Business Law Notes Goals 1-9

By: Ayemen Khan A3

Ethics

• Ethics: deciding what is a right or wrong action in a reasoned, impartial manner

• Based On: • Feelings and Opinions • The Greatest Good • The Golden Rule • Consequential Reasoning • Rule-based reasoning

US Legal Systems

• Judicial: Led by the Supreme Court. The Supreme Court decides if the law being made is constitutionally correct.

• Legislative: Led by Congress. Congress is made up of the Senate and the House of Representatives. The Senate consists of two members from every state. The House of Representatives consists of members based on their population.

• Executive: Led by the President. Elected by vote of the people

International Legal Systems

• In other countries, many in Western Europe, support the fact-finding approach (victory is the primary objective).

• In many other countries, the court system is tied in with the legislative and executive branches. Many countries use religion as a basis for the law.

Legal Timeline

• Code of Hammurabi • Circa 1750 BC • Oldest known written code of laws • Sumerian King Hammurabi • Civil and Criminal Laws and Penalties

Legal Timeline

• The Magna Carta • 1215 AD • Established English constitutional liberties • Basic human rights • Protection from abuse by government

Constitutions

• A document which spells out the principles by which a government rules and the fundamental laws that govern a society

• American constitutions – US Constitution (1787) – Each state has a constitution

Law of Precedent

• Judges referred to decisions in previous common law cases.

• Judges applied that decision to a new but similar case.

• Thus, Law of Precedent established. • Also called Case law • Also called the Doctrine of stare decisis – Latin for “Let the decision stand”

Statutory Law • Common law was eventually written down • Legislative bodies adopted common laws • Common law became statutes. • • Statutory law is enacted (passed, created, ratified) by

a governing body for a specific purpose. • – Federal legislature • Creates statutes, acts • – State legislature • Creates statutes • – Municipal (city/town) government • Creates local ordinances and by-laws

Judicial Review • Precedent set by Marbury vs. Madison, 1803, gave court system the right

to: • – Review Lower Court Decisions • – Review Statutory laws • – Review Executive Branch • The US Constitution is the supreme law of • land. • – Any state or local law that conflicts with the US • Constitution is unconstitutional. • – If unconstitutional, then law is null and void. • • The Supremacy Clause, US Constitution • Article VI • – Checks and balances between the branches • limits their power.

Administrative Law • Administrative law is the regulations, orders, rules and

decisions of administrative agencies. • Legislators create an administrative or regulatory agency. • Purpose is to regulate certain activities for the benefit of

the public. • Have the power to: – Make rules – Enforce rules – Investigate violations – Decide guilt or innocence of violators – Penalize those convicted – Order actions to stop

Termination of Offer

• Revocation – Taking back of an offer by offeror • Rejection – Refusal by the offeree • Counteroffer – Any change in the terms of the

offer • Expiration of Time – If the offer puts a time

limit on the offer and it has passed • Death – Offeror dies • Insanity – Offeror is declared insane

Capacity

• Capacity – legal ability to enter a contract • Majority – age of legal adulthood • Minor – not yet reached legal age (minority) • NC Age of Majority = 18 years old • Voidable Contracts – minors may disaffirm or

avoid their contracts if they so choose • Infancy = minority = minor = under 18 yrs old

Consideration

• Exchange of benefits and detriments by the parties to an agreements

• Benefits Something that a party was not previously entitled to receive • Detriments Any loss suffered

Genuine Agreements • Unilateral Mistake An error on the part of one of the parties Cannot get out of contract Types: Nature of the Agreement Identity of a Party * Bilateral Mistake (Mutual Mistake) Both parties are mistaken Types: Possibility of Performance Subject Matter

Proving Freud

• 1. False Representation of Fact • Must be a material (important) fact • Concealment (nondisclosure) may be considered

false representation • 2. Representation Known to be False • 3. False Representation Intended to be Relied

