Business Law: Chapter Questions for Exam #3

True

A clear, conspicuous, written statement brought to a buyer's attention when a contract is formed can disclaim all warranties not contained in the written contract.

False

A contract cannot involve both an implied warranty of merchantability and an implied warranty of fitness for a particular purpose.

True

A corporation is an artificial being.

False

A corporation that is formed in a country other than the United States but which does business in the United States, is a foreign corporation.

True

A disclosed principal is liable to a third party for a contract made by an agent acting within the scope of authority.

False

A general partnership cannot exist unless a certificate of partnership is filed appropriately in the state.

True

A limited liability company offers the limited liability of a corporation and the tax advantages of a partnership.

True

A partnership is an association of two or more persons to carry on, as co-owners, a business for profit.

True

A seller's best protection from being held accountable for express statements is not to make them in the first place.

False

A writing is always necessary to form a partnership.

C. adopting bylaws at a shareholders' meeting.

Adam, Terry, and Victor want to form ATV Corporation. Which of the following is not a step in forming the corporation? A. selecting a state of incorporation. B. preparing articles of incorporation. C. adopting bylaws at a shareholders' meeting. D. filing articles of incorporation.

False

All employers are subject to Title VII of the Civil Rights Act regardless of the number of their employees.

True

An agent can perform legal acts that bind the principal.

True

An agent is always liable for a contract he or she enters into on behalf of a undisclosed principal.

True

An agent must keep separate accounts for the principal's funds.

True

An employer may defend against a claim of unintentional discrimination by asserting that a practice that has a discriminatory effect is a business necessity.

D. cannot deny it.

Ann gives Bill the impression that Carol is Ann's agent, when in fact she is not. Bill deals with Carol as Ann's agent. Regarding any agency relationship, Ann... A. can deny it. B. can deny it to the extent of any injury suffered by Bill. C. can deny it to the extent of any liability that might be imposed on Ann. D. cannot deny it.

True

Any information or knowledge obtained through an agency relationship is confidential.

True

As a general rule, shareholders are not personally responsible for the debts of the corporation.

C. to any extent.

Ava and Bud start CapCo as a limited liability company. They can participate in the firm's management. A. only to the extent that they assume personal liability for the firm's debts. B. only to the extent of the amount that they invest in the firm. C. to any extent. D. to no extent.

D. described by none of the above.

B&B Sales, Inc., sells drones. A B&B salesperson claims, "This is the finest drone ever made." This statement is... A. an express warranty B. an implied warranty of merchantability C. an implied warranty of fitness for a particular purpose. D. described by none of the above.

C. both a and b.

Bass Corporation hires Ellen to manage one of its stores. Bass does not specify whether or to what extent Ellen has the authority to contract with third parties. The express authority that Bass gives Ellen to manage the store implies authority to do... A. whatever is customary to operate the business. B. whatever can be inferred from the manager's position. C. both a and b. D. none of the above.

True

Both directors and officers may be immunized from liability for poor business decisions under the business judgement rule.

False

Both parties to an agency have the power and the right to terminate the agency at any time.

D. has all of these options.

Bree is an officer of Chic Petites Corporation. Like most corporate officers, Bree... A. can act as Chic' agents. B. can participate in managing Chic's day-to-day operations. C. must carry out the duties spelled out in Chic's bylaws. D. has all of these options.

True

Cumulative voting allows minority shareholders to obtain representation on the board of directors.

False

Damages recovered in a shareholder's derivative suit are normally paid to the shareholder who brought the suit.

B. a partnership.

Dave and Paul agree to go into business together. They do not formally declare that their business has a specific form of organization. Dave and Paul's business is. A. a proprietorship. B. a partnership. C. a limited liability company. D. none of the above.

C. the special skills he has as an accountant.

Dave is an accountant hired by Eagle Equipment Corporation to act as its agent. In acting as an agent for Eagle, Dave is expected to use... A. reasonable diligence and skill. B. the degree of skill a reasonable person would use under similar circumstances. C. the special skills he has as an accountant. D. none of the above.

