Q&A Hero

Q: Federal Oil Company and Great Apartments, Inc., sign a contract in which Federal agrees to deliver heating oil in exchange for Great's promise to pay for it. Federal delivers the oil. The contract is a. executory on the part of Federal. b. executory on the part of Great. c. fully executed. d. neither executed nor executory on the part of either party.

Q: A market in which there is more than one seller, even if only a limited number, cannot be a monopoly.

Q: Ann promises to buy a house from Ben, who promises to vacate the property on July 1. If these promises are in writing, they are most likely a. enforceable. b. unenforceable. c. void. d. voidable.

Q: Against a charge of a violation of the Securities Act of 1933, only an issuer of stock can assert the due diligence defense.

Q: To violate antitrust law, an activity must involve two or more persons.

Q: Sam and Tiffany enter into an implied-in-fact contract. The parties' conduct a. defines the contract's terms. b. finds the contract's facts. c. terminates any unintended consequences. d. undercuts any terms based on the facts.

Q: Willful violations of the Securities Act of 1933 may be subject to civil liability, but not criminal prosecution.

Q: Securities that are exempt from the registration requirement can generally be sold and resold without being registered.

Q: The basic purpose of antitrust law is to regulate economic competition.

Q: Jolly Sales Company and Kwik Distributors, Inc., enter into an agreement that contains some express terms and some that are implied. This is a. a mixture of an express contract and an implied-in-fact contract. b. an express contract only. c. an implied-in-law contract. d. not a contract.

Q: Alpha Design Company and Beta Products, Inc., sign a document that states Alpha agrees to design a Web page for Beta and Beta agrees to pay Alpha for this service. Alpha and Beta have made a. an express contract. b. an implied-in-fact contract. c. an implied-in-law contract. d. a quasi contract.

Q: Few securities can be resold without registration.

Q: When Looking Glass Corporation wishes to issue certain securities, it must provide sufficient in­for­mation for Alice, and other unsophisticated investors, to evaluate the fi­nancial risk involved. Specifically, the law imposes liability for making a false statement or omission that is "material." What sort of information would Alice consider material?

Q: Private offerings of securities in unlimited amounts can be exempt from the registration requirement of the Securities Act of 1933.

Q: In May 2009, National Biotech Corporation generally advertises that it will make a $4 million offering of stock in June. National makes the offer­ing as advertised and, ten days after the first sale, notifies the Securities and Exchange Commission (SEC). All buyers of the stock are given mate­rial information about the company, its business, and the stock. Before the end of the year, the offering is completely sold out. The buyers include forty unaccredited investors and fifty accredited investors. National does not register the offering. The SEC files a suit against National, seeking civil sanctions on the ground that this offering was not exempt from reg­istration. National argues that the applicable exemption is Rule 505 of Regulation D of the Securities Act of 1933 and that because of this exemp­tion, any resale of the stock is also exempt. Who is correct?

Q: Jay tells Kim that he will buy her textbook from the last semester for $80. Kim agrees. Jay and Kim have a. an express contract. b. an implied-in-fact contract. c. an implied-in-law contract. d. a quasi contract.

Q: Kate begins to perform, intending that the completion of her performance act as an acceptance of Lyle's offer. Under the modern-day view, an offer that can only be accepted by completion of a specific act can a. be revoked any time after the offer is made. b. be revoked any time before the completion of performance. c. not be revoked once performance has substantially begun. d. not be revoked once the promisee indicates he or she will perform.

Q: Securities of nonprofit, educational, and charitable organizations are not exempt from the registration requirement of the 1933 Securities Act.

Q: Kirk is the chief financial officer of Lemon Corporation, which is re­quired to file certain financial statements with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Kirk must personally a. certify that the statements are accurate. b. delegate the responsibility for preparing the statements. c. deliver the statements to the appropriate SEC officer. d. prepare the statements.

Q: Madison is the chief executive officer of Nitro Medico, Inc., which is required to file certain financial reports with the Securities and Exchange Commission (SEC). Under the Sarbanes-Oxley Act of 2002, Madison must a. certify that the reports are complete and accurate. b. designate a corporate official to assume liability for inaccuracies. c. do nothing. d. read the reports and be prepared to answer questions about them.

