Business law
Sam88
BUSINESSLAW.zipUNIT 1 ASSIGNMENT.PNG
UNIT 3 ASSIGNMENT.PNG
UNIT 3 STUDY GUIDE.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit III Upon completion of this unit, students should be able to:
6. Classify the different types of intellectual property. 6.1 Recognize how the topics of real, personal, and intellectual property are related. 6.2 Identify the similarities and differences among the methods for protecting intellectual property.
Reading Assignment Chapter 8: Real, Personal, and Intellectual Property, pp. 150–170
Unit Lesson Introduction to Property Most people can easily identify certain types of property. The car you drive, the home you live in, the clothes you own—these are all varieties of property. Real property, or “realty,” is land and everything permanently attached to it. Personal property consists of tangible, movable objects. Intellectual property consists of those intangible things that result from mental creativity, such as composing music, writing a book, and making a scientific invention, rather than making a physical effort. Real Property Owning realty includes more than the surface of the land. Click here to see a diagram that depicts the entirety of real estate ownership. It shows the three types of realty: airspace rights, surface rights, and mineral rights. The significance of these three types is well illustrated in “Special Report: U.S. Builders Hoard Mineral Rights Under New Homes” (Conlin & Grow, 2013). This describes how some homebuilders in the United States keep the subsurface mineral rights for themselves, which is definitely a situation where caveat emptor (Let the buyer beware!) applies. This situation illustrates an important aspect of property ownership—the bundle of rights, which proposes that owning land is like owning a bundle of sticks, and each stick represents an individual right. The report describes how some property developers kept a stick for themselves and sold the bundles without the mineral or subsurface rights to the unwitting homebuyers (Conlin & Grow, 2013). The textbook describes each of the various interests in land, including fee simple absolute, conditional estate, life estate, future interest, and leasehold estate (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). These are possessory estates because they involve possessing the land but not having an ownership interest in the land. Nonpossessory estates are interests in land that do not involve possession. Examples of this are easements, profits, and licenses. An example of an easement can be found here, which describes the creation of a conservation easement for purposes such as historic preservation, natural resource-based outdoor recreation or education, watershed preservation, and preservation of scenic open space. The party granting this easement retains ownership of the land but is allowing it to be used by others for the stated purposes, without taking anything from the land. In contrast, a profit allows the right to go onto someone’s land and take part of the land or a product of the land away. If easements and profits are properly recorded, they are transferred with the land to subsequent owners. Licenses, however, can provide the same rights but are revocable and temporary in nature. Personal Property Personal property specifically refers to tangible objects that can be physically moved (e.g., a car).
UNIT III STUDY GUIDE
Real, Personal, and Intellectual Property
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Intellectual Property (IP) One of the biggest challenges associated with the creation and ownership of intellectual property (IP) is the fact that it has the nature of other types of property. This is often overlooked; however, IP is indeed property, similar to realty and personal property, and it, too, carries a bundle of rights, both for the creator of the property and for the community. Article I, Section 8, Clause 8 of the United States Constitution grants Congress the power, "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (U.S. Const. art. I, § 8). From this constitutional provision, the legislative and judicial system decides which rights to set aside for the creators of IP and which will be left for the public. Possible IP creator rights include copyright, patent, trademark, and trade secret. Under the common law of copyright, a potential user (i.e., infringer) may be prevented from reproducing a copyrighted work. To learn more about the costs, learn more about the process, and to review the forms involved, visit the United States Copyright Office here. Thomas Edison, the famed inventor, is responsible for three key innovations in the United States: the phonograph, the incandescent light bulb, and a moving picture camera. He filed over 1,000 patents in his lifetime (“Thomas Edison’s Patent,” n.d.). The patent application process is very unique in that the applicant is required to literally provide a blueprint for his or her invention. A U.S. patent grants to the applicant 20 years from the date of application the right to exclusively produce, sell, and use the object. After the exclusivity period lapses, the patent expires, and anyone can produce, sell, and use the object. The blueprint provided in the application is an exchange that bestows the exclusive right to the applicant but also can help others reproduce the invention once the patent lapses. Many consider the patent to be the most protective of all the forms of IP; however, it is also the shortest-lived. For more information on Thomas Edison's Patent Application for the Light Bulb (1880), click here. A trademark connects a product or service with a specific producer. Trademarks are powerful business tools in that they are designed to resonate with a consumer in a way that will perpetuate business (i.e., support the brand identity). How do trademarks do that? Consider your last supermarket visit. While strolling down the laundry detergent aisle, you see dozens of brands in colorful, uniquely shaped containers. You prefer Tide laundry detergent and know that it is the orange bottle with the blue cap. Instantly, you see it and know that is the detergent you want to purchase because you recognize the product among all of the others. This is the power of the trademark. In this example, color, shape, and logo design are all factors. Can a sound be trademarked? Click here to see and hear a list of federally-registered sound trademarks. There is a multitude of rules that regulate the use of trademarks. The United States Trademark Law: Federal Statutes may be viewed by clicking here. The owner of a trade secret is required to take all reasonable precautions to prevent that secret from being discovered by others. The formula for Coca-Cola is an excellent example of a trade secret. Coca-Cola employees work in different and divided groups so that the formula remains a secret (Quinn, 2012).
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References Conlin, M., & Grow, B. (2013, October 9). Special report: U.S. builders hoard mineral rights under new
homes. Retrieved from http://www.reuters.com/article/us-usa-fracking-rights-specialreport- idUSBRE9980AZ20131009
Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education. Thomas Edison's patent application for the light bulb (1880). (n.d.). Retrieved from
http://www.ourdocuments.gov/doc.php?flash=true&doc=46 Quinn, G. (2012, January 6). Vault with Coca-Cola trade secret formula on public display. Retrieved from
http://www.ipwatchdog.com/2012/01/06/vault-with-coca-cola-trade-secret-formula-on-public- display/id=21588/
U.S. Const. art. I, § 3
Suggested Reading The suggested readings below are provided to supplement key concepts in the Unit III Lesson. Mitchell, R. T. (2011). Deed [of gift] of easement. Retrieved from
http://www.clarkelandconservation.org/files/2013/07/form_deed_of_gift_of_easement-07-06-11.pdf Quinn, G. (2012, January 6). Vault with Coca-Cola trade secret formula on public display. Retrieved from
http://www.ipwatchdog.com/2012/01/06/vault-with-coca-cola-trade-secret-formula-on-public- display/id=21588/
Schoofs, M. (2002, January 30). Physicians’ group defies patent law to bring AIDS drugs to South Africa. The
Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB1012338297451348120 Thomas Edison's patent application for the light bulb (1880). (n.d.). Retrieved from
http://www.ourdocuments.gov/doc.php?flash=true&doc=46 Trademark “sound mark” examples. (n.d.). Retrieved from
http://www.uspto.gov/trademark/soundmarks/trademark-sound-mark-examples United States Copyright Office. (n.d.). Forms. Retrieved from http://copyright.gov/forms/
UNIT 7 ASSIGNMENT.PNG
UNIT 7 STUDY GUIDE.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit VII Upon completion of this unit, students should be able to:
10. Summarize the implications for third-party liability regarding various forms of agency. 10.1 Define agency and how an agency relationship is created. 10.2 Identify the various types of agency relationships. 10.3 Explain tort liability and how it relates to the agency relationship.
