CLEP Business Law

Which of the following would NOT be an illegal contract? a) A loan contract bearing interest that is usurious b) A gambling loan in a state where gambling is legal c) A contract in restraint of trade d) A contract of solicitation to commit a crime e) A contract contrary to public policy

The correct answer is B. Gambling contracts may be legal or illegal. Generally, the controlling factor is whether the state where the contract is executed has legalized gambling. That is the case in choice B, so the contract for a gambling debt (or marker) would be legal and enforceable. The other answers reflect contracts that are illegal as contrary to public policy by statute.

Sunrise Heat & Air submitted a bid to install a large commercial heating and air conditioning system for Acme Company. Sunrise understated its bid price by 20 percent because it negligently failed to include the labor cost as one of the cost components. The labor cost was stated elsewhere in Sunrise's bid. Acme saw that Sunrise's bid was substantially lower than the next lowest bidder and awarded the contract to Sunrise to take advantage of a really cheap bid. Sunrise now seeks to have the contract rescinded. Which of the following best describes the legal outcome? a) Sunrise will lose because a contract based on a unilateral mistake can never be rescinded by the mistaken party. b) Sunrise would be able to have the contract rescinded even though it made a unilateral mistake since the mistake was a palpable clerical error that should have been obvious to Acme. c) Sunrise can rescind the contract because a contract based on a unilateral mistake can always be rescinded by the mistaken party. d) Sunrise would be able to rescind the contract based on its clerical error even if the error was not material. e) Sunrise will win because a contract based on a mutual mistake may be rescinded by either party.

The correct answer is B. Generally, a unilateral mistake is not avoidable by the person making the mistake. An exception exists when the mistake is a palpable (large) clerical error and the other party knew or should have known of the mistaken party's clerical error. Had the clerical mistake been small enough where a reasonable person would not have noticed an error, there would be no right to avoid the contract.

The contractual condition that exists requiring the payment for goods at the time they are delivered to the buyer is what type of contractual condition? a) Condition subsequent b) Condition precedent c) Implied condition d) Condition concurrent e) Mutual condition

The correct answer is D. Condition concurrent requires simultaneous or contemporary action with another action, as here. A condition subsequent terminates or limits a party's legal obligation upon the occurrence or failure to occur of a particular event or act. A condition precedent will initiate one's legal obligation under a contract or cause a contract to come into existence upon the occurrence of a particular event or act. A condition may be implied or express how they are created and they may be mutual, meaning the condition applies to both parties.

Which of the following is regarded as the highest form of law? a) Statutory law b) Common law c) Administrative law d) Constitutional law e) U.S. treaties

The correct answer is D. Constitutional law is the highest form of law. All laws of the jurisdiction must comply with it. In the United States, the highest form of law is the U.S. Constitution, followed by U.S. treaties, statutes, and administrative rules and regulations. There is no body of federal common law as there is in each of the states. State constitutions may not conflict with the U.S. Constitution.

Which of the following is a reason a business should be ethical? I. Ethics builds trust and capitalism succeeds because of trust. II. Practicing ethics can lead to a good business reputation. III. Practicing ethics usually reduces legal costs. a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is D. Companies do get value from practicing good ethics in the long run. These benefits include trust of the stakeholders, creation of a good reputation that builds good will, and reduced lawsuits. Other benefits might be a more satisfied and fulfilled workforce, and good ethical practices can have a trickle-down effect on managers and the rank-and-file employees.

Which of the following is NOT a true statement about substantive due process under the Constitution? a) The legislature and agencies cannot act arbitrarily or capriciously. b) A statute must be properly enacted. c) It stands for the proposition that one may not arbitrarily or unreasonably be deprived of life, liberty, or property. d) An agency of the government may act only with proper constitutional authority. e) It is a right found in Article I of the U.S. Constitution.

e) It is a right found in Article I of the U.S. Constitution.

In the federal court system, which of the following courts is a general jurisdiction trial court? I. U.S. District Court II. U.S. Court of International Trade III. U.S. Claims Court a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is A. Although all three courts are trial courts of competent jurisdiction, only the U.S. District Court has general jurisdiction to hear almost any kind of legal matter involving a federal question and diversity of citizenship actions. The other two courts have limited jurisdiction in the types of legal actions they can hear, namely foreign trade and matters involving the federal government, respectively.

Customer stops at a self-service gasoline station and fills the tank of her automobile. What type of contract did the customer create with the gasoline station owner that requires Customer to pay the purchase price? a) Implied in fact contract b) Express contract c) Quasi contract d) Bilateral contract e) Implied in law contract

The correct answer is A. A contract created based on the conduct of the parties in the normal course of business, as with self-service gasoline stations, is a contract implied in fact. Choice B is incorrect because both Customer and the gasoline station did not set forth the terms of their agreement verbally or in writing. Choices C and E are incorrect because they are not really contracts at all. They create the rights to an equitable remedy based on unjust enrichment. Choices C and E are also the same concept. Choice D is incorrect because Customer and the self-service station did not exchange promises, one to sell and the other to purchase, before Customer pumped the gasoline.

An administrative agency has all of the following powers EXCEPT? a) nonappealable adjudicatory powers. b) investigatory powers with subpoena power. c) rule-making power. d) supervisory and advisory power. e) enforcement power.

The correct answer is A. An administrative agency has adjudicatory power to decide disputes within its jurisdiction, but the agency's decisions are appealable to the federal appellate courts. An agency's powers include quasi-executive, quasi-judicial, and quasi-legislative powers.

Defendant is arrested for driving under the influence (DUI) for operating his motorized wheelchair on a state highway while he is intoxicated. Defendant had no other means of getting home from a tavern where he had been drinking. The state's DUI statute prohibits operating (driving) a motorized vehicle (the wheelchair) on roads while intoxicated. If Defendant claims that the DUI statute does not apply to him, which of the following rules of statutory interpretation must he initially apply? a) Plain meaning rule that would require consideration of what words like "drive," "motorized," and "vehicle" mean b) Intent of the legislature because application of the DUI statute to Defendant would probably discriminate against disabled persons in wheelchairs c) Circumstantial context under which the state's DUI statute was enacted d) Textual context by reading the statute on the whole e) Common sense

The correct answer is A. A court must first look to the statute to determine how the statute should be applied. Thus, the plain meaning rule is first used, which gives their words their ordinary meaning unless a technical word is used. Technical words are given their technical meaning. If after reading the statute and applying the plain meaning rule the court still finds an ambiguity in the statute, the court will look for legislative intent. Legislative intent can be determined through what was said in debates, finding the circumstantial context, and reading the statute as a whole to place the relevant statutory provision in its correct textual context. Common sense is used by judges but is done so in applying other statutory interpretation methods.

Under the doctrine of stare decisis, when can a precedent be overturned or changed without doing damage to the doctrine? a) When a court thinks the precedent is no longer a reasonable rule-for example, for technological or sociological reasons b) When the state legislature deems the precedent is not politically appealing c) When a majority of justices on the state's highest court do not share the political philosophies of the court that established the precedent d) When a trial court regards the precedent as unreasonable e) When a court regards the precedent as still reasonable and workable, but for sociological reasons the highest federal or state court wants to change the law

The correct answer is A. A precedent will be used until it becomes unreasonable and should be changed. Choice B is incorrect because the legislature does not create precedents through court decisions. Legislature may, however, overturn a precedent through enactment of a statute contrary to the precedent case. Choice C is incorrect because it requires a conclusion that courts are politicized, which they should not be. Choice D is incorrect because a trial court has no power to establish a precedent. Choice E is incorrect because to change precedent too easily or often would damage the stability that the doctrine of stare decisis provides.

Which of the following is NOT a basis for finding a product to be defective? a) Injury results when a product is used in a way the manufacturer did not intend nor could reasonably foresee and such use results in injury. b) Injury results from incorrect use caused by improper operating instructions. c) Injury results from a defect caused by a defect in manufacturing. d) Injury results from a defect caused by an inappropriate product design. e) Injury results from a defect caused by the selection of low-quality materials components.

The correct answer is A. A product may be found to be defective rendering it unreasonably dangerous for strict product liability purposes because of inadequate operating instructions, failure to provide reasonable warnings of danger in the product's use, in improper design, improper manufacturing inputs or process, or selling a product that may not be unreasonably dangerous to the intended user for the intended use but still may be dangerous to foreseeable users or bystanders. Choice A is the best answer because it recognizes the requirement that the use and the user must be reasonably foreseeable by the manufacturer or seller

Which of the following is the legal duty that a professional owes to her client in performing the task she was hired to do? a) The professional must possess and use the knowledge, skill, training, and ability that a member of the profession in good standing has. b) The professional must possess and use the knowledge, skill, training, and ability that the most qualified members of the profession has. c) The professional must possess the training but not necessarily the ability that a member of the profession in good standing has. d) The professional must possess a license for the profession and do good work. e) The professional need only be as good as other members of the profession in the community, and a specialist need be no better than a general practitioner.

The correct answer is A. A professional-such as a lawyer, engineer, or CPA-has a standard of care different from the reasonable person standard. A professional is compared to other members of her profession in good standing with the governing board of the profession. A professional must possess and use the education, training, knowledge, and skill of a member of her profession in good standing. It is an objective standard. A specialist within the profession is held to a higher standard. A specialist is compared to other specialists in the profession. The professional is not compared to the best in the profession, but not the worst either—just the normal professional.

Which of the following would be considered a valid offer? a) A newspaper advertisement stating, "I have three two-year-old Arabian horses to sell for $2,000 each, first come, first served this Saturday morning at my ranch." b) A grocery store circular stating the price of rib eye steaks is $2.00 per pound. c) A statement by Investor that "I plan to sell my entire interest in Acme Corporation for $200 per share." d) A ridiculous offer made in jest by Sue to sell her vintage 1966 Ford Mustang automobile for $1,000. e) A request for bids sent by a general contractor to subcontractors seeking bids for commercial plumbing work. a) A newspaper advertisement stating, "I have three two-year-old Arabian horses to sell for $2,000 each, first come, first served this Saturday morning at my ranch." b) A grocery store circular stating the price of rib eye steaks is $2.00 per pound. c) A statement by Investor that "I plan to sell my entire interest in Acme Corporation for $200 per share." d) A ridiculous offer made in jest by Sue to sell her vintage 1966 Ford Mustang automobile for $1,000. e) A request for bids sent by a general contractor to subcontractors seeking bids for commercial plumbing work.

The correct answer is A. Although a newspaper advertisement is usually not a valid offer as they are considered invitations to negotiate because they lack enough specificity, the newspaper advertisement in choice A has enough specificity. The advertisement names the seller, the location, the subject matter, the quantity, the price, and the time for performance. This specificity is not found in choices B or C. Choice D would not be a valid offer because there is not a serious intent to contract. Choice E is incorrect because requests for bids are invitations to make an offer.

Which person employed by an administrative agency is the adjudicator in a tribunal of the agency? a) Administrative law judge b) Director of the agency c) Judge d) Agency jury e) Governing board of the agency

The correct answer is A. An administrative law judge (ALJ) works for the agency, decides the facts of the dispute, and applies the agency's interpretation of the rule to those facts. As an added procedural safeguard, an administrative agency may use a review panel or board to rehear an ALJ's decision. The head of agency tribunals is not the director of the agency or the agency's governing board. An agency tribunal does not use a jury or a judge who would have power to interpret the rule, regulation, or statute.

Acme Corp. has a contract to supply School District with student desks before the new school year starts in August. In July, Acme notifies School District that it does not intend to deliver the desks by the agreed-upon time and that delivery will be a month late. Which of the following is a legal right of School District in this situation? a) School District can treat this as an anticipatory repudiation, purchase the student desks from another vendor, and sue Acme Corp. for the cost difference. b) School District can treat this as an anticipatory repudiation and wait on Acme Corp. to perform even though damages will be higher the longer School District waits to purchase the desks elsewhere. c) School District can treat this as an anticipatory repudiation, but its only option is to sue Acme Corp. immediately for breach of contract. d) As the time of performance has not passed, School District can do nothing other than wait on the agreed-upon time of performance before it purchases the desks elsewhere or sues Acme Corp. for breach of contract. e) School District has no legal recourse because Acme Corp.'s contractual obligation is discharged due to impossibility.

The correct answer is A. An anticipatory repudiation is an act of a party to a contract or situation that indicates to the other party that the other side either will not or cannot perform its contractual obligations. Anticipatory repudiation may be treated like a material breach of contract and give the nonbreaching party certain options including terminating its performance, the right to cover (purchase the goods or services elsewhere), and suing the breaching party for the cost differential (damages). The innocent party may also suspend performance, notify the other party of intent to give that party the opportunity to perform, and wait until the date for performance for the other party to perform. When this is done, there is no mitigation of damages so the damages against the breaching party cannot exceed what they would have been had the nonbreaching party sued immediately after notice of the anticipatory repudiation. Even after notice of an anticipatory repudiation and informing the breaching party of one's intent to wait on performance, the nonbreaching party may sue for breach of contract; however, the nonbreaching party may not cover or sue as long as the breaching party has begun reasonable efforts to perform as instructed.

Cobb has completely performed the landscaping work on his contract with Jackson. Cobb has not been paid for the work. Cobb desires to transfer his right to receive payment from Jackson to one of Cobb's suppliers. Which of the following best describes this arrangement? a) Assignment b) Delegation c) Transfer d) Alienation e) Conveyance

The correct answer is A. An assignment is the transfer of one's contractual right to another person. A contractual right would include the right to receive the other party's consideration, here the payment from the customer. Conveyance, alienation, and transfer all reflect the moving of rights or property (which may include a contractual right) by the owner to another person. "Assignment" is a technical term in contract law. Conveyance, alienation, and transfer are general terms. A delegation is an act in which the obligor delegates (shifts) their duty under a contract to another person. When there is an assignment of a whole contract, then "assignment" includes the assignment of rights and the delegation of duties under the contract.

An appeal is filed by a party who is displeased with the decision of the trial court. The party who files the appeal is called which of the following? a) Appellant b) Appellee c) Plaintiff d) Petitioner e) Defendant

The correct answer is A. Appellants file appeals and appellees defend appeals. Plaintiffs file complaints and petitioners file petitions in trial court. Defendants are sued in trial courts.

Which of the following federal courts is specifically created by Article III of the U.S. Constitution? I. Supreme Court II. Court of Appeals III. District Court a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is A. Article III, Section 1 of the U.S. Constitution states the following: "The judicial Power of the United States, shall be vested in one supreme Court, and in such inferior Courts as the Congress may from time to time ordain and establish." Thus, the answer is the U.S. Supreme Court because the question requires specificity.

Which of the following is NOT a correct statement about a contract based on a mistake? a) Generally, a contract based on a unilateral mistake of fact may be avoided by the mistaken party. b) Generally, a contract based on a mutual mistake of fact can be avoided by either party. c) A contract based on mutual mistake of future market value or quality can be enforced by either party. d) The proper remedy for a person who mistakenly contracts is rescission of the contract. e) When a party makes a material mistake of fact and the other party knows of this mistake, the mistaken party may avoid the contract.

The correct answer is A. As a general rule, unilateral mistakes MAY NOT be avoided. Exceptions would be (1) when the other party knows of the unilateral mistake and takes advantage of the mistake (Choice E) or (2) when a party makes a palpable clerical error on a document and the other party knew or should have known of the mistake. Choice B states the general rule for avoidance for mutual mistake of fact. Choice C is correct about the unavoidability of mistakes of future value. If a party to a contract believes the consideration will increase in value in the future, there is no right to later avoid the contract if the value does not increase as expected. Rescission is the remedy for a party who legally avoids a contract due to mistake

Sigma Company is considering whether or not to move its apparel manufacturing plant to Asia to obtain lower labor costs. The company is no longer profitable using American workers even though the plant has been operating in the United States for 50 years. The American workers have depended on the stability of the plant and finding new work in the area will be very difficult for most of the workers. The workers and the community have been major contributors to the success of the company. In deciding whether relocating the plant is ethical, which of the following forms of ethical reasoning would be MOST LIKELY to support the decision to close the U.S. plant and to relocate? a) Utilitarianism b) Cultural relativism c) Kantian ethics d) Virtue ethics (Aristotelian ethics) e) Distributive justice (John Rawls)

The correct answer is A. As this situation requires a close examination of the effect non-profitability will have on Sigma Company and its shareholders and customers, utilitarianism would most likely support the decision to go offshore. Utilitarianism is a form of consequentialism ethical theory. A decision is ethical if it results in the most good for the greatest number. In this case, a bankrupt company that remains in the United States will do no one any benefit. Relocating offshore will benefit shareholders, the company's creditors, and customers even though it will not benefit other stakeholders like present employees, the community, and the company's current vendors. Cultural relativism concerns how one acts with regard to a foreign culture or acts in a foreign country. Kantian ethics, distributive justice, and virtue ethics may not support the relocation at all when one considers the harm and unfairness to the workers who built the company. Is it right to run out on the current workers?

Which of the following types of bankruptcy does NOT allow the debtor to retain control over its assets to work out payment arrangements with the creditors? I. Chapter 7 II. Chapter 11 III. Chapter 13 a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is A. Both Chapter 11 and Chapter 13 forms of bankruptcy proceedings are for the purpose of reorganizing one's debts so that the corporation or individual wage earner may recover from insolvency. In Chapter 11 bankruptcy, usually the company, which most likely is a corporation, will serve as its own bankruptcy trustee (debtor in possession). In Chapter 13 bankruptcy, reorganization of the debts of an individual (sometimes called "wage earner bankruptcy"), the debtor retains possession of their her assets but does not act as trustee. Chapter 7 bankruptcy, however, is liquidation in bankruptcy. In straight bankruptcy, the assets of the debtor are sold and the proceeds distributed to the debtor's creditors.

Which of the following best describes why the actions of a federal administrative agency do NOT violate the separation of powers doctrine? a) There are checks and balances by both the judiciary through judicial review and the Congress through oversight, budget, and its authority to enact a statute overriding an agency's rule. b) The Congress alone has the power to control a federal administrative agency because it has the authority to create and destroy an agency and the power of the purse. c) The judiciary alone has the power of judicial review of agency decisions and the power to determine whether an agency's rules meet substantive due process requirements. d) The President has ultimate responsibility over the agency and can determine which direction and how much power the agency can use. e) Federal administrative agencies are a fourth branch of government on equal standing with the executive, legislative, and judicial branches under the U.S. Constitution.

The correct answer is A. Checks and balances by the judicial and legislative branches of government explain why federal administrative agencies that have quasi-judicial and quasi-legislative powers do not violate the separation of powers doctrine. The courts have the power of judicial review. They can determine if the actions and rules of an agency comport with substantive and procedural due process. The Congress has the power of the purse, by statute creates the agency and defines the agency's powers, and can abolish an agency and override an agency regulation by a contrary statute. Even though the agency works under the executive branch, the president nominates the persons who will run the agencies and indirectly manages the federal agencies. The above checks and balances keep the president from exceeding one's authority.

Which of the following contracts entered into by a minor can be disaffirmed without being liable for the reasonable value of the goods or services? a) A contract to purchase a pickup truck b) A contract for necessaries c) Student loan contracts d) A contract in which the minor has misrepresented his age e) A contract with a bank to provide banking services

The correct answer is A. Choice A is the only contract that would be voidable under the general rule that the minor's only legal obligation upon disaffirmance due to minority is the return of the consideration if the minor has it. Some contracts are not voidable at all, such as student loan contracts and contracts with banks. Choices C and D are special situations where a minor may disaffirm but must pay fair value for what was received or the amount of damage to the other party.

Granddaughter is the primary caregiver for her feeble and elderly grandmother. Granddaughter advises Grandmother to execute a quitclaim deed to her house and farm land to give ownership to Granddaughter. Grandmother usually does whatever Granddaughter asks of her. Grandmother's son, who had expected to inherit her property, objects to the transfer to Granddaughter. These facts probably constitute which of the following for the purpose of rescinding this transfer? a) Undue influence b) Intentional misrepresentation c) Innocent misrepresentation d) Duress e) Mistake

The correct answer is A. Contracts and property law are entwined in this question. Due to Grandmother's physical and mental condition, she relies on Granddaughter. When such conditions exist, a person has the power to dominate another's thinking and the dominant person's wishes may control the other person's actions. The dominant person may exert an undue influence over the other party's actions. This is not an unusual situation. Reality of consent (genuineness of assent) requires an intent to contract based on reality and the individual's desire to contract—not someone else's. In this case, Granddaughter has probably exerted undue influence over Grandmother in advising her to convey the house and farm to Granddaughter. The son may file a lawsuit to have the conveyance (deed) rescinded. A set of facts that would be based on a bilateral contract rather than a gift, but still have the same result of rescission based on undue influence, would be the bargain sale of the house and farm to Granddaughter for a very low price.

Acme Company is in the third year of a five-year contract with its labor union. Which of the following is the correct classification for this labor contract? a) Executory contract b) Executed contract c) Voidable contract d) Implied in law contract e) Unilateral contract

The correct answer is A. Contracts may be classified as to their status in terms of performance. This contract has not been fully performed, so it is an executory contract. Had the contract been fully performed, it would have been an executed contract. A contract may be executory as to one party and executed as to another. Collective bargaining agreements are express contracts and formal. There is no evidence here that there is any defect that would cause the collective bargaining agreement to be voidable by one of the parties.

Which of the following is a form of business entity that is owned by shareholders and managed by directors? a) A corporation b) A partnership c) A limited liability company d) A limited partnership e) A trust

The correct answer is A. Corporations are legal entities owned by shareholders (the equity holders) who elect directors to manage the corporation. A partnership is owned by partners, and a limited liability company is owned by members. A trust is a legal entity whose property is legally owned by the trustee for the benefit of the beneficiaries.

Which of the following methods of discovery under the rules of civil procedure is characterized by written questions to be chosen in writing under oath by a party? a) Interrogatories b) Oral deposition c) Request for admissions d) Production of documents e) Subpoena

The correct answer is A. Interrogatories, as the name implies, are questions. Attorneys use them to get background information about the defendant and persons involved so that those attorneys can focus more on collecting evidence or facts through other means of discovery, such as oral depositions and production of documents. Requests for admissions are made in writing and require the other party to admit or deny the factual statements contained therein. A subpoena is an order of the court commanding the person to appear at a legal proceeding as a witness or deponent, subject to penalty for noncompliance.

Which of the following is a correct statement regarding the comparison of torts and crimes? a) A crime may also be a tort. b) Both crimes and torts are punishable by fines. c) Both torts and crimes require the plaintiff to prove the case beyond a reasonable doubt. d) If an act of the defendant has been punished as a crime, the constitutional freedom against double jeopardy prohibits a private plaintiff from prosecuting the case in civil court. e) Because punitive damages are used to make an example out of a defendant for an egregious act, punitive damages cannot be awarded if the defendant has already paid a civil or criminal fine for the same act.

The correct answer is A. Crimes and torts are two classifications of law. Crimes are prohibited acts under criminal law statutes, a classification of public law. A tort is a civil wrong other than a breach of contract for which a court will award the other party a remedy. Tort law is a classification of private law. A crime may also be a tort. A tort may be, but is usually not, also a crime. Crimes are punishable by the state with sanctions of fines or imprisonment. The remedy for a tort is usually money damages. The burden of proof in criminal cases is guilt beyond a reasonable doubt. The burden of proof in a tort case is usually by a preponderance of the evidence. The doctrine of double jeopardy does not prevent a civil jury from awarding punitive damages against a defendant who acted egregiously even though the same act resulted in the defendant receiving criminal punishment in a criminal prosecution.

Rancher offers to sell Rider her prize horse for $10,000. Rider goes to Rancher's place to accept the offer and pay for the horse. Rancher tells Rider that the horse is dead. Which of the following is true in this situation? a) Rancher's offer was revoked as a matter of law upon the death of the horse. b) Rancher must sell Rider another horse acceptable to Rider. c) Rancher's offer was not revoked because she did not inform Rider of her withdrawal of the offer to sell. d) Rancher's offer was revoked because Rider did not accept it immediately after it was made. e) Rancher is liable to Rider for damages in not selling the horse.

The correct answer is A. Death of the subject matter before the offer is accepted terminates an offer as a matter of law. In such a situation, the offer cannot be accepted even though the offeror did not immediately inform the offeree of the horse's death. Since the offer was effectively revoked, Rider could not accept the offer and no contract could be formed. If no contract is formed, there is no breach of contract and no remedy for Rider. Choice D is incorrect because if no time for acceptance is provided in the offer, a reasonable time to accept is allowed.

State desires to regulate an industry. The federal government has expressed a concern that the industry should be regulated solely by the federal government to achieve uniformity in the regulation of that industry. Which of the following best describes State's power to regulate that industry? a) The Preemption Clause of the U.S. Constitution would not allow State to regulate the industry regardless of State's desire or need. b) The Preemption Clause of the U.S. Constitution would allow State to regulate the industry provided State had a legitimate interest to regulate the industry. c) The Preemption Clause prohibits states and local governments from ever regulating business when the federal government has made any attempt to regulate that industry. d) The Dormant Commerce Clause would allow State to regulate the industry regardless of the federal government's regulation. e) The Dormant Commerce Clause would allow State to regulate the industry as long as the state regulation did not conflict with the regulation of the federal government.

The correct answer is A. Even though State may have concurrent power to regulate an industry, under Article VI , federal regulation preempts state regulation rendering it void where the federal government chooses to act exclusively, as here. This preemption right under the Supremacy Clause makes choice B incorrect. Choice C is an incorrect statement because it ignores that states may have concurrent power to regulate business as long as state regulation does not directly conflict (choice E) and, as noted above, when Congress shows its intent to regulate exclusively. Choice D is an incorrect statement of a state's power to regulate an industry.

Which of the following is true regarding interpretation of contracts? a) When the written contract contains ambiguous or unclear terms, a court will interpret the language to give effect to the parties' intent as expressed in their contract. b) The party drafting the contract gets to choose how words or phrases are used in the contract and the meaning applied to those words or phrases. c) A word in a contract will be given its ordinary, commonly accepted meaning even if the word is a technical word. d) Pre-printed terms prevail over handwritten or typewritten terms. e) Parole evidence is always admissible in court to explain the intent of the parties.

The correct answer is A. If a contract is clear and not ambiguous, a court will look no further than the four corners of the document to interpret the contract. When a contract contains ambiguous provisions, a court will try to interpret the contract to meet the intentions of the parties. In doing so, the court will give ordinary words their ordinary plain meaning and technical words their technical meaning. Under rules of contract, interpretation courts will construe ambiguous provisions against the party who drafts the contract. Handwritten terms override typewritten terms and typewritten terms override pre-printed terms. Under the parole evidence rule, outside (extrinsic or parole) evidence will not be admissible to explain the parties' intentions or promises before the contract was executed or contemporaneously to it as long as the contract is complete and fully integrated, containing all of the parties' promises and representations.

Which of the following is NOT an essential element for strict product liability? a) The plaintiff must only be the intended user of the product. b) The defect must have caused the plaintiff's injury. c) The product must have had a defect. d) A defect in the product must have rendered the product unreasonably dangerous. e) The defect must have existed when it left the seller's hands.

The correct answer is A. In strict product liability, the plaintiff may be the intended user of the product, a bystander, or a reasonably foreseeable user. The use and the user must be reasonably foreseeable. This is part of the proximate causation requirement. Generally, a plaintiff in a strict product liability case must prove that the product contained a defect that rendered it unreasonably dangerous when it left the seller's hand, the defect caused the plaintiff's injury, and the plaintiff suffered damages.

Which of the following types of third-party beneficiaries is unintentional and cannot sue to enforce the contract? I. Incidental beneficiary II. Donee beneficiary III. Creditor beneficiary a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is A. Incidental beneficiaries are not intended to benefit from an assignment as are creditor and donee beneficiaries. Incidental beneficiaries have no right to sue an obligor to enforce the obligor's promise. Donee and creditor beneficiaries are third-party beneficiaries who have this right.

Corporation desires to establish a manufacturing facility in a foreign country that requires any new foreign investment to be controlled by a citizen of that foreign country. In this case, which of the following investment vehicles would be most appropriate for Corporation? a) Joint venture b) Wholly-owned foreign subsidiary c) Foreign distributor d) Licensing technology and intellectual property to a foreign company e) Franchisor-franchisee relationship

The correct answer is A. Joint ventures are created when two or more persons join in a business venture for a limited purpose and possibly a limited time without intent to expand the relationship. Thus, if a U.S. company wanted to manufacture in a foreign country and it had to have a partner having voting control, the U.S. company would not want that foreign partner to expand its control beyond its ownership interest in the joint venture. A wholly-owned subsidiary would not work because of the host county's restriction on ownership and control by a national. Foreign distributors and franchises are used for marketing—not manufacturing. Finally, licensing may be an option, but the owner of the intellectual property may end up losing too much control over the intellectual property and products.

