Business Law I Study Guide Questions
Course Introduction
Business Law I introduces students to the foundational principles of the legal environment in which businesses operate. The course covers topics such as the nature and sources of law, the court system, contracts, torts, agency, and the regulatory framework governing businesses. Emphasis is placed on the development of legal reasoning skills, understanding of legal terminology, and the practical application of legal concepts to real-world business situations. Through case studies and analysis, students gain an appreciation of how the law impacts business decision-making and the importance of ethical and responsible conduct in commerce.
Recommended Textbook
Business Law Text and Cases 13th Edition by ClarksonMiller
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Page 2
Chapter 1: Law and Legal Reasoning
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Sample Questions
Q1) Laws and government regulations affect almost all business activities.
A)True
B)False
Answer: True
Q2) The Nebraska Supreme Court issues an opinion that can be found at 285 Neb. 88, 825 N.W.2d 429. "285" is
A) the number of the volume in the official reports of the court's decisions.
B) the number of the volume in Thomson Reuter's unofficial publication of the court's decisions.
C) a page number in the appropriate volume.
D) the number of the case in the sequence decided by the state's highest court.
Answer: A
Q3) The Uniform Commercial Code has been adopted in all fifty states.
A)True
B)False
Answer: True
Q4) A citation identifies the publication in which a legal authority can be found.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Courts and Alternative Dispute Resolution
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Q1) To resolve a dispute in nonbinding arbitration, Alyson in Baltimore and Chuck in Denver utilize E-Resolve, an online dispute resolution (ODR) service. This limits these parties' recourse to the courts
A) not at all.
B) until the ODR service has issued a decision.
C) with respect to any dispute arising between them.
D) with respect to this dispute only.
Answer: A
Q2) A court's review of an arbitrator's award may be restricted.
A)True
B)False
Answer: True
Q3) The United States will not enforce a foreign court's decision.
A)True
B)False
Answer: False
Q4) Mandatory arbitration clauses in employment contracts are generally enforceable.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Court Procedures
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Sample Questions
Q1) Lyn files a suit against Karl. Karl denies Lyn's charges and sets forth his own claim that Lyn breached their contract and owes Karl money for the breach. Karl's claim is
A) counterclaim.
B) motion for judgment on the pleadings.
C) motion for summary judgment.
D) motion to dismiss.
Answer: A
Q2) It is guaranteed that any judgment will be enforceable.
A)True
B)False
Answer: False
Q3) Gilbert wants to initiate a suit against Healthways Insurance Company by filing a complaint. The complaint should include
A) an explanation of the proof to be offered at trial.
B) a statement refuting any defense that the defendant might assert.
C) a motion for judgment on the pleadings.
D) a statement alleging the facts showing the court has jurisdiction.
Answer: D
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Chapter 4: Business and the Constitution
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Q1) Traditionally, the courts have protected the right to free speech to the fullest extent possible.
A)True
B)False
Q2) The checks and balances in the U.S. Constitution prevent any one branch of government from exercising too much power.
A)True
B)False
Q3) The Constitution sets forth specific powers that can be exercised by the national government and provides that the national government has the implied power to undertake actions necessary to carry its expressly designated powers. Under the Tenth Amendment, all other powers are expressly reserved to
A) none of the choices.
B) the states.
C) the national government.
D) the people.
Q4) Pretexting is the process of obtaining information by false means.
A)True
B)False
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Chapter 5: Business Ethics
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Q1) Ricardo suspects his supervisor Simone of unethical accounting practices. But Ricardo does not want to report Simone if she will find out who reported her and fire Ricardo. An important feature of online reporting systems like EthicsPoint is that an employee reporting unethical behavior
A) can do so anonymously.
B) is financially compensated if he or she is fired as a result of a report.
C) must fully identify themselves when making a report.
D) must have additional employee support to make a report.
Q2) Under the principle of rights theory, one person's principles are as "right" as another's.
A)True
B)False
Q3) Palette Paints, Inc. expends funds and takes steps to ensure that all employees are safe on the job, that all products are safe for consumers, and that the environmental impact of the corporation is minimal. Palette Paints appears to believe in the concept of A) the moral minimum.
B) corporate social responsibility.
C) "grey areas" in the law.
D) government oversight.
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Chapter 6: Torts
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Q1) Dixie, a driver for Express Delivery Company, leaves the truck's motor running in neutral and carelessly forgets to set the parking brake while she makes a delivery. The truck rolls and crashes into a nearby gas station pump, igniting a fire that spreads quickly to a construction site a block away. A burned wall col?lapses onto a crane, which falls on Fazio, a by?stander, and injures him. What must Fazio show to recover dam?ages from Express Delivery?
Q2) Oakes enters Parnell's property to read an electric meter. Parnell asks Oakes to leave. Oakes refuses. Oakes has most likely committed
A) trespass to land.
B) trespass to personal property.
C) slander of title.
D) no tort.
Q3) Judges use proximate cause to limit the scope of a defendant's liability to a subset of the total number of potential plaintiffs that might have been harmed by the defendant's negligence.
A)True
B)False
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Chapter 7: Strict Liability and Strict Liability
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Q1) A manufacturing defect is a departure from a product unit's design specifications that results in products that are physically flawed.
