Legal Environment of Business
Midterm Exam
Course Introduction
This course provides an overview of the legal principles and frameworks that shape business operations and decision-making. Topics include the structure and sources of law, the court system, contracts, torts, employment law, intellectual property, and regulatory compliance. Emphasis is placed on understanding the legal environments impact on business strategy, risk management, and ethical responsibilities. Through case studies and real-world examples, students will learn how to identify legal risks, apply relevant laws to business situations, and work effectively with legal professionals to support organizational objectives.
Recommended Textbook Law for Business 12th Edition by A.
James Barnes
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Page 2
Chapter 1: Law, Legal Reasoning, and the Legal Profession
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Q1) List the four basic functions of law.
Answer: The basic functions of law are 1.keeping the peace; 2.enforcing standards of conduct to maintain order; 3.facilitating planning; and 4.promoting social justice.
Q2) Procedural law establishes rights and privileges.
A)True
B)False
Answer: False
Q3) The freedom of speech granted by the U.S.Constitution is an example of _____.
A) civil law
B) substantive law
C) criminal law
D) procedural law
Answer: B
Q4) Each state has a constitution that is similar to the U.S.Constitution in the design of the government it provides.
A)True
B)False
Answer: True
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Chapter 2: Dispute Settlement
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Q1) The Smiths,an affluent family,own a hospitality chain called Smith Hotels Inc.When a lawsuit was filed against the hotel for serving stale food to its guests,the managers of the hotel decided to hire a lawyer who practices in an adversary system.How is this situation advantageous to Smith Hotels Inc.?
A) The system makes it easier for a biased judge to control the outcome of a case.
B) The wealthy can hire better lawyers as the system does not work when the opposing lawyers are of unequal skill.
C) The system lays emphasis on the competition to win which discourages overstatement of the truth.
D) The adversary system resents the idea that truth is best discovered through the presentation of competing ideas.
Answer: B
Q2) Mediators award decisions based on the merits of a dispute.
A)True
B)False
Answer: False
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4
Chapter 3: Business Ethics and Corporate Social Responsibility
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Q1) According to the decision-making model that is drawn heavily from the thoughts of Joseph L.Badaracco Jr.,the question,"Which course of action is feasible?" recognizes that when a particular option is believed to be feasible,the manager's work is considered done.
A)True
B)False Answer: False
Q2) Under utilitarianism,an action is ethical only if the benefits to society outweigh its costs.
A)True
B)False Answer: True
Q3) Under Immanuel Kant's "categorical imperative," _____.
A) individuals should judge an action by applying it universally
B) individuals should manipulate others for their self-interest
C) the teleological ethical theory is dominant
D) the consequences of a decision are focused on deciding if it is ethical
Answer: A
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Chapter 4: Business and the Constitution
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Q1) If a person has been discriminated by the government on the basis of the fact that he or she is an illegitimate child,the regulation will be evaluated under _____.
A) strict scrutiny
B) rational analysis
C) intermediate scrutiny
D) the Takings Clause
Q2) Briefly discuss the constitutional safeguards of noncommercial speech.
Q3) Which of the following is true of the Takings Clause?
A) It is triggered by the power of eminent domain.
B) It requires the government not to pay private property owners any compensation.
C) It is triggered by the power of just compensation.
D) It requires the government to buy private property for private developers.
Q4) Which of the following prohibits the federal government from depriving any person "of life,liberty,or property,without due process of law"?
A) The Fifth Amendment Due Process Clause
B) The Commerce Clause
C) The Fourteenth Amendment Due Process Clause
D) The Equal Protection Clause
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Chapter 5: Crimes
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Q1) The responsible corporate officer doctrine:
A) directs that corporate officials and agents may be held liable for crimes they fail to prevent by neglecting to control the misconduct of those subject to their control.
B) states that officials cannot be tried for homicide and related crimes.
C) states that corporate officials have no liability if they have no knowledge of the activities in question.
D) directs that corporate officials may be tried only for crimes that they personally commit.
Q2) The Controlling the Assault of Non-Solicited Pornography and Marketing Act (CAN-SPAM):
A) requires that all e-mail messages be labeled.
B) requires that unsolicited commercial e-mail include opt-out instructions.
C) prohibits interference with computers used by the government or financial institutions.
D) allows an ISP to disclose private information to a government agent if the provider believes that the information concerns a serious crime.
Q3) Explain two laws governing computer privacy in the United States.
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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 is a classic example of interference with economic relations?
A) Trespass
B) False imprisonment
C) Disparagement
D) Defamation
Q3) Which of the following statements can be conditionally privileged in defamation suits?
A) Statements by members of Congress on the floor of Congress
B) Statements made in the furtherance of legitimate business interests
C) Statements by participants in judicial proceedings
D) Private statements between spouses
Q4) The tort of false imprisonment protects:
A) the right to life.
B) only the freedom of movement.
C) mental and physical interests.