Upon • 4. False Representation Actually Relied Upon • 5. Resulting Loss

Legality • Civil & Criminal Statutes • – Agreements to commit a crime/tort are illegal • Usury Statutes • – State sets a max interest rate • Interest • – Fee the borrower pays to the lender for using the money • Usury • – Charging too high of an interest rate • License - legal document stating that the holder has

permission from the proper authorities to carry a certain trade or profession

6 Elements of a Contract Offer Proposal by one party to another with intent to create a legal binding agreement Acceptance an unqualified willingness to go along with the offer Genuine Agreement if a valid offer is met by a valid acceptance then a genuine agreement exists Can be destroyed by fraud, misrepresentation, duress, or undue influence Capacity Legal ability to enter into a contract Consideration Must exchange something of value in order to create a bond Legality Must be permitted by law Courts will not enforce an illegal contract

Characteristics of a Contact

• • Valid • – Legally good • • Void • – No legal force • • Voidable • – Not void, but may be voided by one party • • Unenforceable • – Some rule of law can not be enforced by the

court.

Terminating a Contract • Complete All terms have been carried out properly and completely. • Time Court will honor time request, if it is deemed “of the essence.” If not mentioned in contract, then a reasonable time will be assumed. • Satisfactory Law requires that services be completed in a satisfactory manner. Reasonable person test • Substantial Slightly less than full performance Must meet the following rules: • Acted in Good Faith • Completed Major Components of Contract • Only Minor Details Incomplete.

Assignment

• Legally transferring your RIGHTS in a contract. Assignor – party who transfers the right. • Assignee – party to whom the right is transferred. • No consideration needed. • Must not change the obligations in the contract. • Must be a RIGHT not a DUTY. • Assignor is responsible for contract fulfillment.

Delegation

• Transfer a duty. • Delegating party is still responsible for the

contract being fulfilled. • Contracts that CANNOT be delegated: Promise to perform service personally. Exercise of personal skill or judgment. Contract prohibiting delegation.

Breach of Contract

• Wrongful failure to perform one or more promises in a contract.

• Anticipatory Breach Notified that a party to the contract will not fulfill their part of the contract prior to the required time of fulfillment. Lawsuit may be filed early in this case. Exception to the rules: • Refusal to pay money owed at a future date.

Sole Proprietorship

• Requirements for Organizing - none • Legal Status – owner is the business and it is

not a separate entity. • Liability - unlimited • Management – owner makes the decisions

Partnership

• Requirements for Organizing – agreement of the parties.

• Legal Status – not a separate entity in many states

• Liability – unlimited liability (except limited partnership)

• Management – partners have equal say in management unless otherwise specified in agreement

Corporation • Requirements for Organizing – • state charter, organizational fees • Legal Status – separate entity from owners • Liability – limited liability of shareholders • Management – directors (elected by shareholders) set

policy and appoint officers • Dissolution – ends when charter terminated • Ease of Formation – assistance of legal counsel

required • Duration – can be perpetual • Ability to attract professional managers - excellent

Types of Intellectual Property

• Patent: Ideas, designs or processes that are novel, nonobvious, and useful (20 years)

• Copyright: Fixed expressions of creativity (50-70 years)

• Trademark: Distinctive mark, word, or symbol associated with a particular product (indefinite)

Endorsements • Signature on the back of a negotiable instrument • Allow payee to cash, deposit or transfer payment of

the check to someone else • Proof that the payee cashed or transferred payment

of the check to someone else • Endorser is responsible for payment of the check if

the new owner cannot collect payment • Endorse should sign the check the way it is on the

front of the check and if the name is misspelled, correct the signature directly up under the first endorsement

Laws Protecting Debtors • Setting maximum interest rates • Disclosure of Terms • Challenging Unconscionable Contracts • Prohibiting Abuse in the Credit System • Federal Fair Debt Collection Practices Act • Federal Fair Credit Billing Act • Federal Fair Credit Reporting Act • Credit Repair Organization Act • Notice of debt payment to be recorded

