Chapter 22
Performance and Breach of
Sales and Lease Contracts
N.B.: TYPE
indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
|
||
true/false
questions
1. The standard
of good faith is only read into contracts that provide expressly for it.
ANSWER: F PAGE: 425 TYPE: +
2. A seller’s
tender of goods that does not conform
to a contract is not a valid tender.
ANSWER: T PAGE: 426 TYPE: +
3. Goods
may be tendered in installments if the parties prefer it that way.
answer: T PAGE: 426 TYPE: +
4. Under
a destination contract, a seller must deliver the goods to a carrier, after
which the risk of loss passes to the buyer.
answer: f PAGE: 427 TYPE: =
5. A seller cannot exercise the right to cure
once the time for performance under the contract has expired.
answer: t PAGE: 427 TYPE: N
6. A substitution of one commercially reasonable
carrier for another can be a valid tender of delivery if it is done within the
time for performance.
answer: T PAGE: 428 TYPE: N
7. In an
installment contract, a buyer can reject any installment for any reason.
ANSWER: F PAGE: 428 TYPE: +
8. If
a nonconforming installment substantially impairs the value of a whole
contract, the buyer can treat the entire contract as having been breached.
answer: T PAGE: 428 TYPE: N
9. A
delay in delivery of goods under a sales contract is a breach if performance
is commercially impracticable.
answer: F PAGE: 429 TYPE: N
10. Unless
the parties agree otherwise, the buyer must make payment at the time and place
that the goods are received.
answer: T PAGE: 431 TYPE: N
11. If goods fail
to conform to a contract in any way, the buyer or lessee cannot make even a
partial acceptance of the goods.
ANSWER: F PAGE: 433 TYPE: N
12. A buyer’s
breach of a contract will not usually
give the seller the right to cancel the contract.
answer: f PAGE: 435 TYPE: N
13. When a buyer
breaches a contract while the seller is still in possession of the goods, the
seller can resell the goods and hold the buyer liable for any loss.
ANSWER: T PAGE: 435 TYPE: =
14. An
unpaid seller can bring an action to recover the purchase price, on the buyer’s
breach of a contract, only if the goods are first resold or otherwise disposed
of.
ANSWER: F PAGE: 436 TYPE: =
15. If
a lessee wrongfully refuses to accept goods that conform to a contract, the
lessor must tender substitute goods.
answer: F PAGE: 436 TYPE: N
16. If
a lessee wrongfully refuses to accept goods that conform to a contract, the
seller can maintain an action to recover the damages sustained.
answer: T PAGE: 436 TYPE: N
17. A buyer who
obtains substitute goods to replace goods that a seller did not deliver can
also recover damages from the seller.
ANSWER: T PAGE: 439 TYPE: +
18. If a lessor’s
tender of delivery fails to conform to a contract in any way, the lessee cannot
accept the goods.
ANSWER: F PAGE: 440 TYPE: N
19. A buyer who
rightfully rejects nonconforming goods can resell the goods and keep the
proceeds without accounting to the seller for any of the amount.
ANSWER: F PAGE: 440 TYPE: N
20. A buyer who
accepts nonconforming goods cannot
revoke the acceptance.
ANSWER: F PAGE: 441 TYPE: N
multiple
choice questions
1. Superb Resources, Inc., sells unprocessed
minerals to commercial processors in Texas. With regard to the UCC’s good
faith requirement, Superb can
a. avoid
it only by a conspicuous written disclaimer.
b. avoid
it only by oral disclaimer.
c. avoid
it with or without a disclaimer.
d. not
disclaim it.
answer: D PAGE: 425 TYPE: N
2. International Gem Corporation agrees to sell
Jewelry Outlets, Inc. (JOI), fifty new diamonds, but the contract does not
specify a place of delivery. JOI is expected to pick up the goods. The place of
delivery is
a. International’s
place of business.
b. JOI’s
place of business.
c. the
Annual Gems and Jewels Convention.
d. the
U.S. Postal Service office nearest to JOI’s place of business.
answer: A PAGE: 426 TYPE: N
3. Custom
Tableware, Inc., contracts for a sale of cutlery to Diners Cafe under a
shipment contract. Custom must
a. contract
for transportation of the cutlery and tender to Diners documents to obtain its
possession.
b. neither
contract for transportation of the cutlery nor tender to Diners documents to
obtain its possession.
c. only
contract for transportation of the cutlery.
d. only
tender to Diners documents to obtain possession of the cutlery.
ANSWER: A PAGE: 426 TYPE: +
4. Pep
Paints agrees to sell to Quality Painters Grade A-1 latex outdoor paint to be
delivered May 8. On May 7, Pep tenders Grade B-2 paint. Quality rejects the
Grade B-2 paint. Two days later, Pep tenders Grade C-3 paint with an offer of a
price allowance. Pep has
a. additional, unlimited time to cure.
b. a reasonable, additional time to cure.
c. one more day to cure.
d. no more time to cure.
answer: D PAGE: 427 TYPE: N
5. In Case 22.3, Banco International, Inc. v. Goody’s Family Clothing, the court
held that anticipatory repudiation was indicated by
a. Banco’s failure to start performance within a
reasonable time to meet the contract deadlines.
b. Banco’s misrepresentations
concerning the status of its performance.
c. Both a and b.
d. None of the above.
ANSWER: C PAGE: 433 TYPE: N
6. On
May 1, A-Plus Auto Sales agrees
to sell a car to Bob. Five days later, Bob cancels the contract. A-Plus is entitled
to
a. force Bob to take the car.
b. recover any resulting damages from Bob but not resell the car.
c. resell the car and recover any resulting damages from Bob.
d. resell the car but not recover any damages from Bob.
answer: C PAGE: 435 TYPE: N
Fact Pattern 22-1 (Questions 7–8 apply)
Acme, Inc., buys scrap
metal from Beta Resources, Inc., to process and sell. Their contract provides
for an annual review of the price. When the processed scrap’s market value
decreases, the parties continue to ship and process the scrap while they review
the price. During the negotiations, Acme does not pay Beta. Unable to agree on
a price, Beta ends the deal, retrieves the scrap that was shipped and processed
but not paid for, and sells it.
7. Refer to Fact Pattern 22-1. According to the
court’s ruling in Case 22.1, Utica
Alloys, Inc. v. Alcoa, Inc., Beta is entitled to the proceeds from this
sale and
a. nothing more.
b. the contract price without subtracting the market price for scrap.
c. the difference between the contract price and the market price for
processed scrap.
d. the difference between the contract price and
the market price for unprocessed
scrap.
ANSWER: D PAGE: 437 TYPE: N
8. Refer to Fact Pattern 22-1. Under the court’s
reasoning in Case 22.3, Utica Alloys,
Inc. v. Alcoa, Inc., the reason for the measure of damages awarded to Beta
is that
a. Acme was not the party who ended the deal—Beta was.
b. Beta participated in the price review in good faith.
c. Beta retrieved and sold scrap that Acme processed without paying
for.
d. Beta retrieved the processed scrap without
paying for the processing.
ANSWER: D PAGE: 437 TYPE: N
9. Topps
Publishing, Inc., contracts for a sale of textbooks to University Bookstores,
Inc. (UBI). Value Shipping Company, the carrier, transports the books to Wit Warehouse
Company. Topps’ right to stop delivery is lost when UBI’s rights to the goods
are acknowledged by
a. the
appropriate government agency only.
b. Value
only.
c. Wit
only.
d. Value
or Wit.
ANSWER: D PAGE: 438 TYPE: N
10. AAA
Architects, Inc., and Best Office Supply Company contract for a sale of office
furniture. AAA, which is insolvent, breaches the contract. Best can stop
delivery of the goods in transit
a. only if
the quantity is at least a carload.
b. only
if the quantity is at least a planeload.
c. only
if the quantity is at least a truckload.
d. regardless
of the quantity.
ANSWER: D PAGE: 438 TYPE: +
11. Hi-Tech
Company contracts to sell fiber optic cable to Internet Services, Inc. Hi-Tech
may bring an action to recover the purchase price and incidental damages if
Internet
a. accepts
the cable and pays for it.
b. accepts
the cable but does not pay for it.
c. rejects
the cable.
d. revokes
acceptance of the cable.
ANSWER: B PAGE: 438 TYPE: +
12. Pisa Pizza
Company contracts to sell 1,000 cases of frozen pizzas to Quality Grocers,
Inc., but refuses to deliver. Due to a spice shortage, Quality cannot obtain
pizza elsewhere. Quality’s right to recover the goods from Pisa is the right of
a. cover.
b. replevin.
c. repudiation.
d. specific
performance.
ANSWER: B PAGE: 439 TYPE: +
13. Superior
Furniture Company contracts to buy from Timber Products, Inc., a shipment of
wood that Superior will use to make furniture. Timber refuses to deliver the
wood. Superior can recover damages equal to the difference between the contract
price and
a. the
cost to make the furniture.
b. the
cost to obtain the wood elsewhere.
c. the profit
that Superior would have made on the furniture.
d. the
sale price of the furniture.
ANSWER: B PAGE: 439 TYPE: N
14. Omega
Corporation contracts for a sale of water pumps to Pool & Spa, Inc. The
pumps partly fail to conform to the contract. Pool & Spa
a. may
accept or reject the shipment in part or in whole.
b. must
accept the conforming part of the shipment.
c. must
reject the nonconforming part of the shipment.
d. must
reject the whole shipment.
ANSWER: A PAGE: 440 TYPE: N
15. Hidebound
Stores, Inc., rejects a shipment of leather goods that does not conform to its
contract with International Cowhide Corporation (ICC), but is unable to obtain
instructions from ICC. Hidebound may
a. resell
or return the goods only.
b. resell
or store the goods only.
c. return or
store the goods only.
d. resell,
return, or store the goods.
ANSWER: D PAGE: 440 TYPE: N
16. A-1 BBQ, Inc.,
makes and sells barbecue grills to Big Mart, a retailer, which sells a grill to
Carl, a consumer. A-1 and Big Mart include in their sales contracts a
limitation on consequential damages for personal injuries from a breach of
warranty. This is prima facie unconscionable
with respect to
a. A-1
only.
b. A-1
and Big Mart, but not Carl.
c. Big
Mart and Carl, but not A-1.
d. Carl only.
ANSWER: D PAGE: 443 TYPE: N
Fact Pattern 22-2 (Questions 17–20 apply)
First State Bank issues
a letter of credit in favor of Oboe Company, an American firm, to facilitate an
international sales contract to buy resources from Lapland Mining, Ltd., a
Finnish company.
17. Refer to Fact Pattern 22-2. First State Bank
must pay Lapland when Lapland
a. enters
into the contract with Oboe.
b. verifies
that Oboe has the money to pay for the purchase.
c. complies
with the terms and conditions of the letter of credit.
d. none
of the above.
answer: c PAGE: 444 TYPE: =
18. Refer to Fact Pattern 22-2. First State Bank
a. is
responsible for making sure that the parties perform the contract.
b. will
make payment once the transaction has been completed.
c. will
make payment when Lapland presents the proper documents.
d. none
of the above.
answer: c PAGE: 444 TYPE: =
19. Refer
to Fact Pattern 22-2. In a letter
of credit, the beneficiary is
a. Lapland.
b. Oboe.
c. First
State Bank.
d. none
of the above.
answer: A PAGE: 444 TYPE: =
20. Refer
to Fact Pattern 22-2. To obtain payment, Lapland must comply with all of the
requirements of the letter of credit
a. strictly.
b. substantially.
c. reasonably.
d. materially.
answer: A PAGE: 444 TYPE: =
Essay
Questions
1. Tech
Electronics Corporation agrees to sell to Universal Retail Stores fifty
televisions with LCD screens, to be delivered in five equal installments. The
first installment consists of nine TVs with LCD screens and one with a CRT
screen. Can Universal cancel the whole contract?
