Business Law CRFF MCQ

Question 1

An agency coupled with an interest

Answer 1

occurs only when the agent has been granted a lien or security interest in property.

An agreement to pay a commission does not involve such a property interest.

Depending upon the entire circumstances, may retain the power to terminate the agency at any time.

Question 2

An agency contract must be in writing if

Answer 2

the agent is empowered to buy, sell or lease real estate, or

the agency, by the terms of the agreement, is to last for more than one year from the date of the agency agreement.

“Employed more than one year” does not indicate that the terms of the original agreement was for more than one year.

“Involves real estate” does not specify buying, selling, or leasing.

Question 3

The termination of an employee

Answer 3

ends the employee’s express actual authority to bind the corporation,

the fired employee may have a residual of apparent authority to bind the corporation.

firing does not create apparent authority.

Question 4

illegality of the purpose of the agency

Answer 4

immediately terminates the agent’s authority to act for the principal

Question 5

A principal is liable for negligent acts of its agents as long as

Answer 5

the negligence was committed while the agent was acting in furtherance of company business

even if the agent failed to obey instructions from the principal that would have prevented the injury, and

even if the principal itself was not negligent

Question 6

The injured party can hold the principal and the agent liable, but

Answer 6

is only entitled to one recovery.

Question 7

When an agent’s express authority to act for a principal is terminated (e.g., when an employee is fired), there may remain a residual of apparent authority whereby

Answer 7

the agent can still bind the principal to contracts with third parties who lack notice of the termination

Question 8

to terminate residual authority, a principal must

Answer 8

notify all the agent’s known customers (“actual notice”) and

publish the termination in appropriate trade journals (“constructive notice”)

Question 9

if principal’s identity and existence is undisclosed –

Answer 9

agents still have actual authority when principal expressly granted them authority to act

principal can still be held liable once the existence of the agency relationships are disclosed

if an agent causes injury through negligence, principal can be held liable–disclosure is irrelevant with regard to negligence claims

Question 10

A principal has certain duties to its agents including

Answer 10

a duty to act in good faith, duties of compensation and reimbursement for expenses, a duty not to interfere with the agent’s activities, and a duty to indemnify agents for damages when the agent is acting at the principal’s direction

Question 11

An agent has a duty

Answer 11

to put the interest of her principal ahead of her own self interest.

Question 12

An oral contract for the sale of goods

Answer 12

in excess of $500 is only enforceable to the extent that goods are “received and accepted.”

The fact that a third party denied or accepted delivery is irrelevant since not a party to the contract.

Question 13

exception to the general rule that a sale of goods for $500 or more must be supported by a signed writing to be enforceable

Answer 13

specially manufactured goods.

Question 14

A contract that cannot be performed within one year,

Answer 14

must be in writing to be enforceable.

Question 15

a certain degree of actual authority in combination with apparent authority

Answer 15

is sufficient to bind a contract

apparent authority may arise by virtue of his title

Question 16

Power of attorney

Answer 16

grants a party to act with the authority of grantor.

no authority to act for grantor upon death which causes the agreement to be immediately terminated.

not required to be an attorney, but must have capacity to act

may limit or restrict power of attorney to specific transaction(s)

only grantor signature is required

Question 17

general power of attorney

Answer 17

allows recipient to act for grantor in all matters

often granted when the grantor lacks capacity, due to age or illness.

Question 18

independent contractor

Answer 18

not an employee or agent

lack of direct supervision
provision of her own tools and supplies,
paid by the job, rather than a wage or salary from ABC.

Contractors are not typically considered agents, (exception = legal representation)

not liable for IC torts in performing job UNLESS negligent in in hiring or hired to perform an inherently dangerous task (demolition involving explosives)

Construction work in general is not considered an inherently dangerous task.

Question 19

not required to be of majority age to appoint an agent,

Answer 19

unless specific legal capacity is required

but minor could disaffirm the agreement

Question 20

agent is not required to be of majority age

Answer 20

to bind a principal

may use minority as defense against a contract

Question 21

if principal lacks capacity at any point during the agency relationship,

Answer 21

it is terminated

Question 22

An offeree who purports to “accept” an offer after the offer has been withdrawn

An offeree who purports to “accept” an offer, but changes one of the terms or adds a new term

Answer 22

is, in effect, making a new offer or counteroffer.

