MGMT 380 – Business Law I
Due at 2359 hours (UTC-5) (ET) Sunday, October 12, 2014
This exam consists of 20 multiple choice questions worth 20 points and 2 essay questions worth 5 points each (10 points total). The maximum number of points is 30. For the essay questions, answertwo of four.
Please read the questions and answers carefully!
MULTIPLE CHOICE QUESTIONS
Note: There are usually two answers that are obviously wrong and two answers that could both be correct. You must choose the answer you think is MOST correct.
1. Sam orally agreed to sell Jamie some land for $500,000. Jamie paid Sam the $500,000; Sam gave Jamie the deed to the land. Jamie took possession of the land and began building a cabin on it. One month later, Sam tried to retake possession of the land by arguing that the contract for the sale was invalid because it was oral, not written. Sam sued Jamie to invalidate the contract and retake the land.
The court will likely conclude that Sam will:
a) Win; the sale exceeded $500 so the contract must be written to be valid under the Statute of Frauds.
b) Win; all land sales contracts must be written.
c) Lose; because the contract was fully executed Sam cannot rescind the contract.
d) Lose; because Jamie had begun building a cabin on the property, Sam cannot rescind the contract.
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2. Mac and Rhamad signed a business contract with a clause that provides that if a dispute arises they must submit to binding arbitration to resolve the dispute. After they had been doing business together for a year, a dispute arose under the terms of the contract. Rather than submit to arbitration, Mac filed a lawsuit against Rhamad. Most likely the court will:
a) Hear the lawsuit because Mac cannot be compelled to submit to arbitration; he is constitutionally entitled to a jury trial if he requests a trial.
b) Conduct a hearing, then order a remedy without compelling Mac to submit to arbitration or to a jury trial.
c) Compel Mac to submit to arbitration to resolve the dispute.
d) Hear the lawsuit in a trial, then compel Mac to submit to arbitration, if Mac is not satisfied with the trial decision.
3. Assume a salesperson intentionally made one of the following statements – knowing that the statement was false – to a customer considering a purchase. Which statement could create liability for fraudulent misrepresentation if the customer made the purchase?
a) “In my opinion, this car is in flawless mechanical condition.”
b) “This crane will probably lift about 10,000 pounds.”
c) “This car is a real gem.”
d) “This is an original painting by the artist, Pablo Picasso.”
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4. Ram was walking down the sidewalk by a construction project site in a downtown area. The project was owned and operated by Modern Construction, Inc. and was surrounded by orange plastic fencing typically used for construction projects. Ram stopped to watch a metal beam being lifted by a crane on the construction site. As the beam swung through the air, Ram thought it was going to fall and jumped forward quickly off the sidewalk and into the construction project property, falling into and smashing the orange plastic fencing. As Ram landed inside the construction project, the beam fell near Ram. The beam did not hit Ram but some rocks were thrown onto Ram as the beam fell, cutting his arm so that it required 35 stitches.
If Ram sues Model Construction for negligence, the likely result will be that Ram will:
a) Lose, because he assumed the risk as a trespasser on the construction site and trespassers can never recover damages.
b) Lose, because pedestrians are always liable under contributory negligence in such cases involving trespassing.
c) Win, because it is always foreseeable that a beam could fall on a rescuing pedestrian.
d) Win, if the beam fell because of Model Construction’s negligence.
5. Don promised to buy his girlfriend, Sophie, a new car. As a result, Sophie sold her old car. Don now refuses to buy Sophie the car. Sophie has a job that requires her to have a car to get to work. If Sophie sues Don to enforce the promise, the likely result is that the promise will:
a) Be enforced under promissory estoppel because Sophie reasonably relied on Don’s promise, to her detriment.
b) Not be enforced because Sophie received money from the sale of her old car; if she also received the new car from Don, she would be unjustly enriched.
c) Be enforced because the car is a necessity for Sophie and all contracts for necessities are binding and enforceable for all parties even if contract formation is flawed.
d) Not be enforced as Don’s promise was a gift to Sophie; Sophie gave consideration, but Don did not.
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6. Which of the following activities may involve the use of a contract, and/or constitute a sales contract?
a) Purchasing medications from a pharmacy.
b) Hiring a contractor to make home repairs.
c) Purchasing insurance policies from an insurance agent.
d) Selling books to customers in a bookstore.
e) All of the above.
