Business Its Legal Ethical and Global Environment 11th Edition Jennings Test Bank

Business Its Legal Ethical and Global
Environment 11th Edition Jennings

Test Bank
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Ch12 Contracts and Sales Performance Remedies and
Collection
TRUEFALSE
1. A contract with a minor is voidable at the minor's option.
(A) True
(B) False
Answer : (A)
2. A contract with a party who has been declared incompetent is voidable.
(A) True
(B) False
Answer : (B)
3. The contracts of a person who has been declared legally incompetent are void.
(A) True
(B) False
Answer : (A)
4. Minors are liable for the reasonable value of necessaries.
(A) True
(B) False
Answer : (A)
5. Material information is something that would affect the decision to buy or sell.
(A) True
(B) False
Answer : (A)
6. Misrepresentation must be fraudulent before rescission can be permitted.
(A) True
(B) False
Answer : (B)
7. Puffing is sufficient grounds for setting aside a contract on the basis of misrepresentation.
(A) True
(B) False
Answer : (B)
8. "This shirt is 100% cotton" is a statement that is puffing.
(A) True
(B) False
Answer : (B)
9. Fraud is misrepresentation with intent to mislead or deceive.
(A) True
(B) False
Answer : (A)
10. Duress requires proof of physical force.
(A) True
(B) False
Answer : (B)
11. Contracts by minors to enter the military are generally viewed as unenforceable.
(A) True
(B) False
Answer : (B)
12. Undue influence requires proof of a confidential relationship.
(A) True
(B) False
Answer : (A)
13. Competency licensing statutes do not prevent enforcement of contracts by unlicensed parties.
(A) True
(B) False
Answer : (B)
14. Contracts with illegal subject matter are voidable.
(A) True
(B) False
Answer : (B)
15. Unconscionability is an illegality defense.
(A) True
(B) False
Answer : (A)
16. Covenants not to compete are valid only in sales of a business.
(A) True
(B) False
Answer : (B)
17. Conditions precedent are events that must happen before contract performance is required.
(A) True
(B) False
Answer : (A)
18. Substantial performance is available for all types of contracts.
(A) True
(B) False
Answer : (B)
19. A force majeure clause is one that provides excuses for nonperformance.
(A) True
(B) False
Answer : (A)
20. Liquidated damages are void as penalties.
(A) True
(B) False
Answer : (B)
21. Incidental damages are the costs of being compensated and are nonrecoverable.
(A) True
(B) False
Answer : (B)
22. Exculpatory clauses are generally considered void as against public policy.
(A) True
(B) False
Answer : (A)
23. Covenants not to compete are generally considered void as against public policy.
(A) True
(B) False
Answer : (B)
24. A force majeure clause is a clause that prevents additional terms in acceptances from becoming
part of the contract.
(A) True
(B) False
Answer : (B)
25. Incidental and consequential damages are the same types of damages.
(A) True
(B) False
Answer : (B)
26. A liability limitation clause is the same as an exculpatory clause.
(A) True
(B) False
Answer : (B)
27. A television rent-to-own contract that requires 24 payments of $30 each before the renter owns
the $199 television set is unconscionable.
(A) True
(B) False
Answer : (A)
28. An architect who fails to pay her annual license renewal fee will be unable to collect fees for
work done until the renewal fee is paid.
(A) True
(B) False
Answer : (B)
29. "Only those on the cutting edge of technology have this product," is an example of puffing.
(A) True
(B) False
Answer : (A)
30. An accord and satisfaction is a void contract.
(A) True
(B) False
Answer : (B)
31. The types of statements that qualify for express warranties also qualify as a basis for
misrepresentation.
(A) True
(B) False
Answer : (A)
32. The difference between fraud and misrepresentation is knowledge.
(A) True
(B) False
Answer : (A)
33. Silence, or the failure to disclose information, is not misrepresentation.
(A) True
(B) False
Answer : (B)
34. All contracts have conditions for performance.
(A) True
(B) False
Answer : (A)
35. The seller's cost of running another ad in order to sell the car that a buyer breached a contract
on is an example of consequential damages.
(A) True
(B) False
Answer : (B)
36. The difference between fraud and misrepresentation is proof of intent.
(A) True
(B) False
Answer : (A)
37. Compensatory damages can be awarded in addition to liquidated damages.
(A) True
(B) False
Answer : (A)
38. Covenants not to compete are void only in sale-of-business contracts.
(A) True
(B) False
Answer : (B)
39. Attorneys' fees are an example of liquidated damages.
(A) True
(B) False
Answer : (B)
40. Compensatory damage formulas are provided under the UCC.
(A) True
(B) False
Answer : (A)
41. In a relationship of dependence, the failure to deal fairly can result in liability for the party
controlling the contract term.
(A) True
(B) False
Answer : (A)
42. There is no difference between assignments and delegation.
(A) True
(B) False
Answer : (B)
43. A bill of lading is a receipt for shipment issued by the seller.
(A) True
(B) False
Answer : (B)
44. Goods can be transferred physically or by transfer of the bill of lading.
(A) True
(B) False
Answer : (A)
45. A letter of credit is issued by the buyer's bank.
(A) True
(B) False
Answer : (A)
46. A lawyer/client relationship is an example of a confidential relationship.
(A) True
(B) False
Answer : (A)
47. An example of a condition precedent in a home purchase contract is that the buyer must qualify
