1
Q
Surety
A
one who is liable for the debt or obligation of another
2
Q
Parties in Suretyship
A
creditor, principal, surety
3
Q
Surety vs. Guarantor
A
*surety is directly liable whereas the guarantor is only secondarily liable
4
Q
Is suretyship covered by the Statute of Frauds?
A
Yes
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
6
Q
Another term for compensated surety
A
bonding company
7
Q
Creditor’s Rights when Debtor Defaults
A
- immediately demand payment from the surety
- immediately demand payment from the debtor
- immediately go after collateral, if there is any
*guarantors have the right to require a proceeding against the debtor or collateral first
8
Q
Surety’s Rights against Debtor
A
- exoneration (suit to compel payment)
- subrogation (enforcement of creditor’s right against principal)
- reimbursement (suit against principal after payment)
9
Q
Surety’s Rights against Co-Sureties
A
- exoneration (before surety pays; each pays pro rata fair share)
- contribution
* *not specified: split equally
* *varying amounts: pro rata contribution reimbursement
* *co-surety discharged: eliminate from total calculation; will get nothing from them
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
11
Q
Loss of Security and Release of Co-surety
A
- release of security held by the creditor discharges the surety in the amount of the value of the security released
- 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
12
Q
No Defense Situations for Suretyship
A
- principal’s fraud or duress upon surety
- incapacity of principal
- bankruptcy of principal
13
Q
Creditor’s Rights outside of Suretyship
A
- Creditor’s Composition (pays less than full claims in full satisfaction)
- Assignment for the Benefit of Creditors (debtor releases property to trustee who sells property and uses proceeds to pay creditors)
14
Q
Judicial Liens
A
*specific property owned and possessed by the debtor
15
Q
Garnishment
A
*property in the hands of a third party that is due to the debtor
16
Q
Exemptions for Judicial Liens and Garnishment
A
- homestead exemption
- limit on wages
- protect personal injury awards
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
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
19
Q
Remedies for Suretyship and Fraudulent Conveyances
A
- void or voidable
- requires legal process to repossess fraudulently transferred property
- no-self help
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
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
22
Q
Power of Attorney
A
*individual has power to act on behalf of the principal
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
24
Q
Principal’s Remedies
A
- tort damages
- contract damages
- recovery of secret profits into CONSTRUCTIVE TRUST
- withhold compensation
25
Duties of Principal to Agent
Implied
* compensation
* reimbursement
*can bring action for damages caused
26
Power to Terminate Relationship is _______
at will; have power but not necessarily the right
27
Power, but no right =
breach of contract
28
Major exception to Power to Terminate Relationship
*principal has no power or right to terminate relationship when agent is a creditor
29
How can agency power arise?
1. actual authority (power and right)
2. implied authority or estoppel (power but no right)
3. ratification (power but no right)
30
Implied Actual Authority
* authority to do things reasonably necessary to carry out the agency
* i.e. a manager
31
Termination of Actual Authority
1. agent quits or gets fired at will
| 2. accomplishment of objective or expiration of stated period
32
Termination of Actual Authority by Operation of Law
1. death
2. incapacity
3. discharge
4. failure to acquire license
5. destruction of the subject manner
6. subsequent illegality
33
Apparent Authority
* "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
34
Common Apparent Authority Situations
* position or title
| * secret limiting instructions are not effective (will still have apparent; not actual)
35
General vs Special Agent
```
general = continuity of service
special = one or more transactions
```
36
Notice Generally Required to Terminate Apparent Authority
1. old customers = actual notice
| 2. new customers = constructive notice
37
Termination of Apparent Authority by Operation of Law
*terminates all authority (actual and implied)
38
Ratification
* 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
39
Agency and Contractual Liability
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
40
Agent's Liability
* 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
41
Principal's Liability
1. actual authority
2. apparent authority
3. ratification
42
Tort Liability and Agency
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
43
Sole Proprietorship
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
44
Formation of General Partnership/JV
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
45
When is writing necessary for a general partnership?
*partnership is to last more than one year (Statute of Frauds)
46
Act that presumes partnership existence
sharing of profits
47
Operation of a General Partnership
*management rights and voting power are not based on the amount contributed
48
Items Requiring Unanimous Approval for General Partnership
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
49
Agency Law and General Partnership
* 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
50
Rights of Partners in General Partnership
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
51
Duties and Legal Obligations of Partners
1. fiduciary duty owed to other partners
| 2. each partner is personally liable for all partnership obligations (joint and several)
52
Two Ways for a General Partnership to Terminate
1. dissociation
| 2. dissolution
53
Dissociation of General Partnership
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
54
Dissolution of General Partnership
* at will, gives notice of withdrawal, partners agree to dissolution, court order
* can continue until its business is wound up
55
Distribution of Assets from Partnership - Accounting
1. creditors
2. partners' contributions (capital)
3. divide profit or loss
56
Limited Liability Partnership Differences from General Partnership
1. personal liability, not liable for other partners, only lose up to investment
2. LLP must file with the state
57
Limited Partnership
* need at least one general partner
* no perpetual life
* filing with the state
* limited partners are very much like shareholders
58
Operation of a Limited Partnership
* general partner is personally liable for all partnership debts
* general partner may be a limited partner at the same time
59
Limited Partners
* 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
Allocation of P/L in Limited Partnership
*based upon capital contributions, unless an agreement states otherwise
61
Death of which type of partner will result in dissolution of limited partnership?
general partner only
62
Are LLCs distinct legal entities?
Yes
63
Two main features of LLCs
1. limited liability of corporation
| 2. pass through of p/l
64
With whom must an LLC file?
the secretary of state for the individual state
65
Member-Managed Limited Liability Company vs. Manager-Managed Limited Liability Company
agents vs. not agents
66
Voting Strength and P/L Allocation for LLC
1. proportional to contributions
| 2. allocated according to contributions
67
Elements of LLC that are unlike a corporation
1. transferability of ownership and rights
| 2. termination of an LLC
68
Corporations are owned by ______ and managed by ________.
shareholders, directors
| *exception: closely held company
69
Formation of a Corporation
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
Elements of Articles of Incorporation
* 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
Purpose Clause / Ultra Vires
*cannot usually act ultra vires
72
Bylaws
* rules of corporation
* not part of the articles of incorporation
* do not have to be filed with the state
73
Piercing the Corporate Veil
1. undercapitalized
2. disregard for dual entity
3. committing fraud on existing creditors
74
Consideration for Corporate Stock
*may be issued in exchange for any benefit to the corporation
75
Shareholders Rights, Duties, Obligations, and Authority
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
Dissenting Shareholder Appraisal Rights
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
Directors - Rights, Duties, Obligations, and Authority
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
Officers - Rights, Duties, Obligations, and Authority
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
Fundamental Changes to Corporation
*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
General Procedure for Fundamental Changes to Corporation
1. board resolution
2. notice to shareholders
3. shareholder approval
4. filing of articles
81
Corporate Merger, Consolidation, and Share Exchange
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
FICA
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
FUTA Unemployment Compensation
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
Worker's Compensation
*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
Employment Discrimination
*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
OSHA
Who: all businesses affecting interstate commerce
* whistle-blower protection
* without advance notice and without a search warrant
* civil and criminal penalties
87
Fair Labor Standards Act
*wages and hours
1. federal minimum age and overtime
2. child labor restrictions
Exclusions: newspaper, cab driver (overtime), white-collar exempt from both
88
OHSA
Who: all businesses affecting interstate commerce
* whistle-blower protection
* without advance notice and without a search warrant
* civil and criminal penalties
89
National Labor Relations Act
* bargain collectively
* Wagner act
* prohibits employers but also puts restrictions on the unions
90
OHSA
Who: all businesses affecting interstate commerce
* whistle-blower protection
* without advance notice and without a search warrant
* civil and criminal penalties
91
Pensions and Retirement Act (ERISA)
* 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
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
* can continue health coverage for 18 months and EMPLOYEE'S expense
* employers with 20 or more employees
* even if you resign
93
Money Laundering Overview
1. placement
2. layering
3. integration
94
Bank Secrecy Act
*primary tools used to fight money laundering
95
Government Agencies Involved
* Financial Crimes Enforcement Network
* Federal Banking Agencies (FDIC, etc.)
* only Department of Justice pay pursue criminal cases
96
Required Reports and Records for Bank Secrecy Act
1. Reports: $10,000 within 15 days
| 2. Records: 5 years, $3,000
97
Financial Institutions Defined
*banks, pawn brokers, casinos, travel agencies, etc.
98
Suspicious Activity Report (SAR)
30 days
* know thy customer
* notify board of directors; not the officers/suspect
99
Recording Keeping Requirements for Bank Secrecy Act
* Customer Identification Program (CIP)
| * purchaser verification (5 years; $3000)
100
Phase I Exemptions from the CTR Filing Requirements
1. banks
2. government agencies
3. entities listed on national stock exchange or NASDAQ
101
Phase II Exemptions from the CTR Filing Requirements: ineligible businesses
types of businesses historically used to wash illegal money
102
Internal BSA Compliance Programs
1. written
2. approved by board of directors
3. noted in minutes
* independent testing of compliance
103
Money Laundering Penalties
criminal (DoJ) and civil
104
Sections of Sherman Act
1. restraints on trade
| 2. monopolies
105
Rule of Reason Test
* usually used with vertical mergers
| * balance effects
106
Per Se Violations
* actions that by their nature are inherently illegal
| * usually used with horizontal mergers
107
Horizontal vs Vertical Restraints
horizontal: competitors
vertical: suppliers/customers
108
Concerted Action Requirement
*required only in Section 1
109
Types of Restraints Continued
Price Fixing (horizontal or vertical (resale price maintenance))
Market Allocations
Boycotts
Tying Arrangements
110
Monopoly Defined under Section 2 of Sherman Act
1. monopoly power
2. power was achieved unfairly or abused once achieved
*market share of more than 70% is monopoly
111
Exception to Monopoly under Section 2 of Sherman Act
patents
112
Section 7 of Clayton Act - Mergers and Acquisitions
horizontal: competitors
vertical: customers/suppliers
conglomerate: those in different businesses
EXCEPTION: failing company with no other buyer
113
Clayton Act
*stop such activities in their incipiency
114
Section 7 of Clayton Act - Mergers and Acquisitions
horizontal: competitors
vertical: customers/suppliers
conglomerate: those in different businesses
EXCEPTION: failing company with no other buyer
115
Robinson-Patman Act
*price discrimination for like grade and quality items
116
Enforcement of Clayton and Robinson-Patman Act
*civil ONLY
117
Federal Trade Commission Act
*misleading ads
*unfair or deceptive practices
*no private party suits permitted (unlike Sherman/Clayton)
**government only
Statutory and Judicial Exemptions
118
Article 7 of UCC
* warehouse receipts
| * bills of lading
119
General Characteristics of Documents of Title
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
Warehouse Receipts
1. Essential Terms
* Who
* What
* Where
* When
* How much
* Signed
*ordinary care only, not like carriers
121
Bill of Lading
* 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
Dodd-Frank Act of 2010
I: Financial Stability Act
II: Bankruptcy of Financial Institutions
FSOC
* identify risks
* eliminate expectations that government will bail out
* respond to threats
123
Financial Reporting under Dodd-Frank Act
* over $50 billion in assets
* *financial condition
* *system in place to monitor and control risks
124
Title II of Dodd-Frank Act
* authority to liquidate risky and ailing companies
| * Secretary of Treasury puts institutions not covered into receivership
125
Orderly Liquidation Fund
* capitalized for a period of 5-10 years
| * anything regulated by Federal Reserve
126
Securities Regulation under Dodd-Frank
* those who avoided 1933 requirements
* required records
* *amount of assets under management and use of leverage
* *swaps
* *valuation policies
* *types of assets held
127
Volker Rule
*limited to 3% in risky assets
128
Title VII of Dodd-Frank Act
*no more private over-the-counter swaps with credit risk
129
Title IX of Dodd-Frank Act
* recommendations must be suitable to needs and in best interest
* regulations on Moody's, S&P, Fitch
130
Large Change from Title IX of Dodd-Frank Act
* executive compensation must now be approved at least once very three years by shareholders
* no longer just the board
131
Noncontributory Plan
employer pays all
132
Claiming worker's compensation bars you from doing this:
suing the company for negligence
133
Short-Form Merger & Effect on Stockholders and Directors
* no voting needed from either group
| * shareholders in acquired corporation are entitled to appraisal rights
134
Once a dividend is declared, a shareholder becomes this type of creditor
an unsecured creditor
135
An LLC must elect to be treated as this
a corporation
136
Who can terminate an agency relationship coupled with an interest?
the agent only
137
Exoneration
suit to compel payment from debtor
138
Subrogation
enforcement of creditor's right against principal
139
Reimbursement
suit against principal after payment (get paid back by debtor)
140
Contribution
collect funds from co-surities
141
What is a charging order?
creditor attaches to partner's interest in partnership
142
Negotiable Documents of Title Delivery Requirements
Bearer: delivered only to party possessing bearer document or one designated
Order: delivered to party listed or person who holds the negotiated document
143
Effect of Negotiation for Documents of Title
Acquires title to document and goods
Becker REG
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Decks in class (9)
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