Gov't Regulation of Business CRFF MCQ

Question 1

In a suit for damages under Section 11 of the Securities Act of 1933 damages are calculated as

Answer 1

the difference between the price paid for the securities and their value on the date suit was filed.

Question 2

Under the provisions of Section 10(b) of the Securities Exchange Act of 1934, an accountant may be held liable for actions which are tantamount to

Answer 2

common law fraud,
or a slightly lesser standard, gross negligence (reckless disregard for the truth)

Must be
evidence of a material misstatement or omission knowingly (or recklessly) made,
which the injured party relied upon to his or her detriment.

not liable under Securities Exchange Act of 1934 for merely “aiding and abetting.”

Question 3

general standard of care expected of an accountant

Answer 3

accountant must possess the SKILLS and
exercise the degree of CARE
of an ordinarily prudent accountant

depends upon the particular circumstances existing at the time the work is performed.

exercise ordinary care and diligence, measured by the particular circumstances

Question 4

if wrongdoing is fraudulent or involved gross negligence (constructive fraud) liability would extend to

Answer 4

any third party injured thereby

Question 5

For a third party to recover against a CPA, the third party must prove

Answer 5

fraud or gross negligence on the part of the CPA,

Question 6

if CPA is merely negligent, the third party may recover if it can be shown

Answer 6

CPA knew the third party would be relying on the CPAS work product,

and

actually did rely

Question 7

accountant-client privilege

Answer 7

A limited number of states have enacted laws granting varying degrees of this

not as broad as the attorney-client privilege

Where such a privilege exists, only the client can waive the privilege.

Question 8

Internal Revenue Service Restructuring and Reform Act of 1998 Section 7525 provides:

Answer 8

“With respect to tax advice, the same common law protections of confidentiality which apply to a communication between a taxpayer and an attorney shall also apply to a communication between a taxpayer and any federally authorized tax practitioner to the extent the communication would be considered a privileged communication if it were between a taxpayer and an attorney”

only with respect to “non criminal tax matter before the Internal Revenue Service and non criminal tax proceedings in Federal court brought by or against the United States.

does not extend to written tax advice to corporate clients concerning corporation’s involvement in tax shelters

Question 9

The Sarbanes-Oxley Act requires that financial reports

Answer 9

1. reflect all material correcting adjustments;
2. off–balance sheet transactions be disclosed;
3. companies disclose to the public on a rapid and current basis additional information concerning material changes in financial condition or operations, in plain English.
4. each annual report include a discussion stating management’s responsibility for establishing effective internal controls and procedures for financial reporting, 5. provide an assessment of the effectiveness of such controls and procedures

Question 10

The Securities Act of 1933 requires that, in a public offering exceeding $5,000,000 either a registration statement must be filed or

Answer 10

resale of the securities within two years is restricted

Question 11

rules for exemption under Rule 505 of Regulation D of the Securities Act of 1933 (without registration)

Answer 11

permits a company to sell up to $5 million in securities over a 12 month period

prohibits general advertising,
limits sales to not more than 35 nonaccredited investors restricts resale for two years.

If nonaccredited investors purchase the securities, an audited balance sheet must be provided.

Question 12

The Securities Act of 1933 imposes on companies who seek to raise capital in the marketplace

Answer 12

a requirement that they first file a registration statement
by which prospective investors are provided information about the company necessary
to make an informed investment decision

Question 13

Violations of Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 can result in

Answer 13

civil penalties
forfeiture of profits, including prejudgment interest
a permanent injunction prohibiting future violations

Question 14

Sale of restricted securities can be made by complying with the mandates of Rule 144:

Answer 14

hold the stock for two year before selling, or,

hold the stock for one year, then sell in small brokered transactions

If the securities are not held for two years, there must be adequate current information available about the issuer, so the issuer has complied with the periodic reporting requirements of the Securities Exchange Act of 1934.

Question 15

SEC Rule 10b-5 of the 1934 Act, prohibits

Answer 15

fraud related to securities trading,

including trading on inside information.

Question 16

trading on insider information

Answer 16

is subject to both criminal and civil penalties.

The Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 provide for penalties for illegal insider trading to be as high as three times the profit gained or the loss avoided from the illegal trading (Section 21A of the ‘34 Act).

