Business and Commercial Law

Final Exam Spring 04

The following final exam contains 110 questions.  The questions in Part I (47) pertain to new material.  The questions in Part II (63) are from the 2 exams you took earlier in the semester. All questions are equally weighted and worth 1.81 point each for a total of 200 points. 

Part 1 – Negotiable Instruments, Secured Transactions and Bankruptcy

All questions in Part I are multiple choice. Identify the letter of the choice that best completes the statement or answers the question.

A college student, Mr. Hughes, wanted to buy a new Gibson guitar from School House Music on Route 11.   Because he did not have the cash to pay for it, he offered to sign a document promising to pay $150 per month for the next 9 months.  The owner of School House Music needed to make the sale, so he agreed to accept the document which read, “I, Steven Hughes, promise to pay School House Music or its order the sum of $150 per month for the next 9 months, with interest.”  The note was signed by Mr. Hughes.  About a week later, School House Music was badly in need of cash, signed the back of the document and sold it to First Columbia Bank of Bloomsburg.  Questions 1-4 are based on these facts. 

1.The document is a

a. check

b. draft

c. negotiable promissory note

d. nonnegotiable promissory note

e. trade acceptance

2.  The document is non negotiable because it is undated. True or False

3. First Columbia Bank of Bloomsburg is

a. a holder

b. a holder in due course

c. a maker

d. a drawer

e. both a and b are correct.

4.  The document is nonnegotiable because it contains the words “with interest”. True or False

Ms. Orr writes the following on the back of an envelope, “I do hereby acknowledge that I owe Laura Davis $1000 plus interest.  Payment is due on or before six months from date. “ Questions 5 and 6 are based on these facts.

5.   The note is nonnegotiable for the following reasons:

(a) The note is not signed by Ms. Orr.

(b) The maker did not make a definite promise to pay but merely acknowl­edged that a debt was owed to Laura Davis

(c) The note is not payable at a definite time because the note is undated and there­fore, the end of the six-month period is uncertain.

(d) All of the above

6.   The note is nonnegotiable for the following reasons

    (a) The note is written on the back of an envelope.

    (b) The note is handwritten, rather than typed.

    (c) There is no consideration for the note.

    (d) The note is payable only to Laura Davis, not to her order or to bearer.

    (e)  All of the above

.            7   To purchase office supplies for her medical clinic, Becky executes a draft in favor of Sonya. A draft is

____     8.   To pay her state's auto tag and title fees, Ms. Sledgen writes a check to the appropriate public agency. Ms. Sledgen is the

____     9.   Alpha Company issues a trade acceptance with itself and Beta Company as parties. A trade acceptance is

____    10.   Mr. Ehret’s oral promise to pay $300 to Mr. Noel for a sound system worth only $200 is not a negotiable instrument because

____    11.   Ms. Smith owes $8,000 in unpaid taxes. Using the back of an old shirt, she executes an instrument for $8,000 that otherwise meets the requirements for negotiability. This instrument is likely

____    12.   Ms. Schaffer signs an instrument using an "S" with a circle around it. With this mark for a signature, the instrument is

____    13.   Mr Yemola, the owner and operator of CPAs or Us., signs an instrument that includes the phrase "as per contract."  This instrument is

____    14.   Romeo writes on a piece of paper, "I owe you $500," signs it, and gives it to Juliet. This instrument is

____    15.   Mr. Anstead signs an instrument payable to the order of Ace Lending Company that states, "The maker of this note at the date of maturity, April 1, 2005, can extend the time of payment, but for no more than a reasonable time."  This instrument is

____    16.   Tarzan signs a check payable to the order of Jane, writes "this is nonnegotiable" in the lower left corner, and gives it to her. This check is

____    17.   Mr. Baker signs a check payable to the order of City Bank, filling in the blanks for the amount with the figures "$100" and "One thousand and 00/100 dollars."  This check is payable in the amount of

____    18.   Mr. Bowman transfers an instrument to First National Bank. This transfer is not a negotiation unless

____    19.   Ms. Pergolini signs a check payable to Mr. Lipschutz and gives it to him. She indorses the back. The check can now be negotiated by

____    20.   Ms. Cohick possesses an instrument "payable to bearer."  She loses the instrument, but Mr. Lazzaro finds it. Mr. Lazzaro may

____    21.   Wall-Mart  receives a check from a customer and indorses it "For deposit only."  This is

____    22.   Uncle Bill, an accountant, gives his nephew Mr. Docktor a check for $500 as a graduation present. The check was given to Bill as payment for work to be done for a client. Uncle Bill, who indorses the check "without recourse," knows that the work has not yet been done, but Mr. Docktor does not. Who is an HDC of the check?

