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Business Law Practice Exam #3

Heather applied for a promotion, but her manager promoted a co-worker because the manager knew Heather was seven months pregnant. The manager did not want to promote someone who would probably be taking time off of work for childbirth and child care. The manager has acted legally to protect the company’s interests.
false
It is currently legal for a private employer to use lie detector tests as part of its usual hiring process.
false
Some courts have held that employee handbooks create binding contract terms.
true
Whistleblowers are employees who disclose illegal behavior on the part of their employers.
true
If an employee is an employee at will, the traditional rule was the employer could fire the employee for a good reason, a bad reason, or no reason at all.
true
Rob agrees to act as an agent for Diane in selling her car. Diane has a duty of loyalty to Rob.
false
Jolene hired Lacy to find a buyer for her house. Adam was interested in buying the house. If both Jolene and Adam agree, Lacy, a real estate agent, may represent both parties.
true
Victoria is the director of marketing for Big Corporation. Victoria needed to negotiate an out-of-town contract on behalf of Big. Big has a legal duty to reimburse Victoria for the hotel expenses she incurs negotiating the contract.
true
Kaiya is a sales representative of TriColor. Kaiya owes a fiduciary duty to TriColor.
true
It does not create an agency relationship between Minott Mills and Douthett Co. for Minott Mills to contract to sell 500 yards of fabric to Douthett Co.
true
Esday, Inc. hired Mark to be a financial analyst. Because of the equal dignities rule, the employment contract between Esday and Mark must be in writing.
false
If ambiguity is present as to the principal’s intent, the court will look to the principal’s subjective intent.
false
If someone acts without authority, a “principal” can decide later to be bound by the actions as long as the “agent” indicates to the third party that he is acting for a principal, the “principal” knows all the material facts of the transaction, and the “principal” accepts the benefit of at least part of the transaction.
false
Erica’s supervisor told her to arrange for a conference room at the Kelly Inn. Erica has express authority to contract for the room.
true
An employer is generally liable for the intentional wrongful acts of his or her employees.
false
If estoppel applies, the principal would be prevented from asserting that no agency relationship existed.
true
Maylin has the authority to delegate her tasks as agent for Brian unless he has expressly restricted her from doing so.
false
Corporations have perpetual existence.
true
The most common form of business ownership is the corporation.
false
A partnership is a separate, taxable entity.
false
Limited liability is a major advantage of a partnership as compared to a corporation.
false
Generally, a joint venture is a partnership created for one limited
purpose.
true
Mark was refused employment at a Christian Bookstore because he was not a “born-again Christian.” If Mark brings a Title VII action against the bookstore, the bookstore’s best defense would be:
A. they did not discriminate against a protected category.
B. Title VII doesn’t apply to private businesses.
C. being a “born-again Christian” is a bona fide occupational qualification.
D. they could not reasonably accommodate Mark.
C. being a “born-again Christian” is a bona fide occupational qualification.
Which of the following is the most likely to be a legitimate, nondiscriminatory criterion for selection of an employee under Title VII?

A. Religion.
B. Race.
C. Color.
D. Educational level.

D. Educational level.
Which of the following would probably not be required of employers to reasonably accommodate for religious beliefs?

Student Response Value Correct Answer Feedback
A. Flexible scheduling.
B. Closing the business on Sundays.
C. Reassigning employees within the company.
D. Allowing employees to switch work schedules.

B. Closing the business on Sundays.
Which of the following statements is correct?

A. It is much easier for the government, as an employer, to test an employee for drugs or alcohol than it is for a private employer.
B. Generally speaking, in most states, it is easier for a private employer than the government to test an employee for drugs or alcohol.
C. Neither may test for drugs or alcohol.
D. Both may test for drugs or alcohol without restriction.

B. Generally speaking, in most states, it is easier for a private employer than the government to test an employee for drugs or alcohol.
Megan was employed by a large company. Her supervisor told her to falsify government reports. She refused and was fired. She sued for wrongful discharge. Her employer claimed that, since Megan was an at-will employee, she had no legal right to claim the company was liable for damages. Is the employer right?

A. Yes. An at-will employee does not have a legal right to claim wrongful discharge of employment.
B. Yes. As an employee, Megan owes a duty of loyalty to her employer. If the company was found to have acted illegally by falsifying the reports, it (not Megan) would be liable.
C. No. Even though Megan was an at-will employee, such employees may not be fired without just cause.
D. No. Though at-will employees do not have extensive rights relative to job security, they may not be legally fired for refusing to perform an illegal act.

D. No. Though at-will employees do not have extensive rights relative to job security, they may not be legally fired for refusing to perform an illegal act.
Wrongful discharge claims are generally based upon all EXCEPT:

A. public policy.
B. criminal law.
C. contract.
D. tort law.

B. criminal law.
Sharon had a heart attack while she was under stress at work. Can she collect workers’ compensation for the time she had to be away from work as she recovered?

A. Yes, since the heart attack occurred while she was at work.
B. Yes, if she can prove that the heart attack was caused by a fellow employee.
C. No, since she probably would have had the heart attack whether she had been at work or not that particular day.
D. No, since a heart attack is not considered a job-related injury.

A. Yes, since the heart attack occurred while she was at work.
Laura intends to file a Title VII lawsuit against her employer. Which of the following is true?

A. Laura is required to first submit her claim to the Equal Employment Opportunity Commission.
B. Laura must first submit her claim to a state civil rights commission before she may proceed with her lawsuit.
C. If the EEOC determines Laura has no case against her employer, she may not file a lawsuit.
D. Laura may initiate a lawsuit or file with the EEOC as she so elects.

A. Laura is required to first submit her claim to the Equal Employment Opportunity Commission.
An agency relationship can be created:
A. by the conduct of the parties.
B. by an oral agreement in all circumstances.
C. only by a written agreement.
D. only by the meeting of all the standards of contract law.
A. by the conduct of the parties.
Can a person work as an agent for two different people with conflicting interests?
A. Yes, under the equal dignities rule.
B. Yes, provided the agent discloses to both principals that she is representing both persons and the principals agree to the dual relationship.
C. No, dual agency relationships are per se illegal.
D. No, this would be power coupled with an interest.
B. Yes, provided the agent discloses to both principals that she is representing both persons and the principals agree to the dual relationship.
Nathan agrees to act as an agent for Cheyenne. Which of the following is true?
A. Nathan may compete with Cheyenne in matters within the scope of the agency business.
B. The agency can only be terminated by the mutual agreement of Nathan and Cheyenne.
C. Cheyenne may compete with Nathan in matters within the scope of the agency business.
D. If Nathan develops a mental disability, the agency will terminate, but if Cheyenne develops the mental disability, the agency is unaffected.
C. Cheyenne may compete with Nathan in matters within the scope of the agency business.
Ron is the business agent for Kansas Sunshine, a rock band. He is also the agent for another popular Midwestern rock group, City Sand. Ron negotiates a deal with a Kansas City promoter to have City Sand play after a professional football game. The promoter was willing to pay $250,000 for both groups to play after the game; however, Ron talked her into booking just City Sand for $175,000. Given his contract with City Sand, Ron made more money under this arrangement. Has Ron violated his fiduciary duty to Kansas Sunshine?

A. Yes. It appears that Ron put his own interests ahead of his principal’s interests.
B. Yes. Ron cannot, under any circumstances, act as an agent for both groups.
C. Both a and b are correct.
D. Neither a nor b is correct since it is very common for rock band agents to represent several groups at the same time.

A. Yes. It appears that Ron put his own interests ahead of his principal’s interests.
Nikki was an tax accountant with HBR Accounting. Nikki decided to do some tax consulting in the evenings and on weekends. HBR is unaware of Nikki’s consulting work. Which statement is correct?

A. Nikki has not breached a fiduciary duty to HBR since her consulting is done after her work for HBR.
B. Nikki has not breached a fiduciary duty to HBR since her behavior does not reflect badly on the accounting firm.
C. Nikki has not breached a fiduciary duty to HBR since Nikki has a contractual relationship with her clients, not her employer.
D. Nikki has breached a fiduciary duty to HBR since she is competing with HBR.

