Legal Environment of Business
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Course Introduction
The Legal Environment of Business explores the foundational legal principles and frameworks that influence and regulate the operation of businesses. This course examines the structure and sources of law, the judicial system, and the regulatory environment, focusing on areas such as contracts, torts, agency, intellectual property, and employment law. Students will analyze the impact of federal, state, and local laws on business decision-making and ethics, and how legal considerations shape organizational strategy. Real-world case studies and current legal issues are used to illustrate the relationship between businesses and the law, equipping students with the knowledge to anticipate and mitigate legal risks in their professional careers.
Recommended Textbook Business Law and the Legal Environment Standard Edition 6th Edition by Jeffrey F. Beatty
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Page 2
Chapter 1: Introduction To Law
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Q1) Peggy Lou filed a lawsuit against "We Fix 'Em Rite," an auto body shop,for the sloppy paint job it did on her 1998 car.Once the lawsuit was filed with the appropriate clerk of court,Peggy Lou personally dropped a copy of the lawsuit in the mail."We Fix 'Em" says it never received notice of the lawsuit.Local court rules require that a lawsuit be served by an independent process server or by the sheriff's department.Is this an example of substantive law or procedural law? Explain the difference.
Answer: This is an example of procedural law.Procedural law establishes the process for conducting the lawsuit.In this instance,the rule specifying the method and manner of service of process is to make sure that the defendant does in fact have notice of the lawsuit.The sheriff's department or the process server would submit an affidavit to verify that the defendant was given notice of the pending lawsuit.Substantive law defines rights.
Q2) Wilfred was driving too fast for the icy road conditions and hit Sally's car.Sally can sue Wilfred in criminal court.
A)True
B)False Answer: False
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Page 3
Chapter 2: Business Ethics And Social Responsibility
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Q1) Generally,ethical managers have happier,more satisfying lives.
A)True
B)False
Answer: True
Q2) Researchers who study happiness find that people expect material goods to make them happier than they actually do.
A)True
B)False
Answer: True
Q3) Society is hurt when business managers behave ethically.
A)True
B)False
Answer: False
Q4) Utilitarian ethics holds that decisions should be made on the basis of practicality,and whatever action is most convenient should be favored.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Dispute Resolution
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Sample Questions
Q1) The most accurate statement regarding appellate courts is:
A) appellate courts often hear new evidence and testimony.
B) appellate courts generally accept the factual findings of the trial court.
C) only the federal court system has appellate courts.
D) appellate courts hear only criminal cases.
Answer: B
Q2) If interrogatories are being used as a form of discovery,the party being questioned must generally answer all the questions orally under oath.
A)True
B)False
Answer: False
Q3) The fastest growing method of dispute resolution in the United States is:
A) arbitration.
B) negotiation.
C) mediation.
D) litigation.
Answer: C
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Page 5
Chapter 4: Common Law,Statutory Law,And Administrative Law
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Q1) The largest source of new law is court decisions. A)True
B)False
Q2) Psychologist Holtz is working with a patient,Rebecca,who has expressed the intention to seriously harm two of her acquaintances.If you apply the principle set forth by the Supreme Court of California in the Tarasoff v.Regents of the University of California case,Psychologist Holtz:
A) has, because of the bystander rule, no duty to warn the foreseeable victims about Rebecca's expressed intention to harm them.
B) has a duty to exercise reasonable care to protect foreseeable victims of Rebecca's violence.
C) is in a special relationship with patients, and this relationship creates a privilege of confidentiality between the communicants.
D) will be held to a strict duty of care and will be held liable for any victim's injuries if Holtz failed to warn a them of Rebecca's potential violence toward them.
Q3) Discuss the four most important limitations on the power of federal administrative agencies.
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Page 6
Chapter 5: Constitutional Law
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Q1) Judicial review is the power of the federal courts to declare a statute or governmental action void.
A)True
B)False
Q2) Professor Jones accuses Rachel,a senior at a large state university,of cheating on an exam.The Professor claims that Rachel must prove to him that she did not cheat.If she fails to convince him,she will be expelled from college.Rachel is being denied her due process rights.
A)True
B)False
Q3) Lori and her friends burn an American flag as an act of political protest.Lori is arrested for violating a state law that prohibits flag burning.The Supreme Court has ruled that laws making it illegal to burn an American flag:
A) are void because they deny a person due process rights.
B) are void because a state court has no power to prosecute a person for burning the federal flag.
C) are void because they violate a person's right to freedom of speech.
D) are valid.
Q4) Discuss the Miller test to determine if a creative work is obscene.
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Chapter 6: Intentional Torts And Business Torts
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Q1) Identify and discuss two specific causes of action a plaintiff can allege that deal specifically with privacy rights.