Which theory of corporate social responsibility requires the company to give the first consideration to act in favor of the shareholders rather than other stakeholders? a) Shareholder theory of Milton Friedman b) Stakeholder theory of Edward Freeman c) Stakeholder analysis theory of Kenneth Goodpasture d) Distributive justice theory of John Rawls e) Immanuel Kant's theory of categorical imperative

The correct answer is A. Milton Friedman, a Nobel prize-winning economist most noted for his work on free market economics, argues the shareholder theory of corporate responsibility. This theory states that a corporation should act only in ways that will maximize profits for the shareholders provided no laws are broken. Other stakeholders are not considered under this theory as they are under the stakeholder theory of Edward Freeman and the stakeholder analysis theory of Kenneth Goodpasture. The stakeholder theory would require the corporation to consider all of the stakeholders (shareholders, employees, community, customers, vendors, etc.) when making decisions. Shareholders are not given preference. Goodpasture's stakeholder analysis theory considers all of the stakeholders but first consideration should be to the shareholders because they have to make a reasonable profit on their investment. Distributive justice is a rights or justice theory. Kant's theory of categorical imperative does not fit as easily into the corporate social responsibility scheme.

Assume that Microsoft Corporation wanted to purchase all of the stock in Apple Corporation. This would then give Microsoft virtually all of the control over the personal computer operating system market. What would be the regulatory result of such a corporate acquisition? a) This would be a horizontal merger and would be denied under the Clayton Act. b) This would be a vertical merger and would be denied under the Clayton Act. c) This would be a conglomerate merger and would be denied under the Clayton Act. d) This merger would be approved by the Federal Trade Commission and the U.S. Department of Justice e) This merger would be approved because it would not violate Section 2 of the Sherman Act if the corporate acquisition takes place.

The correct answer is A. One can easily tell from the facts (Microsoft and Apple) that there is a potential monopoly problem. Since Microsoft and Apple are competitors within the same industry and on the same level, this would be a horizontal merger. Horizontal mergers are given the greatest scrutiny by the FTC and the Department of Justice in the merger approval process because they have the greatest tendency toward harming competition. Under Section 7 of the Clayton Act, as amended by the Celler-Kefauver Act, a merger that may substantially lessen competition or tend to create a monopoly would be illegal. The FTC would have to prohibit the merger because the industry concentration level within the relevant product market would be so high as to damage competition. If the merger took place, which is very remote, there would be a violation of Section 2 of the Sherman Act that prohibits monopolies that restrain trade in interstate commerce.

Which of the following is NOT a legal right of a director of a corporation? a) Right to change the corporate charter (articles of incorporation) b) Right to inspect the books and records of the corporation to fulfill her obligation to manage the corporation with due diligence c) Right to vote on the payment of dividends to shareholders d) Right to vote to set the compensation of the officers of the corporation e) Right to authorize major corporate policies and changes in product lines

The correct answer is A. Only the shareholders of the corporation can change the corporate charter (or articles of incorporation).

Which of the following is the usual legal duty owed by a business to its invitees (or customers)? a) Duty to make reasonable inspections of the premises for any hazards and the removal of the hazard within a reasonable time after discovery. b) Duty to make daily inspections of the premises for any hazards and the removal of the hazard within a reasonable time after discovery. c) Duty to make reasonable inspections of the premises for any hazards and the removal of the hazard immediately upon discovery. d) Duty to not intentionally injure the invitee. e) There is no duty to inspect the premises for any hazards, but once a hazard is found, the business must remove the hazard within a reasonable time.

The correct answer is A. Owners of real estate owe different duties to different types of persons who may go upon the owner's property. The owner of a business who has customers on its property owes these business invitees a duty to make reasonable inspections of the premises for hazards that may hurt the invitee and to remove any hazard within a reasonable period of time after the hazard is discovered. What is reasonable depends on the facts, including how serious the hazard and the likelihood of someone getting hurt. The inspections do not necessarily have to be every day and removal of the hazard does not have to be immediate. Some businesses, like a grocery store, would probably do both, however. Choice D states the general rule that the premises owner owes no duty to a trespasser other than to not intentionally injure the trespasser. A minority of states follow the rule in choice E for trespassers. Some states follow the rule in choice E for licensees.

Which type of contract will be treated by a court as though it never existed? a) Valid contract b) Void contract c) Voidable contract d) Enforceable contract e) Implied in fact contract

The correct answer is B. A void contract--for example, one that is unconscionable or illegal--is a nullity in the eyes of the law. Void contracts cannot be enforced in court; they are just the opposite of valid contracts that exist under the law. Voidable contracts are contracts in which one of the parties may avoid (get out of) if the proper grounds exist, such as minority or fraud. Implied in fact contract is a form of a valid contract.

Which of the following is NOT a per se violation of the federal antitrust laws? a) Resale price maintenance agreements b) Horizontal price fixing c) Horizontal geographic market division d) Group boycott to eliminate competition e) Tying arrangement when the company is also a monopoly

The correct answer is A. Per se violations of antitrust statutes do not require proof that the restraint on trade is unreasonable. They are by their nature evil and likely to injure competition. Whereas a resale price maintenance agreement, a vertical agreement where a manufacturer as a condition of the sale requires the retailer to resell the product at a fixed or floor price, used to be a per se violation, it no longer is. Resale price maintenance agreements now fall under the rule of reason requiring the restraint on trade to be an unreasonable restraint. Group boycotts (joint refusals to deal) are per se violations in limited situations where the intent of the group boycott is to eliminate competition.

Criminal law would be classified as which of the following? a) Public law b) Private law c) Constitutional law d) Common law e) State law (only)

The correct answer is A. Public law is defined as a general classification of law, consisting generally of constitutional, administrative, criminal, and international law, and is concerned with the organization of the state, the relations between the state and the people who compose it, the responsibilities of public officers to the state, to each other, and to private persons, and the relations of states to one another. Public law can be state or federal. Private law is that classification of law that deals with the relationship of persons to persons and their substantive and procedural rights, like contract and tort law.

Which type of contract remedy allows a court to rewrite the parties' contract to state what the parties had intended but had failed to properly express in the contract document due to error? a) Reformation b) Specific performance c) Quantum meruit under quasi contract d) Restitution e) Rescission

The correct answer is A. Reformation is an equitable remedy in a contract case where the parties through error or oversight had not expressed in their contract their exact intentions, such as misstating the scope of the work to be performed. A decree of specific performance may be awarded requiring a breaching party to perform as agreed. Quantum meruit is the measure of the amount of money a plaintiff is due under quasi contract. It means the amount deserved and usually is the value of the unjust enrichment the defendant has unjustly received. Restitution is the equitable restoration of a person wronged by a breach of contract by another. It puts the innocent person back to the same position as before the contract. Rescission is the equitable remedy where a contract is canceled, putting the parties back into their position before entering into the contract. Each party must return the consideration received from the other party. Rescission may be by agreement of the parties, by their conduct, or by order of a court.

Which of the following federal antitrust statutes prohibits contracts, combinations, or conspiracies in restraint of trade in interstate commerce? a) The Sherman Act of 1890, Section 1 b) The Sherman Act of 1890, Section 2 c) The Clayton Act of 1914, Section 3 d) The Clayton Act of 1914, Section 7 (as amended by the Celler-Kefauver Act) e) The Federal Trade Commission Act of 1914

The correct answer is A. Section 1 of the Sherman Act prohibits such activities as horizontal price fixing; horizontal market division; group boycotts (refusals to deal); resale price maintenance agreements; and similar contracts, combinations, or conspiracies that restrain trade in interstate commerce. Section 3 of the Clayton Act prohibits tying arrangements and exclusive dealing contracts that may substantially lessen competition or tend to create a monopoly.

A U.S. wholly-owned foreign subsidiary does business in a developing country (a poor country). The foreign subsidiary's employment policies and practices treat foreign workers with much less dignity than its American expatriates (i.e., Americans working abroad for the company). Still, compared to what the foreign workers are accustomed to and the higher pay they are receiving, the foreign workers do not complain about how they are treated. Which of the following ethical principles would most likely require a conclusion that the company is acting ethically? a) Cultural relativism b) Moral relativism c) Kantian ethics d) Distributive justice e) Rights theory

The correct answer is A. Similar to moral relativism (situational ethics) is cultural relativism. In cultural relativism, one does not place one culture above another and considers each culture on its own. What is generally acceptable in that culture would be ethical for a foreigner. Using cultural relativism as an ethical reasoning form, the U.S. wholly-owned subsidiary would not be acting unethically in treating employees who are nationals of the host country worse than the company treats its American expatriates. Cultural relativism, in effect, would allow companies from the major industrialized nations to lower company standards when doing business in developing nations. One might reach the same result using moral relativism by adopting a "when in Rome, do as the Romans do" ethical philosophy. Antagonists of moral relativism argue that such ethical reasoning has no value at all because the individual or company would stand for nothing.

Syms believes that an antique clock has a much greater value than the seller wants for it. Syms buys the clock and later learns that he was incorrect about the value of the clock. Can Syms rescind the purchase contract and get his money back? a) No, because he made a unilateral mistake in value. b) No, because he made a bilateral mistake in value. c) Yes, because he made a unilateral mistake in value. d) Yes, because he made a bilateral mistake in value. e) Yes, because the seller committed a negligent misrepresentation by not correcting Syms's belief about the clock's value.

The correct answer is A. Since Syms was the only person mistaken about the value of the clock, this is a unilateral mistake. Unilateral mistakes in value are not avoidable by the mistaken party. Bilateral mistakes of value are avoidable, but that is not the case here. Choice E is incorrect because the facts do not reflect negligence on the part of the seller and, with regard to value, the notion of caveat emptor applies as long as there is no wrongdoing on a seller's part.

Which of the following classifications of torts occurs when the plaintiff is injured as a result of the ultrahazardous (or abnormally dangerous) activity of the defendant and the defendant used all normal precautions and due care to prevent injury to anyone? a) Strict liability tort b) Negligence c) Gross negligence d) Intentional tort e) Recklessness

The correct answer is A. Strict liability is liability without regard to bad act or negligence. As long as the defendant's activity is ultrahazardous in nature, such that injury can result to someone even though the defendant has used all due care and proper method, there is liability.

Which of the following is a correct statement regarding contract damages when there is only substantial performance by a party? a) If there is substantial performance, the amount of the recovery by the breaching party under the contract is the contract price less the damages sustained by the nonbreaching party. b) If there is substantial performance and the breach is willful (intentional), the breaching party gets nothing under the contract. c) If there is substantial performance and the breach is not willful (intentional), the breaching party may recover in equity for unjust enrichment (quantum meruit). d) If there is substantial performance, the party is entitled to the full contract price. e) Substantial performance is all that is required of a contractor to fulfill its contractual obligations.

The correct answer is A. Substantial performance discharges one's obligation except for the actual damages suffered by the nonbreaching party as a result of the breach. The breaching party who has only substantially performed may sue to collect under the contract, usually whether the breach is willful or not, but the nonbreaching (innocent) party does not have to pay for the damages sustained as a result of breach. One who only substantially performs has no right to sue under quasi-contract for unjust enrichment because there is an underlying contract on which to bring a cause of action to collect for the work performed. Substantial performance does not allow the nonbreaching party to withhold payment of the whole or unpaid contract price if that amount exceeds the actual cost to complete the work as the contract provides.

The Commerce Clause of the U.S. Constitution authorizes the federal government to regulate business, trade, or professional activity of a private citizen who does not do business out of their home state under which of the following situations? a) The private activity, when taken as a single act of the citizen or the cumulative effect of all similar acts by everyone else, substantially affects interstate commerce. b) Congress can regulate the activity only if the citizen's private activity alone has a substantial effect on interstate commerce. c) Congress can regulate the activity only if the citizen's private activity involves conducting a business. d) The Commerce Clause does not allow the government to regulate any private activity whatsoever. e) The Commerce Clause allows the government to regulate any business or private activity Congress desires to regulate.

The correct answer is A. The Commerce Clause provides the federal government its greatest power over citizens' day-to-day lives. The Commerce Clause gives the Congress the power to regulate interstate commerce. Courts have construed this power so broadly to include the right to regulate private, intrastate activity as long as the cumulative effect of all such actors everywhere would substantially affect interstate commerce. Choice E is incorrect because it is hyperbole as it overstates the Congress's power.

Creditor hired Debt Collector to collect a consumer debt against Plaintiff. Debt Collector used heavy-handed and high-pressure techniques against Plaintiff, including late night phone calls, phone calls at work, and phone calls to Plaintiff's employer. Which of the following most accurately describes Plaintiff's legal rights in this case? a) Plaintiff may sue Debt Collector for violation of the Fair Debt Collection Practices Act and recover the greater of his actual damages or $1,000, plus attorney's fees. b) Plaintiff may sue Debt Collector for violation of the Fair Credit Billing Act and recover his actual damages plus attorney fees. c) Plaintiff may sue only Creditor for violation of the Fair Debt Collection Practices Act and recover his actual damages plus attorney's fees. d) Plaintiff has no right to sue under the Fair Debt Collection Practices Act if he actually owes Creditor the amount claimed as an outstanding debt. e) Plaintiff has no cause of action under the FDCPA because the actions of Debt Collector are not prohibited under the statute.

The correct answer is A. The Fair Debt Collection Practices Act regulates debt collection agencies, including lawyers who are engaged to collect debts. The FDCPA prohibits heavy-handedness in dealing with debtors such as repeatedly calling the debtor's place of employment, phone calls to family members or the debtor's employer to pressure the debtor into paying the debt, phone calls late at night, threats, intimidation, etc. The FDCPA does not make Creditor liable for the acts of Debt Collector and Creditor is not prohibited from doing many of the heavy-handed collection tactics of Debt Collector as long as they act solely as the creditor. A debtor suing for a violation of the FDCPA is entitled to his actual damages, or $1,000 as a statutory penalty, whichever is greater, and attorney's fees. There is no defense that the debtor actually owes the debt.

State enacts a new statute requiring Mail Order Company to collect sales and use taxes from its shipments of goods sold and shipped to residents of State. Mail Order Company has no nexus with State because it doesn't have employees, agents, or property ownership in State. It ships goods into the state using the mail, State's infrastructure and phone system, law enforcement to protect its goods, and the courts to enforce collection on accounts. Which of the following most accurately describes why State's taxing statute would be unconstitutional under the U.S. Constitution? a) The statute would violate the Commerce Clause because State would place an unreasonable burden on interstate commerce. b) The statute would violate the Due Process Clause because State's statute would be unfair to Mail Order Company even though it purposefully availed itself of the privilege to do business within State. c) The statute would violate the Equal Protection Clause. d) The statute would violate the Takings Clause. e) The statute would violate both the Commerce Clause and the Due Process Clause.

The correct answer is A. The U.S. Supreme Court in Quill Corporation v. North Dakota has held that a state's requirement to have an out-of-state company such as this one collect and remit taxes on sales to the state's residents was unconstitutional as it violated the Commerce Clause. The violation of the Commerce Clause is based on the state placing an unreasonable burden on interstate commerce, which states are prohibited from doing when they regulate business. In Quill Corporation, the U.S. Supreme Court held that the Due Process Clause was not violated since the seller had sufficient nexus with the state to make collection and remittance of the tax fair.

Which of the following is NOT a correct element of promissory estoppel? a) Promisor makes a promise to promisee. b) To induce an action, but never a forebearance, of a definite character on the part of promissee c) Reliance on the promise by the promisee d) Promisee performs as she is induced to do. e) Injustice can only be avoided by fulfillment of the promisor's promise.

The correct answer is B. Action or forbearance of a definite character on the part of the promises must be induced by the promise. The other required elements of promissory estoppel (or detrimental reliance as it is called) include the making of the promise, reliance on the promise, the actual performance or forbearance as induced by the promise, and an injustice requiring an equitable remedy of enforcement of the promise.

A contractor enters into a contract with a city to construct a large sports arena. Construction operations are to begin at once. The contract contains a termination for convenience clause that allows the city to terminate the contract upon giving written 30-day advance notice of contract termination to the contractor. Contractor's only legal rights would then be to collect all expenditures to date, wrap-up costs, and an allowance for part of the profits on the contract. Which of the following types of conditions explains best why the city's contractual obligations stop or are curtailed? a) Condition subsequent b) Condition precedent c) Implied condition d) Condition concurrent e) Express condition

The correct answer is A. The city's contractual obligations end or are reduced by meeting a condition subsequent, the giving of a 30-day advance written notice to Contractor. A condition precedent must occur to create a contractual obligation or to create a new contract. A condition concurrent is an act that must be performed at the same time or contemporaneously with another's act. Neither condition precedent nor condition concurrent is relevant here. The termination for convenience right is an express condition because it is written (implied conditions are not), but it does not accurately explain why the city's legal obligations stop or are curtailed.

The doctrine of stare decisis means which of the following? a) The practice of deciding new cases with reference to former decisions, or precedents b) The practice of never changing a precedent c) The practice of requiring all legal disputes to be based on precedent d) A Latin phrase meaning "to stand on established statutes" e) The practice of allowing the courts to make any new law

The correct answer is A. The doctrine of stare decisis requires court decisions to be based on precedent or former decisions. It is a Latin term meaning "abide by, or adhere to, decided cases"; thus, choice D is incorrect. Precedents may be changed from time to time when the rule is no longer reasonable. Choice C is incorrect because some disputes arise under statutes that change more often. Courts make common law but legislatures make statutes. The courts' function with regard to statutes is to construe them to say what they mean.

Which of the following situations would require a court to apply the highest level of strict scrutiny to determine whether a statute of the state government was constitutional? a) The statute restricted political speech. b) The statute restricted a company's ability to advertise its products. c) The statute regulated a profession. d) The statute treated men and women differently. e) The statute restricted the number of business permits that could be granted.

The correct answer is A. The highest level of constitutional scrutiny by a court is strict scrutiny. A court is required to use strict scrutiny when a fundamental right (one grounded in tradition) is restricted by the government or when government restriction is based on a suspect class (race and alienage). In this case, political speech is one of America's most fundamental rights, so for a state to restrict political speech would require a court to apply the strict scrutiny constitutional test in which the government must have a compelling interest and the means to achieve it must be narrowly tailored and go no further than necessary to meet the compelling interest. Advertising is a form of commercial speech that receives a high level of scrutiny, but not the highest strict scrutiny. To restrict commercial, speech the government must have a substantial government interest, the restriction must directly advance that substantial interest, the speech must not be unlawful (e.g., untruthful or deceptive), and restriction must be narrowly tailored. When the government treats persons different based on gender or legitimacy, intermediate scrutiny is used. When the government regulates business activity or professions, the lowest level of scrutiny-the rational basis test-is used.

If a court finds that the parties intended their written contract to be a complete and final embodiment of their agreement, a party cannot introduce in court evidence of any oral agreement or promise made prior to the contract's formation or at the time the contract was formed. This rule is known as the a) parole evidence rule. b) contract modification rule. c) Statute of Frauds. d) integrated contract rule. e) collateral promises rule.

The correct answer is A. The question states the parole evidence rule, which is a rule of contract law and not a rule of civil procedure. The contract must be fully integrated or complete, meaning the writing contains all of the parties' promises and representations. It should be noted that there are several exceptions to the parole evidence rule that would allow a party to introduce parole evidence, such as when there is fraud, the contract is ambiguous, or there is a subsequent modification of the contract.

Which of the following types of ethics would require an individual to do what was just even if doing so might do harm to the individual or have an unintended consequence? a) Virtue ethics (Aristotelian ethics) b) Utilitarianism c) Consequentialism d) Kantian ethics e) Entitlement theory of ethics of Robert Nozick

The correct answer is A. The virtue ethics of Aristotle, Socrates, Plato, and Epictetus would require one to live the good life and do what was right and just regardless of the consequences. Decisions under this form of ethical reasoning might differ greatly from decisions made using consequentialism ethics, such as utilitarianism or situational ethics. Robert Nozick's entitlement theory of ethics is a form of rights or justice ethics. Before one has a right to something, one must be entitled to it through a property or legal right or by transference of a right. This view substantially differs from John Rawls's view of distributive justice.

Director voted to authorize Corporation to acquire a major product line of one of its competitors. Director did not advise the other directors that she owned a substantial block of common stock in that competitor. Still, she thought the new product line could be profitable with the right management, though it might be difficult at first. Corporation's board of directors approved the acquisition with Director casting the decisive vote in favor. The acquisition was a disaster and Corporation's stock fell substantially. If Director is sued by Corporation's shareholders for damages sustained as a result of the bad business decision, what will be the result of the lawsuit? a) Director will probably be liable for breaching her fiduciary duty of loyalty, and she will not have the defense of the business judgment rule since she had a conflict of interest. b) Director will be strictly liable as a fiduciary of the corporation. c) Director will not be liable because her decision comports with the business judgment rule defense. d) Director will not be liable because directors of a corporation cannot be held liable for any decisions they make regarding the corporation. e) Director will be liable for breach of her duty to exercise reasonable care in making the decision regardless of her conflict of interest.

The correct answer is A. This is a case to determine if the director has a defense of the business judgment rule. The business judgment rule is a defense of an officer or director in a charge of negligence in making a decision on behalf of the corporation. If the officer or director (1) acts in good faith, (2) acts in the best interests of the corporation, and (3) makes an informed decision (i.e., due diligence), then the officer or director is immunized from liability for the corporate decisions they make. Good faith requires that the officer or director not have a conflict of interest in the decision. That is the case here. Director will probably face liability in this case since she will not be able to use the business judgment defense.

Which of the following contractual defenses exists when parties have a dispute over the amount of contract debt, the debtor tenders a check marked "paid in full", and the creditor cashes the debtor's check? a) Accord and satisfaction b) Novation c) Discharge by substituted agreement d) Discharge by alteration of the contract e) Commercial impracticability

The correct answer is A. This is accord and satisfaction, meaning agreement to settle and performance of the settlement obligation. A requirement is that the debtor and creditor must have a legitimate dispute over the amount of the debt. The debtor's offer to settle the debt for less than the creditor claims is found in the writing of the debtor's check with the "paid in full" explanation and the tender of the check. The accord (agreement) is the acceptance of the check by the creditor and the cashing of the check. This results in the satisfaction (settlement) of the debt. A novation usually arises in delegation of duties cases where the original obligor (delegator) is relieved of further legal liability on the contract by the substitution of a new contract between the delegatee and the obligee. In this case, there is no modification of the contract or substitution of debtors.

Employer hires Employee to operate a bucket truck (i.e., a "cherry picker") to trim trees and to work around electrical lines. Employer did not investigate Employee's background, skills, or qualifications. Employee caused an innocent independent contractor (not an employee of Employer) to be injured when Employee negligently operated the bucket truck causing the person to be thrown into a live power line. Had Employer performed an adequate inquiry of Employee's qualifications, Employer would have known that Employee could not safely operate a bucket truck. Which of the following best describes the legal consequences to Employer? a) Employer will be directly liable to the injured person based on its negligent hiring of Employee and vicarious liability for Employee's negligence. b) Employer will be liable only based on vicarious liability. c) Employer will be strictly liable to the injured person. d) Employer will not be liable since it did not negligently operate the bucket truck, the proximate cause of the injury. e) Employer will not be directly liable because common law does not recognize the tort of negligent hiring or negligence and supervision.

The correct answer is A. This question requires one to view the fact pattern in total and ask how can the employer be liable. The facts show that the employer committed negligence in hiring the employee. They hired an incompetent to do a technical job with potentially deadly consequences. If he had been properly supervised as a new hire, the employer may very well have known that he did not have the skill or experience to operate the bucket truck. Thus, the employer's negligence in hiring and supervising the employee creates direct liability to the injured independent contractor. There is also vicarious liability to the employer because the employee committed negligence within the scope of his employment. This vicarious liability is based on respondeat superior (Latin, meaning, "let the master answer.")

Which of the following legal risks in having foreign operations arises from the foreign host nation unilaterally taking the assets of a foreign company? a) Expropriation b) Nationalization c) Business risk d) Credit risk e) Retaliation

The correct answer is A. This risk is expropriation, the taking of private property by a foreign government. Usually, there is compensation to the owner of the private property. A company doing business abroad can insure against this risk by purchasing insurance through Overseas Private Investment Corporation (OPIC). Nationalization is similar as it occurs when a foreign nation takes over a whole private industry to operate as a public institution. Business risk is more of an investment risk term as it relates to the profitability of a business or industry and products. Credit risk is another business term that exists when a company's debtor may go bankrupt. Retaliation is not a risk under consideration.

Which of the following acts would constitute a violation of Section 10(b) of the Securities Exchange Act of 1934? a) Committing a fraud in the trading of securities by an investor b) Committing a fraud in the registration of an issuance of common stock c) Committing a fraud in the registration of a bond issuance d) A negligent error on the part of the auditor of a publicly traded company that led to the inclusion of misleading financial statements in the annual report e) Aiding and abetting a fraud in an IPO

The correct answer is A. Under Section 10(b) of the Securities Exchange Act of 1934, it is unlawful for an investor, or securities issuer, auditor, underwriter, officer, or director, to manipulate the trading of securities through fraud or deceit. Choices B, C, and E all are violations of the Securities Act of 1933 because they deal with primary securities market. Choice D is not correct because negligence alone is not actionable. Section 10(b) violations can carry both criminal and civil penalties and a private right of action.

Rodriguez is injured on the job when Miller, a coworker, negligently operates a forklift. Which of the following best describes Rodriguez's legal rights in this situation? a) Rodriguez is entitled to worker's compensation from her employer and nothing more since her injury arose out of and in the course of her employment. b) Rodriguez is entitled to worker's compensation from her employer and may recover against Miller in a negligence lawsuit. c) Rodriguez is entitled to seek the greater of worker's compensation or damages in tort against her employer for vicarious liability caused by her coworker's negligence. d) Rodriguez is only allowed to sue Miller for negligence since Miller's act was the proximate cause of her injury. e) Rodriguez is only allowed to sue her employer based on vicarious liability for the negligence of her coworker, since his act of negligence was in the scope of his employment.

The correct answer is A. Under state workers compensation statutes, workers who receive injuries that arise out of and in the course of their employment are entitled to workers' compensation to cover their medical bills, lost wages, and disability. Rodriguez is entitled to worker's compensation. However, under the exclusive remedy doctrine of worker's compensation, the injured worker may not sue either an employer or coworker for negligence.

The formation of an agency relationship may be created by all of the following EXCEPT a) by express agreement. b) by assurances given to a third party by an agent that she has the authority to act. c) by operation of law. d) by implied agreement. e) by ratification of a contract entered into by a person who is not an agent.

The correct answer is B. Agency relationships may be created expressly in writing or orally, implicitly by the nature of the agent's duties that require the authority to perform those duties, and by the conduct of the principal that leads a third party to reasonably believe that the agent has actual authority. Thus, the types of authority granted to an agent are actual authority, implied authority, and apparent authority. Even if there is no authority of an agent to enter into a contract on behalf of the principal, the principal may ratify the agent's contracts and those contracts will become contracts of the principal. Choice B is not a correct statement because an agent cannot create apparent authority by assuring a third party that the agent has authority.

Which of the following types of searches by a government of business property requires the government to have probable cause to obtain a search warrant under the Fourth Amendment of the U.S. Constitution? a) The search is for criminal evidence. b) The search is for administrative purposes. c) The search is done through aerial photography. d) The search is conducted by a federal administrative agency of a company that operates in a highly regulated industry, such as food and drugs. e) The search is pursuant to a request for production of documents.

The correct answer is A. Whenever the government is seeking evidence of a crime or is investigating a crime, a search warrant is required based on probable cause to believe the government will find evidence. Probable cause is not required when there is only a routine inspection by an administrative agency. In that case, the owner of the premises may demand the government inspectors to produce a search warrant, but all the regulators would need is reasonable suspicion of a violation of a rule. This would be easy to obtain. Regardless, if an agency's inspector is not looking for criminal evidence or suspects a crime, and if the property owner operates a business that is in a highly regulated industry like food and drugs or chemicals, then the regulator must be permitted to examine the premises without any search warrant. A request for production of documents is a method of discovery in a civil lawsuit. Entry onto the premises is by permission, and, if permission is not granted, then by order of the civil court to compel discovery.

Which type of performance contains no material or minor breach of contract and requires the other party to pay the full contract price? a) Complete (or full) performance b) Performance to the satisfaction of a third party c) Substantial performance d) Mutual performance e) Personal satisfaction performance

The correct answer is A. With performance, the issue is whether there has been a sufficient amount of work done to discharge one's obligation under a contract. A contract completely performed (or fully performed) is not breached in any way and the party completing his contractual duties is entitled to payment of the full contract price. If a party does not fully perform but substantially performs, then the party has only committed an immaterial breach. His obligation under the contract has been discharged, and he is entitled to payment of the contract price less the damages sustained by the other party for the immaterial breach.

Termination of an offer by operation of law includes all of the following EXCEPT a) lapse of time. b) counteroffer by the offeree. c) after the offer is made, the subject matter becomes illegal. d) death of the offeree. e) death of the offeror.

The correct answer is B. A counteroffer is a rejection by the offeree of the first offer and the making of a new offer. Thus, the counteroffer effectively terminates the offer by an act of the parties (offeree).