Question 17

The 1934 Act regulates proxy solicitation, which is

Answer 17

information that must be given to a corporation’s shareholders prior to soliciting votes.

Prior to every shareholder meeting, a registered company must provide each shareholder with a proxy statement containing certain material, along with a proxy form on which the shareholder may vote on each proposal to be presented at the meeting.

For securities registered in the names of brokers, a company must attempt to determine the beneficial ownership of the securities and furnish sufficient copies of the proxy statement for distribution to all beneficial owners.

Copies of the proxy statement and proxy form must be filed with the SEC when first mailed to shareholders.

Under certain circumstances preliminary copies must be filed ten days before mailing. Although a proxy statement does not become “effective” in the same way as a statement registered under the 1933 Act, the SEC may comment on and require changes in the proxy statement before mailing.

Question 18

Proxies for an annual meeting calling for election of directors must include

Answer 18

a report containing financial statements covering the previous two fiscal years.

Special rules apply when a contest for election or removal of directors is scheduled.

Question 19

Securities Litigation Uniform Standards Act (SLUSA) of 1998

Answer 19

SLUSA provides for preclusion of certain securities class actions brought under state law:

No covered class action based upon the statutory or common law of any State may be maintained in any State or Federal court by any private party alleging-

(A) a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or
(B) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.

SLUSA does not itself displace state law with federal law but makes some state-law claims nonactionable through the class action device in federal as well as state court.

Question 20

The Williams Act of 1968 amended many sections of the 1934 Securities Exchange Act to address problems with tender offers. Pursuant to the Williams Act, persons making a tender offer that would result in ownership of more than 5 percent of a class of registered securities must

Answer 20

first file with the SEC
furnish to each offeree a statement that includes
background of the person or group;
source of funds used
purpose of the acquisition;
number of shares owned;
any relevant contracts, arrangements, or understandings

offer must be made to all holders of the class of securities sought, 
uniform price must be paid to all tendering shareholders

shareholder may withdraw tendered shares at any time while the tender offer remains open

If the person making the offer seeks fewer than all outstanding shares and the response is oversubscribed, shares will be taken up on a pro rata basis.

Question 21

must register under the Securities Exchange Act of 1934 and comply with its provisions

Answer 21

Companies whose securities are traded on a national securities exchange or
whose assets are in excess of $10 million and which have equity securities held by more than 500 persons

Question 22

FICA taxes

Answer 22

paid by employers are deductible expenses for income tax purposes,

frequency of FICA deposits depends on the amount of an employer’s payroll,

employers must furnish employees with written statements of wages paid and FICA contributions withheld each calendar year

contributions may not be made to an employee’s pension plan in lieu of making FICA

Question 23

Age Discrimination in Employment Act of 1967 (ADEA)

Answer 23

protects individuals who are 40 years of age or older from employment discrimination based on age

apply to both employees and job applicants. Under the ADEA,

unlawful to discriminate against a person because of his/her age with respect to any term, condition, or privilege of employment – including, but not limited to, hiring, firing, promotion, layoff, compensation, benefits, job assignments, and training

unlawful to retaliate against an individual for opposing employment practices that discriminate based on age or for filing an age discrimination charge, testifying, or participating in any way in an investigation, proceeding, or litigation under the ADEA

applies to employers with 20 or more employees, including state and local governments, employment agencies, labor organizations, and the federal government

Question 24

Americans with Disabilities Act (ADA)

Answer 24

employer is required to make an accommodation to the known disability of a qualified applicant or employee if it would not impose an “undue hardship” on the operation of the employer’s business

Undue hardship is defined as an action requiring significant difficulty or expense when considered in light of factors such as an employer’s size, financial resources and the nature and structure of its operation.

An employer is not required to lower quality or production standards to make an accommodation, nor is an employer obligated to provide personal use items such as glasses or hearing aids.

Question 25

Comprehensive Environmental Response, Compensation, and Liability Act – otherwise known as CERCLA or Superfund

Answer 25

provides a Federal “Superfund” to clean up uncontrolled or abandoned hazardous-waste sites as well as accidents, spills, and other emergency releases of pollutants and contaminants into the environment.

EPA given power to seek out those parties responsible for any release and assure their cooperation in the cleanup.

