Contracts and Sales Law
Test
Preparation
Course Introduction
Contracts and Sales Law provides a comprehensive overview of the foundational principles of contract formation, interpretation, performance, breach, and remedies under common law, as well as an examination of the Uniform Commercial Code (UCC) provisions governing the sale of goods. The course explores key topics such as offer and acceptance, consideration, defenses to contract enforcement, and methods of discharging contractual obligations. Special emphasis is placed on distinguishing between general contract doctrines and the specialized rules governing commercial transactions, including warranties, risk allocation, and remedies available to sellers and buyers. Through case analysis and practical exercises, students develop critical skills for identifying and resolving legal issues related to contracts and sales in both personal and business contexts.
Recommended Textbook
Business Law Text and Cases 13th Edition by ClarksonMiller
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51 Chapters
2140 Verified Questions
2140 Flashcards
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Page 2
Chapter 1: Law and Legal Reasoning
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Sample Questions
Q1) Courts are not obligated to follow precedents.
A)True
B)False
Answer: False
Q2) Jane enters into a contract with Jill to provide 100 roses for a dinner party. Jill fails to deliver the roses. Jane initiates a suit against Jill, asking the court to order Jill to refund Jane's payment. Jane is
A) the plaintiff.
B) the defendant.
C) the binding authority.
D) the persuasive authority.
Answer: A
Q3) Laws and government regulations affect almost all business activities.
A)True
B)False
Answer: True
Q4) Decisions by higher courts are not binding on lower courts.
A)True
B)False
Answer: False
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Chapter 2: Courts and Alternative Dispute Resolution
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Sample Questions
Q1) The Montana Supreme Court rules against Natural Grocery Mart in a case against One Stop 2 Shop Stores, Inc. Natural Grocery files an appeal with the United States Supreme Court. The Court does not hear the case. This A) is a decision on the merits that has value as a precedent.
B) indicates agreement with the Montana court's decision.
C) means nothing.
D) means that the Montana court's decision is the law in Montana.
Answer: D
Q2) Transcontinental Tours, a U.S. firm, and Victoria Hotels, Ltd., a Canadian firm, enter into a contract that does not have a forum-selection or choice-of-law clause. Litigation between Transcontinental and Victoria over a dispute involving this contract may occur in
A) Canada only.
B) Canada or the United States, but not both.
C) Canada, the United States, or both.
D) the United States only.
Answer: C
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Chapter 3: Court Procedures
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Sample Questions
Q1) In Hazel's suit against Ingrid, the court issues a judgment in Ingrid's favor. If the case is appealed to an appropriate court of appeals, the appellate court will hear
A) all of the evidence.
B) most of the evidence.
C) none of the evidence.
D) select pieces of evidence.
Answer: C
Q2) Either party may appeal a jury's verdict but only the defendant may appeal a judge's ruling.
A)True
B)False
Answer: False
Q3) Hearsay evidence is what someone heard someone else say.
A)True
B)False
Answer: True
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Chapter 4: Business and the Constitution
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Sample
Questions
Q1) Port Harbor City enacts an ordinance that bans the distribu?tion of all printed materials on city streets. Later, Quint protests a new "revenue-enhancing" measure also enacted by the city by distributing handbills. When Quint is charged with violating the printed-materials ban, he files a suit against the city. Most likely, the court will hold that the ban is
A) an unconstitutional restriction of speech.
B) constitutional under the First Amendment.
C) justified by the need to protect individual rights.
D) necessary to protect national interests.
Q2) Sustainable Products Corporation regularly expresses opinions on political issues. Under the First Amendment, corporate political speech is given
A) discouraged.
B) forbidden.
C) protected.
D) required.
Q3) Pretexting is the process of obtaining information by false means.
A)True
B)False
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6
Chapter 5: Business Ethics
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Sample Questions
Q1) Palette Paints, Inc. expends funds and takes steps to ensure that all employees are safe on the job, that all products are safe for consumers, and that the environmental impact of the corporation is minimal. Palette Paints appears to believe in the concept of
A) the moral minimum.
B) corporate social responsibility.
C) "grey areas" in the law.
D) government oversight.
Q2) Situations in which employers face ethical issues with respect to social media platforms include
A) conducting an Internet search to discover what a job candidate has posted.
B) judging a job candidate based on what he or she does outside the work environment.
C) rejecting a job candidate if he or she does not participate in any social media.
D) all of the choices.
Q3) An action may be legal but not ethical.
A)True
B)False
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Chapter 6: Torts
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Sample Questions
Q1) Ladd throws a rock intending to hit Minh but misses and hits Nasir instead. On the basis of the tort of battery, Nasir can sue
A) Ladd.
B) Minh.
C) the rightful owner of the rock.
D) no one.
Q2) OK Dry-Cleaning advertises so effectively that the regular customers of its competitor Purity Cleaners patronize OK instead of Purity. This is A) appropriation.
B) wrongful interference with a contractual relationship.
C) no tort.
D) wrongful interference with a business relationship.
Q3) The duty to exercise reasonable care requires storeowners to warn business invitees of all risks.
