Contracts and Sales Law Exam Review
Course Introduction
This course provides a comprehensive examination of the fundamental principles of contracts and sales law as applied in the United States. Topics include the formation, interpretation, and enforceability of contracts; defenses to enforcement; breach and remedies; and the scope and application of the Uniform Commercial Codes Article 2, which governs the sale of goods. Students will explore case law, statutory frameworks, and practical examples to develop skills in analyzing and drafting contractual agreements. The course also addresses contemporary issues and ethical considerations in commercial transactions, equipping students with the legal knowledge necessary for successful practice in business and legal environments.
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) Our rights flow from all the following sources except:
A) the Constitution.
B) federal statutes.
C) city ordinances.
D) ethical values.
Answer: D
Q2) Rights always stand alone, without any duties.
A)True
B)False
Answer: False
Q3) Individuals can create their own private law when they contract among themselves.
A)True
B)False
Answer: True
Q4) A constitution is a body of principles that establishes the structure of a government and the relationship of that government to the people who are governed.
A)True
B)False
Answer: True
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Chapter 2: The Court System and Dispute Resolution
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Sample Questions
Q1) In mediation, the mediator acts as a(n):
A) judge.
B) attorney.
C) messenger.
D) expert witness.
Answer: C
Q2) Chandra sues Martin for breach of contract. Both parties have completed discovery. Chandra now wants her attorney to file a motion to have the judge rule in her favor without having to proceed further. Chandra does not know whether the motion to dismiss or the motion for a summary judgment is proper. Which motion is proper and why?
Answer: As between the motion to dismiss and the motion for summary judgment, Chandra's attorney should file a motion for summary judgment, since the parties are beyond the pleadings stage of litigation, and since they have completed discovery. Using evidence gathered during discovery, such as affidavits and/or deposition testimony, Chandra's attorney could argue that there are no material issues of fact disputed by the parties, and that Chandra is entitled to judgment as a matter of law.
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Chapter 3: Business Ethics, Social Forces, and the Law
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Sample Questions
Q1) Ethical egoism believes that feeling guilty about poor ethical decisions will lead to better future decisions.
A)True
B)False
Answer: False
Q2) There is often a conflict between the goal of making money for shareholders and the goal of solving social problems through business.
A)True
B)False
Answer: True
Q3) Moral relativists solve ethical dilemmas according to time and place.
A)True
B)False
Answer: True
Q4) 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
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Chapter 4: The Constitution As the Foundation of the Legal Environment
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Q1) The due process clause:
A) allows the U.S. government to take private property without due process.
B) allows a state to take private property without due process.
C) provides a guarantee of protection against loss of rights or property without the chance to be heard.
D) does not apply to state governments.
Q2) Like the Declaration of Independence, the U.S. Constitution refers to our fundamental rights as "unalienable" rights.
A)True
B)False
Q3) A constitution is the written document that establishes the structure of the government and its relationship to the people.
A)True
B)False
Q4) Under the "bedrock view" of Constitutional interpretation, the purpose of a constitution is to state certain fundamental principles for all time.
A)True
B)False
Page 6
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Chapter 5: Government Regulation of Competition and Prices
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Q1) The Sherman Act applies only to buying and selling activities, not manufacturing and production activities.
A)True
B)False
Q2) The United States Supreme Court generally has held that vertical merger agreements should not automatically be condemned as an unlawful restraint of interstate commerce merely because they create the potential to monopolize it.
A)True
B)False
Q3) For violation of the Sherman Act, the maximum fine that may be imposed on a natural person is:
A) $1 million.
B) $500,000.
C) $0.
D) $100 million.
Q4) Requiring buyers to purchase one product in order to get another is acceptable practice and not a violation of the Sherman Act.
A)True
B)False
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Chapter 6: Administrative Agencies
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Q1) The Sunshine Act requires most meetings of major administrative agencies to be open to the public.
A)True
B)False
Q2) To satisfy the requirements of due process, an agency handling a complaint must generally _______, although there is no right to _________.
A) give specific recommendations to the director of the agency, cross-examine witnesses.
B) give notice and hold a hearing, remain silent.
C) give notice and hold a hearing, trial by jury before an agency.
D) give sufficient notice only, remain silent.
Q3) As Courts now tend to accept an agency's reasonable interpretation of a statute involving a technical matter, even though it was not the only interpretation that could have been made.
