Accounting Exam 1 Business Law

Branches of US Government:

Legislative Branch:

Congress → Senate and House of Representatives

Executive Branch:

President, Vice President, and the Cabinet (like Secretary of State, Defense, etc)

Judicial Branch:

Surprise Court and other Federal Courts

Checks and Balances:

Legislative: passes laws

• Must be signed by the president who can veto the legislation

• Federal courts can declare an act if Congress unconstitutional

Executive: enforces laws

• President and Vice-President can be impeached

• Congress provides funding for government

Judicial: interprets laws

• Judges can be removed from office for certain acts

• Nominated by President, confirmed by Senate

Sources of Law:

Statutory Law: Laws made by the legislature

Administrative Law: Laws made by government agencies

Common Law: Laws made by judges through court decisions

Classifications of Law:

Common Law vs Statutory & Administrative Law

Civil Law vs Criminal Law

Substantive Law vs Procedural Law

Classifications of Sources of Law:

Statutory: Passed by a legislature

Administrative law: Law created by government agencies (federal and state law)

Common law: Created by judges and/or legal custom

Extra Information good to know:

Federal law= Congress. Environment Protection Agency

State Level= State legislature. Department of Natural Resources

Common Law: can apply when we don’t have statute or any administrative law to apply. Can be overruled by Statutory or Administrative law.

Precedent:

The outcome prescribed by a court in a certain type of case.

• Sometimes courts will decide not to follow precedent or even overrrule it

• Sometimes there is no precedent (“Case of 1st Impression”)

Stare Decisis:

Common law doctrine which states that a court must follow precedent

Binding Authority:

Means a legal rule or decision that a court must follow when deciding a case.

Simple Terms: It’s a law or court decision that is mandatory, not optional, for that court.

Lawsuit Remedies:

Remedy: relief given an innocent party

Remedy at law (think money): a remedy provided by a court in a form other than equitable relief the most common being money damages.

Equitable Remedies: awarded by a Court of Equity in England

• Recession (need a contract): to undo a contract

• Specific performance (to do something): to do a thing

• Injunction (stop doing something): court order to refrain

Coase Theory

Not an ethical theory. But a substitute for deciding what’s right and wrong.

• Economic theory developed by Ronald Coase

• Parties bargain for the outcome they want

Ethical Decision Making Theories:

Religion:

• 10 Commandments

• Golden Rule: “Do unto others as you would have them to do unto you”

Kantian Philosophy:

• Categorical imperative: what would happen if everyone acted this way?

Utilitarianism: Often referred to as a cost/benefit analysis

Utilitarianism

Greatest good

1st) Determine of which individuals will be affected by the action in question

2nd) Assess the negative and positive consequences those individual will realize

3rd) Choose the outcome that will provide the greatest amount of benefit to the greatest number of individuals

Often referred to as a dose/benefit analysis

Whistleblower:

Is a person who reports behavior by their employer that they believe is illegal.

Internal Controls:

• Create a Strong Tone at the Top

• Engage in Periodic Employee Reviews

• Establish Separate Employee Responsibility

• Institute Physical Controls

• Perform a Periodic Review of Safeguards and Risks.

Maximum Profits:

Means the company is trying to make the most money

Optimal Profits:

Means well they want to make money, but only to the extent they can do so effort.

Corporate Governance:

Is the process by which a corporation governs its operations and decision making processes.

Most publicly traded companies have board of directors, executive management team, and managers who make various decisions for the company. They are bound by

• Articles of Incorporation

• Corporate bylaws

• Corporate code of ethics

Personal Jurisdiction (main focus):

Jurisdiction over a defendant

Personal Jurisdiction:

Methods for exercising personal jurisdiction

1) Defendant is a resident of the state

2) Defendant found in the state and served

3) Defendant consents to jurisdiction

4) Long-arm statute (defendant did the bad act there) applies, and minimum contacts (means sufficient number of contacts to be fair for defendant) exist

Only needs to be 1 of the 4

All about being fair to the defendant

Subject Matter Jurisdiction:

Refers to whether the court use authority over the specific matter in controversy.

Exclusive Federal Jurisdiction:

Patents, copyrights, federal antitrust and federal bankruptcy

Exclusive State Jurisdiction:

All matters not subject to federal jurisdiction

Concurrent Jurisdiction:

Two or more courts have jurisdiction

• Cases involving federal questions

• Cases involving diversity of citizenship

Venue (which one of the state courts):

The geographic district in which an action is tried and firm which the jury is selected

• State courts: county where defendant resides, or wrongful act is alleged to have occurred

• Federal Court:

• Diversity of citizenship: look to where defendant lives, or any one defendant lives

• If matter of federal law: where defendant lives or where the wrong allegedly occurred

In Rem Jurisdiction (deal with land):

Jurisdiction over property not necessarily the defendant

Complaint:

Pleading made by plaintiff that initiates a lawsuit in court

Answer:

The defendant’s response to the complaint

Default Judgement (always open your mail):

What happens when a defendant fails to answer

Motion to Dismiss:

A pleading in which defendant asserts that the plaintiff’s claim fails to state a cause of action, or improper venue or service

Summary Judgement:

Is when a judge decides a case without a trial because there no disputed facts and the law clearly favors one side

Motion for Summary Judgement:

• Motion for judgement before trial based on pleadings and other outside evidence including depositions

• Usually occurs toward the end of discovery

Motion for judgement on pleadings:

• Motion by either party that asks the court to rule on the case before trial

• No dispute exists

Deposition:

Testimony of a party to a lawsuit or a witness under oath (can take days).

