AGENCY AND EMPLOYMENT LAW
Agency and employment laws are very important commercial law subject matters since a great deal of the world’s work is performed by agents. For example, the essence of agency law is to accomplish legally binding results by utilizing the services of others. The term “agency,” however, is a very broad one, which concerns the rights and liabilities created in one person by the acts of another. Agency law encompasses three fundamental and distinct legal fields: 1) contract rights and liabilities of third persons created by parties who use agents and employees; 2) tort liability of persons for the wrongful acts of their agents and employees; and 3) contract and tort duties which the parties to an agency relationship owe to one
another. Agency is one of the most common, basic, and pervasive legal relationships in global business. Nearly everyone will come into contact with the agency relationship, usually in the form of a sales agent or employee. The usefulness to business everywhere is obvious, since no single person can perform all of the actions required to conduct a business. Moreover, the business owner can conduct multiple business operations simultaneously and on a worldwide basis by means of agency. The corporate entity, furthermore, as an artificial, though legal, “person,” only can act through agents and employees and consequently only can enter into contracts by means of agents and employees. This section accordingly will examine agency and
employment laws in the United States.
Summary
Commerciality has become a well known concept in the business industry, and it is for this purpose that governments, specifically the U.S. government, have established commercial and agency laws. Agency law, its development, duties of agents and principles, termination of an agent’s authority, liability of parties, torts,
global legal perspectives and management strategies are all elements that pertain to agency law, which have been thoroughly discussed in this chapter. As firms continue to conduct business practices with their partners, they are obliged to abide by the local and federal laws. Therefore, the agent and principal relationship is a vital tool for firms as well as managers and entrepreneurs who are focused on successful results. The goal of employment law in the United States has been to achieve a proper balance between the employer’s right to hire, manage, and fire employees, and the employee’s right to be treated fairly and to maintain his or her job. Considering the “lawless” nature of the employment at-will doctrine, this objective has been a difficult one to attain, necessitating government intervention by means of major federal Civil Rights and labor law statutes. Moreover, not only the legislative branch of government, but also the judicial branch has questioned the conventional adherence
| Agency and Employment Law
18
to the employment at-will doctrine, a legal precept that can legally legitimize an immoral (but legal!) discharge. Courts, accordingly, have increasingly recognized further common law exceptions to the employment at-will doctrine and thereby have provided more “wrongful discharge” remedies for the unfairly terminated employee. Nevertheless, the employment at will doctrine is still today in the U.S. the key legal
doctrine governing the employment relationship, especially in a non-unionized setting.
Discussion Questions
1. Why is it critical to differentiate between employees and independent contractors under agency law? Provide examples of each with a brief explanation thereof.
2. What are the exceptional circumstances under which an employer may be liable for the legal wrongs of its independent contractor? Provide examples with brief explanations thereof.
3. Explain and illustrate how and why the principal-agent relationship is an indispensable one for business today.
4. How is the principal-agent relationship created? Provide examples with brief explanations thereof.
5. Explain and illustrate the doctrines of “apparent agency” and “ostensible employment.” How can they be a “trap for the unwary”?
6. What are the duties that a principal and agent owe to one another? Provide examples along with brief explanations thereof.
7. What are the doctrines of respondeat superior and vicarious liability? Provide examples of each with a brief explanation thereof. Are these doctrines morally fair to an employer? Why or why not?
8. Why is the concept of “course or scope of employment” a crucial factor in vicarious liability law? Provide an example with a brief explanation thereof.
9. What is the employment at-will doctrine? Why is it possible to have a legal but immoral discharge pursuant to this doctrine? Provide an example of the latter along with a brief discussion thereof.
10. What is the public policy exception to the employment at-will doctrine? Why is it such a potentially expansive legal doctrine? Provide an example of a discharge that violates public policy along with a brief explanation thereof.
7 – BUSINESS ORGANIZATIONS
The establishment of a business can be complex and requires understanding national and local laws. Entrepreneurs that want to establish a business must become aware of the laws that apply to each type of business prior to deciding whether to have a sole proprietorship, a partnership, a corporation, a limited liability company, a franchise or a joint venture with another national or international organization. This
chapter outlines some of the information that business owners, academic scholars, and entrepreneurs need to know about the various types of business organizations in the United States. The chapter outlines some of the risks and benefits associated with each type of organization so the entrepreneur can decide which format best fits his/her purposes for the business.
