BUS LAW EXAM II

Express Authority

Authority declared in clear, direct, and definite terms; can be given orally or in writing

Priority for Buyers in the Ordinary Course of Business

A buyer in the ordinary course will have priority even if a previously perfected security interest exists as the goods; if buyers could not obtain the goods free and clear of any security interest the merchant had created, the flow of goods in the marketplace would be hindered

Apparent Authority and Estoppel

A court can apply the doctrine of agency by estoppel when a principal has given a third party reason to believe that an agent has authority to act; the principal may be prevented from denying that the agent had authority

Order for Relief (Voluntary)

A court's grant of assistance to a petitioner; once a consumer-debtor's voluntary petition has been filed, the trustee and creditors must be given notice of the order of relief not more than twenty days after entry of the order

Disparate Treatment Discrimination

A form of employment discrimination that results when an employer intentionally discriminates against employees who are members of protected classes

U.S. Trustee

A government official who performs administrative tasks that a bankruptcy judge would otherwise have to perform

Priority for PMSI in Inventory

A perfected PMSI in inventory has priority over a conflicting security interest in the same inventory; the holder of the PMSI must notify the holder of the conflicting security interest on or before the time the debtor takes possession of the inventory

Perfected Security Interest vs. Unsecured Creditors/Unperfected Security Interests

A perfected secured party's interest has priority over the interest of most others

Agency by Ratification

A person who is in fact not an agent makes a contract on behalf of another; if the principal approves of affirms that contract by word or by action, an agency relationship is created

Liability for Agent's Misrepresentation

A principal is exposed to tort liability whenever a third person sustains a loss due the agent's misrepresentation; the principal is always directly responsible for an agent's misrepresentation made within the scope of the agent's authority

Principal's Tortious Conduct

A principal who acts through an agent may be liable for harm resulting from the principal's own negligence and recklessness

Principal's Authorization of Tortious Conduct

A principal who authorizes an agent to commit a tort may be liable to persons or property injured thereby, because the act is considered to be the principal's; an agent can be liable here as well

Disclosed Principal

A principal whose identity is known by the third party at the time the contract is made by the agent

Property Not Exempt from Bankruptcy (Federal)

Bank accounts, cash, family heirlooms, collections of stamps and coins, second cars, and vacation homes

Bankruptcy Courts

Bankruptcy proceedings are held in federal bankruptcy courts, which are under the authority of US district courts; can be appealed to district courts

FUTA Eligibility (Unemployment)

Created a state-administered system that provides unemployment compensation to eligible individuals who have lost their jobs; a worker must be willing and able to work; workers must be actively seeking employment to continue receiving benefits; workers fired for misconduct or who have voluntarily left their jobs are not eligible

Unauthorized Acts

If an agent has no authority but contracts with a third party, the principal cannot be held liable on the contract; agent is liable

Partially Disclosed Principal

A principal whose identity is not known by the third party; nevertheless, the third party knows that the agent is or may be acting for a principal at the time the contract is made

Writ of Attachment

Attachment refers to a court-ordered seizure and taking into custody of property before a judgment is obtained on a past-due debt; different from secured transactions

Attachment Procedures

1. Creditor files an affidavit with the court stating the debtor failed to pay and indicates the statutory grounds under which attachment is sought; 2. The creditor must post a bond to cover at least the court costs, the value of the property attached, and the value of the loss of use of that property suffered by the debtor; 3. Court issues writ of attachment that directs the sheriff to seize the debtor's nonexempt property; property can be sold to satisfy judgment

Involuntary Bankruptcy Requirements

1. If the debtor has twelve or more creditors, three or more of these creditors having unsecured claims totaling at least $15,325 must join in the petition; 2. <12 creditors, one or more creditors having a claim totaling $15,325 may file

Exceptions to Automatic Perfection

1. Many jurisdictions have certificate-of-title statutes that establish perfection requirements for security interest in certain goods such as cars, trailers, boats, mobile homes, and farm tractors; 2. PMSI in non-consumer goods, such as business's inventory or livestock

Requirements for Receiving Workers Comp

1. The existence of an employment relationship and 2. An accidental injury that occurred on the job or in the course of employment, regardless of fault

3 Requirements for a Creditor to have an Enforceable Interest

1. Unless the creditor has possession of the collateral, there must be a written or authenticated security agreement that clearly describes the collateral subject to the security interest; 2. Secured party must give the debtor something of value; 3. Debtor must have rights in the collateral

Drug Testing (Public)

4th amendment protects against unreasonable searches and seizures, unless testing is required for public safety (transpo workers)

Undisclosed Principal

A principal whose identity is totally unknown by the third party; in addition, the third party has no knowledge that the agent is acting in an agency capacity at the time the contract is made

