Business Law Online Appendix
Review Questions
1. What is a law? Name and briefly describe each of the 4 sources of laws.
Laws are those rules governing the conduct and actions of people within a society that
are enforceable by the government.
The four sources of law are:
Constitutional law: A constitution is a code that establishes the fundamental
rules and principles that govern a particular organization or entity. A constitution
provides the basis for all other laws within that entity. In the United States the
U.S. Constitution is considered to be the supreme law of the land. A law that the
courts find is in conflict with the Constitution is said to be unconstitutional and
will not be enforced.
Statutory law: Legislative bodies enact many more specific laws. Acts or federal
statutes are laws passed by the U.S. Congress. State statutes are laws passed by
state legislatures, and ordinances are laws passed by city and county governments.
Administrative law: This consists of laws established by government agencies.
The best-known sources of administrative laws are the federal agencies Congress
has created and given the authority to regulate a specific type of activity. State
and local governments have also created agencies with the authority to establish
and enforce regulations within their borders. Many state agencies are modeled
after similar federal regulatory agencies.
Case law: This is also called common law, referring to law that arises from court
decisions. Case law governs areas that are not covered by statutory or
administrative law. When a court that first hears a case dealing with a specific
issue renders a decision, it sets a precedent. This means that other courts are
expected to use this ruling as a guide when they hear cases of a similar nature.
BUSPROG: Ethics
Bloom’s: Knowledge
Topic: Sources of Law
Difficulty Level: Easy
Learning Objective: A2-1
2. How does civil law differ from criminal law?
Civil law deals with disputes between private parties. These disputes are settled in the
courts when one of the parties (called the plaintiff) initiates a lawsuit against the other
(called the defendant). The most common types of cases brought before civil courts
involve breach of contract and torts. A tort is a private wrong that results in physical or
mental harm to an individual, or damage to that person’s property. Intentional torts arise
from willful acts. Unintentional torts arise because of careless or irresponsible behavior,
known as negligence.
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Criminal law involves cases in which the state investigates and prosecutes alleged
wrongdoers accused of a violation of their public duty. The most serious crimes, which
are considered inherently evil, are called felonies. Less serious crimes are called
misdemeanors. Exhibit A2.2 in the text summarizes some key differences between civil
and criminal law cases.
BUSPROG: Ethics
Bloom’s: Analysis
Topic: Civil vs. Criminal Law
Difficulty Level: Moderate
Learning Objective: A2-1
3. What is the Uniform Commercial Code (UCC)? How does this code benefit businesses?
The Uniform Commercial Code (UCC) establishes a common body of law dealing with
several important types of business transactions, including sales of goods, leases,
banking transactions, and product warranties. Without such a code doing business
across state boundaries would be more complex and frustrating, since each state would
have its own set of laws.
BUSPROG: Ethics
Bloom’s: Knowledge
Topic: Sources of Law
Difficulty Level: Easy
Learning Objective: A2-1
4. What is a contract? Name and briefly describe the 4 characteristics of a valid contract.
What can one party in a contract do if the other party fails to honor the terms of a contract?
A contract is an agreement that is enforceable in a court of law. A valid (legally
enforceable) contract has 4 basic characteristics:
Mutual assent: the terms must be clearly defined and both parties must
voluntarily agree to accept these terms.
Consideration: each party must offer something of value to the other.
Legal capacity: the two parties must have the capacity to understand the nature of
the agreement.
Legal purpose: agreements to break the law are not enforceable.
In addition, some types of contracts, such as those that will take more than a year to
complete or that involve the sale of land, must be in writing.
If one party fails to live up to the terms of the contract, the other can sue in a court of law
to have the contract enforced. If the court agrees that the contract has been breached, it
will award some type of remedy. The most common remedy is compensatory damages.
This is a monetary payment awarded to the injured party to compensate for the actual
harm suffered. In some cases the courts may order the party who breached the contract
to do exactly what the terms of the contract specified; this remedy is known as specific
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, performance. Another possible remedy is a court order, known as an injunction that
prevents the party who breached the contract from performing a specific act.
BUSPROG: Ethics
Bloom’s: Comprehension
Topic: Contracts: The Ties that Bind
Difficulty Level: Moderate
Learning Objective: A2-2
5. Define a sale. Describe how the Uniform Commercial Code deals with key issues
involved in the sale of goods.