A)True
B)False
Q4) Failure to live up to a standard of care may be an act or an omission.
A)True
B)False
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Chapter 7: Strict Liability and Strict Liability
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Sample Questions
Q1) Stan, an air-conditioning and heating technician, files a suit against Temp-Set Corporation, alleging that its thermostats are unreasonably dangerous due to the possibility of electrical shock. Temp-Set's best defense is most likely
A) assumption of risk.
B) knowledgeable user.
C) commonly known danger.
D) none of the choices.
Q2) Forest & Field Company makes and leases a backhoe to Gallagher. Due to a defect attributable to Forest & Field's negligence, Gallagher is injured in an accident in which his neighbor Helga is also hurt. In a product liability suit based on negligence, Forest & Field may be liable to
A) Gallagher only.
B) no one.
C) Gallagher and Helga.
D) Helga only.
Q3) Misrepresentation in an ad is enough to show an intent to induce the reliance of anyone who may use the product.
A)True
B)False
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Page 9
Chapter 8: Intellectual Property Rights
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Sample Questions
Q1) Edge is a video game featuring interactive extreme sports. The graphics used in the game are protected by
A) copyright law.
B) patent law.
C) trademark law.
D) none of the choices.
Q2) Savory Bean Company makes and sells a sweet espresso coffee beverage under the name "Sugar Sugar." Tropic Roast, Inc., later markets a similar drink under the name "Sweet Sweet." This is most likely
A) copyright infringement.
B) patent infringement.
C) trademark infringement.
D) not infringement.
Q3) A patent applicant must demonstrate that an invention is "commercially practicable" to receive a patent.
A)True
B)False
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10
Chapter 9: Internet Law, Social Media, and Privacy
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Sample Questions
Q1) Social media posts are routinely included in discovery in litigation.
A)True
B)False
Q2) Cybersquatting occurs when key words are inserted into the hyper text markup language code to tell Internet browsers specific information about a We
A)True
B)False
Q3) Refer to Fact Pattern 9B-2. CallTalk wants to sue Call&Talk for its unauthorized use of the domain name "callltalk." Before bringing the suit, CallTalk has to ask the court for a subpoena to discover
A) the true identity of the owner of the unauthorized site.
B) the amount of the profits of the unauthorized site.
C) the estimated costs of the court proceedings and discovery.
D) all of the registered variations of the name "calltalk."
Q4) No federal court has held that digitally sampling a copyrighted sound recording of any length constitutes copyright infringement.
A)True
B)False
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Chapter 10: Criminal Law and Cyber Crime
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Sample Questions
Q1) Megan reaches into Ned's pocket and takes his wallet-without his consent and without his immediate awareness. Unlike robbery, picking pockets does not involve
A) breaking and entering.
B) force or fear.
C) large amounts of cash.
D) weapons.
Q2) For most crimes, the state must initiate prosecution within a certain number of years after the crime occurs.
A)True
B)False
Q3) The crime of theft requires only the taking of another person's property, not the awareness that the property belongs to another.
A)True
B)False
Q4) Corporate officers and directors may be held criminally liable for the actions of employees under their supervision.
A)True
B)False
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Page 12
Chapter 11: Nature and Terminology
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Sample Questions
Q1) Lark promises to buy Mac's used textbook for $60. Lark is A) an offeror.
B) an offeree.
C) a promisee.
D) a promisor.
Q2) In contract law, intent is determined by the personal or subjective intent, or belief, of a party.
A)True
B)False
Q3) Sal assures Tom that she will deliver a truckload of hay to his cattle ranch. A person's declaration to do a certain act is part of the defini?tion of A) an expectation.
B) a moral obligation.
C) a prediction.
D) a promise.
Q4) The doctrine of quasi con?tract generally can only be used when there is an actual contract that covers the matter in controversy.
A)True
B)False
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Chapter 12: Agreement in Traditional and E-Contracts
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Sample Questions
Q1) Deb buys a song through eSongs, an online music vendor. Before completing the purchase and downloading the song, Deb must review a provision stating that she will not make and sell copies of the song and is required to click "I agree." This provision is
A) a browse-wrap term.
B) a click-on agreement.
C) a shrink-wrap agreement.
D) none of the choices.
Q2) Terms in a shrink-wrap agreement have been enforced in the same way as the terms of other contracts.
A)True
B)False
Q3) In an auction, a bidder is an offeree.
A)True
B)False
Q4) An offer may invite an acceptance to be worded in specific terms but that cannot make the contract definite.
A)True
B)False
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Chapter 13: Consideration
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Sample Questions
Q1) A covenant not to sue does not always bar further recovery.
A)True
B)False
Q2) In contract law, the term consideration refers to the serious thought that underlies a party's intent to enter into a contract.
A)True
B)False
Q3) A release bars any further recovery beyond the terms stated in the release.
A)True
B)False
Q4) Quentin questions whether there is consideration for his contract with Rainey to exchange his performance with the Symphonic Saxophone Sextet for her payment of a certain amount. To constitute consideration, there must be
A) a payment.
B) a performance.
C) a bargained-for exchange.
D) serious thought underlying each party's intent to contract.
