Introduction to Business Law
Exam Materials
Course Introduction
Introduction to Business Law provides students with a foundational understanding of the legal principles that govern commercial activities and the business environment. This course explores the sources of law, the court system, and key areas such as contract law, torts, employment law, intellectual property, and the regulation of business organizations. Students will examine real-world cases, learn how the law impacts business decisions, and develop the analytical skills necessary to recognize legal issues in a business context. By the end of the course, students will be equipped with the basic legal knowledge essential for responsible business practice and effective communication with legal professionals.
Recommended Textbook Law for Business 11th Edition by A. James Barnes
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Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) The constitutional prohibition of ex post facto laws:
A)applies to statutory law.
B)aims to minimize the possibility of failure if the business has to go to court to enforce its rights.
C)applies to common law.
D)gives lawyers a great deal of discretion in selecting an appropriate strategy for handling a legal dispute.
Answer: A
Q2) Unlike legal positivists,legal sociologists stress the need for law to change and keep pace with the evolution of society.
A)True
B)False
Answer: True
Q3) Define the three steps involved in applying stare decisis.
Answer: The three steps involved in applying stare decisis are: 1)finding an earlier case or cases with similar facts,2)deriving a rule of law,and 3)applying that rule to the case at hand.
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Chapter 2: Dispute Settlement
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Q1) It is seen that Court X hears cases that have been referred to it by trial courts.However,it does not hear any witnesses nor does it review new facts about the case.Court X is a/an:
A)municipal court.
B)inferior court.
C)appellate court.
D)justice of peace court.
Answer: C
Q2) Under the Uniform Arbitration Act,a court:
A)cannot hold that the dispute was not arbitrable under the agreement of the parties.
B)will not review the wisdom or decision of the arbitrator.
C)can only make the arbitration award enforceable.
D)can publish its arbitration awards.
Answer: B
Q3) When the issue in a case no longer exists or has become pointless,that issue is considered moot.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) The Sarbanes-Oxley Act:
A)substantially increases the penalties for corporate wrongdoing.
B)gives corporations greater freedom from government control.
C)adopts the theory of allocational efficiency.
D)motivates executives to inflate reports of corporate profits.
Answer: A
Q2) Advocates for socially responsible corporations sometimes recommend that corporations can sensitize themselves to outside concerns by restructuring their decision making processes to include:
A)giving shareholders lesser power.
B)changing the composition of the corporate board.
C)promoting lesser transparency within corporate structures.
D)giving greater immunity to corporates.
Answer: B
Q3) Critics claim that allocational efficiency is not society's only goal and that sometimes it must be sacrificed for other social concerns.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Business and the Constitution
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Q1) The "dormant" Commerce Clause limits the authority of the states to interfere with the flow of interstate commerce by:
A)limiting the states from furthering only state interests.
B)limiting a state's ability to tax vendors.
C)prohibiting state legislation that unduly burdens intrastate commerce.
D)prohibiting state laws that openly discriminate against interstate commerce.
Q2) Under the Equal Protection Clause:
A)the government must treat all cases alike.
B)states are prohibited from arbitrarily discriminating against persons.
C)states are prohibited from discriminating only on the basis of nationality.
D)the government can uphold restrictions on property.
Q3) Many of the administrative agencies have the power to:
A)make laws.
B)issue regulations that have the force of law.
C)conduct trials involving juries.
D)adjudicate disputes involving alleged violations of the Commerce Clause.
Q4) The Food and Drug Administration is an example of an independent agency.
A)True
B)False
Q5) When is strict scrutiny analysis triggered?
Page 6
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Chapter 5: Crimes
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Q1) Which Act protects against unauthorized interception of electronic communications?
A)The Wiretap Act
B)The Stored Communication Act
C)The Computer Fraud and Abuse Act
D)The Cyber Security Enhancement Act
Q2) Both federal and state laws spell out the specifics of cybercrime.According to these laws:
A)accessing the services of a commercial service provider without paying fees is a crime.
B)altering or destroying data stored in another person's computer is not considered illegal.
C)a corporation is not liable for the online activities of its employees.
D)only an individual may face liability based on the use of electronic communication; corporations are out of their purview.
Q3) Defendants in criminal cases have the right to remain silent and cannot be compelled to testify against themselves.
A)True
B)False
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Chapter 6: Intentional Torts
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Q1) Intentional torts are both civil and criminal in nature.
A)True
B)False
Q2) Which of the following statements supports the explanation of libel?
A)Broadcast defamation,which involves both oral and visual impressions,is generally considered to be libel.
B)Damages are presumed in libel,though the statement is not defamatory on its face.
C)Oral defamation,causing injury to a person's reputation and causing that person considerable anguish and harm is considered to be libel.
D)Private statements between spouses may be defamatory and will be considered to be libel.
Q3) Which of the following is an example of interference with economic relations?
A)Trespass
B)False imprisonment
C)Disparagement
D)Defamation
Q4) Explain the tort of battery.
