questions directed by the plaintiff to the defendant, or vice versa. The litigant on whom interrogatories are served must provide written answers, under oath, within a time period prescribed by applicable law.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

12. As in a criminal case, a defendant in a civil case may not be compelled by the plaintiff to testify.

FALSE

In a criminal case, a defendant may be compelled by the plaintiff to testify; but in a civil case, it is not so.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

13. Normally, a motion for summary judgment requires that a court decide both questions of fact and questions of law.

TRUE

A summary judgment involves factual determinations.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

14. The losing party usually can appeal a trial court’s decision to grant a motion for a directed verdict against that party.

TRUE

The motion for a directed verdict may be made by either party; it usually occurs after the other (nonmoving) party has presented his/her evidence.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

15. The judgment winner can seek to enforce the judgment by obtaining a writ of execution or by garnishment.

TRUE

The motion for a directed verdict may be made by either party; it usually occurs after the other party has presented her evidence.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

Multiple Choice Questions

16. What is a court’s power to hear a case and to issue a decision binding on the parties called?

A. Jurisdiction

 

B. Prerogative

 

C. Venue

 

D. Assignment

Jurisdiction is a court’s power to hear a case and to issue a decision binding on the parties.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-02 Explain the difference between subject matter jurisdiction and in personam jurisdiction.
Topic: State Courts and Their Jurisdiction
 

 

17. A “long-arm” statute allows:

A. criminal courts jurisdiction over civil cases.

 

B. state courts more power than federal ones.

 

C. courts jurisdiction over out-of-state defendants.

 

D. appellate courts to hear new cases.

Most states have enacted “long-arm” statutes that give their courts in personam jurisdiction over certain out-of-state defendants. Under these statutes, nonresident individuals and businesses become subject to the jurisdiction of the state’s courts by doing business within the state, contracting to supply goods or services within the state, or committing a tort within the state.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-01 Describe the basic structures of state court systems and the federal court system.
Topic: State Courts and Their Jurisdiction
 

 

18. Calvin, a resident of South Park, Colorado, creates a Web site called “But Seriously” which acts as an electronic billboard for posting funny stories. Ted, a resident of Northridge, California, posts a story on the Web site. Stu, a San Diego, California resident, files a lawsuit against Calvin in a federal district court in California, claiming that Calvin had defamed him on his Web site. Based on these facts, does Calvin have sufficient “minimum contacts” to give the California federal district court in personam jurisdiction over him?

A. No, Ted’s posting alone is not enough to create sufficient “minimum contacts.”

 

B. Yes, Ted’s posting creates sufficient “minimum contacts.”

 

C. Yes, by creating a Web site that is accessible in California, Calvin has sufficient minimum contacts with that state.

 

D. Calvin has sufficient “minimum contacts” with California only if Stu’s claim is in excess of $75,000.

When the parties have a contractual relationship, minimum contacts may be shown by the parties’ negotiations preceding their agreement, the course of dealing between the parties, the terms of the agreement, and foreseeable future consequences arising out of the agreement. In this case, there is no such agreement and hence, it does not apply.

 

AACSB: Ethics
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

19. Bubble Wrap Co. (BWC), an Atlanta corporation, has its principal place of business in New York. John, a resident of Florida, asserted on his Web site that BWC is engaged in ongoing criminal activity, scams, and phishing. BWC sued John in the U.S. District Court for the District of New York, alleging defamation and injury to BWC’s business in New York. John filed a motion to dismiss the case alleging that neither subject-matter nor in personam jurisdiction existed. The court granted the defendant’s motion and dismissed the case because:

A. BWC could not meet its burden of establishing sufficient minimum contacts.

 

B. BWC did not have subject-matter jurisdiction.

 

C. BWC neither had subject-matter jurisdiction nor in personam jurisdiction.

 

D. publishing of those statements did not amount to defamation and thus no injury was caused to BWC’s business.

When the parties have a contractual relationship, minimum contacts may be shown by the parties’ negotiations preceding their agreement, the course of dealing between the parties, the terms of the agreement, and foreseeable future consequences arising out of the agreement. In this case, there is no such agreement and hence, it does not apply.

 

AACSB: Ethics
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

20. Jurisdiction based on the presence of property within the state is called _____ jurisdiction.

A. in rem

 

B. personam

 

C. sui iuris

 

D. subject-matter

In rem jurisdiction is based on the presence of property within the state.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

21. Jack, a resident of Texas, sued Jill, a resident of Kentucky, alleging breach of contract. Jack may attach Jill’s bank account in Kentucky to recover the amount of the judgment from the account, if his suit is successful. This is an example of:

A. in rem jurisdiction.

 

B. in personam jurisdiction.

 

C. quasi in rem jurisdiction.

 

D. venue.

Quasi in rem jurisdiction is also based on the presence of property within the state. Cases based on quasi in rem jurisdiction do not necessarily determine rights in the property itself. Instead, the property is regarded as an extension of the out-of-state defendant—an extension that sometimes enables the court to decide claims unrelated to the property.

 

AACSB: Ethics
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

22. In general, a court has _____ if it is a territorially fair and convenient forum in which to hear the case.

A. venue

 

B. original jurisdiction

 

C. limited jurisdiction

 

D. standing

A court has venue if it is a territorially fair and convenient forum in which to hear the case. Even if a court has jurisdiction, it may be unable to decide the case because venue requirements have not been met.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

23. Contracts sometimes contain a provision reciting that disputes between the parties regarding matters connected with the contract must be litigated in the courts of a particular state. What is such a provision called?

A. Choice of law clause

 

B. Forum selection clause

 

C. Substantive clause

 

D. Minimum contacts clause

Contracts sometimes contain a forum selection clause reciting that disputes between the parties regarding matters connected with the contract must be litigated in the courts of a particular state. Depending on its wording, a forum selection clause may have the effect of addressing both jurisdiction and venue issues.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

24. Bob is a merchant in New York and Betty is a merchant in California. Bob wants to do business with Betty but he is concerned that if a lawsuit should result from their transaction, he might have to travel to California and hire a California litigation lawyer to litigate the dispute. What type of clause should Bob try to include in his contract with Betty that will probably assure him that if litigation ensues, it will take place in New York?

A. Confession of judgment clause

 

B. Forum selection clause

 

C. Choice of law clause

 

D. Substantive clause

A forum selection clause may address both jurisdiction and venue issues. Hence, it would be a useful tool for Bob in case any type of litigation takes place in the future.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

25. Defending against a federal district court suit by Paul, Dan claims that Paul has sued him in the wrong federal district court. Dan has raised a question of:

A. long-arm jurisdiction.

 

B. in personam jurisdiction.

 

C. venue.

 

D. standing.

Even if a court has jurisdiction, it may not be able to decide a case because of venue requirements. A court has venue if it is a territorially fair and convenient forum in which to hear the case.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

26. Infobox Online, an Internet services provider, includes in its “clickwrap” contract a clause stating that California courts have “exclusive jurisdiction” over subscribers’ disputes with Infobox Online. This clause will most likely be:

A. unenforceable because it was not the result of bargaining.

 

B. unenforceable against a subscriber in another state.

 

C. enforceable if the subscriber does not file a motion to dismiss.

 

D. enforceable if it is considered reasonable by a court.

An Internet access provider (IAP) may include a forum selection clause in a so-called “clickwrap” document that sets forth the terms of its Internet-related services—terms to which the IAP’s subscribers are deemed to have agreed by virtue of utilizing the IAP’s services. Forum selection clauses, whether expressly bargained for or included in a clickwrap agreement, are generally enforced by courts unless they are shown to be unreasonable in a given set of circumstances.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

27. For federal “diversity” jurisdiction to exist:

A. the case must begin in a federal court of appeals.

 

B. the amount in controversy must exceed $75,000.

 

C. both the plaintiff and the defendant must be citizens of the same state.

 

D. the case must pertain to the Constitution, laws, or treaties of the United States.

Diversity jurisdiction arises when the case is (1) between citizens of different states and (2) the amount in controversy exceeds $75,000. Federal question jurisdiction exists when the case arises under the Constitution, laws, or treaties of the United States.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

28. Under the doctrine of federal jurisdiction, a corporation is:

A. a citizen of only the place where is has been incorporated.

 

B. a citizen of only it principal place of business.

 

C. a citizen of both its place of incorporation and the state where it has its principal place of business.

 

D. a citizen of that state which has enacted a “long-arm” statute and thus has jurisdiction.

Under diversity jurisdiction, a corporation normally is a citizen of both the state where it has been incorporated and the state where it has its principal place of business.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

29. _____ jurisdiction exists when the case arises under the Constitution, laws, or treaties of the United States.

A. Original

 

B. Federal question

 

C. Diversity

 

D. Exclusive

Federal question jurisdiction exists when the case arises under the Constitution, laws, or treaties of the United States. The requirement normally is met when a right created by federal law is a basic part of the plaintiff’s case.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

30. Patent cases being litigated in the federal system are an example of:

A. concurrent jurisdiction.

 

B. original jurisdiction.

 

C. exclusive jurisdiction.

 

D. certiorari jurisdiction.

The federal district courts have exclusive jurisdiction over some matters, such as patents. Patent cases must be litigated in the federal system.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

31. In a case where concurrent jurisdiction exists, a state court may decide a case involving federal questions if:

A. it is a criminal case.

 

B. it is a civil case.

 

C. the plaintiff asserts so.

 

D. the defendant belongs to that state.

Sometimes, federal district courts have concurrent jurisdiction with state courts—meaning that both state and federal courts have jurisdiction over the case. State courts may sometimes decide cases involving federal questions if concurrent jurisdiction exists and the plaintiff opts for a state court.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

32. Today, most appealable decisions from the lower courts fall within the Supreme Court’s _____ jurisdiction, under which the Court has discretion whether to hear the appeal.

A. appellate

 

B. certiorari

 

C. original

 

D. exclusive

The United States Supreme Court, the highest court in the land, is mainly an appellate court considers only questions of law when it decides appeals from the federal courts of appeals and the highest state courts. Today, most appealable decisions from these courts fall within the Supreme Court’s certiorari jurisdiction, under which the Court has discretion whether to hear the appeal.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

33. In which of the following cases will the U.S. Supreme Court have original, but not exclusive, jurisdiction?

A. When the validity of any treaty has been questioned.

 

B. When the validity of a federal statute has been questioned.

 

C. When there is a controversy between two or more states.

 

D. When a state proceeds against citizens of another state.

The U.S. Supreme Court has original, but not exclusive, jurisdiction over cases involving foreign ambassadors, ministers, and like parties, controversies between the United States and a state, and cases in which a state proceeds against citizens of another state or against aliens. The Supreme Court has original and exclusive jurisdiction over all controversies between two or more states.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-04 Explain what is necessary in order for a federal court to have subject matter jurisdiction over a civil case.
Topic: Federal Courts and Their Jurisdiction
 

 

34. Which of the following notifies the defendant that he, she, or it is being sued?

A. Summons

 

B. Complaints

 

C. Pleadings

 

D. Interrogatories

A summons notifies the defendant that he, she, or it is being sued. It typically names the plaintiff and states the time within which the defendant must enter an appearance in court. In most jurisdictions, it is accompanied by a copy of the plaintiff’s complaint.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

35. The _____ are the documents that the parties file with the court when they first state their respective claims and defenses.

A. summons

 

B. pleadings

 

C. appeals

 

D. clauses

The pleadings are the documents that the parties file with the court when they first state their respective claims and defenses. They include the complaint, the answer, and, in some jurisdictions, the reply.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

36. A(n) _____ must state the remedy requested in the case.

A. summons

 

B. interrogatory

 

C. affirmative defense

 

D. complaint

The complaint states the plaintiff’s claim in separate, numbered paragraphs. The complaint must also state the remedy requested.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

37. Which of the following may contain an affirmative defense?

A. Summons

 

B. Interrogatory

 

C. Complaint

 

D. Answer

A defendant needs to file an answer to the plaintiff’s complaint within a designated time after service of the complaint. An answer may include an affirmative defense to the claim asserted in the complaint. A successful affirmative defense enables the defendant to win the case even if all the allegations in the complaint are true and, by themselves, would have entitled the plaintiff to recover.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

38. A counterclaim differs from an affirmative defense in that, a counterclaim:

A. is a new claim by the plaintiff.

 

B. does not permit a defendant to claim for damages caused by a fraud.

 

C. is merely an attack on the plaintiff’s claims.

 

D. attempts legal relief for the defendant.

A counterclaim is a new claim by the defendant arising from the matters stated in the complaint. Unlike an affirmative defense, it is not merely an attack on the plaintiff’s claim, but is the defendant’s attempt to obtain legal relief. In addition to using fraud as an affirmative defense to a plaintiff’s contract claim, for example, a defendant might counterclaim for damages caused by that fraud.

 

AACSB: Ethics
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

39. Paul sues Dan for “aesthetic pollution.” The basis for his suit is Dan’s habit of wearing clothes Paul considers ugly. Paul’s complaint offers details of Dan’s “ugly” clothing in many separate, numbered paragraphs. However, no law requires one to pay damages for wearing clothes that another considers ugly and for causing aesthetic dissatisfaction to some other party. Thus, Dan wants to defeat Paul’s claim as fast as possible. The best procedural device for doing so is the:

A. motion to dismiss.

 

B. motion for summary judgment.

 

C. motion for judgment not withstanding the verdict.

 

D. motion for a directed verdict.

Sometimes it is evident from the complaint or the pleadings that the plaintiff does not have a valid claim. In such a situation, it would be wasteful for the litigation to proceed further. The procedural device for ending the case at this early stage is commonly called the motion to dismiss. The most important type of motion to dismiss is the motion to dismiss for failure to state a claim upon which relief can be granted, sometimes called the demurrer. It asserts that the plaintiff cannot recover even if all of his/her allegations are true because no rule of law entitles him/her to win on those facts.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

40. The motion to dismiss for failure to state a claim upon which relief can be granted is sometimes called the:

A. deposition.

 

B. demurrer.

 

C. interrogatory.

 

D. directed verdict.

The procedural device for ending the case at an early stage is commonly called the motion to dismiss. The most important type of motion to dismiss is the motion to dismiss for failure to state a claim upon which relief can be granted, sometimes called the demurrer.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-05 Identify the major steps in a civil lawsuit’s progression from beginning to end.
Topic: Civil Procedure
 

 

41. The right of _____ is available for information that is not subject to a recognized legal privilege and is relevant to the case or likely to lead to other information that may be relevant.

