Business Law & Ethics BPA

Chapter 1

Defining Ethics

• Ethical decisions can be made by relying on opinions and feelings, by applying the greatest good principle, or by following the Golden Rule.

• A decision made by applying the greatest good principle leads to an action that will create the greatest good for the greatest number of people. Although making decisions by using the greatest good principle may make many people happy, applying this principle does not always bring about ethical actions.

• The Golden Rule is traditionally associated with Christianity. However, the Golden Rule principle is present in many world religions.

• Applying the Golden Rule leads to an ethical decision much of the time because it requires a person to put the interests of others ahead of personal interests. The Golden Rule requires a person to "do unto others as you would have them do to you."

• Four ethical character traits are honesty, justice, compassion, and integrity.

• Honesty is the ability to be open and truthful in dealings with others.

• A person is said to be just if he or she treats people fairly or equally.

• A person displays compassion when he or she is sympathetic to the difficulties of others and wants to help people with their problems.

• Integrity refers to a person's refusal to compromise his or her values, regardless of personal consequences

• Ethics tell us what we should do. However, ethics may be subjective, varying from person to person. People do not always do what they should do. In contrast, laws are defined. They provide an objective standard of behavior.

• Law is important because society needs a system of rules to maintain stability and peace. People need to know what their rights and duties are so that they may choose to follow them or accept the consequences for failure to follow them.

• Ethics and the law can conflict in a variety of circumstances. Professional ethics are not always consistent with the rule of law. In other cases, personal or religious ethics may conflict with the law.

Sources of Law

• A country's constitution spells out the principles by which the government operates. The U.S. Constitution, which consists of seven articles and 27 amendments, enumerates the fundamental rights of citizens. It also defines the limits within which federal state governments may pass laws.

• The Constitution sets forth the functions of various branches of our national governing body. Each state has its own constitution.

• A body of cases called common law originates from England. These cases and their offspring can be applied to interpret statutory law. The doctrine of stare decisis, or precedent, is used to analogize or distinguish a case at hand from a previous case. Some parts of common law still exist today in some states' laws much as they did in England.

• Statutory law consists of rules of conduct by the government of a society to stability.

• Courts make laws through the common law tradition, by interpreting statutes, and by deciding issues of constitutionality. Decisions made by the highest court of any state become the law of that state.

• Legislatures form regulatory agencies, which have wide-ranging powers to create, enforce, and adjudicate rules and procedures. However, there are limits imposed on regulatory agencies. The legislative body that formed the agency has the power to terminate that agency. In addition, any final decision by an agency is always subject to judicial review.

Chapter 2

Dual Court System

• Jurisdiction is the power and authority given a court to hear a case and to make a judgment.

• A court with original jurisdiction hears a case tried for the first time in its court.

• A court with appellate jurisdiction reviews a case on appeal from a lower court.

• Courts with limited jurisdiction handle minor matters, such as misdemeanors.

• General jurisdiction means that a court has the power to hear most types of cases.

• Federal courts are arranged in three levels: U.S. district courts located throughout the United States, U.S. courts of appeals, and the Supreme Court of the United States.

• The U.S. Supreme Court has original jurisdiction on certain types of cases involving ambassadors, consuls, and cases in which a state is a party.

• The Supreme Court hears the majority of its cases in its appellate capacity. It considers cases that have been tried in lower courts and cases that have been selected for review by four of nine Supreme Court Justices.

• State court systems generally consist of local trial courts, courts of general jurisdiction, and appellate courts. At the highest level, each state has its own supreme court.

• A delinquent juvenile is a child who commits an adult crime. An unruly child is generally a minor who has done something that wouldn't be a crime if committed by an adult, such as violating curfew, skipping school, or using tobacco. A neglected or abused child is one who is without adequate parental care or one who is homeless. Such a child will become a ward of the state.

Trial Procedures

• There are several different alternatives to traditional litigation. Mediation and arbitration, med-arb, early neutral evaluation (ENE), summary jury trial, and private civil trial are some reactive examples of Alternate Dispute Resolution (ADR). Reactive methods of ADR are used after a dispute has arisen. Proactive ADR methods, such as partnering and settlement week, are used before a dispute arises.

• A criminal case often starts with an arrest. To protect the defendant's constitutional right to a speedy trial, the criminal trial is scheduled more quickly than a civil trial. A plaintiff in a civil case may wait years before having her day in court. In civil court, the plaintiff sues the defendant for a remedy. In a criminal proceeding, the district attorney prosecutes on behalf of the government against the defendant for a different type of price-his or her freedom.

• The steps in a civil trial are: (1) jury selection, (2) presentation of opening statements, (3) introduction of the evidence, (4) presentation of closing arguments, (5) instructions to the jury, 6) the jury verdict, and (7) the court's judgment.

• People placed under arrest may exercise their rights in several ways: (1) they may remain silent; (2) they may call an attorney; and (3) if they choose to answer questions, they may have attorney present.

• After a defendant is arrested, evidence of the crime is presented to a grand jury. If the grand jury decides there is enough evidence to go to trial, it issues an indictment. The defendant is arraigned. At the time of arraignment, the defendant pleads guilty or not guilty. Defendants pleading not guilty proceed to trial, and those pleading guilty are sentenced by the judge. In a juvenile case, the judge may: (1) place the offender on probation and allow him or her to return home, (2) place the offender in an agency or foster home, or (3) commit the offender to a training or reform school.

Chapter 3

What Is Crime?

• Crime is considered an act against the public good. Crimes can be classified as felonies or misdemeanors. A felony is a major crime punishable by imprisonment or death. Murder, manslaughter, burglary, robbery, and arson are examples of felonies. A less serious crime is called a misdemeanor. Driving an automobile without a license, lying about one's age to purchase alcohol, and leaving the scene of an automobile accident are examples of misdemeanors. To determine felonies from misdemeanors, one can examine the severity of punishment for any given crime.

• Each state government has inherent police power, and enacting criminal statues is a part of this power. In contrast, the federal government was created with no general police power. The federal government is able to create criminal statutes only in areas over which it has jurisdiction. However, the federal government has interpreted its power under the commerce clause rather expansively to legislate a body of criminal law. The commerce clause requires Congress to regulate commerce among the states.

• A crime is defined by two elements: the criminal act and the required state of mind. A criminal act must involve voluntary conduct. A person cannot be accused of a crime if that accusation is based on the one's physical or mental state.

• Criminal defendants can argue the following defenses: insanity, entrapment, self-defense, and defense of family members. In many states, a person is considered legally insane if "as a result of mental disease or defect he or she lacks sub- stantial capacity to appreciate the criminality of his conduct or to conform his conduct to the requirements of the law." A person can use the defense of entrapment if a law enforcement officer induces him or her to commit a crime.

• The defense of self-defense can be used if a person uses force to protect himself or herself from attack. Similarly, most states will not punish people who can prove that they used force to rescue a family member from attack.

Particular Crimes

• Crimes against people include murder, man-slaughter, assault, battery, kidnapping, sex offenses, domestic violence, and hate crimes. Murder is the unlawful killing of anther human being with malice aforethought. Manslaughter is the unlawful killing of another person without malice aforethought. Battery is the unlawful touching of another person, and assault is an attempt to commit battery.

• The unlawful removal or restraint of a person against his or her will is called kidnapping. Sex offenses include various forms of rape. Reckless physical or mental abuse within a family constitutes domestic violence. crimes occur when a perpetrator uses specific symbols, writings, or speech to cause or anger in people because of their race, , color, or gender.

• Crimes against property include burglary, larceny, embezzlement, robbery, arson, vandalism, and shoplifting.

• Selling an alcoholic beverage to an underage person is a crime. It is also a crime for the

  underage individual to purchase alcohol or even to lie about his or her age to attempt to purchase it. The sale, possession, or free distribution of is considered a criminal offense.

• States have enacted different laws to deal with computer crimes. Some states have created the crime of computer trespass; others have passed computer fraud statutes. Some states have legislated a list of computer-related crimes, including theft of computer services, destruction of equipment, and misuse of computer information.

Chapter 4

Intentional Torts

• A crime is an offense against the public at large. The role of the government is to preserve the safety and well-being of the entire social structure. As such, the government can punish the perpe- trator of a crime.

• In contrast, a tort is a private wrong committed by one person against another. Such an offense does not call upon the govern- ment to punish wrongdoers and protect society. A tort, therefore, involves one person's interference with another person's rights. In some situations, a single action can be both a tort and a crime.

• The law of torts is grounded in rights. Under tort law, all people are entitled to certain rights simply because they are members of our society. The law imposes a duty on all of us to respect the rights of others. Some of the rights of members of our society include: the right to be free from bodily harm, the right to enjoy a good reputation, the right to conduct business without unwarranted interference, and the right to own property free from damage or trespass. Anyone who violates such rights has committed a wrongful act, and often this wrongful act can be classified as a tort.

• Torts can be committed intentionally and un-intentionally. Unintentional torts can be further classified as negligence or strict liability.

• The major intentional torts are assault, battery, trespass, nuisance, false imprisonment, defamation, and invasion of privacy. Assault involves threatening to strike or harm another person with a weapon or physical movement. Battery is the unlawful, unprivileged touching of another person. Wrongful injury or interference with the property of another is known as trespass. Nuisance refers to anything, such as noise or unpleasant odors, that interferes with the enjoyment of life or property. False imprisonment occurs when a person is unlawfully restrained, whether in prison or otherwise. Defamation is the act of injuring another's reputation by making false statements, and invasion of privacy is interference with a person's right to be left alone.

Negligence and Strict Liability

• A suit for negligence must prove four elements: duty of care, breach of duty, proximate cause, and actual harm. To prove duty of care, the plaintiff must show that the defendant owed him or her a duty of care. The failure to use the degree of care required under the circumstances is breach of duty. Proximate cause requires that the plaintiff prove that the defendant's breach of duty caused the injury.

• The plaintiff must also prove that he or she suffered some actual harm or injury to succeed in a suit for negligence. People can defend themselves by finding flaws in one of the previously mentioned elements. If the defendant cannot find a flaw in one of the elements of negligence, he or she can still argue affirmative defenses to negligence, which includes contributory negligence, comparative negligence, and assumption of risk.

• According to the doctrine of strict liability, those who engage in ultra hazardous activities will be held liable for any injury or damage that occurs because of that activity, regardless of intent or care. The doctrine of strict liability has also been applied in product liability cases. When people are injured from defects in products that they bought in the marketplace, the firm that manufactures the products is liable for injuries, regardless of fault.

Chapter 5

Contract

• A contract is any agreement enforceable by law.

• There are six elements of a contract: offer, acceptance, genuine agreement, consideration, capacity, and legality.

• An offer is a proposal by one party to another intended to create a contract.

• An acceptance is the second party's unqualified willingness to go along with the first party's proposal.

• Genuine agreement occurs when a valid offer is met by a valid acceptance.

• Capacity is the legal ability to enter a contract.

• Consideration is the exchange of things of value. Legality refers to the fact that a legally binding contract must not require people to commit illegal acts.

• Valid contracts are legally binding.

• A void contract has no legal effect because one of the elements of a contract is missing. A voidable contract is not void, but it may be voided by one of the parties because of some defect. For instance, a contract between two minors could be voidable by either of the parties. An unenforceable contract cannot be enforced because there is some rule of law, such as the statute of limitations, that makes it unenforceable.

• An express contract is stated in words. It may be written or oral. An implied contract is implied from the actions of the parties.

• Bilateral contracts are formed by promises that each party makes to the other. A unilateral contract contains one party's promise that it will fulfill if and when the other party performs an act.

• Oral contracts are created when a party promises something by speaking that promise and the other party responds with a spoken promise. In contrast, a written contract is one in which the promises are in writing.

