Q&A Hero

Q: A contract is unenforceable if there is a statute that prohibits the action promised by the contract.

Q: During the last years of her life, Barb's chief companion was Sylvia. Barb told Sylvia that she could have a certain painting when Barb died. Barb died without a valid will. Her family refused to give the painting to Sylvia, however, who filed a suit to obtain its possession. Based on the de­cision in Case 43.1, In re Estate of Piper, the court will most likely rule in favor of a. Barb's family, because the painting was never delivered to Sylvia. b. Sylvia, because Barb intended to give the painting to Sylvia. c. Barb's family, because there was no will. d. Sylvia, because Barb's family never cared about Barbara.

Q: Edna and Flavia buy a boat that they dock in a marina near Gulfport, Mississippi. On the death of either owner, that owner's interest in the boat passes to her heirs. This is a. a joint tenancy. b. community property. c. a tenancy in common. d. ownership in fee simple.

Q: Clancy sells shares in Darling Pool & Spa Company to Eton. Clancy does not deliver the actual possession of the shares to Eton, but gives him the key to a safety-deposit box in First State Bank in which the stock certifi­cates are locked. Presenting the key is a. constrictive delivery. b. constructive delivery. c. destractive delivery. d. destructive delivery.

Q: A person who enters into a contract when he or she is intoxicated can void the contract if the terms are obviously favorable to the other party.

Q: T.J. owns a red sports car. T.J. can use the car as he wishes and he can also dispose of it if he wishes. When T.J. dies, the car will descend to his son. With respect to the car, T.J. is a. a joint tenant. b. a tenant in common. c. an owner in fee simple. d. an owner of community property.

Q: Ansel owns Bar-B Ranch. Ansel's only son Cy owns Double-D Ranch in the same county. Ansel gives 90 percent of the Bar-B to Etta, a short-term employee. This gift a. may lack the required element of "donative intent." b. may lack the required element of "donor's acknowledgement." c. may lack the required element of "heir's acquiescence." d. meets all of the requirements for an effective gift.

Q: Bowie, a certified public accountant, prepares and certifies Candy Products Corporation's financial statements. These statements are in­cluded in Candy's registration statement filed with the Securities and Exchange Commission before Candy's offering of securities. Dona buys a security covered by the registration statement. Based on this transaction, Dona files a suit against Bowie under Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934. To succeed in the suit, what must Dona prove? Bowie responds that Dona was not in priv­ity with him and that even if she had been in privity, she cannot prove his lack of due diligence. Can Bowie prevail on these grounds? Why or why not?

Q: A person who enters into a contract when he or she is intoxicated can void the contract only if the intoxication was involuntary.

Q: Ira is declared mentally incompetent. Jay, Ira's son, is named his guard­ian. At Jay's insistence, Ira transfers his assets to Jay "for safekeeping." A court might conclude that this gift is not effective on the ground that there was no a. acceptance. b. delivery. c. donative intent. d. donor's acknowledgment.

Q: Parents are ordinarily liable for the contracts made by their minor children, whether or not the children acted on their own.

Q: Dominique, a certified public accountant, provides accounting serv­ices to Eagle Corporation. The services include preparing Eagle's financial re­ports and issuing opinion letters based on the reports. In 2008, Eagle falls into serious financial trouble, but neither Dominique's reports nor her opinion let­ters indicate this situation. Relying on Dominique's portrayal of Eagle's finan­cial situation, Eagle borrows a large sum of money to build a new ship­ping facility. In lending Eagle the money, First National Bank relies on Dominique's opinion letter. Dominique is aware of this reliance. If Dominique did not en­gage in intentional fraud but was negligent, what is her potential liability?

Q: Patty's parents give her a car as a gradua­tion present. While Patty spends the sum­mer in Europe, her friend Rita agrees to keep the car in her ga­rage. On Patty's part, this is acquisition of property by a. bailment. b. capture. c. find. d. gift.

Q: Parents are required by law to provide necessaries for their minor children.

Q: Bryce's accountant is Caleb and his attorney is Delilah. All states protect, as privileged information, Bryce's communications with a. Caleb and Delilah. b. Caleb only. c. Delilah only. d. neither Caleb nor Delilah.

