Legal Environment of Business and Online Commerce, The, 6E Henry R. Cheeseman Test Bank

Type:

Test Bank

Resource:

Legal Environment of Business and Online Commerce

Edition:

6th Edition

Author(s):

Henry R. Cheeseman

Chapter 1 Legal Heritage and the Information Age 1) The law in the United States has been influenced by English law, but not by French or Spanish law.

Answer: FALSE Diff: 2 Topic: Introduction to Legal Heritage and the Information Age 2) Law is intended to protect persons and their property from unwanted interference from others.

Answer: TRUE Diff: 1 Topic: Sources of Law in the United States (Priority of Law) 3) That which must be obeyed and followed by citizens subject to sanctions or legal consequences can be thought of as law.

Answer: TRUE Diff: 1 Topic: Sources of Law in the United States (Priority of Law) 4) Shaping moral standards is beyond the function of the law.

Answer: FALSE Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 5) Law serves both to facilitate orderly change and to maintain the status quo.

Answer: TRUE Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 6) The Supreme Court's landmark decision in Brown v. Board of Education is an example of one Supreme Court case overruling a prior Supreme Court case to promote justice.

Answer: TRUE Diff: 1 Topic: Sources of Law in the United States (Priority of Law) 7) Plessy v. Ferguson overruled Brown v. Board of Education.

Answer: FALSE Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 8) Flexibility is undesirable in the law because the courts become straightjacketed.

Answer: FALSE Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 1 .

9) After Brown v. Board of Education was decided, integrating many public schools required court orders as well as U.S. Army Enforcement.

Answer: TRUE Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 10) Brown v. Board of Education legitimized the judicial philosophy of 'separate but equal.'

Answer: FALSE Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 11) The Natural Law School of jurisprudence believes that men and women create the correct natural laws by using reason to determine what is good and evil.

Answer: FALSE Diff: 1 Topic: Schools of Jurisprudential Thought 12) The Historical School of jurisprudence believes that the law should not change and that what has historically been the law should remain the law.

Answer: FALSE Diff: 2 Topic: Schools of Jurisprudential Thought 13) The Sociological School of jurisprudence holds that the law should be based on the norms of conduct carried out by the majority of the people.

Answer: FALSE Diff: 2 Topic: Schools of Jurisprudential Thought 14) The Command School of jurisprudence believes that the law will change when there is a change in the ruling class.

Answer: TRUE Diff: 1 Topic: Schools of Jurisprudential Thought 15) Proponents of the Critical Legal Studies School argue for a stable set of rules that avoids the exercise of subjective judgment by judges.

Answer: FALSE Diff: 2 Topic: Schools of Jurisprudential Thought 16) The Law and Economics School of jurisprudential thought holds that the law should promote market efficiency.

Answer: TRUE Diff: 1 Topic: Schools of Jurisprudential Thought 2 .

17) The Analytical School of jurisprudential thought will tend to focus on how the result is achieved rather than on the logic of the result.

Answer: FALSE Diff: 1 Topic: Schools of Jurisprudential Thought 18) English Common Law received its name because it was the law of the common people.

Answer: FALSE Diff: 3 Topic: International Law (The Civil Law System) 19) The English law courts were characterized by the ability to apply a wide variety of flexible remedies.

Answer: FALSE Diff: 1 Topic: International Law (The Civil Law System) 20) The courts in which decisions were based on fairness in circumstances where the limited remedies of the law courts did not achieve a fair result were called Chancery.

Answer: TRUE Diff: 2 Topic: International Law (The Civil Law System) 21) Court decisions play the same role in common law systems as in civil law systems.

Answer: FALSE Diff: 2 Topic: International Law (The Civil Law System) 22) The separate set of courts established in England to administer the law of merchants were called the Merchant Courts.

Answer: TRUE Diff: 1 Topic: International Law (The Civil Law System) 23) Powers not given to the states by the U. S. Constitution are reserved for the federal government.

Answer: FALSE Diff: 1 Topic: International Law (The Civil Law System) 24) Treaties with foreign governments are considered part of the supreme law of the land.

Answer: TRUE Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions)

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25) The states are not permitted to have their own constitutions because doing so would conflict with the U.S. Constitution.

Answer: FALSE Diff: 1 Topic: Sources of Law in the United States (Judicial Decisions) 26) Codified-- Law or Codes--is past court decisions that have been organized by jurisdiction into code books.

Answer: FALSE Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 27) The Uniform Commercial Code is an example of federal law.

Answer: FALSE Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 28) Each of the three branches of the federal government is empowered to create administrative agencies.

Answer: FALSE Diff: 1 Topic: Sources of Law in the United States (Judicial Decisions) 29) The Executive Branch has the power to enact the law Answer: FALSE Diff: 3 Topic: International Law (The Civil Law System) 30) The power of the President or a state governor to issue executive orders can be derived from either an express grant from the legislative branch or by implication from a constitution.

Answer: TRUE Diff: 3 Topic: Sources of Law in the United States (Judicial Decisions) 31) The doctrine of stare decisis provides for adherence to precedent.

Answer: TRUE Diff: 1 Topic: Sources of Law in the United States (Judicial Decisions) 32) Based upon the common law tradition, past court decisions become precedent for deciding future cases.

Answer: TRUE Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions)

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33) According to the text, law can be defined as: A) The actions that a person is not allowed to perform.

B) A body of rules of action or conduct prescribed by controlling authority.

C) What an individual believes to be fair and just.

D) The persons responsible for the enforcement of society's rules.

Answer: B Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 34) Each of the following is a function of the law except: A) Shaping moral standards.

B) Maintaining the status quo.

C) Facilitating retaliation by victims.

D) Facilitating orderly change.

Answer: C Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 35) Passing statutes only after considerable study, debate, and public input is an example of which function of the law?

A) Maintaining the status quo.

B) Facilitating orderly change.

C) Keeping the peace.

D) Shaping moral standards.

Answer: B Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 36) Laws passed to discourage drug and alcohol abuse would serve which function?

A) Keeping the peace B) Promoting social justice C) Shaping moral standards D) Facilitating orderly change Answer: C Diff: 3 Topic: Sources of Law in the United States (Priority of Law) 37) Laws passed to prevent the forceful overthrow of the government would serve which function?

A) Maintaining the status quo B) Shaping moral standards C) Facilitating planning D) Maximizing individual freedom Answer: A Diff: 2 Topic: Sources of Law in the United States (Priority of Law) 5 .

38) The concept of flexibility in the law is best illustrated by: A) The use of precedent to decide similar cases in similar ways.

B) The ability to overturn precedent when it is no longer valid or when it is erroneous.

C) The use of appointed judges rather than elected judges.

D) Imposing mandatory penalties for criminal violations.

Answer: B Diff: 3 Topic: Sources of Law in the United States (Priority of Law) 39) Which doctrine was overturned in the case of Brown v. Board of Education?

A) The legality of poll taxes B) The permissibility of separate but equal facilities C) Allowing only white males to vote D) The acceptability of paying women less than men for comparable work Answer: B Diff: 1 Topic: Sources of Law in the United States (Priority of Law) 40) Dictatorships, such as those in North Korea, are based upon which school of jurisprudential thought?

A) Law and Economics school B) Command school C) Historical school D) Natural Law school Answer: B Diff: 1 Topic: Schools of Jurisprudential Thought 41) Under which school of jurispurdential thought do legal scholars look to past legal decisions to solve contemporary problems?

A) Analytical B) Historical C) Sociological D) Law and Economic Answer: B Diff: 1 Topic: Schools of Jurisprudential Thought

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42) Persons who believe that law is "discovered" by men and women through the use of reasoning and choosing between good and evil, believe in which school of jurisprudential thought?

A) The Natural School B) The Historical School C) The Analytical School D) The Command School Answer: A Diff: 1 Topic: Schools of Jurisprudential Thought 43) Persons who believe that law is an aggregate of social traditions and customs, and that such societal changes will gradually be reflected in the law, believe in which school of jurisprudential thought?

A) The Natural School B) The Historical School C) The Analytical School D) The Command School Answer: B Diff: 1 Topic: Schools of Jurisprudential Thought 44) Someone who believes that law is a reflection of those in power, believes in which school of jurisprudential thought?

A) The Natural School B) The Historical School C) The Analytical School D) The Command School Answer: D Diff: 1 Topic: Schools of Jurisprudential Thought 45) Which of the following is most consistent with the Natural Law School of jurisprudence?

A) Law is based on moral and ethical principles of what is right, and it is the job of men and women, through study, to determine what these principles are.

B) The law is a reflection of society, thus the law must change naturally as society changes over time.

C) The laws of people are secondary to the laws of nature, and thus the laws of nature take precedence whenever the laws of people are in conflict with the laws of nature.

D) By applying the rules of logic to specific cases, the logical, or natural, result will be obtained.

Answer: A Diff: 2 Topic: Schools of Jurisprudential Thought

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46) The school of jurisprudence that believes that legal rules are unnecessary and used by the powerful to maintain the status quo, and that disputes should be resolved based on general notions of fairness, is: A) The Command School.

B) The Sociological School.

C) The Critical Legal Studies School.

D) The Law and Economics School.

Answer: C Diff: 2 Topic: Schools of Jurisprudential Thought 47) The Critical Legal Studies School of jurisprudence believes that: A) Free market forces and market efficiency are the most important principles underlying the law.

B) Past court decisions must be analyzed and criticized in developing new law.

C) Subjective decision making by judges based on general notions of fairness is appropriate.

D) One of the main purposes of law is to serve as an official voice of criticism of those in power.

Answer: C Diff: 2 Topic: Schools of Jurisprudential Thought 48) The school of jurisprudence that believes that free market forces should determine the outcomes to lawsuits is: A) The Command School.

B) The Sociological School.

C) The Critical Legal Studies School.

D) The Law and Economics School.

Answer: D Diff: 2 Topic: Schools of Jurisprudential Thought 49) Which of the following is true about the Law and Economics School of jurisprudence?

A) It is also known as the New York School.

B) It promotes the use of economic principles in resolving cases, so long as the case is one involving business.

C) It would say a case that no lawyer would take on a contingent fee basis is probably a case that is not worth bringing.

D) It holds that antitrust cases should be vigorously prosecuted in order to protect the economic viability of smaller firms.

Answer: C Diff: 2 Topic: Schools of Jurisprudential Thought

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50) The following courts were common in England before the founding of the United States except: A) Chancery Courts.

B) Family Courts.

C) Merchant Courts.

D) Equity Courts.

Answer: B Diff: 2 Topic: International Law (The Civil Law System) 51) The remedy, or relief, that was available in the law courts of England was: A) Specific performance.

B) Fines and imprisonment.

C) Monetary awards for damages.

D) Returning the parties to their positions before the dispute arose.

Answer: C Diff: 2 Topic: International Law (The Civil Law System) 52) Chancery Courts were also known as: A) Law Courts.

B) Equity Courts.

C) Criminal Courts.

D) Merchant Courts.

Answer: B Diff: 2 Topic: International Law (The Civil Law System) 53) Which of the following is true about the creation of courts in England?

A) The law courts were created in order to have broader jurisdiction than the merchant courts.

B) The merchant courts were created in order to have more flexibility in fashioning remedies than the chancery courts.

C) The equity courts were created to allow remedies that could not be granted by the law courts.

D) The different types of courts were created in order to handle different types of cases, but the remedies available to the different courts were the same.

Answer: C Diff: 2 Topic: International Law (The Civil Law System)

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54) The set of rules that were developed in Europe to settle disputes arising in commercial settings was called: A) Commercial law.

B) Law Merchant.

C) The Uniform Commercial Code.

D) Fair trade law.

Answer: B Diff: 2 Topic: International Law (The Civil Law System) 55) Common law consists of: A) Laws that all nations have in common.

B) Laws that affect everyone, including ordinary persons.

C) Opinions that have been issued by judges when deciding previous cases.

D) Laws with which most people are familiar.

Answer: C Diff: 2 Topic: International Law (The Civil Law System) 56) Common law is called common law because: A) It was the law that applied to the common people.

B) By using precedent it could be applied uniformly and therefore be common among the courts of the various jurisdictions in England.

C) It was intended to be the same in England and the United States, and thus would be common to the two nations.

D) It was the law that applied to common everyday situations.

Answer: B Diff: 3 Topic: International Law (The Civil Law System) 57) The distinguishing feature of a common law system is: A) Requiring guilt to be proven beyond a reasonable doubt.

B) Using juries to decide cases.

C) Following precedent in making decisions.

D) Having an appeal process.

Answer: C Diff: 2 Topic: International Law (The Civil Law System)

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58) Prior court decisions that are precedent for later decisions are known as: A) Law Merchant.

B) Common law.

C) Judicial discretion.

D) Civil law decisions.

E) Equity law.

Answer: B Diff: 1 Topic: International Law (The Civil Law System) 59) Which of the following is true about United States law today?

A) The law of all states is based on English common law.

B) Not all states base their legal system on English common law.

C) The law and equity courts remain separate in most states today.

D) The laws of the 50 states are essentially similar.

Answer: B Diff: 2 Topic: International Law (The Civil Law System) 60) The state or states that do not base their legal system(s) on English Common Law is (are): A) Louisiana.

B) Louisiana and Hawaii.

C) Delaware and Louisiana.

D) Alaska and Hawaii.

Answer: A Diff: 1 Topic: International Law (The Civil Law System) 61) Which of the following is true about civil law systems?

A) Very few nations use civil law systems today.

B) Past court decisions are usually not a source of law in civil law systems.

C) Civil law systems do not rely on extensive written codes.

D) Civil law systems are found exclusively outside of Europe and North America.

Answer: B Diff: 2 Topic: International Law (The Civil Law System) 62) Influential Civil Codes include the following except: A) The French Civil Code of 1804.

B) The Roman Corpus Juris Civilis.

C) The Spanish Civil Code of 1592.

D) The German Civil Code of 1896.

Answer: C Diff: 2 Topic: International Law (The Civil Law System)

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63) In the United States, the supreme law of the land includes: A) The U.S. Constitution only.

B) The statutes passed by Congress only.

C) The U.S. Constitution and executive orders issued by the President.

D) The U.S. Constitution and treaties with foreign governments.

Answer: D Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 64) Which of the following sources of law ranks in priority with the U.S. Constitution?

A) State constitutions B) Federal statutes C) Court decisions on constitutional matters D) Treaties E) None of the above Answer: D Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 65) Which branch of government has the authority to determine the validity of a law?

A) Executive B) Administrative C) Judicial D) Legislative Answer: C Diff: 1 Topic: Sources of Law in the United States (Judicial Decisions) 66) Assume that there is a provision in the Colorado state constitution that is in conflict with a statute that was passed by the U.S. Congress and enacted into law. Which is true?

A) The Colorado constitutional provision will control; the federal statute is invalid.

B) The federal statute will control and make the state constitutional provision invalid.

C) In Colorado, the Colorado constitutional provision will control over the statute passed by Congress, but the federal statute will apply in the other 49 states.

D) Within Colorado, whichever was passed first will control over the other.

Answer: B Diff: 3 Topic: Sources of Law in the United States (Judicial Decisions)

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67) Which of the following statements is true about treaties?

A) Treaties are valid only if they do not conflict with a statute passed by Congress.

B) Treaties are valid only if they do not conflict with a statute passed by Congress or any of the state legislatures.

C) Treaties are the supreme law of the land, equal in priority with the U.S. Constitution.

D) Treaties are the supreme law of the land, and take priority over any inconsistent constitutional provision.

Answer: C Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 68) When statutes are organized by topic, the resulting compilation of law is known as: A) An ordinance.

B) Codified law.

C) Common law.

D) Civil law.

Answer: B Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 69) Ordinances are part of: A) Common law.

B) State law.

C) Federal law.

D) Administrative law.

Answer: B Diff: 1 Topic: Sources of Law in the United States (Judicial Decisions) 70) The term, "the fourth branch of government" has often been applied to: A) The Federal Trade Commission.

B) Microsoft Corporation.

C) Administrative agencies.

D) The Supreme Court.

E) The mayor's office in Washington, D.C. Answer: C Diff: 1 Topic: Sources of Law in the United States (Judicial Decisions) 71) Which of the following powers do administrative agencies typically have?

A) Rulemaking only.

B) Statute interpretation only.

C) Dispute adjudication only.

D) All of the above.

Answer: D Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 13 .

72) The United States prohibits the export of certain powerful encryption technology. This was accomplished by: A) The passing of a federal statute by Congress.

B) The President with the consent of Congress entering into treaties with countries that have a history of terrorist activities.

C) An administrative order of the Federal Trade Commission.

D) The President issuing an executive order.

Answer: D Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 73) The power of the president to issue executive orders: A) Is expressly provided for in the U.S. Constitution.

B) Was granted to the president in an early Supreme Court decision.

C) Is implied, but not expressly stated in the U.S. Constitution.

D) Subject to a two-thirds approval of the Senate.

Answer: C Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 74) Stare Decisis is the doctrine of: A) Separation of powers so that decisions are not made by a single branch of government.

B) Following precedent so that legal principles in earlier cases are followed in later cases.

C) Constitutional principles applied when making any decision.

D) Spending long periods of time looking at facts before making a decision.

Answer: B Diff: 3 Topic: Sources of Law in the United States (Judicial Decisions) 75) ________ rank as the highest state law.

A) State Constitutions B) The Constitution of the United States of America C) Codified state law D) Codified federal law Answer: A Diff: 2 Topic: Sources of Law in the United States (Priority of Law)

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76) John lives in a large city and wants to start an airport shuttle service. In order to do so, John must go through a complicated permit application and approval process. John believes that this process is in place in order to protect the persons already operating such services. John believes that these rules are arbitrary, and that he should be allowed to start his business based on notions of fairness. John's beliefs most closely correspond to which school of jurisprudence?

A) Critical Legal Studies B) Law and Economics C) Natural Law School D) Historical School Answer: A Diff: 2 Topic: Schools of Jurisprudential Thought 77) Barry owns a small software development firm. Barry has an employee who needs special accommodations in order to be able to perform the functions of his job. These accommodations would cost $10,000, an amount that Barry believes is more than he should have to spend. The Americans with Disabilities Act provides that an employer is required to make "reasonable accommodations" for employees with a disability, but does not define what constitutes a "reasonable accommodation." Assume that size of the employer (by some measure) determines the maximum amount of money that would be considered reasonable for a particular employer to be required to spend. Under the principles of stare decisis, which of the following is true?

A) If a similar-size employer had been required to spend $15,000 in the past, then Barry would be required to spend the $10,000.

B) If a similar-size employer had been required to spend $15,000 in the past, this would not be relevant in Barry's case because it happened in the past.

C) If a similar-size employer had not been required to spend $15,000 in the past, then Barry would not be required to spend $10,000.

D) If a similar-size employer had not been required to spend $15,000 in the past, then Barry would be required to spend $10,000.

Answer: A Diff: 3 Topic: Sources of Law in the United States (Judicial Decisions)

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78) A city ordinance requires that "cars stop for pedestrians in crosswalks," but does not provide a definition for a pedestrian. Dan Driver is cited for not stopping for someone crossing the crosswalk on a skateboard. The court determines that "pedestrian" as used in the ordinance includes persons on skateboards. Which is most likely true?

A) In all other statutes where the term pedestrian is used, it must be interpreted to include persons on skateboards.

B) In the future, this ordinance will be interpreted to include persons on skateboards within the definition of pedestrian.

C) Other judges in the future will be free to decide whether or not persons on skateboards are included within the definition of pedestrians in this ordinance.

D) The judge's decision would prevent the city from revising the ordinance to exclude persons on skateboards from the definition of pedestrians.

Answer: B Diff: 3 Topic: Sources of Law in the United States (Judicial Decisions) 79) A judge is deciding a copyright infringement case involving material distributed over the Internet. Assume that the only prior decision held that any distribution of material over the Internet was considered to be public broadcasting. The judge in the current case believes that this interpretation was erroneous. Which of the following is true about deciding the current case?

A) The judge must follow the precedent if it is applicable to the current case.

B) The judge is never obligated to follow precedent.

C) The judge can try to have the earlier decision overturned by a higher court, but must follow the earlier decision if the higher court does not overturn it.

D) The judge can choose not to follow the earlier precedent if the judge believes that it was erroneous.

Answer: D Diff: 2 Topic: Sources of Law in the United States (Judicial Decisions) 80) What are the good and bad aspects of relying on precedent to decide current cases? Give an example of precedent that either was not followed in the past, or should not be followed in the future. How much leeway do judges have in deciding whether to follow precedent? How much leeway should they have?

Answer: Precedent provides consistency in the law, but can lead to bad decisions when precedent becomes outdated or when the precedent-setting decision was wrong. See Brown v.

Board of Education.

Diff: 2 81) Administrative agencies have been called the fourth branch of government. How big a role do they play in the federal government today compared to when the Constitution was drafted? If there has been a change in their role, describe that change and the reasons for it. Should the role of administrative agencies be changed?

Answer: Administrative agencies today play a much bigger role than in the past due to the everincreasing complexity of society. For example, the Federal Communications Commission plays a major role today, but was unnecessary before the era of electronic communications.

Diff: 2 16 .

82) As the world becomes more internationally focused, the role of treaties in United States law becomes greater. Where do treaties fit in the hierarchy of sources of United States law? Should the United States try to make treaties play a larger or smaller role? How could this be accomplished?

Answer: Treaties, like the U.S. Constitution, are considered the supreme law of the land.

Whether the United States enters into more or fewer treaties is largely up to the President and the Senate through the confirmation process.

Diff: 2 83) Evaluate the Law and Economics School of jurisprudence. What are the benefits and drawbacks of using market efficiency in legal decision making?

Answer: An advantage is that decisions might lead to economically efficient allocation of resources. However, many considerations in lawsuits do not lend themselves to precise economic measurement. Furthermore, it might be improper to deny certain rights to specific individuals simply because the rights have a low measurable economic value.

Diff: 2 84) A number of the functions of the law can be viewed as being contradictory. For example, one function is to maintain the status quo, whereas another is to facilitate orderly change. What other functions could be in conflict with one another? How can the law simultaneously have seemingly inconsistent functions?

Answer: The law has the function to keep the peace, yet also to maximize individual freedom.

Likewise the function of shaping moral standards can conflict with maximizing individual freedom. There are other examples of conflicting functions. This is reasonable because although all are legitimate functions of the law, these functions will inevitably come into conflict in some circumstances. Thus, the law not only has these functions, but it must also determine which function takes precedence when there is a conflict. So, for example, the law can have the function of maximizing individual freedoms, but that can be limited by the separate function of keeping the peace.

Diff: 3 85) A body of rules of action or conduct prescribed by controlling authority, and having binding legal force is known as the ________.

Answer: Law 86) ________ postulates that law is based on what is "correct."

Answer: Natural Law 87) ________ is the law developed by judges who issue decisions when deciding a case.

Answer: Common law 88) The ________ School of jurisprudence states that promoting market efficiency should be the central goal of legal decision making.

Answer: Law and Economics

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89) The ________ is the supreme law of the land.

Answer: Constitution of the United States of America 90) Written law enacted by a legislature establishing certain required courses of conduct is known as a ________.

Answer: Statute 91) Administrative agencies adopt ________ to interpret statutes.

Answer: Rules and regulations 92) ________ is a rule of law established in a court decision that is followed by other courts in deciding similar cases.

Answer: Precedent 93) Other than the U.S. Constitution, ________ take precedence over federal regulations.

Answer: Federal statutes

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Chapter 2 Business Ethics and Social Responsibility 1) Law and ethics are essentially the same thing.

Answer: FALSE Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 2) Under ethical fundamentalism, a person looks to an inside source for ethical rules or commands.

Answer: FALSE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 3) Kantian Ethics focuses on the "greatest good to society."

Answer: FALSE Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 4) Kant believed that people owe moral duties based upon universal rules.

Answer: TRUE Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 5) Most philosophers adhere to ethical relativism as the most acceptable moral theory.

Answer: FALSE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 6) The traditional view of the social responsibility of business is that a business should not focus on maximizing profits for shareholders.

Answer: FALSE Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics)

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7) Under the theory of Moral Minimum, as long as business avoids or corrects the social injury it causes, it has met its duty of social responsibility.

Answer: TRUE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 8) The legislative and judicial branches of government has established laws that enforce the moral minimum of social responsibility on corporations.

Answer: TRUE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 9) Under the stakeholder interest theory, business must consider the effects of its actions on individuals and entities other than stakeholders.

Answer: TRUE Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 10) Corporate citizenship theory contends that corporations owe a duty to promote the same social goals as individual members of society.

Answer: TRUE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 11) The law establishes a minimum degree of conduct expected by persons and businesses in society.

Answer: TRUE Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 12) Utilitarian ethics can be encompassed in the statement, "Do unto others as you would have them do unto you."

Answer: FALSE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics)

20 .

13) A criticism of Kantian ethics is that it is difficult to reach consensus as to what the universal rules should be.

Answer: TRUE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 14) The leading proponent of social justice theory was Milton Friedman.

Answer: FALSE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 15) Under Rawl's social justice theory, the principle of equal opportunity in employment would be promulgated by people who would not yet know if they were in a favored class.

Answer: TRUE Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 16) Under Rawls's social justice theory, fairness is considered the essence of justice.

Answer: TRUE Diff: 1 Topic: Social Responsibility of Business 17) Rawls poposed that the most advantaged in society must receive special assistance to ensure that they will realize their potential.

Answer: FALSE Diff: 2 Topic: Social Responsibility of Business 18) Under the theory of ethical relativism, if a person meets his own moral standard of making a decision, no one can criticize him for it.

Answer: TRUE Diff: 2 Topic: Social Responsibility of Business 19) Ethical duties demand more than legal duties.

Answer: TRUE Diff: 2 Topic: Social Responsibility of Business 20) Utilitarian theory means that people must choose actions or follow rules that mean the greatest good for the greatest number of people.

Answer: FALSE Diff: 2 Topic: Social Responsibility of Business 21 .

21) A theory of ethics which says that a person looks to an outside source for ethical rules is: A) Utilitarianism B) Ethical fundamentalism C) Kantian ethics D) Ethical relativism Answer: B Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 22) A moral theory which dictates that people must choose the action of follow the rule that provides the greatest good to society is: A) Utilitariansim.

B) Ethical relativism.

C) Rawls's social justice theory.

D) Kantian ethics.

Answer: A Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 23) ________ is a moral theory which says that people owe moral duties that are based on universal rules, such as the categorical imperative "do unto others as you would have them do unto you."

A) Ethical relativism B) Kantian ethics C) Utilitarianism D) Ethical fundamentalism Answer: B Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 24) John Locke and Jean-Jacques Rousseau are associated with: A) Ethical fundamentalism.

B) Ethical relativism.

C) Utilitarianism.

D) Social contract theory.

Answer: D Diff: 3 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics)

22 .

25) Under ________, fairness is considered the essence of justice.

A) utlitarianism B) ethical fundamentalism C) Rawls's social justice theory D) Kantian ethics Answer: C Diff: 3 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 26) ________ is a moral theory which holds that individuals must decide what is ethical based on their own feelings about what is right and wrong.

A) Ethical fundamentalism B) Social justice theory C) Utilitarianism D) Ethical relativism Answer: D Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 27) ________ advocated the theory of maximizing profits for shareholders.

A) Milton Friedman B) John Rawls C) John Locke D) Immanuel Kant Answer: A Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 28) ________ is a theory of social responsibility which says that a corporation's duty is to make profit while avoiding causing harm to others.

A) Maximizing profits B) Ethical relativism C) Moral minimum D) Stakeholder interest theory Answer: C Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics)

23 .

29) ________ is a theory of social responsibility which says that a corporation must consider the effects its actions have on persons other than its stockholders.

A) Moral minimum B) Stakeholder interest theory C) Utilitarianism D) Maximizing profits Answer: B Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 30) Which of the following is an important principle of Kantian ethics?

A) Consistency B) Reversibility C) Fairness D) Both A and B Answer: D Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 31) ________ is a theory of responsibility which says that a business has a responsibility to do good.

A) Stakeholder interest theory B) Moral minimum C) Corporate citizenship theory D) Maximizing profits Answer: C Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 32) Which of the following is NOT a proper procedure when conducting a social audit?

A) The board of directors should review the results of the audit B) Findings should be reported directly to the company's board of directors C) Personnel should cooperate fully during the auditing process D) The audit should be conducted by in-house personnel Answer: D Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics)

24 .

33) ________ are a set of moral principles or values that governs the conduct of an individual or a group.

A) Laws B) Ethics C) Contracts D) Statutes Answer: B Diff: 3 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 34) A company that has paid multiple large judgments for violations of wage and hour laws based upon meal break violations is: A) The Bayer Corporation.

B) Papa John's.

C) Wal-Mart.

D) Pizza Hut. Answer: C Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 35) The False Claims Act is also known as: A) Sarbanes-Oxley Act. B) The Best Price Rule.

C) The Liar's Safe Harbor.

D) The Whistleblower Statute.

Answer: D Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 36) ________ is a moral theory with origins in the works of Jeremy Bentham and John Stuart.

A) Ethical fundamentalism B) Utilitarianism C) Ethical relativism D) Social justice theory Answer: B Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics)

25 .

37) Under ________, there are no universal rules to guide a person's conduct.

A) Ethical fundamentalism B) Utilitarianism C) Social justice theory D) Ethical relativism Answer: D Diff: 3 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 38) The case in which the company founder was sued by shareholders for introducing a plan to reduce prices of product to increase employment and affordability, was the case of: A) Wal-Mart Stores, Inc. v. S.C. (Savaglio).

B) Dodge v. Ford Motor Company.

C) Pizza Hut, Inc. v. Papa John's International, Inc. D) Wal-Mart Stores, Inc. v. Samara Brothers, Inc. Answer: B Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 39) In which case was the company accused of unlawfully knocking off another company's product design?

A) Wal-Mart Stores, Inc. v. S.C. (Savaglio) B) Pizza Hut, Inc. v. Papa John's International, Inc. C) Wal-Mart Stores, Inc. v. Samara Brothers, Inc. D) Dodge v. Ford Motor Company Answer: C Diff: 2 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics) 40) Section ________ of the Sarbanes-Oxley Act requires a public company to disclose whether it has adopted a code of ethics for senior financial officers.

A) 64 B) 46 C) 604 D) 406 Answer: D Diff: 1 Topic: Landmark Law (Sarbanes-Oxley Act Prompts Public Companies to Adopt Codes of Ethics)

26 .

41) Corporation Z has determined that it owes a duty to subsidize schools and assist in educating children. The company subscribes to which theory of social responsibility?

A) Corporate citizenship B) Maximizing profits C) Stakeholder interest theory D) Moral minimum Answer: A Diff: 3 Topic: Social Responsibility of Business 42) What are the key procedures that a company should institute when conducting a social audit?

Answer: 1. An independent outside firm should be hired to conduct the audit; 2. the company's personnel should cooperate fully with the auditing firm while the audit is being conducted; 3. the auditing firm should report its findings directly to the company's board of directors; 4. the board of directors should review the results of the audit.

Diff: 2 Topic: Social Responsibility of Business 43) What are the four main theories of social responsibility?

Answer: Maximizing profits (to maximize profits for shareholders); Moral minimum (to avoid causing harm and to compensate for harm caused); Stakeholder interest (To consider the interest of all stakeholders, including stockholders, employees, customers, suppliers, creditors, and the local community); Corporate citizenship (To do well and solve social problems).

Diff: 2 Topic: Social Responsibility of Business 44) ________ is a theory of ethics in which a person looks to an outside source or a central figure for ethical guidelines.

Answer: Ethical fundamentalism 45) ________ is a theory of ethics in which a person chooses the alternative that would provide the greatest good to society.

Answer: Utilitarianism 46) ________ is a theory of ethics in which individuals decide what is ethical based upon their own feelings as to what is right or wrong.

Answer: Ethical relativism 47) ________ is a set of moral principles or values that governs the conduct of an individual or a group.

Answer: Ethics 48) ________ is a theory of responsibility which says that a business has responsibility to do good.

Answer: Corporate citizenship theory

27 .

Chapter 3 Court Systems and Administrative Law 1) Federal courts have limited jurisdiction to hear only certain types of cases.

Answer: TRUE Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 2) Administrative law consists of both substantive and procedural law.

Answer: TRUE Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 3) Federal courts have unlimited jurisdiction Answer: FALSE Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 4) The United States Supreme Court has a full review of thousands of cases per year.

Answer: FALSE Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 5) To bring a lawsuit in federal court, there must be diversity of citizenship between plaintiff and defendant, and the amount in controversy must exceed $25,000.

Answer: FALSE Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 6) State and federal courts have concurrent jurisdiction to hear cases involving bankruptcy, patent and copyright cases.

Answer: FALSE Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 7) A forum-selection clause is a contract which specifies what state or country's law will be applied in deciding a dispute concerning a domestic or international contract.

Answer: FALSE Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts)

28 .

8) To bring a lawsuit, a plaintiff must have some stake in the outcome of the lawsuit.

Answer: TRUE Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 9) With in rem jurisdiction, a court may have jurisdiction to hear and decide a case because it has jurisdiction over the property of the lawsuit.

Answer: TRUE Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 10) Proper venue requires lawsuits to be heard by the court that has jurisdiction nearest the location in which the incident occurred or where the parties reside.

Answer: TRUE Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 11) Substantive law establishes the procedures that must be followed by an administrative agency.

Answer: FALSE Diff: 1 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 12) Administrative law judges issue decisions in the form of a writ of certiorari.

Answer: FALSE Diff: 2 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 13) Traffic courts, family law courts and juvenile courts are often referred to as superior trial courts.

Answer: FALSE Diff: 1 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 14) The decision of small-claims courts are often final, binding and non-appealable.

Answer: FALSE Diff: 1 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 15) Appellate courts generally review the trial record, as well as new evidence and testimony.

Answer: FALSE Diff: 2 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction

29 .

16) Federal district court judges are appointed for 10-year terms.

Answer: FALSE Diff: 2 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 17) Special federal courts established by Congress have limited jurisdiction.

Answer: TRUE Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 18) The U.S. Court of Federal Claims hears cases involving federal tax laws.

Answer: FALSE Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 19) There are 13 United States Federal District Courts.

Answer: FALSE Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 20) ________ are often referred to as courts of record because the testimony and evidence at trial are recorded and stored for future reference.

A) Special federal courts B) Intermediate appellate courts C) limited-jurisdiction trial courts D) general-jurisdiction trial courts Answer: D Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 21) Case brought against the United States are filed in: A) U.S. Tax Court.

B) U.S. Court of Federal Claims.

C) U.S. Court of International Trade.

D) U.S. Bankruptcy Court.

Answer: B Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts)

30 .

22) There are ________ circuits in the federal court system.

A) 6 B) 9 C) 11 D) 13 Answer: D Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 23) The Court of Appeals for the Federal Circuit is located in: A) New York, NY. B) Washington, D.C. C) Philadelphia, PA. D) San Francisco, CA. Answer: B Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 24) The United States Supreme Court issues approximately ________ opinions each year.

A) 50 B) 75 C) 100 D) 150 Answer: C Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 25) In a ________ decision, the majority of justices agree as to the outcome of the case but not as to the reasoning for reaching the outcome.

A) unanimous B) majority C) plurality D) tie Answer: C Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 26) With ________, a court has jurisdiction over the parties to the lawsuit.

A) in rem jurisdiction B) in personam jurisdiction C) quasi in rem jurisdiction D) sua sponte Answer: B Diff: 2 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction

31 .

27) With ________, a court has jurisdiction to hear and decide a case because it has jurisdiction over the property at issue in the lawsuit.

A) in rem jurisdiction B) quasi in rem jurisdiction C) in personam jurisdiction D) sua sponte Answer: A Diff: 2 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 28) With ________, a plaintiff who obtains a judgement against a defendant in one state may utilize the court system of another state to attach property of the defendant's that is located in the second state.

A) sua sponte B) in personam jurisdiction C) in rem jurisdiction D) quasi in rem jurisdiction Answer: D Diff: 2 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 29) Which of the following is NOT a requirement to trigger a state's long-arm statute?

A) The non-resident committed a tort within the state.

B) The non-resident was served a summons within the state.

C) The non-resident entered into a contract either in the state or that affects the state.

D) The non-resident transacted business in the state that allegedly caused injury to a person.

Answer: B Diff: 1 Topic: In Personam, In Rem, and Quasi In Rem Jurisdiction 30) ________ administrative agencies include zoning boards, school districts and sewage districts.

A) International B) Federal C) State D) Local Answer: D Diff: 3 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts)

32 .

31) The power of administrative agencies to issue substantive rules falls under which power?

A) Licensing B) Executive power C) Judicial authority D) Rule-making Answer: D Diff: 3 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 32) The power of administrative agencies to investigate and prosecute possible violations of statues and rules falls under which power?

A) Rule-making B) Judicial authority C) Executive power D) Licensing Answer: C Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 33) When the Occupational Safety and Health Administration (OSHA) brings an agency proceeding against an employer for violating worker safety rules, it is based upon which type of administrative power?

A) Licensing B) Executive power C) Judicial authority D) Rule-making Answer: C Diff: 3 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 34) The majority of corporations listed on the New York Stock Exchange are incorporated in the state of: A) New York.

B) Illinois.

C) California.

D) Delaware.

Answer: D Diff: 3 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts)

33 .

35) Which of the following is NOT a special appellate jurisdiction of the Court of Appeals for the Federal Circuit?

A) The Court of Federal Claims B) The Patent and Trademark Office C) The Court of International Trade D) The Court of Anti-Terrorism and Un-American Activities Answer: D Diff: 3 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 36) Briefly describe the special federal courts of limited jurisdiction that have been established

by Congress.

Answer: U.S. Tax Court (hears cases involving federal tax law); U.S. Court of Federal Claims (hears cases brought against the United States); U.S. Court of International Trade (hears appeals of rulings of the U.S. Customs offices that involve tariffs and international commercial disputes); U.S. Bankruptcy Court (hears cases that involve federal bankruptcy laws).

Diff: 2 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 37) Briefly explain how a person can obtain proper jurisdiction in federal court.

Answer: Jurisdiction in federal court can be obtained by either a federal question or diversity of citizenship. A federal question involves a case arising from the U.S. Constitution, treaties, and federal statutes and regulations. There is no dollar amount limit on federal question cases.

Diversity of citizenship occurs if a lawsuit involves 1) citizens of different states, or 2) a citizen of a state and a citizen or subject of a foreign country. In a diversity of citizenship case, the amount in controversy must exceed $75,000.

Diff: 1 Topic: Subject Matter Jurisdiction (Jurisdiction of Federal Courts) 38) A court that hears matters of a specialized or limited nature is called a ________.

Answer: limited-jurisdiction trial court 39) A court that hears civil cases involving small dollar amounts is called a ________.

Answer: small claims court 40) The federal court system's trial courts of general jurisdiction are called ________.

Answer: U.S. District Courts 41) The highest court in the United States, and located in Washington, D.C., is called the ________.

Answer: U.S. Supreme Court 42) A ________ is an official notice that the Supreme Court will review a case.

Answer: writ of certiorari

34 .

43) If all of the justices voting agree as to the outcome and reasoning used to decide a case, it is a ________.

Answer: unanimous opinion 44) A justice who does NOT agree with a decision can file a ________, that sets forth his or her reasons.

Answer: dissenting opinion 45) Jurisdiction held by only one court is called ________.

Answer: exclusive jurisdiction 46) Jurisdiction shared by two or more courts is called ________.

Answer: concurrent jurisdiction 47) ________ is a contract provision that designates a certain court to hear any dispute concerning nonperformance of the contract.

Answer: forum-selection clause 48) ________ is a provision that designates a certain state's law or country's law that will be applied in any dispute concerning nonperformance of the contract.

Answer: Choice-of-law clause

35 .

Chapter 4 Alternative, Judicial, and E-Dispute Resolution 1) A court order directing the defendant to appear in court and answer a complaint is called an answer.

Answer: FALSE Diff: 1 Topic: Pleadings 2) The party who files the complaint if called the plaintiff.

Answer: TRUE Diff: 1 Topic: Pleadings 3) If a defendant fails to answer a complaint, a default judgment can be entered against him.

Answer: TRUE Diff: 1 Topic: Pleadings 4) A reply is a document filed by a defendant against the plaintiff to seek damages or some other remedies.

Answer: FALSE Diff: 1 Topic: Pleadings 5) Intervention is the act of others joining as parties to an existing lawsuit.

Answer: TRUE Diff: 1 Topic: Pleadings 6) Consolidation is the act of a court to combine two or more separate lawsuits into one lawsuit.

Answer: TRUE Diff: 2 Topic: Pleadings 7) If a commercial airplane crashes, killing and injuring many people, a court may consolidate all the lawsuits against the defendant's airplane company.

Answer: TRUE Diff: 1 Topic: Pleadings

36 .

8) Interrogatories consist of oral testimony given by a party or witness prior to trial.

Answer: FALSE Diff: 1 Topic: Discovery 9) A court can order a party to submit to physical or mental examinations to determine the extent of alleged injuries.

Answer: TRUE Diff: 1 Topic: Discovery 10) A motion which alleges that if all of the facts presented in the pleadings are taken as true, the party making the motion would win the lawsuit when the proper law is applied to the asserted facts, is called a motion for summary judgment.

Answer: FALSE Diff: 3 Topic: Dismissals and Pretrial Judgments 11) A settlement conference is also called a pretrial conference.

Answer: TRUE Diff: 1 Topic: Settlement Conference 12) The Fourth Amendment of the U.S. Constitution guarantees a right to a jury trial in a case in federal court.

Answer: FALSE Diff: 3 Topic: Trial 13) Voir dire is a process whereby prospective jurors are asked questions by a judge or attorneys to determine whether they would be biased in their decision.

Answer: TRUE Diff: 1 Topic: Trial 14) The party responding to an appeal is known as the appellant.

Answer: FALSE Diff: 1 Topic: Appeal 15) An appellate court will reverse a lower court decision if it finds an error lf law in the record.

Answer: TRUE Diff: 2 Topic: Appeal

37 .

16) Mediation is a form of alternative dispute resolution in which the parties choose an impartial third party to hear and decide the dispute.

Answer: FALSE Diff: 1 Topic: Alternative Dispute Resolution (ADR) 17) The Federal Arbitration Act was originally enacted to reverse the long-standing judicial hostility to arbitration agreements that had existed at English common law and had been adopted

by U.S. courts.

Answer: TRUE Diff: 3 Topic: Landmark Law (Federal Arbitration Act) 18) Conciliation is a form of mediation in which the parties choose an interested third party to act as the mediator of a dispute.

Answer: TRUE Diff: 2 Topic: Alternative Dispute Resolution (ADR) 19) If the parties agree, the court may appoint a judicial referee to conduct a private trial and render a judgment.

Answer: TRUE Diff: 2 Topic: Alternative Dispute Resolution (ADR) 20) A reply is a court order directing the defendant to appear in court and answer the complaint.

Answer: FALSE Diff: 1 Topic: Pleadings 21) The ________ is the defendant's written response to a plaintiff's complaint that is filed with the court and served on the plaintiff.

A) answer B) reply C) cross-complaint D) summons Answer: A Diff: 1 Topic: Pleadings

38 .

22) The ________ is the party who files a complaint.

A) plaintiff B) defendant C) respondent D) appellant Answer: A Diff: 1 Topic: Pleadings 23) If a defendant does NOT answer the complaint, a ________ is entered against him.

A) summons B) default judgment C) reply D) motion for summary judgment Answer: B Diff: 2 Topic: Pleadings 24) When a(n) ________ is filed, the defendant now becomes the plaintiff.

A) reply B) appeal C) cross-complaint D) complaint Answer: C Diff: 1 Topic: Pleadings 25) ________ is the act of others joining as parties to an existing lawsuit.

A) Voir Dire B) Discovery C) Consolidation D) Intervention Answer: D Diff: 2 Topic: Pleadings 26) ________ is the act of a court in combining two or more separate lawsuits into one lawsuit.

A) Voir dire B) Discovery C) Consolidation D) Intervention Answer: C Diff: 2 Topic: Pleadings

39 .

27) The ________ establishes the time period during which a plaintiff must bring a lawsuit against a defendant.

A) pre-trial conference B) statute of limitations C) voir dire D) pretrial motions Answer: B Diff: 2 Topic: Pleadings 28) A(n) ________ is oral testimony given by a party or witness prior to trial.

A) deposition B) interrogatory C) production of documents D) mental examination Answer: A Diff: 1 Topic: Discovery 29) A(n) ________ is a written question submitted by one party to another party.

A) deposition B) interrogatory C) production of documents D) mental examination Answer: B Diff: 1 Topic: Discovery 30) A motion which asserts that there are no factual disputes to be decided by the jury and the judge can apply the proper law to the undisputed facts and decide the case without a jury, is called: A) a motion for summary judgment.

B) a motion for judgment on the pleadings.

C) a judgment notwithstanding the verdict.

D) an entry of judgment.

Answer: A Diff: 2 Topic: Dismissals and Pretrial Judgments

40 .

31) Pursuant to the ________ of the U.S. Constitution, a party to an action at law is guaranteed the right to a jury trial in a case in federal court.

A) Fourth Amendment B) Fifth Amendment C) Seventh Amendment D) Eighth Amendment Answer: C Diff: 2 Topic: Trial 32) If a judge reduces the amount of monetary damages awarded by the jury due to the fact that the jury was biased, emotional or inflamed, it is called: A) voir dire.

B) additur.

C) remittitur.

D) rejoinder.

Answer: C Diff: 2 Topic: Trial 33) The ________ is the appealing party in an appeal.

A) appellant B) appellee C) respondent D) defendant Answer: A Diff: 2 Topic: Appeal 34) The ________ is the responding party in an appeal.

A) appellant B) petitioner C) appellee D) defendant Answer: C Diff: 2 Topic: Appeal 35) ________ is a form of alternative dispute resolution in which the parties choose an impartial third party to hear and decide the dispute.

A) A fact-finding investigation B) Conciliation C) Mediation D) Arbitration Answer: D Diff: 2 Topic: Alternative Dispute Resolution (ADR) 41 .

36) ________ is a form of alternative dispute resolution in which the parties choose a neutral third party assists the disputing parties in reaching a settlement of their dispute.

A) A mini-trial B) Conciliation C) Mediation D) Arbitration Answer: C Diff: 2 Topic: Alternative Dispute Resolution (ADR) 37) ________ is a form of mediation in which the parties choose an interested third party to act as the mediator of a dispute.

A) A mini-trial B) Conciliation C) Mediation D) Arbitration Answer: B Diff: 2 38) Which of the following is NOT a major phase of the pre-trial litigation process?

A) The appeal B) Dismissals C) Discovery D) Settlement conferences Answer: A Diff: 2 Topic: Pre-Trial Litigation Process 39) What are the major pleadings filed in a typical lawsuit?

Answer: Complaint (a document filed by a plaintiff with a court and served with a summons on a defendant); Answer (A document filed by a defendant denying the allegations, which is served on the plaintiff); Cross-complaint (defendant sues the plaintiff); Reply (the plaintiff's answer to the cross-complaint). Intervention and consolidation may also be included in the answer.

Diff: 2 Topic: Pleadings 40) Briefly discuss the discovery process.

Answer: Depositions (oral testimony under oath); Interrogatories (written questions answered under oath); Production of documents (the party may have to produce all documents to be used at trial or relevant to the case); Physical or mental examination (a court-ordered examination of a party to a lawsuit to determine the extent of the alleged injuries).

Diff: 2 Topic: Discovery

42 .

41) Briefly discuss the main phases of the trial process.

Answer: Opening statements (burden on plaintiff); Plaintiff's case (direct examination, crossexamination, and re-direct examination); Defendant's case; Rebuttal and joinder; Closing arguments.

Diff: 2 Topic: Trial 42) The process of bringing, maintaining and defending a lawsuit is known as ________.

Answer: litigation Diff: 2 43) The ________ is a court order directing the defendant to appear in court and answer the complaint.

Answer: summons Diff: 2 44) The ________ is the defendant's written response to a plaintiff's complaint.

Answer: answer Diff: 2 45) If a defendant does NOT answer the complaint, a ________ is entered against him.

Answer: default judgment Diff: 2 46) A ________ is a document filed by an original plaintiff to answer the defendant's crosscomplaint.

Answer: reply Diff: 2 47) ________ is the act of others joining as parties to an existing lawsuit.

Answer: Intervention Diff: 2 48) The ________ establishes the period during which a plaintiff must bring a lawsuit against a defendant.

Answer: statute of limitations Diff: 2 49) ________ is a legal process during which each party engages in various activities to discover facts of the case from the other party and witnesses prior to trial.

Answer: Discovery Diff: 2 50) ________ is a process whereby prospective jurors are asked questions by a judge and attorneys to determine whether they would be biased in their decision.

Answer: Voir dire Diff: 2 43 .

Chapter 5 Constitutional Law for Business and E-Commerce 1) The U.S. Constitution was written more than ten years after the United States declared independence in 1776.

Answer: TRUE Diff: 2 Topic: The Constitution of the United States of America 2) One of the major functions of the U.S. Constitution is to limit the government's ability to interfere with individual rights.

Answer: TRUE Diff: 1 Topic: The Constitution of the United States of America 3) The concept of federalism is that the central government holds most of the governmental power.

Answer: FALSE Diff: 2 Topic: The Constitution of the United States of America 4) Enumerated powers consist of powers delegated to the federal government by the states.

Answer: TRUE Diff: 1 Topic: The Constitution of the United States of America 5) Any powers that are not specifically delegated to the federal government by the Constitution are reserved to the state governments.

Answer: TRUE Diff: 1 Topic: The Constitution of the United States of America 6) The existence of the Electoral College means that the president is not elected by the popular vote.

Answer: TRUE Diff: 1 Topic: The Constitution of the United States of America 7) The judicial branch has authority to examine the constitutionality of actions by the legislative branch, but not the actions by the executive branch.

Answer: FALSE Diff: 1 Topic: The Constitution of the United States of America 44 .

8) The legislative branch can enter into treaties with foreign governments.

Answer: FALSE Diff: 2 Topic: The Constitution of the United States of America 9) The preemption doctrine holds that the Supreme Court has the power to preempt statutes passed by Congress if they violate the U.S. Constitution.

Answer: FALSE Diff: 2 Topic: Supremacy Clause 10) The Supremacy Clause establishes the doctrine that whenever Congress passes a statute regulating a particular activity, the federal government has exclusive jurisdiction to regulate that activity.

Answer: FALSE Diff: 1 Topic: Supremacy Clause 11) Federal administrative regulations take precedence over state constitutions.

Answer: TRUE Diff: 2 Topic: Supremacy Clause 12) The Commerce Clause of the U.S. Constitution gives Congress the power to regulate interstate commerce, as well as commerce with foreign nations and with Indian tribes.

Answer: TRUE Diff: 2 Topic: Constitution of the United States of America 13) The Supremacy Clause has greater impact on business than does any other provision in the Constitution.

Answer: FALSE Diff: 1 Topic: Constitution of the United States of America 14) The executive branch is the part of the U.S. government that consists of the president and vice-president.

Answer: TRUE Diff: 1 Topic: Constitution of the United States of America 15) Article II of the Constitution establishes the judicial branch.

Answer: FALSE Diff: 2 Topic: Constitution of the United States of America

45 .

16) Congress has the authority to regulate an activity that does not itself involve interstate commerce if the activity does have an effect on interstate commerce.

Answer: TRUE Diff: 2 Topic: Commerce Clause 17) The police power of a state does not give the state any general authority to regulate business.

Answer: FALSE Diff: 1 Topic: Commerce Clause 18) A state can regulate in areas affecting interstate commerce where the federal government has chosen not to regulate if the state law does not place an undue burden on interstate commerce.

Answer: TRUE Diff: 2 Topic: Commerce Clause 19) Intrusive actions by state and local governments were limited by the Due Process Clause of the Fifth Amendment.

Answer: FALSE Diff: 1 Topic: Bill of Rights 20) The Bill of Rights is another name for the 27 amendments that have been added to the U.S. Constitution.

Answer: FALSE Diff: 2 Topic: Bill of Rights 21) Since their creation, the protections in the Bill of Rights have generally been applicable to state and local governments as well as to the federal government.

Answer: FALSE Diff: 1 Topic: Bill of Rights 22) The First Amendment protects only actual spoken or written speech, but not symbolic speech.

Answer: FALSE Diff: 1 Topic: Freedom of Speech 23) Commercial speech, because it generally involves speech attempting merely to sell products or services, is generally not protected under the U.S. Constitution.

Answer: FALSE Diff: 2 Topic: Freedom of Speech 46 .

24) Offensive speech is generally considered to be unprotected speech.

Answer: FALSE Diff: 2 Topic: Freedom of Speech 25) States are free to define what constitutes obscene speech.

Answer: TRUE Diff: 2 Topic: Freedom of Speech 26) The establishment clause of the U.S. Constitution allows the federal government to establish which religions are entitled to protection, but does not allow the government to require participation in any one religion.

Answer: FALSE Diff: 2 Topic: Freedom of Religion 27) The Supreme Court ruled that an Alabama statue that authorized a one-minute period of silence in school for mediation and voluntary prayer was a valid exercise of state's rights and did not violate the Establishment Clause.

Answer: FALSE Diff: 2 Topic: Freedom of Religion 28) The Equal Protection Clause generally requires that similarly situated persons be treated similarly by the government.

Answer: TRUE Diff: 2 Topic: Equal Protection Clause 29) The level of scrutiny in equal protection cases refers to the severity of the penalty imposed for violations of the Equal Protection Clause.

Answer: FALSE Diff: 2 Topic: Equal Protection Clause 30) Procedural due process prevents the government from taking an individual's property against the individual's will.

Answer: FALSE Diff: 2 Topic: Due Process Clauses 31) The privileges and immunities clause protects individuals, but not corporations.

Answer: TRUE Diff: 2 Topic: Privileges and Immunities Clause 47 .

32) Since declaring independence, the U.S. Constitution is the ________ document to set out the general operations of the government.

A) first B) second C) third D) fourth Answer: B Diff: 2 Topic: Constitution of the United States of America 33) In what year was the U.S. Constitution written?

A) 1765 B) 1776 C) 1782 D) 1787 Answer: D Diff: 1 Topic: Constitution of the United States of America 34) The Bill of Rights is another name for: A) The Articles of Confederation.

B) The U.S. Constitution.

C) The document that explains the U.S. Constitution.

D) The first ten amendments to the U.S. Constitution.

Answer: D Diff: 1 Topic: Bill of Rights 35) Two of the main functions of the U.S. Constitution are to: A) Create the three branches of government and create the individual states.

B) Create the three branches of government and promote a strong economy.

C) Protect individual rights and establish the Electoral College.

D) Create the three branches of government and protect individual rights.

Answer: D Diff: 2 Topic: Constitution of the United States of America 36) Powers that are NOT delegated in the U.S. Constitution: A) Are held both by the states and by the federal government.

B) Are reserved to the states.

C) Are reserved to the federal government.

D) Can be delegated by the U.S. Supreme Court to either the states or the federal government.

Answer: B Diff: 2 Topic: Constitution of the United States of America

48 .

37) The judicial branch of the federal government has the authority to examine the acts of: A) The executive branch.

B) The legislative branch.

C) Both the executive and legislative branch.

D) Neither the executive nor the legislative branch under any circumstances.

Answer: C Diff: 1 Topic: Constitution of the United States of America 38) In order to enter into a treaty with a foreign nation, the executive branch needs: A) No further approval.

B) The approval of the Senate.

C) The approval of the House of Representatives.

D) The approval of the Senate and the House of Representatives.

Answer: B Diff: 1 Topic: Constitution of the United States of America 39) Under the Supremacy Clause of the U.S. Constitution, when Congress chooses to regulate in an area: A) It will automatically have exclusive jurisdiction to regulate in that area.

B) States will always remain able to freely regulate in that area.

C) States will always be able to regulate in that area so long as the state law does not directly and substantially conflict with the federal law.

D) Whether the state has any authority to regulate in the area will depend on whether Congress provides that the federal government has exclusive authority to regulate in that area.

Answer: D Diff: 2 Topic: Supremacy Clause 40) Which of the following would take precedence over a state constitution under the Supremacy Clause of the U.S. Constitution?

A) The U.S. Constitution only B) The U.S. Constitution and treaties with foreign nations C) The U.S. Constitution and federal statutes D) The U.S. Constitution, federal statutes, federal regulations, and treaties with foreign nations Answer: D Diff: 2 Topic: Supremacy Clause

49 .

41) The Commerce Clause gives the federal government the power to regulate commerce that: A) Actually crosses state lines only.

B) Affects interstate commerce or is conducted with foreign nations or Indian tribes.

C) The states have chosen not to regulate.

D) Involves at least one business domiciled in the United States.

Answer: B Diff: 2 Topic: Commerce Clause 42) Which of the following is true?

A) Because of the commerce clause, states do not have any power to regulate commerce.

B) In order for the federal government to have power to regulate commerce, the commerce in question must actually cross state lines.

C) The states' police power gives states the power to regulate intrastate and much interstate business within their borders.

D) Although a state cannot regulate interstate commerce within its borders, it has full power to prevent interstate business activities within its borders.

Answer: C Diff: 3 Topic: Commerce Clause 43) Under what circumstances can a state impose a tax on goods that are imported from other nations?

A) In any circumstance B) If the tax does not conflict with any valid federal law C) If the amount of the tax is reasonable D) If the tax also applies equally to the same type(s) of goods produced domestically Answer: D Diff: 3 Topic: Commerce Clause 44) What is the result of the "effects of interstate commerce test"?

A) The federal government can regulate all interstate commerce that actually crosses state lines.

B) Prior to enacting laws, states are required to identify any effects that the law might have on interstate commerce.

C) The federal government can regulate a business activity that takes place within a single state if the activity has an effect on interstate commerce even though the regulated activity does not itself involve interstate commerce.

D) Commercial speech protections apply only to speech that has an effect on interstate commerce.

Answer: C Diff: 3 Topic: Commerce Clause

50 .

45) If there is an area of interstate commerce that the federal government has chosen NOT to regulate, the states can: A) Regulate without restriction in that area.

B) Regulate in that area so long as the state law does not unduly burden interstate commerce.

C) Regulate in that area so long as it first gets the requisite approval from Congress.

D) Not regulate in that area because states cannot pass laws affecting interstate commerce.

Answer: B Diff: 3 Topic: Commerce Clause 46) The protections in the Bill of Rights apply to: A) The federal government only.

B) The state governments only.

C) The federal, state and local governments, as well as their agencies.

D) The legislative and executive branches of the federal government, and not to state and local governments.

Answer: C Diff: 2 Topic: Bill of Rights 47) Under the Fourteenth Amendment of the U.S. Constitution: A) Prohibition was established.

B) The power to regulate interstate commerce was granted to Congress.

C) Congress was given the power to put reasonable restrictions on commercial speech.

D) The protections in the Bill of Rights were specifically made applicable to state governments.

Answer: D Diff: 2 Topic: Bill of Rights 48) What is the Bill of Rights?

A) A listing of all the constitutional rights granted to individuals.

B) Another name for the U.S. Constitution.

C) Another name for all of the amendments to the U.S. Constitution.

D) Another name for the first ten amendments to the U.S. Constitution.

