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53 Cards in this Set
- Front
- Back
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Agency - Creation Requirements
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- Need a principal with contractual capacity and consent of parties
- Writing not required unless to buy or sell land or impossible to perform within a year - Agency need not have capacity - Consideration not required - For power of attorney, only the principal is required to sign, authority generally limited |
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Duties of Agent to Principal
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1. Duty of loyalty
2. Duty of obediance - obey reasonable instructions 3. Duty of reasonable care - liable of negligence to both principal and 3rd parties 4. If agent authorizes subgent, subagent owes duty of care to agent and principal |
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Duties of Principal to Agent
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1. Compensation
2. Reimbursement/Indemnification 3. If the principal breaches her duties, agent can bring an action for damages but has a duty to mitigate those damages |
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Principal Remedies Against Agent
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1. Recover tort damages if the agent intentionally or negligently breached
2. Contract damages (if agent received compensation) for breach of contract 3. Recovery of secret profits 4. Withhold compensation |
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Power to Terminate Agency Relationship
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GR - terminable at will
Either party has power to terminate but not necessarily the right - breach of contract Exception - agency couple with an interest - only an agent can terminate this relationship (death, incapacity, and bankruptcy of p do not terminate this) |
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Agency Power - 3 Ways
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1. Actual authority
2. Apparent authority 3. Ratification |
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Agency - Actual Authority
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- Express through oral/written instructions
2. Implied - includes authority to do things reasonably necessary, things the principal has repeatedly allowed agent to do, to handle emergencies, etc. Power to run a business but not to borrow money, sell business, etc. - Termination can occur by the action of the parties (except if agency coupled with an interest), accomplishment of objective or expiration of stated time period, or by operation of law: death of A or P, incapacity of P, discharge in bankruptcy of P, failure to acquire necessary license, destruction of subject matter, subsequent illegality |
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Agency - Apparent Authority
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1. Principal's conduct - principal grants A title or position (A's mere representation of being an agent does not count)
2. Based on 3rd parties reasonable belief that A has power to bind P (actual authority arises from A's belief) 3. Common situations - apparent authority from position (secret limiting instructions are not effective to limit this) or from failure to notify 3rd parties of termination of A's actual authority (actual notice to old customers and constructive notice to new customers) 4. Usually is terminated by giving notice to 3rd parties but is also terminated by operation of law where no notice is required: death of P or A, incapacity of P, or P discharged in bankruptcy |
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Agency - Ratification
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- Allows a principal to be bound by previously unauthorized act of his agent
- Requirements are that the principal is disclosed, all material facts are disclosed to P, and P must ratify entire transaction (not partial) - May ratify expressly or impliedly - Any act may be ratified unless illegal, 3rd party withdraws, or material change would be unfair to 3rd party |
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Disclosed vs. Partially Disclosed vs. Undisclosed Principal
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- Disclosed - agent not liable if authorized (otherwise agent liable for damages), P liable if agent had actual, apparent, or ratified
- Partially disclosed is when identity of P is not disclosed to 3rd party - Partially disclosed and undisclosed - agent is liable - 3rd party can hold agent or principal liable (if actual, apparent, or ratify). There is no apparent authority and no effect on actual authority. |
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Agency - 3rd Party Liability
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- Only the principal can hold 3rd party liable (even if undisclosed)
- P cannot hold 3rd party liable if identity was fraudulantly concealed or performance would increase the burden on the 3rd party (ex. Goodyear employs small rubber mfger to act as agent) |
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Agency - Tort Liability
