Commercial Law
Final Exam Questions
Course Introduction
Commercial Law provides a comprehensive overview of the legal principles and frameworks that govern business and commercial transactions. The course covers key topics such as the formation and enforcement of contracts, the regulation of sales and goods, negotiable instruments, agency relationships, partnership and company law, and insolvency procedures. Students will analyze real-world cases and statutory regulations to understand legal obligations, dispute resolution mechanisms, and the rights and responsibilities of parties engaged in commerce. Emphasis is placed on the practical application of legal concepts to contemporary business scenarios, preparing students for effective legal decision-making in commercial contexts.
Recommended Textbook Business Law and the Legal Environment Standard Edition 6th Edition by Jeffrey F. Beatty
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Chapter 1: Introduction To Law
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Q1) The case citation Pereda v.Parajon,957 So.2d 1194 (2007)reveals that Pereda is the plaintiff.
A)True
B)False
Answer: False
Q2) The doctrine of precedent requires:
A) that the victim testify.
B) that the defendent testify.
C) a 12-member jury of the defendent's peers.
D) judges to base rulings on previous cases.
Answer: D
Q3) 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
Q4) Under the natural law theory of jurisprudence,an unjust law is no law at all.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Business Ethics And Social Responsibility
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Q1) Kent needed to reduce his workforce by five people.Before notifying them,he thought about how he would feel if he were the one receiving the news and he tried to find ways to help the employees in their transition.Kent was exercising the value of:
A) courage.
B) compassion.
C) fairness.
D) responsibility.
Answer: B
Q2) A company that engages in unethical behavior may suffer severe consequences.
A)True
B)False
Answer: True
Q3) A manager making a decision without fraud,prejudice,or favoritism is exhibiting the value of:
A) compassion.
B) integrity.
C) fairness.
D) responsibility.
Answer: C
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Page 4
Chapter 3: Dispute Resolution
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Q1) Roberto sued Monica for injuries received in a traffic accident.If Monica does not respond to the complaint and summons served by Roberto within the prescribed time limits,Roberto may obtain a:
A) judgment on the pleadings.
B) summary judgment.
C) pretrial conference.
D) default judgment.
Answer: D
Q2) Advantages of Alternative Dispute Resolution (ADR)include:
A) ADR is faster than litigation.
B) ADR keeps the parties talking rather than fighting.
C) ADR is less expensive than litigation.
D) All of the above are advantages of ADR.
Answer: D
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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Chapter 4: Common Law,Statutory Law,And Administrative Law
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Q1) The Federal Trade Commission promulgated Telemarketing Sales Rules regulating the activities of telemarketers.One of the rules prohibits telemarketers from calling a person's residence at any time other than between 8:00 a.m.and 9:00 p.m.This legislative rule has the effect of a statute
A)True
B)False
Q2) The concept of stare decisis focuses most on:
A) predictability.
B) flexibility.
C) legislative intent.
D) change.
Q3) Discuss the four most important limitations on the power of federal administrative agencies.
Q4) The doctrine of stare decisis,though vital to the creation of the common law when this country was settled,is not important to our modern,complex society.
A)True
B)False
Q5) Define the common law.Discuss its conflicting goals and the doctrine created to serve one of these goals.
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Chapter 5: Constitutional Law
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Q1) If there is a conflict between a state and federal law,generally the federal law will prevail because of the:
A) federalism doctrine.
B) Supremacy Clause.
C) paramount doctrine.
D) Interstate Commerce Clause.
Q2) Nevada passed a law banning all commercial billboards along state highways to improve the appearance of the environment.If this law were to be challenged,which of the following would a court examine to determine if the law is constitutional?
A) It would have to be established that the law furthers an interest of the state of Nevada to create a more aesthetically pleasing environment.
B) It would have to be shown that the law directly and materially advances the state's goal of a more aesthetically pleasing environment.
C) It would have to be shown that the law reaches no further than necessary to promote the state goal.
D) All of the above.
Q3) 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) A company that makes a commercial with a person who does an excellent,realistic job of pretending to be a famous movie star could be sued by the real actor for the tort of:
A) intrusion.
B) defamation.
C) commercial exploitation.
D) none of the above, since public figures are often imitated by other actors.
Q2) Public officials and public figures receive less protection from defamation than ordinary people.
A)True
B)False
Q3) Working out some frustrations after a bad game,Jessica angrily hits a baseball and then sees it is flying toward the umpire.She yells,"Watch out!" The umpire ducks and the ball misses him.Since there was no physical contact,no assault or battery occurred.
A)True
B)False
Q4) A tort is a violation of a duty imposed by the civil law.
