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Q:
Fay is mentally incompetent but has not been so adjudged by a court. Any contract Fay enters into is
a. voidable if Fay has a lucid interval at the time of contracting.
b. voidable if Fay lacks the capacity to comprehend the consequences.
c. voidable if the other party does not realize that Fay is incompetent.
d. unavoidable.
Q:
Which of the following is true of a C Corporation?
A) It does not pay taxes at the corporate level.
B) Shareholders of such a corporation are not required to pay taxes on their dividends.
C) Any corporation with more than 100 shareholders is automatically a C corporation for federal income tax purposes.
D) Nonresident aliens cannot be shareholders unless they demonstrate due diligence in meeting federal requirements for residency status.
Q:
A court adjudicates Huck mentally incompetent and appoints Inez to be his guardÂian. Later, without Inez's knowledge, Huck signs a contract to sell his farm to Kyle for its real market value. The contract is
a. enforceable if Huck comprehended the consequences.
b. enforceable if Huck knew the market value of the farm.
c. enforceable if Huck was the record owner of the farm.
d. void.
Q:
Which of the following is true of corporate bylaws?
A) They only contain rules addressing how the corporation can interact with the government.
B) They are only adopted by the shareholders of the corporation.
C) They are not binding on the directors or shareholders of the corporation.
D) They do not have to be filed with any government official.
Q:
Orin enters into a contract with Natalie. Later, Orin is adjudged mentally incompetent and Moseby is appointed Orin's guardian. Lila, Orin's daughter, attempts to void Orin's contract with Natalie on the ground of Orin's incompetency. The contract is
a. enforceable if Orin does not attempt to disaffirm it.
b. enforceable if Natalie is also incompetent.
c. enforceable if Moseby knew of the contract when he was appointed.
d. void.
Q:
A detailed set of rules adopted by the board of directors after a corporation is incorporated that contains provisions for managing the business and the affairs of the corporation are referred to as ________.
A) ultra vires rules
B) articles of incorporation
C) bylaws
D) corporation codes
Q:
Intoxicated, Clio agrees to sell her restaurant, Diners Café, to Evan for half of its real market value. This deal is most likely void if
a. Clio appeared intoxicated to Evan.
b. Clio disaffirms the contract after becoming sober.
c. Clio was so intoxicated as to have no memory of the deal.
d. Evan fraudulently induced Clio to become intoxicated.
Q:
A person or corporation that is empowered to accept service of process on behalf of a corporation is referred to as a(n) ________.
A) promoter
B) shareholder
C) registered agent
D) incorporator
Q:
Intoxicated but fully aware of the consequences, Uri agrees to a two-year cell-phone service contract with Wander Talk, Inc., at more than the average market price. This contract is
a. enforceable.
b. not enforceable because contracting parties can change their minds.
c. not enforceable because the contract clearly favors Wander Talk.
d. not enforceable because Uri was intoxicated when he agreed to it.
Q:
Which of the following must be included in the articles of incorporation?
A) the minutes of the first organizational meeting of the board of directors
B) the number of shares the corporation is authorized to issue
C) the terms warranting corporate dissolution
D) the corporate seal used in the articles of incorporation
Q:
Mica, a minor, signs a contract to pay Natural Health Club a monthly fee for twenty-four months to use its facilities. Six months later, after reaching the age of majority, Mica continues to use the club. This act is
a. a disaffirmance.
b. an emancipation.
c. a ratification.
d. a necessary.
Q:
________ are the basic governing documents of a corporation which must be drafted and filed with, and approved by, the state before the corporation can be officially incorporated.
A) Debt securities
B) Debentures
C) Certificates of authority
D) Articles of incorporation
Q:
On Tom's eighteenth birthday, he decides that he no longer wants to keep a car he bought from U-Pick Autos, when he was seventeen. His right to disaffirm the deal will depend on
a. the car's condition when Tom bought it.
b. the car's current condition.
c. whether Tom acts within a reasonable period of time.
d. whether U-Pick has the right to disaffirm.
Q:
Which of the following is true of a corporation's incorporation in a state?
A) Domestic corporations can incorporate in only one state.
B) Domestic corporations can incorporate in all states in which they conduct business.
C) Alien corporations can only incorporate in one state.
D) Foreign corporations can incorporate in more than one state.
Q:
Cielo is fifteen. In most states, Cielo would be considered a minor because she is under the age of
a. sixteen.
b. eighteen.
c. twenty.
d. twenty-one.
Q:
Boyd is a minor. As a minor, Boyd has the capacity to enter into
a. an invalid contract.
b. an unavoidable contract.
c. a valid contract.
d. no contract.
Q:
A corporation in the United States that has been incorporated in another country is referred to as a(n) ________ corporation.
A) foreign
B) domestic
C) onshore
D) alien
Q:
Which of the following is a definition of a foreign corporation?
A) a corporation with incorporations in multiple states
B) a corporation in the state in which it was incorporated
C) a corporation in states other than the one in which it was incorporated
D) a corporation in the United States which has been incorporated in another country
Q:
Ken relinquishes the right to his son Lee's control, care, custody, and earnings. This act is
a. a disaffirmance.
b. an emancipation.
c. a ratification.
d. a necessary.