Offer and Acceptance

• An offer is a proposal by one party to another party to enter a contract. An offer must be (1) seriously intended, (2) definite and certain, and (3) communicated to the offeree. An offer made in the heat of anger or as a joke would not be seriously intended. An offer must include clear, specific terms to be considered definite and certain. When communicating an offer, the offeror may use a telephone, letter, telegram, fax machine, e-mail message, or any other method of communication.

• An invitation to negotiate may look like an offer, but it is not. Moreover, any such invitation cannot be made into an offer by agreeing to the terms of the invitation. For example, an advertisement is not an offer, but rather an invitation to negotiate. It means that a merchant does not have to sell to a buyer who says, “I'll take it” in response to an ad in offer to buy the paper. The customer's statement that he she will buy acts as the offer in this case, and merchant may then choose to accept or reject.

• Acceptance must meet two requirements: (1) it must be unconditional; and (2) it must follow the rules regarding the method of acceptance. Unconditional acceptances do not seek to change the terms of the original offer in any way. When parties are dealing face-to-face or on the telephone, no special problems exist with regard to method of acceptances. One party speaks, and the other listens and communicates the offer or acceptance. However, special rules govern acceptances that take place when parties are separated by a distance and must communicate by letters, telegrams, or fax.

• An offer must be accepted without changing its terms. As a result, when an offeree changes the terms of an offer, the offeree cannot be said to have accepted. Instead, he or she is deemed to have made a counteroffer, which the original offeree then may choose to accept or reject.

• An offer is terminated by revocation, rejection, counteroffer, expiration of time, death, or insanity.

Chapter 6

Fraud and Misrepresentation

• Fraud is deliberate deception to secure an unfair or unlawful gain.

• To succeed in a lawsuit for fraud, the party bringing suit must prove five elements: (1) false representation of fact, (2) representation known to be false, (3) false representation intended to be relied upon, (4) false representation reasonably relied upon, and (5) resulting loss. Fraud requires a false representation of a material, existing fact. It cannot be a promise of something that will happen in the future, nor can it be someone's opinion. Material false representations are not confined to oral or written statements. Actions intended to deceive are considered to be false representations.

• Concealment, also called nondisclosure and passive fraud, is a type of fraud. This type of fraud is employed when a party keeps silent about a material fact of which the other party has no knowledge. The other person relies on the first person's special knowledge and gets hurt. Concealment can occur when a seller keeps quiet about a hidden defect that cannot be easily discovered by the buyer. Concealment can be just as fraudulent as actively deceiving an innocent party.

• An innocent statement of supposed fact that turns out to be false is a misrepresentation. The law gives an injured party the right to rescind a contract because of misrepresentation. You may not win damages if a false representation is innocently made.

• If you have been induced to enter a contract by fraud, you have several remedies available. You may cancel, or rescind, the contract. You may also sue for damages. Damages are designed to punish the wrongdoer for his or her conduct and can greatly exceed the amount of money needed to repay the victim. If a person has merely made a misrepresentation, remember that, although you can rescind the contract, you cannot win damages.

Mistake, Duress, and Undue Influence

• Unilateral mistake is an error on the part of one of the parties to the contract. A person usually cannot avoid a contract because of such a mistake A unilateral mistake may be a mistake as to the nature of the agreement or a mistake as to the identity of a party. When both parties to a contract are mistaken about some important fact, a bilateral mistake has been made. A bilateral mistake may be a mistake as to the possibility of performance or a mistake as to the subject matter.

• When you make a unilateral mistake, you are bound to the contract, except when you make a mistake as to the identity of the party. When there has been a bilateral mistake, either party may rescind the contract.

• Duress is defined as overcoming a person's will by using force or by threat of force or bodily harm. Economic duress occurs when a person threatens another person's business or income to cause someone to enter a contract without true consent.

• Unfair and improper persuasive pressure used by a person to force a close friend, family member, or otherwise vulnerable person into entering into a contract is called undue influence.

Chapter 7

Contractual Capacity

• A person who has not yet reached the age of legal adulthood, known as the age of majority, is considered a minor. A person under the age of 18 years is considered a minor. In most states, however, the age of majority does not entitle a person to legally purchase alcohol. A person's minority ends when he or she reaches the day before his or her 18th birthday. The reason for this policy is that the law does not consider fractions of a day. As a result, on a person's 18th birthday, that person is considered 18 years and 1 day old.

• The law gives minors the right to disaffirm their contracts. To disaffirm a contract means to show the intent not to live up to the contract by a statement or some act. This rule protects minors from unscrupulous adults who might try to induce minors to enter unfair agreements by preying on the lack of experience and knowledge that often accompanies youth. The legal policy also frees minors from the consequences of poor decisions. The law is not intended, however, to give minors the right to take advantage of people by using this privilege. Emancipated minors, or minors who are no longer under the control of their parents, are fully responsible for their contracts. However, many merchants are still reluctant to deal with such minors because the merchants assume the shield of minority still protects them.

• Minors have broad rights to disaffirm contracts, and they may do so even if they damage or destroy the item they purchased under the contract. However, there are some limitations. After the contract is disaffirmed, the minor must return the purchased item. The contract also must be disaffirmed in its entirety. A minor may not affirm parts of a contract that are favorable and disaffirm the unfavorable parts. Minors are also responsible for the fair value of necessaries, which include food, clothing, shelter, and medical care. A minor who claims to be over the age of majority has committed fraud, and he or she can be sued in some states.

• A person may ratify or approve contracts that he or she made as a minor when he or she reaches the age of majority. Ratification may be accom- plished orally, in writing, or by actions. Many different types of actions can ratify a contract made in minority. For example, using or selling items obtained by contract after reaching the age of majority has the effect of ratifying the contract. Making an installment payment on an item or keeping an item for a reasonable period of time after reaching majority is also considered ratifi- cation. "Reasonable time” has no exact definition and varies under different circumstances.

• The right to disaffirm contracts is also given to mentally impaired people and to people who are intoxicated at the time they enter a contract. Intoxicated persons can disaffirm contracts if they can prove that their state of mind impaired them to the extent that they were not able to understand the purpose, nature, or effect of the transaction. Moreover, certain limits are also placed on an alien's ability to contract. An alien is a person who lives in this country but owes his or her allegiance to another country. In times of war, foreign-born persons who are designated as enemy aliens are denied certain legal capacities. Even in peacetime, some states prevent aliens from entering into certain types of contracts.

Chapter 8

Consideration

• Consideration is the exchange of benefits and detriments between parties to an agreement.

• A benefit is something that a party was not pre- viously entitled to receive; a detriment is a loss suffered.

• Consideration has three key characteristics: (1) promises must involve the concept of a bargained for exchange; (2) something of value must be involved; and (3) the benefits and detriments promised must be legal.

• An agreement involves a bargained-for exchange when a promise is made in return for another promise, an act, or a promise not to act.

• The law has no specific value requirements on consideration. Therefore, a promise to help a friend clean her room can be considered something of value promised. In regard to legality, a party cannot agree to give up something that he or she does not legally own. Nor can a party promise to stop doing something that is illegal as consideration.

• There are three types of consideration: (1) you give something that you have the legal right to keep; (2) you do something that you have the legal right not to do; and (3) you refrain from doing something that you have the legal right to do. Money, property, services, promises not to sue, and charitable pledges are some common forms of consideration.

• There are instances in which a problem occurs regarding consideration. A genuine dispute over the amount of money owed could occur. Additionally, a party with all of the power might take advantage of the other party, in which case the resultant contract is deemed void.

• The following are some principles pertaining to consideration: (1) a party will offer money, goods, or services in exchange for another party's promise or performance; (2) generally, the courts do not get involved in determining how much consideration is enough; (3) for something to amount to consideration, the act performed or promised must be legal; (4) if a person pays a debt in advance, it is deemed to be consideration; and (5) because many charities depend upon contributions, the courts enforce charitable pledges as if they were contracts.

Agreements Without Characteristics

• Agreements enforceable without consideration include promises under seal, promises after discharge in bankruptcy, debts barred by the statute of limitations, promises enforced by promissory estoppel, and options.

• The doctrine of promissory estoppel involves a person promising to do something in exchange for your action or forbearance, and your relying on that promise and changing your position in a significant way to your detriment. In these cases, a sense of fairness will compel a court to enforce the promise, although there is no consideration. This enforcement is based on the doctrine of promissory estoppel.

• Agreements that are unenforceable without consideration include illusory promises, promises of future gifts, promises of legacies, promises based on past consideration, promises based on preexisting duties, and social engagements.

• Past consideration is consideration given for a promise or an act that took place in the past, and is not regarded as sufficient by the courts. If a person is already under a legal obligation to do something, a promise to do that same thing is called a preexisting duty and is also not deemed sufficient consideration.

• Agreements that are unenforceable without consideration include illusory promises, promises of future gifts, promises of legacies, promises based on past consideration, promises based on preexisting duties, and social engagements.

• Past consideration is consideration given for a promise or an act that took place in the past, and is not regarded as sufficient by the courts. If a person is already under a legal obligation to do something, a promise to do that same thing is called a preexisting duty and is also not deemed sufficient consideration.

Chapter 9

Legality

• A contract may be illegal if it involves an agreement to do something that violates statutory law. In addition, a contract may be illegal if it violates public policy.

• If a contract is tainted by illegality and it is impossible to separate the contract into isolated promises and acts, the entire contract is rendered illegal and is void. In contrast, if certain promises and actions in a contract can be successfully performed by themselves, the contract is said to be divisible, and the court may enforce those parts of the agreement that are legal and rescind the parts that are not. If both parties to a contract know that the agreement is illegal, neither party will be aided by the court in enforcing the illegal agreement. On the other hand, if one of the parties is innocent of wrongdoing, then the courts may grant relief to the innocent party.

• Some state statutes make some of the following contracts illegal: gambling agreements, contracts made on Sunday, agreements involving licensing requirements, and usury.

• A license is a legal document stating that the holder has permission from the proper authorities to carry on a certain trade or profession. Engaging in such a trade or profession without a license is illegal. Licensing laws are designed to protect people from dealing with unqualified persons. In most states, trade and professional workers such as nurses, surveyors, funeral directors, barbers, and plumbers must be licensed. Some state statutes require licenses simply to raise revenue. Any person paying the fee gets the license; there is no need to show competence. Because the purpose of such licenses is merely to raise revenue, agreements made with unlicensed vendors are valid. However, the unlicensed person is subject to a penalty for violating the licensing statute.

Agreements Contrary to Public Policy

• Governmental bodies regulate the health, safety welfare, and public to prevent harm to the public at large. Public policy considerations are a signif. icant part of the legislative process. The under- lying principle that nobody should get away with doing something that harms the public at large is the basis for every public policy decision made.

• Contracts that are contrary to public policy include: (1) agreements involving unreasonable restraint of trade, (2) contracts not to compete, (3) price-fixing agreements, (4) agreements to defeat competitive bidding, (5) agreements to obstruct justice, (6) agreements inducing fraud or a breach of duty, and (7) contracts interfering with marriage.

• A restraint of trade is a limitation on the full exercise of doing business with others. If a contract takes away a person's right to make a living, a court will restore that right by declaring such a contract to be void. Three types of contracts are generally considered to violate this rule: agreements not to compete, price-fixing agreements, and agreements to defeat competitive bidding. Agreements not to compete could restrict employees from working at similar jobs for a certain period of time after they leave a company. Price-fixing agreements occur when competitors agree on certain price ranges within which to set their prices. Agreements to defeat competitive bidding occur when bidders get together and agree not to bid lower than a certain price, thereby artificially raising overall prices.

• A restrictive covenant is a promise not to compete, which is commonly included in the sale of a business. This covenant limits the seller of the business from opening a competing business within a geographic location for a specified amount of time.

