Commercial Law Exam Preparation Guide
Course Introduction
Commercial Law explores the legal principles governing business and commercial transactions. The course covers key topics such as contract formation and enforcement, sales of goods, negotiable instruments, agency relationships, and secured transactions. Students will examine statutory frameworks like the Uniform Commercial Code (UCC) and analyze case law to understand the rights and obligations of parties engaged in commerce. Emphasis is placed on legal problem-solving within commercial contexts, risk management, and the impact of regulations on business operations, preparing students to navigate the legal landscape of modern commerce effectively.
Recommended Textbook
Andersons Business Law and the Legal Environment Comprehensive 23rd Edition by Twomey
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51 Chapters
2716 Verified Questions
2716 Flashcards
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Chapter 1: The Nature and Sources of Law
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Sample Questions
Q1) When a court decides a new question or problem, the decision is called a stare decisis.
A)True
B)False
Answer: False
Q2) Rights guaranteed in the United States Constitution:
A) cannot be taken away by statutes or court decisions.
B) can be taken away by statutes.
C) can be taken away by court decisions.
D) can be taken away by local ordinances.
Answer: A
Q3) Statutes which are drafted from Uniform State Laws are often used to regulate: A) business.
B) foreign countries.
C) criminal behavior.
D) personal family matters.
Answer: A
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Page 3
Chapter 2: The Court System and Dispute Resolution
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Sample Questions
Q1) The power given to courts to hear certain types of cases is called:
A) jurisdiction.
B) mediation.
C) arbitration.
D) summary judgment.
Answer: A
Q2) The answer to the complaint is filed by the:
A) defendant.
B) prosecutor.
C) plaintiff.
D) judge.
Answer: A
Q3) If a case has no material facts in dispute either party can file a(n) _________ and allow a judge to make a ruling as a matter of law.
A) motion to dismiss
B) counterclaim
C) demurrer
D) Motion for summary judgment
Answer: D
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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 laws.
A)True
B)False
Answer: True
Q2) Maintaining confidentiality is an ethical issue for both employees and company management.
A)True
B)False
Answer: True
Q3) In applying the stakeholder model of business ethics, only the interests of important constituencies affected by an action need to be satisfied.
A)True
B)False
Answer: False
Q4) Moral relativists solve ethical dilemmas according to time and place.
A)True
B)False
Answer: True
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Page 5
Chapter 4: The Constitution As the Foundation of the Legal Environment
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Sample Questions
Q1) When the President negotiates a treaty with a foreign country and submits it to the Senate for approval, the president's action is:
A) an express Constitutional amendment.
B) an amendment by judicial interpretation.
C) an amendment by practice.
D) the power of manifest destiny.
Q2) Federal supremacy refers to:
A) the power of the President.
B) the power of the Supreme Court to make decisions.
C) the power of the federal government to legislate in certain areas.
D) the power of the federal government to declare war.
Q3) When there is a direct conflict between a federal and a state law, federal law prevails under the supremacy clause.
A)True
B)False
Q4) The United States utilizes a bicameral division of government. A)True B)False
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Chapter 5: Government Regulation of Competition and Prices
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Sample Questions
Q1) Section __________ of the Sherman Act applies to agreements, conduct, or conspiracies to restrain trade, which can consist of price-fixing, typing, and monopolization.
A) A B) B
C) 1
D) 2
Q2) The Robinson-Patman Act:
A) prohibits charging different prices to different buyers when the margin costs are the same.
B) allows sellers to offer incentives and bonuses to certain customers.
C) allows sellers to refuse to deal with anyone for any reason.
D) prohibits boycotts among competitors.
Q3) A person who is harmed by a conspiracy that violates the Sherman Antitrust Act may sue the wrongdoers for treble damages, which is four times the actual damages.
A)True
B)False
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Page 7
Chapter 6: Administrative Agencies
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Sample Questions
Q1) Which of the following is beyond the enforcement power of an agency?
A) requiring proof of compliance with agency regulations
B) issuing a cease-and-desist order
C) convicting of criminal violations
D) imposing civil penalties
Q2) Arthur sustained an injury to his back. Arthur claimed the injury was suffered at work and filed a claim for workers' compensation benefits. The employer opposed this claim, saying the injury, if real, was the result of a congenital condition. In accordance with the statute, a hearing was held before the Workers' Compensation Board, which ruled against Arthur. Arthur became disgusted with the hearing officer and the proceedings because Arthur felt that the hearing officer did not like him. Arthur has consulted an attorney seeking to sue for workers' compensation benefits. An appeal is available within the agency, but Arthur wants to go directly to court because he feels that the agency appeal would be useless. Discuss the merits of this strategy.
