business law Flashcards

1
Q

What is Agency Law?

A

Agency Law deals with someone’s ability to bind you to a contract with a third party

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2
Q

What is required for Agency to exist?

A

Both parties must consent to the relationship and intend for an Agency relationship to exist

Agent owes Principal fiduciary duty

Principal doesn’t owe Agent fiduciary duty

A contract is NOT required and an Agency agreement is not based on Contract Law; Exception - If duties cannot be performed within a year; a signed writing is required

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3
Q

What is Actual Authority in an agency?

A

Actual Authority is what is expressly granted or is implied by the duties you expect the Agent to perform and is necessary to carry them out

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4
Q

What is Implied Authority in an agency?

A

When authority is expressly granted; it is implied that the agent has the authority to carry out the duties

Does not include authority to sell or alter a business

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5
Q

What is Apparent (Ostensible) Authority in an agency?

A

Apparent Authority is based on the third party’s perspective - they believe that the Agent has the
authority to enter into a contract based on:

  • Prior dealings with agent
  • Agent’s title leads the third party to believe they can enter into a contract
  • The Principal hires the Agent to carry out duties that normally carry with them the rights to enter into contracts
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6
Q

How is an Agency terminated?

A
  • Both Agent and Principal agree to terminate
  • Principal fires Agent
  • Agent fires Principal
  • Agent breaches their contract by doing something like violating their obligation to act as a fiduciary to Principal
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7
Q

How do you terminate Apparent Authority?

A
  • Let the public know
  • Let the people or entities that the Agent previously interacted with know
  • In cases of death; or Principal is otherwise not competent to contract; ALL authority is revoked
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8
Q

What is an Agency Coupled with an Interest?

A

Agent acquires an ownership interest in the Agency

Can only be terminated early (before the interest expiration date) by the Agent

Unless the Agency has a specific time limit spelled out in a contract; the Agent’s authority is irrevocable
by the Principal

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9
Q

When is an employee an Agent; and when does this make the employer liable?

A

Employees are agents while acting within the scope of their duties.

For employees who injure third parties while acting within the scope of their duties; both Employee and Employer are liable

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10
Q

When are Agents liable for torts (civil wrongs) they commit?

A

Agents are liable for torts (civil wrongs) committed whether they had authority or not

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11
Q

Are Agents who act outside of their authority liable?

A

Agents who act outside of their authority will be liable for the act

Exception - Principal ratifies the contract which relieves Agent of liability

In order to ratify; Principal must know all of the facts and must ratify before third party cancels agreement

If Principal keeps the benefits of the contract; ratification is implied

Contract must be 100% ratified or there is no contract

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12
Q

What is an Agent’s liability when acting for an undisclosed principle?

A
  • Agent liable to third party even if acting within authority
  • Third party can sue both Principal and Agent if Principal becomes disclosed
  • Agent can then sue Principal
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13
Q

What are the requirements for a Power of Attorney (POA)?

A

Must be in writing

Must be signed by person granting the POA

Ends upon death of Principal

General POA - Agent authorized to handle all affairs

Special POA - Agent authorized to handle only specific affairs

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14
Q

What are the basic actions that occur in a bankruptcy?

A

Bankruptcy gives creditors protection from their creditors and stops them from either permanently (Chapter 7) or temporarily (Chapter 11 or 13) collecting a debt. The filing halts collection activity; grants automatic stay (with certain exceptions), and stops creditors from suing debtor.

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15
Q

For what debts does bankruptcy NOT stop collections?

A
Student Loans
Income taxes from previous 3 years
Alimony & Child Support
Debts/judgements resulting from drunk driving
Pension obligations
Debts relating to SOX violations
Debts arising from illegal activities
Debts not listed in the bankruptcy filing
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16
Q

How does bankruptcy of a corporation affect the owner’s ability to file bankruptcy?

A

It doesn’t; because the corporation is a separate legal entity.

Under bankruptcy; corporations are dissolved

Under bankruptcy; individuals are discharged

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17
Q

What key action will cause a bankruptcy discharge to be denied?

A

If a debtor fails to keep good records or falsifies documents; a discharge will be denied

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18
Q

What are the basic characteristics of a Chapter 7 bankruptcy (liquidation)?

A

Discharges all non-exempt debt

Can only be filed every 8 years from previous Chapter 7 filing

Voluntary or involuntary filing

Certain businesses are disallowed from Chapter 7 bankruptcies - Railroads; Banks; Insurance companies; Savings & loans (think: 7th inning RBIs)

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19
Q

What are the requirements for a voluntary bankruptcy filing under Chapter 7?

A

Must pass means test

Your income must be below the median income for your state (Note - median; i.e. middle; not mean; i.e. average)

Credit card companies made it harder for people to declare Chapter 7 when they lobbied Congress in 2005

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20
Q

What are the requirements for an involuntary bankruptcy filing under Chapter 7?