A)True
B)False
Q2) Luke is playing a video game on a defective disk that melts in his game player, starting a fire that injures his hands. Luke files a suit against Mystic Maze, Inc., the game's maker under the doctrine off strict liability. A significant appli?cation of this doctrine is in the area of
A) cyber torts.
B) intentional torts.
C) product liability.
D) unintentional torts.
Q3) Street Bikes, Inc., makes and sells a bicycle to Theo. Street Bikes fails to exercise "due care" to make the bicycle safe, however, and Theo is injured as a result. Street Bikes is most likely liable for
A) market-share liability.
B) none of the choices.
C) negligence.
D) product misuse.
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Page 9
Chapter 8: Intellectual Property Rights
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Q1) Savory Bean Company makes and sells a sweet espresso coffee beverage under the name "Sugar Sugar." Tropic Roast, Inc., later markets a similar drink under the name "Sweet Sweet." This is most likely
A) copyright infringement.
B) patent infringement.
C) trademark infringement.
D) not infringement.
Q2) Kamal reproduces Lorena's copyrighted work "Musica" without paying royalties. Kamal is most likely excepted from liability for copyright infringement under the "fair use" doctrine if
A) Kamal copies the entire work.
B) Kamal distributes the copies without charge to the public.
C) Kamal's use has no effect on the market for Lorena's work.
D) Kamal's use is for a commercial purpose.
Q3) Production techniques are not trade secrets.
A)True
B)False
Q4) A service mark distinguishes products used by those in public service.
A)True
B)False
Page 10
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Chapter 9: Internet Law, Social Media, and Privacy
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Q1) Employers can monitor employees' electronic communications made in the ordinary course of business, including employees' personal communications.
A)True
B)False
Q2) Refer to Fact Pattern 9-B1. One of the senders-Great Looks, Hot Trends, or Ilene-is acting outside the bounds of federal law. Federal law prohibits the sending of
A) unsolicited commercial e-mail.
B) solicited commercial e-mail.
C) commercial e-mail to randomly generated addresses.
D) non-commercial e-mail that promotes a product or service to a friend, co-worker, or relative.
Q3) Trademark dilution occurs when a person registers a domain name that is the same as, or confusingly similar to, the trademark of another and then offers to sell the domain name back to the original owner.
A)True
B)False
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Chapter 10: Criminal Law and Cyber Crime
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Q1) Babs sees an e-book reader on the porch of Coco's house, takes the reader to her home, and tells everyone she owns it. Danno, wielding a knife, forces Easter to give him her smartphone, and runs away with it. Fritz breaks into Ginger's apartment, takes a laptop, and leaves. Hazel sells Idi an expensive wristwatch for a fraction of its value, admitting that the watch is stolen property but claiming that she is not the thief. Which of these acts are crimes, and what are the differences among them?
Q2) Dreyfus points a gun at Eton, threatening to shoot him if he does not steal from his employer, Freddy's Gas & Shop store, and give the stolen funds to Dreyfus. Charged with theft, Eton can successfully claim, as a defense
A) nothing.
B) duress.
C) entrapment.
D) self-defense.
Q3) In a criminal case, the state must prove its case by a preponderance of the evidence.
A)True
B)False
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Page 12
Chapter 11: Nature and Terminology
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Q1) The term consideration refers to the legality of the subject matter of a contract.
A)True
B)False
Q2) Wilson buys a lottery ticket at his local gas station. Wilson has accepted an offer for a
A) bilateral contract.
B) unilateral contract.
C) void contract.
D) unenforceable contract.
Q3) Brady accepts what he believes is an offer to work for Canyon River Adventures, Inc., as a tour and fishing guide. In determining whether a contract has been formed, an element of prime importance is
A) the price to be paid.
B) the duration of the work.
C) the intent of the parties.
D) the subject of the contract.
Q4) A unilateral contract is formed at the moment when the contract is performed.
A)True
B)False
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Chapter 12: Agreement in Traditional and E-Contracts
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Q1) Octavio receives from Pastry Dough, Inc., its catalogue and a "person?alized" letter inviting Octavio to buy any item at the advertised price. This is
A) an offer because of the "person?alized" letter.
B) an offer because there is no room for price negotiation.
C) an offer only if Octavio previously bought items from Pastry Dough.
D) not an offer.
Q2) Only the United States has created regulations for global Internet transactions.
A)True
B)False
Q3) Business Solutions Corporation (BSC) sells business application software-wage, price, and inventory coordinating programs, for example-in different combinations and packages, at different prices, downloadable online. To complete a deal, a purchaser clicks on a button that, with reference to certain terms, states, "I agree." What is this sort of agreement called? Do the parties have a binding, enforceable contract that includes the terms? Explain.
Q4) In an auction, a bidder is an offeree.
A)True
B)False
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Page 14
Chapter 13: Consideration
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Q1) In May, Zach agrees to work for Affordable Plumbing Supplies Company at $800 per week for a year beginning June 1. The following January, Budget Pipes & Fittings, Inc., offers Zach the same work at $900 per week. Zach tells Affordable Plumbing about the offer. Affordable Plumbing offers to enter into a new contract with Zach at $875 per week. If Zach agrees, is the new Affordable Plumbing contract enforce?able? Why or why not?