Interrogatories:

Written questions that are delivered to the opposing side

Voir Dire:

Jury Selection: Voir Dire (selection of jurors). Juror may be struck

• Peremptorily (struck from duty, don’t have to say why you are struck from jury duty)

• For cause (certain reasons to get out of jury duty, lawyers don’t want atttorneys in jury duty).

Bench Trial:

Judge is the trier of fact

Trier of fact: is the person or group who decides what actually happened in a case by evaluating the evidence. In simple terms it’s the judge or jury who figures out the facts

Jury Trial (not always there):

Jurors are the trier of fact

Trier of fact: is the person or group who decides what actually happened in a case by evaluating the evidence. In simple terms it’s the judge or jury who figures out the facts

Hearsay evidence:

No hearsay:

• Hearsay is a statement made by a party who is not under oath

• There are expeditions to the hearsay rules

Judgement N.O.V:

N.O.V= Notwithstanding

Motion for the judgement before trial to set aside the jury verdict and enter settlement for the party adversely affected/making motion

Garnishment: garnish wages

Is when a part of a persons wages or money is legally taken to pay debt.

In simple terms: it’s money taken from your paycheck to pay someone you owe

Levy:

Court action of seizing assets

Statute of Limitations:

How long do you have to commerce a case?

• 2 years is common statute of limitations if contracts or torts case

• Malpractice in Iowa:

• 2 years after discovered or should have discovered

• 6-year cap

Negotiation (doesn’t require 3rd party):

• The parties to a lawsuit try to negotiate a settlement with or without lawyers

• 90% or more or all civil cases are settled

Mediation (3rd party, get to settle):

(doesn’t have to abide by negotiation with 3rd party)

The parties to a lawsuit bring in a neutral third party who tries to find common ground between the two parties

Arbitration:

(Also has a 3rd party have to agree, if you agree you can’t switch)

The parties use a neutral third party to find common ground but is more certain to produce a final, legally binding resolution.

Arbitration:

More info

If you agree to arbitration you are stuck unless it’s unfair

• Also uses a neutral party but with arbitration the settlement is usually binding

• Arbitration will not be court ordered unless the court believes both parties consented, and the arbitration process is not unfairly one-sided

• Still may have to file a claim in court to compel arbitration if the other party refuses arbitration

State Action:

Is when the government or a government official is involved in doing something that affects a persons rights.

In simple terms: it means the government did it, not a private individual

Checks and Balances:

Legislative: passes laws

• Must be signed by the President who can veto the legislation

• Federal courts can declare an act of Congress unconstitutional

Executive: enforces laws

• President and vice president can be impeached

• Congress provides funding for government

Judicial: interprets laws

• Judges can be removed from office for certain acts

• Nominated by President, confirmed by Senate

Commerce Clause:

Under Article 1, Section 8, Clause 3, of the U.S Constitution, the federal government has the power to “regulate Commerce with foreign Nations, and among the several States.”

• Congress can regulate “interstate” not “intrastate” commerce.

• Under 10th amendment the states have police power (tells states you have certain power to regulate health, safety and morals.)

• Dormant commerce clause- states do not have the authority to regulate interstate commerce

Gives Congress the power to regulate interstate commerce (business between states)

Business example: Federal laws about trucking, shipping, or online sales across states

Dormant Commerce Clause:

Even if the federal government government decided not to regulate interstate

Even when Congress does nothing, states still can’t pass laws that unfairly block or burden interstate business.

Business example: state can’t ban products just because they come from another state

Police Power:

10th Amendment

10th Amendment “powers not delegated to the United States by the Constitution, nor prohibited by it to the states are reserved to the states…”

• Often characterized as the right to regulate “health, safety and morals.”

• If state laws burden interstate commerce, the courts must balance the interest of the state with its effect on interstate commerce

States have the power to regulate for health, safety, and welfare.

Business example: state laws on licensing, safety rules and zoning.

Privileges and Immunities Clause:

• Article 4 prohibits states from arbitrarily discriminating against citizens of another state.

• If a state laws does not unconstitutionally discriminate under the Privileges and Immunities clause, then it might still be challenged under the commerce clause

• Standard: burdens cannot exceed benefits

States must treat citizens of other states fairly when it comes to basic rights like working or owning property.

Business Example: a state can’t say only residence can start certain businesses

Supremacy Clause:

Found under Article 6

• Preemption

• Doctrine which allows certain federal laws to take precedence or preempt certain state laws

• Congress must intend to preempt state law

• Congress must have the power to regulate the given area

Federal law beats state law when they conflict

Business example: If federal tax law and state law conflict, federal law wins.

