Business Law - John Newcome 

Outlines

Quarter:                       Spring  2003
 

Instructor:                   John Newcome 
 

Class Schedule:        M-F ( - )
    

Telephone: 425-235-7869
E-mail:         jnewcome@rtc.ctc.edu 

Web Page: http://www.rtc.edu/instruction/accounting/Class - Law - Newcome.htm

Office Hours: Room H307 (7:30A-8:00A; 2:30P-3:00P)

Text:     Business Law Today, 7th Edition

Other Materials: None

OBJECTIVE:  This course is intended to provide the student with an overview and application of the basic legal principles relating to the accounting and business environments. Upon completion the student will have a basic understanding of business law relating to: contracts, Uniform commercial code, Negotiable Instruments, Business Entities, Agency and Employment, Real and Personal Property.

This is an introductory course covering the fundamentals of business law. No previous training or experience in business law is required. The purpose of this course is to introduce and explore various areas of law that can affect accountants and accounting procedures. By its nature, this course is not intended to be "all encompassing" covering all areas of law in significant depth and detail. Rather, this course will be limited in scope to basic fundamental discussion.

MAKEUP POLICY: 

Missed Assignments -  no late homework will be accepted

Retake Exams - no retakes will be allowed

Missed Exams - "yes" under special circumstances

    10% if prior arrangements were not made

Missing Time - “no” 

TIMELINESS:  Being on time is important on the job and in this class. 

OTHER:  Food or drink – not allowed per campus policy 

                Cell phones and beepers – turn off please

                Classroom phones – for official campus employee business 

                Copier Use – for official campus employee business 

                Emergencies – use campus pay phones

Course Competencies

1.     Identify the required elements of a contract and apply legal standards to various factual situations to determine whether a contract exists and the respective rights and obligations of the parties per instructor standards.

2.     Identify and apply the various legal concepts relating to third-party contractual rights, discharge of contractual obligations and remedies for breach of contract per instructor standards.

3.     Identify and apply contractual principles to the formation and enforcement of contracts for the sale of goods under the Uniform Commercial Code per instructor standards.

4.     Explain and apply express and implied warranties to contracts for the sale of goods and identify and apply consumers’ rights under product liability and consumer protection law per instructor standards.

5.     Identify several types of commercial paper and apply legal principles to determine negotiability and determine the rights of holders of negotiable instruments to enforcement and collection under various circumstances and situations per instructor standards.

6.     Explain the various forms of business and explain and explain the various rights and obligations of shareholders, directors and officers of a corporation per instructor standards.

7.     Identify and apply the provisions of various federal law regulating the offering for sale and the issuance of securities to the public and invertors per instructor standards.

8.     Apply legal principles to the formation of a principle-agent relationship and the various rights and obligations of the parties per instructor standards.

9.     Determine whether an employer-employee relationship exits; identify and apply the provisions of various fair employment laws to determine the rights and obligations of an employer to their employees per instructor standards.

10. Explain the various ways to hold legal title to real and personal property and identify and explain the various rights and obligations of the parties under variety of facts and circumstances per instructor standards.

Grading - Business Law (Newcome)

The following standards are used for this class:

Calendar - Business Law (Newcome)

The following calendar is an approximation of the progress I expect from this class. However, each class seems to have its own characteristics - some move more quickly than others. Therefore, the actual schedule will adjust based on the class progress.

All listed assignments (Exercises and Problems) are due at the end of each chapter.

Homework/Exam Dates - Business Law (Newcome)

First - Please refer to the class Syllabus. All problems and exercises are due by the end of each chapter.

Second - See the calendar below for specific due dates. REMEMBER - even though a problem may not be specifically noted on the following calendar, it is still due by the end of the chapter.

Week#            Monday                            Wednesday                            Friday

    1            Orientation, Syllabus
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Lecture Outlines/Notes (Newcome)

Part 2 - Contracts

PART 2 – CONTRACTS

Ch. 5 – Nature and classes of contracts

Function of contracts:

Contract Parties:

Definition of a contract:

Classification of Contracts

q       Valid

q       Void

q       Voidable

q       Express

q       Implied

q       Executory

q       Executed

q       Unilateral

q       Bilateral

REQUIREMENTS OF A VALID CONTRACT:

Mutual Agreement

Competent Parties

Consideration

Lawful Purpose

Form

Express and Implied Contracts

Express Contracts:  Both Intention to contract and the terms are expressly stated or written.

