ESSAY QUESTIONS

1.

Hawk Corporation begins making and selling motorcycles in 2000

under the mark Hawk. Ten years later, Hawk.com, Inc., a different
company selling medical equipment and supplies, begins to use
hawk as part of its URL and registers it as a domain name. Can Hawk
Corporation stop Hawk.coms use of hawk? If so, what must the
motorcycle-maker show?
ANSWER: Hawk may be successful in obtaining an order to stop the
use of its name as part of another companys URL and registered
domain name. This use may constitute trademark dilution. Dilution
occurs when a trademark is used, without permission, in a way that
diminishes the distinctive quality of the mark. This cause of action does
not require proof that consumers are likely to be confused by a
connection between the unauthorized use and the mark. As in this
problem, the products involved do not have to be similar. To succeed
on a charge of dilution, however, a mark must be shown to have been
famous when the dilution took place.
SUMMARIZED PAGE:
93
EXCERPTED PAGE:
98
NAT: AACSB Reflective
Modeling

2.

TYPE:

AICPA Decision

College Copy Shop (CCS) compiles, copies, and sells reading materials
to students on the instructions of their professors, who indicate which
parts of which publications should be included. These include texts
published by Deep Topics, Inc. CCS does not obtain the permission of
Deep Topics, or any of the other original publishers of the copied
materials, and does not pay royalties on the sales of the compilations.
Deep Topics and others file a suit against CCS, alleging infringement of
the plaintiffs intellectual property rights. Which type of intellectual
property is involved in this situation? What is CCSs likely defense?
How is a court most likely to rule? Explain.
ANSWER: The intellectual property at issue in this situation is
copyrightspecifically, of course, the copyrights of the publishers of
the materials that CCS copies and sells without permission. CCS is
likely to assert the fair use doctrine in its defense. This doctrine
includes exceptions to the general requirement that an owners
permission be obtained before copyrighted material can be copied.
CCS is probably likely to argue that its compilations are excepted
because they are dedicated to educational uses. A court is most
likely to conclude, however, that the copying and selling of the
materials is not a fair use, because CCS profits from their sale, which

undercuts the potential market for the copyrighted publications from

which the copies are made. In determining fair use, a court considers
four factors: the purpose and character of the use, the nature of the
copyrighted work, the amount and substantiality of the portion used in
relation to the copyrighted work as a whole, and the effect of the use
on the potential market for or value of the copyrighted work. In this
situation, the fourth factor is most significant and supports the
conclusion that CCSs use of the materials is not a fair use.
SUMMARIZED PAGE:
97
EXCERPTED PAGE:
102
NAT: AACSB Reflective
Modeling

TYPE:

AICPA Decision

ESSAY QUESTIONS
1.

Susan is the president of United Food Corporation, a wholesale grocery

company. An inspection by Tim, a government agent, uncovers
unsanitary conditions caused by Val, a United employee, in the United
warehouse. Will, a United vice president, assures Tim that the situation
will be corrected, but nothing is done, which a later inspection reveals.
Susan knows nothing about any of this. Can United be convicted of a
crime in these circumstances? Can Susan be held personally liable?
ANSWER: The answer to both questions is yes. A corporation may be
held liable for the crime of its employee if (1) the criminal act is within
the scope of the employment and the purpose of the statute defining
the act as a crime is to impose liability on the corporation, (2) the
crime consists of a failure to perform a specific duty imposed on
corporations by law, and (3) the crime was authorized by one of the
corporations high managerial agents. Here, all of these elements
exist. The unsanitary conditions in the warehouse are within the
employees scope of employment, the crime consists of a failure to
keep the warehouse clean, and the crime was authorized by a
company vice president. As for the presidents personal liability, if she
has the authority and the responsibility to deal with the situation, she
can be held personally liable. A corporate officer must have the
authority and the responsibility to deal with the situation. Personally
liability is imposed in such circumstances, not because the corporate
officer knew about the crime or intended it, but because the officer is
in a responsible relationship to the corporation and has the power to
prevent the crime. Under this responsible corporate officer doctrine,
a corporate officer can be held liable for an employees violations of
the law. This liability may be imposed regardless of whether the officer

participated in, directed, or knew about the violation.

SUMMARIZED PAGE:
EXCERPTED PAGE:

109
115

NAT: AACSB Reflective

2.

TYPE:

AICPA Decision Modeling

Kino sees a DVD player on the porch of Lulus house, takes the player
to his home, and tells everyone he owns it. Maya, holding a knife,
forces Nick to give her his boom box, and runs away with it. Ollie
breaks into Pams apartment, takes a computer, and leaves. Which of
these acts are crimes, and what are the differences among them?

