Commercial Law
Exam Bank
Course Introduction
Commercial Law examines the legal framework governing business and commercial transactions, covering topics such as contracts, agency, sale of goods, negotiable instruments, insurance, partnership, and company law. This course provides students with an understanding of the principles and statutes that regulate business activities, the rights and obligations of parties in commercial dealings, and the mechanisms for dispute resolution in commercial contexts. Through the analysis of case law and legislation, students develop the legal reasoning skills required to address issues encountered in commerce and business operations.
Recommended Textbook Business Law and the Legal Environment 21st Edition by David P. Twomey
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52 Chapters
2751 Verified Questions
2751 Flashcards
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Page 2
Chapter 1: The Nature and Sources of Law
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Sample Questions
Q1) Statutory law is created by:
A) Congress.
B) state legislatures.
C) local governments.
D) all of the above.
Answer: D
Q2) Our rights flow from:
A) the Constitution.
B) federal statutes.
C) city ordinances.
D) all of the above.
Answer: D
Q3) Your private life is protected from intrusions by other people by:
A) the Fourth Amendment of the United States Constitution.
B) the Equal Protection Clause.
C) court decisions of the United States Supreme Court.
D) local ordinance.
Answer: C
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3
Chapter 2: The Court System and Dispute Resolution
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Sample Questions
Q1) The person who initiates a lawsuit is called the:
A) defendant.
B) moving party.
C) plaintiff.
D) none of the above.
Answer: C
Q2) The power given to courts to hear certain types of cases is called:
A) jurisdiction.
B) mediation.
C) arbitration.
D) summary judgment.
Answer: A
Q3) When arbitration is mandatory under a statute, the losing party generally can appeal from such arbitration to a court.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Business Ethics, Social Forces, and the Law
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Sample Questions
Q1) Civil disobedience is the remedy natural law proponents use to change positive law.
A)True
B)False
Answer: True
Q2) The ethical category of fairness is best expressed as:
A) Do unto others as you would have them do unto you.
B) Let the buyer beware.
C) He who laughs last laughs best.
D) No harm, no foul.
Answer: A
Q3) Despite the importance of ethical behavior for business success, few Fortune 500 companies have codes of ethics to resolve ethical dilemmas.
A)True
B)False
Answer: False
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Chapter 4: The Constitution As the Foundation of the Legal Environment
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Sample Questions
Q1) The Constitution prohibits discrimination based on reasonable classification. A)True
B)False
Q2) Federal law will bar state action only when there is a federal law regulating the particular subject.
A)True
B)False
Q3) When we speak of government regulation of business we ordinarily mean state government regulation, not federal government intervention.
A)True
B)False
Q4) A school district supplied school bus service for all children 12 years of age or under who lived at least one mile from school. This service was provided for transportation to and from school. Joanna was a 13-year-old student who lived in that school district. Joanna's home was 1.2 miles from school. Her parents brought suit against the school district alleging that Joanna was entitled to school bus service and the failure to provide such service denied her the equal protection of the law. Discuss the probable outcome of the lawsuit.
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Chapter 5: Government Regulation of Competition and Prices
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Sample Questions
Q1) A state may prohibit a seller from selling below cost if the purpose is to harm competitors.
A)True
B)False
Q2) The federal government may regulate any area of business to advance the nation's economic needs.
A)True
B)False
Q3) Quickness Computer, Inc. was 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.
Q4) What types of restraints of trade are unlawful?
A) Voluntary
B) Binding
C) Unreasonable.
D) Interbrand.
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Chapter 6: Administrative Agencies
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Sample Questions
Q1) The United States constitution places the most significant limitations on administrative investigation in the area of:
A) search and seizure of the person.
B) aerial inspection.
C) search and seizure of papers and records.
D) guarantee against self-incrimination.
Q2) Within the area in which the administrative agency is authorized to make decisions, the agency can be regarded as a specialized court or court of limited jurisdiction.
A)True
B)False
Q3) Administrative agencies generally are not subject to the rules of evidence.
A)True
B)False
Q4) An administrative agency is a governmental body charged with administering and implementing legislation.
A)True
B)False
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Chapter 7: The Legal Environment of International Trade
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Q1) The Overseas Private Investment Corporation (OPIC) offers asset protection insurance against risk of loss to plant and equipment, as well as loss of deposits in overseas bank accounts, to companies that qualify on the basis of the involvement of a "substantial U.S. interest."