A)True
B)False
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Chapter 7: Negligence And Strict Liability
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Q1) While hunting,Roger enters Adele's property without permission and is injured by falling into a ditch that was obscured by the underbrush.Under the common law,Adele is liable for Roger's injuries.
A)True
B)False
Q2) Most states recognize some form of comparative negligence.
A)True
B)False
Q3) Which of the following statements regarding a negligence case is correct?
A) A plaintiff must show that the defendant's act was both the factual cause of her injury as well as a foreseeable injury.
B) A plaintiff must show that the defendant's act was the factual cause of her injury even if the injury was not foreseeable.
C) A plaintiff must show that the defendant's act created a foreseeable danger even if it was not the factual cause of her injury.
D) A plaintiff does not have to show that the defendant's act either created a foreseeable danger or that the act was the factual cause of her injury.
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Chapter 8: Crime
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Q1) Diane,a police officer,stops Tim's car for a traffic offense.While talking to Tim,she shines a flashlight into the passenger compartment of Tim's car and sees evidence of drug paraphernalia.Which statement is correct?
A) Diane may search the passenger compartment of the car and any place else in the car, including the trunk, without Tim's consent.
B) Diane may search the passenger compartment of the car without Tim's consent; however, she may not search the trunk of the car without his consent or without a search warrant.
C) Diane may not search the passenger compartment of the car (nor any place else) without Tim's consent or a search warrant. However, she can require Tim to remain parked until the search warrant is brought to her.
D) Under the above circumstances, Diane can write Tim a traffic citation but cannot search the vehicle.
Q2) Discuss the growing problem of identity theft,including how thieves get personal information,what they do with this information,and how a victim should respond.
Q3) Compare and contrast money laundering and embezzlement.Give an example of each.
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Page 10
Chapter 9: International Law
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Q1) When considering both imports and exports,the country trading the most goods with the United States is:
A) Canada.
B) China.
C) Japan.
D) Mexico.
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 documents required by the letter of credit are presented to the bank for payment while the goods are still in transit.Is Hardhat entitled to be paid?
A) No, payment is not due until the goods are delivered.
B) No, payment is not due until 30 days after delivery.
C) No, payment is not due until the buyer has had a reasonable time to inspect the goods.
D) Yes, the letter of credit is a promise by the bank to pay when certain documents are presented.
Q3) Explain what the General Agreement on Tariffs and Trade (GATT)is and give pro and con arguments concerning this agreement.
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Chapter 10: Introduction To Contracts
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Q1) Courts may award damages called "quantum meruit":
A) which means "as much as he deserved."
B) which is money the court believes the plaintiff morally ought to have.
C) even though there was no valid contract entitling the plaintiff to it.
D) All of the above.
Q2) Zena enters into a contract with Steeley Company to purchase a washer and dryer.She doesn't understand the financing terms,but signs the agreement anyway because she needs the appliances.The financing terms are very unfavorable to Zena,and she is unable to make all of her payments when they are due.Steeley sues.The court would:
A) be exercising judicial restraint if it requires Zena to pay as she promised, even if the agreement was unfair and unwise.
B) have to rewrite the contract to be fair to both parties.
C) have to declare the contract void since it contained terms unfavorable to the weaker party to the transaction.
D) use the theory of promissory estoppel to remedy any unfavorable terms in the contract.
Q3) Discuss the requirements of promissory estoppel.
Q4) List and briefly describe the basic elements of a contract.
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Chapter 11: Agreement
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Q1) Revocation is the withdrawal of an offer by the offeror.
A)True
B)False
Q2) Regency Construction placed an order for two hundred 2 x 4s from Lumber Jack.If the place of delivery and time for shipping the goods are not specified,the UCC provides:
A) the place of delivery is Lumber Jack's and the time for delivering the lumber is a reasonable time based on normal trade practice.
B) the place of delivery is Regency Construction and the time for shipping is within 30 days.
C) the place of delivery is Lumber Jack's and the time for delivering the lumber is within 30 days.
D) there is no contract because having more than one open term made the offer too indefinite.
Q3) In seeking to determine whether there is a meeting of the minds,the courts look to how a reasonable person would objectively view the language or actions of the parties.
A)True
B)False
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Chapter 12: Consideration
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Q1) What two exceptions did the UCC create for accord and satisfaction check cases?