Answer: D Diff: 1 Topic: Bill of Rights 49) Do the protections in the Bill of Rights apply to corporations?

A) Yes, in all instances.

B) Yes, in most, but not all, instances.

C) Only in those instances where Congress has specifically stated that they do apply.

D) Only where it would cause an undue burden on the corporation if they did not apply.

Answer: B Diff: 2 Topic: Bill of Rights 51 .

50) In relation to freedom of speech: A) All speech receives the same degree of Constitutional protection.

B) Some speech is not protected.

C) Commercial speech receives no protection due to its profit motive.

D) Most speech critical of the government can be restricted because such speech can be destabilizing.

Answer: B Diff: 3 Topic: Freedom of Speech 51) With respect to commercial speech, the government can: A) Not regulate because commercial speech is fully protected.

B) Subject it to time, place or manner restrictions, but not prevent it.

C) Restrict or prevent it, so long as the speech does not have political content.

D) Prevent it if the Congress and the President agree.

Answer: B Diff: 2 Topic: Freedom of Speech 52) Which of the following is true regarding obscene speech?

A) It cannot be prevented, but can be subject to time, place or manner restrictions.

B) Because the definition of obscene is so subjective, it cannot be restricted or prevented.

C) Even though the definition of obscene speech is subjective, if speech is determined to be obscene, it loses all constitutional protection.

D) Obscene speech and offensive speech receive the same degree of protection.

Answer: C Diff: 2 Topic: Freedom of Speech 53) Which of the following is considered to be fully protected speech under the U.S. Constitution?

A) Political speech only.

B) Political speech and commercial speech.

C) Offensive speech and commercial speech.

D) Commercial speech only.

Answer: A Diff: 1 Topic: Freedom of Speech 54) Which of the following receives at least some protection under the U.S. Constitution?

A) Political speech only.

B) Political speech and commercial speech.

C) Offensive speech and commercial speech.

D) Political speech, commercial speech and offensive speech.

Answer: D Diff: 1 Topic: Freedom of Speech 52 .

55) Which of the following receives at least some protection under the U.S. Constitution?

A) Obscene speech.

B) Offensive speech.

C) Both obscene speech and offensive speech.

D) Neither obscene speech nor offensive speech.

Answer: B Diff: 2 Topic: Freedom of Speech 56) Freedom of religion under the U.S. Constitution: A) Consists of the Establishment Clause as well as the Free Exercise Clause.

B) Applies only to those religions in existence on the date the Constitution became effective.

C) Gives practitioners absolute rights to take part in actions that are religious-based.

D) Allows the government to establish an official religion or religions so long as citizens remain free to practice any other religion they choose.

Answer: A Diff: 2 Topic: Freedom of Religion 57) All of the following are provisions of the Fourteenth Amendment except: A) The Equal Protection Clause.

B) The Privileges and Immunities Clause.

C) The Free Exercise Clause.

D) The Due Process Clause.

Answer: C Diff: 2 Topic: Equal Protection Clause; Due Process Clause 58) The Equal Protection Clause: A) Applies only to state and local governments.

B) Applies only to distinctions based on race.

C) Is applied more rigorously to distinctions based on gender than to ones based on race.

D) Is applied with three levels of scrutiny depending on the challenged distinction.

Answer: D Diff: 3 Topic: Equal Protection Clause 59) An equal protection challenge to a statute that treats adults of different ages differently would be decided under: A) Intermediate scrutiny.

B) Majority scrutiny.

C) Strict scrutiny.

D) Rational basis.

Answer: A Diff: 1 Topic: Equal Protection Clause 53 .

60) Strict scrutiny is: A) Applied by the courts in freedom of speech cases relating to political speech.

B) How the courts evaluate the permissibility of a race-based distinction in a statute.

C) The way that the courts view precedent when deciding a case.

D) How the federal courts review state laws.

Answer: B Diff: 2 Topic: Equal Protection Clause 61) Substantive due process requires that: A) A notice and hearing be given before one is deprived of life, liberty or property.

B) A criminal defendant has an attorney present at all times.

C) A law treat all persons the same.

D) A law is sufficiently clear that a reasonable person can understand it in order to comply with it.

Answer: D Diff: 2 Topic: Due Process Clauses 62) The privileges and immunities clause provides that: A) It is a privilege to be granted immunity from a criminal prosecution.

B) States must generally treat nonresidents as favorably as residents.

C) Corporations receive most of the same constitutional protections as individuals.

D) The government is not subject to being sued unless the constitutional matter is a right rather than a privilege.

Answer: B Diff: 1 Topic: Privileges and Immunities Clause 63) The privileges and immunities clause protects: A) Individuals.

B) Corporations.

C) Both individuals and corporations.

D) Neither individuals nor corporations.

Answer: A Diff: 1 Topic: Privileges and Immunities Clause

54 .

64) There are extensive federal regulations covering airplanes and pilots. Assume that the state of Missouri passes a statute containing numerous requirements, some conflicting with the federal rules that cover the licensing of airplane pilots and the operation of aircraft. A pilot's constitutional challenge to this statute would most likely succeed on the basis of: A) The preemption doctrine.

B) The Equal Protection Clause.

C) Substantive due process.

D) The state police power.

Answer: A Diff: 2 Topic: Supremacy Clause 65) Assume that the state of Iowa mandates higher life insurance rates for men than women. In evaluating the constitutionality of this, a court would apply: A) Strict scrutiny.

B) Intermediate scrutiny.

C) Limited scrutiny.

D) The rational basis test.

Answer: B Diff: 2 Topic: Equal Protection Clause 66) Assume that a federal regulation is imposed that requires bike manufacturers to disclose the weight of the largest frame size, fully equipped for riding, any time it advertises the weight of its bikes. If this requirement were challenged under freedom of speech, most likely: A) It would be found to be an acceptable regulation of commercial speech.

B) It would be found to be an unacceptable prohibition of commercial speech.

C) The court would not consider the case because this advertising is not political speech.

D) The court would evaluate the restriction using strict scrutiny.

Answer: A Diff: 2 Topic: Freedom of Speech 67) Assume that the state of Colorado institutes a law requiring that persons from outside the state of Colorado take a skiing exam and obtain a skiing license before being allowed to ski at a downhill resort on runs other than the beginner runs. The fee for this license is $75. Colorado residents are not required to get a license because most resident skiers properly learn to ski at an early age. This statute could be challenged under: A) The Equal Protection Clause.

B) The Privileges and Immunities Clause.

C) The Interstate Commerce Clause.

D) A, B and C. Answer: D Diff: 3 Topic: Equal Protection Clause, Privileges and Immunities Clause

55 .

68) The United States Constitution has been amended only 27 times in a period of more than 210 years. Why has the Constitution been amended so few times? Is this good or bad? Under what circumstances should the Constitution be amended? What amendments do you think should be made?

Answer: The common explanation for the small number of amendments is that the U.S. Constitution is very general in nature.

Diff: 1 69) To what extent should "speech" over the Internet be regulated? Should the Internet be treated like television, or should different standards apply? Give reasons for your positions.

Answer: There are many opinions possible on this issue. Compared to regulating broadcast media, the Internet raises many additional issues. For example, unlike television, the Internet can be used for two-way communications. Furthermore, communications on the Internet cannot only be aimed at a mass market, but can be directed to a focused group or single individual. Perhaps different rules, if any, should apply to these individualized communications. On the other hand, it is less likely for someone to be accidentally exposed to material on the Internet than on television.

Diff: 2 70) Assume that Wisconsin wants to provide home purchasing assistance to divorced women who have children. The state passes a statute that grants a $1,500 state income tax credit to any woman who, at the time of purchasing the home, has been a resident of Wisconsin for at least five years and is divorced, with the divorce becoming final within the five years before purchasing the home. In addition, the woman must have at least one child living with her who is 16 years of age or under. Discuss the constitutional challenges that could be made to the statute.

Answer: There are numerous equal protection challenges that could be made. The gender distinction granting the credit to women, but not men, would be decided using intermediate scrutiny. Other equal protection challenges would be based on the statute's requirements for length of residency, time since divorce, the number of the woman's children. Furthermore, the statute might need a clearer definition of what constitutes a child "living with" the woman, given the various situations of shared custody.

Diff: 3 Topic: Equal Protection Clause; Due Process Clause

56 .

71) Assume that there are numerous Internet service providers in a large city. Because of fierce competition, these businesses advertise heavily. One of the features that some of them provide and advertise is streamlined access to pornography sites as well as access to proprietary pornography sites that can be reached only by those who subscribe with that particular service provider. This city passes an ordinance that prohibits any advertising of access to pornography over the Internet. One of the service providers challenges the constitutionality of this statute.

Discuss how the case would turn out.

Answer: The most likely challenge would be on the basis of freedom of speech. The speech in question is commercial speech. Commercial speech can be subjected to reasonable time, place, and manner restrictions, but cannot be prohibited. This ordinance is probably an impermissible prohibition of this advertising. Note that the speech in question is the advertising of the access to the pornography, not the pornography itself. Assuming that accessing the pornography is legal, the city is limited in how it can restrict the advertising. Also note that not all pornography is considered to be unprotected obscene speech. The city would have much greater latitude in regulating advertising of an illegal activity, such as child pornography.

Diff: 2 Topic: Freedom of Speech 72) In some states, car dealers cannot conduct business on Sunday. If a car dealer were to challenge the constitutionality of this statute, on what would the challenge be based, and how would the court approach the issue?

Answer: This would most likely be brought as an equal protection challenge because car dealers are being treated differently than most other businesses. Because the classification is the type of business (and thus not race, age or gender), it would be analyzed under the rational basis level of scrutiny. This would be easy to meet, thus the statute would likely be found to be constitutional.

In one such challenge, the court reasoned that the legislature's desire to allow the dealership employees to spend Sunday at church or with their families would be sufficient grounds for the distinction. Note that the same reasoning could be applied to employees in any business, but this was nonetheless sufficient under rational basis. Also note that in many states 50 years ago there would not have been an equal protection challenge because most businesses could not be open on Sunday.

Diff: 2 Topic: Equal Protection Clause 73) The United State's form of government is referred to as ________.

Answer: Federalism 74) The concept of federal law taking precedent over state or local law is commonly called the ________ doctrine.

Answer: Preemption 75) ________ is commerce that moves between states or that affects commerce between states.

Answer: Interstate commerce 76) Speech that cannot be forbidden by the government, but that is subject to time, place, and manner restrictions is referred to as ________.

Answer: Limited protected speech 57 .

77) Advertising is a ________ type of speech.

Answer: Commercial 78) The ________ prohibits the government from either establishing a state religion or promoting one religion over another.

Answer: Establishment Clause 79) The ________ Amendment includes the Equal Protection Clause, the Due Process Clause, and the Privileges and Immunities Clause.

Answer: Fourteenth 80) The ________ prohibits states from enacting laws that unduly discriminate in favor of their residents.

Answer: Privileges and Immunities Clause 81) Powers delegated to the federal government are called ________ powers.

Answer: Enumerated 82) ________ requires that the government give a person proper notice and hearing before that person is deprived of his or her life, liberty, or property.

Answer: Procedural due process 83) Any state or local law that directly and substantially conflicts with valid federal law is preempted under the ________.

Answer: Supremacy Clause 84) ________ is the power of states to regulate private and business activity within their borders.

Answer: Police power 85) The first ten amendments to the U.S. Constitution are commonly referred to as the ________.

Answer: Bill of Rights

58 .

Chapter 6 Torts and Strict Liability 1) Under the doctrine of negligence, a person is liable for harm that is an unforeseeable consequence of his action.

Answer: FALSE Diff: 2 Topic: Unintentional Torts (Negligence) 2) Courts decide whether a duty of care is owned in specific cases by applying a reasonable person standard.

Answer: TRUE Diff: 2 Topic: Unintentional Torts (Negligence) 3) Throwing a lit match on the ground in the forest and causing a fire is a breach of a duty of care.

Answer: TRUE Diff: 2 Topic: Unintentional Torts (Negligence) 4) Under the doctrine of negligence, if a defendant's act breached a duty of care, the plaintiff is entitled to damages.

Answer: FALSE Diff: 2 Topic: Unintentional Torts (Negligence) 5) A person who commits a negligent act is not liable unless actual cause can be proven.

Answer: TRUE Diff: 2 Topic: Unintentional Torts (Negligence) 6) The general test of proximate cause is foreseeability.

Answer: TRUE Diff: 1 Topic: Unintentional Torts (Negligence) 7) Laypersons not trained in CPR are not generally protected by Good Samaritan statutes.

Answer: TRUE Diff: 2 Topic: Special Negligence Doctrines

59 .

8) A statement that appears in writing or other fixed medium is called libel.

Answer: TRUE Diff: 1 Topic: Intentional Torts Against Persons 9) If a fact is public information, there is no claim to privacy.

Answer: TRUE Diff: 1 Topic: Intentional Torts Against Persons 10) The landmark case establishing the doctrine of proximate cause is Palsgraf v. The Long Island Railroad Company.

Answer: TRUE Diff: 2 Topic: Landmark Law 11) Res Ipsa Loquitur is a tort in which the violation of a statute or ordinance constitutes the breach of a duty of care.

Answer: FALSE Diff: 2 Topic: Special Negligence Doctrines 12) The most common example of negligent infliction of emotional distress involves bystanders who witness the injury or death of a relative that is caused by another's negligent conduct.

Answer: TRUE Diff: 2 Topic: Special Negligence Doctrines 13) A Good Samaritan law is a statute that relieves medical professionals from liability for gross negligence when they stop and render aid to victims in emergency situations.

Answer: FALSE Diff: 2 Topic: Special Negligence Doctrines 14) Assumption of risk is a doctrine that says that a plaintiff who is partially at fault for his own injury cannot recover against the negligent defendant.

Answer: FALSE Diff: 2 Topic: Special Negligence Doctrines 15) Contributory negligence is a doctrine under which damages are apportioned according to fault.

Answer: FALSE Diff: 2 Topic: Special Negligence Doctrines

60 .

16) Comparative negligence is a doctrine that says a plaintiff who is partially at fault for his own injury cannot recover against the negligent defendant.

Answer: FALSE Diff: 2 Topic: Special Negligence Doctrines 17) Strict liability does not require the injured person to prove that the defendant breached a duty of care.

Answer: TRUE Diff: 2 Topic: Strict Liability and Product Liability 18) Strict liability applies to products, not services.

Answer: TRUE Diff: 2 Topic: Strict Liability and Product Liability 19) Intentional misrepresentation is the intentional defrauding of a person out of money, property or something else of value.

Answer: TRUE Diff: 2 Topic: Intentional Torts Against Persons 20) All parties in the chain of distribution of a defective product are strictly liable for the injuries caused by the product.

Answer: TRUE Diff: 2 Topic: Strict Liability and Product Liability 21) A defect in manufacture occurs when a product is improperly designed.

Answer: FALSE Diff: 1 Topic: Strict Liability and Product Liability 22) A manufacturer or seller of a power lawn mower is not liable if a consumer lifts the mower on its side to cut a hedge and is injured when the mower falls and cuts him.

Answer: TRUE Diff: 2 Topic: Strict Liability and Product Liability 23) A seller is not liable if a consumer purchases a truck and then replaces the tires with large off-road tires which cause the truck to roll over, injuring the driver or other person.

Answer: TRUE Diff: 2 Topic: Strict Liability and Product Liability

61 .

24) If a manufacturer produces a prescription medicine but fails to warn about its known side effects, any person who uses the medicine and suffers from the side effects can sue and recover damages based on failure to warn.

Answer: TRUE Diff: 2 Topic: Strict Liability and Product Liability 25) Which of the following is NOT a category of torts?

A) Assumption of risk B) Negligence C) Intentional torts D) Strict liability Answer: A Diff: 1 Topic: Introduction to Torts and Strict Liability 26) ________ is the threat of immediate harm or any action that arouses reasonable apprehension of immediate harm.

A) Battery B) Assault C) False imprisonment D) Defamation Answer: B Diff: 2 Topic: Intentional Torts Against Persons 27) Unauthorized and harmful or offensive physical contact with another person is called: A) Battery.

B) Assault.

C) False imprisonment.

D) Intentional infliction of emotional distress.

Answer: A Diff: 2 Topic: Intentional Torts Against Persons 28) Which of the following is NOT an element of a typical shopkeeper's privilege statute?

A) There are reasonable grounds for suspicion.

B) Suspects are detained for only a reasonable time.

C) Investigations are conducted in a reasonable manner.

D) The alleged item of theft must be of substantial value.

Answer: D Diff: 3 Topic: Intentional Torts Against Persons

62 .

29) An attempt by another person to appropriate a living person's name or identity for commercial purposes is called: A) Defamation.

B) Invasion of the right to privacy.

C) Misappropriation of the right to publicity.

D) Intentional infliction of emotional distress.

Answer: C Diff: 2 Topic: Intentional Torts Against Persons 30) Which of the following is NOT an element required to find fraud?

A) The wrongdoer made a false representation of an immaterial fact.

B) The wrongdoer had knowledge that the representation was false and intended to deceive the innocent party.

C) The innocent party justifiably relied on the misrepresentation.

D) The innocent party was injured.

Answer: A Diff: 3 Topic: Intentional Torts Against Persons 31) Which of the following is NOT an element necessary to prove a malicious prosecution action?

A) The plaintiff in the original lawsuit was responsible for instituting the original lawsuit.

B) There was no probable cause for the first lawsuit.

C) The plaintiff in the original action brought the lawsuit with.

D) The original lawsuit was terminated in favor of the original plaintiff.

Answer: D Diff: 3 Topic: Intentional Torts Against Persons 32) According to New York Times Co. v. Sullivan, for a public figure to recover for a defamation action, the legal standard is: A) Negligence.

B) Strict liability.

C) Actual malice.

D) Scienter.

Answer: C Diff: 2 Topic: Intentional Torts Against Persons

63 .

33) Oral defamation of character is called: A) Libel.

B) Slander.

C) Intentional infliction of emotional distress.

D) Malicious prosecution.

Answer: B Diff: 1 Topic: Intentional Torts Against Persons 34) If a competitor of Dell Computers told a prospective customer that "Dell Computers always break down," when in fact they rarely break down, it would be considered: A) Disparagement.

B) Fraud.

C) Intentional misrepresentation.

D) Misappropriation of the right to publicity.

Answer: A Diff: 1 Topic: Intentional Torts Against Persons 35) ________ is a point along a chain of events caused by a negligent party after which this party is no longer legally responsible for the consequences of his actions.

A) Actual cause B) Causation in fact C) Proximate cause D) Consequential cause Answer: C Diff: 2 Topic: Unintentional Torts (Negligence) 36) A tort in which the violation of a statute or an ordinance constitutes the breach of a duty of care is called: A) Negligence per se.

B) res ipsa loquitur.

C) Assumption of risk.

D) Good Samaritan laws.

Answer: A Diff: 1 Topic: Special Negligence Doctrines

64 .

37) A tort in which the presumption of negligence arises because the defendant was in exclusive control of the situation and the plaintiff would not have suffered injury but for someone's negligence, is called: A) Negligence per se.

B) res ipsa loquitur.

C) Strict liability.

D) Assumption of risk.

Answer: B Diff: 1 Topic: Special Negligence Doctrines 38) The case in the text that held that riding a mechanical bull and being thrown and injured as a result is an open and obvious danger, and that a participant voluntarily assumes such risk is: A) Bunch v. Hoffinger Industries, Inc. B) Palsgraf v. The Long Island Railroad Company.

C) James v. Meow Media, Inc. D) Lilya v. The Greater Gulf State Fair, Inc. Answer: D Diff: 1 Topic: Case 6.3 Assumption of Risk 39) Monetary damages that are awarded against defendants for the intentional or reckless injury to a plaintiff is called: A) Punitive damages.

B) Compensatory damages.

C) Economic damages.

D) Hedonic damages.

Answer: A Diff: 1 Topic: Strict Liability and Product Liability 40) The case in the text which found that a company failed to adequately warn of the dangers of diving into a four-foot deep swimming pool is: A) Bunch v. Hoffinger Industries, Inc. B) Lilya v. The Greater Gulf State Fair, Inc. C) James v. Meow Media, Inc. D) Johnson v. K-Mart Enterprises, Inc. Answer: A Diff: 2 Topic: Case 6.4 Strict Liability 41) Briefly discuss the elements necessary to prove a case of negligence.

Answer: 1. Duty; 2.. Breach of Duty; 3. Injury; 4. Actual cause; 5. Proximate cause.

Diff: 2 Topic: Unintentional Torts (Negligence)

65 .

42) Discuss the difference between the doctrines of contributory negligence and comparative negligence.

Answer: Contributory negligence says that a plaintiff who is partially at fault for his own injury cannot recover against a negligent defendant. The results are sometimes very harsh.

Comparative negligence apportions damages according to fault.

Diff: 2 Topic: Special Negligence Doctrines 43) Unauthorized and harmful or offensive physical contact with another person is called ________.

Answer: Battery Diff: 1 44) The intentional confinement or restraint of another person without authority or justification and without consent is called ________.

Answer: false imprisonment Diff: 1 45) A false statement that appears in letter, newspaper, magazine, book, photograph, movie or video is called ________.

Answer: libel Diff: 2 46) ________ is the making of false statements about a competitor's products, services, property or business reputation.

Answer: Disparagement Diff: 2 47) A failure to exercise care or to act as a reasonable person would act is called a ________.

Answer: breach of the duty of care Diff: 2 48) A tort in which the violation of a statute or an ordinance constitutes the breach of the duty of care is ________.

Answer: negligence per so Diff: 2 49) A ________ is a statute that relieves medical professionals from liability for ordinary negligence when they stop and render aid to victims in emergency situations.

Answer: Good Samaritan law Diff: 2 50) ________ is a defense a defendant can use against a plaintiff who knowingly and voluntarily enters into or participates in a risky activity that results in injury.

Answer: Assumption of risk Diff: 2 66 .

51) A doctrine under which damages are apportioned according to fault is ________.

Answer: comparative negligence.

Diff: 2 52) ________ is liability without fault.

Answer: Strict liability Diff: 2

67 .

Chapter 7 Criminal Law and Cyber Crimes 1) A conviction in a criminal case requires a unanimous decision.

Answer: TRUE Diff: 2 Topic: Introduction to Criminal Law and Cyber Crimes 2) In a criminal lawsuit, the government is considered the defendant because it bears the burden of proof.

Answer: FALSE Diff: 2 Topic: Definition of a Crime (Parties to a Criminal Action) 3) The government defense attorney is often called a prosecutor.

Answer: FALSE Diff: 1 Topic: Definition of a Crime (Parties to a Criminal Action) 4) Felonies include crimes that are mala prohibita, or inherently evil.

Answer: FALSE Diff: 2 Topic: Definition of a Crime (Felony, Misdemeanor, and Violation) 5) Crimes such as traffic violations, jaywalking, and such are neither felonies nor misdemeanors.

Answer: TRUE Diff: 2 Topic: Definition of a Crime (Felony, Misdemeanor, and Violation) 6) Specific intent is found where there is a showing of recklessness or a lesser degree of mental culpability.

Answer: FALSE Diff: 1 Topic: Definition of a Crime (Intent Crimes) 7) The crime of involuntary manslaughter is often imposed for reckless or grossly negligent conduct.

Answer: TRUE Diff: 1 Topic: Definition of a Crime (Non-Intent Crimes)

68 .

8) The burden of proof in a criminal case is by 'preponderance of the evidence.'

Answer: FALSE Diff: 1 Topic: Civil and Criminal Law Compared 9) If there is no time for the police to obtain a warrant, the police may still arrest a suspect without obtaining an arrest warrant.

Answer: TRUE Diff: 1 Topic: Criminal Procedure (Arrest) 10) A grand jury does not determine guilt.

Answer: TRUE Diff: 1 Topic: Criminal Procedure (Indictment or Information) 11) Under a plea of nolo contendere the accused admits to guilt, but contests the punishment to be administered.

Answer: FALSE Diff: 2 Topic: Criminal Procedure (Arraignment) 12) A nolo contendere plea cannot be used as evidence of liability against the accused at a subsequent civil trial.

Answer: TRUE Diff: 2 Topic: Criminal Procedure (Arraignment) 13) Over 90 percent of criminal cases are settled and do not go to trial.

Answer: TRUE Diff: 1 Topic: Criminal Procedure (Arraignment) 14) At a criminal trial, all jurors must unanimously agree before the accused is found guilty of the crime charged.

Answer: TRUE Diff: 1 Topic: Criminal Procedure (The Criminal Trial) 15) Burglary is the taking of personal property from another person by the use of fear or force.

Answer: FALSE Diff: 2 Topic: Common Crimes (Burglary)

69 .

16) The stealing of automobiles and car stereos, pickpocketing and such are larceny.

Answer: TRUE Diff: 3 Topic: Common Crimes (Larceny) 17) Embezzlement is the fraudulent making or alteration of a written document that affects the legal liability of another person.

Answer: FALSE Diff: 2 Topic: White-Collar Crimes (Forgery) 18) Bribery is one of the most prevalent forms of white collar crime.

Answer: TRUE Diff: 2 Topic: White-Collar Crimes (Bribery) 19) Extortion of public officials is called extortion under color of official right.

Answer: TRUE Diff: 2 Topic: White-Collar Crime (Extortion) 20) Restaurants, motels and other cash businesses make excellent money laundries.

Answer: TRUE Diff: 2 Topic: White-Collar Crime (Money Laundering) 21) The Fifth Amendment to the U.S. Constitution protects persons and corporations from overzealous investigative activities by the government.

Answer: FALSE Diff: 2 Topic: Protection Against Unreasonable Search and Seizure 22) Any statements or confessions obtained from a suspect prior to being read his Miranda rights can be excluded from evidence at trial.

Answer: TRUE Diff: 2 Topic: Privileges Against Self-Incrimination (Miranda Rights) 23) The Fifth Amendment recognizes a parent-child privilege, in which the parties do not have to testify against each other.

Answer: TRUE Diff: 2 Topic: Privileges Against Self-Incrimination (Attorney-Client Privilege and Other Privileges)

70 .

24) The Sixth Amendment to the U.S. Constitution protects criminal defendants from cruel and unusual punishment.

Answer: FALSE Diff: 2 Topic: Other Constitutional Protections (Sixth Amendment Right to a Public Jury Trial) 25) The U.S. Supreme Court has held that in capital punishment cases, death by lethal injection is not cruel and unusual punishment.

Answer: TRUE Diff: 2 Topic: Other Constitutional Protections (Eighth Amendment Protection Against Cruel and Unusual Punishment) 26) The most serious type of crime is a: A) felony.

B) misdemeanor.

C) violation.

D) none of the above Answer: A Diff: 1 Topic: Definition of a Crime (Felony, Misdemeanor, and Violation) 27) ________ is the guilty act.

A) mala in se B) mala prohibita C) actus rea D) mens rea Answer: C Diff: 2 Topic: Definition of a Crime (Intent Crimes) 28) Twelve people are sitting on a jury during a criminal trial. How many must find the accused guilty before a conviction can be determined.

A) 6 B) 7 C) 9 D) 12 Answer: D Diff: 1 Topic: Criminal Procedure (The Criminal Trial)

71 .

29) ________ is defined as the taking of personal property from another person by the use of fear or force.

A) Robbery B) Burglary C) Larceny D) Fraud Answer: A Diff: 2 Topic: Common Crimes (Robbery) 30) ________ is defined as the taking of personal property from another's home, office, or commercial or other type of building.

A) Robbery B) Burglary C) Larceny D) Fraud Answer: B Diff: 2 Topic: Common Crimes (Burglary) 31) ________ is defined as the taking of another's personal property other than from his or her person or building.

A) Burglary B) Robbery C) Larceny D) Deceit Answer: C Diff: 2 Topic: Common Crimes (Larceny) 32) The fraudulent making or alteration of a written document that affects the legal liability of another person is called: A) Forgery.

B) Embezzlement.

C) Bribery.

D) Extortion.

Answer: A Diff: 2 Topic: White-Collar Crimes (Forgery)

72 .

33) The fraudulent conversion of property by a person to whom that property was entrusted is known as: A) Forgery.

B) Embezzlement.

C) Bribery.

D) Extortion.

Answer: B Diff: 2 Topic: White-Collar Crime (Embezzlement) 34) A crime in which one person gives another person money, property, favors, or anything else of value for a favor in return is called: A) Forgery.

B) Embezzlement.

C) Bribery.

D) Extortion.

Answer: C Diff: 2 Topic: White-Collar Crimes (Bribery) 35) A threat to expose something about another person unless that other person gives money or property is called: A) Forgery.

B) Embezzlement.

C) Bribery.

D) Extortion.

Answer: D Diff: 2 Topic: White-Collar Crime (Extortion) 36) The ________ Amendment to the U.S. Constitution protects persons and corporations from overzealous investigative activities by the government.

A) Fourth B) Fifth C) Sixth D) Eighth Answer: A Diff: 2 Topic: Protection Against Unreasonable Search and Seizure

73 .

37) The ________ Amendment to the U.S. Constitution provides that no person "shall be compelled in any criminal case to be a witness against himself."

A) Fourth B) Fifth C) Sixth D) Eighth Answer: B Diff: 2 Topic: Privileges Against Self-Incrimination 38) The ________ Amendment of the U.S. Constitution protects persons from being tried twice for the same crime.

A) Fourth B) Fifth C) Sixth D) Eighth Answer: B Diff: 1 Topic: Other Constitutional Protections (Fifth Amendment Protection Against Double Jeopardy) 39) Which Amendment to the U.S. Constitution guarantees the right to an impartial jury and a speedy trial?

A) Fourth B) Fifth C) Sixth D) Eighth Answer: C Diff: 2 Topic: Other Constitutional Protections (Sixth Amendment Right to a Public Jury Trial) 40) The ________ Amendment to the U.S. Constitution protects criminal defendants from cruel and unusual punishment.

A) Fourth B) Fifth C) Sixth D) Eighth Answer: D Diff: 2 Topic: Other Constitutional Protections (Eighth Amendment Protection Against Cruel and Unusual Punishment)

74 .

41) ________ makes it illegal for U.S. companies, or their officers, directors, agents, or employees, to bribe a foreign official, a foreign political party official, or a candidate for foreign political office.

A) The Foreign Corrupt Practices Act B) The Information Infrastructure Protection Act C) The Identity Theft and Assumption Deterrence Act D) The Racketeer Influenced and Corrupt Organizations Act Answer: A Diff: 2 Topic: International Law (Foreign Corrupt Practices Act) 42) ________ criminalizes identity fraud.

A) The Foreign Corrupt Practices Act B) The Information Infrastructure Protection Act C) The Identity Theft and Assumption Deterrence Act D) The Racketeer Influenced and Corrupt Organizations Act Answer: C Diff: 2 Topic: Internet Law & Online Commerce (Identity Theft and Cyber Fraud) 43) Involuntary manslaughter is a ________ crime.

A) general intent B) specific intent C) non-intent D) actus rea Answer: C Diff: 2 Topic: Definition of a Crime (Non-Intent Crimes) 44) Briefly describe the three classifications of crimes.

Answer: 1. Felony - most serious type, mala in se, and usually punishable by imprisonment; 2.

Misdemeanor- less serious than a felony, mala prohibita, usually punishable by a fine or imprisonment of less than one year; Violation- neither a felony nor misdemeanor, usually punishable by a fine.

Diff: 2 Topic: Definition of a Crime

75 .

45) Briefly discuss the common types of white-collar crimes.

Answer: 1. Forgery- the fraudulent making or alteration of a written document that affects the legal liability of another person; 2. Embezzlement- the fraudulent conversion of property by a person to whom that property was entrusted; 3. Bribery- a crime in which one person gives another person money, property, favors, or anything else of value for a favor in return; 4.

Extortion- a threat to expose something about another person unless that other person gives money or property; 5. Criminal fraud- a crime that involves obtaining title to property through deception or trickery; 6. Money laundering- knowingly engaging in a money transaction through a financial institution involving property worth more than $10,000 and knowingly engaging in a financial transaction involving proceeds of an illegal activity.

Diff: 3 Topic: White-Collar Crimes 46) A violation of a statute for which the government imposes a punishment is called ________.

Answer: crime Diff: 1 Topic: Definition of a Crime 47) In a criminal case, the government is represented by the ________.

Answer: prosecutor Diff: 1 Topic: Definition of a Crime (Parties to a Criminal Action) 48) Evil intent is called ________.

Answer: Means rea Diff: 2 Topic: Definition of a Crime (Intent Crimes) 49) If the grand jury determines that there is sufficient evidence to hold the accused for trial, it issues an ________.

Answer: Indictment Diff: 2 Topic: Criminal Procedure (Indictment or Information) 50) ________ is defined as the substantial likelihood that a person either committed or is about to commit a crime.

Answer: Probable cause Diff: 2 Topic: Criminal Procedure (Arrest) 51) A party may enter a plea of ________, whereby the accused agrees to the imposition of a penalty but does not admit guilt.

Answer: nolo contendere Diff: 2 Topic: Criminal Procedure (Arraignment)

76 .

52) ________ is the taking of another's personal property other than from his or her person or building.

Answer: Larceny Diff: 2 Topic: Common Crimes (Larceny) 53) Some states have dropped the distinction among the crimes of robbery, burglary and larceny, and group these crimes under the general crime of ________.

Answer: theft Diff: 2 Topic: Common Crimes (Theft) 54) The willful or malicious burning of a building is called ________.

Answer: arson Diff: 2 Topic: Common Crimes (Arson) 55) ________ crimes are prone to being committed by businesspersons, and usually involve cunning and deceit rather than physical force.

Answer: White-collar Diff: 1 Topic: White-Collar Crimes

77 .

Chapter 8 International and World Trade Law 1) At the international level, there is no single international world court responsible for enforcing and interpreting international law, nor is there a world executive branch to enforce international laws.

Answer: TRUE Diff: 2 Topic: Introduction to International and World Trade Law 2) In the Constitution, the power over international affairs, as with domestic affairs, is primarily vested in the states.

Answer: FALSE Diff: 1 Topic: The United States and Foreign Affairs 3) The Foreign Commerce Clause grants Congress the power to regulate commerce with foreign nations.

Answer: TRUE Diff: 1 Topic: The United States and Foreign Affairs 4) A state may enter into a treaty with a foreign nation so long as the treaty does not conflict with any other treaties and does not interfere with foreign commerce.

Answer: FALSE Diff: 2 Topic: The United States and Foreign Affairs (Treaty Clause) 5) A Massachusetts statute banning the state from doing business with companies that also did business with the nation of Myanmar was found to violate the Foreign Commerce Clause.

Answer: TRUE Diff: 1 Topic: U.S. Supreme Court Case 8.1 Foreign Commerce 6) Treaties differ from conventions in that treaties are usually agreements directly between the signatory nations.

Answer: TRUE Diff: 2 Topic: The United States and Foreign Affairs (Treaty Clause) 7) The General Assembly of the United Nations has representatives from all member nations.

Answer: TRUE Diff: 1 Topic: United Nations 78 .

8) The World Bank is part of the United Nations.

Answer: TRUE Diff: 2 Topic: International Law (World Bank) 9) The Free Trade Area of the Americas would be an extension of NAFTA. Answer: TRUE Diff: 1 Topic: International Law (Dominican Republic-Central America Free Trade Agreement (DRCAFTA) 10) Nations are not required to submit to the jurisdiction of the International Court of Justice.

Answer: TRUE Diff: 2 Topic: United Nations (International Court of Justice) 11) The European Union includes an EU central bank.

Answer: TRUE Diff: 3 Topic: International Regional Organizations 12) The EU Commission has authority to enact legislation and take actions to enforce member compliance with the EU Treaty.

Answer: TRUE Diff: 1 Topic: Regional International Organizations (European Union) 13) The North American Free Trade Agreement was formed with only three nations in 1992.

Answer: TRUE Diff: 1 Topic: Regional International Organizations (North American Free Trade Agreement) 14) China and Japan are members of the Association of South East Asian Nations and are instrumental in financing the activities of other countries that make up the Association of South East Asian Nations.

Answer: FALSE Diff: 2 Topic: Regional International Organizations (Association of Southeast Asian Nations) 15) OPEC consists of oil producing countries located only in the Middle East.

Answer: FALSE Diff: 1 Topic: Regional International Organizations (Organization of the Petroleum Exporting Countries)

79 .

16) The World Trade Organization was established by the United Nations in 1995.

Answer: FALSE Diff: 2 Topic: World Trade Organization (WTO) 17) The World Trade Organization established a more effective dispute resolution process than existed under the General Agreement on Tariffs and Trade.

Answer: TRUE Diff: 2 Topic: World Trade Organization (WTO Dispute Resolution) 18) The World Trade Organization includes an appellate process within the dispute settlement process.

Answer: TRUE Diff: 2 Topic: World Trade Organization (WTO Dispute Resolution) 19) International disputes generally cannot be heard by the national courts of the parties to the dispute.

Answer: FALSE Diff: 2 Topic: National International Law 20) Commercial disputes between U.S. companies and foreign governments or parties may be brought in state courts of general trial jurisdiction.

Answer: FALSE Diff: 2 Topic: National International Law 21) A choice of forum clause automatically determines that the forum nation's laws are applied in settling a dispute.

Answer: FALSE Diff: 2 Topic: National International Law (Jurisdiction) 22) The Act of State Doctrine is justified under the separation of powers doctrine of the U.S. Constitution.

Answer: TRUE Diff: 1 Topic: National International Law (Act of State Doctrine) 23) The United States does not recognize sovereign immunity for commercial activities of foreign nations.

Answer: TRUE Diff: 2 Topic: National International Law (Doctrine of Sovereign Immunity) 80 .

24) Jewish law is a complex legal system based on the ideology and theology of the Torah.

Answer: TRUE Diff: 2 Topic: International Law (Jewish Law and the Torah) 25) Islamic law is the only law in Saudi Arabia.

Answer: TRUE Diff: 3 26) Which of the following are characteristics of international law?

A) No single legislative body B) No single court to settle disputes C) No single body to enforce court decisions D) All of the above Answer: D Diff: 2 Topic: Introduction to International and World Trade Law 27) Which of the following is not true regarding international law?

A) Enforcement is a problem because there is no "executive branch" to enforce it.

B) The United Nations plays the same role in international law that the federal government plays in United States law.

C) International law comes from multiple sources.

D) There is no single court system for dealing with all international disputes.

Answer: B Diff: 2 Topic: Introduction to International and World Trade Law 28) Which of the following is not true about international law?

A) There are multiple sources of international law.

B) The International Court of Justice has the final authority in all international disputes.

C) There is no international executive branch to enforce international law.

D) In many instances, nations are not obligated to follow the international law as set out by international organizations.

Answer: B Diff: 2 Topic: United Nations (International Court of Justice) 29) What are the primary sources in the U.S. Constitution of the federal government's power over international affairs?

A) The Commerce Clause and the Treaty Clause B) The Commerce Clause and the Privileges and Immunities Clause C) The Treaty Clause and the Police Power Clause D) The Treaty Clause and the War Powers Clause Answer: A Diff: 2 Topic: The United States and Foreign Affairs 81 .

30) Which of the following is correct about the states' powers regarding foreign affairs?

A) The states have no power over foreign affairs because the U.S. Constitution grants that power exclusively to the federal government.

B) The states can pass laws and enter into treaties with foreign nations so long as they do not unduly burden foreign commerce.

C) The states can pass laws affecting foreign commerce and enter into treaties with foreign nations so long as they first obtain the consent of the Senate.

D) The states can pass laws so long as they do not unduly burden foreign commerce, but the states have no authority to enter into treaties with foreign nations.

Answer: D Diff: 3 Topic: The United States and Foreign Affairs 31) An agreement sponsored by an international organization that is signed and ratified by two or more nations is called a: A) Treaty.

B) Convention.

C) Custom.

D) Charter.

Answer: B Diff: 1 Topic: The United States and Foreign Affairs (Treaty Clause) 32) The following are governing bodies of the United Nations except: A) The Secretariat.

B) The General Assembly.

C) The International Arbitration Panel.

D) The Security Council.

Answer: C Diff: 1 Topic: United Nations 33) Which of the following is not true about the United Nations?

A) It was founded in 1918 at the end of the First World War. B) Most nations of the world are members.

C) There are only five permanent members of the Security Council.

D) It contains a number of autonomous agencies that deal with specialized problems.

Answer: A Diff: 2 Topic: United Nations

82 .

34) In what year was the United Nations founded?

A) 1918 B) 1939 C) 1941 D) 1945 Answer: D Diff: 1 Topic: United Nations 35) The body of the United Nations that includes permanent members from only five nations is the: A) Security Council.

B) Secretariat.

C) General Assembly.

D) World Senate.

Answer: A Diff: 2 Topic: United Nations (Governance of the UN) 36) Which of the following is not an agency of the United Nations?

A) United Nations Educational, Scientific, and Cultural Organization B) International Monetary Fund C) International Agency for Economic Equity D) International Fund for Agricultural Development Answer: C Diff: 2 Topic: United Nations (United Nations Agencies) 37) Which of the following is not true about the European Union?

A) A common currency has been introduced.

B) The Union has established the EU Commission and delegated certain powers to it.

C) A majority vote is needed to admit a new member.

D) The gross economic output of EU nations is greater than that of the United States.

Answer: C Diff: 2 Topic: Regional International Organizations (European Union) 38) Which of the following is true about the European Union?

A) Member nations have not given up any sovereignty to the EU. B) Customs tariffs have been eliminated between member nations and nonmember nations.

C) An EU central bank has been established.

D) The EU includes a couple of nations from Northern Africa with European ties.

Answer: C Diff: 2 Topic: Regional International Organizations (European Union)

83 .

39) Negotiators from which nations signed the North American Free Trade Agreement in 1992?

A) The United States and Canada.

B) The United States and Mexico.

C) The United States, Canada, and Mexico.

D) The United States, Mexico, and Panama.

Answer: C Diff: 1 Topic: Regional International Organizations (North American Free Trade Agreement) 40) Which of the following is correct about the World Trade Organization (WTO)?

A) The WTO was created in the 1940s.

B) The WTO adopted a judicial-based dispute resolution system to replace the politically oriented system in place previously.

C) Only a few nations have a representative on the WTO dispute settlement body.

D) Parties to a dispute have a veto power over any decision reached by the WTO. Answer: B Diff: 3 Topic: World Trade Organization (WTO Dispute Resolution) 41) Today, most international trade disputes are settled by: A) The General Agreement on Tariffs and Trade.

B) The Security Council of the United Nations.

C) The American Arbitration Association.

D) The World Trade Organization.

Answer: D Diff: 2 Topic: World Trade Organization (WTO) 42) What can a nation do if it disagrees with a decision made by the dispute settlement body of the World Trade Organization?

A) Appeal to the World Court.

B) Nothing, as these decisions are final.

C) Appeal to that nation's own national court system.

D) Appeal to the appellate body within the WTO. Answer: D Diff: 2 Topic: World Trade Organization (WTO Dispute Resolution) 43) What is the purpose of a choice of forum clause in an international contract?

A) To give the parties a choice of nations in which to bring a lawsuit under the contract.

B) To determine in advance where any lawsuits under the contract will be brought.

C) To determine who will choose the location of any lawsuit that is brought under the contract.

D) To determine which nation's law will apply in settling disputes that arise under the contract.

Answer: B Diff: 2 Topic: National International Law (Jurisdiction) 84 .

44) The courts of one nation cannot question the actions undertaken by another nation within the other nation's borders under: A) The act of state doctrine.

B) The sovereign immunity doctrine.

C) The extradition doctrine.

D) The expropriation doctrine.

Answer: A Diff: 1 Topic: National International Law (Act of State Doctrine) 45) Mabel, a citizen of England, and Pierre, a citizen of France, have been doing business for many years. Pierre now wants to sue Mabel. Which of the following is true?

A) Pierre can sue Mabel in the International Court of Justice because the dispute is commercial.

B) Pierre cannot sue Mabel in the International Court of Justice because the dispute is commercial.

C) Pierre cannot sue Mabel in the International Court of Justice under any circumstances.

D) Pierre can sue Mabel in the International Court of Justice only if Mabel consents.

Answer: C Diff: 3 Topic: United Nations (International Court of Justice) 46) Janet and Henry were married in Bulgaria when they were each 14 years old. The marriage is valid in Bulgaria. They have now moved to the United States, and there is some question whether their marriage is valid in the United States. Which of the following doctrines would hold their marriage to be legal in the United States?

A) Sovereign immunity.

B) Comity.

C) Act of state.

D) Diplomatic immunity.

Answer: C Diff: 2 Topic: National International Law (Act of State Doctrine) 47) Margaret, a citizen of a foreign country, is now living in the United States. Before moving to the United States, she was tortured when the government of her home country arrested her. She now wants to sue her home country in a United States court. Which of the following doctrines would most likely prevent Margaret from suing her country's government in a U.S. court?

A) Sovereign immunity.

B) Comity.

C) Act of state.

D) Diplomatic immunity.

Answer: A Diff: 3 Topic: National International Law (Doctrine of Sovereign Immunity)

85 .

48) Jewish law is a complex legal system based on the ideology and theology of the: A) Torah B) Koran C) Dharmasastra D) Shari'a Answer: A Diff: 2 Topic: International Law (Jewish Law and the Torah) 49) Which of the following is NOT a source of Islamic law?

A) the Koran B) the Sunnah C) reasonings by Islamic scholars D) the Smitris Answer: D Diff: 2 Topic: International Law (Islamic Law and the Koran) 50) Classical Hindu law rests upon: A) civil codes B) court cases C) the works of private scholars D) None of the above Answer: C Diff: 2 51) Briefly explain the governance of the United Nations.

Answer: There are three main components to the governance of the United Nations. 1. General Assembly- composed of all UN member nations. It adopts resolutions concerning human rights, trade, finance, economics and other matters; 2. Security Council- composed of 15 member nations, five of them permanent (China, France, Russia, UK, US). The other 10 countries are elected to two-year terms by the General Assembly. This component is primarily responsible for maintaining international peace and security, and has the authority to use armed forces.

Diff: 3 Topic: United Nations (Governance of the UN) 52) Briefly discuss the difference between the Act of State doctrine and the Sovereign Immunity doctrine.

Answer: The Act of State doctrine states that an act of government in its own country is not subject to suit in a foreign country's courts. The Sovereign Immunity doctrine states that an act of a government in a foreign country is not subject to suit in the foreign country. Some countries provide absolute immunity, and other countries provide limited immunity.

Diff: 3 Topic: National International Law

86 .

53) A ________ is a treaty that is sponsored by an international organization.

Answer: Convention 54) The courts of individual nations are referred to as ________.

Answer: National courts 55) The ________ is referred to as the "Supreme Court of Trade."

Answer: WTO 56) The judicial branch of the United Nations that is also called the World Court is known as the ________.

Answer: International Court of Justice 57) The doctrine of ________ states that countries are granted immunity from suits in courts of other countries.

Answer: Sovereign immunity 58) The ________ of the U.S. Constitution vests Congress with the power to regulate commerce with foreign nations.

Answer: Foreign Commerce Clause 59) The first source of international law is a ________.

Answer: Treaty 60) The ________ was created in 1945 to promote social and economic cooperation among nations and to protect human rights.

Answer: United Nations

87 .

Chapter 9 Formation of Traditional and E- Contracts 1) A contract can be viewed as private law between the parties to the contract.

Answer: TRUE Diff: 1 Topic: Introduction to Formation of Traditional and E-Contracts 2) An offer for a unilateral contract can always be revoked at any time prior to the completion of the requested act.

Answer: TRUE Diff: 2 Topic: Classification of Contracts (Bilateral and Unilateral Contracts) 3) A reward advertisement in the paper stating, "Fifty dollars for the return of a black briefcase.

Call 329-5862." can be accepted by a promise to look for the briefcase.

Answer: FALSE Diff: 2 Topic: Classification of Contracts (Bilateral and Unilateral Contracts) 4) Under the objective theory of contracts, courts consider the subjective intent of the parties to enter into a contract.

Answer: FALSE Diff: 1 Topic: Agreement: Offer and Acceptance (Objective Intent) 5) A contract must always be in writing to be enforceable.

Answer: FALSE Diff: 1 Topic: Requirements of a Contract 6) Quasi-contract law attempts to prevent unjust enrichment when no contract actually exists.

Answer: TRUE Diff: 1 Topic: Classification of Contracts (Quasi-Contract) 7) A contract remains executory as long as any party to the contract has not fully performed.

Answer: TRUE Diff: 2 Topic: Classification of Contracts (Executory and Executed)

88 .

8) Generally, in a lawsuit based on breach of an implied-in-law contract, the plaintiff can recover the contract price.

Answer: FALSE Diff: 1 Topic: Classification of Contracts (Express and Implied Contracts) 9) The offeror is the party with the power to decide whether to create a contract.

Answer: FALSE Diff: 2 Topic: Agreement: Offer and Acceptance 10) An offer made in jest, where a reasonable person would conclude that it was made in jest, cannot result in a contract.

Answer: TRUE Diff: 2 Topic: Agreement: Offer and Acceptance (Objective Intent) 11) An option is irrevocable during the option period.

Answer: TRUE Diff: 1 Topic: Agreement 12) Revocation refers to the offeree communicating to the offeror that the offeree does not want to accept the offer.

Answer: FALSE Diff: 3 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 13) A counteroffer is treated as both a revocation and a new offer.

Answer: FALSE Diff: 2 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 14) Death of the offeror terminates an offer even if the offer could still be carried out by the estate of the offeror, such as the sale of property of the offeror.

Answer: TRUE Diff: 2 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 15) If the time an offer remains open is not specified, it remains open until revoked by the offeror.

Answer: FALSE Diff: 2 Topic: Agreement: Offer and Acceptance (Termination of an Offer)

89 .

16) If an offer is lost in the mail, the offer automatically terminates.

Answer: FALSE Diff: 1 Topic: Agreement: Offer and Acceptance (Mailbox Rule) 17) The concept of consideration is that the parties to a contract should carefully consider the terms of all contracts before they are entered into.

Answer: FALSE Diff: 1 Topic: Consideration 18) Written contracts are presumed to be supported by consideration.

Answer: TRUE Diff: 1 Topic: Consideration 19) A party has given consideration for a contract if that party suffers a legal detriment even if the other party does not receive a benefit.

Answer: TRUE Diff: 2 Topic: Consideration 20) An agreement where a party gives up the right to sue for injuries in exchange for the right to take part in an activity is supported by consideration on both sides.

Answer: TRUE Diff: 2 Topic: Consideration 21) In order to meet the consideration requirement, the legal detriment suffered by each party must have been given in exchange for that of the other party.

Answer: TRUE Diff: 2 Topic: Consideration 22) An illusory promise is an example of a promise that will be enforced even when consideration is lacking.

Answer: FALSE Diff: 2 Topic: Consideration (Contracts that Lack Consideration) 23) A preexisting duty can arise from a person's job or position or it can arise out of an existing contract.

Answer: TRUE Diff: 2 Topic: Consideration (Contracts that Lack Consideration)

90 .

24) Minors are liable for the contract price of any necessaries of life for which they contract.

Answer: TRUE Diff: 2 Topic: Capacity to Contract (Minors: The Infancy Doctrine) 25) What constitutes a necessary for a minor will depend on the particular minor's own individual circumstances.

Answer: TRUE Diff: 2 Topic: Capacity to Contract (Minors: The Infancy Doctrine) 26) The age of majority in most states is 21.

Answer: FALSE Diff: 1 Topic: Capacity to Contract (Minors: The Infancy Doctrine) 27) In most states, if a contract is disaffirmed due to intoxication, both parties must be returned to the status quo.

Answer: TRUE Diff: 2 Topic: Capacity to Contract (Intoxicated Persons) 28) A contract must be found to violate a specific statute in order for the contract to be found to be void due to illegal subject matter.

Answer: FALSE Diff: 1 Topic: Legality (Illegality: Contracts Contrary to Public Policy) 29) Exculpatory clauses often are found illegal because they violate state statutes.

Answer: FALSE Diff: 2 Topic: Legality (Illegality: Contracts Contrary to Public Policy) 30) If a court finds that the subject matter of a contract is not legal, the court will undo the contract and place the parties in the status quo.

Answer: FALSE Diff: 2 Topic: Legality 31) A party who wishes to get out of a contract in which he has entered into a bad bargain may successfully assert the doctrine of unconscionability.

Answer: FALSE Diff: 1 Topic: Unconscionable Contract

91 .

32) Which of the following is true?

A) Contracts can be classified as either voluntary or involuntary.

B) All contracts are legally enforceable.

C) The terms of a valid contract become private law between the parties.

D) Contract promises are generally not enforced by the courts.

Answer: C Diff: 1 Topic: Introduction to Formation of Traditional and E-Contracts 33) The party to whom an offer is made is called the: A) Promissor.

B) Promisee.

C) Offeror.

D) Offeree.

Answer: D Diff: 1 Topic: Definition of Contract (Parties to a Contract) 34) In a unilateral contract: A) The offeror wants an act as acceptance of his offer.

B) The offeror cannot revoke the offer once the offeree has begun performance or has substantially completed performance.

C) The offeror will treat either a promise to perform or the actual performance of the act as acceptance of his offer.

D) A and B only.

Answer: D Diff: 2 Topic: Classification of Contracts (Bilateral and Unilateral Contracts) 35) The following statements are true concerning the objective theory of contracts except: A) The intent of the parties to enter into an implied-in-fact or express contract is judged by the reasonable person test.

B) Offers that are made in jest, anger, or undo excitement cannot be the basis of a contract.

C) The reasonable person standard is based on the subjective intent of the offeror when making the offer.

D) Subjective intent is irrelevant.

Answer: C Diff: 2 Topic: Agreement: Offer and Acceptance (Objective Intent)

92 .

36) The doctrine that applies when one person confers a benefit on another who retains the benefit in a situation where it would be unjust to allow the recipient to retain the benefit without paying for it, is known as: A) Quasi-contract.

B) Pseudo-contract.

C) Unjust-contract.

D) Unilateral-contract.

Answer: A Diff: 1 Topic: Classification of Contracts (Quasi-Contract) 37) Which of the following does not need to be proven by a plaintiff who is claiming that an implied-in-fact contract exists?

A) The plaintiff provided property or services to the defendant.

B) The plaintiff and defendant communicated with each other about the property or services.

C) The plaintiff expected to be paid by the defendant for the property or services and did not intend to provide the property or services gratuitously.

D) The defendant was given an opportunity to reject the property or services provided by the plaintiff but failed to do so.

Answer: B Diff: 3 Topic: Classification of Contracts (Express and Implied Contracts) 38) Which of the following is true regarding contract validity?

A) A void contract is one where a party has the option to avoid her contractual liability.

B) A voidable contract is one in which a party may avoid her obligation under that contract.

C) A voidable contract is one that has no legal effect because one of the essential elements is missing.

D) An executory contract is also unenforceable.

Answer: B Diff: 3 Topic: Classification of Contracts (Valid, Void, Voidable, and Unenforceable Contracts) 39) Which of the following is false concerning contract formation?

A) The parties may voluntarily perform a contract that is unenforceable.

B) The parties may enforce a contract that is void.

C) A valid contract consists of an agreement, legally sufficient consideration, competent parties, and has legal objective.

D) Express contracts are stated in oral or written words.

Answer: B Diff: 2 Topic: Classification of Contracts (Valid, Void, Voidable, and Unenforceable Contracts)

93 .

40) To create an enforceable contract, which of the following is(are) needed?

A) Agreement.

B) Agreement and consideration.

C) Agreement, consideration, and capacity.

D) Agreement, consideration, capacity, and a lawful objective.

Answer: D Diff: 2 Topic: Classification of Contracts (Valid, Void, Voidable, and Unenforceable Contracts) 41) Which of the following are necessary to meet the requirements of a definite offer?

A) Offeror objectively intends to be bound by the offer B) Terms must be definite or reasonably certain C) The offer must be communicated to the offeree D) A, B, and C. Answer: D Diff: 2 Topic: Agreement: Offer and Acceptance (Requirements of an Offer) 42) The objective theory of contracts is based on the premise that: A) Even offers made in obvious jest can be the basis of a contract.

B) Every contract must have a central object to it.

C) Every contract must have consideration given by both parties.

D) Whether the intent is present is based on how a reasonable person would view the parties' actions and is not based on the actual intentions of the parties.

Answer: D Diff: 2 Topic: Agreement: Offer and Acceptance (Objective Intent) 43) What does an offeree use to simply indicate that she is NOT interested in an offer?

A) Revocation.

B) Rejection.

C) Counteroffer.

D) Promissory estoppel.

Answer: B Diff: 1 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 44) If an offeree gives a rejection to the offeror, which of the following is true at that point?

A) The offeree is still able to accept the original offer until its original expiration time.

B) The offeree has made a counteroffer.

C) The offeree cannot later enter into a contract on the terms of the rejected offer.

D) The offeree has lost the ability to accept the original offer.

Answer: D Diff: 3 Topic: Agreement: Offer and Acceptance (Termination of an Offer)

94 .

45) Which of the following would terminate an offer?

A) Revocation by the offeror.

B) Rejection by the offeree.

C) Counteroffer by the offeree.

D) A, B, and C. Answer: D Diff: 1 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 46) Generally, which of the following will not automatically terminate an open offer?

A) Death of the offeror.

B) Death of the offeree.

C) Changed economic circumstances.

D) Destruction of the subject matter of the contract.

Answer: C Diff: 2 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 47) Supervening illegality of the object of a contract occurs in which of the following circumstances?

A) The illegality existed when the offer was made.

B) The object of the contract is illegal where made, but would be legal in another location.

C) The object of the contract was legal when the offer was made, but has subsequently become illegal.

D) The offeror had an honest and reasonable belief that the object of the contract was legal when the offer was made, but later learned that the offer was illegal.

Answer: C Diff: 2 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 48) The requirement that the terms of the acceptance be the exact same as those of the offer is the: A) Mirror image rule.

B) Identical terms rule.

C) Counteroffer equals rejection rule.

D) Doctrine against offer modifications.

Answer: A Diff: 1 Topic: Agreement: Offer and Acceptance (Acceptance)

95 .

49) To meet the contractual requirement, consideration must be: A) Fair and reasonable according to the reasonable person standard.

B) Approximately equal in overall value.

C) Such that each party receives a benefit.

D) Bargained-for and involve a legal detriment to each party.

Answer: D Diff: 2 Topic: Consideration 50) Which statement is false concerning contracts lacking consideration?

A) A promise to perform an illegal act will not support a contract.

B) A minority of courts hold that promises made out of a sense of moral obligations are enforceable.

C) A present promise to pay a friend who helped you move last week is sufficient consideration to form a contract.

D) A promise based on a party's past consideration will not support a present promise.

Answer: C Diff: 2 Topic: Consideration (Contracts that Lack Consideration) 51) One of the main reasons that contracts involving minors are voidable at the minor's option is: A) To protect the minor from unscrupulous adults.

B) To reduce the amount of litigation in the courts.

C) To support the policy of not enforcing gift promises.

D) To punish adults for entering into contracts with minors.

