ABA Business Law & Ethics 3 — Questions and Answers
Question 1: Under agency law, when a principal gives an agent authority to perform acts incidental to an expressly authorized transaction, this is called:
- Express authority
- Implied authority (Correct answer)
- Apparent authority
- Emergency authority
Correct answer: Implied authority
Implied authority arises from the express authority granted and encompasses acts reasonably necessary to accomplish the expressly authorized task.
Question 2: The Sarbanes-Oxley Act (SOX) Section 302 requires that corporate CEOs and CFOs do which of the following?
- Rotate external auditors every 5 years
- Personally certify the accuracy of financial reports (Correct answer)
- Prohibit insider trading during blackout periods
- Maintain a 5-year document retention policy
Correct answer: Personally certify the accuracy of financial reports
SOX Section 302 requires CEOs and CFOs to personally certify that financial statements fairly present the company's financial condition, exposing them to criminal liability for false certifications.
Question 3: Which of the following best describes 'disparate impact' discrimination?
- Intentional discrimination against a protected class
- A facially neutral policy that disproportionately harms a protected group (Correct answer)
- Retaliation against an employee who filed a discrimination complaint
- Harassment creating a hostile work environment
Correct answer: A facially neutral policy that disproportionately harms a protected group
Disparate impact discrimination occurs when a neutral employment practice disproportionately excludes or disadvantages members of a protected class, even without discriminatory intent.
Question 4: Under the UCC, when a contract for the sale of goods does not specify a price, the courts will:
- Void the contract for indefiniteness
- Apply the seller's standard price list
- Set a reasonable price at the time of delivery (Correct answer)
- Require the parties to renegotiate
Correct answer: Set a reasonable price at the time of delivery
Under UCC § 2-305, if parties intend to contract but leave price open, the price is a reasonable price at the time of delivery.
Question 5: A corporation's board of directors has a fiduciary duty of loyalty, which primarily requires directors to:
- Maximize short-term profits for shareholders
- Avoid conflicts of interest and act in the corporation's best interest (Correct answer)
- Attend all board meetings without exception
- Consult external auditors on all decisions
Correct answer: Avoid conflicts of interest and act in the corporation's best interest
The duty of loyalty requires directors to put the corporation's interests ahead of their own personal interests and to disclose and manage conflicts of interest.
Question 6: In tort law, which element must a plaintiff prove in a negligence case to establish that the defendant's breach actually caused the plaintiff's injury?
- Proximate cause only
- But-for causation (actual cause) (Correct answer)
- Foreseeability only
- Both proximate and superseding cause
Correct answer: But-for causation (actual cause)
Actual cause (but-for causation) requires the plaintiff to show that but for the defendant's negligent act, the plaintiff's injury would not have occurred.
Question 7: Which of the following transactions would NOT be governed by UCC Article 2?
- Sale of 500 units of office chairs
- Contract to purchase raw materials for manufacturing
- Agreement for accounting consulting services (Correct answer)
- Sale of inventory to a retailer
Correct answer: Agreement for accounting consulting services
UCC Article 2 governs contracts for the sale of goods; service contracts such as accounting consulting are governed by common law, not the UCC.
ABA Business Law & Ethics 3
Under agency law, when a principal gives an agent authority to perform acts incidental to an expressly authorized transaction, this is called: