Business Organizations Law Exam Practice Tests
Course Introduction
Business Organizations Law explores the legal principles and frameworks that govern the formation, operation, and dissolution of business entities such as partnerships, corporations, limited liability companies, and sole proprietorships. The course examines the rights and obligations of owners, managers, and stakeholders, as well as issues of fiduciary duty, liability, governance, and risk management. It covers statutory and case law, with a focus on the practical application of legal rules to real-world business scenarios, equipping students with a foundational understanding essential for advising or managing business organizations.
Recommended Textbook
Andersons Business Law and the Legal Environment 22nd Edition by David P. Twomey
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Chapter 1: The Nature and Sources of Law
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Q1) Sources of American law include:
A) state constitutions.
B) statutes enacted by state legislatures.
C) court decisions.
D) all of the above.
Answer: D
Q2) In the United States today,we generally have one law court and one equity court.
A)True
B)False
Answer: False
Q3) Uniform State Laws are used as a basis for laws by which of the following entities?
A) Congress
B) international trade associations
C) state legislatures
D) local governmental entities
Answer: C
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Page 3
Chapter 2: The Court System and Dispute Resolution
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Q1) Billy has a dispute with Sleepdigit Bedspring Company over a number of beds Billy recently purchased from Sleepdigit for use in his hotel.Billy needs to decide whether to pursue litigation or employ an alternative means of dispute resolution.What advantages are most often associated with alternative dispute resolution? Which choice would be most appropriate in this case?
Answer: The most frequently cited advantages of alternative dispute resolution,compared to litigation,are a)cost savings and b)time savings.As far as a specific method of alternative dispute resolution,arbitration might be the best approach for Billy in his commercial dispute with Sleepdigit;in addition to the cost-saving and time-saving advantages of alternative dispute resolution,arbitration has a long history of success in the area of commercial contracts.
Q2) Reversible errors are commonly made by supreme courts.
A)True
B)False
Answer: False
Q3) The defendant in a civil case is the party who is suing.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Business Ethics, Social Forces, and the Law
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Q1) Over half of all Fortune 500 firms train their employees to recognize and deal with particular types of behavior that breach their ethical codes.
A)True
B)False
Answer: True
Q2) Ethical violations can cause lasting detriment to a company's ability to do business through impacts on the company's reputation.
A)True
B)False
Answer: True
Q3) The ethical category of integrity and truthfulness is best expressed as maintaining one's values and principles:
A) so long as profits can be maintained.
B) so long as the costs are not great.
C) unless deviating will go unnoticed.
D) despite the consequences or costs.
Answer: D
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Chapter 4: The Constitution As the Foundation of the Legal Environment
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Q1) The power of the states to adopt laws to protect the general welfare of the people is called police power.
A)True
B)False
Q2) Which of the following is true about administrative agencies?
A) Administrative agencies exercise powers guaranteed to them in the U.S.Constitution.
B) Administrative agencies exercise powers allocated to them by the president.
C) Administrative agencies make decisions that are rarely reviewed by the courts.
D) Administrative agencies make decisions that are effectively reviewed by voters.
Q3) The equal protection clause:
A) requires all persons to be treated equally even if reasonable grounds for different classifications exist.
B) allows laws that discriminate on the basis of moral standards.
C) requires that a statute be sustained unless it is clearly arbitrary or capricious.
D) allows laws that discriminate on the basis of cultural patterns.
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6
Chapter 5: Government Regulation of Competition and Prices
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Q1) Under the Clayton Act,when large-scale enterprises plan to merge,they must in advance:
A) notify the New York Stock Exchange.
B) notify the President of the United States.
C) complete the necessary financing arrangements.
D) notify the Antitrust Division of the Department of Justice.
Q2) A state may prohibit a seller from selling below cost if the purpose is to harm competitors.
A)True
B)False
Q3) Criminal penalties are possible under the Sherman Act.
A)True
B)False
Q4) Quickness Computer,Inc.is a manufacturer of computers.A Hollywood star indicated on national television that Quickness was his favorite computer.Buoyed by this comment,sales of Quickness computers surged.Since demand outpaced supply,Quickness decided to sell no more computers unless an accompanying software package was purchased.A competitor informed the Office of the Attorney General of this policy,asserting it was illegal.Decide.
Page 7
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Chapter 6: Administrative Agencies
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Q1) The most recent addition to the American governmental structure is the:
A) executive branch.
B) administrative agency.
C) judicial branch.
D) legislative branch.
Q2) An administrative agency has the power to investigate,to require persons to appear as witnesses,to require witnesses to produce relevant papers and records,and to bring proceedings against those who violate the law.