Q: Generally, stock offerings that involve a small dollar amount are ex­empt from the registration requirement.

Q: A corporation whose security does not qualify for an exemption can avoid the cost and complexity associated with registration.

Q: Heavy Hauling, Inc., is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, to ensure that Heavy Hauling's financial results are accurate and timely, the firm's senior officers must set up and maintain a. internal "disclosure controls and procedures." b. external "release and reveal timetables." c. personal "peruse and review liability policies." d. public "information and discussion forums."

Q: Lara applies for a firefighter's job with Metro City, which responds with a letter setting an appointment for a medical exam. The letter also states that it is "a conditional employment offer." Based on the court's reasoning in Case 10.1, Ardito v. City of Providence, this letter is a. a bilateral contract that Lara accepted by applying for the job. b. a quasi contract on which Lara can rely for employment. c. a unilateral contract that Lara can accept by passing the exam. d. no contract.

Q: Alpha Corporation and Beta, Inc., enter into an express contract. Carl and Dina's contract is partially executed and partially executory. Eagle Company's contract with First State Bank is voidable. The categories in which these contracts are placed involve legal distinctions as to a. enforceability only. b. formation only. c. performance only. d. enforceability, formation, and performance.

Q: Flux Corporation is a public company whose shares are traded in the public securities markets. Under the Sarbanes-Oxley Act of 2002, Flux is subject to the direct corporate governance requirements of a. any other public company with which Flux exchanges shares. b. any state in which Flux does business. c. the federal government. d. the state in which Flux incorporated.

Q: Freida and Gail enter into a bilateral contract, which is created when Freida gives a promise in exchange for Gail's a. payment of money only. b. performance of a particular act only. c. promise only. d. prudent awareness only.

Q: A free-writing prospectus may be used before the Securities and Exchange Commission completes its review of a related registration statement.

Q: Hi-Five Aero Corporation is required to register its securities under Section 12 of the Securities Exchange Act of 1934. Section 14(a) of the act regulates a. the declaration of dividends by Hi-Five's board of directors. b. the later re-registration of Hi-Five's securities. c. the short-swing activities of Hi-Five's insiders. d. the solicitation of proxies from Hi-Five's shareholders.

Q: Mona asserts that a contract she entered into with Nate is unenforceable. Defenses to the enforcement of a contract include a. a desire not to perform. b. adverse economic consequences. c. results that do not match expectations. d. the lack of a party's genuine assent.

Q: Generally, stock offerings that are made in a limited manner during any twelve-month period are ex­empt from the registration requirement.

Q: North American Properties, Inc., and its officers, directors, and share­holders, buy and sell securities. Section 16(b) of the Securities Exchange Act of 1934 covers a. all purchases and sales of securities. b. only purchases and sales of securities involving misappropriation. c. only purchases and sales of securities involving short-swing profits. d. only purchases and sales of securities involving tippers and tippees.

Q: Laura and Mike enter into what Laura later claims is a contract. In deciding whether a valid contract was formed, a court will not look at a. the circumstances surrounding the alleged contract. b. the parties' conduct at the time of the alleged contract. c. the parties' statements at the time of the alleged contract. d. the parties' subjective beliefs at the time of the alleged contract.

Q: Before filing a registration statement, an issuer must offer to sell securities.

Q: Sales of securities must occur within five days of registration.

Q: Della, an officer for Energy Petrol Corporation (EPC), buys 100 shares of EPC stock. One week later, EPC announces that it will merge with a competitor, Fuel Oil Company, and the price of EPC stock increases. One month later, Della sells her shares for a profit. Under Section 16(b) of the Securities Exchange Act of 1934, Della would not be liable if, after buying the stock, she had waited a. less than fourteen days to sell it. b. more than six months to sell it. c. ninety days to sell it. d. two months to sell it.

