Corporate Law
Pre-Test Questions
Course Introduction
Corporate Law is a foundational course that explores the legal principles governing the formation, operation, and dissolution of corporations. It examines topics such as corporate structure, governance, fiduciary duties of directors and officers, shareholder rights, mergers and acquisitions, and regulatory compliance. Students will analyze statutes, case law, and regulations that impact corporations, while developing an understanding of the roles and responsibilities of corporate stakeholders in both national and international contexts. This course equips students with the knowledge necessary to navigate legal challenges encountered by modern businesses.
Recommended Textbook Law for Business 12th Edition by A. James Barnes
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Page 2
Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) If the behavior of someone who commits a tort is outrageous,that person can be made to pay compensatory and _____.
A) special damages
B) punitive damages
C) liquidated damages
D) nominal damages
Answer: B
Q2) If a person carelessly runs a car into yours,that person has committed the:
A) civil tort of negligence.
B) substantive tort of negligence.
C) criminal tort of negligence.
D) procedural tort of negligence.
Answer: A
Q3) List the three ways in which courts make law.
Answer: Courts make laws in three ways: 1)through interpretation they give meaning and effect to the other sources of law,2)through the common law they find law when no other source offers a solution to a legal dispute,and 3)through judicial review they determine the legitimacy of the actions of other branches of government.
Explanation:
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Chapter 2: Dispute Settlement
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Q1) A certain court receives an appeal by parties dissatisfied with the decision of a trial court.However,neither does it hear any witnesses nor does it review new facts about the case.The court discussed in the example is a(n)_____.
A) municipal court
B) inferior court
C) appellate court
D) justice of peace court
Answer: C
Q2) The adversary system in the United States is based on the idea that the truth will emerge in courtrooms through a "battle of words" between two lawyers.
A)True
B)False
Answer: True
Q3) Small claims courts are courts of record.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) Market forces serve as a sufficient control on corporate behavior because the market always reveals social and environmental harm.
A)True
B)False
Answer: False
Q2) The Sarbanes-Oxley Act:
A) broadly defines obstruction of justice and makes obstruction of audit work papers a felony.
B) decreases the penalties for conscious law breaking.
C) decreases the likelihood of detection and prosecution of illegal behavior.
D) adopts the theory of allocational efficiency, under which the primary objective of a business corporation is to maximize profits.
Answer: A
Q3) The Sarbanes-Oxley Act:
A) raises the penalties for illegal behavior.
B) gives corporations greater freedom from government control.
C) adopts the theory of allocational efficiency.
D) motivates executives to inflate reports of corporate profits.
Answer: A
Page 5
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Chapter 4: Business and the Constitution
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Q1) Under the Equal Protection Clause,_____.
A) the government must treat all cases alike
B) states are prohibited from discriminating against persons only on the basis of speech
C) states are prohibited from discriminating only on the basis of nationality
D) the government can uphold restrictions on property
Q2) Governmental action that limits speech is subject to rational basis analysis.
A)True
B)False
Q3) Which of the following statements is true of agencies that exercise adjudicatory power?
A) People who are unhappy with the agencies' actions cannot appeal to the court of law.
B) Since they involve juries, rules of evidence are more strictly observed.
C) Their hearings are much more formal than court trials.
D) Some of them regulate primarily on a case-by-case basis through their decisions.
Q4) The Food and Drug Administration is an example of an independent agency.
A)True
B)False
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Chapter 5: Crimes
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Q1) The Computer Fraud and Abuse Act:
A) includes only criminal penalties.
B) prohibits interference with computers used by the government or financial institutions.
C) prohibits an authorized person from unknowingly transmitting a code to a computer used in interstate commerce.
D) enables providers to disclose the contents of electronic communication to intelligence officials under any circumstance.
Q2) Under the Foreign Corrupt Practices Act,it is legal for any American firm to offer gifts of anything of value to foreign officials.
A)True
B)False
Q3) Which of the following is included in the Fifth Amendment to the U.S.Constitution?
A) Prohibition against double jeopardy
B) Prohibition against excessive bail or fines
C) The exclusionary rule
D) The right of confrontation
Q4) Explain two laws governing computer privacy in the United States.
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Chapter 6: Intentional Torts
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Q1) Eric Dunphy sued Starcross Builders because a few of the construction workers walked into his courtyard and drew water from his well without his knowledge.This caused no actual damage to Eric's property.Can this incident be considered a trespass?
Q2) Which of the following is a classic example of interference with economic relations?
A) Trespass
B) False imprisonment
C) Disparagement
D) Defamation
Q3) Define and discuss the tort of trespass to land.
Q4) _____ are used to punish the defendant and deter the defendant and others from repeating behavior that is particularly offensive.
A) Punitive damages
B) Actual damages
C) Compensatory damages
D) Nominal damages
Q5) Truth is not a defense to a defamation action.
A)True
B)False
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Chapter 7: Negligence and Strict Liability
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Q1) A defendant is always free of liabilities if the intervening force was foreseeable.