A. demurrer

 

B. counterclaim

 

C. discovery

 

D. affirmative defense

To help litigants obtain the facts and to narrow and clarify the issues for trial, the state and federal court systems permit each party to a civil case to exercise discovery rights. Discovery is available for information that is not subject to a recognized legal privilege and is relevant to the case or likely to lead to other information that may be relevant.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

42. Which of the following characterizes discovery?

A. It begins before the pleadings are completed.

 

B. Information may be subject to discovery only if it is ultimately be admissible at trial under the legal rules of evidence.

 

C. It is an efficient and time-saving remedy for litigants.

 

D. Interrogatories are a commonly utilized form of discovery.

The discovery phase of a lawsuit normally begins when the pleadings have been completed. Information may be subject to discovery even if it would not ultimately be admissible at trial under the legal rules of evidence. Interrogatories are among the commonly utilized forms of discovery. Participation in the discovery process may require significant expenditures of time and effort, not only by the attorneys but also by the parties and their employees.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

43. What are depositions?

A. Written questions directed to a party, answered in writing, and signed under oath.

 

B. Documentary evidence introduced at a trial.

 

C. Oral examinations of a party by the opposing party’s attorney.

 

D. Written statements made during arbitration.

In a deposition, one party’s attorney conducts an oral examination of the other party or of a likely witness, usually belonging to the other party.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

44. Discovery generally takes place without a need for court orders or other judicial supervision. Which of the following is an EXCEPTION to this rule?

A. A request for written questions directed at the opponent.

 

B. Requests for admission directed at the opponent.

 

C. A request for a physical or mental examination of the opponent.

 

D. Requests for the production of documents in civil cases.

With the exception of a motion for a court order requiring that the opponent undergo a physical or mental examination, discovery generally takes place without a need for court orders or other judicial supervision.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

45. Malcolm has brought a lawsuit against Will. Malcolm feels that there is no genuine issue of material fact in dispute, and also that he is entitled to win this case as a matter or law. What legal procedure would allow Malcolm to win this case as quickly as possible?

A. Discovery

 

B. Voir dire

 

C. Jury trial

 

D. Summary judgment

Summary judgment is a device for the speedy disposal of clear cases. The party can ask for summary judgment if it can prove that (1) there is no genuine issue of material fact, and (2) he/she is entitled to judgment as a matter of law.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

46. At a _____, the judge meets informally with the attorneys for both litigants in an attempt to get the attorneys to stipulate, or agree to, a resolution of certain issues in order to simplify the trial.

A. demurrer

 

B. directed verdict

 

C. pretrial conference

 

D. minitrial

Depending on the jurisdiction, a pretrial conference is held where the judge meets informally with the attorneys for both litigants. He/she may try to get the attorneys to stipulate, or agree to, the resolution of certain issues in order to simplify the trial.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

47. The American legal system gives considerable power to the jury; however, it also has devices for limiting that power. The _____ provides a judgment to one party before the jury gets a chance to decide the case.

A. motion to dismiss

 

B. motion for a new trial

 

C. motion for summary judgment

 

D. motion for a directed verdict

Although the general verdict gives the jury considerable power, the American legal system also has devices for limiting that power. The directed verdict takes the case away from the jury and provides a judgment to one party before the jury gets a chance to decide the case.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

48. Abby gets a state court civil judgment against Casey, but Casey does not pay. Which of the following is one of the tools available to Abby to enforce the judgment against Casey?

A. Mediation

 

B. Long-arm jurisdiction

 

C. Writ of execution

 

D. In rem jurisdiction

A writ of execution enables the sheriff to seize designated property of the defendant and sell it at a judicial sale to help satisfy the judgment.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

49. Harvey is planning to file a case against a petrochemical giant which has a plant in his town. The petrochemical plant is dumping toxic wastes into its surrounding areas. Harvey is mobilizing the residents of the town, all of whom have suffered from various health problems due to the activities of the plant. Which of the following would be of most help to Harvey and the other residents?

A. Demurrer

 

B. Class action

 

C. Directed verdict

 

D. Affirmative defense

A class action lawsuit allows one or more persons to sue on behalf of themselves all others who have suffered similar harm from substantially the same wrong. This type of lawsuit is fairly common in environmental issues.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

50. Which of the following helps a plaintiff to seize the property that belongs to the defendant but is in the hands of a third party?

A. Class action

 

B. Garnishment

 

C. Non obstante veredicto

 

D. Settlement

Garnishment is a procedure through which a plaintiff can claim the damages awarded to him by seizing the defendant’s property in the hands of third party such as a bank.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

51. A party may win a judgment even after the jury has reached a verdict against it through the procedure of:

A. mens rea.

 

B. non obstante veredicto.

 

C. demurrer.

 

D. habeas corpus.

The procedure of non obstante veredicto, or judgment notwithstanding the verdict, enables a losing party to win a judgment even when the jury has reached a verdict against it.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

52. Dillon’s, a discount retailer with over 500 employees, includes a clause in its employment application stating that all future employment disputes will be resolved through binding arbitration. This clause most likely:

A. will be considered valid by federal courts.

 

B. will be considered unenforceable by all courts.

 

C. will result in employees having to mediate their employment-related claims against Dillon’s.

 

D. will require an employee to mediate employment-related disputes.

Arbitration is the submission of a dispute to the arbitrator who issues a binding decision resolving the dispute. Arbitration usually results from the parties’ agreement. That agreement normally is made before the dispute arises (most often through an arbitration clause in a contract). The Federal Arbitration Act requires judicial enforcement of a wide range of agreements to arbitrate claims. This means that if a contract contains a clause requiring arbitration of certain claims but one of the parties attempts to litigate such a claim in court, the court is very likely to dismiss the case and compel arbitration of the dispute.

 

AACSB: Ethics
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-07 Explain the differences among the major forms of alternative dispute resolution.
Topic: Alternative Dispute Resolution
 

 

53. A method of alternative dispute resolution in which a neutral third party helps the parties reach a resolution of the dispute by facilitating communication, clarifying areas of agreement, helping see each other’s viewpoints, suggesting settlement options, but who cannot make decisions that bind the parties, is called:

A. conciliation.

 

B. mediation.

 

C. minitrial.

 

D. arbitration.

In mediation, a neutral third party called a mediator helps the parties reach a cooperative resolution of their dispute by facilitating communication between them, clarifying their areas of agreement and disagreement. Mediators, unlike arbitrators, cannot make decisions that bind the parties.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 02-07 Explain the differences among the major forms of alternative dispute resolution.
Topic: Alternative Dispute Resolution
 

 

54. In the form of alternative dispute resolution (ADR) called court-annexed arbitration:

A. a neutral third party is called in to mediate.

 

B. courts decide on certain types of criminal lawsuits.

 

C. the losing party has the right to a regular trial.

 

D. civil lawsuits are sent to the Supreme Court for a hearing.

In a court-annexed arbitration, certain civil lawsuits are diverted into arbitration. Most often, court-annexed arbitration is mandatory and is ordered by the judge, but some jurisdictions merely offer litigants the option of arbitration. The losing party in a court-annexed arbitration still has the right to a regular trial.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-07 Explain the differences among the major forms of alternative dispute resolution.
Topic: Alternative Dispute Resolution
 

 

55. Which of the following is an informal alternative method for promoting settlement of disputes from a formal court trial?

A. Minitrial

 

B. Summary judgment

 

C. Directed verdict

 

D. Peremptory challenges

A minitrial is an informal, abbreviated “private” trial that aims to promote settlement of disputes.

 

AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-07 Explain the differences among the major forms of alternative dispute resolution.
Topic: Alternative Dispute Resolution
 

 

Essay Questions

56. What two kinds of jurisdiction are necessary for a state court to have jurisdiction over a case? Describe each briefly.

A state must have subject-matter jurisdiction and either in personam or in rem jurisdiction. Subject-matter jurisdiction concerns the court’s competence to handle the type of case in question (criminal, tax, etc.). In personam jurisdiction is based on the residence, location, or activities of the defendant himself/herself, and how they relate to the state. In rem jurisdiction is based on the presence of property within the state.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 02-02 Explain the difference between subject matter jurisdiction and in personam jurisdiction.
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

57. Greg sues Ned in an effort to get title to some land claimed by Ned and located inside the state of Texas. Ned has never been to Texas in his life, has never had any contacts of any kind with the state, and refuses to appear in Texas to defend against Greg’s suit. Later, after Greg wins a default judgment against Ned, Ned shows up in Texas to claim that the judgment was invalid because he was totally outside Texas, hence Texas courts had no jurisdiction over him, and for this reason they could not affect his rights to the land. Is Ned right? Why or why not? Assume that subject-matter jurisdiction exists.

Ned is wrong. Although the utter absence of contacts with Texas would prevent Texas from having in personam jurisdiction over Ned, Texas courts still would have in rem jurisdiction over him. In rem jurisdiction is based on the presence of property within a state, and Ned’s land was located inside Texas.

 

AACSB: Ethics
AACSB: Reflective Thinking
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 02-02 Explain the difference between subject matter jurisdiction and in personam jurisdiction.
Learning Objective: 02-03 Identify the major legal issues courts must resolve when deciding whether in personam jurisdiction exists with regard to a defendant in a civil case.
Topic: State Courts and Their Jurisdiction
 

 

58. Dee sues Gerry for defamation. Dee thinks that the facts clearly are not as stated in Gerry’s complaint and that, given Dee’s version of the facts, Gerry cannot recover for defamation. What motion gives Gerry the best chance of winning the case early? What does it involve?

The motion for summary judgment is a device for disposing of relatively clear cases without a trial. Under that motion, Dee and Gerry will present factual “evidence” such as pleadings, depositions, and affidavits to demonstrate their versions of the facts, and also will make legal arguments. If there is no genuine issue of material fact, and if (given those facts) the law directs that one party wins, that party gets a judgment.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

59. What are the consequences of document alteration or destruction that interferes with legitimate discovery requests?

As Arthur Andersen discovered in 2002, the potential legal consequences of document alteration or destruction that interferes with legitimate discovery requests include criminal prosecution for obstruction of justice. Additionally, courts have broad discretionary authority to impose appropriate sanctions for such conduct. These sanctions may include court orders prohibiting the party from raising certain claims or defenses in the civil action, jury instructions regarding the wrongful destruction of documents, and court orders for the party to pay certain attorney’s fees to the opposing party. Of course, the long-term affect on the reputation of the party who destroys or alters documents in this manner can be severely adverse to the party’s interests.

 

AACSB: Ethics
AACSB: Reflective Thinking
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 02-06 Describe the different forms of discovery available to parties in civil cases.
Topic: Civil Procedure
 

 

60. Does the Federal Arbitration Act (FAA) override a state law vesting initial decision making authority to a court or administrative agency?

The Supreme Court in the case of Preston v. Ferrer, held that when parties have agreed to arbitrate disputes, the Federal Arbitration Act (FAA) controls and the dispute must therefore be submitted to arbitration even if otherwise applicable state law appears to give initial decision-making authority to a court or an administrative agency.

 

AACSB: Analytic
AACSB: Ethics
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 02-07 Explain the differences among the major forms of alternative dispute resolution.
Topic: Alternative Dispute Resolution
 

Chapter 06

Intentional Torts

 

True / False Questions

1. The burden of proof in a tort case is a preponderance of the evidence.

True    False

 

2. A Tort is civil wrong which is also the same as breach of contract.

True    False

 

3. Under the principle of “Respondeat Superior,” an employer is not liable for torts committed by employees.

True    False

 

4. For a battery to exist, the victim must be aware of a harmful or offensive contact at the time that contact occurs.

True    False

 

5. The best defense for battery is the free and intelligent consent given.

True    False

 

6. In the case of false imprisonment, the plaintiff must be under confinement for a long time.

True    False

 

7. Television and radio broadcasts usually are classified as slander rather than as libel because they involve spoken words rather than written ones.

True    False

 

8. Generally speaking, statements made during judicial proceedings are absolutely privileged and, therefore, shield against defamation liability.

True    False

 

9. Defamation liability requires publication of the defamatory statement to an appreciable number of people.

True    False

 

10. Public figure Pam sues a newspaper for defamation based on statements regarding her stand on a public issue. Pam must prove the newspaper’s “actual malice” in order to recover any damage.

True    False

 

11. In order to prove actual malice in a defamation claim, the plaintiff must show that the defendant had knowledge of the falsity of the statement.

True    False

 

12. There is no tort liability for fraud or deceit where the defendant did not actively make a false statement, but instead merely failed to disclose something.

True    False

 

13. The tort of malicious prosecution affords a remedy when the defendant mounted a wrongful and unjustifiable civil suit against the plaintiff.

True    False

 

14. Sounds that reverberate across the plaintiff’s land are more likely to be classed as a nuisance than as a trespass to land.

True    False

 

15. In order to be liable for conversion, the defendant must know that the property rightfully belongs to someone else.

True    False

 

 

Multiple Choice Questions

16. _____ is defined as the desire to cause certain consequences or the substantial certainty that those consequences will result from one’s behavior.

A. Intent

 

B. Negligence

 

C. Liability

 

D. Battery

 

17. _____ is the failure to use reasonable care, with harm to another party occurring as a result.

