BUSINESS LAW

This exam tests general knowledge of business law as it applies to contracts and the legal system. Topics
covered include: the effect of law on business transactions, contract law, sales contracts, commercial paper,
agency law, and property.
(3 s.h.)
LAW-201-TE
This is a two-hour examination in which you must answer 100 multiple-choice questions (worth 1 point each).
A passing score is 55 out of 100 points.

Here are the topics covered and their approximate importance on the test:
I.

INTRODUCTION TO LAW

(5%)

II.

AMERICAN LEGAL SYSTEM (15%)

A. Legal system and court jurisdiction
B. Constitutional regulation of business
C. Dispute resolution
D. Torts
E. Crimes and business

III.

CONTRACTS
(30%)
A. Contract law and theory
B. Contractual agreement
C. Consideration
D. Contractual capacity; reality of consent
E. Legality of subject matter; proper form of contracts
F. Contract interpretation; rights of third persons
G. Contractual discharge and remedies

IV.

SALES AND LEASES

(15%)
A. Sales contract formation
B. Title; risk of loss
C. Performance; remedies
D. Warranties; product liability

V.

NEGOTIABLES
(20%)
A. UCC Articles 3 and 7
B. Negotiability
C. Holders in due course; holders by due negotiation
D. Liability; discharge
E. Bank-customer relations; EFT

VI.

AGENCY
(10%)
A. Creation and termination
B. Liability for contracts
C. Liability for torts and crimes

VIII. PROPERTY PROTECTION

(5%)
A. Real property; joint ownership
B. Personal property; bailments

A textbook to help you prepare:

Davidson, Daniel, Knowles, Brenda, and Lynn Forsythe. Business Law: Principles and Cases in the
Legal Environment. Current edition. South-Western.

SAMPLE QUESTIONS
These questions are similar to ones you will find on the TECEP exam.
1.

Which of the following are sources of the law in the American legal system?
a.
b.
c.
d.

2.

The law of negligence is based on the

a.
b.
c.
d.

3.

Issuing an arraignment when it believes that the accused has committed a crime
Issuing an indictment when it believes that the accused has committed a crime
Issuing an information when it believes that the accused has committed a crime
Determining guilt or innocence in criminal cases

One June 1, Southern Co. agreed to sell 100 yards of XL wire to Northern Inc. Delivery was
scheduled for June 20, the delivery location was Star Manufacturing, and payment was
scheduled 30 days after delivery. This contract is
a.
b.
c.
d.

5.

concept of fault
policy decision regarding who should bear the loss
obviousness of the hazard
doctrine of respondeat superior

What is the role of a grand jury in the law of criminal procedure?

a.
b.
c.
d.

4.

Constitutionsarbitrationcivil lawcase law

Treatiesarbitrationlaw merchantcase law
Statutesordinancesadministrative regulations
Constitutionsmediationcivil lawequity

unilateral
restitutionary
informal
bilateral

Connie offers her house for sale to Bill. Five days after the offer, a flood destroys Connie's
house. The destruction of the house automatically causes Connie's offer to
a.
b.
c.
d.

extend
terminate
transform into an option whereby Bill can accept or not
transform into a firm offer

6.

A suretyship contract is
a.
b.
c.
d.

7.

Why is fraud a more advantageous remedy for the plaintiff to pursue than misrepresentation?
a.
b.
c.
d.

8.

an injunction
reformation
specific performance
restitution

A buyer and seller enter into a sales contract. Later, the buyer has second thoughts about the
contract and decides to refuse to cooperate with the seller. What can the seller do?
a.
b.
c.
d.

11.

the lease is required to be in writing

the lease is not required to be in writing
the parol evidence rule renders the contract voidable
a contract is not formed, as there is no current agreement

Julian hires Evan to paint his portrait. Evan begins the portrait but becomes upset with Julian and
refuses to finish it. If Julian sues Evan to require him to finish the portrait, it will be a suit for
a.
b.
c.
d.

10.

Fraud is generally easier to prove.

Only fraud can be the basis for recission.
Punitive damages may be awarded when fraud is proven.
Misrepresentation offers no possibility of punitive damages.

Jack agrees to lease his home to Jane for nine months, with the lease to begin six months from
the signing of the contract. Under the statute of frauds,
a.
b.
c.
d.

9.

involved with liquidated debts

governed exclusively by the UCC
rarely enforceable
generally a co-signer agreement

The seller can treat the contract as breached by the buyer.

The seller can sue the buyer for the tort of failure to cooperate.
The seller can seek an injunction, because failure to cooperate is an obstruction.
The seller can only try to persuade the buyer to cooperate.

A seller shipped goods to a buyer by common carrier, using a shipment contract. When the
carrier arrived at the buyer's location, the buyer refused to accept the goods unless the driver
unloaded them inside the buyer's warehouse. The driver refused and the goods were
subsequently damaged. Who bears the risk of loss?
a. The seller, for failing to make a proper delivery contract
b. The buyer, since this was a shipment contract and the seller had completed the performance
obligations
c. The seller, since the buyer did not accept the goods that the seller shipped
d. It depends on whether the buyer's request was reasonable. If it was, the seller bears the risk
of loss, otherwise it falls on the buyer.

12.

A seller refused to deliver common goods that are in temporary short supply in the market. The
buyer could not find substitute goods from another seller. In this case, the buyer is allowed to
seek the remedy of
a.
b.
c.
d.

13.

A cashier's check is a check

a.
b.
c.
d.

14.

Discharge in bankruptcy proceedings

Breach of warranty
Failure of consideration
Fraud in the inducement

When a customer opens a checking account with a bank, a contract is formed. The terms of that
contract are most likely to be contained in
a.
b.
c.
d.

17.

covered by Article 3 of the UCC

covered by Article 4 of the UCC
covered by Article 7 of the UCC
a contract covered by common law

Pam is a holder in due course of a check issued by Pablo. Which of the following defenses
would permit Pablo to avoid paying Pam for the check?
a.
b.
c.
d.

16.

drawn against the bank cashier

drawn by a bank against that same bank
that requires, as a condition to payment, a countersignature by a person whose specimen
signature appears on the instrument
drawn by a bank on another bank

A promissory note that is NOT negotiable is

a.
b.
c.
d.

15.

recoupment
specific performance
cover
replevin

Article 3 of the UCC

Article 4 of the UCC
the signature card
state banking regulations

If an agency agreement does NOT specify a set date, a set period, or a set occurrence that will
terminate the relationship, that relationship is best described as a(n)
a.
b.
c.
d.

resulting agency
agency at will
illusory agency
constructive trust

18.

When an employer is held liable under respondeat superior for a tort committed by their
employee, the
a.
b.
c.
c.

19.

Al and Barb, unrelated parties, jointly purchase a commercial lot. The title probably will be
taken as
a.
b.
c.
d.

20.

employer is entitled to indemnification from the employee

employee is not held liable for the injury
third party may only recover from the employer
third party may only recover one-half the amount from the employer

joint tenants
tenants by the entirety
tenants in common
individual fee owners

Which of the following is a bailment situation?

a.
b.
c.
d.

A conditional sale of goods

The lease of an apartment
A driver parks and locks his car in a self-service parking lot and takes the keys
Property held by a lender as collateral

ANSWERS TO SAMPLE QUESTIONS

1. (c)
11. (b)

2. (a)
12. (d)

3. (b)

4. (d)

5. (b)

6. (d)

13. (b)

14. (d)

15. (a)

16. (c)

7. (c)
17. (b)

8. (a)
18. (a)

9. (c)

10. (a)

19. (c)

20. (d)