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MBA > BNAD 523 Business Law > Flashcards

BNAD 523 Business Law Flashcards

1
Q

Two parallel systems in the US that make laws

A
  1. Federal Government - laws made by US government, constitution, treaties with other nations, statutes, judicial decisions, executive orders, administrative regulations (EPA, FAA, etc)
  2. State Government - state constitution, state statutes, state judicial decisions, state executive orders by governors, state administrative regulations, municipal ordinances
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2
Q

Priority of Laws

A
  1. Supremacy clause - if a state and federal law conflict with each other the federal law always wins.
  2. Constitution is the highest law in the land
  3. Courts make decisions
  4. Judicial Decisions - have the ability to make laws and decide between which law will win when in conflict with another
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3
Q

Sole Proprietorship

A
  1. One person
  2. Easy, cheap to create
  3. No double taxation
  4. Owner has complete control

Con: unlimited personal liability. If your business gets sued than you personally can lose your house, car, cash. You are the same as your business.

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4
Q

Partnership

A
  1. Multiple people
  2. UPA and RUPA
  3. Flow-through taxation - the business does not get taxed, only the individuals

Con: unlimited personal liability. You are liable for not only what you do, but what your partner does. This is called joint and several liability

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5
Q

Rights of Partners

A
  1. Right to manage
  2. Right to profits/loss
  3. Right to information - access to books and records
  4. Right to be repaid - reimbursement of expenses, when you leave you get the capital back that you initially invested.

DO NOT have the right to compensation

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6
Q

Duties of Partners (Fiduciary Duties)

A
  1. Partners owe a duty of loyalty to other partners. I can’t compete against my partners
  2. Duty of care - use assets in a responsible manner
  3. Duty of obedience - obey the partnership agreement
  4. Duty to inform - you can’t be a lone wolf doing whatever you want. You have to keep your partners informed as to what you are doing.
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7
Q

Special forms of partnership

A

Take about joint liability

  1. Limited liability partnership (LLP) - just like a general partnership, but no personal liability. The catch, it’s limited to certain industries.
  2. Limited Partnership (LP) - There is a general partners and limited partners. General are treated like general partnerships, but limited partners have limited liability, no rights to manage the business, but do get some of the profits.
  3. Limited Liability Limited Partnership - just like an LP, but the general partner is not liable. It is not common.
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8
Q

Corporations

A
  1. Most common form of limited liability business entity
  2. Have separate existence from owners. In the eyes of the law corporations are a separate person.
  3. Corporations are people!
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9
Q

Shareholder

A

A person who owns one or more stocks in a corporation

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10
Q

Share

A

An ownership interest in a corporation and gives you certain rights. Like voting rights for a corporation. A right to some of the profits.

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11
Q

Key Characteristics of a Corporation

A
  1. Shareholders have limited liability
  2. Free transferability of shares - transfer ownership interest
  3. Centralized management - managers are an elected group of people. Shareholders vote to appoint a board of directors. Board of directors appoint leadership and management of a corporation. Owners don’t necessarily get to manage the organization.
  4. Perpetual existence - corporations don’t die unless someone takes steps to kill them
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12
Q

Taxation of Corporations

A

C-corp and S-corp are tax terms.

C-corp: double taxation
S-corp: flow-through taxation. There can only be 100 shareholders.

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13
Q

Corporation Classifications

A
  1. Privately-held:is not traded on a public stock exchange. Does not mean they don’t have lots of stock holders.
  2. Publicly-held: Once your stock is listed and traded on the stock market you are a publicly held company.

A company can go back and forth.

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14
Q

A public vs private Corporation Classification

A

Public company is owned by the government.

A private company is owned by a group of individuals.

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15
Q

Not-for-profit vs For-profit Corporation Classification

A

Not-for-profit: Can be organized as a corporation, doesn’t have shareholders. It does not distribute profits to shareholders because it is not-for-profit
For-profit:

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16
Q

Foreign, Domestic, Alien Corporation Classification

A

Domestic: organized in the state in which it is operated
Foreign: organized in another state, but still in the U.S
Alien: organized in another country

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17
Q

Steps to form a Corporation

A
  1. Choose a state - each states corporation law is a bit different. You can choose whatever state you want. Does not have to be where it is headquartered. Delaware is a popular choice.
  2. chose a name - can’t be confusingly similar within your own state.
  3. File articles of incorporation
  4. Hold meetings and appoint roles (officers, etc). Need shareholders, board of directors, officers, then you can start conducting business.

Also, consider trademarks and domain names.

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18
Q

Corp

A

Corporation

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19
Q

Inc.

A

Incorporated

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20
Q

LTD

A

Limited

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21
Q

Co.

