Legal Environment of Business Study Guide
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Course Introduction
The Legal Environment of Business introduces students to the fundamental principles of law that influence and regulate the business world. This course covers essential topics such as contracts, torts, agency, property law, and the regulatory framework governing businesses. Through the exploration of legal cases, statutes, and ethical considerations, students gain an understanding of how laws shape business decisions, protect stakeholders, and ensure compliance with government regulations. The course also emphasizes critical thinking and problem-solving skills to help students identify legal issues and assess risk in real-world business contexts.
Recommended Textbook Business Law and the Legal Environment 21st Edition by David P. Twomey
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Page 2
Chapter 1: The Nature and Sources of Law
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Q1) A right can exist:
A) by itself.
B) only if created by a court.
C) only if there is a corresponding duty.
D) only under local law.
Answer: C
Q2) Those uniform state laws that have been adopted by individual states were first written by Congress.
A)True
B)False
Answer: False
Q3) One advantage of our current legal system is that the growth of technology has not created many new laws.
A)True
B)False
Answer: False
Q4) Statutes are the only source of law.
A)True
B)False
Answer: False
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Chapter 2: The Court System and Dispute Resolution
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Q1) A court with limited jurisdiction can only hear certain types of cases.
A)True
B)False
Answer: True
Q2) A "rent-a-judge" serves as a referee.
A)True
B)False
Answer: True
Q3) Original jurisdiction courts are generally what type of courts?
A) supreme courts
B) appellate courts
C) trial courts
D) limited courts
Answer: C
Q4) Mediation tends to keep discussions between parties proceeding.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Business Ethics, Social Forces, and the Law
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Sample Questions
Q1) Evidence suggests that there may be relationships among ethical customer and employee relations and long-term ability to pay dividends.
A)True
B)False
Answer: True
Q2) There is often a conflict between the goal of making money for shareholders and the goal of solving social problems through business.
A)True
B)False
Answer: True
Q3) Which of the following situations reflects a possible conflict of interest?
A) You offer a company contract to a friend without checking competing bids.
B) You hire a relative for a company position although another candidate is more qualified.
C) You buy a piece of realty that would be suitable for a planned company project.
D) All of the above.
Answer: D
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Chapter 4: The Constitution As the Foundation of the Legal Environment
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Sample Questions
Q1) The U.S. Constitution:
A) is unwritten.
B) was brought over from England in its entirety.
C) is a written document that specifies the structures and powers of the federal government.
D) prohibits the states from having their own constitutions.
Q2) Changes to the Constitution have been brought about by interpretation, amendment, and practice.
A)True
B)False
Q3) The greatest change to the Constitution has been made by the United States Supreme Court through interpretation.
A)True
B)False
Q4) Because the power to regulate interstate commerce has been interpreted broadly, Congress has great power to adopt regulatory laws affecting the economy.
A)True
B)False
Page 6
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Chapter 5: Government Regulation of Competition and Prices
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Sample Questions
Q1) The government can regulate not just businesses, but also business competition and prices.
A)True
B)False
Q2) Each of the states and the federal government have statutes and regulations that prohibit unfair methods of competition.
A)True
B)False
Q3) A person or enterprise harmed by a Sherman Act violation may bring an action for:
A) punitive damages only.
B) treble damages.
C) quadruple damages.
D) actual damages only.
Q4) A price reduction to one customer is lawful when it is made because of the deteriorated condition of the goods sold to that customer.
A)True
B)False
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Chapter 6: Administrative Agencies
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Sample Questions
Q1) Concerning administrative investigations:
A) agencies are severely limited by the constitutional protection against unreasonable searches and seizures.
B) a search warrant is always required to search premises.
C) papers and records generally may be subpoenaed by an agency.
D) a person does not have constitutional protection against unreasonable searches and seizures.
Q2) Because administrative agencies have broad powers, they are subject to strict procedural rules as well as disclosure requirements.
A)True
B)False
Q3) The Freedom of Information Act provides access to any information upon request.
A)True
B)False
Q4) An administrative agency is a governmental body charged with administering and implementing legislation.
A)True
B)False
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Page 8
Chapter 7: The Legal Environment of International Trade
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Q1) Blocking laws prohibit the disclosure, copying, inspection, or removal of documents located in the territory of the enacting country in compliance with orders from foreign authorities.
A)True
B)False
Q2) A letter of credit agrees to provide the seller with needed currency exchanges when transactions with foreign buyers occur.
A)True
B)False
Q3) The International Bank for Reconstruction and Development, also known as the World Bank, facilitates the lending of money by capital surplus countries to countries needing economic help and wanting foreign investments.
