Commercial Law
Final Exam
Course Introduction
Commercial Law explores the legal principles and frameworks that govern business transactions and commercial relationships. The course covers key topics including contract formation and enforcement, sale of goods, agency, negotiable instruments, and secured transactions. It examines the rights and obligations of parties engaged in commerce, the regulation of business entities, and dispute resolution mechanisms. Students will analyze real-world case studies to understand how commercial law facilitates trade, protects interests, and manages risk in domestic and international contexts.
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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56 Verified Questions
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Sample Questions
Q1) The pattern of rules that society uses to control the conduct of individuals in their relationships is called law.
A)True
B)False
Answer: True
Q2) The right to privacy applies to protect you from unreasonable searches: A) to you personally. B) to your home.
C) to your business.
D) all of the above.
Answer: D
Q3) Law is often defined as the body of principles that courts will enforce.
A)True
B)False
Answer: True
Q4) One advantage of our current legal system is that the growth of technology has not created many new laws.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The Court System and Dispute Resolution
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Sample Questions
Q1) A peremptory challenge to a prospective juror generally can be exercised without giving a reason.
A)True
B)False
Answer: True
Q2) All courts have original jurisdiction.
A)True
B)False
Answer: False
Q3) A family law court is an example of a specialty court.
A)True
B)False
Answer: True
Q4) Garnishment is a procedure accomplished only by attorneys.
A)True
B)False
Answer: False
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Chapter 3: Business Ethics, Social Forces, and the Law
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Sample Questions
Q1) In addition to issues of social responsibility, business values and ethics play an important role in the success or failure of a business.
A)True
B)False
Answer: True
Q2) The owner of a factory that releases toxic chemicals into the air and surrounding waterways may be in violation of:
A) environmental regulations.
B) zoning regulations.
C) antitrust regulations.
D) all of the above.
Answer: A
Q3) Laws that prohibit mislabeling of food, speeding, and sale of alcohol to minors exist primarily:
A) for protection of the person.
B) for protection of public health, safety, and morals.
C) for protection of property.
D) for protection of the state.
Answer: B
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Page 5
Chapter 4: The Constitution As the Foundation of the Legal Environment
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Sample Questions
Q1) The concept of equal protection of the law:
A) applies to both state and federal governments.
B) prohibits any classification whatsoever.
C) applies only to conduct by private parties.
D) does not permit reasonable classifications.
Q2) A system in which a central government is given power to administer to national concerns and individual states administer to local concerns is called:
A) bicameral.
B) constitutional.
C) federal.
D) tripartite.
Q3) 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) all of the above.
Q4) The Constitution prohibits discrimination based on reasonable classification.
A)True
B)False
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Chapter 5: Government Regulation of Competition and Prices
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Sample Questions
Q1) A violator of the Sherman Act may be subject to:
A) fine only.
B) imprisonment only.
C) fine, imprisonment, and injunction.
D) fine and imprisonment only.
Q2) Alfred, an enterprising college senior, had been involved in the selling of goods for a number of years at flea markets. Alfred supported himself in this way but yearned for greater success. He was particularly interested in selling men's clothing. He studied the clothing lines of famous designers Giorgio Armani and Bill Blass. Alfred then contacted a clothing manufacturer who agreed to copy the styles under the names of Armani and Blass. Alfred began to sell the copied clothing articles under the names "Gorgo Ormani" and "Bill Bless." The names, however, were not clearly printed on the labels but written in a handwritten scrawl making it difficult to discern the actual spelling. The matter has been brought to the attention of the FTC. Discuss possible violations of the FTC Act.
Q3) The attorney general of a state may bring a class action suit to recover damages for those injured by an antitrust violation which raised prices.
A)True
B)False
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Chapter 6: Administrative Agencies
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Sample Questions
Q1) Which of the following is true about judicial review of agency action?
A) Judges tend to substitute their own judgment for that of the agency.
B) Agency interpretation and application of the law are subject to "de novo" review.
C) An agency decision will not be reversed in the absence of an error of law or a clear abuse of, or the arbitrary or capricious exercise of, discretion.
D) All of the above
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.
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Chapter 7: The Legal Environment of International Trade
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Sample Questions
Q1) Which country is NOT a part of The North American Free Trade Agreement (NAFTA)?
A) Mexico.
B) United States
C) Canada.
D) Greenland
Q2) Oswaldo Enterprises began to do business in a small East African nation. The representatives of Oswaldo bid on government contracts. Although Oswaldo was by far the lowest bidder and offered a superior product, the company was not awarded a contract. Oswaldo officials learned after inquiring that the company would have to give substantial sums of money to high-level government officials in order to receive a contract. Oswaldo officials are considering this as a necessary cost of doing business, but they are concerned about violating U.S. law. Discuss the implications of this under the Foreign Corrupt Practices Act.
Q3) The use of agency arrangements allows a U.S. firm to avoid taxation on sales made in its agent's country.
A)True
B)False
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Chapter 8: Crimes
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Sample Questions
Q1) "Mental state" does not require an awareness of guilt.
A)True
B)False
Q2) A computer crime generally can only be committed by a person having some knowledge of the operation of a computer.
A)True
B)False
Q3) Embezzlement always involves a bank account.
A)True
B)False
Q4) An innocent person convicted of a crime is never able to receive compensation for the wrong.
A)True
B)False
Q5) The Fourth Amendment warrant requirement does not apply to businesses.
A)True
B)False
Q6) Extortion and blackmail are exactly the same.
A)True
B)False
Page 10
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Chapter 9: Torts
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Sample Questions
Q1) An absolute privilege is available as a defense to slander liability when:
A) the statement is made to only a few people.
B) libel exists.
C) a witness testifies in a court proceeding.
D) no intent to harm is present.
Q2) A trespass to personal property is any unpermitted entry below, on, across, or above the land of another.
A)True
B)False
Q3) Governments are generally immune from tort liability.
A)True
B)False
Q4) What form of tort liability was developed to provide guaranteed protection for those who are injured by conduct the law deems both serious and inexcusable?
A) strict liability
B) negligence
C) both a. and b.
D) neither a. nor b.
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11
Chapter 10: Intellectual Property Rights
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Sample Questions
Q1) 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
Q2) To prevail in an action for trade dress infringement, a plaintiff must prove that its trade dress is distinctive and nonfunctional and the defendant's trade dress is confusingly similar to the plaintiff's.
A)True
B)False
Q3) The manner in which ideas are expressed in literary, musical, dramatic, and other artistic works may be copyrighted.
A)True
B)False
Q4) To be patentable, an invention must be new and not obvious to a person of ordinary knowledge and skill in the art or technology to which the invention is related.
A)True
B)False
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Page 12
Chapter 11: Cyberlaw
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Sample Questions
Q1) The tort of apprehension involves taking an image, likeness, or name for purposes of commercial advantage.
A)True
B)False
Q2) Individuals who post defamatory messages in a "chat room" are protected from liability for defamation.
A)True
B)False
Q3) __________ refers to laws and precedent applicable to Internet transactions and communications.
A) Cyberlaw
B) Cyborglaw
C) Silicalaw
D) Simlaw
Q4) The Commerce Clause prohibits state governments from taxing Internet transactions.
A)True
B)False
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Page 13
Chapter 12: Nature and Classes of Contracts: Contracting
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Sample Questions
Q1) The principle behind the quasi contract is to prevent unjust enrichment.
A)True
B)False
Q2) Negotiable instruments are examples of formal contracts.
A)True
B)False
Q3) An option contract gives one of the parties an absolute right to enter into a second contract at a later date.
A)True
B)False
Q4) Quasi-contractual liability will generally be imposed when the cost of performing a contract is greater than had been expected.
A)True
B)False
Q5) An executed contract is an agreement that has been completely performed. A)True B)False
Q6) A contract never can be both executory and unilateral.
A)True
B)False Page 14
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Page 15
Chapter 13: Formation of Contracts: Offer and Acceptance
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Sample Questions
Q1) If an offer requires that acceptance be communicated by a specific date and the acceptance is properly dispatched by the offeree on the final date,
A) no contract is formed, since the offeror will undoubtedly receive the dispatched acceptance after the deadline for acceptance.
B) a contract is formed, but the contract is voidable at the election of the offeror.
C) the acceptance is timely and a contract is formed, even though the offeror actually receives the acceptance well after the specified date has passed.
D) the acceptance is timely and a contract is formed, but only if the offeror actually receives the acceptance by the deadline specified for acceptance.
Q2) 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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16
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) Contractual capacity can exist even though a party does not understand every provision of the contract.
A)True
B)False
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Page 17
Chapter 15: Consideration
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Sample Questions
Q1) Consideration is not required in:
A) contracts for the sale of goods.
B) employment contracts.
C) agreements to modify employment contracts.
D) agreements to modify contracts for the sale of goods.
Q2) An unenforceable promise will constitute consideration as long as the parties to the contract appear to be in agreement.
A)True
B)False
Q3) Past benefits already received by a promisor cannot be consideration for a later promise.
A)True
B)False
Q4) Consideration always must be an act or the promise to perform an act.
A)True
B)False
Q5) The doctrine of promissory estoppel is also known as the doctrine of beneficial reliance.
A)True
B)False
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Chapter 16: Legality and Public Policy
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Sample Questions
Q1) An agreement that calls for the commission of a civil wrong is illegal and void.
A)True
B)False
Q2) In every contract there exists an expressed covenant of good faith and fair dealing.
A)True
B)False
Q3) An illegal provision in a contract:
A) causes the entire contract to be voidable.
B) causes the entire contract to be rescinded.
C) can be ignored by the parties in their performance of the remaining provisions of the contract, assuming that the remaining portions of the contract can stand on their own.
D) can be ignored by the parties, because an illegal provision in a contract is not deemed substantial.
Q4) Today, what is an important element in determining the validity of a contract?
A) the Uniform Contract Code
B) whether the agreement might harm the public welfare
C) whether the contract is wise or foolish
D) whether the contract operates unequally between the parties
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Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Sample Questions
Q1) An insurance company cannot refuse to pay the fire loss of the buyer of a house on the grounds that the sales contract for the house was not binding because it was not properly signed.
A)True
B)False
Q2) Details of performance of a contract not expressly stated in a contract will often be implied by the court.
A)True
B)False
Q3) The parol evidence rule may not apply if:
A) the contract is materially incomplete.
B) the parties disagree on the meaning of the contract.
C) there is no ambiguity regarding the terms of the contract.
D) one party is unable to perform the contractual obligations.
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
Page 20
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Chapter 18: Third Persons and Contracts
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Sample Questions
Q1) Whenever a contract is intended to benefit a third person, this person is referred to as a delegator.
A)True
B)False
Q2) The making of an assignment relieves the assignor of any and all obligations existing under the original contract.
A)True
B)False
Q3) Generally, it is easiest to assign:
A) credit.
B) personal services.
C) money.
D) an agreement calling for the personal satisfaction of the assignor.
Q4) Generally, only the parties to a contract may sue on it.
A)True
B)False
Q5) An assignee's rights are the same as those that had been possessed by the assignor.
A)True
B)False
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Chapter 19: Discharge of Contracts
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Sample Questions
Q1) A contract can be discharged by the expiration of the time period specified in the contract.
A)True B)False
Q2) Generally, contracts are discharged by the performance of the terms of the contract.
A)True B)False
Q3) Sales of goods transactions are subject to a statute of limitations period of:
A) one (1) year.
B) two (2) years.
C) three (3) years.
D) four (4) years.
Q4) Ordinarily, a temporary impossibility __________ the duty to perform.
A) suspends
B) excuses
C) discharges
D) none of the above
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Page 22
Chapter 20: Breach of Contract and Remedies
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Sample Questions
Q1) Gregory, a comedy writer, entered into a contract with Wessel, a comedian. The contract provided that Gregory would provide Wessel with a 15-minute monologue for his upcoming appearance on Comedy Hour and that Wessel would pay Gregory $250. All performers on Comedy Hour make $500 per appearance. As Gregory knows, the last time Wessel appeared on Comedy Hour he was asked to make special guest appearances at three local comedy clubs using the same monologue. He earned a total of $750 for the three performances. Shortly before Wessel was scheduled to appear on Comedy Hour, Gregory informed him that he was unable to provide the monologue. As a result, Wessel was forced to cancel his appearance. Wessel sued Gregory for breach of contract and requested damages of $1,250. What will result?
