Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CPA REG > R8 BLAW > Flashcards

R8 BLAW Flashcards

1
Q

surety

A

one who is liable for debt or obligation of another

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

surety vs guarantor

A

surety is directly liable

guarantor is liable to the creditor only if the debtor does not perform their duty to the creditor
- creditor has to exhaust all remedies against debtor first

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Statute of Frauds

A

MYLEGS

Surety’s promise must be evidenced in writing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Gratuitous Surety

A

not compensated

  • anything that varies the surety’s risk releases surety
  • suretyship promise made after the loan contract has been made will NOT bind the gratuitous surety due to lack of consideration
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Compensated Surety

A

paid surety

  • bonding company is a typical example
  • to discharge compensated surety, creditor must make material change
  • compensated surety is bound to perform regardless of timing of promise
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Surety’s Rights Against Creditor/Lender

A
  • no right of notice: creditor doesn’t have to immediately notify the surety when principal has missed payments
  • no right to compel collection: to tell them to get it from debtor
  • no right to compel creditor to apply security held: to reduce debt before proceeding against the surety

when debtor defaults, creditor may do any:

  • immediately demand payment from surety
  • immediately demand payment from the debtor
  • immediately go after surety’s collateral, if any
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Surety’s Right Against Principal Debtor

A

Exoneration: suit to compel payment before surety pays creditor

Subrogation: enforce any rights creditor had against the principal
- including right to enforcement of any security interest and any priority in bankruptcy that the creditor had

Reimbursement: suit against principal after payment

  • aka indemnification
  • entitled to reimbursement for any amount paid
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Surety’s Right Against Co-Sureties

A

two or more sureties of the same obligation

  • jointly and severally liable
  • Exoneration: suit to compel sureties to pay their pro rata share of the debt before payment
  • Contribution: After covering payment, entitled to co-sureties share of the payment
    a. if the contract doesn’t specify liability of each surety, each surety is liable for pro rata share determined by number of solvent sureties
    b. if co-surety’s obligation is discharged in bankruptcy, their agreed shares should not be considered in determining the pro rata shares of remaining
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Defenses of Surety*

A 
"CPRS" will release surety
Creditor "bad faith"
- defrauded principal
- duress upon principal 
- illegality of principal's obligation
Payment and tender of payment by debtor
Release (complete) of principal debtor
Surety's incapacity or bankruptcy
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Effect of Alterations in Contract for Surety

A

Gratuitous Surety- any changes release surety
Compensated Surety- material increase in risk releases surety

  • extension of time
  • loss of security: discharges surety in amt of value of the security released
  • release of co-surety: remaining surety discharged to extent that they could’ve recovered from the released surety
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

No Defense Situations for Surety

A

Principal’s Fraud or Duress upon Surety
- if surety induced through fraud or duress by principal, not a defense against an innocent creditor

Incapacity of Principal
- infancy, insanity, or illegality of principal not a defense, only own

Bankruptcy of Principal

  • not a defense, only own bankruptcy
  • even tho it discharges the rights of both the creditor and the surety against the principal
  • doesn’t defend surety against creditor
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Debtor’s Options to Alleviate Debt

A

Besides filing a petition in bankruptcy

  • Creditor’s Composition: agreement b/w debtor and at least 2 creditors that debtor pays less in full satisfaction of their claims
  • Assignment for the Benefit of Creditors: debtor transfers some or all of their property to a trustee, who disposes of the property and uses proceeds to satisfy debtor’s debts
    a. debtor isn’t discharged from unpaid debts tho
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Judicial Lien

A

creditor requests court to impose a lien on specific property owned and possessed by the debtor

  • after imposing lien, court will issue writ of attachment to seize property, sell it, and turn over proceeds to the creditor
  • with personal property liens, lien attaches upon seizure of the property by the sheriff
  • with real property, lien attaches on date judgement is docketed by court
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Garnishment

A

when debtor has property in hands of third party, a writ of garnishment may be sought

  • the writ orders the person holding the prop to turn it over to the creditor or be held liable for the value not turned over
  • federal law provides that SS payments are not subject to garnishment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Exemptions from Judicial Liens and Garnishments

A

most states protect certain property:

  • homestead exemption excluding items of a person’s households to a certain amount
  • personal injury awards
  • limit amt of employee’s wages that may be garnished
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Mechanic’s Liens and Artisan’s Liens