Which of the following would NOT be legal consideration to support a contract? a) Settlement of a legal claim against the other party b) A gift c) An amount, not a sham, is significantly less than should have been paid to acquire the good or service d) Forbearance to do a legal act e) Unforeseen difficulties requiring a modification (increase) to the contract price

The correct answer is B. A gift is not legal consideration. Choices A and D are the same because forbearance of a legal right to do something-for example, the right to sue to collect damages-has a value to it. The value, however, is not known with exact certainty. Choice C is incorrect because the law will not protect an individual from making a bad deal, except when the consideration is a sham or based on the lack of reality of consent. Choice E is incorrect because it states an exception to the preexisting duty rule requiring modifications to contracts to be supported by new consideration.

The requirement under the Statute of Frauds requiring a sale of an interest in land to be in a signed writing would NOT include which of the following? a) Sale of a residence in fee simple absolute b) Short-term lease of one year c) Granting of a life estate to a life tenant d) Conveyance of a farm to three children to be held as tenants in common e) Conveyance of an easement to the public utility company to operate their electric lines

The correct answer is B. A lease is not the sale of an interest in land. It is not a freehold estate in land as is the case in choices A, C, and D. An easement in land, though not a possessory interest, is still an interest in land that gives other persons rights, which "runs with the land." Thus, a six-month lease is not covered by the Statute of Frauds. If a lease extends beyond a year of its making, then the lease would have to be in writing, but that would be under a separate provision of the Statute of Frauds.

Defendant makes a motion for a directed verdict that is denied by the trial judge. The jury returns a verdict that is unreasonable based on the facts presented during the trial. Which of the following would Defendant request to correct this injustice? a) Appeal to the court of appeals b) Judgment notwithstanding the verdict (judgment nov) c) Summary judgment d) Remittitur e) Motion for a mistrial

The correct answer is B. A motion for judgment notwithstanding the verdict (judgment nov) may be filed if the trial judge has denied a party a directed verdict. This motion gives the trial judge the power to overturn an unreasonable verdict that a reasonable person could not reach based on the facts presented in the trial. A motion for summary judgment allows the judge to decide the case without a trial, but this is usually done before the trial begins. Remittur is the reducing of a jury's verdict of money damages to a more reasonable amount. That is not what the defendant wants in this case. The defendant also does not want to retry the case or appeal the case and retry it, so choices A and E are not correct.

Which of the following forms of discharge of a party's contractual obligations occurs (1) when a contract is assigned to a third party; (2) the original parties agree that a new contract is formed; and (3) the obligor-assignor is released from further legal responsibility? a) Alternation of the contract b) Novation c) Accord and satisfaction d) Rescission e) Commercial impracticability

The correct answer is B. A novation is discharge by substitution of parties. Alteration of contract is a contract modification by agreement of the parties. Rescission is the undoing of the contract and returning the parties to their status quo ante (the position they had before they entered into the contract). Commercial impracticability is a form of discharge by operation of law and is contained in the UCC for the sale of goods. It allows a party's duty to be discharged or modified when an event beyond a party's control makes performance impracticable (usually at a significant financial loss) and was not reasonably foreseeable or contemplated by the parties.

Which of the following is NOT a correct statement regarding liquidated damages for breach of contract? a) Liquidated damages must be agreed upon by the parties at the time of contracting. b) "Penalty" is another word for liquidated damages and they are treated the same under contract law. c) Liquidated damages are not allowed if the exact amount of damages for breach of contract will be known to the parties when they enter into the contract. d) At the time of contracting, the exact amount of damages must be unknown but capable of reasonable estimation. e) Liquidated damages clauses are included in construction contracts to act as an incentive to perform the construction work in a timely manner.

The correct answer is B. All of the statements are true about liquidated damages except with regard to penalties. Liquidated damages are not penalties and penalties cannot be liquidated damages. Penalties are abhorred by the law and will not be enforced in contract law. Liquidated damages clauses will be enforced in court. Liquidated damages clauses are common in construction contracts because they provide some incentive to the contractor to perform according to the contract schedule. Requirements for a valid liquidated damages clause is that the parties must agree at the time of contracting on the liquidated damages that will be paid in the event of breach and the exact amount of the damages are not known with certainty but may be reasonably estimated.

Which of the following is NOT a legal right of a creditor in a non-bankruptcy situation? a) Garnishment of a debtor's wages b) Assignment for the benefit of creditors without the consent of the debtor c) Foreclosure on collateral under a security agreement d) Writ of execution on a judgment e) Mechanics' lien

The correct answer is B. An assignment for the benefit of creditors is an option for a debtor in which the debtor voluntarily transfers all of her assets to the creditors to share among them in satisfaction of her debts. This cannot be accomplished without the debtor's consent.

In contract law, the transfer of contractual rights to a third party is known as a) third-party beneficiary. b) assignment. c) delegation. d) alienation. e) reformation.

The correct answer is B. An assignment transfers the assignor's rights, while a delegation relieves the delegator of duties. Alienation means to transfer away. A third-party beneficiary may be the assignee of rights under an assignment or transfer of rights. Reformation is an irrelevant term here and is an equitable remedy where a court reforms or rewrites a contract to state what the parties actually agreed to.

Agent has been authorized to expend monies to solicit business for Principal. Principal refuses to pay Agent back for the monies Agent has been authorized to spend doing Principal's business. Principal has violated which of its following fiduciary duties to Agent? a) Duty to compensate b) Duty to reimburse and indemnify c) Duty to cooperate d) Duty of loyalty e) Duty to account

The correct answer is B. An employer has a fiduciary duty to an agent to reimburse an agent who has been authorized to expend monies on behalf of the principal. No duty exists if the parties expressly agree otherwise in the agency contract.

What law controls the sale of goods in the United States (except in Louisiana)? a) Common law of contracts b) Uniform Commercial Code, Article 2 c) Restatement (Second) of Contracts d) Convention on the International Sale of Goods (CISG) e) Code of Sales

The correct answer is B. Article 2 of the UCC is state statutory law that controls sales of goods within the United States. The CISG applies when the sales are international. UCC Article 2 incorporates many common law of contracts concepts, and when the UCC is silent on a legal issue involving a sale of goods, the common law rule will apply.

All the parties involved in an assignment of contractual rights are best described to include which of the following? a) Delegator, delegatee, obligor, and obligee b) Assignor, assignee, obligor, and obligee c) Assignor, assignee, delegator, and delegatee d) Promissor, promissee, assignor, and assignee e) Transferor, transferee, assignor, and assignee

The correct answer is B. Assignor is the party who assigns her rights (who is also the obligee) to the assignee (who now becomes the obligee). Assignor is also the obligor who is required to fulfill the obligation to the obligee. Choices A and C are incorrect because the question does not concern a delegation of duties. Choice D is incorrect because promisor and promisee do not properly describe the obligor and obligee, although a person who is obligated usually makes a promise. Choice E is incorrect because transferor and transferee, names used sometimes for assignor and assignee, respectively, do not describe the obligor and obligee.

Which of the following types of jurisdiction of a federal court exists when there is a federal question for the court to decide? a) Diversity of citizenship jurisdiction b) Subject matter jurisdiction c) In rem jurisdiction d) Personal (in personam) jurisdiction e) Due process jurisdiction

The correct answer is B. Before a federal court can hear a case, it must have subject matter jurisdiction as required by substantive due process. A court may have subject matter jurisdiction by virtue of the case involving a federal question or by diversity of citizenship. Due process also requires a court to have jurisdiction over the person (i.e., personal jurisdiction). In rem jurisdiction can replace personal jurisdiction when the lawsuit is not about a person but about a thing.

Buyer and Seller enter into a contract where Seller is to sell Buyer all of the ice cream that Buyer may want during a year at a price of $2 per gallon. Buyer purchased only 100 gallons, an insignificant amount, of ice cream from Seller. Seller had contemplated selling 5,000 gallons to Buyer under the contract. Which of the following best describes the outcome of this dispute? a) Seller and Buyer have entered into a requirements contract that Buyer breached. b) The contract was not supported by legal consideration since Buyer's promise to purchase was an illusory promise. Buyer did not breach the contract. c) Seller and Buyer have entered into an output contract that Buyer has breached. d) A court will hold Buyer liable for not purchasing a reasonable number of gallons of ice cream from Seller. e) The contract was not supported by legal consideration based on unconscionability.

The correct answer is B. Buyer made an illusory promise, which is not legal consideration. The key is that Buyer may or may not want to purchase Seller's ice cream. This is neither a requirements contract nor an output contract because the purported contract did not express the parties' clear intent to be either. In an output contract, the exact quantity is not stated because Buyer is required to purchase all of Seller's output or production of a product. In a requirements contract, the exact quantity is not stated because Buyer is obligated to purchase all of a product that Buyer needs or uses from Seller. Thus, Buyer is not liable for purchasing so small a quantity of ice cream from Seller. Unconscionability is irrelevant to these facts.

Which of the following types of contractual conditions must be met before a party becomes obligated to perform under a contract? a) Condition subsequent b) Condition precedent c) Implied condition d) Condition concurrent e) Mutual condition

The correct answer is B. Conditions precedent are those contractual conditions that must be met either before a contract comes into existence or before a contractual obligation exists. In business, a condition precedent might be an agreement between a general contractor and a subcontractor that the two of them will have a contract if the general contractor is awarded the construction contract for the whole project. A condition subsequent is a condition that terminates or curtails a contractual obligation upon the occurrence of the condition. Conditions concurrent require acts to be performed at the same time or nearly the same time.

Under what legal authority does the Congress get its power to regulate business? a) Article 3 of the U.S. Constitution, which grants the Congress power to enact all laws necessary to carry out its enumerated powers b) Article 1 of the U.S. Constitution, the Delegation of Powers Clause, and the Interstate Commerce Clause c) The Bill of Rights to the United States Constitution d) The Administrative Procedure Act e) The Sherman Act

The correct answer is B. Congress's authority comes from Article I, Section 8 of the U.S. Constitution. Through the Delegation of Powers Clause, Congress is given plenary power to carry out its enumerated powers, including regulating "commerce with foreign nations, and among the several states, and with the Indian tribes." Article 3 establishes the judiciary.

Defendant does not believe Plaintiff has stated a legal claim in her complaint for which he can be liable under the law and the alleged facts. In the case, what would Defendant file with the court to obtain a ruling to end the lawsuit for failure to state a claim for which relief may be granted? a) Choice b) Motion to dismiss c) Motion to suppress d) Response e) Motion for summary judgment

The correct answer is B. Defendant would file a motion to dismiss to end the lawsuit. An example might be that the statute of limitations has expired, preventing legal action. The motion to dismiss may be made at the same time as the Choice responding to the complaint or response to the petition. A motion to suppress is used principally in criminal trials to prevent the jury or trier of fact from hearing testimony that is tainted, such as is done with illegal searches by the government. The same result could be achieved with a motion for summary judgment, which is granted when there is not a genuine issue of material fact for a trier of fact to hear. In other words, there is no reason to have a trial. A motion for summary judgment is usually made later in the lawsuit than a motion to dismiss, unless the motion to dismiss is voluntary.

Which of the following theories of corporate social responsibility requires the company to consider the effects of an action on all of the stakeholder groups rather than just in favor of the shareholders? a) Shareholder theory of Milton Friedman b) Stakeholder theory of Edward Freeman c) Stakeholder analysis theory of Kenneth Goodpasture d) Distributive justice theory of John Rawls e) Immanuel Kant's theory of categorical imperative

The correct answer is B. Edward Freeman's stakeholder theory of corporate social responsibility requires the corporation and its managers to consider how an action might affect all of the stakeholders, including employees, customers, community, vendors, and shareholders. No one stakeholder group is given controlling favor as in Friedman's shareholder theory. The stakeholder theory is probably regarded as the most favored theory on corporate social responsibility today because it encourages companies to give greater regard to their communities and employees. Kenneth Goodpasture's stakeholder analysis theory would require a corporation to first consider the shareholders, because the corporation should earn them a reasonable profit for their investment, then consider the other stakeholder groups. The result under this theory would fall in the middle in the scale of social responsibility between the shareholder theory and the stakeholder theory.

Which of the provisions of the U.S. Constitution stands for the proposition that persons similarly situated should be treated similarly? a) Due Process Clause b) Equal Protection Clause c) Takings Clause d) Privileges and Immunities Clause e) Freedom of Association

The correct answer is B. Equal protection means people should be given the same treatment and not be singled out as a group of persons to be treated differently, whether based on race, ethnicity, gender, business group, alienage, or legitimacy. It is distinguished from privileges and immunities in that with the latter the federal government cannot treat people from one state or locality better or worse than it treats people from another state or locality.

Eight relatively small pharmacies in a three-county area agree to set prices for about 100 prescription drugs. Their reasoning is to stabilize the prices for the eight of them so they all can remain in business for their customers. Which of the following best describes the legal effect of this arrangement? a) This act would violate Section 2 of the Sherman Act because it creates an oligopoly. b) The act would violate Section 1 of the Sherman Act as a per se violation for horizontal price fixing. c) This act would violate the Federal Trade Commission Act as a per se violation for horizontal price fixing. d) This act would not be an illegal horizontal price-fixing arrangement because the market is so small there would not be an unreasonable restraint of trade. e) This act would not be illegal because the intent of the small pharmacies is to stabilize prices so they have no intent to do harm to their customers in the long run.

The correct answer is B. Even though the competitors may think they have a justifiable purpose that will stabilize prices and their businesses, they have nonetheless committed a per se violation of Section 1 of the Sherman Act. Horizontal price fixing is a per se violation; thus, the rule of reason requiring a substantially large quantity of goods or services to be affected is not used.

Which of the following is the most important First Amendment right under the U.S. Constitution for private companies? a) Freedom of association b) Freedom of speech c) Freedom of religion d) Freedom against unreasonable searches and seizures e) Right of due process

The correct answer is B. Freedom of speech is an invaluable First Amendment right for both individuals and business entities because it protects both political and commercial speech (advertising). Although freedom of association and freedom of religion are important rights, governmental restrictions on association are not significant for business entities, and the First Amendment's freedom of religion does not apply to private business. The First Amendment restricts the government's power over the people. Choices D and E are incorrect because they are not First Amendment rights. These very important rights for businesses are found in the Fourth Amendment and Fifth/Fourteenth Amendments, respectively.

Carole enters into a contract with Cody to purchase for $800 Cody's registered male dog, which she intends to use for breeding purposes. Cody understands her intent. A month after Carole takes possession of the dog, she learns that the dog is sterile and has no value as a breeding animal. Cody had no knowledge of the dog's sterility. In this case, which of the following best describes Carole's legal rights? a) Since this is a unilateral mistake, Carole has no right to avoid the contract. b) Since both parties were mutually mistaken about the dog's sterility, Carole can rescind the contract and recover her purchase price. c) Since the dog's sterility is not material fact, Carole cannot rescind the contract. d) Carole must sue for money damages based on Cody's negligent misrepresentation. e) Carole can rescind the contract based on her unilateral mistake and recover her purchase price.

The correct answer is B. If both parties to a contract are mistaken as to the same material fact or law, then either of them may avoid the contract and seek to have the contract rescinded. Since the purpose of the contract was to acquire a dog for breeding purposes, sterility of the dog was a material fact. This was a mutual mistake of fact. Rescission and return of her consideration is the sole remedy for Carole. The facts do not support any negligence on Cody's party.

Jones is selling his farm by auction with reserve. At the auction, bids were substantially lower than Jones anticipated. In this case which of the following statements would be true? a) Jones has to sell to the highest bidder. b) Jones can withdraw his property and refuse to sell so long as this is done before the auctioneer announces the acceptance of the bid or by the fall of the auctioneer's hammer. c) Jones would be the offeror and those bidding would be offerees. d) Jones can withdraw his property and refuse to sell to the highest bidder regardless of the auction being with reserve or without reserve. e) Acceptance of the auction price is deemed to occur when the bidder raises his or her hand or otherwise states a price he or she is willing to pay.

The correct answer is B. If the auction is with reserve, as is usually done, the person auctioning the property can refuse to sell at the offered (bid) price as long as this is done before acceptance of the bid. Choice A is incorrect because the auction is with reserve. Choice D is incorrect because it ignores the difference between an auction with reserve and an auction without reserve. In an auction without reserve, the auctioneer must accept the highest bid price. Choices C and E are incorrect because the person making the bid at an auction is the offeror, whose offer is accepted by the fall of the auctioneer's hammer.

Which of the following is an example of negligence per se? a) Defendant damages Plaintiff's automobile by throwing a brick through its windshield. b) Defendant is cited and pleads guilty to failure to yield the right of way in traffic court, which act resulted in personal injury to another motorist. c) Defendant is cited and pleads guilty to failure to yield the right of way in traffic court. Defendant's act caused him to lose control of his automobile and to drive through a store window along the side of the road. d) Defendant is cited but acquitted in traffic court on a charge of failure to yield the right of way, which act resulted in personal injury to another motorist. e) Coal mine is cited for several safety violations and pays a civil penalty for the violations. A safety inspector (not an employee of the mine) is injured inside the mine as a result of one of the violations.

The correct answer is B. If the plaintiff is injured by a defendant's act, the state violated a statute designed to protect the plaintiff or a group like the plaintiff, and if the defendant is found or pleads guilty in a criminal proceeding, then the defendant is deemed to have committed the negligent act for prosecution as a tort of negligence. The plaintiff will not have to prove the defendant's duty and breach of duty in court. Choice B meets this test because the rules of the road are intended to protect motorists, and the defendant was found guilty in traffic court, which is criminal in nature. Paying a civil fine does not qualify.

Which of the following situations would most likely result in a finding that no illegal monopoly exists under Section 2 of the Sherman Act? a) Company has grown through buying up many small competitors. b) Company has a large market share in a particular product market, but because of product substitutability it does not have a large market share of the relevant product market. c) Company keeps competitors out of the market through pressure it places on its customers. d) Company has a monopoly because it owns a patent but it strategically purchases substitutable product inventions to maintain its dominant market share. e) Company's large size causes an unreasonable restraint on trade but is not a per se violation of the Sherman Act.

The correct answer is B. In determining whether or not a monopoly exists under Section 2 of the Sherman Act, the plaintiff must prove that the defendant has a monopoly on the product or service in the "relevant product market" and "relevant geographic market." The relevant product market looks at substitutable products as well as the defendant's product. If another's product is substitutable, that would effectively expand the relevant market and reduce the defendant's market share. The FTC and courts consider how a company obtained monopolist status, such as buying up competitors, taking actions to keep competitors out of the market, having a monopoly thrust upon them because of a superior product, etc. It is commonly said that owning a patent gives the patentee a legal monopoly. There is some truth there, because, once the patent is registered, the patentee may become an illegal monopoly in violations of the Sherman Act if it undertakes anticompetitive actions.

Jury finds both Defendant and Plaintiff were at fault in causing Plaintiff's injury in a negligence lawsuit where Plaintiff's total damages were $100,000. Defendant was 70 percent at fault and Plaintiff was 30 percent at fault as they both were negligent. Assuming the law of the state where the lawsuit is heard applies the contributory negligence rule, what will be the result in the lawsuit? a) Plaintiff will receive an award of $100,000. b) Plaintiff's case will be barred and she will receive nothing. c) Plaintiff will receive an award of $70,000. d) Plaintiff will receive an award of $30,000. e) Plaintiff will lose because of the last clear chance doctrine.

The correct answer is B. In states that follow the contributory negligence doctrine, or for legal issues to which the doctrine applies, it is an affirmative defense that must be pled by the defendant and bars a plaintiff from recovering if she is also negligent and in any way contributes to her own injury. When the plaintiff's case is barred by law due to contributory negligence, the plaintiff can recover nothing from the defendant.

Which of the following persons may be a trier of fact in a trial court? I. Justices II. Judges III. Juries a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is E. A justice is not a trier of fact in a trial court. A justice is a judge on the highest state or federal court, usually called the Supreme Court. In a bench trial, a trial without a jury, the judge is the trier of fact. In a jury trial the jury is the trier of fact.

Which of the following would NOT result in liability for invasion of privacy? a) Misappropriation of a person's name or likeness for commercial purposes b) Intrusion upon the seclusion of another when there is not a reasonable expectation of privacy c) Publication of information that places a person in a false light d) Public disclosure about a private fact about a person that an ordinary individual would find objectionable e) Misappropriation of a person's right of publicity

The correct answer is B. Invasion of privacy as a tort can be classified as follows: (1) intrusion upon seclusion, (2) false light, (3) public disclosure about a private fact, and (4) misappropriation of one's name, publicity, or likeness. Before there can be a tortious intrusion upon the seclusion of another, the individual must have a reasonable expectation of privacy. That is not the case in choice B.

Lost profits are an example of which of the following types of contract damages? a) Compensatory damages b) Consequential damages c) Liquidated damages d) Punitive damages e) Nominal damages

The correct answer is B. Lost profits are consequential damages if they arise out of special circumstances known to both parties at the time of contracting. Compensatory damages in contract cases include general damages and incidental damages. Punitive damages generally are not allowed in breach of contract cases. Liquidated damages are agreed damages. Nominal damages are awarded only when there is a lawsuit for damages but the plaintiff does not prove the amount or existence of their damages.

Celebrity's name and picture has been used by Merchant to promote Merchant's business. Celebrity did not give her consent to the use of her name and picture. In this case, Merchant would be liable for which of the following torts? a) Misappropriation of trade secrets b) Misappropriation of another's name, likeness, or publicity c) Conversion d) Trade disparagement e) Trade libel

The correct answer is B. Misappropriation of another's name, likeness, or publicity is a form of invasion of privacy. There must not be consent by the celebrity, and the use of another's name must have been a non-news item and without consent in a commercial activity.

Which of the following international treaties allows for free trade among Mexico, Canada, and the United States as a free trade zone, usually without tariffs? a) General Agreement on Tariffs and Trade b) North American Free Trade Agreement c) Central American Free Trade Agreement d) Free Trade of the Americas Agreement e) General System of Preferences

The correct answer is B. NAFTA is a free trade agreement in compliance with the WTO agreements, including GATT, allowing member states to enter into free trade agreements without violating the nondiscrimination principle of most-favored-nation (MFN and now referred to as normal trade relations). The most recent free trade agreement of the United States is the Central American Free Trade Agreement, which allows duty-free or near-duty-free trade between the United States and signatory Central American nations. At the present time, negotiations are continuing for expanding free trade further in the Americas under a proposed Free Trade of the Americas Agreement. Finally, GATT allows WTO member nations to assist poor or less developed nations by allowing exports from them with little or no tariffs under the General System of Preferences. Reciprocity is not required.

Defendant wishes to gather information directly from Plaintiff to determine what Plaintiff knows about the case, the extent of the Plaintiff's injury, and the damage the Plaintiff alleges. What form of discovery would Defendant most likely use to achieve this? a) Interrogatories b) Oral deposition c) Written deposition d) Production of documents e) Mental examination

The correct answer is B. Oral depositions allow a party or their attorney to ask verbal questions of a deponent who will answer the questions verbally under oath. Depositions many times are taken after requests for interrogatories and requests for production of documents have been made.

The Civil Rights Act of 1964, Title VII, prohibits discrimination because of each of the following EXCEPT a) race. b) age. c) sex (gender). d) religion. e) color.

The correct answer is B. Persons 40 years of age or older are protected under the Age Discrimination in Employment Act. Title VII of the CRA of 1964 prohibits discrimination based on race, color, national origin, sex, and religion.

Which of the following is a type of private law? a) Administrative law b) Property law c) Constitutional law d) Public law e) Criminal law

The correct answer is B. Property law, like agency, contracts, and torts, is a form of private law because it deals with the rights and obligations of the individual as they relate to each other. Choices A, C, and E are types of public law. Public law (Choice D) is just the opposite of private law because it focuses on the individual's rights and obligations as they relate to society.

Which of the following types of damages might a jury award a plaintiff for a defendant's intentional, willful, or reckless act but never for simple negligence? a) Compensatory damages b) Punitive damages c) Special damages d) Consequential damages e) Nominal damages

The correct answer is B. Punitive damages are exemplary in nature and are used by a court to punish a defendant for a bad or intentional act, something worse than simple negligence. Simple negligence requires no intent to injure and the act does not rise to the level of willful, wanton, reckless, or gross negligence, all of which a court may award a plaintiff punitive damages for the defendant's bad act.

Which federal law requires lenders to describe in writing in a disclosure statement what the annual percentage rate and total interest payments will be on a consumer loan so that consumers can shop around for the best interest rates? a) Fair Credit Reporting Act b) Truth-in-Lending Act c) Equal Opportunity Credit Act d) Regulation Y e) Federal Trade Commission Act

The correct answer is B. Regulation Z of the Truth-in-Lending Act requires lenders to provide a disclosure statement to borrowers which include, among other things, the annual percentage rate of the loan, the total interest to be paid, and the total deferred price. The purpose of this regulation is to provide consumers with information on borrowing so they can shop around to obtain the best loan arrangements.

The party who files a pleading-that is, a general denial or admission to the allegations contained in the complaint-is which of the following parties? a) Complainant b) Movant c) Defendant d) Respondent e) Counter-plaintiff

The correct answer is C. This party to a lawsuit is called the defendant. As a complaint is filed by a plaintiff in an action at law, and a petition is filed by a petitioner in an action seeking an equitable remedy, choice D is incorrect. A complainant is sometimes used to refer to one who files a complaint. A movant files a motion, and a counter-plaintiff files a countersuit through the use of a counter-complaint.

Which of the following arrangements is most likely to result in a rejection by the Federal Trade Commission as a violation of Section 7 of the Clayton Act? a) Franchisor-franchisee agreement establishing a geographic area for the franchisee to do business b) Horizontal merger c) Vertical merger d) Conglomerate merger e) Diversification merger

The correct answer is B. Section 7 of the Clayton Act, as amended by the Celler-Kefauver Act, may prohibit mergers or other business combinations that substantially lessen competition or tend to create a monopoly in a line of interstate commerce. The closest scrutiny by the FTC and the Department of Justice is given to horizontal mergers. Horizontal mergers are in the same line of commerce and at the same level. These are competitors combining, which usually results in a greater industry concentration ratio and less competition. Franchise agreements generally do not violate Section 1 of the Sherman Act because they are reasonably necessary. Conglomerate mergers take place by firms in different industries. These are not usually anticompetitive and will be given the least scrutiny of mergers. They result in greater diversification for the company. Vertical merges fall in the middle in scrutiny. They may or may not be anticompetitive as they are firms possibly within the same industry but at different levels of distribution.

Which of the following statements would constitute the tort of slander, assuming the statement was untrue and damaged the plaintiff's reputation? a) A newspaper article stating the plaintiff has committed a crime b) A discussion a supervisor has with the plaintiff's former coworkers that the plaintiff was fired for use of illegal drugs c) A television documentary that a meat packing company sold meat from diseased animals d) A statement the defendant makes to herself, but aloud and when she thinks no one is present, that the plaintiff is dishonest and incompetent e) A letter written by a former employer to other companies within the same industry that they should not hire the plaintiff because he is an embezzler

The correct answer is B. Slander is spoken defamation while libel is in writing or some other fixed medium of expression. Both forms have to be published (communicated) to some third person. In this case the supervisor's discussion of a former employee to his coworker fits both of the requirements. Choices A, C, and E are incorrect because they are not in spoken form. The statement made in choice D was not communicated since it was spoken in private to oneself.

Which of the following most accurately describes the power given to purchasing managers as part of their job to acquire, within limits, goods and services for their companies on credit? a) Apparent authority b) Implied authority c) Express authority d) Master-servant relationship e) Vicarious liability

The correct answer is B. Some positions of employment carry with them implied authority to perform certain acts essential to performing the job. Such is the case for a purchasing manager. A purchasing manager who cannot acquire goods or services on credit, within reason, cannot perform the function satisfactorily as commonly done. Unlike apparent authority that exists from the conduct of the principal, implied authority comes from normal, expected conduct of the relationship between the principal and agent.

Which of the following types of administrative regulations is required by the Administrative Procedure Act to go through the formal rule-making process? a) Interpretive regulation b) Legislative regulation c) Procedural regulation d) Informal regulation e) Proposed regulation

The correct answer is B. The Administrative Procedure Act requires federal administrative agencies that promulgate legislative rules, which are substantive rules allowed under an enabling act, must go through a formal rule-making process. This rule-making process includes giving citizens notice of a proposed rule, providing a comment period for citizens to discuss and consider the effects of the rule, and giving notice to citizens of the final rule adopted by the agency. Neither interpretive, which simply give the agency's interpretation of a statutory provision, nor procedural rules go through this formal rulemaking process.

Which of the following federal administrative agencies have jurisdiction over employment discrimination? a) National Labor Relations Board (NLRB) b) Equal Employment Opportunity Commission (EEOC) c) Federal Trade Commission (FTC) d) Department of Health and Human Services (DHHS) e) Federal Labor Board (FLB) under the Secretary of Labor

The correct answer is B. The Equal Employment Opportunity Commission (EEOC) has jurisdiction over employment discrimination matters. The NLRB has jurisdiction over labor-management relations. The FTC has jurisdiction over consumer protection, fair competition, and antitrust matters. DHHS deals with health and human services issues and generally is not responsible for regulating business. The Secretary of Labor is responsible for Fair Labor Standards Act compliance.

Which of the following federal statutes requires employers to complete an I-9 form to prove the citizenship or legal immigration status of all new employees? a) Civil Rights Act of 1964, Title VII b) Immigration Reform and Control Act c) National Immigration Service Act d) Equal Pay Act e) Employee Retirement Income Security Act (ERISA)

The correct answer is B. The Immigration Reform and Control Act was enacted to prevent and discourage illegal immigration. The statute requires employers to complete an I-9 form with proof that the job applicant is a U.S. citizen or is otherwise legally authorized to be and work in the United States. The statute provides for punishment to employers who employ illegal aliens and prohibits discrimination in employment against persons because of their immigration status.

What federal statute now requires covered publicly traded companies to maintain a code of ethics for their employees making high financial decisions for their companies and establish policies to encourage and protect employee whistleblowing? a) Corporate Social Responsibility Act b) Sarbanes-Oxley Act c) Investment Companies Act d) Revised Model Business Corporation Act e) Securities Exchange Commission Act

The correct answer is B. The Sarbanes-Oxley Act of 2002 was enacted by Congress as a response to an excessive number of corporate accounting scandals that rocked Wall Street. Regarding ethics, SOX requires publicly traded companies covered under the statute to (1) maintain a code of ethics that applies to the financial executives who run the company, (2) maintain and test a system of internal accounting controls that would be effective to prevent irregularities such as fraud, and (3) establish whistleblower policies to encourage employees to advise appropriate persons or authorities of inappropriate actions and to protect those whistleblowers who do.

Which of the following securities laws regulates the initial issuance of securities in the primary securities market? a) Sarbanes-Oxley Act of 2002 b) Securities Act of 1933 c) Securities Exchange Act of 1934 d) Private Securities Litigation Reform Act of 1995 e) Market Reform Act of 1990

The correct answer is B. The Securities Act of 1933 regulates new issuances of securities, such as initial public offerings (IPOs) of stock. New securities issuances are in the primary securities market whereas the subsequent trading of securities, which is regulated by the Securities Exchange Act of 1934, takes place in the secondary securities market. The Sarbanes-Oxley Act regulates corporate governance and auditors. The Private Securities Litigation Reform Act regulates the making of forward-looking statements in financial reports and regulates securities litigation. The Market Reform Act gave the SEC authority to suspend trading of securities in the event that prices rise and fall excessively in a short period of time.

Which of the following is a true statement about the Statute of Frauds? a) Under the Statute of Frauds, all contracts must be in writing and signed by the party against whom enforcement is sought. b) Under the Statute of Frauds, only certain types of contracts must be in writing and signed by the party against whom enforcement is sought. c) Under the Statute of Frauds, only certain types of contracts must be in writing and signed by both parties. d) Under the Statute of Frauds the signed contract must be formally written and contain all of the details. e) It is not possible to meet the Statute of Frauds through a written memorandum, such as a fax, check, or invoice that contains the proper signature and essential facts of the agreement.

The correct answer is B. The Statute of Frauds does not cover all contracts, but for those types of contracts covered, the statute requires those contracts to be set forth in some written memorandum evidencing the transaction. Furthermore, the written memorandum must be signed by the party to be charged (against whom enforcement is sought). The party to be charged is usually that person who claims there is no contract. The signed written memorandum does not require both parties to sign and it does not require a formal writing setting forth every detail. The signed written memorandum may be something as informal as a check, invoice, or on scratch paper.

Which of the following is the state law that requires certain contracts to be in writing and signed by the party against whom enforcement is sought? a) Statute of Limitations b) Statute of Frauds c) Statute of Repose d) Long-Arm Statute e) Rules of Civil Procedure

The correct answer is B. The Statute of Frauds was created in England in 1677 to prevent fraud in contracting. It was adopted by the United States as part of the English common law and has remained an important provision of contract law in modified form since then. From time to time, states add additional contracts that must be in writing; for example, real estate listing contracts or sports agency contracts.

Defendant's business is advertising using e-mail. Defendant wrongfully, and without permission, obtains Internet Service Provider's (ISP) database of customers and their e-mail addresses. Defendant sends many unsolicited e-mail advertisements (SPAM) to them. ISP's customers complain to ISP. In this case, which of the following torts has Defendant committed against ISP for which it could be liable? a) Conversion b) Trespass to chattel c) Intentional infliction of emotional distress d) Misappropriation of trade secrets e) Invasion of privacy

The correct answer is B. The intentional tort of trespass to chattel was one of the original seven intentional torts. It exists when one intentionally uses or makes another's property unavailable for use. It is not theft of the item with intent to keep and permanently deprive the owner with use and enjoyment. Since the ISP still had its database, this was not conversion. However, since the spammer damaged the ISP's business by using the ISP's database without permission causing it to lose customers and incur additional costs of ridding itself of the spammer, the tort is applicable here. Large ISPs like AOL and EarthLink have successfully used trespass to chattel against companies using those ISPs' databases to send unsolicited e-mail advertising to the ISPs' customers.

Employer searches Joan's purse without her consent or knowledge. Employer believed that Joan was stealing its trade secrets. Assuming Employer does not have an employment policy making all persons and their property on Employer's premises subject to search by Employer, has Employer committed the tort of invasion of privacy? a) No, because an employer always has the right to search any personal items on the employer's premises. b) Yes, because Joan has a reasonable expectation of privacy and Employer unreasonably intruded upon her seclusion. c) Yes, because an employer has to have a search warrant to search the private property of its employee. d) No, because there was no public statement made about Joan's private affairs. e) Yes, because by accepting employment with Employer, she implicitly gave her consent to the search so she could not have a reasonable expectation of privacy.

The correct answer is B. The intrusion upon seclusion type of invasion of privacy occurs when one intentionally intrudes upon someone's private affairs without consent or justification. In employment situations, a court will balance the interests of the employer in managing the company and its employees against the reasonable expectation of privacy interests of the employee. The balancing also requires the consideration of the level of intrusiveness. In this case, the employer's interest in management would probably not outweigh the privacy interest of the employee. There are several very important facts in this case that distinguish it from e-mail searches and typical employee surveillance situations. First, the employee had a reasonable expectation of privacy in her purse. This expectation was not reduced any since the employer did not have a policy authorizing the search nor did her employer own the purse. Second, the level of intrusiveness was high given the personal nature of a woman's purse. Last, the employer had neither the employee's express nor implied consent.

Carla contracts with Debbie to sell an acre of land for $30,000. Debbie intends to construct a house on the land. Similar land sold for residential construction purposes usually sells for $38,000. Carla then refuses to convey the land to Debbie. In this case, what is Debbie's legal remedy for breach of contract? a) $30,000 b) $8,000 c) $38,000 d) $8,000, plus punitive damages e) $-0-

The correct answer is B. The measure of compensatory damages for one's lost bargain when a party fails to perform is the difference between the value of the property contracted and the contract price. In this case, the difference between the property's fair market value ($38,000) and the contract price ($30,000) is $8,000. The measure of compensatory damages for one's lost bargain when a breaching party performs is the difference between what the nonbreaching party should have received and what was actually received.

Which of the following best describes an option contract for offer revocation purposes? a) The offeree has an unlimited time to accept an offer made under an option contract. b) The offeree must give legal consideration to obtain an option contract. c) An option contract cannot have a period revocability greater than three months. d) The option contract stops any possibility of termination of the offer by operation of law. e) An option contract has little value in the acquisition of real estate.

The correct answer is B. The offeree must pay legal consideration to create an option contract with the offeror, which makes the offer irrevocable. An option contract usually sets forth a time period of irrevocability. The option period, as with any offer, cannot have an unlimited duration. Choice C is incorrect because the option period can extend beyond three months. Three months is the maximum amount of time of irrevocability for a firm offer under the UCC. Choice D is incorrect because termination of an offer by operation of law ends the offeree's right to accept an irrevocable offer, unless the situation is by death or incompetence of either the offeror or offeree. Choice E is incorrect because option contracts are common in real estate acquisitions.

Which of the following is a correct statement about intention to contract? a) All offers are treated as though the offeror intends to contract. b) Offers made in obvious anger, jest, or undue excitement do not meet the intent to contract test because a reasonable person would know the offeror was not serious. c) Courts look at subjective intentions rather than objective intentions in order to determine the serious intent of the offeror to contract. d) If the offer is in writing, then a court will presume the offeror intends to contract. e) Intention of a party to contract is an irrelevant concept as long as words of an offer are expressed or implied to another person.

The correct answer is B. The offeror must manifest an intent to contract. The circumstances surrounding the making of the words of offer, whether in writing or verbally, are important and must reflect a serious intent to contract. An objective intent test (i.e., what would a reasonable person conclude was a serious intent) is used by the court rather than a subjective intent that would be difficult to measure. Thus, choice B is the obvious answer.

Which of the following best describes the statute of limitations as a contract defense? a) The statute of limitations requires a lawsuit for breach of contract to be brought within a certain period of time of the making of the contract. b) The statute of limitations requires a lawsuit for breach of contract to be brought within a certain period of time following breach of the contract. c) The statute of limitations is usually shorter for a written contract than an oral contract for services. d) The statute of limitations for recovery of amounts awarded in judgment for breach of contract is the same as the statute of limitations for bringing the breach of contract lawsuit. e) The UCC is silent on the statute of limitations for breach of contract for the sale of goods.

The correct answer is B. The statute of limitations is a rule of substantive law that requires a lawsuit for breach of contract to be filed within a certain period of time following a breach of the contract. The date the contract is made is irrelevant. The statute of limitations for oral contracts is shorter than for written contracts. There is a statute of limitations for bringing a breach of contract lawsuit and a separate statute of limitations for collecting a judgment received from a court on a breach of contract lawsuit. The latter is substantially longer. The UCC provides a statute of limitations period for breaches of contracts for the sale of goods.

Which of the following is the number of justices on the U.S. Supreme Court? a) 12 b) 9 c) 7 d) 5 e) 3

The correct answer is B. There are nine justices on the U.S. Supreme Court. They all hear a case unless a justice recuses oneself from the case or is absent due to illness. Some appellate courts allow their appeals judges to sit as panels consisting of as few as three to hear a case, but in major cases, all of the appellate judges will hear the case.

In which of the following situations would a court NOT enforce an oral contract as an exception to the Statute of Frauds? a) The seller has begun the manufacture of specially manufactured goods for the buyer pursuant to an oral contract. b) A purchaser of real estate under an oral contract has taken possession of the real estate without payment on the purchase price and has made substantial improvements on it. c) Buyer of goods under an oral contract for $5,000 has taken delivery of the goods. d) A party claims a contract is unenforceable under the Statute of Frauds, but he admits in an answer to the other party's complaint that a verbal contract exists. e) The seller of goods accepts payment for the goods under an oral contract having a purchase price of $5,000.

The correct answer is B. There are several exceptions to the Statute of Frauds. In these situations, there is evidence to prove that a valid contract exists. One of the more significant exceptions is the partial (part) performance rule for oral contracts for the sale of real estate. If a person contracts to purchase real estate from another under an oral contract, the purchaser takes possession of the real estate, pays part of the purchase price, and makes substantial improvements to the land, then a court will enforce the oral contract. Choice B does not meet this test since there was no payment of part of the purchase price. The other four situations state provisions of the UCC's Statute of Frauds provisions where a writing is not required. One can reasonably conclude that in each of the situations there has been prior agreement because the act would not make sense unless there was indeed a contract.

Misrepresentation as a contract defense includes all of the following EXCEPT: a) innocent misrepresentation. b) reliance misrepresentation. c) fraudulent misrepresentation. d) negligent misrepresentation. e) intentional misrepresentation.

The correct answer is B. There is no reliance misrepresentation, thus the answer can be reached through deductive logic. Innocent misrepresentation requires no bad act or negligence, but a party can still be injured by relying on untruthful statements. If a party acts with intent to deceive (or scienter), the misrepresentation can be fraudulent misrepresentation, which is the same as intentional misrepresentation. When a party does not misrepresent a material fact intentionally but makes the misstatement negligently, then negligent misrepresentation results.

Which of the following is a requirement for procedural due process under the U.S. Constitution? I. Governmental action against one's life, liberty, or property II. Notice of the government's action III. Right to be heard by a tribunal a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is D. All three are required to meet procedural due process requirements. The first step in procedural due process is the trigger that makes the other two applicable. The Fifth Amendment provides that life, liberty, or property will not be taken by the government without due process of law. The second two requirements, notice and hearing, meet the fairness requirement for procedural due process.

Surety entered into an agreement to guaranty Debtor's loan for equipment. The equipment was destroyed by a faulty electrical circuit installed by Electrical Contractor. Debtor could not pay off the loan and Lender required payment from Surety. Which of the following MOST accurately describes Surety's legal rights in this case? a) Surety has no legal right against anyone except Debtor. b) Surety has a legal right of subrogation to sue Electrical Contractor to recover, if it can, and the right of indemnification against Debtor. c) Surety has a legal right of indemnification against Electrical Contractor. d) Surety has a legal right of contribution against Electrical Contractor. e) Surety has the legal right to obtain a writ of execution immediately upon Debtor's assets.

The correct answer is B. This case involves the rights of a surety (or guarantor) under a suretyship agreement. When a surety or guarantor has to pay a guaranteed debt, the surety will have the right of indemnification from the debt, assuming the surety can collect anything from a debtor who just defaulted, and a subrogation right against wrongdoers. In this case, Surety has subrogation rights to sue Electrical Contractor for negligence or breach of contract. A right of contribution exists when persons are jointly and severally liable. If one of them has to pay the debt since he is jointly and severally liable, he has the right to have the other joint and several persons pay their shares.

Which of the following types of business associations (entities) exist when two or more persons agree to carry on a trade or business together as co-owners for the purpose of making a profit? a) A corporation b) A partnership c) A limited liability company d) A limited partnership e) A trust

The correct answer is B. This is the definition of a partnership under the Uniform Partnership Act. Note that a partnership requires at least two persons, unlike a corporation, a limited liability company, and a trust. Also, there must be a profit purpose. A limited liability partnership and a limited partnership are both creatures of statute, which specify how they are created and operated and provide limited liability to some, but not all, of the owners.

Which of the following is the expression by words or act of an individual's intention to become bound by a contract made as a minor? a) Disaffirmance b) Ratification c) Avoidance d) Restitution e) Emancipation

The correct answer is B. This is the definition of ratification of a minor's contract. Ratification by a person, who entered into a contract as a minor, ends the minor's right to disaffirm and obligates the individual for the contract. Disaffirmance is the process of avoiding a contract entered into as a minor. Restitution is the return to status quo ante by returning consideration received from the other party or paying for what one received from the other party. Emancipation is making a minor legal as an adult even though the individual is below the age of majority.

Which of the following intentional torts occurs when one steals the personal property of another with intent to deprive the owner of possession and use of the property? a) Trespass to chattel b) Conversion c) Fraud d) Defamation e) Trespass to personal property

The correct answer is B. This is the intentional tort of conversion, which is very similar to the crime of theft. Many states give an enhanced remedy to the plaintiff of treble damages. Trespass to chattel is the old form of theft, and today as a tort, it is used when someone interferes with another's business system or database, as spammers have done since the rise of the Internet. Trespass to personal property is similar to trespass to chattel. Here, the defendant has interfered with the plaintiff's personal property to prevent the plaintiff's use of the property but hasn't taken the property to permanently deprive the plaintiff of use and possession.

Which of the following is a correct statement regarding acceptance of a contract offer? a) Silence can never constitute acceptance. b) An acceptance containing new conditions or different terms operate as a counteroffer. c) For any offer, acceptance may be made by any reasonable means. d) Acceptance by mail becomes effective when received by the offeror. e) A unilateral offer requires the offeree to notify the offeror of intent to perform the required obligation.

The correct answer is B. This question requires the application of common law contract rules. Unlike the UCC's provisions on acceptance of an offer, the mirror image rule applies in common law. The acceptance must be to the same terms as the offer. A purported acceptance with new or different terms constitutes a counteroffer. Under the UCC, acceptance may be by any reasonable means provided the offer does not explicitly state the required mode of acceptance. Under limited situations, silence may constitute acceptance. This would require prior express or implied in fact approval of silence as an acceptance mode. One example of this might be a monthly subscription box, where the seller notifies the buyer of the subscription box's contents for the month, which will be sent to the buyer unless the buyer notifies the seller of intent to opt out of the subscription box for the month. Silence of the buyer is an acceptance. In unilateral offers, the offeror desires an act not a promise. Therefore, the offeree does not have to notify the offeror of intent to perform the act.

Department Store refuses to hire a male job applicant to work as a sales clerk in its ladies' apparel department. Since a sales clerk in that department must assist female customers in the dressing areas and monitor surveillance cameras in the dressing areas, Department Store will only employ women to work in the department because it believes customers' privacy is of utmost importance. If the rejected male job applicant files a claim for sex discrimination against Department Store, which of the following will be the outcome? a) Department Store will win because Title VII of the Civil Rights Act of 1964 does not prohibit discrimination because of sex (gender). b) Department Store will win because being a female in the ladies' apparel department is a bona fide occupational qualification. c) Department Store will lose because a male sales clerk can be knowledgeable about ladies' clothing and foundation wear. d) Department Store will lose because Title VII of the Civil Rights Act of 1964 prohibits all discrimination because of sex (gender). e) Department Store will lose because the Equal Pay Act protects against sexual discrimination in employment.

The correct answer is B. Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating against persons because of sex (gender). Assuming the male job applicant was a qualified candidate for the position of sales clerk in the ladies' apparel department, there would be discrimination but there would not be liability. Gender in this case is a bona fide occupational qualification (BFOQ). A BFOQ is a business necessity for the job, in this case gender. The employer bears the burden of proving the business necessity for the BFOQ. The importance of maintaining the customers' privacy is sufficient proof that only women should work in that particular job. BFOQs may include religion, age, gender, national origin (for authenticity), height and strength, and others, but race cannot be a BFOQ.

As a general rule, if a minor wishes to disaffirm a contract, what is the minor's responsibility? a) The minor need not do anything other than notify the other party of her disaffirmance. b) The minor must give timely notice of her intention to disaffirm and return the other party's consideration, if she has it. c) The minor must compensate the other party for the use of or damage caused to the other party's consideration. d) The minor must make restitution to the other party. e) The minor must pay the other party an amount equal to the other party's lost bargain in having the contract disaffirmed.

The correct answer is B. To disaffirm (avoid) a contract entered into as a minor, the individual must give a timely notice of her disaffirmance and return the other party's consideration, if she has it. Generally, there is no duty to provide further compensation to the other party or to pay full value for what the minor received.

Which of the following court pleadings initiates a lawsuit for damages? a) Petition b) Complaint c) Response d) Answer e) Motion

The correct answer is B. Under the rules of civil procedure, a plaintiff initiates a lawsuit by filing a complaint with the court. A complaint is a general statement of facts of the case and a demand for a remedy. Petitions are the equivalent of complaints, but they are usually filed in equity court or juvenile court where the petitioner is seeking an equitable remedy rather than damages.

A sales contract is silent on the shipping terms. What will those shipping terms be under the UCC, provided course of dealing, course of performance, and usage of trade do NOT apply? a) F.O.B Destination b) F.O.B. Shipping Point c) F.A.S. Destination Port d) C.I.F. e) Delivery ex-ship

The correct answer is B. Unless the buyer and seller agree otherwise, and if there are no course of performance, course of dealing, or usage of trade factors that would dictate what shipping terms applied, then the default provision is F.O.B. Shipping Point. Under this term, title and risk of loss would pass to the buyer when the seller turns the goods over to the buyer or buyer's carrier. The buyer would be responsible for the transportation costs. F.O.B. Destination Point means that the seller bears the transportation costs and risk of loss until the goods are delivered. Title would pass upon delivery. F.O.B. means "free on board" and is for land shipments. F.A.S. means "free along side" and is for water and air shipments.

Which is NOT a requirement for the tort of libel? a) The statement must be in writing or in some other permanent medium, such as electronic or video tape. b) The statement must have actually caused injury to the reputation of the plaintiff. c) The statement must be published to some third person or group of persons. d) The statement must be untrue. e) The statement must be a statement of fact that can be proven or disproved and not be opinion.

The correct answer is B. Unlike slander, libel does not require the plaintiff to prove actual injury to her reputation. Slander requires this proof unless there is slander per se. A statement of fact is one that can be proven or disproved. Opinion is not a statement of fact. Furthermore, the statement of fact must be one that a reasonable person would believe is true.

Which of the following would NOT constitute duress as a contract defense? a) Blackmail to induce consent to contract b) Threatening to sue in civil court c) Extreme economic duress d) Extortion to induce consent to contract e) Threat of violent harm, such as, "In fifteen seconds either your signature or your brains will be on that contract."

The correct answer is B. Usually duress as a contract defense is due to physical threat or threat of criminal or other wrongful act. Such would be the case in choices A, D, and E. Extreme economic duress may be a defense if the party who exacts the price also creates the need. For example, if a professional has the client over a barrel, so to speak, and threatens to terminate their professional relationship unless the fee is increased substantially, then a promise to pay more or do more would not be enforceable. Finally, if a person has the legal right to file a civil lawsuit, threatening to do so would not constitute sufficient duress to constitute avoidance of a contract.

Which of the following would LEAST LIKELY be included in a corporate code of ethics? a) Whistleblowing provisions and assurance of protection for whistleblowers b) Instructions that the corporate code of ethics applies to all employees except the CEO and Treasurer, who have greater discernment and need for flexibility c) Prohibitions on conflicts of interest by employees d) Prohibitions on taking money or gifts from vendors or customers above a certain value e) Goals for promoting human dignity and growth within the company

The correct answer is B. Usually the corporate code of ethics applies to every employee in the company. They should also be applicable to the company's officers. For publicly traded companies that must comply with the Sarbanes-Oxley Act, the CEO and Treasurer would have to be covered under the code of ethics. The other four choices contain provisions that are commonly included in corporate codes of ethics, including whistleblower encouragement and protections, conflicts of interest, gifts from vendors or customers, and professional growth within the company.

JetCorp, a U.S. manufacturer, sells four airplanes to its purchaser in France. Their contract is silent over payment terms and choice of law or controlling legal authority. Which of the following laws will most likely control in this case? a) General Agreement on Tariffs and Trade b) Convention on International Sales of Goods c) Uniform Commercial Code, Article 2 d) The French code of sales law e) EU Directive on Sales of Goods

The correct answer is B. When buyers and sellers of goods in international transactions do not agree otherwise, the United Nations Convention on the International Sale of Goods will control. It has provisions similar in many respects to the UCC.

If a statute is clear and not ambiguous, which of the following best reflects how a court will treat the statute in ruling on the case? a) The court will look at statements made by legislators during debate on the statute to determine legislative intent. b) The court will not look beyond the words of the statute. c) The court will apply common sense to the reading of the statute. d) The court will interpret the statute to mean what it desires the statute to mean. e) The court will look to the circumstances that led the legislature to enact the statute and the evil the legislature wanted to cure.

The correct answer is B. When statutes are clear and not ambiguous, interpretation does not extend beyond the words contained in the statute. Courts will not consider other ways to find the intent of the legislature, thus choices A and E are incorrect. Courts have no authority to change a statute that is constitutional, so the judges' personal likes, dislikes, or preferences are irrelevant.

Which of the following is the most important factor in determining whether a person is an employee or independent contractor? a) How the parties state the relationship in an express contract b) The employer's right to control the detail, manner, and method in which the work is done c) Whether the employer withholds social security and federal withholding taxes from the person's compensation d) Whether the employer provides the essential tools or equipment the person needs to perform the work e) Whether the duties performed by the person are an essential component of the function of the employer

The correct answer is B. Whether or not a person is a common law employee depends on the facts and circumstances of the case. Courts and the Internal Revenue Service use approximately seventeen factors to make the determination. However, the single most important factor, but not the only factor, is the employer's right to control the details, manner, and method in which the work is to be done—control over the person. How the parties expressly define their relationship in a contract is considered, but it does not control how the person will be classified.

Which of the following best describes how the law regards an illegal contract? a) Valid b) Voidable c) Void d) Enforceable e) Unenforceable

The correct answer is C. A contract that is illegal is regarded by the law as void, a nullity that never existed. A party will have no right to sue on the contract or enforce any provision of it. However, some states may allow the court to treat a divisible part of such a contract as invalid and enforce the legal part, as say in an unconscionable contract or a usurious contract.

Which of the following types of corporations usually has the smallest number of shareholders and is usually family-owned? a) Professional corporation b) Personal services corporation c) Closely held (or close) corporation d) Public corporation e) Not-for-profit corporation

The correct answer is C. A corporation that has a small number of shareholders, which characteristic prevents it from being publicly traded, is usually called a closely held or close corporation. Many times, professional corporations have a small number of shareholders but are not family-owned. Also, S corporations have a small number of shareholders (75 or fewer).

Landscaper offers to completely landscape Karla's new home for $5,000. Karla responds by saying she will only pay $4,500 even though she knows that $5,000 is a reasonable price. Landscaper refuses to do the work for $4,500. Which of the following best describes this legal situation? a) Karla can now accept Landscaper's offer for $5,000 because it is revived by Landscaper's rejection of the counteroffer. b) Since the parties are negotiating a price, Karla is relying on the original offer to be held open. c) Karla has made a counteroffer, and the original offer is deemed rejected. d) Karla can accept the original offer of $5,000 because Landscaper never expressly withdrew its offer. e) Landscaper's offer qualifies as an irrevocable offer under the firm offer rule.

The correct answer is C. A counteroffer has the effect of rejecting the original offer and making a new offer, which the original offeror can accept or reject. The original offer is not revived by the rejection of the counteroffer. Thus, when the offeree makes a counteroffer to an otherwise acceptable offer, the offeree does so at her own risk and folly. In this case, there is no detrimental reliance on the original offer being held open—no injustice is created. The offeree has already acted on the original offer by rejecting via a counteroffer. Landscaper's offer does not come within the meaning of the UCC's firm offer rule in part because Landscaper is not a merchant. Because it is a service provider, the UCC does not cover this transaction, and the offer was not in a writing giving assurances that it would be held open.

In which of the following types of contract will a court award a remedy of specific performance? a) Contract for the sale of off-the-shelf goods b) Contract for personal services c) Contract for the sale of land d) Contract for the sale of goods where money damages will be adequate e) Contract for the sale of an antique clock in which the buyer intended to sell it to make a profit.

The correct answer is C. A decree of specific performance is an equitable remedy awarded by a court when there is no adequate remedy at law (i.e., money damages is not an adequate remedy) and the subject matter is unique. In such a case, the court will enforce the promise rather than awarding money damages. Specific performance may be given when the subject matter of the contract is the most important thing to the party—not the money. Unique subject matter could be a priceless painting or antique. Real property is generally always considered unique.

Which of the following best describes an innocent party's obligation to mitigate damages when the other party breaches a contract? a) A party is under no duty to mitigate contractual damages. b) A party can recover all of her damages without attempting to mitigate her damages. c) A party must attempt to reduce her contractual damages as much as she reasonably can without incurring additional risk or substantial inconvenience. d) In a situation involving anticipatory repudiation, the innocent party is not obligated to mitigate her damages. e) Mitigation of damages in a breach of employment contract situation will require the terminated employee to relocate to another city, if necessary, if such a job is offered as a way of reducing her money damages.

The correct answer is C. A nonbreaching party is required to mitigate, meaning to lessen, his damages following a breach of contract. The nonbreaching party is not required to be substantially inconvenienced by having to relocate to a new city or take a job that is not comparable to the one he had. If the nonbreaching party takes the position to wait on an anticipatory repudiator's performance, the nonbreaching party cannot recover more in damages than he would have had he mitigated his damages through some means such as cover.

Which of the following persons entering into a contract would cause the contract to be void rather than voidable? a) A minor executing a contract for non-necessaries b) A minor executing a contract for necessaries c) A legally insane (adjudged insane) person d) A person insane in fact e) A person who has been mistaken about the contract

The correct answer is C. A person who has been adjudicated insane (legally insane) does not have legal capacity to make a contract, thus any contracts such a person makes are void. A person who is insane in fact has not been adjudicated insane by a court. This person has periods—and perhaps this condition is permanent—of insanity. Any contract made by a person in a mental state where they do not understand the nature and consequences of their act (contracting) is voidable until a reasonable period after the person becomes lucid again. Any contract made by the person in a mental state where he does not understand the nature and consequences of his act (contracting) is voidable until a reasonable period after he becomes lucid again.

Which of the following legal remedies would a private victim of illegal antitrust activity have against the wrongdoer? a) Cease and desist order b) Consent order c) Treble damages d) Criminal fine or imprisonment e) Civil fine

The correct answer is C. A private right of action may be maintained by a private party who is injured as a result of illegal antitrust activity. Such a person may receive treble damages, or three times the plaintiff's actual proven damages, and at the court's discretion, attorney's fees and court costs. A private plaintiff may also seek a court order enjoining further violations. The FTC may issue a cease and desist order, may levy a civil fine, or agree to a consent order with the violator. Finally, the Department of Justice may criminally prosecute and a federal court may impose criminal fines or imprisonment of the persons who knowingly committed the antitrust crimes.