ANSWER: No.
An installment contract is breached only if one or more nonconforming
installments substantially impair
the value of the whole contract. Also, a buyer cannot reject an installment unless
a nonconformity substantially impairs
the value of the installment and cannot be cured. The nonconforming tender
here, under the circumstances as stated, does not substantially impair the
value of the installment or the whole contract and seems easily curable.
PAGES: 428–429 type: =
2. Theatrical
Supplies Company contracts to sell to United Costumes & Uniforms, Inc.,
seven hundred plastic masks at $1 each to be delivered by October 1. Theatrical
knows that United will use the masks to make Halloween costumes. United usually
makes $7,000 profit from the costumes’ sale. Theatrical fails to deliver on
October 1. United attempts to buy substitute masks, but must pay $1.20 for each
and take delivery on October 15, cutting United’s sales in half. United sues
Theatrical. What is the measure of recovery?
ANSWER: The
buyer should get the difference between the substitute goods’ price and the
contract price ($.20 per item). The buyer should also get any incidental
damages, and, because the seller knew the purpose of the purchase, the buyer
should get consequential damages, which could include the profits lost on the
unmade sales.
PAGES: 439–440 type: =
Chapter 27
Checks, the Banking
System, and E-Money
N.B.: TYPE
indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
|
||
TRUE/FALSE
QUESTIONS
1. UCC
Articles 3 and 4 govern checks.
ANSWER: T PAGE: 536 TYPE: +
2. Certified checks are instruments that have
been accepted for payment by the institutions on which they are drawn.
ANSWER: T PAGE: 537 TYPE: =
3. A
bank is subject to a civil suit if its customer writes a bad check.
ANSWER: F PAGE: 539 TYPE: +
4. Generally,
a bank has no obligation to pay a customer’s overdrafts.
ANSWER: T PAGE: 539 TYPE: +
5. When a check “bounces,” its holder can
resubmit the check later, hoping that sufficient funds will be available.
ANSWER: T PAGE: 539 TYPE: +
6. A
bank has no right to charge a customer’s account for the amount of a stale
check.
answer: f PAGE: 540 TYPE: N
7. Banks
are required to constantly verify the life and competence of their drawers.
answer: f PAGE: 540 TYPE: N
8. A bank is obligated to pay an uncertified
check presented less than six months from its date.
ANSWER: T PAGE: 540 TYPE: +
9. An oral stop payment order is valid for
thirty days.
ANSWER: F PAGE: 540 TYPE: +
10. When
a bank pays a check on which the drawer’s signature is forged, generally the customer suffers the loss.
ANSWER: F PAGE: 541 TYPE: N
11. A
forged signature has no legal effect as the signature of a drawer.
ANSWER: T PAGE: 541 TYPE: =
12. A
bank must always recredit a
customer’s account when it pays a check with the customer’s forged signature.
ANSWER: F PAGE: 541 TYPE: +
13. A
bank is never obligated to recredit a
customer’s account when it pays a check with the customer’s forged signature.
ANSWER: F PAGE: 541 TYPE: N
14. When
a bank pays a check on which the drawer’s signature is forged, generally the bank suffers the loss.
ANSWER: T PAGE: 541 TYPE: +
15. A
customer does not need to examine a bank statement and report his or her forged
signature to recover from the bank for the forgery.
ANSWER: F PAGE: 543 TYPE: N
16. Generally,
a cash deposit is not available for withdrawal until the next business day.
ANSWER: T PAGE: 548 TYPE: +
17. The
bank on which a check is drawn is the collecting bank.
answer: F PAGE: 549 TYPE: N
18. Deferred
posting is the process of dishonoring checks for insufficient funds.
ANSWER: F PAGE:
550 TYPE: =
19. Money-service
businesses have not been subject to regulation to the same extent as other
financial service businesses.
answer: T PAGE: 558 TYPE: N
20. Currently,
it is not clear which, if any, laws apply to the security of e-money payment
information.
ANSWER: T PAGE: 558 TYPE: N
MULTIPLE
CHOICE QUESTIONS
1. Standard
Wholesalers, Inc., asks United Purchasing Company to pay for goods with a
certified check. A certified check
a. cannot
be forged.
b. does
not discharge its drawer from liability.
c. does
not discharge prior indorsers from liability.
d. is
guaranteed by a bank.
ANSWER: D PAGE: 537 TYPE: +
2. Jay is the holder and payee of a check drawn
by Karen on Local Bank. Jay takes the check to the bank to have it certified.
After certification
a. Karen is discharged on the check.
b. Karen is primarily liable on the check.
c. Local is discharged on the check.
d. Local is secondarily liable on the check.
answer: A PAGE: 537 TYPE: N
3. Pat,
the manager of Quik Mart, deposits the store’s receipts in its account at
Regional Bank. As to the receipts, the relationship between Quik Mart and the
bank is
a. attorney
and client.
b. creditor
and debtor.
c. guardian
and ward.
d. trustee
and beneficiary.
ANSWER: B PAGE: 539 TYPE: +
4. Dan
writes a check to Eve on his account at First State Bank. The bank dishonors
the check even though Dan has sufficient funds in his account. The bank is
a. liable
to Dan only.
b. liable
to Dan and Eve.
c. liable
to Eve only.
d. not
liable to Dan or Eve.
ANSWER: A PAGE: 539 TYPE: N
5. Dora
writes a check for $100 drawn on Eastern Bank and presents it to Fast Cash,
Inc., for payment. If the check is not backed by sufficient funds, Dora may be
prosecuted for
a. forgery.
b. fraud.
c. negligence.
d. robbery.
ANSWER: B PAGE: 539 TYPE: +
6. On
May 1, Ace Personnel, Inc., issues a payroll check to Barb drawn on its account
at City Bank. On June 1, Ace receives its bank statement. On June 20, Barb
indorses the check and cashes it at Downtown Finance Corporation. On July 1, Downtown
transfers the check to EZ Collection Agency. On December 1, EZ presents the
check to First National for payment. A stale check is one that is presented
for payment
a. six
months after issue.
b. six
months after the first indorsement.
c. six
weeks after issue.
d. six
weeks after the last statement.
ANSWER: A PAGE: 540 TYPE: =
7. Earl
issues a check drawn on First National Bank to Good Office Supply to pay for
six filing cabinets. Later, Earl discovers defects in the goods and orders
First National to stop payment on the check. Earl does not renew the order, and
the bank clears the check eight months later. The bank
a. must
recredit Earl’s account and
substitute acceptable goods.
b. must
recredit Earl’s account or substitute
acceptable goods.
c. must
substitute acceptable goods but not recredit Earl’s account.
d. need
not recredit Earl’s account or substitute acceptable goods.
ANSWER: D PAGE: 541 TYPE: +
8. First
State Bank pays a check over the forged signature of the drawer, Greg, who is a
First State customer. First State must recredit Greg’s account for the entire
amount of the check if
a. the
amount of the check was less than $1,000.
b. the
amount of the check was more than $2,500.
c. the
bank failed to exercise ordinary care in paying the check.
d. Greg’s
negligence substantially contributed to the forgery.
ANSWER: C PAGE: 541 TYPE: =
9. Steve
steals one of Tricia’s checks and forges her signature. Tricia’s bank, United
Bank, pays the check. Tricia can recover from
a. Steve,
but not United Bank.
b. United
Bank, which cannot recover from Steve.
c. United
Bank, which can recover from Steve.
d. no
one.
ANSWER: C PAGE: 545 TYPE: +
10. Clyde
issues a check payable to Discount Mart. Elle, Discount’s cashier, forges the
store’s indorsement and deposits the check in her bank account. Clyde’s bank,
First State Bank, pays the check. Clyde can recover from
a. Elle,
but not First State Bank.
b. First
State Bank, which cannot recover from Elle.
c. First
State Bank, which can recover from Elle.
d. no
one.
ANSWER: C PAGE: 546 TYPE: +
11. On Monday, Eve deposits in her account at
First State Bank a local check for $500. After 5:00 p.m. on Friday, from these funds, Eve can withdraw no more
than
a. $100.
b. $400.
c. $500.
d. $600.
answer: C PAGE: 547 TYPE: N
Fact
Pattern 27-1 (Questions 12–14 apply)
Tom draws a check, on
his account in State Bank in New York, payable to Digital Computers, Inc., in
San Francisco. Digital deposits the check in its account at First National
Bank. First National deposits the check in the Federal Reserve Bank of San
Francisco, which transfers it to the Federal Reserve Bank of New York. That
Federal Reserve bank sends the check to State Bank.
12. Refer to Fact Pattern 27-1. Digital’s bank is
a. the
cashing bank.
b. the
depositary bank.
c. the
intermediary bank.
d. the
payor bank.
answer: B PAGE: 549 TYPE: N
13. Refer to Fact Pattern 27-1. Tom’s bank is
a. the
cashing bank.
b. the
depositary bank.
c. the
intermediary bank.
d. the
payor bank.
answer: D PAGE: 549 TYPE: N
14. Refer to Fact Pattern 27-1. When Digital’s
bank received the check, it was required to pass it on
a. before
midnight of the next banking day.
b. before
midnight of the next day, whether or not it was a “banking” day.
c. before
noon of the next banking day.
d. within
five business days.
answer: A PAGE: 550 TYPE: N
15. First
National Bank receives a check drawn on the account of Rich Industries, Inc.,
one of the bank’s customers, at 3 p.m.
Friday. Sherry, the presenter of the check, is not one of the bank’s
customers. The bank uses deferred posting with a 2 p.m. cutoff hour. If it decides to dishonor the check, it
must do so by midnight
a. Saturday.
b. Sunday.
c. Monday.
d. Tuesday.
ANSWER: D PAGE: 551 TYPE: =
16. Bob’s
debit card, issued by City Bank, is stolen and used without Bob’s permission.
Bob tells City Bank within a day and a half. Bob may be required to pay no more
than
a. $5.
b. $50.
c. $500.
d. $5,000.
ANSWER: B PAGE: 556 TYPE: N
17. Dina’s
debit card, issued by Eagle Bank, is stolen and used without Dina’s permission.
Dina tells Eagle Bank within thirty days. Dina may be required to pay no more
than
a. $5.
b. $50.
c. $500.
d. $5,000.
