Final exam 1. On Tuesday, Jon offered to sell his CD collection to Sandy for $100. Sandy replied, “I

Final exam
1. On Tuesday, Jon offered to sell his
CD collection to Sandy for $100. Sandy replied, “I’m interested. I’ll
think it over and let you know Thursday whether I want to buy the CDs.” On
Wednesday, Jon agreed to sell the CDs to Jason, and Jason immediately gave Jon
a letter that stated:
“Jon, I will buy your CD
collection for $100. As we agreed, I will pay you on Friday when I pick up the
CDs. Yours truly, Jason.”
Upon Jon’s receipt of this letter on
Wednesday, what best describes Jon’s contract agreement(s)?
a) By forming an agreement with Jason,
Jon breached his contract with Sandy because he did not effectively revoke his
offer to Sandy.
b) Jon has formed contracts with both
Jason and Sandy because Jon did not effectively revoke his offer to Sandy and
created an enforceable written agreement with Jason.
c) Jon and Jason have formed a valid,
enforceable contract; Jon’s offer to Sandy was properly revoked.
d) Jon effectively revoked his offer to
Sandy, but has not formed an enforceable contract with Jason because Jason has
not yet paid for the CD collection.
2. Mac and Rhamad signed a business
contract with a clause that provides that if a dispute arises they must submit
to binding arbitration to resolve the dispute. After they had been doing
business together for a year, a dispute arose under the terms of the contract.
Rather than submit to arbitration, Mac filed a lawsuit against Rhamad. Most
likely the court will:
a) Hear the lawsuit because Mac cannot be
compelled to submit to arbitration; he is constitutionally entitled to a jury
trial if he requests a trial.
b) Conduct a hearing, then order a remedy
without compelling Mac to submit to arbitration or to a jury trial.
c) Compel Mac to submit to arbitration to
resolve the dispute.
d) Hear the lawsuit in a trial, then
compel Mac to submit to arbitration, if Mac is not satisfied with the trial
3. Roxy, while driving through Wyoming
to her home in Montana, accidentally lost control of her car and drove it
through a window into a store owned by Colt. Colt sued Roxy in a Wyoming court
for damages to his store.
Will the Wyoming court likely be able
to exercise jurisdiction over Roxy?
a) No, because Wyoming has no in personam(personal) jurisdiction over
Roxy, and cannot exercise its long arm statute only in cases involving
automobile accidents.
b) No, because Wyoming has no in personamjurisdiction over Roxy, and
cannot justify minimum contacts in this case.
c) Yes, Wyoming can exercise jurisdiction
in this case because there is a federal question involved due to the diversity
of citizenship between the parties.
d) Yes, because Wyoming can assert in personamjurisdiction over Roxy under
the minimum contacts test.
4. Assume a salesperson intentionally
made one of the following statements – knowing that the statement was false –
to a customer considering a purchase. Which statement could create liability
for fraudulent misrepresentation if the customer made the purchase?
a) “In my opinion, this car is in
flawless mechanical condition.â€
b) “This crane will probably lift about
10,000 pounds.â€
c) “This car is a real gem.â€
d) “This is an original painting by the
artist, Pablo Picasso.â€
5. Ram was walking down the sidewalk
by a construction project site in a downtown area. The project was owned and
operated by Modern Construction, Inc. and was surrounded by orange plastic
fencing typically used for construction projects. Ram stopped to watch a metal
beam being lifted by a crane on the construction site. As the beam swung
through the air, Ram thought it was going to fall and jumped forward quickly
off the sidewalk and into the construction project property, falling into and
smashing the orange plastic fencing. As Ram landed inside the construction
project, the beam fell near Ram. The beam did not hit Ram but some rocks were
thrown onto Ram as the beam fell, cutting his arm so that it required 35
If Ram sues Model Construction for
negligence, the likely result will be that Ram will:
a) Lose, because he assumed the risk as a
trespasser on the construction site and trespassers can never recover damages.
b) Lose, because pedestrians are always
liable under contributory negligence in such cases involving trespassing.
c) Win, because it is always foreseeable
that a beam could fall on a rescuing pedestrian.
d) Win, if the beam fell because of Model
Construction’s negligence.
6. Kim carelessly parked her car on a
steep hill, leaving the car in neutral and failing to engage the parking brake.
The car rolled down the hill and knocked down an electric line. The sparks from
the broken line ignited a grass fire that spread to a barn several yards away.
The roof of the burning barn fell and damaged a passing car owned by Ray. Can
Ray likely recover damages from Kim under ordinary negligence?
a) Yes, because Kim was negligent in
parking the car.
b) Yes, because Kim set in motion the
chain of events that resulted in damage to Ray’s car, even though Kim did not
directly hit the car.
c) No, because of the unforeseeable
intervening force doctrine.
d) No, regardless of Kim’s negligence in
parking the car as her negligence was not the proximate cause of the accident
and harm that occurred to Ray.
7. Lee sued Don in negligence. Lee’s
losses total $100,000. Under a contributory negligence system, if Lee is found
to be contributorily negligent for her own injuries, what damages will Lee like
recover from Don?
a) None.
b) $100,000.
c) $100,000, less the percentage of fault
(e.g., 20%, 60%, etc.) for which Lee was responsible.
d) $100,000, less the percentage of fault
for which Lee was responsible, so long as Lee was not more than 50% responsible
for the injuries.
8. Ralph, a 16-year old minor, is
manager for the high school football team. Ralph signed a contract to purchase
alcoholic beverages from Liquormart, Inc. for the team party. This contract is:
a) Void as a matter of law because it is
illegal to sell alcohol to minors by state law.
b) Void only if Ralph misrepresented his
age and told Liquormart he was an adult.
c) Valid and enforceable, but Ralph has
the right to disaffirm because he is a minor.
d) Valid and enforceable, if Liquormart
knew that Ralph was a minor.
9. Which of the following activities
may involve the use of a contract, and/or constitute a sales contract?
a) Purchasing medications from a
b) Hiring a contractor to make home
c) Purchasing insurance policies from an
insurance agent.
d) Selling books to customers in a
e) All of the above.
10. Jim and Kiley are architects and
general partners of JK Designs. Jim and Kiley supervise Luc, an employee of JK
Designs. As partners, Jim and Kiley
a) Are personally liable for any/all
tort(s) committed by Luc.
b) May be liable for malpractice, but not
torts, committed by Luc while Luc is working within the scope of his job at JK.
c) May be liable for torts committed by
Luc while Luc is working within the scope of his job at JK.
d) Have no liability for any torts
committed by Luc at any time.
11. Kisha operates River Valley
Soccer, an athletic equipment shop, as a sole proprietorship. Taxes on the
business’s income are paid by
a) No one; since it is a sole
proprietorship there are no business taxes.
b) Kisha as the sole owner.
c) The state or federal government if
Kisha holds a Small Business Administration loan acquired to start her
d) The business entity of River Valley
Soccer, not Kisha personally.