Which of the following acts would probably be unethical but not illegal? a) Intrusively invading the privacy of employees through private surveillance b) Allowing executives to sexually harass female subordinates as a perquisite c) Laying off customer support employees in the United States and contracting with a foreign contractor in a developing country to have the work done much cheaper d) Lying to customers about important product facts e) Insider trading of securities

The correct answer is C. All but choice C would be both unethical and illegal. It is not illegal to relocate a company's operations offshore to obtain cheap labor. Determining whether the relocation is unethical requires the use of ethical reasoning through one or more theories such as consequentialism, deontology (or duty ethics such as Kantian ethics), virtue ethics, or rights-based ethics. Relocation might be unethical depending on the facts. Intrusively invading employees' privacy is a tort of invasion privacy. Sexual harassment is illegal under Title VII. Lying to customers can be a tort of fraud and a deceptive trade practice. Finally, insider trading is illegal under Section 10(b) of the Securities Exchange Act of 1934. These four illegal acts cannot be regarded as ethical since the law establishes only a minimum threshold for ethics.

Which of the following would probably NOT be required to be stated in an offer or be capable of being reasonably inferred from it for the offer to be valid? a) The identification of the parties b) The identification of the subject matter of the contract c) The precise quantity to be sold even if the seller will let the buyer determine how many the buyer requires under a requirements contract d) The purchase price e) The time period for performance, payment, or delivery

The correct answer is C. All of the choices state requirements to create sufficient definiteness of the terms except choice C. In requirements contracts, the buyers and sellers do not know with precision how many units the buyer will require of a product. A requirements contract requires the buyer to purchase all of its needs for the product from the seller. Thus, an exact quantity cannot be stated. The same reasoning applies to output contracts, which requires the buyer to purchase all of the production of the product by the seller.

The shipping term "F.O.B. Destination" has the legal significance of which of the following, assuming the sales contract does not deal with it explicitly? a) The buyer will bear the cost of shipping, but the seller will bear the risk of loss until the goods are delivered. b) The buyer will bear both the cost of shipping and the risk of loss after the goods leave the seller's place. c) The seller will bear both the cost of shipping and the risk of loss until the goods are delivered. d) The seller will bear the cost of shipping, but the buyer will bear the risk of loss after the goods leave the seller's place. e) The buyer will bear the cost of insurance and freight and these two are added onto the seller's invoice.

The correct answer is C. An F.O.B. Destination shipping term generally means that the title passes to the buyer upon delivery of the goods, the seller bears the cost of transporting the goods to the place of destination, and the seller bears the risk of loss until the goods are tendered at the place of destination. The buyer and seller may expressly agree on when title and risk of loss pass and who will bear the transportation costs. Title, risk of loss, and shipping costs are separate concepts that can be negotiated separately.

Which of the following is the party who makes an offer to contract? a) Assignor b) Promisee c) Offeror d) Offeree e) Assignee

The correct answer is C. An offer is made by the offeror and the offer is made to the offeree. Receiving an offer gives the offeree the power to accept or reject the offer. Assignors and assignees are parties who make and receive an assignment of contract rights, respectively. A promisee is one to whom a promise has been made by a promisor.

In a legal dispute over the infringement of a patent heard in the U.S. Patent and Trademark Office's Board of Patent Appeals, the petitioner is not pleased with the decision. If the petitioner files an appeal, which of the following federal courts would have appellate jurisdiction to hear the appeal? a) U.S. District Court b) U.S. Supreme Court c) U.S. Court of Appeals for the Federal Circuit d) U.S. Court of Appeals for the Washington, D.C., Circuit e) U.S. Court of Appeals for the Ninth Circuit

The correct answer is C. Appeals from the U.S. Patent and Trademark Office's Board of Patent Appeals (the trial court of the PTO) go to the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. The Federal Circuit hears appeals from the PTO and cases in which the federal government is a defendant. It is a significant appellate court for this reason.

Which of the following best describes a contract entered into by a person, who sometimes acts insane (i.e., not being able to appreciate the consequences of one's act), but at the time of entering into the contract the individual understood what they were doing? a) A nullity b) Void c) Valid d) Voidable provided full restitution can be made to the other party e) Voidable

The correct answer is C. At first glance, it would appear that this is a situation where an insane-in-fact person enters into a contract that would be voidable. However, since the person was aware of what they were doing and the consequences of entering into a contract, the person was not insane at the time they entered into the contract. Thus, the person would have no legal right to avoid the contract as they have full legal capacity.

Common law in the United States derived from what source? a) The American Congress b) The American President c) The American Courts following the Declaration of Independence d) The English legal system e) The various English colonies in early America

The correct answer is D. Although common law is made through the courts, originally common law was started in England in 1066 with William the Conqueror. As this country was formed as English colonies, it adopted English law. Each state adopted the English common law as it became a new member of the United States.

Which of the following is a correct statement about sale by auction? a) Placing an item of property on auction is making a valid offer to sell. b) If an item of property is to be sold at auction, then bids must be taken and the item sold to the highest bidder. c) An offer is made by one bidding on the item of property and acceptance occurs upon the "fall of the hammer" by the auctioneer. d) Auctions are assumed to be without reserve. e) At an auction, the offer is made to sell at the fall of the auctioneer's hammer.

The correct answer is C. Auctions are special vehicles for selling property. Generally, auctions are with reserve unless explicitly stated otherwise. Auctions with reserve allow the seller to withdraw property from sale at the auction or to refuse an otherwise good bid if the seller does not want to sell. An offer to sell the auction item is not made by the auctioneer; it is made by the person making the bid. Acceptance of a bidder's offer is by the fall of the auctioneer's hammer.

Betty has been a working wife for five years. She meets all of the requirements to obtain a new car loan at favorable terms under her own name and merit. Bank does not object that Betty is a woman; rather, Bank requires all married persons as a condition of obtaining a loan to have the applicant's spouse to co-sign the promissory note or to sign the note as a guarantor. Which of the following is a correct statement of Betty's legal right against Bank in this case? a) Betty has no legal recourse against Bank because Bank may reduce its credit risk in any way it chooses. b) Betty has no legal recourse against Bank under the Equal Credit Opportunity Act because she has not been denied credit because of her sex. c) Betty has legal recourse against Bank for violating the Equal Credit Opportunity Act based on marital status. d) Betty has legal recourse against Bank for violating the Fair Credit Reporting Act for denial of credit based on marital status. e) Betty has legal recourse against Bank for violating the Fair Credit Billing Act.

The correct answer is C. Bank has violated the Equal Credit Opportunity Act because it discriminated against a loan applicant based on marital status. Lenders cannot require an otherwise creditworthy applicant to have their spouses co-sign or guaranty their promissory note as a condition of granting credit. The Fair Credit Reporting Act regulates credit reporting agencies and the Fair Credit Billing Act regulates credit card billing practices. Under the ECOA prohibition on requiring unnecessary spousal co-signing, denial of credit is not required.

Which of the following is NOT a legal requirement before a federal administrative agency can issue a valid legislative rule or regulation in the formal rule-making process? a) An enabling act must grant the agency the authority to make the rule. b) There must be a comment period for citizens to provide input on the proposed rule or regulation. c) There must be a preferential election by the citizens providing input to the agency as to which proposed rule or regulation they prefer to have adopted. d) There must be notice of the proposed rule or regulation given by the agency to the citizens by publication of the proposed rule in the Federal Register. e) The final rule or regulation is adopted by the agency and is published in the Federal Register.

The correct answer is C. Choice C is correct because it is not a requirement. Citizens have the right of input (letters, attend hearings by the agency, etc.) so that the agency promulgating a legislative rule can make the best rule possible, but citizens have no right to vote on acceptance or rejection of a proposed rule. The power to create a legislative rule rests with the agency. Choices B, D, and E state the general requirements under the Administrative Procedure Act that the agency must give advance notice of the proposed rule, a comment period must be provided to obtain input from the affected citizens, and the final rule must be published in the Federal Register. Choice A is a requirement of substantive due process requiring an act of an administrative agency to be authorized by an enabling act creating the agency and giving it powers.

Which of the following is NOT a requirement before a court will enforce a covenant not to compete? a) The agreement must be reasonable as to duration. b) The restriction must be reasonably necessary. c) The agreement must pertain only to the purchase of a business. d) The restriction on the geographical area covered must be reasonable. e) The agreement must be supported by consideration.

The correct answer is C. Choice C is the answer because it fails to recognize that the two principal uses of these restrictive covenants are in purchases of businesses and in employment contracts. Covenants not to compete must be reasonable as to need, duration, and geographic scope, and they must be supported by consideration. Consideration is easily found in the purchase price of a business and the compensation paid to employees for work performed under the employment contract.

Which of the following is a correct statement about arbitration as a means of resolving legal disputes? a) An arbitrator, like a mediator, has no authority to issue a binding resolution to the legal dispute. b) An arbitrator's decision is always binding on the parties. c) An arbitrator's decision may be overturned on appeal if the arbitrator acts arbitrarily or capriciously. d) Arbitration, unlike court judgments, is not given the full faith and credit of the states. e) One party may unilaterally demand to arbitrate a legal dispute.

The correct answer is C. Congress encourages disputing parties to arbitrate, and under the Federal Arbitration Act, the federal and state governments must provide arbitration decisions with full faith and credit just as with court decisions. Arbitration is by agreement between the parties. Arbitration may be binding or nonbinding. Nonbinding arbitration still affords the parties the right to sue if one or both do not like the result of the arbitration. An arbitrator is a neutral party, who must not be biased or act arbitrarily, capriciously or unreasonably. Due process cannot be achieved if an arbitrator acts this way. Furthermore, courts will overturn arbitrators' decisions based on this kind of unfairness.

Which of the following types of contracts must be in writing pursuant to the Statute of Frauds? I. Contract for the sale of goods for $400 II. Contract more than one year in length but possible to perform within one year III. Contract to guaranty the debt of another a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is C. Contracts requiring a guarantor to pay the debts or legal obligations of another person are within the Statute of Frauds and must be evidenced in writing. Whereas the UCC requires contracts for the sale of goods of $500 or more to be in writing pursuant to the Statute of Frauds, oral contracts of less than $500 are enforceable. Contracts extending beyond one year of their making (date of execution) are problematic. The Statute of Frauds provides that contracts that cannot be performed within one year of their making must be in writing. Here, one must consider whether or not it is possible to perform the contract within one year of the date it is executed.

The United States, Canada, Great Britain, and Australia use which of the following types of legal systems? I. Civil law system II. Islamic (or Sharia) law system III. Common law system a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is C. England and the countries that were former British colonies—the United States, Canada, Australia, and many more—follow the English tradition of the common law system. Most of the world, and especially Europe, South America, and Asia, follow the civil law system. Whereas the common law system allows law to be made by courts, the civil law system does not allow for judge-made law. Islamic law systems that base their civil law codes on sharia, the religious law of Islam, are used predominantly in the Muslim nations in the Middle East and North Africa, but not all Muslim nations base their legal system on sharia law.

Which of the following is a correct statement about a minor's right to disaffirm a contract? a) A minor can disaffirm a contract even if the contract has been ratified by him. b) A minor can disaffirm a contract at any time and for so long as he wishes. c) A minor can disaffirm a contract until he reaches the age of majority and a reasonable time thereafter. d) A minor can disaffirm part of the contract and ratify the remainder. e) A minor can only disaffirm a contract if he can fully compensate the other party for damage or loss of value.

The correct answer is C. Generally, a minor has the right to disaffirm a contract (the process of contract avoidance) by notifying the other party and returning the consideration if he has it. The minor may disaffirm a voidable contract if it is done before he reaches the age of majority (usually age 18) and a reasonable time thereafter.

A contractual defense of impossibility of performance will usually NOT exist in which of the following situations? a) A party to perform a personal services contract dies prior to performance. b) A party to perform a personal services contract becomes incapacitated prior to performance. c) A party cannot perform except with a much higher cost due to an event that it could have reasonably foreseen to occur. d) A party cannot perform because a change in the law makes performance an illegal act. e) A party cannot perform because the subject matter of the contract is destroyed.

The correct answer is C. Impossibility requires the event making performance impossible or totally impracticable must not have been reasonably foreseeable or contemplated by the parties. If one should have foreseen the risk, then one will not be relieved of responsibility. Impossibility may result from a change in the law making the act illegal, substantial destruction of the subject matter, or in personal service contracts the death or incapacity prior to performance.

Under which of the following bankruptcy provisions is a debtor business allowed to serve as its own bankruptcy trustee following the filing of a voluntary bankruptcy petition? a) Chapter 7 b) Chapter 9 c) Chapter 11 d) Chapter 12 e) Chapter 13

The correct answer is C. In Chapter 11 bankruptcies, reorganization of debts of a business, the debtor is allowed to serve as the debtor in possession and act as the trustee, provided enough creditors and the bankruptcy court do not object, then a receiver would be appointed. Acting as a debtor in possession allows the company to continue to run itself without excessive interference. Chapter 7 is liquidation; Chapter 9 is bankruptcy of municipalities; Chapter 12 is adjustment of debts by farmers; and Chapter 13 is adjustment of debts of an individual with regular income (wage earner).

Which of the following is NOT a requirement to form a corporation? a) The corporation's name must contain the word "Corporation," "Incorporated," "Company," "Limited," or an abbreviation of one of them. b) Articles of incorporation must be filed with the designated state office, usually the Secretary of State. c) The business purpose of the corporation must be stated with specificity. d) The capital structure of the corporation must be described, such as type of stock and number of shares authorized. e) The corporation's registered agent and address must be stated.

The correct answer is C. In the corporate charter (or articles of incorporation), the incorporator does not have to state with specificity what business activities the corporation may perform, i.e., the corporation's business purpose. At one time it was required, but now the Revised Model Business Corporation Act only requires that the articles of incorporation state that the corporation is authorized to carry on any lawful activity. This creates flexibility for the corporation.

In the federal court system, which of the following is the proper ranking of the courts from highest to the lowest? a) Court of Appeals, District Court, Supreme Court b) Supreme Court, District Court, Court of Appeals c) Supreme Court, Court of Appeals, District Court d) Supreme Court, Court of Criminal Appeals, Court of International Trade e) Court of Appeals, Supreme Court, District Court

The correct answer is C. In the federal court system, the highest court is the U.S. Supreme Court, followed by the Court of Appeals and then trial courts. The U.S. District Court is the only general jurisdiction trial court, and there are other limited jurisdiction trial courts, like Court of International Trade, Bankruptcy Court, Claims Court, and Tax Court. Although there is an appellate court to hear military appeals, in the federal system there is no court of criminal appeals like there is commonly in state court systems.

Insurance Agent phones Carpet Cleaner to inquire as to the cost of having his business office cleaned. They did not reach an agreement over the phone. The next day, when Insurance Agent arrived at his office from a sales call, he noticed a crew of workers from Carpet Cleaner cleaning his office carpet. Although they had cleaned two of the six rooms, Insurance Agent did not stop them. He left the office again and Carpet Cleaner completed the work, cleaning all six offices. Carpet Cleaner bills Insurance Agent $400, a reasonable price. Insurance Agent's obligation to pay Carpet Cleaner is based on which of the following? a) Express contract b) Implied in fact contract c) Quasi contract d) Unilateral contract e) Bilateral contract

The correct answer is C. Insurance Agent and Carpet Cleaner did not enter into either an express or implied in fact contract. It was not an express contract because the two of them did not agree through words. It was not an implied in fact contract because neither of their conduct reflects a customary way contracts are entered into—by happenstance or negligence of one of the parties. No contract actually exists, but a court will award Carpet Cleaner an equitable remedy based on quasi contract for unjust enrichment Insurance Agent received to Carpet Cleaner's detriment. To prevent an injustice, a court will require Insurance Agent to pay a reasonable value for the benefit received ($400). The unjust enrichment resulted when Insurance Agent did not stop Carpet Cleaner from cleaning the rest of the rooms' carpets after he discovered Carpet Cleaner's mistake. Had he asked Carpet Cleaner to leave immediately, Insurance Agent would not have been unjustly enriched and would not be liable.

Plaintiff wants to gather some information on Defendant Corporation's policies and management personnel to determine what persons Plaintiff should depose. At this point, Plaintiff needs general background information that hopefully will lead to more information later. Which of the following methods of discovery would Plaintiff most likely use to achieve this? a) Production of documents b) Oral deposition c) Interrogatories d) Written deposition e) Physical examination

The correct answer is C. Litigators commonly use interrogatories to gather background information about a party to the litigation because it is quick and inexpensive to obtain this information. Interrogatories are written questions to be answered under oath by the other party. For example, a plaintiff suing a large company in a product liability case might prepare a request for interrogatories to obtain information of the manufacturer's management, product line, locations of manufacturing facilities, significant manufacturing and product testing policies, etc. After the answers to the interrogatories are received, the litigator will have a better idea of documents it needs and the persons to depose. Looking through documents and depositions are expensive and time-consuming in the litigation process.

Which of the following ethical theories would probably justify paying a large public company's CEO a huge salary when workers are paid poorly by industry standards? a) Kantian ethics b) Distributive justice of John Rawls c) Moral relativism or situational ethics d) Stakeholder theory of corporate social responsibility e) Cultural relativism

The correct answer is C. Moral relativism or situational ethics would probably support such a decision. If other companies are paying their CEOs inflated salaries, then, comparatively speaking, this company should as well. Moral relativism is attacked by many as an inappropriate means to deciding right and wrong, but it is frequently used. The stakeholder theory and distributive justice theory would not support paying the CEO an inordinately high salary while refusing to share the company's wealth with the employees to create some equity. Kantian ethics would also probably not support the CEO's compensation. Cultural relativism is irrelevant in this case since a foreign culture is not under consideration.

Which of the following federal statutes prohibits price discrimination among purchasers when the effect may be to substantially limit competition or tend to create a monopoly? a) The Sherman Act of 1890, Section 1 b) The Sherman Act of 1890, Section 2 c) The Clayton Act of 1914, Section 2 (as amended by the Robinson-Patman Act) d) The Clayton Act of 1914, Section 7 (as amended by the Cellar-Kefauver Act) e) The Federal Trade Commission Act of 1914

The correct answer is C. Price discrimination, i.e., the selling of goods and services cheaper to some customers than others when there is not justifiable economic reason, is made unlawful by the Robinson-Patman Act, which amended Section 2 of the Clayton Act. Section 7 of the Clayton Act deals with mergers. Section 1 of the Sherman Act prohibits contracts, combinations, or conspiracies in restraint of trade. Section 2 of the Sherman Act prohibits monopolies that restrain trade. The Federal Trade Commission Act prohibits unfair and deceptive trade practices and established the FTC.

Sam hits Kevin in the face with his fist breaking Kevin's nose. Sam's act was intentional and out of unprovoked anger. What class of tort would this be? a) Recklessness b) Negligence c) Intentional tort d) Strict liability tort e) Gross negligence

The correct answer is C. Sam's act is battery and is an intentional tort. An intentional tort arises when the defendant knows or should have known with reasonable certainty that his action would result in injury to the plaintiff, as here. Recklessness is not as bad as an intentional tort, but it is worse than negligence. With recklessness, the defendant does not intend to injure the plaintiff but knows there is a high likelihood of injury and proceeds to act anyway. Injury results.

Marwan, a U.S. nationalized citizen from Jordan, is denied employment at a business firm of twenty full-time employees because he is of Arabic descent. In this case, the employer is liable for violation of which of the following federal discrimination laws? a) Fair Labor Standards Act b) Civil Rights Act of 1964, Title IX c) Civil Rights Act of 1964, Title VII d) Equal Pay Act e) Americans with Disabilities Act

The correct answer is C. Since the employer employs more than fourteen employees, the employer must comply with Title VII of the Civil Rights Act of 1964, which prohibits discrimination in employment based on national origin, as well as race, religion, sex, and color. Title IX of the CRA covers educational institutions and prohibits discrimination because of sex. The ADA covers disabilities, EPA prohibits unlawful pay disparity between men and women, and FLSA covers wage and hours laws and child workers.

Sam hits Kevin in the face with his fist, breaking Kevin's nose. Sam's act is intentional and out of unprovoked anger. What specific tort would this be? a) Negligence b) Assault c) Battery d) Outrageous conduct e) Intentional infliction of emotional distress

The correct answer is C. Since this act was an intentional act to cause injury, it is an intentional tort, specifically battery. Battery is the harmful or offensive touching of the person of another without consent or privilege. Although in criminal law battery is sometimes called "assault," in tort law, there is a separate tort of assault. In tort law assault is the causing of a reasonable fear of a harmful or offensive touching of the person without consent or privilege. Since there was an actual touching (hitting), this is battery rather than assault.

Which of the following acts would be both illegal and unethical? I. Establishing an affirmative action plan by a large company II. Terminating a long-time employee without cause in an employment-at-will state III. Spreading false rumors about a competitor's product a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is C. Spreading false rumors about a competitor's product is illegal in tort as trade or product disparagement, intentional interference with business conduct (or business prospective), and possibly defamation. It would also be an unfair trade practice and illegal under the Federal Trade Commission Act. Under any of the forms of ethical reasoning (Kantian, utilitarianism, virtue ethics, etc.), such an act would be unethical. An affirmative action plans is generally regarded as an ethical policy and socially responsible. An affirmative action plan may be illegal if it cannot meet the Supreme Court's test in Weber v. United Steelworkers Union. Whereas terminating a long-time employee without cause is generally legal in employment-at-will states, doing so probably would not be ethical under duty ethics, virtue ethics, and rights theories of ethics. However, doing so may be supportable under utilitarianism and moral relativism views.

Carla has a hearing impairment. She applies for a job as a customer representative with Large Employer. The job of customer representative requires the employee to talk over a telephone. Carla has experience as a customer representative and is otherwise qualified for the job if she can be given a reasonable accommodation of her disability by having her employer acquire a special telephone for people with hearing loss. Large Employer refuses to hire Carla because it does not want to go through the inconvenience of providing her a reasonable accommodation for her hearing impairment. Under which federal statute will Large Employer probably be liable? a) Civil Rights Act of 1964, Title VII b) Fair Labor Standards Act c) Americans with Disabilities Act d) Age Discrimination in Employment Act e) National Labor Relations

The correct answer is C. The Americans with Disabilities Act prohibits employers of fifteen or more employees from discriminating against employees and job applicants with disabilities if they are otherwise qualified given reasonable accommodation for their disability. Such would be the case here. By refusing to make a reasonable accommodation of her hearing disability, the employer is liable. As this is a larger employer, the reasonable accommodation of a special telephone for Carla would not be an undue hardship.

Landowner has unknowingly purchased some land that has been used as a dump for hazardous waste, in particular many drums of old machine oil. Landowner's seller was not aware he violated the environmental law. Which of the following most accurately describes Landowner's legal liability to clean up the land before it can be sold? a) Landowner has no potential liability under any federal environmental laws because he did not cause the pollution. b) Landowner has no potential liability under CERCLA because he did not know that the land was contaminated when he purchased it. c) Landowner is jointly and severally liable with the polluter for the costs to clean up the toxic waste under CERCLA. If the polluter cannot pay, then Landowner is ultimately liable. d) Landowner, as the present owner, is solely liable for the costs to clean up the land and has no right of contribution from any previous owners. e) Landowner is liable for the costs to clean up the land unless the EPA cleans up the land under the Superfund.

The correct answer is C. The Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), known as the "Superfund," is intended to regulate the cleanup of hazardous waste-disposal sites. Liability for site cleanup falls on the polluter and the landowner. If an innocent landowner has to pay, the landowner has a right of contribution (right to sue) against the polluter and/or the person who sold the present landowner the property. Such persons are jointly and severally liable for the costs of the cleanup. If the cleanup of the hazardous waste is through Superfund, the federal government may sue to collect the monies expended for the cleanup.

Which of the following most accurately describes a state's power to regulate business under the Dormant Commerce Clause of the U.S. Constitution? a) It prohibits states from regulating interstate commerce. b) It allows a state to regulate interstate commerce whenever the state has a legitimate interest to regulate interstate commerce. c) It allows a state to regulate interstate commerce provided it has a legitimate interest in doing so. d) It allows a state to regulate interstate commerce even if the federal government has expressed its desire to exclusively regulate in that area. e) It prohibits a state from ever placing a burden on interstate commerce even to achieve a legitimate interest of the state.

The correct answer is C. The Dormant Commerce Clause allows a state to regulate interstate commerce if the state has a legitimate interest in regulating and the means are reasonable. The legitimate interest is commonly found in protecting health, safety, conservation, environment, etc. However, in regulating the activity, a state may not impose an unreasonable burden on interstate commerce. Choice D states a correct rule under the Supremacy Clause but not the Dormant Commerce Clause.

Which of the following would NOT violate the Fair Labor Standards Act? a) Employing a 16-year-old person to perform hazardous work on a construction project b) Paying a nonexempt employee less than time-and-a-half compensation for all hours the employee works over forty hours in a workweek c) Employing a 17-year-old to work 40 hours per week, Monday through Friday, at a grocery store d) Paying a permanent employee less than the federal minimum wage. e) Employing a 15-year-old person to work in a grocery store from 10 a.m. to 4 p.m., Monday through Friday

The correct answer is C. The Fair Labor Standards Act covers both child labor and wage and hour laws. People who are 17 years old are not limited in the number of hours they work or when those hours are worked. Persons 14 and 15 years old are limited as to the number of hours they can work during a week and are prohibited from working during school hours. Thus, a 17-year-old working 40 hours, Monday through Friday, at a grocery store is lawful. A child less than 18 years of age may not be employed in hazardous jobs or in jobs detrimental to their health and well-being. If an employee is non-exempt from the wage and hour provisions of FLSA, the employee must be paid time and a half for all time worked in excess of 40 hours in a work week. FLSA establishes a federal minimum wage, which currently is $5.15 per hour.

Which of the following federal laws requires a federal administrative agency to provide information about its activities upon proper request of a citizen and subject to limitations, such as personnel records, national security, and proprietary trade secrets of contractors? a) Government-in-the-Sunshine Act b) Sunset laws c) Freedom of Information Act d) Enabling Act e) Regulatory Flexibility Act

The correct answer is C. The Freedom of Information Act (FOIA) allows citizens to obtain public documents from federal agencies, but this is not a right to all documents. The law is designed to prevent abuse of discretionary power of federal agencies by requiring them to make public certain information about their workings and work product. An enabling act creates an agency and establishes its powers. Sunset laws are descriptive characteristics of legislative enactments that cease to be effective after a certain period of time. Government-in-the-Sunshine Act of 1976 requires that "every portion of every meeting of an agency" be open to "public observation," but there are exceptions as with FOIA.

Which of the following is NOT a requirement for the tort of negligence? a) The plaintiff must suffer an injury or damages. b) The defendant must owe a legal duty to the plaintiff to conduct herself to some standard of care. c) The defendant's action must be a cause for the plaintiff's injury. d) The defendant must have failed to comport her actions according to the standard of care owed the plaintiff. e) Both the plaintiff and the injury must have been reasonably foreseeable.

The correct answer is C. The four elements of the tort of negligence are (1) duty, (2) breach of the duty, (3) causation, and (4) damage. Causation means the but-for cause; but for the defendant's breach there would have been no injury. The cause must also be the proximate cause, the most closely related to the injury. It is not enough that the defendant's act was "a" cause.

Sam works for Acme Company, a manufacturer. Acme is located in a state that follows the employment-at-will doctrine. Acme fires Sam for encouraging his fellow workers to organize a labor union at Acme. Which of the following federal laws makes Sam's termination of employment wrongful? a) Fair Labor Standards Act b) Civil Rights Act of 1964, Title VII c) National Labor Relations Act d) The Landrum-Griffin Act e) National Railway Labor Act

The correct answer is C. The National Labor Relations Act (Wagner Act) prohibits an employer from taking any negative action against an employee who participates in union activities. Employers cannot coerce or threaten workers or interfere with a worker's right to carry out a concerted activity, which may be union activity, for their mutual aid and protection. Both the Landrum-Griffin Act and the National Railway Labor Act are federal labor laws. The Landrum-Griffin Act provides union members with a "bill of rights" against their union representatives and provides for legislative control over union officials. The National Railway Labor Act did not establish unfair labor practices of management. Neither the FLSA nor Title VII deal with labor-management relations.

Law in the United States can be created in all of the following ways EXCEPT a) through the creation of constitutions and interpretation of those constitutions. b) through enactment of statutes and treaties by legislatures. c) through act of the President of the United States as the president wishes, which extends beyond executive orders. d) through the courts as common law. e) through the promulgation of rules and regulations by administrative agencies.

The correct answer is C. The President of the United States can establish law through the issuance of executive orders published in the Federal Register. However, the president's executive order must be based on an underlying statute of Congress giving the president authority to act. Courts have the power of judicial review to determine if the president's executive orders pass the separation of powers doctrine and are constitutional under substantive due process. This is the system of checks and balances. Other than executive orders, the president has no authority to make law. Law can be made by the courts, the legislature, administrative agencies, and the people through constitutions.

