Contracts and Sales Law Study Guide Questions
Course Introduction
Contracts and Sales Law is a foundational course that explores the essential principles governing the formation, enforcement, and interpretation of contracts, with an emphasis on both common law and the Uniform Commercial Code (UCC) as applied to the sale of goods. The course covers critical topics such as offer and acceptance, consideration, capacity, legality, performance, breach, and remedies, as well as issues related to warranties, risk of loss, and consumer protection in sales transactions. Through case analysis and practical scenarios, students gain a comprehensive understanding of how legal rules shape contractual agreements and commercial relationships in various business environments.
Recommended Textbook
Andersons Business Law and the Legal Environment 22nd Edition by David P. Twomey
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Chapter 1: The Nature and Sources of Law
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Q1) When a court decides a new question or problem,the decision is called a precedent.
A)True
B)False Answer: True
Q2) Within each state in the United States,only one constitution is in force.
A)True
B)False Answer: False
Q3) Treaties made by the United States are not deemed part of the law.
A)True
B)False
Answer: False
Q4) Substantive law:
A) specifies the steps to follow to enforce legal rights.
B) concerns equitable relief only.
C) creates,defines,and regulates rights and liabilities.
D) draws solely on English legal principles.
Answer: C
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Chapter 2: The Court System and Dispute Resolution
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Q1) Service of process refers to:
A) a demand letter sent by the plaintiff to the defendant.
B) a reply sent to the plaintiff by the defendant.
C) giving the defendant proper notice that a legal action is pending.
D) a record of the court's preliminary hearing.
Answer: C
Q2) The United States Supreme Court was created by:
A) Congress.
B) the President.
C) the Uniform State Law Commission.
D) none of the above.
Answer: D
Q3) Mediation tends to keep discussions between parties proceeding.
A)True
B)False
Answer: True
Q4) Mediation is a generally accepted method of resolving disputes.
A)True
B)False
Answer: True
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Chapter 3: Business Ethics, Social Forces, and the Law
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Q1) Ethical violations can cause lasting detriment to a company's ability to do business through impacts on the company's reputation.
A)True
B)False
Answer: True
Q2) The often competing rights of both debtors and creditors are balanced and protected from excesses under United States law.
A)True
B)False
Answer: True
Q3) Which of the following situations reflects a possible conflict of interest?
A) You offer a company contract to a friend without checking competing bids.
B) You hire a relative for a company position although another candidate is more qualified.
C) You buy a piece of realty that would be suitable for a planned company project.
D) All of the above.
Answer: D
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Chapter 4: The Constitution As the Foundation of the Legal Environment
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Q1) The concept of equal protection of the law:
A) applies to both state and federal governments.
B) prohibits any classifications whatsoever.
C) applies only to conduct by private parties.
D) does not permit reasonable classifications.
Q2) The legislative branch of government has the function of:
A) making laws.
B) executing the laws.
C) interpreting the laws.
D) all of the above.
Q3) Which of the following is true about administrative agencies?
A) Administrative agencies exercise powers guaranteed to them in the U.S.Constitution.
B) Administrative agencies exercise powers allocated to them by the president.
C) Administrative agencies make decisions that are rarely reviewed by the courts.
D) Administrative agencies make decisions that are effectively reviewed by voters.
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Chapter 5: Government Regulation of Competition and Prices
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Q1) Freezo Refrigerators are sold by various retailers.Most of the same retailers also sell Icy Refrigerators.The Freezo brand outsells Icy in some stores,but not in others.Freezo has decided to offer secret bonuses and discounts to retailers where the sale of Freezo Refrigerators lags behind the sale of Icy Refrigerators.Freezo sees this action as an advertising ploy to increase market share.Retail stores where Freezo is number one are not eligible for any of these bonuses and discounts.Discuss the implications of Freezo's advertising plan.
Q2) A "suggested retail price" is not a violation of the antitrust laws.
A)True
B)False
Q3) The Robinson-Patman Act:
A) prohibits charging different prices to different buyers when the margin costs are the same.
B) allows sellers to offer incentives and bonuses to certain customers.
C) allows sellers to refuse to deal with anyone for any reason.
D) all of the above.
Q4) 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.
Page 7
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Chapter 6: Administrative Agencies
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Q1) Generally,which power(s)does (do)an administrative agency possess?
