Test Bank for The Legal Environment Today 10th Edition, by Roger LeRoy Miller, Frank Cross

Chapter 01: Law and Legal Reasoning

Indicate whether the statement is true or false.

1. In the United States, the law consists of written laws and court decisions. a. True b. False 2. All laws establish rights, duties, and privileges that are consistent with the values and beliefs of a society or its ruling group. a. True b. False 3. The legal rules that control the actions of a business, reflect past and current thinking about how similar businesses should and should not act. a. True b. False 4. The study of business law does not involve an ethical dimension. a. True b. False 5. Compartmentalizing the law into discrete topics indicates that each business transaction is subject to only one specific area of the law. a. True b. False 6. A constitution is a primary source of law. a. True b. False 7. A statute is a secondary source of law. a. True b. False 8. A secondary source of law is one that clarifies a source of primary law. a. True b. False 9. Legal encyclopedias, law review articles, and treatises are sources of primary law. a. True b. False 10. Even if it conflicts with the U.S. Constitution, a state constitution is supreme within the borders of that state. a. True b. False 11. The U.S. Constitution is the basis of all law in the United States.

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Chapter 01: Law and Legal Reasoning a. True b. False 12. Only if a state legislature passes a statute, does that law become part of the relevant state code of laws. a. True b. False 13. A citation is a regulation enacted by a city or county legislative body. a. True b. False 14. A local ordinance commonly has to do with a matter concerning only a local governing unit. a. True b. False 15. A federal statute applies to all states. a. True b. False 16. The UCC is a uniform law that most states have adopted to govern commercial transactions. a. True b. False 17. Federal, state, and local governments may establish an administrative agency to perform a specific function. a. True b. False 18. Independent regulatory agencies are not subject to the authority of the President. a. True b. False 19. Rules issued by administrative agencies affect almost every aspect of the operations of a business. a. True b. False 20. Federal agency regulations take precedence over conflicting state regulations. a. True b. False 21. An administrative legislative rule is not legally binding on businesses. a. True b. False 22. The Administrative Procedure Act (APA) imposes strict procedural requirements that agencies must follow in legislative rulemaking and other functions. a. True Powered by Cognero

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Chapter 01: Law and Legal Reasoning b. False 23. If an agency fails to follow the rulemaking procedures imposed by the Administrative Act, the resulting rule may not be binding. a. True b. False 24. Common law is a body of law developed from judge’s decisions in legal controversies. a. True b. False 25. Case law governs all areas of business not covered by statutory or administrative law. a. True b. False 26. Under the doctrine of stare decisis, judges are encouraged to follow the precedents established within their jurisdictions. a. True b. False 27. Controlling precedents are binding authorities. a. True b. False 28. A court might look at fairness, social values and customs, and public policy in deciding a case if there is no precedent. a. True b. False 29. In the IRAC method of case-briefing, the A stands for analysis. a. True b. False 30. There is one right answer to every legal question. a. True b. False 31. Because courts of law and equity have merged, there is no distinction between the two any longer. a. True b. False 32. Courts will not grant an equitable remedy unless the remedy at law is adequate. a. True b. False 33. Typically, in a civil case, a private party sues another private party who has failed to comply with a duty. a. True Powered by Cognero

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Chapter 01: Law and Legal Reasoning b. False 34. In a criminal case, the object is to obtain a remedy. a. True b. False 35. Civil law has to do with wrongs committed against society for which society demands redress. a. True b. False 36. The basis of a civil law system is a written code of laws. a. True b. False 37. International law derives from a variety of sources, including the laws of individual nations. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

38. Power, Inc., is a corporation engaged in the business of producing, refining, and distributing energy resources. With respect to the firm’s managers, legal concepts can be useful for Power’s a. accounting and finance manager. b. human resources manager. c. marketing manager. d. silent partner.

39. An example of a primary source of law would be: a. legal encyclopedias. b. official comments to statutes. c. Constitutional law. d. legal treatises.

40. Secondary sources of law include a. state constitutions. b. law review articles. c. laws passed by local governing bodies. d. regulations created by administrative agencies.

41. A constitution sets forth the government’s general organization’s: a. limits, but not powers. b. limits and powers. c. lack of limits or powers. d. powers, but not limits.

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Chapter 01: Law and Legal Reasoning 42. The basis of all law in the United States is a. the U.S. Constitution. b. laws passed by Congress. c. case law. d. regulations created by administrative agencies.

43. The __________________________ to the U.S. Constitution reserves to the states, all powers not granted to the federal government. a. 1st amendment b. 14th amendment c. 10th amendment d. bill of rights 44. Laws enacted by legislative bodies at any level of government make up the body of law generally referred to as: a. statutory law. b. the basis of all law in the United States. c. the supreme law of the land. d. uniform law.

45. On a challenge to a provision in a state constitution, that conflicts with a provision in the U.S. Constitution: a. neither provision will be enforced. b. both provisions will be enforced. c. the state provision will be enforced only within the borders of that state. d. the federal provision will be enforced.

46. The Montana legislature enacts a state law that violates the U.S. Constitution. This law can be enforced by: a. no one. b. the federal government only. c. the state of Montana only. d. the United States Supreme Court only.

47. The Uniform Commercial Code provides a set of rules governing a. among the states. b. between the states and the federal government. c. in countries that were once colonies of Great Britain. d. in international markets.

48. The Uniform Commercial Code provides a set of rules governing: a. commercial transactions. b. state legislative adoptions. c. congressional procedures. d. administrative processes.

49. Administrative law includes: Powered by Cognero

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Chapter 01: Law and Legal Reasoning a. all laws that affect business operations. b. the rules, orders, and decisions of a government agency. c. model laws developed by the National Conference of Commissioners. d. laws enacted by a legislative body.

50. The ___________________________, for example, is an agency within the U.S. Department of Health and Human Services. a. Uniform Commercial Code b. Internal Revenue Service c. Securities and Exchange Commission d. Food and Drug Administration 51. The Food and Drug Administration (FDA) is an executive agency. As an executive agency, the FDA is subject to the authority of: a. no government official or entity. b. the President. c. Congress. d. the U.S. Attorney General.

52. A main function of an administrative agency is ________________. a. overruling previous cases b. rulemaking c. hearing cases d. enforcing the law 53. Legislative rulemaking under the APA, typically involves all but which one of the following three steps: a. a comment period b. notice of proposed rulemaking c. public hearing d. final rule 54. Administrative agencies also issue ______________________ that are not legally binding, but simply indicate how an agency plans to interpret and enforce its statutory authority. a. statutes b. codes c. interpretive rules d. case law 55. The Environmental Protection Agency (EPA) discovers that Fish Farm Inc. has violated an EPA regulation. If no settlement is reached, the EPA can: a. issue a formal complaint. b. do nothing. c. take the matter to the U.S. Supreme Court. d. immediately impose sanctions.

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Chapter 01: Law and Legal Reasoning 56. Home Care Company is charged with violating a rule of the Social Security Administration. Most likely, Home Care will be required to appear at a hearing presided over by: a. a federal appellate court judge. b. a federal district court judge. c. an administrative law judge. d. a U.S. Marshal.

57. Common law rules develop from: a. principles underlying judges’ decisions in actual controversies. b. regulations issued by administrative agencies. c. statutes enacted by Congress and the state legislatures. d. uniform laws drafted by legal scholars.

58. Stare decisis is best defined as: a. a doctrine under which judges follow established precedents. b. the authority to decide a specific dispute. c. a judicial proceeding to redress a wrong. d. a situation giving a person a right to begin a judicial proceeding.

59. A precedent is: a. the chief executive officer of the United States and their authority. b. a court decision that is used as an example for deciding subsequent cases with similar facts. c. a lawsuit in which a number of persons join together for ease of filing. d. the fundamental procedure by which the government exercises its authority.

60. Each court has a jurisdiction. Jurisdiction is best defined as: a. a doctrine that follows established precedents. b. the geographic area in which a court has the power to apply the law. c. a judicial proceeding to redress a wrong. d. a situation giving a person a right to begin a judicial proceeding.

61. Applying the relevant rule of law to the facts of a case requires a judge to find previously decided cases that, in relation to the case under consideration, are a. as different as possible. b. as similar as possible. c. at odds. d. exactly identical.

62. There are no precedents on which the court deciding the case Algorithm Corp. v. Beta Bytes, Inc., can base its decision. The court can consider, among other things, a. the opinions of the friends and relatives of the judge. b. the results of a poll of those in the courtroom. c. government policy based on widely held social values and customs. d. opinions of courts from other jurisdictions.

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Chapter 01: Law and Legal Reasoning 63. In Beto v. Car Dealership, a state supreme court held that a minor could cancel a contract for the sale of a car. Now a trial court in the same state is deciding Dora v. Even Steven Autos, Inc., a case with similar facts. Under the doctrine of stare decisis, the trial court is likely to: a. allow the minor to cancel the contract. b. not follow the decision of the Beto case. c. order the minor to cancel the contract. d. require the minor to fulfill the contract.

64. In the case of Sales Corp. v. Transport Co., the court may rule contrary to a precedent if the court decides that the precedent: a. is incorrect or inapplicable. b. is not in line with the judge’s personal values. c. would lead to unintended consequences. d. would not bring about the result the judge prefers.

65. A ________________________ is a legal authority that a court may consult for guidance, but that is not binding on the court. a. legal authority b. applicable statute c. persuasive authority d. reference authority 66. In the IRAC method of case briefing the R stands for: a. remedy b. rule of law c. reference d. restitution 67. Federico and Gwen are involved in a court proceeding to enforce a right. This is: a. an action. b. stare decisis c. an injunction. d. a remedy.

68. In a suit against Karen, Luke obtains an injunction. This is: a. an order to do or refrain from doing a certain act. b. a departure from precedent. c. a payment of damages or money. d. the cancellation of a contract.

69. At one time, a court of law could grant as a remedy only: a. monetary damages. b. an order to perform a contract. c. a judicial proceeding for resolution of a dispute. d. an injunction.

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Chapter 01: Law and Legal Reasoning 70. ___________________ is law that has to do with wrongs committed against society for which society demands redress. a. Civil law b. Statutory law c. Bill of Rights d. Civil law 71. In a civil case, the object is to: a. resolve a dispute to the satisfaction of all concerned parties. b. take coercive action against a violating party. c. punish a wrongdoer to deter others from similar actions. d. obtain a remedy to compensate the injured party.

72. If a nation violates international law then ______________________ , will be the one to enforce any violation a. the U.S. Supreme Court b. the Uniform Commercial Code c. no one can enforce it d. the other nations

73. Distinguish between primary and secondary sources of law and give specific examples of each.

74. What is the doctrine of stare decisis? In the American legal system, how is it applied, and what is its effect?

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Chapter 01: Law and Legal Reasoning Answer Key 1. True 2. True 3. True 4. False 5. False 6. True 7. False 8. True 9. False 10. False 11. True 12. True 13. False 14. True 15. True 16. False 17. True 18. False 19. True 20. True 21. False 22. True 23. True 24. True 25. True Powered by Cognero

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Chapter 01: Law and Legal Reasoning 26. False 27. True 28. True 29. False 30. False 31. True 32. False 33. True 34. False 35. False 36. True 37. True 38. d 39. c 40. b 41. b 42. a 43. c 44. a 45. d 46. a 47. a 48. a 49. b 50. d 51. b Powered by Cognero

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Chapter 01: Law and Legal Reasoning 52. b 53. c 54. c 55. a 56. c 57. a 58. a 59. b 60. b 61. b 62. c 63. a 64. a 65. c 66. b 67. a 68. a 69. a 70. d 71. d 72. d 73. There are numerous sources of American law. A source that establishes the law on a particular issue is called a primary source of law. Primary sources include the following: • The U.S. Constitution and the constitutions of the various states.

• Statutory law—including laws passed by Congress, state legislatures, and local governing bodies.

• Regulations created by administrative agencies, such as the federal Food and Drug Administration.

• Case law (court decisions).

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Chapter 01: Law and Legal Reasoning We describe each of these important primary sources of law in the following pages. (See the appendix at the end of this chapter for a discussion of how to find statutes, regulations, and case law.)

A secondary source of law is a book (or article) that summarizes and clarifies a primary source of law. Legal encyclopedias, compilations (such as Restatements of the Law, which summarize court decisions on a particular topic), official comments to statutes, treatises, articles in law reviews published by law schools, and articles in other legal journals are examples of secondary sources of law. Courts often refer to secondary sources of law for guidance in interpreting and applying the primary sources of law discussed here.

74. In a common law legal system, past judicial decisions are binding in current disputes with similar facts. This feature of common law, which is the basis of the American legal system, is unique, because unlike the law in other legal systems, it is judge-made law. Within the common law system, when possible, judges attempt to be consistent and to base their decisions on the principles suggested by earlier cases. The body of principles and doctrines that form the common law emerged over time as judges applied the principles announced in earlier cases to subsequent legal controversies.

The practice of deciding cases with reference to former decisions (or precedents)—the cornerstone of the American legal system—is called the doctrine of stare decisis. Under this doctrine, judges are obligated to follow the precedents established within their jurisdictions. This helps courts to be more efficient and makes the law more stable and predictable.

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Chapter 02: Courts and Alternative Dispute Resolution

Indicate whether the statement is true or false.

1. Laws would be meaningless without the courts to interpret and apply them. a. True b. False 2. Judicial review is the process through which Congress approves or rejects judicial appointments. a. True b. False 3. The landmark case of Marbury v. Madison set the decision and precedent for judicial review. a. True b. False 4. Jurisdiction refers to the ability of a citizen to bring a case before a court. a. True b. False 5. The authority of a court to hear and decide a specific case is called jurisdiction. a. True b. False 6. Any court can exercise jurisdiction over any property, no matter where it is located. a. True b. False 7. Under a state long-arm statute, a court can exercise jurisdiction over certain nonresident defendants based on their activities within the state. a. True b. False 8. Minimum contact means that the defendant must have enough of a connection to the state for the judge to conclude that it is fair for the state to exercise power over the defendant. a. True b. False 9. A corporation is subject to jurisdiction only in states where it does such substantial and continuous business, that it is “at home” in that state. a. True b. False 10. Subject matter jurisdiction refers to whether a court is located in the area in which the plaintiff or defendant live. a. True b. False 11. An example of a court of limited jurisdiction would be a probate court.

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Chapter 02: Courts and Alternative Dispute Resolution a. True b. False 12. A federal court will apply federal law when hearing a case involving a federal question. a. True b. False 13. For purposes of diversity jurisdiction, a corporation can be considered a citizen of the state where their principal place of business is located. a. True b. False 14. In a case based on diversity of citizenship involving individuals, a federal court will apply the relevant state law. a. True b. False 15. When concurrent jurisdiction exists, the parties may choose to bring the case in state or federal court. a. True b. False 16. In a case involving Internet transactions, jurisdiction can be met by a state through minimum contacts if the company conducts substantial business in that jurisdiction through online contracts or sales. a. True b. False 17. Merely advertising a product online is never enough to avail your company to jurisdiction of that state. a. True b. False 18. Venue has to do with where the most appropriate physical location to file a lawsuit exists. a. True b. False 19. A state supreme court is considered a federal court. a. True b. False 20. A question of law is generally the focus of an appellate court. a. True b. False 21. An appellate court can only challenge a trial court’s finding of fact if the finding is clearly erroneous. a. True b. False 22. If a party is unhappy about the decision of their case in their state supreme court, and it was a case involving state law, Powered by Cognero

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Chapter 02: Courts and Alternative Dispute Resolution they can appeal it to the Federal Supreme Court. a. True b. False 23. Failing to strictly follow the procedural rules and standards for determining disputes in courts is likely to affect the outcome in a particular case. a. True b. False 24. A complaint contains a brief summary of the facts necessary to show the party filing the complaint is entitled to relief, as well as the jurisdiction and remedy. a. True b. False 25. Judgment entered by a court against a defendant who has failed to appear in court to answer or defend against the plaintiff’s claim is called a default judgment a. True b. False 26. A motion to dismiss asserts that a claim has no cause of action or basis in law. a. True b. False 27. A motion for summary judgment asserts that the plaintiff failed to state a claim for which the court can grant relief, and the case should have a judgment without proceeding to trial. a. True b. False 28. Discovery includes the process of serving a summons, and a copy of a complaint on a defendant. a. True b. False 29. Interrogatories consist of oral testimony given by a party under oath. a. True b. False 30. Jurors must decide a case based only on the information that they learn during the trial. a. True b. False 31. If a trial was fundamentally flawed, a party can ask the judge for a motion, and for a new trial in order to prevent a miscarriage of justice. a. True b. False 32. Appellate courts must accept all appeals.

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Chapter 02: Courts and Alternative Dispute Resolution a. True b. False 33. An electronic court filing system allows parties to file litigation-related documents via electronic means in most states. a. True b. False 34. Most states either require or encourage parties in a lawsuit to undertake ADR beforehand. a. True b. False 35. Mediation requires the use of a neutral third party to help facilitate an agreement between the parties. a. True b. False 36. The most “formal” form of alternative dispute resolution is arbitration. a. True b. False 37. Arbitration differs from other forms of alternative dispute resolution in that a third party hearing a dispute makes a binding decision for the parties. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

38. Analytica LLC files a suit against the United States, challenging a congressional enactment mandating that employers pay their employees’ student loans. The process by which the court decides this issue is a. judicial review. b. voir dire. c. unconstitutional. d. the rule of four.

39. A judicial decision on the constitutionality of an executive order that limits certain state actions is a. beyond the jurisdiction of the courts. b. a question of fact. c. a summary judgment. d. the power of judicial review.

40. The 1803 decision of the United States Supreme Court in the case of Marbury v. Madison established a. the jurisdiction of the courts. b. the concept of voir dire. c. the power of judicial review. d. the concept of venue.

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Chapter 02: Courts and Alternative Dispute Resolution 41. One party wants to file a suit against another. For a court to hear the case, a. both parties must consent to the lawsuit. b. the court must have jurisdiction over the parties, as well as the subject matter at issue. c. the parties must have diversity of citizenship, and a claim of more than $75,000. d. the parties must both own property within the state.

42. Hal, a resident of Illinois, owns a warehouse in Indiana. A dispute arises over the ownership of the warehouse with Jack, a resident of Kentucky. Jack files a suit against Hal in Indiana. Regarding this suit, Indiana has a. federal jurisdiction. b. in personam jurisdiction. c. in rem jurisdiction. d. no jurisdiction.

Indicate one or more answer choices that best complete the statement or answer the question.

43. Bob is a resident of Ohio and is involved in a car accident with Joan who is a resident of Kentucky. The accident takes place in Indiana. Where can Bob bring a suit against Joan. (choose all applicable answers) a. Indiana b. Ohio c. Kentucky d. Federal court

Indicate the answer choice that best completes the statement or answers the question.

44. Cattle House Steaks, an Alabama company, enters into a contract for goods over the phone with Beef Packing Inc., an out-of-state corporation. If a dispute arises, an Alabama court can exercise jurisdiction over Beef Packing a. under the minimum contacts test. b. on the basis of a federal question. c. in no circumstances. d. only if Beef Packing files the suit.

45. Tyler, a citizen of Utah, files a suit in a Utah state court against SeaCoast Sales Corporation, a Washington state company that does regular business in Utah. Utah state court would have jurisdiction over SeaCoast because of: a. subject matter jurisdiction. b. long-arm and minimum contacts jurisdiction. c. federal question jurisdiction. d. Utah would never have state jurisdiction over SeaCoast.

46. Jason, a citizen of Kansas, wants to file a suit against Lora, a citizen of Michigan. Their diversity of citizenship may be a basis for: a. no court to exercise jurisdiction. b. a federal court to exercise jurisdiction. c. any court to exercise jurisdiction. d. Kansas state court to have jurisdiction.

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Chapter 02: Courts and Alternative Dispute Resolution 47. Kari and Lillian, who are citizens of Mississippi, are involved in a case related to the adoption of their child.

Regarding jurisdiction of this case, Mississippi state courts have: a. concurrent jurisdiction with federal courts. b. concurrent jurisdiction with other state courts. c. exclusive jurisdiction. d. no jurisdiction.

48. Bob wants to sue XYZ corporation, his employer, for violating his civil rights. He states their employer procedures do not apply equal rights. What court would Bob bring suit? a. state court b. federal court c. probate court d. any court he wishes

Indicate one or more answer choices that best complete the statement or answer the question.

49. Sara, a resident of Indiana is involved in a dispute over goods she bought from Jim, a resident of Florida. The amount of damages she is seeking is $75,000. In what court can Sara bring her suit against Jim? (choose all applicable answers) a. Indiana state court. b. Florida state court. c. Federal court d. Probate court

Indicate the answer choice that best completes the statement or answers the question.

50. If Terry wants to sue Jerry and they are citizens of different states, and the amount of damages sought is $100,000.

Furthermore, Jerry has long-arm and minimum contacts with Terry’s state, the fact that Terry can bring the suit in his home state court or federal court is called: a. diversity of citizenship. b. concurrent jurisdiction c. subject matter jurisdiction. d. exclusive jurisdiction.

51. The courts have developed a standard, called a ___________________ standard, for determining when the exercise of jurisdiction over an out-of-state defendant is proper. a. long-arm b. minimum contacts c. sliding scale d. value based 52. __________________________ is concerned with the most appropriate physical location for a trial. a. jurisdiction b. minimum contacts c. venue d. federal diversity Powered by Cognero

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Chapter 02: Courts and Alternative Dispute Resolution 53. A person must have _______________________________, or a sufficient “stake” in the matter to justify seeking relief through the court system. a. venue b. jurisdiction c. standing to sue d. diversity of citizenship 54. Martin files a suit against Nichelle in a state court over an employment contract. The case proceeds to trial, after which the court renders a verdict. The case is appealed to the state’s highest court. After that court’s review of Martin v.

Nichelle, a party can appeal the decision to the United States Supreme Court only if a. a federal question is involved. b. a state question is unresolved. c. the party is unsatisfied with the result. d. the state trial and appellate court rulings are different.

55. A ___________________ is an order issued by the Supreme Court to a lower court requiring that court to send the record of the case for review. a. motion for dismissal b. writ of certiorari c. a rule of four d. motion for summary judgment 56. Commercial Supply wants to initiate a suit against Downwind Power Corporation by filing a complaint. The complaint should include a statement of the facts necessary to show that: a. Downwind does not have a valid defense. b. the case can be disposed of without a trial. c. the solvency of Downwind is in question. d. Commercial is legally entitled to relief.

57. A______________________ consists of a document that notifies a defendant that a legal action has been commenced against them, and that they must appear in court to answer the complaint. a. motion to dismiss b. summons c. service of process d. motion for summary judgment 58. A __________________________________ will be granted only if there are no genuine questions of fact, and the sole question is a question of law. a. motion for summary judgment b. motion to dismiss c. motion for judgment on the pleadings d. discovery request 59. ______________________________ refers to the number of procedural devices to obtain information and gather evidence about the case from the other party or from third parties before the trial begins.

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Chapter 02: Courts and Alternative Dispute Resolution a. Motion for submission b. Motion to dismiss c. Discovery d. Venue

Indicate one or more answer choices that best complete the statement or answer the question.

60. Choose the activities that are a part of discovery: (choose all applicable answers) a. interrogatories b. depositions c. motion to compel d. a witness list

Indicate the answer choice that best completes the statement or answers the question.

61. Sara files a suit in a state court against Tech Innovations Inc. The parties are allowed to file litigation-related documents with the court online for their state. This is considered: a. online dispute resolution. b. an electronic court filing system. c. electronic discovery. d. a cyber court.

62. Jill and Kane meet with their attorneys to try to resolve a dispute. A neutral third party works with both sides and proposes a solution but does not make a decision resolving the matter. This is an example of: a. arbitration. b. mediation. c. negotiation.. d. none of the choices.

63. Quarry Mining Inc. and Riverside Vineyards agree to resolve a dispute in arbitration. The arbitrator meets with Quarry’s representative to discuss the matter without Riverside’s representative being present. Is this normally allowed during arbitration? a. Yes. b. No. c. Only if there is a restraining order. d. If the matter is serious enough in nature.

64. Liz and Moss disagree over the amount due under their contract. To avoid involving any third party in the resolution of their dispute, Liz and Moss could attempt to resolve their dispute through: a. arbitration. b. litigation. c. mediation. d. negotiation.

65. Farmers Pantry Products Inc. and Market Grocers LLC dispute a term in their contract. Because the parties have a Powered by Cognero

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Chapter 02: Courts and Alternative Dispute Resolution long-standing business relationship that they would like to continue, they would prefer to settle their dispute through mediation because: a. the case will be heard by a jury. b. the dispute will eventually go to trial. c. the process is not as adversarial as litigation. d. the resolution of the dispute will be decided by an expert.

66. Cornel and Deanna resolve their dispute over the destruction of Cornel’s real property due to Deanna’s excavation for an irrigation pond, by having a neutral third party render a binding decision. This would be: a. arbitration. b. conciliation. c. intervention. d. rendition.

67. Mandatory _________________ in employee contracts have been found to be generally acceptable and legal. a. mediation clauses b. arbitration clauses c. negotiation clauses d. reprimand procedures 68. _________________________________ may be best suited for resolving small- to medium-sized business liability claims, which may not be worth the expense of litigation or traditional ADR. a. Mediation b. Online dispute resolution c. Arbitration d. Closed negotiation 69. Numerous federal courts now hold _____________________________ (another type of ADR), in which the parties present their arguments and evidence, and the jury renders a verdict. a. negotiations b. mini trials c. summary jury trials d. early neutral case evaluation 70. One downside of arbitration is that if the parties are not satisfied with the decision, they: a. can still mediate the issue. b. cannot appeal the decision. c. can still litigate the issue. d. can sue for damages separately.

71. Jane buys personal products over the internet from ABC Corporation. After using the products, she notices she is not feeling well. She thinks it may have something to do with the ingredients in the products. She emails the company asking for a list, and they send her one. She takes it to a scientist that she knows, and he says there is nothing “wrong” with any of the ingredients. She takes a sample of the lotion to her friend to test. He finds trace amounts of poison in the lotion, and Powered by Cognero

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Chapter 02: Courts and Alternative Dispute Resolution says it comes from using imported and cheap byproducts. The poison is not listed, since it is a byproduct of another ingredient. Jane wants to sue ABC and needs to know what she needs to do first? (discuss jurisdiction, venue, standing to sue, who she can sue, service, etc.)

72. Giles is a tenant in Home Suite Home, an apartment building owned by Italo. Giles is injured when he falls in an unlighted stairwell in the building. Giles asks Italo to cover his medical expenses. Italo refuses to admit that Giles’s injury resulted from a fall in the stairwell, or that Italo should assume liability for the cost. Unable to negotiate a settlement, Giles wants to file a suit against Italo. What pleading begins a suit? Once a defendant is notified of a suit, what must he or she do?

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Chapter 02: Courts and Alternative Dispute Resolution Answer Key 1. True 2. False 3. True 4. False 5. True 6. False 7. True 8. True 9. True 10. False 11. True 12. True 13. True 14. True 15. True 16. True 17. True 18. True 19. False 20. True 21. True 22. False 23. True 24. True 25. True Powered by Cognero

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Chapter 02: Courts and Alternative Dispute Resolution 26. True 27. True 28. False 29. False 30. True 31. True 32. False 33. True 34. True 35. True 36. True 37. True 38. a 39. d 40. c 41. b 42. c 43. a, c, d 44. a 45. b 46. b 47. c 48. b 49. a, b 50. b 51. c Powered by Cognero

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Chapter 02: Courts and Alternative Dispute Resolution 52. c 53. c 54. a 55. b 56. d 57. b 58. a 59. c 60. a, b, d 61. b 62. b 63. b 64. d 65. b 66. a 67. b 68. b 69. c 70. b 71. The first thing Jane will need to determine is if she can get state jurisdiction in her state of Wyoming over the defendants, whose home office is in Oklahoma. She knows that they sell their products on a regular basis as well as advertise over the internet to her state. Most likely the state court of Wyoming would have enough minimum contacts due to ABC’s contacts selling and advertising in their state. She then would need to figure out if she can only sue in state court or if it is possible to sue in a federal court as well. Federal diversity jurisdiction may apply since they are from two different states, and the amount in controversy will exceed $75,000 due to her being so sick. She opts to take it to federal court, so there is no issue with the minimum contact question. She will then go to her attorney and have them draft a complaint which will need to be properly served on ABC. Once they are served, the trial can procced. She also has an option at that point to request ABC to go through a form of alternative dispute resolution. She could use mediation or arbitration for this if the other party is willing, and both may be successful.

72. Pleadings inform each party to a suit of the claim of the other, and specifies the issues involved. A suit begins when a Powered by Cognero

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Chapter 02: Courts and Alternative Dispute Resolution complaint (or petition, or declaration) is filed with the clerk of a trial court with appropriate jurisdiction.

A complaint must contain the following: • A statement alleging facts necessary for the court to take jurisdiction.

• A statement of facts necessary to show the plaintiff’s legal basis for a remedy.

• A statement of the remedy that the plaintiff is seeking.

A defendant is notified of a suit by being served with a summons, and a copy of the complaint. The summons informs the defendant that he or she is required to file an answer to the complaint with the court and the plaintiff within a specified time (usually twenty to thirty days after the summons is served).

After the defendant is served with a copy of the complaint and summons, he or she must respond by filing an answer or a motion to dismiss. If the defendant does not respond, the court may enter a default judgment against him or her, awarding the plaintiff the remedy sought.

Here, if Giles initiates a suit by filing a complaint against Italo, Giles would be the plaintiff and Italo would be the defendant. Giles would need to set out the basis of his lawsuit, and state a question of fact and law. Assuming Giles’s complaint contains the required information, Italo would be served with a copy of it, and a summons. Italo would then need to respond with an answer or a motion to dismiss within the appropriate time. If he does not, he will likely have a default judgment entered against him.

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Chapter 03: Ethics in Business

Indicate whether the statement is true or false.

1. Ethics simply looks at whether a decision (or act) is legal or illegal. a. True b. False 2. The Fraud Reduction and Data Analytics Act is used to identify and assess fraud risks in private companies. a. True b. False 3. Company codes are the same as laws. a. True b. False 4. Congress enacted the Sarbanes-Oxley Act (SOX) to help reduce unethical management decisions and risky behaviors. a. True b. False 5. The triple bottom line is a measure that includes: a corporation’s profit, its impact on people, and how the corporation feels about it. a. True b. False 6. Top management’s behavior in a company sets the ethical tone for the workplace. a. True b. False 7. The term moral minimum is best defined as the highest degree of ethical behavior expected of a firm. a. True b. False 8. The effectiveness of an industry code of ethics is partly determined by the commitment of the industry, or company leadership to enforce it. a. True b. False 9. One view of the role of business in society is the perceived duty of a company to only generate revenue for its owners. a. True b. False 10. When profit maximization alone is the goal, a company does not benefit by behaving ethically. a. True b. False 11. Corporate “citizenship” involves making decisions beyond just maximizing profits and dividends. a. True Powered by Cognero

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Chapter 03: Ethics in Business b. False 12. When making ethical decisions, a business should evaluate the financial implications. a. True b. False 13. One of the ways that a business can create an ethical workplace is for the top management to demonstrate its commitment to ethical decision making. a. True b. False 14. Duty-based ethics is based on the idea that every business has certain duties to others and the planet. a. True b. False 15. Under the rights theory, determining whether a business decision is unethical is to see how it affects others. a. True b. False 16. Outcome-based ethics deals with the consequences of an action, not the nature of the action itself, nor any religious or moral beliefs. a. True b. False 17. In the cost-benefit analysis utilitarian model, the focus is to always do the most amount of good for the most amount of people. a. True b. False 18. Corporate social responsibility links the responsibility of citizenship with the commitment to making ethical business decisions. a. True b. False 19. Corporate social responsibility may increase a business’s reputation or goodwill. a. True b. False 20. Under the “stakeholder view,” there is no group that ever has a greater stake in company decisions than the shareholders do. a. True b. False 21. Abnormally high profits and stock prices may lead to unethical business behavior. a. True b. False Powered by Cognero

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Chapter 03: Ethics in Business 22. An overemphasis on long-run profit maximization is a common reason for ethical problems that may occur in a business. a. True b. False 23. Because social media is so widespread, it is legal and ethical for a company to have social media policies limiting employees from criticizing the company. a. True b. False 24. Judging a job applicant based on what an online search reveals about the applicant’s activities outside the workplace, or their social media posts is universally viewed as ethical. a. True b. False 25. Rationalization is the process of making a decision based simply on whether it is good for the company. a. True b. False 26. Making ethical decisions is most often best done by analyzing objective standards (such as profit or number of people fired), instead of subjective impacts on stakeholders. a. True b. False 27. One common denominator identified by businesspersons who have faced ethical problems is the feeling of uncertainty. a. True b. False 28. As part of the IDDR approach as described in the text, it is important to list as many possible various alternatives, and identify strengths and weaknesses of any remaining alternatives. a. True b. False 29. Global businesses need to be conscious of the impact of different religious principles and cultural norms on ethics. a. True b. False 30. During any global outsourcing, a company should continue to monitor those suppliers to make sure those employers are treating their employees fairly. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

31. Artificial Intelligence Inc. sells to Beta Bots Corporation a promising idea for a technological innovation that is still being developed and that looks very promising. This is Powered by Cognero

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Chapter 03: Ethics in Business a. ethical and legal. b. unethical but legal. c. illegal and unethical. d. unethical and illegal.

32. Business ethics looks at whether the behavior of business decisions: a. are right or wrong. b. derive from well-known business principles. c. follow legal doctrine. d. align with corporate policy.

Indicate one or more answer choices that best complete the statement or answer the question.

33. The Fraud Reduction and Data Analytics Act was designed to: (choose all applicable answers) a. detect fraud. b. prevent fraud. c. punish companies for any fraud. d. assess fraud.

Indicate the answer choice that best completes the statement or answers the question.

34. Ethics has to do with how a businessperson applies this(ese) in their business decisions: a. legal doctrine. b. moral principles. c. corporate policy. d. financial priorities.

35. This law was designed to help reduce corporate fraud and unethical management decisions, by requiring accountability measures for publicly traded companies: a. Fraud Reductions Data Analytics Act. b. Sarbanes-Oxley Act. c. the federal code of ethics. d. the American Bar Association code of ethics.

36. Ethics are important because laws may not always be easy to interpret or apply. This is because a. laws are very organized and structured, and are complicated to read. b. laws represent the will of the people, and that is often changing. c. laws are created by a political process, and are the result of compromise. d. laws often have definition provisions to explain the meaning of terms.

37. Cynthia is the chief financial officer of Digital Corporation. In that capacity, when she is unsure whether a certain business action is legal, she should act a. in her own best interest. b. honestly and responsibly. c. in the short-run interest of Digital.

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Chapter 03: Ethics in Business d. to maximize profit.

38. Compliance with the law is not always sufficient to determine if a decision or behavior is “right” because a. being legal does not necessarily mean it is ethical. b. company codes are also sources of law. c. business decisions can have negative impacts. d. ethical problems do not occur in business.

39. With respect to what society will tolerate, a company’s compliance with the law, and no more, is a. the highest ethical level. b. the moral minimum. c. the only ethical level. d. irrelevant.

40. Viaduct Corporation used untested and risky construction techniques to build a bridge under budget. The techniques were legal but the bridge collapsed, killing several people. Viaduct’s actions were a. unethical, and may result in legislation. b. ethical, because they were legal. c. dangerous, and therefore inherently illegal. d. legal under Sarbanes-Oxley, and with no penalties.

41. Many companies try and link ethics with law through creating: a. an external publicized code of conduct. b. an internal code of conduct. c. a legal code of ethics. d. a code that applies to the public.

42. If a company strictly complies with existing laws, the firm will a. fulfill all business ethics obligations. b. fulfill no business ethics obligations. c. fulfill some business ethics obligations. d. not need to fulfill any business ethics obligations.

43. An internal business code of conduct is not a. legally binding law. b. a set of rules the company can enforce. c. an outline of the company’s policies. d. a guide for decision makers with ethical questions.

44. The National Restaurant Association announces a new industry code of ethics. The effectiveness of this code will be determined by a. the commitment of management to enforcing the code. b. the similarity of the code to the employees’ personal values. c. the success of the campaign publicizing the code. d. the relationship between the code and the law.

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Chapter 03: Ethics in Business 45. Product Sales Inc. adheres strictly to the goal of maximizing profits. Even so, Product Sales will benefit by also using ethical behavior: a. if customer service and reviews are good. b. if its owners are happy with the revenue. c. under no circumstances. d. if it efficiently allocates its scarce resources.

46. The triple bottom line looks at all of the following except a. how decisions impact profits and revenue. b. how decisions impact sustainability and the planet. c. how decisions impact employees and consumers. d. how decisions impact relations with foreign nations.

47. Managers who set unrealistic production or sales goals increase the probability that employees will act: a. ethically b. unethically c. illegally d. not act at all 48. “Be honest and treat people fairly.” With respect to business ethics, implementing this motto is a. not important. b. only important in democratic societies. c. very important. d. only important with large customers.

49. Owen and other managers employed by Pastry Bakeries are most likely to find that unethical behavior in the workplace can be deterred by a. taking immediate action in response to unethical conduct. b. imposing sanctions disproportionate to misconduct. c. distributing rewards without regard to ethics. d. ignoring small breaches of company rules.

Indicate one or more answer choices that best complete the statement or answer the question.

50. Duty-based ethical standards are most likely to derive from (choose all applicable answers) a. a corporate ethics code. b. a religious reasoning. c. philosophical reasoning. d. the law.

Indicate the answer choice that best completes the statement or answers the question.

51. When adopting duty-based ethics, corporations often describe the values and duties they owe: a. through required government disclosure forms.

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Chapter 03: Ethics in Business b. in their mission statements and strategic plans. c. by adopting a corporate religion. d. in the biographies of corporate leaders.

52. Flo, the manager of Grounds Maintenance Inc., must decide whether to use an herbicide that could be unhealthy to employees. They want to use it (as well as the public) once it is on the ground. Flo might lose the client if she refuses to use the herbicide. If Flo analyzes the importance of good health and the avoidance of disease as the rights of people in making her decision, she is likely using a. religious principles. b. the categorical imperative. c. the principle of rights theory. d. utilitarianism.

53. When a business makes an unethical decision and then rationalizes it by saying it is only a small issue, is an example of: a. corporate social responsibility. b. categorical imperative. c. a duty-based ethics approach. d. a religious-based ethical approach.

54. Seafood Café Company makes products that can cause severe health problems to those with shellfish allergies.

Seafood analyzes the cost of warning people of the risk (which they believe is obvious), and the risk of harm to people if no warning is included in advertising and on menus. This analysis most likely is part of a. a duty-based ethics approach. b. corporate social responsibility. c. religious ethical principles. d. an outcome-based ethics.

55. The utilitarian theory of ethics does not require a. a choice among alternatives to produce the maximum societal utility. b. a determination of whom an action will affect. c. an assessment of the effects of alternatives on those affected. d. the acquiring of the means of production by workers.

56. A cost-benefit analysis is part of a. a duty-based ethics approach. b. corporate social responsibility. c. the principle of rights theory. d. The utilitarian model 57. Hale, research manager for Investor Fund, Inc., adheres to utilitarian ethics in making business and ethical decisions that involve the actions of the firm. According to this standard, an action is morally correct when it produces the greatest good for a. Hale himself. b. Investor Fund Inc. Powered by Cognero

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Chapter 03: Ethics in Business c. the fewest people. d. the greatest number.

58. When deciding to engage in corporate social responsibility, a key factor when selecting activities is a. how the social activity relates to the business activities of the corporation. b. how much free publicity the corporation will get from the social activity. c. whether the corporation is required to do the social activity by law. d. whether the activity will result in short-term profit increases.

59. ChemCo Inc. expends funds and takes steps to ensure that all employees are treated fairly, and that they are acting ethically and are accountable to society. This is the concept of: a. the moral minimum. b. corporate social responsibility. c. the categorical imperative. d. the triple bottom line.

60. Under corporate social responsibility, which of these is not an activity that would qualify: a. environmental efforts to reduce the carbon footprint. b. charitable donations to local and worldwide causes. c. ethical labor practices, both local and internationally. d. paying all employees the same wage.

61. According to the theory of corporate social responsibility, any decision by the management of Precision Processing Corporation should consider how a proposed action may affect only the a. firm’s officers and shareholders. b. firm’s officers, shareholders, and stakeholders. c. firm’s shareholders only. d. firm’s suppliers and local government.

62. An overemphasis on this, is the most common reason for ethical problems in the workplace: a. long-run profit maximization. b. short-run profit maximization. c. social responsibility. d. stakeholder analysis.

63. Cody makes a business decision based on financial outcomes alone, and then attempts to argue that it is ethical as well. Cody is a. rationalizing his decision. b. questioning his decision. c. using the utilitarian approach. d. using the stakeholder approach.

64. Caryn is faced with making a business decision. As she thinks about the problem, she feels that there is no easy answer. She continues to think about what is making her uncomfortable about the situation before brainstorming possible solutions. If Caryn is using the IDDR approach to decision making, she is engaged in which step?

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Chapter 03: Ethics in Business a. the discussion step. b. the decision step. c. the inquiry step. d. the review step.

65. In making a business decision, Jin Soo brainstorms possible solutions to his problem, and then considers what he should do. If Jin Soo is using the IDDR approach to decision making, he is in the: a. discussion step. b. decision step. c. inquiry step. d. review step.

66. To avoid unethical practices by a foreign supplier, an effective business practice is to a. pay foreign employees at U.S. pay rates. b. have suppliers sign contracts affirming that they will behave ethically. c. routinely monitor the foreign workplaces. d. obtain a legislative decree that the supplier is ethical.

67. Recreation & Sports Equipment Corporation sells a profit-generating product that is capable of seriously injuring consumers who misuse it in a foreseeable way. They are contemplating adding a warning to the product, but that warning will increase the cost of the product, and they are worried that it may scare off some potential customers who might not buy the product. Thinking about the different theories of the role of business in society, discuss whether Recreation & Sports Equipment Corporation behaves ethically by continuing to sell the product without a warning by discussing at least two of the theories.

68. Bob has started his new coffee company, Bob’s Java, and is looking into costs for his supplies. He notices that the cost of the coffee beans is drastically less expensive from a local distributor. He keeps researching and finds a wider array of roasts and flavors of beans from an international vendor, but the cost is much higher. Bob wants to be socially responsible, so he investigates the sustainability and economic impact each company has on the environment. He notices the international vendor pays their workers a fair wage, and uses fair trade ingredients. He cannot find that information about the local vendor. He is wondering if the greater cost is worth it. Discuss what things he should think about when looking at the Corporate Social Responsibility issue.

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Chapter 03: Ethics in Business Answer Key 1. False 2. False 3. False 4. True 5. False 6. True 7. False 8. True 9. True 10. False 11. True 12. True 13. True 14. True 15. True 16. True 17. True 18. True 19. True 20. False 21. True 22. False 23. False 24. False 25. True Powered by Cognero

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Chapter 03: Ethics in Business 26. False 27. True 28. True 29. True 30. True 31. a 32. a 33. a, b, d 34. b 35. b 36. b 37. b 38. a 39. b 40. a 41. b 42. c 43. a 44. a 45. a 46. d 47. b 48. c 49. a 50. b, c 51. b Powered by Cognero

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Chapter 03: Ethics in Business 52. c 53. b 54. d 55. d 56. d 57. d 58. a 59. b 60. d 61. b 62. b 63. a 64. c 65. a 66. c 67. There are two primary theories of the role of business in society. First, the historical role of business was to maximize profits. The second theory is that business should behave as a corporate citizen.

As a profit maximizer, Recreation & Sports Equipment Corporation should evaluate this decision to minimize costs and maximize profit to the company. Adding a warning would increase the cost (and decrease the profits) of the product. At the same time, a lawsuit because of injury could be very expensive. It is unclear whether the addition of a warning would result in decreased sales. The decision maker should have a professional analysis done of the financial impacts of the lawsuit, as well as lost sales caused by either a lawsuit or the addition of a warning.

As a corporate citizen, the company may consider the triple bottom line. The “profit” analysis will be similar to that in the prior paragraph. The “people” analysis would include the impact on the consumers who might be injured by the foreseeable misuse. Because a warning could prevent this injury (either through more responsible use, or by elimination of a sale to the consumer who might misuse the product), the corporate citizen model is likely to result in the addition of a warning.

The principle of rights theory determines whether a business decision is ethical by how the decision affects the rights of others.

Under a utilitarian model of ethics, an action is morally correct, or “right,” when among the people it affects, it produces the greatest amount of good for the greatest number (or creates the least amount of harm).

68. CSR is a relatively new concept in the history of business, but it is a concept that becomes more important every year.

A survey of U.S. executives undertaken by the Boston College Center for Corporate Citizenship found that more than 70 percent of those polled agreed that corporate citizenship must be treated as a priority. More than 60 percent said that good Powered by Cognero

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Chapter 03: Ethics in Business corporate citizenship added to their companies’ profits. CSR can be a successful strategy for companies, but corporate decision makers must not lose track of the two descriptors in the title: corporate and social. The company must link the responsibility of citizenship with the strategy and key principles of the business. Incorporating both the social and the corporate components of CSR, and making ethical decisions can help companies grow and prosper. CSR is most successful when a company prioritizes on objectives that may not be immediately beneficial. For example, it may cost more initially to construct a new plant that meets the high standards necessary to be certified as environmentally friendly by the LEED program, but in the long run it will be beneficial. Surveys of college students about to enter the job market confirm that young people are looking for socially responsible employers. While socially responsible activities may cost a corporation now, they may also lead to more talented and more committed employees.

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Chapter 04: Business and the Constitution

Indicate whether the statement is true or false.

1. Only Congress may pass a law in conflict with the Constitution. a. True b. False 2. The national government has the implied power to undertake actions necessary to carry out its expressly designated powers. a. True b. False 3. Local governments, including cities, exercise police powers. a. True b. False 4. State regulatory powers are often referred to as police powers. a. True b. False 5. A resident of one state, when in another state, can be denied the privileges and immunities of that state for any reason. a. True b. False 6. Under the full faith and credit clause, any judicial decision in one state with respect to contract rights will be honored and enforced in all states. a. True b. False 7. The U.S. Constitution divides powers among four branches of government. a. True b. False 8. The system of checks and balances in the U.S. Constitution allows each branch of government to limit the actions of the other branches. a. True b. False 9. Under the privileges and immunities clause, the federal government has the power to regulate commercial activities among the states. a. True b. False 10. The Commerce Clause has had no greater impact on business than any other provision in the Constitution. a. True b. False Powered by Cognero

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Chapter 04: Business and the Constitution 11. The Commerce Clause has never been held to support the federal regulation of noncommercial activities that take place wholly within a state’s borders. a. True b. False 12. State governments do not have any authority to regulate interstate commerce. a. True b. False 13. The dormant commerce clause comes into play when state regulations affect interstate commerce. a. True b. False 14. When there is a direct conflict between a federal law and a state law, both laws are rendered invalid. a. True b. False 15. Preemption occurs when Congress chooses to act exclusively on a subject over which the federal government shares power with the states. a. True b. False 16. The first ten amendments to the U.S. Constitution are commonly known as the Bill of Rights. a. True b. False 17. Corporations enjoy many of the same rights and privileges as natural persons do. a. True b. False 18. Under the Ninth Amendment, people have rights in addition to those specified in the Constitution. a. True b. False 19. The rights secured by the Bill of Rights are absolute. a. True b. False 20. Nonverbal expression of belief is not a constitutionally protected form of expression. a. True b. False 21. Speech can be subject to reasonable restrictions. a. True b. False Powered by Cognero

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Chapter 04: Business and the Constitution 22. If a restriction imposed by the government is content neutral, then a court will not allow it. a. True b. False 23. Political speech by corporations falls within the protection of the First Amendment. a. True b. False 24. A state may not restrict certain kinds of advertising, even in the interest of preventing consumers from being misled. a. True b. False 25. The free exercise clause prohibits the government from passing laws that have any impact on religion. a. True b. False 26. When religious practices work against public policy, the government can act. a. True b. False 27. The Fifth Amendment allows persons to be deprived of property without due process of law. a. True b. False 28. Substantive due process requires that a person have an opportunity to object to a proposed action before a fair, neutral decision maker. a. True b. False 29. Procedural due process focuses on the content of legislation. a. True b. False 30. A law that limits a fundamental right may be held to violate substantive due process. a. True b. False 31. It is almost impossible for a law or action to fail the “rationality” test. a. True b. False 32. Under the Fifth Amendment, equal protection means that the government treats all individuals exactly the same. a. True b. False 33. In an equal protection inquiry, when a law or action distinguishes between or among individuals, the basis for the Powered by Cognero

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Chapter 04: Business and the Constitution distinction—that is, the consideration—is examined. a. True b. False 34. Privacy rights receive no protection under federal law. a. True b. False 35. The United States Supreme Court has held that a constitutional right to privacy is implied by several of the amendments in the Bill of Rights. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Generally, given the broad language of the Constitution, the line between state and national powers is often determined by a. Congress. b. the courts. c. the President. d. the administrative branch.