Q3) In reviewing agency action, courts generally apply the:
A) "beyond a reasonable doubt" standard.
B) "preponderance of the evidence" standard.
C) "arbitrary and capricious" standard.
D) "rational relationship" standard.
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Page 8
Chapter 7: Crimes
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Sample Questions
Q1) In some states, the taking of information from a computer without the consent of the owner is called _______.
A) unauthorized use of computers
B) diverted delivery by computer.
C) computer trespass.
D) economic espionage by computer.
Q2) In a prosecution for unauthorized use of computers, unsecure _______ has proven to be a challenge in prosecution for unauthorized use of computer information.
A) economic espionage
B) diverted delivery
C) computer raiding
D) wi-fi networks
Q3) A crime consists of three elements: the mental state, the intent, and the act.
A)True
B)False
Q4) Crimes are classified as common law or statutory according to their origin.
A)True
B)False
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Page 9
Chapter 8: Torts
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Sample Questions
Q1) John was driving his car in a careless way, failing to drive as a reasonably prudent person would under the driving conditions. Ramona was crossing the street in a careless way, failing to cross as a reasonably prudent person would. John struck and injured Ramona with the car John was driving. At trial, it was determined that John was 80 percent at fault and that Ramona was 20 percent at fault. The injuries sustained amounted to $100,000. Explain how much, if any, recovery Ramona would receive in a state that applies the contributory negligence rule. Do the same thing for a state that applies the comparative negligence rule.
Q2) Offensive language used by one person to describe another constitutes the tort of slander.
A)True
B)False
Q3) The assumption of risk defense has been abolished in several states. A)True
B)False
Q4) Assault is the intentional, wrongful touching of another person without that person's consent.
A)True
B)False
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Chapter 9: Intellectual Property Rights and the Internet
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Sample Questions
Q1) Smarts and Then Some, Inc. developed a software program after several years of research and development. The particular software program was then test-marketed, at which point a competitor filed suit claiming that the Smarts and Then Some program violated the competitor's copyright on a program they too were test-marketing. What is the test to determine whether a copyright has been violated?
Q2) Trademarks and service marks are recorded with the Register of Copyrights.
A)True
B)False
Q3) Once a mark is registered in accordance with federal law, the holder of the mark has the exclusive right to use the mark in perpetuity.
A)True
B)False
Q4) A copyright bestows upon the creator of an artistic or literary work a federal statutory right to exclusively:
A) use the work.
B) reproduce the work.
C) display the work.
D) All of these
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11
Chapter 10: The Legal Environment of International Trade
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Sample Questions
Q1) "Know-how" secrets and processes are considered intellectual property rights, which are legally protectable.
A)True
B)False
Q2) TRIPS is the WTO agreement that deals with trade rules that impact tariffs and embargoes.
A)True
B)False
Q3) Under the General Agreement on Tariffs and Trade (GATT), the principle of trade without discrimination is embodied in the most favored nation clause.
A)True
B)False
Q4) The use of import quotas represents the most common form of tariff barrier. A)True
B)False
Q5) TRIPS extends the Paris Convention to special protection for "well-known marks".
A)True B)False
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Chapter 11: Nature and Classes of Contracts: Contracting
on the Internet
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Sample Questions
Q1) When Gordon told Hanson that he was considering selling his house, Hanson offered to buy it. Gordon and Hanson entered into a contract in which Hanson paid Gordon $1,000 in cash for the right to buy Gordon's house for $150,000 in the event Gordon decided to sell it. Two weeks later, Jones offered Gordon $200,000 for his house, and Gordon agreed to sell it to her for that amount. Hanson sued Gordon to force Gordon to sell the house to him for $150,000, rather than to Jones for $200,000. Identify the probable result of the action. What type of contract, if any, was entered into between Gordon and Hanson?
Q2) A contract under which one or both parties have not yet fully performed is termed a(n):
A) void agreement.
B) executory contract.
C) executive contract.
D) executed contract.
Q3) 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.
Page 13
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Chapter 12: Formation of Contracts: Offer and Acceptance
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Sample Questions
Q1) A customer requested a price from a carpenter on a teak cabinet to be built according to the buyer's specifications. Because teak wood is difficult to obtain, the customer agreed to pay the cost of the wood plus $175 and the carpenter agreed to build it. Which of the following is correct?
