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Commercial Law Final Part 2
Terms in this set (39)
A CPA's Common Law liability arises from
Breaches of Contract (which includes Negligence and Fraud)
A CPA's Stutory Law liability arises from
Breaking statutes/laws (in Particular the Securities and Exchange Act of 1934)
Ordinary Negligence refers to a failure to
Perform ones duties in accordance with the applicable standards
Gross Negligence means that a CPA has
Acted with reckless disregard for the welfare of others
An accountants common law liabilities to the client arise from
the Engagement Letter
Accountant is liable to his clients for-
Accountant is liable to third parties (with whom he has privity) for-
To find an accountant liable for breaching his Common law duties, a client or third party must prove DBLC
Duty-Accountant had a duty to the client (Client-based on Engagement Letter)
Breach of Duty-Accountant breached that duty
Loss-Client suffered a loss
Causation-The accountant breach caused the loss
How is Constructive Fraud different from Fraud?
Fraud involves intending to deceive
Constructive Fraud means that although the accountant did not intend to deceive, his reckless behavior permitted the misstatement
Auditors are liable to all foreseeable FS users for
FRAUD/ Gross Negligence
What are the 4 different levels of privity?
Ultra mares approach to privity means that accountants are liable to
Only the third parties with whom the accountant has a direct contract
Known user approach to privity means that accountants are liable to
Third Parties who have personally identified themselves as users of the financial statements
Intended user approach to privity means that accountants are liable to
Third Parties whose reliance on the FS is known, even if they have not been specifically identified (Clients Bank could foreseeable rely on the FS)
Foreseeable user approach to privity means that accountants are liable to
All third parties that rely on the FS (broadest category)
An accountants best defense to a negligence claim is that he acted
Like a reasonably prudent CPA and followed the applicable standards
To find an accountant guilty for breaching his Statutory Obligations a third party must prove- LMR
Substantial Loss-usually indicated by decline in stock value
Financial Statements were misleading
They relied on the FS
Accountants are liable for fraud if they didn't participate but they knew about it and-
Failed to report it
Accountants are liable for fraud if they __ __ __ had they not departed from he standard of due care
Should Have Known
What duties does an accountant owe to his employer?
Fiduciary Duty and Duty of Care (Ordinary Negligence Standard)
The Purpose of Secured Transactions is to
What are the 4 categories of secured property? (CFIE)
A Security Interest Can be created either
Orally or in Writing
To Create a secured interest a written security agreement must contain
Description of Collateral
What must happen to Create a secured interest orally?
The Creditor must take possession of the asset
What criteria must be met for the Security Interest to Attach to the collateral (CVR)
Interest must have been Created
Value must have been given to Debtor
Debtor must have rights in the collateral
What are the three ways in which a security interest can be perfected against other creditors?
Possession (Req. for money)
Automatic (PMSI Consumer Goods, Sale of Collateral)
What is the difference between the security agreement and the financing Statement?
Security Agreement-Contract between debtor and creditor identifying the collateral
Financing Statement-Filed by creditor to perfect his interest
A Buyer in the Ordinary Course of Business trumps a perfected security interest if
Buys in good faith without knowledge that the purchase will violate rights in the collateral
Buys from someone who normally sells those types of goods
PMSI In Inventory Ex.
Bank takes security interest in Jeweler's inventory "then owned and thereafter acquired". Perfects Jan 2010.
Supplier takes PMSI in new Inventory.
What does the supplier need to do to be perfected against the bank?
Must be perfected before jeweler receives inventory
Must send notice of PMSI and description of goods to bank.
PMSI in Non Inventory Ex.
Bank takes security interest in Hoopy Ride vehicles "then owned and thereafter acquired". Perfects Jan 2010.
Dealership takes PMSI in new van.
What does the dealership need t do to be perfected against the bank?
Must perfect within 20 days of debtor taking the collateral
Judicial Lien Ex.
Barry promises to pay his car repair bill in monthly increments. After 3 months he stops paying. What should the mechanic do?
Get a judicial lien from the court
-Court can sieze the car until Barry pays
-Court can sieze the car and sell it to satisfy Barry's debt
-Court can Garnish Barry's wages
A Surety's right to SUBROGATION means that
He has all the rights that the creditor had against the principal debtor
The Trustee has a fiduciary duty to
A Bankrupt's estate may include property acquired
Within 180 days after filing for bankruptcy
Voidable Preferences (ie. Preferential Payments) can be recalled if they occurred within
90 days of filing
1 year of filing, if to an insider
Fraudulent Transfers can be recalled if they occurred within
2 years of filing
Describe the Means Test
Take monthly income less cost of sustaining family. If remaining income is
<$100 You can file for Ch.7 Liquidation
100-167 Is that enough to pay 25% of your unsecured debt? No-Ch.7 Yes-Ch.13
>$167 You must file Ch.13 Debt Adjustment
You cannot file an Involuntary Petition against the following businesses
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