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1. Carrie owed Charlotte $20,000. Carrie offered Charlotte a
promissory note (a negotiable instrument) worth $200,000 upon
maturity, which occurred in six months, as payment for the debt.
Carrie had actually stolen the promissory note from her friend
Samantha. Charlotte probably won't qualify as a holder in due course
because
A. Charlotte didn't give value for the instrument.
B. Charlotte didn't take the instrument in good faith.
C. Charlotte should have known the instrument was stolen.
D. the instrument was stolen from Samantha.
2. Ella owed Mark $500. Since Ella didn't have the money to pay
Mark, she asked Mark if he would accept a negotiable instrument,
such as a promissory note, as payment for the debt. Mark indicated
he would accept a negotiable instrument as payment. Ella wrote out a
promissory note in which she agreed to pay Mark $550 in 60 days if
she failed to pay him the $500 in cash within the next 30 days. Ella's
promissory note isn't negotiable because negotiable instrument must
A. be payable at a definite time.
B. state a fixed amount of money.
C. be payable to order or to bearer.
D. give an unconditional promise or order to pay.
3. Don purchased a boat from Randy. Randy told Don that he owned
the boat free and clear of all liens, which Randy knew to be false,
because he had just put the boat up as collateral on a loan at the
bank two weeks earlier. Don issued Randy a negotiable promissory
note for $5,000 to pay for the boat. By the time the promissory note
came due, the bank had repossessed the boat, making Don aware of
Randy's deception. Don will be able to avoid payment to Randy
because there was
A. a failure of consideration. C. some sort of illegality.
B. a breach of contract. D. fraud in the inducement
4. Joey makes a deposit at Hometown Bank in the amount of $500.
Joey's deposit consist of a 4500 check written to him by Ross, who
banks with Crosstown Bank. Hometown Bank deposits the check with
Friend's Bank, which in turn sends the check to Crosstown Bank.
Which of the following is true about this set of facts?
A. Hometown Bank is the payor bank.
B. Crosstown Bank is the payor bank.
C. Hometown Bank is an intermediary bank.
D. Crosstown Bank is the depository bank.
5. Eric wrote Donna a check for $50. Eric accidentally dated the check
3/1/07, even though it was actually 3/1/08 when he wrote the check.
Eric thought that there was $75 in the account, but there was actually
only $10 in the account. Which one of the following scenarios is most
likely to occur?
A. The bank will not honor the check because it's stale.
B. The bank will not honor the check because it's postdated.
C. The bank will honor the check, even though it will result in
an overdraft.
D. The bank will honor the check, even though a stop-payment order
has been made.
6. Erica writes a $100 check to Sam. Sam takes the check to his
bank, endorses the check, and deposits it into his bank. This process
is best described as
A. transfer by assignment.
B. taking for value.
C. transfer by negotiation.
D. transfer to a holder in due course.
7. Sara wrote a check to Steven in the amount of $100 to be drawn
from her account at Big Money Bank. When took the check to Big
Money Bank to be cashed, Big Money refused to pay the check
because Sara's deposit wasn't made in time to be credited to her
account for that day and wouldn't be available until the next day.
Which of the following is true about this turn of events?
A. Sara is liable to Steven for the $100.
B. Sara is not liable to Steven for the $100.
C. Big Money Bank is liable to Sara for the $100.
D. Big Money Bank is liable to Steven for the $100.
8. Joan noticed one day that her bank debit card was missing from
her purse. Joan notified her bank immediately. When Joan received
her statement the next month, the bank charged her $500 for
withdrawals made after the debit card disappeared. Which one of the
following laws do the charged violate?
A. Federal Trade Commission Act of 1914
B. Electronic Fund Transfer Act of 1978
C. Banking Act of 1999
D. Electronic Communications Privacy Act of 1986
9. Josie wants to purchase a car at an auction, and needs a check
that will serve as the equivalent to cash to pay for the car. Josie
should take a __________ check to the auction.