A. Assault

 

B. Recklessness

 

C. Negligence

 

D. Liability

 

18. What is the standard of proof that the plaintiff must satisfy in a tort case?

A. Preponderance of the evidence

 

B. Beyond-a-reasonable-doubt

 

C. Benefit of assumption

 

D. Burden of proof

 

19. Which of the following can be recovered by plaintiff who usually wins a tort case?

A. Injunction

 

B. Arbitration award

 

C. Compensatory damages

 

D. Conditional privileges

 

20. _____ are intended to punish flagrant wrongdoers and to deter them.

A. Compensatory damages

 

B. Punitive damages

 

C. Liquidated damages

 

D. Tort damages

 

21. Melissa hurls a rock with the intention to hit Dave, with whom she has just fought. The rock hits Stacey, instead, who is sitting next to Dave. Melissa is liable for battery under the clause of:

A. conversion.

 

B. private nuisance.

 

C. actual malice.

 

D. transferred intent.

 

22. Davis throws a dagger at Smith, intending to kill Smith. However, the dagger misses Smith and strikes the hat on Potter’s head. The dagger does not make contact with Potter’s body. Unharmed but finding the whole thing offensive, Potter sues Davis for battery. Which of the following is most true?

A. Davis is not liable because he did not intend to make contact with Potter.

 

B. Davis is liable to Potter for negligence.

 

C. Davis is not liable because Potter did not suffer any physical harm.

 

D. Davis is liable to Potter for battery.

 

23. The necessary ________ in assault is the same as that required in battery.

A. intent

 

B. offensive contact

 

C. threat of future battery

 

D. actual injuries

 

24. In an assault case, it is irrelevant:

A. whether the threatened contact actually occurs.

 

B. whether there is any intent or not.

 

C. there is an apprehension of harmful contact.

 

D. there is any reasonable apprehension of imminent battery.

 

25. Which of the following is true about cases regarding the intentional infliction of emotional distress?

A. All courts require that the plaintiff’s emotional distress have physical manifestations.

 

B. The plaintiff must be emotionally susceptible in order to recover.

 

C. The plaintiff’s emotional distress must be severe.

 

D. The defendant should exhibit sufficiently unreasonable behavior for liability.

 

26. Which of the following characterizes false imprisonment?

A. Unintentional confinement of a person with consent

 

B. Partial confinement of a person by blocking an exit, when several exist

 

C. Intentional confinement of a person with consent

 

D. Unfounded assertion of legal authority to detain a person

 

27. Store owners’ “conditional privilege” defense against intentional tort claims brought by detained shoplifting suspects, recognized by most states, usually:

A. requires that the store owner act with police consent.

 

B. requires that the store owner act with written consent of suspects.

 

C. requires that the store owner act on evidence against suspect.

 

D. requires that the store owner act with reasonable cause.

 

28. Jack was an employee of ABC Corp. Harry, the president of ABC, had reasonable grounds to believe that Jack had stolen money from the corporation. ABC fired Jack. One month later, Jack applied for employment at DEF Corp. The vice president for Human Relations at DEF contacted Harry and asked about Jack’s performance at ABC. Harry responded “I believe that Jack stole money while working here”. DEF declined to hire Jack. Jack later discovered what Harry had said, and is now suing Harry for defamation. What is the likely outcome of this case?

A. Jack will win because Harry’s statement harmed him.

 

B. Jack will win because Harry did not have absolute proof that Jack had stolen money.

 

C. Harry will win because he had a conditional privilege to make that statement.

 

D. Harry will win because he had an absolute privilege to comment on a former employee’s performance.

 

29. Which of the following is slander rather than libel?

A. A defamatory statue

 

B. An oral defamatory statement

 

C. A defamatory magazine article

 

D. A defamatory TV broadcast

 

30. Libel is distinct from slander, in that, libel:

A. involves views on public figures.

 

B. involves only content in print.

 

C. involves only content on the Internet.

 

D. is more permanent in nature.

 

31. The common law has, traditionally, allowed plaintiffs to recover for libel without proof of _____.

A. punitive damages

 

B. compensatory damages

 

C. liquidated damages

 

D. special damages

 

32. An essential element of the tort is that the alleged defamatory statement must be “of and concerning” the plaintiff. Why?

A. It is extremely difficult to prove.

 

B. It places a burden on the defendant.

 

C. This aims to protect reputation.

 

D. It concerns public figures.

 

33. Humorous or satirical accounts ordinarily are not considered to be defamation unless:

A. a reasonable reader believes them to be real events.

 

B. they are political in nature.

 

C. the plaintiff can prove that they are about him/her.

 

D. they expressly state so.

 

34. Adam published his personal opinion about the current condition of politics stating, “Though the government is unable to fulfill the demands of the public, they demand votes; they really are beggars on streets.” Can politicians sue him for defamation under Tort?

A. No, because as a general rule the material in a newspaper is totally exempted.

 

B. Yes, because defamation in a newspaper is always a tort.

 

C. Yes, because Adams wrote even though he don’t have authority.

 

D. No, because statements of pure opinions do not amount to defamation.

 

35. In general, liability for defamation requires:

A. widespread communication of the defamatory statement.

 

B. communication of the defamatory statement from the plaintiff herself.

 

C. publication of the defamatory statement.

 

D. the identification of the source of the defamatory statement.

 

36. “Books are Us” (BU), a bookstore, is being sued for defamation after it sold a book containing false, defamatory statements about the plaintiff. What is BU’s best defense to this lawsuit?

A. BU is not the publisher of the book.

 

B. BU did not intend to harm the plaintiff.

 

C. BU had no knowledge of the contents of the book.

 

D. BU did not violate any criminal law or regulation in selling the book.

 

37. Dave tells Dora that Phil, a financial advisor, has been stealing money from his clients. Dora then repeats Dave’s statement to Tom, telling Tom that the information comes from Dave. All these statements are oral, defamatory, and false. Phil sues Dave and Dora for defamation. Which of the following is true? (Don’t consider defenses and privileges).

A. Phil can recover against Dave and Dora without proving special damages.

 

B. Because Dora only repeated Dave’s statement and identified Dave as its author, she can’t be liable to Phil.

 

C. Because Dave only communicated his statement to Dora, and not to an appreciable number of people, he can’t be liable to Phil.

 

D. Phil must prove special damages in order to recover against Dave and Dora.

 

38. A(n) ______ shields the author of a defamatory statement regardless of his/her knowledge, motive, or intent.

A. demurrer

 

B. transferred intent

 

C. intentional tort

 

D. absolute privilege

 

39. Which of the following is an example of the privilege of statements made to protect or further the legitimate interests of another?

A. Employment reference

 

B. Intracorporate communications

 

C. Accurate media reports

 

D. Opinion polls

 

40. The difference between a public figure and a private one regarding defamation cases is that:

A. only the public figure can file a case.

 

B. the private figure generally loses such cases.

 

C. the public figure has to prove “actual malice.”

 

D. the private figure does not enjoy conditional privileges.

 

41. Most defamation cases brought by public official or public figure plaintiffs are won by the defendant, because the plaintiff was unable to prove:

A. knowledge of falsity.

 

B. actual malice.

 

C. reckless disregard for the truth.

 

D. the actual statements.

 

42. In which of the following cases is it most likely that a plaintiff will only have to prove negligence on the defendant’s part to recover for defamation?

A. Statements that a U.S. Senator had someone killed while in office.

 

B. Statements that Madonna had someone killed.

 

C. A statement that you or I murdered an innocent person during a robbery.

 

D. A credit report on a construction contractor.

 

43. Which of the following can recover damages for proven actual injury, but not presumed or punitive damages, by proving only fault?

A. A public official plaintiff involved in a subject of public concern

 

B. A public figure plaintiff involved in a subject of private concern

 

C. A private figure plaintiff involved in a subject of public concern

 

D. A private figure plaintiff involved in a subject of private concern

 

44. Which of the following is least likely to create liability for the first form of invasion of privacy (intrusion on personal solitude or seclusion)?

A. Using binoculars to look from your apartment into a neighbor’s bedroom.

 

B. Tapping someone’s telephone, because this is a nonphysical intrusion.

 

C. Examining someone’s bank account.

 

D. Examining public records concerning a person.

 

45. Which of the following is true of ‘invasion of privacy’?

A. Public figures do not enjoy any right to privacy.

 

B. There are four distinct torts related to it.

 

C. It is a subject of the Second Amendment of the U.S. Constitution.

 

D. Examining a person’s public records amounts to an invasion of privacy.

 

46. Which of the following is most likely to involve both defamation liability and liability for putting a person in a false light?

A. Saying that a philosopher favors Plato’s philosophy over Aristotle’s, when in fact the reverse is true.

 

B. Falsely saying that an anti-abortion activist favors abortion.

 

C. Falsely saying that an anti-abortion activist favors giving parents a right of infanticide for all children less than one year old.

 

D. Signing a conservative Christian clergyman’s name to a petition advocating greater sexual freedom for homosexuals.

 

47. Which of the following draws on the personal property right connected with a person’s identity and her exclusive right to control it?

A. Writing a political editorial on a public figure

 

B. Signing a person’s name on a petition that he/she is against

 

C. Commercially using someone’s name

 

D. Spreading malicious gossip about a well-known person

 

48. The defendant’s intentional exercise of dominion or control over the plaintiff’s personal property without the plaintiff’s consent is called:

A. defamation.

 

B. conversion.

 

C. interference.

 

D. libel.

 

49. Which of the following is most likely to involve liability for violating the so-called “right of publicity”? In each case, assume that the plaintiff’s name, likeness, work, etc. was appropriated without the plaintiff’s permission.

A. Using the work of an unknown artist to illustrate the T-shirts one makes and sells.

 

B. Using the picture of the owner to sell beer at a pub.

 

C. Using a picture of a race car to sell chewing tobacco.

 

D. Using Madonna’s name to sell women’s apparel.

 

50. _____ affords a remedy for the wrongful institution of criminal proceedings.

A. Abuse of process

 

B. Malicious prosecution

 

C. Wrongful use of civil proceedings

 

D. Deceit

 

51. Ingmar wanted to buy Otto’s land. Otto did not want to sell. In order to pressure Otto into selling the land, Ingmar brought a private nuisance lawsuit against Otto. In this case, Ingmar has probably committed the tort of:

A. abuse of process.

 

B. malicious prosecution.

 

C. defamation.

 

D. deceit.

 

52. Ann is troubled with the noise of the old generator set up by her neighbor Jose at his residence. The noise the generator makes is unbearable. Ann sues Jose for nuisance. Will she succeed?

A. No, because it is reasonable noise.

 

B. No, because generator is not her personal property.

 

C. No, because she cannot interfere with Jose’s personal matters.

 

D. Yes, because the noise is interfering with plaintiff’s use and enjoyment of land.

 

53. Which of the following is most likely to be classed as a nuisance (rather than as a trespass to land)?

A. Firing a machine gun through an adjoining landowner’s airspace.

 

B. Allowing thick smoke from your manufacturing operations to continually drift over an adjoining landowner’s land.

 

C. Leaving smelly, unsanitary garbage on your ex-landlord’s land after the expiration of your lease.

 

D. Chasing another person onto an adjoining landowner’s land.

 

54. _____ to land may be defined as any unauthorized or unprivileged intentional intrusion upon another’s real property.

A. Trespass

 

B. Nuisance

 

C. Conversion

 

D. Battery

 

55. Which of the following is generally true regarding the tort of conversion?

A. It involves both real property (land and interests in land) and personal property.

 

B. As its name implies, conversion always involves the transformation of the plaintiff’s property into something else–e.g., its destruction, alteration, etc.

 

C. A defendant who buys or sells stolen property may be liable for conversion even if she does so in good faith and without knowledge of the theft.

 

D. Conversion involves all interferences with the plaintiff’s property rights–whether serious or nonserious.

 

 

Essay Questions

56. After a student named Bob insults him in class, Marvin, a business law professor, pulls out his. 38-revolver and fires a shot at the student. The shot misses the first student, but strikes another student named Cathy, who never saw the shot coming and never knew what hit her. Bob and Cathy sue Marvin for assault and battery. Who can recover for what? Why?

 

 

 

 

57. In a conversation, Donna falsely tells Wendy that Paul has Krabbe disease, a rare genetic disorder. Paul wants to sue Donna for defamation, but he’s having trouble showing any tangible financial loss. Must Paul prove special damages in order to recover against Donna? Why or why not?

 

 

 

 

58. The Daily Tattler, a supermarket-checkout-counter tabloid, says that a U.S. Senator has fathered fourteen illegitimate children. The statement is false and defamatory. If the Senator sues the Tattler for libel, which fault or culpability standard applies? Why?

 

 

 

 

59. As a prank, Joe signs Susan’s name to a pro-abortion petition that appears in a local newspaper. Susan is passionately opposed to abortion. Thus, Susan sues Joe for both defamation and for putting her in a false light in the public eye. Is Joe liable for either tort? If it matters, assume that the town in question is a fairly liberal one with lots of abortion supporters.

 

 

 

 

60. A person distributes unsolicited e-mails to large numbers of employees of the company. He does so illegally from the company’s e-mail system without consent of the company. Has the distributor committed tort of trespass to personal property?

 

 

 

Chapter 12

Consideration

 

True / False Questions

1. A promise to refrain from smoking cannot be legal consideration because it does not convey anything of economic value to the other party.

True    False

 

2. In determining whether consideration exists, the law is not concerned with any disproportion in value between the things exchanged in a contract.

True    False

 

3. The rule on adequacy of consideration reflects the laissez-faire assumption of freedom of contract.

True    False

 

4. Gross inadequacy of consideration is by itself a sufficient reason to set aside a contract.

True    False

 

5. A contract in which one party to the agreement agrees to buy all of the produced goods of the other party is called a requirements contract.

True    False

 

6. John promises to pay Robert $100 per week, in exchange for Robert’s promise not to beat John up. There is no consideration for John’s promise.

True    False

 

7. According to the provisions of UCC, an exclusive dealing contract imposes a duty only on the distributor to use his/her best efforts to sell the goods.