Q5) Explain the difference between defamation and disparagement.
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Chapter 7: Negligence and Strict Liability
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Q1) To recover in a negligence suit,a plaintiff must prove that the:
A)defendant had intent to injure the plaintiff and did so by a breach of duty.
B)defendant's breach of duty was the proximate cause of the plaintiff's injuries.
C)defendant's breach of duty indirectly caused the plaintiff's injuries.
D)defendant's actions did not violate any statutes.
Q2) Strict liability:
A)does not apply to someone who exercises reasonable care.
B)is described as liability without fault.
C)is a part of contributory negligence.
D)does not relate to intentional torts or negligence.
Q3) To recover for negligent infliction of emotional distress as a third party,the plaintiff does not always have to establish some physical symptoms resulting from the said distress.
A)True
B)False
Q4) People whose actions cause injuries of the kind the statute was designed to protect against are considered to be negligent per se.
A)True
B)False
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Chapter 8: Licensing and Intellectual Property
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Q1) The principle of first in time equals first in right:
A)asserts that it is enough to have invented the mark first.
B)is a fundamental principle of service mark law.
C)asserts that it is enough to have used the mark earlier in any country.
D)is bound by the territoriality principle.
Q2) An American university professor derives a new formula which explains a fundamental principle of nature.In the United States,this formula:
A)can be patented.
B)cannot be patented.
C)can be patented if it is novel.
D)cannot be patented because it is not useful.
Q3) The _____ is a fundamental provision found in most licensing contracts which indicates the precise scope of the license.
A)technical service clause
B)confidentiality clause
C)granting clause
D)exclusive dealing clause
Q4) Briefly explain the extraterritorial reach of the U.S patent law.
Q5) What are technology transfer agreements?
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Chapter 9: The Nature and Origins of Contracts
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Q1) Joe pays Ann to mow his lawn and Ann mows Danna's lawn by mistake.Danna peeps out her window and sees Ann mowing,yet says nothing to Ann about her mistake since Danna needs to have her lawn mowed.When Ann approaches Danna for payment,Danna refuses,arguing that she had never asked Ann to mow her lawn.Under these circumstances,Ann can recover payment from Danna under:
A)void contract.
B)quasi contract.
C)executory contract.
D)express contract.
Q2) The UCC is more flexible than the common law.
A)True
B)False
Q3) Which of the following is true about a contract?
A)Any offer made is a contract,though there is no acceptance of the offer.
B)It need not necessarily be entered into by parties having capacity to contract.
C)It must be voluntarily entered into and promise to perform a legal act.
D)It must always be supported by consideration.
Q4) What is a quasi-contract?
Q5) Discuss the importance of having contracts in today's market economy.
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Chapter 10: Creating a Contract: Offers
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Q1) Which of the following statements about offers is true?
A)Any definite offer made by a merchant is a "firm offer" under the UCC.
B)An offer is effective upon dispatch.
C)A grumbling acceptance is a rejection and terminates the offer.
D)The death of the offeror will terminate the offer immediately.
Q2) Ads for the sale of goods at a specified price are considered as ________ by the courts.
A)giving everyone who sees the ad the power to bind into a contract
B)solicitation of an offer
C)an unfair offer
D)invitations to negotiate
Q3) Explain the special problems associated with the bidding process in construction works to the general contractor,if the subcontractor is allowed to revoke the offer.
Q4) If an offeree accepts the offer but complains about the terms of the offer,a rejection is implied.
A)True
B)False
Q5) What is an offer? What are the three conditions necessary for the creation of an offer?
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Chapter 11: Creating a Contract: Acceptances
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Q1) The offeree may accept an offer within a reasonable time by any reasonable means of communication:
A)if the parties are dealing by telephone.
B)if the offeror suggests a method or a place of communication in the offer.
C)if the written offer is lost in transit.
D)if the offer merely suggests a method or place of communication or is silent on these points.
Q2) A seller cannot accept a buyer's offer by simply promising to ship the goods or by shipping the goods.
A)True
B)False
Q3) The UCC requires application of the "mirror image" rule in cases where contract for the sale of goods are made by exchanging forms.
A)True
B)False
Q4) If an offeror requires a certain method of acceptance,the offeree must accept by that method or no contract is formed.
A)True
B)False
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Chapter 12: Consideration
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Q1) A promise supported by past consideration is enforceable.
A)True
B)False
Q2) Which of the following statements is true for consideration?
A)It always has a monetary value,regardless of a legal value.
B)A promisee can be enforced by the courts to keep his/her promise.
C)It enforces gratuitous (free)promises.
D)It is a legal value given in exchange for an act or promise.
Q3) A promisee's consideration must be another promise and cannot be in the form of an act.
A)True
B)False
Q4) An unliquidated debt is defined as:
A)one that has not been paid in full.
B)one that involves an honest dispute about the existence or amount of the debt.
