Flashcards in negotiable instruments Deck (66):
draft and checks
three party instruments consisting of a drawer who orders a drawee to pay a payee
Promises to Pay
notes and CDs -- two party instruments consisting of a maker who promises to pay a payee
Sight Draft- draft payable on demand immediatelyy upon issue by the drawer and sight to the drawee
Time Draft- a draft payable by the drawee at specific time
Trade Acceptance- draft drawn by a seller
draft drawn on a bank payable on demand
Promissory Note- not payable on demand or within a definite time period to a specific payee or to the bearer
CDs- not made by a bank acknowledging that it has a deposit of funds payable to the holder.
letter of credit
bills of lading
stocks and bonds
importance- special transferability ease and rights of HDCs are not available unless instrument is negotiable.
must be in writing
must be signed by the maker or drawer
unconditional promise to pay
Sum certain in money (fixed )
Payable on demand or at definite time
Words of negotiability- an instrument must be either payable to order or bearer.
--order instruments are payable to the order of: identified person, agent,
Bearer instruments are payable to bearer, identified person, cash or some non identified person
signed by maker or drawer
sum certain in money
payable on demand
words of negotiability
Factors not affecting negotiability
-contridictory terms- typewritten words previail over handwritten
- omission of date- unless necessary to determine a definite time for payment for a time instrument
-post dating or antedating
-collateral- additional promises to maintain or give addition or notation that collateral has been given as a security
--presence of guaranty-a guaranty of payment of an instrument does not affect NG
Bearer Instruments- are negotiated by mere delivery to the holder
Order Instruments- negotiated only by a delivery plus an indorsement
Blank- convertsorder instrrument into bearer instrument. For transfer with consideration, all warranties are extended to subsequent holders. blank indorser has secondary liability to pay all subsequent holders.
Qualified- usually uses the words "without recourse" or something similar. Disclaims contract signature liability and still extends transfer warranties to subsequent holders.
Restrictive (for deposit onlY)- does not prohibit further negotiation. except for conditional indorsement, liability to subsequent holders is limited to restriction being met.
Holder in Due Course
greater rights than an assignee in seeking payment. An HDC can take free from most defenses to contracts and be paid regardless of underlying contract disputes.
-must be holder
-must take instrument for value
-in good faith
-without notice that the instrument is overdue, been previously dishonored or any claim or defense.
Holder- someone in possession of an instrument that runs to them. if bearer paper, payable to their order, or instrument is indorsed to them.
bearer instruments are negotiated by
party in possession of instrument. to be a holder of bearer paper requires delivery. to be holder of ORDER paper, requires delivery and proper indorsement.
Requirements to be HDC
1. must be holder
2. must take instrument for value
3. take in good faith
4. must take without notice of instrument being overdue or previously dishonored.
Demand instrument becomes overdue
unreasonable amount of time has lapsed or on the day after a demand payment is made.
holder who takes possession of a negotiable instrument for present vaule in good faith and without knowledge of any claims against instrument.
Checks become overdue
more than 90 days after their date
how do order instruments negotiated
by delivery plus indorsements
when does a time instrumentbecome overdue
if taken one minute after due date
specifies no particular person to receive payment.
for deposit or collection only
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.
by delivery plus indorsement
Proper steps- sequence and requirements.
presentment- the holder presents instrument for payment from primary party.
(maker of CDs and noes and DRAWEES of drafts and checks
Maker--- CDs and notes
Drawee- Drafts and checks
Who are the primary parties to negotiate
for notes-- payor/debtor
for CDs- bank that agreed to accept CD deposit
Checks- drawee bank where check is first presented.
Drafts-- drawee of the draft
Contingent fees can be charged only for
services rendered with an IRS examination or challenge to either the original or amended tax return or claim for refund where they were filed within 120 days for receiving a written notice of examination.
where a claim of refund is filed solely in connection with determination of statutory interest or penalties.
representing client in judicial procedings
Conflicts of interest
should not represent a client before the IRS if it would create a conflict of interest-1
must advise the client of any penalties
that are reasonably likely to apply with positions taken on tax returns.
100% penalty of gross income
for violating practice rules.
issue CPA licenses and take them away
grants MEMBERSHIP and can punish members by suspensions.
You need a CPA license to do...
examinations, audits, reviews anything in accordance with PCAOB.
you do not need a CPA license to do the following
prep of Tax returns
management advisory services
preparing financial statements without issuing a report thereon
may revoke CPA licenses and impose other penalties for fraud in obtaining certificate, failure to comply with requirements for renewal, violation of professional standards, felony or any crime involving fraud
investigates violations of AICPA code and sanctions minor cases, hears serious acses
automatic explusion for committig a felony, willfully failing to file tax return, filing a fraudulent tax return, aiding in preparing a fraudulent tax return,
revocation by a state board leads to automatic expulsion of AICPA
AICPA handels matters of national concern, involving more than one state and litigation
State boards handle more local level.
Tax return preparers are
PREPARE or retain employees to prepare
a substantial portion of any federal tax return or refund claim.
NOT A TRP
if you prepare a return for your employer or if you prepare return as a fiduciary
Understatement of taxpayer's liability
against the TRP--- position is unreasonable and no substantial authroity for the position. (Less than 40% chance of being sustained)
positiion is unreasonable and it is disclosed but less than 20% basis for being sustained
if the position is a tax shelter and MLTN to be sustained (Less tha 50%)
failure to furnish a copy of the return for the preparer.
failure to sign the return and show identity
failure to furnish preparer's identifying number to IRS
failure to keep copy of the return.
Gross overvaluation o f property
over 2 times the actual value
Violation of GAAP or GAAS always
establishes negligence to the accountants
vidence of compliance with GAAP and GAAS does not necessarily establish reasonable care.
Damages when accountant breaches contract
plaintiff CANNOT recover from careless accountant unless plaintiff has suffered some injury.'
cannot collect damages for injuries caused by contributory negligence
NEVER collect punitive damages with negligence.
Plaintiff must prove accountant's negligence directly caused his or her injuries
accountant is liable for his or her negligence if it was a substantial factor in bringing the loss
Defenses for negligence case
contributory negligence by the client
accountant made a false representation of fact. misrepresented fact was material and the acountant knew about it or it was considered reckless (Scienter).
Reckless disregard or GROSS negligence- constructive fraud
accountant intended to and did induce plaintiff's reasonable reliance on misstatement or omission.
CLIENT SUFFERED DAMAGES.
liability to all foreseeable victims in a fraud case
whereas in negligence is more limited in scope.
PUNITIVE AND COMPENSATORY DAMAGES FOR FRUAD
Negligence liability to third parties
accountant is liable to limited class of non clients where accountant knows information being supplied to client will be given to limited group of third persons. Information will influence thrid parties specific transaction.
Ultamares vs. Touche
accountant is liable only to those with whom they are in PRIVY Of CONTRACT
Foreseen vicitms can recover from the accountant- those expressively stated inthe engagement letter.
anti bribery provisions
aimed at preventing US companies from gaining or retaining foreign business by bribing foreign govt officials
aimed specifically at preventing companies from hiding huge bribes on F/S.
companies registered with SEC must keep detailed records which fairly and accurately reflect f/s activities.
fines up to 100k and 5 years in jail for an individual
fines up to 1 million for a corp
CIVIL- max civil fine is 10k.
RICO-prevent organized crime's infiltration into legitimate business. criminal and civil actions can be brought against defense.
mail fraud- any lie through the mail
wire fraud- lie told over the phone
SOX Criminal Liability
willful failure to retain audit and review work papers. SOX retention is 5 years, -10 years in jail
PCAOB must retain w/p for 7 years.
20 years in jail for destruction of w/p
1933 act- 1/3
accountant is liable for part they prepared.
plaintiff suffered damages
lack of reliance
statute of limitations.
more than 10 m in assets and 2000 SH
RULE 504--- Regulation D
used mostly by small companies- exempt if attempt is to raise $1 mill and have unlimited amount of investors
need to file FORM D with the SEC
RULE 505- Regulation D
can be used to raise only $5 million in 12 months
35 unaccredited investors and unlimited accredited investors
must file form D within 15 days
Rule 506- Regulation D
no limit on the amount but can only sell to no more than 35 unaccredited investors and must be sophisticated.
must file form D within 15 day.
cannot be used by 34 act reporting companies, investment companies or bad boys.
limit of $50 million
"testing the waters"
need 2 years of B/S unaudited..
JOBS act of 2012
made it easier for small companies to raise capital with hope that would eventurally lead to creation of jobs.
creation of firms called EGC
increased regulation A from $5 mill to $50 million
allowed firms doing private placements to engage in general solicitation and advertising in situations where they could not do so before.
changed definition of public companyin order to allow firms to grow bigger before forced to go public.
EMERGING GROWTH COMPANIES
- have less than 1 billion in annual gross revenues
been public for less than 5 years.
have public float of less than 700 million.
only need 2 years of audited F/S instead of 3 with their registration statement.
--reduced disclosure requirments.
exempt for five years in complying with secition 404bof SOX of internal control audit over financial reporting.
use internet tor aise capital.
raise up to 1 million in 12 months
plaintiff bought securities that were issued during defective registration period.
plaintiff suffered damages
Defenses for accountant- 1933
performed due diligence audit
lack of reliance by Plaintiff.
statute of limitations p must sue within 1 year when they discovered false statements or omissions.
calculation of Section 11 damages-
lesser of amount actually paid by Plaintiff or price security was offered to public.
ONLY HAVE TO PROVE NEGLIGENCE, not scienter or causation or reliance on f/s.
1934 plaintiffs must prove the following
2 years of when fraud was discovered
5 years if fraudulent
- false statement or omission of MATERIAL fact-
-SCIENTER by defendent
-RELIANCE by plaintiff