A)True
B)False
Q4) The Freedom of Information Act provides access to any information upon request.
A)True
B)False
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Chapter 7: Crimes
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Q1) Money __________ involves the knowing and willful participation in a financial transaction involving unlawful proceeds when the transaction is designed to conceal or disguise the source of the funds.
A) ironing
B) vacuuming
C) laundering
D) cooking
Q2) Crimes are classified as common law or statutory according to their origin.
A)True
B)False
Q3) Crimes are generally defined and their punishments specified by:
A) trial court judges.
B) appellate judges.
C) codes and statutes.
D) the United States Constitution.
Q4) Bribery requires the use of violence.
A)True
B)False
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Chapter 8: Torts
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Sample Questions
Q1) Slander of title and trade libel are collectively known as product __________.
A) Divestiture
B) Disparagement
C) Dilution
D) Diversion
Q2) The tort of invasion of privacy includes all of the following except:
A) intrusion into private affairs.
B) public disclosure of private facts.
C) misappropriation of another's name.
D) defamation of privacy.
Q3) The assumption of risk defense has been abolished in several states.
A)True
B)False
Q4) If the plaintiff has either engaged in or refrained from actions that are at least partially to blame for the injuries received, what negligence has occurred?
A) criminal
B) contributory
C) personal
D) prejudicial
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Chapter 9: Intellectual Property Rights and the Internet
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Q1) When secret information is shared or communicated for a special purpose and the person receiving the information knows it is not to be made known, it loses the protection it had while secret.
A)True
B)False
Q2) Once approved by the U.S. Patent and Trademark Office, a patent is presumed valid after a public comment period of 90 days.
A)True
B)False
Q3) The type of patent that may be granted to developers of plant reproduction methods is called a:
A) process patent.
B) functional or utility patent.
C) improvement patent.
D) plant patent.
Q4) In limited circumstances customer lists are protected under trade secret laws.
A)True
B)False
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Chapter 10: The Legal Environment of International Trade
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Sample Questions
Q1) United States antitrust laws have broad extraterritorial reach.
A)True
B)False
Q2) A societé anonyme is the European counterpart of a U.S. corporation.
A)True
B)False
Q3) "Know-how" secrets and processes are considered intellectual property rights, which are legally protectable.
A)True
B)False
Q4) Under the act-of-state doctrine, the courts of one country will not sit in judgment of the acts of the government of another country conducted within its own territory.
A)True
B)False
Q5) The World Intellectual Property Organization administers the Berne Convention for international copyright protections.
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) A bilateral contract is essentially an exchange of enforceable promises.
A)True
B)False
Q2) An implied contract is one in which the agreement is shown not by words, written or spoken, but by the acts and conduct of the parties.
A)True
B)False
Q3) With regard to a unilateral contract, the offeree does not accept the offer by express agreement, but rather by performance.
A)True
B)False
Q4) A void contract is one that is otherwise valid but may be rejected or set aside by one of the parties.
A)True
B)False
Q5) Quasi contracts are fictional contracts. A)True
B)False
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Chapter 12: Formation of Contracts: Offer and Acceptance
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Sample Questions
Q1) If no termination date is specified for an offer, the offer will remain open:
A) for one year.
B) for six months.
C) for a reasonable period of time.
D) until someone accepts the offer.
Q2) If an offeree accepts an offer before it is effectively revoked:
A) a void contract is formed.
B) a voidable contract is formed.
C) an unenforceable contract is formed.
D) a valid contract is formed.
Q3) In an auction __________, the auctioneer takes bids as agent for the seller with the understanding that no contract is formed until the seller accepts the transaction.
A) without reserve
B) with reserve
C) without preserve
D) with preserve
Q4) Contractual intention is determined by objective standards.
A)True
B)False
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Chapter 13: Capacity and Genuine Assent
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Sample Questions
Q1) An agreement is not binding when:
A) one party makes a mistake regarding a material fact but the mistake is unknown to the other contracting party.
B) both parties make a mistake regarding a material fact.
C) one party makes a mistake of law.
D) both parties make a mistake in judgment.
Q2) A minor cannot avoid a contract to purchase a car if the:
A) car has been destroyed.
B) car has been damaged.
C) car is used for non-commercial purposes.
D) minor is able to return the car but does not do so.