C)one that is unenforceable due to lack of consideration.
D)one that is due and certain with no dispute about the existence or the amount of the debt.
Q5) Explain with an example how promissory estoppel affects consideration?
Q6) Explain an illusory promise and provide an example.
Page 14
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Chapter 13: Capacity to Contract
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Q1) When a minor reaches the age of majority,he/she:
A)may disaffirm a contract for a reasonable time after reaching majority.
B)can no longer be ratified.
C)must put his intent to disaffirm in writing shortly before reaching majority.
D)should renew his contract in order to disaffirm the contract legally.
Q2) Hans bought a stylish sports car when he was 15.Two weeks after he turned 18,he sold the car to his neighbor.In this scenario:
A)Hans may disaffirm the contract even after he sold the car.
B)Hans can disaffirm the contract as it was never a valid ownership.
C)Hans may recover the cost of the car from the dealer who sold it to him when he was 15.
D)Hans cannot disaffirm the contract because he sold the car.
Q3) _____ is/are essential to a minor's continued existence and general welfare.
A)Considerations
B)Emancipation
C)Forbearance
D)Necessaries
Q4) Explain the test for mental incapacity in contract law.
Q5) Explain the limitations on a minor's right to disaffirm a contract.
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Chapter 14: Voluntary Consent
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Q1) The difference between duress and undue influence is:
A)their remedy.
B)the interference with a party's ability to resist entering into an agreement.
C)the relationship between the parties at the time of the contract.
D)the type of threat used.
Q2) One difference between fraud and misrepresentation is that:
A)there is no requirement of materiality in fraud cases.
B)in fraud cases,the injured party has the additional option of suing in a tort action for the resulting damages.
C)misrepresentation requires knowledge of the falsity of the misstatement,but fraud doesn't.
D)false statements of opinion can be fraud,but not misrepresentation.
Q3) A contract entered into involuntarily is enforceable if present in writing.
A)True
B)False
Q4) The victim of a fraud may be able to recover punitive damages.
A)True
B)False
Q5) Explain the difference between duress and undue influence.
Q6) Why do courts require justifiable reliance in misrepresentation and fraud?
Page 16
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Chapter 15: Illegality
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Q1) If a part of a divisible contract is illegal:
A)the whole contract is void.
B)the illegal parts will be removed and the legal parts remain in force.
C)the whole contract will be unenforceable.
D)the whole contract is still enforceable.
Q2) A person who rescinds an illegal contract before any illegal act has been performed can usually recover any consideration he has given the other party.
A)True
B)False
Q3) An agreement to restrain trade:
A)is illegal under certain cases of the exculpatory clause.
B)is never illegal in our democratic society.
C)may be legal if it covers a reasonable geographic area and a reasonable time period.
D)may be legal if it is contradictory to a contract that protects business interests.
Q4) Blue laws are uniform across all states in the country.
A)True
B)False
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Chapter 16: The Form and Meaning of Contracts
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Q1) The parties had to rely on the testimony of third persons who were often paid witnesses or friends,and false testimony was common in the original statute of frauds adopted in England in 1677.
A)True
B)False
Q2) Contracts that are required to be in writing by the statute of frauds are:
A)all promises for the international sale of goods.
B)contracts transferring an interest in land.
C)contracts predicated on a condition precedent.
D)contracts for the sale of goods costing less than $500.
Q3) Explain with an example how the parol evidence rule is a potential source of danger for parties who reduce their agreements to written form.
Q4) Written contracts that call for performance over a considerable period of time and thus increase the risk of faulty or willfully inaccurate recollection of their terms in subsequent disputes are called:
A)long-term bilateral contracts.
B)collateral contracts.
C)guaranty contracts.
D)international contracts between companies in signatory countries.
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Chapter 17: Third Parties Contract Rights
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Q1) The creditor beneficiary has rights against the promisee,but not the promisor.
A)True
B)False
Q2) Assignees:
A)cannot enforce any rights of assignor against obligator.
B)cannot be liable for duties impliedly delegated with the assignment.
C)can sue the promisor for nonperformance.
D)can acquire greater rights than the assignor has.
Q3) Explain what types of contracts are assignable and name the types of contracts that are not assignable.
Q4) Persons who were not originally parties to a contract may claim some interest in it as assignees,or donee beneficiaries,or creditor beneficiaries.
A)True
B)False
Q5) An incidental beneficiary can:
A)sue for nonperformance.
B)acquire rights under the contract.
C)enforce the contract.
D)be a member of the general public.
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Chapter 18: Performance and Remedies
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Q1) Adam contracts to sell Ben 100 widgets for $100 for use in Ben's factory.Adam does not know that Ben's factory is closed as it is waiting for supply of widgets from Adam.Will Adam be liable for the damages caused due to late delivery?
A)Will be liable for compensatory damages.
B)Will be liable for consequential damages.
C)Will not be liable for any damages.
D)Will be liable for nominal damages.
Q2) A liquidated damages provision will be enforced only when:
A)the subject matter of the contract has a value which cannot be put in monetary terms. B)the amount specified is reasonable and actual damages would be difficult to determine.
C)the nature of the contract is such that damages would not be difficult to determine. D)the amount agreed on is not the injured party's only remedy.
Q3) Explain the meaning of discharge in legal terms.Mention the different situations in which a party's duty to perform could be discharged.
Q4) Fully explain the concept of substantial performance.
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Page 20
Chapter 19: Formation and Terms of Sales Contracts
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Q1) Sales on approval are primarily _____ transactions.
A)seller
B)merchant
C)consumer
D)nonmerchant
Q2) Jelly Manufacturer,a food processor in Chicago,placed a phone order with Grape Grower,a grower in California,for a quantity of perishable product.The shipping term was "CIF" with payment to be made on delivery.Grower delivered the goods called for in the contract to a carrier and contracted for their shipment.However,it neglected to have the goods shipped under refrigeration.The goods were loaded on a non-refrigerated boxcar and as a result the product was spoiled when it reached Chicago.Under these circumstances:
A)Grape Grower bears risk of loss as he did not insure the goods.
B)Jelly bears the risk of loss because under CIF shipment the buyer has to bear all risks.
C)Jelly bears the risk as the contract did not mention that Grape Grower guarantee their delivery.
D)Grape Grower bears the risk of loss because under a CIF shipment,the seller bears the expense and the risk of loading the goods.
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Chapter 20: Warranties and Product Liability
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Q1) The implied warranty of merchantability focuses on whether the goods are fit for a particular purpose.
A)True
B)False
Q2) Irma bought a pint-sized thermos bottle from "Kash N' Karry." After a couple of months of use,she poured coffee into it one morning and was adding some milk when it exploded,sending shards of glass into her face and injuring her eye.Irma testified that she had not dropped the thermos and had not abused it.She sued "Kash N' Karry," claiming,among other things,breach of warranty of merchantability.Under the UCC,was the warranty of merchantability breached?
Q3) Define the different situations in which courts can hold manufacturers liable for negligence.
Q4) Goods sold "with all faults" are sold without the implied warranties of merchantability and fitness for a particular purpose.
A)True
B)False
Q5) Explain the difference between the implied warranty of merchantability and the warranty of fitness for a particular purpose.
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Chapter 21: Performance of Sales Contracts
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Q1) Which of the following is true about acceptance of goods by a buyer?
A)He must indicate that he/she will take them.
B)Failure to reject cannot be assumed as an acceptance.
C)He must pay for the goods without inspecting them.
D)He must assume the seller to be the owner of the good.
Q2) Peds,a wholesale shoe distributor,ordered a quantity of shoes from Ma Industries.When Peds received the shipment,it discovered that all of the shoes were cracked and peeling.Peds contacted Ma and stated that it was rejecting the shipment because the shoes were defective.Peds wanted to ship the shoes back to Ma but received no communication from Ma regarding what was to be done with the shipment.Peds did not pay the remainder owed for the shipment and stopped payment on the check that had been initially issued for the order.Subsequently,Peds had the shoes refinished by another company and distributed and sold the shoes.Ma sued for the value of the shipment.Did Peds accept the shipment of shoes and owe Ma for the goods?
Q3) A buyer can accept only part of a commercial unit,without accepting the whole unit. A)True
B)False
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Chapter 22: Remedies for Breach of Sales Contracts
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Q1) In which of the following ways can a seller breach a contract?
A)By entrusting goods are in buyer's possession.
B)By delivering goods that do not conform to the contract.
C)By repudiating a contract.
D)By indicating an intention to fulfill the obligations under the contract.
Q2) A seller is not liable for paying damages when the buyer rightfully rejects goods.
A)True
B)False
Q3) Any attempts to limit consequential damages for injury caused to a person by consumer goods is considered prima facie unconscionable.
A)True
B)False
Q4) A buyer is _____ if he cannot pay his bills when they become due.
A)unconscionable
B)liquidated
C)repudiated
D)insolvent
Q5) Under the UCC,list five remedies available to a buyer when the seller has breached a contract.
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Chapter 23: The Agency Relationship-Creation, Duties, and
Termination
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Q1) The duty of the principal to keep records from which the compensation due to the agent can be determined is reinforced by tax laws that require such recordkeeping.
A)True
B)False
Q2) Jeff,as agent,is paid $5,000 owed by a debtor of Lee,Jeff's principal.Instead of giving it immediately to Lee,Jeff invests it in the stock market.Luckily,the market price of that particular stock rises to $10,000 before Lee learns of the wrongdoing.Under these circumstances:
A)Jeff cannot be sued as the money was put to good use.
B)Lee is entitled only to $5000.
C)Lee is entitled to all of the stock.
D)Jeff can be sued for an indefinite amount on account of his misconduct.