A) all powers necessary to effectively perform the duties entrusted to it
B) legislative only
C) judicial only
D) executive only
Q2) The United States constitution places the most significant limitations on administrative investigation in the area of:
A) search and seizure of the person.
B) aerial inspection.
C) search and seizure of papers and records.
D) guarantee against self-incrimination.
Q3) The modern administrative agency typically possesses legislative,executive,and judicial powers.
A)True
B)False
Q4) In an emergency,an administrative agency can act beyond the scope of the statute that created it.
A)True
B)False
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Chapter 7: The Legal Environment of International Trade
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Q1) A letter of credit agrees to provide the seller with needed currency exchanges when transactions with foreign buyers occur.
A)True
B)False
Q2) The interests of the less-developed nations of the world are represented by the United Nations Conference on Trade and Development (UNCTAD).
A)True
B)False
Q3) Which of the following does not describe the European Union (EU)?
A) It was formerly known as the European Economic Community.
B) It had ten members sign on in 2004.
C) It eliminated internal barriers to the free movement of goods,persons,services,and capital between member countries.
D) It is administered solely by the heads of state of the member countries.
Q4) The Ex-IM Bank:
A) helps U.S.manufacturers export goods by provides loan guarantees.
B) receives funding from the U.S.Treasury to help sustain its operations.
C) has a financing cap of $100 billion.
D) all of the above.
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Chapter 8: Crimes
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Q1) Which of the following statements regarding the Foreign Corrupt Practices Act is true?
A) It applies only to foreign officials in this country.
B) It applies only to foreign officials outside this country.
C) It applies only to "grease" payments.
D) None of the above statements is true.
Q2) Penalties for crimes are:
A) always paid to the government.
B) always paid to the victim(s).
C) shared equally between the government and the victim(s).
D) subject to forfeiture.
Q3) The Economic-Espionage Act (EEA):
A) makes it a crime to use a fraudulently obtained device to obtain money through a electronic fund transfer system.
B) makes it a crime to send unsolicited bulk emails.
C) makes it a crime to transfer proprietary files,documents and information from a computer to an unauthorized person.
D) all of the above.
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Chapter 9: Torts
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Q1) The concept of strict liability is applied without regard to whether the defendant was at fault.
A)True
B)False
Q2) To determine whether the defendant is liable for negligence,a reasonable person standard is employed.
A)True
B)False
Q3) Careless actions that result in injuries to others usually are not deemed to be torts.
A)True
B)False
Q4) Defamation of a public figure requires what additional element?
A) Intent
B) Malice
C) Causation
D) none of the above
Q5) The assumption of risk defense has been abolished in several states.
A)True
B)False
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Chapter 10: Intellectual Property Rights
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Q1) Under the Semiconductor Chip Protection Act reverse engineering exemption,competitors may study mask works but may not use the results of that study to design their own semiconductor chip.
A)True
B)False
Q2) A copyright bestows upon the creator of an artistic or literary work a federal statutory right to exclusively:
A) use the work.
B) reproduce the work.
C) display the work.
D) all of the above.
Q3) Protection for trade dress is available under the Lanham Act.
A)True
B)False
Q4) In limited circumstances customer lists are protected under trade secret laws. A)True
B)False
Q5) A copyright prevents the copying of an idea.
A)True
B)False
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Chapter 11: Cyberlaw
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Q1) __________ refers to laws and precedent applicable to Internet transactions and communications.
A) Cyberlaw
B) Cyborglaw
C) Silicalaw
D) Simlaw
Q2) The formation of contracts in cyberspace is always governed by the law of the United States.
A)True
B)False
Q3) Misrepresentation and fraud on the Internet raises a variety of new legal issues.
A)True
B)False
Q4) Cyberlaw is a completely new area of law,unrelated to any established field of law.
A)True
B)False
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Page 13
Chapter 12: Nature and Classes of Contracts: Contracting
on the Internet
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Q1) 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
Q2) When a contract sets a price for services rendered,a plaintiff cannot sue for reasonable value.
A)True
B)False
Q3) A person who makes a promise is the promisor,while a person to whom the promise is made is the promisee.
A)True
B)False
Q4) With regard to a unilateral contract,the offeree does not accept the offer by express agreement,but rather by performance.
A)True
B)False
Q5) A contract never can be both executory and unilateral.
A)True
B)False
Page 14
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Q1) An acceptance must be absolute and unconditional.
A)True
B)False
Q2) An agreement cannot be enforced if it does not set forth every contractual detail.