Bankruptcy Procedure

• 1. File the following with the court: • a. List of all creditors and amounts owed • b. List of all property owned • c. Statement about financial affairs • d. List of current income and expenses • 2. Trustee is selected • 3. Assets liquidated • 4. Proceeds used to pay creditors • 5. Money left over returned to debtor

Types of Drafts

• Sight Draft – A draft payable as soon as it is presented to drawee for payment

• Time Draft – Not payable until the lapse of a particular time period stated on a draft

• Trade Acceptance – Used by a seller of goods to receive payment or to extend credit

• Check – Draft drawn on a bank and payable on demand, can be called a demand draft

Types of Checks • Certified Check – A personal check that has been

accepted by a bank before payment • Cashier’s Check – A check the bank draws on itself • Money Order – Draft issued by a post office, bank,

express company, or telegraph company for use in paying or transferring funds for the purchaser

• Traveler’s Checks – Draft drawn by a well-known financial institution on itself or its agent, used when traveling

• Teller’s Check – Draft drawn by a bank on funds that it has on deposit at another bank

Types of Notes

• Notes- A written promise by one person to pay money to another person

• Demand Note – Payable whenever the payee demands payment

• Time Note – Payable at a future date that is written on the face of the note

• Installment Note – Paid in a series of payments

Negotiability Requirements

• Must abide by UCC regulations • Must be in writing • Maker (party agreeing to pay money to another

person) or drawer (party that orders the drawee to pay money to the payee) has to sign

• There must be a definite amount money and time of payment known

• Must have words such as “to the order of” or “to bearer”

Sources of Credit

• Credit Cards and Charge Accounts • Installment Plans • Closed end credit – Credit given for a specific

amount of money and payments are made. • Open end credit – Credit that can be increased

by debtor up to a limit set by creditor, a line of credit is given.

• Simple Interest Formula- I = PRT

Types of Loan

• Secured Loan • 1. Collateral – Property that is the subject of

the loan • 2. Cosigner – Helps protect a loan when a

borrower’s credit rating is poor • 3. Secured Party – Lender or seller who holds

secured interest • 4. Repossession – Property is returned

because of non-payment

Types of Loan

• Unsecured Loan • 1. No Collateral • 2. Creditors make sure that debtor is reliable

and able to pay back loan • 3. Example (Credit Cards)

Types of Loan

• Single Payment Loan • 1. Promissory Note - Written promise to repay

with interest • 2. Installment Loan - Paid in regular payments

Types of Loan Regulations

• Truth in Lending Act • Equal Credit Opportunity Act • 1. Applying for credit • 2. Granted only on the ability to repay • 3. Evaluation of application • 4. Cannot discriminate based on gender, age,

ethnicity, or religion • 5. Acceptance and rejection

Procedures for Borrowing Money

• Loan Application • Interview • Acceptance/ Rejection • Rules: • Cannot ask sex, race, national origin, or

religion • Cannot refuse on basis of sex or marital status • Marital status may/may not be asked

Agency

• Relationship in which one person, called an agent, represents another person, called a principal, in some sort of business transaction with a third party. In most cases a binding contractual agreement is formed.

• Principal -> Agent -> Third Party

Types of Agents

• General Agent-given authority to perform any act within the scope of a business.

• Special Agent-employed to accomplish a specific purpose or to do a particular job.

• Subagents-appointed by another agent. • Agent’s Agent-has no power to appoint a

subagent but does so anyway. • Coagents-two ore more agents hired by the

principal.

Agency Relationships

• Gratuitous Agent: agent works for free (no contract) • Master: has the right to control the conduct of his or

her servant • Independent Contractor: agent is hired by the other

party, but not controlled • Partially Disclosed Agent: principal’s existence but

not identity is known to the third party. • Fiduciary: relationship is based on trust. • Actual Authority: real power the principal gives to an

agent to act on his or her behalf

Types of Authority

• Actual-real power given to agent • Express-all orders, commands, or directions

given to agent when relationship created • Implied-understood acts or powers • implied from express terms

Federal Energy Regulatory Commission (FERC)

• Manages the wholesale price of natural gas and electricity sold for interstate commerce use.