Q2) The element of bargained-for exchange distinguishes contracts from gifts.
A)True
B)False
Q3) To be legally sufficient, consideration must be evidenced by something tangible. A)True B)False
Q4) Refer to Fact Pattern 13-B1. Quik and Rico's
A) may rescind their entire contract.
B) may rescind their contract to the extent that it is executory.
C) must perform their entire contract.
D) must perform the part of their contract that is executory.
Q5) There can be no satisfaction unless there is first an accord. A)True B)False
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Chapter 14: Capacity and Legality
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Q1) It is easy to prove that an intoxicated person's judgment was so severely impaired that he or she could not comprehend the legal consequences of entering into a contract.
A)True
B)False
Q2) A contract entered into by a minor is voidable at the option of either of the contracting parties.
A)True
B)False
Q3) Lou and Mike negotiate a deal to transfer stolen body building equipment for counterfeit currency that Mike will attempt to spend at Now! Discount Mart. This contract is
A) enforceable.
B) void.
C) voidable at the option of Lou or Mike.
D) voidable at the option of Now!
Q4) All states' laws permit minors to disaffirm contracts.
A)True
B)False
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Chapter 15: Mistakes, Fraud, and Voluntary Consent
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Q1) Kari, a real estate agent, assures Linc that a certain parcel of commercial property fronts on the most highly trafficked street in Metro City. Linc buys the property and then discovers that the street has no more traffic than any other in its vicinity. Linc is most likely a victim of
A) opinion.
B) fraud.
C) mistake.
D) nothing.
Q2) In some states, the courts prefer to rely on traditional notions of fraud, undue influence, and duress rather than the concept of unconscionability.
A)True
B)False
Q3) Refer to Fact Pattern 15-B1. Digital Storage's best defense against enforcement of the contract is that Entrepreneur Enterprises knew
A) a bilateral mistake supports the cancellation of a contract.
B) a mistake of value supports the cancellation of a contract.
C) a unilateral mistake supports the cancellation of a contract.
D) the price was below the prices of comparable devices.
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17
Chapter 16: The Writing Requirement and Electronic Records
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Q1) Larue buys an iPod for $150 and a new laptop for $1,200, and signs a one-year employment contract for a $4,800 monthly salary to start at the beginning of the next month. The Statute of Frauds covers
A) the employment contract, and the laptop and iPod purchases.
B) the employment contract and the laptop purchase only.
C) the employment contract only.
D) the laptop and iPod purchases only.
Q2) A prenuptial agreement must be in writing to be enforceable under the Statute of Frauds.
A)True
B)False
Q3) A primary obligation is a promise to pay another's debt only if that party fails to pay. A)True B)False
Q4) When one creditor guarantees a debtor's debt to another creditor to forestall litigation, the guaranty does not need to be in writing to be enforceable.
A)True
B)False
Page 18
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Chapter 17: Third Party Rights
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Q1) Animal Feed Corporation and Beneficial Trucking, Inc., enter into a contract for Beneficial to transport a truckload of hay for which Animal Feed agrees to pay. Due to schedule conflicts, Beneficial contacts Crop Transport Company, to which Beneficial "assigns all rights under the contract." This transfer is
A) an assignment and a delegation.
B) an alienation and a negotiation.
C) an obligation and a cancelation.
D) prohibited.
Q2) Vested is the condition in which rights have taken effect and cannot be taken away. A)True B)False
Q3) A valid delegation of duties relieves the delegator of obligations under the contract. A)True B)False
Q4) Banks may not assign their loan contracts to other firms. A)True B)False
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Chapter 18: Performance and Discharge in Traditional
E-Contracts
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Q1) Nina contracts with Office Suites Corporation to buy a suite in its Prospect Point Tower at a premium for its view of Quay Harbor. Unforeseeably, the town of Quay Harbor changes its zoning law, and Resort Hotels, Inc., constructs Seaview Resort, blocking what would have been Nina's view. Nina's best argument for a change in the Office Suites contract or its price is
A) frustration of purpose.
B) objective impossibility of performance.
C) anticipatory repudiation.
D) commercial impracticability.
Q2) Bernadette enters into a contract to operate a Caramel Coffee franchise, which Caramel Coffee agrees to support as long as Bernadette maintains her business license. Caramel Coffee's duty to perform is
A) not a condition.
B) a condition precedent.
C) a concurrent condition.
D) a condition subsequent.
Q3) Performance can be accomplished by tender.
A)True
B)False
Page 20
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Chapter 19: Breach of Contract and Remedies
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Q1) An award of damages for a breach of contract can elevate the nonbreaching party to a better position than he or she would have been in if the contract had not been breached.
A)True
B)False
Q2) Restitution involves one party's recapture of a benefit conferred on the other party that has unjustly enriched him or her.
A)True
B)False
Q3) Handcrafts & Hobbies Store agrees to hire Iliana for one year at a salary of $600 per week. When Handcrafts & Hobbies cancels the contract, Iliana spends $150 to obtain a similar job that pays $450 per week for a year. Iliana is entitled to recover
A) the amount of the wages that Handcrafts & Hobbies promised only.