D) only the freedom from knowledge of confinement.
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Chapter 7: Negligence and Strict Liability
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Q1) In addition to demonstrating actual emotional distress,if a third party wants to recover for negligent infliction of emotional distress,the plaintiff must primarily show that:
A) the defendant was negligent and that the accident could have been avoided.
B) the third party is at least distantly related to the victim.
C) the third party actually witnessed the injury when it occurred.
D) the defendant did not try to stop the accident.
Q2) If Nancy steps into the path of George's speeding car without checking to see whether any cars are coming,her _____ might prevent her from receiving damages for her injuries from George.
A) comparative negligence
B) breach of duty
C) assumption of risk
D) contributory negligence
Q3) While fishing in a lake,George anchored his new motorboat and went ashore to make an important phone call.He accidently left the key in the boat and Jeb stole the boat.While driving the boat recklessly,Jeb hit Angela,who was water skiing and severely injured her.Should George be responsible for Angela's injuries?
Q4) What is the main difference between recklessness and negligence?
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Page 9
Chapter 8: Licensing and Intellectual Propertypart Two Contracts
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Q1) A patent generally is effective for 10 years from the date of filing.
A)True
B)False
Q2) Which of the following statements is true about patent infringement in the U.S.?
A) The court holds only the infringer accountable for the unlawful activities and accomplices are not considered liable under the U.S. infringement law.
B) There is no effect on the importation of foreign goods that infringe upon U.S. patent rights.
C) A patent holder is entitled to monetary damages in case of infringements.
D) The court grants an automatic injunction in cases of infringement.
Q3) An individual may freely use the trade secret of another if:
A) he discovers it through reverse engineering.
B) he acquires it from a third party who trespassed on it.
C) he obtains it by improper means and the secret is not patented.
D) he acquires it by breaching the duty of confidentiality regarding the secret.
Q4) If a term is arbitrary or suggestive,courts treat it as distinctive and automatically disqualify it for trademark protection.
A)True
B)False
Page 10
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Chapter 9: The Nature and Origins of Contracts
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Q1) The drafters of the Uniform Commercial Code intended for the code to establish legal uniformity over interstate commercial transactions.
A)True
B)False
Q2) When compared with traditional contract law,the Uniform Commercial Code (UCC):
A) reflects a less flexible attitude.
B) is more likely to find that parties have a contract.
C) gives more weight to technical requirements such as consideration.
D) is less concerned with rewarding people's legitimate expectations.
Q3) A voidable contract is one that may be canceled by only one of the parties.
A)True
B)False
Q4) Discuss the importance of having contracts in today's market economy.
Q5) The United Nations Convention on Contracts for the International Sale of Goods applies to any party,be it a merchant or a nonmerchant.
A)True
B)False
Q6) How does the Uniform Commercial Code (UCC)define merchant? Why does the UCC distinguish between merchants and nonmerchants?
Page 11
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Chapter 10: Creating a Contract: Offers
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Q1) The United Nations Convention on Contracts for the International Sale of Goods (CISG)is similar to the Uniform Commercial Code (UCC)in that it considers an offer sufficiently definite if it lacks price terms.
A)True
B)False
Q2) 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.
Q3) In an option contract,_____.
A) a separate contract for the limited purpose of holding the offer open is created
B) the offeree is bound to accept the offer
C) a joint contract is created for the limited purpose of keeping the offer open
D) the offeree has purchased the right to accept within the stated period
Q4) A counteroffer:
A) impliedly rejects an offer.
B) does not affect the material terms of the contract.
C) is a mirror-image of the offer.
D) is an inquiry into the terms of the offer.
Q5) What are the factors that influence the reasonable length of an offer?
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Chapter 11: Creating a Contract: Acceptances
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Q1) An offeree may accept an offer within a reasonable time by any reasonable means of communication if the:
A) parties are dealing over the telephone.
B) offeror suggests a method or a place of communication in the offer.
C) written offer is lost in transit.
D) offer merely suggests a method or place of communication.
Q2) The Uniform Commercial Code and the United Nations Convention of Contracts for the International Sale of Goods both hold that acceptances are effective when they are dispatched.
A)True
B)False
Q3) An agent of the original offeree does not have the legal power to accept an offer and create a contract.
A)True
B)False
Q4) When an offeree uses a nonauthorized means of acceptance,the acceptance is:
A) effective upon dispatch.
B) illegal.
C) not effective until it is received by the offeror.
D) not effective upon receipt by the offeror.
Page 13
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Chapter 12: Consideration
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Q1) Identify the correct statement regarding consideration.
A) A promise by public officials to perform their official duties is always a consideration.
B) A promisor's promise not to commit a crime or a tort can never be consideration.
C) As a general rule, performing or agreeing to perform a preexisting duty is consideration.
D) When new consideration is provided to support a modification, it is unenforceable.
Q2) Past consideration is sometimes accepted for _____.
A) official duties
B) legal obligations
C) moral obligations
D) charitable donations
Q3) Under the Uniform Commercial Code,a modification of an existing contract for the sale of goods requires new consideration.
A)True
B)False
Q4) Explain forbearance to sue in relation to consideration.
Q5) Explain an illusory promise and provide an example.
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Page 14
Chapter 13: Capacity to Contract
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Q1) Minors can disaffirm a contract unless:
A) the contract is for real estate and the minor has not reached majority.
B) the adult has returned the minor to status quo first.
C) the minor has not ratified the contract on reaching majority.
D) the minor has given his or her exact age.
Q2) _____ means that a general hearing was held on the person's mental competency,and the court determined that the person was of unsound mind and appointed a guardian or conservator of the person's estate.
A) Emancipation
B) Adjudication
C) Incapacitation
D) Ratification
Q3) _____ are generally defined as those things that are essential to a minor's continued existence and general welfare.
A) Considerations
B) Emancipations
C) Forbearances
D) Necessaries
Q4) Explain the test for mental incapacity in contract law.
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Chapter 14: Voluntary Consent
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Q1) Jimmy sells an old station wagon to Mary and tells her that it is in excellent condition.He did not bother to verify the statement of the previous owner that the car was making strange noises.Under these circumstances,Mary could best contest the agreement on the grounds of _____.
A) mutual mistake
B) duress
C) fraud
D) unintentional tort
Q2) Which of the following is true of misrepresentation in contracts?
A) A mere untrue assertion is sufficient for proving misrepresentation.
B) Misrepresentation cannot result from an honest mistake or negligence.
C) Statements of opinion serve as a basis for rescission.
D) A victim has to show detriment from misrepresentation to cancel a contract.
Q3) Fraud in the execution involves misstatements about the content or legal effect of something usually contained in a form or preprinted contract.
A)True
B)False
Q4) Explain the duty of care that needs to be exercised by parties entering a contract.
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Page 16
Chapter 15: Illegality
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Q1) Which of the following statements is true of contracts made illegal by statutes?
A) Barbers and beauty operators do not require licenses to work.
B) Blue laws prohibit certain work and the transaction of certain business on Monday.
C) Sunday laws do not vary across states in a country.
D) Forfeiture of excess or all interest is a common penalty for violation of usury laws.
Q2) Contracts of adhesion are:
A) contracts from unequal bargains.
B) contracts injurious to public service.
C) contracts to influence fiduciaries.
D) contracts in restraint of trade.
Q3) What factors do the courts consider in determining whether a contract is unconscionable?
Q4) Rent control laws are implemented to limit the exercise of private bargaining power. A)True
B)False
Q5) Explain the concept of exculpatory clauses in contracts.
Q6) Explain the difference between a regulatory and revenue-raising statute.
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Page 17
Chapter 16: The Form and Meaning of Contracts
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Q1) When parties to an oral contract have both fully performed their obligations under the contract,the parties are:
A) allowed to rescind the contract.
B) not allowed to rescind the contract.
C) allowed to seek compensatory damages.
D) not allowed to recover the value of the performance in quasi contract.
Q2) Which of the following is true of collateral contracts?
A) The obligor is contractually liable to the guarantor.
B) They are covered by the statute of frauds.
C) They are considered to be original contracts.
D) The guarantor is primarily liable to perform his contractual duty.
Q3) The parol evidence rule says that a party can vary the terms of a written contract by introducing evidence of terms allegedly agreed on prior to,or contemporaneous with writing.
A)True
B)False
Q4) An oral contract may be enforceable if promissory estoppel applies.
A)True
B)False
Q5) What kind of writing is required under the statute of frauds?
Page 18
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Chapter 17: Third Parties Contract Rights
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Q1) Public policy can prevent the delegation of duties.
A)True
B)False
Q2) The transfer of rights under a contract is referred to as a(n)_____.
A) assignment
B) novation
C) delegation
D) obligor
Q3) Edward owes Frank $100,payable in six months.Frank,who is leaving the country,gives his rights to the payment to Marge for $80.Which of the following is true about the scenario?
A) Frank is the obligor.
B) Edward owes Marge $80.
C) Edward owes Marge $100.
D) Frank will get $100 from Edward.
Q4) Who is a creditor beneficiary? Can he/she enforce a contract?
Q5) Life insurance contracts give the insured the right to change the beneficiary,but only with the beneficiary's consent.
A)True
B)False
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Chapter 18: Performance and Remediespart Three Sales
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Q1) The time limit set by the Uniform Commercial Code statute of limitations for contracts involving the sale of goods is _____ from the time the goods are tendered.
A) four years
B) seven years
C) ten years
D) twenty years
Q2) The destruction of items that a promisor intended to use in performing does not excuse nonperformance if substitutes are available.
A)True
B)False
Q3) The doctrine of substantial performance applies when a promisor willfully fails to completely perform his duties.
A)True
B)False
Q4) A promisor who is guilty of material breach has no right of action under the contract.
A)True
B)False
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Chapter 19: Formation and Terms of Sales Contracts
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Q1) The Uniform Commercial Code distinguishes between merchants and nonmerchants by holding nonmerchants to a higher standard in all cases.
A)True
B)False
Q2) Article 2A of the Uniform Commercial Code deals exclusively with leases of goods.
A)True
B)False
Q3) Which of the following statements should be governed by Article 2 of the Uniform Commercial Code?
A) Andrew agreed to decorate the interiors of Jamie's house.
B) Barney leased his house to Mick for conducting business.
C) Bill contracted to sell 100 boxes of chocolates to a supermarket.
D) Monica contracted to sing with her group at Nancy's wedding.
Q4) If a contract requires a seller to ship the goods,title passes to the buyer only when the seller delivers the goods to him.
A)True
B)False
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21
Chapter 20: Warranties and Product Liability
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Q1) Which of the following is an outgrowth of strict product liability?
A) Industrywide liability
B) Vicarious liability
C) Negligence
D) Product misuse
Q2) A few state courts have declared their state's statute of repose unconstitutional because it:
A) gives people time from the date they discover their injury in which to bring their suit.
B) refrains people to bring a suit who are injured by products such as asbestos or DES that cause injury immediately.
C) denies people the right to seek redress for their injuries when they had no chance to discover their injuries within the statutory period.
D) does not bar the bringing of a tort-based product liability suit after a certain number of years from the date the product is first sold to a user.
Q3) Implied warranties imposed by law are absolute.
A)True
B)False
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Chapter 21: Performance of Sales Contracts
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Q1) The basic duty of a seller is to deliver the goods called for by the contract.
A)True
B)False
Q2) Under the Uniform Commercial Code,only the buyer can demand assurance from the other party that the contract will be performed.
A)True
B)False
Q3) When a payment is tendered by check,_____.
A) the buyer does not have the right to retain the goods and must give them back to the seller
B) the payment is not conditional but can be considered as final or complete
C) the buyer has the right to retain the goods if the bank refuses to pay the check
D) the duty to pay for the goods is satisfied by the buyer if the bank pays the check
Q4) Can a buyer reject goods for nonconformity in contracts that call for delivery of the goods in separate installments? If yes,under what circumstances can he reject such goods?
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23
Chapter 22: Remedies for Breach of Sales Contractspart
Four Agency and Employment
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Q1) Under the Uniform Commercial Code,list five remedies available to a buyer when the seller breaks a contract.
Q2) If a buyer accepts defective goods and wants to hold the seller liable,the buyer must give the seller notice of the defect:
A) only in writing.
B) within a reasonable time after detecting the defect.
C) within the same financial year of the purchase.
D) when the contract is made.
Q3) If the seller refuses to deliver the goods called for in the contract,and the buyer purchases substitute goods,the buyer can recover as damages from the seller the difference between the contract price of the goods and the cost of the substitute goods.
A)True
B)False
Q4) When a buyer refuses to accept goods that conform to the contract or repudiates the contract,the seller's only choice is to resell the goods.
A)True
B)False
Q5) What are the most common ways in which a buyer may breach a contract?
Page 24
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Chapter
23: The Agency Relationship-Creation, duties, and Termination
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Q1) When an agent breaches a duty owed to the principal,the agent may:
A) not be discharged until the contract has expired.
B) be discharged without liability in spite of an unexpired contract.
C) be discharged only if the principal can show actual damage.
D) not be discharged until contractual damages are paid.
Q2) If an agent indulges in commingling,he _____.
A) probably will not be liable for loss to the principal
B) bears the risk of any loss to the principal
C) will not be liable for any loss to the principal if the property is not wrongfully used
D) is breaching the duty to communicate information
Q3) Vlad,as agent,is paid $5,000 owed by a debtor of Lee,Vlad's principal.Instead of giving it immediately to Lee,Vlad 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) Vlad 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) Vlad is not guilty of wrongdoing because he managed to make a profit
Q4) Discuss the purpose of insurance commissions paid to the agents.
Page 25
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Chapter 24: Liability of Principals and Agents to Third Parties
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Q1) An agent can exercise his implied authority when:
A) third persons believe that authority exists because past actions of the agent were ratified by the principal.
B) the agent is a special agent and not a general agent.
C) the principal's property interests need to be protected by the agent during an emergency.
D) the principal does not grant the agent any powers.
Q2) Pascal is a buyer for Kelly Benjamin department store in Kentucky.While Pascal was buying visiting California,he found a solar car on sale for $3,000.Pascal contracts to buy the car for Kelly Benjamin,who wants to buy a solar car.Kelly instructs the seller to ship the car.Under these circumstances:
A) Kelly is considered to have ratified the contract.
B) Kelly is not liable since Pascal made the purchase.
