Business Law Exam 2

U.S Criminal Law

• A person accused of a crime is presumed innocent until proven guilty

• The burden of proof is on the government

• The accused must be found guilty beyond a reasonable doubt

• Conviction requires a unanimous jury vote

• The accused is provided with constitutional safeguards during the criminal justice process

• Business crimes committed by managers and employees can include fraud, bribery, and cybercrimes

Crime

Any act done by an individual in violation of the duties that the individual owes to society

• The violation of which the law provides that the person convicted of a crime make amends to the public

Penal code

Collection of criminal statutes

• States have adopted comprehensive penal codes

• Define activities considered to be crimes and penalties

• Federal criminal code defines federal crimes

Parties to a criminal action

• Plaintiff: The government

• Defendant: The accused

• The government is represented by a prosecutor

• The accused is represented by a defense attorney

• Public defender: Government defense attorney

Criminal penalties

Criminal Penalties

• Criminal fines

• Imprisonment

Imprisonment is imposed in order to:

• Incapacitate the criminal

• Provide a means of rehabilitation

• Deter others from similar conduct

• Inhibit personal retribution by the victim

Criminal defense acts as a basis for tort actions

• An injured victim of a crime or a deceased relative may bring a civil action against the wrongdoer

Classification of crimes

• Felonies: Inherently evil - mala in se

• Punishable by imprisonment, certain felonies are punishable by death

• Many states define different degrees (e.g., first-, second-, and third-degree)

• Misdemeanors: Not inherently evil, but are prohibited by society mala prohibita

• Punishable by fines and/or imprisonment for less than a year

• Violations: Generally punishable by fines

Intent crimes

Criminal act (actus reus)

• Omission of an act can constitute the requisite guilty act

• Criminal intent (mens rea)

• Types include specific and general intent crimes

Specific intent crime

• The person accused of the crime intended to achieve a specific result from the illegal act

• Arson, forgery, fraud, premeditated murder

General intent crime

• Person either knew or should have known their actions would result in harm

• Assault and battery

Non intent and strict liability crimes

Non-intent crimes

• Imposes criminal liability without a finding of intent

• Imposed for reckless or grossly negligent conduct that causes injury to another person

• Involuntary manslaughter is a non-intent crime

Strict Liability Crimes

• A crime that imposes criminal liability for the commission of a prohibited act without requiring proof of intent, recklessness, or grossly negligent conduct

Arrests and warrantless arrests

Arrest

• Police must obtain an arrest warrant based on showing probable cause

• Substantial likelihood that the person committed or will commit a crime

Warrantless arrests allowed when police arrive during:

• Commission of crime

• A person is fleeing from the scene of a crime

• A situation where evidence is likely to be destroyed

Booking

The administrative procedure for recording an arrest and collecting other information from the suspect

Bail and bail bonds

Often set by the court for release pending trial

Indictment or information

An accused is formally charged with a crime by:

• Information Statement: Charge of having committed a crime based on the judgment of a magistrate and probable cause

• Indictment: Charge of having committed a crime, based on the judgment of a grand jury

• Grand jury: Determines whether there is enough evidence to hold the accused while awaiting trial and issues an indictment

Arraignment

Proceeding during which:

• Accused informed of all charges

• Asked to enter a plea – Guilty or Not Guilty or Nolo Contendere

Plea bargain

Negotiations prior to trial with the intent of avoiding a trial

Plea bargain agreement

An agreement in which the accused admits to a lesser crime than charged

• Government agrees to impose a lesser sentence than might have been obtained if tried

• Often done to avoid the risk of trial and/or the costs

• 95 percent of criminal cases are plea bargained

Criminal trial

Criminal Trial

• Verdict must be a unanimous decision

• The accused cannot be found guilty even if one juror doubts the guilt of the accused

• Hung jury is a jury that cannot come to a unanimous decision about the defendant’s guilt