A)True
B)False
Q2) Most states have adopted a comparative negligence system because it distributes the cost of the accident according to the degree of both plaintiff's and defendant's fault.
A)True
B)False
Q3) Ultrahazardous activities:
A) are defined only by international statutes.
B) are subject to strict liability.
C) only create liability where the defendant fails to act as a reasonable person.
D) only create liability when the defendant fails to exercise utmost care.
Q4) If Jamal is carefully driving his car within the speed limit and an inebriated Eddie darts into his car and is hit,Jamal is liable for Eddie's injuries.
A)True
B)False
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Chapter 8: Licensing and Intellectual Propertypart Two Contracts
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Q1) A patent:
A) grants its owner the exclusive right to make, use, or sell an invention or process for an indefinite period.
B) deprives competitors of the opportunity to use the invention without the patent holder's consent.
C) creates a permanent monopoly thereby discouraging the creation and utilization of new products and technologies.
D) includes articles or processes falling under the category of physical phenomena or abstract ideas.
Q2) A service mark is a descriptive term that distinguishes businesses rather than their products or services.
A)True
B)False
Q3) Discuss the intellectual property aspects of social media.
Q4) A(n)_____ prohibits the unauthorized reproduction of creative works.
A) inventor's certificate
B) patent
C) logo
D) copyright
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Chapter 9: The Nature and Origins of Contracts
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Q1) Ingrid and Michael want to buy a house.As they don't have sufficient money,they plan to steal their neighbor's car and sell it to make money.This is a valid contract.
A)True
B)False
Q2) Which of the following statements is true about the Uniform Commercial Code (UCC)?
A) The main purpose of the UCC was to enable private parties to enter into commercial transactions regulated by tariffs and government restrictions.
B) The most obvious purpose of the UCC was to establish a uniform law to govern commercial transactions that often take place within the state.
C) The drafters were successful in achieving complete uniformity.
D) The UCC is adopted by all states except Louisiana, which has adopted only part of the code.
Q3) Article 2 of the Uniform Commercial Code (UCC)applies to all contracts for the:
A) liquidation of assets.
B) sale of goods.
C) sale of securities.
D) transfer of money between banks.
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Chapter 10: Creating a Contract: Offers
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Q1) Kamal places an ad in the local newspaper as follows: "$500 reward for the return of my gold ring." Mira finds the ring and returns it to Kamal,but he refuses to pay her the $500.Which of the following statements is true regarding this case?
A) As the ad was merely a solicitation of offers, there was no contract until Kamal accepted Mira's offer to find the ring.
B) Mira may not recover the money because she did not contact Kamal before she began her search.
C) As Mira did not pay Kamal to keep the offer open, he is free to revoke the offer and not pay her anything.
D) Mira accepted the ad as an offer for a unilateral contract by returning the ring and hence, Kamal is bound to pay her the $500.
Q2) Stan read an advertisement in the newspaper that said that the jackpot for picking the six winners in the dog race on the last night of the season was $825,000.Stan went that night and correctly picked the winners.However,it turned out that the newspaper had made a mistake.The jackpot was $25,000,not $825,000.Therefore,the track owners refused to pay the latter amount.If this ad is treated like offers of reward,can Stan collect the $825,000?
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Page 12
Chapter 11: Creating a Contract: Acceptances
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Q1) If an offeree dispatches both an acceptance and a rejection to an offer,_____.
A) the acceptance is effective as soon as it is dispatched and a contract is created
B) the rejection is effective as soon as it is dispatched and no contract can be created
C) both the acceptance and the rejection are not effective and another response must be issued
D) whichever response reaches the offeror first will determine whether a contract is created
Q2) When communicating acceptance of an offer,a stipulation:
A) is a condition made by the offeror about the manner in which the offer must be accepted.
B) is a contingency clause built into a unilateral contract.
C) requires acceptance in writing, else the attempt to accept becomes ineffective.
D) needs a timely expression of acceptance.
Q3) Explain the process followed by the court to determine the intent of the parties to enter into a contract if a dispute arises before the written draft of agreement is created?
Q4) Explain the "Battle of the Forms" rule of the Uniform Commercial Code (UCC).
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Page 13
Chapter 12: Consideration
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Q1) Lou enters into an agreement with LaFancy Inc.,an event management company,to coordinate her wedding in June for the sum of $10,000.In March,Lou calls LaFancy to tell the company the deal is off,because she thinks she can do a better job herself.LaFancy sues Lou,and Lou argues lack of consideration as a defense.Which of the following statements holds true of this scenario?
A) LaFancy has given consideration.
B) LaFancy had a legal duty to plan Lou's wedding even before the agreement was signed.
C) Lou can enforce LaFancy's promise to her.
D) Lou was the only promisor in this contract.
Q2) Explain forbearance to sue in relation to consideration.
Q3) If the amount of a debt is "due and certain," _____.
A) a promise to pay less than the amount lacks consideration
B) the debt is considered to be an unliquidated one
C) there is a dispute about the existence of the debt
D) there is a dispute about the amount of the debt
Q4) Explain an illusory promise and provide an example.
Q5) Explain with an example how promissory estoppel affects consideration.
Q6) Explain the difference between a liquidated and an unliquidated debt.
Page 14
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Chapter 13: Capacity to Contract
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Q1) A person could be medically insane but still have the legal capacity to contract.
A)True
B)False
Q2) When a person has been adjudicated insane,_____.
A) the contract is considered voidable if he or she entered a binding contract during a lucid moment
B) most states hold that the contracts of such persons are not voidable
C) the court appoints a guardian or conservator for the person's estate
D) the court says that such a person is not liable for any value of necessaries
Q3) Courts prevent minors,who misrepresent their age,from defrauding adults,by:
A) asking the minor to place the adult in status quo.
B) holding the minor to his or her spoken statements which clearly indicates intent to be bound by the contract.
C) ratifying contracts before he or she attains majority.
D) proving them incapable of being held in a contract.
Q4) In most states,the agreements of persons who have been adjudicated insane are void.
A)True
B)False
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Chapter 14: Voluntary Consent
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Q1) To prove a case of duress,modern courts require only:
A) the plaintiff to drive a hard bargain.
B) that the threat be a wrongful one.
C) a contract to be more beneficial to one of the parties.
D) statements that amount to puffery.
Q2) An auction house puts a painting up for sale,which they think to be Pablo Picasso's "Acrobat and Young Harlequin." A Japanese businessman purchases the painting for $50 million.The businessman appraises the painting for insurance purposes and discovers that it is a clever fake that is worth only a few thousand dollars.Which of the following statements is true of the scenario?
A) The buyer cannot rescind because he was negligent; he should have investigated the authenticity of the work before bidding on it.
B) The buyer can rescind on the basis of unilateral mistake.
C) The buyer cannot rescind because the auction house did not intentionally mislead him about the authenticity of the painting.
D) The buyer can rescind on the basis of mutual mistake.
Q3) The elements of fraud are the same as the elements for the tort of deceit.
A)True
B)False
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Page 16
Chapter 15: Illegality
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Q1) If a contract is divisible-that is,if the legal parts can be separated from the illegal parts-the courts enforce the legal parts of the contract.
A)True
B)False
Q2) When one or both parties to an illegal bargain are ignorant of the facts that made the bargain illegal,the court is most likely to:
A) never allow either party to recover damages for breach of the agreement.
B) allow recovery for performance rendered before the parties learned of the illegality.
C) declare the bargain unconscionable.
D) regard the contract a serious threat to public welfare and declare it void.
Q3) Which of the following is true of unconscionable contracts?
A) The doctrine of unconscionability can be used to relieve people of their bad bargains.
B) The courts do not have the freedom to remedy unconscionable contracts.
C) The courts do not define unconscionable, leaving it instead for the Code to define.
D) A court may refuse to enforce an unconscionable contract as contrary to public policy.
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Chapter 16: The Form and Meaning of Contracts
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Q1) The Uniform Electronic Transactions Act (UETA)offers specific rules governing when consent has been given electronically.
A)True
B)False
Q2) A person's promise made on an original contract is identical to the promise a third party makes on a guaranty contract.
A)True
B)False
Q3) A clothing store has opened a credit account in which Judy,a college student,gets Alice,her older sister,to agree to pay the amount owed on the account if Judy fails to do so.Which of the following statements is true of this scenario?
A) Judy is the obligor, and she is secondarily liable to the clothing store.
B) Alice is the guarantor, and she is primarily liable to make the payments.
C) Judy is the obligor, and she is contractually liable to the guarantor.
D) Alice is the guarantor, and Alice's contract must be in writing to be enforceable.
Q4) Explain with an example how the parol evidence rule is a potential source of danger for parties who reduce their agreements to written form.
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Chapter 17: Third Parties Contract Rights
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Q1) Zeta is contracted to perform a violin solo for Pat.Zeta assigns the contract to Roy.Which of the following statements is true about delegation of duty in this case?
A) This is a valid delegation of Zeta's duty as Zeta has entered into a novation with Roy.
B) This is a valid delegation of Zeta's duty because Zeta does not want to play for Pat.
C) This is not a valid delegation of Zeta's duty to play because all delegations must be expressly stated in the assignment contract.
D) This is not a valid delegation of Zeta's duty to play because the contract is one in which Zeta's personal skill as a musician is an essential part of the agreement.
Q2) For an assigned claim to be valid,_____.
A) the assignor need not have the capacity to contract
B) the contract must not be voidable for any other reason known to the assignor
C) the contract must have been discharged once prior to the assignment
D) the assignee must have a good title to the rights assigned
Q3) Who is a creditor beneficiary? Can he/she enforce a contract?
Q4) What is an implied guarantee?
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19
Chapter 18: Performance and Remediespart Three Sales
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Q1) If the legal remedies for breach of contract are not adequate to fully remedy a party's injuries,a court has the discretionary right to grant an equitable remedy.
A)True
B)False
Q2) Which of the following statements is true about discharge by alteration?
A) When a parties' agreement is represented by a written instrument, a material, intentional alteration of the instrument by one of the parties does not discharge the other party.
B) When a party does not consent to an alteration or objects to it after learning of it, he or she is not discharged.
C) Alterations by third parties without the knowledge or consent of either contracting party do not affect the parties' rights.
D) Discharge by alteration involves statutorily establishing reasonable time within which a lawsuit must be brought.
Q3) Explain the meaning of discharge in legal terms.Mention the different situations in which a party's duty to perform could be discharged.
Q4) Explain the concept of substantial performance.
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Chapter 19: Formation and Terms of Sales Contracts
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Q1) If a contract requires a seller to ship the goods,title passes to the buyer only when the seller delivers the goods to him.
A)True
B)False
Q2) Under the Uniform Commercial Code,when parties to a sales contract omit a price term,the contract is void because there is no "meeting of the minds."
A)True
B)False
Q3) Ellie took her diamond ring to Portman Jewelers Corp.for routine cleaning.An employee at the store sold the ring to Daniel who was unaware that the ring belonged to Ellie.Which of the following statements is true in this case?
A) Ellie can recover the ring from Daniel.
B) Ellie can sue the store for conversion, but cannot recover the ring from Daniel because he was a buyer in the ordinary course of business.
C) Ellie can recover the ring from the store under the Uniform Commercial Code's ownership principles because the service element is predominant in this case.
D) Ellie cannot sue the store because the store employee acted in good faith.
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Chapter 20: Warranties and Product Liability
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Q1) A statement made by a seller regarding a product might be interpreted as either an opinion or an express warranty depending on:
A) whether the contract is oral or written.
B) the relative knowledge of the buyer and seller.
C) whether the contract contains a disclaimer.
D) the type of goods or services dealt with.
Q2) Which of the following requirements must be satisfied by the sellers according to the Magnuson-Moss Warranty Act and the Federal Trade Commission (FTC)guidelines when they give a written warranty?
A) It should be included in more than one document.
B) It should include a clear description of what is covered, but never include what is excluded from the warranty.
C) It should include the time the warranty begins and its duration.
D) It should allow the seller to choose between a refund and a replacement after the product has been repaired a number of times.
Q3) Define the different situations in which courts can hold manufacturers liable for negligence.
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Chapter 21: Performance of Sales Contracts
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Q1) A buyer is considered to have accepted a whole commercial unit of goods if:
A) the buyer pays for the goods before inspecting them.
B) the buyer accepts any part of the commercial unit.
C) the seller delivers even part of the commercial unit.
D) the seller delivers all the goods in the commercial unit.
Q2) Which of the following is true of the buyer's right of inspection?
A) If the terms of the purchase are cash on delivery, the buyer must pay for the goods before inspection unless they are marked "Inspection Allowed."
B) If the terms of the purchase are cash on delivery, the buyer always has the right to inspect the goods before he pays for it.
C) The buyer has a right to inspect goods only if the transaction involves the purchase of perishable commodities or electronic equipment.
D) The buyer can reject the goods immediately after inspection but only after paying for the goods.
Q3) What does it mean to require parties to act in "good faith" in the performance of a sales contract? Explain and provide an example.
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Chapter 22: Remedies for Breach of Sales Contractspart
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Q1) If the seller refuses to deliver the goods called for by the contract,the buyer can:
A) get the difference between the contract price of the goods and their market price at the time the buyer learns of the seller's breach.
B) sue for only consequential damages, and if he fails, get a percentage of the difference between contract price and market price.
C) avoid giving the seller any credit for expenses saved.
D) seek specific performance even if the goods ordered are not unique in nature.
Q2) The objective of providing remedies for the breach of a sales contract is to:
A) punish or penalize the party responsible for breaching the contract.
B) encourage parties to rely on trade practices rather than express terms.
C) put the injured person in the same position as if the contract has been performed.
D) encourage parties to rely on oral contracts rather than written contracts.
Q3) Liquidated damages are considered reasonable if the amount is not so large as to be a penalty or so small as to be unconscionable.
A)True
B)False
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Page 24
Chapter 23: The Agency Relationship-Creation, duties, and
Termination
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Q1) Discuss the capacity required for an agent to be contracted as a principal or an agent.
Q2) A real estate broker was hired as a rental agent for a house.The house burnt down due to accidental causes.In these circumstances,the _____.
A) agency automatically ends as the subject matter of the agency is destroyed
B) agency is automatically transferred to other properties of the principal C) agent is liable to be compensated even if the aim to the agency has not been accomplished
D) agency may be terminated only by mutual consent
Q3) Termination of an agency based on race,religion,national origin,and age is generally prohibited by state and federal legislation.
