LAW 531 FINAL EXAM 2
1. Ted is the president of Soprano Corporation (SC). Ted decided to have SC manufacture large, gas-
guzzling SUV automobiles just before gasoline prices rose dramatically. As a result, SC lost billions of
dollars. The shareholders of SC want to sue Ted for this bad decision that cost them billions. However,
Ted had made a reasonable investigation before making this decision, he had a rational basis for it, &
he had no conflicts of interest regarding this decision. What would be the probable outcome if the
shareholders file a suit?
Ted is not liable under the business judgment rule.
Ted is not liable under the corporate protection
rule. Ted is liable under the various liability rule.
Ted is liable under the ultra vires rule.
2. A limited partnership:
May be created by default.
May not have a corporation as a general
partner. Dissolves when a partner dies.
May be taxed either as a partnership or as a corporationA
3. The board of directors of Filex Corporation, at a regular meeting of the board, entered into a contract
with Ginger Grant, one of the directors. This contract called for Filex to purchase 120 acres of land
from Ginger. Of the ten members on the board, eight were present at the meeting. One of the directors
present was Ginger. All the other directors were disinterested in the transaction & not related to Ginger.
After a lengthy discussion, six directors voted in favor of the contract & two voted against it. Ginger
voted for the contract. Which of the following is true?
The contract is voidable unless Ginger proves that the contract is fair to the corporation.
The contract is valid since it was approved by a majority of a quorum of the board.
The contract between Ginger & the corporation is illegal & invalid.
The contract becomes void if the corporation proves that the contract was unfair to it.
4. Which of the following is also called “judgemade”
law? Equity
Uniform acts
, Common law
Statutes
5. According to the law, crimes are statutory offenses; this essentially means
that: Courts may assess punitive damages in order to punish the
wrongdoer. The prevention of crime should include deterrence &
rehabilitation.
It must be proved that the crime is dangerous or detrimental to society.
A behavior is not a crime unless a state legislature has criminalized it.
6. Gath Meat Packing Company is a meat processing business. To reduce costs & increase profits, the
president & CEO of Gath orders Gath’s employees to violate federal criminal meat processing laws.
The United States Department of Justice prosecutes Gath for criminal violations of the meat processing
law. Has Gath committed criminal violations?
Yes, because a corporation is always liable for the crimes committed by its agents.
No, because the board of directors did not authorize the president & CEO or the other
employees to violate federal law.
No, because a corporation is not liable for most crimes committed by its agents.
Yes, because the president & CEO, a high-level administrator of Gath, authorized the
commission of the crimes.
7. For which of the following would a shareholder derivative action be appropriate?
The shareholder has refused a request that his/her accountant be permitted to look at the
corporate accounting records.
The shareholder alleges that the corporation has violated the shareholder’s preemptive right.
The shareholder alleges that the corporation has been paying dividends to a previous
shareholder from whom the shareholder purchased his/her shares.
The shareholder alleges that the board of directors has imprudently managed the corporation.
8. In which of the following cases does apparent authority arise?
When a principal causes a third party to believe that the agent is authorized to act in a certain
way.
When a person falsely represents himself as an agent of a principal to a third party.
When an agent reasonably believes that the principal wants him to act in a certain way.
When a principal’s manifest consent is communicated directly to the agent.
1. Ted is the president of Soprano Corporation (SC). Ted decided to have SC manufacture large, gas-
guzzling SUV automobiles just before gasoline prices rose dramatically. As a result, SC lost billions of
dollars. The shareholders of SC want to sue Ted for this bad decision that cost them billions. However,
Ted had made a reasonable investigation before making this decision, he had a rational basis for it, &
he had no conflicts of interest regarding this decision. What would be the probable outcome if the
shareholders file a suit?
Ted is not liable under the business judgment rule.
Ted is not liable under the corporate protection
rule. Ted is liable under the various liability rule.
Ted is liable under the ultra vires rule.
2. A limited partnership:
May be created by default.
May not have a corporation as a general
partner. Dissolves when a partner dies.
May be taxed either as a partnership or as a corporationA
3. The board of directors of Filex Corporation, at a regular meeting of the board, entered into a contract
with Ginger Grant, one of the directors. This contract called for Filex to purchase 120 acres of land
from Ginger. Of the ten members on the board, eight were present at the meeting. One of the directors
present was Ginger. All the other directors were disinterested in the transaction & not related to Ginger.
After a lengthy discussion, six directors voted in favor of the contract & two voted against it. Ginger
voted for the contract. Which of the following is true?
The contract is voidable unless Ginger proves that the contract is fair to the corporation.
The contract is valid since it was approved by a majority of a quorum of the board.
The contract between Ginger & the corporation is illegal & invalid.
The contract becomes void if the corporation proves that the contract was unfair to it.
4. Which of the following is also called “judgemade”
law? Equity
Uniform acts
, Common law
Statutes
5. According to the law, crimes are statutory offenses; this essentially means
that: Courts may assess punitive damages in order to punish the
wrongdoer. The prevention of crime should include deterrence &
rehabilitation.
It must be proved that the crime is dangerous or detrimental to society.
A behavior is not a crime unless a state legislature has criminalized it.
6. Gath Meat Packing Company is a meat processing business. To reduce costs & increase profits, the
president & CEO of Gath orders Gath’s employees to violate federal criminal meat processing laws.
The United States Department of Justice prosecutes Gath for criminal violations of the meat processing
law. Has Gath committed criminal violations?
Yes, because a corporation is always liable for the crimes committed by its agents.
No, because the board of directors did not authorize the president & CEO or the other
employees to violate federal law.
No, because a corporation is not liable for most crimes committed by its agents.
Yes, because the president & CEO, a high-level administrator of Gath, authorized the
commission of the crimes.
7. For which of the following would a shareholder derivative action be appropriate?
The shareholder has refused a request that his/her accountant be permitted to look at the
corporate accounting records.
The shareholder alleges that the corporation has violated the shareholder’s preemptive right.
The shareholder alleges that the corporation has been paying dividends to a previous
shareholder from whom the shareholder purchased his/her shares.
The shareholder alleges that the board of directors has imprudently managed the corporation.
8. In which of the following cases does apparent authority arise?
When a principal causes a third party to believe that the agent is authorized to act in a certain
way.
When a person falsely represents himself as an agent of a principal to a third party.
When an agent reasonably believes that the principal wants him to act in a certain way.
When a principal’s manifest consent is communicated directly to the agent.