• Answers questions about increase in prices • State Utility agencies regulate prices • Manages transportation of electricity and

natural gas • Ensures that regulated energy companies are

following guidelines set by the law

U.S. Department of Energy

• Protects National Security • Applies advanced science and nuclear

technology • Protects economic security • Promotes supply and delivery of reliable,

affordable, and environmentally sound energy

Nuclear Regulatory Commission (NRC)

• Consists of a five member commission • One member is appointed by the President • Generates safety policies and regulations for nuclear reactors

and materials and allows the Executive • Director for Operations (EDO) to handle policies and decisions

of the commission • Issues licenses • Handles legal matters • Directs the activities of the program • EDO ensures safety of commercial use of nuclear materials in

the US • Offices handle inspections, enforcement of laws, and

emergency response programs licensees

Toxic Substance Control Act

• Tracks industrial chemicals produced and imported into the US

• Handled by the EPA • Screens, tests, and reports chemicals that

pose a threat to the environment • EPA can prohibit the manufacture or import of

chemicals thought to be hazardous

National Environmental Policy Act (NEPA)

• Fights Pollution and cleans the environment • Explains consequences for environmental

violation • Prevents or eliminates damage to the

environment • Requires federal agencies to integrate

environmental values by creating • Environmental Impact Statements each week

that are posted every Friday on the website

North Carolina Division of Waste Management

• Controls disposal of solid waste, harmful waste, underground storage tanks, and needed cleanups

• Works to reduce wastes • Consists of a Solid Waste Section,

Underground Storage • Tank Section, Hazardous Waste Section,

Superfund • Section (controls waste risks and cleanups

Employment Laws

• Collective Bargaining: Contract negotiated by the employer and representative of the labor union

• Union: To certify, must have a unanimous vote (50 %) and If lose certification vote, must wait one year for another vote

• Grievance Procedure: Sets up a series of steps employees must take to appeal an employer’s decision that they feel violates just cause.

Laws • Wagner Act (National Labor Relations Act) First federal law dealing with collective bargaining Encourage collective bargaining, discouraged unfair

labor practices • Taft-Hartley Prevents labor union from requiring an employer to

retain employees who are no longer need • Fair Labor Standards Act of 1938 Restricted child labor • Landrum-Griffin Act Unions must register with Sec. of Labor and submit

year financial reports.

Types of Shops

• Agency- receive union benefits without belonging to union

• Closed- must join prior to employment • Union- must join with 1 year of employment

Statutory Rights of Employees

• Submit worker’s compensation claim • Engage in legal union activities • Participate in state or federal military service • OSHA whistleblower protection • Answer jury duty call or serve as trial witness • Protection from unsafe work conditions • Receive minimum wage • No job discrimination based on race, color, national

origin, sex, religion, age, or handicap

Rights Relating to the Marriage Contract

• The right to support, either emotional or financial, by one’s spouse when necessary

• The right to inheritance from one’s deceased spouse • The right to property if the marriage fails • The right to file a joint income tax return • The right to compensation to continue one’s

standard of living, if the marriage ends. • The right to the division of community property

Premarital Agreements

• A premarital agreement is an agreement between two people considering marriage

• Each party in the agreement must be honest about every aspect of the agreement

• Not every marriage contract includes a premarital agreement

• A premarital agreement must be in writing and signed by each party

• Also called prenuptial agreement

Common Law Marriages

• Common Law marriages require no witnesses or ceremony by anyone authorized

• Common Law marriages do not require a ceremony but is typically considered when a man and a woman share common residence for an extended period of time (different by state, typically 10 years)

• Under Common Law, a published notice of an upcoming marriage was called a marriage bann

Nature of Insurance

• The concept of insurance involves risk pooling or spreading losses over a greater number of people.