A)True
B)False
Q3) 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.
Q4) An otherwise vague contract may be clarified by references in the contract to other documents or agreements.
A)True
B)False
Q5) Social invitations can be offers.
A)True
B)False
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Chapter 14: Capacity and Genuine Assent
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Q1) When necessary medical care is provided to a minor,a parent is liable at common law for the medical expenses provided the minor child.
A)True
B)False
Q2) The maximum amount of time that a minor has to disaffirm a contract is:
A) one year from the date of the agreement.
B) 30 days from learning of his or her right to disaffirm.
C) the age of majority.
D) a reasonable period of time after reaching the age of majority.
Q3) The key time for determining whether a party lacked contractual capacity is:
A) the time the contract was made.
B) the time the value of the bargain becomes clear.
C) the time set for performance of the contract.
D) the time the plaintiff expresses dissatisfaction with the contract terms.
Q4) Contractual capacity is the ability to:
A) read and write.
B) sign a written contract.
C) understand that a contract is being made and to understand its general nature.
D) understand the legal meaning of the contract being made.
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Chapter 15: Consideration
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Q1) The doctrine of promissory estoppel is also known as the doctrine of beneficial reliance.
A)True B)False
Q2) Generally,a promise is legally enforceable even if nothing is given or received for the promise.
A)True
B)False
Q3) 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.
Q4) One promise may serve as consideration for many return promises.
A)True B)False
Q5) Ordinarily,doing or promising to do what one is already under a legal obligation to do is not consideration.
A)True B)False
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Chapter 16: Legality and Public Policy
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Q1) If a contract appears to be legal on its face,it will be enforceable even if it was entered into for an illegal purpose.
A)True
B)False
Q2) An agreement that calls for the commission of a civil wrong is illegal and void.
A)True
B)False
Q3) The failure to have a license will not render agreements void if the license:
A) is based on formal education
B) is required for engaging in a particular business or trade
C) is a regulatory license
D) is readily obtainable by anyone who offers payment of a required fee
Q4) In most states the usury laws apply to loans made to both individuals and corporations.
A)True B)False
Q5) Even if part of a contract is illegal,the court may enforce a divisible,legal part of the contract.
A)True
B)False
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Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Q1) An oral understanding is not binding if:
A) the services performed were not to the satisfaction of the other party.
B) the amount agreed to be paid for services rendered was not a fair and reasonable amount.
C) the parties intended to formalize their understanding with a written agreement.
D) the understanding may be terminated at will by either party.
Q2) A promise to grant a mortgage on real property does not require written proof because it is not a transfer of land.
A)True
B)False
Q3) Parol evidence may be admitted to show that a provision was omitted as the result of:
A) fraud.
B) accident.
C) mistake.
D) all of the above.
Q4) A writing required by the statute of frauds may be a signed note or memorandum.
A)True
B)False
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Chapter 18: Third Persons and Contracts
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Q1) A person entitled to receive money may generally assign that right to another person.
A)True
B)False
Q2) A life insurance contract is a third-party:
A) beneficiary contract.
B) assignment contract.
C) payment contract.
D) performance contract.
Q3) 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.
Q4) Generally,only the parties to a contract may sue on it.
A)True
B)False
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Chapter 19: Discharge of Contracts
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Q1) The frustration of purpose doctrine:
A) is based on common law.
B) requires that both parties were aware of the purpose.
C) temporarily suspends contract performance.
D) all of the above.
Q2) An offer to perform is known as a(n)__________.
A) rendering
B) offering
C) tinder
D) tender
Q3) The doctrine of substantial performance is concerned with the issue of whether an imperfect performance will be considered adequate to discharge one's responsibilities under a contract.
A)True
B)False
Q4) For the parties to enter into an accord and satisfaction that discharges the original obligation,there must be a bona fide dispute.
A)True
B)False
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Chapter 20: Breach of Contract and Remedies
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Q1) Whether there has been a waiver is a question of fact.
A)True
B)False
Q2) A waiver of a breach may be either express or implied.
A)True
B)False
Q3) Consequential damages are those that necessarily flow from the breach.
A)True
B)False
Q4) 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?
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Chapter 21: Personal Property and Bailments
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Q1) At common law,a tenancy by entirety or a tenancy by the entireties is created when property is transferred to both husband and wife.
A)True
B)False
Q2) A bailee's interest in the bailed property can be characterized as:
A) ownership.