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1. General Rule is that P is not responsible for torts committed by A. Exception - respondeat superior - employer can be liable for employees torts if committed within scope of employment (injured person may sue both employer and agent)
2. First step is to determine whether they are a full time employee: look at right to control manner of performance, whether worker has business of their own, own tools, length of employment, basis of compensation, and degree of superivision 3. Step II is to determine if the employee was acting within scope of employment (time and geographic area): activities of same general type of job description and actuated by desire to serve employer, P not liable for intentional torts unless tort is authorized (ex. bouncer), and is not liable for crimes, must be within employment time and space limits and not major detours (frolic), P cannot limit liability by agreement with employee, Employer can seek reimbursement from employee 4. GR - employer not liable for independent contractors unless they are authorized the tort or the work involved ultrahazardous activity |
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Types of Bankruptcy Cases
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Chapter 7 - liquidation (trustee appointed)
Chapter 9 - municipal debt adjustment Chapter 11 - reorganization (no liquidation, trustee NOT required) Chapter 12 - family farmers with regular income Chapter 13 - adjustment of debts of individuals with regular income (trustee required) |
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Chapter 7 - Calculation of Debtor's Income
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- Made to determine if debtor has sufficient income to pay some of their debts
- Step 1 Calculate Monthly Income: Debtor's average monthly income over 6 months prior to filing. Compare to median income for similar size family in the same state (ave. monthly income x 12) -> if exceeds median income then the means test is applied 2. Means Test: Multiply current monthly income (6 month ave) x 60 (after deducting SS and certain expenses). If results are: 1. Less than $6575 - chapter 7 ok 2. If between $6575 and $1095 - abuse only if amount equals 25% of debtor's unsecured claims not entitled to priority payment 3. If over $10950 - abuse - Given allowable deductions for living expenses in amounts set by IRS, health/disability insurance, care of elderly/disabled, expenses to keep family safe from violence, actual expenses to administer chapter 13, expenses for dependents (elementary-highschool), 1/60th payments due to secured creditors, 1/60th amount of priority claims |
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Chapter 7 - After Calculation of Debtor's Income
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- Can rebut presumption of abuse by showing special circumstances
- No presumption of abuse for disabled vets - Even if qualify for chapter 7 with income, relief may be denied if acted in bad faith or that under the totality of circumstances there is abuse - If they pass the income test, ch 7 may only be denied by general abuse test and by court, trustee, etc. - Dismissed if convict a crime |
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Chapter 7 - Who can be a Debtor (RIBS)
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No "RIBS" - railroads, insurance companies, banks, and small businesses
- Credit counseling required if debtor is individual (180 days before or 30 days after) - Also complete financial management course |
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Chapter 11 - Who can be a Debtor (BIBS)
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No "BIBS" - brokers, insurance companies, banks, and small businesses (railroads ok)
- Credit counseling required if debtor is individual (180 days before or 30 days after) |
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Common Features of Chapter 7 and 11 Cases
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- Can be individuals, partnerships, or corporations
- When bankruptcy petition is filed - automatic stay is effective against creditors that stops collection efforts (but does not apply to criminal prosecutions, paternity suits, and cases for spousal/child support) - After petition, debtor must file a list of creditors, schedule of A and L (@FMV), schedule of income and ex., statement of financial affairs, copies of pay stubs from past 60 days, itemized statement of monthly income, any anticipated increase in income/expenses, copies of tax returns from last year, record of interest in education IRA/state tuition, certificate from counseling agency that provided credit counseling services and plan for repayment, and intention with regard to property (all must be filed within 45 days) |
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Bankruptcy Voluntary Cases
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- Chapter 7, 11, and 13
- Debtor files for ordinary relief for debts of any amount not capable of paying when due - Need not be insolvent but must pass income tests - Spouses may file jointly! - Constitutes order for relief |
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Bankruptcy Involuntary Cases
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- Chapter 7 and 11 only!