A) Although the price is somewhat unclear, the parties have entered into a contract.
B) This is an agreement to agree, and is not binding.
C) This agreement fails for indefiniteness.
D) The carpenter is bound by the agreement, but not the customer.
Q2) Acceptance of an offer to form a unilateral contract need not be communicated to the offeror to be effective.
A)True B)False
Q3) If either the offeror or offeree dies or becomes mentally incompetent before the offer is accepted, the offer is automatically terminated.
A)True
B)False
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14
Chapter 13: Capacity and Genuine Assent
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Sample Questions
Q1) When necessary medical care is provided to a minor, a parent is liable at common law for the medical expenses provided the minor child.
A)True
B)False
Q2) As a general rule, the nondisclosure of information that is not asked for does not impose fraud liability or impair the validity of a contract.
A)True
B)False
Q3) The seller of a painting is bound by the sales contract if the painting purchased was considered of little value and only later discovered to be valuable to the surprise of both buyer and seller.
A)True
B)False
Q4) Contractual capacity is the ability to:
A) read and write.
B) sign a written contract.
C) understand that a contract is being made and to understand its general nature.
D) understand the legal meaning of the contract being made.
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Chapter 14: Consideration
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Sample Questions
Q1) A promise that in fact does not impose any obligation on the promisor is known as an elusive promise.
A)True B)False
Q2) If one party's promise contains no real obligation, then the promise is merely an illusory promise and the contract will fail for lack of mutuality.
A)True B)False
Q3) In a contract for the sale of goods, any modification made by the parties to the contract must be supported by consideration to be binding.
A)True
B)False
Q4) Ordinarily doing, or promising to do what one is already under a legal obligation to do, is not legal consideration.
A)True B)False
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Chapter 15: Legality and Public Policy
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Sample Questions
Q1) Substantive unconscionability has to do with matters of freedom of assent.
A)True
B)False
Q2) When a nationally-known neurosurgeon in Chicago, Illinois sells her practice, the contract may specify that the seller will not practice within a 100-mile radius of Chicago for one year.
A)True
B)False
Q3) When parties are not in pari delicto, the least guilty party is granted relief when it is in the public interest.
A)True
B)False
Q4) In the absence of a valid restrictive covenant, the seller of a business may compete with an ex-employee and solicit customers of the former employer.
A)True
B)False
Q5) An agreement that calls for the commission of a civil wrong is illegal and void.
A)True
B)False
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Chapter 16: Writing, Electronic Forms, and Interpretation of Contracts
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Sample Questions
Q1) The one-year performance requirement for an oral contract begins:
A) on the day of the agreement.
B) on the first day of performance.
C) on the day following the agreement.
D) the day on which the agreement was placed in writing.
Q2) No writing is required for a service contract that can be performed within one year after the date of the agreement.
A)True
B)False
Q3) The Uniform Commercial Code contains a statute of frauds rule relating to sales of personal property, specifically:
A) goods.
B) chattel paper.
C) real property.
D) prenuptial agreements.
Q4) A note or memorandum does not have to contain all the essential terms of the contract to be valid.
A)True
B)False
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Chapter 17: Third Persons and Contracts
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Q1) The right to file a legal claim may not be assigned.
A)True
B)False
Q2) The party making an assignment is called the:
A) assignee.
B) assignor.
C) obligor.
D) successor.
Q3) When duties under a contract are delegated, the party making the delegation remains responsible for the performance of the contract just as though no delegation had been made.
A)True
B)False
Q4) In general, an assignee stands:
A) in a position subordinate to the assignor.
B) exactly in the position of the assignor.
C) in a position superior to the assignor.
D) in a position similar to, but not equal to, the assignor.
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Chapter 18: Discharge of Contracts
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Q1) Sam Student had borrowed $1,000 from his cousin. Sam and the cousin became involved in a heated disagreement when the cousin began to press Sam for repayment of the loan. Finally, Sam wrote a check for $190 to the cousin and conspicuously wrote on the check in big letters that it was full and final payment of the $1,000 loan. In need of money, the cousin cashed the check and demanded the remaining $810 from Sam. Sam refused to pay, claiming that they had entered into an accord and satisfaction that discharged Sam's obligation to pay anything more. The cousin sued Sam. Discuss the probable outcome.
Q2) For the parties to enter into an accord and satisfaction that discharges the original obligation, there must be a bona fide dispute.