A)True
B)False
Q2) The transfer of technology rights in a product to allow another firm in a foreign country to produce a product in return for royalties or other specified payments is called:
A) exporting.
B) licensing.
C) agency representation.
D) subsidiary sales.
Q3) Under the act of state doctrine, the courts of one country will not sit in judgment of the acts of the government of another country conducted within its own territory.
A)True
B)False
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Page 9
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Chapter 8: Crimes
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Sample Questions
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) Due process rights apply to:
A) individuals only.
B) corporations only.
C) both individuals and corporations.
D) individuals, but only in their official capacity within a business.
Q3) For business crimes, managers cannot be held criminally responsible for the conduct of their employees.
A)True
B)False
Q4) Which of the following is generally considered a felony?
A) reckless driving.
B) disturbing the peace.
C) robbery.
D) none of the above.
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Chapter 9: Torts
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Sample Questions
Q1) A victim of a tort may sue and recover money damages.
A)True
B)False
Q2) Civil (noncriminal) wrongs, including breaches of contract, are governed by tort law.
A)True
B)False
Q3) Defamation of a public figure requires what additional element?
A) intent
B) malice
C) causation
D) none of the above
Q4) If a crime does not hurt an identifiable person, it is not a tort.
A)True
B)False
Q5) The tort of intentional infliction of emotional distress requires proof of outrageous conduct and resulting emotional distress in the victim.
A)True
B)False
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Chapter 10: Intellectual Property Rights
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Sample Questions
Q1) The Semiconductor Chip Protection Act of 1984 created a new form of industrial intellectual property by protecting mask works and the semiconductor chip products in which they are embodied against chip piracy.
A)True
B)False
Q2) Herman Corporation is engaged in preparing a marketing campaign consisting of electronic and print images. Drawings and photographs for the campaign are coming from a variety of sources, including popular magazines, international newspapers, and web sources. The marketing vice president asserts that the company may use the images under the fair use doctrine. What factors should be considered in the application of the fair use doctrine?
Q3) Computer programs are subject to trade secrets protection.
A)True
B)False
Q4) 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
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Page 12
Chapter 11: Cyberlaw
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Sample Questions
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 legal foundation for electronic signing is provided by:
A) state governments, without the assistance of federal legislation.
B) the federal government only.
C) state governments, with the assistance of federal legislation.
D) None of the above.
Q3) The term "cyberspace" describes the World Wide Web and Internet communication.
A)True
B)False
Q4) The elements of defamation remain the same in cyberspace
A)True
B)False
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Chapter 12: Nature and Classes of Contracts: Contracting on the Internet
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Sample Questions
Q1) The principle behind the quasi contract is to prevent unjust enrichment.
A)True
B)False
Q2) An implied contract is shown by:
A) a writing.
B) the acts and conduct of the parties.
C) statements made in open court.
D) an exchange of oral promises.
Q3) An agreement that contemplates the performance of an act prohibited by law is usually void.
A)True
B)False
Q4) Because transfer of value is essential to a valid contract, contracts cannot arise in the performance of personal services.
A)True
B)False
Q5) Quasi contracts are contracts.
A)True
B)False
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Q1) If the offeree purports to accept an offer but in so doing makes any change to the terms of the offer, such action is a counteroffer that rejects the original offer.
A)True
B)False
Q2) Offers, acceptances of offers, and revocations of offers are all effective when mailed in a properly-addressed envelope bearing the proper amount of postage.
A)True
B)False
Q3) 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
Q4) A revocation of an offer is ordinarily effective only when it is communicated to the offeree.
A)True
B)False
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Chapter 14: Capacity and Genuine Assent
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Sample Questions
Q1) A young stockbroker was rather overwhelmed by a flood of new clients. Assunta, one of his clients, had purchased XYZ Corp. stock through the broker at a price of $35 per share. The price had gone down to $29 by the time Assunta telephoned the broker. Assunta told the broker that she wanted to sell the stock if it went below $30 and inquired as to the price. The broker did not check the price, but thinking it could not have fallen below the $30 threshold, simply reassured Assunta that it was still "in the low 30s." Marta, Assunta's cousin, also had purchased XYZ stock at $35 per share and made a similar call to the broker and received the same response. Marta, however, coincidentally saw the price on a stock ticker tape when she hung up and realized the broker had made an error. Both Assunta and Marta held the stock and did not sell.
Later that same day, the stock price fell an additional $7 per share. Facing sizable losses, both Assunta and Martha decided to sue for fraud when Marta told Assunta of the broker's misstatement. Discuss the probable outcome of the lawsuits.