Q2) When one party breaks the contract, the contract is said to be breached.
A)True
B)False
Q3) An anticipatory repudiation must be clear, absolute, and unequivocal.
A)True
B)False
Q4) Consequential damages are those that necessarily flow from the breach.
A)True
B)False
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Chapter 21: Personal Property and Bailments
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Sample Questions
Q1) An ordinary bailment can arise without an agreement between the parties.
A)True
B)False
Q2) An incorporeal hereditament is the relationship that arises when one person delivers possession of personal property to another under an agreement, express or implied, by which the latter is under a duty to return the property or to deliver it or dispose of it as agreed.
A)True
B)False
Q3) To establish a gift, the party claiming to be the donee must prove:
A) delivery only.
B) intent only.
C) intent and a promise to deliver.
D) intent and delivery.
Q4) Barry and Eldridge owned Blueacre as tenants in common. Eldridge died. Blueacre is owned:
A) solely by Barry because of the survivorship feature.
B) jointly by Barry and the state because of escheat.
C) by Barry and Eldridge's heirs.
D) solely by Eldridge's heirs.
Page 24
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Chapter 22: Legal Aspects of Supply Chain Management
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Sample Questions
Q1) 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.
Q2) A negotiable warehouse receipt states that the goods received will be delivered to the bearer or to the order of any named person.
A)True
B)False
Q3) The major purpose of field warehousing is to:
A) create warehouse receipts that the owner can pledge as security for loans.
B) create additional space in the firm's own warehouse.
C) allow warehousers an opportunity to service common carriers.
D) transfer title to buyers without requiring them to pick up merchandise at the plant's location.
Q4) The purchase of a warehouse receipt by due negotiation eliminates all prior claims.
A)True
B)False
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Chapter 23: Nature and Form of Sales
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Sample Questions
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 CISG governs all contracts between parties in the countries that have ratified it.
A)True
B)False
Q3) A writing that is offered to satisfy the statute of frauds must have been written for that purpose.
A)True
B)False
Q4) The UCC permits a court to refuse to enforce a sales contract that it finds to be unconscionable.
A)True
B)False
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Chapter 24: Title and Risk of Loss
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Sample Questions
Q1) If a contract contains a delivery term of __________, the seller's responsibility is to get the goods to the buyer.
A) FOB place of shipment
B) FOB place of destination
C) CIF place of shipment
D) CIF place of destination
Q2) COD is a shipping term that requires the buyer to pay in order to gain physical possession of the goods.
A)True
B)False
Q3) __________ reserve auctions are those in which the goods must be sold regardless of whether the auctioneer is satisfied with the levels of the bids.
A) With
B) Without
C) Unqualified
D) Unrestricted
Q4) Title and risk of loss always pass to the buyer at the same time.
A)True
B)False
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Chapter 25: Product Liability: Warranties and Torts
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Sample Questions
Q1) An examination of goods excludes any implied warranty with respect to a defect that:
A) is apparent after a reasonable examination is made.
B) will not be apparent without chemical analysis.
C) will not be apparent until the goods are processed or used in manufacturing.
D) is unknown to all parties and is not detectable by reasonable examination.
Q2) In most instances, the mere fact that a sale was made gives rise to a(n):
A) express warranty.
B) limited warranty.
C) full warranty.
D) implied warranty.
Q3) Only the parties to a sales contract could sue each other under the traditional concept of:
A) exclusivity of contract.
B) privity of contract.
C) privacy of contract.
D) priority of contract.
Q4) The theories of product liability are mutually exclusive.
A)True
B)False
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Chapter 26: Obligations and Performance
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Sample Questions
Q1) The right to ___________ is a second chance for a seller to make a proper tender of conforming goods.
A) rehabilitate
B) repair
C) heal
D) cure
Q2) A party to a sales contract who is afraid that the other party will not perform may seek to gain additional confidence by demanding some form of:
A) bailment.
B) security.
C) assurance.
D) assignment.
Q3) The standard for determining commercial impracticability is objective, not subjective.
A)True
B)False
Q4) A buyer has a right to insist that all the goods be delivered at one time.