B) a fractional proprietary interest.
C) possession.
D) constructive ownership.
Q3) Personal property includes all things of value including real estate.
A)True
B)False
Q4) Bailments may be:
A) created orally or through a writing.
B) created for either real or personal property.
C) created for nonpossessory personal property.
D) made only after delivery to the bailor is accomplished.
Q5) An ordinary gift made between two living persons is an inter vivos gift.
A)True
B)False
23
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Chapter 22: Legal Aspects of Supply Chain Management
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Q1) If a common carrier delivers goods to the wrong person,the carrier is liable for breach of contract and for the tort of conversion.
A)True
B)False
Q2) A contract carrier holds itself out as willing to furnish transportation for compensation without discrimination to all members of the public who apply.
A)True
B)False
Q3) A person who attends a banquet given at a hotel is considered a guest for purposes of determining the liability of the hotelkeeper.
A)True
B)False
Q4) The rights of a holder of a duly negotiated warehouse receipt are extinguished by the warehouser's surrender of goods to the depositor.
A)True
B)False
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Chapter 23: Nature and Form of Sales
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Q1) A contract that has elements of both goods and services is always classified as a contract for the sale of goods.
A)True
B)False
Q2) The parol evidence rule does not apply to the sale of goods.
A)True
B)False
Q3) An output or requirement contract is not enforceable unless the parties include an estimate of prospective amounts.
A)True
B)False
Q4) When a term of an acceptance conflicts with a term of an offer but it is clear that the parties intended to be bound by a contract,the UCC still recognizes the formation of a contract,and the conflicting terms cancel each other and are ignored.
A)True
B)False
Q5) The term "course of dealing" refers to the language and customs of an industry.
A)True
B)False
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Chapter 24: Title and Risk of Loss
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Q1) Most courts hold that when a customer takes an item from the shelf in a self-service store,there is:
A) no sale.
B) a sale.
C) a contract to sell.
D) a conditional sale.
Q2) A buyer with a voidable title cannot pass on valid title to a subsequent good faith purchaser.
A)True
B)False
Q3) Bob Corporation entered into a contract to sell parts to Zeck.The contract provided that the goods would be shipped "FOB Bob's warehouse." Bob shipped parts to Zeck that were stolen from the carrier.When Zeck checked the invoice,Zeck discovered that Bob had sent Model #20B instead of Model #20A,which the contract required.Whose loss? Why?
Q4) If a contract contains a delivery term of FOB place of shipment,the seller's obligation under the contract is to deliver the goods to a carrier for shipment.
A)True
B)False
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Chapter 25: Product Liability: Warranties and Torts
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Q1) Thelma purchased a used truck from Hall that had been manufactured by International Harvester.To work on the truck engine,Thelma had to have the cab of the truck raised.When it was so raised,the cab fell unexpectedly and fatally injured Thelma.Suit was brought for her wrongful death against Hall and International Harvester.The suit was based on theories of negligence,strict tort liability,and breach of warranty.The defense was raised that there was no liability because the sale to Thelma had been made "as is" and the truck was a used truck.Were these defenses valid?
Q2) Negligence and fraud are easy to prove in a mass production world.
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) An implied warranty arises automatically from the fact a sale has been made. A)True B)False
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Chapter 26: Obligations and Performance
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Q1) The person on whom a demand for assurance is made must reply in writing for the assurance to be deemed "adequate."
A)True
B)False
Q2) If appropriate assurance is not given in response to a demand for assurance of performance,the demanding party may:
A) treat the contract as repudiated.
B) sue for libel.
C) file for an insurance payment.
D) not replace the repudiated contract.
Q3) The obligations of the parties to a sales contract include:
A) the seller's duty to deliver the goods to the buyer's place of business.
B) the buyer's duty to always accept the goods.
C) the seller's duty to arrange for appropriate transport.
D) the buyer's duty to pay for the goods.
Q4) Which of the following does not constitute an acceptance?
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 27: Remedies for Breach of Sales Contracts
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Q1) An action for breach of warranty generally must be brought within three (3)years of the breach.
A)True B)False
Q2) A seller does not have the right to stop shipment if the buyer has received goods on credit and the seller learns that the buyer is insolvent.
A)True B)False
Q3) The buyer may cancel the contract if the:
A) seller fails to deliver the goods.
B) seller has repudiated the contract.
C) goods have been rightfully rejected.
D) all of the above.
