Business Law for Managers
Mock Exam
Course Introduction
Business Law for Managers provides a comprehensive overview of the legal principles and frameworks applicable to business environments. The course examines areas such as contract law, employment law, intellectual property, corporate governance, and regulatory compliance, equipping managers with the legal literacy essential for risk management and sound decision-making. Through real-world case studies and practical scenarios, students learn how to identify potential legal issues, understand their implications in a managerial context, and collaborate effectively with legal professionals to support organizational objectives.
Recommended Textbook Law for Business 11th 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) Which of the following is true of the operation of stare decisis?
A)The lawyer or judge can only state narrowly,the rule to be applied from the precedent cases.
B)A legislature cannot override stare decisis and change a common law rule by enacting a statute.
C)The highest appeals court in a jurisdiction cannot overrule a precedent case.
D)A court has considerable freedom in picking precedent cases.
Answer: D
Q2) The freedom of speech granted by the U.S.Constitution is an example of:
A)civil law.
B)substantive law.
C)criminal law.
D)procedural law.
Answer: B
Q3) Law must be predictable yet flexible enough to accommodate change.
A)True
B)False
Answer: True
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3
Chapter 2: Dispute Settlement
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Q1) Which of the following is true with respect to criminal trial?
A)The defendant bears the burden of proof.
B)The burden of proof need only have "a preponderance of the evidence".
C)The burden of proof should be "beyond a reasonable doubt".
D)The burden of proof for a criminal case is the same as that for a civil case.
Answer: C
Q2) In the "private judging" method of dispute resolution:
A)a hired judge renders a binding opinion after hearing the evidence and arguments of the parties.
B)executives of the disputing companies,who have settlement authority,hear a shortened presentation of the case by the lawyers for each side.
C)a six-member mock jury empaneled by the court hears a shortened presentation of the case by the lawyers for each side.
D)executives of the disputing companies meet with lawyers to negotiate a settlement.
Answer: A
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4
Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) Even if the law enforces corporations to engage in ethical behavior,it is not certain that all corporations will respond to the threat of financial penalties.
A)True
B)False
Answer: True
Q2) The new federal sentencing guidelines implemented as part of Sarbanes-Oxley:
A)apply both to individual board members and the corporation itself.
B)assign specific oversight responsibilities to directors.
C)are designed to give management immunity.
D)call for special committees of the board to be assigned similar functions.
Answer: B
Q3) According to Joseph L.Badaracco Jr.,the question "Which alternative best serves others' rights?" is teleological in nature in that it focuses on the morality of the consequences of the decision.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Business and the Constitution
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Q1) The Fifth Amendment Due Process Clause prohibits the federal government from depriving any person "of life,liberty,or property,without due process of law."
A)True
B)False
Q2) Intermediate scrutiny is an extremely lenient level of scrutiny that presumes the regulation is constitutional.
A)True
B)False
Q3) If the governmental action has a reasonable relationship to the achievement of a legitimate purpose,it is declared constitutional under:
A)strict scrutiny analysis.
B)intermediate scrutiny analysis.
C)rational basis analysis.
D)suspect classifications.
Q4) The zoning ordinances enacted by many cities and counties that cause limited interference with a landowner's use of the property is an example of taking.
A)True
B)False
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Page 6
Chapter 5: Crimes
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Q1) Under the ECPA,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) Non-testimonial evidence such as fingerprints,hair samples,and bodily fluids can be obtained through compulsion.
A)True
B)False
Q3) A corporate officer may sometimes be found liable even when the officer had no actual knowledge of,or control over,the activities in question.
A)True
B)False
Q4) The Foreign Corrupt Practices Act makes it a crime for any American firm to offer a gift to a foreign official.
A)True
B)False
Q5) Explain two laws governing computer privacy and cybercrime.
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Chapter 6: Intentional Torts
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Q1) Under the tort of invasion of privacy:
A)some widespread dissemination of information is necessary for liability.
B)true,but public facts about a person can be an invasion of privacy.
C)truth is a defense to "publication of private facts."
D)newsworthy items can be the basis of a successful suit.
Q2) Abuse of process requires:
A)that the wrongfully brought suit terminated in the defendant's favor.
B)that there be no probable cause in order for the person wrongfully sued to win.
C)proof that the suit was brought for a primary purpose other than the one for which such proceedings are designed.
D)proof that the suit was brought out of malice and to give a remedy for the financial,emotional,and reputational harm caused.
Q3) Assault is an intentional,nonconsensual touching that is harmful or offensive.
A)True
B)False
Q4) Explain the tort of battery.
Q5) Define and discuss the tort of trespass to land.
Q6) Explain the difference between defamation and disparagement.
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Chapter 7: Negligence and Strict Liability
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Q1) Tosca took his friend Scarpia to the amusement park for a roller coaster ride.Due to the intensity of the ride,Scarpia,who had an especially weak heart,died of a heart attack there.This would be considered an act of negligence in accordance with the concept of:
A)proximate cause.
B)negligence per se.
C)breach of duty.
D)principles of causation.
Q2) Under a comparative negligence system,if Chez is responsible for 40% of his injuries:
A)he could recover 60% of his damages.
B)he could recover 40% of his damages.
C)he could recover 100% of his damages.
D)he could recover nothing as he exceeds the comparative negligence 30% threshold.
Q3) Most states have adopted a comparative negligence system because it distributes the cost of the accident according to the degree of both plaintiff's and defendant's fault.
A)True
B)False
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Chapter 8: Licensing and Intellectual Property
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Q1) The principle of first in time equals first in right:
A)asserts that it is enough to have invented the mark first.
B)is a fundamental principle of service mark law.
C)asserts that it is enough to have used the mark earlier in any country.
D)is bound by the territoriality principle.
Q2) An individual can freely use the trade secrets of another if he discovers them through means such as reverse engineering.
A)True
B)False
Q3) The _____ is a fundamental provision found in most licensing contracts which indicates the precise scope of the license.
A)technical service clause
B)confidentiality clause
C)granting clause
D)exclusive dealing clause
Q4) The TRIPS agreement stipulates that trademarks,service marks,and geographical indications must be registered in order to be protected.
A)True
B)False
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Chapter 9: The Nature and Origins of Contracts
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Q1) The doctrine of promissory estoppel:
A)makes the contracts unenforceable.
B)does not make promises enforceable.
C)protects bargains,not reliance.
D)protects reliance,not bargains.
Q2) The UCC defines "goods" as:
A)intangible personal property.
B)tangible personal property.
C)abstract property.
D)tangible public property.
Q3) A contract is implied when the parties directly state its terms at the time the contract is formed.
A)True
B)False
Q4) What is a quasi-contract?
Q5) The Industrial Revolution that modernized America changed many of the basic assumptions underlying contract law.
A)True
B)False
Q6) Discuss the importance of having contracts in today's market economy.
Page 11
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Chapter 10: Creating a Contract: Offers
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Q1) How do courts deal with the situation in which an offeror tries to revoke an offer for a unilateral contract after the offeree has begun acceptance,but before he has completely accepted the offer?
Q2) Gavin tells Rod that he will pay him $400 to paint his house.Rod starts to paint,intending to accept.Halfway through his paint job,Gavin tells Rod that he wants to revoke the offer.Under this scenario:
A)Gavin is not allowed to revoke because the contract is unilateral.
B)Gavin is allowed to revoke,but is liable to Rod for the reasonable value of benefit received.
C)Gavin may not revoke because the contract is bilateral.
D)Gavin is allowed to revoke if he finds Rod's efforts half-hearted or ineffective.
Q3) In deciding a contract dispute,courts look to the subjective intent of the parties.
A)True B)False
Q4) An offer by itself does not include terms that limit its life.
A)True B)False
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Chapter 11: Creating a Contract: Acceptances
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Q1) An offer that says "If you do not object within 10 days,we have a contract" imposes a legal duty on the offeree to respond.
A)True
B)False
Q2) In a unilateral contract,the offer is accepted when:
A)the offeror verbalizes his assent.
B)the offeree attempts to perform the act.
C)the offeror puts across his promise in writing.
D)the offeree performs the requested act.
Q3) Whenever possible,the courts interpret an offer as proposing a bilateral contract.
A)True
B)False
Q4) When an offeree uses a nonauthorized means of acceptance,the acceptance is: A)effective upon dispatch.
B)illegal.
C)not effective until it is received by the offeror.
D)not effective upon receipt by the offeror.
Q5) Explain the idea of "stipulation" and the effect it has on a contract.
Q6) Explain the UCC's "battle of the forms" rule.
Page 13
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Chapter 12: Consideration
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Q1) Lou enters into an agreement with LaFancy,a wedding planning company,to coordinate her June wedding for the sum of $10,000.In March,Lou calls LaFancy to tell the company the deal is off,because she thinks she can do a better job herself.LaFancy sues Lou,and Lou argues lack of consideration as a defense.Which of the following statements is correct?
A)LaFancy has given consideration.
B)LaFancy had a legal duty to plan Lou's wedding even before the agreement was signed.
C)Lou can enforce LaFancy's promise to her.
D)Lou has given consideration.
Q2) Forbearance occurs when:
A)a debtor and two or more creditors agree to accept a stated percentage of their liquidated claims against the debtor.
B)someone promises not to file a legal suit in exchange for a promise to pay a certain sum of money or some other consideration.
C)promises are worded in a way that allows the promisor to decide whether or not to perform the promise.
D)there is no dispute about the existence or the amount of the debt.
