LAW 3220 1st Edition Final Exam Study Guide Chapter 11 Domestic and International Sales by Merchants UCC Article 2 promotes uniformity in contracts only applies to the sale of goods tangible personal property by merchants fills in the blanks to complete contracts encourage commerce Statute of Frauds contracts for sales over 500 must be in writing Parole Evidence Rule can introduce if topic is vague or unclear or left out of the original document Sellers and Buyers Basic Obligations and Rights Sellers must deliver goods of the specific quality and quantity by a specified time Buyers must deliver payments for goods that meet the above according to the payment terms specified by the contract Buyers have the right to inspect goods before completing payment Can return goods if they do not meet specifications Can accepts some and return some Can accept all Sellers have the right to remedy any discrepancy if addressed before the due date Warranties Express warranties created by statements or promises by the seller created by any description given by the seller created by any prototype or model provided by the seller Implied Warranties Merchantability goods delivered to buyer will be merchantable in their business uniform and fit to be resold Fitness to a particular purpose If a buyer relies on sellers knowledge to purchase a product the seller is liable for the products ability to perform Disclaimers Article 2 allows disclaimers that are clearly written buyers must agree to disclaimers Damages non breaching parties have the right to sue for compensatory damages obligated to mitigate damages incurred Convention on Contracts for the International Sale of Goods Covers the commercial sale of goods in international transactions similar to UCC article 2 if selling internationally it is best to specify within the contract what laws will apply to the sale Chapter 12 Business Organizations Sole Proprietorship easiest and simplest to setup the owner IS the business personally liable for debts revenue taxed as personal income tax hardest to raise capital if needed no external equity financing debt financing options dependent on personal credit history Partnership an association of 2 or more persons to carry on a business for profit formed by a written partnership agreement if 1 of the parties dies or files for bankruptcy the partnership is dissolved revenue is taxed as personal income tax partners are personally liable for the debts of the business ability to raise capital is limited by the number of partners and their contributions Limited Partnership allows for general and limited partners must be at least 1 general partner personally liable for the debts of the business entitled to run the day to day operations of the business unlimited limited partners not personally liable for the debts of the business can only lose up to their personally contributed equity passive investors do not have managerial duties formed by a written partnership agreement if the general partner s dies files for bankruptcy or leaves the partnership the partnership is dissolved Corporation a separate legal entity established under state law filing of articles of incorporation with the secretary of state certificate of incorporation limited liability for owners and shareholders of the business exception piercing the corporate veil holds shareholders personally responsible for the debts of the corporation can be judged by the court if they feel the corporation was set up and or run fraudulently income is potentially taxed twice federal state corporate tax on profits personal income tax on dividends 3 groups to be familiar with Shareholders owners equity financing Board of Directors elected by shareholders overall management duties for the business legally immune from honest mistakes Managers selected by the board of directors responsible for day to day operations legally immune from honest mistakes the only business entity by law that can have a perpetual existence can be terminated voluntarily dissolution or involuntarily bankruptcy greatest ability to raise capital Syndicate not a separate legal entity used to raise funds for a specific project typically large real estate endeavors Franchises An Alternate Form of Organization Franchisor owner parent company often owns largest locations Franchisee operator pays fees to open and operate operates under a franchise agreement easies the startup commitment and costs of opening a business Franchisors are required to provided an offering circular to prospective franchisees A quick way to get into business Considerations for Choosing a Business Organization Liability Transferability of Ownership Management Personal Involvement Continuity of Life Tax Ability to Raise Capital Chapter 13 Negotiable Instruments UCC Article 3 Negotiable instruments must be a written instrument must be an unconditional promise or order to pay must be signed by the maker drawer must be made payable to the order of a specified party or to bearer risky must state a fixed sum to be paid Three Party Instruments Drafts can be payable currently or in the future can be fulfilled by any bank business or financial institution Checks a type of draft payable on demand can be fulfilled by a bank only Two Party Instruments Promissory Note sum owed interest if applicable payment schedule Certificate of Deposit Credit Credit Policy Credit Terms useful for expanding sales but carries some risk of non payment Sureties primarily liable Guarantor secondary liability Liens wage garnishment mechanic s lien possessory lien attachment lien temporary lien on property that prevents sale until completion of a court case judgement lien legal lien follows an attachment lien if suing party wins needs writ of execution to force property sale and claim judgement winnings Bankruptcy Chapter 7 available to individuals and businesses requires 2 education courses to discourage filings can file for discharge of debts once every 8 years Chapter 11 reorganization of debts for businesses bankruptcy judge has discretion in granting extension for repayment of debts typical is 3 4 years business will continue to operate but cannot make major decisions without approval of appointed trustee and the bankruptcy court Alternatives Debt Extension functions like chapter 11 but avoids the courts must be agreed upon by debtors and creditors Bank Workout when a business is mostly in debt to a bank s functions as above Assignment voluntary bankruptcy