Chapter 10

State of Frauds

• The Statute of Frauds is designed to prevent fraud and perjury by requiring written evidence of the terms of a contract. Putting a contract in writing can help to clarify an agreement for both parties and for the courts, if necessary.

• A contract that falls under the Statute of Frauds but is not in writing is deemed unenforceable. Oral contracts that do not fall under the statute of frauds are valid.

• The following elements must be in a written contract: (1) place, (2) date, (3) parties, (4) subject matter, (5) price and terms, (6) the intent of the parties, and (7) signatures of the parties.

• Generally, handwritten terms prevail over type written or printed terms. The court will presume that the handwritten terms were placed in the writing after the contract was typed or printed. For that reason, the handwritten changes likely represent the final intent of the parties. Generally, handwriting prevails over typewriting or printing, and typewriting prevails over printing. When there is a discrepancy in an amount written in both words and figures, as in a check, the amount written in words will prevail over the amount written in figures. Sometimes written contracts can be understood in different ways. When such ambiguous language exists, the court will favor the intent of the party who did not draft the contract.

• The following are types of contracts that must be in writing: (1) contracts to pay the debts of another, (2) contracts to pay the debts of a deceased person, (3) contracts requiring more than a year to perform, (4) contracts in consideration of marriage, (5) contracts to sell real property, and (6) contracts for the sale of goods costing $500 or more. Be aware that the Statute of Frauds applies only to executory contracts; that is, contracts that have not been

  fully performed. If two parties perform an oral contract that should have been in writing, then neither party can try to have it set aside later because it was not in writing.

Special Rules and Formalities

• The parol evidence rule presumes that all the terms of a contract are within the document. No evidence of oral statements made before signing a written agreement can be presented to change or add to the written agreement. Parol means word of mouth; evidence, in this instance, means anything presented as proof at a court trial.

• Exceptions to the parol evidence rule permit oral statements to be used to: (1) explain some point that is not clear in a written agreement, (2) show that certain terms were agreed to but incorrectly typed in the written contract, and (3) prove that someone was persuaded by the fraud of the other party to make a written contract.

• The best evidence rule is the preference given by the courts to the original copy of an agreement. The court looks with disfavor at photocopies or carbon copies of a written agreement. Copying a contract can make it easier for an unscrupulous party to conceal any misleading alterations to the original agreement. For this reason, each party receives an original version of the contract.

• Because the parol evidence rule presumes that all the terms of a contract are contained within the document, if you do not agree to the terms of a preprinted contract, you may cross out the offensive terms. You may also write in promises made to you that are not evidenced on the pre- printed contract. To insure the validity of the new terms, both parties must initial the changes. If a contract contains a lot of complicated or ambi- guous language, ask a lawyer to review the agreement before you sign it.

Chapter 11

Performance and Agreement

• A reasonable time for completing a contract varies, but it is generally defined as the time that is suitable, fair, and proper to the objective of the contract. For example, the reasonable time for selling perishable food would not be the same as the reasonable time for selling a car or house. If the parties specify a time limit for carrying out the terms of the contract, the court will usually allow a longer time for performance unless time is of the essence. Time is of the essence when it is a vital or essential element of the contract.

• Satisfactory performance is completion of a service that a reasonable person would deem performed to his satisfaction. In determining whether satisfactory performance has been made, the court asks, "Would a reasonable person consider the job to be completed in a satisfactory manner?" A judge or jury would then decide the matter based on the answer to this question. Unlike satisfactory performance, however, substantial performance is not complete performance. Nonetheless, if the major requirements have been fulfilled, the courts will allow the performer to recover the contract amount minus the cost of completing the job.

• A tender of performance is an offer to perform a certain act to fulfill a contract. It is important to make tender even if you know the other party will not perform his or her part of the contract. In some states, making tender is necessary to test the other party's willingness and ability to perform.

• Contracts can be terminated by mutual release and accord and satisfaction. A mutual release is an agreement between two parties to end an agreement. Whatever parties agree to do in the first place, they may later mutually agree not to do. Accord and satisfaction occurs when one party to an agreement agrees to accept performance from the other party that is different from what was agreed upon in the original contract Accord and satisfaction is often used to settle an honest disagreement or unforeseen circumstances regarding an amount owed.

Impossibility of Performance and Operation of Law

• Some contracts come to an end despite what the parties intend or what they actually do. A contract becomes legally impossible to perform and becomes discharged in the case of (1) death or illness that prevents the performance of a personal service contract, (2) destruction of the exact subject matter or the means for performance, and (3) illegality. The death or illness of a party may be an excuse for nonperformance only if the contract requires the personal service of the person who has died or become ill.

• A contract may be discharged by operation of law in the following cases: (1) when one of the parties commits a wrongful act, (2) when the statute of limitations has expired, and (3) when debtor declares bankruptcy.

• The statute of limitations limits the time within which a legal action may be brought. The statute of limitations for failure to perform contracts for the sale of goods is four years in most states.

• Educational loans, debts for taxes, alimony, support, and maintenance are not affected by a general discharge of debts in bankruptcy.

Chapter 12

Transfer of Contractual Rights and Duties

• The transfer of a right under a contract is an assignment. The party who transfers the right is the assignor. The party to whom the right is transferred is the assignee. No consideration is necessary for an assignment to be valid. It's best to put an assignment in writing, because an oral assignment can be difficult to prove.

• Most rights can be assigned unless the assignment changes the obligations of the other party to the contract in an important way. Rights to the payment of money (e.g., wages, money owed on accounts, or royalties on books) and rights to the delivery of goods are the most common types of rights that are assigned.

• Duties may sometimes be transferred. The trans- fer of a duty is called a delegation. Duties may not be delegated when a party agrees to perform the service personally, the contract calls for personal skill and judgment, or the contract itself prohibits delegation. Usually, the work of teachers, writers, artists, or entertainers cannot be delegated to others. Such persons are selected to perform their services because of their particular skills or talents. Another person would not be able to perform the services in the same manner.

• A novation is the resulting agreement when an original party to a contract is replaced by a new party and all the involved parties agree to the assignment. The other terms of the contract generally remain the same as those in the original contract.

• A contract establishes a binding relationship between parties. This relationship is called privity of contract. With the exception of third-party beneficiaries, only parties with privity have standing to sue under a contract.

• Contracts are usually breached after the time of performance has begun. Sometimes, however if one of the parties notifies the other before the time of performance that he will not perform. This breach is called anticipatory breach. Many states now permit the injured party to bring an action for damages immediately, without waiting for the actual time for performance to arrive. The principle of anticipatory breach does not apply to promises to pay money at some future date. Someone who refuses to pay money owed on a future date cannot be sued until after the payment is due.

• When a contract is breached, the injured party has a choice of accepting the breach, suing for damages, or asking the court for an equitable remedy. Accepting the breach is generally the best choice if no damages have been suffered. Damages awarded to recognize a breach that did not cause loss often amount to less than one dollar. Suing for damages allows the injured party to recover compensation that would place him or her in the position that he or she would have been if the contract had been carried out. An injured party may seek an equitable remedy when money does not adequately compensate for the loss suffered by the breach of contract. Two chief equitable remedies are specific performance and an injunction.

• Sometimes no amount of money damages is sufficient to fix a breach of contract. In such cases, courts will order the other party to do specifically what she agreed to do. This remedy is called specific performance, and it will be invoked to satisfy a unique subject matter such as a painting or a parcel of land.

• The principle of mitigation states that even if you are the innocent party, you must try to minimize damages that might result from the other party's failure of performance.

Chapter 13

The Sale and Lease of Goods

• The law of sales applies when ownership of goods is transferred from a seller to a buyer for consideration. When a contract includes both goods and services, the dominant element of the contract determines whether it is a contract for goods or a contract for services.

• Special rules for sales include: (1) contracts may result from the parties' conduct; (2) an offer may be accepted by any reasonable means; (3) an acceptance may include terms that differ from those in the offer; (4) the price need not be settled; (5) output and requirements contracts are allowed; (6) contracts may be modified without consideration; and (7) no consideration is needed for a firm offer.

• Contracts for the sale of goods of $500 or more must be in writing except in: (1) oral contracts between two merchants when a confirmation is sent and no objection is made; (2) oral contracts for specially manufactured goods; (3) admissions in court; and (4) executed oral contracts.

• In an auction sale, people place bids that the auctioneer accepts for a sale. In an auction with reserve, the auctioneer need not accept the highest bid. In an auction without reserve, the auctioneer must accept the highest bid. A bulk transfer occurs when a business transfers all merchandise and supplies at once. The UCC requires that the buyer of bulk goods notify all of the seller's creditors at least 10 days before the transfer will take place.

Ownership and Risk of Loss in Sales of Good

• Title to goods is passed from a seller to a buyer after the goods have been identified and the seller does what is required under the contract to deliver the goods. The risk of loss is born by the party responsible for loss or damage to goods. Usually, title and risk pass at the same time.

• When a buyer breaches a sales contract, the seller may: (1) cancel the contract; (2) withhold delivery; (3) stop delivery of goods in the possession of a carrier; (4) resell goods and bring a claim for the difference between the agreed price and the resale price; (5) bring a claim for the difference between the agreed price and the market price; or (6) bring a claim for any thods that were accepted by the buyer. When a seller breaches a sales contract, the buyer may (4) cancel the contract; (2) bring a claim for the return of any money paid; (3) bring a claim for the difference between the agreed price and the market price; (4) reject nonconforming goods (5) cover the sale; (6) accept nonconforming goods and bring a claim if no adjustment is made; and (7) revoke the acceptance.

E-commerce and the Law

• When shopping on the Internet: (1) shop with companies you know; (2) keep your password private; (3) pay by credit or charge card; and (4) keep a record.

• When buying from another country on the Internet, research the currency of prices, shipping policies, delivery time, additional taxes or duties, and customer service policies.

• The federal law that permits using electronic signatures is called E-Sign. Electronic signatures can be used on a contract if the parties agree to do so.

• Legal safeguards that can protect your right to computer privacy include: the common law tort of invasion of privacy, your right against unreasonable government intrusion into your private life, the Fair Credit Reporting Act, the Right to Financial Privacy Act, and the Children's Online Privacy Protection Act.

Chapter 14

Express and Implied Warranties

• An express warranty is an oral or written statement, promise, or other representation about the quality, ability, or performance of a product. Given by manufacturers or sellers, express warranties can be made in one of three ways: (1) by a statement of fact or a promise made the seller: (2) by a description of the goods; or (3) by the use of a sample or model. The use of formal language, such as warranty or guarantee, is not necessary to convey an express warranty.

• Merchants must label written warranties as either "full" or "limited" for consumer products costing more than $10 under the Magnuson-Moss Warranty Act. The Magnuson-Moss Warranty Act is a federal act that applies only to goods sold in interstate commerce (business activities that touch more than one state).

• A full warranty promises to fix or replace a defective product at no extra charge to the consumer. The promise must be honored by the company issuing the warranty within a reason- able period of time. A full warranty is good for the period of time mentioned in the warranty, regardless of who owns the product at the time it breaks. A limited warranty is any warranty that falls short of a full warranty. Some of the stipulations or terms of a limited warranty may include: (1) the consumer pays for repair or replacement; (2) parts are covered, but labor is not; (3) only a partial refund is given; (4) the consumer pays for shipping a product back for service; or (5) the original buyer must own the product.

• A seller is responsible for an implied warranty of fitness if he or she knows the purpose for which a good is needed and makes a recommendation to the buyer. In offering advice, the seller is suggesting that he or she has expert knowledge on which the buyer should rely. This warranty exists whether the seller is a merchant or a private party. In contrast, sellers who regularly sell goods of a particular kind imply a warranty of merchantability in every sale, assuring that their products are fit for the purpose for which they are purchased. Private parties do not provide the warranty of merchantability.

