Business Law Appendix

Business Law Appendix
1. Laws are rules that govern the conduct and actions of people in a given society and are enforced by the government.
a. True
b. False
ANSWER: True
DIFFICULTY: Difficulty: Easy
LEARNING OBJECTIVES: BUSN.KELL.15.A2.01
NATIONAL STANDARDS: United States - BUSPROG: Ethics
TOPICS: A-Head: The Purpose and Origin of Laws
KEYWORDS: Bloom's: Knowledge
2. In the United States, the U.S. Constitution is considered to be the supreme law in the land.
a. True
b. False
ANSWER: True
B-Head: Sources of Law
3. The Uniform Commercial Code is a uniform act governing the sale of goods, leases, transfer of funds, and a variety
of other business-related activities.
a. True
b. False
ANSWER: True
KEYWORDS: Bloom's: Comprehension
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4. Precedents make legal rulings unpredictable so that the parties involved are unable to decipher what the judge is
likely to rule.
a. True
b. False
ANSWER: False
5. Government agencies such as the Food and Drug Administration and Environmental Protection Agency lack
authority to regulate specific industries.
a. True
b. False
ANSWER: False
6. Common law refers to laws that result from rulings, called precedents, made by judges who initially hear a particular
type of case.
a. True
b. False
ANSWER: True
TOPICS: A-Head: Sources of Law
A-Head: The Purpose and Origin of Laws

7. A court judge is set to rule on a case dealing with the interpretation of a newly enacted law. Because this judge is
the first to rule on this type of case, his decision will establish a precedent that other courts in the same jurisdiction
will be expected to follow when dealing with similar cases in the future.
a. True
b. False
ANSWER: True
DIFFICULTY: Difficulty: Moderate
NATIONAL STANDARDS: United States - BUSPROG: Analytic
KEYWORDS: Bloom's: Application
8. Civil law disputes are settled in the courts when one of the parties initiates a lawsuit against the other.
a. True
b. False
ANSWER: True
B-Head: Civil vs. Criminal Law
9. A defendant is the person who initiates a lawsuit against a plaintiff.

a. True
b. False
ANSWER: False

10. A tort is a private wrong that results in physical or mental harm to an individual, or damage to that person’s property.
a. True
b. False
ANSWER: True
11. Civil law deals with disputes between private parties.

a. True
b. False
ANSWER: True
12. During the winter season, a customer of New Trends Store accidentally slipped on sleet and broke her hand as she
was exiting the store. If she sues the store, the store can be found liable for an intentional tort.
a. True
b. False
ANSWER: False
TOPICS: A-Head: The Purpose and Origins of Laws

13. Marcia's reckless behavior resulted in significant damage to Carmella's property. If the damage was unintentional,
Carmella cannot sue Marcia to recover the loss.
a. True
b. False
ANSWER: False
14. The same wrongful behavior can result in both civil and criminal trials.
a. True
b. False
ANSWER: True
15. The application of laws and legal principles to business relationships and transactions is known as business law.
a. True
b. False
ANSWER: True
TOPICS: A-Head: Contracts: The Ties That Bind

16. In basic terms, a contract is an agreement that is enforceable in a court of law.

a. True
b. False
ANSWER: True
17. All business law contracts must be written as a formal documents that include complex and professional legal
language.
a. True
b. False
ANSWER: False
18. In order for a contract to be valid, only one party needs to offer something of value to the other.
a. True
b. False
ANSWER: False
B-Head: What Makes a Contract Enforceable?

19. The statute of limitations limits the size of monetary payments a jury can award to the injured party in civil trials.
a. True
b. False
ANSWER: False
B-Head: What Happens When a Party Fails to Satisfy the Terms of a Contract?
20. Compensatory damages refer to monetary payments a party who breached a contract is ordered to pay in order to
compensate the injured party for the actual losses that result from the breach.
a. True
b. False
ANSWER: True
21. Jim entered into a contract with John, and the contract states that Jim will supply 100 sacks of wheat at $100 per
sack. However, Jim later increased the price to $120. According to the terms of the original contract, John can sue
for specific performance.
a. True
b. False
ANSWER: False

22. An injunction is a court order that requires one party to do, or to refrain from doing, a specific act.
a. True
b. False
ANSWER: True
23. A sale occurs when legal ownership to goods passes from one party to another in exchange for a price.
a. True
b. False
ANSWER: True
TOPICS: A-Head: Sales: Transferring Ownership
24. When contracts do not spell out the conditions that determine when exactly the title to goods changes hands, they are
not considered binding agreements between the buyer and the seller.
a. True
b. False
ANSWER: False
B-Head: How and When Does Title Pass from Seller to Buyer?

