CLA/CP Exam Business and Corporate Law 5 — Questions and Answers
Question 1: Under the UCC, which term describes a seller's right to cure a non-conforming tender of goods before the delivery deadline expires?
- Perfect tender rule
- Right to cure (Correct answer)
- Substantial performance
- Commercial impracticability
Correct answer: Right to cure
UCC § 2-508 grants the seller the right to cure a defective delivery if the contract time for performance has not yet expired.
Question 2: Which of the following actions requires shareholder approval in most state corporation statutes?
- Hiring a new vice president
- Declaring a quarterly dividend
- Approving a merger with another corporation (Correct answer)
- Opening a new branch office
Correct answer: Approving a merger with another corporation
Fundamental corporate changes such as mergers, dissolution, or sales of substantially all assets typically require shareholder approval.
Question 3: In contract law, 'promissory estoppel' allows enforcement of a promise without consideration when:
- The promisor signs a written contract
- The promisee detrimentally relies on the promise and injustice can only be avoided by enforcement (Correct answer)
- Both parties have legal capacity and mutual assent
- The promise is conditioned on a future event
Correct answer: The promisee detrimentally relies on the promise and injustice can only be avoided by enforcement
Promissory estoppel substitutes for consideration when a party reasonably relies on a promise to their detriment and enforcement is needed to prevent injustice.
Question 4: A 'charging order' in partnership and LLC law is:
- A creditor's remedy that attaches to a debtor-member's economic interest without giving management rights (Correct answer)
- An IRS lien on partnership assets for unpaid employment taxes
- A court order dissolving the entity
- A directive from a state regulator suspending business operations
Correct answer: A creditor's remedy that attaches to a debtor-member's economic interest without giving management rights
A charging order gives a creditor the right to receive distributions attributable to the debtor's interest but does not confer voting or management rights.
Question 5: Which fiduciary duty requires corporate directors to make decisions based on adequate information and deliberation?
- Duty of loyalty
- Duty of care (Correct answer)
- Duty of obedience
- Duty of disclosure
Correct answer: Duty of care
The duty of care requires directors to act with the care that a reasonably prudent person would exercise, including being adequately informed before deciding.
Question 6: A corporation that is incorporated in Delaware but conducts all its business in California must register in California as a:
- Domestic corporation
- Nonprofit corporation
- Foreign corporation (Correct answer)
- Public benefit corporation
Correct answer: Foreign corporation
A corporation is 'domestic' only in its state of incorporation; it qualifies as a 'foreign' corporation in every other state where it does business.
Question 7: Under the 'perfect tender rule' applicable to UCC goods contracts, if the goods or tender of delivery fails to conform to the contract in any respect, the buyer may:
- Only reject the entire shipment
- Accept all, reject all, or accept any commercial units and reject the rest (Correct answer)
- Demand a price reduction but must accept delivery
- Terminate the contract and sue only for consequential damages
Correct answer: Accept all, reject all, or accept any commercial units and reject the rest
UCC § 2-601 gives the buyer three options upon a non-conforming tender: accept all, reject all, or accept conforming commercial units and reject the rest.
CLA/CP Exam Business and Corporate Law 5
Under the UCC, which term describes a seller's right to cure a non-conforming tender of goods before the delivery deadline expires?