Q3) An incompetent person may ordinarily avoid a contract in the same manner as a minor.
A)True
B)False
Q4) A minor cannot avoid a contract that has been:
A) ratified.
B) signed.
C) processed.
D) disallowed by the court.
Page 15
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Chapter 14: Consideration
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Q1) Liz agrees to cook 20 dinners for Brian, and in exchange, Brian will repair all of the plumbing in Liz's house. Liz and Brian's 'deal' has:
A) insufficient consideration, because cooking twenty dinners is not worth as much as repairing all of the plumbing in Liz's house.
B) insufficient consideration, because this kind of bargain is against public policy.
C) insufficient consideration, because there is a clear lack of any bargain.
D) sufficient consideration, because Liz has promised something of value.
Q2) An illusory promise creates a bilateral contract.
A)True
B)False
Q3) A(n) _______ is a promise that depends on the occurrence of a specified condition in order for the promise to be binding.
A) cancellation provision.
B) preexisting legal obligation.
C) conditional promise.
D) good-faith adjustment.
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Chapter 15: Legality and Public Policy
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Sample
Questions
Q1) An agreement between Jim and his 18-year-old daughter, Betty, provides that he will give her $25,000 if she does not marry until after her 22nd birthday. One month after reaching the age of 22, Betty, still unmarried, claims the $25,000.?Jim refuses to pay, claiming that the agreement was illegal. Is Jim correct?
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) Dealing honestly, reasonably, and in good faith means all the following except:
A) these are implied duties in every contract for services.
B) these are implied duties in every contract for the sale of goods.
C) the parties will not injure each other.
D) these are express duties in every contract for services.
Q4) 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
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Page 17
Chapter 16: Writing, Electronic Forms, and Interpretation of Contracts
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Sample Questions
Q1) The statute of frauds:
A) requires full disclosure in the case of consumer sales on credit.
B) requires a seller of real estate to obtain a broker's license.
C) specifies the punishment of perjury.
D) requires that a contract for the sale of land be evidenced by a writing.
Q2) An oral contract to sell a house is binding if:
A) the agreement is witnessed by a member of the clergy.
B) there is a tape recording of the agreement.
C) the buyer paid the price and received the deed of conveyance.
D) the seller is a merchant.
Q3) Through incorporation by deference, a contract can consist of both the original document and the detailed statement that is incorporated in it.
A)True
B)False
Q4) If the main purpose of a promise is to pay the debt of another and benefit the promisor, the statute of frauds is not applicable, and the oral promise to pay the debt is binding.
A)True
B)False
Page 18
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Chapter 17: Third Persons and Contracts
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Sample Questions
Q1) Intended beneficiaries and creditor beneficiaries can be the same person.
A)True
B)False
Q2) The right to file a legal claim may not be assigned.
A)True
B)False
Q3) Alberto enters into a contract with a contractor to build a parking garage in Gotham City. Stop-N-Go will greatly benefit from this contract since Alberto's parking garage is adjacent to Stop-n-Go. In this scenario Stop-n-Go is:
A) an incidental beneficiary.
B) a partial beneficiary.
C) a donee beneficiary.
D) an implied beneficiary:
Q4) The substitution of an old contract for a new one that replaces an obligation or a party for another is a:
A) novation.
B) warranty.
C) assignment.
D) delegation of duties.
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Chapter 18: Discharge of Contracts
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Q1) Payment by check is a conditional payment.
A)True
B)False
Q2) A contract may be discharge in all of the following scenarios except:
A) death or disability
B) destruction of subject matter
C) commercial impracticability
D) weather conditions
Q3) The death or disability of a party to a contract discharges the contract when:
A) personal services requiring peculiar skill are involved.
B) the payment of money is involved.
C) a house is to be painted.
D) all of these.
Q4) Bankruptcy results in a discharge of contractual obligations by __________.
A) default
B) equity
C) operation of law
D) oath or affirmation
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Page 20
Chapter 19: Breach of Contract and Remedies
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Q1) A waiver is based on the subjective opinion of the innocent party.
A)True
B)False
Q2) In a breach of contract situation, the innocent party has all of the following are remedies available to her, except:
A) bringing an action for money damages.
B) rescinding the contract.
C) seeking specific performance.
D) waiver of breach
Q3) A firm request for additional payment under an existing contract without refusal to perform until the additional payment is made is considered a repudiation of a contract.