for financing first.
(A) True
(B) False
Answer : (A)
48. An example of a condition precedent in an audit contract is access by the auditor to financial
information.
(A) True
(B) False
Answer : (A)
49. Parents of minors can be held liable for the reasonable value of necessaries that their minor
children contracted for.
(A) True
(B) False
Answer : (A)
50. A multi-million dollar contract between a manufacturer and a parts supplier provides for
damages of $300 per day for late delivery is void as a penalty contract.
(A) True
(B) False
Answer : (B)
51. A mortgage broker who sells mortgage contracts to mortgage companies has created a third
party beneficiary contract.
(A) True
(B) False
Answer : (B)
52. An assignment is the transfer of benefits under a contract.
(A) True
(B) False
Answer : (A)
53. A minor who has received medical care can never be responsible for payment for those services.
(A) True
(B) False
Answer : (B)
54. In the Durrett v. ACT, Inc. case, the court ruled that the students who clicked on the agreement
provisions on the ACT sites did so under duress.
(A) True
(B) False
Answer : (B)
55. Regulation Z provides the details of compliance with the Fair Credit Billing Act.
(A) True
(B) False
Answer : (A)
56. The three-day-cooling-off period applies to all credit transactions.
(A) True
(B) False
Answer : (B)
57. Home equity loans do not carry a rescission period.
(A) True
(B) False
Answer : (B)
58. The Fair Credit Reporting Act regulates creditors.
(A) True
(B) False
Answer : (B)
59. There are no limitations on credit-agency disclosures, if the debtor is applying for a loan of more
than $50,000.
(A) True
(B) False
Answer : (A)
60. The FCRA does not give the debtor a right of correction.
(A) True
(B) False
Answer : (B)
61. Under the FCRA, the 100-word statement allows debtors to clarify their past credit experiences.
(A) True
(B) False
Answer : (A)
62. The Fair Debt Collections Practices Act applies to both commercial and consumer debt.
(A) True
(B) False
Answer : (B)
63. The FDCPA applies to collection agencies and original creditors.
(A) True
(B) False
Answer : (B)
64. Under the FDCPA, collectors identified as such can use postcards to contact debtors.
(A) True
(B) False
Answer : (B)
65. The FDCPA places time limits for the placement of calls.
(A) True
(B) False
Answer : (A)
66. The maximum wage garnishment for general debts is 50 percent.
(A) True
(B) False
Answer : (B)
67. Garnishment is an example of judgment execution.
(A) True
(B) False
Answer : (A)
68. The Consumer Credit Protection Act puts limitations on garnishments.
(A) True
(B) False
Answer : (A)
69. The FDCPA is not applicable to the collection of judgments.
(A) True
(B) False
Answer : (B)
70. The FDCPA does not apply to lawyers who are collecting bills for clients.
(A) True
(B) False
Answer : (B)
71. The FCRA prohibits the disclosure of a bankruptcy that occurred eight years ago.
(A) True
(B) False
Answer : (B)
72. The FCRA permits the disclosure of an embezzlement for which probation was completed ten
years ago.
(A) True
(B) False
Answer : (B)
73. The failure to make a timely investigation into a consumer's question about his/her credit report
is a violation of the FCRA.
(A) True
(B) False
Answer : (A)
74. There is a three-day rescission period on home equity loans.
(A) True
(B) False
Answer : (A)
75. Chapter 11 is the liquidation provision in bankruptcy.
(A) True
(B) False
Answer : (B)
76. Chapter 13 bankruptcy is only available to consumers.
(A) True
(B) False
Answer : (A)
77. A contract signed at home for the installation of a pool under a 90-days-same as cash agreement
is not subject to the 3-day rescission period.
(A) True
(B) False
Answer : (B)
78. The Fair Debt Collections Practices Act applies to attorneys only if they are doing the collection
on a percentage basis.
(A) True
(B) False
Answer : (B)
79. The Fair Debt Collections Practices Act applies only to consumer credit collection.
(A) True
(B) False
Answer : (A)
80. The Bankruptcy Reform Act of 2005 made it easier for consumers to declare bankruptcy.
(A) True
(B) False
Answer : (B)
81. Under the Bankruptcy Reform Act of 2005, consumers can always file for liquidation
proceedings without going through Chapter 13.
(A) True
(B) False
Answer : (B)
82. Chapter 11 bankruptcy is available to consumers with debts.
(A) True
(B) False
Answer : (B)
83. Credit repair organizations are now subject to federal law and disclosure requirements.
(A) True
(B) False
Answer : (A)
MULTICHOICE
84. Bob, age 17, has entered into a contract to buy a car. The contract is:
(A) voidable.
(B) void.
(C) voidable only if Bob can return the car.
(D) enforceable since it is for a necessary.
(E) none of the above
Answer : (A)
85. Which of the following statements would not be a basis for misrepresentation?
(A) "This toothpaste is the best tasting around."
(B) "This house is built the way they used to build houses."
(C) "There is no merger pending for the company."
(D) All of the above are sufficient bases for misrepresentation.
Answer : (C)
86. Duress requires proof of:
(A) physical force.
(B) threat of physical force.
(C) deprivation of a meaningful choice.
(D) none of the above
Answer : (C)
87. Contracts with illegal subject matter are:
(A) void.
(B) voidable.
(C) neither a nor b
Answer : (A)
88. A provision in a contract requiring that a buyer obtain financing before a deal can go through is
an example of:
(A) a contract with no consideration.