A)True
B)False
Q4) The Securities and Exchange Commission (SEC) is not limited to litigation when a securities law enforcement investigation runs into secrecy or blocking laws.
A)True
B)False
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Chapter 8: Crimes
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Sample Questions
Q1) Racketeering is defined as:
A) using money to influence public officials.
B) using money to influence employees of competitors.
C) using money derived from illegal activities to invest in legitimate businesses.
D) using money to influence foreign officials.
Q2) A person may be held criminally liable for acts committed by another.
A)True
B)False
Q3) White-collar crimes:
A) always involve the threat or use of force or violence.
B) generally involve the threat or use of force or violence.
C) sometimes involve the threat or use of force or violence.
D) do not involve the threat or use of force or violence.
Q4) A crime generally consists of:
A) an act.
B) an act or omission.
C) a mental state and an act or omission.
D) a mental state and harm.
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Chapter 9: Torts
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Sample Questions
Q1) Libel is the printed equivalent of the spoken form of defamation known as slander.
A)True
B)False
Q2) Negligence can be proven without showing actual damage.
A)True
B)False
Q3) Comparative negligence:
A) has been rejected by most of the states.
B) allows a comparison of negligence between plaintiff and defendant.
C) has been held to be applicable in all states, regardless of the extent of the plaintiff's own negligence.
D) is a bar to recovery under common law.
Q4) In terms of defamation liability, members of the United States Congress enjoy an absolute privilege when they are speaking on the floor of the Senate or the House of Representatives.
A)True
B)False
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11
Chapter 10: Intellectual Property Rights
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Sample Questions
Q1) Trademarks may be used to protect the exclusive right to identify either products or services.
A)True
B)False
Q2) A copyright bestows upon the creator of an artistic or literary work a federal statutory right to exclusively:
A) use the work.
B) reproduce the work.
C) display the work.
D) all of the above.
Q3) To be patentable, an invention must be new and not obvious to a person of ordinary knowledge and skill in the art or technology to which the invention is related.
A)True
B)False
Q4) A trademark is any word, name, symbol, device, or combination of these used to identify a product.
A)True
B)False
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Page 12
Chapter 11: Cyberlaw
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Sample Questions
Q1) The formation of contracts in cyberspace is governed today largely by:
A) international contract law principles.
B) traditional contract law principles.
C) federal contract law principles.
D) uniform state laws.
Q2) __________ refers to laws and precedent applicable to Internet transactions and communications.
A) Cyberlaw
B) Cyborglaw
C) Silicalaw
D) Simlaw
Q3) The taking of an image off someone's web site and using it for commercial advantage is called:
A) appropriation.
B) defamation.
C) gleaning.
D) subordination.
Q4) "Pump and dump" is a practice prohibited under securities law.
A)True
B)False
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Chapter 12: Nature and Classes of Contracts: Contracting
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Sample Questions
Q1) An offer of a reward for the arrest and conviction of a criminal is an example of a:
A) unilateral contract.
B) bilateral contract.
C) quasi contract.
D) formal contract.
Q2) A person who makes a promise is the promisor, while a person to whom the promise is made is the promisee.
A)True
B)False
Q3) The main thrust of the quasi contract is to:
A) encourage the making of written contracts.
B) prevent enrichment.
C) compensate those who voluntarily help others.
D) prevent unjust enrichment.
Q4) The elements of a contract include all of the following except:
A) an agreement.
B) two or more competent parties.
C) consideration.
D) an illegal purpose.
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Chapter 13: Formation of Contracts: Offer and Acceptance
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Q1) A requirements contract is too vague to be a legally-enforceable agreement.
A)True
B)False
Q2) If no time is stated for the duration of an offer, it continues indefinitely if the offer relates to durable goods or land.
A)True
B)False
Q3) An otherwise vague contract may be clarified by references in the contract to other documents or agreements.
A)True
B)False
Q4) Contract terms may not be implied from conduct.
A)True
B)False
Q5) If no termination date is specified for an offer, the offer will remain open:
A) for one year.
B) for six months.
C) for a reasonable period of time.
D) until someone accepts the offer.
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Chapter 14: Capacity and Genuine Assent
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Sample Questions
Q1) A person who is unable to read is bound by signing a contract without obtaining an explanation of it, unless:
A) the other contracting party later becomes aware of the signer's inability to read.
B) the other party is similarly lacking in education.
C) the other contracting party knows of the signer's disability.
D) none of the above; an illiterate person is always bound by a contract he or she chooses to sign without obtaining an explanation.
Q2) The key time for determining whether a party lacked contractual capacity is:
A) the time the contract was made.
B) the time the value of the bargain becomes clear.
C) the time set for performance of the contract.
D) the time the plaintiff expresses dissatisfaction with the contract terms.
Q3) All of the following statements refer to an element of fraud except:
A) the defendant desired to obtain a financial benefit.
B) the defendant made a false statement.
C) the defendant knew that the statement was false or was recklessly indifferent regarding its truth.
D) the defendant intended for the other party to rely on the false statement.
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Page 16
Chapter 15: Consideration
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Sample Questions
Q1) Which of the following can be consideration for a promise?
A) refraining from beating one's spouse
B) promising to refrain from beating one's spouse
C) refraining from smoking cigarettes
D) refraining from using cocaine
Q2) Forbearance may constitute consideration.
A)True
B)False
Q3) One promise may serve as consideration for many return promises.
A)True
B)False
Q4) With regard to an unliquidated debt, payment by the debtor of less than the amount claimed by the creditor is consideration for the latter's agreement to release or settle the claim.
A)True B)False
Q5) An unenforceable promise will constitute consideration as long as the parties to the contract appear to be in agreement.
A)True
B)False
Page 17
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Chapter 16: Legality and Public Policy
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Sample Questions
Q1) To stabilize the industry, manufacturers of the same or similar products may agree that each will market its product in a specified geographic area of the country and will not market its product in the territory assigned to other manufacturers.
A)True
B)False
Q2) Sam Wilson often goes to the horse races, participates in his state's lottery, and invests heavily in the stock of major U.S. companies. At work, Wilson is approached by his coworkers and asked to participate in a football pool. "It's totally based upon skill," his friends claim. In addition, Wilson's philanthropic club is holding a raffle in which an individual could win a new car. Are these activities gambling and therefore illegal activities?
Q3) Private lotteries, which generally are held to be illegal, involve three elements:
A) prize, chance, and consideration.
B) return, skill, and wager.
C) prize, skill, and consideration.
D) attractive return, minimal involvement, and skill.
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Page 18
Chapter 17: Writing, Electronic Forms, and Interpretation of Contracts
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Sample Questions
Q1) Suzy Bartles enters into an oral contract to purchase a tract of land from Bill Hermes. The land is considered worthless, but Bartles feels that she has discovered a possible usage that would drastically increase the value of the land. To assure herself of the potential value of the land, Bartles orally hires an attorney to investigate the title and records associated with the land in question. Before gaining any information from her attorney, Bartles orally contracts with a builder to construct a huge building on the site. Because of the size of the project, a completion time is difficult to predict. Bartles now discovers that the land is indeed useless, a fact that she obtains through information from her attorney. Bartles now refuses to honor her contracts with Hermes, her attorney, and the builder. Must Bartles honor her contractual agreements?
Q2) When the main purpose of the promisor's promise to pay the debt of another is to benefit the promisor, the statute of frauds is not applicable, and the oral promise to pay the debt is binding.
A)True
B)False
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Page 19
Chapter 18: Third Persons and Contracts
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Q1) The delegator of construction duties remains liable if:
A) the delegatee performs the work properly, but the obligee did not approve of the delegation.
B) the delegatee performs the work improperly.
C) the obligee objects in writing to the delegatee's performance of the work, even if the delegatee performs the work properly.
D) the value of the contract is $500 or more and the delegatee performs the work properly.
Q2) Generally, an assignment may be in any form.
A)True
B)False
Q3) An incidental beneficiary of a contract:
A) can sue to enforce the contract.
B) cannot sue to enforce the contract.
C) is a beneficiary specifically named in the contract.
D) is an assignee of the direct beneficiary.
Q4) An assignment, if otherwise valid, takes effect the moment it is made.
A)True
B)False
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Chapter 19: Discharge of Contracts
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Q1) In which case will performance on the exact date specified in the contract most likely be deemed essential?
A) a sale of goods that fluctuate rapidly in value
B) a sale of goods that remain stable in value
C) a sale of real estate
D) a sale of goods where no harm results from a delay in performance
Q2) The death or disability of a party to a contract discharges the contract when:
A) personal services requiring peculiar skill are involved.
B) the payment of money is involved.
C) a house is to be painted.
D) none of the above.
Q3) The parties may agree that the adequacy of performance under a contract is to be determined by a third party.
A)True
B)False
Q4) By operation of law, a party can be discharged in bankruptcy from debts.
A)True
B)False
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Chapter 20: Breach of Contract and Remedies
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Q1) Contract provisions that limit the remedies of the parties are generally unenforceable.
A)True
B)False
Q2) The failure to act or perform in the manner called for by a contract is a:
A) waiver.
B) breach.
C) forbearance.
D) reservation of right.
Q3) An action for injunctive relief may be granted:
A) if money is due and payable.
B) if the breach consists of doing a prohibited act.
C) if the breach would cause nominal damages.
D) if the breach would cause consequential damages.
Q4) When a party waives compliance with one provision of a contract, the other party may thereafter ignore other provisions of that contract.
A)True
B)False
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Chapter 21: Personal Property and Bailments
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Q1) When a person rents space in a locker or building under an agreement that gives the renter the exclusive right to use that space, the placing of goods by the renter in that space creates a bailment.
A)True
B)False
Q2) To establish a gift, the party claiming to be the donee must prove:
A) delivery only.
B) intent only.
C) intent and a promise to deliver.
D) intent and delivery.
Q3) Vacarro gave her son Mark a car on the day Mark left for college. Vacarro told Mark that she expected him to use the car for school purposes and to earn good grades. Mark flunked out of college in his second semester. Vacarro sued to regain title to the car on the ground that the gift was conditional on Mark's earning good grades and remaining in college. Will Vacarro win the case?
Q4) Personal property is lost when an owner does not know where it is located but intends to retain title or ownership to it.
A)True
B)False
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Chapter 22: Legal Aspects of Supply Chain Management
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Q1) The rights of a transferee of a negotiable bill of lading are defeated if the goods have been stopped in transit.
A)True
B)False
Q2) A public warehouser has a lien against the goods stored for reasonable costs incurred from the storage.
A)True
B)False
Q3) The rights and duties of warehousers are regulated by the UCC.
A)True
B)False
Q4) To be engaged in warehousing, an enterprise must have appropriate storage buildings.
A)True
B)False
Q5) A purchaser of a nonnegotiable warehouse receipt:
A) receives no implied warranties.
B) may acquire rights superior to those of the transferor.
C) acquires only the rights and title of the transferor.
D) may be considered to have the rights of a holder in due course.
Page 24
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Chapter 23: Nature and Form of Sales
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Q1) If a contract for the sale of goods does not state the price to be paid, the:
A) contract is void because it is too indefinite to be enforced.
B) buyer is required to pay a reasonable price for the goods.
C) buyer can pay whatever price the buyer in good faith believes is a proper price.
D) seller can rightfully charge whatever price the seller in good faith believes is a proper price.
Q2) Goods physically existing and owned by a seller at the time of a transaction are called existing goods.
A)True
B)False
Q3) A gift is a free transfer of the title to property.
A)True
B)False
Q4) As a general rule, courts will __________ in recovering money or property transferred under an illegal agreement.
A) assist a commercial buyer
B) assist a non-commercial buyer
C) assist an institutional buyer
D) not aid either party
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Chapter 24: Title and Risk of Loss
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Q1) The Anderson Balloon Company of Detroit entered into a contract with Johnson's Novelty Shop of Des Moines to sell 1,000 balloons to Johnson's. The contract provided that the balloons were to be manufactured in accordance with Johnson's specifications. The contract further provided that the balloons would be shipped to Johnson's. The balloons were damaged while in transit from Detroit to Des Moines. Johnson's has sued Anderson for damages. Will Johnson's win?
Q2) Most courts hold that when a customer takes an item from the shelf in a self-service store, there is:
A) no sale.
B) a sale.
C) a contract to sell.
D) a conditional sale.
Q3) Under a CF contract, the seller must get the goods to a carrier and buy an insurance policy in the buyer's name to cover the goods while in transit.
A)True
B)False
Q4) Heterogeneous goods are goods that, when mixed together, are indistinguishable.
A)True
B)False
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Chapter 25: Product Liability: Warranties and Torts
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Q1) A warranty is limited if:
A) only the original buyer is covered by the warranty.
B) the buyer must pay any cost for repair or replacement of a defective product.
C) it covers only part of the product purchased.
D) all of the above.
Q2) A merchant has greater potential warranty liability than does a casual seller.
A)True
B)False
Q3) Express warranties may be made before, during, but not after the sale of goods.
A)True
B)False
Q4) Which of the following statements made by the seller does not likely constitute an express warranty?
A) "This looks beautiful on you."
B) "This is 100 percent wool."
C) "This motor generates 100 horsepower."
D) "This is a 3.2 liter rotary engine."
Q5) An express warranty can be made orally or in writing.
A)True
B)False
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Chapter 26: Obligations and Performance
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Q1) The statement, "I doubt that I can perform the contract," is a repudiation of the contract.
A)True
B)False
Q2) Upon a seller's tender of nonconforming goods and the buyer's rejection of them, the transaction has ended.
A)True
B)False
Q3) In a cash sale not requiring the movement of goods, each party has the right to demand that the other perform at the same time.