12. Distinguish which of the following
is an advantage of limited liability companies (LLCs) over corporations.
a) Only one member of a LLC must have
unlimited liability as compared with corporations in which all shareholders
have unlimited liability.
b) LLCs can be formed without any
specific steps being taken by the owners as compared with corporations that
must file Articles of Incorporation with the State.
c) In most cases, a LLC can choose whether
to be taxed as a partnership or corporation, as compared with corporations that
are subject to double corporate taxation.
d) LLCs can choose whether to sell shares
publically to investors, as compared to private corporations that must sell
shares publically to investors.
13. Pete, who collects antique cars,
hired Ann as his agent to find and purchase a 1965 Ford Mustang on his behalf.
Ann found a Mustang just like Pete wanted, but Ann fell in love with the car
and purchased it for herself.
Which of the following illustrates
Ann’s liability, if any, in her duty as agent to Pete in this situation?
a) Ann has not
violated the duty of loyalty to Pete; she can find another Mustang for him.
b) Ann has not
engaged in self-dealing because she did not purchase the Mustang with Pete’s
c) Ann usurped
an opportunity for Pete, but has not violated the duty of loyalty to Pete by
competing with Pete’s interests.
d) Ann
violated the duty of loyalty to Pete by competing with Pete’s interests, and
has usurped an opportunity for Pete.