Implied Contracts:  Contract and terms are implied by the actions of the parties.

Formal and Simple Contracts

          Formal:

          Simple:

Executory and Executed Contracts

          Executory:

          Executed:

Unilateral and Bilateral Contracts

          Unilateral:

          Bilateral:

QUASI CONTRACTS

Contracts implied by law to prevent unjust enrichment of one party at the expense of another.

Ch. 6 – Offer and Acceptance

Requirements of a Valid Offer:

a)                Terms of the offer must be definite and reasonably certain

b)                Serious Objective Intent by the Offeror

Reasonable Person:  Would a reasonable person have interpreted the statements to be an offer?

Offers made in jest:  (joke)

Advertisements, Catalogs, Circulars:

Television Commercials:

c)       Offer must be communicated to the intended offeree

Duration of the Offer

Termination of the Offer by acts of the parties involved

a)                 Revocation of the Offer

b)                Option

Firm Offer

c)                 Rejection and Counteroffer

Termination of the Offer by Operation of Law:

d)                Lapse of time

e)                 Destruction of the Subject matter of the contract.

f)                  Death or incompetence of the offeror or offeree.

g)       Supervening illegality of the proposed contract.

Acceptance

What is an acceptance?

Who can accept?

Mirror Image Rule:

Counteroffer

An acceptance that changes the terms of the original offer.

Inquiries
Manner of Acceptance

Any reasonable means may be used unless the offer specifies the manner of acceptance.

When Effective:

          Acceptance:

Rejection:

Acceptance after a rejection:

Mailbox Rule
Ch. 7 – Capacity to Contract

Minors       Any person under the age of majority.  Age 18 in most states.

General Rule:

Contracts made by minors are VOIDABLE

A minor may disaffirm (avoid) at any time prior to reaching the age of majority, or within a reasonable time afterwards.

Ratification:  a person, after reaching the age of majority, may honor any contract made while still a minor.

Exception:

Contracts for necessaries
Mentally Incompetent Persons

Declared Incompetent by Court of Law

Incompetent, but not yet declared so by a Court of Law

Intoxicated Persons

General Rule:  Must be so intoxicated that the contracting party does not know or understand the legal consequences of their acts.

Convicts

Ch. 8 - Consideration

Nature of Consideration

General Rule:     

1.                 Doing something that you do not have an obligation to do.

2.                 Not doing something that you have a legal right to do.

Adequacy of Consideration

q       Fair Market Value vs. Legal Value

q       Partial Payments on an Existing Debt.

Insufficient or Invalid Consideration

q       Performing or promising to perform what one is already obligated to do.  Preexisting Duty

q       Refraining or promising to refrain from doing what one has no right to do

q       Past Performance

q       Covenants not to Sue

Exceptions to Requirement of Consideration

q       Voluntary Subscriptions or Charitable Donations

q       Debts of Record or Judgments

q       Promissory Estoppel

Reliance on the promise of another my result in the promise being enforceable.

Ch. 9 – Defective Agreements

Mistakes

          Unilateral Mistake

          Mutual Mistake

Exceptions to the General Rule

q       Unilateral Mistakes

q       Mutual Mistakes

a)     Value, quality or price

b)    Contract terms (failure to read)

c)     Mistake of Law

d)    Expectations

Fraud

Fraud in the Inducement

Fraud in the Execution

Active Fraud

Passive Fraud

Innocent Misrepresentaton

Duress

Physical Duress

Emotional Duress

Economic Duress

Ch. 10 – Illegal Agreements

1.     Gambling Contracts

2.     Sunday Contracts

3.     Usurious Contracts (Charging excessive interest rate on a debt)

4.     Contracts of an unlicensed operator

5.     Contracts for the Sale of prohibited articles

6.     Contracts in unreasonable restraint of trade

q       Non-Compete Agreements

q       Restraint of Trade

q       Fix a Resale Price

q       Uncompetitive Practices

 Contracts contrary to public policy

Ch. 11 Statute of Frauds

Requires contracts involving certain subjects to be in writing to be enforceable.

