Multiple Choice Answers

1) Which of the following is correct with regard to a holder in due course?
A.  A holder in due course can obtain greater rights to payment of an instrument than his transferor had.
B.  A holder in due course can give greater rights to a transferee than he has as a holder in due course.
C.  A holder in due course is primarily liable on an instrument.
D.  A holder in due course must notify subsequent transferees of his holder in due course status.

2) Signature liability on a negotiable instrument is also known as:
A.  Secondary liability.
B.  Shelter liability.
C.  Contract liability.
D.  Agent liability.
E.  Warranty liability.

3) Under what doctrine could a party who is aware that an instrument is overdue take that instrument and acquire the rights of a holder in due course?
A.  The public policy exception.
B.  The taking for value doctrine.
C.  The shelter principle.
D.  The indorsement protection doctrine
E.  The personal defense doctrine.

4) Stan Johnson is the secretary of Balzene’s, Inc., a small corporation. Before an important meeting with some potential clients, Stan purchases some supplies from a local office supply store. Stan takes one of the company’s checks that are imprinted with the company’s name to pay for this merchandise. In his rush before the meeting, Stan simply signs the check “Stan Johnson.” Which of the following is true in this situation?
A.  Stan and Balzene’s will share primary liability on this check.
B.  Stan will not have any liability on this check because the check was imprinted with Balzene’s name.
C.  Stan is not an agent of Balzene’s because he did not sign as an agent.
D.  Stan will have exclusive primary liability on this check.

5) Marti issues a check payable to the order of John, who indorses the check in blank and transfers the check to Amy, who transfers the check to Bill without indorsement. Bill wishes to cash the check. Which of the following best describes the liabilities of the parties?
A.  Marti is primarily liable on the check.
B.  At this point, no one is primarily liable on the check and the drawee bank is not primarily liable on the check until it accepts the check.
C.  The drawee bank is primarily liable on the check.
D.  At this point, no one is primarily liable on the check.
E.  The drawee bank is not primarily liable on the check until it accepts the check.

6) What does it mean for liability on a negotiable instrument to be secondary liability?
A.  There are two parties to share the secondary liability.
B.  It means that the liability relates to a two-party negotiable instrument.
C.  The liability is for a small amount.
D.  The liability arises only if the party with primary liability defaults and does not pay.

7) In order for a security interest to give the secured party protection against the claims of other creditors of the debtor, the security interest must:
A.  Become perfected.
B.  Entitle the creditor to possession.
C.  Terminate the debtor’s interest.
D.  Attach to the subject matter.

8) Which of the following elements must exist for there to be a valid, enforceable security agreement?
A.  The debtor must have an interest in the collateral.
B.  The creditor must give value to the debtor and the debtor must have an interest in the collateral.
C.  A written security agreement.
D.  The creditor must give value to the debtor.

9) Which of the following is true about the distinction between secured and unsecured credit?
A.  Secured debt has collateral associated with it, whereas unsecured debt has no associated collateral.
B.  Secured debt is debt that has already been paid, and unsecured has not yet been paid.
C.  Secured debt is expected to be collected, whereas collection of unsecured debt is doubtful.
D.  Secured debt results from a judgment of the court, whereas unsecured debt results from the agreement of the parties.
E.  Secured debt will be collected over more than 1 year, whereas unsecured debt is expected to be collected within 1 year.

10) Generally, if two creditors have perfected security interests in the same collateral, only one of which is a purchase money security interest, which has the superior right (priority), assuming all notice is properly given within the appropriate time periods?
A.  The purchase money security interest.
B.  The first to perfect.
C.  The first to attach.
D.  They have equal priority.

11) Fourthbank lent $50,000 to Mary, and took a security interest in 1,000 shares of Mary’s stock in Specialized Motors. The bank took possession of the stock certificates. Mary then borrowed $20,000 from her brother, and signed a security agreement with her brother. Her brother immediately filed a financing statement. If the stock is worth $60,000 and Mary defaults on both loans, what is the outcome?
A.  Her brother gets $20,000 and Fourthbank gets nothing.
B.  Fourthbank gets $50,000 and her brother gets $10,000.
C.  Fourthbank gets $40,000 and her brother gets $20,000.
D.  Fourthbank gets $50,000 and her brother gets nothing.
E.  Fourthbank and her brother split the proceeds in a 50,000:20,000 ratio.

12) Robert borrows $500 from a pawnshop, leaving his class ring as collateral. Later, Robert borrows $200 from the bank. Robert signs a financing statement giving the bank a security interest in this ring. If Robert defaults on both loans, who has superior rights to the ring?
A.  The bank, because the pawnshop’s security agreement is not in writing.
B.  The pawnshop, because it was the first security agreement.
C.  The pawnshop, because it was the first to perfect.
D.  The bank, because the pawnshop’s interest is not perfected.
E.  The pawnshop, because the bank’s interest is not perfected.