B) the difference between the wages at the two jobs only.
C) the difference between the wages at the two jobs plus $150.
D) $150 only.
Q4) Courts order reformation most often when fraud or mutual mistake is present.
A)True
B)False
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Chapter 20: Formation of Sales and Lease Contracts
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Q1) NationPoints Trucking, Inc., has a requirements contract with Oil & Gas Corporation that obligates Oil & Gas to supply NationPoints with all the gasoline it needs for its vehicles for one year at $2.30 per gallon. A clause inserted in small print in the contract by NationPoints, and not noticed by Oil & Gas, states, "The buyer reserves the right to reject any shipment for any reason without liability." For six months, NationPoints orders and Oil & Gas delivers under the contract without any controversy. Then, because of a war in the Middle East, the price of gasoline to Oil & Gas increases substantially. Oil & Gas tells NationPoints it cannot possibly fulfill their contract unless NationPoints agrees to pay $2.50 per gallon. NationPoints, in need of the gasoline, agrees in writing to modify the contract. Later that month, NationPoints learns it can buy gasoline at $2.40 per gallon from Purified Fuel Company. NationPoints refuses delivery of its most recent order from Oil & Gas, claiming, first that the contract allows it to do so without liability, and second, that it is required to pay only $2.30 per gallon if it accepts the delivery. Discuss NationPoints's contentions.
Q2) An unconscionable contract is one that is so unfair and one sided that it would be unreasonable to enforce it.
A)True
B)False
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Page 22
Chapter 21: Title, Risk, and Insurable Interest
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Q1) When a bailee is holding goods that are to be delivered under a contract without being moved, the risk of loss cannot pass to a buyer.
A)True
B)False
Q2) Identification takes place when specific goods are designated as the subject mater of a sales or lease contract.
A)True
B)False
Q3) Business Banners, Inc., and Cam's Auto & Truck Sales Dealership enter into a contract for a sale of thirty advertising banners emblazoned with Cam's logo. The terms do not explicitly or clearly indicate whether it is a destination or shipment contract. A court would normally presume that it is
A) a delivery ex-ship.
B) a destination contract.
C) a shipment contract.
D) none of the choices.
Q4) When a buyer breaches a contract, the risk of loss remains with the seller.
A)True
B)False
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Chapter 22: Performance Breach of Sales Lease Contracts
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Q1) Shane's Auto Parts orders twenty tires from Tough Tires, Inc. The truck delivering the tires to Shane's is in an accident and ten of the tires are damaged. Shane's Auto Parts
A) cannot reject the entire shipment.
B) must still pay for all twenty tires at the original contract price.
C) may inspect the tires and accept the shipment with a reduction in price.
D) must reject the entire shipment.
Q2) When a buyer has breached a sales contract, and the goods are in his or her possession, the seller can sue to recover the purchase price, but not incidental damages.
A)True
B)False
Q3) Refer to Fact Pattern 22-B1. Global Mining is entitled to payment when it
A) enters into the contract with Finish & Refining.
B) verifies that Finish & Refining has the money to pay for the purchase.
C) complies with the terms and conditions of the letter of credit.
D) asks to be paid.
Q4) Under the UCC, the aggrieved party is not limited to one exclusive remedy.
A)True
B)False
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Chapter 23: Warranties
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Q1) Merchants are not required to warrant that the goods they sell are fit for their ordinary purpose.
A)True
B)False
Q2) A full warranty requires free repair or replacement of any defective part.
A)True
B)False
Q3) Grande Floors, Inc., and Home Decor Stores enter into a contract for a sale of carpeting. Grande Floors, a merchant who deals in goods of the kind sold, makes express warranties in connection with the sale. Under the UCC, at the time a contract is formed, an express warranty can be disclaimed or modified
A) by clear, conspicuous language called to the buyer's attention.
B) by implied affirmations of fact relating to the goods.
C) in any way that the seller sees fit for the ordinary purpose.
D) in no way.
Q4) A warranty of good title means that a seller warrants that he or she has valid title to the goods and that transfer of the title is rightful.
A)True
B)False
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Chapter 24: International Law in a Global Economy
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Q1) The Foreign Sovereign Immunities Act broadly defines com?mercial activity.
A)True
B)False
Q2) To restrict or encourage exports, Congress can set quotas on various items, such as grain being sold abroad.
A)True
B)False
Q3) Each member of the World Trade Organization is obligated to treat other members at least as well as it treats the country that receives its most favorable treatment with regard to imports or exports.
A)True
B)False
Q4) Miranda is a U.S. citizen working in Europe for Tourist Vacations, Inc., a U.S. travel agency. Tourist fires Miranda for reasons that she believes vio?late U.S. antidis?crimination laws. Those laws apply
A) extraterritorially.
B) only to signatories of the North American Free Trade Agreement.
C) only to members of the World Trade Organization.
D) only within U.S. borders.
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Chapter 25: The Function Creation of Negotiable Instruments
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Q1) Grace signs an instrument payable to the order of Hillside Credit Union "on or before" June 15. This instrument is
A) negotiable.
B) nonnegotiable, because the maker can move up the payment date.
C) nonnegotiable, because moving up the payment date is optional.
