Entrepreneurship and the Law
Review Questions
Course Introduction
This course explores the intersection of entrepreneurship and legal principles, equipping students with the foundational knowledge needed to navigate the legal landscape of starting and operating a business. Topics include intellectual property, business formation, contracts, financing, regulatory compliance, employment law, and risk management. Through case studies and practical exercises, students will learn how legal considerations impact entrepreneurial decision-making, strategy, and innovation. The course is designed to enhance legal literacy for aspiring entrepreneurs and those interested in the business startup ecosystem.
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) Legislation enacted by governmental units within the states (cities and counties)is called a(n)_____.
A) common law
B) administrative regulation
C) ordinance
D) treaty
Answer: C
Q2) The feature of decisional law in common law systems which says that a court,in making a decision,should follow the rulings of prior cases that have similar facts is
A) caveat emptor
B) ex post facto laws
C) stare decisis
D) contra proferentem
Answer: C
Q3) Unlike legal positivists,legal sociologists stress the need for law to change and keep pace with the evolution of society.
A)True
B)False
Answer: True
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Chapter 2: Dispute Settlement
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Q1) A procedural device that is designed to narrow issues to be proved at trial or to facilitate a settlement is the _____.
A) alternative dispute resolution
B) mediation agreement
C) judgment notwithstanding the verdict
D) pretrial conference
Answer: D
Q2) A record in writing of the entire trial proceedings including the testimony of all the witnesses and any discussions between the judge and the attorneys that must be prepared and forwarded to the appeals court is called a _____.
A) treatise
B) citation
C) transcript
D) brief
Answer: C
Q3) All opinions of the Supreme Court judges can be cited as precedents.
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) For companies transacting business across the globe,the identification of common values may be very daunting because culture may have strong influences on the ethical attitudes of business managers.
A)True
B)False
Answer: True
Q2) Corporate codes of ethical conduct:
A) effectively deter unethical behavior.
B) are sometimes viewed as thinly disguised attempts to mislead the public into thinking that the company behaves ethically.
C) accurately reflect the values of society.
D) tend to expressly publish policies that deal directly with corruption to avert legal measures that might impose severe constraints.
Answer: B
Q3) The tendency for bad news not to get to the top is very different from groupthink.
A)True
B)False
Answer: False
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Chapter 4: Business and the Constitution
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Q1) If the governmental action has a reasonable relationship to the achievement of a legitimate purpose,it is declared constitutional under:
A) strict scrutiny analysis.
B) intermediate scrutiny analysis.
C) rational basis analysis.
D) suspect classifications.
Q2) Which of the following statements is true of Due Process and Equal Protection scrutiny?
A) The judicial tests for examining Due Process and Equal Protection challenges fail to share a common premise.
B) The judicial oversight is strict when the intrusion into individual rights is slight.
C) Whenever regulatory programs discriminate, they trigger equal protection analysis.
D) When regulatory programs interfere with the exercise of individual rights, they are not subject to both substantive and procedural due process challenges.
Q3) Briefly discuss state power.
Q4) When is strict scrutiny analysis triggered?
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Chapter 5: Crimes
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Q1) 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
Q2) Which of the following statements is true of the Miranda warning?
A) It is a protection offered to the U.S. citizens under the Eighth Amendment.
B) It gives defendants the right to a speedy, public trial by a jury of their peers.
C) It allows persons accused of crimes the right to confront and cross-examine their accusers.
D) It gives people charged with a criminal offence the right to be represented by effective counsels.
Q3) Why does the legal system of the United States have safeguards to protect the accused? Name a few of these safeguards.
Q4) Voluntary intoxication is a complete defense to a crime.
A)True
B)False
Q5) Explain two laws governing computer privacy in the United States.
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Chapter 6: Intentional Torts
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Q1) Franco takes a shortcut across Simone's yard on his way to school.Even if Simone gives Franco permission to use her yard as a shortcut,Franco has still trespassed on Simone's property.
A)True
B)False
Q2) Jean,a restaurant critic,publishes a review in a national daily that the sandwiches served at his friend's deli are usually not fresh.Tom,the owner of the deli,notices a significant decrease in customers after the review gets published.Although the statement made by Jean in his review is true,Tom wants to sue Jean.Can Tom recover from Jean for defamation?
A) Yes, because Jean abused his conditional privilege.
B) No, because Jean has the defense of truth.
C) Yes, because Jean communicated the statement to third persons and defamed Tom.
D) No, because personal finances and disputes cannot be brought to court.
Q3) Intentional torts are both civil and criminal in nature.
A)True
B)False
Q4) Explain the difference between defamation and disparagement.
Q5) Define and discuss the tort of trespass to land.