Q4) A buyer can be barred from claiming a breach if the sales contract expressly states that the buyer will not assert any defenses against the seller.
A)True B)False
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Chapter 28: Kinds of Instruments, parties, and Negotiability
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Q1) Instruments are negotiable when they contain the terms required by contract law.
A)True
B)False
Q2) Negotiability is the characteristic that distinguishes commercial paper and instruments from ordinary contracts.
A)True
B)False
Q3) The signature requirement,as an element of negotiability,can be met by:
A) the use of initials.
B) a mark.
C) a trade name.
D) all of the above.
Q4) If an order or promise is not for money,the instrument is not negotiable.
A)True
B)False
Q5) An instrument is conditional if:
A) it contains an order for the payment of money out of a particular fund.
B) it is to be paid from the assets of an existing trust.
C) it is to be paid from the assets of an existing estate.
D) none of the above.
30
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) Clark is the senior payroll clerk for Gonzalez Corporation.When preparing the weekly payroll,Clark added the name of Simmons,a fictitious employee,to the payroll list.Lewis,the treasurer of the corporation,signed the payroll checks and delivered them to Clark.Clark distributed checks to the correct employees and kept the one made payable to the order of Simmons.Clark indorsed the name of Simmons to the check,cashed it at Diamond Check Cashing.In this situation:
A) an indorsement was not necessary to negotiate the instrument.
B) the Gonzalez Corporation can seek recovery against Diamond Check Cashing.
C) the forged signature is given the same effect as though it had been authorized by the named payee.
D) Clark is not subject to civil or criminal liability.
Q2) The situation in which an individual impersonates the holder of a savings account and,by presenting a forged withdrawal slip to the savings bank,receives from the bank a check payable to the bank's customer,is covered by the:
A) impostor rule.
B) negotiation rule.
C) assignment rule.
D) bank rule.
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Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) A holder can recover from any of the parties who are liable on the instrument,regardless of the order of the signatures on the instrument.
A)True
B)False
Q2) A taker of an instrument who is a holder in due course at the time of the transfer but who thereafter learns of a defense:
A) becomes a holder through a holder in due course.
B) becomes an ordinary holder.
C) remains a holder in due course.
D) becomes an assignee.
Q3) Presentment occurs when the primary party refuses to pay an instrument according to its terms.
A)True
B)False
Q4) Universal defenses work against:
A) holders.
B) a holder through a holder in due course.
C) a holder in due course.
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Chapter 31: Checks and Funds Transfers
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Q1) A thief stole Art's checkbook and forged Art's name as drawer of a check.The drawee paid the check in good faith and sent it to Art with the monthly statement on January 3,2013.The thief forged other checks during February and March of 2013,which the drawee in good faith paid.All paid checks were sent to Art with monthly statements.On May 25,2014,Art discovered all of the forgeries and notified the drawee.For which check(s)is Art entitled to be reimbursed?
A) none of them
B) all of them
C) the first check only
D) the last check only
Q2) A bank must be given a reasonable amount of time to put a stop payment order into effect.
A)True
B)False
Q3) A check is drawn on the assumption that the bank has sufficient funds in the drawer's account for payment.
A)True
B)False
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) Under an indemnity contract,one person pays another consideration in return for a promise to pay a specified sum of money in the event that a specified loss is suffered.
A)True
B)False
Q2) In most states contracts of guaranty do not have to be in writing to be enforceable.
A)True
B)False
Q3) The issuer of a letter of credit:
A) is obligated to honor drafts drawn under the letter if the conditions specified in the letter have been met.
B) has no duty to verify that the papers are properly supported by facts.
C) has no duty to verify that the underlying transaction has been performed.
D) all of the above.
Q4) An absolute guaranty creates the same obligation as a suretyship.
A)True
B)False
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Chapter 33: Consumer Protection
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Q1) Anyone promoting the sale of a real estate development that is divided into fifty (50)or more parcels of less than five (5)acres each must file a development statement with the secretary of Housing and Urban Development.
A)True
B)False
Q2) A sale of goods or services for $25 or more made to a buyer at home may be set aside without cause within five (5)business days.
A)True
B)False
Q3) A letter from a collection agency to a consumer that gives the impression a lawsuit is about to be brought against the consumer when in fact it will not be brought is not a violation of the Fair Debt Collection Practices Act.
A)True
B)False
Q4) Despite consumer protection legislation,for most consumers pursing their rights in court is not cost beneficial.
A)True
B)False
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Chapter 34: Secured Transactions in Personal Property
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Q1) When there are two perfected secured creditors in the same collateral:
A) priority goes to the creditor who perfected first.
B) priority goes to the creditor who is owed the greatest amount of money.
C) each perfected secured creditor has a 50% interest in the collateral.
D) Both perfected secured creditors are treated like unsecured creditors in regards to the collateral.
Q2) Upon a default by a buyer,the secured seller may resell the collateral:
A) not less than three (3)months after the buyer's default.
B) not less than six (6)months after the buyer's default.
C) only at a public sale.
D) at either a public or a private sale.
Q3) A security interest is a property right that enables the creditor to take possession of the property if the debtor does not pay the amount owed.
A)True
B)False
Q4) A security agreement need not describe the collateral involved.
A)True
B)False
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Page 36
Chapter 35: Bankruptcy
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Q1) Creditors who hold security for payment,such as a lien or a mortgage on the debtor's property,are less affected by the debtor's bankruptcy.
A)True
B)False
Q2) Arthur was involuntarily petitioned into bankruptcy by three of his creditors.When the trustee reviewed Arthur's books and records,the trustee discovered the following transactions: (a)Three weeks before the filing of the petition,Arthur paid cash for $17,000 worth of inventory for his store;and (b)Twelve days before the filing of the petition,Arthur paid $300 in full satisfaction of his store's most recent electric bill. The trustee is considering attempting to set aside both of these transfers as preferential transfers.Discuss the advisability of the trustee's attempt to set aside these transfers.
Q3) Nonprofit corporations are exempt from involuntary bankruptcy proceedings.
A)True B)False
Q4) All debts are discharged in bankruptcy,whether disclosed by the debtor or not.
A)True
B)False
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Chapter 36: Insurance
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Q1) Any false statement in an application binds the insured.
A)True
B)False
Q2) Armenia purchased life insurance on her life.Regarding the beneficiary:
A) Armenia must name a person with a pecuniary interest in her life.
B) Armenia must name a close relative.
C) Armenia must name a close relative or business associate.
D) Armenia may name whomever she wishes.
Q3) 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.
Q4) Generally,the terms broker and agent are synonymous because both work directly for the insurer.
A)True
B)False
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Page 38
Chapter 37: Agency
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Q1) It is the duty of an agent to act with the care that:
A) the principal would exercise under the circumstances.
B) a reasonable principal would exercise under the circumstances.
C) a reasonable juror would exercise under the circumstances.
D) a reasonable person would exercise under the circumstances.
Q2) For an agency to be terminated by operation of law because of the principal's death,the agent must be notified of the death.
A)True
B)False
Q3) A durable power of attorney may be terminated by:
A) revocation by a competent principal.
B) the death of the principal.
C) revocation by a competent principal or by the death of the principal.
D) none of the above,since a "durable" power of attorney is designed by law to be irrevocable under all circumstances.
Q4) The burden of proving the existence of an agency relationship rests on the person who seeks to benefit by such proof.
A)True
B)False
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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) Neither a.nor b.
Q2) A principal is not bound by statements made by an agent during the transaction of business that is within the scope of the agent's authority.
A)True
B)False
Q3) When a business owner uses an independent contractor to perform nonhazardous work,the owner ordinarily is:
A) not liable for harm to third persons or their property.
B) not bound to contracts made by the independent contractor.
C) not liable for the negligence of employees of the independent contractor.
D) all of the above.
Q4) A customer who has given a purchase order to a salesperson is not bound by any contract until the employer of the salesperson accepts the order.
A)True
B)False
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Chapter 39: Regulation of Employment
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Q1) ERISA establishes an insurance plan to protect employees when the employer goes out of business.To provide this protection,the statute created a:
A) pension surety system.
B) Pension Benefit Guaranty Corporation.
C) Pension Accrual Compensation System.
D) bond system of payment.
Q2) 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
Q3) Collective bargaining agreements generally are subject to a ratification vote by the employees.
A)True
B)False
Q4) The sole issue addressed in the Fair Labor Standards Act is child labor.
A)True
B)False
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Chapter 40: Equal Employment Opportunity Law
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Q1) Employers may avoid liability for "hostile work environment" sexual harassment by following a program that includes expressing strong disapproval of such conduct,advising employees how to inform the employer of complaints,and disciplining wrongdoers.
