Untitled Flashcards Set

Chapter 25 Negotiable instruments 

• Negotiable instrument: A signed wiring that contains and unconditional promise or ord to pay an exact amount, either on demand or at a specific future time (must be in writing) 

• Four types of negotiable instruments: Drafts, checks, notes, and certificate of deposit

• Order to pay: draft and checks (Promise to pay: Notes and CD’s

• Draft: An unconditional written order that involves three parties 

• Drawer: Creates the draft - Drawee: The one who pays - Payee: The one who gets paid 

• Time draft: Payable at a definite future time 

• Sight draft: Payable on sight when it is presented 

• Acceptance: the drawee’s written promise to pay the draft when it comes due 

• Promissory note: A written promise made by one person to pay another a specified sum 

• The terms of promise or order must be included in the writing on the face of a negotiable instrument 

• Trade acceptance: A draft that is drawn by a seller of goods ordering the buyer to pay a specified sum of money to the seller, usually at a stated time in the future 

• Bankers acceptance: A promised future payment or time draft that is accepted and guaranteed by a bank and drawn on a deposit at a bank 

Requirements for negotiability: 

1. Be in writing , Be signed by the maker or the drawer, Be an unconditional promise or order to pay, State a fixed amount of money, Be payable on demand or at a definite time, Be payable to order or to bearer 

Chapter 28 Banking 

• Cashiers check: When a bank serves the drawer and the drawee

• Traveler’s check: an instrument that is payable on demand. Used when a person is on vacation or traveling. Person using it is required to sign at the time it is purchased and when it is used. 

• Certified check: A check that has been accepted by the bank on which it is drawn (UCC3-409). The bank is agreeing in advance to accept the check when it is presented

• Bank customer relationship: Starts when customer opens a check account and deposits funds 

• Creditor-Debtor Relationship: Created between a customer amd a bank when the customer makes a cash deposit 

• When a drawee bank wrongfully fails to honor a check, it liable to its customer for damages resulting from its refusal to pay (UCC 4-402) 

• Customer is liable to the payee if a check is dishonored for insufficient funds 

• Overdraft: When there isn't enough money in your account but the bank still pays it and charges you a fee

• With a joint account the bank cannot hold any joint account owner liable for payment of the overdraft unless that customer signed the check or benefited from its proceeds (UCC 4-401) 

• Stale checks: A check that is presented for payment more than 6 months from its date. Bank is not obligated to pay (UCC 4-404) 

• Stop Payment order: An order by a customer to her or his bank not to pay a certain check. The customer-drawer must issue the stop payment order with a reasonable period of time 

• Bank has 10 days after someone passes that it can pay or certify checks 

• Forged Drawer’s signature: A bank may be able to obtain partial recovery from the customer (If the customer's negligence contributed to the forgery), the forger of the check (ultimate liability), the holder of the check (if they knew it was a forgery) 

• The customer has a duty to report within 3 years 

• Altered checks: Bank has implicit duty to examine checks. Customer negligence can shift if bank exercised ordinary care 

• Interest bearing Accounts: Info required when opening an acct: 

• Min. balance required to open and be paid interest

• APR

• How interest is calculated

• Any fees, charges or penalties and how calculated 

• Customers monthly statement must disclose:

• Interest earned

• Fees

• How fees calculated 

• Number of days covered by the stmt 

• Substitute Check: A negotiable instrument that is a paper reproduction of the front and back of an original check and contains all of the same information required on checks for automated processing 

Types of ETF systems 

• ATM

• POS systems

• Direct deposits and withdrawals 

• Online bill payments

 Chapter 3 Ethics in business 

Relationship of law and ethics

• Laws are designed to prevent fraudulent conduct 

• Dodd-Frank: Law passed in 2010 aimed at reducing risks in the financial system (provides regulation and protections to avoid future economic collapses 

• Sox: Law made in 2002 to protect investors by improving the accuracy and reliability of corporate financial reporting 

• Moral minimum: The minimum degree of ethical behavior expected of a business firm, which is usually defined as compliance with the law 

Private company code of ethics: 

• Code of conduct

Triple bottom line 

• People 

• Planet 

• Profits  

Ethical reasoning: A reasoning process in which an individual links his or her moral convictions or ethical 

Study of ethics identifies two major categories: 

• Duty Based ethics

• Outcome based ethics 

Kantian Ethical Principles 

• Categorical imperative: Evaluate the action in terms of what would happen if everybody else in the same situation, or category, acted the same way

Utilitarianism: An approach to ethical reasoning in which ethically correct behavior is related to an evaluation of the consequences of a given action on those who will be affected by it (best outcome for the most people) 

Cost benefit analysis: 

• Which individuals will be affected by the action 

• Cost benefit analysis

• A choice song alternative actions that will produce maximum societal utility 

Sources of Ethical issues in Business decisions 

• Short term profit maximization 

• Social media 

• Awareness 

• Rationalization 

• Uncertainty 

IDDR (I desire to do right) 

Steps:

1. Inquiry 

2. Discussion (What you should not not what you can do)

3. Decision 

4. Review 

Chapter 47 Liability and accountability 

Potential liability to clients

• Common law 

• Breach of contract 

• Negligence 

• Standard of care 

Sources:

•  profession 

• Statue 

• Judicial decisions 

• Fraud

Duty 

Breach 

Causation 

Damages  

Accountants Duty of Care 

Accountants have the expertise and experience necessary to: 

• Establish and maintain accurate financial records 

• Design control and audit record keeping systems 

Generally an accountant is expected to: 

• Possess the skills that ordinarily prudent accountant would have 

• Exercise the degree of care that an ordinarily prudent account would have 

Generally accepted accounting principles (GAAP)

Generally accepted auditing standards (GAAS) 

Audits 

• Financial statement reliability 

• Can be liable if you do not do correct audit, but if you do approved method and don't find fraud not liable 

• Opinion letter: 

Qualified: 

Disclaimer: don't have enough information or have a disclaimer 

Unaudited Financial Stmts: 

• When private companies have an outside auditor do an audit so they can set a reasonable stock price for exchanges of stock 

Defenses: 

1. The accountant was not negligent 

2. If the accountant was negligent, this negligence was not the proximate cause of the clients losses

3. The client was also negligent 

• Be familiar with well settled principles of law applicable to a case 

• Find relevant law that can be discovered through a reasonable amount of research

• Investigate and discover facts that could materially affects climates legal rights

• Reasonably competent general practitioner of ordinary skill, experience, and capacity 

State rules of professional conduct for attorneys provide that: 

• Committing a criminal act that reflects adversely on the attorneys “honest or trustworthiness, or fitness as a lawyer” is professional misconduct 

• A lawyer should not engage in conduct involve dishonesty, fraud, deceit, misinterpretation 

• Malpractice (professional negligence) 

Liability for Fraud: 

Fraud or misrepresentation involves the following elements: 

1. A misrepresentation of a material fact

2. An intent to deceive 

3. Justifiable reliance by the innocent party on the misrepresentation 

Actual Fraud: may be held liable for actual fraud when: 

• He or she intentionally misstates a material fact or mislead a client 

Constructive Fraud:

• Intent does not matter 

• Gross negligence 

Potentially liability to Third parties: 

• Traditionally limited to privity of contract 

• Exceptions: Violation of statute, fraud, intentional/reckless wrongdoing 

• Today: third parties, especially regarding audits 

Attorneys Liability to Third Parties: 

• Attorneys may be held liable 

• Toll for minors: when kids have longer statue of limitations becase of lack of knowledge on the law

2/10/2025

The Sarbanes-Oxley Act 

• Created the Public company Accounting Oversight board, which reports to the securities and exchange commission 

• Section 404b - independent auditors must report on management's assessment of internal controls (does not apply to smaller companies with less than 75 million in publicly held shares)

• Auditor independence 

• Document Destruction -fine or important up to 20 years

• Document retention -fine or imprisonment up to 10 years 

Criminal penalties for liability accountants

Most states make it a crime to: 

1. Knowingly certify false reports

2. Falsify alter or destroy books of account 

3. Obtain property or credit through the use of false financial statements

Confidentiality and privilege

• Attorney Client

• Protected by law which provide a privilege 

• Client holds the privilege and only client may waive it 

• The client holds the privilege and only the client may waive it 

• Under federal law, communications between professionals and their clients other than those between an attorney and her or his client - are not privileged 

• In cases involving federal law, state provided rights to confidentiality of accountant-client communications are not recognized

Chapter 8 Intellectual property 

Examples: Patents, trademarks, copyrights 

Trademark: A distinctive mark, motto, device, or implement that a manufacturer stamps, prints, or otherwise affixes to the goods it produces

Lanham act of 1946: Statutory Protection of Trademarks 

Trademark Dilution: 

• The plaintiff owns a famous mark that is distinctive 

• The defendant has begun using a mark in commerce that allegedly is diluting the famous mark

• The similarity between the defendants mark and the famous mark gives rise to an association between the marks 

• The association is likely to impair the distinctiveness of the famous mark or harm its reputation

Registration 

Federal - U.S. patent and trademark office in Washington DC

Under current law, a mark can be registered 

• If it is currently in commerce

• If the application intends to put it into commerce within 6 months 

To succeed in a trademark infringement action, the owner must show: 

• Likelihood of confusion

• Injunction: forcing a company to change their logo or stop using your trademark 

A trademark owner that successfully proves infringement can recover: 

• Actual damages 

• The profits that the infringer wrongfully received from the unauthorized use of the mark 

• Attorneys fees 

Strong Marks 

• Fanciful, arbitrary, or suggestive trademarks are generally considered to be the most distinctive trademarks 

Fanciful example: google, xerox 

Arbitrary example: Dutch boy 

Suggestive: Dairy Queen 

Secondary Meaning:

• Associate a specific term or phrase with specific trademarked items made by a particular company 

Generic terms:

• Refer to an entire class of product receive no protection, even if they acquire secondary meaning 