D) nonnegotiable, because the exact payment date cannot be deter?mined from the face of the instrument.
Q2) To be negotiable, an instrument must be in writing.
A)True
B)False
Q3) A holder is any person in possession of a negotiable instrument that is payable either to the bearer or to an identified person who is the person in possession.
A)True
B)False
Q4) An instrument that promises to pay "in goods" can be negotiable.
A)True
B)False
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Chapter 26: Transferability and Holder in Due Course
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Q1) At 1 A.m., on the sidewalk in front of Ace Credit Corporation, which is closed, Ben buys a $500 promissory note for $50 from Curt. When pre?sented with Ben's demand for payment, Diane, the maker of the note, could successfully claim that Ben A) acquired the note with notice that it was overdue.
B) did not acquire the instrument in good faith.
C) did not give value for the instrument.
D) none of the choices.
Q2) Refer to Fact Pattern 26-1B. After Destiny signs the back and adds the notation "without recourse," she adds, "Pay to Florence." This constitutes A) a blank qualified indorsement.
B) a special qualified indorsement.
C) a restrictive indorsement.
D) none of the choices.
Q3) To avoid the risk of loss from theft, a holder may convert a blank indorsement to a special indorsement.
A)True
B)False
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Chapter 27: Liability, Defenses, and Discharge
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Q1) Qiana gives Rick a $50 check as payment for a debt. Rick crudely raises the amount of the check to $500 and transfers it to SmartPhones & Minutes Store for a new phone. SmartPhones & Minutes deposits the check in its Trade Market Bank account. Qiana is liable for the payment of $500 to A) no one.
B) Trade Market Bank.
C) Rick.
D) SmartPhones & Minutes.
Q2) Ada is the maker of a note, on which Bart is secondarily liable. Credit Instruments Company is the current holder of the note. Bart will be obli?gated to pay the note if A) Ada defaults on the note.
B) Credit Instruments breaches a transfer warranty.
C) Credit Instruments negotiates the note to Delta Collection Agency, a third party.
D) Credit Instruments presents the note for payment.
Q3) Presentment war?ranties cannot be disclaimed with respect to checks.
A)True
B)False
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Chapter 28: Banking in the Digital Age
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Q1) Fredrik signs a check "pay to the order of Gennifer" drawn on Fredrik's account in Harborside Bank to buy Gennifer's jet ski. Fredrik asks the bank to indicate on the face of the check that it will accept it when Gennifer presents it for payment. If the bank agrees, this will be
A) a cashier's check.
B) a certified check.
C) a teller's check.
D) a traveler's check.
Q2) Brendan signs a check "pay to the order of City College Bookstore" drawn on his account in Delta Bank to pay for his current semester's textbooks. The bookstore deposits the check in its account in Eagle Bank. Like most checks, this check is
A) a one-party instrument.
B) a nonnegotiable instrument.
C) a special type of draft.
D) not a substitute for cash.
Q3) A stop-payment order is an order by a customer to his or her bank not to pay a certain check.
A)True
B)False
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Page 30
Chapter 29: Creditors Rights and Remedies
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Q1) Ronaldo's debt to Sofia is past due. Ronaldo obtains a judgment against Sofia to collect the debt, but Sofia will not pay. Ronaldo requests a writ of execution. The property that is seized under the writ of execution must be
A) in Ronaldo's possession.
B) in Sofia's possession.
C) in the possession of Sofia's employer or other third party.
D) located within the court's geographic jurisdiction.
Q2) Portia owes Bon $500 on their roof repair contract, but refuses to pay. To collect, Bon files a me?chanic's lien. Under a mechanic's lien, security for the debt is repre?sented by
A) Portia's personal property.
B) Portia's real estate.
C) the $500 owed under the contract.
D) the contract.
Q3) When a surety or guarantor pays a debt owed to a creditor, he or she acquires any right that the creditor had against the debtor.
A)True
B)False
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Page 31
Chapter 30: Secured Transactions
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Q1) A security interest is enforceable only if the collateral is in the creditor's possession.
A)True
B)False
Q2) Rural Financial Corporation is a secured party with a security interest in property owned by Strawberry Fields, Inc. Perfection of this security in?ter?est may not protect Rural Financial against the claim of A) a bank.
B) a buyer in the ordinary course of business.
C) a subsequent lien creditor.
D) a trustee in bankruptcy.
Q3) A security interest can cover property in which the debtor has ownership or possessory rights in the present or in the future.
A)True
B)False
Q4) Attachment gives the debtor a defense against a creditor's attempt to enforce a security interest in the debtor's collateral.
A)True
B)False
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Chapter 31: Bankruptcy Law
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Q1) An individual debtor cannot exempt or exclude any property from the bankruptcy. A)True
B)False
Q2) Best Yogurt Corporation orders refrigeration equipment from Cold Storage, Inc., which has an unperfected security interest in the equipment until it is paid for. Meanwhile, Best Yogurt takes out a loan from Dependable Credit, Inc., subject to a security interest in Best Yogurt's building and equip?ment, which Dependable Credit perfects. Best Yogurt files a petition in bankruptcy for relief in a liquidation proceeding. If the petition is granted, in what or?der will the creditors be paid?
