If a company owns 90 percent or more of the outstanding shares of each class of a
subsidiary company’s stock, a merger may be effected with approval of the parent’s
board of directors alone, without resort to shareholders. This is called a:
a. parent-sub merger.
b. board merger.
c. short-cut merger.
d. short-form merger.
A director’s right of inspection of corporate books and records is:
a. similar to a shareholder’s right to inspect.
b. considerably broader than a shareholder’s right, but is still subject to limitations.
c. narrower than a shareholder’s right.
d. unnecessary for most directors, since the books and records relate to officers’ duties,
not directors’ duties.
The remedies of damages and rescission are available for:
a. fraudulent misrepresentation.
b. negligent misrepresentation.
c. innocent misrepresentation.
d. All of the above.
Whether a corporation is a de facto corporation may be challenged by:
a. an individual.
b. another corporation.
c. the state.
d. Any of the above.
When a landlord leases property for a given period of time:
a. the tenant is under duty not to commit waste.
b. the tenant is under a duty not to commit wear and tear.
c. an estate at sufferance is created.
d. a fee simple absolute is usually created.
The Clean Water Act requires the EPA administrator to do what, regarding new sources?
a. Establish federal standards of performance that reflect the greatest degree of effluent
reduction achievable through application of the best available control technology.
b. Modify standards to reflect effluent limitations for existing sources.
c. Identify state waters that will not meet the Act’s requirements.
d. All of the above.
Dale defaults on a car loan secured by his car and guaranteed by both Sam and Dave.
Subrogation would allow Sam, who paid Dale’s full obligation, to:
a. repossess the car.
b. collect from Dave.
c. collect from Dale.
d. All of the above.
All states except one have adopted either the 1976 or 1985 RULPA.
Which of the following is correct with regard to an accountant’s contractual liability?
a. An accountant is bound to perform all the duties she explicitly agrees to perform
b. An accountant implicitly agrees to perform a contract in a competent and
professional manner
c. An accountant who breaches his contract with a client may also be liable to a third
party intended beneficiary
d. All of the above are correct.
In May of 1994, Jones went to C & C Bank to apply for a loan on a home he wanted to
purchase. C & C Bank loaned the money to Jones because he had excellent credit. C &
C never inspected the property Jones was purchasing. Two weeks later, five rusty and
leaking 55-gallon drums of a toxic substance were found buried in a creekbed in Jones’
backyard. Jones and the Bank’s position with regard to liability for cleanup on the
property would be:
a. liability would be imposed by CERCLA as strict liability for owners of contaminated
property even if they acquired the property without knowledge of contamination.
b. they would not be liable because they were innocent landowners as provided for in
SARA, and they would have an automatic defense.
c. that, if the Bank and Jones made an appropriate inquiry into the previous ownership
and uses of the property before purchase, they may not be liable.
d. if it could be proven that neither Jones nor the bank unlawfully disposed of the toxic
waste, they could not be found liable under CERCLA.
The Fair Labor Standards Act would concern which of the following?
a. Working hours for a fifteen-year-old
b. Overtime pay for managers
c. Attorney fees
d. Both (a) and (b) above are correct.
Fixit Co., a four-person business, employs Wesley as a full-time mechanic. One day
while welding a frame modification on a sports car, Wesley paid no attention to a
clearly visible oil leak dripping from the engine compartment of the car. The welding
torch ignited the oil causing a fire in which Wesley was badly burned. Which of the
following BEST describes the rights of the parties?
a. Fixit is liable to Wesley under a workers’ compensation statute despite the fact
Wesley may have been contributorily negligent when he ignored the oil leak.
b. Wesley cannot recover workers’ compensation since federal law requires that an
employer have at least 15 employees before he must provide workers’ compensation
benefits.
c. Fixit is not liable to pay Wesley workers’ compensation since Wesley fell below a
recognized standard of care by auto mechanics.
d. Wesley cannot recover workers’ compensation benefits, but can sue Fixit for failing
to provide a safe working environment.
Fay, age 17, ordered a pair of skis on the installment plan. She paid $20 every month
until she turned 18, the age of majority. The next day, she sold them to Sharon and
disaffirmed the contract. Fay is:
a. still liable since she had to disaffirm before her 18th birthday.
b. still liable because selling the skis amounts to a ratification.
c. not liable because she disaffirmed the contract.
d. not liable because skis are not necessaries.
