True/False
Indicate whether the sentence or statement is true or false.
____ 1. If a buyer breaches a contract and the seller resells the goods to another party, the seller need not credit the net proceeds to the breaching buyer.
____ 2. Incidental damages result from the costs of forming a contractual relationship that is ultimately breached.
____ 3. A lessor's failure to make proper delivery under a contract will not usually give the lessee the right to cancel the contract.
____ 4. Under the UCC, replevin is an action to recover goods that are identified to a contract and in the hands of a breaching seller.
____ 5. The right to replevy goods identified to a contract does not depend on whether the buyer is able to obtain substitute goods following the breach of the contract.
____ 6. A buyer who accepts nonconforming goods is not required to notify the seller of the breach within a reasonable time after the defect should have been discovered.
____ 7. Notification is seasonable if it is timely.
____ 8. Warranties of title arise in most sales contracts only when the seller expressly declares that he or she does possess title to the goods.
____ 9. If a warranty against infringement is breached and the buyer is sued by the claim holder, then the buyer must notify the seller of the litigation within a reasonable time to enable the seller to decide whether to defend the lawsuit.
____ 10. Only a substance that is natural to a food product can be the basis for a breach of the implied warranty of merchantability.
____ 11. A product is unmerchantable if it could injure a user in any way-for example, by causing a user to slip and fall by stepping on it.
____ 12. When a buyer relies on a seller to select a product suitable for the buyer's purpose, and the seller does not furnish a suitable product, the seller may be liable for breaching the implied warranty of fitness for a particular purpose.
____ 13. A promissory note that states it is payable within ninety days represents an extension of credit by the holder to the debtor.
____ 14. A cashier's check drawn by a bank on itself is an instrument in which the bank is both the drawer and the drawee.
____ 15. An instrument does not have to be signed by its maker or drawer for it to be negotiable.
____ 16. A thumbprint made on a document with the intent that it serve as a valid signature will be legally valid if it is witnessed.
____ 17. A signature must generally be located on the lower left-hand corner of a document in order to be negotiable.
____ 18. To be negotiable, the terms of a promise or order must be included on the face of the instrument.
____ 19. An instrument including a clause that permits the date of maturity to be extended by the maker for "no more than a reasonable time" is negotiable.
____ 20. A promise to give value in the future is normally sufficient to confer the rights of an HDC on one in possession of a negotiable instrument.
____ 21. A person who acquires a check stamped "insufficient funds" is put on notice and therefore acquires HDC status.
____ 22. Presentment of a negotiable instrument may be properly made, depending on the type of instrument, by any commercially reasonable means.
____ 23. In general, an agent must clearly indicate that he or she is signing on behalf of a clearly named principal to bind the principal.
____ 24. A drawer can stop payment on a check on the ground of forgery if the drawer was induced by an imposter to issue the check in the name of an impersonated payee.
____ 25. If an instrument is originally incomplete and is later completed in an unauthorized manner, the unauthorized completion is a defense against payment on the instrument to an HDC.
TRUE/FALSE Answers
1. F
2. F
3. F
4. T
5. F
6. F
7. T
8. F
9. T
10. F
11. F
12. T
13. T
14. T
15. F
16. T
17. F
18. T
19. F
20. F
21. F
22. T
23. T
24. F
25. F
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
____ 26. American Goods, Inc., contracts to sell t-shirts to All-Mart Outlet Stores. American Goods can cancel the contract
a.
|
only if All-Mart wrongfully rejects or revokes acceptance of the goods.
|
b.
|
only if All-Mart fails to make payment or repudiates the contract.
|
c.
|
both a and b.
|
d.
|
none of the above.
|
____ 27. Fitz and Simmons enter into a contract by which Fitz agrees to sell onions to Simmons. Simmons subsequently declares bankruptcy. The smallest shipment of onions that Fitz can stop in transit before it is delivered to Simmons is
a.
|
a carload.
|
b.
|
a planeload.
|
c.
|
a truckload.
|
d.
|
none of the above.
|
____ 28. Don contracts to buy timber from Northwest Lumber Company. Only half of the shipment conforms to the contract. Timber that conforms to the contract is in short supply. Don should probably
a.
|
accept the entire shipment.
|
b.
|
accept the timber that conforms to the contract and sue Northwest for the difference between the contract price and the cost of obtaining the rest of the conforming timber elsewhere.
|
c.
|
reject the entire shipment.
|
d.
|
sue Northwest for specific performance.