A

Company

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22
Q

Shareholder Rules

A

Owners, the appoint the Board of directors.

Rules for shareholders

  1. They have to meet at least annually
  2. May also call special meetings
  3. Whenever there is a shareholder meeting, you must send a notice to every shareholder and an agenda of the meeting to every shareholder. You can’t discuss things that are not on the agenda.You can’t vote on things that are not on the agenda.
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23
Q

Shareholder Voting

A

Rule

  1. You usually get one vote per share you have
  2. Straight voting - if I have 1k votes, I can put them all to one candidate or the other.
  3. Cumulative voting - allow minority share owners to have a great voice. Instead of voting 1k votes for seat b and 1k for seat a, you can combine them all into one candidate on one seat.
  4. You can grant someone else to vote for you as a proxy.
  5. Voting agreements - where minority shareholders band together to vote a certain way on some issues.
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24
Q

Piercing the Corporate Veil

A

If I do things as a shareholder then the corporations creditors can come after me.

  1. failure to observe corporate formalities
  2. Corporation formed with insufficient capital
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25
Q

Shareholder Rights

A
  1. contractual rights via shareholders’ agreement
  2. buy/sell and first refusal
  3. preemptive rights -
  4. Right to sue - direct (personal damage) and derivative (when a shareholder sues the director or officer on behalf of the corporation )
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26
Q

Board of Directors

A

Directors set strategy and they appoint officers to carry out the strategy.

Inside director - an actual employee of the organization

Outside director - people who are not employees of the organization.

Shielded from personal liability by “business judgement rule.” As long as they are making decisions in good faith and using reasonable care, if they make bad decisions they are not liable.

If they breach duties or mislead shareholders.

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27
Q

Director Duties

A
  1. similar to partner duties
  2. loyalty
  3. care - use resources responsibly
  4. obedience - follow bylaws and others
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28
Q

Director Rights

A
  1. compensation - they don’t do it for free
  2. indemnification - the company has right to defend director if sued
  3. inspections/participation - access to companies information
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29
Q

Officers - Duties & Liabilities

A

CEO, President, etc.. .

Duties and liability essentially the same as directors.

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30
Q

Officer Rights

A

They are employees of the organization. Their rights usually governed by employment agreement.

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31
Q

Limited Liability Company (LLC)

A

Partnership + Corporation = LLC

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32
Q

LLC Key Concepts

A
  1. Flexibility
  2. Limited liability of owners
  3. Shareholders/ownwers = members in LLC
  4. You don’t have to have all these meetings and formalities that you have with a corporation
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33
Q

Corporation vs LLC

A

Owners/Shareholders interest/share =vs. Membership Interest. A unit of stock

Articles of Incorporation vs. Articles of Organization

Bylaws (rules) vs. Operating Agreement

vs. able to choose how we are managed and taxed (member managed like a partnership , manager managed like a corporation). Do we want to be taxed like a partnership or a corporation.

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34
Q

Four Steps of Forming a LLC

A
  1. Choose a state
  2. Choose a name - must include LLC
  3. File Articles of Organization
  4. Adopt an Operating Agreement
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35
Q

1 most important legal topic for businesspeople

A

Contracts

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36
Q

What is a contract?

A

An enforceable agreement. Usually something we can enforce in court.

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37
Q

Parties to a contraact

A

Offeror:Person making the offer
Offeree: Person being offered to. They have the power to form the contract. It is when you accept the offer that you have a contract.

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38
Q

Valid Contract

A

Enforceable by both parties

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39
Q

Void Contract

A

Unenforceable by either parties. Courts usually won’t consider them.

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40
Q

Voidable Contract

A

Enforceable by 1 party

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41
Q

5 Elements of a Valid Contract

A
  1. Agreement: both parties have to agree
  2. Consideration: both parties have to bring something of value
  3. In writing (sometimes):
  4. Capacity: have to have the mental ability to understand the contract
  5. Legality: subject matter of the contract hast to be of a legal purpose.
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42
Q

Offer

A

Invitation to enter into a contract

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43
Q

Requirement for a Valid Offer

A
  1. Intend to make an offer
  2. Communicate the offer. The offeree has to know about it.
  3. Material terms (not all terms): term of a contract that you can not form a contract with out this term. Like price or amount.
    4.
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44
Q

Special Types of Offers

A
  1. Auctions: required to sell to highest bidder
  2. Rewards: offer inviting acceptance by performance. You also have to have known about the reward when performing the action.
  3. Advertisement: NOT offers. Rather it is an invitation to make an offer. Exception if ad identifies specific item with a VIN or Serial number.
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45
Q