A)True
B)False
Q4) When an anticipatory repudiation has occurred, the aggrieved party has been notified that the contract will never be performed.
A)True
B)False
Q5) The UCC specifies the form that the assurance of performance is to take.
A)True
B)False
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Chapter 27: Remedies for Breach of Sales Contracts
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Q1) Proof of substantial impairment of the value of a contract to the buyer is required to justify revocation of acceptance.
A)True
B)False
Q2) Which of the following is not an example of incidental damages recoverable by a seller?
A) expenses for the care of the goods after the buyer's breach
B) expenses for transportation of the goods after the buyer's breach
C) expenses for resale of the goods after the buyer's breach
D) expenses for the attorney's fees after the buyer's breach
Q3) A seller has the right to stop shipment if the buyer has received goods on credit and the seller learns that the buyer is insolvent, the buyer has not provided assurances as requested, or the seller has grounds to believe performance by the buyer will not occur.
A)True
B)False
Q4) A buyer returning to the seller a raincoat that shrank in the rain is revoking acceptance.
A)True
B)False
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Chapter 28: Kinds of Instruments, Parties, and Negotiability
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Q1) A(n) __________ instrument's terms are enforceable, but the instrument is treated simply as a contract governed by contract law.
A) nonnegotiable
B) negotiable
C) accommodation
D) secondary
Q2) Which of the following terms would make an instrument nonnegotiable?
A) It specifies collateral as security for a debt.
B) It is undated.
C) It is payable in foreign money.
D) It gives the holder the right to receive goods or money.
Q3) The drawee on a check is a bank.
A)True
B)False
Q4) Once a draft is delivered to the payee, the drawee becomes liable.
A)True
B)False
Q5) If an order or promise is not for money, the instrument is not negotiable.
A)True
B)False
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Chapter 29: Transfers of Negotiable Instruments and
Warranties of Parties
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Q1) When a negotiable instrument is assigned, the transferee has the rights of the transferor.
A)True
B)False
Q2) The situation in which an individual impersonates the holder of a savings account and, by presenting a forged withdrawal slip to the savings bank, receives from the bank a check payable to the bank's customer, is covered by the:
A) impostor rule.
B) negotiation rule.
C) assignment rule.
D) bank rule.
Q3) A person who acquires the instrument on which the last endorsement is blank becomes the holder.
A)True
B)False
Q4) If a lost negotiable instrument is in bearer form at the time of the loss, the finder is entitled to enforce payment.
A)True
B)False
To
Chapter 30: Liability of the Parties Under Negotiable Instruments
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Q1) A person who buys a note from a holder in due course knowing that the maker has a defense will not be a holder through a holder in due course.
A)True
B)False
Q2) For a change to constitute an alteration, the person making the change must be a party to the instrument.
A)True
B)False
Q3) In general, transferees who are aware of facts that would make a reasonable person ask questions are deemed to know what they would have learned if they had asked questions.
A)True
B)False
Q4) A holder can recover from any of the parties who are liable on the instrument, regardless of the order of the signatures on the instrument.
A)True
B)False
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Chapter 31: Checks and Funds Transfers
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Q1) A certified check was presented for payment to the drawee bank, and the drawee bank dishonored the check. Which of the following parties is/are potentially liable to the holder?
A) the drawee only
B) the drawer only
C) the drawer and the drawee
D) the maker
Q2) A check is drawn on the assumption that the bank has sufficient funds in the drawer's account for payment.
A)True
B)False
Q3) Which of the following statements describes a check?
A) The drawer is always a bank.
B) The maker is always a bank.
C) A check is generally payable on demand.
D) A check is a particular kind of note.
Q4) If a check has not been certified, a holder has no claim against the bank for the dishonor of a check.
A)True
B)False
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Chapter 32: Nature of the Debtor-Creditor Relationship
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Q1) Suretyship, guaranty, and indemnity contracts all create a relationship by which one party becomes responsible for the debt or undertaking of another party.
A)True
B)False
Q2) The creditor's failure to give the surety notice of default is not a defense.
A)True
B)False
Q3) Standby letters of credit are used only in international trade situations.
A)True
B)False
Q4) A letter of credit:
A) is an advance arrangement for financing.
B) is used only in domestic sales.
C) is used only in international trade.
D) involves only two parties.
Q5) A surety primarily is liable; ordinarily, a guarantor is only secondarily liable.
A)True
B)False
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Chapter 33: Consumer Protection
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Q1) __________ lending is a practice on the part of the subprime lending market whereby lenders take advantage of less sophisticated consumers or those who are desperate for funds by using the lenders' superior bargaining positions to obtain credit terms that go well beyond compensating them for their risks.
A) Predatory
B) Dilatory
C) Confiscatory
D) None of the above
Q2) A consumer may rescind a contract without liability when the contract is for:
A) the purchase of a new automobile.
B) the purchase of a used automobile.
C) a home-solicited sale of services for $50 that was made two (2) days earlier.
D) a home-solicited sale of goods for $25 that was made seven (7) days earlier.
Q3) An unsolicited distribution of credit cards to persons who have not applied for them is:
A) allowed by most states.
B) voidable.
C) illegal.
D) authorized by nonuse.
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Chapter 34: Secured Transactions in Personal Property
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Q1) Consumer goods are classified into different categories based on the debtor's intended use, not the physical characteristics of the goods.
A)True
B)False
Q2) Upon a default by a buyer, the secured seller may resell the collateral:
A) not less than three (3) months after the buyer's default.
B) not less than six (6) months after the buyer's default.
C) only at a public sale.
D) at either a public or a private sale.
Q3) Attachment provides creditors with rights.
A)True
B)False
Q4) A security agreement need not describe the collateral involved.
A)True
B)False
Q5) A security interest is a property right that enables the creditor to take possession of the property if the debtor does not pay the amount owed.
A)True
B)False
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Chapter 35: Bankruptcy
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Q1) Nonprofit corporations are exempt from involuntary proceedings.
A)True
B)False
Q2) An involuntary petition in bankruptcy may not be commenced against:
A) a nonprofit corporation.
B) an individual.
C) a for-profit corporation.
D) any of the above.
Q3) A debtor may recover damages against any creditor who filed a bankruptcy petition in bad faith.
A)True
B)False
Q4) A discharge releases a debtor from student loan obligations that first became due within two (2) years before bankruptcy.
A)True
B)False
Q5) A bank may file a voluntary petition with the bankruptcy court.
A)True
B)False
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Chapter 36: Insurance
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Q1) The fact that a partnership is terminated after a life insurance policy is obtained by one partner on another invalidates the policy.
A)True
B)False
Q2) Mike Reilly suffered the loss of his home as a result of a chimney fire that was caused by the ignition of soot in the chimney. This fire would be described as:
A) a friendly fire.
B) arson by negligence.
C) a strict liability fire.
D) a hostile fire.
Q3) Exceptions to coverage are generally strictly interpreted against the insurer.
A)True
B)False
Q4) For the purposes of Personal Auto Policy (PAP) coverage, an insured person "uses" an automobile by unloading groceries from the car while it is parked in the garage. A)True
B)False
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Chapter 37: Agency
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Q1) The usual method of creating an agency is by:
A) express authorization.
B) conduct.
C) operation of law.
D) ratification.
Q2) When the principal ratifies the act of the unauthorized person, such ratification does not release the unauthorized person from liability, since he or she acted without authority.
A)True
B)False
Q3) An agent's duties must be expressly stated in the agency agreement and may not be implied from the principal's words or conduct.
A)True
B)False
Q4) A principal may ratify an action taken by an agent that the principal would not have been capable of authorizing at the time that the action was taken.
A)True
B)False
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Chapter 38: Third Persons in Agency
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Q1) An agent should never sign a contract using "by" or "per" and then his or her name.
A)True
B)False
Q2) Payment to an authorized agent is:
A) payment to the principal only if the agent remits the payment.
B) payment to the principal if the third person informs the principal.
C) payment to the principal, provided the agent does not misappropriate the payment.
D) payment to the principal.
Q3) Agent's may intentionally make themselves liable on contracts with third persons.
A)True
B)False
Q4) A customer who has given a purchase order to a salesperson is not bound by any contract until the employer of the salesperson accepts the order.
A)True
B)False
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Chapter 39: Regulation of Employment
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Q1) The rights of an employee to be compensated are governed primarily by the same principles that apply to the compensation of a(n):
A) partner.
B) stockholder.
C) agent.
D) court-appointed trustee.
Q2) If an employment contract provides that an employee can be fired only for "good cause" or "just cause," a lesser standard for discharge such as the employment-at-will doctrine will not be allowed by a court.
A)True
B)False
Q3) An employee has the same status as:
A) an agent.
B) an independent contractor.
C) an employer.
D) none of the above.
Q4) An agreement by an employee to refrain from disclosing trade secrets is binding.
A)True
B)False
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Chapter 40: Equal Employment Opportunity Law
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Q1) An affirmative action plan that "unnecessarily trammels" the interests of nonminority employees:
A) is an example of reverse discrimination.
B) is lawful if women are the favored group.
C) is lawful to aid in the hiring of blacks and Native Americans.
D) is unlawful unless the favored group has been severely disadvantaged.