ANSWER: C PAGE: 556 TYPE: N
18. Pete knowingly divulges to Media Exposure magazine information
about Randy’s e-money payments to City Bank. The payments were in transmission
to City Bank when Pete, without the consent of Randy or City Bank, discovered
and revealed them. This may be a violation of
a. the
Electronic Communications Privacy Act.
b. the
Federal Reserve Board’s Regulation E.
c. the
Right to Financial Privacy Act.
d. the
Uniform Electronic Transactions Act.
answer: A PAGE: 558 TYPE: =
19. AAA Financial Service is a money service
business. Unlike a bank, AAA does not
a. accept
deposits.
b. cash
checks.
c. exchange
foreign currency.
d. issue
money orders, traveler’s checks, and stored-value cards.
answer: A PAGE: 558 TYPE: N
20. Liquid Cash Company is a brick-and-mortar
money service business. Money Online, Inc., is an Internet-based money service.
In those states that have adopted the Uniform Money Services Act, a state
license is required to be obtained by
a. Liquid
Cash only.
b. Liquid
Cash and Money Online.
c. Money
Online only.
d. neither
Liquid Cash nor Money Online.
answer: B PAGE: 558 TYPE: N
Essay Questions
1. Joy steals a check from Kyle, forges his
signature, and transfers the check to Loco Loans, Inc., for value. Unaware that
the signature is not Kyle’s, Loco Loans presents the check to Metro Bank, the
drawee, which cashes the check. Kyle discovers the forgery and insists that
Metro recredit his account. Can Metro refuse? If not, from whom can the bank
recover?
ANSWER: Metro
cannot refuse to recredit Kyle’s account under the facts as stated in this
problem. The general rule is that a bank must recredit a customer’s account
when it pays on the customer’s forged signature. Thus, the bank here cannot
collect from its customer. Furthermore, a bank has no right to recover from a
holder who, without knowledge, cashes a check bearing a forged drawer’s signature,
which appears to be the circumstance in this problem. Therefore, Metro cannot
collect from Loco Loans either. The bank can collect the amount of the check
from the thief who forged the signature, however. The bank’s best course of
action is to charge Joy.
PAGES: 541–546 type: N
2. Tom authorizes United Bank to make
transfers from his account to make payments on his debt to Vic’s Auto
Dealership, which sold Tom the car that serves as collateral for the debt.
After three payments, Vic’s repossesses the car and refuses to return it. Tom
phones the bank to stop the payments and follows up with a confirming letter.
The bank fails to stop the next two payments, and Vic’s refuses to refund anything.
Can Tom get his money from the bank?
ANSWER: Yes.
Under the Electronic Fund Transfer Act (EFTA), a financial institution is
liable for failing to stop payment of a preauthorized transfer from a customer’s
account when instructed to do so under the account’s terms and conditions,
which likely require that notice must precede a scheduled payment within a
certain period of time. For other electronic transactions, reversal is
generally not possible, however, because of the instantaneous nature of the
transactions, and the EFTA does not provide for their reversal.
PAGES: 556–557 type: =
Chapter 13
Sales, Leases, and E-Contracts
true/false
questions
1. Article
1 of the Uniform Commercial Code (UCC) governs contracts for sales of goods.
answer: F PAGE: 387 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
2. The
UCC governs sales of services.
ANSWER: F PAGE: 388 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
3. In
some instances, the UCC imposes different standards on merchants.
answer: T PAGE: 389 TYPE: +
Objective: AACSB Analytic Skill Level: AICPA Legal
4. Under
the UCC, a party who sells one type of good will be considered a merchant for
any other type of good that he or she may sell.
answer: f PAGE: 389 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
5. A
lessor is one who sells the right to
the possession and use of goods under a lease.
answer: T PAGE: 391 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
6. According
to the UCC, one or more open terms will always cause a sales or lease contract
to fail for indefiniteness.
answer: F PAGE: 392 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
7. If a contract for a sale of goods does not include a price term, it is not enforceable.
ANSWER: F PAGE: 392 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
8. Under
the UCC, an agreement modifying a contract needs no consideration to be
binding.
ANSWER: T PAGE: 394 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
9. All oral contracts are enforceable under
the UCC.
ANSWER: F PAGE: 395 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
10. No oral contract is enforceable under
the UCC.
ANSWER: F PAGE: 395 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
11. A seller cannot exercise the right to cure
once the time for performance under the contract has expired.
answer: t PAGE: 399 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
12. Unless
the parties agree otherwise, the buyer must pay at the time and place that
goods are received.
answer: T PAGE: 401 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
13. If
a buyer breaches a contract and the seller resells the goods to another party,
the seller cannot recover any loss from the breaching buyer.
answer: f PAGE: 403 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
14. On
a lessee’s insolvency, the lessor
can stop delivery of the goods.
answer: T PAGE: 403 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
15. Buying or
leasing substitute goods for those that were due under a contract is known as
obtaining a cure.
ANSWER: F PAGE: 405 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
16. A lessor’s
failure to make proper delivery of unique goods under a contract will not usually give the lessee the right
to specific performance.
answer: f PAGE: 406 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
17. A buyer or
lessee can obtain specific performance only when the goods that are the subject
of a contract are not unique.
ANSWER: F PAGE: 406 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
18. If goods fail
to conform to a contract in any way, the buyer or lessee cannot make even a
partial acceptance of the goods.
ANSWER: F PAGE: 406 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
19. If a lessor’s
tender of delivery fails to conform to a contract in any way, the lessee cannot
accept the goods.
ANSWER: F PAGE: 406 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
20. A buyer who
accepts conforming goods cannot
revoke the acceptance.
ANSWER: T PAGE: 407 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
21. A buyer who
accepts nonconforming goods cannot
revoke the acceptance.
ANSWER: F PAGE: 407 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
22. If the parties to a sales contract state that
a certain remedy is exclusive, then it is the sole remedy.
answer: T PAGE: 409 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
23. In
sales law, a warranty is an assurance by one party of the existence of a fact
on which the other party can rely.
answer: T PAGE: 410 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
24. Advertisements
can include express warranties.
answer: T PAGE: 410 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
25. A
seller must use words such as “warrant” or “guarantee” to make an express
warranty.
answer: f PAGE: 410 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
26. Only
a statement made after a contract is
entered into can be an express warranty.
answer: f PAGE: 411 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
27. A product is unmerchantable if any accident
could arise in connection with the goods.
answer: f PAGE: 412 TYPE: =
Objective: AACSB Analytic Skill Level: AICPA Legal
28. An
implied warranty of merchantability arises in every sale or lease of goods by a
non-merchant.
answer: F PAGE: 412 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
29. Merchants
are required to warrant that the goods they sell are fit for their ordinary
purpose.
answer: t PAGE: 412 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
30. A
merchant can disclaim an implied warranty of merchantability.
answer: T PAGE: 413 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
31. To
prevent disputes and liability, an online contract offer should state its terms
clearly and conspicuously.
answer: T PAGE: 414 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
32. A
click-on agreement is normally not
enforced.
answer: F PAGE: 415 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
33. Browse-wrap
terms are arguably not enforceable.
answer: T PAGE: 415 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
34. No
contract may be denied legal effect solely because it is in electronic form.
answer: T PAGE: 418 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
35. Under
the Uniform Electronic Transactions Act (UETA), a contract is enforceable even
if it is solely in electronic form.
answer: T PAGE: 418 TYPE: N
Objective: AACSB Analytic Skill Level: AICPA Legal
multiple
choice questions
1. Refining
Corporation agrees to sell a storage tank on its premises to Stock Ranch
Company. The tank can be removed by disconnecting a pipe. This deal is most
likely
a. a
gift subject to the UCC.
b. a
lease subject to the UCC.
c. a
sale subject to the UCC.
d. not
subject to the UCC.
ANSWER: C PAGE: 388 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
2. Suzy
pays Triple-A Office Supply Company $1,500 for a new laptop computer.
According to the UCC, this is
a. a
gift.
b. a
lease.
c. a
sale.
d. not
a gift, a lease, or a sale.
answer: C PAGE: 388 TYPE: +
Objective: AACSB Reflective Skill Level: AICPA Legal
3. Cleo
sells kitchen appliances, and occasionally cleaning supplies, to persons who
come into her store, Discount Appliances. One afternoon, Cleo sells a used
display shelf to Earl. Under the UCC, Cleo is a merchant of
a. cleaning
supplies and kitchen appliances only.
b. cleaning
supplies, display shelves, and kitchen appliances.
c. cleaning
supplies only.
d. kitchen
appliances only.
ANSWER: A PAGE: 389 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
4. Metro Daily and New City Newsstand enter
into a contract under which Metro
agrees to deliver a certain quantity of newspapers to New City each day. The
contract does not include a price term. In a suit between the parties over the
price, a court will
a. determine
a reasonable price.
b. impose
the lowest market price.
c. refuse
to enforce the agreement.
d. return
the parties to the positions they held before the contract.
ANSWER: A PAGE: 392 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
5. International Gem Corporation agrees to sell
Jewelry Outlets, Inc. (JOI), fifty new diamonds, but the contract does not
specify a place of delivery. JOI is expected to pick up the goods. The place of
delivery is
a. International’s
place of business.
b. JOI’s
place of business.
c. the
Annual Gems and Jewels Convention.
d. the
U.S. Postal Service office nearest to JOI’s place of business.
answer: A PAGE: 392 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
6. Regional,
Inc., agrees to sell to Quantity Corporation a certain amount of goods to be delivered
to Quantity’s warehouse, but no mention is made of the terms for payment. In
general, the UCC requires that payment is due at
a. a
neutral place of business halfway between the parties’ locations
b. a
UCC-designated office.
c. Regional’s
place of shipping.
d. Quantity’s
place of receipt.
ANSWER: D PAGE: 392 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
7. Cathy
and Dave sign a contract for a sale of goods in which they specify the
quantity, price, payment terms, and delivery details. This contract is
a. enforceable.
b. unenforceable.
c. void.
d. voidable.
ANSWER: A PAGE: 392 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
8. Fine
Coffee Company agrees to buy an unspecified quantity of coffee beans from
Global AgriCorp. Global breaches the contract. Fine can most likely
a. enforce
the agreement to the extent of a reasonable quantity.
b. enforce
the agreement to the extent of Fine’s requirements.
c. enforce
the agreement to the extent of Global’s output of coffee beans.
d. not
enforce the agreement.
ANSWER: D PAGE: 392 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
9. All-Rite
Clothiers, Inc., sells t-shirts to Brand Name Stores, Inc., under an existing
contract. When textile costs increase, Brand agrees to a price increase, but
later wants to cancel the contract. Brand may
a. cancel
the contract immediately.
b. cancel
the contract only after accepting a final shipment.
c. cancel the
contract only on reasonable notice.
d. not
cancel the contract.
ANSWER: D PAGE: 394 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
10. Kelly
offers to buy cooking oil from Jim. Jim believes Kelly asks for 10,000 gallons
and orally agrees to the sale. When the parties later dispute the deal in
court, Jim’s claim of 10,000 gallons and Kelly’s testimony that she ordered
only 1,000 gallons
a. prevents
the enforcement of any contract between these parties.
b. supports
an enforceable contract for 10,000 gallons.
c. supports
an enforceable contract for 5,500 gallons.
d. supports
an enforceable contract for 1,000 gallons.
ANSWER: D PAGE: 397 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
11. Recreational
Supplies, Inc. (RSI), and Sam, the owner of a Tourist Time shop, orally agree
to a sale of beach balls and seashells for $1,000. Sam gives RSI a check for
$400 as a partial payment. This contract is
a. enforceable
to the extent of $400.
b. fully
enforceable because it is for specially made goods.
c. fully
enforceable because it is oral.
d. not
enforceable.