____23.       A+ Auto Rentals owes Apex Auto Dealership $2,000. A+ executes a note to Apex as security for the debt. This security

____     24.        Getting tired of this exam?  Here is a free one to energize you.  Mark A. 

____    25.   New Capital Corporation, the transferee of a promissory note, may not acquire HDC rights under the shelter principle if it is

____    26.   Friendly Loan Company has a security interest in collateral owned by Best Tool & Die Company. A security interest in collateral

____    27.   New Capital Corporation has a security interest in property owned by Regal Medical Supply Company. As a creditor, New Capital's primary concern is whether

____    28.   Fine Furniture Store sells household consumer goods. To create a purchase-money security interest, Fine Furniture must

____    29.   First National Bank wants to perfect its security interest in the property of Natural Mining Company. The most common method of perfecting a security interest is for the

____    30.   First State Bank wants to perfect its security interest in inventory owned by Oil Refining Corporation. Most likely, a financing statement should be filed with

____    31.   Alpha Loans, Inc., takes possession of Mr. McMichael’s stock in International Corporation to perfect its security interest in the stock. This transfer is

____    32.   Delta Capital Corporation wants to perfect a security interest in a negotiable instrument owned by Quality Investments, Inc. This can be accomplished

____    33.   A-1 Capital Company and First National Bank are secured parties with security interests in property owned by Interstate Commercial Corporation. The first security interest to be filed or perfected has priority over another filed or perfected security interest in

____    34.   American Investments, Inc., and First State Bank are secured parties with security interests in property owned by U.S. Manufacturing Corporation. Priority between these security interests is determined by

____    35.   First National Bank lends $20,000 to Ms. Thomas. A financing statement is filed on October 1, but the security agreement is not signed until Ms. Thomas gets the money on October 4. Ms. Thomas also borrows money from First State Bank, which advances funds, files a financing statement, and signs a security agreement on October 2. Ms. Thomas used the same property as collateral for both loans. In a dispute between the banks over rights to the collateral, First National will

____    36.   First Financial Corporation is a secured party with a security interest in property owned by The Bon Ton. Perfection of this security interest may not protect First Financial against the claim of

____    37.   Mr. Redding did not make a payment on his car for several months. The dealer, All-Rite Auto, repossessed his car by towing it from his driveway in the middle of the night without Mr. Redding realizing it  He sues All-Rite Auto for breach of the peace. Mr. Redding will probably

____    38.   When Diner's Restaurant defaults on a debt to First Community Bank, the bank takes possession of the collateral owned by the restaurant in which the bank has a security interest.  After selling the collateral, the highest priority in the application of the proceeds is

____    39.   Joe operates a sole proprietorship, a corporation, and a partnership. If he wishes to obtain protection from the demands of his creditors personally as well as for his corporation and partnership, he may file a petition for each one under

____    40.   Ms. Gilroy files a petition for bankruptcy. To give the court the information it needs to decide whether to grant Gilroy’s request for protection from her creditors, she must include with her petition

____    41.   Ms. Reppert’s voluntary petition for bankruptcy is found to be proper. The order for relief is effective as soon as

____    42.   Rob files for bankruptcy on August 1. He owes money to Jack, who has a valid security-interest in Rob's computer. Jack, who is uneasy about Rob's ability to pay, but who does not know about the bankruptcy, tries to repossess the computer on August 5. Jack

____    43.   Roberta goes through an involuntary bankruptcy proceeding. An involuntary bankruptcy occurs when

____    44.   Mark is a trustee for a federal bankruptcy court. Mark's duties include

45.   What are the two goals of bankruptcy law in the United States?

a. To protect the real property of creditors and its value.
b. To make loans more available to those who have fallen on hard times and to ensure that third parties will guarantee loans.
c. To give debtors a fresh start and to provide equitable treatment to creditors competing for debtor assets.
d. To hide debtor assets to the greatest extent possible and to relieve debtors of all debts owed to banks.

46. Where are bankruptcy proceedings held?

a. In state probate courts.
b. In federal bankruptcy courts.
c. In state bankruptcy courts.
d. In federal commerce courts.

47. Normally, in order to receive a portion of a debtor's estate, what must each creditor file?

a. A petition in bankruptcy.
b. A proof of claim.
c. A notice of exemption.
d. A bill of attainder.

Part 2 – Questions from previous exams

The following questions are a combination of multiple choice and true/false

48.  Admission Data Services and Bloomsburg University negotiate a license by which ADS will provide software to allow BU to manage its growing enrollment. The license agreement gives BU

a. ownership rights in the software.

b. the right to use the software.

c. ownership rights in and the right to use the software.

d. the right to copy and distribute the software to other SSHE system universities.

e. none of the above. 

