page \* arabic 88 Chapter 11 Nature, Definition, and Classification of Contracts PAGE 89 Business Law 301 Study Guide Exam 2 Chapter 11 NATURE, DEFINITION, AND CLASSIFICATION OF CONTRACTS Chapter Outline I. How Contracts Fit Into The Market Economy ? They provide stability, predictability and certainty for buyers and sellers in the marketplace. A. Trends in Contract Law B. Philosophies Found in Contract Law C. Law Governing Contracts ? Uniform Commercial Code, Article 2 covers sales of goods: adopted by every state except Louisiana. ? Common Law D. Contract Definitions 1. Restatements contract definition ? ?A promise or 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.? 2. Common contract definition ? ?An agreement between competent parties enforceable in court? E. The Objective Theory of Contracts II. Contract Classifications Bilateral and Unilateral Contracts Bilateral ? Two people exchange promises, one promise for another. The promise is for a future exchange of goods. Unilateral ? A person makes a promise, and asks for a return act. When the person whom agreed performs the act, that is when the promise is effected. Davis v. Jacoby, 34 P.2d 1026 (1934) ? The type of contract(Unilateral or Bilateral) will determine when promise was in effect or when the contract was initiated. B. Express and Implied Contracts > Expressed Contracts ? stated completely in words (maybe oral or written) > Implied Contracts ? inferred from parties? concduct, not from anything written or said. C. Valid, Voidable, Void, and Unenforceable Contracts > Valid contracts: enforceable (legally binding); all contract elements have been satisfied (agreement; consideration; contractual capacity and leagality). > Voidable Contracts: valid buy may have defects that render it unenforceable (e.g. one party is a minor: one party induced by fraud) > Void Contracts: never were really contracts to begin with > Executed contract: fully performed by both parties. > Executory contract: unperformed by one or both parties. D. Executed and Executory Contracts E. Quasi contracts 1. Purpose ? to prevent unjust enrichment. If a party accepts a benefit, then payment is required. 2. Example ? Someone mows your lawn and you watch and watch them and then not pay. 3. Limits ? a. Does not apply if a party does not have the opportunity to reject the benefits. b. Does not apply when parties already have a valid contract. 4. Case: Matter of Estate of Milborn, 461 N.E.2d 1075 (1984) - III. The Making of a Contract: The Offer A. Intent Needed to Make an Offer ? Statements of Intention or preliminary negotiations are not offers. Ex. ?I?m thinking about ?_____?. B. Unenforceable "Offers" 1. Jokes or excited utterances 2. Social offers 3. Agreements to Agree 4. Statements Showing Intent 5. Sham Transactions C. Invitations to Negotiate ? Advertisements, Catalogues, Price lists, and Circular are treated as invitations to negotiate and not as offers D. Certainty and Exceptions ? offers must be reasonably certain and definite. This includes 1) Identification of the parties, 2) Object or subject matter of the contract, 3) Consideration to be paid, 4) Time of Payment, Delivery, or Performance. E. Communication Requirement of Offers ? The offer must be communicated to the other party, who then has the power to accept and bind the offeror. - Once an offer has been made the offeree has the power to bind them to that agreement. The offer is very important because it is the point where the offeror looses power. F. How Offers End 1. Time Lapse (time for acceptance stated in offer) - If offeror does not state how long it is open, then a reasonable time. As long as an offer is out there it is available. 2. Revocation - Offeror may revoke any time before acceptance. The revocation is effective when offeree receives the revocation. ? Revoke means taking back the offer (This can only be done before the offeree accepts the offer.) 3. Exceptions to Revocation - Gibbs v. American Savings and Loan Association, 266 Cal. Rptr. 517 (1990) G. Offers to form unilateral contracts Rejection ? Offeree refuses the offer. Rejection followed by acceptance does not form a contract. Counter Offers ? Offeree rejects the offer and makes a new offer. - Any alterations to the original offer turns into a counteroffer Death or Insanity of the Offeror or Offeree ? Triggers termination of offeror. The offeror must be alive and in stable mental condition in order to make an offer. Destruction of Essential Subject Matter Intervening or Subsequent Illegality ? the offer involves the sale of illegal substances. IV. The Making of a Contract: The Acceptance Definition of Acceptance ? Acceptance is the voluntary act by the offree that show assent (agreement) to the terms of the offer. You can accept by word or act. The acceptance of an offer moves it into a binding Contract. Case: Glover v. Jewish War Veterans of U.S., 68 A.2d 233 (1949) - It is impossible to have acceptance unless the offeree knows of the existence of the offer. In order to receive the reward you must have knowledge of the offer before performing the act. B. How to Accept ? The acceptance of the offer must be made in the same way the offeror requests that acceptance be made. Case: Champagne Chrysler Plymouth, Inc. v. Giles, 388 S.2d 1343 (1980)(p. 324) - Alleged acceptance is not enforceable where the plaintiff failed to meet specific requirements that were a part of the original offer (time of acceptance). The offer was for a unilateral contract ? the participant had to bowl a 300 during the televised show. C. Who Can Accept ? The offer must be accepted by the offeree alone. You can not accept the offer on behalf of someone. D. Silence as Acceptance ? Silence is generally not acceptance. Execeptions include trade customs and previous dealings, then silence can be an assumed yes. (Ex. E-mail updates) 1. Unordered Goods in the Mail ? If you receive delivered by USPS are treated as ?gifts?. (They are yours you don?t have to return them) E. Acceptance Adding to or Varying from the Offer: Common Law Exactness Rule ( ?mirror image rule?): the terms as stated in the acceptance must exactly mirror the terms in the offer. If you change the terms if is a rejection and a counter-offer is formed. F. Acceptance Adding to or Varying from the Offer: The UCC Rule ? for the sale of goods (modifies the common law rule): as long as there is a definite expression of acceptance, a contract is formed even if the acceptance contains additional or different terms. This is just for the sale of goods ? UCC article 2 says if you change the terms (add on) it is not a rejection but any addition counts as a new contract. - See Notes Pg. 7 Chapter 11. G. When is Acceptance Effective? ? Acceptance is effective, when sent via an authorized method (e.g., deposited in a mailbox); if method is not indicated by offeror, then any reasonable method. Once an offer is accepted, the offer cannot be revoked because the contract has been formed. H. Acceptances at an Auction ? - An Auctioneer makes ?invitations to negotiate? ?not offers - The audience?s bids are ?offers? - The offer is accepted when the auctioneer?s hammer falls on the action block. (These are auctions made with reserve meaning there is no obligation to sell if the minimum amount is not met.) V. Consideration - An agreement will not be binding unless there is consideration ? meaning that both sides to the contract are giving something to the other. A promise of a gift is not a contract. (there is only consideration on one side) ? Each side must give something to the other. - Consideration ? is the value (such as cash) given in return for a promise (such as the promise to sell an item) or inreturn for performance (such as painting a house) Both sides must bargain and give up a right in order to make the other?s promise or act enforceable. - Someone giving up a legal right to do something can be considered as the same as giving up somthign of value. ( ? Ex. If you don?t go there then I will give you $5.) -Consideration often takes the form of money, property, or services but can be in other forms, such a promise not to exercise a legal right. (Ex. If you leave the company the employee contract may say you can sue the company within a period of time.) A. Benefit to the Promisor ? Consideration for a promise must be either detrimental to the promise, or beneficial to the promisor. Consideration must be ?bargained for?, meaning that the person receiving the benefit must have requested or bargained to gain that benefit. Sometimes in Contracts there will be a clause to receive benefits (senence pay) as long as you don?t perform a certain act. B. Detriment to the Promisee ? The promisee must give up something (a legal right) Case: Hamer v. Sidway, 27 N.E. 256 (1891) C. Reason for the Consideration Rule D. ?Bargained for? as Part of the Consideration Definition Adequacy of Consideration ? Courts rarely question the adequacy of the consideration so long as the consideration has been bargained for by the parties. When Contracts Should Be in Writing ? Most states have a Statute of Frauds which requires that contracts dealing with certain subjects be evidenced by a signed writing in order to be enforceable. Statute of Frauds prevents persons from trying to fraudulently prove the formation of contracts dealing with important, costly, complex matters. The writing must identify the parties and subject matter, indicate that a contract exists, and state the essential terms. It must be signed by the person ?to be chatged? (defendant) Contracts should be in writing when? - Transfers of interests in real estate (including long-term leases) - Sale of goods over $500. - Gauranty contracts - contracts that cannot be completed within one year 1. James v. Safari Enterprises, Inc.., 537 S.E.2d 103(2000) - The Georgia statue of frauds applies to foreclosure sales of real property: therefore, the high bidder at a foreclosure sale cannot be mad eto specifically perform where the bid was not in writing. VI. Manager's Ethical Dilemma Chapter 12 PROPERTY Chapter Outline I. Definition of Property ? The rights that people have with respect to something, not the thing itself. II. Legal Philosophies Reflected in Property Law III. Property Law is State Law (including UCC statutes) Federal law governs trademark, copyright and patent property rights. Property laws may be restricted by other laws. Eminent Domain ? Private Property