Odell, an accountant, prepares for Pronto Tacos Corporation a financial statement that
omits a material fact. The financial statement is included in Pronto Tacos’s registration
statement, which Qiana reads. Qiana buys Pronto Tacos stock. Under Section 11 of the
Securities Act of 1933, for Odell to be liable for the omission, Qiana must show that she
a. relied on the omission.
b. suffered a loss on the stock.
c. knew about the omission before making her purchase.
d. is a sophisticated investor.
Merlin is a drug addict who has completed a supervised drug-rehabilitation program.
Nabil used drugs casually in the past. Both work for Omni Insurance & Investments
Inc. Considered to have a disability under the Americans with Disabilities Act of 1990
a. are Merlin and Nabil.
b. is Merlin only.
c. is Nabil only.
d. none of the choices.
Albert buys a surround sound system from his neighbor George at George’s garage sale.
Albert writes George a check for $250 for the sound system. George is
a. the certifier.
b. the drawee.
c. the drawer.
d. the payee.
Dane transfers a draft by signing it and delivering it to Ebony. Ebony is
a. an indorser.
b. an indorsee.
c. a promisee.
d. a promisor.
Scuba Adventures Inc. and Tours of the Sea Company decide to consolidate. This
corporate combination does not require the approval of
a. Scuba and Tours directors.
b. Scuba and Tours officers.
c. Scuba shareholders.
d. Tours shareholders.
Flossie signs a check payable to Glenn and gives it to him, leaving the amount blank
but authorizing him to fill it in for $1,000. Glenn fills in $1,500 and negotiates the
check to Home Federal Bank, an HDC. Home Federal can enforce the check for
a. $0.
b. $500.
c. $1,000.
d. $1,500.
Jim is shorter than Kevin, and Lonna is less attractive than Merilyn. Research shows
that compared with taller men and more attractive individuals, Jim will likely make less
income and Lonna will receive poorer performance reviews and a lower salary.
Appearance-based discrimination has been barred by
a. Michigan and at least six cities.
b. none of the choices.
c. all of the states.
d. the federal government.
Office Warehouse Inc. and Paperclips Inc. are the chief competitors in their market.
They agree that Office Warehouse will operate only east of the Mississippi River and
Paperclips will operate only west of the waterway. Under antitrust law, this is most
likely
a. a per se violation.
b. a violation only if their competitors make similar deals.
c. a violation only if their customers agree to honor the deal.
d. not a violation.
Otto is considering forms of business organization for Pro Tree Service, his landscaping
firm. Like most states, Otto’s state requires that to form a limited liability company, he
must file with a central state agency
a. articles of certification.
b. articles of formation.
c. articles of organization.
d. no specific documents.
Reed prepares federal corporate income tax returns for Shopping Malls, Inc., and other
firms. Under the Internal Revenue Code, with respect to an understatement of a client’s
tax liability, Reed may be liable for
a. negligent or willful misconduct.
b. no misconduct.
c. only negligent misconduct.
d. only willful misconduct.
Anna obtains a business liability insurance policy for her Brew & Bagels Coffee Shop
from ChoiceFirst Insurance Company. When an event occurs that gives rise to a claim,
each party has a duty to
a. cooperate in an investigation to determine the facts.
b. file a suit against the other so that a court can settle the claim.
c. find a third party on whom to impose liability.
d. pay any outstanding premium or refund any unearned amount.
EquipLease Company pays a premium to Federated Insurance Inc. for fire insurance
against the loss of EquipLease’s offices, warehouse, and storage center. After
EquipLease sells the facilities to Great State Trucking, Inc., the warehouse is lost in a
fire. Under the policy, Federated must pay
a. neither EquipLease nor Great State.
b. EquipLease and Great State proportionately.
c. EquipLease only.
d. Great State only.
Sun Power, Inc., sells solar power cells and panels to commercial dealers in the
Southwest. With regard to the UCC’s good faith requirement, Sun Power can
a. avoid it only by a conspicuous written disclaimer.
b. avoid it only by oral disclaimer.
c. avoid it with or without a disclaimer.
d. not disclaim it.
Sweetwater Café defaults on debts to Town & Country Bank and Uno Loan Company.
Town & Country perfected its security interest before Uno. Town & Country takes
possession of the collateral in which it has a security interest. On a sale of the collateral,
the proceeds will be applied first to
a. Sweetwater’s previous payments on the debts.
b. Sweetwater’s unpaid payments on the debts.
c. the balance of Sweetwater’s debt to Town & Country.
d. the balance of Sweetwater’s debt to Uno.