(B) economic duress.
(C) a condition precedent.
Answer : (C)
89. Force majeure clauses:
(A) are liquidated damages clauses.
(B) are void.
(C) serve to shift the risk of unforeseen events.
Answer : (C)
90. A seller recovering the difference between his resale price and the buyer's original contract
price is an example of:
(A) compensatory damages.
(B) incidental damages.
(C) liquidated damages.
Answer : (A)
91. James Krieg has finished law school but has unsuccessfully taken the bar exam twice. Krieg is
running low on patience and cash. He has begun writing wills to see him through this time of crisis
and is charging $200 per will. Some of his will clients have refused to pay Krieg and he wishes to
take them to a small claims court. Which of the following statements is true?
(A) Krieg could recover the fees on a quasi-contract theory.
(B) Krieg could recover the fees since the licensing after the bar exam is simply to raise funds.
(C) Krieg agreements are voidable.
(D) Krieg agreements are void.
Answer : (D)
92. Which of the following contracts would be void?

(A) A contract with a person declared mentally incompetent.
(B) A contract with a minor.
(C) A contract with a force majeure clause.
(D) All of the above are void.
Answer : (A)
93. The seller of a dry cleaning business has agreed not to open another dry cleaning business for
two years within a one-mile radius of the sold business. Such an agreement:
(A) is void as against public policy.
(B) is void as unconscionable.
(C) is void as usurious.
(D) is valid and enforceable.
Answer : (D)
94. Clothing For Accountants is a popular retail store owned by I.M. Material. Material has just sold
the business to Phil Forma. Phil has asked that a covenant not to compete be inserted into the
agreement. Such covenants are:
(A) void as against public policy.
(B) only valid in employment contracts.
(C) valid if reasonable in time and geographic scope.
Answer : (C)
95. Undue influence requires the presence of:
(A) a fiduciary relationship.
(B) some threat or force.
(C) a lack of capacity in the contracting party.
Answer : (D)
96. A minor's right to disaffirm a contract is conditioned on:

(A) the ability to return the contract consideration.
(B) whether the minor misrepresented his/her age.
(C) a time limit of six months.
Answer : (D)
97. Which of the following statements (if later established as untrue) would constitute a
misrepresentation defense to contract formation?
(A) "You are going to love this house as we have."
(B) "This farm's well is adequate for household, ranch, and crop needs."
(C) "The school system here is very fine."
(D) "Our buyers are the happiest customers around."
Answer : (B)
98. If entered into by a minor, which of the following contractual situations may be enforceable
against the minor?
(A) Student loan agreements
(B) Military obligations
(C) Payment for reasonable value for necessities
(D) All of the above
Answer : (D)
99. Paddock Pools constructed a swimming pool and deck for the Jensens' home. Paddock installed
the wrong trim on the pool. It would cost $2800 to change the trim - one-fifth the total cost of the
pool. The Jensens refuse to pay anything for the pool. Paddock's best defense is:
(A) duress.
(B) substantial performance.
(C) mistake.
(D) failure of conditions.
Answer : (B)
100. Dana Riley purchased a home in the Brentwood area of Los Angeles. After she purchased the
home, she learned that the home had been the residence of a long-time drug dealer. She
experienced many late-night visitors and often noticed cars parked outside near the street curb with
the drivers and passengers studying the home. The former owner has been convicted of drug
charges. Dana has become uncomfortable with the visitors and the surveillance. She just wants out
of the house. Which of the following statements is true?
(A) Dana has no grounds for rescinding her agreement.
(B) The information about the drug dealer was material and should have been disclosed to her.
(C) Withholding information about the former drug-dealer owner is not misrepresentation.
Answer : (B)
101. Dana Riley purchased a home in the Brentwood area of Los Angeles. After she purchased the
home, she learned that the home had been the residence of a long-time drug dealer. She
experienced many late-night visitors and often noticed cars parked outside near the street curb with
the drivers and passengers studying the home. The former owner has been convicted of drug
charges. Dana has become uncomfortable with the visitors and the surveillance. She just wants out
of the house. Suppose that the listing agent was aware of the home's history and the drug dealer's
arrest and conviction. The agent told the neighbors to cooperate by not disclosing any information to
Dana. "Look," the agent told them, "you can get the house sold and keep your values up or let it sit
there and have the old druggies come by and destroy it." Which of the following statements is true?
(A) The real estate agent has committed fraud.
(B) The real estate agent is under no obligation to disclose the information.
(C) The most the real estate agent has committed is misrepresentation.
Answer : (A)
102. Alice, age 17, purchased a 2005 Kia auto at the Tempe Autoplex. After driving the vehicle for
three months, Alice returned to the Autoplex for her money. She did not, however, have the Kia. "It
was stolen at school last week." Which of the following statements is true?
(A) Alice may not rescind the agreement.
(B) Alice may rescind the agreement only if the stolen Kia is found.
(C) Alice may rescind the agreement regardless of whether she has the car.
Answer : (C)
103. The Hoffmans were having their home remodeled by All-Right Contractors. The roof had to be
removed in order to build the second story the Hoffmans had contracted and designed to build. After
All-Right had removed the roof, but before a covering was placed over the exposed half of the home,
All-Right's foreman said the job would cost an additional $12,500. The Hoffmans refused to agree to
the additional fees and All-Right's foreman said, "Suit yourselves. Looks like rain for the next day or
two," and left. The Hoffmans called All-Right and agreed to pay the $12,500 extra and went in to
sign the paperwork. Which of the following statements is true?
(A) The contract for the additional $12,500 is valid and binding.
(B) The contract for the additional $12,500 is invalid because of duress.
(C) The contract was not valid because of duress, but the Hoffmans signed anyway - so there is a
valid and enforceable agreement.
Answer : (B)
104. The court in the case involving the ACT exam (Durrett) held that:
(A) duress was clearly involved.
(B) the clicking on terms for agreement online do not become part of the contract.
(C) ACT's provisions were unconscionable.
(D) it could not rule on the defense of the plaintiff being a minor.
Answer : (D)
105. Which of the following statements would be a basis for claiming misrepresentation?
(A) This car is a real honey.
(B) This car has the finest road performance going.
(C) This car has the fastest zero to 60 acceleration on the planet.
(D) This car represents status.
(E) All of the above could be a basis for misrepresentation.
Answer : (C)
106. Andy Seagroves purchased a computer from Best Buy. Best Buy did not disclose to him that the
computer was a return item. There was no indication of any price difference between the computer
Andy bought and the unopened computers. Andy experiences significant difficulties with the
computer and returns it to Best Buy. Andy indicates that he would like to have a new computer and