• Convicted defendant can appeal

• But, if the defendant is found not guilty, the government cannot appeal

Murder

• Unlawful killing of a human being by another person without justification

• Different degrees of murder depending upon the level of intent

• First-degree murder – Intentional with premeditation, malice aforethought, and a willful act

• Second-degree murder – Not premeditated or planned

• Voluntary manslaughter – Crime of passion

• Involuntary manslaughter – Unintentional killing caused by a reckless or negligent act

Felony murder rule

Murder committed during the commission of any felony may be prosecuted as murder

• Intent to commit murder is inferred from intent to commit another crime

Robbery and burglary

Robbery

• The taking of personal property from another person by use of fear or force

• If a weapon is used, it is considered armed robbery

Burglary

• “Breaking and entering a dwelling at night” with intent to commit a felony

• Modern penal codes have a broadened definition to be the taking of personal property from another’s home, office, or commercial or other type of building

Larceny

• Wrongful and fraudulent taking of another person’s personal property that does not require force or entry into a structure

• Some distinguish between grand and petit larceny, based on the value of property taken

Theft

Some states group robbery, burglary, and larceny together under the general crime of theft

Receiving stolen property

• Knowingly receiving stolen property with the intention of depriving the rightful owner of that property

• Can be tangible property or intangible property (cryptocurrency, intellectual property)

Arson

• Malicious or willful burning of another’s dwelling

• The latest law applies to burning all types of structures

• Includes willful burning by the structure’s owner

Bribery

Crime in which one person gives another person anything of value for a favor in return

Extortion

Threat to expose something about another person unless that other person gives money or property

• Blackmail: Extortion of private persons

Criminal fraud, mail fraud, wire fraud

Criminal fraud

• Obtaining title to property through deception, trickery, or deceit (ex: Ponzi schemes)

Mail fraud

• Use of mail or other covered means of delivery (e.g., U.S. Postal Service)

Wire fraud

• Use of wires (e.g., telephone, radio, television) to defraud

• Electronic communications fraud: use of electronic communication devices and systems to defraud

• Often charged with other crimes if mail, wires, or electronic means were used to further the crime

Money laundering

“Washing” money to make it look like it was earned legitimately

Racketeer Influenced and Corrupt Organizations Act

• Criminal R I C O: A federal crime to acquire or maintain an interest in, use income from, or conduct or participate in the affairs of an enterprise through a pattern of racketeering activity

• Enterprise is defined as a corporation, a partnership, a sole proprietorship, another business or organization, or the government

• Civil R I C O: Persons injured by a R I C O violation can bring a private civil RICO action to recover for injury to business or property

Criminal conspiracy

Two or more persons enter into an agreement to commit a crime

• To be liable for criminal conspiracy

• One of the persons intending it must commit an overt act to further the crime

• Crime does not have to be committed

Regulatory statutes

Statutes that regulate various aspects of business and the environment

• Makes some violations a criminal offense

• Regulatory crimes include violations of securities, antitrust, environmental, consumer, employment, credit, bankruptcy, intellectual property, and other statutes

Corporate criminal liability

• A corporation is a fictitious legal person created by the state

• Traditionally, corporations could not be held liable for crimes

• Corporations cannot be put in prison, but are sanctioned with fines, loss of license or franchise

• Modern courts do impose criminal liability for the acts of their directors, officers, and employees of:

• Corporations, limited liability companies (LLCs), Limited liability partnerships (LLPs), limited partnerships (LPs), and limited liability limited partnerships (LLPs)

Cybercrimes

• Cybercrime: Acts perpetrated by criminals with the assistance of computers, digital devices, email, texts, internet, social media, blockchain technology, and artificial intelligence

• New laws are developed to attack digital crimes

• Identity theft: one person steals another person’s information to steal money, property, or purchase goods/services using the victim’s credit information

• Wiretap Act

• Crime to use an electronic, mechanical, or other device to intentionally intercept, disclose, or use the contents of any oral, wire, or electronic of another party at the point of transmission, while in transit, and after receipt by the intended recipient