A

under common law, mechanic or artisan who repairs or improves property automatically has a lien on the property, for the price of the repairs, for as long as the property is in the lienor’s possession
- require notice before selling debtor’s property to satisfy debt

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Fraudulent Conveyances

A

occurs when debtor transfer property w the intent to hinder, delay, or defraud any creditors

court will consider whether:

  • transfer was to an insider
  • debtor retained possession or control of transferred property/ retains equitable benefit
  • was not disclosed or was concealed
  • value received by the debtor was not reasonable

will be set aside in proper proceedings, HOWEVER creditor cannot, without legal process, repossess fraudulently transferred property

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Fair Debt Collection Practices Act (FDCPA)

A

curbs abuses by collection agencies

  • federal act
  • doesn’t apply to creditor attempting to collect it’s own debts, just to services that collect debts for others

prohibits:

  • collection agencies’ ability to call third parties to indirectly pressure debtor
  • can only ask about debtor’s whereabouts, but can’t disclose it’s a collection agency
  • contacting debtor at inconvenient or unusual times
  • harassing or abusive language
  • making false or misleading claims

Debtor’s Power to Terminate Contracts
- notify agency in writing that debtor will not pay debt and they have to stop communication

Damages

  • debtor can sue for actual damages
  • debtor can have statutory $1,000 damage award
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Agency

long, testable history

A

legal relationship in which the principal appoints another person/entity (agency) to act on his behalf

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Requisites for Creation of Agency

A
  1. Principal with Capacity and Consent
    - writing generally not required UNLESS to buy or sell Land or impossible to perform in 1 year (MYLEGS)
    - agents don’t need capacity: minors can be agents
    - consideration not required
  2. Power of Attorney
    - written authorization of agency
    - agent has power to act on behalf of the principal
    - only principal required to sign the power of attorney
    - agent’s authority is limited to specific transactions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Duties of Agent to Principal

A

whatever duties stated in contract + following 4:

  1. Duty of Loyalty
    - act solely in principal’s interest
    - e.g. can’t obtain kickbacks from a third party
  2. Duty of Obedience
    - obey reasonable instructions
  3. Duty of Reasonable Care
    - liable if negligent
  4. Duty to Account
    - cannot commingle principal’s property w the agent’s property

Subagent
- if agent is authorized to hire a subagent, they owe duty of care to both agent and principal

If agent Breaches, principal can recover tort damages, contract damages, recovery of secret profits by imposing a constructive trust, withhold compensation

22
Q

Duties of Principal to Agent

A

in addition to duties stated in contract:

  1. Compensation
    - unless the agent has agreed to act gratuitously
  2. Reimbursement
    - for all expenses incurred in carrying out the agency

If Principal Breaches, agent can bring action for any damages caused and has duty to mitigate damages

23
Q

Power to Terminate Principal-Agent Relationship

A

GR: terminable at will but don’t necessarily have the right to terminate
- liable for breach
EXCEPTION: agency coupled with interest cannot be terminated by principal, only agent can terminate
- arises when agency has paid for the right to be appointed
- also death or bankruptcy of principal is exception

24
Q

Agent’s Power to Contractually Bind Principal to Third Parties*

A

agency power can arise through:

  • grant of actual authority (power and right, other 2 are power but no right)
  • apparent authority or estoppel
  • ratification
25
Q

Actual Authority

A

authority the agent reasonably believes he possesses bc of principal’s communications

  • Express actual authority: oral/written
  • Implied actual authority: authority to do things reasonably necessary to carry out the agency
    e. g. business managers

Termination of actual authority

  • agent quits or gets fired “at will”
  • note: principal can’t fire agent coupled w interest
  • accomplishment of objective or expiration of stated period
  • by operation of law: death, incapacity of principal, discharge in bankruptcy of principal, failure to acquire a necessary license, destruction of subject matter, subsequent illegality
26
Q

Apparent Authority

A

agent will have power, but not the right, to bind principal

  • principal hold’s out (gives title like manager)
  • principal’s failure to give notice of termination

Termination of apparent authority by Operation of Law– no notice

  • death of either
  • incapacity of principal
  • principal receives discharge in bankruptcy
27
Q

General vs Special Agent

A

general agent involves continuity of services

special agent performs one or more transactions

28
Q

Ratification

A

allows a principal to choose to become bound by a previously unauthorized act of his agent

