Ch.6-10 Notes PDF

Ch.6 Nature of relationship between bank and its customer 1\. Contractual -rights defined in bilateral account opening contract (Bilateral contract is an agreement between two parties in which each side agrees to fulfill their side of the bargain) -rights established by law (UCC) government/cou...

Ch.6 Nature of relationship between bank and its customer 1\. Contractual -rights defined in bilateral account opening contract (Bilateral contract is an agreement between two parties in which each side agrees to fulfill their side of the bargain) -rights established by law (UCC) government/courts \[which superior: contract or statute?\] 2\. debtor-creditor -bank owes depositor 3\. principal-agent -bank acts as a collection agent of a depositor 4\. fiduciary -must the bank put customer's interest ahead of its own? Duties of Bank/Payments 1\. must honor all timely and reasonable instructions 2\. must honor checks unless one of 4 reasons not to -insufficient funds -stale (hasn\'t cashed within a certain timeframe) -suspicious of check -suspicious of holder 3\. post dated checks widely used in parts of Gulf as security -bank must pay when mature [Post dated checks:] checks can't be cashed until future date mentioned [Used in parts of Gulf as security:] for example, issued by borrower to lender as guarentee PMT will be made even if actual funds aren't available yet Checks in greater detail 1\. Checks -References to UCC (uniform commercial code 51 US legal systems) -A paper-based non-cash payment system 2\. 4 kinds of checks -personal/business -certified (maker/drawn credit) verified by bank, ensures there are sufficient fundsand puts them aside bank guarantees there will be enough cash available in the holder\'s account when the recipient decides to use the check -cashier's (bank's credit, issued and guaranteed by bank) guaranteed by a bank, drawn on the bank\'s own funds and signed by a bank employee bank draws on its own funds payable to specified payee -traveler's (a type of cashier's check, can be replaced if lost or stolen) 3\. Points of Risk: checks and Banks -Drawer/makerFraud -Bank fraud/ error Ch.7 Insurance (from a legal perspective business management): challenge of identifying, assessing, and managing risks -imp business tool in managing risk **Four Essential Concepts** 1\. Pooled or shared risk 2\. Contingent event (ex: pregnancy, death) 3\. Insurable int: where the policyholder would suffer financial loss if insured item is damaged Insurable int is required to insure against some risk to make sure people only insure things that could actually cause them loss 4\. Indemnity security against loss Binder: when is an insurance contract effective? When insurer issues binder: temporary agreement providing immediate coverage until final policy issued **Disputes** -concept of subrogation: 3^rd^ party collect damage on behalf on another party -concept of indemnity (again): insurer compensates insured by restoring them to their prior financial status, insured doesn't profit from insurance claim but is compensated for actual loss Ch.8 -Employment is a very local area of law -Each country has its own laws on this subject -Employment relationship is an intimate relationship -Senior employees often have access to sensitive, confidential, and valuable info **Areas of Special Concern in Employment Contracts** Reporting Relationships -Career Development & Progression -Fostering Responsibility -Progressive Financial Rewards -Risks of "[Stove-Piping]" prevent cross-organizational communication Key Executive Retention -Assignment clauses/Employees are assets -Periodic Bonuses, perhaps linked to "Key Performance Indicators" or KPIs Such bonuses, however, do not guarantee LT loyalty -Equity Participation 1\. Public company Employee stock option Plans 2\. Special Problem of Family Owned Enterprises Termination Issues -Notice Periods: Continuity v. security -Protecting Company Proprietary Info: employee must keep certain info confidential -Non-Disparagement: employee can't say anything negative about the company -Non-Competition: employee can't work with competitor nor start a similar business Garden-leave: employee remains on payroll but doesn't work for the company nor other company **Labor Unions** organized association of workers formed to protect their rights & int -illegal in the Kingdom Employees have been known, however, to take collective action -Saudi Arabia has clear, fair and generous labor laws, more generous than most countries Ex: end-of-service entitlement law in Saudi which doesn't exist in many countries Holiday entitlement in the Kingdom, usually 30 days, is twice as long as the usual entitlement in the US Nevertheless, workers do sometimes seek to take collective action Ch.9 **Business Organization choices** Sole proprietorships -most simple form/ oldest form -no legal distinction between you the person, and your business -"legal personality" absent +-----------------------------------+-----------------------------------+ | **Advantages** | **Disadvantages** | +===================================+===================================+ | -simple | Liability | | | | | -inexpensive | -no line between personal assets | | | & business assets | | -suit very small businesses | | | | -unlimited liability | | -suit very new ideas | | | | | | -min req for keeping books & | | | records | | +-----------------------------------+-----------------------------------+ **Agency** Owner/proprietor is the principal/employees are agents General partnerships -agreement not company -can be small (any number more than one) or very large (large law firms) -each general partner is both a principal & an agent (of all other partners) +-----------------------------------+-----------------------------------+ | **Advantages** | **Disadvantages** | +===================================+===================================+ | -"owners"/partners participate in | -hard to borrow money | | management | | | | (each partner may need to prove | | -less regulated (public not | creditworthiness) | | involved) | | | | -unlimited liability | | -enjoys tax advantages (income | | | taxed once) | May come in exam | | | | | | -joint & several liability (We | | | partners together are liable for | | | the risk, also each one of us is | | | responsible 100% for the risk) | +-----------------------------------+-----------------------------------+ -General Partnership Agreement rules of governance, like a shareholders agreement in a corporation admitting/expelling partners raising/spending money nature of business dealing with life (death, debts, divorce, etc.) non-competition/no other interests Limited partnerships (Entity + Contract) -hybrid of a general partnership and a corporation -used as financing/control vehicles for very specific purposes, especially for project-related property or real estate development -partnership with one or more general partners, and one or more limited partners -useful to preserve control by a general partner, while opening "partnership" to others \[word hybrid / this form is a hybrid general partnership/corporation. General partner same as any general partner/limited partners are like shareholders in a corporation\] +-----------------------------------+-----------------------------------+ | **Advantages** | **Disadvantages** | +===================================+===================================+ | -control by general partner | -not as effective as a | | | corporation at shielding owners | | -limited liability of limited | from liability | | partners | | +-----------------------------------+-----------------------------------+ Private or closely held limited liability companies Public companies How do you choose one form or another? **Businessman chooses a type of organization based on:** Managing Risk Access to capital markets -Borrowing: Borrowing from banks, Issuing bonds/sukuk -Selling equity Control Privacy Tax We need to know If there is something owned by multiple people, it must be unified before it gets sold **Corporation** (Entity; could have a Shareholder's Agreement) -legal existence recognized by the state/government Government gives a "corporation" life -piercing the corporate veil; a corporation can't be used to conceal fraud or criminality fraudulent purpose operation of corporation as if the corporation didn't exist (ex: PMTs, board) -corporations may have a defined term, or they may exist forever, depending on law of locality -Charter/Articles of Incorporation: authorized by government, and define the grant of "life" Typically this is a public document. Like a "constitution" Includes: name of incorporators corporate name registered address duration purpose capital structure (shares, share classes) may have some internal organization information -can do almost anything a human can do, except: marry, be imprisoned Citizens United the United States Supreme Court held/decided that, like humans, corporations have the right of free speech under US constitution Some speculate corporations might seek elected office Microsoft may run for president May come in exam We have general partner who owes 1m. If there are 10 general partners, how much does each one owe? 1m , how much would the injured party receive? 1m, he gets it either from us sharing the loss or from 1 alone Legal Personality **Sole Proprietorship** Least Distinct Unlimited individual liability **General Partnership** Unlimited but shared individual liability **Limited Partnership** Limited individual liability for limited partnership Limited partner's liability is limited to capital value of shares Partnership with general partners and limited partners **Corporation** Most Distinct Very limited individual liability Ch.10 May come in exam Distinguish between real property and personal property Real Property: Land Personal Property: anything other than land that may be subject to ownership Tangible: anything subject to physical possession Intangible: anything which is not physical, intellectual property, [fractional ownership] (ex: share, percentage) Fixture: personal property attached to Land Concept of a Bailment Transfer of Possession without Transfer of Title -Bailor retains title -Bailee obtains possession as: delivery by Bailor/ acceptance by Bailee -Possession is for a specific purpose & temporary Example of bailment: when you take your car to a mechanic for repairs, you are temporarily handing over possession of your car to the mechanic with the understanding that they will perform the agreed-upon repairs and return the car to you afterward, the mechanic has duty to take care of your car Joint Ownership of Property -Joint tenancy 2 or more people own property together, each with equal rights and responsibilities -Right of survivorship ex: I own a property with a friend, if he dies, I immediately own 100% of that land -Tenancy in common Big chance won't come in exam Four Unities: each owner must -Receive interest at the same time (unity of time) -Receive ownership from same source (unity of title) -In equal interests (unity of interest) -With each owner having right to possess the whole (unity of possession) Concept of Title -Keystone of civilization -Public records Essential -Notation of Encumbrances Concept of Mortgage -Who owns the property: mortgagee (bank) or mortgagor (owner) -Use of real property as security for borrowing Rights Associated with Land Ownership 1\. Surface rights 2\. **Subterranean rights** under the earth, ex: if you have right of gold under earth, how would you mine without ruining the surface? you have to restore the surface after mining 3\. **Air rights** how much air above the land you own? 4\. Right to trees, crops, or other vegetation on the land 5\. Right to fixtures on the land you can separate ownership of fixture of the land to the land itself/you can get a lease to own the fixture 6\. Right to lateral and subjacent support rights to sides of property and under the property but adjacent to/ I can't make a hole on the side of my property that's so deep it can cause the property beside me to collapse 7\. Right to free of public or private [nuisances] (anything that bothers you) ex: if I bought a property next to a house, I can't build a farm because it may bother my neighbor ex: the young person that was singing mocking songs while passing by his neighbor that caused annoyance to the neighbor 8\. Riparian rights ex: stream going over your property, who owns it? Do you own all the water? Generally, if there is water that flows over your land, you have right to use the water but you don't own it all Possessory Interests in Land 1\. Fee Simple 100% land ownership 2\. Life Estate right to use land during the time you are alive, if your grandfather owned the property and he died so you inherit the property, your grandmother lives in it, you can give her a life estate 3\. Leasehold Non-Possessory Interests in Land 1\. Easements if someone can't access his property unless he crosses my road, he gets the right and easement to use the road 2\. Profits if your farm has a date palm and you pay someone to maintain that palm 3\. Licenses permission to do something, it never means a right, can lead to adverse possession ex: if people play soccer on your land, they must get permission to use your land, if they used your land without permission and you allowed them to use it you risk losing ownership of your land Past Exam Questions Banking relationships are: Contractual/ Debtor-creditor/ Agent-principal/ Fiduciary Situations where bank acts as an agent to its depositors: Bank sells security on behalf of customer Bank collects checks on behalf of customer Fiduciary relationship: Complete and strict separation of interests Care, loyalty, full disclosure, confidentiality, trust between partners Ex: bank providing inv advise, bank should recommend products that are best for customer not ones that only generate more profit for bank Certified check: Personal check which bank guarantees to pay Verified by bank, ensures there are sufficient funds to cover PMT and puts them aside Bank guarantees there will be enough cash available in the holder\'s account when the recipient decides to use the check Cashier's check: issued by bank, drawn from bank\'s funds, signed by bank's employee Bank draws on its own funds payable to specified payee Personal check: Written by customer without guarantee from bank Bank: is liable to the drawer for the amount of an alteration in value if a forged check is paid A check that is dated after its actual date of issue: Postdated check A bank must honor checks unless: insufficient funds "stale" or expired good reason to be suspicious of check good reason to be suspicious of holder of check Subrogation: Right of insurer once it has paid the insured for a loss, to proceed against 3^rd^ parties responsible for that loss 3^rd^ party collect damage on behalf of another party Insurable interest: Where the policyholder would suffer financial loss if insured item is damaged Insurable interest is required to insure against some risk: To make sure people only insure things that could actually cause them loss To prevent fraud & abuse Indemnity in insurance context: Indemnity: sec against loss Insurer compensates injured by restoring them to their prior financial status Insured doesn't profit from insurance claim but is compensated for actual loss When insurer issues a binder: Temporary contract issued by insurer providing immediate coverage until final policy issued Agreed upon amount of the loss that the insured pays: Deductible Why must risk be a contingent risk to be insurable: Contingent risk means it may or may not occur Because insurance is designed to cover uncertain events and they only profit from risk that end up not happening Restrictive indorsment on negotiable instrument: Limits how instrument can be used Limits who can receive PMT How an employer can control an employee after an employment contract is terminated: Non-Disparagement: employee can't say anything -ve about the company Non-Competition: employee can't work with competitor nor start a similar business Protecting Company Info: employee must keep certain info confidential Garden-leave: employee remains on payroll but doesn't work for the company nor other company 3 subjects typically addressed in a shareholders' agreement among the shareholders of a limited liability company (LLC): How shares can be bought Voting rights of each shareholder Handling disputes In a limited liability company (LLC), the liability of the company is \"limited\" in the following ways: Members risk losing only the money they invested in the business, not their personal assets If sued, creditors can only claim assets that belong to the LLC, not the personal assets of the members Subjects covered in a general partnership agreement: Admitting/expelling partners Raising/spending money Nature of business Dealing with life (ex: death) Non-competition Joint and several liability: Partners are both principal & agent We partners together are liable for the risk, also each one of us is responsible 100% for the risk Joint venture: 2 or more parties that seek the development of a single project for profit, sharing the risks associated with its development Natural person: Human with rights & responsibilities Legal person: Entity created by law with rights & responsibilities Law treats as if it were a person for legal purposes From a property law perspective: Condominium is a form of ownership in which the owner has sole ownership of a specific unit or space and joint ownership of the common areas in a building Emerson identifies rights which \"naturally accompany land ownership\", rights include: Surface rights Rights to fixtures Riparian rights Rights to trees crops or vegetation Law of bailment: Transfer of possession but not title \"Leasehold\" under general & international principles of law: Leasehold: grants tenant right to use land or a building for a given time It is a possessory property interest because it grants the tenant the right to possess and use the property Ex: renting an apartment, the lessee signs a lease agreement with the lessor, granting them the right to live in the apartment for a specified period, in exchange for monthly rent PMTs Write a limited power of attorney in which Alan Johnson authorizes Neal Johnson to sell Alan's iPhone to any interested buyer for 8 SAR: I Alan Johnson grant Neal Johnson power to sell my iPhone to any interested buyer for 8 SAR. Signature: Witness: Date: Draft of general partnership: Date.... Name of partnership..... Purpose of partnership.... Profit/ loss sharing.... Governing law.... Contributions of each partner.... Duties of each partner..... Signature of each partner.... When court disregards corporate entity, 2 conditions must be met: Purpose to fraud, company used to defraud allowing owners to hide behind corporate structure Improper operation of corporation Apparent authority: When 3^rd^ party reasonably believes that an individual has authority to act on behalf of a person Ex: store manager lets an employee give discounts to customers, customers may believe the employee has authority to offer discounts even if only the store manager can approve them Duties of principal to agent: Duty to compensate Duty to inform of known risks Duties of Agent to Principal Duty to notify Duty to account Greatest source of dispute in commercial agreement: Mutal agreement Least source of dispute in commercial agreement: Legal purpose Holder writes "without recourse" on negotiable instrument: Holder isn't responsible if instrument isn't paid later Requirements of a valid offer: Clear intent/ sufficiently definite/ communicated to the other party Patent: Right granted to inventor giving them control of sale & use of invention for about 20 yrs Elements of a plaintiff's case in a contract action: Existence of contract Contract was breached Breach directly caused loss Suffered actual loss Plaintiff must prove 4 things to prove negligence: Duty of care Violation of duty Violation caused loss Suffered actual loss Legally enforceable contract: Legal capacity / Legal purpose/ Mutual agreement/ Consideration Negotiable contract: Written Signed Definite time Fixed amount Unconditional promise to pay To order or to bearer Mitigation of damages is applied to damages claims in contract actions: Limit unnecessary financial burdens Prevents unfair loss Encourage fairness Why must contract have a legal purpose to be legally enforceable? Because no government would enforce an illegal contract Because illegal purposes such as fraud are considered void and unenforceable in court Contacts are "discharged" or ended by: Performance, agreement, or operation of law Contract is discharged by operation of law in event of: Subsequent illegality Impossibility of performance Bankruptcy Statute of limitations Agency contract: Agent acts on behalf principal Agent has authority to enter into contracts Distributorship contract: Distributor buys products from supplier & resells them to customers Distributor has no authority to enter into contracts on behalf of supplier Independent contractor: Provide services but doesn't act as agent Option contracts: Grants option holder the right to buy or sell an asset at a set period Other party is obligated to keep the offer open during that time \"Rescission\" in the context of contract law means: Restoration of parties to respective positions they occupied prior to entry into a contract as if the contract never had existed Principal purpose of \"notarizing\" a signature on a contract, if notarization is required for some reason: To authenticate the identity of the parties signing the contract Limitations on damages: Foreseeability/ Certainty/ Mitigation Fraud: Misrepresentation of mat fact Knowingly made Made with intent to defraud Justifiably relied upon Causing injury to other party An offer expires when: As stated Reasonable period of time Rejection Withdrawn Counteroffer Death Qualitatively different forms of consideration: Promise to do something Promise to not do something Promise to pay money Limited/special power of attorney: Agent responsible for specific affairs General power of attorney: Agent responsible for all affairs