may not be taken by governments with ?just compensation? IV. Title and Title Documents ? To have title to property means ownership; title documents are required for certain property. - Title to real property is evidenced by a written deed, which should be recorded in the COUNTY were the land is located. - Title documents for certain items of personal property have to be registered under state law. (Automobiles, boats) > Land Title = Deeds which are written by private parties. (Real estate companies) - Property maybe subject to taxes. V. Property Classifications A. Personal Property (?Personalty?): moveable property - The sale of personal property is relatively easy and requires little formality. EX. Equipment, Car, Clothes B. Real Property: immovable property (?Realty?) - Land and everything permanently attached to it. This includes land, buildings, trees and vegetation, airspace, subsurface (mineral rights), fixtures. C. Fixtures ? Personal property that has been permanently attached to real property and as become part of the real property. Factors are determining whether something is a fixture: 1) whether the item can be removed without cause material damage to the building or land, and 2) the intention of the party who attached the item. - Real estate contracts should specify what stay with the property and what may be removed by the seller D. Tangible/Intangible Property ? 1) Tangible property ? exists in physical form (Chair, land) 2) Intangible property - represents rights that don?t exist in physical form but have a legal reality (copyrights, stock certificates) E. Public/Private Property ? 1) Public Property ? is owned by a government or governmental agencies (TVA Land) 2) Private Property ? right can be limited by laws (zoning restrictions, taxes, criminal law restrictions) belongs to a private owner. VI. Types of Real Property Estates - The owner?s interest in the real property is called an ?estate?. The type of estate indicates the period of time for which the land might be held. This is important to know what type of interest (property rights) you own because you can only transfer as much as you own. A. Fee Simple Absolute ? gives an owner the greatest aggregation of rights, powers and privileges possible under American law. - A fee simple estate has the potential to endure forever - The estate can be transferred by the owner during life or assigned to the owner?s heirs upon death. B. Life Estate ? is an estate that ends at the death of some specified individual - Creation: ?A conveys Black acre to B for life? ?When B dies the land conveys back to A? ? You can own it while you are alive but it terminates at death. - Persons with a Life Estate are TENANTS - Owner of life estate can possess, use and take the fruits/income of the estate, but cannot waste (damage) the property. C. Leaseholds ? is an estate in land that arises when the owner (lessor) agrees to convey the right to possess and use the property to a lessee (tenant) for a certain period of time. The tenant has a leasehold estate in the land for the period of time stated in the lease. - This is a contract containing the promises of the lessor and the tenant. D. Future Interest ? is a nonpossessory interest that may become possessor in the future - The future interest doesn?t become possessor until the expiration of the prior estate. Creation: ?Father leaves land to wife upon death, upon the wife?s death the son conveys the land.? ? The Son has a future interest in the land. E. Easements ? is a nonpossessory right to use someone else?s land for some purpose. - This is granted by the owner of the property in writing - Easement cannot be destroyed by the grantor. - Anna grants Sarah an easement to build a driveway across Anna?s land and to cross Anna?s land to reach a public road. F. Profits ? is the right to take something off another person?s land that is part of the land or a product of the land. Ex. Mineral, crops, timber G. Licenses ? are not interests in land, but rather permission to go on another?s land. - Licenses may be oral or written, and may be revoked by the licensor (owner of the land) - Invited guests at a party are ?licensees? of the owner VII. Ways to Hold Title to Real Property Concurrent Ownership ? means that more than one person shares ownership of real property simultaneously. A. Tenants in Common ? two or more people have title to an undivided interest in realty. Each co-tenant owns a separate and distinct share of the property, which has not been divided among the co-tenants. Shares do not have to be equal. - No ?right to survivorship? ? When owner A dies Owner B doesn?t automatically receive A?s share of the land. Owner A has complete rights. - Each tenant has a right to use the whole property. - Each tenant in common can give, sell or devise his individual interest in the realty to another party. B. Joint Tenants ? Parties hold an undivided interest in property, but upon a joint owner?s death, that person?s interest passes to the surviving joint tenants. - This has The ?Right to survivorship? - A joint tenant may sell/transfer his interest to a third party. The new owner is then a ?co-tenant? with the remaining joint owners. ? They can do this