A)True
B)False
Q3) A typical situation where the doctrine of economic frustration applies is when the party suffers a loss when a gain was expected.
A)True
B)False
Q4) A condition subsequent can alter but not terminate a contract.
A)True
B)False
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Chapter 19: Breach of Contract and Remedies
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Q1) If one of the parties retains money or a legal benefit in a breach of contract, that person is obligated to make restitution to the person conferring the benefit.
A)True
B)False
Q2) Damages in excess of actual loss, imposed for the purpose of punishing or making an example of the defendant, are known as compensatory damages.
A)True
B)False
Q3) A reservation of rights is an assertion by a party to a contract that even though a tendered performance is accepted, the right to damages for the nonconformity to the contract is reserved.
A)True
B)False
Q4) An injured party that does not suffer an actual loss from the breach of a contract is entitled to consequential damages.
A)True
B)False
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21
Chapter 20: Personal Property and Bailments
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Q1) If Susan rents a locked space in a U-Haul storage facility, she and U-Haul:
A) have created a mutual benefit bailment.
B) have not created a bailment until she pays the first month's storage fee.
C) have not created a bailment because there was no delivery of goods.
D) have created a constructive bailment.
Q2) A bailee's interest in the bailed property can be characterized as:
A) ownership.
B) a fractional proprietary interest.
C) possession.
D) constructive ownership.
Q3) A person becomes a(n) __________ at the moment of taking possession of abandoned personal property.
A) bailor
B) bailee
C) constructive bailee
D) owner
Q4) In order for a bailment to be valid, the bailor must be the owner of the subject property.
A)True
B)False
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Chapter 21: Legal Aspects of Supply Chain Management
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Q1) When goods are delivered to a common carrier for immediate shipment and while they are in transit, who is normally liable for any loss or damage to the goods?
A) the shipper
B) the consignee
C) the carrier
D) the individual designated as responsible in the bill of lading
Q2) When consigned goods are sold by a factor:
A) When consigned goods are sold by a factor:
B) title passes even if the goods have been stolen, provided the factor is ignorant of this fact.
C) the sale passes the title of the owner to the buyer.
D) strict compliance with the Federal Factors Act is required to pass title.
Q3) To be engaged in warehousing, an enterprise must have appropriate storage buildings.
A)True
B)False
Q4) The rights and duties of warehousers are regulated by the UCC.
A)True
B)False
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Chapter 22: Nature and Form of Sales
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Sample Questions
Q1) Any modification of a sales contract between merchants must be supported by some form of consideration.
A)True
B)False
Q2) A contract involving both services and goods is classified as a contract for the sale of goods if:
A) the services are to be performed upon the goods.
B) the services cannot be performed unless the goods are supplied.
C) no charge is made for the services.
D) the sale of goods is the dominant aspect of the transaction.
Q3) A gift is a free transfer of the title to property.
A)True
B)False
Q4) An output or requirement contract is not enforceable unless the parties include an estimate of prospective amounts.
A)True
B)False
Q5) The UCC has adopted the common law 'mirror image' rule.
A)True
B)False
24
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Chapter 23: Title and Risk of Loss
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Q1) Future goods can always be identified before they are manufactured.
A)True
B)False
Q2) Someone who finds and resells stolen property passes on a good title to a good faith purchaser.
A)True
B)False
Q3) Anderson Clock Company is in the business of selling and repairing clocks. Jay purchased a grandfather clock from them. Laurie had left the clock at Anderson's for a cleaning and calibration. When Laurie found out the clock had been sold, she contacted Jay and demanded he return it. Must Jay comply with Laurie's demand? What other options does she have?
Q4) Fungible goods are always homogeneous.
A)True
B)False
Q5) Title to goods can be transferred without the actual delivery of the goods involved.
A)True
B)False
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Chapter 24: Product Liability: Warranties and Torts
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Q1) In order to create an express warranty the seller must use as the words "warrant" or "guarantee."
A)True
B)False
Q2) All of the following are product liability theories except:
A) express warranty
B) implied warranty
C) strict tort liability
D) assumption of the risk
Q3) Under the concept of ______, only the original parties to a sales contract could sue each other.
A) exclusivity of contract.
B) privity of contract.
C) privacy of contract.
D) priority of contract.
Q4) Negligence and fraud are easy to prove in a mass production world.
A)True
B)False
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Chapter 25: Obligations and Performance
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Q1) When a buyer demonstrates in some way that the goods conform to the contract, the buyer has made a(n):
A) acceptance of the goods.