Q3) Usually one cannot serve as the principal for both parties to a transaction; however,agents may consent to such a dual role if the parties are both fully informed.
A)True
B)False
Q4) Discuss an agent's duty to communicate information to the principal and when is this duty considered to be violated?
Page 25
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) An agent possesses implied authority when:
A)the principal has ratified past actions,leading third persons to believe authority exists.
B)the principal gives greater authority to special agents than general agents.
C)the agent is required to safeguard the property interests of the principal due to an emergency.
D)the agent's powers are specifically described by the principal.
Q2) When an agent commits a tort or crime while working for the principal,the agent is personally liable for the consequences of his actions,unless he is acting at the direction of the principal.
A)True
B)False
Q3) The principal is bound by representations:
A)that are reasonably necessary for the agent to make in order to accomplish the purpose of the agency since they would be apparently authorized.
B)that the agent is expressly authorized to make.
C)even if the third person knows that the agent has exceeded his actual authority.
D)that are not customary in the kind of business being transacted by the agent.
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Page 26
Chapter 25: Employment Laws
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Q1) A "yellow-dog contract":
A)required an employee to remain a member of the union at all times in order to remain employed.
B)was widely used by employers to encourage the formation of unions.
C)required a worker taking a job to promise not to join a union.
D)specified that a worker's employment will not be affected by his union membership.
Q2) Which of the following statements about the EEOC is true?
A)It protects workers from retaliation if they refuse to do work that they reasonably believe might cause serious injury.
B)It prohibits employers from using lie detector tests on employees unless the employer is engaged in an investigation of economic losses due to theft.
C)It objects to mandatory binding arbitration as a condition of employment because it denies employees the right to bring independent discrimination claims.
D)It provides skilled people to help unions and employers in their bargaining so as to prevent strikes.
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Chapter 26: Which Form of Business Organization
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Q1) Explain the difference between a partnership and a limited partnership.
Q2) Franchisee-franchisor business relationships are governed by federal legislation only.
A)True
B)False
Q3) Identify the correct statement about sole proprietorship.
A)The owner shares responsibility with the agents and employees.
B)It may be operated under an assumed or trade name.
C)Employees of the business are not the personal employees of the owner.
D)The salaries paid to the employees are not deductible in determining taxable income.
Q4) Attempts by franchisors to require franchisees to buy products and equipment from the franchisor may violate the Clayton Act.
A)True
B)False
Q5) A person's status as a shareholder in a corporation automatically gives such person a right to be an employee of the corporation.
A)True
B)False
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Chapter 27: Partnerships
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Q1) In terms of the RUPA,when a partner dies,the surviving partners:
A)cannot continue the business.
B)are entitled to compensation for winding up the partnership business.
C)must accept the deceased partner's heir as a full partner.
D)are relieved from personal liability on partnership debts.
Q2) The partnership will not be liable for contracts created by a partner acting outside the scope of her authority,even when the other partners ratify the unauthorized action.
A)True
B)False
Q3) Which of the following is true of the liability to creditors in the process of continuation of partnership beyond an agreed-on-term?
A)Withdrawing partners are liable for new obligations though they have given a notice of withdrawal.
B)New partners are liable for prior obligations only to extent of contribution unless they agree to greater liability.
C)Continuing partners are the only people liable for prior obligations.
D)Withdrawing partners are liable for prior obligations even though they are released by novation.
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29
Chapter 28: Formation and Termination of Corporations
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Q1) Minority shareholders in close corporations cannot be outvoted on salary and employment decisions.
A)True
B)False
Q2) Under the revised MBCA's liability rules for defective incorporation:
A)the filing of the articles of incorporation,evidenced by a return of the copy stamped by secretary of state,is conclusive proof of incorporation.
B)liability will never be imposed on promoters who participated in management and policy decisions.
C)the issuance of the certificate of incorporation is conclusive proof of incorporation to the corporate status,except a quo warranto action brought by the secretary of state. D)managers will be released from any liability in excess of their initial investment. The filing of the articles of incorporation,evidenced by the return of the copy stamped by the secretary of state,is conclusive proof of incorporation under the revised MBCA.
Q3) Under the revised MBCA,who will be liable for the business debts if the business has been defectively incorporated?
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Chapter 29: Management of the Corporate Business
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Q1) The vice president of a corporation:
A)keeps the minutes of meetings of the shareholders and directors.
B)has charge of the funds of the corporation.
C)has implied and apparent authority.
D)has no authority by virtue of that office.
Q2) A _____ is a majority of the number of directors fixed by the articles or bylaws.
A)prudent person standard
B)quorum
C)referendum
D)novation
Q3) Under the Delaware General Corporation Law,e-mail is not a legally-recognized official form of business communication.
A)True
B)False
Q4) The president cannot also be the secretary of the corporation.
A)True
B)False
Q5) What are the duties of directors and officers of a corporation?
Q6) What is the meaning of ex officio authority?