Reading Assignment Chapter 20: Agency and Liability to Third Parties, pp. 410–436
Unit Lesson Agency Agency relationships are a crucial part of the business world. Depending on the types of relationships, different laws are applicable. The creation and the nature of an agency relationship also have legal significance. Various forms of agency are given different types of authority. The agency relationship is the legal association between one party, the principal, and an agent who acts on behalf of that party. This is referred to as a fiduciary relationship because the agent has a duty to act primarily for the principal’s benefit. Lawyers, legal guardians, and directors of a corporation are all examples of fiduciaries. There are four processes for creation of an agency relationship: expressed agency, implied authority, agency by estoppel, and agency by ratification. Examples of agency by a written or oral agreement (expressed agency) include the written listing agreement between a seller of real estate and a broker, a power of attorney document, and a durable power of attorney document. Matters involving agency by implied authority are always fact-specific by implication through the conduct of the parties. The third process for creation of an agency relationship is by a principal leading a third party to believe that another serves as his or her agent but without agreement with the purported agent (agency by estoppel). The Case Nugget on page 415 in the textbook illustrates the significance of agency by estoppel. When an individual misrepresents himself or herself as an agent for another party and the principal accepts the unauthorized act, this is agency by ratification. The key difference between this form of agency and all others is the misrepresentation. For example, Allan has $500 of Paul’s money to purchase some supplies for Paul’s business next week. Rich asks Allan to borrow $500 and is willing to pay interest. Without Paul’s direction, Allan tells Rich that he can lend him $500 of Paul’s money plus interest, and Rich accepts the money. Allan tells Paul what he has done, and Paul says, “as soon as he pays you back, plus interest, I want it all back from you.” Several days later, Rich pays Allan the money plus interest, and Allen gives it all to Paul. There are three types of business relationships to which agency laws are relevant: the principal-agent relationship discussed earlier, the employer-employee relationship, and the employer-independent contractor relationship. The last two types are similar in nature, but there is one key distinction: the employer has a right to control the conduct of employees but not that of independent contractors. When courts are asked to decide whether a worker is an employee or an independent contractor, one of the most significant issues they consider is how much control the employer exerts over the agent.
UNIT VII STUDY GUIDE
Agency and Liability
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The principal owes four duties to the agent, which are as follows:
1. compensation, 2. reimbursement and indemnification for any losses the agent incurs while working within the scope of
authority on the principal’s behalf, 3. cooperation, and 4. provision of safe working conditions.
The agent owes five duties to the principal, which are as follows:
1. loyalty to act in the interest of the principal, 2. notification of all relevant information, 3. performance of the responsibilities specified in the agency agreement and doing so with reasonable
skill and care, 4. obedience of lawful instructions from the principal, and 5. accounting of the transactions of money and property made on behalf of the principal (Kubasek,
Browne, Herron, Dhooge, & Barkacs, 2016). Among these responsibilities, perhaps the most important is the duty of loyalty. There are abundant examples in business where an agent breached his or her duty of loyalty by stealing corporate assets (tangible or intangible) or by usurping a corporate opportunity for the agent’s own benefit. For example, Tom works for Petflix Corp., which is known for its service of Internet streaming music and movies geared toward dogs and cats. Tom is presented with an opportunity to expand the Petflix market to fish and reptiles, but instead, he pitches the idea to a friend and business partner who takes the idea to market and makes Tom a silent partner. Tom has usurped a corporate opportunity because he diverted the fish and reptile idea away from Petflix and breached his duty of loyalty. Tort Liability and the Agency Relationship Agents are always responsible for the torts they commit. The question remains of whether the principal can also be held liable. The term respondeat superior is a Latin term that literally means, “let the superior speak.” This legal concept places liability on the principal/employer for any harm caused by an agent/employee. This is liability without fault, also known as vicarious liability. The policy rationale for this is based on the connection between the agent/employee and the principal/employer because the agent/employee is used to further the business interests of the principal/employer. As such, any harm caused by the agent/employee is the responsibility of the principal/employer. Often, when a third party is injured, both the agent and the principal are sued by the third party. It is possible for an employer also to be liable for the intentional torts of an employee. For example, in the case of Manning v. Grimsley (1981), on September 16, 1975, there was a professional baseball game at Fenway Park in Boston, Massachusetts, between the Red Sox and the visiting Baltimore Orioles. The defendant, Ross Grimsley, a pitcher employed by the Baltimore Orioles, was warming up in the bullpen when some spectators seated nearby began heckling him. The heckling continued for several innings. After his catcher had left his catching position, and while he was walking over to the bench, Grimsley wound up and threw a baseball in the direction of the hecklers. This was close to 90 degrees from the path of the pitcher’s mound to the plate. The ball passed through the wire mesh fence, which separated the bullpen from the fans, and the ball struck Manning, the plaintiff. The plaintiff sued Ross Grimsley and the Baltimore Orioles. The court ruled that the Orioles were also liable for damages resulting from the intentional assault by an employee that was in response to the plaintiff’s interference of the employee’s duties. The court held that it could be possible for a jury to interpret Grimsley’s actions as an attempt to rid the hecklers so he could pitch more effectively. For more information on this case, see Manning v. Grimsley (1981). Further, consider a variation of the scenario discussed in the Case Opener on page 410 in the textbook. What if one of those FedEx single-route drivers was involved in a serious car accident that injured another driver? There is no question that the FedEx driver would be liable for his actions, but would FedEx be liable? In this situation, the answer is no, because an independent contractor is not an employee. The employer does not control the details of the independent contractor’s performance. As a result, the employer cannot be held
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liable for the independent contractor’s tortious actions under respondeat superior. There is an exception, however, for inherently dangerous activities.
References Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education. Manning v. Grimsley, 643 F. 2d 20 (U.S. Ct. App. 1st. Circ. 1981).