Which of the following issuances of securities would require the issuer of the securities to file a registration statement with the SEC? a) The issuance of securities is up to $5 million and meets the requirements of a small issuance under Regulation D of the Securities Act of 1933. b) The issuance of securities is an amount less than $5 million and no more than 35 nonaccredited investors are solicited. c) The issuance of securities is an amount less than $5 million and solicitation is to any potential purchaser using the company's Website. d) The issuance of securities is up to $5 million and meets the requirements for a small issuance under Regulation A of the Securities Act of 1933. e) The intrastate issuance of securities of no more than $500,000 is solely to persons located within the state of the issuer.

The correct answer is C. The Securities Act of 1933 requires new issuances of securities into the primary securities market be registered with the SEC. Some issuances are exempt, however. These exempt issuances include those small issuances under Regulation A and Regulation D. Regulation D limits the dollar amount of the securities issuance and the types of persons who can be solicited. As accredited investors have enough sophistication and wealth, they do not need as much SEC protection. Unaccredited investors need the protection, so no more than 35 of them may be solicited. If there are broad solicitation efforts, such as the use of the internet without restriction on who can be solicited, there will be a violation of exception provisions under Regulation D. Finally, small intrastate issuances of no more than $500,000 are exempt, usually for state purposes as well.

Which of the following federal environmental laws created the "Superfund" for cleaning up land contaminated with hazardous waste? a) Clean Water Act b) Toxic Substances Control Act c) Comprehensive Environmental Response and Liability Act (CERCLA) d) Solid Waste Act e) National Environmental Policy Act

The correct answer is C. The Superfund was created under CERCLA to provide the funding to clean up land contaminated with hazardous waste. It has not been very effective as enough contaminated sites have been reclaimed. The Toxic Substances Control Act provides some control over disposal of hazardous waste by regulating toxic substances "cradle to grave." The Solid Waste Act regulates landfills and prohibits dumping of hazardous waste in a public landfill. The National Environmental Policy Act requires government agencies to prepare environmental impact statements to assess the negative effects of construction projects on the environment.

From which of the following courts may the U.S. Supreme Court NOT take an appeal over a federal question or constitutional matter? I. A state's highest court II. U.S. Court of Appeals III. U.S. District Court a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is C. The U.S. Supreme Court may take an appeal as a matter of right or by permission from any of the U.S. Courts of Appeals (thirteen in all) and from any state high court, provided there is a federal question involved in the case. Appeals from the U.S. District Courts go to the U.S. Court of Appeal.

Which of the following breaches of ethical conduct would probably NOT arise by a real estate agent usurping an investment opportunity for his own financial gain rather than advising his principal (employer) of the investment opportunity as his agency contract requires of him? a) Untruthfulness and lying b) Conflict of interest c) Breach of confidentiality d) Failing to keep a promise e) Fairness

The correct answer is C. The case would probably not result in a breach of confidentiality but probably would result in all of the other ethical lapses. A real estate agent who usurps its principal's business opportunities violates his fiduciary duty of loyalty to his principal. An agent must meet his fiduciary duties to be ethical. Some professions maintain their own codes of ethics. Conflicts of interest, lying, failing to use due care in completing the job, and confidentiality usually are included in those professional codes of conduct.

Which of the following is NOT true about the doctrine of stare decisis? a) Stare decisis is a Latin phrase meaning "to abide by, or adhere to, decided cases." b) Stare decisis is a policy of courts to stand by precedent and not to disturb settled point. c) Stare decisis requires that, once a precedent has been established, it must always be followed and not changed. d) Stare decisis brings stability and predictability to the law. e) Stare decisis does not require one state to follow the precedent of another state where that legal issue has been decided.

The correct answer is C. The doctrine of stare decisis is what makes the common law work so well with stability and predictability. Even though the doctrine requires courts to follow precedent, it does not mean that precedent can never change. An appellate court, but not a trial court, can refuse to follow a precedent if the court feels the old precedent is no longer reasonable and should be changed.

General Partnership is being dissolved and its assets liquidated. Which of the following is the final step in distributing the assets of General Partnership? a) Return of capital contribution to the partners b) Payment of third-party (outsiders) debts c) Distribution of what is left over (the remainder) to the partners in accordance with their respective profit ratios d) Refund of advances made by partners to the partnership e) Payment of outstanding loans by partners to the partnership

The correct answer is C. The general partners get what is left over after first paying off the outside creditors; second, paying off the partners, who are creditors of the partnership; third, refunding advances individual partners have made to the partnership; and fourth, returning any capital contributions to the partners. The last step is actual distribution of the profits (or losses if there are not enough funds to cover steps one through four) from the liquidation of the assets. This final sharing of the profits and losses is done based on each partner's share of profits and losses.

Jury finds both Defendant and Plaintiff were at fault in causing Plaintiff's injury in a negligence lawsuit where Plaintiff's total damages were $100,000. Defendant was 70 percent at fault and Plaintiff was 30 percent at fault as they both were negligent. Assuming the law of the state where the lawsuit is heard applies the modified comparative fault rule (or 50 percent comparative negligence rule), what will be the result in the lawsuit? a) Plaintiff will receive an award of $100,000. b) Plaintiff's case will be barred and she will receive nothing. c) Plaintiff will receive an award of $70,000. d) Plaintiff will receive an award of $30,000. e) Plaintiff will lose because comparative negligence states any degree of fault above 20 percent is an affirmative defense for the defendant.

The correct answer is C. The general rule used to be contributory negligence was an affirmative defense. If the plaintiff in any way contributed to his own injury through negligence, the plaintiff could not recover any damages from the defendant regardless of the degree of fault of the defendant. Courts have moved away from contributory negligence and now the general rule is one of comparative negligence. There are two forms of comparative negligence (or fault)—pure and modified. Only a few states follow pure comparative negligence. Most states follow modified comparative negligence (or the 50-percent comparative negligence rule). In this case if both the plaintiff and the defendant are at fault in causing the plaintiff's injury, the trier of fact will determine the share of fault of each one. As long as the plaintiff is not more than 50 percent at fault, the plaintiff can recover but not for his own share of negligence. If the plaintiff is more than 50 percent at fault, the plaintiff's case is barred and he takes nothing. In this case, with the plaintiff 30 percent at fault, the plaintiff can only recover $70,000 ($100,000 less 30% times $100,000).

Which of the following business torts results when the defendant through an improper motive or illegal means damages another's business? a) Misappropriation of trade secrets b) Trade disparagement c) Intentional interference with business relationship (or prospective advantage) d) Intentional interference with contractual relations e) Civil RICO action

The correct answer is C. The intentional tort of intentional interference with business relationship (or business conduct, or prospective business, as the tort is called) occurs when an individual tries to injure another's business, trade, or profession. As long as the injury is intentional, there will be liability if done with either an improper motive, such as spite or revenge, or the defendant uses an illegal means, such as predatory pricing.

Which of the following is the lowest-level test for constitutional scrutiny by a court? a) Strict scrutiny b) Compelling interest scrutiny c) Rational basis test d) Intermediate scrutiny e) Commerce Clause test

The correct answer is C. The lowest level of constitutional scrutiny is the rational basis test and is applied to actions by governments under the Commerce Clause. The highest level, strict scrutiny, is used when either a fundamental constitutional right or the affected person is a member of a suspect class. There is a mid-level scrutiny, called intermediate scrutiny, that is applied when persons are affected by government based on their gender or legitimacy.

Corporation is preparing to make a large issuance of new stock (an IPO) to the public pursuant to the Securities Act of 1933. Which of the following is the principal report that must be filed with the Securities and Exchange Commission? a) 10-K Report b) Prospectus c) Registration Statement d) Form D (Required by Regulation D) e) Tender Offer

The correct answer is C. The main requirement of the Securities Act of 1933 is the registration of all new issuances of securities, including stock, that are not exempt. Since this a large issuance, neither Regulation D nor Regulation A apply. The Securities Act requires both a registration statement and a prospectus be filed with the SEC before any new securities can be sold. The correct answer is registration statement rather than prospectus because there is substantially more information contained in the registration statement. A prospectus is an informational report written in clear and less legal terms and must be given to each investor solicited. A 10-K report is the annual report required to be filed by publicly traded corporations with the SEC. A tender offer is undertaken by an investor who desires to acquire enough shares in a corporation to gain voting control.

Which of the following is the usual standard of care in negligence cases? a) The subjective intent of the defendant at the time of committing the act b) The subjective intent of a prudent person under the circumstances c) The reasonable person standard d) The eggshell plaintiff standard e) The objective intent of the defendant at the time of committing the act

The correct answer is C. The usual standard of care in negligence cases is the reasonable person (or reasonable man) standard. It is an objective standard that one must observe to avoid liability for negligence. It considers how an ordinary and prudent person would act under a similar situation.

Which of the following types of contractual performance usually results in only minor deviations or omissions not material to the total contract and is required to prevent material breach of contract? a) Total performance b) Full performance c) Substantial performance d) Complete performance e) Personal satisfaction performance

The correct answer is C. There is not material breach as long as the contracting party substantially performs. When the party only substantially performs its contractual obligation, then the party is entitled to payment of the contract price less the damage caused by not fully performing as it promised. When a party has fully performed, or totally performed, or completely performed, the party has not breached the contract and is entitled to the whole contract price. Personal satisfaction performance would require the party to perform its services in such a manner as to meet someone's personal satisfaction, which may be an objective test.

Abigail purchases a paid-up life insurance policy on her life with Insurer. Abigail makes a gift of the insurance policy to her daughter, Becky. Abigail dies and Insurer refuses to pay Becky the policy proceeds. Specifically, what type of third-party beneficiary is Becky? a) Creditor beneficiary b) Incidental beneficiary c) Donee beneficiary d) Intended beneficiary e) Donor beneficiary

The correct answer is C. Third-party beneficiaries of a contract include incidental beneficiaries and intended beneficiaries. Incidental beneficiaries are those third-party beneficiaries who have no direct stake in the contract and their benefit from the contract is only incidental to the making of the contract. Intended beneficiaries are third-party beneficiaries to a contract that, by the nature of the contract, have legal interests to enforce, a stake in the contract, if you will. These may arise under gift arrangements where one party enters into a contract specifically or ultimately to benefit someone else, thereby creating a donee beneficiary. Becky is a donee beneficiary because she is intended to benefit from the life insurance policy even though she did not give consideration to obtain the right to receive the insurance proceeds. Intended third-party beneficiaries may also arise as a result of a debtor-creditor relationship. In this case, the obligor (a debtor) under a contract becomes liable to pay the debt to a third party, who has a claim as a creditor for the payment. This intended third-party beneficiary is a creditor beneficiary. Incidental beneficiaries have no right to sue on a contract, but intended beneficiaries may sue to enforce a contract.

Seller sends Buyer a signed letter offering to sell resin pellets for $4,000 per ton for a period of four months. Buyer liked this price since it was a sizeable discount. With about two weeks left on the offer period (i.e., 3.5 months had expired on the offer), Seller sent Buyer another letter stating that the price of resin pellets had gone back to $5,500. Buyer attempted to place an order to acquire 50 tons of the resin pellets at the $4,000 per ton price. Seller refused to sell stating the price had increased and it had revoked its earlier offer. If a lawsuit for breach of contract is filed by Buyer, what will be the result? a) Seller will win because its offer was properly revoked since Buyer did not pay anything (consideration) for the offer to be held open for four months. b) Buyer will win because an option contract made Seller's offer irrevocable for four months. c) Seller will win because Seller's offer, though a firm offer under the UCC, was irrevocable only for a period of three months. The offer had been properly revoked. d) Buyer will win because of detrimental reliance on Seller's offer. e) Buyer will win because the firm offer made Seller's offer irrevocable for four months.

The correct answer is C. This case applies the UCC's firm offer rule. The firm offer rule states that an offer made by a merchant in a signed writing giving assurances that the offer will be held open is irrevocable without consideration paid by the buyer for the time period stated, and if no time period is stated, then for a reasonable period of time, but the period of irrevocability cannot exceed three months. The firm offer rule did apply in this case, but the period of irrevocability ended after three months. Seller effectively revoked its offer, and Buyer cannot accept the revoked offer.

Barbara enters into a one-year oral contract of employment on April 1 for her to begin work on June 1. Her new employer will require her to complete 2,000 hours of work during the year to complete her contractual obligations. She can work at her own pace and work as many hours a week as she chooses as long as she completes the 2,000 by May 31 of next year. On June 1, her new employer decides not to allow her to begin her job. Which of the following best describes the legal consequences in this case? a) Barbara's contract is illegal and void since it was not in writing. b) Barbara's contract is void under the Statute of Frauds. c) Barbara's contract is valid and enforceable and was not covered by the Statute of Frauds since it was possible to perform within one year of its making. d) Barbara's contract is valid but unenforceable under the Statute of Frauds since it was for more than one year in duration and it was not in writing and signed by her employer. e) Barbara's contract is enforceable because contracts of employment are not covered by the Statute of Frauds.

The correct answer is C. This contract was not covered by the Statute of Frauds because it was a contract that could be performed within one year of its making. Thus, her oral contract is both valid and enforceable. A contract that fails to meet the requirements of the Statute of Frauds is a valid contract but is unenforceable in court. Employment contracts may fall under the Statute of Frauds provided they cannot possibly be performed within one year of the date the contract is entered into.

Defendants, who are competitors in the high-voltage electrical contracting business, privately agreed to split up the United States into five geographic regions. Each region would have several competing companies. Defendants agreed they would not successfully bid on construction projects outside their respective regions. Which of the following is a correct statement of the potential liability of Defendants? a) Defendants are not liable under any federal or state law because they are free to compete for business in any way they choose. Such is the free market. b) Defendants are not liable under Section 2 of the Sherman Act because none of them would have a monopoly on the high-voltage electrical contractor market. c) Defendants are liable under Section 1 of the Sherman Act for the per se violation of horizontal geographic market division. d) Defendants are liable under Section 1 of the Sherman Act for the per se violation of horizontal price fixing. e) Defendants are liable under Section 1 of the Sherman Act for an illegal group boycott.

The correct answer is C. This is a horizontal market division situation and is a per se violation of Section 1 of the Sherman Act. Section 1 makes contracts, combinations, or conspiracies in restraint of trade illegal. Here, there is prior agreement to restrain trade through splitting up a market based on geographic territories. A per se violation of the Sherman Act does not require proof of an unreasonable restraint on trade under the rule of reason. Section 2 of the Sherman Act regarding unlawful monopolies is irrelevant.

Which of the following usually prohibits the admission in court of an out-of-court statement made by a non-witness with the intent to prove the truth of the matter asserted in the non-witness's statement? a) Motion in alimony b) Parole evidence rule c) Hearsay rule d) Admissions against interest rule e) Choice

The correct answer is C. This is the definition of hearsay. Only in special situations can an out-of-court statement made by someone who is not a witness at the trial be admissible in court if that hearsay statement is made to prove the truth of the hearsay statement made. The admissions against interest rule is an exception to the hearsay rule. The parole evidence rule is a rule of contract law that prohibits a court from admitting any outside (or extrinsic) evidence, existing before or contemporaneously with the making of a contract, if it will contradict a complete and fully integrated contract. A motion in alimony is used to keep testimony out of court before the witness takes the stand.

Acme Company, a U.S. corporation, has the opportunity to obtain a very profitable contract in Foreign Nation. Acme's president orders the company's treasurer to pay a deputy minister high in Foreign Nation's government $200,000 out of a slush fund and to cover up the payment in the accounting records. Which of the following is correct regarding this situation? a) Unless such a payment is illegal in Foreign Nation, neither Acme Company nor any of its officers are liable for bribery. b) Acme Company alone is criminally liable for a felony for bribing a foreign official under the Foreign Corrupt Practices Act. c) Acme Company, its president, and its treasurer are criminally liable for a felony for bribing a foreign official and conspiring to cover up the bribe. d) There will be no criminal liability of Acme or its officers if the actions took place outside the United States. However, if they took place in the United States, there would be criminal prosecution. e) There is no criminal liability because this payment would be regarded as a "grease payment" only.

The correct answer is C. This would be a violation of the Foreign Corrupt Practices Act, a felony, for bribing a foreign official and conspiring to cover up the bribery. Acme, its president, and its treasurer would be liable. Most nations do not have similar criminal laws. They leave matters to foreign prosecution. The United States has jurisdiction to prosecute under the FCPA regardless of where the bribery takes place. Grease payments are not violations of the FCPA. These payments are not made to induce a government official to do any more than the office is already required to do. The "grease payment" merely speeds up the process to get the official to act more promptly.

The justices on the U.S. Supreme Court decide to take an appeal by permission. Which of the following is NOT correct regarding the appeals process to the high court? a) The Supreme Court must issue a writ of certiorari. b) The Supreme Court must receive an appeal from the appellant. c) There must be agreement by at least five of the nine justices of the Supreme Court to hear the appeal. d) The parties must file legal briefs with the court making their respective arguments and points of law. e) The Supreme Court will hear oral arguments before deciding the case.

The correct answer is C. To hear a case by permission, at least four justices must agree to hear the case. When the decision is made to hear the case, the court will issue a writ of certiorari to order the lower court to send the record of the case. Attorneys for the appellant and appellee prepare briefs arguing the legal issues, and the court usually hears oral arguments from the parties' attorneys.

Which of the following securities laws regulates the trading of securities in the secondary markets, i.e., the subsequent buying and selling of securities following their initial issuance? a) Sarbanes-Oxley Act of 2002 b) Securities Act of 1933 c) Securities Exchange Act of 1934 d) Private Securities Litigation Reform Act of 1995 e) Investment Company Act of 1940

The correct answer is C. Trading of securities that have previously been issued by the company is in the secondary securities market and is regulated by the Securities Exchange Act of 1934. The Securities Exchange Act established the SEC and prohibits fraudulent, manipulative, and deceptive practices in the trading of securities, proxy solicitations, and tender offers. The Sarbanes-Oxley Act of 2002 regulates corporate governance and accountants and has established rules to assure greater reliability of financial information of public companies and greater independence and due diligence of the companies' auditors and financial management. The Securities Act of 1933 regulates the primary securities market and requires new stock issuances to be registered with the SEC unless exempt. The Investment Company Act regulates stock brokers. The Private Securities Litigation Reform Act provides greater regulation over securities litigation.

Which of the following would constitute the tort of trespass to land? a) Accused trespasser has permission to be on the premises. b) A law enforcement officer goes onto someone's property to rescue a person in distress. c) A person goes onto another's land without permission or privilege but does not damage the premises at all. d) An employee of the electric company goes onto a customer's property without express consent to read the electric meter. e) A person is not reasonably aware or put on notice that the land is private land.

The correct answer is C. Trespass to land is an intentional tort. The defendant must know that he is going onto another person's private land because he should have known (obvious) or the land ownership was posted (a "no trespassing" sign). One may go onto another's private land without consent if doing so is privileged-a law enforcement official, utility meter reader, or someone onto the property to rescue another person. Obviously, if one has consent, there is privilege. If the elements of trespass to land exist, it is irrelevant that no harm was done to the owner's land. A court may award nominal damage.

Which of the following types of product warranties specifically requires a warranty disclaimer to mention it by name, unless the disclaimer is "AS IS" or "WITH ALL FAULTS"? a) Express warranty b) Implied warranty of fitness for a particular purpose c) Implied warranty of merchantability d) Implied warranty against infringement e) Implied warranty of title

The correct answer is C. UCC Article 2 allows the buyer and seller to agree to disclaim express or implied warranties and how such warranty disclaimers are affected. When goods are sold on an "AS IS" or "WITH ALL FAULTS" basis, and the buyer has had a reasonable opportunity to inspect the goods, all express and implied warranties are disclaimed and do not exist under the contract. When such a blanket warranty disclaimer is not used, the parties must express the warranty disclaimer language in clear and conspicuous language. To disclaim the implied warranty of merchantability, the parties must use the word "merchantability" or "merchantable." It is not necessary to specifically mention the implied warranty of fitness for a particular purpose or other implied warranty of title or infringement.

Which of the following creditors have the highest priority in a bankruptcy? a) State and local governments for income and property taxes b) Employees for certain unpaid wages up to a statutory amount c) Secured creditors to the extent of the value of the collateral d) Consumer deposits up to a statutory amount per deposit e) Unpaid alimony

The correct answer is C. Under UCC Article 9 and the Bankruptcy Reform Act, secured creditors are given priority to the extent that the collateral covers the outstanding debt. If the collateral does not cover the whole debt of the secured creditor, then the deficiency is regarded as general unsecured debt and has the lowest priority. Of the other four, they rank from highest to lowest priority as follows: unpaid wages, consumer deposits, unpaid alimony, and back taxes.

David's wallet and credit card were lost while he was shopping at the mall. The next day after he discovered that his wallet and credit card were missing, he immediately notified the issuers of the credit card. Unfortunately, someone had made purchases with David's credit card totaling $1,500. Which of the following most accurately states David's liability for the unauthorized use of his credit card? a) David is liable for all of the unauthorized purchases since he lost his credit card. b) David is liable for only $500 of the unauthorized purchases under the Truth-in-Lending Act. c) David is liable for only $50 of the unauthorized purchases under the Truth-in-Lending Act. d) David is liable for only $50 of the unauthorized purchases under the Fair Credit Billing Act. e) David is not liable for any of the unauthorized purchases under the Truth-in-Lending Act.

The correct answer is C. Under the Truth-in-Lending Act, a credit cardholder is only liable for up to $50 for unauthorized purchases made before the card issuer is notified of the loss or theft. Unlike a negligently lost checkbook that may result in greater liability for a bank depositor and debit card holders who wait longer than two business days to notify the bank after discovery of a missing debit card, the TILA provides greater protection to cardholders. A lost or stolen debit card that is not reported within two days of discovery will require a bank to refund the amount above $500 of unauthorized withdrawals and purchases on the debit card. The Fair Credit Billing Act is not applicable.

Within the WTO framework, what tribunal will hear a dispute concerning a violation of a WTO agreement? a) U.S. Court of International Trade b) World Intellectual Property Organization (WIPO) c) Dispute Settlement Panel d) Appellate Board e) Court of International Justice

The correct answer is C. Under the WTO umbrella, disputes involving breaches of the WTO agreements, such as GATT, would be settled before a dispute settlement panel, a WTO tribunal. Appeals would be made to the WTO Appellate Board, and finally before the General Council. General Council has a representative from each member to the WTO. The Court of International Justice is a United Nations court as are the World Intellectual Property Organization tribunals.

The part of a trial to select a jury is called which of the following? a) Inquisition b) Opening arguments c) Voir dire d) Examination e) Instructing the jury

The correct answer is C. Voir dire is French meaning "to speak the truth." The voir dire process is the questioning of the jury in the jury selection process. It precedes the plaintiff's opening argument. Jury instructions are given by the trial judge after closing arguments to the jury. Examination is the direct and cross examination of the witnesses.

An agent enters into a contract with another person and the agent does not disclose the identity of the agent's principal but does disclose that she is acting as an agent for another. Which of the following best describes the person(s) liable on the contract? a) Only the undisclosed principal is liable on the contract. b) Only the agent is liable on the contract. c) Both the partially disclosed principal and the agent are probably liable on the contract. d) Neither the agent nor the partially disclosed principal is liable on the contract. e) An agent will always be liable for any contract it enters into regardless of her disclosure or nondisclosure of the identity or existence of the principal.

The correct answer is C. What are the consequences of an agent entering into a contract with another person when the agent does not disclose the identity of the principal or discloses only that the agent is acting for a principal? In the former situation, the principal would be undisclosed and the agent may find himself solely liable on the contract. In the latter situation, both the principal and the agent would be liable. When the agent discloses the identity of the principal, only the principal is liable.

Company is building a new pulp and paper mill and has applied for an environmental permit from the Environmental Protection Agency. In selecting the air pollution control equipment the company will use, which of the following best describes the EPA's requirement under the Clean Air Act? a) Since Company is purchasing the equipment, it can select any type of air pollution control equipment it desires b) Company's obligation is to meet the emissions and opacity (clarity of the air emitted) requirements so the EPA cannot control how it meets those regulatory requirements c) Company must use the best available technology (or maximum achievable control technology) to achieve the lowest form of pollution after energy, environmental, and economic considerations are given d) Company must use the best available technology (or maximum achievable control technology) without regard to any other factor e) Company can use any air pollution equipment it chooses as long as when taken on the whole the company's operations produce less than the maximum allowable emissions

The correct answer is C. When a new manufacturing facility is constructed, an environmental permit is required. The Clean Air Act requires the company seeking the permit to assess the emissions (gas contents that come out of the smokestack) and the opacity (clarity) of those emissions. To assure the cleanest emissions and the release of the lowest possible amount of contaminants into the environment, the facility must use the best available technology (BAT). Some consideration is given to the size of the facility, the cost of alternatives, the amount of pollution released by the facility, and the community's air quality in total. The decision is not left to the permit applicant.

Which of the following is NOT an element of fraudulent (intentional) misrepresentation when the victim seeks a remedy of money damages? a) Intent to deceive the victim b) Justifiable reliance by the victim c) Negligence d) Misrepresentation of a material fact e) Injury to person or property

The correct answer is C. When there is a claim of fraud (or intentional misrepresentation of fact), the innocent person must prove four elements whether the claim is for a contract defense or in an action against the perpetrator in tort: (1) misrepresentation of a material fact, (2) made with intent to deceive (or scienter), (3) reasonable reliance on the misrepresentation, and (4) injury or damages. Negligence is not required and is a notion contrary to fraud, and intentional tort. If a person acts with intent to deceive, the act is far worse than simple negligence. When there is a claim of negligent misrepresentation as a contract defense, there is no requirement that the innocent party prove injury or damages. The innocent party's only remedy in such a case is rescission.

Trial Judge decides a case without having a trial, believing there is no genuine issue of material fact to be decided by the jury. The facts are clear. Trial Judge applies the correct rule of law to the facts and rules on the lawsuit. Which of the following would the court issue? a) Jury verdict b) Judgment notwithstanding the verdict (judgment N.O.V.) c) Directed verdict d) Summary judgment e) Remittitur

The correct answer is D. A judge will grant a motion for summary judgment when the judge believes there is no genuine issue of material fact in dispute necessitating a trial. The facts are clear or undisputed. With summary judgment the court does not let the jury hear the case; the judge will rule on the pleadings, motions, and trial briefs. A directed verdict may be granted by the judge if, after hearing testimony, the judge concludes there is only one reasonable conclusion of fact so the jury does not need to hear any more to deliberate. The judge by issuing a directed verdict takes the case away from the jury. The trial judge has two other means of assuring fairness when jury verdicts are unreasonable. First, the trial judge may grant judgment notwithstanding the verdict and rule contrary to a jury's finding. Second, the judge may use remittitur to reduce the jury's damage award or may use additur to add to a jury's damage award.

Assume that in the parties' contract they expressly state the reason for obligor entering into the contract. Should that reason no longer exist before the time of performance arrives, will the obligor be discharged from performance? a) Yes, because of impossibility of performance. b) No, unless the contract contains a force majeure clause that specifically provides for the exact excusable event. c) No, because the parties did not agree to alter the contract. d) Yes, because of frustration of purpose. e) Yes, because of commercial impracticability.

The correct answer is D. A party's contractual obligation is discharged by frustration of purpose if, at the time of contracting, the parties contemplate a special purpose for a party to enter into the contract and, through no fault of that party, circumstances change such that the contract is no longer necessary. The purpose of the contract has been frustrated by the change in events. In this case, a party could still perform but would not receive the benefit originally desired. A force majeure clause is a special contractual provision that excuses performance upon the occurrence of a special and unforeseen event, like an act of God or a war. With commercial impracticability, performance is made more difficult or substantially more expensive.

Which of the following is NOT a legal defense to a claim of strict product liability? a) Plaintiff assumed the risk of using the product knowing that it was defective and dangerous. b) Plaintiff altered the product and the altered product caused plaintiff's injury. c) The product was state of the art when it was manufactured but has since then been upgraded for additional safety features. d) The statute of repose has not expired but the product's warranty expired four years before the injury. e) Plaintiff has misused the product and the misuse causes plaintiff's injury.

The correct answer is D. A statute of repose is a product liability defense. They provide for time periods after a product is manufactured or used to bring a lawsuit for injuries due to defective products. In choice D, the statute of repose has not expired, so the lawsuit is not barred. Also, strict product liability does not require privity of contract to exist or for the lawsuit to be brought under a warranty claim. Other product liability defenses include the state-of-the-art defense, assumption of risk, product misuse, and product alteration by the plaintiff.

Pat offers a $200 reward to anyone who finds and returns his dog. Clay finds the dog and returns it to Pat. In this situation, what type of contract has been created? a) Implied contract b) Quasi contract c) Bilateral contract d) Unilateral contract e) Implied in law

The correct answer is D. A unilateral contract is made through an offer directly to the offeree or a group where the offeror does not want a return promise but wants an act. Acceptance of the offeror's offer is by performing the act. The contract is not a bilateral contract because there is not a promise for a promise. This would be an express contract because it is not formed out of conduct of the parties. Choices B and E are incorrect because a valid contract exists after acceptance by performance of the requested act.