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Chapter 7: Negligence and Strict Liability
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Q1) Jose,a migrant worker who lived in a mobile home,died in a fire.The smoke alarm of the mobile home malfunctioned and did not go off.He was trapped inside while the fire engulfed him.The state had a law that required dwellings to be equipped with smoke detectors and that they be maintained.In this scenario,Jose's widow can sue the owner of the mobile home under _____.
A) disparagement
B) negligence
C) libel
D) causation
Q2) 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.
Q3) Under the doctrine of strict liability,care and caution mitigate liability.
A)True
B)False
Q4) Briefly describe the main defenses to negligence.
Q5) What is the main difference between recklessness and negligence?
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Chapter 8: Licensing and Intellectual Propertypart Two Contracts
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Q1) Which of the following statements is true of the confidentiality clause?
A) It restricts the licensor's right to disclose trade secrets after the licensing agreement has ended.
B) During a licensing agreement, the licensor can be permitted to limit the number of people with whom the licensee may share the technology.
C) It cannot be taken up in the court when there is misappropriation because it binds only private parties together.
D) Prior to licensing, it prohibits potential licensees to inspect the technology the licensor provides.
Q2) Through confidentiality clauses,a licensor may wish to ensure that the licensees do not use or disclose technology after an agreement ends.
A)True
B)False
Q3) A business can reduce the risk of suffering devastating losses in the event of an expropriation through licensing.
A)True
B)False
Q4) How can a plaintiff recover for trademark infringement?
10
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Chapter 9: The Nature and Origins of Contracts
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Q1) The Industrial Revolution that modernized America changed many of the basic assumptions underlying contract law.
A)True
B)False
Q2) Yuan writes to Rita saying that he would sell her his car for $1,000.Rita writes back agreeing to buy the car on Yuan's terms.Given this information,the contract between Yuan and Rita is:
A) unilateral and executory.
B) bilateral and unenforceable.
C) bilateral and executory.
D) unilateral and implied.
Q3) The Uniform Commercial Code was adopted by all the states in America,except Louisiana,which has adopted only part of the Code.
A)True
B)False
Q4) A voidable contract is one that may be canceled by only one of the parties.
A)True
B)False
Q5) Discuss the importance of having contracts in today's market economy.
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Chapter 10: Creating a Contract: Offers
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Q1) The general rule is that an offeror cannot revoke an offer at any time prior to acceptance if he has promised not to revoke for a stated period of time.
A)True
B)False
Q2) What is an offer? What are the three conditions necessary for the creation of an offer?
Q3) Bob,a merchant,makes an offer to Linda,another merchant,to buy 1,000 of her widgets in a signed letter containing all necessary terms of the offer.The letter states that Bob will keep the offer open for three weeks from the day the offeree receives it.One week later,Bob writes another letter to Linda attempting to revoke his offer.Linda writes a letter to Bob accepting Bob's original offer before she receives his revocation.Which of the following statements is true of this situation?
A) Linda's acceptance is effective and a contract is created.
B) Bob's revocation is effective and no contract is created.
C) Promissory estoppel prevents the formation of a contract in this situation.
D) The offer cannot be revoked since it is an option offer.
Q4) What are the factors that influence the reasonable length of an offer?
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Chapter 11: Creating a Contract: Acceptances
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Q1) In a browse-wrap contract,_____.
A) the user assents to contractual terms by clicking on a button that reads "yes" or "I agree"
B) a written draft of the agreement is prepared and the user accepts the terms by signing on it
C) time, place, or method of communication is spelled out in the contract
D) the agreements claim that a user assents to the terms by taking a specified action
Q2) Laura offered to sell Louis a tract of land.The offer was complete and certain as to all material terms.The offer stated that a telegraphed acceptance was required.Within a reasonable time,Louis telephoned Laura to accept.Which of the following is a true statement about this situation?
A) Louis can use promissory estoppel to enforce a contract here.
B) Louis's telephone call would be a good acceptance as this case involves a sale of goods.
C) Louis has not accepted and there is no contract.
D) Louis has accepted because a telephone call is a reasonable means of acceptance.
Q3) 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) Explain an illusory promise and provide an example.
Q2) Stintson Corp.had agreed to create employee identity cards for McLaughlin Inc.for $60,000.Some of the cards delivered by Stintson Corp.had damages made during the lamination process.McLaughlin Inc.promised Stintson Corp.an additional $20,000 to replace the damaged identity cards,and Stintson Corp.did so.Then McLaughlin Inc.refused to pay Stintson Corp.more than $60,000 for the work.Which of the following statements is true of this situation?
A) Stintson Corp. is not entitled to any more than $60,000 for its work.
B) McLaughlin Inc. owes Stintson Corp. the additional $20,000.
C) Stintson Corp. would still be entitled only to $60,000 because such an act is new consideration that was provided to support the modification.