ANSWER: A PAGE: 398 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
12. Price-Cut
Discount Stores are open to consumers. The
UCC requirement of good faith imposes
a. a
higher duty on consumers than Price-Cut.
b. a
higher duty on Price-Cut than on consumers.
c. no
duty on either Price-Cut or consumers.
d. the
same duty on Price-Cut and consumers.
answer: B PAGE: 398 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
13. Superb Resources, Inc., sells unprocessed minerals
to commercial processors in Texas. With regard to the UCC’s good faith
requirement, Superb can
a. avoid
it only by a conspicuous written disclaimer.
b. avoid
it only by oral disclaimer.
c. avoid
it with or without a disclaimer.
d. not
disclaim it.
answer: D PAGE: 398 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
14. Pep
Paints agrees to sell to Quality Painters Grade A-1 latex outdoor paint to be
delivered May 8. On May 7, Pep tenders Grade B-2 paint. Quality rejects the
Grade B-2 paint. Two days later, Pep tenders Grade C-3 paint with an offer of a
price allowance. Pep has
a. additional, unlimited time to cure.
b. a reasonable, additional time to cure.
c. one more day to cure.
d. no more time to cure.
answer: D PAGE: 399 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
15. Doctors
Clinic orders 1,000 bandages from Emergency Supplies Company but fails to
specify the sizes. The bandages are delivered in an assortment of sizes.
Doctors Clinic may
a. accept
the bandages “as is” only.
b. accept
the bandages “as is” or reject the entire shipment only.
c. accept
only the bandages that it wants and reject the rest.
d. reject
the entire shipment only.
ANSWER: C PAGE: 402 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
16. AAA
Architects, Inc., and Best Office Supply Company contract for a sale of office
furniture. AAA, which is insolvent, breaches the contract. Best can refuse to
deliver the goods
a. under no
circumstances.
b. unless
AAA agrees to pay a higher price for the goods.
c. unless
AAA pays in cash.
d. unless
a court guarantees AAA’s payment for the goods.
ANSWER: C PAGE: 402 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
17. Omega
Corporation contracts for a sale of water pumps to Pool & Spa, Inc. The
pumps partly fail to conform to the contract. Pool & Spa
a. may
accept or reject the shipment in part or in whole.
b. must
accept the conforming part of the shipment.
c. must
reject the nonconforming part of the shipment.
d. must
reject the whole shipment.
ANSWER: A PAGE: 402 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
18. Glad
Chair Company contracts to deliver 100 chairs to Home Furnishings Store on May
1. Glad tells Home on April 15 that it is canceling the contract because its
workers have gone on strike. Home may
a. await Glad’s performance, sue Glad, or suspend its own
performance.
b. only await Glad’s performance for a commercially reasonable time.
c. only sue Glad for breach of contract.
d. only suspend its own performance.
answer: A PAGE: 402 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
19. Superior
Furniture Company contracts to buy from Timber Products, Inc., a shipment of
wood that Superior will use to make furniture. Timber refuses to deliver the
wood. Superior can recover damages equal to the difference between the contract
price and
a. the
cost to make the furniture.
b. the
cost to obtain the wood elsewhere.
c. the profit
that Superior would have made on the furniture.
d. the
sale price of the furniture.
ANSWER: B PAGE: 405 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
20. Drew contracts
for a sale of tools to Engineering Company (EC). If the tools fail to conform
to the contract, EC
a. may
accept or reject the shipment in part or in whole.
b. must
accept the shipment.
c. must
reject the shipment.
d. must
renegotiate the contract.
ANSWER: A PAGE: 407 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
21. Digital Video
Company contracts to sell DVD players to E-lectric Stores, Inc. Digital Video
ships nonconforming goods, which E-lectric accepts. E-lectric can recover
damages equal to the difference between
a. E-lectric’s
sale price and the contract price.
b. the
contract price and the value of the goods as promised.
c. the
value of the goods as promised and their value as accepted.
d. the
value of the goods as accepted and E-lectric’s sale price.
ANSWER: C PAGE: 407 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
22. Olivia
visits Perfectly Fine Cars, an auto dealer, and says she wants a car that gets
at least thirty miles to the gallon. Quinn, a salesperson, recommends a
Roadster, which he says gets “at least forty miles to the gallon.” This is
a. an
express warranty.
b. an
implied warranty of merchantability.
c. an
implied warranty of fitness for a particular purpose.
d. a
warranty of title.
answer: A PAGE: 410 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
23. Pat,
a salesperson for Quality Textiles, Inc., shows Rosa, a fabric buyer for Style Clothing Company, samples of
cloth, stating that any shipment will match the samples. This statement is
a. an
express warranty.
b. an
implied warranty.
c. a
warranty of title.
d. puffery.
answer: A PAGE: 410 TYPE: +
Objective: AACSB Reflective Skill Level: AICPA Legal
Fact Pattern 13-1 (Questions 24–25 apply)
Ann, a representative
of Best Concrete Products, Inc. assures City Construction Company (CCC) that
Best’s cement will not crack within a certain range of temperatures. CCC uses
Best’s product. When cracks develop within the stated temperature range, CCC
files a suit against Best.
24. Refer to Fact Pattern 13-1. The court is most
likely to rule in favor of
a. Best, because Ann’s
statement was an expression of opinion.
b. Best, because CCC chose Best’s
product voluntarily.
c. CCC, because Ann’s statement
was an express warranty.
d. CCC, because Best’s product is
not fit for its purpose.
answer: C PAGE: 410 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
25. Refer to Fact Pattern 13-1. Suppose that the
court rules against Best. The manufacturer might have avoided that result by
a. making its cement fit for its
particular purpose.
b. making its cement merchantable
for its intended use.
c. not allowing Ann to
express an opinion.
d. not permitting Ann to make an
express warranty.
answer: D PAGE: 411 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
26. Eve,
a salesperson for Finest Cars & Trucks, Inc., tells Gus, “This is the best
car I’ve ever seen—and I’ve seen a lot of cars.” This statement is
a. an
express warranty.
b. an
implied warranty.
c. a
warranty of title.
d. puffing.
answer: D PAGE: 411 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
27. AAA
Appliance salespersons tell potential customers that AAA products are
“idiot-proof.” This is
a. an
express warranty.
b. an
implied warranty.
c. a
warranty of title.
d. puffing.
answer: D PAGE: 411 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
28. Allen
buys a new sport utility vehicle (SUV) from Best Cars & Trucks, Inc. The most important factor in
determining whether an express warranty is created is whether
a. Allen
expresses to Best what he wants warranted.
b. Allen’s
desire for the SUV becomes part of his motivation to deal.
c. Best
expresses to Allen what it expects of its customers.
d. Best’s
promise becomes part of the basis of the bargain.
answer: D PAGE: 411 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
29. Neil
goes to Oil Shop to change the oil in his car. Pat, the service technician,
learns that Neil plans to take a trip and advises the use of a certain type of
oil. The oil breaks down during the trip, damaging the car. Most likely, Oil
Shop breached
a. an
express warranty.
b. an
implied warranty of fitness for a particular purpose.
c. an
implied warranty of merchantability.
d. no
warranty.
answer: B PAGE: 412 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
30. Great
Goods, Inc., sells two hundred MP3 players to Happy Stores, Inc. To avoid
liability for most implied warranties, Great Goods should state in writing that
the players are sold
a. as
is.
b. by
a merchant.
c. in
perfect condition.
d. with
no known defects.
answer: A PAGE: 413 TYPE: +
Objective: AACSB Reflective Skill Level: AICPA Legal
31. Don buys from E-Stuf, Inc., software that
includes an on-screen click-on “I agree to the terms” box. A dispute arises,
and E-Stuf files a suit against Don. The court will most likely enforce the
terms if Don used the software
a. after
Don had an opportunity to read the terms.
b. before
Don had an opportunity to read the terms.
c. only
after Don actually read the terms.
d. whether
or not Don read the terms.
answer: A PAGE: 415 TYPE: N
Objective: AACSB Technology Skill Level: AICPA Legal
32. Cody and Dana engage in a transaction that
involves e-documents. The E-SIGN Act applies if those documents include
a. court
papers.
b. evictions.
c. foreclosures.
d. none
of the above.
answer: D PAGE: 418 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
33. Ann, a seller, and Bill, a buyer, make a deal
over the Internet that involves e-signatures. Under the Electronic Signatures
in Global and National Commerce (E-SIGN) Act, for the e-signatures to be
enforceable
a. both
parties must have agreed to use e-signatures.
b. neither
party must have agreed to use e-signatures.
c. only
Ann must have agreed to use an e-signature.
d. only
Bill must have agreed to use an e-signature.
answer: A PAGE: 418 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
34. Mary and Nick make a deal that comes under the
UETA. Under the UETA, “information that is inscribed on a tangible medium or
that is stored in an electronic or other medium and is retrievable in
perceivable form” is
a. an
e-document.
b. an
e-signature.
c. an
e-transaction.
d. a
record.
answer: D PAGE: 418 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
35. Kay and Lucy enter into a contract that falls
within the provisions of the Uniform Electronic Transactions Act (UETA). Under
the UETA, “an electronic sound, symbol, or process attached to or logically
associated with a record and executed or adopted by a person with the intent to
sign the record” is
a. an
e-document.
b. an
e-signature.
c. an
e-transaction.
d. a
record.
answer: B PAGE: 418 TYPE: N
Objective: AACSB Reflective Skill Level: AICPA Legal
Essay
Questions
1. Great
Beverages Company (GBC) often sells coffee, tea, and related products to Hava
Java, Inc. (HJI), which owns and operates a chain of coffee shops. Over the
phone, representatives of the two firms negotiate a sale of 144 pounds of a
certain kind of coffee bean. GBC sends a letter to HJI detailing the terms and
ten days later ships the beans. Is there an enforceable contract between
them? Explain.
ANSWER: There
is an enforceable contract between these parties. In a transaction between merchants,
the requirement of a writing is satisfied if one of them sends to the other a
signed written confirmation that indicates the terms of the agreement, and
the merchant receiving it has reason to know of its contents. If the merchant
who receives it does not object in writing within ten days after receipt, the
writing will be enforceable against the merchant even though he or she has not
signed anything.
PAGE: 395 type: N
Objective:
AACSB Reflective Skill Level: AICPA
Decision
Modeling
2. Alpha
Electronic Components, Inc., ships 100,000 silicon chips to Beta E-Products
Corporation. The chips arrive a week early, on a Friday that is extremely busy
on Beta’s receiving dock. Beta’s dockworkers check the bill of lading against
the quantity marked on the boxes, but do not examine the chips. The chips are
then put in the back of the warehouse until needed in the plant. The next week,
when the chips are sent to the plant and unpacked, Beta’s plant manager
discovers that the quality is less than that stated in the parties’ contract.
Beta contacts Alpha to inform it of the defect. Does Beta have any remedies? If
so, what are they? If not, why not?
ANSWER: Beta
has remedies in this situation: it can reject the goods and then obtain cover
or cancel the contract. A buyer has the right to inspect the goods that it
receives, if that inspection is done within a reasonable time of the receipt.