Which of the following is NOT a characteristic of statutory law? a) It is created by the legislature. b) It can be federal, state, or local law. c) By statute contrary to a rule of common law, the legislature can effectively overrule a judge-made law. d) It can be created by an administrative agency. e) If a statute is unclear or ambiguous, it must be interpreted by a court.

The correct answer is D. Administrative agencies have no constitutional authority to enact statutes. Conversely, the legislature enacts the enabling statutes that create administrative agencies and give them their power.

Which of the following descriptive names may an administrative agency be called? I. Commission II. Board III. Authority a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is D. Administrative agencies may be called a number of names, including commission, board, and authority. Other names include corporation, bureau, and department.

Which of the following is NOT a correct statement about resolving disputes through arbitration rather than litigation in court? a) Arbitration is usually faster in resolving the dispute than is litigation. b) An arbitrator does not have to apply exactness of the law as long as she does not ignore the law altogether (i.e., manifest disregard of the law) in deciding the dispute. c) Arbitration is usually much less expensive than litigation. d) Parties arbitrating a legal dispute usually have the right of full discovery just as the rules of civil procedure provide a person in court. e) Arbitration usually is a less hostile means of resolving disputes and reduces the risk of damaging the relationship with the other party.

The correct answer is D. All of the statements are true regarding the advantages that arbitration has over litigation in court except for choice D. In arbitration, discovery is usually limited greatly, if the parties have any right of discovery. This reduced, or restricted, discovery has the effect of speeding up the process and reducing legal fees. Choice B is correct because it recognizes that arbitrators generally look to do what is fair and just, but the courts require that the arbitrators do not manifest disregard of the law. [For example, see the decision in Montes v. Shearson Lehman Brothers, Inc., 128 F.3d 1456 (11th Cir. 1997).]

Which of the following is NOT a characteristic for an acceptance of an offer under the common law? a) The acceptance must be communicated to the offeror. b) Acceptance must take place within the time stated in the offer or a reasonable period under the circumstances if no time period is stated. c) The acceptance must be the mirror image of the offer, meaning it must be unequivocal. d) The acceptance may have conditions attached. e) The offeree in her acceptance may express some dissatisfaction with the contract.

The correct answer is D. An acceptance may not be conditional. It is allowable for the offeree to request clarifications or to grumble, but the offeree cannot condition her acceptance. The acceptance must be unequivocal. Under the common law, the acceptance must be the mirror image of the offer (nothing added and nothing taken away). UCC Article 2 eases this requirement. Acceptance can be by any reasonable means unless a means of acceptance is contained in the offer. Also, the UCC contains special provisions for dealing with acceptances that contain additional or different terms.

Which of the following can revoke an offer? I. Offeror's withdrawal before acceptance II. Death of offeror III. Destruction of subject matter a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is D. An offer can be effectively revoked by act of the offeror in revoking the offer before acceptance, provided the offer is not irrevocable due to option contract, firm offer rule, or detrimental reliance, or by operation of law. Revocation by operation of law may result in several ways including destruction of subject matter before acceptance of the offer, death or incapacity of the offeror or offeree, bankruptcy, or subsequent illegality.

Plaintiff wins a judgment against Defendant in a civil lawsuit. After the judgment becomes final, Defendant leaves State. Plaintiff finds Defendant and his property in Adjacent State. Which of the following provisions of the U.S. Constitution will allow Plaintiff to enforce her judgment in Adjacent State without filing a new lawsuit to obtain a new judgment in Adjacent State? a) Due Process Clause b) Equal Protection Clause c) Contracts Clause d) Full Faith and Credit Clause e) Privileges and Immunities Clause

The correct answer is D. Article IV, Section 1 states that the "full Faith and Credit shall be given in each State to the public Acts, Records, and Judicial Proceedings of every other State." As it is applied to judicial decisions, State's judgment against Defendant is enforceable in Adjacent State.

Which of the following agreements must all members of the World Trade Organization sign? a) United Nations Convention on the International Sale of Goods (CISG) b) Maastricht Treaty c) Paris Convention d) General Agreement on Tariffs and Trade e) United Nations Commission on International Trade Law

The correct answer is D. As a condition of membership in the World Trade Organization (WTO), each member must sign the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS), and the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS). The CISG governs contract law in the sale of goods internationally. The Maastricht Treaty created the European Union. The Paris Convention is the principal patent treaty requiring signatory nations to grant to the citizens of other signatory nations the same rights under patent law as its own citizens enjoy. The United Nations Commission on International Trade Law is a U.N. organization committed to establishing more uniformity in international law as it relates to trade and commerce. It created the CISG.

Which of the following may be a source of business ethics? I. Religious tenets II. Cultural traditions III. The law a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is D. Business ethics may be formed from a number of sources, including religious tenets, cultural traditions, and the law. Historically, religious tenets have established moral and ethical standards for different groups. Those religious tenets may be Judeo-Christian, Native American, Islamic, Buddhist, or Confucianist. Cultural traditions develop from different societal cultures, such as the Protestant work ethic, Stoicism, and cultures that place a high importance on cooperation and unity. The law establishes a minimum ethical standard for businesses and managers to follow.

Which of the following is a valid offer that can be accepted to form a contract? a) A price list posted for customers in which a top coat sells for $100. b) An invitation to bid or submit a proposal to construct a 10,000-square-foot steel commercial building. c) The expression of an opinion as to how many persons would request an author's autograph at a book signing. d) A newspaper advertisement to sell first come, first served a used 2003 Toyota Camry automobile where the selling price and stock or vehicle identification number is given. e) A catalogue description of a sale item received from a mail order or Internet company.

The correct answer is D. Choice D provides enough specificity to constitute an offer rather than an invitation to negotiate because the quantity (only one), time for performance (first come, first served), price, and place are fixed. An invitation to bid or request for proposal is not an offer as it is preliminary negotiation. Price lists and catalogue descriptions are not offers usually because they are not specific enough (i.e., time, quantity, etc.). They are regarded as invitations to negotiate. An opinion usually is not a statement of fact and is not an offer.

Which of the following is NOT a correct statement regarding the constitutionality of commercial speech? a) Any restriction on commercial speech must be narrowly tailored to achieve the government's purpose and go no further than that. b) Political speech is afforded slightly more constitutional protection because as a right it is more fundamental to the traditions of the nation. c) Protection of commercial speech is important because consumers have a right to hear the advertising so they can make more informed decisions. d) Commercial speech requires the government to have a compelling reason to restrict the speech. e) Governmental restriction must directly advance the government's interest in restricting the commercial speech

The correct answer is D. Commercial speech is advertising or other promotional speech that is not political in nature. The constitutional test for commercial speech falls slightly below the strict scrutiny afforded political speech. The government must show the following to restrict commercial speech: (1) a substantial governmental interest in regulating the speech, (2) the speech must not be unprotected speech (untruthful, deceptive, obscene, etc.), (3) the regulation must directly advance the government's interest, and (4) the regulation must go no further than necessary to accomplish its objective. Choice D is untrue because a government does not need a compelling interest to regulate commercial speech as it does to regulate political speech.

Which of the following torts occurs when a defendant makes an untruthful statement about the plaintiff and damages the reputation of the plaintiff? a) Intentional infliction of emotional distress b) Intentional interference with contractual relations c) Intentional interference with business conduct (or business advantage) d) Defamation e) Invasion of privacy

The correct answer is D. Defamation is an intentional tort that generally requires less intent to injure than the other forms listed. Defamation has several other elements besides an untruthful statement and damage to the plaintiff's reputation. The statement must be a fact (not opinion) that a reasonable person would regard as fact, the statement must be published to a third person, and the defendant must not have a qualified or unqualified privilege.

Which of the following is a correct statement about subject matter jurisdiction based on diversity of citizenship? a) Diversity of citizenship means that at least one defendant must have citizenship in a state different from one of the plaintiffs. b) A corporation is deemed to be a citizen only of the state of its incorporation. c) Diversity of citizenship jurisdiction is only available when the legal dispute involves a federal question. d) Diversity of citizenship requires that the amount of the plaintiff's damages in the dispute must exceed $75,000. e) Diversity of citizenship jurisdiction may replace the personal jurisdiction requirement.

The correct answer is D. Diversity of citizenship is a means of a federal court obtaining subject matter jurisdiction to hear a dispute when the case does not involve a federal question. Diversity of citizenship requires (1) that the citizenship of all of the plaintiffs be different from the citizenship of all of the defendants and (2) that the amount of the dispute must exceed $75,000. Choice A is incorrect because it does not reflect the requirement for total diversity of citizenship. Choice B is incorrect because a corporation is deemed to hold citizenship in both the state of its incorporation and the state of its principal place of business. Choice E is incorrect because personal jurisdiction is still required unless the court relies on in rem jurisdiction.

An offer can be made irrevocable through which of the following? I. Detrimental reliance II. Option contract III. A merchant's firm offer under the UCC a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is D. Generally, offers are revocable by the offeror at any time before acceptance. There are three exceptions to this rule: detrimental reliance, option contract, and the UCC firm offer rule. Detrimental reliance is a rule in equity and is common in the construction industry. If an offeree relies to his detriment on the offer being held open, as would be the case when a general contractor uses a subcontractor's bid to prepare the master bid to the owner of the construction project, then the offer is irrevocable for a reasonable period of time. Option contracts are created when the offeree pays legal consideration to make the offer irrevocable for an option period of time. The UCC's firm offer rule does not require the offeree (buyer) to pay consideration, but the offer must be in a signed writing giving assurances that the offer will be held open. The maximum period of irrevocability of a firm offer under the UCC is three months.

Spectator attends a professional baseball game. During the game, Spectator was seriously injured when a hard foul ball struck him in the head. Spectator's attention was diverted to watching a relief pitcher warming up in the bullpen area. Which of the following best describes the legal outcome if a negligence lawsuit is filed by Spectator? a) Spectator will win because the team or operator of the stadium is under a legal duty to protect Spectator from injury during the game. b) Spectator will win because the team or operator of the stadium is strictly liable for batted or thrown balls that injure a spectator. c) Spectator will lose because no duty is owed to a spectator who attends a ball game. d) Spectator will lose because he assumed the risk of injury from a foul ball as a risk inherent in attending a baseball game. e) Spectator will lose because he assumed each and every risk in attending a baseball game.

The correct answer is D. Ignoring any argument that in buying a ticket to a baseball game one by contract waives any liability for injury while attending the game, because it was not in the facts of the case, the issue here is whether Spectator assumed the risk of injury. He did, and he cannot recover for his injury. One who attends a baseball game and chooses to sit outside the screened area assumes all the risks inherent in attending a baseball game. One of the risks of attending a baseball game is the risk of being struck by a foul ball.

Which of the following forms of ethical reasoning requires the individual to evaluate one's action in light of the consequence that would follow if everyone in society acted the same way? a) Utilitarianism b) Distributive justice c) Retributive justice d) Kantian ethics e) Situational ethics

The correct answer is D. Immanuel Kant's views on ethics and ethical reasoning are probably the best known of the forms of duty ethics. Kant's view is that to decide if an action was ethical one should form a categorical imperative that would serve as a universal law. If every reasonable person or group, without exception, would agree, then the action is ethical. Distributive justice and its proponent, John Rawls, requires one to act to share with others according to their needs and what would be just. Retributive justice is the justice that is obtained and sought for someone's transgressions. Situational ethics (or moral relativism) takes the view that what is ethical depends on the circumstances surrounding the action. Utilitarianism is the widely accepted form of ethical reasoning in which one should take whatever action would provide the greatest benefit for the greatest number of persons.

Which of the following persons have the lowest priority in a bankruptcy? a) State and local governments for income and property taxes b) Employees for certain unpaid wages up to a statutory amount c) Secured creditors to the extent of the value of the collateral d) General unsecured creditors, such as suppliers of inventory e) Unpaid alimony and child support

The correct answer is D. In bankruptcy, the creditor with the lowest priority is the general unsecured creditor. In business, that usually includes persons who sell their goods and services on open account. Some creditors have priority to a limited extent; for example, unpaid employees and customer deposits, and the excess amount of their debt balances go into the general unsecured class. Creditors in the general unsecured class in bankruptcy usually do not receive full payment, if any payment at all.

Which of the following persons is involved in a legal dispute as a neutral party, who attempts to assist the parties in resolving the dispute, but she has no authority to bind the parties? a) Arbitrator b) Judge c) Negotiator d) Mediator e) Justice

The correct answer is D. Mediation is the process of using a third-party neutral to assist two disputing parties to resolve their legal dispute without resorting to litigation. The third-party neutral, a mediator in this case, must be unbiased but has no authority to bind the parties. If the parties do not want to settle the dispute, a mediator cannot make them. An arbitrator and a judge have authority to issue binding resolutions to a legal dispute. A negotiator acts for one of the parties and is not a neutral. A justice is a judge on the highest court in the jurisdiction.

Which of the following federal statutes would prohibit a corporate merger, or the acquisition of another corporation's assets, where the effect may be to substantially lessen competition or tend to create a monopoly? a) The Sherman Act of 1890, Section 1 b) The Sherman Act of 1890, Section 2 c) The Clayton Act of 1914, Section 3 d) The Clayton Act of 1914, Section 7 (as amended by the Cellar-Kefauver Act) e) The Federal Trade Commission Act of 1914

The correct answer is D. Section 7 of the Clayton Act of 1914 prohibits mergers or other business combinations that may lessen competition or tend to create a monopoly in interstate commerce. The FTC has regulatory powers to oversee such mergers and acts prospectively in this regard. Section 2 of the Sherman Act of 1890 makes it illegal to unreasonably restrain trade through a monopoly.

Merchant's security guard forcefully apprehends a suspected shoplifter and leads him to the security office in the back of the store. There the security guard handcuffs the suspected shoplifter and locks him inside the office for half an hour without his consent. It was later determined that the security guard did not have probable cause or reasonable suspicion to believe the suspect had shoplifted. In this case which of the following torts could Merchant and its security guard be guilty of? I. Assault II. Battery III. False Imprisonment a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is D. Since there was not sufficient cause to believe the individual was shoplifting, neither Merchant nor the security guard has the defense of a state anti-shoplifting statute. Some states require probable cause to believe the apprehended person is shoplifting and some require reasonable suspicion. The security guard committed the intentional tort of battery, assault, and false imprisonment. Thus, he would be directly liable to the suspected shoplifter and Merchant would be vicariously liable for the security guard's intentional torts. There would be vicarious liability on the part of Merchant even though the security guard committed intentional torts (usually there is not vicarious liability) because here the security guard was acting within the scope of his employment and furthering his employer's business interests.

Which of the following is a correct statement regarding the legality of contracts? a) Illegal contracts are treated as valid contracts. b) Illegal contracts are enforceable. c) A contract is illegal only if a statute prohibits it. d) If a contract contains subject matter that is both legal and illegal, a court may enforce the legal portion and not enforce the illegal portion. e) A court will never enforce an illegal contract that an innocent party has fully performed without prior knowledge of its illegality.

The correct answer is D. Sometimes, a contract may contain both provisions that are legal (such as a promissory note to borrow money) and provisions that are illegal (provisions requiring the payment of usurious interest). In such a case, a state may enforce those provisions of a contract that are legal and refuse to enforce those provisions of a contract that are illegal. Some courts will find the whole contract void based on illegality and not enforce it at all. The issue is whether the illegal and legal provisions of a contract are divisible and can be construed separately so that injustice will not result. A court may enforce an otherwise illegal contract where the innocent party has fully performed. An injustice would arise if the court refused to do so. The converse does not apply, however. If a guilty party (one who knowingly enters into an illegal contract) has fully performed, a court will not enforce the illegal contract. No injustice would arise.

Which of the following is a right that a consumer has under the Fair Credit Reporting Act? I. Right to request a copy of one's own credit report II. Right to notification of why the consumer is denied credit due to something on the credit report III. Right to request the source of information included on one's credit report a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is D. The Fair Credit Reporting Act has a goal of assuring that credit reporting agencies issue accurate credit reports, consumers have access to that information, and dissemination of the reports is limited to persons or firms authorized to obtain credit reports. All three rights comport to the goals of the FCRA.

Which of the following federal environmental laws requires federal agencies to prepare an environmental impact statement when new legislation or major federal action is proposed that might significantly affect the quality of the human environment? a) Clean Water Act b) Toxic Substances Control Act c) Solid Waste Act d) National Environmental Policy Act e) Clean Air Act

The correct answer is D. The National Environmental Policy Act's purpose is to limit environmental harm from federal government activities, like road, dam, and levy construction. It requires that for every major federal action that significantly affects the quality of the environment, an environmental impact statement must be prepared. A major federal action is one that involves a substantial commitment of resources (money or otherwise).

Which of the following is required of publicly traded companies by the Sarbanes-Oxley Act of 2002? I. Establishment of a system of internal accounting controls with the ability to detect accounting fraud II. Establishment of corporate policies to encourage and protect whistleblowers III. Rotation of independent auditors no less frequently than every five years a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is D. The Sarbanes-Oxley Act of 2002, among other things, requires most publicly traded companies to establish and prove compliance with an adequate system of internal accounting controls designed to prevent and detect fraud. Those companies covered under SOX must establish a code of ethics to cover at least their financial executives. These companies can no longer use the same independent public accounting firm to audit their financial statements. Their auditors must now be rotated at least every five years.

Farmer owns fifty acres of valuable farm land that Government wants to acquire to construct a new lake for recreational purposes. Farmer's land has been owned and farmed by his family for 150 years, and he does not want to sell. Which of the following best describes Farmer's constitutional rights in this situation? a) Farmer does not have to sell his land to Government. b) The Takings Clause of the U.S. Constitution prohibits governmental taking of one's private property for public use. c) The Takings Clause of the U.S. Constitution allows for Government to take Farmer's private property by eminent domain at a price that Government wants to pay. d) The Takings Clause of the U.S. Constitution allows for Government to take Farmer's private property by eminent domain, but the Government must pay fair value for the property. e) The Due Process Clause prohibits Government from taking Farmer's private property for public use regardless of Government's compensation to Farmer.

The correct answer is D. The Takings Clause (also called the Just Compensation Clause) gives the government the right to take one's private property, without consent, for a public purpose, but the government must give a fair compensation for the property. This is the government's right of eminent domain. Procedural due process gives the property owner the right to litigate over the value to be paid for the property.

Which of the following types of liens exists when a contractor provides services in improving real estate and is not paid for those services? a) Artisan's lien b) Judicial lien c) Judgment lien d) Mechanic's lien e) Materialman's lien

The correct answer is D. The contractor would have a mechanics lien on the real estate when it is not paid for the work performed on the premises. Materialman's lien is given to vendors of construction materials whose debt is not paid. An artisan's lien is not applicable because it pertains to personal property that is retained for nonpayment. A judgment lien may be filed against property of a defendant after a judgment is entered by a court. This may be called a judicial lien. A judicial lien may also be filed on a defendant's property during a pending lawsuit.

Clarisse entered into a contract with Smith to purchase Big Tom, Smith's prize-winning bull with a valuable bloodline. Clarisse paid $20,000 for the bull, an amount her livestock appraiser said was $5,000 too low for the animal. After she paid the purchase price and took possession of the bull, she discovered that Big Tom was actually an imposter, a bull with a mediocre bloodline and a value of only $8,000. Smith acted intentionally. Which of the following best describes Clarisse's rights? a) Based on Smith's innocent misrepresentation, Clarisse's only remedy is to rescind the contract and get her money back. b) Based on Smith's intentional misrepresentation, Clarisse's only remedy is to rescind the contract and get her money back. c) Based on Smith's negligent misrepresentation, Clarisse may choose to seek money damages as her remedy. d) Based on Smith's intentional misrepresentation, Clarisse may choose to seek money damages or rescission of the contract, but not both. e) The above facts do not constitute illegal misrepresentation.

The correct answer is D. The facts state all of the elements of fraud, which are (1) misrepresentation of a material fact by Smith, (2) with intent to deceive by Smith, (3) reliance by Clarisse, and (4) injury or damages. Thus, Clarisse has her choice of remedies but not both of them—money damages or rescission with restitution. As the misstatement was made with intent to deceive, this is not negligent or innocent misrepresentation.

An act that is legal is not unethical. Which of the following most accurately describes the preceding statement? a) It is a true statement because the law delineates what is right and what is wrong. b) It is a true statement because an act cannot be immoral if it is a legal act. c) It is a true statement because both the law and ethics ask the same question, namely, is it right? d) It is not a true statement because a law establishes a requirement or prohibition by a controlling authority and establishes only a minimum moral or ethical standard. e) It is not a true statement because a law can never be the same as an ethic.

The correct answer is D. The law establishes only a minimum threshold for ethics. Generally, one is not ethical if he does not comply with the law. However, just because one complies with the law does not make one ethical. The law is not legislated morality although the law may be based on moral precepts. Ethics looks at what should be done rather than what has to be done to comply with the law. This is especially the case when one uses certain theories of ethical reasoning such as Kantian ethics, duty-based ethics, and virtue ethics, which set much higher ethical standards.

A state's highest appellate court must decide on whether to keep or change a law that is rooted in common religious notions of equity and accountability for one's own actions. If the court retains the rule rather than follow the argument that the rule should be changed to meet sociological trends, which of the following schools of legal thought or philosophies would the court be following? a) Positive law school of legal thought b) Legal realism school of legal thought c) Sociological school of legal thought d) Natural law school of legal thought e) Analytical school of legal thought

The correct answer is D. The natural law school of legal thought is followed by jurists who adhere to notions and traditions of rights and equity given by the creator and have become traditions of the American people. Such is the case here. Positivists require a following of the law, whether the law is right or wrong. Legal realists believe that as our experiences change so should the law to reflect those experiences. The followers of the analytical school of legal thought would base the development of law only on logic and sound reasoning. The sociological school, which is reflected in the question as proponents for change, believes legal rules should change with societal changes regardless of traditions.

Which of the following would discharge a party's contractual obligation by agreement of the parties? I. Rescission II. Novation III. Accord and satisfaction a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is D. The parties may end their contractual obligations mutually in several ways. First, they may rescind the contract and return each other's consideration. They may affect a novation by a party substituting a new contract with another party and releasing the original obligor. This is done many times through an assignment of a contract followed by release of the assignor from further obligation. Accord and satisfaction arises out of disputed claims where an offer is made by a debtor to pay less than the creditor desires and the creditor takes the debtor's tendered payment.

Under the common law of contracts, which of the following is NOT necessary for an offer to be effective? a) There must be an intention of the offeror to contract. b) Terms of the offer must be reasonably certain or definite. c) The offer must be communicated by the offeror to the offeree. d) There must be a fixed time limit for accepting the offer. e) The offer must be made by words or conduct of the offeror.

The correct answer is D. The time limit for accepting the offer does not have to be a fixed time. The law will allow the offeree a reasonable time to accept the offer depending on the circumstances, such as perishability and exigencies of the situation. Under the common law, the first three elements-intention, certainty of terms, and communication-are generally required. The offer has to be made to the offeree through words or conduct of the offeror. For example, an offer made by an auction attendee may be by raising her hand.

Which of the following is a correct statement about the tort of intentional interference with contractual relations? a) The defendant does not have to be aware of an existing contract between the plaintiff and a third party. b) The defendant who causes a third party to breach its contract with the plaintiff will be liable even if he was acting to protect a legal right. c) The defendant who causes a third party to breach its contract with the plaintiff will be liable even if he was hired as a consultant or adviser to instruct his client on how to handle the situation. d) The defendant must intentionally act to induce a third party to breach its contract with the plaintiff. e) The tort of intentional interference with contractual relations allows the plaintiff to sue the party who intentionally breaches its contract with the plaintiff. The plaintiff can sue in tort and obtain punitive damages.

The correct answer is D. The tort of intentional interference with contractual relations requires (1) the defendant to have known of a contract the plaintiff had with another person, (2) the defendant induced the contracting party to breach its contract with the plaintiff, and (3) the plaintiff was injured as a result of the breach of contract. The defendant has a defense of privilege to counsel to breach a contract if it is done to benefit the defendant and justification to protect an interest of the defendant. A plaintiff may proceed with an action in tort against one who induces another to breach a contract with the plaintiff in order to obtain punitive damages or sue the breaching party for breach of contract. The breaching party cannot be liable for interference with contract. Choice A is incorrect because there was no prior knowledge of a contract. Choices B and C are incorrect because the defendants had defenses of justification and privilege, respectively.

Contractor agrees to construct a house for Buyer for $200,000. Although the contract specified ceramic tile and wallpaper in the bathrooms of the house, Contractor failed and actually installed vinyl flooring and painted the wallboard. The total cost to have the floors redone and to wallpaper the bathrooms is an additional $2,000. Which of the following is true regarding Buyer's legal rights? a) Buyer has no legal rights and must pay Contractor the balance of the contract price as they agreed. b) Buyer must pay Contractor the balance of the contract price because Contractor has fully performed. c) Buyer must pay Contractor the balance of the contract price because Contractor has substantially performed. d) Contractor has only substantially performed, so Buyer can withhold $2,000 of the purchase price to cover her damages for the immaterial breach. e) Contractor has only substantially performed, so Buyer can refuse to pay any more on the contract price regardless of the unpaid portion.

The correct answer is D. There has been substantial performance by the contractor, therefore the contractor is entitled to be paid the contract price less the $2,000 in damages for not fully performing its contractual obligation. The facts reveal that the breach is not material.

Which of the following contract defenses for lack of genuineness of assent can result in a remedy of either rescission or money damages? a) Mutual mistake b) Undue influence c) Duress d) Intentional misrepresentation e) Negligent misrepresentation

The correct answer is D. This is a contract defense question. Tort issues are irrelevant here. Only intentional misrepresentation of a material fact (or fraud) may be a contract defense in which the victim may seek rescission (the unmaking of the contract and a return to the status quo ante) of the contract or money damages for lost bargain. Which of the two remedies the party should seek depends on whether the party wants to retain the consideration received or wants consideration back. All of the other defenses limit the party to rescission of the contract. Whereas the five choices are all available contract defenses, two of them may be torts—intentional misrepresentation (or fraud) and negligent misrepresentation. If the victim of fraud or negligent misrepresentation sues in tort, the victim will be able to seek money damages. One should note, however, that egregious acts intended to cause extreme duress may also be tortious and actionable as a tort of outrageous conduct or intentional infliction of emotional distress for which money damages may be awarded.

Which of the following can be defined as the study of the right or wrong behavior and is philosophical in effect as to what ought to be done? a) Morality b) Justice c) Religion d) Ethics e) Law

The correct answer is D. This is the definition of ethics. Note that ethics is distinguishable from morality, law, justice, and religion. Whereas morality, law, and religion are rule-oriented, ethics is not. Ethics is a normative concept. In seeking to be ethical, one should try to be just and fair.

The Federal Trade Commission would generally have all of the following potential sanctions and settlement powers for violation of a law EXCEPT a) civil fine. b) cease and desist order. c) injunction. d) criminal fine. e) consent decree.

The correct answer is D. This question requires close reading and consideration. The FTC has no authority to levy criminal fines on a violator. The FTC may refer the case to the Department of Justice (Attorney General) to bring criminal enforcement action. As a civil matter, the FTC may seek a settlement with the violator through a consent decree, levy civil fines, enjoin an unlawful activity, or issue a cease and desist order.

Which of the following is NOT a characteristic of common law? a) It requires courts to follow the doctrine of stare decisis. b) Common law is judge-made law. c) A statute can override a common law rule. d) Under common law a court can overrule a statute with a rule of common law. e) Common law as a legal system is much less frequently used by countries than is the civil law legal system.

The correct answer is D. Whereas a legislative act (statute) can overrule a common law rule, courts cannot overrule a statute with a common law rule. A court has the power to interpret a statutory rule, but it cannot substitute its own preference for that of the legislature.

Joe purchased lawn services from Green Lawn, LLC. Green Lawn claims that it fully performed, but Joe said it didn't. Joe refuses to pay $100 of the $500 Green Lawn bill. After a period of months of the dispute, Joe mails Green Lawn a check for $400 marked "Account Paid in Full". Green Lawn endorses the check and deposits it. Green Lawn sues to collect the remaining $100. Which of the following best describes the outcome of this legal dispute? a) Joe will be liable to Green Lawn for $100 because that is the account balance. b) Joe will be liable to Green Lawn for $100 because Green Lawn did not agree to accept less. c) Joe will not be liable because the debt was a liquidated debt and there was accord and satisfaction. d) Joe will not be liable because the debt was unliquidated and cashing the check resulted in the settlement of the dispute and the payment of the settlement price. e) Joe will be liable to Green Lawn for $100 because the debt is liquidated.

The correct answer is D. This question requires the application of accord and satisfaction as a contract defense proving discharge of performance. That is the case here. When the debtor and creditor have a legitimate dispute over the amount of a debt, meaning the debt is unliquidated or not agreed upon, and the debtor remits a check marked "paid in full" (or words to that effect), the creditor by accepting and cashing the check accepts the debtor's offer to settle the disputed debt for the amount on the check and the remainder of the debt is discharged.