Question 23

committing a minor breach of contract,

Answer 23

substantially performed
entitled to recover under the contract

entitled to the final payment, less damages

The fact that damages may be difficult to calculate does not affect the underlying rights of the parties.

Question 24

An agreement to refrain from doing something that a person otherwise has the right to do (e.g., smoking)

Answer 24

is valid consideration for a contract (referred to as “legal detriment”).

Question 25

Previous activity performed for another prior to any agreement

Answer 25

would be past consideration, which is not valid consideration.

Question 26

solemn vow to keep in touch with another in the coming years is

Answer 26

in the nature of “love and affection” which is not valid consideration.

Question 27

agreement which includes a yet unmet requirement of one party in order to perform

Answer 27

is not a legal agreement

Question 28

courts generally do not weigh

Answer 28

consideration to ensure the two are equivalent Sometimes gross disparity between consideration paid and consideration received, is evidence of possible fraud or duress.

Question 29

parol evidence rule

Answer 29

keeps from evidence any prior or contemporaneous statements which add to, modify, or vary a complete final written agreement outside oral or written statements made prior to or contemporaneous with the written agreement can be admitted: 1. as evidence of fraud, duress etc. or 2. to explain an ambiguous term

Question 30

“pre-existing duty rule.”

Answer 30

pre-existing duty of a public official pre-existing contractual duty - once a valid contract exists, (unless it involves the sale of goods/UCC rules) modifications are not binding unless both parties receive new or additional consideration

Question 31

contract that cannot be performed within one year from its execution

Answer 31

must be supported by a signed writing | under the statute of frauds.

Question 32

can be inferred in an otherwise valid offer

Answer 32

price, subject matter, time for performance and, sometimes, even the parties

Question 33

cannot be inferred in an otherwise valid offer

Answer 33

quantity must be stated enforceable only to the extent of the stated quantity

Question 34

once an offer is unconditionally accepted

Answer 34

a contract is formed

Question 35

insertion of a new condition into an “acceptance”

Answer 35

constitutes a counter-offer effect of a counter offer: once made, the original offer is no longer in effect and cannot be accepted

Question 36

If a party to a contract dies,

Answer 36

s/he is not released from the contract. His/her estate will either be entitled to recovery (if the contract has been substantially performed) or will be liable for breach.

Question 37

offeror dies

Answer 37

If offer has not been accepted, | death terminates the offer.

Question 38

Liquidated damages are permitted in breach of contract cases if

Answer 38

1. reasonable in amount and | 2. calculation of actual damages would be difficult

Question 39

Article 2 of the Uniform Commercial Code

Answer 39

governs contracts for the sale of goods

Question 40

Contracts which involve the commission of a crime

Answer 40

are illegal and void.

Question 41

A minor may void a contract at any time, but if the contract was for necessaries (food, shelter, tools of the trade, employment agency fees) must

Answer 41

pay reasonable value for what was received

Question 42

Death does not excuse a party from a contractual obligation other than

Answer 42

for personal services. | death of offeror terminates the OFFER

Question 43

material misrepresentation by P1 to P2 in contract

Answer 43

P2 and heirs are excused from performance does not excuse P1, (K is enforceable by one party but not the other)

Question 44

A modification of an existing contract must be supported by new consideration unless

Answer 44

the contract is for the sale of goods, in which case good faith is the main requirement

Question 45

An offer can terminate due to

Answer 45

lapse of time, a counteroffer by the offeree, rejection by the offeree, withdrawl of the offer before acceptance, or death of the offeror PRIOR to acceptance.

Question 46

An offer can be withdrawn any time prior to acceptance unless

Answer 46

the offer is supported by consideration

Question 47

breach of contract issues if two parties

Answer 47

accepted the separate offers,

Question 48

telephone acceptance does not constitute acceptance if

Answer 48

this is not in the same form as the original offer

Question 49

right to withdraw offer prior to

Answer 49

acceptance

Question 50

three day right of rescission involves

Answer 50

consumer transactions only

Question 51

unilateral offer

Answer 51

accept by performance. refusal to pay upon performance is breach of contract

Question 52

Advertisements are generally not considered offers because

Answer 52

advertiser does not have the requisite intent to make an offer.

Question 53

Specific, limited advertisements may be offers.

Answer 53

advertisement that offers something to the “first to respond” may be deemed an offer.

Question 54

an oral contract for transfer of real estate

Answer 54

would not be binding on the parties

Question 55

enforceable option

Answer 55

promise in exchange for a promise is valid consideration to support an option contract

Question 56

"Fully integrated”

Answer 56

contract is intended as a complete statement of everything the parties agreed upon tip-off to Parol Evidence Rule

Question 57

Statute of Frauds

Answer 57

requires that contracts which cannot, by their terms, be performed within one year, must be in writing and signed in order to be enforceable.

Question 58

The UCC requires contracts for sales of goods above $500

Answer 58

to be in writing

Question 59

If a party to a contract omits material information of which s/he is aware at the time the contract was entered into,

Answer 59

the other party can aviod the contract on the ground of misrepresentation. parol evidence rule does not exclude evidence of misrepresentations or fraud

Question 60

Cancellation of a contract due to misrepresentation or breach of contract is subject to time limits

Answer 60

statute of limitations

Question 61

C's assignment of A's debt to B

Answer 61

A not bound until notice of it B has immediate rights against A A need not consent to assignment for it to be valid

Question 62

incidental beneficiary

Answer 62

not a party to the contract and cannot enforce it

Question 63

To qualify as a donee beneficiary,

Answer 63

the main purpose of the contract must be to bestow a gift to the third party.

Question 64

To qualify as a creditor beneficiary,

Answer 64

the purpose of the contract must be to pay an obligation which was owed to the third party.

Question 65

An assignee has the benefits of the contract

Answer 65

assigned to him/her.

Question 66

If a contract does not involve unique personal services,

Answer 66

the obligor can assign his obligation to another party to perform. does not excuse from duty to perform if assignee fully performs, recipient must pay agreed upon price

Question 67

Proof of undue influence,

Answer 67

requires evidence of the existence of a trust relationship (father) and an abuse of that trust (excessive fees)

Question 68

Proof of duress

Answer 68

requires evidence of physical coercion

Question 69

An offer of a reward

Answer 69

is a unilateral offer which means that it can only be accepted by performance. an offer cannot be accepted if the performing party is unaware of the offer A unilateral offer can be withdrawn before acceptance in most instances.

Question 70

unilateral mistake

Answer 70

renders a contract voidable by the innocent party, but not automatically void if one of the parties to a contract acts under a mistaken belief, the mistaken party cannot avoid the contract unless the other party knew, or had reason to know of the mistake

Question 71

A contract which must be in writing to be enforceable can be enforceable against one of the parties and not the other if

Answer 71

only one party signs the contract.

Question 72

A contract which involves a transfer of real estate must

Answer 72

be in writing to be enforceable, if it is not in writing it is simply unenforceable (rather than void).

Question 73

If one of the parties to a contract is a minor,

Answer 73

only the minor can void the contract.

Question 74

If suit is not filed within the time set by a statute of limitations, an otherwise valid contract is

Answer 74

unenforceable, but not void or invalid.

Question 75

A contract entered into by a minor is voidable

Answer 75

only by the minor.

Question 76

Material breach of contract by one party

Answer 76

excuses all duty of performance by the other party, but minor breach does not.

Question 77

Validity of a contract is affected when

Answer 77

one of the elements of a contract (offer, acceptance, consideration, legality, capacity, mutuality) is lacking

Question 78

void contract.

Answer 78

absence of an offer, acceptance or consideration, or the illegality of the contract’’s purpose

Question 79

voidable contract

Answer 79

if one of the parties lacks capacity, K is voidable by that party

Question 80

lack of mutuality

Answer 80

misrepresentation or a unilateral mistake contract is voidable by the innocent party

Question 81

mutual mistake

Answer 81

(lack of mutuality) either party may void the contract

Question 82

enforceability rather than the validity

Answer 82

sale of real estate orally agreed/signed by only one party statute of limitations material breach of contract.

Question 83

An offer may specify the terms under which it can be accepted.

Answer 83

Offeror can modify the mailbox rule. Acceptor may be bound to the contract even though offeror is not. Where all the elements of a valid contract exist, it may be enforceable against one party even though it is unenforceable against the other.

Question 84

Once acceptance occurs the buyer must

Answer 84

pay the contract price for any goods accepted. had reasonable opportunity to inspect

Question 85

anticipatory repudiation

Answer 85

breach of the contract any statement by a party to a contract of an unwillingness or inability to perform the contract entitles nonbreaching party to file suit immediately or demand adequate assurance of performance

Question 86

Under Article 2 of the UCC, regarding alteration of the statute of limitations

Answer 86

parties to a contract for the sale of goods (other than consumer contracts) can decrease the statute of limitations to not less than one year, but cannot extend it.

Question 87

exculpatory clause

Answer 87

one of the parties is exonerated (held harmless) for his/her own negligence generally unenforceable in consumer contracts, but permitted between businesses

Question 88

bilateral contract

Answer 88

a promise is given in exchange for a promise most common type of contract.

Question 89

necessary elements of a check

Answer 89

drawn on a bank, payable on demand, and payable in money only

Question 90

drawer

Answer 90

issues the check (bank) assumes secondary liability With a typical check, there is no party who is primarily liable.

Question 91

drawee

Answer 91

bank expected to pay, takes on no liability (unless it “accepts”/signs the check)

Question 92

fictitious payee rule

Answer 92

party in best position to detect the fraud bears the loss Therefore, fictitious endorsement is effective to negotiate an instrument notwithstanding the general rule that no party can become a holder unless the instrument is properly endorsed.

Question 93

An incomplete instrument

Answer 93

may be enforced according to the terms which are completed, can qualify as a negotiable instrument words or numbers added to an incomplete instrument without authority of the signer, deemed an alteration burden of establishing that words or numbers were added to an incomplete instrument without authority of the signer is on the person asserting lack of authority

Question 94

Promissory note | UCC Code/negotiable instruments

Answer 94

maker is the drawer certificate of deposit is, in effect, a promissory note of a bank

Question 95

Cashier's check | UCC Code/negotiable instruments

Answer 95

CC - drawer and drawee are the same bank/branches of same bank

Question 96

Traveler's check | UCC Code/negotiable instruments

Answer 96

instrument that is drawn on or payable at or through a bank, payable on demand, and requires, as a condition to payment, a countersignature by a person whose specimen signature appears on the instrument

Question 97

"holder through a holder in due course"

Answer 97

asserts other's right as a holder in due course does not qualify as a holder in due course if knew, prior to acquiring the instrument, that it had been dishonored if has not signed nor transferred the instrument, has no liability thereon drawee signed as acceptor - primary liability drawer - secondary

Question 98

blank, nonrestrictive, qualified endorsement

Answer 98

Without Recourse /S/

Question 99

An endorser

Answer 99

secondary liability - instrument is dishonored, will pay it makes certain warranties (transferor's warranties): signatures are genuine and authorized, instrument not materially altered does not promise to pay the instrument on demand unless it's a demand instrument

Question 100

actually signed the note (as maker)

Answer 100

primarily liable

Question 101

warranty liability

Answer 101

warrants that all material signatures were genuine even if cancels secondary liability on the instrument (endorses "without recourse")

Question 102

two types of contractual liability that a signer of an instrument can undertake:

Answer 102

primary liability or secondary liability

Question 103

Makers and acceptors

Answer 103

take on primary liability.

Question 104

Drawers and endorsers

Answer 104

take on secondary liability.

