CLEP® Introductory Business Law Book + Online, 2nd Ed.

By Lisa M. Fairfax and Paul Schiff Berman

Earn College Credit with REA’s Test Prep for CLEP Introductory Business Law

Everything you need to pass the exam and get the college credit you deserve.

REA leads the way in helping students pass their College Board CLEP exams and earn college credit while reducing their tuition costs.

With 25+ years of experience in test prep for the College-Level Examination Program (CLEP), REA is your trusted source for the most up-to-date test-aligned content. Whether you’re an adult returning to finish your degree, a traditional-age college student, a military service member, or a high school or home-schooled student looking to get a head start on college and shorten your path to graduation, CLEP is perfect for you.

REA’s expert authors know the CLEP tests inside out. And thanks to our partners at Proctortrack (proctortrack.com/clep), you can now take your exam at your convenience, from the comfort of home.
 
Prep for success on the CLEP Introductory Business Law exam with REA’s personalized three-step plan: (1) focus your study, (2) review with the book, and (3) measure your test-readiness.

Our Book + Online prep gives you all the tools you need to make the most of your study time:

• Diagnostic exam: Pinpoint what you already know and what you need to study.
• Targeted subject review: Learn what you’ll be tested on.
• Two full-length practice exams: Zero in on the topics that give you trouble now so you’ll be confident and prepared on test day.
• Glossary of key terms: Round out your prep with must-know vocabulary.

REA is America’s recognized leader in CLEP preparation. Our test prep helps you earn valuable college credit, save on tuition, and accelerate your path to a college degree.
 
 

• Language: English
• Publisher: Research & Education Association
• Release date: May 30, 2018
• ISBN: 9780738688596

Book preview

Research & Education Association

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Email: [e-mail]

CLEP ® Introductory Business Law with Online Practice Exams, 2nd Edition

Copyright © 2018 by Research & Education Association, Inc. Prior edition copyright © 2008 under the title The Best Test Preparation for the CLEP Introductory Business Law Exam. All rights reserved. No part of this book may be reproduced in any form without permission of the publisher.

Printed in the United States of America

Library of Congress Control Number 2017951967

ISBN-13: 978-0-7386-1232-4

ISBN-10: 0-7386-1232-4

LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: Publication of this work is for the purpose of test preparation and related use and subjects as set forth herein. While every effort has been made to achieve a work of high quality, neither Research & Education Association, Inc., nor the authors and other contributors of this work guarantee the accuracy or completeness of or assume any liability in connection with the information and opinions contained herein and in REA’s software and/or online materials. REA and the authors and other contributors shall in no event be liable for any personal injury, property or other damages of any nature whatsoever, whether special, indirect, consequential or compensatory, directly or indirectly resulting from the publication, use or reliance upon this work.

CLEP® is a registered trademark of the College Board, which was not involved in the production of, and does not endorse, this product. All other trademarks cited in this publication are the property of their respective owners.

Cover image: © iStockphoto.com/triloks

REA® is a registered trademark of

Research & Education Association, Inc.

K17

CLEP® INTRODUCTORY BUSINESS LAW

Access Your Online Exams

by following the instructions found at the back of this book.

CONTENTS

About Our Author

Author Dedication

About Our Editor

About REA

Acknowledgments

CHAPTER 1

Passing the CLEP Introductory Business Law Exam

Getting Started

The REA Study Center

An Overview of the Exam

All About the CLEP Program

Options for Military Personnel and Veterans

SSD Accommodations for Candidates with Disabilities

6-Week Study Plan

Test-Taking Tips

The Day of the Exam

Online Diagnostic Test

CHAPTER 2

History and Sources of American Law

2.1 Origins of the Legal System

2.2 Sources of Law

2.3 Constitutional Law

CHAPTER 3

American Legal Systems and Procedures

3.1 Criminal Law and Civil Law

3.2 The Court System

3.3 Court Functions and Procedures

3.4 Jurisdiction

CHAPTER 4

Contracts

4.1 Meanings of Terms

4.2 Formation of Contracts

4.3 Consideration

4.4 Capacity

4.5 Contracts for the Benefit of Third Parties

4.6 Assignment and Delegation

4.7 Statute of Frauds

4.8 Scopes and Meanings of Contracts

4.9 Breach of Contract and Remedies

4.10 Bar to Remedies for Breach of Contract (Defenses to Enforcement)

4.11 Discharge of Contracts

4.12 Illegal Contracts and Public Policy Concerns

CHAPTER 5

The Legal Environment

5.1 Ethics

5.2 Social Responsibility of Corporations

5.3 Government Regulation and Administrative Agencies

5.4 Employment and Labor Law

5.5 Product Liability

5.6 Consumer Protection

5.7 International Business Law

CHAPTER 6

Torts

6.1 Meanings of Terms

6.2 Intentional Torts

6.3 Negligence

6.4 Strict Liability

6.5 Harms to Reputation or Economic Interests

6.6 Vicarious Liability

CHAPTER 7

Agency, Partnerships, and Corporations

7.1 Agency

7.2 Partnerships

7.3 Corporations

CHAPTER 8

Sales

8.1 Meanings of Terms

8.2 Formation of UCC Contracts

8.3 Warranties

8.4 Remedies

Practice Test 1 (also available online at www.rea.com/studycenter)