Q2) Generally, when a person of legal age makes a contract with a minor, the contract is voidable by either party.
A)True
B)False
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Page 16
Chapter 15: Consideration
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Sample Questions
Q1) The effect of the making of a partial payment to satisfy an admitted debt is an example of the rule that:
A) past benefits cannot be consideration for a later promise.
B) a conditional promise may be consideration.
C) doing what one is already under a legal obligation to do is not consideration.
D) consideration must be adequate to be binding.
Q2) Charitable subscriptions by which individuals make pledges to finance the construction of a college building, a church or another structure for charitable purposes are binding to the extent that the donor should have reasonably realized that the charity was relying on the promise in undertaking the building program.
A)True
B)False
Q3) Generally, a promise is legally enforceable even if nothing is given or received for the promise.
A)True
B)False
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Chapter 16: Legality and Public Policy
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Sample Questions
Q1) An agreement to slander a third person would not be enforceable because slander is a(n):
A) crime.
B) civil wrong.
C) infringement of privacy.
D) assault.
Q2) Legislation commonly requires that an installment-sale contract specify the cash price, down payment, finance charges, and insurance costs.
A)True
B)False
Q3) Companywide standardized form contracts imposed on a "take-it-or-leave it" basis by a party with superior bargaining strength are called contracts of collusion.
A)True
B)False
Q4) The failure to have a license will not render agreements void if the license: A) is based on formal education.
B) is a real estate license.
C) is a regulatory license.
D) is readily obtainable by anyone who offers payment of a required fee.
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Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Sample Questions
Q1) The writing required by the statute of frauds in the case of a contract for the sale of land must:
A) be addressed to the other party to the contract.
B) be made with the intent to create a writing to satisfy the statute of frauds.
C) be signed at the end of the writing.
D) describe the land to be sold.
Q2) A promise to pay an attorney a fee owed by a third person can be enforced without a writing.
A)True
B)False
Q3) A contract is interpreted to give effect to:
A) the intent manifested by the contract.
B) what the court believes is a fair contract.
C) what the defendant thought the contract meant.
D) what will be best for the economic life of the community.
Q4) A contract for the sale of goods with a price of $500 or more requires written proof to be enforceable.
A)True
B)False
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Chapter 18: Third Persons and Contracts
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Sample Questions
Q1) Generally, an assignment may be in any form.
A)True
B)False
Q2) A third-party beneficiary:
A) may be obligated to pay for services rendered.
B) may bring suit on and enforce the contract.
C) must consent to the contract.
D) must be identified by name.
Q3) A person entitled to receive money may generally assign that right to another person.
A)True
B)False
Q4) The modern trend is to consider a general assignment to be:
A) a transfer of property only.
B) both a transfer of rights and a delegation of duties.
C) a delegation of duties only.
D) a transfer of rights only.
Q5) An assignment, if otherwise valid, takes effect the moment it is made.
A)True
B)False
Page 20
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Chapter 19: Discharge of Contracts
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Sample Questions
Q1) If no time period for performance is specified in a contract:
A) the contract is unenforceable.
B) time shall be of the essence.
C) a reasonable time for performance will be implied.
D) the time for performance will be ignored by the courts.
Q2) A condition subsequent is a condition that must occur before a party to a contract has an obligation to perform under the contract.
A)True
B)False
Q3) Impossibility of performance applies when the debtor does not have sufficient funds to pay a debt.
A)True
B)False
Q4) A contract to build a house is deemed performed when:
A) there has been substantial performance of the contract.
B) the house is approved by the city housing inspectors.
C) the house is approved by the owner's architect.
D) the house is approved by the owner.
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Chapter 20: Breach of Contract and Remedies
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Q1) When an anticipatory repudiation of a contract occurs, the aggrieved person's option(s) include:
A) doing nothing and waiting for performance per the contract.
B) immediately declaring a breach of contract.
C) considering the contract cancelled.
D) all of the above.
Q2) Consequential damages may not be recovered, even if they were within the contemplation of the parties at the time of contracting.
A)True
B)False
Q3) Failure to mitigate damages limits recovery to:
A) damages that would have been sustained had the plaintiff mitigated the damages where it was possible to do so.
B) nominal damages and punitive damages.
C) damages for consequential loss.
D) exemplary damages.
Q4) An acceptance with a reservation of right must be in writing.
A)True
B)False
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Chapter 21: Personal Property and Bailments
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Q1) At common law, a tenancy by entirety or a tenancy by the entireties is created when property is transferred to both husband and wife.
