Popular in Business Law
Popular in Business
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Date Created: 02/05/15
L201 NOTES Legal Forms of Business Organizations One of the most important decisions by a person starting a business is picking what form of business to have SOLE PROPRIETORSHIPS Most Common Has only one owner who makes all of the management decisions Assumes full liability such as debts and obligations could lose everything If the business has an insuf cient amount of resources the creditors may require the owner to pay out of pocket Rislq form of business but assumes all of the reward Formed very easily and inexpensively without formalities Automatically chosen when a person fails to choose another business form Cannot be transferred to another person Owner is sued by creditors or sues in hisher own name All income must be recorded on owner39s individual tax return and losses are deductible without limit Liability is low even when losses are expected when wealthier people chose to have one PARTNERSHIPS Two or more partners who share income and make management decisions All the partners share the debts and if unable to pay the creditors may require one of the owners to pay an unfair share out of pocket Still survives after the loss of one partner and if someone tries to purchase part of the partnership they must be accepted by the remaining partners to be a partner Assume all of the income and must be put on individual tax return and deductibility is unlimited LIMITED LlABLlLlTY PARTNERSHIP Now replace Professional Companies PREFERRED FORM FOR PROFESSIONALS Two or more partners who have limited liability status Identical to partnership but partner have no liability on most obligations but has unlimited liability for own wrongful acts such as malpractice Can be taxed like a corporation or partnership If taxed like corporation it pays federal tax on the compensation paid and the pro t among the partners Requires ling a form with secretary of state and must have professional insurance and a high net worth LIMITED PARTNERSHIP Has one or more general partners and one or more limited partners The general partners have unlimited liability for the obligation of the limited partnership and manage it Limited partners have no liability once they paid their capital contributions General partners manage similar to partners in a partnership Most general partners are corporations May be taxed as partnership or corporation General partners report their share of income and losses on individual tax return while limited partners pay federal income tax returns General partners losses are deductible without limit while a limited partner may deduct his share of losses only to the extent of his investment Limited partner may use the losses only to offset income from other passive investments If taxed like a corporation the limited partnership pays FIT Federal Income Tax on net income Limited partnership dissolves if only general partner leaves otherwise It con nues Must le form with secretary of state and if taxed like corporation it pays federal tax on the compensation paid and the pro t among the partners Three main reasons to form a limited partnership 1 by using a corporate general partner no human will have unlimited liability for debts 2 if taxed like partnership the losses are deductible on FIT 3 investors can contribute money without being liable or managing business Good for earning mass amounts of capital LIMITED LIABILITY LIMITED PARTNERSHIP Must le a form with secretary of state Same as limited partnership but both the limited and general partners will have no liability for most obligations except when a wrongful act is committed by them CORPORATION Owned by shareholders who elect a board of directors to manage the business BOD selects of cers for day to day operations No shareholder has the right to manage and no manager or of cer needs to have a share of the business Shareholders have limited liability even if selected as of cer or director Of cers or directors have no liability with the contracts they sign with the corporation Shareholders do not deduct corporate losses on individual returns but do deduct investment losses after selling their shares Does not dissolve if corporation or shareholder dies Shareholder can sell shares without limitation unless there is a contrary agreement and the purchaser has all the rights of a shareholder Reasons for a corporation 1 no human has unlimited liability for debts 2 investors can simply contribute or sell without liability or need to manage 3 has the ability to raise the largest amount of capital S CORPORATION Corporation and its shareholders are taxed nearly entirely like a partnership May have no more than 100 shareholders have only one class of shares and be owned by individuals and trusts PROFESSIONAL CORPORATION Identical to business corporation in most aspects Formed by ling with secretary of state and is managed by board of directors unless permitted to be managed like a partnership Inappropriate for smaller professional practices Professional shareholders have unlimited liability to their clients for their professional malpractice but none for their fellow shareholders committing a wrong act Can be taxed like a corporation or an S corporation LLP39s are more popular now because of liability exible management and taxation advantages LIMITED LIABILITY COM PANY Form intended to combine the nontax advantages of corporations with favorable tax treatment of partnerships Owned by members who manage it or elect managers Members have limited liability for the obligations Can be taxed as partnership or corporation If one member dies the company does not dissolve and a person that wants to join can only be a member if accepted by all members Could have limited liability advantage along with management advantage of corporation Could have tax treatment similar to S corporation and its shareholders without the limit on the number of owners INCLASS NOTES 828 Pro t is one bottom line and social bene t is the other bottom line Not all of the forms have come around at the same time that39s why people make rislq moves with partnerships Also not all states offer every business form Always look at tax treatment limitedunlimited liability capital and control when choosing a business form As long as the majority shareholders has at least 501 of the stocks they get to do whatever they want and get to run the company mostly with the other 499 of shareholders money Chapter 1 Notes 0 The approach of quotleaving the law to the lawyersquot is actually counterproductive Listening to an inhouse counsel is often a viable option to nd legal discrepancies in which you need professional help with 0 Being knowledgeable of the legal environment in which the business does work is essential to avoiding problems Constitutions 0 At state and federal level 0 Set up the structural unit for the type of gov they control by creating a separation of powers between branches and subdivisions 0 Prevents other governmental units from taking actions or passing certain laws Mainly done to prevent gov from violating individual rights Statutes 0 Laws created by elected representatives in congress or a state legislature o Dif cult to interpret because some were created as uniform acts model statues created by independent lawyers or scholars that do not become law until a legislature enacts them Aim is to produce uniformity inbetween states on addressed subjects 0 Common law case law orjudgemade law 0 Law made and applied by judges as they decide cases not governed by statute or by law 0 Only at state level but federal and state laws become involved in applying it o Precedents are often followed but common law adapts with the adapting society 0 Sometimes superseded by statutes 0 The Restatements are a collection of common laws covering various aspects of the law These are not law and do not bind the courts Stimulate changes in the common law and are seen as rules followed by many states 0 Main function is to ll in gaps when called for Caselaw reasoning when courts make and apply common law rules 0 Young v Beck 0 Jason drove against parents39 rules and got into accident 0 Found guilty by court of appeals superior court and Arizona court by family purpose doctrine o Becks appealed by because SUV was used forJason s pleasure and because of precedent stare decisis in similar cases the court found no reason to abrogate the common law 0 Equity 0 Used to gain quotrough justicequot when common rules made decisions unfair o In equity courts procedures were exible and did not follow the strict rules of the law but followed a general code of moral maxims Offered several remedies that common law courts did not have the most important being Injunction a court order forbidding someone from doing an act or ruling them to do one Others Remedies Speci c performance a party is ordered to perform according to the terms of a contract Reformation a court rewrites the contracts terms to re ect the true intentions Rescission the destroying of a contract and returning those in the contract to their precontractual positions 0 Many of these courts have been abolished and the equity now binds with laws and common laws 0 Administrative Regulations and Decisions 0 Obtain the ability to make a law through a delegation or grant of power from the legislature 0 Agencies like this are created by statutes that give them a lot of leeway on how to go about making the decision 0 Two types are administrative regulations and agency decisions AR precise form in one authoritative source differ from statues because body creating them is not elected AD legally binding after courtlike structures hear cases regarding the regulations that they have adopted Treaties 0 Made by president and must be approved by 23 of Senate to be Law of the Land 0 lnvalidate inconsistent state laws and sometimes federal laws Ordinances o The enactments of counties and municipalities Executive Orders 0 A power to issue laws given by a legislative delegation to the president or state39s governor According to federal supremacy o The US Constitution federal laws and treaties are the Law of the Land Federal lawgtState law 0 Constitutions defeat all types of laws within their domain both federal or state constitutions US Constitution defeats inconsistent laws of whatever type 0 The measure that is later in time between federal statutes and treaties usually wins 0 Statutes defeat laws that require a legislative delegation for their validity o Statues or any laws derived by a delegation defeat common laws Administrative regulation gt common law Trentadue v Gorton 0 Woman murdered in house she bought from Mott family 0 16 years later daughter tried to sue Gorton and Mott family for negligence based on discovery rule that enabled tolling despite 3year statute of limitation 0 Michigan court overturned ruling because statute is higher in federal supremacy than common law Criminal and Civil Law 0 Criminal law is the law under which the gov prosecutes someone for committing a crime It creates duties that are owed to the public as a whole 0 Civil law is concerned with obligations that private parties owe to one another Applied when one party sues another gov can be a party in this 0 The same behavior will sometimes violate both Substantive and Procedural Law 0 Substantive law sets the rights and duties of people as they act in society Ex a statute making murder a crime 0 Procedural law controls the behavior of the gov bodies mainly courts as they establish and enforce rules of substantive law Ex proper conduct of a trial Public and Private Law 0 Public law concerns the powers of the gov and the relations between the gov and private parties Ex criminal law constitutional law administrative law 0 Private law establishes a framework of legal rules that enable parties to set the rights and duties that they owe each other Ex rules of a contract Today law is treated as a exible tool used for the accomplishment of certain purposes 0 This is good because of the willingness to adapt the law for the public good 0 A bad thing is legal instability and uncertainty of the adaptations Social functions of law 0 Peacekeeping checking government power and promoting personal freedom facilitating planning and the realization of reasonable expectations promoting economic growth through free competition promoting social justice and protecting the environment The goal of law is to balance as best as possible effective law enforcement and the preservation of personal rights Case Law reasoning 0 Legal reasoning is deductive The legal rule is the main premise the facts are the minor premise and the result is the combination of the two 0 A valid distinction to bring up in a case of precedence involves a widely accepted ethical or policy reason for treating the present care differently o If it is distinguished then the common law does not affect the present case and a new common law may be put into effect Hagan v CocaCola o Drank coca cola bottle that contained condom o Sued and had money settled but appellate court reversed that decision 0 Maine supreme court overruled appellate court based on foreseeable ruling The public expects canned and bottled items to be consumable and the makers should foresee problems if this doesn39t happen CYBERLAW in action Rule 230 0 Anyone treated as a publisher or speaker of defamatory material is liable to the same extent as the original speaker or writer 0 Craigslist would be held as liable if seen as a publisher because a certain user posted defamatory comments against the FairHousing Act 0 Statutory interpretation 0 Written in an authoritative form but dif cult to interpret because of their ambiguity 0 Sometimes this language is used when legislators cannot rule each situation in which the statute was made to regulate From there the spaces are lled in on a casebycase basis 0 Courts begin their decision with the plain meaning rule reading the statute for its basic meaning 0 Next if they do not want to follow the statute word for word they go to the legislative history which may end up being more con icting due to different word usage or con icting meanings o Courts use legislative history in two ways What the legislative thought about the speci c meaning To determine the end goal or objective then they see if the statute is consistent with the legislative purpose 0 Federal Communications Commission v ATampT 0 FCC conducted investigation on overbilling 0 Court of Appeals disagreed with FCC and Bureau that ATampT did not have personal privacy 0 Court of appeals reversed by Supreme Court Kasten v Plastics Corp 0 Worker led complaints multiple times about corp which he believed led to him being red which went against Fair Labor Standards Act 0 Corp said they needed fair notice about complaints 0 District Court granted summary judgment in favor of corp but supreme court remanded it for further delegation Courts sometimes construe language to follow the generally accepted notions of the public Maxims are general rules of thumb employed in statutory interpretation Courts and judges are hesitant to create common laws or interpret statutes oddly because of the possibility of being overruled their respect for precedence the possibility of being removed as a judge and criticism of their decisions Civil Procedure and Alternative Dispute Resolution 0 8 stages but most resolved in prelawsuit communication between parties 0 90 resolved before trial not many go all the way through o The prelawsuit communication is the most important stage 0 A person will usually call another and tell them that they have been wronged or have their attorneys contact the other party cease and desist or demand letter 0 Goal is explore ways by mutual agreement before having to le a lawsuit 0 Initial court pleadings begins when a complaint is formally led with a court 0 Brings a copy to be left with the court and to be led with the court 0 Usually that complaint is served to all defendants by some neutral third party during a quotsummonsquot to appear in court called service of process 0 Person being sued may le a quotmotion to dismissquot if the complaint fails to have legal claims or if the courts lackjurisdiction The other option is to answer the complaint including any defenses Or with the answer the defendant can assert a counterclaim against the plaintiff Plaintiff has the same options when counterclaimed 0 Either party may le a quotmotion forjudgment on the pleadingsquot if the allegations in the complaint and answer create no dispute about which party will win To avoid this allegations must create a dispute about who will wnn 0 These pleadings quotframequot the case Pretrail discovery 0 Methods of Discovering Evidence written questions requests for documents and things requests for admissions depositions of witnesses attorney sitting down recorded by a third party and asking questions subpoenas to nonparties o Judges hold an initial quotcase conferencequot to set the case schedule for the various stages of litigations 0 Parties may le motions to compel discovery or to hold a party in contempt for failing to provide evidence 0 Motion for Summary Judgment May be led after the close of discovery To succeed the moving party must show there is no genuine dispute about the legally relevance of facts and based on the facts the party is entitled to judgment as matter of law usually does not work 0 Pretrial conference The parties meet with the judge to nalize the trial schedule simplify issues and discuss status of settlement efforts 0 Trial 0 Bench trial decided by judge or Trial by jury 0 Order of Trial Plaintiff39s opening statement Defendant39s opening statement Plaintiff39s case with physical evidence or testimonies Defendant39s case Plaintiff39s closing argument Defendant39s closing argument Sometimes plaintiff has the last word 0 At any point the opposing party can questions the evidence being presented 0 In civil cases plaintiffs must prove their claims by a quotpreponderance of the evidencequot that shows it is more likely than not that they are entitled to recover Same with counterclaims Posttrial pleadings 0 Motion for judgment as matter of law motion for directed verdict Party argues that a reasonable jury can only reach one verdict on the evidence before the jury actually reveals answer saying that the judge should favor one side 0 Renewed motion forjudgment as matter of law The moving party argues that the evidence at trial does not support the jury39s verdict usually used by losing party 0 Motion for new trial Moving party argues that error by judge jury or attorney necessitates a new hearing with a new jury Appeal 0 Either can appeal the judgment at trial sometimes the winning party appeals because it thinks it should have won more 0 Initial appeals go to the intermediate courts that reviews the trial court39s decisions 0 Appeals following that are possible to go to the court of last resort Supreme Court Enforcing the judgment 0 Telling a party to not do something or an action sometimes 0 Usually a losing party is required to pay money to winning party 0 If losing party does not have the money the winning party can recover by writ of execution police seize and sell assets of losing party or garnishment garnish wages from losing to winning party 0 Alternative Dispute Resolution ADR 0 Sometimes required by courts for parties to resolve lawsuits by other ways than litigations 0 Common forms Settlement before and during lawsuits parties often discuss terms on how to settle the case most on night before or morning of trial Arbitration parties present argument to arbitrator selected by court and they issue a binding decision that can only be appealed on limited ground misconduct fraudulent evidence or bias Mediation Not binding mediator offers nonbinding opinion of case and facilitates settlement discussions about who will win etc Summary trail or minitrial private mock trials of each party39s case intended to spur settlement 0 Working in business the places you might nd yourself is being call upon as a witness or to give a deposition arbitration mediation or a pretrial settlements Structure of American Courts US Legal system 57 court systems 0 One court system per state ran by the states government 0 One court system in each of the six US territories run by the territorial government 0 One nationwide federal court system ran by US government 0 Hierarchical chain of command Bottom trial courts Middle Courts of appeals that review decisions by trial courts Top Court of last resort supreme court of state reviews decisions by appeals courts Pyramid structure of Court systems many trial courts a multiple court of appeals that review decisions usually one court of last resort that reviews all other court decisions 0 State Court Systems 0 Specialty courts courts of limited jurisdiction limited types of cases with one or more judges jury trials and bench trials 0 DistrictSuperiorCircuit courts multiple courts and judges civil and criminal cases where lawsuits are initially led hear decisions by specialty courts jury trials and bench trials 0 Courts of appeals trial courts multiple courts and multiple judges heard by a panel of multiple judges 3 is important because it is an odd number so there is always a winner hear decisions by trial courts 0 Supreme Court one court with an odd number ofjustices hears and decides appeals of decisions by courts of appeals heard by a larger number ofjudges 5 7 9 etc 0 Federal court structure 0 District courts two or more districts per state and all within a circuit Think of them as quotcoworkersquot must follow standings of courts of appeals o 13 US Circuit Courts of Appeals pertaining to certain districts Think of them as the quotbossquot of the district courts must follow standings of supreme court 0 US Supreme Court Boss of Courts of Appeals 0 The State39s Supreme Court decision may also be reviewed by the US Supreme Court if that state court is dealing with and interpreting federal law 0 The law can sometimes be applied and interpreted differently in different states depending on Circuit courts o If one district in a circuit appeals against a federal statute and the circuit court agrees then all of the states in that circuit follows the same law and vice versa If a circuit split occurs which means that two circuits have disagreements on a law the US Supreme Court hears the case to make it legal or illegal in every circuit court and sometimes affects state courts how they apply federal law and the constitution o The goal is to have uniformity Precedent in a district court is only going to stay precedent at the court unless it is agreed upon by the circuit court of appeals A Supreme Court decision would precedent every circuit court the court is obligated to follow the decision unless it can overturn the prior decision or differentiate it Other circuit courts are not precedent to other circuit courts Must be done individually unless created by the US Supreme Court but they may choose to do so if they nd them persuasive or because they favor uniformity Chapter 2 Notes Minor criminal cases and civil disputes involving small amounts of money take place In courts of limited jurisdiction 0 They handle large amounts of cases 0 Informal and often people argue their own cases Trial courts the same as limited courts but they do not have restrictions and are on record 0 Parties nearly always represented by attorneys and judge decides applicable law 0 Called circuit courts Appellate courts decide only legal questions 0 Review the record of the trail court proceedings 0 Usually nd trial courts as fact but correct legal errors 0 Called Supreme Court jurisdiction a court39s power to hear a case and to issue a decision binding on the parties Subject matter jurisdiction is a court39s power to decide the type of dispute involved in the case Civil or criminal for example In personam based on the residence location and activities of the defendant 0 Has this if defendants are citizens or residents of the state even if they are out of the state who are within state borders when process is served on them even if they are not residents 0 Same with federal courts 0 Called longarm statutes for certain out of state defendants but subject to federal due process standards In rem jurisdiction based on the presence of property within the state in order to have courts determine rights in that property even if the people are outside the state Even if a court has jurisdiction it may be unable to decide the case because venue requirements have been met 0 Court has venue if it is a territorially fair and convenient forum to hear the case 0 Set by state statutes but can have a change of venue is impossible to obtain in a certain county A forum selection cause may have the effect of addressing both jurisdiction and venue issues in a contract problem 0 Will be supported by courts unless proved unreasonable Diversity jurisdiction exists when the case is between citizens of different states and the amount in controversy exceeds 75000 May exist between state citizens and citizens or foreign governments Federal question jurisdiction exists when the case arises under the Constitution laws or treaties of the US These two jurisdictions are subjectmatter types ofjurisdiction and even if one of the two exists a federal district court must also have in personam jurisdiction Exclusive jurisdiction exists with district courts over some matters like patent cases and concurrent jurisdiction is with state courts meaning that both state and federal courts have jurisdiction over the case Where concurrent exists and the plaintiff opts for a state courts the defendant has the option to remove the case to a federal district court The federal court system also includes certain specialized federal courts such as the Court of Federal Claims which can be appealed to a federal court of appeals WHICH IS THE MOST IMPORTANTjOB OF THE FEDERAL COURT OF APPEALS The US Supreme Court is mainly an appellate court It therefore considers only questions of the law when it decides appeals form the federal courts of appeals and the highest state courts 0 Appeals from the highest state courts are within certiorari jurisdiction when the validity of any treaty or state statute is challenged any state statute is challenged as repugnant to federal law or any title right privilege or immunity is claimed under federal law In certain situations the US Supreme Court has original jurisdiction which means that it acts as a trial court It has original and exclusive jurisdiction over all controversies between two or more states Only original involving aliens and ambassadors etc The in personam jurisdiction issues also arise when a resident of the US initiates legal action in the US against a foreign defendant 0 Cameco Corp could not be sued by Benton based on 10th Circuit ndings In any civil case the adversary system is at work The plaintiff must prove their claim by preponderance of the evidence and show that the element is more probable than its nonexistence A summons noti es a person that they are being sued The pleadings are the documents the parties le with the court when they rst state their respective claims and defenses They include the complaint answer and possibly the reply Used to de ne and limit the issues The compliant is in numbered paragraphs and must state the remedy requested The answer responds paragraph by paragraph with an admission or denial of each allegation and may include an af rmative defense 0 May also contain a counterclaim The reply is a plaintiff39s point by point response to the allegations in the reply or answer A motion to dismiss is ending the case at an early stage due to an invalid claim A successful one means that the defendant wins the case if not the case proceeds o The most important type of motion to dismiss is the motion to dismiss for failure to sate a claim upon which relief can be granted called a demurrer No title of law permits victory on the facts stated To help litigants obtain the facts and to narrow and clarify the issues for trial the state and federal court systems permit each party to a civil case to exercise discovery rights 0 The deposition is the most frequently used form of discovery with an attorney asks questions under oath o lnterrogatories are written questions directed by the plaintiff to the defendants or vice versa 0 Requests for admissions are one party39s written demand that the other party admit or deny in writing certain statements of supposed fact The Electronically Stored Information category is broad enough to include emails and similar communications as well as electronic business records web pages dynamic databases etc Summary judgment is a device for disposing of relatively clear cases without a trial 0 To prevail the party moving for a summary judgment must show that there is no genuine issue of material fact and she is entitled to judgment as a matter of law 0 If the summary is accepted by a judge then they win the case but if not itconUnues 0 Usually the attorneys try to convince the people to settle before going to trial During the procedure after direct examination then cross examination of the plaintiff occurs Ethics are very important in law Destroying evidence can have you held in contempt of court and sanctions can be imposed ALTERNATIVE DISPUTE RESOLUTION 0 Proponents of this cite many considerations in its favor Quicker resolution of disputes Lower costs in time money and aggravation Lessening on the strain of an overloaded court system Use of decision makers with specialized expertise Potential for compromise decisions that promote and re ect consensus between the parties 0 Critics say they are worried about a biased decision by a powerful party forcing a weaker party to get tangled up in a contract Settlement when the defendant agrees to pay a lump sum of money to the plaintiff to drop the case must follow contract law Arbitration the submission of a dispute to a neutral third party who issues a binding decision less normal and possibility to ignore substantive laws 0 Decision called an award is led with the court to enforce it 0 Even if a party believes the arbitrator came to the conclusion through erroneous application of the law the ruling still stands 0 CourtAnnexed arbitration is when the court turns a civil case into one although the loser still has the right to a regular trial 0 The summary jury trial is an abbreviated nonpublic mockjury trial that does not bind the parties to give them a dose of reality If no conclusion is met they can go to a regular court trial 0 A minitrial is an informal abbreviated private trial whose aim is to promote settlement of disputes Results are what might likely happen and is ruled by a panel of senior management 0 Other devices include Medarb hybrid of them with a third party acts as a mediator and then arbitrator Magistrates perform various tasks during complex litigation in the federal courts Early neutral evaluation annexed by the court to evaluate the case by a neutral private attorney Private judging in which litigants hire a private referee to issue a decision that may be binding but usually does not preclude recourse to the courts Private panels instituted by an industry to handle claims of certain kinds Concrete example of more vs less risk Bloomington student is being sued by a Purdue student and you have to go to their court bias it a huge reality Where you sue or are being sued plays a big factor in if you win or lose Is one district court of a state rules against something and the second district court rules for something and the circuit af rms the second court39s decision both the circuit and the second court have precedent However the circuit court only has precedent with the rst court the rst court has no precedent because the circuit court overruled it Precedent for any court is any prior decision by the same court or one of its bosses that has not been overturned THE ANSWER TO ANY QUESTIONS OVER SUBJECT MATI39ERJURISDICTION THE ONLY ANSWERS CAN BE STATE ONLY FEDERAL ONLY OR BOTH PUT BOTH PERSONALJURISDICTION OR VENUE THE ANSWER IS GOING TO BE THE NAME OF ONE OR MORE STATES AND THE VENUE IS GOING TO BE WHERE THE DEFENDANTS ARE AND WHERE THE EVENTS TOOK PLACE SubjectMatterjurisdiction State Court SubjectMatterjurisdiction 0 State courts have the power to decide all claims based on state law and most claims based on federal law Very broad and here state laws from ANY state 0 State courts do not have the power to decide claims based on federal laws of exclusive subject matter Ex federal laws on antitrust copyright patent bankruptcy and admiralty Only federal courts can hear those but states can hear the rest 0 Certain statelaw claims must be heard by quotspecialtyquot state courts of limited jurisdiction Ex small claims court divorce juvenile court 0 Federal Court SubjectMatterjurisdiction o Said to be a government of limited powers narrower scope of power than states 0 Federal courts can only hear two types of claims Federal Question claims claims based on a violation of federal law Diversity of Citizenship claims refers to the claims are based on state law but are involved with citizens of different states 0 The actual parties to a lawsuit of a cannot consent to subjectmatter jurisdiction if two people agree to be heard in a federal court the federal court does not have the power to hear them unless it falls under those two types 0 quotFederal Questionquot Claims MONEY IS NOT A CONCERN WITH IF A FEDERAL CLAIM COMES INTO PLAY 0 Claim based on federal law 0 Plaintiff must assert a claim based on federal law the quotfederal questionquot must be raised in the Complaint For federal courts to hear cases the complaint must include ATLEAST ONE claim based on federal law It does not matter if the defendant asserts a defense or counterclaim based on federal law no quotfederal questionquot No matter what the defendant brings up dealing with the federal law it will not make the case go to federal court quotWellPleaded Complaintquot Rule The complaint must contain a wellpleaded claim based on federal law not a frivolous claim solely to get into federal court 0 A plaintiff can choose NOT to assert a federal claim in order to avoid subject matterjurisdiction in federal court 0 quotDiversity of Citizenshipquot Claims also called quotDiversityquot Claims CLAIMS BASED ON STATE LAW 0 Federal courts have subject matter jurisdiction with this where There is quotcomplete diversity of citizenshipquot based on state law aka the plaintiffs are suing defendants and none of the plaintiffs are a citizen of any of the states as the defendant The amount in controversy exceeds 75000 0 There is a risk in the state courts that bias is going to occur from region to region that the courts are going to loyal to their government and citizens 0 Federal courts have judges that have been affirmed by Congress which mean that federal courts have loyal to the US government and have loyalty to all citizens 0 You cannot just have complete diversity but also MUST have an amount that exceeds the amount in controversy rule 0 The federal courts are trying not to be overwhelmed by cases that do not contain a signi cant amount of money at stake o Rationale Allow outof state litigants to bring their claims in federal court to avoid state court bias in favor of instate litigants but only in cases where there is a large amount at stake gt75000 quotComplete Diversity of Citizenshipquot 0 Means no plaintiff is a citizen of the same state as any defendants plaintiffs can be from the same state and defendants can be from the same state but not both 0 Citizenship is determined when the Complaint is led Changes in citizenship before or after the Complaint is led do not affect subject matter jurisdiction 0 Plaintiffs can take steps to destroy diversity by moving to the same state as the defendants adding a defendant from the same state or suing for 75000 or less 0 Plaintiffs cannot take steps to CREATE diversity by moving to a different state than a defendant or demanding more than 75000 where there Is no legal basis for it o How to Determine quotCitizenshipquot 0 Individual Citizen of the state of quotdomicilequot the state where the person has a primary residence and intent to stay inde nitely Student39s parents39 home is usually quotdomicilequot home because that is where you would go if kicked out of school 0 Individuals can only be citizens of one state 0 This is much more dif cult to determine for businesses Corporation citizen of the state of incorporation and the state where its headquarters is located Corporations can be citizens of one or two states 0 Ex If headquarters are in Delaware and place of business is in Indiana then it is a citizen of both states 0 Ex If headquarters are in Indiana and place of business is also in Indiana then it is only a citizen of Indiana Unincorporated Associations Partnership LLC union 0 Citizens of every state where its members owners are citizens Can potentially be citizens of MANY states 0 Means that any plaintiff that is a citizen of any of those states cannot sue them in federal court based on Diversity of Citizenship 0 If a members lives in every state it means there will never be a lawsuit by an American citizen based on Diversity of Citizenship MUST BE SUED WITH FEDERAL CLAIM quotAmount in Controversyquot O O The easier of the two requirements to determine would be easier to look here before looking for complete diversity of citizenship The amount that the Plaintiff demands in the Complaint when it is led DOES NOT INCLUDE COUNTERCLAIMS BY DEFENDANTS Does not matter if claims are later added or dropped or if the plaintiff ultimately wins only 75000 or less Amount in controversy must EXCEED 75000 Cannot be exactly 75000 A plaintiff can combine multiple claims against one defendants that exceed 75000 does not need to be one claim they are additive A plaintiff can also combine claims against multiple defendants ONLY IF EACH CLAIM APPLIES TO ALL DEFENDANTS joint and several liability Ex Landlord suing three tenants and total amount of rent exceeds 75000 and each of the tenants can each be held reliable under the lease Not an Ex Suing one person for hitting a car and suing another person because they breached a contract not joint liability and cannot be combined 0 Supplemental Jurisdiction for State Claims 0 0 Only one of the claims by plaintiff has to be based on federal law for a Federal Judge to hear it If a federal court has subjectmatter jurisdiction over one federal claim in a case then the court will have supplemental jurisdiction over any state claims that are part of the quotsame case or controversyquot This is true even if the requirements for subjectmatter jurisdiction based on quotdiversity of citizenshipquot INCLUDING MONEY are not met Federal courts can choose not to exercise supplemental jurisdiction over state claims Where the court dismisses the federal claims and the remaining state claims do not satisfy requirements for subjectmatter jurisdiction Federal courts will often use discretion to not hear cases regarding state claims if