7. Pete, who collects antique cars, hired Ann as his agent to find and purchase a 1965 Ford Mustang on his behalf. Ann found a Mustang just like Pete wanted, but Ann fell in love with the car and purchased it for herself.
Which of the following illustrates Ann’s liability, if any, in her duty as agent to Pete in this situation?
a) Ann has not violated the duty of loyalty to Pete; she can find another Mustang for him.
b) Ann has not engaged in self-dealing because she did not purchase the Mustang with Pete’s funds.
c) Ann usurped an opportunity for Pete, but has not violated the duty of loyalty to Pete by competing with Pete’s interests.
d) Ann violated the duty of loyalty to Pete by competing with Pete’s interests, and has usurped an opportunity for Pete.
8. Assume that Virginia enacted a law prohibiting, until further notice, all grocery stores in Virginia from selling all powdered spices manufactured in, or shipped from, Maryland. This law was enacted because it was discovered that the spices recently manufactured in Maryland were infected with bacteria. Determine the constitutionality of the Maryland statute. The statute is:
a) Unconstitutional; it violates grocery store owners’ substantive and procedural due process rights under the 5th and 14th Amendments because they are private businesses.
b) Unconstitutional; the statute imposes an undue burden on interstate commerce.
c) Constitutional; it is a valid exercise of Maryland’s police power.
d) Constitutional; the statute involves the sale of goods which is valid under UCC rules, thus, the state constitution does not apply.
9. Jim and Kiley are architects and general partners of JK Designs. Jim and Kiley supervise Luc, an employee of JK Designs. As partners, Jim and Kiley
a) Are personally liable for any/all tort(s) committed by Luc.
b) May be liable for malpractice, but not torts, committed by Luc while Luc is working within the scope of his job at JK.
c) May be liable for torts committed by Luc while Luc is working within the scope of his job at JK.
d) Have no liability for any torts committed by Luc at any time.
10. Larry and Moe agreed that Larry would sell Moe his small business, including the land on which the business was situated, for $500,000. Both Larry and Moe knew at the time the contract was formed that the business was actually worth $800,000. Is this a valid, enforceable contract?
a) Yes, provided the contract was in writing, in accordance with the Statute of Frauds and the parties freely consented.
b) Yes, provided the contract was in accordance with state statutory law that permits real estate sales for 40% or more below market value.
c) No, because $500,000 is not valid consideration for a business worth $800,000.
d) No, because Larry has no pre-existing legal duty to sell his business.
11. Under the UCC, Section 2-207 (the “battle of the forms” provision), it is provided that, when both parties to a contract are merchants, any additional terms added in the acceptance of a standard form contract can properly, validly become part of the contractual agreement UNLESS:
a) The original offer expressly limits any acceptance only to the terms in the original standard form offer.
b) The additional terms in the acceptance materially alter the terms of the original standard form offer.
c) The offeror notified the offeree, within a reasonable period of time that the additional terms were not acceptable.
d) All of the above could be true.
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12. Worst Buy ordered 100 19-inch color TV sets from Best Sale and requested prompt shipment of the goods. Best Sale promptly shipped to Worst Buy 100 21-inch color TV sets. Prior to shipment, Best Sale did not notify Worst Buy that they were shipping nonconforming TVs as an accommodation. Assuming both Worst Buy and Best Sale are merchants, under UCC rules, in this case:
a) There is no valid acceptance by Best Sale; shipping nonconforming goods acts as a counteroffer, and thus, cannot constitute an acceptance or create a valid, enforceable contract.
b) Although Best Sale shipped nonconforming TVs, Worst Buy is bound to pay the reasonable value of the 21-inch nonconforming TV sets because Best Sale’s shipment constituted a valid acceptance, and a binding contract was formed at the time the goods were shipped.
c) Although B shipped nonconforming TVs, if Worst Buy accepts and later sells the 21-inch TVs, Worst Buy has validly accepted the nonconforming goods and is bound to pay Best Sale reasonable value for the 21-inch TVs.
d) There is no contract because Best Sale’s acceptance (by shipping the goods) is not a mirror image of Worst Buy’s offer.