• A warranty of title is made when sellers warrant that the title on a good being sold is valid and that the transfer is lawful. A warranty of titled includes an implied promise that, to the seller's knowledge, the goods will be delivered free from any lien or claim by another. This warranty cannot be excluded.

Exclusion of Warranties, Privity, and Duty to Notify

• A seller may exclude the warranty of merchantability by expressly mentioning that it be excluded on a warranty document. If the warranty of merchantability is excluded by written notice, the exclusion must be written prominently. Implied warranties can also be excluded by including the words “as is” or "with all faults" on a warranty document. Having a buyer examine and accept goods as being defect free is another way to exclude warranties. Warranties are made to buyers of goods.

• Warranties also extend to those who would reasonably be expected to use or be affected by goods purchased by the buyer. People affected by a good purchased by a buyer may include people who live in the buyer's household.

• To succeed in a claim for breach of warranty, the buyer must notify the seller of the defect within a reasonable time after the defect is discovered. Failure to do so will prevent the buyer from recovering.

Chapter 15

Consumer Protection

• Federal consumer protection law applies to transactions between businesses and consumers. Consumers are people who buy or lease goods, real estate, or services for personal, family, or household purposes. Federal consumer protection law applies only to interstate commerce, which is business activity that touches more than one state. State consumer law protects consumers who conduct local transactions.

• A false statement about the construction, durability, reliability, safety, strength, condition, or life expectancy of a product is a fraudulent misrepresentation. It is also deceptive to purposely avoid disclosing any fact that would cause a buyer to avoid entering into a contract. Another example of an unfair and deceptive practice is false advertising, which is advertising that misleads the public. Some ads that advertise lucrative work-at-home opportunities are examples of false advertising. Sending unordered merchandise to consumers is another unfair and deceptive practice employed by some unscrupulous businesses. Individuals who receive items in the mail that they did not order are not required to pay for such goods.

• When a store advertises bargains that don't really exist to lure customers to buy more expensive goods, it is engaging in bait and switch advertising. The following sales practices may be signs of a bait and switch: (1) refusing to show, demonstrate, or sell the advertised product; (2) attempting to discourage customers by criticizing the advertised product; (3) claiming that the advertised products are out of stock; (4) refusing to promise delivery of the advertised products within a reasonable period of time; and (5) demonstrating products that are more expensive than the advertised items.

• Some rules designed to protect customers are the negative option rule, the cooling-off rule, the Telemarketing Sales Rule, and the 900- Telephone-Number Rules. The negative option rule applies to plans that send products regularly, such as magazine subscriptions. The cooling-off rule gives you three days to cancel contracts for purchases made away from the seller's usual place of business. The Telemarketing Sales Rule protects you from abusive or unethical telemarketers. The 900-Telephone Number Rules protect you from scams associated with

  calling 900 numbers.

Product Liability

• Manufacturers and sellers have product liability when they place defective, unhealthy, or unsafe items on the market. Manufacturers and sellers are strictly liable, without regard to fault, when they sell unreasonably dangerous products to the public.

• The Consumer Product Safety Act was developed to protect consumers from unsafe goods. Under the Consumer Product Safety Act, products must be tested for safety. Manufacturers and sellers must prove the quality and fitness of their products. In the event there is a problem, manufacturers are required to take action, sometimes even recalling unsafe products.

• The Food, Drug, and Cosmetic Act prohibits the manufacture and shipment of faulty products in interstate commerce. A food or drug is said to be injurious if it contains any substance that may be harmful to health.

• Consumer protection can be obtained from state and local consumer protection agencies, such as the Consumer Product Safety Commission and the Better Business Bureau.

Chapter 16

Owning a Vehicle

• Before you sign any documents to purchase a car, you should know the following facts: (1) the exact price you are paying for the vehicle; (2) the amount you are financing; (3) the finance charge; (4) the APR (the annual percentage rate); (5) the number and amount of payments you will be required to make; and (6) the total sales price (the sum of the monthly payments plus the down payment).

• Before you buy a new car, do some calculations and research. Determine how much you can reasonably afford to pay for a new car. If you decide that you must borrow money, shop around for the best credit terms. If you are planning on trading in a vehicle, do not discuss it with the dealer until you've negotiated the best price for your new car. Consider selling your old vehicle yourself, instead of trading it in.

• Leasing a car is ultimately more expensive than buying the same car. Although leasing has the advantage of a low down payment and smaller monthly payments, you will have to return the car at the end of the lease period and will have nothing to trade in when you need to obtain another vehicle. If you choose to lease a car, you may also be responsible for excess mileage charges, excess wear charges for body damage or worn tires, and charges for ending your lease early.

• If you have bought a defective car, you should notify the seller of any major defect immediately. You may also be able to revoke your acceptance if the seller has sold you a car with serious and initially undetectable defects.

• Buying a car from a dealer usually entitles you to the protection afforded by the warranty of merchantability and the warranty of fitness for a particular purpose. Another advantage of buying a used car from a dealership is that dealers often give you a guarantee. Buying a car from a private party is sometimes cheaper than buying a car from a dealership. However, buying from a private party does not give you the benefit of the implied party anty of merchantability. You must buy the car "as is," and as a result, you will have no recourse if something goes wrong with the car. The car may also be stolen, and it may be repossessed by the rightful owner, even though you have purchased it in good faith. If you choose to buy from a private party, it is generally a good idea to buy from a friend or associate. Buying a rental car might be a good option, but keep in mind that such vehicles may have had heavy use and will probably have high mileage. On the other hand, rental vehicles usually have had regularly scheduled maintenance and come with warranties.

• The federal odometer law requires everyone who transfers a vehicle, unless it is more than 25 years old, to provide a written mileage disclosure statement showing the odometer reading at the time of the transfer. This law is an attempt to prevent odometer fraud.

• If an auto shop is responsible for some wrong- doing with regard to your car, the bonding company is an insurer who must pay you for resulting losses suffered. This requirement protects consumers from unscrupulousness or incompetence of auto repair shops.

Motor Vehicle Insurance

• The purpose of financial responsibility law is to protect against injury or damage to property resulting from an accident.

• Bodily injury liability insurance protects the insured against claims or lawsuits for injuries or death caused by his or her negligence. The maxi- mum amount of coverage is $100,000 for any person in any one accident, and $300,000 for all injured parties in any one accident. Uninsured motorist insurance protects you from a driver who commits a hit-and-run or a driver who is uninsured

Chapter 17

Personal Property

• Personal property is divided into two categories: tangible, which can be touched, and intangible, which cannot be touched. Examples of tangible property include CD players, vehicles, and food. The right to receive money owed to you is an example of intangible property.

• A gift is completed after three requirements are met: (1) the donor must intend to make a gift; (2) the gift must be delivered; and (3) the donee must accept the gift. After a gift is completed, the original owner cannot take it back.

• Lost property must be returned to the owner if the owner can be found. Misplaced property is property unintentionally left in a public or semi- public area, which must be turned over to the proprietor of the place where it is found. Aban- doned property is property that has been inten- tionally discarded by the owner and may be kept by a finder.

• A thief does not acquire good title to items that are stolen and consequently cannot convey good title to others. Even if a person innocently purchases stolen goods from a thief or other party, the rightful owner still retains title to the goods.

• A patent gives an inventor the exclusive right to make, use, or sell an invention for 17 years.

• A copyright is a right granted to an artist to exclusively publish and sell an artistic or literary work for the life of the artist plus 70 years. Copyrighted material may be reproduced without permission in some instances. The amount and use of the material must be reasonable and not harmful to the copyright owner. Copying is allowed for literary criticism, news reporting, teaching, school reports, and other research.

• Trademarks are distinctive marks, names, slogans, and symbols that identify and distinguish a product from other products. A trade- mark owner has the exclusive right to use the trademark for 10 years. A trademark registration may also be renewed for additional 10-year periods.

Bailments

• A bailment occurs when someone transfers possession and control of personal property to another with the intent that the same property will be returned later.

• The main types of bailments are: (1) bailments for the sole benefit of the bailor; (2) bailments for the sole benefit of the bailee; and (3) mutual- benefit bailments. The first two types of bailments, bailments for the sole benefit of the bailor and bailments for the sole benefit of the bailee, are called gratuitous bailments.

• If an item that was in the possession of a bailee becomes damaged, lost, or stolen, most courts shift the burden of proof to the bailee, the one who is in the best position to know what happened, to prove lack of negligence.

• Hotel keepers are required to accept all guests unless there are no vacancies. They must use reasonable care in protecting guests from harm, and they must respect their guests' rights of privacy. With some exceptions, hotel keepers are liable as insurers of guests' property, up to an amount set by state statute.

• Common carriers of goods must accept without discrimination all goods offered to them for shipment. Common carriers are liable as insurers of the goods they ship, regardless of whether they have been negligent. They are not responsible, however, for damages caused by certain circumstances beyond their control.

• Common carriers of passengers must accept all persons who seek passage, and they must use reasonable care in protecting their passengers. In addition, a carrier is an insurer of checked luggage, but not carry-on items.

Chapter 18

Agency Relationships

• An agency relationship is one in which a person represents another person in some sort of business transaction with a third party. Agency relationships let us act through other people to accomplish things that might be difficult or impossible to do on our own. The party for whom an agency acts is known as the principal.

• A servant is a person whose conduct in the performance of a task is subject to the control of another person, called the master. In contrast, an independent contractor works for, but is not under the control, of a proprietor. The only control that the proprietor has over the contractor is the right to specify a particular outcome. Determining the distinction between a servant and a contractor is essential to determining liability.

• When deter- mining if a party is a servant or contractor, the court will ask the following questions: (1) Does the hiring person supply the tools for the worker? (2) Is the worker paid by the hour? (3) Does the hiring person set the worker's hours? (4) Is the worker employed only by the person responsible for hiring? (5) Is the business of the worker the same as the business of the hiring person? 6) Does the worker lack authority to hire or fire other workers? (7) Does the worker perform his or her tasks in a highly supervised environment? and (8) Is very little skill required to perform the worker's job? The more questions that require "yes" answers, the more likely it is that a master- servant relationship exists.

• A principal is generally bound to the terms of the contract made by an agent unless the agent has no authority to enter the contract. An independent contractor would have no power to bind the proprietor to a contract unless expressly permitted to do so by the proprietor. This is true even if the contract benefits the proprietor or is needed to carry out the independent contractor's assigned task.

• The doctrine of respondeat superior, which means let the master respond, makes a master responsible for the acts of the servant. Because a master has the right to control the physical conduct of a servant, the person who hires the tortfeasor is vicariously liable if he or she is in a master-servant relationship. However, when the tort was committed, the worker must have been performing the task for which he or she was hired.

Creation and Types of Agencies

• Most agency relationships are created by agreement. These agreements are usually, but not always, contracts. As a result, they follow the rules of contracts.

• A agency relationship may be created by operation of law if the circumstances are such that a party is reasonably believed to be an agent by a third party. This situation is known as agency by estoppel, or apparent authority.

• A general agent is a person who has been given the authority to perform any duties within the scope of running a business. General agents have more authority than special agents. A special agent is employed to accomplish a specific purpose or to do a particular job.

• A subagent is an agent lawfully appointed by another agent. If an agent has no power to appoint a subagent but does so anyway, he has appointed an agent's agent. If the principal does not want to honor the agreement made between the agent and agent's agent, the responsibility of honoring the agreement falls upon the agent's shoulders.

• An unauthorized act is ratified if the principal, with full knowledge of the facts, accepts the benefit of that act. A principal who hires more than two agents creates a coagent situation.