A)True
B)False
Q3) The Federal Trade Commission suspects Billy Williams of unlawful trade activities and has obtained evidence,claimed to be proof of unlawful activity,by way of aerial photography.The FTC is also currently seeking the submission of various documents,within Williams' place of business,for additional evidence.Williams refuses to submit to the demands to produce the documents and claims that this demand and the aerial photos are direct violations of his constitutional rights.Williams also demands a jury trial to clear him of charges levied.Comment on Williams' claims.
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8
Chapter 7: The Legal Environment of International Trade
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Q1) Blocking laws prohibit the disclosure,copying,inspection,or removal of documents located in the enacting country in compliance with orders from foreign authorities.
A)True
B)False
Q2) The main purpose of the International Monetary Fund (IMF)is to:
A) provide easy access to money for multinational corporations.
B) facilitate the expansion and balanced growth of international trade.
C) create a model simplified lending system.
D) facilitate currency exchanges.
Q3) Which of the following statements is true regarding the World Trade Organization (WTO)?
A) The WTO has been in place since 1947.
B) The WTO coordinates its activities with GATT.
C) It provides a dispute settlement body to promote the resolution of trade disputes.
D) It has the ability to impose criminal penalties.
Q4) The use of import quotas represents the most common form of tariff barrier.
A)True
B)False
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Chapter 8: Crimes
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Q1) The Fifth Amendment to the United States Constitution's protection against self-incrimination applies to:
A) individuals only.
B) corporations only.
C) both individuals and corporations.
D) individuals,but only in their official capacity within a business.
Q2) Bribery is defined as:
A) giving money,property,or any benefit to a person to influence that person's judgment.
B) using one's position as a public official to make an illegal demand.
C) using one's position as a nonpublic official to make an illegal demand.
D) exerting improper political influence.
Q3) Under the Sarbanes-Oxley (SOX)obstruction of justice provision,auditors must retain working papers related to a client's audit for at least:
A) 3 years.
B) 5 years.
C) 10 years.
D) 20 years.
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Chapter 9: Torts
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Q1) Without meaning to,Alice carelessly strikes Mary.Mary may be able to sue Alice for:
A) an intentional tort.
B) negligence.
C) strict liability
D) absolute liability.
Q2) Offensive or derogatory language used by one person to describe another constitutes the tort of slander.
A)True
B)False
Q3) Plaintiffs are typically awarded punitive damages in negligence cases.
A)True
B)False
Q4) If a crime does not hurt an identifiable person,it is not a tort.
A)True
B)False
Q5) "Tort" comes from the Latin term "tortus," which means "crooked,dubious,or twisted."
A)True
B)False
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Chapter 10: Intellectual Property Rights
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Q1) The typical U.S.copyright now runs for 28 years,with a right of renewal for an additional 28 years.
A)True
B)False
Q2) Trademarks or service marks may be registered if they utilize terms that are:
A) suggestive of characteristics of the product or service to which they relate.
B) fanciful,arbitrary,or coined.
C) descriptive and have acquired a known secondary meaning linked to a product.
D) all of the above.
Q3) A copyright is the exclusive right given by federal statutes to the creator of a literary or an artistic work to use,reproduce,and display the work.
A)True
B)False
Q4) Under the Berne Convention Implementation Act of 1988,it is no longer mandatory that works published after March 1,1989 contain a notice of copyright.
A)True
B)False
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12
Chapter 11: Cyberlaw
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Q1) Describe the rights of employers to monitor the e-mail of employees who are using their employers' email system.
A) Employers may monitor employees' e-mails,but only if the employees have consented.
B) Employers may monitor employees' e-mails,regardless of whether employees have consented.
C) Employers may monitor employees' e-mails,but only if notice is given.
D) Employers may not monitor employees' e-mails.
Q2) The formation of contracts in cyberspace is always governed by the law of the United States.
A)True
B)False
Q3) It is a crime to post nasty opinions about someone in an Internet chat room. A)True
B)False
Q4) Contract formation in cyberspace is the result of a desire for businesses to use a common language to form contracts.
A)True
B)False
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Chapter 12: Nature and Classes of Contracts: Contracting
on the Internet
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Q1) An offer of a reward for the arrest and conviction of a criminal is an example of a: A) unilateral contract.
B) bilateral contract.
C) quasi contract.
D) formal contract.
Q2) A person who makes a promise is the promisor,while a person to whom the promise is made is the promisee.
A)True
B)False
Q3) When a contract is fully performed by one party,it is called a unilateral contract.
A)True
B)False
Q4) Whenever a person receives a benefit for which payment has not been made,there is an unjust enrichment and the value of such benefit must be paid to the person conferring the benefit.
