Acct 351 Exam 3

SEC actions

-consent decrees with defendants -seek injunctions in the US distinct court -seek court orders requiring defendants to disgorge illegally gained profits - Insider Trading sanctions act permits the SEC to obtain a civil penalty of up to three times the illegal profits gained or losses avoided on insider trading -Section 32 makes it criminal to willfully violate the provisions of the act or the rules and regulations adopted; violators can be fined, imprisoned up to 25 years, or both

Special Types of Trusts

1. Constructive Trust- equitable trust that is implied by law to avoid fraud, unjust enrichment, and injustice; trustee holds the property in the trust for its rightful owner; when imposed, the party who is the implied trustee cannot sell or transfer ownership 2. Resulting Trust- implied from the conduct of parties 3. Charitable Trust- created for the benefit of a segment of society or society in general 4. Spendthrift Trust- designed to prevent a beneficiary's personal creditors from reaching the trust interest; all control over the trust is removed from the beneficiary; personal creditors can still go after trust income that is paid to the beneficiary 5. Totten Trust- created when a person deposits money in a bank account in his or her own name and holds it as a trustee for the benefit of another person; tentative trust because trustee can add or withdraw funds and can revoke it at any time prior to the death or delivery of funds

Non-possessory interests

1. Easements 2. License- grants a person the right to enter another's property for a specified period, usually short period of time; grantor is the licensor; grantee is the licensee 3. Profit-a-Prendre- gives the holder the right to remove something from another's real property 4. Mortgage

Mislaid, lost, and abandoned personal property

1. Mislaid property- owner voluntarily places the property somewhere and then inadvertently forgets it; owner of the premises (superior to finder) is entitled to take possession against all except the rightful owner; doesn't change title; involuntary bailee with duty to take reasonable care of the property until it is reclaimed by the owner 2. Lost property- owner negligently, carelessly, or inadvertently leaves it somewhere; finder obtains title against the whole world except the true owner; lost property must be returned to its rightful owner (if finder refuses, liable for conversion or larceny); some states require finder to conduct reasonable search to find the owner before being allowed to keep it 3. Abandoned property- owner discards the property with intent to relinquish rights OR if owner of mislaid or lost property gives up any further attempts to locate it; finder of abandoned property acquires title to it, good against everyone including original owner

Sarbanes-Oxley Act SOX

1. PCAOB- public company accounting oversight board- 5 members appointed by SEC for 5 year terms, 2 CPAs 3 non, SEC oversees board; authority to adopt rules concerning auditing, accounting quality control, independence, and ethics of public companies and public accountants 2. a public accounting firm must register with the board and is subject to inspection and review by the board once a year or every 3 years; disciplines and order sanctions for intentional or reckless conduct 3. unlawful for a registered public accounting firm to provide simultaneously audit and certain non-audit services to a public company 4. an audit partner of the firm must supervise the audit and approve the audit report, a second partner must review and approve the audit and papers must be retained for at least 7 years; partners must rotate off every 5 years 5. an employee of the accounting firm that audits a company cannot be an executive officer of the company for one year following the audit 6. audit committee required composed of independent members of the BOD; at least one must be a financial expert; responsible for appointing accounting firms to audit

Transfer of Ownership of Real Property

1. Sale- conveyance; sale through owner or using a real estate broker; real estate sales contract is executed b the parties; statue of fraud requires it to be in writing; at closing- seller delivers a deed, buyer pays the purchase price; implied that simple absolute title is being transferred 2. Tax Sale- owner fails to pay property taxes, government can obtain a lien on the property for the unpaid taxes; if remain unpaid for a statutory period of time, the government can sell the property at a tax sale to satisfy the lien, giving the remaining proceeds to the taxpayer; period of redemption allows for the taxpayer to get the property back by paying the unpaid taxes and penalties; buyer at a tax sale does not receive title to the property until the period of redemption has passed. 3. Gift or inheritance- transferred as a gift made when the deed to the property is delivered by the donor to the donee or to a third party to hold for the donee; no consideration is necessary; same goes for transfer by will, trust, or inheritance