|
____ 29. Jane accepts a commercial unit of goods before discovering that the goods do not substantially conform to the contract. Jane can revoke her acceptance of the goods if the nonconformity substantially impairs the value of the goods and
a.
|
acceptance was predicated on the reasonable assumption that the nonconformity would be cured and it has not been seasonably cured.
|
b.
|
Jane did not discover the nonconformity, and her acceptance was reasonably induced by the difficulty of discovery before acceptance or by the seller's assurances that the goods conform.
|
c.
|
either a or b.
|
d.
|
none of the above.
|
____ 30. Perry, a buyer for Superior Products Company, a manufacturer of bulletin boards and other office supplies, visits a lumberyard and is shown samples of cork by Monica, a salesperson. Perry agrees to buy a certain quantity based on Monica's statement that the shipment will match a selected sample. The statement is
a.
|
an express warranty.
|
b.
|
an implied warranty.
|
c.
|
a warranty of title.
|
d.
|
puffing.
|
____ 31. A statement by Ed, a salesperson for Best Textiles Company, that Best's bolts of fabric are the "finest money can buy" is
a.
|
an express warranty.
|
b.
|
an implied warranty.
|
c.
|
a statement of fact.
|
d.
|
puffing.
|
____ 32. Rick hires Jose, a noted equestrian authority, to advise him in his search for the perfect stud horse. Rick buys a horse from Quarter Farms based on Jose's statement that the horse is in "good shape." After the sale, the salesperson says that the horse is "fit." Subsequently, Rick learns that horse cannot be used as a stud. Rick could
a.
|
recover damages from Quarter Farms based on a breach of express warranty.
|
b.
|
recover damages from Quarter Farms based on a breach of implied warranty of merchantability.
|
c.
|
not recover damages from Quarter Farm, because the salesperson's statement regarding the fitness of the horse was collateral to the sale.
|
d.
|
not recover damages from Quarter Farm, because Rick hired Jose to advise him regarding the fitness of horses.
|
____ 33. A salesperson at Opal's Computer Store tells Ryan that a certain laptop computer outperforms all other laptops. Ryan buys the laptop, but it does no more than most such computers. If Ryan sues Opal,
a.
|
Opal will win, because the computer is reasonably fit for the ordinary purposes for which such goods are used.
|
b.
|
Opal will win, because implied warranties supersede express warranties.
|
c.
|
Ryan will win, because general descriptions supersede samples.
|
d.
|
Ryan will win, because express warranties supersede the implied warranty of merchantability.
|
____ 34. A-One Appliance Company markets its products through its own A-One Appliance Stores. For A-One's written disclaimer to nullify any express warranties, it must be
a.
|
conspicuous and called to a buyer's attention.
|
b.
|
in smaller print than the rest of the sales contract.
|
c.
|
in the same print as the rest of the sales contract.
|
d.
|
presented to a buyer after a sales contract has been entered into.
|
____ 35. National Restaurants, Inc., in the United States, contracts with Perfecto Café, Ltd., in Columbia, for a purchase of coffee beans. Under the United Nations Convention on Contracts for the International Sale of Goods, National Restaurants has warranty protection that is similar to that available under
a.
|
the general principles of contract law.
|
b.
|
the Magnuson-Moss Warranty Act.
|
c.
|
the UCC.
|
d.
|
none of the above.
|
____ 36. To purchase office supplies for her medical clinic, Becky executes a draft in favor of Sonya. A draft is
a.
|
a promise to pay money.
|
b.
|
a promise to deliver goods at a future date.
|
c.
|
a conditional promise to pay money.
|
d.
|
an unconditional written order to pay money.
|
____ 37. In a sale of software to First Insurance Corporation, Omega Software, Inc., draws an instrument that orders First Insurance to pay $1,500 to the order of Omega in thirty days. First Insurance accepts the instrument by signing and dating the face of it. This is
a.
|
a cashier's check.
|
b.
|
a promissory note.
|
c.
|
a trade acceptance
|
d.
|
none of the above.
|
____ 38. John's oral promise to pay $300 to Paul is not a negotiable instrument because
a.
|
negotiable instruments must be in written form.
|
b.
|
the promise does not recite the consideration that was given by Paul to John in exchange for the promise to pay $300.
|
c.
|
the promise may have been induced by fraud.
|
d.
|
the amount of the promise falls within the Statute of Frauds.
|
____ 39. Diner's Restaurant issues an instrument in favor of General Supplies, Inc. For the instrument to be negotiable, it need not
a.
|
be an unconditional promise or order to pay.
|
b.
|
be payable on demand or at a specific time.
|
c.