A)True
B)False
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Chapter 27: Remedies for Breach of Sales Contracts
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Sample Questions
Q1) If goods are specially manufactured and the buyer refuses to take them, it is possible for the seller to recover as damages the full purchase price and keep the goods.
A)True
B)False
Q2) A revocation of acceptance:
A) is accomplished only by a return of the goods.
B) is effective when the buyer notifies the seller.
C) requires no notification.
D) is a breach of contract.
Q3) If a buyer rejects a tender of goods, the rejection must be made within ten days of tender. There is no requirement of notice to the seller of the choice made.
A)True
B)False
Q4) Notifying a seller about a defect is not necessary if the buyer files suit for breach within four years.
A)True
B)False
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Chapter 28: Kinds of Instruments, Parties, and Negotiability
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Q1) When the drawee of a draft has indicated by writing or record a willingness to pay the amount specified in the draft, the drawee has accepted liability and is called the acceptor.
A)True
B)False
Q2) If an instrument is negotiable, it is governed by Article 2 of the UCC.
A)True
B)False
Q3) The person to whom the order in a draft is addressed is known as the:
A) payee.
B) drawee.
C) drawer.
D) maker.
Q4) An unconditional written promise made by one person to another, signed by the maker, that promises to pay on demand a specific sum of money to the bearer is a: A) negotiable draft.
B) bill of exchange.
C) promissory note.
D) certificate of deposit.
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) A person who acquires the instrument on which the last endorsement is blank becomes the holder.
A)True
B)False
Q2) If a lost instrument is order paper, the finder __________.
A) becomes the assignee of the instrument.
B) becomes the owner of the instrument.
C) becomes the holder of the instrument.
D) does not become the holder of the instrument.
Q3) An unqualified indorser who receives consideration for the indorsement impliedly warrants that:
A) the warrantor is a person entitled to enforce the instrument.
B) all signatures on the instrument are authentic and authorized.
C) the instrument has not been altered.
D) all of the above.
Q4) 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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Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) A holder having the rights of a holder in due course is subject to the defense of fraud in the inducement.
A)True
B)False
Q2) Mabel issues a negotiable promissory note to the order of Rachel. Rachel endorses the note to Batton, who takes it as a holder in due course. Batton gives the note to his brother, Albert, as a gift. In this situation:
A) Albert will acquire Batton's rights.
B) Albert is a holder in due course.
C) Batton can sue only on the instrument if he took it before maturity.
D) none of the above.
Q3) The fact that a person signs a negotiable instrument because he or she is fraudulently deceived regarding its nature or essential terms is a defense available against all holders.
A)True
B)False
Q4) Incapacity cannot be raised as a defense against a holder in due course.
A)True
B)False
Page 33
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Chapter 31: Checks and Funds Transfers
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Q1) Ordinarily, the drawee bank is liable to the drawer when it pays a check on which the drawer's signature has been forged.
A)True
B)False
Q2) Funds transfers made by businesses are governed by __________ regulations.
A) UCC
B) Federal Reserve
C) UCC and Federal Reserve
D) neither UCC nor Federal Reserve
Q3) Sondra realized on Tuesday that she had dropped her bank EFT card after using it at an automatic teller machine. She telephoned the bank on the following Monday to notify it of the loss. By that time, someone had used the card to withdraw $800 from Sondra's account. The bank said it would cover $300 of that amount. Sondra sued for the full amount, claiming that she had exercised reasonable care in reporting the loss, especially because the card was lost on bank premises. Will she be able to recover the full $800?
Q4) The drawee of a check is always a bank.
A)True
B)False
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) An agreement under which one party agrees to pay drafts drawn by a creditor is called a:
A) contract of surety.
B) guaranty contract.
C) letter of credit.
D) debtor's agreement.
Q2) Which of the following is correct concerning suretyship and guaranty?
A) Each relationship always creates primary liability.
B) Each involves answering for the debt or default of another.
C) Each relationship of suretyship or guaranty must be in writing to be enforceable.
D) Each relationship always creates secondary liability.
Q3) 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) Who may bring an action for relief under consumer protection legislation?
A) the Federal Trade Commission
B) a state attorney general
C) the consumer
D) all of the above
Q2) Consumer protection law often requires those dealing with consumers to make certain mandated disclosures.