Answer: A Diff: 2 Topic: Capacity to Contract (Minors: The Infancy Doctrine) 52) If a minor buys an item and then disaffirms the contract, and a court orders the minor to merely return the item in its present condition in order to get a refund, this minor has the right of: A) Restoration.

B) Resuscitation.

C) Revocation.

D) Restitution.

Answer: A Diff: 1 Topic: Capacity to Contract (Minors: The Infancy Doctrine)

96 .

53) Which of the following is correct about contracts entered into by insane persons?

A) Contracts entered into by all insane persons are void.

B) Contracts entered into by all insane persons are voidable.

C) Contracts entered into by persons adjudicated insane are void, and those entered into by nonadjudicated insane persons are voidable.

D) Contracts entered into by persons adjudicated insane are voidable, and those entered into by nonadjudicated insane persons are void.

Answer: C Diff: 2 Topic: Capacity to Contract (Mentally Incompetent Persons) 54) In order for someone to avoid a contract on the grounds of intoxication, the level of intoxication must have been: A) At or above the legal limit.

B) Only high enough that he was able to notice it.

C) At least as high as that of the other party.

D) So great that he didn't comprehend the nature of the agreement he was entering into.

Answer: D Diff: 1 Topic: Capacity to Contract (Intoxicated Persons) 55) Which of the following is generally true about exculpatory clauses?

A) They are not valid with respect to intentional acts.

B) The test is whether they are reasonable in time, scope, and geographic area.

C) They are usually found to be invalid.

D) They are not valid for ordinary negligence.

Answer: A Diff: 2 Topic: Legality (Illegality: Contracts Contrary to Public Policy) 56) Where a contract calls for action that violates a statute, in a breach of contract case the court will: A) Impose the appropriate criminal penalty.

B) Ignore the contract and leave the parties where they are.

C) Order both parties to return any consideration received.

D) Order payment so that the parties to the illegal contract share any losses equally.

Answer: B Diff: 2 Topic: Legality

97 .

57) Otto approaches Edie and says, "If you pick up my new suit for me at the mall tomorrow, I'll pay you $20." Edie replies, "I don't know if I'll have time to get it, but I'll see if I get a chance."

As a result of this conversation: A) Otto and Edie have formed a bilateral contract.

B) Edie has a legal obligation to use her best efforts to pick up the suit.

C) A contract will be formed only if Edie picks up the suit.

D) The contract they have formed is voidable because Edie did not obligate herself.

Answer: C Diff: 2 Topic: Classification of Contracts (Bilateral and Unilateral Contracts) 58) Janet pulls her car into a line for a car wash. Janet says nothing and her car is washed by the employees there. Janet then refuses to pay for the car wash, stating that there is no contract. What results in a lawsuit over this situation?

A) Janet wins; because she said nothing, there can be no contract.

B) Car wash wins; this is an express, unilateral contract that has been accepted.

C) Janet wins; because the car wash made no promise to wash her car, there is no contract.

D) Car wash wins; this is an implied, unilateral contract that has been accepted.

Answer: D Diff: 2 Topic: Classification of Contracts (Express and Implied Contracts) 59) Mike and Ike agreed orally that Mike would tutor Ike in geology for $10 per hour for three hours. After Mike has done the three hours of tutoring but before Ike pays him next week, this contract is: A) Executed.

B) Implied-in-fact.

C) Executory.

D) Performed.

Answer: C Diff: 2 Topic: Agreement: Offer and Acceptance (Objective Intent) 60) Jana and Annie enter into a written agreement whereby Jana promises to sell and Annie promises to buy a certain parcel of land for $5,000. There is adequate consideration, the contract is legal and both parties have contractual capacity. The contract is fully performed by both parties on Jan. 1. Which of the following best describes this contract?

A) Bilateral, express, executed, valid.

B) Unilateral, express, executed, valid.

C) Unilateral, express, executory, valid.

D) Bilateral, express, executory, valid.

Answer: A Diff: 3 Topic: Classifications of Contracts

98 .

61) Lori just purchased a brand new lawnmower for $500. When she got home and tried to use it, it would not work. She became angry and stated, "I'd sell this thing for $50." Her neighbor heard her and said, "I'll take it," and offered Lori the $50. Which of the following best describes this situation?

A) An enforceable contract exists.

B) There is no contract because there was no offer.

C) There is no contract because there was no acceptance.

D) There is no contract because there was no consideration.

Answer: B Diff: 2 Topic: Agreement: Offer and Acceptance (Objective Intent) 62) Kristin offers to sell land to Ian for $5,000. Ian says that $5,000 is too much but he will pay $4,000. Kristin says no. Two days later, Ian says that Kristin's original offer is acceptable. Which of the following best describes this situation?

A) There is now a valid contract between Kristin and Ian. B) Ian's counteroffer of $4,000 terminated Kristin's original offer.

C) Kristin may now accept Ian's counteroffer.

D) Ian made a counteroffer, but Kristin's offer may still be accepted.

Answer: B Diff: 3 Topic: Agreement: Offer and Acceptance (Termination of an Offer) 63) Anita offered to sell her condo to Bill. Before Bill could accept, one of the parties was killed in a car accident. The remaining party wishes to go through with the contract. Which of the following best describes this situation?

A) The death of either party terminated the offer.

B) If Anita died, Bill can still accept the offer; Anita's estate will be liable for the contract.

C) If Bill died, Bill's heirs can still accept the offer.

D) If Anita died, the offer is terminated; but if Bill died, Bill's heirs can still accept the offer.

Answer: A Diff: 2 Topic: Agreement: Offer and Acceptance (Termination of an Offer)

99 .

64) Two friends, Ann and Mary, are having Margaritas at happy hour. There had been no discussion of who would pay for the drinks. After the third round of drinks, Ann said, "I will pay for everything tonight including your drinks." A couple of minutes later, Ann says, "I've changed my mind. I just remembered that they might be having layoffs at my toxic job tomorrow." Mary wants to force Ann to perform on her promise and threatens to sue. In this circumstance a court would: A) Not require Ann to follow through on the promise because it was a gratuitous promise.

B) Require Ann to follow through on the promise under the doctrine of promissory estoppel.

C) Require Ann to follow through on the promise if Mary had previously paid a comparable amount for food or drinks consumed by Ann. D) Require Ann to follow through on the promise if it would be a hardship for Mary to pay for her own drinks.

Answer: A Diff: 3 Topic: Consideration (Gift Promise) 65) There is an existing contract calling for Seller to deliver 1,000 widgets to Buyer. Buyer says to Seller, "I would like to buy 100 additional units at the same price." Seller responds, "We promise to sell you the 100 extra units if we decide not to sell them to other customers."

Regarding only the sale of the extra 100 units: A) There is no consideration due to an illusory promise.

B) There is no consideration due to a pre-existing duty.

C) There is no consideration due to a past consideration.

D) There is consideration due to promissory estoppel.

Answer: A Diff: 2 Topic: Consideration (Contracts that Lack Consideration) 66) You and Gary enter a contract where you will receive $1,000 if you tamper with a slot machine in the "Bye-bye Bucks Casino" in Las Vegas so that Gary can make it pay out a jackpot whenever he wants it to. You perform your part of the contract, but Gary doesn't pay. In your breach of contract suit against Gary, the court will: A) Find you guilty of tampering with a gaming device (assuming it is illegal to do so).

B) Make him pay you if he has benefited from making the machine pay out.

C) Make him pay you regardless of whether he has received any payouts because you have performed your part of the contract.

D) Ignore the contract and dismiss the case.

Answer: D Diff: 2 Topic: Legality

100 .

67) Briefly discuss the difference between valid, void, voidable and unenforceable contracts.

Answer: Valid contracts meet all of the essential elements, agreement, consideration, capacity and lawful object; Void contracts have no legal effect; Voidable contracts are those in which at least one of the parties have the option to avoid contractual obligations; Unenforceable contracts are those in which there is some legal defense to the enforcement of the contract.

Diff: 2 Topic: Classification of Contracts (Valid, Void, Voidable, and Unenforceable Contracts) 68) Fran, a freshman, arrives at college ready to start her first year. Her parents give her $1,000 as an early birthday present because her 18th birthday is in October. She purchases the latest appliance from a local store: a compact (size of a file cabinet) combination beer-brewing refrigerator. The compact size allows her to fit it in her dorm room without her Resident Advisor (RA) knowing about it, which is important because such appliances are not allowed in her dorm.

Not only is it the size of a file cabinet, it is made to look like one. One hot September afternoon, her RA notices her dispensing a beer and discovers that the file cabinet is in reality a microbrewery. The following conversation takes place: RA: You have 24 hours to get that out of here!

Fran: But then it'll be a hassle to get beer.

RA: Yeah, I know what you mean. That sure is convenient. How is the beer?

Fran: It's pretty good. Better even than Snail Ale or Critter Bitter. If you let me keep this here all year, you can have unlimited access, except when I'm sleeping.

RA: It's a deal, so long as you don't tell anyone about it.

Fran: OK. Fran soon becomes the most popular person in her dorm. The people coming and going to her room prompt the RA to tell her just after Thanksgiving that she must remove the appliance at the end of the semester. She sues the RA for breach of contract. Discuss the arguments that each might raise and the court's likely resolution.

Answer: Fran has given consideration; the RA likely has not because she gave up no rights of her own. Large crowds may mean that Fran breached. This agreement would be illegal, at least for violating public policy if not considered to violate a statute.

Diff: 3 Topic: Legality

101 .

69) Consider the following sequence of events.

June 1: Yearly wrote ShopWise a letter offering to sell 50,000 photo albums.

June 3: ShopWise received the offer.

June 5: Yearly received notification of a significant price increase in the paper used to manufacture the photo albums.

June 6: Yearly wrote ShopWise a letter revoking the June 1 offer.

June 8: ShopWise wrote Yearly a letter accepting the offer for the photo albums.

June 9: ShopWise received the letter revoking the offer.

June 10: Yearly received ShopWise's letter of acceptance.

Is there an agreement between ShopWise and Yearly for the photo albums? Explain your answer in detail.

Answer: There is an agreement between ShopWise and Yearly for the photo albums. An agreement was formed when ShopWise mailed its letter of acceptance on June 8. Agreement is offer followed by acceptance. In this case, the offer is the letter of June 1 and the acceptance is ShopWise's letter of June 8. To answer this question, two rules are important: the mailbox rule, which holds that acceptance is effective upon dispatch; and the rule that revocation is not effective until received by the offeree. Yearly's offer was open when ShopWise mailed its letter of acceptance because ShopWise had not yet received the letter of revocation. Thus, by application of the mailbox rule, a contract was formed when ShopWise mailed the letter of acceptance.

Diff: 2 Topic: Agreement: Offer and Acceptance (Mailbox Rule) 70) Paul's uncle offers Paul $5,000 if he is able to graduate from college. Paul's uncle did not know that Paul had already graduated. Can Paul claim the $5,000?

Answer: Since Paul had already graduated, there is no bargained-for exchange and thus no consideration. Paul will not be able to claim the $5,000.

Diff: 2 Topic: Consideration (Contracts that Lack Consideration) 71) A ________ contract is a contract entered into by a way of exchange of promises of the parties, a "promise for a promise."

Answer: Bilateral 72) A contract where agreement between parties has been inferred from their conduct is referred to as an ________ contract.

Answer: Implied-in-fact 73) An ________ contract is a contract that has not been fully performed by either or both sides.

Answer: Executory 74) A contract is said to be ________ where one or both parties has the option to void the contractual obligations.

Answer: Voidable

102 .

75) An agreement requires an ________ and an ________.

Answer: Offer and acceptance.

76) An offeror can ________ an offer by withdrawing an offer prior to its acceptance.

Answer: Revoke 77) An ________ is a response by an offeree that contains terms and conditions different from, or in addition to, those of the offer.

Answer: Counteroffer 78) Under the mailbox rule, an acceptance is effective when ________.

Answer: Dispatched 79) The ________ rule states that the offeree must accept the terms of an offer as stated in the offer.

Answer: Mirror image 80) ________ is something of legal value given in exchange for a promise.

Answer: Consideration 81) A contract into which parties enter, but where one or both of the parties can choose not to perform their contractual obligations, is said to involve ________ promises.

Answer: Illusory 82) The infancy doctrine allows minors to ________ contracts they have entered into with adults.

Answer: Disaffirm

103 .

Chapter 10 Performance of Traditional and E-Contracts 1) Generally, a unilateral mistake does not allow either party to rescind the contract.

Answer: TRUE Diff: 1 Topic: Genuineness of Assent 2) Where two parties contract for the sale of an old violin, but neither party realizes that it is a rare and extremely valuable violin, this is a mutual mistake of fact allowing rescission.

Answer: FALSE Diff: 2 Topic: Genuineness of Assent (Mistake) 3) To be actionable as fraud, the misrepresentation must be of a future or existing fact.

Answer: FALSE Diff: 2 Topic: Ethics Spotlight (Fraudulent Misrepresentation) 4) A contract entered into because of duress is illegal and thus, void.

Answer: FALSE Diff: 2 Topic: Genuineness of Assent (Duress) 5) A contract that unduly benefits the dominant party in which he can take advantage of another's weakness has been made under undue influence.

Answer: TRUE Diff: 1 Topic: Genuineness of Assent (Undue Influence) 6) A contract entered into by one against who undue influence has been exerted is voidable on the part of the innocent party.

Answer: TRUE Diff: 1 Topic: Genuineness of Assent (Undue Influence) 7) The primary purpose of the Statute of Frauds is to punish people who perpetrate frauds using contracts.

Answer: FALSE Diff: 2 Topic: Statute of Frauds--Writing Requirement

104 .

8) A fully performed oral contract that should have been in writing under the Statute of Frauds can be rescinded by either party.

Answer: FALSE Diff: 1 Topic: Statute of Frauds--Writing Requirement 9) Generally speaking, an oral contract that the Statute of Frauds requires to be in writing is voidable.

Answer: FALSE Diff: 2 Topic: Statute of Frauds--Writing Requirement 10) The "part performance" exception to the Statute of Frauds would allow enforcement against the seller in an oral contract for the transfer of land if the buyer had already paid for the land.

Answer: TRUE Diff: 1 Topic: Statute of Frauds-Writing Requirement (Equity: Doctrine of Part Performance) 11) A mortgage represents an interest in real property.

Answer: TRUE Diff: 1 Topic: Statute of Frauds-Writing Requirement (Contracts Involving Interests in Land) 12) A fixture is personal property permanently affixed to real property and thus, is the personal property of the owner of the real property.

Answer: FALSE Diff: 2 Topic: Statute of Frauds-Writing Requirement (Contracts Involving Interests in Land) 13) A contract for lifetime employment must be in writing to be enforceable.

Answer: FALSE Diff: 2 Topic: Statute of Frauds-Writing Requirement (One-Year Rule) 14) A guaranty situation involves two contracts and three parties.

Answer: TRUE Diff: 2 Topic: Statute of Frauds-Writing Requirement (Guaranty Contract) 15) The Uniform Commercial Code has a Statute of Frauds.

Answer: TRUE Diff: 1 Topic: Statute of Frauds-Writing Requirement (Contract for the Sale or Lease of Goods)

105 .

16) The equal dignity rule requires real property to be in writing.

Answer: FALSE Diff: 1 Topic: Statute of Frauds-Writing Requirement (Equal Dignity Rule) 17) To be sufficient under the Statute of Frauds, a writing must be signed by the party who is bringing a suit to enforce the contract.

Answer: FALSE Diff: 1 Topic: Statute of Frauds-Writing Requirement (Formality of Writing) 18) All rights in a contract can be assigned.

Answer: FALSE Diff: 1 Topic: Third-Party Rights (Assignment) 19) An intended third party beneficiary can enforce a contract against the party who promised to render performance.

Answer: TRUE Diff: 2 Topic: Third-Party Rights (Intended Beneficiaries) 20) A promise that contains a condition that must be met before the promise is binding is known as a covenant.

Answer: FALSE Diff: 1 Topic: Promises of Performance 21) In a condition subsequent, the duty of performance is discharged upon the failure to meet a condition after the duty has already arisen.

Answer: TRUE Diff: 1 Topic: Promises of Performance (Conditions of Performance) 22) An accord and satisfaction discharges the original contract upon the formation of the accord.

Answer: FALSE Diff: 2 Topic: Discharge of Performance (Discharge by Agreement) 23) In a novation, only one of the original parties is replaced by a new party.

Answer: TRUE Diff: 2 Topic: Discharge of Performance (Discharge by Agreement)

106 .

24) Tender of performance discharges a party's contractual duties because it involves an absolute offer to perform obligations.

Answer: TRUE Diff: 2 Topic: Breach of Contract (Complete Performance) 25) Substantial performance entitles the performing party to full payment of the contract price.

Answer: FALSE Diff: 2 Topic: Breach of Performance (Substantial Breach: Minor Breach) 26) Substantial performance is performance that is complete enough that there is no breach.

Answer: FALSE Diff: 2 Topic: Breach of Performance (Substantial Breach: Minor Breach) 27) A supervening illegality makes a contract voidable.

Answer: FALSE Diff: 2 Topic: Discharge of Performance (Discharge by Impossibility) 28) Parties to a contract may include force majeure clauses in a contract that excuses nonperformance caused by natural disasters such as floods, tornadoes, earthquakes, and such.

Answer: TRUE Diff: 1 Topic: Discharge of Performance (Discharge by Agreement) 29) The primary goal of compensatory damages is to place the parties in the position that they were in prior to the formation of the contract.

Answer: FALSE Diff: 1 Topic: Monetary Damages (Compensatory Damages) 30) Only those consequential damages that are known or foreseeable can be collected.

Answer: TRUE Diff: 1 Topic: Monetary Damages (Consequential Damages) 31) Liquidated damages will be invalidated if they are excessive or unconscionable.

Answer: TRUE Diff: 1 Topic: Monetary Damages (Liquidated Damages) 32) Mitigation of damages is a doctrine that requires a nonbreaching party to minimize damages.

Answer: TRUE Diff: 1 Topic: Monetary Damages (Mitigation of Damages) 107 .

33) Specific performance is usually available for the buyer in contracts for the sale of land.

Answer: TRUE Diff: 1 Topic: Equitable Remedies (Specific Performance) 34) Specific performance is the primary remedy used to make a party live up to her obligations under a personal services contract.

Answer: FALSE Diff: 2 Topic: Equitable Remedies (Specific Performance) 35) The general standard to obtain an injunction is that the party seeking the injunction would suffer irreparable injury without the injunction.

Answer: TRUE Diff: 1 Topic: Equitable Remedies (Injunction) 36) What is the effect of one party being mistaken about the subject matter of a contract?

A) The mistaken party can rescind the contract.

B) Either party can rescind the contract.

C) Either party can rescind the contract, and the mistaken party can recover damages.

D) Neither party can rescind the contract or recover damages.

Answer: D Diff: 2 Topic: Genuineness of Assent (Mistake) 37) Where two parties contract for the purchase and sale of an ordinary item, such as a desk, that unknown to both parties is a rare and valuable example of that item, this is: A) A unilateral mistake.

B) A case of fraud in the inception.

C) A mutual mistake of fact.

D) A mistake of value, but not a mistake of fact.

Answer: D Diff: 2 Topic: Genuineness of Assent (Mistake) 38) A plaintiff in a fraud case must prove the following except: A) Justifiable reliance.

B) False statement of a material fact.

C) Intent to deceive.

D) Motivation behind the false statement or statements.

Answer: D Diff: 2 Topic: Ethics Spotlight (Fraudulent Misrepresentation)

108 .

39) Which of the following best describes duress?

A) A situation where a trust relationship has been violated in forming a contract.

B) A situation where a party has improperly given the other party no alternative but to enter into a contract.

C) A situation where one party has lied to the other to lead them to enter into a contract.

D) A situation where, after the contract was negotiated, circumstances have changed so that one of the parties is in a desperate circumstance and cannot reasonably perform.

Answer: B Diff: 2 Topic: Genuineness of Assent (Duress) 40) Undue influence is characterized by one party being put at a disadvantage in a contract due to: A) A party taking advantage of superior knowledge about the subject matter in a contract.

B) A party taking advantage of economic advantage in a transaction.

C) A party taking advantage of it being less urgent for that party to reach an agreement.

D) A party taking advantage of another's weakness Answer: D Diff: 2 Topic: Genuineness of Assent (Undue Influence) 41) In general, the Statute of Frauds sets requirements for: A) Kinds of damages that are recoverable.

B) Kinds of contracts that must be in writing to be enforceable.

C) Kinds of misrepresentations that are actionable.

D) Kinds of reliance that is justifiable.

Answer: B Diff: 2 Topic: Statute of Frauds--Writing Requirement 42) If a judge rules that a party has lost its case because of the Statute of Frauds, the judge has essentially stated that: A) The losing party purposely deceived the other party about a material fact.

B) The losing party is not allowed to introduce evidence to contradict a written agreement.

C) The losing party cannot enforce an oral contract that should have been in writing.

D) The losing party was found by the court to have lied, and will therefore lose the case.

Answer: C Diff: 3 Topic: Statute of Frauds--Writing Requirement

109 .

43) If a contract is not enforced on the basis of the Statute of Frauds, the court has based its decision on the presence of which type of fraud?

A) Fraud in the inducement.

B) Fraud in the inception.

C) Fraud by concealment.

D) The decision would not have been based on the presence of any of these types of fraud.

Answer: D Diff: 3 Topic: Statute of Frauds--Writing Requirement 44) For Statute of Frauds purposes, an interest in land includes: A) Fixtures.

B) Mortgages, leases, easements, and life estates.

C) Insurance contracts on interests in land.

D) A and B only.

Answer: D Diff: 1 Topic: Statute of Frauds-Writing Requirement (Contracts Involving Interests in Land) 45) The one-year period for determining whether a contract is required to be in writing under the Statute of Frauds is measured from the date that: A) The contract is formed until its stated completion date.

B) Performance begins until it is actually completed.

C) The contract is formed until it is actually completed.

D) Performance begins until its stated completion date.

Answer: A Diff: 2 Topic: Statute of Frauds-Writing Requirement (One-Year Rule) 46) In a guaranty arrangement, the guarantor: A) Promises to pay the debt of another in any circumstance.

B) Promises to pay the debt of another if that other person does not pay.

C) Promises to pay the debt of another contingent upon the happening of an external event.

D) Promises to assume responsibility for the quality of goods.

Answer: B Diff: 3 Topic: Statute of Frauds-Writing Requirement (Guaranty Contract) 47) When a contract for the sale of goods is modified such that the total price due under the contract increases, under what circumstances must the agreement to modify be in writing?

A) If the original contract amount was $500 or more.

B) If the contract price is changed by more than $500.

C) If the new contract price is more than $500.

D) B and C only.

Answer: C Diff: 2 Topic: Statute of Frauds-Writing Requirement (Contract for the Sale or Lease of Goods) 110 .

48) Which of the following is true concerning the writing required by the Statute of Frauds?

A) The written contract does not have to be drafted by a lawyer or typed.

B) Any writing including sales receipts and handwritten agreements on scraps of paper are sufficient.

C) A written contract may be enforceable against one party but not the other.

D) A, B, and C. Answer: D Diff: 2 Topic: Statute of Frauds-Writing Requirement (Formality of Writing) 49) An unconditional promise to perform is known as a(n): A) Irrevocable offer.

B) Firm offer.

C) Covenant.

D) Estoppel promise.

Answer: C Diff: 1 Topic: Promises of Performance (Covenant) 50) Under a mutual rescission, the parties to a contract: A) Agree to new terms.

B) Involve a third party in the contract.

C) Agree to undo and cancel a contract.

D) Agree to perform a contract a second time under the same terms as the original.

Answer: C Diff: 1 Topic: Discharge of Performance (Discharge by Agreement) 51) The release of one party to a contract and the substitution of another party for the released party is called: A) A substitution by law.

B) A summation.

C) A novation.

D) An adjudication.

Answer: C Diff: 2 Topic: Discharge of Performance (Discharge by Agreement) 52) An accord and satisfaction: A) Usually arises in settlement of a dispute under the original contract.

B) Involves a third party in the contract.

C) Discharges the original contract's duties upon reaching the accord.

D) Can come into existence even if only one party wants it.

Answer: A Diff: 2 Topic: Discharge of Performance (Discharge by Agreement) 111 .

53) Under which of the following is a new party brought into an existing contract?

A) Mutual rescission.

B) Novation.

C) Accord and satisfaction.

D) Both A or B. Answer: B Diff: 2 Topic: Discharge of Performance (Discharge by Agreement) 54) A force majeure clause: A) Prohibits assignment of contract rights.

B) Creates a third-party beneficiary.

C) Excuses performance in the event of a natural disaster.

D) Requires that the performance meet the personal satisfaction of the promisee.

Answer: C Diff: 2 Topic: Discharge by Agreement 55) Assume that one party substantially, but not completely, performs a contract, creating a minor breach. Which of the following remedies may the aggrieved party choose?

A) Deduct the cost necessary to complete performance from the payment due to the breaching party.

B) Sue the breaching party for the cost to complete performance.

C) Rescind the contract.

D) A and B only.

Answer: D Diff: 2 Topic: Breach of Performance (Substantial Breach: Minor Breach) 56) Which form of damages is intended to make a party "whole" as as result of a breach of a contract?

A) Compensatory damages.

B) Consequential damages.

C) Punitive damages.

D) Nominal damages.

Answer: A Diff: 2 Topic: Monetary Damages (Compensatory Damages)

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57) "Benefit of the bargain" is another way to refer to which type of damages?

A) Compensatory damages.

B) Punitive damages.

C) Reliance damages.

D) Liquidated damages.

Answer: A Diff: 1 Topic: Monetary Damages (Compensatory Damages) 58) Which of the following damages must be foreseeable in order to be collected?

A) Consequential.

B) Nominal and liquidated.

C) Compensatory, consequential, and punitive.

D) Consequential and compensatory.

Answer: A Diff: 2 Topic: Monetary Damages (Consequential Damages) 59) Damages that are fixed in the amount to be awarded in the event of a breach are known as: A) Punitive damages.

B) Liquidated damages.

C) Consequential damages.

D) Conditional damages.

Answer: B Diff: 1 Topic: Monetary Damages (Liquidated Damages) 60) _____ is an equitable doctrine that permits the court to rewrite a contract to express the parties' true intentions.

A) Rescission B) Specifid Performance C) Reformation D) An injunction Answer: C Diff: 2 Topic: Remedies 61) Which of the following is not an equitable remedy?

A) Specific performance.

B) Monetary damages.

C) Reformation.

D) Injunction.

Answer: B Diff: 2 Topic: Equitable Remedies

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62) Specific performance is generally awarded: A) In cases where nominal damages are also awarded.

B) Where the contract involves the sale of property that is unique.

C) Only under the U.C.C. D) When the nonbreaching party requests it.

Answer: B Diff: 1 Topic: Equitable Remedies (Specific Performance) 63) Jill asks Jack to give her an estimate of the price of building a fence around her orchard. Jack inspects and measures Jill's apple orchard and gives Jill an estimate of $1,000. Jill agrees to the price and they sign a contract. Jill, however, had wanted a fence around her peach orchard, which is much larger than the apple orchard on which Jack based his estimate. Jack says he cannot build a fence around the peach orchard for $1,000, but Jill wants to hold Jack to the $1,000 for a fence around the peach orchard. If there is no way to determine which orchard was intended to be fenced, this is most likely a case of: A) Mutual mistake.

B) Unilateral mistake.

C) Innocent misrepresentation.

D) Fraud in the inducement.

Answer: A Diff: 3 Topic: Genuineness of Assent (Mistake) 64) Joanne goes to a garage sale where she finds jewelry for sale. She buys a handful of what appears to be costume jewelry for her daughter to play with. She pays $5 for it. Later, a friend of Joanne happens to see the jewelry and discovers that one piece consists of diamonds and is worth about $2,000. If the seller of the jewelry sought to rescind this contract, which of the following is true?

A) This is a case of mutual mistake, which allows either party to rescind the contract.

B) This is a case of mutual mistake in value; the contract is fully enforceable.

C) This is a case of unilateral mistake by the seller, who can rescind the contract.

D) This is a case of fraud in the inducement, and the seller can rescind the contract.

Answer: B Diff: 2 Topic: Genuineness of Assent (Mistake)

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65) Mark was shopping for a used car in February. He went to AutoMegaWorld and test-drove a used 2004 Tiger XL. While driving the car, he looked at the climate control center and noticed that the temperature lever was marked "cold" at one end in blue and "hot" at the other end in red.

Mark assumed that the "cold" marking meant that the car had air conditioning. Mark had always wanted to have an air-conditioned car. He did not discuss air conditioning in any way with the salesperson. Mark bought the car. When Mark was showing his new car off to friends, one of them pointed out to him that the car was not air-conditioned. In this circumstance: A) Mark can avoid the contract on the basis of mutual mistake.

B) Mark can avoid the contract on the basis of unilateral mistake.

C) Mark can avoid the contract on the basis of fraud in the inducement.

D) Mark cannot avoid the contract on the basis of his unilateral mistake.

Answer: D Diff: 2 Topic: Genuineness of Assent (Mistake) 66) You go to the Cosmic Runners Supply Store in Asheville. The sales person shows you some shoes and says, "In a race, these shoes pick up the cosmic energy from the runners around you and channel it into your own legs. This causes anyone wearing these shoes to run twice as fast as in normal shoes and makes those around you run more slowly." In your next race, you do only slightly better than usual, and those around you seem to run as fast as usual. If you sue for fraud: A) You would lose because the statement did not contain a factual assertion.

B) You would lose because your reliance was not justified.

C) You would win if most runners do not go twice as fast in the cosmic shoes.

D) Proving only the salesperson's intent to deceive is enough to win your fraud case.

Answer: B Diff: 3 Topic: Ethics Spotlight (Fraudulent Misrepresentation) 67) Seller and Buyer negotiate for the sale of 100 acres of land. They orally agree on a price of $100,000, with payment to be made within 10 days and the deed delivered within another 30 days. Buyer sends Seller a letter in which all these terms are included, along with a check for $100,000 that the seller deposits. The seller fails to deliver a deed and the buyer seeks to enforce the contract. This contract is: A) Enforceable, because Buyer had partly performed the contract by making payment.

B) Unenforceable, because there is no writing signed by Seller.

C) Enforceable, because Buyer sent a memorandum sufficient against himself, which binds Seller unless Seller objects, which he did not.

D) Unenforceable, because the failure to deliver the deed is fraud.

Answer: A Diff: 2 Topic: Statute of Frauds-Writing Requirement (Equity: Doctrine of Part Performance)

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68) Jack and Jill were discussing business over lunch when they agreed on the sale of some goods. Because neither of them had any paper with them, Jack wrote the following on a napkin: "Jill agrees to purchase from Jack, 1,000 widgets to be delivered on July 1, at a cost of $10,000, payable on delivery." Jill signed the napkin, although Jack did not sign it. Jack delivered the widgets per the contract, but Jill refuses to pay for them. If Jack sues Jill for the price of the goods, the most likely result is: A) Jill will win because this writing is not sufficient under the Statute of Frauds.

B) Jack will win because the writing is sufficient under the Statute of Frauds.

C) Jill will win because Jack did not sign the contract.

D) Jack will win because the Statute of Frauds does not apply to this situation.

Answer: B Diff: 2 Topic: Statute of Frauds-Writing Requirement (Formality of Writing) 69) Sarah agrees to paint John's house for $5,000. After Sarah finishes the job, John complains that it was not done correctly. After much discussion, they agree that the contract will be satisfied if John gives Sarah $4,000 and a certain diamond necklace. Which of the following statements is true concerning this situation?

A) This is an accord and satisfaction; if John fails to perform, Sarah can sue only for the $4,000 and the necklace.

B) This is an accord and satisfaction; if John fails to perform, Sarah can sue only for the $5,000 originally promised.

C) This is an accord and satisfaction; if John fails to perform, Sarah can sue to enforce either the original $5,000 or the $4,000 and the necklace.

D) This is a novation; if John fails to perform, Sarah can sue to enforce either promise.

Answer: C Diff: 3 Topic: Discharge of Performance (Discharge by Agreement) 70) Pat Painter contracts to paint Harry Homeowner's home for $6,000. Pat would supply all materials at a cost to Pat of $1,000. Harry breaches by refusing to let Pat paint the house, which Pat found out before spending any money on the materials. Pat is able to find another job that nets a profit of $4,200 during that same time that Harry's house was to be painted. How much can Pat recover from Harry in damages?

A) $0.

B) $800.

C) $1,800.

D) $3,200.

Answer: B Diff: 2 Topic: Monetary Damages (Compensatory Damages)

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71) A construction contractor entered into a contract to build a family room addition onto Harry's home for $25,000. The agreement provided that the contractor would be penalized $2,000 as liquidated damages for each day that the project was late in getting finished. The contractor was 30 days late in finishing the project, but otherwise met the terms of the agreement. In this situation, most likely: A) The liquidated damages clause would not be enforced due to its being excessive.

B) The liquidated damages clause would be limited to $25,000, the amount of the contract price.

C) The liquidated damages clause would be enforced.

D) The liquidated damages clause would not be enforced because the parties made a mutual mistake about when the contract would be finished.

Answer: A Diff: 2 Topic: Monetary Damages (Liquidated Damages) 72) If someone buys a piece of artwork that neither the buyer nor seller knows is a masterpiece, this is considered a mutual mistake of value. Can the seller rescind such a contract? If, however, a buyer and seller think the piece of artwork being sold is a particular masterpiece, but in fact it is not, this is considered a mutual mistake of fact. Can the buyer in this case rescind the contract?

Why is the result different in these two situations? What is different about the two situations that would suggest that they have different outcomes?

Answer: When the parties believe that the item is an ordinary example, the basis of their bargain is "a painting," for example, even if it turns out to be a masterpiece, it does not change the fact that it is a painting, thus there is no mistake of fact. On the other hand, if the contract is for a "Picasso painting" and it turns out to not be a Picasso, then the subject matter of the contract was not the Picasso painting that the parties mistakenly believed it to be. They had a mutual mistake of fact, and either (although most likely the purchaser) can choose to rescind the contract.

Diff: 2 73) Why is the general measure of compensatory damages "benefit of the bargain" rather than a measure based on returning the parties to the position that they were in prior to the contract?

What do you think is the best approach?

Answer: Benefit of the bargain protects the nonbreaching party. If the parties merely had to be returned to the status quo, there would be less incentive to perform contracts. In many cases it simply is not possible to return both parties to the status quo.

Diff: 2

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74) Sam wants to sell his stereo system because one side of his amplifier occasionally doesn't work properly and the cost of repair is so high that Sam wants to get a new stereo. Otherwise, it works well and the sound quality is very good. Sam places an advertisement in the newspaper and Bob comes to look at it. Bob tries it out and likes what he hears. The following conversation then takes place: Bob: How does it work?

Sam: Listen for yourself. Isn't that sound great?

Bob: Yes it is. Have you ever had to have it repaired?

Sam: It's never been repaired ... it's just as it came from the factory. Try the CD, the cassette tape and the tuner. You'll see they all work.

Bob plays a cassette tape and after a few minutes, the sound on the left channel sounds distorted.

Bob: This was sounding great, and then all of a sudden it doesn't sound right. I know a lot about stereos and that just doesn't sound the way it should.

Sam: Try the CD and I'll get another tape.

Bob plays the CD and no further problem occurs. Bob then tries a different cassette tape and no further problem occurs. Bob spends an hour or so playing and testing the stereo system. Sam and Bob then negotiate a price. Bob pays and takes the stereo home only to discover the problem.

Bob wants to get out of the contract. Discuss whether Bob can get out of the contract and get his money back.

Answer: The fraud elements are present, although Bob's statement about knowing a lot about stereos, and his inspection of the stereo may negate the reliance element.

Diff: 3 Topic: Genuineness of Assent 75) One night at a restaurant, Mark and Mary wrote up an agreement on a couple of napkins about a construction project whereby Mark would build a room addition to Mary's house. Mark said he would do this in exchange for Mary agreeing to transfer an empty piece of land that she owned to Mark. It took two napkins because the agreement would not fit on a single napkin.

Mark signed one of the napkins, but Mary signed neither. The contract price was $30,000. A few days later Mark saw the plans, which were more complex than he expected. Discuss the enforceability of this contract.

Answer: A writing is required because the contract is for an interest in land. Note that the construction aspect is a services contract, not a sale of an interest in land. The writing requirement can be met with multiple writings so long as the essential terms are included. The contract can be enforced only against a party whose signature appears in the writing.

Diff: 2 Topic: Statute of Frauds--Writing Requirement

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76) Betty is retired and works on antique cars as a hobby, sometimes those belonging to others, and sometimes on cars that she purchases and restores for resale. Betty has a 1965 Ford Mustang on which she has completed the mechanical and exterior restoration. She has not yet begun the restoration of the interior, which needs a lot of work. Betty needs some money quickly so she advertises the Mustang for $13,000. Bob looks at it and enters into a written contract at $12,500.

Bob then offers to pay Betty $2,300 to complete the interior restoration. They agree, with the work to begin in two months and take about three months to complete. Betty changes her mind about selling the car. Can Bob get specific performance for these two contracts?

Answer: Although there are many old Mustangs in existence, it would probably meet the uniqueness test, entitling him to specific performance. Bob could not get specific performance for the personal services contract to restore.

Diff: 2 Topic: Remedies 77) Painter contracts to paint Owner's home for $2,000. In each of the following unrelated circumstances, indicate what amount of damages Owner is entitled to recover from Painter.

A. Painter stops work when halfway finished. Owner pays someone else $1,700, a reasonable amount, to finish the work. Owner has paid Painter $700.

B. Painter stops work when 75% finished with the job. Owner pays someone else $1,700, a reasonable amount, to finish the work. Owner has paid Painter $700.

C. Painter stops work when 50% finished with the job. Owner pays someone else $1,700 to finish the job, but could have paid yet another person $1,500 to finish it. Owner has paid Painter $700.

D. Painter stops work when 50% finished with the job. Painter finds someone who will finish the work for $1,100. However, the delay caused $200 in water damage and Owner missed an opportunity to rent an upstairs apartment for $400 per month. Owner has paid the original painter $1,200 and the new painter $1,100.

Answer: A. $400 B. $400 C. $200 D. $300 compensatory, $200 for water damage, and lost rent until Owner could find another tenant; difference in rent if he must rent at less than $400.

Diff: 3 Topic: Remedies 78) Can a star NFL quarterback, under a long-term multimillion dollar contract be required to play if he does not want to?

Answer: No. Specific performance is not available in a service contract. The appropriate remedy would be damages. Note: Negative specific performance, stopping him from playing for another team of his choice, might be appropriate.

Diff: 2 Topic: Remedies 79) A ________ occurs when only one party is mistaken about a material fact regarding the subject matter of the contract.

Answer: Unilateral mistake 119 .

80) ________ occurs where one party threatens to do some wrongful act unless the other party enters into a contract.

Answer: Duress 81) A promise where one person agrees to answer for the debts or duties of another can be referred to as a ________ contract.

Answer: guaranty 82) A condition that requires the occurrence of an event before a party is obligated to perform a duty under a contract is a condition ________.

Answer: Precedent 83) A condition, if it occurs, that automatically excuses the performance of an existing contractual duty to perform is a condition ________.

Answer: Subsequent 84) A ________ substitutes a third party for one of the original contracting parties.

Answer: Novation 85) The parties to a contract may agree to settle a contract dispute by an ________ and ________ whereby the parties agree to and do accept something different in satisfaction of the original contract.

Answer: Accord and satisfaction 86) A ________ occurs when a party fails to perform certain express or implied obligations that impair or destroy the essence of the contract.

Answer: Material breach 87) ________ are intended to compensate a nonbreaching party for the loss of the bargain.

Answer: Compensatory damages 88) If a contract is breached, the damages to which parties to a contract agree in advance are referred to as ________.

Answer: Liquidated damages 89) If a contract has been breached, the law places a duty on the innocent nonbreaching party to take reasonable efforts to avoid and reduce the resulting damages. This is known as ________.

Answer: Mitigation 90) An obligee who transfers a right is called an ________.

Answer: Assignor 91) A _____ is an unconditional promise to perform Answer: Covenant

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92) _____ are remedies that may be awarded by a judge when there has been a breach of contract and either the legal remedy is not adequate or the judge wants to prevent unjust enrichment.

Answer: Equitable remedies

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Chapter 11 Cyber Law and E-Commerce 1) A printout of a contract negotiated using email is usually sufficient to meet the requirements of the Statute of Frauds.

Answer: TRUE Diff: 1 Topic: Landmark Law (Electronic Signatures in Global and National Commerce Act) 2) The Electronic Communications Privacy Act protects electronic communications only while they are in transit.

Answer: FALSE Diff: 1 Topic: Internet Law & Online Commerce 3) Under the Electronic Communications Privacy Act, an employer can access the stored email of an employee if the employee's email is stored on a system provided by the employer.

Answer: TRUE Diff: 2 Topic: Internet Law & Online Commerce 4) In order for the government to access an individual's stored email pursuant to a criminal investigation, a search warrant is needed.

Answer: TRUE Diff: 2 Topic: Internet Law & Online Commerce 5) An example of an Internet domain name is www.prenhall.com.

Answer: TRUE Diff: 1 Topic: Domain Names 6) The price charged for the sale or transfer of Web domain names is regulated in order to prevent excessive prices from being charged.

Answer: FALSE Diff: 1 Topic: Internet Law & Online Commerce (Domain Names Sold for Millions) 7) Trademark laws adequately protect holders of trademarks from persons acquiring domain names in bad faith using the trademark, or confusingly similar names.

Answer: FALSE Diff: 1 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act) 122 .

8) The Anticybersquatting Consumer Protection Act protects any individual's name from being registered by another person.

Answer: FALSE Diff: 1 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act) 9) Intellectual property licensing agreements are relatively standard agreements that generally convey similar rights to licensees.

Answer: FALSE Diff: 1 Topic: E-Licensing (Licensing Agreement) 10) An intellectual property licensing arrangement is a method used to transfer certain rights of use, but not ownership, of intellectual property.

Answer: TRUE Diff: 2 Topic: E-Licensing (Licensing) 11) The parties to a license are the licensor and the licensee.

Answer: TRUE Diff: 1 Topic: E-Licensing (Licensing) 12) The Uniform Computer Information Transactions Act was passed by Congress in 1999.

Answer: FALSE Diff: 3 Topic: E-Licensing 13) Counteroffers are effective against electric agents.

Answer: FALSE Diff: 1 Topic: Internet Law & Online Commerce (Counteroffers Ineffectual Against Electronic Agent) 14) Electronic signatures must generally be followed up by executing a manual signature that essentially attests to the authenticity of the electronic signature.

Answer: FALSE Diff: 1 Topic: Landmark Law (Electronic Signatures in Global and National Commerce Act) 15) A licensor may use self-help in the event of the breach of a licensing agreement.

Answer: TRUE Diff: 1 Topic: E-Licensing (Remedies)

123 .

16) A party to a license agreement can demand an adequate assurance of performance if any reasonable grounds arise prior to the performance date that makes one party think that the other party may not deliver performance when due.

Answer: TRUE Diff: 1 Topic: E-Licensing (Remedies) 17) Lost profits are not available to the licensor as damages caused by a breach of contract by the licensee.

Answer: FALSE Diff: 1 Topic: E-Licensing (Remedies) 18) Cancellation is the termination of a contract by a contracting party upon the material breach of the contract by the other party.

Answer: TRUE Diff: 2 Topic: E-Licensing (Remedies) 19) A click-wrap license is a contract used by many software companies to sell their software over the internet or in physical packages, where the software is later installed on a computer.

Answer: TRUE Diff: 2 Topic: Internet Law & Online Commerce (Click-Wrap Licenses) 20) Cyber-assassins are those that register Internet domain names of famous people, companies and trademarks.

Answer: FALSE Diff: 2 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act) 21) Model acts promulgated by the National Conference of Commissioners on Uniform State Laws include the: A) Electronic Commerce Amendments to the Uniform Commercial Code.

B) Uniform Digital Tracing Act. C) Uniform Computer Information Transactions Act. D) B and C only Answer: C Diff: 1 Topic: E-Licensing

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22) Which of the following best describes how email contracts are viewed under the law?

A) Email contracts are not usually valid because of the ease of deleting email messages.

B) Email contracts for goods can be valid, but not email contracts for services.

C) Email contracts are valid only for contracts less than $500.

D) Email contracts are generally treated similarly to contracts negotiated by other means.

Answer: D Diff: 2 Topic: Landmark Law (Electronic Signatures in Global and National Commerce Act) 23) Which of the following is correct about the Electronic Communications Privacy Act? A) Law enforcement authorities can access an employee's email stored on the employer's computer system without a search warrant.

B) An employer has the right to view an employee's email that is stored on the employer's email system.

C) The Act contains civil limitations, but no criminal provisions.

D) The act applies to stored email, but not email in the process of transmission.

Answer: B Diff: 2 Topic: Internet Law & Online Commerce (Electronic Communications Privacy Act) 24) Which of the following is not one of the top-level domain name suffixes?

A) edu.

B) org.

C) com.

D) cty.

Answer: D Diff: 1 Topic: Exhibit 11.1 Commonly Used Top-Level Extensions for Domain Names 25) Internet domain names are assigned: A) By the Patent and Trademark Office.

B) By a subagency of the Commerce Department.

C) By Network Solutions, Inc., only.

D) By Network Solutions, Inc., and other authorized companies.

Answer: D Diff: 1 Topic: Domain Names

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26) In order to obtain a domain name, one must: A) Obtain clearance that the name is not confusingly similar to another name, and pay the appropriate fee.

B) Apply for the name, and if, within the waiting period, there are no objections to the applicant taking the name, pay the appropriate fee.

C) Verify that the name is not already taken, directly notify parties who might object to obtain their waiver of objection, and pay the appropriate fee.

D) Verify that the name is not already taken and pay the appropriate fee.

Answer: D Diff: 2 Topic: Domain Names 27) Which of the following is true about the sale of Internet domain names?

A) The fee for the transfer of an Internet domain name cannot be greater than the fee paid to register the name, prorated over the remaining period that the registration fee covers.

B) Amounts charged to transfer ownership of a domain name must be approved by the agency that initially sold the name.

C) Names have not been sold for more than nominal amounts.

D) Some names have been properly sold for millions of dollars.

Answer: D Diff: 2 Topic: Internet Law & Online Commerce (Domain Names Sold for Millions) 28) Which statute prohibits persons from obtaining, in bad faith, domain names relating to celebrities?

A) The Uniform Computer Information Transactions Act. B) The Act for the Cyberspace Prevention of the Misappropriation of Publicity Act. C) The Anticybersquatting Consumer Protection Act. D) The Internet Trademark and Personality Likeness Protection Act. Answer: C Diff: 2 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act) 29) Under the Anticybersquatting Consumer Protection Act, which of the following is true?

A) Prior approval by the affected celebrity is needed to obtain a domain name that is similar to a celebrity's name.

B) Penalties are imposed for obtaining any domain name that infringes on a valid trademark.

C) Domain names are granted only after ensuring that they do not infringe on a valid existing trademark.

D) A showing that the defendant acted in bad faith is required in order for the plaintiff to recover.

Answer: D Diff: 2 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act)

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30) Of the following, which celebrity(ies) was successful in recovering under the Anticybersquatting Consumer Protection Act from someone who improperly obtained an Internet domain name?

A) Julia Roberts B) Sting C) Both A and B D) Neither A nor B Answer: A Diff: 1 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act) 31) Which types of names are protected under the Anticybersquatting Consumer Protection Act? A) Any name of a natural person B) Names of famous persons only C) Names of famous companies, but only if the name is trademarked D) Names of famous persons or of famous companies, even if the name is not trademarked Answer: D Diff: 2 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act) 32) Licensing of informational rights can usually best be described as: A) A sale of the underlying intellectual property rights.

B) A lease of tangible personal property to the licensee.

C) Granting limited rights to use that cannot be simultaneously granted to others.

D) Granting any rights to use the information, which can differ greatly in scope and duration.

Answer: D Diff: 2 Topic: E-Licensing (Licensing) 33) Which of the following is not true about a licensing arrangement?

A) The licensor is the party who owns the rights to be licensed.

B) The arrangement transfers less than all the rights in the information.

C) A written licensing agreement is required under the Statute of Frauds.

D) The license can be either exclusive or nonexclusive.

Answer: C Diff: 2 Topic: E-Licensing (Licensing) 34) The Uniform Computer Information Transactions Act governs which types of transactions?

A) Any contract entered into by using electronic messages.

B) Contracts to create, transfer, or license computer information or informational rights.

C) Any contract for the sale of goods that is entered into by using electronic messages.

D) Any contract where payment is made electronically, including electronic credit card transactions.

Answer: B Diff: 2 Topic: Contemporary Environment (Uniform Computer Information Transactions Act) 127 .

35) Which of the following is generally true about contracts covered by the Uniform Electronic Transactions Act? A) An email printout is not admissible as evidence due to the ease with which a printout can be fabricated.

B) Email contracts cannot meet the Statute of Frauds requirements for a writing.

C) Electronic signatures are considered equivalent to handwritten signatures for meeting the Statute of Frauds requirements.

D) Electronic signatures have been held to be sufficient for contracts not required to be in writing under the Statute of Frauds, but not for meeting the Statute of Frauds signature requirement.

Answer: C Diff: 2 Topic: Contemporary Environment (Uniform Computer Information Transactions Act) 36) Under the Electronic Signature in Global and National Commerce Act, electronic signatures can be verified by the following methods except: A) By a secret password known by the signatory.

B) By a digitally encoded smart card belonging to the signatory.

C) By the use of a device that electronically recognizes fingerprints or parts of the eye.

D) By the use of a notary public to check digital identifying information.

Answer: D Diff: 1 Topic: Landmark Law (Electronic Signatures in Global and National Commerce Act) 37) Under the Uniform Computer Information Transactions Act, the licensee can revoke acceptance of the information if: A) There is a material breach and discovery of the nonconformity was difficult at the time of delivery but was later discovered.

B) There is a breach of any kind and discovery of the nonconformity was difficult at the time of delivery but was later discovered.

C) There is a material breach and after discovering the nonconformity at the time of delivery, the licensor agreed to cure the defect, but has not done so.

D) A or C will allow the licensee to revoke acceptance.

Answer: D Diff: 2 Topic: E-Licensing (Breach of Licensing Agreement)

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38) John works for a company that provides to all of its employees computers, access to a service provider that provides access to the Internet, and an email address. While at work, John often accesses the email account that he also uses at home. John's employer would like to access John's email to see if he is using company time for personal purposes. Which of the following is true?

A) The company must get a search warrant before it can access any of John's stored email.

B) The company can have access to email stored at John's work email address, but not to the email stored at the email address he usually accesses from home.

C) The company can have access to email stored at either location if the email at the address he accesses from home was sent or received during John's time at work.

D) The company cannot access any of John's stored email unless it obtains the assistance of law enforcement personnel and obtains a search warrant.

Answer: B Diff: 2 Topic: Internet Law & Online Commerce (Electronic Communications Privacy Act) 39) Mark recently started a small business, and acquired a domain name for the business. At the same time he remembered hearing about people buying up names related to companies and famous individuals and then selling the names for astronomical sums. Mark wants to buy the domain name, "Sharonstone.com." He figures he will start a fan club for the famous movie star, and then see if he can sell the domain name to her for a profit. Which is true in these circumstances regarding Mark's options?

A) He will be unable to buy the name because it is the name of a person.

B) He will have to give Sharon Stone the first opportunity to buy the name.

C) He could buy the domain name, but could be liable under the Anticybersquatting Consumer Protection Act if it is proven that he acted in bad faith in acquiring the name.

D) He could buy the domain name, but could be liable under the Anticybersquatting Consumer Protection Act if it can be proven that he acted in bad faith in acquiring the name and only if Sharon Stone can prove that she suffered damages from his Web site.

Answer: C Diff: 3 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act) 40) E-sign states: A) Electronic contracts meet the writing requirements of the Statute of Frauds.

B) Electronic signatures are acceptable.

C) It is part of state law.

D) None of the above Answer: A Diff: 2 Topic: Landmark Law (Electronic Signatures in Global and National Commerce Act)

129 .

41) Which of the following is NOT a requirement of the Controlling the Assault of NonSolicited Pornography and Marketing Act? A) It prohibits spammers from using falsified headers in e-mail messages.

B) It requires deceptive subject lines that mislead a recipient about the subject matter of the message.

C) It requires that receivers of spam be given an opportunity to opt out.

D) It requires spammers who send sexually oriented e-mail to properly label it as such.

Answer: A Diff: 2 Topic: Internet Law & Online Commerce (Controlling Spam: The Federal CAN-SPAM Act) 42) Spam accounts for approximately ________ percent of all business e-mail traffic.

A) 25 B) 50 C) 75 D) 99 Answer: C Diff: 1 Topic: Internet Law & Online Commerce (Controlling Spam: The Federal CAN-SPAM Act) 43) A ________ license is a contract used by many software companies to sell their software over the Internet or in physical packages, where the software is later installed on a computer.

A) click-wrap B) brick and mortar C) cover D) biometric Answer: A Diff: 1 Topic: Internet Law & Online Commerce (Click-Wrap Licenses) 44) Do you agree with the provisions of the Anticybersquatting Consumer Protection Act? Should alert individuals who purchase valuable domain names be able to sell them to the highest bidder? If so, in all circumstances or only in certain circumstances?

Answer: Most people believe (and the law allows) individuals to profit from selling valuable generic names such as "accountant.com" or "cars.com" because no one could claim to have had an interest in the name before the enterprising individual purchased it. Even so, some believe that individuals should not be able to profit solely by possessing a domain name that they never plan to use. Many more people believe that the purchasers of trademarked company names or names relating to celebrities should not be rewarded by what these critics claim is essentially an act of extortion. On the other hand, some believe that all is fair in love, war, and the grabbing of domain names. After all, these people believe, everyone had an equal opportunity to get the names.

Diff: 2 Topic: Internet Law & Online Commerce (Anticybersquatting Consumer Protection Act)

130 .

45) In contracts for the sale of goods, do the parties contracting electronically or face-to-face need more protections? What circumstances might affect your opinion?

Answer: On one hand, at least at the consumer level, the average consumer contracting over the Internet might have a slightly higher sophistication level than the average of all consumers, thus possibly needing less protection. On the other hand, due to the inability to personally know the other party, perhaps greater protections are appropriate. The fact that the parties are usually separated by great distance also argues for greater protections.

Diff: 2 46) Ingrid works for a large wholesale operation in the finance department. Morale has been low at Ingrid's company of late, and many employees have passed rumors and general complaints around on the email system that the company uses. This system is provided by a local Internet service provider so that the company does not have to maintain its own email system. Ingrid can access her work email from home, but she usually makes use of a different email system that she and other members of her family access at home. The situation at work has worsened because layoffs are rumored to be coming soon, and the controller has discovered that some funds have been embezzled from the company. The officers of the company have contacted the police department who are helping with the embezzlement investigation. The company has not officially told anyone about this investigation. Ingrid discovers that the company, along with police investigators, has been reading her saved email. They first went through her email at work, but from some forwarded messages, discovered her home email address, and convinced the Internet service provider to allow them access to that as well. Apparently she has become a suspect in the embezzlement investigation. Discuss the legality of these actions.

Answer: The company is able to read Ingrid's work email because the company is paying for and thus considered to be providing the work email. Because the company can properly access it, the company can probably voluntarily turn it over to the police investigator without a search warrant. A search warrant would be needed if the company did not want to turn it over. The access of her home email was improper and should have been done only pursuant to a valid search warrant.

Diff: 2 Topic: Internet Law & Online Commerce (Electronic Communications Privacy Act) 47) www.prenhall.com is an example of a ________.

Answer: Domain Name 48) The ECPA protects ________.

Answer: Electronic Communications 49) The ________ Act protects registering another's trademark in bad faith.

Answer: Anticybersquatting Protection 50) ".Com" is an example of a ________.

Answer: Top-level domain name 51) ________ represent computer addresses.

Answer: Domain Names 131 .

52) ________ gives acceptability to electronic contracts.

Answer: E-sign 53) The sale of goods and services by computer over the Internet is called ________.

Answer: e-commerce 54) A contract that transfers limited rights in intellectual property and information rights is called a ________.

Answer: license 55) A ________ is a contract used by many software companies to sell their software over the Internet or in physical packages, where the software is later installed on a computer.

Answer: click-wrap license 56) ________ is the termination of a contract by a contracting party upon the material breach of the contract by the other party.

Answer: Cancellation 57) In 2003, Congress passed ________, to address the fact that Americans were being bombarded by unsolicited commercial advertising.

Answer: the Controlling the Assault of Non-Solicited Pornography and Marketing Act (CANSPAM Act)

132 .

Chapter 12 Sales, Leases Contracts, and Warranties 1) Article 2 applies to a sale of goods.

Answer: TRUE Diff: 1 Topic: Introduction to Sales, Leases, and Warranties 2) Items that are included in the category of goods include: all tangibles, stocks, bonds and patents.

Answer: FALSE Diff: 2 Topic: Article 2 (Sales) 3) An exception of the normal rule dealing with offer revocations is the firm offer rule.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (UCC Firm Offer Rule) 4) Additional terms are automatically part of a contract unless objected to, a material alteration or not permitted by the contract itself.

Answer: TRUE Diff: 2 Topic: Contemporary Environment (UCC Battle of the Forms Rule) 5) Risk of loss and the title to goods transfer when goods are tendered by carrier when the shipping terms are FOB shipping point.

Answer: FALSE Diff: 2 Topic: Contemporary Environment (Shipping Terms) 6) Transfer of title to goods always occurs at time and place of contracting.

Answer: FALSE Diff: 1 Topic: Formation of Sales and Lease Contracts (Passage of Title) 7) Both the buyer and the seller can have an insurable interest in goods at the same time.

Answer: TRUE Diff: 2 Topic: Risk of Loss

133 .

8) CIF means the seller bears the risk of loading goods on the carrier.

Answer: TRUE Diff: 2 Topic: Contemporary Environment (Shipping Terms) 9) The doctrine of caveat emptor governed the law of sales and leases for centuries.

Answer: TRUE Diff: 1 Topic: Warranties 10) Buyer can claim goods before paying if the seller is insolvent.

Answer: FALSE Diff: 2 Topic: Exhibit 12.4 Buyer's and Lessee's Remedies 11) Seller can automatically sue for purchase price after any breach by the buyer.

Answer: FALSE Diff: 1 Topic: Exhibit 12.3 Seller's and Lessor's Remedies 12) Express warranties automatically arise upon the sale of goods..

Answer: FALSE Diff: 1 Topic: Warranties 13) The implied warranty of merchantability is disclaimed by language stating the goods are sold "as is".

Answer: TRUE Diff: 2 Topic: Warranties 14) An affirmation of valued does not create an express warranty.

Answer: TRUE Diff: 2 Topic: Warranties 15) The implied warranty of fitness for a particular purpose requires that goods must meet a buyer's expressed needs.

Answer: TRUE Diff: 2 Topic: Warranties 16) A sale by a non-owner never transfers good title.

Answer: FALSE Diff: 2 Topic: Risk of Loss 134 .