Suggested Reading The discussion around principal-agent relationships can be a difficult concept to fully understand. An article that may give some insight into the relationship can be found below. Farrelly, F., & Quester, P. G. (2003). What drives renewal of sponsorship principal/agent relationships?
Journal of Advertising Research, 43(4), 353-360. Retrieved from https://www.researchgate.net/publication/4733670_What_Drives_Renewal_of_Sponsorship_Principal Agent_Relationships
UNIT 4 STUDY GUIDE.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit IV Upon completion of this unit, students should be able to:
7. Explain the basic elements of forming an enforceable contract. 7.1 Recognize the rules that guide the interpretation of contracts. 7.2 Identify the elements of a valid offer and a valid acceptance. 7.3 Distinguish the various forms of consideration.
Reading Assignment Chapter 9: Introduction to Contracts and Agreement, pp. 173–189 Chapter 10: Consideration, pp. 192–203
Unit Lesson Definition of a Contract A contract is “a promise or a set of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 174). Contracts are pervasive in business relations. This unit introduces the sources of contract law and then describes how contracts are classified. The rules that guide the interpretation of contracts are essential to the understanding of contracts. First of all, let it be known that contracts are a part of our everyday lives. Contracts evolve from an ongoing process of collaboration, trust, promise, and credit. As business leaders, we need to fully understand how contracts are created, how are they enforced, consequences for breaking contractual promises, and our role in the contract. Preconceived notions of what comprises a legal contract are often wrong. Humans speak and act ambiguously and make assumptions that are often incorrect. In the business world, people often mistake an offer for negotiation or a bid. The principles of contract law include the legal guidelines for determining when an offer has been made and accepted and define the important component of consideration. The four elements of a contract are agreement, consideration, legal purpose, and capacity. Bilateral versus Unilateral Contracts The most common type of contract is the bilateral contract, which is defined by Kubasek et al. (2016) “as a promise exchanged for a promise” (p. 176). Courts favor this type of contract because the law attempts to provide some type of protection from the risk of revocation by the offeror (i.e., the one who makes the offer). A good example of a bilateral contract is the sale of an automobile. The buyer promises to pay the seller $20,000 in exchange for the seller’s promise to provide the legal title to the automobile. In a unilateral contract, only one party makes the promise. An example is the reward contract described in the textbook. Jim loses his dog and posts a sign stating “$50 reward for the safe return of my dog.” When someone says to Jim, “I promise to find your dog for you,” this does not form a bilateral contract. Rather, the unilateral offer of the sign calls for an action—not a promise. Once the finder brings the dog to Jim, that is when a contract is formed and when Jim must pay. In everyday life, the most common type of unilateral contract is the insurance contract. The insurance company promises to pay the insured a stated amount of money in the event of something happening. All the insured has to do is pay the premium. It is important to recognize that the insured does not actually promise to pay the premium (i.e., this is not a promise for a promise).
UNIT IV STUDY GUIDE
Contracts Part I: The Nature of Contracts and Agreements
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Quasi-Contract It is possible for a contract to exist when neither party involved makes a promise. These are cases where a court will create a contract between the parties to prevent unjust enrichment such as one side obtaining a windfall at the expense of the other. For example, an electrician spots a hazardous, exposed wire when replacing a light fixture. He replaces the wire in addition to replacing the light fixture. Although the wire repair was not specifically contracted for, a quasi-contract is implied, for which the owner must pay the electrician. If the electrician sues for non-payment, a court could find in his or her favor under the theory of quasi-contract. The court would create an enforceable implied contract. Offer The elements of a valid offer are intent, definite and certain terms, and communication to the offeree. An offer can be terminated by revocation by the offeror, rejection by the offeree, death or incapacity of the offeror, destruction or subsequent illegality of the subject matter, or lapse of time or failure of another condition specified in the offer. The elements of acceptance of an offer are manifestation of intent to be bound, acceptance of definite and certain terms, and communication to the offeror. The acceptance of definite and certain terms in a bilateral contract is subject to the mirror-image rule. Specifically, the terms of the acceptance must be exactly the same terms as those of the offer. If the terms do not match each other, no contract is formed, and the attempted acceptance is considered to be a counter-offer. Consideration Consideration is the glue that binds an agreement. It is what a person will receive in return for performing a contract obligation. Consideration can be a benefit to the promisor, a detriment to the promise, a promise to do something, or a promise to refrain from doing something (i.e., forbearance). For an example of forbearance, see Case 10-1: “Hamer v. Sidway, New York Court of Appeals 124 N.Y. 538 (1891),” found on page 194 in the textbook. Situations involving illusory promises or past consideration are common. The law does not value illusory promises as consideration because they are promises that appear to be promises but do not, in fact, promise anything at all. Similarly, past consideration is also no consideration at all. For a promise to be enforceable, there must be a bargaining and an exchange. A promise cannot be based on consideration that was provided before the promise was made. This was the reality Jamil Blackmon faced when he sued his friend and NBA star Allen Iverson. This is the subject of the 2003 federal court case, Case 10-3 on pages 198-199 of the textbook. For Mr. Blackmon to have received a favorable ruling in this case, the contract would have had to be formed before the disclosure of the idea to use “The Answer” as a nickname or slogan. Last, a promise to do something that is already an obligation is not valid consideration.
References Fried, C. (1981). Contract as promise: A theory of contractual obligation. Cambridge, MA: Harvard University
Press. Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education.
Suggested Reading For us to fully understand the impact contract law can have on leaders, we need to be aware of past situations or cases. Access the Mariano Castillo CNN article below to study contract law further: Castillo, M. (2009, December 31). Letter: Texas Tech coach fired for breach of contract. Retrieved from
http://www.cnn.com/2009/US/12/31/texas.tech.leach/index.html?iref=allsearch
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Learning Activities (Nongraded) Construct a PowerPoint presentation entitled “Contracts.” The presentation should include six slides:
Slide 1: Title slide (name of the presentation, your name, university’s name)
Slide 2: Purpose of the presentation
Slide 3-5: Compare and contrast bilateral contracts, unilateral contracts, and quasi-contracts.
Slide 6: References (Use APA format to identify the sources used for the presentation.)
Be sure to use the note section for each slide to include the actual script you would use while presenting the slides; be clear and concise. Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.
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UNIT 1 STUDY GUIDE.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit I Upon completion of this unit, students should be able to:
4. Demonstrate research skills using all modalities available for legal issues. 4.1 Identify the various forms of alternative dispute resolution (ADR).
Reading Assignment Chapter 1: An Introduction to the Fundamentals of Dynamic Business Law Chapter 3: The U.S. Legal System and Alternative Dispute Resolution
Unit Lesson Introduction to Business Law Law—a brief definition: Business law is defined law as “the enforceable rules of conduct that govern the actions of buyers and sellers in market exchanges” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 3). Business law intersects with the six functional areas of business. These include corporate management, production and transportation, marketing, research and development, accounting and finance, and human resource management. These are the core activities in business, and the law plays a significant role in all (Kubasek et al., 2016). Law is dynamic, and in some senses, it is a living thing. This core concept requires understanding of the origins of law. Law embodies fundamental rules of behavior and the institutions of defining, changing, clarifying, refining, redefining, and applying these rules. It is the natural consequence of humans living and working together. For an ordered society to exist, there has to be a way to resolve the inevitable disputes that come up. Law can be seen as the activity of subjecting human conduct to the governance of rules. Business law encompasses the rules of conduct for commercial relationships. What are the roots of law? At some point in your upbringing, you learned the difference between right and wrong. Your home life and the experiences you had in school, church, and/or in the larger community all impacted your viewpoint on right and wrong. One way to classify law is private versus public law. Private law is for resolution of disputes between private individuals or groups, whereas public law addresses disputes between private individuals or groups and their government. Both private and public law are significant for business law. Another classification is civil versus criminal law. Civil law governs the rights and responsibilities either between persons or between persons and their government. Criminal law is the body of laws that involves the rights and responsibilities an individual has with respect to the public as a whole. A clear example of the dichotomy was displayed in the O.J. Simpson trial—O.J. was found not guilty in his criminal case for the murders of Nicole Brown Simpson and Ronald Goldman, but he was found to be legally responsible for their deaths in his civil case. Law evolves. It predates recorded history. In the early days of human existence, laws were created one by one, as disputes arose and were settled. These early laws existed before written law and before courts of law. For thousands of years, societies created and evolved customary legal systems that reflected how a certain group of people treated one another. The customary or private laws of one group of people could vary from those of another group.
UNIT I STUDY GUIDE
The Nature of Law, Judicial Process, and Alternative Dispute Resolution
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Current laws in the United States reflect how society has shifted away from the customary and private law systems to a mixture of customs and ways. This shift resulted in the need for laws to coercively be enforced by the state—by government. Sources of business law: There are different sources of law in the United States. Law comes from constitutions, statutes or legislative actions, case law or precedent, administrative law, treaties, and executive orders. Statutory law is law created by a legislative body, either at the federal level or the state level. Common law is judge-made law. If similar cases arise in the future, there is a good chance the court will use the same rule of law generated from those previous cases. This consistency is known as stare decisis or “let the decision stand.” As a result, we have precedent, and future judicial bodies may refer to the previous similar case and findings. The U.S. Constitution and federal laws are considered the supreme law of the land. Additionally, each state has its own constitution and laws. The relationship between the federal constitution, federal laws, state constitutions, and state laws is complex. The Supremacy Clause of the U.S. Constitution mandates that all state judges follow federal law when a conflict arises between federal law and either a state constitution or state law. Case law establishes precedent. Generally, courts will adhere to the previous rulings in similar cases, although this is not universally true. There are over 100 federal administrative agencies that also create law. This will be the subject we address in Unit II. For example, a treaty, such as the North American Free Trade Agreement, is also a source of law. Executive orders come from the President of the United States and are also considered law. Judicial Process and Alternative Dispute Resolution General terms: Key terms that must be understood to develop an understanding of business law include plaintiff, defendant, trial courts, appellate courts, questions of law versus questions of fact, complaint, and summons. Plaintiffs are listed first in a dispute because they are the party that initiates a lawsuit. In criminal cases, this party is the government. The defendant is the person who must answer to the suit or charge. A trial court is where the plaintiff first files the complaint or summons. At trial, the parties present their cases, calling witnesses for testimony. This is also the time to present and explain any other pieces of evidence that may be pertinent to the case. The jury weighs this evidence and determines what they believe actually happened. The jury is often called the finder of fact, meaning they answer questions of fact. The judge controls the activities in the courtroom, including answering questions of law, making decisions, and presenting the final verdict. An appellate court reviews the trial court's application of the law. There is no jury in an appeal, nor do the lawyers present witnesses or, typically, other forms of evidence. Generally, the appellate court will accept the facts as they were revealed in the trial court and make a decision based on the prior record. Jurisdiction: Jurisdiction is the official power or authority to make legal decisions and judgments. There are different jurisdictions with different degrees of power. The jurisdiction of a court has significant implications on the decisions that can be made and which levels of the legal system can be used to conduct or appeal a case. Types of jurisdiction include original, appellate, in personam, and in rem. In addition to these distinctions, there is the subject-matter jurisdiction. There are exclusive federal jurisdiction, state jurisdiction, and concurrent federal jurisdiction (i.e., sometimes both state and federal court systems have jurisdiction). Kubasek et al. (2016) stated that there are two types of cases with concurrent jurisdiction:
1. Federal question cases: These require interpretation of the Constitution, a federal statute, or a federal
treaty.
2. Diversity-of-citizenship cases: These occur when the plaintiff and defendant reside in different states,
and the amount in controversy is in excess of $75,000. Diversity must be complete. Defendants have
the right to remove cases from state to federal court, such as in Hertz Corp. v. Friend (2010).
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Threshold requirements for a court case are the three requirements that must be met before a court will hear a case. These are standing, case or controversy, and ripeness. All three must exist before a case can proceed to court. Settlement: In some situations, legal settlement may be better than undergoing a full trial. The key reasons are expense, stress, privacy, time, finality, and flexibility. Additionally, in a settlement, there may be no verdict of guilty or not guilty because the defendant (person or party on the defensive) may not want a record of guilt. Settling a case is a way to pay for a mistake without having to admit wrongdoing (Shvartsman, 2015). Alternate dispute resolutions: There are a variety of other options called alternative dispute resolutions (ADRs) that involve the resolution of a dispute by a neutral third party outside the judicial setting. The types most commonly used by businesses today primarily include negotiation, mediation, and arbitration. These can have significant benefits in comparison to resolution through the justice system. The benefits can be to save time and money, avoid uncertainty of a jury decision, avoid setting a precedent, maintain confidentiality, and/or to preserve a business relationship. Arbitration is one of the most frequently used methods of ADR. Often, arbitration is a voluntary process in that parties have a contractual agreement to arbitrate any dispute. In this situation, there is an arbitration hearing before a fact-finder. The decision of the fact-finder is legally binding. This is very court-like, but unlike a judge, the arbitrator takes a much more active role in the hearing than a judge takes in a trial. Also, no official written record of the hearing is kept in most arbitration cases. A significant business and legal consideration is whether companies should be allowed to include binding arbitration clauses in consumer contracts.
References Hertz Corp. v. Friend, U.S. 130 S. Ct. 1181 (2010). Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education. Shvartsman, S. (n.d.). To settle or not to settle? That is the question. Retrieved from
http://research.lawyers.com/to-settle-or-not-to-settle-that-is-the-question.html
UNIT 8 LEARNING ACTIVITY.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit VIII Upon completion of this unit, students should be able to:
5. Define the limitations of all forms of business ownership. 5.1 Identify the major forms of business organization. 5.2 Identify the advantages of each form of business organization.
Reading Assignment Chapter 21: Forms of Business Organization, pp. 439–457
Unit Lesson Legal Entity Some of the students taking this course are reading this lesson on a laptop or desktop computer manufactured by Apple Inc. Some of you own a handheld device, portable music device, or phone produced by Apple. Apple has made a fortune for investors because of their unique and innovative research and development, their marketing approach, and their ability to create an interest in new and unthought-of products that appear to be impossible. On June 29, 2007, Apple released the first generation iPhone. The potential of the iPhone only existed in the minds of the creative research and development personnel at Apple. The unsuspecting consumer was not even aware he or she “needed” the features on that early iPhone nor the wealth of features on Apple’s most recent iPhone models. We, as consumers, enjoy the technology products organizations like Apple produce. We spend little time thinking about Apple as a corporation with headquarters in Cupertino, California. The entity of Apple is a corporation. It is a creation of mankind, yet is a new entity that can own property, enter into contracts to buy or sell goods/services, hire/release employees, open bank accounts, borrow money, sue\be sued in court, and is even protected by our United States Constitution. Business entities and new business endeavors are as old as mankind itself. “The ability to trade is a precursor of the accumulation of wealth and procurement of scarce resources” (Goldman, Nienaber, & Pretorius, 2015, p. 2). This unit explores the choice of legal entity. When someone decides to go into business for himself or herself, the business often starts as a sole proprietorship. This is defined as a business in which one person (the sole proprietor) is in control of the management and profits. This entity is easily created. There are no forms to file nor banking requirements to meet. The sole proprietor has unfettered freedom in making ownership decisions and keeps all of the profits. This is why it is the most common form of a business entity in the United States. The biggest drawback to a sole proprietorship is the lack of personal liability protection. A sole proprietorship is not considered a legal entity, which means it is not separate from the person who owns it. If the business is sued for whatever reason, the sole proprietor is personally responsible for any obligations of the company. Furthermore, there is no succession in a sole proprietorship. When the owner dies, the business is terminated. A partnership is a voluntary association between two or more people who co-own a business for profit. Forming a partnership is also easy, often formed without a written agreement. Similar to sole proprietorships, most partnerships are not considered to be separate legal entities, and the income from the business is taxed as individual income for each partner. Therefore, the same personal liability exposure exists. Arguably, the liability exposure is even greater. Consider the example in the textbook on page 441 in which Partner A
UNIT VIII STUDY GUIDE
Business Organizations
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embezzles $50,000 from the partnership, and financial obligations cannot be met. Partner B is equally liable for the $50,000 that was taken from the partnership. Thus, it is strongly advised that partnerships form by written agreement. In this agreement, the name of the partnership is identified, a fixed termination date can be set, the division of profits and losses can be laid out, management duties can be divided, and, finally, the specific capital contributions that will be made by each partner can be identified. There are several varieties of partnerships: general partnership, limited partnership, and limited liability partnership (LLP). A general partnership has equal division of profits, losses, and management responsibility among the partners and unlimited personal liability for the partnership’s debts. A limited partnership has at least one limited partner and at least two general partners. The limited partner’s liability extends no further than the partner’s original investment in the partnership; the general partners assume all liability for the partnership debts. The LLP is a fairly new form of partnership. This form was created by law so that all partners assume only their fellow partner’s professional malpractice to the extent of the partnership’s assets. Thus, an LLP is legally distinct from a limited partnership. It is a common choice for professionals who do business together because it affords extra protection to the partners. Corporations are separate legal entities formed by the issuance of stock to investors, who are the owners of the corporation. The shareholders elect a board of directors who become responsible for the managing of the business affairs. The board of directors then hires officers to run the business. A corporation is a separate legal entity, meaning the corporation itself can be sued. The significance to shareholders is important because shareholders are not personally liable for the debts of the corporation. The shareholders have some exposure; however, it is limited to their investment in the corporation. Unlike sole proprietorships or partnerships, a corporation survives the death of its shareholders. Corporations must pay taxes on profits because they are separate legal entities. Shareholders also pay taxes on the dividends they receive from the corporation. To avoid this double taxation, certain federal guidelines must be observed. A corporation that enjoys the tax status of a partnership is known as an S Corporation. The limited liability company (LLC) is an unincorporated business that is taxed in the same way as a partnership (i.e., the members pay personal income taxes, and it has the limited liability of a corporation). Many people would consider this as the best of both worlds, which is why the LLC is now the most commonly- formed legal entity in the United States. All 50 states recognize an LLC as a business form; however, there are differences in the laws associated with an LLC. For example, Delaware and Nevada have LLC laws that are very favorable to business. As a result, businesses are enticed to form their LLCs under the laws of those states rather than of other states. LLC owners are referred to as members, and unlike corporations, the allocation of profits and losses does not have to be in proportion to ownership interests. For example, Angelo and Arthur form an LLC together. Angelo has agreed to bankroll the operation, but Arthur has the million-dollar ideas. In their LLC operating agreement (i.e., the document that outlines all of the terms of their LLC), Angelo is responsible for 100% of losses and Arthur, 0%, despite their agreement to share profits 50-50. The Internal Revenue Service (IRS) treats LLCs as partnerships or sole proprietorships and requires that each member of the LLC report his or her share of profits and losses on personal tax returns. Unlike corporations, the LLC is not required to have annual meetings, a board of directors, or officers. LLCs can be managed by their members or can elect to be managed by non-members, similar to the corporation’s board of directors. Most LLCs, at least at their onset, elect to be managed by their own members.
References Goldman, G. A., Nienaber, H., & Pretorius, M. (2015). The essence of the contemporary business
organization: A critical reflection. Journal of Global Business and Technology, 11(2), 1-13.
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Learning Activities (Nongraded) Construct a PowerPoint presentation entitled “Business Organizations.” The presentation should include seven slides:
Slide 1: Title slide (name of the presentation, your name, university’s name)
Slide 2: Purpose the presentation
Slide 3-6: Identify and briefly explain the types of business organizations, and provide an example for each. Include advantages and potential disadvantages.
Slide 7: References (Use APA format to identify the sources used for the presentation.) Be sure to use the note section for each slide to include the actual script you would use while the slide is showing; be clear and concise. Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit them. If you have questions, contact your instructor for further guidance and information.
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UNIT 5 STUDY GUIDE.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit V Upon completion of this unit, students should be able to:
2. Interpret contract and lease assignments. 2.1 Apply key legal terms in contract law.
3. Evaluate delegation of contractual performance.
3.1 Recognize contractual assent and the situations which negate contractual assent. 3.2 Evaluate the equitable and legal remedies available for breach of contract. 3.3 Differentiate an assignment from a delegation of a contract.
Reading Assignment Chapter 12: Reality of Assent, pp. 225–238 Chapter 14: Discharge and Remedies, pp. 270–287
Unit Lesson Assent Genuine assent in contracts is critical. The law has rules about when “yes” means “yes.” It is important to recall the concepts from earlier in this course regarding offer and acceptance. Genuine assent can be negated by mistake, misrepresentation, undue influence, or duress. Certain problems with the acceptance of an offer may lead to a claim that the acceptance (the “yes”) was not genuine, and, therefore, the contract is not valid. The law will allow certain contracts that lack genuine assent to be voided, which is the ability to withdraw from the contract (also known as rescinding). At the core of legal assent is free will and the belief that, generally, each person can look out for himself or herself. Mistake: A mistake is legally defined in contract law as an erroneous belief about the facts of a contract at the time it is concluded. When a mistake occurs, there is no legal assent. For example, Sherwood contracted to purchase a cow from Walker. The cow named Rose was believed to be barren. Sherwood agreed to purchase Rose for $80. If Rose were fertile, she would have been worth $750- $1000. Walker later discovered that the cow was pregnant and refused to complete the transaction. Sherwood sued and ultimately lost. At trial, Walker showed that, at the time of the sale, both parties believed the cow to be barren, and both also knew that the value of a fertile cow was much higher than that of a barren cow. The court determined that mutual mistake by both parties was the substance of the agreement (Sherwood v. Walker, 1887). Generally, unilateral mistakes that are errors by one party about a material fact do not void a contract. Courts are reluctant to interfere with a contract when one of the parties has a correct understanding of the material facts. Misrepresentation: Misrepresentations are similar to mistakes; however, they involve an untruthful assertion by one of the parties about a material fact. In Sherwood v. Walker (1887), neither man made a deliberately untruthful statement. Under the same facts, had Walker told Sherwood that his cow was fertile when he knew for a fact that she was not, this would constitute misrepresentation. There are three varieties of misrepresentation: innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation. The primary difference is the mindset and intentions of the person accused of the misrepresentation.
UNIT V STUDY GUIDE
Contracts Part II: Assent, Discharge and Remedies, Third-Party Contracts
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Undue influence: This involves a person who holds a special relationship with another (e.g., doctor–patient, lawyer–client), and this person uses his or her dominant position to take advantage of the other. The persuasive efforts of the dominant person must have interfered with the weaker person’s ability to make decisions. Duress: This takes place when one party is forced into an agreement by the wrongful act of another; although there is assent, it is not legal assent. For a court to rescind the agreement, the injured party must show that the duress left no reasonable alternatives to agreeing to the contract. Methods of Discharging a Contract and/or Remedies Conditions: There are three varieties of legal conditions: condition precedent, condition subsequent, and concurrent conditions. These conditions can be expressed (i.e., those explicitly stated in the contract) or implied (i.e., those inferred from the nature and language of the contract). Discharge by performance: Tender is defined as an offer by a party in a contract to perform, along with being ready, willing, and able to perform a duty specified in that contract (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). Tender can trigger events later discussed under material breach. There are two types of performance: complete performance and substantial performance. Substantial performance has three elements, which are as follows:
1. completion of nearly all of the terms of the agreement; 2. an honest effort to complete all the terms, and 3. no willful departure from the terms of the agreement.
Courts will generally view substantial performance as performance, and the courts will discharge the party’s responsibilities under the contract. This may seem unfair; however, courts will often require the party who has not quite fully performed to compensate the other party for any loss in value caused by the failure to meet all the standards set forth in the contract. Cases of this nature will often turn on what is considered to be substantial performance under the facts. In the textbook, this is precisely the question in Larry Pettit et al v. Hampton and Beech, Inc. et al., 101 Conn. App. 502, 922 A.2d 300 (2007). Discharge by material breach: A breach is a failure to perform obligations under contract. Not all breaches result in discharge from the contract. Material breaches are substantial breaches of a significant term of a contract that excuse the nonbreaching party from further performance and give the nonbreaching party the right to recover damages. In contrast, minor breaches may entitle the nonbreaching party to damages but not discharge. Anticipated repudiation leads to discharge and allows for the nonbreaching party to immediately sue for breach of contract. The nonbreaching party may allow the repudiating, nonperforming party to change his or her mind and still perform. Discharge by operation of law: This occurs when neither party acts or fails to act. In situations involving bankruptcy, the tolling of the statute of limitations, impossibility, frustration of purpose, or commercial impracticability, a contract may be discharged. For example, the 18th Amendment of the United States Constitution effectively established the prohibition of alcoholic beverages in the United States by declaring the production, transport, and sale of alcohol to be illegal (U.S. Const. amend. XVIII). Any contracts involving activity made illegal by the 18th Amendment were discharged by operation of law. Assignment and Delegation Contracts are typically exclusive agreements between the parties involved. There are two situations in which a third party can gain rights to a contract to which he or she is not a party: an assignment or a delegation.
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Assignment: Consumer credit card debt is often assigned to third parties for collection. For example, Carl has a delinquent RichBank Visa credit card and owes over $5,000 in principal and interest. Carl receives a letter stating that his debt has been assigned to Blood Stone Recovery Services (BSRS). In this scenario, the original obligor was RichBank, who agreed to extend credit to Carl, the obligee, who promised to pay RichBank back plus interest. RichBank became the assignor when they assigned their rights to the contract to BSRS, the third party and assignee. When an assignor transfers rights to an assignee, the assignor legally gives up all rights to collect on the contract. Therefore, RichBank cannot continue any collection efforts from Carl. If he later sends them a payment, RichBank must reject it because they have no legal right to it. Additionally, the assignee acquires the identical rights the assignor had. Therefore, BSRS is only entitled to collect fees plus interest according to the original terms in the agreement Carl signed with RichBank. Delegation: Delegations are similar to assignments with a few key distinctions. Assignments transfer rights to a contract, whereas delegations transfer duties. In delegations, the transferring party—the delegator— remains on the hook if the delegatee fails to fulfill the contract.
References Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education. Sherwood v. Walker, 66 Mich. 568, 33 N.M. 919, (1887). U.S. Const. amend. XVIII.
UNIT 2 STUDY GUIDE.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit II Upon completion of this unit, students should be able to:
4. Demonstrate research skills using all modalities available for legal issues. 4.1 Describe what administrative law is and where it is derived. 4.2 Differentiate between the two principal varieties of agency rule making. 4.3 Classify the limitations placed on agency powers. 4.4 Describe law and its sources. 4.5 Identify the key elements of the judicial process, including the parties involved and the places
where disputes are heard. 4.6 Differentiate the various forms of jurisdiction.
8. Analyze business ethics in legal matters.
8.1 Recognize the importance of ethics to business management. 8.2 Discuss ethical scenarios using the WH framework.
9. Explain the need for promoting business social responsibility.
Reading Assignment
Chapter 2: Business Ethics and Social Responsibility, pp. 13–22
Chapter 4: Administrative Law, pp. 54–71
Unit Lesson Administrative Law Introduction: This unit goes beyond the various sources of law covered in Unit I, including constitutions, laws passed by legislatures, and laws that administrative agencies pass. Understanding administrative law requires knowledge of the creation of administrative agencies, their primary function, and their everyday application. All are very important to a business manager. In brief, administrative law involves the substantive and procedural rules created by administrative agencies— entities created by the legislative branch—to carry out specific duties. These agencies have hearings (agency “trials”) in which an administrative law judge (ALJ) presides over the hearing. An example of the importance of administrative law is the case mentioned in Chapter 4 on page 54. A group of private organizations petitioned the Environmental Protection Agency (EPA) to require that it regulate carbon dioxide from automobile emissions. After hearings and comments from the public, the EPA refused to regulate, saying they did not have the legal authority to do so. The matter was appealed and eventually went to the U.S. Supreme Court. The Bush White House filed an amicus curie brief, arguing that the EPA was attempting to force the automobile industry to reduce emissions. The Alliance of Automobile Manufacturers came to the EPA’s defense, arguing that the EPA as well as the states had no authority to regulate automobile emissions. In a 5-4 decision, the U.S. Supreme Court disagreed, holding that the Clean Air Act authorizes the EPA to regulate greenhouse gas emissions from new motor vehicles in the event that the EPA forms a “judgment” that such admissions contribute to climate change. Moreover, the Court held that the Clean Air Act’s definition of air pollutant includes carbon dioxide. As a result of the Court’s decision, many are now calling for national standards on emissions from automobiles (Massachusetts v. EPA, 2007).
UNIT II STUDY GUIDE
Administrative Law, Business Ethics, and Social Responsibility
BBA 3210, Business Law 2
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Administrative Agencies: Agencies are created by Congress to do work that is too specific, burdensome, or outside the expertise of legislative bodies. Enabling legislation specifies the name, functions, and specific powers of the administrative agency. Congress approves passing of this legislation, resulting in a statute that specifies the name, functions, and specific powers of the administrative agency, and the agency is empowered to act. Agencies have three processes to carry out their mandates—rule making (procedural, interpretive, and legislative), the executive power to investigate possible violations of rules or statutes, and adjudication. The EPA case above is an example of the EPA’s interpretation of its own administrative responsibility. The Administrative Procedure Act (APA) passed by Congress is a major limitation on how agencies are run. Prior to this, agencies had the power to decide how they carried out rule making, investigations, and adjudications. Agencies could decide on their own how to make rules, conduct investigations, and hold hearings and trials. The APA established specific guidelines on the formation of rules. Following the formal guidelines of the APA, there are two common types of rules—informal and formal—that agencies can generate. The rules are published in the Federal Register. Agencies primarily use informal rule making. The process of formal rule making is illustrated in Alexis Perez v. John Ashcroft (2002). In this case, the court ruled that all substantive rules (i.e., rules that create law) must be implemented through formal rule- making procedures established by the APA. Agencies have broad and expansive powers that are kept in check by political, statutory, judicial, and informational limitations. Judicial limitations are arguably the biggest constraint on agency power. An individual or business that believes itself harmed by an administrative rule may challenge that rule in federal court after all administrative procedures are exhausted (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). Specifically, the petitioner must do all that is possible within the administrative agency before taking a matter to federal court. In Massachusetts v. EPA (2007), the EPA had resisted regulating greenhouse gases, arguing that carbon dioxide and similar gases are not pollutants under the Clean Air Act, and, therefore, the agency had no regulatory power over them. Ultimately, the Supreme Court decided otherwise and determined the EPA has authority to regulate greenhouse gases as air pollutants under the Clean Air Act. The informational limitations on agencies are defined by the Freedom of Information Act (FOIA), the Government in the Sunshine Act, and the Privacy Act of 1974. These acts serve to provide transparency in government activities, including agencies. Electronic Privacy Information Center v. National Security Administration (2011) determined limits on FOIA requests. There are over 100 federal agencies and countless state agencies. Each state has its own analog of the EPA. The federal EPA delegates authority to each of the state environmental protection agencies for enforcing environmental protection laws. If the state agency fails to enforce these laws using their delegated authority, the federal EPA will enforce them. Business Ethics and Social Responsibility Earl Warren (March 19, 1891–July 9, 1974), American jurist and politician, served as the 30th Governor of California and later served as the 14th Chief Justice of the United States (1953–1969), and in 1962, he stated, “In civilized life, law floats in a sea of ethics” (as cited in Allen, 2006, p. 1). The concepts of business law must be illustrated with real-life examples in order to be meaningful to citizens and institutions. One lesson to learn is that it is not enough to simply memorize the law or court case decisions. It is most important to understand the reason for the law and the practical application of that reasoning. Ethics addresses the issues of right and wrong and the implications for conduct, including the actions of individuals and businesses. Chief Justice Warren’s quote implies a strong connection between law and ethics. The legality of a decision is the minimum standard that must be met. The law both affects and is affected by evolving ethical patterns.
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Ethics is the study and practice of decisions about what is good or right. Business ethics is the use of ethics and ethical principles to understand and solve potential ethical threats in a business environment. Every community has its own values—positive abstractions that capture the sense of what is good or desirable. The community has the right to these expectations in regard to business actions within their community. These underlie social responsibility. Understanding the concept of values is necessary to use the who-how (WH) framework for ethical business decisions. Kubasec et al. (2016) described that the WH framework provides practical steps for responding to an ethical dilemma. The W refers to who (i.e., the stakeholders) would be affected. This can be challenging as the interests of one group of stakeholders (e.g., shareholders) may conflict with the interests of others (e.g., customers or future generations). The H refers to how the ethical decisions are made. Often, traditional guidelines, such as the Golden Rule (“Do unto others as you would have done to you"), are used. Guidance is also provided by considering the test of public disclosure—the consequences of the decision becoming public. A third test is the universalization test—if action X is taken, would the world be a better place if others did the same?
References Alexis Perez v. John Ashcroft, 236 F. Supp. 2d 899 (2002). Allen, A. L. (2006). Moralizing in public. Hofstra Law Review, 34(4), 1-6. Retrieved from
https://law.hofstra.edu/pdf/Academics/Journals/LawReview/lrv_issues_v34n04_i02.pdf Electronic Privacy Information Center v. National Security Administration, 795 F. Supp. 2d 85 (2011). Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education. Massachusetts v. E.P.A., 549 U.S. 497 (2007).
Suggested Reading The reading below is helpful in expanding your knowledge when completing the Unit II Assignment. This article briefly goes over the Ford Pinto case and the impact it had on Ford and the automobile manufacturing industry. Ford Pinto: A pre law case-study in product liability. (n.d.). Retrieved from http://www.regisuniversity.org/ford-
pinto-a-pre-law-case-study-in-product-liability/
UNIT 6 STUDY GUIDE.PDF
BBA 3210, Business Law 1
Course Learning Outcomes for Unit VI Upon completion of this unit, students should be able to:
1. Explain Article 2 of the Uniform Commercial Code pertaining to all types of transactions.
2. Interpret contract and lease assignments 2.1 Articulate the specific obligations of sellers/lessors and buyers/lessees.
Reading Assignment Chapter 15: Formation and Performance of Sales and Lease Contracts, pp. 291–308 Chapter 16: Sales and Lease Contracts: Performance, Warranties, and Remedies, pp. 312–328
Unit Lesson The Uniform Commercial Code (UCC) The UCC was created for businesses and organizations that purchase products to provide clarity and consistency to sales laws. The UCC can apply to many different organizations. For example, the University of Minnesota is considered to be a merchant under the UCC. The UCC affects many businesses and organizations, thus each needs to be aware of the applicable laws. Article 2 (2002) of the UCC governs sales contracts for the sale of goods. Article 2(A) of the UCC governs lease contracts. The Case Opener of Crown Castle Inc. et al. v. Fred A. Nudd Corporation et al. (2008) raised the question of whether cell towers are tangible goods and, therefore, controlled by UCC Article 2 (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). The distinction matters because in that jurisdiction, the statute of limitations for breach of contract is six years, whereas it is four years under the UCC. The court held as a matter of law that the four-year statute of limitations under UCC Section 2-725 applied as the cell towers were considered to be tangible goods, despite their very nature to be attached to real estate, which is not a tangible good under the UCC. The UCC applies to anyone who buys and sells goods; however, it makes an important distinction between a merchant and a regular buyer or seller. The distinction is the assumption that a merchant has a stronger ability to watch out for himself or herself than does an ordinary buyer or seller. There are four ways that an entity qualifies as a merchant. If someone regularly sells goods as a business, employs others to sell these goods, works for a person selling the goods, or self-identifies as a merchant, then that entity is a “merchant” under the rules of Article 2. In this case, a private citizen is clearly not a merchant. Consequently, the UCC does not apply the same standard of care to the citizen’s behavior; it places greater duties on merchants. Therefore, a common issue often litigated is whether or not a party to a contract is considered to be a merchant or a private citizen. The UCC varies from common law contract rules. For example, it creates a new category of offers: the firm offer. Under UCC Section 2-205, offers made by merchants are considered to be “firm” if the offer (1) is made in writing and (2) gives assurances that it will be irrevocable for up to three months, despite a lack of consideration for the irrevocability. In addition to the firm offer rule, there are other variations from common law contract. For example, the mirror- image rule does not apply under the UCC. Furthermore, there is no requirement for additional consideration when a contract is modified under the UCC.
UNIT VI STUDY GUIDE
Sales and Lease Contracts and the Uniform Commercial Code
BBA 3210, Business Law 2
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Sales Contracts Under the UCC There are four scenarios for sales contracts under the UCC. In each, the title, risk of loss, and insurable interest pass at different times. The following sales scenarios are included:
1. simple delivery contract, 2. common-carrier delivery contract, 3. goods-in-bailment contract, and 4. conditional sales contract.
Business managers must understand the rights and obligations of businesses to engage in efficient business transactions. The UCC requires good faith in the performance and enforcement of every contract. Obligations for sellers and lessors are different from the obligations of buyers and lessees. The “perfect tender rule” governs sellers and lessors, whereas the general obligation is stated for buyers and lessees. This rule indicates that if goods or tender of delivery fail in any way to conform to the contract, the buyer/lessee has the right to accept the goods with the defects, reject the entire shipment, or accept part and reject part. This rule is subject to certain exceptions such as industry norms, exceptions outlined in the parties’ agreement, sellers/lessor’s right to cure, excuse from performance when goods are destroyed through no fault of the parties, substantial impairment, and commercial impracticability. Buyers/lessees also possess specific obligations. In addition to the obvious requirements of acceptance and payment for conforming goods according to the contract, buyers/lessees are required to inspect the goods within a reasonable timeframe to ensure that they conform to the specifications of the agreement. Warranties Definition of a warranty: A warranty is an assurance, either express or implied, by one party that the other party can rely on its representations. In sales, this is a binding promise regarding a product should the product fail to meet the manufacturer’s or seller’s promises (Kubasek et al., 2016). The UCC significantly diverges from common law with respect to warranties, particularly implied warranties. With common law, the only implied warranty is the implied warranty of assignability; all other warranties must be explicitly contracted. Warranties generally impose certain duties on the seller/lessor. The UCC establishes three basic categories:
1. warranties of title; 2. express warranties; and, 3. implied warranties of merchantability, fitness for a particular purpose, and trade usage.
In the textbook, Webster v. Blue Ship Tea Room, Inc. (1964) focuses on the merchantability of food (Kubasek et al., 2016). For additional information and a more recent case that used Webster v. Blue Ship Tea Room to render a similar decision, read the case of Mexicali Rose v. Superior Court, 922 P.2d 1292 (1992). Warranty rights of third-parties: The UCC allows for three possibilities: (1) seller’s warranties extend to the buyer’s household members and guests; (2) seller’s warranties extend to any reasonable and foreseeable user; or (3) seller’s warranties extend to anyone injured by the good. Every state in the United States has accepted the UCC, and each state has decided which level of protection shall be extended to third parties.
References Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education. U.C.C. § 2 (amended 2002).