A. Title VII of the Civil Rights Act of 1964.

Digital Software, Inc., prefers to hire Asian Americans, because, according to its personnel director, "they're smarter and work harder" than other minorities. Showing a preference for one minority over another is prohibited by... A. Title VII of the Civil Rights Act of 1964. B. The Age Discrimination in Employment Act of 1967. C. the Americans with Disabilities Act of 1990. D. none of the above.

C. the partnership's buyout of Dina's interest in the firm.

Dina is a partner in Eastman Technical Group. Dina's dissociation from the partnership will cause... A. the automatic termination of the firm's legal existence. B. the immediate maturity of all partnership debts. C. the partnership's buyout of Dina's interest in the firm. D. the temporary suspension of all partnership business.

True

Directors have a right to inspect corporate books and records.

True

Discrimination complains under federal law must be filed with the Equal Opportunity Employment Commission.

True

Disparate-treatment discrimination occurs when an employer intentionally discriminates against an employee.

C. liable, only to the extent of her investment in the firm.

Dr. Jones and Dr. Smith are partners in a medical clinic. Jones manages the clinic, which is organized as a limited liability partnership. A court holds Smith liable in a malpractice suit. Jones is... A. not liable. B. liable, only to the extent of her share of that year's profits. C. liable, only to the extent of her investment in the firm. D. liable beyond her investment in the firm, because she manages the clinic.

A. solely in EZ's interest.

EZ sales Company hires Jill as a sales representative for six months at a salary of $5,000 per month, plus a commission of 10 percent of sales. In matters concerning EZ's business, Jill must act... A. solely in EZ's interest. B. solely in Jill's interest. C. solely in the interest of the customers. D. in none of the above ways.

A. an express warranty

Eagle Equipment sells motor vehicle parts to dealers. In response to a dealer's order, Eagle ships a crate with a label that reads, "Crate contains one 150-horsepower diesel engine." The statement is... A. an express warranty B. an implied warranty of merchantability C. an implied warranty of fitness for a particular purpose D. described by none of the above

True

Employers that do not accommodate the needs of persons with disabilities must demonstrate that the accommodations would cause undue hardship.

C. 9,000

Federated Products Corporation uses cumulative voting in its elections of directors. Mary owns 3,000 Federated shares. At an annual shareholders' meeting at which three directors are to be elected, how many votes may Mary cast for any one candidate? A. 1,000 B. 3,000 C. 9,000 D. 2,700

A. an express warranty

Fine Textiles, Inc., sells cloth to Gail by showing her a sample that Fine's salesperson says is the same as the goods. This statement is... A. an express warranty B. an implied warranty. C. a warranty of title. D. puffery.

True

For breaching their duty of care, directors may be liable to the corporation.

A. The bonds must be repaid.

General Manufacturing, Inc. (GMI), issues bonds to finance the purchase of a factory. Regarding those bonds, which of the following is true? A. The bonds must be repaid. B. The bondholders will receive interest payments only when voted by GMI directors. C. The bonds are identical to preferred stock form an investment standpoint. D. The bondholders will be the last investors paid on GMI's dissolution.

False

Generally, a principal whose agent commits a tort in the scope of his or her employment is not liable to persons injured.

C. elected by the corporation's shareholders.

Godfrey is a director of Hospitality Hotel Corporation. Like most directors, Godfrey was most likely... A. appointed by the secretary of state in the state of incorporation. B. chosen by a vote of the corporate managers. C. elected by the corporation's shareholders. D. selected by the corporation's chief executive officer.

A. have fewer managerial powers than Greg.

Greg is a general partner and Lee and Carol are limited partners in GLC Associates, a limited partnership. Lee and Carol... A. have fewer managerial powers than Greg. B. cannot sue on behalf of the firm if Greg refuses to do so. C. are personally liable for the debts of the firm, unlike Greg. D. risk nothing if they participate in the management of the partnership.

B. Northern Mines.

Greg, Kim, and Pete are partners in Northern Mines. Greg sells the ore extracted from the mines to Yukon Resources, Inc. Greg must account for the funds that he receives from Yukon for the ore to... A. Yukon. B. Northern Mines. C. the state in which Northern Mines are located. D. none of the above.

True

In a defense of comparative negligence, an injured party's failure to exercise reasonable care against a known defect will be considered in determining liability.