Sable and Rex agree while talking on the phone to form a partnershipThe Home
Sourceto deal in transfers of real property. To be enforceable, their agreement must
a. be filed in the appropriate state office.
b. be in writing.
c. involve the exchange of valid consideration.
d. not involve a third party.
Fact Pattern 6-2B
Popular Movies Corporation wants to gain control of Quality Films, Inc. The companies
negotiate for several months, without coming to terms. Popular Movies decides to
pursue a takeover attempt. Quality Films decides to resist.
Refer to Fact Pattern 6-2B. Quality Films solicits a merger with Real2Reel Corporation,
a third party, which makes a better offer to Quality Films’s shareholders. Real2Reel is a
a. crown jewel.
b. Pac-Man.
c. poison pill.
d. white knight.
The U.S. Food Safety and Inspection Service conducts searches of certain businesses.
This agency and other administrative agencies can conduct warrantless searches in
a. all industries.
b. highly regulated industries.
c. no industries.
d. newly regulated industries only.
LaDonna signs a one-year lease with Mae to occupy an apartment near the University
of Iowa. LaDonna needs the apartment for two semesters only and may have to sublet it
for the rest of the term. LaDonna’s tenancy is
a. a periodic tenancy.
b. a tenancy at will.
c. a tenancy at sufferance.
d. a fixed-term tenancy.
Repair Tools Company contracts to deliver fifty heavy-duty steel floor jacks to
Serv-UR-Self Auto Stores on May 1 for which Serv-UR-Self agrees to pay. Repair
Tools tells Serv-UR-Self on April 15 that delivery will be delayed until June
Serv-UR-Self may do all of the following except
a. force Repair Tools to deliver substitute goods before the time for the contract’s
performance.
b. await Repair Tools’ performance for a commercially reasonable time.
c. sue Repair Tools for breach of contract.
d. suspend its own performance.
Clean n” Green, Inc., operates a chain of car washes throughout the United States. The
government entity that is most likely to be involved in regulating the chain’s
environmental impact is
a. Congress.
b. federal and state regulatory agencies.
c. local chambers of commerce.
d. local police departments.
Mieko is a shareholder of Natural Gas, Inc. Natural Gas uses cumulative voting to elect
directors. This means that the number of Mieko’s votes is determined by the number of
a. years that Mieko has been a shareholder.
b. members of the board to be elected multiplied by the total number of voting shares
that Mieko holds.
c. shareholders present at the shareholders’ meeting.
d. shareholders’ meetings that Mieko has attended.
Jewelry & Coin Company hires Kelly Ann to buy gems and precious metals from
various sources on its behalf. In this relationship, Jewelry & Coin is
a. an employee.
b. an independent contractor.
c. a principal.
d. an agent.
Grease & Lubricants Inc. makes its products without required pollution control
technology, causing a discharge of oily waste into the nearby Holly Lake. This activity
can result in
a. a criminal fine or imprisonment only.
b. a criminal fine, imprisonment, or an injunction only.
c. a criminal fine, imprisonment, an injunction, or damages.
d. an injunction only.
Edward, an attorney, allows a statute of limitations to lapse on a claim by Fabrication
Company, a client. Edward
a. can be held liable for malpractice.
b. has violated an ethical standard but cannot be held liable.
c. is subject to criminal penalties under the statute of limitations.
d. will be automatically disbarred.
Buena files a suit against Credit Services Corporation under the Civil Rights Act of
1964, alleging employment discrimination on the basis of gender on a disparate-impact
theory. To succeed, Buena must show that Credit Services hires fewer women than the
percentage of
a. qualified women in the local labor market.
b. qualified women in the United States.
c. women in Credit Services’s state.
d. women who apply to Credit Services for work.
OnSpec, Inc., and its officers, directors, and shareholders, buy and sell securities.
Section 16(b) of the Securities Exchange Act of 1934 covers purchases and sales of
securities involving
a. corporate insiders.
b. misappropriation.
c. short-swing profits.
d. tippers and tippees.
To notify the public of a proposed rule, the U.S. Office of Labor-Management
Standards, like other federal agencies, publishes the proposal in
a. the Administrative Procedure Act.
b. the Code of Federal Regulations.
c. the Federal Register.
d. the United States Code.
Char and Doug are officers of Eden Cruise & Travel Corporation. As corporate officers,
the rights of Char and Doug are
a. defined by their employment contracts.
b. specified in state corporation statutes.
c. the same as those of the directors.
d. the same as those of the shareholders.
