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Business Law

Exam Instructions: There are sixty questions on this exam and five extra credit questions. You
have seventy minutes to complete it. This exam will make up forty-five percent of your overall
grad. In the True/False section indicate whether the sentence or statement is true (A) or false
(B). In the multiple choice section identify the letter of the choice that best completes the
statement or answers the question. Each question is worth .75.

Notes: I will update the grade sheet to include your score by 10:00 p.m. Pacific Time on May
30th. If you have been identified as a student being considered for a grade increase, your final
grade will be available on Web Smart by May 28, 2007

____ 1. The rights under a contract for personal service normally can be assigned.
____ 2. An intended beneficiary can sue directly to enforce a promisor's promise.
____ 3. A donee beneficiary can never sue to enforce the promise of a promisor.
____ 4. The vesting of contractual rights in a third party will always prevent the original parties to the contract from
modifying it.
____ 5. If a contract does not require that performance be rendered directly to a third party, the third party will be
considered an intended beneficiary.
____ 6. Conditions precedent are more common than conditions subsequent.
____ 7. Concurrent conditions occur only when the parties to a contract are required to perform their respective duties
____ 8. A contract that involves mechanical fitness is a contract in which performance must personally satisfy the
party to whom performance is owed.
____ 9. A remedy is the means employed to enforce a right or to redress an injury.
____ 10. A party seeking to recover compensatory damages may also be entitled to recover incidental damages.
____ 11. A person's actions may cause a breach of contract or a tort, but not both.
____ 12. A breach of contract may entitle the innocent party to rescind the contract.
____ 13. Recovery under quasi contract may be used when one party partially performs under a contract that is
____ 14. Bankruptcy law has one goal-to ensure equitable treatment to creditors who are competing for a debtor's
____ 15. Bankruptcy proceedings are held in federal bankruptcy courts.
____ 16. In a sole proprietorship, the owner takes all of the profits.
____ 17. A sole proprietorship is a separate legal entity for tax purposes.
____ 18. Franchisees ordinarily pay no fee for a franchise license.
____ 19. Under no circumstances may a franchisor establish an additional franchise in a territory allotted to a
____ 20. In some circumstances, a franchisor may be liable for the act of a franchisee's employee.
____ 21. Each partner has the right to sell partnership property as if he or she was the exclusive owner.
____ 22. A partner cannot "wrongfully" dissociate from a partnership.
____ 23. A partnership dissolves when a partner ceases to be associated with the carrying on of partnership business.
____ 24. In a limited partnership, the liability of a limited partner is limited to the amount of capital he or she has
invested in the partnership.
____ 25. Express powers of a corporation can be found in the law of the state of incorporation.
____ 26. In some states, a close corporation can operate without formal directors' meetings.
____ 27. To a corporation, bonds represent ownership.
____ 28. The holder of a life estate does not have the right to mortgage the property.
____ 29. A quitclaim deed warrants more than any other deed.
____ 30. When a landlord sells leased premises to a third party, any existing leases terminate automatically.

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

____ 31. Ann and Burt sign a contract in which Ann agrees to paint Burt's house for $2,000. They agree later that Burt
will pay Ann's supplier, City Paint Store, the $2,000 directly. City Paint Store is
a. a delegatee.
b. an assignee.

c. an incidental beneficiary.

d. an intended beneficiary.

____ 32. A contract between Lee and Mary may not be assigned if it
a. does not expressly permit assignment.

b. involves a sale of goods.

c. involves personal services.

d. is oral.

____ 33. Fred and Gail enter into a contract by which Fred promises to deliver fertilizer to Gail. Fred subsequently
delegates this duty to Holly. Fred is
a. the delegatee and the obligee.

b. the delegatee but not the obligee.

c. the delegator and the obligor.

d. the delegator but not the obligor.

____ 34. Ace Finance Company is a creditor beneficiary in a deal that involves Brad and Carol. Ace, like most creditor
beneficiaries, is
a. a donee beneficiary.

b. an incidental beneficiary.
c. an intended beneficiary.

d. none of the above.

____ 35. Lois takes out a life insurance policy that names her son, Matt, as the beneficiary. This is
a. a delegation.

b. an assignment.

c. a third party incidental beneficiary contract.

d. a third party intended beneficiary contract.

____ 36. Fred and Ed sign a contract by which Fred agrees to deliver a washing machine on July 31 in exchange for
Ed's promise to pay the $500 purchase price on July 31. The delivery of the washing machine and the
payment of $500 are examples of
a. conditions precedent.

b. concurrent conditions.

c. conditions subsequent.

d. illegal conditions.

____ 37. Protective Finishes, Inc. (PFI), agrees to paint Quinn's house, using a particular brand of "discount" paint. PFI
completes the job but uses a different brand of discounted paint. This is most likely
a. a complete excuse for Quinn's refusal to pay.

b. a material breach.

c. complete performance.

d. substantial performance.