Q3) Explain with an example how promissory estoppel affects consideration?
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Page 14
Chapter 13: Capacity to Contract
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Q1) People who regain their mental capacity:
A)can disaffirm for a reasonable time after regaining mental capacity.
B)can ratify their contracts.
C)are still considered to be insane for a reasonable period of time.
D)cannot ratify their contracts.
Q2) Under the common law,minors:
A)are entitled to the return of their property given as consideration only upon attaining majority.
B)are entitled to the return of their property given as consideration even if they have been ratified.
C)are entitled to the return of their property given as consideration,even if that property is possessed by a third party at the time of disaffirmation.
D)are not entitled to the return of their property given as consideration.
Q3) In most states,the agreements of persons who have been adjudicated insane are void.
A)True
B)False
Q4) Explain the limitations on a minor's right to disaffirm a contract.
Q5) Explain the test for mental incapacity in contract law.
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Chapter 14: Voluntary Consent
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Q1) A person who claims to have been victimized by a misrepresentation may cancel the contract only if he/she can show some detriment as a result of the misrepresentation.
A)True
B)False
Q2) The difference between duress and undue influence is:
A)their remedy.
B)the interference with a party's ability to resist entering into an agreement.
C)the relationship between the parties at the time of the contract.
D)the type of threat used.
Q3) Which of the following is an example of scienter?
A)A party to a contract disclosing to the other party all the material facts he/she knows about the subject of the contract.
B)Plaintiff knowingly making a misstatement to a defendant who was likely to rely on it.
C)Defendant admitting that he made a false statement with the intent to deceive.
D)Plaintiff taking action to reveal a misstatement.
Q4) The elements of fraud are the same as the elements for the tort of deceit.
A)True
B)False
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Page 16
Chapter 15: Illegality
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Q1) Adhesion contracts fall under:
A)contracts from unequal bargains.
B)contracts injurious to public service.
C)contracts to influence fiduciaries.
D)contracts in restraint of trade.
Q2) The legal concept of unconscionability:
A)is a part of the doctrine of freedom of contract.
B)establishes that certain classes of contracts are voidable.
C)pertains to unequal bargains.
D)is only present in contracts between consumers and large companies.
Q3) Statutes that require proof of character and skill are considered to be:
A)regulatory.
B)usury.
C)wagering.
D)revenue-raising.
Q4) Identify the remedy used in cases involving wagering statues.
A)Forfeiture of excess interest.
B)Contracts are generally enforceable in such cases.
C)There is no remedy in such cases.
D)Weekday ratification of contracts.
Page 17
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Chapter 16: The Form and Meaning of Contracts
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Q1) Legislative reform at both the state and federal levels have facilitated e-commerce by revising traditional contract rules to include new contract rules for electronic transactions made over the Internet.
A)True
B)False
Q2) Contracts that are required to be in writing by the statute of frauds are:
A)all promises for the international sale of goods.
B)contracts transferring an interest in land.
C)contracts predicated on a condition precedent.
D)contracts for the sale of goods costing less than $500.
Q3) If one of the parties drafted the contract,ambiguities are resolved against that party in interpreting it.
A)True
B)False
Q4) A contract may be enforceable if promissory estoppel applies.
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) As a general rule,assignments that do not involve personal relationships or increase the promisor's burden are enforceable.
A)True
B)False
Q2) A promisor who renders performance to the assignor without notice of the assignment still bears liability under the contract.
A)True
B)False
Q3) Persons who were not originally parties to a contract may claim some interest in it as assignees,or donee beneficiaries,or creditor beneficiaries.
A)True
B)False
Q4) Transfer of rights is referred to as a(n):
A)assignment.
B)novation.
C)delegation.
D)third-party contract.
Q5) Who is a creditor beneficiary? Can he/she enforce the contract?
Q6) What is an implied guarantee?
Page 19
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Chapter 18: Performance and Remedies
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Q1) Roy was doing repair work in the apartment of Melinda.He saw a deep crack in the floor but did not repair it at the time.Later while doing ceiling work,his ladder got stuck in the crack and he injured himself.Can he recover damages from Melinda?
A)He can impose consequential damages on Melinda.
B)He can recover under the specific performance provision.
C)No,he cannot recover for injuries that could be easily avoided.
D)No,he cannot recover damages till he gets an injunction.
Q2) The doctrine of substantial performance applies when a promisor willfully fails to completely perform.
A)True
B)False
Q3) "Frustration of venture":
A)is the same as "commercial frustration."
B)is the same the same as "commercial impracticability."
C)occurs when the return performance becomes worthless for the promisee.
D)occurs when the promisor expressly assumes the risk that the event occurred.
Q4) Explain destruction of subject matter as an excuse for nonperformance with an example.Under what circumstance will it not be used as an excuse for nonperformance?