Q2) If Gloria threw a rock which hit Merle,she is liable for an intentional tort of battery only if she intended to injure or harm Merle. A)True B)False
Q3) Wholesome Bread,Inc.advertised that its honey wheat bread had 25% fewer calories than a competing brand,Valley Grains.In fact Wholesome's bread had the same amount of calories as Valley Grains' bread.Wholesome Bread's conduct:
A) does not violate the Lanham Act because of the First Amendment freedom of speech. B) does not violate the Lanham Act because Wholesome did not act with actual malice. C) does not violate the Lanham Act because comparative ads are exempt from the law. D) violates the Lanham Act.
Q4) Wilma's arm is broken when Paula knocks her down during an argument.If Wilma sues Paula for battery,what damages is Wilma likely to receive?
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Page 8
Chapter 7: Negligence And Strict Liability
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Q1) Which of the following elements is not necessary to apply the doctrine of res ipsa loquitur?
A) An ultrahazardous activity is involved.
B) The defendant had exclusive control of the thing that caused the harm.
C) The harm would normally not have occurred without negligence.
D) The plaintiff had no role in causing the harm.
Q2) Annette drove through an intersection without looking and hit Vincent's car that he had driven into the intersection without obeying a stop sign.Annette sued Vincent.The jury found that Annette's fault contributed 20 percent to the collision and determined that her total loss was $100,000.Under comparative negligence,the jury should award Annette:
A) $20,000.
B) $80,000.
C) $100,000.
D) nothing.
Q3) Discuss the concepts of contributory negligence and comparative negligence.
Q4) Palsgraf v.Long Island Railroad Co.addressed the issue of furnishing alcohol to minors.
A)True
B)False
Page 9
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Chapter 8: Crime
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Q1) The criminal penalties under RICO include all EXCEPT:
A) imprisonment.
B) capital punishment.
C) confiscation of property acquired through the criminal activity.
D) fines.
Q2) The fraudulent conversion of property which is already in the defendant's possession is:
A) money laundering.
B) exclusion.
C) embezzlement.
D) trespassory taking.
Q3) Compare and contrast money laundering and embezzlement.Give an example of each.
Q4) The burden of proof required in a criminal case is:
A) clear and convincing.
B) a preponderance.
C) beyond a reasonable doubt.
D) highest degree of honesty.
Q5) Every criminal defendant has a right to a jury trial. A)True B)False
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Chapter 9: International Law
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Q1) With respect to United States patents and copyrights,GATT:
A) expressly excludes controversies involving patent and copyright violations.
B) will allow the United States to assess tariffs against a country that refuses to honor U.S. copyrights or patents.
C) imposes sanctions against any country refusing to honor another signatory country's patents or copyrights.
D) requires retribution to be paid to the United States by any country ignoring U.S. patents or copyrights.
Q2) Hardhat Machine Company sold goods to Irish Eyes Company of Northern Ireland.Big Bank issued a letter of credit on behalf of Irish Eyes and the letter was given to Hardhat.The "account party" is:
A) Irish Eyes.
B) Hardhat Machine Company.
C) Big Bank.
D) None of the above.
Q3) The European Union is one of the world's most powerful regional associations with 42 member nations as of 2011.
A)True
B)False
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Page 11
Chapter 10: Introduction To Contracts
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Q1) Which of the following represents a unilateral offer?
A) "I will pay you $50 if you mow my lawn."
B) "I will pay you $50 if you promise to trim that tree."
C) "I will pay you $50 for your CD player."
D) "I will pay you $50 for your backpack."
Q2) Discuss the requirements of promissory estoppel.
Q3) Patty is a poor college student struggling to work and keep up with her studies.Fred,her uncle,promises to pay Patty support of $200 per month for the next six months.Although Fred didn't ask her to,she quits her current job in order to devote full time to her studies for the next six months.Fred makes one payment and then stops with no explanation.If Patty sues,what is the likely result?
A) Fred would win, as he did not ask Patty to quit her job.
B) Patty would win, as a contract was formed when Fred promised to pay her the support.
C) Fred would win, as family members cannot sue each other for breach of an oral promise.
D) Patty may win under the doctrine of promissory estoppel.
Q4) List and briefly describe the basic elements of a contract.
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Page 12
Chapter 11: Agreement
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Q1) John owns a thoroughbred horse named Prince Charming that just ran in the Kentucky Derby.Prince Charming came in last,much to John's frustration and embarrassment.John exclaims in a loud voice,"I'm selling that horse to the first person who hands me $100 bucks!" John has:
A) made an offer to anyone within hearing distance and will be bound by his offer to the first person who produces $100.
B) made a firm offer and will be bound by his offer for a reasonable period of time.
C) made an acceptance to the first person who can produce $100.
D) not made an offer because under the circumstances a reasonable person would not conclude that John had intent to make an offer.
Q2) Discuss the effect of the Uniform Commercial Code on the law of sales contracts in the area of open terms.
Q3) If both parties believe they have a binding contract,this belief any later questions about the validity and enforceability of the agreement.
A)True
B)False
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Chapter 12: Consideration
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Q1) An unliquidated debt can be described as:
A) a debt in which both its existence and amount is in dispute.