Termination: How offers can be terminated

A
  1. By act of offeree: rejection, waiting too long, after offer is dead, but it can’t be revived.
  2. Counteroffer: is a rejection and a new offer. Parties switch roles.
  3. By act of Offeror: Revocation - you can take an offer back, but only up until the time a person accepts it. You can revoke up until the accept.
  4. By operation of law: death of a party, destruction of subject matter (like bike being destroyed), lapse of time.
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46
Q

Requirements of a Valid offer Acceptance

A
  1. unequivocal acceptance - no wavering. Has to be clear that you accept the offer, no doubt.
  2. Must not change terms of the offer. Mirror image rule. Must accept the offer the way it is. Counteroffer = rejection and a new offer.
  3. Properly communicate the acceptance. Authorized means of communication like fax if the offer said accept via a fax.
  4. Mailbox rule: when things cross in the mail. Your acceptance of the offer at the time you transmit the acceptance, not when it is received by the offeror.
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47
Q

Assent

A

Meeting of the minds. Minds of the party of the contract have to be on the same page.

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48
Q

Things that could negate an assent

A
  1. Mistakes
  2. Fraud
  3. Undue influence
  4. Unconscionability
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49
Q

Mistakes

A

Mistake of fact or mistake of value.
Mistake of fact: when mutual, contract can be rescinded. Both parties have a mistake of fact. When unilateral (only one party has a mistake of fact) the contract is enforceable.
Mistake of value: we were mistaken by how much something was worth. Does not allow either party to get out of the contract unless both parties agree. When mutual or unilateral, contract is enforceable.

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50
Q

Fraud of Assent

A
  1. Fraud in the Inducement. I lie to you about a fact. A party misrepresents a material fact that gets me to agree to contract.
  2. Fraud in the inception: a party misrepresents what’s being signed.
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51
Q

Duress and Undue Influence

A

Duress: when someone uses threat of harm to force you into signing a contract. Could be economic harm.

Undue Influence: someone puts pressure for you to sign something. It is more subtle pressure. Fiduciary relationship - like a medical provider - special relationship that a fiduciary takes advantage of.

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52
Q

Unconscionability

A

When you look at the contract and it is so unfair. Grossly unequal bargaining power. One party was at the mercy of the other, they had not choice, but to enter into this contract. Can you walk away? If so you have equal bargaining power.

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53
Q

What is Consideration?

A

Idea that both parties have to both bring something of value to the contract. If they. don’t then it is not a contract. You have to bargain for exchange of legal value. Acceptable not equivalent value.

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54
Q

What isn’t Consideration?

A
  1. A promise to give a gift, A gratuitous promise.
  2. Past consideration: something already done.
  3. Preexisting duty to do something.
  4. Illegal consideration: a promise not to break the law.
  5. Illusory promise: seems like a promise, but I have the option of not doing it without penalty.
  6. Partial payment of a debt.
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55
Q

Exception to Consideration Requirements

A
  1. Promissory Estoppel: (Estoppel -it doesn’t seem fair so we are going to stop it.) Reasonable reliance on a promise to one party’s detriment.
  2. Charitable Donations: if you promise to give money to a charity it usually can be enforced. Sometimes charity must’ve taken some action.
  3. Debts Barred by Statute of limitations: Promise to pay debt past statute of limitations period is enforceable.
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56
Q

General Rule

A

Oral contracts are enforceable.

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57
Q

Statute of Frauds

A

Requires some contracts to be written

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58
Q

MYLEGS

Contracts that fall within the statutes of fraud

A

M: Marriage: In consideration of marriage, like prenups
Y: Year: (one) year. Cannot be performed in one year it must be in writing.
L: Land: ALL interest in land. Any contracts that have to do with land, not just buying land.
E: Executor:
G: Goods: a tangible movable thing. Contracts for the sale of goods greater than $500 must be in writing.
S: Suretyship: when you promise to cover the debt to someone else. Co-signer. Promise to pay if someone is unable to pay.

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59
Q

What counts as written contract?

A
  1. Signature: Not necessarily your name. Does not have to be hand written, can be an “x.” Anything you write that you are authenticating this as your desire. It can be digital.
  2. Integration: multiple documents combine into 1 contract. It can be express or implied.
  3. Merger Clause: indicate the final document is the complete contract. This is the final document.
  4. Parol evidence rule: Prior oral agreement not part of contract unless in the written contract.
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60
Q

Exceptions to Statute of Fraud

A
  1. Promissory Estoppel. Reasonable reliance to detriment. Spent money to start performing the contract.
  2. Partial performance: should have been in writing, but was not and you did partially did it, then they will enforce it.
  3. Admissions
  4. Sales of goods: merchant to merchant don’t have to be written even if over $500. It would slow down commerce. Custom made goods - don’t have to be written.
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61
Q

Capacity

A

Mental ability to understand the nature of the transaction. If you can’t comprehend the contract you are entering into, then that it can’t be enforced against you. Contractual capacity.