Ch. 12 – Third Parties and Contracts

Intended Beneficiaries

Creditor Beneficiary

Donee Beneficiary

Incidental Beneficiary

Assignment and Delegation

          Assignment of Rights

          Delegation of Duties

Ch. 13 – Termination of Contracts

Performance of the Contract

          Complete Performance

          Satisfactory Performance

          Substantial Performance

Discharge by Operation of Law

1.     Discharge in Bankruptcy

2.     Statute of Limitations

3.     Alteration of written contract

4.     Impossibility of Performance

q       Destruction of the subject matter

q       Change in law making the contract illegal

q       Death or incapacity of person to render personal services

q       Wrongful act of the other party

Termination by the Parties to the Contract

Remedies for Breach of Contract

1.     Money Damages

Compensatory Damages

Consequential Damages

2.     Rescind the Contract

3.     Specific Performance – Applies only when money damages are not sufficient to make the non-breaching party whole.

Part 3 - Personal Property 

CH. 14 – PERSONAL PROPERTY

Personal Property:

a)      Anything movable

b)     Any interest that represents less than complete ownership in land or rights in money.

Examples:

Classifications of Personal Property:

a)     Tangible

b)     intangible

Acquiring Personal Property:

          Purchase

          Testamentary – by will

          Descent

          Gift

          Accession

          Confusion

          Creation

Lost and Abandoned Property

          Lost

          Mislaid

          Abandoned

“Finders Keepers, Losers Weepers”????

General Rule:  The finder of lost property has legal possession against everyone except the true owner.

Lost Property –

Mislaid Property –

Abandoned Property -
Bailments

A temporary transfer of possession, or use, of personal property

          Bailor:

          Bailee:

Examples of Bailments:

Amount of care required by the Bailee

The amount of care required depends upon the amount of bailment created.

1.     Bailment for the sole benefit of the Bailor

2.     Bailment for the sole benefit of the Bailee

3.     Mutual Benefit Bailment

CH. 15 – SPECIAL BAILMENT SITUATIONS

Private Carriers – Transports goods or persons to select individuals only.  Private contractual relationship – may discriminate with respect to whom services are given to.

Examples:

Chartered airline

Common Carriers – Transports goods and services for the general public on a non-discriminatory basis.

Examples:

          Regularly scheduled flight on airline.

Liability of Common Carriers

General Rule:  Common Carrier is liable for all damage or losses regardless of fault. 

EXCEPT:  Common carriers are NOT liable for losses arising from:

1.      Acts of GOD

2.      Acts of a Public Authority

3.      Inherent Nature of the Goods

4.      Acts of the Shipper

5.      Acts of a Public Enemy

Limitation of Liability of Common Carrier

Part 4 - Warranties, Product Liability and Consumer Protection

CH. 19 – WARRANTIES, PRODUCT LIABILITY AND CONSUMER PROTECTION

EXPRESS WARRANTIES

A statement of fact, that becomes the “basis of the bargain”

          a)       Affirmation or Promise

          b)      Specific description of the item

          c)       Goods will conform to a sample or model

                d)      Distinguish from statements of opinion

IMPLIED WARRANTIES

          a)       Merchantability

          b)      Fitness for a particular purpose

          c)       Other implied warranties

WARRANTIES OF TITLE

a)       Good Title

Seller warrants that they have good, valid ownership of the goods and that the transfer of ownership to the buyer is rightful.

b)      No Liens or Encumbrances

c)       No Infringements

d)      Disclaimer of Warranty of Title

          Any disclaimer of warranty of title must be:

Þ      Specific

Þ   In Writing

Þ   Conspicuous

FULL OR LIMITED WARRANTIES

Full Warranty

Limited Warranty

DISCLAIMER OF WARRANTIES

          a)       Express Warranties

          b)      Implied Warranties

          1.       Merchantability -

                   Disclaimer must specifically mention merchantability.

          2.       Other Implied Warranties

                   Must be in writing and be conspicuous

PRODUCT LIABILITY

          Legal Liability of:                                                To:

                   a)      Manufacturers                                   a)      Consumers

                   b)      Sellers                                                b)      Users

                   c)       Lessors                                              c)       Bystanders

Basis of Legal Claim

1.       Breach of Warranty

2.       Negligence

3.       Misrepresentation

4.       Strict Liability

Requirements for Strict Liability

1.       Product in Defective Condition when sold

2.       Defendant is a merchant

3.       Unreasonably dangerous because of defect

4.       Plaintiff injured when using the product (intended purpose)

5.       Defective condition caused the injury

6.       Goods unchanged from date of sale to date of injury

Other Basis for Product Liability

Reasonably Forseeable Misuse of a Product

Market Share Liability

CONSUMER PROTECTION LAWS

a)       Deceptive Advertising

b)      Bait and Switch Advertising

c)       Labeling and Packaging

Credit Protection

          Truth in Lending

          Equal Credit Opportunity

          Credit Card Rules

Debt Collection

Fair Credit Reporting

1.     credit reports may only be issued for specified purposes

2.     denial of credit based upon a credit report

3.     consumers may receive source of information used in credit report

4.     consumers may receive the identity of anyone who received a credit report

5.     consumers have access to credit information contained in their credit report

6.     any erroneous information must be corrected within a reasonable time (after investigation)

Fair Debt Collection Practices

Debt – any obligation of a consumer to pay money arising out of a transaction in which money, property, insurance or services which are the subject of the transaction are primarily for personal, family or household purposes.

1.     Must provide debtor with a “validation notice”

a)     attempt to collect a debt

b)    debtor has 30 days to dispute debt and request written verification

c)  debtor’s request for validation must be in writing                  

Part 5 -Negotiable Instruments

CH. 20-25 – NEGOTIABLE INSTRUMENTS

Objectives

E.    Identify two types of negotiable instruments

a)  Orders to Pay   -        Checks

b)  Promises to Pay -       Promissory notes, Certificates of Deposit

F.    Determine whether an instrument is negotiable

G.    Explain / understand the process of the transfer or negotiation of an instrument

H.    Know what a Holder in Due Course is.

I.       Determine whether a person qualifies as a Holder in Due Course

J.      Identify the advantages of being a Holder in Due Course

K.    Understand how to determine who is liable on an instrument – signature liability

L.    Identify and summarize some of the key rules governing the relationship between a bank and its customer

a.      Stop Payment Orders

b.     Availability of Deposits

c.     Stale checks

d.     Automated Teller Machines (ATM’s)

e.      Not Sufficient Funds (NSF) checks

CH. 20 – NATURE OF NEGOTIABLE INSTRUMENTS

Negotiable Instrument:  A written document, representing a promise to pay money, that can be transferred from person to person as a substitute for money.

Types of Negotiable Instruments

          a)       Checks

          b)      Drafts

          c)       Promissory Notes

          d)      Certificates of Deposit

Bearer Instrument: Commercial Paper payable to whoever is in possession of the instrument;                  

Order Instrument:  Commercial Paper payable to the “order” of a named person

CH. 21 - REQUIREMENTS FOR NEGOTIABILITY

Before a promise to pay money can be transferred from person to person, it must meet ALL of the following requirements:

a)       in Writing signed by the party executing it

b)      contains an order to pay (check), or a promise to pay (note)

c)       Order or promise must be unconditional

d)      Payment of a specified amount of money.  Sum Certain in Money

e)       Payable on demand or at a specific time

d)      Payable to the Order or to Bearer

CH. 22 – PROMISSORY NOTES AND DRAFTS

Promissory Notes

1.     Certified Checks

2.     Cashier’s Checks

3.     Bank Drafts

4.     Voucher Checks

5.     Traveler’s Checks

TRANSFER OF NEGOTIABLE INSTRUMENTS

Assignment – Assignment of contractual rights to collect money when due.

Negotiation – the transfer of a negotiable instrument from person to person

Bearer Instrument: Commercial Paper payable to whoever is in possession of the instrument;               

Order Instrument:  Commercial Paper payable to the “order” of a named person

Types of Indorsements

Blank Indorsements

Special Indorsements

Qualified Indorsements

Restrictive Indorsements

CH. 24 – LIABILITY OF THE PARTIES AND HOLDER IN DUE COURSE (HDC)

Advantages of a Holder in Due Course

Requirements to qualify as a Holder in Due Course

HOLDER THROUGH AND HDC

General Rule:  A person who receive a negotiable instrument from a Holder in Due Course (HDC) receives the same rights as a HDC, even if they cannot qualify as a Holder in Due Course (HDC) themselves.

Exception:  A holder who cannot qualify as a Holder in Due Course, cannot improve their status by transferring the instrument to a Holder in Due Course (HDC) and then reacquiring the instrument from the HDC.

E.    SIGNATURE LIABILITY

General Rule:      Everybody, except a qualified indorser, who signs a negotiable instrument is either primarily or secondarily liable for payment when the instrument comes due.

Primary Liability –        Drawee Bank

                                      Maker of a Promissory Note

Secondary Liability –    Drawer of a check

                                      Guarantor of a promissory note (Co-signer)

Unauthorized Signatures

General Rule:  Unauthorized signatures are wholly inoperative and will not bind the name of the person whose name is forged.

Exceptions:

1.

2.

Unauthorized Indorsement

General Rule:

                   a)       Imposter

                   b)      Ficticious Payee

Part 6 - Agency and Employment

PART 6 – AGENCY AND EMPLOYMENT

Nature of Agency

General Agents: 

Authorized to perform various tasks for the principal

Special Agents: 

Authorized to perform a specific task for the principal

Other Types of Agents

          Factors:  

Sells property on behalf if another person

          Factors Del Credere:

 A factor that sells property on credit and guarantees payment

          Brokers:

                   An agent to brings two contracting parties together

                   Eg. Real Estate Broker

          Attorney in Fact: 

A general agent appointed by a written document called a Power of Attorney

AUTHORITY OF AGENTS

Express Authority: 

          Extent of agent’s authority is specifically stated

Implied Authority

Authority to perform tasks not specifically stated, but required to perform the obligations of an Express Authority

Apparent Authority

          An agent’s authority based upon the acts of the principal

CREATION OF AGENCY

Appointment

Ratification

Estoppel

Necessity

EMPLOYMENT RELATIONSHIPS

Independent Contractor

Empolyer-Employee

CH. 27 – OPERATION AND TERMINATION OF AGENCY

Agent’s Duties to Principle

Loyalty and Good Faith

Obedience

Reasonable Skill and Diligence

Accounting

Keep Principle Informed

Duties of Principle to Agent

Compensation

Reimbursement

Indemnification

Performance of Agency Contract

Agent’s Liability to Third Parties

An agent may become personally liable on the contracts made in the following situations:

1.     Undisclosed Principal:  An agent fails to disclose their agency capacity or the identity of the principle.

2.     Express Agreement:  An agent specifically agrees to be personally liable.

3.     Exceeds Express Authority:  An agent is personally liable for any acts beyond their express authority unless ratified by the principal

4.     Agent Misconduct:  Agent commits fraud, willful negligence, or fails to obey the principal’s instructions

Principle’s Duties and Liabilities to Third Parties

1.     Honor Agreements made by the agent within their express or apparent authority.

2.     No liability for unauthorized acts of the agent unless the principal ratifies or accepts the benefits of the unauthorized acts.

3.     Both principal and agent are liable to third parties for injuries caused by the negligence of the agent.

4.     TERMINATION OF AGENCY

Acts of the Parties

1.     Original Agreement

2.     Subsequent Agreement

3.     Revocation by Principal:

Principal can revoke an agency at any time.

Except:  Agency coupled with an Interest

4.     Renunciation by Agent:

Termination of Agency by Operation of Law

1.     Subsequent Illegality

2.     Death or Incapacity

3.     Destruction of subject matter of the agency

4.     Bankruptcy

5.     Dissolution

6.     War

Notice to Third Parties

The principal must give notice of termination of an agency to all potential third parties dealing with the agent.

If no notice given, principal may still be legally obligated for the acts of the agent.