37. A federal form of government is one in which the national government shares sovereign power with a. no one. b. the states. c. the national government. d. the people.

38. State regulatory powers are often referred to as a. privileges. b. statutes. c. sovereignty. d. police powers.

39. The term checks and balances refer to the system under which a. a state must refrain from imposing unreasonable burdens on citizens of another state. b. the powers of government are divided among its branches, each of which exercises a check on the actions of the others. c. any judicial decision with respect to property rights in one state will be honored and enforced in all states. d. the national government regulates interstate commerce.

40. The federal government has the power to regulate commercial activities among the states under a. the Commerce Clause. b. the Privileges and Immunities Clause. c. the Full Faith and Credit Clause.

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Chapter 04: Business and the Constitution d. the First Amendment.

41. The legislative branch can enact a law, but the executive branch has the constitutional authority to a. advise the Senate. b. veto that law. c. determine the jurisdiction. d. regulate commerce.

42. Only occasionally has the Supreme Court curbed the federal government’s regulatory authority under a. checks and balances. b. sovereignty. c. the Commerce Clause. d. the Dormant Commerce Clause.

43. The dormant commerce clause comes into play when state regulations affect a. the First Amendment. b. sovereignty. c. checks and balances. d. interstate commerce.

44. Under the U.S. Constitution, Congress has the power to regulate a. every commercial enterprise in the United States. b. only intrastate commercial enterprises. c. only local commercial enterprises. d. only non-commercial activities.

45. Article VI of the Constitution provides that the Constitution, laws, and treaties of the United States are “the supreme Law of the Land.” This article, commonly referred to as a. the Full Faith and Credit Clause. b. the Commerce Clause. c. the Privileges and Immunities Clause. d. the Supremacy Clause.

46. Leah, a citizen of Maine, obtains a federal license to operate a commercial fishing boat in a certain area off the Maine coast. The Maine state legislature enacts a law that bans all commercial fishing in that area. Most likely, the state law violates a. no provision in the U.S. Constitution. b. the Commerce Clause. c. the Due Process Clause. d. the Supremacy Clause.

47. The state of Ohio can regulate building contractors and building codes in the state under its a. police powers. b. system of checks and balances. c. entitlement to full faith and credit.

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Chapter 04: Business and the Constitution d. commerce power.

48. Beverly creates a website to post threatening messages about celebrities. Under the First Amendment, these messages are most likely protected a. all of the time. b. none of the time. c. only if there are no accompanying ads. d. only if the threats can be verified.

49. Nick, the chief executive officer of On/Off, Inc., a website for short rants, claims that certain government actions infringe on rights guaranteed by the Bill of Rights. Most of these guarantees have been held to limit a. only the power of the federal government. b. federal and state actions. c. only the claims of individuals. d. only the conduct of the states.

50. The Bill of Rights embodies a. a series of protections for the individual against government action. b. payment in the form of taxes by business entities to obtain certain rights. c. the privileges and immunities of the citizens in several states. d. rights established under deeds, wills, contracts, and similar instruments.

51. Rita, a follower of a certain religion, posts a podcast on the Sabbath! website in which she insists that Congress base all federal law on her religious principles. Under the First Amendment, Rita is guaranteed a. the power to delegate her view to the federal government. b. the right to fair payment for her podcast. c. the right to a review of her opinion in due process. d. the freedoms of religion and speech.

52. The members of Citizens Aware believe that a recently enacted federal law is unconstitutional. They write and sign a petition to the government to repeal the law, refuse to obey it, and stop others from complying with it. Under the First Amendment, these individuals have a right to a. petition the government. b. refuse to obey any law with which they disagree. c. stop others from complying with any law. d. None of the choices.

53. Lake City enacts an ordinance that bans the distribution of all printed materials on city streets. Mackensie opposes the city’s latest “revenue-enhancing” measure and wants to protest by distributing handbills. In her suit against Lake City, a court would likely hold the ban on printed materials to be a. constitutional under the First Amendment. b. not subject to the U.S. Constitution. c. unconstitutional under the Commerce Clause. d. unconstitutional under the First Amendment.

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Chapter 04: Business and the Constitution 54. Mary creates a t-shirt design that expresses support for Nash, a presidential candidate, and distributes t-shirts to all of her friends. The t-shirts are an example of a. unprotected speech. b. commercial speech. c. symbolic speech. d. illegal speech.

55. George burns a U.S. flag in his backyard. He films the activity and posts the video on YouTube.com. George’s conduct is most likely a. expressly prohibited by the Constitution. b. protected by the First Amendment. c. subject to reasonable restrictions under the Due Process Clause. d. given strict scrutiny under the Equal Protection Clause.

56. Petro Energy Corporation expresses opinions on political issues through its financial contributions to political action committees and other groups. Under the First Amendment, Petro’s “expression” is most likely a. discouraged. b. prohibited. c. protected. d. prescribed.

57. The rights secured by the Bill of Rights are a. not absolute. b. absolute. c. sovereign d. supreme.

58. Courts have often protected nude dancing because it is a. an unconstitutional restriction of speech. b. a symbolic expression under the First Amendment. c. justified by the need to protect individual rights. d. necessary to protect national interests.

59. A restriction on commercial speech will be considered valid as long as it a. seeks to implement a substantial government interest. b. directly advances that interest. c. goes no further than necessary to accomplish its objective. d. All of these choices.

60. VidGames, Inc., markets a variety of shooting, fighting, and hunting video games. A state statue is enacted to require all game makers to label any games with an option to kill something as “excessively violent.” A court would likely hold this regulation to be a. an unconstitutional restriction of speech. b. constitutional under the First Amendment. c. justified by the need to protect individual rights.

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Chapter 04: Business and the Constitution d. necessary to protect national interests.

61. The Establishment Clause prohibits the government from establishing a a. state-sponsored religion. b. Free Exercise Clause. c. religious display. d. set of substantial burdens.

62. Religious displays on public property having historical as well as religious significance a. violate the Establishment Clause. b. do not necessarily violate the Establishment Clause. c. violate the Free Exercise Clause. d. do not necessarily violate the Free Exercise Clause.

63. For a government law or policy to be constitutional, it must not have the primary effect of a. invading an individuals’ privacy. b. promoting or inhibiting religion. c. violating of corporations’ rights to certain privileges. d. None of these choices.

64. Due process applies to legal persons such as a. corporations. b. individuals. c. Both a and b. d. Neither a nor b.

65. Procedural due process requires that any government decision must be made fair to a. life. b. liberty. c. property. d. All of these choices.

66. Marie claims that a Nebraska state statute infringes on her “procedural due process” rights. This claim focuses on a. procedures used in making decisions to take life, liberty, or property. b. the content of the statute. c. the treatment of similarly situated individuals. d. the steps to be taken to protect Marie’s privacy.

67. Jared claims that a Kentucky state statute infringes on his “substantive due process” rights. This claim focuses on a. procedures used to make decisions to take life, liberty, or property. b. the content of the statute. c. the treatment of similarly situated individuals. d. the steps to be taken to protect Jared’s privacy.

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Chapter 04: Business and the Constitution 68. River City enacts an ordinance that prohibits all advertising on the sides of trucks. A court would likely review this ordinance under the principles of a. equal protection. b. free exercise. c. interstate commerce. d. due process 69. To reduce traffic, Market Town enacts an ordinance that allows only a few specific street vendors to operate in certain areas. A court would likely review this ordinance under the principles of a. equal protection. b. free exercise. c. interstate commerce. d. free speech.

70. John, a law enforcement official, monitors Kelsey’s Internet activities—e-mail and website visits—to gain access to her personal financial data and student information. This may violate Kelsey’s right to a. privileges and immunities. b. privacy. c. free speech. d. free exercise.

71. Kim operates Kim’s Fruits & Vegetables, a small market stocked entirely with produce grown on her adjacent farm.

Under what clause of the Constitution can the federal government regulate Kim’s activities? What is Kim’s best argument against federal regulation of her farm and business?

72. The Wisconsin state legislature enacts a statute that prohibits the advertising of video games “because the games might be harmful to minors.” Despite this new statute, the president of X-Games, Inc., orders X-Games marketers to place ads in various media. When an X-Games ad appears on YUTV, a local television station, X-Games and YUTV are charged with violating the statute. What is the defendants’ best defense against a conviction?

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Chapter 04: Business and the Constitution Answer Key 1. False 2. True 3. True 4. True 5. False 6. True 7. False 8. True 9. False 10. False 11. False 12. True 13. True 14. False 15. True 16. True 17. True 18. True 19. False 20. False 21. True 22. False 23. True 24. False 25. False Powered by Cognero

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Chapter 04: Business and the Constitution 26. True 27. False 28. False 29. False 30. True 31. True 32. False 33. False 34. False 35. True 36. b 37. b 38. d 39. b 40. a 41. b 42. c 43. d 44. a 45. d 46. d 47. a 48. b 49. b 50. a 51. d Powered by Cognero

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Chapter 04: Business and the Constitution 52. a 53. d 54. c 55. b 56. c 57. a 58. b 59. d 60. a 61. a 62. b 63. b 64. c 65. d 66. a 67. b 68. d 69. a 70. b 71. Under the Commerce Clause, at least in theory, Congress has the power to regulate any activity—interstate or intrastate—that affects interstate commerce. Thus, under that clause, it could be argued that the farmer’s growing and selling of produce is subject to federal regulation because these activities affect interstate commerce.

The farmer-vendor’s best argument against federal regulation of her farm and business in this problem might be that in her case these activities and their effects are purely local. But because of the economic character of these activities, there is an effect on interstate commerce, however minimal and despite their local character. For example, customers who buy produce from the market are not likely to purchase the same goods from stock traded in interstate commerce. Thus, it is unlikely that a court would accept this argument.

72. X-Games and YUTV cannot be convicted because a state legislature cannot enact a statute that restricts commercial speech (i.e., marketing video games) to this extent.

The First Amendment protects commercial speech. Because commercial speech does not receive as much protection as Powered by Cognero

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Chapter 04: Business and the Constitution noncommercial speech, however, states can place some restraints on the former. For example, to protect consumers, a state may ban certain kinds of marketing practices, such as deceptive or misleading advertising. Generally, a restriction on commercial speech will be considered valid as long as it (1) seeks to implement a substantial government interest, (2) directly advances that interest, and (3) goes no further than necessary to accomplish the objective.

Here, the complete ban on ads for video games “because the games might be harmful to minors” is too restrictive: it goes too far in attempting to protect minors for an apparently unsubstantiated purpose.

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Chapter 05: Torts and Product Liability

Indicate whether the statement is true or false.

1. Any time that one party’s allegedly wrongful conduct causes injury to another, an action may arise under the law of torts. a. True b. False 2. When an award of punitive damages is grossly excessive, it furthers no legitimate purpose and violates due process requirements. a. True b. False 3. In a successful tort suit, an individual is awarded compensatory damages to put him or her in a better position than the party who committed the tort. a. True b. False 4. It is the motive behind the intent—not the intent—that is important in tort law. a. True b. False 5. For the purpose of tort liability, intent can be transferred when an individual intends to harm one individual, but unintentionally harms another. a. True b. False 6. Undue force does not lead to liability for any business. a. True b. False 7. In deciding whether conduct is sufficiently outrageous to support an action for infringement of emotional distress, a court looks at the pattern of the conduct. a. True b. False 8. A person who wrongfully hurts another’s good name or reputation orally may be liable for libel. a. True b. False 9. A false statement about a person’s business can give rise to liability for defamation. a. True b. False 10. The law has imposed a general duty on all persons to refrain from making defamatory statements and breaching this duty in writing or another permanent form such as a digital recording constitutes the tort of libel. a. True Powered by Cognero

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Chapter 05: Torts and Product Liability b. False 11. Attributing to a person an act of misconduct not actually perpetrated by that person can be the basis of liability in an action for invasion of privacy. a. True b. False 12. A business cannot use puffery without liability for fraudulent misrepresentation. a. True b. False 13. Intentional deceit for personal gain may be unethical, but it does not give rise to liability for fraud. a. True b. False 14. To gain a share of a market, a businessperson can interfere in another’s business, even if the behavior is predatory. a. True b. False 15. A person will not be liable for wrongful interference if the interference results from legitimate competitive behavior. a. True b. False 16. A wrongful action that interferes with a person’s legal right to personal property can support a tort action in trespass. a. True b. False 17. Taking personal property from its owner, without permission or just cause, is trespass—retaining it is conversion. a. True b. False 18. If an owner consents to the taking of his or her property, a failure to return it cannot be a tort. a. True b. False 19. When someone suffers injury because of another’s failure to live up to a required duty of care, negligence occurs. a. True b. False 20. A defendant cannot be liable for negligence unless he or she intended to harm the plaintiff. a. True b. False 21. A business firm has a duty to exercise reasonable care to protect its business invitees. a. True b. False Powered by Cognero

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Chapter 05: Torts and Product Liability 22. A landlord is expected to use reasonable care to ensure that his or her tenants are not harmed in common areas. a. True b. False 23. The standard of reasonable care for a professional is the same as that of an ordinary person. a. True b. False 24. Proximate cause exists if “but for” a wrongful act, an injury would not have occurred. a. True b. False 25. Foreseeability is the test for proximate cause. a. True b. False 26. If no harm or injury results from a given negligent action, there is nothing to compensate. a. True b. False 27. Strict liability is imposed only for an act that departs from a reasonable standard of care to cause an injury. a. True b. False 28. A seller who introduces into commerce a harmful or defective product may be subject to a tort action for strict liability. a. True b. False 29. Those who do not make goods, but only sell or lease them, cannot be held liable for harm caused by those goods to a consumer. a. True b. False 30. A person who is injured by a defective product can bring a negligence suit only if he or she was the one who purchased the product. a. True b. False 31. The elements of an action in strict product liability include that a plaintiff must incur harm by the use or consumption of a product. a. True b. False 32. To maintain an action in strict product liability, the plaintiff must show why and how the product became defective.

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Chapter 05: Torts and Product Liability a. True b. False 33. A defective product is an unreasonably dangerous product when it is dangerous beyond the expectation of the ordinary consumer. a. True b. False 34. In a product liability suit based on a design defect, a manufacturer is liable only when the harm was not reasonably preventable. a. True b. False 35. Product misuse is recognized as a defense to a claim for product liability only when the particular misuse was reasonably foreseeable. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Lyn is injured when a part of a building ledge breaks free and strikes her. If Lyn brings a successful tort action against the building’s owner, she may be awarded special damages to compensate her for a. monetary losses, such as medical expenses. b. nonmonetary aspects of the harm suffered, such as pain and suffering. c. egregious or reprehensible conduct by the defendant. d. All of the choices.

37. Marco is harmed when Nell defames him. If Marco brings a successful tort action against Nell, he may be awarded general damages to compensate him for a. monetary losses, such as lost wages and benefits. b. nonmonetary aspects of the harm suffered, such as loss of reputation. c. the defendant’s reckless disregard of the effect on the life of another. d. All of the choices.

38. Opal is injured and her property is damaged when a truck with defective brakes careens off an adjacent highway and crashes into her home. If Opal brings a successful tort action against the truck’s owner for gross negligence, she may be awarded punitive damages to a. compensate for her total losses. b. put her into the same position she would have been in if the tort had not occurred. c. punish the defendant and deter others from similar wrongdoing. d. All of the choices.

39. Don interferes with the business interests of Erin in a way not permitted by law, and Erin’s business is harmed as a result. To be liable to Erin for the commission of an intentional tort, Don must have a. intended to commit the act. b. intended to harm Erin’s business.

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Chapter 05: Torts and Product Liability c. acted with an evil motive. d. acted with a harmful motive.

40. Hilo tells the Internal Revenue Service that Jon “cheated on his taxes.” This can lead to Hilo’s liability for defamation if the statement is a. contemptuous. b. an opinion. c. true. d. false.

41. In a phone call to Lou, Mia makes statements about Nye that injures Nye’s reputation. If Nye can prove all of the elements of defamation and Mia cannot assert a sufficient defense, Mia is most likely liable for a. contempt. b. malice. c. libel. d. slander.

42. In an online blog, Oren states that Publicity Corporation invaded the privacy of individuals to collect marketing data for its clients. If the firm can prove all of the elements of defamation and Oren cannot assert a sufficient defense, Oren is most likely liable for a. contempt. b. malice. c. libel. d. slander.

43. Errol works for Food Packing Company. Errol’s supervisor Gwen writes a negative review of Errol’s performance.

Gwen believes the statements are true, and limits their communication to the firm’s management. In a tort action for defamation, Gwen can most likely assert as a successful defense a. None of the choices. b. malice. c. contempt. d. privilege.

44. Dylan applies for a position with Electrical Works LLC. Dylan’s previous employer, Federal Circuits, Inc., gives Electrical Works a review of Dylan that includes negative statements Federal Circuits knows are untrue. This is a. defamation. b. not defamation, because Dylan was employed by Federal Circuits. c. not defamation, because Dylan was not employed by Electrical Works. d. not defamation, because the review was not published.

45. Hal posts online secretly recorded videos of Ida, and includes her name, address, phone number, and Facebook page.

Most likely, Ida could bring a successful tort action against Hal for a. invasion of privacy. b. defamation. c. assault.

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Chapter 05: Torts and Product Liability d. wrongful interference.

46. Ness, a broker, advises Ollie to invest in Penny Stock, Inc. When the share price of Penny’s stock drops, Ollie accuses Ness of fraud, claiming reliance on the broker’s advice. The reliance that gives rise to liability for fraud requires a. an expectation of financial gain. b. a misrepresentation of a fact knowing that it is false. c. puffery. d. a statement communicated to at least one person other than the plaintiff.

47. To make a sale, Fran tells Gio that her Hyundai Kia has never been in an accident. This may give rise to an action for fraud if the statement is a. puffery. b. fact. c. false. d. opinion.

48. When a lawyer expresses an opinion about a law in a state in which he is licensed to practice, a court may treat his opinion a. as a statement of opinion. b. as fraudulent. c. as wrongful interference. d. as a statement of fact.

49. Trespass to land is committed if, without the permission of the property owner, a person a. walks on the land to trim trees. b. constructs a fixture so that part of it is on the adjoining property. c. shoots a gun over the land d. All of the choices.

50. Without Data Corporation’s consent, Elias hacks into the firm’s computers and downloads trade secrets and other confidential information. Most likely, Elias is liable for the tort of a. trespass to land. b. conversion. c. appropriation. d. battery.

51. Outlet Sales Store unknowingly buys goods that were stolen from Quality Products, Inc. Most likely, Outlet Sales can be ordered to return the goods or pay their true owner for their value in a suit for a. None of the choices. b. conversion. c. appropriation. d. wrongful interference with a business relationship.

52. Bix backs out of City Parking Garage, colliding with Dill’s car. Dill may recover $7,500 to cover the cost of the repairs if Bix failed to act as Powered by Cognero

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Chapter 05: Torts and Product Liability a. a blameless person. b. a faultless person. c. an objective person. d. a reasonable person.

53. DIY, a retail hardware store, must use reasonable care on its premises to warn its invitees of a. all possible dangers. b. hidden dangers. c. dangers about which the business does not, or should not, know. d. no dangers.

54. Ivy slips and falls on the deck of Jet’s Tour Boat and is injured. She incurs medical expenses of $500,000, and files a suit against Jet to recover. Under the “50 percent” rule, if Ivy is more than 50 percent at fault, she will recover a. nothing. b. half of the expenses. c. the amount of the expenses attributable to Jet’s fault. d. the entire amount of the expenses.

55. Ricard, an engineer, supervises the construction of a new mountainside roadway. The road collapses in a landslide due to faulty grading. Motorists injured in the collapse sue Ricard in a tort action for negligence. Under that theory, as a professional, Ricard is held to the same standard of care as a. ordinary persons. b. other engineers. c. other professionals, including doctors, dentists, and lawyers. d. those injured in the collapse of the bridge.

56. Cato is driving a car in which Diego is a passenger when an accident occurs. Diego is not injured. In Diego’s tort action against Cato for negligence, Cato can most likely assert as a successful defense that a. Diego breached his duty to warn the driver of the impending accident. b. Cato did not intend to cause an accident. c. the risk of a car accident was foreseeable. d. Diego was not injured.

57. Dian enters a car race, knowing that there is a risk of being injured in a crash. Dian assumes a. only those risks that she agrees to assume. b. no risk in this situation. c. any risk—contemplated or not—associated with the race. d. the risk of being injured in a crash.

58. Ichiro is injured in a two-car accident and sues Heather, the driver of the other vehicle, alleging negligence. Heather claims that Ichiro was driving more carelessly than she was. Comparative negligence may reduce Ichiro’s recovery a. even if Ichiro was only slightly at fault. b. only if Ichiro and Heather were equally at fault. c. only if Ichiro was less at fault than Heather. d. only if Ichiro was more at fault than Heather.

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Chapter 05: Torts and Product Liability 59. Excavation, Inc., uses explosives to prepare land for construction projects. Strict liability is imposed on this activity because a. Excavation is a corporation. b. the activity is inherently negligent. c. the activity is extremely risky. d. the amount of liability can be added to the costs of construction.

60. Mai is struck and injured when the brakes fail on Novi’s all-terrain vehicle (ATV), which is damaged in the collision.

Off-Road, Inc., sold the ATV to Novi. Under product liability laws, Off-Road could be liable to a. Novi, but not Mai. b. Mai, but not Novi. c. none of the parties. d. Mai and Novi.

61. Baby Things, Inc., makes and sells a crib to Cara. Baby Things fails to exercise “due care” to make the crib safe, and Cara’s child Dua is injured as a result. Baby Things is most likely liable for a. fraud. b. misrepresentation. c. negligence d. strict liability.

62. Cultivator, Inc., designs and makes tractors, balers, and other farm equipment. In a product liability suit based on negligence, Cultivator could be liable for failing to exercise due care with respect to all of the following except a. the inspection of components purchased to use in the equipment. b. the selection of materials used to make the equipment. c. the assembly and testing of the equipment. d. the growth of the equipment’s sales.

63. Motor Corporation (MC) makes cars and trucks. National Sales Company sells all MC vehicles. Open Road, Inc., leases only the cars. Under product liability laws, liability for injuries or damage caused by an MC vehicle may be imposed on a. MC only. b. none of the parties. c. MC or National Sales only. d. MC, National Sales, or Open Road.

64. Airsoft, Inc., makes toys. Airsoft intentionally mislabels its packaged products to conceal a defect. Trusting and relying on the mislabeling, Bing buys an Airsoft product and suffers an injury. Airsoft is most likely liable for a. product misuse. b. fraud. c. privity of contract. d. comparative negligence.

65. EZ Co-op, Inc., sells Fill-Up cattle feed to ranchers. Gina buys and feeds Fill-Up to her herd. The feed is poisoned.

Gina sues EZ for product liability based on negligence. To win, Gina must show Powered by Cognero

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Chapter 05: Torts and Product Liability a. why the feed was poisoned. b. how the feed became poisoned. c. that the feed caused her damage. d. All of the choices.

66. Steps & Rungs, Inc., makes ladders. Ty discovers that his Steps & Rungs ladder is defective and sues the maker for product liability based on strict liability. To win, Ty must show that a. Ty bought the ladder from Steps & Rungs. b. All of the choices. c. the ladder was in a defective condition when Steps & Rungs sold it. d. Ty is normally engaged in the business use of ladders.

67. Cold Play Corporation makes snowmobiles. Dale is injured when a defect unexpectedly accelerates the Cold Play vehicle he is driving, and he is thrown off. Esty, a hiker standing in the path of the unmanned vehicle, is struck and injured. In a suit based on strict product liability, Cold Play may be liable to a. Dale and Esty. b. Dale only. c. Esty only. d. none of the parties.

68. Recharge Corporation makes batteries. Sol is injured when the Recharge battery in his phone bursts into flames. In Sol’s product liability suit against the maker, alleging a design defect, the court may consider a. Recharge’s knowledge of the uses of its battery. b. Recharge’s share of its market. c. Recharge’s advertising. d. an available alternative design.

69. Insulate, Inc., makes and sells fire-retardant building materials. In a product liability suit against Insulate, a court would use a risk-utility analysis of the company’s product as designed to determine whether a. a risk of harm outweighs the products’ utility to the users and the public. b. the product performed as a consumer would reasonably expect. c. the product is as useful and as risky as the public expects. d. the risk of return on investment in the product supports its utility.

70. Do-It-Rite, Inc., makes and markets tools. Evan uses a Do-It-Rite power screwdriver to scrape grout—a purpose for which it was not intended—and is injured when the tool slips. Evan files a product liability suit against the maker. The defendant’s best defense is most likely a. commonly known danger. b. assumption of risk. c. inadequate warning. d. product misuse.

71. Data Analytics, Inc., and eProducts Corporation market competing software products. Data Analytics launches an ad campaign claiming that eProducts, instead of testing software before it is marketed, has customers “test” the software by Powered by Cognero

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Chapter 05: Torts and Product Liability using it. eProducts knows this is not true but begins to lose sales to Data Analytics. On what ground could eProducts sue Data Analytics for injury to eProducts’s reputation?

72. Meg is shopping in Nate’s Hardware Store when a nail gun in use by Ovid, one of the store’s employees, fires without warning and hits Meg in the leg. Nate checks the gun and discovers that it was assembled improperly. Meg files a suit against Power Tools, Inc., the maker of the gun, on the ground of strict product liability. What are the elements for an action based on strict product liability? In whose favor is the court likely to rule and why?

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Chapter 05: Torts and Product Liability Answer Key 1. True 2. True 3. False 4. False 5. True 6. False 7. True 8. False 9. True 10. True 11. True 12. False 13. False 14. False 15. True 16. True 17. True 18. False 19. True 20. False 21. True 22. True 23. False 24. False 25. True Powered by Cognero

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Chapter 05: Torts and Product Liability 26. True 27. False 28. True 29. False 30. False 31. True 32. False 33. True 34. False 35. False 36. a 37. b 38. c 39. a 40. d 41. d 42. c 43. d 44. a 45. a 46. b 47. c 48. d 49. d 50. b 51. b Powered by Cognero

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Chapter 05: Torts and Product Liability 52. d 53. b 54. a 55. b 56. d 57. d 58. a 59. c 60. d 61. c 62. d 63. d 64. b 65. c 66. c 67. a 68. d 69. a 70. d 71. eProducts could sue Data Analytics for defamation for the harm it is causing to eProducts’s reputation. Defamation occurs when a party makes a false statement that injures another’s reputation. In this problem, any defamatory statements likely take the form of libel (i.e., defamatory statements in written or printed form). To bring a suit on this ground, eProducts would have to show that Data Analytics published the false information—that is, communicated it to a third party. If eProducts is considered a public figure, it will also need to prove that Data Analytics made the statements with actual malice—that is, with either knowledge of their falsity or a reckless disregard for the truth. eProducts might also include a claim based on the tort of misrepresentation, or fraud. Misrepresentation leads another to believe in a condition that is different from the one that actually exists. This tort requires several elements: (1) misrepresentation of facts or conditions with knowledge that they are false (or with reckless disregard for the truth), (2) intent to induce another to rely on the misrepresentation, (3) justifiable reliance by the deceived party, (4) damages suffered as a result of the reliance, and (5) a causal connection between the misrepresentation and the injury.

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Chapter 05: Torts and Product Liability 72. In an action based on strict product liability, a plaintiff must show that (1) a product was defective, (2) the defendant was in the business of distributing the product, (3) the product was unreasonably dangerous due to the defect, (4) the plaintiff suffered harm, (5) the defect was the proximate cause of the harm, and (6) the goods were not substantially changed from the time they were sold. A plaintiff does not have to show that there was a failure to exercise due care, and this distinguishes a product liability action based on strict liability from an action based on negligence, which requires proof of a lack of due care.

If Meg establishes her case, the court in this question is most likely to rule in her favor, because the manufacturer would be strictly liable under the circumstances. Strict product liability allows a plaintiff to recover damages for injuries resulting from product defects without proof of fault.

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Chapter 06: Criminal Law and Cyber Crime

Indicate whether the statement is true or false.

1. Crimes are offenses against society as a whole. a. True b. False 2. The crime victim must bring the case against the defendant. a. True b. False 3. In a criminal case, the defendant must convince the court that based on the evidence, it is more likely than not, that the defendant is not guilty. a. True b. False 4. In a criminal case, typically only three-fourths of the jurors need to agree in order to convict the defendant. a. True b. False 5. In a criminal case, the state must prove its case beyond a reasonable doubt. a. True b. False 6. A civil case has a burden of proof that is a preponderance of the evidence. a. True b. False 7. One of the purposes of criminal law is to compensate the victims. a. True b. False 8. A crime is punishable, in some cases, by death. a. True b. False 9. Some torts can be criminal as well as civil, depending on the laws in place. a. True b. False 10. A felony must be punishable by a minimum of one year in prison. a. True b. False 11. A petty offense can be punishable by jail time. a. True b. False Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime 12. Most crimes require an act of commission. a. True b. False 13. An act of omission cannot be a crime. a. True b. False 14. A criminal conspiracy exists when two or more people agree to commit an unlawful act, and then take some action toward its completion. a. True b. False 15. A specified state of mind, or intent, is not necessary to establish criminal liability. a. True b. False 16. Criminal negligence must have intent in order for there to be a liability. a. True b. False 17. Under the responsible corporate officer doctrine, a CEO may be held criminally liable for the crimes of other employees. Whether they participated in, directed, or even knew about a given criminal violation a. True b. False 18. Robbery is considered a violent crime. a. True b. False 19. Burglary is the breaking and entering of the dwelling of another at night. a. True b. False 20. A statute that prohibits theft by means of false pretenses usually applies only to goods, not to services or cash. a. True b. False 21. An illegal act committed by a business using nonviolent means to obtain a business advantage is a white-collar crime. a. True b. False 22. Embezzlement includes the making (or altering) of any writing in a way that changes the legal rights and liabilities of another. a. True Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime b. False 23. Fraudulent appropriation of another’s property with which a person has been entrusted is the crime of receiving stolen goods. a. True b. False 24. The most potent weapons against white-collar criminals include the federal laws prohibiting mail and wire fraud. a. True b. False 25. The crime of bribery is only present if the person is a public official. a. True b. False 26. To constitute the crime of bribery, the bribe must consist of money. a. True b. False 27. Bribing foreign officials to obtain favorable business contracts is no crime. a. True b. False 28. Insider trading is the purchase or sale of securities on the basis of information that has already been made available to the public. a. True b. False 29. Under federal law, banks, and other financial institutions are required to report currency transactions involving more than $20,000. a. True b. False 30. It is not a crime to use income obtained from a racketeering activity to buy an interest in a legitimate enterprise, as long as the deal is otherwise legal. a. True b. False 31. Generally speaking, people can use the amount of force that seems necessary to protect themselves, their dwellings, or other property or to prevent the commission of a crime, even if it is deadly. a. True b. False 32. A mistake of fact can often excuse criminal responsibility. a. True b. False Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime 33. Entrapment is a defense, and not a crime in and of itself. a. True b. False 34. The U.S. Constitution provides safeguards that apply not only in federal, but also in state courts. a. True b. False 35. Warrants are required for searches of businesses in highly regulated industries a. True b. False 36. The Fourth Amendment protects only against searches that violate a person’s reasonable expectation of privacy. a. True b. False 37. The prohibition against double jeopardy means that once a criminal defendant is acquitted (found “not guilty”) of a particular crime, the government may not retry that defendant for the same crime. a. True b. False 38. The privilege against self-incrimination applies to persons as well as corporations. a. True b. False 39. A criminal defendant has the right to confront accusers, and to present his or her own witnesses. a. True b. False 40. A corporation can refuse to produce business records that might subject the firm to criminal prosecution. a. True b. False 41. If the evidence of a defendant’s guilt was obtained improperly, it normally cannot be used against the defendant in court. a. True b. False 42. A person arrested for a crime must ask for a lawyer specifically. Saying “maybe it would be a good idea to get a lawyer” is not enough. a. True b. False 43. A person who accesses a computer online without authority to obtain protected data is subject to criminal prosecution a. True b. False Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime 44. Malware is a hacker whose purpose is to create a serious negative impact. a. True b. False 45. Phishing is a distinct form of identity theft and cyber fraud. a. True b. False 46. The Computer Access Device and Computer Fraud and Abuse Act prohibits cyber theft. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

47. Haji is arrested at a warehouse in Industrial Park and is charged with the crime of theft. Haji will be prosecuted by a. the victim of the crime. b. a district attorney or an attorney general. c. a judge. d. the police.

48. Sam, driving under the influence, causes a car accident that results in the death of Tanya. Sam is arrested and charged with a crime punishable by imprisonment for more than a year. This crime is a. a misdemeanor. b. a felony. c. a civil wrong. d. a tort.

49. Rosa, who operates a Street Tacos restaurant in her apartment, is charged with criminal violations of the local health and building codes, state license regulations, and federal environmental statutes. To obtain a conviction, the prosecution must a. convince the court it is more likely than not that the charges are true. b. show the evidence as reasonably permitting a guilty verdict. c. prove beyond a reasonable doubt that Rosa committed every essential element of an offense. d. persuade three-fourths of the jurors to agree on a guilty verdict.

50. Andy causes a disturbance at Brew Pub. He is arrested and charged with disorderly conduct, a crime punishable by imprisonment up to one year. This crime is a. a misdemeanor. b. a felony. c. a civil wrong. d. a tort.

51. Kohl receives from Lily a camera stolen from Mark. Kohl knows that the camera is stolen, and he intends to keep it.

Kohl is a. tortiously liable.

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Chapter 06: Criminal Law and Cyber Crime b. civilly liable. c. criminally liable. d. none of the choices.

52. Under _________, a court may impose criminal liability on corporate officers regardless of whether they participated in, directed, or even knew about a given criminal violation. a. aiding and abetting b. conspiracy c. responsible corporate officer doctrine d. implied liability 53. Bert pushes Connie to the ground, grabbing her phone as she falls. The use of force or fear is required for this act to constitute a. bribery. b. any crime. c. larceny. d. robbery.

54. Niles enters Omelet Café and points a gun at the cashier Pico. Niles forces Pico to open the register and give him all the money. Niles will most likely be charged with a. robbery. b. obtaining property by false pretenses. c. larceny. d. receiving stolen property.

55. Ed works for Family Dwellings Inc., an investment firm that buys, renovates, and rents foreclosed houses. Ed steals his employer’s digital files to start his own competing business, Good Homes LLC. This is a. wire fraud. b. robbery. c. larceny. d. no crime.

56. Kim takes off her ring and places it on her desk while she works. Without her knowledge or consent, her coworker Lum picks up the ring, puts it on, and walks away. Lum has likely committed a. robbery. b. embezzlement. c. larceny. d. no crime.

57. Chuck signs Dolly’s name, without her authorization, to the back of her paycheck, which was issued by Eastside Market. This is a. no crime. b. forgery. c. larceny. d. robbery.

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Chapter 06: Criminal Law and Cyber Crime 58. Bud works at a Cheap Stuff Store from which, without authorization, he takes merchandise that he has not paid for home for his own use. This is a. robbery. b. embezzlement. c. larceny. d. no crime.

59. _______ is often called a victimless crime, because it only harms the offender. a. larceny b. arson c. robbery d. public order 60. Olinda, an employee of People’s Bank, deposits into her account checks entrusted to the bank through its ATM system by customers to deposit into their accounts. This is a. robbery. b. embezzlement. c. larceny. d. wire fraud.

61. Quay, the owner of RV Park, trusts Sara to manage the resort’s daily cash flow. One night, without Quay’s knowledge or consent, Sara takes and keeps $1,000 from the receipts. This is most likely a. robbery. b. embezzlement. c. larceny. d. burglary.

62. Dean solicits investors for a nonexistent business, eApps. Dean is arrested and charged with “mail fraud.” This requires intent to a. claim that an item is “in the mail” when it is not. b. defraud postal authorities. c. use the U.S. mail. d. defraud the public.

63. Sid offers Tina, a city inspector, money to overlook health code violations in his restaurant. Tina accepts the money and overlooks the violations. Sid is charged with the crime of bribery. The crime occurred when a. Sid violated the health code. b. Sid offered the bribe. c. Tina accepted the bribe. d. Tina overlooked the violations.

64. Quint, an employee of Reservations Inc. pays Sienna, an employee of Reservations’ competitor Travel Inc., for a list of Travel’s clients. This is most likely a. bribery of a public official.

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Chapter 06: Criminal Law and Cyber Crime b. commercial bribery. c. bribery of a foreign official. d. no crime.

65. Bruno buys and sells stocks and bonds. Bruno may be subject to penalties under the Racketeer Influenced and Corrupt Organizations Act a. for making an unprofitable, but legal, investment. b. for the commission of securities fraud. c. only if the situation involves a “racket.” d. only if the circumstances constitute organized crime.

66. Firms that violate the FCPA can be fined up to $2 million. Individuals can be fined up to _______, and imprisoned for up to five years. a. 25,000 b. 50,000 c. 10,000 d. 100,000 67. The Economic Espionage Act made the theft of trade secrets a federal crime. Individuals face up to _______ in fines. a. 100,000 b. 50,000 c. 500,000 d. 1,000,000 68. Insider trading is a violation of _______. a. securities law b. espionage laws c. federal RICO crimes d. treason crimes 69. __________ engages in financial transactions to conceal the identity, source, or destination of illegally gained funds. a. RICO b. Money laundering c. Espionage d. Racketeering 70. The Racketeer Influenced and Corrupt Organizations Act has become an effective tool in attacking a. criminal activities occurring online. b. businesspersons who use bribery to secure foreign contracts. c. defenses that excuse criminal behavior. d. organized crime 71. Under self-defense, a person may use whatever force necessary if they fear ________. a. imminent danger b. any threat Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime c. any injury d. offense 72. Franny is charged with a crime. Almost all federal courts and some state courts would not hold Franny liable if, at the time of the offense, as a result of a mental disease or defect, she lacked substantial capacity to obey the law and to appreciate a. the power of the police. b. the authority of the court. c. the wrongfulness of her conduct. d. the fruits of her crime.

73. ______ can excuse one from criminal liability under the theory of mistake. a. Mistake of fact b. Mistake of law c. Mistake of identity d. Mistake of description 74. For ________ to succeed as a defense, both the suggestion and the inducement must take place. a. larceny b. entrapment c. duress d. mistake 75. Leo is accused of a crime. To obtain information about the crime from Leo, the state can a. bribe Leo in a way that serves the public interest. b. force Leo to provide information that can be used to prosecute him. c. grant Leo immunity from prosecution. d. summon him to testify.

76. ______ does not prevent an injured party from bringing civil charges against a defendant once they are found innocent in a criminal case. a. Mistake of law b. Mistake of fact c. Privilege against self-incrimination d. Double jeopardy 77. Zoey is accused of auto theft. She refuses to give information related to her alleged criminal activities because she suspects it will be used to prosecute her. This is a. a mistake of fact b. entrapment. c. the privilege against self-incrimination d. ignorance of the law.

78. ______ states that all evidence derived from illegal means, normally must be excluded from the trial proceedings. a. Fruit of the poisonous tree Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime b. Exclusionary rule c. Self-incrimination d. The Miranda rule 79. Erica, a police officer, wants to search the offices of Debit & Credit, Accountants. She asks Judge Bern to issue a warrant. No warrant for a search can be issued without a. double jeopardy b. probable cause c. reasonable doubt. d. immunity.

80. Via the Internet, Britta enters false code into the computer control system of Chicken Company, a food maker, to alter the levels of ingredients so that consumers of the food become ill. Britta is a. a cyberterrorist b. a phisher. c. malware d. a prosecutor.

81. Raul uses social media to post links that, when clicked, secretly install software on others’ computers without the owners’ knowledge. Raul’s software is designed to harm or disrupt the computers. This program is a. malware. b. a phish. c. entrapment d. larceny.

82. Cameron is an accountant in the accounting department of Data Analytics Company. Cameron’s son’s college tuition is due within a week. To meet the due date, Cameron transfers funds from Data Analytics to a fictitious bank account, planning to repay the firm within one month. The transfer is discovered before the firm is re¬paid, and Cameron is arrested. What crime, or crimes, if any, has Cameron committed? Explain.

83. Discuss three of the property crimes in detail and how they differ. (burglary, larceny, obtaining goods by false pretenses, receiving stolen goods, arson, and forgery)

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Chapter 06: Criminal Law and Cyber Crime Answer Key 1. True 2. False 3. False 4. False 5. True 6. True 7. False 8. True 9. True 10. True 11. True 12. True 13. False 14. True 15. False 16. False 17. True 18. True 19. False 20. False 21. True 22. False 23. False 24. True 25. False Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime 26. False 27. False 28. False 29. False 30. False 31. False 32. True 33. False 34. True 35. False 36. True 37. True 38. False 39. False 40. False 41. True 42. True 43. True 44. False 45. True 46. True 47. b 48. b 49. c 50. a 51. c Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime 52. c 53. d 54. a 55. c 56. c 57. b 58. c 59. d 60. b 61. b 62. d 63. b 64. b 65. b 66. c 67. c 68. a 69. b 70. d 71. a 72. c 73. a 74. b 75. c 76. d Powered by Cognero

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Chapter 06: Criminal Law and Cyber Crime 77. c 78. a 79. b 80. a 81. a 82. Cameron committed embezzlement.

The crime of embezzlement is committed when a person entrusted with another’s funds or property fraudulently appropriates it. That Cameron may have intended to repay the “borrowed” funds is no defense (although an embezzler who returns what has been taken may not be prosecuted because the owner may not wish to take the time to make a complaint, give depositions, and appear in court, or to reveal that the firm failed to have safeguards against embezzlement).

Depending on how Cameron engineered the theft, he may have committed other crimes—forgery, larceny, or a cyber crime, for example.

83. Traditionally, burglary was defined under common law as breaking and entering the dwelling of another at night with the intent to commit a felony. Originally, the definition was aimed at protecting an individual’s home and its occupants.

Most state statutes have eliminated some of the requirements found in the common law definition. The time of day at which the breaking and entering occurs, for example, is usually immaterial.

Under common law, the crime of larceny involves the unlawful taking and carrying away of someone else’s personal property with the intent to permanently deprive the owner of possession. Put simply, larceny is stealing, or theft.

Obtaining goods by means of false pretenses is a form of theft that involves trickery or fraud, such as using someone else’s credit card number without permission.

It is a crime to receive goods that a person knows (or should have known) were stolen or illegally obtained. To be convicted, the recipient of such goods needs not know the true identity of the owner or the thief, and he need not have paid for the goods.

The willful and malicious burning of a building (and, in some states, vehicles and other items of personal property) is the crime of arson. At common law, arson traditionally applied only to burning down another person’s house. The law was designed to protect human life. Today, arson statutes have been extended to cover the destruction of any building, regardless of ownership, by fire or explosion.

The fraudulent making or altering of any writing (including electronic records) in a way that changes the legal rights, and liabilities of another is forgery.

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Chapter 07: International and Space Law

Indicate whether the statement is true or false.

1. A business firm is subject only to the laws of its home nation even when it maintains operations or otherwise does business in other nations. a. True b. False 2. Goods made by a U.S. business firm in a foreign manufacturing plant are not subject to taxes when the goods are imported into the United States. a. True b. False 3. International law is formed as result of international customs, treaties, agreements, and organizations. a. True b. False 4. Sovereign nations agree to be governed by international law to facilitate trade, commerce, and civilized discourse. a. True b. False 5. A treaty is an agreement or contract between two or more nations, that must be authorized and ratified by the supreme power of each nation. a. True b. False 6. International organizations may create uniform rules. a. True b. False 7. Under the principle of comity, a domestic court will not examine the validity of any act committed by a foreign government within the court’s jurisdiction. a. True b. False 8. A U.S. court will likely uphold a contract created in the United Kingdom, because the U.K.’s laws are generally compatible with those of the United States. a. True b. False 9. Under the act of state doctrine, a U.S. court can rule on the validity of a foreign government’s acts within its own territory. a. True b. False 10. In a case alleging that a foreign government wrongfully confiscated a domestic firm’s property, the foreign government must prove the taking was an expropriation. a. True Powered by Cognero

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Chapter 07: International and Space Law b. False 11. In an action by a domestic business to attach a foreign nation’s property, the plaintiff must prove that the defendant is not entitled to sovereign immunity. a. True b. False 12. A foreign state is not immune from the jurisdiction of a U.S. court when it has engaged in commercial activity within the United States. a. True b. False 13. A foreign state is immune from the jurisdiction of a U.S. court when the state has engaged in commercial activity only outside the United States. a. True b. False 14. There are two forms of exporting: indirect and direct. a. True b. False 15. When a foreign government acts as a “private party” in the market, its actions qualify as commercial activity for purposes of the Foreign Sovereign Immunities Act. a. True b. False 16. A company can export indirectly and thereby limit its involvement in an international market by making use of agency relationships. a. True b. False 17. When a foreign country represents a substantial market for a U.S. manufacturer, the firm may enter into an agreement for the distribution of its products in that market by a foreign distributor. a. True b. False 18. In direct exporting, a U.S. company sets up a specialized marketing organization in a foreign market by appointing a foreign agent. a. True b. False 19. When a wholly owned subsidiary is established in a foreign country, the parent company, which remains in the United States, gives up ownership, authority, and control over all phases of the operation in the foreign country. a. True b. False 20. The parties to an international contract can indicate what court, jurisdiction, or tribunal will decide any disputes Powered by Cognero

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Chapter 07: International and Space Law arising under the contract. a. True b. False 21. By means of an arbitration clause, the parties to an international business contract agree in advance to resolve any dispute without involving a third party. a. True b. False 22. Nations impose laws to restrict or facilitate international business because business activities can affect national interests. a. True b. False 23. An export tax imposed by Congress would be unconstitutional. a. True b. False 24. Congress sets export quotas on various items, such as grain being sold abroad. a. True b. False 25. An allegation that certain imported goods infringe on a U.S. firm’s patents, should be investigated by the ExportImport Bank of the United States. a. True b. False 26. Countries restrict exports to protect national security, further foreign policy objectives, and conserve resources. a. True b. False 27. The purpose of a tariff is to indirectly cause some of their consumers to purchase more domestically manufactured goods. a. True b. False 28. To prevent the sale of imported goods at less than fair value, an extra tariff—known as an antidumping duty—may be assessed on the imports. a. True b. False 29. Regional trade agreements and associations help to minimize trade barriers among nations. a. True b. False 30. Normal trade relations status granted to a member of the World Trade Organization means that the member will receive other members’ most favorable treatment with regard to imports and exports.

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Chapter 07: International and Space Law a. True b. False 31. U.S. antitrust laws can protect foreign consumers and competitors from violations committed by U.S. citizens and companies. a. True b. False 32. The federal Alien Tort Claims Act allows foreign citizens, but not U.S. citizens, to file civil actions in U.S. courts for torts that were committed abroad. a. True b. False 33. A U.S. employer operating in a foreign country must abide by U.S. discrimination laws even if doing so violates the laws of that foreign country. a. True b. False 34. The Outer Space Treaty declares that internationally recognized political boundaries extend from Earth into the farthest reaches of space. a. True b. False 35. A nation that launches objects into space is absolutely liable for personal injury and property damage, caused by its objects on Earth or in flight. a. True b. False 36. No weapons of mass destruction are permitted in space. a. True b. False 37. Under United Nations guidelines, objects no longer in operation should be removed from orbit, if this can be accomplished in a controlled manner. a. True b. False 38. In the United States, each government agency that operates (or authorizes) spacecraft is responsible for complying with U.S. law and international treaties. a. True b. False 39. The U.S. government does not generally regulate private spaceports and the launch and reentry of private spacecraft. a. True b. False 40. U.S. law allows U.S. citizens, including private companies, to engage in the commercial exploration and exploitation Powered by Cognero

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Chapter 07: International and Space Law of space resources. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

41. A body of law—formed as a result of international customs, treaties, and organizations—that governs relations among and between nations is a. space law. b. universal law. c. international law. d. national law.

42. A __________ is formed by two nations to govern their commercial exchanges (or other relations) with one another. a. unilateral agreement b. bilateral agreement c. multilateral agreement d. international custom 43. Comida de Chile S.A., an export company in Chile, and Deli Source Inc., an import firm in the United States, enter into a contract. When Deli breaches the contract, Comida obtains an award of damages in a Chilean court. Comida then asks a U.S. court to enforce the award. The U.S. court defers to and enforces the Chilean court’s decree. This is an application of a. none of the choices. b. the act of state doctrine. c. the doctrine of sovereign immunity. d. the principle of comity.