True    False

 

8. Michael and William contracted for Michael to mow William’s lawn once a week for 20 weeks, at a price of $20 per week. Later, without terminating the first contract, the parties modify the contract as follows: Michael will mow William’s lawn in exactly the same way for exactly the same time period, in exchange for William’s promise to pay Michael $22 per week. There is no consideration for William’s promise.

True    False

 

9. Unlike the UCC, the CISG requires new consideration to modify a contract.

True    False

 

10. A promise not to sue another party is not consideration, because the promise does not convey any legal value to the other party.

True    False

 

11. David, a debtor, owes debts to creditors Paul, Mark, and Gary. Paul, Mark, and Gary agree with each other and with David to release him from his debts, in exchange for his promise to pay Paul, Mark, and Gary 75 percent of the amount he owes each of them. This is called a composition agreement, and such agreements generally are binding contracts.

True    False

 

12. UCC covers accord and satisfaction by the use of an instrument called “full payment” check.

True    False

 

13. In return for services Charles performed for Richard in the past, Richard promises to pay Charles $1000. There is no consideration for Richard’s promise.

True    False

 

14. A promissory estoppel cannot be applied in the case of the absence of a binding consideration.

True    False

 

15. A creditor who fails to file suit to collect a debt within the time prescribed by the appropriate statute of limitations loses the right to collect it.

True    False

 

 

Multiple Choice Questions

16. In order for the consideration requirement in contracts to be met:

A. the consideration given by each party must be of roughly equal value.

 

B. each party must give consideration.

 

C. the consideration must have monetary value.

 

D. the consideration must consist of some form of property.

 

17. Bill is 25 years old. His uncle had promised in writing to pay him $2,000 if Bill would refrain from drinking alcohol for one year. Bill refrained from drinking alcohol for one year. However, his uncle now refuses to pay Bill as agreed-upon. The uncle claims that because Bill suffered no detriment by refraining from alcohol, his non-drinking does not constitute legal consideration and therefore no contract was formed. If Bill sues his uncle, Bill will:

A. win because Bill had a legal right to drink alcohol.

 

B. lose because consideration must have monetary value.

 

C. win because no consideration is needed in this contract.

 

D. lose because refraining from an action can never be considered legal consideration.

 

18. Which of the following meets the requirements of consideration?

A. A promise not to engage in a crime or tort

 

B. A promise without a binding obligation

 

C. A promise that involves the exchange of a legal value

 

D. A promise to do a preexisting duty

 

19. Consideration can be a(n) _____ in the case of a unilateral contract.

A. security

 

B. guarantee

 

C. act

 

D. promise

 

20. In deciding whether consideration necessary to form a contract exists, a court must determine whether:

A. the consideration given by each party is of roughly equal value.

 

B. the consideration conforms to the subjective intent of the parties.

 

C. the consideration has sufficient monetary value.

 

D. there is mutuality of consideration.

 

21. In order to satisfy the consideration requirement to form a contract, the consideration exchanged by the parties must:

A. have a monetary value.

 

B. conform to the parties’ subjective intent.

 

C. be legally sufficient.

 

D. have approximately the same value.

 

22. Daniel is a senior at State University. Brian, Daniel’s father, is concerned about Daniel’s study habits, given that Daniel spends most of his evenings at the campus pub instead of the library. Brian promises Daniel that he will send him on an expense-paid trip to Europe after his graduation if Daniel spends at least five evenings a week studying in the campus library for the remainder of his senior year. After returning home from his graduation, Daniel asks Brian about the European trip. Brian replies, “Your education was your reward. I don’t owe you a trip to Europe.” Brian is:

A. correct; Daniel has already gained the benefit of the bargain.

 

B. correct; Daniel did not give anything of legal value.

 

C. incorrect; Brian owes Daniel a trip to Europe because Daniel’s acts are consideration.

 

D. incorrect, but only if Daniel’s acts are adequate consideration for such an expensive trip.

 

23. John promised the other co-owners of the ship Sea Fairy that he would insure the ship for an upcoming voyage. However, John fails to insure the ship. The ship is shipwrecked in a turbulent sea. The co-owners sue John for breach of contract. Will they succeed?

A. Yes, because there was a valid and binding contract between the co-owners.

 

B. No, because it was a purely gratuitous promise.

 

C. No, because an intervening cause absolved John’s liability.

 

D. Yes, because of promissory estoppel.

 

24. Which of the following is true of consideration?

A. A promise cannot be deemed a consideration in a bilateral contract.

 

B. The legal value of a consideration must be equal to the actual value in a consideration.

 

C. Gross inadequacy of consideration can give rise to an inference of fraud for setting aside a contract.

 

D. A preexisting moral obligation is deemed a consideration.

 

25. Consideration can be a(n) _____ in the case of a bilateral contract.

A. act

 

B. promise

 

C. exchange

 

D. gift

 

26. Which of the following is often used by agreements that try to make gratuitous promises look like true bargains?

A. Nominal consideration

 

B. Past consideration

 

C. Composition agreement

 

D. Requirements contract

 

27. Dan, President of BAZ Co., is happy with the extraordinary performance of Naomi, a BAZ Co. senior accountant. Dan informs Naomi that because of her superlative work in the past fiscal year, he is going to give her a 5 percent raise effective next month. Naomi, who has never heard of anyone at BAZ Co. getting a raise, is thrilled and thanks Dan. Later that day, Dan realizes that giving Naomi this raise might cause all senior accountants to demand salary increases. Dan decides not to give Naomi a raise after all. He believes that his promise to give her a raise is not legally binding. Dan is correct because:

A. there was no bargained-for exchange for the raise.

 

B. of the “preexisting duty” rule.

 

C. past consideration is not an act or promise.

 

D. past consideration is not liquidated.

 

28. Chica, a women’s clothing store, held a “prize drawing” for a $500 shopping spree on Saturday that it had advertised throughout the week. Participation in the drawing required being at the store by noon and completing an application form that included personal information and placing it in a box. The information would then be put into a database for marketing purposes. Fashion consultants offering merchandise for sale greeted customers arriving at the store on Saturday morning. Joy was the winner of the drawing. Has she given consideration for the prize?

A. No, she gave no legal value to Chica.

 

B. No, unless she purchased an item from one of the fashion consultants.

 

C. Yes, she came to the store and gave information that was for the store’s use.

 

D. Yes, unless the store was conveniently located.

 

29. Jack went to the ABC Casino to gamble. ABC offers its customers one free spin of the Million Dollar Wheel if they fill out an application form. Jack filled out the form, spun the Million Dollar Wheel, and won. However, now ABC refuses to pay, claiming that because Jack did not purchase his chance at the Million Dollar Wheel, Jack gave no consideration and therefore, no contract was formed. Identify the accurate statement.

A. No contract was formed because Jack paid no money for his chance at the Million Dollar Wheel.

 

B. No contract was formed because ABC did not sign any written contract as an obligation to do so.

 

C. A contract was formed because filling out an application can constitute legal consideration.

 

D. A contract was formed because no consideration is needed when a customer takes advantage of a “free” offer.

 

30. Sigmund enters into a contract with Carl. The terms are that Sigmund will purchase all the gasoline that he wants to purchase in 2011, at a price of $2.50 per gallon, and Carl agrees to sell on those terms. This is an example of a(n):

A. valid contract.

 

B. illusory contract.

 

C. voidable contract.

 

D. implied contract.

 

31. Daniel owes Casey a debt, the amount of which is subject to a good faith dispute. The parties agree to settle the debt, with Daniel promising to pay Casey $15,000 and Casey promising to release Daniel on a $25,000 debt. The settlement agreement:

A. is supported by consideration.

 

B. lacks consideration because C is not giving D any legal value.

 

C. lacks consideration because D is promising to perform a preexisting legal obligation.

 

D. is binding under UCC section 2-209 even though there is no consideration.

 

32. James owns Great Expectations, a trendy restaurant in Manhattan. He enters into a contract with Mary, who makes and sells pastries. The contract states that Mary will “supply all of Great Expectation’s needs” for pastries for the next year. Is this contract enforceable?

A. Yes, because this is a requirements contract.

 

B. Yes, but only if James buys all of the pastries produced by Mary in the next year.

 

C. No, because the promise fails to specify the quantity of goods to be purchased.

 

D. No, because James might not need any pastries in the next year.

 

33. Contracts in which one party to the agreement agrees to buy all of the other party’s production of a particular commodity is called a(n):

A. requirements contract.

 

B. composition agreement.

 

C. output contract.

 

D. nominal consideration.

 

34. An agreement in which a party promises to supply all the other party’s needs for a particular commodity is called a(n):

A. requirements contract.

 

B. composition agreement.

 

C. output contract.

 

D. nominal consideration.

 

35. Joe and Jack have a written contract whereby Joe agrees to sell Jack a plot of land for $100,000. Later, without terminating the first contract, the parties modify the deal so that Joe sells Jack the same plot of land for $125,000. The second agreement is not a contract because:

A. the first contract was not terminated.

 

B. there is no consideration for Jack’s promise.

 

C. Joe’s promise is illusory.

 

D. written contracts for the sale of land cannot be modified.

 

36. A contract that involves obligations on the part of manufacturers and distributors is called a(n):

A. requirements contract.

 

B. composition agreement.

 

C. output contract.

 

D. exclusive dealing contract.

 

37. The general common law rule on contract modifications holds that an agreement to modify an existing contract requires a(n):

A. necessary increase in the value of the exchange.

 

B. inclusion of a new party to the contract.

 

C. new and independent consideration.

 

D. economic exchange of substantial value.

 

38. Patricia has requested extra payment because abnormal subsurface rock formations made excavation on the construction site far more costly and time-consuming than could have been reasonably expected. The court will:

A. enforce such modifications in contract.

 

B. allow the party to rescind such a contract.

 

C. consider the contract voidable.

 

D. consider the contract unenforceable.

 

39. Ron was employed by Mass Co in 1970. At that time, he was given an employee handbook that described the particular steps that had to be taken before an employee could be fired. Later on, in 2000, Mass published a new handbook by which all workers status were changed to employment-at-will workers. Mass then fired Ron. Ron claimed he was terminated without cause and was not afforded procedures described in the 1970 handbook, such as an appeal or review of the decision. He sued Mass under breach of contract based upon the 1970 employee handbook. Will he succeed?

A. Yes, because the modifications in 2000 were not by mutual consent and for consideration.

 

B. No, because the employee handbook contains terms and conditions of the employment contract.

 

C. Yes, because Mass Co. has arbitrarily terminated Ron.

 

D. No, because Ron had acquiesced to the modification by not raising any objection.

 

40. X and Y have a contract which obligated X to sell Y 100 boxes of screws for $100. The parties orally modify the contract so that X will sell Y the same 100 boxes of screws for $125. The second agreement is:

A. binding because it is due to unforeseeable situation.

 

B. binding by virtue of being mutually agreed on.

 

C. not binding because it is an outputs contract.

 

D. not binding due to the promise of performing a preexisting legal obligation.

 

41. Able borrowed $10,000 from Baker, promising to return it with $1,000 interest on January 1, 2006. There is no dispute that Able owes Baker $11,000 due on January 1, 2006. On that day, Able gave Baker a valid check in the amount of $10,500 marked “payment in full for loan due January 1, 2006.” Baker accepted that check and deposited it into his account. If Baker then sues Able for the unpaid $500, what would the result be?

A. Able wins, because Baker accepted the lesser payment.

 

B. Able wins, because Baker made an implied promise to accept $10,500 as full payment, thereby forgiving $500 of the loan.

 

C. Baker wins, because Able gave no consideration in exchange for Baker’s promise to forgive $500 of the loan.

 

D. Baker wins, because marking “payment in full” can never relieve a party of its original obligations under a contract.

 

42. In which of the following circumstances is a debt settlement a binding contract?

A. Where the amount of the debt is uncertain or subject to dispute.

 

B. Where the amount of the debt is certain and undisputed.

 

C. Where the only consideration the creditor gives the debtor is his promise not to sue the debtor on the original debt.

 

D. Where the settlement is part of a composition agreement.

 

43. Which of the following is true of preexisting contractual duties and their modification under the UCC?

A. There is no provision of modifications due to unforeseen circumstances.

 

B. No modifications can be made to an existing contract that is binding.

 

C. Modification requires “mere agreement” on the part of those involved.

 

D. Rules for contractual modifications are different for the UCC and the CISG.

 

44. The settlement of an unliquidated debt is called a(n):

A. forbearance to sue.

 

B. accord and satisfaction.

 

C. past consideration.

 

D. moral obligation.

 

45. Why is past consideration not a consideration in a present promise?

A. It falls under exceptions to consideration.

 

B. It does not pertain to the present exchange.

 

C. It is not covered under the UCC codes for consideration.

 

D. It involves an issue of moral obligation.

 

46. Helen worked for ABC Motors for 25 years. The president of ABC said to her: “In consideration of your past service for 25 years, I promise to give you a new car next week.” However, he did not give the car. Is this promise legally enforceable?

A. Yes, a contract was formed.

 

B. Yes, promissory estoppel requires enforcement of the promise.

 

C. No, legal consideration is absent.

 

D. No, legal capacity is absent.

 

47. Which of the following is a relevant consideration?

A. A preexisting duty

 

B. Agreement to settle an unliquidated debt

 

C. A preexisting moral obligation

 

D. Nominal consideration

 

48. Which of the following is an element of a promissory estoppel?

A. The promisee should reasonably expect to induce reliance

 

B. Reliance on the promise by the promisor

 

C. A promise to pay liquidated debts

 

D. Injustice to the promisee as a result of alliance

 

49. A reaffirmation promise has to be made prior to the date of the bankruptcy discharge and gives the debtor the right to revoke his promise within 30 days after it becomes enforceable. This is the requirement of:

A. charitable subscriptions.

 

B. promises to pay debts barred by statutes of limitations.

 

C. promises to pay debts barred by bankruptcy discharge.

 

D. promissory estoppels.

 

50. Gift promises are not generally enforceable because they lack:

A. legality.

 

B. capacity.

 

C. consideration.

 

D. agreement.

 

51. Which of the following is an exception to a consideration requirement?

A. Bargained-for exchange

 

B. Charitable subscription

 

C. Nominal consideration

 

D. Adequacy of consideration

 

52. An accident on a state highway rendered Jill in comatose state for nearly a month. There was an old nurse who used to take care of her then. After her recovery, Jill felt so indebted to the nurse that she contracted to transfer all her assets to her to fulfill her (Jill’s) moral obligation. Although this contract lacks ______, it can be enforced.