questions 14-15 regarding the following scenario:
Jones, a resident of Arizona, booked reservations
for a vacation at World Hotels, Inc. in Cabo Mar, Mexico. World Hotels is an
international hotel chain incorporated in Delaware with hotels in North and
South America; World Hotels has no hotels in Arizona but does advertise and
book reservations for all its hotels over the internet, in any state. World
Hotels has booked reservations in the past with residents of Arizona.
While a guest in the hotel in Cabo Mar,
Jones was walking across the hotel lobby, and slipped and fell on the wet
marble floor that had been just washed by the maintenance staff. The staff had
placed a “wet floor†sign on the lobby floor on the sitde wall of the
Jones was taken to the nearest Mexican
hospital where surgery was necessary to place a pin in his broken leg. Anxious
to return home and see his regular doctor, Jones flew out of Mexico shortly
after the surgery. He required two plane seats and an ambulance to meet him at
various airports. His health insurance would not cover his hospital stay in
Mexico as it was located outside the U.S. When back in Arizona, Jones was
unable to work for 8 weeks and required another surgery to remove the pin. He
also required several weeks of physical therapy.

14. Jones wants to sue World Hotels,
Inc. for negligence for $450,000 to recover all his medical expenses in Mexico
and the US; for $50,000 for the cost of the plane trip from Mexico to Arizona,
the 2 plane seats and ambulance costs in various airports; $10,000 for 8 weeks
of lost wages; and $50,000 for pain and suffering resulting from the injury.
Can he sue in federal court?
a) Yes, because federal court always has
jurisdiction over citizens of different states.
b) No, because federal court does not
have jurisdiction in cases that do not involve federal laws.
c) Yes, because the federal court may
have jurisdiction over citizens of different states and the lawsuit involves
damages greater than $75,000.
d) No, because the federal court has no
jurisdiction over an accident that occurred in Mexico.

15. It would be easier for Jones to
bring the lawsuit in Arizona state court, but he wonders if the court can get
World Hotels to come to Arizona. Can the Arizona state court impose
jurisdiction over World Hotels to bring the company to court in Arizona?
a) No, because the subject of the lawsuit
took place in a foreign country.
b) No, because the corporation does not
have sufficient minimum contacts with Arizona to allow the Arizona court to use
the long arm statute to establish jurisdiction in Arizona.
c) Yes, because the Jones is a resident
of Arizona and he is the plaintiff in the lawsuit.
d) Yes, because World Hotels has
sufficient minimum contact with the state of Arizona to justify the court’s use
of the long arm statute.

16. Dan went to
Doctor to have an x-ray. Dan did not sign a written contract, and Dan and
Doctor did not make an oral agreement regarding the x-ray. When Doctor billed
Dan $500 for the x-ray, Dan refused to pay. Doctor sued Dan to recover the
$500. Which of the following is true about Doctor’s lawsuit?
a) Doctor can recover under the
quasi-contract theory of promissory estoppel.
b) Doctor can recover under an implied
contract theory.
c) Doctor cannot recover because there
was no express contract.
d) Doctor cannot recover because Dan did
not give consideration for the bargain.

17. Reg offered
to sell his motorcycle to Thelma for $8,000. Thelma replied, “Your price
is too high. I will purchase your motorcycle for $7,000”. Reg agreed and
they committed their agreement to writing. This transaction can be
characterized as:
a) An enforceable contract because Reg’s
acceptance of Thelma’s offer was a clearly communicated acceptance.
b) An enforceable contract because
Thelma’s counteroffer was less than Reg’s original offer
c) An unenforceable contract because
Thelma’s offer was not the mirror image of Reg’s original offer as is required
under common law contract rules.
d) An unenforceable contract unless
either Reg or Thelma is a merchant, as defined by the UCC, because sale of
personal property contracts are valid only if one of the parties to the
contract is a merchant.

18. A ordered
100 19-inch color TV sets from B, and requested prompt shipment of the goods. B
promptly shipped to A 100 21-inch color TV sets. Prior to shipment, B did not
notify A that he was shipping nonconforming TVs as an accommodation. Assuming
both A and B are merchants, under UCC rules, in this case:
a) There is no valid acceptance by B;
shipping nonconforming goods acts as a counteroffer, and thus, cannot
constitute an acceptance or create a valid, enforceable contract.
b) Although B shipped nonconforming TVs,
A is bound to pay the reasonable value of the 21-inch nonconforming TV sets
because B’s shipment constituted a valid acceptance, and a binding contract was
formed at the time the goods were shipped.
c) Although B shipped nonconforming TVs,
if A accepts and later sells the 21-inch TVs, A has validly accepted the
nonconforming goods and is bound to pay B reasonable value for the 21-inch TVs.
d) There is no contract because B’s
acceptance (by shipping the goods) is not a mirror image of A’s offer.
19. Someone who
recovers damages for breach of contract typically can recover:
a) Only those compensatory damages/losses
that can be proven with reasonable certainty.
b) For all consequences of the breach,
e.g., pain and suffering, whether or not the damages are foreseeable.
c) Only for foreseeable damages.
d) Punitive damages.