A)True
B)False
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Q1) The fact that there has been a series of contracts between the parties and that one party's offer has always been accepted before by the other does not create any legal obligation to continue to accept subsequent offers.
A)True
B)False
Q2) An option contract is a binding promise to keep an offer open for a stated period of time or until a specified date.
A)True
B)False
Q3) A properly mailed acceptance takes effect when mailed,even if it never is received by the offeror.
A)True
B)False
Q4) Contractual intention is determined by objective standards.
A)True
B)False
Q5) Advertisements that call for an act may be deemed to be a unilateral contract. A)True
B)False
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Chapter 14: Capacity and Genuine Assent
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Q1) A minor cannot avoid a contract to purchase a car if the:
A) car has been destroyed.
B) car has been damaged.
C) car is used for non-commercial purposes.
D) minor is able to return the car but does not do so.
Q2) Fraud requires intent that the listener rely on the false statement of fact.
A)True
B)False
Q3) A finding of undue influence would most likely not occur in a contract between:
A) parent and child.
B) attorney and client.
C) neighbor and neighbor.
D) guardian and ward.
Q4) When a minor avoids a contract to purchase a car:
A) the parents of the minor are liable for the purchase price.
B) a relative who cosigned the contract is liable for the purchase price.
C) a friend to whom the minor loaned the car is liable for the purchase price.
D) the automobile insurance company is liable for the purchase price.
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Page 16
Chapter 15: Consideration
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Q1) Gerwin's daughter Mary was seeking a position as an associate attorney with Baker,Charles & Dixon,a large metropolitan law firm.The firm,after several meetings with Mary over a two-month period,made Mary an offer of employment on January 15.Mary accepted the offer that day and immediately left for Cape Cod to celebrate without telling Gerwin or anyone else about her new job.
On January 17,two days after Mary had accepted the offer,Gerwin sent Baker,Charles & Dixon a letter in which she offered to give Baker all of her legal business (approximately $40,000 per year)if the law firm would hire Mary.The law firm accepted.
After Gerwin learned that Mary already had been hired by Baker,Charles & Dixon,Gerwin refused to transfer her business to the law firm.The law firm has brought suit against Gerwin on the grounds that a valid contract exists between them.How will the case be decided?
Q2) One promise may serve as consideration for many return promises.
A)True
B)False
Q3) Forbearance may constitute consideration.
A)True
B)False
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Page 17
Chapter 16: Legality and Public Policy
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Q1) An agreement to restrain trade may be void on the grounds that it is:
A) fraudulent.
B) contrary to public policy.
C) illegal lobbying.
D) unfair to merchants.
Q2) An unlicensed insurance broker who cannot personally recover a fee because of the absence of a license can effectively circumvent the statutory requirements by having a friend who is a licensed broker bill for the services and collect the payment for him.
A)True
B)False
Q3) Public policy:
A) can be precisely defined
B) is frequently used by the courts as a reason to invalidate contracts
C) is protections from that which violates any established interest of society
D) all of the above
Q4) Ordinarily,a court will not consider whether a contract is fair or unfair.
A)True
B)False
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Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Q1) If a contract is unclear,it will be interpreted against the party who drafted it.
A)True
B)False
Q2) An oral contract to sell a house is binding if:
A) the agreement is witnessed by a member of the clergy.
B) there is a tape recording of the agreement.
C) the buyer paid the price and received the deed of conveyance.
D) the seller is a merchant.
Q3) A promise to pay an attorney a fee owed by a third person can be enforced without a writing.
A)True
B)False
Q4) The defense of noncompliance may be raised:
A) by the parties to the oral contract.
B) by third parties such as an insurance company or the IRS.
C) both a.and b.
D) neither a.nor b.
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Chapter 18: Third Persons and Contracts
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Q1) A professor owned a home next door to a very dilapidated,neglected home.John Cataldo purchased the home next door and made a contract with Wizard Home Improvements for a complete renovation of the property.The professor was delighted because the improvement of the Cataldo home was upgrading the neighborhood and raising the value of the professor's home. After making the last required payment on the contract,John Cataldo became seriously ill and ultimately was taken to a nursing home for care. When Wizard learned of Cataldo's illness and confinement,Wizard ceased work on the Cataldo home.Because the outside renovation work had not been completed,the premises began to return to its former rundown condition.The professor ultimately sued Wizard as a third-party beneficiary of the contract between Cataldo and Wizard.What is the probable outcome of the lawsuit?
Q2) An obligor required to render a performance under a contract can transfer the duty to perform to another person whenever desired.