Question 105

Drawees take on no liability on the instrument unless

Answer 105

they sign (typically in the capacity of "acceptor") A drawee bank does have contractual and statutory duties to its customers.

Question 106

antedated or postdated

Answer 106

allowable

Question 107

The date stated

Answer 107

determines the time of payment if the instrument is payable at a fixed period after date.

Question 108

If an instrument is undated,

Answer 108

its date is the date of its issue or, for unissued instrument, the date it first comes into possession of a holder

Question 109

holder in due course

Answer 109

takes an instrument free and clear of any underlying defenses (i.e., defenses which arise from the transaction which produced the instrument).

Question 110

A holder in due course is subject to "real" defenses,

Answer 110

duress, bankruptcy, and infancy. prior bankruptcy (filed by endorser, maker, etc. before signing) is not a defense

Question 111

payee who is party to the contract underlying the note

Answer 111

would have knowledge of defenses to payment of the obligation cannot be a holder in due course, nor obtain the rights of a holder in due course if s/he, as a previous holder, was aware of underlying defenses.

Question 112

An oral stop order

Answer 112

valid for 14 days;

Question 113

a written stop order

Answer 113

is valid for six months. A stop payment order which has been confirmed in writing may then be renewed every six months. Thereafter, the check would be stale and should not be honored.

Question 114

A holder in due course would have no right to demand payment from bank since

Answer 114

bank is merely a drawee and is only obligated to its customer, drawee, is secondarily liable (not primarily liable) on the check.

Question 115

if stop order check passes through a holder in due course,

Answer 115

Bank succeeds to those rights and could cash the check, without liability to drawee in spite of the stop order

Question 116

The burden of establishing a loss resulting from payment of an item contrary to a stop payment order

Answer 116

is on the customer

Question 117

once a bank has certified a check

Answer 117

no right to stop payment

Question 118

rights acquired by due negotiation include:

Answer 118

(1) title to the document; (2) title to the goods; and (3) the direct obligation of the issuer to hold or deliver the goods according to the terms of the document free of any defense or claim by the issuer

Question 119

holder in due course of a negotiable instrument

Answer 119

takes free and clear of underlying defenses, but has no greater right to demand payment in the face of a stop payment order.

Question 120

If one signs an instrument with an "unqualified endorsement,"

Answer 120

endorser remains secondarily liable. if the issuer fails to pay, the endorser can be called upon to pay

Question 121

issuer of an instrument

Answer 121

is liable for the original amount of the instrument. liability cannot be changed by later alteration, even if the instrument is in the hands of a holder in due course

Question 122

A check is

Answer 122

an order to a bank to make cash payment of the amount specified. It is not a promise to pay by the drawer nor are their specified actions required for payment.

Question 123

In order for a financial instrument to be negotiable, it must be

Answer 123

written, signed by the maker, contain in it an unconditional promise to pay a stated amount, be payable on demand OR at a specific time, and be payable either to bearer OR to order.

Question 124

UCC Regulation E

Answer 124

applies to consumer electronic fund transfers (EFTs) $500 debit card loss limitation does not apply after sixty days have passed from the time at which unauthorized charges appeared on the consumer's bank statement.

Question 125

UCC Article 4A

Answer 125

applies to commercial EFTs. bank has the burden of recovery when it makes an error in a commercial EFT

Question 126

Oral revocation or discharge of an endorsement

Answer 126

will not discharge any parties from liability on a negotiable instrument

Question 127

Intentional destruction by the holder

Answer 127

discharges all parties primarily and secondarily liable.

Question 128

The holder's cancellation of an endorsement in writing

Answer 128

will discharge that party from liability.

Question 129

When the primary party makes payment,

Answer 129

all other parties are discharged

Question 130

To be valid, a will

Answer 130

must be witnessed by two (or three) persons who can verify that the testator signed the will and that the testator had capacity.

Question 131

holographic will

Answer 131

a will that is entirely in the handwriting of the testator which must state the testator'’s intention and be signed to be valid (an exception to meeting general witness requirements)

Question 132

A Real Estate Investment Trust (REIT)

Answer 132

entity that receives special tax considerations by virtue of being required to distribute to its owners most of its income each year may be listed on public stock exchanges and its shares traded

Question 133

spendthrift trust

Answer 133

prohibits the beneficiary from invading the principal of the trust.