ANSWER:
Kino has wrongfully taken and carried away the personal
property of another with the intent to permanently deprive the owner
of such property. This is larceny. Maya has unlawfully and forcibly taken
the personal property of another. This is robbery. Ollie has broken and
entered a dwelling with the intent to commit a felony. This is burglary.
The basic differences: burglary requires a breaking and entering of a
building without the use of force against a person; robbery does not
involve any breaking and entering, but force is required; and larceny is
the taking of personal property without force and without breaking and
entering a building. Generally, because force is used, robbery is
considered the most serious of these crimes and carries the most
severe penalties. Because larceny involves no force or threat to human
life, it carries the least severe penalty of the three. Burglary, because it
involves breaking and entering, frequently into peoples homes, carries
a lesser penalty than robbery but a greater penalty than larceny.
SUMMARIZED PAGE:
EXCERPTED PAGE:

110
116

TYPE:

NAT: AACSB

ESSAY QUESTIONS
1.

Principal Resources Corporation contracts with Quality Construction to build an addition to Principals
corporate office building. Quality contracts with Rite Supply Company for materials for the addition but
refuses to pick up the materials. Meanwhile, Principal hires Skye, a certified public accountant, to work in
its cost-accounting division as an employee, with no authority to hire or supervise others. Skye asks Theo,
an outside experienced accountant, to advise her on certain accounting procedures but fails to pay Theo for
the service. Principal also contracts with Uma, a salesperson, to solicit orders for its products in a
designated territory. Uma obtains an order from Verity Industries, Inc., which is assured the order will be
filled soon. But Uma does not follow through with the paperwork and fails to submit the order to Principal.
Verity suffers a loss. Rite Supply, Theo, and Verity Industries claim Principal is liable under agency law.
Discuss fully whether an agency relationship was created by Principal with Quality Construction, Skye, or

Uma.
ANSWER:
Whether Principal can be held liable by Rite Supply, Theo, and Verity Industries depends
on the relationship created by Principal in its contracts with Quality Construction, Skye, and Uma. If the
relationship is one of principal-agent, the parties agree that the agent will act on behalf of the principal, and
any proper contracts made by an agent with a third person are binding on the principal. In analyzing the
agency relationship in this problem, it is important to distinguish the principal-agent relationship from that
of employer-employee (master-servant) or employerindependent contractor. Contracts made with third
parties by employees or independent contractors who are not also agents are not binding and are not
enforceable against the employer.
Quality Construction is employed as an independent contractor. It is neither an agent for Principal
nor an employee. Because Quality Construction has no authority to make contracts on behalf of Principal,
Quality is not an agent. In addition, because Principal has no control over the details of Qualitys conduct,
Quality is not an employee. Therefore, only Quality, not Principal, can be liable to Rite Supply for
nonperformance of contract.
Skye is hired strictly as an employee and has no authority to contract with third persons.
Consequently, Skye is not authorized to hire a consultant on Principals behalf. Therefore, Theo must look
to Skye, not to Principal, for payment for services.
Uma is both an employee and an agent. As an agent she is hired specifically to solicit orders for
Principals products from third persons. If she has authority to so contract, Principal is bound by her
contract.
SUMMARIZED PAGES:

397401

EXCERPTED PAGES:

411415

NAT: AACSB Reflective

2.

TYPE:

AICPA Decision Modeling

Brenda is a purchasing agent for Commodities Exchange Corporation. Dennis, a Commodities corporate
officer, gives Brenda written authority to buy for the firm as many computers and peripheral devices as
necessary. The next day, Dennis calls Brenda and tells her to buy only fifty note book computers and
nothing else. Brenda shows the written authority to E-Products, Inc., and enters into a contract with EProducts to buy sixty notebook computers and a selection of printers, scanners, and extra storage media. EProducts ships the order to Commodities. Is Commodities liable to E-Products under the contract? Is
Brenda liable? In each case, if so, why? If not, why not?

ANSWER: Commodities is liable to E-Products. Brenda is not liable to

E-Products. A principal is liable for the contracts of its agents entered
into with actual or apparent authority. Actual authority may be express
or implied. Apparent authority arises from what the principal causes a
third party reasonably to believe regarding the agents authority to act,
even if the agent does not have actual authority to act. If the third
party changes its position in reliance on the principals representations,
the principal is estopped from denying that the agent had authority. In
this problem, Brenda had the actual authority to order fifty notebook
computers and apparent authority to order the rest of the equipment,
according to the written authorization that Dennis gave to Brenda and
Brenda showed to E-Products. E-Productss contract rights are not
limited by the limits placed on that authority by Denniss call to
Brenda. Brenda is not liable to E-Products because she acted with
apparent authority. Brenda is liable to Commodities, however, for
exceeding her authority.
SUMMARIZED PAGES:

403405

TYPE:

EXCERPTED PAGES:

417419

NAT: AACSB Reflective

ESSAY QUESTIONS
1.

Jai owns an orchard behind Keys house and property. The only access
to the orchard is Keys driveway, which Jai uses to get to her orchard.
Jai sells the orchard to Laurentz. Can Laurentz use the right-of-way
across Keys property?
ANSWER: Yes. The right-of-way in this problem is an easement appurtenant. An easement appurtenant arises when the owner of one piece
of land has the right to go onto an adjacent piece of land owned by
another. Because an easement appurtenant is intended to benefit the
land, it runs with the land when the land is conveyed (transferred) to
another. In other words, when a parcel of land that is benefited by an
easement appurtenant (the dominant estate) is sold, the property
carries the easement with it. The new owner can use the easement
over the burdened property (the servient estate) just as the old owner
did. That is what occurred in this problem.
SUMMARIZED PAGES:
EXCERPTED PAGES:
NAT: AACSB Reflective

2.