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Page 20
Chapter 19: Formation and Terms of Sales Contracts
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Q1) In a return contract,goods are delivered to buyers:
A)primarily for personal use.
B)primarily for resale.
C)primarily for trial.
D)primarily to assign the risk of loss to the buyer.
Q2) If Lily takes her diamond ring to Steve's Jewelers for routine cleaning,and Steve sells the ring to Evan who is unaware that the ring is Lily's:
A)Lily can recover the ring from Evan.
B)Lily can sue Steve for conversion,but cannot recover the ring from Evan because he was a buyer in the ordinary course of business.
C)Lily can recover the ring under the UCC's ownership principles.
D)Lily cannot get the ring as Evan has good title to it.
Q3) When a sales contract obligates a buyer to purchase a seller's output of a certain item and the good faith outputs are grossly disproportionate to prior normal outputs,the UCC requires that the buyer purchase the disproportionate amount.
A)True
B)False
Q4) What happens if a buyer rejects the tender of goods?
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Page 21
Chapter 20: Warranties and Product Liability
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Q1) If a seller wishes to be relieved of the responsibility for implied warranties,the sales contract must clearly provide that the parties did not intend the implied warranties to become part of the contract.
A)True
B)False
Q2) It does not matter whether or not the buyer dealt directly with the manufacturer because:
A)the obvious danger rule is not used anymore as defense.
B)liability based on negligence does not involve a contractual relationship.
C)liability based on negligence involves a contractual relationship.
D)the obvious danger rule is used as a complete defense.
Q3) Which of the following describes an action where liability of a seller is based on the theory that the manufacturer failed to use reasonable care to avoid foreseeable injury to the ultimate user or consumer?
A)Negligence
B)Strict liability
C)Breach of warranty
D)Magnuson-Moss Act
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22
Chapter 21: Performance of Sales Contracts
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Q1) Which of the following implies that the seller must make the goods available to the buyer during reasonable hours and for a reasonable period of time so that the buyer can take possession of the goods?
A)Tender of payment
B)Notification
C)Acceptance
D)Tender of delivery
Q2) When a payment is tendered by check,the payment is:
A)final.
B)conditional.
C)unenforceable.
D)realized only after the goods are inspected.
Q3) Which of the following is true about acceptance of goods by a buyer?
A)He must indicate that he/she will take them.
B)Failure to reject cannot be assumed as an acceptance.
C)He must pay for the goods without inspecting them.
D)He must assume the seller to be the owner of the good.
Q4) What does it mean to require parties to act in "good faith" in the performance of a sales contract? Explain and provide an example.
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Chapter 22: Remedies for Breach of Sales Contracts
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Q1) Oleta makes a contract with Jim to sell her a 1965 lava lamp once owned by a famous artist.Jim later decides that he does not want to sell the lamp.Oleta:
A)can do nothing; she has no remedy.
B)cannot compel specific performance.
C)can make Jim deliver the lamp because it is one of a kind.
D)can sue Jim and make him pay a fine for misconduct.
Q2) After breach of contract by a buyer,if a seller auctions the goods and makes profit,he is not liable to give the profit to the buyer.
A)True
B)False
Q3) When a warranty covers the future performance of goods,the breach occurs:
A)the moment the buyer discovers the defect in the product.
B)anytime within four years after the buyer discovers the defect.
C)anytime within 10 years after the buyer discovers the defect.
D)when the goods are delivered to the buyer.
Q4) If the seller fails or refuses to deliver the goods called for in the contract,the buyer has the right to cover.
A)True
B)False
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Chapter 23:
The Agency Relationship-Creation, Duties, and Termination
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Q1) When an agent buys for the principal from himself,even if he charges a fair market price,the agent is violating which of the following common law duties?
A)Duty to communicate information
B)Duty to account for funds and property
C)Duty of loyalty
D)Duty to obey instructions
Q2) Lydia borrows $500 for textbooks from Gerry.She gives Gerry the authority to sell her DVD player to satisfy his claim if she does not pay the loan back as promised.She does not pay the loan back as promised.Under these circumstances:
A)a dual agency exists.
B)Lydia can revoke Gerry's power if the books are damaged.
C)if Lydia dies,there is termination of the agency even if the debt remains unpaid.
D)Lydia cannot revoke Gerry's power to sell the DVD player.
Q3) Most agency rules spring from:
A)customary law.
B)common law.
C)statutory law.
D)regulatory law.
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) For ratification to be effective:
A)the principal cannot be disclosed to the third person.
B)the agent or purported agent must have acted on behalf of the principal.
C)the principal must have had capacity to do the act only at the time of ratification.
D)it is necessary that the principal fully understand the legal significance of all material facts.
Q2) A person who commits a crime under instructions from her principal:
A)is relieved from liability if committed within the scope of employment.