B) assignment of the goods.
C) substitution of the goods.
D) avoidance of the contract.
Q2) A buyer has the right to accept some commercial units of a shipment and reject other commercial units.
A)True
B)False
Q3) If the buyer has paid for the goods in advance but revokes his acceptance when the goods arrive, he:
A) can resell the goods.
B) must prove the nonconforming defect was known at the time of the original acceptance.
C) return them within ten (10) days and wait for the refund.
D) may retain possession of the goods as security until the refund has been paid.
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Chapter 26: Remedies for Breach of Sales Contracts
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Q1) If a buyer materially breaches the contract, the seller may not cancel the contract until it notifies the buyer.
A)True
B)False
Q2) If a seller elects to resell the goods remaining in the seller's possession after the buyer breaks the contract, the seller:
A) must always give notice of the sale to the original buyer.
B) is never required to give notice of the sale to the original buyer.
C) is required to follow strict standards in the resale of the goods.
D) is not required to give notice of the sale to the original buyer when the goods are perishable.
Q3) The commercially reasonable charges incurred by a seller in caring for goods after the buyer's breach are recoverable by the seller in an action for damages as:
A) contract damages.
B) punitive damages.
C) additional damages.
D) incidental damages.
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Chapter 27: Kinds of Negotiable Instruments and Negotiability
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Q1) A payee has no rights in an instrument until:
A) the drawer or the maker has delivered the instrument to the payee.
B) an acceptor has been established.
C) an accommodation party has signed the instrument.
D) a guarantor has signed the instrument.
Q2) When the drawee of a draft has indicated by writing or record a willingness to pay the amount specified in the draft the drawee is called a(n):
A) acceptor.
B) accommodation party.
C) payee.
D) secondary obligator.
Q3) Conville signed a note as an officer of the Hughesville Manufacturing Corporation, but she did not name the corporation in the note or indicate that she was acting as an officer for it. Later, she was sued by the Grange National Bank, the holder of the note. She raised the defense that the corporation was liable on the note. Who was liable?
Q4) The maker is the person who writes out and creates a promissory note.
A)True
B)False
Page 29
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Chapter 28: Transfers of Negotiable Instruments and Warranties
of Parties
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Q1) The warranties made by an unqualified indorser guarantee that payment of the instrument will be made.
A)True
B)False
Q2) When the name of the payee is spelled incorrectly, the payee:
A) must indorse the instrument with the incorrect spelling of the payee's name.
B) must indorse the instrument with the correct spelling of the payee's name.
C) may indorse the instrument with either the correct or incorrect spelling of the payee's name.
D) may not indorse the instrument.
Q3) Thomas, the holder of a check, presents it to the drawee bank for payment. If Thomas indorses the check, Thomas warrants that the account of the drawer in the drawee bank contains funds sufficient to cover the check.
A)True
B)False
Q4) The impostor rule is an exception to the rules on liability for forgery that covers certain situations, such as the embezzling payroll clerk.
A)True
B)False
Page 30
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Chapter 29: Liability of the Parties Under Negotiable Instruments
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Q1) The law gives certain holders of a negotiable instrument a preferred standing by protecting them from all defenses when they sue to collect payment.
A)True
B)False
Q2) A universal defense is so basic that the social interest in preserving them outweighs the social interest of giving negotiable instruments the freely transferable qualities of money.
A)True
B)False
Q3) Instruments may be negotiated even if it is overdue.
A)True
B)False
Q4) Universal defenses work against all of the following except:
A) holders.
B) holders through a holder in due course.
C) holders in due course.
D) secondary parties.
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Chapter 30: Checks and Funds Transfers
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Q1) A consumer who notifies the issuer of an EFT card within two (2) days after learning of a loss or theft of the card can be held to a maximum liability of $500 for unauthorized use of the card; failure to notify within this time will increase the consumer's liability for losses to a maximum of $5,000.
A)True
B)False
Q2) Checks that involve amounts of more than $5,000 generally trigger the bank reporting requirements under the USA Patriot Act.
A)True
B)False
Q3) A forged indorsement must be reported within:
A) forty (40) days.
B) six (6) months.
C) one (1) year.
D) three (3) years.
Q4) A check is a particular kind of draft.
A)True
B)False
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Chapter 31: Nature of the Debtor Creditor Relationship
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Q1) 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
Q2) A letter of credit cannot extend for a period of more than five (5) years.