Chapter 19

Authority and Duties

• Express authority includes all of the orders, commands, or directions that a principal directly makes to an agent when the agency relationship is created. These instructions may be general or specific. Mentioning every act that the agent is allowed to perform is cumbersome and unnecessary. The law allows some actual authority to be understood from the express terms that create the agency relationship. The powers that can reasonably be derived from the express terms of an agency agreement constitute an agent's implied authority.

• Implied authority is a form of actual authority because it also arises from the instructions that the principal communicates to the agent.

• Actual authority is the real power a principal gives to an agent to act on his or her behalf. In contrast, when the principal has led a third party to believe that a nonagent is an agent or that an agent has a power that he or she does not really have, the principal has created apparent authority.

• Apparent authority is also referred to as agency by estoppel.

• The five duties that an agent owes to a principal are obedience, good faith, loyalty, an accounting of the principal's money handled by the agent, and the exercising of judgment and skill in per- forming the assigned work. The duty of obedience requires the agent to obey all reasonable orders and instructions within the scope of the agency agreement. To have good faith, an agent must deal honestly with the principal and harbor no intent to seek advantage or defraud. To be loyal, agents must not work for others who are competing with their principals, nor may they make deals to their own advantage at the expense of their principals. The duty to account means that the agent must keep a record of all of the money collected and paid out and must report this to the principal. Agents must also use all of the judgment and skill that they have when performing work for principals. The law imposes specific duties on a principal in dealing with an agent.

• These duties included compensation, reimbursement, i indemnification, and cooperation. Compensation is payment given by the principal to the agent in return for the byent's services. Reimbursement is repayment agat an agent receives when he or she spends his or her own money for the principal's benefit, hi Similarly, if an agent suffers any loss as a result Sithe principal's instruction, he or she is entitled to indemnification, or repayment of the amount lost. Cooperation refers to the principal's duty to refrain from interfering with the agent's duties.

Termination of Agency Relationships

• An agency relationship may be terminated by operation of law in the case of the death of either party. Other circumstances such as bankruptcy, impossibility of performance, or subsequent declaration of illegality of the act may also terminate the agency relationship.

• Most commonly, agency relationships are terminated when the parties have fully carried out their duties. The parties may also terminate their relationship by mutual consent before the contract is fully performed. An agent may also quit his or her job or give up the agency, or a principal may fire the agent, all of which would result in termination of the agency relationship.

• Actual notice of the termination of an agency relationship must be given to those third parties who have extended credit to the principal through the agent.

• Notice of the termination of an agency relationship may be given by publication to those third parties who have conducted business with the agent without extending credit.

Chapter 20

Employment Relationships

• Employment-at-will is the general rule governing employment in most states. According to the doctrine of employment-at-will, an employer is permitted to discharge an employee at any time, for any or no reason, with or without notice. This doctrine is based on the notion that both parties in an employment relationship must be free to leave the employment relationship at any time.

• The doctrine of employment-at-will does not apply to employees who are protected by a union. A union is an organization of employees that is formed to promote the welfare of its members. In addition, an employer cannot invoke the doctrine of employment-at-will to discharge an employee for a reason that is discriminatory in nature. It is unlawful to discriminate against employees because of their age, race, color, creed, national origin, or gender.

• Exceptions to employment-at-will include wrongful discharge. Wrongful discharge, also called unjust dismissal, provides employees with grounds for legal action against employers who have treated them unfairly. The courts have established five standards it will consider regarding an unjust termination: promissory estoppel, implied contract, public policy tort, intentional infliction of emotional distress, and implied covenant.

• When an employer does something to lead an employee to reasonably believe that he or she is not an at-will employee, an implied contract is created. All employment relationships are based on an implied covenant that the employer and employee will be fair and honest with one another.

Legislation Affecting Employment

• The first federal law addressing collective bargaining, the National Labor Relations Act of 1935, also called the Wagner Act, states that employers must include wages, hours, and conditions of employment in the collective bargaining process, Business decisions that are at the very heart of an executive's ability to control a company, such as decisions on how to invest corporate funds, would be outside the scope of collective bargaining.

• The objective of the Taft-Hartley Act was to equalize the power of labor and management It provides, among other things, for a 60-day "cooling off" period, which the President of the United States could invoke to postpone a strike for up to 60 days under special circumstances The act also made it illegal to have a closed shop which requires a person to be a union member to be considered for hiring. In contrast, a union shop, or a business in which a worker must join the union within 30 days after being employed, is allowed under the act. The act also allows states to pass right-to-work laws, and prevents featherbedding.

• The primary goal of the Landrum-Griffin Act was to stop corruption in the unions by mandating, among other things, that all unions must register their constitutions and bylaws with the Secretary of Labor. Under the Landrum-Griffin Act, unions are also required to submit yearly reports on their financial condition. These reports must include assets, liabilities, receipts, sources of revenue, loans to union members, and other money paid out of the union's treasury.

• Child labor laws control the work that children are permitted to do. They specify certain types of activities that cannot be performed by minors on the job. Federal child labor laws prohibit shipment of goods produced in factories in which "oppressive child labor" had been used.

Chapter 21

Laws Relating to Employment Conditions and Benefits

• Businesses with 11 or more employees that engage in interstate commerce must meet the health and safety standards of the Occupational Safety and Health Administration (OSHA). OSHA makes sure the businesses adhere to safety regulations by conducting random inspections and imposing fines for violations.

• The federal Fair Labor Standards Act of 1938, also known as the Wage and Hour Law, requires certain employers to pay their employees a minimum hourly wage rate, plus time-and-a-half for all work in excess of 40 hours per week. In addition, the Equal Pay Act states that employers engaged in interstate commerce must pay women the same rate of pay as men holding the same type of job. Pension plans are protected by the Employment Retirement Income Security Act (ERISA). ERISA requires employers to place employee contributions to pension plans in a trust that is independent of the employer's control. Another ERISA requirement imposes a duty of good faith on those who manage pension plans. Other ERISA requirements include informing employees of their retirement benefits and submitting reports on the plan to the Secretary of Labor.

• The Drug-Free Workplace Act applies to companies that have contracts with the federal government. Under the act, companies must implement a plan to make sure employees do not use drugs on the job, and drug testing may be used under certain circumstances. The Employee Polygraph Protection Act prohibits employers from using lie detector tests for screening of applicants or for random testing of employees.

• Unemployment compensation is a system of government payments to people who are out of work and looking for a job. You may be disqualified for unemployment benefits for a limited period if your unemployment arises out of a strike or lockout. Workers are also disqualified if they refuse suitable work without cause, have been discharged for misconduct, or have quit their jobs without "good cause." Workers compensation is an insurance program that provides income for workers who are injured or develop a disease as a result of their jobs.

Laws Regulating Employment Discrimination

• An employer cannot discriminate on the basis of sex, race, color, national origin, religion, age, disability, or pregnancy.

• The Civil Rights Act of 1991 was enacted by Congress to strengthen the doctrine of disparate impact of employment discrimination by requiring that the employer prove the existence of a busi- ness necessity that justifies discriminating against an employee. In addition, the Civil Rights Act allows plaintiffs who believe that they have been discriminated against because of sex, religion, national origin, or disability to recover back pay, and compensatory and punitive damages,

• The Age Discrimination Act (ADEA) of 1967, amended in 1978, prohibits some employers and labor unions from discriminating on the basis of age. The act forbids discrimination against any aged 40 or older in hiring, firing, promotion, or other aspects of employment.

• The Americans with Disabilities Act of 1990 forbids discrimination on the basis of a disability the disabled individual can do the "essential functions" of a job. Employers cannot discriminate against any "physical or mental impairment that substantially limits one or more of the major life activities" when screening or hiring, granting promotions, offering pay raises, or offering on- the-job-training opportunities.

Chapter 22

What Is Credit?

• There are two main types of credit. Open-end credit is credit that can be increased by the debtor by continuing to purchase goods or services on credit, up to a limit set by the creditor. Closed- end credit is extended only for a specific amount of money.

• The Truth in Lending Act requires that lenders tell you both the finance charge and the annual percentage rate (APR) of the loan. The purpose of this act is to assist consumers in making informed decisions when shopping for credit.

• A secured loan is one in which you give a creditor a right to something of value, called collateral, in exchange for money it lends you. You have possession and use of your collateral, but the creditor has a security interest and the legal right to repossess your property if you do not pay.

• If there is a problem with a good or service charged on your credit card, and the initial transaction took place in your state or within 100 miles of your mailing address, you may dispute the charge with your credit card issuer. If your credit card is lost or stolen, credit card protection will cover unauthorized charges, except for the initial $50, which you are required to pay. However, you should notify your credit card company immediately if you lose your credit card.

Credit Protection Laws

• The federal government has passed several credit protection laws to protect consumers. The Equal Credit Opportunity Act prevents credit issuers from discriminating against applicants because of gender, marital status, age, religion, race, national origin, or because they get public assistance income.

• The Fair Credit Reporting Act helps you know the source of a credit report and to correct any wrong information in it.

• The Fair Credit Billing Act establishes a procedure for the prompt handling of billing disputes. The Fair Debt Collection Practices Act makes it illegal for debt collectors to threaten consumers with violence, to use obscene language, or to contact consumers at inconvenient times or places to collect debts.

Managing Your Debts

• If you experience two or more of the following warning signs, you may be in financial trouble (1) you make only the minimum monthly payment on credit cards or have trouble paying even that much; (2) the total balance on your credit cards increases every month; (3) you miss loan payments or often pay late; (4) you use savings to pay for necessities such as food and utilities; (5) you receive second or third payment due notices from creditors; (6) you borrow money to pay off old debts; (7) you exceed the credit limits on your credit cards; or (8) you have been denied credit because of a bad credit report.

• If you're having trouble paying your bills and need help, you can contact your creditors and try to work out an adjusted repayment plan, or you can contact a nonprofit financial counseling program. The Consumer Credit Counseling Service is an organization that can offer help.

• Chapter 7 bankruptcy permits debtors to liquidate their assets and pay off creditors.

• Chapter 11 bankruptcy allows businesses to reorganize their financial affairs while remaining open for business.

• Chapter 12 bankruptcy is reorganization for family farmers.

• Chapter 13 bankruptcy permits an individual debtor to develop a repayment plan during which period of repayment creditors may not continue collection activities.

Chapter 23

Section 23.1 Purpose and Types of Negotiable Instruments

• Popular negotiable instruments include checks, notes, and drafts. Negotiable instruments were developed because people wanted to transact business without carrying around large sums of money and to purchase items that they could pay for at a later date. The use of checks, notes, drafts, electronic banking, and credit cards has increased dramatically in recent years. More people are opening checking accounts and signing drafts and promissory notes than ever before. These instruments are used conveniently and safely as a substitute for money and to obtain credit.

• A negotiable instrument is a written document giving special legal rights to the transferee that may be transferred by endorsement or delivery.

• There are two basic kinds of negotiable instruments: notes and drafts.

• When two persons sign a note, they are known as comakers.

• Creditors who loan money or extend credit ask debtors to sign notes (as evidence of debt). An advantage of using a note is that it can be negotiated (transferred) to other people without much difficulty.

• There are various types of notes. A

• demand note is a note that is payable when the payee demands payment. In contrast, a time note is a note that is payable at a future date, which is written on the face of the note.

• An installment note is a note that is paid in a series of payments. People often sign installment notes when they borrow money to purchase a car or house.

• A certificate of deposit is a note provided by a bank. A CD is a bank's written receipt of money and its promise to pay the money back, usually with interest, on the due date. Most CDs are written for a specific period of time, such as six months, one year, two years, or five years. Banks pay higher interest for longer-term CDs. Sometime people who hold certificates of deposit can obtain money by negotiating them to other people or by pledging them as security for a loan.

• A check is a draft drawn on a bank and payable on demand. Checks are the most common type of draft in use today. When you write a check, you order the bank to pay the money in your checking account to others.