A)True
B)False
Q4) An agency relationship results from any indication of consent by the principal that the agent may act on the principal's behalf and under her control.
A)True
B)False
Q5) What does the agent's duty of loyalty mean?
Page 25
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) Which of the following is true about ratification?
A) It releases the principal from liability to the third person.
B) It gives the agent the same right to compensation that he or she would have had if there had been prior authorization.
C) It requires the principal to have full understanding of the legal significance of all material facts.
D) It is inferred by a court from the fact that the agent accepted the benefits of an unauthorized contract.
Q2) Many courts allow a third person to rescind a sales contract when the person has relied on a misrepresentation by the agent even though the contract contains an exculpatory clause.
A)True
B)False
Q3) A general agent:
A) has a limited range of implied authority than a special agent.
B) is authorized by the principal to do a specific act.
C) is an agent who does not possess the authority to contract on behalf of the principal.
D) acts for the principal in a number of transactions over a period of time.
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Chapter 25: Employment Laws-Part Five Business
Organizations
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Q1) States are preempted by the federal government from governing such matters as how soon wages must be paid to the employee and the garnishment of wages.
A)True
B)False
Q2) Which of the following statements is true of the Employee Polygraph Protection Act?
A) If the state law regarding the use of lie detector tests is stricter than the federal law, it is preempted.
B) The act permits private employers to use mechanical lie detector tests for the purpose of screening applicants.
C) The act allows manufacturers and distributors of controlled substances wider use of mechanical lie detector tests.
D) It permits the employer to use lie detector tests on employees only when the employer is engaged in an investigation of theft.
Q3) Describe Title VII of the Civil Rights Act of 1964.Discuss the purpose and coverage of the provision.
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Chapter 26: Which Form of Business Organization
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Q1) What are the factors to be considered in the creation of a limited liability company (LLC)?
Q2) Ira is deeply involved in the management of a certain business.If Ira dies,the business entity would be considered legally dissolved as a result of Ira's death if:
A) she was a shareholder of a corporation.
B) the business is a partnership and Ira is a partner in it.
C) the business is a corporation.
D) the business is a Subchapter S corporation.
Q3) A partnership can be changed to a corporation later,when profits are assured.
A)True B)False
Q4) Which of the following run the risk of unlimited personal liability?
A) Partners in a limited partnership
B) Partners in a general partnership
C) Shareholders in S Corporations
D) Corporate shareholders
Q5) A corporation will be dissolved upon the death or insolvency of a shareholder.
A)True
B)False
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Chapter 27: Partnerships
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Q1) A creditor of a partner can attach any property owned by the partnership.
A)True
B)False
Q2) To act contrary to a partnership agreement,_____.
A) vote of the majority prevails
B) unanimous agreement is required
C) implied authority by RUPA is provided
D) approval of senior partners is required
Q3) A partner's ownership of partnership property is called a partnership interest.
A)True
B)False
Q4) The significant difference between a joint venture and partnership is that:
A) joint venturers sometimes are held to have less implied and apparent authority than partners.
B) a joint venture relates to a continuing business, and a partnership relates to a single enterprise.
C) the requirement for joint ventures is more formal in comparison with partnership agreements.
D) joint ventures unlike partnership agreements come into existence only when there is an express contract.
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Chapter 28: Formation and Termination of Corporations
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Q1) Which of the following is a useful way of preventing unwanted persons from entering a corporation?
A) Novation
B) Consent restraint
C) Piercing the corporate veil
D) Estoppel
Q2) Failure to appoint a registered agent in the state of incorporation is grounds for an involuntary dissolution.
A)True
B)False
Q3) A de facto corporation:
A) could not be challenged by a third party.
B) existed when the promoters substantially complied with all mandatory provisions.
C) did not exist when there was an honest attempt to comply with the mandatory provisions of the corporate statute.
D) was permitted to deny its corporate existence.
Q4) Mention the matters that must be included in the articles of incorporation according to the Model Business Corporation Act (MBCA).
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Chapter 29: Management of the Corporate Business
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Q1) Scott was a member of the board of directors of Buffalo Corporation.Officers of Buffalo were considering the purchase of new equipment to produce a new product.The board of directors had not been consulted about the new venture,but Scott found out about the plan and objected to its implementation.He sought to inspect the corporate books and records to gain factual information supportive of his position.The officers refused his inspection request,asserting that Scott had no management function or power.Under these circumstances,Scott:
A) is barred from examination of the books and records of the corporation under the business judgment rule.
B) has the right to inspect corporate books and records, as information regarding the corporation and its affairs is essential to perform his duties.
C) is barred from examination of the books and records of the corporation under the doctrine of respondeat superior.
D) has the right to inspect corporate books only if he is also a majority shareholder.
Q2) What are the three elements that must be met before directors or officers may be found to have usurped a corporate opportunity?
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Dividends must always be paid in cash.
A)True
B)False
Q2) A corporation as well as its subsidiaries can vote treasury shares.
A)True
B)False
Q3) Debenture holders have priority over bondholders as to the assets securing the debt.
A)True
B)False
Q4) An illegally paid dividend may be recovered from a shareholder who received it with knowledge of the illegality.
A)True
B)False
Q5) Shares are never worth more than the par or stated value.
A)True
B)False
Q6) How does common stock differ from preferred stock?
Page 32
Q7) What requirements must be met if a shareholder meeting is to be conducted remotely?
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Chapter 31: Securities Regulation
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Q1) The Securities Act of 1933 is a one-time disclosure statute,although some of its liability provisions purport to cover all fraudulent sales of securities.
A)True
B)False
Q2) The 1934 Act definition of a security is similar to the 1933 Act definition except that it excludes notes and drafts that mature not more than nine months from the date of issuance.
A)True
B)False
Q3) Why are some securities exempted from the registration provisions of the 1933 Act? Give two examples of such securities.Are they exempted from the antifraud provisions of the act as well?
Q4) Describe the Foreign Corrupt Practices Act and the reason for its enactment.
Q5) _____ are important securities exemptions from the registration provisions of the 1933 Act.
A) Securities of profit issuers
B) Short-term notes and drafts
C) Private offerings
D) Initial market securities
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Chapter 32: Legal Liability of Accountantspart Six Property
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Q1) Generally accepted accounting principles:
A) limit recovery to those with a direct contractual relationship to the accountant.
B) apply to the way business transactions should be recorded.
C) give directions to accountants in auditing the books of an enterprise.
D) protect the investor who is unknown to the accountant when the financial statements are prepared.
Q2) Rule 10b-5 of the Securities Act of 1934 prohibits any person from making a misstatement or omission of a material fact in connection with the:
A) mortgage of real estate.
B) mortgage of constructing a building.
C) purchase or sale of any security.
D) purchase or sale of a property.
Q3) The failure of an accountant to discover fraud by the client's employees or others would not be considered proof of negligence by the accountant.
A)True
B)False
Q4) Describe the accountant-client privilege.
Q5) List the five major judicial approaches to third-party negligence actions.
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Chapter 33: Personal Property and Bailments
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Q1) If property is mislaid by its owner,_____.
A) the finder of the property has the right to hold the property for the rightful owner
B) the finder can be held guilty of conversion and must pay the owner the fair value of the property
C) the finder acquires no rights to the property
D) the first person who thereafter takes possession of it with the intent of claiming ownership becomes its owner
Q2) A conditional gift is a completed gift.
A)True
B)False
Q3) Jared,a regular customer at Pablo's Bookstore,placed his backpack near one of the bookshelves where he was browsing.Jared forgot to take his backpack when leaving the store.If Farah,another customer at Pablo's,found Jared's backpack in the store,_____.
A) Farah would have the right to hold the backpack for Jared
B) the bookstore would have the right to hold the backpack for Jared
C) Farah would acquire possession and ownership of the backpack
D) the bookstore would acquire possession and ownership of the backpack
Q4) What are the differences between a gift inter vivos and a gift causa mortis?
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Page 35
Chapter 34: Real Property
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Q1) A person may have the right to use the land of another person but not to actually occupy it on a long-term basis.The property interest that grants a person this particular right is known as a(n)_____.
A) fee simple
B) license
C) lease
D) easement
Q2) A quitclaim deed:
A) guarantees that the grantor has good title to the real property.
B) affords the grantee the right to sue the grantor for defective title.
C) is used to cure technical defect in the chain of title to property.
D) warrants against all liens and easements.
Q3) Describe the purpose of the Fair Housing Act.
Q4) When a tenant attaches personal property to leased premises for the purpose of carrying on his or her business,it is called a(n)_____.
A) domestic fixture
B) agricultural fixture
C) trade fixture
D) ornamental fixture
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Chapter 35: Landlord and Tenant
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Q1) Modern contract doctrines such as unconscionability,constructive conditions,the duty to mitigate damages,and implied warranties are not applied to leases.
A)True
B)False
Q2) If Francisca sublets her apartment to William,she is no longer liable to the landlord for the commitments she made in the lease.
A)True
B)False
Q3) In a periodic tenancy,_____.
A) the landlord and tenant agree on a specific duration of the lease
B) either party may choose to conclude the tenancy at any time
C) either party must give advance notice to the other to terminate the tenancy
D) the tenant remains in possession of the property even after the lease has expired
Q4) If damage to leased property arises through no fault of the tenant,that tenant still has a duty to take interim steps in order to prevent further damage from the elements.
A)True
B)False
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Chapter 36: Estates and Trusts
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Q1) A codicil is a(n):
A) amendment to a will.
B) automatic revocation of a will.
C) written document that lists future health care decisions for incapacitated individuals.
D) creditor's claim against the estate.
Q2) A charitable trust is not valid if no definitely ascertainable beneficiary is named and or if it is to continue for an indefinite or unlimited period.