Answer Key

Detailed Explanations of Answers

Practice Test 2 (also available online at www.rea.com/studycenter)

Answer Key

Detailed Explanations of Answers

Answer Sheets

Index

ABOUT OUR AUTHOR

Lisa M. Fairfax, J.D., is the Leroy Sorenson Merrifield Research Professor of Law at The George Washington University Law School. Professor Fairfax teaches courses in the business area, including Corporations, a Securities Law Seminar, and Contracts II. Prior to joining the GW law faculty, Professor Fairfax was a Professor of Law and Director of the Business Law Program at the University of Maryland School of Law, and was voted Teacher of the Year by the Maryland law school students. Before entering academia, Professor Fairfax practiced corporate law with the law firm of Ropes & Gray in Boston, Mass., and Washington, D.C. Her practice included venture capital transactions, public offerings, private placements, and mergers and acquisitions. Professor Fairfax graduated from Harvard Law School and Harvard College with honors.

Author Dedication

I would like to dedicate this book to Roger for always being there and giving me the support I need; to Fatima, Regina, and Nadia, for all of your encouragement during this and other projects. I also would like to extend my special thanks to LaMonica, for our amazing and enduring friendship; my mother Elizabeth, for every sacrifice made on my behalf—every one of them is appreciated; and my mother-in-law, Charlene, for making me a part of the family from the very beginning, and, of course, for the gift of your son.

ABOUT OUR EDITOR

Paul Schiff Berman, J.D., is the Walter S. Cox Professor of Law at the George Washington University, Washington, D.C. He is one of the world’s foremost theorists on the effect of globalization on the interactions among legal systems.

Professor Berman graduated summa cum laude from Princeton University and earned his law degree from New York University. During law school, he served as Managing Editor of the NYU Law Review. He later clerked for Chief Judge Harry T. Edwards of the United States Court of Appeals for the District of Columbia Circuit and for Justice Ruth Bader Ginsburg of the Supreme Court of the United States.

Professor Berman hosts the online CLEP Introductory Business Law course offered by Modern States Education Alliance, a non-profit organization dedicated to making high quality college education free of cost and universally accessible.

ABOUT REA

Founded in 1959, Research & Education Association (REA) is dedicated to publishing the finest and most effective educational materials—including study guides and test preps—for students of all ages.

Today, REA’s wide-ranging catalog is a leading resource for students, teachers, and other professionals. Visit www.rea.com to see a complete listing of all our titles.

ACKNOWLEDGMENTS

We would like to thank Pam Weston, Publisher, for setting the quality standards for production integrity and managing the publication to completion; John Cording, Vice President, Technology, for coordinating the design and development of the REA Study Center; Larry B. Kling, Director of Editorial Services, for his assistance in bringing this book to market; Diane Goldschmidt, Managing Editor, and Alice Leonard, Senior Editor, for coordinating development of this edition; Jennifer Calhoun, Graphic Designer, for cover design and file preparation; Transcend Creative Services for typesetting; and Ellen Gong for proofreading.

CHAPTER 1

PASSING THE CLEP INTRODUCTORY BUSINESS LAW EXAM

Congratulations! You’re joining the millions of people who have discovered the value and educational advantage offered by the College Board’s College-Level Examination Program, or CLEP. This test prep focuses on what you need to know to succeed on the CLEP Introductory Business Law exam, and will help you earn the college credit you deserve while reducing your tuition costs.

GETTING STARTED

There are many different ways to prepare for a CLEP exam. What’s best for you depends on how much time you have to study and how comfortable you are with the subject matter. To score your highest, you need a system that can be customized to fit you: your schedule, your learning style, and your current level of knowledge.

This book, and the online tools that come with it, allow you to create a personalized study plan through three simple steps: assessment of your knowledge, targeted review of exam content, and reinforcement in the areas where you need the most help.

Let’s get started and see how this system works.

THE REA STUDY CENTER

The best way to personalize your study plan is to get feedback on what you know and what you don’t know. At the online REA Study Center (www.rea.com/studycenter), you can access two types of assessment: a diagnostic exam and full-length practice exams. Each of these tools provides true-to-format questions and delivers a detailed score report that follows the topics set by the College Board.

Before you begin your review with the book, take the online diagnostic exam. Use your score report to help evaluate your overall understanding of the subject, so you can focus your study on the topics where you need the most review.