Fourth amendments and search warrants

• Fourth Amendment protects persons and corporations from overzealous investigative activities by the government and provides protection against unreasonable search and seizure

• Reasonable search and seizure by the government is lawful

• People have the right to be secure in their persons, houses, papers, and effects

• Search warrants based on probable cause are necessary in most cases

• Government may not search businesses without a search warrant

Warrantless search and exclusionary rule

• Search is unreasonable if a search warrant is issued without probable cause or if an unjustified warrantless search

• Evidence obtained is considered tainted evidence (“fruit of a poisonous tree”)

Search of electronic information

• A person’s electronic devices contain a large amount of data from a person's social media posts, photographs, website searches, interests, and personal information

• Businesses also store large amounts of data on electronic devices

• The government can use information obtained from digital devices to prove a criminal charge

• Must establish probable cause that the information sought is relevant

• Obtain a search warrant

Search of business premises

The government does not have the right to search business premises without a search warrant

• Exception: hazardous and highly-regulated industries are subject to warrantless searches if proper statutory procedures are met

Clarifying Lawful Overseas Use of Data Act (CLOUD Act)

• Establishes rules about how tech companies must respond to warrants issued by law enforcement agencies

Fifth amendment

Fifth Amendment states that no person “shall be compelled in any criminal case to be a witness against himself”

• You cannot be compelled to give testimony against yourself

• Referred to as the privilege against self-incrimination

• Protects only natural persons who are accused of crimes

• Corporations, L L C s, etc. cannot raise this protection

Miranda rights

Rights that a suspect must be informed of before being interrogated

• Ensures that the suspect does not unwittingly give up their Fifth Amendment right

• In 1966, Miranda v. Arizona, the U.S. Supreme Court held the following be read out to suspects before interrogation:

• You have the right to remain silent

• Anything you say can and will be used against you

• You have the right to consult a lawyer and to have a lawyer present

• If you cannot afford a lawyer, a lawyer will be appointed free of charge

Attorney client privilege

• Client can tell their attorney anything about the case without fear that the attorney will be called as a witness against the client

• Either the client or the attorney can raise this privilege

• Must be in an attorney–client capacity, not as a friend or neighbor

• Other privileges: Psychiatrist/psychologist-patient privilege, Priest/minister/rabbi/imam-penitent privilege, Spouse-spouse privilege, Parent-child privilege

• No accountant–client privilege under federal law

• An accountant can be called as a witness in cases involving federal crimes (some states recognize the privilege)

Immunity from prosecution

• The government may offer a person immunity from prosecution in exchange for testimony

• Once granted, a person loses the right to assert the Fifth Amendment privilege

• Protection against double jeopardy: Fifth Amendment provides that persons cannot be tried twice for the same crime in the same jurisdictio

Sixth amendment

Sixth Amendment guarantees that:

• A criminal defendant is to be tried by an impartial jury of the state or district in which the alleged crime was committed

• To confront (cross-examine) the witnesses against the accused

• To have the assistance of a lawyer

• To have a speedy tria

Eighth amendment

Eighth Amendment protects criminal defendants from cruel and unusual punishment

• For example, it prohibits the torture of convicted persons

• Does not prohibit capital punishment (by lethal injection)

• Imposition of life imprisonment without the possibility of parole for juvenile defendants convicted of murder violates the Eighth Amendment

Introduction to capacity and legality

• Law presumes that parties have the requisite contractual capacity to enter into a contract

• Persons who do not have this capacity are:

• Minors

• Mentally incompetent

• Under the influence of drugs or alcohol

• A contract to perform an illegal act is considered void

• Including contracts against public policy and others

• Unconscionable contracts are unenforceable

Contracts with minors

• A person who has not reached the age of majority

• Does not have the maturity, experience, or sophistication needed to enter into contracts with adults