544
562563

TYPE:

AICPA Decision Modeling

Andy leases to Burgertown Franchise Corporation a 10,000 square-foot

building under a written lease with a twenty-year term, rent payable
annually. The lease includes a clause stating that Burgertown is responsible for making all necessary repairs, including rebuilding the
structure after its destruction by any cause beyond Andys control. The
lease does not include a clause concerning its assignment. One day
after the tenth rental payment, Burgertown, without Andys knowledge
or consent, assigns its interest in the lease to Chicken Hut Restaurants,
Inc. Meanwhile, Andy dies and Dotty inherits Andys interest in the
building. Without the knowledge or consent of either Burgertown or
Chicken Hut, Dotty sells the building to Earnest Investments, Inc. The
next month, the building is destroyed in the flood of a nearby river.
Burgertown rebuilds it and files a suit against Earnest for the expense.
Earnest responds that the lease has terminated. Is Earnest correct? If
so, when did the lease terminate? If not, is Earnest liable for the cost of
rebuilding the structure? Why or why not?

ANSWER: Earnest is not correct. The lease has not terminated.

Absent a provision in the lease to the contrary, its assignment is not
prohibited, even without the consent of the landlord. The death of a
landlord does not terminate a lease, unlike some other contracts. The
owners sale of leased premises to a third party does not terminate a
lease, even without the consent of the tenant. Normally, the
destruction of rental property would terminate a lease, but this
commercial lease contained, as do many long-term commercial leases,
a clause that required the tenant to rebuild the structure if it was
destroyed by a cause beyond the landlords control, which includes a
flood. Such clauses are legally binding. Thus, none of these events
Burgertowns assignment of the lease to Chicken Hut, Andys death,
Dottys sale of the property to Earnest, or the destruction of the
building in a floodterminated this lease. Although there may be a
reduction in the amount of rent Burgertown, which remains liable despite the assignment, must pay while the premises are being rebuilt.
Earnest is not liable for the cost of rebuilding the structure. Again, the
lease required the tenant to rebuild the destroyed structure at the
tenants expense.
SUMMARIZED PAGE:
EXCERPTED PAGE:
NAT: AACSB Reflective

551
569

TYPE:

AICPA Decision Modeling

ESSAY QUESTIONS
1.

Precise Engineering Corporation has a contract with Quik Mart Stores

to provide customized software for Quiks inventory control system.
Retail Outlets, Inc, Quiks competitor, induces Sam, a Precise subcontractor who is writing code for the Quik software, to delay delivery of
the code for one week. As a result, Precises delivery of the software is
delayed, and Quik sustains $500,000 in lost profits. On what ground
could Quik recover damages from Retail Outlets?
ANSWER: Quik could file an action against Retail Outlets based on
wrongful interference with a contractual relationship. The elements
that Quik must prove are (1) a valid, enforceable contract between two
parties; (2) the knowledge of a third party that this contract exists; and
(3) the third partys intentionally causing the breach of the contract for
the purpose of advancing the interest of the third party. For a
successful tort action, there must also be damages caused by the third
partys act. Facts that satisfy all of these elements are set out in the

problem. There was a valid, enforceable contract between Precise and

Quik. Retail Outlets knew of this contract, Retail Outlets intentionally
interfered with this contract, causing its breach, for the purpose of
advancing its own interest (undercutting the profit of its competitor).
Quik suffered lost profits as a result of Retail Outlets act.
SUMMARIZED PAGE:
EXCERPTED PAGE:
NAT: AACSB Reflective

2.

76
80

TYPE:

AICPA Decision Modeling

After two years of research and an investment of a substantial amount

of money, Coast-to-Coast Company (CC) develops a new product that it
hopes will produce substantial profits. CC learns that a competitor,
National Sales, Inc., has made and begun to sell a nearly identical
product. CC learns from a reliable source that National paid a CC
employee to obtain the plans for CCs product when it was in
development. What legal recourse does CC have against National?
ANSWER: In terms of legal recourse against National, CC might base
a civil suit on charges of conversion and trespass to personal property.
Conversion is any act depriving an owner of personal property without
that owners permission and without just cause. Conversion is the civil
side of crimes related to theft. When conversion occurs, trespass to
personal property usually occurs as well. If the initial taking of the
property was unlawful, there is trespass; retention of that property is
conversion. CC might have a claim for wrongful interference with a
contractual relationship for inducing the CC employee to break his or
her employment contract with CC by selling company secrets.
SUMMARIZED PAGES:
EXCERPTED PAGES:
NAT: AACSB Reflective

76 & 7778
80 & 8182

TYPE:

AICPA Decision Modeling