C) Pascal and Kelly are both liable on the contract.
D) Pascal is considered to have ratified the contract.
Q3) Is a principal liable for the acts committed by the employees of an agent? Discuss.
Q4) Briefly describe the doctrine of respondeat superior.
Q5) Explain the concept of apparent authority.
Page 26
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Chapter 25: Employment Laws-Part Five Business
Organizations
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Q1) Under the Genetic Information Nondiscrimination Act,genetic information includes family medical history.
A)True
B)False
Q2) The Labor-Management Reporting and Disclosure Act requires:
A) employers to disclose the wages of their employees.
B) a union to have a constitution and bylaws.
C) employers to disclose their meeting minutes taken in any union negotiation.
D) that manufacturing workers be informed of hazardous chemicals in the workplace.
Q3) The Family and Medical Leave Act:
A) covers birth but not adoption of a child.
B) covers employees the moment they begin work.
C) requires employers with 30 employees to give covered employees up to 18 paid workweeks of leave per year to deal with the care of themselves.
D) provides job security to employees with serious health conditions.
Q4) Describe Title VII of the Civil Rights Act of 1964.Discuss the purpose and coverage of the provision.
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Chapter 26: Which Form of Business Organization
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Q1) Through franchising,a franchisor can gain considerable control over the distribution of its products or services without owning the retail outlets.
A)True
B)False
Q2) When a general business partnership fails,the partners:
A) lose only their investment.
B) may be required to pay partnership debts from personal assets.
C) can waive their limited liability.
D) are liable for losses equivalent to their own individual contributions.
Q3) List the factors one should consider in choosing a form of business organization.
Q4) In the management of a limited liability partnership,_____.
A) the LLP pays income taxes
B) management decisions cannot be altered even by agreement
C) only some partners have a say in its management
D) new partners cannot join without the unanimous consent of the current partners
Q5) What are the factors to be considered in the creation of a limited liability company (LLC)?
Q6) What are the advantages of franchising?
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Chapter 27: Partnerships
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Q1) People who are involved in a nonprofit association are considered partners.
A)True
B)False
Q2) Partners may agree at any time that the interest of one partner shall be purchased by the partnership or by one or more of the other partners.
A)True
B)False
Q3) The liability of partners for torts committed by the partnership:
A) is on the partner who committed the tort.
B) is joint and several, permitting the injured person to sue any partner individually or all of them together.
C) depends on whether a partner or an employee commits the tort, and if it is a partner, the injured person has to sue all of the partners together.
D) is nonexistent because a partnership cannot commit a tort.
Q4) No express agreement is needed to create a partnership.
A)True
B)False
Q5) Define partnership and explain its key elements.
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Chapter 28: Formation and Termination of Corporations
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Q1) Which of the following statements is true for the dissolution of a corporation by agreement?
A) As a corporation is not an entity created by the state, it need not have the state's consent to dissolve.
B) A corporation can be dissolved by oral consent of all shareholders.
C) If two corporations consolidate into a new corporation, only the old corporation with major shareholders is dissolved.
D) Corporations with more than one class of shareholders sometimes provide for voting on dissolution and other matters by class.
Q2) If articles of incorporation provide for a limited life,the corporation _____.
A) automatically terminates at the end of the designated time
B) usually appeals to the secretary of state for dissolution
C) dissolves only by amendment to the contract
D) terminates at the end of the designated time only with the written consent of all shareholders
Q3) Under the revised Model Business Corporation Act (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) Under the MBCA,the president of a corporation cannot also be the secretary of the corporation.
A)True
B)False
Q2) Which of the following is true of liability for torts and crimes in corporations?
A) If the employee commits a crime or tort while acting outside the scope of employment, the corporation is liable.
B) If an employee commits a tort within the scope of employment but outside the office space, the corporation is not liable.
C) When a corporate officer did not know of the employee's crime or tort, the officer is still liable.
D) When a corporate officer could have prevented an employee's tort but did not, the officer may be liable.
Q3) What is the meaning of ex officio authority?
Q4) A corporate officer is never held liable for the illegal behavior of a subordinate.
A)True
B)False
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Chapter 30: Financing the Corporation and the Role of the Shareholders
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Q1) Dividends must always be paid in cash.
A)True
B)False
Q2) Shares are never worth more than the par or stated value.
A)True
B)False
Q3) When is a shareholder permitted to sue as a representative of a corporation?
Q4) Which of the following statements about debt securities is true?
A) They can be issued only if the power to do so appears in the articles of incorporation.
B) They are used to transfer an ownership interest in an organization.
C) They arise in the form of notes, debentures, or bonds.
D) They are similar to equity securities in that the terms do not exceed three years.
Q5) Corporations do not have inherent power to borrow money by issuing debt securities.
A)True
B)False
Q6) What requirements must be met if a shareholder meeting is to be conducted remotely?
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Chapter 31: Securities Regulation
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Q1) Securities sold in exempt transactions are:
A) exempt from registrations in all transactions.
B) exempt from registration on subsequent sales of the securities.
C) exempt from the registration requirements for those particular transactions only.
D) exempt from antifraud provisions of the 1933 Act.
Q2) Which of the following is a feature of the Securities Exchange Act of 1934 but not the Act of 1933?
A) It has several sections prohibiting fraud in securities transactions.
B) The 1934 Act requires additional information in the registration statement.
C) It has registration provisions for issuance of securities.
D) The 1934 Act requires periodic disclosure by issuers with publicly held equity securities.
Q3) Negligence is the most important element of a Rule 10b-5 violation.
A)True
B)False
Q4) Describe the liability provisions of the Securities Exchange Act of 1934 against insider trading,under Rule 10b-5 of the Securities Exchange Act of 1934.
Q5) Describe the Foreign Corrupt Practices Act and the reason for its enactment.
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Chapter 32: Legal Liability of Accountantspart Six Property
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Q1) Lack of negligence can be proved by demonstrating that an accountant was in compliance with generally accepted accounting principles (GAAP)and generally accepted auditing standards (GAAS).
A)True
B)False
Q2) List the five major judicial approaches to third-party negligence actions.
Q3) An accountant who shows a reckless disregard for the truth may be said to be acting with scienter.
A)True
B)False
Q4) In an administrative hearing conducted by the Securities and Exchange Commission (SEC),an accountant who violates the federal securities acts is given final order by the administrative law judge.
A)True
B)False
Q5) An accountant ordinarily does not delegate his or her duties to someone else without the consent of the client.
A)True
B)False
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Chapter 33: Personal Property and Bailments
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Q1) Joshua and Alyssa dated for two years before deciding to get married.Joshua gave Alyssa a $20,000 diamond ring on the occasion of their engagement.Two months later,Joshua called off the engagement without giving Alyssa a valid reason.Under the traditional rule that uses a fault-based approach,_____.
A) Joshua cannot recover the ring
B) Alyssa must return the ring
C) the ring must be sold and the proceeds divided between Joshua and Alyssa
D) Alyssa may retain the ring only if she pays its fair value to Joshua
Q2) An involuntary bailee or constructive bailee has the right to use or destroy bailed property.
A)True
B)False
Q3) When Rafael goes into a restaurant and hangs his hat and coat on an unattended rack,it creates a bailment.
A)True
B)False
Q4) Define a bailment and discuss its essential terms.
Q5) What are the differences between a gift inter vivos and a gift causa mortis?
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Chapter 34: Real Property
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Q1) George owns three adjacent town houses in an upscale neighborhood.He sells one to Bernardo but gets him to promise to never sell the property to a woman or a poor person.This restriction is built into the deed George gives to Bernardo,along with a statement that the property is to revert to George if this promise is broken.Which of the following statements is true in this case?
A) This restriction is enforceable because it is built into the deed.
B) This restriction is enforceable because it does not effectively prevent the sale of the property to anyone else.
C) This restriction is not enforceable because it is against public policy.
D) This restriction is not enforceable because private restrictions only apply to the size and cost of the house.
Q2) Define the legal meaning of "nuisance" and explain the two types of nuisances recognized by the law,using a scenario to illustrate each type.
Q3) A quitclaim deed:
A) guarantees that the grantor has good title to the real property.
B) affords the grantee the right to sue the grantor for defective title.
C) is used to cure technical defect in the chain of title to property.
D) warrants against all liens and easements.
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Chapter 35: Landlord and Tenant
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Q1) The landlord may evict the tenant if he or she:
A) subleases the property or assigns the property to someone else.
B) does not maintain common areas of the property.
C) does not pay rent.
D) does not protect the property from criminals.
Q2) Eli rents an old farmhouse from Kathy for a term to begin on July 31,2006 and end on August 1,2007.When Eli attempts to move in,he finds that Rose,the previous tenant,is still living in the house.Here,Kathy has breached:
A) the implied warranty of habitability.
B) the implied warranty of possession.
C) the implied warranty of quiet enjoyment.
D) the clauses of the Fair Housing Act.
Q3) The implied warranty of habitability in lease situations requires:
A) the landlord to ensure that the property is suitable for living.
B) the tenants to maintain a habitable dwelling during the term of the lease.
C) the tenants to comply with the city's housing codes.
D) the landlord to terminate the lease if the warranty has been breached.
Q4) Under what circumstances can a tenant invoke the doctrine of constructive eviction?
Q5) Explain the difference between an assignment and a sublease.
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Chapter 36: Estates and Trusts
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Q1) In terms of intestacy statutes,adopted children will:
A) inherit from their biological parents.
B) inherit from their adopted parents.
C) inherit from their adopted parents but a share lesser than the adopted parents' biological children.
D) not be able to inherit anything.
Q2) Who among the following is responsible for supervision of administering a person's will and settling their estate?