that the price is now $150 more. Best Buy indicates that it is happy to take the return on the
computer and credit Andy's account, but that it has no further liability.
(A) Best Buy's position is correct.
(B) Andy has no damages since Best Buy took back the computer.
(C) Andy is entitled to recover the price difference so that he can replace the computer.
(D) Andy is entitled to the return, but no additional damages.
(E) none of the above
Answer : (C)
107. Angela, age 17, is injured in a car accident and receives $5,200 in medical treatment at the
emergency room. The hospital sends a bill to Angela, who signed the admitting form in which she
agreed to pay for the treatment.
Angela:
(A) is a minor and need not pay the bills.
(B) is liable for the bill as a necessity.
(C) can rescind the agreement.
Answer : (B)
108. Angela, age 17, is injured in a car accident and receives $5,200 in medical treatment at the
emergency room. The hospital sends a bill to Angela, who signed the admitting form in which she
agreed to pay for the treatment.
Suppose that Angela turned 18 between the time of the accident and when she received the bill.
Angela:
(A) is a minor and need not pay the bills.
(B) is liable for the bill as a necessity.
(C) can rescind the agreement.
Answer : (B)
109. Which of the following would not be a basis for misrepresentation?
(A) These shrubs will survive in direct sunlight.
(B) This lawnmower has a safety turn-off switch.

(C) This soft water system will add five years to the life of your washing machine.
(D) All of the above are a basis for misrepresentation.
Answer : (D)
110. Ralph Deuschle owned an ice sculpture company. Ralph provides ice sculptures for private
weddings, parties, and receptions. The Canasta Resort was a large hotel located near Ralph that was
not satisfied with its current catering company's ice sculptures and its events manager liked Ralph's
work. The events manager approached Ralph and indicated the Canasta would like to have an
ongoing supply contract but that its needs would require Ralph to expand his business, both with
additional space and 3 new employees. Ralph entered into a supply contract with the Canasta and
the events manager told a lending officer at the bank where Ralph got his construction mortgage for
the business expansion that the Canasta would be sending all of its business to Ralph. The Canasta
then began to rethink its events focus and marketing and decided to cut back on ice sculptures.
Ralph could not use the additional space and the three employees had to be laid off. The Canasta:
(A) has no liability to Ralph for the downturn in amount of ice sculptures ordered if it did not
guarantee a minimum amount to be purchased.
(B) may be liable to Ralph under a theory of a lack of good faith.
(C) is entitled to refocus its business and has not breached its contract.
Answer : (B)
111. Sue and Kevin Kellman signed a contract for the construction of a cabin near Pinetop. In
building the $562,000 cabin, the builder discovered that it had to put the vent for the heating system
in the area where the hall closet is located. The result was that the Kellman's had a half-closet there
instead of a full-length closet that was open to the floor. The Kellmans:
(A) need not pay for the cabin because of this material breach.
(B) can be compensated under the doctrine of force majeure.
(C) can be compensated under the doctrine of commercial impracticability.
(D) can be compensated under the doctrine of substantial performance.
Answer : (D)
112. RaeAnn and Rick Telford purchased an existing home in a neighborhood of multi-million-dollar
homes. After moving in, the Telfords learned that the home had been owned formerly by a couple
that was indicted for drug trafficking. The home had been raided by DEA agents, and there had been
a shoot-out before the couple was taken into custody. The couple's youngest child was killed in the
house during the shoot-out. RaeAnn and Rick:
(A) have no recourse if there is nothing physically wrong with the house.
(B) have a remedy of damages or rescission if this information was withheld from them.
(C) have no remedy because neither sellers nor brokers are required to disclose psychological issues
with properties.
Answer : (B)
113. Costco, Inc. had a contract to purchase 300,000 electric mini-Mercedes from HUMBENZ Toy
Co. The toy cars were to be delivered by November 1. On October 23, the Consumer Product Safety
Commission announced a recall of the toy cars as well as a ban on their sales because of electrical
shorts and a high risk of fire in the cars. HUMBENZ has not delivered the cars to Costco.
HUMBENZ:
(A) has breached its contract with Costco.
(B) has a void contract with Costco because the subject matter is now illegal.
(C) must still deliver the cars because its contract predated the recall and ban.
Answer : (B)
114. The three-day-cooling-off period applies to:
(A) credit contracts in which a security interest in the home is given.
(B) second mortgages on homes.
(C) both a and b
Answer : (C)
115. In order to recover damages under the Fair Credit Billing Act, the debtor must:
(A) make a written objection.
(B) file a complaint with the Federal Reserve Board.
(C) notify the creditor of the error within 30 days of receiving the bill.
(D) all of the above
Answer : (A)
116. The Fair Credit Reporting Act applies:

(A) only to consumer reporting agencies.
(B) to all information on consumer debtors.
(C) to consumer and commercial credit.
Answer : (A)
117. What rights does a debtor have if he/she discovers inaccuracies in the credit report?
(A) can ask to have it eliminated
(B) can sue for libel
(C) can provide a separate credit report
Answer : (A)
118. The Fair Debt Collections Practices Act applies to:
(A) collection agencies.
(B) all consumer credit businesses.
(C) the IRS.
(D) banks.
(E) all of the above
Answer : (A)
119. Which of the following is prohibited under the FDCPA?
(A) contacting third parties for current address information on the debtor
(B) contacting the debtor at his/her place of employment
(C) contacting the debtor after the debtor requests no further contact
(D) All of the above are prohibited.
Answer : (C)
120. Garnishments:
(A) are attachments of funds for executing a judgment.

(B) are not regulated by federal laws.
(C) can take up to 75 percent of the debtor's wages.
Answer : (A)
121. If a consumer requests a credit reporting agency to correct his/her credit report:
(A) the agency must comply.
(B) the agency need only include a copy of the request in its report.
(C) any corrections made must be sent to all report recipients over the last two years.
Answer : (C)
122. Diana and Charles Windsor are considering purchasing a swimming pool. The representatives
of Fun-in-the-Sun Pool arrange a meeting at the Windsor's home to discuss the price and draw up
plans. The Windsors sign a contract for the pool for a price of $12,000 with payments of $3000 each
month for the next four months while the pool is under construction. The Windsors also agree to pay
a carrying charge for the payments of $250.00. Two days after signing the contract, the backhoe
operator arrives ready to dig the pool, but Charles tells him the contract is off. The Windsors:
(A) have breached their contract and will be liable to Fun-in-the-Sun for damages.
(B) are protected by their three-day rescission rights under Regulation Z.
(C) do not have the three-day rescission rights since there are no monthly installment payments over
a period of one year.
Answer : (B)
123. Which of the following statements in a letter from a collector to a debtor would be a violation of
FDCPA?
(A) "We will be contacting your employer to let him know of this problem."
(B) "We will file suit if payment is not made within 30 days."
(C) "We will be calling you at your home."
(D) All of the above are violations.
Answer : (A)
124. Which of the following acts by a third-party collector would be a violation of the FDCPA?
(A) sending the debtor a postcard that reads: "Don't let this bill affect your excellent credit rating"
(B) calling the debtor at home at 8:30 AM to confirm the debt
(C) referring the account to an attorney for a lawsuit
(D) filing suit without first contacting the debtor
Answer : (A)
125. Which of the following is true about a line of credit secured by the equity in the debtor's home?
(A) there is a three-day rescission period
(B) the same levels of disclosure for other types of credit are not required
(C) the monthly payments need not be disclosed
(D) All of the above are true.
Answer : (A)
126. Who is covered under the Fair Debt Collections Practices Act?
(A) an attorney collecting a debt for himself
(B) Macy's collecting a debt through its own collection subsidiary
(C) a hospital collecting a debt from a patient
(D) None of the above is covered under the FDCPA.
Answer : (D)
127. Which of the following is not covered by the Fair Debt Collections Practices Act?
(A) an attorney collecting for a client
(B) a collection agency with one exclusive client
(C) a hospital using its collection department to collect fees from patients
(D) an attorney collecting on a contingent fee basis
(E) All of the above are covered under the FDCPA.
Answer : (C)
128. Under the Fair Credit Reporting Act, consumers have which of the following rights?
(A) privacy and no disclosure without permission
(B) right to dispute information in the report
(C) right to correction
(D) right to rebuttal statement
(E) consumers have all of the above rights
Answer : (E)
129. Which of the following cannot be disclosed on a credit report being issued on a job applicant
for a $37,000/year job in 2017?
(A) a bankruptcy in 2012
(B) a judgment paid in 2003
(C) a criminal conviction for running a meth lab in 2009
(D) All of the above can be disclosed.
Answer : (D)
130. Paula Sanford has filed a voluntary petition in bankruptcy. Paula has a job but admits that she
is in over her head on credit card debt. The bankruptcy court:
(A) can allow Paula to declare bankruptcy because she has debts.
(B) can allow Paula to declare bankruptcy but Paula may have to go into a Chapter 13 debt
adjustment plan.
(C) has no remedies for consumers with only credit card debt.
Answer : (B)
131. Sekelow Enterprises is a debt collection agency. It uses postcards to contact consumer debtors
it is attempting to collect from for its clients. The name "Sekelow Enterprises" and the company
address appear on the postcards used along with: "VERY IMPORTANT: PLEASE CONTACT US
ABOUT YOUR DILLARD'S DEBT."
(A) Sekelow has violated the Fair Debt Collections Practices Act.
(B) Sekelow has not violated the Fair Debt Collections Practices Act if it follows up with a phone call
and verification of debt.
(C) Sekelow cannot collect the debt without registering as a credit repair organization.
(D) both a and c
Answer : (A)
132. Which of the following is prohibited in the collection of consumer debt by the Fair Debt
Collections Practices Act?
(A) 7 AM calls at the debtor's place of employment.
(B) 7 AM calls at the debtor's home.
(C) 7 AM calls at the debtor's parents' home.
Answer : (D)
133. Which of the following sections of the federal bankruptcy laws deals with consumer debt
adjustment plans?
(A) Chapter 7
(B) Chapter 11
(C) Chapter 13
(D) CRO provisions
Answer : (C)
134. Akon had an idea for a website called "Fantrace," a site that would help celebrities connect
with their fans. Akon entered into an agreement with Broomfield for his help in building the site and
Khalilian to help with marketing. Broomfield had recommended his friend, Khalilian, for the project
because of his connections with celebrities. However, Broomfield did not tell Akon that he knew
that Khalilian was a liar and that he had also been in prison. When things did not go well in working
with the two, Akon sought to set aside the contract on the grounds of misrepresentation. Which of
the following is correct?
(A) Withholding information is not misrepresentation.
(B) Broomfield had no obligation to make any disclosures about his friend.
(C) Akon can have the contract rescinded on the grounds of misrepresentation.
(D) Intent is not present, so there is no case for misrepresentation.
Answer : (C)
135. Allegheny Energy Supply Co. and Monogahela Power Co., a subsidiary, filed suit against Anker
West Virginia Mining Co., later acquired by International Coal Group, for breach of contract. The
parties had a contract for Allegheny and Monogahela to buy all of the coal produced from a
proposed "Sycamore 2" mine, located in Harrison County, W.Va. The coal promised amounted to
about 1.8 million tons per year, not less than 20 million tons total. Anker has never produced the
necessary amount of coal, topping out at 480,000 tons per year in total from the mine. Anker had
sent a letter to Allegheny in 2006 claiming physical difficulties at the mine and a change in the
enforcement of regulations relating to coal mining near gas wells hampered their ability to extract
coal from the mine. As a result, Anker said it was unable to deliver the necessary coal. Which
defense to performance is Anker relying on?
(A) Misrepresentation
(B) Parol evidence
(C) Failure of conditions
(D) Force majeure
Answer : (D)
136. People from the United States pledged $3.3 billion to support the rebuilding efforts in Haiti
following the 2010 earthquake there. However, after 3 years, half of the money has not been
dispersed, and nearly 500,000 people still live in tents. As a result, many who have made pledges
have decided not to fulfill the remainder of their pledges because of the inaction on the part of the
relief fund in getting the funds dispersed, the buildings rebuilt, and the housing constructed.
What would be their grounds for terminating the payment of their pledges?
(A) Misrepresentation
(B) Lack of performance
(C) Fraud
(D) Undue influence
Answer : (B)
137. People from the United States pledged $3.3 billion to support the rebuilding efforts in Haiti
following the 2010 earthquake there. However, after 3 years, half of the money has not been
dispersed, and nearly 500,000 people still live in tents. As a result, many who have made pledges
have decided not to fulfill the remainder of their pledges because of the inaction on the part of the
relief fund in getting the funds dispersed, the buildings rebuilt, and the housing constructed.
What issue is there about whether there is a contractual obligation?
(A) Whether a pledge to make a gift is supported by consideration.
(B) Whether there can be a pledge across country borders.