44. Mexico is likely to defer and give effect to the laws and judicial decrees of the United States as long as a. the laws and decrees are consistent with Mexican law and public policy. b. smaller countries fear and are intimidated by more powerful nations. c. poorer countries admire and envy richer nations. d. all of the choices.

45. Retail Operations, Inc., a U.S. firm, obtains a judgment in a U.S. court against Shinobu, Ltd., a Japanese business.

Whether the court’s judgment will be enforced by a court in Japan depends on the Japanese court’s application of a. the act of state doctrine. b. the doctrine of sovereign immunity. c. the principle of comity. d. the Foreign Sovereign Immunities Act. 46. Mining Company, a U.S. firm, owns property in Bolivia. The government of Bolivia seizes the property for an illegal purpose without paying just compensation. This is a. confiscation. b. the act of state doctrine.

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Chapter 07: International and Space Law c. the doctrine of sovereign immunity. d. expropriation.

47. Venezuela seizes the assets of World Oil, Inc., a U.S. firm. World Oil’s recovery from Venezuela in a U.S. court may be prevented by a. the act of state doctrine. b. the doctrine of sovereign immunity. c. a court in Venezuela. d. the principle of comity.

48. Habitable Premises Corporation, a U.S. firm, owns property in India. The government of India seizes the property for a proper public purpose and pays the firm just compensation. This is a. a confiscation. b. the act of state doctrine. c. the doctrine of sovereign immunity. d. an expropriation.

49. Coffee Company, a U.S. firm, owns property in the Dominican Republic. When the Dominican government seizes the property, the company asks a U.S. court to order the property’s return. The court rules that the Dominican Republic is exempt from the court’s jurisdiction. This is an application of a. a coercive action. b. the act of state doctrine. c. the doctrine of sovereign immunity. d. the principle of comity.

50. Global Project, a U.S. firm, owns property in Hong Kong. The government of China seizes the property. The firm claims that this is confiscation. The government claims that it is expropriation. The difference concerns a. the location of the seizure and the nature of its government. b. the purpose of the seizure and the payment of compensation. c. the business of the firm and the citizenship of its owners. d. none of the choices.

51. Under the doctrine of sovereign immunity, because the law is jurisdictional, the ______ has the burden of showing that a defendant is not entitled to sovereign immunity. a. defendant b. plaintiff c. foreign nation d. United States 52. Consolidated Corporation, a U.S. firm, wishes to participate, but limit its involvement, in Middle Eastern markets.

Consolidated empowers Doha Ltd., an Egyptian firm, to enter into contracts in certain countries on behalf of Consolidated. This is a. a distribution agreement. b. an agency relationship. c. indirect exporting.

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Chapter 07: International and Space Law d. direct exporting.

53. Sufficient business develops in France for Graphic Comics Inc., a U.S. firm, to appoint Comics Graphique Ltd., a French firm, to act as Graphic’s marketing representative in France, where they will put together ad campaigns to help drum up more business for Graphic. This is a. direct exporting. b. franchising. c. indirect exporting. d. licensing.

54. Airbud Corporation, a U.S. firm, signs a contract with Bueno Computadores Ltd., an Argentinean firm, for a shipment and payment for Airbud’s goods. This is a. a distribution agreement. b. indirect exporting. c. direct exporting. d. licensing.

55. Opti-Med Inc., a U.S. firm, signs a contract with Pharma Ltd., a Canadian firm, to give Pharma the right to sell OptiMed’s products in Canada. This is a. a distribution agreement. b. indirect exporting. c. direct exporting. d. licensing.

56. Agri Products Inc., a U.S. firm, signs a contract with Bao Ltd., a Chinese firm, to distribute Agri’s products in China.

The most likely reason for this deal is a. China represents a substantial market for Agri. b. Agri wants to avoid import-export regulations. c. Agri will thereby avoid jurisdictional and contract-law issues. d. Agri prefers to limit its involvement in Chinese markets.

57. Lunchies Corporation, a U.S. firm, signs a contract with Manger au Brasserie, S.A., a French firm, to give Manger the right to use the Lunchies trademark in restaurants in France. This is a. a distribution agreement. b. indirect exporting. c. direct exporting. d. licensing.

58. Burger Heaven, a U.S. firm, makes a deal with a Canadian firm, Donny’s Diners, that allows Donny’s to use Burger Heaven’s trade name in Canada in return for a fee. This is a. a license. b. a distribution agreement. c. a subsidiary. d. direct exporting.

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Chapter 07: International and Space Law 59. Restful Hotel Corporation, a U.S. firm, establishes a wholly owned subsidiary in Singapore. As a parent corporation, with respect to the subsidiary, Restful retains complete ownership of a. all of the facilities in Singapore. b. more than half, but less than all, of the facilities in Singapore. c. none of the facilities in Singapore. d. no more than half of the facilities in Singapore

Indicate one or more answer choices that best complete the statement or answer the question.

60. Market Maker, Inc., a U.S. firm, can license a foreign manufacturing company to use its (choose all applicable answers) a. patented intellectual property. b. trade secrets. c. trademarked brand. d. bank account.

Indicate the answer choice that best completes the statement or answers the question.

61. The United States owns part of the operation, and the rest is owned either by local owners in the foreign country, or by another foreign entity ______. a. subsidiary b. licensed business c. joint venture d. domestic firm 62. In international business, franchising involves a. a license. b. a distribution agreement. c. a subsidiary. d. direct exporting.

63. Equity International Inc., a U.S. firm, and Finance Invest Ltd., a firm in Great Britain, are parties to a contract with a forum-selection clause. This means that ________ is already decided. a. the length of the dispute b. which court will decide the disputes c. which laws will be used in the dispute d. what type of resolution will be used 64. As part of a deal for power-generating equipment, Solar Wind Company and Thermal Gen Ltd. enter into a written contract that includes a clause providing for the arbitration of any dispute in the United States. Under the New York Convention, if a dispute arises, a court will compel arbitration if both parties are a. not U.S. citizens. b. U.S. citizens. c. citizens of non-signatory countries. d. citizens of countries that are members of the World Trade Organization.

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Chapter 07: International and Space Law 65. _____ are used to stimulate some exports and thereby aid domestic businesses. a. Tariffs b. Restrictions c. Incentives and subsidies d. Quotas 66. Mont Blanc S.A., a French firm, imports its goods into the United States and offers those goods for sale at “less than fair value.” Fair value is the price of Mont Blanc’s goods in a. the European market. b. France. c. the United States. d. the world market.

67. Wei Ltd., a Chinese firm, imports its goods into the United States and offers those goods for sale at “less than fair value.” This is a. confiscation. b. a trade barrier. c. dumping. d. normal trade relations.

68. The United States taxes each barrel of imported oil at a flat rate. This is a. an antidumping duty. b. a dumping duty. c. a quota. d. a tariff.

69. The government of Japan sets a limit on the amount of rice that can be imported from the United States. This is a. a dumping duty. b. an antidumping duty. c. a quota. d. a tariff.

70. Trade barriers are a. restrictions on imports. b. restrictions on exports. c. the lack of incentives and subsidies to stimulate imports. d. the lack of incentives and subsidies to stimulate exports.

71. Any conspiracy that has a substantial effect on U.S. commerce is within the reach of the _____. a. World Trade Organization Act b. European Union Act c. Sherman Act d. U.S. Free Trade Agreement Act 72. Suisse Internationale, a Swiss maker of athletic equipment, enters into a price fixing agreement with Total World Powered by Cognero

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Chapter 07: International and Space Law Sports, a U.S. wholesaler of Suisse’s products. U.S. courts will apply U.S. antitrust laws if a. the agreement was made in Switzerland. b. the agreement was made in the United States. c. the price fixing has a substantial effect on U.S. commerce. d. the Swiss government agrees to be sued in the United States.

73. Nakeya and other foreign citizens allege that environmental destruction is being committed overseas by the government of Cameroon on behalf of Global Mining Company, a U.S. firm. To seek redress for their injuries in a U.S. court, these citizens can a. subject the private company to the provisions of the Sherman Act. b. bring civil suits under the Alien Tort Claims Act. c. file criminal complaints under Title VII of the Civil Rights Act. d. do nothing due to lack of jurisdiction.

74. Under the Outer Space Treaty, with respect to a space object and the personnel aboard it, the launching state a. forfeits supervisory authority to the United Nations. b. shares dominion and responsibility with the United Nations. c. retains complete jurisdiction and control. d. grants political autonomy to those aboard the object.

75. Blue Space Corporation launches exploratory space flights to the moon and Mars. The purpose is to discover and retrieve minerals and other resources. Under U.S. Law, Blue Space a. cannot profit from resources retrieved in space. b. cannot legally retrieve resources in space. c. must share with all interested parties what it retrieves in space. d. owns what it retrieves in space.

76. Under the Outer Space Treaty, a moon, a planet, an asteroid, or any other celestial body is subject to the appropriation of a. the first nation to explore it. b. the first nation to exploit it. c. the first nation to claim title to it. d. no single nation.

77. Star Flights Inc. launches exploratory and commercial space flights from its base in the United States. In the event of a collision with other space objects, under the Outer Space Treaty, liability for injury or damage a. is to be assumed by all involved parties equitably b. is strict liability—that is, liability without fault. c. is subject to a determination of fault. d. does not exist no matter the circumstances.

78. The Outer Space Treaty provides that a nation retains jurisdiction over objects on its space registry that are launched into space. The treaty also prohibits interference with space activities. In effect, these provisions a. ban the national appropriation of territory in space. b. protect property rights with respect to private space activities.

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Chapter 07: International and Space Law c. assert sovereignty over celestial bodies. d. declare exclusive international jurisdiction over space locations.

79. The management of Sport Shoes Corporation, a U.S. firm, wants to expand into foreign investment and employment markets. They are considering either opening their own production facility in a foreign country, or entering into a licensing agreement with a foreign firm. What are the advantages and disadvantages of each of these courses of action?

80. Global Industries Corporation owns assets in Kazakhstan, a country in Asia. The government of Kazakhstan wants to nationalize all assets owned by foreign firms and investors. What can Global Industries do? Can it at least obtain payment for the assets?

81. Various regional trade agreements and associations work to reduce trade barriers among nations. Discuss at least two of these in detail.

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Chapter 07: International and Space Law Answer Key 1. False 2. False 3. True 4. True 5. True 6. True 7. False 8. True 9. False 10. True 11. True 12. True 13. False 14. True 15. True 16. True 17. True 18. False 19. False 20. True 21. False 22. True 23. True 24. True 25. False Powered by Cognero

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Chapter 07: International and Space Law 26. True 27. True 28. True 29. True 30. True 31. True 32. False 33. False 34. False 35. True 36. True 37. True 38. True 39. False 40. True 41. c 42. b 43. d 44. a 45. c 46. a 47. a 48. d 49. c 50. b 51. b Powered by Cognero

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Chapter 07: International and Space Law 52. b 53. c 54. c 55. a 56. a 57. d 58. a 59. a 60. a, b, c 61. c 62. a 63. b 64. a 65. c 66. b 67. c 68. d 69. c 70. a 71. c 72. c 73. b 74. c 75. d 76. d Powered by Cognero

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Chapter 07: International and Space Law 77. c 78. b 79. One of the advantages of opening a wholly owned production facility, in the United States or in a foreign nation, is that all of the profits accrue to the owner.

The disadvantages include the risk involved in opening a production facility in a foreign country. There is a possibility of the foreign government’s expropriation of the facility. Expropriation is the taking of private property for a public purpose, and the paying of a just compensation. Foreign governments have also sometimes confiscated the property of foreign companies. Confiscation is the taking of private property for a public purpose without a just compensation. Under the act of state doctrine, U.S. courts would be reluctant to intervene, either by ordering the property returned, or ordering the payment of a fair price. Thus, there could be a considerable sum of money at risk in a foreign production facility.

A licensing agreement, by contrast, involves relatively little capital investment and represents less risk of loss from a confiscation or an expropriation. By entering into a licensing agreement with a foreign firm for the rights to manufacture Sport products, or to sell products under the Sport trademark, Sport eliminates the chance that its assets would be lost if they were confiscated. Of course, there will also be fewer profits, and those will likely be in the form of royalties.

80. If a government decides to seize property within its borders, and not to pay for it, there are few remedies available.

This is of course a confiscation, which results when a government takes private property for an illegal purpose, without paying just compensation. An expropriation, by contrast, occurs when a government seizes private assets or a private business for a legal purpose, and pays for the seizure. Under most circumstances, it is unlikely that a confiscating nation’s courts would order its government to pay a just compensation, even if the court had the authority to do so. In a case alleging that a foreign government has wrongfully taken a business firm’s property, the defendant government has the burden to prove that the taking was an expropriation, not a confiscation.

But the act of state doctrine can prevent a firm’s recovery in a court in the firm’s home country. Under that doctrine, a court in one country will not review the validity of a public act of a recognized foreign government within its own territory. Some nations guarantee compensation to foreign investors in their constitutions, statutes, or treaties. Others (such as the United States) provide some insurance for their citizens’ investments abroad. Claims are often resolved by lump-sum settlements after negotiations, as between the United States and the confiscating nation.

81. The World Trade Organization. Most of the world’s leading trading nations are members of the World Trade Organization (WTO), which was established in 1995. Its mission was to minimize trade barriers among nations, each member country is required to grant normal trade relations (NTR) status to other member countries. This means that each member must treat other members at least as well as it treats the country that receives its most favorable treatment with regard to imports or exports.

The European Union (EU) arose out the 1957 Treaty of Rome, which created the Common Market, a free trade zone comprising the nations of Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany. Today, the EU is a single integrated trading unit made up of twenty-seven European nations.

Replacing the North American Free Trade Agreement, the United States-Mexico-Canada Agreement (USMCA) created a regional trading unit consisting of Mexico, Canada, and the United States. The goal of the USMCA is to reduce tariffs among these three countries on substantially all goods, and to make trade between the three countries as equitable as possible.

The Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR) was formed by Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. Its purpose is to reduce tariffs and improve market access among all of the signatory nations. Legislatures in all seven countries have approved the CAFTA-DR, despite significant opposition in certain nations.

The United States ratified its first free trade agreement with South Korea in 2011. This agreement, called the Republic of Korea-United States Free Trade Agreement (KORUS FTA), is aimed at eliminating 95 percent of each nation’s tariffs on industrial and consumer exports. KORUS was expected to boost U.S. exports and benefit U.S. automakers, farmers, ranchers, and manufacturers. To date, however, exports have not increased as much as predicted, and the agreement is Powered by Cognero

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Chapter 07: International and Space Law likely to be renegotiated.

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Chapter 08: Intellectual Property Rights

Indicate whether the statement is true or false.

1. The need to protect intellectual property is recognized in the U.S. Constitution. a. True b. False 2. Intellectual property is property resulting from intellectual, creative processes, and the products of one’s mind. a. True b. False 3. A trademark is a distinctive word, symbol, sound, or design that identifies the manufacturer as the source of particular goods, and distinguishes its products from those made (or sold) by others. a. True b. False 4. The Federal Trademark Dilution Act was the first law to ever protect trademarks. a. True b. False 5. The products involved in a trademark dilution suit over a famous trademark must be similar or competing. a. True b. False 6. Once a manufacturer’s trademark is established, another manufacturer may use it without permission. a. True b. False 7. To succeed in a suit for trademark infringement, the owner must show that the infringer acted intentionally. a. True b. False 8. A trademark owner that successfully proves infringement can recover the profits that the infringer wrongfully received from the infringement. a. True b. False 9. Arbitrary and fanciful trademarks are sometimes considered to be the most distinctive trademarks, and they trigger the highest degree of protection. a. True b. False 10. A descriptive term does not receive protection under trademark law until it acquires a secondary meaning. a. True b. False 11. Only the federal government provides for the registration of trademarks.

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Chapter 08: Intellectual Property Rights a. True b. False 12. Generic terms that refer to an entire class of products, such as bicycle and computer, receive no protection, even if they acquire secondary meanings. a. True b. False 13. The term service mark refers to the image and overall appearance of a product. a. True b. False 14. The law does not prohibit the creation or shipment of counterfeit labels, unless they are attached to products. a. True b. False 15. The United States can prosecute foreign counterfeiters under U.S. law. a. True b. False 16. Service marks are protected in the same way as trademarks. a. True b. False 17. A trade name is used to indicate all or part of a business’s name. a. True b. False 18. An unusual or fanciful trade name is protected under trademark law. a. True b. False 19. A licensor who allows a licensee to use a trademark as part of the licensee’s company name, must also permit the licensee to use the mark on its products. a. True b. False 20. A patent applicant must demonstrate that an invention is useful to receive a patent. a. True b. False 21. A general patent gives the inventor the exclusive right to make, use, and sell an invention for a period of thirty years. a. True b. False 22. The first person to invent a product gets the patent protection.

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Chapter 08: Intellectual Property Rights a. True b. False 23. Certain business processes are patentable. a. True b. False 24. With respect to a patented process, all steps or their equivalent must be copied for infringement to occur. a. True b. False 25. The patent holder can seek an injunction against the infringer only, and no other damages. a. True b. False 26. The registration of a copyright is not required for copyright protection. a. True b. False 27. Facts that are generally known to the public are copyrightable. a. True b. False 28. Certain business processes are copyrightable. a. True b. False 29. A copyright owner who sells a copy of a work retains the right to control the further distribution of that copy. a. True b. False 30. To obtain copyright protection under federal law, a work must be original. a. True b. False 31. If a creative work is not copyrightable, other intellectual property law will not protect it. a. True b. False 32. Works that are copyrightable include brochures, or other printed advertisements. a. True b. False 33. An unauthorized reproduction must be exactly the same as the original, and reproduce the original in its entirety, for infringement of copyright to occur. a. True Powered by Cognero

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Chapter 08: Intellectual Property Rights b. False 34. If a school uses a copyrighted play for educational purposes, then charges admission to the performances, this would fall under the fair use doctrine exception to the copyright law. a. True b. False 35. Some business processes can be protected as trade secrets. a. True b. False 36. Tapping into a competitor’s computer to obtain confidential business data constitutes a theft of trade secrets. a. True b. False 37. Pricing information is not a trade secret. a. True b. False 38. The European Union’s copyright rules limit the royalty protection for musicians to fifty years. a. True b. False 39. Each member country to the TRIPS agreement must include in its domestic laws broad intellectual property rights, and effective remedies for violations of those rights. a. True b. False 40. The United States has signed the Anti-Counterfeiting Trade Agreement (ACTA), an international treaty to combat global counterfeiting and piracy. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

41. Greg is marketing manager for Home Stuff LLC., Greg is responsible for branding the company’s products. Aspects of branding that can be trademarked include: a. a catchy phrase, such as “Stuff your home with Home Stuff!” b. the shape of a container, even if it does not aid in product identification. c. use of another party’s established trademark, with or without permission. d. the color of paper that Home Stuff uses for advertising, 42. Without permission, Race Runners Inc. uses a trademark that is similar to the registered mark of Swiftfoot, Inc. This use of the mark constitutes trademark dilution a. if consumers are all confused. b. If the mark is non-distinctive, therefore causes no confusion.

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Chapter 08: Intellectual Property Rights c. only if the two companies’ products are similar. d. if the use diminishes the distinctive quality of the mark.

43. Brewed Beans Inc. makes and sells “CoCoCafe,” a chocolate-flavored coffee. Darkroast Inc. later markets a similar drink under the name “KoKoKafe.” This is most likely: a. copyright infringement. b. patent infringement. c. trademark infringement. d. violation of antitrust law.

44. Sea Coast Café uses the trademark of Tacos del Mar without permission. This use of the mark is actionable as trademark infringement: a. if consumers are confused between the products. b. only if Sea Coast Café unintentionally used the trademark. c. only if the two companies’ products are similar. d. if the use diminishes the distinctive quality of the mark.

45. Phoenix Inc. is a publisher. Phoenix uses a logo featuring a bird rising from a flame to identify its publications. The publications are printed in a unique process that includes a 3-D printer. Phoenix could most likely obtain trademark protection for its: a. unique logo. b. publications. c. printing process. d. printer.

46. Don One decides to use his personal name for a line of clothing he is developing. In this instance, Don One will receive trademark protection under the law when: a. Don begins to market his line of clothing. b. customers begin to associate the name with his product. c. Don begins to manufacture his line of clothing. d. Don buys business cards with his name on them.

47. A ________ is essentially a trademark that is used to distinguish the services (rather than the products) of one person or company from those of another. a. collective mark b. certification mark c. service mark d. patent mark 48. Berry Good LLC registers its trademark with the U.S. Patent and Trademark Office and uses it to market a distinctive line of ice cream products. Crabapple Inc. uses the mark without Berry’s consent to sell imitation frozen desserts. Berry has a cause of action against: a. Crabapple. b. the U.S. Patent and Trademark Office. c. consumers who buy Crabapple’s desserts.

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Chapter 08: Intellectual Property Rights d. no one.

49. Graphix Inc. traffics labels that bear counterfeit trademarks. This is a crime: a. only if the labels have negative effects on legitimate businesses. b. only if the labels are attached to counterfeit goods. c. under all circumstances. d. under no circumstances.

50. Gargantua Equipment Corporation registers its trademark as provided by federal law. This registration gives notice that the mark belongs exclusively to Gargantua. This notice is a. nationwide. b. limited to Gargantua’s home state. c. limited to Gargantua’s market. d. limited to those who have notice of it.

51. Wendy works as a weather announcer for a TV station under the character name Weather Wendy. Wendy can register her name as: a. a trade dress. b. a trade secret. c. a service mark. d. a trade name.

52. Galaxy Research Inc. uses a mark associated with its name to distinguish its services from those of other tech firms.

This mark is a. none of the choices. b. a trade secret. c. a service mark. d. a trade name.

53. Chris operates the Devil’s Brew chain of coffee stands. “Devil’s Brew” is a. none of the choices. b. a trade secret. c. a service mark. d. a trade name.

54. Salty Snacks Inc. markets a fish-shaped cracker. When Tasty Tidbits Inc. began to sell a similar product, Salty filed a suit against Tasty, alleging infringement and claiming that consumers are likely to be confused. The court will most likely a. rule in the plaintiff’s favor based on trade dress. b. dismiss the suit because there is no infringement c. order both parties to redesign their respective products. d. order both parties to destroy all remaining fish-shaped crackers.

55. Obtaining a court order to close down the domain name of a website is an effective tool that U.S. officials use to combat online sales of a. trade names.

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Chapter 08: Intellectual Property Rights b. counterfeit goods. c. competing products. d. trademarks.

56. Apex Electrical Inc. agrees to allow Apex Foundations LLC to use the owner’s trademark “Apex” as part of its company name but not otherwise. The domain name apex.com can be used online by a. Apex Electrical only. b. both businesses but no others. c. neither business. d. both businesses and any others that own the mark.

57. Pseudo Drugs Inc. is convicted of trafficking in counterfeit prescription drugs. As a penalty, the company may be ordered to pay restitution to the trademark holders in an amount equal to a. their actual lost profits. b. the retail prices of the genuine drugs. c. Pseudo’s profits from the sale of the counterfeit drugs. d. the retail prices of the counterfeit drugs.

58. O-Ring Corporation allows Piston Company to incorporate O-Ring’s patented fuel-injection system into Piston’s product. This is a. a license. b. copyright infringement. c. trademark infringement. d. patent infringement.

59. Ruby invents a new type of pillow and obtains a patent for it. Sleep-Time Inc. believes that Ruby’s pillow infringes on one of Sleep-Time’s previously patented products. Sleep-Time must file a challenge to Ruby’s patent within: a. nine months. b. twenty years. c. the life of the inventor plus seventy years. d. no specific time.

60. The period of patent protection begins on the date when the patent application is ________. a. issued b. filed c. expired d. printed 61. GoodGro Inc. makes genetically modified seeds that are identical to Harvest Corporation’s patented seeds, without Harvest’s permission. This is most likely a. copyright infringement. b. patent infringement. c. trademark infringement. d. none of the choices.

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Chapter 08: Intellectual Property Rights 62. A patent holder who has been violated can seek ________, as well as request damages for royalties and lost profits. a. a court judgment b. jail time c. an injunction d. a written apology 63. Works that are copyrightable include all except: a. books. b. music videos. c. product packaging. d. a logo.

64. To be protected under the Copyright Act, a work must be a. an inseparable idea and expression. b. original and fixed in a durable medium. c. a concept, principle, or discovery. d. a unique idea.

65. Stig creates unique graphic works that feature characters of his own imagination. Copyright protection for Stig’s work is: a. not copyrightable. b. automatic and no registration required. c. available only upon registration with the U.S. Copyright Office. d. enforceable only if Stig places a circled “c” on the work.

66. Without the permission of the copyright owner, Faye copies the literary expression of Gone with the Wind, changes the names of the main characters, and publishes the result as her own work. This is: a. copyright infringement. b. a “fair use.” c. a legitimate creative act. d. a trade secret.

67. Bette choreographs a dance to accompany City Orchestra’s performance of a medley of movie scores. Dian, a dance instructor, distributes copies of a short portion of the choreography to her students for practice purpose only. This is most likely: a. copyright infringement. b. a “fair use” of the works. c. legal only on a payment of royalties to Bette. d. legal only on a payment of royalties to City Orchestra.

68. Leigh buys To Kill a Mockingbird, a copyrighted book. Under the first sale doctrine, Leigh can legally: a. sell the book to another person. b. republish the book as his own work. c. control the distribution of other copies of the book. d. make copies and sell them to others.

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Chapter 08: Intellectual Property Rights 69. Copyright owners are protected against all but which of the following: a. reproduction of the work. b. public display of the work. c. distribution of the work. d. people sharing copies with friends to read.

70. Predictive Data LLC makes and sells software that enables a business to target its advertising precisely. The company could successfully bring an action for copyright infringement against a competitor who copies a. the screen displays of the software. b. the parts of the software that can be read by humans. c. the menus of the software. d. any of the choices.

71. Businesses generally attempt to protect their ________ by having all employees who use the process (or information) agree in their contracts, or in confidentiality agreements, never to divulge it. a. patents b. copyrights c. trade secrets d. trade dress 72. Paving Corporation taps into the computer network of Roadwork Inc., a competitor, and downloads confidential business data without Roadwork’s knowledge or authorization. This is most likely a. copyright infringement. b. patent infringement. c. trademark infringement. d. a theft of trade secrets.

73. Information that may be protected as trade secrets includes all except: a. customer lists. b. pricing information. c. marketing techniques. d. employee names.

74. Like most successful companies, Phones Inc. has trade secrets. The law protects those secrets if the information is a. not revealed to outside parties. b. cataloged by the company as “confidential.” c. useful and is in fact used by the company. d. of value to a competitor.

75. The idea for “Price & Profit,” an app that businesses can use to track their revenue, profit, and payroll, is protected by a. copyright law. b. patent law. c. no law. d. trade secrets law.

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Chapter 08: Intellectual Property Rights 76. France and the United States are signatories of the Berne Convention. Alain, a citizen of France, publishes a book first in France and then in the United States. Alain’s copyright must be recognized by a. France only. b. France and the United States only. c. all of the signatories of the Berne Convention. d. her colleagues only.

77. United Inc., a U.S. film production company, files a suit against Video Ltd., a Mexican production firm, for infringement of intellectual property rights under Mexico’s national laws. Both the U.S. and Mexico are signatories of the TRIPS agreement. What is United entitled to under TRIPS? a. More protection under Mexican law than Video. b. The same rights and protection under Mexican law as Video. c. Fewer rights under Mexican law than Video. d. None of the choices.

78. Alpha Inc. announces a new computer operating system to be marketed under the name McSoftware. McDonald’s Corp. asserts that the use of this name infringes on the McDonald’s family of trademarks characterized by the prefix “Mc” attached to a generic term. Alpha responds that “Mc” has come into generic use as a prefix, and therefore McDonald’s has no trademark rights to the prefix. Alpha files an action, seeking a judgment that the mark McSoftware does not infringe on McDonald’s trademarks. What factors will the court consider in deciding this issue? What will be the probable outcome of the case? Explain.

79. Medical Supplies R Us is a nationally known store that sells all types of medical uniforms and supplies. They have been around for 40 years. Their employees have always worn all white scrubs with a stethoscope around their neck at all locations. A new locally owned medical supply store, Sally’s Scrubs and More, opens on Main Street. Sally’s employees are wearing the exact same uniform as Medical Supplies R Us, and the store is selling almost identical products. Explain what things Medical Supplies may challenge against Sally’s. Include any pertinent discussion.

80. College Copy Shop (CCS) compiles, copies, and sells reading materials to students on the instructions of their professors, who indicate which parts of certain publications to include. These include texts published by Deep Topics, Inc. CCS does not obtain the permission of Deep Topics, or any of the other original publishers of the copied materials, and does not pay royalties on the sales of the compilations. Deep Topics and others file a suit against CCS, alleging infringement of the plaintiffs’ intellectual property rights. Which type of intellectual property is involved in this situation?

What is CCS’s likely defense? How is a court most likely to rule? Explain.

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Chapter 08: Intellectual Property Rights Answer Key 1. True 2. True 3. True 4. False 5. False 6. False 7. False 8. True 9. True 10. True 11. False 12. True 13. False 14. False 15. False 16. True 17. True 18. True 19. False 20. True 21. False 22. False 23. True 24. True 25. False Powered by Cognero

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Chapter 08: Intellectual Property Rights 26. True 27. False 28. False 29. False 30. True 31. False 32. True 33. False 34. False 35. True 36. True 37. False 38. False 39. True 40. True 41. a 42. d 43. c 44. a 45. a 46. b 47. c 48. a 49. c 50. a 51. c Powered by Cognero

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Chapter 08: Intellectual Property Rights 52. c 53. d 54. a 55. b 56. a 57. a 58. a 59. a 60. b 61. b 62. c 63. d 64. b 65. b 66. a 67. b 68. a 69. d 70. b 71. c 72. d 73. d 74. d 75. c 76. c Powered by Cognero

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Chapter 08: Intellectual Property Rights 77. b 78. The most important factor in the court’s consideration of this issue would probably be the likelihood of confusion if Alpha used the “Mc” prefix. The court might conclude that “Mc” had not come into generic use, and for that reason consumer confusion was likely if the “McSoftware” name were used. The court might note that McDonald’s is the largest single-brand advertiser in the United States. Most Americans are familiar with its logo, and its various “Mc” products, and many would be led to believe that McSoftware was affiliated with McDonald’s.

To the court, Alpha’s use of the name McSoftware would likely appear to be a deliberate attempt to benefit by the goodwill and reputation of McDonald’s, and permanently enjoin Alpha from using the name.

79. A discussion about trade dress could be included. The term trade dress refers to the image and overall appearance of a product. Trade dress is a broad concept that can include all or part of the total image, or overall impression created by a product or its packaging. Trademarks could also be discussed here. A trademark is a distinctive word, symbol, sound, or design that identifies the manufacturer as the source of particular goods and distinguishes its products from those made or sold by others. Under the TDRA, to state a claim for trademark dilution, a plaintiff must prove the following: 1. the plaintiff owns a famous mark that is distinctive; 2. the defendant has begun using a mark in commerce that allegedly is diluting the famous mark; 3. the similarity between the defendant’s mark and the famous mark gives rise to an association between the marks; 4. the association is likely to impair the distinctiveness of the famous mark or harm its reputation.

Trademark dilution laws protect “distinctive” or “famous” trademarks (such as Rolls-Royce, McDonald’s, Starbucks, and Apple) from certain unauthorized uses. Such a mark is protected even when the unauthorized use is on noncompeting goods, or is unlikely to confuse. More than half of the states have also enacted trademark dilution laws.

Trademark infringement can also be discussed. When a trademark has been infringed, the owner has a cause of action against the infringer. To succeed in a lawsuit for trademark infringement, the owner must show that the defendant’s use of the mark created a likelihood of confusion about the origin of the defendant’s goods or services. The owner need not prove that the infringer acted intentionally or that the trademark was registered (although registration does provide proof of the date of inception of the trademark’s use).

80. The intellectual property at issue in this situation is copyright—specifically, of course, the copyrights of the publishers of the materials that CCS copies and sells without permission. CCS is likely to assert the “fair use” doctrine in its defense.

This doctrine includes exceptions to the general requirement that an owner’s permission be obtained before copyrighted material can be copied. CCS is probably likely to argue that its compilations are excepted because they are dedicated to “educational” uses.

A court is most likely to conclude, however, that the copying and selling of the materials is not a fair use, because CCS profits from their sale, which undercuts the potential market for the copyrighted publications from which the copies are made. In determining fair use, a court considers four factors: the purpose and character of the use, the nature of the copyrighted work, the amount and substantiality of the portion used in relation to the copyrighted work as a whole, and the effect of the use on the potential market for or value of the copyrighted work. In this situation, the fourth factor is the most significant and supports the conclusion that CCS’s use of the materials is not a fair use.

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Chapter 09: Internet Law, Social Media, and Privacy

Indicate whether the statement is true or false.

1. Many states require the sender of an e-mail ad to tell recipients how to opt out of receiving future e-mail ads from the same sender. a. True b. False 2. Under the Federal CAN-SPAM act, it is prohibited to send unsolicited commercial e-mail to randomly generated e-mail addresses. a. True b. False 3. The Safe Web Act gives any party who gives information to the Federal Trade Commission concerning possible deceptive conduct in a foreign jurisdiction, immunity from liability. a. True b. False 4. The Internet Corporation for Assigned Names and Numbers (ICANN) oversees and sells the distribution of domain names. a. True b. False 5. Cybersquatting occurs when the owner of a trademark registers the mark as a domain name, but does not use it or need it for that purpose. a. True b. False 6. Under the Lanham Act, the federal law protecting trademarks, having a domain name that is identical or confusingly similar to the trademark of another is one element of a claim of illegal cybersquatting. a. True b. False 7. Cybersquatting is illegal if a domain name is identical to the trademark of another, as well as if the name is confusingly similar. a. True b. False 8. Under the Cybersquatting laws, if a person is offering to sell a domain name that is the same (or similar) as another’s trademark and intends to profit from the sale, it is legal. a. True b. False 9. Typosquatting is where cybersquatters register names that are misspellings, or popular brand names, to get high internet traffic. a. True b. False Powered by Cognero

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Chapter 09: Internet Law, Social Media, and Privacy 10. The Anticybersquatting Consumer Protection Act (ACPA) applies to all domain name registrations of trademarks, both personal and business. a. True b. False 11. Using another’s trademark as a meta tag may be permissible if it is proven to be reasonably necessary a. True b. False 12. To maintain a claim of trademark dilution, there must be proof that consumers are likely to be confused by a connection between the unauthorized use and the actual mark a. True b. False 13. A license limits the use of software to a license to use, and not any ownership rights in it. a. True b. False 14. File sharing using peer-to-peer (P2P) networking is primarily done through cloud computing. a. True b. False 15. Anyone can circumvent encryption software or other technological antipiracy protection without penalty. a. True b. False 16. Criminal liability for the piracy of copyrighted materials extends to persons who exchange unauthorized copies for profit, as well as those who share without seeking profit. a. True b. False 17. The Digital Millennium Copyright Act protects copyrighted material from piracy in an online environment. a. True b. False 18. BitTorrent is an example of a website that promotes illegal copying of movies without downloading them from their original site. a. True b. False 19. “Fair use” includes exceptions for educational purposes for using copyrighted works. a. True b. False 20. An Internet service provider that shuts down a subscriber who infringes copyrights, can qualify for a “safe harbor” exemption under the Digital Millennium Copyright Act. Powered by Cognero

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Chapter 09: Internet Law, Social Media, and Privacy a. True b. False 21. File-sharing can be used to download others’ stored music files without raising copyright issues. a. True b. False 22. Social media posts are not subject to discovery in litigation. a. True b. False 23. A social media post cannot be used to invalidate a settlement agreement that includes confidentiality clauses. a. True b. False 24. It is legal for law enforcement to set up a phony social media account to obtain information, or help catch a suspect. a. True b. False 25. Federal guidelines allow a company to disclose material information about itself through social media, such as those that may affect stock prices, as long as investors are notified in advance a. True b. False 26. Employees who use social media in a way that violates their employers’ stated policies, may be disciplined, or even fired. a. True b. False 27. Because federal wiretapping law was enacted before social media networks existed, it does not apply to communications through social media. a. True b. False 28. State law may protect individuals from having to disclose their social media passwords to potential employers. a. True b. False 29. Employers are completely prohibited from taking actions against employees, or applicants based on their social network postings. a. True b. False 30. An Internet service provider is normally held liable for publishing defamatory statements that come from a third party. a. True b. False Powered by Cognero

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Chapter 09: Internet Law, Social Media, and Privacy 31. Under the Communications Decency Act, Internet service providers may be held liable for publishing defamatory statements if they are proven to be discriminatory and a violation of federal law. a. True b. False 32. Online defamation is a huge problem in today’s legal environment. a. True b. False 33. A person may have a reasonable expectation of privacy when entering their banking information online. a. True b. False 34. In posting statements or photos to social media sites, a person has a reasonable expectation of privacy. a. True b. False 35. The Electronic Communications Privacy Act (ECPA) amended wiretapping laws to cover electronic forms of communication. a. True b. False 36. Any electronic communication having to do with business, made on a device that an employer provides to an employee for use in the “ordinary course of business,” is subject to employer discovery. a. True b. False 37. An online retailer can generally track a user’s web activities with cookies, without violating the person’s right to privacy. a. True b. False 38. It is most often companies, rather than courts or legislatures, that define the privacy rights of online users. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

39. Under the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act, which of these would be allowed? a. Using false statistics about a product on an advertisement. b. Sending a randomly generated email advertisement to someone. c. Using a false return email or actual address on an advertisement. d. Mailing a seasonal coupon out to a previous customer.

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Chapter 09: Internet Law, Social Media, and Privacy 40. Volatile Investments Inc. sends e-mail ads to all e-mail address they can find on the Web, or otherwise generate with software. Under the CAN-SPAM Act, Volatile’s marketing method: a. may be permitted. b. is prohibited. c. must be reviewed. d. is preempted.

41. In response to combatting spam, thirty-seven states have: a. enacted laws to prohibit or regulate it. b. enacted laws to permit its use by business entities. c. allowed its use by individuals. d. deferred to federal law alone.

42. Broadband Inc., an Internet service provider, supplies information to the Federal Trade Commission concerning possible unfair or deceptive ads originating in a foreign jurisdiction. Which federal law would apply in this case? a. The CAN-SPAM Act. b. U.S. Safe Web Act. c. The Federal Trade Commission Act. d. The ACPA Act. 43. Outsourcing Inc. registers a domain name that is the same as the trademark of Resourcing LLC, and offers to sell the name to the mark’s owner, Resourcing LLC. This is an example of: a. cybersquatting. b. typosquatting. c. trademark infringement. d. trademark dilution.

44. Pia registers a domain name—quallitytires.com—that is confusingly similar to the domain name qualitytires.com used

by Quality Tires Inc. Quality Tires Inc. also owns the trademark of quality tires. Pia has a “bad faith intent” to profit from the domain name by selling it to Quality Tires. This would be: a. a legitimate business practice. b. illegal by cybersquatting. c. a bid to obtain a license. d. a trademark dilution.

45. Ross registers a domain name—sweetfriedpotatos.com—that is a misspelling of a popular brand of sweet fried potatoes that has a domain name of sweetfriedpotatoes.com. This is an example of: a. cybersquatting. b. typosquatting. c. trademark infringement. d. trademark dilution.

46. Web Invest Inc. buys and sells domain names with the click of a mouse. The high rate at which domain names change hands, and the difficulty in keeping track of mass automated registrations, have created a situation where: a. cybersquatting can easily flourish.

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Chapter 09: Internet Law, Social Media, and Privacy b. typosquatting occurs unintentionally. c. brands and trademarks are protected from cybersquatters. d. the Federal Trade Commission sanctions Web Invest.

47. Grain Mill Company brings a suit against Milled Grain Company under the Anticybersquatting Consumer Protection Act (ACA), alleging that Milled Grain is profiting from a domain name that is confusingly similar to Grain Mill’s trademark. If Grain Mill is successful, their recovery may include: a. actual damages and profits. b. statutory damages no greater than $1,000. c. statutory damages no less than $100,000. d. no damages are allowed.

48. Rue obtains permission from Saga Corporation to use the firm’s game app, Boggle, on their mobile devices. Rue does not obtain any ownership rights in the app. This is an example of: a. a license. b. a cookie. c. cloud computing. d. a violation of the law.

49. Afford Motors LLC, an auto broker, uses the trademark of Ford Motor Company in a meta tag without Ford’s permission. This is an example of: a. cybersquatting. b. typosquatting. c. trademark infringement. d. trademark dilution 50. Without authorization, Java Joe uses the trademark of The Best Coffee Company to help promote his cheap, flavorless coffee candy, which is not at all similar to The Best’s products. Therefore it diminishes the distinctive quality of the coffee company’s mark. This is an example of: a. cybersquatting. b. typosquatting. c. trademark infringement. d. trademark dilution.

51. Flash Inc., a maker of athletic shoes, registers and uses “flash” as its domain name. Later, Got Shoes Company begins to use “flashh” (an intentional misspelling of “flash”) as its domain name. Got Shoes is most likely: a. typosquatting against Flash Inc. b. acting with fair use of Flash’s mark. c. licensing the use of Flash’s mark for itself. d. engaging in lawful competitive conduct.

52. Mix Restaurant Corporation owns the trademark “Mix.” Remix Café Company begins to use the mark without authorization as their domain name. Mix files a suit against Remix on a theory of trademark dilution. This claim requires proof that: a. no proof is necessary.

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Chapter 09: Internet Law, Social Media, and Privacy b. consumers are confused by the names. c. the products involved are too similar. d. Mix has registered all variations of the domain “Mix.” 53. CallTalk Corporation, a phone calling service, uses its mark “calltalk” as its domain name. Later, Converse Inc. uses the domain name “caltalk” (a deliberate misspelling of “calltalk”) without CallTalk’s authorization, to sell sexually explicit phone conversations. This is an example of: a. a legitimate marketing technique. b. a fair use. c. a license. d. trademark dilution.

54. BeFriends Corporation uses the trademark of Community Life Inc., a social media site, as a meta tag without Community Life’s permission. This may be permissible: a. if the appropriating site is not connected with the original site. b. if the two sites appear in the same search engine results. c. if the use constitutes trademark infringement. d. if it is shown to be reasonably necessary for BeFriend’s business.

55. Burger Corporation allows its trademark to be used as part of a domain name for Burger NY Inc., an unaffiliated company. Burger NY Inc. does not obtain ownership rights in the mark. This is an example of: a. trademark infringement. b. fair use. c. a license. d. trademark dilution.

56. Dana downloads music into her computer’s cloud memory without authorization. This is: a. copyright infringement. b. within Dana’s rights. c. liability for the computer manufacturer. d. trademark infringement.

Indicate one or more answer choices that best complete the statement or answer the question.

57. Basso includes in his song “Chords” a few seconds of Dante’s copyrighted sound recording “Etudes” without permission. Some federal courts have found that such digital sampling could be: (choose all applicable answers) a. a violation of copyright law. b. a “fair use” exception to the act. c. a “research exception” of the act. d. a personal protection exception of the act.

58. To test computer security and conduct encryption research, Solutions Inc., was hired by Tech Corporation to circumvent the encryption software and other antipiracy protection of Tech Corporation’s software. Under the Digital Millennium Copyright Act, this is: (choose all applicable answers) a. a violation of copyright law.

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Chapter 09: Internet Law, Social Media, and Privacy b. allowed under the research exception of the act. c. a “fair use” exception to the provisions of the act. d. permitted for reconsideration every three years.

Indicate the answer choice that best completes the statement or answers the question.

59. To test computer security and conduct encryption research, Solutions Inc., was hired by Tech Corporation to circumvent the encryption software and other antipiracy protection of Tech Corporation’s software. Under the Digital Millennium Copyright Act, this is: (choose all applicable answers) a. a violation of copyright law. b. allowed under the research exception of the act.

Indicate one or more answer choices that best complete the statement or answer the question.

60. Because of the loss of significant amounts of revenue as a result of unauthorized digital downloads, file-sharing has created problems for: (choose all applicable answers) a. the motion picture industry. b. recording artists and their labels. c. the companies that distribute file-sharing software. d. there are no problems as a result of file-sharing.

61. Jay transfers downloaded musical recordings, without the copyright owners’ authorization, from his phone to his friends’ phones. Jay does not charge his friends for his “service,” nor did he pay for downloading the music. This is an example of: a. copyright infringement. b. a license. c. goodwill. d. “fair use.”

Indicate the answer choice that best completes the statement or answers the question.

62. Skye posts excerpts from comics and graphic novels on social networking sites without the permission of the owners of the copyrights. She says her reason is to promote the artists’ work. This is an example of: a. copyright infringement. b. a license. c. goodwill. d. “fair use.”

63. The employees of Eco Engineering Inc. share company-related resources among multiple computers without requiring a central network server. This is an example of: a. digital sampling. b. BitTorrent. c. cloud computing. d. peer-to-peer (P2P) networking.

Indicate one or more answer choices that best complete the statement or answer the question.

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Chapter 09: Internet Law, Social Media, and Privacy 64. Employees, clients, and others with authorization, use World Transport Corporation’s network around the globe to share computer files. This is: (choose all applicable answers) a. an invasion of privacy. b. peer-2-peer (P2P) networking. c. digital sampling. d. a distributed network.

Indicate the answer choice that best completes the statement or answers the question.

65. ConnectWeb, Inc., operates a subscription-based service that extends the software and data storage capabilities of its subscribers. This is an example of: a. dilution of networks. b. peer-to-peer (P2P) networking. c. cloud computing. d. a distributed network.

Indicate one or more answer choices that best complete the statement or answer the question.

66. Posting on social media can affect: (choose all applicable answers) a. damages awarded in a lawsuit. b. prior settlement agreements. c. criminal investigations. d. an employee’s hourly wage. e. a person’s internet ranking.

Indicate the answer choice that best completes the statement or answers the question.

67. Odell is an employee of Packing Corporation. She uses social media in a way that violates her employer’s stated social media policies. Packing Corporation disciplines Odell, and then fires her after a second transgression. This is: a. a violation of the Stored Communications Act. b. within the employer’s rights. c. illegal under the CAN-SPAM act. d. a “business-extension exception” under the Act. 68. More than half of the states have enacted some type of legislation that: a. allows the employers to ask employees and prospective employees their social networking passwords. b. prevents employers from asking employees or prospective employees their social media passwords. c. punishes employees for content posted on social media that may be offensive. d. punishes employers who simply look at social media of employees or prospective employees.

69. Sales Corps Inc. provides tablets for its employees to use “in the ordinary course of its business.” Sales Corps Inc. intercepts the employees’ personal communications made on these devices. Under the Electronic Communications Privacy Act, this is a. prohibited for the employer.

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Chapter 09: Internet Law, Social Media, and Privacy b. a matter for which an employer must obtain employees’ consent c. a subject for dispute resolution by an Internet service provider. d. permissible by the employer.

70. ABC Corporation wants to create something that will help protect their trade secrets and still allow communication between employees of all of their branches. What would be their best option? a. an extranet. b. an internal social media network. c. a private group on a social network site. d. an ongoing email system.

71. Mobile Device Company (MDC) discovers that defamatory statements about its products are being posted in an online forum. NuView Inc., the Internet service provider, whose users are posting the messages, can disclose the poster’s identity: a. only when ordered to do so by a court. b. whenever and however the provider chooses. c. if the poster has posted something offensive to the provider. d. in no circumstances could they disclose.

72. Payback Inc. discovers that defamatory statements about its policies are being posted in an online forum. Q Web Inc., the Internet service provider whose users are posting the messages, refuses to reveal the users’ identities. Payback Inc. should first: a. file a suit against the anonymous users. b. gain unauthorized access to Q Web’s servers. c. file a suit against Q Web. d. ask the U.S. Department of Justice for a subpoena.

73. The law that applies to ISPs and protects them from liability for posting defamatory statements from a third party is: a. the CAN-SPAM Act. b. the Digital Millennium Copyright Act. c. ICANN d. Communications Decency Act. 74. Interactive Entertainment Corporation markets its products online. Through the use of cookies, Interactive Entertainment and other online marketers can: a. track individuals’ Web browsing and shopping activities. b. gain access to competitors’ servers. c. “sweet talk” consumers into buying certain products. d. attack competitors’ Web sites.

75. “Dawn” is a song included in the soundtrack of “eDay,” a movie produced and distributed by FasTrac Corporation.

The song features a digital sampling of a few seconds of the guitar solo of one of George Harrison’s copyrighted sound recordings without permission. Does this digital sampling constitute copyright infringement on the part of FasTrac?

Explain.