A sale occurs when title (legal ownership) to a good passes from one party to another in
exchange for a price. Article 2 of the Uniform Commercial Code governs sales of goods,
while precedents established by case law govern the sales of services.
Sales contracts must have all of the elements of contracts that we mentioned in the
previous section—mutual assent, consideration, legal capacity, and legal purpose. But
the UCC interprets some of these elements more leniently for sales contracts than for
most other types of contracts. For example, courts can enforce sales contracts even if
important elements, such as the price of the goods being sold or the means of delivery are
not specified in the agreement. In fact, the UCC includes rules for “filling in” the missing
blanks in a sales contract. What is important under the UCC is the clear intent of the two
parties to enter into a sales contract. Let’s see how the UCC deals with two other
important issues involving sales contracts.
If the sales contract includes conditions that determine when the title to the goods passes
from seller to buyer, the UCC states that these conditions are binding. However, if the
sales contract does not specify when the title passes, the UCC provides specific
guidelines that the parties can apply. In general these rules are based on the principle
that title passes when the seller’s performance of duties related to the delivery of the
good has been completed.
According to the UCC, if the contract specifies who bears the risk, then the courts must
apply those terms. If the contract is silent on this issue, the UCC provides guidelines for
the courts to use when assigning risk. One important principle is that if one party
breaches the contract, risk of loss usually falls on that party. Otherwise, the UCC rules
generally place the risk of loss on the party that is most likely to have insurance against a
loss or on the party who is in the best position to prevent a loss.
BUSPROG: Ethics
Bloom’s: Comprehension
Topic: Sales: Transferring of Ownership
Difficulty Level: Moderate
Learning Objective: A2-3
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 6. What is the purpose of a copyright? What would happen if copyrights protection did not
exist? How would this affect the incentives of authors, songwriters and playwrights?
A copyright gives an author, artist, or other creative individual the exclusive right to own,
produce, copy, and sell their own creative works and to license others to do so. Copyrights
are granted only for original works that display some degree of creative or intellectual
content. Still, this covers a lot of territory; copyrights protect a variety of works from
unauthorized use, including books, plays, paintings, musical compositions, motion pictures,
video games, and computer programs. Over the years, Congress has extended the length of
copyright protection several times. Currently the period of protection is the creator’s
remaining life plus an additional 70 years after the creator’s death.
Without copyright protection others could copy and distribute an artistic or intellectual
work without permission or compensation of the person who created it. This would make
it very difficult for the creator to receive compensation for his or her efforts, thus
reducing the incentive or authors, songwriters, playwrights and other creative
individuals to create new intellectual property.
BUSPROG: Ethics
Bloom’s: Analysis
Topic: Intellectual Property
Difficulty Level: Moderate
Learning Objective: A2-4
Application Questions
1. Use the Internet to find out more about Chapter 7 bankruptcies. How does a debtor file
for a voluntary bankruptcy? How do creditors file an involuntary bankruptcy? What is the
purpose of the “means test” and how is it applied? What role does the trustee play? What
assets are protected from creditors’ claims in your state? Which debts can be discharged
under Chapter 7, and which debts remain intact?
Chapter 7 bankruptcy involves selling off a debtor’s nonexempt assets to raise cash—a
process known as liquidation. The proceeds of the liquidation are then used to pay
creditors. The sale of assets and payment of creditors is handled by a court-appointed
trustee. Once this process has been carried out, most debts are considered to be fully
discharged. However, certain types of debts, such as back taxes, child support, and
alimony, cannot be discharged through bankruptcy.
A Chapter 7 bankruptcy is classified as a voluntary bankruptcy if the debtor files the
appropriate paperwork in federal bankruptcy court and pays the required filing,
administrative and trustee fees. The debtor must sign these forms and swear under oath
to their accuracy. A Chapter 7 bankruptcy is classified as involuntary if the paperwork is
filed by creditors. If a debtor has fewer than 12 eligible creditors then any one or more of
them may file. If the debtor has 12 or more eligible creditors then at least three must file.
A debtor has 20 days to respond and object to an involuntary filing.