Question 134

cy pres doctrine

Answer 134

operates to save a trust which has been established for charitable purposes, but might otherwise fail due to the beneficiary no longer being in existence.

Question 135

inter vivos trust

Answer 135

comes into existence during the life of its creator neither a will nor testamentary intent is required

Question 136

There are five requirements for a valid trust:

Answer 136

``` Grantor/settlor, intent, trust res (trust property), separate beneficiaries, and a lawful purpose ```

Question 137

Disbursements relating to real estate special assessments are treated as

Answer 137

reductions to principal

Question 138

When a purchaser of real estate assumes a loan,

Answer 138

S/he promises to make timely payments on the loan and is liable. The original borrower (and any others who have assumed the loan) remain liable as well.

Question 139

A “pure race jurisdiction”

Answer 139

a state which gives priority to the first to record, regardless whether they were aware of unrecorded claims.

Question 140

recordation is only required to

Answer 140

protect against bona fide purchasers (or lenders) for value

Question 141

An heir gives no value, so

Answer 141

takes subject to recorded and unrecorded mortgages.

Question 142

purchases “subject to” the existing mortgage,

Answer 142

no promise to pay the mortgage

Question 143

promise to pay the mortgage

Answer 143

assumes the mortgage (dual liability) or | enters into a novation (new, single liability)

Question 144

general warranty deed

Answer 144

gives grantee the highest degree of warranty protection grantor warrants 1. that s/he is the true owner; 2. there are no liens or claims to the property other than those disclosed in the deed; 3. the grantee shall have quiet enjoyment of the property; and, 4. the grantor will defend title. There is no guaranty against a governmental entity pursuing a claim of eminent domain at a later date.

Question 145

race-notice jurisdiction

Answer 145

party who is first to record will prevail against all other claims except those of which he was aware at the time of recording

Question 146

prescriptive easement

Answer 146

open, continuous and adverse, and must continue for the statutory period. Tacking (e.g., one continuing use immediately after another) is permissible. one passes over the property of another continuously and openly for a period designated by statute - usually 15 years. After continuous use for the statutory period, the adverse user obtains an easement to continue such use and this easement arises without the filing of a deed or of any instrument of record.

Question 147

deeded easement

Answer 147

(easement by agreement) a deed creating an easement

Question 148

easement by necessity

Answer 148

necessity to access

Question 149

property owned as tenants by the entirety,

Answer 149

one tenant cannot convey by will or deed a judgment against one tenant has no effect unless and until the other tenant dies. Then the property automatically passed to the other and a judgment against them now attaches

Question 150

tenants in common

Answer 150

no survivorship rights. when one co-owner dies, his/her share passes to his/her heirs (rather than to the remaining co-owners) each co-owner may transfer his/her interest to a third party without the co-owners joining in or consenting to the transfer

Question 151

"ambulatory"

Answer 151

has no force or effect until the testator dies. change will at any time as long as s/he retains testamentary capacity

Question 152

A deed must only be signed by

Answer 152

the grantor in order to be valid validity is not dependent on recordation A minor may execute a valid deed even though s/he may lack the capacity to enter into a contract.

Question 153

In the case of a deed of gift,

Answer 153

no consideration is required.

Question 154

A gift causa mortis

Answer 154

a conditional gift made in contemplation of death It is automatically revoked if the donor does not die of the impending illness or crisis. Such gifts can only be made when the donor is in a terminal condition.f

Question 155

Utility and plant patent

Answer 155

last for 20 years

Question 156

design patent

Answer 156

valid for 14 years

Question 157

trademark

Answer 157

must be renewed periodically but that process can go on indefinitely.

Question 158

If owned by the author, a copyright is for

Answer 158

the life of the author plus 70 years.

Question 159

A copyright owned by a publishing house

Answer 159

has a 95 year life (from the publication date) or 120 years from the creation date whichever expires first.