Business Ethics and Law Exam Materials
Course Introduction
Business Ethics and Law explores the fundamental principles of ethical decision-making and legal frameworks that govern business conduct in local and global contexts. The course examines moral philosophies, corporate social responsibility, stakeholder theory, and the intersection of law and ethical practice in areas such as contracts, employment, intellectual property, and corporate governance. Through case studies and real-world scenarios, students develop critical thinking skills to navigate complex ethical dilemmas, understand the implications of regulatory compliance, and cultivate integrity and accountability in business operations.
Recommended Textbook Law for Business 12th Edition by A. James Barnes
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Page 2
Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) Describe the four steps in the process of legal interpretation.
Answer: The four steps in the process of legal interpretation are: 1)look to the plain meaning of the language,2)examine the legislative history of the rule,3)consider the purpose to be achieved by the rule,and 4)try to accommodate public policy.
Q2) The highest appeals court in a jurisdiction cannot overrule a precedent case.
A)True
B)False
Answer: False
Q3) The constitutional prohibition of ex post facto laws:
A) applies to statutory law.
B) aims to minimize the possibility of failure if the business has to go to court to enforce its rights.
C) applies to common law.
D) gives lawyers a great deal of discretion in selecting an appropriate strategy for handling a legal dispute.
Answer: A
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3
Chapter 2: Dispute Settlement
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Q1) Jurisdiction is defined as:
A) the authority of a court to hear and determine disputes.
B) the unlimited authority of the court.
C) the process by which legal cases are decided.
D) the power an individual appointed within an organization possesses to settle disputes.
Answer: A
Q2) Small claims courts are courts of record.
A)True
B)False
Answer: False
Q3) All opinions of the Supreme Court judges can be cited as precedents.
A)True
B)False
Answer: False
Q4) The parties to an arbitration proceeding can select an arbitrator in any way they desire.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) The new federal sentencing guidelines implemented as part of Sarbanes-Oxley:
A) apply sanctions to both individual board members as well as the corporation itself.
B) assign specific oversight responsibilities to directors.
C) are designed to give the management immunity.
D) call for special committees of the board to be assigned similar functions.
Answer: B
Q2) Which of the following is a reason why large corporations have the ability to influence legislation?
A) There are no limits on the law's ability to control irresponsible corporate behavior.
B) Their size, resources, and sophistication give them the capability to purchase this ability.
C) Corporate managers are always aware of the effects of their products or production processes.
D) The state legislatures cannot enact hostile regulatory legislation.
Answer: B
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Page 5
Chapter 4: Business and the Constitution
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Q1) Administrative agencies _____.
A) cannot perform legislative and judicial functions
B) can investigate and prosecute violations of statutes and regulations
C) are better suited to using the slower, case-by-case approach followed by the courts and the cumbersome law-making process that frequently characterizes legislation
D) cannot adjudicate disputes involving alleged violations of their regulations
Q2) After a series of some advertisements of beer and other alcoholic drinks,the U.S.government decided to regulate commercial speech.If the courts analyze this regulation,they will:
A) use strict scrutiny analysis.
B) search for truth in the speech.
C) seek compelling government interest.
D) see that the government advances its interests in an extensive manner.
Q3) In the United States,the power of the states to regulate is:
A) exclusive in the domain of intrastate commerce.
B) nonexistent over matters that affect interstate commerce.
C) limited only by its own state constitution.
D) exclusive in the domain of interstate commerce.
Q4) What does preemption of state powers mean?
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Chapter 5: Crimes
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Q1) Under the Electronic Communications Privacy Act,an electronic communication provider may disclose the contents of an electronic communication if the disclosure was made as part of government-authorized surveillance.
A)True
B)False
Q2) Drafted under U.S.influence,the Council of Europe's "Convention on Cybercrime" obligates participating countries to:
A) disclose private information to government agents.
B) create a "do-not-e-mail" registry.
C) outlaw commercial copyright infringement.
D) send out unsolicited commercial e-mails.
Q3) Which of the following acts protects against unauthorized interception of electronic communications?
A) The Wiretap Act
B) The Stored Communication Act
C) The Computer Fraud and Abuse Act
D) The Cyber Security Enhancement Act
Q4) Define crimes.Differentiate between felonies and misdemeanors,mentioning the penalties by which each is punishable.
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Chapter 6: Intentional Torts
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Q1) The plaintiff's burden of proof in a tort case is proof by a preponderance of the evidence,which is applied in all civil cases,in which the defendant's:
A) life may be at stake.
B) liberty may be at stake.
C) money is at stake.
D) criminal activities are at stake.
Q2) The tort of false imprisonment protects:
A) the right to life.
B) only the freedom of movement.
C) mental and physical interests.
D) only the freedom from knowledge of confinement.
Q3) Libel refers to acts of oral defamation by a malicious agent.
A)True
B)False
Q4) Use of force to drive away a person's customers or employees leads to a tort called disparagement.
A)True
B)False
Q5) Discuss what is meant by the term "tort."
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Chapter 7: Negligence and Strict Liability
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Q1) _____ is an unintentional breach of duty by the defendant that results in harm to another.
A) Negligence
B) A liability
C) A fraud
D) Foreseeability
Q2) In an act of recklessness,Ryan bets his friends that he can drive down a crowded street blindfolded,and he ends up striking Cameron.Under which of the following circumstances would Cameron be barred from any recovery from Ryan?
A) If Cameron had not looked before stepping into Ryan's path
B) If Cameron had bet Ryan's friends he could run in front of Ryan without being hit
C) If Cameron was mildly intoxicated while walking
D) If Cameron could hear Ryan's car approaching but had no place to hide
Q3) What is meant by proximate cause?
Q4) The doctrine of res ipsa loquitur places the burden on the plaintiff to show that his injury was caused by the defendant's negligence.
A)True
B)False
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Page 9
Chapter 8: Licensing and Intellectual Propertypart Two Contracts
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Q1) Discuss the intellectual property aspects of social media.
Q2) The direct copyright infringement theory of recovery has been used effectively against suppliers of peer-to-peer file sharing software that has been used to download DVDs from the Internet.
A)True
B)False
Q3) Patents,trademarks,copyrights,and trade secrets are basic types of:
A) intellectual property.
B) community property.
C) commercial property.
D) patented property.
Q4) A patent generally is effective for 10 years from the date of filing.
A)True
B)False
Q5) If a licensor does not closely monitor the activities of a licensee,it runs the risk that the licensee will produce inferior products or provide inferior service.
A)True
B)False
Q6) How can a plaintiff recover for trademark infringement?
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Chapter 9: The Nature and Origins of Contracts
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Q1) The Uniform Commercial Code (UCC)differs from the United Nations Convention on Contracts for the International Sale of Goods (CISG)in that the:
A) UCC does not require contracts to be in writing, while CISG requires contracts for the sale of goods in excess of $300 to be in writing.
B) CISG applies to the sale of consumer transactions, while the UCC governs both consumer and commercial transactions.
C) UCC holds merchants to higher standards in some circumstances, while the CISG does not make a distinction between merchants and nonmerchants.
D) CISG applies to both consumer and commercial transactions, while the UCC applies only to commercial sales of goods.
Q2) Bill downloaded an antivirus software from the Internet.Under the Uniform Commercial Code (UCC),the software is a:
A) good.
B) service.
C) good-faith warranty.
D) mixture of goods and services.
Q3) Discuss the importance of having contracts in today's market economy.
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Page 11
Chapter 10: Creating a Contract: Offers
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Q1) In an option contract,_____.
A) a separate contract for the limited purpose of holding the offer open is created
B) the offeree is bound to accept the offer
C) a joint contract is created for the limited purpose of keeping the offer open
D) the offeree has purchased the right to accept within the stated period
Q2) Explain the special problems associated with the bidding process in construction works to the general contractor,if the subcontractor is allowed to revoke the offer.
Q3) A counteroffer:
A) impliedly rejects an offer.
B) does not affect the material terms of the contract.
C) is a mirror-image of the offer.
D) is an inquiry into the terms of the offer.
Q4) The modern trend is for courts to tolerate more open and missing terms in offers.
A)True
B)False
Q5) What is an offer? What are the three conditions necessary for the creation of an offer?
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Page 12
Chapter 11: Creating a Contract: Acceptances
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Q1) An offer sent by stipulated means is effective when dispatched.
A)True
B)False
Q2) On April 1,2008,Joe received a telegram from Adam offering to build Joe a resort cottage for $100,000.On April 5,2008,at 10:00 A.M.,Adam sends Joe a telegram attempting to revoke the offer.At 11:00 A.M.on the same day,Joe sends Adam an e-mail attempting to accept the offer.At 11:30 A.M.,Joe receives Adam's revocation.Assume Adam's offer was silent on the question of what means Joe could use to accept.Which of the following is true when the offeror impliedly authorizes acceptance by any reasonable means?
A)The parties would not have a contract because the impliedly authorized means of communication was a telegram.
B)The parties may have a contract if the court concludes that mail was a reasonable way for Joe to accept Adam's offer.
C)The parties would not have a contract because Joe did not use the means impliedly authorized by trade usage.
D)The parties may have a contract if Adam reads the acceptance e-mail before the revocation reaches Joe.
Q3) Explain the idea of "stipulation" and the effect it has on a contract.
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13
Chapter 12: Consideration
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Q1) If a promisor already had a duty to do what he has done or promised to do,the promisor has _____.
A) made new consideration to support a modification and it is unenforceable
B) not given legal value
C) agreed to do something he had no right to do
D) made a promise which is consideration
Q2) Vladimir Constructions contracted to build the Petersons a house for $50,000.When Vladimir began digging the foundation,it hit bedrock,which was highly unusual in that area.Vladimir told the Petersons that it required an extra $5,000 to build the house.The Petersons agreed,but when the house was done,refused to pay Vladimir any more than the original contract price.What can be the outcome if Vladimir sues the Petersons for the extra $5,000 and why?
Q3) Which of the following statements is true of consideration?
A) Consideration always has a monetary value regardless of a legal value.
B) A promisee can be enforced by the courts to keep his or her promise.