A)True
B)False
Q4) 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
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21
Chapter 20: Personal Property and Bailments
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Sample Questions
Q1) A right in a thing is considered property.
A)True
B)False
Q2) Most courts consider an engagement ring to be a conditional gift.
A)True
B)False
Q3) Severalty is a form of property ownership by two or more persons.
A)True
B)False
Q4) An ordinary gift made between two living persons is called an inter vivos gift.
A)True
B)False
Q5) __________ property means land and things embedded in the land.
A) Real
B) Personal
C) Intangible
D) Tangible
Q6) The intent to make a gift requires an intent to transfer title at that time.
A)True
B)False
Page 22
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Chapter 21: Legal Aspects of Supply Chain Management
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Q1) Field warehousing is the storage of farm crops in the field where they have been grown.
A)True
B)False
Q2) A purchaser of a nonnegotiable warehouse receipt:
A) receives no implied warranties.
B) may acquire rights superior to those of the transferor.
C) acquires only the title and the rights the transferor had authority to transfer.
D) may be considered to have the rights of a holder in due course.
Q3) General contract law determines whether a limitation clause is a part of the contract between the warehouser and the customer.
A)True
B)False
Q4) The purchase of a warehouse receipt by due negotiation eliminates all prior claims.
A)True
B)False
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23
Chapter 22: Nature and Form of Sales
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Sample Questions
Q1) The CISG:
A) governs all contracts between parties in countries that have ratified it.
B) applies only to goods bought for personal, family or household uses.
C) applies to contracts in which the predominant part of the obligation is the supply of labor or other services.
D) None of these.
Q2) The term "course of dealing" refers to the language and customs of an industry.
A)True B)False
Q3) An agreement to periodically deliver home-heating oil to a residential customer that does not indicate the duration of the contract
A) is enforceable for a reasonable period of time.
B) lasts for one delivery only.
C) is not a legally-enforceable contract.
D) constitutes a bulk transfer.
Q4) A writing that is offered to satisfy the statute of frauds must have been written for that purpose.
A)True B)False
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Chapter 23: Title and Risk of Loss
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Q1) Title to goods can be transferred without the actual delivery of the goods involved.
A)True
B)False
Q2) __________reserve auctions are those that give the auctioneer the right to withdraw the goods from the sale process if the bids are not high enough.
A) Qualified
B) Restricted
C) With
D) Without
Q3) In a sale or return transaction, until the actual return of the goods is made, title and risk of loss remain with the buyer.
A)True
B)False
Q4) A document of title is not sufficient for a creditor to take an interest in goods.
A)True
B)False
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Page 25
Chapter 24: Product Liability: Warranties and Torts
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Sample Questions
Q1) Which of the following statements made by the seller does not likely constitute an express warranty?
A) "This looks beautiful on you."
B) "This is 100 percent wool."
C) "This motor generates 100 horsepower."
D) "This is a 3.2 liter rotary engine."
Q2) A defective product can injure intangible economic interests.
A)True
B)False
Q3) Under what type of warranty is the seller obligated to fix or replace a defective product within a reasonable time at no cost to the buyer?
A) full
B) express
C) limited
D) implied
Q4) If there is a written contract, a disclaimer of the implied warranty of merchantability must be conspicuous.
A)True
B)False
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Chapter 25: Obligations and Performance
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Q1) Which method of payment gives the buyer credit by postponing the time for payment?
A) a promissory note
B) a check
C) a draft
D) a certified check
Q2) A party to a sales contract who is afraid that the other party will not perform may seek some form of:
A) bailment.
B) security.
C) assurances.
D) assignment.
Q3) The UCC does not specify the form that the assurance of performance is to take.
A)True
B)False
Q4) All of the following can be considered an acceptance by the buyer except:
A) An express statement of approval by the buyer.
B) The buyer's examination of the goods.
C) The buyer's retention of goods for an unreasonable period of time.
D) The buyer's modification of the goods.
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Chapter 26: Remedies for Breach of Sales Contracts
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Q1) The buyer must give notice of the action to the seller if a third party In an action by a third party against the buyer that is based on the seller's breach of warranty, the buyer must give notice of the action to the seller.
A)True
B)False
Q2) A liquidation of damages clause in a consumer contract is enforceable if it:
A) is not in excess of twice the provable damages.
B) is agreed to by both parties to the contract.