Service mark - Advertirizes service 

Certification mark: Used to certify testing, quality

Collective mark: Labor union mark. Move credit mark

Trade Dress 

• The image and overall appearance of a product (Orange nike shoe box)

Counterfeit Goods 

• Crime to: 

• Traffic, or attempt to traffic, intentionally in counterfeit goods or services

• Knowingly use a counterfeit mark on or in connection with goods or services 

Penalties for Counterfeiting: 

• May be fined up to 2 million or imprisoned up to 19 years

• Must forfeit the counterfeit products

• Ust forfeit any property used in the commission of the crime 

• Must pay restitution to the trademark holder or victim in an amount equal to the victims actual loss 

Trade Name

• A term that is used to indicate part or all of a business name and that is directly related to the business reputation and goodwill 

One way to avoid litigation and still make use of another trademark or other form of intellectual property is to obtain a license to do so 

Patent

• Patents for inventions are given for a twenty year period 

• Patents for designs are given for a fourteen year period 

The first person to file an application for a patent on a product or process will receive patent protection 

2/14/2025

Copyrights 

• The exclusive right of authors to publish, print, or sell an intellectual production for a statutory period of time 

• Can use for copyright enforcement even if it is not in commerce, where trademark has to be in commerce 

The copyright Act of 1976 

• After Jan 1, 1978 works are automatically given statutory copyright protection for the life of the author plus 70 years

Trade Secrets

• Information or a process that gives a business an advantage over competitors who do not know the information or process 

• Extends to both ideas and their expression 

• No registration or filing requirements 

State and Federal law on trade secrets

• Those who disclose or use another trades secret without authorization are liable to that other party if either of the following is true: 

1. They discovered the secret by improper means 

2. Their disclosure or use constitutes a breach of duty owed to the other party 

• Protected under common law 

• The economic espionage act 

• Uniform trade secrets act 

Chapter 49 Real estate 

Fixtures

• Permanently attached to the real property

• The item may be: 

- Embedded in the land 

- Permanently attached to the property

- Permanently attached to another fixture on the property by means of cement, plaster, bolts, nails, or screws 

• Included w/land sale unless notes 

• House/statue/garage are examples

Typical fixtures: 

• Some items can be only attached to property permanently 

• Examples: Tile floors, cabinets, carpeting 

• Custom made for installation on real property 

• Examples: Storm windows 

• Firmly attached and integral to the land’s use 

• Example: A complex irrigation system bolted to a cement slab on a farm 

Ownership and Other Interests in Real Property

• Possess rights in real property

• Bundle of rights 

• Ownership interests in real property have traditionally been referred to as estates in land which include 

Ownership in Fee simply

• Fee simple absolute - potentially infinite in duration (highest level of ownership)

• Life estate (waste) (Damaging or destroying as well as extracting minerals) (cant add oil wells) 

- Property is given to a person for their life, and after given to someone else  

Concurrent Ownership 

• Tenancy in common (t/c) - Joint ownership of the property (Can pass rights on individually) 

• Joint tenancy (j/t) - Joint ownership by two or more parties but on the death of one party the ownership passes on to the other (what most spouses do when they buy a house) 

• Tenancy by the entirety (t/e)

• Community property

2.19.2025

Leasehold estate

• Qualified right to exclusive position 

Fixed term tenancy: 

• Typical lease or rent 

• Not based on a specific date 

Periodic Tenancy: 

• End date of lease 

Tenancy at will: 

• Either party can terminate without notice 

Nonpossessory Interests

• Easement: Making limited use of a piece of property

• Profits: The right to go on to land and removal things like mineral rights 

• Licenses: Temporary access to property or land

Creation of Easement or Profit: Express grant in a contract, deed, will 

• Implication: Clear that someone has been using it 

• Necessity: When somebody must have an easement for use 

• Prescription: Way of creating an easement by using the other persons property for a period of time 

Real Estate Sales Contracts 

Deeds

• To be valid, a deed must include the following: 

1. The names of the grantor and the grantee

2. Words evidencing the intent to convey 

3. A legally sufficient description of the land 

4. The grantors signature (and his or her spouse often) 

5. Delivery of the deed 

Warranty Deed: 

• Greatest protection, what you want when you buy a home. All the rights 

Special Warranty Deed: 

• You are obligated for everything when you took transfer, nothing before your ownership

Quitclaim Deed: 

• No liability or interest

Recording Statutes

• Deed being recorded to the public 

Adverse Possession 

Elements

1. Actual (physical) and Exclusive 

2. Open, visible, and notorious 

3. Continuous and peaceable 

4. Hostile and adverse 

Limitations on the Rights of Property Owners 

• Nuisance and environmental laws 

• Payment of property taxes

• Zoning laws and building permits 

• Seizure by creditors

• Can't take your house unless its a mortgage payment your not paying 

Eminent domain 

• The power of government to take land from private citizens for public use on the payment of just compensation 

• Constitution 

• State law 

• Done through condemnation (Fair value determination) 

Landlord-Tenant Relationships

Established by a lease contract

• Describe the property

• Indicate the length of the term

• State the amount of the rent 

• Indicate how and when the rent is to be paid