17) A thief transfers a void title.

Answer: TRUE Diff: 1 Topic: Risk of Loss 18) A lease is a transfer of rights to possession and use.

Answer: TRUE Diff: 1 Topic: Article 2A (Leases) 19) The lessor acquires rights in a lease.

Answer: FALSE Diff: 1 Topic: Article 2A (Leases) 20) The warranty of title is typically in a lease arrangement.

Answer: FALSE Diff: 1 Topic: Article 2A (Leases) 21) The minimum statute of frauds dollar amount for a lease is $500.

Answer: FALSE Diff: 2 Topic: Formation of Sales and Lease Contracts (UCC Statute of Frauds) 22) If an owner entrusts the possession of his goods to a merchant who deals in goods of that kind, the merchant has the power to transfer all rights to the goods to a buyer in the ordinary course of business.

Answer: TRUE Diff: 1 Topic: Risk of Loss 23) Written disclaimers must be conspicuously displayed to be valid.

Answer: TRUE Diff: 2 Topic: Warranties 24) Goods include all but: A) stocks.

B) minerals.

C) unborn young of animals.

D) pens.

Answer: A Diff: 1 Topic: Article 2 (Sales)

135 .

25) Which of the following represents a change from the common law of contracts as it applies to the U.C.C. and sales of goods?

A) The firm offer rule B) The statute of frauds C) The need for consideration D) The definition of breach Answer: A Diff: 2 Topic: Contemporary Environment (UCC Firm Offer Rule) 26) The following terms in a contract for the sales of goods are commonly left open: A) Price.

B) Payment.

C) Delivery.

D) All of the above.

Answer: D Diff: 1 Topic: Formation of Sales and Lease Contracts (Open Terms) 27) A lease is: A) never treated like a sale.

B) a transfer of the right to possession.

C) a transfer of title and risk of loss at the time of leasing.

D) none of the above.

Answer: B Diff: 1 Topic: Article 2A (Leases) 28) If one or both parties to a sales contract are nonmerchants, any additional terms are considered: A) proposed additions.

B) counteroffers.

C) an extinguishment of the original offer.

D) an acceptance.

Answer: A Diff: 2 Topic: Contemporary Environment (UCC Additional Terms Rule) 29) The UCC Statute of Frauds provisions apply to sales contracts for goods costing ________ or more.

A) $1,000 B) any amount C) $500 D) $750 Answer: C Diff: 1 Topic: Formation of Sales and Lease Contracts (UCC Statute of Frauds) 136 .

30) According to UCC2-204(3) and 2A-204(3), a contract does not fail because of indefiniteness if: A) the parties intended to make a contract.

B) there is a reasonably certain basis for giving an appropriate remedy.

C) neither A nor B D) both A and B Answer: D Diff: 3 Topic: Formation of Sales and Lease Contracts (Open Terms) 31) Risk of loss transfers to a buyer generally A) when goods are delivered to carrier if FOB shipping point.

B) when goods are tendered by carrier if FOB destination.

C) upon buyer's receipt of documents of title if title delivery is required.

D) all of the above Answer: D Diff: 2 Topic: Risk of Loss 32) When Seller refuses to deliver goods or delivers nonconforming goods, the Buyer can: A) reject the nonconforming goods.

B) always revoke acceptance of nonconforming goods.

C) cancel the contract D) all of the above Answer: D Diff: 2 Topic: Exhibit 12.4 Buyer's and Lessee's Remedies 33) If Buyer breaches while goods are in possession of the Seller, the Seller can: A) refuse delivery if buyer is insolvent.

B) cancel if buyer breaches.

C) sue for damages.

D) all of the above Answer: D Diff: 2 Topic: Exhibit 12.3 Seller's and Lessor's Remedies 34) An express warranty: A) can be an affirmation.

B) automatically arises upon sale of goods.

C) is often disclaimed.

D) none of the above Answer: A Diff: 1 Topic: Warranties

137 .

35) The implied warranty of merchantability can be disclaimed: A) with mention of merchantability.

B) with language "as is".

C) orally.

D) all of the above Answer: D Diff: 2 Topic: Warranties 36) A thief steals a truckload of high-definition television sets that are owned by Electronics Store. He then sells the televisions to City-Mart, which does not know that the goods are stolen.

What is the status of City-Mart's title to the goods?

A) Valid B) Void C) Voidable D) None of the above Answer: B Diff: 3 Topic: Risk of Loss 37) A used car salesman states, "This is the best used car in town." What type of warranty is created?

A) Express B) Implied Warranty of Merchantability C) Implied Warranty of Fitness for a Particular Purpose D) None Answer: D Diff: 2 Topic: Warranties 38) A jewelry store salesperson states to a buyer that a ring is a 3 carat, ideal cut, round shape, D color, and FL clarity is: A) Puffery.

B) An express warranty.

C) An implied warranty of merchantability.

D) An implied warranty of fitness for a particular purpose.

Answer: B Diff: 2 Topic: Warranties

138 .

39) A consumer purchases a lawn chair. He brings it home and sits on it. The chair collapses, causing injury to him. What type of warranty has been breached?

A) Express B) Implied warranty of merchantability C) Implied warranty of fitness for a particular purpose D) None Answer: B Diff: 2 Topic: Warranties 40) Cindy goes to the lumber yard to buy lumber for a deck that she is building. She tells the salesperson at the lumber yard that she is relying on him to select the right lumber for a project.

She buys the lumber and builds the deck. The deck collapses because the lumber was not strong enough to support it. What type of warranty was breached?

A) Express B) Implied warranty of merchantability C) Implied warranty of fitness for a particular purpose D) None Answer: C Diff: 2 Topic: Warranties 41) Under common law's ________, an offeree's acceptance must be on the same terms as the offer.

A) puffing B) caveat emptor C) mirror image rule D) model act Answer: C Diff: 2 Topic: Contemporary Environment (UCC Additional Terms Rule) 42) A jewelry repair person in the ordinary course of business sells goods to a good faith purchaser. These goods have been entrusted to him for repair by the actual owner. If after the transaction the buyer discovers these facts, what should he do?

Answer: If we analyze the facts and look at the alternatives as well as the stakeholders, we probably would conclude that returning the goods was the right thing to do even though there is no legal obligation to do so. The buyer is a good faith purchaser for value. This example distinguishes between legal and moral rights.

Diff: 2 43) A truck load of merchandise is shipped by carrier (FOB shipping point) to Webb Co. On route the goods are destroyed in a trucking accident. The goods which were supposed to be black tables were really white chairs. Who bears the risk of loss?

Answer: Although typically the risk would have transferred upon shipment to the buyer, the breach forces the seller to absorb this risk of loss.

Diff: 2 139 .

44) What standards are required according to an implied warranty?

Answer: 1. the goods must be fit for the ordinary purposes for which they are to be used; 2. the goods must be adequately contained, packaged and labeled; 3. the goods must be of an even kind, quality, and quantity within each unit; 4. the goods must conform to any promise or affirmation of fact made on the container or label; 5. the quality of the goods must pass without objection in the trade; and 6. fungible goods must meet a fair average or middle range of quality.

Diff: 2 45) ________ are tangible things movable at time of identification to a sales contract.

Answer: Goods 46) The Statute of Frauds requirement is $________ for sales of goods and $________ for leases.

Answer: $500; $1,000 47) A ________ is a transfer of right to possession for a set term.

Answer: Lease 48) Title passes to the buyer at time of shipment in a ________ contract.

Answer: Shipping 49) The ________ Act covers written warranties related to consumer products.

Answer: Magnuson-Moss 50) A ________ is a person who acquires the right to possession and use in a lease.

Answer: Lessee 51) ________ of the UCC governs the sale of goods.

Answer: Article 2 (Sales) 52) A sale that involves the provision of a service and a good in the same transaction is called a ________.

Answer: mixed sale 53) A ________ is a person who transfers the right of possession and use of goods under a lease.

Answer: lessor 54) ________ are damages that will be paid upon a breach of a contract and are established in advance.

Answer: liquidated damages 55) ________ means "let the buyer beware."

Answer: caveat emptor

140 .

Chapter 13 Credit, Secured Transactions, and Bankruptcy 1) The U.S. economy is a credit economy.

Answer: FALSE Diff: 1 Topic: Introduction to Credit, Secured Transactions, and Bankruptcy 2) A creditor is a borrower in a credit transaction.

Answer: FALSE Diff: 1 Topic: Unsecured and Secured Credit 3) Unsecured credit does not require collateral to protect the payment of the debt.

Answer: TRUE Diff: 1 Topic: Unsecured and Secured Credit 4) A mortgagor is the creditor in a mortgage transaction.

Answer: FALSE Diff: 2 Topic: Security Interest in Real Property 5) A mortgage is a two-party instrument.

Answer: TRUE Diff: 1 Topic: Security Interest in Real Property 6) Tangible personal property includes securities, bank accounts and copyrights.

Answer: FALSE Diff: 1 Topic: Secured Transactions in Personal Property 7) A floating lien may attach to after-acquired property.

Answer: TRUE Diff: 2 Topic: Secured Transactions in Personal Property 8) Revised Article 9 of the UCC governs secured transactions in real property.

Answer: FALSE Diff: 2 Topic: Secured Transactions in Personal Property

141 .

9) Attachment means that the creditor has an enforceable security interest against the debtor and can satisfy the debt out of the designated collateral.

Answer: TRUE Diff: 1 Topic: Secured Transactions in Personal Property 10) The perfection of a security interest establishes the right of a secured debtor against other debtors who claim an interest in collateral.

Answer: FALSE Diff: 2 Topic: Secured Transactions in Personal Property 11) Financing statements are available for review by the public.

Answer: TRUE Diff: 1 Topic: Secured Transactions in Personal Property 12) A financing statement must still be filed even if the creditor has physical possession of the collateral.

Answer: FALSE Diff: 2 Topic: Secured Transactions in Personal Property 13) A creditor who has the only secured interest in the debtor's collateral has priority over unsecured interests.

Answer: TRUE Diff: 1 Topic: Secured Transactions in Personal Property 14) A continuation statement may be filed up to nine-months prior to the expiration of a financing statement's five-year term.

Answer: FALSE Diff: 3 Topic: Secured Transactions in Personal Property 15) In a guaranty arrangement, the guarantor agrees to pay the debt of the principal debtor if the debtor defaults and does not pay the debt when it is due.

Answer: TRUE Diff: 2 Topic: Surety and Guaranty Arrangements 16) In a strict surety arrangement, a third person promises to be secondarily liable for the repayment of another person's debt.

Answer: FALSE Diff: 2 Topic: Surety and Guaranty Arrangements 142 .

17) Chapter 7 bankruptcy is liquidation.

Answer: TRUE Diff: 1 Topic: Bankruptcy Courts and Procedure 18) Chapter 13 bankruptcy is a reorganization.

Answer: FALSE Diff: 2 Topic: Bankruptcy Courts and Procedure 19) An involuntary petition for bankruptcy can be filed by a creditor under Chapter 7 and Chapter 11.

Answer: TRUE Diff: 3 Topic: Bankruptcy Courts and Procedure 20) Chapter 11 is the most common form of bankruptcy used by individual debtors.

Answer: FALSE Diff: 2 21) The party doing the lending is known as the: A) creditor.

B) debtor.

C) borrower.

D) none of the above Answer: A Diff: 1 Topic: Unsecured and Secured Credit 22) A person borrows money from a bank, and the bank does not require any collateral for the loan. This is known as: A) a mortgage.

B) secured credit.

C) unsecured credit.

D) a financing statement.

Answer: B Diff: 1 Topic: Unsecured and Secured Credit

143 .

23) The ________ is the instrument that evidences the borrower's debt to the lender; the ________ is the instrument that g gives the creditor a security interest in the debtor's property that is pledged as collateral.

A) mortgage; financing statement B) financing statement; mortgage C) note; deed of trust D) deed of trust; note Answer: C Diff: 2 24) Which of the following is NOT considered tangible personal property?

A) equipment B) farm animals C) clothing D) bank accounts Answer: D Diff: 1 Topic: Secured Transactions in Personal Property 25) Which of the following is NOT considered intangible personal property?

A) computers B) patents C) copyrights D) royalties Answer: A Diff: 1 Topic: Secured Transactions in Personal Property 26) Which of the following is NOT necessary for a security agreement to be valid?

A) a clear description of the collateral B) it must be signed by the creditor C) it must set forth the creditor's rights upon default D) it must contain the debtor's promise to repay the creditor Answer: B Diff: 2 Topic: Secured Transactions in Personal Property 27) A floating lien can attach to any of the following, EXCEPT: A) after-acquired property B) sales proceeds C) real property D) future advances Answer: C Diff: 1 Topic: Secured Transactions in Personal Property

144 .

28) A continuation statement may be filed for up to ________ months prior to the expiration of the financing statement's five-year term.

A) three B) six C) nine D) twelve Answer: B Diff: 3 Topic: Secured Transactions in Personal Property 29) In a guaranty arrangement, the guarantor has ________ liabilility for the debt.

A) primary B) secondary C) tertiary D) none of the above Answer: B Diff: 2 Topic: Surety and Guaranty Arrangements 30) In a surety arrangement, the surety has ________ liability for the debt.

A) primary B) secondary C) tertiary D) none of the above Answer: A Diff: 2 Topic: Surety and Guaranty Arrangements 31) Which type of bankruptcy results in liquidation?

A) Chapter 7 B) Chapter 11 C) Chapter 12 D) Chapter 13 Answer: A Diff: 1 Topic: Bankruptcy Courts and Procedure 32) Which type of bankruptcy results in reorganization?

A) Chapter 7 B) Chapter 11 C) Chapter 12 D) Chapter 13 Answer: B Diff: 1 Topic: Bankruptcy Courts and Procedure

145 .

33) Which type of bankruptcy involves the adjustment of debts of a family farmer or fisherman with regular income?

A) Chapter 7 B) Chapter 11 C) Chapter 12 D) Chapter 13 Answer: C Diff: 1 Topic: Bankruptcy Courts and Procedure 34) Which type of bankruptcy involves an adjustment of debts of an individual with regular income?

A) Chapter 7 B) Chapter 11 C) Chapter 12 D) Chapter 13 Answer: D Diff: 1 Topic: Bankruptcy Courts and Procedure 35) An involuntary petition of bankruptcy can be filed in which of the following types of cases?

A) Chapter 7 B) Chapter 12 C) Chapter 13 D) None of the above Answer: A Diff: 2 Topic: Bankruptcy Courts and Procedure 36) Federal exemptions from the bankruptcy estate include an interest of up to ________ in equity in property used as a residence and burial plots.

A) $12,200 B) $20,200 C) $25,200 D) $50,200 Answer: B Diff: 3 Topic: Bankruptcy Courts and Procedure 37) To be enforceable, a financing statement must contain all of the following, EXCEPT: A) the name of the debtor B) the name and address of the secured party C) the collateral covered by the agreement D) the debtor's trade name Answer: D Diff: 3 Topic: Secured Transactions in Personal Property 146 .

38) Secured transactions are governed by ________ of the UCC. A) Article 2 B) Article 2A C) Article 7 D) Article 9 Answer: D Diff: 2 Topic: Introduction to Credit, Secured Transactions, and Bankruptcy 39) Briefly discuss the different types of bankruptcy.

Answer: There are four main types. Chapter 7 and 13 must be used by individual debtors.

Chapter 7 involves liquidation, while Chapter 13 involves the adjustment of debts of an individual with regular income. Chapter 11 involves a reorganization, while Chapter 12 involves an adjustment of debts of a family farmer or fisherman with regular income.

Diff: 2 40) Briefly discuss the floating-lien concept.

Answer: A floating lien is a security agreement in which the security interest attaches to property that was not originally in the possession of the debtor when the agreement was executed. A floating lien may attach to after-acquired property, sales proceeds, and future advances.

Diff: 2 41) Briefly discuss the methods of perfecting a security interest.

Answer: The concept of perfection of a security interest establishes the right of a secured creditor against other creditors who claim an interest in the collateral. The three main methods for perfecting a security interest under the UCC are (1) perfection by filing a financing statement, (2) perfection by possession of the collateral, and (3) perfection by a purchase money security interest in consumer goods.

Diff: 2 42) The property in which a security interest is taken is called ________.

Answer: collateral Diff: 1 43) If collateral is real property, the transaction is usually called a ________.

Answer: mortgage Diff: 1 44) A ________ is the lender in a credit transaction.

Answer: creditor Diff: 1 45) A ________ is the borrower in a credit transaction.

Answer: debtor Diff: 1 147 .

46) Credit that does not require any security (collateral) to protect the payment of the debt is known as ________.

Answer: unsecured credit Diff: 1 47) Credit that requires collateral that secures payment of the loan is called ________.

Answer: secured credit Diff: 1 48) A contractor's, laborer's, and material person's statutory lien is also known as a ________.

Answer: mechanic's lien Diff: 1 49) Equipment, vehicles, farm products, farm animals, furniture, computers and jewelry are known as ________.

Answer: tangible personal property Diff: 1 50) A ________ is a written document signed by the debtor that creates a security interest in personal property.

Answer: security agreement Diff: 1 51) A ________ is a document filed by a secured creditor with the appropriate government office that constructively notifies the world of his security interest in personal property.

Answer: financing statement Diff: 1 52) An interest that a creditor automatically obtains when he extends credit to a consumer to purchase consumer goods is known as a ________.

Answer: purchase money security interest Diff: 1 53) ________ is the right granted to a secured creditor to take possession of the collateral upon default of the debtor.

Answer: repossession Diff: 1

148 .

Chapter 14 Entrepreneurship and Small Business 1) An entrepreneur is a person who forms and operates a new business.

Answer: TRUE Diff: 1 Topic: Entrepreneurship 2) One of the disadvantages of a sole proprietorship is the difficulty of transferring ownership if the sole proprietor wants to sell the business.

Answer: FALSE Diff: 1 Topic: Sole Proprietorship 3) A husband and wife can establish a sole proprietorship.

Answer: FALSE Diff: 1 Topic: Sole Proprietorship 4) A sole proprietorship is a distinct legal entity, separate and distinct from the owner.

Answer: FALSE Diff: 1 Topic: Sole Proprietorship 5) Death of a sole proprietor terminates the sole proprietorship.

Answer: TRUE Diff: 1 Topic: Case 14.1 Sole Proprietorship 6) A general partnership is a voluntary association of two or more persons for carrying on a business as co-owners for profit.

Answer: TRUE Diff: 1 Topic: General Partnership 7) The Uniform Partnership Act has been adopted in nearly all of the states.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Uniform Partnership Act) 8) According to the Uniform Partnership Act, partnerships are considered to be legal entities.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Uniform Partnership Act) 149 .

9) Fictitious name statutes apply to partnerships.

Answer: TRUE Diff: 1 Topic: General Partnership 10) Partnerships can be formed without any formalities, and the presence of the required elements of a partnership can be based on the conduct of those in the business.

Answer: TRUE Diff: 1 Topic: General Partnership 11) A partnership can be created inadvertently.

Answer: TRUE Diff: 2 Topic: General Partnership 12) An attempt by a partnership to include a provision in its partnership agreement that differs from the Uniform Partnership Act will be ineffective.

Answer: FALSE Diff: 2 Topic: General Partnership 13) Partners have equal rights to manage a partnership regardless of the size of their capital investment.

Answer: TRUE Diff: 2 Topic: General Partnership (Rights of Partners) 14) A partner who invested 60 percent of the partnership capital would be entitled to 60 percent of the partnership profits if there were no agreement to the contrary.

Answer: FALSE Diff: 2 Topic: General Partnership (Rights of Partners) 15) If a partnership agreement specifies how profits are to be divided, but is silent with respect to the division of losses, the losses would be divided in the same manner as profits.

Answer: TRUE Diff: 1 Topic: General Partnership (Rights of Partners) 16) A partner can be held liable to perform on contracts entered into by his partners, but not for the torts of his partners.

Answer: FALSE Diff: 1 Topic: General Partnership (Tort Liability of General Partners)

150 .

17) When a new partner joins an existing partnership, the new partner has only limited liability for the obligations of the partnership in existence at the time of admission to the partnership.

Answer: TRUE Diff: 1 Topic: General Partnership (Liability of Incoming General Partnership Partners) 18) Regardless of the terms of any agreement on the matter, a partner always has the power to dissolve a partnership.

Answer: TRUE Diff: 2 Topic: General Partnership (Dissolution of a General Partnership) 19) Once a partnership is dissolved, all liability for the actions of partners ends.

Answer: FALSE Diff: 1 Topic: General Partnership (Liability of Outgoing Partners) 20) Upon the death of a partner, his interest in specific partnership property passes to his heirs because of the right of survivorship.

Answer: FALSE Diff: 2 Topic: Contemporary Environment (Right of Survivorship) 21) In a limited partnership, the partners can agree that all partners have limited liability.

Answer: FALSE Diff: 2 Topic: Limited Partnership 22) A limited partnership must have at least one general and one limited partner.

Answer: TRUE Diff: 2 Topic: Limited Partnership 23) A limited partner does not have any liability in connection with the partnership.

Answer: FALSE Diff: 1 Topic: Limited Partnership 24) Because a corporation has limited liability, it cannot operate as a general partner in a limited partnership.

Answer: FALSE Diff: 2 Topic: Limited Partnership

151 .

25) As part of the filing requirements, a limited partnership must have a written agreement specifying how profits and losses are to be divided.

Answer: FALSE Diff: 2 Topic: Limited Partnership 26) Limited partners can lose their limited liability protection if they actively participate in management.

Answer: TRUE Diff: 1 Topic: Limited Partnership 27) A limited liability partnership differs from a limited partnership in that all of the partners have limited liability.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Limited Liability Limited Partnership) 28) Entrepreneurial forms of business organizations include: A) General partnership.

B) Corporation.

C) Limited partnership.

D) All of the above.

Answer: D Diff: 1 Topic: Introduction to Entrepreneurship and Small Business 29) The most common form of business organization in the United States is: A) Sole proprietorship.

B) General partnership.

C) Limited partnership.

D) Limited liability company.

Answer: A Diff: 2 Topic: Sole Proprietorship 30) Which of the following is not an advantage of operating a business as a sole proprietorship?

A) Limited personal liability B) The right to receive all of the profits of the business C) Easy transferability of ownership D) Ease of formation Answer: A Diff: 1 Topic: Sole Proprietorship

152 .

31) State statutes require sole proprietorships and other types of businesses that operate under a trade name to file: A) A copy of their professional license.

B) Articles of incorporation.

C) Fictitious businesses name statements.

D) A business registration certificate.

Answer: C Diff: 1 Topic: Contemporary Environment (d.b.a) 32) Which of the following is true about the Uniform Partnership Act? A) It is the federal statute that addresses partnership law.

B) It has been adopted by all of the states.

C) It was promulgated in 1914 and has been adopted by most states.

D) All of its provisions govern any partnerships formed in states where it is applicable.

Answer: C Diff: 1 Topic: Contemporary Environment (Uniform Partnership Act) 33) Which of the following best describes the requirements of a partnership?

A) An association of persons, owning property, sharing gross receipts B) An association of persons, owning and operating a business in order to make a profit C) An association of persons, owning property in order to make a profit D) Any association of persons Answer: B Diff: 1 Topic: General Partnership 34) A partnership is created: A) If the managing partner files appropriate papers with the secretary of state.

B) If two or more persons or entities engage in an ongoing business activity for profit.

C) Upon the issuance of stock to the partners.

D) Once there is a valid partnership agreement.

Answer: B Diff: 2 Topic: General Partnership 35) Which of the following factors is not required to qualify as a partnership?

A) Equal investments of effort and capital B) An association of two or more persons C) The carrying on of a business D) Co-ownership of the business Answer: A Diff: 2 Topic: General Partnership

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36) Which of the following statements regarding a partnership is true?

A) A partnership is an involuntary association.

B) To be valid, a partnership must have a written partnership agreement.

C) A partnership is a separate, tax-paying entity for federal tax purposes.

D) Partners in a partnership have personal liability much like that of sole proprietors.

Answer: D Diff: 2 Topic: General Partnership 37) The receipt of which of the following would be considered evidence of the recipient being in a partnership, assuming all amounts are paid out of the profits of the partnership?

A) Payment of the interest and principal on a debt B) Payment of wages earned by an employee C) Rent owed to a landlord D) A portion of the profits remaining after all other expenses have been paid Answer: D Diff: 2 Topic: General Partnership 38) A partnership agreement: A) Must be in writing for all partnerships.

B) Must be an express agreement for all partnerships, but can be oral or in writing.

C) May be created inadvertently based on the parties' conduct.

D) Must be in writing, but only for partnerships covered under the Uniform Partnership Act. Answer: C Diff: 2 Topic: General Partnership 39) What is true about a partner's right to participate in the management of the partnership?

A) It exists only if the partner has been elected as an officer or management committee member.

B) It exists only if the partnership agreement gives the partner this right.

C) It exists automatically, but can be eliminated in the partnership agreement.

D) It exists automatically, and cannot be eliminated in the partnership agreement.

Answer: C Diff: 3 Topic: General Partnership 40) What is an action for an accounting?

A) A demand by a partner for the preparation of financial statements for the partnership.

B) A demand by a partner to have access to previously prepared financial statements of the partnership.

C) A request by a partner for a court to order the preparation of partnership financial statements.

D) A judicial proceeding in which the court reviews partner and partnership transactions and then makes monetary awards to or from the partners.

Answer: D Diff: 2 Topic: General Partnership 154 .

41) Where there is no agreement to share profits in a partnership, but one partner invested twice as much capital in the partnership as the other over the course of the year, how are profits to be split?

A) In the ratio of time devoted to the partnership B) In the ratio of capital invested C) The profits must remain in the partnership and not be distributed D) Equally Answer: D Diff: 2 Topic: General Partnership 42) Partners are jointly and severally liable for: A) Partnership contracts.

B) Partnership torts.

C) Crimes committed by other partners.

D) A and B only.

Answer: B Diff: 2 Topic: General Partnership 43) When a new partner is admitted to a preexisting partnership, the new partner has: A) Unlimited liability for obligations of the partnership, both for those arising before she joined the partnership and those arising after joining.

B) Liability to the extent of her investment for obligations that arose before joining the partnership, and unlimited liability for those arising afterwards.

C) Liability to the extent of her investment for all obligations, arising either before or after she joined the partnership.

D) No liability for obligations arising from before she joined the partnership and unlimited liability for those arising afterwards.

Answer: B Diff: 2 Topic: General Partnership 44) The duration of a partnership can be: A) For a fixed term.

B) For an indefinite period.

C) Only until the accomplishment of a particular undertaking.

D) A, B, and C. Answer: D Diff: 1 Topic: General Partnership

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45) Which of the following is true about the ability of a partner to withdraw from a general partnership?

A) Partners always have both the power and the right to withdraw from a partnership.

B) Partners always have the right, but not necessarily the power, to withdraw from a partnership.

C) Partners always have the power, but not necessarily the right, to withdraw from a partnership.

D) In some cases partners have neither the right nor the power to withdraw from a partnership.

Answer: C Diff: 2 Topic: General Partnership 46) If a partner has the power, but not the right, to withdraw from a partnership, it means that: A) The partner cannot withdraw from the partnership.

B) The partner can withdraw from the partnership only with court approval.

C) The partner can withdraw from the partnership, but could be liable for any resulting losses to the other partners.

D) The partner can withdraw from the partnership without any liability or penalty.

Answer: C Diff: 2 Topic: General Partnership (Dissolution of a General Partnership) 47) What is the effect of a continuation agreement among partners in a general partnership?

A) It prevents a partner from being able to dissolve the partnership without the approval of the other partners.

B) It converts a partnership at will to a partnership for a term.

C) It prevents a partnership from being dissolved by events that would otherwise cause dissolution.

D) It provides for the automatic formation of a new partnership upon the dissolution of the existing partnership.

Answer: D Diff: 2 Topic: General Partnership (Dissolution of a General Partnership) 48) Which of the following best describes the Revised Uniform Limited Partnership Act? A) A federal statute governing all limited partnerships B) A standard law passed by many states that generally applies to limited partnerships and replaces an earlier uniform law covering limited partnerships C) A standard law passed in every state that applies to limited partnerships and takes precedence over any contrary provisions in a limited partnership agreement D) A federal statute that states can choose whether or not to implement Answer: B Diff: 2 Topic: Contemporary Environment (The Revised Uniform Limited Partnership Act)

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49) Which of the following is true regarding the liability of the partners in a limited partnership?

A) Both the limited and general partners have unlimited liability for the partnership debts.

B) Neither the limited nor the general partners have unlimited liability for the partnership debts.

C) The limited partners have limited liability and the general partners have unlimited liability for the partnership debts.

D) The limited partners have unlimited liability and the general partners have limited liability for the partnership debts.

Answer: C Diff: 2 Topic: Limited Partnership 50) Which of the following best describes who may be a partner in a limited partnership?

A) An individual only B) An individual and a corporation only C) An individual, corporation, and a limited partnership only D) An individual, corporation, limited partnership, and an estate Answer: D Diff: 2 Topic: Limited Partnership 51) A limited partnership is required to have at least: A) Two limited partners.

B) One general partner and two limited partners.

C) One general partner and one limited partner.

D) Two general partners.

E) Two partners who can be any mix of limited and general partners.

Answer: C Diff: 1 Topic: Limited Partnership 52) Which of the following is true about a corporation being a general partner in a limited partnership?

A) A corporation cannot be a general partner in a limited partnership.

B) A corporation can be a general partner in a limited partnership only if it is not the sole general partner in the limited partnership.

C) A corporation can be a general partner in a limited partnership only if there is at least one other general partner that is not a corporation.

D) A corporation can be a general partner in a limited partnership even if it is the only general partner.

Answer: D Diff: 2 Topic: Limited Partnership

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53) Which of the following is not required to be included in a certificate of limited partnership?

A) The general character of the business B) The amount of capital contributed by each partner C) The name and business address of each limited and general partner D) The portion of profits to be distributed to each limited and general partner Answer: D Diff: 2 Topic: Limited Partnership 54) Where there is no agreement in a limited partnership regarding the allocation of profits, how are they allocated?

A) Equally among all the partners B) One half equally among the general partners, one half equally among the limited partners C) Among all partners, in proportion to capital invested in the partnership D) One half among limited partners in proportion to capital invested, and one half among general partners in proportion to capital invested Answer: C Diff: 2 Topic: Limited Partnership (Limited Partnership Agreement) 55) Which of the following is a consequence of defective formation of a limited partnership?

A) Contracts entered into by the partnership will be void.

B) Contracts entered into by the partnership will be voidable by the other party.

C) The rights as between the partners will be different based on the defective formation.

D) A partner who would have been a limited partner, might have unlimited liability to a third party who conducted business while holding a good faith belief that the partner was a general partner.

Answer: D Diff: 3 Topic: Limited Partnership (Formation of a Limited Partnership) 56) Which types of partners in a limited partnership should participate in management?

A) General partners only B) Limited partners only C) Both general and limited partners D) General partners only, unless there are no general partners, and in that case, limited partners participate in management Answer: A Diff: 1 Topic: Limited Partnership

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57) A limited partner who takes an active part in managing a limited partnership: A) Will be entitled to profit distributions as if she were a general partner.

B) Will be treated as a general partner with respect to parties who reasonably believed that she was a general partner.

C) Will be treated as a general partner with respect to all parties with whom she dealt.

D) Will be entitled to reasonable compensation for the value of the services provided.

Answer: B Diff: 3 Topic: Limited Partnership (Participation in Management) 58) Limited partners can lose their limited liability by: A) Investing too much in the partnership.

B) Withdrawing from a limited partnership contrary to provisions in the limited partnership agreement.

C) Actively managing the business of the limited partnership.

D) Serving as a paid executive for the limited partnership.

Answer: C Diff: 2 Topic: Limited Partnership (Participation in Management) 59) What is the most important difference between a limited partnership and a limited liability partnership?

A) There must be one partner with unlimited liability in a limited partnership, but not in a limited liability partnership.

B) There must be one partner with unlimited liability in a limited liability partnership, but not in a limited partnership.

C) A limited partnership is not a taxable entity, but a limited liability partnership is a taxable entity.

D) There is a maximum number of partners permitted in a limited partnership, but not in a limited liability partnership.

Answer: A Diff: 2 Topic: Contemporary Environment (Limited Liability Limited Partnership) 60) Martha started a flower shop as a sole proprietor. After one year, she was forced to close the shop because business was so bad. At that time, the business assets totaled $50,000, but the business liabilities totaled $125,000. Which of the following statements is true?

A) Martha is personally liable for the additional $75,000.

B) Martha's business creditors can collect only the $50,000 of business assets.

C) Martha's business creditors can collect only the $50,000 now, but if Martha ever goes into business again, they can get the assets of the new business.

D) Once Martha terminates the sole proprietorship, the business creditors cannot get any amounts, including the $50,000.

Answer: A Diff: 2 Topic: Sole Proprietorship 159 .

61) Mark operates an auto parts shop as a sole proprietor. The shop has gone out of business, and all assets have been sold. The following debts remain: 1. $10,000 owed to suppliers for merchandise that was sold to customers.

2. $20,000 owed to suppliers for merchandise that was ruined in an unexpected flood.

3. $35,000 owed to a customer who has a final judgment in a product liability suit against the auto parts shop.

For which of these debts can Mark be held personally liable?

A) None, they were all business debts.

B) 1 only.

C) 1 and 2 only.

D) 1, 2, and 3.

Answer: D Diff: 2 Topic: Sole Proprietorship 62) Jane and Joan decide to open a plumbing business. Both contribute money to the business, but because Jane has expertise in plumbing, she makes all the management decisions. Joan will not participate in much of the day-to-day operations. Jane and Joan will split net income equally.

Jane and Joan make no filings associated with this business. This enterprise is: A) A general partnership.

B) Not a general partnership because there is no association of two or more people.

C) Not a general partnership because they are not carrying on a trade or business.

D) Not a general partnership because they do not co-own the business.

Answer: A Diff: 2 Topic: General Partnership 63) Mary is a partner in the Flatirons partnership. The partnership agreement provides that no partner may withdraw from the partnership for 10 years. Mary attempts to withdraw from the partnership before the 10-year period is up. Which of the following statements best describes this situation?

A) This is a wrongful dissolution; the partnership will be dissolved, but Mary will be liable for any damages caused by it.

B) This clause of the partnership agreement is unenforceable, thus the dissolution is proper.

C) Because Mary could not withdraw from the partnership, there is no dissolution.

D) Because Mary could not withdraw from the partnership, her action is treated as an assignment of her partnership interest.

Answer: A Diff: 2 Topic: General Partnership

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64) Amy is a partner in a partnership. The partnership agreement states that if one of the partners dies, the business will continue with the remaining partners. Amy dies. Which of the following best describes this situation?

A) There has been a dissolution of the old partnership and the creation of a new one.

B) The partnership agreement prevents the dissolution of the partnership; the old partnership continues with the remaining partners as partners.

C) The partnership agreement prevents the dissolution of the partnership, the old partnership continues with Amy's heirs as new partners.

D) The death of a partner does not dissolve the partnership in any case.

Answer: A Diff: 3 Topic: General Partnership (Dissolution of a General Partnership) 65) Cindy is one of 50 limited partners in a real estate investment limited partnership. The general partner is Evergreen Corporation. Evergreen Corporation invested $500,000 in the partnership and each of the limited partners, who are all natural persons, invested $10,000.

Evergreen has four shareholders. If the real estate partnership is dissolved at a time when it has debts exceeding assets, which of the following is true?

A) Because having a corporation means that no partner in the limited partnership has unlimited liability, the limited partners would have unlimited liability.

B) Because having a corporation means that no partner in the limited partnership has unlimited liability, the shareholders of the corporation would have unlimited liability.

C) Neither the corporation nor the limited partners would be required to contribute any assets toward the satisfaction of the unpaid obligations of the limited partnership.

D) The limited partners would not need to contribute any amounts to the satisfaction of the debts, but the assets of the corporation would be available for this purpose.

Answer: D Diff: 3 Topic: Limited Partnership 66) Why do you think that there are so many available types of business entities today? What was the motivation for the passage in the late 1980s and early 1990s of statutes authorizing limited liability companies?

Answer: The large number of entity types is a result of political support for statutes creating them. Where in the past an entrepreneur had only a few entity choices, and those required taking an entire set of characteristics, some desirable and others not, today the wide choice of entities allows an entrepreneur to get the exact mix of characteristics desired. As the business world becomes more complex and globally integrated, businesspersons need flexibility in conducting business while protecting themselves from legal liability.

Diff: 2

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67) Why should the death or withdrawal of a partner always result in dissolution of a partnership?

Answer: Even though partners have unlimited liability for the actions of one another, they share that liability with the other partners. If there is suddenly one less partner with whom to share that liability, a partner might not want to continue. A related factor is that the departing partner will not be responsible for any obligations incurred after leaving the partnership.

Diff: 2 68) Dan and Jan are freshmen at a major university. Dan and Jan met in the summer before their freshman year when they each were looking for a place to live. They found the rents so high that they decided they should buy a place. They eventually decided to buy a ten-unit apartment building near to the campus. Their financing arrangement required a down payment of $40,000, of which each paid half. Jan had just inherited some money from her aunt and used some of this for the down payment. Dan had no money, but borrowed $20,000 from his father, with a written agreement that it would be paid back when the apartment building was sold, or within one year after Dan stopped attending the university. Dan and Jan each lived in one unit and rented the other eight. Dan and Jan had no written agreement between themselves, but each did about half the work on the house. They split expenses evenly and split rents collected evenly. One day when rushing to respond to a broken pipe in the building, Dan hit a pedestrian. Does either Dan's father or Jan have personal liability for the injuries caused by Dan? Answer: Their liability depends on whether they are partners. Dan's father is probably not a partner merely by lending the down payment to Dan. Jan's partner status depends on the various factors of existence of a partnership implied by conduct. Jan is probably a partner. Any partner of Dan would be liable, along with the partnership, for his tort of injuring the pedestrian, as partners have joint and several liability for torts.

Diff: 3 Topic: General Partnership 69) Frank, John, and Mike formed a partnership to operate a flower shop. One of Frank's jobs is to make deliveries using the partnership truck. In one such delivery, Frank negligently ran a stop sign, striking a car driven by Peggy, causing damage to the car and injury to Peggy. Discuss the personal and partner liability of Frank, John, and Mike, and the liability of the partnership.

Answer: Frank, as all tortfeasors, is personally liable for his tort. The partnership is liable because the tort occurred while Frank was acting on behalf of the partnership. The partners have joint and several liability for the tort of Frank. If the other partners must pay, they may seek indemnification from Frank.

Diff: 3 Topic: General Partnership

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70) Nan, Fran, and Ann form a partnership to buy, renovate, and resell old houses in an area near a major university. The neighborhood in which they plan to focus their activities is quite rundown, but they and others believe it will rapidly improve once a few properties in the area are renovated. The partnership agreement says that they plan to be in this venture "at least five years, or until they can recover their original investment plus a good profit." Each of the three partners puts up $50,000 in cash. One strategy of the partnership is to avoid bank financing and its associated fees, thus the partners plan to use the proceeds of sale on the first house to invest in a second, and so forth. They spend $90,000 to purchase their first property, on which they spend an additional $40,000 in renovation, and then sell for $160,000. They purchase a second property for $100,000, and have begun renovation that is expected to cost $35,000 when Ann suddenly attempts to withdraw from the partnership. Can Ann withdraw from the partnership? What other legal issues are present in this situation? It has been a year and a half since the partnership was formed.

Answer: Ann has the power to withdraw and dissolve the partnership at any time, but she might not have the right. She could withdraw at any time, but would be liable to the partnership for any damages caused by an improper withdrawal. She would likely be liable for any loss of profits on the current project, but damages for profits of future renovations may be too speculative to recover, and the remaining partners would probably have other financing options. This partnership contains ambiguities, such as the reference to earning a good profit.

Diff: 3 Topic: General Partnership 71) A ________ is a form of business where the owner is actually the business.

Answer: Sole Proprietorship 72) A ________ is a name under which a sole proprietorship operates.

Answer: Trade Name 73) A ________ is a voluntary association of two or more persons for carrying on a business as co-owners for profit.

Answer: Partnership 74) The ________ is the model act that codifies partnership law.

Answer: UPA 75) A partnership with no fixed duration is called a ________.

Answer: Partnership at will 76) A ________ is a document that expressly sets forth the events that allow for continuation of the partnership, the amounts to be paid outgoing partners, and other details.

Answer: Continuation agreement 77) ________ are partners who invest capital but do not participate in management and are not personally liable for partnership debts beyond their capital contribution.

Answer: Limited partners

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78) The major rights of a partner generally include ________, ________, and ________.

Answer: Participation, profits and an accounting 79) Under the UPA, partners are ________ liable for torts and breaches of trust.

Answer: jointly and severally 80) A partnership and partners who are made to pay tort liability may seek ________ from the partner who committed the wrongful act.

Answer: Indemnification

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Chapter 15 LLCs, LLPs, and Global Forms of Business 1) A limited liability partnership differs from a limited partnership in that all of the partners have limited liability.

Answer: TRUE Diff: 1 Topic: Limited Liability Partnership 2) In most states, the law restricts the use of limited liability partnerships to certain types of professionals, such as accountants, lawyers, and doctors.

Answer: TRUE Diff: 1 Topic: Limited Liability Partnership 3) A disadvantage of a limited liability partnership is that partners are subject to double taxation.

Answer: FALSE Diff: 1 Topic: Limited Liability Partnership 4) In order to do business in a state other than that in which a limited liability partnership was formed, the limited liability partnership must register as a foreign limited liability partnership.

Answer: TRUE Diff: 1 Topic: Limited Liability Partnership (Articles of Limited Liability Partnership) 5) The Uniform Limited Liability Company Act has been adopted by all of the states.

Answer: FALSE Diff: 1 Topic: Contemporary Environment (The Uniform Limited Liability Company Act) 6) A limited liability company must file articles of organization with the appropriate state office.

Answer: TRUE Diff: 1 Topic: Limited Liability Company (Formation of an LLC) 7) Generally, a limited liability company can choose whether to be taxed as a partnership or corporation.

Answer: TRUE Diff: 2 Topic: Limited Liability Company

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8) Limited liability company members cannot participate in the management of the business.

Answer: FALSE Diff: 1 Topic: Limited Liability Company (Management of an LLC) 9) Typically a franchisee is a subsidiary of the franchisor.

Answer: FALSE Diff: 2 Topic: Franchise 10) In a franchise arrangement, the franchisor always sells goods to the franchisee, which are then resold by the franchisee.

Answer: FALSE Diff: 1 Topic: Franchise (Types of Franchises) 11) In a processing plant franchise, the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory.

Answer: FALSE Diff: 1 Topic: Franchise (Types of Franchises) 12) An area franchise grants the franchisee the authority to sell franchises on behalf of the franchisor.

Answer: TRUE Diff: 1 Topic: Franchise (Types of Franchises) 13) In the Martin case, the court determined that McDonald's was negligent for not following up and making sure that security deficiencies at a franchise had been corrected.

Answer: TRUE Diff: 1 Topic: Case 15.3 Franchisor Liability 14) Most states require franchise agreements to be in writing.

Answer: TRUE Diff: 1 Topic: Franchise (Franchise Agreement) 15) A joint venture and a strategic alliance are the same thing.

Answer: FALSE Diff: 2 Topic: Global Forms of Business

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16) Assuming that a franchise agreement establishes the franchisee as an independent contractor in relation to the franchisor, the franchisor and franchisee are not liable for each other's torts.

Answer: TRUE Diff: 1 Topic: Franchise (Liability of Franchisors and Franchisees) 17) The use of the LLC as a form of conducting business in the United States is of rather recent origin.

Answer: TRUE Diff: 1 Topic: Introduction to LLCs, LLPs, and Global Forms of Business 18) An LLC is a separate legal entity, distinct from its members.

Answer: TRUE Diff: 1 Topic: Limited Liability Company 19) Managers of LLCs are not personally liable for the debts, obligations, and liabilities of the LLC they manage.

Answer: TRUE Diff: 1 Topic: Limited Liability Company (Liability of Managers) 20) An LLC is a member-managed LLC unless it is designated as a manager-managed LLC in its articles of organization.

Answer: TRUE Diff: 1 Topic: Limited Liability Company (Management of an LLC) 21) What is the most important difference between a limited partnership and a limited liability partnership?

A) There must be one partner with unlimited liability in a limited partnership, but not in a limited liability partnership.

B) There must be one partner with unlimited liability in a limited liability partnership, but not in a limited partnership.

C) A limited partnership is not a taxable entity, but a limited liability partnership is a taxable entity.

D) There is a maximum number of partners permitted in a limited partnership, but not in a limited liability partnership.

Answer: A Diff: 2 Topic: Limited Liability Partnership

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22) Which of the following is true about limited liability partnerships?

A) In many states, the use of limited liability partnerships is limited to certain types of professionals.

B) Limited liability partnerships must have at least one general partner, but that general partner can be a limited liability company.

C) Many states require limited liability partnerships to carry liability insurance.

D) All of the above Answer: A Diff: 2 Topic: Limited Liability Partnership 23) Which of the following is not true about a limited liability company?

A) A filing with the appropriate state office is required to form a limited liability company.

B) State law provides that limited liability companies are taxed as partnerships.

C) Limited liability companies can be managed by all members, or by managers.

D) Limited liability companies have a limited duration.

Answer: B Diff: 2 Topic: Limited Liability Company 24) What must be filed in order to form a limited liability company?

A) Nothing B) Articles of incorporation C) Articles of organization D) Certificate of limitation Answer: C Diff: 2 Topic: Limited Liability Company 25) Which of the following is true about limited liability companies?

A) They are more difficult to form and operate than S corporations.

B) An existing business in another form cannot be converted to a limited liability company.

C) They can choose whether to be taxed as a corporation or as a partnership.

D) The profits and losses must be divided as provided in a state's enabling statute.

Answer: C Diff: 2 Topic: Limited Liability Company 26) A business arrangement where one party allows another to use its name, trademark, or sell its products in its business is known as a(n): A) Joint venture.

B) Proprietorship.

C) Franchise.

D) Royalty.

Answer: C Diff: 1 Topic: Franchise 168 .

27) Which of the following best describes a franchise?

A) Two parties work together on a limited duration project or enterprise.

B) A business sets up numerous retail locations owned by this business that all have similar products or services.

C) A retailer pays a fee to operate a business using a particular name under a standardized general business plan, with the fee often being paid in the form of royalties.

D) A seller of products is in business long enough for its trade name to become widely recognized.

Answer: C Diff: 2 Topic: Franchise 28) Which of the following is not an advantage of franchising?

A) The franchisor can reach new markets.

B) The franchisor gets significant tax advantages from the franchise arrangements.

C) The franchisee has access to the franchisor's knowledge and resources.

D) Consumers are assured of uniform product quality.

Answer: B Diff: 2 Topic: Franchise 29) For which type of franchise does the franchisee grant franchises or licenses to others?

A) Distributorship B) Processing plant C) Re-servicing D) Area Answer: D Diff: 1 Topic: Franchise (Types of Franchises) 30) Which statement is true about franchisor liability for acts of a franchisee?

A) Franchisors are liable for acts of their franchisees in most circumstances.

B) Franchisors are never liable for the acts of their franchisees unless the franchisor was a party to the act of the franchisee.

C) Whether a franchisor is liable for the acts of its franchisee depends on the terms of the franchise agreement.

D) Franchisors are usually not liable for the acts of their franchisees when the franchisee is an independent contractor.

Answer: D Diff: 2 Topic: Franchise (Liability of Franchisors and Franchisees)

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31) Which of the following best describes the court's finding in the case against McDonald's Corporation by an employee of one of its franchisees following a break-in and assault?

A) McDonald's Corporation had no duty to the franchisee or its employees.

B) McDonald's did have a duty to the franchisee and its employees because of the existence of a franchisor-franchisee relationship.

C) McDonald's did have a duty to the franchisee and its employees because of a provision in this particular franchise agreement that created such a duty.

D) McDonald's did have a duty to the franchisee and its employees because it had voluntarily assumed a duty, and once it voluntarily assumed a duty, it was obligated to carry out the duty with reasonable care.

Answer: D Diff: 2 Topic: Case 15.3 Franchisor Liability 32) Which of the following is not true about franchising internationally?

A) It can allow franchisors to expand into other nations without putting large amounts of capital at risk.

B) It can allow the franchisor to benefit from the franchisee's inside knowledge of the franchisee's own country.

C) International franchising is generally governed by the United Nations Agreement on Standardized Franchise Practices.

D) Franchisors may have to comply with different laws in the franchisee nation.

Answer: C Diff: 3 Topic: Global Forms of Business (International Franchising) 33) A soft drink company would franchise its bottling plants under which form of franchise?

A) Distributorship franchise B) Processing plant franchise C) Chain-style franchise D) Area franchise Answer: B Diff: 1 Topic: Franchise (Types of Franchises) 34) In a ________ franchise, the franchisor manufactures a product and licenses a retail dealer to distribute the product to the public.

A) distributorship B) processing plant C) chain-style D) area Answer: A Diff: 2 Topic: Franchise (Types of Franchises)

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35) In a ________ franchise, the franchisor licenses the franchisee to make and sell its products or services to the public from a retail outlet serving an exclusive geographical territory.

A) distributorship B) processing plant C) chain-style D) area Answer: C Diff: 2 Topic: Franchise (Types of Franchises) 36) An arrangement in which two or more business entities combine their resources to pursue a single project or transaction is called (a): A) joint venture B) strategic alliance C) franchise agreement D) limited liability partnership Answer: A Diff: 2 Topic: Global Forms of Business (Joint Venture) 37) Which of the following is typically NOT required in articles of organization?

A) Name B) Business Address C) Duration D) Ownership percentages Answer: D Diff: 2 Topic: Exhibit 15.1 Articles of Organization 38) An LLC that is engaged in real estate development hires Sarah, a non-member, to be its president. While acting within the scope of her LLC authority, Sarah signs a loan agreement whereby the LLC borrows $1 million from a bank to complete the construction of an office building. If the LLC subsequently suffers financial difficulty and defaults on the bank loan, who is liable?

A) Sarah only B) The LLC only C) Both Sarah and the LLC D) Neither Sarah nor the LLC Answer: B Diff: 2 Topic: Limited Liability Company (Liability of Managers)

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39) In a ________ franchise, the franchisor provides a secret formula or the like to the franchisee.

A) distributorship B) processing plant C) chain-style D) area Answer: B Diff: 2 Topic: Franchise (Types of Franchises) 40) In a(n) ________ franchise, the franchisor authorizes the franchisee to negotiate and sell franchises on behalf of the franchisor.

A) distributorship B) processing plant C) chain-style D) area Answer: D Diff: 2 Topic: Franchise (Types of Franchises) 41) Briefly discuss the types of franchises available.

Answer: There are four basic types of franchises: A. Distributorship. The franchisor manufactures a product and licenses a retail franchisee to distribute the product to the public.

B. Processing plant franchise. The franchisor provides a formula or process to the franchisee, and the franchisee manufactures the product and distributes it to retail dealers.

C. Chain-style franchise. The franchisor licenses the franchisee to sell its products in an exclusive territory.

D. Area franchise. This is a subfranchise arrangement where the franchisee sells franchises in a specific area.

Diff: 2 Topic: Franchise (Types of Franchises) 42) Nathan is considering a franchising opportunity offered by Miracle-Ear(c). Discuss the advantages of a franchise.

Answer: The advantages of franchising include the following.

A. The franchisee has access to the franchisor's knowledge and resources while running an independent business.

B. Generally, there is product recognition and standardization. The franchisee benefits from the franchisor's trademarks and service marks and the franchisor's advertising and promotion of the products and services.

C. In general, franchisees are more likely to be successful than other new business.

Diff: 2 Topic: Franchise

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43) Iza, Jena, and Thom formed a limited liability company. Iza contributed $30,000 in capital, while Jena and Thom each contributed $20,000. The limited liability company failed with $500,000 in unpaid debt. Discuss each member's liability with respect to the unpaid debt.

Answer: Members of limited liability companies have limited liability. They are not personally liable for the obligations of an LLC beyond their capital contribution. Thus in this case, Iza will lose the $30,000 that she contributed to the LLC but is not liable for the unpaid debt. Similarly, Jena and Thom will each lose the $20,000 that they invested in the LLC but have no personal liability for the unpaid debt.

Diff: 2 Topic: Limited Liability Company (Liability of Members) 44) ________ are partners who invest capital but do not participate in management and are not personally liable for partnership debts beyond their capital contribution.

Answer: Limited partners 45) ________ are owners of an LLC. Answer: Members 46) An ________ is an unincorporated business entity that combines the most favorable attributes of both partnerships and corporations.

Answer: LLC 47) ________ must be filed with the Secretary of State to form an LLC. Answer: Articles of organization 48) A ________ is established when one party licenses another party to use the former's trade name, trademarks, commercial symbols, patents, copyrights and other property in the distribution and selling of goods and services.

Answer: Franchise 49) The party who does the licensing in a franchise situation is known as the ________.

Answer: Franchisor 50) The party who is licensed in a franchise situation is known as the ________.

Answer: Franchisee 51) ________ is a business arrangement where the owner of intellectual property permits another to use it.

Answer: Licensing 52) A ________ involves two or more business entities combining resources to a single end.

Answer: Joint Venture 53) When two or more companies in the same industry agree to accomplish a designated objective we have a ________.

Answer: Strategic Alliance 173 .

54) An ________ regulates the affairs of an LLC with respect to the conduct of its business and governs the relations among members.

Answer: operating agreement 55) In a ________ managed LLC members have the right to manage the entity themselves; while in a ________ managed LLC, members delegate their management powers.

Answer: member; management

174 .

Chapter 16 Corporations and the Sarbanes-Oxley Act 1) A corporation is a taxable entity separate and distinct from its owners.

Answer: TRUE Diff: 1 Topic: Nature of the Corporation 2) Owners of corporations are called incorporators.

Answer: FALSE Diff: 1 Topic: Introduction to Corporations and The Sarbanes-Oxley Act 3) The shareholders of a corporation can agree to restrictions on the transfer of their shares.

Answer: TRUE Diff: 2 Topic: Nature of the Corporation 4) A corporation is required to have unlimited life.

Answer: FALSE Diff: 1 Topic: Nature of the Corporation (Characteristics of Corporations) 5) A foreign corporation is one that is incorporated in another nation.

Answer: FALSE Diff: 2 Topic: Nature of the Corporation 6) The Revised Model Business Corporation Act is a federal statute affecting corporations.

Answer: FALSE Diff: 1 Topic: Contemporary Environment (Revised Model Business Corporation Act) 7) A corporation must generally choose a state for incorporation where it has a business presence.

Answer: FALSE Diff: 1 Topic: Incorporation Procedure (Incorporating a Corporation Under State Law) 8) Under the Revised Model Business Corporation Act, a corporation officially comes into existence upon the filing of its articles of incorporation.

Answer: TRUE Diff: 1 Topic: Incorporation Procedure (Articles of Incorporation) 175 .

9) A corporation's bylaws are not required to be filed.

Answer: TRUE Diff: 1 Topic: Incorporation Procedure (Articles of Incorporation) 10) The bylaws must be adopted at the organizational meeting of the initial board of directors.

Answer: TRUE Diff: 1 Topic: Incorporation Procedure (Organizational Meeting) 11) Treasury shares that are reissued by the corporation represent a nonvoting interest in the corporation.

Answer: FALSE Diff: 1 Topic: Financing a Corporation (Authorized, Issued, and Outstanding Shares) 12) The Subchapter S Revision Act authorizes only two types of corporations: S corporations and C corporations.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (S Corporation Election for Federal Tax Purposes) 13) Different issues of preferred stock can entitle the owners to significantly different rights and preferences.

Answer: TRUE Diff: 1 Topic: Financing a Corporation (Preferred Stock) 14) Generally speaking, preferred stockholders have the same right to vote for the election of shareholders as common stockholders.

Answer: FALSE Diff: 1 Topic: Financing a Corporation (Preferred Stock) 15) Preferred shareholders have a legal right to their dividends every year.

Answer: FALSE Diff: 2 Topic: Financing a Corporation (Preferred Stock) 16) A debenture is a long-term unsecured debt instrument.

Answer: TRUE Diff: 1 Topic: Financing a Corporation (Debt Securities)

176 .

17) The affirmative vote of the majority of the voting shares represented at a stockholder meeting constitutes an act of the shareholders for actions other than for the election directors.

Answer: TRUE Diff: 1 Topic: Shareholders (Quorum and Vote Required) 18) The term "convertible" as applied to stock usually refers to common stock that can be converted into preferred stock.

Answer: FALSE Diff: 2 Topic: Financing a Corporation (Preferred Stock) 19) The preemptive right allows shareholders with sufficient shares of stock the right to be on the board of directors.

Answer: FALSE Diff: 2 Topic: Board of Directors 20) In a merger, the shareholders of the merged corporation receive stock of the surviving corporation.

Answer: TRUE Diff: 2 Topic: Mergers and Acquisitions 21) Ordinarily, a merger requires approval of both boards of directors and the shareholders of both corporations.

Answer: TRUE Diff: 2 Topic: Mergers and Acquisitions 22) The life of a corporation may be terminated involuntarily.

Answer: TRUE Diff: 2 Topic: Dissolution of a Corporation 23) An international branch office is a separate legal entity of a corporation.

Answer: FALSE Diff: 2 Topic: Multinational Corporations (International Branch Office) 24) A parent corporation usually owns all or the majority of the stock of a subsidiary corporation.

Answer: TRUE Diff: 1 Topic: Multinational Corporations (International Subsidiary Corporation)

177 .

25) A subsidiary corporation is a separate legal entity from the parent corporation.

Answer: TRUE Diff: 2 Topic: Multinational Corporations (International Subsidiary Corporation) 26) Which of the following is not a characteristic of a corporation?

A) Unlimited liability of owners B) Free transferability of shares C) Perpetual existence D) Centralized management Answer: A Diff: 1 Topic: Nature of the Corporation (Characteristics of Corporations) 27) The Uniform Law, issued in 1984 by the Committee on Corporate Laws of the American Bar Association, that regulates the formation, operation, and termination of corporations is: A) The Model Business Corporation Act. B) The Uniform Commercial Code.

C) The Revised Model Business Commercial Code.

D) The Standard Incorporation Act. Answer: C Diff: 1 Topic: Contemporary Environment (Revised Model Business Corporation Act) 28) Which of the following is true?

A) Foreign corporations and alien corporations both refer to corporations incorporated in other nations.

B) Foreign corporations are corporations that are formed in other nations originally, but are now incorporated in the local state.

C) Alien corporations are corporations that are incorporated in other nations, and foreign corporations are corporations that are incorporated in other states.

D) Alien corporations and foreign corporations must also incorporate in any state in which they do business.

Answer: C Diff: 3 Topic: Incorporation Procedure (Incorporating a Corporation Under State Law) 29) Which of the following generally would not be included with the articles of incorporation?

A) The period of duration of the corporation B) The classes and preferences of stock C) Projected financial statements D) The address of the corporation's registered office Answer: C Diff: 2 Topic: Incorporation Procedure (Articles of Incorporation)

178 .