13) Bob and Ray own a vacation home as joint tenants with each having 50 percent ownership. Ray then sells his 50 percent to Steven without Bob’s knowledge. Two weeks later Steven dies unexpectedly. Which of the following is true?
A.  Steven’s share of the property passes according to the terms of Steven’s will.
B.  Steven’s share of the property goes to Bob.
C.  Steven never got half the property because Ray’s attempted sale was ineffective because it was made without Bob’s knowledge.
D.  Steven’s share of the property goes back to Ray.

14) Rachel, Bonnie, and Cindy equally own real property as joint tenants. Cindy sells her one-third interest to Debbie. Neither Rachel nor Bonnie consented to this transfer. Both Rachel and Bonnie die before either Cindy or Debbie. What portion of this realty does Debbie now own?
A.  One-half.
B.  Nothing; because Rachel and Bonnie did not consent to the transfer, it is void.
C.  One-third.
D.  All of it.
E.  Two-thirds.

15) Father transfers realty to his three children as tenants in common. This means that:
A.  The children own the property with rights of survivorship.
B.  Each child owns a specific one-third of that property.
C.  Only one child may possess that property at any one time.
D.  Each child owns a life estate; reversion to father.
E.  Each child has an undivided one-third interest in the entire property.

16) Sean is walking home from school one day, notices a loose brick in the neighbor’s house, and removes it, luckily not causing the house to fall down. When he walks into his house, Sean’s mother asks Sean, “What kind of property is that in your hand?” Which would be a correct response?
A.  This is personal property because it is not attached to land or to anything on land.
B.  This is intangible property.
C.  This is real property because it was part of the neighbor’s house.
D.  This is a fixture because it was personal property attached to real property.
E.  This is personal property because I found it myself.

17) Which of the following is true when someone accidentally makes an improvement to the personal property of another where the owner was unaware of the improvement until after it had been made?
A.  The party who made the improvement can remove it if this is possible, otherwise the owner of the property gets to keep the improvement and is not required to pay for it.
B.  The property owner gets to keep the improvement in all circumstances and is not required to pay for it.
C.  The property owner gets to keep the improvement in all cases, but must pay the party who improved it the reasonable value of the improvement.
D.  The party who made the improvement can remove it if this is possible, otherwise the owner of the property gets to keep the improvement and must pay the party who improved it the reasonable value of the improvement.

18) Which of the following elements is the most important in determining whether personal property has become a fixture?
A.  Whether the property can be removed without damaging the realty.
B.  Whether the property has been attached to the realty.
C.  Whether the property is used in the same manner as the realty.
D.  The intent of the parties.

19) Under the Superfund legislation, who may be held liable for the cleanup costs of a hazardous waste site?
A.  The generator, the transporter, the owner of the land at the time of disposal, and the current owner.
B.  Only the generator of the waste.
C.  Only the generator and the transporter.
D.  Only the transporter of the waste and owner of the land at the time of disposal.
E.  Only the generator, transporter, and owner of the land at the time of the waste disposal.

20) Deep South Power Company wants to build a new power plant on the shore of a river. The site is on land classified as wetlands. Which of the following is not true about Deep South’s obligations?
A.  Deep South must use the best available control technology that is cost-effective.
B.  Deep South must obtain a discharge permit for any water pollution discharges.
C.  Deep South must obtain a permit from the Army Corps of Engineers before dredging or filling any wetlands.
D.  Deep South must report to the public the amounts of any discharges of the chemicals listed in the Comprehensive Environmental Response, Compensation, and Liability Act.
E.  Deep South must comply with any temperature requirements on the temperature of any waters discharged.

21) A federal government agency is planning to build a dam in Maine. The land where the dam will be located, and the area that will be under the lake to be formed, is currently all privately owned. Which of the following correctly describes the requirement for an environmental impact statement?
A.  An environmental impact statement is required because it is the federal government that is undertaking his project.
B.  An environmental impact statement is not required because the land is private.
C.  An environmental impact statement is required only if the land will become federal land before the dam is built.
D.  An environmental impact statement is required unless the EPA grants a waiver.
E.  An environmental impact statement is required only if any of the land affected is classified as wetland.

22) Which of the following statements best describes the workers’ compensation rules?

23) Which of the following is true about the provisions of the Consolidated Omnibus Budget Reconciliation Act’s provisions relating to health insurance?
A.  Employers must make the same group health insurance available to all employees.
B.  Upon termination of employment, an employer is required to pay, for a limited time, for the former employee’s health insurance coverage under the same terms that it had been paying for it while the employee worked for the employer.
C.  Certain companies are required to provide group health insurance coverage to their employees.
D.  Upon termination of employment, a health insurance provider must allow the employee to continue to participate in the same health insurance coverage program that the employee participated in while working for the employer, although the employee must pay for it.

24) Unemployment compensation amounts are determined by:
A.  The insurance companies providing unemployment insurance.
B.  The state governments, without any restrictions by the federal government.
C.  The federal government.
D.  The state governments, within general guidelines of the federal government.