A. value

 

B. consideration

 

C. acceptance

 

D. capacity

 

53. Which of the following will be legally binding on all parties despite lack of consideration?

A. An irrevocable oral promise by a merchant to keep an offer open for 60 days.

 

B. A promise to donate money to a charity which the charity relied upon in incurring large expenditures.

 

C. A promise to pay for the college education of the child of a person who saved the promisor’s life.

 

D. A signed modification to a contract to purchase a parcel of land.

 

54. Which of the following will be legally binding on all the parties despite the lack of consideration?

A. A promise to donate money to a charity which was relied upon by the charity in incurring large expenditures.

 

B. An oral employment agreement for a term of nine months from the date the agreement was formed.

 

C. An irrevocable oral promise by a merchant to keep its offer open for 60 days.

 

D. A material modification signed by the parties to a contract to purchase and sell a parcel of land.

 

55. In order to reduce creditor attempts to pressure debtors to reaffirm, which of the following acts requires that a reaffirmation promise be made prior to the date of the discharge and gives the debtor the right to revoke his promise within 30 days after it becomes enforceable?

A. The National Labor Relations Act

 

B. The Bankruptcy Abuse Prevention and Consumer Protection Act

 

C. The Uniform Debt-Management Services Act

 

D. The Bankruptcy Reform Act

 

 

Essay Questions

56. Why are “disguised gift” promises involving nominal consideration nonbinding because of the absence of consideration? Explain with one example.

 

 

 

 

57. Arthur contracts to sell Ben his house for $100,000. Later the parties modify the contract by changing the price to $110,000. All other terms remain the same. Why is there no consideration for the second agreement? State two ways in which the parties can circumvent this problem.

 

 

 

 

58. In general, settlements of liquidated debts are not binding due to the absence of consideration, while settlements of unliquidated debts are a binding accord and satisfaction. As a matter of technical consideration law, what justifies this distinction?

 

 

 

 

59. Ben, an accountant in Los Angeles, interviewed with Matt, a CPA in San Francisco. At the end of his interview, Matt, the personnel manager, told Ben: “I look forward to working with you. Please let me know if I can help you prepare for your move to San Francisco.” Ben returned to Los Angeles, quit his job, gave a 30-day notice to his landlord, rented an apartment in San Francisco, and moved to San Francisco. Ben then called Matt to ask if he could start his job the following week. Matt replied that Ben had no job with him. Ben wants to recover the cost of moving expenses from Matt. Under what legal theory may he proceed? Discuss the arguments that Ben and Matt will each make if the claim is brought.

 

 

 

 

60. Owen once owed Carl a $1,000 debt, but the statute of limitations ran on that obligation, discharging Owen. Later, Owen promises in writing to pay Carl the debt. Why is there no consideration for this promise? Why is it binding anyway? What additional requirement do some states impose to make the promise binding?

Chapter 17

Rights of Third Parties

 

True / False Questions

1. The sources of assignment law today are the common law of contracts and provisions of the UCC.

True    False

 

2. In order for an assignment to be valid, the assignee must give some consideration to the assignor.

True    False

 

3. All contract rights are assignable.

True    False

 

4. Most states have passed statutes prohibiting or regulating a wage earner’s assignment of future wages.

True    False

 

5. Anne induces Ben’s consent to contract under duress. Anne later assigns her rights under the contract to Carl. Ben may assert the doctrine of duress against Anne as a ground for avoiding the contract.

True    False

 

6. Antiassignment clauses in contracts are not enforceable.

True    False

 

7. An assignee can notify the obligor of the assignment at any point of time that he/she desires.

True    False

 

8. Under the “American rule” governing successive assignments, the first assignee in time has the superior right.

True    False

 

9. The assignor impliedly warrants to the assignee that the obligor has capacity to contract.

True    False

 

10. Once a party properly delegates a duty to the delegatee, that party is relieved of any obligation to perform the duty.

True    False

 

11. A delegator can be discharged from his/her obligation to perform his/her duty to the original promisee by a contract of novation.

True    False

 

12. An incidental beneficiary of a contract cannot recover under that contract.

True    False

 

13. Deborah owes a debt to Casey. Sean contracts with Deborah to pay her debt to Casey. Casey is a creditor beneficiary of the contract between Sean and Deborah.

True    False

 

14. A donee beneficiary of a contract can recover under that contract.

True    False

 

15. Josh acquires beneficiary rights under a contract between Sunny and James. Any modification to that contract which discharges Josh of his rights under the contract will not be enforceable by the court.

True    False

 

 

Multiple Choice Questions

16. The transfer of a right under a contract is called a(n):

A. assignment.

 

B. delegation.

 

C. affidavit.

 

D. bilateral contract.

 

17. The appointment of another person to perform a duty under a contract is called a(n):

A. assignment.

 

B. delegation.

 

C. affidavit.

 

D. bilateral contract.

 

18. An obligor:

A. owes a duty to perform under a contract.

 

B. is owed a duty.

 

C. is one to whom a right has been transferred.

 

D. facilitates a contract.

 

19. With regard to an assignment, the person to whom the right has been transferred is called the:

A. obligor.

 

B. obligee.

 

C. assignor.

 

D. assignee.

 

20. Which of the following transfers will generally be valid without the consent of the other parties?

A. The assignment by the lessee of a lease contract where rent is a percentage of sales.

 

B. The assignment by a purchaser of goods of the right to buy on credit without giving security.

 

C. The assignment by an architect of a contract to design a building.

 

D. The assignment by a patent holder of the right to receive royalties.

 

21. Which of the following is true of assignments?

A. Early common law recognized assignments.

 

B. Contract rights have always been considered transferable.

 

C. Article 2 of the UCC deals with assignments of rights.

 

D. The laws regarding assignment have gradually become stricter.

 

22. Melanie owes $250 to Jessica. Jessica gifts the right to receive the money from Melanie to her daughter Kelly in writing. This assignment is:

A. unenforceable since a beneficiary modification is prohibited.

 

B. enforceable despite the lack of consideration.

 

C. unenforceable because contractual rights cannot be assigned.

 

D. enforceable because the gift is made in writing.

 

23. A valid assignment always requires:

A. consideration.

 

B. writing.

 

C. filing with a local court.

 

D. an intention to assign.

 

24. Which of the following characterizes assignability?

A. An assignment is ineffective if it occurs in the present.

 

B. Assignment is ineffective in the case of land rights.

 

C. Assignment is ineffective when contrary to public policy.

 

D. Assignment is mostly effective in the case of wage earners.

 

25. Antiassignment clauses in contracts generally are:

A. enforceable but read narrowly.

 

B. enforceable but not covered by the UCC.

 

C. unenforceable because they are unconscionable.

 

D. unenforceable because they are void.

 

26. Once an assignment occurs, the assignee acquires:

A. greater obligations to fulfill the contract.

 

B. greater rights than the assignor.

 

C. same rights as the assignor had prior to assignment.

 

D. no rights at all.

 

27. It is important to promptly notify the obligor that an assignment has occurred. Why?

A. It is a necessary requirement for a valid assignment.

 

B. The obligor might perform to the assignor rather than the assignee.

 

C. The obligor’s duty to perform is completely discharged.

 

D. If the obligor neither knew nor had reason to know about the assignment, the obligor remains liable to the assignee.

 

28. Jim’s contract with Frank obligated Jim to pay Frank $10,000. Frank properly assigns the contract to Abel. At that time, Abel notifies Jim about the assignment. Jim, however, forgets and pays the $10,000 to Frank. By this time, Abel is screaming for his money. However, by then, Frank goes into bankruptcy. In this case:

A. Jim is liable to Abel for $10,000.

 

B. Abel is out of luck because Jim performed his obligation by paying Frank.

 

C. Jim is liable to Abel not for the $10,000, but for his breach of the implied warranty that the assignor is solvent.

 

D. Abel is out of luck because his notification was oral rather than written.

 

29. Quick Corp. has $270,000 of outstanding accounts receivable. On March 10, 1988, Quick assigned a $30,000 account receivable due from Pine, one of Quick’s customers, to Taft Bank for value. On March 30, Pine paid Quick the $30,000. On April 5, Taft notified Pine of the March 10 assignment from Quick to Taft. Who is Taft is entitled to collect the $30,000 from?

A. Either Quick Corp. or Pine

 

B. Quick Corp. only

 

C. Pine only

 

D. Taft Bank cannot claim any money because it notified Quick Corp. too late

 

30. On May 2, Kurtz Co. assigned its entire interest in a $70,000 account receivable due in 60 days from Long to City Bank for $65,000. On May 4, City notified Long of the assignment. On May 7, Long informed City that Kurtz had committed fraud in the transaction out of which the account receivable arose and that payment would not be made to City. If City commences an action against Long, and Long is able to prove that Kurtz acted fraudulently:

A. Long will be able to successfully assert fraud as a defense.

 

B. City will be entitled to collect $65,000, the amount paid for the assignment.

 

C. City will be entitled to collect $70,000 since fraud in the inducement is a personal defense which was lost on May 2.

 

D. City will be entitled to collect $70,000 since Long’s allegation of fraud arose after notice of the assignment.

 

31. Which of the following is NOT one of the implied warranties that the assignor gives to the assignee?

A. That the obligor has capacity to contract.

 

B. That the contract is not voidable for any reason known to the assignor.

 

C. That the assignor has good title to the rights assigned.

 

D. That the obligor is solvent.

 

32. Apple assigns the same contract rights to Enzo, and then to Sam. Sam immediately notifies the obligor of the assignment to him; Enzo never notifies the obligor. When Sam notified the obligor, he did not know about the earlier assignment to Enzo. Sam will have the better right under the:

A. “American rule.”

 

B. “English rule.”

 

C. Restatement (Second) of Contracts.

 

D. common law.

 

33. The effect of a valid delegation of duties is that it:

A. discharges the delegator from any further liability.

 

B. is an automatic novation.

 

C. discharges the obligee from any further liability.

 

D. appoints the delegatee to perform the delegator’s duty to the obligee.

 

34. Al hires Bob to move his furniture to his new house. On the day of the move, Bob does not feel like moving furniture, so he asks his friend Chuck to move the furniture. Chuck decides to leave before completing the move in order to watch a football game on TV. Al has to delay his move and hire another mover at a higher price. Al wants to sue Bob to recover for his damages. Given these facts, Al will most likely:

A. lose, because it was Chuck, not Al, who failed to fulfill his duty to Al.

 

B. win, because Bob’s duty to Al was not delegable.

 

C. win, because Bob is liable to Al.

 

D. lose, because he failed to insist on Bob’s performance.

 

35. Edna is a leading brain surgeon in the United States. She enters into a contract to perform a complicated brain surgery on Ben. However, since Edna is very busy, she wants to assign this contract to a less experienced surgeon, Charles. This would be Charles’ first operation of this type. Ben can object to this assignment and prevent it because the contract between Ben and Edna is a(n):

A. contract for services to be performed in the future.

 

B. contract involving personal skill.

 

C. services contract.

 

D. employment contract.

 

36. Which of the following is true of delegation?

A. It requires special, formal language.

 

B. It covers all duties stated in a contract.

 

C. It is often confused with assignment.

 

D. It automatically places all legal responsibilities on the delegatee.

 

37. In an assignment/delegation, which party remains secondarily liable on the obligation that has been delegated?

A. Assignor/delegator

 

B. Assignee/delegatee

 

C. Third party

 

D. Obligee

 

38. Selena delegates her rights under a contract. The clause delegating her rights are termed: “All my rights under the contract are hereby effectively delegated to…”. This language shows that the contract is of:

A. delegation only.

 

B. assignment only.

 

C. assignment and delegation.

 

D. a third-party beneficiary.

 

39. On August 1, Neptune Fisheries contracted in writing with West Markets to deliver to West 3,000 pounds of lobsters at $4 a pound. Delivery of the lobsters was due October 1 with payment due November 1. On August 4, Neptune entered into a contract with Deep Sea Lobster Farms which provided as follows: “Neptune Fisheries assigns all the rights under the contract with West Markets dated August 1 to Deep Sea Lobster Farms.” The best interpretation of the August 4 contract would be that it was:

A. only an assignment of rights by Neptune.

 

B. only a delegation of duties by Neptune.

 

C. an assignment of rights and a delegation of duties by Neptune.

 

D. an unenforceable third-party beneficiary contract.

 

40. Which of the following is a type of substituted contract in which the obligee agrees to discharge the original obligor and to substitute a new obligor in his/her place?

