Legal Environment of Business - Assignment Example

Legal Environment of Business Final Exam Question A: Contracts Article 2 of the uniform commercial (UCC) sets the minimum conditions that both seller and buyer must meet during the sale of goods and services. For example, the UCC contains an implied guarantee of merchantability (Ferrari 38). This requires the product sold to the buyer to be of specific quality and condition that will enable the buyer to put the product into the intended use. However, the seller must be acting within the area of his or her duty in order for this warranty to apply. On the other hand, the article contains guarantee for fitness of goods for the right use (Ferrari 43). This implies that the seller of a product should assure the buyer that the product will serve the intended purpose. In this case study, the seller bought software online from Ace Inc. according to Article 2 of the Uniform Commercial Code, the buyer is entitled to enjoy products of merchantable quality and the product should serve the intended purpose (Saxon 93). However, it appears that the buyer has no problem with the quality and performance of the product. The buyer discards the software because the seller has offered it at a higher price than another seller of similar product. Therefore, basing my view on article 2 of the Uniform Commercial Code, I believe John (buyer) has no reason for discarding the software because the seller has met all the requirements as stipulated in the article. John was supposed to examine different prices offered by different sellers in order to decide on where to buy the product. The fact that John bought the similar software from a different company implies that what Ace Inc met the warranties of merchantability and fit for the purpose (Ferrari 71). Also, these warranties apply to John because he bought the software from a company that was operating in the same field of business. According to the law of contract, the buyer owes the seller duty of acceptance of the product and payment of reasonable price (Ferrari 112). Therefore, John should accept the software and pay a reasonable price for the products. In case the buyer feels that the price was unfair, he should petition the court to decide on what the fair price will be in this situation. Question B: sale of goods Contracts The contract is for the sale of goods as stipulated in English Sale of Goods Act 1893 (Saxon 154). A contract for sale of goods involves an offer and an acceptance. In this case study, Ammco made an offer to sell merchandise worth more than $500.00 to Erma. According to the requirements of the contract of for sale, Erma agreed to purchase the merchandise in writing hence fulfilling the contract requirement that sale of goods exceeding $5 should be in writing (Ferrari 154). The contract involved two parties, the seller and the buyer. In addition, the consideration of a contract for sale of goods should be in monetary value, and this was fulfilled in the case study because Erma agreed to pay more than $500. The contract for the sale of goods determines the moment when transfer of property in goods takes place because this determines when the risk in goods passes to the buyer and remedy available to each party in case the goods are damaged. This contract did not follow the actual procedure of forming a contract. The additional information given by the seller to the buyer constitutes a counter offer hence the contract is voidable at the will of the buyer (Ferrari 187). This implies that the contract will be formed between the buyer and the seller the moment the buyer will accept the new conditions stated by the seller. Should the buyer agree to pay for insurance and cost of freight, then there will be a conclusion of a contract under Cost Insurance and Freight (C.I.F). Under C.I.F contract, the buyer has a right to accept the merchandise only if the merchandise meets the specifications stipulated in the contract. The goods on voyage are at the buyer’s risk since the seller insured the goods on his behalf. However, if the merchandise is lost through a risk not covered in the insurance policy the buyer is not liable to pay for the full price of the merchandise (Saxon 197). This was explained in Groom Limited v Barber (1915) where defendant sold 100 bales of clothes to the plaintiff under C.I.F. the ship was capsized by German warship, and this risk was not covered n the insurance policy. However, the buyer was held liable for the payment of the goods. The seller is entitled to receive payment for the goods as stated in Mabre Company v Corn Products Company. This implies that the buyer is responsible for the loss of goods under C.I.F terms following the occurrence of the damages (Ferrari 206). The seller is not liable for any loss if he fulfilled the requirements for shipment of merchandise. C. 4 Sarbanes Oxley Act 1. According to Sarbanes–Oxley Section 906: Criminal Penalties for CEO/CFO financial statement certification, it is a criminal offense for a chief financial officer or chief executive officer to certify any information relating to financial statement of the company knowing very well that such information does not present the actual financial position f the company (Prentice & Bredeson 26). Any person found guilty of this offense is likely to face a fine of up to one million dollars or a jail term of up to ten years or both fine and imprisonment. 