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15
Chapter 14: Capacity and Legality
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Sample Questions
Q1) Vijay enters into a contract to sell his laptop to Winnie. Winnie takes possession of the laptop as a minor and continues to use it well after reaching the age of majority. Winnie has
A) expressly ratified the contract.
B) impliedly ratified the contract.
C) disaffirmed the contract.
D) none of the choices.
Q2) Lucy, a minor, disaffirms a contract for necessaries without returning the goods. To Manny's Food Mart, the seller, Lucy is required to pay
A) nothing.
B) the reasonable value of the goods.
C) the sales price of the goods.
D) the ultimate worth of the goods.
Q3) A person who has been determined by a court to be mentally competent cannot form a legally binding contract with another party.
A)True
B)False
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Chapter 15: Mistakes, Fraud, and Voluntary Consent
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Sample Questions
Q1) An innocent party can rescind a fraudulent contract and be restored to his or her original position.
A)True
B)False
Q2) Camille, a tennis pro, convinces Dante, who has no athletic ability, that he has considerable skill and induces him to pay Camille $1,000 for tennis lessons. When Dante realizes the truth, he files a suit against Camille. Dante is most likely to recover on the basis of
A) opinion.
B) fraud.
C) unconscionability.
D) none of the choices.
Q3) Ray buys a rural vineyard from Sergio, who claims that it would be a prime site for a housing subdivision. Ray later learns that the law does not permit the land to be used for housing. Ray may
A) not rescind the contract.
B) rescind the contract only if Ray did not know the law before the deal.
C) rescind the contract only if Sergio knew about the law before the deal.
D) rescind the contract only if the law is not common knowledge.
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Page 17
Chapter 16: The Writing Requirement and Electronic Records
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Sample Questions
Q1) Guardian Security, Inc., and Hedge Fund Corporation enter into an oral contract under which Guardian Security agrees to provide security services for Hedge Fund offices for as long as Hedge Fund needs them. This contract may be enforce?able by A) Guardian Security only. B) Hedge Fund only.
C) any interested third party, such as a Hedge Fund shareholder. D) either Guardian Security or Hedge Fund.
Q2) Every state has a statute that stipulates what types of contracts must be in writing. A)True B)False
Q3) Refer to Fact Pattern 16-B1. Brie later disputes some of the provisions of the deal with Alain. If the dispute results in litigation, a court will most likely admit evidence of additional terms that are A) ambiguous. B) consistent.
C) contradictory.
D) clear.
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Page 18
Chapter 17: Third Party Rights
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Sample Questions
Q1) In an assignment, the party receiving the rights is the assignee.
A)True
B)False
Q2) Refer to Fact Pattern 17-B1. Delta Lumber will realize a profit from the sale of prod?ucts to Bayside to remodel Coastal Marina. Delta Lumber is A) a delegatee.
B) an assignee.
C) an incidental beneficiary.
D) an intended beneficiary.
Q3) Merry Music Inc. and Nayda enter into a contract for Nayda to write six songs for which Merry Music agrees to pay her. Nayda transfers her right to payment under the contract to Omni Artists Agency. In the transfer of rights, Nayda is A) a delegator.
B) an assignor.
C) an obligor.
D) an alien.
Q4) Without exception, any duty can be delegated.
A)True
B)False
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Chapter 18: Performance and Discharge in Traditional
E-Contracts
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Sample Questions
Q1) Most contracts need to be performed only to the satisfaction of a reasonable person unless they expressly state otherwise.
A)True
B)False
Q2) Gliding Light, LLC, and Hang Gliders, Inc., are parties to a contract. They subse?quently agree that High Riders Inc. should take Gliding Light's place and assume all of its rights and duties under the contract. This is
A) a mutual agreement to rescind.
B) an accord and satisfaction.
C) a novation.
D) a settlement agreement.
Q3) When an anticipatory repudiation occurs, it is treated as a material breach of a contract.
A)True B)False
Q4) Anything less than complete performance is a material breach of contract. A)True B)False
Page 20
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Chapter 19: Breach of Contract and Remedies
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Sample Questions
Q1) Consequential damages are foreseeable damages that arise from a party's breach of a contract.
A)True B)False
Q2) Ordinarily, a waiver by a contracting party will not operate to waive subsequent, additional, or future breaches of contract.
A)True B)False
Q3) Medical Eye Clinic Corporation enters into a contract with local musician Natalie, who agrees to perform for a meeting of Medical Eye's personnel to be held in its main office building. Before the date of the meeting, Natalie refuses to perform, citing a higher-paying gig. Meanwhile, Medical Eye contracts to sell the building to Optical Center, Inc., but before the transaction is complete, Perfect Vision Company offers to pay a higher price. Medical Eye re?fuses to transfer the building to Optical Center. In separate suits by Medical Eye against Natalie and by Optical Center against Medical Eye, each plaintiff seeks specific performance. How might the court rule in each case, and why?
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Chapter 20: Formation of Sales and Lease Contracts
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Sample Questions
Q1) Goods associated with real estate often fall within the scope of Article 2.