30) Generally, in order to adopt an amendment to the articles of incorporation of an existing corporation, what must be done?

A) The shareholders must vote to approve the amendment.

B) The original articles must be revoked.

C) The amendment must be filed with the office of the secretary of state.

D) Both A and C Answer: D Diff: 2 Topic: Incorporation Procedure 31) The bylaws of a corporation: A) Take precedence over the articles of incorporation.

B) Must be filed in the appropriate state office.

C) Are not binding on the officers and directors of the corporation.

D) Govern the internal management of the corporation and typically would include the time and place of the annual shareholders' meeting.

Answer: D Diff: 1 Topic: Incorporation Procedure (Corporate Bylaws) 32) Which of the following is true about the power to amend the bylaws of a corporation?

A) This power is held exclusively by the board of directors.

B) The articles of incorporation grant this power exclusively to either the shareholders or the board of directors.

C) This power is held exclusively by the shareholders.

D) Where the articles of incorporation have granted the power to amend the bylaws to the board of directors, the shareholders also retain an absolute power to amend the bylaws.

Answer: D Diff: 2 Topic: Incorporation Procedure (Corporate Bylaws) 33) Which of the following would not be a typical item of business at the organizational meeting of the corporation?

A) Adoption of bylaws B) Election of corporate officers C) Selection of incorporators D) Authorizing the issuance of shares of stock Answer: C Diff: 2 Topic: Incorporation Procedure (Organizational Meeting)

179 .

34) An organizational meeting of the initial directors of a corporation: A) Must be held prior to the filing of the articles of incorporation.

B) Must be held after the filing of the articles of incorporation.

C) Must be held, but can occur before or after the filing of the articles of incorporation.

D) Must be held only if there is business that needs to be transacted, and any such meeting must occur after the articles of incorporation have been filed.

Answer: B Diff: 2 Topic: Incorporation Procedure (Organizational Meeting) 35) Whether a corporation can be taxed as if it were a partnership is based on: A) The nature of the corporation's business.

B) The laws of the state of incorporation.

C) Whether the corporation makes an election to be taxed in this way.

D) Whether the corporation does business in more than one state.

Answer: C Diff: 2 Topic: Contemporary Environment (S Corporation Election for Federal Tax Purposes) 36) In a corporation, out of the number of shares authorized, the number outstanding, and the number issued, which must be at least as large as the other two?

A) Issued.

B) Outstanding.

C) Authorized.

D) None of the above.

Answer: C Diff: 2 Topic: Financing a Corporation (Authorized, Issued, and Outstanding Shares) 37) A corporation's shares of stock are commonly classified into the following categories except: A) Authorized shares.

B) Ratified shares.

C) Issued shares.

D) Treasury shares.

Answer: B Diff: 2 Topic: Financing a Corporation (Authorized, Issued, and Outstanding Shares) 38) Which of the following statements is true?

A) The number of shares provided for in the articles of incorporation is called authorized shares.

B) A corporation may not repurchase their own shares after they have been issued.

C) A corporation may vote its treasury stock.

D) The corporation must sell all of the authorized stock.

Answer: A Diff: 1 Topic: Financing a Corporation (Authorized, Issued, and Outstanding Shares) 180 .

39) What is the significance of the term "preferred" in reference to preferred stock?

A) It is viewed to generally be a better investment than common stock.

B) Preferred stockholders usually have better voting rights than common stockholders.

C) Preferred stockholders receive preference over creditors of the corporation in the event of liquidation.

D) Preferred stockholders receive certain preferences over common stockholders with respect to dividends or with respect to assets in the event of liquidation.

Answer: D Diff: 2 Topic: Financing a Corporation (Preferred Stock) 40) If preferred stock is "participating," this means that the preferred shareholders: A) Are entitled to share to some extent in dividends over and above the stated dividend on the preferred stock.

B) Are entitled to vote along with common shareholders.

C) Have an absolute right to receive their dividends.

D) Are part of the management of the corporation.

Answer: A Diff: 2 Topic: Financing a Corporation (Preferred Stock) 41) Which of the following is true?

A) Bonds and debentures are two different terms to describe the same instrument.

B) A bond is a debt security and a debenture is the agreement between the bondholder and the corporation.

C) A bond is an instrument that has a maturity of more than five years and a debenture has a maturity of less than five years.

D) A bond is a secured instrument and a debenture is an unsecured instrument.

Answer: D Diff: 2 Topic: Financing a Corporation (Debt Securities) 42) Corporations are required to hold shareholders' meetings at least: A) Annually.

B) Every six months.

C) Twice a year, but they are not required to be held every six months.

D) Quarterly.

Answer: A Diff: 1 Topic: Shareholders (Shareholders' Meetings)

181 .

43) Who may call a special shareholders' meeting if the bylaws do not address this issue?

A) The board of directors B) Any shareholder C) Shareholders holding at least 10 percent of the voting shares of the corporation D) A and C Answer: D Diff: 2 Topic: Shareholders (Shareholders' Meetings) 44) The document by which a shareholder grants another person the right to vote the shareholder's shares at a shareholders' meeting is called a: A) Power of attorney.

B) Proxy.

C) Voting trust.

D) Election agency.

Answer: B Diff: 1 Topic: Shareholders (Shareholders' Meetings) 45) Which method of voting would give minority shareholders the best chance to elect someone to the board of directors of a corporation?

A) Cumulative B) Straight C) Supermajority D) Preemptive Answer: A Diff: 1 Topic: Contemporary Environment (Straight Versus Cumulative Voting) 46) "Piercing the corporate veil" can refer to: A) Denying corporate existence to a corporation.

B) Denying limited liability to owners of a corporation because the corporation failed to exercise reasonable care in its business decisions.

C) Denying limited liability to owners of a corporation where the corporate affairs were not sufficiently segregated from those of the owners.

D) Forcing a corporation to pay a dividend to its shareholders.

Answer: C Diff: 2 Topic: Shareholders

182 .

47) Which of the following best describes a merger?

A) Two corporations jointly purchase a third corporation and operate it as a joint venture.

B) Two corporations are combined to form a new third corporation, and the original two corporations cease to exist.

C) Two corporations are combined, with one of the original corporations surviving and the other ceasing to exist.

D) One corporation acquires all of the shares of a second corporation, with both corporations retaining their separate legal existence, the second a subsidiary of the first.

Answer: C Diff: 2 Topic: Mergers and Acquisitions 48) In an ordinary merger, what approvals are needed?

A) Recommendation by both boards of directors and votes of the shareholders of each corporation B) Votes by both boards of directors, but shareholders need not approve C) Vote by the board of directors of the surviving corporation, and for the corporation that does not survive, recommendation by the board of directors and vote by the shareholders D) For both corporations, a vote by the shareholders, but no action by the board of directors Answer: A Diff: 3 Topic: Mergers and Acquisitions 49) Mallard Corporation is incorporated in Iowa and does business in Ohio. This corporation is: A) A domestic corporation as to both Iowa and Ohio.

B) A foreign corporation as to both Iowa and Ohio.

C) A domestic corporation as to Iowa and a foreign corporation as to Ohio.

D) A domestic corporation as to Ohio and a foreign corporation as to Iowa.

Answer: C Diff: 1 Topic: Incorporation Procedure (Incorporating a Corporation Under State Law) 50) Mary is planning to form a corporation to manufacture and distribute electric solar panels.

She will sell the panels only in the Rocky Mountain states. These panels will be manufactured at two factories, one in Illinois and one in Florida. The headquarters of this company will be in Louisiana. In which state(s) could Mary incorporate this business?

A) Florida, Illinois, or Louisiana B) Louisiana only C) Florida, Illinois, Louisiana, or any state in which the products are sold D) Any of the fifty states Answer: D Diff: 2 Topic: Incorporation Procedure (Incorporating a Corporation Under State Law)

183 .

51) A particular issue of stock carries a stated dividend rate of 8 percent; provides that if this dividend is not paid during a particular year, it will be paid in a subsequent year before common stock dividends are paid; and provides that upon liquidation of the corporation, the owner will receive $300 per share before the common stockholders get anything. This stock is: A) Common stock.

B) Straight preferred stock.

C) Cumulative preferred stock with a liquidation preference.

D) Noncumulative preferred stock with a liquidation preference.

Answer: C Diff: 3 Topic: Financing a Corporation (Preferred Stock) 52) Jan owns 800 of the 2,000 issued and outstanding shares of Jackalope Corporation. There are five members of the board of directors, three of whom are up for election at a shareholders' meeting. If each share of stock is entitled to one vote, what is the maximum number of votes that Jan can cast for any one of the candidates for the positions on the board under cumulative voting?

A) 800 B) 2,000 C) 2,400 D) 4,000 Answer: C Diff: 2 Topic: Contemporary Environment (Straight Versus Cumulative Voting) 53) Which of the following is NOT a characteristic of a corporation?

A) free transferability of shares B) perpetual existence C) decentralized management D) limited liability of shareholders Answer: C Diff: 2 Topic: Nature of the Corporation (Characteristics of Corporations) 54) With respect to preferred stock, the right to be paid before common stockholders if the corporation is dissolved is called: A) dividend preference.

B) liquidation preference.

C) a conversion right.

D) participating preferred stock.

Answer: B Diff: 2 Topic: Financing a Corporation (Preferred Stock)

184 .

55) When a corporation must pay preferred dividends as they become due if earnings are available, is known as: A) dividend preference.

B) cumulative dividend rights.

C) a right to participate in profits.

D) conversion rights.

Answer: B Diff: 2 Topic: Financing a Corporation (Preferred Stock) 56) A ________ is a short-term debt security with a maturity of five years or less.

A) debenture B) bond C) note D) stock Answer: C Diff: 1 Topic: Financing a Corporation (Debt Securities) 57) ________ shares are those issued by the corporation, minus treasury shares.

A) Authorized B) Issued C) Treasury D) Outstanding Answer: D Diff: 2 Topic: Financing a Corporation (Authorized, Issued, and Outstanding Shares) 58) One of the characteristics of corporations, especially large corporations, is a separation of ownership and control. Why is there this separation of ownership and control? What are its advantages and disadvantages? What risks does it pose and to whom?

Answer: With so many owners possible in corporations, it is simply impossible to have all shareholders hold the power to manage the corporation. This allows the corporation to be more efficiently managed, but the management might become isolated and nonresponsive to the shareholders.

Diff: 2 59) Many persons believe that it is too easy for corporations to take over other corporations, and point to the large reductions in workforces that frequently result following mergers. Should there be limits placed on the ability to lay off employees following a business combination? What are the advantages and disadvantages of limited regulation of merger activity?

Answer: Many argue that mergers act as incentives for the management of a company to not become bloated, and that limits on mergers would interfere with free market efficiency.

Diff: 2

185 .

60) Betty is considering forming a business in Colorado. She is thinking about a business that would rent in-line skates to customers and transport them to the top of Mount Evans, west of Denver. The road up Mount Evans is the highest paved road in the United States and reaches just over 14,000 feet above sea level. Customers could skate from the top at 14,000 feet to a point in a nearby town at about 8,000 feet above sea level. The customers would skate about 35 miles, nearly all of which is downhill. Betty is considering whether or not she should form a corporation to operate this business. What are the advantages and disadvantages of forming a corporation? Is there any way she could avoid or compensate for any of the disadvantages?

Answer: Limited liability is Betty's biggest advantage, especially considering the risks of this business. The primary disadvantages may be double taxation and the costs incurred in forming a corporation. The centralization of management and free transferability of shares may not be that crucial if Betty is planning to put up all the money herself. She could get around the tax problem, if it is a problem for her, by electing S corporation status. If she did not want to incorporate, she could protect herself from liability by obtaining insurance, something she would likely do even if incorporated. In most states, she could form a limited liability company.

Diff: 3 Topic: Nature of the Corporation 61) What are the types and characteristics of preferred stock?

Answer: 1) dividend preference- the right to receive a fixed dividend at set periods during the year; 2) liquidation preference- the right to be paid before common stockholders if the coporation is dissolved or liquidated; 3) cumulative dividend right- corporations must pay preferred dividends as they become due if they have the earnings to do so; 4) participating preferred stockallows a stockholder to participate in profits of the corporation along with the common stockholders; 5) convertible preferred stock- permits stockholders to convert their shares into common stock; 6) redeemable preferred stock- permits a corporation to redeem the preferred stock at some future date.

Diff: 3 Topic: Financing a Corporation (Preferred Stock) 62) A ________ is a legal entity created pursuant to the laws of the state of incorporation.

Answer: Corporation 63) A ________ is a corporation in any state other than the one in which it is incorporated.

Answer: Foreign corporation 64) ________ is the process of forming a new corporation.

Answer: Incorporation 65) ________ represent the basic governing document of a corporation.

Answer: Articles of Incorporation 66) Authorized shares that have not been sold by a corporation are known as ________ shares.

Answer: Unissued 67) ________ shares are issued shares that have been repurchased by a corporation.

Answer: Treasury 186 .

68) ________ is a type of equity security that represents the residual value of a corporation with no preferences but is paid dividends.

Answer: Common stock 69) ________ is stock that provides that any missed dividend payments must be paid in the future to the preferred shareholders before the common shareholders can receive any dividends.

Answer: Cumulative preferred stock 70) Shareholders may appoint another person known as the ________ to act as their agent to vote their shares at shareholders' meetings.

Answer: Proxy 71) A ________ is a form of business combination described as A+B=A. Answer: Merger 72) The primary methods for dissolving and terminating corporations are ________ and ________.

Answer: voluntary dissolution; administrative dissolution 73) A corporation that operates in two or more countries is called a ________.

Answer: multinational corporation 74) A federal statute the establishes far-reaching rules to improve corporate governance, eliminate conflicts of interest, and instill confidence in investors of public companies is called the ________.

Answer: Sarbanes-Oxley Act 75) A rule that says that directors and officers are not liable to the corporation of its shareholders for honest mistakes of judgment is known as the ________.

Answer: business judgment rule

187 .

Chapter 17 Investor Protection and E-Securities Transactions 1) The Securities and Exchange Commission was created as part of the Securities Exchange Act of 1934.

Answer: TRUE Diff: 1 Topic: The Securities and Exchange Commission (SEC) 2) Federal and state securities laws mandate that investors be allowed to fully examine the books of companies they are contemplating investing in before the sale takes place.

Answer: FALSE Diff: 1 Topic: Private Transactions Exempt From Registration 3) The U.S. Department of Justice is responsible for bringing criminal prosecutions for violations of federal securities laws.

Answer: TRUE Diff: 1 Topic: The Securities and Exchange Commission (SEC) 4) Limited partnerships have been classified as securities under the Howey test.

Answer: TRUE Diff: 1 Topic: Definition of a Security 5) One part of the Howey test for whether an arrangement is a security is if the arrangement is designed to earn money from the significant efforts of others.

Answer: TRUE Diff: 2 Topic: Definition of a Security 6) One of the major responsibilities of the SEC is to investigate securities so that it can issue ratings on the estimated risk of investing in the particular securities.

Answer: FALSE Diff: 1 Topic: The Securities and Exchange Commission (SEC) 7) It is not necessary to include the planned use of the proceeds from an offering in the registration statement under the Securities Act of 1933.

Answer: FALSE Diff: 1 Topic: The Securities Act of 1933: Going Public (Registration Statement) 188 .

8) An issuer of securities must provide a copy of the registration statement and a copy of the prospectus to the Securities and Exchange Commission.

Answer: TRUE Diff: 2 Topic: The Securities Act of 1933: Going Public (Prospectus) 9) Securities qualifying under Regulation A of the Securities Act of 1933 must be registered.

Answer: TRUE Diff: 2 Topic: The Securities Act of 1933: Going Public (Regulation A Offering) 10) The Securities and Exchange Commission permits companies to issue securities over the Internet.

Answer: TRUE Diff: 1 Topic: E-Securities Transactions (E-Public Offerings) 11) Under the 1933 Securities Act, some securities are exempt forever.

Answer: TRUE Diff: 1 Topic: Private Transactions Exempt From Registration 12) Municipal bonds are exempt from registration with the Securities and Exchange Commission.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Securities Exempt from Registration) 13) Under the Securities Act of 1933, intrastate issues of securities are exempt so long as more than 50 percent of the issuer's business is conducted in the state and all the investors are located in that same state.

Answer: FALSE Diff: 1 Topic: Private Transactions Exempt From Registration (Intrastate Offering Exemption) 14) The private placement exception to registration of securities allows raising an unlimited amount of capital from an unlimited number of accredited investors.

Answer: TRUE Diff: 2 Topic: Private Transactions Exempt From Registration (Private Placement Exemption) 15) Under the small offering exemption of the Securities Act of 1933, the securities can be sold to an unlimited number of accredited and unaccredited investors.

Answer: TRUE Diff: 2 Topic: Private Transactions Exempt From Registration (Small Offering Exemption) 189 .

16) Under the Securities Act of 1933, securities that have been issued through a private placement are subject to limitations on their resale.

Answer: TRUE Diff: 1 Topic: Private Transactions Exempt From Registration (Small Offering Exemption) 17) The Small Corporate Offering Registration Form is a question-and-answer disclosure form that small businesses can complete in order to meet registration requirements when the offering they plan to make does not exceed $1 million.

Answer: TRUE Diff: 1 Topic: The Securities Act of 1933: Going Public (Regulation A Offering) 18) A requirement for liability under Section 11 of the Securities Act of 1933 is that a false or omitted statement in a registration statement was intended to defraud investors.

Answer: TRUE Diff: 2 Topic: The Securities Act of 1933: Going Public (Actions for Violations of the Securities Act of 1933) 19) The burden of proof for the due diligence defense is on the defendant.

Answer: TRUE Diff: 2 Topic: The Securities Act of 1933: Going Public (Actions for Violations of the Securities Act of 1933) 20) Corporate directors and officers can be held liable for violation of the securities Act of 1933.

Answer: TRUE Diff: 1 Topic: The Securities Act of 1933: Going Public (Actions for Violations of the Securities Act of 1933) 21) Companies are covered under the Securities Exchange Act of 1934 only if they are in the process of making new offerings of securities.

Answer: FALSE Diff: 1 Topic: The Securities Exchange Act of 1934--Trading in Securities 22) Rule 10b-5, which prohibits securities fraud, applies only to the securities of companies listed on the major stock exchanges.

Answer: FALSE Diff: 1 Topic: The Securities Exchange Act of 1934--Trading in Securities

190 .

23) Negligence that causes a material misstatement will subject a party to liability under Rule 10b-5 of the Securities Exchange Act of 1934.

Answer: FALSE Diff: 2 Topic: The Securities Exchange Act of 1934--Trading in Securities 24) Even nonemployees can violate insider-trading rules.

Answer: TRUE Diff: 1 Topic: The Securities Exchange Act of 1934: Trading in Securities (Insider Trading) 25) A tippee is liable for acting on information that the tippee should have known was not public.

Answer: TRUE Diff: 1 Topic: The Securities Exchange Act of 1934: Trading in Securities (Tipper-Tippee Liability) 26) A person cannot be imprisoned for criminal violations of Section 32 of the Securities and Exchange Act of 1934.

Answer: FALSE Diff: 2 Topic: The Securities Exchange Act of 1934: Trading in Securities (Actions for Violations of the Securities Exchange Act of 1934) 27) An insider is liable for so-called short-swing profits even if she has not used inside information.

Answer: TRUE Diff: 1 Topic: Short-Swing Profits (Section 16(b)) 28) Under Section 16 of the Securities Act of 1934, a statutory insider includes any shareholder owning five percent or more of an equity security of a corporation.

Answer: FALSE Diff: 2 Topic: Short-Swing Profits 29) The Sarbanes-Oxley Act allows the SEC to issue an order prohibiting anyone who has committed securities fraud from acting as an officer or director of any company.

Answer: FALSE Diff: 2 Topic: Ethics Spotlight (Sarbanes-Oxley Act Erects a Wall Between Investment Bankers and Security Analysts) 30) State securities laws are often referred to as Pie-in-the-Sky laws.

Answer: FALSE Diff: 1 Topic: State "Blue-Sky" Laws 191 .

31) Which of the following is true about the 1933 and 1934 securities acts?

A) The 1934 act replaced the 1933 act, covering all aspects of securities issuance and trading.

B) The 1933 act covers securities listed on stock exchanges and the 1934 act covers nonlisted securities.

C) The 1933 act covers the initial issuance of securities and the 1934 act covers the subsequent trading of securities.

D) The 1933 act covers the initial issuance and subsequent trading of stocks and the 1934 act covers the initial issuance and subsequent trading of bonds.

Answer: C Diff: 1 Topic: Landmark Law (Federal Securities Statutes) 32) Which of the following is not one of the functions of the Securities and Exchange Commission?

A) Adopting rules to further the functions of the securities laws B) Providing government-backed insurance to purchasers of securities C) Bringing enforcement actions against suspected violators of securities laws D) Regulating securities brokers and advisors Answer: B Diff: 2 Topic: The Securities and Exchange Commission (SEC) 33) Which of the following are securities?

A) Investment contracts, stocks, bonds, but not warrants B) Stocks, bonds, pre-organization subscription agreements, but not investment contracts C) Bonds and common stocks, but not preferred stocks D) Stocks, bonds, pre-organization subscription agreements, and some investment contracts Answer: D Diff: 2 Topic: Definition of a Security 34) What is the significance of the Howey test under federal securities law?

A) It determines a security's type.

B) It determines whether stocks and bonds are securities.

C) It determines whether investment contracts are securities.

D) B and C only Answer: C Diff: 2 Topic: Definition of a Security

192 .

35) Which of the following is true about the relationship between the registration statement and the prospectus?

A) Only the registration statement is required to be filed with the SEC, and only the prospectus must be provided to purchasers of securities.

B) Both the registration statement and the prospectus must be submitted to the SEC, and both are required to be provided to prospective purchasers of securities.

C) Both the registration statement and the prospectus must be submitted to the SEC, but only the prospectus is required to be provided to prospective purchasers of securities.

D) Both the registration statement and the prospectus must be submitted to the SEC, but only the registration statement is required to be provided to prospective purchasers of securities.

Answer: C Diff: 2 Topic: The Securities Act of 1933--Registration of Securities 36) The general purpose of the Securities Act of 1933 is: A) To allow the issuance of only those securities whose level of risk has been approved by the SEC. B) To provide that all securities issued have adequate insurance coverage.

C) To provide that all relevant information is disclosed to potential purchasers of new issues of securities.

D) To provide potential purchasers of securities with a safety rating system.

Answer: C Diff: 2 Topic: Landmark Law (Federal Securities Statutes) 37) Which of the following items is not required to be included in a registration statement?

A) Description of the securities B) The price at which the securities will sell C) Description of the issuer's business D) Description of any pending litigation involving the issuer E) Audited (certified) financial statements Answer: B Diff: 2 Topic: The Securities Act of 1933: Going Public (Registration Statement) 38) What does Regulation A under the Securities Act of 1933 provide?

A) Exemption from registration for certain types of securities B) Exemption from registration for certain securities transactions C) A simplified registration for some securities offerings under a certain dollar amount D) State regulation in place of federal regulation for certain small offerings Answer: C Diff: 1 Topic: The Securities Act of 1933: Going Public (Regulation A Offering)

193 .

39) When selling securities under Regulation A: A) Issuers must limit the sales of the securities to accredited investors.

B) Issuers cannot sell more than $5,000,000 of securities in one year under Regulation A. C) All issuers must provide an offering statement.

D) Sales are limited to 25 unaccredited investors.

Answer: B Diff: 2 Topic: The Securities Act of 1933: Going Public (Regulation A Offering) 40) Which of the following is not exempt from registration under the Securities Act of 1933?

A) Bonds issued by a county government B) Stock issued by non-profit issuers C) Stock issued pursuant to a stock split D) Stock issued by a service corporation Answer: D Diff: 2 Topic: Contemporary Environment (Securities Exempt from Registration) 41) Which of the following is not an accredited investor for purposes of the private placement exemption under the Securities Act of 1933?

A) A person with a net worth of at least $1,000,000 B) A corporation or partnership with total assets in excess of $5,000,000 C) A director of a corporation that is the issuer D) A person who had an income of at least $200,000 in the most recent year Answer: D Diff: 3 Topic: Private Transactions Exempt From Registration (Private Placement Exemption) 42) Which of the following is true about the Securities Act of 1933 small offering exemption?

A) Sales of securities up to $5,000,000 qualify.

B) Sales can be made only to qualified investors.

C) Sales must all be made to investors in the same state.

D) There are no limits on the number or type of investors.

Answer: D Diff: 2 Topic: Private Transactions Exempt From Registration (Small Offering Exemption) 43) Under the 1933 Securities Act, a person responsible may be held liable for: A) Intentional fraud B) A material omission or misstatement C) Failure to file a registration statement or deliver a prospectus as required by law D) A, B, and C Answer: D Diff: 1 Topic: The Securities Act of 1933: Going Public

194 .

44) The common defense available in a Section 11 action of the Securities Act of 1933 is: A) The reasonable person defense.

B) The due diligence defense.

C) The private placement defense.

D) The de facto compliance defense.

Answer: B Diff: 1 Topic: The Securities Act of 1933: Going Public (Actions for Violations of the Securities Act of 1933) 45) Under the due diligence defense to a Section 11 action under the Securities Act of 1933: A) Only the issuer can assert a due diligence defense.

B) Any defendant can assert a due diligence defense.

C) Any defendant except the issuer can assert a due diligence defense.

D) The due diligence defense must be asserted together by all defendants, or not at all.

Answer: C Diff: 2 Topic: The Securities Act of 1933: Going Public (Actions for Violations of the Securities Act of 1933) 46) The Securities Exchange Act of 1934 covers the following except: A) Trading of certain securities following their initial issuance.

B) Regulation of securities exchanges.

C) Initial issuances of securities that are exempt under the 1933 Act. D) Ongoing periodic financial reporting by companies listed on national exchanges.

Answer: C Diff: 2 Topic: The Securities Exchange Act of 1934--Trading in Securities 47) Rule 10b-5 of the Securities Exchange Act of 1934 applies to: A) Issuances of securities if they are covered by a registration statement.

B) Trading of securities if the trading is done on a national exchange.

C) Only transactions connected with a merger or consolidation.

D) Any transfer of securities.

Answer: D Diff: 2 Topic: The Securities Exchange Act of 1934: Trading in Securities (Section 10(b) and Rule 10b-5)

195 .

48) With respect to Section 11 actions under the Securities Act of 1933 and Rule 10b-5 actions under the Securities Exchange Act of 1934, intent must be proven: A) In both Section 11 and Rule 10b-5 actions.

B) In Section 11 actions, but not in Rule 10b-5 actions.

C) In Rule 10b-5 actions, but not in Section 11 actions.

D) In neither Section 11, nor in Rule 10b-5 actions.

Answer: C Diff: 2 Topic: The Securities Act of 1933: Going Public 49) When an insider discloses material insider information to a noninsider tippee, the tipper is liable for: A) The tipper's own trading only.

B) The tippee's profits, but not the profits made by any remote tippees.

C) The profits of both the immediate tippee, and the profits of any remote tippees.

D) The profits of all traders during the period before the information becomes public.

Answer: C Diff: 3 Topic: The Securities Exchange Act of 1934: Trading in Securities (Tipper-Tippee Liability) 50) What is the general reason for restrictions against insider trading under the Securities Exchange Act of 1934?

A) Corporate insiders should not own stock in the corporation because it is a conflict of interest.

B) Use of inside information is unfair in that it allows insiders to take advantage of the investing public.

C) Insider trading generally leads to lower stock prices.

D) Insider trading results in an imbalance of buyers and sellers in the market.

Answer: B Diff: 2 Topic: The Securities Exchange Act of 1934: Trading in Securities (Insider Trading) 51) Who is classified as a statutory insider under Rule 16(a) of the Securities Exchange Act of 1934?

A) All officers and directors B) Anyone, such as accountants or lawyers, who have provided services to the corporation C) Anyone, whether or not an officer or director, who owns at least 10 percent of the outstanding shares of a corporation D) A and C Answer: D Diff: 2 Topic: Short-Swing Profits

196 .

52) Which of the following is true about Rule 16(b) of the Securities Exchange Act of 1934 relating to short-swing profits?

A) It applies only to officers and directors of the corporation.

B) It provides for recovery from a statutory insider by the other party to the transaction.

C) It covers any trades occurring within one year of each other.

D) It provides that any profits on trades occurring within six months of each other made by a statutory insider belong to the corporation.

Answer: D Diff: 2 Topic: Short-Swing Profits 53) Acme Life Insurance Co. is in the business of selling life insurance and related products. It is also a corporation. Acme is considering taking several possible actions. Which of these actions would be subject to the registration requirements of the 1933 Securities Act? A) Acme issues a life insurance contract.

B) Acme splits its common stock 2 for 1.

C) Acme reorganizes itself, and exchanges one class of common stock for another class.

D) Acme issues new preferred stock.

Answer: D Diff: 2 Topic: The Securities Act of 1933: Going Public 54) Best, Inc., wishes to issue new stock to raise capital. Best is incorporated, and does all its business in Indiana. Best intends to offer and sell its new stock only to residents of Indiana, and to restrict sales to individuals from other states for the proper time. Which of the following best describes the status of Best's new stock?

A) This transaction is exempt as an intrastate offering.

B) This transaction is exempt as an intrastate offering, but only if Best sells only to accredited investors.

C) This transaction is exempt as an intrastate offering, but only if Best issues less than $1.5 million in securities.

D) This transaction is exempt as a private placement.

Answer: A Diff: 2 Topic: Private Transactions Exempt From Registration (Intrastate Offering Exemption)

197 .

55) Roger has put together a limited partnership to invest in oil exploration. He wants to sell limited partnership interests to investors. Roger plans to sell these interests to both accredited and non-accredited investors. Which of the following best describes the status of Roger's partnership interests as to the 1933 Securities Act? A) Limited partnership interests are not securities under the 1933 Act, so Roger is exempt.

B) This transaction is exempt as a private placement.

C) This transaction is exempt as a private placement, only if Roger sells to no more than 35 accredited investors.

D) This transaction is exempt as a private placement, only if Roger sells to no more than 35 nonaccredited investors.

Answer: D Diff: 3 Topic: Private Transactions Exempt From Registration (Private Placement Exemption) 56) Karl is the vice president of a medium size corporation that operates retail sporting goods stores in seven states. Karl has considerable stock that he purchased and received over the years while working there. Karl has purchased no stock for the last three years because all his excess funds have gone for college expenses for his oldest son. Karl's daughter will begin college in the fall, and Karl needs to sell some stock. Karl knows that one of the retail locations where the corporation owns the real estate was once used as a toxic dump. The corporation is legally obligated to clean up this site, and the costs will have a material effect on the corporation's net income for several years. This information is not yet public. Karl can: A) Freely sell his stock without any liability because it has been more than six months since he purchased any stock.

B) Sell his stock only if he tells the purchaser about the liability for cleaning up the toxic waste.

C) Sell his stock only if he gets prior clearance from the Securities and Exchange Commission.

D) Sell his stock only to an accredited investor.

Answer: B Diff: 2 Topic: The Securities Exchange Act of 1934: Trading in Securities (Insider Trading) 57) Jill is president of Starship Enterprises, Inc. She bought stock in Starship on January 1, 2002, and sold it for a profit on March 1, 2002. Jill used no nonpublic information when she bought or sold the stock. Which of the following best describes Jill's situation?

A) Jill has not violated any law.

B) Jill has violated the insider trading rules, and the profit belongs to the corporation.

C) Jill has violated the short-swing profits rule, and the profit belongs to the corporation.

D) Jill has violated the securities registration law.

Answer: C Diff: 1 Topic: Short-Swing Profits

198 .

58) Which of the following would not be a statutorily defined security?

A) Interest in oil B) Mineral rights C) Deposit receipts for foreign securities D) Investment contracts Answer: D Diff: 3 Topic: Definition of a Security 59) Regulation A permits issuers to sell up to ________ to the public during a ________-month period.

A) $1 million; six B) $1 million; twelve C) $5 million; six D) $5 million; twelve Answer: D Diff: 2 Topic: The Securities Act of 1933: Going Public (Regulation A Offering) 60) ________ of the Securities Act of 1933 imposes criminal liability on any person who willfully violates either the act or the rules and regulations adopted thereunder.

A) Section 11 B) Section 12 C) Section 24 D) Section 147 Answer: C Diff: 2 Topic: The Securities Act of 1933: Going Public (Actions for Violations of the Securities Act of 1933) 61) Are the rules on short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 too restrictive or not restrictive enough? Merely because one is a statutory insider, is it proper to limit their ability to make a profit on the company's stock? Alternatively, should the six-month period be longer? What is the theory behind making the profits belong to the corporation?

Answer: One rationale for the law is the difficulty of proving who had inside information at any particular time. The law assumes that the insiders do have inside information, a reasonable assumption. One rationale for the corporation getting the profits is that the insider should be devoting time to improving the long-term health of the company.

Diff: 2

199 .

62) For an investment contract, why is one of the requirements for the contract to be classified as a security that the arrangement be one where the profits are made through the efforts of others?

Answer: Where one must put her own efforts in to make a profit, such as a partner in a general partnership, one will investigate the opportunity more thoroughly. It is simply too easy to get investors to invest in a scam when the investor is promised great returns with no effort put in.

Lastly, when one does the work herself, she has more control over the outcome.

Diff: 2 63) John operates a sailboat charter service in the U.S. Virgin Islands. He currently has a fleet of 10 boats and would like to have a larger fleet, but would have to obtain additional investors, which he does not want to do. He is considering having investors buy sailboats, which he would maintain and operate as part of his charter fleet. He would enter into a contract that would sell the boat to the investor and provide for the investor to pay John a monthly fee for the maintenance of the boat, and would provide for the sharing of profits between John and the investor. Discuss whether this investment is a security under the Securities Act of 1933.

Answer: An investment contract in which an investor expects to make a profit from the efforts of others is a security. Here, all the efforts are undertaken by John, thus this arrangement is likely a security.

Diff: 2 Topic: Definition of a Security 64) Bluegrass Incorporated is incorporated and does 95 percent of its business in the state of Kentucky. Substantially all of its assets are located in Kentucky. Bluegrass plans to issue $5,000,000 in new stock. Bluegrass has ten potential investors, nine of whom live in Kentucky, one who lives in Ohio. Only one of these potential investors is accredited. Can Bluegrass qualify for any of the registration exemptions under the Securities Act of 1933?

Answer: Bluegrass can qualify for a private placement. It is offering too much to qualify under Rule 504 and cannot qualify for the intrastate offering because of the investor in Ohio. The securities would be subject to resale restrictions.

Diff: 3 Topic: Private Transactions Exempt From Registration

200 .

65) Smith and Company, CPAs, performed the audit work for a large corporation in connection with their registration statement. Smith and Company performed the work according to all appropriate professional standards, but the corporation had cleverly made the inventory look much greater than it actually was. Because the company did not have as much inventory as was indicated on the financial statements, the company was worth much less than it appeared to be.

Smith and Company has been named in a lawsuit under Section 11 of the Securities Act of 1933.

Even though Smith and Company properly performed the audit, and the fraud on the part of the corporation was such that it would not be uncovered by an audit, Smith and Company cannot prove any of this in court because all of its audit working papers and computer documentation was accidentally shredded. Discuss Smith and Company's legal situation.

Answer: Under Section 11, a plaintiff needs to prove only that there was a material misstatement and that someone was injured as a result. The due diligence defense places the burden of proof on Smith and Company, and even though they did nothing wrong, proving the defense would be difficult.

Diff: 2 Topic: Liability Provisions of the Securities Act of 1933 66) Jones is an appraiser who was hired by Monolith Corporation to appraise a number of its properties in connection with financial statements to be issued in relation to a registration statement. Because Monolith Corporation has a high turnover of investment real estate, Jones was hired again for help in preparing the annual financial statements for each of the next two years. It turns out that Jones was negligent in performance of all the appraisals that led to material misstatements on the financial statements of all years concerned. Jones did not know that the appraisals or financial statements were misstated. Discuss Jones' legal situation.

Answer: Jones would be liable under Section 11 of the Securities Act of 1933. As an expert, he is subject to the Act. Jones's negligence is sufficient for liability; intent, or scienter, need not be proven. Due diligence would be a defense, but Jones probably cannot prove it. Because of the lack of scienter, Jones would not be liable under Rule 10b-5 of the Securities Exchange Act of 1934.

Diff: 3 Topic: The Securities Exchange Act of 1934--Trading in Securities 67) Mary is an assembly line worker at a computer company. Mary becomes aware that an improvement is being made in the company's primary computer, which will significantly increase profits. Mary tells a friend to buy stock in the company, but instructs her not to tell anyone else. The friend buys stock, but tells two other persons to do the same. The company's profits increase greatly, and all three who purchased stock sell at a great profit. Discuss this situation.

Answer: Mary, as an insider tipper, is liable for the profits of all three buyers, as is Mary's friend. The two remote tippees' liability depends on whether they knew or should have known that they had inside information.

Diff: 2 Topic: The Securities Exchange Act of 1934: Trading in Securities (Insider Trading)

201 .

68) Fred is an officer at Hill Corporation. Fred, with no inside information, sells 100 shares of Hill stock in May at $50, and in July buys 250 shares at $40. Is Fred liable for short-swing profits?

Answer: Fred is liable. Any purchase and sale can be matched, and here a $40 purchase and $50 sale occurred within six months of each other (of 100 shares), even though Fred could not have actually sold any of the $40 shares.

Diff: 2 Topic: Short-Swing Profits 69) The ________ is the federal administrative agency that is empowered to administer federal securities laws.

Answer: SEC 70) The Securities Act of 1933 primarily regulates the ________ by a corporation, a general or limited partnership, an unincorporated association, or an individual.

Answer: Issuance of securities 71) A covered issuer under the Securities Act of l933 must file a ________ with the SEC. Answer: Registration Statement 72) A ________ is provided to prospective investors to enable them to evaluate the financial risk of an investment.

Answer: Prospectus 73) ________ permits the issuer to sell securities pursuant to a simplified registration process.

Answer: Regulation A 74) The ________ allows issuers to raise capital from an unlimited number of accredited investors without having to register the offering with the SEC. Answer: Private placement exemption 75) In order to establish a ________ defense, the defendant must provide that, after reasonable investigation, he had reasonable grounds to believe and did believe that, at the time the registration statement became effective, the statements contained therein were true and that there was no omission of material facts.

Answer: Due diligence 76) The ________ is a federal statute that primarily regulates subsequent trading in securities.

Answer: Securities Exchange Act of 1934 77) ________ means intentional conduct.

Answer: Scienter 78) ________ is a rule adopted by the SEC to clarify the reach of Section 10(b) against deceptive and fraudulent activities in the purchase and sale of securities.

Answer: Rule 10b-5 202 .

79) A ________ is a person who discloses material nonpublic information to another person.

Answer: Tipper 80) A ________ is the person who receives material nonpublic information from a tipper.

Answer: Tippee 81) Section 16(b) of the 1934 Act requires that any profits made by a statutory insider on transactions involving so-called short-swing profits belong to the ________.

Answer: Corporation 82) ________ are profits made by statutory insiders on trades involving equity securities occurring within six months of each other.

Answer: Short-swing profits 83) State security laws are often called ________.

Answer: Blue-sky laws 84) A law that established rules for separating the investment banking and securities advice functions of securities firms in order to eliminate many conflicts of interest is called ________.

Answer: The Sarbanes-Oxley Act 85) ________ is a registration rule that allows small businesses to file with the SEC Form U-7, which is a question and answer form, to register the sale of up to $1 million of securities to be sold to the public.

Answer: Small Corporate Offering Registration (SCOR)

203 .

Chapter 18 Agency Law 1) Agency law is a mixture of contract law and tort law.

Answer: TRUE Diff: 1 Topic: Introduction to Agency Law 2) An agency relationship exists in any circumstance where one person is authorized to act on behalf of another.

Answer: TRUE Diff: 1 Topic: Agency 3) Corporations are frequently structured so they can conduct business without the use of agents.

Answer: FALSE Diff: 2 Topic: Introduction to Agency Law 4) An employee might or might not also be an agent of the employer.

Answer: TRUE Diff: 1 Topic: Agency (Employer-Employee Relationship) 5) A power of attorney requires that the agent be a licensed attorney.

Answer: FALSE Diff: 1 Topic: Contemporary Environment (Power of Attorney) 6) The two kinds of powers of attorney are exclusive and special.

Answer: FALSE Diff: 1 Topic: Contemporary Environment (Power of Attorney) 7) In order to create an agency relationship, there must be a written agreement.

Answer: FALSE Diff: 2 Topic: Formation of an Agency 8) An agency that comes into existence due to the acts of the parties is called an implied agency.

Answer: TRUE Diff: 1 Topic: Formation of an Agency (Implied Agency) 204 .

9) Agency by ratification occurs in a situation where there was no authority at all for the agent's actions when the agent undertook them.

Answer: TRUE Diff: 1 Topic: Formation of an Agency (Agency by Ratification) 10) An apparent agency is created by the actions of both the principal and agent.

Answer: FALSE Diff: 2 Topic: Formation of an Agency (Apparent Agency) 11) An agent who has held herself out has having higher-than-customary skills will be held to that higher skill level.

Answer: TRUE Diff: 1 Topic: Principal's and Agent's Duties (Agent's Duties) 12) The reasonable care standard applies to the degree of care required of an agent when conducting the principal's business.

Answer: TRUE Diff: 1 Topic: Principal's and Agent's Duties (Agent's Duties) 13) Most information that comes to the attention of an agent is assumed to be known by her principal.

Answer: TRUE Diff: 2 Topic: Principal's and Agent's Duties (Agent's Duties) 14) The duty of accountability is a duty owed by the agent to the principal and by the principal to the agent.

Answer: FALSE Diff: 2 Topic: Principal's and Agent's Duties (Agent's Duties) 15) The principal has a duty to compensate any agent, including a gratuitous agent.

Answer: FALSE Diff: 2 Topic: Principal's and Agent's Duties (Principal's Duties) 16) It is acceptable to pay an agent on a contingent fee basis such that the agent is compensated only if the agent successfully accomplishes a certain result, even though the agent might have put in considerable effort.

Answer: TRUE Diff: 2 Topic: Principal's and Agent's Duties (Principal's Duties) 205 .

17) Because the agent is the party who has been specifically hired to perform the duties called for in an agency, there is no obligation for the principal to cooperate with the agent.

Answer: FALSE Diff: 1 Topic: Principal's and Agent's Duties (Principal's Duties) 18) An agent generally is not liable on contracts made in connection with a fully disclosed agency.

Answer: TRUE Diff: 3 Topic: Contract Liability to Third Parties (Fully Disclosed Agency) 19) A partially disclosed agency exists where the third party is aware that the party he is dealing with is an agent, but does not know the identity of the principal.

Answer: TRUE Diff: 2 Topic: Contract Liability to Third Parties (Partially Disclosed Agency) 20) An agent has no duty to disclose her agency status to third parties with whom the agent deals.

Answer: TRUE Diff: 2 Topic: Contract Liability to Third Parties (Undisclosed Agency) 21) In a lawsuit, the burden of proof is on the third-party plaintiff to prove that an undisclosed agency relationship existed.

Answer: FALSE Diff: 2 Topic: Contract Liability to Third Parties (Undisclosed Agency) 22) According to the agent's implied warranty of authority, an agent who enters into a contract on behalf of another party warrants that he or she has authority to do so.

Answer: TRUE Diff: 1 Topic: Contract Liability to Third Parties (Agent Exceeding the Scope of Authority) 23) A principal's liability for the tort of an agent depends on the degree of disclosure of the agency relationship.

Answer: FALSE Diff: 3 Topic: Tort Liability to Third Parties 24) The principal can be held liable for any negligence of her agent committed during the time that the agent has agreed to act as agent.

Answer: FALSE Diff: 2 Topic: Tort Liability to Third Parties 206 .

25) The basic rule for whether the principal is liable for negligence of an agent is whether the principal knew about the agent's commission of the tort.

Answer: FALSE Diff: 2 Topic: Tort Liability to Third Parties 26) Most jurisdictions hold only the agent liable for injuries caused to a third party if the agent is on a dual-purpose mission.

Answer: TRUE Diff: 1 Topic: Tort Liability to Third Parties (Dual Purpose Mission) 27) When determining whether or not an agent's intentional tort was committed while the agent was operating within the scope of his or her employment, the courts apply either the motivation test or the work-related test.

Answer: TRUE Diff: 1 Topic: Tort Liability to Third Parties (Intentional Tort) 28) The doctrine that holds the principal liable for the negligence of an agent who is acting within the scope of his authority is called respondeat superior.

Answer: TRUE Diff: 1 Topic: Tort Liability to Third Parties (Negligence) 29) Under the "coming and going" rule, a principal is liable for injuries caused by its agents and employees while they are on their way to or from work if the principal supplies the agent's automobile.

Answer: FALSE Diff: 2 Topic: Tort Liability to Third Parties (Coming and Going Rule) 30) The frolic and detour rule states that an agent is liable to the principal for damages resulting from the agent going on a frolic and detour.

Answer: FALSE Diff: 2 Topic: Tort Liability to Third Parties (Frolic and Detour) 31) The most important factor in whether one who performs services for another is an independent contractor is the degree of control that the party who has done the hiring can exercise over the party doing the work.

Answer: TRUE Diff: 1 Topic: Independent Contractor (Factors for Determining Independent Contractor Status)

207 .

32) A principal is liable for injuries caused by independent contractors hired to perform dangerous activities.

Answer: TRUE Diff: 2 Topic: Ethics Spotlight (Principal Liable for Repo Man's Tort) 33) An agency cannot be set up to terminate upon the occurrence of an event that is outside the control of the agent or principal.

Answer: FALSE Diff: 1 Topic: Termination of an Agency 34) In general, the bankruptcy of the principal, but not the bankruptcy of the agent, will terminate an agency relationship.

Answer: TRUE Diff: 2 Topic: Exhibit 18.4 Termination of an Agency by Operation of Law 35) In all circumstances where an agency is terminated, notification must be given to third parties.

Answer: FALSE Diff: 1 Topic: Termination of an Agency (Notification Required at the Termination of an Agency) 36) An agency can be terminated by acts of the parties or by operation of the law.

Answer: TRUE Diff: 1 Topic: Termination of an Agency 37) Constructive notice of termination of an agency may be given to parties who have no knowledge of the agency.

Answer: TRUE Diff: 1 Topic: Termination of an Agency (Notification Required at the Termination of an Agency) 38) Death of the agent or the principal terminates an agency only after notification of death is received by the living party.

Answer: FALSE Diff: 2 Topic: Exhibit 18.4 Termination of an Agency by Operation of Law 39) Revocation of authority and renunciation of authority are terms that refer to the same thing.

Answer: FALSE Diff: 1 Topic: Termination of an Agency (Wrongful Termination of an Agency or Employment Contract) 208 .

40) The outbreak of war between the principal's country and the agent's country terminates an agency relationship between the parties.

Answer: TRUE Diff: 1 Topic: Exhibit 18.4 Termination of an Agency by Operation of Law 41) The general reference source for agency law is: A) Article 4 of the Uniform Commercial Code.

B) United States Supreme Court opinions.

C) The Restatement (Second) of Agency.

D) The Restatement (Second) of Contracts.

Answer: C Diff: 1 Topic: Agency 42) The primary function of an agent in a principal-agent relationship is to: A) Protect the principal from legal liability.

B) Conduct business on behalf of the principal.

C) Enter into contracts with the principal.

D) Operate as a partner with the principal.

Answer: B Diff: 2 Topic: Agency 43) Someone authorized to act on behalf of another is generally known as a(n): A) Agent.

B) Independent contractor.

C) Employee.

D) Surety.

Answer: A Diff: 1 Topic: Agency 44) Which of the following is true?

A) All employees are agents, and no independent contractors are agents.

B) All employees are agents, and some independent contractors are agents.

C) Some employees are agents, and some independent contractors are agents.

D) Some employees are agents, and no independent contractors are agents.

Answer: C Diff: 3 Topic: Kinds of Employment Relationships

209 .

45) Which of the following is generally true about a relationship where one party works for another?

A) A party can simultaneously be an employee and an independent contractor.

B) A party can simultaneously be an employee and an agent.

C) A party can simultaneously be an independent contractor and an agent.

D) Both B and C are true.

Answer: D Diff: 2 Topic: Agency; Independent Contractor 46) An express agency requires: A) A written agreement between the principal and agent.

B) An oral or written agreement between the principal and agent.

C) No agreement if the conduct indicates an implied agreement.

D) An ongoing arrangement for a reasonable period of time.

Answer: B Diff: 2 Topic: Formation of an Agency (Express Agency) 47) Implied authority can be best described as a situation where: A) The principal and agent undertake actions in accordance with their earlier agreement that one act as agent for the other.

B) The principal has made representations to a third party that someone is to act as her agent.

C) The agent has made representations to a third party that he is acting as an agent for another.

D) The conduct of two parties indicates that they are acting in a principal and agent capacity.

Answer: D Diff: 2 Topic: Formation of an Agency (Implied Agency) 48) Apparent authority can be best described as a situation where: A) The principal and agent undertake actions in accordance with their earlier agreement that one act as agent for the other.

B) The principal has made representations to a third party that someone is to act as her agent.

C) The agent has made representations to a third party that he is acting as an agent for another.

D) The conduct of two parties indicates that they are acting in a principal and agent capacity.

Answer: B Diff: 2 Topic: Formation of an Agency (Apparent Agency)

210 .

49) Where the principal makes representations to a third party about the role that an agent is to play, which kind of authority can be created?

A) Apparent authority B) Authority by estoppel C) Inherent authority D) Express authority Answer: A Diff: 2 Topic: Formation of an Agency (Apparent Agency) 50) Where a person makes representations about the role that he is to play as an agent, which kind of authority can these representations create?

A) Apparent authority B) Inherent authority C) Express authority D) None of the above Answer: D Diff: 2 Topic: Formation of an Agency 51) An agent negotiates a contract with a third party for which the agent did not have express authority. Which of the following is true?

A) The principal can never be held liable on the contract because the agent exceeded his authority.

B) The principal can be liable on the contract only if the agent had implied authority to enter into the contract.

C) The principal can be liable on the contract only if apparent authority was present.

D) Either implied or apparent authority might cause the principal to be liable on the contract.

Answer: D Diff: 2 Topic: Formation of an Agency 52) All of the following are duties of an agent to the principal except: A) Loyalty.

B) Notification.

C) Performance.

D) Indemnification.

Answer: D Diff: 1 Topic: Principal's and Agent's Duties (Agent's Duties)

211 .

53) The agent's duty of notification can best be described as a duty to: A) Notify any third parties that the agent is acting as an agent.

B) Notify any third parties as to the identity of the principal.

C) Notify the principal about any material information that the agent learns relative to the subject matter of the agency.

D) Notify the principal a reasonable period of time in advance of terminating the agency arrangement.

Answer: C Diff: 2 Topic: Principal's and Agent's Duties (Agent's Duties) 54) In an agency relationship, the doctrine of imputed knowledge holds that: A) Information that comes to the attention of the principal is deemed to be known to the agent.

B) Information that comes to the attention of the agent is deemed to be known to the principal.

C) Agents are deemed to possess a level of knowledge reasonably necessary to carry out the agency arrangement.

D) Principals are deemed to possess the necessary knowledge to exercise due care in selecting and supervising the conduct of an agent.

Answer: B Diff: 2 Topic: Principal's and Agent's Duties (Agent's Duties) 55) Which of the following is not one of the common ways in which the duty of loyalty can be breached?

A) Self-dealing B) Dual agency C) Usurping an opportunity D) Failing to account for funds that have come into the agent's control Answer: D Diff: 2 Topic: Ethic's Spotlight (Agent's Breach of the Duty of Loyalty) 56) The duty of loyalty is generally a duty of: A) The principal only.

B) The agent only.

C) Both the principal and agent.

D) Neither the principal nor the agent.

Answer: B Diff: 2 Topic: Ethic's Spotlight (Agent's Breach of the Duty of Loyalty)

212 .

57) The principal's duty of cooperation requires that: A) The principal assist the agent in the performance of her duties.

B) The principal take reasonable steps to accomplish what the principal has agreed to do.

C) The principal promptly pay any agreed-upon compensation to the agent upon the agent's completion of his duties.

D) The principal pay the agent for any expenses incurred in connection with the agency arrangement.

Answer: A Diff: 2 Topic: Principal's and Agent's Duties (Principal's Duties) 58) Which of the following is not a duty that the principal owes to the agent?

A) Compensation B) Reimbursement and indemnification C) Obedience D) Cooperation Answer: C Diff: 2 Topic: Principal's and Agent's Duties (Principal's Duties) 59) The duty of a principal to indemnify her agent can best be described as a duty to: A) Pay to the agent any loss the agent suffers because of the principal.

B) Promptly pay the agreed compensation in the agency arrangement.

C) Give the agent adequate instructions to properly carry out the duties of the agency.

D) Prevent the agent from having personal responsibility for torts that the agent commits while acting within the scope of the agency.

Answer: A Diff: 3 Topic: Principal's and Agent's Duties (Principal's Duties) 60) A principal has a duty of compensation: A) In all agency arrangements.

B) Only in agency arrangements that expressly provide for compensation.

C) In all agency arrangements except for gratuitous agency arrangements.

D) To pay the agent prior to the agent performing the duties of the agency.

Answer: C Diff: 2 Topic: Principal's and Agent's Duties (Principal's Duties)

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61) The degree to which an agent disclosed the agency relationship affects the contract liability of: A) The agent only.

B) The principal only.

C) Both the agent and the principal.

D) Neither the agent nor the principal.

Answer: A Diff: 2 Topic: Contract Liability to Third Parties 62) When an agent negotiates a contract on behalf of the principal, the liability of the principal will depend on if: A) The agent was motivated by the principal's best interests.

B) The agency arrangement was fully disclosed.

C) The agency arrangement was express or implied.

D) The agent was authorized to enter into this particular transaction.

Answer: D Diff: 3 Topic: Contract Liability to Third Parties 63) Why is the agent able to be held liable on a contract when the existence of the agency arrangement was not disclosed?

A) So that the outcome in a contract situation is the same as that for a tort.

B) To discourage the use of undisclosed agency arrangements.

C) To offset the fraud frequently present is this situation.

D) Because the third party could rely on the reputation of only the agent when entering into the contract.

Answer: D Diff: 3 Topic: Contract Liability to Third Parties (Undisclosed Agency) 64) An agent desiring to not be held liable on contracts entered into on behalf of the principal should make sure that the principal is: A) Undisclosed.

B) Partially disclosed.

C) Either partially disclosed or fully disclosed.

D) Fully disclosed.

Answer: D Diff: 1 Topic: Contract Liability to Third Parties (Fully Disclosed Agency)

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65) When is an agent liable for a tort committed by the principal?

A) When the agency is undisclosed B) When the tort was committed with the scope of the agency C) When the agent ratifies the action D) When the agent aided or abetted the principal's tortious conduct Answer: D Diff: 2 Topic: Tort Liability to Third Parties 66) The significance of a "frolic and detour" is that: A) The employee can be liable to an employer if the frolic and detour is not authorized.

B) It determines whether an employee can be liable on a contract made on the employer's behalf.

C) It can determine whether someone working for a business is an employee or an independent contractor.

D) It can determine whether an employer is liable for the negligence tort of an employee.

Answer: D Diff: 2 Topic: Tort Liability to Third Parties (Frolic and Detour) 67) The "motivation" test and the "work-related" test are used to determine whether: A) An employer is responsible for the intentional tort of an employee.

B) An employer is responsible for the negligence tort of an employee.

C) An employee is responsible for the contract entered into on behalf of an employer.

D) An employee is responsible for the tort he commits while on the job.

Answer: A Diff: 2 Topic: Tort Liability to Third Parties (Intentional Tort) 68) Which of the following is true about the tests used to determine whether a principal is responsible for the intentional torts of his agent?

A) The work-related test and motivation test are two names for the same test.

B) In most states the plaintiff can choose which test to use.

C) The work-related test will find that the employer is liable in more circumstances than the motivation test.

D) Under either of these tests, the plaintiff must also prove that the agency was fully disclosed in order to recover.

Answer: C Diff: 3 Topic: Tort Liability to Third Parties (Intentional Tort)

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69) Compared to an employee, an independent contractor is characterized by: A) Not being paid as much for the work performed.

B) A lack of liability for her own actions.

C) More freedom to do her work in the manner she determines.

D) Less ability to hire others to assist her.

Answer: C Diff: 2 Topic: Independent Contractor 70) Which of the following is true about determining whether someone working for another is an independent contractor or an employee?

A) The classification of the person doing the work depends on that person's job title.

B) The classification of the person doing the work depends on whether the parties to the arrangement consider the person doing the work to be an employee or independent contractor.

C) The classification of the person doing the work depends on whether the person is also an agent.

D) The classification of the person doing the work depends on a number of factors, with the most important factor being the degree of control over that person's work by the person who is paying for the work.

Answer: D Diff: 3 Topic: Independent Contractor 71) In which of the following circumstances can a principal be held liable for the torts of an independent contractor?

A) In no circumstances B) When the principal is negligent in selecting the independent contractor C) When the independent contractor is hired to undertake a dangerous activity D) Both B and C Answer: D Diff: 2 Topic: Independent Contractor 72) The bankruptcy of which party(ies) will cause an agency to terminate?

A) The principal only B) The agent only C) Either the principal or the agent D) Neither the principal nor the agent Answer: A Diff: 2 Topic: Exhibit 18.4 Termination of an Agency by Operation of Law

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73) When an agent terminates an agency arrangement, the agent's action is called: A) Revocation of authority.

B) Rejection of authority.

C) Renunciation of authority.

D) Reaffirmation of authority.

Answer: C Diff: 2 Topic: Termination of an Agency (Wrongful Termination of an Agency or Employment Contract) 74) What is the effect of an agent terminating a fixed term agency prior to the expiration of the stated period of time?

A) The agency is terminated without further legal consequences.

B) The attempted termination of the agency is not effective.

C) The agency is terminated, but the agent might be liable for damages to the principal.

D) Any contracts previously formed by the agent can be disaffirmed by the third party.

Answer: C Diff: 2 Topic: Termination of an Agency (Wrongful Termination of an Agency or Employment Contract) 75) John is hired at minimum wage in a fast food restaurant. John works at the counter taking customer orders, accepting payment, and giving the orders to the customers. John must work in accordance with a detailed procedures manual. John is: A) An independent contractor, but not an agent.

B) An employee, but not an agent.

C) An independent contractor as well as an agent.

D) An employee as well as an agent.

Answer: D Diff: 2 Topic: Agency (Employer-Employee Relationship) 76) A principal gives an agent express authority to "get his car running right." The authority that the agent has to enter into contracts for the purchase of auto parts is: A) Apparent authority.

B) Authority by estoppel.

C) Inherent authority.

D) Implied authority.