D) Stintson Corp. is entitled to the additional $20,000 as legal value has nothing to do with adequacy of consideration.
Q3) Freedom of contract includes the freedom to make bad bargains.
A)True
B)False
Q4) Explain the difference between a liquidated and an unliquidated debt.
Q5) Explain forbearance to sue in relation to consideration.
Q6) Explain with an example how promissory estoppel affects consideration.
Page 14
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Chapter 13: Capacity to Contract
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Q1) According to the Uniform Commercial Code,minors whose contracts involve goods can no longer reclaim those goods from innocent third parties.
A)True
B)False
Q2) Performing part of the contract after attaining majority,such as making payments or accepting some performance under the contract,is not enough evidence for ratification.
A)True
B)False
Q3) Under the Uniform Commercial Code,minors who disaffirm their contracts involving goods:
A) can reclaim the goods from third parties.
B) can no longer reclaim those goods from innocent third parties.
C) have to return consideration even if the goods have been consumed.
D) have to return consideration even if the goods have been stolen from them.
Q4) Minors are generally held liable on a quasi contract basis for the reasonable value of necessaries furnished to them.
A)True
B)False
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Chapter 14: Voluntary Consent
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Q1) Which of the following is the meaning of the term "caveat emptor"?
A) Let the buyer beware
B) The parties' duty of care
C) Justifiable reliance
D) Remedy for fraud
Q2) All the elements of misrepresentation and the fact that the misrepresentation was knowingly made with an intent to deceive,have to be established to prove _____.
A) undue influence
B) duress
C) fraud
D) a unilateral mistake
Q3) When Steve convinces Tom to buy a pre-owned car from him while withholding the fact that the car has a significant mechanical problem,it indicates _____.
A) undue influence
B) duress
C) unintentional tort
D) scienter
Q4) Explain the duty of care that needs to be exercised by parties entering a contract.
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Page 16
Chapter 15: Illegality
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Q1) The courts have no power over unconscionable contracts.
A)True
B)False
Q2) Which of the following remedies is used in cases involving illegal wagering contracts?
A) Forfeiture of excess interest
B) Enforceability of the contract in such cases
C) Weekday ratification of contracts
D) No remedies in such cases
Q3) Timothy is a construction worker in one of the leading firms of a city.His employment contract includes a clause which says he cannot work as a construction worker within the city for fifteen years once he leaves the company.This clause is:
A) illegal as it is injurious to public service.
B) only illegal if it violates state or federal antitrust laws.
C) illegal as a contract in restraint of trade.
D) legal because the employer can add any constraint to the agreement.
Q4) Explain the difference between a regulatory and revenue-raising statute.
Q5) Explain the concept of exculpatory clauses in contracts.
Q6) What are usury laws and Blue Laws?
Page 17
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Chapter 16: The Form and Meaning of Contracts
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Q1) Under the Electronic Signatures in Global and National Commerce Act,digital signatures are given the same effect as one written in ink on paper.
A)True
B)False
Q2) Fernando is the owner of Pick Food Restaurant.He makes an oral agreement with Purple Lotus Works for the design and production of 5,000 unique custom-made dinner plates with the logo of Pick Food Restaurant on them.Purple Lotus reworks its production schedule and creates dies to add Pick Food Restaurant's logo in the designer plates.A week later,Fernando calls Purple Lotus and says that he no longer wants the plates and calls off the deal.In this scenario,it is most likely that:
A) the parties' agreement is at Fernando's disposal because he is the customer.
B) Purple Lotus is protected by the statute of frauds exception for specially-manufactured goods.
C) the parties' agreement is not valid since it was only an oral agreement.
D) the agreement between Fernando and Purple Lotus is unenforceable and Fernando is protected under the statute of frauds.
Q3) What kind of writing is required under the statute of frauds?
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Page 18
Chapter 17: Third Parties Contract Rights
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Q1) A creditor beneficiary has rights against the promisee,but not the promisor.
A)True
B)False
Q2) If a third party only incidentally benefits from a contract and was not an intended beneficiary,he or she is an incidental beneficiary and cannot enforce it.
A)True
B)False
Q3) The municipality of College Town enters into a contract with Wooster Inc.to have the town's roads repaired.Katie is a resident of College Town and will be considered a(n):
A) donee beneficiary.
B) incidental beneficiary.
C) implied beneficiary.
D) creditor beneficiary.
Q4) The term delegation refers to the transfer of:
A) personal rights.
B) duties.
C) property rights.
D) securities.
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Page 19
Chapter 18: Performance and Remediespart Three Sales
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Q1) Commercial frustration:
A) is very similar to impracticability.
B) occurs when the event is foreseeable.
C) excuses performance when events occur before the formation of the contract.
D) occurs when the promisor expressly assumes the risk that the event has occurred.
Q2) Consequential damages:
A) occur when the special circumstances of the plaintiff cause him or her to suffer losses that would not ordinarily be foreseeable as a result of the breach.
B) are recoverable unless the defendant had reason to foresee them at the time the contract was created.
C) are measured by the loss in value of the promised performance.
D) are very small damages that the court may award the plaintiff when a technical breach of contract has occurred without causing any actual loss.
Q3) Punitive damages are recoverable for breach of contract.
A)True
B)False
Q4) Explain the concept of substantial performance.
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Chapter 19: Formation and Terms of Sales Contracts
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Q1) Under the Uniform Commercial Code,if a contract is silent about the place of delivery,the goods are to be delivered:
A) at the production site of the goods.
B) at the seller's place of business.
C) at the buyer's residence.
D) at any place the seller deems convenient.
Q2) Under the Uniform Commercial Code,which of the following statements is true for the identification of goods to the contract?
A) It is applicable if delivery is to be made without moving the goods.
B) It occurs when the parties use a negotiable document of title when the goods are being shipped.
C) It does not result from the actions of the seller, such as setting aside or marking the goods.
D) It does not result from the contract description of the goods.
Q3) Which of the following terms is closely related to destination contracts?
A) CIF (cost, insurance, and freight)
B) FAS (free alongside)
C) Ex-ship
D) C&F (cost and freight)
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Page 21
Chapter 20: Warranties and Product Liability
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Q1) Syeda bought a thermos bottle from Pentagon Corp.When using it for the first time,she poured coffee into it and was adding some warm milk when it exploded,sending shards of glass into her face and injuring her right eye.Syeda testified that she had not dropped the thermos and had not abused it.She sued Pentagon,claiming,among other things,breach of warranty of merchantability.Under the Uniform Commercial Code,was the warranty of merchantability breached?
Q2) Define the different situations in which courts can hold manufacturers liable for negligence.
Q3) Goods sold "with all faults" are sold without the implied warranties of merchantability and fitness for a particular purpose.
A)True
B)False
Q4) In order to exclude the implied warranty of merchantability,the seller must put the exclusion in writing.
A)True
B)False
Q5) A seller may create an express warranty by merely giving an opinion.
A)True
B)False
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Chapter 21: Performance of Sales Contracts
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Q1) If a buyer has a basis for rejecting a delivery of goods,the buyer must act within 12 months of delivery.
A)True B)False
Q2) By accepting goods,the buyer forfeits remedies against the seller for any nonconformities in the goods.
A)True B)False
Q3) The terms in the contract between the parties are the primary means for determining the obligations of the buyer and seller.
A)True
B)False
Q4) If there is a conflict between the express terms of the contract and trade usage,_____.
A) the trade usage prevails
B) the express terms prevail
C) neither will prevail over the other
D) implied terms prevail
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Page 23
Chapter 22: Remedies for Breach of Sales Contractspart
Four Agency and Employment
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Q1) Bev ordered an alabaster-colored mink coat from Poe's Furs.The coat had been specially made because she required an unusually large size and had requested a particular styling.The coat cost was $5,500,of which Bev paid $250.Several months later,she decided that she did not want the coat and canceled the order even though Poe's Furs had completed the coat.Poe's Furs then filed a suit for the balance of the purchase price.What can Bev argue in defense?
Q2) A seller who breaks the contract is not liable for paying damages when the buyer rightfully rejected the goods.
A)True
B)False
Q3) When a buyer breaches a contract,the seller:
A) must deliver the goods to the buyer anyway.
B) need not give any credit to the buyer for any expenses the seller saved.
C) may resell the goods covered by the contract.
D) cannot reclaim goods in the possession of an insolvent buyer.
Q4) If a liquidated damages clause is not enforceable because it is unconscionable,the injured party is barred from recovering actual damages.
A)True
B)False
Page 24
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Chapter 23: The Agency Relationship-Creation, duties, and
Termination
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Q1) Most agency rules spring from:
A) customary law.
B) common law.
C) statutory law.
D) regulatory law.
Q2) The agent has a duty to inform the principal of knowledge the agent gains in the course of his or her responsibilities.
A)True
B)False
Q3) Discuss the purpose of insurance commissions paid to the agents.
Q4) One can never serve as the principal for both parties to a transaction.
A)True
B)False
Q5) A person has the capacity to act as an agent only if he/she has the legal capacity to contract.
A)True
B)False
Q7) Explain the concepts "agency at will" and "agency coupled with an interest." Page 25
Q6) Discuss the capacity required for an agent to be contracted as a principal or an agent.
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) Ratification releases:
A) the principal from liability.
B) the agent from liability.
C) the third party from liability for acts of the principal.
D) the principal and the third party from liability.
Q2) An agent who commits a criminal act under instruction from the principal is guilty of that crime.
A)True
B)False
Q3) The test of an agent's implied authority is:
A) the justifiable belief of the agent.
B) the specific language the principal used in granting the authority.
C) the explicit agency agreement between the principal and the agency.
D) the deduction of the third party dealing with the agent.
Q4) Generally,notice to the agent does not imply notice to the principal even if it relates to the business of the agency.
A)True
B)False
Page 27
Q5) Is a principal liable for the acts committed by the employees of an agent? Discuss.
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Chapter 25: Employment Laws-Part Five Business
Organizations
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Q1) Under the Genetic Information Nondiscrimination Act,genetic information includes family medical history.
A)True
B)False
Q2) The payroll records of Mortimer Inc.revealed that all the employees worked an average of 48 hours in the month of June.Each worker received $7.20 an hour for the first 40 hours per week and $10.80 for the eight hours overtime.In May,some employees had been paid as much as $8.00 per hour for the first 40 hours,but the company reduced the scale when female employees complained that men were being paid more for the same work.The records also revealed that the plant manager and personnel manager worked as many as 60 hours per week but did not receive overtime pay.Discuss any legal problems that may exist in this scenario.
Q3) The Fair Labor Standards Act requires covered employers to:
A) pay their professional staff time and a half for hours worked in excess of 45 in one week.
B) pay their employees a minimum hourly wage.
C) pay their employees double time.
D) be involved in hiring and firing decisions.
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Chapter 26: Which Form of Business Organization
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Q1) The advantages of sole proprietorship and partnership taxation include the:
A) lessening of tax burden if the shareholders are active in the operation of the business.
B) reduction of tax burden experienced by shareholders by keeping the dividend rate constant.
C) reduction of the tax liability on the owners' other income by the amount of their individual losses.
D) exemption of privilege taxes for doing intrastate business in another state.
Q2) If a business involves high risk,a single factor such as _____ will be so important as to outweigh other factors.
A) limited liability
B) taxation
C) formalities
D) financing
Q3) A person's status as a shareholder in a corporation automatically gives such person a right to be an employee of the corporation.
A)True
B)False
Q4) What are the advantages of franchising?
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Chapter 27: Partnerships
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Q1) After retiring from Jones Corp.,a partnership founded by Megan Jones and other partners,Megan grew tired of staying at home and started visiting the firm's place of business.The other partners would introduce her to prospective customers as "My partner,Ms.Jones," or "Our partner,Ms.Jones." Megan did not bother to correct anybody about this.She was introduced in this manner to Tiffany,a new customer.Relying on the idea that Megan was a partner,Tiffany entered into a contract with Jones Corp.Which of the following statements is true of Megan if Jones Corp.does not fulfill its obligations?
A) Megan will not be liable as she did not make any claims to partnership.
B) Megan will be liable because she failed to correct the statement when she was being introduced as a partner.
C) The partner who introduced Megan will be liable, but Megan will not be liable.
D) Megan will not be liable as she has withdrawn from the partnership agreement by retiring and she is no more an actual partner.
Q2) Define partnership and explain its key elements.
Q3) People who are involved in a nonprofit association are considered partners.
A)True
B)False
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Chapter 28: Formation and Termination of Corporations
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Q1) Under the Model Business Corporation Act,a shareholder may ask a court to dissolve a corporation when:
A) a corporation uses assets for public welfare.
B) directors are in conflict, their deadlock cannot be broken by shareholders, and the corporation faces ruin.
C) directors are maintaining registered agents without the approval of the shareholders.
D) creditors are acting unfairly or illegally.
Q2) A promoter's liability on preincorporation contracts terminates when a novation is signed.
A)True
B)False
Q3) Before a corporation comes into existence,it _____.
A) can be liable as principal
B) cannot ratify a contract made by the promoter
C) is illegal to pay promoters for their services
D) is liable if the board acts to adopt the contract
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) A _____ authorizes any corporation to adopt a specific amendment to its articles of incorporation that removes breach of duty as a cause of action for monetary damages against directors.
A) charter option statute
B) self-executing statute
C) cap on monetary damages statute
D) SEC oversight statute
Q2) A director of a corporation has the individual right to:
A) establish the price for the sale of shares of stock.
B) elect and remove shareholders.
C) sell, lease, and mortgage assets of the corporation outside the normal course of its business.
D) inspect the corporate books and records.
Q3) What is the meaning of ex officio authority?
Q4) Under the Delaware General Corporation Law,e-mail is not a legally-recognized official form of business communication.
A)True
B)False
Q5) Write a note on indemnification in corporations.
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) One type of stock enables the shareholder to get his or her usual dividend.Then,after the common shareholders receive their normal dividend,he or she is able to share in any additional income with the common shareholders.This type of stock is _____.
A) cumulative preferred
B) noncumulative preferred
C) participating preferred
D) cumulative to the extent earned
Q2) When is a shareholder permitted to sue as a representative of a corporation?
Q3) An illegally paid dividend may be recovered from a shareholder who received it with knowledge of the illegality.
A)True
B)False
Q4) Dividends on _____ stock,if not paid in any year,will be payable later when funds are available.
A) cumulative preferred
B) noncumulative preferred
C) participating preferred
D) cumulative to the extent earned
Q5) How does common stock differ from preferred stock?
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Chapter 31: Securities Regulation
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Q1) Under the _____,the investor's reliance on the integrity of the market was found to justify a presumption of reliance on the misrepresentation.
A) misappropriation theory
B) classical theory
C) fraud-on-the-market theory
D) efficient markets theory
Q2) One of the principal regulatory components of the 1933 Act is _____.
A) the prospectus
B) antifraud provisions
C) securities provisions
D) the registration statement
Q3) A person with inside information must either disclose the information before trading or refrain from trading.
A)True
B)False
Q4) 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?
Q5) Describe the Foreign Corrupt Practices Act and the reason for its enactment.
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Chapter 32: Legal Liability of Accountantspart Six Property
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Q1) Hawthorne Corp.entrusted Edgar,an independent accountant,to prepare an audit report to apply for a loan from Daft Corp.Edgar accepted the accuracy of the client's books without proper investigation while representing that he had completed Hawthorne's audit.A careful audit,however,discovers later that an employee of Hawthorne Inc.was regularly embezzling funds.In this scenario,Edgar:
A) will be liable to Daft Corp. as well as any other creditor who provided loans to Hawthorne Corp. based on his audited financial statements.
B) will not be liable to Hawthorne Corp. to return the fee for the audit because the loan was not provided by Daft Corp.
C) will be liable to Hawthorne Corp. for any losses it suffered from the time when his audit should have discovered the embezzlement.
D) will not be liable to any of the parties as he does not owe them the duty of superior skill or careful scrutiny.
Q2) The Reasonably Foreseeable Users approach exposes a negligent accountant to lesser liability than do the Ultramares and Restatement approaches.
A)True B)False
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Chapter 33: Personal Property and Bailments
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Q1) Common carriers are:
A) not responsible for any loss or damage to goods entrusted to them.
B) usually allowed to limit their liability to a stated value.
C) persons who carry goods only for persons selected by the carrier.
D) held to a lower level of responsibility than private carriers.
Q2) Joshua and Alyssa dated for two years before deciding to get married.Joshua gave Alyssa a $20,000 diamond ring on the occasion of their engagement.Two months later,Joshua called off the engagement without giving Alyssa a valid reason.Under the traditional rule that uses a fault-based approach,_____.
A) Joshua cannot recover the ring
B) Alyssa must return the ring
C) the ring must be sold and the proceeds divided between Joshua and Alyssa
D) Alyssa may retain the ring only if she pays its fair value to Joshua
Q3) Benito's digital camera accidentally fell out of his bag at the bus stop on a Friday afternoon.Later that night,Bill found the camera and took it home with the intent of turning it in to the bus company the next day.Before Bill could turn it in,Dale stole the camera from Bill's house.Discuss the ownership rights,if any,of Benito,Bill,and Dale.
Q4) Define a bailment and discuss its essential terms.
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Chapter 34: Real Property
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Q1) The security precautions component of the reasonable care duty is triggered only when criminal activity on the premises is foreseeable.
A)True
B)False
Q2) An oral license for the temporary use of another's land is enforceable.
A)True
B)False
Q3) Which of the following statements is true of fixtures?
A) A person who attaches fixtures to real property is always entitled to compensation from the owner.
B) Fixtures associated with a real property belong to the owner of the real property.
C) A conveyance of real property does not transfer the fixtures associated with that property.
D) Fixtures cannot be categorized as property if they are not specifically mentioned as such in a conveyance.
Q4) Describe the purpose of the Fair Housing Act.
Q5) Describe how a person acquires title by adverse possession.Give an example.
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Chapter 35: Landlord and Tenant
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Q1) Explain the difference between an assignment and a sublease.
Q2) Explain the Fair Housing Act.Under what circumstances,can people be exempted from this act?
Q3) Constructive eviction is an unattractive option for some tenants because the tenant:
A) has to share the repair expenses with the landlord.
B) cannot terminate the lease.
C) is required to vacate the leased premises.
D) is obligated to pay the rent for the remaining period of the lease.
Q4) Under what circumstances can a tenant invoke the doctrine of constructive eviction?
Q5) A _____ occurs when property is leased for an indefinite period of time and either party may choose to conclude the tenancy at any time.