A)True
B)False
Q2) A gift causa mortis is revoked if:
A) the donor does not die.
B) the donor revokes the gift before dying
C) the donee dies before the donor.
D) all of the above.
Q3) In common usage today, there is no distinction between real and personal property.
A)True
B)False
Q4) After fully complying with the procedures of the Uniform Gifts to Minors Act, a donor is entitled to take back the donated property at any time before the minor donee reaches the age of 18.
A)True
B)False
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Page 23
Chapter 22: Legal Aspects of Supply Chain Management
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Sample Questions
Q1) A warehouser that holds itself out to serve the public generally without discrimination is called a(n):
A) public warehouser.
B) general warehouser.
C) nondiscriminatory warehouser.
D) ordinary warehouser.
Q2) A bill of lading that consigns the goods "to bearer" is called a:
A) nonnegotiable bill of lading.
B) straight bill of lading.
C) negotiable bill of lading.
D) common bill of lading.
Q3) The rights of a holder of a warehouse receipt depend on whether the receipt is:
A) negotiable.
B) rescissory.
C) notarized as a document of title.
D) notarized as a bill of lading.
Q4) Contract clauses that limit a common carrier's liability are void as contrary to public policy.
A)True
B)False
Page 24
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Chapter 23: Nature and Form of Sales
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Q1) A merchant cannot revoke a firm offer to buy or sell goods if the merchant has:
A) promised to keep the offer open.
B) declared in the presence of two or more reputable witnesses that the offer will be kept open.
C) received consideration to keep the offer open.
D) stated in a signed letter that the offer would not be revoked for a specified period of time.
Q2) The UCC permits a court to refuse to enforce a sales contract that it finds to be unconscionable.
A)True
B)False
Q3) 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
Q4) The parol evidence rule does not apply to the sale of goods.
A)True
B)False
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Chapter 24: Title and Risk of Loss
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Q1) The expense and the risk of return in a sale or return situation is on the:
A) seller.
B) buyer.
C) lienholder.
D) secured creditor.
Q2) Future goods are involved when a store is temporarily out of an advertised item but tells you that the item can be ordered from the factory.
A)True
B)False
Q3) In a sale on approval, the buyer's approval may be shown by:
A) express words.
B) conduct.
C) lapse of time.
D) all of the above.
Q4) If a seller under a shipment contract sends nonconforming goods, the risk of loss in transit is on the buyer.
A)True
B)False
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Chapter 25: Product Liability: Warranties and Torts
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Q1) A disclaimer or exclusion of the warranty of merchantability will be invalid if:
A) the goods cost $500 or more.
B) the defects in the goods are obvious to all buyers.
C) it is made at the time of the sale.
D) it is not conspicuously set forth in a writing.
Q2) All of the following statements about express warranties are true except:
A) It is immaterial whether the express warranty is made at the time of the sale or after the sale.
B) Separate consideration is required to legitimize a warranty made at the time of the sale.
C) A warranty made after a sale may be considered a modification of the sales contract.
D) If a warranty made after a sale is a modification of the sales contract, no additional consideration is required.
Q3) If a lawn mower will not cut any type of grass, there is a breach of the warranty of merchantability, even if the warranty was conspicuously disclaimed.
A)True
B)False
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Page 27
Chapter 26: Obligations and Performance
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Q1) In a cash sale that does not require the physical moving of the goods, the:
A) parties are required to perform concurrently.
B) seller is required to tender the goods before the buyer must pay for them.
C) buyer must pay for the goods in advance.
D) buyer must actually receive the goods before he or she is required to pay for them.
Q2) Unless otherwise agreed by the parties, payment by a buyer requires payment either in cash or by certified check.
A)True
B)False
Q3) In January, a buyer and a seller agreed on the sale of 10,000 pounds of tomatoes to be delivered on July 1. The contract stated that the seller would set the price on June 15 and that the buyer would pay the price on delivery. On June 15, the market price of tomatoes was approximately 75 cents per pound. The seller set the price at $1.50 per pound and the buyer demanded that the price be lowered. When the parties could not agree, a lawsuit developed. The key issue was whether the seller had the right to set the $1.50 price. Decide.
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Chapter 27: Remedies for Breach of Sales Contracts
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Q1) When a buyer has breached the contract by failing to accept conforming goods, the seller may sue the buyer for the full purchase price if the goods cannot be resold by the seller.