  • agent indicated they were acting on behalf of principal
  • all material facts disclosed to principal
  • principal must ratify entire transaction, no partial

any act may be ratified unless:

  • illegal
  • third party withdraws prior to ratification

only disclosed principal can ratify, not agent or undisclosed principal

29
Q

Agent’s Liability to Third Parties

A
  • If agent has authority, principal is bound regardless of disclosure
  • if agent didn’t have authority, principal is bound only if he ratifies
  • agent can be held liable if principal is partially disclosed or undisclosed
30
Q

Third Party’s Liability

A

GR: only principal can hold third party liable, not agent

exceptions:

  • principal’s identity was fraudulently concealed or
  • performance to principal would increase burden on third party
31
Q

Tort Liability

P/A

A

GR: principal not liable for torts committed by agent

exception: if an employer, can be liable for employee’s torts committed within the scope of employment
- doesn’t relieve agent, injured person may sue both

employer usually liable for employee’s negligence and not liable for intentional torts

32
Q

Employee vs Independent Contractor

A

employee works full time

IC has his own business, tools, etc.
GR: employers not liable for torts committed by independent contractors

33
Q

Scope of Employment

P/A

A

injury must have occurred while employee was working for the employer within the time and geographic area

34
Q

Sole Proprietorship

A
  • sole proprietor not considered an entity separate from the business
  • profits and losses go on Schedule C 1040 for sole proprietors
  • formation: no formality required
  • liability: personally liable
  • life: cannot extend beyond the life of the sole proprietor
  • taxation: flow through
  • transferability: free to transfer
35
Q

General Partnership/ Joint Venture

A
  • joint venture is formed for single transaction/project or series, but GP is continuous

Formation: no formalities unless want to be partner for >1 year then writing is required (Statute of Frauds)

Liability: unlimited personal liability (GP =/= LLP)

Management: equal rights, not based on amount contributed

  • majority vote for ordinary course of business
  • unanimous content for other matters: admitting new partners, confessing a judgement/admitting liability, fundamental changes, use of name, changing partnership agreement, assigning partnership property to others

Taxation: flow through taxation

Dissociation: partners give notice, dies, bankrupt, or is expelled
- remains liable for debts prior to dissociation for 2 years

Dissolution: partnership continues after dissolution until it’s business is wound up

  • partnership is not of unlimited duration
  • final distribution: creditors, partners, partner’s contributions, split excess profit/loss equally
36
Q

Limited Partnership

A

Formation: Must file with State (like corp)

Liability: general partners have personal liability and limited partners liability is limited to their investment

Life: not unlimited, unlike corp

Management: GP manages, LP doesn’t
- LP names can’t be identified w the business

Transferability: unaninmous consent

Profit and Losses: proportional to contributions

Termination: withdrawal or death of a GP causes dissolution, but not death of LP

  • order of dist: creditors, former partners, partners contributions, then split profit/loss
  • only GP liable for loss
37
Q

Limited Liability Company

A

Formation: filing articles of organization w state, 1 person LLC allowed

Liability: limited for all

Taxability: flow through

Profit and Losses: proportional to contributions (unlike GP & LLP, but like corp)
- voting power also based on contributions

Transferability: unanimous consent

Termination: death, retirement, resignation, bankruptcy, etc of a member

  • unless remaining members vote to continue business
  • limited life
38
Q

Limited Liability Partnership

A

Similar to GP

except
Liability: not personally liable for acts of other partners or employees
- just liable for own negligence and those under direct control
- not personally liable for debts and obligations of LLP

Formation: must file with State

39
Q

S Corporation

A

Formation: file Articles of Incorporation or Corp Charter w state (like corp) but also S election

Requirements:

  • no more than 100 shareholders
  • must be individuals, estates, or certain trusts
  • must be domestic
  • foreign shareholders generally prohibited
  • only one class of stock

Liability: limited to investment

Management: Board of Directors appoint officers to run day to day management

Taxability: Flow through, unlike corp

Transferability: Free to transfer, just not to foreign

40
Q

Corporation

A
  • Formation: file Article of Incorporation or Corporate Charter w State
  • name, names and address of corp’s “registered agent” and of incorporators, number of shares authorized
  • 1 or more classes of shares must have unlimited voting rights