• Many states have enacted statutes that specify the age of majority

• Generally, 18 years of age

• Any age below the statutory age of majority is called the period of minority

Contracts with minors-infancy doctrine

• Infancy doctrine: Minors are allowed to disaffirm (cancel) most contracts they have entered into with adults

• The minor has the option to enforce the contract or not

• Contract is voidable by the minor, and the adult party is bound by the minor’s decision

• A voidable contract is a contract that a party (the minor) may choose to void

• A minor may not accept one part of a contract and cancel another part

Disaffirmance

• Disaffirmance: The act of a minor to rescind a contract under the infancy doctrine

• Can be done orally, in writing, or by the minor’s conduct

• Any time prior to the minor reaching the age of majority plus a “reasonable time”

• “Reasonable time” is determined on a case-by-case basis

• For a contract that has not been performed, the minor can just simply disaffirm (cancel)

If consideration has been exchanged and partially or fully performed prior to the minor disaffirming, the following rules apply:

Duty of restoration: A minor is obligated only to return the goods or property they have received from the adult in the condition it is in at the time of disaffirmance

• Even if consumed, lost, destroyed, or has depreciated in value

Duty of restitution: If a minor has transferred money, property, or other valuables to the competent party before disaffirming the contract, that party must place the minor in status quo

• Restore the minor to same position as before they entered into contract

• Returning the consideration to the minor

• If the consideration has been sold or depreciated in value, the competent party must pay the minor the cash equivalent.

• Result may be different if the minor misrepresents their age under most state laws

Emancipation

Act or process of a minor voluntarily leaving home and living apart from his or her parents

• E.g., getting married, setting up separate household, or joining the military

Necessaries of life

Food, clothing, shelter, medical care, and other items considered necessary to the maintenance of life

• Minors must pay the reasonable value of the necessaries of life for which they contract

• Based on the equitable doctrine of quasi-contract

• Many states have enacted statutes making certain contracts enforceable against minors (e.g., educational loan agreements, sports/entertainment contracts)

Contracts with mentally incompetent persons

• Law protects people suffering from substantial mental incapacity from the enforcement of contracts because they may not understand the consequences of their actions

• To be relieved of duties under a contract, the law requires a person to have been legally mentally incompetent at the time of entering the contract

• Incapable of understanding or comprehending the nature of the transaction

• Mere weakness of intellect, or slight psychological or emotional problems, do not constitute mental incompetence

Standards concerning contracts of mentally incompetent persons

• Adjudicated mentally incompetent: Declared legally mentally incompetent by a proper court or administrative agency

• A relative, loved one, or interested person requests a court hearing to determine competency

• A contract entered into by a person adjudged mentally incompetent is void

• Mentally incompetent, but have not been adjudged mentally incompetent: By a court or an administrative agency

• A contract entered into by such a person is generally voidable

Contracts with an intoxicated person

• A contract with a person who is under contractual incapacity because of the ingestion of alcohol or drugs to the point of incompetence is voidable

• The contract is not voidable by the other party if that party had contractual capacity

• Under the majority rule

• Contract is voidable only if the person was so intoxicated when the contract was entered into that they were incapable of understanding or comprehending the nature of the transaction

• Rule holds even if the intoxication was self-induced

• Once sober the intoxicated person can ratify the contract

Lawful and illegal contracts

• Lawful contract: A contract that has a lawful object

• Illegal contract: A contract that has an illegal object

• Such contracts are void

Contracts contrary to law

• Contracts to perform activities that are prohibited by statute are illegal contracts

• Ex: Usury laws - Law that sets an upper limit on the interest rate that can be charged on certain types of loans

• Intended to protect unsophisticated borrowers from loan sharks and others who charge excessively high rates of interes

Contracts in Restraint of Trade

Contracts or agreements to collude and reduce competition in markets and unreasonably restrain trade are unlawful

• Ex: Antitrust laws, such as price fixing, creating monopolies

Contracts contrary to public policy

• Contracts that have a negative impact on society or that interfere with the public’s safety and welfare are void

• Immoral contract: A contract whose objective is the commission of an act that society considers immoral

• Beliefs of society, not necessarily the views of the judge

Effect of illegality

• Generally, courts will refuse to enforce or cancel an illegal

contract and will leave the parties where it finds them

• Exceptions:

• Innocent persons who were justifiably ignorant of the law or fact that made the contract illegal.