A. traveler's C. guaranteed
B. certified D. cashier's
10. Sally borrowed $500 from Burt. Sally signed a note stating that in
five years she would pay Burt whatever amount he deemed fair to
repay the loan. The note isn't negotiable, because negotiable
instruments must
A. state an unconditional promise or order to pay.
B. state a fixed amount of money.
C. be payable on demand or at a definite time.
D. be payable to order or to bearer.
11. Pete sets up an account with Ben's Movie Gallery, whereby
whenever Pete rents movies at the Movie Gallery, the amount for the
movie rental is deducted from Pete's card account and Ben's Movie
Gallery's account is credited for that amount. This set of facts is an
example of a/an ______ payment system.
A. online C. smart card
B. cyberbanking D. credit card
12. Samantha writes a check to Miranda for $2,500, to be drawn from
her account with Mahopani Bank. Miranda deposits the check into her
account with Central Bank. Central Bank sends the check to Buffalo
Bank, which sends the check to Mahopani Bank for payment. Which
of the following is true about this set of facts?
A. Buffalo Bank is an intermediary and collecting bank.
B. Mahopani Bank is an intermediary and collecting bank.
C. Central Bank is the payor bank.
D. Buffalo Bank is the depository bank.
13. Sara enters an agreement with Darryl in which Darryl agrees to
purchase a vacuum cleaner from Sara. Darryl signs a valid
promissory note in favor of Sara, agreeing to pay $1,500 within 12
months. To close the sale, Sara misleads Darryl into believing that
the vacuum cleaner is absolutely guaranteed to remove 100% of all
dust particles in the home or he can be released from the promissory
note, or get his money back if he has already paid the promissory
note in full. In fact, no such money-back guarantee exists, and the
vacuum cleaner doesn't remove 100% of all dust particles in Darryl's
home. Twelve months later, Darryl refuses to pay the balance due on
the promissory note. Which one of the following defenses may Darryl
successfully raise to avoid payment of the note?
A. Forgery C. Fraud in the inducement
B. Material alteration D. Fraud in the execution
14. Leroy writes a 450 check made payable to "Cash," and gives the
check to Laurie. Which one of the following best describes what has
happened?
A. transfer by assignment C. Transfer by negotiation
B. Taking for value D. Transfer to a holder in due course
15. Janice gives Chandler a promissory note made out in her favor,
signed by Joey for $1,000. When the note comes due, Joey asserts a
personal defense to avoid liability on the note. Chandler isn't a holder
in due course, and thus doesn't benefit from the protections afforded
a holder in due course, because Chandler
A. did not take the note in good faith.
B. should have known a defense existed to the note.
C. should have known the note would be dishonored.
D. did not take the note for value.
16. Jacobs arranged for his utility bill to be paid by automatic draft
from his checking account. One month later, Jacob's utility bill tripled
in amount from the month before, even though Jacob knew that he
had used less electricity than the month before. Because Jacob
believed the utility company his bank, five days before the draft was
scheduled to be deducted, to refuse payment on the draft. The bank
paid the draft. The bank's payment likely violated which one of the
following laws?
A. Federal Trade Commission Act of 1914
B. Electronic Fund Transfer Act of 1978
C. Banking Act of 1999
D. Electronic Communications Privacy Act of 1986
17. Brenda wrote a check to KelliHGY for $50, to be drawn from her
account at Beverly Bank. Beverly Bank refused to cash the check.
Which one of the following correctly states Brenda's liability in this
situation?
A. Brenda is secondarily liable if she is given timely notice of the
dishonor.
B. Brenda is primarily liable if she is given timely notice of the
dishonor.
C. Brenda is secondarily liable regardless of any notice of the
dishonor.