A. Assignment

 

B. Delegation

 

C. Certification

 

D. Novation

 

41. Ted Nix purchased two acres of land from Sally Pine. Nix paid 15 percent at the closing and gave his note for the balance secured by a 30-year mortgage. Five years later, Nix found it increasingly difficult to make payments on the note and finally defaulted. Pine threatened to accelerate the loan and foreclose if Nix continued in default. Pine told Nix either to get the money or obtain an acceptable third party to assume the obligation. Nix offered the land to Quick Co. for $4,000 less than the equity Nix had in the property. This was acceptable to Pine and at the closing, Quick paid the arrearage, executed a new mortgage and note, and had title transferred to its name. Pine surrendered Nix’s note and mortgage to him. The transaction in question is a(n):

A. third-party beneficiary contract.

 

B. novation.

 

C. purchase of land subject to a mortgage.

 

D. assignment and delegation.

 

42. In a novation:

A. the original obligor is completely discharged from his/her obligations under the contract.

 

B. the original obligee is completely discharged from his/her obligations under the contract.

 

C. the original obligor remains secondarily obligated.

 

D. both the original obligee and the original obligor remain obligated.

 

43. Mike has a three-year lease on the apartment he occupies. He has lived there one year. He now wants to leave and go to Aspen, Colorado to be a ski instructor. However, Mike’s landlord will not release him from the lease, and threatens to sue him if he breaks his lease. Mike finds Paul to take over the last two years of the lease, but Mike is worried that Paul might cause damage or in other ways inflict loss and that he, Mike, might be held financially responsible. In order to assure Mike that he will be completely discharged from all obligations under his lease, Mike should attempt to bring about:

A. an assignment.

 

B. a novation.

 

C. either an assignment or novation – it will not affect Mike’s future liability.

 

D. neither an assignment nor a novation – both will not accomplish Mike’s objective.

 

44. Fiona owed Lutz $5,000. As the result of an unrelated transaction, Lutz owed Bing that same amount. The three parties signed an agreement that Fiona would pay Bing instead of Lutz and Lutz would be discharged from all liability. The agreement among the parties is:

A. unenforceable for lack of consideration.

 

B. voidable at Bing’s option.

 

C. an accord and satisfaction.

 

D. a novation.

 

45. A contract may be enforced by a third-party beneficiary if that beneficiary:

A. is an incidental beneficiary.

 

B. is a witness to the contract.

 

C. is the intended beneficiary.

 

D. has given some consideration.

 

46. For a third person to have the right to enforce a contract, he/she must necessarily prove that:

A. he/she was the party to the contract.

 

B. he/she had been given a promise.

 

C. the contract was made to benefit him.

 

D. the contract provides him/her incidental benefit.

 

47. A third party is categorized as a donee beneficiary when:

A. the promisee’s primary purpose in contracting is to make a gift of the agreed-on performance to the third party.

 

B. the benefit derived by the third party was merely an unintended by-product of a contract that was created for the benefit of those who were parties to it.

 

C. he/she is unable to establish that the contract was made with the intent to benefit him/her.

 

D. the promisor’s performance is intended to satisfy a legal duty that the promisee owes to the third party.

 

48. Denise contracts with Long Life Insurance Co., agreeing to pay premiums in return for which the company agrees to pay $500,000 to Denise’s husband Barn when Denise dies. Barn is a(n):

A. creditor beneficiary.

 

B. donee beneficiary.

 

C. incidental beneficiary.

 

D. delegatee.

 

49. Stella buys a car from Marble Sales for $10,000 on credit. Joel’s daughter likes the car and so Joel buys the car from Stella. Joel also agrees to pay the balance due to Marble Sales, on behalf of Stella. Joel defaults. Marble Sales can bring a suit for breach of contract against:

A. Stella only.

 

B. Joel only.

 

C. Stella and Joel.

 

D. Joel and his daughter.

 

50. As a general rule, members of the public are held to be _____ of contracts entered into by their municipalities or other governmental units in the regular course of carrying on governmental functions.

A. promisees

 

B. incidental beneficiaries

 

C. donee beneficiaries

 

D. creditor beneficiaries

 

51. Jada owned an insurance policy in her life, on which she paid all the premiums. Shaun was named the beneficiary. Jada died and the insurance company refused to pay the insurance proceeds to Shaun. An action by Shaun against the insurance company for the insurance proceeds will be:

A. successful because Shaun is a third-party donee beneficiary.

 

B. successful because Shaun is a proper assignee of Jada’s rights.

 

C. unsuccessful because Shaun is not the owner of the policy.

 

D. unsuccessful because Shaun did not pay any of the premiums.

 

52. Rice contracted with Locke to build an oil refinery for Locke. The contract provided that Rice was to use United Pipe Fittings. Rice did not do so. United learned of the contract and, anticipating the order, manufactured additional fittings. United sued Locke and Rice. United is:

A. entitled to recover from Rice only, because Rice breached the contract.

 

B. entitled to recover from either Locke or Rice because it detrimentally relied on the contract.

 

C. not entitled to recover because it is a donee beneficiary.

 

D. not entitled to recover because it is an incidental beneficiary.

 

53. Union Bank lent $200,000 to Wagner. Union required Wagner to obtain a life insurance policy naming Union as beneficiary. While the loan was outstanding, Wagner stopped paying the premiums on the policy. Union paid the premiums, adding the amounts paid to Wagner’s loan. Wagner died and the insurance company refused to pay the policy proceeds to Union. Union may:

A. recover the policy proceeds because it is a creditor beneficiary.

 

B. recover the policy proceeds because it is an incidental beneficiary.

 

C. not recover the policy proceeds because it is not in privity of contract with the insurance company.

 

D. not recover the policy proceeds because one cannot claim insurance for oneself.

 

54. Martha purchases a book from Just Books on credit and later sells the book to her friend, Christina. Christina in turn sells the book to David, who agrees to pay the balance to Just Books. Who is the creditor beneficiary in this exchange?

A. Martha

 

B. Christina

 

C. David

 

D. Just Books

 

55. Courts have held that a beneficiary’s rights cannot be lost by modification or discharge. This is known as:

A. assignment.

 

B. dissociation.

 

C. malfeasance.

 

D. vesting.

 

 

Essay Questions

56. Barry and Andrew contract for the sale of 100 widgets (goods) from Barry to Andrew for $1,000. The contract contains a clause prohibiting assignment of “the contract.” Nonetheless, Andrew assigns “the contract” to Smith. Is there a valid assignment of contract rights here? Is there a delegation of duties?

 

 

 

 

57. Why is it important for an assignee to immediately notify the obligor of the assignment?

 

 

 

 

58. Amelia contracts to have her portrait painted by Hamilton for $10,000. Hamilton assigns the contract to Drew, another artist. Has there been a valid delegation of duties here? Why or why not?

 

 

 

 

59. The Mandarin City contracts with the Zoid Construction Company to construct a new sewer system for the city. Later, Zoid breaches the contract. George, a resident of the city, sues Zoid for its breach of contract. Can George recover? Why or why not?

 

 

 

 

60. What is the purpose of vesting?

 

Chapter 25

Landlord and Tenant

 

True / False Questions

1. In most states, landlords must give a reasonable advance notice to the tenant before exercising the right to terminate the tenancy.

True    False

 

2. Debra allowed Frank to stay in the guesthouse located at the rear of her property. Debra and Frank never discussed rental terms. It is very likely a tenancy at will has been created.

True    False

 

3. When a tenant remains in possession of the property after the expiration of a lease, a tenancy at will occurs.

True    False

 

4. Under a tenancy at will, property is leased for an indefinite period with an agreement to pay rent regularly.

True    False

 

5. Regardless of whether the parties’ written lease clearly so specifies, the landlord makes an implied warranty of possession.

True    False

 

6. Under the doctrine of constructive eviction, a tenant may terminate a lease because the condition of the property is unsuitable for the purposes for which it was leased.

True    False

 

7. The principal of constructive eviction is applicable only to commercial property.

True    False

 

8. As per common law, landlords make no implied warranties regarding the condition or quality of leased properties.

True    False

 

9. The implied warranty of habitability requires landlords to maintain residential rental property in a statutorily defined, reasonably safe and healthy condition.

True    False

 

10. An implied warranty of habitability in the leased property makes the landlord the insurer of the tenant’s safety.

True    False

 

11. A landlord who fails to maintain reasonable security may face liability for injuries sustained by those who are criminally attacked on the property.

True    False

 

12. As in the case of an assignee, the sublessee also acquires similar rights and duties under the lease between the landlord and the tenant.

True    False

 

13. Tenants must do routine tasks to ensure the basic upkeep of rental property.

True    False

 

14. As a general rule, if a tenant abandons the leased property before the expiration of a lease, the landlord has a duty to mitigate damages.

True    False

 

15. If a landlord has a lien towards the tenant, the landlord can remove or hold the property of the tenant.

True    False

 

 

Multiple Choice Questions

16. A(n) _____ is a contract under which an owner of property, the landlord conveys to the tenant the exclusive right to possess property for a period of time.

A. estate

 

B. assignment

 

C. tenancy

 

D. lease

 

17. Earl leased an apartment from Kent. Under the terms of the lease, Earl would remain a tenant for eight months and the tenancy would expire on December 8th. This is an example of:

A. a tenancy for years.

 

B. a month-to-month tenancy.

 

C. a tenancy at will.

 

D. a tenancy at sufferance.

 

18. When Tammy rented an apartment, she and the landlord agreed that she would pay rent on the first of every month. However, they did not agree on the duration of the lease. Under these circumstances, what sort of tenancy was created?

A. A tenancy at will

 

B. A tenancy at sufferance

 

C. A periodic tenancy

 

D. A fee simple tenancy

 

19. A _____ occurs when a tenant remains in possession of the property (holds over) after a lease has expired.

A. periodic tenancy

 

B. tenancy at sufferance

 

C. tenancy at will

 

D. month-to-month tenancy

 

20. Which of the following is true of leases in general?

A. Provisions of extensions should be drafted separately.

 

B. Long-term leases need to be carefully drafted.

 

C. They are the most important in matters of residential property.

 

D. There are no laws regulating leases, only local housing codes.

 

21. Which the following is true in the case of a lease for a term of more than one year to be enforceable?

A. It should be in writing only.

 

B. It cannot be subleased.

 

C. It cannot be assigned.

 

D. It can be oral or in writing.

 

22. Scarlett and Mark want to lease an apartment from Connor for a year. Connor first agrees, but on finding that they have two small children, refuses to lease them his apartment. Is Connor’s refusal legal?

A. Yes, he is the owner and has the right to refuse a lease.

 

B. Yes, he has a valid reason for the refusal.

 

C. No, because Scarlett and Mark have promised to pay rent on time.

 

D. No, because this blatant discrimination is prohibited by the law.

 

23. Samuel, a physically disabled young man, has rented an apartment from Beth for a period of two years. Samuel finds that the apartment is ill-equipped to handle his basic needs; he asks Beth for permission to make a few small alterations so that he can move around the house with minimum support. Beth refuses to let him do so and asks him to find another place. Is Beth’s refusal legal?

A. No, the law allows handicapped tenants to make reasonable modifications.

 

B. No, tenants have the right to do what they like during the lease period.

 

C. Yes, Samuel should find something suitable for him.

 

D. Yes, she is the owner and has supreme rights over her property.

 

24. Which of the following is an accurate statement of a general rule regarding security deposits obtained by landlords from tenants under residential property leases?

A. If the landlord intends to retain part, but not all, of the tenant’s security deposit, the landlord complies with applicable legal requirements if he verbally notifies the tenant of that intent.

 

B. The landlord is not entitled to use any part of the security deposit to cover the cost of remedying ordinary wear and tear that occurred during the tenant’s occupation of the property.

 

C. The landlord is entitled to use any part of the security deposit as a way to recover unpaid rent.

 

D. As a general rule, security deposits are generally nonrefundable unless the tenant makes a convincing written showing of why part or all of the security deposit should be refunded to him or her.

 

25. Tanya, a Tenant gave Lou, her Landlord a $1,000 security deposit when she moved in. When she moved out four years later, Lou withheld $500 from Tanya’s deposit because the carpet was 50% worn out. This was the only damage in the apartment. The carpet has a normal useful life of eight years, and it costs $1,000. How much of the security deposit was Lou entitled to withhold?

A. $500, because wear and tear is the responsibility of the tenant.

 

B. Nothing; Tanya should replace the carpet before moving out.

 

C. Nothing, because the wear and tear here was ordinary and reasonable.

 

D. The entire value of the carpet, i.e., $1000.

 

26. Bill leased a villa from Mark for a period of two years. Two months after he moved in, he was regularly disturbed by the noise created by a group of young boys living in the adjacent plot. Despite repeated requests to the neighbors and Mark, there has been no improvement in the situation. Which of the following is an accurate statement?

A. Mark is liable to Bill under the implied warranty of quiet enjoyment.

 

B. Bill cannot recover damages from either Mark or his neighbors.

 

C. The neighbors have the right to live as they wish to.

 

D. Bill cannot use the remedy of constructive eviction since he has leased residential property.

 

27. Which of the following is a characteristic of the doctrine of constructive eviction?

A. It aids landlords to evict tenants who default on rents.

 

B. It aids tenants to vacate property that is unsuitable.

 

C. It requires no legal notice, either before or after eviction.

 

D. It applies only to residential property.

 

28. Teresa rented an apartment from Len for one year, beginning January 1st, 2008. When Teresa tried to take possession of the rental unit, Paul, a prior renter, was still there. Teresa asked Len to help her get Paul out. Len simply shrugged, telling Teresa that it was now her problem.

A. Teresa must bring an eviction action against Paul.

 

B. Teresa must wait for Paul to vacate the premises at his convenience.

 

C. Len breached the implied warranty of possession.

 

D. Len and Teresa have created a periodic tenancy.

 

29. Magnum Corp. rented a building from Wheiler to set up an office for a 5 year lease period. After the office was set up, it was found that the paint was peeling off in many places, the washrooms were broken, and the floors were completely damaged. Magnum sued Wheiler for damages. Magnum will:

A. win the case because Wheiler is the owner of the damaged premises.

 

B. win the case because property leased for commercial purposes is the owner’s responsibility.

 

C. lose the case because the implied warranty of habitability is not applicable.

 

D. lose the case because Wheiler has no responsibility to maintain his premises.

 

30. In which of the following is the implied warranty of habitability applicable?

A. Both residential and commercial property leases

 

B. Only residential property leases

 

C. Only commercial property leases

 

D. Only agricultural property leases

 

31. The common law held that landlords:

A. did not have the right to evict tenants for nonpayment of rent.

 

B. needed to make necessary repairs of their leased premises.

 

C. were responsible for the injuries caused to tenant due to their negligence.

 

D. made no implied warranties about the quality of leased premises.

 

32. Which of the following is not a remedy that may be pursued by a tenant for a landlord’s breach of implied warranty of habitability?