A) tenancy at will
B) tenancy at sufferance
C) periodic tenancy
D) tenancy for a term
Q6) Landlords are insurers of the safety of persons on their property.
A)True
B)False
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Chapter 36: Estates and Trusts
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Q1) In the states that recognize holographic wills,such wills will be valid if:
A) they do not evidence testamentary intent.
B) they are in the handwriting of the testator.
C) the material portions in the will are typed.
D) they are typed and evidence testamentary intent.
Q2) Life insurance proceeds are usually controlled by:
A) testamentary capacity.
B) the provisions of a will.
C) the insured's designation of beneficiaries.
D) the right of survivorship.
Q3) Which of the following is an example of advance directives?
A) Intestacy
B) Codicil
C) Escheat
D) Living will
Q4) A trustee owes a duty of loyalty to the beneficiaries.
A)True
B)False
Q5) Describe the responsibilities of a personal representative in the administration of an estate.
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Chapter 37: Insurance-Part Seven Commercial Paper
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Q1) Homeowners' insurance policies:
A) often provide coverage under their comprehensive and collision sections for car damages resulting from vandalism.
B) insure both the insured's dwelling and the personal property located on the real property.
C) do not cover personal property that was temporarily removed from the dwelling at the time it was damaged.
D) do not allow property owners to purchase specialized policies to make up for gaps in a standard insurance contract.
Q2) Health insurance policies generally require the insured to pay up to a certain amount each year after the insurer's payment obligation begins.
A)True
B)False
Q3) Fire insurance contracts generally cover losses only from hostile fires.
A)True
B)False
Q4) Why are property insurance policies generally nonassignable?
Q5) Explain the right of subrogation.
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Chapter 38: Negotiable Instruments
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Q1) Which of the following statements is true of the monetary aspect of a promise or order in a negotiable instrument?
A) The promise or order in a negotiable instrument must be to pay a fixed amount of money.
B) The requirement of a "fixed amount" in a negotiable instrument applies only to interest and not principal.
C) The amount of any interest payable is not described in the instrument.
D) The amount of principal is calculated by reference to the formula or index referenced in the instrument if a variable rate of interest is prescribed.
Q2) Which of the following will destroy the negotiability of an instrument?
A) Postdating the negotiability of an instrument
B) Conditioning payment on the payee's performance
C) Using phrases such as "please pay" or "pay to the order of"
D) Antedating the negotiability of an instrument
Q3) Negotiability is the same as validity or collectability if the instrument is commercial paper.
A)True
B)False
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Chapter 39: Negotiation and Holder in Due Course
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Q1) When indorsing an instrument,the holder must spell her name in the same way as it appears on the instrument.
A)True
B)False
Q2) How does one become a "holder in due course"?
Q3) List the claims and defenses available to a holder in due course under the Revised Article 3 of the Uniform Commercial Code.
Q4) Under the Revised Article 3 of the Uniform Commercial Code,a check deposited in a depositary bank without indorsement makes the:
A) bank a holder of an item delivered to it only if the customer indorses it.
B) bank a holder of an item delivered to it for collection whether or not the customer indorses it.
C) customer the holder only if the bank indorses it at the time of delivery.
D) customer the holder only if the bank at the time of delivery qualified as a holder.
Q5) Explain personal defenses against the payment of negotiable instruments.Give suitable examples.
Q6) Explain the nature and meaning of an indorsement.
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Chapter 40: Liability of Parties
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Q1) Ivan is a representative of Sigma Inc.,Checks are drawn by "Sigma Inc.,Payroll Account (signed)
D. Ivan," but the checks are not paid. Who is liable on the instrument-the individual or the corporation?
Q2) Under Revised Article 3 of the Uniform Commercial Code rules for beneficiaries,in the event of a breach of transfer warranty,_____.
A) the damages recoverable will be less than the amount of the instrument
B) the damages recoverable may not be more than the amount of the instrument plus expenses and loss of interest incurred as a result of the breach
C) a beneficiary of the transfer warranties who took the instrument in good faith may not recover from the warrantor an amount equal to the loss suffered as a result of the breach
D) no damages may be recovered
Q3) If a drawee bank mistakenly paid a check over a stop-payment order,the bank cannot recover if it paid the check to a presenter who had taken the instrument in good faith and for value.
A)True
B)False
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Chapter 41: Checks and Electronic Fund Transfers-Part
Eight Credit Transactions
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Q1) During a radical truncation,the drawee bank keeps the original checks.
A)True
B)False
Q2) Which of the following is true of the Check 21 Act?
A) The processes it enabled are time-consuming and costly.
B) It is designed to enable banks to handle more checks electronically.
C) It completely discourages check truncation.
D) It requires banks to retain a legible copy of checks for fifteen years.
Q3) Which of the following is an actual damage that a bank would be liable for when a bank wrongfully dishonors a check?
A) Charges imposed by retailers for returned checks
B) Damages for mental disturbance
C) Injury to the depositor's credit rating that results from the dishonor
D) All problems faced by the drawer
Q4) A check drawn by a credit union on its account at a bank is an example of a:
A) personal check.
B) teller's check.
C) certified check.
D) stale check.
Page 44
Q5) What are the different electronic funds transfer systems utilized by consumers?
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Chapter 42: Introduction to Security
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Q1) 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.
Q2) People who contract to furnish labor or materials to improve real estate:
A) can claim a lien on the property until they are paid.
B) cannot claim any lien on the property.
C) can claim a lien on a property irrespective of statutory requirements.
D) cannot foreclose their lien on the property.
Q3) The provider of materials or labor is not entitled to a lien if:
A) the property is a public property.
B) the materials are provided without reference to a particular property.
C) the materialman is not a general contractor.
D) the property is under a land sales contract or mortgage.
Q4) Describe the distinction between a surety and a guarantor.
Q5) What is a possessory lien? Give an example.
Q6) Define strict foreclosure.
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Chapter 43: Security Interests in Personal Property
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Q1) Explain the meaning of a purchase money security interest in consumer goods with an example.
Q2) 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.
Q3) A security interest is not legally enforceable against a debtor until it is attached to a particular item or items of the debtor's property.
A)True
B)False
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Chapter 44: Bankruptcy-Part Nine Government Regulation
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Q1) Under Chapter 12 of the Bankruptcy Code,a debtor is usually permitted to remain in possession to operate a farm or fishing operation.
A)True
B)False
Q2) When a debtor files a bankruptcy petition,the creditor may be relieved from an automatic stay on his actions against the debtor if:
A) the creditor can show that the bankruptcy petition does not give adequate protection to the debtor.
B) the debtor files a plan of reorganization that has a reasonable chance of being confirmed.
C) his actions are aimed at obtaining possession of the debtor's property.
D) the creditor can show that the stay jeopardizes his interest in certain property.
Q3) Who are the different unsecured creditors who receive distributions of a debtor's estate?
Q4) The person who files a voluntary petition must be insolvent.
A)True
B)False
Q5) What are the primary purposes of the Bankruptcy Code?
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Chapter 45: The Antitrust Laws
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Q1) Under no circumstances can a single firm lawfully refuse to deal with firms or agree to deal only on certain terms.
A)True
B)False
Q2) Federal antitrust laws apply to:
A) intrastate commerce exclusively.
B) behavior that substantially affects interstate commerce or international trade.
C) behavior that affects external economies other than the U.S.
D) any type of nonimport trade.
Q3) A restaurant called Habib's agrees to buy all the groceries it needs from Rida Supermarket.Which of the following contracts is created in this case?
A) Requirements contract
B) Tie-in contract
C) Exclusive dealing contract
D) Adhesion contract
Q4) The purpose of U.S.antitrust law is to encourage and protect competition.
A)True
B)False
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Chapter 46: Consumer Protection Laws
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Q1) Under the Fair Credit Billing Act (FCBA),_____.
A) a card issuer may report a cardholder's delinquency to a credit reporting agency at any time deemed reasonable by it
B) a card issuer must inform the cardholder of the reporting agency to which the issuer sends its reports
C) the seller cannot offer discounts if the buyer pays cash for a purchase rather than using a credit card
D) the consumer has the right to have a credit report withheld from anyone not having a legitimate business need for the information
Q2) Under the Fair Credit Billing Act,if the credit card holder thinks that the card issuer has made an error on the statement,he or she has 45 days to report the error.
A)True
B)False
Q3) One of the purposes of the Truth in Lending Act (TILA)is to enable the consumer to understand all the charges made in connection with credit.
A)True
B)False
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Chapter 47: Environmental Regulation
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Q1) When the Environmental Protection Agency expends money to clean up a "Superfund" site,it has the legal authority to recover its costs from those who were responsible for the problem.
A)True
B)False
Q2) The 1990 amendments to the Clean Air Act:
A) brought in civil penalties for violating the law-a minimum of $2,500 for a first offense up to $50,000 per day and two years in prison for subsequent violations.
B) does not deal with acid rain, while the 1970 Act did.
C) require the availability of oxygenated fuels in specified areas of the country that are having difficulty meeting the air quality limits at least part of the year.
D) require electricity-generating facilities to build tall smokestacks so that emissions are dispersed over a broader area.
Q3) Which of the following statements is true of volatile organic compounds?
A) They are substances which combine with nitrogen oxides to become ozone.
B) They are substances which release chlorines and deplete ozone.
C) They are substances which control air pollution.
D) They are also known as catalytic converters.
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