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62
Q

3 Types of People when Talking about Contractual Capcity

A
  1. Insane (legal term): not a mental health term.
  2. Intoxicated: under the influence of drugs or alcohol.
  3. Infants: all minors
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63
Q

What makes someone legally insance?

A

They have some mental inability to understand the nature of their transactions.

  1. Adjudged Insane - determined insane by court of law. All contracts are void.
  2. Insane but not adjudged insane: temporarily insane, or other examples. Any contract can be voidable by the insane person. Have duty of restitution - Put other party where it was before agreement.
64
Q

Intoxicated People

A

Contracts are voidable like temporary insane person by the intoxicated person. Duty of restitution.

65
Q

Infants (all minors)

A

Duty of restoration (not restitution): return property in condition it was in AT time of disaffirmance. Meaning, if a minor drives a car off the lot and wrecks it by no fault of their own, the minor can come back and disaffirm the contract and give me my money back and you have to give them their money back. Don’t enter into contracts with minors. You can ask them for proof of their age. If the minor was reckless or intentional damage. Then we switch to the duty of restitution. Or if the minor misrepresents their age - then they go to duty of restitution.

66
Q

Legality of Contracts

A

Lawful Purpose

Illegal contracts are usually void.

67
Q

Sever ability Clause

A

If any part of this contract is held to be unenforceable because it violates the legality element. Then we will just remove the unlawful part and leave the rest of the contract intact.

Sever out the illegal part and keep the rest of the contract.

68
Q

Types of Illegal Contracts

A
  1. Commit crime
  2. Usurious: means a contract that charges an interest rate above the legal limit. The usury rate.
  3. Against public policy of a state.
  4. Violation of licensing statutes - voidable by client. Failure to pay licensing fee, then enforceable.
69
Q

Rights

A

Things that we get

70
Q

Duties

A

Things we have to do

71
Q

Transfer Rights

A

Assignment

72
Q

Transfer Duties

A

Delegation

73
Q

Assignment of rights is permitted

A

Notice must be give.
Assignors rights are extinguished

Exceptions

  1. ant-assignment clause
  2. Personal service contracts - like haircut. I can’t assign my right to get a haircut to someone else without consent of other party.
  3. Material alteration of duties.
  4. Can assign future rights
74
Q

Successive Assignment

A

American Rule: Whoever got the assignment first in time. It is their right.
English Rule: the first recipient to give notice to the other party.
Tangible token rule: whoever has the token has the rights.

75
Q

Delegation of Duties

A

General rule: delegation of duties is permitted, with exceptions. Important: Delegator remains liable for performance. Assignment relieves you of your liability, but not a delegation.

Exceptions

  1. Anti-delegation clause
  2. Personal service contracts
  3. High trust relationships - there is something about you specifically that is important. You can’t delegate these duties.
  4. Material alteration of the contract
76
Q

Novation

A

Is the way for you to get out of a contract completely. To get out of your duties and rights. The complete substitution of one party for another. All parties must agree. This is the only time you can be relieved of your duties.

77
Q

Can 3rd parties enforce contracts?

A

It depends if they were an intended or incidental beneficiary.

78
Q

Intended Beneficiary

A

Specifically identified in contract to receive a benefit in the contract. Therefore they can enforce agreements.Right must have vested before they are able to enforce agreement. This means either intended beneficiary has . . .

  1. affirmative acceptance
  2. Material alteration in anticipation of the benefit
79
Q

Incidental Beneficiary

A

Not specifically called in the contract.

80
Q

How do we determine whether it is intended or beneficiary?

A

If it is specifically identified in contract. They could also list an intended benefit in the contract even though they don’t specifically list your companies name in the contract.

81
Q

What is contractual discharge

A

This just means you no longer are obligated to perform your duties. The best way to be discharged from your duties it to perform the duties.

82
Q

How can discharge arise?

A
  1. Discharge by mutual agreement. Recision - both parties agree to rescind contract. Substituted contract:: this contract is not working, but we still want to work together so lets’ substitute a new contract.
  2. Novation: Agree that a new party takes your spot
  3. Accord and Satisfaction - when there is dispute over a contract and what is owed. When a party agrees to something over what they are owed could be discharged.
83
Q

Contract Conditions

A

3 Main types

  1. Condition precedent: if the event happens then you have some duty that arises.
  2. Condition subsequent: if the event happens then you are no longer to perform so duty in the contract. Then I am discharged.
  3. Concurrent Conditions: Both parties have to perform duties at the same time. A retail transaction for example. This is an implied concurrent condition.
84
Q

Breach

A

When one party does not do what they are contractually obligated to do. This will result in the other parties discharge of their duties.