A) An arbitrator
B) The attorney general
C) A Probate court
D) A Family court
Q3) In the states that recognize holographic wills,such wills will be valid if:
A) they do not evidence testamentary intent.
B) they are in the handwriting of the testator.
C) the material portions in the will are typed.
D) they are typed and evidence testamentary intent.
Q4) Name the basic formalities required by most states in the execution of a will.
Q5) Explain durable power of attorney for health care.
Q6) What are the conditions under which holographic wills are recognized as valid?
Page 38
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Chapter 37: Insurance-Part Seven Commercial Paper
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Q1) Why are property insurance policies generally nonassignable?
Q2) Health insurance policies generally require the insured to pay up to a certain amount each year after the insurer's payment obligation begins.
A)True
B)False
Q3) The fire insurance policy on Dullard's home contained a 50 percent coinsurance clause.Dullard's home had a fair market value of $100,000.The face amount of the policy covering the home was $30,000.A hostile fire caused $30,000 worth of damage to the home.To what amount is Dullard entitled?
A) $100,000
B) $9,000
C) $30,000
D) $18,000
Q4) Flood-related damage to property is an example of a(n)_____.
A) excluded peril
B) covered peril
C) conditional peril
D) open peril
Q5) Describe portable health insurance.
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Chapter 38: Negotiable Instruments
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Q1) Ricardo borrowed $5,000 from his friend,Lorenzo.Ricardo signed a handwritten note stating,"I promise to pay $5,000 to Lorenzo on or before August 1,2001,in return for the same amount borrowed from him on May 1,2001." Under these circumstances,the note is
A) negotiable because it was handwritten
B) not negotiable because the note states the reason for the debt C) not negotiable because the note is not payable to bearer or to order D) negotiable because it is a simple contract
Q2) A holder in due course takes the instrument free of all:
A) defenses and claims to the instrument.
B) defenses and claims to the instrument except those which concern its validity. C) defenses and claims to the instrument except those which concern its negotiability. D) defenses and claims to the instrument including defenses of duress or infancy.
Q3) A term authorizing the confession of judgment on an instrument when it is due affects the negotiability of the instrument.
A)True
B)False
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Chapter 39: Negotiation and Holder in Due Course
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Q1) An indorsement is made by adding the signature of the holder of the instrument to the instrument,usually on the back of it,either alone or with other words.
A)True
B)False
Q2) Which of the following statements is true of an indorsement?
A) It applies only to payments made to a depositary bank.
B) It does not affect future attempts to negotiate the instrument.
C) It generally does not make a person liable on the instrument even if he or she is engaged in any illegality affecting the instrument.
D) It makes a person liable on an instrument indorsed by him or her if the person primarily liable on it does not pay it.
Q3) An indorsement that specifies the purpose of the indorsement or specifies the use to be made of the instrument is termed as a _____.
A) special indorsement
B) restrictive indorsement
C) blank indorsement
D) qualified indorsement
Q4) Explain the nature and meaning of an indorsement.
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Chapter 40: Liability of Parties
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Q1) Anne borrows $2,000 from Jerry and gives him a promissory note for $2,000 at 10 percent annual interest payable in 100 days.Jerry indorses the note "Pay to the order of Ethan" and negotiates the note to Ethan.At the end of 100 days,Ethan takes the note to Anne.Under these circumstances,if Anne _____.
A) dishonors the note, Ethan can hold Jerry secondarily liable without giving him notice of the dishonor
B) dishonors the note, Ethan cannot sue Anne on the basis of her maker's obligation
C) dishonors the note, Ethan cannot hold Jerry secondarily liable on his indorsement
D) pays Ethan the $2,000 and accrued interest, she can have Ethan mark it "paid" and give it back to her
Q2) An indorser's liability is discharged if the check is not presented within _____ after the endorsement.
A) 15 days
B) 14 days
C) 30 days
D) 48 hours
Q3) Mention the parties who are entitled to enforce an instrument.
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Chapter 41: Checks and Electronic Fund Transfers-Part
Eight Credit Transactions
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Q1) A bank may pay a postdated check unless it has received notice from the customer not to pay until the date on the check.
A)True
B)False
Q2) For improper execution or failure to execute payment orders,banks can be liable to:
A) the originators for their expenses in the transaction along with incidental expenses and interest losses.
B) the beneficiaries for their incidental expenses.
C) the originators for consequential damages.
D) both the originators and beneficiaries for consequential damages, even though the written agreement of the receiving bank does not provide for it.
Q3) A check on which a bank is both the drawer and the drawee is a:
A) cashier's check.
B) stale check.
C) certified check.
D) personal check.
Q4) Explain the difference between a certified check,a cashier's check,and a teller's check.
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Chapter 42: Introduction to Security
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Q1) _____ of the Uniform Commercial Code sets out a comprehensive scheme for regulating security interests in personal property and fixtures.