49.  Ms. Cox mistakenly receives from the local tax collector a notice of property taxes due. The notice is for tax on her neighbor Ms. Ott’s property, but Ms. Cox believes that the tax is hers and pays it. When the error is discovered, can Ms. Cox recover the amount she paid from Ms. Ott paid?

a. Yes, under the theory of promissory estopple.

b. Yes, under a theory of unjust enrichment or quasi contracts.

c. Both a and b are correct

d. None of the above is correct.

50.  Laura tells George that she will pay him $1,000 to set fire to Laura's store, so that she can collect money under a fire insurance policy. George sets fire to the store, it burns to the ground and Laura collects the insurance.  George demands payment but Laura refuses. Can he recover?

a. Yes, if there was mutual assent and they both have capacity.

b. No.

c. Only if the insurance company pays on the claim.

d. None of the above are correct. 

51.  The Chicago Cubs will win the World Series this year.  True or False (the correct answer is true)

52.  Contracts are governed by the common law, except when modified by statutory or administrative law.  True or False

53. For consideration to be adequate it must be fair and represent a good bargain for the parties. True or False

54.  Mr. Ace of Ace Autos, a car dealer, writes to Ms. Smith, "I have a 1999 Honda Civic that I will sell to you for only $4,000, because you are my favorite customer. This offer will be kept open for one week." Six days later, Mr. Ace told Ms. Smith that he sold the car that morning for $5,000 to another favorite customer. Did Ace breach any contract?

a. Yes, because he was a merchant and there was a signed writing.

b. No because Ms. Smith did not sign the offer.

c. Yes, because he was a merchant.

d. Yes, because there was a signed writing.

e. No because Ms. Smith did not give him any consideration to keep the offer open.

55.  Truck Parts, Inc. often sells supplies to United Service Company, which services trucks. Over the phone, they negotiate for the sale of eighty-four sets of tires at a contract price of $120,000.  TPI sends a letter to USC detailing the terms and two weeks later ships the tires. Is there an enforceable contract between them?

a. Yes.

b. No.

56.  The main performance obligations of the buyer under Article 2 of the UCC are to tender delivery of conforming goods.  True or False.

57.  Country Fruit Stand orders eighty cases of peaches from Citrus Farms to be delivered on September 29th. Citrus delivers thirty cases instead of eighty on Oct.1st.   Does Country have the right to reject the shipment?

a. No, because Citrus farms has the right to cure.

b. No, because they are perishable goods.

c. Yes

d. Both a and b are correct

e. None of the above is correct.

58.  Mike agrees to sell 1,000 espresso makers to Starbucks to be delivered on May 1. Due to a strike in the last week of April, there is a temporary shortage of delivery vehicles. Mike can deliver the espresso makers 200 at a time over a period of ten days, with the first delivery on May 1. Does Mike have the right to deliver the goods in five lots with out consulting Starbucks?

a. yes

b. no

c. only if the delivery terms were in writing. 

59. Cora owns a hotel and purchases some furniture from Pennsylvania House Furnishings on April 1^st.  The written contract says “delivery must be made on or before May 1^st.”  On April 15^th the furniture store calls Cora and tells her that the pieces she ordered are back ordered and will not be available until mid May.  They ask her to agree to this late date.  Cora can

a. treat the furniture store’s notice of late delivery as a final breach and pursue a remedy.

b. agree to the later date.

c. both a and b

d. none of the above.

60.  Refer to the previous question.  Suppose that Cora does nothing after receiving the call from the store. On April 25^th, they contact her again and say an unexpected shipment has arrived and they can fill her order by the 1^st.

a. Pennsylvania House has retracted its repudiation and reinstated its rights under the original contract.

b. The contract was breached on April 25^th and Pennsylvania House has no right to perform.

c. Whether to allow the store to perform is up to Cora.

d. Under these circumstances, Pennsylvania House has the right to cure.

Jane Pittsley contracted with the Hilton carpet company for the purchase and installation of carpet in her home.  Three weeks following the installation, Pittsley complained to Hilton that some seams in the carpet did not lie flat in all areas, and didn’t reach the wall in certain locations.  Hilton tried to fix the problem by stretching the carpet and other methods.  Pittsley was not satisfied.  Pittsley sued Hilton in Idaho state court to recover the $3,500 she had paid toward the $4,500 contract price. Hilton subcontracted out the installation at a cost of $700. Hilton counterclaimed for the $1000 unpaid on the contract. State whether statements #28-34 are true or false:

61.  The threshold question the court will have to answer to decide his case is whether these parties are merchants.

62.  The threshold question the court will have to answer to decide his case is whether the contract was for goods or services.