True

In a limited partnership, the liability of a limited partner is limited to the amount of capital he or she invests in the partnership.

False

In a sole proprietorship, the owner and the business are entirely separate.

False

In the conduct of corporate affairs, directors must exercise a different degree of care than in conducting their own personal affairs.

D. reinstatement.

Inez files an employment discrimination suit against Jiffy Delivery Service, under Title VII of the Civil Rights Act, based on Jiffy's discharge of Inez. If Inez prevails in her prima facie case, one possible remedy for her would be... A. an order to shutdown the employer's business. B. fines. C. imprisonment D. reinstatement.

D. lose, because Insurance Sales has a valid business necessity as a defense.

Insurance Sales, Inc., requires that all its secretaries be able to type. Alice, a member of a minority, applies to Insurance Sales for a secretarial job. She cannot type but tells the company she is willing to learn. When the firm does not hire her, she sues. She will... A. win, if Insurance Sales workforce does not reflect the same percentage of members of a protected class that characterizes qualified individuals in the local labor market. B. win, because she was willing to learn and an employer is obligated to hire and train unqualified minority employees. C. lose, because in this case being a member of the majority is a BFQQ. D. lose, because Insurance Sales has a valid business necessity as a defense.

B. was engaged in the business of selling the product.

Jane buys a defective product from Valu-Mart and is injured as a result of using the product. If Jane sues Valu-Mart based on strict liability, to recover damages she must prove that Valu-Mart... A. was in privity of contract with her. B. was engaged in the business of selling the product. C. failed to exercise due care. D. defectively designed the product.

B. win, if an interpreter would be a reasonable accommodation.

Janet, who is hearing impaired, applies for a position with Alpenrose Dairy. Janet is qualified but is refused the job because, she is told, "We can't afford to accommodate you with an interpreter." If Janet sues Alpenrose, she will... A. win, if Alpenrose has installed ramps for disabled persons. B. win, if an interpreter would be a reasonable accommodation. C. lose, if she is not more than forty years old. D. lose, if Alpenrose has never done anything to accommodate any disabled person.

C. to the extent of his capital contribution.

Jay is a limited partner in Kappa Sales, a limited partnership. Jay is liable for the firm's debts. A. in no way. B. in proportion to the total number of partners in the firm. C. to the extent of his capital contribution. D. to the full extent of the debts.

D. sell corporate property when directors are mishandling corporate assets.

Jill is a shareholder of United Manufacturing Company. As a shareholder, Jill's rights include all of the following except a right to... A. have one vote per share. B. access corporate books and records. C. transfer shares. D. sell corporate property when directors are mishandling corporate assets.

A. terminates automatically.

Jill is employed by American Grocers to buy and install a computer system for American's distribution network. When the system is set up and running, the agency... A. terminates automatically. B. terminates after fourteen days. C. continues for one year. D. continues indefinitely.

C. their employment contracts with World Export.

Julio and Gloria are officers of World Export Corporation. As corporate officers, their rights are set out in... A. state corporation statutes. B. World Export's certificate of authority C. their employment contracts with World Export. D. international agreements with nonresident shareholders.

C. formal board meetings with recorded minutes.

Like the boards of most corporations, the board of directors of Paolo's Pizzas, Inc. conducts business through... A. annual shareholders' meetings. B. consultations with corporate officers and employees. C. formal board meetings with recorded minutes. D. informal conferences with corporate power brokers.

B. a majority of the number authorized in the articles or bylaws.

Local Corporation invests in intrastate businesses. In Local's state, as in most states, the minimum number of directors that must be present before a board can transact business is... A. all of the directors authorized in the articles. B. a majority of the number authorized in the articles or bylaws. C. any odd number. D. one.

C. not partners, because Lois does not have an ownership interest or management right in the store.

Mark owns M Carpets, a home-furnishings store. He hires Lois as a salesperson, agreeing to pay her $8.50 per hour plus 10 percent of her sales. Mark and Lois are... A. partners, because Lois receives a share of the store's profits. B. partners, because Lois is responsible for some of the store's sales. C. not partners, because Lois does not have an ownership interest or management right in the store. D. not partners, because Lois does not receive an equal share of the store's profits.