As the trustee of a business trust, Bertoldi is required to
a. distribute the trust’s profits.
b. assume responsibility for the trust’s debts.
c. draft a written trust agreement.
d. none of the choices.
To buy a stuffed cow, Ken executes a check “pay to Laura or bearer” and gives it to
Laura, who does not own a stuffed cow. This check is
a. negotiable.
b. nonnegotiable, because it does not indicate a specific payee.
c. nonnegotiable, because it may be a joke.
d. nonnegotiable, because Laura does not own a stuffed cow.
Huey signs a promissory note in reliance on Ian’s assurance that it is not a note. Ian
negotiates the note to Jinx Collection Agency, which is a holder in due course (HDC) of
the note. When Jinx tries to collect, Huey refuses to pay. Under the HDC doctrine, the
loss falls on
a. Huey only.
b. Huey and Jinx equally.
c. Huey or Jinx, depending on which party can afford the loss.
d. Jinx only.
Refined Grains, Inc., is a Kansas-based firm that does business throughout the world.
Refined Grains manages retail and wholesale operations, buys and sells commercial
venues, undeveloped land, and agricultural products, and other goods. Refined Grains
has had to deal with employee and customer theft. With respect to these circumstances,
the Uniform Commercial Code (UCC) provides a framework for
a. commercial transactions for the sale of and payment for goods.
b. international distribution agreements.
c. domestic and foreign transactions in real estate.
d. prosecuting crimes against business interests.
Dalmira dies without a will. A court appoints Estee to handle the probate of Dalmira’s
estate. Dalmira’s closest blood relative is Farnham. The administrator of the estate is
a. Farnham.
b. Dalmira.
c. Estee.
d. the court.
Frictionless Lubricant Corporation and Grease, Inc., are the principal suppliers of their
product in their market. They agree that Frictionless will sell exclusively to retailers and
Grease will sell exclusively to wholesalers. Under antitrust law, this is most likely
a. a per se violation.
b. a violation only if their competitors make similar deals.
c. a violation only if their customers agree to honor the deal.
d. not a violation.
When a debtor has not assets, creditors are notified of the debtor’s petition for
bankruptcy but are instructed not to file a claim.
Constructive delivery occurs when property is physically transferred.
An accountant is not required to discover every impropriety, defalcation, and fraud in a
client’s books.
Under the UCC, the meaning of any agreement must be interpreted in light of
commercial practices.
A sanction known as counteradvertising requires a company to advertise anew to
inform the public about earlier misinformation.
Article 2A of the UCC covers any transaction that creates a lease of goods or a sublease
of goods.
It is presumed that a co-tenancy is a tenancy in common unless there is specific
language indicating the intent to establish a joint tenancy.
Qiara steals a check from Reese, forges his signature, and transfers the check to Salon
Beauteous, a beauty and barber salon, for value. Unaware that the signature is not
Reese’s, Salon Beauteous presents the check to Town & Country Bank, the drawee,
which cashes the check. Reese discovers the forgery and insists that his bank recredit
his account. Can the bank refuse? If not, from whom can the bank recover?
Some states require the termination of a franchise when there is no “good cause” for it
to continue.
Ridley is an officer of Sun Watts, Inc. Ridley knows that a Sun Watts engineer recently
developed a new, inexpensive method for collecting, storing, and converting solar
power into fuel. Ridley takes advantage of this information to buy Sun Watts stock from
Taylor and, after the discovery is announced, to sell the stock to Ulrich at a profit.
Taylor claims that this is a violation of federal law. Is Taylor correct? If so, what federal
law has Ridley violated, and what are its possible penalties?
Negligence cases against professionals usually focus on the element of causation.
Most securities can be resold without registration.
When a surety or guarantor pays a debt owed to a creditor, he or she acquires any right
that the creditor had against the debtor.
Banks must pay interest based on the full balance of a customer’s interest-bearing
account on the day the bank posts the interest.
Administrative agencies generally have no discretion over the type of hearing
procedures that they use.
Stella bought a cup of coffee at the Roasted Bean Drive-Thru. The coffee had been
heated to 190 degrees and consequently had dissolved the inside of the cup. When
Stella lifted the lid, the cup collapsed, spilling the contents on her lap. To recover for
third-degree burns on her thighs, Stella filed a suit against the Roasted Bean. Can Stella
recover for breach of warranty? Explain.