C) Consideration enforces gratuitous promises.
D) A promisee's consideration may be an act or a promise.
Q4) Freedom of contract includes the freedom to make bad bargains.
A)True B)False
Page 14
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Chapter 13: Capacity to Contract
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Q1) The idea behind _____ is that adults who indicate an intent to be bound by contracts entered while still minors should be bound to those contracts and denied the right to disaffirm thereafter.
A) ratification
B) disaffirmance
C) emancipation
D) forbearance
Q2) If a court later finds that a person lacked mental capacity at the time the contract was entered into,the contract is _____.
A) not voidable
B) voidable
C) automatically illegal
D) reaffirmed
Q3) Minors are liable for the value of necessaries they have purchased under a contract but have not received at the time they disaffirm.
A)True
B)False
Q4) What are the exceptions created by the court to the general rule that minors can disaffirm their contracts?
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Chapter 14: Voluntary Consent
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Q1) Mutual mistake is always a basis for granting rescission of the contract at the request of either party.
A)True
B)False
Q2) What are the ideas behind making justifiable reliance an element of misrepresentation?
Q3) Which of the following statements is true for duress?
A) The reason behind the idea of duress is that mistakes may prevent the "meeting of the minds" required by contract law.
B) The basic idea behind duress is to protect the old, the timid, and the physically or mentally weak from those who gain their confidence and attempt to take advantage of them.
C) The term duress is used in contract law to describe the situation in which one or both of the parties to an agreement acted under an untrue belief about the existence or nonexistence of a material fact.
D) The courts have generally held that the threat of a well-founded civil suit is not duress.
Q4) Explain the difference between duress and undue influence.
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Page 16
Chapter 15: Illegality
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Q1) A restraint that is merely ancillary to a contract may be legal if:
A) it attempts to relieve one party from liability for willful misconduct.
B) its purpose is to restrict trade indefinitely.
C) its purpose is to recover punitive damages.
D) it is designed to protect interests created by the contract.
Q2) Explain the concept of exculpatory clauses in contracts.
Q3) What are usury laws and Blue Laws?
Q4) Which of the following is a reason for voiding a contract based on illegality?
A) Both of the parties are ignorant of the facts that made the bargain illegal.
B) It is in violation of the Code alone, not the common law.
C) It is contrary to public policy.
D) The court does not allow the recovery of damages.
Q5) If no duty to the public is involved and the parties have freely and knowingly agreed,the exculpatory clause may be enforceable.
A)True
B)False
Q6) The penalty for violation of usury laws includes the forfeiture of interest and principal.
A)True
B)False
Page 17
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Chapter 16: The Form and Meaning of Contracts
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Q1) For the requirement that certain types of contracts must be in writing,promissory estoppel is an exception to:
A) collateral guaranty contracts.
B) transfers of interest in land.
C) an executor's agreement to personally pay a decedent's debts.
D) the parol evidence rule.
Q2) An oral contract may be enforceable if promissory estoppel applies.
A)True
B)False
Q3) If the writing in a contract is clearly incomplete,a party can introduce proof of consistent oral terms that "fill the gaps" in the writing.
A)True
B)False
Q4) The parol evidence rule says that a party can vary the terms of a written contract by introducing evidence of terms allegedly agreed on prior to,or contemporaneous with writing.
A)True
B)False
Q5) What kind of writing is required under the statute of frauds?
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Chapter 17: Third Parties Contract Rights
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Q1) A creditor beneficiary has rights against the promisee,but not the promisor.
A)True
B)False
Q2) Which of the following statements is true of assignors?
A) An assignor who is paid for making an assignment is not liable to assignees for implied guarantees.
B) An assignor who wrongfully assigns the same claim more than once is not liable to an assignee as the assignee is later held to have acquired rights against the promisor.
C) An assignor does not impliedly warrant the solvency of a promisor.
D) An assignor who accepts performance from the promisor after the assignment does not hold any benefits he or she receives as trustee for his or her assignee.
Q3) An incidental beneficiary can:
A) enforce a contract.
B) acquire rights under a contract.
C) be a member of the general public.
D) sue for nonperformance.
Q4) What is an implied guarantee?
Q5) Who is a creditor beneficiary? Can he/she enforce a contract?
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Chapter 18: Performance and Remediespart Three Sales
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Q1) A building that deviates slightly from the contract's specifications does not qualify as substantial performance.
A)True
B)False
Q2) Which of the following is true of anticipatory repudiation?
A) It occurs if promisors, prior to the time for performance, indicate an intent not to perform their duties under the contract.
B) Its indication can arise only from implicit actions, and the other party can sue after two weeks for breach of contract.
C) It occurs when the promisee's performance fails to reach the degree of perfection the other party is justified in expecting under the circumstances.
D) Its indication can arise only in the form of an express statement by the promisor and the other party cannot treat the contract as breached.
Q3) Maxwell Construction built an apartment block for Riverside Inc.Five years later,Riverside sued Maxwell for the leakages in its ceiling.Is this lawsuit valid?
Q4) Explain the concept of substantial performance.