A. Action for damages

 

B. Termination of the lease

 

C. Rent abatement

 

D. Appeal an injunction by the landlord

 

33. Why is the implied warranty of habitability considered to be superior to the doctrine of constructive eviction?

A. The tenant does not have to vacate the premises to seek damages.

 

B. Constructive eviction does not obligate the landlord to make repairs.

 

C. Constructive eviction is applicable only to commercial property.

 

D. Landlords need to pay damages to tenants.

 

34. Brandon leased his house to Patrick for 5 months. A few days after moving in Patrick found that the house had several defects such as leaking taps, broken windows, faulty electrical wiring. Despite repeated requests, Brandon did not do the repairs. As a result, Patrick went ahead with the repairs and deducted the amount from the rent due that particular month. Brandon threatened to sue him. Brandon will:

A. win the case because he is the owner of the house.

 

B. win the case because a tenant has no right to repair defects.

 

C. lose the case because he was informed of the defects before the repairs.

 

D. lose the case because the law is biased toward tenants.

 

35. Miranda leased an apartment, which had broken floorboards, from Gail. She invited her friend Claire for dinner one evening to the apartment; during the course of the evening, Claire slipped on the floorboards and broke her ankle. Which of the following is true of the case?

A. Claire cannot recover any monetary damages.

 

B. Claire cannot recover any damages for trauma.

 

C. Claire can recover damages only from Miranda.

 

D. Claire can recover damages from Gail.

 

36. Which of the following can provide relief to landlords from cases of negligence liability?

A. Assignment

 

B. Tort liability

 

C. Exculpatory clause

 

D. Constructive eviction

 

37. Which of the following is characteristic of exculpatory clauses?

A. Courts favor their use in leases of residential property

 

B. Aids tenants in recovering damages from landlords

 

C. Attempts to insulate landlords from negligence liability to tenants

 

D. Enforceable only in residential property leases

 

38. June included an exculpatory clause in the lease agreement for her house that May was renting. During her lease period, May slipped and fell on the staircase which was made of faulty and rotten floorboards. Can May recover damages from June if she files a lawsuit?

A. Yes, because June is responsible for the care of the premises.

 

B. Yes, because the lease period is not yet over.

 

C. No, because May should have been more careful.

 

D. No, because courts will probably enforce the exculpatory clause.

 

39. Larry leased an apartment to Terry. The lease agreement prohibits Terry from assigning or subletting the property. Such a provision:

A. is generally void.

 

B. is unenforceable, unless Larry changes his mind.

 

C. is unenforceable, unless Terry needs to sublet the property.

 

D. is generally enforceable.

 

40. Maggie, the tenant under a one-year lease of an apartment, assigned the lease to her friend, Cosmo. Which of the following is a legally accurate statement?

A. Maggie’s assignment of the lease is the same thing as the granting of a sublease.

 

B. If Cosmo fails to pay rent during the year covered by the lease, Maggie will be liable for it.

 

C. The assignment extinguishes any further obligations Maggie may have under the lease.

 

D. Maggie’s assignment is called a tenancy for a period.

 

41. Ace, Bud, and Chet leased an apartment from Stan Slumlord. They signed a lease that established a 12-month rental period at $400 per month as rent. Two months after the three tenants moved into the apartment, Ace and Bud moved out. Ace and Bud each moved to a different–and distant–state. Slumlord insists that Chet is responsible for the entire $400 per month rent. Is Slumlord correct?

A. Slumlord is incorrect. Under these facts, each tenant is responsible for one-third of the rent payment as an implied term of the lease agreement.

 

B. Slumlord is correct. The tenants are jointly and severally liable for the rent payments under the lease.

 

C. Slumlord is incorrect. This is a tenancy at sufferance, meaning that any tenant may vacate without incurring liability for further rent payments.

 

D. Slumlord is correct, if the lease was executed in a state that has adopted the Uniform Landlord-Tenant Act.

 

42. Darwin, a college student leased a flat for 15 months which was to terminate in December 2009. Meanwhile he had to go to New Jersey for a project, so he sublet his flat to a friend. It means that:

A. Darwin is not liable to the original owner anymore.

 

B. Darwin has not transferred his remaining rights to his friend.

 

C. Darwin has performed an illegal act.

 

D. Darwin has actually performed an assignment.

 

43. Which of the following is an accurate statement about limitations on assignment and subleasing in commercial lease agreements?

A. Public policy supports limitations on assignment and subleasing; therefore, such limitations are almost always upheld.

 

B. Ambiguous contract language limiting assignment of leases is narrowly construed and is usually resolved against the landlord.

 

C. Provisions requiring a landlord’s consent to assignment are almost never upheld by the courts.

 

D. Total prohibitions against assignment can be enforced, and are favored under the law.

 

44. Jessica a tenant invited her friend Angelina for dinner at her house. Jessica’s carpet that was on the kitchen floor was in a torn condition. As Angelina walked over it, her leg got trapped and she fell down. Her knee got dislocated. Angelina can sue:

A. neither Jessica nor the landlord.

 

B. only the landlord.

 

C. both Jessica and her landlord.

 

D. only Jessica.

 

45. Linda was visiting Jose at his apartment. While she was there, Linda slipped on a banana peel that Jose had negligently left on the kitchen floor. Linda was injured and sued both Jose and his landlord. Who is liable to Linda?

A. Both Jose and the landlord are liable.

 

B. Jose is liable because he was negligent.

 

C. The landlord is liable for all accidents that happen in his apartment.

 

D. No one is liable.

 

46. Delta Corp. leased 60,000 square feet in an office building from Tanner under a written 25-year lease. Which of the following statements is correct?

A. Tanner’s death will terminate the lease and Delta will be able to recover any resulting damages from Tanner’s estate.

 

B. Tanner’s sale of the office building will terminate the lease unless both Delta and the buyer consent to the assumption of the lease by the buyer.

 

C. In the absence of a provision in the lease to the contrary, Delta does not need Tanner’s consent to assign the lease to another party.

 

D. Delta Corp. can legally take possession of Tanner’s building at the end of the lease period.

 

47. Sisk is a tenant of Met Co. and has two years remaining on a six-year lease executed by Sisk and Met. The lease prohibits subletting but is silent as to Sisk’s right to assign the lease. Sisk assigns the lease to Kern Corp. which assumes all of Sisk’s obligations under the lease. Met objects to the assignment. Which of the following statements is correct?

A. The assignment to Kern is voidable at Met’s option.

 

B. Sisk would have been relieved from liability on the lease with Met if Sisk obtained Met’s consent to the assignment.

 

C. Sisk will remain liable to Met for the rent provided for in the lease.

 

D. With respect to the rent provided for in the lease, Kern is liable to Sisk but not to Met.

 

48. Which of the following statements is accurate in describing a sublease?

A. It is another term for an assignment.

 

B. It is used only in the context of commercial property.

 

C. It is an agreement between the original owner and a third-party.

 

D. A sublesee gets only partial rights.

 

49. A(n) _____ occurs when the landlord or the tenant transfers all of her remaining rights under the lease to another person.

A. tenancy

 

B. lease

 

C. sublease

 

D. assignment

 

50. Which of the following is true of eviction?

A. The law gives landlords the power to forcibly evict tenants who default on rents.

 

B. An eviction results when the tenant unjustifiable vacates the leased premises.

 

C. It results from a breach of contract by a tenant.

 

D. The tenant need not be given a notice before eviction.

 

51. Landlord wishes to evict Tenant from his apartment because Tenant is three months’ behind on the rent. Tenant has indicated that he is unwilling to move out. Which of the following is an accurate statement about Landlord’s rights and/or obligations under the circumstances?

A. Landlord cannot sue Tenant; instead, Landlord must negotiate further with Tenant.

 

B. Landlord may use the degree of force necessary to physically remove Tenant from the apartment.

 

C. Landlord may change the locks on the apartment while Tenant is temporarily away, so that Tenant cannot get back in.

 

D. Landlord has to follow the prescribed procedure for eviction in that State.

 

52. Jill is a month-to-month tenant. She had not paid her rent for 3 months and Landlord Lou decided to evict her. He placed her furniture in a storage locker and changed the lock on her apartment. Lou’s actions are:

A. proper because Jill had breached her obligations as a tenant.

 

B. proper because a landlord may evict a month-to-month tenant for any reason.

 

C. improper because the law allows a landlord a reasonable right of “self-help.”

 

D. improper because Lou should have gone to court and obtained an order of eviction.

 

53. Generally, a landlord may evict a tenant by:

A. moving the tenant out himself and suing to recover unpaid rent.

 

B. moving the tenant out himself and changing the lock.

 

C. finding a new the tenant to occupy the place.

 

D. filing a lawsuit against the tenant.

 

54. Gertrude has not paid rent for five months and Mary, her landlord, wants to evict her. While Gertrude is at work, Mary enters the apartment and changes the lock. Mary moves all of Gertrude’s belongings into a storage locker. When Gertrude comes home from work, Mary gives the key to the storage locker. Which of the following is an accurate statement?

A. Mary was not entitled to act as she did because Gertrude was just five months behind in her rent.

 

B. Mary was entitled to act as she did because she protected Gertrude’s belongings by placing them in a storage locker.

 

C. Mary was entitled to act as she did because a landlord has a right to “self help” in a situation like this.

 

D. Mary was not entitled to act since she performed an illegal eviction.

 

55. Which of the following scenarios would justify eviction proceedings by a landlord?

A. A tenant has abandoned the premises without any notice.

 

B. A tenant has not paid rent for 5 consecutive months.

 

C. A tenant has asked for the refund of the security deposit.

 

D. A tenant wants to make necessary repairs in the premises.

 

 

Essay Questions

56. Ned Nerdman rented an apartment from Best Properties, Inc. The apartment did not have a functioning lock on a sliding patio door. Nerdman had given Best notice of this defective condition at least three weeks earlier. Best did not install a lock. As Nerdman slept at night, Phil entered the apartment through the unlocked patio door, knocked Nerdman unconscious, and stole Nerdman’s expensive computer. Does Nerdman have a good cause of action against Best? Explain your reasoning.

 

 

 

 

57. Paul, an Easy State University physics major, rented an apartment from Jayvee Villas, Inc. for one year, beginning September 1, 1999. The lease contained a term giving Paul the right to renew his lease for an additional year, at a rent increase of $25 per month by giving notice to the landlord of his intent to renew at least 30 days before the termination of the lease. After the fall semester, Paul had an opportunity to study in Spain, so he assigned his lease to Joel for the remainder of the months covered by the lease (January through August 2000). If Joel failed to pay the rent for the month of August 2000; is Paul liable for the unpaid rent? Why or why not? Assuming now that Joel is not in arrears on the rent as of July and August 2000, would he (Joel) have the right to renew the lease under its renewal term? Discuss.

 

 

 

 

58. Average State University students Ann, Bo, and Sherry are co-tenants under a ten-month lease of a River Heights apartment from complex owner Stella Slumlord. The monthly rent set forth in the lease is $480. All three co-tenants signed the lease, which has five more months to go. Ann, Bo, and Sherry have each been chipping in $160 per month to cover the rent. Slumlord was aware of the co-tenants’ rent-sharing agreement. Bo recently flunked out of school and has returned to his parents’ home in Reno, Nevada. Bo has informed Ann, Sherry, and Slumlord that he will no longer be sharing in the rent. Slumlord has made demands upon Ann and Sherry for payment of the full monthly rental of $480? Is Slumlord legally justified in making this demand? Explain.

 

Chapter 33

Liability of Parties

 

True / False Questions

1. Indorsers are not contractually liable on negotiable instruments they indorse.

True    False

 

2. The maker of a promissory note is the person who is secondarily liable on the note.

True    False

 

3. Revised Article 3 provides that the drawer of a cashier’s check has the same obligation as the issuer of a note.

True    False

 

4. A drawee has no liability on a draft unless it certifies or accepts the draft.

True    False

 

5. The negotiable instruments of a corporation have to be signed by an agent of the corporation who is authorized to sign the instrument.

True    False

 

6. Bob authorizes Steward to borrow money on his behalf. Steward signs his name on a note in his individual capacity i.e. without disclosing that the signature is on behalf of Bob. Then Steward becomes liable for the note.

True    False

 

7. A holder of a check or draft who wants to get payment on it should first present the check or draft to the drawer.

True    False

 

8. An indorsing transferor of a negotiable instrument makes five transfer warranties to all subsequent transferees.

True    False

 

9. Warranties do not apply without the indorsement of the transferor.

True    False

 

10. A transferor of a negotiable instrument for consideration warrants to his transferee that the negotiable instrument has not been altered.

True    False

 

11. Presentment warranties are made by any prior transferor of the instrument at the time the person transfers the instrument.

True    False

 

12. Jason has knowledge of the fact that the check given to him bears Julie’s forged signature. Despite the said fact, he presents the check to ABC Bank. ABC Bank pays Jason, under a mistaken belief that the signature on the check is authentic. Bank cannot recover that payment from Jason.

True    False

 

13. Dick steals a computer belonging to Tom from his house. Then Dick represents himself as Tom and sells the computer to Lawrence. Here, Lawrence draws a check payable to Tom and delivers the check to Tom. Here, Tom is called the impostor.

True    False

 

14. Any authorized ownership and exercise over an instrument is referred to as conversion.

True    False

 

15. Potter owes George $500.00. Potter writes a check payable to George for that amount. Later, George loses the check. Potter is now discharged from his liability on the check.

True    False

 

 

Multiple Choice Questions

16. Mike signs a note payable to a bank. The bank indorses and negotiates the note to Fay, who then indorses and negotiates it to Sam. Sam presents the note to Mike, who dishonors it. Then Sam decides to pursue Fay and the bank on their secondary indorsers’ liability. Against whom can Sam proceed?