B) a debt in which the existence or amount is in dispute.
C) a debt disputed by the creditor but not the debtor.
D) a debt undisputed by either party.
Q2) An illusory promise is valid consideration.
A)True
B)False
Q3) Contracts generally do not require bargaining that leads to an exchange between the parties.
A)True
B)False
Q4) Courts normally require consideration to be approximately equal on both sides of the bargain.
A)True
B)False
Q5) Frank's Furniture Company promised in a written agreement to purchase as much walnut wood "as it desires" from Forestry Products,Inc.If Frank's purchased walnut wood from another source and Forestry Products sued,what is the likely result?
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Chapter 13: Legality
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Q1) In the case of Worldwide Insurance v.Klopp,the Supreme Court of Delaware found that:
A) a contract provision requiring arbitration and then permitting appeal by either party was void as unconscionable.
B) the contract provision requiring arbitration was clear, unambiguous, and fair to both parties.
C) the arbitration clause in Klopp's auto insurance contract was valid because it furthered the state policy favoring the use of arbitration to resolve disputes.
D) the automobile insurance policy was governed by UCC, Article 3.
Q2) Eintz Corp.hired Jose to bribe a foreign government official into awarding a $3 million contract to Eintz.Eintz gave Jose $10,000 in cash to make the bribe payment and $2000 for Jose's efforts.Instead of paying the bribe,Jose pocketed all of the money.If Eintz sues Jose,Eintz will:
A) be able to recover the $12,000.
B) be able to recover the $3 million lost on the contract.
C) be able to recover the $2,000 but not the $10,000.
D) not be able to recover the $12,000.
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Page 15
Chapter 14: Capacity And Consent
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Q1) Ron,a minor,goes to the hospital for treatment of the flu.On the new-patient form Ron signs,he agrees to pay for any care or treatment he receives.When billed for the treatment:
A) Ron must pay for the value of the benefit he received, because medical care is a necessary.
B) Ron must pay for the benefit he received because the contract is fully executory.
C) Ron must pay for the benefit he received because he ratified the contract.
D) Ron does not have to pay for the benefit he received.
Q2) Frank suffers from a mental impairment due to a brain injury from a airplane accident.He contracts with Glena to purchase her dining room furniture.A month later,he tries to void the contract.If he is unable to return the furniture,a court will not rescind the agreement unless Frank can show that Glena acted in bad faith.
A)True
B)False
Q3) A party injured by fraud generally has the choice of suing for damages or rescinding the contract.
A)True
B)False
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Page 16
Chapter 15: Written Contracts
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Q1) Abby dies,and her good friend,Clay is appointed to administer Abby's estate.Abby's house was in poor condition,so Clay orally hired a contractor to make repairs.Clay also orally promised that if the estate could not pay the repair bill,he would pay it even though he does not live in the house and has no entitlement under Abby's estate.The estate does not pay the repair bill.Who can the contractor collect from,if anyone?
A) The contractor can collect from either the estate or Clay.
B) The contractor can collect from the estate only.
C) The contractor can collect from Clay only.
D) The contractor must collect from the estate first, and then collect any deficiency from Clay.
Q2) The Uniform Commercial Code provides that,under certain circumstances,a merchant may be liable on a written contract,even though that merchant has NOT signed it.
A)True
B)False
Q3) Explain the reason behind having a statute of frauds and give arguments for and against having such a statute.
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Page 17
Chapter 16: Third Parties
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Q1) Ted and Alice own their recreational vehicle subject to a security agreement to Third U.S.Bank to secure the repayment of the purchase money loan.Ted and Alice sell their RV to Bob and Carol,who agree to take over the loan payments to the bank.There is no novation with the bank.Under these facts,if Bob and Carol do not make the loan payments,Third U.S.Bank:
A) can sue Bob and Carol only.
B) can sue Ted and Alice only.
C) can sue Bob, Carol, Ted, and Alice.
D) cannot sue anyone but can repossess the RV.
Q2) Char-Glo Industries contracted with Evergreen Lawn Service to mow and trim the company's lawn.In the contract,Char-Glo included a clause prohibiting Evergreen from delegating its duties.Courts will ordinarily not enforce such a clause.
A)True
B)False
Q3) If Casey assigns her rights to receive income from rental property to Errol,then Errol will legally acquire any rights to the income previously held by Casey.
A)True
B)False
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Page 18
Chapter 17: Performance And Discharge
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Q1) Concurrent conditions arise when there is both a condition precedent and a condition subsequent.
A)True
B)False
Q2) The legal right to sue for a breach of contract is subject to a statute of limitations.
A)True
B)False
Q3) The distinction between a condition precedent and a condition subsequent:
A) is important because it determines whether the burden of proof is beyond a reasonable doubt or preponderance of the evidence.
B) seldom arises in insurance cases.
C) determines who has the burden of proof.