D. Nikki has breached a fiduciary duty to HBR since she is competing with HBR.
Cameron, editor of the local newspaper, assigned to Jim the writing of a story about pollution of a nearby stream. Although Jim used reasonable care in gathering and checking his information, unknown to Jim, the story contained a defamatory statement about Maureen. Maureen reads the story and sues Jim for libel. Cameron, who read and published the story:
A. must indemnify Jim for Maureen’s claim.
B. need not indemnify Jim for Maureen’s claim because Jim should have checked his facts more carefully.
C. need not indemnify Jim for Maureen’s claim because Jim breached his duty to obey instructions.
D. can recover damages from Jim for any injury to the newspaper resulting from Jim’s story.
A. must indemnify Jim for Maureen’s claim.
An agent may not engage in inappropriate behavior that reflects badly on the principal. This rule applies to conduct:

A. during working hours.
B. during off-duty time.
C. during both working hours and off-duty time.
D. only by public officials.

C. during both working hours and off-duty time.
Pamela hired Lena to sell her business. Lena:

A. can buy the business as long as the price is fair.
B. can buy the business as long as she qualifies for financing.
C. can buy the business only with Pamela’s permission.
D. cannot buy the business under any circumstances.

C. can buy the business only with Pamela’s permission.
The death of the agent:
A. automatically terminates the agency relationship.
B. will only terminate the agency relationship if the agent’s personal skills are critical to the relationship.
C. will only terminate the agency relationship if a written agreement so provides.
D. has no legal effect on the agency relationship since the duties of the agent are automatically assumed by the agent’s estate until such time as the principal releases the estate from liability.
A. automatically terminates the agency relationship.
If the agent is disloyal to the principal:
A. the agency agreement automatically terminates and the principal may rescind the transaction.
B. the principal has the right to collect any actual damages sustained as a result of the agent’s disloyalty.
C. the principal has a right to recover any profits earned as a result of his agent’s disloyal conduct.
D. All the above are correct.
D. All the above are correct.
John hired Tim to sell his house. Which statement is correct?
A. John is Tim’s principal.
B. Tim, but not John, can terminate the agency.
C. This illustrates a power coupled with an interest.
D. All the above are correct.
A. John is Tim’s principal.
HBR Accounting hired Denise, a CPA, to prepare tax returns. Which statement is correct?

A. Denise is a gratuitous agent and has a duty not to commit gross negligence.
B. Denise is an agent and has a duty not to commit ordinary negligence.
C. Denise, as a CPA, is an agent with special skills. She is held to a higher duty than ordinary negligence.
D. Denise, as a CPA, is an agent with special skills. She is held to a lower standard than ordinary negligence.

C. Denise, as a CPA, is an agent with special skills. She is held to a higher duty than ordinary negligence.
Jenny is a salesperson in a hardware store. As such, she:
A. is an agent of the store.
B. has express authority to conduct sales transactions.
C. has implied authority to conduct sales transactions.
D. All the above are correct.
D. All the above are correct.
The doctrine of estoppel would most often apply in situations of:

A. implied authority.
B. apparent authority.
C. transaction authority.
D. actual authority.

B. apparent authority.
Express authority can be created by:
A. words spoken directly to the agent.
B. conduct.
C. written words given to one person to give to another person, the agent.
D. All the above.
D. All the above.
Paula appointed Al to be her agent via a contract in writing that spelled out the scope of Al’s authority. The contract provided that Al was not to disclose that he was acting on behalf of Paula. In entering into a contract for Paula, Al did not disclose to the third party that he was acting as an agent. In this case, the principal was:

A. disclosed.
B. partially disclosed.
C. undisclosed.
D. apparent.

C. undisclosed.
When a principal is partially disclosed:

A. the agent and principal will be jointly and severally liable on the contract.
B. the agent and principal will be only jointly liable on the contract.
C. only the principal can be liable.
D. only the agent is

A. the agent and principal will be jointly and severally liable on the contract.
Mike worked for Frank’s Pizza as a driver. His duties consisted of making deliveries along a designated route. One day Mike decided to see his girlfriend, Jackie, who lived 50 miles out of his pizza route. While driving to his girlfriend’s, Mike injured a pedestrian, Chuck. The accident was caused because of Mike’s negligent operation of the delivery truck. Chuck is now suing both Mike and Frank’s for personal injuries. Under the circumstances:

A. Frank’s is probably liable under the doctrine of respondeat superior.
B. Frank’s is not liable for the negligent torts of its agents.
C. Chuck can probably recover damages from both Frank’s and Mike.
D. Frank’s is probably not liable because Mike’s excursion was not within the scope of his employment.