A)True
B)False
Q2) All oral contracts are enforceable under the UCC.
A)True
B)False
Q3) Nature's Products, Inc., sends its standard order form to Omni Distribution Corporation to evidence a sale of packing materials. Omni responds with its own standard purchase order form. Additional terms in the purchase order automatically become part of the contract unless
A) the terms materially alter the original contract.
B) the original offer expressly required acceptance of its terms.
C) the offeror objects to the new terms within a reasonable time. D) any of the choices.
Q4) Under a finance lease, the lessee can stop performing and making lease payments if the leased equipment turns out to be defective.
A)True
B)False
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Chapter 21: Title, Risk, and Insurable Interest
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Q1) Quaff n' Quench Café buys twenty-five crates of oranges from Reynaldo Produce, Inc. The parties agree to ship the oranges "F.O.B. Quaff n' Quench " via Swiftline Trucking Company. The oranges rot in transit. The loss is suf?fered by
A) Quaff n' Quench.
B) Swiftline.
C) Columbia.
D) Reynaldo Produce.
Q2) A seller with voidable title has the power to transfer good title to a good faith purchaser for value.
A)True
B)False
Q3) Drill Makers, Inc., and Edge Mine & Mill Supply Stores enter into a contract for a sale of mining drill bits. The contract indicates that the price includes transportation costs to a specific destination by including the term
A) C.I.F.
B) delivery ex-ship.
C) F.A.S.
D) F.O.B.
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Chapter 22: Performance Breach of Sales Lease Contracts
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Q1) Merchants are held to a higher standard of performance or duty than are nonmerchants.
A)True
B)False
Q2) A buyer who rightfully rejects nonconforming goods may obtain cover or cancel the contact, but may not seek damages.
A)True
B)False
Q3) Refer to Fact Pattern 22-B1. In this letter of credit, the account party is
A) Global Mining.
B) Finish & Refining.
C) Economy Bank.
D) Great Britain.
Q4) Loading Ramps Plus Inc. contracts to sell sixteen aluminum loading ramps to Moving Services, Inc. Loading Ramps ships the ramps, which Moving Services accepts but does not pay for. Loading Ramps can
A) sue to recover the purchase price plus inci?dental damages.
B) sue to recover the purchase price minus inci?dental damages.
C) resell the ramps to any buyer willing to reclaim them from Moving Services.
D) require Moving Services to revoke its acceptance of the ramps.
Page 24
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Chapter 23: Warranties
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Questions
Q1) Marcos buys a pneumatic drill from NuTools Inc. Owen leases a table saw from Piecework Tools Sales & Lease Company. Later, Marcos and Owen become aware of defects in the goods that indicate breaches of warranty. An action for breach of warranty accrues when
A) the seller or lessor tenders delivery.
B) the buyer or lessee becomes aware of the breach.
C) the nonbreaching party notifies the breaching party of the breach.
D) four years have passed since the breach occurred.
Q2) Goods must be of the highest quality possible to be merchantable.
A)True
B)False
Q3) Phoenix, a salesperson for Quality Fruit, Inc., shows Robert, a buyer for Sweet Home Fruit Company, samples of peaches, stating that any ship?ment will match the samples. This statement is
A) an express warranty.
B) an implied warranty.
C) a warranty of title.
D) puffery.
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Chapter 24: International Law in a Global Economy
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Q1) UniVision Corporation, a U.S. company, sets up a firm in Vietnam. UniVision remains in the United States and retains ownership of the Vietnamese branch, as well as authority and control over all phases of the operation. This is
A) a franchise.
B) a wholly owned subsidiary.
C) a joint venture.
D) direct exporting.
Q2) Michael, a citizen of Ireland, and Nina, a citizen of the United States, enter into a contract. When Nina breaches the contract, Michael obtains an award of damages in an Irish court. He asks a U.S. court to enforce the award. The U.S. court defers to and enforces the Irish court's decree. This is
A) a travesty of justice.
B) the act of state doctrine.
C) the doctrine of sovereign immunity.
D) the principle of comity.
Q3) The principle of comity basically refers to legal reciprocity.
A)True
B)False
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Chapter 25: The Function Creation of Negotiable Instruments
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Q1) A holder is any person in possession of a negotiable instrument that is payable either to the bearer or to an identified person who is the person in possession.
A)True
B)False
Q2) A instrument "payable to the order of bearer" is neither an order instrument nor a bearer instrument.
A)True
B)False
Q3) An instrument that promises to pay "in goods" can be negotiable.
A)True
B)False
Q4) To obtain a business license, Bess writes a check to a certain state agency. Bess is A) the drawee.
B) the drawer.
C) the indorser.
D) the payee.
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Chapter 26: Transferability and Holder in Due Course
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Q1) A transfer by assignment can make it possible for a transferee to receive more rights in the instrument than the prior possessor had.
A)True
B)False
Q2) Refer to Fact Pattern 26-1B. By writing "without recourse" with her signature, Destiny
A) avoids the risk of loss from theft of the instrument.
B) relieves herself of liability on the instrument.
C) converts the check into a nonnegotiable instrument.
D) locks the instrument into the bank collection process.
