Legal environment of business exam 3

Trade secret

Can be a formula, pattern, compilation, program, device, method, technique or process.

Trade secrets must

derive independent economic value, actual or potential, from not being generally known to and not being readily accessible by proper means.

Factors of trade secrets

The valuye of the information to the business and competitors, the amount of effort and expense the business spent in developing the information, the measures the business takes to guard the secrecy of the information.

Misappropriation

means acquisition by improper means of disclosure without the consent of the owner

The owner of misappointed trade secrets

can sue the person or company responsible for relief and damages

Offer

A promise to do something or refrain from doing a specified action 

For an offer to be valid there must be

Clear intent by offeror, basic terms and conditions, communication of the offer to the offeree

Revocation

Offer can be terminated by the offeror before acceptance through withdrawal 

Acceptance must be

Unconditional meaning terms cannot be changed, unequivocally accepted, properly communicated

Consideration

Something of value or something bargained for in exchange for a promise, both parties get something is something is given up 

Promissory estoppel

A promise which the promiser should expect to induce action or forbearance on the part of the promisee

Capacity to contracts

Minors, intoxication, mental disabilities can all result in contracts being voidable 

A contract is void if

it concerns illegal subject matter or is against public policy

Statutes of fraud

Some contracts must be in writing for the sale of real property, which cannot be performed within one year, to pay the debt of another, and in consideration of marriage.

Parole evidence rule

oral evidence cannot contradict, change or add terms to the contract.

Deschamps V. Treasure state trailer courts ruled that 

He could not breach the contract for faulty water systems because he had a right and obligation to inspect the property for himself which was written into the contract 

End of a contract comes when

There is performance by both parties or by assignment (transfer to a third party) or delegation (transfer of the contract duty to a 3rd party)

Economic loss rule

breach of contract is not a tort, so plaintiffs are only entitled to damages that relate to their economic losses 

Liquidated damages

Amounts specified in a contract to be paid in the event of a breach

Specific performance

A court order directing a party to a contract to perform their duties under the contract, usually only when the subject matter is unique 

Mitigation

Duty of the non-breaching party to exercise reasonable diligence to minimize economic losses after a contract is breched 

The uniform commercial code was drafted in order to 

clarify and modernize the common law dealing with commercial transactions, including contract law 

Section 2 of the UCC deals wirh sale of

Tangible goods, and focuses on the intent of parties in commercial transactions 

An indefinite offer (lacking major terms)

can still result in a valid contract if the offer is accepted 

No additional consideration is required to

Validate contract modifications as long as they are in writing 

Under section 2, contracts for sales of goods worth $500 or more

must be in some sort of writing

The UCC expects

Merchants to generally behave in good faith

A contract is formed under section 2 when

Any offer is accepted in any reasonable manner

The aspects of Proprietorships are that

They are created by the owner when they begin business operations, The entity status is the alter ego of the owner, The liability is on the owner who us persoanlly liable for debts, lasts as long as the owner conducts business, can be sold at anytime forming a new proprietorship, control is determined by the owner, Capital is limited to what the owner can raise or borrow, and profits are taxed to the owner as an individual 

The aspects of Partnerships are that

They are Created by and agreement of partners, partners are personally liable for debts, can be ended by agreement or by the death or withdrawal of a partner unless otherwise agreed among partners, Sale of a partnership terminates it, partners have an equal share of the business, Limited capital to what partners can contribute or borrow and profits are taxed to each partners individual share  

The aspects of corporations are that

they are created through a charter under state statute, They are a legal entity distinct from owners, Shareholders are not personally liable for bets but can lose their investment if they go bankrupt, Shares of stock can freely be transferred, shareholders elect a board of directors who set policies and appoint officers and managers and profits of corporation are taxed and shareholders shares of profit are also taxed 

The aspects of a Limited Liability Company are that 

They are created under state statute and an agreement of the members, the legal entity is distinct from owners for some purposes, members are not personally liable for debts, but can lose their paid-in capital in the company if it goes bankrupt, company dissolves after a fixed time or a specific event, members must consent to a transfer, limited on capital for what members can contribute and may also borrow and profits are taxed to each member, business entity is not taxed  

Business judgement rule

Directors and managers owe a fiduciary duty to the business and its owners that they must act in bets interest, but are immune from liability for honest mistakes 

Piercing the corporate veil

Courts can disregard the corporate or LLC form in some circumstances and find shareholders or members personally liable 

Factors courts consider in business fraud

Whether the company engaged in fraudulent behavior, whether the company failed to follow corporate formalities, whether the company inadequately capitalized, whether one person or a small group of closely related people were in control of the company 

A franchise exist when

A franchisee in return for a payment of a franchise fee to the franchisor, is granted the right to sell goods or services in a market plan dveeloped by the franchisor

Specific types of franchises include

Product distributorships, Trademark or trade name licensing, and business format franchising 

Franchise regulation

The FTC issues this to protect franchisees from scams 

some states regulate franchises

Maine does not

A negotiable instrument is a

written promise or order to pay a certain sum of money, it functions as a substitute for cash and can be bought and sold 

The party who issues or creates an instrument is called 

The drawer or maker 

The party receiving the payment for an instrument is called a 

Payee or a beneficiary 

Under U.C.C section commercial instruments must meet the following requirements

Be written, Be an unconditional order or promise to pay, be signed by the marker or drawer, be payable on demand or at a specified time, etc…

Orders to pay

Drafts (A binding order by the drawer to the drawee) Checks (a check is a draft drawn on a bank and payable on demand to the payee or transferee

Promises to pay

Notes (A note is a promisee by the maker to pay the payee) Certificates of deposit (An acknowledgement by a bank that it has received money from a customer with a promise by the bank that it will repay the money plus interest at a certain rate)

A creditor

is one who lends money to or allows goods or services to be purchased on credit

Collateral can be

provided as security for a debt

Attachment under the U.C.C gives a creditor rights against the debtor that are 

superior to unsecured creditors 

If the debtor defaults on the loan the creditor with

A perfected attachment has the right to repossess the collateral without going through a judicial process 

A lien is a

Security obtained by a creditor through the operation of law

A mechanics lien can be

obtained by a party who furnishes material, labor, and or services for construction or repair of real property when the owner does not pay 

A mortgage is a type of lien

giving the lien holder the right to sell the real property collateral for a loan to repay the debt from the sale proceeds if the borrower defaults 

A surety is a

third party who promises to be responsible for the debtor/borrowers payments

Bankruptcy is

exclusively a matter of federal law and is handled by federal bankruptcy courts 

Chapter 7 bankruptcy

The debtors non exempt assets are liquidated by sale and the proceeds distributed to the creditors, thereby discharging most of the debtors debts

Under chapter 7 a debtor may

voluntary file for bankruptcy or a debtors creditors may file a petition for involuntary bankruptcy 

Chapter 13 bankruptcy

Know as the wage earners plan, it is only available for individuals. The debtor files a plan for the payment of creditors by priority usually over 5 years. 

Chapter 11 bankruptcy

Applies to businesses that want to remain in operation and not be liquidated. The bankruptcy decides whether to allow a business to use a chapter 11 proceeding or force a business into liquidation under chapter 7

Priority classes of creditors

Secured creditors, Paying the trustee, unpaid wages claims, certain claims by farmers and fishermen, refund of security deposits, alimony and child support, taxes, general creditors

Debts not extinguished by bankruptcy

Alimony and child support, back taxes, most student loans, some debts incurred immediately before bankruptcy filing, debts incurred by fraud against creditors, fines owed by the government