25. According to the UCC, if the contract does not specify who bears the risk, then the court assumes that the risk
remains with the seller at all times.
a. True
b. False
ANSWER: False
B-Head: Which Party Assumes Risk of Loss During the Process of Transferring
Them from Seller to Buyer?
26. Under UCC rules, if one party breaches the contract, risk of loss falls on that party.
a. True
b. False
ANSWER: True
27. During a dispute over who bears the risk of loss, the courts are likely to use UCC guidelines to make their decision.
a. True
b. False
ANSWER: True

28. Tom works for a consulting agency. When he makes sales calls to inform prospective clients about the services his
firm provides, it can be said that he is acting as a principal for his firm.
a. True
b. False
ANSWER: False
TOPICS: A-Head: Other Legal Principles: What the Law Says About Agency, Intellectual
Property, and Bankruptcy
B-Head: Principal-Agent Relationships
29. Chapter 11 bankruptcy involves selling off a debtor’s assets to raise cash via a process called liquidation.
a. True
b. False
ANSWER: False
B-Head: Bankruptcy
30. Express authority is not explicitly spelled out but is based on the court’s recognition that agents must have the
authority to act in certain ways in order to perform their duties.
a. True
b. False
ANSWER: False

31. Chapter 13 bankruptcy is available only to individual debtors who have a regular source of income.
a. True
b. False
ANSWER: True
B-Head: Bankruptcy
32. A patent gives authors, artists, and other creative individuals control over their creations.
a. True
b. False
ANSWER: False
B-Head: Intellectual Property
33. Most approved patents are protected for 20 years from the time the application is filed with the U.S. Patent and
Trademark Office.
a. True
b. False
ANSWER: True

34. Katie invented a desalination machine that can be installed in homes. In order to protect her invention, she must
apply for a patent.
a. True
b. False
ANSWER: True
35. In order to save money, Lily photocopied her entire biology textbook, using the book on reserve at the library. Even
though the book is copyrighted, this is not a violation of intellectual property laws, since she is not trying to sell the
photocopied textbook.
a. True
b. False
ANSWER: False
36. _____ are laws that are enacted by legislative bodies and are written and passed by federal, state, county, or city
governments.
a. Common laws
b. Statutory laws
c. Civil laws
d. Contract laws
ANSWER: b

37. Developed by the National Conference of Commissioners on Uniform State Laws, the _____ is the most important
uniform act for businesses.
a. Code of Acceptable Business Practices
b. Statute of Frauds
c. Uniform Business Standards Act
d. Uniform Commercial Code
ANSWER: d
38. The city of Chicago passed a law that banned smoking in public places. The city council voted for a "Green
Environment" and decided to increase the tax levied on tobacco as well. In this scenario, the city has passed a(n)
_____.
a. federal statute
b. ordinance
c. precedent
d. bylaw
ANSWER: b
39. The Environmental Protection Agency is given authority under _____.

a. constitutional law
b. the UCC
c. administrative law
d. statutory law
ANSWER: c

40. Which of the following statements is true of Article 2 of the Uniform Commercial Code?
a. It does not govern the sale of goods.
b. It has the same provisions as case law.
c. It governs leases of goods.
d. It does not govern the sale of services.
ANSWER: d
41. Case law, also known as common law, refers to laws that arise from:
a. court decisions.
b. rulings by regulatory agencies.
c. legislative action.
d. executive orders.
ANSWER: a
42. An appellate court ruled that Pluto Inc. must not be allowed to sell its services in the state of Ohio, in a certain
manner. The judge arrived at his judgement based on a prior ruling, or precedent. In this scenario, the judge has
applied _____.
a. case law
b. statutory law
c. constitutional law
d. administrative law
ANSWER: a