Here, although the inspection occurred a few days after the delivery, the
delivery was early and happened on a day that was busy for Beta, both reasons
that would justify a delayed examination of the goods. A buyer can reject
nonconforming goods within a reasonable time if the seller is notified
seasonably—that is, in a timely fashion. In this problem, Beta notified Alpha
promptly. Even if Beta were considered to have accepted the goods after its
quick inspection the week before, it could revoke that acceptance. A buyer who
accepts goods may revoke acceptance within a reasonable time if the acceptance
was reasonably induced by the difficulty of discovering the defect.
PAGES: 402
& 405–409 type: =
Objective:
AACSB Reflective Skill Level: AICPA
Decision
Modeling
Chapter 44
Consumer Law
N.B.: TYPE
indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank,
= A question included in the previous edition of the Test Bank.
|
||
TRUE/FALSE QUESTIONS
1.
The test for whether an ad is deceptive
is whether a reasonable consumer would be deceived.
ANSWER: T PAGE: 888 TYPE: =
2. Puffing is prohibited.
ANSWER: F PAGE: 888 TYPE: +
3.
An ad that contains a “half
truth”—information that is true but incomplete—is not deceptive.
ANSWER: F PAGE: 888 TYPE: +
4. A company charged with deceptive advertising
must go through a hearing to resolve the complaint.
ANSWER: F PAGE: 889 TYPE: +
5. Product labels do not need to be accurate if
they use easily understood words.
ANSWER: F PAGE: 890 TYPE: =
6. Labels on packages must use words that can be
explained by the ordinary marketing executive.
ANSWER: F PAGE: 890 TYPE: N
7. Counteradvertising is prohibited.
ANSWER: F PAGE: 890 TYPE: N
8. Counteradvertising is advertising that
counters a competitor’s claims.
ANSWER: F PAGE: 890 TYPE: =
9. When a consumer cancels an order, a mail-order
merchant must issue a refund within a specific period of time.
ANSWER: T PAGE: 891 TYPE: =
10. Online sales are not yet subject to state or federal consumer laws.
ANSWER: F PAGE: 891 TYPE: =
11. Regulation
Z spells out what information must be disclosed in transactions subject to the
Truth-in-Lending Act.
ANSWER: T PAGE: 892 TYPE: =
12. A sale
between two consumers is not subject
to the Truth-in-Lending Act.
ANSWER: T PAGE: 892 TYPE: +
13. A loan
between two consumers is subject to the Truth-in-Lending Act.
ANSWER: F PAGE: 892 TYPE: N
14. The Equal Credit Opportunity Act prohibits the
denial of credit on the basis of an individual’s financial status.
ANSWER: F PAGE: 892 TYPE: N
15. An individual is not liable for unauthorized charges on a credit card that he or she
did not solicit.
ANSWER: T PAGE: 892 TYPE: =
16. A
credit agency that negligently fails to delete inaccurate information from a
person’s credit report is liable.
ANSWER: T PAGE: 893 TYPE: =
17. Creditors can contact a debtor only at the
debtor’s place of employment.
ANSWER: F PAGE: 895 TYPE: N
18. A creditor may contact at any time a debtor
who has refused to pay a debt.
ANSWER: F PAGE: 895 TYPE: +
19. The Consumer Product Safety Commission can ban
a product that poses an “unreasonable risk” to consumers.
ANSWER: T PAGE: 897 TYPE: =
20. All consumer protection laws are federal.
ANSWER: F PAGE: 898 TYPE: N
MULTIPLE
CHOICE QUESTIONS
1. Tech Company’s ad states that “if you aren’t
using a Tech computer, you aren’t using the best.” The Federal Trade Commission
would consider this ad
a. false and misleading.
b.
false only.
c. misleading only.
d. neither false nor misleading.
answer: D PAGE: 888 TYPE: =
2. A-One GPS Company’s ad states that its
product is “the finest that money can buy.” Because of this ad, the Federal
Trade Commission may
a. issue a cease-and-desist order only.
b.
issue a cease-and-desist order or
require counteradvertising.
c. neither issue a cease-and-desist order nor
require counteradvertising.
d. require counteradvertising only.
answer: C PAGE: 889 TYPE: N
3. A+ Goods, Inc., engages in deceptive
advertising when it markets its product Best Cleaner as able to kill germs over
long periods of time. In an action against A+ regarding Best, A+ is ordered to
stop its false advertising of Best and other products. This is
a. a
counteradvertising order.
b. a
multiple product order.
c. bait-and-switch
advertising.
d. excessive
abuse of authority.
ANSWER: B PAGE: 890 TYPE: =
Fact Pattern 44-1 (Questions 4–5
apply)
Phone
Sales, Inc., solicits business from consumers over the phone. Quinn, a
consumer, objects to being solicited in this way.
4. Refer to Fact Pattern 44-1. Quinn may succeed
in a suit against Phone Sales if the firm
a. discloses to consumers that its calls are
sales calls.
b. informs consumers of restrictions on using
its products.
c. tells consumers that all sales are final.
d. uses an automatic dialing system to make its
calls.
ANSWER: D PAGE: 890 TYPE: N
5. Refer to Fact Pattern 44-1. Suppose that Phone
Sales uses a prerecorded voice to solicit business over the phone. Rita
objects. In a suit against Phone Sales, she may recover
a. nothing.
b. only an injunction against any future calls.
c. up to $500 in damages for each objectionable
call.
d. up to treble the amount of any monetary loss.
ANSWER: C PAGE: 890 TYPE: +
6. Best Goods Corporation makes and sells
consumer goods. Best Goods’ product labels must identify
a. the
address to which complaints can be directed.
b. the federal agency that inspected the
product.
c. the
manufacturer.
d. the
percentage of the product that consists of artificial substances.
ANSWER: C PAGE: 890 TYPE: +
7. Crunchy Corporation makes and sells cereal.
Crunchy’s packaging must include
a. neither
the identity of the product nor the number of servings.
b. the
identity of the product and the number of servings.
c. the identity of the product only.
d. the
number of servings only.
ANSWER: B PAGE: 891 TYPE: +
8. Ron signs a contract with Sam, a door-to-door
salesperson for Tutors, Inc., to buy a foreign-language course. To cancel the
contract, Ron has up to
a. three days.
b. thirty days.
c. sixty days.
d. ninety days.
ANSWER: A PAGE: 891 TYPE: =
9. Friendly Loan Company extends credit in the
ordinary course of its business. Under the Truth-in-Lending Act, Friendly must
inform potential borrowers of
a. credit terms offered by other lenders and its
own credit terms.
b. only credit terms offered by other lenders.
c. only its own credit terms.
d. only the credit terms that will convince
borrowers to “close the deal.”
ANSWER: C PAGE: 892 TYPE: =
10. Brad borrows $20,000 from City Bank to repair
his home and to buy a car. Brad buys a stereo from Delta Store in a transaction
financed by Delta. If these parties are subject to the Truth-in-Lending Act,
Regulation Z applies to
a. the car loan only.
b. the home repair loan only.
c. the retail installment sale only.
d. the car loan, the home repair loan, and the
retail installment sale.
ANSWER: D PAGE: 892 TYPE: =
11. Owen signs an installment contract with Pixel
Video Store to finance the purchase of a new TV for $4,999. This transaction is
subject to
a. no federal law.
b. the Fair Credit Reporting Act.
c. the Telecommunications Act.
d. the Truth-in-Lending Act.
ANSWER: D PAGE: 892 TYPE: +
12. Eve borrows $40,000 from First National Bank
to add a room to her home. This transaction is subject to
a. the Consumer Leasing Act.
b. the Magnuson-Moss Warranty Act.
c. the Truth-in-Lending Act.
d. the Uniform Commercial Code.
ANSWER: C PAGE: 892 TYPE: +
13. Consumer Finance Corporation (CFC) extends
credit to consumers. CFC is subject to the Equal Credit Opportunity Act, which
prohibits credit discrimination based on
a. educational achievement.
b. income.
c. marital status.
d. unfavorable credit reports.
ANSWER: C PAGE: 892 TYPE: =
14. Kent receives an unsolicited credit card in
the mail and tosses it on his desk. Without Kent’s permission, his roommate
uses the card to buy a new personal computer for $1,000. Kent is
a.
liable for $1,000.
b. liable for $500.
c. liable for $50.
d. not liable for any amount.
ANSWER: D PAGE: 892 TYPE: =
15. Quik Collection Agency calls Pat several times
a day, and sometimes in the middle of the night, about an overdue bill that Regal
Sporting Goods turned over to Quik for collection. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions
Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
ANSWER: C PAGE: 895 TYPE: N
16. Furniture Depot sells Gail a bedroom suite on
credit. Gail fails to make the scheduled payments for six months. Furniture
Depot sends her a letter, asking for immediate payment. This is a violation of
a. no federal law.
b. the Fair and Accurate Credit Transactions
Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
ANSWER: A PAGE: 895 TYPE: N
17. The credit department of Mega-Mart often calls
Nora at work about an overdue bill. Nora’s employer objects. This is a violation
of
a. no federal law.
b. the Fair and Accurate Credit Transactions
Act.
c. the Fair Debt Collection Practices Act.
d. the Truth-in-Lending Act.
ANSWER: C PAGE: 895 TYPE: N
18. Corner Market sells groceries. Delta Food
& Drug Store sells groceries and fills prescriptions. The party with the
chief responsibility to prevent unsafe food and drugs from being sold is
a. Corner Market and Delta Food & Drug
Store.
b.
Delta Food & Drug Store only.
c. the Federal Trade Commission.
d. the Food and Drug Administration.
answer: D PAGE: 896 TYPE: N
19. Steel Tool Company makes and sells tools. One
of the tools is believed to be hazardous. The appropriate government agency
may require Steel to
a. export the tool and sell it only abroad.
b. increase the price to cover the cost of any
injuries or damage.
c. reduce the price to indicate the hazard to
consumers.
d. remove the tool from the market.
answer: D PAGE: 897 TYPE: N
20. American Sales Corporation does business in
all fifty states and is subject to state consumer protection laws in those
states in which they exist. Those laws are
a.
enacted by state legislatures.
b. enforced by the Consumer Product Safety
Commission.
c. required by the National Conference of
Commissioners on Uniform State Laws.
d. reviewed by the Federal Trade Commission.
answer: A PAGE: 898 TYPE: =
Essay
Questions
1. Alpha Corporation makes batteries for motor
vehicles. The Federal Trade Commission (FTC) learns
that Beta Automotive Stores, a retail company that sells Alpha’s batteries,
engages in deceptive advertising practices. What actions can the FTC take
against Beta?
ANSWER: The Federal Trade Commission (FTC) can
investigate the problem, and if, after the investigation, it believes that
Beta has engaged in deceptive advertising, it can send a formal complaint to
the alleged offender. Beta may agree
to a settlement. If not, the FTC can
conduct a hearing before an administrative law judge (ALJ). If the FTC succeeds in proving that Beta’s
ads are deceptive, it can issue a cease-and-desist order requiring the
advertising to stop. It might also impose
a counteradvertising sanction, requiring Beta to issue new ads—in print, on
radio, and on television—to inform the public about the earlier misinformation.
PAGES: 889–890 type: N
2. Eats Company wants to sell its candy in a
normal-sized package labeled “Gigantic Size.” Fine Fabrics, Inc., wants to
advertise its sweaters as having “That Wool Feel,” but does not want to
specify on labels that the sweaters are 100 percent polyester. What stops
these firms from marketing their products as they would like?
ANSWER: There
are a number of federal and state laws that deal specifically with information
given on labels and packages, including the Fair Packaging and Labeling Act
of 1966 and the Wool Products Labeling Act of 1939. In general, the
information on such labels must be truthful. There are also other state and
federal laws that prohibit unfair and deceptive advertising, including labels.
These laws include the Federal Trade Commission Act of 1914.
PAGE: 890 TYPE: =
Chapter
20
The
Formation of
Sales
and Lease Contracts
multiple
choice questions
A1. Bild-Rite, Inc., is a
Colorado-based firm that does business with clients throughout North America.
Bild-Rite oversees construction projects, and buys and sells commercial
buildings, undeveloped land, and construction supplies and other goods.
Bild-Rite has had to deal with work-site theft and vandalism. With respect to
these circumstances, the Uniform Commercial Code (UCC) provides a framework for
a. commercial
transactions for the sale of and payment for goods.
b. international
construction contracts.
c. domestic
and foreign transactions in real estate.
d. prosecuting
crimes against business interests.
B1. Stardust Coffee Company is a Texas-based
firm that does business throughout the world. Stardust manages retail and
wholesale operations, buys and sells commercial venues, undeveloped land, and
coffee beans, and other goods. Stardust has had to deal with employee and
customer theft. With respect to these circumstances, the Uniform Commercial
Code (UCC) provides a framework for
a. commercial transactions for the sale of and payment for goods.
b. international distribution agreements.
c. domestic and foreign transactions
in real estate.
d. prosecuting crimes against business
interests.
A2. Omni Corporation is a
Pennsylvania-based firm that does business throughout the United States. With
respect to this circumstance, the UCC has been adopted by, and applies in,
a. a few of the states.
b. all of the states, in
whole or in part.
c. half
of the states.
d. none
of the states, to date.
B2. High n’ Mighty Mart, Inc., is an
Illinois-based firm that does business throughout the United States. With
respect to this circumstance, the UCC has been adopted by, and applies in,
a. all
of the states, in whole or in part.
b. most of the states on the
Atlantic and Pacific coasts.
c. none of the states, to date.
d. only the states on the
Mississippi, Missouri, and Ohio Rivers.
A3. Over the course of a year,
Retail Marketers, Inc., sells goods from its inventory and one of its
warehouses. In exchange, Retail receives checks and other items that substitute
for cash, which Retail uses to repay a loan from Savings Bank. Article 2 of the
UCC governs
a. the
checks.
b. the
payment of the loan.
c. the sale of the buildings.
d. the sale of the goods.
B3. Over the course of a year, Real Deal
Corporation sells appliances to customers to whom it extends credit. Real Deal
orders the appliances from Superior Appliance Company’s warehouse, from which
the items are shipped via common carrier to Real Deal’s customers. Article 2 of
the UCC governs
a. all
of the parties’ sales of the goods.
b. Real Deal’s extension of credit.
c. Superior’s storage of the goods.
d. the common carrier’s delivery of the
goods.
A4. Nemo
pays Office Supply Company $1,500 for a laptop computer. Under the UCC, this
is
a. a
gift.
b. a
lease.
c. a sale.
d. not
a gift, a lease, or a sale.
B4. Expert Stitching Corporation enters into a
contract to sell denim clothing to Fine Fashion Company, which in turn sells a
pair of jeans to Grady, a consumer. In contrast to standards that apply to
consumers, the UCC imposes on merchants
a. less strict legal standards.
b. special
business standards.
c. stricter ethical standards.
d. the same overall standards.
A5. In
a dispute over a sale involving a bicycle, Dain argues that as to this deal
Elle’s Hobby Shop, where Dain bought the bike, is a merchant. A court may
determine whether Elle’s is a merchant by assessing whether
a. it
has sold any bikes within the last year.
b. it holds itself out by
occupation as having knowledge or skill unique to the bike in the transaction.
c. its
owner enjoys biking.
d. it
subscribes to Bike, a biweekly trade magazine.
B5. Rikki
and Sid enter into a sales contract. With respect to the specific contractual
provisions set out in the UCC, Rikki and Sid may
a. agree to different terms only to a
reasonable extent.
b. agree to different terms unless they
“get caught.”
c. agree
to whatever terms they wish.
d. not agree to different terms.
A6. Cleo
sells kitchen appliances, and occasionally cleaning supplies, to persons who
come into her store, Discount Appliances. One afternoon, Cleo sells a used
display shelf to Earl. Under the UCC, Cleo is a merchant of
a. cleaning supplies and
kitchen appliances only.
b. cleaning
supplies, display shelves, and kitchen appliances.
c. cleaning
supplies only.
d. kitchen
appliances only.
B6. Excel
Autos & Trucks, Inc., contracts to sell five trucks to First Leasing
Corporation, which contracts to lease the trucks to General Delivery Company.
Article 2A of the UCC applies to
a. neither the lease nor the sale.
b. the lease and the sale.
c. the
lease only.
d. the sale only.
A7. Rally Corporation enters
into a contract to sell ski gear to SnoSportz Company, which sells a pair of
the skis to Tyra, a consumer, who later sells them to Uli, another consumer.
Article 2 of the UCC applies to the sales
transactions between
a. all of the buyers and sellers.
b. Rally
and SnoSportz only.
c. SnoSportz and Tyra only.
d. Tyra
and Uli only.
B7. American
Products Company and Best Manufacturing, Inc. (BMI), enter into a contract for
the sale of a certain quantity of machine parts, with BMI to determine the
price. The price must be fixed according to the concept of
a. good faith.
b. square dealing.
c. the mere image rule.
d. unconscionability.
A8. Curtis enters into a
contract with Drive-Away Lease Company for a three-year lease of a car. This contract
is subject to
a. Article
2 of UCC.
b. Article 2A of the
UCC.
c. Article
11 of the CISG.
d. the
common law only.
B8. Cathy
and Dave sign a contract for a sale of goods. Cathy is to set the price for the
goods at the time of delivery, but on delivery, refuses to do so. Dave may only
a. fix a
reasonable price.
b. fix
a reasonable price or treat the contract as canceled.
c. treat the contract as canceled.
d. wait for Cathy to set the price.
A9. Standard
Office Corporation pays Tech Products $1,000 to use a Tech computer for a
month. For purposes of the UCC, this is
a. a
bailment.
b. a
consignment.
c. a lease.
d. a
sale.
B9. Variety
Goods, Inc., and World Sales Corporation enter into a contract that does not
specify the payment terms. Payment may be made in
a. any commercially acceptable means
except cash.
b. cash only.
c. cash
or any commercially acceptable substitute.
d. cash or check only.
A10. Metro Daily and
New City Newsstand enter into a contract under which Metro agrees to
deliver a certain quantity of newspapers to New City each day. The contract
does not include a price term. In a suit between the parties over the price, a
court will
a. determine a reasonable price.
b. impose
the lowest market price.
c. refuse
to enforce the agreement.
d. return
the parties to the positions they held before the contract.
B10. NuTech
Company agrees to sell computer equipment to Office Stores, Inc. (OSI) for OSI
to market to its customers. Their contract will not be enforceable unless it includes
a. the
duration of the deal.
b. the price of the goods.
c. the
quantity of the goods.
d. the requirements of OSI’s customers.
A11. Regional
Products, Inc., agrees to sell to Quantity Dealers Corporation a certain amount
of goods but no mention is made of where the goods are to be delivered. In
general, the UCC requires that the delivery take place at
a. a
neutral place of business halfway between the parties’ locations.
b. a
UCC-designated warehouse.
c. Regional’s place of business.
d. Quantity’s
place of business.
B11. Doctors
Medical Clinic orders 1,000 bandages from Emergency Supplies Company but fails
to specify the sizes. The bandages are delivered in an assortment of sizes.
Doctors Medical Clinic may
a. accept the bandages “as is” only.
b. accept the bandages “as is” or reject
the entire shipment only.
c. accept only the bandages that it wants and
reject the rest.
d. reject the entire shipment only.
A12. Roy’s
Chick’n Shack orders chicken from Standard Food Supplier, but Standard does not
deliver. Roy’s will probably be unable to enforce the agreement if the parties
a. did
not limit the duration of the deal.
b. did not specify a payment term.
c. did not specify a
quantity term.
d. have
not begun to perform.
B12. Contractors
Construction Corporation offers to buy from Dandy Cement Company a certain
quantity of cement for a certain price. Dandy can accept the offer by
a. doing nothing.
b. promising
to ship or promptly shipping the cement.
c. promising
to ship the cement only.
d. promptly shipping the cement only.
A13. Desktop
Company offers to sell eRetail, Inc., 1,000 computers for a $500,000, states
that the offer will be open for six days, and asks for a response by fax. On
the fourth day, eRetail sends an acceptance to Desktop via the mail, which is
received on the sixth day. In this deal
a. a contract is formed.
b. no
contract is formed, because Desktop asked for a response by fax.
c. no
contract is formed, because Desktop received the acceptance late.
d. no
contract is formed, because eRetail sent the acceptance late.
B13. Best
Sales, Inc., is the offeror and City Goods Corporation is the offeree under a
unilateral sales contract in which Delta Products Company is also interested.
Best is not notified of City’s performance within a reasonable
time. Best
a. may
treat the offer as having lapsed.
b. must assume that City has started to
perform.
c. must contact City.
d. must
contract with Delta.
A14. Retail
Music, Inc., offers to buy from Super Products Corporation (SPC) 1,000 blank
CDs of a certain brand. Without notifying Retail, SPC timely ships CDs of a
different brand. This shipment is
a. an acceptance of the
offer and a breach of the parties’ contract.
b. an
acceptance of the offer and a fulfillment of the parties’ contract.
c. a
refusal of the offer and a
breach of the parties’ contract.
d. a refusal of the offer and a fulfillment of
the parties’ contract.
B14. Equipment
Rental Corporation and Family Farm, Inc., are parties to an oral agreement for
a lease of goods with payments in excess of $10,000. They may satisfy the
Statute of Frauds by
a. mutually agreeing not to commit fraud.
b. restating the terms in a phone call.
c. setting
out the terms in an e-mail.
d. shaking
hands on the deal.
A15. United
Farms offers to sell Valu Bakeries, Inc., fifty bushels of wheat. Valu’s
representative Wendy responds, “We agree to buy fifty bushels only if the wheat
is Grade A quality.” Wendy’s statement is
a. a
breach of the parties’ contract.
b. a counteroffer.
c. a fulfillment of the parties’ contract.
d. an
acceptance.
B15. Kelly
offers to buy cooking oil from Jim. Jim believes Kelly asks for 10,000 gallons
and orally agrees to the sale. When the parties later dispute the deal in
court, Jim’s claim of 10,000 gallons and Kelly’s testimony that she ordered
only 1,000 gallons
a. prevents the enforcement of any contract
between these parties.
b. supports an enforceable contract for 10,000
gallons.
c. supports an enforceable contract for 5,500
gallons.
d. supports an enforceable contract for 1,000 gallons.