Q: Bob claims that Carol breached their contract. Carol responds that she never intended to enter into a contract with Bob. The intent to enter into a contract is determined with reference to a. the conscious theory of contracts. b. the objective theory of contracts. c. the personal theory of contracts. d. the subjective theory of contracts.

Q: A-One Pavers, Inc., contracts with Best Building Corporation to repave Best's parking lot. The elements of a contract do not include a. consideration. b. contractual capacity. c. legality. d. practicality.

Q: Dee, an accountant, does not work for Emergent Company, but wrong­fully obtains inside information concerning Emergent. Based on the in­forma­tion, Dee buys and sells Emergent stock for personal gain. The Securities and Exchange Commission prose­cutes Dee, arguing that she is liable because she stole in­formation right­fully belonging to another. This argument is a. the blue-sky theory. b. the misappropriation theory. c. the red-herring theory. d. the tipper/tippee theory.

Q: A registration statement must state how a corporation plans to use the proceeds from the sale of the securities.

Q: A registration statement must include a financial statement certified by an independent public accounting firm.

Q: When the words in a contract have more than one meaning, they are generally interpreted in favor of the party who drafted the contract.

Q: Riley, an engineer for Shur-2-Gro Seed Corporation, learns that Shur-2-Gro has developed a corn hybrid to triple the output of any farm. Riley buys 20,000 shares of Shur-2-Gro stock. He tells Tess, who buys 15,000 shares. After the new hybrid is announced publicly, the price of Shur-2-Gro stock in­creases. Riley and Tess sell their shares for a profit. Under the Securities Exchange Act of 1934, liability may be imposed on a. none of these parties. b. Riley and Tess only. c. Riley only. d. Riley, Shur-2-Gro, and Tess.

Q: One of the most common forms of securities are bonds issued by corporations.

Q: Fact Pattern 31-3Dhani, an accountant for Eureka, Inc., learns of undisclosed com­pany plan­s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re­veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her informa­tion from Dhani. When Eureka publicly an­nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.Refer to Fact Pattern 31-3. Under the Securities Ex­change Act of 1934, Hu is most likelya. liable for insider trading.b. not liable because Hu is only a tippee, not a tipper.c. not liable because Hu is too far down the chain of disclosure.d. not liable because Hu traded on the basis of a true fact.

Q: Under the plain meaning rule, a court will enforce a contract, in which the writing is clear and unequivocal, according to its plain terms.

Q: Guy is Hot Java Company's majority shareholder. Guy decides to sell his Hot Java stock. The sale will be an effective transfer of the control of the company. Does Guy owe a duty to Hot Java or its minority shareholders in this situation?

Q: A void contract is enforceable if it is in writing.

Q: Mitch is a director and officer of Numero Uno, Inc. Mitch makes a market­ing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders. The shareholders accuse Mitch of breaching his fiduci­ary duty to the corporation. What is Mitch's best defense against this ac­cu­sation? Later, the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation. Mitch is a director and shareholder of One-of-a-Kind. What is Mitch's responsibility in this situation?

Q: Fact Pattern 31-3Dhani, an accountant for Eureka, Inc., learns of undisclosed com­pany plan­s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re­veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her informa­tion from Dhani. When Eureka publicly an­nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.Refer to Fact Pattern 31-3. Under the Securities Ex­change Act of 1934, Geoff is most likelya. liable for insider trading.b. not liable because Geoff did not prevent others from profiting.c. not liable because Geoff did not solicit information from Dhani.d. not liable because Geoff does not work for Eureka.

Q: Fact Pattern 31-3Dhani, an accountant for Eureka, Inc., learns of undisclosed com­pany plan­s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re­veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her informa­tion from Dhani. When Eureka publicly an­nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.Refer to Fact Pattern 31-3. Under the Securities Ex­change Act of 1934, Fay is most likelya. liable for insider trading.b. not liable because Fay did not prevent others from profiting.c. not liable because Fay did not solicit information from Dhani.d. not liable because Fay does not work for Eureka.

Q: The doctrine of quasi contract applies only if there is an actual contract that covers the area in controversy.

Q: Cole is a shareholder of Donut Holes, Inc. Cole will be deemed to have a fiduci­ary duty to Donut Holes and its minority share­holders if he has a. a restriction on the transferability of his shares. b. a right of first refusal. c. a sufficient number of shares to exercise de facto control. d. voting rights.

Q: Fact Pattern 31-3Dhani, an accountant for Eureka, Inc., learns of undisclosed com­pany plan­s to market a new laptop. Dhani buys 1,000 shares of Eureka stock. He re­veals the company plans to Fay, who buys 500 shares. Fay tells Geoff, who tells Hu. Both Geoff and Hu buy 100 shares. They know that Fay got her informa­tion from Dhani. When Eureka publicly an­nounces its new laptop, Dhani, Fay, Geoff, and Hu sell their stock for a profit.Refer to Fact Pattern 31-3. If Dhani is liable under the Securities Ex­change Act of 1934, it will be because the infor­mation on which he based his purchase of Eureka stock wasa. a forward-looking forecast.b. not material.c. not yet public.d. not yet true.

Q: Larry is a shareholder for Custom Colors, Inc. If Custom Colors fails, Larry will a. be liable for Custom Color' debts. b. not be liable for Custom Color' debts. c. be able to reclaim his initial investment in Custom Colors. d. be able to reclaim his initial investment in Custom Colors plus damages.

Q: A quasi contract is not an actual contract.

Q: A voidable contract is a valid contract that can be avoided at the option of at least one of the parties to it.

Q: Fact Pattern 31-2Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit.Refer to Fact Pattern 31-2. Regarding Sid's profits on the purchase and sale of Tech stock, under Section 16(b) of the Securities Exchange Act of 1934 Tech may recapturea. all of Sid's profits.b. half of Sid's profits.c. 10 percent of Sid's profits.d. none of Sid's profits.

Q: An executed contract is one that has been fully performed.

Q: Fact Pattern 31-2Sid, a director of Tech Software Company, learns that a Tech engineer has developed a new, exciting video game. Sid buys Tech stock and tells his friend Uri, who also buys Tech stock. When the new game is released three weeks later, Sid and Uri sell their stock for a big profit.Refer to Fact Pattern 31-2. Under SEC Rule l0b-5, Sid would not be li­able if he had waited to buy Tech stock untila. after Sid told Uri of the new game.b. after Uri bought Tech stock.c. after the public release of the game.d. just before the game was released.

Q: Fact Pattern 30-1Ray is a shareholder of Small Biz Company (SBC). When the direc­tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.Refer to Fact Pattern 30-1. Any damages recovered by Ray's suit will go toa. Ray.b. SBC.c. SBC's directors.d. the state in which SBC is incorporated.

Q: Fact Pattern 30-1Ray is a shareholder of Small Biz Company (SBC). When the direc­tors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm's behalf.Refer to Fact Pattern 30-1. Ray's suit is a shareholder'sa. business-judgment rule suit.b. derivative suit.c. duty-of-care suit.d. duty-of-loyalty suit.

Q: Nouveau Riche Corporation, and its officers, directors, and sharehold­ers, buy and sell securities. SEC Rule 10b-5 applies to a. only the purchase or sale of a security by a financial corporation. b. only the purchase or sale of a security involving an officer or director. c. only the purchase or sale of a security involving a shareholder. d. the purchase or sale of any security.

Q: Informal contracts are usually based on their substance rather than their form.

Q: Bea is a shareholder of Candy Confections Corporation. The right to inspect corporate books and records is a. held by Bea only if she is a director. b. held by Bea, without restrictions. c. held by Bea, with some restrictions. d. not held by Bea.

Q: Except for certain types of contracts that must in writing, no special form is required for informal contracts.

Q: To raise capital to form Plasticity Corporation with Quinn, Rona sells bonds and stock in other companies, and plans to register an initial public of­fer­ing under the Securities Act of 1933. SEC Rule l0b-5 covers a. most forms of securities. b. only bonds. c. only securities registered under the Securities Act of 1933. d. only stock.