A)True
B)False
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Page 20
Chapter 19: Discharge of Contracts
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Q1) When parties contract expressly for a particular subject matter,the contract is discharged if the subject matter is destroyed through no fault of either party.
A)True
B)False
Q2) The federal Consumer Credit Protection Act gives the debtor the right to rescind a credit transaction within three (3)business days when the transaction would impose a lien on the debtor's home.
A)True
B)False
Q3) A __________ is a condition that must occur before a party to a contract has an obligation to perform under a contract.
A) condition precedent
B) condition subsequent
C) concurrent condition
D) none of the above
Q4) A condition subsequent can alter but not terminate a contract.
A)True
B)False
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Chapter 20: Breach of Contract and Remedies
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Q1) When a written contract does not correctly state the agreement already made but the parties either party make seek a(n):
A) rescission
B) injunction
C) reformation of the contract
D) action for specific performance
Q2) Only direct losses from a breach of contract may be recovered by an injured party.
A)True
B)False
Q3) A contract provision stating that one of the parties shall not be liable for damages in case of a breach is called a(n)__________ clause.
A) liquidated damages
B) exculpatory
C) waiver.
D) due process
Q4) A party must mitigate damages at all costs.
A)True
B)False
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Page 22
Chapter 21: Personal Property and Bailments
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Q1) A third person to whom a joint tenant's interest is transferred becomes a:
A) joint tenant.
B) cotenant.
C) tenant in common.
D) tenant by the entirety.
Q2) An ordinary bailment can arise without an agreement between the parties.
A)True
B)False
Q3) A custodian who holds money for the benefit of a minor under the Uniform Gifts to Minors Act may choose to use the money to send the minor to summer camp.
A)True
B)False
Q4) To establish a gift,the party claiming to be the donee must prove:
A) delivery only.
B) intent only.
C) intent and a promise to deliver.
D) intent and delivery.
Q5) An ordinary gift made between two living persons is an inter vivos gift.
A)True
B)False
23
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Chapter 22: Legal Aspects of Supply Chain Management
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Q1) A common carrier transporting goods under a COD shipment may:
A) make delivery without first obtaining payment.
B) not make delivery without first receiving payment.
C) accept a check as payment and have no liability.
D) not avoid liability without a signed release.
Q2) A contract carrier holds itself out as willing to furnish transportation for compensation without discrimination to all members of the public who apply.
A)True
B)False
Q3) A transferor makes certain implied warranties to the transferee when a bill of lading is transferred.These warranties are:
A) that the bill of lading is genuine.
B) that the transfer is rightful.
C) that the transferor has no knowledge of any defects.
D) all of the above.
Q4) A factor is a consignee.
A)True
B)False
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24
Chapter 23: Nature and Form of Sales
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Q1) Which of the following is not a sale of goods?
A) a bailment
B) an option to purchase
C) a gift
D) all of the above
Q2) A contract of indefinite duration may be terminated by notice from either party to the other party.
A)True
B)False
Q3) The CISG:
A) governs all contracts between parties in countries that have ratified it.
B) applies only to goods bought for personal,family or household uses.
C) applies to contracts in which the predominant part of the obligation is the supply of labor or other services.
D) none of the above.
Q4) A bailment is a special form of sale in which possession is transferred to a bailee.
A)True
B)False
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Chapter 24: Title and Risk of Loss
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Q1) In a self-service store a sale cannot occur until the goods are paid for.
A)True
B)False
Q2) A document of title is not sufficient for a creditor to take an interest in goods.
A)True
B)False
Q3) Future goods can be identified before they are manufactured.
A)True
B)False
Q4) When particular goods have been selected by either the buyer or the seller,or both,as being the goods called for by the sales contract,the goods are said to be A) identified.
B) actualized.
C) realized.
D) materialized.
Q5) A consignment sale is treated as a sale or return under UCC Article 2. A)True B)False
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Chapter 25: Product Liability: Warranties and Torts
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Q1) The requirement of privity of contract to allow recovery in a sales contract has been widely rejected.
A)True
B)False
Q2) Under what type of warranty is the seller obligated to fix or replace a defective product within a reasonable time at no cost to the buyer?
A) full
B) express
C) limited
D) implied
Q3) The defendant in a defective product suit may be:
A) the seller.
B) the manufacturer.
C) the manufacturer of a component part.
D) all of the above.
Q4) It is necessary to the creation of an express warranty that the seller use formal words such as "warrant" or "guarantee."
A)True
B)False
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Chapter 26: Obligations and Performance
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Q1) After a proper demand has been made,for assurance of performance to be adequate,it must:
A) include consideration.
B) allow for the additional examination of the goods.
C) be sufficient to assure a reasonable person that the contract will be performed.