D) is important because it determines whether the condition must be express or whether it can be implied.
Q4) Name and describe the types of conditions,explain how conditions are created,and discuss whether it is important to identify the type of condition in a contract.
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Chapter 18: Remedies
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Q1) In a promissory estoppel case,a court will generally award:
A) only reliance damages.
B) specific performance.
C) both reliance and punitive damages.
D) only nominal damages.
Q2) Dr.Gonzalez ordered specialized surgical equipment from Physician's Supply Co.,but his order was not delivered by the agreed date.Gonzalez is under no obligation to minimize damages since the contract was breached by Physician's Supply,not Gonzalez.
A)True
B)False
Q3) Which of the following is an example of incidental damages you might be awarded if you are wrongfully terminated from your job?
A) The costs of psychological counseling.
B) The costs of mailing resumes to prospective employers.
C) The costs of a new wardrobe for future interviews.
D) The costs of cosmetic surgery.
Q4) Identify and describe the four principal contract interests a court may seek to protect.
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Chapter 19: Practical Contracts
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Q1) Rich and Archie sign an agreement in which Archie agrees to deliver ten cases of champagne in 5 days.The parties negotiated and meant to say in the written agreement,delivery in 50 days.If the evidence is clear that the two parties intended to agree to 50 days,the courts will probably apply the remedy of:
A) reformation.
B) rescission.
C) restitution.
D) reliance.
Q2) A contract should have a descriptive title,which is generally in all capital letters,underlined and centered at the top of the page.
A)True
B)False
Q3) In a contract modification,the phrase,"charged with such amendment" means:
A) the party who suggested the change.
B) the party who will benefit from the change.
C) the party who will be adversely affected by the change.
D) the party who did NOT suggest the change.
Q4) Identify and explain at least four situations where a written contract is either necessary or recommended.
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Chapter 20: Introduction To Sales
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Q1) Sean of Sean's Shrimp House was enjoying a cup of cappuccino while visiting with Ollie at Ollie's Ocean Front Bar & Grill.During the course of their conversation,Sean agreed to supply 100 pounds of shrimp per month for the next year to Ollie's restaurant at the price of $2.50 per pound.When Sean got back to his office,he sent a written confirmation of the agreement to Ollie.Six weeks after receiving the confirmation Ollie wrote back,stating that he had not agreed to the price of $2.50 per pound.Is Ollie bound to the confirmation?
Q2) Newt,a gun dealer,offers to sell a rare civil war musket to Rush,another dealer,for "$15,000,insurance and shipping paid by buyer." Rush responds,"I accept.Insurance and shipping costs divided equally between seller and buyer." The parties:
A) do not have a contract since the acceptance violated the mirror image rule.
B) do not have a contract since Rush's response was a counteroffer.
C) have a contact and, in the majority of states, the terms of the offeree control.
D) have a contract and, in the majority of states, the different terms will cancel each other out.
Q3) The UCC is federal legislation enacted by Congress.
A)True
B)False
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Chapter 21: Ownership And Risk
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Q1) Mayco has received goods from Wallace pursuant to a sale or return agreement.If Mayco subsequently declares bankruptcy,the goods will be:
A) returned to Wallace because title did not pass to Mayco under this type of sale.
B) belong to Mayco and will not be a part of the bankruptcy.
C) subject to the claims of Mayco's creditors under Section 2-326 of the Uniform Commercial Code.
D) will be kept by the bankruptcy judge and clerk.
Q2) Ruppart Manufacturing has a contract for the sale of 100 cases of teaching supplies to Teachers Co-op,Inc.Payment of the order is to be made in installments over the next year.Ruppart Manufacturing keeps a security interest in the cases sold to assure payment by Teachers Co-op,Inc.When the order is completed,Ruppart ships the order.Legally:
A) both Ruppart and Teachers have an insurable interest in the supplies.
B) only Ruppart has an insurable interest in the supplies.
C) only Teachers has an insurable interest in the supplies.
D) neither Ruppart nor Teachers has an insurable interest in the supplies.
Q3) Explain the concept and significance of identification of goods.Discuss how identification takes place.
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Chapter 22: Warranties And Product Liability
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Q1) In a tort case,the statute of limitations runs from the time the defect was discovered.
A)True
B)False
Q2) Mark,a power tool salesman,promises Jill,a customer,that the Turbo Power Hedge Trimmer 1000 will easily cut through bamboo up to 3 inches thick.Mark's statement constitutes an express warranty if Jill purchases the hedge trimmer.
A)True
B)False
Q3) Even though a car has an obvious dent in the rear quarter panel,the salesperson tells a potential customer,"This car has never been in an accident." The salesperson's statement creates a valid express warranty.
A)True
B)False
Q4) Which one of the following warranties arises in a sale of goods?
A) Implied warranty of title.
B) Warranty against adverse possession.
C) Implied warranty of quiet enjoyment.
D) All of the above arise in a sale of goods.
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Chapter 23: Performance And Remedies
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Q1) Meister Bros.shipped 250 radiator belts to fill Braybon's order.Quality control measures had been in place in Meister's factory when the belts were manufactured.When Braybon received the order one day before it was due,it notified Meister that it rejected the belts because of a variation from the contract specifications.Meister,although it believed the original belts met the contract specifications,notified Braybon that it would supply conforming goods within one week.When the conforming goods arrive in one week:
A) Braybon must accept them, but does not have to pay the full price because the contract deadline has passed.
B) Braybon does not have to accept them because Meister Bros. only has one chance to fill the order correctly.
C) Braybon should accept them because Meister Bros. has a right to cure even after the contract deadline under these circumstances.
D) Braybon does not have to accept them because Meister Bros. failed to meet its UCC requirement to deal in good faith.
Q2) Liquidated damages are not permitted under the UCC.
A)True
B)False
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Page 25
Chapter 24: Secured Transactions
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Q1) First Federal loaned Madeline $20,000 to purchase a new van.The van was for Madeline's personal and family use.First Federal's security interest is a purchase money security interest which perfects only upon filing a financing statement.
A)True
B)False
Q2) Explain the difference between attachment and perfection.
Q3) Wedney,Inc.has a purchase money security interest in one of Yoro Chicken's meat processing machines.Wedney filed a financing statement on the day the machine was delivered,perfecting its interest.Great State Bank already had a security interest in the machine.Which party has superior priority rights in the meat processing machine?
A) Wedney. A PMSI in collateral other than inventory takes priority over a conflicting security interest if the PMSI is perfected at the time the debtor receives the collateral or within 20 days after he receives it.
B) Great State Bank, since it had an earlier security interest.
C) The party who is first to repossess the collateral.
D) The creditors have equal priority.
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26
Chapter 25: Creating A Negotiable Instrument
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Q1) A possessor of non-negotiable paper has the same rights as the person who made the original contract.
A)True
B)False
Q2) Charlene Brown has possession of a check made out to the order of Charlene Brown (herself)which she received in payment for writing a manuscript for her publisher.Charlene is a holder in due course and the publisher cannot claim any "real" defenses to payment.Charlene has an unconditional right to be paid for the check.
A)True
B)False
Q3) Personal and real defenses are valid against an ordinary holder,only real defenses can be used against a holder in due course.
A)True
B)False
Q4) There are two types of commercial paper: express and implied. A)True
B)False
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Chapter 26: Liability For Negotiable Instruments
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Q1) Mack writes a check to his maid,Marianne,in payment for services rendered.Marianne indorses the check in blank and gives the check to her masseuse,Janet,in exchange for a neck massage.Without indorsing the check,Janet gives the check to Martin,her newspaper carrier in payment for the next four month's delivery charges.Martin indorses with a special indorsement and negotiates the check to his church,St.Mark.The church indorses the check and deposits it in its bank account.If Mack's bank later dishonors the check,to whom may St.Mark's look for recovery?
A) Martin only.
B) Only Mack.
C) Mack, Marianne, Janet, and Martin.
D) Mack, Marianne, and Martin.
Q2) An agent must clearly indicate that he or she is signing on behalf of a principal in order to bind the principal.
A)True
B)False
Q3) Negotiable instruments are normally issued to fulfill a contract.
A)True
B)False
Q4) List the warranties a transferor of a negotiable instrument makes.
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Chapter 27: Accountants' Liability
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Q1) Fast Auditors prepared audited financial statements for Mega Company's registration statement in compliance with the 1933 Securities Act.John bought stock in Mega Company.It was discovered that the financial statements prepared for the registration statement contained some important omissions.John sued Fast Auditors to recover his investment when Mega Company turned out to be a bad investment.What must John prove to recover from Fast Auditors?
Q2) In January,E-treme Inc.entered into an oral contract with Ralco,LLC,an accounting firm,for the preparation of its tax return.The contract is:
A) unenforceable under the statute of frauds since it is not in writing.
B) unenforceable under the UCC since it is not in writing.
C) enforceable, but only up to a value of $10,000.
D) enforceable even though it is oral.
Q3) Nancy is an auditor.She works in a state that uses the Ultramares Doctrine.She fraudulently prepared financial documents for her client,Star,Inc.Her client presented the information to Moonglow,Inc.Moonglow was a potential creditor of Star,Inc.,and was seriously damaged by the fraudulent financial information.Moonglow sued Nancy.She claims she is not liable to Moonglow,a third party,since she was not provided with its name at the time the audit was prepared.Is she liable to Moonglow? Explain.
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Chapter 28: Agency Law
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Q1) Which of the following is not required of an agency relationship?
A) Consideration.
B) Fiduciary relationship.
C) Consent of the parties to act as agent or principal.
D) Control of principal over agent's conduct.