(C) The inability to enforce international contracts.
(D) Whether the pledges were in writing.
Answer : (A)
138. Tristan Colbert owns an appliance store. He has ordered 10 Subzero refrigerators for his store
at a cost of $2,500 each from Plains Manufacturing. Tristan ordered the refrigerators in anticipation
of an order he was going to receive from a custom-home builder. Plains Manufacturing experienced
a flood at its plant in Iowa City and lost all goods in production. They were unable to deliver the
refrigerators to Tristan and notified him immediately of the problem. Tristan has to purchase the 10
refrigerators from another plant at a cost of $3,000 each.
Which of the following statements is correct about the situation?
(A) Plains will need to pay the damages that Tristan experiences as a result of its failure to deliver -
$500 X 10.
(B) Plains does not owe any damages to Tristan because of impracticability.
(C) Plains can use the defense of impossibility.
(D) This contract is governed by common law principles of damages.
Answer : (B)
139. Tristan Colbert owns an appliance store. He has ordered 10 Subzero refrigerators for his store
at a cost of $2,500 each from Plains Manufacturing. Tristan ordered the refrigerators in anticipation
of an order he was going to receive from a custom-home builder. Plains Manufacturing experienced
a flood at its plant in Iowa City and lost all goods in production. They were unable to deliver the
refrigerators to Tristan and notified him immediately of the problem. Tristan has to purchase the 10
refrigerators from another plant at a cost of $3,000 each.
Suppose that instead of a flood, Plains simply did not deliver the refrigerators. Which of the
following is correct?
(A) Plains will need to pay the damages that Tristan experienced as a result of its failure to deliver -
$500 X 10.
(B) Plains can use the defense of impracticability.
(C) Plains is not in breach if there is advance notification that it cannot deliver.
(D) This contract need not be in writing to be enforceable.
Answer : (A)
140. Bethany Tolson had a contract to supply ice to Jake's Creamery. Bethany found that the
demands for her ice were exceeding her ability to supply it and she recruited Callie Oldham to take
over her supply contract for Jake. Bethany, Jake, and Callie all sign an agreement to substitute
Callie in the supply contract. Which of the following describes what has been done?
(A) accord and satisfaction
(B) novation
(C) modification
(D) impracticability defense
Answer : (B)
141. How long does a creditor have to respond to a debtor who has raised billing questions?
(A) 30 days
(B) 60 days
(C) 90 days
(D) 120 days
Answer : (A)
142. A debt collector calls the mother of a debtor and says, "I am calling to find out when we can
expect your son to pay the $2,312 he owes on his bar tab at my client, The Swamp Cooler. It has
been six months and he has not made a payment." The debt collector:
(A) has not violated the FDCPA because more than six months have passed since the last payment
was made.
(B) has not violated the FDCPA because notification of family members about the debt is not a
breach of privacy under the act.
(C) has violated the FDCPA.
(D) has not violated the FDCPA because the debt collector has the creditor as a client.
Answer : (C)
143. Credit counselors are regulated under:
(A) the Fair Debt Collections Practices Act.
(B) Dodd-Frank - Consumer Financial Protection Act.
(C) the Credit Repair Organizations Act.
(D) the Fair Credit Billing Act.
Answer : (C)
144. Which of the following is not eligible to disclosure of a consumer debtor's credit report?
(A) a consumer debtor requesting the report without a credit application pending
(B) a creditor who has a signed credit application from the consumer debtor
(C) a potential employer
(D) the spouse of the consumer debtor
Answer : (D)
145. Doug Weston had a six-month apartment lease. The lease provided that if Doug ended the
lease early, he would be required to forfeit his security deposit and his last month's rent. This
provision in the lease agreement:
(A) is void as against public policy.
(B) is a liquidated damages clause.
(C) is an assignment of benefits.
(D) is substantial performance.
Answer : (B)
146. Incidental damages include:
(A) the costs of finding substitute buyers or goods.
(B) liquidated damages.
(C) the difference in the cost of the goods.
Answer : (A)
147. A letter of credit:
(A) is a means by which international transactions can get sellers of goods paid.
(B) is required to qualify for a consumer credit purchase.
(C) is void in the United States.
(D) allows the buyer to collect damages from the seller.
Answer : (A)
ESSAY
148. The Jameses were negotiating the purchase of the Smith's home but requested a termite
inspection. The inspection came back clear from ABC Bug, Inc. The Jameses bought the house and
immediately began to notice signs of termite infestation. They called Goodbye Bug, Inc., and their
technician confirmed significant termite infestation and damage. The technician said he had
inspected the home for the Smiths just a few weeks earlier, but was never asked to repair and
exterminate. The Jameses want out of the house and the contract. Do they have a basis?
Graders Info :
Yes, the case appears to be one of fraudulent misrepresentation. The Smiths knew of the damage
and failed to disclose it. The Jameses can rescind the contract.
149. Weldon Newfield was having a custom home built. He had a list of certain materials the
contractor was to use in building the $270,000 home. Newfield was in Europe and the contractor
could not find "Reading Copper Pipe" - one of the required materials. Since Newfield could not be
reached and the contractor was under a time schedule, the decision was made to use another brand
of copper pipe. When Newfield returned and learned of the problem, he refused to pay any
remaining amounts due on the contract ($235,000). Can Newfield do that?
Graders Info :
No, doctrine of substantial performance.
150. Ann wrote a $500 check to Art as a deposit on Art's 240Z car. The memo section of the check
read: "Deposit on 1978 240Z car of Art Mole. Sale price $4500." Art initialed the memo section.
When Ann returned the next day with the remaining $4000, Art said, "Sorry, I sold the car for $4,000
cash yesterday and sent your check back." The cheapest 240Z Ann can find is $5200. What are Ann's
rights? Discuss the following:
a. Was a contract formed?
b. Are there statute of frauds problems?
c. Could Ann collect damages? If so, what?
Graders Info :
a. There was a contract.