B)is guilty of the crime because the agent's duty to society overrides the duty to follow the direction of the principal.
C)is guilty of the crime because newly revised criminal codes will almost always impose liability on the third party.
D)is relieved from liability if the crime is committed to accomplish the objectives of the agency.
Q3) Agents may not delegate to employees acts that involve no judgment or discretion.
A)True
B)False
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Page 26
Chapter 25: Employment Laws
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Q1) Under the ADEA and its amendments:
A)employers of 10 or more people are prohibited from discriminating against their employees on the basis of age.
B)it is permissible for employees to take early retirement on the grounds of inability to do work.
C)it is legal for employees less than 70 years of age to retire under a mandatory pension plan.
D)a BFOQ exemption is not provided. Under the ADEA and its amendments it is permissible for employees to take early retirement on the grounds of inability to do work.Retirement of employees less than 70 years old under a mandatory pension plan was made illegal by the 1978 amendments.There is an exception for executives and others receiving very high pension benefits.A BFOQ exemption is provided under the AEDA.
Q2) The first federal safety statute that applied to all types of businesses was the Occupational Safety and Health Act.
A)True
B)False
Q3) Describe Title VII of the Civil Rights Act of 1964.Discuss the purpose and coverage of the provision.
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Page 27
Chapter 26: Which Form of Business Organization
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Q1) A "turnkey operation" refers to:
A)a franchise in which the franchisor builds and equips the place of business and leases it to the franchisee.
B)a limited liability partnership in which partners frequently rotate in and out.
C)a franchise operated by a person as his/her own personal property.
D)a franchise in which the franchisee carries out the advertisement campaigns.
Q2) The formation of a general partnership requires:
A)filing appropriate paperwork with the secretary of state.
B)a formal certificate of cancellation when the partnership is terminated.
C)no express agreement.
D)that each partner be liable for losses depending on the individual partner's contribution to the enterprise.
Q3) McDonald's runs its business through ____.
A)limited partnership
B)sole proprietorship
C)S corporation
D)franchising
Q4) What are the factors to be considered in the creation of an LLC?
Q5) What are the advantages of franchising?
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Chapter 27: Partnerships
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Q1) In terms of the RUPA,when a partner dies,the surviving partners:
A)cannot continue the business.
B)are entitled to compensation for winding up the partnership business.
C)must accept the deceased partner's heir as a full partner.
D)are relieved from personal liability on partnership debts.
Q2) The significant difference between a joint venture and partnership is that:
A)joint venturers sometimes are held to have less implied and apparent authority than partners.
B)a joint venture relates to a continuing business,and a partnership relates to a single enterprise.
C)the requirement for joint ventures is more formal in comparison with partnership agreements.
D)joint ventures unlike partnership agreements come into existence only when there is an express contract.
Q3) Describe the rights and general duties of partners.
Q4) A continuing partnership becomes liable for the debts incurred by the original partnership.
A)True
B)False
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Chapter 28: Formation and Termination of Corporations
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Q1) Minority shareholders in close corporations cannot be outvoted on salary and employment decisions.
A)True
B)False
Q2) A municipal corporation:
A)is formed and operated by private persons.
B)does not seek to make a profit.
C)does not have the power to tax.
D)is incorporated under special statute.
Q3) What must be included in the articles of incorporation according to the MBCA?
Q4) Under the revised MBCA,if there are business debts following a defective incorporation,liability for the debts will be imposed upon:
A)all purported shareholders who acted as if a corporation had been formed.
B)promoters,managers,or purported shareholders who only participated in management and policy decisions in the business.
C)all shareholders and directors who participated actively or inactively.
D)promoters,managers,and shareholders who participated in management and policy decisions,and also knew of the defective incorporation.
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Page 30
Chapter 29: Management of the Corporate Business
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Q1) Under the MBCA,a director:
A)will not have dissented if he refuses to vote for the proposed course of action.
B)will not have dissented even if he makes his dissent clear to the other board members by having it appear in the minutes.
C)will have dissented if he gives a written notice of dissent immediately following the meeting.
D)will have dissented if he walks out on the board meeting.
Q2) When a corporate manager makes an honest error in judgment,the business judgment rule directs that:
A)the manager will be liable for corporate losses.
B)the manager will not be liable and a court will step in to correct the manager's mistake.
C)the manager will not be liable if he acted with care and in good faith.
D)the manager will be liable for all losses resulting from the error.
Q3) Trading on inside information is in violation of fiduciary duties.
A)True
B)False
Q4) What is the meaning of ex officio authority?
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Under the MBCA,a corporate official who denies a proper demand by a shareholder to inspect the shareholder list:
A)is liable for a penalty of 10 percent of the value of the shares of the demanding shareholder.
B)is liable for a penalty of 30 percent of the value of the shares of the demanding shareholder.
C)is not subject to any liability under the MBCA.