A)True
B)False
Q2) If consumer goods are sold under a contract that excludes consequential damages, and the buyer is later physically injured because of a defect in the goods, the exclusion of consequential damages is prima facie unconscionable and is not binding.
A)True
B)False
Q3) Notifying a seller about a defect is not necessary if the buyer files suit for breach within four years.
A)True
B)False
Q4) After rejecting goods, a buyer may continue to exercise rights of ownership with respect to the goods until the seller sends explicit instructions for return.
A)True
B)False
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29
Chapter 28: Kinds of Instruments, Parties, and Negotiability
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Q1) A(n) __________ instrument's terms are enforceable, but the instrument is treated simply as a contract governed by contract law.
A) nonnegotiable
B) negotiable
C) accommodation
D) secondary
Q2) 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.
Q3) Instruments are negotiable when they contain the terms required by contract law.
A)True
B)False
Q4) In a negotiable instrument, the promise or order to pay must be unconditional. A)True
B)False
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Chapter 29: Transfers of Negotiable Instruments and Warranties
of Parties
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Q1) Clark is the senior payroll clerk for the Gonzalez Corporation. In preparing the weekly payroll checks for the corporation, Clark added the name of Simmons to the payroll list. Clark knew that Simmons was not an employee of the corporation. Lewis, the treasurer of the corporation, signed the payroll checks and delivered them to Clark. Clark distributed all of the checks to the correct employees with the exception of the one made payable to the order of Simmons. Clark endorsed the name of Simmons to the check, cashed it with Diamond Check Cashing, and vanished. In this situation:
A) an endorsement was not necessary to negotiate the instrument.
B) the Gonzalez Corporation can seek recovery against Diamond Check Cashing. C) the forged signature is given the same effect as though it had been authorized by the named payee.
D) Clark is not subject to civil or criminal liability.
Q2) When the holder fails to endorse order paper but does physically transfer the paper to a third party, the transferee is considered an assignee not a holder.
A)True
B)False
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Page 31
Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) Fraud as to the nature or essential terms of an instrument is a limited defense not available against a holder in due course.
A)True
B)False
Q2) The primary party on a note or certificate of deposit is the drawer.
A)True
B)False
Q3) A person who buys a note from a holder in due course knowing that the maker has a defense will not be a holder through a holder in due course.
A)True
B)False
Q4) A holder can recover from any of the parties who are liable on the instrument, regardless of the order of the signatures on the instrument.
A)True
B)False
Q5) Manuel sued Patricia on a promissory note. Patricia admitted signing the note, but raised the defense that Manuel was not a holder in due course. Can Manuel recover without proving that he is a holder in due course?
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Chapter 31: Checks and Funds Transfers
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Q1) An "encryption" warranty is a warranty made by any party who encodes electronic information on an instrument.
A)True
B)False
Q2) To be effective, checks must be executed on forms that are printed expressly for that purpose and issued by a bank or other financial institution.
A)True
B)False
Q3) A check is a particular kind of draft.
A)True
B)False
Q4) When a bank certifies a check, the amount involved in the certification will be retained in the depositor's account until payment of the certified check.
A)True
B)False
Q5) The act of stopping payment on a check imposes no liability on the depositor.
A)True B)False
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) A surety may be discharged if the creditor substitutes a different debtor.
A)True
B)False
Q2) A surety primarily is liable; ordinarily, a guarantor is only secondarily liable.
A)True
B)False
Q3) If a debtor is about to leave the state, the surety may call on the creditor to take action against the debtor.
A)True
B)False
Q4) A surety that has made payment of a claim for which it was liable as a surety is entitled to which of the following from the principal?
A) indemnity
B) exoneration
C) assignment
D) subrogation
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Chapter 33: Consumer Protection
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Q1) Those who are liable for violations of consumer protection situations are persons or enterprises that regularly enter into the type of transaction in which the injured consumer was involved.
A)True
B)False
Q2) The FTC requires that only descriptive and non-ambiguous terms such as jumbo, giant, or full be used in product labeling.
A)True
B)False
Q3) Consumer protection legislation regulates the prices that sellers may charge consumers.
A)True
B)False
Q4) The Fair Credit Reporting Act applies to:
A) consumer credit.
B) commercial credit.
C) business credit.
D) consumer and commercial credit.
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Page 35
Chapter 34: Secured Transactions in Personal Property
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Q1) Compulsory resale of collateral is not recognized by the Uniform Commercial Code. A)True
B)False
Q2) A security interest that is effective against third persons as well as against the buyer is called a:
A) universal security interest.
B) prohibitive security interest.
C) perfected security interest.
D) protective security interest.
Q3) When a state statute requires a security interest in a motor vehicle to be noted on the certificate of title, the security interest is perfected:
A) by the certificate notation, when a non-inventory motor vehicle is involved.
B) by filing under the UCC, regardless of how the vehicle is classified.
C) by filing under the UCC, when the motor vehicle is inventory.
D) either by the certificate notation or by a UCC filing, depending on how the state statute defines the term motor vehicle.
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Chapter 35: Bankruptcy
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Q1) A bank may file a voluntary petition with the bankruptcy court.
A)True
B)False
Q2) The filing of a voluntary, but not an involuntary, petition operates as an automatic stay.
A)True
B)False
Q3) The debtor will be denied a discharge if:
A) the debtor had been extravagant.
B) the debtor incurred debts because of negligence.
C) the debtor received a discharge ten (10) years previously.
D) the debtor refused to obey a lawful order of the court.
Q4) An involuntary bankruptcy case is commenced by creditors filing a petition with a bankruptcy court.
A)True
B)False
Q5) A debtor may recover damages against any creditor who filed a bankruptcy petition in bad faith.
A)True
B)False
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Chapter 36: Insurance
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Q1) Subornation is the right of a party secondarily liable to stand in the place of the creditor after making payment to the creditor and to enforce the creditor's right against the party primarily liable in order to obtain indemnity from such primary party.
A)True
B)False
Q2) A contract of insurance is to be interpreted as it would be understood by a person with technical knowledge of the law or of insurance.
A)True
B)False
Q3) For property insurance, an insurable interest must exist:
A) at the time the policy is purchased.
B) at the time of the loss.
C) both at the time the policy is purchased and at the time the loss is sustained.
D) for at least thirty (30) days before the loss is sustained.
Q4) A contract of insurance ordinarily is stated in a writing called a policy.
A)True
B)False
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38
Chapter 37: Agency
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Q1) A principal may ratify an unauthorized contract of an agent.
A)True
B)False
Q2) Which of the following is not a condition necessary for ratification?
A) The agent must have purported to act on behalf of or as an agent for the identified principal.
B) The third party benefiting from the ratification must give consideration for the ratification.
C) The principal must have been capable of authorizing the act both at the time of the act and at the time it was ratified.
D) The principal must have full knowledge of all material facts.
Q3) An agency coupled with an interest is an exception to the general rule regarding termination of the agency and the agent cannot be discharged or fired before the expiration of the interest.
A)True
B)False
Q4) An agency may arise by appointment, conduct, ratification, or operation of law.
A)True
B)False
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Chapter 38: Third Persons in Agency
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Questions
Q1) A customer who has given a purchase order to a salesperson is not bound by any contract until the employer of the salesperson accepts the order.
A)True
B)False
Q2) Which of the following parties has the power to bind an organization to a contract?
A) a soliciting agent for the organization
B) a contracting agent for the organization
C) a sales agent for the organization
D) none of the above.
Q3) Which of the following is a defense to an action against an agent for breach of the implied warranty of authority?
A) The agent acted in good faith.
B) The agent misunderstood the scope of authority.
C) The third person knew that the agent was acting beyond the authority given by the principal.
D) All of the above are correct.
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Chapter 39: Regulation of Employment
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Q1) In older cases, the employer-employee relationship was referred to as the master-servant relationship.
A)True
B)False
Q2) Joe Swartz, an employee of Acme Company, worked for months during company time and used Acme's equipment to develop an idea that he had been nurturing. Finally, the idea came to fruition. Swartz's employer laid claim to the invention on the grounds that the firm's equipment had been utilized on company time. Swartz had obtained a patent on the invention and claimed that his employer had no rights to the invention at all. Who is right? How could an employer guard against such arguments in the future?
Q3) The Federal __________ Act makes it unlawful to intercept oral and electronic communications and provides for __________ against the violator.
A) Wiretapping; civil damages
B) Wiretapping; criminal liability and civil damages
C) Homeland Security; civil damages
D) Homeland Security; criminal liability and civil damages
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Chapter 40: Equal Employment Opportunity Law
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Q1) A seniority system is unlawful if:
A) workers with longer years of service are laid off last.
B) a union did not agree to the policy.
C) it results from an intention to discriminate.
D) workers with longer years of service are predominantly from one race.
Q2) Criteria used to make employment decisions that have a disparate impact on women, such as height requirements, must be job-related.
A)True
B)False
Q3) An affirmative action plan must not:
A) apply to unqualified workers.
B) favor women.
C) favor minorities.
D) respect the rights of non-minorities and men.
Q4) The Equal Employment Opportunity Commission (EEOC) establishes equal employment opportunity policy under the laws that it administers.
A)True
B)False
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Page 42
Chapter 41: Types of Business Organizations
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Q1) Franchise disclosures are not required under federal law.
A)True
B)False
Q2) A major disadvantage of the sole proprietorship is:
A) no organizational fees.
B) the sole proprietor obtains all of the profits.
C) the sole proprietor is personally liable for the debts of the sole proprietorship.
D) the sole proprietor is free to make all business decisions concerning operation of the sole proprietorship.
Q3) In a corporation, a large number of investors may pool their assets to finance a large business enterprise.
A)True
B)False
Q4) An unincorporated association cannot sue or be sued in its own name.
A)True
B)False
Q5) A franchisor is the person to whom the franchise is granted.
A)True
B)False
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Chapter 42: Partnerships
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Q1) Theo, a member of TGI partnership, withdrew from the partnership and duly notified the other members. The firm was an at-will partnership and the parties parted amicably, posting a notice in the local newspaper of the dissolution of their firm. Cosmo, a customer who had conducted business with Theo several times, did not see the newspaper notice and was not informed of the dissolution. Later, Theo approached Cosmo concerning a transaction similar to those Cosmo had engaged in before with Theo acting on behalf of TGI. Cosmo placed an order, gave a substantial down payment to Theo, and received a receipt on TGI stationery from him. Theo thereafter absconded with the down payment, and TGI failed to honor the contract. Cosmo sued the other members of TGI partnership. Discuss their potential liability.
Q2) No partner can hire an employee unless all partners agree on the need for the position.
A)True
B)False
Q3) The vested rights of partners are not extinguished by dissolving the firm, and the existing liabilities remain.
A)True
B)False
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Page 44
Chapter 43: LPs, LLCs, and LLPs
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Q1) Limited liability companies are formed without filing formal articles of organization with the secretary of state; in this sense, limited liability companies are easier to create than corporations.
A)True
B)False
Q2) The dissolution and winding up of a limited partnership is governed by the same principles applicable to a __________.
A) "Subchapter S" corporation.
B) limited liability company.
C) general partnership.
D) none of the above.
Q3) A limited liability company may be classified as a partnership for tax purposes if:
A) such an election is made by "checking the box" for partnership tax treatment on the appropriate Internal Revenue Service form.
B) such an election is made in the operating agreement.
C) such an election is made in the articles of incorporation.
D) a majority of its members petition the Internal Revenue Service for partnership tax treatment.
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Chapter 44: Corporate Formation
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Q1) A de facto corporation is accorded legal recognition despite some recognized defect in its incorporation.
A)True
B)False
Q2) A merger is subject to antitrust law, while a consolidation is not.
A)True
B)False
Q3) A corporation must have:
A) a name.
B) more than one incorporator.
C) a corporate seal.
D) none of the above.
Q4) A corporation is considered a person for purposes of the due process clause of the United States Constitution.
A)True
B)False
Q5) A business corporation may legally merge with a charitable corporation.
A)True
B)False
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Chapter 45: Shareholder Rights in Corporations
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Q1) Shares can exist for only as long as the shareholder is alive.
A)True
B)False
Q2) When the corporation has the right to sue its directors, officers, or third persons for damages caused by them to the corporation or for breach of contract, one (1) or more shareholders may bring such action if the corporation refuses to do so. This is known as a __________ action.
A) primary
B) derivative
C) deferential
D) preemptive
Q3) A preincorporation subscription to stock is generally treated as an offer to the corporation to buy the stock when the corporation is formed and the stock is thereafter issued.
A)True
B)False
Q4) Restrictions on the transfer of stock are valid if they are not unreasonable.
A)True
B)False
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Chapter 46: Securities Regulation
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Q1) SEC Rule 10b-5:
A) is the principal antifraud rule relating to the secondary distribution of securities.
B) provides that a civil action for damages may be brought by any private investor who purchased or sold a security and was injured because of false, misleading, or undisclosed information.
C) applies to all securities, whether registered or not, as long as use is made of the mail, interstate commerce, or a national stock exchange.
D) all of the above.
Q2) Which of the following acts was passed to ensure that public shareholders faced with a cash tender offer would not be required to respond without sufficient information?