• An insurance company collects and pools premiums from many individuals or businesses for the payment of future claims.

• Risk Management: All people take risks every day and Risk management is the process of managing one’s exposure to risk.

ADHESION CONTRACT • • An adhesion contract is a standard form contract that is

written primarily by one party • Insurance policies are adhesion contracts • • Policyholder (buyer) cannot usually change: • – Policy language • – Perils covered • • Policyholder can change: • – The dollar limit of coverage • • Example- $200,000 coverage on homeowner’s structure • – Specific items to be covered • • Example- 1 carat diamond ring, valued at $3000 • • Some adhesions contracts are found by courts to be

unconscionable if they take advantage of one party

NC Department of Insurance

• Insurance is a highly regulated business activity governed by the laws of each state

• NC Department of Insurance (NCDOI) handles: • – Consumer complaints • – Fraud investigations and prosecution • – Approval of requested rate increases/decreases • – Regulation of agent licensing requirements • – Censuring unethical/illegal actions of agents • Head of NCDOI is the insurance commissioner

Insurance Premium

• The amount of money the policyholder must pay for insurance coverage

• An insurance underwriter determines the cost of the policy using risk factors and statistical data

• An agent represents the company to the consumer

• Equals consideration in the insurance contract

Health Insurance

• Basic health insurance – a limited medical insurance covering hospital, surgical and medical expenses. Limited by:

• –Numerous exclusions • – Low maximum benefits • –Waiting periods

Worker’s Compensation

• A government-regulated program that provides medical benefits and income to employees who are injured or who develop a disability or disease as a result of their job

• Indemnifies (pays) employee for their loss • Job related illness or injury • Coverage is no fault • Insurance is paid for by employer

Will Requirements

• Will - Document drawn up and signed by persons during their lifetime to provide for distribution of their property upon their death

• Decedent - Deceased person • Heirs - Persons who inherit by right of relationship • A man who makes a will is called a testator, a woman

is called a testatrix • The testator/testatrix must have capacity to create a

will

Trusts • Trust: transfer of property from one party to another

with instructions on how it is to be managed for the benefit of the transferor or a third party

• Trusts may be created during the lifetime of the settlor (creator), known as inter vivos trust

• Trusts may also be created after the death of the settlor in correspondence with his or her will, known as a testamentary trust

• A charitable trust is created for the fulfillment of humane purposes

• A private trust is created for a private purpose

Auto Claims

• The at fault driver of a vehicle that damages other property or injures other people is liable for the cost of repairs.

• North Carolina financial responsibility laws mandate that drivers carry bodily injury and property liability insurance coverage.

Cost of Insurance

• • Insurance companies legally discriminate by using: • – Relevant statistical data and • – Risk factors related to the insurance type • Underwriters at companies “rate” to determine the

premium cost for the coverage requested. • – Standard premiums may be rated up for hazards • • Points for tickets or accidents on auto insurance • • Health issues on life/health insurance

Life Insurance

• Provides income to dependents or other named beneficiaries in the event of the insured person’s death.

• Face value- the amount of protection stated in the policy

• – Example: Marla buys a $100,000 face value life insurance policy. Marla dies. Marla’ s beneficiaries will get $100,000 in proceeds.

Cost Factors for Life Insurance

• Type of insurance • Age of insured • Health of insured • Gender (sex) of insured • Face amount – Dollar amount of coverage

provided by the life policy • Company

Property/Casualty Insurance

• • Types of policies : • – Fire policies • – Renter’s policies • – Homeowner’s policies • – *Supplemental - marine insurance • • Covers both individual and business property such as: • – Real Property: Houses, apartments, condos, office buildings

and other structures • – Personal property: Jewelry, furniture, clothing, equipment,

artwork and other valuables

Cost Factors of Property Insurance

• Limit of coverage for property • Location of property – fire district, city, county,

state • Structural material - brick, block, frame • Previous claims filed • Company

Bailment

• An agreement created by the temporary delivery of personal property by the owner to someone who is not the owner for a specific purpose.

• Both parties agree that the property will be returned to the bailor.

• Bailee - has in their temporary possession property that belongs to someone else.

• Bailor – owner of property who gives up possession to someone else temporarily.

Mutual Benefit Bailments

• Invokes the duty of ordinary care on the bailee • Results from a contract (for service, repair,

storage, rental) with consideration exchanged • Both bailor and bailee receive benefit • A pledge as security for a loan is also a mutual

benefit bailment • Most bailments are mutual benefit

Real Property

• Land and anything permanently attached, including:

• – Buildings, structures, fixtures • – Water, water rights • – Minerals on and below the surface of the

earth. • – Trees & crops • – Air space above the surface

Personal Property

• Anything other than real property, including: – Clothing, jewelry, furniture, appliances in a home – Automobiles, ATVs, lawnmowers – Equipment & machinery used in business – Copyrights, patents, trademarks – Software, stocks, loans, mutual funds • Must be delivered in order to transfer ownership. • May be tangible or intangible.

Intellectual Property

• Includes copyrights, patents, trademarks and trade secrets

• Is an original work fixed in a tangible medium of expression.

• Examples: literature, computer software, musical scores and lyrics, choreography, dramatic works, unique product or process, symbols or word that identify a product, commercially valuable information that is kept secret

Methods to Acquire Property • Purchase contract – earn money and use it to

buy • Gift – includes intent, delivery and acceptance • Intellectual labor – creation of property • Inheritance – wills and trusts • Accession – farm animals naturally increase • Found property – lost or mislaid • Occupancy – possession of property that

belongs to no one else

What is a Sale? • • Sale- a contract by which ownership of goods

is transferred by the seller to the buyer for a consideration called price

• – *Sales Contract must have all required elements.

• Goods- tangible (touchable) personal property that can be physically weighed, measured, and moved

• Buyer- the purchaser or vendee • Services are not covered in law of sales

Cash and Carry

• Sale where the buyer pays for the goods and takes ownership of the goods upon payment.

• Ownership transfers at the time of the transaction.

• Risk of loss attaches upon receipt of goods. • Risk of loss- the responsibility for loss or

damage to goods

Relationship between Landlords and Tenants

• Parties to the contract to lease or rent • – Lessor/Landlord • – Lessee/Tenant • Tenant - Wants possession and occupancy free

from interference or annoyance • Landlord – Wants rent money and property in

good condition at the end of rental term

Renewals of Lease

• Tenancy ends at the expiration of stated time • Lease may have renewal clause making

provisions for renewal by the parties to contract

• Agreement usually requires either party to give advance notice of their intent to nonrenew the lease

Security Deposits

• A money deposit as security for payment of rent due or repairs for damages done by the tenant

• Most landlords require one or two month’s rent in advance as security deposit

• When lease expires, if all rent is paid in full and there is no waste, the security deposit is returned to tenant by landlord.

Termination of Lease

• If the contract has a specified term, it is a tenancy for years.

• Leases can be terminated prior to the end of the term by either party, but penalty clauses may apply.

• Breach of contract exists if the tenant chooses to vacate and the property cannot be leased to new tenant in a timely manner.

• Landlord may sue for monetary damages. • Landlord must attempt to lease property and

mitigate any damages from loss of rents.

Breach of Lease and Remedies • • Eviction – The landlord has the right to deprive the

tenant of physical possession of the premises but landlord

• – Must obtain a court order allowing removal of tenant

• – Must provide just cause, such as: • Nonpayment of rent • Damage to property • Violations of lease provision • Lien may also be attached to tenant’s property to pay

back rent or costs of repair due to waste