EPA cleans up orphan sites when potentially responsible parties cannot be identified or located, or when they fail to act.

EPA obtains private party cleanup through orders, consent decrees, and other small party settlements.

EPA recovers costs from financially viable individuals and companies once a response action has been completed.

Question 26

Clean Water Act (CWA)

Answer 26

establishes the basic structure for:

regulating discharges of pollutants into the waters of the United States

regulating quality standards for surface waters

unlawful to discharge any pollutant from a point source into navigable waters unless a permit is obtained

Question 27

Environmental Protection Agency (EPA) &

Clean Water Act (CWA)

Answer 27

set wastewater standards for industry

set water quality standards for all contaminants in surface waters

National Pollutant Discharge Elimination System (NPDES) permit program controls discharges for industrial, municipal, and other facilities if their discharges go directly to surface waters. (No permit required for Individual homes connected to a municipal system or septic system.)

Question 28

Employee Retirement Income Security Act of 1974 (ERISA)

Answer 28

federal law that sets minimum standards for most voluntarily established pension and health plans in the private sector

requires plans to provide participants with plan information including important information about plan features and funding;

provides fiduciary responsibilities for those who manage and control plan assets;

requires plans to establish a grievance and appeals process for participants to get benefits from their plans

amendments to ERISA, include
Consolidated Omnibus Budget Reconciliation Act (COBRA)

Question 29

Consolidated Omnibus Budget Reconciliation Act (COBRA),

Answer 29

amendment to ERISA

provides some workers and their families with the right to continue their health coverage (at their own expense) for a limited time after certain events, such as the loss of a job

Question 30

Employee Retirement Income Security Act of 1974 (ERISA) covers

Answer 30

most private sector, voluntary employee benefit plans, including “pension plans” and “welfare plans.”

Question 31

Pension plans

Answer 31

provide retirement income.

Question 32

Welfare plans

Answer 32

provide health benefits, disability benefits, and death benefits, as well as other benefits and services.

Question 33

ERISA imposes

Answer 33

fiduciary obligations on persons who exercise discretionary authority or control over management of a plan.

Fiduciaries are required, among other things, to discharge their duties solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan.

Question 34

Family Medical Leave Act (FLMA)

Answer 34

employers having at least 50 employees.

An employee can ask to use FMLA to care for a family member, for their own physical/mental health care, and after the birth or adoption of a child.

An employer is permitted to ask the employee to provide a medical certification from a health care provider to substantiates the need to use FMLA.

A husband and wife who are employed with the same company are only entitled to a combined total of 12 weeks for the birth/adoption of a child, or to care for a parent.

An “eligible” employee allowed leave under the FMLA is an employee that has been employed with a company for at least 1,250 hours during a 12 month period prior to the start of the leave.

Question 35

Occupational Safety Health Act (OSHA)

Answer 35

requires employers to:

provide a workplace that is free from recognized hazards;

keep records of accidents and to report serious accidents

permits employers to accompany OSHA inspectors during job site inspections,

allows employers to insist upon a search warrant (issued only for probable cause) before OSHA inspectors come onto the business premises. (Business premise inspections are, however, typically permitted by employers without a court order.)

Question 36

The four basic programs of the Social Security Act

Answer 36

unemployment insurance,
hospital insurance (Medicare),
survivors and disability insurance, and
old age benefits

Question 37

Workers’ Compensation

Answer 37

injured in the scope of employment

medical bills and most lost wages paid by workers compensation carrier (not pain and suffering)

another party at fault is also liable for damages including lost wages including pain and suffering

own auto insurance or health insurance may also cover medical care for her injuries,

multiple sources of possible recovery

pays for both temporary and permanent injuries

lost wages amount to 2/3 of regular pay for up to 500 weeks

required prosthetic devices covered

compensated regardless whether employee was negligent, and no negligence on the part of the employer, fellow employees or third parties

recovery of workers’ compensation benefits does not prevent the injured employee from also recovering from third party wrongdoers (if there are any)

employees are not covered
while traveling to and from work,
if they are intoxicated,
for pain and suffering

Burial expenses are covered for employees who are killed on the job.

Question 38

Endangered Species Act

Answer 38

provides a program for the conservation of threatened and endangered plants and animals

and the habitats in which they are found.