D)is liable for a penalty of 15 percent of the value of the shares of the demanding shareholder.
Q2) If the required notice of a shareholder meeting is not given,actions taken at the meeting:
A)are of no effect.
B)are effective only if two-thirds of the stockholders approve the action.
C)are effective,but subject to amendment.
D)are effective only if half of the stockholders approve the action.
Q3) If permitted in the articles,preferred stock can be redeemed by the corporation even if the holders do not wish to sell.
A)True
B)False
Page 32
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Chapter 31: Securities Regulation
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Q1) Jodie's brother is a director at Trip Corporation.He calls her and says that Trip's earnings,as yet unannounced,will be up 75 percent and that Jodie should buy Trip common stock.Under these circumstances,Jodie:
A)can trade because she obtained public information from an insider.
B)cannot trade because she is not an insider.
C)can trade because the information will eventually be made public.
D)cannot trade because she is the relative of an insider.
Q2) Which section of the 1933 Act imposes liability on any person who has violated the timing,manner,and content restrictions on offers and sales of new issues?
A)12(2)
B)17(a)
C)12(1)
D)11
Q3) The SEC requires that any person soliciting proxies from holders of securities registered under the 1934 Act furnish each shareholder with a proxy statement containing certain information.
A)True
B)False
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Chapter 32: Legal Liability of Accountants
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Q1) The failure of an accountant to discover fraud by the client's employees or others would not be considered proof of negligence by the accountant.
A)True
B)False
Q2) A purchaser of securities sold on a stock exchange lost all or part of his investment as a result of an accountant's errors in preparing a corporation's financial statements.Explain why he/she would not prefer to sue the accountant under Rule 10b-5.
Q3) An accountant may be found liable for aiding and abetting if she encourages or participates in the publication of misleading information.
A)True
B)False
Q4) When might an accountant issue a qualified opinion and a disclaimer?
Q5) Lack of negligence can be proved by demonstrating that the accountant was in compliance with GAAP and GAAS.
A)True
B)False
Q6) Describe the accountant-client privilege.
Q7) List the five major judicial approaches to third-party negligence actions.
Page 34
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Chapter 33: Personal Property and Bailments
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Q1) An involuntary bailee does not have the right to use property that was found by chance.
A)True
B)False
Q2) What are the differences between a gift inter vivos and a gift causa mortis?
Q3) When a person goes into a restaurant,and hangs his hat and coat on an unattended rack,it creates a bailment.
A)True
B)False
Q4) A bailor,in a bailment for mutual benefit,can be held liable for injuries sustained by the bailee if the rented property is not fit for the purpose for which it was rented and causes injury.
A)True
B)False
Q5) Which of the following statements about tangible property is true?
A)It has no physical existence.
B)It is subject to tax in the state in which it is located.
C)It is only owned by the government or a government unit.
D)It is only taxable in the state where its owner lives.
Q6) Define a bailment and discuss its essential terms.
Page 35
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Chapter 34: Real Property
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Q1) Define the legal meaning of "nuisance" and explain the two types of nuisances recognized by the law,using a scenario to illustrate each type.
Q2) Which of the following statements is true of a life estate?
A)It is the right to have someone who owns an adjoining piece of property refrain from making certain uses of his or her land.
B)A person owning a life estate cannot be held liable if he commits acts that will result in permanent injury to the property.
C)It gives a person the right to use property for an indefinite period.
D)It gives a person the right to use property only for his own lifetime or for a time that is measured by the lifetime of somebody else.
Q3) For a public nuisance to occur,the nature of the harm must involve the loss of enjoyment of property.
A)True
B)False
Q4) Describe the purpose of the Fair Housing Act.
Q5) Describe how a person acquires title by adverse possession and give an example.
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Chapter 35: Landlord and Tenant
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Q1) Graham is a landlord who owns an apartment where Sam and several other tenants live.Graham refuses to install lights,new locks,and a security system,even though Sam and several other tenants have been burglarized repeatedly in the past two weeks.Under the modern trend of landlord liability:
A)Graham has no duty to protect Sam from third-party conduct.
B)Graham can be held liable for breach of implied warranty of habitability.
C)Graham has a duty to protect Sam and the other tenants from foreseeable criminal conduct.
D)Graham is liable for breach of the implied warranty of quiet enjoyment.
Q2) Which of the following would terminate a lease?
A)Assignment.
B)A party's material breach of the lease.
C)Landlord's unanimous decision.
D)Subleasing.
Q3) Under the traditional rule,landlords are granted immunity from tort actions if the defects arise during the term of the lease.
A)True
B)False
Q4) Define "tenancy for a term" and show how it differs from "periodic tenancy".
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Chapter 36: Estates and Trusts
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Q1) In terms of intestacy statutes,adopted children:
A)will inherit from their biological parents.