A)True
B)False
Q3) 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
Q4) A consumer may waive all defenses otherwise provided for by law.
A)True
B)False
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Chapter 34: Secured Transactions in Personal Property
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Q1) Upon the debtor's default, the creditor may sell the collateral at a public or private sale, or lease it to a third party.
A)True
B)False
Q2) With regard to future goods:
A) no security interest is possible.
B) a financing statement must be filed to create a security interest.
C) the security interest does not attach until the buyer has rights in the goods.
D) a security interest may be held only by a bank.
Q3) Attachment provides creditors with rights.
A)True
B)False
Q4) A financing statement need not be filed in a public place. A)True
B)False
Q5) For a security interest to attach, the creditor must file a financing statement.
A)True
B)False
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Chapter 35: Bankruptcy
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Q1) An automatic stay:
A) arises only upon the filing of a voluntary petition.
B) prevents any further interest from accruing on a debtor's outstanding debts.
C) prevents creditors from taking action outside of the bankruptcy proceeding against a debtor.
D) ends if a debtor attempts to incur additional debt after a petition has been filed.
Q2) In a liquidation proceeding, the debtor's nonexempt assets are collected by the trustee representing the creditors.
A)True
B)False
Q3) If a trustee is not elected by creditors, an interim trustee will be appointed by the court.
A)True
B)False
Q4) A reorganization plan may, in certain instances, provide for the rejection of executory contracts or collective bargaining agreements.
A)True
B)False
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Page 38
Chapter 36: Insurance
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Q1) When a statute requires that all terms of the insurance contract be included in the written contract, the insurer cannot claim that a provision not stated in the written contract was binding on the insured.
A)True
B)False
Q2) 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.
Q3) A person has an insurable interest in property if destruction of that property would cause a monetary or pecuniary loss to that person.
A)True
B)False
Q4) Generally, the terms broker and agent are synonymous because both work directly for the insurer.
A)True B)False
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Chapter 37: Agency
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Q1) When the principal ratifies the act of the unauthorized person, such ratification does not release the unauthorized person from liability, since he or she acted without authority.
A)True
B)False
Q2) A __________ is authorized by the principal to do all acts that can be delegated lawfully to a representative.
A) special
B) general
C) secret
D) universal
Q3) An agent's duties must be expressly stated in the agency agreement and may not be implied from the principal's words or conduct.
A)True
B)False
Q4) The scope of an agent's authority is always known by the third party.
A)True
B)False
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Page 40
Chapter 38: Third Persons in Agency
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Q1) Modern decisions hold the principal liable for which actions of the agent?
A) fraudulent acts
B) misrepresentations
C) both a and b
D) none of the above.
Q2) In a simple contract made by an authorized agent on behalf of a disclosed principal, the third person may sue either the agent or the principal in the event of a breach.
A)True
B)False
Q3) An agent's liability as a party to a contract with a third person is affected little by the degree of disclosure of the principal.
A)True
B)False
Q4) Hiring an individual with a criminal record is conclusive proof that the employer is liable for the tort of negligent hiring.
A)True
B)False
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Chapter 39: Regulation of Employment
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Q1) Employers are required to maintain records of certain occupational illnesses and injuries by:
A) ECHO.
B) ESCHA.
C) OSHA.
D) ECOT.
Q2) Public policy exceptions to the employment-at-will doctrine apply only to "whistleblowing" situations.
A)True
B)False
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
Q4) An agreement by an employee to refrain from disclosing trade secrets is binding.
A)True
B)False
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Chapter 40: Equal Employment Opportunity Law
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Q1) Disparate impact exists when facially neutral employment practices:
A) adversely impact a protected group.
B) intentionally discriminate against a protected group.
C) favorably impact a protected group.
D) intentionally and unfavorably impact a protected group, but the practices are business-related.
Q2) What is an employer defense to a disparate impact charge?
A) The employer did not intend to discriminate.
B) The employment practice is job-related and consistent with business practice.
C) The disparate impact was not the result of extreme recklessness or gross negligence on the part of the employer.
D) The practice is widespread and accepted in the industry.
Q3) Pay raises based on seniority generally are considered lawful.
A)True
B)False
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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Chapter 41: Types of Business Organizations
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Q1) Corporations are subject to a form of double taxation.