the federal claim has already been dismissed Removal from State to Federal Court 0 General Rule If a case is led in state court that could have been led in federal court the DEFENDANT can remove the case to federal court in that state ONLY THE DEFENDANT CAN REMOVE A CASE TO FEDERAL COURT because a plaintiff decides where to le a lawsuit in the rst place 0 Exception If a case is led in state court in a state where a defendant is a citizen the defendant can only remove the case to federal court if there is a quotfederal questionquot The defendant cannot remove the case to federal court based on quotdiversity of citizenshipquot Rationale no risk of state bias against defendant because at least one defendant is a citizen of the state The defendant still can remove the case to federal court is there is a federal question 0 If the plaintiff willingly les a lawsuit in a state court where one of the defendants lives there is really no rationale that they would remove the case to that federal court VENUE ONLY TELLS US WHAT STATES WHERE A LAWSUIT CAN OCCUR NOT THE TYPE OF COURT 0 STATE COURTS CAN HEAR JUST ABOUT EVERY TYPE OF CLAIM BOTH STATE AND FEDERAL ANY STATE COURTS ANYWHERE CAN HEAR ANY CASE BASED ON ANY STATES LAW Ex AN INDIANA STATE COURT CAN HEAR AN ISSUE ABOUT A TEXAS STATE LAW Personal Jurisdiction Two types In Personam power over the people involved in a case and In Rem power over the property at issue in a case 0 The rules for personal jurisdiction are the SAME for state and federal courts 0 Federal courts located in a state have the same personal jurisdiction as the state courts in that state 0 If a person is subject to the personal jurisdiction of a court anywhere in a state the person is subject to the personal jurisdiction of ALL courts everywhere in the state can be sued in any state or federal court located in that state based on their connection to a particular part of the state 0 THE ANSWER TO A PERSONALjURISDICTION QUESTION IS ALWAYS ONE OR MORE STATES OF THE UNITED STATES People CAN consent to a court39s personal jurisdiction meaning they subject themselves voluntarily to a court39s jurisdiction 0 Personal jurisdiction the people or the property over whom the court has power 0 quotIn Personamquot Personal jurisdiction more complicated one 0 State and federal courts in a state have in personam jurisdiction over Residents residents of the state where the court is located Service in the state People served with quotprocessquot while voluntarily present in the state where the court is located cannot be lured or forced to be in state Called a summons quotGotchaquot moment Consent People who appear in the court for some purpose other than challenging the court39s personal jurisdiction 0 Ex Filing a pleading other than a motion to dismiss for lack of personal jurisdiction 0 Forum selection clause person will be agreeing to the jurisdiction expressly Suf cient Contacts People who have suf cient contacts with the state where the court is located LAST RESORT Most dif cult to understand Suf cient Contacts with a State 0 States have quotlongarmquot statutes that authorize courts in the state to assert personal jurisdiction over people outside of the state who have contacts with the state Authorizes both state AND federal courts to assert personal jurisdiction over people outside of a state but that have contacts with the state 0 Such statutes can only be applied to people who have quotsuf cient minimum contactsquot with the state to satisfy the guarantee of due process in the US Constitution Amendment 4 Saying you cannot be forced to go to court and defend yourself where you can lose your liberty life or property unless you receive due process of law Interpreted to mean that the only situation where long arm statutes can be applied to residents outside of the state that have suf cient contacts May setup a con ict between the state statute and the federal constitution which means a court in a state cannot process someone outside of the state based on contacts unless the person has suf cient minimum contacts to satisfy due process 0 Suf cient minimum contacts A person must have the right type and amount of contacts with the state 0 What TYPE of Contacts are Suf cient 0 To be subject to personal jurisdiction under a longarm statute a person must have quotpurposefully directedquot contacts with the state active not passive contacts Examples of purposefully directed contacts Forming a business in a state Doing business in a state Marketing in a state Entering contracts with ties to a state Owning property in a state or driving a car in a state Putting products into the stream of commerce with knowledge that they are being sold in a state Examples of NONpurposefully directed contacts 0 People buy out of state products and bring back products to state unless you KNOW that the products are going to be taken back to the state o What AMOUNT of Contacts is Suf cient o If the lawsuit arises from the person39s contacts with the state the person must have only quotlimited and sporadicquot contacts with the state Called quotspeci cquot in personam personal jurisdiction quotlimited and sporadicquot can have very few contacts and possibly even just one contact if the lawsuit is directly linked to that speci c contact Very easy to be suf cient o If the lawsuit does NOT arise from the person s contacts with the state the person must have quotcontinuous and systematicquot contacts with the state Called quotgeneralquot in personam personal jurisdiction quotcontinuous and systematicquot has to have a very large number of contacts with the state that are ongoing constant visitation or business with the state Almost like the person has a quotpresencequot in the state 0 quotIn Remquot Personal jurisdiction 0 The property over which a court has power 0 Courts in a state have quotin rem quot personal jurisdiction over any property that is located in the state IF AND ONLY IF the property is an issue in the case The property must be at issue in the case not just located in the state 0 Courts usually assert quotin remquot jurisdiction over property only the court lacks quotin personamquot jurisdiction over the person who owns the property 0 Courts prefer to have quotin personamquot personal jurisdiction because it is broader and gives them more power For example if they have it over a person they have power not just over the property at issue but over all of the property that the person owns 0 THE ONLY TIME IN REM jURISDICTION IS GOING TO BE APPLIED IS WHEN THE PROPERTY IS IN THE STATE AND IS AT ISSUE AND LACKS IN PERSONAM jURISDICTION The only time in personam does not happen is when the person has property in the state but does not have purposefully directed contact with the state 0 Ex Friend drives your car in the state STATE WILL STILL HAVE IN REM Most cases courts hear a case based on quotin personamquot jurisdiction rather than quotin remquot jurisdiction PERSONALjURISDICTION IS NEVER AN ISSUE WITH THE PLAINTIFF BECAUSE THEY ARE THE ONES FILING THE LAWSUIT IN A PARTICULAR COURT UNDER LONG ARM STATUTE IF YOU HAVE SUFFICIENT CONTACTS WITH THE STATE THEN YOU COULD HAVE PURPOSEFULLY DIRECTED CONTACTS IF THE ONLY THING A DEFENDANT DOES IS SUBMIT A MOTION OF APPEAL THEN SHE CANNOT BE SERVED IF SHE FILES AN ANSWER THEN SHE IS GIVING CONSENT IF YOU DO NOT HAVE PERSONALjURISDICTION OVER ALL PARTIES OF THE LAWSUIT YOU MAY HAVE TO FILE DIFFERENT COMPLAINTS OR FIND jURISDICTION ELSEWHERE Venue OVERVIEW 0 Even if a court has jurisdiction it may dismiss or transfer a case for lack of quotvenuequot Venue a proper place for the trial of a case 0 Venue rules are based on the appropriateness and convenience of holding the trial of a case where the events took place where the defendants live and where the evidence witnesses and property involved are located 0 First you have to identify all the courts that would have jurisdiction and from those courts you look at which courts where it would be proper for the courts to hold the case VENUE CAN EXIST IN MORE THAN ONE COURT 0 just like personal jurisdiction a party can consent to venue in a court Express consent agreeing to the court forum selection clause Implied consent failing to challenge venue at the start of the case 0 Venue Rules in State amp Federal Courts 0 In state courts venue exists in the part of the state where a defendant resides the events at issue took place or the property at issue is located Ex If a defendant lives in one county and is sued over property in another county venue would be appropriate in both counties 0 In federal courts venue exists in the district in the state 1 Where a defendant resides IF ALL THE DEFENDANTS RESIDE IN THE SAME STATE 0 If one defendant is from the north district and the other is from the southern district venue would work in both districts because they are in the same state 0 If one defendant lives in the southern district of Indiana and the other the southern district of Ohio there would be no place for venue under this rst rule 2 Where a substantial part of the events at issue occurred or the property at issue is located 0 Ex Product made defectively in Michigan and was boughtusedcaused injury in Indiana you can say that a substantial amount of events happened in both 0 WHEN INTERPRETING THESE LOOK AT RULE 1 AND FIND THE PLACE OF VENUE AND THEN LOOK AT RULE 2 AND FIND THAT PLACE OF VENUE 3 If personal jurisdiction and venue do not exist under either of the other rules then venue is permissible where ANY defendant is subject to personal jurisdiction applies in rare cases Defendants have the power to remove a case dismiss a case because of jurisdiction and venue convenience Trials will happen where defendants reside because it is convenient to them and venue is one of their only defenses when getting sued O IF ONE PERSON IS FROM ANN ARBOR AND ONE IS FROM KALAMAZOO AND THAT IS WHERE A CAR CRASH HAPPENS IF THE PERSON FROM KALAMAZOO SUES VENUE IS PROPER IN BOTH PLACES IF THE GUY FROM ANN ARBOR SUES THEN VENUE IS ONLY PROPER IN KALAMAZOO IF ONE PERSON IS FROM INDIANA ONE FROM CALIFORNIA ONE FROM ILLINOIS AND THE CRASH HAPPENED IN INDIANA VENUE WOULD ONLY BE PROPER IN INDIANA BECAUSE FILING IN CALIFORNIA OR ILLINOIS WOULD NOT BE CONVENIENT FOR ONE OF THE DEFENDANTS TEST 1 The Agency Relationship An agency is a twoparty relationship in which one party the agent is authorized to act on behalf of and under the control of another party the principal All employees are agents but not all agents are employees some are independent contractors Formation of Agency 0 Agent must agree to act for the bene t of a principal 0 Agent must have capacity to act THE LEGAL CAPACITY Agreements by a minor or mentally incapacitated person is voidable o Duties must be delegable Some duties are nondelegable such as duties that require principal39s personal performance unique skills 0 Voting signing a will testifying under oath etc Agent39s Authority to Bind Principal 0 An agent can bind a principal only when the agent has authority to do so 0 Two forms of agent authority Actual authority APPARENT AUTHORITY o If an agent does not have either the principal is not bound by the agent39s acts Agent39s Actual Authority 0 Two forms Express based on the principal39s statements by the agent I want you to be my realtor to sell my house Implied whatever is reasonable for the agent to do given the principal39s statements to the agent and the surrounding circumstances the extent depends on the circumstances 0 Ex Express authority to build gazebo and implied authority to buy supplies and things needed to build the gazebo AGENT39S APPARENT AUTHORITY o Apparent authority exists when a principal39s conduct leads a third party 0 O to believe that an agent who lacks actual authority is authorized to act a certain way and the third party reasonably relies on the appearance of authority If the gazebo builder is told not to buy a hammer under any circumstances but when he goes to Home Depot and tells the salesman that he is building a gazebo and the salesman gives him a hammer to buy because the salesman sees him as having apparent authority to buy this hammer than the principal can actually be held liable TO PROTECT THIRD PARTIES agency law allows agents to bind the principal on the basis of apparent authority LOOK AT THIS IN THE PERSPECTIVE OF THE THIRD PARTY The law wants to protect the third parties and makes the principal liable Employee v Independent Contractor O O O A legal question may depend on whether a person who contracts with a principal is an employee or independent contractor quotReidquot factors but no clear distinction Right to control physical details Skill required Source of tools Location of work Schedule control Duration of relationship Payment method Bene ts and tax treatment Uniqueness of work If someone is an employee the law is much more ready to hold the employer as liable This is different with the independent contractor they are going to be held liable more often If you have someone who is hired to do a job and they decide their own schedule with