A

In some cases; your creditors can force you into Chapter 7 or Chapter 11 BK

Creditors must be able to prove that they are not being paid on time (i.e. debtor is insolvent) or that within the past 120 days the debtor assigned a custodian of the secured property

If 12+ unsecured creditors - at least 3 must file; claims must be in excess of $15325

If less than 12 unsecured creditors - only 1 must file; claim(s) must be in excess of $15325

Upon filing; a judge will declare an order for relief unless the debtor protests

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21
Q

What entities are disallowed from involuntary Chapter 7 bankruptcy filings?

A

Charities

Farms

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22
Q

How can a debtor reclaim possession of their property from the interim bankruptcy under Chapter 7?

A

If the debtor pays the court-assigned bond to keep a property in an involuntary BK; they can
reclaim possession of their property from the interim BK trustee

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23
Q

What are the basic characteristics of a Chapter 11 bankruptcy (business repayment) filing?

A

Allows a business a reprieve from creditors
Creates a payment plan for the debt
Business remains in operation
At least 2/3 of each debt class of creditors must consent to reorganization
Ch. 11 Involuntary petitions are allowed

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24
Q

What are the basic characteristics of a Chapter 13 bankruptcy (personal repayment) filing?

A

Similar to Chapter 11; but for individuals

Gives individuals a reprieve from creditors

Creates a payment plan for the debt

Ch. 13 Involuntary petitions are not allowed

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25
Q

What are the duties and abilities of a bankruptcy trustee?

A

Represents the bankruptcy estate

Can sue or be sued

Oversees bankruptcy and watches for preferential creditor payments

Oversees priority transfer of assets to creditors

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26
Q

How and when is a bankruptcy trustee appointed?

A

Optional - Creditors decide

Can be elected by creditors or can be appointed by the court

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27
Q

What actions can a bankruptcy trustee take with respect to preferential creditor payments in a bankruptcy?

A

Trustee can void payments on antecedent (past) debts that occur within 90 days of a BK filing

A Trustee cannot void a payment made to a creditor that is an even swap (contemporaneous exchange) and for new value

A voidable preference must be on an old debt where the debtor is basically picking and choosing which creditors they send money to (AKA a voidable preference)

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28
Q

When can preferential transfers be voided by a bankruptcy (BK) trustee?

A

Made within One Year of BK to insider - Corporate officers/directors; Partners; Relatives

Made within 3 Months of BK non-insider

Creditor receives larger payment than BK liquidation would have granted

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29
Q

What is the treatment of a secured creditor in a bankruptcy?

A

Superior to claims of other types of creditors

Can take either collateral or cash proceeds from the sale of an asset

If collateral doesn’t satisfy amount owed; Secured Creditors become a general creditor for the difference.

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30
Q

What is the order of priority given to unsecured creditors in a bankruptcy?

A
  1. Court Costs and Fees
  2. Child Support & Alimony
  3. Expenses from ordinary course of business during bankruptcy proceedings
  4. Wages owed to employees
  5. Retirement contributions within last 6 months
  6. Consumer deposits for undelivered goods
  7. Taxes
  8. Other general unsecured claims
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31
Q

What are key aspects of a bankruptcy involving a landlord or leases under Chapter 7?

A

The bankruptcy trustee can act in the best interest of the creditors and assign the leases under contract to the creditors

The trustee has 60 days to assume leases on equipment after bankruptcy is granted or the leases will be rejected

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32
Q

What is the bankruptcy estate?

A

The pool of assets available to creditors until liquidation

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33
Q

What assets are exempt from creditors in a bankruptcy estate?

A

Social security

Disability payments

Unemployment; Child Support; Alimony; Wages; Pensions; Annuities to the extent that they provide reasonable support for debtor and dependents

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34
Q

How long after a Chapter 7 bankruptcy filing can creditors claim inheritance or insurance payments for repayment?

A

Inheritance/Insurance payments received within 180 days of filing for a Chapter 7 bankruptcy become part of the BK Estate

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35
Q

What is a garnishment with respect to a bankruptcy?

A

Court allows a creditor to garnish or take a portion of the debtor’s paycheck

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36
Q

What is a mechanics lien?

A

Lien on real property to secure payment for a repair/improvement done to the house

A contractor builds an addition to your house and you won’t pay. They can’t repo your house; so they get a Mechanics Lien that sticks until you sell your house and they get paid

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37
Q

What is an artisan’s lien?

A

Applies to personal property like a car

If the dealership does $500 in repairs to your car; you don’t get the car back until you pay

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38
Q

What is a surety (co-signing)?

A

A third party agrees to be liable for a loan

Example: A parent co-signs on their child’s car loan

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39
Q

How is a surety liable in a transaction?