A16. Rite
Clothiers, Inc., sells t-shirts to Brand Name Stores, Inc., under an existing
contract. When textile costs increase, Brand agrees to a price increase, but
later wants to cancel the contract. Brand may
a. cancel
the contract immediately.
b. cancel
the contract only after accepting a final shipment.
c. cancel the contract only on reasonable
notice.
d. not cancel the contract.
B16. Recreation
Supplies, Inc. (RSI), and Sam, the owner of a Tourist Time shop, orally agree
to a sale of beach balls and seashells for $1,000. Sam gives RSI a check for
$400 as a partial payment. This contract is
a. enforceable to the extent of $400.
b. fully enforceable because it is for
specially made goods.
c. fully enforceable because it is oral.
d. not enforceable.
A17. Quinn enters into a series of
agreements with Reba involving a sale of a Suite Dreams Motel, including the
land, building, furnishings, shares of stock in Suite Dreams Company, and a
contract with Trudy to create an ad campaign. Reba suspects that Quinn may be
misrepresenting the facts. The UCC Statute of Frauds governs the sale of
a. any
of the property evidenced by a writing.
b. any of the property that may involve fraud.
c. the furnishings priced at
$500 or more.
d. the
land and the building.
B17. Fruits
& Vegetables, Inc., and Great Grocery Stores dispute the interpretation of
an ambiguous phrase in their contract. In a suit between the parties to construe
the contract, a court may accept evidence of
a. consistent additional terms only.
b. consistent additional terms and contradictory
terms only.
c. contradictory terms only.
d. anything extrinsic to the contract.
A18. Tasty
Pastries, Inc., and other bakers refer to a “baker’s dozen” as consisting of a
collection of thirteen baked goods. This is an example of
a. course of dealing.
b. course
of performance.
c. square
dealing.
d. usage of trade.
B18. Timber
Products, Inc., and Walt, a consumer, enter into a contract for a sale of
plywood. If the contract includes a clause that is perceived as grossly unfair
to Walt, its enforcement may be challenged under the doctrine of
a. good
faith.
b. square dealing.
c. the mere image rule.
d. unconscionability.
A19. Gail
enters into a contract with Hi-Price Appliances, Inc. In a suit between the
parties over payment under the contract, Gail claims that a certain clause is
unconscionable. If the court agrees, it may
a. enforce, limit, or refuse
to enforce the contract or the disputed clause.
b. enforce the contract without the disputed
clause only.
c. limit
the application of the disputed clause only.
d. refuse
to enforce the entire contract only.
B19. In Case 20.3, Jones
v. Star Credit Corp., which of the following factors was not considered by the
court when it declared a contract for the purchase of a freezer unconscionable
a. The price the plaintiffs were charged was more than four times the
freezer’s retail value.
b. The credit charges alone exceeded the freezer’s retail value.
c. The seller knew of the buyers’ limited resources.
d. The freezer was not
merchantable.
A20. Overseas
Corporation (OC), a U.S. firm, orally agrees to sell six freezers to Pisa
Pizza, Ltd., in Italy. OC fails to deliver. Under the CISG, Pisa Pizza can
a. enforce the agreement.
b. not
enforce the agreement because it is not in writing.
c. not
enforce the agreement because the price term is not specified.
d. not
enforce the agreement because there is no consideration.
B20. Rodeo, S.A., which is based in Spain, enters
into a contract for the sale of seven hydraulic lifts to Tonnage Shipping
Company, which is based in the United States. This contract is governed by
a. Spanish law.
b. the provisions in the laws of both
countries that are similar.
c. the UCC.
d. the
United Nations
Convention on Contracts for the International Sale of Goods.
Chapter 33
Labor and Employment Law
TRUE/FALSE QUESTIONS
1. The
employment-at-will doctrine is still in widespread use.
ANSWER: T PAGE: 933 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
2. Firing
a worker who refuses to perform an illegal act violates public policy.
ANSWER: T PAGE: 934 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
3. Whistleblower
statutes protect employers from workers’ disclosure of the employer’s
wrongdoing.
ANSWER: F PAGE: 936 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
4. Whistleblower statutes allow employers to
discharge employees who blow the whistle on their employers.
ANSWER: F PAGE: 936 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
5. An
employee may file an action for wrongful discharge against an employer who
discharges the employee in violation of an employment contract.
ANSWER: T PAGE: 936 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
6. Children
over fourteen years of age can work in hazardous jobs.
ANSWER: F PAGE: 937 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
7. Employers
may waive the overtime requirements of the Fair Labor Standards Act.
ANSWER: F PAGE: 937 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
8. State
law regulates overtime pay.
ANSWER: F PAGE: 937 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
9. Federal labor law protects employees’ rights
to picket.
ANSWER: T PAGE: 939 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
10. Contracts
limiting employees’ rights to join unions are unlawful.
answer: T PAGE: 939 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
11. The law guarantees union members
higher wages than nonunion workers.
answer: f PAGE: 939 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
12. Employees have the right to engage in
collective bargaining through elected representatives.
ANSWER: T PAGE: 939 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
13. Federal labor
laws cover all workers.
answer: f PAGE: 941 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
14. A union shop is
a workplace that requires union
membership as a prerequisite for employment.
ANSWER: F PAGE: 942 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
15. A closed shop is
a workplace that requires union
membership after a worker has been on a job for specified amount of time.
ANSWER: F PAGE: 942 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
16. During a union
election campaign, an employer may not
limit the activities of union supporters.
answer: F PAGE: 943 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
17. During
a union election campaign, an employer may not
campaign among its workers against the union.
ANSWER: F PAGE: 943 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
18. During
any strike, an employer may hire temporary
substitute workers to replace strikers.
ANSWER: T PAGE: 944 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
19. Only the states can enforce safety standards governing workplaces.
ANSWER: F PAGE: 944 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
20. Only
the states can set safety standards
governing workplaces.
ANSWER: F PAGE: 944 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
21. Employers
have no general duty to keep workplaces safe.
ANSWER: T PAGE: 944 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
22. Only
the federal government can set safety standards governing workplaces.
ANSWER: F PAGE: 944 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
23. In
most states, employers who show an ability to pay claims do not need to buy workers’ compensation
insurance.
ANSWER: T PAGE: 945 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
24. Recovery
under state workers’ compensation law for an on-the-job injury is only possible
if the injury was caused by the employer’s negligence.
ANSWER: F PAGE: 946 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
25. The
basis for contributions to help pay for an employee’s loss of income on
retirement is the employee’s annual wage base.
ANSWER: T PAGE: 946 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
26. Employers
are required to establish retirement plans for their employees.
ANSWER: F PAGE: 947 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
27. Employee
contributions to pension plans vest immediately.
ANSWER: T PAGE: 947 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
28. All
unemployed workers are eligible for unemployment compensation.
ANSWER: F PAGE: 947 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
29. A
worker whose job is terminated can still participate in the employer’s health
plan.
ANSWER: T PAGE: 948 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
30. Under
federal law, only key employees who
take temporary family or medical leave are entitled to job reinstatement.
ANSWER: F PAGE: 949 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
31. Supervisors
may be subject to personal liability for violations of the Family and Medical
Leave Act of 1993.
ANSWER: T PAGE: 949 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
32. Under
federal law, employers can monitor employees’ personal communications without
the employees’ consent.
ANSWER: F PAGE: 950 TYPE: N
MISC: AACSB
Analytic Skill Level: AICPA Legal
33. An
employer can require an employee to take a lie-detector test when investigating
losses attributable to theft.
ANSWER: T PAGE: 953 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
34. Drug
testing of employees by private employers is permitted.
ANSWER: T PAGE: 953 TYPE: +
MISC: AACSB
Analytic Skill Level: AICPA Legal
35. An
employer may hire an illegal immigrant if the employer files a special form.
ANSWER: F PAGE: 955 TYPE: =
MISC: AACSB
Analytic Skill Level: AICPA Legal
MULTIPLE-CHOICE
QUESTIONS
1. Nina
works as an employee for Overland Sales, Inc. To protect Nina and other
employees from arbitrary discharge, courts
have created exceptions to the employment-at-will doctrine based on
a. an
implied contract theory only.
b. a
public policy theory only.
c. implied
contract and public policy theories.
d. neither
implied contract nor public policy theories.
ANSWER: C PAGE: 934 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
2. Average
Manufacturing Company (AMC) employs workers, including Bob, at six locations in
two states. AMC’s discharge of Bob outside the terms of an employment contract
may result in
a. AMC’s
liability for damages.
b. Bob’s
deportation under the Immigration Act.
c. discontinuance
of Bob’s health-plan coverage.
d. monitoring
AMC’s communications for privacy violations.
ANSWER: A PAGE: 936 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
3. Kyle
works as a forklift operator for Local Warehouse Company. Assuming that Kyle
meets other requirements, the maximum number of hours that he can work per week
without overtime pay is
a. thirty-nine.
b. forty.
c. forty-one.
d. unlimited.
ANSWER: B PAGE: 937 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
4. Adam,
Beth, Carol, and Dan are employees of different-sized employers in different
industries. A minimum wage must be paid to employees in
a. all
industries.
b. covered
industries only.
c. no
industries.
d. small-business
industries only.
ANSWER: B PAGE: 937 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
5. Ethan
is seventeen years old. Under the Fair Labor Standards Act, Ethan cannot work
a. during
school hours.
b. in
a hazardous occupation.
c. more
than eighteen hours per week.
d. without
a special permit.
ANSWER: B PAGE: 937 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
6. Ilsa
works as a clerk for Java Café at minimum wage. The minimum-wage rate is
revised
a. annually,
according to the rate of inflation.
b. every
seven years, according to changes in the cost of living.
c. periodically
by Congress.
d. whenever
the president issues an executive order to revise the rate.
ANSWER: C PAGE: 937 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
7. To fulfill a
temporary contract, Alpha Communications Company needs some employees to work
overtime. All of the following employees may work more than forty hours per
week except
a. Beth,
who is under sixteen and on spring break.
b. Carl,
who is an executive.
c. Diane,
who is a professional.
d. Earl,
who is an outside salesperson.
ANSWER: A PAGE: 937 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
8. Industrial
Solvents, Inc. (ISI), and its employees are subject to federal labor law,
which is concerned with the rights of
a. ISI
only.
b. neither
the employees nor ISI.
c. the
employees and ISI.
d. the
employees only.
ANSWER: C PAGE: 939 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
9. Packaged
Foods Corporation (PFC) employs 1.000 workers in three locations. Under the
Norris-LaGuardia Act, PFC’s workers have the right to
a. demand
that PFC be a closed shop.
b. higher
pay.
c. organize.
d. refuse
to bargain with PFC.
ANSWER: C PAGE: 939 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
10. The
employees of Acme Machine, Inc., designate the Best Machinists Union (BMU) as
their bargaining representative. Acme refuses to bargain with BMU and fires
several workers for supporting the union. This violates
a. the Labor-Management Relations Act.
b. the National Labor Relations Act.
c. the Norris-LaGuardia Act.
d. no federal law.
answer: B PAGE: 939 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
11. Cleo,
who is an employee of Delta Industries, Inc., is protected under the National
Labor Relations Act, which is enforced by the National Labor Relations Board
(NLRB). The NLRB has the authority to
a. investigate
unfair labor practices.
b. manage
state unemployment funds.
c. organize
workers into unions.
d. oversee
administration of workers’ compensation laws.