Criminal liability of accountants

1. Section 24 of 1933 act- criminal offense for any person to willfully make an untrue statement of material fact in registration statement field with SEC, omit any material fact necessary to ensure that the statements made in he registration statement are not misleading, or willfully violate any other provision ; fines and/or imprisonment 2. Section 32(a) or 1934 act- criminal offence for any person willfully and knowingly to make or cause to be made any false or misleading statement in any application, report, o document required to be filed with the SEC (fines and /or imprisonment-if knowledge of violation) 3. Tax reform act of 1976- criminal liability if willfully understate the tax liability, negligently understate the tax liability, or aid or assist in the preparation of a false tax return 4. RICO Act- Racketeer influenced and corrupt organization act - criminal and civil penalties for securities fraud 5. state securities laws- Uniform securities act- section 101- criminal offence for accountants to willfully falsify financial statements and other reports

Special Bailments

1. warehouse company- bailee engaged in the business of storing personal property for compensation; are subject to the rights, duties, and liability of an ordinary bailee- duty of reasonable care to protect the property- liable only for loss or damage of the bailed property caused by their own negligence; can limit dollar amount of liability if they offer opportunity to increase the liability limit for additional charge warehouse receipt- document of title stating that the bailor has title to the goods; a warehouse has a lien on the goods in their possession that can be sold to cover unpaid fees 2. Common Carrier- transportation services to the general public; the delivery of goods to a common carrier is a consignment that creates a mutual benefit bailment; shipper = consignor (bailor); common carrier= bailee; person whom goods are being delivered to = consignee; duty of strict liability; liable for lost, damaged, stolen, destroyed goods even if it was not their fault unless caused by act of god, public enemy, order o government, act of shipper, or the inherent nature of the goods; can limit liability to stated dollar amount by expressly stating it in the agreement Bill of lading- document of title issued by a common carrier stating that the bailor has title to the bailed goods 3. In keeper- owner of a facility that provides lodging to the public for compensation; duty of strict liability for property lost or stolen from premises even if the loss was not their fault; in keeper's statues limit the liability if a safe is provided for valuable property and guests rare aware of it; can put a dollar amount on liability by notifying the guests 4. Commercial bailment- negligence cases fall on the person who caused the damage (i.e. rental cars)

Ownership of personal property

Can be transferred with a minimum of formality 1. Possession/capture- acquire ownership in unowned personal property by taking possession of it (i.e. catching a fish) 2. Purchase- acquire ownership/title through purchase from its current owner 3.Production- acquire ownership through using raw materials to manufacture a final product which creates ownership for the producer 4. Gift- voluntary transfer of property without consideration (donor-makes gift; donee- receives gift) 3 elements: a. donative intent, b. delivery, c. acceptance i. Gift inter vivos- made during a person's lifetime; irrevocable ii. Gift causa mortis- made in contemplation of death; can be revoked by donor up until the time of death; takes precedence over will (uniform gifts/transfers to minors act- establish procedures for adults to make gifts of money and securities to minors) 5. Accession- occurs when value of personal property increases because it is added to or improved by natural or manufactured means a. natural- belongs to owner b. wrongful improvement- owner acquires title without paying c. mistaken improvement that can be removed- removed and the damages caused are paid to owner d. mistaken improvement not removable- owner owns title and doesn't pay 6. confusion- intangible goods (exactly alike) are commingled, the owners share title to the commingled goods in proportion to the amount of goods contributed 7. Will, living trust, inheritance- acquired when a person dies with a valid will or living trust, and the property is distributed to the beneficiaries named, pursuant to the provisions 8. Divorce or Annulment- parties obtain certain rights in the property that comprises the martial state