C) reasonably attempts to estimate the actual harm caused by a breach.
D) is a reasonable amount designed to punish the breaching party.
Q3) A seller may cancel a sales contract if the buyer does any of the following except:
A) wrongfully rejects the goods.
B) repudiates the contract.
C) fails to make a payment due on or before delivery.
D) rejects an improper tender.
Q4) Consequential damages are available to the buyer but not to the seller.
A)True
B)False
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Page 28
Chapter 27: Kinds of Negotiable Instruments and Negotiability
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Q1) Negotiation of commercial paper results in lesser rights to transferees than those rights afforded assignees of contracts under contract law.
A)True
B)False
Q2) A check that is postdated ceases to be order paper.
A)True
B)False
Q3) An acceptor is a drawer who has accepted the liability of paying the amount of money specified in a draft.
A)True
B)False
Q4) The requirement of a sum certain in money is fulfilled even though the interest rate changes at maturity.
A)True B)False
Q5) Revised UCC Article 3 refers to drawers, indorsers, and accommodation parties as "secondary obligors."
A)True B)False
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Chapter 28: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) 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
Q2) Negotiation of order paper requires:
A) delivery only.
B) indorsement only.
C) both indorsement and delivery.
D) neither indorsement nor delivery.
Q3) A holder is also known as an assignee of the paper
A)True
B)False
Q4) A payee whose name is misspelled may indorse with the wrong name, the correct name, or both.
A)True
B)False
Q5) Order paper is negotiated by the indorsement of the holder only.
A)True
B)False
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Chapter 29: Liability of the Parties Under Negotiable Instruments
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Q1) Presentment occurs when the primary party refuses to pay an instrument according to its terms.
A)True
B)False
Q2) An instrument is said to "run" to a holder if it contains any of the following attributes, except:
A) payable to his or her order.
B) bearer paper.
C) indorsed to him or her.
D) universal defenses.
Q3) Fraud in the inducement is a:
A) limited defense not available against a holder in due course.
B) universal defense available against all holders.
C) limited defense available against all holders.
D) universal defense not available against a holder in due course.
Q4) Bad faith may exist because a transferee takes an instrument under suspicious circumstances.
A)True
B)False
31
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Chapter 30: Checks and Funds Transfers
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Q1) All of the following are correct concerning stop payment orders, except: ______.
A) a stop payment order may be issued if a payee has failed to perform under a contract.
B) a stop payment order does not prevent a holder in due course from demanding payment.
C) a stop payment order is invalid for some forms of checks.
D) a stop payment order must be in writing to be effective.
Q2) Morris issued a check to Al in payment of a debt. There were sufficient funds in Morris' account to cover the check when it was presented for payment. However, due to an error, the bank dishonored the check. Which of the following parties is/are potentially liable to the holder?
A) the drawee bank only
B) Morris and the drawee bank
C) Morris only
D) the drawee bank and any collecting bank
Q3) Certification of a check at the request of a holder:
A) releases all prior secondary parties.
B) releases the drawer but not prior indorsers.
C) releases prior indorsers, but not the drawer.
D) does not release all prior secondary parties.
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Chapter 31: Nature of the Debtor Creditor Relationship
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Q1) Sureties have no rights or remedies to protect them from loss or breach of contract.
A)True
B)False
Q2) Howard bought goods from Williams. Howard sent Williams a draft covered by a letter of credit issued by First National Bank. Is the bank required to investigate to determine whether the goods sent by Williams conform to the contract?
Q3) 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 letter of credit:
A) cannot last for more than five years.
B) may be in either oral or written form.
C) can only be issued by a bank.
D) must be in writing and signed by the issuer.
Q5) Standby letters of credit are used only in international trade situations.
A)True
B)False
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Chapter 32: Consumer Protection
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Q1) Despite consumer protection legislation, for most consumers pursing their rights in court is not cost beneficial.
A)True
B)False
Q2) The Telephone Consumer Protection Act prohibits all of the following except:
A) automated marking calls without prior express consent.
B) calls to patients' room in hospitals.
C) calls after 9:00 PM.
D) 911 calls.
Q3) When improper collection methods are used, it is no defense to the creditor that the improper acts were performed by an agent, an employee, or any other person acting on behalf of the creditor.
A)True
B)False
Q4) Antitrust statutes that prohibit anticompetitive behavior give consumers the right to collect treble punitive damages for a violation.