The U.S. Fish and Wildlife Service (FWS) of the Department of the Interior maintains a worldwide list.

Species include birds, insects, fish, reptiles, mammals, crustaceans, flowers, grasses, and trees.

Anyone can petition FWS to include a species on this list.

The Act provides in some instances for the purchase of lands to protect certain habitats.

The Act establishes both civil and criminal penalties for violations.

Question 39

SE Tax

Answer 39

C Corporation - NO SE on distributions, social security taxes imposed on wages of employee-owners,

Partnership - earnings subject to SE except those distributed for limited partnership interests.

LLC - earnings subject to SE except from passive investment interests

S Corporations - NO SE on distributions (as long as reasonable wages are paid), social security taxes are imposed on wages of employee-owners

Question 40

open shop

Answer 40

does not discriminate based on union membership in employing or keeping workers

Question 41

closed shop

Answer 41

employs only people who are already union members

Question 42

union shop

Answer 42

employs both union and nonunion workers,

sets a time limit within which new employees must join the union

Question 43

agency shop

Answer 43

requires nonunion workers to pay a fee to the union for its services in negotiating their contract

This is also called the Rand Formula

Question 44

National Labor Relations Act (also known as the Wagner Act) 1935

Answer 44

establishes rights of workers to become part of labor unions and other such organizations

passed during the Great Depression when many workers were paid very small amounts for the work they did

Question 45

Unemployment taxes

Answer 45

deductible by the employer as business expenses

employer is required to pay taxes under FUTA if it employs at least one person for any part of a day for twenty weeks and pays at least $1,700 in wages during a quarter.

Employers are subject to tax credits against federal unemployment taxes for state unemployment taxes paid.

Finally, employers may received higher or lower state unemployment tax rates based upon employment history.

Question 46

2010 Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act)

Answer 46

provides for certain clawback provisions to reclaim three years of certain executive incentive compensation in the event of failure to comply with federal reporting requirements

requires independence of the board’s executive compensation committee and votes by shareholders on executive compensation matters at least every three years

Whistle blowers may be entitled to compensation from the SEC of 10-30% of the total monetary sanction, if such sanctions exceed $1 million.

requires mortgage originators and securitors to retain 5% risk

added:
regulation for the insurance industry,
reporting requirements for certain equity and hedge fund advisors,
Bureau of Consumer Financial Protection

Question 47

JOBS Act of 2012

Answer 47

expands certain exclusions from Dodd-Frank Act for emerging growth companies

Question 48

emerging growth companies (EGC)

Answer 48

company with an initial public offering
after December 2011
with less than $1 billion in gross revenues
in the last fiscal year

Question 49

Title VII of the 1964 Civil Rights Act

Answer 49

subject if it at least 15 employees and affects interstate commerce

prohibits discrimination in hiring and other employment decisions based upon race, sex, religion, national origin, or color

unless a bona fide occupational qualification to hire workers of a certain sex, religion, or national origin–never race or color– (such defenses are narrowly interpreted in court)

Question 50

Equal Pay Act

Answer 50

cannot justifiably pay less solely on the basis of sex

Question 51

1936 Robinson-Patman Act

Answer 51

price discrimination is prohibited if it would tend to harm competition or create a monopoly.

must prove that price difference could reasonably harm competition, not actual damage to competition

defense - cost-justified reason for the price difference(bought in bulk)

Question 52

Clean Air Act

Answer 52

required EPA to set the national ambient air quality standards (NAAQS)

Any new stationary emissions source subsequent to NAAQS is required to show it utilizes the best available technology to reduce emissions.

EPA may impose sanctions equal to violator’s cost savings in intentionally violating the provisions of the Clean Air Act.

Areas that have met the NAAQS are required to prevent any significant deterioration of the air quality levels.

Private citizens may sue emissions sources under the provisions of the Act.