Q2) Section 2-306 of the UCC expressly disallows output contracts in the sale of goods. A)True B)False
Q3) Douros Realty & Construction Co.had a lead on a "prime" piece of real estate.Although Douros did not have a listing agreement with the seller of the property,he contacted Kelley Properties.Douros knew that Kelley was looking for a location for a commercial development.Douros contacted Kelley stating only that he had the "finest,most outstanding,viable location in the county and it just came on the market." Douros said he would reveal the location of the property and the owner's name if Kelley would sign an agreement which would require Kelley to pay a 10% commission if a sale of the property resulted.The agreement was signed.Four months later,Kelley bought the property after negotiating the deal himself.Kelley claims he does not owe a commission to Douros because there was insufficient consideration to support the payment of commission so large.Kelley claims that all Douros did in the entire transaction was to reveal the location of the property and the owner's name.Was there sufficient consideration to make this promise enforceable?
Q4) Discuss the concept of consideration.
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Page 14
Chapter 13: Legality
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Q1) Suppose that Lenny Lawyer enters into an agreement with Cindy Client that his fee will be a percentage of the recovery Lenny obtains for Cindy in her pending divorce.State law makes such a contingency fee arrangement illegal in divorce actions.What will be the probable outcome if Lenny attempts to enforce the agreement?
A) The contract will be valid. Cindy would not have been able to afford an attorney otherwise and therefore Lenny was doing a public service.
B) The contract will be voidable at Cindy's option.
C) The contract will be void as violating a statute. Lenny will not be able to recover anything.
D) The contract will be unenforceable if Lenny did not get the agreement in writing.
Q2) Public policy means the law that comes from the:
A) state legislature.
B) executive branch of the government.
C) courts that decide what would have a negative impact on society.
D) Constitution.
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Chapter 14: Capacity And Consent
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Q1) Which of the following statements,if made by a seller who knows the statement to be untruthful,would not be misrepresentation of material fact resulting in a cause of action for fraud?
A) "This horse is only six years old."
B) "There is no better car in the world."
C) "The tires have less than 5,000 miles on them."
D) "This car gets 28 miles per gallon. "
Q2) If a minor can cancel a contract,it can be done at any time during minority or within a reasonable time after reaching majority.
A)True B)False
Q3) The most accurate statement regarding economic duress is:
A) it is never grounds for rescission.
B) it is always grounds for rescission.
C) it is a UCC concept only.
D) it may be grounds for rescission.
Q4) A party to a contract has a duty to investigate the other party's factual statements.
A)True B)False
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Chapter 15: Written Contracts
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Q1) Thomas Reep,was the president of First National Bank in Clarksville.R.L.Moore approached Reep requesting the bank to open an account in the name of Texas Continental Express,Inc.,a corporation owned by his two sons.R.L.had no affiliation with the corporation nor any financial interest in it.R.L.promised Reep that he would open several accounts in First National that would more than amount to the business of his sons.R.L.assured Reep that if anything came up in connection with the sons' account,Reep was to contract him directly.Upon these conditions,First National proceeded to furnish a regular checking account and bank draft services for Texas Continental.Sometime later,First National paid two drafts overdrawing the account by $448,942.When Reep contacted R.L.about the overdrawn account,R.L.assured Reep that money would be deposited in the account.When Reep called back a few days later to find out why the money had not been deposited,R.L.informed Reep that his wife had suffered a nervous breakdown the night before and the deal was off.First National Bank brought suit to enforce R.L.'s promise to pay the debts of Texas Continental.What is the likely outcome?
Q2) 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) 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
Q2) Amanda buys a vacuum cleaner to use in her home from retailer Andy.Amanda promises to pay for it in six monthly installment of $50 each.Andy assigns the contract to Big Finance Co.who paid value and took without notice of any defense.Amanda has stopped making payments because the vacuum stopped working and Andy refuses to honor the express warranty he made to her at the time of the sale.Big Finance Co.sues Amanda for nonpayment.Generally,any defense that Amanda may have against Andy is good against Big Finance Co.
A)True
B)False
Q3) An assignment:
A) is generally revocable if it is gratuitous and is either oral or written.
B) for consideration is irrevocable.
C) becomes valid when the obligor receives notice of the assignment.
D) must follow formalities.
Q4) Briefly discuss the enforceability of contracts by third parties.
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Chapter 17: Performance And Discharge
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Q1) Identify four factors courts consider in deciding the validity of commercial impracticability and frustration of purpose claims.
Q2) Ron operates a garbage pickup business.He contracts to pick up garbage from an apartment complex for the next 52 weeks at a price of $150 per week.Unexpectedly,the landfill center where Ron takes the garbage to dispose of it,files for bankruptcy.As a result,Ron must travel an additional 100 miles to the nearest landfill center,turning Ron's expected profit into a loss of $40 per week.Ron's best argument in support of his petition to be discharged from the contract is:
A) the mail box rule.
B) commercial impracticability.
C) frustration of purpose.
D) true impossibility.
Q3) Irving is shopping at the local Computers R Us store and agrees to buy a computer for his home "on the condition of personal satisfaction." If Irving takes the computer back to the store stating that he doesn't like the computer,then the seller must accept the return of the computer and terminate the contract.
A)True
B)False
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Page 19
Chapter 18: Remedies
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Q1) Identify and describe the four principal contract interests a court may seek to protect.
Q2) Discuss the purpose of an injunction and how the two types of injunctions covered in the textbook are used.
Q3) Reformation is:
A) a type of restitution
B) a form of quantum meruit.
C) a form of quasi-contract.
D) uncommon.
Q4) Most courts hold that a seller of goods is not entitled to consequential damages. A)True B)False
Q5) Abigail signed a contract to purchase a new car from Wolf's Auto Sales Company.The seller breached its agreement by not delivering the car.Abigail went to another car dealer and purchased the same model of car at the same price.Although she had experienced a legal injury,Abigail has no actual financial or other damages as a result of the breach.If Abigail sues and wins,what type of damages will she be awarded?
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Page 20
Chapter 19: Practical Contracts
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Q1) Compare and contrast the perspectives of a lawyer and a client when approaching the negotiation of a contract.
Q2) Lucky,a contractor,enters into a contract with Penny,a homeowner,to remodel her kitchen.The contract provides a specific completion date,but does not specify what will happen if Lucky does not have the job finished by the date.So,Penny may deduct $100 per day from the contract price until the job is finished,because this is the industry norm.
A)True
B)False
Q3) You should hire a lawyer to review any legal papers you have to sign,including such papers as lease agreements or car purchases.
A)True
B)False
Q4) Which of the following is NOT a standard provision frequently found in contracts?
A) choice of forum.
B) choice of law.
C) choice of compensation..
D) arbitration.
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21
Chapter 20: Introduction To Sales
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Q1) Jones contracts to buy a computer from Martin for $1500.The contract calls for Martin to service the computer quarterly for the first year and to tutor Jones on how to use the software.Is this contract covered by the UCC or common law?
Q2) Megan agrees to sell Nancy her Rolex watch but they do not specify a price.In such a case,the court would not enforce the agreement because all of the essential terms are not present.
A)True
B)False
Q3) UCC Section 2-204 provides three important rules that enable parties to make a contract quickly and informally.These include all but which of the following?
A) The parties may make a contract in any manner sufficient to show that they reached an agreement.
B) A writing sufficient under the statute of frauds may be a simple memo, a letter, or informal note, but need not itself be a contract.
C) The UCC will enforce a deal even though it is difficult to say exactly when it was formed.
D) A court may enforce a bargain even though one or more terms were left open.
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Page 22
Chapter 21: Ownership And Risk
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Q1) Mike sold his car to Beth,who was to pick the car up at Mike's house by 12:00 noon on September 1.Mike was at his house waiting for Beth but she was late.In fact,when Beth arrived she discovered Mike's home and the car destroyed by a fire that started at 1:00 p.m.The risk of loss falls on:
A) Mike because Beth had not taken possession of the car.
B) Beth because Mike was ready, willing, and able to tender the car at 12:00 noon.
C) Beth because under the UCC, the buyer bears the risk of loss.
D) Mike, as he had possession of the car.
Q2) If Terrill steals a digital camera and sells it to Samuel,Samuel will get a valid title as long as he can prove he gave value for the camera and acted in good faith.
A)True
B)False
Q3) Angela uses fraudulent means to induce Walter to enter a sales contract.Angela obtains a voidable title to the goods.
A)True
B)False
Q4) Discuss the concept of insurable interests.
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Chapter 22: Warranties And Product Liability
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Q1) Generally,a contract may include language that limits or alters the damages recoverable for a breach of warranty,as long as the restrictions are not unconscionable.
A)True
B)False
Q2) A sales representative at Oxtren,Inc.orally told the purchasing agent at Wety,Inc.that its industrial saw will cut through metal up to 5 inches thick.Wety purchased the saw.Which statement is correct concerning the claim that the saw can cut through metal up to five inches thick?
A) The claim is an express warranty.
B) The claim is an implied warranty of merchantability.
C) The claim is not a warranty because it is not in writing.
D) The claim is not a warranty because it is sales puffery.
Q3) Under which of the following warranties must the seller be a merchant?
A) Express warranties.
B) Implied warranty of merchantability.
C) Implied warranty of fitness for a particular purpose.
D) Both b and c
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Chapter 23: Performance And Remedies
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Q1) The UCC "perfect tender" provision provides:
A) the buyer can reject the entire shipment if any portion of the goods are nonconforming.
B) the buyer must accept the goods if the defects are minor and correctable.
C) the buyer may not accept the conforming part of a shipment and reject the nonconforming part.