43. A(n) _____ is a private wrong that results in physical or mental harm to an individual, or damage to that person’s
property.
a. felony
b. misdemeanor
c. tort
d. indictable offense
ANSWER: c
44. _____ torts arise because of careless or irresponsible behavior, known as negligence.
a. Indictable
b. Intentional
c. Felony-based
d. Unintentional
ANSWER: d
45. A trial for first degree murder is conducted in a criminal court and is considered a _____.
a. negligence
b. felony
c. tort
d. misdemeanor
ANSWER: b

46. A comparison of the standard of proof needed to win civil cases and criminal cases suggests that:
a. the standard of proof is the same for both types of cases—the case must be proven beyond a reasonable
doubt.
b. the burden of proof is lower in civil cases than it is in criminal cases.
c. the burden of proof is more stringent in civil cases than it is in criminal cases.
d. the burden of proof varies in civil cases depending on the type of case and the circumstances, so that it may
be either much more stringent or much less stringent than the burden in criminal cases.
ANSWER: b
DIFFICULTY: Difficulty: Challenging
KEYWORDS: Bloom's: Analysis
47. Which of the following statements is true of a civil law court?

a. It hears cases involving robbery or theft.
b. It hears cases involving slander and libel.
c. It hears cases associated with embezzlement and identity theft.
d. It hears cases related to murder and arson.
ANSWER: b
48. A contract in which the terms are explicitly spelled out either orally or in writing is known as a(n) _____ contract.
a. implicit
b. tangible
c. express
d. embedded
ANSWER: c

49. Mutual assent refers to:

a. an offer freely given by one party and freely accepted by the other party.
b. one party offering something of value to the other party.
c. both parties disputing the need for a court settlement.
d. both parties having the legal capacity to enter into a contract.
ANSWER: a
50. Jim, a 16-year-old, entered into a contract with Ryan. Jim agreed to purchase a motorcycle from Ryan by paying
monthly installments of $1,000. Which of the following is likely to be true in this scenario?
a. The contract is invalid as Jim does not have legal capacity to enter into a contract.
b. Jim is required to fulfill the contract, but only when he turns 18.
c. Ryan can demand payment from Jim's guardian as a 16-year-old is allowed to enter into a legal contract.
d. Ryan must wait till Jim turns 21 years old to require fulfillment.
ANSWER: a
51. The _____ requires certain types of contracts be in writing in order to be enforceable, such as contracts that take
more than a year to complete or that involve the sale of goods worth $500 or more.
a. statute of frauds
b. statute of liberties
c. statute of authenticity
d. statue of limitations
ANSWER: a

52. Henry promised to gift Jake $250 for his 25th birthday. However, on Jake's 25th birthday, Henry refuses payment
and denies offering any money. If Jake sues henry for specific performance, the court is likely to rule that:
a. Henry lacks the legal capacity to enter into a contract.
b. Jake didn’t offer any consideration to Henry and hence the contract cannot be enforced.
c. Jake was a minor at the time of the agreement and hence the contract is void.
d. Henry must fulfill his obligation according to the "mutual assent rule."
ANSWER: b
DIFFICULTY: Difficulty: Challenging
KEYWORDS: Bloom's: Analysis
53. _____ damages are monetary payments that a party who breached a contract is ordered to pay in order to make up
for the actual harm suffered by the injured party due to the breach of contract.
a. Compensatory
b. Nominal
c. Punitive
d. Specific
ANSWER: a
54. The courts are most likely to apply the remedy of _____ when a contract involves the sale of a unique item that the
injured party could not obtain from anyone but the other party to the contract.
a. punitive damages
b. restrictive injunction
c. specific performance
d. nominal damages
ANSWER: c

55. Which of the following specifies the time period in which a lawsuit must be initiated?
a. The specific performance rule
b. The UCC
c. The court calendar
d. The statute of limitations
ANSWER: d
56. The courts do not require specific performance in cases that require personal services, because making someone
work personally for another individual could be interpreted as involuntary servitude, which is prohibited by the
_____.
a. Uniform Commercial Code
b. Thirteenth Amendment to the U.S. Constitution
c. statute of limitations
d. Miranda ruling
ANSWER: b
57. James, a football player, signs a three-year contract with a team. However, he simultaneously also signs another
agreement with a second team that offers him more money. In this scenario, the first team can obtain a court order
than prevents James from playing for any other team. This court order is referred to as a(n) _____.
a. provisional remedy
b. injunction
c. specific performance
d. nonequitable remedy
ANSWER: b
58. The sale of a good is a transaction in which _____ passes from one party to another in exchange for a price.
a. the title to the good
b. the physical possession of the good merely
c. a royalty fee
d. risk of loss exclusively
ANSWER: a
59. Which of the following statements is true of the sale of services?