A. owners.

Mike, Nora, and Paula are shareholders in National Business, Inc. All of the shareholders are National's A. owners. B. directors. C. incorporators D. officers

D. passing the tests is a business necessity.

National Mining Company requires job applicants to pass certain physical tests. Only a few women who apply to work for National can pass the tests, but if they pass, they are hired. National's best defense in a suit charging that the tests discriminate against women would be that... A. Gender is a BFQQ B. some men cannot pass the test. C. any discrimination is unintentional. D. passing the tests is a business necessity.

B. agents.

National Supplies Company hires Linda and Brad as employees to deal with third-party purchasers and suppliers. Linda and Brad are... A. principals. B. agents. C. both a and b. D. none of the above.

A. the business judgement rule.

Nationwide Company's chief financial officer resigns. After a personnel search, an investigation, and an interview, the board of directors hires Ed. Ed turns out to be dishonest. Nationwide's shareholders sue the board. The board's best defense is... A. the business judgement rule. B. the directors' duty of care. C. the directors' duty of loyalty. D. a shareholder's derivative suit.

B. win, because Noel breached the implied warranty of merchantability.

Noel's Ski Shop sells a pair of skis to Fred. When he first uses the skis, they snap in two. The cause is something that Noel did not know about and could not have discovered. If Fred sues Noel, he will likely... A. win, because Noel breached the merchant's implied duty of inspection. B. win, because Noel breached the implied warranty of merchantability. C. lose, because Noel knew nothing about the defect that made the skis unsafe. D. lose, because consumers should reasonably expect to find on occasion that a product will not work as warranted.

A. she is a member of a protected class.

Odette believes that the Power Utility Corporation (PUC) discriminated against her on the basis of race. She files a suit against PUC under Title VII. To establish a prima facie case of employment discrimination, Odette must show that... A. she is a member of a protected class. B. PUC has no legal defenses against the claim. C. discriminatory intent motivated PUC. D. no other firm in PUC's industry has committed a discriminatory act.

True

Officers have the same fiduciary duties as directors.

False

Officers, but not directors, owe a duty of loyalty to the corporation.

False

Privity of contract is required to hold a manufacturer liable in a product liability action based on negligence.

True

Promises of fact made during the bargaining process are express warranties.

True

Quid pro quo and hostile work environments are two forms of sexual harassment.

A. Dian need not notified in writing.

Ron orally engages Dian to act as his agent. During the agency, Ron knows that Dian deals with Mary. Ron also knows that Pete and Brad are aware of the agency but have not dealt with Dian. Ron decides to terminate the agency. Regarding notice of termination... A. Dian need not notified in writing. B. Dian's actual authority terminates without notice to her of Ron's decision. C. Dian's apparent authority terminates without notice to Mary. D. Pete and Brad must be directly notified.

D. all of the above.

Sam is injured in an accident involving a defective tractor. Sam sues the maker of the tractor. To successfully claim assumption of risk as a defense, the defendant must show... A. that Sam voluntarily engaged in the risk while realizing the potential danger. B. that Sam knew and appreciated the risk created by the defect. C. that Sam's decision to undertake the known risk was unreasonable. D. all of the above.

C. be liable, unless Jones knew Smith did not have the authority to act.

Smith Petroleum, Inc., contracts to sell oil to Jones Petrochemicals, telling Jones that it is acting on behalf of "a rich Saudi Arabian who doesn't want his identity known." Smith signs the contract, "Smith, as agent only." In fact, Smith is acting on its own. If the contract is breached, Smith may... A. not be liable, because Smith signed the contract as an agent. B. not be liable, unless Jones knew Smith did not have authority to act. C. be liable, unless Jones knew Smith did not have the authority to act. D. be liable, because Smith signed the contract as an agent.

True

Stocks represent the purchase of corporate ownership.

D. to be none of the above.

T&T, Inc., designs a product that is safe when used properly. Bob uses the product in an unforeseeable, improper way. If Bob sues T&T, the manufacturer will likely be held... A. liable for negligence or misrepresentation. B. strictly liable. C. to be either a or b. D. to be none of the above.