Q:
________ corporations are corporations that have many shareholders and whose securities are often traded on organized securities markets.
A) Closely held
B) Nonprofit
C) Publicly held
D) Professional
Q:
Cherry and Basil are minors who marry each other. Their minority status may be terminated under the laws of
a. all states.
b. most states.
c. some states.
d. no states.
Q:
A corporation is referred to as a(n) ________ corporation in the state in which it was formed.
A) foreign
B) domestic
C) alien
D) multinational
Q:
Windshield Repair Shop (WRS) promises to pay Vincent $1,000 a week to work for WRS. Vincent accepts and quits his job with Ultra Glass. WRS fails to provide a job for Vincent. Vincent has a cause of action based on
a. an illusory promise.
b. a release.
c. past consideration.
d. promissory estoppel.
Q:
A panel of persons who are elected by shareholders that make policy decisions concerning the operation of a corporation is known as the ________.
Q:
Dex and Carmen are in an auto accident. Dex offers Carmen $2,000 if she promises not to pursue her potential legal claim against Dex. Carmen agrees. Later, Carmen discovers that it will cost $1,500 to repair her car and $4,000 to cover the medical expenses for a latent injury.
In Carmen's suit against Dex to recover her repair and medical expenses, Carmen will most likely recover
a. half the amount to pay the costs over what Dex already paid Carmen.
b. nothing.
c. the estimated amount to pay those costs and any other liability.
d. the exact amount to pay those costs and no more.
Q:
The board of directors makes policy decisions concerning the operation of a corporation.
Q:
Dex and Carmen are in an auto accident. Dex offers Carmen $2,000 if she promises not to pursue her potential legal claim against Dex. Carmen agrees. Later, Carmen discovers that it will cost $1,500 to repair her car and $4,000 to cover the medical expenses for a latent injury.
The agreement between Dex and Carmen is
a. a covenant not to sue.
b. an accord and satisfaction.
c. a release.
d. promissory estoppel.
Q:
Shareholders have unlimited liability for the debts and obligations of a corporation.
Q:
Webline Retail Sales, Inc., promises its salaried employees a bonus at the end of the year if management thinks it is warranted. This promise is
a. enforceÂable.
b. unenforceÂable because it is not supported by consideration.
c. unenforceÂable because the dollar amount is missing.
d. unenforceÂable because the employees are paid salaries.
Q:
Corporations are not allowed to enter into contracts in their own name.
Q:
Todos Ltd. agrees to supply United Steel, Inc., with minerals from Venezuela. When the govÂernÂment is unexpectedly overthrown in a revolution, Todos can obtain the goods only at a much higher price. United agrees to pay but later files a suit to recover the difference. The court will most likely rule that
a. a change in government is a risk ordinarily assumed in business.
b. an unforeseen difficulty supported the contract modification.
c. Todos engaged in extortion or the so-called holdup game.
d. Todos had a preexisting duty to supply the goods at the initial price.
Q:
Corporation codes regulate the formation, operation, and dissolution of corporations.
Q:
Baked Goods Company agrees to supply Comida Café with all the corn chips that it reÂquires for a year. A sudden demand for ethanol results in a shortage of corn, and the price rises sharply. Baked Goods asks Comida to pay a higher price for the chips. This request is
a. invalid as an attempt at extortion or the so-called holdup game.
b. invalid under the preexisting duty rule.
c. valid as a risk ordinarily assumed in business.
d. valid due to the unforeseen difficulty of the sudden price increase.
Q:
Shareholders are owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation.
Q:
Quality Steel Corporation files a suit against Rite Tool Company, claiming that the consideration for their contract is inadequate. The court will most likely not examine the adequacy of the consideraÂtion if
a. it is obvious that the consideration is adequate.
b. Rite Tool asserts that there is adequate consideration.
c. something of value passed between the parties.
d. the consideration is worth more than $100.
Q:
________ are a panel of decision makers who are elected by the shareholders.
A) Registered agents
B) Corporate officers
C) Stakeholders
D) Board of directors
Q:
Brad defends against a breach-of-contract suit by College Credit Corporation by claiming that their deala student loan accruing interest at a certain rate and payable beginning on a certain datewas unfair because the consideration for their contract was inadequate.
If, as Brad claims, the consideration in this problem is inadequate, it may indicate a lack of
a. accord in Brad's satisfaction with the value of the deal.
b. bargained-for exchange or mutual assent.
c. flexibility on the part of College Credit to accommodate Brad's needs.
d. "heft," "substance," or "weight" in the terms of the contract.
Q:
The ________ own(s) a corporation.
A) shareholders
B) board of directors
C) CEO
D) corporate officers
Q:
Brad defends against a breach-of-contract suit by College Credit Corporation by claiming that their deala student loan accruing interest at a certain rate and payable beginning on a certain datewas unfair because the consideration for their contract was inadequate.
"Adequacy" of consideration refers to
a. "how much" consideration is given.
b. legally sufficient value in the eyes of the law.
c. the intangible value to a contracting party of a thing exchanged.
d. the substantiality of the consideration exchanged.