a. It is covered by the Article 5 of the Uniform Commercial Code.
b. It is governed by precedents established by case law.
c. It is covered by the Article 2 of the Uniform Commercial Code.
d. It is governed by the Thirteenth Amendment.
ANSWER: b
60. An appellate court judge ruled that Jim had defaulted in his promise to deliver a particular service and imposed a fine
of $1,000. In this scenario, the judge would have based his decision on:
a. precedents established by case law.
b. Article 3 of the statute of frauds.
c. Article 2 of the Uniform Commercial Code.
d. administrative rulings made by the Federal Trade Commission.
ANSWER: a

61. Unless otherwise specified in the sales contract, the UCC generally holds that the title passes from seller to buyer
when:
a. the sales contract is signed.
b. the seller has performed all duties related to delivery of the good.
c. money is actually transferred from the buyer to the seller.
d. the standard examination period of 72 hours expires.
ANSWER: b
B-Head: How and When Does Title Pass from Seller to Buyer?
62. Which of the following statements is true about the assignment of risk under the UCC when the contract does not
specify who bears the risk?
a. It automatically passes to the buyer.
b. It remains with the seller.
c. It passes to the party that has legal title to the goods when the damage occurs.
d. It passes to the party who is more likely to be insured against a loss.
ANSWER: d

63. Farms Inc. is not an agent for Naturaz Inc, but it sells Naturaz's products on its lot. To the average buyer, it may
look like Farms is an agent for Naturaz. In this scenario, Farms Inc. assumes _____ authority.
a. implicit
b. apparent
c. express
d. implied
ANSWER: b
64. Jim, a marketing executive, has been assigned to handle the sales function. In his role, Jim is required to interact with
clients and sell the company's products to the highest bidder. In this scenario, Jim possesses _____ authority.
a. implicit
b. implied
c. apparent
d. express
ANSWER: d

65. James, a loan officer, acts on behalf of his bank and authorizes loans to several customers. In this scenario, James is
acting as a(n) _____.
a. trustee
b. beneficiary
c. agent
d. principal
ANSWER: c
66. Which of the following types of bankruptcy allows corporations to reorganize their operations in order to improve
their financial position?
a. Chapter 7 bankruptcy
b. Chapter 11 bankruptcy
c. Chapter 12 bankruptcy
d. Chapter 13 bankruptcy
ANSWER: b
B-Head: Bankruptcy

67. _____ bankruptcy involves selling off a debtor’s assets to raise cash—a process known as liquidation.
a. Chapter 7
b. Chapter 11
c. Chapter 1
d. Chapter 13
ANSWER: a
B-Head: Bankruptcy
68. Manny has a permanent job at a post office located in Ohio. She is working with a court-appointed trustee to develop
a plan for repaying debts to creditors over a period of several years. In this scenario, Manny has filed for _____
bankruptcy.
a. Chapter 7
b. Chapter 11
c. Chapter 12
d. Chapter 13
ANSWER: d
B-Head: Bankruptcy

69. In order to safeguard his interest in a machine that he invented, Montell must file for a _____.
a. service mark
b. copyright
c. trademark
d. patent
ANSWER: d
70. Define law and briefly explain why we need laws.

ANSWER: Laws are those rules—enforced by the government—that set parameters for the
conduct and actions of people within a society.
We need laws to:
Promote stability and order
Protect individuals from physical or mental harm
Protect property from damage or theft
Promote objectives and standards of behavior that society deems desirable
Discourage objectives and standards of behavior that society deems undesirable