Q3) Paulina operates a sole proprietorship, a corporation, and a partnership. Paulina wants to ob?tain relief for her individual debts and the debts of her corporation and partnership. For each of these, Paulina may file a petition in bankruptcy for relief through A) a liquidation.
B) a reorganization.
C) a repayment plan.
D) a family-farmer bankruptcy plan.
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Chapter 32: Agency Formation and Duties
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Q1) Rosario is a chef and caterer who hires out on a per-project basis to companies with on-location work sites, as well as to hosts of banquets, corporate meetings, concerts, weddings, and other events. In this capacity, Rosario is
A) an agent.
B) an employee.
C) an independent contractor.
D) a principal.
Q2) Even during emergency situations, when the principal cannot be consulted, the agent may not deviate from the principal's instructions without violating the duty of obedience.
A)True
B)False
Q3) Global Games Corporation employs Hyacinth as an agent. Global Games gives her an exclusive territory in which to sell its products. Global Games cannot compete with her in that territory under the duty of A) compensation.
B) cooperation.
C) indemnification.
D) reimbursement.
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Page 34
Chapter 33: Agency Liability and Termination
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Q1) Trucking Dispatch Company and Ucello put their agency agreement into a written document that describes the rights and duties of both parties. Ucello, as the agent, has A) apparent authority.
B) none of the choices.
C) express authority.
D) implied authority.
Q2) Mikayla, an agent for Nahir, enters into a contract on Nahir's behalf with Onora that must be in writing to be enforceable under the Statute of Frauds. Mikayla's authority to enter into this contract is not in writing. Under the equal dignity rule, this contract is A) enforceable.
B) void.
C) voidable at Nahir's option.
D) voidable at Onora's option.
Q3) When the parties terminate an agency, it is the principal's duty to notify any third parties who know of the existence of the agency that it has been terminated.
A)True
B)False
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Chapter 34: Employment, Immigration, and Labor Law
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Q1) Certain employers must provide advance notice of a layoff to the affected workers or their representative (if the workers are members of a labor union).
A)True
B)False
Q2) Geno's Italiano Ristorantes, Inc., employs three hundred workers at four loca?tions in two states. Under federal law, Geno's must pro?vide each employee, during any twelve-month period, family or medi?cal leave of up to twelve A) days.
B) weeks.
C) months.
D) years.
Q3) Technicians Union represents the workers of Unix Toys. A strike by the union will be legal if the strikers
A) form a picket line.
B) form a massed barrier and deny management and nonunion workers access to Unix Toys's plant.
C) stay in Unix Toys's plant without working.
D) all of the choices.
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Chapter 35: Employment Discrimination and Diversity
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Q1) Merlin is a drug addict who has completed a supervised drug-rehabilitation program. Nabil used drugs casually in the past. Both work for Omni Insurance & Investments Inc. Considered to have a disability under the Americans with Disabilities Act of 1990
A) are Merlin and Nabil.
B) is Merlin only.
C) is Nabil only.
D) none of the choices.
Q2) Refer to Fact Pattern 35-1B. To succeed with an age-discrimination claim against MVMC, Lomax will have to show that
A) Kyla is not qualified for Lomax's job.
B) Lomax is qualified for his job.
C) MVMC's qualifications for Lomax's job are too high.
D) no one could do Lomax's job as well as he could.
Q3) Intentional discrimination by an employer against an employee is known as disparate-treatment discrimination.
A)True
B)False
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Chapter 36: Sole Proprietorships and Franchises
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Q1) A franchisee is generally legally independent of the franchisor.
A)True
B)False
Q2) A franchise agreement between Grid Tools Company and Hometown Hardware, Inc., is silent on a time for termination of the franchise. Grid Tools may
A) never terminate.
B) terminate at any time.
C) terminate on reasonable notice.
D) terminate on three days notice.
Q3) Any lawsuit against the business or its employees does not lead to unlimited personal liability for the owner of a sole proprietorship.
A)True
B)False
Q4) The franchise is not strictly speaking a business organizational form.
A)True
B)False
Q5) The duration of a franchise is a matter determined by federal or state statutes. A)True
B)False
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Chapter 37: Partnerships and Limited Liability Partnerships
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Q1) Round-Up Ranch and Smith & Jones, Accountants, are limited liability partnerships (LLPs). The major features of an LLP are that it limits the personal liability of the partners and
A) it allows the partnership to continue as a pass-through tax entity.
B) LLP statutes do not vary from state to state.
C) it can only do business in the state in which it was formed.
D) only a few states have enacted LLP statutes.
Q2) In a limited partnership, a limited partner has full responsibility for the partnership and for all its debts.
A)True
B)False
Q3) Oliana is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Oliana does not participate in, know about, or ratify, Oliana would be liable for
A) none of the obligations.
B) all of the obligations, jointly and severally.
C) all of the obligations, jointly but not severally.
D) only the contractual obligations.
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Chapter 38: Other Organizational Forms for Small Businesses
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Q1) Gabriella is a beneficiary of a business trust. As a beneficiary, she is required to A) distribute the trust's profits.
B) assume responsibility for the trust's debts.
C) draft a written trust agreement.
D) none of the choices.
Q2) Nichelle, Owen, and Porter organize a nonprofit business-Quality Markets, Inc.-to buy groceries from wholesalers and sell them to consumers who buy a membership in Quality Markets. Because the firm is a nonprofit entity, it is able to sell the groceries for less than a commercial grocer could. What form of business organization is Quality Markets? Is it significant that Quality Markets is incorporated?
Q3) A limited liability company can be taxed as a partnership.
A)True
B)False
Q4) Most states apply to a limited liability company (LLC) formed in another state the law of the state where the LLC was formed.
A)True
B)False
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Chapter 39: Corporate Formation and Financing
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Q1) Rhys owns Solar Fuel Corporation. Rhys uses Solar Fuel's funds to pay his personal expenses, creates Thermal Power Corporation to engage in the same business as Solar Fuel, transfers Solar Fuel's assets to Thermal Power, and petitions Solar Fuel into bankruptcy. This most likely warrants
A) a bonus to Rhys for financial maneuvers.
B) a discharge for Solar Fuel in bankruptcy.
C) a pierce of the corporate veil.
D) a review of Thermal Power's articles of incorporation.
Q2) A foreign corporation normally does not need a certificate of authority to sell goods or services via the Internet or by mail.
A)True
B)False
Q3) Preferred stock is included among the liabilities of a business because it is equity. A)True
B)False
Q4) Bonds represent the borrowing of funds by firms.
A)True
B)False
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Chapter 40: Corporate Directors, Officers, Shareholders
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Q1) Each director can access the corporation's facilities and premises.
A)True
B)False
Q2) In most states, a director cannot be removed without cause unless the shareholders have reserved the right to do so at the time of election.
A)True
B)False
Q3) A director or officer is liable to the corporation or its shareholders for honest mistakes of judgment and bad business decisions.
A)True
B)False
Q4) Each director present at a meeting of the board of directors has one vote for each outstanding share of corporate stock that he or she holds.
A)True
B)False
Q5) Restrictions on the transfer of shares in a close corporation are usually void.
A)True
B)False
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Chapter 41: Mergers and Takeovers
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Q1) A merger involves the legal combination of two or more corporations, after which both continue to exist.
A)True
B)False
Q2) In a merger, the surviving corporation inherits the disappearing corporation's rights.
A)True
B)False
Q3) Alana is a dissenting shareholder of Bulls-Eye Arrow Company whose management is consid?ering a tender offer by Crossbow, Inc. Alana and Bulls-Eye cannot agree on the fair value of the stock. The value will be determined by A) a court.
B) Alana.
C) Bulls-Eye.
D) Crossbow.
Q4) A corporation's creditors want to be notified when the firm is dissolved so that they can make a tender offer.
A)True
B)False
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Page 43
Chapter 42: Securities Law Corporate Governance
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Q1) The Securities and Exchange Commission (SEC) requires companies to file certain information electronically so that it can be posted on the SEC's EDGAR database.
A)True
B)False
Q2) The Securities and Exchange Commission cannot exempt persons, securities, and transactions from the requirements of the securities laws.
A)True
B)False
Q3) Rico does not work for Street Bikes Company, but wrong?fully obtains inside information concerning the firm. Based on the in?forma?tion, Rico buys and sells Street Bikes stock for personal gain. The Securities and Exchange Commission prose?cutes Rico, arguing that he is liable because he stole in?formation right?fully belonging to another. This argument is
A) the blue-sky theory.
B) the misappropriation theory.
C) the free-writing prospectus theory.
D) the tipper/tippee theory.
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Chapter 43: Administrative Agencies
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Q1) Friend2Friend, Inc., a social network provider, is cited by an Internal Revenue Service (IRS) representative for an underpayment of federal income tax. Friend2Friend's accountants believed that the agency overlooked some of the firm's legitimate tax deductions and credits. Erin, Friend2Friend's chief executive officer, wants to challenge the assessment. What are Erin and Friend2Friend's next steps?
Q2) Legislative rules simply declare policy and do not affect legal rights or obligations.
A)True B)False
Q3) A party can be directly prosecuted for violating an administrative agency's interpretive rule or guidance document. A)True B)False
Q4) Warrants are required to conduct administrative searches in all highly regulated industries.
A)True B)False
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Page 45
Chapter 44: Consumer Law
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Q1) A debt-collection agency is someone who regularly attempts to collect debts on behalf of someone else, usually for a percentage of the amount owed.
A)True
B)False
Q2) Tory borrows $10,000 from USA National Bank to remodel a room in her home. This transaction is subject to
A) no federal law.
B) the Consumer Leasing Act.
C) the Consumer Product Safety Act.
D) the Truth-in-Lending Act.
Q3) The Consumer Product Safety Commission conducts research on the safety of individual consumer products and maintains a clearinghouse on the risks associated with various products.
A)True
B)False
Q4) The Consumer Product Safety Commission is the primary agency that issues regulations on food labeling.
A)True B)False
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Chapter 45: Environmental Law and Sustainability
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Q1) National Pollutant Discharge Elimination System permits can be issued even if a discharge will violate water-quality standards.
A)True
B)False
Q2) Refer to Fact Pattern 45-1B. The court is most likely to award Robyn damages
A) if letting the pollution continue is equally as harmful as stopping it.