without the other owners? consent. C. Tenancy by the Entirety ? (for married couple) is a form of joint tenancy available only when property is conveyed to a husband and wife who are considered to hold the property as alone person. - This involve the ?Right to Survivorship? - In order to transfer your share of interest you must have consent. D. Community Property ? (Applicable in 8 States) - Each spouse owns one half of all real property acquired during the marriage even if the deed is made out to only one spouse. E. Condominiums ? Condo owner owns the spaced between the wall of their unit, and they have an equal interest with other owners in the common areas of the entire complex. VIII. How Property is acquired A. Theft ? Personal property cannot be legally acquired by theft or from a thief. - A Thief cannot pass good title to stolen property. - The rightful owner can recover property from the thief for from a good-faith purchaser from a thief. Even if a good-faith buyer purchases a stolen item unintentionally then the rightful owner has the right to recover it. 1. Autocephalous Greek-Orthodox Church v. Goldberg, 717 F. Supp. 1374 (1989) - One who obtains stolen items from a thief never obtains title to the item or right to possess them. The theft never had the right to sell the stolen items C. Buyer in the Ordinary Course of Business (BIOC) - The UCC provisions applicable to ?merchants? - Entrusting goods to a merchant who deals in goods of that kind gives the merchant the power to transfer the owner?s rights in the property to a ?buyer in the ordinary course of business? - The merchant becomes liable for the property. D. Adverse Possession ? occurs where someone openly, adversely, and continuously claims land that is officially titled in someone else?s name for a statutory prescribed period of time. - If certain requirements are met, the adverse possessor becomes the legal owner of the property. - The physical and time requirements vary by state. - Usually ranges from about 10 to 20 years - There must be a court action to change the title. - The use of someone else?s land must be open and visible. 1. Pieper v. Pontiff, 513 So. 2d 591 (1987) - Rule: where tile in land is obtained by adverse possession, the land may be subsequently deeded to another party. ? Look at notes. E. Gift ? a voluntary transfer of title to property where the transferor (donor) receives nothing from the recipient (donee) in exchange. - There are 3 requirements of a valid gift. 1) Donative intent: giver must presently intend to make the gift. 2) Delivery: the present handing over of control of the fit to the donee 3) Acceptance ? donee agrees to take control of the item given (generally presumed) > Causa Mortis ? a gift given in contemplation of death (donor thinks he?s going to die soon); such a gift may be revoked if donor lives. F. Capture ? The first person who finds it owns it. G. Finding ? an owner of property doesn?t lose title by losing the property. Losing is an unintentionally and involuntary parting with person property. 1. Statutes on Finding ? The finder has claim to the lost property that is superior to everyone except the true owner. - State Statues may establish procedures for claiming lost property, such as publication of notice that property has been found at a specified location. 2. Mislaid Property ? is intentionally parted with by the owner and then forgotten. - Mislaid property does not become the property of the finder. The owner of the premises where the property was left is entitled to possession against everyone except the true owner (because the owner might return to the location looking for the item.) 3. Abandoned Property ? is property that the owner voluntarily and intentionally relinquishes ownership of with intent to give up title and possession. Abandoned personal property becomes the property of the finder. H. Inheritance ? A person who dies (?decedent?) can transfer property upon his death via a will. > A will is a written instrument in which the person creating the will ?Testator? indicates who will take his property upon his death. - Formal requirements are established by state law (as to witnesses, signing, and capacity) - Can be changed during testator?s life. - Debt must be paid first when a person dies before the inheritor receives any benefits. - Probate court tests the validity of wills. When the testator dies the will must be validated by the Probate Court 2. Wills ? 1) A Holographic Wills are completely handwritten and do not have to be witnessed. ? This must all be in your handwriting. >If a person doesn?t leave a will then the State?s Statute of Decent will govern how a decedent?s property will be distributed. 