Which of the following would be considered a material breach of a contract?
a. Partial performance that omits some essential part of the contract.
b. Delivery of 50 chairs in a contract that calls for 100 chairs.
c. An intentional breach of the contract.
d. All of the above would be material breaches.
e. Only (a) and (b) above would be material breaches.
Darlene rents an car for her business trip. What is the relationship between Darlene and
the car rental company?
a. A bailment for the sole benefit of the bailor
b. A bailment for the sole benefit of the bailee
c. A bailment for mutual benefit
d. Pledgee and pledgor
When a minor falsely advises the other party that he is of the age of majority and based
upon that misrepresentation, the other party in good faith enters into a contract with the
minor:
a. the minor has lost his right to disaffirm the contract because of the misrepresentation.
b. the adult party can recover damages from the minor in tort.
c. the minor is required to restore the other party to the position occupied before the
making of the contract.
d. There is no uniform rule. States differ, and depending upon the state, any of the
above could be correct.
a. In general, what is considered a fundamental change in a corporation? Give three
examples of what would be considered a fundamental change.
b. Bill is a minority shareholder in B & B, Inc. He opposes a fundamental change that is
approved and implemented. What rights does he have?
Robert is 17 years old. He lies to Bouyers Auto in order to induce it to sell him a new
pickup. Bouyers falls for this lie and sells him the pickup. In most jurisdictions, Robert:
a. may disaffirm and get his money back.
b. may not disaffirm since he lied.
c. must restore Bouyers to its position before contracting with him.
d. will receive his money less depreciation.
Barbara, an antique dealer, intentionally represents the value of an antique chest of
drawers, as $6,000 when she has reason to know the value is considerably less.
Margaret agrees to buy it for $5,500. It is worth $2,500. In a state that uses the
“benefit-of-the-bargain” rule, Margaret’s damage award would be:
a. $3,500.
b. $3,000.
c. $500.
d. $2,500.
To determine “market share,” one would require knowledge of which of the following?
a. What other products compete with the product
b. Where the product is sold
c. How much of the product is sold
d. All of the above
The ____ states that the federal government shall provide the accused with a speedy
and public trial by an impartial jury.
a. Fourth Amendment
b. Fifth Amendment
c. Sixth Amendment
d. Eighth Amendment
Eric bought a new snowmobile from the North Pole Manufacturing Company. After
buying the machine, Eric then modified the spark plugs and a few other things in order
to soup it up. In February, just after a snowfall, Eric was driving the snowmobile when
it tipped over, trapping him beneath it. His leg was severely burned when it lodged
against one of the spark plugs. Eric now wants to sue North Pole for strict liability in
tort. Eric:
a. will likely win the suit, because of the faulty design of the snowmobile.
b. will likely lose the suit, because the machine has been altered since its manufacture.
c. has assumed the risk of using the snowmobile.
d. cannot sue the manufacturer, because horizontal privity is lacking.
Claudia sells her highly successful hair salon to Carl. In the sales contract, Claudia
agrees never to open a hair salon in the state. Which of the following best describes this
contract clause?
a. Void as an illegal primary restraint
b. Valid as a reasonable restraint on trade
c. An unenforceable restraint of trade contrary to public policy
d. Binding as fair protection
Community property would include:
a. a house bought by the married couple.
b. gifts of $500 given to wife while they were married.
c. an inheritance of a diamond by husband while they were married.
d. a painting bought by wife before the marriage.
e. All of the above.
The Lanham Act has been amended by the:
a. Federal Trademark Dilution Act.
b. Trademark Cyberpiracy Prevention Act of 1999.
c. Anti-counterfeiting Amendments Act of 2004.
d. All of the above.
e. Only (a) and (b).
Which of the following are exemptions for non-issuers?
a. Securities up to $1.5 million in any 12-month period if compliance with Regulation A
is achieved.
b. Sales of restricted or nonrestricted securities by affiliates.
c. Resales of restricted securities acquired under Regulation D.
d. The 1933 Act offers no exemptions from registration for sales by non-issuers.
Which of the following is correct with regard to an enforceable restraint of trade?
a. The restraint should be no more extensive than is required to protect a specified
property interest.
b. Restraints typically arise in connection with the sale of a business.
c. A typical restraint is a covenant not to compete.
d. All of the above.
What are some of the matters involving fundamental changes in the corporation?
a. Amendments to articles of incorporation
b. Sale or lease of all or substantially all of the corporate assets not in the regular course
of business
c. Mergers, consolidations, compulsory share exchanges
d. Dissolution
e. All of the above
Identify the type of indorsement each of the following represents:
a. Pay to Barbara for collection.
b. Pay to the order of The American Bank for deposit only.
c. Pay to Albert without recourse.
d. John Smith.