• A note is a written promise by one person, called the maker, to pay money to another person, called the payee. A draft is an order to pay money. A draft is an instrument in which one party (the drawer) orders another party (the drawee) to pay money to a third party (the payee).

• A sight draft is a draft that is payable as soon as it is presented to the drawee for payment. A time draft is a draft that is not payable until the lapse of the particular time period stated on the draft.

• Businesses and private parties frequently use drafts to transfer debts from one party to another.

Requirements of Negotiability

• To be negotiable, an instrument must be in writing, must be signed by the maker or drawer, and must contain an unconditional promise or order to pay. In addition, the instrument must be made out for a fixed amount of money, payable on demand or at a definite time, and be payable to order or to bearer.

• The omission of the date does not affect the negotiability of an instrument, but the omission allows the presumption that the date on which the instrument is received is the date of issue.

• Handwritten terms control typed or printed terms, and words control figures.

• Handwritten terms control typed and printed terms because the court assumes that they represent the final intent of the parties to the contract.

• Words control figures because it is much harder to make a mistake when writing in words the amount of the negotiable instrument.

Chapter 24

Checking Accounts

• A checking account is opened by depositing money in the bank and by signing a signature card. The bank agrees to pay money out, up to the amount on deposit, when you write a check. If the bank fails to cash your check despite sufficient funds in the account, you can sue the bank for damages. Only the depositor has the right to bring a claim against the bank for failing to pay a check. The bank's agreement to cash checks is with the depositor only. An exception to this rule occurs with a certified check.

• It is important to write checks so that they cannot be altered or signed by a forger.

• Print the figures close to the dollar sign and keep all of them close together.

• Always write from the extreme left and draw a line through any extra space that remains to the right after you've written the amount in words.

• Write the name of the payee close to the "Pay to the order of," and fill in all unused space with a line. Make a note of the reason for the check. Your signature should be consistent with the one on the bank signature card. Never sign a blank check, and never cross out or change a check once it has been written; instead, void the entire check.

• If you deliberately write a check on an account in which you have insufficient funds, you can be held liable for larceny. Banks and stores generally charge a penalty fee for bad checks. Forging checks is a crime, and you can be fined or imprisoned.

• A forged check is a check that is signed by someone other than the drawer without the drawer's authority. If the bank pays a forged check and the drawer was not negligent, the bank must bear the loss. The bank must also bear the loss of the amount added if a check is changed from its original amount to a higher amount.

• A check that is altered in this manner is a raised check.

• You should balance your checkbook as soon as possible after receiving it. Compare the check register balance with the bank statement balance to make sure the two balances agree.

• Take outstanding checks into consideration, because your statement shows only checks that have already been paid from the account. Also save and compare any receipts that you have from debit card transactions to make sure they agree with the entries posted on your statement.

Other Payment Methods

• Certified checks are guaranteed by the bank on which they are drawn.

• A cashier's check is drawn by a bank upon itself. A bank draft is drawn by a bank against funds the bank has on deposit with another bank.

• Personal money orders may be purchased at banks, post offices, stores, travel offices, and automobile clubs, and they are drawn on the funds of the organization that issues them. Traveler's checks are signed by the purchaser when they are bought and then signed again when cashed. If lost or stolen, they can be replaced.

• Federal Regulation CC requires banks to make funds available to depositors according to a specific schedule.

• Electronic fund transfers (EFTs) are made with the use of computers, ATMs, and debit cards. Under the Electronic Fund Transfer Act, you are entitled to receive a written receipt whenever you use an ATM.

• In addition, the transaction must appear on your periodic statement. Debit cards offer less legal protection than do credit cards. Your liability for the unauthorized use of an ATM card is limited to $50, as long as notice of the loss or theft of a card is given to the issuer within two business days. Your liability increases to $500, however, if notice is delayed beyond that time; the liability becomes unlimited when notice is not given within 60 days.

Chapter 25

Transferring Instruments

• An assignment is the transfer of your rights under a contract to someone else; the transferee has only the rights of an assignee, subject to all defenses existing against you. In contrast, when you negotiate an instrument, you transfer it in such a way that the transferee becomes a holder by way of your indorsement.

• An indorsement occurs when you write your name on the instrument indicating your intent to transfer ownership to someone else. Negotiation of bearer paper occurs upon delivery of the bearer paper.

• Negotiation of order paper occurs when it is endorsed by the payee and delivered to the party to whom it is transferred.

Indorsements

• A blank indorsement is the simple act of signing an order instrument on the back. By signing an instrument in this way you say, in effect, "This instrument may be paid to anyone."

• An instrument endorsed in blank becomes bearer paper and may be transferred by delivery alone. If the instrument is lost or stolen and gets into the hands of someone else, that person can cash it by presenting the check for payment. For this reason, a blank indorsement should be used only in limited situations, such as at a bank teller's window.

• A special indorsement is the act of writing an order to pay a specified party. To create a special indorsement, you simply write the words pay to the order of or pay to followed by the name of the person to whom the instru- ment is to be transferred (the indorsee) and the signature of the indorser. When signed in this way, the instrument remains an order instrument and must be indorsed by the indorsee before it can be further negotiated.

• A restrictive indorsement is one in which words have been added limiting the use of the instrument. A restrictive indorsement does not prevent further transfer of negotiation of the instrument used for their, prior to further transfer, it must be used for the purpose stated in the indorsement. Retail stores often stamp checks "for deposit only when they are received. This provides protection in the event the checks are stolen.

• A qualified indorsement is one in which words have been added limiting the liability of the indorser. The words indicate that the indorser does not guarantee payment of the instruments. A qualified indorsement transfers title to the instrument. This form of indorsement is frequently used when the instrument is backed by security such as a mortgage or collateral. In case of default by the maker, the indorsee must look to the security for payment of the instru- ment rather than to the indorser.

• If an instrument is payable to two payees, both payees must indorse the check for proper negotiation.

• A forged indorsement is not valid, and anyone who takes a forged instrument does not acquire title and thus is not considered a holder. Anyone who pays an instrument on which there is a forged indorsement is liable to the true owner for the amount of the instrument.

• Indorsers who receive consideration warrant that: (1) the title is good; (2) all signatures are genuine or authorized; (3) the instrument has not been altered; (4) no defense of any party is good against the indorser; and (5) they have no knowledge of insolvency proceedings that would affect the instrument.

• To enforce the obligation of the indorser, the holder of an instrument must present it to the maker or drawer when it is due. If it is dishonored, the holder must notify the indorser within three business days after the date of dishonor.

Chapter 26

Holders of Instruments and Defenses

• Even when certain defenses are introduced in court, if a holder has preferred status, the holder may still be able to collect on the instrument.

• Preferred status is given to a party called a holder in due course.

• A holder in due course is a holder who takes an instrument for value, in good faith, and without notice. To be a holder, the instrument must have been issued or indorsed to you.

• You must give value when you accept an instrument; a gift would not allow you to qualify as a holder in due course. You give value when you give the consideration that was agreed upon or when you accept an instrument in payment of a debt.

• The holder must also act honestly to qualify under the "good faith" requirement. Whether a person took an instrument in good faith is determined at the time of taking the instrument. If a person acted in good faith at the time, but later learned of disturbing facts, he or she is still regarded as having taken the instrument in good faith.

• A holder must not have notice of any claim or defense to the instrument. A holder has notice of a claim or defense if the instrument bears visible evidence of forgery or alteration. The same is true if the instrument is so incomplete or irregular that its legal acceptance is doubtful. Notice of a claim or defense is also given if the holder notices that the obligation of any party is voidable.

• Holders in due course are treated more favorably than mere holders are treated. They receive more rights in negotiable instruments than other parties. For this reason, negotiable instruments are passed almost as freely as money from one person to another. To be a holder in due course, you must first be a holder.

• Two kinds of defenses against a holder are recognized: personal and real.

• Real defenses may be used against holders in due course; personal defenses may not.

• Personal defenses such as breach of contract, failure or lack of consideration breach in the inducement, and lack of delivery and payment may not be used against holders in due course.

• A real defense is a defense directed against the instrument itself. The contention is that no valid instrument ever came into existence; therefore, the instrument could not be real or genuine. Some examples of real defenses are infancy and mental incompetence, illegality and duress, fraud as to the essential nature of the transaction, bankruptcy, unauthorized signature, and alteration.

Liabilities of Parties

• Primary liability is an absolute liability to pay.

• A party with primary liability has promised to pay the instrument without reservation. Makers of promissory notes and acceptors of drafts have primary liability. When there are comakers on notes, they have primary liability and are considered makers regardless of whether they receive any consideration.

• A party with secondary liability has a liability to pay only after certain conditions have been met: (1) the instrument must be properly presented to the primary party or drawee; (2) payment must be demanded; (3) payment must be dishonored (refused by the primary party) or be impossible; and (4) notice of refusal must be given to the secondary party within the time and in the manner prescribed by law.

• There are two types of parties who may have secondary liability for the payment of an instrument. They are (1) the drawer of a draft (a check is the most common kind of draft) and (2) the indorser or indorsers of either a draft or note.

Chapter 27

Sole Proprietorship

• A sole proprietorship is a business that is owned by one person. It is the most common kind of business and is the easiest to establish. Typical sole proprietorships are repair shops, small retail stores, and service organizations. Many locally owned businesses in your community are probably sole proprietorships.

• A sole proprietor can choose to operate under his or her own name, or he or she can make up a fictitious name for the business entity. In selecting a fictitious name, sole proprietors must not choose a company name already in use. In some states, the first user of a fictitious name can get a court order to prevent another sole proprietor from doing business under that name. Some requirements may affect sole proprietorships such as licenses, insurance, or zoning requirements for conducting business. Barbers and plumbers are examples of sole proprietors who must have occupational licenses as well as certain types of liability insurance. Zoning ordinances prohibit businesses from operating in certain parts of the

  community.

• Sole proprietorships are easily created, and the sole proprietor has total control of how the business is run and of the profits. The government does not overly regulate sole proprietorships, and profits are taxed only once.

• Most disadvantages of sole proprietorships are related to limitations of capital and human resources. All money used to finance a sole proprietorship must come from the proprietor's savings or income, or from loans obtained by the proprietor. Human resources are limited in that a sole proprietor is responsible for making all decisions that affect the business. Aside from facing limitations in available capital and human resources, a sole proprietorship also has a limited lifetime.

• When the proprietor dies or chooses to sell or close the business, the company no longer exists. Another disadvantage to the sole proprietor is that there is no limit to the liability she or he could incur. As a result, the proprietor's personal assets are at risk if the business fails.

The Partnership

• A general partnership is created when two or more parties combine their money, labor, and skills for the purpose of carrying on a lawful business.

• The Uniform Partnership Act (UPA) defines partnership as "an association of two or more persons to carry on a business for profit."

• General partnerships can be formed by agreement, proof of existence, or estoppel.

• A limited partnership is a partnership formed by two or more persons having one or more general partners and one or more limited partners. Limited partners are investors only. They invest in the business and share in profits. They have no management rights, and their liability is limited to their investment.

• In a partnership, a partner has the right to use the partnership property, manage the partnership, and share in the profits.

• The dissolution of a partnership is a change in the relationship of the partners that occurs when any partner stops being associated with the business. The business operations cannot be stopped on a moment's notice. It takes time to close the firm's affairs and formally bring the firm to an end. During this period, the partners are not carrying on business. Upon dissolution, liabilities are paid in the following order: (1) debts to creditors other than partners; (2) money lent by partners to the firm; (3) the original money paid by each partner; and (4) surplus owed to the partners.

Chapter 28

Corporations

• A corporation is an entity created by law to act as a single person.

• About 90 percent of all business in the United States is done by corporations.