3. Trusts a. Definition of Trust ? A trust is a legal device by which property is held by one person (trustee) for the benefit of another (beneficiary). The trustee is the owner and the beneficiary reaps the benefits of the property. The trustee has fiduciary duties to the law and the terms of the trust. - Trust res or corpus is the property held in the trust. - The beneficiary has equitable title to the trust property. - The Property owner who creates the trust is the settor. b. Law Governing Trust ? State Laws c. Mechanics of Forming Trusts d. How Long Trust Can Last ? They have limited lives e. Inter Vivos and Testamentary Trusts ? Inter Vivos = trusts formed during one?s life. Testamentary Trusts = trusts formed upon one?s death pursuant to a will. f. Reasons for Creating Trusts ? Maybe for your child to reap the benefits. g. Trustee's Duties ? The trustee has fiduciary duties to the laws and regulations that govern the trust and to the terms of the trust IX. Uses of Property A. Leases, Licenses, and Easements A Lease is the relationship in which one person is lawful possession of real property owned by another. ?Lease? also refers to the agreement that creates that relationship. - The leasor is the landlord or owner of the property] - The leasee (tenant) the one who occupies the property >Lease Contracts can be expressed or implied but lease contracts that last longer than 1 year generally must be in writing. 1. Kinds of Tenancies a. Tenancy for years ? where the tenant has a lease that runs for a definite duration. b. Periodic tenancy ? tenant has a lease of indefinite duration and pays rent annually, monthly, or weekly, proper notice must be given one period prior to termination (Ex. Month ? to- Month tenancy notice must be given one month prior to ending the lease. - The Rent is paid at the beginning of each period. c. Tenancy at will ? where lease runs for an indefinite period. Can be terminated at anytime. Leases are governed by state law. - Read the General Rules regarding residential leases. Slide 4 Ch. 12 part 2 Landlords cannot terminate Subjectively. 3. Some Traditional Common Law Rules with Respect to Leases C. The Uniform Residential Landlord Tenant Act (ULTRA) - About 1/3 of the states have passed ULTRA) - ULTRA is a due to good faith is the landlord?s obligation to hold the contract. 1. Deposits ? landlord may collect cleaning and security deposits 2. Subleasing - 3. Habitability ? Landlord has 14 days to respond to request for repairs before tenant can resort to self-help (limited to larger of $100 or one-half month?s rent 4. Landlord Right of Access ? With 2 days advance notice unless emergency 5. Landlord Rules - Landlord's Rights and Duties ? The landlord can raise rent. a. Lake County Trust v. Vine, 704 N.E. 2d 1035 (1998) - The land lord gave a month notice to increase the rent. The country won (due to the month to month contract) The tenant argued that the raise in rent was too high to be in duty to good faith of contract. 7. Tenants Rights and Duties ? If rent is not paid within 2 weeks of notice the lease is ended in 30 days. 8. Unconscionability 9. Exculpatory Clauses - General Rule in common law: Landlord has no duty to tenant or tenants invitees for injuries on the rented premises. Several exceptions exist. Such as for injuries in common areas under the landlord?s control, and injuries related to negligent repairs by landlord. a. Steward ex rel Stewart v. Aldrich 788 A.2d 603 (2002) - A landlord is generally not liable for dangerous conditions under the exclusive possession and control of the tenant. The landlord?s power to coerce tenant conduct under threat of eviction does not constitute control over the premises. Chapter 14 COMMON LAW RULES IN EMPLOYER-EMPLOYEE RELATIONS Chapter Outline I. Employer Employee Legal Classifications Master-Servant Relationship ? One person (master employs another (servant) to perform tasks not involving making contracts. ? Typically an employee. Ex. Maintenance worker; cook. A. Who May Be Principals ? Stockholders, Storeowners. - A Principle employs another (agent) to enter into business relations (contracts) with third parties. B. Who May Be Agents, Servants, and Independent Contractors - An Agent may be an employee or an independent contractor. - A general agent has the authority to act for the principal in many different matters (Ex. Business manager); a special agent is employed to accomplish specific tasks, such as selling a house. - Independent Contractor ? One person(employer) hires another (independent contractor ) to perform some work and has no control over how the contractor gets the work done. - Independent Contractors are not employees Examples: Software designer; painter; computer services provider; general contractor - Master/Principle can control the work to be done by servant/agents and the means by which it is done. - Employers hiring independent contractors do not control the means by which the work is done. C. Effect of Different Employer Employee Classifications 1. Lourim v. Swenson, 977 P. 2d 1157 (1999) D. Types of Agents 1. General agents ? has the authority to act for the principal in many different matters. 2. ?del credere? agents 3. Special agents ? is employed to accomplish specific tasks, such as selling a house. E. Why Employ an Independent Contractor 1. Toyota Motor Sales v. Superior Court, 269 Cal.Rptr. 647 (1990) ? The most significant factor in determining whether the status of a person performing services for another is an employee or an independent contractor is the right to control the manner and means of accomplishing the result, that is, the details of the work. 2. Pusey v. Bator, 762 N.E.2d 968 (2002) ? The hiring of an independent contractor to provide security services at a business site can subject the employer to vicarious liability for the negligent acts of the independent contractor?s employees because of the inherently dangerous nature of the work being performed. Independent contractors are less expensive than employees due to no employment taxes or benefits costs and No vicarious liability for the bad acts of the contractor (generally) Facts and circumstances determine the legal nature of the relationship rather than the language of an employment agreement. (Control over the work is the key factor). Classifications are important because they establish the parties? respective rights and responsibilities to each other and third parties. The substance of the relationship, rather than what the parties call it, determines the legal relationship that exists. Employees benefit from State and federal employment laws, independent contractors do not. Look at the Slides Ch. 14 Part 1 slide 2 for the differences in Employment and Independent Contractor relationships. Vicarious Liability This is due to the Respondeat superior: this is a doctrine imposing (vicarious liability) on an innocent employer for the wrongs of an employee committed in the course of his employment. This also applies to unpaid workers. Vicarious liabilities generally don?t apply to independent contractors unless no delegable duties and ultra hazardous activities exist. ? Nondelegable Duty is where the work is inherently dangerous or involves a duty imposed by statute , contract or common law. II. How Agency Authority Is Created A. Express Authority - Principal tells agent to act on principal?s behalf either orally or in writing. B. Implied Authority ? an agent receives implied authority by reasonable inference from the express authority and by conduct of the principal and agent. If the action of the agent was acceptable before it is implied that they have the authority to do so again unless told not to. C. Apparent Authority ? Authority an agent may acquire by words or conduct of the principal that leads a third person to believe that the agent has authority. 1. Northington v. Dairyland Ins. Co., 445 So.2d 283 (1984) ? An agent?s apparent authority must be based on the conduct of the principal and not on the acts of the agent. - The principal must sell the item or give authority to. D. Ratification ? Occurs when the principal affirms an agent?s unauthorized act. Upon ratification, the principal is bound to the agent?s act, and the act is treated as if it had been authorized but the principal from the outset. Requirements ? 1) Principal must have knowledge of all material facts 2) Principal affirms the transaction in its entirety and 3) Principal must have the legal capacity to authorize the transaction at both the time of ratification and the time of the original contract since ratification is retroactive. III. Common Law Duties That Masters Owe Servants A. Non-negligence: a safe place to work B. Safe Tools to perform work C. Pay reasonable value for services (Even if there wasn?t a prior arrangement) IV. Common Law Duties That Principals Owe Agents A. Compensation (if contracted for) ? pay agent in a timely manner for services rendered or advance money if the contract provides for it B. Duty to Reimburse ? Reimburse ordinary expenses incurred while performing duties C. Duty to Indemnify ? (compensate) agent for liabilities arising from agent?s lawful and authorized acts on the principal?s behalf. (The employer is responsible for any liabilities arising from the agent?s work. D. Duty of Care V. Common Law Duties That Agents Owe Principals A. Duty to Account B. Duty to Use Care and Skill C. Duty to Follow Instructions D. Fiduciary Duty ? (Loyalty to the Principal) Includes duty to act for only one principal; the duty not to profit at the principal?s expense; the duty to communicate information relevant to the agency; and the duty not to act adversely to the principal?s interests. If agent breaches fiduciary duty, principal can recover damages and obtain equitable relief. American Express Financial Advisors, Inc. v. Topel, 38 F. Supp. 2d 1233 (1999) ? Topel started his own business and used AMX methods after signing a contractual agreement not to do so. AMX could seek to receive compensatory damages. = Rule: Pre-termination solicitation of customers for a new business is a breach of an agent?s fiduciary duty of loyalty. VI. Common Law Duties That Servants Owe Masters VII. Agent or Servant Liability To Third Persons: Torts Agents/Servants are liable for their own torts regardless of whether the torts were committed within the scope of their employment. - Factors considered in determining whether an act is within the scope of employment: Act is one the employee is generally responsible for. It takes place during working hours It is part of the employer?s business It is similar to acts authorized by the employer The employer furnished the means or instruments of the act. (If one of these qualifications is met then the employer is liable) - An employer?s first defense will be that the tort didn?t happen within the scope of their employment. VIII. Agent's Liability to Third Persons: Contracts - If an agent enters a contract