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Chapter 09: Internet Law, Social Media, and Privacy 76. Sonya and other employees of TransGlobal Inc. maintain a password-protected social media page on, which they post comments on work-related issues. The posts range from positive to negative, and support the page’s purpose to “vent about work.” When TransGlobal learns of the page, the company intimidates Sonya into revealing the password, and after reviewing the posts, fires her, and the other participants. Which federal law discussed in this chapter most likely apply to this situation? Has this law been violated? Discuss.

77. Jerry’s Jumping Devices, a trampoline manufacturer, has obtained the domain name of jerryjump.com and also owns the trademark Jerry’s Jumping Devices. Jeri Jones, who owns a medicinal natural health food store that promises more energy than you have ever had, has obtained the name jerijump.com, and has been using it to promote all types of vitamins and low-quality supplements. She is also using Jerry’s trademark on some of her advertising, since he is so wellknown. Jerry’s Jumping Devices wants to sue Jeri, and is not sure what possible charges he can sue for? Discuss all possibilities?

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Chapter 09: Internet Law, Social Media, and Privacy Answer Key 1. True 2. True 3. False 4. True 5. False 6. True 7. True 8. False 9. True 10. True 11. True 12. True 13. True 14. True 15. False 16. True 17. True 18. True 19. True 20. True 21. False 22. False 23. False 24. True 25. True Powered by Cognero

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Chapter 09: Internet Law, Social Media, and Privacy 26. True 27. False 28. True 29. False 30. False 31. True 32. True 33. True 34. False 35. True 36. True 37. True 38. True 39. d 40. b 41. a 42. b 43. a 44. b 45. b 46. a 47. a 48. a 49. c 50. d 51. a Powered by Cognero

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Chapter 09: Internet Law, Social Media, and Privacy 52. a 53. d 54. d 55. c 56. a 57. a, b 58. b, c 59. b 60. a, b, c 61. a 62. a 63. d 64. b, d 65. c 66. a, b, c 67. b 68. b 69. a 70. b 71. a 72. a 73. d 74. a 75. Yes, the digital sampling described in this question most likely would be held to constitute copyright infringement. To transfer material digitally, online, or otherwise, it must be “copied.” So, generally, whenever a party downloads music or other software into a computer’s random-access memory, or to a cloud storage site without authorization, a copyright is infringed. Technology has vastly increased the potential for copyright infringement with electronic options available at the Powered by Cognero

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Chapter 09: Internet Law, Social Media, and Privacy touch of a finger. Thus, digitally sampling a copyrighted sound recording of any length constitutes copyright infringement. In this question, a few seconds of the guitar solo of one of George Harrison’s copyrighted sound recordings has been digitally sampled without permission in “Dawn.” This song is then included in the film “eDay,” which is produced and distributed by FasTrac. FasTrac would need to obtain permission from George Harrison’s publicist and pay the appropriate royalty fees. The sampling did in fact involve “copying” the solo digitally into a computer which constitutes copyright infringement.

76. The federal law discussed in this chapter that most likely apply to the situation described in this question is the Stored Communications Act (SCA), which is part of the Electronic Communications Privacy Act (ECPA). The SCA appears to have been violated in this case.

The SCA prohibits intentional and unauthorized access to stored electronic communications, and sets forth criminal and civil sanctions for violators. A person can violate the SCA by intentionally accessing a stored electronic communication.

The SCA also prevents “providers” of communication services, such as cell phone companies and social media networks, from divulging private communications to certain entities and individuals.

In this question, the employees of TransGlobal maintain a password-protected social media page on which they post comments on work-related issues. The company gains access by intimidating one of the employees, and after reviewing the posts, fires all of the participating employees. This appears to be a violation of the SCA because the company’s access was intentional and unauthorized—intimidation does not constitute authorization.

As a result, the employees should be allowed to retain their social media page, be reinstated to their jobs, be given back pay, and possibly obtain compensatory and other damages. Now if the company discovered the posts on laptops that the company issues to the employees for business use and can show a correlation that the posts were business related, they might fall under the business extension exception.

77. Jeri could be liable for typosquatting, which is the process of registering a domain name that is a misspelling of a popular brand name (or company) in order to gain more internet traffic. The ACPA would apply as it regulates all registration of domain names and trademarks.

Jeri could also be found guilty of trademark dilution. Trademark dilution occurs when a trademark is used, without authorization, in a way that diminishes the distinctive quality of the mark. Here, Jeri’s products are sub-par, and have nothing to do with trampolines. The fact that she is using his logo on her advertising is a violation of this. Since there does not have to be proof of consumer confusion for this to apply, this would most likely apply to Jeri.

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Chapter 10: The Formation of Traditional and E-Contracts

Indicate whether the statement is true or false.

1. Because parties act in their own self-interest—influencing the terms of their contracts—contract law must provide rules to determine which terms to enforce. a. True b. False 2. The party to whom a promise is made has the right to expect or demand that something will or will not happen in the future. a. True b. False 3. Contract law distinguishes between promises that create only moral obligations and promises that are legally binding. a. True b. False 4. Under the objective theory of contracts, a contract is not enforceable without a clearly defined objective. a. True b. False 5. Any promises made by the parties to the contract must be supported by legally sufficient and bargained-for consideration. a. True b. False 6. Only one party entering into a contract must possess characteristics that qualify him or her as competent for a valid contract to exist. a. True b. False 7. The contract’s purpose must be to accomplish some goal that is legal and against public policy. a. True b. False 8. Any contract that is not in writing is unenforceable. a. True b. False 9. An electronic record will not qualify as a writing. a. True b. False 10. If the offeree can accept simply by promising to perform, the contract is bilateral. a. True b. False Powered by Cognero

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Chapter 10: The Formation of Traditional and E-Contracts 11. No performance, such as payment of funds or delivery of goods, need to take place for a bilateral contract to be formed. a. True b. False 12. A contract that results when an offer can be accepted only by the offerree’s consideration is a unilateral contract. a. True b. False 13. A unilateral contract is formed at the moment when the contract is signed. a. True b. False 14. A contract that is implied from the conduct of the parties is called an informal contract. a. True b. False 15. When the plaintiff furnishes some service or property, an implied contract arises. a. True b. False 16. A contract may contain some express terms, while others are implied. a. True b. False 17. A contract that may be legally avoided at the option of one or both of the parties is a voidable contract. a. True b. False 18. If the contract is avoided, both parties are not released from it. a. True b. False 19. A void contract is no contract at all. a. True b. False 20. A legal contract can be void. a. True b. False 21. An offer is a promise or commitment to do or refrain from doing some specified action in the future. a. True b. False 22. The offeror must have a serious intention to become bound by the offer in order for the offer to be effective.

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Chapter 10: The Formation of Traditional and E-Contracts a. True b. False 23. The offer does not have to be communicated to the offeree. a. True b. False 24. Consideration is the value given in return for a promise or performance in a contractual agreement. a. True b. False 25. Painting a garage can constitute “something of legally sufficient value.” a. True b. False 26. With respect to consideration, a bargained-for exchange distinguishes a contract from a gift. a. True b. False 27. A minor can enter into any contract an adult can, without exception. a. True b. False 28. A contract entered into by a minor is voidable at the option of the minor. a. True b. False 29. A contract entered into by an intoxicated person can be either be voidable or valid. a. True b. False 30. If the person was sufficiently intoxicated to lack mental capacity, then the agreement may be voidable. a. True b. False 31. Courts always permit contracts to be avoided due to intoxication. a. True b. False 32. E-signatures are never accepted. a. True b. False 33. An e-signature is as valid as a signature on paper, and an e-document can be as enforceable as a paper one. a. True b. False Powered by Cognero

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Chapter 10: The Formation of Traditional and E-Contracts 34. For an e-signature to be enforceable, the contracting parties can simply consider using electronic signatures. a. True b. False 35. The E-SIGN Act does not apply to all types of documents. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. A contract formed in whole or in part from the conduct of the parties is called a. an implied contract. b. an express contract. c. an informal contract d. a formal contract.

37. Mel agrees to work as a freight broker for National Shipping, Inc. In determining whether a contract has been formed, an element of prime importance is the parties’ a. intent. b. character. c. subjective beliefs. d. motives.

38. Steel Mill, Inc., makes an offer to Tom to enter into a contract to work as a mechanical engineer for a certain salary for one year, subject to a five-year renewal based on his performance. Tom accepts the offer. This is a valid contract because it includes a. a price and a subject. b. a duration and a termination. c. an offer and an acceptance. d. specific quality standards.

39. Field Construction, Inc., contracts with Mesa Ranch to build a new horse barn on Mesa’s property for which Mesa agrees to pay. If this is a valid contract, it will be partly because it includes the element of a. capability. b. legality. c. necessity. d. marketability.

40. Macy offers to sell his fitness watch for $50 to Nona. Nona promises to pay Macy the price. Later, they exchange the watch for the funds. A contract was created when a. Macy offered to sell the watch. b. Macy delivered the watch. c. Nona promised to pay for the watch. d. Nona paid for the watch.

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Chapter 10: The Formation of Traditional and E-Contracts 41. Rue offers to pay Sari to deliver certain documents within thirty minutes. Sari can accept the offer only by completing the task within the deadline. If she does, Rue and Sari will have a. a bilateral contract. b. a unilateral contract. c. a void contract. d. an executive contract.

42. Fay offers to pay Grey $50 for a tennis lesson for Hetty. They agree to meet the day after tomorrow to exchange the cash for the lesson. These parties have a. a bilateral contract. b. a third-party contract. c. a unilateral contract. d. no contract.

43. Alyssa hires Bret to mow Alyssa’s lawn every Friday. Although they do not discuss the terms of payment, after each of the first three Friday mows, Alyssa pays Bret on Saturday. The payment term is a. express. b. implied. c. illusory. d. void.

44. Oceans, Inc., a seafood distributor, agrees to buy from Paul (a commercial fisherman) any “overstock” of fish that Paul catches in excess of his legal limit. This agreement is most likely a. enforceable. b. illusory. c. void. d. voidable.

45. If a contract between two parties is avoided a. both parties are released from it. b. both parties must fully perform their obligations under it. c. the parties’ contractual obligations are postponed. d. the parties are bound to negotiate another contract on the same subject.

46. For a contact to be considered valid and enforceable, the parties to a deal must a. necessarily have it in writing. b. manifest their voluntary consent to the same bargain. c. know with certainty what kinds of promises will be enforced. d. subjectively intend to agree to the terms.

47. Fresh Agro, Inc., offers to deliver produce to Growers’ Market for a certain price. Fresh’s intent to extend an offer is determined by reference to Fresh’s a. market assumptions. b. All of the choices. c. subjective, unexpressed intentions.

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Chapter 10: The Formation of Traditional and E-Contracts d. words and actions.

48. Kent tries to start his car with no success. He yells that he will sell the car to anyone for $10. Livy, a passerby, hears Kent’s yell. This is not an effective offer because it lacks a. communication. b. definite terms. c. serious intent. d. practicality.

49. Vin admires Will’s collection of vinyl records. Vin asks, “Will you sell it?” This statement is a. an offer. b. an invitation to negotiate, not an offer. c. an expression of intent, not an offer. d. a request, not an offer.

50. Pastries, Inc., showcases its new marketing strategy on Instagram. This is a. an offer. b. an invitation to negotiate, not an offer. c. an advertisement, not an offer. d. a request, not an offer.

51. Owen decides to sell his ranch, Pine Ridge, in a live auction. When the auctioneer puts the property up for bids, it will be a. an offer. b. an invitation to submit offers, not an offer itself. c. a preliminary negotiation, not an offer. d. an agreement to agree, not an offer.

52. Luke puts his motorcycle up for sale via a post on an online auction site. This is a. an offer. b. an invitation to negotiate, not an offer. c. a statement of future intent, not an offer. d. a preliminary negotiation, not an offer.

53. Rona asks Steve, “Do you want to pay me to provide your business with a marketing campaign?” This is a. an offer. b. not an offer because the terms are not definite. c. not an offer because Rona did not express an intent. d. not an offer because Steve did not respond.

54. In a live auction, a seller “offers” goods for sale through an auctioneer, but a. this is not an offer to form a contract. b. this is an offer to form a contract. c. this is an invitation to form a contract. d. this is not an invitation to form a contract.

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Chapter 10: The Formation of Traditional and E-Contracts 55. Under the common law, one of the elements that’s necessary for an offer to be effective is a. the offer must be in writing to the offeree. b. the offer must be promised to the offeree. c. the offer must be communicated to the offeree. d. None of these choices.

56. Kim promises to pay Leo $500 to install a sump pump in Kim’s warehouse. Leo completes the installation. The act of installing the pump a. imposes a moral obligation on Kim to pay Leo. b. imposes no obligation on Kim unless she is satisfied with the job. c. is not sufficient consideration because it is not goods or money. d. is the consideration that creates Kim’s obligation to pay Leo. 57. Allen promises to pay Barb, his niece, $5,000 if she obtains her degree at City University, where she is in her third year. Barb graduates. Allen must pay Barb because a. Barb was already at City. b. obtaining a degree benefits Barb. c. a job can be hard to find after college. d. Barb obtained a degree at City.

58. Sports Bar and Tasty Bakery are adjacent businesses with adjoining parking lots. Sports Bar offers Tasty a discount on purchases if the bakery will not tow the cars of Sports Bar’s patrons who park in the bakery’s lot. The discount is legally sufficient consideration a. because it is a promise of something of value. b. only if Sports Bar adds a cash rebate. c. only if Tasty uses it. d. under no circumstances.

59. Under a contract with Valley View Villas, a residential development, Weng begins grading a terraced hillside.

Halfway through the project, Weng asks for $5,000 over the contract price, claiming an increase in the “cost of doing business.” Valley View agrees. This agreement to pay more is a. unenforceable because Weng’s performance was a preexisting duty. b. unenforceable because Valley View’s promise was illusory. c. enforceable. d. unenforceable because Weng’s request modified the contract.

60. Rex contracts with Spicy Pizza to deliver its products. After the deal has been partially performed, both parties inform each other that they would like to cancel the contract. Rex and Spicy may rescind a. their entire contract. b. their contract to the extent that it is executory. c. none of their contract. d. their contract to the extent that it has been executed.

61. Cindy, a real estate agent, sells her friend Doug’s house without charging a commission. In return, Doug promises to give Cindy $1,000. This promise is not an enforceable contract because Powered by Cognero

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Chapter 10: The Formation of Traditional and E-Contracts a. the house has already been sold—the consideration is past. b. selling the house was the agent’s preexisting duty. c. selling the house was a foreseen difficulty. d. the promise of a payment of $1,000 is illusory.

62. Dale’s Uncle Ed tells Dale, “If I feel you deserve it at the time, I will give you a new car when you graduate from college.” Ed’s promise is a. illusory. b. enforceable. c. a forbearance. d. a preexisting duty.

63. Donald is a minor. He can enter into any contract an adult can, provided a. the adult is willing to enter into contracts with minors. b. Donald is willing to disaffirm the contract. c. the contract is not one prohibited by law for minors. d. an adult is willing to ratify the contract.

64. Intoxicated, Efron enters a contract for the sale of his business, Freight Dispatch, to Gretel for less than its market value. This contract is enforceable if, at the time, a. Efron’s intoxication was purely voluntary. b. Gretel fraudulently induced Efron to become intoxicated. c. Gretel was also intoxicated. d. Efron understood the legal consequences.

65. Courts look at objective indications of intoxication to determine if a person possessed or lacked the required a. consideration. b. capacity. c. agreement. d. None of these choices.

66. Cathy agrees to sell her Daily Donut shop to Ernie. In the agreement, there is a covenant not to compete that prohibits Cathy from operating a donut shop within a certain distance. If the restriction is unreasonable, a court will most likely a. award Cathy damages. b. order Ernie to stop doing business. c. reform the covenant. d. prohibit both parties from operating donut shops.

67. Which is not a basic requirement for an e-contract? a. agreement. b. bargained-for exchange. c. consideration. d. legality.

68. Online contracts may be formed not only for the sale of goods and services, but also for Powered by Cognero

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Chapter 10: The Formation of Traditional and E-Contracts a. manufacturing. b. distributing. c. advertising. d. licensing.

69. Brie buys a subscription to music provided by Concerto, an online streaming service. Before gaining access, Brie must agree to a provision stating that she will not make and sell copies of the music. This provision is a. a partnering agreement. b. a click-on agreement. c. a shrink-wrap agreement. d. a browse-wrap term.

70. Shipping Corporation enters into contracts with distributors and other buyers in e-commerce and in traditional commerce. Between Shipping and its customers, the Uniform Electronic Transactions Act applies if the parties agree to conduct transactions by a. electronic means. b. paper documents. c. Any of the choices. d. verbal communication.

71. Best Products, Inc., hires Cole to develop and implement an e-commerce strategy for marketing Best’s products. Cole signs a contract that includes a clause prohibiting him from competing with Best during and after the employment. Before the strategy is implemented, Cole resigns from Best’s employment and opens a business to compete with Best. In Best’s suit against Cole—to determine whether Cole may compete with Best—what is the most important factor the court should consider?

72. Business Software Corporation (BSC) sells business apps—wage, price, and inventory coordinating programs, for example—downloadable online. To complete a deal, a purchaser clicks on a button that, with reference to certain terms, states, “I agree.” What is this agreement called? Do the parties have a binding, enforceable contract that includes the terms? Explain.

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Chapter 10: The Formation of Traditional and E-Contracts Answer Key 1. True 2. True 3. True 4. False 5. True 6. False 7. False 8. False 9. False 10. True 11. True 12. False 13. False 14. False 15. True 16. True 17. True 18. False 19. True 20. False 21. True 22. True 23. False 24. True 25. True Powered by Cognero

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Chapter 10: The Formation of Traditional and E-Contracts 26. True 27. False 28. True 29. True 30. True 31. False 32. False 33. True 34. False 35. True 36. a 37. a 38. c 39. b 40. c 41. b 42. a 43. b 44. c 45. a 46. b 47. d 48. c 49. d 50. c 51. b Powered by Cognero

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Chapter 10: The Formation of Traditional and E-Contracts 52. b 53. b 54. a 55. c 56. d 57. d 58. a 59. a 60. b 61. a 62. a 63. c 64. d 65. b 66. c 67. b 68. d 69. b 70. a 71. In determining whether Cole may compete with Best, the court should consider (most importantly) whether the covenant not to compete is necessary to protect Best’s legitimate business interests.

A covenant not to compete can violate the public policy to promote competition in the economy. If so, it would be an unreasonable restraint of trade. To be enforceable, a covenant not to compete should be ancillary to an otherwise enforceable contract, which is the employment contract in this situation. A covenant not to compete should contain reasonable restrictions in terms of duration and geographic area. The covenant should not unreasonably burden the party who is prohibited from competing. If the restrictions are unreasonable, a court can void or reform the covenant. Whether a party resigns under an employment contract does not affect the enforceability of a covenant not to compete.

In this question, the covenant not to compete appears to be unreasonable, and thus it is not likely to be enforced. The covenant does not specify a limit of time—an open, unending period of time would be excessive. In fact, what constitutes a reasonable time period may be shorter in the online environment than in conventional employment contracts because the restrictions apply worldwide. The restriction on competition may be aimed at protecting a legitimate business interest, but Powered by Cognero

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Chapter 10: The Formation of Traditional and E-Contracts this covenant is greater than necessary to protect that interest.

72. This is a click-on agreement, which occurs when a buyer, to complete a transaction on a computer, indicates his or her assent to be bound by the terms of an offer by clicking on a button that says, for example, “I assent,” or, in this question, “I agree.” Such an agreement is likely to be enforceable if the party who agreed to the terms had an opportunity to read them before the contract was made (unless the terms are objectionable on grounds that apply to contracts generally). If the terms were not revealed until after the agreement was made, they are unlikely to be considered part of the deal.

In this question, the parties would probably have a binding contract that includes the terms. The question states that the button referred to the terms, meaning that the buyer knew, or should have known, what he was agreeing to.

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Chapter 11: Contract Performance, Breach, and Remedies

Indicate whether the statement is true or false.

1. A lack of voluntary consent can be used as a defense to the contract’s enforceability. a. True b. False 2. If contracting parties attach materially different meanings to a contract word or term subject to more than one reasonable interpretation, the contract is void. a. True b. False 3. The first element of proving fraud is to show that the innocent party is not easily fooled. a. True b. False 4. For purposes of fraudulent misrepresentation, scienter clearly exists if a party asserting a fact knows it is not as stated. a. True b. False 5. Most courts do not require a showing of injury in an action to rescind a contract. a. True b. False 6. Persuasion that induces a person to act according to the will of a dominant party is undue influence. a. True b. False 7. A threat to exercise a legal right to sue someone ordinarily constitutes duress. a. True b. False 8. Agreement to the terms of a contract is voluntary if one of the parties is not forced into the agreement. a. True b. False 9. Blackmail or extortion to induce consent to a contract constitutes duress. a. True b. False 10. Privity of contract is the relationship that exists between the promisor and the promisee of a contract. a. True b. False 11. One exception to the privity of contract rule involves a third party beneficiary contract. a. True b. False Powered by Cognero

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Chapter 11: Contract Performance, Breach, and Remedies 12. The transfer of contractual rights to a third party is known as a delegation. a. True b. False 13. The transfer of contractual duties to a third party is known as an assignment. a. True b. False 14. When rights under a contract are assigned unconditionally, the rights of the assignor are extinguished. a. True b. False 15. Assignments are important because they are used in many types of business financing. a. True b. False 16. Just as a party can transfer rights through an assignment, a party can also transfer duties. a. True b. False 17. Any contract can be discharged by agreement of the parties. a. True b. False 18. For mutual rescission of a contract to take place, the parties must make another agreement that satisfies the legal requirements for a contract. a. True b. False 19. An accord and its satisfaction do not discharge an original contractual obligation. a. True b. False 20. Contractual obligations will be discharged when the specific subject matter of the contract is destroyed. a. True b. False 21. Performance becomes commercially impracticable when a foreseeable, added burden of performing increases the cost slightly. a. True b. False 22. In contract law, damages compensate for harm suffered as a result of another’s wrongful act, not for the loss of a bargain. a. True Powered by Cognero

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Chapter 11: Contract Performance, Breach, and Remedies b. False 23. The standard measure of compensatory damages is the value of the breaching party’s actual performance. a. True b. False 24. In a contract for the sale of goods, the usual measure of compensatory damages is an estimated difference between the contract price and the market price. a. True b. False 25. The measure of compensatory damages does not vary by type of contract. a. True b. False 26. When a buyer breaches a contract for a sale of land, the seller can recover the difference between the contract price and the market price of the land. a. True b. False 27. When both an owner and a contractor breach a construction contract, a court will attempt to strike a fair balance in awarding damages. a. True b. False 28. Consequential damages are foreseeable damages that result from a party’s breach of contract. a. True b. False 29. When a seller fails to deliver goods, knowing that the buyer is planning to use or resell those goods immediately, a court may award compensatory damages. a. True b. False 30. Punitive damages are generally awarded in lawsuits for breach of contract. a. True b. False 31. When no actual damage or financial loss results from a breach of contract and only a technical injury is involved, the court may award nominal damages to the innocent party. a. True b. False 32. Most lawsuits for nominal damages are brought as a matter of principle. a. True b. False Powered by Cognero

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Chapter 11: Contract Performance, Breach, and Remedies 33. Under the doctrine of mitigation of damages, the duty owned depends on the nature of the damages. a. True b. False 34. Equitable remedies include rescission and restitution, specific performance, and reformation. a. True b. False 35. A court may grant specific performance to a buyer in an action for a breach of contract involving the sale of land. In this situation, the legal remedy of monetary damages may not compensate the buyer adequately because every parcel of land is unique: the same land in the same location obviously cannot be obtained elsewhere. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Contract law allows a contract to be avoided on the basis of a. mistake. b. agreement. c. consideration. d. enforceability.

37. Only a mistake of fact makes a contract a. voluntary. b. involuntary. c. voidable. d. enforceable.

38. A mistake on a contract made by only one of the parties is a. duress. b. undue influence. c. bilateral d. unilateral.

39. A mistake that occurs when both parties to a contract are mistaken about the same material fact is a. duress. b. undue influence. c. bilateral. d. unilateral.

40. A mistake that concerns the future market quality of the object of the contract is a. fraudulent misrepresentation. b. a mistake of value. c. undue influence. d. duress.

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Chapter 11: Contract Performance, Breach, and Remedies 41. The presence of fraud in a contract also affects the authenticity of the innocent party’s a. duress. b. undue influence. c. consent. d. Any of the choices.

42. When an innocent party is fraudulently induced to enter into a contract, the contract normally can be a. enforced. b. avoided. c. revised. d. postponed.

43. For any harms resulting from a fraud, the innocent party can a. rescind the contract. b. enforce the contract. c. seek damages. d. All of these choices.

44. Which of the following is an element that must occur for a fraudulent misrepresentation? a. oral consideration. b. forged signature. c. mistake. d. intent to deceive.

45. John tells customers that the knock off sculptures were created by Michelangelo. This is a. undue influence. b. a misrepresentation of fact. c. duress. d. a bilateral mistake.

46. If a party makes a statement that he or she believes to be untrue without regard to whether it is true or false, this is called a. duress. b. scienter. c. undue influence. d. consent.

47. Alice tells an interested buyer, Mark, that her condo has no defects, but she knows that the plumbing is problematic. If Mark relies on Alice’s statements, then he is a. justified. b. in breach. c. under duress. d. None of these choices.

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Chapter 11: Contract Performance, Breach, and Remedies 48. To recover damages caused by fraud, the injured party would have to a. show proof of harm. b. provide a copy of the contract. c. explain how the injury occurred. d. hire an attorney.

49. Albert is a veteran. If Trevor, Albert’s guardian, induces Albert to sign documents giving him power of attorney to access his bank accounts, Trevor would be exerting a. legality. b. undue influence. c. puffery. d. voluntary consent.

50. The essential feature of undue influence is that the party being taken advantage of a. does not exercise free will. b. is mentally impaired. c. is elderly. d. is in a fiduciary relationship.

51. The relationship that exists between the promisor and the promisee of a contract is a. privity of contract. b. fiduciary. c. agreement. d. voluntary consent.

52. The transfer of contractual rights to a third party is known as a. an assignment. b. an agreement. c. a consideration. d. a delegation.

53. The transfer of contractual duties to a third party is known as a. an assignment. b. an agreement. c. a consideration. d. a delegation.

54. When rights under a contract are assigned unconditionally, the rights of the assignor are a. satisfied. b. extinguished. c. delegated. d. assigned.

55. The use of threats to force a party to enter into a contract is referred to as a. privity.

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Chapter 11: Contract Performance, Breach, and Remedies b. undue influence. c. duress. d. delegation.

56. For duress to occur, the threatened act must a. be wrongful. b. be illegal. c. render the person incapable of exercising free will. d. All of these choices.

57. If the delegation of duties are not performed, then the obligee can sue a. the delegatee. b. the delegator. c. Both a and b. d. Neither a nor b.

58. When the original parties to the contract agree that the contract performance should be rendered to or directly benefit a third person, the third person becomes an intended a. delegator. b. obligee. c. third party beneficiary to the contract. d. delegatee.

59. A third person who receives an unintentional benefit from a contract even though the contract was not made for that person’s benefit is a. an indented beneficiary. b. a third party beneficiary. c. an incidental beneficiary. d. None of these choices.

60. The remedy for a seller’s breach of a contract for a sale of real estate is a. standard measure. b. compensatory damages. c. specific performance. d. nominal damages.

61. Which of the following is not a type of damage? a. Compensatory. b. Punitive c. Incidental d. Consequential.

62. Damages that compensate the nonbreaching party for the loss of the bargain are known as a. consequential damages. b. compensatory damages.

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Chapter 11: Contract Performance, Breach, and Remedies c. punitive damages. d. nominal damages.

63. Foreseeable damages that result from a party’s breach of contract are called a. compensatory damages. b. punitive damages. c. consequential damages. d. nominal damages.

64. Damages not awarded in lawsuits for breach of contract are a. punitive. b. compensatory. c. nominal. d. consequential.

65. When no actual damage or financial loss results from a breach of contract and only a technical injury is involved to the innocent party, the court may award a. punitive damages. b. compensatory damages. c. nominal damages. d. consequential damages.

66. When a breach of contract occurs, the innocent injured party can a. mitigate damages. b. revise the contract. c. rescind the contract. d. None of these choices.

67. Undoing or terminating a contract is referred to as a. restitution. b. rescission. c. privity. d. scienter.

68. An equitable remedy requiring exactly the performance that was specified in a contract; usually granted only when monetary damages would be an inadequate remedy and the subject matter of the contract is unique is called a. consequential damages. b. reformation. c. rescission. d. specific performance.

69. Steel Mill, Inc., agrees to deliver a certain quantity of steel to T-Bar Framing Corporation. The agreement states that delivery is to be within “9” days, although the parties intend “90” days. The seller cannot convince the buyer to amend the contract. The most appropriate remedy is a. damages.

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Chapter 11: Contract Performance, Breach, and Remedies b. reformation. c. rescission. d. specific performance.

70. Courts also may reform contracts when the parties have executed a written a. condition precedent. b. anticipatory repudiation. c. oath. d. covenant not to compete.

71. Health Source, Inc., offers to buy Medico Supplies Corporation. On June 1, Medico gives Health Source copies of Medico’s financial statements for the previous year. The statements show an inventory of $10 million. On June 15, Medico discovers that the previous year’s inventory is overstated by $500,000, but does not inform Health Source. On July 1, Health Source, relying on the financial statements, buys Medico. On July 10, Health Source discovers the inventory overstatement. Can Health Source succeed in a suit against Medico? Explain.

72. Consolidated Boring Corporation ships its only pump to Drills & Bits, Inc., the manufacturer, for repair. Consolidated hires Everywhere Shipping, Inc., to take the pump to Drills & Bits and to return it to Consolidated as soon as the repair is complete. Consolidated is forced to suspend operations without a pump, but Everywhere Shipping does not know this.

Consolidated expects to be without the pump for five days and to lose profits of $5,000. When the pump is not returned by the end of the fifth day, Consolidated rents a pump at a cost of $100 per day. Everywhere Shipping delays five more days before returning the pump. Consolidated files a suit against Everywhere Shipping, asking for compensatory, consequential, and punitive damages. Will Consolidated recover?

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Chapter 11: Contract Performance, Breach, and Remedies Answer Key 1. True 2. False 3. False 4. True 5. True 6. True 7. False 8. False 9. True 10. True 11. True 12. False 13. False 14. True 15. True 16. True 17. True 18. True 19. False 20. True 21. False 22. False 23. False 24. False 25. False Powered by Cognero

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Chapter 11: Contract Performance, Breach, and Remedies 26. True 27. True 28. True 29. False 30. False 31. True 32. True 33. False 34. True 35. True 36. a 37. c 38. d 39. c 40. b 41. c 42. b 43. a 44. d 45. b 46. b 47. a 48. a 49. b 50. a 51. a Powered by Cognero

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Chapter 11: Contract Performance, Breach, and Remedies 52. a 53. d 54. b 55. c 56. d 57. c 58. c 59. c 60. c 61. c 62. b 63. c 64. a 65. c 66. a 67. b 68. d 69. b 70. d 71. Yes, Health Source can succeed in a suit against Medico. The basis for the suit could be fraud because Medico had a duty to disclose that the inventory was overstated as soon as Medico learned of that fact.

The elements of an action for fraud are (1) the misrepresentation of a material fact, (2) the intent to deceive, and (3) the innocent party’s justifiable reliance on the misrepresentation. Ordinarily, no party to a contract has a duty to come forward and disclose facts. Each party is responsible for the use of common sense and normal business sense in negotiating a contract. An action for fraud can be based on a failure to disclose material facts when there is a certain relationship between the parties such as between partners in a partnership or when a party could not reasonably discover a fact known to the other party. An action may also be maintained if, as here, a party that misstates a material fact later learns of the misstatement but does not disclose it to the other party. This is misrepresentation by conduct.

Here, by providing financial statements, Medico made certain representations. However, those representations were false, as Medico learned. Medico’s knowledge of the overstated inventory and failure to disclose this to Health Source indicated intent to deceive. Health Source’s reliance on Medico’s statements was reasonable and justifiable.

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Chapter 11: Contract Performance, Breach, and Remedies 72. Yes, and no. Consolidated will succeed in recovering damages, but not all of the damages that it seeks.

Everywhere Shipping’s failure to perform promptly is a breach of contract for which Consolidated can recover damages.

Because of Everywhere Shipping’s late delivery of the pump, Consolidated is entitled to recover the cost of renting the pump for the five days that Everywhere Shipping delayed. Expenses that are caused directly by a breach of—such as the cost to rent the replacement pump after Everywhere Shipping breached the contract—are recoverable as compensatory damages. These expenses were foreseeable.

Consequential damages—damages caused by special circumstances beyond the contract—are recoverable only if the breaching party knew or should have known at the time of contracting of their possibility. In this problem, Consolidated’s shutdown of its operations is a special circumstance, but Everywhere Shipping did not know of these circumstances so Consolidated’s consequent loss of profits is not recoverable.

Also, Consolidated cannot recover punitive damages, which are not usually recoverable in breach of contract suits.

Punitive damages are intended to punish wrongdoing. The purpose of damages in a breach of contract suit is to place the non-breaching party in the position he or she would have occupied if the contract had been performed, not to punish the breaching party.

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Chapter 12: Sales and Lease Law

Indicate whether the statement is true or false.

1. If a court determines that a contract involving both goods and services is primarily a goods contract, any dispute over the deal will be decided under the UCC. a. True b. False 2. An auto dealer is a merchant when selling or leasing a new car, but not when selling or leasing a pre-owned vehicle. a. True b. False 3. The UCC imposes certain special business standards on merchants because of their commercial expertise. a. True b. False 4. A contract for a sale of natural gas is a contract for a sale for goods. a. True b. False 5. Article 2 sets forth the requirements for sales and lease contracts, and Article 2A covers warranties. a. True b. False 6. Parties to sales and lease contracts are not free to agree to terms different from those stated in the UCC. a. True b. False 7. The UCC provides that a sale or lease contract will fail for indefiniteness if more than one of its terms is left open. a. True b. False 8. If a contract for a sale of goods leaves the quantity term open, there is a basis for determining a remedy. a. True b. False 9. Except for an option contract, a firm offer by a merchant is irrevocable once it has been made. a. True b. False 10. Acceptance of an offer to lease goods can be made by any means reasonable under the circumstances, including a prompt shipment of the goods. a. True b. False 11. In response to an order for a hundred baseballs, the shipment of a hundred basketballs is both an acceptance of the offer and a breach of the contract.

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Chapter 12: Sales and Lease Law a. True b. False 12. If the acceptance to a sales contract between non-merchants includes terms different from those in the offer, no contract is formed under the UCC. a. True b. False 13. Generally, when an acceptance to a sales contract between merchants includes terms additional to those in the offer, the terms automatically become part of the deal. a. True b. False 14. To satisfy the UCC’s Statute of Frauds, a writing indicating an intent to form a sales contract must be signed by both parties. a. True b. False 15. An excessive price for the goods and unequal bargaining power can indicate to a court that a sales contract is unconscionable. a. True b. False 16. The obligation of commercial reasonableness underlies every sales and lease contract. a. True b. False 17. Under the UCC, good faith can never be disclaimed. a. True b. False 18. Under the perfect tender rule, a buyer (or lessee) has the right to accept part and reject part of the shipment. a. True b. False 19. The seller or lessor has a right to attempt to “cure” a defect when the time for performance has expired. a. True b. False 20. A seller who tenders nonconforming goods has reasonable grounds to believe that the buyer will accept the tender if it includes a price allowance. a. True b. False 21. When anticipatory repudiation occurs, the nonbreaching party can treat the repudiation as a final breach by pursuing a remedy.

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Chapter 12: Sales and Lease Law a. True b. False 22. The nonbreaching party cannot wait to see if the repudiating party will decide to honor the contract despite the avowed intention to renege. a. True b. False 23. The UCC permits a breaching party to “retract” a repudiation. a. True b. False 24. If the seller (or lessor) refuses to deliver the goods or the buyer (or lessee) has rejected the goods, the buyer (or lessee) cannot sue to obtain specific performance if the goods are unique or if damages are an inadequate remedy. a. True b. False 25. If the seller (or lessor) refuses to deliver the goods or the buyer (or lessee) has rejected the goods, the buyer (or lessee) cannot reject the goods. a. True b. False 26. If the seller (or lessor) refuses to deliver the goods or the buyer (or lessee) has rejected the goods, the buyer (or lessee) cannot cancel the contract. a. True b. False 27. An implied warranty is one that the law derives by inference from the nature of the transaction, or the relative situations or circumstances of the parties. a. True b. False 28. A merchant who deals in goods of the kind sold (or leased), automatically gives rise to an implied warranty of merchantability. a. True b. False 29. The implied warranty of merchantability requires that a vehicle be in safe condition and substantially free of defects. a. True b. False 30. The implied warranty of fitness for a particular purpose arises when any seller or lessor (merchant or nonmerchant) knows the particular purpose for which a buyer (or lessee) will use the goods. a. True b. False 31. A seller (or lessor) is not required to have actual knowledge of the buyer’s (or lessee’s) particular purpose.

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Chapter 12: Sales and Lease Law a. True b. False 32. Under the Magnuson-Moss Warranty Act, a buyer must receive warranty for goods. a. True b. False 33. A full warranty requires paid repair or replacement of any defective part. a. True b. False 34. A limited warranty is one in which the buyer’s recourse is limited in some fashion. a. True b. False 35. The Magnuson-Moss Warranty Act also requires a warrantor to make certain disclosures fully and conspicuously in a single document in “readily understood language.” a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Article 2 sets forth the requirements for a. oral contracts. b. lease contracts. c. sales contracts. d. electronic contracts.

37. Life Products, Inc., enters into a contract to sell medical supplies to Med Clinic, which later sells some of the items to Nina, a patient and consumer. Article 2 of the UCC applies to a. both transactions. b. the sale from Life Products to Med Clinic only. c. the sale from Med Clinic to Nina only. d. None of the transactions.

38. Brooke is an art collector and hires a broker to buy and sell artworks on her behalf. Under the UCC, in those transactions, Brooke has the status of a. a consumer. b. an agent or other intermediary. c. a merchant. d. an employer and manager.

39. Mining Corporation purchases the business assets of Open Pit, Inc., including its equipment and supplies, for an agreed-to price, payable in installments. Under Article 2 of the UCC, this transaction is a. a contract for services.

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Chapter 12: Sales and Lease Law b. a sublease. c. a lease. d. a sale.

40. When a conflict arises between a common law contract rule and the state statutory law based on the UCC a. the judge controls. b. the common law controls. c. the UCC controls. d. None of these choices.

41. The passing of title from the seller to the buyer for a price is a. a lease. b. a real property deed. c. a sale. d. a merchant.

42. To determine whether a contract is primarily for the sale of goods or the sale of services a. courts use the predominant-factor test. b. courts turn to the Bill of Rights. c. courts rely on the attorneys. d. courts don’t do anything.

43. According to the UCC, a merchant is a. a person who deals in the goods of the kind. b. a person who, by occupation, holds himself or herself out as having knowledge and skill. c. a person who employs a merchant as a broker, agent, or other intermediary. d. All of these choices.

44. When a merchant-offeror gives assurances in a signed writing that the offer will remain open, this is considered a a. sale. b. lease. c. consideration. d. firm offer.

45. When the offeree pays consideration for the offeror's irrevocable promise to keep the offer open for a stated period, this is a. a firm offer. b. acceptance. c. an option contract. d. accommodation.

46. Rice Corporation offers to sell Sushi Restaurants, Inc., five hundred bushels of rice. Sushi responds, “We agree to buy five hundred bushels only if the rice is Grade A quality.” Without more, their contract is formed according to a. the new terms of the acceptance. b. whatever is reasonable.

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Chapter 12: Sales and Lease Law c. the terms of the original offer. d. None of the terms.

47. Grass Farm LLC offers to sell fifty bales of hay at a certain price to Horse Stable, Inc. The owner of the stable responds, “We agree if you agree to make it sixty bales for the price.” Their contract is formed according to a. the new terms of the acceptance. b. whatever is reasonable. c. the terms of the original offer. d. None of the terms.

48. When the contract is formed according to the terms of the original offer and does not include any of the additional terms in the acceptance a. one or both of the parties is a nonmerchant. b. both parties are merchants. c. neither parties are merchants. d. None of these choices.

49. The additional terms automatically become part of the contract unless one of the following conditions arises a. both parties object to the contract. b. the new or changed terms materially alter the contract. c. consideration was not given to one party. d. signatures are invalid.

50. The UCC contains Statute of Frauds provisions for a. sales and lease contracts. b. oral contracts. c. electronic contracts. d. contracts in breach.

51. What price conditions has the UCC set for contracts in writing to be enforceable? a. Sales contracts of $500 or more. b. Lease contracts of $1000 payments or more. c. Both a and b. d. Neither a nor b.

52. Which of the following satisfies the UCC’s writing requirement? a. printed contract b. emails c. handwritten contract d. All of these choices 53. Merchants can satisfy the Statute of Frauds if, after the parties have agreed orally, one of the merchants sends a signed written confirmation to the other merchant a. within a reasonable time. b. one month later.

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Chapter 12: Sales and Lease Law c. one year later. d. two years later.

54. Which is an exception to the writing requirement of the Statute of Frauds? a. consideration. b. partial performance. c. accommodation. d. full performance.

55. Under the Statute of Frauds, if ABC company sells products with an estimated value of $2000, then the contract a. must be in writing since it’s more than $500. b. can be oral. c. cannot be done electronically. d. None of these choices.

56. Steel Buildings, Inc., agrees to lease an office space for $1500 a month for two years. According to the UCC, their contract a. cannot be accepted electronically. b. can be oral to be enforceable. c. must be in writing since the payments are more than $1000. d. None of these choices.

57. If goods of delivery fail in any respect to conform to the contract, the buyer (or lessee) may accept the goods, reject the entire shipment, or accept part and reject part. This is called the a. predominant-factor test. b. statute of frauds. c. perfect tender rule. d. reasonable standard rule.

58. A tender of nonconforming goods automatically constitutes a. consideration. b. an acceptance. c. a breach of contract. d. an accommodation.

59. The right of the seller or lessor to repair, adjust, or replace defective or nonconforming goods is referred to as a. a substitution. b. an obligation. c. a cure. d. an accommodation.

60. The seller (or lessor) has a right to attempt to “cure” a defect when a. the goods are delivered by the seller. b. the buyer receives the goods. c. the time for performance has not yet expired.

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Chapter 12: Sales and Lease Law d. the money is exchanged.

61. If a commercially reasonable substitute is available, this substitute performance is a. sufficient tender to the buyer and must be used. b. insufficient tender to the buyer and cannot be used. c. sufficient tender to the buyer but cannot be used. d. insufficient tender to the buyer but can be used.

62. If performance is commercially impracticable—when the contract was made—either party may have been affected by a. unforeseen occurrences. b. an implied warranty. c. objections. d. puffery.

63. When anticipatory repudiation occurs, the nonbreaching party may a. suspend accommodation. b. suspend agreement c. suspend consideration. d. suspend performance.

64. Under the UCC, the breaching party a. must pay for damages. b. may retract a repudiation. c. must revise the contract. d. None of these choices.

65. A warranty that the law derives by inference from the nature of the transaction, or the relative situations, or circumstances of the parties is called a. an implied warranty. b. an express warranty. c. the implied duty of inspection. d. None of the choices.

66. When any seller or lessor (merchant or nonmerchant) knows the particular purpose for which a buyer (or lessee) will use the goods, and knows that the buyer (or lessee) is relying on the skill and judgment of the seller (or lessor) to select suitable goods, this is referred to as a. the implied duty of inspection. b. implied warranty of fitness for a particular purpose. c. an express warranty. d. implied warranty of merchantability.

67. Goods must “reasonably fit for the ordinary purposes for which such goods are used” in order to be a. warranted. b. considered. c. merchantable.

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Chapter 12: Sales and Lease Law d. refunded.

68. The Magnuson-Moss Warranty Act modified UCC warranty rules to which of the following transactions? a. manufacturer transactions. b. merchant transactions. c. consumer transactions. d. distributor transactions.

69. Under the Magnuson-Moss Warranty Act, no seller is required to a. give a written warranty for consumer goods. b. opt out of providing an implied warranty. c. opt out of providing an express warranty. d. None of the choices.

70. A free repair or replacement of any defective part is a. a full warranty. b. an express warranty. c. an implied warranty. d. an implied duty of inspection.

71. Tune Products, Inc., offers to sell to Unlimited Sales Company one hundred MP3 players at $50 a piece, subject to certain specific delivery dates. Unlimited replies with a signed purchase order that reads, “Accept your offer for 100 Iappliances at $50 each. Must be delivered to our warehouse.” Tune does not respond or deliver the goods. Unlimited files a suit for breach of contract, to which Tune answers that there is no contract because Unlimited’s purchase order contained additional terms and is not signed by Tune. Can Unlimited recover? Explain.

72. Colby contracts in writing to sell his Dodge-brand pick-up truck to Eddie for $10,500. Colby agrees to deliver the truck on Friday, and Eddie promises to pay the $10,500 on the following Monday. On Thursday, Eddie tells Colby that he changed his mind and will not buy the truck. Over the weekend, Eddie changes his mind again and tenders $10,500 to Colby on Monday. Colby has not sold the truck to another party, but refuses the tender and refuses to deliver. Eddie claims that Colby has breached their contract. Colby contends that Eddie’s repudiation released him from his duty to perform under the contract. Who is correct, and why?

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Chapter 12: Sales and Lease Law Answer Key 1. True 2. False 3. True 4. True 5. False 6. False 7. False 8. False 9. False 10. True 11. True 12. False 13. True 14. False 15. True 16. True 17. True 18. True 19. False 20. True 21. True 22. False 23. True 24. False 25. False Powered by Cognero

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Chapter 12: Sales and Lease Law 26. False 27. True 28. True 29. True 30. True 31. True 32. False 33. False 34. True 35. True 36. c 37. a 38. c 39. d 40. c 41. c 42. a 43. d 44. d 45. c 46. a 47. d 48. a 49. b 50. a 51. c Powered by Cognero

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Chapter 12: Sales and Lease Law 52. d 53. a 54. b 55. a 56. c 57. c 58. c 59. c 60. c 61. a 62. a 63. d 64. b 65. a 66. b 67. c 68. c 69. a 70. a 71. Yes. Additional or different terms is an unconditional acceptance, which are otherwise definite and timely. Thus, they are interpreted as proposals for additional terms to a contract, unless the contract is between merchants. In that situation, the terms become part of the contract unless (1) the offer expressly limits acceptance to its terms, (2) the additional terms materially alter the contract, or (3) the offeree objects to the additional terms within a reasonable time. Here, the offer did not expressly limit the acceptance, the extra terms did not materially change the contract, and Tune did not object within a reasonable time. If either or both of the parties are not a merchant, a contract is formed according to the terms of the original offer. Thus, here, the additional term (i.e., delivery to Unlimited’s warehouse) would have become part of the contract even if one or both parties had not been merchants.

Tune’s Statute of Frauds claim (that the purchase order was not signed by Tune) also fails. For a sales contract of goods between merchants, when one party sends a written confirmation within a reasonable time after terms have been reached orally, the confirmation is binding unless the recipient objects within ten days of receipt. The merchant receiving the communication must have reason to know its contents, but it needs to be signed only by the party who sends it. Here, Powered by Cognero

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Chapter 12: Sales and Lease Law Tune received the signed writing, but did not object within the ten days.

72. Eddie is correct. Colby’s refusal to deliver the truck to Eddie on Monday, when Eddie tenders the $10,500 to Colby, constitutes a breach of their contract. Colby could have canceled the contract on Eddie’s anticipatory repudiation but did not do so and did not change his position in any way as a result of Eddie’s anticipatory breach. Eddie could retract his repudiation of the contract at any time before the time performance was due. Because Eddie did retract his repudiation and decided to buy the truck at the time performance was due and not later, Colby was obligated to abide by the terms of the contract.

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Chapter 13: Creditor-Debtor Relations and Bankruptcy

Indicate whether the statement is true or false.