Types of ordinary bailments

Gratuitous bailments (1 and 2) 1. Bailment for the sole benefit of the bailor (owner)- bailee is requested to care for the bailor's property as a favor; duty of slight care- avoid gross negligence 2. Bailment for the sole benefit of the bailee (holder)- bailee requests to use the bailor's property for personal reasons; duty of great care(utmost care)- not to be slightly negligent 3.Mutual benefit bailment- benefits both parties; duty of reasonable care (ordinary); liable for any goods that are lost, damaged, or destoyed due to negligence

Intestate Succession

If a person dies without will or trust (or it fails legally), the intestate statue determines how the property is to be distributed to relatives beneficiaries under this statute =heirs real property is distributed according to the intestacy statute of the state in which the real property is located personal property is distributed according to the intestacy statute of the state in which the deceased had their permanent residency Typically order- spouse, children, lineal heirs (grandchildren, parents, brothers, sisters), collateral heirs (aunts/uncles/ nieces /nephews), next kin (cousins) In-laws do not inherit under most state statutes if no surviving relatives exist, property escheats to the state

Joint and Mutual Wills

Joint will- 2 or more testators execute the same instrument as their will; bequeaths property to the other person with a stipulation for how the property is to be distributed when the second party dies; second party cannot change the will once the first person dies; both parties must agree to revoke a joint will Mutual will (reciprocal will)- 2 or more testators execute separate wills hat make a testamentary dispositions of their property to each other on the condition that the survivor leave the remaining property on his or her death as agreed by the testators; cannot be unilaterally revoked after one of the parties has died Simultaneous deaths- if two people who would inherit property from each other die simultaneously, and it is impossible to determine who died first, the Uniform Simultaneous Death Act provides that each deceased person's property is distributed as though he or she had survived

Probate

Process when a person dies, property is collected, debts and taxes are paid, and the remainder of the estate distributed to the beneficiaries of the will or the heirs under the state intestacy statue settlement of the estate, through probate court Personal representative must be appointed to administer an estate during its settlement phase if the will designates this person = executor(trix) if court appoints this person = administrator(trix) and will usually be a relative or bank an attorney is usually appointed to hep administer the estate and complete the probate

Misappropriation Theory and 10b5-1

Prohibits outsiders from trading in the security of any issuer on the basis of material nonpublic information that is obtained by breach of duty of trust or confidence owed to the person who is the source of the information Outsider's misappropriation of information in violation of his or her fiduciary duty- an trading on that information- violates Section 10(b) and rule 10b5-1

Living Trust

Revocable trust holding property during person's life and distributing property on death purpose: to avoid probate associated with using a will Difference from will: it is private; when grantor dies, assets are owned by the living rust and therefore are not subject to probate proceedings however: does not reduce estate taxes more than a will, does not reduce grantor's income taxes, does not avoid creditors, not subject to property division on divorce, not less expensive to create than a will, does not avoid controversies at death Funding: grantor transfers title of property to the trust, must be re titled to the trust's name (trust corpus) and then it is considered funded; it is revocable during the grantor's lifetime so they can undo the trust and retake title of the property placed in the trust -trust should name a successor trustee to replace grantor trustee in case of incapacitation or becoming too ill to manage the trust grantor is usually the income beneficiary; remainder beneficiary must be named; trustee (usually the grantor) has fiduciary duty to identify assets, pay creditors, pay income and estate tax, transfer assets to beneficiares, and render accounting

Future Interests

Right to possess property in the future rather than the present 1. Reversion- right of possession that returns to grantor after the expiration of a limited or contingent estate; do not have to be expressly stated because they arise automatically by law 2. Remainder- right of possession returns to third party (remainder beneficiary) on the expiration of a limited or contingent estate

Accountants liability to third parties

Rules to determine if negligence leads to liability: 1. Ultramares doctrine- an accountant can not be held liable for negligence unless the plaintiff was in either privity of contract or privity-like relationship 2. Section 552 of the restatement (second) of torts- an accountant is liable for negligence to any member of a limited class of intended users for whose benefit the accountant has been employed to prepare the F/S or to whom the accountant knows the client will supply copies of the F/S; limited to: a. person whose benefit and guidance he intends to supply the info or knows that the recipient intends to supply it b. reliance upon it in a transaction that he intends the info to influence or knows that the recipient so intends or in a substantially similar transaction 3. Forseeability standard- liable to any foreseeable user of the client's F/S; does not depend on his or her knowledge of the identity of either the user or the intended class of users 4. Fraud- liable to a third party that relies on actual or constructive fraud and is injured; may bring tort action to recover damages 5. breach of contract- incidental beneficiaries usually cannot sue for break of contract because they are not in privity of contract

Accountants Liability to clients

To Clients: 1. breach of contract- if accountant fails to perform terms of the contract they may be sued for damages caused by the breach for expenses the client incurs in securing another accountant to perform the needed services and fines/penalties for missed deadlines/lost opportunities 2. Fraud- civil lawsuit to recover damages proximate caused by fraud (punitive if actual fraud) a. actual fraud- intentional misreprsentation /omission of material fact relied on by client b. constructive fraud- acts with reckless disregard for the truth or consequences of his or her actions (gross negligence) 3. malpractice (negligence)- owe the duty to use reasonable care, knowledge, skill, and judgment; measured against what a reasonable accountant would do in a similar circumstance (violations of GAAP, GAAS, or IFRA is evidence)

Special Types of Wills

Wills that do not meet all the requirements 1. Holographic will- entirely handwritten and signed by the testator; recognize the validity of such wills even through they are not witnessed 2. Nuncupative wills- oral wills that are made before witnesses; usually valid only if they are made during the testator's last illness and before he or she is about to die; known as dying declarations or deathbed wills

Testamentary Gifts

a gift of real estate by will = devise a gift of personal property by will = bequest/legacy Specific gift- gifts of specifically named pieces of property General Gift- do not identify the specific property from which the gift is to be made; it would identify an amount of money Residuary gift- established by a residurary clause in a will; any portion of the estate left after debts, taxes, specific and general gifts are made, belongs to the person or persons named in the residuary clause A person who inherits property under a will or intestacy statute take s the property subject to all the outstanding claims against it - a person can renounce an inheritance and often does where the liens against the property exceed the value Ademption- if a testator leaves a specific gift of property to a beneficiary but the property is no longer in the estate, the beneficiary receives nothing Abatement is a doctrine that says if the property a testator leaves in not enough to satisfy all beneficiaries named in a will, there are both general and residuary bequests, the residuary bequest is abated first (paid last); if a will provides only for general gifts, reductions are proportionate

Adverse Possesion

a person who wrongfully possesses someone else's real property obtains title to that property if certain statutory requirements are met (fed/state property is not subject to this) transfer of property is involuntary and does not require the delivery of the deed requirements: a. for a statutorily prescribed period of time(7-20 years) b. open, visible, and notorious- owner must have notice of possession c. actual and exclusive- physically occupy the premises d. Continuous and peaceful- continuous and uninterrupted for required statutory period; cannot take the property by force from an owner e. Hostile and adverse- occupy the property without express or implied permission of the owner Adverse possessor acquires clear title to the land

Lineal Descendats

a testator's will often states that property is to be left to lineal descendants Per Stipes Distribution- inherit by representation of their parent; split what their deceased parent would have received; if parent is not deceased, they receive nothing; i.e. split proportionately by child Per Capita Distribution- every lineal descendant equally shares the property of the estate; children of the testator share equally with grandchildren, great grandchildren, and so forth

Securities Law Violations for accountants

accountant can be held liable for violating various federal and state securities laws: 1. Section 11(a) of 1933 act- if an accountant files F/S with a registration statement with the SEC for a client it is considered to be the expertised portion; civil liability is found if they make misstatements/omissions of material fact or failed to find such misstatement or omissions due diligence defense can be used injured person can recover the difference between the price paid and value of the security at time of suit 2. section 10(b) of 1934 act- only purchasers and sellers of securities can sue accountants if intentional conduct and recklessness is found in relation to fraud; not negligence 3. section 18(a) of 1934 act- accounts who file reports with SEC on behalf of a client can be found liable if fraud or reckless conduct is found in relation to false misleading statements Accountant can fight this by showing that he acted in good faith or that the plaintiff had knowledge of the false statement when it was purchased or sold 4. Private securities litigation reform act of 1995- changed liability of accountants so that pleading and procedural requirements had to be met to bring suit, joint and several liability of the defendants switched to proportionate liability to limit accountants liability to his degree of fault (still several joint liability if acted knowingly)

Public Accounting

accountant-person who performs a variety of servives CPA- accountants who meet education requirements, passed the CPA, and have experience public accountant- not certified primary functions: audit F/S and render opinions about those audits Can be held liable to clients and to third parties most firms are LLP and all partners are limited partners; not liable for the debts and obligations of the LLP in excess to capital but negligent or intentional conduct that causes injury causes personally liability for that conduct GAAP- standards for preparation and presentation of financial statements (FASB) GAAS- generally accepted auditing standards; methods and procedures that are to be used when conduction external audits of company F/S

Audits

audit- verification of a company's books and records must be preformed by an independent CPA that reviews the company's financial records, checks their accuracy, and investigates the financial position of the company following GAAS must conduct 1) a sampling of inventory to verify the figures 2) verify information from third parities

Will

declaration of how a person wants his or her property to be distributed on his or her death Testamentary deposition creator- testator/testatrix receiver- beneficiary Statute of wills- establishes requirements: 1. testamentary capacity- must have been of legal age and sound mind when the will was made 2. Must be in writing to be valid; formal or informal, on any type of paper; many incorporate other documents by referece 3. Testator's signature at end of the document (to avoid fraud) 4. Attestation by witnesses- 2 to 4 mentally competent witnesses; typically sign the will following the signature of the testator (attestation clause) in the presence of other witnesses; interested parties cannot be witnesses or it will void any clauses that benefit the witness or the entire will A will that meets the requirements of the statute of wills is called a formal will Codicil- legal way to change or amend an existing will; separate document that contains provisions; incorporate by reference the will it is amending; same formalities required; read as one instrument with the will Revoking a will- may be revoked by acts of the testator; can tear, burn, obliterate, or destroy it intentionally; a properly executed subsequent will revokes the prior will; can be revoked by operation of law- divorce will revoke disposition of property to former spouse but the rest remains valid

Personal property

everything that is not realty or land can be tangible; physically defined or intangible; represents rights that cannot be reduced to physical form May be owned by one person or more than one person through concurrent ownership

Irrevocable trusts

express trust- voluntarily created by the settlor (usually written); agreement is called the trust instrument or trust agreement -irrevocable unless the settlor reserves the right to revoke it can be created and becomes effective during a trustor's lifetime OR created to become effective on the trustor's death Trustee collects money owed to the trust, pays taxes and necessary expenses, makes investment decisions, pays the income to the income beneficiary, and keeps necessary records of transactions Beneficiaries income- trust income is paid to this person or entity remainder- receives the trust corpus on the termination of the trust (can be the same person or different; can have multiple of each or can be a class or persons) Trust can allow the trustee to invade (use) the trust corpus for certain purposes (named); usually specifies how the receipts and expenses of the trust are to be divided between the income and remainder beneficiaries Trustee has broad management powers to invest and preserve but must follow restrictions 1. Intervivos trust- created an its assets are distributed to the trust while the settlor is alive; transfers legal title of property to a named trustee to hold, administer, and manage for the benefit of the named beneficiaries; can be for a state period of time or until an event occurs 2. Testamentary trust- created by will; comes into existence when the settlor dies

Marketable Title

grantor has the obligation to transfer a good title to the grantee; free from any encumbrances, defects of title, or other defects that are not disclosed but would affect the value of the property 1. Attorney's opinion- examines an abstract of title and renders an opinion concerning the status of the title 2. Torrens system- method of determining title to real property in judicial proceeding at which everyone claiming an interest in the property can appear and be heard; certificate of title is issued to the rightful owner by the court 3. Title insurance- the title insurer must reimburse the insured for any losses caused by undiscovered defects in title

Undue influence

if proven, will or trust is invalid hard to prove by direct evidence, but may be proved by circumstantial evidence: -benefactor involved in relationship of confidence and trust -will or trust contains substantial benefit to the beneficiary -beneficiary caused or assisted in effecting execution of the will or turst -opportunity to exert influence -will or trust contains unnatural disposition of testator's property -bequests constitute change from former will or trust -testator was highly susceptible to undue influence

Insider Trading

illegal for insiders to take advantage of the investing public through the use of material nonpublic information to makes a profit by trading in the securities of the company Insiders are considered -officers, directors, and employees at all levels -lawyers, accountants, consultants, and agents -others who owe a fiduciary duty Insiders must either: -abstain from trading in the securites -disclose the information to the person on the other side of the transaction before the insider purchases or sells the securities

Real Property

immovable or attached to immovable land or buildings Land- most common form; surface rights to the land; right to occupy the land; use, enjoy, and develop the property as seen fit; buildings constructed on land; most structures Subsurface rights- owner of land possesses mineral rights, to the earth located beneath the surface of the land; may be sold separately from surface rights Plant life and vegetation- natural plant life and cultivated plant life; when land is sold, plant life growing on the land is in clued, unless agreed otherwise; severed plant life is considered personal property Fixtures- personal property closesly associated with real property becomes part of realty; unless otherwise provided, fixtures are included with sale of buildings

Section 12 of SEC act of 1934

imposes requirements on certain companies- reporting companies- covered companies 3 categories: 1. stock/securities publicly traded 2. issuer who registered securities under 1933 act; filed S-1 3. at least 500 SH and $100 M in assets Requirements: a. must file annual 10-k form with audited F/S (available for SH and pubic) b. must file a 10-Q with F/S (don't need to be audited) c. must file an 8-K for special events (merger)

Scientor

intentional conduct - the only way to violate section 10(b) or rule 10 (b)-5 is through purposeful action -negligence conduct is not a violation -it requires reliance by the injured party on the misstatement (most transfers happen on the open market where there is no direct communication between the buyer and the seller) Private securities fraud claims must be brought within two years after discovery or five years after the violation occurs, whichever is shorter

Trusts

legal arrangement under which one person (trustor/settlor) delivers and transfers the legal title of property to another person, bank, or entity (trustee) to be held and used for the benefit of a third person or entity (beneficiary) The property and assets held in a trust = trust corpus/trust res Trustee has legal title to trust corpus; beneficiary has equitable title not public documents; transferred in privacy

Living will and health care directive

living will- a document that states which lifesaving measures the signor does and does not want ; can specify that they want such treatments withdrawn if doctors determine that there is no hope of a meaningful recovery health care directive (proxy)- a document in which the maker names someone to be the health care agent to make decisions in accordance with the wishes outlined in the living will; should have a backup agent as well Right to die is still up for debate; legal in some states and not in others

SEC Act of 1934- Section 10 (b) - 5

makes it unlawful to directly/indirectly use any means of interstate commerce or mail to: - employ and device, scheme, or artifice to defraud - make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading - engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of ANY security

Estray statutes

most states have enacted these statutes that permit a finder of mislaid or lost property to clear title to the property if: a. the finder reports the found property to the appropriate government agency and turns over possession of the property to this agency b. either the finder or the government agency posts notices and publishes advertisements describing the lost property c. a specified period of time (a year or a few years) has passed without the rightful owner reclaiming the property **some states provide that the government receive a portion of the value of the property; some provide that the title cannot be acquired in found property that is the result of illegal activity

Easements

non-possessory interest in another's real estate Easement- interest in land that gives the holder the right to make limited use of another's property without taking anything from it a. easement appurtenant- owner of one piece of land is given or acquires an easement over an adjacent piece of land; land over which the easement is granted is the servient estate; land that benefits from the easement is the dominant estate; this type of easement runs with the land b. easement in gross- authorizes a person who does not own adjacent land the right to use another person's land; personal right because it doesn't depend on the easement holder owning adjacent land; there is no dominant estate; holder owes duty to maintain and repair the easement; owner of the estate can use the easement as long as it doesn't interfere with the easement Creating: 1. Express- A. by grant- expressly grants another party an easement across his or her proprty B. by reservation- owner sells land to another party but reserves an easement on the sold land 2. Implied A. by implication- owner subdivides a piece of property that has a well, path, road, etc on it that serves the entire parcel; purchasers of individual pieces of property have right to use the well, path, road, etc. B. by necessity- party who owns a piece of landlocked property that does not have egress out of or ingress in to the property is granted easement to cross surrounding property to reach their property 3. By Prescription- if it meets the statutory requiremtnes for adverse possession

Bailments

occurs when the owner of personal property delivers property to another person, either to be held, stored, delivered, or for some other purpose owner of property- bailor party whom property is delivered- bailee different from sale or gift because the title to the goods does not transfer to the bailee; bailee must follow bailor's directions Elements: a. bailment of personal property b. delivery of possession- most of the time this is created by physical delivery 1. bailee must have exclusive control 2. bailee must knowingly accept the property c. bailment agreement- doesn't require formality (if >1 year- must be in writing) ; can be express or implied (i.e. finding lost property and watching over it) Duration- generally expires at a specified time or when a certain purpose is accomplished 1. Fixed term- terminates tat the end of a term or sooner by mutual consent (breach of agreement- liable to the innocent party for damages resulting from the breach; gratuitous bailees can generally terminate a fixed term prior to expiration) 2. At will- can be terminated at any time by either party On termination, the bailee is legally required to do what the bailor directs with the property

Auditor's opinions

opinion rendered about how fairly the F/S of the client represent the company's financial position, results of operations, and change in cash flows Unqualified- fairly represent position (S-1 must have unqualified opinion in order to sell securities) Qualified- fairly represent the position except for, departure from GAAPs, a change in Account principles, or material uncertainty Adverse- do not fairly represent the position due to materially misstated items on F/S disclaimer of opinion- expresses auditor's inability to draw a conclusion about the accuracy of the company's financial records. Issued when auditor lacks sufficient information about the financial records to issue an overall opinion

Zoning

ordinances that regulate land use a. establishes land use districts within the municipality b. restricts the height, size, and location of buildings on a building site c establishes aesthetic requirements or limitations for the exterior of buildings Commission usually formulates ordinances, conducts public hearings, and makes recommendaitons Owners of property can seek relief from the ordinance by obtaining a variance if they prove that the ordinance causes an undue hardship by preventing him from making a reasonable return on the land as zoned Act prospectively; buildings that already exist a permitted to continue even though they do not fit within the new ordinances; known as nonconforming uses

Estates in Land

ownership right in real property Freehold Estate - present possessory interest 1. Fee Simple Absolute- highest from of ownership; grants owner the fullest bundle of legal rights that a person can hold in real property; right to possess and use property exclusively to the extent that the owner has not transferred any interest in the property Fee- infinite duration Simple- no limitation on inheritability absolute- no end on occurance of event 2. Fee Simple Defeasible (qualified fee) - grants owner all the incidents of fee simple absolute except that ownership may be taken away if a specified condition occurs or does not occur 3. Life estate- interest in real property that lasts for the life of a specified person (usually the grantee) referred to as the life tenant Estate pour autre vie- life measured by the life of a third party death of the named person, the life estate terminates, and the property reverts to the grantor or the grantor's estate or other designated person Life estate is treated like the owner during the estate, with right to possess and use property except to the extent that it would causes permanent waste of the property

Aiders and Abettors

people who knowingly assist the party to complete the fraud successfully they are not civilly liable under section 10(b)-5 but can be held criminally liable

SEC Act of 1934 - Section 10(b)

prohibits the use of manipulative and deceptive devices in contravention of the rules and regulations prescribed by the SEC in the purchase or sale of securities

Blue Sky laws

state securities laws that coordinates with federal securities laws

Short Swing Profits- section 16A/16B

statutory insider- any person who is an executive officer, a director, or a 10% shareholder of an equity security of a reporting company -subject to rules of section 16 A. must file a report with SEC to disclose ownership and trading within 2 days after the trade occurs B. any profits made my a statutory insider on short-swing profits (trades occurring within 6 months of each other) belong to the company (excludes involuntary transactions) intent nor possession of insider information is not necessary 1.insider= executive officers who perform policy making functions 2. relieves insiders for transactions that occur within 6 months before becoming an insider 3. insiders are liable for transactions that occur within 6 months of the last transaction engage in while an insider

Tipper- Tippee Liability

tipper- person who discloses material nonpublic information to another person tippee- person who receives this information Tippee is liable for acting on material information that he knew or should have known was not public Tipper is liable for the profits made by the tippee Depends on situation: -misappropriation of inside info -meaningful, personal relationship -legitament business purpose NO: steal info off of an insiders desk YES: grandma receives info as a gift NO: aiding/abedding, BUT SEC can try them or on state law

Concurrent Ownership

two or more persons owning a piece of real property through co ownership 1. Joint Tenancy- words that clearly show a person's intent to create joint tenancy must be used; right of survivorship- on the death of one of the co-owners, the deceased person's interest in the property automatically passes to the surviving tenant; each joint tenant has the right to sell/transfer interest in the property but that will change it to a tenants in common 2. Tenancy in common- interests of surving tenant in common pass to the deceased tenant's estate and not to the co-tenant; created by express words (as tenants in common); unless otherwise agreed, sale/transfer of interest without consent is allowed 3. Tenancy by the Entirety- can be used only by married couples; created by express words; surviving spouse has the right of survivorship; neither spouse my sell or transfer interest without consent from the other 4. Community Property- only for married couples; each spouse owns an equal 1/2 share of the income both spouses earned during the marriage, regardless of who earns the income; property that is acquired through gift/inheritance before or during marriage remains separate property; interest, dividends, appreciation of separate property is separately owned; neither spouse can sell/transfer community property without consent from other spouse; upon divorce, each spouse is entitled to 1/2 of the community property; upon death of a spouse, the other half passes to the heirs of the deceased spouse as directed by the will or intestate statute (location of real property determines if community property applies) 5. Condominium- common form of ownership in multiple-dwelling buildings; purchasers have title to their individual units and own the common areas as tenants in common; may sell or mortgage their units without permission; assessed monthly fees for maintenance of common areas 6. Cooperative- form of co ownership of multiple-dwelling buildings in which corporation owns the building, the residents own shares in the corporation; each owner leases a unit in the building from the corporation under a renewable, long term, proprietary lease; residents may not secure loans for the unites they occupy, may not sell their shares or sublease their units without approval of the other owners.

Deeds

used to convey real property by sale or gift seller/donor is called the grantor; buyer/recipient is called the grantee General warranty deed (grant deed)- highest level of protection to a grantee; warrants that he owns the property, that he has legal right to sell it; that the property is not subject to encumbrance, leases, or easements other than those disclosed, that title is superior to any other claim of title, that he will defend the grantee's title against other claims, and he will compensate the grantee for losses suffered it title proves faulty; extends back to property's origin; grantor is legally bound to compensate grantee fro losses caused by breach of warranty Special Warranty deed (limited)- protects a buyer only from defects in title that were caused by the seller; seller is not liable for defects in title that existed before the seller obtained the property or for encumbrances that were present when the seller obtained the property Quitcliam deed- grantor transfers only whatever interest he or she has in the real property; grantor does not guarantee that he or she owns the property; provides the least amount of protection because only grantor's interest is conveyed Recording statute- state statute that requires a mortgage or deed of trust to be recorded int eh county recorder's office of the county in which the real property is located Quiet title action- brought by a party, seeking an order of the court declaring who has title to disputed property