CA Business Law 5 — Questions and Answers
Question 1: Which UCC Article governs the sale of goods in the United States?
- Article 3
- Article 2 (Correct answer)
- Article 9
- Article 4
Correct answer: Article 2
UCC Article 2 governs contracts for the sale of goods, defining rules for formation, performance, breach, and remedies.
Question 2: In a Chapter 11 bankruptcy reorganization, who typically continues to manage the business?
- A court-appointed trustee
- The secured creditors
- The debtor-in-possession (Correct answer)
- The bankruptcy judge
Correct answer: The debtor-in-possession
In Chapter 11, the debtor typically remains in control as a 'debtor-in-possession' and continues operating the business while reorganizing its debts.
Question 3: A contract clause that sets in advance the damages for breach is enforceable if it is:
- A penalty designed to punish the breaching party
- A reasonable estimate of actual damages that are difficult to calculate (Correct answer)
- Higher than actual damages to deter breach
- Set by only one party without negotiation
Correct answer: A reasonable estimate of actual damages that are difficult to calculate
Liquidated damages clauses are enforceable when the amount is a reasonable forecast of compensatory damages and actual damages would be difficult to estimate.
Question 4: Under agency law, which of the following creates an agency relationship?
- Consent of both principal and agent, with agent to act on principal's behalf (Correct answer)
- A written contract signed by both parties only
- Payment of compensation to the agent
- State registration of the agency
Correct answer: Consent of both principal and agent, with agent to act on principal's behalf
An agency relationship is created by mutual consent where the agent agrees to act on the principal's behalf and subject to the principal's control.
Question 5: Which of the following is an example of a corporation engaging in an 'ultra vires' act?
- Entering a contract specifically authorized in its articles of incorporation
- Acquiring another company within its industry
- Engaging in charitable activities explicitly permitted by state law
- Operating a real estate business when the corporation is chartered as a software company (Correct answer)
Correct answer: Operating a real estate business when the corporation is chartered as a software company
An ultra vires act is one beyond the scope of the corporation's authorized powers as defined in its charter or articles of incorporation.
Question 6: Which defense to contract enforcement is based on a mutual mistake by both parties about a material fact at the time of contracting?
- Fraudulent misrepresentation
- Unilateral mistake
- Bilateral (mutual) mistake (Correct answer)
- Duress
Correct answer: Bilateral (mutual) mistake
A bilateral or mutual mistake occurs when both parties share a false belief about a material fact, which may allow rescission of the contract.
Question 7: A principal ratifies an unauthorized act by an agent. What is the legal effect of ratification?
- The agent is released from all liability
- The act is treated as if it was originally authorized (Correct answer)
- The third party may void the contract
- The principal must pay a penalty to the agent
Correct answer: The act is treated as if it was originally authorized
Ratification retroactively validates the unauthorized act, treating it as if the principal had originally authorized it at the time it was performed.
CA Business Law 5
Which UCC Article governs the sale of goods in the United States?