1. A mechanic’s lien creates a special type of debtor-creditor relationship in which the business itself becomes a security for the debt. a. True b. False 2. A person who has contracted a company for labor, services, or materials to be furnished for making improvements on real property does not have to immediately pay for the improvements. a. True b. False 3. Mechanic’s Lien is a statutory lien on automobiles to ensure payment to a person who has performed work for the repair or improvement of that vehicle. a. True b. False 4. Mechanic’s liens for small amounts are rarely the basis of foreclosure. a. True b. False 5. Mechanic’s liens remain on the books of the state even after the house is sold. a. True b. False 6. When the sale is finalized, the buyer agrees to pay any mechanic’s liens out of the proceeds of the sale before the seller receives any of the funds. a. True b. False 7. The lienholder must file a written notice of lien within a specific time from the last date that material (or labor) was provided. a. True b. False 8. When a debtor fails to pay for labor for the repair or improvement of personal property, a creditor can recover payment through a mechanic’s lien. a. True b. False 9. An artisan’s lien is based on credit. a. True b. False 10. The lien remains in existence as long as the lienholder maintains possession, and the lien is terminated once possession is involuntarily surrendered. a. True Powered by Cognero

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Chapter 13: Creditor-Debtor Relations and Bankruptcy b. False 11. Modern statutes permit the holder of an artisan’s lien to foreclose and sell the property. a. True b. False 12. The lienholder is required to give notice to the owner of the property after the foreclosure and sale. a. True b. False 13. The sale proceeds are used to pay the debt and the costs of the legal proceedings. a. True b. False 14. A contract of strict suretyship is a promise made by a third person. a. True b. False 15. Suretyship is an implied contract between the surety and the creditor. a. True b. False 16. The surety is not liable for the debt of the principal. a. True b. False 17. The creditor cannot demand payment from the surety. a. True b. False 18. The creditor must exhaust all legal remedies against the principal debtor before holding the surety responsible for payment. a. True b. False 19. To qualify for a Chapter 7 bankruptcy, a debtor must complete a means test to determine whether the debtor has been living within his or her means. a. True b. False 20. Liquidation under Chapter 7 of the Bankruptcy Code is often referred to as an ordinary, or straight, bankruptcy. a. True b. False 21. A debtor in a liquidation bankruptcy turns all assets over to a creditor. a. True Powered by Cognero

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Chapter 13: Creditor-Debtor Relations and Bankruptcy b. False 22. The bankruptcy trustee sells the nonexempt assets and distributes the proceeds to creditors. a. True b. False 23. Remaining debts are never extinguishable. a. True b. False 24. Only a certain class of people who qualify may be a debtor in a liquidation proceeding. a. True b. False 25. A husband and wife cannot file jointly for bankruptcy under a single petition. a. True b. False 26. Credit unions cannot be debtors in a liquidation bankruptcy. a. True b. False 27. An involuntary petition should not be used as an everyday debt-collection device. a. True b. False 28. A debtor files official forms designated for that purpose in the bankruptcy court to initiate a voluntary petition in bankruptcy. a. True b. False 29. To avoid bankruptcy proceedings, creditors may prefer a public, negotiated adjustment of creditor-debtor relations, also known as a workout. a. True b. False 30. In a Chapter 11 proceeding, the role of a debtor in possession is similar to that of a trustee in a Chapter 7 proceeding. a. True b. False 31. The Chapter 11 reorganization plan must provide a full repayment to unsecured creditors. a. True b. False 32. A Chapter 13 proceeding is more expensive and complicated than a Chapter 11 or Chapter 7 proceeding. a. True Powered by Cognero

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Chapter 13: Creditor-Debtor Relations and Bankruptcy b. False 33. The automatic stay applies to all or part of the debtor’s consumer debt. a. True b. False 34. A court cannot dismiss a debtor’s petition under Chapter 13 even if the circumstances indicate bad faith. a. True b. False 35. After the debtor has completed all payments, the court grants a discharge of only some debts provided for by the repayment plan. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. To create an enforceable security interest between Mortgage Bank and Nations Property Company with a written security agreement, the agreement must be signed by a. the debtor. b. the creditor. c. All of the choices. d. a disinterested third-party witness.

37. Owen is given value by Payday Sales Company in the form of a commitment to sell goods on credit. In terms of creating an enforceable security interest, this is a. the only requirement. b. a factor but not a requirement. c. irrelevant. d. one of the requirements.

38. Loan Company has a security interest against Manufacturing, Inc., that is enforceable. In other words, with respect to the collateral, Loan’s rights are said to a. attach. b. ensure. c. perfect. d. process.

39. Ready Credit, Inc., holds a security interest in inventory owned by Soy Products, Inc. Ready Credit can protect its claim to the inventory in the event of Soy Products’s default by a. assignment. b. perfection. c. redemption. d. retention.

40. Kiosk Jewelers borrows from Lender, Inc., and Mortgage Company, using the same collateral. Only Mortgage Powered by Cognero

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Chapter 13: Creditor-Debtor Relations and Bankruptcy Company has a perfected security interest. Kiosk defaults on both loans. The party with first rights to the collateral is a. Kiosk Jewelers. b. None of the choices. c. Lender, Inc. d. Mortgage Company.

41. Ron borrows funds from Suburban Bank secured by Ron’s house. Ron defaults on the debt. The bank’s options include a. retaining the security interest and pursuing a judicial remedy. b. destroying the collateral and collecting the unpaid debt from Ron. c. disposing of the collateral in any commercially reasonable manner. d. repossessing the collateral and disavowing the security interest.

42. Construction Company has a claim against Diners Café to satisfy a debt that takes priority over other claims against the same property. This is a. a lien. b. a fraud. c. a guaranty. d. a garnishment.

43. Rancho West owes Silo & Barn, Inc., $5,000 on their contract, but refuses to pay. To collect, Silo files a mechanic’s lien, under which security for the debt is represented by a. Rancho’s personal property. b. Rancho’s real estate. c. the $5,000 owed on the contract. d. property held by a third party.

44. The holder of an artisan’s lien must give notice to the owner of the property prior to a. foreclosure and sale. b. closing of escrow. c. the appraisal. d. None of the choices.

45. To avoid bankruptcy proceedings, creditors may prefer a private, negotiated adjustment of creditor-debtor relations known as a a. reaffirmation. b. workout. c. acceptance. d. cram-down provision.

46. Even if only one class of creditors has accepted the plan, the court may still confirm the plan under the Code’s a. reaffirmation. b. workout. c. acceptance. d. cram-down provision.

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Chapter 13: Creditor-Debtor Relations and Bankruptcy 47. Irma delivers her Jeep to be fixed at Kent’s Auto Repair. Irma agrees to pay cash. Kent’s performs, but Irma does not pay. Kent’s keeps the Jeep until she pays. This is a. garnishment. b. a mechanic’s lien. c. an artisan’s lien. d. a violation of most states’ laws.

48. Under Chapter 13, the repayment plan must provide a. the turning over to the trustee of future earnings. b. full payment through deferred cash payments of all claims. c. identical treatment of all claims within a particular class. d. All of the choices.

49. Under Chapter 13, the length of the plan can be a. two years. b. three years. c. four years. d. None of these choices.

50. When the seller agrees to pay this out of the proceeds of the sale before the seller receives any of the funds, it is a a. garnishment. b. mechanic’s lien. c. judicial lien. d. an artisan’s lien.

51. To make a sale to Gourmet, Inc., Hill Valley Commodities asks Gourmet’s outside accountant Ina to co-sign a credit application. According to the terms, if Gourmet defaults, Hill Valley can look to her for payment without first pursuing legal remedies against Gourmet. Tina is a. a surety. b. a lienor. c. a guarantor. d. a creditor.

52. The selling of all nonexempt assets and the distribution of the proceeds to the debtor’s creditors is known as a. Chapter 7 bankruptcy. b. Chapter 11 bankruptcy. c. Chapter 12 bankruptcy. d. Chapter 13 bankruptcy.

53. A consumer-debtor is a debtor whose debts result primarily from the purchase of goods for a. personal use. b. family use. c. household use. d. All of these choices.

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Chapter 13: Creditor-Debtor Relations and Bankruptcy 54. With respect to debtors, the main goal of bankruptcy law is to a. encourage the continued use of credit. b. ensure that third parties will continue to guarantee loans. c. provide a new start without creditors’ claims. d. shield assets from creditors’ claims.

55. Under any chapter of the Bankruptcy Code, failing to file the necessary documents with the debtor’s petition for relief can result in a. an automatic stay. b. the discharge of the debtor’s obligations. c. the dismissal of the petition. d. the distribution of the debtor’s assets to his or her creditors.

56. The Bankruptcy Code is also referred to as a. the Code. b. Article 1, Section 8. c. Bankruptcy Reform Act of 1898. d. the prioritization of claims of the creditors in an involuntary proceeding.

57. In a Chapter 7 bankruptcy, on a finding that the use of Chapter 7 would constitute substantial abuse, the court is most likely to a. extend the time for the debtor’s payment of overdue debts. b. allow a creditor to collect a previous judgment on a disputed debt. c. force a creditor to obtain a new judgment on a claimed debt. d. dismiss the debtor’s petition.

58. If a voluntary petition in bankruptcy is found to be proper, the court’s entry of an order for relief a. puts into place an automatic stay. b. discharges the debtor’s obligations. c. dismisses the petition. d. distributes the debtor’s assets to his or her creditors.

59. Under Chapter 7, creditors are paid in a certain order of priority. The highest-priority class comprises claims for a. debts related to motor vehicles, household goods, and trade tools. b. domestic support. c. the debtor’s equity in his or her residence. d. student loans.

60. Under Chapter 7, claims against property of funds obtained by the debtor under false pretenses or by false misrepresentations is a. distributed. b. dischargeable. c. not dischargeable. d. None of these choices.

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Chapter 13: Creditor-Debtor Relations and Bankruptcy 61. Under Chapter 7, a discharge is most likely to be denied if the debtor a. conceals property to hinder or delay a creditor. b. destroys records of the debtor’s financial condition. c. fails to attend a required consumer education course. d. All of the choices.

62. Under Chapter 7, the primary effect of a discharge is to a. extend the time for the debtor’s payment of overdue debts. b. allow a creditor to collect a previous judgment on a discharged debt. c. force a creditor to obtain a new judgment on a discharged debt. d. void a judgment on a discharged debt and prohibit an action to collect it.

63. Dana operates Energy, Inc., a corporation in the fuel-supply business. Dana wants to create a plan under which the firm pays a portion of its debts, is discharged of the remainder, and is allowed to continue in business. Energy should file a petition in bankruptcy for relief through a. a liquidation. b. a reorganization. c. a repayment plan. d. an adjustment of debts.

64. Under Chapter 7 and Chapter 11 a. All of the choices. b. petitions can be filed voluntarily or involuntarily. c. the same principles govern the entry of the order for relief. d. the automatic stay provision applies.

65. Under Chapter 11, the debtor’s obligations most likely to be discharged are a. taxes accruing within the last three years. b. claims based on the debtor’s willful or malicious conduct or fraud. c. None of the choices. d. domestic-support obligations.

66. Baby Day Care, a sole proprietorship, wants to pay as many of its obligations as reasonably possible, and be discharged of the rest. To accomplish this goal, the proprietorship should file a petition in bankruptcy under Chapter 13 for relief through a. a liquidation. b. a reorganization. c. a repayment plan. d. an adjustment plan.

67. At the time of the filing of the petition and the time of the filing of the plan, Chapter 13 imposes on the debtor the requirement of a. goodwill. b. good faith.

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Chapter 13: Creditor-Debtor Relations and Bankruptcy c. substantial means. d. sufficient credit.

68. Under Chapter 13, after the completion of all payments under the plan, the court will grant a discharge of a. only the debts provided for by the plan. b. only the obligations not provided for by the plan. c. all claims, whether or not provided for by the plan. d. all obligations that remain unsatisfied.

69. Compared to Chapter 7 and 11 plans, a Chapter 13 plan a. permits creditors to force a debtor into involuntary bankruptcy. b. allows a debtor to retain possession of his or her assets. c. is more expensive and more complicated. d. permits any interested party to file a repayment plan.

70. Under Chapter 13, a repayment plan must provide for a. the turnover of the debtor’s future income to the creditors. b. full payment of all claims, without exception. c. the same treatment of each claim within a particular class of claim. d. All of the choices.

71. Andrew Milner owned a pizza restaurant that employed Pete Marcello. One night after Marcello had finished his shift, Milner called him back into the restaurant and accused him of stealing. An argument ensued, and Marcello shoved Marcello, causing him to fall and injure his back. Milner did not provide worker’s compensation coverage. Because Milner did not provide workers’ compensation coverage as required by law, the state prosecuted him criminally. He was ordered to pay more than $45,000 in restitution to Marcello for his injuries. Marcello also filed a civil suit against Milner, which the parties agreed to settle for $185,000. Later, Milner filed a petition for bankruptcy. Could Marcello argue that Milner’s debts were nondischargeable?

72. David Dearmond was a real estate developer who owned interests in two development companies—Briartowne, LLC, and Hillside, LLC. He also owned one-third of Bluffs of Sevier County, LLC, which operated Bluff’s Bar & Grill. When Briartowne defaulted on a $623,499 promissory note, SmartBank filed an action against Briartowne, Dearmond, and others. Five months later, Dearmond sold Boyds Creek Market and Garage, a property he had paid $400,000 for the previous year, to his fiancée, Patricia Harper, for $90,000. Two days after that, Dearmond created two irrevocable trust agreements and transferred all of his interest in Hillside and Bluffs of Sevier County into those trusts. The trusts named Harper as the primary beneficiary. Although SmartBank obtained a judgment against Dearmond (and the other owners of Briartowne), it was unable to collect from these assets. A year and a half later, Dearmond filed a petition for bankruptcy.

The trustee filed a motion seeking to avoid the fraudulent transfers made to benefit Harper. Harper claimed that Dearmond had given her the interest in Hillside as a wedding present. What decision could the court make?

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Chapter 13: Creditor-Debtor Relations and Bankruptcy Answer Key 1. False 2. True 3. False 4. True 5. False 6. False 7. True 8. False 9. False 10. False 11. True 12. False 13. True 14. True 15. False 16. False 17. False 18. False 19. False 20. True 21. False 22. True 23. False 24. False 25. False Powered by Cognero

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Chapter 13: Creditor-Debtor Relations and Bankruptcy 26. True 27. True 28. True 29. False 30. True 31. False 32. False 33. True 34. False 35. False 36. a 37. d 38. a 39. b 40. d 41. c 42. a 43. b 44. a 45. b 46. d 47. c 48. d 49. b 50. b 51. a Powered by Cognero

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Chapter 13: Creditor-Debtor Relations and Bankruptcy 52. a 53. a 54. c 55. c 56. a 57. d 58. a 59. b 60. c 61. d 62. d 63. b 64. a 65. c 66. d 67. b 68. a 69. b 70. a 71. Yes, Marcello could argue Milner’s debts were nondischargeable because exceptions from discharge include any debts for willful (i.e., deliberate or intentional) injury, and Milner’s actions were deliberate. Thus, the court would most likely agree with Marcello’s argument and declare that Milner’s debts did not qualify to have all debts discharged by bankruptcy.

72. The court could decide that the transfers should be set aside because they were made with actual intent to hinder, delay, or defraud a creditor. Therefore, the trusts no longer owned the properties. Moreover, the court could enter judgment for the trustee in an amount equivalent to the value of the fraudulent transfers.

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Chapter 14: Agency Relationships

Indicate whether the statement is true or false.

1. A fiduciary relationship means that the professional relationship involves one party having the option to represent the principal whenever they want. a. True b. False 2. The term fiduciary is at the heart of agency law. a. True b. False 3. A fiduciary is a person who undertakes a certain enterprise on behalf of another person. a. True b. False 4. An agency relationship is based on the attributes of power, control, and financial self-interest—not the trust and confidence of a fiduciary relationship. a. True b. False 5. Agency relationships cannot exist outside an employment, so agency law has a narrower reach than employment law. a. True b. False 6. An independent contractor is one who works for, and receives payment from, an employer but whose working conditions and methods are not controlled by the employer. a. True b. False 7. An independent contractor is, by definition, an employee because the person’s physical conduct is controlled, or subject to control, by the employer. a. True b. False 8. A truck driver who drives a company truck on a regular basis is most likely an employee. a. True b. False 9. If the employer provides the tools at the place of work, then this can indicate independent contractor status. a. True b. False 10. According to federal law, employers must pay employees for overtime work. a. True b. False Powered by Cognero

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Chapter 14: Agency Relationships 11. If the IRS decides that an employee is misclassified, the independent contractor will still be responsible for paying any applicable Social Security, withholding, and unemployment taxes due for that employee. a. True b. False 12. The IRS is flexible with a firm’s classification of its workers. a. True b. False 13. The most important factor the IRS uses to determine worker status is the degree of control the business exercises over the worker. a. True b. False 14. Anyone can become a principal. a. True b. False 15. A minor can be a principal. a. True b. False 16. An agency relationship that is created for an illegal purpose can still be enforceable. a. True b. False 17. An agency relationship can be created for any legal purpose. a. True b. False 18. An express condition in agency contracts is the agent’s agreement to use diligence and skill in performing the work. a. True b. False 19. If an agent has represented himself or herself as possessing special skills, the agent is expected to use them. a. True b. False 20. An implied condition in every agency contract is the agent’s agreement to use reasonable diligence and skill in performing the work, and when an agent fails to fulfill their contract, liability for breach of contract may result. a. True b. False 21. A gratuitous agent can be liable for breach of contract. a. True b. False Powered by Cognero

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Chapter 14: Agency Relationships 22. The principal’s duty to pay the agent for services rendered is optional. a. True b. False 23. A principal has a duty to pay an agent in a timely manner under the customary compensation for services rendered. a. True b. False 24. When an accountant or an attorney is asked to act as an agent, an agreement to compensate the agent for service is implied. a. True b. False 25. The principal must pay the agreed-on value for services even if the agency is gratuitous. a. True b. False 26. If no amount has been expressly agreed on, the principal does not owe the agent anything. a. True b. False 27. Whenever an agent disburses funds at the request of the principal, the principal’s payment is optional. a. True b. False 28. Agents can recover expenses incurred through their own misconduct or negligence. a. True b. False 29. The principal has the duty to indemnify an agent for liabilities incurred because of authorized acts and transactions. a. True b. False 30. The principal is not required to indemnify the agent for the value of benefits that the agent confers on the principal. a. True b. False 31. Express authority must be in writing. a. True b. False 32. Agents do not have authority to accomplish the objectives of the agency. a. True b. False Powered by Cognero

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Chapter 14: Agency Relationships 33. Actual authority is never implied from the position the agent occupies. a. True b. False 34. Actual authority arises from what the principal manifests to the agent. a. True b. False 35. An agent can never have apparent authority. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. This term is at the heart of agency law: a. fiduciary. b. ratification. c. estoppel. d. performance.

37. As an adjective, fiduciary means a. a relationship founded on trust and confidence. b. an employer-employee relationship. c. an employer-independent contractor relationship. d. a principal.

38. When used as a noun, fiduciary refers to a person who, having undertaken a certain enterprise on behalf of another person a. can breach a contract without penalty. b. acts as an attorney for that person. c. has a duty to act for the other person’s benefit in all matters related to that enterprise. d. None of these choices.

39. A salesperson in a department store is a. an agent. b. an employee. c. acts on the owner’s behalf. d. All of these choices.

40. Diamonds & Gold LLC hires Elle to buy gems and precious metals from various sources on its behalf. In this relationship, Diamonds is a. an employee. b. an independent contractor. c. a principal. d. an agent.

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Chapter 14: Agency Relationships 41. Bread Company hires Craig to sell the company’s products in a certain area. Bread agrees to pay Craig a salary, plus commission, for a trial period. They also agree that he can sell using any methods and during any hours that seem appropriate. The key factor in whether Craig is Bread’s employee is a. the amount of the salary. b. the degree of the employer’s control over the details of the work. c. the length of the trial period. d. the size of the sales area.

42. Kit hires Lanie to manage Kit’s Cattle Ranch. Lanie agrees to act on Kit’s behalf, subject to Kit’s control, and Kit trusts Lanie to so act. Their relationship is a. an employee and an agent. b. None of the choices. c. an employer and an independent contractor. d. a principal and an agent.

43. Rosario is a chef and caterer who hires out on a per-project basis to companies with on-location work sites, as well as to the hosts of banquets and other events. In this capacity, Rosario is a. an agent. b. an employee. c. an independent contractor. d. a principal.

44. Agency law is based on the common law, whereas much employment law is a. corporate law. b. statutory law. c. intellectual property law. d. constitutional law.

45. Statutes governing Social Security, withholding taxes, workers’ compensation, unemployment compensation, workplace safety, and employment discrimination usually are applicable only if a. employer-employee status exists. b. independent contractors exist. c. agents exist. d. a fiduciary exists.

46. By definition, independent contractors are a. part-time workers. b. not employees, and employers have no control over the details of their physical performance. c. temporary agents only. d. fiduciaries who work on the principal’s behalf.

47. Which of the following does the agent not owe the principal? a. Performance. b. Loyalty.

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Chapter 14: Agency Relationships c. Deviation from instructions. d. Accounting.

48. Which of the following does the principal owe to the agent? a. Performance. b. Compensation. c. Obedience. d. Notification.

49. Bern, a salesperson at a Carpet & Tile store, tells Dan, a customer, “Buy your flooring here, and I’ll install it for less than the store would charge.” Dan buys carpeting, which Bern installs for half the store’s price. Bern keeps the money.

With respect to the store, Bern has breached a. no duty. b. the duty of loyalty. c. the duty of performance. d. the duty of obedience.

50. Larry is an agent for Mary. She gives him clear instructions to enter into contracts on her behalf only on Mondays, Wednesdays, or Fridays. He enters into a contract on her behalf on Tuesday. Larry has breached a. no duty. b. the duty of loyalty. c. the duty of performance. d. the duty of obedience.

51. Emmett, an agent for Fridley, signs an agreement with Glover on Fridley’s behalf but neglects to tell him that the agreement requires the payment of a certain tax. The government prosecutes Fridley for failing to pay the tax. He is a. liable, because notice to Emmett is notice to Fridley. b. liable, because notice to Glover is notice to Fridley. c. not liable, because Emmett did not notify Fridley of the tax. d. not liable, because Glover did not tell Fridley about the tax.

52. Curly Fries, Inc., grants its agent Dian an exclusive territory in which to sell its products. The company cannot compete with Dian in that territory under the duty of a. None of the choices. b. cooperation. c. indemnification. d. reimbursement.

53. Jon contracts with Kino to buy a certain number of sheep for Kino’s Animal Farm. Jon makes a deal with Lila for the sheep, but neither Jon nor Kino pays the price. Lila sues Jon for breach. Jon’s right to hold Kino liable for any damages is the right to a. None of the choices. b. compensation. c. indemnification. d. reimbursement.

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Chapter 14: Agency Relationships 54. Suva is an agent for Tax Accountants, Inc. On the firm’s behalf and at its request, Suva pays Uzo for specially coded software. Suva’s right to obtain the amount of the payment from Tax Accountants arises under the duty of a. None of the choices. b. compensation. c. indemnification. d. reimbursement.

55. A principal is required to provide safe a. working premises. b. equipment. c. conditions. d. All of these choices.

56. Romero employs Supply Procurement Service as an agent under a written agreement that describes the rights and duties of both parties. This is a. apparent authority. b. equal authority. c. express authority. d. implied authority.

57. The rule requiring that an agent’s authority must be in writing has a basis in the a. reasonable standard. b. equal dignity rule. c. privity of contract. d. None of the choices.

58. Parker (i.e., the principal) orally asks Austin (i.e., the agent) to sell a ranch that Parker owns. Austin finds a buyer and signs a sales contract on behalf of Parker to sell the ranch. Which rule applies here? a. Reasonable standard. b. Power of attorney. c. Privity of contract. d. Equal dignity rule.

59. Based on Nan’s conduct, Odel reasonably believes that Poppy has the authority to act on Nan’s behalf even though Poppy does not have the actual authority to do so. In this circumstance, Poppy has a. apparent authority. b. express authority. c. implied authority. d. no authority.

60. An individual authorized by the state to attest to the authenticity of signatures is referred to as a. a notary public. b. power of attorney. c. the principal. d. an agent.

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Chapter 14: Agency Relationships 61. To do what is reasonably necessary to carry out the agents’ express authority and accomplish the objectives of the agency is a. implied authority. b. express authority. c. apparent authority. d. emergency powers.

62. When the principal, by either words or actions, causes a third party to reasonably believe that an agent has authority to act, even though the agent has no express or implied authority, this is considered a. implied authority. b. express authority. c. apparent authority. d. emergency powers.

63. When a principal has given a third party reason to believe that an agent has authority to act, a court can apply a. the pattern of conduct. b. the doctrine of agency by estoppel. c. emergency powers. d. ratification.

64. The principal must indemnify the agent for the value of benefits that the agent confers on the principal, and the amount of indemnification is a. paid in cash only. b. nonnegotiable. c. wired to the bank. d. specified in the agency contract.

65. If a person finds a dog that becomes sick, takes the dog to a veterinarian, and pays for the veterinarian’s services, this person is entitled to be reimbursed by the dog’s owner for those costs and is referred to as a. a principal. b. power of attorney. c. a gratuitous agent. d. an independent contractor.

66. Penny creates an exclusive agency by granting Andrew an exclusive territory within which Andrew may sell Penny’s organic skin care products. If Penny starts to sell the products herself within Andrew’s territory—or permits another agent to do so—Penny a. has failed to cooperate with the agent. b. remains free of liability. c. can keep all her earnings. d. has exercised her apparent authority.

67. When the agent is an employee, the employer’s liability is frequently covered by a. state workers’ compensation insurance.

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Chapter 14: Agency Relationships b. private insurance. c. errors and omissions insurance. d. general liability insurance.

68. Authorization for another to act as one’s agent either in specified circumstances or in all situations is a. a notary public. b. a power of attorney. c. implied authority. d. apparent authority.

69. A power of attorney can be a. special. b. general. c. Both a and b d. Neither a nor b 70. If the principal negotiates a contract but is called out of town the day it is to be signed and orally authorizes an assistant to act as agent to sign the contract, the oral authorization a. is a breach of contract. b. is considered null and void. c. must be in writing. d. is sufficient.

71. Roman is the chief executive officer of Salty Snax Corporation. Roman’s responsibilities include decisions on product development, marketing, and other significant business directions. Roman is subject to the approval and oversight of Salty Snax’s board of directors. Teri is a Salty Snax manager whose duties include the firm’s day-to-day hiring, firing, purchasing, and selling. Umberto is a Salty Snax salesperson, whose daily activities are controlled by Teri. Velma writes sales manuals and promotional materials for Salty Snax’s products according to Roman’s instructions and subject to Salty Snax’s control, but has no dealings with the company’s customers or suppliers. Warren writes copy on a contract-perproject basis and is not otherwise subject to Salty Snax’s control. Who is a principal? Who is an agent? Who is an employee? Who is an independent contractor?

72. Yoshi contracts with Zach to buy a certain pub named Aficionado’s. Yoshi asks Zach not to reveal her identity. Zach makes a deal with Burcet, the owner of the pub, and makes a down payment. Yoshi fails to pay the rest of the price, and does not pay Zach for his services. Does Zach have any recourse against Yoshi? If so, on what basis and to what extent?

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Chapter 14: Agency Relationships Answer Key 1. False 2. True 3. True 4. False 5. False 6. True 7. False 8. True 9. False 10. True 11. False 12. False 13. True 14. False 15. True 16. False 17. True 18. False 19. True 20. False 21. False 22. False 23. True 24. True 25. False Powered by Cognero

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Chapter 14: Agency Relationships 26. False 27. False 28. False 29. True 30. False 31. False 32. False 33. False 34. True 35. False 36. a 37. a 38. c 39. d 40. c 41. b 42. d 43. c 44. b 45. a 46. b 47. c 48. b 49. b 50. d 51. a Powered by Cognero

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Chapter 14: Agency Relationships 52. b 53. c 54. d 55. d 56. c 57. b 58. a 59. a 60. a 61. a 62. c 63. b 64. d 65. c 66. a 67. a 68. b 69. c 70. d 71. Salty Snax is a principal. Roman, Teri, Umberto, and Velma are the company’s agents and employees. Warren is an independent contractor.

In an agency relationship, an agent agrees to act for or on behalf of a principal. An agent is subject to the control of the principal. An employee is subject to the control of the employer. An independent contractor is not subject to an employer’s control. A corporation is a “person” who has contractual capacity, but who can act only through its agents.

Salty Snax, as a corporation, is acting through its agents. Roman, Teri, Umberto, and Velma act on behalf of the company, from which they obtain their authority. This authority differs—Roman, Teri, and Umberto can bind Salty Snax in certain ways in their dealings with third parties, but Velma does not have the authority to legally bind the company. Because Roman, Teri, Umberto, and Velma are subject to the control of Salty Snax, through their superiors, they are employees.

Because Warren is not subject to Salty Snax’s control with respect to the physical conduct in the performance of his contracts, Warren is an independent contractor.

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Chapter 14: Agency Relationships 72. Zach can seek to hold Yoshi liable for breach of contract, and Yoshi may be liable for whatever damages Zach has to pay to Burcet, and more.

With respect to the contract with Burcet, a principal has a duty to indemnify an agent for liabilities incurred because of authorized and lawful acts (and transactions), and for losses suffered because of the principal’s failure to perform his or her duties.

With respect to payment for Zach’s services, if an agent is not a gratuitous agent (i.e., one who does not perform for money), a principal owes the agent compensation for his or her services rendered. In the facts of this question, if no amount had been agreed to, Yoshi would owe Zach the customary amount for his services. Of course, payment must be timely, and there may be a penalty associated with the delay. Also, a principal’s duties include the responsibility to reimburse an agent for expenses related to the agency, unless the parties have agreed otherwise. Thus, Yoshi may owe an amount for Zach’s disbursements, including the down payment, and other expenses, as well.

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Chapter 15: Employment, Immigration, and Labor Law

Indicate whether the statement is true or false.

1. Private employers are generally free to hire and fire workers at will. a. True b. False 2. The discharge of an employee may in some circumstances give rise to a tort action of wrongful discharge. a. True b. False 3. Most of the states and the federal government have enacted statutes to protect employees who report wrongdoing from employer retaliation. a. True b. False 4. A whistleblower is an employee who publicly reveals a co-worker’s unsafe or illegal activity. a. True b. False 5. An employment contract cannot protect an employee from discharge without good cause. a. True b. False 6. An employee’s reasonable expectation in response to an employer’s promise is key to a finding of an implied employment contract. a. True b. False 7. Discharging an employee soon after hiring with a promise of “long-term employment” may give rise to an action against the employer for fraud. a. True b. False 8. An employer may fire a worker for reasons that violate a fundamental public policy if that policy is clearly expressed in statutory law. a. True b. False 9. The Walsh-Healey Act applies to all employment contracts. a. True b. False 10. The Davis-Bacon Act applies to child labor. a. True b. False Powered by Cognero

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Chapter 15: Employment, Immigration, and Labor Law 11. Employees who work ten hours a day, for four days a week, are entitled to overtime pay because they work more than eight hours a day. a. True b. False 12. In states that require a minimum wage that is higher than the specified federal minimum wage, employees are entitled only to the lower federal amount. a. True b. False 13. An employer can waive or reduce the federal overtime pay requirements if the waiver or reduction is applied to all otherwise eligible and ineligible employees. a. True b. False 14. Federal wage-hour requirements apply to all employers engaged in interstate commerce, or in producing goods for interstate commerce, and in certain other businesses. a. True b. False 15. If a state law requires employers to give employees one day off per week, an employee who works that one day may be entitled to overtime pay under federal law. a. True b. False 16. To avoid reinstating a key employee after taking family or medical leave, an employer must show that the leave would cause “substantial injury” to the employer. a. True b. False 17. During an employee’s leave under the Family and Medical Leave Act, an employer must continue to compensate the employee to avoid the potential negative effect of unpaid leave on interstate commerce. a. True b. False 18. An eligible employee may take unpaid leave under the Family and Medical Leave Act for family or medical reasons, and in certain situations that arise from military service. a. True b. False 19. Employers must continue health insurance coverage for those employees taking FMLA, the same as if they were working. a. True b. False 20. An employer cannot discharge a worker who, in good faith, refuses to work in a high-risk area if bodily harm or death might result.

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Chapter 15: Employment, Immigration, and Labor Law a. True b. False 21. Certain employers are required to keep occupational injury and health records for each employee, but due to privacy concerns, no employer is permitted to electronically post those records. a. True b. False 22. To receive benefits under a state workers’ compensation law, an employee injured on the job must promptly sue the employer. a. True b. False 23. Workers compensation laws cover all employees within that state. a. True b. False 24. An injury that occurs while an employee is commuting to or from work is usually not considered to have occurred on the job or in the course of employment, and hence is not covered by the workers’ compensation law. a. True b. False 25. To pay for social insurance programs administered by the Social Security Administration, employers, employees, and the unemployed must contribute. a. True b. False 26. Medicare is a government insurance program available to those sixty years and older. a. True b. False 27. ERISA covers social security programs of employers. a. True b. False 28. To be eligible for unemployment compensation, a worker must be willing and able to work. a. True b. False 29. A worker who has voluntarily left his or her job, qualifies for unemployment compensation to partially make up for the worker’s loss of income. a. True b. False 30. If an employer does not pay unemployment taxes, the government can place a lien on the business’s property to secure the debt.

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Chapter 15: Employment, Immigration, and Labor Law a. True b. False 31. The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows workers to continue their health insurance coverage after they are no longer eligible for their employer’s policy. The employer pays for the COBRA. a. True b. False 32. The Affordable Care Act (ACA) applies to businesses that employ at least fifty workers, for at least thirty hours a week. a. True b. False 33. Employers who provide health insurance to their employees must ensure that the employees’ health information is not disclosed to unauthorized parties. a. True b. False 34. An employer can eliminate a worker’s medical, optical, or dental insurance coverage on the voluntary termination of the worker’s employment. a. True b. False 35. Notifying employees that their e-mails and phone calls may be monitored, protects an employer who also monitors social media posts and text messages from liability for invasion of privacy. a. True b. False 36. The permissibility of a private employer’s drug testing, may hinge on whether the testing is reasonable. a. True b. False 37. An employer is prohibited from intercepting and monitoring all communications made on electronic devices by employees during business hours. a. True b. False 38. An employee must complete Form I-9, Employment Eligibility Verification, within three days of the commencement of employment. a. True b. False 39. The Immigration Act limits the number of legal immigrants entering the United States. a. True b. False 40. The National Labor Relations Act established the right of private-sector employees to form unions and to strike.

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Chapter 15: Employment, Immigration, and Labor Law a. True b. False 41. During collective bargaining sessions, both parties may engage in hard bargaining, but the process must be geared to reaching a compromise. a. True b. False 42. A Union Shop employer requires all employees to join the union within a certain amount of time upon starting their employment. a. True b. False 43. Under a strike, the workers are still paid their wages and benefits. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

44. Food Market Company employs workers, including Gina, at six locations in two states. Food Market’s discharge of Gina outside the terms of an implied employment contract may result in a. the employer’s liability for breach of contract. b. the employee’s ineligibility for unemployment compensation. c. a court’s imposition of an express employment contract. d. a claim under the Whistleblower Protection Act. 45. Health Clinic Inc. has no written employment manual or oral discharge policy, it avoids abusive treatment of its staff, and acts to prevent illegal and unsafe activities. The clinic freely hires and fires its employees, who are similarly free to quit at any time. With respect to the employment-at-will doctrine, this is a. exemplary of the doctrine b. an exception based on contract theory. c. in direct conflict with the doctrine. d. an exception based on a statute.

46. Lin is an employee at Manufacturing Plant Inc. Lin is called for jury duty and as a result cannot work her scheduled shift. The plant fires Lin, who subsequently successfully sues her employer for reinstatement. With respect to the employment-at-will doctrine, this is a. an example of the doctrine. b. an exception based on contract theory. c. an exception based on public policy. d. an exception based on a statute.

47. Frank is an employee of Guitar Makers LLC. Guitar’s employee manual states that workers, such as Frank, will be dismissed only for good cause. With respect to the employment-at-will doctrine, this is a. an example of the doctrine. b. an exception based on contract theory.

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Chapter 15: Employment, Immigration, and Labor Law c. an exception based on public policy. d. an exception based on a statute.

48. Retail Company is located in Seattle, Washington, where the city and the state have minimum wage laws. Retail pays its starting employees the legal minimum rate, which, among the governing laws, is a. the highest minimum wage. b. the federal minimum wage. c. the state minimum wage. d. the city minimum wage.

49. Tom is seventeen years old. Under the Fair Labor Standards Act, he cannot a. work in any job. b. work in a hazardous occupation. c. work for his parents. d. deliver newspapers.

50. Elin is thirteen years old. Under the Fair Labor Standards Act, she cannot a. work in an agriculture job. b. work in a hazardous occupation. c. work for her parents. d. deliver newspapers.

51. Aircraft Corporation employs mechanics, programmers, outside salespersons, and professionals, including pilots.

Employees exempt from the Fair Labor Standards Act’s overtime provisions include all of the following except a. mechanics. b. programmers. c. outside salespersons. d. professionals.

52. Federal overtime provisions apply only after a covered employee works more than a. eight hours in a day. b. forty hours in a week. c. twenty days in a month. d. one year for the same employer.

53. Devon takes temporary family leave from her job at Equipment Sales Company to care for a newborn baby. With respect to Devon’s health-care coverage, during the leave, under the Family and Medical Leave Act, Equipment a. must continue it. b. may suspend it. c. may terminate it. d. must add the baby to it.

54. The Family and Medical Leave Act requires certain employers to provide eligible employees with family or medical leave for the following reasons (choose all applicable answers) a. to care for a newly adopted child.

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Chapter 15: Employment, Immigration, and Labor Law b. to care for a newly placed foster child. c. to go on an extended family vacation. d. if the employee is unable to perform the essential functions of his or her job due to a serious health condition.

55. Salsa Inc. employs three hundred workers at four locations in two states. Under federal law, Salsa must provide each employee, during any twelve-month period, family or medical leave of a. up to twelve days. b. up to twelve weeks. c. up to twelve pay periods. d. no limited duration.

56. Luke takes temporary family leave from his job at Metal Works Corporation to arrange for child care and deal with financial and legal matters when Nancy, his spouse, a U.S. Marine on active duty, is deployed overseas. On Luke’s return from the leave, Metal Works must a. restore him to his same position or a comparable position. b. reimburse him for his expenses while on leave. c. promote him to the status of a key employee. d. do nothing.

57. Denny works for Engineers P.A. While working on an Engineers project, Denny is injured. Under state workers’ compensation laws, he will be compensated only if the injury was a. incidental. b. material. c. accidental. d. intentional.

58. Gobi is an employee of Haz-Mat, Inc. He refuses a transfer to a Haz-Mat department in which several employees suffered serious injuries from exposure to hazardous materials. Under the Occupational Safety and Health Act, Gobi may be a. entitled to higher wages for working in a hazardous department. b. reported to the Occupational Safety and Health Administration. c. entitled to protection from discharge. d. subject to discharge.

59. Steel Mill Inc., employs five hundred workers. For the Occupational Safety and Health Administration, Steel must do all of the following except a. keep occupational injury and illness records for each employee. b. report any work-related diseases. c. report any work-related injuries. d. pay employees higher wages for working in more dangerous areas.

60. The purpose of state workers’ compensation laws is to establish an administrative process for compensating workers for a. all of the choices. b. retirement, disability, death, and hospitalization insurance.

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Chapter 15: Employment, Immigration, and Labor Law c. injuries that arise in the course of employment, regardless of fault. d. periods of unemployment, subject to eligibility requirements.

61. Rico works for Street Tacos Inc. ______ is the basis for Rico’s contribution under the Federal Insurance Contribution Act was to help pay for hisretirement benefits, that will partially make up for his loss of income once on retirement. a. an equitable share of his employer’s unpaid contribution. b. his annual wage base. c. his special job skills. d. the employer’s adjusted gross profits.

62. A key provision of ERISA concerns _______,which gives an employee a legal right to receive pension benefits at some future date when the employee stops working. a. unemployment b. vesting c. social security d. government pension plan 63. Games Inc. employs four hundred workers at three locations in three states. Workers who lose their jobs with Games have a right to continued health-care coverage under the company’s group plan unless they a. are fired for gross misconduct. b. are laid off for budgetary reasons. c. have their hours decreased from full-time to part-time. d. quit their jobs voluntarily.

64. Finance Accountants, P.A., is a private employer. In most circumstances, federal law generally prohibits Finance from subjecting its employees to a. electronic monitoring. b. employer provided group health plans. c. random drug tests. d. lie-detector tests.

65. Investment Corporation wants to monitor business communications on phones that the employer provides to the employees. The employer’s best course of action to avoid liability under laws related to employee monitoring is to inform a. their business associates. b. its employees. c. its clients and others who communicate with the employees. d. the general public.

66. Assembly Corporation operates a plant near the border between the United States and Mexico. Due to the location, it would be easier for the company to employ noncitizens. In this circumstance, it is illegal for a U.S. employer to (choose all applicable answers) a. hire persons not authorized to work in the United States. b. recruit persons not authorized to work in the United States. c. refer for a fee persons not authorized to work in the United States. d. require verification of identity for employees Powered by Cognero

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Chapter 15: Employment, Immigration, and Labor Law 67. Analytic Data, Inc., wants to hire Benazir, a noncitizen. A work visa is most likely to be set aside for a noncitizen if a. the noncitizen is of “ethnic similarity to the employer’s workforce.” b. there is a shortage of qualified U.S. workers capable of doing the work. c. hiring the worker will adversely affect the labor force. d. the noncitizen is a “person with an extraordinary work ethic.”

68. Berry Farm Inc. employs hundreds of seasonal and permanent workers, both skilled and unskilled, in three states.

Under federal immigration law, Berry Farm can hire immigrants (choose all applicable answers) a. if either the employer or the immigrants file special forms. b. only if the employer files a special form. c. only if the immigrants file special forms. d. if they are illegal and necessary.

69. Interstate Commodities Inc. keeps a file of I-9 verifications forms, which are required by the Immigration Reform and Control Act. To monitor compliance with the act, random audits and enforcement actions are conducted by a. the local office of the National Labor Relations Board. b. the governments of interested foreign nations. c. the government of the state in which the company is based. d. the United Nations.

70. Heber, Irma, and Jon apply to work for Kitchen Chicken Inc. in Louisiana. These individuals’ eligibility to work must be verified by a. Kitchen Chicken. b. the applicants. c. state officials. d. federal authorities.

71. Mica is an employee of Natural Gas Company and a member of a union of company employees. Under federal law, Mica and other union members have the right to a. bargain collectively with their employer through their representative. b. insist that their employer require union membership to work. c. require their employer to contribute financially to their union. d. act in a hostile matter towards their employer.

72. The Labor-Management Reporting and Disclosure Act (LMRDA) also outlawed ________ agreements, in which employers voluntarily agree with unions not to handle, use, or deal in goods produced by nonunion employees working for other employers. a. union shops b. closed shops c. hot cargo d. right to work 73. In order to have a union election the Food Workers Union, formed from employees of the Frozen Food Company, must show that _____ of the total workers support the formation of a union. a. twenty percent.

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Chapter 15: Employment, Immigration, and Labor Law b. twenty-five percent. c. thirty percent d. fifty percent.

74. Good faith in collective bargaining between a union and an employer includes (choose all applicable answers) a. rejecting a proposal without offering a counterproposal. b. being willing to compromise. c. negotiating with the belief that an agreement is possible. d. bargaining with the authority to enter into an agreement.

75. Baristas Union petitions the National Labor Relations Board for an election on organizing a union among the employees of the Coffee Café Company. For an election to be held, the union must represent a. all of Coffee’s employees. b. employees whose skills, duties, and pay are similar. c. no more than 30 percent of Coffee’s employees. d. Coffee’s best interest.

76. Flower Workers Union represents the employees of Garden Variety Inc. The company requires its new hires to join the union as a prerequisite to obtaining employment. This most likely violates a. the Labor-Management Relations Act. b. the Fair Labor Standards Act. c. the Norris-LaGuardia Act. d. Taft-Hartley Act. 77. The employees of Beverage Bottling Company designate Cola Cappers Union as their bargaining representative.

Beverage refuses to bargain with the union. This most likely violates a. the National Labor Relations Act. b. the Fair Labor Standards Act. c. the Labor-Management Relations Act. d. The Taft-Hartley Act. 78. Technicians Union represents the workers of United Engineering Inc. The union and the employer bargain in good faith, but are unable to reach an agreement because of genuine differences of opinion. The union may call a strike a. if the parties are deadlocked. b. if the negotiations are ongoing. c. if the subjects of bargaining include working conditions and worker pay. d. under no circumstances.

79. These are characteristics of good faith bargaining (choose all applicable answers) a. excessive delay tactics. b. making reasonable proposals. c. being willing to compromise. d. shifting positions on disputed contract terms.

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Chapter 15: Employment, Immigration, and Labor Law 80. Northwest Energy Company is subject to mandatory workers’ compensation laws in the states in which it does business. Odell and Phelps work for Northwest Energy as part of a crew that travels to remote locations to repair broken pumps and other damaged equipment. At a distant site, Odell is injured in an accident that is entirely Phelps’s fault. Odell files a claim for workers’ compensation. Should the claim be granted? What would be Northwest Energy’s best defense against it?

81. Discuss three of the situations that a leave under the Family Medical Leave Act may be taken (be specific). Explain what is allowed in terms of length of leave, benefits, etc. under the FMLA.

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Chapter 15: Employment, Immigration, and Labor Law Answer Key 1. True 2. True 3. False 4. False 5. False 6. True 7. False 8. False 9. False 10. False 11. False 12. False 13. False 14. True 15. True 16. True 17. False 18. False 19. True 20. False 21. False 22. False 23. False 24. True 25. False Powered by Cognero

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Chapter 15: Employment, Immigration, and Labor Law 26. False 27. False 28. False 29. False 30. True 31. False 32. True 33. False 34. False 35. False 36. True 37. True 38. True 39. True 40. True 41. True 42. True 43. False 44. a 45. a 46. c 47. b 48. a 49. b 50. b 51. a Powered by Cognero

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Chapter 15: Employment, Immigration, and Labor Law 52. b 53. a 54. a 55. b 56. a 57. c 58. c 59. a 60. c 61. b 62. b 63. a 64. d 65. b 66. a 67. b 68. a 69. d 70. a 71. a 72. c 73. c 74. b 75. b 76. d Powered by Cognero

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Chapter 15: Employment, Immigration, and Labor Law 77. a 78. a 79. b 80. Odell’s claim should probably be granted. Northwest Energy’s best defense in this situation, as in all workers’ compensation cases, is that Odell’s injury did not arise out of and in the course of employment. However, that defense would not likely be successful here.

Under workers’ compensation laws, employers are strictly liable without regard to whether or not they are at fault. Even if the employer is not negligent, he or she is liable if an employee’s injury arose out of and in the course of employment.

“Liability” in this context means that an injured employee is entitled to workers’ compensation benefits for his or her injury. An injury must be work-related, arising out of activity that is normal for the kind of job involved. “In the course of employment” means that the employee was either at work or performing work at a different location. That a co-worker caused an injury to an employee does not block the employee’s recovery of workers’ compensation benefits.

Also, although an employee is not covered while driving to work from home, the employee is covered while performing a work-related service at an off-site location.

An employee’s acceptance of workers’ compensation benefits bars the employee from suing for injuries caused by the employer’s negligence. By barring lawsuits for negligence, workers’ compensation laws also prevent employers from raising common law defenses to negligence, such as contributory negligence and assumption of risk. However, a worker may sue an employer who has intentionally injured the worker.

81. The FMLA requires employers who have fifty or more employees to provide employees with up to twelve weeks of unpaid family or medical leave during any twelve-month period. The FMLA expressly covers private and public (government) employees who have worked for their employers for at least a year.

An eligible employee may take up to twelve weeks of leave within a twelve-month period for any of the following reasons: 1. to care for a newborn baby within one year of birth; 2. to care for an adopted or foster child within one year of the time the child is placed with the employee; 3. to care for the employee’s spouse, child, or parent who has a serious health condition; 4. if the employee suffers from a serious health condition and is unable to perform the essential functions of the job; and 5. for any qualifying exigency (nonmedical emergency) arising out of the fact that the employee’s spouse, son, daughter, or parent is a covered military member on active duty. For instance, an employee can take leave to arrange for childcare, or to deal with a financial or legal matters when a spouse is being deployed overseas.

When an employee takes FMLA leave, the employer must continue the worker’s health care coverage on the same terms, as if the employee had continued to work. On returning from FMLA leave, most employees must be restored to their original position, or to a comparable position (with nearly equivalent pay and benefits).

Employers generally are required to notify employees when an absence will be counted against authorized leave under the act. If an employer fails to provide such notice, and the employee consequently suffers an injury because of the lack of notice, the employer may be sanctioned.

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Chapter 16: Employment Discrimination

Indicate whether the statement is true or false.

1. The laws designed to protect certain workers against discrimination are aimed at providing equal rights for all and eliminating special privileges for the few. a. True b. False 2. Many states have their own laws that protect employees against discrimination, but none provide more protection to employees than federal laws. a. True b. False 3. Title VII of the Civil Rights Act prohibits job discrimination on the basis of income. a. True b. False 4. When Title VII applies to an employer, any employee—including an undocumented worker—can bring an action for employment discrimination. a. True b. False 5. The Equal Employment Opportunity Commission (EEOC) investigates every claim of employment discrimination. a. True b. False 6. To bring a Title VII claim as a class action, employees must prove a company-wide policy of discrimination that has a common effect on all of the plaintiffs. a. True b. False 7. A plaintiff who sues on the basis of disparate-treatment discrimination in hiring must make out a prima facie case of illegal discrimination, and will win in the absence of a legally acceptable employer defense. a. True b. False 8. If an employer sued for an adverse employment action on the basis of discrimination articulates a legal reason for the action, the employer wins. a. True b. False 9. The use of interviews and tests, and minimum educational requirements, to choose among a large number of applicants for job openings is prima facie employment discrimination. a. True b. False 10. An employer can avoid liability under Title VII by showing that the employer’s standards for hiring and promoting have a substantial, demonstrable relationship to realistic qualifications for the job at issue.

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Chapter 16: Employment Discrimination a. True b. False 11. Disparate-impact discrimination occurs when a protected class is adversely affected by the practice or procedure of an employer who intended that result. a. True b. False 12. An employer must reasonably accommodate its employees’ religious practices, but only if they are based on the doctrines of a traditionally recognized religion. a. True b. False 13. An employer can require employees to participate in such religious activity as weekly prayer meetings with other employees. a. True b. False 14. An employer cannot classify jobs as male or female but can refuse to promote employees based on their gender. a. True b. False 15. Under federal law, the definition of gender discrimination has not been expanded to include discrimination based on pregnancy. a. True b. False 16. The Equal Pay Act requires equal pay for male and female employees working at the same establishment, regardless of the work they do. a. True b. False 17. If a plaintiff continues to work for their employer while receiving discriminatory wages, the time period for filing a complaint is basically unlimited. a. True b. False 18. Adverse employment decisions based on gender identity are necessarily a form of gender discrimination, and therefore illegal. a. True b. False 19. Constructive discharge is a theory that plaintiffs can use to establish any type of discrimination claim under Title VII and other federal discrimination laws. a. True b. False Powered by Cognero

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Chapter 16: Employment Discrimination 20. Constructive discharge occurs when an employer, to avoid conflict among workers, discharges an employee engaging in an unconventional act, such as wearing a hijab. a. True b. False 21. Sexual harassment can occur when a pattern of sexually offensive conduct runs throughout a workplace and the employer takes no steps to prevent it. a. True b. False 22. Normally, an employer is liable for a supervisor’s sexual harassment only if the supervisor took a tangible employment action against an employee. a. True b. False 23. A worker who is dissuaded from filing a charge of discrimination by an employer’s threat to change the benefits of the job has a basis for a claim of retaliation. a. True b. False 24. Employees may be sexually harassed by members of the same sex. a. True b. False 25. An employer can possibly avoid liability for sexual harassment by taking prompt remedial action. a. True b. False 26. Punitive damages may be recovered in a case of discrimination against a private employer if the employer acted with malice or reckless indifference. a. True b. False 27. The Age Discrimination in Employment Act prohibits employment discrimination on the basis of age against individuals up to forty years of age. a. True b. False 28. The Age Discrimination in Employment Act extends to federal government employees but state employers are usually immune from age-based claims. a. True b. False 29. Under the Age Discrimination in Employment Act, the plaintiff must show that the unlawful discrimination was only one of the reasons for an adverse employment action. a. True b. False Powered by Cognero

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Chapter 16: Employment Discrimination 30. Under the Age Discrimination in Employment Act, if an employer offers a legitimate reason for its action, an employee’s case is held to be a pretext. a. True b. False 31. Under the Americans with Disabilities Act, employers must accommodate the needs of persons with disabilities, even if doing so causes undue hardship. a. True b. False 32. The Americans with Disabilities Act defines disability to include a physical or mental impairment that causes “undue hardship.” a. True b. False 33. For obesity to qualify as a disability under the Americans with Disabilities Act, it must involve a physical impairment. a. True b. False 34. Under the Americans with Disabilities Act, employees with disabilities must reasonably accommodate the needs of their employers. a. True b. False 35. The Americans with Disabilities Act permits employers to take adverse employment actions based on assumptions about individuals who associate with people who have disabilities. a. True b. False 36. The ADA does not require that employers accommodate the needs of job applicants or employees with disabilities, who are not otherwise qualified for the work. a. True b. False 37. Under the Uniformed Services Employment and Reemployment Rights Act, any person who has served in the military is entitled to more favorable treatment in the workplace than a co-worker who has not served. a. True b. False 38. A business necessity is a defense against employment discrimination based on the genuine requirements of a business. a. True b. False 39. Affirmative action programs are often found to be unconstitutional because they deprive members of protected classes of equal protection. a. True Powered by Cognero

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Chapter 16: Employment Discrimination b. False 40. A state does not have the inherent power to ban affirmative action within that state. a. True b. False

Indicate one or more answer choices that best complete the statement or answer the question.

41. Federal employment discrimination laws restrict the ability of employers to discriminate against workers on the basis of a. experience. b. gender. c. education. d. race.

42. Title VII of the Civil Rights Act applies to employers and labor unions with at least a. fifteen employees or members. b. five employees or members. c. ten employees or members. d. one employee or member.

Indicate the answer choice that best completes the statement or answers the question.

43. Compliance with Title VII of the Civil Rights Act is monitored by a. protected classes. b. businesses affected by interstate commerce. c. state and local governing agencies. d. the Equal Employment Opportunity Commission.

44. Oren believes that Plumbing Contractor discriminated against him on the basis of race. He files a suit against Plumbing under the Civil Rights Act. To establish a prima facie case of employment discrimination, Oren must show that a. he is a member of a protected class. b. the employer has no legal defenses against the claim. c. discriminatory intent motivated the employer’s act. d. no other firm in the industry has committed a discriminatory act.

Indicate one or more answer choices that best complete the statement or answer the question.

45. Sara believes that she was rejected for a position at Tour Agency on the basis of her race. Sara files a suit against Tour under the Civil Rights Act. To establish a prima facie case of employment discrimination, Sara must argue which of the following a. she is a member of a protected class. b. she applied and was qualified for the job in question. c. she was rejected for a position by the employer. d. other persons of her race hold similar positions with similar employers.

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Chapter 16: Employment Discrimination 46. Giso applies for a job with Hobby Company. The employer does not hire him because of his ethnicity, or national origin. This is a. a constructive discharge. b. disparate-impact discrimination. c. disparate-treatment discrimination. d. not discrimination.

Indicate the answer choice that best completes the statement or answers the question.

47. Beal, a member of a protected class, applies for a job with Coffee Brew Corporation, but fails the company’s employment test and is not hired. Beal believes that the test has an unintentionally discriminatory effect. If so, this is a. a constructive discharge. b. disparate-impact discrimination. c. disparate-treatment discrimination. d. not discrimination.

48. Qin applies for a job at Rocket Science Inc. He passes a test to determine which applicants are eligible for hiring, but Rocket discards the results, and Qin is rejected. To support a claim for discrimination against the employer under Title VII of the Civil Rights Act, Qin must be a member of a. a protected class. b. a majority group. c. an employers’ association. d. a union.

49. Vim applies for a job at Welding Inc. She passes a test to determine which applicants are eligible for hiring, but Welding discards the results, and Vim is rejected. To successfully defend against a claim for discrimination under Title VII of the Civil Rights Act, the employer must show that a. the practice in question was justified. b. the employer feared it would be sued if it used the test results. c. any discriminatory effect was unintended. d. statistically the practice in question is discriminatory in effect.

50. Gil and Hera are employees of IT Solutions Inc. Under the Equal Pay Act, IT Solutions can legitimately pay different wages to male and female employees on the basis of a. merit. b. marital status. c. similar work at the same facility. d. gender.

51. Bob works for ABC Corporation and is a practicing Muslim. He tells his employer that he must have off every Saturday for religious reasons. Saturday is their busiest day. In order for ABC to be able to terminate Bob, they must a. prove that an attempt to accommodate here would be unreasonable b. prove that ABC Corporation is not a religious organization c. prove that Bob has never gone to church d. prove that Bob’s social media posts are not about religion Powered by Cognero

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Chapter 16: Employment Discrimination 52. Laura is the only female employee in the maintenance department of Motor Service Inc. Her supervisor teases and plays tricks on her so relentlessly that she feels compelled to quit. This is most likely a. a constructive discharge. b. employer retaliation. c. a voluntary quit. d. none of the choices.

53. Mena, a female, and Neil, a male, are employees of Operation Business Corporation. Mena regularly e-mails sexually explicit images to Neal via Operation’s network. Neil finds this offensive. This is most likely a. hostile work environment harassment. b. none of the choices. c. quid pro quo harassment. d. a constructive discharge.

54. For an employer to be held liable for a supervisor’s sexual harassment, the supervisor normally must have taken _____ against the employee. a. hostile actions b. tangible employment action c. teasing and joking d. legal action 55. Olive is a supervisor for Pasta!, a restaurant. Qua is a Pasta! employee. The owner announces that some employees will be discharged. Olive tells Qua that for sexual favors, she will give him an excellent performance review and recommend a raise. This is a. employer retaliation. b. hostile-environment harassment. c. none of the choices. d. quid pro quo harassment.

56. Emily, an employee of Farm Supplies Inc., files a suit against her employer, alleging sexual harassment by her supervisor Gowan. The employer may be liable if it had effective harassment policies and complaint procedures that were followed by a. none of the employees. b. Emily. c. Emily’s co-workers. d. Gowan.

57. Beth participates in an investigation into possible violations of Title VII of the Civil Rights Act at ChemCo Inc., where she is an employee. As a result, the employer demotes her. Beth can file a. none of the choices. b. a retaliation claim. c. a constructive discharge claim. d. a disparate-impact discrimination claim.

58. Mechanical Engineering Inc. may be liable for the sexual harassment of an employee if the company knew or should have known about the harassment, failed to take immediate action, and the harassment was committed by Powered by Cognero

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Chapter 16: Employment Discrimination a. the employee’s previous employer. b. a company supervisor. c. a competitor. d. any of the choices.

59. Cady files an employment discrimination suit against Durable Goods Corporation under the Civil Rights Act. If Cady shows that Durable Goods acted with malice or reckless indifference, she may recover a. an unlimited amount of compensatory and punitive damages. b. a limited amount of compensatory and punitive damages. c. compensatory, but not punitive damages. d. punitive, but not compensatory, damages.

Indicate one or more answer choices that best complete the statement or answer the question.

60. Inez files an employment discrimination suit against Jiffy Delivery Inc. under the Civil Rights Act, based on Jiffy’s discharge of Inez. Possible relief includes a. back pay. b. reinstatement. c. fines. d. damages.

61. Batteries Corporation is a private employer involved in an employment discrimination suit under the Civil Rights Act. Punitive damages may be recovered against Batteries a. if it acted with reckless indifference to an individual’s rights. b. if it can easily afford to pay the amount. c. if it has one hundred or more employees. d. under no circumstances.

Indicate the answer choice that best completes the statement or answers the question.

62. Dona, a fifty-five-year-old member of a racial minority with a disability, believes that she is a victim of employment discrimination. Potentially the most widespread form of discrimination is based on a. age. b. disability. c. gender. d. race.

63. Resort Company replaces Sharon, a forty-five-year-old employee, with Terry. Sharon files a suit against the employer under the Age Discrimination in Employment Act. To establish a prima facie case, she must show, among other things, that she is a. deserving of higher pay than the individual who replaced her. b. generally more dependable than the individual who replaced her. c. older than the person who replaced her. d. qualified for the position.

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Chapter 16: Employment Discrimination 64. Kyla replaces Lomax in his job at Motor Corporation. Lomax believes that he has been discriminated against on the basis of his age. For the Age Discrimination in Employment Act to apply a. Kyla must be forty years of age or younger. b. Motor must have been in business for at least forty years. c. Lomax must be forty years of age or older. d. Lomax must have been Motor’s employee for at least forty years.

65. Bib replaces Chloe in her job at Data Sales Corporation. To succeed with an age-discrimination claim against Data, Chloe will have to show that a. Bib is not qualified for the job. b. Chloe is qualified for the job. c. the employer’s qualifications for the job are too high. d. no one could do the job as well as Chloe could.

66. Marv files a suit against the state of New Hampshire, alleging employment discrimination under the Age Discrimination in Employment Act. The state asks the court to dismiss the suit. The court is most likely to rule that a. the state is immune from the suit. b. the suit can proceed. c. the plaintiff is immune from any defense. d. the court is immune from the request.

67. The Americans with Disabilities Act applies to workplaces with at least a. fifteen workers. b. five workers. c. ten workers. d. one worker.

68. To succeed in a suit against a potential employer for discrimination under the Americans with Disabilities Act, a job applicant must show that he or she a. was not hired solely because of a disability. b. has a disability that does not limit any major-life activity. c. suffers from a disability that causes undue personal hardship. d. is willing to reasonably accommodate the employer’s needs.

69. Jon, a paraplegic, applies for a broadcaster’s job with a radio station. The manager says, “You meet all our requirements. But we need someone who can move around the studio without accommodation.” Most likely, Jon could recover from the station under a. no federal law. b. Title VII of the Civil Rights Act. c. the Age Discrimination in Employment Act. d. the Americans with Disabilities Act. 70. Ivy is blind. Jerold has cancer. Kim has cerebral palsy. Considered to have a disability under the Americans with Disabilities Act is a. only Ivy. Powered by Cognero

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Chapter 16: Employment Discrimination b. Ivy, Jerold, and Kim. c. none of the choices. d. only Ivy and Kim. 71. _____ are considered to have a disability under the Americans with Disability Act (ADA). a. Those using illegal drugs b. Those addicted to pain killers c. Former drug addicts d. Addicts that are also alcoholics

Indicate one or more answer choices that best complete the statement or answer the question.

72. The Uniformed Services Employment and Reemployment Rights Act applies to a. all public employers. b. all private employers. c. U.S. employers operating in foreign countries. d. employers with no veteran employees.

73. Fitness Club employs only female staff to assist its female-only members in the club. Greg, a forty-one-year-old male, applies for a staff job, but is not hired. In his suit against the club under the Civil Rights Act, the club most likely has a. a prima facie case. b. a bona fide occupational qualification defense. c. a business necessity defense. d. immunity.

Indicate the answer choice that best completes the statement or answers the question.

74. Pipeline Corporation requires its employees to have a high school diploma. In a suit against Pipeline under the Civil Rights Act, the employer shows a connection between a high school education and job performance. Most likely, this is a. a prima facie case. b. a bona fide occupational qualification defense. c. a business necessity defense. d. disparate-impact discrimination.

75. An affirmative action plan may be found to be unconstitutional because it a. does not attempt to remedy past discrimination. b. does not make use of quotas or preferences. c. has not succeeded in remedying discrimination. d. has succeeded and subsequently been eliminated.

76. Sweet Air Filtration Products Company, a major supplier of air filters sold throughout the United States, employs one hundred workers at its principal manufacturing plant. The plant is located in Thunder Bay, which has a population that is 50 percent white and 25 percent African American, with the balance Hispanic American, Asian American, and others.

Sweet Air requires a high school diploma as a condition of employment for its cleaning crew. Three-fourths of the white Powered by Cognero

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Chapter 16: Employment Discrimination population completed high school, compared with only one-fourth of those in the minority groups. Sweet Air has an allwhite cleaning crew. Has Sweet Air violated the Civil Rights Act? Explain.

77. Veronica is a repairperson for Wind Power Company. The job requires traveling to remote areas to make repairs to windmills, transmission towers, and power stations under any conditions. Veronica has had the job longer than other employees. Veronica applies for a promotion to a supervisory position that requires constant communication with others in the field. Wind Power does not promote Veronica on the ground that Veronica is hearing impaired. Wind Power acknowledges that Veronica is otherwise qualified, but asserts that it “needs someone who does not have a hearing problem.” Veronica files a suit against Wind Power under the Americans with Disabilities Act. What is the issue, and what are the relevant considerations on which its resolution depends?

78. Sara applied for a position at the Acme Corporation. She knows that she is qualified for the position, but she has a feeling they are looking for a man to fill the opening. After the interview, she is not hired. What must Sara show in order to prove a violation of the Civil Rights Act? What if Sara was pregnant?

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Chapter 16: Employment Discrimination Answer Key 1. True 2. False 3. False 4. True 5. False 6. True 7. True 8. False 9. False 10. True 11. False 12. False 13. False 14. False 15. False 16. False 17. True 18. True 19. True 20. False 21. True 22. True 23. True 24. True 25. True Powered by Cognero

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Chapter 16: Employment Discrimination 26. True 27. False 28. True 29. False 30. False 31. False 32. False 33. True 34. False 35. False 36. True 37. False 38. True 39. False 40. False 41. b, d 42. a 43. d 44. a 45. a, b, c 46. c 47. b 48. a 49. a 50. a 51. a Powered by Cognero

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Chapter 16: Employment Discrimination 52. a 53. a 54. b 55. d 56. b 57. b 58. b 59. b 60. a, b, c 61. a 62. a 63. d 64. c 65. b 66. a 67. a 68. a 69. d 70. b 71. c 72. a, b, c 73. b 74. c 75. a 76. Most likely, yes, Sweet Air has violated the Civil Rights Act. Sweet Air as an employer falls under the Civil Rights Act. Under that act, an employer can legally impose an educational Powered by Cognero

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Chapter 16: Employment Discrimination requirement if the requirement is directly related to, and necessary for, performance of the job. In this situation, the employer is requiring a high school diploma as a condition of employment for its cleaning crew. A high school diploma is not related to, or necessary for, the competent performance of a job on a cleaning crew.

Therefore, if someone were to challenge Sweet Air’s practices, a court would be likely to consider the disparate impact that the educational requirement had on Sweet Air’s hiring of minorities. Sweet Air’s educational requirement resulted in its hiring an all-white cleaning crew in an area in which 75 percent of the pool of qualified applicants were minorities.

Therefore, Sweet Air’s educational requirement would likely be considered unintentional (disparate-impact) discrimination against minorities.

77. The issue is whether hiring a sign interpreter is a reasonable accommodation for an employee or an undue hardship for the employer.

The Americans with Disabilities Act (ADA) prohibits employers from refusing to hire (or promote) disabled persons who are otherwise qualified for a particular position. An employer may have to make reasonable accommodations for a disabled applicant, but that will not cause the applicant to be considered unqualified. Reasonable accommodations might include creating new job assignments, and creating or improving training materials and procedures. Employers who do not wish to make such accommodations must demonstrate that the accommodations will cause “undue hardship.” The law offers no uniform standards for identifying what is an undue hardship, but there are limits to the employer’s obligation to accommodate an employee under the ADA. Accommodation cannot impose a “significant difficulty or expense” on the employer. Also, if a disabled employee can perform the essentials of his or her job without accommodation, then no violation of the ADA has occurred.

Besides hiring a sign interpreter to accompany a deaf employee, in some cases a company could train an employee’s coworkers in American Sign Language. The basics of sign language can be learned in just a few hours, so the expense to the company would be minimal. In the facts of this question, contact among distant field workers might be accomplished via texting and other visual means.

78. Employers are prohibited from classifying jobs as male or female, and from advertising positions as male or female unless they can prove that the gender of the applicant is essential to the job. In addition, employers cannot have separate male and female seniority lists, and cannot refuse to promote employees based on gender. Generally, to succeed in a suit for gender discrimination, a plaintiff must demonstrate that gender was a determining factor in the employer’s decision to fire or refuse to hire or promote her or him.

The Pregnancy Discrimination Act expanded Title VII’s definition of gender discrimination to include discrimination based on pregnancy. Women affected by pregnancy, childbirth, or related medical conditions must be treated the same as other persons with similar ability to work. For instance, an employer cannot discriminate against a pregnant woman by withholding benefits available to others under employee benefit programs. An employer is required to reasonably accommodate a worker who is pregnant. In the following case, an employer accommodated many of its employees who had lifting restrictions due to disabilities. The employer refused to accommodate a pregnant employee with a similar restriction. An employer must continue to reasonably accommodate to medical conditions of an employee related to pregnancy and childbirth, even after the pregnancy has ended.

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Chapter 17: Business Organizations

Indicate whether the statement is true or false.

1. The simplest form of business organization is a sole proprietorship. a. True b. False 2. Anyone who does business without creating a separate business organization has a sole proprietorship. a. True b. False 3. In a sole proprietorship, the proprietor bears the burden of any liabilities incurred by the business enterprise. a. True b. False 4. A major advantage of the sole proprietorship is that the proprietor owns the entire business and has a right to receive all of the profits. a. True b. False 5. When the owner of a sole proprietorship dies, the business does not dissolve—it is automatically transferred to family members or other heirs. a. True b. False 6. Starting a sole proprietorship is easier and less costly than starting any other kind of business. a. True b. False 7. No documents need to be filed with the government to start a sole proprietorship. a. True b. False 8. Sole proprietorships are less flexible than partnerships or corporations. a. True b. False 9. The sole proprietor must gain approval to sell or transfer all or part of the business to another party at any time. a. True b. False 10. A lawsuit against the business or its employees can lead to unlimited personal liability for the owner of a sole proprietorship. a. True b. False 11. Creditors cannot go after the owner’s personal assets to satisfy any business debts in a sole proprietorship.

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Chapter 17: Business Organizations a. True b. False 12. Every act of a partner concerning partnership business binds the firm. a. True b. False 13. A partnership arises from a promise between two or more persons to carry on a business for profit. a. True b. False 14. Partners are co-owners of a business but do not have joint control over its operation and the right to share in its profits. a. True b. False 15. General partnerships are governed by common law and statutory law. a. True b. False 16. The Uniform Partnership Act (UPA) governs partnerships in the absence of express agreement. a. True b. False 17. When two or more persons agree to do business as partners, they enter into a special relationship that is similar to an agency relationship. a. True b. False 18. In their relations with one another, partners are exempt from fiduciary ties. a. True b. False 19. Partnership law is distinct from agency law because the agent usually has an ownership interest in the business. a. True b. False 20. A partner owes to the partnership and to the other partners the fiduciary duty of loyalty and the duty of care. a. True b. False 21. A partner may compete with the partnership in business. a. True b. False 22. A partner is liable to the partnership for simple negligence or honest errors of judgment in conducting partnership business.

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Chapter 17: Business Organizations a. True b. False 23. Partners are not personally liable for the debts of the partnership. a. True b. False 24. The partnership’s assets must be exhausted before creditors can reach the partners’ individual assets. a. True b. False 25. If the remaining partners no longer wish to (or are unable to) continue the partnership business, it can be dissolved. a. True b. False 26. The termination of a partnership is referred to as dissolution. a. True b. False 27. Winding up is the process of collecting, liquidating, and distributing the partnership assets. a. True b. False 28. Dissolution of a partnership generally can be brought about by judicial decree. a. True b. False 29. Any partnership (including one for a fixed term) can be dissolved by the partners’ consideration. a. True b. False 30. Bankruptcy can dissolve a partnership. a. True b. False 31. A court can order dissolution if the business can only be operated at a loss. a. True b. False 32. Good faith is not required among the partners when dissolving a partnership. a. True b. False 33. The LLC is a hybrid form of business enterprise that offers the limited liability of the corporation and the tax advantages of a partnership. a. True Powered by Cognero

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Chapter 17: Business Organizations b. False 34. Limited liability companies must be formed in compliance with federal law. a. True b. False 35. To form an LLC, articles of organization must be filed with a central state agency. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. A major advantage of the sole proprietorship is that the proprietor a. is not personally liable. b. owns the entire business. c. is a disregarded entity and pays no taxes. d. None of these choices.

37. To start a sole proprietorship a. articles of organization must be filed with the state. b. a proprietorship fee must be paid. c. a certificate of business must be granted from the state. d. no documents need to be filed with the government.

38. Compared to a partnership, a sole proprietorship allows more a. flexibility. b. profits. c. stock. d. growth.

39. The sole proprietor is free to make any decision she or he wishes concerning a. whom to hire. b. when to take a vacation. c. what kind of business to pursue. d. All of these choices.

40. For the sole proprietor, business profits are reported a. as business income. b. as tax-exempt. c. quarterly. d. as personal income.

41. Rena establishes and operates Sweet Homes, a construction-contracting outfit, as a sole proprietorship. In the course of doing business, the outfit fails to pay some of its debts. To satisfy the obligations, the firm’s creditors can go after a. the owner’s personal assets only.

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Chapter 17: Business Organizations b. the firm’s assets only. c. None of the choices—the creditors must bear the losses. d. the firm’s assets and the owner’s personal assets.

42. For all obligations incurred in doing business, the sole proprietor has a. limited liability. b. immunity from creditors. c. no legal responsibility. d. unlimited liability.

43. When the owner of a sole proprietorship dies, a. it is passed on to next of kin. b. the owner’s children automatically inherit it. c. so does the business. d. the state sells it.

44. To prove the existence of a partnership, which of the following is needed? a. A state business license. b. One person manages the business. c. Only one person is the owner. d. A sharing of profits and losses.

45. Today, most states follow the UPA and treat a partnership a. as an entity. b. as a sole proprietorship. c. as a person. d. None of these choices.

46. A business entity that has no tax liability because the entity’s income is passed through to the owners, who pay taxes on it is a. a pass-through entity. b. a sole proprietorship. c. an entrepreneur. d. an independent contractor.

47. A written agreement that sets forth each partner’s rights and obligations with respect to the partnership is called a. a pass-through entity. b. information return. c. the articles of organization. d. the articles of partnership.

48. In a partnership, all partners have a. equal rights in managing the partnership. b. equal share of stock.

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Chapter 17: Business Organizations c. equal share of profits. d. None of the choices.

49. What is required for decisions such as to admit a new partner or engage in a new business? a. Information return. b. Articles of organization. c. Unanimous consent. d. Articles of partnership.

50. Olin is a partner in Precision Plumbing. When the partners decide to dissolve the firm, Olin collects and distributes the assets. This results in a. nothing with respect to the firm’s existence. b. the continuation of the firm’s business. c. the termination of the firm’s legal existence. d. the temporary suspension of the firm’s business.

51. Neva is a partner in Orchard Farm. Neva gives notice to quit the firm, which otherwise continues to do business. This is a. dissociation. b. dissolution. c. unethical. d. illegal.

52. Bea is one of three partners in Commercial Custodial Service. With respect to Bea’s interest in the firm, when she dies, her heirs are most likely entitled to a. nothing. b. a payout of her capital contribution without more. c. the buyout price paid by the firm for the interest. d. one-third of the value of the interest.

53. Which is an effect of dissociation? a. the partner’s duty of loyalty ends. b. the partner can collect an equal share in profits. c. the partner cannot compete with the firm for new clients. d. None of these choices.

54. Dissolution of a partnership can be brought about by a. the acts of the partners. b. operation of law c. judicial decree. d. All of these choices.

55. The process of collecting, liquidating, and distributing the partnership assets is called a. dissolution. b. dissociation.

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Chapter 17: Business Organizations c. termination. d. winding up.

56. The termination of a partnership is referred to as a. information return. b. disassociation. c. dissolution. d. bankruptcy.

57. An agreement made at the time of partnership formation providing for one or more of the partners to buy out the other or others, in the event the firm is dissolved is called a. information return. b. a buy-sell agreement. c. privity of contract d. winding up.

58. When dissolving a partnership, each partner must exercise a. a buy-sell agreement. b. good faith. c. express authority. d. equal asset distribution.

59. A hybrid form of business enterprise that offers the limited liability of the corporation and the tax advantages of a partnership is a. a sole proprietorship. b. a corporation. c. a limited liability company. d. a partnership.

60. A limited liability company that wants to distribute profits to its members could avoid “double taxation” by electing to be taxed as a. a person. b. a corporation. c. a sole proprietorship. d. a partnership.

61. Accounting LLC is a member-managed limited liability company. Unless the members have agreed otherwise, all decisions with respect to the firm’s business are made by a. majority vote. b. the firm’s board. c. the senior members. d. the firm’s chief executive officer.

62. In a manager-managed LLC, the members can designate a management group consisting of a. only members.

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Chapter 17: Business Organizations b. both members and nonmembers. c. only nonmembers. d. All of these choices.

63. The members of an LLC can decide how to operate the various aspects of the business by forming a. articles of organization. b. an information return. c. an operation agreement. d. a certificate of limited partnership.

64. The owner of an LLC is called a. an entrepreneur. b. a member. c. a principal. d. an agent.

65. Contracts entered into when the business is not yet formed is called a. preincorporation contracts. b. privity of contract. c. articles of organization. d. articles of partnership.

66. Under the federal jurisdiction statute, a corporation is deemed to be a citizen of a. the state where it is incorporated and neighboring states. b. the state where it is incorporated and maintains its principal place of business. c. the state where the members were born. d. None of these choices.

67. A key advantage of the LLC for members is a. taxation can be deferred without penalty. b. interest rates for taxes are low. c. the members are not personally liable. d. free stock.

68. The IRS taxes the LLC with two or more members as a. a corporation. b. a sole proprietorship. c. a partnership. d. None of the choices.

69. How can an LLC be managed? a. It can be member-managed. b. It can be manager managed. c. Both a and b.

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Chapter 17: Business Organizations d. Neither a nor b.

70. Operating agreements typically contain provisions relating to a. management. b. profit division. c. transfer of membership interests. d. All of these choices.

71. Owen plans to open Owen’s Pets, a pet sales and supplies outlet, and to hire Quimby and Ruth. Owen will invest only his own money. He does not expect to make much profit for the first three years, but he hopes to expand eventually.

Which form of business organization would be most appropriate? What are the chief characteristics, advantages, and disadvantages of this form of business organization? If Owen wants to obtain additional capital to expand the business, but does not want to lose control of the firm, what is his best option?

72. Sebastian was the manager of Thai Bistro, a restaurant specializing in Southeast Asian foods. Sebastian opened a bank account in Thai Bistro’s name, signing the account signature card as “owner.” Umeko, who was often at Thai Bistro and had free access to its office, told others that she was “an owner” and “a partner.” She also opened a bank account in Thai Bistro’s name, and signed the account signature card as “owner.” Sebastian told Vijay, the owner of Wong Noodles, Inc., that Umeko was a member of a partnership that owned Thai Bistro. On this basis, Wong Noodles delivered its goods to Thai Bistro on credit. In fact, Thai Bistro was owned by a corporation. When the unpaid account totaled more than $10,000, Wong Noodles filed a suit against Umeko to collect. On what basis might Umeko be liable for the debt?

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Chapter 17: Business Organizations Answer Key 1. True 2. True 3. True 4. True 5. False 6. True 7. True 8. False 9. False 10. True 11. False 12. True 13. True 14. False 15. True 16. True 17. True 18. False 19. False 20. True 21. False 22. False 23. False 24. True 25. True Powered by Cognero

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Chapter 17: Business Organizations 26. True 27. True 28. True 29. False 30. True 31. True 32. False 33. True 34. False 35. True 36. b 37. d 38. a 39. d 40. d 41. d 42. d 43. c 44. d 45. a 46. a 47. d 48. a 49. c 50. c 51. a Powered by Cognero

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Chapter 17: Business Organizations 52. c 53. a 54. d 55. d 56. c 57. b 58. b 59. c 60. d 61. a 62. d 63. c 64. b 65. a 66. b 67. c 68. c 69. c 70. d 71. When a business is relatively small and is not diversified, employs relatively few people, has modest profits, and is not likely to expand significantly or require extensive financing in the immediate future, the most appropriate form for doing business may be a sole proprietorship. A sole proprietorship is easier and less costly to start than other forms of business, because few legal forms are involved. The owner is free to make business decisions without consulting others. Taxes are paid on the business’s income as the owner’s personal income.

In a sole proprietorship, the owner and the business are the same. Anyone who creates a business without designating a specific form for its organization is doing business as a sole proprietorship. An advantage of the sole proprietorship is its greater organizational flexibility over other forms of business organization. The owner can operate the enterprise without any formalities.

A significant disadvantage of this form of organization, however, is that unlike most other forms of business organization, there are no limits on the liability of the owner for the debts and obligations of the firm. Another disadvantage of the sole proprietorship form can be the ability of a sole proprietor to raise capital while maintaining control and retaining the same Powered by Cognero

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Chapter 17: Business Organizations form. This course may be limited chiefly to borrowing funds. Bringing in partners would convert the business to a partnership. Issuing stock would require incorporating or establishing another form of business. Selling the business would sacrifice all control. The only way to obtain additional business capital without accumulating it through business profit is by borrowing funds.

72. The theory under which Umeko would most likely be liable for Thai Bistro’s debt to Wong Noodles is partnership by estoppel.

The first requirement of this theory is a representation, by a non-partner or by another with the non-partner’s consent, that the non-partner is a partner. The second requirement is reliance on that representation.

In this case, Wong Noodles could prove both elements. Both Sebastian and Umeko made representations with respect to Umeko’s status in relation to Thai Bistro—they both signed bank cards as “owner,” Umeko was often at Thai Bistro and had free access to its office, Umeko told others that she was a “partner” in the business, which is what Sebastian also told Vijay. As for the reliance element, Wong Noodles extended credit to Thai Bistro only because Wong Noodles believed that Thai Bistro was owned by a partnership.

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Chapter 18: Corporations

Indicate whether the statement is true or false.

1. Individual state laws should be relied on to determine corporate law because, despite the existence and use of model corporation acts, there is considerable variation among the states. a. True b. False 2. A corporation is an artificial being—intangible, invisible, and existing only in the contemplation of the law. a. True b. False 3. Like the partners in a partnership, the shareholders in a corporation cannot change without affecting the continued existence of the firm. a. True b. False 4. A corporation is recognized under U.S. law as a person. a. True b. False 5. Shareholders’ assumption of personal liability, as guarantors, for the obligations of a corporation can enable the firm to obtain credit. a. True b. False 6. Because a corporation may be liable for the misconduct of its employees, the firm needs to be careful about whom it hires and how much to monitor and supervise them. a. True b. False 7. A corporation must pass on all profits to the shareholders as dividends. a. True b. False 8. A foreign corporation that has not obtained a certificate of authority to do business in a state can nevertheless maintain an action in the state’s courts. a. True b. False 9. A public corporation is the same thing as a publicly held corporation. a. True b. False 10. Because the management of a close corporation can resemble that of a sole proprietorship, the firm need not meet all of the specific requirements set forth in state statutes for corporations. a. True Powered by Cognero

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Chapter 18: Corporations b. False 11. An S Corporation must have no more than fifty shareholders. a. True b. False 12. A shareholder in a professional corporation generally cannot be held liable for torts committed by other professionals at the firm, including malpractice and breaches of duty to the firms’ clients. a. True b. False 13. A benefit corporation is designed to make a profit and thereby provide long-term shareholder benefit. a. True b. False 14. A businessperson who enters into a contract with an investor on behalf of a future corporation is not personally liable on the deal, even though the firm is not yet formed, because the nature of investment is risk. a. True b. False 15. If the procedures for incorporation are not followed precisely, others may be able to challenge the existence of the corporation. a. True b. False 16. Because state corporate laws differ, persons wishing to incorporate may look for the state that offers the most advantageous tax or other provisions. a. True b. False 17. The primary document needed to incorporate a business is the articles of incorporation because the articles serve as a primary source of authority for the firm’s organization and functions. a. True b. False 18. If a business says it is a corporation, and a third party deals with it as a corporation, neither party can question the validity of the business’s status. a. True b. False 19. Corporate bylaws and resolutions of the corporation’s board of directors provide guidelines but cannot grant or restrict corporate powers. a. True b. False 20. Because corporate officers have the implied power to bind the firm in matters directly connected to its business, there is no limit to what the officer can do.

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Chapter 18: Corporations a. True b. False 21. Because bonds do not represent debt, they need never be repaid. a. True b. False 22. Issuing securities is the only way for a new corporation to raise capital. a. True b. False 23. Preferred stock is capital that is provided to new business ventures by professional outside vendors. a. True b. False 24. When a shareholder commingles personal and corporate interests so that the firm has no separate identity, the shareholder may be held liable for the firm’s debts. a. True b. False 25. When it comes to managing a corporation, the corporation relies on its board of directors and officers. a. True b. False 26. If a board attempts to manipulate the shareholders’ election of a director to reduce the shareholders’ influence, they can challenge the election in court. a. True b. False 27. To make informed decisions and supervise corporate officers and employees, the directors need an unrestricted right to inspect corporate books and records. a. True b. False 28. Directors and officers whose failure to exercise due care results in harm to the corporation or the shareholders can be held liable for negligence unless the business judgment rule applies. a. True b. False 29. When directors and officers do not act in the best interests of their corporations, the shareholders may sue them on the company’s behalf. a. True b. False 30. A director of a corporation must disclose if they have a personal interest in any contract, and also abstain from voting on that issue.

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Chapter 18: Corporations a. True b. False 31. To participate in a shareholders’ meeting, a shareholder must present a proxy. a. True b. False 32. Shareholders exercise ownership control through the power of their votes. a. True b. False 33. Cumulative voting gives each shareholder a vote in proportion to the amount of shares they hold. a. True b. False 34. If a director commits a breach of fiduciary duty, the shareholders have the inherent power to remove the director from office by a majority vote. a. True b. False 35. A shareholder’s right to transfer his or her shares to another party can be subject to restrictions set out in the bylaws or a shareholder agreement. a. True b. False 36. If a shareholder’s derivative suit is successful, any damages recovered normally go into the corporation’s treasury. a. True b. False 37. A breach of fiduciary duties by those who own a close corporation normally constitutes what is known as oppressive conduct. a. True b. False 38. All forms of business organizations limit the liability of their owners. a. True b. False 39. When deciding which form of business organization to choose, businesspersons normally take into account tax considerations. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

40. Nevis and Olsen want to do business as a corporation—Pastries & Pies Inc. The procedure for forming this firm is Powered by Cognero

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Chapter 18: Corporations prescribed by a. city or county codes. b. none of the choices. c. federal administrative rules. d. state law.

41. A corporation is recognized in legal forums as a a. legal entity. b. company. c. legal person. d. legal company.

42. A corporation formed in one state and doing business in another is referred to as a a. alien corporation. b. S corporation. c. foreign corporation. d. domestic corporation.

43. Integrated Devices, Inc., is a private, for-profit corporation that is owned by seven shareholders who are members of the same family. Integrated is a. an S corporation. b. a close corporation. c. a benefit corporation. d. a public corporation and a private corporation.

44. AI Medical, Inc., is a private, for-profit corporation that is owned by six shareholders who are not members of the same family but are personally known to one another. They also serve as the directors and officers. To prevent a majority shareholder from dominating the firm, the corporation may a. require more than a majority of directors approve any board action. b. depart from all formalities required by traditional corporate law. c. reorganize into a sole proprietorship or partnership. d. hold special shareholders’ or directors’ meetings on an annual basis.

45. Spices & Seasonings Inc. is a private, for-profit corporation that is owned by eight shareholders who are not members of the same family but are personally known to one another. To avoid management problems caused by sharing control with someone the shareholders do not know or like, the firm could a. restrict the transferability of its shares to outside persons. b. depart from all formalities required by traditional corporate law. c. reorganize into a sole proprietorship or partnership. d. hold special shareholders’ or directors’ meetings on an annual basis.

46. Oil Industries Inc. is a private, for-profit corporation that is owned by five shareholders who are members of the same family. Po, the majority shareholder, misappropriates company funds. The shareholders whose interests are injured by Po’s misconduct should a. have their shares appraised and be paid the fair market value for them.

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Chapter 18: Corporations b. promote the transferability of the company’s shares to outside persons. c. reorganize the firm into a sole proprietorship or partnership. d. hold a special shareholders’ meeting to elect new directors.

47. Health Food Inc. coordinates the purchase, sale, and delivery of organic products. The stated corporate purpose is to make a profit and to have a material positive impact on society and the environment. Health Food is a. a nonprofit corporation. b. not a corporation. c. a benefit corporation. d. a private corporation.

48. Burgers & Brew Inc. prepares its articles of incorporation. The articles are likely to include a. the corporation’s name. b. the number of shares the corporation is authorized to issue. c. all of the choices. d. the corporation’s registered agent.

49. Paper & Scissors Inc. wants to incorporate. The primary document needed to incorporate a business is a. the website of the secretary of state of the state of incorporation. b. the minutes of the first organizational meeting. c. the articles of incorporation. d. the bylaws.

50. The corporation’s internal rules of management are the a. articles of incorporation. b. amendments. c. bylaws. d. shareholder statement.

51. EZ Hauling holds itself out to customers as being a corporation but makes no attempt to incorporate. In this circumstance, EZ Hauling is most likely a. a corporation by estoppel. b. a de facto corporation. c. a de jure corporation. d. ultra vires.

52. Welding Corporation makes a good faith attempt to incorporate but there is a defect in its incorporation. Welding undertakes business as a corporation. In this circumstance, the firm’s existence may be challenged by a. any third party. b. the state. c. a director, officer, or shareholder. d. any corporation with which it does business.

53. Ruiz owns Solar Corporation. Ruiz commingles his personal interests with the corporation’s interest to the extent that the firm has no separate identity. This most likely warrants Powered by Cognero

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Chapter 18: Corporations a. an adoption of new corporate bylaws. b. a recognition of de facto corporate status. c. a pierce of the corporate veil. d. a fundamental change to the articles of incorporation.

54. Kay and Leo form Metro Delivery Inc. Responsibility for all policymaking decisions necessary to the management of corporate affairs rests with Metro’s a. board of directors. b. officers. c. incorporators. d. shareholders.

55. Global Enterprises Inc. competes in many product, service, and geographic markets. Global’s board consists of a large number of directors. The firm faces myriad complex business issues. To avoid its governance from becoming unwieldy, the company can delegate some of its functions to a. its incorporators. b. an executive committee. c. its shareholders. d. a quorum.

56. Owen is a director of Packaging Company. As a director, Owen’s rights include a right to a. access the corporation’s books, records, facilities, and other property. b. subordinate the corporation’s welfare to his personal interest. c. use confidential corporate information for personal advantage. d. self-dealing.

57. Blue Sky Drones Inc. has three directors, a president, two vice presidents, a secretary, and a treasurer. Carol is a Blue Sky director. In most states, Carol can also hold a corporate office a. if she was one of the firm’s incorporators. b. under any circumstances. c. if she resigns as director. d. if the shareholders consent.

58. Orin is a corporate officer for Pacific Trade Inc. In this capacity, Orin a. authorizes major corporate policy decisions. b. manages corporate day-to-day operations. c. makes executive personnel decisions. d. makes and announces financial decisions.

59. Roz, a director of Soy Inc., is specially trained in petroleum trading. Soy’s board approves several deals in which the company pays too much for soybeans. Roz approves all the deals without first reviewing them. Roz is most likely liable for breach of a. the duty of care. b. the business judgment rule. c. the duty of loyalty.

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Chapter 18: Corporations d. none of the choices.

60. Buck is a director on the board of Construction Corporation. The board delegates work to Don, Construction’s president, and other corporate officers. Buck fails to reasonably supervise the work. He is most likely liable for a. negligence or mismanagement. b. breach of the business judgment rule. c. breach of the duty of loyalty. d. none of the choices.

61. Kathy is a director of Line Production Inc. As a director, with respect to the corporation, Kathy is expected to subordinate a. her personal interests to the corporation’s welfare. b. the corporation’s welfare to her personal interests. c. her knowledge and training in the corporation’s interest. d. her business judgment in the shareholders’ interests.

62. Gil is an officer for HVAC Corporation. Due to Gil’s choice of a certain supplier, HVAC’s costs are somewhat higher than they might have been if a different supplier had been chosen. Gil is most likely liable for a. breach of trust and confidence. b. breach of the business judgment rule. c. negligence or mismanagement. d. nothing.

63. Paul is a director on the board of Quality Tire Corporation. As a director, Paul may not a. act in accord with his own knowledge and training. b. use prudent business judgment in the conduct of corporate affairs. c. delegate work to corporate officers. d. engage in self-dealing.

64. Daisy is a director of Extraction Corporation. She opposes an offer to merge Extraction with Fill Inc. because she would lose her board position. Daisy is most likely liable for breach of a. the duty of care. b. the business judgment rule. c. the duty of loyalty. d. breach of contract.

65. Ben is a director of Creation Corporation, an architectural firm. Without informing Creation, Ben goes into business with Design, Inc., a Creation competitor. Ben is liable for breach of a. the duty of care. b. the business judgment rule. c. the duty of loyalty. d. breach of contract.

66. Roy is a director of Sales Service Inc. Sales enters into a contract with TeleCenter Corporation in which Roy has a personal interest. Roy must Powered by Cognero

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Chapter 18: Corporations a. apply the “don’t ask, don’t tell” rule of personal conduct. b. use the situation to his personal advantage. c. make a full disclosure of the conflict of interest. d. only disclose the information if someone at Sales asks.

67. Guy is a director of Healthcare Corporation. Guy attempts to use his best judgment in guiding corporate management but makes a few honest mistakes. His best defense against liability for these mistakes is a. business success insurance. b. the business judgment rule. c. the duty of loyalty. d. none of the choices.

68. Ned and Olga are shareholders of Pizza Pies Inc. Ned’s written authorization to Olga to vote Ned’s shares at a shareholders’ meeting is a. a fundamental change. b. a cumulative vote. c. a proxy. d. a quorum requirement.

69. Erin, a shareholder of Finance Inc., demands the right to inspect corporate books and records to determine whether management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erin’s challenge, a court is most likely to hold that her request constitutes a. harassment. b. unreasonable access to trade secrets and other confidential information. c. a proper purpose. d. potential abuse.

70. Don is a shareholder of Energy Renew Inc. When the directors fail to undertake an action to redress a wrong suffered by the firm, Don files a suit on its behalf. Don’s suit is a. a preemptive right. b. a shareholder’s derivative suit. c. the duty of a majority shareholder. d. unethical and illegal.

71. Huan is a shareholder of Insulation Inc. When the directors fail to undertake an action to redress a wrong suffered by the firm, Huan files a suit on its behalf. Any damages recovered by the suit will go to the firm’s a. shareholders, excluding Huan. b. treasury. c. directors. d. shareholders, including Huan.

72. Brad is a shareholder of Cloud Servers Inc. He will be deemed to have a fiduciary duty to Cloud and its minority shareholders if he has a sufficient number of shares to a. assert a preemptive right. b. bring a shareholder’s derivative suit.

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Chapter 18: Corporations c. exercise actual control over the corporation. d. participate in a cumulative vote.

73. Avery wants to go into business as Boom! to make and market fireworks. When deciding which form of business organization would be most appropriate, Avery would normally take into account all of the following except a. the liability of the owners. b. the forms of competitors’ business organizations. c. tax considerations. d. the need for capital.

74. Doris wants to form a new firm—eBeats—to market a new app. Fees are required to form all of the following business organizations except a. a sole proprietorship. b. a corporation. c. a limited partnership. d. a limited liability company.

75. Mitch is a director and officer of Numero Uno, Inc. Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduciary duty to the corporation. What is Mitch’s best defense against this accusation? Later, the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation. Mitch is a director and shareholder of One-of-a-Kind. What is Mitch’s responsibility in this situation?

76. AstroStar, Inc.’s board of directors consists of three members—Eckhart, Dolan, and Macero. At a regular board meeting, the board selects Galiard as president of the corporation. Later, an audit reveals that during his term as president he has openly embezzled $500,000 from AstroStar. The same audit reveals that the board knew when it selected Galiard that he had been previously convicted of embezzlement. Can the corporation hold directors Eckhart, Dolan, and Macero personally liable?

77. Bob and Sally are both shareholders of XYZ Corporation. The annual shareholders’ meeting is coming up, and they want to know how many “votes” they each have. What things must they look at to determine how much control each of them have, and if there are different types of shareholders.

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Chapter 18: Corporations Answer Key 1. True 2. True 3. False 4. True 5. True 6. True 7. False 8. False 9. False 10. False 11. False 12. True 13. False 14. False 15. True 16. True 17. True 18. True 19. False 20. False 21. False 22. False 23. False 24. True 25. True Powered by Cognero

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Chapter 18: Corporations 26. True 27. True 28. True 29. True 30. True 31. False 32. True 33. True 34. True 35. True 36. True 37. True 38. False 39. True 40. d 41. c 42. c 43. b 44. a 45. a 46. a 47. c 48. c 49. c 50. c 51. a Powered by Cognero

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Chapter 18: Corporations 52. b 53. c 54. a 55. b 56. a 57. b 58. b 59. a 60. a 61. a 62. d 63. d 64. c 65. c 66. c 67. b 68. c 69. c 70. b 71. b 72. c 73. b 74. a 75. The best defense in this context is the business judgment rule. As long as a director or officer does what is necessary to be informed, and acts in good faith, in what he or she considers to be the best interests of the corporation, and with the care that an ordinarily prudent person would use in similar circumstances, he or she is not liable simply because a decision has a negative result. As for the resolution involving a different corporation, a director cannot support a business that Powered by Cognero

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Chapter 18: Corporations competes directly with a corporation on the board of which the director sits. The director’s fiduciary duty requires him to fully disclose the conflict of interest. Most likely, the director in these circumstances will have to resign from one of the boards.