D) be written.
Q2) Substantial impairment requires proof that goods are worthless.
A)True
B)False
Q3) The UCC does not specify the form that the assurance of performance is to take. A)True
B)False
Q4) Upon a seller's tender of nonconforming goods and the buyer's rejection of them,the transaction has ended.
A)True B)False
Q5) A buyer has a right to insist that all the goods be delivered at one time. A)True B)False
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Chapter 27: Remedies for Breach of Sales Contracts
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Q1) Which of the following is not an example of incidental damages recoverable by a seller?
A) expenses for the care of the goods after the buyer's breach
B) expenses for transportation of the goods after the buyer's breach
C) expenses for resale of the goods after the buyer's breach
D) expenses for the attorney's fees after the buyer's breach
Q2) In the absence of a liquidated damages clause and in the absence of proof of greater damages,the seller's damages are computed as
A) 25% of the purchase price or $500,whichever is less.
B) 25% of the purchase price or $500,whichever is greater.
C) 20% of the purchase price or $500,whichever is greater.
D) 20% of the purchase price or $500,whichever is less.
Q3) To revoke acceptance of goods:
A) any defect or nonconformity must be discovered.
B) the goods must be dangerously defective.
C) the nonconformity must substantially impair the value of the goods.
D) action must be taken by the buyer within 60 days of delivery.
Q4) A defrauded buyer may avoid the contract and recover damages.
A)True
B)False
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Chapter 28: Kinds of Instruments, parties, and Negotiability
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Q1) A person who becomes a party to an instrument to add strength to the instrument for the benefit of another party to the instrument is called a:
A) benefactor.
B) secondary obligor.
C) collateral obligor.
D) contingent beneficiary.
Q2) Negotiation of commercial paper results in lesser rights to transferees than those rights afforded assignees of contracts under contract law.
A)True
B)False
Q3) Article 3 of the UCC establishes a __________-year statute of limitations for most actions involving negotiable instruments.
A) one
B) two
C) three
D) four
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) A forged or unauthorized indorsement is by definition:
A) an indorsement of the person by whom it appears to have been made.
B) no indorsement of the person by whom it appears to have been made.
C) binding on the party who refuses to ratify the instrument.
D) incapable of being ratified.
Q2) When a negotiable instrument is negotiated by delivery without indorsement,the warranty liability of the transferor runs:
A) only to the immediate transferee.
B) not to the immediate transferee,but to all subsequent transferees.
C) to both the immediate transferee and all subsequent transferees.
D) neither to the immediate transferee,nor to any subsequent transferees.
Q3) A blank indorsement turns a(n)__________instrument into a(n)__________ instrument.
A) negotiable;non-negotiable
B) non-negotiable;negotiable
C) bearer;order
D) order;bearer
Q4) It is worse for the holder to lose order paper than to lose bearer paper.
A)True
B)False
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Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) An instrument may be negotiated even though:
A) it has been dishonored.
B) it is overdue.
C) it is demand paper that has been outstanding for more than a reasonable period of time.
D) all of the above.
Q2) Mabel issues a negotiable promissory note to the order of Rachel.Rachel endorses the note to Batton,who takes it as a holder in due course.Batton gives the note to his brother,Albert,as a gift.In this situation:
A) Albert will acquire Batton's rights.
B) Albert is a holder through a holder in due course.
C) both a.and b.
D) none of the above.
Q3) A holder is a party in possession of an instrument that "runs" to him.An instrument runs to a party if it is:
A) payable to his or her order.
B) bearer paper.
C) indorsed to him or her.
D) all of the above.
Page 32
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Chapter 31: Checks and Funds Transfers
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Q1) A bank always is liable to the depositor on a counterfeit check that the bank has paid.
A)True B)False
Q2) In a complex funds transfer,an intermediary bank may receive and transmit the payment order.
A)True B)False
Q3) The liability for losses on counterfeit checks depends on:
A) whether or not the bank acted reasonably in its processing systems in clearing the checks.
B) whether or not the bank complied with time requirements for customers regarding the checks.
C) both a.and b.
D) none of the above.
Q4) The delivery of a check is regarded as an assignment of money on deposit,and the drawee bank is required to pay the holder the amount of the check.
A)True B)False
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) A surety may not raise the defense of mistake.
A)True
B)False
Q2) Howard bought goods from Williams.Howard sent Williams a draft covered by a letter of credit issued by First National Bank.Is the bank required to investigate to determine whether the goods sent by Williams conform to the contract?
Q3) If there are two or more sureties and one pays more than its proportionate share of the debt,such surety has the right against the co-sureties known as:
A) indemnity.
B) exoneration.
C) subrogation.