Q3) The shelter principle extends the benefits of HDC status and is designed to aid the HDC in readily disposing of the instrument.
A)True
B)False
Q4) An instrument is dishonored when the party to whom the instrument is presented refuses to pay it.
A)True
B)False
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Chapter 27: Liability, Defenses, and Discharge
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Q1) In some situations, the unauthorized indorsement of a payee's name can be as effective as if the real payee had signed.
A)True
B)False
Q2) An unauthorized signature is wholly inoperative and will not bind the person whose name is signed or forged.
A)True
B)False
Q3) Danton, a mentally impaired person, is asked by Elmer to sign a piece of pa?per that he says is an autograph book. In fact, the document is a note. If later sued on the note by an HDC
A) Danton must pay the note.
B) Danton's best defense would be fraud in the execution.
C) Danton's best defense would be fraud in the inducement.
D) Danton's best defense would be mistake.
Q4) Warranty liability arises only when a transferor indorses the instrument.
A)True
B)False
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Chapter 28: Banking in the Digital Age
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Q1) Cleo writes a check for $100 drawn on Debit & Credit Bank and presents it to Elegant Jewelers for payment. If the check is not backed by sufficient funds, Cleo may be prosecuted for A) forgery.
B) fraud.
C) negligence. D) nothing.
Q2) A forged signature on a check has no legal effect as the signature of a drawer. A)True
B)False
Q3) Valley Bank retains the cancelled checks of its customers. Valley must be able to provide customers with legible copies of checks paid for A) one year. B) five years.
C) seven years. D) nine years.
Q4) Checks are usually three party instruments. A)True B)False
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Chapter 29: Creditors Rights and Remedies
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Q1) Ronaldo's debt to Sofia is past due. Ronaldo obtains a judgment against Sofia to collect the debt, but Sofia will not pay. Ronaldo requests a writ of execution. The property that is seized under the writ of execution must be
A) in Ronaldo's possession.
B) in Sofia's possession.
C) in the possession of Sofia's employer or other third party.
D) located within the court's geographic jurisdiction.
Q2) The roof in Rosalyn's house springs a leak. She contracts with Shelter Roofing & Restoration Company to repair the roof and fix the dam?age to the house. Rosalyn pays 10 percent of the price in advance. Shelter Roofing does the work, but Rosalyn refuses to pay the rest of the price. What can Shelter Roofing do, and how is it done?
Q3) Lyndon owes $10,000 to Metro Bank. As a prejudgment remedy to collect the debt, Metro could use a writ of A) contribution.
B) attachment.
C) execution.
D) subrogation.
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Page 31
Chapter 30: Secured Transactions
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Q1) Janet is the secured party in a secured transaction with Michelle. Janet could also be referred to as the
A) debtor.
B) secured creditor.
C) collateral.
D) filing officer.
Q2) Sweetwater Café defaults on debts to Town & Country Bank and Uno Loan Company. Town & Country perfected its security interest before Uno. Town & Country takes possession of the collateral in which it has a security interest. On a sale of the collat?eral, the proceeds will be applied first to
A) Sweetwater's previous payments on the debts.
B) Sweetwater's unpaid payments on the debts.
C) the balance of Sweetwater's debt to Town & Country.
D) the balance of Sweetwater's debt to Uno.
Q3) A purchase-money security interest in consumer goods is perfected automatically at the time it is created.
A)True
B)False
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32
Chapter 31: Bankruptcy Law
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Q1) The right to petition for bankruptcy relief under federal law is an essential aspect of our capitalistic society.
A)True B)False
Q2) In putting together a repayment plan under Chapter 13, a debtor must apply the means test to identify the amount of disposable income that will be available to repay creditors.
A)True B)False
Q3) A bankruptcy court may deny a discharge based on the debtor's conduct.
A)True
B)False
Q4) Leif files a petition in bankruptcy. Among his debts are un?paid taxes, fines owed to the government, student loans owed to Metro University, and support owed to his ex-wife Nadia. Most likely to be dis?charged are
A) back taxes accrued within the previous three years.
B) fines outstanding less than eight years.
C) student loans whose payment would impose undue hardship.
D) spousal-support debts unpaid for more than eighteen months.
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Chapter 32: Agency Formation and Duties
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Q1) The agent has the right to be compensated, to be reimbursed and indemnified, and to have a safe working environment.
A)True
B)False
Q2) Bailey is an agent for Culinary Delites Company. In the course of Bailey's performance for Culinary Delites, she pays Drivers' Repair Service for certain vehicle maintenance and repair work. Bailey's right to obtain the amount of the payments from Culinary Delites arises under the principal's duty of
A) avoidance.
B) cooperation.
C) indemnification.
D) reimbursement.
Q3) A principal has a duty to cooperate with the agent and to assist the agent in performing his or he duties.
A)True
B)False
Q4) A person must have contractual capacity to be an agent.
A)True
B)False
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Chapter 33: Agency Liability and Termination
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Q1) Clark hires Dimitri to act as his agent to purchase Expo Sports Arena, Inc. Clark tells Dimitri to reveal that he is buying the firm and its assets on behalf of a third party and to tell the seller who that third party is. Clark is
A) a disclosed principal.