25) Jack hires Frankie, who is 13 years old, to buy a computer on Jack’s behalf. Which of the following is true?
A.  This is a valid agency relationship even though Frankie is a minor, and Jack would be bound by authorized contracts entered into on Jack’s behalf.
B.  This is a valid agency relationship even though Frankie is a minor, but Jack would be able to disaffirm any contracts entered into on Jack’s behalf.
C.  This agency arrangement is not valid because the agent lacks contractual capacity.
D.  If Frankie buys the computer on Jack’s behalf, Frankie would not be entitled to payment under the terms of the agency arrangement because of his lack of capacity.

26) An agent enters into an authorized contract on behalf of the principal. The principal breached the contract and the agent was held to be liable due to the breach of the principal. The agent can seek to recover from the principal based on the principal’s duty of:
A.  Indemnification
B.  Cooperation
C.  Compensation
D.  Reimbursement
E.  Contribution

27) A principal gives an agent express authority to “get his car running right.” The authority that the agent has to enter into contracts for the purchase of auto parts is:
A.  Express authority
B.  Authority by estoppel
C.  Inherent authority
D.  Apparent authority
E.  Implied authority

28) Which is true about the two kinds of discrimination that are actionable under Title VII?
A.  Disparate impact refers to individuals and disparate treatment refers to protected classes.
B.  Disparate impact and disparate treatment are both based on how an employer treats a protected class.
C.  Disparate impact and disparate treatment are both based on how an employer treats a specific individual.
D.  Disparate treatment refers to individuals and disparate impact refers to protected classes.

29) Which of the following items is a legal justification for paying unequal wages based on gender?
A.  Seniority, merit, and quantity or quality of work.
B.  Merit only.
C.  Seniority only.
D.  Quantity or quality of work only.

30) The Americans with Disabilities Act requires that:
A.  ly hired employees have physical examinations to identify disabilities.
B.  Applicants for jobs are asked about their disabilities in order to identify them.
C.  Employers make reasonable accommodations to accommodate employees’ disabilities.
D.  Persons with qualifying disabilities receive preference in hiring whenever possible.
E.  Persons with disabilities notify a potential employer of disabilities prior to being hired.

31) Gretchen, a Certified Public Accountant, was hired by a retail hardware store to perform an audit on the store’s financial statements. In the agreement for this engagement was a clause stating that the audited financial statements would be used “to renew the inventory financing line of credit from Third National Bank.” Gretchen completed the audit and issued an unqualified opinion. The client obtained the financing from Third National Bank. Unfortunately, Gretchen had been negligent in conducting the audit, and the inventory had been greatly overstated. As a result, there was inadequate collateral for the loan, and when the hardware store went bankrupt a few months later, Third National Bank suffered a loss. Under which of the rules for an accountant’s liability to third parties could Third National Bank recover from Gretchen?
A.  The Ultramares doctrine and the foreseeability standard.
B.  The foreseeability standard and the Restatement (Second) of Torts.
C.  The Ultramares doctrine.
D.  The foreseeability standard.
E.  The Ultramares doctrine, the Restatement (Second) of Torts, and the foreseeability standard.

32) Anne, a Certified Public Accountant, was hired by a retail hardware store to perform an audit on the store’s financial statements. In the agreement for this engagement was a clause stating that the audited financial statements would be used “to obtain further inventory financing from Second National Bank or another local bank.” Anne completed the audit and issued an unqualified opinion. The client obtained the financing from Heartland National Bank, another local bank. Unfortunately, Anne had been negligent in conducting the audit, and the inventory had been greatly overstated. As a result, there was inadequate collateral for Heartland’s loan, and when the hardware store went bankrupt a few months later, Heartland suffered a loss. Under which of the rules for an accountant’s liability to third parties could Heartland recover from Anne?
A.  The Ultramares doctrine and the foreseeability standard.
B.  The foreseeability standard and the Restatement (Second) of Torts.
C.  The Ultramares doctrine.
D.  The foreseeability standard.
E.  The Ultramares doctrine, the Restatement (Second) of Torts, and the foreseeability standard

33) Anne, a Certified Public Accountant, was hired by a retail hardware store to perform an audit on the store’s financial statements. The agreement for this engagement stated that the audited financial statements would be used “to obtain further inventory financing from Second National Bank or another local bank.” Anne completed the audit and issued an unqualified opinion. The client then used the audited financial statements to encourage Henry to invest in the hardware store as a new partner. Unfortunately, Anne had been negligent in conducting the audit, and the inventory had been greatly overstated. As a result, the hardware store soon went bankrupt. Under which of the rules for accountant liability to third parties could Henry recover from Anne?
A.  The Ultramares doctrine and the foreseeability standard.
B.  The foreseeability standard and the Restatement (Second) of Torts.
C.  The Ultramares doctrine.
D.  The foreseeability standard.
E.  The Ultramares doctrine, the Restatement (Second) of Torts, and the foreseeability standard.