Q2) Barnett was orally hired by Paula to locate desirable real estate that she could use for rental property.She stated she wanted to find a four-plex that could be purchased for under $200,000 that could be rented for at least $1,000 per month per unit (which equates to $4,000 rental per month for the property).Barnett located a four-plex that could be purchased for $160,000 and was renting for $1,200 per unit.It was such a good deal that he purchased it for himself.About two months later he found a second property that was listed for $199,000 and rented for $1,000 per unit.Paula purchased the property.Afterwards,she learned that Barnett had bought the $160,000 four-plex for himself without telling her about it.Paula believes that Barnett has acted improperly.Barnett claims that he did what she asked -- he found a property for under $200,000 that rented for $1,000 per unit.He also claims that since their agreement was oral,he has a legal defense if she pursues the matter in court.Does Paula have any legal recourse against Barnett? Explain.
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Chapter 29: Employment Law
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Q1) Whistleblowers are employees who disclose illegal behavior on the part of their employers.
A)True
B)False
Q2) Which of the following may be a legitimate,nondiscriminatory criterion for selection of an employee?
A) Age.
B) Race.
C) Color.
D) Educational level.
Q3) Abbott provided evidence of fraudulent financial reporting about his employer,a publicly traded company,to federal securities investigators.Abbott receives whistleblower protection under:
A) the U.S. Constitution.
B) The Sarbanes-Oxley Act.
C) The Civil Service Reform Act.
D) None of the above.
Q4) Some courts have held that employee handbooks create binding contract terms. A)True
B)False
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Chapter 30: Labor Law
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Q1) Stacy believes her rights as a union worker have been violated by her employer.If the specific rights are addressed by both state and federal law:
A) the state law will apply.
B) the federal law will apply.
C) both state and federal law will apply.
D) she may choose which law, state or federal, will govern her rights.
Q2) The five members of the National Labor Relations Board are appointed by the President.
A)True
B)False
Q3) The management and union representatives of Prime Manufacturing are bargaining a new CBA.Management:
A) may use a lockout at any time to pressure the union into compromise.
B) may never use a lockout as a tactic to pressure the union.
C) may use a lockout if the parties have reached an impasse in their bargaining and management notifies the union before locking the employees out.
D) may use a lockout only as a retaliatory measure if and when the union has threatened a strike.
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Chapter 31: Starting A Business
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Q1) Corporations have a distinct advantage over other forms of business organization in the area of taxation.
A)True
B)False
Q2) The business form that is taxed as a partnership and gives all owners limited liability,is:
A) a close corporation.
B) a limited partnership.
C) a limited liability company.
D) a general partnership.
Q3) A limited liability company,unlike a Subchapter S corporation,can have members that are corporations,partnerships,or nonresident aliens.
A)True
B)False
Q4) Franchise fees can be costly,but they are usually payable over a number of years,after profits are generated from the business.
A)True
B)False
Q5) Briefly discuss the limitations on a corporation electing Subchapter "S" status.
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Chapter 32: Partnerships
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Q1) Judy believed that Ray and Don were partners in an automotive repair business.Ray and Don were not partners.Ray owned the business as a sole proprietor.Ray,however,allowed Don,his unemployed brother-in-law,to be around the business.When Judy was having her car repaired,Ray told her "my partner over there,Don,will give you a ride to work this morning so you can leave your car here.He will give you a ride back here after work and your car will be done." Judy allowed Don to drive her to work.While riding with Don,Don accidentally ran a stop light and caused an accident.Judy was hurt and claims that both Don and Ray are liable to her.Is she right?
A) Yes. This illustrates a partnership by estoppel.
B) No. Don was not a partner in the business.
C) No. Don was a dissociated partner.
D) No. There was no intent to have a partnership.
Q2) A partnership is liable for both the negligent and intentional acts of a partner if the acts were committed within the ordinary course of the partnership's business.
A)True
B)False
Q3) Identify and briefly discuss the management rights and duties of a partner.
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Page 34
Chapter 33: Life And Death Of A Corporation
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Q1) In Delaware,lawsuits involving corporations are tried in a special court called:
A) corporate court.
B) CEO's court.
C) common court.
D) chancery court.
Q2) Fashions,Inc.has 12 shareholders.There is no shareholder agreement concerning the board of directors.The company is subject to the Model Act.How many directors is Fashions,Inc.required to have?
A) None.
B) One.
C) Two.
D) Five.
Q3) A corporate charter is filed with:
A) a state's Secretary of State office.
B) a state's Treasury and/or Revenue Division.
C) the United States Department of Commerce.
D) All the above.
Q4) What are some of the advantages for a business to incorporate in Delaware?
Q5) Identify four circumstances that might persuade a court to pierce the corporate veil.
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Chapter 34: Corporate Management
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Q1) A finding by a court that a manager's decision had a rational business purpose does not necessarily protect the manager from a finding that he breached a duty of care.
A)True
B)False
Q2) In the Unocal Corp.v.Mesa Petroleum Co.case,the court said the board of directors could act with the primary goal of keeping themselves in office.