Question 53

U.S. patent law

Answer 53

steep fines for willfully infringing on patent

could also be subject to paying attorneys’ fees

Supreme Court recently upheld that only minor deviations from an original patent is not a defense against infringement.

barred from applying for a patent if item is sold for one year before filing the application

inventor is granted patent over the first party to file

Paris convention - one-year grace period for inventors to apply for a foreign patent after applying in the first country

Question 54

Money laundering

Answer 54

disguising the source of illegal income in seemingly legitimate assets

often accomplished by creating fictitious transactions at legitimate financial institutions, then sending funds to offshore accounts

funds may be repatriated to purchase legitimate assets or investments

Question 55

Bank Secrecy Act

Answer 55

requires financial institutions,

banks, brokers, currency exchanges, casinos, entities that perform wire transfers, etc.,

to report suspicious activity to the federal government.

Insurance companies are not currently included in the scope of the Act.

Question 56

AU Section 317, Illegal Acts by Clients

Bank Secrecy Act

Answer 56

auditor must report a detected illegal act committed by senior management to the audit committee.

Question 57

Fair Credit and Charge Card Disclosure Act,

Answer 57

provides the $50 limit for fraudulent credit card charges.

Question 58

The Equal Credit Opportunity Act

Answer 58

prohibits discrimination based on sex, age, religion, national origin, receipt of welfare payments, and invocation of rights under law.

Question 59

The Fair Credit Billing Act

Answer 59

requires creditors to correct billing errors;

Question 60

Under the Fair Debt Collection Act,

Answer 60

collection agencies must cease collection activities when a creditor contests a debt, until such time that the collector provides verification to the debtor.

Question 61

Affirmative defenses to actions under the bribery provisions of the Foreign Corrupt Practices Act include:

Answer 61

(1) the payments or gifts which were lawful under the laws of the foreign official’s, political party’s, party official’s, or candidate’s country; or
(2) the payments were a reasonable and bona fide expenditure, such as travel and lodging expenses, incurred by or on behalf of a foreign official, party, party official, or candidate and was directly related to the promotion, demonstration, or explanation of products or services; or the execution or performance of a contract with a foreign government or agency thereof.

Question 62

Regulation FD. S.E.C. regulation FD (“Full Disclosure”)

Answer 62

requires that if a company intentionally discloses material non-public information to one person, it must simultaneously disclose that information to the public at large.

Question 63

confirmation to analysts in a private meeting of its previous earnings estimates, at a time when earnings have been falling dramatically,

Answer 63

would violate Regulation FD and

should be promptly followed by an 8-K disclosure filed with the SEC

Question 64

Section 401 of the Sarbanes-Oxley Act requires that financial statements published by issuers

Answer 64

be accurate and
presented in a manner that does not contain incorrect statements or
omit material information.

disclose all material off-balance sheet transactions and “other relationships” with “unconsolidated entities” that may have a material current or future effect on the financial condition of the issuer

Question 65

Under Section 302 and its regulations of the Sarbanes-Oxley Act of 2002

Answer 65

a chief executive or financial officer must disclose internal audit deficiencies to the company’s auditors or audit committee;

management must evaluate any changes in internal control methods;

the company’s attorneys must report securities laws violations and breaches of fiduciary duties to the CEO,

amends securities laws to prohibit an issuer from making personal loans to officers and directors.

Question 66

certify statement knowing that the periodic report accompanying the statement does not comport with all the requirements as set forth in Sarbanes-Oxley

Answer 66

fined up to $1,000,000 or imprisoned up to 10 years, or both.

Willful violations may result in fines of up to $5,000,000 and imprisonment up to 20 years, or both.

The CEO and CFO may also be required to return bonuses or share-based compensation received in the twelve-month period before any restatement due to material omissions in the financials takes place.

Question 67

Section 906 certification.

Answer 67

Under Sarbanes-Oxley, each periodic report must be accompanied with a statement from its CFO or CEO that the reports fairly represent the financial condition of the company.

Question 68

Rule 504 of Regulation D

Answer 68

A sale of securities of up to $1,000,000 in a twelve-month period is eligible for exemption if

1) General offerings to an unlimited number of investors are permitted the investors are “accredited” (such as investment firms, financial institutions, and knowledgeable high net worth individuals) and
2) the issuer sends notice within the first fifteen days of the sale to the SEC.

There are no specific disclosure requirements for such offerings, nor are there limitations on resale of the securities.

Such offerings are also known as “seed capital”, and the exemption is called the seed capital exemption.