D) contribution.
Q4) A surety is never discharged if the creditor substitutes a different debtor.
A)True
B)False
Q5) Consideration is not required to establish or modify a letter of credit.
A)True
B)False
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Chapter 33: Consumer Protection
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Q1) The Fair Credit Reporting Act applies to:
A) consumer credit.
B) commercial credit.
C) business credit.
D) all of the above.
Q2) Consumer protection even protects a consumer from the consumer's own negligence.
A)True
B)False
Q3) Anyone promoting the sale of a real estate development that is divided into fifty (50)or more parcels of less than five (5)acres each must file a(n)__________ statement with the secretary of Housing and Urban Development.
A) building plan
B) development
C) environmental impact
D) real property
Q4) It is lawful to refuse to extend credit to a consumer based on the consumer's:
A) race.
B) marital status.
C) credit history.
D) age.
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Chapter 34: Secured Transactions in Personal Property
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Q1) Claim in a changing or shifting stock of the buyer's goods is known as a floating lien.
A)True
B)False
Q2) A debtor may redeem collateral at any time prior to the time that the secured party has disposed of the collateral or entered into a binding contract for resale by tendering the entire obligation that is owed plus any legal costs and expenses incurred by the secured party.
A)True
B)False
Q3) Upon a default by a buyer,the secured seller may resell the collateral:
A) not less than three (3)months after the buyer's default.
B) not less than six (6)months after the buyer's default.
C) only at a public sale.
D) at either a public or a private sale.
Q4) A financing statement must provide:
A) the name of the debtor.
B) the name of the secured party or their representative.
C) the covered collateral.
D) all of the above.
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Chapter 35: Bankruptcy
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Q1) Bankruptcy law does not regulate the manner in which the assets of the debtor are distributed;instead,distribution of the debtor's assets is solely within the discretion of the trustee.
A)True
B)False
Q2) All debts are discharged in bankruptcy,whether disclosed by the debtor or not.
A)True
B)False
Q3) The status of a trustee in a bankruptcy proceeding is best described as the:
A) prosecutor of the debtor.
B) successor to the debtor.
C) defender of the debtor.
D) protector of the debtor.
Q4) A discharge releases the debtor from the unpaid balance of most debts including taxes and tax penalties.
A)True
B)False
Q5) Stockbrokers are eligible to file Chapter 11 bankruptcy.
A)True
B)False
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Chapter 36: Insurance
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Q1) Any false statement in an application binds the insured.
A)True
B)False
Q2) If a provision in an insurance policy is ambiguous:
A) it is interpreted in favor of the insurer because the insured could have rejected the policy.
B) it is interpreted against the insurer.
C) parol evidence is admitted to show what was intended.
D) the policy is declared void and the insurer is required to return all premiums to the insured.
Q3) Mike Reilly suffered the loss of his home as a result of a chimney fire that was caused by the ignition of soot in the chimney.This fire would be described as:
A) a friendly fire.
B) arson by negligence.
C) a strict liability fire.
D) a hostile fire.
Q4) A homeowner's policy commonly provides protection from losses caused by theft.
A)True
B)False
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Chapter 37: Agency
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Q1) The burden of proving the existence of an agency relationship rests on the person who seeks to benefit by such proof.
A)True
B)False
Q2) For a principal to ratify the actions of an agent,all that is necessary is that the principal express the intention to ratify.
A)True
B)False
Q3) The term apparent authority is used when there is:
A) no interaction between the principal and third persons.
B) actual authority.
C) only the appearance of authority and that appearance of authority was created by the principal.
D) only the appearance of authority and that appearance of authority was created by the agent.
Q4) Notification may be implied when the principal does not object to a contract and accepts its benefits.
A)True B)False
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Chapter 38: Third Persons in Agency
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Q1) Parol evidence is allowed to show whether an agent has signed in a representative or an individual capacity.
A)True
B)False
Q2) Modern decisions hold the principal liable for which actions of the agent?
A) Fraudulent acts
B) Misrepresentations
C) Both a.and b.
D) Neither a.nor b.
Q3) Hiring an individual with a criminal record is conclusive proof that the employer is liable for the tort of negligent hiring.
A)True
B)False
Q4) A third person dealing with the agent of a disclosed principal ordinarily intends to make a contract with the principal,not the agent.
A)True
B)False
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Chapter 39: Regulation of Employment
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Q1) The federal-state system that provides unemployment compensation under the Social Security Act of 1935 does not cover which of the following categories of workers?
A) Agricultural employees
B) Domestic employees
C) State and local government employees
D) None of these categories of workers are covered by the federal-state system.