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Page 20
Chapter 19: Formation and Terms of Sales Contracts
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Q1) A buyer has a retail store in Florida and the seller is a manufacturer in California.If the buyer orders goods from the seller and the goods are shipped "FOB Florida," which of the following statements is true?
A) The seller bears the expense and risk of delivering the goods to Florida.
B) Neither the seller nor the buyer bears the risk of delivering the goods as the goods are insured.
C) The seller is allowed to charge a nominal fee for delivering the goods.
D) The buyer bears the risk of loss as he is responsible for taking possession of the goods.
Q2) Why does the Uniform Commercial Code distinguish between merchants and nonmerchants by holding merchants to a higher standard in some instances?
Q3) In the context of destination contracts,ex-ship specifies a particular ship on which the goods are to be placed but does not place the expense and risk on the seller.
A)True
B)False
Q4) Briefly explain the exception made by the Uniform Commercial Code concerning buyers in the ordinary course of business.
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Page 21
Chapter 20: Warranties and Product Liability
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Q1) The creation of an express warranty depends on the:
A) seller's intent.
B) seller's statement becoming part of the bargain.
C) mere recommendation of the goods by the seller.
D) seller's confining their statements to "sales talk."
Q2) A manufacturer who is sued on the basis of industry wide liability may try to defend on the grounds that:
A) it manufactured the product that caused the injury to the plaintiff.
B) it manufactured the product with a disclaimer.
C) the risks from its product were lower than those from other manufacturers.
D) the market share of its product was more than alleged by the plaintiff.
Q3) Which of the following is a test of merchantability for all sales contracts?
A) The goods conform to any promises or statements of fact made on the container or label.
B) The goods are of different kind, quality, and quantity within each unit.
C) The goods need not necessarily be packaged or labeled adequately.
D) The goods conform to the general description of the goods available in the market.
Q4) Define the different situations in which courts can hold manufacturers liable for negligence.
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Chapter 21: Performance of Sales Contracts
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Q1) Jayden,the owner of a cosmetic store,orders 20 bottles of body lotion and 30 bottles of face cleansing lotion.After the consignment is delivered,he discovers that he has received only 10 bottles of body lotion and 10 bottles of face cleansing lotion.In this scenario,Jayden:
A) can accept all the goods and avoid payment for the face cleansing lotion.
B) cannot accept the nonconforming goods.
C) can reject or accept the entire consignment.
D) can avoid payment for the body lotion which he had not ordered but has accepted.
Q2) Once a party to a contract repudiates the contract,it is rendered void with no way to withdraw the repudiation.
A)True
B)False
Q3) A buyer has the right to retain goods,even if the bank refuses to pay the buyer's check.
A)True
B)False
Q4) The basic duty of a seller is to deliver the goods called for by the contract.
A)True
B)False
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Chapter 22: Remedies for Breach of Sales Contractspart
Four Agency and Employment
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Q1) Which of the following is true of damages incurred by the seller when a buyer repudiates a contract?
A) The buyer is not liable for the difference between the contract price and the market price at which the goods are currently selling.
B) The only way the seller can recover damages is by reselling the goods.
C) The seller can only recover incidental damages and not the lost revenue.
D) The seller can recover lost profit and overheads along with incidental expenses.
Q2) When goods are defective and the buyer provides the seller with notice,which of the following remedies is applicable?
A) The buyer is entitled to only consequential damages.
B) The buyer can claim only incidental damages.
C) The buyer can recover the difference between the value of the goods received and the value the goods would have had if they had been as warranted.
D) The buyer cannot recover damages and can only get the reimbursement amount that the seller thinks is reasonable.
Q3) What are the most common ways in which a buyer may breach a contract?
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Chapter 23: The Agency Relationship-Creation, duties, and
Termination
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Q1) A person has the capacity to act as an agent only if he/she has the legal capacity to contract.
A)True
B)False
Q2) When agents make advances from their own funds in conducting the principal's business,the principal has:
A) no duty to reimburse the agent because the agent has assumed the burden.
B) a duty to reimburse the agent for expenses incurred for the principal.
C) a duty to reimburse the agent even if the agent is not acting within the scope of his/her authority.
D) no duty to reimburse the agent because the agent commingled fungible goods.
Q3) A person may act as a dual agent:
A) on his own accord and can be bound to multiple principals at freewill.
B) after partial disclosure of terms to either principal.
C) with the consent of any one principal.
D) with the consent of both principals on being fully informed about it.
Q4) Explain the concepts "agency at will" and "agency coupled with an interest."
Q5) Discuss the capacity required for an agent to be contracted as a principal or an agent.
Page 25
Q6) What does the agent's duty of loyalty mean?
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) The agent is held liable on contracts entered into on behalf of an undisclosed principal.
A)True
B)False
Q2) Misrepresentations by an agent made with the intent to deceive a third person:
A) will make the agent liable to the third person.
B) will absolve the principal of any liabilities toward the third person.
C) will make the third person liable to the principle.
D) will make the principal liable to the agent and the third person.
Q3) Direct liability occurs when:
A) the agent is not acting at the direction of the principal.
B) the principal is negligent in the hiring and/or the supervision of the agent.
C) the agent's criminal behavior occurs outside the scope of employment.
D) the principal has liability insurance and the agent commits a tort.
Q4) Generally,notice to the agent does not imply notice to the principal even if it relates to the business of the agency.
A)True
B)False
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Q5) Is a principal liable for the acts committed by the employees of an agent? Discuss.
Chapter 25: Employment Laws-Part Five Business
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Q1) Salima became a Certified Public Accountant in 2002.After working as a staff auditor and accountant for other companies,she was hired as an auditor by Moore Corp.in 2003.When she was hired,there were four male auditors in her area who had been with the company for several years and were classified as senior auditors.In 2004,Salima complained that she was receiving the same salary as a new male senior auditor,Rashid,even though she was doing the same work.When Rashid was brought in,Moore Corp.was in the process of divestiture and its policy was to fill positions with lateral transfers from other areas because of a promotion and hiring freeze.In 2005,Salima filed a complaint with the Equal Employment Opportunity Commission (EEOC)claiming that she was not being paid equally for equal work.Did Moore Corp.violate the Equal Pay Act by paying Salima less than the male accountants?
Q2) The aim of affirmative action is to encourage an employer to apply greater effort in finding and promoting qualified minority and female candidates. A)True B)False
Q3) How does the Americans with Disabilities Act of 1990 define disability? Who is excluded from this definition?
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Chapter 26: Which Form of Business Organization
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Q1) In a general partnership,each partner is an owner and has a right to share in the profits of the business.
A)True
B)False
Q2) Publicly offered partnership interests are:
A) generally tax shelters for the original purchasers during the early years of ownership.
B) of vital interest to persons hoping to actively manage a business.
C) the primary method of creating general partnerships.
D) generally unattractive to investors in the early years of ownership.
Q3) "Piercing the corporate veil" implies that:
A) a corporation is held liable for money laundering.
B) corporate shareholders are stripped of their limited liability to prevent unfair results.
C) an entity is treated as one and the same as its owners.
D) members will not be personally liable for the debts.
Q4) A partner cannot terminate an ordinary partnership at will.
A)True
B)False
Q5) What are the advantages of franchising?
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Chapter 27: Partnerships
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Q1) Which of the following is true of partnership property?
A) The fact that property is used in the business makes it partnership property though it does not show in the account books.
B) Payment by the partnership of taxes or insurance on property is conclusive evidence that the property is owned by the partnership.
C) Any property acquired with partnership funds is partnership property even if a contrary intent is shown.
D) Partnership property includes all property that originally was contributed to the partnership as well as anything purchased then or later for the partnership.
Q2) Which of the following is true of limited partnerships?
A) A limited partner is liable for the debts of the partnership.
B) A limited partnership must file a certificate with the secretary of state.
C) A limited partner is a fiduciary.
D) A limited partnership can be created only under federal statutes.
Q3) Partners do not have fiduciary duties to one another during the winding up process.
A)True B)False
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Chapter 28: Formation and Termination of Corporations
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Q1) The bylaws of a corporation:
A) usually set up procedures for the holding of shares.
B) do not involve financial matters such as declaring and paying dividends.
C) usually set out the duties and authority of the officers and the conduct of meetings.
D) need not be consistent with state laws or the articles of incorporation.
Q2) Jones Corp.is a business concern in the process of being set up.Benito,its promoter has entered into preincorporation contracts.After the corporation comes into existence,Benito can be released from liability on the preincorporation contracts through:
A) an agreement with Jones Corp., wherein Jones Corp. agrees that it will be substituted for Benito.
B) an agreement with the third party before adoption of the preincorporation agreement.
C) an agreement with Jones Corp., Benito, and their third party, wherein all agree that Jones Corp. will be substituted for Benito.
D) another preincorporation contract with the third party.
Q3) Mention the matters that must be included in the articles of incorporation according to the Model Business Corporation Act (MBCA).
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Chapter 29: Management of the Corporate Business
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Q1) Which of the following acts requires CEOs and CFOs of publicly traded corporations to certify that,to their knowledge,all financial information in quarterly and annual reports is not false or misleading?
A) Landrum-Griffin Act
B) Clayton Act
C) Sarbanes-Oxley Act
D) Norris-LaGuardia Act
Q2) A corporate officer is never held liable for the illegal behavior of a subordinate.
A)True
B)False
Q3) What are the three elements that must be met before directors or officers may be found to have usurped a corporate opportunity?
Q4) The vice president of a corporation:
A) cannot be leading any specific department of the company.
B) has charge of the funds of the corporation.
C) cannot have implied authority.
D) has no authority by virtue of that office.
Q5) Write a note on indemnification in corporations.
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Corporations do not have inherent power to borrow money by issuing debt securities. A)True
B)False
Q2) Romano,a shareholder of Specific General Inc.,wishes to communicate with other shareholders concerning matters related to the corporation.So he requests the management to provide him with a list of all shareholders of the corporation.Citing administrative burden,the management informed Romano that shareholders could not review such records.The management turns down repeated requests citing the same reason.In this scenario,Romano:
A) can bring suit to enforce his right to examine the shareholder list as he has proper purpose.
B) cannot hold Specific General liable because the Model Business Corporation Act (MBCA) discourages the disclosure of shareholder information.
C) should appeal for amendment of the corporation's laws to make public all shareholder information.
D) will be penalized 10 percent of value of his shares if he loses an appeal against the management.
Q3) How does common stock differ from preferred stock?
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Chapter 31: Securities Regulation
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Q1) Registration by coordination:
A) allows the issuer to file the 1933 Act registration statement with the state securities administrator.
B) is prohibited by both the 1933 and 1934 Acts.
C) increases the issuer's expense of complying with state laws when making an interstate offering.
D) is concerned primarily with public distributions of securities.
Q2) When a security is sold in exempt transaction,all its subsequent sales are also covered by the exemption.
A)True
B)False
Q3) _____ are important securities exemptions from the registration provisions of the 1933 Act.
A) Securities of profit issuers
B) Short-term notes and drafts
C) Private offerings
D) Initial market securities
Q4) Negligence is the most important element of a Rule 10b-5 violation.
A)True
B)False
Page 34
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Chapter 32: Legal Liability of Accountantspart Six Property
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Q1) Raunak,an accountant,has been subpoenaed to testify and produce its working papers as well as conversations regarding a lawsuit brought against Shyam,one of his clients.Which of the following statements is true of Raunak's attempt to avoid having to present such evidence?
A) The federal law recognizes the existence of the privileged communication rule if the accountant is certified.
B) The privilege of confidentiality is available regarding working papers since the accountant is deemed to own them.
C) The privilege of confidentiality is as widely available as the attorney-client privilege.
D) The law does not recognize the existence of the privileged communication rule between accountants and their clients.
Q2) After an independent audit,an accountant certifies the financial statement by issuing a(n)_____.
A) certificate of audit
B) opinion letter
C) memorandum
D) amicus brief
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Chapter 33: Personal Property and Bailments
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Q1) If a person permits a neighbor to borrow a wheelbarrow free of charge,a bailment for the benefit of the bailee has been created.
A)True
B)False
Q2) Adella works for a large software company as a security analyst.In her free time away from work,she likes to develop computer games.Which of the following statements is true in this case?
A) The software company owns the games that Adella develops.
B) Adella owns the games that she develops.
C) Adella and the software company jointly own the games that she develops.
D) The person who uses the game first owns the games that Adella develops.
Q3) A conditional gift is a completed gift.
A)True
B)False
Q4) A person who finds lost property acquires better rights to that property than anyone other than the true owner.
A)True
B)False
Q5) Define a bailment and discuss its essential terms.
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Chapter 34: Real Property
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Q1) The security precautions component of the reasonable care duty is triggered only when criminal activity on the premises is foreseeable.
A)True
B)False
Q2) After a valid deed is delivered from a grantor to grantee,the:
A) title is still not effectively conveyed till witnessed by two people.
B) grantee should immediately record the deed.
C) grantee should post a "legal notice" in the newspaper.
D) interest of a grantor cannot be defeated by third parties.
Q3) A property interest that allows a person who owns real property to dispose of it either during his lifetime or on his death is a(n)_____ property interest.
A) fee simple
B) life estate
C) affirmative easement
D) leasehold
Q4) Describe how a person acquires title by adverse possession.Give an example.
Q5) A lease for which no time period is specified is known as a tenancy at will.
A)True
B)False
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Chapter 35: Landlord and Tenant
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Q1) Constructive eviction is an unattractive option for some tenants because the tenant:
A) has to share the repair expenses with the landlord.
B) cannot terminate the lease.
C) is required to vacate the leased premises.
D) is obligated to pay the rent for the remaining period of the lease.
Q2) Charlie and Violet signed a lease to rent an apartment from Joey.After moving into the apartment,they have a heated argument one day and Violet moves out.Under these circumstances,_____.
A) Joey may hold Charlie responsible for the entire rent
B) Joey may hold Charlie liable for only half the rent
C) Joey may automatically terminate the lease
D) Joey will have to file a suit against Violet for the rent
Q3) When tenants transfer all of their remaining rights under a lease to a third party,a(n)_____ occurs.
A) assignment
B) sublease
C) constructive eviction
D) termination
Q4) Explain the difference between an assignment and a sublease.
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Chapter 36: Estates and Trusts
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Q1) Life insurance proceeds are usually controlled by:
A) testamentary capacity.
B) the provisions of a will.
C) the insured's designation of beneficiaries.
D) the right of survivorship.
Q2) Children who are born or adopted after a will has been executed are called:
A) presumptive heirs.
B) pretermitted children.
C) illegitimate children.
D) nuncupative heirs.
Q3) A joint will can never be revoked.
A)True
B)False
Q4) Benny is the sole beneficiary of Paul's trust.In this trust,Benny can:
A) can also serve as the sole trustee.
B) cannot serve as the sole trustee.
C) cannot serve as a trustee or testator.
D) can serve as sole trustee during the trustor's lifetime.
Q5) What are the conditions under which holographic wills are recognized as valid?
Page 39
Q6) Explain durable power of attorney for health care.
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Chapter 37: Insurance-Part Seven Commercial Paper
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Q1) The "incontestability clause" found in life insurance policies:
A) bars the insurer from objecting on the basis of the purchase of the policy with the intent to murder the insured.
B) allows the insurer to contest its liability on the policy only if the policy has been in force for a specified period of time.
C) bars an insured from reinstating a lapsed policy that has not been surrendered for its cash surrender value.
D) allows the insurer to object on the basis of absence of insurable interest.
Q2) A warranty is an implied condition of an insurance contract.
A)True
B)False
Q3) To be able to claim loss,those who have an insurable interest in property must have that interest:
A) before the loss occurs.
B) at the time the loss occurs.
C) at the time the policy was issued.
D) throughout the term of the policy.
Q4) What are an insurer's obligations in a liability insurance contract?
Q5) Why are property insurance policies generally nonassignable?
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Chapter 38: Negotiable Instruments
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Q1) A certificate of deposit is:
A) an instrument in which the maker makes an unconditional promise to pay a fixed amount of money with interest to the payee on demand.
B) the most widely used form of commercial paper that is a draft payable on demand and drawn on a bank.
C) an instrument in which the maker makes an unconditional promise to pay a fixed amount of money without interest to the payee at the specified future time.
D) an instrument containing an acknowledgment by a bank that it has received a deposit of money and a promise to repay the sum of money.
Q2) Ricardo borrowed $5,000 from his friend,Lorenzo.Ricardo signed a handwritten note stating,"I promise to pay $5,000 to Lorenzo on or before August 1,2001,in return for the same amount borrowed from him on May 1,2001." Under these circumstances,the note is
A) negotiable because it was handwritten
B) not negotiable because the note states the reason for the debt
C) not negotiable because the note is not payable to bearer or to order
D) negotiable because it is a simple contract
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Chapter 39: Negotiation and Holder in Due Course
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Q1) An art dealer sells a painting to Priya,telling her that it is an original painting made by a famous painter,and takes Priya's check for $500 in payment.Before making the sale,the art dealer was aware that the painting is not genuine,and it is a forgery.Can Priya claim any defenses against the payment made to the art dealer?
Q2) Which of the following can be negotiated by transfer of possession of an instrument after indorsement by the person specified?
A) Order paper
B) Bearer paper
C) Blank endorsement
D) Teller's check
Q3) The involuntary transfer of possession of a bearer instrument does not result in a negotiation.
A)True
B)False
Q4) List the claims and defenses available to a holder in due course under the Revised Article 3 of the Uniform Commercial Code.
Q5) Explain personal defenses against the payment of negotiable instruments.Give suitable examples.
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Chapter 40: Liability of Parties
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Q1) A person who transfers a negotiable instrument to someone else and for consideration makes five warranties to his immediate transferee.
A)True
B)False
Q2) A drawee has no liability on a check or other draft unless it certifies or accepts the check or draft.
A)True B)False
Q3) A person who transfers a negotiable instrument to someone else and for consideration makes a warranty that:
A) all signatures on the instrument are authentic.
B) some signatures on the instrument are authorized.
C) the beneficiary cannot recover any amount from the warrantor if the warranty has been breached.
D) the warrantor is aware of insolvency proceedings commenced with respect to the maker.
Q4) List the five transfer warranties made by a person who transfers his or her negotiable instrument to someone else and for consideration.
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Chapter 41: Checks and Electronic Fund Transfers-Part
Eight Credit Transactions
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Q1) If the drawer of a check orders the drawee bank not to pay the check,the drawee bank generally owes the drawer a duty not to certify the check.
A)True
B)False
Q2) The time requirements for notice of postdated checks are similar to those required for:
A) automatic transfers.
B) stop-payment orders.
C) drawer-depositor accounts.
D) stale checks.
Q3) If a drawer is negligent and contributes to the forgery or alteration of a check,_____.
A) the bank can charge the drawer for the amount
B) the bank is liable to the drawer for the amount
C) the check is not payable from the customer's account
D) the bank must pay the instrument out of its own funds
Q4) Will a drawee bank be liable to the drawer of the check while a stop-payment order is in effect? If yes,under what circumstances will the drawee bank be liable?
Q5) Describe the provisions of the Electronic Funds Transfer Act.
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Chapter 42: Introduction to Security
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Q1) The right of a lienholder to possess goods automatically gives him or her the right to immediately sell the property if the charges are not paid.
A)True
B)False
Q2) Rashid purchased real estate known as Parcel A,subject to a preexisting mortgage,in favor of Local National Bank.Leila purchased real estate known as Parcel B,assuming a preexisting mortgage on it in favor of Local National Bank.After each purchase took place,there were defaults on the debts that gave rise to the mortgages.Although Local National Bank instituted and completed foreclosure proceedings with regard to each of the two mortgages,it did not yield enough funds to pay off the debt in full.Therefore,Local National Bank made demands on Rashid and Leila for payment of the deficiency owed on Parcel A and on Parcel B,respectively.Explain if Local National Bank is entitled to receive the deficiencies it seeks from Rashid and Leila.
Q3) Describe the distinction between a surety and a guarantor.
Q4) The owner (mortgagor)of property subject to a mortgage cannot sell the interest in the property without the consent of the mortgagee.
A)True
B)False
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Chapter 43: Security Interests in Personal Property
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Q1) Under Article 9 of the Uniform Commercial Code,in what order are proceeds from the sale of collateral by the creditor to be distributed?
A) First, any expenses of repossessing the collateral are paid. Second, the proceeds are used to satisfy the debt. Third, any other junior liens are paid. Finally, if any proceeds remain, the debtor is entitled to them.
B) First, the proceeds are used to satisfy the debt. Second, junior liens are paid. Third, any expenses of repossessing the collateral are paid. Finally, if any proceeds remain, the debtor is entitled to them.
C) First, the proceeds are used to satisfy the debt. Second, any expenses of repossessing the collateral. Lastly, the debtor is entitled to remaining proceeds. Finally, if any proceeds remain, the debtor is entitled to them.
D) First, the junior liens are paid. Second, any expenses of repossessing the collateral are paid. Third, the proceeds are used to satisfy the debt. Finally, if any proceeds remain, the debtor is entitled to them.
Q2) Define future advances and explain how covering future advances in the security agreement benefits the creditor.
Q3) Explain a creditor's three potential courses of action upon default.
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Chapter 44: Bankruptcy-Part Nine Government Regulation
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Q1) Which of the following statements concerning reaffirmation agreements is true?
A) Reaffirmation agreements are unlawful under the Bankruptcy Act.
B) Reaffirmation agreements must be made before a discharge in bankruptcy is granted.
C) A debtor cannot voluntarily pay any dischargeable obligation without entering into a reaffirmation agreement.
D) Reaffirmation agreements cannot be rescinded prior to discharge or within 60 days after filing with the court.
Q2) A liquidation proceeding was traditionally known as straight bankruptcy.
A)True B)False
Q3) A voluntary petition in bankruptcy can only be filed by a corporation. A)True B)False
Q4) Both secured and unsecured creditors are required to file proofs of claims. A)True B)False
Q5) When is a debtor allowed to void liens on his properties? What type of liens can be voided on this basis?
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Chapter 45: The Antitrust Laws
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Q1) The Foreign Trade Antitrust Improvement Act provides that the Sherman Act shall never apply to nonimport trade.
A)True
B)False
Q2) Which of the following is true of a consignment agreement?
A) If a manufacturer delivers all goods to its dealers on a consignment basis, the goods become the property of the dealer.
B) The owner of goods delivers them to another who is to act as the owner's agent in selling the goods.
C) If a manufacturer delivers all goods to its dealers on a consignment basis, the dealer cannot lawfully fix the price of those goods.
D) It is always held to be joint action.
Q3) The _____ gives the federal courts broad injunctive powers to remedy antitrust violations.
A) Noerr Doctrine
B) Sherman Act
C) Parker Doctrine
D) Robinson-Patman Act
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Chapter 46: Consumer Protection Laws
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Q1) The Consumer Product Safety Act (CPSA):
A) provides civil penalties against those who knowingly and willfully violate rules of Consumer Product Safety Commission even after being issued notification by it.
B) allows only the U.S. attorney general to sue for injunctive relief or the seizure of products to enforce various provisions of the act.
C) permits any private party to sue for an injunction to enforce any rule of Consumer Product Safety Commission rule or order, if, at the time of the suit, the commission or the attorney general has begun an action based on the alleged violation.
D) allows those injured because of a knowing and willful violation of a Consumer Product Safety Commission rule or order to sue for damages if the amount in controversy exceeds $10,000.
Q2) Discuss the product safety standards issued by the Consumer Product Safety Act (CPSA).Also,list at least three products which,although consumer goods,do not come under the authority of CPSA.
Q3) Describe the Gramm-Leach-Bliley Act of 1999 (GLBA).
Q4) What are the main goals of the Fair Credit Reporting Act (FCRA)? Under what conditions is this act not applicable?
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Chapter 47: Environmental Regulation
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Q1) Ayush owned property which he discovered was contaminated with hazardous waste.He learned that Bayle Inc.had owned the property thirty years earlier,and had used it as a disposal site for manufacturing chemicals.Ayush also learned that Solly Trucking Inc.had hauled the chemicals to the site under contract with Bayle.Under these circumstances,which of the parties can be liable for the costs of cleaning up the site under the Comprehensive Environmental Response,Compensation,and Liability Act (CERCLA)?
A) Only Bayle is potentially liable under the CERCLA.
B) Only Ayush is potentially liable under the CERCLA.
C) Only Bayle and Solly are potentially liable under the CERCLA.
D) Ayush, Bayle, and Solly are all potentially liable under the CERCLA. Under the given circumstances, Ayush, Bayle Inc., and Solly Trucking Inc. are all potentially liable under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA.) The Environmental Protection Agency (EPA) has the authority to require that a site be cleaned up by those persons who were responsible for it, either as the owner or operator of the site, a transporter of wastes to the site, or the owner of wastes deposited at the site.
Q2) Describe Superfund's "Community Right to Know" requirement.
Q3) When is a discharge permit required under the Clean Water Act?
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