Q: Kelly transfers shares of stock that she owns in Lone Starz Company to Max. A shareholder' meeting takes place before Max's ownership is entered in Lone Starz's stock book. A vote at the meeting can be cast by a. Kelly and Max. b. Kelly only. c. Max only. d. neither Kelly nor Max.

Q: Natalie is a shareholder of Off-Road Vehicle Company. As a share­holder, Natalie does not have a. a right to compensation. b. dividend rights. c. inspection rights. d. preemptive rights.

Q: New Discoveries Corporation, and its officers, directors, and share­holders, buy and sell securities. Section 10(b) of the Securities Ex­change Act of 1934 applies to a. only the purchase or sale of a security involving misappropriation. b. only the purchase or sale of a security involving short-swing profits. c. only the purchase or sale of a security involving a tipper and tippee. d. the purchase or sale of any security.

Q: Ron is an accountant in Standard Business Company's accounting department. Ron's daughter's college tuition is due within a week, or she cannot continue taking classes. To meet the due date, Ron transfers funds from Standard to a fictitious bank account, planning to repay the firm within one month. The transfer is discovered before the firm is repaid, and Ron is arrested. What crime, or crimes, if any, has Ron committed?

Q: Adam sees a DVD player on the porch of Beth's house, takes the player to his home, and tells everyone he owns it. Carol, holding a knife, forces Dan to give her his boom box, and runs away with it. Eve breaks into Fred's apartment, takes a computer, and leaves. Which of these acts are crimes, and what are the differences among them?

Q: Fresh Seasonal Fruit Company has assets of less than $10 million and fewer than fifty shareholders. Gourmand Pastries, Inc., has assets of more than $50 mil­lion and more than five hundred shareholders. The Securities Exchange Act of 1934 applies to a. Fresh Seasonal Fruit and Gourmand Pastries. b. Fresh Seasonal Fruit only. c. Gourmand Pastries only. d. neither Fresh Seasonal Fruit nor Gourmand Pastries.

Q: Generally, Sports Fitness Club Company and other corporations can pay dividends if a. the corporation can continue to pay its debts as they come due. b. the amount of the dividends exceed the corporation's net worth. c. the shareholders approve. d. the corporation's assets equal its total liabilities.

Q: Ben is a computer technician with the skills to hack into any unprotected computer. The Counterfeit Access Device and Computer Fraud and Abuse Act of 1984 prohibits Ben from obtaining unauthorized access to a. any government information. b. no government information. c. restricted government information. d. unrestricted government information.

Q: Ida, Jerzy, and Kit are the directors of Liberty Convenience Stores, Inc. Liberty has nine officers and forty-six shareholders. Dividends are ordered by the firm's a. board of directors. b. incorporators. c. officers. d. shareholders.

Q: Lexy, a salesperson for My-T-Fine Corporation, learns that My-T-Fine will in­crease the dividend it pays to shareholders. Lexy buys 10,000 shares of My-T-Fine stock. When the price increases, Lexy sells the shares for a profit. Lexy would not be liable for insider trading if the information about the dividend was a. material when she sold the stock. b. public after she bought the stock. c. public before she bought the stock. d. speculative when she bought the stock.

Q: Mike is arrested at a warehouse in North Industrial Park. A government prosecutor issues a formal charge against Mike for receiving stolen property. This charge is a. an arraignment. b. an indictment. c. an information. d. an inquisition.

Q: GR8 Stuf Company files a registration statement with the SEC before making an offering to the general public. The registration contains false, immaterial statements of which the investors are unaware. GR8 Stuf is charged with violating the Securities Act of 1933. GR8 Stuf's best defense is a. the investors were not aware of the misrepresentations. b. the issuer reasonably believed the misstatements were true. c. the offering was made available to the general public. d. the untrue statements were not material.

Q: Lovey is a shareholder of Matchless Corporation with preemptive rights. With these rights, Lovey can a. buy a prorated share of a new issue of stock before other buyers. b. choose to have Matchless act exclusively in a certain area. c. "preempt" managerial decisions that affect shareholders. d. sell a prorated share of a new issue of stock before other sellers.