Q2) Pay raises based on seniority generally are considered lawful.
A)True
B)False
Q3) Title VII protects members of which racial grouping(s)?
A) black only
B) black, Native American, and Asian-Pacific
C) white only
D) all racial groupings
Q4) Disparate impact exists when facially neutral employment practices:
A) adversely impact a protected group.
B) intentionally discriminate against a protected group.
C) favorably impact a protected group.
D) intentionally and unfavorably impact a protected group, but the practices are business-related.
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Chapter 41: Types of Business Organizations
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Q1) A corporation is a separate legal entity capable of owning property, contracting, and being sued in its own name.
A)True
B)False
Q2) A franchise agreement in which the franchisor grants the franchisee authority to manufacture and sell products under the trademark(s) of the franchisor is known as a manufacturing or processing franchise.
A)True
B)False
Q3) The major advantage to investors in a corporation stems from the fact that their risk of loss is limited to the amount of their investment.
A)True
B)False
Q4) Arnold was the sole shareholder, president, and chief executive officer of Algernon Enterprises, Inc. Acting on behalf of Algernon, Arnold negotiated the credit purchase of inventory from Amax. The contract was signed in the name of Algernon Enterprises. Algernon never paid the sums due on the contract, and Arnold and the corporation were sued. Is Arnold personally liable to Amax?
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Chapter 42: Partnerships
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Q1) The fact that parties share profits and losses is strong evidence of the existence of a partnership.
A)True
B)False
Q2) Persons who are not partners under appropriate circumstances may be held liable to third persons as though they were partners.
A)True
B)False
Q3) Partners are not entitled to compensation for services performed for the partnership unless:
A) the services are performed by a surviving partner in winding up the partnership affairs.
B) the services are unusual or more extensive than services rendered by other partners.
C) due to the illness of a partner, the other partners have to perform the services ordinarily performed by that partner.
D) the services rendered by the partner are such that they ordinarily would be rendered with the expectation of compensation.
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Chapter 43: LPs, LLCs, and LLPs
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Q1) If a limited partnership certificate is never filed, all partners are treated as limited partners.
A)True
B)False
Q2) When no limited partnership certificate is filed, what is the result?
A) Only limited partners are fully liable.
B) Only general partners are fully liable.
C) Limited partners retain their limited liability.
D) Both general and limited partners are fully liable.
Q3) Both general partnerships and limited partnerships are created only through the process of executing a certificate.
A)True
B)False
Q4) Limited liability companies are formed without filing formal articles of organization with the secretary of state; in this sense, limited liability companies are easier to create than corporations.
A)True
B)False
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Chapter 44: Corporate Formation
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Q1) Because nonprofit corporations have a more restricted range of powers than business corporations, actions not authorized by the charters of nonprofit corporations are more likely to be found ultra vires.
A)True
B)False
Q2) For the purpose of determining the right to bring a lawsuit in federal court, a corporation is a citizen of any state in which it has been incorporated and of the state where it has its principal place of business.
A)True
B)False
Q3) Subject to constitutional limitations, corporations may be regulated by state statutes.
A)True
B)False
Q4) Subchapter S corporations have the benefits of limited liability as in partnerships and are taxed as corporations.
A)True
B)False
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Page 46
Chapter 45: Shareholder Rights in Corporations
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Q1) Dividends are payable in:
A) money.
B) products manufactured by the corporation.
C) shares of other corporations held by the corporation.
D) all of the above.
Q2) When an individual owns a share of stock in a corporation, that individual:
A) has an ownership interest in the corporation.
B) is a creditor of the corporation.
C) generally has no voting rights.
D) is in possession of a debt security.
Q3) Which of the following is an effective means of notice to purchasers of shares that there are restrictions on the sale?
A) notation in the bylaws
B) resolution of the shareholders at a shareholders' meeting
C) notation on the stock certificate
D) resolution of the directors at a directors' meeting
Q4) A contract for the sale of shares must be evidenced in writing and include the price and quantity of the securities.
A)True
B)False
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Chapter 46: Securities Regulation
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Q1) The Securities Act of 1933 imposes civil and criminal penalties for the making of fraudulent statements in a registration statement.
A)True
B)False
Q2) A corporation or group of investors may seek to acquire control of another corporation by offering cash for all of its shares made available for sale by a certain date. This action is called a(n):
A) cash tender offer.
B) stock redemption offer.
C) stock reclamation offer.
D) offer for value.
Q3) The Market Reform Act of 1990 empowers the SEC to suspend all trading when markets are excessively volatile.
A)True
B)False
Q4) No private or limited offerings of securities are exempt from the SEC registration requirements.
