Business Law 1 Flashcards
(494 cards)
1
Q
What is a bilateral contract?
A
A promise in exchange for a promise.
2
Q
List the classifications of contracts in terms of degree of performance completion.
A
Executed and Executory.
3
Q
What is a unilateral contract?
A
A promise in exchange for an act.
4
Q
List the sources of contract law and the items to which they apply.
A
Common law - real estate and services; Uniform Commercial Code - Goods.
5
Q
Define “contract.”
A
An agreement supported by consideration between two or more persons with competent capacity for a legal purpose.
6
Q
List the enforceability classifications of contracts.
A
Valid, Void, Voidable, Unenforceable.
7
Q
Define “quasi-contract.”
A
A contract imposed by law, despite the fact no actual intent to make a contract exists, to prevent unjust enrichment.
8
Q
What constitutes an executory contract?
A
A contract not fully performed by both sides.
9
Q
Define “void contract.”
A
A contract that violates the law or lacks an element that results in courts lacking authority to have parties honor it.
10
Q
What is an executed contract?
A
A contract that is fully performed by both sides.
11
Q
Define “express contract.”
A
A contract formed wholly by oral and/or written words.
12
Q
Define “voidable contract.”
A
A valid contract for which a party has the option to avoid liability.
13
Q
Define “unenforceable contract.”
A
A valid contract that cannot be enforced due to a legal defense.
14
Q
Define “implied-in-fact contract.”
A
A contract formed at least in part based on the conduct of the parties.
15
Q
What happens under Common Law if there are additional terms in an acceptance?
A
The acceptance is a counteroffer and a rejection.
16
Q
Describe the general rule of revocation.
A
An offer can be revoked at any time before acceptance unless offer is irrevocable.
17
Q
What conditions must exist for the acceptance of a bilateral offer to take place?
A
Acceptance must be unequivocal and communicated to the offeror.
18
Q
List the three types of irrevocable offers.
A
- Options; 2. Sales of goods firm offers; 3. Offers irrevocable by estoppel.
19
Q
Can silence be considered a form of acceptance to an offer?
A
Generally not acceptance unless the offeree’s actions indicate an attempt to accept or the offeree has the duty to reject.
20
Q
When is a revocation by the offeror effective?
A
When offeree knows of or receives revocation.
21
Q
Describe the mirror-image rule regarding acceptance of an offer.
A
Acceptance must be absolute, unequivocal, and unconditional. In common law, if the acceptance is not a mirror image of the offer’s terms, it is a rejection and counter offer.
22
Q
When is an acceptance of an offer effective?
A
If sent by authorized medium, effective when delivered to the medium; If sent by unauthorized medium, effective when received by offeror, provided that the offer is still open.
23
Q
Describe the requirements of an offer.
A
Objective intent to contract; Common law: subject matter, price, payment terms, time for performance, etc.; Uniform Commercial Code (UCC): subject matter and quantity if more than one; UCC will supply the remaining terms if not in the offer.
24
Q
Define “option contract”.
A
An option contract is a distinct contract in which the offeree gives consideration to keep the offer open.
25
List the requirements of a firm offer for the sales of goods.
1. Offeror is a merchant; 2. Offeror using a signed writing; 3. Assures offer will remain open for a stated period of time (without consideration not to exceed three months, regardless).
26
List the elements of a contract.
Offer, Acceptance, Consideration, Capacity of the parties, Legality, Writing (when required).
27
When are advertisements considered offers?
Advertisements are generally not offers unless they only invite acceptance.
28
When are preliminary negotiations considered offers?
Preliminary negotiations are generally not offers unless such negotiations includes price lists, solicitation of bids, and auctions with reserve.
29
What happens under UCC law if there are additional terms in acceptance and the parties are merchants?
There is a contract with the additional terms unless those terms are material, are objected to, or if the offer was specifically limited to its terms.
30
List the requirements of an offer.
1. Serious intent; 2. Definite Terms; 3. Communication of Offer.
31
List the ways in which an offer can be terminated by operation of law.
1. Lapse of time; 2. Death or insanity of either party (unless offer is irrevocable); 3. Destruction of the specific subject matter of the contract; 4. Intervening illegality.
32
What happens under UCC if there are additional terms in acceptance and the parties are nonmerchants?
There is a contract, but without the additional terms.
33
When is the revocation of a public offer effective?
Effective if made in the same medium as the offer.
34
Describe an expressly authorized or stipulated means of communication.
A means of communicating acceptance that is expressly stipulated in the offer.
35
List the ways an offer can be terminated by the act of the parties to the offer.
1. Revocation; 2. Rejection; 3. Counteroffer.
36
How is serious intent (objective intent) measured?
Measured by a reasonable person's interpretation of the circumstances.
37
When does the acceptance of an unilateral offer occur?
Takes place upon completion of the act required by the offeror.
38
Define "accord and satisfaction."
Agreement between two parties to settle an unliquidated debt (obligation is acknowledged, but the amount is unclear)(accord); satisfaction is payment of that amount; payment discharges all obligations; is not effective for discharging a liquidated debt, such as an installment loan.
39
How does an individual incur legal detriment?
An individual can incur legal detriment by (1) doing or promising to do something that he or she had no prior legal duty to do or (2) refraining from or promising to refrain from doing something that he or she had no prior legal duty to refrain from doing (that is, by forbearance).
40
List the exceptions to a preexisting duty.
1. Rescission and new contract; 2. Unforeseen hardship; 3. Sale of goods - modification of contract.
41
What are the requirements for a consideration in a contract?
Each party to the contract has a benefit and detriment. The promises (detriment) are induced by the benefits and the benefits are induced by the promises (detriment). Bargained-for exchange. Consideration must actually change hands.
42
What promises are enforceable without consideration?
Good-faith modification under the Uniform Commercial Code (UCC); Charitable subscriptions (promissory estoppels on pledge to make a gift); Promises barred by the statute of limitations.
43
Describe the requirement for an output contract to be with consideration.
The contract is based on established production or ability to produce by the seller and the seller must sell its production to the buyer.
44
List the types of contracts with uncertainty of total performance.
1. Requirements Contracts; 2. Output Contracts.
45
Explain the difference between a liquidated and an unliquidated debt.
A liquidated debt is one in which the amount due is agreed upon. An unliquidated debt is one in which the parties acknowledge a debt but disagree as to the amount that is due.
46
Define "preexisting duty."
A promise to do what one is already legally obligated to do is without consideration.
47
What are the elements of a consideration?
Consideration has two elements: (1) there must be a bargained-for exchange between the parties (if a party intends to make a gift, he or she is not bargaining) and (2) what is bargained for must have legal value.
48
Define the "merchant's confirmation memorandum."
A Uniform Commercial Code (UCC) provision that allows one merchant to bind another based on an oral agreement with one signature. For example, if two merchants have underlying oral agreement and one merchant sends the other a fax, letter, or e-mail that confirms the terms of the oral agreements, the contract is enforceable even though only sign/authenticated by one party. The contract is enforceable against both parties.
49
Describe the statute of frauds.
A contract statute that requires certain kinds of contracts (i.e., contracts for the sale of goods for more than $500) be memorialized in a signed writing with sufficient content to evidence the contract.
50
Define the "fully integrated contract."
Contract that is complete, final, and unambiguous.
51
Describe a situation in which the special-ordered goods exception would apply.
Condition in which the seller has substantially begun performance or has made an irrevocable commitment to do so before the buyer cancels the contract.
52
Describe the general rule about contracts that involve an interest in real property.
Any contract involving an interest in realty to be enforceable must be in writing or have written evidence thereof, or an applicable exception.
53
Against whom are ambiguities construed?
Against the party who drafted the contract.
54
List the minimum requirements for a valid writing or record of a contract.
1. Identity of the parties; 2. Subject matter (quantity if more than one); 3. Signature (authentication) by party against whom you want enforcement).
55
List the types of contracts to which the parol evidence rule applies.
Final, complete, and unambiguous contracts (fully integrated contracts).
56
What is required for modification of a contract under common law?
Additional consideration.
57
Describe the one-year rule under the statute of frauds.
Any contract objectively impossible to perform within one year from the date of contract formation (date of acceptance) without breaching the terms, must be in writing or have written evidence of it to be enforceable.
58
List the situations in which the partial performance exception for real property agreements apply.
1. Buyer has made a payment; 2. Buyer has taken possession; 3. Buyer has made improvements.
59
List the contracts that must be in writing or on record to be enforceable.
1. Contracts involving real property sales, transfers, listing, and leases longer than one year; 2. Contracts to pay the debt of another; 3. Contracts that cannot be performed within one year; 4. Contracts for the sale of goods for $500 or more.
60
What is required under the UCC for modification of a contract?
The parties agree to the modification (although not required to do so; it is their choice), but additional consideration is not required.
61
Describe the UCC performance exception to the requirement of a record.
If the buyer takes possession or makes a payment accepted by the seller, Statute of Frauds is removed at least for the part possessed or paid for. If the seller accepts payment for the goods, at least for the amount reflected in that payment.
62
Define the "parol evidence rule."
A fully-integrated contract clearly written cannot be contradicted, varied, or altered by evidence of the parties' prior negotiations, agreements, or contemporaneous oral agreements.
63
Describe the exception to the written requirement for contracts involving an interest in realty.
If a performance is such that the parties cannot be returned to the status quo, the exception is applicable.
64
List the exceptions to the parol evidence rule.
1. Defenses to formation (misrepresentation, mistake, duress); 2. Modification; 3. Ambiguities (because contract is not fully integrated); 4. Incomplete contract (because contract is not fully integrated).
65
Define duress.
A forcing of a party to enter into a contract under the fear or threat of violence to that party or member of his or her family, or use of economic pressure to overcome the party's free will.
66
When do bilateral mistakes create a binding contract?
When mistake is due to 1. Value, or 2. Quality.
67
What is the effect of an illegal covenant in a contract?
The court can declare the covenant void; The court can interpret the covenant in order to have it fall within the law.
68
List the elements that constitute a fraud.
1. Intentional Deceit (or negligent misrepresentation); 2. Deceit of a Material Fact; 3. Reliance of the party deceived.
69
Describe a formation mistake.
When mistake is a clerical/computation error so large that other party should have known.
70
List the elements for misrepresentation or fraud.
1. Misrepresentation of statement of fact; 2. Intent to deceive; 3. Reliance on the misrepresentation.
71
List the remedies for lack of mutual assent.
1. Rescission; 2. Damages; 3. Modification.
72
What types of contracts are enforced against minors?
1. Contracts for necessaries or necessities; 2. Contracts that they ratify after reaching the age of majority.
73
Under what circumstances can a unilateral mistake become a defense?
When other party knew or should have known of a mistake.
74
Describe the differences between fraud and misrepresentation.
1. Fraud always have malicious intent, Misinterpretation may not have malicious intent to deceive if it happens negligently through a misstatement and/or omission of a material fact(s); 2. Fraud is a civil wrong which entitles a party to claim damages in addition to the right to rescind the contract. Parties to a contract claiming misrepresentation only have the right to rescind the contract and there can be no suit for damages.
75
Define "undue influence."
Occurrence in which one party induces another party to enter into a contract by overcoming his or her free will through an abuse of a position of confidence.
76
List the two types of contractual mistakes that can occur.
1. Mutual (bilateral) mistake (defense); 2. Unilateral mistake (not always a defense).
77
What is the effect of illegal subject matter on a contract?
It makes the contract void.
78
When can a covenant not to compete be enforced?
When it is: Part of a contract; Necessary to protect one party, such as the buyer of a business; Reasonable in geographic scope and time.
79
List the types of assent defenses that can be used to invalidate the formation of a contract.
1. Mistake; 2. Misrepresentation; 3. Fraud; 4. Duress; 5. Undue influence.
80
List the ways a contract can be discharged.
1. By occurrence of failure of a condition; 2. By performance or breach of contract; 3. By agreement; 4. By operation of law.
81
What happens when a condition precedent fails?
The duty to perform is discharged.
82
Define "compensatory damages."
All costs or loss actually suffered and proved caused by the breach.
83
List the various types of conditions that can exist in contract sales.
1. Precedent; 2. Subsequent; 3. Concurrent.
84
What is meant by substantial performance?
Substitute performance done in good faith. Substituted performance is for practical purposes just as good. Party can be compensated for substitution.
85
List the ways a contract can be considered impossible or impracticable.
1. Death or Insanity; 2. Destruction of Specific Subject Matter; 3. Illegality; 4. Commercial Impracticability.
86
What requirements must be present for the enforceable liquidated damages provisions of a contract?
1. Damages difficult to estimate if a breach; 2. The amount stated is a reasonable sum estimate (not a penalty).
87
Define novation.
By a valid contract, a new party is substituted for one of the original parties thereby terminating (discharging) the original contract.
88
List the types of contractual discharge that can occur by agreement or party action.
1. Release; 2. Waiver; 3. Mutual Recission; 4. Novation; 5. Accord and Satisfaction.
89
Define "quasi-contract recovery."
A remedy to give a reasonable value benefit to one party and avoid an unjust enrichment received by the other party.
90
List the ways a contractual obligation can be discharged by operation of law.
1. Material Alteration; 2. Statute of Limitations; 3. Bankruptcy Decree; 4. Impossibility or Impracticability of performance.
91
Other than damages, what are the remedies for contract breaches?
1. Specific Performance; 2. Rescission.
92
Define waiver.
A relinquishment of a right due to a party's breach.
93
Define rescission.
The undoing of a contract so as to return the parties to their original position.
94
List the types of damages available for remedies.
1. Nominal; 2. Compensatory; 3. Punitive; 4. Liquidated.
95
Define "liquidated damages."
A specific sum is agreed to be paid in the formation of the contract in the event that in the future the contract is breached.
96
Define "mutual rescission."
An enforceable mutual agreement to discharge all contract obligations and restore the parties to their pre-contract positions.
97
Define "third party beneficiary contracts."
Contract between two parties is set up with the purpose of providing benefits to a third party.
98
List the various types of third party contracts.
1. Assignments; 2. Delegations; 3. Third party beneficiary contracts.
99
When is an assignment binding on the parties to the original contract?
When the original parties receive notice of the assignment.
100
When two assignee's names are on the same contract, which assignment is valid?
1. U.S. Rule - first in time of assignment; 2. English Rule - first to give notice of assignment.
101
List contractual delegation exceptions.
1. Terms prohibit delegation; 2. Personal Skill/Special trust; 3. Material variation.
102
Define "delegation."
The transfer of the detriment (duties) under a contract to a third party (Mr. Ice asks Ice Inc. to take over ice supply contract for Lobster, Inc.).
103
Describe the liability of the assignor.
Unless released, assignor remains liable.
104
List the various types of third-party beneficiaries.
1. Donee (Intended); 2. Creditor (Intended); 3. Incidental (Not Intended).
105
Describe the rights of a creditor beneficiary.
Can recover from original debtor who designated the creditor beneficiary or from party required to pay under contract with debtor (health insurance - hospital can recover from insured or insurer).
106
Define "assignment."
The transfer of the benefits under a contract to a third party (contractor assigns payment to lumber company).
107
Describe the rights of an incidental beneficiary.
Has no right of recover against either party to the original contract (resident of city cannot recover if contractor does build planned city park).
108
Describe the rights of a donee beneficiary.
Can recover from party required to pay under the contract but not from the party who makes the arrangements for the payment (life insurance arrangement - beneficiary can recover from insurance company but not from the insured).
109
List contractual assignment exceptions.
1. Terms Prohibit Assignment; 2. Statute Prohibits Assignment; 3. Personal Contracts; 4. Materially Increases Risks.
110
Define "incidental beneficiary."
A third party who receives an unintended benefit has no legal rights in a contract between two parties.
111
What elements must be in place for a creditor beneficiary to exist?
1. A debtor-creditor relationship must exist; 2. The debtor must make a contract with the third party that benefits the creditor.
112
What is the result of a shipment of a nonconforming goods delivery?
1. Acceptance and automatic breach; 2. Not an acceptance if shipper notifies that shipment is only an accommodation.
113
In what special circumstances will an offeree's additional terms not be valid when both parties in the transaction are merchants?
1. The offeror limits acceptance to his or her terms; 2. The additional terms materially alter the contract; 3. The offeror specifically with notice objects to the additional terms.
114
Describe the elements of a merchant's firm offer.
1. Offer by a merchant; 2. States that it will be kept open (max of 3 months); 3. Signed or authenticated by merchant. Irrevocable for time stated or max of 3 months.
115
What happens to additional terms in acceptance-merchants?
Additional terms become part of the contract unless they are material, the offer is limited, or the party objects.
116
Is consideration required for the modification of a contract?
No consideration required; good faith is required.
117
List the requirements for a sale of goods contract.
1. Intent; 2. Object; 3. Quantity.
118
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open place of payment term?
Seller's place of business or if none residence.
119
List the three methods by which a seller can accept a buyer's shipment order.
1. Delivery of conforming goods to carrier; 2. A prompt promise to ship; or 3. Shipment of nonconforming goods delivery without notice of accommodation.
120
Define "goods."
All movable and tangible personal property other than money, investments, securities and things in action.
121
What law governs the sale of goods?
Uniform Commercial Code - Article 2.
122
Describe the concept of a merchant's battle of the forms.
Formation situation in which boiler plate language in merchant's individual forms adds terms to the original offer.
123
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open payment term?
Payment is due at time and place buyer is to receive the goods.
124
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open time for contracted performance?
In absence of agreement, it is a reasonable time.
125
Define "merchant."
A person who deals in goods of the kind being sold, or a person who by occupation holds himself or herself out as having knowledge or skill.
126
Define "sale of goods."
1. Passage of title to goods (personal property) from a seller to a buyer for a price. 2. No passage of title required for a bailment. 3. No price required for a gift.
127
What is the Uniform Commercial Code (UCC) supplied term (i.e., assumed term) if a contract term has an open price term?
A reasonable or market price at the time of delivery will apply or if price is to be fixed by either party good faith is required in doing so.
128
What happens to additional terms in acceptance-non-merchants?
Additional terms do not become part of the contract - original offer terms control.
129
Define "tender."
The seller's holding out to the buyer the goods in a reasonable manner, for a reasonable time, to allow the buyer to take possession of the goods.
130
When does the passage of title occur in a non-delivery contract?
If there is a document of title, title passes when buyer has the document. If there are other documents, title passes when buyer has those documents. If there are no documents, title passes at the time of contracting.
131
When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods are not represented by a document title?
1. Title passes when the contract is made; 2. If seller is a merchant, risk of loss does not pass until buyer gets possession; 3. If seller is a nonmerchant, risk of loss passes upon seller's tender of goods to the buyer.
132
When does title/risk of loss occur for a sale or return?
Title and risk of loss pass as with an ordinary complete sale of goods.
133
When does title/risk of loss pass for a sale on approval?
Neither title nor risk of loss pass until acceptance by the buyer.
134
Define "identification."
Occurs when goods are shipped, marked, or otherwise designated for the buyer; identification must occur before title and risk of loss pass.
135
What effect does a breach of a contract have on the passage of risk of loss?
Risk of loss does not pass until goods are conforming; if they never conform, risk of loss does not pass and return is at seller's risk.
136
Define "future goods."
For contracts under which goods are to be manufactured, identification occurs when the goods are in existence and either shipped, marked, or otherwise designated for buyer.
137
When does title/risk of loss pass when the shipping terms of cost, insurance, and freight are used?
When the seller: 1. delivers identified conforming goods to the carrier; 2. obtains a negotiable bill(s) of lading covering transportation to named destination; 3. procures an insurance policy; and 4. forwards to buyer all documents.
138
Define "void title."
A thief in the chain of title.
139
How is the title/risk of loss affected by the passage of goods in a sale or return?
Passes upon possession of Buyer - returns to Seller if Buyer returns properly the goods.
140
When does the title/risk of loss pass for sales on approval?
Title and risk of loss remain with seller until buyer accepts.
141
At what point does title/risk of loss pass when the terms are Free on Board the seller's place (city, business, warehouse, or ship point)?
Delivery of conforming goods to carrier.
142
At what point does title/risk of loss pass when the terms are Free on Board the buyer's place (city, warehouse, or residence)?
Upon the seller's tender of conforming goods at place of contract destination.
143
What does the acronym BFP stand for?
Bona fide purchaser or good-faith purchaser (pure heart and an empty head because they do not know of any problems with the title).
144
List the ways in which a buyer can accept title of goods?
1. Due notification of acceptance; 2. Failure to reject within trial period; 3. Does any act inconsistent with seller's ownership.
145
Describe the general rule regarding passage of title and risk of loss.
In absence of agreement, the time title and risk of loss to identified goods passes from the seller to the buyer is dependent upon the contract's delivery terms.
146
What does the acronym FOB mean?
A shipping term - Free on board.
147
Describe the differences between the timing of risk of loss and the title in shipment contracts and non-shipment contracts.
In shipment contracts, risk of loss and title pass at the same time. In non-shipment contracts, risk of loss and title do not pass at the same time and depends on whether there is a document of title and whether there is a merchant or non-merchant seller for risk of loss.
148
What does the acronym C&F mean?
A shipping term - Cost and freight.
149
Describe determination of "place of delivery."
Unless the contract provides for shipment, delivery is the seller's place of business or residence. There are no delivery terms under Uniform Commercial Cod Article 2 unless provided for in the contract.
150
Define "voidable title."
Title to goods that has come through a voidable contract, as when a minor purchases a car and then sells it to a third party.
151
When does the risk of loss pass in a non-delivery contract?
If seller is a merchant, risk of loss passes when buyer has actual receipt. If seller is a non-merchant, risk of loss passes when goods are tendered to buyer.
152
When does the risk of loss pass in a warehouse (third party) delivery?
Risk of loss and title pass to buyer when the buyer has all necessary documents and the goods are available for pick-up.
153
What does the acronym CIF mean?
A shipping term - Cost, insurance and freight.
154
Describe the free-on-board place of destination term.
Risk of loss and title pass from seller to buyer when goods have been tendered to the buyer at the destination.
155
When does title/risk of loss pass in free alongside shipping terms?
Title and risk of loss pass upon seller's delivery of conforming goods alongside the vessel in the manner usual in that port or on a dock designated and provided by the buyer.
156
Describe the free-on-board place of shipment term.
Risk of loss and title pass from seller to buyer when the goods are delivered to the carrier.
157
Define "fungible goods."
Fungible goods are those that cannot be distinguished either because of homogenous qualities or because they are so mixed together; identified when shipped, marked, or otherwise designated.
158
What does the acronym FAS mean?
A shipping term - Free alongside vessel (ship).
159
When does title/risk of loss pass when delivery is required by the seller without physical movement and the goods are represented by a nonnegotiable document of title?
1. Title passes to buyer upon receipt of document; 2. Risk of loss passes after buyer receives document and has a reasonable time to present document to receive the goods.
160
When does title/risk of loss pass when delivery is required by a seller with no physical movement and the goods are represented by a negotiable document of title?
Title and risk of loss pass upon buyer's receipt of document.
161
Give examples of language that effectively disclaims implied warranties of merchantability and fitness for a particular purpose.
1. "As is" sale; 2. "Sold with all faults;" 3. Any other language brought to Buyer's attention plainly making a disclaimer.
162
Describe the elements of a disclaimer of a warranty of title.
Must be in writing and conspicuous or be obvious from the nature of the goods or the transaction that there is no warranty of title.
163
What is the difference between recovery under strict tort liability and recovery under negligence?
Punitive damages are available for negligence.
164
Can an express warranty be withdrawn?
It is not possible to make an express warranty and then withdraw it when it has been a basis of the bargain.
165
Describe the elements of a disclaimer of an implied warranty of merchantability.
If written, must be conspicuous. Must use terms such as "No warranty of merchantability" or general disclaimer of "As is," "With all faults," or "As they stand."
166
What are the necessary requirements for a party in a transaction to disclaim an implied warranty of fitness for a particular purpose?
1. Must be in writing; 2. Conspicuous.
167
List the requirements for establishing negligent product liability.
1. Product is in a defective condition that is unreasonably dangerous by design, production, or lack of warning. 2. Seller is in the business of manufacturing, distributing, or selling the product. 3. The product reaches the buyer in the same condition as when it left the seller's possession (i.e., it has not been altered) 4. Seller had knowledge that the product was defective and did not take steps to fix the problem.
168
List the four types of warranties that are given under Article 2 sales contracts.
1. Express Warranties; 2. Implied Warranty of Title; 3. Implied Warranty of Merchantability; 4. Implied Warranty of Fitness for a Particular Purpose.
169
What are the necessary requirements for a party in a transaction to disclaim an implied warrant of merchantability?
1. Must mention word merchantability; 2. Can be in writing or oral; 3. If in writing, must be conspicuous.
170
List the criteria required for an implied warranty of fitness for a particular purpose.
1. The seller must expressly or impliedly know the purpose or buyer's use; 2. The buyer must rely on seller in making selection.
171
Describe the elements of a disclaimer of an implied warranty of fitness for a particular purpose.
Must be written; must be conspicuous; General disclaimer of "As is," "With all faults," or "As they stand" disclaims this and warranty of merchantability.
172
List the requirements for establishing strict tort liability.
1. Product is in a defective condition that is unreasonably dangerous by design, production, or lack of warning. 2. Seller is in the business of manufacturing, distributing, or selling the product. 3. The product reaches the buyer in the same condition as when it left the seller's possession (i.e., it has not been altered).
173
List the protections given by the implied warranty of title.
1. Seller has a good title and transfer is rightful; 2. There are no outstanding liens, encumbrances or security interests; 3. If seller is a merchant, goods shall be delivered free from third party infringement claims.
174
What are the requirements for a disclaimer of oral express warranties?
1. Specific; 2. Unambiguous; 3. Clearly and conspicuously drawn to attention of buyer.
175
When does an implied warranty that arises from a course of dealing or trade usage apply?
When both parties have a knowledge of a well-recognized usage of trade, or by numerous past performances, infer a warranty course of action intended to be performed.
176
Explain when the implied warranty of merchantability is given.
1. Seller is a merchant; and 2. Goods are warranted to be fit for ordinary use, of proper kind, properly packaged, and conform to the label.
177
List the justifications that a party in a transaction can use as a warranty defense.
1. Lack of Privity; 2. Statute of Limitations; 3. Failure of Notice of Breach.
178
List three types of express warranties.
1. Affirmations of fact or promises; 2. Sales by description; 3. Sales by sample or model.
179
What actions constitute the acceptance of a product by the buyer?
1. After opportunity to inspect signifies goods are conforming or will accept anyway; 2. Fails to reject after inspection or reasonable opportunity to do so; 3. Does act inconsistent with seller's ownership of product.
180
What actions should occur to ensure a proper rejection of nonconforming goods?
1. Must do so within reasonable time after tender; 2. Must be known by Seller - generally with specific reasons for rejection; 3. If Buyer in possession - Buyer needs to exercise reasonable care of goods; 4. If goods need to be sold (e.g., perishable) - Buyer must make reasonable effort to do so; Buyer to receive reimbursement for cost plus 10% sales commission.
181
Describe the general rules of performance for a seller and a buyer.
1. Seller obligated to ship or tender delivery of conforming goods; 2. Buyer a duty to accept and pay for conforming goods.
182
Describe the concept of "right to demand assurances."
Right of one party to demand additional guarantees of performance under the contract when none has taken place or cannot take place.
183
List the rights of a buyer upon delivery of the goods.
1. Right of inspection unless agreed to the contrary; 2. Right to reject any nonconforming tender.
184
List the options that a buyer has when a seller tenders goods that fail to confirm to the contract (i.e., the perfect tender rule).
1. Reject the entire shipment; 2. Accept the entire shipment; 3. Accept any commercial unit and reject the rest.
185
List the possible actions of a non-breaching party if an anticipatory breach has occurred.
1. For a commercially reasonable time await performance; 2. Treat breach as final and resort to remedies; 3. Suspend their own performance without liability for breach.
186
List the conditions that must exist to revoke a previous acceptance of goods.
1. Buyer was given reasonable assurance of cure and cure has not occurred; 2. Buyer was assured goods were conforming and later discovered they were not; 3. Buyer's discovery of the nonconforming was difficult to detect.
187
Define "cure."
If a seller tenders delivery of nonconforming goods prior to the contract date, and buyer rejects the goods, the seller can with notice indicate the intent to cure, and the seller is not in breach if the seller tenders conforming goods within the contract time period.
188
List the rights and duties of a seller or buyer upon either party's failure to perform.
1. Right of assurance to performance; 2. Duty of cooperation.
189
Define "substituted performance."
If without fault of the seller the agreed facilities or type of contract carrier is not available or delivery impractical, but a commercially reasonable substitute carrier is available, seller must use substitute carrier and buyer must accept delivery and pay.
190
Define "anticipatory breach."
Occurs when either the seller or the buyer repudiates the contract prior to the required contract date of performance.
191
Describe a buyer's right of inspection.
Available to buyer for reasonable time; right to open packages, examine goods and conduct tests.
192
Describe the perfect tender rule.
Seller must deliver goods to buyer that conform in every respect; no standard of material breach here but, rather, any breach.
193
What option does the buyer have for tender of payment?
1. Can be by any customary means; 2. Seller could demand cash.
194
Upon a buyer's breach, what remedies does the seller have when the seller retains possession of the goods?
1. Withhold delivery; 2. Identify Goods to Contract and proceed with other remedies; 3. Cancel and/or rescind contract; 4. Resell the goods; 5. Sue for breach of contract.
195
When is a seller entitled to the full contract price when the buyer breaches?
When the goods cannot be resold, such as in specially manufactured goods.
196
What are the buyer's remedies when the seller tenders nonconforming goods or refused to deliver conforming goods?
1. Cancel and with notice Rescind; 2. Cover; 3. Sue for breach of contract; 4. Specific performance; 5. Replevin; 6. Buyer can recover prepayment if Seller becomes insolvent within 10 days of receipt or pay balance and get the goods.
197
Describe the concept of replevin.
If seller refuses to tender delivery of identified goods to the buyer, and the buyer cannot cover, the buyer can file a suit in equity requiring the seller to deliver the goods to the buyer.
198
What types of limitations may be put in place on remedies of a breach?
1. Liquidated damage agreements; 2. Contract limitations - such as limited to repair or replacement; 3. Statute of Limitation time runs out.
199
What is the statute of limitations used to file actions against a party that breached a contract?
1. Four years from cause of action - by agreement can be shortened to not less than one year but not extended; 2. For breach of warranty action - cause of action starts with tender of delivery - not discovery of breach.
200
When is a seller entitled to lost profits?
In situations in which no other remedy provides compensation, such as when specially manufactured goods are ordered but the buyer breaches prior to production beginning. Lost profits compensate for the downtime in the seller's production facilities.
201
When can a buyer have specific performance as a remedy?
When the goods are rare or unique.
202
What are the buyer's remedies when the buyer accepts nonconforming goods with notice?
1. Sue for ordinary damages; 2. Sue for breach of warranty; 3. Deduct damages from purchase price.
203
When can a buyer recover consequential damages?
When the buyer has to pay penalties or damages for being late on performance owed to third parties.
204
When the buyer has to pay penalties or damages for being late on performance owed to third parties.
1. If buyer insolvent, can stop any quantity shipped; 2. If not, and Buyer is in breach, can only stop if shipment is a carload, truckload, planeload, or larger shipment.
205
What are the seller's remedies if the buyer is insolvent or in breach when the buyer has possession of the goods?
1. Can reclaim the goods within 10 days if buyer received the goods on credit while insolvent; 2. Can sue for purchase price.
206
Define a "demand instrument."
Those that are payable immediately upon issue, such as "payable at sight" or "payable upon presentation," or those for which no time period is specified.
207
Give an example of language that results in order paper.
"Pay to the order of Jane Downs."
208
List the parties to a note or certificate of deposit (CD).
1. Maker; 2. Payee. (Note: there is no maker of a check, only notes and CDs; liability of these parties is different so use terms carefully.)
209
Describe the various types of checks that can be used to pay money.
1. Cashier's check (bank is drawer and drawee); 2. Teller's check (draft drawn by one bank on another bank); 3. Traveler's check (draft payable on a bank that requires a counter signature); 4. Certified check (check accepted by a drawee bank; obliges drawee bank to pay); 5. Money order (is a check if drawn on a bank and payable on demand).
210
Give an example of language that results in bearer paper.
"Pay to cash" or "Pay to the order of cash" or "Pay to Jane Downs or bearer."
211
Define "bearer of paper."
Instrument made payable in blank, to bearer, or to cash; transferred by delivery only.
212
Define "negotiation."
The transfer of possession of a negotiable instrument to a party who becomes a holder.
213
List some examples of nonnegotiable instruments.
1. Letters of Credit; 2. Warehouse Receipts; 3. Bills of Lading; 4. Stocks and Bonds; 5. Contracts.
214
Give an example of language on an instrument that would affect negotiability.
Language that makes the date of payment uncertain (Payable when I pass the CPA Exam). Language that affects the certainty of the sum due (Payable at a rate to be determined later).
215
Define "indorsement."
Signature by payee for purposes of negotiation.
216
Define "order payer."
Instrument made payable to individual or entity; transferred by indorsement and delivery.
217
Describe the writing requirement of a negotiable instrument.
Must have be on something with a degree of permanence and be readily transferable.
218
Define "accommodation party."
A "person" who signs an instrument in any capacity for the purpose of lending his or her name as credit to another party on the instrument.
219
List the two types of negotiable instruments.
1. Orders to Pay (checks and drafts); 2. Promises to Pay (notes and CDs).
220
List the types of drafts that can be used to pay money.
1. Sight Draft (on demand); 2. Time draft; 3. Trade acceptance.
221
List the requirements of a negotiable instrument.
1. In writing; 2. Signed by Maker or Drawer; 3. Contain an unconditional promise or order to pay; 4. State a sum Certain in Money; 5. Be payable on demand or at a definite time; 6. Be payable to order or bearer (words of negotiability).
222
List the parties to a draft or a check.
1. Drawer; 2. Drawee; 3. Payee.
223
List the parties who draft negotiable instruments.
1. Drawers - for checks or drafts; 2. Makers - for notes and Certificates of Deposits.
224
List the three kinds of restrictive indorsements that can be used on negotiable instruments.
1. Conditional; 2. Prohibitive; 3. For Deposit or Collection.
225
Describe the concept of blank indorsements.
Indorsement specifies no particular person to receive payment.
226
Describe the concept of qualified indorsement.
Usually includes words "without recourse" or similar words.
227
How are order instruments negotiated?
By delivery plus indorsement.
228
True or false: If the holder is not a holder in due course for failure to give value, the holder can ship through to another, take back for value, and step up to the holder in due course classification.
This is a true statement. However, the holder cannot ship through and eliminate knowledge of problem on the instrument.
229
What is the legal effect of a blank indorsement?
1. Converts order instrument into bearer instrument; 2. For transfer with consideration warranties are extended to all subsequent holders; 3. Blank indorser has a secondary liability to pay all subsequent holders.
230
How are bearer instruments negotiated?
By delivery.
231
When does a time instrument become overdue?
If taken one minute after due date.
232
What is the legal effect of a qualified indorsement?
1. Disclaims contract signature liability; 2. Still extends transfer warranties to all subsequent holders.
233
Define "holder".
A party in possession of an instrument, To be a holder of bearer paper requires delivery. To be a holder of order paper requires delivery and proper indorsement.
234
When does a check become overdue?
More than 90 days after its date.
235
When does a demand instrument become over-due?
After an unreasonable amount of time has lapsed or on the day after the day a demand for payment is made.
236
Describe the concept of special indorsements.
Indorsement specifies a person to whom payment or to whose order payment is to be made.
237
What is the legal effect of a restrictive indorsement ("For Deposit Only")?
1. Does not prohibit further negotiation; 2. Except for conditional indorsement, liability to subsequent holders is limited to restriction being met.
238
What is the legal effect of a special indorsement?
1. Converts bearer into order or continues order instrument; 2. Transfer with consideration extends transfer warranties to all subsequent holders; 3. Indorser has secondary liability to pay all subsequent holders.
239
Define "value".
Different from consideration. Seller gives value if receives note from buyer who already owes money for goods delivered but has not paid FIFO concept for banks and giving value on deposited checks.
240
List the criteria for becoming a holder in due course (HDC) of a negotiable instrument.
1. Must be a holder; 2. Must take instrument for value; 3. Must take in good faith; and 4. Must take without notice that the instrument is overdue, has previously been dishonored, or of any claim or defense on the part of any person.
241
Describe the shelter rule.
Any holder who cannot qualify as an holder in due course (HDC) but took the instrument through a HDC, has the same rights as if a HDC.
242
Define "holder in due course".
A holder who takes possession of a negotiable instrument for present value, in good faith and without notice of any defense or claims to ownership of the instrument.
243
When must a notice of dishonor be given?
Must be given within 30 days of dishonor or notice of dishonor; for banks must be given by midnight of the next banking day.
244
Define "dishonor."
Primary party refuses to pay the instrument.
245
List the warranties given by transferors.
1. Transferor is entitled to enforce the instrument; 2. All signatures are genuine or authorized; 3. Instrument has not been altered; 4. Instrument not subject to defenses; 5. Transferor has no knowledge of any insolvency proceeding.
246
Define "presentment."
Negotiable instrument presented for payment. ID can be required.
247
Define "presentment warranty."
Person who presents instument is authorized to receive payment.
248
What is the effect of material alteration on an instrument?
Discharges obligation of payment to either holder and holder in due course (HDC). If maker or drawer was sloppy in creating instrument and allowed alteration, obligation of payment according to original terms remains to HDC.
249
Define "fraud in factum".
Fraud in factum occurs when a party is deceived into signing something that he does not know is a contract. Fraud in factum is used interchangeable with fraud in execution.
250
List the two types of holder defenses that may be used against having to pay an instrument.
1. Personal; 2. Real or Universal.
251
Who is liable for a fictitious payee on a negotiable instrument?
The drawer has liability.
252
Who are the secondary parties to an instrument?
1. Payees; 2. Drawers; 3. Indorsers.
253
List the two forms of negotiable instrument liability.
1. Contract (signature liability); 2. Warranty liability.
254
List the three personal defenses against liability on negotiable instruments.
1. Breach of contract; 2. Failure of consideration; 3. Fraud in the inducement.
255
When an authorized agent signs on behalf of a principal, who is liable for the instrument?
An authorized agent can bind his principal on an instrument by signing the instrument in such a way as to clearly show that he is signing on behalf of the principal. In such a case, the principal, rather than the agent, will be liable on the instrument.
256
Who is liable for an imposter payee?
The drawer has liability.
257
Define the "material alteration" of an instrument.
Changing the instrument in a manner that materially affects the nature of the instrument or payment terms.
258
List the presentment warranties associated with negotiable instruments.
1. Person presented is authorized to receive payment; 2. The instrument has not been altered; 3. Person has no knowledge instrument is unauthorized.
259
Who are the primary parties to an instrument?
1. Makers; 2. Drawees.
260
List the real or universal defenses available for not honoring an instrument.
1. Forgery; 2. Fraud in execution or fraud in factum; 3. Minority; 4. Discharge in bankruptcy; 5. Illegality; 6. Mental incapacity; 7. Duress (to the extent conduct is illegal).
261
List the transferor warranties associated with negotiable instruments.
1. Transferor is entitled to enforce the instrument; 2. All signatures are genuine or authorized; 3. Instrument has not been altered; 4. Instrument not subject to defenses; 5. Transferor has no knowledge of any insolvency proceeding.
262
What are the requirements for transferring a letter of credit?
1. Cannot transfer unless stated in letter; 2. Proceeds from letter are assignable.
263
What purpose do letters of credit serve?
To ensure performance and payment under a contract.
264
Describe what happens if a bank ignores the requirements for payment on a letter of credit.
The bank is liable for any damages because it cannot vary the terms of the letter of credit.
265
List the basic characteristics of a letter of credit.
1. Issued in any form that is a record; 2. Consideration is not required to issue; 3. Can be revocable (International is irrevocable); 4. Letter expires one year after date of issue - five years if time is perpetual.
266
Describe the process of letters of credit in an international setting.
1. Buyer and Seller contract to sell with Letter of Credit to finance; 2. Buyer applies to bank for Letter of Credit; 3. Bank issues Letter and forwards to correspondent bank - Seller's country; 4. Correspondent bank sends Letter to Seller; 5. Seller prepares shipment and sends documents to correspondent bank; 6. If in order, bank sends to Buyer's bank and pays Seller; 7. Buyer's bank charges Buyer's account, releases documents, and reimburses correspondent bank.
267
Define "bill of lading."
A document evidencing the receipt of goods by a carrier for shipment.
268
Describe the concept of carrier's duty of care.
Absolute or strict liability with some exceptions.
269
Define the terminology "through bill of lading."
More than one carrier.
270
What requirements must be met for a document to be negotiable?
1. By its terms the goods are to be delivered to the bearer or order of the consignee or person to whom delivery is to be made; 2. If is an international document, and it runs to a named person or assigns.
271
Define "warehouse receipt."
A receipt issued by a person engaged in the business of storing goods.
272
What are the effects of forgery on negotiable documents?
Defeats rights of any holder to either the document or the goods.
273
Describe the concept of duty of care and right of payment regarding possessions of goods.
1. Carriers and warehouse must exercise care over the goods in their possession; 2. Warehouses and carriers can place possessory liens on the goods to get payment.
274
How are negotiable and nonnegotiable documents of title transferred?
1. Negotiable Documents of Title - through due negotiation; transfer through due negotiation by delivery or indorsement; 2. Nonnegotiable Documents of Title - transfer by assignment.
275
List the most common documents of title.
1. Bills of Lading; 2. Warehouse Receipts.
276
What effect does a document of title for stolen goods have?
Documents of title for stolen goods do not pass title. A thief can never pass good title.
277
Define the terminology "destination bill of lading."
One to be issued at destination - place of delivery.
278
List the types of documents of titles.
1. Bills of Lading; 2. Air Bills; 3. Warehouse Receipts; 4. Dock Warrants; 5. Others Where Document in Business Evidences Person in Possession Has Title and Right to Receive the Goods.
279
What degree of care should a warehouse company meet regarding shipment of goods?
High degree of care.
280
Define "security agreement."
Agreement which creates a security interest.
281
Describe the criteria necessary for a security interest attachment when the collateral is not in possession of the secured party.
1. Written or authenticated agreement describing collateral, signed or authenticated by the debtor; 2. Secured party must give debtor something of value; 3. Debtor must have rights in the collateral.
282
What type of property is subject to a security interest?
Personal property, Fixtures, Sales of accounts, Chattel, Paper, Promissory notes, General Intangibles.
283
Define "intangibles."
Any personal property other than goods, accounts, chattel paper, documents, instruments, money, deposit accounts, letters of credit, and investment property - examples, oil or book royalties, patents, copyrights.
284
Define "collateral."
Subject of the security interest.
285
Define "secured party."
The creditor who has a security interest in the debtor's collateral.
286
Define "debtor."
The person who owes payment.
287
Describe what happens to a security interest when a debtor has signed and executed a security agreement, but the collateral has not been shipped to the debtor from the seller.
The security interest does not attach until the debtor has an interest in the goods; i.e., identification has occurred.
288
Define "security interest."
The interest in the collateral which secures payment or performance of an obligation.
289
Define "chattel paper."
Writing(s) which evidence both a security interest in good(or software) and a monetary obligation to pay - example of a security agreement.
290
Describe when a creditor can have a valid oral security agreement.
When the creditor is in possession of the collateral.
291
Define "attachment."
Time when security interest becomes valid: requires security agreement and debtor with interest in the property and creditor gives value.
292
Define "financing statement."
Document that is filed; needs adequate description; names of debtor and secured party.
293
Explain when a creditor has temporary perfection.
When a debtor has moved to another state, the creditor has four months of perfection in the new state, which can be continued with filing a financing statement in the debtor's new state.
294
List the two situations in which perfection by attachment is automatic upon creation of a security interest.
1. Purchase money security interest in consumer goods; 2. Security interest created by assignment of a beneficial interest in a decedent's estate.
295
List the methods of perfection.
1. Attachment (automatic upon creation of security interest); 2. Possession - Control; 3. Filing; 4. Automatic; 5. Temporary.
296
Describe possession as a means of perfection.
Instruments can be perfected by possession; creditor can be in possession by controlling when title can be passed (field warehousing).
297
Define "perfection."
A means by which a secured party gains priority to a debtor's collateral over other third parties who also claim to have an interest in the same collateral.
298
Describe filing locations.
Central (state level) except for fixtures and crops (local with property records).
299
What types of buyers takes precedence over perfected secured interests?
Buyers in the ordinary course of business.
300
What is the general rule when there are two perfected secured parties and inventory is used as collateral?
If collateral inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the nonpurchase secured party receives written or authenticated notice of the purchase money security interest before debtor receives possession of the collateral.
301
What is the general rule when there are two perfected secured parties and something other than inventory is used as collateral?
If collateral other than inventory - if first in time is a nonpurchase security interest and second in time is a purchase money security interest, the second in time purchase money interest prevails if the purchase money security interest holder perfects before or within 20 days after debtor takes possession of the collateral.
302
What is the general rule of priority between two perfected security interests?
First in time of perfection is first in right.
303
List the priorities for the following: Unsecured vs. secured Secured vs. secured Secured vs. perfected Perfected vs. perfected
Unsecured vs. secured: Secured. Secured vs. secured: First to attached. Secured vs. perfected: Perfected. Perfected vs. perfected: First to perfect (Exceptions: buyer in ordinary course; inventory; fixtures).
304
What parties do perfected security interests give priority to?
1. Unsecured creditors; 2. Unperfected secured parties; 3. Subsequent lien creditors; 4. Trustees in bankruptcy; 5. Most buyers.
305
Explain what a breach of the peace is.
A violation of the law in repossessing collateral, such as a trespass to take the property.
306
What is the purpose of the Soldiers and Sailors Relief Act?
Creditor cannot repossess goods from active duty military debtors.
307
List the rights upon possession by a secured party.
1. Secured party with proper notice to Debtor and others and no objection can keep the collateral in satisfaction of the debt. Cannot keep if collateral is consumer goods and debtor ahs paid 60% or more; 2. Can always sell in a reasonable commercial manner.
308
Describe the 60% rule as it relates to a secured party.
If the collateral is consumer goods and 60% or more of the debt or price has been paid then creditor must sell the goods.
309
List the order of distribution of proceeds from the sale of collateral.
1. Expenses in repossession, keeping, and resale; 2. Balance of debt owed to secured party; 3. Junior lien holders who have made written demands; 4. Debtor unless collateral is accounts or chattel paper.
310
What are the debtor's rights when the debt is paid in full?
The debtor can demand that the creditor file a release of the collateral.
311
List the rights of peaceful possession upon the debtor's default.
Possession without committing: 1. Trespass; 2. Assault and/or battery; 3. Breaking and entering.
312
Describe the right of redemption.
If the secured party is not allowed to keep the collateral in possession in full satisfaction of the debt, until there is a sale the debtor or any other secured party has a right of redemption and by doing so can regain possession of the collateral.
313
Define "conditional guaranty."
Surety or guarantor promises to pay only when certain conditions have been made, such as AFTER creditor has reduced debtor's obligation to a judgment or AFTER the creditor has exhausted all collateral.
314
What is the creditor's right in a surety relationship?
Upon default can proceed against collateral or surety - creditor's choice.
315
What is the formula for the right of a co-surety to collect from another, i.e., the right of contribution?
Amount guaranteed by surety / Total agreed to be paid by all sureties Take this ratio times the amount to be paid to the creditor - that is the amount owed by this surety to the creditor or to any surety who had to pay the full amount.
316
Explain the requirements for creating a surety relationship.
Must be in writing; can be gratuitous.
317
Describe a surety (or guaranty relationship).
Principal debtor owes money to creditor and surety or guarantor agrees to be back-up for debtor if debtor does not pay; promise to pay the debt of another in the event that "other" defaults.
318
Define "absolute guaranty."
Promise by surety or guarantor to pay no matter what happens or why debtor defaulted.
319
Describe the right of contribution regarding sureties.
Cosureties have the right to collect from other sureties their pro rata share of the amount paid to the creditor.
320
Describe the concept of reimbursement and indemnity of a guarantor.
Upon payment to the creditor, the guarantor has the right to seek reimbursement from the principal debtor.
321
What defenses are available to a guarantor?
Contracts defenses of the principal debtor such as fraud, duress, failure of consideration, breach.
322
What defenses are available to a surety through creditor actions?
Release of debtor. Refusal by creditor to accept payment. Material alteration of agreement with debtor. Fraud and collusion with debtor to get guarantor to provide guaranty. Release of collateral to debtor (but only released for the amount that is the value of the collateral).
323
What defenses are not available to a surety?
Capacity of the principal debtor; Bankruptcy of the principal debtor; Statute of limitations running on debtor's obligation.
324
Under what circumstances are compensated and uncompensated discharged from liability?
On material alterations, uncompensated surety is discharged; compensated surety is discharged only if modification increases the risk.
325
Define fee simple estate.
A person has complete ownership for an unlimited duration to do with the property as he or she legally chooses.
326
Define easement.
The right of a person to make limited use of another's realty, usually without taking anything from it, or possession of it.
327
Define warranty deed.
This deed provides the highest level of protection. The grantor guarantees title and his right to transfer.
328
Define tenancy at will.
A tenancy that simply continues with permission of the landlord. A tenancy at will can be terminated by either party without notice.
329
List the requirements for a valid deed.
1. It must be in writing; 2. It must be signed by the grantor; 3. It must include a description of the land.
330
Define tenancy for years.
A lease for a specified duration. The lease agreement must name the parties, include identification of the property, and include any lease term that the parties wish to have.
331
Define attachment.
Action by a creditor for a court-ordered seizure for the taking into custody the debtor's nonexempt property prior to the creditor getting a judgment.
332
What is the federal limit for garnishment of wages?
25% of debtor's wages.
333
What are the requirements for filing voluntary bankruptcy?
Any individual, partnership, corporation can file. Consumers must undergo credit counseling with nonprofit within 180 days of filing. Need not be insolvent - there are tests for determining eligibility for bankruptcy but insolvency is not required.
334
Describe the differences between the various chapters of bankruptcy.
Voluntary 7, 9, 11, 12, 13. Involuntary 7, 11. Trustee required 7, 12, 13.
335
What is a chapter 12 bankruptcy?
Adjustment of Debts of a Family Farmer and Fisherman.
336
What can a creditor garnish in order to satisfy a judgment?
Wages of the debtor.
337
What is a chapter 13 bankruptcy?
Adjustment of Debts of an Individual with Regular Income.
338
What governs bankruptcy laws?
Federal law administered by bankruptcy courts.
339
List the different types of liens.
1. Mortgages; 2. Secured transactions; 3. Mechanic's liens; 4. Worker's liens; 5. Judgment liens; 6. Artisan's liens.
340
What entities are not allowed to file voluntary bankruptcy?
1. Banks; 2. Savings (buildings) and loans; 3. Credit unions; 4. Railroads; 5. Insurance companies; 6. Governmental units; 7. Small businesses under SBA. (Their bankruptcies are handled via other sections of the code or by receiverships.)
341
What is a chapter 11 bankruptcy?
Reorganization.
342
Define mechanic's lien.
Lien for work or materials provided on real property.
343
What are the requirements for involuntary petition?
If there are 12 or more creditors, then 3 creditors with aggregated unsecured debt owed of $14,425 must file (April 2010 figure - changes every three years). If less than 12 creditors, then any creditor owed $14,425 may file.
344
What is a chapter 9 bankruptcy?
Adjustment of Debts of a Municipality.
345
Describe how a lienholder can collect on the amount owed.
Through foreclosure of the lien.
346
Define "order for relief."
Court order issued pending hearing on involuntary petition.
347
List the five types (or chapters) of bankruptcy.
1. Chapter 7; 2. Chapter 9; 3. Chapter 11; 4. Chapter 12; 5. Chapter 13.
348
List the types of bankruptcy permitting involuntary petitions.
1. Chapter 7; 2. Chapter 11.
349
How often are the amounts on filing requirements and exemptions for bankruptcies changed?
The amounts on filing requirements, exemptions etc. are set to automatically increase every three years.
350
List the types of bankruptcy permitting voluntary petitions.
1. Chapter 7; 2. Chapter 9; 3. Chapter 11; 4. Chapter 12; 5. Chapter 13.
351
Define artisan's lien.
Lien on personal property for repair, improvement, alteration.
352
Define garnishment.
Right of judgment creditor to garnish (take a portion of) debtor's wages through direct filing with employer- federal law limits amount that can be garnished to 25% of take-home pay.
353
List the types of property that can be attached.
Real and personal property as well as accounts and receivables.
354
What is a chapter 7 bankruptcy?
Straight Bankruptcy or Liquidation.
355
What are the time limits on voidable preferences?
1. 90 days prior to bankruptcy assumed insolvent and can be set aside if creditor gets priority it would not have in bankruptcy; 2. Insiders – one year prior to filing of the petition - presumed voidable.
356
What are the special responsibilities of consumers?
1. Must have had credit counseling; 2. Must meet the means test; 3. Dismissal of petition for abuse if consumer debtor has the means to pay according to code calculations of income.
357
Describe the federal homestead exemption for bankruptcy.
1. $146,450; 2. Debtor must have domiciled in the state for two years; 3. Applies to property acquired within 3.5 years of filing for bankruptcy.
358
What are the end results of a creditor knowingly violating a stay?
1. Constitutes a Crime; 2. Creditor liable for costs, actual and possibly punitive damages, attorney fees.
359
Define debtor's estate.
All property held at commencement plus appreciation (except employee benefit contributions) and property reacquired by trustee (voidable transfers).
360
What is the role of debtor at creditor's meeting?
Appear to testify about assets and debts.
361
Define "automatic stay."
Order issued by court that stops creditors from collecting debt once a petition is filed.
362
Define insider.
An individual or business which has a close relationship with the debtor.
363
What is the time limit for including inheritances in a bankrupt's estate?
The bankrupt must have the right to receive the inheritance before the bankruptcy or within 180 days of declaration.
364
List the actions not stayed by a bankruptcy petition.
1. Criminal prosecution of the debtor; 2. Collection of child support and/or alimony; 3. Tax audits; 4. HUD's right to foreclose under National Housing Act; 5. Investigations by a securities regulatory agency.
365
List the voidable preferences in bankruptcy.
1. Property transferred by fraud, duress, undue influence, mistake; 2. Fraudulent conveyances; 3. Transfers to insiders; 4. Transfer in the 90 days preceding the bankruptcy; 5. Transfers to creditors while insolvent (presumed insolvent for 90 days prior to filing). Also applies to security interests granted.
366
List the duties of the debtor.
1. List all creditors; 2. Schedule of assets; 3. Schedule of income; 4. Other required financial information.
367
List the basic duties of a bankruptcy trustee.
1. Collect property and reduce it to money; 2. Be accountable for property and make a final report; 3. Investigate financial affairs of debtor and creditor's claims; 4. Furnish information and reports to interested parties and domestic-support creditors; 5. Review all filings by debtor and a statement whether the filing is an abuse under the means income test.
368
Who can claim exemptions in a bankruptcy?
Only individuals, not partnerships or corporations, can claim exemptions.
369
List the exceptions to voidable preferences.
1. Contemporaneous bills: utilities, rent; 2. Ordinary course payments: monthly installment payments (mortgages; vehicle payments).
370
Describe the first creditors' meeting.
Called by the U.S. Trustee on behalf of the Court.
371
List the top four categories in the order of distribution in a bankruptcy hearing.
1. Secured parties; 2. Child support; 3. Bankruptcy administration costs (trustee, accountant, lawyer, appraisal fees etc.); 4. Gap creditors.
372
List the order of distribution of a bankruptcy estate after the gap creditors have been paid.
1. Employee/commission claims up to $11,725; 2. Employee pension contributions to $11,725, less the amount received as wages; 3. Farms/fishers; 4. Consumer deposits; 5. Taxes; 6. DUI damages; 7. General creditors.
373
What is the treatment of perfected secured claims beyond the value of collateral?
General creditor claim.
374
What are the requirements for a valid reaffirmation agreement?
It must be: Signed by the bankruptcy debtor; Filed by the court; Discussed with attorney or, if no attorney, court hearing is required.
375
List the conditions under which a discharge can be denied.
It can be denied If a debtor has intentionally concealed assets, records, etc. from creditors or the trustee; In the case of fraudulent claims or transfers of property; If the debtor refuses to obey court orders; If required documents are not filed; In consumer bankruptcies, if the required education course is not completed.
376
List the types of discharge.
1. Payment or Tender of Payment; 2. Cancellation or Renunciation; 3. Reacquisition; 4. Certification of a Check; 5. Impairment of Recourse or Collateral.
377
How long does a bankruptcy debtor have for the rescission of a reaffirmation agreement?
Any time prior to discharge or within 60 days of the filing of the agreements, whichever is later.
378
What debts cannot be discharged in bankruptcy?
1. Unpaid taxes (2 years); 2. Debts from fraud, larceny, embezzlement; 3. Alimony, child support; 4. Claims on willful or malicious and DUI torts; 5. Government fines and penalties; 6. Student loan debts (unless discharged).
379
What is a reaffirmation agreement?
It is a promise by the bankruptcy debtor to pay a debt that would otherwise be discharged in bankruptcy.
380
When must a reaffirmation agreement be entered into in order to be valid?
It must be entered into prior to the discharge in bankruptcy in order to be valid.
381
How often can a debtor receive a discharge in bankruptcy?
There must be at least eight years between the last discharge and the filing of the petition for the current bankruptcy.
382
Define "special agent."
Agent who is limited in time and/or scope of agency; could be agency for a specific task.
383
What acts by the operation of law can lead to the termination of an agency relationship?
1. Death or insanity of principal or agent; 2. Bankruptcy (of the agent if it impairs his duties, of the principal if the agent no longer desires the relationship); 3. Change of law; 4. Loss or destruction of subject matter.
384
What is the basis of an agency relationship?
Consent of the Parties.
385
Define principal.
One who appoints an agent to act on his or her behalf.
386
Define agent.
One who acts on behalf of another (the principal).
387
What elements are not necessary for an agency relationship to exist?
Capacity and Consideration.
388
List the requirements for creation of an agency relationship.
Principal with capacity and, if agent's contracts must be evidenced by a record, a record of creation.
389
Define independent contractor.
One who is doing work for another but whose actions and schedule are not directly controlled by that party. Example: a lawyer handling one case for a client.
390
What actions by a party can lead to the termination of an agency relationship?
1. Fulfillment of purpose; 2. Lapse of time; 3. Occurrence of a specified event; 4. Mutual agreement; 5. Act of one party (exception: agency coupled with an interest).
391
Define "power of attorney."
A name for a written document that creates an agency relationship.
392
Define "agency relationship."
Legally binding arrangement in which one party (agent) acts on behalf of another (principal).
393
Define "general agent."
Agent who is given general authority for the principal, i.e., not limited to specific transactions.
394
What types of authority are terminated by operation of law, i.e, death or bankruptcy?
Express, Implied (Actual), and Apparent Authority
395
List the duties of a principal to an agent.
1. To comply with the agency agreement; 2. To reimburse reasonable expenses; 3. To indemnify; 4. To compensate for physical injury.
396
What types of authority are terminated by unilateral act, "You're fired" or "I quit"?
Express and Implied or Actual Authority
397
List the agent's duties of loyalty.
1. No competition; 2. No conflict of interest; 3. No appropriation of business opportunities; 4. No disclosure of confidential information.
398
List the duties of an agent to a principal.
1. Obedience; 2. Reasonable Care; 3. Accounting; 4. Notification; 5. Loyalty.
399
Define "ostensible authority."
Authority that arises through action or inaction of principal in holding out agent as having authority or through inaction on agent's conduct.
400
List the elements of apparent authority.
1. Principal holds agent out; 2. Agent acts within scope of apparent authority; 3. Third party reasonably relies.
401
List the three types of authority through which agency power can arise.
1. Express; 2. Implied (Customary, Incidental, Emergency); 3. Apparent.
402
Define "lingering apparent authority."
Authority of terminated agent to continue binding the principal through the principals failure to terminate agent through proper actual and constructive notice.
403
Define "partially disclosed principal."
Contract situation in which third party is aware of the existence of a principal but not the principal's identity.
404
Define "apparent authority."
Authority that comes through the way an agent appears to third parties; Principal holds agent out with authority.
405
Define "undisclosed principal."
Contract situation in which third party only knows and believes contract is with the agent; is unaware of existence or identity of principal.
406
List the two types of actual authority.
Express and implied authority.
407
Define "apparent agency/ostensible agency."
An agency relationship that exists by appearance to third parties that an agency relationship exists.
408
Define "disclosed principal."
Contract situation in which third party is aware of the existence and identity of a principal.
409
Describe vicarious (respondeat superior) liability.
Principals may be liable though blameless if: 1. Master-servant relationship exists; and 2. Agent acts within scope of employment.
410
List the forms of the principal-agent relationship.
1. Master-servant (principal usually liable for agent's torts); 2. Employer-independent contractor (principal usually not liable).
411
Who is liable for the agent's torts if the principal is at fault?
Liability of a principal.
412
Define "vicarious liability."
Liability of principal for torts of agent in master/servant relationship when torts are committed by agent with authorization of scope of employment.
413
Define "scope of employment."
Measure for determining when a principal is held liable for the torts of an agent.
414
Define "independent contractor."
Agent who acts on behalf of a principal but who retains control over schedule and is not controlled daily by principal.
415
Define "frolic and detour."
Acts and conduct by the agent outside the scope of employment that are done while the agent is supposed to be working for the principal.
416
List the situations in which the principal has liability for the torts of his or her agent.
Directs the tort; Failure to properly supervise; Negligent hiring and/or retention.
417
Describe the master/servant relationship.
Type of relationship in which principal controls the activities of the agent; principal has liability for agent's torts in this relationship.
418
Describe the concept of respondeat superior.
"Let the master answer;" doctrine that holds principal liable, in certain circumstances, for the torts of the agent.
419
Does a principal have the right to control the method and manner of an agent's work?
1. Yes, if a master-servant relationship exists. 2. No, if an independent contractor relationship exists.
420
List the elements of an investment contract.
1. Investment of money; 2. In a common enterprise; 3. With an expectation of profit; 4. To be earned primarily by the actions of others.
421
Define "security".
Any note, stock, treasury stock, bond, debenture, evidence of indebtedness, etc.
422
Define "catch-all categories".
Investment contracts and "any interest or instrumentality commonly known as a security."
423
List some of the traditional do's and don'ts relating to the registration process with the Securities and Exchange Commission.
Pre-filing period: no offers/no sales; Waiting period: some offers/no sales; Post-effective period: offers and sales ok.
424
Define "free writing".
Written advertising material that is not permissible during the waiting period.
425
Define "pre-filing period".
Period before the registration statement is filed with the SEC.
426
What is the length of the waiting period for the Securities and Exchange Commissions approval of a registration?
20 business days (theoretically).
427
Define "free writing prospectus".
Written literature, other than prospectus that Well-Known Seasoned Issuers and other big firms can use at any time to promote securities.
428
What does the acronym WKSI stand for?
Well-Known Seasoned Issuers.
429
What purpose does a company registration with the Securities and Exchange Commission serve?
This type of registration allows big firms like Well-Known Seasoned Issuers to file registration statement covering three years and sell whenever they want.
430
List the distribution process for securities.
Issuer-Underwriter-Broker-Investor.
431
List the key Securities and Exchange Commission securities that are exempt .
Bank; Common carrier; Bankruptcy receivers; Insurance policies/annuities.
432
List the "Regulation D" exemptions.
Rule 504 (small offering-$1m); Rule 505 (small offering-$5m); Rule 506 (private placement-unlimited).
433
List the requirements for an intrastate offering (Rule 147).
All offerees must be in the state; 80% of issuer's assets in state; 80% of issuer's revenues in state; 80% of proceeds used in state.
434
List the primary Securities and Exchange Commission transactions that are exempt.
Small Offerings; Private Placements; Intrastate transactions.
435
True or false: State regulations can enforce antifraud rules and can regulate the merits of covered securities.
False. State regulations can only enforce antifraud rules and require notice filings. However, state regulations cannot regulate merits or register "covered securities."
436
When is an accounting firm liable regarding securities with which it has done work?
Liable only for that part of the registration statement (financial statements) that it prepared.
437
What elements must a plaintiff prove to win a §11 claim under the Securities and Exchange Act?
A false statement or omission of fact appeared in a registration statement, The misstatement or omission was material, Plaintiff bought securities that were issued under the defective registration statement, Plaintiff suffered damages.
438
List the elements that a plaintiff must prove in a Securities Exchange Act §12(a)(2) lawsuit.
P must prove: Misrepresentation or omission; Materiality; Tracing; D is a "seller;" and Damages.
439
List the Securities and Exchange Act §12(a)(1) remedies to violations of §5 of the Act.
Sale of unregistered securities; Failure to deliver prospectus; Use of inadequate prospectus; Offer before filing registration statement.
440
List the elements of a Securities Exchange Act §12(a)(1) lawsuit.
D violated Sec. 5; D was a "seller;" Damages.
441
What is the purpose of the Securities Exchange Act §10(b).
This section punishes fraud in purchase or sale of securities in violations of SEC rules, like 10b-5.
442
List the types of required reports described in the Securities Exchange Act.
10-Ks; 10-Qs; 8-Ks.
443
What are the major provisions of the Securities Exchange Act of 1934?
Created SEC; Created periodic reporting system; Punishes fraud; Regulates securities business.
444
List the elements of a Securities Exchange Act §18(a) claim.
False statement; In a "filed" document; Materiality; Purchase or sale; "Eyeball" Reliance; Causation; and Damages.
445
List the elements of a Securities Exchange Act §10(b) liability.
Misstatement; Materiality; Reliance; Causation; Purchase or sale; and Damages.
446
What is the key to assuming liability under the Securities Exchange Act §18(a)?
False statement in a "filed document."
447
True or False: The Securities and Exchange Commission can bring criminal charges against companies that have a filing with the agency.
False. The Commission cannot bring criminal charges but refers these cases to the Department of Justice which files and prosecutes the cases.
448
What is the burden of proof in a criminal case?
Beyond a reasonable doubt.
449
Under what provisions of the Securities and Exchange Commission can accountants be criminally liable for any willful violation?
Any provision of the 1933 Act; Any provision of the 1934 Act.
450
Describe the impact of Dodd-Frank upon the accounting profession.
Its impact is relatively minor.
451
Which entities are subject to the new regulation by the Consumer Financial Protection Bureau (CFPB)?
Most creditor providers and banks and credit unions with assets over $10 billion.
452
What is the duty of the Consumer Financial Protection Bureau (CFPB)?
It consolidates most federal regulation of financial services.
453
Are accountants regulated by the Consumer Financial Protection Bureau?
No, they are not regulated by the Consumer Financial Protection Bureau.
454
Must accounting errors that led to erroneous bonus payment be intentional in order for the Dodd-Frank executive compensation "claw back" provision to apply ?
No, accounting errors do not have to be intentional.
455
What is the range of Dodd-Frank rewards for whistleblowers as a percentage of money sanctions over $1 million?
Reward range is 10-30%.
456
Describe one effect of Dodd-Frank on PCAOB.
It authorizes the PCAOB to monitor auditors of nonpublic broker-dealers.
457
List three new agencies created by Dodd-Frank.
1. FSOC (Financial Stability Oversight Council); 2. CFPB (Consumer Financial Protection Bureau; and 3. A new federal insurance regulator.
458
Is same sex sexual harassment protected under Title VII of the Civil Rights Act of 1964?
Yes, it is protected against by Title VII.
459
List the entities for which Title VII of the Civil Rights Act of 1964 applies.
Employers, Employment Agencies, Labor Unions, Federal, State, and Local Government Employees.
460
What is the main effect of the Age Discrimination in Employment Act?
Supplements Title VII by prohibiting mandatory retirement.
461
List the two types of discriminations that can occur as described under Title VII of the Civil Rights Act of 1964.
Intentional (Disparate Treatment), Discriminatory Impact (Disparate Impact).
462
List the types of sexual harassments as outlined in Title VII of the Civil Rights Act of 1964.
Quid Pro Quo; Hostile Environment.
463
What does the acronym BFOQ stand for?
Bona Fide Occupational Qualification.
464
What does the acronym ADEA stand for?
Age Discrimination in Employment Act.
465
What Act forbids discrimination in employment based on race, color, religion, sex, and national origin?
Title VII of the Civil Rights Act of 1964.
466
List the entities affected by the Age Discrimination in Employment Act.
1. Businesses employing at least 20 people; 2. State and Local Governments; 3. Unions (with at least 25 members); 4. Employment Agencies.
467
List the entities affected by the Americans with Disabilities Act.
1. Employers with 15 or more employees; 2. All state and local governments; 3. Most private businesses that provide accommodations, goods, or services to the public; 4. Public services and transportation.
468
List four examples of "reasonable accommodations."
1. Making facilities accessible; 2. Providing adaptive hardware; 3. Hiring readers or interpreters; 4. Providing part-time or modified work schedules.
469
What does the acronym ADA stand for?
Americans with Disabilities Act.
470
List the entities that enforce Title VII of the Civil Rights Act of 1964.
Equal Employment Opportunity Commission (EEOC) and/or Civil Actions by individual plaintiffs.
471
List the features of self-employed tax.
1. Base rate = that of FICA rate for employer and employee combined; 2. Base rate reduced by any "wages" earned during the year, because of the FICA paid on the wages; 3. Self-employed can deduct 50% of FICA from taxes.
472
What is the employer's responsibility for the Federal Insurance Contributions Act tax?
1. Pay own share; 2. Withhold employee's equal share and remit it in a timely fashion; 3. Pay employee's share if fail to withhold ("double tax"); 4. Furnish employee with written statement of wages paid and contributions withheld; 5. Supply Taxpayer Identification Numbers when filing returns.
473
What benefits are available to "currently insured" workers under the Federal Social Security Act?
1. Limited survivor benefits (usually limited to dependent minors or those caring for dependent minors); 2. Benefits for disabled workers and dependents; 3. Lump-sum death benefits.
474
How is the Federal Insurance Contributions Act tax applied to an individual's compensation?
Tax that applies only to that part of compensation that is deemed "wages."
475
What does §6672 of title 26 of the Internal Revenue Code cover?
Failure to collect and pay over tax, or attempt to evade or defeat tax.
476
Describe the coverage provided by disability benefits.
Covers worker who suffers a severe physical or mental impairment preventing that person from working for a year or more or expected to result in the victim's death.
477
Describe the coverage provided by Medicare.
A portion of costs of hospitalization and medical benefits of insured workers and spouses 65 and older; can cover younger disabled workers in some cases.
478
List the features of the Federal Insurance Contributions Act.
1. Rates generally the same for employer and employee; 2. Rates change often; 3. Social Security Taxes are paid only up to base amount; there is no limit on the Medicare component.
479
What does the acronym FICA stand for?
Federal Insurance Contributions Act.
480
What items are considered in self-employed income?
Net business profits, director's fees.
481
What is the purpose of the Federal Social Security Act?
Provide partial replacement of earnings when a worker retires.
482
Describe the concept of willfulness as it applies to a taxpayer paying tax that is owed.
Awareness of the obligation and a conscious and voluntary payment of someone else with funds that should have been used to pay the tax owed.
483
Under the Federal Social Security Act, what is the requirement to be "fully insured?"
One must accrue a minimum of 40 quarters (10 years) of contributions.
484
What purpose does the Federal Unemployment Tax Act serve?
Provide unemployment compensation benefits to workers who lose jobs and can't find new ones.
485
What does the acronym FUTA stand for?
Federal Unemployment Tax Act.
486
Who pays Federal Unemployment Tax Act (FUTA) taxes?
Employer (only) pays these taxes.
487
List the eligibility requirements for unemployment benefits.
Involuntarily terminated; Available and looking for work; Not receiving disqualifying income.
488
List the workers excluded from minimum wage and overtime requirements.
Executives; Professional employees.
489
What type of workers is not covered by the minimum wage rules?
Independent contractors.
490
Who is responsible for enforcing the Federal Fair Labor Standards Act?
Department of Labor's Wage and Hour Division and private lawsuits.
491
What does the acronym FLSA stand for?
Federal Fair Labor Standards Act.
492
What is the basic minimum age for employment in any nonhazardous work?
The age of sixteen.
493
What is the hour limit to which overtime must be applied under the Federal Fair Labor Standards Act?
More than 40 hours in a week.
494
List the major sections of the Federal Fair Labor Standards Act.
1. Minimum Wage; 2. Overtime Standard; 3. Child Labor Restrictions; 4. Equal Pay Provision.