B) if letting the pollution continue is less harmful than stopping it.
C) if letting the pollution continue is more harmful than stopping it.
D) under no circumstances.
Q3) The Clean Water Act permits the filling or dredging of wetlands without a permit.
A)True
B)False
Q4) Industrial Solvents, Inc., averages $15,000 profit per day before deciding to ignore air pollution standards, after which the average is $30,000. Industrial Solvents is subject to a fine of
A) $0.
B) $15,000 per day.
C) $30,000 per day.
D) $30,000 total.
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Chapter 46: Antitrust Law
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Q1) Attempted monopolization is a violation of antitrust law.
A)True
B)False
Q2) City Manufacturing Corporation conditions shipments of its products to Exurb Stores, Inc., on Exurb's agreement not to buy products from Regional Works Company, City's competitor. This is
A) an exclusive-dealing contract.
B) a tying arrangement.
C) none of the choices.
D) a price-fixing agreement.
Q3) U.S. antitrust laws may be applied to protect foreign consumers and competitors from violations committed by U.S. business firms.
A)True
B)False
Q4) Under what circumstances would Quality Market, a small store in Rustic, an isolated town, be considered a mo?nopoly? If Quality Market is a monopoly, is it in violation of antitrust law?
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Chapter 47: Professional Liability and Accountability
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Q1) Working papers are the documents through which a court orders an accountant to audit a public company.
A)True
B)False
Q2) Ezra, an accountant, intentionally misstates a material fact to mislead Fruit Packing, Inc., a client. Fruit Packing justifiably relies on the misstatement to its detriment. Ezra is most likely liable for A) actual fraud.
B) constructive fraud.
C) destructive fraud.
D) virtual fraud.
Q3) Edward, an attorney, allows a statute of limitations to lapse on a claim by Fabrication Company, a client. Edward A) can be held liable for malpractice. B) has violated an ethical standard but cannot be held liable. C) is subject to criminal penalties under the statute of limitations. D) will be automatically disbarred.
Q4) Miriam is an accountant. Natalie is an attorney. Which professional is most re?stricted from disclosing her or his client's communication?
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Chapter 48: Personal Property and Bailments
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Q1) Warehouse companies are not liable for loss or damage to property resulting from negligence.
A)True
B)False
Q2) How property is taxed and what is required to transfer or acquire property is determined by whether the property is classified as tangible or intangible.
A)True
B)False
Q3) In contemplation of death during sur?gery, Donnelly gives his guitars to Ezri. The surgery is successful, and Donnelly recovers from the operation. The gift of the guitars is
A) not revoked because it was a gift causa mortis.
B) not revoked because it was a gift inter vivos.
C) revoked because it was a gift causa mortis.
D) revoked because it was a gift inter vivos.
Q4) Someone who finds abandoned property acquires title to it and that title is good against the whole world, including the original owner.
A)True
B)False
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Chapter 49: Real Property Landlord-Tenant Law
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Q1) To acquire the ownership of Bart's mountain cabin by ad?verse possession, Cody must occupy the cabin exclusively, continuously, and peaceably for a specified period of time
A) in an, open, hostile, and adverse manner.
B) until Bart files a suit.
C) without Bart's knowledge.
D) with the state's permission.
Q2) Franz owns GuestHouse Hotel. His ownership rights include the right to sell or give away the property without restriction, as well as the right to com?mit waste, if he chooses. Franz's ownership interest is
A) a fee simple absolute.
B) a profit.
C) a life estate.
D) the power of eminent domain.
Q3) A easement is the revocable right of a person to come onto another person's land.
A)True
B)False
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Chapter 50: Insurance
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Q1) A broker is not an agent of the insurance company or the applicant.
A)True
B)False
Q2) Ethel obtains a life insurance policy from Fidelity Insurance Company, naming her spouse Grover as the beneficiary. Ethel and Grover are di?vorced. There is no provision in the policy about divorce. On Ethel's death, Fidelity must pay
A) no one because Ethel and Grover are divorced.
B) Ethel's estate and Grover jointly.
C) Grover.
D) Ethel's estate.
Q3) Root & Branch Lumber Company obtains a fire insurance policy from Security Insurance, Inc., on a $400,000 warehouse. The policy includes an 80-percent coinsurance clause. Root & Branch insures the property for $320,000. In a fire, the warehouse suffers $200,000 in damage. Root & Branch can recover
A) $400,000.
B) $320,000.
C) $200,000.
D) $80,000.
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Chapter 51: Wills and Trusts
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Q1) A method of accomplishing a property transfer without a will is through the joint ownership of property.
A)True
B)False
Q2) Kim is asked to serve as a witness to Lian's will. To qualify, Kim must be
A) a collateral heir.
B) a lineal descendant.
C) at least eighteen years old.
D) mentally competent.
Q3) Ortensia is married to Paolo. Ortensia executes a will, leaving certain property to Paolo and other property to Quito, who is unrelated to Ortensia and Paolo. On Ortensia's death, the share of property given under the will can be renounced by
A) neither Paolo nor Quito.
B) Paolo and Quito.
C) Paolo but not Quito.
D) Quito but not Paolo.
Q4) A resulting trust arises from the conduct of the parties.
A)True
B)False
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