13. Leon, a bank vice president, joined Fitness Center, Inc. (FC). He signed a contract stating, among other things, an exculpatory clause that FC…
“shall not be liable for any claim, demand, cause of action of any kind whatsoever for, or on account of, death, personal injury, property damage or loss of any kind resulting from or related to Member’s use of facilities or participation in any sport, exercise or activity within the club premises…”
Leon sustained head injuries when a treadmill on which he was walking collapsed at FC. Leon sued FC for his injuries.
The court most likely will rule:
a) In favor of Leon because the exculpatory clause is against public policy.
b) In favor of Leon because the exculpatory clause is too broad in scope.
c) In favor of FC because the exculpatory clause is not unconscionable under the circumstances.
d) In favor of FC because it had a valid enforceable contract with Leon as Leon knowingly signed the contract.
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14. Ed and Nora signed a contract that included a statement, “No evidence of oral negotiations may be used to change the terms of this contractual writing.” Later Ed sued Nora for a breach of contract. In court, Nora testified that she did not breach their agreement because, after signing the written contract, she and Ed orally agreed to change the contract terms. Nora’s testimony will:
a) Be admitted by the court as evidence that Nora did not breach the contract.
b) Be admitted as a valid exception under the Parol Evidence Rule.
c) Be admitted if Nora is a minor because the Parol Evidence Rule does not apply to contracts with minors.
d) Not be admitted under the Parol Evidence Rule.
15. A city ordinance permits street vendors to operate only within certain commercial areas of the city to prevent dangerous traffic congestion. The street vendors sued the city claiming that the restrictions were a violation of their equal protection rights as other businesses are not restricted to operating only in certain commercial areas within the city.
How would you classify the ordinance?
a) Constitutional; because the city has a justifiable purpose in enacting the ordinance, it does not violate the equal protection rights of street vendors.
b) Constitutional; because street vendors are private businesses, they are not protected by the equal protection clause of the 14th Amendment.
c) Unconstitutional; the ordinance unduly discriminates against street vendors as compared to other business owners and thus, violates the vendors’ equal protection rights.
d) Unconstitutional; privately owned vendors, unlike public businesses, have a constitutional right to conduct business in any commercial area of their choice.
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16. Charlie Customer bought an airline ticket on BartAir through Tina Travel Agent.
Identify the legal relationship of Charlie, BartAir and Tina regarding this transaction.
a) Charlie is the principal; Tina is his agent representing him with BartAir.
b) BartAir is the principal; Tina is its agent in the sale of the airline ticket to Charlie.
c) Tina is not the agent of BartAir or Charlie, but Tina’s employer, the travel agency, is the agent for Charlie.
d) Tina is the agent for both BartAir and Charlie.
17. Acme orally offered to sell Bic 100 premium-grade blue ink ballpoint pens, but neglected to state the price. Bicaccepted via letter. Acme received the acceptance letter, but immediately thereafter, Acme tried to get out of the deal. Assume that Acme and Bic are both merchants, as defined under the UCC. At this point which of the following is most likely to be true about this agreement between Acme and Bic?
a) There is no valid contract because the offer is too indefinite.
b) There is no valid contract because any offer for the sale of goods must be in writing and signed by both parties.
c) There is a valid, enforceable contract.
d) There is a valid, enforceable contract only if either A or B are engaged in international business which makes the agreement subject to CISG (Contract for International Sale of Goods) rules.
18. Kisha operates River Valley Soccer, an athletic equipment shop, as a sole proprietorship. Taxes on the business’s income are paid by:
a) No one; since it is a sole proprietorship there are no business taxes.
b) Kisha as the sole owner.
c) The state or federal government if Kisha holds a Small Business Administration loan acquired to start her business.
d) The business entity of River Valley Soccer, not Kisha personally.
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Use the following scenario to answer questions 19-20:
Scenario: Jones, a resident of Arizona, booked reservations for a vacation at World Hotels, Inc. in Cabo Mar, Mexico. World Hotels is an international hotel chain incorporated in Delaware with hotels in North and South America; World Hotels has no hotels in Arizona but does advertise and book reservations for all its hotels over the internet, in any state. World Hotels has booked reservations in the past with residents of Arizona.