76. Directors are personally answerable to the corporation for breach of their duty to exercise reasonable care in conducting the affairs of the corporation. Reasonable care is defined as being the degree of care that a reasonably prudent person would use in the conduct of personal business affairs. When directors delegate the running of the corporate affairs to officers, the directors are expected to use reasonable care in the selection and supervision of such officers. Failure to do so will make the directors liable for negligence or mismanagement.

The questions in the case of AstroStar, Inc., are whether the directors failed to use reasonable care in the selection of the president and whether they failed to provide a reasonable amount of supervision during his term. Knowledge of the selected officer’s previous conviction for embezzlement and that officer’s open embezzlement of corporate funds indicates failure on both issues. Thus the directors can be held personally liable.

77. Shareholders’ meetings must occur at least annually. In addition, special meetings can be called to deal with urgent matters. A corporation must notify its shareholders of the date, time, and place of an annual (or special shareholders’) meeting at least ten days, but not morethan sixty days, before the meeting date. It is usually not practical for owners of only a few shares of stock of publicly traded corporations to attend shareholders’ meetings. Therefore, the law allows stockholders toeither vote in person, or appoint another person as their agent to vote their shares at the meeting. The agent’s formal authorization to vote the shares is called a proxy. Shareholders exercise ownership control through the power of their votes. Corporate business matters are presented in the form of resolutions, which shareholders vote to approve or disapprove. Each common shareholder is entitled to one vote per share. The articles ofincorporation can exclude or limit voting rights, particularly for certain classes of shares.

For instance, owners of preferred stock usually are denied the right to vote. For shareholders to act during a meeting, a quorum must be present. Generally, a quorum exists when shareholders holding more than 50 percent of the outstanding shares are present, but state laws often permit the articles of incorporation to set higher or lower quorum requirements. Normally, a majority vote of the shares represented at the meeting is required to pass resolutions. At times, more than a simple majority vote is required, either by a state statute orby the corporate articles. Extraordinary corporate matters, such as a merger, consolidation, or dissolution of the corporation, require approval by a higher percentage of all corporate shares entitled to vote. Most states permit, and some require, shareholders to elect directors by cumulative voting. This voting method is designed to allow minority shareholders to be represented on the board of directors. With cumulative voting, each shareholder is entitled to a total number of votes equal to the number of board members to be elected, multiplied by the number of voting shares the shareholder owns. The shareholder can cast all of these votes for one candidate or split them among several candidates. All candidates stand for election at the same time. Before a shareholders’ meeting, a group of shareholders can agree in writing to vote their shares together in a specified manner. Such agreements, called shareholder voting agreements, usually are held to be valid and enforceable. As noted earlier, a shareholder can also appoint a voting agent, and thus vote by proxy.

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Chapter 19: Investor Protection and Corporate Governance

Indicate whether the statement is true or false.

1. Stocks represent corporate debt. a. True b. False 2. Providing investors with more information helps them make buying and selling decisions about securities. a. True b. False 3. All security transactions must be registered with the SEC. a. True b. False 4. The purpose of the Securities Act of 1933 is to regulate a security’s investment price. a. True b. False 5. The definition of security in the Securities Act of 1933 includes interests that involve the right to buy a security on a national security exchange. a. True b. False 6. An investment contract in a franchise, does not qualify as a security. a. True b. False 7. Crowdfunding can be exempt from the registration requirements of the Securities Act of 1933. a. True b. False 8. Small-business issues can use a registration and reporting system that requires simpler forms than the full registration system. a. True b. False 9. A well-known seasoned investor has less flexibility in filing registration statementsand using free-writing prospectuses than other issuers. a. True b. False 10. Securities can be sold before the effective date of the registration statement without restrictions. a. True b. False 11. Most securities can be resold without registration.

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Chapter 19: Investor Protection and Corporate Governance a. True b. False 12. While the Securities and Exchange Commission reviews a registration statement for completeness, most issuers can distribute a free-writing prospectus. a. True b. False 13. Most private, small-business, noninvestment company offers of securities are exempt from the registration requirements. a. True b. False 14. Misrepresenting facts in a registration statement or prospectus is known as pufferyand does not violate the Securities Act of 1933. a. True b. False 15. Insider trading is prohibited because trading on the basis of inside information can give the trader an unfair advantage over the investing public. a. True b. False 16. The Securities Exchange Act of 1934 provides for continuous periodic disclosures by certain publicly held companies. a. True b. False 17. Anyone who has access to or receives inside information of a nonpublic nature and trades on it for personal gain can be liable under SEC Rule 10b-5. a. True b. False 18. To avoid sanctions under the Securities Exchange Act of 1934, whoever solicits a proxy must accurately disclose all facts pertinent to the matter on which shareholders are to vote. a. True b. False 19. To fall under sanctions under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, scienter must exist. a. True b. False 20. There does not have to be any economic loss for there to be a violation of the 1934 Securities Act. a. True b. False 21. A contract for the sale of corporate assets would constitute a material fact for purposes of disclosure under SEC Rule Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance 10b-5: a. True b. False 22. To avoid a conviction in a criminal prosecution under the securities laws, there must be at least a reasonable doubt that the defendant knew he or she was acting wrongfully. a. True b. False 23. Only the Securities and Exchange Commission can sue violators of Section 10(b) and Rule 10b-5. a. True b. False 24. The key to liability under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 is whether information omitted or misrepresented in connection with the purchase (or sale) of a security is material. a. True b. False 25. The Securities Exchange Act of 1934 applies to all cases involving the trading of securities, except in private transactions. a. True b. False 26. Securities must be registered under the Securities Act of 1933 for the Securities Exchange Act of 1934 to apply. a. True b. False 27. Corporate “outsiders” may be held liable for insider trading under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. a. True b. False 28. An insider must actually use inside information in connection with the purchase and sale of securities to violate Section 16(b) of the Securities Exchange Act of 1934. a. True b. False 29. A short-swing profit is any profit earned by the purchase and sale, or sale and purchase, of the same security within a 12-month period. a. True b. False 30. A Ponzi scheme is a fraudulent investment that pays returns from new capital invested with the fraudsters instead of from a legitimate investment. a. True b. False Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance 31. State securities laws apply mainly to intrastate transactions. a. True b. False 32. Issuers of securities offerings must comply with either federal or state securities laws, but not both. a. True b. False 33. Federal securities laws take priority over state securities laws. a. True b. False 34. The Sarbanes-Oxley Act of 2002 attempts to increase corporate accountability by imposing strict disclosure requirements, and harsh penalties for securities laws. a. True b. False 35. Private parties may also sue violators of Section 10(b) and Rule 10b-5. a. True b. False 36. Under corporate law, a corporation must have a board of directors elected by the shareholders. a. True b. False 37. Public companies with a market capitalization, or public float (price times total shares publicly owned), of less than $50 million no longer need to have an auditor report on management’s assessment of internal controls. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

38. The goal of securities regulation is to: a. contribute to the operations of national security exchanges. b. prohibit deceptive and manipulative practices in the securities markets. c. prescribe ways and means for investors to fairly break the rules. d. none of the choices.

39. Under the Securities Act of 1933, securities can include: a. any instrument representing corporate ownership or debt. b. a common enterprise reasonably expected to make a profit. c. an investment in one’s own personal entrepreneurial effort. d. whatever a corporation represents to the public as profitable.

40. Fabrication Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, Fabrication is required to: Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance a. contribute to the operations of national security exchanges. b. disclose all essential information about the issuance of its securities. c. engage in market surveillance to deter undesirable practices. d. meet investors’ reasonable expectations to make a profit.

41. United Delivery Corporation is a public company whose shares are traded in the public securities markets. Under the Securities Act of 1933, United Delivery is required to: a. buy or sell its securities only on a national security exchange. b. register its securities transactions unless they qualify for an exemption. c. invest its own managerial or entrepreneurial efforts. d. issue instruments representing corporate ownership or debt.

42. Market Data Corporation is required to file a registration statement with the Securities and Exchange Commission.

This statement must contain: a. a copy of prospectuses to be provided to investors. b. a description of securities being offered for sale. c. a record of pre-registration sales in securities. d. a statement that securities being offered for sale are worth the price.

43. Home Meals Corporation is poised to issue securities that, under the Securities Act of 1933, are exempt. This means that the securities can be sold: a. only after being registered. b. on the basis of nonpublic information. c. within any six-month period by certain insiders. d. without being registered.

44. Dairy Stores Inc. owns and operates convenience stores. The firm wants to make an initial public offering of securities. If Dairy qualifies for an exemption from the federal registration requirement, the firm is: a. exempt from any state registration requirement. b. not subject to any state securities laws. c. not necessarily exempt from a state registration requirement. d. subject to all state registration requirements.

45. To raise $120 million to expand operations, Primo Inc. makes a stock offering directly to sixty accredited investors and twenty sophisticated, but unaccredited investors. The firm plans to notify the SEC of the sales. Under the Securities Act of 1933, this issue may qualify as an exempt transaction: a. as is. b. if all of the investors are also given material information about the firm. c. if the offering is also made to the general public. d. under no circumstances.

46. Ewan, the chief executive officer of Furniture Inc., intentionally understates the amount of the firm’s debts in information provided to investors as part of an issue of stock. Gary buys the stock and suffers a loss. Ewan may be subject to a. government prosecution, and a private investor’s suit.

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Chapter 19: Investor Protection and Corporate Governance b. negative publicity, but no criminal prosecution or civil suit. c. only government prosecution. d. only a private investor’s suit.

47. Pharma Corporation is a public company whose shares are traded in the public securities markets. With respect to financial and other significant information concerning its securities, the Securities Act of 1933 a. imposes increased responsibility on corporate executives. b. prevents insiders from trading among themselves. c. requires disclosure. d. creates a safe harbor for forward-looking statements.

48. Which of these would not fall under an exemption transaction under the Securities Act: a. insurance policies, endowments, and annuity contracts. b. bank and financial institution securities. c. government-issued securities. d. securities of for-profit education institutions.

49. Components Assembly Corporation is a public company that is poised to issue securities that do not qualify for an exemption from registration. This means that the company must a. file a registration statement with the SEC. b. issue the securities through an online registration site. c. refrain from issuing the securities to unregistered investors. d. register the securities with a national securities exchange.

50. A __________________ is a written disclosure document that describes the security being sold, the financial operations of the issuing corporation, and the investment risk attaching to the security. a. prospectus b. registration statement c. proxy statement d. well-known issuer 51. As part of a stock offering for Design Media Corporation, the firm’s accountant Eve intentionally misrepresents material facts in the prospectus. Fred buys the stock unaware of the misrepresentation and suffers a loss. Eve may be subject to a. none of the choices. b. job termination, but no other sanctions, penalties, or liability. c. a fine, imprisonment, and damages. d. professional censure, but no criminal sanctions or civil liability.

52. Space Flight Inc. files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. The firm is charged with violating the Securities Act of 1933. Its best defense is a. the investors were not aware of the misrepresentations. b. the issuer reasonably believed the misstatements were true. c. the offering was made available to the general public.

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Chapter 19: Investor Protection and Corporate Governance d. the untrue statements were not material.

53. Mars Mission Inc. is a regulated publicly held corporation. Under the Securities Act of 1934, Mars is required to a. contribute to the operations of national stock exchanges. b. disclose information about its organization and financial situation. c. engage in market surveillance to deter undesirable practices. d. all of the choices.

54. Equity Corporation, and its officers, directors, employees, and shareholders, buy and sell securities. Section 10(b) of the Securities Exchange Act of 1934 applies to the trading of securities: a. only by investment companies on organized exchanges. b. only involving short-swing profits obtained in over-the-counter markets. c. only involving tippers and tippees in private transactions. d. in almost any circumstances.

55. Reno, an engineer for Shale Corporation, learns that the firm will increase the dividend it pays to shareholders. Reno buys 10,000 shares of company stock. When the dividend is announced to the public and the price of the stock increases, he sells the shares for a profit. He would not be liable for insider trading if the information about the dividend was: a. material when he sold the stock. b. available to the public after he bought the stock. c. available to the public before he bought the stock. d. forward-looking when he bought the stock.

56. Chris, a coder for Drones Inc., learns of undisclosed company plans to market a new, smart drone. Chris buys 10,000 shares of the firm’s stock. If Chris is liable under the Securities Exchange Act of 1934, it will be because the information on which he based his purchase of the stock was: a. a forward-looking forecast. b. not material. c. not yet public. d. not yet true.

57. Luan, a programmer for Monetized Nation Inc., a business modeling service, learns of undisclosed company plans to distribute a new app. Luan reveals the company plans to a friend, Ono, who buys 5,000 shares of the firm’s stock. Under the Securities Exchange Act of 1934, Ono is most likely: a. liable for insider trading. b. not liable because Ono did not prevent others from profiting. c. not liable because Ono did not solicit information from Luan. d. not liable because Ono does not work for the firm.

58. Eli, an officer for Food Stores Inc., buys 10,000 shares of its stock. One week later, the company announces that it will merge with a competitor, Grocery Mart Corporation, and the price of Food Stores’ stock increases. One month later, Eli sells his shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Eli would not be liable if, after buying the stock, he had waited: a. less than fourteen days to sell it. b. more than six months to sell it. c. ninety days to sell it.

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Chapter 19: Investor Protection and Corporate Governance d. two months to sell it.

59. For either criminal or civil sanctions to be imposed, ________must exist-that is, the violator must have had an intent to defraud or knowledge of engaging in misconduct. a. criminal intent b. scienter c. private trading d. misrepresentation 60. Corporate Financial Inc., and its officers, directors, employees, and shareholders, buy and sell securities on behalf of themselves and their clients. SEC Rule 10b-5 applies to the purchase or sale of a. a security by the corporation only. b. a security involving a corporate insider only. c. a security involving short-swing profits only. d. any security.

61. Cam, an accountant for Discount Inc., learns that the company’s soon-to-be-announced quarterly sales figures exceed analysts’ expectations. Cam tells Ed, who tells Frye, who buys 100 shares of the company’s stock. Frye knows that Ed got the information from Cam. When Discount publicly announces the figures, Frye sells the stock for a profit. Under the Securities Exchange Act of 1934, Ed is most likely a. liable for insider trading. b. not liable because Ed did not prevent others from profiting. c. not liable because Ed did not misappropriate any information. d. not liable because Ed does not work for Discount.

62. Ross, a sales executive with Steel Mill Inc., learns of undisclosed company plans to produce a new type of steel. Ross tells Tim, who tells Uri, who buys 100 shares of Steel stock. Uri knows that Tim got the information from Ross. When the firm publicly announces its new product, Uri sells the stock for a profit. Under the Securities Exchange Act of 1934, Uri is most likely: a. liable for insider trading. b. not liable because Uri is only a tippee, not a tipper. c. not liable because Uri is too far removed from the initial disclosure. d. not liable because Uri traded on the basis of a material fact.

63. Every state has its own corporate securities laws, or________, that regulate the offer and sale of securities within its borders. a. SEC regulations b. state statutes c. blue sky laws d. UCC laws 64. Federal security laws do not take ________ over state security laws. a. the back seat b. priority c. concurrent jurisdiction Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance d. exemption 65. Corporate governance involves __________ reporting of the corporation’s financial progress, so that managers can be evaluated. a. rated b. legal c. audited d. exempt 66. Under corporate law, a corporation must have a ___________ elected by the shareholders. a. president b. shareholder list c. proxy list d. board of directors.

67. Meat Packers Inc. offers its securities for sale only in a single state. The law in this state is like the law in most states.

Thus, the company’s offer is subject to the state’s securities statutes, which are likely to include all except: a. antifraud provisions. b. registration provisions. c. disclosure requirements. d. wage provisions.

68. Furnaces & Filters Inc. is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that the firm’s financial results are accurate and timely, its senior officers must set up and maintain a. internal “disclosure controls and procedures.” b. external “release and reveal timetables.” c. personal “peruse and review liability policies.” d. public “information and discussion forums.”

69. Bev is the chief executive officer of Chef Cafés Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Bev must: a. certify that the reports are complete and accurate. b. designate a corporate official to assume liability for inaccuracies. c. do nothing. d. read the reports and be prepared to answer questions about them.

70. Public companies with a market capitalization, or public float (price times total shares publicly owned), of less than ______________ no longer need to have an auditor report on management’s assessment of internal controls. a. 50 million b. 100 million c. 75 million d. 1 million 71. Spectrum Paints Inc. is a public company whose shares are traded in the public securities markets. Under the Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance Sarbanes-Oxley Act of 2002, the firm is subject to the direct corporate governance requirements of a. any other public company with which the firm exchanges shares. b. any state in which the firm does business. c. the federal government. d. the state in which the firm incorporated.

72. All members of the corporate audit committee for public companies must be ________directors. a. inside b. proxy c. outside d. hired

73. Ridley is an officer of Sun Watts, Inc. Ridley knows that a Sun Watts engineer recently developed a new, inexpensive method for collecting, storing, and converting solar power into fuel. Ridley takes advantage of this information to buy Sun Watts stock from Taylor, and after the discovery is announced, to sell the stock to Ulrich at a profit. Taylor claims that this is a violation of federal law. Is Taylor correct? If so, what federal law has Ridley violated, and what are its possible penalties?

74. Bob wants his company stock to finally go public. What steps does he need to take (assuming he has no exemption from registration)? Explain the process and what needs to be included.

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Chapter 19: Investor Protection and Corporate Governance Answer Key 1. False 2. True 3. False 4. False 5. True 6. False 7. True 8. True 9. False 10. False 11. True 12. True 13. True 14. False 15. True 16. True 17. True 18. True 19. True 20. False 21. True 22. True 23. False 24. True 25. False Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance 26. False 27. True 28. False 29. False 30. True 31. True 32. False 33. False 34. True 35. True 36. True 37. False 38. b 39. a 40. b 41. b 42. b 43. d 44. c 45. b 46. a 47. c 48. d 49. a 50. a 51. c Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance 52. d 53. b 54. d 55. c 56. c 57. a 58. b 59. b 60. d 61. a 62. a 63. c 64. b 65. c 66. d 67. d 68. a 69. a 70. c 71. c 72. c 73. Yes, assuming that Taylor did not know about the new method before it became public, Taylor is correct. Ridley has violated the Securities Exchange Act of 1934.

The Securities Exchange Act of 1934 extends liability to officers and directors in their personal transactions for taking advantage of inside information when they know it is unavailable to the persons with whom they are dealing.

In this problem, Ridley used the undisclosed information about the new collection, storage, and conversion method to buy Sun Watts stock from Taylor, who apparently was not aware of the development at the time of the deal with Ridley, and then sell it at a profit to Ulrich (when the method was revealed to the public).

There are both criminal and civil penalties for violations of this act. Criminal punishment includes fines up to $5 million, Powered by Cognero

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Chapter 19: Investor Protection and Corporate Governance imprisonment up to twenty-five years, or both. Civil sanctions include triple the profits gained, or the loss avoided, and rescission of the contract to buy securities.

74. Should include Section 5 of the Securities Act of 1933, which broadly provides that a security must be registered before being offered to the public unless it qualifies for an exemption. The issuing corporation must file a registration statement with the SEC, and must provide all investors with a prospectus. In principle, the registration statement and the prospectus supply sufficient information to enable unsophisticated investors to evaluate the financial risk involved.

A prospectus is a written disclosure document that describes the security being sold, the financial operations of the issuing corporation, and the investment risk attached to the security. The prospectus also serves as a selling tool for the issuing corporation. The SEC allows an issuer to deliver its prospectus to investors electronically.

The registration statement must be written in plain English and must fully describe the following: 1. the securities being offered for sale, including their relationship to the issuer’s other securities; 2. the corporation’s properties and business (including a financial statement certified by an independent public accounting firm); 3. the management of the corporation, including managerial compensation, stock options, pensions, and other benefits (any interests of directors or officers in any material transactions with the corporation must be disclosed); 4. how the corporation intends to use the proceeds of the sale; and 5. any pending lawsuits or special risk factors.

The registration statement does not become effective until after it has been reviewed and approved by the SEC (unless it is filed by a well-known seasoned issuer, as will be discussed shortly).

Once the SEC has reviewed and approved the registration statement and the waiting period is over, the registration is effective, and the post effective period begins. The issuer can now offer and sell the securities without restrictions. If the company issued a preliminary or free-writing prospectus to investors, it must provide those investors with a final prospectus either before, or at the time they purchase the securities. The issuer can require investors to download the final prospectus from a website, if it notifies them of the appropriate Internet address.

All companies, both domestic and foreign, must file their registration statements electronically so that they can be posted on the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) database. The EDGAR database includes material on initial public offerings, proxy statements, corporations’ annual reports, registration statements, and other documents that have been filed with the SEC. Investors can access the database online to obtain information that they can use to make investment decisions.

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Chapter 20: Administrative Law

Indicate whether the statement is true or false.

1. Executive agencies and independent agencies exist at the federal level. a. True b. False 2. Executive agencies exist within the cabinet departments of the legislative branch. a. True b. False 3. Executive agencies are subject to the authority of the president. a. True b. False 4. Independent regulatory agencies are inside the cabinet departments. a. True b. False 5. Legislatures create statutory law and administrative law. a. True b. False 6. Administrative regulations have benefits, but the benefits can entail considerable costs for business. a. True b. False 7. Independent regulatory agencies are also subject to the president as executive agencies are. a. True b. False 8. Administrative agencies exist only at the federal level. a. True b. False 9. A state agency is created as a parallel to a federal agency. a. True b. False 10. Federal agency regulations take precedence over conflicting state regulations. a. True b. False 11. The major function of an administrative agency is rulemaking. a. True b. False Powered by Cognero

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Chapter 20: Administrative Law 12. Regulations are sometimes said to be executive because, like statutes, they have a binding effect. a. True b. False 13. The notice-and-comment rulemaking procedure is minimally used. a. True b. False 14. Because agency rules have such significant legal force, the APA established procedures for agencies to follow in creating rules. a. True b. False 15. Private parties may petition an agency to repeal a rule. a. True b. False 16. Notice-and-comment rulemaking involves regulators noticing a situation that lacks a rule, commenting on it, and then issuing a rule. a. True b. False 17. When a federal agency decides to create a new rule, the agency publishes a notice of the proposed rulemaking proceedings on the White House website. a. True b. False 18. The agency is not required to make available to the public certain other information, such as the key scientific data underlying the proposal. a. True b. False 19. Following the publication of the notice of the proposed rulemaking proceedings, the agency must allow ample time for persons to comment on the proposed rule. a. True b. False 20. The agency need not respond to all comments. a. True b. False 21. A final rule must contain a “concise general statement of . . . basis and purpose” that describes the reasoning behind the rule. a. True b. False 22. The final rule is later compiled in the Code of Federal Regulations.

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Chapter 20: Administrative Law a. True b. False 23. Final rules have binding legal effect unless the courts later overturn them. a. True b. False 24. An interpretive rule is legally binding. a. True b. False 25. Adjudication is the appeal of the dispute through a hearing conducted by the agency. a. True b. False 26. An administrative law judge’s decision on a dispute over an administrative action is the final order of the agency—no appeal is possible. a. True b. False 27. The administrative law judge does not work for the agency prosecuting the case and is an independent judge. a. True b. False 28. The administrative law judge presides over the hearing but cannot administer oaths, take testimony, rule on questions of evidence, and make determinations of fact. a. True b. False 29. Administrative law judges must be separated from the agency’s investigative and prosecutorial staff. a. True b. False 30. The Administrative Procedure Act (APA) allows ex parte (i.e., private) communications between the administrative law judge and any party to an agency proceeding. a. True b. False 31. Administrative law judges are protected from agency disciplinary actions unless the agency can show good cause for such as action. a. True b. False 32. The Freedom of Information Act (FOIA) requires the federal government to disclose certain records to government workers only. a. True Powered by Cognero

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Chapter 20: Administrative Law b. False 33. Federal government agencies are required to make their records available electronically on the Internet. a. True b. False 34. Under the Freedom of Information Act (FOIA), records involving national security must also be disclosed. a. True b. False 35. An agency’s failure to comply with an FOIA request cannot be challenged in a federal district court. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. At the national level, the two types of administrative agencies are a. executive agencies and independent regulatory agencies. b. judicial agencies and independent regulatory agencies. c. legislative agencies and independent regulatory agencies. d. executive agencies and legislative regulatory agencies.

37. Executive agencies exist within the cabinet departments of the a. executive branch. b. legislative branch. c. judicial branch. d. U.S. Constitution.

38. When a state administrative regulation conflicts with a federal administrative regulation a. the federal regulation takes precedence. b. the state regulation takes precedence. c. a cost-benefit analysis is applied to determine which takes precedence. d. the regulations are equally valid within their jurisdictions.

39. Independent regulatory agencies such as the Federal Communications Commission are a. not part of the government’s executive branch. b. outside the federal executive departments. c. subagencies within the cabinet departments. d. cabinet departments within the executive branch.

40. The Food and Drug Administration (FDA) is an executive agency. As an executive agency, the FDA is subject to the authority of a. no government official or entity. b. the president. c. state legislatures.

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Chapter 20: Administrative Law d. the U.S. Attorney General 41. The Federal Trade Commission Act granted the Federal Trade Commission the power to a. oversee the nation’s stock exchanges. b. regulate specific areas of business and industry. c. prevent businesses from engaging in unfair trade practices. d. work to eliminate discrimination in skilled occupations.

42. Data, Inc., pays income and other taxes collected by the Internal Revenue Service (IRS). Like other federal administrative agencies, the IRS was created by a. Congress, through enabling legislation. b. a court, through the adjudicatory process. c. an administrative agency, through administrative regulations. d. the president, through an executive order.

43. A statute enacted by Congress that authorizes the creation of an administrative agency and specifies the name, composition, and powers of the agency is called a. the enabling legislation. b. the legislative rule. c. the delegation doctrine d. the exhaustion doctrine.

44. An administrative agency that carries the same weight as a congressionally enacted statute is called a. enabling legislation. b. legislative rule. c. delegation doctrine. d. exhaustion doctrine.

45. The rules of administrative agencies can be a. as binding as laws passed by Congress. b. only as persuasive as experts’ opinions. c. merely as suggestive as media commentary. d. no more influential than promotional puffery.

46. The executive branch of the government can exercise control over an administrative agency through a. the president’s veto powers. b. legislation that takes away the agency’s power. c. judicial review of agency actions and decisions. d. None of the choices.

47. Bath & Kitchen, Inc., is subject to a decision by the Consumer Product Safety Commission. Opposed to the decision, the firm wants a court to review it. First, however, the firm must a. refuse to comply with the agency decision. b. petition other interested parties to oppose the decision. c. exhaust all possible administrative remedies.

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Chapter 20: Administrative Law d. publish its opposition in the Federal Register.

48. Delta Water Company is subject to a decision by the Environmental Protection Agency. Delta appeals the decision, arguing that it is arbitrary and capricious. This could mean that the decision a. changed the agency’s prior policy without justification. b. followed a consideration of all legally appropriate factors. c. was accompanied by a rational explanation. d. was plainly warranted by the evidence.

49. The procedures used by administrative agencies in fulfilling their basic functions are known as a. the procedural process. b. the legislative process. c. the administrative process. d. the executive process.

50. The Securities and Exchange Commission decides to create a new rule relating to the dissemination of nonpublic material information through social media. The first step is a. compile the rule with others in the Code of Federal Regulations. b. draft the rule. c. publish a notice of the proposed rulemaking. d. solicit public comment.

51. Notice-and-comment rulemaking involves a period during which a. judges, legislators, and the president are asked about a proposed rule. b. potential violators of a proposed rule are notified and publicized. c. the administrators “notice” a problem and “comment” on it. d. the public is asked to comment on a proposed rule.

52. To notify the public of a proposed rule, the Federal Emergency Management Agency, like other federal agencies, publishes the proposal a. through a broadcast on a public television station. b. in a trade journal available to members of the industry. c. in the Federal Register. d. on its website.

53. A final rule issued through a notice-and-comment rulemaking procedure has binding legal effect a. after a court affirms it. b. until the issuing agency rescinds it. c. once Congress approves it. d. unless a court overturns it.

54. After a final rule is issued, an administrative agency conducts investigations to monitor a. consumer satisfaction with the rule. b. the affected businesses’ satisfaction with the rule. c. compliance with the rule.

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Chapter 20: Administrative Law d. the impact of the rule on other administrative agencies.

55. Tim is a witness in a controversy involving the U.S. Bureau of Tobacco and Firearms. Tim can be compelled to appear before an administrative law judge if he is served with a. an order for specific performance. b. an executive order. c. a subpoena. d. a search warrant.

56. The Environmental Protection Agency (EPA) wants Waste Disposal Company to produce certain records for review.

The EPA can gain access to the records through a. an order for specific performance. b. a rule for parol evidence. c. a formal complaint. d. a subpoena.

57. Unreasonable searches and seizures by requiring that a physical search for evidence must be conducted under the authority of a search warrant is protected by a. The First Amendment. b. The Second Amendment. c. The Third Amendment. d. The Fourth Amendment.

58. The Securities and Exchange Commission (SEC) wants to review certain documents of Trade Funds, Inc. Whether it is permissible for the SEC to request or review the documents depends on whether the documents are a. incriminating. b. relevant. c. technical. d. valuable.

59. The Food and Drug Administration (FDA) is investigating reports that Caplets Corporation is putting potentially harmful additives in Doze, a new pain-relief medication. The FDA’s demands for particular documents from Caplets a. must be specific and adequately describe the material being sought. b. must not be specific or an incriminating item might be overlooked. c. must be general so as to force an uncooperative party’s compliance. d. may, but need not, be specific because this is only an investigation.

60. The Food and Drug Administration (FDA) wants Pharma, Inc., to produce certain records for review. Pharma need not reveal a. incriminating information. b. files that are not otherwise required by law. c. facts that could be used against the firm in a court. d. trade secrets.

61. Administrative agencies can conduct searches without warrants in Powered by Cognero

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Chapter 20: Administrative Law a. all industries. b. highly regulated industries. c. no industries. d. newly regulated industries only.

62. The Federal Emergency Management Agency (FEMA) discovers that Rescue, Inc., is violating a FEMA regulation. If this situation is resolved like most such disputes, the outcome will be a. a negotiated settlement. b. a trial and a fine. c. a trial and an appeal to a higher authority. d. a trial and the dissolution of the business.

63. The Environmental Protection Agency (EPA) discovers that Fish Farm, Inc., has violated an EPA regulation. If no settlement is reached, the EPA can a. issue a formal complaint. b. do nothing. c. take the matter to the U.S. Supreme Court. d. immediately impose sanctions.

64. A proceeding in which an administrative law judge hears and decides issues that arise when an agency charges a person or a firm with an agency violation is a. adjudication. b. declaration. c. rulemaking. d. investigation.

65. During an administrative hearing, the parties may a. give testimony. b. present evidence. c. cross-examine witnesses. d. All of the choices.

66. The APA prohibits _______ between the ALJ and any party to an agency proceeding. a. ex parte communications b. formal complaints c. negotiated settlements d. the arbitrary and capricious test 67. One who presides over an administrative agency hearing and has the power to administer oaths, take testimony, rule on questions of evidence, and make determinations of fact is a. the administrative law judge. b. the attorney c. the mediator. d. the president of the United States.

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Chapter 20: Administrative Law 68. Media Report seeks information about well-known businesspersons under the Freedom of Information Act. To obtain the information, Media Report must a. agree not to reveal any trade secrets. b. reasonably describe the information. c. get a court order. d. obtain the businesspersons’ consent.

69. The Freedom of Information Act (FOIA) requires the federal government to disclose certain records to any person on request, even if a. it involves national security. b. the documents are confidential. c. the files are personal. d. no reason is given for the request.

70. Federal government agencies must make their records available a. on the Internet. b. in downloadable formats. c. in PDF formats. d. All of the choices.

71. Guitar Maker, Inc., makes guitars. The Occupational Safety and Health Administration (OSHA) proposes a safety rule governing the handling of wood and its dust in the workplace, including the woods that Guitar Maker uses in its operations. Guitar Maker contends that the rule will involve substantial compliance costs without significantly increasing workplace safety. The firm sends a letter to OSHA indicating its objections to the proposed rule and enclosing research reports, and other data supporting those objections. Does OSHA have any obligation to consider these objections? What procedures must OSHA follow when it makes new rules, such as this one?

72. Omega Company operates a computer chip production plant. Paula is the president of Omega. Ron, a representative of the Occupational Safety and Health Administration, inspects the plant and, citing a certain regulation, orders Omega to take specified steps immediately to improve sanitation at the plant. Paula believes that Ron is either exceeding his authority or that the regulation Ron claims to be enforcing is excessive. Can Omega ask a court for an order to stop enforcement of the regulation? If not, what can Omega do?

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Chapter 20: Administrative Law Answer Key 1. True 2. False 3. True 4. False 5. False 6. True 7. False 8. False 9. True 10. True 11. True 12. False 13. False 14. True 15. True 16. False 17. False 18. False 19. True 20. False 21. True 22. True 23. True 24. False 25. False Powered by Cognero

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Chapter 20: Administrative Law 26. False 27. False 28. False 29. True 30. False 31. True 32. False 33. True 34. False 35. False 36. a 37. a 38. a 39. b 40. b 41. c 42. a 43. a 44. b 45. a 46. a 47. c 48. a 49. c 50. c 51. d Powered by Cognero

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Chapter 20: Administrative Law 52. c 53. d 54. c 55. c 56. d 57. d 58. b 59. a 60. d 61. b 62. a 63. a 64. a 65. d 66. a 67. a 68. b 69. d 70. d 71. In formulating new rules, a federal administrative agency has to follow specific rulemaking procedures. The most commonly used procedure is notice-and-comment rulemaking, which consists of three steps—notice of the proposed rulemaking, a comment period, and the final rule. The notice of the proposed rulemaking proceeding is published in the Federal Register. The notice states where and when the proceedings will be held, the agency’s legal authority for making the rule, and the terms or subject matter of the proposed rule. Following publication of the notice, the agency must allow time for persons to comment in writing on the proposed rule. If a hearing is held, the comments may be oral. The agency need not respond to all comments, but it must respond to any significant comments that bear directly on the proposed rule.

Thus, if Guitar Maker’s comments are significant, OSHA must take them into consideration. OSHA can respond by either modifying its final rule, or explaining in a statement accompanying the rule, why it did not make any changes.

After the agency reviews the comments, it drafts the final rule and publishes it in the Federal Register. Later, the rule is compiled along with those rules of other federal agencies in the Code of Federal Regulations.

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Chapter 20: Administrative Law 72. Omega cannot ask a court for an injunction to stop the enforcement of the regulation until it has exhausted its administrative remedies.

Omega’s first step would be to appeal the OSHA representative’s order to the agency. After investigating, the agency might negotiate a settlement with Omega. If a settlement cannot be reached, and the agency still considers Omega in violation of the rule, the agency might issue a complaint against the firm. This would be an attempt to bring the plant into compliance and may be accompanied by a press release.

Omega can respond by filing an answer to the charge, and may also respond with its own press release. If there is no settlement, there may be a hearing before an administrative law judge (ALJ). After the hearing, the ALJ will issue an initial order.

If Omega is still dissatisfied, the firm can appeal to the commission that governs the agency. If Omega is dissatisfied with the commission’s decision, it may appeal to a federal court of appeals. If there is no appeal, or if the commission and the court refuse to review the case, the ALJ’s order becomes final. Ultimately, Omega may appeal adverse rulings to the United States Supreme Court.

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Chapter 21: Consumer Protection

Indicate whether the statement is true or false.

1. Deceptive advertising occurs if a reasonable consumer would be misled by the advertising. a. True b. False 2. Puffery also known as vague generalities and obvious exaggerations are permissible. a. True b. False 3. Advertising that appears to be based on factual evidence, but in fact is not reasonably supported by evidence will not be deemed deceptive. a. True b. False 4. The Federal Commerce Commission approves bait-and-switch advertising. a. True b. False 5. Deceptive advertising occurs if a reasonable consumer believes an advertising claim. a. True b. False 6. Bait-and-Switch advertising occurs if the seller has reasonable quantities of products available. a. True b. False 7. Bait-and-Switch advertising occurs if the seller delivers the advertised item within a reasonable time. a. True b. False 8. Bait-and-Switch advertising occurs if the seller discourages employees from selling the items. a. True b. False 9. Generally, online ads—unlike other ads—can be less than truthful and not every claim must be substantiated. a. True b. False 10. An ad is more likely to be considered fair if its benefit to consumers (or the competition) outweighs any injury it might cause to the interests of consumers. a. True b. False 11. Because consumers may not read an entire web page, an online disclosure should be placed as close as possible to any claim being qualified.

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Chapter 21: Consumer Protection a. True b. False 12. The Federal Trade Commission actively monitors online advertising. a. True b. False 13. If an advertisement is proven to be deceptive, it may be subject to a cease-and-desist order. a. True b. False 14. The Lanham Act protects against the deceptive use of trademarks, but does not cover false advertising claims. a. True b. False 15. A deceptive ad for a product involving wrongful charges to consumers may result in an award of damages of a defendant’s unjust gains and consumers’ losses. a. True b. False 16. A consumer may recover under a state consumer-fraud statute, even if he or she has not suffered actual damages proximately caused by a deceptive act. a. True b. False 17. The Telemarketing Sales Rule applies to any offer—domestic or foreign—made to consumers in the United States. a. True b. False 18. The Telemarketing Sales Rule (TSR) makes it legal for telemarketers to misrepresent their goods or services. a. True b. False 19. A telemarketer is not required to remove a consumer’s name from its list of potential contacts if the customer so requests. a. True b. False 20. Telemarketers must refrain from calling those consumers who have placed their names on the Do Not Call Registry. a. True b. False 21. The Consumer Product Safety Commission (CPSC) has far-reaching authority over consumer safety. a. True b. False Powered by Cognero

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Chapter 21: Consumer Protection 22. The Consumer Product Safety Commission (CPSC) conducts research on deceptive advertising and maintains a clearinghouse on the risks associated with various products. a. True b. False 23. The Consumer Product Safety Commission (CPSC) cannot ban the manufacture and sale of any product that the commission believes poses an “unreasonable risk” to consumers. a. True b. False 24. The Consumer Product Safety Commission (CPSC) can remove any products it believes to be imminently hazardous from the market. a. True b. False 25. The Consumer Product Safety Act requires the distributors of consumer products to notify the Consumer Product Safety Commission (CPSC) immediately if they receive information that a product “contains a defect which . . . creates a substantial risk to the public.” a. True b. False 26. The Federal Food, Drug, and Cosmetic Act (FDCA) is the most important federal legislation regulating food and drugs. a. True b. False 27. The Federal Food, Drug, and Cosmetic Act (FDCA) protects consumers against contaminated and misbranded foods and drugs. a. True b. False 28. The Federal Food, Drug, and Cosmetic Act (FDCA) establishes food standards, specifies safe levels of potentially hazardous food additives, and provides classifications of foods and food advertising. a. True b. False 29. One specific area of concern for the FDA is deceptive food advertising. a. True b. False 30. Congress enacted the Food Safety Modernization Act (FSMA) to provide greater government control over the U.S. food safety system. a. True b. False 31. Under the Food Safety Modernization Act (FSMA), food products can be recalled if it suspects contamination. a. True Powered by Cognero

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Chapter 21: Consumer Protection b. False 32. The Truth-in-Lending Act (TILA) is basically a disclosure law and it requires sellers (and lenders) to disclose credit terms (and loan terms) so that individuals can shop around for the best financing arrangements. a. True b. False 33. TILA requirements apply only to advertising agencies. a. True b. False 34. The Truth-in-Lending Act (TILA) protects only lenders. a. True b. False 35. Transactions subject to Regulation Z typically include installment loans, retail and installment sales, car loans, homeimprovement loans, and certain real estate loans if the amount of financing is above $58,300. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. If a reasonable consumer would be misled by an advertising claim, this is a. Regulation Z. b. Truth-in-Lending Act. c. bait-and-switch advertising. d. deceptive adverting.

37. Consumer Staples, Inc., includes in its advertising obvious exaggerations, vague generalities, and puffery about its products. The firm may be subject to sanctions for a. the obvious exaggerations. b. the vague generalities. c. the puffery. d. None of the choices.

38. Faux Products, Inc., in its ads, makes false claims about its own products and about the products of its competitors.

The firm may be subject to sanctions for the false claims about a. its products only. b. its competitors’ products only. c. its products and its competitors’ products. d. None of the choices.

39. Lawnscape Company and Mowers, Inc., make yard tools. Both companies use only steel produced in the United States. Lawnscape’s ad claims, “We use only U.S. steel, while our competitor uses inferior foreign steel!” Under the advertising standards of the Federal Trade Commission Act, this statement is most likely a. an obvious exaggeration.

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Chapter 21: Consumer Protection b. puffery. c. a false claim about a competitor’s product. d. a half-truth.

40. Hearth & Home Furniture store advertises bedroom suites at a “Special Low Price of $599.” When Ilene tries to buy one of the suites, Jill, the salesperson, tells her that they are all sold and no more are obtainable. Jill adds that Hearth & Home has other bedroom suites available for as low as $2,599. This is a. a cease-and-desist order. b. bait-and-switch advertising. c. counteradvertising. d. puffery.

41. Spicy Salsa, Inc., complains to the Federal Trade Commission (FTC) about an ad broadcast by Tangy Taco Sauce Company, Spicy’s competitor. The FTC investigates and concludes that the ad is deceptive. The FTC’s next step is to a. conduct negotiations between the competitors. b. draft a formal complaint. c. issue a cease-and-desist order. d. permit Spicy to broadcast similarly deceptive counteradvertising.

42. Mattress Company advertises a special sale—all bedding, half price. The ad does not state that the sale price does not include delivery or shipping costs. To avoid claims of deceptive advertising, Mattress should a. clearly and conspicuously disclose the shipping cost in its ads. b. display the shipping cost in small print on ads displayed in stores. c. include the shipping cost in small print on its receipts. d. not reveal the shipping cost.

43. The Federal Trade Commission (FTC) receives numerous complaints that a Renewal Subscriptions, Inc., ad is deceptive. The FTC’s first step is to a. draft a formal complaint. b. investigate. c. issue a cease-and-desist order. d. refer the complaints to the U.S. Department of Justice.

44. An ad for Running Shoes, Inc., states that its footwear is “The Winner’s Choice.” Because of this ad, the Federal Trade Commission is most likely to issue a. a cease-and-desist order. b. a counteradvertising order. c. a settlement. d. None of the choices.

45. An ad for Bagels, Inc., attracts buyers who would otherwise have made purchases from Croissant Company. To bring a successful claim against Bagels, Inc., under the federal Lanham Act for false advertising, Croissant must establish that a. the ad was false or deceptive. b. the buyers were deceived by the ad. c. the ad directly caused Croissant to lose sales.

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Chapter 21: Consumer Protection d. All of the choices.

46. Power Hardware advertises new wireless chainsaws for 50% off on its store windows, but when interested customers come into the store and inquire about it, the employee states that the wireless chainsaws are not available because they’re on backorder, but they have plenty of traditional chainsaws in stock. This is a. bait-and-switch advertising. b. counteradvertising. c. cease-and-desist order. d. puffery.

47. EZ Workout, Inc., advertises Fit Step, an exercise machine, online. In its ads, EZ claims that the use of Fit Step measurably enhances the attainability of fitness and weight loss goals and will contribute significantly to the length of its users’ lives. In this context, the company’s ads and claims must be a. hyperlinked. b. avoidable. c. substantiated. d. All of the choices.

48. According to the FTC, all ads, both online and offline, must be a. truthful. b. not misleading. c. substantiated d. All of the choices.

49. When a company’s deceptive ad leads to wrongful charges to consumers, the FTC may seek other remedies, including a. cease-and-desist order. b. damages and restitution. c. counteradvertising. d. Regulation Z. 50. The Telephone Consumer Protection Act (TCPA) prohibits telephone solicitation using a. an automatic telephone dialing system or a prerecorded voice. b. cold-calling techniques. c. telemarketing identifying the seller. d. puffery.

51. The TRACED Act requires telephone providers to offer consumers more effective a. automatic telephone dialing systems. b. robocall-blocking options. c. prerecorded voicemails. d. puffery.

52. The FTC’s Telemarketing Sales Rule (TSR) requires a telemarketer to a. identify the seller’s name. b. describe the product being sold.

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Chapter 21: Consumer Protection c. disclose all material facts related to the sale. d. All of these choices.

53. The TSR makes it illegal for telemarketers a. to misrepresent their goods or services. b. identify the seller’s name. c. describe the product being sold. d. disclose all material facts related to the sale.

54. If a consumer requests to have her name to be removed from a marketing list, the telemarketer a. can ignore her. b. can remove her name and ask for her email address instead. c. can keep her name and make a follow up call. d. must remove her name.

55. Teri borrows $10,000 from USA Bank to remodel a room in her home. This transaction is subject to a. no federal law. b. the Consumer Leasing Act. c. the Consumer Product Safety Act. d. the Truth-in-Lending Act. 56. If your name is on the Do Not Call Registry, then telemarketers a. can send you a letter through the U.S. Postal Service instead. b. can email you instead. c. can call you and leave a voicemail. d. must refrain from calling you.

57. The FTC’s Telemarketing Sales Rule (TSR) applies to any offer made to consumers in the United States a. except online offers. b. except offers in print and writing c. even if the offer comes from a foreign firm. d. None of these choices.

58. Many states and the FTC have “cooling-off” laws that permit buyers to cancel certain sales contracts within a. 24 hours. b. two business days. c. three business days. d. one week.

59. Maria, whose first language is Spanish, receives a call from a telemarketer and agrees to the sale. The telemarketer must a. notify Maria of the cooling-off law in an official letter. b. notify Maria of the cooling-off law in an email. c. notify Maria of the cooling-off law in English.

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Chapter 21: Consumer Protection d. notify Maria of the cooling-off law in Spanish.

60. The FTC Mail, Internet, or Telephone Order Merchandise Rule protects consumers who purchase goods via the a. U.S. Postal Service. b. Internet. c. phone. d. All of these choices.

61. The Consumer Product Safety Act authorizes the Consumer Product Safety Commission (CPSC) to a. convict violators. b. adjudicate complex cases. c. set penalty fees. d. set safety standards for consumer products.

62. The Consumer Product Safety Commission (CPSC) can ban the manufacture and sale of any product that the commission believes a. contains deceptive advertising. b. poses an unreasonable risk to consumers. c. is a scam. d. is overpriced.

63. Products banned by the CPSC have included a. fireworks. b. cribs. c. toys. d. All of these choices.

64. The CPSC frequently works with manufacturers to conduct a. accounting audits. b. deceptive advertising compliance regulations. c. voluntary recalls of defective products. d. None of these choices.

65. The Truth-in-Lending Act (TILA) is basically a. statutory law. b. equal credit opportunity law. c. a disclosure law. d. intellectual property law.

66. The Truth-in-Lending Act (TILA) is administered by a. the state. b. the Federal Reserve Board. c. the Consumer Financial Protection Bureau. d. the Federal Trade Commission.

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Chapter 21: Consumer Protection 67. The Truth-in-Lending Act (TILA) requirements apply only to persons who a. lends funds. b. sell on credit. c. arrange extensions of credit. d. All of these choices.

68. Which does not come under the Truth-in-Lending Act (TILA)? a. Lending of funds. b. Selling on credit. c. Sales between two consumers. d. Arrangement extensions of credit.

69. A set of rules issued by the Federal Reserve Board of Governors to implement the provisions of the Truth-in-Lending Act is known as a. Equal Credit Opportunity. b. Fair Credit Reporting. c. Regulation Z. d. the Truth-in-Lending Act. 70. Looking to buy a new car, Eddie applies for a loan at a credit union since he’s a member, but the loan officer doesn’t tell him the loan terms. This violates a. no federal law. b. the Fair and Accurate Credit Transactions Act. c. the Fair Debt Collection Practices Act. d. the Truth-in-Lending Act.

71. Mouth-Waterin’ Treats Company wants to sell its candy in a normal-sized package labeled “Gigantic Size.”

NuFabrics, Inc., wants to advertise its sweaters as having “That Wool Feel,” but does not want to specify on labels that the sweaters are 100 percent polyester. Can these firms market their products as they would like? If not, why not?

72. Jack Smith’s credit card application was rejected by Mountain Bank USA, citing his previous “unsatisfactory relationship with the bank” as the only reason for the denial. Smith files a lawsuit against Mountain Bank for violating the Equal Credit Opportunity Act (ECOA). Can Smith win this case?