B) an apparent principal.
C) an undisclosed principal.
D) a partially disclosed principal.
Q2) Bayou Development Corporation hires Coastal Brokerage Associates to sell the condominiums in a building at Bayou Development's resort. The agency will terminate A) after the condos have been sold.
B) if the prices of the condos must be reduced to sell them.
C) once Bayou Development obtains insurance to cover the property.
D) when Bayou Development pays Coastal Brokerage its first commission.
Q3) A principal whose identity is totally known by a third party with whom an agent contracts on the principal's behalf is an undisclosed principal.
A)True
B)False
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Chapter 34: Employment, Immigration, and Labor Law
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Q1) The key consideration in determining whether an employment manual creates an implied contract is the employee's reasonable expectations.
A)True
B)False
Q2) To recover workers' compensation, an employee must prove that an injury did not occur on the job or in the course of employment.
A)True
B)False
Q3) Generally, under employment-at-will doctrine, an employer may fire an employee even if doing so would violate a federal or state statute.
A)True
B)False
Q4) An employer can voluntarily pay overtime to ineligible employees.
A)True
B)False
Q5) Children under fourteen years of age are not allowed to work.
A)True
B)False
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Chapter 35: Employment Discrimination and Diversity
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Q1) Boni, the owner of Café Rico, knows about, but does not take any action to prevent, the sexual harassment of employees. Boni and the café may be liable for such harassment by
A) an employee's previous employer.
B) a customer or a co-worker.
C) an employee's spouse or other close relative.
D) none of the choices.
Q2) Helene, a disabled person, applies for a job at Industrial Engineering Applications Inc. for which she is well quali?fied, but for which she is rejected. Industrial Engineering continues to seek applicants and eventually fills the posi?tion with a person who is not disabled. Helene is most likely to succeed in a suit against Industrial Engineering for discrimination under the Americans with Disabilities Act of 1990 if she can show that A) she was not hired solely because of her disabil?ity.
B) she can function well with corrective devices or on medication.
C) her disability causes her undue hardship.
D) she could not perform the job even with reasonable accommodation.
Q3) The Civil Rights Act of 1964 prohibits job discrimination on the basis of merit.
A)True
B)False
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Page 37
Chapter 36: Sole Proprietorships and Franchises
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Q1) Level Fencing Company wants to present information in "disclosure docu?ments" via the Internet to prospective franchisees. Among other legal re?quirements with which Level Fencing must comply, prospective franchisees must
A) agree to settle any lawsuits that may arise over the documents. B) be able to download or save all electronic documents.
C) provide e-mail addresses for Level Fencing to verify users' authenticity.
D) register with the Federal Trade Commission via Level Fencing's Web site.
Q2) Cookie Shops, Inc., sells a franchise to Donuts & Desserts, a mall food-court vendor. Cookie Shops is A) a franchisee.
B) a franchisor.
C) an agent.
D) a principal.
Q3) A franchisor can suggest retail prices for the goods that a franchisee sells but cannot mandate them.
A)True
B)False
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Chapter 37: Partnerships and Limited Liability Partnerships
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Q1) Devoting time, energy, and skill to partnership business is a partner's duty and is not a compensable service.
A)True
B)False
Q2) Luke and Maya form Northwest Air Express, a general partnership. The essential elements of this partnership do not include
A) a sharing of profits and losses.
B) a joint ownership of the business.
C) an equal right to management in the business.
D) goodwill.
Q3) After a partner dissociates from a continuing partnership, the partnership is no longer bound by the acts of the dissociated partner, even on a theory of apparent authority.
A)True
B)False
Q4) No partner is deemed to be an agent of the other partners and of the partnership. A)True
B)False
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Chapter 38: Other Organizational Forms for Small Businesses
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Q1) A member of a limited liability company (LLC) has the power and the right to dissociate from the LLC at any time.
A)True
B)False
Q2) A limited liability company can be held liable for any loss or injury caused by the wrongful acts or omissions of its members.
A)True
B)False
Q3) Rafaela Art Gallery and Sequoia Exhibitions form a joint venture. When a dispute arises, Rafaela files a suit against Sequoia. The court is most likely to apply the same principles to this joint venture as it applies to
A) business trusts.
B) cooperatives.
C) corporations.
D) partnerships.
Q4) Limited liability company operating agreements typically contain provisions relating to management.
A)True
B)False
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Chapter 39: Corporate Formation and Financing
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Q1) Rhys owns Solar Fuel Corporation. Rhys uses Solar Fuel's funds to pay his personal expenses, creates Thermal Power Corporation to engage in the same business as Solar Fuel, transfers Solar Fuel's assets to Thermal Power, and petitions Solar Fuel into bankruptcy. This most likely warrants
A) a bonus to Rhys for financial maneuvers.
B) a discharge for Solar Fuel in bankruptcy.
C) a pierce of the corporate veil.
D) a review of Thermal Power's articles of incorporation.
Q2) A publicly held corporation is any corporation whose shares are publicly traded in a securities market.
A)True
B)False
Q3) Urban Commerce, Inc., issues bonds, which are also known as A) cumulative investments.
B) fixed-income securities.
C) equity securities.
D) preferred stock.
Q4) The corporation is a creature of the common law.
A)True
B)False
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Chapter 40: Corporate Directors, Officers, Shareholders
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Q1) Lovey is a shareholder of Made-2-Order Manufacturing Corporation with preemptive rights. With these rights, Lovey can
A) buy a prorated share of a new issue of stock before other buyers.
B) choose to have Made-2-Order act exclusively in a certain area.
C) "preempt" managerial decisions that affect shareholders.
D) sell a prorated share of a new issue of stock before other sellers.
Q2) Donatello is a director and officer of Enzio's Pizza Corporation. Donatello selects an ad campaign that consumers find offensive-a market?ing decision that results in a dramatic decrease in profits for the firm and its shareholders. The shareholders accuse Donatello of breaching his fiduci?ary duty to the corporation. What is Donatello's best defense against this ac?cu?sation? Later, a resolution comes before Enzio's board to expand its menu to compete with Fabio's Pasta Palace Restaurants Inc. Donatello is a director and shareholder of Fabio's. What is Donatello's responsibility in this situation?
Q3) Most states do not permit the corporate articles or bylaws to authorize compensation for directors.
A)True
B)False
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Page 42
Chapter 41: Mergers and Takeovers
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Q1) Study Aids Inc. offers to buy the stock of Test Prep Products Corporation. Test Prep's directors oppose the offer. Some of the Test Prep shareholders file a suit, alleging a breach of the directors' fiduciary duties. Most likely, the court will
A) apply the business judgment rule to analyze the directors' acts.
B) dismiss the suit as a non-judicial dispute over "fair value."
C) evaluate the terms of the deal on the basis of antitrust law.
D) order the shareholders to be paid a "premium" for their stock.
Q2) Ribeye Restaurants Inc. wants to acquire or merge with SteakHouse Corporation. Ribeye should
A) file a plan of merger with the secretary of state.
B) file an article of merger with SteakHouse.
C) make a tender offer to the SteakHouse shareholders.
D) make a tender offer to the Ribeye shareholders.
Q3) A target corporation's attempted takeover of an acquiring corporation is referred to as the poison pill defense.
A)True
B)False
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Page 43
Chapter 42: Securities Law Corporate Governance
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Q1) Refer to Fact Pattern 42-1B. Under the Securities Ex?change Act of 1934, Geoff is most likely
A) liable for insider trading.
B) not liable because Geoff is only a tippee, not a tipper.
C) not liable because Geoff is too far down the chain of disclosure.
D) not liable because Geoff traded on the basis of a material fact.
Q2) Most securities can be resold without registration.
A)True
B)False
Q3) Fresh Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries, Inc., has assets of more than $50 mil?lion and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to
A) Fresh Fruit and Gourmand Pastries.
B) Fresh Fruit only.
C) Gourmand Pastries only.
D) neither Fresh Fruit nor Gourmand Pastries.
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Chapter 43: Administrative Agencies
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Q1) There are no significant differences between a trial and an administrative hearing.
A)True
B)False
Q2) All federal government agencies must make their records available electronically on the Internet and in other electronic formats.
A)True
B)False
Q3) If a business firm refuses to comply with an agency's request to inspect facilities or business records, the agency must defer to the refusal.
A)True
B)False
Q4) Persons who favor the creation of a federal biotech agency to regu?late the production of genetically modified agricultural and animal products should con?cen?trate their lobbying ef?forts on
A) Congress.
B) federal administrative agencies that oversee such products.
C) the United States Supreme Court.
D) the president of the United States.
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Page 45
Chapter 44: Consumer Law
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Q1) Labels on fresh meats are not required to indicate where the food originated.
A)True
B)False
Q2) The Federal Reserve Board of Governors has issued a regulation that governs credit provisions associated with sales contracts-Regulation Z.
A)True
B)False
Q3) Grid Tool Company makes and sells tools. One of the tools is believed to be haz?ardous. The appropriate government agency may require Grid to A) export the tool and sell it only abroad.
B) increase the price to cover the cost of any injuries or damage. C) reduce the price to indicate the hazard to consumers. D) remove the tool from the market.
Q4) Major credit reporting agencies must provide consumers with free copies of their own credit reports every six months.
A)True
B)False
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Chapter 45: Environmental Law and Sustainability
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Q1) The Environmental Protection Agency has not concluded that greenhouse gases, including carbon dioxide emissions, constitute a public danger.
A)True
B)False
Q2) Grease & Lubricants Inc. makes its products without required pollution control technology, causing a discharge of oily waste into the nearby Holly Lake. This activity can re?sult in
A) a criminal fine or imprisonment only.
B) a criminal fine, imprisonment, or an injunction only.
C) a criminal fine, imprisonment, an injunction, or damages.
D) an injunction only.
Q3) Energy Market Corporation wants to build a wind power plant on pri?vate land, for which a federal permit is required. For this action, an en?viron?mental impact statement is
A) prohibited.