Our full-length practice tests give you the most complete picture of your strengths and weaknesses. After you’ve finished reviewing with the book, test what you’ve learned by taking the first of the two online practice exams. Review your score report, then go back and study any topics you missed. Take the second practice test to ensure you have mastered the material and are ready for test day.

If you’re studying and don’t have Internet access, you can take the printed tests in the book. These are the same practice tests offered at the REA Study Center, but without the added benefits of timed testing conditions and diagnostic score reports. Because the actual exam is Internet-based, we recommend you take at least one practice test online to simulate test-day conditions.

AN OVERVIEW OF THE EXAM

The CLEP Introductory Business Law exam consists of approximately 100 multiple-choice questions, each with five possible answer choices, to be answered in 90 minutes.

The exam covers the material one would find in a college-level Introductory Business Law course. The exam stresses understanding the functions of contracts in American business law. Questions also cover the history of American law, legal systems and procedures, agency and employment, sales, as well as other topics.

The approximate breakdown of topics is as follows:

While most of the questions you will find on your CLEP exam will be standard multiple-choice questions, the College Board is now incorporating some technology-enhanced questions. These new question types include: filling in a numeric answer; shading areas of an object; or putting items in the correct order. In addition, several exams now have an optional essay section.

If you’re familiar with basic computer skills, you’ll have no trouble handling these question types if you encounter them on your exam.

ALL ABOUT THE CLEP PROGRAM

More adult learners use CLEP than any other credit-by-examination program in the United States. The CLEP program’s 33 exams span five subject areas. The exams assess the material commonly required in an introductory-level college course. Based on recommendations from the American Council on Education, a passing score can earn you at least three credits per exam at more than 2,900 colleges and universities in the U.S. and abroad. Policies vary, so check with your school on the exams it accepts and the scores it requires. For a complete list of the CLEP subject examinations offered, visit the College Board website: www.collegeboard.org/clep.

CLEP exams are typically taken by people who have acquired knowledge outside the classroom and wish to bypass certain college courses and earn college credit. The CLEP program is designed to reward examinees for prior learning—no matter where or how that knowledge was acquired.

CLEP appeals to a wide spectrum of candidates, including adults returning to college, high school students, home-schooled students, traditional-age college students, military personnel, veterans, and international students. There are no prerequisites, such as age or educational status, for taking CLEP examinations. However, because policies on granting credits vary among colleges, you should contact the particular institution from which you wish to receive CLEP credit.

Your CLEP score is based on two calculations. First, your CLEP raw score is figured; this is just the total number of test items you answer correctly. After the test is administered, your raw score is converted to a scaled score through a process called equating. Equating adjusts for minor variations in difficulty across test forms and among test items, and ensures that your score accurately represents your performance on the exam regardless of when or where you take it, or on how well others perform on the same test form.

Your scaled score is the number your college will use to determine if you’ve performed well enough to earn college credit. Scaled scores for the CLEP exams are delivered on a 20–80 scale. Institutions can set their own scores for granting college credit, but a good passing estimate (based on recommendations from the American Council on Education) is generally a scaled score of 50, which usually requires getting roughly 66% of the questions correct.

For more information on scoring, contact the institution where you wish to be awarded the credit.

CLEP exams are developed by the College Board, administered by Educational Testing Service (ETS), and involve the assistance of educators from throughout the United States. The test development process is designed and implemented to ensure that the content and difficulty level of the test are appropriate.

CLEP exams are administered year-round at more than 1,800 test centers in the United States and abroad. To find the test center nearest you and to register for the exam, contact the CLEP Program:

CLEP Services

P.O. Box 6600

Princeton, NJ 08541-6600

Phone: [phone] (8 a.m. to 6 p.m. ET)

Fax: [phone]

Website: www. collegeboard.org/clep

To improve the testing experience for both institutions and test-takers, the College Board’s CLEP Program has transitioned its 33 exams from the eCBT platform to an Internet-based testing (iBT) platform. All CLEP test-takers may now register for exams and manage their personal account information through the My Account feature on the CLEP website. This new feature simplifies the registration process and automatically downloads all pertinent information about the test session, making for a more streamlined check-in.

OPTIONS FOR MILITARY PERSONNEL AND VETERANS

CLEP exams are available free of charge to eligible military personnel as well as eligible civilian employees. All the CLEP exams are available at test centers on college campuses and military bases. Contact your Educational Services Officer or Navy College Education Specialist for more information. Visit the DANTES or College Board websites for details about CLEP opportunities for military personnel.

Eligible U.S. veterans can claim reimbursement for CLEP exams and administration fees pursuant to provisions of the Veterans Benefits Improvement Act of 2004. For details on eligibility and submitting a claim for reimbursement, visit the U.S. Department of Veterans Affairs website at www.gibill.va.gov.