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Turnstile Corporation's meeting of shareholders is being held.Principles of cumulative voting apply to the election of directors.If 400 shares are being voted and four directors are to be elected,how many votes are needed to elect one director?
A)100
B)101
C)80
D)81
Q2) Distributions of shares in the corporation itself are called ____.
A)stock dividends
B)cash dividends
C)property dividends
D)equity securities
Q3) Corporations do not have inherent power to borrow money necessary for their operations by issuing debt securities.
A)True
B)False
Q4) What requirements must be met if a shareholder meeting is to be conducted remotely?
Q5) How does common stock differ from preferred stock?
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Chapter 31: Securities Regulation
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Q1) This is designed to stop speculative insider trading on the basis of insider information.
A)Short-swing profits regulation
B)Wash sale
C)Blue sky laws
D)Certificate of interest of participation
Q2) Negligence is an important element of Rule 10b-5 violation.
A)True
B)False
Q3) The Securities Act of 1933 is concerned primarily with private distributions of securities.
A)True
B)False
Q4) According to the SEC,per se fraudulent statements include:
A)those that tout securities and make unreasonable forecasts.
B)those that specify the use of the proceeds of the issuance.
C)those that outline the annual return on an investment from the last ten years.
D)those that give full details about the securities to be offered.
Q5) What are the two types of securities that must be registered under the Securities Exchange Act of 1934?
33
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Chapter 32: Legal Liability of Accountants
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Q1) Under Rule 10b-5 of the 1934 Act:
A)the plaintiff must prove that the accountant acted with scienter.
B)the intent to deceive is not an element of the offense.
C)an accountant may be liable to a purchaser for a misstatement of material fact in the registration statement.
D)an accountant must prove he exercised due diligence to escape liability.
Q2) Which of the following statements is correct with regard to working papers prepared by an accountant?
A)They are owned by the client.
B)The accountant may need to justify his work before the IRS or a court.
C)The accountant can dispose of them as he/she pleases.
D)The client does not possess the right of access to the working papers.
Q3) An accountant who shows a reckless disregard for the truth may be said to be acting with scienter.
A)True
B)False
Q4) Liability under Rule 10b-5 of the 1934 Act requires scienter.
A)True
B)False
Q5) When might an accountant issue a qualified opinion and a disclaimer?
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Chapter 33: Personal Property and Bailments
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Q1) In the United States,private ownership of property is protected by the:
A)Fifth Amendment to the Constitution.
B)Ninth Amendment to the Constitution.
C)Tenth Amendment to the Constitution.
D)Fourteenth Amendment to the Constitution.
Q2) As a general rule,the owner of the original personal property becomes the owner of the improvements.
A)True
B)False
Q3) Tangible property is taxable in the state where its owner lives.
A)True
B)False
Q4) If Megan hires Pablo to paint her portrait,Megan is the owner of the painting. A)True
B)False
Q5) Define a bailment and discuss its essential terms.
Q6) What are the basic duties of a bailee? Explain the critical elements that determine the degree of care that a bailee is required to exercise.
Q7) What are the differences between a gift inter vivos and a gift causa mortis?
Page 35
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Chapter 34: Real Property
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Q1) Major Developer built a subdivision in which it offered a number of houses for sale.The Smiths bought one of these houses.During the first rain,water entered under the crawl space of the house.Water then accumulated to a depth of 17 inches in a room where the furnace and water heater were located.This frequently caused the water heater to perform inefficiently.With each rainfall,water continued to collect.The house became damp and developed a serious mildew problem.What remedies do the Smiths have?
Q2) The tenants have no right to remove trade fixtures even at the end of the lease period.
A)True B)False
Q3) A lease for which no time period is specified is known as a tenancy at will. A)True B)False
Q4) Many courts have now extended the implied warranty of habitability made by builder-vendors to include subsequent purchasers.
A)True
B)False
Q5) Describe how a person acquires title by adverse possession and give an example.
Page 36
Q6) Describe the purpose of the Fair Housing Act.
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Chapter 35: Landlord and Tenant
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Q1) The doctrine of unconscionability does not apply to leases.
A)True
B)False
Q2) When tenants transfer all of their remaining rights under a lease to a third party,a(n)____ occurs.
A)assignment
B)sublease
C)constructive eviction
D)termination
Q3) A tenant who remains in possession of the property after the expiration of a lease cannot be made part of a new tenancy.
A)True
B)False
Q4) Constructive eviction enables a tenant to terminate the lease on a property because she has effectively been evicted as a result of the poor condition or the objectionable circumstances there.
A)True
B)False
Q5) Explain the difference between an "assignment" and a "sublet."
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Chapter 36: Estates and Trusts
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Q1) Name the basic formalities required by most states in the execution of a will.
Q2) Which of the following is an example of advance directives?
A)Intestacy
B)Codicil
C)Escheat
D)Living will
Q3) Which of the following is a formality usually required by state law for the creation of a valid will?