A)True
B)False
Q3) Corporate managers serve only one master,which is the best interest of the shareholders.
A)True
B)False
Q4) Corporate responses to takeover attempts are largely governed by federal law. A)True
B)False
Q5) What is the definition of the business judgment rule?
Q6) Major Corporation wants to acquire control of Forte Company.What are some legal steps Forte can take to resist a hostile takeover?
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Chapter 35: Shareholders
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Questions
Q1) Charles owns 1,000 shares of stock in Temperan,Inc.Charles wants to obtain corporate records including the corporation's minute book and accounting records.Under the Model Act,Charles is entitled to this information if he requests it in good faith and:
A) he has a proper purpose.
B) he owns at least 1 percent of the company or $2,000 of stock.
C) he is an employee of Temperan.
D) he is a controlling shareholder.
Q2) Kian is the chief financial officer of Yonkka,Inc.He is also a member of Yonkka's board of directors.Kian is:
A) an inside director.
B) an outside director.
C) holding an illegal position.
D) a public director.
Q3) Controlling shareholders have no fiduciary responsibility to minority shareholders.
A)True
B)False
Q4) Discuss how the Sarbanes-Oxley Act affects Haletronne Co.,a publicly traded corporation.
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Chapter 36: Securities Regulation
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Q1) What are the three primary ways the SEC creates law?
Q2) To recover for an alleged violation of SEC Rule 10(b)-5,a plaintiff is required to prove reliance on a misstatement or omission relative to the purchase of the security.
A)True
B)False
Q3) Under the 1934 Act,an issuer must register with the SEC if:
A) it completes a public offering under the 1933 Act.
B) its securities are traded on a national exchange.
C) it has at least 500 shareholdres and total assets that exceed $10 million.
D) All of the above.
Q4) A defense to a civil action brought under Section 10(b)and Rule 10b-5 of the 1934 Act would be:
A) that the statute of frauds was not observed.
B) that the seller of the securities was not in privity of contract with the plaintiffs.
C) that the sellers did not intentionally or recklessly make a false representation.
D) All of the above.
Q5) What information must be contained in a registration statement?
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Page 38
Chapter 37: Bankruptcy
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Q1) Mark and Cynthia work for Bryson Supply Co.If the company files for Chapter 7 bankruptcy before paying their last month of wages and benefits,will they be able to recover anything from the company?
Q2) Which of the following would not be considered a fraudulent conveyance or a voidable preference under the provisions of the Code? Immediately prior to filing bankruptcy:
A) debtor sells assets well below fair market price to Freddie, a friend.
B) debtor sells his car at a public auction, thinking that it would bring a decent price, but the car brings an amount well below fair market value.
C) debtor's corporation transfers assets to stockholders in lieu of cash dividends.
D) debtor pays $650 to "Nation on Line" for the past ten months of Internet service.
Q3) Alimony and child support obligations are considered priority claims.
A)True B)False
Q4) Individual debtors are allowed to keep some assets in a Chapter 7 bankruptcy. A)True B)False
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Chapter 38: Antitrust
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Q1) Gary,Louise,and Brian,who own competing gas stations in town,happen to see each other at a restaurant one morning and have breakfast together.While talking,they decide to set their gas prices at the same amount.They have committed an illegal act only if the agreed price is unfair to consumers.
A)True
B)False
Q2) In the case of United States v.Waste Management,Inc.,the U.S.Court of Appeals had to consider whether a merger of two large trash removal services was illegal.The merger created a company that controlled nearly 50 percent of the Dallas,Texas regional market.The court ruled that:
A) such merger created a presumption of illegality.
B) the merger was not illegal since it did not substantially lessen competition in the relevant market.
C) Both of the above are correct.
D) None of the above.
Q3) Explain the overall purposes of the Sherman Antitrust Act,the Clayton Act,and the Robinson-Patman Act.How do each of these Acts relate to each other?
Q4) Discuss when monopoly power is not a violation of Section 2 of the Sherman Act.
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Page 40
Chapter 39: Consumer Law
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Q1) Grady receives a $12,940 credit card bill in the mail from a company with which he did not open an account.He fears he is a victim of identity theft.Does he have any recourse?
A) Yes, under the Fair and Accurate Credit Transactions Act (FACTA), Grady can place an alert in his credit files using the National Fraud Alert System.
B) Yes, under the Fair Credit Billing Act he may call the credit card company to complain about the bill, and the credit card company must investigate and correct any errors.
C) Yes, under the Truth in Lending Act, Grady is liable only for the first $50 in unauthorized charges.
D) No, he should have been more careful with his personal information so no one could have applied for credit in his name.
Q2) Consumer credit reporting agencies are unregulated governmental agencies.
A)True
B)False
Q3) The Trimbles apply to Community Savings & Loan for an installment loan of $20,000 to remodel their bathroom.Discuss the disclosures Community is required to make.
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Chapter 40: Environmental Law
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Q1) The disposal of nonhazardous solid waste is:
A) generally regulated by state law, but the federal government sets guidelines that must be followed.
B) the only area of environmental concern that has yet to be regulated by federal action.
C) completely governed by federal administrative law.
D) currently the subject of great debate since the federal government has declared such activity falls under the Endangered Species Act and, therefore, a small annoying fly known to frequent landfills must be protected.
Q2) Which of following must be included in a federal Environmental Impact Statement?
A) Available alternatives to the proposed action.
B) Means to mitigate adverse environmental impacts.
C) Direct and indirect effects of the proposed action.
D) All of the above.
Q3) An Environmental Impact Statement must be prepared for every major federal action that significantly affects the quality of the environment.
A)True
B)False
Q4) Discuss the four major provisions of the Clean Air Act.
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Page 42
Chapter 41: Cyberlaw
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Q1) Tom receives an e-mail from someone alleging to be a Nigerian government official who has stolen money from the government.He needs some place safe to keep the money for a short time.The official promises that,if Tom lets his bank account be used for this purpose,Tom will be allowed to keep a percentage of the stolen money.Tom gives in to the temptation and provides his account information.Instead of receiving money,Tom loses everything he had in the account to the scammer.In this situation:
A) prosecution can be under state law.
B) prosecution can be under the Computer Fraud and Abuse Act.
C) a civil action can be brought under Section 5 of the FTC Act.
D) All of the above.
Q2) "Hacking" is:
A) gaining unauthorized access to a computer system.
B) a major crime.
C) illegal under the federal Computer Fraud and Abuse Act, which applies to any computer attached to the Internet.
D) All of the above are correct.
Q3) It is legal for websites to sell source code for viruses.
A)True
B)False
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Page 43
Chapter 42: Intellectual Property
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Q1) A design patent protects the appearance of an item and is valid for 14 years.
A)True
B)False
Q2) In hopes of speeding up the approval process and making it more accurate,the Patent and Trademark Office has begun a pilot program which allows anyone to participate in the patent approval process.
A)True
B)False
Q3) In order for a copyright holder to collect money damages from a person who used copyrighted material,it must be proven that:
A) the infringement was intentional.
B) the copyright holder sustained more than $500 in actual damages.
C) the copyrighted material contained the copyright symbol, name of the copyright holder, and the year of copyright.
D) None of the above.
Q4) A copyright is valid for 28 years after it is obtained and can be renewed for another 28 years.
A)True B)False
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Chapter 43: Real Property And Tenant-landlord Law
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Q1) A tenancy with no fixed duration is a:
A) tenancy from month to month.
B) tenancy at will.
C) periodic tenancy.
D) tenancy for years.
Q2) If the court awards a partition to co-tenants,the court will normally attempt a partition by kind.If partition by kind is impossible,because there is no fair way to divide the property,the court will order the real estate sold,and the proceeds equally divided.
A)True
B)False
Q3) Landlords have the right,and may have a duty,to evict tenants who seriously disturb others.
A)True
B)False
Q4) Discuss the factors a court will consider when deciding the issue of whether a landlord is liable for a criminal attack against a tenant.
Q5) Discuss the tenant's and the landlord's basic duties under a landlord-tenant relationship.
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Chapter 44: Personal Property And Bailment
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Q1) In order to constitute a valid gift:
A) the donor must intend to transfer ownership of property immediately.
B) the donee must accept the gift.
C) the donor must deliver the gift property to the donee.
D) All of the above are necessary for a valid gift.
Q2) Personal property means all property other than:
A) soil, plants, and trees removed from the land.
B) minerals and crops removed from the land.
C) land and all things permanently attached to the land.
D) intangible property.
Q3) Mega Corporation,the bailor,negotiates a bailment agreement with Huge Corporation,the bailee.Huge Corporation insists that an exculpatory clause be included in the terms and conditions of the bailment agreement.Later,Huge Corporation negligently (ordinary negligence,not gross negligence)damages the property which is the subject of the bailment.Most courts will allow Huge Corp.to stand behind its exculpatory clause and deny liability.
A)True
B)False
Q4) Distinguish between a contract and a gift.Give an example of each.
Q5) Discuss a bailor's liability for defects in the bailed property.
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Chapter 45: Planning For The Future: Wills,Trusts,And
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Q1) Property of a person who dies without a will is distributed according to intestacy laws. A)True
B)False
Q2) The major disadvantage of a trust is:
A) expense.
B) lack of privacy.
C) it may have to go through an often lengthy probate process.
D) lack of control.
Q3) Under which of the following does the insurer promise to pay the insured a fixed yearly amount,as guaranteed income,after the insured attains a specified age?
A) Straight life policy.
B) Whole life policy.
C) Universal life policy.
D) Annuity contract.
Q4) Discuss the differences between a will and a trust.
Q5) The only function of a will is to dispose of a person's property upon death.
A)True
B)False
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