20. Leon, a bank
vice president, joined Fitness Center, Inc. (FC). He signed a contract stating,
among other things, an exculpatory clause that FC…
“shall not be liable for any claim, demand,
cause of action of any kind whatsoever for, or on account of death, personal
injury, property damage or loss of any kind resulting from or related to
Member’s use of facilities or participation in any sport, exercise or activity
within the club premises…â€
Leon sustained
head injuries when a treadmill on which he was walking collapsed at FC. Leon
sued FC for his injuries. The court most likely will rule:
In favor of Leon because
the exculpatory clause is against public policy.
In favor of Leon because
the exculpatory clause is too broad in scope.
In favor of FC because the
exculpatory clause is not unconscionable under the circumstances.
4. In favor of FC because it had a valid enforceable contract with Leon
as Leon knowingly signed the contract.
21. Supermarket
offered to buy 1000 boxes of yogurt from Foods Co. The offer did not state a
specific delivery date. 9 weeks later, Supermarket still had not heard from
Foods, nor had Foods shipped the goods. At this point, Supermarket:
a) Can do nothing but wait to hear an
acceptance or rejection from Foods before Supermarket can revoke the offer.
b) Can assume that Foods does not intend
to accept the contract and is free to buy to yogurt from another supplier.
c) Must accept the goods when they
arrive, unless Supermarket has relocated.
d) Must accept the goods when they arrive
unless Foods has clearly rejected the offer.
22. Ed and Nora
signed a contract that included a statement, “No evidence of oral negotiations
may be used to change the terms of this contractual writing.†Later Ed sued
Nora for a breach of contract. In court, Nora testified that she did not breach
their agreement because, after signing the written contract, she and Ed orally
agreed to change the contract terms. Nora’s testimony will:
a) Be admitted by the court as evidence
that Nora did not breach the contract.
b) Be admitted as a valid exception under
the Parol Evidence Rule.
c) Be admitted if Nora is a minor because
the Parol Evidence Rule does not apply to contracts with minors.
d) Not be admitted under the Parol
Evidence Rule.

23. A city
ordinance permits street vendors to operate only within certain commercial
areas of the city to prevent dangerous traffic congestion. The street vendors
sued the city claiming that the restrictions were a violation of their equal
protection rights as other businesses are not restricted to operating only in
certain commercial areas within the city.
How would you
classify the ordinance?
a). Constitutional; because the city has
a justifiable purpose in enacting the ordinance, it does not violate the equal
protection rights of street vendors.
b). Constitutional; because street
vendors are private businesses, they are not protected by the equal protection
clause of the 14thAmendment.
c). Unconstitutional; the ordinance
unduly discriminates against street vendors as compared to other business
owners and thus, violates the vendors’ equal protection rights.
d). Unconstitutional; privately owned
vendors, unlike public businesses, have a constitutional right to conduct
business in any commercial area of their choice.

24. Charlie
Customer bought an airline ticket on BartAir through Tina Travel Agent.
Identify the
legal relationship of Charlie, BartAir and Tina regarding this transaction.
Charlie is the principal; Tina is his agent representing him with
BartAir is the principal; Tina is its agent in the sale of the airline
ticket to Charlie.
Tina is not the agent of BartAir or Charlie, but Tina’s employer, the
travel agency, is the agent for Charlie.
Tina is the agent for both BartAir and Charlie.

25. What is the
burden of proof in a civil trial?
a) Beyond a reasonable doubt.
b) By a preponderance of the evidence.
c) Beyond no doubt.
d) There is no burden of proof.