A)True
B)False
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Chapter 33: Secured Transactions in Personal Property
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Q1) Creditors receive an automatic 30-day temporary perfection in negotiable instruments taken as collateral.
A)True
B)False
Q2) In most states, __________ provides that a security interest in a non-inventory motor vehicle must be noted on the vehicle title registration.
A) a non-Code statute
B) UCC Article 2
C) UCC Article 9
D) judicial precedent
Q3) An after-acquired property clause in a consumer security agreement means that a creditor has a lien in the shifting stock of goods of the debtor.
A)True
B)False
Q4) In a secured transaction, the person to whom the money is owed is secured party and the buyer is the debtor.
A)True
B)False
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Chapter 34: Bankruptcy
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Q1) The status of a trustee in a bankruptcy proceeding is best described as the:
A) prosecutor of the debtor.
B) successor to the debtor.
C) defender of the debtor.
D) protector of the debtor.
Q2) A transfer made to a relative 6 months before filing a bankruptcy petition is most likely a preferential transfer.
A)True
B)False
Q3) An extended time payment plan:
A) does not provide for a discharge of the debtor.
B) provides for a discharge of the debtor.
C) does not require creditors holding the same type or class of claim to be treated the same way.
D) will not allow the debtor to pay the debts in installments if the debtor's creditors had not originally agreed to such installments.
Q4) Stockbrokers are eligible to file Chapter 11 bankruptcy.
A)True
B)False
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Chapter 35: Insurance
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Q1) Any false statement in an application binds only the insured.
A)True
B)False
Q2) A homeowner's policy typically does not provide for losses caused by theft, unless there is a specific rider to the policy.
A)True
B)False
Q3) When a provision of an endorsement conflicts with a provision of a policy, the policy controls.
A)True
B)False
Q4) An insurance broker generally is an independent contractor who is not employed by any one insurance company.
A)True
B)False
Q5) By statute, an insurance policy may be either oral or written, depending on the nature of the policy.
A)True
B)False
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Chapter 36: Agency
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Q1) Ann was seriously ill and feared that she might lapse into a coma or somehow become unable to speak or act for herself in her medical emergency. She is aware that agents ordinarily lose their authority to act for principals who become mentally disabled. She nevertheless desires to have her husband Alberto make medical decisions and speak on her behalf. She is particularly concerned about existing on life support in a persistent and incurable vegetative state. Is there any action that she might take to enable Alberto to act for her?
Q2) Ames, an agent for Baker Antiques, had the authority to purchase early 20th-century American furniture costing a maximum of $1,500 per piece. Ames bought a 19th-century French desk for $3,000 from Carter. Baker was furious when she saw the desk, and she fired Ames. Nevertheless, she put the desk on display in the shop with a $5,000 price tag. When the best offer she got for the desk was $2,500, Baker returned the desk to Carter. Baker told Carter that Ames had exceeded his authority in purchasing the desk, and she demanded that Carter refund the $3,000 that Ames had paid for the desk. Will Carter have to do so?
Q3) When an unauthorized act is ratified, the effect is the same as though the act had been originally authorized.
A)True
B)False
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Chapter 37: Third Persons in Agency
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Q1) Tom Creighton hired Destroy, Inc., a demolition company, to level an old building on a busy downtown lot. Destroy, Inc. was given full rein to decide on the amount of explosives needed and the placement of the charges. Security for the site on the day of the explosion was contracted out to a private security firm. When the appointed day arrived, the building was brought down. However, the building fell in a slightly different direction than that anticipated by Destroy, Inc. Numerous pieces of adjoining property, both real and personal, were severely damaged. Creighton claims that the use of an independent contractor such as Destroy, Inc. has insulated him from liability. How do you respond to Creighton's claim?
Q2) An agent is necessarily liable if the principal is undisclosed.
A)True
B)False
Q3) __________ liable on contracts with third persons.
A) Agents may intentionally make themselves
B) Agents are never able to make themselves
C) Agents are always
D) Principals are rarely
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Page 39
Chapter 38: Regulation of Employment
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Q1) "Permissive" subjects of bargaining include seniority provisions, promotions, layoff and recall provisions, no-strike no-lockout clauses, and grievance procedures.
A)True
B)False
Q2) Public policy exceptions to the employment-at-will doctrine apply only to "whistleblowing" situations.