CLEP can be used in conjunction with the Post-9/11 GI Bill, which applies to veterans returning from the Iraq and Afghanistan theaters of operation. Because the GI Bill provides tuition for up to 36 months, earning college credits with CLEP exams expedites academic progress and degree completion within the funded timeframe.

SSD ACCOMMODATIONS FOR CANDIDATES WITH DISABILITIES

Many test candidates qualify for extra time to take the CLEP exams, but you must make these arrangements in advance. For information, contact:

College Board Services for Students with Disabilities

P.O. Box 8060

Mt. Vernon, Illinois 62864-0060

Phone: [phone] (Monday through Friday, 8 a.m. to 6 p.m. ET)

TTY: [phone]

Fax: [phone]

Email: [e-mail]

6-WEEK STUDY PLAN

Use our study plan in the six weeks before your exam. Be sure to set aside enough time—at least two hours each day—to study. The more time you spend studying, the more prepared and relaxed you will feel on the day of the exam.

TEST-TAKING TIPS

Know the format of the test. Familiarize yourself with the CLEP computer screen beforehand by logging on to the College Board website. Waiting until test day to see what it looks like in the pretest tutorial risks injecting needless anxiety into your testing experience. Also, familiarizing yourself with the directions and format of the exam will save you valuable time on the day of the actual test.

Read all the questions—completely. Make sure you understand each question before looking for the right answer. Reread the question if it doesn’t make sense.

Read all of the answers—completely. Just because you think you found the correct response right away, do not assume that it’s the best answer. The last answer choice might be the correct answer.

Use the process of elimination. Stumped by a question? Don’t make a random guess. Eliminate as many of the answer choices as possible. By eliminating just two answer choices, you give yourself a better chance of getting the item correct, since there will only be three choices left from which to make your guess. Remember, your score is based only on the number of questions you answer correctly.

Don’t waste time! Don’t spend too much time on any one question. Your time is limited, so pacing yourself is very important. Work on the easier questions first. Skip the difficult questions and go back to them if you have the time. Taking the timed practice tests online will help you learn how to budget your time.

Look for clues to answers in other questions. If you skip a question you don’t know the answer to, you might find a clue to the answer elsewhere on the test.

Be sure that your answer registers before you go to the next item. Look at the screen to see that your mouse-click causes the pointer to darken the proper oval. If your answer doesn’t register, you won’t get credit for that question.

THE DAY OF THE EXAM

On test day, you should wake up early (after a good night’s rest, of course) and have breakfast. Dress comfortably so you are not distracted by being too hot or too cold while taking the test. (Note that hoodies are not allowed.) Arrive at the test center early. This will allow you to collect your thoughts and relax before the test, and it will also spare you the anxiety that comes with being late.

Before you leave for the test center, make sure you have your admission form and another form of identification, which must contain a recent photograph, your name, and signature (i.e., driver’s license, student identification card, or current alien registration card). You may not wear a digital watch (wrist or pocket), alarm watch, or wristwatch camera. In addition, no cell phones, dictionaries, textbooks, notebooks, briefcases, or packages will be permitted, and drinking, smoking, and eating are prohibited.

Good luck on the CLEP Introductory Business Law exam!

CHAPTER 2

HISTORY AND SOURCES OF AMERICAN LAW

2.1 ORIGINS OF THE LEGAL SYSTEM

Broadly speaking, law represents a set of rules or principles established by government or some other controlling body that members of society must follow and obey. This definition of law includes rules and principles established by cases and statutes. A legal system refers to a system of established laws. Both laws and legal systems are designed to promote fairness, consistency, and order within society.

While the exact origins of laws are unknown, efforts to create a legal system to regulate society began as early as 1792 b.c.e. during the time of Babylon. Ultimately those efforts took the form of the development of a civil law or code law system, pursuant to which a single comprehensive code was developed and laws were established by reference to such code. Most of the countries in the world follow some form of civil law system. These modern civil law systems have their roots in codes established during the Roman Empire.

The civil law system is distinct from a common law or case law system. Common law is essentially judge-made law whereby judges make decisions on a case-by-case basis, and those decisions generate a body of rules and principles. Thus, while judges in a common law system decide cases by referring to their own decisions or the decisions of other courts, judges in a civil law system refer to a set code when making their judicial determinations. The common law system originated in England and the English system serves as the foundation for common law systems used today. In the late 1700s, Sir William Blackstone published what is considered to be the most comprehensive historical treatment of English common law, entitled Commentaries on the Law of England. Many modern common law systems refer to Blackstone’s work.

Civil law and common law represent the two dominant legal systems used by Western society. The American legal system is a common law system, and thus incorporates many principles from English common law. In addition to England and the United States, most countries colonized by England such as Australia, Canada, and New Zealand follow the common law system. Countries with