their own tools is an indication that they are an independent contractor Independent contractors are hired for shorter periods of time than employees Flat fees without bene ts are often independent contractors Employees often get taxed and have bene ts Agent39s Duties to Principal O Duty of Loyalty Avoid selfdealing competing with principal and con icts of interest quotCompeting with your principalquot Maintain con dentiality of principal39s information during AND AFTER agency 0 Very frequently abused Duty to Obey Instructions Obey principal39s reasonable legal ethical instructions Duty to Act with Care and Skill Duty to Notify Principal Notify the principal of matters reasonably relevant or material to the agency business For example notifying the principal of a good piece of land instead of selfdealing Duty to Account Turning money or goods over to principal if asked Have to tell employers about gifts or money received quotkickbacksquot ex collecting rent and returning all the money Principal39s Duties to Agent 0 Agency Agreements normally state duties the principal owes to the agent but the law implies certain duties Duty to compensate the agent Duty to reimburse the agent for money spent doing the principal39s business Duty to indemnify the agent of losses suffered in doing the principal39s business lndemnify to compensate for damage loss or injury suffered Termination of Agency 0 By Act of the Parties At a time or event stated in the agreement When agency was created to achieve a special purpose and it is achieved By mutual agreement of the parties At the option of either party 0 By Operation of Law Serious breach of the agent39s duty of loyalty Principal39s permanent loss of capacity or agent39s loss of capacity to perform agency business 0 Someone who goes insane or develops a disease for example Impossibility of performance by the agent Death or bankruptcy of principal or agent Change in value of agency property or subject matter including loss or destruction Changes in the law making the agency illegal Changed business conditions or outbreak of war Effect of Termination of Agency 0 Actual Authority express and implied Ends when agency terminates BUT AGENTS CAN STILL HAVE APPARENT AUTHORITY EVEN AFTER THE AGENCY RELATIONSHIP TERMINATES Ex Gazebo man taking too much time to build gazebo so you re him on Friday On Saturday if he goes back to Home Depot and he nds the same salesman and says quotneed to buy a huge amount of lumber and marble tilequot and the salesman reasonably believes he still has the authority to buy these things on the principal39s account he can take those materials 0 The doctrine of apparent authority says that they are going to protect the third party so the principal is going to usually be held liable o This is if the third party has notice that the contract has been terminated o Apparent Authority Ends AUTOMATICALLY when 1 the principal dies 2 the principal loses capacity or 3 performance of the agency becomes impossible Otherwise apparent authority ends when 0 quotActual noticequot is given to third parties that have dealt or are dealing with the agent quotConstructive noticequot is given to third parties who have never dealt with the agent 0 Printed in a publication or newspaper posted in public places ONE OF THE MORE COMMON PLACES IS HAVING AT YOUR PLACE OF BUSINESS A NOTIFICATION POSTED 0 Just make it available in some public place that they are no longer employed Tougher and very necessary to eliminate apparent authority InClass Notes 0 All of the things that de nes an independent contractor or employee comes down to one word CONTROL 0 Employers have more control over employees than Independent Contractors Tort Liability when a person hurts somebody damages their property damages their reputation etc 0 Sometimes the 3rd party will want to sue the Principal or both the principal and the agent for damage caused o Employers will likely be held liable if an employee commits damage Employers are less likely to be held liable if an independent contractor commits damage BECAUSE YOU HAVE THE OPPORTUNITY AND ABILITY TO CONTROL THE EMPLOYEE S WORK THE EMPLOYERS ARE GOING TO BE HELD LIABLE DUE TO THE IDEA OF FAIRNESS o If the employer hires people to go make contracts with people the third party can hold the principal liable ThirdParty Relations of the Principal and the Agent 0 Overview 0 O O O A principal is liable for its own acts A principal controls an agent so the principal is liable for an agent39s acts that the principal AUTHORIZES The more control that a principal has over an agent makes them usually an employee and not as much control means they are usually an independent contractor These rules tend to impose liability on the principal when it is fair and reasonable to believe that the agent is working on something authorized by the employee directly or inferably How much control The liability rules re ect this question Enormous bene t for employers to hire people to act on your behalf and do your bidding The tradeoff is making the employer liable based on the actions of the agent 0 Principal39s Liability for Contracts by Agents 0 A principal is liable for a contract made by its agent if the agent had actual authority express or implied or apparent authority to enter into the contract for the principal If an agent enters into a contract without authority the principal is not bound by the contract unless it chooses to ratify the contract afterwards The gazebo man can charge supplies to the principal39s accounts or can buy them himself The principal needs to ful ll the contract and pay off his account or the DUTY to reimburse the gazebo man If the principal lets the gazebo man use his own discretion he has implied actual authority to get the amount of materials he feels necessary lmplied Authority requires much more subjectivity than expressed authority Even if the principal expressly tells the gazebo man that he cannot purchase a hammer or nail gun if he nonetheless goes to the store and buys these things and it is reasonable for the salesman to think that the gazebo man has the authority to buy these things on the principal39s behalf they have apparent authority 0 The principal will be held liable unless the job is now impossible to do because of death elimination of property etc or the employer publicly announces the termination of the relationship o The principal will be held liable because they have the power and the opportunity to control what the employeecontractor does 0 There are ways to limit apparent authority The principal always pays cash sends a check or an inventory list etc to the store The principal lets suppliers and others know what their policies are and tell them what the employees are authorized to do and not to do The principal must approve in writing for certain amounts of expenses on account 0 Sometimes the third party will not care about the extent of which they are going to be able to hold the principal liable as long as they are getting paid They let the employee and employer duke it out Agent39s Liability for Contracts It Makes for Principal o quotDisclosed Principalquot Other party knows or has reason to know 1 the agent is acting for a principal and 2 the identity of the principal Agent is NOT LIABLE for authorized contracts made for a DISCLOSED PRINCIPAL o quotPartially Disclosed Principalquot Other party 1 knows or has reason to know the agent is acting for a principal but 2 does NOT know or have reason to know the identity of the principal DOES NOT DISCLOSE PRINCIPAL but the people know that the agent is acting on somebody else39s behalf Person cannot make a judgment call on if they want to do business with the unknown principal Agent WILL BE HELD LIABLE for authorized contracts made for a partially disclosed principal unless the parties to the contract agree otherwise If the third party is willing to not hold the agent liable on the contract then the agent will avoid liability o quotUndisclosed Principalquot Example is the story about Lemper39s parents and their friend trying to buy neighbor s land after neighbor wanted to move because of the animals and smell that the Lemper39s land had 0 Did this because they think the third party is going to be hostile toward them Other party does NOT know or have reason to know that the agent is acting for a principal and so does not know or have reason to know the principal39s identity Other party can choose to hold either the agent or principal liable Agent has incentive to be critical to make decision to act as agent for undisclosed principal o quotNonexistent Principalquot When there is no actual principal but two people engaging in a contract When an agent is liable for contracts for nonexistent principals An agent will give false reason to believe that they are acting on behalf of a principal that actually is not there If there is no real principal the person that is pretending to be an quotagentquot is going to be held personally liable o Principal39s Liability for Agent39s Torts O O WHETHER THEY ARE AN INDEPENDENT CONTRACTOR OR EMPLOYEE MAKES ALL THE DIFFERENCE Principals can be indirectly liable for torts by employees under the doctrine of respondeat superior let the master answer but principals are not indirectly liable for torts by independent contractors quotRespondeat superiorquot A principal is vicariously liable for an agent39s torts if The agent is an employee and The Agent commits the tort while acting quotwithin the scope of employmentquot 0 Scope of Employment ALL FOUR OF THESE MUST BE PRESENT o Torts injuring a person or damaging property 0 An employee39s conduct is quotwithin the scope of employmentquot if it meets each of four tests The conduct was the kind that the employee was employed to perform is the employee doing their job The conduct occurred substantially within the authorized time period for work during work hours The conduct occurred substantially within the location authorized by the employer for work at the store or job site The conduct was motivated at least in part by the purpose of serving the employer Employers are inpart at fault just by hiring this person that commits a tort even if the employer is not at fault The employee themselves can always be held liable for the tort but this is just to determine if the employer can ALSO be liable An employer may be DIRECTLY liable for an agent39s torts because the principal is at fault where The employer directs the act and The employer intended that the act occur 0 Ex Providing negligent instructions or providing improper tools More direct example A sales agent merely uses a dealership39s fraudulent sales tactics Principal39s Liability for Independent Contractor39s Torts O O 0 Much more narrow and generally does not exist Since a principal does not control an independent contractor39s work a principal is not liable for an independent contractor39s torts EXCEPTIONS for the principal is directly at fault and has direct liability A principal may be directly liable for negligently hiring an independent contractor that has a bad history or other highrisk problems A principal is liable for harm caused by an independent contractor s FAILURE TO PERFORM A NONDELEGABLE DUTY important duties that cannot be contracted away usually safetyrelated Example Landlord39s duty to make repairs A principal is liable for an independent contractor39s negligent failure to take special precautions to conduct HIGHLY DANGEROUS OR INHERENTLY DANGEROUS ACTIVITIES Example Shipping nuclear waste or hazardous waste across the country and the principal has hired a truck driver to do this If the driver negligently does not precautionary measures then the principal can be held liable InClass Notes 0 If a lady owns a store with a guy employee and she says that for any purchase over 100 she must sign off on it If a third party buys something that cost 300 for 250 from guy without her signing off she is going to have to bite the 50 She could go after him for violating duties but the third party cannot be touched because guy had apparent authority 0 THE PRINCIPAL IS LIABLE ALSO IF THE AGENT HAD AUTHORITY NO THEY ARE NOT LIABLE IF THE AGENT DID NOT HAVE AUTHORITY If the principal is undisclosed the agent is not going to apparent authority because the third party does not even know that the agent is working for the principal Introduction to Contract Law 0 Overview 0 Not every promise or agreement is legally enforceable o Agreements must satisfy several legal elements to receive legal protection as a quotcontractquot 0 When an agreement or set of promises has the legal status of a quotcontractquot a person injured by a break of that contract has the legal right to call on the gov courts to seek remedies from the breaching pa y 0 Even if a promise or obligation does not satisfy the legal requirements enforced as a contract it may be enforced on a noncontract theory fairness justice trust 0 Basic Elements of a Contract 0 An offer acceptance consideration consent capacity legality in writing if required 0 Contract Concepts and Types 0 Bllateral contract Agreement where all parties make promises to each other Ex I promise to sell you my car and you promise to pay 10000 Both committed legally to ful ll promise o Unilateral contract Agreement where one party makes a promise and another party performs instead of making a promise Ex I promise to pay you 10000 if you give me your car Then you give me your car and keys without promising to do so you just act 0 Give free drink if you buy 10 Does not promise to buy 10 but when they do then they get a free drink When one person makes a promise the other person is not legally required to perform and the person making the promise does not need to ful ll his promise before the other performs quotOptionalquot contract 0 Valid contract Agreement that all parties can enforce Nobody can get out by themselves Must be agreed upon by all parties 0 Voidable contract Agreement that one or more parties can choose to avoid rescind or enforce o Void contract Agreement that no party can enforce never really a contract in the rst place Ex Illegal contracts 0 Express contract Agreement where the terms are expressly stated VERBALLY OR WRITTEN o Implied contract Agreement where the terms are not expressed but are implied by the circumstances and the parties39 actions It is implied that when somebody goes in for a service it is understood that they are going to pay the standard or at rate for the service dentist doctor etc 0 Sources of Governing Law 0 Two types of law govern contracts common law and Article 2 of the Uniform Commercial Code UCC Common law judgemade rules that have developed over time 0 Common Law Governs contracts for SERVICES and contracts for goods where there is no applicable UCC rule The DEFAULT if not about services or goods that does not meet Article 2 of UCC 0 Article 2 of the Uniform Commercial Code UCC Proposed uniform legislation adopted as state statutes Predominately state law adopting these UCC rules by state statute Some states have adopted some some have adopted all but many have adopted article 2 UCC precedent over common law GOVERNS CONTRACTS FOR GOODS TANGIBLE MOVABLE PROPERTY Ex clothes computers cars food commodities MONEY IS NOT A GOOD IT IS CONSIDERED INTANGIBLE Cannot be intellectual goods 0 Not real estate a plot of land a house 0 A quothybrid contractquot is a contract for goods AND services Ex hiring an artist to paint a portrait of you you are buying the portrait and buying the painter39s service 0 IF THE GOODS ARE THE DOMINANT PART OF THE CONTRACT THE UCC WILL APPLY IF THE SERVCES ARE THE DOMINANT PART COMMON LAW APPLIES You determine which is dominant by importance or price 0 Either common law applies or the UCC does not a combination NonContract Obligations o QuasiContract A particular situation where there seems like there might be a contract between parties but there isn t ALL MUST BE TRUE 0 One party confers a bene t on another and o The other party knowingly accepts the bene t and o It would be unjust to allow the party to keep the bene t without paying the REASONABLE MARKET VALUE for it Example A painter who paints houses enters into an agreement with a homeowner and says I will paint for 200 plus cost of paint On the day he is planning to paint the homeowner isn39t there and the painter starts to accidentally paint the house next door The owner of the house sees the painter and decides to let him paint so that he would not have to pay the court might say the painter has conferred a bene t the neighbor knowingly accepted the painter s work under the circumstances the neighbor should not bene t without having to pay something for the work The neighbor will not have to pay the original amount between the homeowner and painter but the REASONABLE MARKET VALUE Money amount not based on contract 0 Promissory Estoppel Someone is being prevented or stopped from breaking their promise They must keep the promise One party makes a promise the promisor and o The promisor should reasonably expect that the promisee will rely on the promise and o The promisee does actually rely on the promise and o The promisee39s reliance on the promise is reasonable and o The promisee will be damaged if the promise isn39t enforced Contract Offer 0 Requirements of an quotofferquot 0 Present Intent to Contract and Must actually intend to make a contract and must state that at time Willing to be bound if offer is accepted Notjoking haggling inquiring or equivocating Determined objectively by words or actions 0 Suf ciently De nite Terms and O Some offers may sound like offers but are too vague or general to actually be a basis Terms suf ciently de nite that they can be enforced Common law rule Offer must state ALL ESSENTIAL TERMS UCC Rule Offer can leave out terms as long as it 1 indicates an intent to contract and 2 provides a reasonable basis for enforcing a contract UCC provides quotgap fillingquot rules for open terms MUST HAVE SUBJECT QUANTITY AND PRICE 0 Price is not always required some things have market prices Ex Buying a stock Communicated to offeree Common law must have all aspects while UCC can have some left out because they have quotgap fillingquot rules Special Problem Advertisements 0 General Rule Advertisements signs yers catalogs price lists price quotes etc are NOT offers to contract They are invitations for others to make offers They are advertising their willingness to contract If an advertisement was treated as an offer and 10000 people see the ad and say quotI acceptquot then the person could be legally bound to 10000 different contracts The person could be bound to more contracts than they could ful ll THE INABILITY TO LIMIT THE LIABILITY IS THE MAIN REASON Advertisements are missing the present intent to contact because you are really only wanting to be intent to contract with the amount of people that are going to buy your supply no more Except Where ads contain speci c and de nite terms about the nature and quantity of items offered for sale and exactly what is required to accept Especially ads containing words of limitation quotwhile supplies lastquot quot rst come rst servedquot Ex Classi ed ads Special Problem Rewards O 0 Offers of rewards ex for info return of lost property are treated as offers for unilateral contracts Offers of rewards can be accepted only by performing the action requested to earn the reward Ex Finding and returning a lost dog Some states require people to know about the reward offer before BEGINNING performance to accept contract Some states require people to know about the reward offer before COMPLETING performance to accept contract Going out to look out of the kindness of your heart and seeing reward sign on way back Special Problems Auctions By placing an item up for auction sellers are inviting bidders to make bids offers not making person putting item up for sale are not making offers Bids are offers to contract The auctioneer accepts the bidder39s offer Auctioneer may withdraw an item without accepting a bid means no contract Items auctioned quotwithout reservequot or equivalent language are offers to sell the item to the highest bidder Intent to auction and committing yourself to sell the item to the highest bidder if seller says without reserve and sets a price the highest bidder must pay atleast that or more Sellers cannot withdraw an item offered quotwithout reservequot unless no bids are received within a reasonable time after the bidding opens Special Problems Bids 0 Requests for bids are generally treated as invitations for others to make offers A party who submits a bid is making an offer GENERAL RULE Bids can be withdrawn any time prior to acceptance Previously announced rules for bidding can alter ability to make or accept offers By offering the contract to the lowest bidder By creating a basis for promissory estoppel Termination of Offers Before they are accepted 0 O 0 If offers are accepted and they are not terminated yet then the parties are bound by contract TIMING OF TERMINATION IS CRUCIAL IN DETERMINING IF THERE IS A CONTRACT OR NOT An offer can terminate before being accepted by Terms of the offer Lapse of time Revocann Rejection Death or insanity of a party Destruction of the subject of the offer Intervening illegality Lapse of Time 0 0 If an offer does not specify the time for acceptance it will terminate if it is not accepted in a reasonable time What constitutes a quotreasonable timequot depends on the circumstances context prior dealings between the parties industry custom etc Ex Selling tickets for a game for tomorrow night Reasonable time argued but sometime before the game is over Decided by judge orjury based on theirjudgment Revocation one of two most common ways 0 GENERAL RULE Offers can be revoked at any time before acceptance even if the offeror promises to keep it open 0 EXCEPTIONS Restrictions on revoking an offer Option contracts they will give me something of value as long as I keep something open for an amount of time Offer for a unilateral contract where offeree begins to perform 0 Offer cannot be revoked until the offeree has been given a reasonable time to complete performance Promissory estoppel promisor bound to keep promise if other party relies on it and has reason to and may be damaged if promise is not kept quotFirm offersquot for goods under the UCC 1 Offer by a merchant a party that regularly deals in the goods AND 0 2 Contained in a signed writing letter head signature stamp typed name AND 0 3 Gives assurances that the offer will stay open 0 Sometimes time not speci ed 0 Offers cannot be quotfirmquot irrevocable for more than three months Not terminated but the person will be able to revoke it 0 Timing of Revocation 0 When is the revocation of an offer effective If an offer is accepted before it can be revoked than there is a contract If an offer is revoked before it can be accepted than there is no contract GENERAL RULE Revocation is effective only when it is RECEIVED by the offeree EXCEPTION For an offer made to the general public revocation is effective when it is made in the same manner that the offer was made Rejection o Rejection terminates an offer 0 A counteroffer is a rejection of the original offer Ex Originally the seller offers car for 10000 Buyer says I will buy the car for 8000 The original 10000 offer is now terminated and the buyer can say yes or reject the 8000 offer 0 Split of authority for rejection of an offer that is part of an option contract a separate agreement Some states treat rejection as terminating both the offer and the option contract Other states treat rejection as NOT terminating the offer or the option contract 0 Rejection is effective only when it is received by the offeror Before received the offer is still open The buyer can call up the offeror and accept before the offeror receives the letter of rejection then they have a contract 0 Same with vice versa 0 Other forms of termination 0 Death or insanity of a party If either party dies or becomes insane the offer automatically terminates o Destruction of the subject of the offer An offer terminates if before it is accepted the subject of the offer is destroyed without the knowledge or fault of a party 0 lntervening illegality An offer terminates if before it is accepted it becomes illegal to perform the contract 0 Ex In Nevada where prostitution is legal you hire an escort and before she accepts Nevada makes it illegal Contract Acceptance Requirements for an quotAcceptancequot 0 Present intent to contract AND Intent to be bound on the offer39s terms Determined objectively by words and actions Does the person by their words or deeds objectively give a reason to believe they have a wanting to contract 0 Acceptance on the terms of the offer AND Common Law Rule Acceptance must mirror the offer39s essential NOT ALL terms or it is a counteroffer Courts had trouble with people nding a very minor difference and using it as almost like a loophole to get out of a contract UCC Rule A quotde nite and timely expression of acceptancequot can be sufficient to form a contract even if the acceptance contains different or additional terms than the offer 0 quotBattle of the Formsquot rules determine the contract terms 0 People who were responsible with making rules for UCC understood that today commercial transactions are conducted through business forms and many of these forms are printed out and have quot ne printquot For the most part nobody actually discusses the terms in the ne print In most transactions they usually only discuss the terms you have to ll in Sometimes the rms do not see the form until after they have already committed to the contract and made the deal The makers of the UCC said that if it looks like there is an intent to contract and expression of acceptance then they are going to say that there was a contract Courts will say there is not a de nite and timely expression of acceptance if there is differing on the contracts PONT OF UCC IS TO MAKE DOING BUSINESS EASIER 0 Can have this de nite and timely expression of acceptance even when the contract does not meet some parts of the