A)True
B)False
Q3) Vesting refers to the ability of an employer to reclaim all of the funds it may have paid into a former employee's retirement fund upon that employee's decision to resign.
A)True
B)False
Q4) A person cannot be both an employee and an agent for a party at the same time. A)True
B)False
Q5) The sole issue addressed in the Fair Labor Standards Act is child labor. A)True B)False
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Chapter 39: Equal Employment Opportunity Law
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Q1) The two principal legal theories under which a plaintiff may prove a case of unlawful employment discrimination are disparate treatment and disparate impact.
A)True
B)False
Q2) Title VII applies to the hiring process and to discipline, discharge, promotion, and benefits.
A)True
B)False
Q3) An employer is liable for the sexual harassment of non-supervisors only when it knew, or should have known, of the misconduct - and failed to take prompt remedial action.
A)True
B)False
Q4) The ADEA forbids discrimination by employers, unions, and employment agencies against persons:
A) over 40 years of age.
B) over 50 years of age.
C) over 60 years of age.
D) between the ages of 40 and 65.
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Chapter 40: Types of Business Organizations
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Q1) 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.
Q2) A corporation has perpetual life, until one of its shareholder dies.
A)True
B)False
Q3) Joe and Carol decide to create Sweet Gardens, an unincorporated association for grow a community garden. If someone is injured from food grown at Sweet Gardens, they can sue Sweet Gardens directly.
A)True
B)False
Q4) An owner's death would have no effect on any of the business entities below, except: ______.
A) a partnership
B) a corporation
C) a sole proprietorship
D) joint venture
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Chapter 41: Partnerships
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Q1) A partnership involves equal contributions of capital, services, or a combination of these.
A)True
B)False
Q2) Under the UPA, and absent an agreement, a tenancy in partnership possesses all the following characteristics, except:______.
A) each partner has an equal right to use firm property for partnership purposes in the absence of a contrary agreement.
B) each partner possesses no divisible interest in any specific item of partnership property that can be voluntarily sold, assigned, or mortgaged by a partner.
C) each creditor of a partner cannot proceed against any specific items of partnership property.
D) the partnership must file necessary documentation with the state where it does business.
Q3) A partner is an agent of the partnership and of the other partners.
A)True
B)False
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Chapter 42: LPs, LLCs, and LLPs
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Q1) The partners who manage the limited partnership and are personally liable for the firm debts are called the __________ partners.
A) general
B) active
C) licensed
D) unreserved
Q2) An LLC is essentially identical to a subchapter S corporation.
A)True
B)False
Q3) An LLC may be managed directly by its owners.
A)True
B)False
Q4) If a limited partnership certificate is never filed, all partners are treated as general partners.
A)True
B)False
Q5) A limited partner can never lose money.
A)True
B)False
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Chapter 43: Corporate Formation
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Q1) Corporations may avoid liability for the obligations of a predecessor corporation by treating a consolidation or merger as a sale of assets.
A)True
B)False
Q2) A state's police power may create any kind of corporation for any purpose.
A)True
B)False
Q3) When a corporation acts in excess of or beyond the scope of its powers, the corporation's act is described as "ultra vires."
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
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Chapter 44: Shareholder Rights in Corporations
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Q1) If Bruce signs an agreement to purchase Joe's shares in ABCo. the stock sales contract is called an indenture.
A)True
B)False
Q2) Statutes authorizing the formation of professional corporations usually require that share ownership be limited to: ________.
A) residents of the same state
B) attorneys with malpractice insurance
C) duly licensed professionals
D) professionals without a malpractice history
Q3) Capital stock refers to the value received by the corporation for its outstanding stock.
A)True
B)False
Q4) The two most common instruments used to provide the capital structure of a corporation are stocks and bonds.
A)True
B)False
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Page 46
Chapter 45: Securities Regulation
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Q1) An unlawful sale under the Insider Trading Sanctions Act of 1984 can result in a civil penalty of up to how many times the profit gained or loss avoided?
A) two (2)
B) three (3)
C) four (4)
D) five (5)
Q2) Investors who lack inside information and have sold their stock during the relevant time period may recover damages from insiders who have made use of the undisclosed information.
A)True
B)False
Q3) All private offerings of securities valued less than $100,000 are exempt from the SEC registration requirements.
A)True
B)False
Q4) Under the 1990 Remedies Act, the SEC has the power to suspend all trading when markets are excessively volatile.
A)True
B)False
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Chapter 46: Accountants Liability and Malpractice
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Q1) For accountants, fraudulent malpractice always involves upgrading the financial condition of the firm.
A)True
B)False
Q2) The contributory negligence of the client does not reduce the liability of an accountant who is liable for malpractice.
A)True
B)False
Q3) An accountant who fails to render services in accordance with those in his profession, breaches his duty of care and commits malpractice.
A)True
B)False
Q4) In contrast to contributory negligence principles, comparative negligence principles are never applied to malpractice situations.
A)True
B)False
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Chapter 47: Management of Corporations
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Q1) The duties of officers of a corporation are generally set forth in the articles of incorporation.
A)True
B)False
Q2) A corporate officer, while still employed by his or her firm, may be in breach of the officer's fiduciary duty of __________ by recruiting key management employees to join a competing company.
A) obedience
B) loyalty
C) conflict of interest
D) confidentiality
Q3) Which of the following is an incorrect statement about officers?
A) Their duties are generally set forth in the corporation's bylaws.
B) They have a fiduciary obligation to the corporation.
C) They are agents of the corporation.
D) Their authority as agents is increased if they are shareholders.
Q4) Officers have a fiduciary obligation not to make any secret financial gain at the expense of the corporation.
A)True
B)False
Page 49
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Chapter 48: Real Property
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Q1) The right to _________ which is found in the ______ Amendment to the U.S. Constitution, authorizes the government to take land for public use with just compensation.
A) a restrictive covenant, Fifth Amendment.
B) eminent domain, Fifth Amendment.
C) eminent domain, Fourth Amendment.
D) adverse possession, First Amendment.
Q2) An easement by implication arises when one conveys a portion the land that has been used as a dominant estate in relation to the part retained.
A)True
B)False
Q3) Machinery and equipment that is movable is ordinarily held not to be fixtures even though it is necessary to unbolt them from the floor or disconnect electrical wires.
A)True
B)False
Q4) Land extends downward to the earth's center and upward indefinitely.
A)True
B)False
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Page 50
Chapter 49: Environmental Law and Land Use Controls
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Q1) The Clean Air Agency was authorized by Congress to establish national air quality standards and see that the states developed plans for the implementation of those standards.
A)True
B)False
Q2) The primary federal agency responsible for federal environmental laws is the EPA.
A)True
B)False
Q3) If a restrictive covenant is valid, it binds only the original grantee in the deed that created the covenant.
A)True
B)False
Q4) Due diligence is the process by which the buyer of property conducts a thorough investigation of the property and its uses to determine whether environmental or nuisance problems exist.
A)True
B)False
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Chapter 50: Leases
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Q1) A provision in a residential lease stating that the landlord cutting off heat or water will not constitute an eviction is: __________.
A) valid.
B) a stipulation.
C) a covenant.
D) unconscionable.
Q2) Unless agreed otherwise, a tenant is generally not liable for increased rent due to increased taxes imposed on the rented property.
A)True
B)False
Q3) If a tenant fails to pay rent on time the landlord: __________.
A) has an automatic lien on the tenant's personal property for the money due.
B) has the right to lock the tenant out of the property.
C) may take legal steps to evict the tenant.
D) may use the security deposit to pay the tenant's rent.
Q4) A tenancy at will exists when a tenant has a lease with an indefinite duration and pays annual, monthly, or weekly rent.
A)True
B)False
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Chapter 51: Decedents Estates and Trusts
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Q1) A trust can be terminated in any of the following manners, except: _______.
A) by its own terms
B) by impossibility of attaining the object of the trust
C) by revocation of the trust by the settlor
D) by a money judgment against the trustee
Q2) The beneficiaries of a decedent are paid prior to debts.
A)True
B)False
Q3) A will is very informal and may be created in any reasonable manner.
A)True
B)False
Q4) A decedent's transfer of $10,000 to a trustee, to be held in trust for A, will fail to create a valid trust if: __________.
A) it was not supported by consideration.
B) the trustee lacks capacity.
C) A is not a family member of the decedent.
D) the trustee had no opportunity to renounce the trust.
Q5) When a decedent dies without a valid will he is said to have died testate.
A)True
B)False
Page 53
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