A)True
B)False
Q3) A surety that has made payment of a claim for which it was liable as surety is entitled to indemnity from the principal 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 32: Consumer Protection
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Q1) The category of protected consumers for many statutes has been expanded to include partnerships, corporations and government entities.
A)True B)False
Q2) Consumer title loans, made in exchange for title to a car if the borrower defaults, are also called predatory loans and are illegal per se.
A)True
B)False
Q3) The Fair Credit Reporting Act applies only to consumer credit.
A)True
B)False
Q4) When an enterprise has made false and deceptive statements in advertising, the FTC may require new advertising to correct the former statement so that consumers are aware of the truth. This corrective advertising required by the FTC is also called __________ advertising.
A) retractive
B) redactive
C) retroactive
D) refractive
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Chapter 33: Secured Transactions in Personal Property
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Q1) When there are two perfected secured creditors in the same collateral: ______.
A) priority goes to the creditor who perfected first.
B) priority goes to the creditor who is owed the greatest amount of money.
C) each perfected secured creditor has a 50% interest in the collateral.
D) both perfected secured creditors are treated like unsecured creditors in regards to the collateral.
Q2) Whatever is received upon the sale, exchange, collection or other disposition of collateral is known as: ______.
A) goods.
B) paper.
C) proceeds.
D) security interest.
Q3) Grund, a professional night club musician, financed the purchase of a drum set to be used in his night club act. Under Article 9, the drum set will be classified as a consumer good.
A)True
B)False
Q4) Secured transactions are governed by Article 2 of the Uniform Commercial Code.
A)True
B)False
Page 35
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Chapter 34: Bankruptcy
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Q1) If the debtor is generally not paying debts as they become due, the debtor may be subject to an involuntary bankruptcy petition.
A)True
B)False
Q2) A discharge does not release a person from a consumer debt to a single creditor totaling more than $5,775 for luxury goods or services if the debt was incurred within how many days of the order for relief?
A) 90
B) 120
C) 180
D) 365
Q3) A transfer of property by a debtor within ______ prior to filing with the intent to hinder, delay, or defraud creditors is called a(n) ______.
A) 3 months, proof of claim.
B) 3 months, voidable preference
C) 12 months, proof of claim
D) 12 months, voidable preference.
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Page 36
Chapter 35: Insurance
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Q1) A person who obtains life insurance generally can only name a beneficiary that has an insurable interest in the life of the insured.
A)True
B)False
Q2) When the insurer is subornated to the insured's claim, the insurer may enforce that claim against the third person.
A)True
B)False
Q3) When an insurer wrongfully breaches its duty to defend its insured, the insurer is liable for all consequential damages resulting from the breach, up to the value of the policy.
A)True
B)False
Q4) Insurance designed to protect an insured driver or owner from the claims of others is called:
A) collision insurance.
B) financial responsibility insurance.
C) liability insurance.
D) comprehensive insurance.
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Chapter 36: Agency
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Q1) The intention to ratify an unauthorized act may be expressed by words or conduct.
A)True
B)False
Q2) When a principal dies, the agency is not terminated until the agent is notified of the principal's death.
A)True
B)False
Q3) An agent has incidental authority to perform any act reasonably necessary to execute the express authority given to the agent.
A)True
B)False
Q4) A third person who deals with a person claiming to be an agent has the right to rely on the statements made by the agent concerning the extent of the agent's authority.
A)True
B)False
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Chapter 37: Third Persons in Agency
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Q1) An owner ordinarily is not liable for harm caused a third person by the negligence of an employee of an independent contractor.
A)True
B)False
Q2) The rule of law imposing vicarious liability on an innocent employer for the wrong of an employee is known as the doctrine of respondeat superior.
A)True
B)False
Q3) Apparent authority has the same effect as:
A) undisclosed authority.
B) actual authority.
C) partially disclosed authority.
D) imputation authority
Q4) The employer of a salesperson:
A) is only bound by a contract if the employee is acting as a soliciting agent.
B) is not bound by a contract if the employee is acting as a contracting agent.
C) is not bound by a contract until the contract is accepted.
D) is always bound by contracts made by all employee salespersons.
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Chapter 38: Regulation of Employment
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Q1) The Immigration and Naturalization Act (INA) sets forth criminal and civil penalties against employers who knowingly hire illegal aliens.
A)True
B)False
Q2) An employer may be justified in discharging an employee in any of the following scenarios except: ______.