with a third person on the principal?s behalf , the principal (and not the agent) will be liable on the contract provided that the agent is acting within the authority, and he discloses the fact of agency and the principal?s identity to the third party. This is why when signing a contract you will Sign in personal capacity as a company representative. - The agent might be liable if 1) the principal is nonexistent , 2)agent signs contract in personal rather than representative capacity: fraud. IX. Liability For Crimes A. Employee Liability ? A person who commits a crime is personally liable for it regardless of when/where it occurs. - Obedience to employer?s commands is not a defense. B. Employer Liability ? if an employer commits a crime, the employer is liable. If the employer instructs the employee to commit a crime the employer might be liable for criminal conspiracy. C. Corporate Employers 1. Respondeat superior ? (let the master answer) or vicarious liability doctrine: masters/principals are legally liable for the torts of their servants/agents committed within the scope of their employment (?job-related?) ? Generally employers are not responsible for torts on independent contractors. - If qualifications are met both the employer and the employee can be liable. -The first thing to look at is if the tort happened within their scope of employment. ( mainly on hours) a. United States v. Gibson Products Co., Inc., 426 F.Supp. 768 1976) ? Corporate employer criminally liable for employee falsifying gun safe records. 2. Strict Liability Criminal Statutes 3. Some Limits on Corporate Criminal Liability a. superior agent rule X. How Agencies End A. Ending the Employment Relationship: ?Employment at Will? ? either party can end the relationship at any time for any reason unless: an employment contract specifically provides to the contrary; a federal or state statuette prevents the doctrine from being applied; or there is a common law exception to the doctrine. Limiting employment at will are laws like discrimination laws and whistle blower protection laws. - Often the employment contract will outline the means by which all of this could happen. 1. Wrongful Dismissal Lawsuits in General 2. Employee Actions Causing Wrongful Dismissals 3. Legal Limits on Wrongful Dismissals a. Feliciano v. Seven-Eleven, Inc., 559 S.E.2d 713 (2001) B. Notice of the Agency's Ending CH. 15 Worker?s Compensation ? State statutes designed to pay workers (or their dependents in case of death) for work-related injuries, diseases, or death. Prior to WC law, injured employees had to sue employers which significantly limited employer liability. This allowed the employer to plea on Contributory negligence, Assumption of risk, or Fellow servant rule (employer saying that it was the co-worker?s fault. It was very hard for employees to collect form employers Employer is now insurer of work-related risks such as injuries, diseases, and deaths. This also gives the employer some security due to the fact that the employee can?t sue the employer anymore. Coverage and benefits vary by state Injury or illness must be work related. The injury doesn?t have to necessarily have to happen on the job site but it has to be related to a work action. It doesn?t cover injuries on your own personal time. Certain but limited recovery Very certain recovery ? each possible injury has a specific amount (% of salary) that you will be recovered with You are limited to this amount Exclusivity of Remedy: Workers comp statutes eliminate common law claims against employers for work-related injuries. Exception is that you can sue the company if they don?t pay your worker?s comp. Features of Workers? Compensation Laws Non applicable to independent contractors Funding Employers can buy insurance plans (most common), Self-insured, or State Fund) Every state has an agency who deals with workers comp Employees covered ? State law exclusions for farm and domestic workers, and for federal workers (who have special statutes. Mandatory or elective (most are Mandatory) This is determined by state law. (TN any company with more than 5 employees must carry worker?s comp. Occupational Safety and Health Act (OSHA) Objectives Keep workplace safe and healthy for employees Preserve human resources Prevent injury on the job There is an OSHA agency that inspects the workplace to make sure safety standards are being followed. As an employee you can file complaints to OSHA about your company?s safety procedures OSHA is seen as a hassle by employers. Mining Companies are exempt from OSHA. Self-employed don?t have to worry about it. OSHA will come and do inspections every now and then to make sure the company is up to standard. OSHA can issue violations if the regulations are broken Citations can be appealed to the OSHA Review commission, then to the U.S. Court of Appeals Criticisms of OSHA Vague regulations Detailed regulations about trivial matters Cost to businesses for compliance Adversarial attitudes of some administrators Triviality that may actually hurt real safety concerns. Fair Labor Standards Act Purpose was to eliminate labor conditions that did not allow employees to maintain minimum living standards. Main Provisions Direct employers to pay their covered workers minimum wages and overtime pay Minimum Wage = July 24, 2007 5.85, July 24, 2008 - $6.55, July 24, 2008 ? 