Business law 3301-chapter 16-18 Test
Questions and All Correct Answers
2025-2026 Updated.
Did the Montana Supreme Court reverse the lower appellate court's ruling in favor of Daimler
Trucks?
a. Yes
b. No - Answer b. No
Suppose that Yellowstone County, Montana, experienced extreme drought for several growing
seasons, causing numerous local farming businesses to go bankrupt or to reduce costs. Would
such a scenario help or hinder S&P Brake Supply's argument that its franchise of new trucks
should not be terminated?
a. Probably help, because droughts typically cause farmers and others to buy new trucks.
b. Probably help, because increased farm bankruptcies and economic hardship could lead to
lower overall demand for new trucks in that county.
c. Probably hinder, because farmers rarely buy new trucks. Rather, they prefer to buy used
trucks. - Answer b. Probably help, because increased farm bankruptcies and economic
hardship could lead to lower overall demand for new trucks in that county.
The city of Houston, Texas, suffered severe flooding after experiencing an historic hurricane. The
recovery from the severe flooding took many, many months. Like any other American city,
Houston has numerous fast-food franchises. What was the likely impact of the epic flooding on
the relationships between fast-food franchisors and franchisees?
a. Any retail fast-food franchise agreements that have monthly, quarterly, or yearly sales-volume
goals likely had to adjust those goals in light of the consequences of such massive flooding.
b. Franchise agreements have numerous conditions, exemptions, and constraints on
franchisees. The consequences of extreme flooding are not even contemplated and therefore
have no effect on franchisees' meeting their sales goals.
c. Franchisors would have to subsidize franchisees that suffered severe flooding damage, and
franchisors would have to increase sales goals. - Answer a. Any retail fast-food franchise
agreements that have monthly, quarterly, or yearly sales-volume goals likely had to adjust those
goals in light of the consequences of such massive flooding.
Suppose that Daimler Trucks grants all of Yellowstone Country to S&P Brake Supply as its
exclusive distributorship territory for selling new trucks. Further suppose that three years later,
S&P's new truck sales are still very low and Daimler Trucks is not pleased. Instead of terminating
, b. S&P's would not need to identify specific reasons to sue Daimler.
c. The only reason S&P can sue Daimler is for a significant decrease in the quality of the
Daimler's goods that S&P is authorized to sell. - Answer a. S&P's suit might against Daimler
likely would be based on the violation of the franchise contract's territorial rights provisions.
Marsha is a sole proprietor of a small quilting shop. She has considered changing her business
structure, but she cannot find an alternative structure that would give her the main advantage
she enjoys as a sole owner. The major advantage is that she:
a. receives all the profits.
b. receives dividends.
c. is taxed as a corporation.
d. assumes very limited risk. - Answer a. receives all the profits.
Quentin operates an ice cream franchise. CoolCream Co., the franchisor, supplies the
ingredients and formula so that Quentin can create the ice cream in his store and sell it fresh to
customers. This relationship is known as a:
a. manufacturing or processing-plant arrangement.
b. joint development enterprise.
c. chain-style business operation.
d. distributorship. - Answer a. manufacturing or processing-plant arrangement.
Madeline very much wants to be a franchisee of BurgerBarn, a popular chain style business
operation. BurgerBarn shows Madeline the franchise contract, which includes the requirement
that all franchisees are required to obtain materials and supplies exclusively from BurgerBarn.
Madeline objects to this provision. This contract term is:
a. unenforceable, because it violates antitrust laws.
b. enforceable, because franchisees cannot negotiate contract terms with franchisors.
c. unenforceable, because it violates the FTC's Franchise Rule.
d. enforceable, because franchisors are permitted to require franchisees to obtain materials and
supplies only from them. - Answer d. enforceable, because franchisors are permitted to
require franchisees to obtain materials and supplies only from them.
Orville and Perry are negotiating a franchise agreement. Perry, the potential franchisee, asks
Orville for information about the franchise. In this case, Orville:
a. is under no obligation to disclose information to Perry about the franchise.