D. Brenda is primarily liable regardless of any notice of the dishonor.
18. Jayla and Jamal enter an agreement in which Jamal agrees to pay
Jayla $500 over the next 3 months for a new stereo. Jamal calls Jayla
on the phone and promises to pay her the entire $500 no later than
90 days from that date. This agreement fails to constitute a
negotiable instrument, because negotiable instruments must
A. be payable on demand or at a definite time.
B. state an unconditional promise or order to pay.
C. state a fixed amount of money.
D. be in writing.
19. Liza purchased a car from Chad, and signed a promissory note in
Chad's favor promising to pay $1,000 for the car within 1 year.
Despite Chad's written and oral promises about the car's condition.
Liza had to have the car in the shop for repairs the entire first year.
Liza refused to pay the balance due under the promissory note. Which
one of the following is Liza's best defense to avoid liability?
A. Illegality C. Breach of warranty
B. Fraud in the inducement D. Fraud in the execution
20. Lee offered Beth a promissory note signed by Joe in favor of Lee
paying $10,000 in 6 months, in exchange for $1,000 cash. Beth
readily accepted the deal. Beth may not be classified as a holder in
due course because Beth
A. did not give value for the note.
B. did not take the note in good faith.
C. may have had notice of a defense against the note.
D. may have had notice that the note would be dishonored.
PF exam #06056000
1. A
2. C
3. A
4. C
5. D
6. A
7. C
8. A
9. B
10. C
11. D
12. C
13. A
14. B
15. D
16. C
17. B
18. A
19. B
20. B
PF exam #06056100
1. Jack is a very mature looking seventeen-year-old who lives at
home with his parents. Jack wants to purchase an automobile. Jack
goes to Discount Car Sales where Bud, the car salesman, never
considers that Jack may be a minor because Jack looks at least
twenty-five. Bud sells Jack a car, with the agreement that Jack will
pay Bud $100 per month over the next five years for the car. Which
one of the following is true?
A. Despite Jack's minor status, Bud can prohibit Jack from
disaffirming a contract for a necessary (or basic need).
B. Jack can disaffirm the contract because of his minor status
at the time the contract was formed.
C. Bud can disaffirm the contract because of Jack's minor status at
the time the contract was formed.
D. Bud can hold Jack's parents liable for Jack's contract, because Jack
was a minor living in their home at the time the contract was formed.
2. Edward offers Austin one million dollars to break into the World
Museum and steal a priceless Egyptian diamond. Austin readily
accepts the offer. Both Edward and Austin have reached the age of
majority and possess the capacity to contract. Which of the following
requirements for the formation of a contract is missing?
A. Legality
B. Consideration
C. Contractual capacity
D. Agreement
3. Paul wants to buy an antique car from Betty. Paul believes that the
car is worth $30,000, even though Betty is asking only $10,000 for
the car. In actuality, the car is worth only $5,000. The result of this
chain of events would be a
A. mistake of fact.
B. fraudulent misrepresentation.
C. mutual mistake.
D. mistake of value.
4. Jason contracts with Mountaintop Life Insurance to purchase life
insurance. Jason lists his wife, Melba, as the beneficiary. Melba is
a/an
A. donee beneficiary.
B. creditor beneficiary.
C. incidental beneficiary.
D. obligee.
5. Lisa and Chad had been dating for several years. Chad gave Lisa
an expensive birthstone ring for her birthday. Despite the lengthy
courtship, Chad unceremoniously dumped Lisa the day after her
birthday. Lisa went out to a club with a few friends, where the group
had a few drinks. Obviously intoxicated and distraught, Lisa said, I'll
sell this ring for $5.00 to anyone who agrees to give Chad a black
eye. Lisa's friend Ty quickly said, I accept. A contract probably hasn't
been formed because of what basic principle of contract law?