Q: Food is the only thing that courts have been willing to define as "necessary."

Q: Pace is an attorney, whose clients include Quikfeet Running Shoes Company. Unless Quikfeet has violated securities law, the contents of Pace's file on Quikfeet may be disclosed to someone other than Quikfeet a. only to a third party who is a foreseeable user of the information. b. only under a court order (with or without Quikfeet's consent). c. only with Quikfeet's consent. d. under any circumstances.

Q: Ruth gives Seth a computer as a gift. Using the computer, Seth develops a new game, for which he obtains intellectual property protection, and forms Top Games, Inc., to make and market the game. Seth's ac­quisition of the game is by a. a bailment. b. accession. c. confusion. d. production.

Q: Disaffirmance is the legal avoidance of a contractual obligation.

Q: Flynn, an accountant, helps Grange Supply Company prepare and file a false federal corporate income tax return. Under the In­ternal Revenue Code, this is a. a felony punishable by a fine and imprisonment. b. a felony punishable only by a fine. c. a misdemeanor punishable only by a fine. d. a civil violation subject to a liability suit but not a crime.

Q: Fanny buys clay to throw pottery, which is glazed and fired in a kiln. The finished products are sold to Gifte Shoppe, which sells these items and others to customers who often present them as gifts. Thus, property can be acquired in various ways. The most common way to acquire personal property, however, is to a. buy it. b. commingle it. c. produce it. d. receive it as a gift.

Q: Feder prepares federal corporate income tax returns for Giant Stores, Inc., and other firms. Under the Internal Revenue Code, with respect to an understatement of a client's tax liability, Feder may be liable for a. negligent or willful misconduct. b. no misconduct. c. only negligent misconduct. d. only willful misconduct.

Q: The age of majority in most states is eighteen years.

Q: Klondike and Leola own 10,000 shares of stock in My-T Gro Corporation. On the death of ether owner, that owner's interest in the stock passes to the surviving owner. This is a. a joint tenancy. b. a tenancy by the entirety. c. a tenancy in common. d. ownership in fee simple absolute.

Q: Some states provide for the termination of minority status on marriage.

Q: Jerzy is an accountant whose clients include Kopper Kettle Restaurants, Inc. For a violation of securities laws, Jerzy may be subject to a. comprehensive liability. b. corporate liability. c. criminal liability. d. no liability.

Q: Edna and Flavia buy a boat that they dock in a marina near Gulfport, Mississippi. On the death of either owner, that owner's interest in the boat passes to her heirs. This is a. a joint tenancy. b. a tenancy by the entirety. c. a tenancy in common. d. ownership in fee simple absolute.

Q: Lacy is an accountant who prepares her client' tax returns. Muff is not an accountant, but he also prepares tax returns for clients. Under the In­ternal Revenue Code, liability for preparing a false return may be im­posed on a. Lacy and Muff. b. Lacy only. c. Muff only. d. neither Lacy nor Muff.

Q: Faye owns the land on which Golden Spurs Ranch is situated, plus the ranch house, barn, and other structures permanently attached to the land. Faye's brother Huey owns everything else in the ranch's opera­tionlivestock, feed, and so on. The personal property is owned by a. Faye and Huey. b. Faye only. c. Golden Spurs Ranch. d. Huey only.

Q: A minor's right to disaffirm a contract terminates automatically when the person reaches the age of majority.

Q: Longway Trucking, Inc., files a suit against Midge, an accountant, under the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. To succeed in recovering damages, Longway must show that Midge a. acted with scienter. b. bought or sold a security. c. is incompetent. d. knows nothing about securities.

Q: Helen owns heavy construction equipment and the tools to service it, as well as office furniture, including computers. Ilya owns a number of pat­ents, trademarks that identify the products made under those patents, and stock in the company that sells those products. Personal property in­cludes the items owned by a. Helen and Ilya. b. Helen only. c. Ilya only. d. neither Helen nor Ilya.

Q: When both parties to a contract are minors, neither of them may disaffirm the contract.