- Creditors must show that debtor is not paying his or her debts when become due - Ineligible for farmers and charities - Does not constitute an order for relief (gap) - *Only creditors who are owed individually or in the aggregate $13,475 can petition - If fewer than 12 creditors, 1 or more need to have $13,475 - If more than 12 creditors - at least 3* need to have $13,475 in claims - Must be unsecured, undisputed debt! - If creditors improperly file an involuntary petition - can be compensatory damages, court costs, and even punitive damages (bad faith) |
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Section 341 Meeting
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- Creditors meeting
- Al interested parties must be given notice (name address SS automatic stay and final dates for filing claims) - Debtor must attend - Purpose is to give creditors opportunity to examine the debtor |
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Property Included/Excluded from Bankruptcy Estate
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Included:
- The debtor's real and personal property at time of filing - Income generated from estate property - Property debtor receives from divorce, insurance, etc. 180 days after filing - Leases of property may be assumed and retained Excluded: - Post petition earnings - Spendthrift trusts - Educational IRAs - State tuition programs - Things necessary to live - homestead up to $20K, motor vehicle, household goods, unmatured life insurance contracts, tools of trade or professional books, health aids, gov. benefits, alimony (exemptions do not apply if PMSI, mortgage, tax liens) |
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Bankruptcy - Trustee Powers
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- Hypothetical lien creditor as of filing date
- Can serve as professional or tax preparer if court approves - Priority over all creditors except over prior perfected security interests or prior statutory/judicial liens (watch out for PMSI on consumer goods or equipment) - Trustee has power over fraudulent transfer made within 2 years of filing date - Trustee can disaffirm preferences (take back and make part of bankruptcy estate) - payment made to benefit of one creditor (payment property, or giving of security interest) within 90 days prior to filing while insolvent and the creditor receives more than they would have gotten under bankruptcy code - Must be an antecedent debt to qualify for preference! - Exceptions to preferences that cannot be set aside by trustee: transfers in ordinary course of business (ex. monthly installment payment), PMSI perfected within 30 days, consumer payments under $600, domestic support obligations |
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Bankruptcy Claims Against the Estate - Unsecured vs. Secured
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- Unsecured creidtors must file, otherwise will not take part in distribution of assets
- Secured claims survive bankruptcy even if creditor does not file proof of claim |
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Chapter 7 - Features
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- Goal is fresh start by discharging most debts owed
- Trustee collects nonexempt property, liquidates, and pays off creditors - Most discharged but certain ones survive |
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Chapter 7 Objections to Discharge
DRAWING |
D - Discharge within 8 years
R - Records, failure to keep (concealed, falsified, etc) A - Assets, failure to explain whereabouts W - Willfully concealing assets (fraudulant conveyances) I - Individual (not one) N - Not obeying court orders G - Guilty of a bankruptcy crime (false oath, false claim, bribes, withholding records or docs) Also - improper conduct in an insiders case (relative, partner, etc.), waiver of discharge approved by the court, failure to complete financial management course |
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Debts that are not discharged under Chapter 7 or 11
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Taxes due within 3 years of filing, debts incurred by fraud, luxury goods, open-ended credit to consumers, debts undisclosed in bankruptcy position, embezzlement, alimony, willfull or malicious injury liabilities, operating a car while intoxicated, fines and penalties, educational loans, denial of discharge in prior bankruptcy, debts incurred to pay taxes or due to violations of securities laws, condo/homeowners fees, resitition for crimes, prisoner's court fees, debt owed to pension plan, fines for federal election law violation
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Reaffirmation of Dischaged Debts
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- Sometimes debtor does not want debt discharged
- Can reaffirm only if: - Agreement to reaffirm was made before granting of discharge, agreement contains clear provision that the debtor has the right to rescind the agreement (before and 60 days after), debtor knows it is not required by law |
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Distribution of Estate - Priorities
SAG-WEG-CTI |
1) Secured claimaints
2. Priority claimants 3. General creditors who file claims on time *If not enough to pay all at priority level - share pro-rata S - Support obligations to spouse and children (unless trustee has superpriority for admin expenses that benefit the support claim) A - Administrative expenses - fees - of bankruptcy proceeding G - Gap creditors W - Wages (unpaid) up to $10,950 for each employee (earned 180 days prior) E - Employee benefit plan contributions (unpaid) up to $10,950 reduced by wage claims* (180 days) G - Grain farmers and fishermans claims up to $5400 C - Consumer deposits for goods paid but not delivered up to $2425 T - Taxes I - Injuries claims caused by intoxicated driving |
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Features of Chapter 11 Reorganization
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- Creation of creditors' committee - usually 7 largest unsecured claims
- If debtor is a corporation often hold equity security holders' committee meeting - These groups approve the plan - Debtor generally remains in possession, trustee usually not appointed |
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Chapter 11 Reorganization Plan
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- Debtor usually files in first 120 days
- Plan must classify all claims, describe the treatment, establish ways to implement, etc. - Any creditor or equity security holder must have opportunity to accept or reject - Impaired claims deemed accepted if accepted by creditors holding at least 2/3 in amount and more than 1/2 in number - Impaired interest deemed accepted if accepted by equity security holders having at least 2/3 in amount - Court will confirm plan if accepted by all classes and other requirements - Court will also confirm plan - cram down - if not all have accepted but at least one impaired class has and plan is not unfairly discriminatory |
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Securities Act of 1933 - Purpose and Those Required to Register
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1. Purpose - provide investors with sufficient information. Most issuers are required to register new issues of securities with SEC and provide prospectuses containing material information. No guarantee of accuracy by SEC.
