Chapter 1: The Legal and Constitutional Environment of Business 21
Chapter 1
The Legal and Constitutional Environment of Business
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
For your convenience, page references for both the Summarized and Excerpted case versions of Fundamentals of Business Law are included.
Summarized PAGE: Fundamentals of Business Law: Summarized Cases, Ninth Edition
Excerpted PAGE: Fundamentals of Business Law: Excerpted Cases, Third Edition
true/false questions
1. The law establishes rights, duties, and privileges that are consistent with the values of society.
ANSWER: T SUMMARIZED PAGE: 2 type: N
Excerpted Page: 2
NAT: AACSB Reflective AICPA Critical Thinking
2. Law includes enforceable rules governing relationships between individuals and their society.
ANSWER: T SUMMARIZED PAGE: 2 TYPE: N
Excerpted Page: 2
NAT: AACSB Analytic AICPA Legal
3. Federal statutes apply to all states.
ANSWER: T SUMMARIZED PAGE: 4 TYPE: N
Excerpted Page: 4
NAT: AACSB Analytic AICPA Legal
4. No state has adopted the Uniform Commercial Code in its entirety.
ANSWER: F SUMMARIZED PAGE: 4 TYPE: +
Excerpted Page: 4
NAT: AACSB Reflective AICPA Legal
5. Administrative agencies are established to perform specific functions.
ANSWER: T SUMMARIZED PAGE: 4 TYPE: N
Excerpted Page: 4
NAT: AACSB Analytic AICPA Legal
6. Rules issued by administrative agencies now affect almost no aspect of a business’s operations.
ANSWER: F SUMMARIZED PAGE: 4 TYPE: N
Excerpted Page: 4
NAT: AACSB Analytic AICPA Legal
7. Courts can rely on the common law as a guide to interpreting legislation.
ANSWER: T SUMMARIZED PAGE: 5 TYPE: N
Excerpted Page: 5
NAT: AACSB Analytic AICPA Legal
8. Common law is a term for the law that is known to most of us.
ANSWER: F SUMMARIZED PAGE: 5 type: +
Excerpted Page: 5
NAT: AACSB Analytic AICPA Critical Thinking
9. Stare decisis is a doctrine obligating judges to help persons who have failed to protect their own rights.
ANSWER: F SUMMARIZED PAGE: 5 TYPE: N
Excerpted Page: 5
NAT: AACSB Analytic AICPA Legal
10. Courts never depart from precedents.
ANSWER: F SUMMARIZED PAGE: 5 TYPE: N
Excerpted Page: 5
NAT: AACSB Reflective AICPA Critical Thinking
11. A court may depart from a precedent if the court decides that the precedent should no longer be followed.
ANSWER: T SUMMARIZED PAGE: 6 TYPE: N
Excerpted Page: 6
NAT: AACSB Reflective AICPA Critical Thinking
12. Equity is a branch of unwritten law that seeks to supply remedies of equal measure to the parties in a legal dispute.