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Review Questions
1. What is a law? Name and briefly describe each of the 4 sources of laws.
Laws are those rules governing the conduct and actions of people within a society that
are enforceable by the government.
The four sources of law are:
Constitutional law: A constitution is a code that establishes the fundamental
rules and principles that govern a particular organization or entity. A constitution
provides the basis for all other laws within that entity. In the United States the
U.S. Constitution is considered to be the supreme law of the land. A law that the
courts find is in conflict with the Constitution is said to be unconstitutional and
will not be enforced.
Statutory law: Legislative bodies enact many more specific laws. Acts or federal
statutes are laws passed by the U.S. Congress. State statutes are laws passed by
state legislatures, and ordinances are laws passed by city and county governments.
Administrative law: This consists of laws established by government agencies.
The best-known sources of administrative laws are the federal agencies Congress
has created and given the authority to regulate a specific type of activity. State
and local governments have also created agencies with the authority to establish
and enforce regulations within their borders. Many state agencies are modeled
after similar federal regulatory agencies.
Case law: This is also called common law, referring to law that arises from court
decisions. Case law governs areas that are not covered by statutory or
administrative law. When a court that first hears a case dealing with a specific
issue renders a decision, it sets a precedent. This means that other courts are
expected to use this ruling as a guide when they hear cases of a similar nature.
BUSPROG: Ethics
Bloom’s: Knowledge
Topic: Sources of Law
Difficulty Level: Easy
Learning Objective: A2-1
2. How does civil law differ from criminal law?
Civil law deals with disputes between private parties. These disputes are settled in the
courts when one of the parties (called the plaintiff) initiates a lawsuit against the other
(called the defendant). The most common types of cases brought before civil courts
involve breach of contract and torts. A tort is a private wrong that results in physical or
mental harm to an individual, or damage to that person’s property. Intentional torts arise
from willful acts. Unintentional torts arise because of careless or irresponsible behavior,
known as negligence.
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, Criminal law involves cases in which the state investigates and prosecutes alleged
wrongdoers accused of a violation of their public duty. The most serious crimes, which
are considered inherently evil, are called felonies. Less serious crimes are called
misdemeanors. Exhibit A2.2 in the text summarizes some key differences between civil
and criminal law cases.
BUSPROG: Ethics
Bloom’s: Analysis
Topic: Civil vs. Criminal Law
Difficulty Level: Moderate
Learning Objective: A2-1
3. What is the Uniform Commercial Code (UCC)? How does this code benefit businesses?
The Uniform Commercial Code (UCC) establishes a common body of law dealing with
several important types of business transactions, including sales of goods, leases,
banking transactions, and product warranties. Without such a code doing business
across state boundaries would be more complex and frustrating, since each state would
have its own set of laws.
BUSPROG: Ethics
Bloom’s: Knowledge
Topic: Sources of Law
Difficulty Level: Easy
Learning Objective: A2-1
4. What is a contract? Name and briefly describe the 4 characteristics of a valid contract.
What can one party in a contract do if the other party fails to honor the terms of a contract?
A contract is an agreement that is enforceable in a court of law. A valid (legally
enforceable) contract has 4 basic characteristics:
Mutual assent: the terms must be clearly defined and both parties must
voluntarily agree to accept these terms.
Consideration: each party must offer something of value to the other.
Legal capacity: the two parties must have the capacity to understand the nature of
the agreement.
Legal purpose: agreements to break the law are not enforceable.
In addition, some types of contracts, such as those that will take more than a year to
complete or that involve the sale of land, must be in writing.
If one party fails to live up to the terms of the contract, the other can sue in a court of law
to have the contract enforced. If the court agrees that the contract has been breached, it
will award some type of remedy. The most common remedy is compensatory damages.
This is a monetary payment awarded to the injured party to compensate for the actual
harm suffered. In some cases the courts may order the party who breached the contract
to do exactly what the terms of the contract specified; this remedy is known as specific
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, performance. Another possible remedy is a court order, known as an injunction that
prevents the party who breached the contract from performing a specific act.
BUSPROG: Ethics
Bloom’s: Comprehension
Topic: Contracts: The Ties that Bind
Difficulty Level: Moderate
Learning Objective: A2-2
5. Define a sale. Describe how the Uniform Commercial Code deals with key issues
involved in the sale of goods.