Loyalty

Agent has a duty to act solely for the principal's benefit

Notification

Agent is required to notify the principal of all matters that concern the subject of the agency

Obedience

Agent must follow all lawful and stated instructions from the principal

Accounting

Agent must provide records of all property and funds received or paid out on the principal's behalf; this includes gifts from third parties in connection with the agency; the agent has a duty to maintain a separate account for the principal's funds and must not intermingle these funds with the agent's personal funds

Performance

Agent must use reasonable diligence and skill when performing duties; when an agent fails to perform his or her duties, liability for breach of contract may result, unless gratuitous (without pmt), until agency duties have begun

Drug Testing (Private)

Allowed by state law

Agent's Rights and Remedies against the Principal

An agent can withhold former performance and demand that the principal given an accounting; when the principal-agent is not contractual, the agent has no right to specific performance; remedies of the agent for breach of duty by the principal follow normal contract and tort remedies

Implied Authority

An agent has the authority to do what is reasonably necessary to carry out express authority and accomplish the objectives of the agency

Liability for Agent's Crimes

An agent is liable for his or her own crimes; a principal or employer normally is not liable for an agent's crime even if the crime was committed within the scope of authority or employment, unless principal participated in crime

Liability for Agent's Negligence

An agent is liable for his/her own torts; a principal may also be liable for farm an agent causes; the principal-employer is liable for any harm caused to a third party by an agent-employee in the course or scope of employment

Security Agreement

An agreement that creates or provides for a security interest

Business Necessity Defense

An employer may defend against a claim of disparate-impact discrimination by asserting that a practice that has a discriminatory effect is a business necessity

Priority for PMSI in Goods Other than Inventory and Livestock

An important exception to the first in time rule involves a perfected PMSI in certain types of collateral, such as equipment, that is not inventory or livestock; PMSI not in CG must still be perfected

Secured Party

Any creditor who has a security interest in the debtor's collateral; this creditor can be a seller, lender, a cosigner, or even a buyer of accounts or chattel paper

Overtime

Any employee who works more than 40 hours per week must be paid no less than 1.5 times regular pay for all hours worked over 40; executive, administrative, and professional employees, outside salespersons, and computer coders are exempt from the OT provision

Principal's Rights and Remedies against the Agent

Anything that an agent obtains by virtue of the employment or agency relationship belongs to the principal; when an agent breaches the agency agreement under a contract, the principal has a right to avoid any contract entered into with the agent; when a principal is sued by a third party for an agent's negligent conduct, the principal can sue the agent for an equal amount of damages

Apparent Authority

Arises from what the principal causes a third party to believe; when the principal, by either word or action, causes a third party reasonably to believe that the agent has authority to act, even though the agent has no express or implied authority

Garnishment Procedures

Can be a prejudgment remedy, requiring a hearing before a court, but it is most often a postjudgment remedy; governed by state law; some states, judgment creditor needs to obtain only one order of garnishment, which applies continuously to the judgment debtor's wages until the entire debt is paid; other states, the judgment creditor must go back to court for a separate order of garnishment each pay period

After Acquired Evidence of Employee Misconduct

Cannot shield an employer entirely from liability; may be used to limit the amount of damages for which the employer is liable

Exemptions to Discharge

Claims for back taxes accruing within two years prior to bankruptcy, claims for amounts borrowed by the debtor to pay federal taxes or any non-dischargeable taxes, claims against property or funds obtained by the debtor under false pretenses or by false representations, claims by creditors not notified of the bankruptcy, claims based on fraud, domestic support obligations, claims for amounts due on retirement account loan, claims based on willful malicious conduct by the debt toward another, government fines and penalties, student loans (unless pmt imposes undue hardship), consumer debts of more than $650 for luxury goods, etc.

Distribution to Unsecured Creditors

Claims for domestic support obligations have the highest priority among unsecured creditors, so these are paid first; each class or group must be fully paid before the next class is entitled to any of remaining proceeds; if there are insufficient proceeds to fully pay all the creditors in a class, the proceeds are distributed proportionately to the creditors in that class; lower classes receive nothing

Principal's Duties to the Agent

Compensation, reimbursement and indemnification, cooperation, and safe working conditions

Bona Fide Occupational Qualification (BFOQ) Defense

Discrimination against a protected class is essential to a job; race, color, and national origin can never be BFOQs

Workers' Compensation

Establish an administrative procedure for compensating workers injured on the job; typically, domestic workers, agricultural workers, temporary employees, and employees of common carriers are excluded; minors are covered

Fair Labor Standards Act (FLSA)

Extended wage-hour requirements to cover all employers engaged in interstate commerce or in producing goods for interstate commerce