A

A surety is primarily liable

Surety can be released from liability if the creditor behaves in a way that increases the risk that they
initially agreed to

Surety can be released from liability if the debtor changes the loan agreement in a way that materially
increases the surety’s risk

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40
Q

What is a cosurety; and how are they liable in a transaction?

A

Two sureties are guaranteeing the same debt

Proportionately liable - If one cosurety is released from their obligation; then the remaining cosureties
have their proportionate share reduced by the released party’s percentage

If one surety pays more than their proportionate share of the risk; then the other sureties must compensate them for the difference; which is called Right of Contribution

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41
Q

What is a guarantor?

A

Similar to surety; but a guarantor is secondarily liable

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42
Q

What are the basic rights of a debtor under the Fair Debt Collection Practices Act?

A

Basically - your creditors have the right to collect from you; but not abuse you or embarrass you

The can’t contact you once you’re represented by an attorney

They can call other people to find out where you are; but they cannot identify themselves as collectors

They must stop calling you at work if you send them a certified letter that says my employer doesn’t allow me to take calls at work.

They must call you only at reasonable hours of the day - according to your time zone; not theirs

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43
Q

What are the key elements of a valid Partnership?

A

Must have two or more partners. Must intend to engage in business for profit. Life of partnership is of limited duration in most cases. Agency/fiduciary relationship is created. Partnership interest is always considered personal property.

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44
Q

Can corporations and other partnerships become partners in a partnership?

A

Yes; corporations and other partnerships can become partners of a partnership

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45
Q

Name the Basics of Partnership Formation - Form of agreement and intent

A

Agreement can be very informal - either ORAL; IMPLIED or WRITTEN

Intent is to make a profit

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46
Q

When must a partnership agreement be in writing?

A

Must be WRITTEN if partnership activity falls within Statute of Frauds:

A. Can’t be completed in 1 year

B. Even if partners reside in different states; not necessary unless within Statute of Frauds

C. Neither dollar amount of transactions nor purchasing of real estate has bearing on whether partnership agreement must be in writing

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47
Q

How are profits shared in a partnership?

A

Profit sharing is equal by default

A. Unless partnership agreement says otherwise

B. Unless specified; sharing of losses follows same pattern as sharing of profits

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48
Q

What is the Liability of General Partners in a partnership?

A

Joint Liability - Partners are collectively liable for debts/torts

Several Liability - Partners are individually liable for debts/torts

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49
Q

Which assets may creditors of a partnership go after; and in which order?

A

Creditors must go after partnership assets first before suing partners individually

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50
Q

What are the rights of a General Partner in a partnership?

A

General Partners have joint control over the management of the partnership and its affairs

Unanimous vote needed to change the structure of the partnership

Each partner has full right to inspect partnership accounting and business

Partner has the authority to assign their interest to another partner

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51
Q

What does and does NOT happen when a General Partner assigns their partnership interest to someone else?

A
  1. Other party gets that partner’s share of the profits and/or capital contribution.
  2. Does NOT give assignee authority to vote on partnership business
  3. Assignee does NOT have right to inspect partnership books
  4. Assignor still maintains liability
  5. Partner does NOT have the right to assign their interest in partnership property or allow partner’s creditors to attach a lien.
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52
Q

What is the actual authority of a partner in a partnership?

A

Has authority to bind the partners to a contract.

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53
Q

What is the APPARENT authority of a partner in a partnership?

A

A third party reasonably believes partner has authority to bind partnership to contract

Cannot use apparent authority to add a new partner

Cannot use apparent authority to sell or bind partnership assets

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54
Q

With respect to liability on subsequent debts; what happens when a partner withdraws from a partnership?

A

Partner not liable assuming notice given.

Notice must be given to nullify apparent authority

People who had knowledge of their role must be personally notified

Public must be notified

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55
Q

With respect to PRECEDING debts; what is the liability of a partner in a partnership?

A

Old partners: Jointly and severally liable unless creditors grant novation

New partners: Only capital account at risk on preceding debts. For subsequent debts; they are joint and severally liable.

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56
Q

What happens upon the death of a partner in a partnership?

A

Partner’s estate gets share of partnership profits and capital account

Estate does NOT get any partnership assets

Remainder of partners own partnership assets

Heirs of decedent are not added as partners unless remaining partners unanimously agree

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57
Q

What happens during the winding up of a partnership and in what order?

A
  1. Creditors get paid; Partners can also be creditors
  2. Distributions in arrears get paid
  3. Partners get return of Capital accounts
  4. Any remaining distributions

Note: NO documents need to be filed with state to dissolve general partnership.

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58
Q

What are the requirements to form a Limited Partnership?

A

Governed by state L.P. laws

Must file L.P. certificate with Sec. of State

Only General Partners must be listed

Future additions or subtractions of G.P. require certificate to be updated with state

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59
Q

How are profits and losses split in a Limited Partnership?