• A corporation is authorized by law to act as a single person, distinct from its members or owners. Not all corporations are large. Approximately 40 percent of all corporations employ fewer than five employees.

• An individual who owns shares of a corporation is called a shareholder or stockholder.

• A share is a single unit of ownership of a corporation. A shareholder is entitled to one vote per share of stock that he or she owns in a corporation. Shareholders can cast their votes to elect a board of directors whose duty is to direct the corporation's business.

• The principal advantage of doing business as a corporation is the limited liability of the shareholders. Another advantage of a corporation is the fact that it has continuity of existence. This means that a corporation continues to exist, regardless of the lifespans of its founders, shareholders, managers, and directors.

• Public corporations are political units. Public corporations include towns, villages, cities, and school districts.

• Private corporations may be classified as profit or nonprofit corporations. Private corporations are not government run.

• Profit corporations are organized for the purpose of making money, and they have capital stock. Profit corporations are found in nearly every major field of economic activity, including transportation, manufacturing, business, technology, entertainment, financial, and service fields.

• These corporations are regulated by the laws of the states in which they operate. In contrast, non- profit corporations are formed for educational, religious, charitable or social purposes, and membership is acquired by agreement rather than by acquisition of stock.

• Many nonprofit fraternal organizations are nonstock corporations. A corporation is deemed domestic in the state in which it is incorporated and is considered foreign in other states. An alien corporation is one that is incorporated in another country but is doing business in this country.

• A corporation cannot come into existence by itself-people must take the necessary steps to bring it into legal existence. A promoter carries out the incorporation process by taking the initial steps to organize and finance a business. These steps may include assembling investors, leasing office and warehouse space, purchasing supplies and equipment, and hiring employees.

• To create a corporation, the promoters must first choose a unique name and file the name with the secretary of state. Under most state statutes, the words corporation, incorporated, or company, or an abbreviation of one of the words, must appear as part of the corporate name.

• Articles of incorporation, which describe a corporation's organization, powers and authority, must also be filed with the secretary of state. Paying the filing fee completes the application process. After the application is approved by the secretary of state, the corporation receives a certificate of incorporation.

• A corporation is funded via subscription. At the time the corporation is being organized, the promoters seek out people who are interested in entering into contracts to buy stock when the corporation completes its organization and is authorized by the state to sell stock to the public.

• A limited liability company combines the best features of a partnership and a corporation. Like a corporation, it offers limited liability to its owners, and as do the partners in a partnership, the owners of an LLC escape double taxation.

Chapter 29

Managing The Corporation

• Corporate directors manage a corporation.

• They are responsible for broad policy decisions made by a corporation, and are subject to corporate bylaws and state laws regulating their behavior.

• You don't need special qualifications to be a director of a corporation, and usually the shareholders elect and remove directors. However, a corporation's certificate of incorporation or its bylaws may specify that one director must be a shareholder and one must be a state resident.

• Directors generally serve for a set number of years and then must sit for reelection by the shareholders. Often, corporate bylaws call for staggered elections so that all of a corporation's directors are not elected at the same time. Directors meet regularly, at a time and place their choosing.

• Corporate officers carry out the day-to-day operations of the corporation. Officers are agents of the corporation and principal-agent rules apply. Like directors, officers are subject to the duties of loyalty and due care. Each officer's duties are generally spelled out in the corporation's bylaws.

• Shareholders are owners of stock in a corporation. They have the right to: (1) receive dividends as declared by the board of directors; (2) receive and possess a stock certificate; (3) have ready access to corporate records; (4) maintain a proportionate share of stock in the corporation; and (5) exercise a vote for each share of stock owned.

• To vote, a shareholder can attend the annual shareholders meeting in which the board of directors and officers present corporate business to be voted upon. Most states allow this meeting to be held anywhere, and many corporations rent halls to encourage attendance. The president or chairman of the board usually presides at shareholders meetings. A majority of the shareholders must be represented either in person or by proxy before business can be conducted.

• Shareholders can vote independently or under the terms of a voting trust or pooling agreement.

Management Responsibilities

• The courts have tried to clarify the concept of due care to encourage competent people to become and remain corporate directors and officers. They have often given a liberal interpretation to the duty of due care, applying the business judgment rule.

• Corporate directors are presumed to be acting with due care, and the courts will defer to their judgment and decisions unless the directors lack good faith, commit illegal acts, or have conflicts of interest.

• A director's decision will stand, despite a conflict of interest in the transaction between the corporation and another party, if the director can prove that the decision would have involved the same conditions, price, or terms if it had been made at arm's length.

• An extension of the director's duty of loyalty to the corporation prohibits a director from taking a business opportunity for himself or herself if he or she has knowledge that the corporation would want to take that opportunity for itself. If the corporation turns down the opportunity, the director is then free to take it without conflict. The only exception to this rule is if the director or officer knows that the corporation is finan- cially incapable of taking the opportunity, despite its interest. In such a situation, the director or officer would be permitted to take the opportunity without violating the doctrine.

• In a limited liability company, the owners can either manage the firm on their own, or they can choose to enlist the services of outside administrators. A member-managed LLC is one that is run by the owners themselves; a manager- managed LLC is one that is directed by an outside manager.

Chapter 30

Government Regulation Of A Corporation

• The federal government derives its power to regulate business from the commerce clause of the U.S. Constitution. The federal government can regulate any business activity that affects interstate commerce, even one that occurs completely within the boundaries of a single state.

• Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934 to protect corporate investors by ensuring that information regarding securities is available before purchase. These acts protect purchasers by enabling them to learn the true nature of securities they buy and by providing a way to discover fraud and unfair practices.

• In 1890, Congress passed the Sherman Antitrust Act that declared monopolies to be illegal. In addition, Congress passed the Clayton Act in 1914, which made specific practices that foster the formation of monopolies illegal. To combat unfair competition, the Federal Trade Commission Act was passed to protect a business from the wrongful acts of unfairly competing companies. The Robinson-Patman Act made it illegal for companies to sell goods at lower prices to high- volume purchasers without offering the same discount to smaller purchasers.

• Among the federal acts that regulate energy and the environment are the Energy Reorganization Act and the National Environmental Policy Act. The Energy Reorganization Act created the Nuclear Regulatory Commission (NRC). The commission regulates the licensing, constructing, and opening of nuclear reactors. The NRC also handles the possession, use, transportation, and disposal of nuclear material. Under the terms of the National Environmental Policy Act, a detailed statement explaining the environmental consequences must precede any major federal government action that affects the quality of the environment.

Corporate Expansion And Dissolution

• In a merger, one corporation continues its existence and absorbs another corporation, which gives up its corporate identity. In contrast, a consolidation of two or more companies is the formation of a new corporation.

• In an asset acquisition one corporation agrees to purchase the assets or property of a second corporation.

• A stock acquisition occurs when an individual or a corporation purchases enough shares in a corporation to control it.

• Before a stock acquisition, the buyer makes an offer to shareholders of a corporation to buy a number of shares at a specified price. A tender offer is also referred to as a takeover bid, and it is usually communicated to the prospective selling shareholders through a newspaper advertisement.

• A suitor is the party making the tender offer to buy shares to achieve a stock acquisition. The target is the corporation that is considered for takeover by the suitor. A corporation may dissolve itself voluntarily by a unanimous vote of all of its shareholders.

• The directors may also vote its end with the support of two-thirds of the shareholders. In contrast, the state can bring an action against a corporation for repeated wrongdoing and force its dissolution. In addition, a shareholder can bring an action to dissolve a corporation to protect the shareholders' rights from the consequences of destructive board decisions.

• The members of a limited liability company can initiate its dissolution by unanimous agreement, by the expulsion of a member, or by a member's bankruptcy and withdrawal from the company.

Chapter 31

Marriage Formalities and Restrictions

• Each state is permitted, following U.S. Constitutional guidelines, to prescribe who is allowed to marry and how a marriage can be dissolved. However, each state must also recognize the laws and court decisions of other states.

• Marriage is a civil contract that comes into existence when you become engaged. At the time of engagement, there is an agreement containing consideration (a promise to give up the legal right to remain single) between two parties who have the capacity to contract, by mutual consent and for a legal purpose. While a couple is engaged, the marriage contract is in its executory stage. The contract is executed when the wedding occurs. Under com- mon law, if one of the parties failed to go through with the marriage after becoming engaged, the other party could sue for damages caused by breach of the marriage contract. However, this is no longer the law in most states today.

• The marriage contract imposes rights and duties that provide financial protection to both parties to the marriage. If you are married, you have the following rights: (1) the right to support by your spouse when necessary; (2) the right to inheritance from your deceased spouse; (3) the right to property if the marriage ends; (4) the right to compensation to continue your standard of living if the marriage ends; and (5) the right to file a joint income tax return. The primary duty that arises from the marriage contract, however, is the duty of being faithful to your spouse.

• A premarital agreement must be in writing and signed by both parties prior to getting married. In making a premarital agreement, you must make honest statements, and you and your partner must fully disclose your assets to each other. In some states, a different attorney must represent each party.

• Although laws vary from state to state, parties to a premarital agreement generally may contract with respect to the following issues: (1) the rights and obligations of each of the parties with regard to any of the property of either or both of them; (2) the right to buy, sell, manage, and control real and personal property; (3) the disposition of real and personal property upon separation, divorce, or death; (4) the change or elimination of support; (5) the making of a will; and (6) the ownership of and benefits from life insurance policies.

• Certain types of marriage are prohibited, including marriages between relatives, marriages that result in bigamy or polygamy, and marriages between persons of the same sex.

• Bigamy is the act of having two spouses at the same time. Polygamy is the act of having more than two spouses at the same time.

Personal Property

• Most states require a marriage to be solemnized. In most states, a person can be married at the age of 18 without a parent's consent and at a younger age with permission. Most states have a waiting period before a marriage license is issued, and some states require a blood test to screen for certain infectious diseases or conditions affecting childbirth.

• Eleven states and the District of Columbia recognize common-law marriage. In those jurisdictions, a common-law marriage occurs when the parties agree, by words in the present tense, that they are husband and wife. They must cohabit for a certain time period, and they must present themselves to the rest of the world as husband and wife. A divorce is required to end a common-law marriage. A ceremonial marriage is solemnized by a ceremony or serious rite.

Chapter 32

Ending a Marriage

• A marriage comes to an end in one of three ways: the death of one of the parties, annulment, or divorce.

• An annulment is a declaration by the court that a marriage was never valid. Although the laws vary from state to state, marriages generally can be annulled on the grounds of duress and fraud. In contrast, a divorce is a declaration by the court that a valid marriage has come to an end. A legal separation declares that husband and wife no longer have the right to cohabit, but they are still considered married. In making a separation judgment, the court will temporarily decide the issues of child custody and support, but you and your spouse remain married until there is an absolute (final) divorce.

• Although laws vary from state to state, a marriage generally can be annulled when someone is forced to marry against his will or when someone is persuaded to marry by the use of a misrepresentation. When a person is persuaded to marry by misrepresentation, it is fraud. Some common examples of fraud that are grounds for annulment include being below the state age to marry, secretly intending never to have children, or concealing pregnancy by someone other than the husband.

• A legal separation is a court judgment ending the right to cohabit, but the parties remain married until the absolute divorce.

• The grounds for divorce vary from state to state. In most states, however, you only need to prove that the marriage relationship has broken down to get a divorce. The most common grounds for divorce are no-fault, adultery, cruelty, desertion, alcohol or drug addiction, nonsupport, conviction of a felony, and withholding knowledge of the desire not to have children.

• For a court to hear a case, it must have the authority, or jurisdiction. In a divorce case, the

  court's jurisdiction is based on where the person seeking the divorce makes his or her home. A person asking for the divorce must be domiciled where the court is located. A domicile is the principal place of abode, and the place to which, when you are absent, you have the intent of returning.