original contract very loose Something really important should be discussed when originally met Just because there are differences does not mean the party can get out of the contract Acceptance must be communicated to person that made the offer 0 Methods of Communicating Acceptance o Unilateral contract Offeree does not need to communicate acceptance merely begin to perform the contract Acceptance Performance 0 Bilateral Contract Acceptance must be by 1 The means speci ed in the offer effective quotupon dispatchquot unless the offer states that acceptance must actually be received or o The acceptance must be completed by the means speci ed Ex Hop on left leg and tug right ear does not mean hop on left leg and tug left ear 2 If the offer does not specify how to accept offeree can accept by c A Any reasonable means of communication effective quotupon dispatchquot even if never received unless the offer states that acceptance must actually be received or 0 Acceptance was upon dispatch Contract even if you do not receive the letter and not know that you have a contract with another person May end up selling car to another and have contracts with two people 0 DEFAULT RULE B Any unreasonable unreliable or reliable but not making it in time means of communication effective when sent only if actually received and arrives by the time and acceptance by reasonable means would have PROTECT YOURSELF WHEN MAKING OFFERS BY SAYING THE ACCEPTANCE MUST BE RECEIVED BY A PARTICULAR TIME SO THAT CONTRACTS ARE NOT MADE WITH MULTIPLE PEOPLE If somebody sends an acceptance by reasonable means and then tries to reject after that it is too late and they have a contract If you try to accept by unreasonable means it has to actually be received and see the acceptance within the same amount of time that it would39ve been received with a reasonable means of communication 0 If this happens it will be considered effective when it was sent 0 On Monday I offer to sell you my car and I say nothing about how you have to accept You decide that Monday that you are going to accept the note and strap it to a carrier pigeon39s leg Under the circumstances it would39ve been a reasonable for you to accept by rst class later that would take three days Pigeon must deliver message in same time period Tuesday or Wednesday you call on phone and do not want to sell car and Thursday the carrier pigeon arrives THERE IS A CONTRACT CONSIDERED TO BE EFFECTIVE MONDAY WHEN SENT AND YOU DID NOT SHOW DENIAL UNTIL TUEDAY THE ACCEPTANCE OCCURRED BEFORE DENIAL When you make an offer tell them the offer has to be received and by a certain time 0 Who Can Accept an Offer 0 The only person who can accept an offer is the person to whom it was made 0 An attempt to accept an offer made to someone else is treated as them making another offer 0 Terms in the offer are not considered as ADDITIONAL TERMS Merchant in the business of buying and selling 0 If they act like they have a contract then courts will treat them that they have a contract and rule with UCC rules UCC quotBattle of the Formsquot Rule 0 A quotdefinite and seasonablequot expression of acceptance creates a contract even if the acceptance includes different or additional terms than the offer 0 If there is an acceptance then 1 Agreedupon terms are part of the contract 2 Con icting terms quotknow outquot each other and are replaced by UCC quotgapfillingquot rules if possible 3 Additional terms in acceptance ARE part of the contract unless One of the parties is not a merchant or 0 Offer expressly limits acceptance to its terms or o PREVENTS THAT OTHER PARTY WILL ADD TERMS BUT DOES NOT MEAN THAT YOUR TERMS WILL ALWAYS BE IN THE FINAL CONTRACT Offeror objects to new terms in the acceptance within a reasonable time after receiving it or o The additional terms would quotmaterially alterquot the offer 0 If an attempted acceptance is expressly conditioned on the offeror agreeing to different or additional terms in the acceptance then it is a counteroffer not an acceptance If the original offeror does not accept the counteroffer the parties will still have a contract if they proceed to act as if they have a contract by performing o If quotlimited to terms on this formquot is on the acceptance THEN IT IS A COUNTEROFFER First question you ask yourself is if there is a de nite and timely manner of acceptance 0 Acceptance By Silence 0 General rule Mere silence without more cannot be an acceptance of an offer Offeror cannot impose a duty on the offeree to respond If I do not hear from you then I will assume that you accept 0 Exception Silence can be acceptance where the facts create a duty on the offeree to reject the offer Customary trade practice Prior dealings between the parties Where the OFFEREE indicates that silence means acceptance If you do not hear than me then I accept Where the offeree accepts performance knowing what is expected in return 0 Ex Someone offering in and getting a piano lesson and the person is expecting money in return 0 Acceptance in Writing 0 Acceptance must be in writing where the parties39 words or acts objectively indicate an intent to reduce their agreement to writing Ex Where the parties exchange and revise a document and are not bound until they sign it 0 Acceptance by Shipping Goods 0 An order requesting prompt shipment of goods can be accepted by 1 prompt shipment of goods or 2 a prompt promise to ship to goods o If a party ships nonconforming goods goods different from what the offeror requested without notifying the offeror the shipment is both an acceptance of the contract and a breach of the contract o If a party ships nonconforming goods AND noti es the offeror within a reasonable time that the nonconforming goods are intended as an accommodation the shipment is a counteroffer NOT AN ACCEPTANCE The companyperson can keep the goods an accept the offer or say that they do not want them and deny the counteroffer and send them back Contract Consideration Law is trying to distinguish between what kinds of promises to enforce and not to enforce Moral obligations vs legal obligations Consideration is something of LEGAL value that is BARGAINED FOR and given in exchange for an act or promise o Purely gratuitous promises are not enforceable because they are not supported by consideration because one of the parties is not getting something of legal value or there was no bargaining process 0 Legal Value of Consideration 0 Consideration in the form of an act or promise may have legal value if the person 1 Refrains from doing something the person has the legal right to do or 2 Does something the person had no prior legal duty to do 0 Generally courts will examine the adequacy of consideration except 1 quotGrossly inadequatequot consideration 0 Being taken advantage of 2 quotNominalquot consideration Somebody is getting something of little value but giving a lot 3 Mere recital of nonexistent consideration 0 Sometimes somebody tries to write quotconsideration is givenquot in a contract 0 DO NOT WANT PEOPLE BEING TAKEN ADVANTAGE OF Bargainedfor Exchange 0 The promisee39s act or promise must have been bargained for an given in exchange for the promisor39s promise Ex Participating in promotion that bene ted casino was adequate consideration for contract and person who lled out club card was awarded the million dollars that he won with the promised free spin o If there is not a concern that there is a gift being disguised courts are going to say that rst person wanted the second person to go a period of time without doing something they have a legal right to do then it is obviously of some reward to the rst person regardless if the second person planned on doing it without the contract or not Second person is healthier because of not drinking or smoking and rst person takes value in that Exchanges That Are Not Consideration o Illusory promises When it sounds like someone is going into a binding If the promisee39s promise really does not bind the promise to do or refrain from doing anything the promise is illusory and cannot serve as consideration 0 Ex I promise to paint your house unless I do not feel like it 0 Ex Heye v American Golf Corp employee successfully claimed lack of consideration for arbitration clause because mutual obligation did not exist 0 AGC39s promise to arbitrate was illusory since they could amend the contract at any time o Illusory Promises Cancellation and termination clauses NOT consideration if a party can cancel or terminate at any time for any reason without notice 0 Time reason or notice restrictions ARE consideration quotOutputquot and quotRequirementquot contracts Promises to buy all of a party39s output production or supply all of a party39s need requirement Enforceable because the law implies a duty to act reasonably and in good faith o If you have an agreement with someone you cannot go to the store and triple your supplies because you know that somebody said they would buy them all 0 Generally speaking output and requirement contracts ARE NOT TREATED AS ILLUSORY PROMISES Exclusive Dealing Contracts 0 quotTo the extent we do business in an area we are going to do it all with youquot Enforceable and the law will imply a duty to use best efforts in supplying or selling goods unless parties agree otherwise 0 Preexisting Duties General rule performing or agreeing to perform a preexisting duty is NOT consideration 0 Even though a person driving the car slows down from 60 to 50 the driver had a preexisting duty to do that anyhow because it is against the law to go faster than the speed limit so the passenger does not have to pay money to the driver to slow down despite the passenger saying he would pay him 20 to slow down 0 The promisor in such cases effectively has made a gratuitous promise to do something it already had a duty to do Includes public duties obeying the law and preexisting contractual duties to do Preexisting Duties and Contract Modi cation 0 General Rule An agreement to modify an existing contract requires new consideration 0 Exceptions to General Rule Modi cation due to UNFORSEEN CIRCUMSTANCES that a party could not reasonably foresee does NOT require new consideration UCC Agreement to modify a contract for goods does NOT require new consideration If one person agrees to modify the contract to buy a good for more money even if they are not getting anything additional in return then that modi cation is still enforceable because it is a contract for goods under the UCC o Agreements to Settle Preexisting Debt Liquidated debt no dispute a debt is owed and no dispute how much is owed Unliquidated debt people are in dispute that a debt is owed and how much 0 Usually one party will offer to settle the debt by paying some fraction of the amount owed Liquidated debts are debts in which parties have no dispute about the existence or amount of the debt 0 A promise to discharge a liquidated debt for payment of the debt at or after its due date is UNENFORCEABLE for lack of consideration If there is a dispute about the existence or amount of the debt the debt is UNLIQUIDATED o A promise to discharge an unliquidated debt for part payment of the debt at or after its due date is ENFORCEABLE because there is consideration When looking at if something is enforceable for paying fractions of debts look at if the debt is liquidated or unliquidated 0 Past Consideration 0 Past consideration is an act or bene t given in the past that was NOT given in exchange for the promise in question thus it CANNOT be consideration 0 Ex When a boss says they are going to give you a bonus for the WORK YOU HAVE ALREADY DONE then it is past consideration THINGS YOU HAVE DONE IN THE PAST ARE NOT CONSIDERATION FOR A CURRENT PROMISE o PAST CONSIDERATION IS NOT CONSIDERATION AT ALL 0 Exceptions to Consideration With these even if there is no consideration present the law is going to enforce it anyway 0 1 quotFirm offersquot under the UCC merchant selling its products and is signed in writing by the merchant that something is going to be open for a certain amount of time o 2 Modi cations to contracts under the UCC One big distinction between common law and UCC For common law it must a big consideration must be added but not true under the UCC if two parties agree that they are going to modify the contract it will be enforceable even if it is not supported by modi cation 0 3 Promissory Estoppel Where you make a promise to someone and have reason to know they are going to rely on it and they actually do rely on it and may be harmed if you do not hold your promise o It will be enforced so that the person receives fair treatment 0 4 Promise IN WRITING to pay a debt barred by statute of limitations 0 5 Promise IN WRITING to pay a debt discharged by bankruptcy which is not revoked within 30 days 0 6 Charitable subscriptions on which the organization relies promises to give money to charity if the charity relies on the money does not have to show detrimental reliance just some type of reliance Contract Consent 0 Effect of Lack of Consent 0 Contracts induced by mistake fraud misrepresentation