7.25 Overtime = time + ½ for every hour over 40 hours per week. Established equal pay, record keeping, and child labor standards covered Workers Under FLSA Businesses have certain annual gross sales ($500,000) and certain employers regardless of Sales Volume. (Hospitals, Schools, etc...) FLSA exemptions Executive, administrative, and professional employees. (Salary Paid Employees) If you are paid on a Salary Basis you are said to not have stated hours so you are exempt for minimum wage and overtime pay. Enforcement Wage and Hour division of the U.S. Department of Labor Sanctions Civil and Criminal consequences for violations You can sue individually if in violation. You can recover Back Wages up to 2 years and Attorney?s Fees. Attorneys will work for contingent fees wages. Unemployment Compensation Every state has an unemployment compensation program that provides short-term benefits to workers who become unemployed through no fault of their own. The money comes from Employer Payroll Taxes. Employees covered = employees that have worked for a specific minimum amount of time. Typically the cut of is 26-weeks and a specific amount of wages paid will determine whether you get compensations. Social Security Social Security Act passed in 1935 to provide minimal income to retirees. Funded by employer and employee payroll taxes. (FICA) 7.65% is paid by the employee and employer matches that amount totaling 15.3% If you are self-employed you must pay the full 15.3%. Act provided for administration by Social Security Administration. Intergenerational transfer of wealth. = Retires are drawing more from the economy now than they paid in during their work time. It doesn?t matter what income bracket you are in you have the right to draw benefits. Social Security Benefits Retirement benefits Disability and survivors? benefits Factors influencing size do retirement benefits Average yearly earnings covered by Social Security = depends on how much you contributed during your work time. Age at retirement = You must be at least 65,66,or 67 to draw full benefits Number of dependents Social Security Features Benefits are not subject to state or local income taxes, but may be subject to Federal Income Taxes depending on taxpayers?s total income. (If you receive Social Security and additional income if maybe enough to tax.) Social Security benefits increase if the cost of living increases You must be alive to draw benefits. (Unless you are a minor whose main provider passed away and was drawing benefits.) Federal Regulation of Employee pensions Private Pensions are separate form Social Security Employer contributions Coverage requirement Defined contributions (more common) The employer will put x% of your salary in a market fund depending on how well it does, is how much retirement you will receive. Defined benefit plan ? They tell you if you work until this age you will receive x amount per month. (This is the best plan) Employment Retirement Income Security Act of 1974 (ERISA) Federal Statute ? governing most private employer pension plans to ensure they are managed in a way that protects plan assets for the benefit of employees. This was created due to company?s not putting money into employee?s retirement fund during low earning times and employees where drawing out money for better personal cash flow. This creates Fiduciary Duties ? for plan managers and advisors. These retirement funds are now managed be 3rd parties. They cannot take out loans from the employer but they can invest in the employer?s stock. ERISA creates a federal corporation (Pension Benefit Guaranty Corporation) to insure employee benefits PBGC ? makes sure employees receive their benefits. This has made a huge difference in how much employees are receiving. Requires vesting of employer and employee contributions Vesting ? whatever amount you put in is yours but the employers contributions are allocated by a percentage over time. You have to stay with the company x years to receive full benefits. Family and Medical Leave Act Employers required giving an employee up to 12 weeks of leave in a calendar year for covered family or medical purposes (birth or adoption of child, care of immediate family member, or serious health condition of employee.) Employees are not paid during the leave, but the employer must continue to provide health insurance. Employees are entitled to get their jobs back when they return This applies to employers with 50 or more employees Not applicable to employees who have worked less than one calendar year or worked less than 25 hours per week in the prior year. Consolidated Omnibus Budget Reconciliation Act. Federal Statute (COBRA) that requires employers with 20 or more employees to five terminated employees the potion to elect to continue their health insurance for a period of time (generally 18 months) after termination. Terminated employees still have to pay the cost of the health insurance No coverage if the worker is dismissed for GROSS MISCONDUCT. PAGE 87
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