D) a buyer must reject nonconforming goods.
Q2) Tender means to physically deliver the goods to the buyer.
A)True
B)False
Q3) If a buyer does not receive goods by the contract deadline,remedies available include:
A) incidental and consequential damages.
B) cover.
C) damages for non-delivery.
D) All of the above.
Q4) Liquidated damages are not permitted under the UCC.
A)True
B)False
Q5) Identify six possible remedies for a seller when the buyer breaches a contract.
Page 25
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Chapter 24: Secured Transactions
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Q1) Byron bought a 50' yacht from Myrtle's Marina by entering into a note and security agreement promising the yacht as collateral for the purchase money security interest.When Byron faced some tough financial times,he failed to make three monthly payments.Myrtle's Marina repossessed the yacht by removing the yacht engine and advertised a public auction of the yacht.Byron appealed to his good friend Charles and managed to pay off the debt balance and the Marina's expenses of repossessing and advertising the sale.Byron's actions represent:
A) strict foreclosure.
B) redemption.
C) silent bidding at the auction.
D) an artisan's lien.
Q2) Aubry purchased a washing machine,a freezer,and a refrigerator from Gateway Appliances on credit,giving Gateway a security interest in the appliances.The appliances were for Aubry's household use.Gateway did not file a financing statement.Six months later,Aubry had a garage sale and sold the appliances to Tam.Tam bought the appliances for her student rental property.Aubry left town owing money on the appliances.If Gateway can trace the appliances to Tam,can Gateway repossess the appliances? Explain in detail.
Q3) Explain the difference between attachment and perfection.
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Page 26
Chapter 25: Creating A Negotiable Instrument
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Q1) Commercial paper is a contract to pay money.
A)True
B)False
Q2) There are two types of commercial paper: express and implied.
A)True
B)False
Q3) A draft is always a check,but a check is not always a draft.
A)True
B)False
Q4) Francenie has a checking account at Corner Bank.She wants tickets to an upcoming concert.She writes a check to Ticketmaster for the cost of two tickets.In this scenario:
A) Francenie is the drawee, Corner Bank is the drawer, and Ticketmaster is the payee.
B) Francenie is the maker, Corner Bank is the drawee, and Ticketmaster is the payee.
C) Francenie is the drawer, Corner Bank is the drawee, and Ticketmaster is the payee.
D) Francenie is the payee, Corner Bank is the drawer, and Ticketmaster is the maker.
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Chapter 26: Liability For Negotiable Instruments
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Q1) List the warranties a transferor of a negotiable instrument makes.
Q2) Soiya is a holder in due course of a check.Soiya goes to the drawee bank,Last Chance Bank,to cash the check.What is the liability of Last Chance?
A) Last Chance Bank is primarily liable on the check.
B) Last Chance Bank is not primarily liable on the check until it accepts the check.
C) Last Chance Bank is secondarily liable on the check.
D) Last Chance Bank is not secondarily liable on the check until it accepts the check.
Q3) When a negotiable instrument is transferred,the transferor warrants all EXCEPT:
A) that the transferor is a holder in due course of the instrument.
B) all signatures are authentic.
C) as far as she knows the issuer is solvent.
D) the instrument has not been altered.
Q4) The accidental destruction of a negotiable instrument will not result in its cancellation.
A)True
B)False
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Chapter 27: Accountants' Liability
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Q1) John is auditing MegaCorp.He finds an accounts payable for 1,000 reams of photocopy paper.He checks to make sure the paper actually arrived and that the receiving department had signed and dated the invoice.He also checks the original purchase order to make sure the purchase was properly authorized.This illustrates:
A) tracing.
B) vouching.
C) following.
D) monitoring.
Q2) In which of the following cases will the federal accountant-client privilege protect the information from being disclosed?
A) A criminal case.
B) A case involving the SEC.
C) A case concerning the preparation of tax returns.
D) A civil fraud case involving the IRS.
Q3) Auditors cannot protect themselves from liability to third parties by issuing a qualified or an adverse opinion.
A)True
B)False
Q4) Discuss the advantages and disadvantages of using IFRS.
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Chapter 28: Agency Law
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Q1) John hired Tim to sell his house.Which statement is correct?
A) John is Tim's principal.
B) Tim, but not John, can terminate the agency.
C) This illustrates a power coupled with an interest.
D) All the above are correct.
Q2) A principal must indemnify an agent for any expenses incurred in carrying out agency responsibilities,but the principal will not be responsible for indemnifying an agent for any unauthorized purchases.