A. Freedom of contract
B. Quasi-contracts
C. Objective theory of contracts
D. Plain-meaning rule
6. Ty and Cher went out for dinner to discuss a business venture the
two had been discussing. Cher had a few glasses of wine, and
became visibly intoxicated. Ty and Cher continued to discuss the
venture, and the two formed a contract in which Ty received 80% of
the profits resulting from the venture, and Cher received 20% of the
profits, even though Cher agreed to invest the majority of the money.
Ty agreed to contribute her expertise and services to the venture.
When Cher wakes up the next morning, she realizes her terrible
mistake. Cher's best chance at avoiding the contract with Ty is to
assert that
A. she didn't know what she was doing at the time the contract was
formed.
B. she was drunk at the time the contract was formed.
C. the contract is unconscionable.
D. the contract is illegal.
7. Jack and Jane formed a contract in which Jack agreed to sell Jane a
large amount of apples. Jack knew that Jane planned to resell the
apples at the farmers' market the following weekend. Jack failed to
deliver the apples as promised. Jane will likely be able to recover
A. compensatory damages only.
B. nominal damages only.
C. punitive damages only.
D. both compensatory damages and consequential damages.
8. Elliot and Richard went out to paint the town. Both Elliot and
Richard were known to be pranksters, and nobody in town ever took
either of them seriously. Elliot and Richard started talking to Steve in
a local tavern. Elliot and Richard told Steve that they owned the
Brooklyn Bridge, and would sell it to him for $10,000. Elliot and
Richard even wrote out the terms of the agreement on a cocktail
napkin. Steve agreed to the terms of the contract. Steve honestly
believed that a contract had been formed, and he could sue Elliot and
Richard if they failed to uphold the terms of the contract. A contract
probably doesn't exist because
A. Elliot and Richard lacked the capacity to contract.
B. Steve lacked the capacity to contract.
C. no reasonable person would have believed a contract was formed.
D. Elliot and Richard were intoxicated.
9. Jackie told a group of her friends that she plans to sell her home
one day. Meg asked how much she hoped to get for the house, and
Jackie replied, Meg said, I accept your offer to purchase your house
for $50,000. No contract exists because
A. the terms of the offer were not reasonably certain.
B. Jackie didn't objectively intend to enter a contract.
C. the offer wasn't properly communicated.
D. Jackie's statements were merely preliminary negotiations.
10. Josey is a seventeen-year-old who lives on her own in the city.
Josey's parents are deceased, and she once lived with her
grandmother, although her grandmother doesn't have legal custody
of Josey. She signs a lease to rent an apartment with Syd Landlord.
Josey violates the terms of the lease, and moves out six months
early. Syd sues Josey for breach of contract. The most likely result
will be that
A. Josey may disaffirm the contract, but will have to pay for
the reasonable value of the rent.
B. Josey may disaffirm and avoid the contract.
C. Syd may disaffirm and avoid the contract.
D. Josey's grandmother may be forced to uphold the contract.
11. Joe made Mandie an offer of employment. Joe gave Mandie a
copy of the employment contract, and stated, If you accept, I must
receive your acceptance by December 1 at 5:00 P.M. The written
contract stated the same requirement. Mandie lived 30 miles from
Joe's office. Mandie signed the employment contract, and placed it in
a correctly addressed, stamped envelope, and deposited it in the mail
on December 1 at 12:00 P.M. Joe receives the acceptance on
December 3. The result is that a contract
A. was formed because of the mailbox rule.
B. wasn't formed because mailing the acceptance wasn't authorized.
C. wasn't formed because Joe specifically conditioned his offer on
acceptance by a certain time.
D. was formed because Mandie unequivocally accepted the terms of
the contract.
12. Tom contracts with Jerry to purchase an oil painting. Tom and
Jerry mistakenly think that the oil painting was painted by Monet, the
famous artist, and that it's worth hundreds of thousands of dollars.
When Tom discovers the mistake, he seeks to rescind the contract.
The most likely result will be that the contract will
A. not be rescinded because the mistake was one of value.
B. be rescinded because the mistake was one of fact.
C. be rescinded due to fraudulent misrepresentation.
D. be rescinded due to undue influence.
13. Eric owes George money. Eric contracts with Mark to paint Mark's
house. In the contract, Mark agrees that in return for Eric painting his
house, Mark will pay George the money Eric owes George. George is
a/an
A. donee beneficiary.
B. incidental beneficiary.
C. delegatee.
D. creditor beneficiary.
14. Mark tells Cindy, If you clean out my garage, I'll pay you $25.
Mark has offered to form what kind of contract?
A. Bilateral contract
B. Unilateral contract
C. Quasi-contract
D. Implied-in-fact contract
15. Sam and Erica like to attend wild parties. Both have worked up
quite a tolerance, because of their frequent drinking. One night, after
both Sam and Erica had each enjoyed a couple of beers, they decided
to enter a contract in which Sam agreed to purchase Erica's 1965
Mustang for $2,500.The next day, Erica has second thoughts. The
most likely result will be
A. Erica will avoid the contract due to intoxication.
B. Sam will avoid the contract due to intoxication.
C. Erica won't avoid the contract because she wasn't
intoxicated.
D. Erica should be able to avoid the contract because it's
unconscionable.
16. Grandpa Graham declares at his eightieth birthday party that
because she's his favorite grandchild, he'll leave $100,000 to his
beloved granddaughter Elsie upon his death. Sadly, Grandpa Graham
dies just three days later. No provision of his will left Elsie the
$100,000. Elsie files a breach of contract claim against Grandpa
Graham's estate. The most likely result will be that Elsie will lose
because no contract existed due to
A. lack of agreement and consideration.
B. lack of contractual capacity.
C. lack of form.
D. illegality.
17. Carrie decides to offer Susan the opportunity to purchase her
motorcycle for just $500. Carrie told Carter, a mutual friend of hers
and Susan's, that she intended to make the offer. Later, Carrie
changes her mind. Susan approaches Carrie and says she accepts the
offer. What will the likely result be?
A. No contract was formed because Carrie didn't possess a serious,
objective intention.
B. No contract was formed because Carrie never
communicated the offer to Susan.
C. No contract was formed because the terms of the offer weren't
certain or definite enough to form a contract.
D. A contract was formed because Susan accepted Carrie's offer.
18. Will contracts with Grace to sell her 100 lamps for $1,000. Will
breaches his contractual duty to deliver the lamps, and Grace buys
100 lamps for $2,000 from another dealer. Grace sues Will for breach
of contract. She will most likely receive what type of damages?
A. Compensatory damages in the amount of $1,000
B. Compensatory damages in the amount of $2,000
C. Consequential damages of $3,000
D. Nominal damages of $100
19. Uncle Eb tells his wayward nephew Jonah that if he refrains from
drinking and smoking until he reaches the age of 18, he'll pay him
$500,000. Jonah refrains from drinking and smoking until after his
eighteenth birthday. What would a judge most likely say?
A. No contract is formed because there's no bargained-for exchange.
B. No contract is formed because there's no legal value offered.
C. No contract is formed due to inadequacy of consideration.
D. A contract exists between Uncle Eb and Jonah.
20. Joey mailed Clark an offer in which he offered to sell Clark all of
his baseball cards for $300. No other stipulations appeared in the
offer. The next day, Clark mailed Joey his acceptance of the offer,
along with a check for $300. That same day, Joey mailed Clark a
letter revoking his offer. The most likely result will be that
A. no contract was formed because Joey revoked the offer.
B. a contract was formed because of the mailbox rule.
C. no contract was formed because Clark used an improper means of
acceptance.
D. a contract was formed because once Joey mailed the offer, he
couldn't revoke it.
PF Exam #06056200
1.B
2.C
3.A
4.D
5.A
6.B
7.C
8.B
9.B
10.B
11.B
12.C
13.C
14.B
15.B
16.C
17.A
18.C
19.D
20.D