|
be signed by Diner's Restaurant.
|
d.
|
recite the consideration given in exchange for a promise to pay.
|
____ 40. Ferdinand owes $8,000 in unpaid taxes. Using the back of an old shirt, he executes an instrument for $8,000 that otherwise meets the requirements for negotiability. This instrument is likely
a.
|
negotiable.
|
b.
|
nonnegotiable, because a shirt is not sufficiently permanent.
|
c.
|
nonnegotiable, because the government does not appreciate such gestures.
|
d.
|
nonnegotiable, because an instrument must be on paper so that it may be processed efficiently in the banking system.
|
____ 41. Greg, the chief financial officer of Great Computers Company, signs an instrument that includes the phrase "this debt arises from the sale of seventy-seven hard drives." This instrument is
a.
|
negotiable.
|
b.
|
nonnegotiable, because it states an express condition to payment.
|
c.
|
nonnegotiable, because obligations with respect to the note are stated in another writing.
|
d.
|
none of the above.
|
____ 42. Adam signs an instrument in favor of Francis that states it is "subject to a certain security agreement between Adam and Conrad." This instrument is
a.
|
negotiable.
|
b.
|
nonnegotiable, because it refers to a security agreement.
|
c.
|
nonnegotiable, because it is made subject to a security agreement.
|
d.
|
nonnegotiable, because Francis and Conrad are not the same persons.
|
____ 43. Jeanne possesses an instrument "payable to bearer." She loses the instrument, but Jake finds it. Jake may
a.
|
collect payment on the instrument.
|
b.
|
not collect payment on the instrument, because he gave no value for it.
|
c.
|
not collect payment on the instrument, because he is not the "bearer" that the instrument refers to.
|
d.
|
not collect payment on the instrument, because he only found it.
|
____ 44. Owen is a holder of a promissory note obtained from Purchase Money, Inc. Regarding the defenses against payment of the note to which Purchase Money is subject, Owen, as an ordinary holder, is subject to
a.
|
more defenses.
|
b.
|
no defenses.
|
c.
|
some defenses, but not as many.
|
d.
|
the same defenses.
|
____ 45. Ann is the payee of a bearer instrument: promissory note in the amount of $10,000. Burt offers to irrigate Ann's ranch next week in exchange for the note. Ann agrees and delivers the note to Burt. Burt is
a.
|
not an HDC, because the note is a bearer instrument.
|
b.
|
not an HDC, because he did not acquire the instrument in good faith.
|
c.
|
not an HDC, because he did not yet give value for the instrument.
|
d.
|
an HDC, because the good faith and value requirements apply only to the transferor, not the holder.
|
____ 46. City Investment Company signs a check payable to Downtown Lenders, Inc., to buy a promissory note executed by Eagle Corporation. This check
a.
|
does not constitute sufficient consideration for HDC status.
|
b.
|
does not satisfy the value requirement for HDC status.
|
c.
|
satisfies the consideration requirement for HDC status.
|
d.
|
satisfies the value requirement for HDC status.
|
____ 47. National Lenders, Inc., will not attain the status of an HDC if it knows or should know when it acquires a negotiable instrument that the instrument
a.
|
has been altered.
|
b.
|
is complete.
|
c.
|
has been altered or is complete.
|
d.
|
none of the above.
|
____ 48. Bruce writes a check to Hanson that is drawn on his account at First National Bank. Hanson presents the check to the bank for payment, and the bank accepts the check. The bank is
a.
|
primarily liable for payment.
|
b.
|
secondarily liable for payment.
|
c.
|
not be liable for payment.
|
d.
|
none of the above.
|
____ 49. Ann acquires a negotiable instrument drawn on Northern State Bank. To present the instrument for payment, she may
a.
|
use any commercially reasonable means.
|
b.
|
submit it to an authorized clearinghouse.
|
c.
|
present it at the place specified in the instrument for acceptance or payment.
|
d.
|
all of the above.
|
____ 50. Elle is the authorized agent for Nick. To avoid personal liability on any negotiable instruments that she signs on behalf of Nick, Elle mustnot sign
a.
|
her name alone without indicating that she is acting on behalf of Nick.
|
b.
|
her name and Nick's name without indicating that she is Nick's agent.
|
c.
|
both a and b.
|
d.
|
none of the above.
|
MCQ Answers
26. C
27. D
28. B
29. C
30. A
31. D
32. C
33. D
34. A
35. C
36. D
37. C
38. A
39. D
40. A
41. A
42. C
43. A
44. D
45. C
46. D
47. A
48. A
49. D
50. C
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