A)True
B)False
Q2) A franchisor's freedom from liability to third parties dealing with its franchisees may be defeated upon a showing of excessive control of the franchisee's activities by the franchisor.
A)True
B)False
Q3) Sally Gomez is interested in starting a new business. Although Gomez has developed her business plan and is ready to implement her ideas, she lacks the necessary finances to begin her new business. Along with a lack of finances, Gomez worries about the potential liability involved with starting a new business. Gomez would hate to lose all that she has personally accumulated to date in the event of a successful lawsuit against her. She is considering a sole proprietorship, a partnership, or a corporation as the organizing structure of her new venture. Which type of business would best serve Gomez's needs at this given time?
Q4) The death of a majority shareholder terminates a corporate enterprise.
A)True
B)False
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Chapter 42: Partnerships
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Q1) Partners have no authority after dissolution to create new obligations, but they do retain authority to perform any acts necessary to wind up the business.
A)True
B)False
Q2) In determining the rights of partner Dewey in the firm of Dewey, Cheatham and Howe, the most important reference point is:
A) the Uniform Partnership Act.
B) the partnership agreement.
C) the sworn testimony of Cheatham and Howe.
D) the customs and traditions of similar partnerships.
Q3) In the absence of an express agreement permitting continuation of the business by the surviving partners, they must wind up the business and account for the share of any partner who has:
A) withdrawn.
B) died.
C) been expelled.
D) all of the above.
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Chapter 43: LPs, LLCs, and LLPs
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Q1) Under the Revised Uniform Limited Partnership Act, limited partners may engage in certain "safe harbor" activities without losing their protection from liability. These activities include being a contractor for, or an agent or employee of, the limited partnership or of a general partner.
A)True
B)False
Q2) A limited liability company pays federal income tax.
A)True
B)False
Q3) Most limited liability company statutes provide that a LLC will dissolve:
A) by the consent of the members.
B) upon the death of a member.
C) upon the expulsion of a member.
D) all of the above.
Q4) Limited liability is not a feature of general partnership law.
A)True
B)False
Q5) A limited partner may receive a share of the profits.
A)True
B)False
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Chapter 44: Corporate Formation
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Q1) A corporation must have:
A) a name.
B) more than one incorporator.
C) a corporate seal.
D) none of the above.
Q2) Under recent statutes, the articles of incorporation must contain all of the following except the:
A) name of the corporation.
B) name and address of each incorporator.
C) purpose for which the corporation is organized.
D) number of shares the corporation is authorized to issue.
Q3) A merger is subject to antitrust law, while a consolidation is not.
A)True
B)False
Q4) ____ of a corporation may occur when management is deadlocked and the deadlock cannot be broken by the shareholders.
A) Bankruptcy
B) Consolidation
C) Reinstatement
D) Judicial dissolution
Page 47
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Chapter 45: Shareholder Rights in Corporations
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Q1) A shareholder has a right to inspect the books of the shareholder's corporation if:
A) the request is made in good faith.
B) the request is made with proper motives.
C) the inspection takes place at a reasonable time and place.
D) all of the above.
Q2) Until a transfer is recorded on its books, a corporation is entitled to treat the person whose name is on its books as the owner of its stock.
A)True
B)False
Q3) Shares of stock may not be acquired through subscription but may be acquired through a transfer of existing shares from a shareholder or from the corporation.
A)True
B)False
Q4) Shareholders exercise direct control over their corporation.
A)True
B)False
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Chapter 46: Securities Regulation
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Q1) Which of the following federal laws grants the SEC the power to suspend all trading when markets are excessively volatile?
A) The Trust Indenture Act of 1939
B) The Market Reform Act of 1990
C) The Investment Advisors Act of 1940
D) The Remedies Act of 1990
Q2) Liability under the 1933 Act applies only to sellers of securities who utilize untrue statements, not to those who merely offer to sell securities using untrue statements.
A)True
B)False
Q3) Federal regulation of the sale of securities is based on the:
A) Securities Act of 1933 and the Securities Exchange Act of 1934.
B) Securities Act of 1933 and the Federal Trade Act of 1936.
C) Federal Trade Act of 1936 and the Blue Sky Act of 1933.