A

Unlike G.P.; L.P. profits/losses are split according to capital contributions by default

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60
Q

True or False: In a Limited Partnership; a General Partner can also be a Limited Partner at
the same time.

A

True.

A Limited Partner; however; cannot also be a General Partner and maintain limited liability.

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61
Q

Do limited partners have a fiduciary responsibility to a Limited Partnership?

A

No. Limited Partners are do not have a fiduciary responsibility to Limited Partnership

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62
Q

What authority does a limited partner have under a Limited Partnership?

A
  1. Right to inspect records of the business.
  2. Can still vote on partnership business without losing limited liability
  3. Can consult and advise partnership without losing limited liability (assuming they don’t actually make the decisions)
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63
Q

What limitations does a limited partner have in a Limited Partnership?

A
  1. They have no authority as an agent to bind the partnership
  2. They can’t participate in management decisions and maintain limited liability.
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64
Q

What is the liability of a limited partner in a Limited Partnership?

A

Limited partners are liable to the extent of their capital contributions only

Exception - A Limited Partner (who cannot participate in management decisions) becomes involved with management decisions

Becomes liable to third parties IF they knew of their involvement

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65
Q

When does the dissolution of a Limited Partnership occur?

A

Automatically happens

  1. Once final General Partner leaves
  2. Time specified in certificate lapses
  3. Event specified in certificate happens
  4. Unanimous consent by partners
  5. Illegal activity
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66
Q

What is required to form a Limited Liability Partnership (LLP)?

A
  1. Majority vote required to form LLP
  2. Articles of LLP filed with Secretary of State
  3. Governed by laws of that State
  4. Limited Liability Partnership must be in name
  5. No General Partners - each LLP partner has limited liability - Exception: Negligence of partner or those under partner’s supervision
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67
Q

What are the key aspects of a Limited Liability Company (LLC)?

A

Members can participate in management and retain limited liability

Members don’t own any interest in LLC property

Members can assign interest; but not transfer it

Members divide profits equally unless otherwise stated

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68
Q

What are the key aspects of Joint Ventures (JV)?

A

Similar to a General Partnership; except generally; a JV is for a single business activity
Example: two companies promote a concert

Ability to bind other JV partners is limited

JV partners still have a fiduciary responsibility to JV

No state filings or paperwork necessary

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69
Q

What are the key aspects of a corporation?

A

Shareholders have limited liability to the extent of their capital contribution

C Corporations have a perpetual life and continue even after shareholder death

Corporations are a separate legal entity from their owners and can own property; sue; be sued

Corporations must file Articles of Incorporation in state of governance

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70
Q

What are some of the advantages of a corporation?

A

Ability to raise capital

Limited liability - unless actions occur that pierce the veil

Ease of ownership transfer

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71
Q

What actions can pierce the veil of a corporation?

A

Commingling of assets

Fraud

Under-capitalization

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72
Q

How is a corporation governed?

A

Board adopts Corporate Bylaws to govern company business

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73
Q

What items are required in a corporations Articles of Incorporation?

A

Name; purpose; powers of Corporation

Name of registered agent & incorporators

Stock share classes authorized; par values

Name of corporate officers NOT required

74
Q

What is the biggest disadvantage of a corporation?

A

Double taxation

75
Q

How are corporations formed by promoters?

A

Promoter issues prospectus; arranges capital; and is a fiduciary of the corporation.

A promoter may profit from work performed if the corporation is aware of it.

76
Q

When is a corporation liable for pre-incorporation actions taken by a Promoter?

A

Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.

77
Q

In how many states must a corporation incorporate?

A

Corporations are only incorporated in one state

Become adomestic corp. in that state

Become aforeign corp. in any other state they do business in

78
Q

Describe Common Stock dividends and their rights/liabilities in relation to shareholders/corporations.

A

Dividends are NOT a shareholder right

Once declared; dividends become a liability to corporation

79
Q

What are key aspects related to the holding of Preferred Stock?

A

No voting rights

Get first rights to dividends and liquidation

Cumulative Preferred Stock dividends that go undeclared accumulate and Corporation must pay it before issuing dividends to Common Stockholders

Participating Preferred Stock gives shareholder right to dividends in addition to what they get as Preferred Stockholders

80
Q

What aspects are related to all classes of corporate stock?

A

Valid consideration must be given for shares

Cash; property; or services performed

No promises to pay or perform services

81
Q

What are the key aspects of Treasury Stock?

A

No Gain/Loss recognized on Treasury stock

Have no voting rights

Can be re-purchased below par

Cannot produce dividends

82
Q

What is a stock subscription and what is required for it to be valid?

A

An offer to buy shares of stock

Must be accepted by corporation to be valid

Offer cannot be revoked for 6 months

Subscriber becomes liable once accepted

83
Q

When is a corporation liable for torts by employees?