A. Fay.

 

B. The bank.

 

C. Both Fay and the bank.

 

D. Neither Fay nor the bank.

 

17. Which of the following is true regarding a drawee’s liability on a check or a draft?

A. The drawee is primarily liable in all cases.

 

B. The drawee is secondarily liable because the holder must first proceed against the drawer.

 

C. The drawee is primarily liable if it accepts (certifies) a check.

 

D. The drawee is secondarily liable only in doubtful cases.

 

18. Chin wants to buy a small parcel of land. The seller requires a certified check as payment. Chin has a checking account with ABC bank; he prepares a check for the seller and then has the bank certify it. He then presents the check to the seller. Who may now be liable for payment of the amount of the check?

A. Chin only.

 

B. ABC bank only.

 

C. Both Chin and ABC bank.

 

D. Neither Chin nor the ABC bank.

 

19. The obligation of an acceptor is:

A. to make an unconditional promise to pay a fixed amount of money and is responsible for making good on that promise.

 

B. to pay the check according to its terms at the time he issued it.

 

C. to pay the draft according to the terms at the time of its acceptance.

 

D. is to pay the amount due on the instrument according to its terms at the time he indorsed it.

 

20. The drawee does not have liability on the instrument until it _____ the instrument.

A. transfers

 

B. signs

 

C. negotiates

 

D. makes

 

21. Which of the following is true regarding an indorser’s liability on a note?

A. A holder can proceed directly against the indorser without first presenting the note to the maker.

 

B. A qualified indorsement by the indorser will not disclaim liability against a holder who takes it in good faith and for value.

 

C. For the indorser to be liable, there must be presentment to the maker, dishonor by the maker, and notice to the indorser.

 

D. For the indorser to be liable, there need only be presentment to the maker and dishonor by the maker.

 

22. Jack received a check as payment for the work he did. He indorsed the check “without recourse.” What legal effect does this have?

A. The drawer of the check is discharged from primary liability on the check.

 

B. Jack is discharged from secondary liability on the check.

 

C. The drawer of the check is discharged from secondary liability on the check.

 

D. Jack is discharged from primary liability on the check.

 

23. Salmond signs a note for the purpose of lending credit to John. Salmond also makes his father Richard sign the note because of his shaky financial condition. This indicates that Richard has signed the note in the capacity of a(n):

A. drawee.

 

B. accommodation party.

 

C. bailee.

 

D. indorser.

 

24. Menzes is the Treasurer of ABC Corp. As such, he is authorized to sign checks for the corporation. A supplier bills ABC for a legitimate obligation. Menzes makes out a check to the supplier and signs it “ABC Corp., by Menzes, Treasurer. Who is liable on this check?

A. ABC only.

 

B. Menzes only.

 

C. ABC and Menzes.

 

D. Neither ABC nor Menzes.

 

25. Maya Efrat, Chief Financial Officer for BAZ Inc., is authorized to sign checks for BAZ Inc. She signs a check “BAZ Inc. by Efrat, Chief Financial Officer.” Which of the following statements is most accurate?

A. Maya and not BAZ Inc. is liable on the check.

 

B. BAZ Inc. and not Maya is liable on the check.

 

C. Both BAZ Inc. and Maya are liable on the check.

 

D. Neither BAZ Inc. nor Maya are liable on the check.

 

26. National bank is reluctant to lend money to James and takes a note from him because of his shaky financial condition. However, the bank is willing to lend money to James if he signs the note and a friend also signs the note. Here the friend serves as the:

A. deponent.

 

B. accommodation party.

 

C. fiduciary.

 

D. non-joinder.

 

27. If a person signs a check as an accommodation indorser:

A. his contractual liability is that of an indorser.

 

B. his contractual liability is limited to the payment of the principal.

 

C. his contractual liability is more than that of an indorser.

 

D. his contractual liability is limited to the payment of the interest.

 

28. Mike authorizes his agent, Ben to borrow a sum of $10,000 on his behalf from the National Bank. Ben signs his name to a note without disclosing that the signature was on behalf of Mike. Who is liable on the note?

A. Only Mike is liable.

 

B. National Bank is liable.

 

C. Both of them are liable.

 

D. Only Ben is liable.

 

29. A representative is personally liable to a holder in due course that took the instrument without notice that the representative was not intended to be liable if:

A. the instrument identifies the represented person.

 

B. the form of the signature does not show unambiguously that the signature was made in a representative capacity.

 

C. the instrument categorically states that the representative would be liable even if the signature has been authorized.

 

D. it is proved that the original parties did not intend her to be liable on the instrument.

 

30. Tom steals Dave’s checkbook, completes a check for $1000, forges Dave’s signature, and gets payment from Tom’s bank. The bank paid in good faith. Who is liable to the bank for the $1000 in this case?

A. Tom

 

B. Dave

 

C. Both Tom and Dave

 

D. Neither Tom nor Dave

 

31. Usually, who may have the power to surrender the instrument if full payment is made?

A. Indorser

 

B. Accommodation maker

 

C. Party to whom the holder presents the instrument

 

D. Drawer

 

32. If Jay signs Mila’s name to a negotiable instrument without Mila’s authorization or approval:

A. the signature is not effective as the signature is of the unauthorized signer.

 

B. the signature cannot be ratified later by the person represented.

 

C. the signature does not bind the person whose name appears.

 

D. Jay is not liable on the check.

 

33. Which of the following is true regarding a transferor’s liability on a transfer warranty?

A. The warranties apply only when the transfer was accompanied by the transferor’s indorsement.

 

B. The transferor is liable only after presentment to the drawee or a primarily liable party, followed by that party’s dishonor.

 

C. It applies even when there was no consideration for the transfer.

 

D. If the transfer was by indorsement, the warranty extends to all subsequent transferees, and not just the immediate transferee.

 

34. All the following constitute transfer warranties under Article 3 except:

A. that all signatures on the instrument are authentic or authorized.

 

B. that the instrument has not been altered.

 

C. that the instrument is not subject to any defense or claim in recoupment.

 

D. that the instrument is negotiable.

 

35. Which of the following is both a transfer warranty and a presentment warranty? Assume that the instrument in question is a draft.

A. That the draft has not been altered.

 

B. That the draft is negotiable.

 

C. That the draft is not subject to any defense or claim for recoupment.

 

D. That the drawer is not insolvent.

 

36. The transferor of which of the following instrument cannot disclaim transfer warranties?

A. Check

 

B. Promissory Note

 

C. Draft

 

D. Invoice

 

37. Which of the following is not one of the presentment warranties that the holder of an unaccepted draft makes to the drawee?

A. That the draft has not been altered.

 

B. That the draft is not subject to a defense or a claim in recoupment.

 

C. That the holder has no knowledge that the signature of the drawer is unauthorized.

 

D. That the holder is entitled or authorized to obtain payment.

 

38. Able carefully drew a check for $10 on her checking account at ABC bank, payable to the order of Baker. Baker altered the check to read $100, and then negotiated it to Cain. Cain presented the check for payment to ABC bank, which paid Cain $100. The bank then deducted $100 from Able’s account. When Able saw her bank statement she demanded that ABC credit her account for the altered check. ABC credited Able’s account and then sued Cain. Is Cain liable?

A. Yes, because Cain violated a presentment warranty.

 

B. Yes, because Cain was a holder of the check.

 

C. No, Cain is not liable if Cain acted in good faith and was unaware of Baker’s alteration.

 

D. No, because Cain is not holder in due course.

 

39. In the event of a breach of a presentment warranty:

A. the drawee is entitled to compensation for expenses and loss of interest resulting from the breach to compensate for the amount paid by the drawee.

 

B. the drawee’s right to recover damages for breach of warranty is annulled by any failure on the part of the drawee to exercise ordinary care in making payment.

 

C. the warrantor may defend by showing that the indorsement is effective under the impostor or fictitious payee rules.

 

D. the drawee can withdraw an amount equal to the amount paid by the drawee less the amount the drawee received or is entitled to receive from the drawer.

 

40. If the drawee bank mistakenly paid a check with a forged or unauthorized drawer’s signature on it:

A. the bank can recover the amount from the person whose name had been mentioned in the check albeit without authorization.

 

B. the bank can recover if it paid the check to a presenter who had taken the instrument in good faith and for value.

 

C. the bank cannot recover if it paid the check to a forger or unauthorized signer.

 

D. the bank cannot recover it if the presenter had taken the instrument in good faith and for value.

 

41. Susan Smith steals a valuable necklace from Pamela Jones. The necklace bears Jones’s full name. Smith takes the necklace to a pawnshop, sells it to the shop, and gets a check for $10,000 in the name of Pamela Jones. Smith then indorses the check in Jones’s name and transfers it to Harry Anderson. Which of the following is true about this situation?

A. Harry cannot be a holder because the indorsement was forged.

 

B. Harry cannot be a holder because of the “imposter rule.”

 

C. The check has been negotiated to Harry.

 

D. Susan Smith can keep the necklace since she is now the owner.

 

42. Jerry Hall makes out a note for $100 in such a way that someone could alter it to read $100,000. Someone alters the note and negotiates it to Pete Mason, who can qualify as a holder in due course. Which of the following statements is true for this situation?

A. Jerry shall share the loss with the bank where she holds an account.

 

B. Jerry does not have to pay Pete who currently possesses the note.

 

C. Pete can collect $10,000 from the person who “raised” the note.

 

D. Pete can collect $10,000 from Jerry.

 

43. Where the impostor has impersonated a person authorized to act for a payee:

A. the responsibility for determining the true identity of the payee is on the bank.

 

B. the impostor has the power to negotiate a check drawn payable to the payee.

 

C. the later holder does not have good title to the check as the payee’s signature is not valid.

 

D. the loss is shared by the maker and the bank that negotiated the forged instrument.

 

44. Mila owes Brad (whom she has not met) $4,000. James claiming to be Brad gets Mila to issue him a check of $4,000. James forges Brad’s indorsement and transfers the check to Hall. Which of the following statements holds true for this situation?

A. The responsibility for determining the true identity of the payee is on Hall.

 

B. James has the power to negotiate a check drawn payable to Brad.

 

C. Hall does not have good title to the check as Brad’s signature is not valid.

 

D. The loss is shared by Mila and Hall, who is the holder of the forged instrument.

 

45. The rationale for the impostor rule is that the responsibility for determining the true identity of the payee:

A. is shared by the bank and the maker of the negotiable instrument.

 

B. is on the drawer or maker of the negotiable instrument.

 

C. is on the bank that negotiates the instrument.

 

D. is on the payee whose name is mentioned in the negotiable instrument.

 

46. Bill submits a time card for a non-existent employee. The employer issues the payroll check. Bill forges the indorsement and negotiates the check to Ted. Which of the following statements holds true for this situation?

A. The loss from the forged check is borne by the holder in due course.

 

B. The check cannot be negotiated as it carries the signature of a non-existent person.

 

C. The employer has the right to refuse payment to Ted.

 

D. Ted submits the check to the employer and gets the mentioned amount.

 

47. The rationale for the fictitious payee rule is that:

A. the bank should bear the immediate loss of the forged instruments.

 

B. the holder in due course should bear the immediate loss of the forged instruments.

 

C. the employer of the wrongdoer should bear the immediate loss of forged instruments.

 

D. the wrongdoer should bear the immediate loss of the forged instruments.

 

48. According to revised Article 3, the risk of loss from fraudulent indorsements by employees:

A. should fall on the holder in due course.

 

B. should fall on the employer.

 

C. should fall on the bank.

 

D. should fall on the employee.

 

49. “Responsibility” with respect to instruments includes:

A. those who have access to instruments that are in incoming or outgoing mail.

 

B. those who process instruments received by the employer.

 

C. those who have access to instruments as they are transported.

 

D. those who have access to instruments as they are stored.

 

50. XYZ Bank pays a check that contains a restrictive indorsement “for collection.” This indicates that:

A. the bank has paid the check illegally.

 

B. the bank has not acted in good faith.

 

C. the bank was negligent with the payment of the check.

 

D. the bank has converted the check.

 

51. Which of the following statements holds true for conversion?

A. Conversion occurs if an instrument has the indorsement necessary for negotiation.

 

B. Conversion occurs if an instrument is purchased or paid by a drawee to a person entitled to payment.

 

C. An action for conversion may not be brought by the maker, drawer, or acceptor of the instrument.

 

D. An action for conversion may not be brought by a payee or an indorsee who received delivery of the instrument.

 

52. According to revised Article 3 if a bank pays a check that contains a forged indorsement:

A. the bank has converted the check by wrongfully paying it.

 

B. the person whose indorsement was forged has converted the check.

 

C. the person whose indorsement was forged is liable to the bank.

 

D. the forger is liable to the person whose indorsement was forged.

 

53. In which of the following situations is the obligor not likely to be fully discharged from his or her liability on a negotiable instrument?

A. Jerry wrote a check to Elaine. Elaine cashes the check later.

 

B. Edward lends Monica $1,000 toward her college expenses. She gives Edward a promissory note for $1,000, which Edward accidentally tears up.

 

C. On June 1, 2002, Kim receives a draft from Kurt payable on July 1, 2002. Kurt then pays her in cash and cancels the draft.

 

D. John fraudently increases the amount due on the check from Bruce.

 

54. Brian signs a promissory note for $500 payable to Harwich. Harwich indorses the note “Pay to order of Stephen, Harwich” and negotiates it to Stephen. Stephen fraudulently changes the $500 to $5000. Under these circumstances, Brian is discharged from his liability as maker of note because:

A. Brian has not forged the signature.

 

B. the instrument is not negotiable.

 

C. the amount for which he was liable was altered.

 

D. Stephen is insolvent.

 

55. Joan carefully completes and signs a $1000 note payable to Pete. Pete skillfully changes the amount of the note to $10,000, and negotiates it to Hilda for that amount. Hilda qualifies as a holder in due course. When Hilda presents the altered note to Joan for payment, Joan refuses to pay a penny more than $1000. Which of the following is true?

A. Joan is not liable to Hilda.

 

B. Joan is liable to Hilda for $1,000.

 

C. Joan is liable to Hilda for $10,000.

 

D. Joan’s liability to Hilda will be determined by the relative negligence of Joan and Hilda.

 

 

 

 

 

 

 

 

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