85
Q

Anticipatory breach or repudiation

A

Counts as a breach. A breach of contract has not occurred yet, but they have made it clear that they are going to breach the contract. Must be clearly stated. Then from this moment, you are discharged from your obligations of duties.

86
Q

Operation of law

A

Discharge by operation of law.

  1. Impossibility: if it is physically impossible to perform your duties. It does not mean impractical, it means impossible.
  2. Statute of limitations: some terms that can’t be enforced after certain period of time.
  3. bankruptcy filing: discharges debtor’s from obligations usually. They are no longer able to pay their bills - we have the assumption they won’t be perform their duties, so you are discharged.
87
Q

Complete Perforamnce

A

When contract performance has been met

88
Q

Substantial Performance

A

Minor breach of the contract. The victim party can deduct the cost to fix the breach. Or you can pay the entire price and sue for damages. What you are not allowed to do is terminate the agreement.

89
Q

Inferior Performance or material breach

A

In this case you can cancel the whole contract. This is called rescind and sue for restitution. Which means the other party has to put you back where you started.Or accept performance rendered and sue for damages.

90
Q

Contract of performance related to sale of goods

A

Seller Performance obligations:

  1. Primary duty is to make tender of delivery: You have to complete delivery obligations.
  2. Perfect tender rule: you have to tender exactly the goods that were ordered from you.

Buyer Options regarding tender rule

  1. Buyer can accept all the nonconforming goods.
  2. Can accept part or some of them.
  3. Can reject part or all
91
Q

Non conforming goods

A

When perfect tender rule is not met. The buyer has to give the seller the opportunity to cure it.

92
Q

Exceptions to the perfect tender rule

A
  1. Damaged goods or destroyed goods through no fault of the seller = void contract
  2. Installment contracts: treat each installment separately. If one installment is nonconforming then you can cancel the whole contract. You can just ask them to fix that installment.
  3. Industry norms: can allow a degree of nonconformity
93
Q

Buyer performance obligations

A
  1. To pay for the goods: your duty to pay only arises once you have received conforming goods and you have accepted them. The duty to pay and time of pay can be different.
  2. Duty to inspect the goods when they get to you and either accept or reject them in a reasonable amount of time.
94
Q

Remedies for Breach of Contract

A

Two Categories

  1. Money Damages: when we force you to pay money to the other party
  2. Equitable remedies: Everything else that is not making you pay money.
95
Q

Victim of a Breach of Contract

A

Always have the duty by non-breaching party must mitigate damages. This means you can’t let damages pile up if you have a reasonable way for you to stop it.

Parties can agree to limit their liability. This is very common.

96
Q

Money Damages

A
  1. Compensatory damages - always available when there is a breach of contract. This is amount of money that would have put you in the place where they would have been if the other party did what they said they were going to do.
  2. Consequential damages: when the breaching party knew or likely that they knew that their actions would cause future damages down the road. Can be sued for damages of future contracts.
  3. Liquidated damages: decide in advance what the damages will be. This is fine and enforceable as long as they are reasonable. Penalties are not enforceable - if damages are too high.
  4. You can never get punitive damages in a breach of contracts.
97
Q

Equitable Remedies

A

Courts can say money damages don’t cut it. The preference is always money damages.

Court Can . . . .

  1. Recission and Restitution - put things back the way the were.
  2. Reformation: edit the contract. Usually if there has been a clerical error.
  3. Injunction: When a court orders to stop doing something.
  4. Specific Performance: When a court says paying money for the breach won’t make it right. It is only when the subject matter unique. A truly unique item that can not be substituted. Every piece of land is considered unique. Real Estate is the most common.
98
Q

Remedies for breach of contracts with regards to sale of goods

A

All the common laws and Article still applies - here are some modifications.

Sellers - if buyer refuses to pay

  1. If the buyer has the possession but not paying, the seller can sue for the purchase price.
  2. If buyer is in possession, they can try and reclaim the actual goods. If buyer is solvent - for re-possession.
  3. If the buyer does not have the goods yet: You can refrain from shipping the good. If the goods are already in transit, but you can stop delivery. You could sell to another buyer to mitigate your damages. You can always sue for any money damages that you accrued.

Buyer Remedies - if the seller breaches the contract

  1. Buyers can sue for damages
  2. Obtain cover - substitute goods from another seller. You could sue for the difference if one is more expensive.
  3. If the seller is solvent - bankruptcy, then the buyer can obtain the good from the seller.
  4. If the good is unique - you can sue the seller for specific performance.
99
Q

Uniform commercial code Article 2

A

What is the uniform commercial code

Whole series of laws that have to do we commerce and business.