ANSWER: A PAGE: 940 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
12. The Chip Makers
Union would like Digital, Inc., to require union membership of its job
applicants as a condition to obtaining employment. This is
a. illegal
in all states.
b. illegal
only in states that have right-to-work laws.
c. legal
in all states.
d. legal
only in states that have right-to-work laws.
ANSWER: A PAGE: 941 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
13. The
Hotel Employees Union is engaged in collective bargaining with International
Lodging, Inc. The employer would show bad faith by
a. compromising
on particular issues.
b. constantly
shifting positions on disputed contract terms.
c. not
discussing union positions with employees.
d. sending
only bargainers who have authority to commit to a contract.
answer: B PAGE: 943 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
14. Sue,
a clerk for a Totally Tacos restaurant, strikes with the other employees.
After the strike, Sue must be rehired—even if there is no work at the
restaurant—if the strike was
a. an
economic strike.
b. an
economic strike or an unfair labor practice strike.
c. an
unfair labor practice strike.
d. neither
an economic strike nor an unfair labor practice strike.
ANSWER: C PAGE: 944 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
15. Quinn
is an employee of Regional Industries, Inc. Quinn is threatened with a
discharge when he refuses a transfer to a Regional department in several
employees suffered serious injuries from exposure to hazardous chemicals. If
Quinn acted in good faith, he may be entitled to protection from discharge
under
a. the
Consolidated Omnibus Budget Reconciliation Act.
b. the
Family and Medical Leave Act.
c. the
Occupational Health and Safety Act.
d. the
state workers’ compensation act.
ANSWER: C PAGE: 944 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
16. Tri-State
Distribution Corporation has a staff of ten, which will increase to fifty if it
obtains a certain contract. Employers are required to keep occupational
injury and illness records for each employee if the employers have
a. eleven
or more employees.
b. twenty-one
or more employees.
c. thirty-one
or more employees.
d. fifty-one
or more employees.
ANSWER: A PAGE: 945 TYPE: =
MISC: AACSB Reflective Skill Level: AICPA Legal
17. Jay
works as an employee for Kitchen Appliances, Inc. (KAI), which is subject to
the Occupational Safety and Health Act. Jay is killed in a work-related
accident. To avoid a fine, KAI must notify
a. the
Social Security Administration.
b. the
U.S Department of Health and Human Services.
c. the
U.S. Department of Justice.
d. the
U.S. Department of Labor.
ANSWER: D PAGE: 945 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
18. Ken
works for Local Excavation Corporation (LEC). While operating a backhoe, Ken
suffers an injury. Ken will be compensated under state workers’ compensation
laws only if
a. Ken
does not have medical insurance.
b. Ken
is completely disabled.
c. Ken’s
injury was accidental and occurred on the job or in the course of employment.
d. Ken
successfully sues LEC.
ANSWER: C PAGE: 946 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
19. Hugh,
an employee of International Shipping Corporation (ISC), is injured on the job
and accepts workers’ compensation. Hugh can successfully sue ISC
a. only
if the injury was caused by ISC intentionally.
b. only
if the injury was caused by ISC’s negligence.
c. regardless
of ISC’s fault.
d. under
no circumstances.
ANSWER: A PAGE: 946 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
20. Leah
is an employee of Mega Corporation. To help pay for Leah’s medical costs on
retirement, contributions are required by law to be paid by
a. Leah
and Mega.
b. Leah
only.
c. Mega
only.
d. neither
Leah nor Mega.
ANSWER: A PAGE: 946 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
21. Alex
is an employee of Bigg Corporation. To help pay for employees’ loss of income
on retirement, contributions are required by law to be paid by
a. Alex
and Bigg.
b. Alex
only.
c. Bigg
only.
d. neither
Alex nor Bigg.
ANSWER: A PAGE: 946 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
22. Lila
retires from her job as a systems analyst for Marketing Solutions, Inc. Lila’s
Social Security benefits are fixed by statute and will
a. automatically increase with the cost of
living.
b. increase with the cost of living only when
the statute is “re-fixed.”
c. increase with the cost of living whenever
revenues increase.
d. not
increase with the cost of living.
ANSWER: A PAGE: 946 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
23. Luke
is a maintenance employee for Natural Products Company. Under the Employee
Retirement Income Security Act, Luke’s contributions to his pension plan vest
a. after
five years of employment.
b. after
five years of retirement.
c. five
years before retirement.
d. immediately.
ANSWER: D PAGE: 947 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
24. Mia
works as an employee for National Interstate Industries, Inc. (NIII). Owen, who
is unemployed, collects unemployment compensation. This is provided by a tax
on
a. Mia
and Owen only.
b. Mia,
NIII, and Owen.
c. NIII
only.
d. not
Mia, NIII or Owen.
ANSWER: C PAGE: 947 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
25. Machine
Manufacturing, Inc., employs four hundred workers at three locations in three
states. Excluded from protection under the Consolidated Omnibus Budget
Reconciliation Act (COBRA) of 1985 are workers who
a. are
fired for gross misconduct.
b. are
laid off for budgetary reasons.
c. have
their hours decreased from full-time to part-time.
d. voluntarily
quit their jobs.
ANSWER: A PAGE: 948 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
26. Consolidated
Computers, Inc., lays off fifty of its five hundred workers, including Don.
Consolidated can eliminate Don’s medical insurance coverage
a. if
Consolidated changes its group insurer.
b. if
Consolidated completely eliminates its group benefit plan.
c. if
Don files a suit against Consolidated for wrongful discharge.
d. under
any circumstances.
ANSWER: B PAGE: 948 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
27. Café
Dining, Inc., employs one hundred workers in at three locations in two states.
Under the Family and Medical Leave Act of 1993, Café must provide its
employees, during any twelve-month period, family or medical leave of up to
a. twelve
days.
b. twelve
weeks.
c. twelve
months.
d. twelve
years.
ANSWER: B PAGE: 949 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
28. Holly
takes temporary leave from her job at Interstate Assembly Company to care for
her new baby. When she attempts to return to work, Interstate refuses to
reinstate her. Under the Family and Medical Leave Act, Holly may be entitled to
a. damages
only.
b. damages
or job reinstatement only.
c. double
damages, job reinstatement, a promotion, and more.
d. none
of the above.
ANSWER: C PAGE: 949 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
29. Allied
Industries, Inc., wants to monitor its employees’ electronic communications.
To avoid liability under laws related to employee monitoring, Allied should
discuss the monitoring with
a. no
one.
b. the
employees.
c. the
government.
d. the
public generally.
ANSWER: B PAGE: 951 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
30. First
National Bank may subject its employees to lie-detector tests when
investigating
a. health
and medical conditions.
b. losses
attributable to theft.
c. prior
work history.
d. suspected
drug use.
ANSWER: B PAGE: 952 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
31. Security
Guards, Inc. (SGI), is a security service firm. SGI may subject its employees
to
a. drug
tests and lie-detector tests.
b. drug
tests only.
c. lie-detector
tests only.
d. neither
drug tests nor lie-detector tests.
ANSWER: A PAGE: 952 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
32. Leo
works as an employee for Maxim Corporation, a private employer. Maxim
announces that it will start random drug testing of its employees. To resist
this policy, Leo may look for protection under
a. a
federal administrative agency rule.
b. a
state constitution or statute.
c. the
U.S. Constitution.
d. none
of the above.
ANSWER: B PAGE: 953 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
33. A+ Accounting Corporation, a private employer,
handles bookkeeping for small employers. In most circumstances, with
exceptions, federal law clearly prohibits Omega from subjecting its employees
to
a. AIDS
tests.
b. electronic
monitoring of business communications.
c. genetic
tests.
d. lie-detector
tests.
ANSWER: C PAGE: 955 TYPE: N
MISC: AACSB
Reflective Skill Level: AICPA Legal
34. Fruits
& Vegetables, Inc., employs hundreds of seasonal and permanent workers,
both skilled and unskilled, in seven states. Under the Immigration Act of 1990,
Fruits & Vegetables can hire illegal immigrants
a. if
either the employer or the immigrants file special forms.
b. only
if the employer files a special form.
c. only
if the immigrants file special forms.
d. under
no circumstances.
ANSWER: D PAGE: 955 TYPE: +
MISC: AACSB
Reflective Skill Level: AICPA Legal
35. Silicon
Software, Inc., recruits employees in India and other Asian countries. The
Immigration Act of 1990
a. encourages
Silicon to hire illegal immigrants.
b. encourages
skilled workers to enter the United States.
c. requires
Silicon to hire illegal immigrants.
d. requires
skilled workers to enter the United States.
ANSWER: B PAGE: 955 TYPE: =
MISC: AACSB
Reflective Skill Level: AICPA Legal
Essay Questions
1. Collective
bargaining between Vital Company and Workers Union (WU) reaches an impasse. WU
calls a strike against Vital to pressure it into making concessions. The
unionized workers leave their jobs and refuse to work. The workers picket
Vital’s plant, standing outside the facility with signs that complain of
its management’s unfairness. Is this action legal? If so, do the workers have
the right to be paid while they are striking? Can non-workers participate in
the picketing? Can co-workers refuse to cross the picket line?
ANSWER: The strike described in this question is
legal. A strike is an extreme action, and striking workers lose the right to be
paid. A strike may be based on a union’s desire for a better contract or an
employer’s engaging in an unfair labor practice. Federal labor law regulates
the conduct of strike, but guarantees the right to strike, including picketing,
which is protected by the free speech guarantee of the First Amendment to the
U.S. Constitution. Non-workers can participate in the picketing of an employer.
The National Labor Relations Act also gives workers the right to refuse to
cross a picket line of co-workers who are involved in a lawful strike.
PAGE: 944 type: N
MISC: AACSB Reflective Skill Level: AICPA Decision
Modeling
2. Elin works for
Formative Molding Company. Near her workstation is a conveyor belt that runs
through a large industrial oven. Some workers, including Greg, Elin’s
supervisor, use the oven to heat food. Thirty-inch-high flasks containing molds
are fixed at regular intervals on the conveyor and transported into the oven.
Elin walks between the flasks to get to her workstation. One day, when the
conveyor is not moving, Elin uses the oven to cook a frozen pot pie. As she
removes the pie from the oven, the conveyor comes on. One of the flasks strikes
Elin, seriously injuring her. Elin seeks recovery under the state workers’
compensation law. Should she recover? Why or why not?
ANSWER: For a worker to be eligible for workers’
compensation, the injury must have been an accident and have arisen out of or
in the course of employment. Although Elin was accidentally struck by the
flask, recovery could be denied because Elin was not engaged in an activity
directly related to her work but was instead heating frozen food in an industrial
oven. By the same token, however, it is a common practice to use the oven and
the employer has apparently not forbidden the practice. Because the cooking is
done by many employees, including Elin’s supervisor, Formative can be imputed
with the knowledge of it. On balance, then, Elin should be allowed to receive
workers’ compensation benefits.
PAGES: 945–946 type: N
MISC: AACSB Reflective Skill Level: AICPA Decision
Modeling
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