Summary
As mentioned in the introduction, establishing a business can be complex and cumbersome. Opening a business requires understanding the national and local laws. As discussed in this chapter, entrepreneurs that want to establish a business must become aware of the laws that apply to each type of business prior to deciding whether to have a sole proprietorship, a partnership, a corporation, a limited liability company, a franchise or a joint venture with another national or international organization. This chapter outlined some of the information that business owners, academic scholars, and entrepreneurs need to know about the various types of business organizations in the United States. The chapter outlined some of the risks
and benefits associated with each type of organization so the entrepreneur can decide which format best fits his/her purpose for the business. For example, any person who does business individually without utilizing any of the other forms of business organization is doing business as a sole proprietorship. The sole proprietorship is the most basic form of business organization, as the owner of the business is in essence
the business. The advantages and disadvantages of this way of doing business as well as the other forms of doing business were examined in this chapter.
Discussion Questions
1. What are the advantages and disadvantages of doing business as a partnership compared to a corporation? Provide examples with brief explanations thereof.
2. Why is a partnership regarded as a very “fragile” legal form of doing business? Provide an example and a brief explanation thereof.
3. What is the authority of partners to bind the partnership and other partners contractually? Provide example with brief explanations thereof.
4. Compare and contrast a partnership to a limited partnership. Provide examples along with brief explanations thereof.
5. Compare and contrast a partnership to a limited liability partnership. Provide examples along with brief explanations thereof.
6. Compare and contrast the articles of incorporation with the bylaws of a corporation. Provide examples of provisions that should be in each document together with a brief explanation thereof.
7. Compare, contrast, and illustrate a de jure, de facto, and corporation by estoppel.
8. What is the legal doctrine of “piercing the corporate veil,” and why should the owner of a one person or small family corporation be very concerned with this doctrine? Provide examples with brief explanations thereof.
9. What are some of the shareholders fundamental rights and obligations? Provide examples with brief explanations thereof.
10. How can shareholders of the corporation seek to control the business of the corporate entity? Provide examples and brief explanations thereof.
11. What are some of the directors’ fundamental rights and obligations? Provide examples with brief explanations thereof.
12. Why is the “business judgment” rule the “best friend” of the corporate director? Provide examples with brief explanations thereof.
13. What does the law regard as “fundamental corporate change”? What are some of the legal requirements for effectuating such changes? Provide examples along with brief explanations thereof.
14. What are the advantages and disadvantages of doing business as a corporation compared to a limited liability company? Provide examples with brief explanations thereof.
15. Why is it even more important in an LLC than even a corporation to maintain LLC formalities? Provide examples with brief explanations thereof.
16. What are the advantages and disadvantages of doing business as a sole proprietorship compared to doing business as a franchisee? Provide examples along with brief explanations thereof.
17. Why does the old common law covenant of good faith and fair dealing emerge as a very important legal doctrine for the franchisee? Provide an example with a brief explanation thereof.
8 – COMMERCIAL PAPER AND BANKING TRANSACTIONS
The law of commercial paper, as well as banking transactions is found predominantly in the Uniform Commercial Code (UCC) specifically in Articles 3 and 4 (as revised in 1990 and 2002). The term “commercial paper” refers to written obligations, promises, and orders to pay sums of money which arise from the use of negotiable instruments, such as promissory notes, drafts, checks, and trade acceptances. There are two basic purposes of commercial paper. The first is the credit function; that is, some forms of commercial paper are used primarily to obtain credit now, to be repaid out of future income. For example, a buyer purchases goods from a seller and pays with a 90 day promissory note. The seller then waits until the maturity date to collect; and thus the seller has extended credit to the buyer. The second purpose is the payment function; that is, some types of commercial paper are used primarily as a paying obligations as a substitute for money. For example, a buyer buys goods from a seller using a check; the check is a substitute for money. This chapter will examine in detail commercial paper law pursuant to the UCC, and then will
examine banking transactions laws pursuant to the UCC and certain U.S. Federal statues.