Laws Limiting the Amount of Wages Subject to Garnishment

Federal law provides a minimal framework to protect debtors from losing all their income to pay judgment debts; state law provide exemptions often larger than federal law; under fed law an employer cannot dismiss an employee because his or her wages are being garnished

Lie-Detector Tests

Generally prohibited from requiring employees or job applicants to take lie-detector tests or suggesting or requesting that they do so; federal, state, and local government employers and certain security service firms may conduct polygraph tests

Quid Pro Quo

Harassment occurs when sexual favors are demanded return for job opportunities, promotions, salary increases, or other benefits

Property Exempt from Bankruptcy (Federal)

Homestead exemption, motor vehicles, reasonably necessary clothing, household goods and furnishings, and household appliances, jewelry to a certain value, tools of the debtor's trade or profession, a portion of unpaid but earned wages, pensions, public benefits, and damages aware for personal injury

Homestead Exemption

If the debtor acquired the homestead within three and a half years preceding the date of filing, the maximum equity exempt is $155,675; only available if the debtor has lived in a state for two years before filing the bankruptcy petition; debtors violating securities laws, being convicted of a felony, or engaging in other intentional misconduct may not claim the homestead exemption

Remedies under Title VII

If the plaintiff successfully proves that unlawful discrimination occurred, he or she may be awarded reinstatement, back pay, retroactive promotions, and damages; compensatory damages are available only in cases of intentional discrimination; punitive damages may be recovered against a private employer only if the employer acted with malice or reckless indifference to an individual's rights

Occupational Safety and Health Act (OSHA)

Imposes on employers a general duty to keep the workplace safe; the act requires employers to post certain notices in the workplace, maintain specific records, and submit reports

Garnishment Rule

It is only necessary that the property is not exempt from garnishment and is in the possession of a third party

Seniority Systems Defense

May have a defense against a discrimination suit if promotions or other job benefits have been distributed according a fair seniority system

The Uniform Enforcement of Foreign Judgments Act

Most states have adopted; allows judgments in one jurisdiction to be "domesticated" in a different jurisdiction

Minimum Wage

Provides that a minimum wage of $7.25 per hour must be paid to covered nonexempt employees

Liability for Independent Contractor's Torts

Not liable for physical harm caused to a third person by the negligent act of an independent contractor in the performance of the contract; exception when the contract involves unusually hazardous activities

Hostile Environment Harassment

Occurs when a pattern of sexually offensive conduct runs through the workplace and the employer has not take steps to prevent or discourage it

Involuntary Bankruptcy

Occurs when the debtor's creditors force the debtor into bankruptcy proceedings; cannot be filed against a charitable institution or a farmer

Ratification

Occurs when the principal affirms, or accepts responsibility for, an agent's unauthorized act; the principal is bound to the agent's act and the act is treated as if it had been authorized by the principal from the outset

Undisclosed Principal Performance

Once the undisclosed principal's identity is revealed, the third party generally can elect to hold either the principal or the agent liable on the contract

Garnishment

Permits a creditor to collect a debt by seizing property of the debtor that is being held by a third party

Unauthorized Acts Effect

Principal and third party are not bound in contract-unless the principal ratifies prior to the third party's withdrawal

Partially Disclosed Principal Liability

Principal is liable to a third party for a contract made by the agent; in most states the agent is also treated as a party to the contract; thus, the third party can hold the agent liable for contractual performance

Disclosed Principal Liability

Principal is liable to a third party for a contract made by the agent; the agent has no contractual liability for the nonperformance of the principal or the third party

Principal Does Not Ratify Contract

Principal is not bound, and the third party's agreement with the agent is viewed as merely an unaccepted offer; since it is an unaccepted offer, the third party can revoke at any time, without liability, before the principal ratifies the contract

Cooperation

Principal must cooperate with and assist an agent in performing his or her duties

Compensation

Principal must pay the agreed-on (or reasonable) value for the agent's services

Safe Working Conditions

Principal must provide a safe working environment for agents and employees

Reimbursement and Indemnification

Principal must reimburse the agent for any funds paid out at the principal's request, as well as for necessary expenses

Title VII

Prohibits job discrimination against employees, applicants, and union members on the basis of race, color, national origin, religion, and gender at any stage of employment; applies to employers with 15+ employees and labor unions with 15+ members

Chapter 7

Provides for liquidation proceedings (the selling of all non-exempt assets and the distribution of the proceeds to the debtor's creditors)

Disparate Impact Discrimination

Results from certain employer practices or procedures that, although not discriminatory on their face, have a discriminatory effect

Debtor in Possession

Role is similar to that of a trustee; entitled to avoid preferential payments made to creditors and fraudulent transfers of assets; has the power to decide whether to cancel or assume pre-petition executory contracts or unexpired leases

Automatic Stay

Suspension of all actions by creditors against the debtor or debtor's property; prohibits creditors from taking any act to collect, assess, or recover a claim against the debtor that arose before the filing of the petition

Employee Privacy Protection

The Electronic Communications Privacy Act prohibits employers from intercepting an employee's personal electronic communications unless they are made on devices and systems furnished by the employer; private employers can block access to certain Websites (sexually explicit images); government employers cannot restrain free speech by blocking Websites

Agent's Duties to the Principal

The agent owes five principal duties- performance, notification, loyalty, obedience, and accounting

Order for Relief (Involuntary)

The bankruptcy court will enter an order for relief if it finds either: 1. The debtor is not paying debts as they come due or 2. A general receiver, assignee, or custodian took possession of, or was appointed to take charge of, substantially all of debtor's property within 120 days before filing of the petition

General Rule of Priority

The basic rule is that when more than one security interest has been perfected in the same collateral, the first to be perfected (or filed) has priority over any perfected later; if none of the security interests have been perfected, then the security interest that attaches has priority

Reorganizations (CH 11)

The creditors and debtors formulate a plan under which the debtor pays a portion of the debts and is discharged of the remainder; allowed to continue in business; any debtor who is eligible for CH 7 relief is eligible for CH 11 relief, including railroads

Garnishable Property

The debtor's employer may be ordered by the court to turn over a portion of the debtor's wages to pay the debt; also funds in a bank account, tax refunds, pensions, and trust funds

Liability for Agent's Intentional Torts

The employer can be liable for intentional torts that an employee commits within the course and scope of employment

Agency Relationships

The fiduciary relation [that] results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act

Conflicting Unperfected Security Interests

The first to attach (be created) has priority; "first in time" rule

Conflicting Perfected Security Interests

The first to perfect (by filing or taking possession of the collateral) has priority

Financing Statement

The instrument normally filed to give public notice to third parties of the secured party's security interest

Security Interest

The interest in the collateral (such as personal property, fixtures, or accounts) that secures payment or performance of an obligation

Voluntary Bankruptcy Pre-Filing

The law requires before debtors can file a petition, they must receive credit counseling from an approved nonprofit agency within the 180 day period preceding the date of filing

Perfection of a Security Interest

The legal process by which secured parties protect themselves against the claims of third parties who may wish to have the debts satisfied out of the same collateral; usually accomplished by filing a financing statement

Perfection by Attachment (PMSI in Consumer Goods)

The most common security interest that is perfected automatically is the PMSI in consumer goods; created when a seller or lender agrees to extend credit to a buyer for part or all of the purchase price of the goods in a sales transaction

Debtor

The party who owes payment or other performance of a secured obligation

Attachment (Secured Interest)

The process by which a security interest in the property of another becomes enforceable; attachment gives the creditor an enforceable security interest in the collateral

Distribution of Property to Secured Creditors

The secured party has priority over unsecured parties as to the proceeds from the disposition of collateral; should the collateral be insufficient to cover the secured debt owed, the secured creditor becomes an unsecured creditor for the difference (deficiency)

Collateral

The subject of the security interest

Sexual Harassment

Title VII protects employees against sexual harassment in the workplace

Workouts

To avoid bankruptcy proceedings, creditors may prefer private negotiated adjustments of creditor-debtor relations

Creditor's Claims for Bankruptcy

To be entitled to receive a portion of the debtor's estate, each creditor normally files a proof of claim with the bankruptcy court within 90 days of the creditors' meeting; necessary if there is any dispute concerning the claim

Goals of Bankruptcy Law

To protect a debtor by giving him or her a fresh start without creditors' claims and to ensure equitable treatment of creditors who are competing for a debtor's assets; attempts to balance the rights of both

Innocent Misrepresentation

Tort liability based on fraud requires proof that a material misstatement was made knowingly and with the intent to deceive; an agent's innocent misstatements in a contract or warranty transaction can also provide grounds for the third party's rescission of the contract and the award of damages

Undisclosed Principal Indemnification

When a party's identity is undisclosed and the agent is forced to pay the third party, the agent is entitled to be compensated by the principal

Undisclosed Principal Liability

When neither the fact of an agency relationship nor the identity of the principal is disclosed, the undisclosed principal is bound to perform just as if the principal had been fully disclosed at the time the contract was made

OSHA Bodily Harm

Whenever a work-related injury or disease occurs, employers must make reports directly to OSHA; if an employer dies or three or more employees are hospitalized related to a work incident, OSHA must be notified within 8 hours