A) the Mann Act
B) the Robinson-Patman Act
C) the Williams Act
D) the SEC Act
Q3) Persons or firms can be sued for false statements in a registration statement.
A)True
B)False
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Chapter 47: Accountants Liability and Malpractice
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Q1) When an accountant fails to complete an accountant's contract, the accountant is still entitled to the accountant's fee.
A)True
B)False
Q2) The contributory negligence of the client does not reduce the liability of an accountant who is liable for malpractice.
A)True
B)False
Q3) To bring a tort action for malpractice, a plaintiff must show that the defendant's breach was at least:
A) intentional.
B) negligent.
C) reckless.
D) fraudulent.
Q4) A disclaimer based on lack of knowledge will always protect an accountant from liability.
A)True
B)False
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Page 49
Chapter 48: Management of Corporations
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Q1) A president of a corporation does not have the authority to:
A) execute commercial paper in the corporation's name.
B) mortgage a corporate property.
C) release a claim of the corporation.
D) perform any of the above acts.
Q2) All of the directors of the XYZ Corporation were present at a meeting called on a Monday evening at 9 p.m. Meetings normally were held on Friday evenings at 6 p.m. At the Monday meeting, a report was made indicating that an agent of the corporation was having difficulties formalizing a contract in a foreign country. The report indicated that if funds were made available to a local political figure, the contract the company desired would be obtained. The directors unanimously voted to forward the necessary funds for this operation to the agent. An action was later commenced against the directors, alleging illegal activities. In response, the directors argue that: (1) no illegal activity had occurred; (2) if an illegal activity did occur, it was not at a valid meeting of the corporation and was therefore not an official action of the board; and (3) if they had to legally defend themselves, they would seek reimbursement from the corporation. Discuss the directors' contentions.
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Chapter 49: Real Property
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Q1) If the parties involved agree that personal property will be considered a fixture, it will be deemed to be a fixture without the application of legal tests.
A)True B)False
Q2) A license is different from an easement in that it is a personal, revocable privilege to do something on the land of another.
A)True B)False
Q3) A deed is not effective to pass title unless it is properly recorded.
A)True B)False
Q4) A condominium and a cooperative are essentially the same. A)True B)False
Q5) Equipment attached to a rented building by a tenant and used in business is: A) called a trade fixture.
B) not ordinarily removable by the tenant.
C) called a commercial fixture.
D) called a business fixture.
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Chapter 50: Environmental Law and Land Use Controls
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Q1) What federal act regulates the federal government in terms of its operations and impact on the environment?
A) the Environmental Protection Act
B) the National Environmental Policy Act
C) the Clean Water Act
D) the Resource Recovery Act
Q2) When a zoning ordinance is adopted, any property used for a purpose that does not conform to the zoning ordinance:
A) must be demolished.
B) must no longer be used for a nonconforming use or purpose.
C) may be used for any use that does not conform to the zoning regulation.
D) may continue to be used for the same nonconforming use.
Q3) Many federal statutes concerned with the environment authorize the Environmental Protection Agency (EPA) to adopt standards and regulations to carry out the provisions of the statutes.
A)True
B)False
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Chapter 51: Leases
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Q1) A tenant in possession has control of the property and is liable when his or her failure to use due care under the circumstances causes harm to:
A) invitees.
B) licensees.
C) trespassers.
D) a. or b.
Q2) A tenant cannot claim that there has been a constructive eviction if the tenant continues to occupy the rented premises.
A)True
B)False
Q3) In almost all states, a periodic tenancy is implied if the tenant, with the consent of the landlord, stays in possession of the property after a tenancy for years.
A)True
B)False
Q4) 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) Statutes often require that the attestation of witnesses be made in the presence of the testator and in the presence of each other.
A)True
B)False
Q2) Fred and Mary were married. Fred had executed a will prior to the marriage that left all of his property, both real and personal, to his mother. Fred later died without changing his will. Mary feels that she should be entitled to some of Fred's estate. While waiting for Fred's estate to be finalized, Mary remarries. Mary's second husband executes a will providing for Mary. Later, after Mary and her husband adopt two children, her second husband dies. Mary feels that her children should be entitled to receive something from her second husband's estate. Is Mary and, later, are her adopted children entitled to receive something under the wills?
Q3) Which of the following is an incorrect statement concerning trusts?
A) The trustee has legal title to the corpus.
B) The beneficiary has equitable title to or beneficial interest in the corpus.
C) Generally, a beneficiary may not transfer his or her interest in the trust.
D) A trustee cannot delegate the performance of personal duties.
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Page 54