Answer: D Diff: 2 Topic: Formation of an Agency (Implied Agency)

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77) Bob enlists the help of his son to buy a new car. On the way to test-drive several models, Bob tells his son, "I'm leaving this entire decision up to you except that you are not to spend over $20,000." At the Toyota dealer, Bob tells the salesperson, "I'm turning this whole decision over to my son, so deal with him even though it will be my car." Later, the son returns to the dealership and negotiates the purchase of a Toyota Camry for $21,500. What type of authority, if any, existed for the son to purchase this car?

A) Apparent B) Implied C) Actual D) Dependent Answer: A Diff: 3 Topic: Formation of an Agency (Apparent Agency) 78) Frank, the regional sales manager for Invesco Auto Parts, hired Jill as a sales representative.

In introducing Jill to the retailers in her territory, Frank announced that Jill would be making all of the wholesale cost decisions. In actuality, Jill was not authorized to change wholesale costs. If Jill reduces wholesale costs to one of the retailers, Invesco: A) will not be bound as Jill has no express authority.

B) will not be bound as sales representatives never have authority to change pricing.

C) would be bound because of apparent agency.

D) would be bound as sales representatives always have the power to bind their employers to contracts.

Answer: C Diff: 2 Topic: Formation of an Agency (Apparent Agency) 79) An agent enters into an authorized contract on behalf of the principal. The principal breached the contract and the agent was held to be liable due to the breach of the principal. The agent can seek to recover from the principal based on the principal's duty of: A) Reimbursement.

B) Cooperation.

C) Compensation.

D) Indemnification.

Answer: D Diff: 2 Topic: Principal's and Agent's Duties (Principal's Duties)

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80) Agent enters into a contract with Third party on behalf of Principal. Agent told Third party that this contract was being entered into on behalf of someone else, but did not identify Principal to Third party. A couple of weeks later, Principal disappears and Third party wants to hold Agent to the contract. Third party can: A) Not recover from Agent because Agent had disclosed the existence of Principal.

B) Not recover from Agent because Third party must first try to recover from Principal.

C) Recover from Agent because Agent had a duty to ensure that Principal performed on the contract.

D) Recover from Agent because Agent did not disclose the identity of Principal.

Answer: D Diff: 3 Topic: Contract Liability to Third Parties (Undisclosed Agency) 81) Pedro hires Andrea to negotiate the purchase of a sailboat for Pedro. Andrea decides to buy from Sally a sailboat meeting Pedro's specifications. Andrea tells Sally that the purchase is really being made by Pedro, and Andrea and Sally sign a written contract, with Andrea signing on Pedro's behalf. Based on all this: A) Pedro is not liable on this contract but Andrea is liable.

B) Neither Andrea nor Pedro can be held liable on this contract.

C) Andrea is not liable on this contract but Pedro is liable.

D) Either Andrea or Pedro could be held liable on this contract.

Answer: C Diff: 2 Topic: Contract Liability to Third Parties (Fully Disclosed Agency) 82) Zoe, a real estate developer, hired Tylor to purchase ten acres of farmland. Tylor was directed not to tell the landowners that he was acting as an agent. Zoe did not want it known that she was interested in the land. Tylor signed the contract for the land as follows: "Tylor Meyers."

Which statement is correct concerning Tylor's potential liability on the contract?

A) Tylor can be liable because he did not disclose that he was acting as an agent.

B) Tylor can be liable because he breached the implied warranty of authority.

C) Tylor cannot be liable because he contracted on Zoe's behalf.

D) Tylor cannot be liable because he had full authority to enter the contract.

Answer: A Diff: 2 Topic: Contract Liability to Third Parties (Undisclosed Agency)

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83) Jane takes her car to Joe's Garage, leaving it there for repairs. Ted, one of Joe's employees, takes the car for a joy ride without Joe's permission. In fact, Joe has a very strict rule that his employees cannot drive customers' cars except to diagnose or test them. Ted crashes into another car, driven by Mary. Mary is injured and sues Jane, Ted, and Joe. Which of the following is true?

A) Only Ted is liable.

B) Only Jane and Ted are liable.

C) Jane, Ted, and Joe are all liable.

D) Only Ted and Joe are liable.

Answer: D Diff: 2 Topic: Tort Liability to Third Parties 84) Bob sells real estate in Knoxville for a real estate sales company. One afternoon, he shows a client two homes in Knoxville and the client tells Bob that there is a great cabin for sale in Gatlinburg, about 40 miles from Knoxville. Bob drops the client off in Knoxville and goes to Gatlinburg to check out this property because he wants a place for his family to go on weekends.

As he is entering Gatlinburg, he accidentally hits and injures a pedestrian. In determining whether Bob's employer can be held liable, a court will: A) Apply the work-related test and find the employer liable.

B) Not find the employer liable under the coming and going rule.

C) Use the frolic and detour rule to determine the employer's liability.

D) Determine the outcome based on the degree of disclosure of the agency relationship.

Answer: C Diff: 3 Topic: Tort Liability to Third Parties (Frolic and Detour) 85) Edward is an employee of Huge Corporation who works in one of the company's stores. One day Edward sees one of his ex-girlfriends, who jilted him, in the store. He is still mad at her for this, so he goes over and slugs her. She sues Edward and Huge Corporation. If the state applies the motivation test, which of the following is true?

A) Huge and Edward could each be liable for the tort.

B) Huge, but not Edward, would be liable for the tort.

C) Edward, but not Huge, would be liable for the tort.

D) Neither Edward nor Huge would be liable for the tort.

Answer: C Diff: 3 Topic: Tort Liability to Third Parties (Intentional Tort)

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86) As the Wyoming Tetons are playing the Missouri Ozarks in a baseball game, a fan who is sitting near the Tetons' dugout starts yelling at Micky Macho, one of the Tetons' relief pitchers, telling him that his pink minivan makes him look like a suburban family man. Macho, because he feels insulted, picks up a nearby bench and throws it at the fan, who gets injured by this action. The fan then sues the Tetons. The fan could recover from the Tetons: A) Under the work-related test but not under the motivation test.

B) Under the motivation test but not under the work-related test.

C) Under either the motivation or the work-related test.

D) Under neither the work-related test nor the motivation test.

Answer: A Diff: 3 Topic: Tort Liability to Third Parties (Intentional Tort) 87) Viola was a delivery driver for Fizz Soda Pop. While making scheduled deliveries, Viola decided to drive to a casino to gamble for a little while. The casino was 10 miles out of her way.

In route to the casino and 30 miles from her normal route for Fizz, she negligently injured Ramos. Which of the following statements best describes the potential liability of Fizz: A) Fizz is probably liable because Viola is an employee and employers are liable for all torts committed by an employee.

B) Fizz would not be liable because employers are not liable for negligent torts committed by employees.

C) Fizz would probably not be liable as Viola was not in the "scope of employment."

D) Fizz would probably be liable under a joint enterprise theory.

Answer: C Diff: 3 Topic: Tort Liability to Third Parties (Frolic and Detour) 88) Susan Marie works as a receptionist for a computer software company. Susan Marie works from 8:00 a.m. to 5:00 p.m. on Monday through Thursday, and from 8:00 a.m. to noon on Friday. Susan Marie is paid $15 per hour, and is told how to do her job and what she should be working on at any particular time. The software company and Susan Marie have executed an "independent contractor agreement" in which the terms of this arrangement are specified. Which of the following is true?

A) Susan Marie would be treated as an employee because she is paid for the work that she does.

B) Susan Marie would be treated as an employee because of the control exercised by the software company over her work and because of the manner in which she is paid.

C) Susan Marie would be treated as an independent contractor because of the terms of the express agreement with the software firm.

D) Susan Marie would be treated as an independent contractor because of the irregular working hours of working only part of the day on Fridays.

Answer: B Diff: 2 Topic: Independent Contractor

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89) Principal has entered into a six-month contract during which Agent will sell Principal's products on a commission basis. Although Agent is complying with all terms of the agreement, during the third month Principal tells Agent she is no longer authorized to sell his products and will receive no further commissions if she does. Which of the following is true?

A) Agent continues to have a duty to sell because the six months are not yet over.

B) Principal has the power, but not the right, to terminate the agency.

C) Principal has the right, but not the power, to terminate the agency.

D) Principal has both the right and the power to terminate the agency.

Answer: B Diff: 3 Topic: Termination of an Agency (Wrongful Termination of an Agency or Employment Contract) 90) The principal hires an agent to manage her boutique. After several months, the principal fires this agent. To avoid liability for any further acts done by this agent, the principal must give: A) Direct notice to all persons who knew of the agency.

B) Direct notice to those who dealt with the agent, and no notice to anyone else.

C) Direct notice to those who dealt with the agent, but only constructive notice to those who knew of the agency, but did not deal with the agent.

D) Constructive notice to all persons who knew of the agency, and no notice to anyone else.

Answer: C Diff: 2 Topic: Termination of an Agency (Notification Required at the Termination of an Agency) 91) Generally, if an agent negligently injures a third party within the scope of the agency, the principal can be held liable even if the agent was violating the instructions of the principal. Is this fair to the principal? What is the justification for this rule?

Answer: If the principal could avoid liability simply by having a rule against certain conduct, there would be no incentive for the principal to see that the rule is followed. This also gives an incentive to hire persons more likely to follow such rules.

Diff: 2 92) Why can apparent agency be created only by representations of the principal, but not the supposed agent?

Answer: When a party represents that someone is her agent, the party making the representations is creating potential liability for herself, and the law will hold her liable. When someone makes representations that she is someone's agent, the person making the representations is creating liability for another. Assuming that the purported principal had no role in the representations, it would not be fair to impose liability on the purported principal because there would be no way for the purported principal to know about or control the representations of others claiming to be her agent.

Diff: 2

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93) Why would an agent not disclose the existence and identity of the principal when negotiating a contract given that doing so would avoid agent liability on the contract? What should an agent do when the principal does not want to be disclosed?

Answer: There are many business situations where it is in the principal's interest for his or her identity to remain unknown. An agent should be aware of the liability risk and factor that into the amount of compensation charged. Alternatively, the agent might be able to put a liability release clause into any contracts with third parties, although this would not be possible in an undisclosed principal situation.

Diff: 3 94) Anne was hired by Peter to sell a condominium in San Francisco. The asking price for the modest two-bedroom unit was $2,300,000. Peter told Anne he would go as low as $2,100,000, but no lower, but that she should try to get as high a price as possible. If he couldn't get that much for it, he said he would use it as rental property. A good friend of Anne's was in the market for a two-bedroom condominium in San Francisco. In fact, this friend had come to Anne to help her find a place and negotiate for it. Anne's friend said that she could absolutely not spend more than $2,000,000. When Peter hired Anne to sell his condominium, Anne told her friend about it and the asking price. Anne told her friend, "Don't even bother. He won't go below $2,100,000; that is his bottom price." Anne's friend accepted that. Anne then proposed to her friend that they go in together, with Anne fronting some money through her friend, but not having Anne's name on the contract as purchaser. Before they could work out the details, Anne's friend received a raise and decided to buy the condominium. Anne negotiated a price of $2,100,000 on Peter's behalf. Peter later found out that Anne had told her friend about his bottom price, and about the plan for Anne to help buy the house. What claims, if any, does Peter have?

Answer: Anne at least started to violate the duty of loyalty by self-dealing. Her disclosure of the bottom dollar price was also a violation, even though it appeared that the friend could not have bought the property. This is because the friend could have passed the information further; and circumstances can change, as they did here; and because the actual contract was negotiated with the buyer having that knowledge. Anne improperly acted as a dual agent.

Diff: 3 Topic: Agent's Duties

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95) Pat was interested in a new car, but because he knew so little about cars, he asked his daughter, Abbey to agree to purchase a new car on his behalf. Pat said he wanted a mid-size sedan, and that Abbey should spend no more than $22,000. He also told Abbey to be very careful when taking cars on a test drive and to follow all traffic laws. Abbey was a bit upset at this, given that she had been driving for 15 years without an accident. Abbey thought that her dad needed a sportier image, so she test-drove some convertibles. While driving a Mazda Miata roadster at 60 miles an hour in a school zone, she struck a child who was carrying his pet iguana home from show-and-tell day. The child was not hurt, but the iguana had to be taken to a veterinarian to be examined. Abbey negotiated a deal for the Miata at $24,000 and took it home to her dad. He was initially upset, but kept the car and drove it for several weeks. He then took the car back to the dealer and demanded a refund, saying that it was too small and that Abbey had not had authority to purchase it. Discuss the liabilities of the parties.

Answer: Pat is likely liable on the contract because his driving the car for several weeks amounted to authority by ratification. He could also be held liable for the cost of the iguana's visit to the vet because Abbey committed the tort within the scope of the agency. Abbey's not following Pat's instructions about following traffic laws would not affect her test drive being within the scope of the agency. Pat might be able to claim that driving a sports car was not within the scope of the agency. Abbey is also liable for the vet bill, and also could be liable to Pat for exceeding her authority in negotiating the contract. If Pat must pay the iguana's owner, he could recover that from Abbey.

Diff: 2 Topic: Tort Liability to Third Parties 96) Mary has been hired to write courses for a Web-based training organization. Mary works at the offices of the organization. Mary is given content guidelines and a contract for each course that she writes, and is paid a flat fee upon completion of the course. It can take anywhere from two weeks to six weeks to complete a course. The organization wants the contractors to work in their offices during the regular 40-hour workweek unless they need to be elsewhere to do research. The organization provides a computer to Mary. Mary also is able to use other employees at the organization for word processing and editing. Is Mary an employee or an independent contractor?

Answer: Mary is probably an independent contractor because of being paid on an irregular basis upon the completion of each course. It is not quite clear how much control is exercised over how she does her work, but it appears that she has considerable freedom so long as she stays within the course guidelines. The requirement to be present during the workweek and the availability of the computer and other employees would weigh somewhat in favor of Mary being an employee.

Diff: 2 Topic: Independent Contractor 97) Briefly discuss the methods of terminating an agency relationship by acts of the parties.

Answer: Mutual agreement; lapse of time; purpose achieved; occurrence of a specified event Diff: 2

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98) Briefly discuss the methods of terminating an agency relationship by operation of law.

Answer: Death; insanity; bankruptcy of the principal; changed circumstances; impossibility of performance; war.

Diff: 2 99) Ann has contracted to be Paul's agent for the sale of Paul's home. The contract provides that the duration of this agency is 120 days. Within the first week, Ann has found a potential buyer and is involved in negotiations. The following week, Paul notifies Ann that he is terminating the arrangement, but Ann proceeds to negotiate a sale with the potential buyer. Discuss this situation.

Answer: Paul had the power to terminate the agency, thus Ann no longer had any authority and the sale contract is not valid. Because Paul did not have the right to terminate the agency, Ann could recover damages, most likely the amount of her lost commission. The buyer could recover any damages from Ann caused by her falsely indicating that she had authority.

Diff: 2 Topic: Termination of an Agency 100) The ________ is the party who employs another person to act on his or her behalf.

Answer: Principal 101) The ________ is the party who agrees to act on behalf of another.

Answer: Agent 102) An ________ is a person who is not an employee but is employed by a principal to perform a certain task on his or her behalf. They are not controlled by nor subject to the control of the principal with respect to the physical conduct of the task.

Answer: Independent contractor 103) A ________ is an express agency agreement that is often used to give an agent the power to sign legal documents on behalf of the principal.

Answer: Power of Attorney 104) An ________ agency is an agency that occurs when a principal and an agent do not expressly create an agency, but it is inferred from the conduct of the parties.

Answer: Implied 105) An agency that arises when a principal creates the appearance of an agency that in actuality does not exist is known as an ________ agency.

Answer: Apparent 106) ________ occurs when (1) a person misrepresents himself or herself as another's agent when in fact he or she is not and (2) the purported principal accepts the unauthorized act.

Answer: Agency by ratification 107) An agent owes the duty of ________ to a principal which involves not acting adversely to the interests of the principal.

Answer: Loyalty 225 .

108) ________ occurs when an agent acts for two or more different principals in the same transaction.

Answer: Dual agency 109) The principal owes a duty to ________ the agent for all expenses incurred on the principal's behalf if they were (A) authorized by the principal, (B) within the scope of the agency, and (C) necessary to discharge the agents' duties in carrying out the agency.

Answer: Reimburse 110) A principal owes a duty to ________ the agent for any loss the agent suffers because of the principal.

Answer: Indemnify 111) An ________ agency occurs when the third party is unaware of either the existence of an agency or the principal's identity.

Answer: Undisclosed 112) A ________ agency results if the third party entering into the contract knows (A) that the agent is acting as an agent for a principal and (B) the actual identity of the principal.

Answer: Fully disclosed 113) A ________ agency occurs if the agent discloses his or her agency status but does not reveal the principal's identity and the third party does not know the principal's identity from another source.

Answer: Partially disclosed 114) The rule that says an employer is liable for the tortious conduct of its employees or agents while they are acting within the scope of its authority is referred to as ________.

Answer: Respondeat superior 115) When a principal terminates an agency, it is called an ________.

Answer: Revocation of authority 116) When an agent terminates an agency, it is called an ________.

Answer: Renunciation of authority

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Chapter 19 Equal Opportunity in Employment 1) The Equal Employment Opportunity Commission is industry-sponsored and is comprised of equal numbers of members from management and from labor.

Answer: FALSE Diff: 1 Topic: Title VII of the Civil Rights Act of 1964 (Equal Employment Opportunity Commission) 2) Race and color are separate protected classes under Title VII of the Civil Rights Act of 1964.

Answer: TRUE Diff: 1 Topic: Landmark Law (Title VII of the Civil Rights Act of 1964) 3) Title VII of the Civil Rights Act of 1964 does not apply to employers with fewer than 15 employees.

Answer: TRUE Diff: 1 Topic: Title VII of the Civil Rights Act of 1964 4) Disparate treatment discrimination occurs when an employer discriminates against an entire protective class.

Answer: FALSE Diff: 1 Topic: Title VII of the Civil Rights Act of 1964 (Forms of Title VII Actions) 5) An individual who wishes to bring an action under Title VII of the Civil Rights Act of 1964 initiates the lawsuit by filing a complaint in a federal district court with proper jurisdiction.

Answer: FALSE Diff: 1 Topic: Title VII of the Civil Rights Act of 1964 (Equal Employment Opportunity Commission) 6) The maximum amount of punitive damages recoverable for malicious violations of the Civil Rights Act of 1964 depends on the number of employees in the business.

Answer: TRUE Diff: 2 Topic: Title VII of the Civil Rights Act of 1964 (Intentional Discrimination) 7) The Pregnancy Discrimination Act is an amendment to the Family Medical Leave Act. Answer: FALSE Diff: 1 Topic: Sexual Discrimination and Sexual Harassment (Sex Discrimination)

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8) Although same-sex sexual harassment is prohibited under state law, it is not actionable under Title VII. Answer: FALSE Diff: 1 Topic: Sex Discrimination and Sexual Harassment (Same-Sex Harassment) 9) Because email is usually read privately at one's desk, the content of email messages cannot support a sexual harassment claim.

Answer: FALSE Diff: 1 Topic: Internet Law & Online Commerce (E-Mails that Cause Sexual Harassment) 10) A plaintiff in a sexual harassment case will not prevail if the employer can prove that it exercised reasonable care in trying to prevent and promptly correct sexual harassment behavior and that the plaintiff unreasonably failed to take advantage of preventive or corrective procedures made available to the plaintiff.

Answer: TRUE Diff: 1 Topic: Sex Discrimination and Sexual Harassment (Employer's Defense to a Charge of Sexual Harassment) 11) Title VII expressly permits religious organizations to give preference in employment to individuals of a particular religion.

Answer: TRUE Diff: 1 Topic: Religious Discrimination 12) The concept of Bona Fide Occupational Qualification is broadly interpreted by the courts.

Answer: FALSE Diff: 1 Topic: Defenses to a Title VII Action (Bona Fide Occupational Qualification) 13) Actions taken under a seniority system generally constitute a valid defense to a Title VII discrimination claim.

Answer: TRUE Diff: 1 Topic: Defenses to a Title VII Action (Seniority) 14) The key to whether the equal pay act applies to two workers is if the jobs are equal and similar.

Answer: TRUE Diff: 2 Topic: Equal Pay Act of 1963

228 .

15) The Equal Pay Act provides protection against discrimination based on race.

Answer: FALSE Diff: 2 Topic: Equal Pay Act 16) The employer bears the burden of proving that there is a legal justification for paying unequal wages to male and female workers.

Answer: TRUE Diff: 1 Topic: Equal Pay Act (Criteria That Justify a Differential in Wages) 17) The Equal Pay Act permits pay differentials based on merit.

Answer: TRUE Diff: 1 Topic: Equal Pay Act (Criteria That Justify a Differential in Wages) 18) A 35-year-old employee who is fired because his employer incorrectly believes he is too old to do his job does not have a valid age discrimination claim.

Answer: TRUE Diff: 2 Topic: Age Discrimination in Employment Act (Protected Age Categories) 19) Policies or practices that discriminates on the basis of age against any applicants age 40 or older is illegal under the Age Discrimination in Employment Act. Answer: TRUE Diff: 1 Topic: Age Discrimination in Employment Act 20) A policy of hiring workers only age 40 and older does not violate the Age Discrimination in Employment Act. Answer: TRUE Diff: 2 Topic: Age Discrimination in Employment Act (Protected Age Categories) 21) The Americans with Disabilities Act provides significant protections in addition to protection from employment discrimination.

Answer: TRUE Diff: 1 Topic: Americans with Disabilities Act 22) Whether an accommodation is "reasonable" under the Americans with Disabilities Act does not depend on the employer's size or financial resources.

Answer: FALSE Diff: 2 Topic: Landmark Law (Americans with Disabilities Act)

229 .

23) Merely being regarded as being disabled is sufficient to be protected under the Americans with Disabilities Act. Answer: TRUE Diff: 2 Topic: American with Disabilities Act (Qualified Individual with a Disability) 24) Because an employer is required to provide reasonable accommodations to an employee with a disability, an employer is permitted to ask about disabilities during a job interview.

Answer: FALSE Diff: 2 Topic: Americans with Disabilities Act (Forbidden Conduct) 25) Although it remains valid law, the Civil Rights Act of 1866 serves no function today because of the greater remedies provided under Title VII of the Civil Rights Act of 1964.

Answer: FALSE Diff: 1 Topic: Landmark Law (Civil Rights Act of 1866) 26) Because of the costs associated with compliance and litigation, small businesses are not subject to many of the employment antidiscrimination laws.

Answer: TRUE Diff: 1 Topic: Title VII of the Civil Rights Act of 1964 (Scope of Coverage of Title VII) 27) In order to be acceptable, affirmative action programs must be narrowly tailored to achieve a compelling interest.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Affirmative Action) 28) The Equal Employment Opportunity Commission has the power to do the following except: A) Pass amendments to the Civil Rights Act of 1964 and other antidiscrimination statutes.

B) File suits to enforce antidiscrimination statutes on behalf of complainants.

C) Conduct investigations related to the antidiscrimination laws.

D) Interpret antidiscrimination statutes.

Answer: A Diff: 2 Topic: Title VII of the Civil Rights Act of 1964 (Equal Employment Opportunity Commission)

230 .

29) Which is true about the two kinds of discrimination that are actionable under Title VII? A) Disparate impact and disparate treatment are both based on how an employer treats a specific individual.

B) Disparate impact and disparate treatment are both based on how an employer treats a protected class.

C) Disparate treatment refers to individuals and disparate impact refers to protected classes.

D) Disparate impact refers to individuals and disparate treatment refers to protected classes.

Answer: C Diff: 2 Topic: Title VII of the Civil Rights Act of 1964 (Forms of Title VII Actions) 30) Which of the following is true under Title VII of the Civil Rights Act of 1964 where an employer has a job qualification that is applied objectively to all applicants?

A) The fact that the qualification is applied similarly to all applicants will ensure that there is no violation of Title VII. B) The employer could be in violation if the qualification has a disparate impact on applicants from a protected category.

C) The employer could be in violation if the qualification has resulted in any individual from a protected category not being able to qualify for the job.

D) If the qualification has a disparate discriminatory impact, the employer will not be in violation if it has a bona fide offsetting affirmative action program in place.

Answer: B Diff: 2 Topic: Title VII of the Civil Rights Act of 1964 (Forms of Title VII Actions) 31) Which of the following is true if someone believes that he was fired from a job because of his religion?

A) He must prove that the person who fired him is of a different religion.

B) He must first file a complaint with the Equal Employment Opportunity Commission.

C) He will not have a claim if the employer has a disproportionately high number of employees of the same religion as his.

D) He must prove that he is a reasonably active practitioner of his religion.

Answer: B Diff: 3 Topic: Title VII of the Civil Rights Act of 1964 (Equal Employment Opportunity Commission) 32) If a party has presented a complaint to the Equal Employment Opportunity Commission about alleged discrimination in violation of the Civil Rights Act of 1964, and the EEOC decides to not bring a suit on behalf of the employee, the EEOC will issue a(n): A) Order of dismissal of the complaint.

B) Notice of the complainant's right to appeal to the appropriate court of appeals.

C) Judgment in the employer's favor.

D) Right to sue letter.

Answer: D Diff: 2 Topic: Title VII of the Civil Rights Act of 1964 (Equal Employment Opportunity Commission) 231 .

33) Which of the following are protected classes under Title VII of the Civil Rights Act of 1964?

A) Race, national origin, and sex B) Race, national origin, and political affiliation C) Race, religion, and sexual orientation D) National origin, race, and alien status Answer: A Diff: 2 Topic: Landmark Law (Title VII of the Civil Rights Act of 1964) 34) Under the Civil Rights Act of 1964, an employer cannot discriminate against a member of a protected class in: A) Hiring.

B) Termination of employment C) Promotion.

D) All of the above.

Answer: D Diff: 1 Topic: Title VII of the Civil Rights Act of 1964 (Scope of Coverage of Title VII) 35) The Civil Rights Act of 1964 protects against discrimination based on: A) Sex. B) Sexual preference.

C) Both sex and sexual preference.

D) Neither sex nor sexual preference.

Answer: A Diff: 1 Topic: Landmark Law (Title VII of the Civil Rights Act of 1964) 36) In a hostile work environment sexual harassment claim, the employer will have a successful defense if the employer can show that: A) The employer took reasonable care to prevent or correct the conduct and the employee did not take advantage of corrective or preventive opportunities of the employer to remedy the situation.

B) The employee was offended by conduct that the employer in good faith did not consider to be offensive.

C) There were no adverse consequences to the employee's work status, such as a demotion or denied promotion.

D) The employee stands to personally gain if the persons engaging in the sexual harassment are reprimanded.

Answer: A Diff: 3 Topic: Sex Discrimination and Sexual Harassment (Employer's Defense to a Charge of Sexual Harassment)

232 .

37) In addition to not discriminating on the basis of religion, an employer is required to: A) Allow employees to take time off on their day of worship.

B) Determine the strength of an employee's religious beliefs before making accommodations that have an impact on other employees.

C) Make reasonable accommodations for employees' religious practices and observances.

D) Identify the religious beliefs of its employees.

Answer: C Diff: 2 Topic: Defenses to a Title VII Action 38) Which of the following would be a legal defense to a charge of discrimination under Title VII? A) Discrimination based on merit B) Discrimination based on seniority C) Discrimination based on a bona fide occupational qualification D) A, B, and C Answer: D Diff: 1 Topic: Defenses to a Title VII Action 39) Which of the following factors can be used as a legal bona fide occupational qualification?

A) Sex or religion B) Religion or race C) Race or sex D) Color or race Answer: A Diff: 2 Topic: Defenses to a Title VII Action (Bona Fide Occupational Qualification) 40) Which of the following is a correct statement of the requirements for a bona fide occupational qualification?

A) Job related and cost effective B) Job related and nondiscriminatory C) Job related and a business necessity D) Rationally based and evenly applied Answer: C Diff: 3 Topic: Defenses to a Title VII Action (Bona Fide Occupational Qualification) 41) The Equal Pay Act of 1963 prevents discrimination on the basis of: A) Race only.

B) Age only.

C) Sex only.

D) Race or sex.

Answer: C Diff: 1 Topic: Equal Pay Act 233 .

42) Which of the following items is a legal justification for paying unequal wages based on gender?

A) Seniority only B) Merit only C) Quantity or quality of work only D) Seniority, merit, and quantity or quality of work Answer: D Diff: 1 Topic: Equal Pay Act (Criteria That Justify a Differential in Wages) 43) Who is protected under the Age Discrimination in Employment Act? A) All workers who are age 40 or older B) All workers of any age who are discriminated against for being too old C) All workers who are in a job in which they were 40 years of age or older when hired D) Any worker who is replaced with a younger worker Answer: A Diff: 2 Topic: Age Discrimination in Employment Act (Protected Age Categories) 44) The Age Discrimination in Employment Act makes it illegal for: A) Employers to hire only employees who are age 40 and older.

B) Employers to have a seniority system.

C) Employers to know the age of job applicants before making a hiring decision.

D) Employers to have a mandatory retirement age for most jobs.

Answer: D Diff: 2 Topic: Age Discrimination in Employment Act (Protected Age Categories) 45) Which of the following is true about the American with Disabilities Act? A) It affects only the employment of persons with disabilities.

B) It clearly sets limits and requirements relevant to employers.

C) It not only prevents discrimination based on disabilities, but employers can be required to incur costs in order to accommodate disabled individuals in their jobs.

D) It requires employers to ask about an applicant's disabilities so that the employer knows if the applicant is covered.

Answer: C Diff: 2 Topic: Americans with Disabilities Act

234 .

46) Which of the following would not qualify as a disability under the Americans with Disabilities Act? A) Bob's past addiction to cocaine B) Mike's inability to use his arms C) Pat's inability to make it through the day without several drinks of alcohol D) The impression among many people that Sandy is disabled due to a leg injury when, in fact, her leg functions normally Answer: C Diff: 2 Topic: American with Disabilities Act (Qualified Individual with a Disability) 47) The Americans with Disabilities Act requires that: A) Persons with qualifying disabilities be given preference in hiring whenever possible.

B) Applicants for jobs are asked about their disabilities in order to identify them.

C) Employers make reasonable accommodations to accommodate employees' disabilities.

D) Persons with disabilities notify a potential employer of disabilities prior to being hired.

Answer: C Diff: 2 Topic: Landmark Law (Americans with Disabilities Act) 48) Which of the following is true?

A) Pay differences due to seniority differences and due to differences in amounts earned under a commission pay plan are not acceptable if they result in different pay for male and female employees.

B) The Age Discrimination in Employment Act protects all workers against being discriminated against because they are thought to be too old.

C) Under the Americans with Disabilities Act, an employer is required to provide reasonable accommodations to enable a disabled person to perform a job.

D) Protected classes under Title VII of the Civil Rights Act of 1964 include race, national origin, and sexual preference.

Answer: C Diff: 3 Topic: Americans with Disabilities Act 49) One major reason for filing a claim under Section 1981 of the Civil Rights Act of 1866 rather than the Civil Rights Act of 1964, is that the Civil Rights Act of 1866: A) Has broader coverage.

B) Allows for a private action to be instituted without going to the EEOC. C) Does not have some of the limits on damages that exist under Title VII. D) B and C only Answer: D Diff: 3 Topic: Landmark Law (Civil Rights Act of 1866)

235 .

50) City A adopted a rule that all employees of City A had to live within the city limits. City A is right next to City B. City A has no African Americans, but one-third of the residents of City B is African American. Due to the rule, no employee of City A is African American. The rule is most likely: A) Disparate treatment discrimination.

B) Pattern of practice of discrimination.

C) Disparate impact discrimination from a facially neutral rule.

D) National origin discrimination.

Answer: C Diff: 2 Topic: Title VII of the Civil Rights Act of 1964 (Forms of Title VII Actions) 51) One of the requirements for a factory assembly job at "Slap-it-Together" is that the worker be less than six feet tall. Bob applies for the job, but is not hired. Which is true?

A) Slap-it-Together is in violation of Title VII only if Bob is less than six feet tall.

B) Slap-it-Together is in violation of Title VII only if Bob is over six feet tall.

C) Slap-it-Together is in violation of Title VII only if Bob can show that he is over six feet tall and he was not hired because he was too tall.

D) Slap-it-Together is in violation of Title VII if the height requirement has the result of discriminating against men and the height requirement does not relate to fitness for the particular job.

Answer: D Diff: 3 Topic: Defenses to a Title VII Action (Bona Fide Occupational Qualification) 52) John is a member of a religion that recognizes Saturday as its Sabbath (holy day), thus John is not supposed to work on Saturday. John's job requires him to work on Saturday occasionally.

How must John's employer handle this conflict in the work schedule?

A) The employer must let John off.

B) The employer need not let John off.

C) The employer must make reasonable accommodations to John.

D) The employer must make any special arrangements with John based on religion.

Answer: C Diff: 2 Topic: Religious Discrimination 53) A job applicant in the city of Portland is not hired by a corporation because he is gay and because he is from California. He could: A) Recover under Title VII of the Civil Rights Act. B) Recover under the Fair Labor Standards Act. C) Recover because this is an improper burden on interstate commerce.

D) Keep looking for a job because he has no remedy under federal statutes.

Answer: D Diff: 2 Topic: Title VII of the Civil Rights Act of 1964 (Forms of Title VII Actions)

236 .

54) Mary works in sales at a hardware store. Of the 23 sales clerks, Mary is the only woman. In the interview process, Mary was asked if she would be comfortable working with an otherwise all-male sales force. Mary said that she could handle that, at which point the person interviewing Mary warned her that a number of these people were "good old boys" who didn't believe that women belonged in the hardware business. Mary took the job, but was often criticized for being a woman. Many of the other sales persons would not give Mary the assistance that they would give to each other. None of the comments was sexual in nature. Does Mary have a sexual harassment case?

A) Yes, this is hostile work environment sexual harassment.

B) Yes, due to the fact that the company has not hired any other women.

C) No, because Mary took the job knowing what the work environment would be like.

D) No, because none of the comments was sexual in nature.

Answer: A Diff: 3 Topic: Sex Discrimination and Sexual Harassment (Sexual Harassment) 55) Which of the following situations would be a bona fide occupational qualification?

A) Hiring only Hispanic waiters at a restaurant that markets to a Hispanic clientele.

B) Hiring only men to be attendants in the locker room of a men's health club.

C) Hiring only Catholics for the wait staff in a restaurant that caters to a largely Catholic population and is partly owned by a Catholic church.

D) Both A and B Answer: B Diff: 2 Topic: Defenses to a Title VII Action (Bona Fide Occupational Qualification) 56) Jane is a manager of a bank. She has all of the qualifications to be promoted to bank manager. In fact, she is better qualified then any of the males being considered for that position.

However, the owner of the bank believes that the bank customers will not accept a woman as bank manager, so the owner promotes one of the males. The owner's actions would best be described by: A) Quid pro quo sexual harassment.

B) Hostile working environment sexual harassment.

C) Sex discrimination.

D) Pregnancy discrimination.

Answer: C Diff: 1 Topic: Sexual Discrimination and Sexual Harassment (Sex Discrimination)

237 .

57) A male driver for a company is paid $1 per hour less than a female driver. Which of the following is least likely to be a valid reason under the Equal Pay Act? A) The female driver has worked longer for the company.

B) The female driver has a better safety record than then the male driver does.

C) The female driver drives a larger truck that is harder to drive.

D) Females are known to be safer drivers on average.

Answer: D Diff: 3 Topic: Equal Pay Act (Criteria That Justify a Differential in Wages) 58) Martha and John work in a factory. The factory pays each worker $5 per hour plus $.25 per piece of work completed. John is always paid more money than Martha, because John can work faster than Martha can. This situation is: A) Illegal, because of pay discrimination.

B) Legal, because of a seniority system.

C) Legal, because of a defined merit system.

D) Legal, because the pay is based on a difference in quantity or quality of work.

Answer: D Diff: 3 Topic: Equal Pay Act (Criteria That Justify a Differential in Wages) 59) DEF Corp. has a large manufacturing facility in Town X. DEF hires both male and female employees. However, in Town X there are four times as many adult women as adult men looking for work. Therefore, DEF must pay men more than women to get them to work for DEF. DEF's practice of paying men more than women is: A) Illegal, because of pay discrimination.

B) Legal, because of a seniority system.

C) Legal, because of the different prevailing market wages for men and women.

D) Legal, because the pay is based on a difference in quantity or quality of work.

Answer: A Diff: 3 Topic: Equal Pay Act 60) Round-the-Clock Clockworks runs its factory 24 hours a day. It pays a higher amount for working the overnight shift. On this shift almost all of the workers are men. Most of the workers on the other shifts are women. Under the Equal Pay Act, can the company pay a higher wage for the overnight shift?

A) No, because the jobs are similar regardless of the time that the work is done.

B) No, because the higher pay is not based on merit, seniority, or quantity of product.

C) No, because this is disparate impact discrimination.

D) Yes, because the pay differential is based on a factor other than sex.

Answer: D Diff: 3 Topic: Equal Pay Act (Criteria That Justify a Differential in Wages)

238 .

61) Three persons have been turned down for jobs because of their age. Alice, age 72, was turned down because she was too old. Betty, age 45, had applied for a job where most of her customers would be senior citizens and was turned down because she was too young. Cathy, age 35, was turned down for a teaching job because the school wanted very young teacher and thought she was too old. Assuming each was otherwise qualified for the job sought, who has a valid claim for illegal age discrimination?

A) Alice only B) Alice and Cathy C) Alice and Betty D) Betty only Answer: C Diff: 3 Topic: Age Discrimination in Employment Act (Protected Age Categories) 62) Which of the following is least likely to succeed on a claim under the Americans with Disabilities Act? A) Someone who is unable to walk, but can do all the requirement of a job, although in some cases it might take him a little longer than if he could walk.

B) Someone who is not hired because of a past drug habit that he has stayed away from for a couple of years.

C) Someone who has a documented history of severe asthma, although they have not had any problems since moving from New Orleans to Denver.

D) Someone who has a bad back that prevents him from being able to work at the minimum required speed on an assembly line.

Answer: D Diff: 3 Topic: American with Disabilities Act (Qualified Individual with a Disability) 63) Which of the following individuals is not protected under the Americans with Disabilities Act? A) John, who is unable to walk and must use a wheelchair.

B) Bill, who has a record of severe asthma (which requires him to limit almost all physical activity) but who has not had an attack for several months.

C) Sandy, who is addicted to alcohol and has tried all currently accepted techniques but simply cannot stop drinking.

D) Alice, who has one arm 5 inches shorter than the other arm. Alice can do anything that persons with arms of equal length can, but most people incorrectly assume that she is limited in her physical abilities.

Answer: C Diff: 3 Topic: American with Disabilities Act (Qualified Individual with a Disability)

239 .

64) Bob, after a long and distinguished career at a nuclear weapons plant in the plutonium storage department, is hired by a local company to work in its warehouse. Bob's skin has turned bright green from his years around the plutonium, but he is otherwise healthy and is not, himself, radioactive in any way. All scientific and health experts have determined that this condition is permanent, but harmless. After working in the warehouse, Bob is not promoted, and Bob believes it is because of his green skin. Which of the following, if it is true and is the reason that Bob was not promoted, would give Bob the best chance of prevailing if Bob sues his employer because he was not promoted.

A) A white worker was promoted because the white worker was simply a better warehouseman.

B) A black worker was promoted because the black worker has worked longer for the employer, and promotions were made on the basis of seniority.

C) Supervisors need to understand the computerized inventory system and Bob did not, despite his attempts to understand it.

D) Despite the opinion of experts, some of the people Bob would be supervising thought he had some kind of disability and therefore did not want to work for him.

Answer: D Diff: 3 Topic: American with Disabilities Act (Qualified Individual with a Disability) 65) Bob has started his own business that has grown rapidly to the point that he now has 11 employees. Which of the following is not true?

A) Title I of the Americans with Disabilities Act is administered by the Equal Employment Opportunity Commission.

B) The Americans with Disabilities Act covers providers of public accommodations as well as employers.

C) Bob is not subject to the requirement to provide reasonable accommodations to his employees.

D) The difficulty of providing accommodation to an employee is not considered in deciding whether or not the accommodation must be provided.

Answer: D Diff: 3 Topic: Landmark Law (Americans with Disabilities Act) 66) Under what circumstances, if any, do you believe affirmative action is appropriate? Was affirmative action appropriate when such programs were first used? If there has been a change in the appropriateness of affirmative action, why has there been a change? Does it make a difference if the program is administered by the government or is voluntarily implemented by a private employer?

Answer: Under recent court decisions, affirmative action programs must be narrowly tailored to be legal. Opinions differ greatly about the appropriateness of affirmative action programs.

Diff: 2

240 .

67) The Americans with Disabilities Act has resulted in a large number of claims filed by persons claiming to be covered under the act for conditions such as a weak back. Who was intended to be protected by the Act? Is the Act being abused? If so, how can this abuse be reduced?

Answer: Some studies have shown that the Act has not really helped those with the greatest disabilities, and those who were intended to be protected. On the other hand, many individuals have received workplace accommodations that both increase productivity for the employer and greatly improve the working life of the employee.

Diff: 2 68) Martha is the coach of the female basketball team, and Bobby is the coach of the male basketball team at State University. Both Martha and Bobby have comparable knowledge of basketball, both have comparable skills; both work comparable hours and both have comparable win-loss records. The male team is a revenue generating sport, producing about $5 million dollars annually. The female team does not produce revenues. Martha is paid $30,000 per year for her job, but Bobby is paid $100,000 per year for his. Martha sued State University for a violation of the Equal Pay Act. Discuss the arguments on both sides of this case.

Answer: Martha initially appears to have a fairly strong claim because the jobs are so similar.

The University could defend the difference in pay on the grounds that the male coach's job is more difficult if there is greater competition in men's basketball or because of the additional responsibilities that come with keeping large numbers of paying fans satisfied. Additionally, the University could argue the generation of revenue is an aspect of performance quality that it can reward with higher pay.

Diff: 3 Topic: Equal Pay Act of 1963 69) A car dealership ran an advertisement seeking a driver for their courtesy car used to pick up and drop off customers who bring in their car for service. The advertisement says that they want someone "with a minimum of 40 years experience." Are there any problems with this advertisement under the antidiscrimination laws?

Answer: The advertisement probably violates the Age Discrimination in Employment Act because there could be qualified applicants in their 40s who could not have 40 years of work experience as a professional driver. Merely advertising in this way is a violation. It is unlikely that the requirement is a bona fide occupational qualification because many people would be perfectly qualified for the job with far fewer years of driving experience.

Diff: 2 Topic: Age Discrimination in Employment Act

241 .

70) Cindy is 36 years old working as a sales representative for a small manufacturer. Cindy and her husband have been married for about 12 years. They have no children because initially they wanted to establish their careers before taking on the obligations of raising a family. Cindy has been trying to get pregnant for a couple for years without success. Cindy and her husband have recently learned that the source of the problem is Cindy, and that she needs to reduce her working hours in order to reduce her stress level. Cindy currently works about 60 hours a week and wants to reduce her hours to about 40 or so. Cindy's employer refuses to change her responsibilities, but says that it is no problem if she works fewer hours per week, so long as she gets all her work finished. Cindy brings a claim under the Americans with Disabilities Act on the grounds that her inability to get pregnant is a covered disability. Discuss the strengths and weaknesses of Cindy's case.

Answer: One issue is whether the inability to get pregnant is an impairment that "substantially limits" a "major life activity." Some decisions have said it is not. If she is covered, there may be an issue as to what amounts to a reasonable accommodation. Past practice and the treatment of other similarly situated individuals may also be important factors to consider.

Diff: 3 Topic: Americans with Disabilities Act 71) Ben, the owner of a tool factory, is concerned about sexual harassment in the workplace.

Discuss the steps that Ben might take to prevent sexual harassment and liability under Title VII. Answer: Ben should consider the following steps: 1. adopting an explicit policy against sexual harassment; 2. adopting procedures for reporting incidents of sexual harassment; and 3. conducting training programs to sensitize managers and employees about sexual harassment.

Diff: 3 Topic: Sexual Harassment 72) The ________ is the federal administrative agency responsible for enforcing most federal antidiscrimination laws.

Answer: EEOC 73) ________ discrimination occurs when an employer discriminates against a specific individual because of his or her race, color, national origin, sex, or religion.

Answer: Disparate treatment 74) ________ discrimination occurs when an employer adopts a work rule that is neutral on its face but is shown to cause an adverse impact on a protected class.

Answer: Disparate impact 75) Lewd remarks, touching, intimidation, posting pinups, and other verbal or physical conduct of a sexual nature that occur on the job is referred to as ________.

Answer: Sexual harassment 76) Discrimination based on protected classes (other than race or color) is permitted if it is shown to be a ________.

Answer: BFOQ 242 .

77) The ________ protects both sexes from pay discrimination based on sex.

Answer: Equal Pay Act of 1963 78) The Age Discrimination in Employment Act of 1967 prohibits age discrimination practices against employees who are ________.

Answer: 40 and older 79) The ________ is the most comprehensive piece of civil rights legislation since the Civil Rights Act of 1964.

Answer: Americans with Disabilities Act 80) Title I of the ADA requires employers to make ________ to assist employees with disabilities that do not cause undue hardship to the employer.

Answer: Reasonable accommodations 81) ________ refers to a policy that provides that certain job preferences will be given to minority or other protected class applicants when an employer makes an employment decision.

Answer: Affirmative action 82) ________ is discrimination against a group which is usually thought of as a majority.

Answer: Reverse Discrimination 83) ________ is the federal statute that prohibits job discrimination based on the race, color, religion, sex, or national origin of the job applicant.

Answer: Title VII of the Civil Rights Act of 1964 84) Defenses to a Title VII action include ________, ________, and ________.

Answer: Merit, seniority, and BFOQ 85) The ________ is a federal statute that prohibits age discrimination in employee benefits.

Answer: Older Worker Benefit Protection Act 86) The ________ is a federal statute enacted after the Civil War that prohibits racial and national origin employment discrimination.

Answer: Civil Rights Act of 1866 87) Title VII of the Civil Rights Act of 1964 applies to employers with ________ or more employees.

Answer: 15

243 .

Chapter 20 Employment Compensation and Worker Protection Law 1) The test whether an employee can recover under workers' compensation is whether the injury resulted from the negligence of the employer.

Answer: FALSE Diff: 2 Topic: Workers' Compensation (Employment-Related Injury) 2) Worker's Compensation is an exclusive remedy.

Answer: TRUE Diff: 1 Topic: Workers' Compensation (Exclusive Remedy) 3) If an employee is injured during the course of her employment, she has a choice to either sue the employer in court or proceed with a workers' compensation claim.

Answer: FALSE Diff: 1 Topic: Workers' Compensation (Exclusive Remedy) 4) Under the Occupational Safety and Health Act, employers must not only meet numerous specific safety standards, but they must generally provide a safe working environment.

Answer: TRUE Diff: 1 Topic: Occupational Safety (General Duty Standards) 5) The Occupational Safety and Health Act does not apply to government employers.

Answer: TRUE Diff: 1 Topic: Occupational Safety 6) An Occupational Safety and Health Administration standard that requires safety guards is classified as a general duty standard.

Answer: FALSE Diff: 1 Topic: Occupational Safety (Specific Duty Standards) 7) Decisions of the Occupational Safety and Health Review Commission are appealable to state intermediate courts of appeal.

Answer: FALSE Diff: 1 Topic: Occupational Safety (General Duty Standards)

244 .

8) Under the Fair Labor Standards Act, limits on the hours of work performed in hazardous jobs apply only to workers under age 18.

Answer: TRUE Diff: 1 Topic: Fair Labor Standards Act (Child Labor) 9) For purposes of overtime, each week is treated separately, even within the same pay period.

Answer: TRUE Diff: 1 Topic: Fair Labor Standards Act (Overtime Pay) 10) The Employee Retirement Income Security Act mandates which employers must provide pension plans for its employees.

Answer: FALSE Diff: 1 Topic: Other Worker Protection Laws (Employee Retirement Income Security Act) 11) Under the Employee Retirement Income Security Act, an employee's benefits must vest within seven years or less.

Answer: TRUE Diff: 1 Topic: Other Worker Protection Laws (Employee Retirement Income Security Act) 12) The Consolidated Omnibus Budget Reconciliation Act requires employers to continue to pay the insurance premiums for an employee who is involuntarily terminated from his job until the employee can find other employment.

Answer: FALSE Diff: 1 Topic: Other Worker Protection Laws (Consolidated Omnibus Budget Reconciliation Act) 13) All full-time employees are covered under the Family and Medical Leave Act if they have worked for the employer at least one year and have performed more than 1,250 hours of service during the previous 12-month period.

Answer: FALSE Diff: 2 Topic: Landmark Law (Family and Medical Leave Act) 14) Unemployment contributions are paid by employers.

Answer: TRUE Diff: 1 Topic: Government Programs (Unemployment Compensation) 15) The unemployment compensation program is run at the federal level to ensure equality of benefits across the country.

Answer: FALSE Diff: 1 Topic: Government Programs (Unemployment Compensation) 245 .

16) Under the Federal Insurance Contributions Act, employees must make contributions into the Social Security fund.

Answer: TRUE Diff: 1 Topic: Government Programs (Social Security) 17) Managerial, administrative and professional employees are non-exempt from the FLSA's wage and hour provisions.

Answer: FALSE Diff: 2 Topic: Fair Labor Standards Act (Overtime Pay) 18) Before the Industrial Revolution, the doctrine of laissez-faire governed the employment relationship in this country.

Answer: TRUE Diff: 1 Topic: Introduction to Employment Compensation and Worker Protection Law 19) Many large companies self-insure themselves for workers' compensation insurance purposes.

Answer: FALSE Diff: 1 Topic: Workers' Compensation (Workers' Compensation Insurance) 20) Surviving family members of deceased workers can receive benefits under the Social Security program.

Answer: TRUE Diff: 1 Topic: Government Programs (Social Security) 21) Under workers' compensation, when an employee is accidentally injured on the job: A) A worker can sue the employer in addition to recovering from workers' compensation, but only if the employer intentionally caused the injury.

B) A worker has the choice of whether to file a normal lawsuit or recover from the workers' compensation board.

C) A worker can file a normal lawsuit and recover from the workers' compensation board.

D) Whether the injury occurred in the course of employment is not relevant.

Answer: A Diff: 3 Topic: Workers' Compensation

246 .

22) Which of the following is not true regarding the Occupational Safety and Health Act? A) Its purpose is to protect the safety of workers and the safety of those who purchase the employer's products or services.

B) Employers are subject to having their workplaces inspected under the Act. C) Even though the Act contains numerous specific safety standards, employers must also provide a work environment that is free from recognized hazards that could cause death or serious injury.

D) Employers are required to post notices in the workplace informing workers of their rights under the Act. Answer: A Diff: 3 Topic: Occupational Safety 23) Under the Occupational Safety and Health Act: A) Purchasers of a company's products are assured that they are safe for their ordinarily intended uses.

B) A company can be found to be in violation even if an employee in not injured.

C) Complaints are handled by the Equal Employment Opportunity Commission.

D) Very few safety standards have actually been adopted.

Answer: B Diff: 2 Topic: Occupational Safety 24) Which of the following statements is not true under the Fair Labor Standards Act? A) Children under 14 cannot work at all, except on farms.

B) Children ages 14 and 15 may work limited hours in nonhazardous jobs.

C) Children ages 16 and 17 may work unlimited hours in nonhazardous jobs.

D) Persons age 18 or over may work unlimited hours in nonhazardous jobs.

Answer: A Diff: 2 Topic: Fair Labor Standards Act (Child Labor) 25) Overtime pay is required to be paid to nonexempt employees who work: A) More than 5 days per week.

B) More than 10 hours per day.

C) More than 12 hours per day.

D) More than 40 hours per week.

Answer: D Diff: 1 Topic: Fair Labor Standards Act (Overtime Pay)

247 .

26) Under the Fair Labor Standards Act: A) Limitations are placed on the hours that workers can work each week without being paid overtime.

B) A minimum wage is set, but is not required to be paid if the worker agrees to accept a lower amount.

C) Workers are prevented from working in hazardous jobs.

D) Employers are not required to pay overtime for a nonexempt employee who works 45 hours in the first week but only 25 hours in the second week of a two-week pay period.

Answer: A Diff: 2 Topic: Fair Labor Standards Act 27) Which of he following is not a purpose of ERISA? A) For employees to have access to certain information about their pension plans.

B) To make certain that pension plans have restricted amounts of securities investments placed into them by employers.

C) To require a pension plan to be in writing D) To ensure that as many companies as possible provide pension plans for their employees.

Answer: D Diff: 2 Topic: Other Worker Protection Laws (Employee Retirement Income Security Act) 28) Vesting as used in a pension plan means: A) That there are adequate funds to pay out expected benefits.

B) That a beneficiary's right to receive payments cannot be taken away.

C) That the plan covers all eligible employees.

D) That the plan is adequately insured.

Answer: B Diff: 2 Topic: Other Worker Protection Laws (Employee Retirement Income Security Act) 29) Which of the following is true about the provisions of the Consolidated Omnibus Budget Reconciliation Act's provisions relating to health insurance?

A) Certain companies are required to provide group health insurance coverage to their employees.

B) Upon termination of employment, an employer is required to pay, for a limited time, for the former employee's health insurance coverage under the same terms that it had been paying for it while the employee worked for the employer.

C) Upon termination of employment, a health insurance provider must allow the employee to continue to participate in the same health insurance coverage program that the employee participated in while working for the employer, although the employee must pay for it.

D) Employers must make the same group health insurance available to all employees.

Answer: C Diff: 2 Topic: Other Worker Protection Laws (Consolidated Omnibus Budget Reconciliation Act)

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30) Which of the following is true about unemployment benefits?

A) Because they are set at the federal level, unemployment benefits are the same in every state.

B) Employees are eligible to receive benefits regardless of the reason that employment ends.

C) The taxes to support the unemployment benefits program are paid by the employer.

D) Once awarded, a recipient of unemployment benefits will be entitled to collect the award even if the employee finds other work.

Answer: C Diff: 2 Topic: Government Programs (Unemployment Compensation) 31) Which of the following is not true regarding Social Security?

A) Benefits include retirement benefits and survivors' benefits to family members of deceased workers.

B) The amounts paid in by a worker during her working career are accumulated to be paid out during the worker's retirement years.

C) The Social Security tax for an employee is paid partly by the employee and partly by the employer.

D) A self-employed person must pay both the employee and employer portions of the tax.

Answer: B Diff: 2 Topic: Government Programs (Social Security) 32) Bob, an employee of Risky Manufacturing, Inc., is accidentally injured by a fellow worker while working his shift. Under workers' compensation, Bob can: A) Sue Risky or seek workers' compensation recovery, but not both.

B) Sue Risky or seek workers' compensation recovery.

C) Seek workers' compensation but not sue Risky.

D) Recover from workers' compensation only if Risky was negligent in allowing the injury to occur.

Answer: C Diff: 2 Topic: Workers' Compensation 33) Judy just bought a new business with many employees. She has heard about the requirements of OSHA. Judy has read through all the specific regulations that apply to her workplace, and is in compliance with all of these. Which of the following is true?

A) Judy also has a duty to provide a perfectly safe workplace.

B) Judy's workplace can be inspected to determine if she is in violation C) Judy could be in violation of her general duty standard even while being in compliance with all of the specific regulations.

D) B and C. Answer: D Diff: 1 Topic: Occupational Safety

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34) Megan is younger than 18 years of age and wants to get a job. However, she has heard that her employment is limited because she is under age. Which of the following statements is true?

A) If Megan is younger than 14, she cannot get any job.

B) If Megan is younger than 18, she can get any job she wants, as long as her parents consent.

C) If Megan is 14 or 15, she can work unlimited hours in nonhazardous jobs.

D) If Megan is 16 or 17, she can work unlimited hours in nonhazardous jobs.

Answer: D Diff: 2 Topic: Fair Labor Standards Act (Child Labor) 35) Mary goes to work for Rocky Mountain Company that has a pension plan requiring Mary to work at least 10 years in order to be entitled to her benefits is she quits. This is a violation of: A) Employee Retirement Income Security Act. B) Social Security Act. C) Equal Pay Act. D) Fair Labor Standards Act. Answer: A Diff: 2 Topic: Other Worker Protection Laws (Employee Retirement Income Security Act) 36) Badger Enterprises has 100 employees, engages in interstate commerce, and has been in existence since it incorporated in 1979. Badger never had a pension plan for its employees, but decided to adopt one for the year beginning in 2001. Badger has been a very successful company, so the company decided that 25 percent of the pension plan assets would be put into stock of Badger Enterprises. The pension plan provides that employees will vest within three years of earning benefits. Badger is in violation of the Employee Retirement Income Security Act: A) Before adopting its pension plan, but not thereafter.

B) After adopting its pension plan, but not beforehand.

C) Both before and after the adoption of the pension plan.

D) Neither before nor after adopting the pension plan.

Answer: B Diff: 2 Topic: Other Worker Protection Laws (Employee Retirement Income Security Act) 37) _____ is a federal law enacted in 1970 that promotes workplace safety.

A) The Occupational Safety and Health Act B) The Fair Labor Standards Act C) The Consolidated Omnibus Budget Reconciliation Act D) The Employee Retirement Income Security Act Answer: A Diff: 1 Topic: Occupational Safety

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38) The federal act that prohibits child labor and spells out minimum wage and overtime requirements is: A) The Occupational Safety and Health Act B) The Fair Labor Standards Act C) The Consolidated Omnibus Budget Reconciliation Act D) The Employee Retirement Income Security Act Answer: A Diff: 1 Topic: Fair Labor Standards Act 39) The federal law designed to prevent fraud and other abuses associated with private pension funds is: A) The Occupational Safety and Health Act B) The Fair Labor Standards Act C) The Consolidated Omnibus Budget Reconciliation Act D) The Employee Retirement Income Security Act Answer: D Diff: 1 Topic: Other Worker Protection Laws (Employee Retirement Income Security Act) 40) The federal law that permits employees and their beneficiaries to continue their group health insurance after an employee's employment has ended is: A) The Occupational Safety and Health Act B) The Fair Labor Standards Act C) The Consolidated Omnibus Budget Reconciliation Act D) The Employee Retirement Income Security Act Answer: A Diff: 1 Topic: Other Worker Protection Laws (Consolidated Omnibus Budget Reconciliation Act) 41) Should there be a lower minimum wage for some workers, for example, workers under age 18? What are the arguments for and against a two-tier minimum wage?

Answer: A lower minimum wage might be justified because of these workers' lack of experience. It also might allow workers to be employed who might otherwise be unable to find work. On the other hand, employers might choose to hire the younger workers at the expense of older workers who have families to support.

Diff: 2

251 .

42) Sam is a sales representative for a pharmaceutical firm. Sam frequently plays golf with his clients and potential clients. One summer weekend when he is on vacation at his family's home in Myrtle Beach, Sam runs into a couple of his clients who are attending a medical convention.