A)The will must be witnessed and signed by at least two persons who stand to inherit under the will.
B)Notice of the making of the will must be published in the newspaper.
C)The will must be signed by the testator or by someone else at the testator's direction.
D)The testator should declare,after the signing,that the instrument is his will.
Q4) Explain durable power of attorney for health care.
Q5) "Domicile" refers to a person's:
A)permanent home.
B)permanent and temporary residences.
C)state,where he probates his will.
D)a person's necessity to make a particular state,home.
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Chapter 37: Insurance
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Q1) The required insurable interest in life insurance contracts must exist:
A)before the loss occurs.
B)at the time the loss occurs.
C)at the time the policy was issued.
D)throughout the term of the policy.
Q2) As a general rule,if an applicant suffers a loss after applying but before the insurer formally accepts the application:
A)the insurer must cover the loss.
B)the applicant and the insured must share the loss.
C)the applicant must bear the loss.
D)the insurer must cover the loss only if there is no binder.
Q3) The insured must pay all past-due premiums and a stated amount of interest along with proof of insurability to secure reinstatement.
A)True
B)False
Q4) The insurer may not exercise a right of subrogation if it is required to pay for the loss of property under a fire insurance contract.
A)True
B)False
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Chapter 38: Negotiable Instruments
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Q1) What is the difference between a promissory note and a check? Why is the distinction important?
Q2) A contract for the payment of money which also serves as a substitute for money payable immediately is a:
A)sovereign bond.
B)corporate bond.
C)commercial paper.
D)commodity paper.
Q3) If an instrument satisfies the formal requirements of writing,signature,unconditional order to pay,and pay ability on demand:
A)it is negotiable even though it is void or unenforceable for other reasons.
B)it cannot be held by a holder in due course.
C)validity of the instrument is automatically conferred.
D)it is not negotiable if it is uncollectible for other reasons.
Q4) Negotiability is the same thing as validity with regard to commercial paper.
A)True
B)False
Q5) An instrument states,"Subject to Approval of Title,Pay to the Order of Holly Rosenberg,$1,999.00." Is the instrument negotiable?
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Chapter 39: Negotiation and Holder in Due Course
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Q1) Monica contracted with Joe's Furnishing's to complete the work on her house by 1<sup>st</sup> November.She gave Joe's a negotiable promissory note in the amount of $20,000,payable to the order of Joe's on November 1.Joe's then negotiated the note to the bank.He however,could not complete the work by 1<sup>st</sup> of November.If the bank is able to qualify as a holder in due course,which of the following statements is true?
A)Monica is not liable to the bank because Joe's breached the contract,not her.
B)The bank can collect the amount from Joe's because he negotiated the note to the bank.
C)Monica can assert personal defense against the bank and avoid payment as Joe's did not complete the work on time.
D)Monica cannot assert personal defense against the bank and avoid payment as it was a negotiation,and not a simple contract.
Q2) To negotiate an instrument:
A)it must not be transferred involuntarily.
B)it must be transferred voluntarily.
C)it must be transferred by a person other than the issuer.
D)it must be transferred by the issuer.
Q3) Explain the nature and meaning of an indorsement.
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Chapter 40: Liability of Parties
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Q1) Mack is Bertha's agent and is authorized to sign checks for her.Mack signs one of Bertha's checks with only his own name.Who is liable on the check?
A)Bertha
B)Mack
C)Both Mack and Bertha
D)Neither Mack nor Bertha
Q2) Notice of dishonor must be made only by written means.
A)True
B)False
Q3) A material change in a negotiable instrument does not discharge any party whose contract is changed.
A)True
B)False
Q4) Warranties do not depend on presentment,dishonor,and notice,but may be utilized before presentment has been made.
A)True
B)False
Q5) What are the most common ways that an obligor on a negotiable instrument is discharged from his/her liability?
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Chapter 41: Checks and Electronic Fund Transfers
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Q1) The time requirements for notice of postdated checks are similar to those required for:
A)automatic transfers.
B)stop-payment orders.
C)drawer-depositor accounts.
D)stale checks.
Q2) Callie drew a check payable to the order of Janice on American Bank.Janice indorsed the check and sold it to Ned,who took the check to American Bank and requested that the bank certify the check.The bank did so.Later,Ned presented the check for payment,but American Bank refused to pay.Which other parties may Ned sue?
A)American Bank
B)Callie
C)Janice
D)Callie and Janice
Q3) Describe the provisions of the Electronic Funds Transfer Act.
Q4) If the drawer of a check orders the drawee bank not to pay the check,the drawee bank generally owes the drawer a duty not to certify the check.
A)True
B)False
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Chapter 42: Introduction to Security
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Q1) Which of the following statements is true for unsecured credit?
A)Only consumers use unsecured credit for their personal transactions.
B)The creditor may require the debtor to convey to the creditor a lien on the debtor's property.
C)When goods are delivered on unsecured credit,the creditor retains all rights in the goods.