Q: Beth is an accountant with Coffee Sales Corporation. Doral buys Coffee Sales stock and loses money on the investment. To recover from Beth under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, Doral must prove a. none of the choices. b. fraud and reliance only. c. fraud, reliance, and materiality only. d. scienter, fraud, reliance, materiality, and causation only.

Q: Best Products, Inc., hires Cole to develop and implement an e-commerce strategy for marketing Best's products. Cole signs a contract that includes a clause prohibiting him from competing with Best during and after the employment. Before the strategy is implemented, Cole resigns from Best's employ and opens a business to compete with Best. In Best's suit against Cole, to determine whether Cole may compete with Best, what is the most important factor the court should consider?

Q: Unlike an ordinary bailee, a warehouse company cannot limit its liability.

Q: Meri, an accountant, includes a false statement in a report for Novelty Paper Products, Inc. (NPPI) that is filed with the Securities and Exchange Com­mission. When Otho buys stock in NPPI and loses money on the investment, he files a suit against Meri, alleging fraud under the 1934 Securities Exchange Act. To avoid liability, Meri can show that she a. intended to defraud NPPI, not Otho. b. intended to profit on stock trades generally, not only with Otho. c. is an otherwise competent accountant. d. was not aware her statement was false.

Q: In State X, persons must be at least eighteen years old before they can purchase alcoholic beverages. The state also has passed a law requiring that persons who prepare and serve liquor in the form of drinks in commercial establishments be licensed. The only requirement for obtaining a yearly license is that the person be at least eighteen years old. Moffitt, aged thirty-five, is hired as a bartender for the Lone Star Restaurant. Bekins, a staunch alumnus of a nearby university, brings twenty of his friends to the restaurant to celebrate a football victory. Bekins has ordered four rounds of drinks, and the bar bill exceeds $200. Bekins learns that Moffitt has failed to renew his bartender's license, and Bekins refuses to pay, claiming the contract is unenforceable. Is Bekins correct?

Q: Pat, an accountant, includes a false statement in a report for Quantity Overstock, Inc., that is filed with the Securities and Exchange Commis­sion. Quantity publishes a misleading ad about its future prospects. Rita sees the ad and calls Stan, who buys stock in Quantity. Under Section 18 of the Securities Ex­change Act of 1934, liability may attach to a. Pat's report. b. Quantity's ad. c. Rita's call. d. Stan's purchase.

Q: Common carriers are held to a standard of care based on strict liability in protecting bailed property in their possession.

Q: Mona, an accountant, prepares for NuTech Corporation a financial statement that omits a material fact. The financial statement is included in NuTech's registration statement, which Pam reads. Pam buys NuTech stock. Under Section 11 of the Securities Act of 1933, for Mona to be liable for the omission, Pam must show that a. Pam relied on the omission. b. Pam suffered a loss on the stock. c. Pam knew about the omission before making her purchase. d. the omission had no causal connection to her loss.

Q: A contract between Lou and Val requires a transfer of stolen goods for counterfeit currency. This contract is a. enforceable. b. void. c. voidable at the option of either party. d. voidable at the option of the party having less bargaining power.

Q: In most bailments, the bailor must notify the bailee of hidden defects that the bailor knows or could have discovered with reasonable dili­gence.

Q: Quin, an accountant, prepares for Reddy, Inc., a financial state­ment that omits a material fact. The statement is included in Reddy's registration statement with the Securities and Exchange Commission. Timor, who reads the statement, and Ubi, who does not, each buy Reddy stock. Velma reads the statement but does not buy the stock. Under Section 11 of the Securities Act of 1933, Quin may be liable to a. no one. b. Timor and Ubi. c. Timor, Ubi, and Velma. d. Ubi only.

Q: Under almost any circumstances, an exculpatory clause could not be enforced by a. First National Bank only. b. Regional Power Utility Corporation only. c. First National Bank and Regional Power Utility Corporation. d. neither First National Bank nor Regional Power Utility Corporation.

Q: In an ordinary bailment, a bailee has the right to limit his or her liability.

Q: Lulu, an accountant, conducts an audit of Microstuff Toys, Inc. After the conclu­sion of the audit, the working papers created in preparing the audit must be a. disposed of immediately. b. kept until the Public Company Accounting Oversight Board's review. c. maintained for seven years. d. retained forever.