They arrange to meet and play golf on Sunday. While on the sixth hole, another golfer tees off prematurely and Sam is struck in the head by a golf ball. Can Sam recover under workers' compensation? What remedies are available to Sam? Answer: Sam could recover under workers' compensation if it is determined that he was "on the job" while playing golf with his clients. This would depend on all the facts and circumstances, including his usual pattern, if any, of doing business while golfing, and the circumstances on this particular day. The amount recoverable would likely be determined by a scheduled amount under the state's workers' compensation statute. This would be the only way he could recover from his employer. Whether or not Sam is able to recover under workers' compensation, he would be able to recover from the golfer assuming that the golfer was negligent.

Diff: 2 Topic: Workers' Compensation Acts 43) Sam operates a small business with 12 employees. Sam says to his employees, "I'm not required to give you a pension plan. But, I will do so. The plan is that if you stay employed with me until you reach age 65, I will give you a pension of $1,000 per year during retirement for each full year you have worked. Because I believe so strongly in this company, if I invest any money in the fund in advance, I will put half of it into stock of this company. If you leave before retirement, you don't get it. That way, you'll have more incentive to work hard and stay with the company." Comment on the legal aspects of this plan.

Answer: Sam is correct that he need not provide a pension fund. But, if offering one, he must follow the provisions of the ERISA. This plan violates the vesting requirements, the funding requirements, and the restrictions on investing in the sponsoring company's stock. The plan is required to be in writing.

Diff: 3 Topic: Employee Retirement Income Security Act 44) The workers at Nedesco, Inc. regularly heat their lunches in one of the plant's industrial ovens. To reach the oven, an employee rides on a conveyer belt to the oven. At the oven, the employee stops the conveyer belt, slides the tray of lunches into the oven, and waits for approximately five minutes until the lunches are warm. After retrieving the tray, the employee climbs down an emergency ladder. There is no specific duty standard that covers this situation.

Discuss whether Nedesco has violated an OSHA duty.

Answer: OSHA imposes a general duty on employers to provide a work environment that is free from recognized hazards that are likely to cause death or serious physical harm to the employees. Thus, even though there is no specific regulation covering the situation in the question, Nedesco can be found to have violated this general duty standard. Allowing workers to heat their lunches in this fashion seems likely to cause death or serious harm to the Nedesco workers.

Diff: 2 Topic: OSHA

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45) A child of 16 years of age is hired to work a dangerous meat-packing machine in a plant that ships meat to all 50 states. He is to be paid at the rate of $2.50 per hour for 50 hours per week, all outside of school hours. Discuss any potential legal problem on the part of the employer.

Answer: The employer has violated the child labor, minimum wage, and overtime pay provisions of the FLSA in the following ways: A. At 16 years old hazardous jobs are prohibited.

B. $2.50 is below minimum wage unless it falls into some exception.

C. Any hours over 40 per week are required to be paid at time and a half of regular rate.

Diff: 1 Topic: Child Labor 46) ________ acts compensate workers and their families if they are injured in connection with their jobs.

Answer: Workers' compensation 47) ________ is a federal administrative agency that enforces federal legislation created to promote safety in the workplace.

Answer: The Occupational Safety and Health Administration 48) The ________ is a federal act enacted in 1938 to protect workers. It prohibits child labor and establishes minimum wage and overtime pay requirements.

Answer: FLSA 49) ________ is a federal system that provides limited retirement and death benefits to covered employees and their dependents.

Answer: Social security 50) The ________ Act guarantees workers unpaid time off from work for medical emergencies.

Answer: Family and Medical Leave

253 .

Chapter 21 Immigration and Labor Law 1) The American Federation of Labor was formed several decades before the Congress of Industrial Organizations.

Answer: TRUE Diff: 1 Topic: Labor Law 2) The Norris-LaGuardia Act was enacted in 1932 to prohibit certain types of crucial workers from being able to organize.

Answer: FALSE Diff: 1 Topic: Landmark Law (Federal Labor Union Statutes) 3) The Labor-Management Relations Act prohibits employers from making statements against unions prior to a union election.

Answer: FALSE Diff: 1 Topic: Landmark Law (Federal Labor Union Statutes) 4) In an effort to divert a national emergency, the President has the right to seek an injunction (for up to 80 days) against a strike of a major industry.

Answer: TRUE Diff: 1 Topic: Landmark Law (Federal Labor Union Statutes) 5) The decisions of the National Labor Relations Board are enforceable in a court of law.

Answer: TRUE Diff: 1 Topic: Labor Law (National Labor Relations Act) 6) The same union cannot represent all the workers at a single company.

Answer: FALSE Diff: 1 Topic: Organizing a Union 7) If both parties approve, managers can belong to the same union as the employees that they manage.

Answer: FALSE Diff: 1 Topic: Organizing a Union

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8) The National Labor Relations Board must supervise an election for union representation only if it is contested by management.

Answer: TRUE Diff: 1 Topic: Organizing a Union (Types of Union Elections) 9) Section 8(a) of the National Labor Relations Act prevents employers from interfering with employees' rights to form a union.

Answer: TRUE Diff: 1 Topic: Organizing a Union (Illegal Interference with an Election) 10) Employees may not be prohibited from engaging in union solicitations on company premises when the employee is off duty.

Answer: FALSE Diff: 2 Topic: Organizing a Union (Union Solicitation on Company Property) 11) The Worker Adjustment and Retraining Notification Act requires 90 days notice prior to certain layoffs.

Answer: FALSE Diff: 2 Topic: Ethics Spotlight (Plant Closing Act) 12) Some subjects, such as wages and hours, are compulsory subjects of collective bargaining.

Answer: TRUE Diff: 1 Topic: Collective Bargaining (Subjects of Collective Bargaining) 13) An employee cannot be forced to join a union before being hired, but can be forced to join a union after being hired.

Answer: TRUE Diff: 1 Topic: Collective Bargaining (Union Security Agreements) 14) In an agency shop, workers are required to pay a fee to the union even if they do not join it.

Answer: TRUE Diff: 1 Topic: Collective Bargaining (Union Security Agreements) 15) Employers cannot prevent employees from entering the work premises if the employer anticipates a strike.

Answer: FALSE Diff: 1 Topic: Strikes (Employer Lockout)

255 .

16) A worker who chooses not to strike when a strike has been called is known as a crossover worker.

Answer: TRUE Diff: 1 Topic: Strikes (Crossover and Replacement Workers) 17) It is illegal for workers to strike for part of the day and work the remainder of the day.

Answer: TRUE Diff: 1 Topic: Strikes (Illegal Strikes) 18) A secondary boycott is legal if it is directed against the struck employer's product.

Answer: TRUE Diff: 1 Topic: Picketing (Secondary Boycott Picketing) 19) A union is permitted to discipline its members for walking off the job in a nonsanctioned strike.

Answer: TRUE Diff: 2 Topic: Internal Union Affairs 20) An employer has a duty to verify that the employees it hires are authorized to work in the United States.

Answer: TRUE Diff: 2 Topic: Immigration Law (Employment Eligibility Verification) 21) Which of the following is true about the American Federation of Labor?

A) It was formed in the early part of the twentieth century.

B) When originally formed, only skilled craft workers were allowed to join.

C) All members of other unions are automatically members of it.

D) It is not allowed to engage in political lobbying.

Answer: B Diff: 2 Topic: Labor Law 22) The two labor organizations that combined in 1955 were: A) The Teamsters and the United Auto Workers.

B) The United Auto Workers and The American Federation of Labor.

C) The American Federation of Labor and the Congress of Industrial Organizations.

D) The United Steel Workers and United Auto Workers.

Answer: C Diff: 2 Topic: Labor Law

256 .

23) Which of the following statutes specifically covers employees of airline carriers?

A) The Norris-LaGuardia Act B) National Labor Relations Act C) Labor-Management Relations Act D) Railway Labor Act Answer: D Diff: 2 Topic: Landmark Law (Federal Labor Union Statutes) 24) Which of the following statutes provides that it is legal for employees to organize?

A) The Norris-LaGuardia Act B) The National Labor Relations Act C) The Labor-Management Relations Act D) The Worker Adjustment and Retraining Notification Act Answer: A Diff: 2 Topic: Landmark Law (Federal Labor Union Statutes) 25) Which of the following statutes allows the President to seek an injunction against a strike that would create a national emergency?

A) The Norris-LaGuardia Act B) The National Labor Relations Act C) The Labor-Management Relations Act D) The Worker Adjustment and Retraining Notification Act Answer: C Diff: 2 Topic: Landmark Law (Federal Labor Union Statutes) 26) Which of the following statutes regulates internal union affairs and establishes certain rights of union members?

A) The Norris-LaGuardia Act B) The National Labor Relations Act C) The Labor-Management Relations Act D) The Labor-Management Reporting and Disclosure Act Answer: D Diff: 2 Topic: Landmark Law (Federal Labor Union Statutes) 27) Which of the following is least likely to be an appropriate bargaining unit?

A) All teachers in a particular state B) All workers at a particular plant of a company that has four other similar plants C) All the maintenance workers at a single plant D) The production workers at one plant and the service workers at another company's plant Answer: D Diff: 2 Topic: Organizing a Union 257 .

28) Under which of the following circumstances will the NLRB allow the union to hold an election to determine if a union will represent workers?

A) If an election has been held within the last year B) If the employees have a union and a valid contract with the employer C) If the union has engaged in unfair labor practices D) If the union can show that at least 30 percent of the employees are interested in joining the union Answer: D Diff: 2 Topic: Organizing a Union (Types of Union Elections) 29) Which of the following is true about elections to certify a union?

A) At least 50 percent of employees in the bargaining unit must be interested in joining a union, and an affirmative vote of more than 50 percent will win the election for the union.

B) At least 33 percent of employees in the bargaining unit must be interested in joining a union, and an affirmative vote of more than 50 percent will win the election for the union.

C) At least 50 percent of employees in the bargaining unit must be interested in joining a union, and an affirmative vote of more than 66.7 percent will win the election for the union.

D) At least 30 percent of employees in the bargaining unit must be interested in joining a union, and an affirmative vote of more than 50 percent will win the election for the union.

Answer: D Diff: 1 Topic: Organizing a Union (Types of Union Elections) 30) The National Labor Relations Board supervises which type(s) of union elections?

A) Contested elections only B) Uncontested elections only C) Both contested and uncontested elections D) Neither contested nor uncontested elections Answer: A Diff: 2 Topic: Organizing a Union (Types of Union Elections) 31) Under what conditions must an employer allow nonemployee union solicitation on company property?

A) If there is currently no union representing the company's employees B) If the employees live in a company town such that it would be difficult to solicit the employees off company property C) If the purpose is to solicit employees to change union representation rather than to solicit nonunion workers to join a union D) If the purpose of the union is to address issues other than wages Answer: B Diff: 3 Topic: Organizing a Union (Union Solicitation on Company Property)

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32) The Worker Adjustment and Retraining Notification Act requires notification to be given: A) Six months in advance for any plant closing.

B) Sixty days in advance for any plant closing.

C) Sixty days in advance for plant closings resulting in the loss of 50 or more jobs, but not for temporary layoffs.

D) Sixty days in advance for plant closings resulting in the loss of 50 or more jobs, and for layoffs of 50 employees or 33 percent of workers at a site for 30 days or more.

Answer: D Diff: 3 Topic: Ethics Spotlight (Plant Closing Act) 33) The Worker Adjustment and Retraining Notification Act exempts an employer from giving notice of an otherwise covered layoff or plant closing if: A) The giving of notice would work an undue hardship on the employer.

B) The employer was seeking capital investment in the business, and notice of the layoff or closing would have precluded the employer from acquiring the capital.

C) The employees are represented by a union.

D) The employees are not represented by a union.

Answer: B Diff: 2 Topic: Ethics Spotlight (Plant Closing Act) 34) Collective bargaining subjects are classified under the labor laws: A) As either group or individual.

B) As either preexisting or new.

C) As local, industry or national.

D) As permissive, compulsory, or illegal.

Answer: D Diff: 2 Topic: Collective Bargaining (Subjects of Bargaining) 35) Which of the following is a permissive subject of collective bargaining?

A) Wages B) Hours of employment C) Composition of the supervisory force D) Fringe benefits Answer: C Diff: 1 Topic: Collective Bargaining (Subjects of Bargaining)

259 .

36) The following type(s) of shops is illegal: A) Closed shop.

B) Closed shop and agency shop.

C) Union shop and agency shop.

D) Union shop.

Answer: A Diff: 2 Topic: Collective Bargaining (Union Security Agreements) 37) The following type(s) of shops does not require union membership: A) Closed shop.

B) Closed shop and agency shop.

C) Union shop and agency shop.

D) Agency shop.

Answer: D Diff: 2 Topic: Collective Bargaining (Union Security Agreements) 38) A right-to-work law generally provides that: A) Union membership is mandatory.

B) Employees cannot be forced to join a union.

C) Union employees cannot be laid off.

D) Both union and nonunion employees cannot be laid off.

Answer: B Diff: 2 Topic: Contemporary Environment (State Right-to-Work Laws) 39) What is a lockout in connection with labor law?

A) An action by workers to prevent management from entering the company's premises B) An action by workers to prevent customers from entering the company's premises C) An action by workers to prevent suppliers from entering the company's premises D) An action by management to prevent workers from entering the company's premises Answer: D Diff: 2 Topic: Strikes (Employer Lockout) 40) Which of the following types of strikes is legal?

A) Violent strikes B) Strikes occurring 75 days after union notification to the employer of a possible strike C) Sit-down strikes D) Partial strikes Answer: B Diff: 2 Topic: Strikes (Illegal Strikes)

260 .

41) An employee who does not honor a strike and works during the strike is a(n): A) Replacement worker.

B) Temporary worker.

C) Crossover worker.

D) Continuous worker.

Answer: C Diff: 1 Topic: Strikes (Crossover and Replacement Workers) 42) Picketing is legal if it: A) Is accompanied by violence.

B) Prevents nonstriking employees from entering the employer's premises.

C) Encourages other unions at the employer to join in the strike.

D) Prevents customers from entering the employer's place of business.

Answer: C Diff: 2 Topic: Picketing 43) For which of the following may a union not discipline one of its members?

A) Walking off the job in an unsanctioned strike B) Testifying in court against the union C) Working for wages below union scale D) Spying for an employer Answer: B Diff: 2 Topic: Internal Union Affairs 44) The Farm Union represents farm workers, some of whom are employed by Vino Wineries.

The union is on strike against Vino and it is picketing all liquor stores that sell Vino products.

The picketers are asking that no one buy anything from any liquor store that carries Vino products. There has been no violence. This picketing is: A) An illegal secondary boycott.

B) A legal secondary boycott.

C) An illegal common situs picket.

D) A legal common situs picket.

Answer: A Diff: 3 Topic: Picketing (Secondary Boycott Picketing)

261 .

45) Jed owns a small but growing manufacturing company. Jed had enjoyed a good relationship with his production workers until recently. Now there is to be an election to join a national union that will be held in two weeks. Jed has implemented a policy that there will be no solicitation of employees on company property. Which of the following is true?

A) Jed must allow solicitation of his employees any time they are at work.

B) Jed must provide his employees with time off in order to learn about the union's side of the issue.

C) Jed must allow anyone to solicit his employees while they are on breaks or at lunch.

D) Jed must allow on-duty employees to solicit other employees, but can limit it to nonwork areas such as break rooms.

Answer: D Diff: 2 Topic: Organizing a Union (Union Solicitation on Company Property) 46) A ________ is a non-immigrant visa that allows U.S. employers to employ in the United States foreign nationals who are skilled in specialty occupations.

A) H-1B visa B) Form I-9 C) H4 visa D) none of the above Answer: A Diff: 2 Topic: Immigration Law (H-1B Foreign Guest Worker Visa) 47) What practical problems are there with the notice requirements of the Plant Closing Act? Answer: In many circumstances, once the advance notice is given, disgruntled workers could sabotage production and cause other problems if they know that they are going to lose their jobs.

Some employers might choose to simply give 60 days of severance pay rather than try to operate a factory with discontented workers. Additionally, there can be issues with attempting to obtain financing, purchasing supplies and making sales in the interim.

Diff: 2 48) How will unions be affected if increasing amounts of work that was once done by employees is being done by independent contractors?

Answer: These arrangements will likely decrease the power of unions. Many of the rights of the labor laws are granted to "employees," but not to independent contractors. The short-term nature of these contracts might make it more difficult to find a high percentage of persons who would have the vested interest to want to devote time to addressing labor issues.

Diff: 2

262 .

49) The Overrock Typewriter Company has been in business for a hundred years, but falling sales have forced several layoffs in the past 20 years. There has never been a union at the company, but some workers have organized a union election. Overrock's owner will not discuss wages if a union is formed, and might close the plant. Discuss the legal implications.

Answer: Overrock would need to comply with any applicable notice requirements of the Plant Closing Act. Overrock cannot threaten to close the plant, and would be required to bargain on wages and other compulsory issues if a union is formed.

Diff: 2 Topic: Collective Bargaining 50) Briefly describe the process used to conduct a union election under the National Labor Relations Act. Answer: It first must be established that at least 30 percent of the employees in a bargaining unit want an election. Once established, the National Labor Relations Board will conduct an election. A union receiving a simple majority will be certified as the exclusive bargaining agent for the employee bargaining unit.

Diff: 1 Topic: Collective Bargaining 51) Briefly discuss the types of strikes that are illegal and employers' remedies for such strikes.

Answer: Certain strikes are prohibited and not protected by federal labor law. Those strikes include ones involving violence, sit-down strikes, strikes without authorization by the union leadership, strikes during a cooling-off period, and strikes in violation of a no-strike clause.

Employers can get damages and injunctive relief, and they may discharge striking employees.

Diff: 1 Topic: Collective Bargaining 52) Under the Plant Closing Act, a company must give appropriate notice prior to a plant closing.

An employer can be exempted from giving this notice. Briefly describe situations giving rise to this exemption.

Answer: An employer is exempted from having to give such notice if A. the closing or layoff is caused by business circumstances that were not reasonably foreseeable as of the time that the notice would have been required, or B. the business was actively seeking capital or business that, if obtained, would have avoided or postponed the shutdown, and the employer in good faith believed that giving notice would have precluded it from obtaining the needed capital or business.

Diff: 1 Topic: Plant Closing Act 53) The ________ is a federal administrative agency that oversees union elections, prevents employers and unions from engaging in illegal and unfair labor practices, and enforces and interprets certain federal labor laws.

Answer: NLRB 54) The act of negotiating contract terms between an employer and the members of a union is referred to as ________.

Answer: Collective bargaining 263 .

55) A ________ is an establishment where an employee must join the union within a certain number of days after being hired.

Answer: Union shop 56) An ________ is an establishment where an employee does not have to join the union but must pay a fee equal to the union dues.

Answer: Agency shop 57) A ________ is a cessation of work by union members in order to obtain economic benefits or correct an unfair labor practice.

Answer: Strike 58) An act of the employer to prevent employees from entering the work premises when the employer reasonably anticipates a strike is referred to as an ________.

Answer: Employer lockout 59) ________ usually takes the form of the striking employees and union representatives walking in front of the employer's premises carrying signs announcing their strike.

Answer: Picketing 60) ________ picketing is a type of picketing where unions try to bring pressure against an employer by picketing his or her suppliers or customers.

Answer: Secondary boycott 61) A worker who is sponsored and employed by a U.S. employer pursuant to an H-1B visa is known as a ________.

Answer: foreign guest worker 62) A federal administrative agency authorized to enforce federal immigration laws is the ________.

Answer: U.S. Immigration and Customs Enforcement agency.

63) A federal statute that makes it unlawful for employers to hire illegal immigrants is the ________.

Answer: Immigration Act of 1990 64) Labor's "Bill of Rights" is contained in the ________.

Answer: Landrum-Griffin Act 65) An agreement between an employer and a union that the union will not strike during a particular period of time is knows as a ________.

Answer: no-strike clause

264 .

Chapter 22 Intellectual Property and Cyber Piracy 1) For trade secrets to be protected, a business owner is obligated to take all reasonable precautions to prevent discovery of the trade secrets by others.

Answer: TRUE Diff: 1 Topic: Trade Secret 2) It is improper to discover a trade secret by reverse engineering if the owner of the trade secret has taken all reasonable precautions to prevent discovery of the secret.

Answer: FALSE Diff: 2 Topic: Trade Secret 3) Recovery can be sought for stolen trade secrets only if they were patented or copyrighted.

Answer: FALSE Diff: 2 Topic: Trade Secret 4) The victim of stolen trades secrets can recover any profits made by someone from the stolen trade secret.

Answer: TRUE Diff: 1 Topic: Trade Secret (Civil Law: Misappropriation of a Trade Secret) 5) Article I, section 8 of the U.S. Constitution gives individual states the power to protect the works of inventors and writers.

Answer: FALSE Diff: 1 Topic: Patent 6) Congress established the U.S. Court of Appeals for the Federal Circuit to hear patent appeals.

Answer: TRUE Diff: 1 Topic: Patent (Federal Patent Statute) 7) Because of the intellectual property provisions of the General Agreement on Tariffs and Trade, Congress changed the legal life of a patent from 17 to 20 years.

Answer: TRUE Diff: 2 Topic: Patent (Patent Period)

265 .

8) United States law requires that an invention have a reasonable likelihood of success in the marketplace in order to be patented.

Answer: FALSE Diff: 1 Topic: Patent (Requirements for Obtaining a Patent) 9) In the United States, if two people independently develop the same invention, the patent will be granted to the first to invent, not the first to file, for a patent.

Answer: TRUE Diff: 2 Topic: Patent (Patent Period) 10) New machines, but not improvements to previously patented machines, can be patented.

Answer: FALSE Diff: 2 Topic: Patent (Patent Application) 11) A patent gives the holder an exclusive right to use and exploit their patent.

Answer: TRUE Diff: 3 Topic: Patent (Patent Infringement) 12) The public use doctrine requires that patented inventions be made available for public use in order for the patent to retain its validity.

Answer: FALSE Diff: 2 Topic: Patent (One Year "On Sale" Doctrine) 13) Business models used on the Internet can be patented.

Answer: TRUE Diff: 1 Topic: Internet Law & Online Commerce (Patenting Business and E-Commerce Methods) 14) The American Investors Protection Act established a process to file a provisional patent.

Answer: TRUE Diff: 1 Topic: Patent (The American Inventors Protection Act) 15) In order to be eligible for copyright protection, a tangible writing is required.

Answer: TRUE Diff: 1 Topic: Copyright 16) An author must file an application in order to receive copyright protection.

Answer: FALSE Diff: 2 Topic: Copyright (Registration of Copyrights) 266 .

17) In 1998, the length of copyright protection for an individual holder was extended to the life of the author plus 50 years.

Answer: FALSE Diff: 1 Topic: Copyright (Registration of Copyrights) 18) The Berne Convention is a major international treaty.

Answer: TRUE Diff: 1 Topic: Copyright (Registration of Copyrights) 19) Statutory damages up to $1,000,000 can be awarded by the court in place of actual damages for willful copyright infringements.

Answer: FALSE Diff: 2 Topic: Copyright (Copyright Infringement) 20) The fair use doctrine limits copyright protection to fair public use of those works.

Answer: FALSE Diff: 2 Topic: Copyright (The Fair Use Doctrine) 21) The Digital Millennium Copyright Act prohibits access to copyrighted digital works by circumventing the encryption, even if the work is not misused.

Answer: TRUE Diff: 2 Topic: Internet Law & Online Commerce (Digital Millennium Copyright Act) 22) Trademarks are protected initially for a period of ten years when first granted.

Answer: TRUE Diff: 1 Topic: Trademarks 23) A trademark must be in actual use in commerce before it can be registered.

Answer: FALSE Diff: 2 Topic: Trademark (Federal Lanham Trademark Act) 24) Trade dress is defined as the unauthorized use of another's trademark.

Answer: FALSE Diff: 1 Topic: Trademarks

267 .

25) When a trademark becomes generic, it receives indefinite protection without having to renew, so long as the trademark remains in use.

Answer: FALSE Diff: 1 Topic: Trademark (Generic Names) 26) Which of the following would not be a misappropriation of a trade secret?

A) Paying an engineer who is working at a competitor to disclose the trade secret to you B) Buying the competitor's product, then tearing it apart and analyzing it in your laboratory to reveal the trade secret C) Hiring a spy to break into a competitor's offices to acquire the secret D) Asking one of your current engineers to disclose a trade secret of her former employer, which she then does Answer: B Diff: 2 Topic: Trade Secret 27) Which of the following is true about misappropriation of trade secrets?

A) Although it is not necessary that the trade secret be patented, the secret must be such that it could be patented.

B) The protection for trade secrets does not require action by the holder of the trade secret to protect the secret.

C) The plaintiff can recover only if the defendant acquired the secret through illegal means.

D) Injunctive relief is generally not available.

Answer: C Diff: 2 Topic: Trade Secret (Civil Law: Misappropriation of a Trade Secret) 28) Which of the following is true about misappropriation of trade secrets?

A) A valid patent is required in order to recover.

B) A valid trademark is required in order to recover.

C) Both a valid trademark and valid patent are required in order to recover.

D) Neither a valid trademark nor a valid patent is required in order to recover.

Answer: D Diff: 2 Topic: Trade Secret 29) What obligations does a company have with respect to trade secrets?

A) File for the appropriate patent or copyright, depending on the nature of the trade secret.

B) Take all reasonable steps to prevent the secret from being discovered.

C) File with the Trade Secret Listing of the U.S. Patent and Trademark Office.

D) A and B. Answer: B Diff: 2 Topic: Trade Secret

268 .

30) Patent applications are filed with the: A) State Patent and Trademark Office.

B) World Trade Organization.

C) U.S. Patent and Trademark Office.

D) U.S. State Department Answer: C Diff: 1 Topic: Patent (Federal Patent Statute) 31) The sources of current patent law are: A) State statutes only.

B) State statutes and administrative rulings.

C) The Federal Patent Statute of 1952 and legislation implementing the U.S. Court of Appeals for the Federal Circuit.

D) The Federal Patent Statute of 1952.

Answer: C Diff: 3 Topic: Patent (Federal Patent Statute) 32) Under current law, the statutory period for patent protection begins to run at the time that: A) The inventor finalizes the idea for the patent.

B) A working model for the invention is completed.

C) The patent application is filed.

D) The Patent and Trademark Office issues the patent.

E) The first unit of the patented invention is sold.

Answer: C Diff: 1 Topic: Patent (Patent Period) 33) In order to obtain a patent for an invention, the invention must be all of the following except: A) Novel.

B) Profitable.

C) Nonobvious.

D) Useful.

Answer: B Diff: 2 Topic: Patent (Requirements for Obtaining a Patent) 34) The following can properly be the subject of a patent except: A) Mechanical processes.

B) Machines.

C) Conceptual ideas.

D) Designs for manufactured objects.

Answer: C Diff: 2 Topic: Patent (Patent Application) 269 .

35) One of the provisions of the American Investors Protection Act of 1999 is: A) The power to regulate invention promoters was transferred to the Department of Justice.

B) The legal life of a patent was extended to 20 years.

C) The Patent and Trademark Office must make a decision on a patent application within five years after its filing.

D) Inventors are able to file a provisional application granting provisional rights pending the filing of a final application within three months.

Answer: D Diff: 2 Topic: Patent (The American Inventors Protection Act) 36) In a patent infringement case, which of the following could not be obtained in a civil lawsuit?

A) Money damages that would be equal to a reasonable royalty rate on the sale of the infringed item B) An injunction preventing the infringer from such action in the future C) Liquidation of the infringer's business D) An order requiring the destruction of the infringing articles Answer: C Diff: 2 Topic: Patent (Patent Infringement) 37) The public use doctrine is also called: A) Patent infringement.

B) Public utility.

C) Limited label license doctrine.

D) One-year "on sale" doctrine Answer: D Diff: 2 Topic: Patent (One Year "On Sale" Doctrine) 38) What best describes the public use doctrine relative to patents?

A) Patent protection is lost if the patented item becomes used by the public after the patent is granted.

B) Patents will not be granted for items that have been used by the public for more than one year before the patent application was filed.

C) Patents will be granted only for items that have a legitimate public use.

D) Once a patent is granted, it will be lost if the patented item is not made available to the public within one year after the patent is granted.

Answer: B Diff: 2 Topic: Patent (One Year "On Sale" Doctrine)

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39) Which of the following was the most recent to be recognized as a valid subject for a patent?

A) Machines B) Certain types of business plans C) Original ideas for community improvement D) Processes Answer: B Diff: 2 Topic: Internet Law & Online Commerce (Patenting Business and E-Commerce Methods) 40) Which of the following kinds of intellectual property does not need to be registered in order to be entitled to receive protection?

A) Copyrights B) Patents C) Trademarks D) A and B only Answer: A Diff: 2 Topic: Copyright (Registration of Copyrights) 41) Which of the following is true about what can be copyrighted?

A) Paintings can be copyrighted, but not photographs.

B) Books and newspapers can be copyrighted, but not sermons.

C) Guidebooks can be copyrighted, but not maps.

D) Photographs, maps, and cartoons can all be copyrighted.

Answer: D Diff: 2 Topic: Copyright 42) Which of the following is true about copyrights?

A) Copyright protection lasts for 20 years.

B) Copyright protection is effective only if the work has been properly registered.

C) It is not necessary to mark a work as copyrighted in order for it to be protected.

D) In order to obtain a copyright, work must be novel, useful, and nonobvious.

Answer: C Diff: 1 Topic: Copyright (Registration of Copyrights) 43) A plaintiff in a copyright infringement case can obtain the following except: A) The profits made by the infringer.

B) Destruction of the infringing works.

C) Actual damages.

D) Statutory damages from $200 to $100,000 in place of actual damages.

Answer: D Diff: 2 Topic: Copyright (Copyright Infringement)

271 .

44) Will someone who uses a short section of a copyrighted work in a critical review be subject to copyright infringement?

A) No, because of the fair use doctrine.

B) No, if he obtained the original copyrighted work through legitimate means.

C) Yes, if he did not pay the author for his use of the material.

D) Yes, if he did not obtain permission from the author for his use of the material.

Answer: A Diff: 1 Topic: Copyright (The Fair Use Doctrine) 45) The fair use doctrine would allow the following types of use of a copyrighted work without the permission of he copyright holder, except: A) Quotation in a critical review.

B) Use in a parody.

C) Sale of a single chapter that is the only chapter of interest to most persons in a particular locale.

D) Use by a teacher to illustrate a point in a class.

Answer: C Diff: 1 Topic: Copyright (The Fair Use Doctrine) 46) Which of the following types of intellectual property must be registered in order to receive protection under federal law?

A) Trademarks, copyrights, and patents B) Trademarks, but not copyrights or patents C) Trademarks and copyrights, but not patents D) Trademarks and patents, but not copyrights Answer: D Diff: 2 Topic: Trademark; Patent; Copyright 47) Which of the following is true about trademark registration?

A) Trademark registration is optional because protection is automatic.

B) Once a trademark is registered, protection cannot be lost.

C) A trademark must be registered prior to its actual use in commerce.

D) The registration of a trademark can be renewed an unlimited number of times.

Answer: D Diff: 2 Topic: Trademark (Federal Lanham Trademark Act)

272 .

48) Trademark protection is granted based on whether the trademark is: A) Novel and useful.

B) The original creation of the trademark registrant.

C) Understandable to the general public.

D) Distinctive.

Answer: D Diff: 1 Topic: Trademark (Marks That Can Be Trademarked) 49) All of the following are types of marks that can be registered except: A) Performance marks.

B) Certification marks.

C) Service marks.

D) Trademarks.

Answer: A Diff: 1 Topic: Trademark (Marks That Can Be Trademarked) 50) In a trademark infringement case: A) The plaintiff need prove only that its mark was used in an unauthorized manner.

B) The plaintiff must prove actual damages to prevail in the suit.

C) The plaintiff must prove that the unauthorized use is likely to cause confusion or mistake or is likely to deceive the public about the origin of the goods.

D) Treble damages are not available.

Answer: C Diff: 1 Topic: Trademark (Trademark Infringement) 51) Which of the following is true?

A) Trademark protection can be lost if a trademark becomes used generically.

B) Under the "fair use" doctrine, trademarks can be used in certain limited ways without the trademark holder's permission.

C) Selling a trademarked item to many buyers can result in loss of the trademark.

D) Terms such as "English Leather" cannot be trademarked because they consist only of generic terms.

Answer: A Diff: 2 Topic: Trademark (Generic Names) 52) "Nylon" and "Escalator" are examples of: A) Failure to trademark a name within the required time.

B) Failure to obtain a patent within the required time.

C) Trademarks that have exceeded the period of trademark protection and are now public.

D) Trade names that have become generic.

Answer: D Diff: 1 Topic: Exhibit 22.2 Generic Names 273 .

53) What is the legal consequence of a trademark becoming a generic term?

A) No one can use the term in a name for that type of product.

B) Every seller must use the term to describe that type of product.

C) The fair use doctrine would not apply.

D) The holder of the trademark for the term that has become generic cannot prevent others from using the generic term.

Answer: D Diff: 2 Topic: Trademark (Generic Names) 54) Which of the following is true?

A) Only certain inventions can be patented.

B) Any idea or invention can be patented.

C) Only published works may be copyrighted.

D) Treble damages are available in patent, trademark, or copyright infringement cases.

Answer: A Diff: 3 Topic: Patent (Requirements for Obtaining a Patent) 55) For which of the following is protection able to be extended by filing an application to renew?

A) Patents only.

B) Patents and trademarks.

C) Trademarks only.

D) Copyrights and trademarks.

Answer: C Diff: 2 Topic: Trademark (Federal Lanham Trademark Act) 56) The fair use doctrine applies to: A) Patents only.

B) Patents and trademarks.

C) Copyrights only.

D) Copyrights and trademarks.

Answer: C Diff: 2 Topic: Copyright (The Fair Use Doctrine)

274 .

57) John has invented a device to monitor the tire pressure on bicycle tires. This device consists of a tire pressure sensor on the tire with a radio transmitter and a receiver mounted on the handlebars to give a readout of the pressure. The radio transmitter is similar to existing designs, but one has never been used in this way. The product cannot be produced for less than $120, but John's preliminary marketing studies indicate that the product could not be sold for more than $25. Which of the following is true?

A) John cannot get a patent because the transmitter part is not a new invention.

B) John cannot get a patent because the inability to produce the product at a cost low enough to sell it means that it does not meet the usefulness requirement.

C) John can get a provisional patent that would provide limited protection until he can redesign it so that it can be made for under $25.

D) John can obtain protection for his invention even if someone else files a patent application for the same invention so long as John actually invented his first.

Answer: D Diff: 2 Topic: Patent 58) Donna is on vacation in 2009 in San Francisco. She is a professional photographer and would like to take and sell some photographs of the Golden Gate Bridge. She wants her photographs to be copyrighted, but knows that there are already copyrighted photos of the Golden Gate Bridge taken from almost every angle. In order to gain copyright protection, Donna must: A) Take the photo and apply for copyright protection. There will then be a search to be sure her photo is not too similar to previously copyrighted photos.

B) Take the photo, apply for copyright protection, and wait for the statutory period for anyone to file an objection.

C) Take the photo, select a title for it, and file for copyright protection.

D) Take the photo.

Answer: D Diff: 2 Topic: Copyright

275 .

59) Wildboards Company introduces a product called a "Rollerboard" for which it is granted a registered trademark. The Rollerboard is a snowboard with a removable row of wheels along the center of the underside. With the wheels attached, the user can attain extremely high speed in hard packed snow conditions. In addition, many users have found that they can use their snowboards on streets with the wheels attached. This new use of snowboards becomes very popular and many competing snowboard makers introduce similar products. The sport becomes known generally as rollerboarding and most people refer to all such wheeled snowboards as rollerboards. The consequence of this is that: A) Wildboards cannot prevent competitors from using the term rollerboard to refer to their products.

B) Competitors must pay royalties to Wildboards for using the term "Rollerboard."

C) Wildboards cannot use the name Rollerboard any longer on its boards.

D) Competitors must put a disclaimer on its boards that they are not the original Rollerboard.

Answer: A Diff: 3 Topic: Trademark 60) A ski company markets a ski of a new design that it calls the "Fast Ski" and wants to register a trademark for it. Which of the following is true?

A) These are ordinary words for which a trademark cannot be obtained.

B) If the words have acquired a secondary meaning, trademark protection can be obtained.

C) So long as the words have become associated with this ski, registration is not necessary in order for the name to receive trademark protection.

D) If competitors have marketed similar skis such that the term has become generic, this company will no longer be able to use the name for its skis.

Answer: B Diff: 2 Topic: Trademark 61) Should a drug manufacturer that holds a patent on a drug that is very effective for many AIDS patients be able to sell that drug well above its cost of production during the period of patent protection? If so, under what circumstances? Should these companies sell, or be required to sell, these drugs at lower prices to persons in poor nations that have a larger problem with AIDS than the United States?

Answer: Proponents argue that it is the ability to profit that gives drug companies the incentives to develop these drugs. In addition, although this drug might be selling at a price well above the cost of production, the revenues from successful drugs must cover research and development costs for all drugs as well as other costs for drugs that turn out to be unprofitable. On the other hand, many believe that if a company can sell a drug and not suffer a loss (although profits will be reduced), it should sell at the lower price to reduce the suffering and death in society. More difficult is whether the companies should be required to sell the drugs at lower prices in poor nations with a large incidence of AIDS. One factor might be whether the increased volume that would result (though lower profit per unit of sale) would have an effect on the price charged for the drug in other nations.

Diff: 2

276 .

62) What changes should be made to copyright law to reflect the ease with which much creative material can be reproduced and distributed over the Internet? What concerns are there with any such law?

Answer: Perhaps the fair use doctrine will need to be modified. Perhaps there should be rigid guidelines as to what type of reproduction and distribution is permissible. A major concern is the difficulty of enforcement, and the ever-expanding technological capabilities to both properly and improperly reproduce and distribute material. The attempts by music recording companies to shut down Web sites that allow exchange and reproduction of copyrighted material illustrate some of the difficulties in addressing this issue.

Diff: 3 63) Monty was an odd sort of fellow who spent most of his time tinkering in his garage. He was certain that some day he would invent something that would make him very wealthy. Finally, he thinks he has the million-dollar idea. He has invented a device that attaches to both his phone line and through his computer to the Internet to block telemarketing calls without having to pay a service fee for the capability to the local phone company. The technology for this already existed, but Monty was the first to put it together in this way. Monty is waiting to perfect this invention before filing a patent application. Monty learns that someone else has invented a similar device after he did, but has already filed an application. Also, someone broke into Monty's garage and stole the information about the invention. Discuss Monty's legal situation.

Answer: Even though Monty has not patented his invention, his trade secrets are protected from being taken by illegal means. Monte would receive the patent so long as he can prove that he did, in fact, invent the device first.

Diff: 2 Topic: Patents 64) Henry writes a series of essays that have an environmental focus. One of these essays contains a very detailed description of the workings of a forest ecosystem. A national environmental organization opposed to logging in certain areas has copied this essay and includes it in materials that the group gives to members of the public in hopes of persuading those persons to join the opposition to logging in these areas. Henry has never wanted his work to be forced onto people and objects to his essay being copied and distributed like this. He is afraid persons will think he is part of this organization, and he does not want his essay used this way. Is this within fair use?

Answer: The use of Henry's essay could be considered "educational," and it was not for profit, making it likely to qualify as fair use, but the degree of use here might go beyond the limits of fair use.

Diff: 3 Topic: Copyrights

277 .

65) Billy has created a device called a Trailboard. It is essentially a skateboard with two pairs of large, relatively soft wheels, designed to be used for descending hiking trails. The wheels are similar to those on other skateboards and are mounted in the same way, but are simply larger in diameter and have a knobby tread. Billy made his first trailboard two years ago, and has made several more over the past couple of years in attempts to perfect it. He has given several of these to friends in order to get their feedback and suggestions. Billy wants to obtain a patent for the Trailboard, and a trademark for the name Trailboard. He is worried about the patent because a friend told Billy that she had seen a similar device on a trail recently. Billy wants to obtain a copyright for the book he wrote on Trailboard techniques. Discuss Billy's legal situation.

Answer: Billy could obtain a patent for the Trailboard, so long as it meets the requirements of being novel, useful, and nonobvious, although simply attaching larger wheels might be viewed as "obvious." Billy would have to determine if someone else invented it before he did, and would need to be able to prove when he invented his. "Trailboard" could be trademarked so long as it would not be likely to cause confusion with existing marks. Although the two parts of the name are ordinary words, the combination into one name would probably be acceptable to trademark.

If the product becomes popular, he would need to beware of "Trailboard" becoming generic.

Billy already has copyright protection for the book, but might want to register the copyright, and should mark it as copyrighted so others could not claim an infringement was innocent.

Diff: 2 Topic: Trademarks 66) Product formulas, patterns, designs, compilations of data, or customer lists are considered ________.

Answer: Trade secrets 67) Patents, copyrights, and trademarks are all types of ________.

Answer: Intellectual property 68) Patent applicants must file a patent application with the ________ in Washington, D.C. Answer: United States Patent and Trademark Office 69) The ________ doctrine says that a patent may not be granted if the invention was used by the public for more than one year prior to the filing of the application.

Answer: Public Use 70) The ________ is an international copyright treaty.

Answer: Berne Convention 71) The ________ doctrine permits limited use of a nonpermitted copyright.

Answer: Fair Use 72) The ________ is the federal statute establishing the requirements for obtaining a federal mark and protects marks from infringement.

Answer: Lanham Trademark Act 73) A brand name that is unique and fabricated is said to be ________.

Answer: Distinctive 278 .

74) ________ is the collective name for trademarks, service marks, certification marks, and collective marks that can all be trademarked.

Answer: Mark 75) A ________ is a distinctive mark, symbol, name, word, motto, or device that identifies the goods of a particular business.

Answer: Trademark 76) A ________ is a mark that distinguishes the services of the holder from those of its competitors.

Answer: Service Mark 77) A trademark that becomes a common term for a product line or type of service is called a ________.

Answer: Generic Name 78) Patents require inventions to be ________, ________ and ________.

Answer: novel; useful; non-obvious 79) With respect to patents, the United States still follows the ________ rule, rather than the ________ rule.

Answer: first-to-invent; first-to-file 80) Patents for inventions are valid for ________, while design patents are valid for ________.

Answer: 20 years; 14 years

279 .

Chapter 23 Antitrust Law and Unfair Trade Practices 1) Congress enacted antitrust laws in response to monopolistic and anticompetitive behavior in basic industries such as oil, steel, and several other industries after the United States entered the industrial age.

Answer: TRUE Diff: 1 Topic: Landmark Law (Federal Antitrust Statutes) 2) The United States Constitution prohibits monopolistic business practices.

Answer: FALSE Diff: 2 Topic: Landmark Law (Federal Antitrust Statutes) 3) The aggressiveness with which antitrust laws are enforced differs considerably based on the politics of the President of the United States.

Answer: TRUE Diff: 1 Topic: Federal Antitrust Law 4) Of the major antitrust statutes, only the Sherman Act provides for criminal penalties.

Answer: TRUE Diff: 1 Topic: Federal Antitrust Law (Government Actions) 5) All federal criminal antitrust enforcement is done by the Justice Department.

Answer: FALSE Diff: 1 Topic: Federal Antitrust Law (Government Actions) 6) The government can recover treble damages for antitrust violations.

Answer: TRUE Diff: 1 Topic: Federal Antitrust Law (Government Actions) 7) A private antitrust civil treble damage action must be brought within three years from the date that the injury occurred.

Answer: FALSE Diff: 1 Topic: Federal Antitrust Law (Private Actions)

280 .

8) The four-year statute of limitations for antitrust civil suits does not apply to a suit by the government.

Answer: TRUE Diff: 1 Topic: Federal Antitrust Law (Private Actions) 9) Private civil actions can be brought for antitrust injuries in violation of the Sherman Act. Answer: FALSE Diff: 1 Topic: Federal Antitrust Law (Private Actions) 10) The Federal Trade Commission Act is often referred to as the "Magna Carta of free enterprise."

Answer: FALSE Diff: 1 Topic: Restraints of Trade: Section 1 of the Sherman Act 11) When determining the legality of a restraint of trade activity the U.S. Supreme Court will apply the rule of reason test or the per se rule.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Rule of Reason and Per Se Rule) 12) Under the rule of reason for violations under the Sherman Act, certain restraints of trade can be legal in some circumstances, and illegal in others.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Rule of Reason and Per Se Rule) 13) Under the Sherman Act, certain horizontal price-fixing arrangements are allowed under the rule of reason.

Answer: FALSE Diff: 1 Topic: Restraints of Trade: Section 1 of the Sherman Act (Price-Fixing) 14) Horizontal restraints of trade generally involve concerted action among competitors.

Answer: TRUE Diff: 1 Topic: Restraints of Trade: Section 1 of the Sherman Act (Horizontal Restraints of Trade) 15) Vertical restraint of trade differs from horizontal restraint of trade in that vertical restraint of trade occurs when two or more competitors at the same level enter into antitrust activities and horizontal restraint of trade occurs when two or more competitors at different levels of distribution enter into antitrust activities.

Answer: FALSE Diff: 2 Topic: Restraints of Trade: Section 1 of the Sherman Act (Horizontal Restraints of Trade) 281 .

16) Today, resale price maintenance is a per se violation for both price floors and price ceilings.

Answer: FALSE Diff: 1 Topic: Restraints of Trade: Section 1 of the Sherman Act (Resale Price Maintenance) 17) A firm can unilaterally decide not to deal with another firm without violating the law.

Answer: TRUE Diff: 2 Topic: Restraints of Trade: Section 1 of the Sherman Act (Defense: Unilateral Refusal to Deal) 18) The Noerr Doctrine allows competitors to jointly develop desirable products without being found in violation of antitrust laws.

Answer: FALSE Diff: 2 Topic: Restraints of Trade: Section 1 of the Sherman Act (Defense: Noerr Doctrine) 19) In a Sherman Act Section 2 action, a court must define both the relevant geographic market and the relevant product or service market.

Answer: TRUE Diff: 2 Topic: Monopolization: Section 2 of the Sherman Act 20) Under Section 2 of the Sherman Act, possession of monopoly power is wrongful regardless of how the monopoly power was obtained.

Answer: FALSE Diff: 2 Topic: Monopolization: Section 2 of the Sherman Act (Monopoly Power) 21) When determining the product or service market in an action under Section 7 of the Clayton Act, the courts apply the functional interchangeability test.

Answer: TRUE Diff: 1 Topic: Mergers: Section 7 of the Clayton Act (Line of Commerce) 22) Proof of actual lessening of competition must be shown in a Clayton Act Section 7 action.

Answer: FALSE Diff: 1 Topic: Mergers: Section 7 of the Clayton Act 23) A merger between General Motors Corporation and Ford Motor Company would be an example of a horizontal merger.

Answer: TRUE Diff: 1 Topic: Mergers: Section 7 of the Clayton Act (Types of Mergers)

282 .

24) Section 7 of the Clayton Act applies to mergers where the effect of such acquisition may be to substantially lessen competition or tends to create a monopoly.

Answer: TRUE Diff: 1 Topic: Mergers: Section 7 of the Clayton Act (Probability of Substantial Lessening of Competition) 25) A market extension merger is a merger between two companies in similar fields whose sales do not overlap.

Answer: TRUE Diff: 1 Topic: Mergers: Section 7 of the Clayton Act (Types of Mergers) 26) The potential competition theory can be used under the Clayton Act to prevent mergers of companies that do not currently compete in each other's markets, but are determined to have the potential to compete with one another.

Answer: TRUE Diff: 2 Topic: Mergers: Section 7 of the Clayton Act (Probability of Substantial Lessening of Competition) 27) The failing company doctrine can be used to allow a merger that would otherwise be illegal if the failing company would have ceased to exist without the merger.

Answer: TRUE Diff: 1 Topic: Mergers: Section 7 of the Clayton Act (Defenses to Section 7 Actions) 28) A tying arrangement is an advance agreement to commit to purchasing a fixed quantity of goods.

Answer: FALSE Diff: 1 Topic: Tying Arrangements: Section 3 of the Clayton Act 29) Section 2 of the Clayton Act is also referred to as the Robinson-Patman Act. Answer: TRUE Diff: 1 Topic: Price Discrimination: Section 2 of the Clayton Act 30) It is a per se violation of the Robinson-Patman Act to charge different prices to different customers for the same product.

Answer: FALSE Diff: 2 Topic: Price Discrimination: Section 2 of the Clayton Act

283 .

31) To prove a violation of Section 2 of the Clayton Act, a plaintiff must only prove that the defendant sold commodities of like grade and quality to two or more purchasers at different prices at approximately the same time.

Answer: FALSE Diff: 2 Topic: Price Discrimination: Section 2 of the Clayton Act 32) Examples of indirect price discrimination that violate the Robinson-Patman Act include favorable credit terms and freight charges.

Answer: TRUE Diff: 1 Topic: Price Discrimination: Section 2 of the Clayton Act 33) The meeting-the-competition defense allows a seller to lower his price to certain buyers to a level below that of his competitor even if it is discriminatory.

Answer: FALSE Diff: 1 Topic: Price Discrimination: Section 2 of the Clayton Act (Defenses to Price Discrimination) 34) In order to be in violation of Section 5 of the Federal Trade Commission Act, the party must also be in violation of another provision of the antitrust laws.

Answer: FALSE Diff: 2 Topic: Landmark Law (Federal Trade Commission Act) 35) A party can violate Section 5 of the Federal Trade Commission Act by violating the "spirit" of the antitrust laws, even though no specific provision of the antitrust laws is violated.

Answer: TRUE Diff: 2 Topic: Landmark Law (Federal Trade Commission Act) 36) Professional baseball and football have been found to be exempt from antitrust laws.

Answer: FALSE Diff: 1 Topic: Exemptions from Antitrust Laws 37) The primary source of the antitrust laws is: A) The United States Constitution.

B) The Uniform Commercial Code.

C) The Federal Trade Commission.

D) Federal statutes.

Answer: D Diff: 1 Topic: Introduction to Antitrust Law and Unfair Trade Practices

284 .

38) Which of the following is not one of the antitrust statutes?

A) The Sherman Act B) The Clayton Act C) The Federal Trade Commission Act D) The Fair Competition Regulation Act Answer: D Diff: 2 Topic: Landmark Law (Federal Antitrust Statutes) 39) The antitrust laws were passed in response to general changes in the national business environment caused by: A) The United States gaining independence from England.

B) The expansion of the United States west of the Mississippi River following the Louisiana Purchase.

C) The industrialization in the latter part of the 1800s and the rise of industrial trusts.

D) The stock market crash of 1929 and the Great Depression.

Answer: C Diff: 2 Topic: Landmark Law (Federal Antitrust Statutes) 40) Which of the following statements is not true?

A) Only the government can bring an action under antitrust law.

B) Private parties, including injured consumers, may enforce the antitrust laws.

C) The antitrust laws provide for both criminal and civil sanctions.

D) A judgment in a government antitrust case may be used as a prima facie case in a private action.

Answer: A Diff: 2 Topic: Federal Antitrust Law (Private Actions) 41) Under which of the following acts can a plaintiff not recover treble damages?

A) The Sherman Act B) The Clayton Act C) The Robinson-Patman Act D) The Federal Trade Commission Act Answer: D Diff: 1 Topic: Landmark Law (Federal Trade Commission Act)

285 .

42) What is the usual effect of a nolo contendere plea by the defendant in a government antitrust case?

A) A penalty imposed on the defendant without an admission of guilt.

B) A penalty imposed on the defendant without an admission of guilt and automatic liability to any private plaintiffs in related cases.

C) A requirement that a defendant cease business in the line of business or market where the violation occurred.

D) An admission of guilt accompanied by a lighter penalty than if a verdict of guilty was issued following a trial.

Answer: A Diff: 3 Topic: Federal Antitrust Law (Effect of a Government Judgment) 43) Which of the following is true about restraints of trade?

A) Under the per se rules, all restraints of trade are illegal.

B) Under the rule of reason, all restraints of trade are illegal.

C) Some acts are illegal per se, but other actions must be judged by the rule of reason.

D) Horizontal price fixing is always judged by the rule of reason.

Answer: C Diff: 2 Topic: Contemporary Environment (Rule of Reason and Per Se Rule) 44) What is the legal significance of the distinction between rule of reason violations and per se violations under the Sherman Act? A) Rule of reason violations must be proven beyond a reasonable doubt and per se violations must be proven with a preponderance of the evidence.

B) Rule of reason violations require an agreement with at least one other party, but per se violations can occur without an agreement with others.

C) Rule of reason violations relate to horizontal situations, and per se violations relate to vertical situations.

D) Rule of reason violations might be proven to be acceptable, but per se violations cannot be acceptable under any circumstances.

Answer: D Diff: 3 Topic: Contemporary Environment (Rule of Reason and Per Se Rule) 45) Horizontal price fixing occurs when: A) One or more companies charge the same prices for goods at all their stores for an unreasonable length of time.

B) A manufacturer requires its independent dealers to sell its products at a given price.

C) A company with the entire market on a patented product sells the product at a fixed price.

D) Two or more competing companies agree on the prices to charge for their products.

Answer: D Diff: 3 Topic: Restraints of Trade: Section 1 of the Sherman Act (Price-Fixing)

286 .

46) Horizontal division of markets can be a per se violation of the Sherman Act if it is based on: A) Geography.

B) Customers.

C) Products.

D) A, B, and C. Answer: D Diff: 2 Topic: Restraints of Trade: Section 1 of the Sherman Act (Division of Markets) 47) Resale price maintenance occurs when: A) A retailer refuses to lower its price even though competitors have lowered their prices.

B) A wholesaler refuses to offer volume discounts to its high volume customers.

C) A manufacturer sells its products only to those dealers who agree to charge a certain price for the product's resale.

D) A manufacturer sells its products to its dealers for the same price in all states even though the retail market is much more competitive in some states than in others.

Answer: C Diff: 3 Topic: Restraints of Trade: Section 1 of the Sherman Act (Resale Price Maintenance) 48) Which of the following is not a defense to Section 1 of the Sherman Act? A) Unilateral refusal to deal B) Innocent acquisition C) Conscious parallelism D) Noerr doctrine Answer: B Diff: 2 Topic: Restraints of Trade: Section 1 of the Sherman Act 49) Which of the following best describes the activities allowable under the Noerr doctrine?

A) Competitors can work together to lobby for passage of laws without being in violation of the antitrust laws.

B) Competitors can agree on the prices at which they will sell their products when the agreement results in lower prices for consumers.

C) Mergers will be allowed under the antitrust laws when one of the companies would have failed in the absence of a merger.

D) A company is free to compete or not compete with any other business, so long as the decision is made unilaterally.

Answer: A Diff: 2 Topic: Restraints of Trade: Section 1 of the Sherman Act (Defense: Noerr Doctrine)

287 .

50) To be guilty of monopolization, the defendant must: A) Possess monopoly power.

B) Have obtained the monopoly power by some improper act or be abusing the monopoly power.

C) Must be part of a conspiracy, combination or contract.

D) A and B only.

Answer: D Diff: 1 Topic: Monopolization: Section 2 of the Sherman Act 51) Under Section 2 of the Clayton Act, rather than making a presumption whether monopoly power exists, the courts will examine all the facts and circumstances to determine whether monopoly power exists when the defendant holds between ________ percent and ________ percent of the relevant market: A) 30; 80 B) 20; 70 C) 0; 50 D) 33; 70 Answer: B Diff: 2 Topic: Monopolization: Section 2 of the Sherman Act (Monopoly Power) 52) What is predatory pricing under Section 2 of the Sherman Act? A) Any pricing designed to increase a firm's market share in the relevant market B) Any pricing that a competitor cannot meet and remain profitable C) Any pricing below marginal or average cost intended to drive out competition D) Any pricing where competitors agree on the price to be charged Answer: C Diff: 2 Topic: Monopolization: Section 2 of the Sherman Act (Willful Act of Monopolizing) 53) In determining the lawfulness of a merger, which of the following factors need not be shown?

A) An actual lessening of competition B) The relevant product market C) The relevant geographic market D) The likelihood of a substantially lessening of competition or the tendency to create a monopoly Answer: A Diff: 2 Topic: Mergers: Section 7 of the Clayton Act

288 .

54) Which of the following is not a type of merger recognized under Section 7 of the Clayton Act? A) Horizontal merger B) Vertical merger C) Product extension merger D) Conglomerate merger Answer: C Diff: 2 Topic: Mergers: Section 7 of the Clayton Act (Types of Mergers) 55) Determining the line of commerce that will be affected by the merger involves defining the relevant: A) Geographical market.

B) Product or service market.

C) Section of the country.

D) A, B, and C. Answer: B Diff: 2 Topic: Mergers: Section 7 of the Clayton Act (Line of Commerce) 56) A market extension merger can exist: A) If the geographic market is extended.

B) If the product market is extended.

C) If either the product market or the geographic market is extended.

D) Only if both the geographic and the product market are extended in the merger.

Answer: C Diff: 1 Topic: Mergers: Section 7 of the Clayton Act (Types of Mergers) 57) The following are required to be proven in order to use the failing company doctrine except: A) That there is no other reasonable alternative for the failing company.

B) That no other purchaser is available.

C) That the failure of the failing company is not due to negligence of its management.

D) That the assets of the failing company would disappear from the market without the merger.

Answer: C Diff: 3 Topic: Mergers: Section 7 of the Clayton Act (Defenses to Section 7 Actions) 58) The Hart-Scott-Rodino Antitrust Improvement Act led to rules requiring: A) That certain activities are classified as per se violations.

B) That failing companies be rescued through mergers whenever possible.

C) That violators of antitrust laws be liable for treble damages.

D) That the Federal Trade Commission and the Justice Department be notified in advance of any merger involving certain firms.

Answer: D Diff: 2 Topic: Mergers: Section 7 of the Clayton Act (Premerger Notification) 289 .

59) Which of the following best describes a tying arrangement?

A) Two companies jointly market their products of services.

B) A seller requires the purchase of one product or service in order to be able to purchase a second product or service.

C) A seller sets her price according to a market index.

D) A seller offers a volume discount for purchases of large quantities.

Answer: B Diff: 2 Topic: Tying Arrangements: Section 3 of the Clayton Act 60) Which of the following is true about tying arrangements?

A) Tying arrangements are always illegal.

B) Tying arrangements are always legal.

C) Tying arrangements are legal for companies without monopoly power and illegal for companies with monopoly power.

D) Tying arrangements are illegal unless there is a justifiable reason for the seller to have the tying arrangement.

Answer: D Diff: 2 Topic: Tying Arrangements: Section 3 of the Clayton Act 61) Which of the following is not a defense to a price discrimination charge?

A) Cost justification.

B) Failing company.

C) Changing conditions.

D) Meeting the competition.

Answer: B Diff: 2 Topic: Price Discrimination: Section 2 of the Clayton Act (Defenses to Price Discrimination) 62) Which of the following is not a basis for an unfair competition claim under Section 5 of the Fair Trade Commission Act? A) The action violates a provision of the Sherman Act. B) The action violates the "spirit" of the antitrust laws.

C) The action allows the party to earn excessive profits.

D) The action violates public policy.

Answer: C Diff: 2 Topic: Landmark Law (Federal Trade Commission Act)

290 .