D)The unsecured credit transaction involves maximum risk to the creditor.
Q2) In a land sales contract,the seller usually retains legal title and does not turn over the deed until the property is paid for.
A)True
B)False
Q3) What is a possessory lien? Give an example.
Q4) A common law lien essentially includes:
A)only possession by the improver or provider of services.
B)only a debt created by the improvement or provision of services concerning the goods.
C)possession by the improver as well as debt created by the improvement.
D)an improvement which does not become a part of the property.
Q5) Define strict foreclosure.
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Chapter 43: Security Interests in Personal Property
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Q1) A security interest is not legally enforceable against a debtor until it is attached to a particular item or items of the debtor's property
A)True
B)False
Q2) An appliance store sells a television set to Adam for $750 on a conditional sales contract,reserving a security interest in the set until Adam has paid for it.The store does not file a financing statement but relies on attachment for perfection.Adam later borrows money from a credit union and gives it a security interest in the television set.Adam defaults on his loans and the credit union tries to claim the set.Under these circumstances:
A)the credit union has a better claim to the set than does the appliance store.
B)the appliance cannot claim the set as they relied on attachment for perfection.
C)the appliance store has a better claim to the set than does the credit union.
D)neither the appliance store nor the credit union can claim the set.
Q3) An interest in personal property that a creditor obtains to secure payment of an obligation is a security interest.
A)True
B)False
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Chapter 44: Bankruptcy
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Q1) Bill filed a petition for bankruptcy under Chapter 7 of the Bankruptcy Act.Bill listed,among others,the following debts: a debt to the National Bank for $10,000 secured by his 1980 truck,which is valued at $3,500; an unsecured debt to his friend,Frances; a $500 debt to the IRS for 1989 federal income taxes; and a $500 student loan to the university which was due one year ago.Under these circumstances:
A)the $500 debt to the IRS is a nondischargeable debt.
B)Frances can claim the debt even without filing a proof of claim.
C)the $500 student loan to the university is a dischargeable debt.
D)the bank can receive preferential payment because the debt owed to it is highest.
Q2) In 1986,____ of the Bankruptcy Code was added to target the financial problems of the family farm.
A)Chapter 7
B)Chapter 11
C)Chapter 13
D)Chapter 12
Q3) Educational loans are dischargeable debts.
A)True
B)False
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Chapter 45: The Antitrust Laws
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Q1) In most cases,only a probability of anticompetitive effect is necessary for Clayton Act violations.
A)True
B)False
Q2) Section 1 of the Sherman Act aims to attack joint action in restraint of trade.
A)True
B)False
Q3) ________ provides that the Sherman Act shall not apply to nonimport trade unless the conduct has a direct,substantial,and reasonably foreseeable effect on trade or commerce within the U.S,on the U.S.import trade,or on the activities of U.S.exporters.
A)The Robinson-Patman Act
B)The Clayton Act
C)The Noerr Doctrine
D)The Foreign Trade Antitrust Improvement Act
Q4) Tie-in contracts are illegal under:
A)Section 3 of the Clayton Act.
B)Section 2 of the Sherman Act.
C)Section 7 of the Clayton Act.
D)Section 2(a)of the Robinson-Patman Act.
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Chapter 46: Consumer Protection Laws
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Q1) The Fair Credit and Charge Card Disclosure Act requires more detailed and uniform disclosure by credit and charge card issuers at the time of application by the consumers.
A)True
B)False
Q2) One of the purposes of the TILA is to enable the consumer to understand all the charges made in connection with credit.
A)True
B)False
Q3) The Credit Card Accountability and Disclosure Act (CARD)regulates credit card billing cycles by:
A)allowing a $30 penalty fee for late payment of credit card debts.
B)allowing penalties to exceed the minimum balance due.
C)prohibiting double-cycle billing.
D)issuing cards to applicants under 21 years without a cosigner.
Q4) Describe the Gramm-Leach-Bliley Act of 1999 (GLBA).
Q5) "Lemon laws" apply only to car manufacturers.
A)True
B)False
Q6) What is the main idea behind the Holder in Due Course rule?
Page 48
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Chapter 47: Environmental Regulation
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Q1) In 1990,concerned about toxic air pollutants,Congress specified a list of 189 chemicals for which the EPA is required to issue regulations requiring the installation of the most affordable control technology.
A)True
B)False
Q2) Under the Clean Air Act,manufacturers may sell vehicles without prior certification from the EPA if they have met the required standards in all prior checks.
A)True
B)False
Q3) "Community Right to Know" legislation:
A)requires an industry to disclose to the community the presence of certain hazardous chemicals.
B)is the law in most states,under the 1958 amendments to Superfund. C)is only effective in those states which have adopted such requirements under state law.
D)establishes a cradle-to-the-grave regulatory system.
Q4) Explain the Clean Air Act's approach for dealing with air pollution,including the role of the states.
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