Summary
Laws regarding commercial paper and banking transactions are primarily found in the Uniform Commercial Code (UCC); and a foundational knowledge and understanding of this body of law is critical for all managers and entrepreneurs. The chapter defined “commercial paper” as the written obligations, promises, and orders to pay sums of money which arise from the use of negotiable instruments, such as
promissory notes, drafts, checks, and trade acceptances. The chapter further mentioned and explored the two basic purposes of commercial paper: the credit function, and the payment function. In the initial section, the chapter explored types of commercial paper, ambiguities in instruments, the negotiability and negotiation
requirements, holders in due course, claims and defenses to negotiable instruments, liability of the parties, contract liability, warranty liability, and conversion of instruments, and the statutory erosion of the holder in due course doctrine. In the last section of the chapter, the authors explored the relationship between banks and their customers, bank collection procedures, forgery, and alternation.
| Commercial Paper and Banking Transactions
22
Discussion Questions
1. What are the basic types of negotiable instruments and who are the parties to negotiable paper? Provide an example of each with a brief explanation thereof.
2. What are the requirements for a “negotiable” instrument pursuant to the UCC? Why is that initial determination critical in commercial paper law? Provide an example of a negotiable instrument with a brief explanation thereof.
3. How does the UCC treat extension and acceleration clauses regarding negotiability of an instrument? Provide examples of permissible and impermissible extensions clauses along with brief explanations thereof.
4. Compare and contrast “order” paper and “bearer” paper under the UCC. Provide an example of each with a brief illustration thereof.
5. What is a UCC “negotiation” and how does it differ from a common law assignment? Provide examples of the negotiation of order and bearer paper with a brief explanation thereof.
6. What are the fundamental ways of indorsing negotiable instruments? Provide
an example of each with a brief explanation thereof.
7. Who is a “holder” of a negotiable instrument? Why is holder status important? Provide an example with a brief explanation thereof.
8. What are the requirements for being a “holder in due course” (HDC) of a negotiable instrument? Provide an example of an HDC with a brief explanation thereof.
9. How does the “good faith” HDC requirement differ from the “without notice” requirement? Provide an example of each with a brief explanation thereof?
10. How does being an HDC under the UCC differ from being an assignee under the common law of contracts? Provide an example of each category with a brief explanation thereof.
11. What are the “real” or “universal” defenses that will be operative against even an HDC? Provide examples with brief explanations thereof.
12. What is the difference between a forgery “inside” as opposed to “outside” of the chain of title on a negotiable instrument? Why is that distinction a critical one under the UCC? Provide an example of each with a brief explanation thereof.
13. What is contact liability on a negotiable instrument? How does it arise? Provide examples with brief explanations thereof.
14. How should an agent sign a negotiable instrument to ensure that the agent is not liable thereon but his or her principal is liable? Provide examples with brief explanations thereof.
15. Who are the parties primarily liable on negotiable instruments and who are the parties who are secondarily liable? Why is that distinction critical pursuant to the UCC? Provide examples along with brief explanations.
16. What are the “conditions precedent” (or secondary conditions) that secondary parties are entitled to? What happens if these conditions are not complied with? Provide examples along with brief explanations thereof.
17. What is the “merger” doctrine and how does it affect liability on negotiable instruments? Provide a merger example with a brief explanation thereof.
18. What is warranty liability on a negotiable instrument and how does it arise? How does it differ from contract liability? Provide examples of warranty liability along with brief explanations thereof.
19. What is presentment warranty liability on negotiable instruments? Why is it narrower than warranty liability? Provide examples with brief explanations thereof.
20. What are some of the special UCC rules that will validate fraud, forgery, or an alteration of a negotiable instrument? Provide examples with brief explanations thereof.
21. What is the special FTC rule that impacts HDC status in consumer goods transactions? What is the rationale for the rule? Provide an example of the FTC rule with a brief explanation thereof.
22. What are some of the fundamental UCC principles that govern the relationship between a bank and its customers? Provide examples along with brief explanations thereof.
23. What is the concept of the “float” when it comes to banks’ processing checks? How is this concept been drastically reduced by federal statute? Provide examples along with brief explanations thereof.
24. What are some of the benefits of electronic banking, and what are some of the risks? Explain how the latter have been mitigated to a degree by statute?
Provide examples along with brief explanations thereof.
Agency and employment laws are very important commercial law subject matters since a great deal of the world’s work is performed by agents. For example, the essence of agency law is to accomplish legally binding results by utilizing the services of others. The term “agency,” however, is a very broad one, which concerns the rights and liabilities created in one person by the acts of another. Agency law encompasses three fundamental and distinct legal fields: 1) contract rights and liabilities of third persons created by parties who use agents and employees; 2) tort liability of persons for the wrongful acts of their agents and employees; and 3) contract and tort duties which the parties to an agency relationship owe to one
another. Agency is one of the most common, basic, and pervasive legal relationships in global business. Nearly everyone will come into contact with the agency relationship, usually in the form of a sales agent or employee. The usefulness to business everywhere is obvious, since no single person can perform all of the actions required to conduct a business. Moreover, the business owner can conduct multiple business operations simultaneously and on a worldwide basis by means of agency. The corporate entity, furthermore, as an artificial, though legal, “person,” only can act through agents and employees and consequently only can enter into contracts by means of agents and employees. This section accordingly will examine agency and
employment laws in the United States.
Summary
Commerciality has become a well known concept in the business industry, and it is for this purpose that governments, specifically the U.S. government, have established commercial and agency laws. Agency law, its development, duties of agents and principles, termination of an agent’s authority, liability of parties, torts,
global legal perspectives and management strategies are all elements that pertain to agency law, which have been thoroughly discussed in this chapter. As firms continue to conduct business practices with their partners, they are obliged to abide by the local and federal laws. Therefore, the agent and principal relationship is a vital tool for firms as well as managers and entrepreneurs who are focused on successful results. The goal of employment law in the United States has been to achieve a proper balance between the employer’s right to hire, manage, and fire employees, and the employee’s right to be treated fairly and to maintain his or her job. Considering the “lawless” nature of the employment at-will doctrine, this objective has been a difficult one to attain, necessitating government intervention by means of major federal Civil Rights and labor law statutes. Moreover, not only the legislative branch of government, but also the judicial branch has questioned the conventional adherence
| Agency and Employment Law
18
to the employment at-will doctrine, a legal precept that can legally legitimize an immoral (but legal!) discharge. Courts, accordingly, have increasingly recognized further common law exceptions to the employment at-will doctrine and thereby have provided more “wrongful discharge” remedies for the unfairly terminated employee. Nevertheless, the employment at will doctrine is still today in the U.S. the key legal
doctrine governing the employment relationship, especially in a non-unionized setting.
Discussion Questions
1. Why is it critical to differentiate between employees and independent contractors under agency law? Provide examples of each with a brief explanation thereof.
2. What are the exceptional circumstances under which an employer may be liable for the legal wrongs of its independent contractor? Provide examples with brief explanations thereof.
3. Explain and illustrate how and why the principal-agent relationship is an indispensable one for business today.
4. How is the principal-agent relationship created? Provide examples with brief explanations thereof.
5. Explain and illustrate the doctrines of “apparent agency” and “ostensible employment.” How can they be a “trap for the unwary”?
6. What are the duties that a principal and agent owe to one another? Provide examples along with brief explanations thereof.
7. What are the doctrines of respondeat superior and vicarious liability? Provide examples of each with a brief explanation thereof. Are these doctrines morally fair to an employer? Why or why not?
8. Why is the concept of “course or scope of employment” a crucial factor in vicarious liability law? Provide an example with a brief explanation thereof.
9. What is the employment at-will doctrine? Why is it possible to have a legal but immoral discharge pursuant to this doctrine? Provide an example of the latter along with a brief discussion thereof.
10. What is the public policy exception to the employment at-will doctrine? Why is it such a potentially expansive legal doctrine? Provide an example of a discharge that violates public policy along with a brief explanation thereof.
7 – BUSINESS ORGANIZATIONS
The establishment of a business can be complex and requires understanding national and local laws. Entrepreneurs that want to establish a business must become aware of the laws that apply to each type of business prior to deciding whether to have a sole proprietorship, a partnership, a corporation, a limited liability company, a franchise or a joint venture with another national or international organization. This
chapter outlines some of the information that business owners, academic scholars, and entrepreneurs need to know about the various types of business organizations in the United States. The chapter outlines some of the risks and benefits associated with each type of organization so the entrepreneur can decide which format best fits his/her purposes for the business.
Summary
As mentioned in the introduction, establishing a business can be complex and cumbersome. Opening a business requires understanding the national and local laws. As discussed in this chapter, entrepreneurs that want to establish a business must become aware of the laws that apply to each type of business prior to deciding whether to have a sole proprietorship, a partnership, a corporation, a limited liability company, a franchise or a joint venture with another national or international organization. This chapter outlined some of the information that business owners, academic scholars, and entrepreneurs need to know about the various types of business organizations in the United States. The chapter outlined some of the risks
and benefits associated with each type of organization so the entrepreneur can decide which format best fits his/her purpose for the business. For example, any person who does business individually without utilizing any of the other forms of business organization is doing business as a sole proprietorship. The sole proprietorship is the most basic form of business organization, as the owner of the business is in essence
the business. The advantages and disadvantages of this way of doing business as well as the other forms of doing business were examined in this chapter.
Discussion Questions
1. What are the advantages and disadvantages of doing business as a partnership compared to a corporation? Provide examples with brief explanations thereof.
2. Why is a partnership regarded as a very “fragile” legal form of doing business? Provide an example and a brief explanation thereof.
3. What is the authority of partners to bind the partnership and other partners contractually? Provide example with brief explanations thereof.
4. Compare and contrast a partnership to a limited partnership. Provide examples along with brief explanations thereof.
5. Compare and contrast a partnership to a limited liability partnership. Provide examples along with brief explanations thereof.
6. Compare and contrast the articles of incorporation with the bylaws of a corporation. Provide examples of provisions that should be in each document together with a brief explanation thereof.
7. Compare, contrast, and illustrate a de jure, de facto, and corporation by estoppel.
8. What is the legal doctrine of “piercing the corporate veil,” and why should the owner of a one person or small family corporation be very concerned with this doctrine? Provide examples with brief explanations thereof.
9. What are some of the shareholders fundamental rights and obligations? Provide examples with brief explanations thereof.
10. How can shareholders of the corporation seek to control the business of the corporate entity? Provide examples and brief explanations thereof.
11. What are some of the directors’ fundamental rights and obligations? Provide examples with brief explanations thereof.
12. Why is the “business judgment” rule the “best friend” of the corporate director? Provide examples with brief explanations thereof.
13. What does the law regard as “fundamental corporate change”? What are some of the legal requirements for effectuating such changes? Provide examples along with brief explanations thereof.
14. What are the advantages and disadvantages of doing business as a corporation compared to a limited liability company? Provide examples with brief explanations thereof.
15. Why is it even more important in an LLC than even a corporation to maintain LLC formalities? Provide examples with brief explanations thereof.
16. What are the advantages and disadvantages of doing business as a sole proprietorship compared to doing business as a franchisee? Provide examples along with brief explanations thereof.
17. Why does the old common law covenant of good faith and fair dealing emerge as a very important legal doctrine for the franchisee? Provide an example with a brief explanation thereof.
8 – COMMERCIAL PAPER AND BANKING TRANSACTIONS
The law of commercial paper, as well as banking transactions is found predominantly in the Uniform Commercial Code (UCC) specifically in Articles 3 and 4 (as revised in 1990 and 2002). The term “commercial paper” refers to written obligations, promises, and orders to pay sums of money which arise from the use of negotiable instruments, such as promissory notes, drafts, checks, and trade acceptances. There are two basic purposes of commercial paper. The first is the credit function; that is, some forms of commercial paper are used primarily to obtain credit now, to be repaid out of future income. For example, a buyer purchases goods from a seller and pays with a 90 day promissory note. The seller then waits until the maturity date to collect; and thus the seller has extended credit to the buyer. The second purpose is the payment function; that is, some types of commercial paper are used primarily as a paying obligations as a substitute for money. For example, a buyer buys goods from a seller using a check; the check is a substitute for money. This chapter will examine in detail commercial paper law pursuant to the UCC, and then will
examine banking transactions laws pursuant to the UCC and certain U.S. Federal statues.
Summary
Laws regarding commercial paper and banking transactions are primarily found in the Uniform Commercial Code (UCC); and a foundational knowledge and understanding of this body of law is critical for all managers and entrepreneurs. The chapter defined “commercial paper” as the written obligations, promises, and orders to pay sums of money which arise from the use of negotiable instruments, such as
promissory notes, drafts, checks, and trade acceptances. The chapter further mentioned and explored the two basic purposes of commercial paper: the credit function, and the payment function. In the initial section, the chapter explored types of commercial paper, ambiguities in instruments, the negotiability and negotiation
requirements, holders in due course, claims and defenses to negotiable instruments, liability of the parties, contract liability, warranty liability, and conversion of instruments, and the statutory erosion of the holder in due course doctrine. In the last section of the chapter, the authors explored the relationship between banks and their customers, bank collection procedures, forgery, and alternation.
| Commercial Paper and Banking Transactions
22
Discussion Questions
1. What are the basic types of negotiable instruments and who are the parties to negotiable paper? Provide an example of each with a brief explanation thereof.
2. What are the requirements for a “negotiable” instrument pursuant to the UCC? Why is that initial determination critical in commercial paper law? Provide an example of a negotiable instrument with a brief explanation thereof.
3. How does the UCC treat extension and acceleration clauses regarding negotiability of an instrument? Provide examples of permissible and impermissible extensions clauses along with brief explanations thereof.
4. Compare and contrast “order” paper and “bearer” paper under the UCC. Provide an example of each with a brief illustration thereof.
5. What is a UCC “negotiation” and how does it differ from a common law assignment? Provide examples of the negotiation of order and bearer paper with a brief explanation thereof.
6. What are the fundamental ways of indorsing negotiable instruments? Provide
an example of each with a brief explanation thereof.
7. Who is a “holder” of a negotiable instrument? Why is holder status important? Provide an example with a brief explanation thereof.
8. What are the requirements for being a “holder in due course” (HDC) of a negotiable instrument? Provide an example of an HDC with a brief explanation thereof.
9. How does the “good faith” HDC requirement differ from the “without notice” requirement? Provide an example of each with a brief explanation thereof?
10. How does being an HDC under the UCC differ from being an assignee under the common law of contracts? Provide an example of each category with a brief explanation thereof.
11. What are the “real” or “universal” defenses that will be operative against even an HDC? Provide examples with brief explanations thereof.
12. What is the difference between a forgery “inside” as opposed to “outside” of the chain of title on a negotiable instrument? Why is that distinction a critical one under the UCC? Provide an example of each with a brief explanation thereof.
13. What is contact liability on a negotiable instrument? How does it arise? Provide examples with brief explanations thereof.
14. How should an agent sign a negotiable instrument to ensure that the agent is not liable thereon but his or her principal is liable? Provide examples with brief explanations thereof.
15. Who are the parties primarily liable on negotiable instruments and who are the parties who are secondarily liable? Why is that distinction critical pursuant to the UCC? Provide examples along with brief explanations.
16. What are the “conditions precedent” (or secondary conditions) that secondary parties are entitled to? What happens if these conditions are not complied with? Provide examples along with brief explanations thereof.
17. What is the “merger” doctrine and how does it affect liability on negotiable instruments? Provide a merger example with a brief explanation thereof.
18. What is warranty liability on a negotiable instrument and how does it arise? How does it differ from contract liability? Provide examples of warranty liability along with brief explanations thereof.
19. What is presentment warranty liability on negotiable instruments? Why is it narrower than warranty liability? Provide examples with brief explanations thereof.
20. What are some of the special UCC rules that will validate fraud, forgery, or an alteration of a negotiable instrument? Provide examples with brief explanations thereof.
21. What is the special FTC rule that impacts HDC status in consumer goods transactions? What is the rationale for the rule? Provide an example of the FTC rule with a brief explanation thereof.
22. What are some of the fundamental UCC principles that govern the relationship between a bank and its customers? Provide examples along with brief explanations thereof.
23. What is the concept of the “float” when it comes to banks’ processing checks? How is this concept been drastically reduced by federal statute? Provide examples along with brief explanations thereof.
24. What are some of the benefits of electronic banking, and what are some of the risks? Explain how the latter have been mitigated to a degree by statute?
Provide examples along with brief explanations thereof.
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