False

The Americans with Disabilities Act requires that employers hire workers with disabilities whether or not they are otherwise qualified for the work.

C. negligence or mismanagement of corporate personnel.

The board of Consumer Sales Corporation delegates work to corporate officers and employees. If the directors do not use a reasonable amount of supervision, they could be held liable for... A. negligence only. B. mismanagement of corporate personnel only. C. negligence or mismanagement of corporate personnel. D. none of the above.

D. within the general area of the board's responsibilities.

The board of directors of Tiger's Pipes & Fittings approves a new line of products for the company to sell and oversees contract negotiations for obtaining the products from the supplier. This is... A. a corporate conflict of interest. B. a usurpation of the corporate officers' duties. C. a violation of state corporate law. D. within the general area of the board's responsibilities.

A. a corporate debt

The board of directors of US Goods Corporation announces that the corporation will pay a cash dividend to its shareholders. Once declared, a cash dividend is... A. a corporate debt B. a personal debt of the directors. C. a personal debt of the shareholders. D. an illusory promise.

False

The business judgement rule makes a director liable for losses to the firm that result from the director's authorized, good faith business decisions.

C. file a derivative suit.

The management of National Brands, Inc., is at odds with the shareholders over some recent decisions. To redress a wrong suffered by National form the actions of management, shareholders may... A. exercise their preemptive rights. B. exercise their inspection rights. C. file a derivative suit. D. issue a proxy.

False

The only way a principal can ratify a transaction is with a written statement.

False

The rights of shareholders are established only in the articles of incorporation.

False

The sharing of profits from joint ownership of property is usually enough to create a partnership.

C. ask the Equal Employment Opportunity Commission whether a claim is justified.

Tina believes that she has been discriminated against on the job because she is a woman. She attempts to resolve the dispute with her employer, who decides that her claim has no basis. Tina's best next step is to... A. file a lawsuit. B. secretly sabotage company operations for revenge. C. ask the Equal Employment Opportunity Commission whether a claim is justified. D. forget about the matter.

True

To disclaim the implied warranty of merchantability, a merchant must mention "merchantability."

C. Cindy and Karl.

To obtain a contract with Dick, Cindy misrepresents that she is a partner with Karl. Karl overhears Cindy's misrepresentation but says nothing to Dick. Cindy breaches the contract. Who is liable to Dick? A. Cindy only. B. Karl only. C. Cindy and Karl. D. none of the above

B. the implied warranty of fitness for a particular purpose.

Tyler Desk Corporation writes in its contracts, in large red letters, "There are no warranties that extend beyond the description on the face hereof." The disclaimer negates... A. the implied warranty of merchantability. B. the implied warranty of fitness for a particular purpose. C. the warranty of title. D. all of the above warranties.

A. a close corporation.

US Digital Corporation incorporated in Ohio, its only place of business. Its stock is owned by ten shareholders. Two are resident aliens. Three of the others are the directors and officers. The stock has never been sold to the public. If a shareholder wants to sell his or her shares, the other shareholders must be given the opportunity to buy them first. US Digital is... A. a close corporation. B. a foreign corporation. C. an alien corporation. D. none of the above.

C. both a and b.

US Tech, Inc., fires Mike. He believes that he was discriminated against because of his age. To bring suit based on age discrimination, Mike must show... A. that he is forty years old or older and is qualified for the job. B. that he was discharged in circumstances that imply discrimination. C. both a and b. D. none of the above.

True

Under the Age Discrimination in Employment Act, a plaintiff must show that the unlawful discrimination was the reason for an adverse employment action.

False

Under the doctrine of strict liability, a defendant is liable for the results of his or her acts only if he or she intended those results.

True

Unless a partnership agreement specifies otherwise, each partner has one vote in management matters.

False

Unless a partnership agreement specifies otherwise, profits are shared in the same ratio as capital contributions.

False

Unlike managers, officers are not corporate employees.

False

When an agent enters into a contract on behalf of a principal, the principal must ratify the contract to be bound.

True

When directors do not act in the best interests of their corporation, the shareholders may sue them on the company's behalf.

False

Whether or not a buyer examines goods before entering into a contract, there is an implied warranty with respect to defects that an examination would reveal.