Liability: limited to investment

Management: Board of Directors appoint officers to run day to day management

Taxation: “double taxation” income taxed at corp level and taxed again to shareholders when dividends are distributed

Life: Perpetual

Transferability: Free to transfer

41
Q

Ultra Vires Act

Corp

A
  • optional purpose clause
  • can be narrow or broad
  • if narrow and undertakes business outside of clause, it is acting “ultra vires”
  • director/officer who authorizes an ultra vires act may be liable for damages caused by the act
42
Q

Bylaws

Corp

A

rules for running the corp

  • not part of articles of incorp
  • not required to be filed with state
43
Q

Piercing the Corporate Veil

Corp

A

courts may hold shareholders, officers, or directors liable for 3 reasons:

  • shareholders commingle personal funds w corp funds
  • corp was inadequately capitalized at time of formation
  • committing fraud on existing creditors
44
Q

Financing the Corp

Corp

A

corp capital comes from issuance of securities

  1. Debt Securities (Bonds)
    - secured mortgage bonds, unsecured debentures, convertible bonds
    - bondholders are creditors
  2. Equity Securities (Stocks)
    - stockholders are owners of the corp
    - corp may choose to issue several classes or series of stock w varying rights
    - common stock: if corp issues only one class
    - BoD has discretion to issue stock at any price it thinks is appropriate
45
Q

Shareholders

Corp

A

Voting Rights

  • to remove directors
  • fundamental changes “DAMS”
  • 1 share, 1 vote except: cumulative voting for directors
  • voting is majority, not unanimous *
  • “DAMS” require shareholder approval
  • Dissolution
  • Amendment of articles of incorp
  • Merger, consolidation, or share exchange (except short-form merger)
  • Sale of substantially all of corp’s assets outside ordinary course of business

Distributions

  • no right to distribution
  • preferred shareholders entitled to certain amount before nonpreferred
  • stock dividends issued from corp’s authorized but unissued shares, shareholders don’t owe taxes bc no assets are distributed

Preemptive Rights
- when a corp proposes to issue add. shares of stock, current shareholders have right to purchase shares to maintain their proportional voting strength

Right to Inspect Books
- only for proper purpose

Derivative Actions

  • to enforce corp’s right, action may be brought against directors or outsiders
  • to vindicate wrongs against corp

Direct Actions is to vindicate shareholder’s own rights against corp
- appropriate, rather than derivative action

46
Q

Directors

Corp

A
  • not individual agents
  • election, removal, and supervision of officers
  • changes to bylaws
  • management compensation
  • initiating fundamental changes
  • discretion to declare distributions
  • not liable for acts performed in good faith, truly believed to be best interest of corp, w care of an ordinarily prudent person
  • right to rely on info from:
    a. corporate officers, employees, or committee
    b. legal counsel, accountants, etc
  • Duty of Loyalty: prohibits directors from competing w corp but NOT from transacting business w corp
  • Conflict of Interest okay if:
    a. full disclosure and
    b. fair and reasonable transaction

Indemnification: corps indemnify for expenses for any lawsuit except in shareholder derivative suit

Termination: dissolution is a fundamental change DAMS requiring director and shareholder approval

  • can also be pursuant to a court order
  • continues after dissolution while winding up

Calendar Year or Fiscal, but must be approved by IRS for fiscal

47
Q

Officers

A
  • individual agents
  • run day to day operations/management
  • selection and removal by directors
  • may also serve as directors of the corp
  • not required to be shareholders
  • fiduciary duties
48
Q

Merger

A

A + B = A

  • one corp survives
  • both corps must follow procedure for fundamental corp changes
49
Q

Consolidation

A

A + B = C

  • both corps cease to exist, form new corp
  • both corps must follow procedure for fundamental corp changes
50
Q

Share Exchange

A

one corp acquires all outstanding shares of 1+ class of stock of another corp

  • both continue to exist as separate entities
  • only corp whose shares are acquired need to follow fundamental change procedures
51
Q

Short Form Merger

A

merger of a parent corp that owns 90%+ of subsidiary can merge without approval of shareholders or board

52
Q

What bond is an obligation of a Surety?

A

Official Bond
Many states require public officials to obtain bonds from a surety for faithful performance of their duties. Such bonds obligate a surety for all losses that the public official causes by negligence or nonperformance of required duties.

CPA REG (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions