Cmu Business Law Final Review

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Signed writing that functions as a sub for cash or extension of credit. Must: 1. Be in writing; 2. Be signed by maker or drawer; 3. Be unconditional promise or order to pay; 4. State a fixed amount of money; 5. Be payable on demand or at definite time; 6. Be payable to order/bearer, unless a check.

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Negotiable Instrument

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Person who signs or makes the order to pay (Draft)

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Drawer

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Person to whom the order to pay is made (Check)

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Drawee

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Person to who payment is ordered or to whom the promise is made (Check or Promissory Note)

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Payee

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Written promise made by one person (maker) to pay a fixed amount of money to another person (payee)

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Promissory Note

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Negotiable instrument that is payable "to the order" of an identified person

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Order Instrument

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Instrument that is not payable to specific person including payable to the "bearer" or to "cash"

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Bearer Instrument

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Person who takes an instrument free of most defenses & claims by meeting the following requirements. Must: 1. Take for value; 2. Take in good faith; 3. Take w/o notice (of any defect)

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Holder in Due Course (HDC)

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Person who is absolutely required to pay the instrument - unless has a valid defense (makers & acceptors)

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Primary Liability

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Drawer or an indorser will be liable only if party that is responsible for paying instrument refuses to do so (drawers & indorsers)

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Secondary Liability

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Check that is presented for payment more than 6 months after its date

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Stale Check

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Order by a bank customer to his/her bank not to pay or certify a certain check

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Stop-Payment Order

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First bank to receive a check for payment

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depositary bank

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Bank on which a check is drawn
(drawee bank)

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payor bank

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any bank handling an item for collection, except the payor bank

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collecting bank

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any bank to which an item is transferred in the course of collection, except the depositary or payor bank

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intermediary bank

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Two purposes: 1. To protect debtors by giving them a fresh start (encourages entrepreneurship/risk taking); 2. Ensure equitable treatment of creditors

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secured transactions & bankruptcy

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Obtaining of funds by legal process through the seizure & sale of nonsecured property

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levy

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person, such as a cosigner on a note, who agrees to be primarily responsible for the debt of another

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surety

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debtor who is allowed to continue in possession of the estate in property (business) and to continue business operations

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debtor in possession (DIP)

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relationship between two parties in which one party (agent) agrees to represent or act for the other (principal)

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agency

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person having a duty created by his/her undertaking to act primarily for another's benefit in matters connected with the undertaking

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fiduciary

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act of accepting and giving legal force to an obligation that previously was no enforceable

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ratification

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1. Performance, 2. Notification, 3. Loyalty, 4. Obedience, 5. Accounting

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Agent's Duties to the Principal

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1. Compensation, 2. Reimbursement and Indemnification, 3. Cooperation, 4. Safe Working Conditions

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Principal's Duties to the Agent

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Authority declared in clear, direct, and definite terms. Given orally or in writing. (agent's authority)

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Express Authority (Actual)

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Do what is reasonably necessary to carry out express authority and accomplish the objectives of the agency.

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Implied Authority (Actual)

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When the principal, by words/actions, causes a third party reasonably to believe that an agent has authority to act, even though the agent has no express or implied authority.

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Apparent Authority

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Principal whose identity is known by the 3rd party at the time the contract is made by the agent

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disclosed principal

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Principal whose identity is not known by the 3rd party, but the 3rd party knows that the agent is or may be acting for a principal at the time the contract is made

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partially disclosed principal

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Principal whose identity is totally unknown by the 3rd party, and the 3rd party has no knowledge that the agent is acting in an agency capacity at the time the contract is made.

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Undisclosed principal

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"Let the master respond". Doctrine under which a principal or employer is held liable for the wrongful acts committed by agents/employees while acting within the course & scope of the agency/employment

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respondeat superior

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legal responsibility placed on one person for the acts of another

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vicarious liability

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1. lapse of time, 2. purpose achieved, 3. occurrence of specific event, 4. mutual agreement, 5. termination by one party, 6. notice of termination

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Termination by act of the parties

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1. death or insanity, 2. impossibility, 3. changed circumstances, 4.bankruptcy, 5. war

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Termination by operation of law

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Employer or employee can terminate the relationship at any time for any reason

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employment at will

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1. Contract (implied covenant of good faith); 2. Tort (wrongful discharge or fraud, defamation, emotional distress, etc.); 3. Public Policy Exceptions (whistleblowing or illegal acts)

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Exceptions to employment at will

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FLSA prohibits oppressive child labor practices. Provides regulations for work, depending on age of child (military is exempt)

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Child labor

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Davis-Bacon Act - prevailing wage act

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Wages & Hours

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Aimed toward safety in the workplace. Procedures & violations: employers with 11 or more employees required to keep records

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OSHA

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Require most employers to carry workers comp insurance. Reduce employer liability to employees for workplace injuries and provide a measure of assurance that workplace injuries will be compensated, regardless of solvency of employer, by requiring that injured employees make a claim against the employer's workers' comp ins policy instead of suing employer

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State worker's compensation laws

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electronic communication privacy act allows employers to monitor electronic comm in the workplace. prohibits intentional interception of person communications.

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electronic monitoring

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lie detector tests (prohibited except under ongoing investigation exception), drug testing (most govnt employees are subject to testing & rights of private employees vary from state), AIDS testing (some state statutes restrict)

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other types of monitoring

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Prohibits discrimination in employment on the basis of race, sex (pregnancy), color, religion, national origin

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Title VII of Civils Rights Act of 1964

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Defense to allegations of employment discrimination in which the employer demonstrates that an employment practice that discriminates against members of a protected class is related to job performance

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Business Necessity

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Identifiable characteristics reasonably necessary to the normal operation of a particular business. Can include gender, national origin & religion, but not race

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Bona Fide Occupational Qualification

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System in which those who have worked longest for the employer are first in line for promotions, salary increases, and other benefits, also last to be laid off.

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Seniority System

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Evidence that the employer discovers after a lawsuit is filed of an employee's misconduct (defense to employment discrimination)

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after-acquired evidence of employee misconduct

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one who initiates and assumes the financial risk of a new business enterprise and undertakes to provide or control its management

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entrepreneur

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Simplest form of business organization. Owner is the business, reports bus income on his personal income tax return, legally responsible for all debts/obligations. 2/3rds of US businesses

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Sole Proprietorship

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agreement by 2 or more persons to carry on, as co-owners, a business for profit. a sharing of profits & losses, joint ownership of the business, equal right in the management.

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partnership

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partnership consisting of one or more general partners (who manage the bus and are liable to the full extent) and one or more limited partners (who contribute only assets & are liable up to the amt they contribute)

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limited partnership

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partner in limited partnership who assumes responsibility for the mgmt of the partnership & liability for all partnership debts

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general partner

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partner in limited partnership who contributes capital to partnership but has no right to mgmt & operation. assumes no liability for partnership debts beyond capital contributed

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limited partner

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legal entity formed in compliance w/ statutory requirements. Entity is district from its shareholder-owners

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Corporation

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hybrid form of business enterprise that offers limited liability of corporation but tax advantages of a partnership

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limited liability company (LLC)

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Business org form that is similar to LLC but is designed more for professions. Pass-through entity for tax purposes but limits personal liability of partners

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limited liability partnership (LLP)

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two or more entities combine efforts or property for a single transaction or project. Unless agreed others, share profits & losses equally

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joint venture

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group of individuals getting together to finance a particular project

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syndicate (investment group)

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hybrid of partnership & corporation. 1. ownership - shares of stock. 2. managed by directors & offices of company and 3. can have a perpetual existence. shareholders have personal liability

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joint stock company

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created by written agreement. legal ownership & mgmt of property remains w/ trustees & profits distributed to the beneficiaries.

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business trust

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an association organized to provide a not-for-profit service to members

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cooperative

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any arrangement in which the owner of a trademark, trade name, or copyright licenses others to use them in the selling of goods or services

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franchise

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owner of trademark, trade name, or copyright

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franchisor

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one receiving a license to use another's trademark, trade name or copyright in the sale of goods/services

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franchisee

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1. Distributorship (car dealerships), 2. Chain Style Business Operation (Arby's), 3. Manufacturing or Processing Arrangement (Coca-Cola)

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Types of private franchises

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contract states parties rights and duties and can include an exclusive "territory" to market goods/services. can specify type of business entity including capital structure, sales quotas, and record keeping

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The Franchise Contract

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legitimate issue for franchisor because of good will, reputation & trademark value. courts will not questions franchisor's strict supervision but franchisor may be liable for torts of agents

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quality control

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1. determined by contractual terms, 2. termination is usually "for cause", 3. notice of termination is usually required, 4. good faith & fair dealing, 5. governed by fed & state laws, 6. remember: franchisor owns the trademark (which is usually the business and goodwill)

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franchise termination

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a corp is liable for torts committed by its agents or officers w/in the course and scope of their employment under the doctrine of respondeat superior. can be liable for criminal acts, but only fined. responsible officers may go to prison

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corporation liability

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corp profits can be kept as retained earnings or passed on to shareholders as dividends. profits are taxed under fed & state law as separate "person" from shareholders. regular
"C" corps are taxed twice: at corp level and at shareholder level

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corporate taxation

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corp whose shareholders are limited to a small group of persons, often including only family members. more informal mgmt (similar to partnership).

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close corporation

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close bus corporation that has met certain requirements in the internal revenue code. avoids federal "double taxation" - only dividends are taxed. owners have limited liability

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S corporation

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corp that does business in its state of incorporation (art van, faygo)

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domestic corporation

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corporation from X state doing business in Y state without being incorporated therein (Walmart)

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foreign corporation

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corp formed in another country doing business in US (sony)

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alien corporation

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generally stock certificates, bonds, notes, debentures, warrants, or other docs given as evidence to participate in earnings and the disribution of corporate property or the obligation to pay funds

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securities

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equity (ownership) interest in a corp, measured in units of shares

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stock

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certificate that evidences a corporate (govnt) debt. involves no ownership interest in the issuing entity.

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bond

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true ownership of a corporation is represented by this

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common stock

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stock with preferences - holders have priority to dividends as as to payment on dissolution of the corp

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preferred stock

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voluntary dissolution or involuntary dissolution. dissolution is the formal disbanding of a partnership or corp

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termination of a corp

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more disclosure from issuers. prohibition of deceptive, unfair & manipulative practices in the purchase and sale of securities

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stock market crash in 1929 showed need for:

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designed to protect investors from deceptive, unfair & manipulative practices in the purchase and sale of securities.

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Securities acts of 1933 and 1934

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intentional or negligent fraud of investors by misrepresenting or omitting material facts in the registration statement.

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violations of 1933 act

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statement left out was not material; plaintiff knew about fraud and purchased stock; registrant believed statements were true.

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defenses for violations of 1933 act

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criminal: up to five years in prison and $10,000 fine. civil: damages, refund of investment, injunction

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penalties for violations of 1933 act

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registration of securities exchanges, brokers, dealers & national securities exchanges & associations. requires continuous disclosure system for corp w/ securities sold on national exchanges or assets in excess of $5 mil and 500 or more shareholders

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Securities Act of 1934

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prohibits the use of any manipulative or deceptive device or contrivance in contravention of rules & regulations of SEC.

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Section 10(B)

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prohibits the commission of fraud in the connection w/ the purchase or sale of any security

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Rule 10(B)

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an act to protect trade and commerce against unlawful restraints and monopolies

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sherman antitrust act

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any agreement that in some way restrains competition between rival firms competing in the same market

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horizontal restraint

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any restraint on trade created by agreements between firms at different levels in them manufacturing and distribution process

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vertical restraint

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pricing of a product below cost with the intent to drive competitors out of the market

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predatory pricing

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setting prices in such a way that 2 competing buyers pay 2 different prices for an identical product or service

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price discrimination

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agreement under which a seller forbids a buyer to purchase products from the seller's competitors

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exclusive-dealing contract

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merger between 2 firms that are competing in the same marketplace

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horizontal merger

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acquisition by a company at one level in a marketing chain of a company at a higher or lower level in the chain

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vertical merger

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designed to improve the quality and clarity of financial reporting and auditing of public companies.

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sarbanes-oxley act

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may subject persons in foreign nations to their provisions, as well as protect foreign consumers & competitors from violations committed by US citizens

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US antitrust laws

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federal laws in the US prohibit discrimination on the basis of race, color, national origin, religion, gender, age, and disability

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antidiscrimination laws