A) nonperformance of duties.
B) incompetency.
C) serious misconduct.
D) age.
Q3) Employers generally have the right to lay off an employee because of _____, sometimes referred to as reductions in force (RIFs).
A) economic conditions
B) nonperformance of duties by the employee
C) theft by the employee
D) possession of drugs by the employee
Q4) A person cannot be both an employee and an agent for a party at the same time.
A)True
B)False
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Chapter 39: Equal Employment Opportunity Law
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Q1) It is unlawful for employers to undertake special recruiting efforts to hire and train minorities and women in an effort to have a diverse workforce.
A)True
B)False
Q2) Title VII applies to the hiring process and to discipline, discharge, promotion, and benefits.
A)True
B)False
Q3) A men's clothing store policy of hiring males to do measurements for suit alterations is not an example of a BFOQ.
A)True
B)False
Q4) When an employer intentionally treats some employees less favorably than others, the legal theory that applies is:
A) disparate impact.
B) affirmative action.
C) reverse discrimination.
D) disparate treatment.
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Chapter 40: Types of Business Organizations
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Q1) 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
Q2) A sole proprietorship is taxed: _______.
A) on a personal level.
B) only on the corporate level.
C) on both a personal and a corporate level.
D) like a partnership.
Q3) A corporation must have at least two shareholders.
A)True
B)False
Q4) A rule requiring that a franchisor provide a disclosure statement to all prospective franchisees was adopted by the: ______.
A) UCC.
B) Franchise Tax Board.
C) Securities and Exchange Commission.
D) Federal Trade Commission.
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Chapter 41: Partnerships
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Q1) Creditors of a firm have first claim on the assets of the partnership.
A)True
B)False
Q2) The assignee of a partner's interest in the partnership becomes a partner only with the consent of the other partners.
A)True
B)False
Q3) Which of the following will not result in dissolution of the partnership by court decree?
A) Insanity of a partner.
B) Incapacity of a partner.
C) Withdrawal of a partner.
D) Habitual drunkenness of a partner.
Q4) The vested rights of partners are not extinguished by dissolving the firm and any existing liabilities remain.
A)True
B)False
Q5) A partnership is not inferred when profits are received in payment of a debt.
A)True
B)False
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Chapter 42: LPs, LLCs, and LLPs
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Q1) Limited liability is not a feature of general partnership law.
A)True
B)False
Q2) LLC promoters can 'shake hands' and form an LLC.
A)True
B)False
Q3) In a limited partnership, limited partners are not responsible for the debts of the firm if they engage in management activities.
A)True
B)False
Q4) Alice, Betty, and Cathy are interested in forming a business venture. Alice is quite wealthy and is ready to contribute money to the venture. Betty has a degree in business from an excellent university, worked for five years as a manager in a major corporation, and currently is a leadership/management consultant. Cathy is a scientist who has developed a process that will, according to her, "revolutionize cancer treatment throughout the world." Alice, Betty, and Cathy believe it is in their best interest to form a general partnership. Do you agree? Is there a more appropriate form of business you might recommend?
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Page 44
Chapter 43: Corporate Formation
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Q1) The Revised Model Business Corporation Act: ______.
A) has eliminated the certificate of incorporation.
B) has made the process of incorporation more difficult.
C) states that corporate existence begins when the secretary of state issues a certificate of incorporation.
D) has eliminated the need for articles of incorporation.
Q2) A corporation that does business in the state in which it was created is called a(n): ______.
A) domestic corporation.
B) foreign corporation.
C) alien corporation.
D) home corporation.
Q3) A public corporation is: ______.
A) also known as a public utility.
B) organized for charitable and benevolent purposes or for purposes of finance, industry, and commerce.
C) established for governmental purposes and for the administration of public affairs.
D) traded on the Wall Street Stock Exchange.
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Chapter 44: Shareholder Rights in Corporations
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Q1) The Toy Corporation issued 200 shares of stock with no par value. The articles of incorporation provided that the board of directors had the right to fix the value of the stock. Through subscription agreements between the directors and two subscribers, 101 shares were issued to Maria Perez for $5,000, and 99 shares were issued to Ken Pilar for $15,000. Toy is now insolvent and is unable to pay the $6,000 it owes to Pine, its major supplier. Pine has brought suit against Perez, claiming that the subscription agreement was invalid. How will the case be decided?
Q2) Shares exist for only as long as the corporation exists.
A)True
B)False
Q3) Restrictions on the transfer of stock are always valid.