2. According to Sarbanes–Oxley Section 303 on Improper Influence on Conduct of Audits, it is illegal for any employee or director of a corporation to take an act in such a manner that will result manipulate or mislead any independent or certified auditor acting for that corporation to in order to issue a misleading statement to the public (Prentice & Bredeson 32). Therefore, any person who abuses his or her powers in order to mislead the public is legally responsible for his or her conduct. 3. The Section 10A of the SEC Act of 1934 (15 U.S.C.78j requires each registered accounting firm performing auditing function for any other issuer to report all the accounting policies and practices as well any other relevant information pertaining their operations and findings to the audit committee (Prentice & Bredeson 54). Therefore, it is mandatory for an independent auditing firm to report all the accounting principle and procedures they follow as well as the report of their findings regarding the financial position of the company. 4. Sarbanes-Oxley Section 1107 prohibits any manager or senior director from engaging in a retaliatory act against an employee who discloses important information regarding cases of fraud in the organization (Prentice & Bredeson 64). The Act stipulates a fine or an imprisonment for a period of not more than ten years for any director or officer who takes a disciplinary action against a “whistleblower.” 5. According to Section 802(a) of the SOX, 18 U.S.C. § 1519, it is a criminal offence for any person to uncover the truth that may provide evidence of misrepresentation or fraud in the company (Prentice & Bredeson 68). 6. A manager or director can acquire loans from the public corporation as long as they follow due process (Prentice & Bredeson 71). 7. SEC. 303 is about Improper Influence on Conduct of Audits. This section prohibits any person against misuse of power in order to influence the findings of the independent auditors (Prentice & Bredeson 73). If anyone engage in activities that result to issuance of misleading information to the public, such person is equally liable for misconduct in the same manner as the person who committed the misleading act. Question D: Securities Violations Security transaction involves the sale or purchase of securities in lieu of cash inflow or outflow of the organization (Hasbrouck 24). A security transaction occurs through several processes including acquisition of the quotation, closing the operation and then redistributing the deal. In the situation described in this case study, Charles who is the president of a nonpublic corporation colluded with accounts and auditors of the corporation and issued false information regarding the financial performance of the organization. As a result of this collusion, the corporation’s shares were issued to the public at an inflated value. This violated “security transaction” in the sense that the public relied on erroneous information to buy the shares of the company. In the real sense, the company should disclose the actual value of the company’s cash inflows and outflows to the public n order to enable those who are interested in purchasing company’s shares to make a fair decision before acquiring the shares (Hasbrouck 29). In this case study, there was no security transaction because the management of the corporation inflated the value of the shares of the corporation hence the buyers were misled. SEC Act of 1933 contains the rules and regulations that a company or a corporation intending to sell its primary shares to the public should meet before doing so. The company must comply with those requirements before going public in order to avoid misleading the investors (Hasbrouck 43). In this case study, the corporation dishonored section 1933 of the company’s Act because the president colluded with auditors and accountants to issue misleading information to the public. SEC Act 1934 provides rules that govern the conducts of the market agents and define disciplinary measures to be taken against those found guilty of violating market rules. This Act applies to the secondary market of the securities (Hasbrouck 67). In the case study, the company was dealing with the sale of primary securities hence there was no violation of the Act. Dividend refers to portion of the corporations earnings distributed to the shareholders according to the wishes of the board of directors. In this case, the company distributed shares to the private investors although they knew that earning was not based on the fact. This has a problem because it is likely to affect the company’s performance in the future (Hasbrouck 83). Furthermore, Charles had formed Sham corporations that had placed orders to the other corporation issuing its shares to the public. Therefore, the distribution of dividend was unjust because it was likely to affect the operations of the company in the future. Works Cited Ferrari, Franco. Contracts for the International Sale of Goods: Applicability and Applications of the 1980 United Nations Convention. Martinus Nijhoff Publishers (2011). 31-164 Hasbrouck, Joel. Empirical Market Microstructure. Oxford University Press, New York (2007). 22-146 Prentice, Robert, A. & Bredeson, Dean. Student Guide to the Sarbanes-Oxley Act Cengage Learning (2010). 21-75 Saxon, Mike. An American's Guide to Doing Business in China: Negotiating Contracts and Agreements, Understanding Culture and Customs, Marketing Products and Services. Adams Media, Avon, MA (2007). 73-254 Read More