Question 69

Both the SEC and PCAOB have oversight power over both individuals and accounting firms.

Answer 69

individual may be barred from practice before the SEC for willful violations or unethical conduct, (must exercise due care and good faith)

PCAOB inspects smaller audit firms every three years and large firms with 100 or more publicly traded clients on an annual basis.

the SEC may bar an individual from practice before that body for any conviction (regardless of whether it’s a felony or misdemeanor, or related or unrelated to the financial statements of a filer) that involves moral turpitude (conduct against society’s standards of conduct or morals)

Question 70

RICO (Racketeer Influenced and Corrupt Organizations) Act,

Answer 70

Two acts of racketeering (i.e., involvement in organized crime, including various types of fraud) in a ten-year period constitute a pattern under RICO,

individuals affiliated with businesses with such a pattern are covered under the law.

Civil penalties are allowed regardless of criminal conviction

treble civil penalties are allowed, which encourages civil action

Question 71

criminal liability

Answer 71

for willful acts

The Securities Acts (1933 and 1934) - intentionally including material misstatements or willfully making a material omission in a registration statement/filing

Internal Revenue Code - preparing false returns or assisting in a client’s tax evasion

Question 72

The Private Securities Litigation Reform Act amends the 1933 and 1934 Acts to require auditors to have procedures in place to

Answer 72

1) detect illegal acts,
2) identify any material related-party transactions, and 3) evaluate the entity’s ability to carry on as a going concern

If the auditor informs the board of illegal activity and no action is taken by management, additional reporting requirements are triggered.

If auditors follow the reporting guidelines in the Act, they are protected from private litigation. The Act also provides for changes to the requirements for civil suits and the structure of any awarded damages, which are designed to discourage frivolous lawsuits.

If an audit firm (or other party) unknowingly contributes to damages to investors, their liability is limited to their proportionate share if the primary defendant is solvent, as determined by the court.

If the primary defendant is not solvent, an additional 50% is added. This eliminates joint and several liability in these cases, although it is still in place for willful violations of securities laws.

Question 73

prospectus

Answer 73

formal legal document required by and filed with the Securities and Exchange Commission

provides a range of information and details about an investment offering for sale to the public

contains facts that a potential investor needs to know in order to make informed investment decisions

Question 74

Article 2A of the Uniform Commercial Code,

Answer 74

governs leases of goods

a warranty that the goods will be merchantable is implied in a lease contract if the lessor is a merchant with respect to goods of that kind except in a finance lease,

Except as otherwise provided, provisions apply whether:
lessor or a third party has title to the goods, and
lessor, the lessee, or a third party has possession of the goods.

Question 75

“Finance lease”

Answer 75

lease with respect to which the lessor does not select, manufacture, or supply the goods.

lessor acquires the goods in connection with the lease (does not generally hold such goods in inventory).

Question 76

In a negotiable bill of lading, naming of a person to be notified of the arrival of the goods

Answer 76

does not limit the negotiability of the bill

or constitute notice to a purchaser of the bill of any interest of that person in the goods

Question 77

Negotiable bill of lading original terms run to the order of a named person,

Answer 77

it is an order instrument and the document is negotiated by the named person’s endorsement and delivery.

Question 78

Lease

Answer 78

a transfer of the right to possession and use of goods for a term in return for consideration,

NOT a lease:
sale
sale on approval 
sale or return
retention/creation of a security interest

Question 79

“Warranty of merchantability”

Answer 79

is implied:

to other lease types, not finance leases per Article 2A of the UCC

Question 80

If a document of title is lost, stolen, or destroyed,

Answer 80

a court may order delivery of the goods or issuance of a substitute document and the bailee may comply with the order without liability

Question 81

A warehouse is liable for damages for loss of or injury to the goods

Answer 81

caused by its failure to exercise care with regard to the goods that a reasonably careful person would exercise under similar circumstances.

Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage beyond which the warehouse is not liable.

Limitation is not effective with respect to warehouse liability for conversion to its own use.

Question 82

If a blank in a negotiable tangible warehouse receipt has been filled in without authority, a good faith purchaser

Answer 82

for value and without notice of the lack of authority may treat the insertion as authorized.

Question 83

Any other unauthorized alteration of a warehouse receipt leaves any tangible or electronic warehouse receipt enforceable against the issuer according to

Answer 83

its original tenor.

Question 84

If a person negotiates or delivers a document of title for value, otherwise than as a mere intermediary, unless otherwise agreed, the transferor warrants to its immediate purchaser that:

Answer 84

(1) the document is genuine;
(2) the transferor does not have knowledge of any fact that would impair the document’s validity or worth; and, (3) the negotiation or delivery is rightful and fully effective with respect to the title to the document and the goods it represents.

NOT that there are no other claims to the goods

Question 85

Every trust requires

Answer 85

trust property (trust “res”),
a beneficiary,
a trustee, and
intent to create a trust.

A writing is NOT required.

Question 86

Assignments of leases

Answer 86

favored by the law

presumed valid unless prohibited in the original agreement.

subletting is not assignment

after assignment, assignor remains liable

Question 87

sublease

Answer 87

lessee retains landlord-tenant relationship

Question 88

Copyright protection is available to

Answer 88

both published and unpublished works

Question 89

Copyright owner exclusive rights to

Answer 89

distribute copies or phonorecords of the work to the public by sale or other transfer of ownership, or by rental, lease, or lending;

perform the literary, musical, dramatic, motion pictures, publicly

Question 90

Copyright and minors

Answer 90

minors may claim copyright,

state laws may regulate business dealings involving their ownership

Question 91

work made for hire

Answer 91

a work specially ordered or commissioned
for use as a contribution to a collective work,
a part of a motion picture or other audiovisual work,
a translation,
an instructional text

where parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire

Question 92

In determining whether personal property becomes part of the real estate (a fixture) courts look at

Answer 92

degree of annexation (e.g., the degree to which removal of the lifts would damage the property)

intent of the parties - length of the lease can be a factor in determining intent

Question 93

The obligations imposed by UCC Article 7 on documents of title apply to a document of title regardless of the facts that:

Answer 93

(a) the document may not comply with the requirements of this Article; or,
(b) the issuer may have violated laws regulating the conduct of his business; or,
(c) the goods covered by the document were owned by the bailee at the time the document was issued; or,
(d) the person issuing the document does not come within the definition of warehouseman if the document purports to be a warehouse receipt.

Question 94

UCC Article 2

Answer 94

uniform state law (separately enacted in each state and varies little from state to state)

governs sales of new and used goods, by merchants and non-merchants

Question 95

Article 2 of the Uniform Commercial Code permits evidence of

Answer 95

oral or written contract between the parties,

the course of dealing of the parties,

the industry standards, and

the parties good faith

Question 96

C.O.D.”

Answer 96

cash on delivery,”

buyer gives up his right to inspect before paying,

does not give up right to sue if the goods are not per the contract

Question 97

An offer can be withdrawn

Answer 97

at any time prior to acceptance

unless the offer was supported by consideration, or
made in writing by a merchant rather than an individual seller

Question 98

Provisions of the Uniform Commercial Code’’s Article 2 on sales

Answer 98

F.A.S. vessel (which means “free alongside ship”) at a named port - seller must, at his own expense and risk, deliver the goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer. Free up to the point that goods are placed at the agreed dock

Buyer has the right to demand adequate assurance of performance when it has learned of the seller’s insolvency

Seller may retain up to $500 in liquidated damages even if the contract contains no such provision. -

Question 99

buyer’s right to cover in breach of contract

for the sale of goods by a seller

Answer 99

optional

buyer is entitled to the difference 
between the contract price and 
the market price at the time delivery was due 
(not punitive damages)
even if buyer chooses not to cover

Question 100

Executory contract

Answer 100

promise in exchange for a promise

valid when all the elements of a contract have been satisfied (offer, acceptance, consideration, etc.)

even though performance will occur later

If one of the terms is open or subject to adjustment, it does not render the contract unenforceable as long as the term can be determined.

Question 101

Under the Uniform Commercial Code an offer by a merchant to buy or sell goods in a signed writing that by its terms gives assurance that it will be held open

Answer 101

is not revocable, for lack of consideration, during the time stated

if no time is stated then for a reasonable time,

in no event may such period of irrevocability exceed three months

Question 102

Under Uniform Commercial Code Article 2, a contract can be modified and the modifications will be binding on the parties

Answer 102

even if there is no new or additional consideration

as long as the modification was negotiated in good faith.

A contract for custom made goods, is not required to be in writing to be enforceable.

Question 103

Strict liability

Answer 103

dangerously designed or defectively manufactured

liability without regard to fault
so that an injured party can recover
even if the defendant was not negligent in any way

Both the manufacturer and any wholesaler and retailer can be held liable.

Lack of privity with the seller can, in some instances, be a defense, but not where the injured party is in the household of the purchaser and suffered personal (and not just economic) injuries.

Question 104

To prevail under strict liability theory:

Answer 104

defective when sold,

unreasonably dangerous in its defective condition

Question 105

Uniform Commercial Code, Article 2, risk of loss passes to the buyer

Answer 105

seller is a merchant:
on buyer’s receipt of the goods

seller is non-merchant
on tender of delivery

Question 106

If there is no express agreement by the parties as to risk of loss

Answer 106

F.O.B. terms govern

Question 107

non-merchants may tender delivery by words

Answer 107

“pick it up “any time” is tender of delivery

risk of loss passes on tender of delivery
subsequent to agreement to purchase

Question 108

UCC Article 2 gives a seller the right to cure its own breach if

Answer 108

the time for performance has not expired and

seller seasonably notifies the buyer of its intention to cure.

Question 109

Under UCC Article 2 , seller, upon learning of a buyer’s insolvency,

Answer 109

has the right to demand cash

Question 110

Under UCC Article 2, title to goods cannot pass until

Answer 110

they are identified to the contract.

Goods cannot be identified until they are completed.

Title revests when goods are rejected whether the rejection was rightful or wrongful.

Buyer can have an insurable interest in goods in seller’s possession once the goods are identified to the contract.

Question 111

warranty of title

Answer 111

Every sale of goods includes

implied

includes a warranty against patent (and copyright) infringement

Question 112

warranty of merchantability

Answer 112

Every sale of goods by a merchant

implied

if regularly deal in goods of the kind sold, warranty is automatic,

goods are of average quality, fit for the ordinary purposes for which such goods are used

nothing in writing is required.

not a warranty against all defects

Question 113

implied warranties

Answer 113

can be eliminated

Question 114

express warranty

Answer 114

example: substantially similar in quality and character to a sample

not altered or eliminated

Question 115

term “”As is””

Answer 115

generally effective in eliminating implied warranties such as the implied warranty of merchantability

no affect on implied title warranties and therefore no affect on patent infringement claims

Section 2-316 of the Uniform Commercial Code provides that words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with words or conduct which create a warranty.

Therefore, claims of the make-up and actions of products are express warranties which cannot be eliminated by a general disclaimer.

Question 116

Warrantie, swhether express or implied, are construed as consistent with each other and as cumulative, but if such construction is unreasonable the intention of the parties determines which warranty is dominant. In ascertaining that intention the following rules apply:

Answer 116

(a) Exact or technical specifications displace an inconsistent sample or model or general language of description;
(b) A sample from an existing bulk displaces inconsistent general language of description;
(c) Express warranties displace inconsistent implied warranties other than an implied warranty of fitness for a particular purpose.

Question 117

sale of food items

Answer 117

included in Article 2 of the Uniform Commercial Code (Sales) warranty protection.

warranty that goods be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.

serving for value of food or drink to be consumed either on the premises or elsewhere is a sale of goods

Question 118

Uniform Commercial Code Section 2-711, defines a buyer’s remedies in the event of a seller’s breach and provides:

Answer 118

Where the seller fails to make delivery or repudiates or the buyer rightfully rejects or justifiably revokes acceptance then with respect to any goods involved, the buyer may

cancel

recover the price paid

(a) “cover” and have damages, or
(b) recover damages for non-delivery.

obtain specific performance, generally only when the goods are unique

Question 119

UCC Article 2 focuses on the parties’ intent to be bound under a contract, rather than the mirror image rule under common law for contracts.

Answer 119

revision of the offer is not a counteroffer - terms become part of the agreement unless:

materially change the contract
offeror rejects the terms, or
original offer precludes revision of the terms

accept substitute goods = contract not breach.

one-sided change in consideration is valid unless disagreed to