A)True
B)False
Q3) Linda borrowed $2,500 from Tonya.They agreed that Tonya could take a grouping of Linda's antiques as collateral.If Linda could not pay,then Tonya could sell the antiques to recover her money.When Linda could not pay off the loan,Tonya sold the antiques and paid Linda the proceeds after deducting the balance of the loan.Which of the following statements is correct?
A) This is an irrevocable agency relationship.
B) This is a power coupled with an interest.
C) Linda has neither the power nor the right to terminate the relationship.
D) All the above are correct.
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Page 30
Chapter 29: Employment Law
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Q1) Jim was a mechanic.One day when he attempted to weld a car's gasoline tank,it exploded and he was hurt.He filed to collect workers' compensation.His employer resisted on grounds that Jim had been negligent and had also violated the express regulations of the company when he attempted to weld a gasoline tank.Which statement is correct?
A) Jim cannot recover if it is shown that his negligent conduct caused the explosion.
B) Jim cannot recover if it is shown that he violated the express regulations of his employer.
C) Workers' compensation doesn't apply in situations like this.
D) Jim can recover even if he was negligent and violated the employer's rules.
Q2) If an employee is an employee at will,the common law allows the employer to fire the employee for a good reason,a bad reason,or no reason at all.
A)True
B)False
Q3) Hanson Corporation is concerned that its employees are spending too much work time talking on the telephone,sending e-mails,and using the Internet for personal uses.Discuss what steps Hanson may legally pursue to protect its interests in productivity.
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Chapter 30: Labor Law
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Q1) Jessup asks the union to file a grievance against his employer.The union believes the grievance is without merit and refuses to file it.Jessup claims the union has violated its duty to him as a card-carrying,dues-paying union member.Is he right?
A) Yes.
B) Yes, but only if it is later proven that Jessup had a valid claim.
C) No, provided the union acted in good faith.
D) No. A union never has an affirmative duty to file a grievance if it does not wish to do so.
Q2) Zoe,who works as a retail clerk,wishes to talk with her co-workers about organizing a union.Her employer forbids her from talking with other workers about union activity in the presence of customers and threatens to fire her if she joins the union.Does the employer have a legal right to make this threat to Zoe?
A) Yes, the employer may limit time and place of discussions about union organizing. B) Yes, but only if expressly authorized by state law.
C) No, an employee has the right of free speech at anytime.
D) No. An employee may limit the time and place of conversation, but may not threaten to fire the employee.
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Page 32
Chapter 31: Starting A Business
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Q1) Charles and Ellen,an unmarried couple,run an ice cream store.The business is not incorporated and they have filed no formation papers with the state.Their business is a:
A) sole proprietorship.
B) partnership.
C) joint venture.
D) limited liability company.
Q2) Martin,Leah,and Pablo are considering forming a business.What factors should they consider in making a choice of organization?
A) Ease of creation and operation.
B) Whether there is personal liability for the owners.
C) How the owners will be taxed.
D) All of the above.
Q3) Compare and contrast the following forms of business organization: sole proprietorship,general partnership,limited partnership,limited liability company,and corporation as to ease of formation,liability of owners,management,and tax implications.
Q4) Trudy wishes to buy a national franchise.What information is the seller legally required to provide before she buys the franchise?
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Chapter 32: Partnerships
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Q1) Dennis and Claudia were partners who operated a retail store.They agreed to end the partnership.Dennis agreed to stay at the store and oversee the going-out-of-business sale.Claudia agreed to deal with the accountants and other related matters not directly related to the hands-on operation of running the store.Claudia received notice that the store's liability policy would expire on July 1.She decided not to renew the policy and let it lapse.The going-out-of-business sale would not be completed until August 1.In July,a customer slipped and fell in the store.When Dennis learned that Claudia had allowed the liability policy to lapse,he was very upset and claimed he should not be liable for the customer's injury.Is Dennis liable to the customer? Explain.
Q2) Randy,Joan,and Arnie are partners.Their agreement did not address dissociation nor how long the partnership would last.Randy decided to leave the partnership.When Randy serves notice he intends to withdraw:
A) the partnership can either buy him out and continue in business or wind up the business and terminate the partnership.
B) the partnership terminates.
C) the partnership winds down.
D) the partnership estoppes.
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) It is illegal for shareholders to transfer their stock to a trust and give the trustee the power to vote the shares.
A)True
B)False
Q2) MegaCorp purchased 10,000 shares of its own stock that had previously been owned by private investors.The stock MegaCorp repurchased is called:
A) authorized and unissued.
B) authorized and issued.
C) treasury stock.
D) repurchased stock.
Q3) Incorporation protects:
A) shareholders against personal liability for the debts of the company.
B) anyone involved in management of the business against personal liability for wrongdoing.