Taxing and Spending Powers:

Article 1 Section 8- Congress has the “Power to lay and collect Taxes, Duties, Imposts and Excises.”

• Today Congress indirectly regulate certain areas with taxing power. (Tax must bear reasonable relationship to revenue production.)

• Sixteenth Ambedment allows for an income tax

• Article 1 Section 8 also gives Congress the power to spend. This results in more indirect regulation.

Full, Faith, and Credit

Article 4 Section 1

• Deeds, contracts, and other instruments established in one state shall be honored by other states

• Judicial judgements will be honored by other states

States must honor other states laws and court decisions.

Business example: A contract valid in one state is usually recognized in another

Freedom of Religion:

The Establishment Clause:

• No state sponsored religion:

• In God, we trust?

• Sunday Closing Laws

• Ten Commandments?

Free Exercise Clause:

• Government generally cannot restrict religious practices:

• Employers must accommodate their employees to an extent under federal law.

• Government can still force you to do certain things, even if you say it is against your religion

Central Hudson Case Factors:

4 Criteria

• The speech must be protected by the first amendment

• Government restriction must seek to implement a substantial government interest

• It must directly advance that interest

• It must go no farther than necessary to advance that interest

Equal Protection:

The government must treat people fairly and equally. I can’t unfairly favor or discriminate against her in groups without a good reason.

Business example: A state can’t tax only out of state businesses just because they’re from another state

Levels of Scrutiny:

Rational Basis: lowest level of scrutiny.

• Rational basis for believing government action will further a legitimate interest

• Applied in cases involving commerce clause, and equal protection when no suspect class is involved

Strict Scrutiny: highest level of scrutiny.

• Compelling interest or government action and no less restrictive means

• Applied in cases involving freedom of religion, freedom of expression where content is suppressed, and equal protection when race, national origin or alienage is involved

Intermediate Scrutiny: somewhere in between rational basis scrutiny and strict scrutiny.

• Government action must be furthering, an important government interest, and is substantially related to the government’s objective

• Examples: include freedom of expression where content is not being suppressed (but forum is) or equal protection cases involving legitimacy or gender

Equal protection under the 5th and 14th Amendments:

Equal protection means the government cannot arbitrarily discriminate against one class of citizens versus another

Strict Scrutiny:

• Race, national origin, alienage

• Ex: People of Dutch descent are required to be vaccinated for mumps

Intermediate Scrutiny:

• Gender & Legitimacy

• Ex: Males and females are required to have different dormitories at a state funded university

Minimal Scrutiny: (aka rational basis scrutiny)

• Ex: dress code for cab drivers

Eminent Domain:

Government must provide compensation for property taken under their power of eminent domain

Probable Cause:

Police have enough facts to believe a crime probably happened

Example: Needed for arrest warrants or searches

Reasonable Suspicion:

Government to question someone

Lower standard than probable cause police have a reason reasonable reason to suspect wrongdoing

Example: Allow brief stops or questioning

1st Amendment:

Protects:

• Freedom of speech

• Religion

• Press

• Assembly

• Petition

Business example: Advertising speech has some protection

14th Amendment:

• Applies constitutional rights to the states

• Include due process and equal protection

Business example: states must follow fair procedures when regulating businesses

Motion in Limine:

A request to the judge to keep certain evidence out of trial.

Example: Preventing irrelevant or unfair information from being shown to a jury

Motion for Summary Judgement: Simplified

Judge decides the case before trial because

• No facts are disputed

• Only legal issues remain

Example: contract terms are clear and uncontested

Motion for judgement on pleadings: Simplified

Judge decides based only on the written documents filed, assuming facts are true

Key differences:

• Summary judgement can use evidence

• Judgment on pleadings uses only filings

Bench Trial:

• Judge decides the case

• No jury

Jury Trial:

Jury decides the facts

Judge handles the law

Interstate vs Intrastate

Interstate: Between states (federal rules apply)

Intrastate: Within one state (state rules apply)

Precedent: Simplified

Past court decisions that guide future cases.

Business example: Court follows earlier contract rulings

The outcome prescribed by a court in a certain type of case.

Sometimes courts will decide not to follow precedent or even overrule it.

Statutes: Simplified

Laws passed by legislature (Congress or state law makers)

Regulations: Simplified

Rules made by government agencies to enforce statutes

Example: IRS rules, SEC regulations

Executive order: Simplified

Directives issued by the President or a governor

Federal Court: Simplified

Handles

• Federal laws

• Interstate disputes

• Constitutional issues

State Court: Simplified

Handles

• State laws

• Most contracts, property, and business disputes

Federal Law Recap:

Most Authority to Least Authority:

• United States Constitution

• Statues passed by Congress (Congress creates statutes) (House of Representatives and Senate)

• Regulations passed by federal agencies (Federal agencies create regulations)

• Precedent created by federal judges (Federal common law, created= common law)

State Law Recap:

• State constitutions

• Statues passed by state legislatures

• Regulations passed by state agencies

• Ordinances passed by counties or cities

• Precedent created by state judges (created= common law)