100
Q

Article 2

A

Talks about contracts for the sale of goods.
Adopted in whole in every state – uniform commercial code
Article 2 has been adopted in 49 states – pretty universally adopted
Creates special rules for sales of goods. These rules supplant they common law rules if there is a conflict.
Article 2 only covers the sales of goods and not services.

Goods: Tangible, movable thing
Services: hiring someone to do your taxes or cut your hair

101
Q

What is a good?

A

They are tangible, movable things
Tangible means copyrights are not goods They have a physical presence.
Movable – it is not land and it is not a building on the land.

102
Q

What if you have a contract that has both goods and services in it?

A

Like free lifetime car washes
Predominant factor test – when there are goods and services in the same contract. Are the goods or services the predominant factor in the contract? Car with car washes. So article 2 would apply because the car is the predominant factor.

103
Q

Merchants

A

They meet one of two criteria.

  1. deals in goods of the kind involved in the sale
  2. Hold themselves out as having knowledge/skill peculiar to a type of goods. Extra knowledge or skill. Only for those types of goods.

Only apply for merchant only when dealing in specific good.

104
Q

Offer: Article 2

A

Open terms allowed; Price can be an open term.

As long as there’s a reasonable way to determine it.

Default that buyer picks up at seller’s location

105
Q

Acceptance: Article 2

A

You can accept an offer without communicating at all.
UCC article 2. Seller can accept by shipping goods. You can ship the wrong goods – called an accommodation shipment. If a seller ships what are called nonconforming goods, this is both an acceptance and a breach at the same time. The seller is indicating that they want to be in contract, but I don’t have the exact goods you want, but are close. This can still serve as an acceptance of offer. They can accept or not.

106
Q

Consideration: Article 2

A

No new consideration needed to modify a contract. If done in good faith.

107
Q

Capacity and legality elements: Article 2

A

Same rules as common law

108
Q

Exceptions: Sale of goods > $500

A

Sale of goods greater than $500 must be in writing, but there are some exceptions to this rule.

  1. If the buyer has accepted goods
  2. Specially manufactured goods
  3. Admission in court – if one party has admitted to it in court
109
Q

How we deal with ambiguous terms in Article 2?

A

Ambiguous term that can have more than one meaning.

The first thing we do is look at the course of performance. What have you been doing historically under the contract. IF it is a new contract, so there is no history. The second thing we look at is the course of dealing. Have they had contracts in the past with similar subject matter. The third thing is to look to industry usage. Is there a most common use of the word in your industry.

110
Q

Two types of warranties: When can someone sue if the goods don’t live up to expectation

A

Express – some affirmative promise of fact. This car gets 50 miles to the gallon. Can sue for the damages if not met.
Implied – warranties of good title. There is an implied to transfer ownership to you. Warranty of fitness for particular purpose. It only arises when you take the good and they don’t work when you were told they were going to work. Implied warranty of merchantability. I warrant they are good to use. If I sell you a car, this box of metal will function as a car. If you are buying a car, then it should work as a car. IF it doesn’t work you can sue. Implied warrant of trade usage. If you use specific definitions.

111
Q

Warranty Disclaimers

A

As is disclaimer – is good to disclaim all of the implied warranties, none of the implied warranties are good.
Warranty of fitness for particular purpose.
Warranty of merchantability disclaimer. You have to use the word merchantability.

You cannot disclaim an express warranty.

112
Q

Defenses to workplace discrimination suits

A
  1. Cause - always a defense. Like stealing from the company, violating policies, incompetence.
  2. Merit: always allowed to promote someone because they are more qualified
  3. Seniority: you are allowed to give raises because they are more senior
  4. Bona fide occupational qualification (BFOQ) - if they can’t do the one thing you need them to do - so you are allowed to not hire them even if it could be discriminatory.
  5. Undue hardship: for religious or disability claims - accommodations have to be reasonable, but if they cause an undue hardship then they can not hire you.
  6. If they don’t have the legal ability to work
113
Q

Remedies to workplace discrimination suits

A
  1. File claim with equal employment opportunity commission. Will often refer to a mediator. Then the EEOC will investigate. If EEOC issues right to sue letter than you can file a workplace discrimination suit against your employer.
    Court can force the employer to make the accommodation, money damages, reinstatement, grants of promotion.
  2. Affirmative action plans are legal, but quotas are not allowed. Have to be narrowly tailored. Must meet compelling interest to fix past discrimination.
114
Q

Labor

A

Labor = Unions

115
Q

What is a labor unior?

A

A group of similarly-situated employees how collectively negotiate their employment terms.

116
Q

Bargaining unit

A

A group of similarly-situation people

117
Q

Collective bargaining

A

The process of negotiating between management and the bargaining unit.