Q2) Deductions from wages for cash or merchandise shortages are legal even if they reduce an employee's wages below the minimum wage.
A)True
B)False
Q3) Workers' compensation statutes do not typically provide for:
A) immediate medical benefits.
B) prompt periodic wage replacement.
C) a death benefit.
D) punitive damages.
Q4) An employment contract always will state a time or duration for the contract's applicability.
A)True B)False
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Chapter 40: Equal Employment Opportunity Law
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Q1) Marble Industries hired virtually all of its employees from Union High School,which was overwhelmingly white in its racial makeup.Accordingly,there were virtually no nonwhite employees employed by Marble Industries.The work these employees performed was work that any reasonably capable high school graduate could do.When organizations representing nonwhites questioned the policy,the personnel director indicated that Union High School graduates were hired because they had worked successfully for the company and because the president of the company had graduated from that school.There was no evidence that there was any plan or intention to discriminate against nonwhites.Discuss the possibility that this policy may violate Title VII of the Civil Rights Act.
Q2) In a disparate impact case,proof that the employer did not intend to discriminate is a complete defense.
A)True B)False
Q3) Under Title VII,whites are not protected against discrimination because of race and color.
A)True
B)False
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Chapter 41: Types of Business Organizations
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Q1) A sole proprietor must file a certificate indicating that he or she is commencing operations and pay a single organizational fee.
A)True
B)False
Q2) A franchisor is the person to whom the franchise is granted.
A)True
B)False
Q3) The major advantage to investors in a corporation stems from the fact that their risk of loss is limited to the amount of their investment.
A)True
B)False
Q4) If the negligence of the franchisee causes harm to a third person,the franchisor is not liable because the franchisee is an independent contractor.
A)True
B)False
Q5) Business corporations exist to make a profit.
A)True
B)False
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Chapter 42: Partnerships
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Q1) A majority action of partners is not binding if it contravenes the partnership agreement.
A)True
B)False
Q2) When a partner disassociates with a partnership:
A) the partnership is no longer bound by acts of that partner,whether or not a notice is filed.
B) the disassociated partner is prohibited from competing with the partnership for a period of one year.
C) the disassociated partner may be liable for damages for breach of contract.
D) none of the above.
Q3) Partnership property is only that property contributed by the partners.
A)True
B)False
Q4) The Uniform Partnership Act,a codification of partnership law,has been adopted by 49 states.
A)True
B)False
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Chapter 43: LPs, LLCs, and LLPs
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Q1) A limited liability company is identical to a Subchapter S corporation.
A)True
B)False
Q2) An LLC is a legal entity with the authority to conduct business in its own name.
A)True
B)False
Q3) You are asked to provide two friends who are in business together with advice regarding what they need to do to legally in order to form a limited liability company.Although your friends like the general notion of limited liability in the operation of their business,they are totally unfamiliar with the legal processes for forming a LLC,so you need to provide them with the basic requirements for LLC creation.What specific advice would you give them?
Q4) Under the Revised Uniform Limited Partnership Act,limited partners may engage in certain "safe harbor" activities without losing their protection from liability.These activities include being a contractor for,or an agent or employee of,the limited partnership or of a general partner.
A)True
B)False
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Chapter 44: Corporate Formation
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Q1) A corporation must have:
A) a name.
B) more than one shareholder.
C) a corporate seal.
D) all of the above.
Q2) A holder of a single share of stock who objects to a merger has the power to stop the merger.
A)True
B)False
Q3) The Miller family,who operates a musical instrument manufacturing concern,has decided to incorporate.The three (3)members of the Miller family,Mary,Mark and Sue,would like to become a corporation and obtain limited liability;however,taxation at the corporate level would be very costly for them.If possible,Mary Miller would rather be taxed as a partnership.Mark Miller is worried about the additional paperwork and meetings that incorporation would surely bring.Sue Miller does not want a large board of directors to be formed.Sue fears that the board would somehow detract from the family goals and orientation the business has always enjoyed.In light of these concerns,is there a corporate form that would better suit the Miller family?
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Chapter 45: Shareholder Rights in Corporations
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Q1) Voting trusts are usually illegal.
A)True
B)False
Q2) A bona fide purchaser of stock is shielded from the claim that the transfer was made in violation of a transfer restriction that was unknown to the purchaser and that was not noted conspicuously on the certificate.
A)True
B)False
Q3) Ownership of shares of stock may be transferred by any of the following methods except:
A) delivery of the stock endorsed by its owner in blank.
B) delivery of a notice of intent to transfer.
C) delivery of the stock endorsed by its owner to a specified person.
D) delivery of the certificate and a separate power of attorney executed by the owner.