71. Describe the characteristics of a contract and what constitutes as a breach of contract.
ANSWER: A contract is an agreement that is enforceable in a court of law. A valid contract is
characterized by:
1. Mutual assent: both parties must voluntarily agree to the terms.
2. Consideration: both parties must provide something of value to the other.
3. Legal capacity: both parties must have the ability to understand the nature of the
agreement.
4. Legal purpose: the courts will not enforce a contract that has an illegal purpose.
A breach of contract occurs if one of the parties does not live up to the terms of the
agreement. When one party breaches a contract, the other party can sue in a civil
court. If the court agrees that a party breached the contract, it orders some type of
remedy. The most common remedy is compensatory damages, or money that the party
who breached the contract must pay to the injured party to compensate for the actual
harm suffered. In cases where the contract calls for the sale of a unique good, the
courts may apply a remedy known as specific performance, which requires the party
who breached the contract to do exactly what the contract says. Finally, the courts
may issue injunctions (court orders) that prevent the party who breached the contract
from taking some action.
72. What is a sale? Explain which party assumes risk of loss during the process of transferring goods from seller to
buyer.
ANSWER: A sale occurs when the title to a good passes from one party to another in exchange
for a price. Article 2 of the Uniform Commercial Code governs sales of goods, while
precedents established by case law govern the sales of services. According to the
UCC, if the contract specifies who bears the risk, then the courts must apply those
terms. If the contract is silent on this issue, the UCC provides guidelines for the courts
to use when assigning risk. One important principle is that if one party breaches the
contract, risk of loss usually falls on that party. Otherwise, the UCC rules generally
place the risk of loss on the party that is more likely to have insurance against a loss or
on the party that is in the better position to prevent a loss.


73. List and describe three types of bankruptcy proceedings.

ANSWER: There are three common types of bankruptcy proceedings, each named after the
specific chapter of federal bankruptcy law where it is covered: Chapter 7, Chapter 11,
and Chapter 13.
Chapter 7 bankruptcy involves selling off a debtor’s assets to raise cash—a process
known as liquidation. The proceeds of the liquidation are then used to pay creditors.
The sale of assets and payment of creditors is handled by a court-appointed trustee.
Chapter 11 bankruptcy allows the debtor to reorganize its operations. The debtor
submits a plan to the bankruptcy courts, which must then approve or disapprove its
provisions. The plan typically calls for only partial repayment of debts. Corporations
typically use this type of bankruptcy.
Chapter 13 is similar to Chapter 11 except that it is only available to individual debtors

who have a regular source of income. This provision allows individuals to work with a
court-appointed trustee to establish a court-approved plan that adjusts debt payments to
a more manageable level. Under Chapter 13, debtors are allowed to keep their home,
car, and other personal assets—as long as they make all of the required payments.
B-Head: Bankruptcy
74. What is intellectual property?

ANSWER: The law recognizes intellectual property as the right of an inventor, writer, or artist to
own his or her creations and prevent others from copying or using these creations
without permission. If intellectual property rights are violated, courts may award the
plaintiff profits earned by the offender or damages. Three common types of intellectual
property rights are patents, trademarks, and copyrights.


75. Describe the three common types of intellectual property.

ANSWER: Three common types of intellectual property rights are patents, trademarks, and
copyrights.
A patent gives the inventor legal monopoly over an invention for a period of time. To
obtain a patent, the invention must be nonobvious, novel, and useful.
Trademark is a distinctive mark, symbol, word, phrase, or motto used to uniquely

identify the goods of a particular business. A trademark can be acquired in two ways.
First, a company can acquire a trademark by being the first to use the distinctive mark.
This type of trademark is confined to a specific geographic area in which the company
sells its product. The second method is to register the mark with the U.S. Patent and
Trademark Office. This approach gives the company nationwide protection of
unauthorized use for a 10-year period and can be renewed.
A copyright gives an author, artist, or other creative individual the exclusive right to
own, produce, copy and sell his or her own creative works and to license others to do
so. This right will only be given to original works that display some degree of creative
or intellectual content.


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Business Law Appendix

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9. A defendant is the person who initiates a lawsuit against a plaintiff.

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11. Civil law deals with disputes between private parties.

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16. In basic terms, a contract is an agreement that is enforceable in a court of law.

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39. The Environmental Protection Agency is given authority under _____.

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47. Which of the following statements is true of a civil law court?

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49. Mutual assent refers to:

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59. Which of the following statements is true of the sale of services?

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70. Define law and briefly explain why we need laws.

DIFFICULTY: Difficulty: Easy

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DIFFICULTY: Difficulty: Easy

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73. List and describe three types of bankruptcy proceedings.

Chapter 13 is similar to Chapter 11 except that it is only available to individual debtors

74. What is intellectual property?

DIFFICULTY: Difficulty: Easy

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75. Describe the three common types of intellectual property.

Trademark is a distinctive mark, symbol, word, phrase, or motto used to uniquely

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