• A residence is a place where you actually live, which may or may not be your domicile. A domicile cannot be abandoned or surrendered until another domicile is acquired. You may have several residences, but you can have only one domicile at any given time.

Divorce Settlement

• Alimony is not intended as a penalty. Usually, the spouse who is found to have been at fault during the marriage will not be awarded alimony. There is no fixed rule for determining the amount of alimony. Some factors in determining an award of alimony include each spouse's income and earning capacity, financial resources, future prospects, separate property, current obligations, the number of dependents, age, health, and the number of former spouses.

• Equitable distribution laws allow judges to distribute property equitably, or fairly, between a husband and wife, regardless of who has title to the property. In determining equitable distribution of marital property when a couple is divorced, the court considers the age and earning power of each spouse, the length of the marriage, and the contributions of each spouse to the marriage.

• When spouses divorce, each parent has an equal right to the children's custody. The court will award the form of custody that is in the best interest of the child. Every state has adopted child support guidelines, and to enforce child support, a legal order is necessary.

Chapter 33

The Rental Agreement

• Several types of tenancies exist. A tenancy for years is the right to occupy property for a definite or fixed period of time. It may be for 1 week, 6 months, 1 year, 5 years, 99 years, or any other period of time, as long as the time period is definite. A tenancy for 100 years usually has the effect of transferring absolute ownership to the tenant. For this reason, leases are occasionally written for 99-year periods.

• Some states require a tenancy for years to be in writing because it is a transfer of an interest in real property. A periodic tenancy continues for successive fixed periods, subject to termination by advance notice. One of the parties may terminate this tenancy by giving advance notice to the other party. If such proper notice is not given, the tenancy continues for another like period. The notice requirement differs from state to state, but it is often the period between rent days.

• A tenancy at will is the right to occupy for an indefinite period of time, and it is subject to termination when either the landlord or tenant gives requisite notice. No written agreement is required to create this tenancy.

• A tenancy at sufferance arises when a tenant doesn't leave after the expiration of her or his tenancy. A tenant at sufferance, also called a holdover tenant, is a wrongdoer who no longer has legal interest in the property. Generally, a tenant at sufferance is not entitled to notice to vacate but is liable to pay rent for the period of occupancy. If a landlord accepts rent from a tenant after tenancy has expired, a periodic tenancy or a tenancy at will may come about instead of a tenancy at sufferance.

• Some covenants found in a lease are the following: (1) the landlord requires a monetary deposit as security deposit; (2) the landlord must make repairs necessary to keep the premises fit for living; (3) a tenant may assign or sublet the leased property; and (4) the tenant may renew the lease or purchase the property.

• To keep rent affordable, some communities have rent control laws that limit the amount of rent that landlords can charge. These laws also include certain procedures that must be followed to evict tenants.

Responsibilities of Landlords and Tenant

• Landlords have several duties. They must refrain from practicing discrimination in renting their property. In nearly all states, it is against the law for a landlord to refuse to rent or lease property to any person because of race, religion, color, national origin, sex, age, ancestry, or marital status.

• Refusing to rent to a member of the armed forces, a blind person, or a person who might have children in the future is also against the law. Landlords must also keep property for dwelling purposes fit for human habitation. Tenants are entitled to the exclusive peaceful possession and quiet enjoyment of the property. Duties belonging to tenants include the duty to pay rent when it is due and the duty to observe the valid restrictions contained in the lease. Tenants also have a duty to avoid damaging or destroying the property, acts known as committing waste.

• Waste is defined as substantial damage to premises that significantly decreases the value of the property.

• A tenant can be evicted for failing to pay rent, remaining after the expiration of the lease, committing waste, and violating the provisions of a lease. It is illegal in every state for a landlord to use force to evict a tenant.

• The landlord can be liable for injuries caused by defects in the common areas of leased property. The tenant can be liable for injuries that occur in the area over which he or she has control.

Chapter 34

Evaluating Housing Alternatives

• Advantages of owning a house include the ability to do with it as you wish, the gradual buildup of equity in the property, and the ability to deduct taxes and interest from your income tax return. Disadvantages include the inconvenience and cost of upkeep and the inability to move easily and quickly.

• Down-payment requirements vary between zero to 30 percent of the purchase price depending on the type of loan for which you qualify.

• Qualified veterans can obtain a Veteran's Administration (VA) loan to buy a house up to $203,000 with no down payment.

• Mortgages backed by federal agencies, such as Fannie Mae and Freddie Mac, are available with a 3 percent down payment. FHA loans (loans insured by the Federal Housing Administration) can be obtained with a down payment of 3 to 5 percent.

• Conventional bank loans require down payments ranging from 10 to 30 percent.

• The amount you can borrow also varies depending on how much you earn.

• A lender will also judge your ability to repay your loan based on your credit report and your debt ratio. Your debt ratio is the amount of your monthly payments compared to your monthly income.

• The types of home ownership include a single- family home, a multifamily home, a mobile home, a cooperative, and a condominium. Single- family homes are the most popular type of home.

• They offer the most privacy and usually have more overall usable space than other types of housing. Multifamily homes are less expensive to own because of the income from non owner- occupied units. The owner's monthly mortgage and tax payments can often come from rental income. Mobile homes, also known as manufactured homes, are less expensive to purchase than other types of houses and cost less to keep up. A cooperative is a form of home ownership in which buyers purchase shares in the corporation that owns an apartment building and holds the mortgage on it. In a condominium, each owner has an absolute individual interest in an apartment unit and an undivided common interest in the common areas of the condo project.

House Buying Process

• The purchase and sale agreement should be subject to your getting a mortgage and should be reviewed by a lawyer before being signed.

• The types of mortgages include conventional, fixed rate, adjustable rate, graduated payment, and balloon payment. Co-owners may take title as tenants in common, joint tenants, or if husband and wife, as tenants by the entirety.

• Tenancy in common is a type of ownership in which two or more people own an interest in the whole property. An owner's heirs inherit that person's share of the property upon death.

• Joint tenancy is a type of ownership in which two or more people own an interest in the whole property. Upon the death of one joint tenant, the entire ownership goes to the other joint tenants. Only a husband and wife can own property by tenancy by the entirety. In theory, each spouse owns the entire property, which neither can transfer without the other's consent.

• The principal kinds of deeds are a general warranty, a special warranty, a bargain and sale deed, and a quitclaim deed.

• A general warranty deed contains express warranties that title to the property is good.

• A special warranty deed contains express warranties that no defect arose in the title during the time that the grantor owned the property, but not before.

• A bargain and sale deed grants no warranties.

• A quitclaim deed releases the grantor's rights to the property. Property owners can lose title to their property by eminent domain, adverse possession, and by giving easements to others.

Chapter 35

Insurance Contract

• The basic purpose of insurance is to spread the losses among a greater number of people. Insurance is a contract under which, for consideration, the insurer, or the insurance company, agrees to compensate you for a specific loss.

• An insurance policy is the written contract between the policyholder and the insurance company that sells it on behalf of the insured, the one whose life or property is being insured.

• The beneficiary is the person named in the policy to receive the proceeds paid by the insurer in the event of a loss.

• A rider is an attachment to an insurance policy that modifies the policy's terms. The premium is the amount of money the policy- holder pays to the insurance company for insurance coverage.

Life and Health Insurance

• Straight life insurance requires you to pay premiums throughout your life.

• Universal life insurance allows you to change the terms of the policy as your needs change. Limited payment life insurance provides that premiums stop after a stated length of time.

• The proceeds of an endowment policy are paid to the beneficiaries upon the insured's death, or to the insured if alive at the end of an agreed period.

• An annuity is a guaranteed retirement income paid for either by a lump-sum premium or by periodic payments. Accidental death and dismemberment insurance provides benefits only when you are killed in an accident, lose the use of one or more limbs, or lose sight in one or both eyes.

• Term insurance covers you for a particular time period, usually five or ten years. Term insurance is the least expensive kind of life insurance because it has no cash or loan value.

• Premiums for term life insurance increase at the end of each term because the insured is older and considered a greater risk.

• Insurers are exempt from paying when an insured is legally executed, or when the beneficiary murders the insured. Usually beneficiaries can recover for death caused by suicide under a policy that's at least two years old.

• Basic health insurance coverage covers hospital

  and medical expenses.

• Major medical insurance pays for medical expenses beyond those covered by a basic plan.

• Group plans are insurance plans offered through a place of work. Individual plans are for people whose companies do not offer health insurance or for those who are self- employed.

• People can also opt for coverage by a Health Maintenance Organization (HMO), which is a group of healthcare professionals. A Preferred Provider Organization (PPO) is a group of healthcare providers, such as doctors or hospitals, who provide care for groups of employees at reduced rates.

• Medicare is the federally funded health insurance program for those over 65, and Medicaid is a healthcare plan for low-income people.

Property Insurance

• Property insurance covers losses to specific property for a stated premium. A homeowner's policy protects against losses and liabilities related to home ownership. Fire insurance covers loss resulting directly from an unfriendly or hostile fire.

• Coinsurance limits your liability for a loss if the property is not insured for its full replacement value. If the coinsurance clause provides for 80 percent coinsurance, then your house must be insured for 80 percent of its replacement value to receive full reimbursement for a loss.

• Ocean marine insurance covers ships at sea.

• Inland marine insurance covers goods that are moved by carrier.

Chapter 36

Retirement Income

• Social security provides income to people when their regular income stops because of retirement, disability, or the death of someone who had provided them with income. You and your dependents become eligible for social security benefits when you work at a job that is covered by social security.

• A pension plan is a retirement plan that is funded at least in part by an employer. If the plan is financed entirely by the employer, it is called a noncontributory pension plan.

• A plan that is financed by the combined contributions of employers and employees is a contributory pension plan. Most employer pension plans are contributory, and many employers match the amount contributed by the employee. Under a 401(k) plan, an employee invests in a retirement plan, which is not taxed until the money is with- drawn.

• Under a defined-benefit plan, an employee receives a predetermined amount of money upon retirement or disability. Under a defined- contribution plan, an employer pays a certain amount into a pension fund every month, which is paid upon retirement or disability.

• The Employee Retirement Income Security Act (ERISA) requires that the employer place his or her employees' pension contributions into a pension trust.

• Individual retirement accounts (IRAS) allow you to provide for retirement by saving a part of your earnings every year into an account with favorable tax implications. Funds in a Roth IRA are free from tax when withdrawn after age 591/2. The interest in an Education IRA is tax free, and there is no early withdrawal penalty. Contributions to a Keogh plan are tax deductible and the interest is tax deferred

Estate Planning

• Any person of a sound mind who has reached the Age of adulthood may make a will.

• To be of sound mind means you have sufficient mental capacity to understand the nature and extent of your property, know the natural persons to inherit your property, know that you are making a will, and be free from delusions.

• To be valid, a will must be in writing, signed, and witnessed.

• In some states, wills may be revoked by burning, tearing, canceling, or obliterating the document with the intent of revoking it; by executing a new will; and by changing marital status. A will is changed by making a new will or by adding a codicil.

• Surviving family members are protected from an unfavorable will by such things as family allowance, homestead exemption, and exempt property. A surviving spouse who does not like the provisions of a deceased spouse's will may choose to take a different portion of the estate, as determined by state law.

• Children who are mistakenly omitted from a parent's will may receive the share they would have received had the parent died without a will.

• The personal property of a person who dies intestate goes to that person's heirs according to the law of the state where the decedent was domiciled.

• Real property passes according to the law where the property is located. If there are no surviving blood relatives, the property goes to the state. The personal property of a person who dies testate is distributed according to the instructions in that person's will.

• When someone dies owning assets, the executor or administrator gathers the assets, pays the debts and taxes, and distributes the remainder according to the terms of the will or state law.