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R8 Flashcards

1
Q

Surety

A

one who is liable for the debt or obligation of another

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2
Q

Parties in Suretyship

A

creditor, principal, surety

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3
Q

Surety vs. Guarantor

A

*surety is directly liable whereas the guarantor is only secondarily liable

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4
Q

Is suretyship covered by the Statute of Frauds?

A

Yes

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5
Q

Gratuitous Surety vs. Compensated Surety

A

Gratuitous

  • any variation of risk releases surety
  • promise must be made before the loan; after doesn’t count

Compensated

  • any variation of material risk releases surety
  • consideration is compensation
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6
Q

Another term for compensated surety

A

bonding company

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7
Q

Creditor’s Rights when Debtor Defaults

A
  1. immediately demand payment from the surety
  2. immediately demand payment from the debtor
  3. immediately go after collateral, if there is any

*guarantors have the right to require a proceeding against the debtor or collateral first

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8
Q

Surety’s Rights against Debtor

A
  1. exoneration (suit to compel payment)
  2. subrogation (enforcement of creditor’s right against principal)
  3. reimbursement (suit against principal after payment)
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9
Q

Surety’s Rights against Co-Sureties

A
  1. exoneration (before surety pays; each pays pro rata fair share)
  2. contribution
    * *not specified: split equally
    * *varying amounts: pro rata contribution reimbursement
    * *co-surety discharged: eliminate from total calculation; will get nothing from them
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10
Q

Defenses of Surety

A

C reditor bad faith
P ayment and tender of payment
R elease of principal debtor
S urety’s incapacity or bankruptcy

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11
Q

Loss of Security and Release of Co-surety

A
  1. release of security held by the creditor discharges the surety in the amount of the value of the security released
  2. a release of a co-surety without the other’s consent means that the remaining surety is discharged to the extent that the surety could have recovered
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12
Q

No Defense Situations for Suretyship

A
  1. principal’s fraud or duress upon surety
  2. incapacity of principal
  3. bankruptcy of principal
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13
Q

Creditor’s Rights outside of Suretyship

A
  1. Creditor’s Composition (pays less than full claims in full satisfaction)
  2. Assignment for the Benefit of Creditors (debtor releases property to trustee who sells property and uses proceeds to pay creditors)
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14
Q

Judicial Liens

A

*specific property owned and possessed by the debtor

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15
Q

Garnishment

A

*property in the hands of a third party that is due to the debtor

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16
Q

Exemptions for Judicial Liens and Garnishment

A
  • homestead exemption
  • limit on wages
  • protect personal injury awards
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17
Q

Mechanic’s Lien

A

*automatic lien on property for the price of the repairs so long as it is in the lienor’s possession

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18
Q

Indications of Fraudulent Conveyances for Suretyship

A
  • transfer to insider
  • debtor retained possession or control
  • not disclosed or concealed
  • value received for the asset was not reasonable
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19
Q

Remedies for Suretyship and Fraudulent Conveyances

A
  • void or voidable
  • requires legal process to repossess fraudulently transferred property
  • no-self help
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20
Q

Fair Debt Collection Practices Act

A
  • does not apply to creditor attempting to collect its own debts
  • prohibits contacting at inconvenient times, abusive language, contacting directly when there is an attorney, making false claims
  • can terminate contracts by submitting IN WRITING that they will not pay the debt
  • sue for actual damages and 1,000 statutory damage award
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21
Q

Requisites for Principle and Agent Relationship

A

Principle: capacity and consent
Agent: consent
*writing is required for over one-year contracts and sale of land

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22
Q

Power of Attorney

A

*individual has power to act on behalf of the principal

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23
Q

Duties of Agent to Principal

A
  • fiduciary
  • duty of loyalty
  • duty of obedience
  • duty of reasonable care
  • duty to account
  • can hire a subagent
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24
Q

Principal’s Remedies

A
  • tort damages
  • contract damages
  • recovery of secret profits into CONSTRUCTIVE TRUST
  • withhold compensation
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25
Q

Duties of Principal to Agent

A

Implied

  • compensation
  • reimbursement

*can bring action for damages caused

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26
Q

Power to Terminate Relationship is _______

A

at will; have power but not necessarily the right

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27
Q

Power, but no right =

A

breach of contract

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28
Q

Major exception to Power to Terminate Relationship

A

*principal has no power or right to terminate relationship when agent is a creditor

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29
Q

How can agency power arise?

A
  1. actual authority (power and right)
  2. implied authority or estoppel (power but no right)
  3. ratification (power but no right)
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30
Q

Implied Actual Authority

A
  • authority to do things reasonably necessary to carry out the agency
  • i.e. a manager
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31
Q

Termination of Actual Authority

A
  1. agent quits or gets fired at will

2. accomplishment of objective or expiration of stated period

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32
Q

Termination of Actual Authority by Operation of Law

A
  1. death
  2. incapacity
  3. discharge
  4. failure to acquire license
  5. destruction of the subject manner
  6. subsequent illegality
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33
Q

Apparent Authority

A
  • “holding out” by the PRINCIPAL that the individual is an agent for the principal
  • this cannot be established by the agent
  • based on a third party’s reasonable belief that the agent has the power to bind the principal
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34
Q

Common Apparent Authority Situations

A
  • position or title

* secret limiting instructions are not effective (will still have apparent; not actual)

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35
Q

General vs Special Agent

A 
general = continuity of service
special = one or more transactions
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36
Q

Notice Generally Required to Terminate Apparent Authority

A
  1. old customers = actual notice

2. new customers = constructive notice

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37
Q

Termination of Apparent Authority by Operation of Law

A

*terminates all authority (actual and implied)

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38
Q

Ratification

A
  • no actual or apparent authority
  • principal must ratify the ENTIRE transaction
  • only a DISCLOSED principal may ratify
  • cannot ratify if it is illegal or third party withdraws prior to ratification
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39
Q

Agency and Contractual Liability

A
  1. principal liable if agent had authority (actual or apparent) or principal ratified
  2. agent liable if undisclosed or partially disclosed
  3. undisclosed principal only liable to third party if agent has ACTUAL authority
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40
Q

Agent’s Liability

A
  • not liable if disclosed principal and authorized
  • liable if principal is partially disclosed or undisclosed an undisclosed principal
  • *third party can hold either principal or the agent liable if the principal was undisclosed or partially disclosed
  • *no apparent authority with
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41
Q

Principal’s Liability

A
  1. actual authority
  2. apparent authority
  3. ratification
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42
Q

Tort Liability and Agency

A

GR: principal is not liable for the torts committed by agents
*exception for employers - respondeat superior
Step 1: employer-employee relationship (not contractors)
Step 2: within scope of employment
**exception for intentional torts

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43
Q

Sole Proprietorship

A
  1. personal liability
  2. life of entity is restricted to life of proprietor
  3. flow through tax treatment
  4. free to transfer interest in sole proprietorship
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44
Q

Formation of General Partnership/JV

A
  1. papers need not be drawn up to form
  2. do not need to file with state
  3. express agreement is not required, agreement can be implied

*JV is limited in scope

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45
Q

When is writing necessary for a general partnership?

A

*partnership is to last more than one year (Statute of Frauds)

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46
Q

Act that presumes partnership existence

A

sharing of profits

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47
Q

Operation of a General Partnership

A

*management rights and voting power are not based on the amount contributed

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48
Q

Items Requiring Unanimous Approval for General Partnership

A
  1. admitting new partners
  2. confessing a judgment or submitting a claim to arbitration
  3. making a fundamental change in the partnership business
  4. changing the partnership agreement
  5. assigning partnership property to others
  • unanimous and thus no apparent authority
  • EXCEPTION: can be dissolved by just one person
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49
Q

Agency Law and General Partnership

A
  • every partner is an agent of the partnership and acts as both an agent and principle in business transactions
  • actual authority in agreement
  • apparent authority in title in ordinary course of business transactions
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50
Q

Rights of Partners in General Partnership

A
  1. partners do not own partnership property
  2. partner has a personal property interest in the partnership consisting of the right to share in the profits and surplus
    * interest is assignable but the assignee does not become a partner
    * charging order: creditor’s may attach a partner’s interest
    * heirs are entitled to equity only; no property
  3. right to indemnification and contribution
  4. right to inspect books and records
  5. right to bring legal action against partnership
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51
Q

Duties and Legal Obligations of Partners

A
  1. fiduciary duty owed to other partners

2. each partner is personally liable for all partnership obligations (joint and several)

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52
Q

Two Ways for a General Partnership to Terminate

A
  1. dissociation

2. dissolution

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53
Q

Dissociation of General Partnership

A
  1. partner gives notice of withdrawal, dies, becomes bankrupt, expelled
  2. right to participate in management ceases but apparent authority continues until notification
    * remains liable for debts prior to dissociation unless there has been novation or release
    * can be liable for debts after dissociation if not notice is given
    * new partner is not liable for old debts
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54
Q

Dissolution of General Partnership

A
  • at will, gives notice of withdrawal, partners agree to dissolution, court order
  • can continue until its business is wound up
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55
Q

Distribution of Assets from Partnership - Accounting

A
  1. creditors
  2. partners’ contributions (capital)
  3. divide profit or loss
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56
Q

Limited Liability Partnership Differences from General Partnership

A
  1. personal liability, not liable for other partners, only lose up to investment
  2. LLP must file with the state
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57
Q

Limited Partnership

A
  • need at least one general partner
  • no perpetual life
  • filing with the state
  • limited partners are very much like shareholders
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58
Q

Operation of a Limited Partnership

A
  • general partner is personally liable for all partnership debts
  • general partner may be a limited partner at the same time
59
Q

Limited Partners

A
  • limited to investment and unpaid capital commitments
  • no right to take part in management and is NOT an agent
  • partner may vote on extraordinary matters without incurring liability
  • names cannot be used with the business
  • does not owe a fiduciary duty to the partnership
60
Q

Allocation of P/L in Limited Partnership

A

*based upon capital contributions, unless an agreement states otherwise

61
Q

Death of which type of partner will result in dissolution of limited partnership?

A

general partner only

62
Q

Are LLCs distinct legal entities?

63
Q

Two main features of LLCs

A
  1. limited liability of corporation

2. pass through of p/l

64
Q

With whom must an LLC file?

A

the secretary of state for the individual state

65
Q

Member-Managed Limited Liability Company vs. Manager-Managed Limited Liability Company

A

agents vs. not agents

66
Q

Voting Strength and P/L Allocation for LLC

A
  1. proportional to contributions

2. allocated according to contributions

67
Q

Elements of LLC that are unlike a corporation

A
  1. transferability of ownership and rights

2. termination of an LLC

68
Q

Corporations are owned by ______ and managed by ________.

A

shareholders, directors

*exception: closely held company

69
Q

Formation of a Corporation

A
  1. corporations are created and governed by statute
  2. Promoters procure capital commitments; not agents; liable until novation
  3. Articles of Incorporation
  4. Bylaws
70
Q

Elements of Articles of Incorporation

A
  • filed by incorporators
    1. name of corporation
    2. registered agent
    3. names and addresses of each of the incorporators
    4. number of shares authorized to be issued
  • *one or more classes must have unlimited voting rights
71
Q

Purpose Clause / Ultra Vires

A

*cannot usually act ultra vires

72
Q

Bylaws

A
  • rules of corporation
  • not part of the articles of incorporation
  • do not have to be filed with the state
73
Q

Piercing the Corporate Veil

A
  1. undercapitalized
  2. disregard for dual entity
  3. committing fraud on existing creditors
74
Q

Consideration for Corporate Stock

A

*may be issued in exchange for any benefit to the corporation

75
Q

Shareholders Rights, Duties, Obligations, and Authority

A
  1. voting rights (cumulative vs non-cumulative)
  2. distributions (not have a right to distribution until declared)
  3. right to inspect books and records (for proper purposes)
  4. preemptive rights
  5. dissenting shareholder appraisal rights
  6. derivative action
76
Q

Dissenting Shareholder Appraisal Rights

A

D issolutions
A mendment to the articles of incorporation
M erger
S ale of substantially all of the corporation’s assets outside the normal course of business

77
Q

Directors - Rights, Duties, Obligations, and Authority

A
  1. declaration of distributions
  2. fiduciary duties and BJR
    * *cannot compete but must disclose conflict of interest
  3. indemnification (unless bad faith)
  • may not vote by proxy
  • quorum
  • majority approval
78
Q

Officers - Rights, Duties, Obligations, and Authority

A
  1. selection and removal by directors
  2. authority from agency
  3. fiduciary duties and indemnification
  4. may also serve as directors
  5. not required to be shareholders
79
Q

Fundamental Changes to Corporation

A

*require board and shareholder approval
D issolution
A mendments to the articles of incorporation
M erger, acquisition, etc.
S ale of substantially all assets outside the normal scope of business

80
Q

General Procedure for Fundamental Changes to Corporation

A
  1. board resolution
  2. notice to shareholders
  3. shareholder approval
  4. filing of articles
81
Q

Corporate Merger, Consolidation, and Share Exchange

A
  1. merger: A + B = A
  2. consolidation: A + B = C
  3. share exchange

Share Exchange:
Seller: board and shareholder approval
Buyer: board approval

Merger of Subsidiary: owning 90% does not require board and/or shareholder approval

82
Q

FICA

A

Purpose: benefits for death, disability, retirement
Participants: generally everyone (self-employed over $400)
Who pays?: both employer and employee
**employees: gross wages
**self-employed: net profits
Deductibility: employer only
Benefits: can receive more than was contributed (not Medicaid)

83
Q

FUTA Unemployment Compensation

A

Purpose: provide unemployment insurance
*excludes self-employed
Participants: quarterly payroll of $1,500 or one person for 20 weeks in a year
Who pays?: employer only
Deductibility: employer only (ordinary business expense)
Benefits: only when an employee’s job termination was not his/her fault; not limited to contributions made

84
Q

Worker’s Compensation

A

*strict liability
Purpose: recover from injuries while on the job regardless of fault (except fighting, intoxication, and self-inflicted wounds) (scope of employment) (generally cannot sue employers)
Participants: most employers
Who pays?: employer only (coverage is compulsory)
Benefits: not limited to what was paid in
Deductibility: employer only as ordinary business expense

85
Q

Employment Discrimination

A

*any type except age
1. Title VII (EEOC hears complaints)
Defenses: seniority, merit, qualification
2. Equal Pay Act
3. Age Discrimination (40 and over and employer with 20 or more workers)
**public safety defense
4. ADA (all public buildings even if privately owned)
**15 or more employees

86
Q

OSHA

A

Who: all businesses affecting interstate commerce

  • whistle-blower protection
  • without advance notice and without a search warrant
  • civil and criminal penalties
87
Q

Fair Labor Standards Act

A

*wages and hours
1. federal minimum age and overtime
2. child labor restrictions
Exclusions: newspaper, cab driver (overtime), white-collar exempt from both

88
Q

OHSA

A

Who: all businesses affecting interstate commerce

  • whistle-blower protection
  • without advance notice and without a search warrant
  • civil and criminal penalties
89
Q

National Labor Relations Act

A
  • bargain collectively
  • Wagner act
  • prohibits employers but also puts restrictions on the unions
90
Q

OHSA

A

Who: all businesses affecting interstate commerce

  • whistle-blower protection
  • without advance notice and without a search warrant
  • civil and criminal penalties
91
Q

Pensions and Retirement Act (ERISA)

A
  • not required to have one
  • if they do, they must follow guidelines
  • vesting, receive same information
  • not everyone needs to be eligible, can be age/time restraint
92
Q

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

A
  • can continue health coverage for 18 months and EMPLOYEE’S expense
  • employers with 20 or more employees
  • even if you resign
93
Q

Money Laundering Overview

A
  1. placement
  2. layering
  3. integration
94
Q

Bank Secrecy Act

A

*primary tools used to fight money laundering

95
Q

Government Agencies Involved

A
  • Financial Crimes Enforcement Network
  • Federal Banking Agencies (FDIC, etc.)
  • only Department of Justice pay pursue criminal cases
96
Q

Required Reports and Records for Bank Secrecy Act

A
  1. Reports: $10,000 within 15 days

2. Records: 5 years, $3,000

97
Q

Financial Institutions Defined

A

*banks, pawn brokers, casinos, travel agencies, etc.

98
Q

Suspicious Activity Report (SAR)

A

30 days

  • know thy customer
  • notify board of directors; not the officers/suspect
99
Q

Recording Keeping Requirements for Bank Secrecy Act

A
  • Customer Identification Program (CIP)

* purchaser verification (5 years; $3000)

100
Q

Phase I Exemptions from the CTR Filing Requirements

A
  1. banks
  2. government agencies
  3. entities listed on national stock exchange or NASDAQ
101
Q

Phase II Exemptions from the CTR Filing Requirements: ineligible businesses

A

types of businesses historically used to wash illegal money

102
Q

Internal BSA Compliance Programs

A
  1. written
  2. approved by board of directors
  3. noted in minutes
    * independent testing of compliance
103
Q

Money Laundering Penalties

A

criminal (DoJ) and civil

104
Q

Sections of Sherman Act

A
  1. restraints on trade

2. monopolies

105
Q

Rule of Reason Test

A
  • usually used with vertical mergers

* balance effects

106
Q

Per Se Violations

A
  • actions that by their nature are inherently illegal

* usually used with horizontal mergers

107
Q

Horizontal vs Vertical Restraints

A

horizontal: competitors
vertical: suppliers/customers

108
Q

Concerted Action Requirement

A

*required only in Section 1

109
Q

Types of Restraints Continued

A

Price Fixing (horizontal or vertical (resale price maintenance))
Market Allocations
Boycotts
Tying Arrangements

110
Q

Monopoly Defined under Section 2 of Sherman Act

A
  1. monopoly power
  2. power was achieved unfairly or abused once achieved

*market share of more than 70% is monopoly

111
Q

Exception to Monopoly under Section 2 of Sherman Act

112
Q

Section 7 of Clayton Act - Mergers and Acquisitions

A

horizontal: competitors
vertical: customers/suppliers
conglomerate: those in different businesses
EXCEPTION: failing company with no other buyer

113
Q

Clayton Act

A

*stop such activities in their incipiency

114
Q

Section 7 of Clayton Act - Mergers and Acquisitions

A

horizontal: competitors
vertical: customers/suppliers
conglomerate: those in different businesses
EXCEPTION: failing company with no other buyer

115
Q

Robinson-Patman Act

A

*price discrimination for like grade and quality items

116
Q

Enforcement of Clayton and Robinson-Patman Act

A

*civil ONLY

117
Q

Federal Trade Commission Act

A

*misleading ads
*unfair or deceptive practices
*no private party suits permitted (unlike Sherman/Clayton)
**government only
Statutory and Judicial Exemptions

118
Q

Article 7 of UCC

A
  • warehouse receipts

* bills of lading

119
Q

General Characteristics of Documents of Title

A
  1. issuer is the bailee (UPS or warehouse)
  2. negotiable if goods are delivered to order/bearer
    * *HDC
    * **present value
    * **good faith
    * **no notice
  3. negotiation depends on order or bearer document
  4. effect of negotiation: title to document and goods on document
  5. transfer or warranties: good faith
  6. negotiability for deliver: same as negotiable instruments
  7. Nonnegotiable document: not order or bearer; must be delivered to order/bearer (called consignee)
120
Q

Warehouse Receipts

A
  1. Essential Terms
    * Who
    * What
    * Where
    * When
    * How much
    * Signed

*ordinary care only, not like carriers

121
Q

Bill of Lading

A
  • document of title issued by a carrier
  • identify the goods being shipped
  • Consignor: carrier
  • Consignee: delivered to

Duty of Care: high standard of care
*liable for all damages but may limit liability contractually

122
Q

Dodd-Frank Act of 2010

A

I: Financial Stability Act
II: Bankruptcy of Financial Institutions

FSOC

  • identify risks
  • eliminate expectations that government will bail out
  • respond to threats
123
Q

Financial Reporting under Dodd-Frank Act

A
  • over $50 billion in assets
  • *financial condition
  • *system in place to monitor and control risks
124
Q

Title II of Dodd-Frank Act

A
  • authority to liquidate risky and ailing companies

* Secretary of Treasury puts institutions not covered into receivership

125
Q

Orderly Liquidation Fund

A
  • capitalized for a period of 5-10 years

* anything regulated by Federal Reserve

126
Q

Securities Regulation under Dodd-Frank

A
  • those who avoided 1933 requirements
  • required records
  • *amount of assets under management and use of leverage
  • *swaps
  • *valuation policies
  • *types of assets held
127
Q

Volker Rule

A

*limited to 3% in risky assets

128
Q

Title VII of Dodd-Frank Act

A

*no more private over-the-counter swaps with credit risk

129
Q

Title IX of Dodd-Frank Act

A
  • recommendations must be suitable to needs and in best interest
  • regulations on Moody’s, S&P, Fitch
130
Q

Large Change from Title IX of Dodd-Frank Act

A
  • executive compensation must now be approved at least once very three years by shareholders
  • no longer just the board
131
Q

Noncontributory Plan

A

employer pays all

132
Q

Claiming worker’s compensation bars you from doing this:

A

suing the company for negligence

133
Q

Short-Form Merger & Effect on Stockholders and Directors

A
  • no voting needed from either group

* shareholders in acquired corporation are entitled to appraisal rights

134
Q

Once a dividend is declared, a shareholder becomes this type of creditor

A

an unsecured creditor

135
Q

An LLC must elect to be treated as this

A

a corporation

136
Q

Who can terminate an agency relationship coupled with an interest?

A

the agent only

137
Q

Exoneration

A

suit to compel payment from debtor

138
Q

Subrogation

A

enforcement of creditor’s right against principal

139
Q

Reimbursement

A

suit against principal after payment (get paid back by debtor)

140
Q

Contribution

A

collect funds from co-surities

141
Q

What is a charging order?

A

creditor attaches to partner’s interest in partnership

142
Q

Negotiable Documents of Title Delivery Requirements

A

Bearer: delivered only to party possessing bearer document or one designated
Order: delivered to party listed or person who holds the negotiated document

143
Q

Effect of Negotiation for Documents of Title

A

Acquires title to document and goods

Becker REG (9 decks)

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