C) the public from wrongdoing by either the shareholders or the management of the corporation.
D) All the above are correct.
Q4) What are some of the advantages for a business to incorporate in Delaware?
Q5) Discuss how a corporation is terminated.
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Chapter 34: Corporate Management
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Q1) For the business judgment rule to apply:
A) there must be a conflict of interest.
B) the director must exercise extraordinary care.
C) the director must act in the best interests of the corporation.
D) All of the above.
Q2) When establishing takeover defenses,shareholder welfare must be the board's primary concern.
A)True
B)False
Q3) A manager who has engaged in self-dealing has violated the duty of loyalty to the corporation,unless the self-dealing also benefitted the corporation.
A)True
B)False
Q4) Identify the three types of masters corporate managers serve and discuss the goals of each.
Q5) Corporate responses to takeover attempts are largely governed by federal law.
A)True
B)False
Q6) What is the definition of the business judgment rule?
Page 36
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Chapter 35: Shareholders
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Q1) A corporation must obtain shareholder approval before the company:
A) sells off a major portion of its business to another company.
B) amends its bylaws.
C) amends its charter.
D) All the above are correct.
Q2) Lucy owns 10 shares of stock in Quamba,Inc.Lucy wishes to place a proposal in a company's proxy statement to be voted on at the shareholders' meeting.Pursuant to the SEC rules,before Lucy is allowed to place her proposal on the proxy statement she must:
A) have owned continuously for one year at least one percent of the company and $2,000 or more of the stock.
B) have owned continuously for one year at least one percent of the company or $2,000 or more of the stock.
C) have the permission of the board of directors.
D) have been a stockholder for at least two years.
Q3) A shareholder proxy is generally revocable at any time.
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) 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
Q2) If the final registration statement contains a material misstatement or omission,the purchaser of the security can recover damages from:
A) everyone who signed the registration statement..
B) the company's directors, but not the chief officers.
C) the experts who signed the registration statement, but not any other parties.
D) the issuer of the security, but not the company's directors or chief officers.
Q3) Felicity brought a lawsuit under Section 11 of the 1933 Act against Mojo Corp.She will have to prove that:
A) she relied on the registration statement.
B) Mojo was negligent in preparing the registration statement.
C) there was a material misstatement or omission in the registration statement and she lost money.
D) All of the above.
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Chapter 37: Bankruptcy
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Q1) Agnes plans to file for bankruptcy under Chapter 7.One month prior to filing,Agnes gives Joe's Filling Station $700 to apply to her gas bill.Joe has been so kind to let her charge the gas she needed for her car over the past year.The bankruptcy trustee appointed to the case:
A) can cancel the payment to Joe as a fraudulent transfer.
B) cannot cancel the payment to Joe because it is payment for an existing debt.
C) cannot cancel the payment to Joe because he is not an insider.
D) can cancel the payment to Joe as a voidable preference.
Q2) Chapter 13 bankruptcy:
A) is used by businesses to reorganize their financial situations.
B) is an involuntary bankruptcy.
C) can be used only by individuals with a regular source of income.
D) is used by businesses to liquidate their debts.
Q3) Under the federal Bankruptcy Code,the exemption amount for the debtor's personal residence is:
A) $20,200.
B) $37,100.
C) unlimited.
D) $50,000.
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Page 39
Chapter 38: Antitrust
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Q1) Both the Justice Department and the Federal Trade Commission enforce antitrust laws.
A)True
B)False
Q2) Discuss when monopoly power is not a violation of Section 2 of the Sherman Act.
Q3) What law prohibits mergers that are anti-competitive?
A) Sherman Act.
B) Clayton Act.
C) Robinson-Patman Act.
D) Radmon Act.
Q4) When the per se standard applies,the plaintiff:
A) needs only to prove the existence of the conduct.
B) must prove that the activity was an unreasonable restraint of trade.
C) must show that there was an anti-competitive impact.
D) None of the above.
Q5) Cooperative strategies include all EXCEPT:
A) horizontal agreements.
B) vertical agreements.
C) mergers.
D) spin-offs.
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Chapter 39: Consumer Law
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Q1) Consumer credit reporting agencies are unregulated governmental agencies.
A)True
B)False
Q2) If the FTC determines a business has violated the law,it will normally try to get the business to voluntarily stop the activity.
A)True
B)False
Q3) A company advertised a pain relief ointment called "Aspercreme." The package stated "the strong relief of aspirin right where you hurt." The product did not contain any aspirin.The FTC ruled that:
A) the advertising was not deceptive since the benefit of the product outweighed any harm caused by potentially misleading claims.
B) the advertising was misleading, and the company would have to change the name of the product or add aspirin to its formula.