A

If committed within the normal scope of the employee’s job

Even if they were disobeying orders

Per respondeat superior

84
Q

What are the key aspects of a corporate officer?

A

Appointed by the Board of Directors

Act as Agents

Owe a fiduciary duty to the corporation

Can have legal fees paid by corporation for defense in lawsuit brought on them from carrying out their normal duties (exception- suit brought against officers by shareholders)

85
Q

What are the key aspects of a corporation’s board of directors (BOD)?

A

Elected by shareholders

Owe fiduciary duty to corporation

Must act in good faith to avoid being liable for bad judgment

Good faith is NOT a defense for negligence

86
Q

What is Ultra Vires?

A

Corporation management acting beyond what the Articles of Incorporation allow

Shareholders can sue for Ultra Vires

87
Q

When is inspecting Board minutes the right of a shareholder?

A

Shareholders can inspect Board minutes and records only if request is in good faith

88
Q

Who must approve mergers and consolidations?

A

Boards must approve

Shareholders must approve by Majority

Disapproving shareholders can get an appraisal and get their stock back at current market price

Merger does NOT need creditor approval

89
Q

What characterizes a Professional Corporation?

A

Shares owned only by licensed professionals (CPAs; attorneys; etc.)

Limited Liability for debts

Personal Liability for negligence

90
Q

Who can and cannot own an S-Corporation?

A

CAN be owned by Estates; Trusts; and Individuals

CANNOT be owned by a C-Corporation

91
Q

What is the primary advantage of an S-Corporation?

A

Avoidance of Double Taxation

92
Q

What are the disadvantages of an S-Corporation?

A

No more than 100 shareholders allowed

One class of stock allowed

Shareholders must be US Citizens/Residents

93
Q

What is a promissory note?

A

A promise to pay a specific amount. There are two parties involved - maker and a payee. It can reference other transactions without harming the instruments negotiability. Example: Bank Certificate of Deposit (CD)

94
Q

What is a draft?

A

A commercial paper involving three parties- a drawer; a payee and a drawee

A drawer orders a sum to be paid to a payee by the drawee

May be payable on demand or in the future

95
Q

What is a check?

A

A check is a type of draft that is payable ON DEMAND; payable to order of drawer or bearer

Drawer - person writing the check

Payee - person being paid

Drawee - the bank

96
Q

What is the difference between a post-dated check and a negotiable time draft?

A

A check is payable on demand; even if post-dated.

A negotiable time draft is not payable until the date designated for payment.

97
Q

What is a trade acceptance?

A

Seller extends credit to Buyer

Buyer agrees to pay Seller - Buyer has primary liability

Seller is both Drawer and Payee - Seller has Secondary Liability

98
Q

What is the purpose of the negotiation of commercial paper?

A

Transfers ownership to another party

99
Q

What is required to maintain the negotiability of a commercial paper?

A

Must be in writing

Signed by drawer/maker

Be without conditions for payment (other than limitations on payment sources)

Amount of money must be stated

Payable to order or bearer

100
Q

What characteristics will cancel the negotiability of a commercial paper?

A

An additional promise is stated in addition to the promise to pay (like the option to purchase Real Estate)

The promise to pay occurs after some action by another party or an event; it cancels negotiability

Cannot allow for an alternative such as payment or some other action by the maker

Note: a stated amount of payment plus a stated % of interest is OK

101
Q

What is required to negotiate Order Paper?

A

Must have delivery and endorsement

If paper is exchanged for value; transferor must give an UNQUALIFIED endorsement

102
Q

What are the major types of endorsements on commercial paper?

A

Blank - Doesnt name a new payee; transforms into a bearer paper

Special - Names a new payee; transforms into an order paper

Restrictive - Adds restrictions; doesnt stop further negotiation

Qualified - Payment not guaranteed; without recourse added to endorsement

103
Q

If endorsed; within what amount of time must a check be presented for payment in order to hold the ENDORSER liable?

A

Within 7 days

104
Q

On a commercial paper; which value will supersede - words or numerical dollar amount?

A

Written amount supersedes the numerical dollar amount.

For example; if the words say One hundred dollars and the numerical amount states $1000.00; the value of the paper will be $100.00.

105
Q

Define primary liability with respect to a contract.

A

First in line to pay on the note/draft

Maker of a Promissory Note has primary liability and must pay according to terms of the note

With a Check; no party has Primary Liability

Exception: Drawee (your bank) is primarily liable to pay if they certify - i.e. promise to
pay

106
Q

Define secondary liability with respect to contract liability

A

Drawers are Secondarily Liable if Drawee fails to pay a Draft

Endorsers (the payee) are secondarily liable

Holder in due course can hold Endorser liable

Exception: Endorsed Without Recourse

107
Q

Define contract liability.

A

Guarantees payment of a liability

108
Q

When does warranty liability occur?