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Chapter 21: Consumer Protection Answer Key 1. True 2. True 3. False 4. False 5. False 6. False 7. False 8. True 9. False 10. True 11. True 12. True 13. True 14. False 15. True 16. False 17. True 18. False 19. False 20. True 21. True 22. False 23. False 24. True 25. True Powered by Cognero

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Chapter 21: Consumer Protection 26. True 27. True 28. True 29. False 30. True 31. True 32. True 33. False 34. False 35. False 36. d 37. d 38. c 39. c 40. b 41. b 42. a 43. b 44. d 45. d 46. a 47. c 48. d 49. b 50. a 51. b Powered by Cognero

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Chapter 21: Consumer Protection 52. d 53. a 54. d 55. d 56. d 57. c 58. c 59. d 60. d 61. d 62. b 63. d 64. c 65. c 66. b 67. d 68. c 69. c 70. d 71. There are a number of federal laws that deal specifically with information given on labels and packages, including the Fair Packaging and Labeling Act. In general, the information on such labels must be truthful and complete (not a halftruth that would lead a consumer to a false conclusion). The information must be accurate and be conveyed in words that are understood by the ordinary consumer. Possible dangers from the products’ use or misuse must also be included.

There are other federal laws that prohibit unfair and deceptive advertising, including labels. These laws include the Federal Trade Commission Act. Deceptive advertising occurs if a reasonable consumer would be misled by the advertising claims. The Federal Trade Commission (FTC) can investigate a complaint, and if, after the investigation, it believes that a seller has engaged in deceptive advertising, it can send a formal complaint to the alleged offender. If the seller does not agree to a settlement, the FTC can conduct a hearing before an administrative law judge. If the FTC succeeds in proving that a seller’s labels or packaging (or other ads) are deceptive, it can issue a cease-and-desist order.

The agency might also impose a counteradvertising sanction, requiring a seller to issue ads—in print, on radio, and on television—to inform the public about the misinformation. Other sanctions are possible.

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Chapter 21: Consumer Protection 72. Yes, he can. Mountain Bank can move for the action to be dismissed because Smith could not show that he had been the victim of discrimination based on any of the factors identified in the ECOA. However, a federal court can further investigate the legislative record of the ECOA and declare that Congress intended for the law not only to discourage discriminatory practices but also to provide educational and informational benefits to consumers. Under this latter requirement, “instead of being told only that they do not meet a particular creditor’s standards,” rejected credit applicants must be given specific reasons for the denial. Because Mountain Bank clearly failed to provide Smith with this information, the court can rule that Smith’s action under the ECOA could proceed.

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Chapter 22: Environmental Law

Indicate whether the statement is true or false.

1. Injured individuals can rely on the common law to obtain damages against business polluters. a. True b. False 2. Under the nuisance doctrine, a person may be held liable for complaining about another’s use of his or her property. a. True b. False 3. Courts ignore the harm caused by the pollution against the costs of stopping it. a. True b. False 4. Under the nuisance doctrine, a property owner may have to identify a distinct harm separate from that affecting the general public to obtain relief from the pollution. a. True b. False 5. Under the common law, individuals were denied standing unless they suffered a harm distinct from the harm suffered by the public at large. a. True b. False 6. The Clean Air Act provides the basis for issuing regulations to control multistate air pollution. a. True b. False 7. The Clean Air Act covers both mobile sources and stationary sources of pollution. a. True b. False 8. Mobile sources of pollution include gas powered vehicles. a. True b. False 9. Regulations governing air pollution from mobile sources are lenient. a. True b. False 10. The Environmental Protection Agency periodically updates the pollution standards in light of new developments and data. a. True b. False 11. The Clean Air Act specifically mentions CO2 emissions causing global climate change.

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Chapter 22: Environmental Law a. True b. False 12. The Clean Air Act authorizes the EPA to establish air-quality standards for stationary sources. a. True b. False 13. The primary responsibility for implementing air-quality standards for stationary sources rests with the federal government. a. True b. False 14. The EPA permits the states to set standards for levels of pollutants. a. True b. False 15. Nearly two hundred substances, including asbestos, benzene, beryllium, cadmium, and vinyl chloride, have been classified as hazardous. a. True b. False 16. Persons who provide information about violators of the Clean Air Act may be paid up to $10,000. a. True b. False 17. Those who knowingly violate the Clean Air Act may be subject to civil penalties but not criminal penalties. a. True b. False 18. The Clean Air Act does establish specific emissions standards for each hazardous air pollutant. a. True b. False 19. Because point-source water pollution control is based on a permit system, the permits are the key to enforcement. a. True b. False 20. Many point sources emitting pollutants into water do not need a permit. a. True b. False 21. The National Pollutant Discharge Elimination System focuses mainly on industrial wastewater and has never been expanded to cover storm water discharges. a. True b. False Powered by Cognero

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Chapter 22: Environmental Law 22. National effluent (pollution) standards are set by each affected industry. a. True b. False 23. Suppliers of drinking water are required to notify the public of any problems with the water they supply, such as when the water fails to meet established standards. a. True b. False 24. Special requirements must be met to discharge toxic chemicals into surface waters. a. True b. False 25. National Pollutant Discharge Elimination System (NPDES) permits must be renewed every ten years. a. True b. False 26. Wetlands may be filled or dredged without a permit from the U.S. Army Corps of Engineers. a. True b. False 27. The government prohibits landowners to seek a jurisdictional determination (JD) from the U.S. Army Corps of Engineers as to whether the CWA applies. a. True b. False 28. Under the Clean Water Act, criminal penalties apply only if a violation was intentional. a. True b. False 29. An injured party may sue a business polluter in tort under the theory of negligence. a. True b. False 30. The basis for a negligence action is the business’s failure to use reasonable care. a. True b. False 31. Employees can sue their employer if they fail to use proper pollution controls and caused the employees to suffer respiratory illnesses due to contaminated air. a. True b. False 32. A toxic tort is a civil wrong arising from exposure to a toxic substance. a. True b. False Powered by Cognero

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Chapter 22: Environmental Law 33. Businesses that engage in ultrahazardous activities—such as the transportation of radioactive materials—are exempt from liability for any injuries the activities may cause. a. True b. False 34. In a strict liability action, the injured party must prove that the business failed to exercise reasonable care. a. True b. False 35. An injured party may sue a business polluter in tort under the theory of strict liability. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Persons may be held liable if they use their property in a manner that unreasonably interferes with others’ rights to enjoy their own property a. under the doctrine of negligence. b. under the doctrine of strict liability. c. under the doctrine of toxic tort. d. under the doctrine of nuisance.

37. Those responsible for operations that create dirt, smoke, noxious odors, noise, or toxic substances can be held liable under the common law theory of a. environmental impact. b. nuisance. c. pollution. d. hazardous substance.

38. Ultrahazard Corporation transports radioactive materials. Vince, an Ultrahazard employee, is diagnosed with radiation sickness after exposure to the materials. Vince’s suit against Ultrahazard to recover for the injury is a. an environmental impact statement. b. a nuisance. c. a toxic tort. d. a hazardous substance response.

39. Under the nuisance theory, the courts commonly balance the harm caused by the pollution against a. the costs of stopping it. b. measuring the damage caused by it. c. the negligence theory. d. a strict liability theory.

40. How have courts reacted on the ground that the hardships that would be imposed on the polluter and on the community, are relatively greater than the hardships suffered by the plaintiff? a. Often awards the defendant.

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Chapter 22: Environmental Law b. Often denied injunctive relief. c. Both a and b. d. Neither a nor b.

41. A property owner may have to identify a distinct harm separate from that affecting the general public in order to a. obtain relief from pollution under the nuisance doctrine. b. obtain relief from federal and state regulatory agencies. c. obtain relief from local chambers of commerce. d. obtain relief from local police departments.

42. A distinct harm separate from that affecting the general public is referred to as a. a wetland. b. a toxic tort. c. a private nuisance. d. None of these choices.

43. A public authority can sue to stop a a. a wetland. b. a public nuisance. c. a toxic tort. d. None of these choices.

44. The Clean Air Act provides the basis for issuing regulations to control multistate a. water pollution. b. air pollution. c. nuclear pollution. d. superfund.

45. Mobile sources of pollution include a. automobiles. b. RVs. c. motorbikes. d. All of these choices.

46. The EPA periodically updates the pollution standards in light of new developments and data, usually reducing the amount of a. carbon. b. oxygen. c. emissions. d. None of these choices.

47. A growing concern is that greenhouse gases, such as carbon dioxide (CO2), contribute to a. forest fires. b. global climate change.

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Chapter 22: Environmental Law c. oil spills. d. increase in ocean plastics.

48. The Clean Air Act authorizes the EPA to establish air-quality standards for a. metropolitan cities. b. residential areas. c. stationary sources. d. coastal neighborhoods.

49. The Clean Air Act recognizes that the primary responsibility for implementing these standards rests with a. state and local governments. b. the federal government. c. citizens. d. The Environmental Protection Agency.

50. Bread Brands LLC operates a dough making and packaging plant—a “major source”—that emits hazardous air pollutants for which the Environmental Protection Agency (EPA) has set maximum levels of emission. The plant does not use equipment to reduce its emissions. Under the Clean Air Act, this is most likely a. a violation. b. not a violation because dough is not considered a pollutant. c. not a violation because packaging is not regulated by the EPA. d. not a violation because the plant is not attempting to reduce emissions.

51. Regulations governing air pollution cover mobile and stationary sources. Those who may be subject to penalties for violations of the Clean Air Act include a. corporate officers who knowingly violate the act. b. persons who provide information about violators but otherwise fail to act. c. private citizens who fail to sue violators. d. None of the choices.

52. For violations of emission limits are stipulated under the Clean Air Act, the EPA can assess civil penalties of up to as much as a. $0. b. $15,000 per day. c. $101,000 per day. d. $30,000 total.

53. Fried Food, Inc., operates a commercial frying plant, discharging pollutants into the air. Greta reports the violations to the Environmental Protection Agency. Greta a. is not entitled to a payment. b. may be paid up to any amount. c. may be paid up to $1,000. d. may be paid up to $10,000.

54. The federal statute that regulates air pollution is Powered by Cognero

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Chapter 22: Environmental Law a. the Clean Air Act. b. the Federal Air Pollution Control Act. c. the CERCLA. d. All of the choices.

55. The main goals of the Clean Water Act include a. making water safe for swimming. b. protecting fish and wildlife. c. eliminating the discharge of pollutants into water. d. All of the choices.

56. Riverside Glass Company operates a manufacturing plant on Spawn River. Discharging pollutants from the plant into the river can result in a. civil penalties and criminal penalties. b. civil penalties only. c. criminal penalties only. d. no penalties.

57. Deep Earth Extraction, Inc., operates a facility near Estuary Bay. Discharging waste from the facility into the bay can result in a. penalties and damages. b. penalties only. c. damages only. d. None of the choices.

58. Without a permit, Timberline Plywood Company discharges its untreated wastewater into Urban City’s storm drainage pipes, which empty into Valley Creek. Under the Clean Water Act, this discharge is most likely a. a violation. b. not a violation, because the company does not have a permit. c. not a violation, because water is not a stationary source. d. not a violation, because a storm drainage pipe is not a point source.

59. Water Power Corporation wants to begin operations that include the discharge of waste into navigable waters. Under the Clean Water Act, the company must install certain equipment a. with all deliberate speed after beginning operations. b. before beginning operations. c. only on a voluntary basis. d. only if a regulatory agency challenges the discharge.

60. Without a permit from the U.S. Army Corps of Engineers, Condos Corporation fills a wetlands area that it owns in preparation for the construction of a housing complex. Under the Clean Water Act, this is most likely a. a violation. b. not a violation, because a permit is not needed to fill wetlands. c. not a violation, because the area was filled before construction. d. not a violation, because there was no discharge of pollution.

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Chapter 22: Environmental Law 61. Fire Retardants, Inc., operates without required pollution control technology, causing a discharge of chemical waste into Green River. This can result in a. a fine. b. an injunction. c. imprisonment. d. All of the choices.

62. Midpoint City operates its own municipal public drinking water system for which the Environmental Protection Agency has set maximum levels of pollutants. The city does not use any equipment to meet these standards. With regard to any contamination of the water, under the Safe Drinking Water Act, this is most likely a. a violation. b. not a violation, because the city does not set the standards. c. not a violation, because water is not a stationary source. d. not a violation, because the city does not use any equipment.

63. County Water District operates a public water supply system. The district must send to every household that it supplies with water, a document with an annual statement describing a. the district’s financial situation and material facts that might affect it. b. other operations, such as irrigation and water conservation, in which the district is involved and to what extent. c. parties who might be held liable if pollution problems arise. d. the source of the water, and any contaminants and health concerns.

64. If it is difficult to determine whether a particular area qualifies for protection as wetlands under the CWA, the government would allow landowners to seek a. a jurisdictional determination. b. BACT equipment. c. an Environmental Impact Statement. d. None of these choices.

65. Parents from Riverdale Elementary found that their sons were getting awfully ill. When their sons got tested, reports showed exposure to asbestos. These parents can sue Riverdale for a. environmental impact statements. b. a toxic tort. c. jurisdictional determination. d. None of these choices.

66. Joe, who lived in a small town with a farm and was in good health moved to the city near a prominent engine manufacturing plant. After about a year, Joe started to feel ill and discovered that he had cardiovascular issues. His doctor suggested the culprit may be radiation exposure from the manufacturing plant. Joe can file a lawsuit against the plant for a. a toxic tort. b. environmental impact statements. c. jurisdictional determination. d. None of these choices.

67. Before being transported, hazardous waste generated by Tire Maker, Inc., must be properly labeled and packaged Powered by Cognero

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Chapter 22: Environmental Law under the Resource Conservation and Recovery Act by Tire Maker, Inc. Otherwise, they may be liable for a. nuisance. b. environmental impact statements. c. jurisdictional determination. d. a toxic tort.

68. Disposal Company operates a hazardous waste storage facility. Concerned that there may be a release of chemicals from the site, the company sells the property to Eager Developers, Inc. If there is a release, the seller is most likely a. liable. b. not liable, because the site was sold before the release. c. not liable, because the company was concerned about the release. d. not liable, because the company no longer operates the facility.

69. BioChem Corporation operates a hazardous waste storage facility. ChemCo, Inc., buys BioChem before it is discovered that the firm’s disposal practices violated CERCLA. With respect to these violations, Superfund is likely to impose on ChemCo a. strict liability. b. liability under the nuisance doctrine. c. liability on a negligence theory. d. no liability.

70. Employees can sue an employer whose failure to use proper pollution controls contaminated the air with hazardous chemicals and caused the employees to suffer respiratory illnesses. The employer would be liable for a a. a toxic tort. b. environmental impact statements. c. jurisdictional determination. d. nuisance.

71. Metal Foundry, Inc.’s complex spews smoke and odors. The site features its own rail system, and trucks enter and exit the complex night and day. Neal and other residents of an adjacent neighborhood can feel the vibrations of the trains and trucks, and suffer other effects from the operations. Neal and others file a suit against Metal Foundry. Why might the court rule in favor of the defendant?

72. ChemMix Company is a subsidiary of Diversified Industries, Inc. ChemMix operates a hazardous waste disposal site.

Electrical Supply Corporation is one of many parties who generate waste disposed of at the site. ChemMix borrows money from First State Bank, which takes over the site when ChemMix goes bankrupt. The Environmental Protection Agency discovers a leak at the site. Can any of these private parties be forced to pay for the clean-up? If so, who?

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Chapter 22: Environmental Law Answer Key 1. True 2. False 3. False 4. True 5. True 6. True 7. True 8. True 9. False 10. True 11. False 12. True 13. False 14. False 15. True 16. True 17. False 18. False 19. True 20. False 21. False 22. False 23. True 24. True 25. False Powered by Cognero

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Chapter 22: Environmental Law 26. False 27. False 28. True 29. True 30. True 31. True 32. True 33. False 34. False 35. True 36. d 37. b 38. c 39. a 40. b 41. a 42. c 43. b 44. b 45. d 46. c 47. b 48. c 49. a 50. a 51. a Powered by Cognero

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Chapter 22: Environmental Law 52. c 53. d 54. a 55. d 56. a 57. a 58. a 59. b 60. a 61. d 62. a 63. d 64. a 65. b 66. a 67. d 68. a 69. a 70. a 71. The court might rule in favor of Metal Foundry, or at least decline to enjoin its operations, on the ground that the hardships to be imposed on Metal Foundry and on the community are greater than the hardships suffered by Neal and the other residents of the nearby neighborhood, despite the pollution and noise. The court might deny an injunction if the Metal Foundry plant is the heart of the local economy, for example, and award the residents only damages.

72. Any of the private parties mentioned in the question can be required to pay the entire cost for the clean-up of the site.

Under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), potentially responsible parties on whom such costs may be imposed include persons who generated wastes disposed of at the site (i.e., Electrical Supply) and persons who owned or operated the site at the time of the disposal (i.e., ChemMix). ChemMix’s parent Diversified Industries, may also be liable, as may First State Bank, and any other lender who actually participates in managing a hazardous waste disposal site that requires a clean-up.

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Chapter 22: Environmental Law

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Chapter 23: Real and Personal Property

Indicate whether the statement is true or false.

1. Land includes the soil and water on the surface of the earth, but not the water under the surface. a. True b. False 2. Real property is immovable whereas personal property is capable of being moved. a. True b. False 3. To be a fixture, an item of personal property must be physically attached to the land in some way. a. True b. False 4. The most important factor in determining whether an item is a fixture is the perception of a disinterested third party. a. True b. False 5. Tile and carpeting permanently attached to the floor of a house are most likely intended to be fixtures. a. True b. False 6. Because no one can actually hold a piece of land, certain rights and duties are recognized to constitute the ownership interests in real property. a. True b. False 7. A fee simple absolute is an interest in land in which the owner has the greatest possible aggregation of rights, privileges, and power. a. True b. False 8. In both a tenancy in common and a joint tenancy, each co-owner owns an undivided interest in the property. a. True b. False 9. When a tenant in common dies, that party’s interest in the property automatically passes to the surviving owners. a. True b. False 10. A tenant in common cannot transfer ownership interest in the property to another. a. True b. False 11. When a joint tenant dies, his or her interest in the property passes to his or her chosen heirs. a. True Powered by Cognero

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Chapter 23: Real and Personal Property b. False 12. A deceased joint tenant’s interest passes to the next of kin. a. True b. False 13. A joint tenant can transfer her or his rights by sale or gift to another without the consent of the other joint tenants. a. True b. False 14. When a joint tenancy is terminated, the person who purchases the property or receives the right of survivorship. a. True b. False 15. A joint tenant’s interest can be seized by court order to satisfy the tenant’s judgment creditors. a. True b. False 16. Tenancy by the entirety means both spouses may separately transfer his or her interest during his or her lifetime. a. True b. False 17. A divorce, either spouse’s death, or mutual agreement does not terminate a tenancy by the entirety. a. True b. False 18. If property is held as community property, each spouse technically owns an undivided one-half interest in the property. a. True b. False 19. A divorce does not equally divide the community property in some states. a. True b. False 20. Adverse possession is a means of obtaining title to land, but the delivery of a deed is still necessary. a. True b. False 21. Even when one person possesses the property of another for a certain statutory period of time, that person cannot acquire the title to the land. a. True b. False 22. For property to be held adversely, possession must be actual and exclusive. a. True Powered by Cognero

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Chapter 23: Real and Personal Property b. False 23. For property to be held adversely, possession must be continuous and peaceable for the required period of time. a. True b. False 24. Policies behind the doctrine include rewarding possessors for putting land to productive use, and punishing owners who sit on their rights too long. a. True b. False 25. For property to be held adversely, possession must be open, visible, and notorious. a. True b. False 26. Public policy reasons for the adverse possession doctrine include society’s obsession with ongoing boundary disputes. a. True b. False 27. Even ownership in fee simple absolute is limited by a superior ownership. a. True b. False 28. Eminent domain is the power of a government to take land from private citizens for public use. a. True b. False 29. Eminent domain is sometimes referred to as the condemnation power. a. True b. False 30. The power of eminent domain is invoked by a judge. a. True b. False 31. The first phase of condemnation proceedings involves determining the fair value of the property. a. True b. False 32. When the government uses its power of eminent domain to acquire land owned by a private party, a taking does not occur. a. True b. False 33. The government does not have to prove that it needs to acquire privately owned property for a public use. a. True Powered by Cognero

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Chapter 23: Real and Personal Property b. False 34. The government must pay just compensation when invoking its condemnation power. a. True b. False 35. The court determines the fair value of the land, which is approximately equal to its market value. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Jack owns a parcel of land. Jack tows a mobile home to the parcel and anchors it to the land near a stand of Douglas fir trees. Jack’s real property consists of a. the land. b. the mobile home. c. the trees. d. All of the choices.

37. Bob owns twenty acres of land on the side of a mountain in Colorado. He files a suit against the Durango Flight School, claiming that its planes flying over his land violate his property rights. To succeed, his best argument is a. the planes fly over more than twice a day. b. there are other routes the planes could take. c. the flights are low and frequent, interfering with enjoyment of his land. d. the planes are effectively taking private property for private use.

38. Grey owns the surface rights for High Desert Ranch, which includes a house, a bunkhouse, and two barns. Industrial Mining, Inc., owns the subsurface rights. When the company drills for and extracts the oil beneath the ranch, the surface subsides and the structures collapse. Most likely responsible for the damage is a. Industrial Mining. b. Grey. c. Industrial Mining and Grey in proportion to the value of their rights. d. no one—each owner is liable for their own costs.

39. Colleen owns a house. In the house, a tile floor has a throw rug and a heavy decorative urn. Most likely, this (these) object(s) meets the definition of a fixture a. the urn. b. the throw rug. c. the tile floor. d. All of the choices.

40. Mines, Inc., installs an industrial-quality wastewater system bolted to a concrete foundation on its property and connected to an underground aquifer. A court is most likely to consider the system a fixture because a. Mines, Inc., owns the property. b. the installation is industrial-quality. c. the system is attached to Mines’s property, and it is integral to its operations.

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Chapter 23: Real and Personal Property d. a wastewater system cleans, or “fixes,” waste water.

41. Beryl owns Campus Apartment House. His ownership rights include the right to sell or give away the property without restriction, as well as to use the property for whatever purpose he sees fit. His ownership interest is a. a fee simple absolute. b. an easement. c. the right to adverse possession. d. the power of eminent domain.

42. Kim and Leola own a warehouse in which they operate Mini-Storage Corporation. On the death of either owner, that owner’s interest in the warehouse passes to the surviving owner. This is a. a joint tenancy. b. community property. c. a tenancy in common. d. a profit.

43. Beck and Carli are married. Carli buys a condominium near Downhill Ski Resort. Beck and Carli each technically own an undivided one-half interest in the condo. This is a. a joint tenancy. b. community property. c. a tenancy in common. d. a license.

44. Brick & Mortar, Inc., signs a lease for a storefront owned by Commercial Properties, Inc. The lease does not specify how long it is to last but does specify that rent is to be paid at certain intervals. This is a. a periodic tenancy. b. a fixed-term tenancy. c. a license. d. a tenancy by the entirety.

45. Rafe signs a one-year lease for an apartment owned by Suki. Rafe is a student and needs the apartment only for two semesters, at the end of which he plans to sublet it for the rest of the term. Rafe’s tenancy is a. a periodic tenancy. b. a license. c. a tenancy by the entirety. d. a fixed-term tenancy.

46. Quarry Company owns a gravel pit next to land owned by Ridgeline Corporation. Access to the pit is limited to a road on Ridgeline’s property. Quarry’s right to drive its trucks on the road is a. a profit. b. an easement. c. a right to adverse possession. d. the power of eminent domain.

47. Sabine subdivides two acres into two residential lots. Only one of the lots has a well for water. Tamer and Ulrich each Powered by Cognero

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Chapter 23: Real and Personal Property buy a lot—Ulrich’s lot is the one without a well. Because Ulrich needs water, a profit arises by a. easement. b. implication. c. adverse possession. d. eminent domain.

48. When the owner of one piece of land has a right to go onto an adjacent piece of land owned by another, this is called a. an easement appurtenant. b. dominant estate. c. servient estate. d. implication.

49. The land that is benefited by the interest is called the a. easement appurtenant. b. dominant estate. c. servient estate. d. implication.

50. The land that is burdened is called the a. easement appurtenant. b. dominant estate. c. servient estate. d. implication.

51. Easements or profits appurtenant are intended a. to make full use of another person’s personal property. b. benefit the land. c. for a person to take anything from the property. d. to keep trespassers out.

52. When the right to use or take things from another’s land is given to one who does not own an adjacent tract of land, this is called a. easement. b. profit in gross. c. Both a and b. d. Neither a nor b.

53. In an easement or profit in gross, the intent is to a. make full use of another person’s personal property. b. benefit a particular person or business. c. benefit a person to take anything from the property. d. keep trespassers out.

54. Most easements and profits are created by a. an express grant in a contract.

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Chapter 23: Real and Personal Property b. a deed. c. a will. d. All of these choices.

55. When one person uses another person’s land without the landowner’s consent, an easement or profit may arise by a. servient estate. b. dominant estate. c. prescription. d. implication.

56. The simplest way to terminate an easement or profit is a. move out of the country. b. get a new owner. c. sell the property. d. to deed it back to the owner.

57. The revocable right to enter onto another person’s land is a. a license. b. prescription. c. implication. d. easement.

58. Managing the land within a community to encourage sustainable and organized development while controlling growth in a manner that serves the interests of the community is the purpose of a. zoning laws. b. adverse possession. c. eminent domain. d. inverse condemnation.

59. The power of a government to take land from private citizens for public use on the payment of just compensation is called a. eminent domain. b. easement. c. adverse possession. d. inverse condemnation.

60. Eminent domain is also referred to as a. eminent domain. b. easement. c. adverse possession. d. condemnation power.

61. The power of eminent domain generally is invoked through a. condemnation proceedings. b. easement.

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Chapter 23: Real and Personal Property c. adverse possession. d. condemnation power.

62. When the government uses its power of eminent domain to acquire land owned by a private party a. a value is not determined. b. a taking occurs. c. compensation is not paid. d. None of these choices.

63. Which amendment requires that the government pay just compensation when invoking its condemnation power? a. Fifth Amendment. b. Fourth Amendment. c. Second Amendment. d. First Amendment.

64. Just compensation means a. the taking. b. fair value. c. adverse possession. d. condemnation power.

65. In the second phase of the condemnation proceeding, the court determines the fair value of the land, which is a. approximately equal to its market value. b. adverse possession. c. condemnation power. d. inverse condemnation.

66. Property that has been voluntarily placed somewhere by the owner and then inadvertently forgotten is a. abandoned property. b. lost property. c. mislaid property. d. bailment.

67. Property that is involuntarily left is a. abandoned property. b. lost property. c. mislaid property. d. bailment.

68. Property has been discarded by the true owner, who has no intention of reclaiming title to it is a. abandoned property. b. lost property. c. mislaid property. d. bailment.

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Chapter 23: Real and Personal Property 69. When a delivery of personal property (without transfer of title) by one person (i.e., bailor) to another (i.e., a bailee) occurs, this is a. abandoned property. b. lost property. c. mislaid property. d. bailment.

70. Bailment agreements usually are made for a particular purpose such as a. to loan. b. to lease. c. to transport property. d. All of these choices.

71. David and Eva are married and purchase a house as joint tenants. The title to the house clearly expresses the intent to create a joint tenancy because it refers to David and Eva as “joint tenants with right of survivorship.” David has three children from a prior marriage. What happens if David dies?

72. Gene leaves her Honda Fit with In-Town Motors for routine maintenance. On its return, the interior of the car is greasy, and the exterior is scratched and dented. Who suffers the loss, and why?

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Chapter 23: Real and Personal Property Answer Key 1. False 2. True 3. False 4. False 5. True 6. True 7. True 8. True 9. False 10. False 11. False 12. False 13. True 14. False 15. True 16. False 17. False 18. True 19. False 20. False 21. False 22. True 23. True 24. True 25. True Powered by Cognero

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Chapter 23: Real and Personal Property 26. False 27. True 28. True 29. True 30. False 31. False 32. False 33. False 34. True 35. True 36. d 37. c 38. a 39. c 40. c 41. a 42. a 43. b 44. a 45. d 46. b 47. b 48. a 49. b 50. c 51. b Powered by Cognero

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Chapter 23: Real and Personal Property 52. c 53. a 54. d 55. c 56. d 57. a 58. a 59. a 60. d 61. a 62. b 63. a 64. b 65. a 66. c 67. b 68. a 69. d 70. d 71. If David dies, his interest in the house automatically passes to Eva rather than to his children from the prior marriage.

The right of a surviving joint tenant to inherit a deceased joint tenant’s ownership interest—referred to as a right of survivorship—distinguishes a joint tenancy from a tenancy in common. In a joint tenancy, each of two or more persons owns an undivided interest in the property, but a deceased joint tenant’s interest passes to the surviving joint tenant or tenants. In this case, because David and Eva are joint tenants, the house would go to Eva upon David’s death.

72. In-Town Motors is liable as an ordinary bailee, which owes a duty to take proper care of property left in its charge. In this question, of course, the property is the car. To recover from a party who does not fulfill a required duty of care, an injured party—Gene—must prove the lack of care in most cases. In this problem, In-Town Motors might contend that the car was in its present condition when left in the bailee’s care. Under the law of bailments, proof of damage or loss— “before” and “after” photos might be sufficient—raises a presumption that a bailee is guilty of negligence, and the bailee must prove that he or she exercised due care.

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Chapter 23: Real and Personal Property

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Chapter 24: Antitrust Law and Promoting Competition

Indicate whether the statement is true or false.

1. Consumers benefit when producers work to develop better products that can be sold at lower prices to beat the competition. a. True b. False 2. Proving an antitrust violation requires showing a misuse of market power. a. True b. False 3. Any contract, combination in the form of a trust, or conspiracy to restrain trade and commerce can be declared illegal under the antitrust laws. a. True b. False 4. Antitrust legislation is based on a desire to limit economic competition. a. True b. False 5. Restraints of trade are laws that regulate economic competition. a. True b. False 6. A business, but not an individual person, can be deemed liable for monopolizing or attempting to monopolize trade or commerce in violation of the antitrust laws. a. True b. False 7. A market in which there is a single seller or a very limited number of sellers is a monopoly. a. True b. False 8. The power to control the market price of a product is market power. a. True b. False 9. Because commerce operates more efficiently when competitors cooperate, Section 1 of the Sherman Act permits rivals to consolidate market power. a. True b. False 10. To deem an agreement a per se violation of antitrust law, a court must determine whether the agreement actually constitutes a restraint on trade. a. True b. False Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition 11. Any agreement among competitors to artificially fix prices or restrict output is a per se violation of Section 1 of the Sherman Act. a. True b. False 12. Any agreement that results in enhanced market power violates the antitrust laws. a. True b. False 13. Price-fixing agreements are considered violations of the Sherman Act because of their real and potential adverse effects on open and free competition. a. True b. False 14. To reduce marketing costs and raise prices, competitors can divide up marketing territories or customers without violating antitrust law. a. True b. False 15. Group boycotts are per se violations of Section 1 of the Sherman Act. a. True b. False 16. Horizontal restraints involve the entire chain production. a. True b. False 17. If the legitimate benefits outweigh the anticompetitive effects of a resale price maintenance agreement, the agreement may be held lawful. a. True b. False 18. The rule of reason represents a more flexible economic analysis of agreements among competitors than the rigid application of a per se standard. a. True b. False 19. Predatory pricing is not an antitrust violation because the tactic can eliminate a firm’s competitors, enabling it to increase prices and earn higher profits to benefit its owners and employees. a. True b. False 20. Section 2 of the Sherman Act essentially condemns the act of monopolizing, not the possession of monopoly power. a. True b. False 21. A firm may be deemed a monopolist, even though it is not the only seller in a market, because what matters is size in Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition relation to the market. a. True b. False 22. Establishing the relevant product market is a key issue in monopolization cases, because the way a market is defined can determine whether a firm has monopoly power. a. True b. False 23. It is in society’s interest to condemn every acquisition of monopoly power as an antitrust violation even though a dominant market share may be the result of business acumen. a. True b. False 24. Even if a firm possesses monopoly power and engaged in anticompetitive conduct, it cannot be inferred that the firm acted with the intent to monopolize. a. True b. False 25. Because a single seller is free to deal with whomever it wishes, the seller’s unilateral refusal to deal cannot violate Section 2 of the Sherman Act. a. True b. False 26. Every threat of monopolization is condemned as a violation of antitrust law, even if the alleged offender does not possess some degree of market power. a. True b. False 27. To violate Section 2 of the Clayton Act, all sellers must be engaged in interstate commerce. a. True b. False 28. Giving favorable credit terms would not be a violation of the Clayton Act. a. True b. False 29. Under the Clayton Act, a seller can condition the sale of a product on the buyer’s promise not to deal in the goods of the seller’s competitors. a. True b. False 30. The legality of a tying arrangement depends in part on the agreement’s likely effect on competition in the relevant markets. a. True b. False Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition 31. Under the Clayton Act, a business firm cannot merge with another unless the effect is to substantially lessen competition. a. True b. False 32. A merger between companies that compete with each other in the same market is a vertical merger. a. True b. False 33. Only the U.S. Department of Justice can prosecute violations of the Sherman Act. a. True b. False 34. Only the Federal Trade Commission can enforce the Clayton Act. a. True b. False 35. Any conspiracy that has a substantial effect on U.S. commerce is within the scope of the Sherman Act, unless it occurs outside the United States. a. True b. False 36. A price-fixing agreement (or other anticompetitive agreement) to control a portion of U.S. markets cannot be held to be a per se violation of the antitrust laws if the agreement involves a foreign firm. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

37. The chief executive officers of the major U.S. steel makers would most likely be prosecuted under the antitrust laws if they a. met to review developments in the domestic market for steel. b. agreed to work together to control the price of domestic steel. c. conferred on resource, supply, and distribution issues. d. promised to reveal to each other their positions on trade and tariffs.

38. Antirust legislation is based on society’s desire to a. increase prices. b. foster competition. c. consolidate market power. d. encourage restraints of trade.

39. Every agreement concerned with trade, and every regulation of trade, restrains. The test of legality under the antitrust laws, according to the rule of reason, is whether the restraint a. is blatantly, inherently anticompetitive. b. has a substantial effect on interstate commerce.

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Chapter 24: Antitrust Law and Promoting Competition c. merely regulates and thereby promotes competition. d. suppresses or destroys competition.

40. Online Media Inc. bundles its products so that consumers are forced to pay for access to some sites that customers may not want, in order to obtain access to sites that customers do want. A court will likely rule that the bundling does not violate the rule of reason if it a. is the most restrictive means for the firm to achieve its purpose. b. is fully within the firm’s ability to achieve. c. does not injure competition. d. suppresses or destroys competition.

41. Power Inc. and QualGas Corporation refine and sell natural gas. To limit the supply on the market and thereby raise prices, Power and QualGas agree to buy “excess” supplies from dealers and “dispose” of it. This is a. a deal that neither restrains trade or harms competition. b. not within the scope of the Sherman Act. c. a per se violation of the Sherman Act. d. subject to analysis under the rule of reason.

Indicate one or more answer choices that best complete the statement or answer the question.

42. When applying the rule of reason to an activity that allegedly violates the antitrust laws, a court will consider (choose all applicable answers) a. the purpose of the agreement. b. the parties’ market ability to implement the agreement. c. whether the agreement is a per se violation. d. the potential effect of the agreement on competition.

43. Dig Inc. is the major wholesale distributor of heavy equipment in six states. Dig’s closest competitor is Excavator Company. The two firms agree that Dig will operate in four of the states and Excavator in the other two. This is a. a group boycott. b. a market division. c. a price-fixing agreement. d. a trade association.

Indicate the answer choice that best completes the statement or answers the question.

44. Components Inc., a maker of vehicle parts, refuses to sell to DIY Repair Inc., a national vehicle service firm. The maker convinces Engine Parts Company, a competitor, to do the same. This is a. a group boycott. b. a tying arrangement. c. a trade association. d. a market division.

45. Fertile Acres Inc., Growers Farm Co-op, and Harvest Orchards agree to exchange information, conduct an advertising campaign, and set certain regulatory standards to govern their operations. This association is a. a deal that neither restrains trade nor harms competition.

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Chapter 24: Antitrust Law and Promoting Competition b. not within the scope of the Sherman Act. c. a per se violation of antitrust law. d. subject to analysis under the rule of reason.

46. The Medical Device Makers Association does not include all manufacturers of medical and surgical instruments. The association refuses to deal with any parties who do not carry the products of its members. This is a. a situation that neither restrains trade nor harms competition. b. not within the scope of the Sherman Act. c. a per se violation of antitrust law. d. subject to analysis under the rule of reason.

47. Fish Purveyors Corporation and Gill Netters Inc. are the principal suppliers of crustaceans in their market. They agree that Fish Purveyors will sell exclusively to retailers and Gill Netters will sell exclusively to wholesalers. This is most likely a. a situation that neither restrains trade nor harms competition. b. not within the scope of the Sherman Act. c. a per se violation of antitrust law. d. subject to analysis under the rule of reason.

48. Mountain Crest Inc. makes and distributes its branded products to authorized dealers. To prevent price-cutting by dealers in direct competition, the firm imposes limits on where each dealer can sell the products. This is a. a territorial restriction. b. a trade association. c. smart marketing. d. a price-fixing agreement.

49. Cosmétique Inc. makes and sells cosmetics and related products. By selling its goods at prices substantially below the normal cost of production, the firm hopes to drive its competitors from the market. This is a. market power pricing. b. predatory pricing. c. price discrimination. d. price-fixing.

Indicate one or more answer choices that best complete the statement or answer the question.

50. These are types of behavior that that are subject to sanction under Section 2 of the Sherman Act (choose all applicable answers) a. monopolization. b. price gouging. c. attempts to monopolize. d. trade associations.

Indicate the answer choice that best completes the statement or answers the question.

51. Dairy Cream Inc. makes and sells ice cream. Dairy Cream wants to merge with EZ Freeze Inc., its main competitor and a maker of ice cream and other frozen desserts. In a challenge to the deal on a charge of monopolization, the relevant Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition product market includes ice cream and a. no other products. b. products that are related, such as cake. c. products that have identical attributes, such as frozen yogurt. d. products that must be kept cold, such as frozen fruit.

52. Snowboards Inc. refuses to sell its products to Timber Winter Sports Stores, Inc., a retail snowboard dealership. This violates Section 2 of the Sherman Act if Snowboards has monopoly power and a. there are substitute sellers b. Timber has or is likely to acquire monopoly power. c. the refusal is unilateral. d. the refusal has an anticompetitive effect on the market.

53. Battery Corporation’s production, distribution, and marketing methods are unique. Its capital value and size are greater than its competitors. A suit is filed against the firm, alleging the offense of monopolization. To determine whether Battery has monopoly power requires looking at a. the price of a share of the firm’s stock. b. the corporation’s size alone. c. the business’s production methods and marketing techniques. d. the relevant market.

54. An antitrust action is brought against Carrier Freight Company, alleging that a certain act constitutes the offense of attempted monopolization. To qualify, the act must a. be likely to succeed. b. be unlikely to succeed. c. succeed. d. fail.

55. To drive its competitors out of a certain geographic segment of its market, Drones, Inc., sets the prices of its products below cost for the buyers in that area. This is a. price-fixing. b. smart marketing. c. predatory pricing. d. price discrimination.

Indicate one or more answer choices that best complete the statement or answer the question.

56. Defenses to liability for price discrimination include (choose all applicable answers) a. cost justification. b. trade associations. c. meeting competitor’s prices. d. changing market conditions.

Indicate the answer choice that best completes the statement or answers the question.

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Chapter 24: Antitrust Law and Promoting Competition 57. Pump Makers Inc. makes pumps for fire trucks. It conditions shipments of its products to the client Quality Motors Corporation—a maker of fire trucks. The agreement mentions a requirement to the client, it needs to buy any additional pumps only from Pump Makers. This is a. an exclusive-dealing contract. b. a tying arrangement. c. price discrimination. d. a unilateral refusal to deal.

58. Under a contract, Oil Shale Corporation forbids Petro Inc., a wholesale buyer of Oil Shale’s products, to purchase products from the seller’s competitors. This is prohibited a. under any circumstances. b. if its effect is to stabilize the relevant market. c. if its effect is to substantially lessen competition. d. if its purpose is to create a monopoly.

59. Road Tires Inc. conditions the sale of its products to Service Stores on the buyer’s agreement to buy Road’s tire-repair kits. Under the Clayton Act, this deal is a. a per se violation. b. a violation, unless the seller’s competitors make similar deals. c. a violation, depending on its purpose and the effect on competition. d. not a violation.

60. Best View Corporation offers to sell LED screens to Computer & Video, Inc., only if the buyer also agrees to buy the seller’s servicing of its products. This is a. an exclusive-dealing contract. b. a tying arrangement. c. price discrimination. d. business acumen.

61. Edibles Inc. and Food Stuff Corporation are competitors. Each firm has capital, surplus, and undivided profits in excess of $40 million and competitive sales of more than $5 million. Gina and Hal serve as directors on both firms’ boards. Under the Clayton Act’s restriction concerning interlocking directorates, Gina and Hal are a. liable for failing to comply. b. not liable because the firms are likely to continue to compete. c. not liable because the firms’ officers conduct the competitive activities. d. not liable because the firms’ shareholders can affect company policies.

62. Four grocery stores account for 80 percent of the retail food sales in Metro City. Two of the stores want to merge. In determining whether the merger violates the Clayton Act, the most crucial factor is a. the market shares of the firms in their market. b. the market value of the firms’ shares in the stock market. c. the comparative value of each store in a market for their sale. d. the total value of the market in relation to the stock for sale in the stores.

63. Ranch Supplies Company believes that its chief competitor Stock & Equipment Inc. engages in anticompetitive behavior in an attempt to drive Ranch Supplies out of the market. Under the Clayton Act, Ranch Supplies can sue Stock & Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition Equipment for a violation of a. none of the choices. b. the Clayton Act only. c. any of the federal antirust laws. d. the Sherman Act only.

Indicate one or more answer choices that best complete the statement or answer the question.

64. The federal agencies that can enforce the antitrust laws include (choose all applicable answers) a. the U.S. Department of Justice. b. the Securities and Exchange Commission. c. the Consumer Financial Protection Bureau. d. The Federal Trade Commission 65. Baby Goods Inc. buys Child Shops Inc. in an attempt to gain monopoly power. Remedies that a court might impose in a suit against Baby Goods for a violation of the antitrust laws include a. divesting itself of the control or ownership of Child Shops. b. funding new entries to the relevant market. c. all of the choices. d. using its market power to encourage increased competition.

66. With respect to antitrust violations, the Federal Trade Commission does not enforce (choose all applicable answers) a. the Federal Trade Commission Act. b. the Clayton Act. c. the Sherman Act. d. any of the federal antitrust laws.

Indicate the answer choice that best completes the statement or answers the question.

67. With respect to anticompetitive behavior, the Federal Trade Commission Act prohibits a. civil violations of the Sherman Act. b. criminal violations of the Clayton Act. c. all forms not covered under other federal antitrust laws. d. only forms covered under other federal antitrust laws.

68. Expressly exempt from antitrust laws because it is not interstate commerce, according to the United Supreme Court, is a. digital streaming. b. video production. c. professional football. d. professional baseball.

69. Oil Industries Inc. and Petro Corporation are competing refineries situated on the Gulf coast. The two firms cooperate to obtain federal funds to build a levee that could protect their facilities from rising sea levels. With respect to antitrust law, this effort is a. a violation because it is “objectively baseless.”

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Chapter 24: Antitrust Law and Promoting Competition b. a violation because funds will be spent for an anticompetitive purpose. c. a violation because it involves a conspiracy to affect market power. d. exempt from antitrust enforcement.

70. American Oil Company joins a cartel that includes foreign participants to set the price of oil. The cartel has a substantial effect on U.S. commerce. With respect to the foreign participants, under U.S. antitrust laws, this is most likely a. a per se violation. b. a violation, depending on the price. c. a violation, depending on the effect in foreign markets. d. not a violation.

71. Two Chinese firms, Wong Ltd. and Xiang Ltd., engage in a conspiracy to control the distribution of certain goods in global markets. This may violate U.S. antitrust laws a. under no circumstances. b. if the conspiracy has a substantial effect on U.S. or foreign commerce. c. if the conspiracy has a substantial effect on U.S. and foreign commerce. d. if the conspiracy has a substantial effect on U.S. commerce only.

72. Under what circumstances would Quality Market, a small store in Rustic, an isolated town, be considered a monopoly? If Quality Market is a monopoly, is it in violation of antitrust law?

73. Precision Parts Corporation and Aligned Gears, Inc., are competitors selling certain machine parts that are otherwise generally unattainable in their geographic market. This market includes the states of Minnesota, North Dakota, and South Dakota. Precision Parts and Aligned Gears agree that Precision Parts will no longer sell in Minnesota, and that Aligned Gears will no longer sell in North and South Dakota. Have Precision Parts and Aligned Gears violated any antitrust law?

If so, which one? Explain. If they had divided their market by type of customer rather than geographic area, would the result be the same? Why, or why not?

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Chapter 24: Antitrust Law and Promoting Competition Answer Key 1. True 2. True 3. True 4. False 5. False 6. False 7. True 8. True 9. False 10. False 11. True 12. False 13. True 14. False 15. True 16. False 17. True 18. True 19. False 20. True 21. True 22. True 23. False 24. False 25. False Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition 26. False 27. True 28. False 29. False 30. True 31. False 32. False 33. True 34. False 35. False 36. False 37. b 38. b 39. c 40. c 41. c 42. a, b, d 43. b 44. a 45. d 46. c 47. c 48. a 49. b 50. a, c 51. c Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition 52. d 53. d 54. a 55. d 56. a, c, d 57. a 58. c 59. c 60. b 61. a 62. a 63. c 64. a, d 65. a 66. b, c 67. c 68. d 69. d 70. a 71. d 72. The elements of the offense of monopolization under the Sherman Act include monopoly power and its willful acquisition. Market domination that results from legitimate competitive behavior (such as foresight, innovation, skill, good management, or, as in this problem, isolation) is not a violation. Also, size alone does not determine whether a firm is a monopoly—size in relation to the market is what matters.

A small store like Quality Market in an isolated town like Rustic has a monopoly, if it is the only store serving that market. Monopoly involves the power to affect prices and output. If a firm has sufficient market power to control prices and exclude competition, that firm has monopoly power. Monopoly power in itself is not a violation of the Sherman Act. The offense also requires an intent to acquire or maintain that power through anticompetitive means.

The term monopoly generally is used to describe a market in which there is a single seller, or a very limited number of sellers. Whereas Section 1 focuses on agreements that are restrictive (that is, agreements that have a wrongful purpose), Powered by Cognero

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Chapter 24: Antitrust Law and Promoting Competition Section 2 addresses the misuse of monopoly power in the marketplace. Monopoly power exists when a firm has an extreme amount of market power—the power to affect the market price of its product. Both Section 1 and Section 2 seek to curtail market practices that result in undesired monopoly pricing and output behavior. For a case to be brought under Section 2, the “threshold” or “necessary” amount of monopoly power must already exist. We illustrate the different requirements for violating these two sections of the Sherman Act in Exhibit 31–1.

73. Precision Parts and Aligned Gears have violated antitrust law. The major antitrust law they have violated is the Sherman Act, Section 1.

Precision Parts and Aligned Gears are engaged in interstate commerce, and the agreement to divide marketing territories between them is a market division—a contract in restraint of trade. This sort of concerted action reduces the costs to the competitors and allows each of them to increase the prices of the parts sold in their respective territories. The U.S. Department of Justice (DOJ) could seek criminal penalties against each corporation, including fines and imprisonment. In addition, the DOJ could institute civil proceedings to restrain this conduct.

If these competitors had divided their market by type of customers—retailers and wholesalers, or manufacturers and distributors, for example—the result would most likely be the same. The term horizontal restraint is encountered frequently in antitrust law. A horizontal restraint is any agreement that in some way restrains competition between rival firms competing in the same market. Horizontal restraints may include price fixing, group boycotts, market divisions, and trade associations. It is a per se violation of Section 1 of the Sherman Act for competitors to divide up territories or customers.

The same violation would take place if the two firms divided up their customers by class rather than region. They might agree that Precision would sell only to institutional purchasers (such as governments and schools) in all three states, Aligned only to wholesalers and retailers. The result would be the same. In arranging for the distribution of its products, a manufacturing firm often wishes to insulate dealers from direct competition with other dealers selling the product. To do so, it may institute territorial restrictions or attempts to prohibit wholesalers or retailers from reselling the product to certain classes of buyers, such as competing retailers.

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