C) the advertising was deceptive, and the FTC required the company to specifically state in its promotions that the product did not contain aspirin.
D) None of the above
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Chapter 40: Environmental Law
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Q1) Which of the following projects would require the preparation of an Environmental Impact Statement?
A) A plan initiated by the Forest Service to eliminate a herd of wild goats causing damage in the Olympic (Washington) National Park.
B) The building of a golf course outside of Los Angeles that requires a government permit to build in wetlands.
C) The expansion of a runway to a major city airport.
D) All the above.
Q2) Local regulation is more effective than state or federal regulation in controlling air pollution.
A)True
B)False
Q3) In 2005,the EPA set standards for soot emissions from buses and power plants that were recommended by its own Scientific Advisory Committee.
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) Under the Electronic Communications Privacy Act:
A) violators are subject to both criminal and civil penalties.
B) violators may be subject to civil, but not criminal, penalties.
C) only the unauthorized disclosure of e-mail messages constitutes a violation.
D) only the unauthorized interception of e-mail messages by the government or an ISP constitutes a violation.
Q2) Consumers have been active in requesting government regulation of web data collection to protect their privacy.
A)True
B)False
Q3) What statute requires banks and other financial institutions to disclose to consumers any non-public information they wish to reveal to third parties?
A) Banking and Financial Institution Privacy Act.
B) Gramm-Leach-Bliley Privacy Act.
C) Electronic Communications Privacy Act.
D) Communications Privacy and Decency Act.
Q4) Discuss common abuses that occur with auctions on the Internet and how these abuses are being addressed.
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Chapter 42: Intellectual Property
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Questions
Q1) Jason and Stacey go to the movie theater and decide to use a camcorder to film the show so they can watch it again with their friends later at home.They have:
A) made an ethical, legal, wise economic decision since the cost of viewing the movie in the theater again is too high for their limited budget.
B) violated the Family Entertainment and Copyright Act, and committed a criminal offense.
C) violated the No Electronic Theft Act.
D) committed an ethical but illegal act by violating the Digital Millennium Copyright Act.
Q2) A copyright is valid for 28 years after it is obtained and can be renewed for another 28 years.
A)True
B)False
Q3) Briefly discuss a patent,copyright,and trademark.
Q4) Unlike with patents,the ideas underlying copyrighted material need not be novel.
A)True
B)False
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Page 44
Chapter 43: Real Property And Tenant-landlord Law
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Q1) Louie has the right to drive across Bernie's land,which is adjacent to Louie's property,to reach the ocean front.Louie's right to drive across Bernie's land is called:
A) an easement appurtenant.
B) a profit appurtenant.
C) an easement in gross.
D) a profit in gross.
Q2) In many states today a landlord must use reasonable care to maintain safe premises and is liable for foreseeable harm.
A)True
B)False
Q3) Owners in a joint tenancy with the right of survivorship cannot transfer their interest during their lifetime.
A)True
B)False
Q4) Carlos conveys his property "to Noah for life,then to Maxie." Noah has a life estate and Maxie has a remainder interest.
A)True
B)False
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Chapter 44: Personal Property And Bailment
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Q1) While shopping at the mall,Everett's wallet fell out of his pocket.Jon found the wallet.The wallet is abandoned property and Jon may keep it.
A)True
B)False
Q2) The difference between an inter vivos gift and a gift causa mortis is that the inter vivos gift is made during the donor's lifetime and a gift causa mortis is a gift is made after the donor's lifetime by the donor's estate.
A)True
B)False
Q3) Most of the goods contained in a freight train (a common carrier)were destroyed when a tornado wrecked the train.The carrier was sued for damages by all the shippers that had merchandise on the train.Is the carrier strictly liable for the damage done to the goods by the tornado?
Q4) A bailment was created for the parties' mutual benefit.This means that the bailee must use ordinary care with the property.
A)True
B)False
Q5) Distinguish between a contract and a gift.Give an example of each.
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Chapter 45: Planning For The Future: Wills,Trusts,And
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Q1) Which of the following does not act as a revocation of a will?
A) Destruction of the will by a house fire.
B) The testator's putting an X through it.
C) Physically destroying the will by intentionally shredding it.
D) Signing a new will that expressly revokes prior wills.
Q2) The percentage of people dying without a will is approximately:
A) 5%.
B) 25%.
C) 60%.
D) 90%.
Q3) Which of the following insurance policies continue for a stated period of time with the premiums increasing with the age of the insured?
A) Double indemnity.
B) Term insurance.
C) Annuity contract.
D) Term insurance
Q4) A later will revokes a prior will only if that revocation is clearly stated.
A)True
B)False
Q5) Discuss the differences between a will and a trust.
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