118
Q

Collective Bargaining Agreement

A

The contract that the union and the company sign that lays out the employment.

119
Q

National Labor Relations Board (NLRB)

A

This is the national agency that governs all these labor union things.

120
Q

Norris-LaGuardia Act of 1932

A

Anti-Injuntion Bill: law that allows labor unions

121
Q

National Labor Relations Act of 1935

A

Wagner Act: establishes the NLRB, defines what unfair labor practices are. Interfering with, taking action against people who are in a union, refusing to engage in collective bargaining

122
Q

1947 Labor Management Relations Act

A

Taft Hartley Act: Pro employer response to the National Labor Relations. Gives employers rights to oppose unions.

123
Q

1959 Labor Management and Disclosures Act.

A

Landrum-Griffin Act: Attempt to reduce labor union corruption.

124
Q

Right-to-work laws

A

Laws that prevent employers from forcing workers to join unions/pay fair share fees.

125
Q

What is a merger?

A

When two companies become one company. One company gets absorbed into the other

126
Q

Acquiring Company

A

remain after the merger

127
Q

Target Company

A

Company that is being sold

128
Q

Proxy

A

A share holder in a corporation who gives their right to vote to somebody else.

129
Q

Proxy Solicitation

A

Give me your proxy and I will vote one way.

130
Q

Rules for Proxy Solicitation

A
  1. Must be filed with SEC 10 days before being sent to shareholders
  2. SEC requires accuracy
131
Q

Dissenting Shareholder

A

have statutory rights from being oppressed. File a petition to an appraisal right.

132
Q

Appraisal Right

A

Entitles dissenter to be paid fair market value, regardless merger purchase price

133
Q

Consolidation in a Merger

A
  • Both companies merge into 1 new company

* This is uncommon – more legal hoops, kill off the old companies

134
Q

Types of Friendly Mergers

A

Stock Purchase
Short Term Merger
Asset Purchase

135
Q

Stock Purchase

A

When 1 company acquires all the stock of another
Two types
• Cash Merger: Amazon bought another company with money. Pays money in exchange for their stock. Target company ends up with money and no stock.
• Share Exchange: Acquiring company does not pay with money, but with stock.
• Approval from:
o Both boards
o Target shareholders
• Acquirer shareholder approval only if > 20% dilution

136
Q

Short Term Merger

A

 Acquirer already owns 90% or more of target company stock

You can then buy last 10% of stock without approval of board or anyone

137
Q

Asset Purchase

A

Acquiring company does not buy the stock
Acquirer buys target assets, but not stock – like manufacturing and equipment, intellectual property, etc . .
 Helps acquirer avoid liabilities
 For the benefit of the acquiring company
 Non-assignability clauses limit use of asset purchases
 Approval:
• Both boards
• Target shareholders

138
Q

Contested Merger-Tender Offer-Hostile Take Over

A

o When acquirer goes directly to the target shareholders and asks them to sell us your shares.

139
Q

Williams Act of 1968 – sets out the tender offer rules

A

o Must treat shareholders equally
o Each shareholder must receive the same price
o Pro rata purchase – can’t pick and choose which shares you want to buy.
o Any offers held must remain open for 20 days. So shareholders can consult their own advisors.
o 10 more days when offer is changed
o No dissenter’s rights for shareholders who don’t participate in the sell.

140
Q

Ways to Fight Tender Offers

A

o Negotiation – negotiate with acquiring company and convince them to not enter into a tender offer
o Lawsuits – can delay an offer so long attractive to acquiring company
o Self tender – target company goes to its own shareholder to buy back the shares
o Reverse tender – the company that is the target company decides to try and by the acquiring company. So both companies are trying to buy each other.
o Selling a crown jewel: One really important patent or piece of equipment that you can sell off then you make yourself less attractive as a target.
o White knight: when you get another acquirer to come in besides the company that is trying to purchase your company.
o Poison pill: something it can put into its contracts. If the ownership ever changes than the customer contracts are automatically terminated for example.
o Greenmail: target company tells the acquiring company can we just pay you money to go away and stop.
o Issuing more stock: does not raise the value of your company. It might make it more difficult for the acquiring company to get the company
o Some state laws make it more difficult to conduct a tender offer of a company – Delaware specifically. Might require acquirer to buy super majority of the company in order to do it.

141
Q

What is a Security?

A

o An equity and debt interests in a company
o Equity = stocks
o Debt = bonds and things like that

142
Q

Laws that regulate securities in the U.S

A

o Securities Act of 1933: regulates issuance of securities
o Securities Exchange act of 1934: regulates trading of securities
o Sarbanes-Oxley Act of 2002: In response to the Enron act in the previous year
 Adds lots of reporting requirements and increases penalties
o Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010
 More reporting requirements on companies
 Closed loopholes
 Reorganizes oversight of reg.