ANSWER: F SUMMARIZED PAGE: 6 type: +
Excerpted Page: 6
NAT: AACSB Analytic AICPA Legal
13. A plaintiff is a person against whom a lawsuit is brought.
ANSWER: F SUMMARIZED PAGE: 6 TYPE: N
Excerpted Page: 6
NAT: AACSB Analytic AICPA Legal
14. A court’s direction to a party to do or to refrain from doing a particular act is a rescission.
ANSWER: F SUMMARIZED PAGE: 6 TYPE: N
Excerpted Page: 6
NAT: AACSB Analytic AICPA Legal
15. Equitable remedies include injunctions.
ANSWER: T SUMMARIZED PAGE: 6 TYPE: +
Excerpted Page: 6
NAT: AACSB Analytic AICPA Legal
16. In most states, the courts no longer grant “equitable” remedies.
ANSWER: F SUMMARIZED PAGE: 6 TYPE: N
Excerpted Page: 6
NAT: AACSB Analytic AICPA Legal
17. Criminal law focuses on duties that exist between persons.
ANSWER: F SUMMARIZED PAGE: 7 TYPE: N
Excerpted Page: 7
NAT: AACSB Analytic AICPA Legal
18. International law is the law of a foreign nation and varies from country to country.
ANSWER: F SUMMARIZED PAGE: 8 TYPE: N
Excerpted Page: 8
NAT: AACSB Analytic AICPA Legal
19. The federal government cannot regulate commerce within a state, regardless of the effect of the commerce on other states.
ANSWER: F SUMMARIZED PAGE: 8 TYPE: +
Excerpted Page: 8
NAT: AACSB Analytic AICPA Critical Thinking
20. Theoretically, Congress can regulate every commercial enterprise in the United States.
ANSWER: T SUMMARIZED PAGE: 8 TYPE: N
Excerpted Page: 8
NAT: AACSB Analytic AICPA Critical Thinking
21. Under their police powers, states can regulate only public activities, such as political demonstrations.
ANSWER: F SUMMARIZED PAGE: 9 TYPE: N
Excerpted Page: 9
NAT: AACSB Analytic AICPA Critical Thinking
22. When state regulations affect interstate commerce, commerce must always yield to the regulations.
ANSWER: F SUMMARIZED PAGE: 9 TYPE: +
Excerpted Page: 9
NAT: AACSB Analytic AICPA Critical Thinking
23. Some constitutional protections apply to business entities.
ANSWER: T SUMMARIZED PAGE: 10 TYPE: N
Excerpted Page: 10
NAT: AACSB Reflective AICPA Critical Thinking
24. Under the Constitution, the states retain all powers not specifically delegated to the federal government.
ANSWER: T SUMMARIZED PAGE: 10 TYPE: +
Excerpted Page: 10
NAT: AACSB Analytic AICPA Legal
25. The Bill of Rights confers absolute rights, not subject to interpretation by the United States Supreme Court.
ANSWER: F SUMMARIZED PAGE: 10 TYPE: N
Excerpted Page: 10
NAT: AACSB Analytic AICPA Critical Thinking
26. Expression of all kinds is subject to reasonable restrictions.
ANSWER: T SUMMARIZED PAGE: 11 TYPE: N
Excerpted Page: 11
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27. Political speech that would otherwise be protected by the First Amendment is prohibited if its source is a corporation.
ANSWER: F SUMMARIZED PAGE: 11 TYPE: =
Excerpted Page: 11
NAT: AACSB Reflective AICPA Critical Thinking
28. The First Amendment protects commercial speech more extensively than noncommercial speech.
answer: F SUMMARIZED PAGE: 11 type: +
Excerpted Page: 11
NAT: AACSB Reflective AICPA Critical Thinking
29. A restriction on commercial speech that implements a substantial government interest may be valid.
ANSWER: T SUMMARIZED PAGE: 11 TYPE: =
Excerpted Page: 11
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30. The establishment clause of the U.S. Constitution prohibits the federal government from establishing an official religion.
ANSWER: T SUMMARIZED PAGE: 13 TYPE: N
Excerpted Page: 13
NAT: AACSB Analytic AICPA Legal
31. The First Amendment requires a complete separation of church and state.
ANSWER: F SUMMARIZED PAGE: 13 TYPE: N
Excerpted Page: 13
NAT: AACSB Reflective AICPA Critical Thinking
32. A state law that places a significant burden on religion is unconstitutional.
ANSWER: T SUMMARIZED PAGE: 13 TYPE: N
Excerpted Page: 13
NAT: AACSB Reflective AICPA Critical Thinking
33. Procedural due process requires that any taking of a person’s life, liberty, or property by government must be made fairly.
ANSWER: T SUMMARIZED PAGE: 15 TYPE: N
Excerpted Page: 16
NAT: AACSB Analytic AICPA Legal
34. The terms “procedural due process” and “substantive due process” mean the same thing.
ANSWER: F SUMMARIZED PAGE: 15 TYPE: N
Excerpted Page: 16
NAT: AACSB Analytic AICPA Legal
35. Most state trial court decisions are not published.
ANSWER: T SUMMARIZED PAGE: 19 TYPE: N
Excerpted Page: 20
NAT: AACSB Analytic AICPA Research
MULTIPLE-CHOICE questions
1. Under Ohio’s state constitution, the Ohio Environmental Protection Agency issues a new rule, the Polk County Commission approves a new property tax measure, and the professors and students at Ohio Law School publish the results of their most recent legal research. Sources of law do not include
a. the measures approved by local governing bodies.
b. the results of legal scholars’ research.
c. the rules issued by state administrative agencies.
d. the states’ constitutions.
ANSWER: B SUMMARIZED PAGE: 3 type: N
Excerpted Page: 3
NAT: AACSB Reflective AICPA Legal
2. Krystal is a federal judge. Krystal’s judicial decisions are part of case law. This law includes interpretations of primary sources of law. These sources include
a. administrative regulations.
b. articles in law reviews and other legal journals.
c. compilations summarizing court decisions on particular topics.
d. legal encyclopedias.
ANSWER: A SUMMARIZED PAGE: 3 TYPE: N
Excerpted Page: 3
NAT: AACSB Reflective AICPA Legal
3. Lewis is a state court judge. Like other judges, Lewis often refers to secondary sources of law for guidance. These sources include
a. official comments to statutes.
b. other states’ statutes.
c. state constitutions.
d. the U.S. Constitution.
ANSWER: A SUMMARIZED PAGE: 3 TYPE: N
Excerpted Page: 3
NAT: AACSB Reflective AICPA Legal
4. The legislature of the state of Missouri enacts a new statute that sets standards for the liability of businesses selling defective products. This statute applies
a. only in Missouri.
b. only in Missouri and its border states.
c. in all states.
d. in all states but only to matters not covered by other states’ laws.
ANSWER: A SUMMARIZED PAGE: 4 type: N
Excerpted Page: 4
NAT: AACSB Reflective AICPA Legal
5. In Nebraska, the highest-ranking (superior) law is
a. a case decided by the Nebraska Supreme Court.
b. a provision in the Nebraska constitution.
c. a rule created by a Nebraska state administrative agency.
d. a statute enacted by the Nebraska legislature.
ANSWER: B SUMMARIZED PAGE: 4 TYPE: N
Excerpted Page: 4
NAT: AACSB Reflective AICPA Legal
6. Hawaii enacts a state law that violates the U.S. Constitution. This law can be enforced by
a. no one.
b. the federal government only.
c. the state of Hawaii only.
d. the United States Supreme Court only.
ANSWER: A SUMMARIZED PAGE: 4 type: N
Excerpted Page: 4
NAT: AACSB Reflective AICPA Legal
7. Crater Tools Company may be subject to regulations issued by the Occupational Safety and Health Administration (OSHA). Like other administrative agencies, the OSHA affects
a. almost every aspect of a business’s operations.
b. almost no aspect of a business’s operations.
c. a firm’s capital structure and financing, but nothing else.
d. a firm’s hiring and firing procedures, but nothing else.
ANSWER: A SUMMARIZED PAGE: 4 type: N
Excerpted Page: 4
NAT: AACSB Reflective AICPA Legal
8. The Securities Exchange Commission (SEC) is an administrative agency. Like other administrative agencies, the SEC was established to
a. act as a liaison between federal and state governments.
b. impose uniform laws on the states.
c. perform a specific function.
d. standardize laws for the executive and judicial branches.
ANSWER: C SUMMARIZED PAGE: 4 type: N
Excerpted Page: 4
NAT: AACSB Reflective AICPA Legal
9. As a judge, Potter applies common law rules. These rules develop from
a. administrative regulations.
b. court decisions.
c. federal and state statutes.
d. proposed uniform laws.
ANSWER: B SUMMARIZED PAGE: 5 type: =
Excerpted Page: 5
NAT: AACSB Reflective AICPA Legal
10. In Ben v. City Car Dealership, a state supreme court held that a minor could cancel a contract for the sale of a car. Now a trial court in the same state is deciding Daphne v. Even Steven Auto Deals, Inc.,, a case with similar facts. Under the doctrine of stare decisis, the trial court is likely to
a. allow the minor in the Daphne case to cancel the contract.
b. disregard the Ben case.
c. order the minor in the Daphne case to cancel the contract.
d. require the minor in the Daphne case to fulfill the contract.
ANSWER: A SUMMARIZED PAGE: 5 type: N
Excerpted Page: 5
NAT: AACSB Reflective AICPA Critical Thinking
11. Sam is a judge hearing the case of Local Co. v. National Corp. Applying the relevant rule of law to the facts of the case requires Sam to find previously decided cases that, in relation to the case under consideration, are
a. as different as possible.
b. as similar as possible.
c. at odds.
d. exactly identical.
ANSWER: B SUMMARIZED PAGE: 5 type: N
Excerpted Page: 5
NAT: AACSB Reflective AICPA Critical Thinking
12. In Sales Distribution Corp. v. Consumer Products Co., the court decides that a precedent is incorrect or inapplicable. The court
a. may rule contrary to the precedent.
b. must apply the precedent.
c. must ask a higher court to rule on the case.
d. must refuse to decide the case.
ANSWER: A SUMMARIZED PAGE: 5 type: N
Excerpted Page: 5
NAT: AACSB Reflective AICPA Legal
13. In Export Co. v. Finance Corp., there is no precedent on which the court can base a decision. The court can consider
a. neither public policy nor social customs and values.
b. public policy but not social customs or values.
c. public policy or social customs and values.
d. social customs or values but not public policy.
ANSWER: C SUMMARIZED PAGE: 6 TYPE: N
Excerpted Page: 6
NAT: AACSB Reflective AICPA Critical Thinking
14. In a suit against Sandy, Taylor obtains a remedy. In the U.S. legal system, this remedy will most likely be
a. an injunction.
b. damages.
c. rescission.
d. specific performance.
ANSWER: B SUMMARIZED PAGE: 6 type: N
Excerpted Page: 6
NAT: AACSB Reflective AICPA Critical Thinking
15. Network Corporation files a suit against Omega, Inc., alleging that Omega breached a contract to design and install custom software in Network’s computer system. Network is
a. the appellant.
b. the appellee.
c. the defendant.
d. the plaintiff.
ANSWER: D SUMMARIZED PAGE: 6 TYPE: N
Excerpted Page: 6
NAT: AACSB Reflective AICPA Legal
16. In a suit against Owen, Phil obtains specific performance. This is
a. an order to do or to refrain from doing a particular act.
b. an order to perform what was promised.
c. a payment of money or property as compensation.
d. the cancellation of a contract.
ANSWER: B SUMMARIZED PAGE: 6 type: N
Excerpted Page: 6
NAT: AACSB Reflective AICPA Legal
17. Business Markets Coalition (BMC), a political lobbying group, wants a certain policy enacted into law. If BMC’s policy conflicts with the U.S. Constitution, a law embodying it can be enacted by
a. any state legislature and Congress.
b. any state legislature but not Congress.
c. Congress but not any state legislature.
d. none of the choices.
answer: D SUMMARIZED PAGE: 8 type: N
Excerpted Page: 8
NAT: AACSB Reflective AICPA Legal
18. Wisconsin, like other states, may regulate private activities to protect or promote the public order, health, safety, and general welfare under its
a. police powers.
b. taxing powers.