63) Which of the following describes Section 5 of the Federal Trade Commission Act? A) A law that is violated by violating the Sherman Act B) A law that is violated by violating the Clayton Act C) A law making many acts or practices illegal that are not illegal under the antitrust laws D) A, B, and C. Answer: D Diff: 1 Topic: Landmark Law (Federal Trade Commission Act) 64) Which of the following organizations is exempt from the antitrust laws?

A) Labor unions B) Railroads C) Businesses that are substantially regulated by the states D) A, B, and C. Answer: D Diff: 2 Topic: Exemptions from Antitrust Laws 65) Bargain Basement, Inc., is a discount retailer. It buys brand name products from various manufacturers and sells them at below the suggested retail price. This practice has angered some of those manufacturers who believe that their products are high quality and should not be sold at bargain basement prices. Several of those manufacturers agree that they will no longer sell their products to Bargain Basement. This action is: A) Legal, because it was unilateral.

B) Legal, because it was reasonable under the rule of reason.

C) An illegal group boycott.

D) An illegal horizontal market division.

Answer: C Diff: 2 Topic: Restraints of Trade: Section 1 of the Sherman Act (Group Boycott) 66) A clothing maker requires the retailers it deals with to sell all the clothing at a fixed price. In examining a retailer's challenge to this practice, a court would.

A) Examine this arrangement on a rule of reason basis.

B) Invalidate the arrangement in its entirety.

C) Certainly allow the retailer to sell the clothes for less than the stated price, but examine whether or not the retailer could sell at higher than the stated price using a rule of reason analysis.

D) Allow the arrangement only if neither party possessed monopoly power.

Answer: C Diff: 3 Topic: Contemporary Environment (Rule of Reason and Per Se Rule)

291 .

67) A manufacturer makes two products, Axobos and Belandos. Axobos are in very high demand, but Belandos are not. The manufacturer requires everyone who wants to buy any Axobos to also buy some Belandos. This action is: A) Horizontal price fixing.

B) A horizontal market division.

C) Vertical price fixing.

D) A tying arrangement.

Answer: D Diff: 2 Topic: Tying Arrangements: Section 3 of the Clayton Act 68) Marvin Airlines is an established airline that is suddenly experiencing competition from a new airline, Cheapflites, in some of its markets. Cheapflites is a no-frills airline that has a marketing policy that all of its tickets are fully refundable. Marvin Airlines has rescheduled many of its flights to leave 15 minutes later than the Cheapflites flight for the same route. Prior to the departure of each Cheapflites flight, a Marvin employee goes to the Cheapflites waiting area with a megaphone and announces that they will allow Cheapflites passengers to fly on Marvin for $10 less than the cost of their Cheapflites ticket and get full service as a bonus.

Because the Cheapflites tickets are fully refundable, most Cheapflites passengers accept the offer. Under the antitrust and unfair competition laws, which of the following is most likely true?

A) Marvin will not be in violation of any laws unless it has monopoly power.

B) Marvin will not be in violation of any laws unless it has agreed with at least one other airline to engage in this activity.

C) This is an illegal tying arrangement because Marvin makes its offer only to those people who also have a Cheapflites ticket.

D) Marvin is likely in violation of Section 5 of the Federal Trade Commission Act even if it is not in violation of the specific provisions of the antitrust laws.

Answer: D Diff: 2 Topic: Landmark Law (Federal Trade Commission Act) 69) Are there any special antitrust concerns that arise when one product becomes standardized and a basis for other products, such as a computer operating system that becomes the basis for software applications?

Answer: There has been much debate on this issue. One view is that the one product, such as the operating system, develops into a natural monopoly that should be regulated. Others argue that because others remain free to enter the market, there is not really an abuse of monopoly power.

Diff: 2 70) Many laws require a determination of actual injury before liability or guilt is determined. Is it fair that under the Clayton Act a merger may be prevented merely because the merger is "likely" to substantially lessen competition or create a monopoly? Whether or not you agree with this requirement, why do you think it was put into place?

Answer: Once a merger is allowed, in most circumstances it could not be reversed. Thus, an evaluation of potential injury is probably the best way to avoid injury.

Diff: 2 292 .

71) With the increased globalization of business, and the lowering of trade barriers through agreements such as the North American Free Trade Agreement, should the determination of the relevant market be modified? For products or services where there are foreign firms competing in the United States market, are the antitrust laws obsolete?

Answer: The general approach is the same, except that the courts must be sure to consider worldwide competitors in evaluating monopoly power. Foreign competition does not make the antitrust laws obsolete, although the presence of foreign competition might result in a company not having monopoly power where it would have had monopoly power without the foreign competition.

Diff: 3 72) Assume that in Colorado the ski resorts can be classified as "large" and "small" and that there are 12 large and 15 small resorts. Some owners own more than one resort. Assume that there are two owners, each of whom owns two large resorts, who plan to merge. Currently, each owner's two resorts have approximately 15-20 percent of the Colorado ski market. Each owner's two resorts have about 30-35 percent of the Colorado Front Range day skier market (people from the Colorado Springs, Denver, and Fort Collins areas who drive to a resort, ski, and drive home all in one day). Assume that Colorado resorts combined have about 40 percent of the Rocky Mountain ski market and about 15 percent of the national ski market. Will the merger be allowed?

Answer: The crucial factor in the analysis is the relevant product and geographic market. It could be defined as narrowly as the day skier market from the Front Range area of Colorado, to as broadly as the United States (or even North American) ski market. The line of commerce test would probably be downhill skiing and snowboarding, but could possibly be more broadly defined as winter recreation, or something else.

Diff: 3 73) A car manufacturer was selling several lines of cars, all of which did not include any radios, or tape or CD players as standard equipment. Fewer and fewer customers were purchasing cars with the optional sound system because the manufacturer's sound systems were overpriced and of inferior quality compared to available aftermarket systems. In fact, some dealers had begun to order all cars with no sound system and install higher quality systems at the dealerships. This manufacturer's cars were popular, so the manufacturer suddenly made a radio tape player standard on its less expensive models and a radio CD player standard on its more expensive models. It raised the prices of the cars by the amount that had previously been charged for the options. At the same time, the manufacturer changed the shape and installation of the sound systems so that no current aftermarket systems could be installed neatly into the dashboard.

Discuss any possible antitrust law violations.

Answer: If the cars and sound systems are considered to be separate products, this could be viewed as an illegal tying arrangement. The design modifications complicating installation of other sound systems might be a Section 2 violation. There are some parallels to the Microsoft case, including whether Web browsers are separate products from operating systems.

Diff: 3 Topic: Section 3 of the Clayton Act--Tying Arrangements

293 .

74) Michael Bordon, a superstar NBA basketball player, has decided to sue the NBA for imposition of a salary cap on annual salaries of each NBA franchise. His claim is that the salary cap violates the antitrust laws. Do you agree? Explain.

Answer: No. Although a salary cap would be anticompetitive, it was negotiated as part of a collective bargaining process dealing with a mandatory item of bargaining in an arms-length situation. This meets all of the criteria for the nonstatutory labor exemption and thus is exempt from the antitrust laws.

Diff: 3 Topic: Special Issues 75) All of the restricted earnings coaches of NCAA member college basketball teams had their salaries restricted to a maximum of $16,000 per year under an agreement between the schools and the NCAA. Was there a violation of the antitrust laws present? Explain.

Answer: Yes, since this involved the setting of a maximum price for a service, this was price fixing and it was illegal.

Diff: 3 Topic: Special Issues 76) The ________ holds that any unreasonable restraints of trade are illegal.

Answer: Rule of Reason 77) ________ restraints of trade are those that are considered inherently anticompetitive.

Answer: Per se 78) A horizontal restraint of trade occurs when two or more ________ at the same level of distribution enter into a contract, combination, or conspiracy to restrain trade.

Answer: Competitors 79) ________ occurs where competitors in the same line of business agree to set the price of the goods or services they sell.

Answer: Horizontal price fixing 80) When two or more competitors at one level of distribution agree not to deal with others at another level of distribution, they have entered into a ________.

Answer: Group boycott 81) ________ involves two or more firms acting the same but without a showing of concerted action.

Answer: Conscious parallelism 82) ________ is the power to control prices or exclude competition.

Answer: Monopoly power 83) The Hart-Scott-Rodino Antitrust Improvement Act requires certain firms to notify the ________ and the ________ in advance of a proposed merger.

Answer: FTC and Justice Department 294 .

84) A ________ merger is a merger between two or more companies that compete in the same business and geographical market.

Answer: Horizontal 85) A vertical merger in which the customer acquires the supplier is a ________ merger.

Answer: Backward vertical 86) A ________ merger is a merger between two companies in similar fields whose sales do not overlap.

Answer: Market expansion 87) A ________ is a restraint of trade where a seller refuses to sell one product to a customer unless the customer agrees to purchase a second product from the seller.

Answer: Tying arrangement 88) ________ is the charging of different prices to different customers for the same product without any justification.

Answer: Price discrimination 89) ________ are exemptions from antitrust laws that are expressly provided in statutes enacted

by Congress.

Answer: Statutory exemptions

295 .

Chapter 24 Consumer Protection and Global Product Safety 1) The Federal Trade Commission has the power to bring enforcement actions under the Food, Drug, and Cosmetic Act. Answer: FALSE Diff: 1 Topic: Landmark Law (Food, Drug, and Cosmetic Act) 2) Federal law prohibits selling any food that contains any impurities.

Answer: FALSE Diff: 1 Topic: Contemporary Environment (Safety of Foods) 3) The FDA can withdraw approval for a drug even after the approval process is complete.

Answer: TRUE Diff: 1 Topic: Food, Drug and Cosmetic Safety (Regulation of Drugs) 4) The Consumer Product Safety Commission is part of the Food and Drug Administration.

Answer: FALSE Diff: 1 Topic: Product Safety 5) The Consumer Product Safety Commission is empowered to conduct research on the safety of consumer products.

Answer: TRUE Diff: 1 Topic: Product Safety 6) State lemon laws protect consumers from injury caused by adulterated citrus products.

Answer: FALSE Diff: 1 Topic: Ethics Spotlight (State Lemon Laws) 7) For advertising to be held deceptive, an actual case of deception must be proved.

Answer: FALSE Diff: 1 Topic: Unfair and Deceptive Practices (False and Deceptive Advertising)

296 .

8) Bait and switch advertising is a deceptive advertising practice according of the Federal Trade Commission.

Answer: TRUE Diff: 1 Topic: Unfair and Deceptive Practices (Bait and Switch) 9) A consumer who disagrees with an item in a credit reporting agency's files can submit a 100word written statement about the item and that statement must become part of the consumer's credit file.

Answer: TRUE Diff: 2 Topic: Credit Reporting, Billing, and Collection Laws 10) Many food processors in the United States and elsewhere around the world genetically modify some foods.

Answer: TRUE Diff: 2 Topic: International Law (United Nations Biosafety Protocol for Genetically Altered Foods) 11) Telemarketers have six months from the date on which a consumer signs up for the Do Not Call Registry to remove the customer's phone number from their sales call list.

Answer: FALSE Diff: 2 Topic: Internet Law & Online Commerce (Do-Not-Call Registry) 12) The usual time period to rescind a sale make via door-to-door sales solicitation is three days.

Answer: TRUE Diff: 2 Topic: Unfair and Deceptive Practices (Door-to-Door Sales) 13) Statements of opinion do not constitute false and deceptive advertising.

Answer: TRUE Diff: 2 Topic: Unfair and Deceptive Practices (False and Deceptive Advertising) 14) The Federal Trade Commission issues product safety standards for consumer products that pose unreasonable risk of injury.

Answer: FALSE Diff: 2 Topic: Product Safety 15) The FDA has the authority to regulate medical devices.

Answer: TRUE Diff: 2 Topic: Food, Drug, and Cosmetic Safety (Regulation of Medical Devices)

297 .

16) Potential cosmetics are often tested on animals in order to determine whether they can be safely used on humans.

Answer: TRUE Diff: 2 Topic: Ethics Spotlight (Animal Testing) 17) Ordinary household soap would fall under the definition of a cosmetic, according to the FDA. Answer: FALSE Diff: 2 Topic: Food, Drug, and Cosmetic Safety (Regulation of Cosmetics) 18) Labeling on fruits, vegetables, and fish is voluntary.

Answer: TRUE Diff: 2 Topic: Food, Drug, and Cosmetic Safety (Food Labeling) 19) The Federal Food, Drug, and Cosmetic Act was passed in: A) 1906.

B) 1933.

C) 1938.

D) 1946.

Answer: C Diff: 1 Topic: Landmark Law (Food, Drug, and Cosmetic Act) 20) The federal Food, Drug, and Cosmetic Act is enforced by lawsuits brought by: A) The Federal Trade Commission.

B) The Department of Agriculture.

C) The Consumer Product Safety Commission.

D) The Department of Justice.

Answer: D Diff: 1 Topic: Landmark Law (Food, Drug, and Cosmetic Act) 21) Under the federal rules regulating food and drugs: A) Food must be 100 percent pure before it can be sold to consumers.

B) Food may contain certain impurities, such as insect parts, as long as it is not adulterated.

C) If a food contains impurities, such as insect parts, these impurities must be disclosed on the food label.

D) All food must be inspected by the government before it is sold.

Answer: B Diff: 2 Topic: Contemporary Environment (Safety of Foods)

298 .

22) Which of the following is required under the Biosafety Protocol sponsored by the United Nations in the year 2000?

A) Nations are free to prohibit the import of genetically altered foods without violating free trade agreements.

B) Genetically altered foods must be shipped in separate containers from foods that are not genetically altered.

C) All genetically altered foods must be clearly labeled as such.

D) Whenever genetically altered foods are offered for sale, comparable food that is not genetically altered must be made available at a comparable price.

Answer: C Diff: 2 Topic: International Law (United Nations Biosafety Protocol for Genetically Altered Foods) 23) Which of the following is true about the FDA regulation of drugs?

A) The FDA has the power to regulate prescription drugs only.

B) The FDA conducts hearings in connection with new drug applications.

C) Once approved, the FDA does not have the power to withdraw approval of a drug.

D) New drugs can be marketed prior to FDA approval so long as the drugs have no dangerous side effects.

Answer: B Diff: 2 Topic: Food, Drug and Cosmetic Safety (Regulation of Drugs) 24) Which of the following is not regulated by the FDA? A) Eye shadow B) Lipstick C) Facial makeup D) Ordinary household soap Answer: D Diff: 1 Topic: Food, Drug, and Cosmetic Safety (Regulation of Cosmetics) 25) Which of the following did the FDA not have authority to regulate until 1976?

A) Organic foods B) Medicinal devices C) Food additives D) Artificial sweeteners Answer: B Diff: 2 Topic: Food, Drug, and Cosmetic Safety (Regulation of Medical Devices)

299 .

26) Which of the following is not required under the Nutrition Labeling and Education Act? A) Sellers of most food must provide information on fat content and fiber.

B) The terms "light," "natural," and similar terms must be used only in accordance with specific definitions.

C) Maximum fat and saturated fat levels are set for certain foods.

D) Calories derived from fat must be disclosed.

Answer: C Diff: 3 Topic: Food, Drug, and Cosmetic Safety (Food Labeling) 27) The Consumer Product Safety Commission is empowered to do all of the following except: A) Adopt rules and regulations to interpret and enforce the Consumer Product Safety Act. B) Conduct research on the safety of consumer products.

C) Issue comparative safety ratings of competing products.

D) Order a manufacturer to recall, repair, or replace a dangerous product or take other corrective action.

Answer: C Diff: 2 Topic: Product Safety 28) Which of the following is true about lemon laws?

A) They are a series of federal statutes designed to protect purchasers of new cars.

B) The first remedy under these laws is an expedited process in the court system.

C) They protect owners against defects occurring anytime within the new car warranty period.

D) They apply only in situations where there are recurring problems that the dealer or manufacturer has been unable to remedy.

Answer: D Diff: 2 Topic: Ethics Spotlight (State Lemon Laws) 29) Unfair and deceptive trade practices are generally regulated by the: A) Federal Trade Commission.

B) Food and Drug Administration.

C) Securities and Exchange Commission.

D) Consumer Product Safety Commission.

Answer: A Diff: 1 Topic: Unfair and Deceptive Practices 30) The standard of whether advertising is false and deceptive is whether it would mislead: A) A reasonable person with a seventh-grade level of education.

B) The particular plaintiff in the lawsuit.

C) A reasonable consumer.

D) A consumer sophisticated in the type of product that was advertised.

Answer: C Diff: 1 Topic: Unfair and Deceptive Practices (False and Deceptive Advertising) 300 .

31) In order for a party to be liable for false and deceptive advertising, it must be shown that: A) The advertisement has deceived a majority of the persons who have seen it.

B) At least some persons have been deceived by it.

C) The plaintiff in the lawsuit was deceived by it.

D) The advertisement is likely to mislead a reasonable consumer.

Answer: D Diff: 2 Topic: Unfair and Deceptive Practices (False and Deceptive Advertising) 32) Which of the following practices is not a bait and switch?

A) Running out of the advertised product because the high demand was not anticipated B) Refusing to show customers the advertised product C) Discouraging employees from selling the advertised product D) Not having adequate supplies of the advertised product on hand Answer: A Diff: 2 Topic: Unfair and Deceptive Practices (Bait and Switch) 33) Which of the following statements would not be deceptive under Section 5 of the Federal Trade Commission Act? A) "This toothpaste cleans 50 percent better than others," but this claim cannot be proven.

B) "This car is a great car," but it is not a great car.

C) "This car is a 2002 PT Cruiser" when it really is a 2001 model.

D) "This deodorant keeps you drier than any other brand," but there is no evidence of this.

Answer: B Diff: 2 Topic: Unfair and Deceptive Practices (False and Deceptive Advertising) 34) Which of the following is NOT provided for in the Food, Drug, and Cosmetic Act? A) Testing of drugs B) Manufacture of drugs C) Distribution of drugs D) Advertising of drugs Answer: D Diff: 2 Topic: Landmark Law (Food, Drug, and Cosmetic Act) 35) The Food, Drug, and Cosmetic Act is enforced by: A) The Food and Drug Administration.

B) The Federal Trade Commission.

C) The Consumer Product Safety Commission.

D) The Department of Agriculture.

Answer: A Diff: 1 Topic: Landmark Law (Food, Drug, and Cosmetic Act)

301 .

36) The Nutritional Labeling and Educcation Act (truth-in-labeling law) was passed in: A) 1900.

B) 1938.

C) 1990.

D) 2008.

Answer: C Diff: 2 Topic: Food, Drug, and Cosmetic Safety (Food Labeling) 37) Which of the following products would most likely be regulated by the Consumer Product Safety Commission?

A) Washing machines B) Boats C) Firearms D) Automobiles Answer: A Diff: 2 Topic: Product Safety 38) The usual time period that a consumer will have to rescind a door-to-door sales contract is: A) one day.

B) three days.

C) seven days.

D) thirty days.

Answer: B Diff: 1 Topic: Unfair and Deceptive Practices (Door-to-Door Sales) 39) Why was consumer protection not part of the law of the United States until relatively recently? Have consumer protection laws become too strong?

Answer: One reason is that the quantity, complexity, and availability of consumer products greatly increased in the twentieth century. With increasing complexity and greater availability to less sophisticated consumers, these consumers became less able, on average, to evaluate a product's safety.

Diff: 2 40) The Theater-at-Home Shop sells home theater systems in all price ranges. The sales people work on commission and earn a 30 percent commission on the most expensive items and as little as 15 percent on the less expensive items. Thus, the sales people prefer selling the more expensive items. The store makes more profit on the more expensive items. The store often holds sales contests with awards going to employees who sell the highest dollar value of merchandise.

Is this an unlawful bait-and-switch scheme?

Answer: This is probably not bait-and-switch by itself because for bait-and-switch there must generally be some kind of advertising enticement to get customers into the store seeking the low priced item, after which the salespersons attempt to sell a higher priced item.

Diff: 2 Topic: Unfair and Deceptive Practices 302 .

41) Briefly explain the standard for false and deceptive advertising under Section 5 of the FTC Act. Answer: If advertising contains misinformation or omits important information that is likely to mislead a "reasonable consumer" or make unsubstantiated claims, there may be false and deceptive advertising. Actual deception is not required. Statements of opinion do not constitute false and deceptive advertising.

Diff: 2 42) Briefly discuss the Food, Drug, and Cosmetic Act of 1938.

Answer: The act regulates the testing, manufacture, distribution and sale of food, drugs, cosmetics, and medical products and devices. The FDA enforces the act. Before certain food additives, drugs, cosmetics and medicinal devices may be sold, they must receive FDA approval.

The FDA also has the power to seek search warrants and conduct inspections; obtain orders for the seizure, recall and condemnation of product; seek injunctions; and turn over suspected criminal violations to the U.S. Department of Justice for prosecution.

Diff: 2 43) The ________ is the federal administrative agency that administers the Federal Food, Drug, and Cosmetic Act. Answer: FDA 44) Food is deemed ________ if it consists in whole or in part of any "filthy, putrid, or decomposed substance" or if it is otherwise "unfit for food."

Answer: Adulterated 45) The FDA's definition of ________ includes substances and preparations for cleansing, altering the appearance of, and promoting the attractiveness of a person.

Answer: Cosmetics 46) A federal statute that regulates dangerous consumer products is the ________.

Answer: Consumer Product Safety Act. 47) ________ establish an administrative procedure for consumers who have purchased a vehicle that does not work properly.

Answer: Lemon laws 48) The ________ Act prohibits unfair and deceptive sales practices.

Answer: FTC 49) Advertising that contains misinformation that is likely to mislead a "reasonable consumer" is said to be ________.

Answer: Deceptive 50) ________ occurs when a seller advertises the availability of a low-cost discounted item but then pressures the buyer into purchasing more expensive merchandise.

Answer: Bait and switch 303 .

51) In 1990, Congress passed the sweeping truth-in-labeling law known as ________.

Answer: The Nutritional Labeling and Education Act 52) In 2000, a compromise over genetically altered foods was reached when 138 countries, including the United States, agreed the the UN sponsored ________.

Answer: Biosafety Protocol 53) Many product manufacturers and sellers in the United States, the European Union, and other countries have ________ the production of consumer goods to other countries.

Answer: outsourced 54) In 2003, two federal agencies promulgated administrative rules that created the ________, on which consumers can place their names and free themselves from most unsolicited commercial telephone calls.

Answer: Do-Not-Call Registry 55) Originally, sales transactions in this country were guided by the principle of ________.

Answer: caveat emptor

304 .

Chapter 25 Environmental Protection and Global Warming 1) Until the 1970s, the federal government began enacting statutes to protect air and water from pollution.

Answer: TRUE Diff: 1 Topic: Environmental Protection 2) Because of the need for uniformity, pollution laws are exclusively federal laws.

Answer: FALSE Diff: 2 Topic: Environmental Protection 3) The Environmental Protection Agency enforces federal environmental laws.

Answer: TRUE Diff: 1 Topic: Environmental Protection (Environmental Protection Agency) 4) The Environmental Protection Agency has both rule-making powers and adjudicative powers.

Answer: TRUE Diff: 1 Topic: Environmental Protection (Environmental Protection Agency) 5) The National Environmental Policy Act requires that the federal government, state governments, and private developers consider the adverse impact of their actions on the environment.

Answer: FALSE Diff: 1 Topic: Environmental Protection Agency (Environmental Impact Statement) 6) An environmental impact statement must discuss alternatives to the proposed action.

Answer: TRUE Diff: 1 Topic: Environmental Protection Agency (Environmental Impact Statement) 7) The public has the right to review an environmental impact statement, although there is no formal process for the public to comment on it.

Answer: FALSE Diff: 1 Topic: Environmental Protection Agency (Environmental Impact Statement)

305 .

8) After review of an environmental impact statement, the U.S. District Court makes the decision whether or not a project can proceed.

Answer: FALSE Diff: 2 Topic: Environmental Protection Agency (Environmental Impact Statement) 9) The Environmental Protection Agency is primarily responsible for both the establishment and enforcement of air quality standards.

Answer: FALSE Diff: 2 Topic: Air Pollution (National Ambient Air Quality Standards) 10) The two general classifications of air pollution sources are permanent sources and temporary sources.

Answer: FALSE Diff: 1 Topic: Air Pollution (Sources of Air Pollution) 11) The primary ambient air quality standards are set to protect human beings.

Answer: TRUE Diff: 1 Topic: Air Pollution (National Ambient Air Quality Standards) 12) The U.S. Supreme Court held in a case involving the American Trucking Industry that the Environmental Protection Agency must consider the cost to the industry regulated before it sets national ambient air quality standards for that industry.

Answer: FALSE Diff: 1 Topic: U.S. Supreme Court Case 25.1 Air Pollution 13) Under the Clean Air Act, existing sources of pollution must adopt the best available technology to reduce air pollution.

Answer: FALSE Diff: 1 Topic: Air Pollution (Sources of Air Pollution) 14) Under the Clean Air Act, areas that are classified as nonattainment areas are further classified based on the degree to which they exceed the ozone standard.

Answer: TRUE Diff: 2 Topic: Air Pollution (Nonattainment Areas) 15) Nonattainment areas are required to implement inspection programs for mobile pollution sources.

Answer: TRUE Diff: 1 Topic: Air Pollution (Nonattainment Areas) 306 .

16) Fewer than 100 chemicals have been listed as toxic air pollutants.

Answer: FALSE Diff: 1 Topic: Toxic Substances and Hazardous Waste (Toxic Substances Control) 17) In the future, sick building syndrome is likely to spawn a flood of litigation with a wide range of parties to be sued.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Indoor Air Pollution) 18) Water pollution was first regulated at the federal level in the 1970s.

Answer: FALSE Diff: 2 Topic: Water Pollution 19) The Clean Water Act regulates the temperature of water discharged into public waterways.

Answer: TRUE Diff: 1 Topic: Water Pollution (Thermal Pollution) 20) Wetlands require a permit from the Army Corps of Engineers in order to be filled or dredged.

Answer: TRUE Diff: 1 Topic: Water Pollution (Wetlands) 21) The federal government is primarily responsible for enforcement of the Safe Drinking Water Act and states are secondarily responsible.

Answer: FALSE Diff: 2 Topic: Water Pollution (Safe Drinking Water Act) 22) The dumping of wastes into the ocean is not regulated by the U.S. federal government.

Answer: FALSE Diff: 1 Topic: Water Pollution (Ocean Protection) 23) The Oil Pollution Act was passed by Congress in response to the devastation caused to Prince William sound by the Exxon Valdez catastrophe.

Answer: TRUE Diff: 1 Topic: Water Pollution (Ocean Protection)

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24) Under federal law, new pesticides that are hazardous may be prohibited from sale, but old pesticides that existed before the law was enacted may not be prohibited from sale.

Answer: FALSE Diff: 1 Topic: Toxic Substances and Hazardous Waste (Insecticides, Fungicides, and Rodenticides) 25) New chemicals must be tested by the manufacturers before being marketed, and the test results must be reported to the Environmental Protection Agency.

Answer: TRUE Diff: 2 Topic: Toxic Substances and Hazardous Waste (Toxic Substances Control) 26) Under the Superfund legislation, persons are liable for costs of cleaning up hazardous waste only if they were negligent.

Answer: FALSE Diff: 1 Topic: Landmark Law (Superfund) 27) The Nuclear Regulatory Commission licenses the construction and opening of commercial nuclear power plants.

Answer: TRUE Diff: 1 Topic: Toxic Substances and Hazardous Waste (Nuclear Waste) 28) Under the Endangered Species Act, the "taking" of an endangered species requires that at least one specimen of the species end up in the possession of the party.

Answer: FALSE Diff: 2 Topic: Endangered Species 29) The significant increase in passage of federal environmental statutes occurred in which decade?

A) 1950s B) 1960s C) 1970s D) 1980s Answer: C Diff: 1 Topic: Environmental Protection

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30) The Environmental Protection Agency has the power to do which of the following?

A) Adopt regulations B) Initiate judicial proceedings C) Adopt regulations and hold hearings D) Adopt regulations, hold hearings, and initiate judicial proceedings Answer: D Diff: 2 Topic: Environmental Protection (Environmental Protection Agency) 31) The National Environmental Policy Act became effective in: A) 1934.

B) 1946.

C) 1964.

D) 1970.

Answer: D Diff: 1 Topic: Environmental Protection Agency (Environmental Impact Statement) 32) Which of the following is not required to be included in an environmental impact statement?

A) Identification of groups who oppose the action B) A cost-benefit analysis for the proposed action C) Identification of alternatives to the proposed action D) A description of the impact on the environment of the proposed action Answer: A Diff: 2 Topic: Environmental Protection Agency (Environmental Impact Statement) 33) Which of the following is true about environmental impact statements?

A) The public is not allowed to comment on environmental impact statements.

B) They can be used in court as evidence in a lawsuit challenging an action as violating the National Environmental Policy Act. C) They are required only for projects where the federal government itself undertakes the actual construction of the project.

D) Most private activities also require an environmental impact statement.

Answer: B Diff: 2 Topic: Environmental Protection Agency (Environmental Impact Statement)

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34) Which of the following statements best describes the procedures under the Clean Air Act? A) The federal government sets and enforces the standards.

B) The state governments set and enforce the standards.

C) The federal government sets the standards; the state governments enforce the standards; if the states do not adequately enforce the standards, the federal government may enforce them.

D) The state governments set the standards; the federal government enforces the standards; if the federal government does not adequately enforce the standards, the states may enforce them.

Answer: C Diff: 2 Topic: Air Pollution 35) Which of the following is true about the Clean Air Act? A) Congress set national ambient air quality standards for a number of pollutants.

B) Congress set goals, but not standards for a number of pollutants.

C) Congress directed the EPA to set ambient air quality standards for certain pollutants, but the EPA has not yet set the standards due to scientific uncertainty.

D) Congress directed the EPA to set ambient air quality standards for certain pollutants, and standards have been set thus far for carbon monoxide and sulfur oxide, among others.

Answer: D Diff: 3 Topic: Air Pollution (National Ambient Air Quality Standards) 36) Which of the following is not required of a state's compliance plan for a nonattainment area?

A) Identification of major sources of air pollution B) Mandatory installation of pollution control equipment on major sources C) Provision of adequate state funding for the installation of pollution control equipment D) Institution of a permit system for new sources of air pollution Answer: C Diff: 3 Topic: Air Pollution (Nonattainment Areas) 37) If a state fails to implement an approved plan for meeting the appropriate air quality standards, it may be penalized by: A) The loss of federal highway funds.

B) The loss of federal highway funds and by limitations in new sources of emission.

C) The loss of federal highway funds and the loss of revenue sharing grants.

D) The loss of federal revenue sharing grants.

Answer: B Diff: 2 Topic: Air Pollution (Nonattainment Areas)

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38) Which of the following is not true about air pollution controls on automobiles?

A) Automobiles and light duty trucks must meet air pollution standards.

B) There are standards relating to additives in automotive fuels.

C) The EPA can require air pollution controls to be installed on vehicles.

D) The EPA has limited the amount of driving that can be done in nonattainment areas.

Answer: D Diff: 2 Topic: Air Pollution (Sources of Air Pollution) 39) Which of the following is not one of the defined classifications of bodies of water under the Clean Water Act? A) Recreation B) Public drinking water C) Propagation of fish and wildlife D) Mining Answer: D Diff: 2 Topic: Water Pollution 40) Which of the following is not true about the Clean Water Act? A) Primary enforcement responsibility is with the federal government.

B) The EPA issues permits allowing persons to discharge water pollutants.

C) The act has water quality standards that determine which bodies of water can be used for drinking water.

D) New point sources are required to use best available control technology.

Answer: A Diff: 2 Topic: Water Pollution 41) Dischargers of water pollutants are required to do the following except: A) Keep records relative to pollution discharges.

B) Maintain pollution monitoring equipment.

C) Keep samples of discharges.

D) Dilute discharges of pollutants.

Answer: D Diff: 2 Topic: Water Pollution (Point Sources of Water Pollution)

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42) Which of the following is true?

A) In order to dredge or fill a wetland, a permit is needed from the EPA. B) The federal government has primary enforcement responsibility for the Safe Drinking Water Act. C) A permit is needed for dumping toxic wastes in the ocean, but not for dumping wastes that are nontoxic.

D) The Marine Protection, Research, and Sanctuaries Act established marine sanctuaries in the Great Lakes.

Answer: D Diff: 3 Topic: Water Pollution (Ocean Protection) 43) The Oil Pollution Control Act of 1990 provides that: A) Tankers in use after 1990 have double-walled hulls.

B) The Act is administered by the EPA. C) Oil companies must be prepared to handle an average, or typical, magnitude spill.

D) The owner-operator of a tanker entering United States waters must prove that it is fully insured to cover liability that could result from a spill.

Answer: D Diff: 2 Topic: Water Pollution (Ocean Protection) 44) Which of the following is true?

A) Toxic substances are prohibited from manufacture or sale under the Toxic Substances Control Act. B) Pesticides do not need to be registered with the EPA if they are nontoxic.

C) The EPA can cancel the registration of a previously registered pesticide if it finds that its use would cause unreasonably adverse effects on the environment.

D) Under the Insecticide, Fungicide, and Rodenticide Act, there are no regulations on the use of these products once they have been registered.

Answer: C Diff: 2 Topic: Toxic Substances and Hazardous Waste (Toxic Substances Control) 45) Which of the following is not true about the Kyoto Protocol?

A) Kyoto Protocol is an international treaty to reduce greenhouse gases.

B) Kyoto Protocol calls for the reduction of greenhouse gases worldwide to 5.2 percent below 1990 levels with this goal to be reached by 2012.

C) The United States is a signatory to the Kyoto Protocol.

D) Kyoto Protocol calls for member nations to create a fund to help developing nations adopt technology to reduce greenhouse gases.

Answer: C Diff: 2 Topic: International Law (Kyoto Protocol on Global Warming)

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46) The Resource Conservation and Recovery Act addresses: A) Energy efficiency standards for specified products.

B) Mandatory recycling programs for certain specified substances.

C) The transportation, storage, and disposal of hazardous wastes.

D) Export limitations on products that cause significant pollution in their manufacture.

Answer: C Diff: 1 Topic: Toxic Substances and Hazardous Waste (Hazardous Waste) 47) Under the Superfund legislation, who may be held liable for the cleanup costs of a hazardous waste site?

A) Only the generator of the waste B) Only the generator and the transporter C) Only the generator, transporter, and owner of the land at the time of the waste disposal D) The generator, the transporter, the owner of the land at the time of disposal, and the current owner Answer: D Diff: 2 Topic: Landmark Law (Superfund) 48) Under the Endangered Species Act: A) Actions that harm an endangered species are prohibited.

B) Actions that harm an endangered species are subject to a cost-benefit analysis to determine feasibility.

C) Only governmental actions are covered.

D) A and C only.

Answer: A Diff: 1 Topic: Endangered Species 49) The Endangered Species Act: A) Prohibits the taking of any threatened animals without a permit.

B) Prohibits the taking of any endangered animal.

C) Permits endangered or threatened animals to be taken if there is no cost effective way to avoid the taking.

D) Permits the endangered or threatened animals to be taken if only a small portion of them is destroyed.

Answer: B Diff: 1 Topic: Endangered Species

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50) The two categories under which animals can be listed in the Endangered Species Act are: A) Endangered and protected.

B) Endangered and extinct.

C) Threatened and protected.

D) Endangered and threatened.

Answer: D Diff: 1 Topic: Endangered Species 51) Which of the following is not one of the federal statutes protecting wildlife?

A) The Migratory Bird Treaty Act B) The Wild Free-Roaming Horses and Burros Act C) The Wild Game Preservation Act D) The Fishery Conservation and Management Act Answer: C Diff: 3 Topic: Endangered Species 52) A federal government agency is planning to build a dam in Maine. The land where the dam will be located, and the area that will be under the lake to be formed, is currently all privately owned. Which of the following correctly describes the requirement for an environmental impact statement?

A) An environmental impact statement is not required because the land is private.

B) An environmental impact statement is required only if the land will become federal land before the dam is built.

C) An environmental impact statement is required only if any of the land affected is classified as wetland.

D) An environmental impact statement is required because it is the federal government that is undertaking his project.

Answer: D Diff: 3 Topic: Environmental Protection Agency (Environmental Impact Statement) 53) Wally owns 40 acres along a river. He is planning to build a home near the river, and a friend has just informed him that the land on which Wally is planning to build the house is wetlands. In this circumstance, what must Wally do in order to be able to fill in the wetlands for the construction of his house?

A) Nothing, because this is the action of a private individual on private land.

B) Nothing, so long as the house will not emit any pollutants into the nearby river.

C) File an environmental impact statement.

D) Obtain a permit from the Army Corps of Engineers.

Answer: D Diff: 3 Topic: Water Pollution (Wetlands)

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54) Do the wealthier nations of the world have an obligation to assist the less wealthy nations in the development and implementation of programs and technology to reduce pollution?

Answer: Even apart from any obligation, such assistance could benefit people in all nations through reduced pollution. Furthermore, where the pollution sources are owned and operated by corporations based in wealthier nations, some argue there is an ethical duty to make the overseas plants at least as clean as those in the country where the corporation is based. The Kyoto Protocol also implies that there may be such a duty.

Diff: 2 55) Millie has great plans to become rich and retire young. She has purchased some land near Glacier National Park in Montana. She originally planned to operate her business on this land.

Her business is a new, advanced, high tech go-kart track. One feature of this track is to have the turns banked at a higher angle, allowing higher speeds. Another feature is smaller go-karts that younger children can drive. Millie remembers as a child being dragged on family vacations to look at boring scenery when all she wanted was some fun and action. She will even offer babysitting services so that parents can drop the kids off and enjoy the park while the kids are getting worn out. Millie has just learned about the possibility of leasing some National Forest Service land at a better location closer to the park entrance. She would need to get a permit. She is afraid that the permit might be turned down because of the traffic and noise that her business would create. Discuss how the National Environmental Policy Act could affect Millie's plans.

Answer: Millie would need to prepare an environmental impact statement in order to operate on the Forest Service land. The granting of the permit would be considered to be federal action. If operated on her own land, Millie would not need an EIS, but would need to comply with other environmental statutes such as the Endangered Species Act. Diff: 2 Topic: National Environmental Policy Act

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56) Pat has just graduated from a major university with a combined degree in engineering and marketing. Pat is planning to start a business to develop a new type of corn chip and packaging.

By using special technology both in the product itself and in the packaging, Pat has developed corn chips that will stay fresh in the original packaging for several years after they are produced.

Pat's planned factory site is located on some wetlands adjacent to a major river. Pat plans to produce the packaging and process the corn chips in the same factory. Pat knows that the special plastics for the packaging will result in the production of hazardous waste, and that the production process will produce toxic air pollutants. In addition, there will be some wastewater from the plant. The production process results in the water being heated to a high temperature.

Lastly, because of the storage of the food on the premises prior to production, Pat will need to use chemicals to control rats and insects, etc. Discuss the environmental laws that might affect Pat. Answer: Pat will need to get a permit from the Army Corps of Engineers to fill or dredge the wetlands. Pat will need to build her plant using the best available control technology for the air and water pollutants, except that maximum achievable control technology must be used with respect to the toxic air pollutants. Pat must obtain a discharge permit for any water discharges and may have to allow the water to cool before allowing discharge. Pat must annually report the emitted amounts of any chemicals listed under the Superfund statute. If Pat develops any new chemicals that are toxic, these might be subject to the Toxic Substances Control Act. Diff: 3 Topic: Air Pollution 57) In 1970, Congress created the ________ to coordinate the implementation and enforcement of the federal environmental protection laws.

Answer: EPA 58) An ________ is a document that must be prepared for all proposed legislation or major federal action that significantly affects the quality of the human environment.

Answer: Environmental impact statement 59) ________ standards are set by the EPA for certain pollutants at two different levels: primary to protect human beings and secondary to protect vegetation, matter, climate, visibility, and economic values.

Answer: National ambient air 60) Regions that do not meet the air quality standards are designated ________ areas.

Answer: Nonattainment 61) Sources of air pollution such as automobiles, trucks, buses, motorcycles, and airplanes are known as ________ sources.

Answer: Mobile 62) Sources of water pollution such as paper mills, manufacturing plants, electric utility plants, and sewage plants are known as ________ sources.

Answer: Point

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63) ________ is heated water or material discharged into waterways that upsets the ecological balance and decreases the oxygen content.

Answer: Thermal pollution 64) ________ are areas that are inundated or saturated by surface or ground water that support vegetation typically adapted for life in such conditions.

Answer: Wetlands 65) The oil tanker that ran aground off Alaska in 1989 was the ________.

Answer: Exxon Valdez 66) The ________ Act is a federal statute enacted in 1976 that requires manufacturers and processors to test new chemicals to determine their effect on human health and the environment before the EPA will allow them to be marketed.

Answer: Toxic Substances Control 67) ________ is solid waste that may cause or significantly contribute to an increase in mortality or serious illness, or pose a hazard to human health or the environment if improperly managed.

Answer: Hazardous waste 68) The ________ is a federal statute that authorizes the EPA to regulate facilities that generate, treat, store, transport, and dispose of hazardous wastes.

Answer: RCRA 69) The Act which gave the federal government a mandate to deal with hazardous wastes that have been spilled, stored, or abandoned is referred to as ________.

Answer: CERCLA (Superfund) 70) The ________ Act mandates that the federal government select and develop a permanent site for the disposal of nuclear wastes.

Answer: Nuclear Waste Policy 71) The courts have applied the ________ Act to protect the habitat of the Spotted Owl in Washington.

Answer: Endangered Species

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Chapter 26 Estates, Leaseholds, and Regulation of Property 1) The surface rights and the subsurface rights for the same parcel of real property can be owned by two different persons.

Answer: TRUE Diff: 1 Topic: Real Property (Land and Buildings) 2) Natural plant life on land is considered real property, whereas cultivated plants are considered personal property.

Answer: FALSE Diff: 1 Topic: Real Property (Land and Buildings) 3) The highest form of land ownership is fee simple absolute.

Answer: TRUE Diff: 2 Topic: Estates in Land (Fee Simple Absolute) 4) Fee simple defeasible can be thought of as complete ownership with a limitation, which if violated, results in the loss of the property.

Answer: TRUE Diff: 1 Topic: Estates in Land (Fee Simple Defeasible) 5) A life estate can be sold to another.

Answer: TRUE Diff: 1 Topic: Estates in Land (Life Estate) 6) A future interest vested in someone other than the original grantor is a remainder.

Answer: TRUE Diff: 1 Topic: Future Interests 7) In joint tenancy, an owner may not transfer her interest without the consent of the other joint tenants.

Answer: FALSE Diff: 1 Topic: Concurrent Ownership (Joint Tenancy)

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8) There is no right of survivorship in a tenancy in common.

Answer: TRUE Diff: 1 Topic: Concurrent Ownership (Tenancy in Common) 9) A parcel of property that is owned as tenants by the entirety can be owned by no more than two owners.

Answer: TRUE Diff: 1 Topic: Concurrent Ownership (Tenancy by the Entirety) 10) The community property laws apply only to married couples.

Answer: TRUE Diff: 1 Topic: Contemporary Environment (Community Property) 11) In a cooperative, an owner owns shares in a corporation that owns the entire building.

Answer: TRUE Diff: 1 Topic: Concurrent Ownership (Cooperative) 12) A deed is a document that shows that property was transferred, but possession of the deed is no assurance that the holder of the deed currently owns the property.

Answer: TRUE Diff: 2 Topic: Transfer of Ownership of Real Property (Sale of Real Estate) 13) One of the requirements to acquire property by adverse possession is intent to do so.

Answer: FALSE Diff: 3 Topic: Transfers of Ownership in Real Property (Adverse Possession) 14) For a deed to pass title from the grantor to the grantee, it must be recorded.

Answer: FALSE Diff: 2 Topic: Transfer of Ownership in Real Property (Recording Statutes) 15) A quitclaim deed contains the greatest number of warranties and provides the greatest protection to the grantee.

Answer: FALSE Diff: 1 Topic: Transfer of Ownership of Real Property (Sale of Real Estate) 16) A lease for a fixed term of eight months is a tenancy for years.

Answer: TRUE Diff: 1 Topic: Landlord-Tenant Relationship (Types of Tenancy) 319 .

17) A lease is a freehold interest in land.

Answer: FALSE Diff: 1 Topic: Landlord-Tenant Relationship (Lease) 18) Since a lease is a real property interest, the statute of frauds requires all leases to be in writing.

Answer: FALSE Diff: 2 Topic: Landlord-Tenant Relationship (Lease) 19) A tenancy at sufferance exists when a tenant wrongfully occupies the property after his lease has expired, so he is technically trespassing.

Answer: TRUE Diff: 1 Topic: Landlord-Tenant Relationship (Types of Tenancy) 20) The implied warranty of habitability exists only in some states.

Answer: TRUE Diff: 1 Topic: Landlord-Tenant Relationship (Implied Warranty of Habitability) 21) Title III of the American with Disabilities Act does not generally apply to residential facilities.

Answer: TRUE Diff: 1 Topic: Civil Rights Acts (Title III of the Americans with Disabilities Act) 22) Zoning regulations are usually administered at the municipal level.

Answer: TRUE Diff: 1 Topic: Land Use Control 23) For fairness, zoning regulations are usually rigid such that exceptions are not allowed.

Answer: FALSE Diff: 1 Topic: Zoning 24) The due process clause of the Constitution prohibits the government from acquiring private property even if it is to be used for public purposes.

Answer: FALSE Diff: 1 Topic: Eminent Domain and "Taking"

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25) Which of the following is true about fixtures?

A) Most sales for real estate do not include the fixtures.

B) Fixtures are a class of property that is neither real nor personal.

C) Most fixtures are intangible.

D) Courts will determine whether or not an item is a fixture based on the damage done by its removal.

Answer: D Diff: 2 Topic: Real Property 26) Which of the following is true about subsurface rights?

A) The surface rights and subsurface rights cannot be separated.

B) The subsurface rights extend 100 yards below the surface.

C) The subsurface rights are considered personal property.

D) The most valuable subsurface rights in most instances are mineral rights.

Answer: D Diff: 2 Topic: Real Property (Land and Buildings) 27) Real property includes: A) Natural plants growing on the land.

B) Cultivated plants growing on the land.

C) Both A and B. D) Neither A nor B. Answer: C Diff: 2 Topic: Real Property (Land and Buildings) 28) Which of the following is true about air rights?

A) Landowners own the air above their land, but cannot sell any rights to its use separately from the surface rights.

B) Because air is constantly moving, there are no rights to the space above the surface.

C) Air rights are personal property.

D) Air rights can be sold separately from the surface rights Answer: D Diff: 2 Topic: Contemporary Environment (Air Rights) 29) Which form of real property ownership includes the greatest degree of ownership?

A) Fee simple limitless B) Fee simple defeasible C) Fee simple absolute D) Absolute life estate Answer: C Diff: 1 Topic: Estates in Land (Fee Simple Absolute) 321 .

30) Ownership of real property in fee simple defeasible means that: A) The ownership is for only a limited period of time.

B) The ownership is absolute except that ownership may be lost upon the occurrence or nonoccurrence of some event.

C) The property reverts to the grantor when some condition is met.

D) Some type of joint ownership exists.

Answer: B Diff: 3 Topic: Estates in Land (Fee Simple Defeasible) 31) The holder of a life estate can do all of the following with her life estate except: A) Sell it.

B) Give it away.

C) Leave it to someone in her will.

D) Mortgage it.

Answer: C Diff: 2 Topic: Estates in Land (Life Estate) 32) Can the holder of a life estate mortgage his life estate?

A) Yes, with the only restrictions being those applicable to a mortgage of a fee simple interest.

B) Yes, but only if the holder of the remainder interest or reversion also simultaneously mortgages that interest.

C) Yes, but the mortgage term is limited to the length of the life estate.

D) No, because of the uncertainty over how long the interest will last.

Answer: C Diff: 2 Topic: Estates in Land (Life Estate) 33) A holder of a life estate has which of the following duties?

A) Pay the property taxes on the property.

B) Keep the property in repair.

C) Both A and B. D) Neither A nor B. Answer: C Diff: 2 Topic: Estates in Land (Life Estate) 34) Which types of property interest(s) can be sold?

A) Fee simple absolute only B) Fee simple absolute and fee simple defeasible C) Fee simple defeasible and life estate D) Fee simple absolute, fee simple defeasible, and life estate Answer: D Diff: 2 Topic: Estates in Land 322 .

35) Remainders and reversions: A) Are both interests where property can or will return to the grantor.

B) Differ in that a remainder is held by someone other than the grantor and the reversion is held by the original grantor.

C) Cannot be bought or sold because they are future interests.

D) Often exist when there is also a fee simple absolute ownership.

Answer: B Diff: 3 Topic: Future Interests 36) Which of the following is true about the situation where a party conveys a life estate, but does not convey any other interest?

A) Upon the death of the holder of the life estate, the property will go to the heirs of the holder of the life estate.

B) The grantor has created a remainder, even though the identity of the holder of the remainder is not yet known.

C) The grantor holds a fee simple defeasible.

D) The grantor holds a reversion.

Answer: D Diff: 2 Topic: Future Interests 37) Which of the following is true of co-ownership of real property?

A) Joint tenancy and tenancy in common are two terms to describe the same legal arrangement.

B) To create a joint tenancy, words that clearly show the intent to create the joint tenancy must be used.

C) Two owners who are married to each other cannot own the property as tenants in common.

D) Tenancy by the entirety is often viewed as a special type of tenancy in common for persons married to each other.

Answer: B Diff: 3 Topic: Concurrent Ownership (Joint Tenancy) 38) How does a tenancy by the entirety differ from a joint tenancy?

A) In a tenancy by the entirety, the survivor gets the entire property when one co-owner dies.

B) In a tenancy by the entirety, one co-owner cannot unilaterally sell his or her share.

C) In a tenancy by the entirety, when there are two co-owners each must own 50 percent.

D) In a tenancy by the entirety, there can be more than two co-owners.

Answer: B Diff: 2 Topic: Concurrent Ownership (Tenancy by the Entirety)

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39) In which of the following forms of concurrent ownership may one party unilaterally transfer her portion without the consent of the other party(ies)?

A) Join tenancy B) Tenancy in common C) Tenancy by the entirety D) A and B only Answer: D Diff: 2 Topic: Concurrent Ownership 40) Which of the following provides that all assets acquired during a marriage, other than gifts and inheritances, belong equally to the two spouses?

A) Community property laws B) Joint tenancy C) Tenancy by the entirety D) Marital partnership laws Answer: A Diff: 1 Topic: Contemporary Environment (Community Property) 41) In a condominium development, the common areas are owned: A) By the unit owners as joint tenants.

B) By a corporation.

C) By the homeowners association.

D) By the unit owners as tenants in common.

Answer: D Diff: 1 Topic: Concurrent Ownership (Condominium) 42) Unit owners have real estate title to their individual units in: A) Condominiums.

B) Cooperatives.

C) Both condominiums and cooperatives.

D) Neither condominiums nor cooperatives.

Answer: A Diff: 1 Topic: Concurrent Ownership (Condominium) 43) A deed is proof of: A) Ownership of property.

B) Value of property.

C) Size of property.

D) Transfer of property.

Answer: D Diff: 2 Topic: Transfer of Ownership of Real Property (Sale of Real Estate) 324 .

44) Recording statutes for real property: A) Are optional in most parts of the country.

B) Allow potential buyers to check whether there are any liens or mortgages on a piece of property.

C) Guarantee that buildings meet certain minimum standards as far as condition goes.

D) Provide that title cannot be transferred without recording.

Answer: B Diff: 2 Topic: Transfer of Ownership in Real Property (Recording Statutes) 45) Which of the following would prevent someone from acquiring land by adverse possession?

A) She lived on it secretly so that the original owner could not find out she was there.

B) She never had to fight the original owner in order to remain on the land.

C) She lived on the land without the original owner's permission.

D) She was the only person who lived on the land in question.

Answer: A Diff: 3 Topic: Transfers of Ownership in Real Property (Adverse Possession) 46) A lease that stated that rent was to be paid on the first of each month, starting on June 1, 2002, but did not state when the lease ended would be a: A) Tenancy for years.

B) Periodic tenancy.

C) Tenancy at will.

D) Tenancy at sufferance.

Answer: B Diff: 1 Topic: Landlord-Tenant Relationship (Types of Tenancy) 47) Which of the following is not one of the nonfreehold estates that can be held by tenants?

A) Periodic tenancy B) Tenancy for years C) Tenancy at will D) Tenancy for life Answer: D Diff: 1 Topic: Landlord-Tenant Relationship (Types of Tenancy) 48) Which of the following types of tenancy will continue indefinitely unless one party or the other takes action to terminate it?

A) Tenancy at will B) Periodic tenancy C) Tenancy for years D) A and B only Answer: D Diff: 2 Topic: Landlord-Tenant Relationship (Types of Tenancy) 325 .

49) Which of the following is true regarding the Americans with Disabilities Act requirements for landlords?

A) New construction must be made accessible to persons with disabilities.

B) New construction must obtain a certificate of accessibility from the EEOC. C) Only the attorney general can enforce the Act against a landlord.

D) All existing buildings must be brought into compliance by 2005.

Answer: A Diff: 2 Topic: Civil Rights Acts (Title III of the Americans with Disabilities Act) 50) The courts of many states recognize that leased, residential premises must be fit, safe, and suitable for ordinary residential use. This rule is called: A) The warranty of quiet enjoyment.

B) The warranty of suitability.

C) The warranty of habitability.

D) The warranty to maintain the premises.

Answer: C Diff: 2 Topic: Landlord-Tenant Relationship (Implied Warranty of Habitability) 51) Where a landowner seeks permission to build a structure that does not comply with the current zoning regulations applicable to the land in question, the landowner would seek a: A) Variance.

B) Covenant exemption.

C) Nuisance permit.

D) Nonconforming use permit.

Answer: A Diff: 1 Topic: Zoning 52) Where a landowner owned an existing structure with four dwelling units when the zoning applicable to the parcel was changed to permit only single-family residences, the landowner would have a: A) Variance.

B) Covenant exemption.

C) Private nuisance.

D) Nonconforming use.

Answer: D Diff: 1 Topic: Zoning

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53) The duty of the government to pay property owners for land acquired by eminent domain was established by what clause of the U.S. Constitution: A) Due Process Clause.

B) Commerce Clause.

C) Just Compensation Clause.

D) Equal Protection Clause.

Answer: C Diff: 2 Topic: Eminent Domain and "Taking" 54) Bob and Mary are husband and wife. They co-own their home as tenants by the entirety. In early 2009, Bob, without Mary's knowledge, sells his share of the home to Alice, a ski instructor at Aspen ski area. Bob's will leaves all his property to Edith, also a ski instructor at Sun Valley ski area. Bob unexpectedly dies on December 16, 2009. Who will own the home following his death?

A) Edith and Mary will each own half.

B) Edith will have total ownership.

C) Alice and Mary will each own half.

D) Mary will have total ownership.

Answer: D Diff: 3 Topic: Concurrent Ownership (Tenancy by the Entirety) 55) Walt had a two-year lease with Martha. At the end of the two years, Walt stayed in the leased premises and kept making his rent payments. Martha consented to this arrangement. This arrangement is best described as a: A) Tenancy for years.

B) Periodic tenancy.

C) Tenancy at will.

D) Tenancy at sufferance.

Answer: C Diff: 2 Topic: Landlord-Tenant Relationship (Types of Tenancy) 56) The United States generally does not put restrictions on the ability of foreigners to own United States real estate whereas many other nations do. Should the United States impose such restrictions? If so, what kinds of restrictions?

Answer: Foreign ownership of United States land does have advantages, such as the inflow of cash for the purchase and ongoing payment of property taxes. Any restrictions would be difficult to structure in a world where "citizenship" is often very difficult to determine.

Diff: 2

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57) Should states impose a warranty of habitability on landlords? What are the benefits and drawbacks of automatically imposing this warranty on landlords? Is the ability of a tenant to move to a different location sufficient incentive to encourage landlords to keep their premises livable?

Answer: In many circumstances, other remedies are available for rental housing that is truly unlivable, thus the lack of an implied warranty of habitability would not make much difference.

These other remedies include breach of the lease agreement (for example, where a landlord assumed a duty to repair) and violations of building and housing codes. Some argue that the parties should be able to lease any kind of premises they agree to.

Diff: 3 58) Bob purchased a home with a contract that contained a clause that said, "This sale does not include any personal property or fixtures." Bob noticed the provision when he signed the contract to purchase the house but did not worry about it because he had heard that fixtures were always included in a sale of real estate. When Bob moved in he was surprised to find that the refrigerator, a bathroom vanity, and the hardwood floor from the living room had been removed.

In addition, two trees had been removed from the back yard. Discuss Bob's legal rights.

Answer: Fixtures are generally included in sales of real property but can be excluded by contract. The seller had the right to take the refrigerator, and possibly the bathroom vanity. But the living room floor and the trees are not fixtures, but rather part of the realty itself, and should not have been taken.

Diff: 3 Topic: Real Property 59) When John graduated, a friend said he could stay in his vacant carriage house until he found another place. The owner initially did not want John to pay anything, but John started paying $100 a week. John then sent a note at the beginning of August saying, "Here is $500 for the month of August. I know I hadn't planned to be here this long, but I hope this is acceptable." The owner cashed the check, but the topic was never discussed. John sent $500 at the beginning of September and October, but on October 15 the owner came to John with $100 and said, "Enough is enough. Here's some of the money you gave for October. You are lucky to get that back. You have an hour to get all your stuff out of here." John says he paid for October and is not leaving.

He also said that he is entitled to at least a month's notice. Discuss the type of tenancy created, if any, and the rights of the parties Answer: This started out as a tenancy at will, which, at common law, can be terminated without any notice, thus the owner's statement terminated the tenancy. The tenant might be entitled to a refund of half the amount paid for October if the courts find an implied agreement for $500 as the amount of the rent. If John refuses to leave the premises, he will become a tenant at sufferance and become subject to a wrongful detainer action. On the other hand, a court might find an implied month-to-month tenancy, entitling John to a month's notice.

Diff: 2 Topic: Landlord-Tenant Relationship 60) Land is considered a form of ________ property Answer: Real

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61) A ________ is an interest in property for the life of a specified person.

Answer: Life Estate 62) Joint tenancy has a right of ________.

Answer: Survivorship 63) A ________ describes a person's ownership interest in a piece of real property.

Answer: Deed 64) A tenant's interest in known as a ________.

Answer: Leasehold 65) Under ________ the government can acquire private property for public purposes.

Answer: Eminent Domain 66) In a ________ payments are due at certain intervals.

Answer: Periodic Tenancy 67) An owner who transfers a leasehold is known as a ________.

Answer: landlord 68) The ________ of the Fifth Amendment to the U.S. Constitution requires the government to compensate a property owner when it exercises the power of eminent domain.

Answer: Just Compensation Clause 69) An exception that permits a type of building in use in an area that would not otherwise be allowed by a zoning ordinance is called a ________.

Answer: variance 70) Use and buildings that already exist in a zoned area that are permitted to continue even though they do not fit within new zoning ordinances are called ________.

Answer: nonconforming uses

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