B)will inherit from their adopted parents.
C)will inherit from their adopted parents but a share lesser than the adopted parents' biological children.
D)will not inherit anything from anyone.
Q2) A constructive trust is created by operation of law to avoid fraud.
A)True
B)False
Q3) Spendthrift clauses:
A)operate to restrict the voluntary or involuntary transfer of a beneficiary's interest in a trust.
B)give the trustee discretion concerning the amount of principal or income to be paid to a beneficiary.
C)enable a person to put their own property beyond the claims of their own creditors.
D)prevent divorced spouses from claiming alimony.
Q4) The standard for mental capacity to make a will is fairly low.
A)True
B)False
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Chapter 37: Insurance
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Q1) Simons purchased a home for $120,000,insuring it for $120,000 with Mutual Life.She later purchased a $60,000 policy from Equitable.The home was totally destroyed by fire while it still had a fair market value of $120,000 and the losses amounted to $30,000.Under these circumstances,which of the following statements is true?
A)Simons can claim the damages only from Mutual Life as its policy amount is greater. B)She cannot claim insurance from either as policies with pro rata clauses cover only partial losses.
C)Simons can recover $180,000-the total of both policies,as part of his insurance contract.
D)Simons cannot claim more than $60,000 from Equitable.
Q2) Briefly explain the right of subrogation.
Q3) In life insurance contracts:
A)the rate of the premiums to be paid decreases if the face value increases.
B)the loan value decreases as the age of the policy increases.
C)the rate of the premiums to be paid depends on the face value of the policy.
D)the loan value enables the insured to borrow money from the insurer,but at high interest rates.
Q4) Describe the insurable interests required in life and property insurance.
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Page 39
Chapter 38: Negotiable Instruments
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Q1) A "bearer paper" is:
A)a check made payable to the order of cash.
B)a check that can be transferred only by indorsement.
C)a check that can be negotiated only by indorsement.
D)a check that is payable to the order of a specific person.
Q2) The following hierarchy applies when a check contains ambiguous terms.
A)Printed terms prevail over typewritten terms.
B)Handwritten terms prevail over printed and typewritten terms.
C)Where words and number conflict,the numbers control the words.
D)Where words and numbers conflict,only printed words control the numbers.
Q3) What is the difference between a promissory note and a check? Why is the distinction important?
Q4) Tina borrowed $20,000 from ACME Mortgage and signed a promissory note secured by a deed of trust on the land she owned.The note provided for interest at "30% over prime to be adjusted monthly." Is a note providing for a variable amount of interest,not ascertainable from the face of the note,a negotiable instrument?
Q5) Negotiability is the same thing as validity with regard to commercial paper.
A)True
B)False
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Chapter 39: Negotiation and Holder in Due Course
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Q1) List the claims and defenses available to a holder in due course under the Revised Article 3.
Q2) If Jamie indorses an instrument in blank and gives it to Clare Hill:
A)Clare must indorse it before it can be negotiated further.
B)Clare may negotiate it without indorsing it.
C)Clare cannot convert the blank indorsement to a special one.
D)Clare is not liable even if she indorses it as it was given to her by Jamie.
Q3) Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself.This is known as the _______.
A)shelter rule
B)blue law
C)FTC rule
D)irregular paper law
Q4) A bearer instrument can be validly negotiated and transferred without indorsement.
A)True
B)False
Q5) How does one become a "holder in due course"?
Q6) Explain the nature and meaning of an indorsement.
Page 41
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Chapter 40: Liability of Parties
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Q1) Who is primarily liable on a check when it is issued?
A)The payee is primarily liable
B)The drawer is primarily liable
C)The drawee bank is primarily liable
D)No party is primarily liable
Q2) The indorser's liability is discharged if the check is not presented within:
A)7 days after the date of endorsement.
B)14 days after the date of endorsement.
C)30 days after the date of endorsement.
D)48 hours after the endorsement.
Q3) Define the situations that lead to dishonoring of a note by the maker.
Q4) A drawee has no liability on a check or other draft unless it certifies or accepts the check or draft.
A)True
B)False
Q5) An indorsing transferor makes all five transfer warranties to his/her immediate transferee.
A)True
B)False
Q6) Who is entitled to enforce an instrument?
Page 42
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Chapter 41: Checks and Electronic Fund Transfers
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Q1) Which of the following best describes a stale check?
A)A check that has been written by the drawer for a date in the future which a bank can honor even before the date on the check.
B)An incomplete check of the customer that is presented to the drawee bank for payment.
C)A check that has been written by the maker dated at some point in the past,which can be paid and charged to the customer's account even at the present date.
D)A check that is more than six months old for which a bank does not owe its customer a duty to pay out of the customer's account.
Q2) Which of the following is an electronic funds transfer system?
A)Check truncation.
B)Point-of-sale terminals.