A sale occurs when title (legal ownership) to a good passes from one party to another in
exchange for a price. Article 2 of the Uniform Commercial Code governs sales of goods,
while precedents established by case law govern the sales of services.
Sales contracts must have all of the elements of contracts that we mentioned in the
previous section—mutual assent, consideration, legal capacity, and legal purpose. But
the UCC interprets some of these elements more leniently for sales contracts than for
most other types of contracts. For example, courts can enforce sales contracts even if
important elements, such as the price of the goods being sold or the means of delivery are
not specified in the agreement. In fact, the UCC includes rules for “filling in” the missing
blanks in a sales contract. What is important under the UCC is the clear intent of the two
parties to enter into a sales contract. Let’s see how the UCC deals with two other
important issues involving sales contracts.
If the sales contract includes conditions that determine when the title to the goods passes
from seller to buyer, the UCC states that these conditions are binding. However, if the
sales contract does not specify when the title passes, the UCC provides specific
guidelines that the parties can apply. In general these rules are based on the principle
that title passes when the seller’s performance of duties related to the delivery of the
good has been completed.
According to the UCC, if the contract specifies who bears the risk, then the courts must
apply those terms. If the contract is silent on this issue, the UCC provides guidelines for
the courts to use when assigning risk. One important principle is that if one party
breaches the contract, risk of loss usually falls on that party. Otherwise, the UCC rules
generally place the risk of loss on the party that is most likely to have insurance against a
loss or on the party who is in the best position to prevent a loss.
BUSPROG: Ethics
Bloom’s: Comprehension
Topic: Sales: Transferring of Ownership
Difficulty Level: Moderate
Learning Objective: A2-3
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
, 6. What is the purpose of a copyright? What would happen if copyrights protection did not
exist? How would this affect the incentives of authors, songwriters and playwrights?
A copyright gives an author, artist, or other creative individual the exclusive right to own,
produce, copy, and sell their own creative works and to license others to do so. Copyrights
are granted only for original works that display some degree of creative or intellectual
content. Still, this covers a lot of territory; copyrights protect a variety of works from
unauthorized use, including books, plays, paintings, musical compositions, motion pictures,
video games, and computer programs. Over the years, Congress has extended the length of
copyright protection several times. Currently the period of protection is the creator’s
remaining life plus an additional 70 years after the creator’s death.
Without copyright protection others could copy and distribute an artistic or intellectual
work without permission or compensation of the person who created it. This would make
it very difficult for the creator to receive compensation for his or her efforts, thus
reducing the incentive or authors, songwriters, playwrights and other creative
individuals to create new intellectual property.
BUSPROG: Ethics
Bloom’s: Analysis
Topic: Intellectual Property
Difficulty Level: Moderate
Learning Objective: A2-4
Application Questions
1. Use the Internet to find out more about Chapter 7 bankruptcies. How does a debtor file
for a voluntary bankruptcy? How do creditors file an involuntary bankruptcy? What is the
purpose of the “means test” and how is it applied? What role does the trustee play? What
assets are protected from creditors’ claims in your state? Which debts can be discharged
under Chapter 7, and which debts remain intact?
Chapter 7 bankruptcy involves selling off a debtor’s nonexempt assets to raise cash—a
process known as liquidation. The proceeds of the liquidation are then used to pay
creditors. The sale of assets and payment of creditors is handled by a court-appointed
trustee. Once this process has been carried out, most debts are considered to be fully
discharged. However, certain types of debts, such as back taxes, child support, and
alimony, cannot be discharged through bankruptcy.
A Chapter 7 bankruptcy is classified as a voluntary bankruptcy if the debtor files the
appropriate paperwork in federal bankruptcy court and pays the required filing,
administrative and trustee fees. The debtor must sign these forms and swear under oath
to their accuracy. A Chapter 7 bankruptcy is classified as involuntary if the paperwork is
filed by creditors. If a debtor has fewer than 12 eligible creditors then any one or more of
them may file. If the debtor has 12 or more eligible creditors then at least three must file.
A debtor has 20 days to respond and object to an involuntary filing.
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