Q: Greg works for Hi-Tech Corporation. A covenant not to compete restricts Greg, on leaving Hi-Tech's employ, from working for a Hi-Tech competitor for one year in six states, including a few in which Hi-Tech does not do business. Greg quits Hi-Tech to work for Internet-Work, Inc., a Hi-Tech competitor, using a Hi-Tech customer list to obtain new business for Internet-Work. According to the reasoning of the court in Case 2, Moore v.Midwest Distribution, Inc., the covenant is most likely a. enforceable because covenants not to compete are always enforceable when accompanying an employment agreement. b. enforceable because it reasonably protects Hi-Tech's legitimate business interest. c. unenforceable because covenants not to compete are never enforceable when accompanying an employment agreement. d. unenforceable because it does not reasonably protect Hi-Tech's legitimate business interest.

Q: Hadley, an accountant, accumulates working papers while performing an audit for Ilene. After the audit, these documents belong to a. Hadley, with Ilene having a right of access to the papers. b. Ilene, with Hadley having a right of access to the papers. c. neither Hadley nor Ilenethe papers must be disposed of. d. the Public Company Accounting Oversight Board.

Q: In most bailments, the bailee has a right to place a lien on the bailed property until he or she is fully compensated.

Q: In a gratuitous bailment, a bailee has a right to be compensated for costs incurred in keeping bailed property.

Q: Owen signs a covenant not to compete with his employer, Peak Sales Company. A court decides that the covenant is overly restrictive. The court will likely a. enforce it as written so as not to interfere with the parties' freedom of contract. b. enforce it but evaluate its effects over time. c. reform its terms to prevent any undue burdens. d. refuse to enforce it unless Peak pays additional consideration.

Q: Joy signs a contract with Kent, an unlicensed physician, to perform a medical procedure. This contract is enforceable by a. Joy only. b. Joy or Kent. c. Kent only. d. no one.

Q: Craig is an accountant whose clients include Digby Excavation Corporation. Elbert is Craig's attorney. Under the common law and by statute in many states, working papers that Craig develops when preparing financial reports for Digby are owned by a. Craig. b. Digby. c. Elbert. d. no onethe papers must be destroyed immediately after use.

Q: Bruno is an accountant. Under the Sarbanes-Oxley Act, the degree of government oversight over the public accounting practices of Bruno and other accountants was a. decreased. b. increased. c. eliminated. d. unchanged.

Q: Roy represents himself as a lawyer in Arizona, but he is not licensed in that state. A contract between Will and Roy by which Roy agrees to represent Will in an Arizona state court is a. enforceable only if the outcome is successful. b. enforceable only if Will knows that Roy is unlicensed. c. enforceable only if Will fails to object to continued representation after learning about the missing license. d. not enforceable.

Q: All bailments include a bailee's right to use the bailed property.

Q: Edie obtains a consumer loan from First State Bank at an interest rate that exceeds the state's maximum. First State has a. calculated the optimum rate that the market will bear. b engaged in a restraint of trade. c. underestimated the risk of the loan's nonpayment. d. violated the usury laws.

Q: Toby is an accountant whose clients include U-All Company. If Toby is negligent in his work for U-All, most courts would hold him liable to U-All and a. any third party. b. no third party. c. third parties who are foreseen users of the work. d. third parties who are reasonably foresee­able users of the work.

Q: A bailment must be in writing to be valid.

Q: Constructive delivery does not satisfy the delivery requirement for an ef­fective bailment.

Q: Quibble Game Company's liabilities exceed its assets. Quibble hires Roo & Slay, an accounting firm, to prepare a balance sheet. Through Roo & Slay's negligent omissions, the sheet shows a positive net worth. Town Bank relies on the balance sheet to make a loan to Quibble. When Quibble defaults, Town files a suit against Roo & Slay. Under the Restatement rule, Roo & Slay is most likely a. liable because Roo & Slay owed a duty of care to Quibble. b. liable because Roo & Slay owed a duty to any foreseeable user. c. liable if Roo & Slay knew that Town would rely on the balance sheet. d. not liable because Roo & Slay and Town were not in privity.