Questions and All Correct Answers
2025-2026 Updated.
Did the Montana Supreme Court reverse the lower appellate court's ruling in favor of Daimler
Trucks?
a. Yes
b. No - Answer b. No
Suppose that Yellowstone County, Montana, experienced extreme drought for several growing
seasons, causing numerous local farming businesses to go bankrupt or to reduce costs. Would
such a scenario help or hinder S&P Brake Supply's argument that its franchise of new trucks
should not be terminated?
a. Probably help, because droughts typically cause farmers and others to buy new trucks.
b. Probably help, because increased farm bankruptcies and economic hardship could lead to
lower overall demand for new trucks in that county.
c. Probably hinder, because farmers rarely buy new trucks. Rather, they prefer to buy used
trucks. - Answer b. Probably help, because increased farm bankruptcies and economic
hardship could lead to lower overall demand for new trucks in that county.
The city of Houston, Texas, suffered severe flooding after experiencing an historic hurricane. The
recovery from the severe flooding took many, many months. Like any other American city,
Houston has numerous fast-food franchises. What was the likely impact of the epic flooding on
the relationships between fast-food franchisors and franchisees?
a. Any retail fast-food franchise agreements that have monthly, quarterly, or yearly sales-volume
goals likely had to adjust those goals in light of the consequences of such massive flooding.
b. Franchise agreements have numerous conditions, exemptions, and constraints on
franchisees. The consequences of extreme flooding are not even contemplated and therefore
have no effect on franchisees' meeting their sales goals.
c. Franchisors would have to subsidize franchisees that suffered severe flooding damage, and
franchisors would have to increase sales goals. - Answer a. Any retail fast-food franchise
agreements that have monthly, quarterly, or yearly sales-volume goals likely had to adjust those
goals in light of the consequences of such massive flooding.
Suppose that Daimler Trucks grants all of Yellowstone Country to S&P Brake Supply as its
exclusive distributorship territory for selling new trucks. Further suppose that three years later,
S&P's new truck sales are still very low and Daimler Trucks is not pleased. Instead of terminating
, b. S&P's would not need to identify specific reasons to sue Daimler.
c. The only reason S&P can sue Daimler is for a significant decrease in the quality of the
Daimler's goods that S&P is authorized to sell. - Answer a. S&P's suit might against Daimler
likely would be based on the violation of the franchise contract's territorial rights provisions.
Marsha is a sole proprietor of a small quilting shop. She has considered changing her business
structure, but she cannot find an alternative structure that would give her the main advantage
she enjoys as a sole owner. The major advantage is that she:
a. receives all the profits.
b. receives dividends.
c. is taxed as a corporation.
d. assumes very limited risk. - Answer a. receives all the profits.
Quentin operates an ice cream franchise. CoolCream Co., the franchisor, supplies the
ingredients and formula so that Quentin can create the ice cream in his store and sell it fresh to
customers. This relationship is known as a:
a. manufacturing or processing-plant arrangement.
b. joint development enterprise.
c. chain-style business operation.
d. distributorship. - Answer a. manufacturing or processing-plant arrangement.
Madeline very much wants to be a franchisee of BurgerBarn, a popular chain style business
operation. BurgerBarn shows Madeline the franchise contract, which includes the requirement
that all franchisees are required to obtain materials and supplies exclusively from BurgerBarn.
Madeline objects to this provision. This contract term is:
a. unenforceable, because it violates antitrust laws.
b. enforceable, because franchisees cannot negotiate contract terms with franchisors.
c. unenforceable, because it violates the FTC's Franchise Rule.
d. enforceable, because franchisors are permitted to require franchisees to obtain materials and
supplies only from them. - Answer d. enforceable, because franchisors are permitted to
require franchisees to obtain materials and supplies only from them.
Orville and Perry are negotiating a franchise agreement. Perry, the potential franchisee, asks
Orville for information about the franchise. In this case, Orville:
a. is under no obligation to disclose information to Perry about the franchise.