____ 38. AAA Autos contracts to sell a customized car to Barb. AAA installs a slightly used engine in the car, arguing
that a new engine would be too costly. Barb sues AAA. The court will most likely rule in favor of
a. AAA, because a used engine is the same quality as a new engine.

b. AAA, if the difference between the used and new engines is trivial.

c. Barb, because the engine is not precisely what Barb wanted.

d. Barb, if there is any difference between the used and new engines.

____ 39. Digital Data Company and E-Services, Inc., enter into a contract. A material breach of their contract will
a. if a party's performance is complete, but not substantial.

b. if a party's performance is substantial, but not complete.

c. if a party's performance is neither complete nor substantial.

d. only if a party completely fails to perform.

____ 40. Jean contracts to sell her car to Kyla for $2,000. Before performing, Jean and Kyla decide to cancel the deal.
This is an example of
a. a material breach.

b. an anticipatory repudiation.

c. a novation.

d. a rescission.

____ 41. Jane and Kelly want Lucy to replace Kelly as a party to their contract. They can best accomplish this by
a. accord and satisfaction.

b. novation.

c. reinvention.

d. specific performance.

____ 42. Luke is a farmer. When bad weather destroys Luke's crop, his obligation to deliver that crop under an
outstanding contract with Macro Food Corporation is
a. discharged.

b. enforced completely.

c. enforced only to the extent of finding an alternative supply.

d. enforced only to the extent of transferring to the next year's crop.

____ 43. Carol pays Dick $10,000 for Dick to design an advertising campaign for Carol's health club. The next day,
Dick tells Carol that he has accepted a job in New York and cannot design the campaign. Carol files a suit
against Dick. As compensatory damages, Carol can recover
a. $100,000.

b. $10,000.

c. $1,000.

d. $0.

____ 44. Development Associates (DA) agrees to buy five acres of land from Eastside Properties for $15,000. Eastside
fails to go through with the deal on the agreed date, when the market price of the land is $17,000. DA may
a. $17,000.

b. $15,000.

c. $2,000.

d. $0.

____ 45. Ace Contractors, Inc., agrees to build a motel for Best Motels Corporation. The project proceeds according to
plan, but before it is done, Best tells Ace to quit. Ace may recover
a. the contract price less costs of materials and labor.

b. the contract price.

c. the costs needed to complete construction.

d. profits plus the costs incurred up to the time of the breach.

____ 46. Ron breaches his lease with Sunny Properties and vacates the premises six months before the end of the term.
In some states, the landlord would have to
a. avoid reletting the premises to recover any damages from Ron.

b. make reasonable efforts to relet the premises to mitigate the damages recoverable from

c. relet the premises to recover any damages from Ron.

d. sell the premises to recover any damages from Ron.

____ 47. Alan contracts for the sale of an ancient vase, a Renaissance painting, and a modern mansion to Beth. Alan
breaches the contract. Beth files a suit against Alan. The court will most likely award specific performance for
a. the mansion only.

b. the painting and the vase only.

c. the painting or the vase only, but not both.

d. the mansion, the painting, and the vase.

____ 48. A petition for a discharge in bankruptcy under Chapter 7 may be filed by
a. First Savings & Loan Association, a corporation.

b. Holly, an investment adviser.

c. Interstate Insurance Company, a corporation.

d. Regional Employees Credit Union, a corporation.

____ 49. Jack files a bankruptcy petition under Chapter 7. Among his debts are support owed to his ex-wife Kay,
money borrowed from Loans, Inc., to pay taxes, and amounts representing student loans owed to Mega
University. Debts most likely to be discharged include claims for
a. back taxes accruing within three years before a bankruptcy filing.

b. certain fines and penalties payable to the government.

c. domestic support.

d. student loans if their payment imposes undue hardship on the debtor.

____ 50. Carl sells Direct Marketing Enterprises, a sole proprietorship, to Eve. This is a transfer of
a. a license.

b. a trade name.
c. the formula to make a product.

d. the ownership of the business.

____ 51. Consumer Stuff Company conducts a chain-style franchise. This involves the transfer to Dina, one of its
franchisees, of
a. a license.

b. a trade name.

c. the formula to make a product.

d. the ownership of the business.

____ 52. Jill invests in a franchise with Kandy Shops Corporation. With respect to a franchise, a franchisee may have
legal protection under
a. federal and state law.

b. federal law only.

c. neither federal nor state law.

d. state law only.

____ 53. Roy invests in a franchise with Super Soups, Inc. Their agreement may require Roy to pay a percentage of
a. administrative and advertising expenses.

b. administrative expenses only.

c. advertising expenses only.

d. neither administrative nor advertising expenses.

____ 54. Jack buys a Kitchens, Inc., franchise, which the franchisor later terminates. In determining whether the
termination was proper, a court will generally
a. balance the rights of both parties.

b. emphasize the right of Kitchens, Inc., to its normal business operation.

c. focus on the right of Jack to be dealt with fairly.

d. underscore the interest of consumers in affordable goods and services.

____ 55. Jill and Kelly are architects and members of Jill & Kelly, P.C., a professional corporation. Jill supervises
Lucy, an employee of the firm. As a member, Jill
a. is personally liable for any tort committed by Kelly.

b. has limited liability for any of Kelly's acts of malpractice.

c. has no liability for any torts committed by Kelly or Lucy.

d. may be personally liable for malpractice committed by Lucy.

____ 56. Beth and Cody want to form a corporation to market MP3 players and products. The first step in the
incorporation procedure is to
a. file the articles of incorporation.

b. hold the first organizational meeting.

c. obtain a corporate charter.

d. select a state in which to incorporate.

Fact Pattern 48-1

Holly owns land in Iowa. Her ownership rights include the right to sell or give away the property without
restriction, and the right to commit waste, if she chooses.

____ 57. Refer to Fact Pattern 48-1. Holly conveys some of her land to Jake with the right to possess and use the
property for a certain period of time. Holly has given Jake
a. a fee simple absolute.

b. a leasehold estate.

c. a life estate.

d. an easement.

____ 58. Regional Construction Company has a right to drive its trucks across Standard Business Corporation's
property, which is adjacent to Regional's office. This right is
a. a leasehold estate.

b. a license.

c. an easement.

d. a profit.

____ 59. Gail has the right to drive across Harry's land, which is next to Gail's property, to reach an access road. Gail's
right is
a. an easement appurtenant.

b. an easement in gross.

c. a profit appurtenant.

d. a profit in gross.

Fact Pattern 48-2

Jay owns two adjacent buildings, leased to Kelly and Leo, respectively. A driveway between the buildings
leads to a parking lot in the back. Jay sells Kelly's leased building to Kelly, under an agreement to transfer an
easement in the driveway. The agreement does not use the word "permanent." Leo buys Leo's leased building,
which includes title to the driveway.

____ 60. Refer to Fact Pattern 48-2. As the court held in Case 48.1, Webster v. Ragona, Kelly has in the driveway
a. an easement appurtenant.

b. no easement, because Jay and Kelly's agreement did not say that the easement was

c. no easement, because Leo has title to the driveway.

d. no easement, because Leo's purchase extinguished it.

____ 61. Extra Credit Section

Jack makes a will. As a person who makes a will, Jack is
a. an administrator.

b. an executor.

c. a settlor.

d. a testator.

____ 62. Patty makes a gift of real estate in her will to Quinn. This gift is
a. a bequest.

b. a devise.

c. a legacy.

d. an abatement.

____ 63. According to Lou's will, specific gifts are made, and taxes and other estate expenses and debts are paid. The
assets of Lou's estate that remain are
a. a lapsed legacy.

b. a general bequest.

c. an abatement.

d. the residuum.

____ 64. In her will, Sara makes a gift of "my pearl necklace" to Tina. This is
a. a general bequest.

b. a general devise.

c. a specific bequest.

d. a specific devise.

____ 65. Gina's assets are insufficient to pay in full all of the bequests provided for in her will. In this situation,
a. an abatement occurs, by which the legatees received reduced benefits.

b. each beneficiary, in the order in which he or she is named in the will, is paid in full until
the assets are depleted, and the others get nothing.
c. the assets are distributed under intestacy laws.

d. the assets are sold and the proceeds distributed per capita.
Business Law 201 Spring 2007 Makeup Final Professor Steven Isler, Spring 2007
Answer Section


1. ANS: F
2. ANS: T
3. ANS: F
4. ANS: F
5. ANS: F
6. ANS: T
7. ANS: T
8. ANS: F
9. ANS: T
10. ANS: T
11. ANS: F
12. ANS: T
13. ANS: T
14. ANS: F
15. ANS: T
16. ANS: T
17. ANS: F
18. ANS: F
19. ANS: F
20. ANS: T
21. ANS: F
22. ANS: F
23. ANS: F
24. ANS: T
25. ANS: T
26. ANS: T
27. ANS: F
28. ANS: F
29. ANS: F
30. ANS: F


31. ANS: B
32. ANS: C
33. ANS: C
34. ANS: C
35. ANS: D
36. ANS: B
37. ANS: D
38. ANS: B
39. ANS: C
40. ANS: D
41. ANS: B
42. ANS: A
43. ANS: B
44. ANS: C
45. ANS: D
46. ANS: B
47. ANS: D
48. ANS: B
49. ANS: D
50. ANS: D
51. ANS: B
52. ANS: A
53. ANS: A
54. ANS: A
55. ANS: D
56. ANS: D
57. ANS: B
58. ANS: C
59. ANS: A
60. ANS: A
61. ANS: D
62. ANS: B
63. ANS: D
64. ANS: C
65. ANS: A