Q: Jay is mentally incompetent but has not been so adjudged by a court. Any contract Jay enters into is voidable a. only if he does not know he is entering into the contract. b. only if he lacks the mental capacity to comprehend the consequences. c. if he either does not know it is a contract or does not comprehend the consequences. d. none of the above

Q: In a bailment, possession of the property is transferred to the bailee.

Q: Doug is an accountant whose clients include Everyday Products, Inc. (EPI). Under the Ultramares rule, if Doug is negligent in his work for EPI, he could be liable to a. EPI and any third party. b. EPI and third parties who are foreseen users of his work for EPI. c. EPI and third parties who are reasonably foresee­able users of his work for EPI. d. EPI only.

Q: While intoxicated, Tim contracts to buy a bicycle for double its normal price. Regarding this contract, Tim is a. liable even if he did not understand its legal consequences. b. liable only if he understood its legal consequences. c. not liable because the contract obviously favors the other party. d. not liable under any circumstances.

Q: Marquis Company's liabilities exceed its assets, but the firm's employees falsify its books to reflect a positive net worth. Marquis hires Nan & Ollie, an accounting firm, to prepare a balance sheet, which is certified to show a positive net worth. Pure Credit Corporation relies on the balance sheet to make a loan to Marquis. When the firm defaults, Pure Credit files a suit against Nan & Ollie. Under the Ultramares rule, the accounting firm is most likely a. liable because Nan & Ollie owed a duty of care to all third parties. b. liable because Nan & Ollie owed a duty of care to Marquis. c. liable because Nan & Ollie owed a duty to any foreseeable user. d. not liable because Nan & Ollie and Pure Credit were not in privity.

Q: For an effective bailment, the bailor must deliver possession of the bailed property with its title.

Q: Beth enters into, and fails to disaffirm soon after reaching the age of majority, a contract with Computer Stores, Inc. When Beth later attempts to disaffirm the contract, Computer Stores files a suit against her. The court will consider the contract ratified if it is a. executed. b. executory. c. executed or executory. d. none of the above.

Q: Grover Nut Company files a suit against Hud, its former account­ant, alleging actual fraud. Grover must prove a. intent to deceive. b. misrepresentation of a non-material fact. c. the lack of an injury. d. unjustifiable reliance.

Q: Property voluntarily discarded by its owner with no inten­tion of reclaiming it is abandoned property.

Q: Estray statutes determine ownership rights in fungible goods that have been "strayed."

Q: Curt, a doctor, renders medical care to Dora, a minor. According to the reasoning of the court in Case 1, Yale Diagnostic Radiology v. Estate of Harun, a contract between Curt and Dora is a. express. b. implied in fact. c. implied in law. d. non-existent.

Q: Filtration Products, Inc., files a suit against Emmett, its former accountant, al­leging constructive fraud. Emmett may be held liable a. if Filtration cannot prove actual fraud. b. if Emmett was grossly negligent in the performance of his duties. c. only if Emmett acted with fraudulent intent. d. only if Emmett impersonated someone else who could be liable for fraud.

Q: A finder acquires title to lost property good against the whole world, in­cluding the original owner.

Q: Al, a minor who is under his parents' care and control, signs a contract to rent an apartment from Bob for one year. Before the end of the term, Al moves out. Bob sues for the rent for the rest of the term. Al can a. avoid liability for the rent but not disaffirm the contract. b. disaffirm the contract and avoid liability for the rent. c. disaffirm the contract but not avoid liability for the rent. d. not disaffirm the contract nor avoid liability for the rent.

Q: Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing Industries, Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for a. actual fraud. b. constructive fraud. c. destructive fraud. d. virtual fraud.

Q: Property voluntarily placed by its owner and inadver­tently forgotten is mislaid property.

Q: Ruth, a minor, charges groceries at Sam's Mart. Two days later, Ruth disaffirms the purchase. Ruth owes Sam's Mart a. the reasonable value of the groceries. b. the retail value of the groceries. c. the wholesale value of the groceries. d. nothing.

Q: Lars accuses Moe, an attorney, of committing malpractice. Malpractice is a. a breach of ethics. b. a defalcation. c. a mistake in judgment. d. professional negligence.