Q4) No writing is required for a contract by which a broker agrees with a customer to buy or sell securities for the customer.
A)True
B)False
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Chapter 46: Securities Regulation
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Q1) All private or limited offerings of securities are exempt from the SEC registration requirements.
A)True
B)False
Q2) The Securities Exchange Act of 1934 is concerned with the secondary distribution of securities in the national securities markets and in the over-the-counter markets.
A)True
B)False
Q3) State statutes designed to protect the public from the sale of worthless stocks and bonds are called:
A) antifraud acts.
B) blue sky laws.
C) clear sky laws.
D) none of the above.
Q4) Under Regulation D,Rule 506,sales may be made to:
A) an unlimited number of accredited investors
B) an unlimited number of unaccredited investors
C) no more than 500 accredited investors
D) no more than 35 unaccredited investors
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Chapter 47: Accountants Liability and Malpractice
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Q1) The contact rule does not require that the accountant meet or communicate with the third party to establish a relationship equivalent to privity.
A)True
B)False
Q2) An exculpatory clause most likely would be held to limit or disclaim liability for malpractice:
A) in an action based on fraud.
B) in a suit brought by a third person.
C) when the accountant can reasonably be expected to stand behind the information in question.
D) when the clause is conspicuous,unambiguous,and clear.
Q3) New York follows the "contact" rule in determining when third persons can sue accountants for negligence.
A)True
B)False
Q4) Herman hires Juanita as his accountant.Juanita commits negligence in preparing financial statements for a business Herman owns.Several investors rely on the financial statements and purchase shares of stock in the business.In a state that has adopted the privity rule,what result?
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Chapter 48: Management of Corporations
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Q1) The means by which stockholders may seek to protect themselves against corporate actions to which they object include all of the following except:
A) voting in new directors.
B) bringing legal action.
C) voiding the charter.
D) calling a special stockholders' meeting.
Q2) The relationship between a corporation and its agents is governed by the:
A) statute under which the corporation was formed.
B) corporate charter.
C) corporate bylaws.
D) same rules as are applicable when the principal is a natural person.
Q3) A corporate officer,while still employed by his or her firm,may be in breach of the officer's fiduciary duty of __________ by recruiting key management employees to join a competing company.
A) obedience
B) loyalty
C) conflict of interest
D) confidentiality
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Chapter 49: Real Property
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Q1) Under a freehold estate,a person owns property only for a specified number of years.
A)True
B)False
Q2) A guarantee that the grantor owns the estate conveyed is called a covenant: A) of right to convey. B) against encumbrances. C) of quiet enjoyment. D) of seisin.
Q3) A quitclaim deed must specify what interest is being transferred in order to be valid.
A)True B)False
Q4) A license may be terminated at the will of the licensor.
A)True B)False
Q5) Technically,land is considered as extending downward to the earth's center and upward indefinitely.
A)True B)False
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Chapter 50: Environmental Law and Land Use Controls
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Q1) Public zoning and restrictive covenants in deeds have a similar purpose,but each has a different source of authority.
A)True
B)False
Q2) Which federal agency is most often authorized to adopt standards and regulations to carry out the provisions of environmental statutes?
A) FTC
B) ICC
C) EPA
D) SEC
Q3) The first federal legislation that dealt with air pollution was the Air Pollution Control Act of 1955,which was simply a statutory recognition of a concern about air quality.
A)True
B)False
Q4) If a restrictive covenant is valid,it binds only the original grantee in the deed that created the covenant.
A)True
B)False
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Chapter 51: Leases
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Q1) Unless restricted in the lease,a tenant may generally use the premises for any lawful purpose for which they are adapted.
A)True B)False
Q2) A landlord has the right to enter a leased property to make repairs without notifying the tenant.
A)True B)False
Q3) When a lease runs for an indefinite period,which may be terminated at any time by the landlord or the tenant,a tenancy at will exists.
A)True
B)False
Q4) A lease is the relationship by which one person is in lawful possession of real property owned by another.
A)True B)False
Q5) A sublease and an assignment of a lease accomplish the same results. A)True B)False
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Chapter 52: Decedents Estates and Trusts
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Q1) Testamentary intent makes the provisions of the testator effective and binding during the testator's life.
A)True
B)False
Q2) One desiring to leave the balance of an estate to a specified person or group after specific bequests are satisfied may do so by making a residuary bequest in a will.
A)True
B)False
Q3) When specifically bequeathed property is sold or given away by the testator prior to death,the bequest is considered "redeemed."
A)True
B)False
Q4) A trustee may keep all matters associated with the trust secret.
A)True
B)False
Q5) A will is very informal and may be created in any reasonable manner.
A)True
B)False
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