B) required.
C) unnecessary.
D) voluntary.
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Chapter 46: Antitrust Law
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Q1) Speedboat Corporation refuses to sell its products to Water World, Inc., a recreational water products dealership. This is a violation of antitrust laws if it
A) has an anticompetitive effect on a particular market.
B) results in lower prices for consumers.
C) provides no economic benefits for consumers.
D) is likely to increase competition.
Q2) Soft Drink Corporation is charged with violating the Sherman Act through conduct subject to the rule of reason. When applying the rule of reason in this situation, a court will not consider
A) the purpose of the agreement.
B) the parties' market ability to implement the agreement.
C) the effect of the agreement on international trade.
D) the potential effect of the agreement on competition.
Q3) Under what circumstances would Quality Market, a small store in Rustic, an isolated town, be considered a mo?nopoly? If Quality Market is a monopoly, is it in violation of antitrust law?
Q4) A price-fixing agreement that is reasonable does not violate antitrust law.
A)True
B)False
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Chapter 47: Professional Liability and Accountability
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Q1) Professionals are required to deliver services but the competency of the services is never an issue.
A)True B)False
Q2) Ricardo, an accountant, contracts to conduct an audit for Sensei Sushi Restaurants. In performing the audit, Ricardo fails to detect certain misconduct. Ricardo is most likely A) liable if a normal audit would have revealed the misconduct.
B) liable if Ricardo issues a specifically qualified opinion.
C) not liable if Ricardo generally disclaims any liability.
D) not liable if the misconduct was due to Sensei Sushi's negligence.
Q3) Miriam is an accountant. Natalie is an attorney. Which professional is most re?stricted from disclosing her or his client's communication?
Q4) An accountant can avoid liability by proving that his or her negligence was only the proximate cause of the cli?ent's loss.
A)True B)False
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Chapter 48: Personal Property and Bailments
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Q1) Refer to Fact Pattern 48-1B. Truck & Transfer can avoid liability
A) by proof that Truck & Transfer was not negligent.
B) by proof that Truck & Transfer's loading dock is in a high-crime area.
C) by proof that United Home was negligent in hiring TTC.
D) under any circumstances.
Q2) Refer to Fact Pattern 48-1B. These facts give rise to A) a presumption of negligence by Truck & Transfer.
B) a presumption of theft by a third party.
C) a presumption of theft by Truck & Transfer.
D) United Home's liability for the container's loss.
Q3) Gene leaves her Honda Fit with Intown Motors for routine maintenance. On its return, the interior of the car is greasy and the exterior is scratched and dented. Who suffers the loss and why?
Q4) Quentin wants to give Rowena a pearl necklace that he has in his safe de?posit box at Security Bank. The bank is closed for a holiday. Quentin gives Rowena a key to the box and tells her to go to the bank after the holi?day and take the necklace. Rowena does this. The next day, Quentin dies unex?pectedly. His heirs want the necklace. What type of gift was this? Can Rowena keep the necklace?
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Page 50
Chapter 49: Real Property Landlord-Tenant Law
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Q1) In most states, statutes require leases for terms exceeding one year to be in writing, and state or local law often dictates permissible lease terms.
A)True
B)False
Q2) Kenneth has a periodic tenancy that requires him to pay rent weekly. Kenneth wishes to terminate his tenancy. Under the common law, he must give his landlord notice of at least
A) one week.
B) two weeks.
C) thirty days.
D) sixty days.
Q3) Refer to Fact Pattern 49-1B. Trends Clothing is liable to A) no one.
B) Stores & Shops and Unique Fashions for disputing Unique Fashions's business decision.
C) Stores & Shops for at least some of the unpaid rent.
D) Stores & Shops's tenants, except Unique Fashions, for abandoning Trends Clothing's space.
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Chapter 50: Insurance
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Q1) An insurer has a duty to avoid paying a claim even if it means acting in bad faith.
A)True
B)False
Q2) Businesses typically protect their financial interests by obtaining insurance.
A)True
B)False
Q3) Shipping Corporation applies to TransInsurance Company for a fire insurance pol?icy on Shipping's warehouse. On the application, Shipping understates the age of the property to obtain a lower premium. When a fire destroys the ware?house, TransInsurance can
A) deny payment, because a fire destroyed the warehouse.
B) deny payment, because of fraud in the application.
C) not deny payment, because a fire destroyed the warehouse.
D) not deny payment, because the application is not part of the policy.
Q4) Comprehensive general liability insurance can encompass as many risks as the insurer agrees to cover.
A)True
B)False
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Chapter 51: Wills and Trusts
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Q1) Karissa's will states, "I give to my sister Lexy my condominium in Miami, Florida." This is
A) a general legacy.
B) a residuary.
C) a specific bequest.
D) a specific devise.
Q2) A codicil is a will substitute that avoids the cost of probate.
A)True
B)False
Q3) A gift of real estate by will is generally called a bequest.
A)True
B)False
Q4) There are age requirements for the witnesses who attest to a will.
A)True
B)False
Q5) A testator may revoke a will by intentionally tearing it. A)True
B)False
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Page 53