D) Fair Stock Act of 1932 and the Investment Securities Act of 1934.
Q4) No private or limited offerings of securities are exempt from the SEC registration requirements.
A)True
B)False
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Chapter 47: Accountants Liability and Malpractice
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Q1) In contrast to contributory negligence principles, comparative negligence principles are never applied to malpractice situations.
A)True
B)False
Q2) __________ courts impose liability on the accountant to a total stranger who gets possession of the accountant's work and then sustains a loss because of a false statement in the work.
A) No
B) A minority of
C) A majority of
D) All
Q3) An accountant who is being sued by a third person for malpractice based on fraud will be able to avoid liability if the accountant can show:
A) contributory negligence on the part of the plaintiff.
B) that an exculpatory clause applies.
C) that the plaintiff did not rely on the false statement.
D) the absence of privity of contract.
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Chapter 48: Management of Corporations
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Q1) A corporation generally may avoid a transaction because of a director's secret disqualification, such as a conflict of interest.
A)True
B)False
Q2) Officers and directors are not personally responsible for crimes they have committed when it can be demonstrated beyond reasonable doubt that in carrying out such crimes, they acted on behalf of the corporation.
A)True
B)False
Q3) The courts have traditionally viewed it as their responsibility to sit in judgment on the wisdom of decisions made by corporate directors.
A)True
B)False
Q4) Ordinarily, the management of a corporation is not liable to third persons if the managerial policies cause loss to such third persons.
A)True
B)False
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Chapter 49: Real Property
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Q1) Recording statutes provide that a person purchasing land from the last holder of record will take title free of any unrecorded claim to the land of which the purchaser does not have notice or knowledge.
A)True
B)False
Q2) A license may be terminated at the will of the licensor.
A)True
B)False
Q3) A covenant that passes with the land so that whoever owns the land is bound by or entitled to the benefit of the covenant
A) is a covenant of seisin.
B) is a covenant of further assurances.
C) is a covenant of quiet enjoyment.
D) is said to run with the land.
Q4) A deed is not effective to pass title unless it is properly recorded. A)True
B)False
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Chapter 50: Environmental Law and Land Use Controls
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Q1) Solid waste disposal regulations today deal almost entirely with recycling.
A)True
B)False
Q2) Which of the following statements is correct concerning restrictive covenants?
A) Restrictive covenants that have not been enforced or observed are nevertheless valid and enforceable.
B) Restrictive covenants take precedence over conflicting statutes.
C) Restrictive covenants generally impose some limitations on the landowner's use of the property.
D) If any uncertainty exists in the interpretation of a restrictive covenant, the covenant will be interpreted liberally in favor of the limited use of the land.
Q3) When the desired use of land is in harmony with the general nature of surrounding areas, a zoning variance is usually granted.
A)True
B)False
Q4) Nuisances may be classified as either private nuisances or public nuisances.
A)True
B)False
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Chapter 51: Leases
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Q1) The covenant of quiet enjoyment protects the tenant from interference with possession by the landlord or the landlord's agent, and it also imposes liability on the landlord for the unlawful acts of third persons.
A)True
B)False
Q2) Roberts leased a duplex from Hughes. Later, without Hughes' knowledge, Roberts sublet half of the duplex to Carrera. Carrera did not take proper care of the premises and her part of the duplex was substantially damaged as a result of her negligent use and abuse. Upon discovering the situation, Hughes notified Roberts that he was holding him responsible for any and all damages to Carrera's portion of the duplex, and that Roberts was to bear the costs of returning the premises to the original state of repair. Roberts replied that he had sublet to Carrera in good faith, had no further dealings with Carrera after the sublet agreement, had no knowledge of negligence, and could not be held liable for damages caused by another. Can Roberts be held liable?
Q3) A lease is the relationship by which one person is in lawful possession of real property owned by another.
A)True
B)False
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Page 54
Chapter 52: Decedents Estates and Trusts
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Q1) A trustee is not permitted to profit personally from the position of trustee, other than to receive the compensation allowed by contract or law.
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) The requirements to create a trust are uniform.
A)True
B)False
Q4) A beneficiary of personal property by will may be called a devisee.
A)True
B)False
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Page 55