Q:
The ________ is a general rule of corporate law that provides that generally, shareholders are liable only to the extent of their capital contributions for the debts and obligations of their corporation and are not personally liable for the debts and obligations of the corporation.
A) limited-purpose clause
B) limited liability of shareholders
C) preferred shareholder rule
D) nonparticipating shareholder rule
Q:
Brad defends against a breach-of-contract suit by College Credit Corporation by claiming that their deala student loan accruing interest at a certain rate and payable beginning on a certain datewas unfair because the consideration for their contract was inadequate.
A court is most likely to evaluate the adequacy of considÂeraÂtion if
a. a thing exchanged has no intangible value to one of the parties.
b. something exchanged is not of direct economic or financial value.
c. the items exchanged were of unequal value.
d. there is a gross disparity in the value of the consideration exchanged.
Q:
Owners of a corporation who elect the board of directors and vote on fundamental changes in the corporation are known as ________.
A) corporate officers
B) shareholders
C) registered agents
D) managing directors
Q:
A severable contract is unenforceable as a violation of public policy.
Q:
Which of the following entities elects members of the board of directors for a corporation?
A) the CEO
B) the corporate officers
C) the shareholders
D) the employees
Q:
An illegal contract is valid if the parties to it were unaware of the illegality.
Q:
The ________ Act of 2002 is a federal statute enacted by Congress to improve corporate governance.
A) Brown-Kaufmann
B) Lanham
C) Glass-Steagall
D) Sarbanes-Oxley
Q:
An exculpatory clause in an employment contract is not enforceable if the clause is against public policy.
Q:
Many multinational corporations conduct business in another country by using a(n) ________.
Q:
Adhesion contracts are often held to be contrary to public policy.
Q:
A corporation that uses subsidiary corporations to operate in more than one country cannot be termed as a multinational corporation.
Q:
A covenant not to compete in the sale of an ongoing business is unenforceable.
Q:
Explain the CEO and CFO certification provision of the Sarbanes-Oxley Act (SOX) of 2002.
Q:
A covenant not to compete is enforceable only if it is necessary to restrain trade.
Q:
Explain the concepts of winding up, liquidation, and termination.
Q:
If the purpose of a licensing statute is to protect the public from unlicensed practitioners, a contract with an unlicensed professional is illegal.
Q:
Involuntary dissolution of a corporation that is ordered by the secretary of state if a corporation has failed to comply with certain procedures required by law is known as ________.
Q:
If there is a statute that prohibits a certain action, a contract to do it is unenforceable.
Q:
The ________ Act prohibits public companies from making personal loans to their directors or executive officers.
Q:
A usurious contract involves the purchase and sale of usable goods.
Q:
A corporation is dissolved upon the effective date of the articles of dissolution.
Q:
A guardian can enter into legally binding contracts on behalf of a mentally incompetent person.
Q:
Private companies and nonprofit organizations are also influenced by the Sarbanes-Oxley Act's accounting and corporate governance rules.
Q:
A person who enters into a contract when he or she is intoxicated can void the contract if the terms are obviously favorable to the other party.
Q:
The Sarbanes-Oxley Act prohibits public companies from making personal loans to their directors or executive officers.
Q:
Parents are ordinarily liable for the contracts made by their minor chilÂdren, even if the children acted on their own.
Q:
The Sarbanes-Oxley Act requires CEO and CFO certification for annual and quarterly reports.
Q:
A minor's right to disaffirm a contract terminates sixty days after the contract's date.
Q:
After a corporation has commenced business or issued shares, the corporation can be ________ if the board of directors recommends dissolution and a majority of voting shareholders favors dissolution.
A) rescinded
B) remanded
C) administratively dissolved
D) voluntarily dissolved
Q:
A minor may disaffirm a contract only if the subject matter is illegal.
Q:
According to priority, which of the following claimants is the last to be paid after a corporation's assets have been liquidated?
A) creditors
B) common stockholders
C) preferred shareholders
D) bond holders
Q:
A minor may disaffirm a contract only after attaining the age of majority.
Q:
According to the provisions set forth by the Sarbanes-Oxley Act, the ________, a federal government agency, may issue an order prohibiting any person who has committed securities fraud from acting as an officer or a director of a public company.
A) United States International Trade Commission
B) Federal Reserve System
C) Federal Communications Commission
D) Securities and Exchange Commission
Q:
Contractual capacity refers to the legal ability to enter into a contract.
Q:
Explain the business judgment rule and its relationship to the fiduciary duty of care owed by corporate officers and directors.
Q:
A director or corporate officer who usurps a corporate opportunity would be violating the director's fiduciary duty called the ________.
Q:
The doctrine of promissory estoppel requires a clear and definite promise.
Q:
A(n) ________ is a member of a board of directors who is not an officer of the corporation.
Q:
A covenant not to sue is the substitution of a contractual obligation for a legal action.
Q:
A covenant not to sue is against public policy.
Q:
________ is a doctrine that says if a shareholder dominates a corporation and uses it for improper purposes, a court of equity can disregard the corporate entity and hold the shareholder personally liable for the corporation's debts and obligations.