Which of the following would constitute illegal sexual harassment under Title VII of the Civil Rights Act of 1964? a) Objectionable lewd or obscene comments, suggestions, and actions by coworkers to an employee because she is a lesbian. b) Lewd or obscene banter between male coworkers and a female worker when the female worker participates in the banter and does not object to it. c) A male supervisor makes unwelcome sexual comments frequently to both male and female subordinates. d) A male supervisor conditions the promotion of a female subordinate on sexual favors. e) A supervisor curses and utters profanity at both male and female subordinates.

The correct answer is D. Title VII of the CRA of 1964 prohibits sex discrimination in employment including sexual harassment. The harassment must be nonconsensual and objectionable and must affect the conditions of employment. Sexual harassment can be either quid pro quo sexual harassment or hostile work environment sexual harassment. Choice D is correct because it qualifies as unlawful quid pro quo sexual harassment. Choice A is not a violation because sexual orientation or sexual preference (sexual affinity) are not covered under Title VII. Choice B is not a violation because the sexual banter is not unwelcome. Choice C is not illegal under Title VII because the sexual harasser does not discriminate because of sex; he harasses both genders. The same can be said about the harasser in Choice E. The facts in choice E do not state that the supervisor's comments are sexual in nature.

Which of the following contracts must be in writing and signed by the party against whom enforcement is sought? a) A residential apartment lease for one year to begin immediately b) A construction contract for $1 million c) An employment contract for six months d) A contract for the sale of goods priced at $500 or more e) A services contract priced at $500 or more

The correct answer is D. UCC 2-201(1) provides that contracts for the sale of goods of $500 or more must be in writing to be enforceable. Service contracts do not fall under the Statute of Frauds other than where performance period is concerned (choices B, C and E). A one-year apartment lease beginning immediately can be performed within one year of its making.

Sue and Sharon form S&S Partnership under an oral agreement. Sue works many more hours than Sharon in the partnership, but Sharon provided most of the startup capital. They have not agreed on how they will share the profits and losses. How should the profits and losses be divided between them? a) Sue will be entitled to a greater share of the profits because she works more hours for the partnership. b) Sharon will be entitled to a greater share of the profits because she provided more startup capital for the partnership. c) Sue and Sharon must share the profits with Sue getting fair market value for her services and Sharon getting a fair interest for her capital, and they will share the rest of the profits. d) Sue and Sharon must share the profits and losses equally. e) A court or arbitrator must decide how Sue and Sharon will split the profits and losses.

The correct answer is D. Under the Uniform Partnership Act, the partners will share profits and losses equally unless they have expressly agreed otherwise. When this is the case, some inequity might arise in terms of who is working for the partnership's business and who is providing the capital. Many times, partners will execute partnership agreements with profit and loss allocation methods similar to a combination of those in choices B and C. Failing this, Sue and Sharon will have to share profits and losses equally.

Contracts contrary to public policy include all of the following EXCEPT a) contracts in restraint of trade. b) unconscionable contracts. c) unreasonable exculpatory clauses. d) usurious loan contracts. e) contracts to commit a tort.

The correct answer is D. Usurious loan contracts are illegal as a matter of law. Usury is the charging by a lender of interest greater than the legal rate of interest. All of the other contracts would be illegal as they violate public policy. Choice A is generally the most problematic because contracts in restraint of trade usually violate an antitrust statute. However, not all contracts in restraint of trade do—for example, a covenant not to compete.

Employer hires Employee to operate a bucket truck (i.e., a "cherry picker") to trim trees and to work around electrical lines. Employee caused an innocent independent contractor (not an employee of Employer) to be injured when Employee negligently operated the bucket truck causing the person to be thrown into a live power line. Which of the following best describes the legal consequences to Employer if it is sued by the independent contractor? a) Employer would not be liable to the injured person because Employer did not negligently operate the bucket truck. b) Employer would not be liable to the injured person because Employee's act did not occur within the scope of Employee's employment. c) Employer would not be liable because employers are not vicariously liable for the torts of their employees even though a tort may arise out of the employee's employment. d) Employer would be vicariously liable to the injured person based on the doctrine of respondeat superior. e) Employer would be liable to the injured person based on its own intentional tort.

The correct answer is D. Vicarious liability is based on the doctrine of respondeat superior, Latin meaning "let the master answer." With vicarious liability a principal (in this case an employer) is liable for the tort committed by an agent (the employee) under the control of the principal when the tortious act was committed within the scope of the agent's employment. Vicarious liability is indirect liability of the principal while the agent is primarily liable. In this case, the injured independent contractor may sue Employer for vicarious liability for the negligence of Employee.

Which of the following is the MOST accurate order for the steps in a civil lawsuit? a) Opening arguments, closing arguments, plaintiff's case, defendant's case, jury instructions, verdict b) Opening arguments, plaintiff's case, defendant's case, closing arguments, jury instructions, verdict c) Opening arguments, jury instructions, plaintiff's case, defendant's case, closing arguments, verdict d) Jury instructions, plaintiff's case, defendant's case, motion for directed verdict, closing arguments, verdict e) Voir dire, opening arguments, plaintiff's case, defendant's case, closing arguments, jury instructions, verdict

The correct answer is E. A trial begins with the selection of the jury and the voir dire process. After the jury is impaneled, opening statements (arguments) are made by the plaintiff, then the defendant. The plaintiff puts on its case in chief through direct examination followed by cross-examination of witness. The plaintiff rests at which time the defendant may or may not move for a directed verdict. The defendant puts on its case in chief through direct examination followed by cross-examination of the witnesses. The defendant rests. Again, the parties may move for a directed verdict. Closing arguments are made by the plaintiff first and then the defendant. The judge gives the jury instructions (charges the jury); the jury deliberates and returns a verdict.

The elements of a valid contract include all of the following EXCEPT a) agreement. b) genuineness of assent. c) consideration. d) legality. e) formal written contract.

The correct answer is E. A valid contract is one that has all of the essential requirements to be binding on both parties and fully enforceable. The essential elements of a contract are mutual assent (agreement), legal consideration, legal subject matter, capacity to contract, and the absence of any contract defenses. If there is genuineness of assent (reality of assent), the contract is not voidable for misrepresentation, mistake, duress, or undue influence. A valid contract does not have to be in writing or be formal. Only certain contracts must be in writing and signed by the party against whom enforcement is sought pursuant to the Statute of Frauds. Thus, choice E does not state an element for a valid contract.

Which of the following would probably be the least troublesome consequence of an employee blowing the whistle on her company or coworkers? a) Possible retaliation through termination of employment b) Being given the cold shoulder or ostracized by management and co-workers c) Being treated as a disloyal employee and never being trusted within the company or industry again d) Fear and anxiety for one's family members in the event she loses her job as a result of the whistleblowing e) Anxiety over a reward from the federal government for recovery of funds lost through fraud

The correct answer is E. An employee who is considering blowing the whistle on her employer or a coworker faces a number of potentially damaging, personal effects. In making the determination to blow the whistle, an employee must reason through all of these. However, the least of an employee's problems is deciding if, when, how much, or how she will be viewed as a result of a financial reward that might be paid to the whistleblower under federal statute as an incentive to stop fraud. An employee will face stress that might affect her job or family or health. The employee might be ostracized by management or coworkers and viewed as not a team player. The employee may fear for her job or retaliation.

Carla contracts with Debbie to sell an acre of land for $30,000. Debbie intends to construct a house on the land. Similar land sold for residential construction purposes usually sells for $38,000. Carla then refuses to convey the land to Debbie. In this case what are Debbie's remedies for breach of contract? I. Specific performance II. Compensatory damages of $8,000 III. Restitution a) I only b) II only c) III only d) I, II, and III e) Either I or II, but not both

The correct answer is E. Because each parcel of land is considered by the law to be unique and money damages may not be an appropriate remedy with regard to unique property, Carla may seek a decree of specific performance to force Debbie to sell the land to her. Alternatively, Carla may sue for money damages for her lost bargain of $8,000 ($38,000 fair value of land minus the contract price). She cannot have both, however. As the facts of the case do not indicate that Carla had not paid any of the consideration before the breach, restitution is inapplicable to this case.

Service of process in litigation requires the defendant to be given which of the following? I. Subpoena II. Summons III. Copy of the complaint a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is E. Before a court can exercise personal jurisdiction over a defendant, there must be service of process. Service of process is the process of notifying the defendant of the lawsuit. It starts the clock to run for the defendant's obligation to answer. The process requires the defendant to be given a copy of the complaint and a summons of the court to answer the complaint. A subpoena duces tecum is an order of the court requiring a party to appear and to bring certain documents to a legal proceeding.

Which of the following types of jurisdiction is required before a court can maintain jurisdiction to hear a legal dispute? I. Personal jurisdiction II. In rem jurisdiction III. Subject matter jurisdiction a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is E. Before a court can hear a case, due process requires that the court have both subject matter jurisdiction and personal jurisdiction. Subject matter jurisdiction is jurisdiction of the subject matter of the case. Can the court hear that particular type of case? Personal jurisdiction is jurisdiction over the person. In some cases, the court is not as concerned with the person as it is the property—for example, in probating a will where the property is in another state. In that case, in rem jurisdiction can replace personal jurisdiction.

Which of the following is NOT an exception to the parole evidence rule? a) Evidence of contracts subsequently modified by the parties can be introduced in court. b) When the terms of a written contract are ambiguous, parole evidence is admissible to show the meaning of the terms. c) Parole evidence can be introduced to show that the contract is based on a fraud. d) Parole evidence can be introduced to correct an obvious typographical or clerical error. e) Parole evidence can usually be introduced when the written contract is clear and complete, i.e., an integrated contract.

The correct answer is E. Choice E is not an exception to the parole evidence rule because the parole evidence rule states that this outside (extrinsic) evidence cannot be admitted into evidence when the contract is complete and clear. Parole evidence that is inadmissible is evidence that exists before or concurrent with the making of the agreement. Thus, parole evidence to explain later modifications to the contract is admissible. Also, parole evidence can be used when the contract is based on fraud, contains an obvious clerical error, or to clear up an ambiguity in the contract.

Which of the following is NOT a correct statement about strict liability torts? a) Liability will be without regard to any intent by the defendant to injure the plaintiff. b) Liability is not based on any intentional or wrongful act of the defendant. c) Liability may result even if the defendant uses due care in performing the act that results in injury to the plaintiff. d) The activity resulting in strict liability must involve a high degree of risk of serious injury to another that cannot be completely guarded against by the exercise of due care. e) The doctrine of strict liability is applicable only to activities or services and is not applied to sellers of harmful or defective products.

The correct answer is E. Courts in all states have accepted the doctrine of strict liability for defective products. If strict liability applies, negligence or intent to injure or the amount of due care used are irrelevant. Strict liability is based on the high risk of injury even when due care is used.

Which of the following would discharge a party's contractual obligation by operation of law? I. Bankruptcy of a party II. Novation III. Impossibility a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is E. Discharge of one's contractual obligation may be by agreement of the parties or by operation of law. In discharge by accord and satisfaction, the parties actually reach an agreement to settle an unliquidated debt for less than the amount the creditor claims. The debtor tenders payment to the creditor intending to pay off the account balance, which is accepted by the creditor in satisfaction of the debt. Bankruptcy of a party and impossibility are methods of discharge of contractual obligation by law.

Construction Corp. enters into a contract to build a house for Buyer. State statute requires all residential contractors to be licensed before they do business in the state. Buyer is unaware that Construction Corp. does not possess the contractor's license. Before construction begins, Buyer decides not to build. If Construction Corp. sues Buyer for breach of contract to recover its lost profit, what will be the result? a) Construction Corp. will win because the contract is legal. b) Construction Corp. will win. Though the contract is illegal, a court will enforce a contract where the license is principally for the purpose of revenue raising. c) Construction Corp. will win because it has a remedy in equity for quantum meruit. d) Construction Corp. will lose because the contract violates public policy. e) Construction Corp. will lose because the contract is illegal and is not enforceable.

The correct answer is E. If a construction contractor is required by state law to have a contractor's license before the contractor can lawfully perform work in the state, any contracts entered into by an unlicensed contractor would be illegal, null, and void. An unlicensed contractor would have no right to sue for breach of contract for lost profits. Whereas some states allow contractors to sue the other party under quasi contract for a remedy of quantum meruit, meaning the amount deserved, such would not be the case here. The contractor has not suffered a detriment to Buyer's unjust enrichment. Buyer has gotten nothing and the contractor has not done any work for Buyer. State statutes requiring contractors to be licensed are to protect the public and are not just for revenue raising.

Which of the following persons without legal capacity can avoid a contract but must pay full restitution (fully return any consideration received) as a condition of disaffirmance? a) A minor who has purchased a non-necessary item b) A minor who has entered into a banking contract c) A legally insane (adjudged insane) person d) A small child e) An intoxicated person

The correct answer is E. If a person enters into a contract while intoxicated, that person can avoid the contract but, as a condition of the avoidance, must fully make restitution to the other party. The other party will be put in the same position as before entering into the contract with the intoxicated person. Choice A would fall under the general rule of the right of a minor to disaffirm by returning the consideration if the minor has it. Choices C and D are incorrect because contracts of small children and adjudicated insane persons are void ab initio. A banking contract of a minor cannot be disaffirmed.

Which of the following types of third-party beneficiaries can sue the promissor/obligor directly to enforce the obligation? I. Incidental beneficiary II. Donee beneficiary III. Creditor beneficiary a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is E. Intended third-party beneficiaries may sue a promisor/obligor to enforce a promise. These persons include creditor beneficiaries and donee beneficiaries. Conditions can be implied or express how they are created, and they may be mutual, meaning the condition applies to both parties.

Which of the following persons can bind parties in a legal dispute? I. Arbitrator II. Mediator III. Judge a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is E. Mediators have no authority to bind the parties in mediation as do arbitrators and judges. A mediator is a third-party neutral whose function is to assist the two parties in reaching a settlement.

Miles operates a chain of dry cleaners in City. Miles wants to remove Jenkins as a competitor so Miles spreads a rumor around City that Jenkins hires only undocumented immigrants and extorts work from them at wages greatly less than the federal minimum wage. Jenkins's business is destroyed. The rumors were not true. Jenkins can sue Miles and recover his damages based on which of the following tort? I. Intentional interference with business conduct (or relationship or prospective advantage) II. Defamation III. Intentional interference with contractual relations a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is E. Miles's bad conduct would result in liability for both defamation and intentional interference with business conduct (or prospective advantage). Defamation would be actionable as slander per se. The elements of slander per se are the untruthful, spoken, and published statements of fact made as rumors that a reasonable person would believe as true. Jenkins would not have to prove that actual damage to his reputation existed since the untruthful statements were made about his business, although he could. Miles would have no absolute or qualified privilege to serve as a defense. Since Miles acted with wrongful intent (malice) and also illegally (trade disparagement under the Federal Trade Commission Act) to intentionally damage Jenkins's business and his actions did in fact damage Jenkins's business, Miles would be liable without a defense for intentionally interfering with Jenkins's business conduct. This case does not involve any contract that is breached.

Which of the following is NOT a true statement about ratification of a contract of a minor? a) Ratification is the expression by words or act of a minor's intention to become bound by a contract made as a minor. b) Ratification must occur, if at all, after the minor reaches the age of majority. c) Express ratification takes the form of an oral or written statement of the minor's intention to be bound by a contract made as a minor. d) Continued use of the consideration and the making of payments on the consideration received by a minor after the minor has reached the age of majority may be a form of ratification. e) Ratification of a minor's contract may be made by either party to the contract.

The correct answer is E. Only the person who enters into a contract as a minor can ratify such a contract. The minor enters into a voidable contract while the other party with legal capacity enters into a valid contract. Ratification of a contract entered into as a minor may take place after the minor reaches the age of majority. Ratification terminates the power to disaffirm. Ratification may be manifested expressly in writing or orally, or implicitly by conduct indicating the individual intends to be bound by the contract. The act of ratification of a contract is accepting the whole contract and its legal consequences.

Which of the following is NOT a correct statement about the assignability of contractual rights? a) Generally, when the only obligation left under a contract is the right to receive money, the right to receive payment is assignable. b) A right cannot be assigned if assignment will materially increase or alter the risk or duties of the obligor. c) If a statute expressly prohibits assignment of a particular right, that right cannot be assigned. d) When a contract is personal in nature, the right under the contract cannot be assigned unless all that remains is a money payment. e) If a contract stipulates that a right cannot be assigned, then under no circumstances can a contractual right be legally assigned to a third party.

The correct answer is E. Parties are generally free to agree on the assignability of rights under a contract. However, when the obligation on the part of the obligor is to pay money to the assignee, the right of the assignor to assign the right to receive the money cannot be restricted by contract. A statute may restrict the right of a person to assign contract rights, as do ERISA and the Internal Revenue Code by making the rights to receive monies under a pension plan nonassignable (or nonalienable). Personal service contracts are usually not assignable, and neither are contracts that increase the risk or obligations of the other party.

Which of the following is NOT an element of promissory estoppel? a) There must be a clear and definite promise. b) The promise must induce an action or forbearance of a substantial and definite character. c) The promisee must have justifiably relied on that promise. d) Injustice cannot be avoided except by enforcing that promise. e) The person seeking to enforce the promisor's promise must have first given some legal consideration.

The correct answer is E. Promissory estoppel is an equitable principle of contracts that requires enforcement of a promise even though the promisee has not paid any consideration for the promise. It requires a promise to be made, which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee and which does induce such action or forbearance. Then, the promise is binding without consideration if injustice can be avoided only by enforcement of the promise. The concept is similar in effect to detrimental reliance.

Which of the following types of damages in a tort case may be awarded to a plaintiff when the defendant acted maliciously and the jury wants to punish the defendant? a) Special damages b) Incidental damages c) Compensatory damages d) Nominal damages e) Punitive damages

The correct answer is E. Punitive damages are awarded to punish a defendant for bad behavior. They are sometimes called exemplary damages and actual or inferred malice is required.

Which of the following is a goal of the Clean Water Act? I. To eliminate the discharge of pollutants into the navigable waterways II. To protect fish and wildlife III. To assure safe drinking water a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is E. The Clean Water Act in 1972 is concerned with the discharge of pollutants into the navigable waterways and fish and wildlife protection. It does not have the same focus as the Safe Drinking Water Act of 1974, which focuses on the safety of public water supply systems.

Which of the following would be a navigable waterway for purposes of the Clean Water Act? I. A large pond II. A river III. A creek that drains into a river a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is E. The Clean Water Act regulates dumping of contaminants into the navigable waterways. A navigable waterway includes "any body of water, navigable in fact, which by itself or by uniting with other waters forms a continued highway over which commerce may be carried on with other states or countries." Thus, a navigable waterway may include a river and a creek that drains into a river. A creek that drains into another creek that drains into a river would also be covered. Large ponds do not meet the definition. A creek that does not eventually drain into a river would not be covered.

Which of the following acts would probably NOT be unlawful under federal consumer protection laws? a) Untruthful advertising b) Fraud in making telephone solicitations c) Denial of a consumer's right to rescind a purchase within three days in a door-to-door solicitation d) Understating the total deferred costs and annual percentage rate in a consumer installment loan contract e) A creditor's repeated phone calls to a consumer debtor's home and place of employment and phone calls to family members in an attempt to collect its debt

The correct answer is E. The Fair Debt Collection Practices Act prohibits debt collection agencies, including debt collecting attorneys, from using heavy-handed tactics to collect debts, including repeated phone calls to a debtor's home and place of employment and phone calls to family members or employers to put pressure on the debtor to pay the debt. Also prohibited are threats and intimidation. Choice E is correct because the FDCPA does not prohibit a creditor from doing these acts to collect its own debt. Choices A, B, and C would be violations of federal and state consumer protection statutes or FTC regulations. Errors in the disclosure of annual percentage rate and total deferred costs of a consumer loan would probably violate Regulation Z of the Truth-in-Lending Act.

Which of the following federal statutes makes it unlawful for a company in interstate commerce to commit unfair trade practices, such as false advertising, bait-and-switch tactics, and disparaging a competitor's product? a) The Sherman Act of 1890, Section 1 b) The Sherman Act of 1890, Section 2 c) The Clayton Act of 1914, Section 3 d) The Clayton Act of 1914, Section 7 (as amended by the Celler-Kefauver Act) e) The Federal Trade Commission Act of 1914

The correct answer is E. The Federal Trade Commission Act of 1914 established the FTC and regulates unfair trade practices. Unfair trade practices injure both competitors and consumers. Many of the acts that would be unlawful as unfair trade practices will also be unlawful under state consumer protection laws. The Sherman Act and The Clayton Act protect competition but more indirectly than the FTC Act.

Which of the following is a right of a corporation under the U.S. Constitution in a criminal matter? I. Right to have the government produce a search warrant before it proceeds with a search of the corporation's property to find evidence of a crime II. Right to a jury trial III. Right against self-incrimination a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is E. The Fourth Amendment freedom against unreasonable searches and seizures and the Sixth Amendment right to a speedy and public trial by jury in a criminal matter apply to corporations as well as individuals. However, as corporations are only legal entities, unlike individuals, they have no Fifth Amendment freedom against self-incrimination. Only their officers, directors, and employees would have this right in their individual capacity.

Under the Import-Export Clause of the United States Constitution, which of the following is a state allowed to do? a) Collect tariffs on goods manufactured in the state and sold to buyers from foreign nations b) Collect tariffs on goods sold by companies in the state to buyers from other states c) Collect tariffs on goods imported into the state from foreign nations. d) Collect property taxes on property its citizens own but is situated in other states e) Collect property taxes on property imported into the state once the property comes to rest in the state

The correct answer is E. The Import-Export Clause places restrictions on states' power to levy tariffs on imports and exports. States are prohibited from levying tariffs (customs duties on imports) that are shipped out of or into the state. The Due Process Clause prohibits a state from levying a property tax on property not located within the state. Once property does come into the state, then the state may levy a property tax on it.

Which of the following would probably NOT be a violation of the Securities Exchange Act of 1934? a) Intentionally overstating the income on the annual income statement filed in a 10-K report with the SEC b) A corporate officer's reliance on insider information of a company to sell shares in the company at prices beyond what they would have been had the other side been made aware of the inside information c) Intentionally making a material misstatement of fact in a proxy solicitation as to how a shareholder will vote on an important merger issue d) Intentionally omitting a material fact in a tender offer e) Overhearing a stranger's advice to another person about an unannounced merge and using that information to acquire stock in the two companies for a big profit

The correct answer is E. The Securities Exchange Act of 1934 regulates trading of securities in the secondary securities markets, proxy solicitations, and tender offers. Generally, within these three areas of securities regulation one may not use manipulative or deceptive practices, such as intentional misrepresentations or omissions of material facts, use of insider information, or knowingly issuing false or misleading financial information. Choice E would not be an illegal act of insider information because it does not constitute the misappropriation of inside information. Here the tippee does not know for certain that the person making the comments was actually a fiduciary of the corporation, and the person making the comment did not intend to benefit himself or the tippee.

Which of the following types of statements would be considered fraudulent if not true? a) A statement of opinion. b) Sales puffery by a seller to entice a buyer to purchase. c) Prediction of a future value. d) A misrepresentation made negligently that the seller's house is termite free. e) When asked if anything was wrong with the seller's house, seller was silent even though he knew his house was infested with termites.

The correct answer is E. The elements of fraud or intentional misrepresentation as a contract defense and as an intentional tort are as follows: (1) a misrepresentation or omission of a material fact, (2) made with intent to deceive the other party (i.e., scienter), (3) the other party reasonably relies on the misrepresentation, and (4) the misrepresentation results in injury or damage to the other party. A statement of material fact is one that can be proven or disproved when it is made. An opinion or prediction cannot be proven or disproved at the time it is made. Sales puffery can be reasonably expected and should not be relied upon as fact. Negligence is inconsistent with scienter. An act is either intentional or is negligent but not both. In this case whether or not a house has termites is a material fact that a buyer would want to know and consider in making a decision to purchase or not purchase. Silence is wrongful when a defect is hidden or latent (rather than obvious or patent) and the person knowingly does not disclose the fact.

Which of the following tort legal theories allow an injured person to recover personal injury or property damages caused by a defective product? I. Breach of express warranty II. Strict liability III. Negligence a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is E. The key here is that the Choice must be a "tort" theory that excludes breach of contract. Thus, the answer is strict liability and negligence. Strict liability, however, is usually easier to prove in defective product cases than is negligence.

A fiduciary duty that a principal owes to its agent includes which of the following? I. Duty to cooperate II. Duty to provide safe working conditions III. Duty of loyalty a) I only b) II only c) III only d) I, II, and III e) I and II

The correct answer is E. The principal has fewer fiduciary duties to the agent than the agent does to the principal. The principal's fiduciary duties to the agent include (1) duty to cooperate, (2) duty to reimburse and indemnify, and (3) duty to provide safe working conditions. There is no fiduciary duty of loyalty to the agent as there is with the agent to the principal.

Which of the following tests may be used by a plaintiff to determine if a product has a defect in design? I. Consumer expectation test II. Prudent manufacturer test III. Risk-utility test a) I only b) II only c) III only d) Both I and II e) Either I or II

The correct answer is E. There are two tests to determine if a product's design is defective—consumer expectation test and the prudent manufacturer test. Either test may be used by the plaintiff. The consumer expectation test focuses on what safety features or characteristics an ordinary consumer would consider necessary for the product or how safely they could operate the product. When a user is too small or infirmed for this test, as a small child would be when considering safety features or warnings of a disposable lighter or a medicine bottle, then the plaintiff may use the prudent manufacturer test. The prudent manufacturer test asks what characteristics or design an ordinary prudent manufacturer would incorporate in the product. In this test, there is a risk-utility analysis (cost-benefit) considering a number of relevant factors, like cost, substitutes, importance of the product, etc.

Which of the following is required before a company can be considered a monopolist under the Sherman Act? I. Company has the power to control price in the market. II. Company has the power to exclude competition from the market. III. Company alone must possess a market share of greater than 70 percent. a) I only b) II only c) III only d) I, II, and III e) I or II

The correct answer is E. To be a monopolist under Section 2 of the Sherman Act, the government or private plaintiff needs to prove either the power to control price or the power to exclude competitors from the market. Usually, proving a monopoly requires consideration of the firm's market share, but there is no bright line test of 70 percent market share to determine whether or not a monopoly exists. In merger situations, the FTC will give closer consideration when the industry concentration ratio is above 30 percent.

Which of the following would be a defense or privilege to defamation of a private plaintiff? I. Statement is true. II. Statement was not made with actual malice. III. Statement was made in a judicial proceeding. a) I only b) II only c) III only d) I, II, and III e) I and III

The correct answer is E. To comply with the constitutional protections of free speech and free press the U.S. Supreme Court established a test for defamation that protects free speech and free press rights. Plaintiffs are classified into two groups—private plaintiffs and public plaintiffs. A public plaintiff (or person) is one who has cast himself into the public's eye, such as a celebrity, a professional athlete, or a wealthy socialite. A private plaintiff (or person) is not known by the public and has no public reputation. A private plaintiff does not have to prove that the defendant acted with actual malice, that is, the defendant knew the statement was false or acted recklessly in making the statement without regard of the truth. A public plaintiff has to allege and prove actual malice. In this case the absence of actual malice is not a defense since this is a private plaintiff. Other defenses are truth of the statement, judicial privilege, and qualified privilege. Both truth and judicial privilege are absolute privileges and cannot result in liability.

Which of the following is a legal right of a shareholder of a corporation? a) Right to inspect the books and records of the corporation regardless of his purpose, number of shares owned, and length of time as a shareholder b) Right to participate in the management of the corporation by voting for officers of the corporation. c) Right to indemnification if they expend monies to investigate the management of the corporation d) Right to receive annual dividends from the corporation e) Right to vote on the election of directors to serve on the board of directors of the corporation

The correct answer is E. Under the Revised Model Business Corporation Act, shareholders have the right and responsibility to elect the directors to manage the company. Shareholders have no right to annual dividends unless the articles of incorporation provide for it. This is seldom the case, except for S corporations. Shareholders do not have an unfettered right to inspect the books and records of the company. There usually is a time requirement for owning shares before there is a right to inspect. Only the directors vote to elect the officers. Finally, shareholders have no indemnification rights.

Which of the following federal discrimination laws requires a covered employer to make reasonable accommodation, provided the reasonable accommodation does not cause an undue hardship on the employer? I. Pregnancy Discrimination Act II. Americans with Disability Act III. Civil Rights Act of 1964, Title VII as it applies to religion a) I only b) II only c) III only d) I, II, and III e) II and III

The correct answer is E. Under the federal antidiscrimination statutes covered employers are only required to provide reasonable accommodation for disabilities and religion, provided a reasonable accommodation can be found and does not cause an undue hardship on the employer. Reasonable accommodation of religion is required by Title VII of the CRA of 1964. Reasonable accommodation of disabilities is required by both the ADA and the Vocation Rehabilitation Act.