A)True
B)False
Q2) Title VII protects members of which racial grouping(s)?
A) black only
B) black,Native American,and Asian-Pacific
C) white only
D) all racial groupings
Q3) According to the EEOC,claims for retaliation may only be filed under Title VII.
A)True
B)False
Q4) To be lawful,affirmative action must be time-limited .
A)True
B)False
Q5) Pay raises based on seniority generally are considered lawful.
A)True
B)False
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Chapter 41: Types of Business Organizations
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Q1) Arnold was the sole shareholder,president,and chief executive officer of Algernon Enterprises,Inc.Acting on behalf of Algernon,Arnold negotiated the credit purchase of inventory from Amax.The contract was signed in the name of Algernon Enterprises.Algernon never paid the sums due on the contract,and Arnold and the corporation were sued.Is Arnold personally liable to Amax?
Q2) A parents' group in a small town formed an association to run a little league baseball team.Tom and Mary were members of the association,which was never incorporated.Tom was elected president of the association and ordered some uniforms for the team.When the uniforms were not paid for,the baseball supply company sued Tom and Mary for the contract price.Regarding the liability of Mary:
A) Mary is liable because she is a member of an unincorporated association.
B) Mary is not liable because members of an unincorporated association have no personal liability.
C) Mary is liable if she authorized or ratified the purchase.
D) Mary is liable but only for 50% of the outstanding debt.
Q3) 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) When the dissolution of a partnership has been caused by operation of law,notice of such dissolution must be given to third persons.
A)True
B)False
Q2) The assignee of a partner's interest in the partnership becomes a partner only with the consent of the other partners.
A)True
B)False
Q3) 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.
Q4) Dissolution of a partnership:
A) always means that the business has ended.
B) increases the authority of the partners.
C) both a.and b.
D) neither a.nor b.
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Chapter 43: LPs, LLCs, and LLPs
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Q1) Under the Revised Uniform Limited Partnership Act,a limited partner probably will not lose the protection of limited liability when the limited partner:
A) becomes a contractor for,or an agent or employee of,the limited partnership or of a general partner.
B) consults with and advises a general partner regarding the partnership business.
C) votes on partnership matters,such as dissolving and winding up the limited partnership or removing a general partner.
D) all of the above.
Q2) In a limited partnership,general partners are not responsible for the debts of the firm. A)True B)False
Q3) The dissolution of a limited partnership is governed by unique rules quite different from those applicable to the dissolution of a general partnership. A)True
B)False
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Chapter 44: Corporate Formation
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Q1) Subject to constitutional limitations,corporations may be regulated by statutes.
A)True
B)False
Q2) If two firms consolidate,the new corporation usually succeeds to the rights,powers and immunities of its component parts.
A)True
B)False
Q3) Shareholders ordinarily cannot be sued for corporate liabilities.
A)True
B)False
Q4) The corporate form of business continues regardless of changes in stock ownership.
A)True
B)False
Q5) When two corporations merge:
A) their separate existences cease,and a new corporation is formed.
B) one of the corporations absorbs the other.
C) each corporation's stockholders keep their original shares of stock
D) a new charter is needed.
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Chapter 45: Shareholder Rights in Corporations
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Q1) Corporate securities evidenced by a certificate are negotiable.
A)True
B)False
Q2) Upon acceptance of a subscription after incorporation,the subscriber immediately attains the rights,privileges,and liabilities of a shareholder,even though the subscriber has not paid any of the purchase price.
A)True
B)False
Q3) Voting trusts are usually illegal.
A)True
B)False
Q4) Cumulative voting:
A) decreases the voting power of minority shareholders.
B) is the normal method for shareholder voting on corporate matters.
C) generally is required or allowed in the election of corporate directors.
D) is a right given to participating preferred shareholders.
Q5) Shareholders exercise direct control over their corporation.
A)True B)False
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Chapter 46: Securities Regulation
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Q1) State statutes designed to protect the public from the sale of worthless stocks and bonds are called:
A) antifraud acts.
B) blue sky laws.
C) clear sky laws.
D) none of the above.
Q2) Under the 1990 Remedies Act,the SEC may start administrative proceedings against any person or entity,whether regulated by the SEC or not.
A)True
B)False
Q3) Provision for exemption from the registration requirements of the Securities Act of 1933 is made for offerings made solely to accredited investors by SEC Regulation:
A) A.
B) B.