A)True
B)False
Q4) A physical transfer of the certificate without a necessary indorsement is not necessary for future gifts and sales.
A)True
B)False
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Chapter 45: Securities Regulation
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Q1) A "short-swing" profit is realized by a corporate insider from selling corporate securities less than one (1) year after purchase.
A)True
B)False
Q2) The Dodd-Frank Act authorizes the Federal Trade Commission to create a whistleblower program to encourage individuals to provide the SEC with information that would lead to the discovery and prosecution of violations of the federal securities laws.
A)True
B)False
Q3) State blue sky laws typically deal with fraud and licensing.
A)True
B)False
Q4) The SEC requires that annual shareholder reports be submitted to shareholders in any proxy solicitation on behalf of management.
A)True
B)False
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Page 47
Chapter 46: Accountants Liability and Malpractice
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Q1) An accountant is generally not liable for damages if the accountant fails to inform a client of the tax consequences associated with selling a business.
A)True
B)False
Q2) Following GAAP and GAAS is persuasive but not conclusive evidence of meeting standards for the accounting profession.
A)True B)False
Q3) Breach of contract remedies are available to third parties against accountants because they are ordinarily considered third-party beneficiaries of contracts with accountants.
A)True
B)False
Q4) In some states, exculpatory clauses cannot protect the accountant from a suit brought by a third party.
A)True
B)False
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Chapter 47: Management of Corporations
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Q1) Extraordinary matters requiring shareholder votes include all of the following except: ______.
A) sale of corporate assets outside the regular course of business.
B) amendment of bylaws.
C) corporate mergers.
D) corporate dissolution.
Q2) If an officer diverts a corporate opportunity, the corporation may recover from the officer:
A) triple damages for breach of a fiduciary duty.
B) the profits of which the corporation has been deprived.
C) past wages for the time period in question.
D) any and all funds used to divert the corporate opportunity.
Q3) The sale of corporate assets outside the regular course of a corporation's business is an example of an extraordinary matter.
A)True
B)False
Q4) In dealing with the corporation, directors act in a fiduciary capacity.
A)True
B)False
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Chapter 48: Real Property
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Q1) Which is not a correct statement about deeds?
A) The grantor must sign the deed.
B) A deed must be recorded to effectively pass title.
C) The fact that a deed is recorded provides notice to the world about who holds title.
D) A deed must be delivered to be effective.
Q2) Legal title to land may be acquired by adverse possession, even though the possessor originally had no right to use or possess the property.
A)True
B)False
Q3) A fixture is personal property that has been so attached to realty that removing it would cause damage.
A)True
B)False
Q4) Real property includes land and all fixtures.
A)True
B)False
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Page 50
Chapter 49: Environmental Law and Land Use Controls
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Q1) The primary federal agency responsible for federal environmental laws is the EPA.
A)True
B)False
Q2) What is a principal purpose of the Superfund?
A) to establish environmentally-friendly zoning plans
B) to establish appropriate eminent domain compensation
C) to pay the cost of eliminating or containing condemned waste sites
D) to pay the cost of funding environmental impact statements for public projects
Q3) A nuisance: ________.
A) is created by every interference that has an effect on others.
B) is established when the plaintiff shows harm as the result of the defendant's conduct.
C) arises only by an interference that is great enough to be condemned as unreasonable.
D) cannot arise from a lawful activity or business that is conducted in a lawful manner.
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Chapter 50: Leases
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Q1) A landlord is not liable to the tenant for crimes committed on the premises by third persons, unless they are reasonably foreseeable.
A)True B)False
Q2) A tenancy for years terminates at the expiration of the specified term, regardless of whether one party gives the other any notice of termination.
A)True B)False
Q3) For a tenant to claim constructive eviction she must also physically vacate the premises.
A)True
B)False
Q4) If a leased building is destroyed, the lease is not terminated until proper notice is given.
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 51: Decedents Estates and Trusts
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Q1) A trust may be terminated by its own terms.
A)True
B)False
Q2) If the trustee breaches the trust, which of the following remedies is not available?
A) a money judgment
B) an injunction
C) a criminal prosecution
D) revocation of the trust by the settlor
Q3) Testamentary intent means the testator understands that certain persons will become the owners of certain property upon her death.
A)True
B)False
Q4) A trust is invalid if a beneficiary lacks capacity.
A)True
B)False
Q5) When a decedent dies without a valid will he is said to have died testate.
A)True
B)False
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