A) Article 3
B) Article 5
C) Article 6
D) Article 9
Q2) Under the common law,airlines were entitled to liens to secure the reasonable value of the services they perform because they:
A) provided labor to improve personal property that belongs to someone else.
B) provided food and lodging to their customers.
C) were required by law to provide the service to anyone who seeks it.
D) made all their profits only through such liens.
Q3) Artisans who retain goods are liable for conversion if they:
A) return the goods before the debt has been paid.
B) keep the goods without the right to a lien.
C) lose the goods to the debtor in a fraudulent manner.
D) sell the goods for the unpaid charges.
Q4) Define strict foreclosure.
Q5) What is a possessory lien? Give an example.
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Chapter 43: Security Interests in Personal Property
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Q1) If no expiry date is stated in the financing statement,it is valid for six months.
A)True
B)False
Q2) The attachment of a security interest to collateral automatically gives the secured party a security interest in the proceeds on the disposal of the collateral by the debtor.
A)True
B)False
Q3) The basic rule established by the Uniform Commercial Code is that when more than one security interest in the same collateral has been filed,the last security interest to be filed has priority over any that is filed later.
A)True
B)False
Q4) A retailer of consumer goods who relies on attachment of a security interest to perfect its security interest prevails over other creditors of the debtor-buyer.
A)True
B)False
Q5) Explain how a security interest is created.
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Chapter 44: Bankruptcy-Part Nine Government Regulation
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Q1) Chapter 11 of the Bankruptcy Code deals with _____.
A) liquidations
B) consumer debt adjustments
C) reorganizations
D) fishing operations
Q2) What are the primary purposes of the Bankruptcy Code?
Q3) If a creditor owns a debt that is provable and nondischargeable,he or she _____.
A) may participate in the distribution of the debtor's estate
B) can recover only the money provided by the bankrupt's discharge
C) must not enter into any voluntary agreement with the debtor for discharge of the debt
D) needs court approval for reaffirmation of loans
Q4) Property that is concealed by a debtor may be retained as exempted property during liquidation proceedings.
A)True
B)False
Q5) An order of relief is granted automatically if the debtor does not contest the filing of an involuntary petition.
A)True
B)False
46
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Chapter 45: The Antitrust Laws
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Q1) Unilateral actions,even if they have an anticompetitive effect,do not violate Section 1 of the Sherman Act.
A)True
B)False
Q2) Describe defenses to direct price discrimination under the Robinson-Patman Act.
Q3) Which of the following is true of a consignment agreement?
A) If a manufacturer delivers all goods to its dealers on a consignment basis, the goods become the property of the dealer.
B) The owner of goods delivers them to another who is to act as the owner's agent in selling the goods.
C) If a manufacturer delivers all goods to its dealers on a consignment basis, the dealer cannot lawfully fix the price of those goods.
D) It is always held to be joint action.
Q4) Describe the type of behavior Section 3 of the Clayton Act is designed to attack.
Q5) Describe Section 2 of the Sherman Act.
Q6) What is price-fixing?
Q7) Describe the Hart-Scott-Rodino Antitrust Improvements Act.
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Chapter 46: Consumer Protection Laws
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Q1) Describe the Gramm-Leach-Bliley Act of 1999 (GLBA).
Q2) Under the Fair Credit Reporting Act,a consumer who has been denied credit:
A) cannot compel the credit reporting agency to delete any inaccurate or obsolete information from the file.
B) is entitled to disclosure of the name and address of the credit reporting agency that made the report.
C) can compel the credit reporting agency to delete disputed information without an investigation.
D) is not entitled to a reinvestigation of the disputed information in the report made by the credit reporting agency.
Q3) "Imminently hazardous consumer products" are those that pose an immediate and unreasonable risk of death,serious illness,or severe personal injury.
A)True
B)False
Q4) How do the new rules of the Credit Card Accountability and Disclosure Act (CARD)help consumers deal with credit card debt?
Q5) What is the main idea behind the Holder in Due Course rule?
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Chapter 47: Environmental Regulation
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Q1) Under the Resource Conservation and Recovery Act,most of the wastes defined as hazardous are subject to:
A) a "cradle to the grave" tracking system.
B) refrain from following any procedures in the handling of the wastes.
C) proper disposal without treatment and storage.
D) on-site treatment before it enters the sewer system.
Q2) Which of the following statements is true of the Environmental Protection Agency?
A) It was created to consolidate the state government's environmental responsibilities.
B) It aims only at pollution problems that can be seen, smelled, or tasted.
C) Much of its initial effort to address environmental problems involved command and control regulation.
D) Over the decade of the 1970s, Congress passed comprehensive new legislation covering air and water pollution only.
Q3) Describe Superfund's "Community Right to Know" requirement.
Q4) What is the consequence of placing a site on the National Priority List for cleanup under "Superfund"? Who can be responsible for cleanup costs of such a site?
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