b. The check and memo satisfy the statute of frauds.
c. Art did Ann a big favor by returning the check. Ann's damages:
$5200
-4500
$ 700 plus incidental damages
151. A weight-loss ad claims, "Lose up to five pounds per week." Is this statement a basis for
misrepresentation?
Graders Info :
Yes, the statement could be a basis for misrepresentation, but it is open-ended enough that there
may not be any action against the company for making it. The statement does not guarantee five
pounds per week - it is only "up to." If anything, the statement is only placing a maximum on weight
loss.
152. Dee's Caterers contracted with Glen Allen Peanut Farms for the purchase of a one year's
supply of peanuts for Dee's business. The price was $1.21 per pound. The Glen Allen Peanut Farms
was hit by a frost that damaged most of its crops and left what remained with an odd taste. Because
other peanut farms also fell victim to the frost, the price of peanuts rose to $3.37 per pound. Dee's
demanded delivery. Glen Allen said it would cost too much to perform. Must Glen Allen perform?
What damages would Dee's have?
Graders Info :
Glen Allen has tried the defense of commercial impracticability. But, expense alone is not sufficient
grounds for the use of this excuse. Dee's damages would be the difference between $3.37 per pound
and $1.21 per pound.
153. Explain the purpose of a force majeure clause.
Graders Info :
Its purpose is to excuse performance in circumstances not controlled by the parties such as political
unrest, Acts of God (earthquakes, tsunamis, hurricanes), war, etc.
154. Laura Walsh owed $560 to a local department store. The debt was assigned to a collection
agency. The agency did the following: (a) used a postcard to contact Laura and summarize her debt,
(b) called her at 7 AM to catch her before she left for work, (c) called her in spite of Laura's requests
to stop, (d) contacted her employer about the debt, (e) contacted her at the hospital as she visited
her ill mother. Are any of the actions improper?
Graders Info :
All of them are improper and illegal under the FDCPA. (a) violation of privacy; (b) before 8 AM hour;
(c) must stop if debtor asked; (d) privacy problem; (e) harassment.
155. List the federal laws regulating credit contracts and give a brief description of each.
Graders Info :
ECOA - prohibits race, color, sex, and national origin from being used as the basis for a decision.
TILA - full disclosure provisions of Consumer Credit Protection Act. Fair Credit Billing Act - regular
disclosures; full disclosures of open-end credit. FCRA - disclosure of reports and right to correct.
Consumer Leasing Act - disclosure in leasing goods. FDCPA - regulates collection tactics.
156. List what cannot be disclosed in a credit report for a $2,000 loan.
Graders Info :
Bankruptcies longer than 10 years ago; judgments longer than 7 years ago; criminal convictions and
arrests finally disposed of more than 7 years ago.

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Business Its Legal Ethical and Global

Environment 11th Edition Jennings

1. A contract with a minor is voidable at the minor's option.

2. A contract with a party who has been declared incompetent is voidable.

4. Minors are liable for the reasonable value of necessaries.

6. Misrepresentation must be fraudulent before rescission can be permitted.

8. "This shirt is 100% cotton" is a statement that is puffing.

9. Fraud is misrepresentation with intent to mislead or deceive.

10. Duress requires proof of physical force.

12. Undue influence requires proof of a confidential relationship.

14. Contracts with illegal subject matter are voidable.

15. Unconscionability is an illegality defense.

16. Covenants not to compete are valid only in sales of a business.

18. Substantial performance is available for all types of contracts.

20. Liquidated damages are void as penalties.

26. A liability limitation clause is the same as an exculpatory clause.

30. An accord and satisfaction is a void contract.

32. The difference between fraud and misrepresentation is knowledge.

33. Silence, or the failure to disclose information, is not misrepresentation.

34. All contracts have conditions for performance.

36. The difference between fraud and misrepresentation is proof of intent.

38. Covenants not to compete are void only in sale-of-business contracts.

39. Attorneys' fees are an example of liquidated damages.

40. Compensatory damage formulas are provided under the UCC.

42. There is no difference between assignments and delegation.

44. Goods can be transferred physically or by transfer of the bill of lading.

45. A letter of credit is issued by the buyer's bank.

46. A lawyer/client relationship is an example of a confidential relationship.

52. An assignment is the transfer of benefits under a contract.

56. The three-day-cooling-off period applies to all credit transactions.

57. Home equity loans do not carry a rescission period.

58. The Fair Credit Reporting Act regulates creditors.

63. The FDCPA applies to collection agencies and original creditors.

66. The maximum wage garnishment for general debts is 50 percent.

68. The Consumer Credit Protection Act puts limitations on garnishments.

69. The FDCPA is not applicable to the collection of judgments.

74. There is a three-day rescission period on home equity loans.

75. Chapter 11 is the liquidation provision in bankruptcy.

76. Chapter 13 bankruptcy is only available to consumers.

82. Chapter 11 bankruptcy is available to consumers with debts.

(C) voidable only if Bob can return the car.

(D) enforceable since it is for a necessary.

(E) none of the above

(A) "This toothpaste is the best tasting around."

(C) "There is no merger pending for the company."

(D) All of the above are sufficient bases for misrepresentation.

86. Duress requires proof of:

(A) physical force.

(B) threat of physical force.

(C) deprivation of a meaningful choice.

(D) none of the above

87. Contracts with illegal subject matter are:

(C) neither a nor b

(A) a contract with no consideration.

(C) a condition precedent.

(D) none of the above

89. Force majeure clauses:

(A) are liquidated damages clauses.

(B) are void.