CA Business Law 2 — Questions and Answers
Question 1: Under the UCC, a merchant's firm offer to buy or sell goods is irrevocable for up to how long without consideration?
- 30 days
- 60 days
- 90 days (Correct answer)
- 6 months
Correct answer: 90 days
UCC §2-205 makes a merchant's signed, written firm offer irrevocable for the stated period or up to 3 months (90 days).
Question 2: Which doctrine allows a court to refuse enforcement of a contract that is excessively one-sided or oppressive?
- Promissory estoppel
- Unconscionability (Correct answer)
- Economic duress
- Frustration of purpose
Correct answer: Unconscionability
Unconscionability allows courts to refuse enforcement of contracts with unfair terms (procedural or substantive), especially against weaker parties.
Question 3: A limited liability company (LLC) that fails to elect a tax classification is treated by the IRS as which of the following by default if it has two or more members?
- S corporation
- C corporation
- Partnership (Correct answer)
- Sole proprietorship
Correct answer: Partnership
By default, a multi-member LLC is taxed as a partnership unless it elects otherwise on Form 8832.
Question 4: Which element distinguishes a general partnership from a joint venture?
- Joint ventures require a written agreement
- Joint ventures are limited to a single project or transaction (Correct answer)
- General partnerships cannot share profits
- General partnerships must be registered with the state
Correct answer: Joint ventures are limited to a single project or transaction
A joint venture differs from a general partnership primarily in that it is organized for a single specific project or transaction rather than an ongoing business.
Question 5: Under agency law, which type of authority arises when a principal's conduct leads a third party to reasonably believe the agent has authority?
- Express authority
- Implied authority
- Apparent authority (Correct answer)
- Ratification
Correct answer: Apparent authority
Apparent authority is created by the principal's words or conduct that cause a third party to reasonably believe the agent is authorized to act.
Question 6: A debtor files for Chapter 7 bankruptcy. Which type of debt is LEAST likely to be discharged?
- Medical bills
- Credit card debt
- Student loans (Correct answer)
- Personal loans from friends
Correct answer: Student loans
Student loans are generally non-dischargeable in bankruptcy unless the debtor can prove undue hardship under a strict legal standard.
Question 7: Which of the following best describes the 'business judgment rule' in corporate law?
- Directors are personally liable for all business losses
- Courts will not second-guess good-faith business decisions by directors (Correct answer)
- Officers must consult shareholders before every major decision
- Directors who breach fiduciary duty are immune from suit
Correct answer: Courts will not second-guess good-faith business decisions by directors
The business judgment rule protects directors from liability for honest mistakes in good-faith decisions made on an informed basis.
CA Business Law 2
Under the UCC, a merchant's firm offer to buy or sell goods is irrevocable for up to how long without consideration?