A)True
B)False
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Chapter 47: Accountants Liability and Malpractice
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Q1) All negligence malpractice suits by third persons are prohibited by courts that follow the:
A) contract rule.
B) contact rule.
C) privity rule.
D) direct parties rule.
Q2) General causation principles of negligence apply to the law of malpractice.
A)True
B)False
Q3) Unidentified members of a certain class may sue for negligent malpractice in states that follow the __________ rule.
A) contact
B) known user.
C) unidentified user
D) foreseeable user
Q4) In an action for breach of contract, the statute of limitations runs from the date on which the harm is discovered.
A)True
B)False
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Chapter 48: Management of Corporations
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Q1) A board of directors' oversight responsibilities for its company's business affairs do not include evaluating management's performance, approving the hiring of executives and approving executive compensation plans; instead, such responsibilities are for the shareholders to assume at either regular or special shareholder meetings.
A)True
B)False
Q2) A director is disqualified from taking part in corporate action with respect to a matter in which the director has an undisclosed conflicting interest.
A)True
B)False
Q3) Regular meetings of shareholders are:
A) held at a time and place set forth in a notice given to all shareholders.
B) held at a time and place prescribed by the articles of incorporation or the bylaws.
C) called by the directors.
D) limited to the election of directors.
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Chapter 49: Real Property
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Q1) The general view is that although the owner of land owns the space above the land, such ownership is entirely subject to the rights of flying aircraft, even if the aircraft should interfere with the use of the land and represent a danger to persons or property on the land.
A)True
B)False
Q2) An easement is not only a right in the land of another, but it is also a right that belongs to the land that is benefited.
A)True
B)False
Q3) Characteristics of the fee simple estate include all of the following except:
A) it is alienable during life.
B) it is not subject to rights of the owner's surviving spouse.
C) it is alienable by will.
D) it can be attached or used to satisfy the owner's debts before or after the owner's death.
Q4) A deed is not effective to pass title unless it is properly recorded.
A)True
B)False
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Chapter 50: Environmental Law and Land Use Controls
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Q1) The Jarvis family owned its land for more than 150 years. The Jarvis family traditionally farmed the land and for that purpose maintained farm animals. As years passed, most of the surrounding farms were sold by the owners and the area turned out to be a close-in suburb of a major city. A zoning ordinance was passed that prohibited maintaining a barn or farmyard animals on the land. The Jarvis family was advised that they were unaffected by this ordinance because theirs would be considered a nonconforming use. The members of the Jarvis family lost interest in farming and sold off all their animals. Seven (7) years later, a family member desired to raise a few pigs on the property. Angry neighbors asserted that the family has lost the right to do so. What is your opinion?
Q2) Which of the following statements is correct concerning restrictive covenants?
A) Restrictive covenants that have not been enforced or observed are nevertheless valid and enforceable.
B) Restrictive covenants take precedence over conflicting statutes.
C) Restrictive covenants generally impose some limitations on the landowner's use of the property.
D) If any uncertainty exists in the interpretation of a restrictive covenant, the covenant will be interpreted liberally in favor of the limited use of the land.
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Chapter 51: Leases
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Q1) If a landlord agrees to a subletting by a tenant, the tenant is released from all further liability on the original lease.
A)True
B)False
Q2) The relationship of landlord and tenant is always created by an express contract.
A)True
B)False
Q3) Igor immigrated to the United States and sought to rent an apartment. Knowing little of the English language and the neighborhoods of the city, Igor answered an advertisement in a newspaper and signed a lease for an apartment without ever seeing the apartment. After Igor received the keys and went to the apartment, Igor found the premises filled with an abundance of debris, rats and insects. Also, the plumbing in the apartment was inoperable. These conditions:
A) do not affect the lease unless the landlord affirmatively warranted the condition of the premises.
B) are the responsibility of the tenant to improve.
C) most likely constitute a breach of the implied warranty of habitability.
D) do not entitle Igor to vacate the premises.
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Chapter 52: Decedents Estates and Trusts
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Q1) A will cannot be modified by merely crossing out a clause and writing in something new.
A)True
B)False
Q2) A beneficiary of personal property by will may be called a devisee.
A)True
B)False
Q3) A will, to be effective, always must be dated.
A)True
B)False
Q4) A holographic will is an unwitnessed will that is written by the testator entirely by hand.
A)True
B)False
Q5) Which of the following is not a correct statement concerning wills?
A) Attestation is the act of witnessing the execution of a will.
B) Most states require two (2) witnesses to the execution of the will.
C) A will must be dated.
D) Self-proved wills are wills that carry a presumption that they are valid if executed according to the requirements set forth by statute.
Page 54
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