A)True
B)False
Q3) Describe the responsibilities of a personal representative in the administration of an estate.
Q4) Name the basic formalities required by most states in the execution of a will.
Q5) If a person wants to make a change to their will,the person can do so by:
A) appearing in court.
B) executing a codicil.
C) posting a legal notice of the amendment.
D) striking out objectionable provisions in an existing will.
Q6) What are the conditions under which holographic wills are recognized as valid?
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Chapter 37: Insurance-Part Seven Commercial Paper
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Q1) Which of the following is most likely to be non-claimable under property insurance contracts?
A) Overflows from burst pipes
B) Loss from vandalism
C) Loss from hostile fire
D) Nuclear contamination
Q2) Describe portable health insurance.
Q3) For the insurance to be valid,the required insurable interest in life insurance contracts must exist:
A) before the loss occurs.
B) at the time the loss occurs.
C) at the time the policy was issued.
D) throughout the term of the policy.
Q4) Term contracts,like whole life contracts,build cash surrender value or loan value.
A)True
B)False
Q5) Describe the insurable interests required in life and property insurance.
Q6) What are an insurer's obligations in a liability insurance contract?
Q7) Explain the right of subrogation.
Page 39
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Chapter 38: Negotiable Instruments
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Q1) An instrument that does not meet the formal requirements for negotiability will be treated as a simple contract rather than a negotiable instrument.
A)True
B)False
Q2) A two-party instrument in which one person makes an unconditional promise in writing to pay another person,with or without interest,either on demand or at a specified,future time is a _____.
A) promissory note
B) certificate of deposit
C) draft
D) check
Q3) Nigel,a resident of North Carolina,sent Claude,a resident of Lyon,France,a note that read,"Ninety days after date,I promise to pay to the order of Claude 5,000 (signed)Nigel." The note is:
A) payable in an equivalent dollar amount.
B) not payable in the foreign money specified.
C) payable on demand in the foreign money specified.
D) payable at sight in an equivalent dollar amount.
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Chapter 39: Negotiation and Holder in Due Course
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Q1) How does one become a "holder in due course"?
Q2) Indorsing an instrument,such as by writing the words "Pay to Sara Garcia," limits payment to Sara Garcia and further negotiation becomes void.
A)True
B)False
Q3) Any person who can trace his title to an instrument back to a holder in due course receives rights similar to a holder in due course even if he cannot meet the requirements himself.This is known as the _____.
A) shelter rule
B) holder in due course rule
C) Federal Trade Commission rule
D) irregular paper law
Q4) Which of the following is a partial defense against a holder in due course and a complete defense against a non-holder in due course?
A) Illegality that makes a contract voidable
B) Fraud in the inducement of any underlying contract
C) Alteration of the completed instrument
D) Lack or failure of consideration
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Chapter 40: Liability of Parties
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Q1) Liability on negotiable instruments flows from:
A) proper payment of the instruments.
B) signatures on the instruments.
C) nonpresentment of the instruments.
D) writing "without recourse" on the instruments.
Q2) Chang gives a promissory note to Rahim.Rahim indorses it and negotiates it to John,who indorses it and negotiates it to Andy.Which of the following statements is true of this scenario?
A) Even if John and Rahim do not pay the note, Chang cannot be held liable by Andy because Chang is the maker.
B) Rahim is primarily liable on the basis of his indorsement.
C) John has no liability to Rahim because John indorsed after Rahim indorsed the note.
D) John is primarily liable on the basis of his indorsement.
Q3) A holder in due course may discharge the liability of the parties to the instrument by:
A) publishing notice.
B) canceling it.
C) accidentally destroying it.
D) paying for it even if it is a stolen one.
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Page 42
Chapter 41: Checks and Electronic Fund Transfers-Part
Eight Credit Transactions
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Q1) If a bank pays a check that bears a forged signature of the drawer,the transaction will be treated as one in which the bank paid out of:
A) the depositor's funds under Article 3 of the UCC.
B) its own funds under Article 3 of the UCC.
C) its own funds under Article 4 of the UCC.
D) the depositor's funds under Article 4 of the UCC.
Q2) Check 21 contains a special refund procedure,called "expedited recredit," for a customer who suffers a loss because of:
A) the original check.
B) a fraudulent check.
C) a substitute check.
D) a cashier's check.
Q3) What are the different electronic funds transfer systems utilized by consumers?
Q4) Generally,a drawee bank is obligated to certify a check.
A)True
B)False
Q5) A cashier's check is same as a certified check.
A)True
B)False
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Chapter 42: Introduction to Security
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Q1) Which of the following is true of a land contract?
A) The seller agrees to convey the title when the full price is paid.
B) The trustee holds legal title to the property put up as security.
C) If a buyer defaults, the seller does not have the right to declare a forfeiture.
D) The title to property is conveyed if partial payment has been made.
Q2) In a deed of trust transaction,when a trustee sells the property and the proceeds generate a deficiency,the _____.
A) borrower is relieved of all obligations to the lender
B) lender may sue the borrower on the debt and recover a judgment
C) lender may sue the trustee
D) trustee may sue the borrower
Q3) Which of the following statements is true of accommodation sureties?
A) They are people paid for serving as a surety.
B) They are protected by the courts at a higher level than other types of sureties.
C) They must show that they will be harmed by an extension of time before they are relieved of responsibility.
D) They are professional companies that take payment for acting as a surety.
Q4) Describe the distinction between a surety and a guarantor.
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Page 44
Chapter 43: Security Interests in Personal Property
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Q1) A perfected purchase money security interest in inventory is likely to have priority over a conflicting security interest in the same inventory if the:
A) purchase money security interest is perfected three months after the debtor receives possession of the inventory.
B) purchase money secured party gives an oral notification to the prior secured creditor before the debtor receives the inventory.
C) holder of the competing security interest received notification within eight years before the debtor receives the inventory.
D) notification states that the person expects to acquire a purchase money security interest in inventory of the debtor and describes the inventory.
Q2) Documents of title include:
A) stock and bonds.
B) dock warrants and dock receipts.
C) certificates of deposit.
D) conditional sales contracts.
Q3) Explain a creditor's three potential courses of action upon default.
Q4) Explain how a security interest is created.
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Chapter 44: Bankruptcy-Part Nine Government Regulation
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Q1) A voluntary petition in bankruptcy can only be filed by a corporation.
A)True
B)False
Q2) Which of the following statements is true of Chapter 13 of the Bankruptcy Code?
A) It encourages extensions of credit.
B) It does not help debtors to overcome their financial difficulties.
C) It reduces the amount of time allowed to repay debts.
D) It permits reductions of debts.
Q3) Bill filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Act.Bill listed,among others,the following debts: a debt to the National Bank for $10,000 secured by his 1980 truck,which is valued at $3,500; an unsecured debt to his friend,Francis; a $500 debt to the IRS for 1989 federal income taxes; and a $500 student loan to the university which was due one year ago.In this scenario,_____.
A) the $500 debt to the IRS is a nondischargeable debt
B) Francis can claim the debt without filing a proof of claim
C) the $500 student loan to the university is a dischargeable debt
D) the bank can receive preferential payment because the debt owed to it is the highest
Q4) What are the primary purposes of the Bankruptcy Code?
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Page 46
Chapter 45: The Antitrust Laws
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Q1) Licensing arrangements:
A) are per se violations of U.S. antitrust laws.
B) should undergo rule of reason analysis.
C) should be subject to strict scrutiny analysis.
D) are unlikely to raise antitrust issues.
Q2) Which of the following is true of joint ventures?
A) They are arrangements in which two or more entities collaborate with respect to research, development, production, marketing, or distribution.
B) They directly violate Section 2 of the Sherman Act.
C) They do not violate Section 1 of the Sherman Act as they involve cooperation between actual or potential competitors.
D) They refer to the acquisition of one company by the other.
Q3) A candy company merging with a greeting cards company is a:
A) vertical merger.
B) conglomerate merger.
C) product-extension merger.
D) market-extension merger.
Q4) Describe defenses to direct price discrimination under the Robinson-Patman Act.
Q5) Describe the Hart-Scott-Rodino Antitrust Improvements Act.
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Chapter 46: Consumer Protection Laws
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Q1) The Consumer Leasing Act:
A) requires the creditor to disclose the aggregate costs of leasing consumer goods.
B) does not require the lease agreement to define the consumer's liability.
C) applies to leases of consumer goods only if the leases are for more than three months.
D) applies to leases of consumer goods if the total contractual obligation exceeds $25,000.
Q2) Under the Truth in Lending Act,the term "finance charge":
A) includes all costs related to the extension of credit.
B) includes all costs related to the extension of credit except for fees for credit reports.
C) includes only interest rates but not any other credit charges.
D) does not include loan fees and fees for credit reports.
Q3) The Federal Trade Commission requires used car dealers to display a "Buyer's Guide" on each car that tells whether the car is covered by a warranty.
A)True
B)False
Q4) What is the main idea behind the Holder in Due Course rule?
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Chapter 47: Environmental Regulation
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Q1) Under the Clean Air Act,routine maintenance,repair,and replacement activities as well as increases in hours of production that are not accompanied by increases in emissions are included in the definition of modification.
A)True
B)False
Q2) The National Environmental Policy Act (NEPA)requires a federal agency to consider the environmental impact of a project before the project is undertaken.
A)True
B)False
Q3) The Resource Conservation and Recovery Act (RCRA):
A) establishes a program governing the injection of wastes into wells.
B) has the responsibility for designating disposal sites and establishing the rules governing ocean disposal.
C) provides the federal government and the states with the authority to regulate facilities that generate, treat, store, and dispose of hazardous waste.
D) requires identification and assessment of sites in the United States where hazardous wastes had been spilled, stored, or abandoned.
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