While a guest in the hotel in Cabo Mar, Jones was walking across the hotel lobby, and slipped and fell on the wet marble floor that had been just washed by the maintenance staff. The staff had placed a “wet floor” sign on the lobby floor on the side wall of the lobby.
Jones was taken to the nearest Mexican hospital where surgery was necessary to place a pin in his broken leg. Anxious to return home and see his regular doctor, Jones flew out of Mexico shortly after the surgery. He required two plane seats and an ambulance to meet him at various airports. His health insurance would not cover his hospital stay in Mexico as it was located outside the U.S. When back in Arizona, Jones was unable to work for 8 weeks and required another surgery to remove the pin. He also required several weeks of physical therapy.
19. Jones wants to sue World Hotels, Inc. for negligence for $450,000 to recover all his medical expenses in Mexico and the US; for $50,000 for the cost of the plane trip from Mexico to Arizona, the 2 plane seats and ambulance costs in various airports; $10,000 for 8 weeks of lost wages; and $50,000 for pain and suffering resulting from the injury. Can he sue in federal court?
a) Yes, because federal court always has jurisdiction over citizens of different states.
b) No, because federal court does not have jurisdiction in cases that do not involve federal laws.
c) Yes, because the federal court may have jurisdiction over citizens of different states and the lawsuit involves damages greater than $75,000.
d) No, because the federal court has no jurisdiction over an accident that occurred in Mexico.
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20. It would be easier for Jones to bring the lawsuit in Arizona state court, but he wonders if the court can get World Hotels to come to Arizona. Can the Arizona state court impose jurisdiction over World Hotels to bring the company to court in Arizona?
a) No, because the subject of the lawsuit took place in a foreign country.
b) No, because the corporation does not have sufficient minimum contacts with Arizona to allow the Arizona court to use the long arm statute to establish jurisdiction in Arizona.
c) Yes, because the Jones is a resident of Arizona and he is the plaintiff in the lawsuit.
d) Yes, because World Hotels has sufficient minimum contact with the state of Arizona to justify the court’s use of the long arm statute.
Answer two of the four essay questions below. 5 points each.
1. Refer to the scenario for Multiple Choice questions 19-20 above to answer the following essay question:
Jones sued World Hotels, Inc. for negligence to recover damages for his injuries resulting from the fall in the Cabo Mar hotel. Will Jones likely be successful in the negligence lawsuit against World Hotels? Explain fully why or why not.
Jones will not be successful in his lawsuit against World Hotels, Inc. This is because; there was proper notice of the wet nature of the floor. The accident occurred because of his own negligence, he did not respect the notice and went ahead to step the wet floor just to get the injuries. However, had ther been no notice on the state of the floor, it implies that the company was negligent and only then will they have been held liable for Jones’ expenses.
2. Aaron plans to open Aaron’s Pet Supplies, a pet supplies outlet, and plans to hire 2 part-time employees. Aaron will invest only his own money in the business. He does not expect to make any profit for at least 2 years and to make very little profit for the first 3 years after the first 2 years. He does expect to make a profit eventually.
Which form of business organization is most appropriate and easiest for Aaron to use in opening his pet store – and why?
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3. There are extensive federal regulations governing airplanes and pilots. Assume that the state of New York passed a statute containing numerous requirements, some conflicting with federal regulations, covering operation of airplanes and licensing of airplane pilots.
If the New York state statue is challenged as being unconstitutional, what is the likely result? Describe the applicable law and rationale for your conclusion.
It is very likely that the federal law will overpower the state law. All the laws and regulations formulated in the various states should be in line with the federal law. In case of any conflict the federal law will definitely be applied and the state law recommended for amendment purposes. This goes by the reasoning that the federal laws are universal throughout the United States and hence they should be applied uniformly throughout the states.
4. Racer contracted in writing to drive Owner’s one-of-a-kind, specially designed championship race car in the Miami 500 Race on July 15 for a fee of $2500. On July 1, the race car was destroyed in an accidental fire in a storage warehouse where the race car was being stored prior to the race. Owner owns no other race cars, so Owner considered the contract discharged. Racer claimed that she is still entitled to the $2500 fee because she and Owner had a valid enforceable contract.
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