Essay (10 essays;
each essay is worth 5 points):
1. Refer to the scenario for Multiple Choice
questions 14-15 above to answer the following essay question #1 only:
Jones sued World Hotels, Inc. for
negligence to recover damages for his injuries resulting from the fall in the
Cabo Mar hotel. Will Jones likely be successful in the negligence lawsuit
against World Hotels? Explain fully why or why not.
Dan, Fran and Stan want to establish a
bike sales and rental shop. Dan and Fran will be actively involved in managing
the business operations, and Stan is investing most of the money. The 3 want to
use a form of business organization that will give limited liability to each of
them. Discuss what would be the best type of business organization to limit
their liability, and why?

2. Compare and
contrast the rights and possible liabilities for a merchant selling goods in
“As Is†condition with the rights and possible liabilities for selling goods
with an express warranty stating, “This product is quality Grade Aâ€.

3. Aaron plans
to open Aaron’s Pet Supplies, a pet supplies outlet, and plans to hire 2
part-time employees. Aaron will invest only his own money in the business. He
does not expect to make any profit for at least 2 years and to make very little
profit for the first 3 years after the first 2 years. He does expect to make a
profit eventually.
Which form of business organization is
most appropriate and easiest for Aaron to use in opening his pet store – and

4. There are
extensive federal regulations governing airplanes and pilots. Assume that the
state of New York passed a statute containing numerous requirements, some
conflicting with federal regulations, covering operation of airplanes and
licensing of airplane pilots.
If the New York state statue is
challenged as being unconstitutional, what is the likely result? Describe the
applicable law and rationale for your conclusion.

5. Ted was hired
by In Flite, Inc. to purchase an airplane on its behalf. Without mentioning
that he was making the purchase on behalf of the principal, In Flite, Ted
bought a Cessna 310 from Sam. 2 weeks later, In Flite declared bankruptcy and
cannot now buy the airplane.
Compare and contrast In Flite’s liability
under the contract to purchase the Cessna with Ted’s liability under the
contract to purchase the Cessna.

6. Mountain View
Mall hired Nigel to act as Santa Claus in the mall. After a tough work day,
Nigel stopped in a bar in the mall and drank 6 beers. Driving home, still
wearing his Santa suit, Nigel hit a Marty, a pedestrian and severely injured
her, when Marty darted between 2 parked cars in the middle of a block and ran
in front of Nigel’s car.
Analyze and explain all potential
liabilities of Mountain View Mall and Nigel for the pedestrian’s injuries.

7. For several
years, Agnes had been agent for Pepe for maintaining Pepe’s antique piano
collection, including sale and purchase of antique pianos. Agnes recently sold
one of Pepe’s pianos and kept some of the money for herself. Soon thereafter,
Agnes declared bankruptcy. At about the same time, the State notified Agnes
that she had sold, within the past year, the maximum allowable number she was
permitted to sell without being required to obtain a dealer’s license. Two
weeks later, Pepe died.
Analyze and
describe the legal effect of each of these events on the agency-principal
Agnes’s keeping for herself the
proceeds from the sale of a piano;
Agnes’s bankruptcy;
The state requirement that
Agnes obtain a dealer’s license;
Pepe’s death.

8. Fifty CPAs
together want to form a new firm. They want to use a business organization form
that will provide each of the 50 owners of the new firm with limited liability.
Analyze and
describe the business form(s) that will provide the new owners with limited

9. Scenario:
Sam’s Beauty School is a privately owned beauty school that trains
cosmetologists to earn their cosmetology license to become hair stylists and
colorists. Sam’s is open to the public for all hair services; students perform
hair services for clients under the supervision of licensed cosmetologists that
work at Sam’s.
Jan went the
Sam’s to have her hair colored dark brown as she had done many times, although
this was Jan’s first time as a client at Sam’s. Tom, a student trainee at
Sam’s, colored her hair. Jan’s hair turned green and fell out within 24 hours.
Jan had never had any problems with hair color previously.
Jan sued Sam’s
for negligence. Who wins and why?

10. Scenario:
Following 2 years of research and an investment of substantial funding, Coastal
Company (CC) developed a new product that will produce substantial profits for
CC. CC learned that a competitor, National Sales and Marketing, Inc. (National)
made and began to sell a nearly identical product to CC’s new product. CC
learned from a reliable source that National paid a CC employee to obtain the
plans for CC’s new product when it was in the development states.
A. Under what legal claim could CC sue
National, and why?
B. If CC does sue National under this
legal claim, what is the likely result and why?

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