A

Occurs when you negotiate commercial paper

By signing; you warrant to all future parties

By not signing; you warrant to current party only

109
Q

What five warranties occur with every commercial paper transfer?

A

Warranty of Title

No defense will stand against it

No material alteration

No knowledge of bankruptcy proceedings

All signatures are legitimate

110
Q

What are the requirements for a holder to be a holder in due course?

A

Holding a negotiable instrument

Taking instrument in Good Faith - Even if you buy a stolen note and you dont know that its stolen; youre still an HDC

Having no knowledge of defenses again instrument; i.e. problems with the instrument

Giving a present value for the instrument (a future value doesnt count)

111
Q

What are the personal defenses against a holder in due course (HDC) which will LOSE?

A

An HDC takes an instrument free of Personal Defenses (LOSE vs. HDC)

Lack of consideration/value given
Breach of contract/warranty
Duplicate payments
Fraud (in the inducement only)
Voidable contracts

112
Q

What are the REAL defenses against a holder in due course (HDC); which will WIN?

A

A holder in due course takes an instrument subject to Real Defenses (WIN vs. HDC)

Material alterations to the instrument
Forgery
Bankruptcy
Maker not competent to Contract
Fraud in the execution

113
Q

What must a contract contain?

A

Offer, Acceptance, Consideration, Proper form (oral or written), Legal subject matter, 2 Competent parties

114
Q

What forms may acceptance of a contract take?

A

Can be written or oral

Must be in the form/method required by offeror

Must be mirror image - i.e. no changes in terms

115
Q

Who can accept an offer?

A

Must be accepted by intended party (offeree)

Acceptance can only be made by a party who knows an offer has been made and has all of the facts - AKA a meeting of the minds

They must intend to accept

116
Q

What happens if an offeree accepts a contract but puts added stipulations?

A

It is not acceptance; but instead becomes a counter-offer and the original offeror is now the offeree

117
Q

What will void an offer?

A

If offeror dies or becomes insane before acceptance; offer is void.

Contract is binding if acceptance occurs before death/insanity.

118
Q

What actions or circumstances will revoke a contract?

A

Offeror revokes and offeree receives revocation

Offeree finds out prior to acceptance that offeror has sold the item

In the case of an Option; offeror cannot revoke until the time of the option has elapsed

Initial rejection by offeree doesn’t void the option.

119
Q

What is an Option?

A

Some amount of consideration (like money) is put forth by offeror to keep the offer open for a
stated period of time

120
Q

What is a Requirements Contract? How are they limited?

A

These are contracts where someone becomes the exclusive provider of something in exchange for
consideration

Companies can’t get locked in to one and then have market conditions force them to sell something at
what has become an unreasonable price

121
Q

What is promissory estoppel?

A

Promises to donate are legally enforceable

Basically; you can’t tell a charity; Hey; if you buy this
$100;000 piece of land; I’ll pay for the building that
will go on it; and then renege on your promise

122
Q

What can make a contract VOID?

A

Fraud in the execution

Formed under extreme duress - extreme

Illegal

123
Q

What can make a contract VOIDABLE?

A

Fraud in the inducement

Party not competent to contract

Formed under SIMPLE duress

Undue influence

124
Q

What is the result of a clerical error in a contract?

A

The contract is unenforceable.

Example: Person signs a contract to pay $500.00 to have
their lawn re-seeded but due to clerical error; it actually reads $5000.00

125
Q

Contracts under the Statute of Frauds must be in what form to be valid?

A

They must be in writing.

126
Q

What makes a contract subject to the Statute of Frauds?

A

o Cannot be completed within one year
o Involves the purchase of real estate
o $500+ Sale of Goods
o Co-signing and guaranteeing the debt of another

127
Q

What is the parol evidence rule?

A

Prevents one party to a written contract from coming in after the fact and claiming that a certain
conversation took place that conflicts with what is agreed upon in the written contract

It also prevents using an oral argument to read into the meaning of what is written on paper

If it’s on paper; it trumps what was agreed-upon orally prior to the written contract

Note: does not negate oral agreements made AFTER the contract or disallow oral words from clarifying ambiguous contract language.

128
Q

What are the requirements for the assignment of a contract?

A

Contracts are assignable to a third party beneficiary; but must be done so in good faith

Obligations may be assignable- Assignor is still liable

Assignor may be released from liability if other party grants a novation

129
Q

When can contracts be discharged by law?

A

Party under contract is bankrupt

Party under contract dies or is incapacitated

Party cannot physically complete the contract (i.e. They are in prison so can’t finish building your house)

130
Q

What is considered the biggest change to financial regulation since the Great Depression of the 1930s?

A

The Dodd-Frank Wall Street Reform Act of 2010

131
Q

What is the goal of the Volcker Rule?

A

Banking Institutions maintain healthy capitalization ratios

132
Q

How does the Volcker Rule limit banking institutions?

A

Limits banking institutions from owning more than 3% of a hedge fund’s total ownership interest

Limits banking institutions from owning interests in hedge funds that exceed 3% of their Tier 1 Capital (Common Stock + Retained Earnings + non-redeemable; non-cumulative Preferred Stock)

133
Q

What does the Volcker Rule require banking institutions to disclose?

A

Relationships with hedge funds must be fully disclosed to regulators

134
Q

Describe the Federal Unemployment Tax Act

A

An employer-paid tax. Must file return and pay even if only one employee works there. Deductible to company - Not deductible by the employee. Allows employers to credit the FUTA liability by the amount of State Unemployment Tax (SUTA) they pay.

135
Q

What are the major aspects of FICA and Social Security taxes?

A

Paid by Employer AND Employee - Employer withholds from employee’s paycheck and must pay tax matching employee’s withholding

If employer under-withholds; they are required to make up the difference

Self-employed individuals must pay both the employer and the employee share; which is Self Employment Tax

People drawing Social Security may have their benefits reduced if they go back to work and earn an income

136
Q

When is an employee covered by Workman’s Compensation?

A

Employees injured on the job get protection; even if they messed up and caused the injury themselves

Exception: If the employee intentionally harmed themselves; there is no Workman’s Compensation

137
Q

What age group is protected under Age Discrimination Laws?

A

They protect people ages 40 and above at companies where at least 20 people are employed

138
Q

What are the tenets of the Occupational Safety and Health Act (OSHA)?

A

Employers should promote a safe workplace and environment for their employees to work in

Injury records must be kept
Penalties can be both
o Civil - $1;000 fine per day
o Criminal - Could include imprisonment

Employer can require a search warrant for OSHA to investigate their facilities

139
Q

What types of discrimination are prohibited for employers based on civil rights laws?

A

Sex

Race

Religion

National Origin

140
Q

What are the powers granted under the Environmental Protection Act?

A

EPA has the power to assess civil penalties for violating environmental laws like the Clean Air Act
The EPA can sue violators
Citizens can sue violators
States can sue violators
Citizens can even sue the EPA to force enforcement
For hazardous waste sites: owners; operators; transporters; and lenders associated with the site can
be held liable

141
Q

What are the key points of the 1933 Securities Act?

A

Governs Initial Public Offerings (not subsequent sales). Covers registration statements and accompanying information filed with SEC. Information must include audited financial statements & a prospectus. Note: Even if a company is exempt from registering under the 1934 Act; they still must adhere to the anti-fraud provisions of the Act

142
Q

What entities are exempt from filing registration statements under the 1933 Securities Act?

A

Banks; Commercial Paper; Farmers; Co-ops; Charities; Governments

Also exempt: Securities sold in ONE state; where investors are residents; 80% of business done in one state; and resales can’t occur within 9 months to interstate parties.

143
Q

What are the key points of the 1933 Securities Act; Regulation A?

A

Issuer can issue $50M of securities per year and be exempt if they file a notice with the SEC

Non-issuers (AKA a private individual) can sell $1.5M per year and be exempt

144
Q

Under the 1933 Securities Act; Regulation D; what are Rules 504; 505 and 506?

A

Rule 504- Max Amount per year: $1M; Max Investors: Unlimited

Rule 505 - Max Amount per year: $5M; Max Investors: 35 Unaccredited or Unlimited Accredited

Rule 506 - Max Amount per year: Unlimited; Same as 505; but Unaccredited investors must be sophisticated

145
Q

What are the registration form options under the 1933 Securities Act?

A

S-1 - Long Form or

S-2 and S-3 - Less Detailed and preferred by issuers

146
Q

Name the securities registered under the Securities Act of 1933.

A
Stocks
Stock Options
Stock Warrants
Limited Partnership Interests - General Partnerships not allowed
Bonds
147
Q

Who can sue under the Securities Act of 1933?

A

Purchasers of securities only

148
Q

Name the Requirements for Accountant to be liable under the Securities Act of 1933.

A

Damages & Material Misstatements Only

o Reliance on financial statements are not a requirement unless purchased more than a year after the security is registered

Proving negligence is not a requirement

149
Q

Name the Defenses of an Accountant under the Securities Act of 1933.

A

Accountant used Due Diligence

Accountant followed GAAS

Damages weren’t caused by accountant’s work

Plaintiff knew of the material misstatements

150
Q

What does the Securities Act of 1934 govern?

A

The trading/selling of securities after the IPO

151
Q

What reports must be filed under the Securities Act of 1934?

A

Form 10-K Annual Report - Must be audited

Form 10-Q Quarterly Report - Must be reviewed; but not audited

Form 8-K - A notice of a material event; Must be filed within 4 days of event

152
Q

Who can sue under the Securities Act of 1934?

A

Purchases and Sellers of Securities

153
Q

Name the Requirements for an Accountant to be liable for fraud under the Securities Act of 1934.

A

Damages

Material Misstatements

Reliance on financial statements

Scienter or reckless disregard for the truth

154
Q

What procedures must an Accountant have in place under the Securities Act of 1934?

A

Accountant must have procedures in place to:
Determine if Going Concern is an issue
Determine if any material related party transactions occurred

Determine if material illegal acts occurred

155
Q

Insider trading rules under the Securities Act of 1934 apply to which individuals?

A

Officers; Directors and 10% Owners

156
Q

What are the Proxy Solicitation Requirements under the Securities Act of 1934?

A

Proxy must give shareholders audited balance sheets from 2 most recent years

o Requirement holds true even if one class of stock

157
Q

What does Real Property include?

A

Land, Buildings fixed to the land, and Property under/above the land.

158
Q

What are the characteristics of a deed?

A
Must be in writing
Signed
Description of Property
Delivered
Recorded
159
Q

What are the characteristics of a Mortgage?

A

Must be in writing
Signed
Description of property
Delivered

160
Q

What are the characteristics of a lease?

A

No writing required if

161
Q

What is personal property?

A

Tangible property; such as cars; equipment; etc.

Intangible property such as patents; trademarks; copyrights; etc.

162
Q

What are the three requirements for a gift?

A

Intent for it to be a gift

Delivery of the gift

Acceptance of the gift

163
Q

What are the rights of found property?

A

Lost property - Finder’s rights to property are less than Owner’s

Abandoned property - Finder’s rights to property are greater than Owner’s

164
Q

What is tenancy in common?

A

Undivided interest in a portion of the property

Upon death; property goes to decedent’s heirs

165
Q

What is joint tenancy?

A

Undivided interest in entire property

Upon death; property goes to other joint tenants

166
Q

What sales are covered under the Uniform Commercial Code (UCC)?

A

Only sales of goods are covered under the UCC.

167
Q

What elements are needed for a sale covered under the Uniform Commercial Code (UCC)?

A

Offer - You offer to sell something at a price

Acceptance - the other party accepts

Consideration - Something of value has been exchanged for the goods

Note: The UCC only covers sales of goods.

168
Q

What are the elements of a Firm Offer?

A

You offer to sell something at a price and keep that offer open for a set period of time

3 months max

Only merchants can make firm offers

Must be in writing and signed

169
Q

Under what situations are sales of goods covered by the Statute of Frauds? What are the exceptions?

A

If value of goods sold is > $500; sales contract must be in writing

Exceptions: Merchants can enter into oral contracts for > $500 items.

Oral contracts are binding for special or uniquely-made items (i.e. custom cabinets or custom furniture that could not be sold if buyer reneged)

170
Q

When does title and risk of loss transfer on a sale of goods?

A

If terms are:

FOB shipping point: Title transfers at point of shipment (i.e. when loaded on truck)

FOB destination: Title and risk transfers once item is delivered

171
Q

What is a Warranty of Title?

A

The seller has the right to sell the good and no one else can stake claim to that good

172
Q

What is Warranty of Merchantability?

A

This good will do its intended purpose

Can be disclaimed

173
Q

What is Warranty of Fitness?

A

This good is the right choice for you based on the seller’s expert opinion

Can be disclaimed

174
Q

What is strict liability with respect to buyer protection?

A

Manufacturers of goods cannot disclaim that their products will be safe

Can be liable if negligent

175
Q

What are non-conforming goods with respect to buyer protection?

A

Buyer can reject some or all of the shipment if the seller didn’t perform as agreed and ship what was expected

Must give notice

Must give seller a chance to remedy the situation

176
Q

What is the statute of limitations with respect to buyer protection?

A

Buyer must sue to recover damages within 4 years.

177
Q

When does a security interest attach; or become legally enforceable?

A

Secured interest must be supported by consideration given. Debtor must actually own the rights to the collateral or have possession. Secured interest much be recorded

178
Q

What are the characteristics of perfection of interest in a secured transaction?

A

Gets higher priority over others claiming rights to collateral after the perfection takes place

Attachment must take place BEFORE perfection

179
Q

How does perfection occur in a secured transaction?

A

By filing a financing statement

By possessing the collateral

180
Q

When does automatic perfection occur in a secured transaction?

A

Store sells a consumer good on credit - Store retains security interest

A bank finances the purchase of a consumer good - Bank retains security interest

181
Q

What are the priority rules for payment in a secured transaction?

A

If two parties are perfected; then the first one to file wins

If neither party is perfected; then the first one to attach wins

182
Q

What are the advantages of a creditor holding a lien in a secured transaction?

A

Creditor holds priority over claims to collateral vs. unperfected security interests

Beats perfected security interests filed after lien attachment

Exceptions: Purchase money security interest; which has a 10 day grace period to be filed

Buyers purchasing in the ordinary course of business are immune from security interests held by merchants