C)Expedited recredit..
D)Check 21.
Q3) If a person stops payment on a check and the bank honors the stop-payment order,the person is not liable to the holder of the check.
A)True
B)False
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43
Chapter 42: Introduction to Security
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Q1) In a deed of trust transaction,when a trustee sells the property and the proceeds generate a surplus:
A)it is paid to the borrower.
B)it is paid to the lender.
C)it is paid to the trustee.
D)it goes to the state.
Q2) If the creditor allows the principal an extension of time to perform the contract,compensated sureties are relieved of liability unless they consent to the extension of time.
A)True
B)False
Q3) People who contract to furnish labor or materials to improve real estate:
A)can claim a lien on the property until they are paid.
B)cannot claim any lien on the property.
C)can claim any lien on a property irrespective of statutory requirements.
D)cannot foreclose their lien on the property.
Q4) The rights and liabilities of both sureties and guarantors are substantially equivalent.
A)True B)False
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Chapter 43: Security Interests in Personal Property
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Q1) A "perfected" security interest:
A)protects the creditor's security interest in collateral against other creditors of the debtor.
B)becomes effective even when the creditor does not give anything of value to the debtor.
C)gives the creditor protection against other creditors of the collateral but not against other purchasers of the collateral.
D)does not provide the creditor rights vis-à-vis the debtor.
Q2) If state law requires a certificate of title for motor vehicles,then a creditor who takes a security interest in a vehicle can rely on attachment of its security interest in the car to perfect it.
A)True
B)False
Q3) If the proceeds of sale of collateral are not sufficient to satisfy the debt,then the creditor is usually entitled to a:
A)future advance.
B)deficiency judgment.
C)fixture filing.
D)warehousing arrangement.
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Chapter 44: Bankruptcy
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Q1) A bankrupt person who has not been guilty of certain dishonest acts and who has fulfilled his duties as a bankrupt is entitled to a _____ in bankruptcy.
A)reaffirmation
B)claim
C)reorganization
D)discharge
Q2) Which of the following statements is true for Chapter 11 of the Bankruptcy Code?
A)Chapter 11 cases are liquidated rather than reorganized.
B)Unlike Chapter 13,in Chapter 11 cases,the debt is predominately nonconsumer debt.
C)Petitions for Chapter 11 cases cannot be filed voluntarily by the debtor.
D)The reorganization plan is essentially a contract between a debtor and its trustees.
Q3) Both secured and unsecured creditors are required to file proofs of claims.
A)True
B)False
Q4) Preferential liens are treated in a manner similar to preferential payments.
A)True
B)False
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46
Chapter 45: The Antitrust Laws
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Q1) When a manufacturer sells goods to retail outlets and suggests a retail price,there is no violation of Section 1 of the Sherman Act because:
A)there is no merger of any type.
B)there is no contract,combination,or conspiracy to fix the price.
C)there is no indication of an intent to monopolize.
D)there is no exclusive dealing contract.
Q2) When a manufacturer states a "suggested retail price" for their products,this violates Section 1 of the Sherman Act.
A)True
B)False
Q3) The Foreign Trade Antitrust Improvement Act provides that the Sherman Act shall never apply to nonimport trade.
A)True
B)False
Q4) Even behavior that affects only intrastate (purely local)commerce is within the scope of the federal antitrust laws.
A)True
B)False
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Chapter 46: Consumer Protection Laws
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Q1) The Holder in Due Course rule creates a warranty claim or defense where the product is sold "as is."
A)True
B)False
Q2) The FTC requires used car dealers to display a "Buyer's Guide" on each car that tells whether the car is covered by a warranty.
A)True
B)False
Q3) The TILA fixes interest rates.
A)True
B)False
Q4) The Consumer Product Safety Commission (CPSC)'s authority is limited to cosmetics and food products.
A)True
B)False
Q5) "Imminently hazardous consumer products" are those that pose an immediate and unreasonable risk of death,serious illness,or severe personal injury.
A)True
B)False
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Chapter 47: Environmental Regulation
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Q1) Under the RCRA,most of the wastes defined as hazardous are subject to:
A)a "cradle to the grave" tracking system.
B)pretreatment standards,in the case of industrial discharge permits.
C)proper disposal by treatment at the point the waste enters the water distribution system.
D)on-site treatment before it enters the sewer system.
Q2) The Clean Air Act requires that new stationary sources such as factories and power plants:
A)install the best available technology for reducing air pollution.
B)install the best pollution control technology they can afford.
C)install the best pollution control technology available as long as it won't slow down production.
D)install state-of-the-art control technology unless the source is located in an area where the air quality is better than that required by law.
Q3) Under CERCLA,parties who are responsible for the problem of a hazardous waste site are jointly and severally responsible for the costs of cleanup of the site.
A)True
B)False
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