• Persons who were induced to enter into an illegal contract by fraud, duress, or undue influence

Exculpatory agreements

An exculpatory agreement (also called a release of liability agreement) is a contractual provision that relieves one (or both) of the parties to a contract from tort liability for ordinary negligence

• Cannot be used in a situation involving willful conduct, intentional torts, fraud, gross negligence, or recklessness

• Often found in leases, sales contracts, sporting event tickets, parking lot tickets, service contracts, and alike

• Exculpatory clauses that either affect public interest or result from superior bargaining power are usually found to be void; factors considered are the activity involved, bargaining power, knowledge, experience, and sophistication

Restrictive agreements

Restrictive covenants (promises) that are designed to protect employers from current employees, past employees, and others from misusing secret or proprietary knowledge gained during employment

• Nondisclosure agreement

• Noncompetition agreement

• Non-solicitation agreement

Nondisclosure agreement or confidentiality agreement

An agreement whereby employees, independent consultants, and others agree not to disclose a company’s secret or proprietary information to another party

• If the nondisclosure agreement is overly broad, the court may find it unenforceable

Noncompetition agreement or covenant not to compete

An agreement that provides that an employee or seller of a business will not engage in a similar occupation or business for another employer or for themselves within a specified geographical area for a specified time following the sale of the business or termination of employment.

Considered lawful if they are reasonable in

• line of business protected

• geographic area or market protected

• duration of the restriction

Nonsolicitation agreements

An agreement in which employees agree that they will not solicit the clients or customers of the employer for their own benefit or for the benefit of a competitor of the employer after their employment ends

• Only for a reasonable time after employment ends

• Customers, clients, and suppliers must be uniquely important to the employer

• Prevents soliciting other employees to join them at a competitor or at the past employee’s own competing business—important and valuable employees (not lower-level employees)

When are noncompetition agreements considered lawful?

If they are reasonable in

• line of business protected

• geographic area or market protected

• duration of the restriction

FTC stance on non-compete agreements

A federal rule enacted by the FTC would have effectively banned new noncompete agreements for all workers, effective September 2024

• Rationale: Banning noncompetes would benefit American workers, businesses, and the economy by fostering new business formation, increased innovation, and higher worker earnings

• However, a federal court issued a nationwide order preventing the rule from ever taking effect on the basis that the FTC lacked authority to issue such a rule

• Thus, noncompete enforceability remains governed by state law

• FTC retains authority to challenge specific noncompetes on a case- by-case basis (particularly relating to lower-level employees)

Licensing statute

A statute that requires members of certain professions and occupations to be licensed by the state in which they practice

• Ex: lawyers, doctors, nurses, real estate agents, insurance agents, certified public accountants, teachers, architects, contractors, electricians

• Must demonstrate proper schooling, experience, and qualifications, sometimes by examination

• Two types-regulatory licensing statute and revenue-raising statute

Regulatory licensing statute

Licensing statute enacted to protect the public

• Generally, unlicensed persons cannot recover payment

Revenue-raising statute

Licensing statute with the primary purpose of raising revenue for the government

• Contract is enforceable and can recover payment

Equity-unconscionable contracts

A contract that courts refuse to enforce in part or at all because it is so oppressive or manifestly unfair as to be unjust.

• Based on public policy

• This doctrine may not be used merely to save a contracting party from a bad bargain (making a bad deal)

• Usually applied where parties have severely unequal bargaining power, the dominant party unreasonably used its power to obtain oppressive and completely unfair contract terms, leaving the other party no alternative