143
Q

Securities & Exchange Commission (SEC)

A

o Investigate violations
o Make rules in trading and issuing of securities
o Rely heavily on whistleblowers – can get up to 30% of money recovered by the SEC

144
Q

Reporting Company

A

• To be a company that is regulated by the SEC you need to be what’s called a Reporting Company

145
Q

Classification of a Reporting Company (3 ways)

A

 Publicly traded – on stock exchange
 Have made a registered offering
 >$10 million in assets and > 2,000 shareholders
• You have to file regularly with the SEC about your financial situation.

146
Q

Initial Public Offering

A

want to go public, can make a lot of money this way to expand
o When you sell stock of your company to the public for the first time.

147
Q

Issuer

A

company selling stock to the public
 Can be 1st time or just a new round – 1st time these shares are being sold to the public. If you sell a new batch of stock this is a form of IPO

148
Q

Underwriter

A

They create the market for the stock. Part transactional and marketing. You go and find people to buy stock of an IPO

149
Q

IPO Process – 4 main periods

A

o Prefiling period:
 From 1st thought until you file of registration statement
 Not allowed to sell securities
o Registration statement filing – all the information about the company – giant document – publicly available
o Quiet period
 Until SEC approves registration statement
 Company communication limited – not allowed to communicate certain things
 They can market securities
 Can’t finalize sales
o Posteffective period
 No limitations on company
 Sell all the stock

150
Q

Defenses to IPO claims

A

o If plaintiff knew statement was false/misleading they can’t turn around and sue you because they already knew it was false
o If the statement didn’t concern a material fact
o If you are not the issuer (like underwriter), and you did your due diligence and reasonable belief of accuracy of the document.
 Only available to sellers, and not to issuers. Good defense for underwriters.
 Issuers are liable for any false or misleading statements whether they did it on purpose or not.

151
Q

Shortcuts to file registration statement with SEC for IPO

A

o Reg A Offering
 Offering statement instead of registration statement.
 It is much much shorter
 Must sell no more than $50M in stock
o Well-known seasoned issuer offering
 Simplified statement
 Only qualify if one of the following two things are true
• Sold at least $1B in securities in the past 3 years
• Or already have $700M in equities in unaffiliated investor hands
o You have already sold a lot of stock to the public so you don’t have to do it all again

152
Q

Exemptions to file registration statement with SEC for IPO

A

o Two categories
 Exempt secuirities
• Anything issued by the government or non profit organization
• No new value, like stock splits
 Exemption transactions
• You can sell stock to the public without filing with the SEC if . . .
o Small offering exemption
 Up to $1M
o Private placement exemption
 Can raise as much money as you want, but you have to sell only to accredited investors
 Accredited investors
• People who have net worth of $1M or annual income of $200,000 – because they can afford to do their own due dilliegence
o Intrastate offering exemption
 If all you are doing is selling stock to people who live in the same state as where the company resides
 Sold only with 1 state
 Federal government does not have the power to regulate this transaction, but the state does, so the state might make you file something
o Nonissuer exemption
 If you are not the company that created this stock you don’t have to file a registration statement or anything like that to sell it
 Sold between subsequent purchasers

153
Q

Two laws that govern the trading of securities

A 
•	Section 10(b) of ’34 Act
o	Manipulation and deception in violation of SEC rules are prohibited
•	SEC Rule 10b-5
o	Prohibits defrauding
o	Untrue statements of material fact
o	Using any “device scheme, artifice”
o	Omitting a necessary material fact
o	Any “act, practice, or course of business” resulting in fraud
154
Q

Common Violations of Trading Securities

A

o Manipulating stock prices -reddit forum discussing stock -is that manipulation
o Ponzi schemes – when you take in money from investors and you tell them you will invest in securities, but instead you take that money to pay profits to other investors

155
Q

Insider Trading

A

o This is when some bit of non-public info leads to profit on a stock transaction – this is a crime and you can go to jail for this
o Who counts as an insider?
 Directors and officers
 Advisers
 Anyone owing fiduciary duties to a company
o What about non-insiders?
 Can still be charged under misappropriation theory:
• Anyone who wrongfully acquires and profits from non-public info has committed insider trading even if they are not an insider of the company.

156
Q

Short Swing Profits

A

o Profits realized by “statutory insiders”
 Statutory insider
• Director
• Executive officer
• Or holder of 10% stock of the company
 Profit belongs to company if stock bought and sold within 6-month period – these are short swing profits and it is illegal.
 We don’t want incentivize leaders to prop up their company temporarily to make a gain and then sell it right away. That is why if you buy it you have to hold it for at least 6 months.

MBA (18 decks)

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