C) C.
D) D.
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Chapter 47: Accountants Liability and Malpractice
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Q1) An entity not in privity with an accountant is prohibited from recovering against the accountant for malpractice when the accountant had no knowledge of any use that could affect the party.
A)True
B)False
Q2) When an accountant fails to complete a contract,the accountant is still entitled to the accountant's fee.
A)True
B)False
Q3) A client may recover tort damages from an accountant for fraud and gross negligence,but not for ordinary negligence.
A)True
B)False
Q4) Accountants are equally liable to interlopers and rightful third parties.
A)True
B)False
Q5) Malpractice is both a form of negligence and a tort.
A)True
B)False
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Chapter 48: Management of Corporations
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Q1) What is not part of the presumptions of the business judgment rule concerning directors?
A) that the decision they reached was profitable to the corporation
B) that they acted on an informed basis
C) that they acted in good faith
D) that they acted in the honest belief that the action taken was in the best interest of the corporation
Q2) A corporation generally may avoid a transaction because of a director's secret disqualification,such as a conflict of interest.
A)True
B)False
Q3) The Sarbanes-Oxley Act prohibits all corporate loans to directors and executive officers unless:
A) the company is in the consumer credit business.
B) the loan is to relocate as part of an employment contract.
C) the loan is made to purchase securities.
D) none of the above as all loans are prohibited.
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Chapter 49: Real Property
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Q1) An unrecorded mortgage is not valid and binding between the parties.
A)True
B)False
Q2) Which is not a correct statement about deeds?
A) The grantor must sign the deed.
B) A deed must be recorded to effectively pass title.
C) The fact that a deed is recorded provides notice to the world about who holds title.
D) A deed must be delivered to be effective.
Q3) At common law,the occupier of land owed the same duty to both licensees and invitees.
A)True
B)False
Q4) Equipment attached to a rented building by a tenant and used in business is:
A) called a trade fixture.
B) called a business fixture.
C) called a commercial fixture.
D) not a fixture.
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Chapter 50: Environmental Law and Land Use Controls
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Q1) If any uncertainty exists in the interpretation of a restrictive covenant,the covenant will be construed strictly in favor of the free use of the land.
A)True
B)False
Q2) A right to a nonconforming use of land cannot be lost through abandonment.
A)True
B)False
Q3) The Jarvis family owned its land for more than 150 years.The Jarvis family traditionally farmed the land and for that purpose maintained farm animals.As years passed,most of the surrounding farms were sold by the owners and the area turned out to be a close-in suburb of a major city.A zoning ordinance was passed that prohibited maintaining a barn or farmyard animals on the land.The Jarvis family was advised that they were unaffected by this ordinance because theirs would be considered a nonconforming use.The members of the Jarvis family lost interest in farming and sold off all their animals.Seven (7)years later,a family member desired to raise a few pigs on the property.Angry neighbors asserted that the family has lost the right to do so.What is your opinion?
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Page 52
Chapter 51: Leases
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Q1) In a lease agreement,the person who owns the real property and permits the occupation of the premises is known as the __________,and the person who occupies the property is known as the __________.
A) lessor;lessee
B) lessee;lessor
C) grantor;grantee
D) grantee;grantor
Q2) A __________ action restores the property to the landlord's possession unless the tenant complies with payment requirements.
A) forcible entry and detainer
B) forcible exit and retainer
C) passive entry and detainer
D) passive exit and retainer
Q3) A tenancy for years terminates at the expiration of the specified term,regardless of whether one party gives the other any notice of termination.
A)True
B)False
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Chapter 52: Decedents Estates and Trusts
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Q1) Tuttle died at age 96,leaving a will that she made at age 40 that provided that her three children would share her estate equally.At the time of her death,only one child,Anna,was living.Tuttle's two deceased children,Bill and Caroline,each had two children who were living at the time of Tuttle's death.Anna is claiming that she is entitled to the entire estate because the bequests to Bill and Caroline lapsed upon their deaths prior to Tuttle's death.How will the estate be settled?
Q2) A will may be contested on grounds of:
A) lack of mental capacity of the testator.
B) undue influence,duress,or mistake.
C) forgery.
D) all of the above.
Q3) A will cannot be modified by merely crossing out a clause and writing in something new.
A)True
B)False
Q4) The judge,not the decedent,has the privilege of naming who is to administer the estate of a person who has died with a will.
A)True
B)False
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