The purpose of an agency relationship is to:
a. allow the principal to extend his business activities by authorizing agents to enter into
contracts with third persons on the principal’s behalf.
b. encourage business growth by protecting employers from liability for torts or
criminal activity.
c. allow a principal to contract through agents in ways he would not be able to contract
on his own, such as creating valid contracts in situations where the principal could only
create voidable contracts on his own.
d. eliminate the distinction between employees and independent contractors.
Match the following:
a. Designation of specific goods as those to which the contract of sale refers.
b. An action at law to recover specific goods in the possession of a defendant that are
being unlawfully withheld from the plaintiff.
c. Amount specified in a contract that either party may recover in the event of a breach
by the other.
d. A seller makes available to buyer goods conforming to the contract and so notifies
the buyer.
e. The inability of a person to pay his debts in the ordinary course of business or as they
become due.
f. Total liabilities exceeding the total value of all assets.
g. Commercially reasonable charges, expenses, or commissions directly resulting from
a breach.
h. Expenses resulting from the buyer’s requirements and which the seller had reason to
expect at the time of contracting; also payment for injury to person or property resulting
from breach of warranty.
i. A buyer’s purchase of goods in substitution for those not delivered by a breaching
seller.
j. Carrying out one’s contractual obligations according to the terms of the contract.
k. The Code rule that a seller’s performance must exactly conform to the contract.
l. The right of a seller under the Code to correct a nonconforming tender of goods to the
buyer.
m. Buyer’s manifestation of an unwillingness to become the owner of the goods.
n. Rescission of a buyer’s acceptance of the goods based on a nonconformity which
substantially impairs their value.
1) liquidated damages
2) identification
3) cure
4) perfect tender rule
5) performance
6) rejection of the goods
7) revocation of acceptance
8) tender of delivery
9) consequential damages
10) cover
11) incidental damages
12) bankruptcy insolvency
13) equity insolvency
14) replevin
Real defenses include all but which of the following?
a. Forgery of instrument
b. Minority of maker
c. Material alteration
d. Theft of bearer paper
What sort of liability does an accountant have under the Securities Exchange Act of
1934?
a. Civil liability where there is scienter
b. Criminal liability where there is a willful violation
c. Both (a) and (b) are correct.
d. Neither (a) nor (b) is correct.
Which of the following need NOT be contained in a memorandum, which satisfies the
general statute of frauds writing requirement?
a. The names of the parties to the contract
b. The signature of the party being sued
c. The signature of the party suing
d. The subject matter and essential terms of the unperformed promises
The National Cooperative Research Act:
a. prohibits using the rule of reason test in judging joint ventures in research and
development of new technology.
b. is designed to clear up uncertainty about the legality of joint ventures.
c. now requires treble damages if joint ventures are formed in violation of Section 1 of
the Sherman Act.
d. All of the above.
Stores may simply make warranties available to consumers upon request rather than
including them on or in the packaged goods.
Give an example of an assignment of rights and explain the relationship of the parties.
In determining whether a defendant’s conduct is reasonable in an emergency not created
by the defendant, the standard is that of a reasonable person under the circumstances.
International contracts should specify the contract’s official language and define all of
the significant legal terms used.
Mistake by failure to read a document is grounds to void a contract.
Because of the harshness of the all-or-nothing contributory negligence rule, nearly all
states have now substituted the last clear chance doctrine for contributory negligence.
An easement that is appurtenant passes to the new owner of the land.
A fraudulent transfer made on or within two years prior to filing a petition for
bankruptcy can be avoided by the trustee.
The delivery terms “ex-ship” and “no arrival, no sale” indicate that the contract is a
shipment contract.
If the lease is silent on the subject, a tenant generally may assign his lease.
Authentication of a security agreement may occur by the debtor’s encrypting a record in
part, with the present intent of the authenticating party’s accepting the record.
Will issues a negotiable promissory note to Paula, who indorses it in blank and delivers
it to Allen. If Allen knows that the promissory note was given to Paula in exchange for
worthless securities, Allen may still be a holder in due course.
Group boycotts are illegal per se.
The ADA provides for remedies that are generally the same as those available under
Title VII.
Ad substantiation, as required by an FTC policy statement, requires a company to have
a reasonable basis for its claims at the time it makes the claims.