2. Issuer (entity), Underwriter (intermediary who sells securities to public/dealers), and Dealer (sells or trades on full/part time basis) are required to register |
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Act of 1933 - Registration Statement
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Part 1: Prospectus - written offer to sell securities, summarizes important info, each investor must receive a copy before sale
Part II: Information to Include: 1. Audited B/S (past 90 days) and P/L (past 5 years) certified by public accounting firm 2. Other material facts - names and addresses of directors, officers, etc.; amount of stock issuer has outstanding, principal purposes offering proceedings will be used, anything that might affect securities value |
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33 Act Timetable
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- No sales activity 30 days before registration
- In 20 day waiting period: allowed oral offers to sell, tombstone ads (identifies security price and who will execute orders), red herring prospectus can be made (states not final), or summary prospectus - Securities sold after 20 day period when registration is effective |
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33 Act Miscellanous Registration
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1. Shelf registrations - allowed to use one registration statement for all future securities if have continuously filed under 34 act for one year and info is continuously updated
2. SEC reviews statement for completeness 3. Registration effective on 20th day after filing 4. Subject to blue sky laws - state laws governing stock sales |
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1934 Act WSKI rules
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- Seasoned issuers are issuers that have been continuously reporting under 1934 Act for at least 12 months
- Well known SI are SI with at least $700 million in equity outstanding worldwide - A WKSI can make oral or written offers at any time! |
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33 Exemptions from Registration
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1. Securities exemptions - issued by banks and savings and loans, not-for profit, government, common carriers, short term commercial paper, insurance policies, chapter 11
*charitable organizations and bonds issued for gov. purposes 2. Transaction Exemptions: - Casual sales exempt for those other than issuer, underwriter or dealer, - Exchanges with existing holders - corporate reorganizations - IntRAstate sales - Regulation A - partial exemption - offering statement issued instead (under $5M in sales), unaudited F/S generally ok - Private Offering Exemption - Regulation D** - exempts private offerings under rules 504, 505, and 506. |
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33 Exemptions - Rules 504, 505, 506
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- For all of them: no general soliciation or advertising, no immediate resale to the public (must hold for 2+ years), SEC must be informed within 15 days after first sale
Rule 504 - $1M limit (12 months) - no limitation on number or type of purchasers and does not require any specific disclosure - Rule 505 - $5M limit - may be sold to any number of accredited investors (bank, person with $1M, etc) and 35 or fewer unaccredited investors, unaccredited investors need at least an annual report - Rule 506 - unlimited $ amount - same rule as 505 with accredited and unaccredited |
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33 Act - Types of Liability
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- Section 11 - Civil liability for misstatements whether or not intentional
- Section 12 - Civil penalties if required registration was not made, prospectus not given to all, etc. - Section 17 - Criminal penalties for fraud |
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33 Act - Section 11 Liability
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- Anyone who signs registration statement is liable
- Person who wants to sue need only show plaintiff acquired the stock (dont have to be initial purchaser), suffered a loss, and registration statement contained material misrepresentation or material omission of fact (no requirement to prove intent or negligence nor reliance on false statement) - Can receive damages - Privity not required - Best defense is due diligence defense - for non-issuers only (CPAs) - Other defenses are that plaintiff damages were not material or plaintiff knew of misstatement when purchased |
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1934 Securities Act
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1. Exchanges of securities after they were issued
2. Registration and reporting provisions 3. Suspension or revocation for violations |
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1934 Registration Requirements
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1. Required for companies whose shares trade on national exchange or companies that have at least 500 shareholders and $10M in assets
- Charitable, savings and loan, and investment companies are exempt |
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1934 Reporting Requirements
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1. Required to file 10-K within 60 days, 10-Q within 35 days, 8K after major change in the company
2. 5% or more owners must report to SEC 3. Tender offer (offer to all shareholders to purchase stock) must be reported 4. Insiders must report their holdings and make monthly updates, insider trading limited by imposing aboslute liability 5. Proxy solicitation must be reported - written request for permission to vote a shareholder's shares at a shareholder meeting, shareholders must be sent P&L and B/S if directors are to be elected |
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1934 Antifraud Provisions
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Rule 10b prohibits fraud in connection with purchase or sale of any security
- Must prove scienter, reliance, and interstate commerce - Proof of negligence is insufficient - Under insider trading rule SEC can impose fines and seek criminal penalties but does not actually prosecute |
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Examples of Securities
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- If the investor is passive - most likely a security
- Ex. stocks, bonds, debentures, oil well interests, stock options, collateral trust certificates, warrants, and limited partnerships |
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Tombstone Ad
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A tombstone ad can be placed before a registration statement is effective. Only certain information may be included in the ad, such as the nature of the security, price, and the availability of a prospectus.
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Insider of a Corporation
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Officers, directors, and more than 10% stockholders are required to register and report under Section 16(a) of the 1934 Act. Holders of debt securities are not considered insiders and are not subject to the registration and reporting requirements.
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CPA Legal Liability - Breach of Contract
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- Requires privity, so only a party to the contract can sue
- Client or 3rd party beneficiary is entitled to recover compensatory damages |
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CPA Legal Liability - Commission of a Tort
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1. Negligence:
A. Failure to warn about known IC weakness B. Failure to have critical review at every level of supervision - CPA's duty to act with reasonable care generally runs only to client and under the majority rule is limited to any foreseeable class of persons (not the public or general creditor of client) - ultrameres limits liability to privity - Best defense is GAAS/GAAP defense Negligence has 4 elements: duty of care, breach (which is lack of due care), causality and injury. NOT reliance. 2. Constructive fraud (gross negligence) 3. Fraud |
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CPA Legal Liability - Fraud and Constructive Fraud
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- Liability is much broader - can be held liable to anyone who proves the elements of fraud
- Privity is not a defense |
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Property Insurance - Insurable Interest
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- Lawful and substantial economic interest in the property at the time of loss
- Owner, purchaser of goods, tenant on leased property, remainderman, partner, 50% + shareholder, person with contractual right, secured party (not general creditor) |
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Property Insurance - Coinsurance Clause
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Recovery = (Face value of policy / (coinsurance % x FMV property)) x Loss
*Applies only to partial property damage *Insured will never receive more than the lower of the face amount of the policy or the actual amount of the loss *FMV is measured at the date of loss |
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Property Insurance - Misc.
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- An insured with multiple policies on same property will receive pro-rata amount from each insurer (find recovery amount under coinsurance formula and allocate)
- Individual who is negligent may still recover from fire insurance for loss (unless arson) - No speculative damages (lost business) unless they specifically so provide - Subrogation is the right of the insurer to recover the amount paid from third parties who are at fault |