D. Frank’s is probably not liable because Mike’s excursion was not within the scope of his employment.
Fact Pattern 29-2
Judy was the manager of an apartment complex. She hired Rick to mow the lawns. One afternoon while Rick is mowing the lawn, his negligence caused damage to Terri’s car.

If Judy had been negligent in hiring Rick, who is liable to Terri?
A. The landlord, Judy, and Rick.
B. The landlord and Rick, but not Judy.
C. Judy and Rick.
D. Only Rick.

A. The landlord, Judy, and Rick.
Jackie is an employee for Hardware Store, Inc. When attempting to open a can of bright orange paint, she accidentally spills paint on Maggie, a customer in the store. Maggie claims that her $800 business suit is ruined. The legal liability here can best be described as:

A. the store is liable to Maggie, but Jackie is not.
B. Jackie is liable to Maggie, but the store is not.
C. Both the store and Jackie are liable to Maggie.
D. Neither Jackie nor the store is liable to Maggie as the incident was just an accident.

C. Both the store and Jackie are liable to Maggie.
The National Relations Labor Act of 1935 is also known as the:
A. Wagner Act.
B. Taft-Hartley Act.
C. Robinson-Patman Act.
D. Freedom to Work Act.
A. Wagner Act.
Maxine lost her job as an electrical engineer with a large company which had provided health insurance benefits for Maxine and her family. She now:

A. must try to find insurance on her own or try to find another job with health insurance benefits.
B. is protected under COBRA, which allows her continued health insurance coverage for 18 months as long as she pays the cost.
C. is protected under COBRA, which requires her employer to continue her health insurance coverage for six months under whatever copayment arrangements she had while she was employed.
D. has some protection under the NLRA, which requires her employer to pay for continued health insurance for three months following her termination if she did not leave the company voluntarily

B. is protected under COBRA, which allows her continued health insurance coverage for 18 months as long as she pays the cost.
All the business forms listed below have limited liability except the:

A. limited liability company.
B. general partnership.
C. Subchapter “S” corporation.
D. corporation

B. general partnership.
Rachel and Cyndi started a retail business called Zebra Toy Company. The business is operated as a partnership. Under partnership law:
A. Rachel is personally liable for any business contracts entered into by Cyndi.
B. Rachel is personally liable for any business debts, regardless of whether she or Cyndi created the obligation.
C. Rachel is personally liable for any negligent act committed by Cyndi in the scope of the business activity.
D. All the above.
D. All the above.
The business form that is taxed as a partnership and gives all owners limited liability, is:

A. a close corporation.
B. a limited partnership.
C. a limited liability company.
D. a general partnership.

C. a limited liability company.
Murray was a partner in a large firm. He died unexpectedly. His son, Frank, wanted to take over for his father in the partnership and was well qualified to do the work his father had done. Which statement best describes Frank’s rights in the partnership if he inherits the interest?
A. Frank has a right to take over for his father in the partnership.
B. Frank is entitled to the value in the partnership, but not to become a full partner.
C. Frank has no rights to his father’s partnership interest.
D. None of the above.
B. Frank is entitled to the value in the partnership, but not to become a full partner.

`

The advantage of a corporation over a partnership is:
A. shares are easily transferable to another person.
B. perpetual existence.
C. it is easier to raise funds.
D. All the above.
D. All the above.
LLCs have become popular for all except which of the following reasons:
A. management flexibility.
B. tax status as a partnership.
C. uniformity of law.
D. limited liability.
C. uniformity of law.
The term “S Corporation” comes from:
A. the Internal Revenue Code.
B. the FTC rules.
C. the U.S. Constitution.
D. state corporation law.
A. the Internal Revenue Code.

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