duress or undue in uence are generally considered voidable The person claiming nonconsent has the power to rescind cancel the contract The person claiming nonconsent must NOT act in a manner to ratify af rm the contract Misrepresentation or Fraud 0 A misrepresentation is a false statement that may be negligent innocent or fraudulent made with knowledge of falsity and intent to deceive Either way the injured party may void the contract Innocent Misrepresentation O 1 Defendant made a false assertion or fact A false statement of fact or Active concealment of facts or 0 Ex Hiding body damage of a car Failure to disclose facts where 1 the party only volunteers partial information that is misleading 2 the parties have a relationship of trust and con dence or 3 the person has information not readily available to the other party 0 Not trying to be concealed but still not told Ex In the city the car gets 30 mpg highway but does not tell what it gets in the city If there is a relationship of trust and con dence the lawyer or doctor has a duty to disclose all information and facts to the other person so that they can make an informed decision NOT READILY AVAILABLE ghosts that only come out at night You as the homeowner have an obligation to disclose to buyers that you think the house is haunted 2 The false assertion was material and Means that it is likely to play a signi cant role in inducing a reasonable person to enter the contract 3 The complaining party REASONABLY RELIED on the false assertion in entering the contract Can only get out of contract if it were reasonable that you were relying on assertion Sometimes you know what you are being told is false and you go ahead with the contract that is an indication that you did not reasonably rely on the false assertion 1 Defendant made a false assertion of fact 2 The false assertion was FRAUDLENT and Knowingly false and intended to deceive 3 The complaining party REASONABLY RELIED on the false assertion in entering in the contract RULE ONE AND THREE ARE SAME AS MISREPRESENTATION Fraud requires a much higher standard of proof to prove someone was being fraudulent Mistake 0 MISTAKES ALONE WILL NOT GET YOU OUT OF CONTRACTS o A mistake is a belief about a fact that is not in accord with the truth 0 Mistake must NOT be caused by other party39s statements Fraud or Misrepresentation 0 Mistakes must relate to facts not opinions or predictions as they exist at the time the contract is created 0 ncudes mistakes about the governing law If someone thinks something is legal to do when it happens to be illegal under law that is still held as mistake 0 Two types Unilateral and Mutual Mutual mistake ALL parties are mistaken about a fact that underlies an agreement Unilateral mistake Only ONE party is mistaken about facts of the contract Mutual mistake may be remedied by reformation Mutual Mistake 0 1 Mistake relates to a basic assumption on which the contract is basedand Ex existence identity quality quantity of subject matter 0 2 Mistake MATERIALLY affects the contract and Makes it unfair to hold the person to the contract by make it less desirable for one party and giving the other an unbargainedfor advantage The kind of mistake that would likely play a signi cant role in continuing with the contract 0 3 The party adversely affected by the mistake does NOT bear the risk of the mistake Must show that both parties were mistake and you do not bear the risk of mistake Express assumption of risk Ex buying quotas isquot or lmplied assumption of risk by being consciously aware of ignorance or limited info about an aspect of the contract Ex Knows that the other person does not know They are not really at fault They did not buy it as is or be mistaken about the contract they were getting into Unilateral Mistake 0 Same elements of mutual mistake PLUS one of the following 1 The nonmistaken party caused the mistake or had reason to know of the mistake or 2 It would be unconscionable unreasonably harsh or oppressive to enforce to contract 0 Ex One person knows the house burnt down then the second person is excited to buy the house and does not know the house burnt down The rst continues with the contract even though they are aware of the mistake then the second person would be able to get out of the contract o If one person knows the other is making a mistake and does not say anything then the person with the mistake will probably be able to get out of the contract Duress o Duress is a wrongful threat or act that coerces a person to enter or modify a contract Threats of physical emotional or economic harm Threats to le frivolous lawsuits or to breach a contract unless a party agrees to modify it o Victim has no reasonable alternative but to enter the contract Undueln uence o Undue in uence involves unfair persuasion exerted on a vulnerable person during the bargaining process 0 Unlike duress pressure is exerted through persuasion rather than coercion 0 Key is the weakness of the person quotpersuadedquot Elderly or weak person 0 Elements of Undue In uence o 1 Relationship of trust and con dence or where one person dominates the other and Vulnerable person because of relationship or other vulnerabilities Trust and Con dence Ex lawyerclient Dominance one party is dependent on or overpowered by another person in their interpersonal relationship 0 2 Unfair Persuasion Isolated and rushed into agreement without time to consult an attorney or others Unusual time manner or place for entering into a contract Lopsided or grossly unfair agreement 0 Effect of Lack of Consent 0 Contract is voidable Nonconsenting party can choose to ratify enforce or cancel the contract 0 Party that did not knowingly consent or was coerced Rescission Must be 1 prompt and 2 unequivocal o If take too long you may implicitly ratify the contract Rati cation A party can ratify a contract AFTER learning of the misrepresentation fraud or mistake or being free from the duress or undue in uence o The nonconsenting party can ratify the contract expressly or can ratify it impliedly by 1 unreasonably delaying in rescinding 2 continuing to perform the contract or 3 accepting bene ts under the contract 0 CONSENT IS LESS OFTEN DEBATED AND THERE WILL BE FEWER QUESTIONS ON THIS ON THE TEST Contract Writing where required 0 Basics 0 In general a writing is NOT required to create a legally enforceable contract 0 However a writing is preferable to an oral contract for several reasons More de nite no dispute or ambiguity Signature provides authenticity Use as evidence 0 SOMETIMES A WRITING IS REQUIRED The Statute of Frauds o In 17th Century England the Statute of Frauds was enacted to prevent fraud by requiring written evidence before enforcing certain types of contracts 0 American states adopted similar Statutes Not typicaIIy identical in each state Covered Contracts 0 CoIIateraI contracts One party says that they will be responsible for another parties debt or contractual obligation 0 Contracts for real estate 0 Contracts for more than one year 0 Contracts for the sale of goods under the UCC over 500 500 or more 0 Executor39s promise 0 Marriage as consideration probably will not be tested on 1 CoIIateraI Contracts to perform another person39s obligations 0 One person guarantor agrees to perform the obligations of a second person principal debtor owed to a third person oingee if the principal debtor fails to perform College students renting a house or apartment and their parents sign as a guarantor o HAVE TO BE IN WRITING TO BE ENFORCEABLE Exception Under the main purpose or leading obiect rule no writing is required for a collateral contract where the main purpose or leading contract of the guarantor39s coIIateraI promise is to obtain personal economic advantage 0 Even though the contract is not evidenced in writing it is still evidence that the guarantor39s agree to cover the debt because it was in their own interest to do so 0 2 Contract for the sale of an interest in real estate 0 Contracts that affect an interest in real estate typically include sales contracts mortgages options easements but usually NOT leases o Exceptions An oral contract for an interest in real estate is enforceable if 1 The seller has fully performed delivered deed turned over possession or 2 Either party partially performs the contract reasonably relies on the contract by making payments making improvements and CHANGES POSITION so that enforcing the contract is the only way to prevent injustice similar to promissory estoppel 3 Bilateral contracts that cannot be performed within ONE YEAR from the date of formation 0 Must be in writing to be enforceable Does not apply to contract that it is possible to fully perform in less than one year EVEN IF THE PARTIES BELIEVE IT WILL NOT HAPPEN WITHIN ONE YEAR Must be literally impossible to do within a year Does not apply to contracts once they are fully executed by a pa y Ex One party is hired to work for 13 months but the employer pays him in full in less than a year This means they do not need a contract in writing Does not apply to contracts for an inde nite period of time Oneyear time period is measured from the date the contract is CREATED NOT THE DATE THAT THE PERFORMANCE of the contract begins 4 Contracts for sale of goods for 500 or more 0 Covered by the UCC 0 Includes contracts for multiple unites of an item that collectively cost 500 or more 0 Includes modi cations of existing contracts if the modi cation makes the purchase price 500 or more Has to be in writing to be enforceable Ex If Pam buys a washer for 501 it must be in writing Ex If Pam contracts to buy a washer for 490 it does not need to be in writing But if Pam later agrees to modify the contract and pay 500 the agreement must be in writing 5 Contracts for an executor or administrator to be personally liable for debt of an estate 6 Contracts in which marriage is the consideration 0 Does NOT apply to agreements involving only mutual promises to marry o Applies where a party makes a promise other than to marry in exchange for another39s promise to marry Ex material goods are promised such as a ring Ex Parents promising someone to goods or money if they marry their son or daughter Offeror can be a party the marriage or a third party Ex Prenuptial agreements Statutes of Frauds vary from state to state and may contain other categories of covered contracts Requirements of the quotWritingquot 0 1 Written quotMemorandumquot written instrument even if scribbled or chiseled Common Law Memo must identify a the essential terms of the contract b the parties and c the subject of the contract UCC Memo is suf cient even if terms are omitted if it indicates a the parties have made a contract and b the identity and quantity of the goods to be sold Separate documents may collectively satisfy the memo requirement if the documents contain all required elements and relate to same agreement quotRelatednessquot of documents can be shown by physical attachment references in the documents execution at the same time etc o 2 Signature of the party to be charged The quotparty to be chargedquot is the party asserting the statute of frauds as a defense Any writing mark initials stamp engraving or other symbol will serve as a signature as long as the party intended authenticate the written agreement A contract that falls within the statute of frauds can only be enforced against a party that has signed the contract Exceptions to the Writing Requirement 0 1 UCC 2201 Types of Evidence that Satisfy the Statute of Frauds A Con rmatory Memo 1 between merchants 2 sent within a reasonable time after contract is made 3 sufficient to bind person who sent signed by sender and indicates contract was made and the identity and quantity of goods and 4 other party fails to object in writing within 10 days of receipt Part payment or part delivery Only satis es the Statute of Frauds for the quantity delivered or paid for 0 Contract would be enforceable to the extent of payment or delivery Admission in pleadings or court Specially manufactured goods 0 Ex Custom dentures or golf clubs to t the length of your body Goods not suitable for sale in the ordinary course of business 0 quotCustommade goodsquot 0 Does not apply to COMPETELY EXECUTORY oral contracts 0 Seller must begin to make the goods or make commitments to have them made before receiving notice repudiating the contract 0 Overall onlv satis ed not having to have contract in writing when you have custom made goods that the seller has already begun to make 0 Creates an incentive for makers of custommade goods to start on the goods as soon as possible in order to make contracts enforceable o 2 Promissory Estoppel Where a party to the contract will suffer serious losses because of reliance on oral contract The detrimental reliance by one party makes a contract enforceable regardless if it is written or not Some courts refuse to apply promissory estoppel oral contract covered by the Statute of Frauds to avoid possible fraud Consequences o If a covered contract does not satisfy the requirements of the Statute of Frauds the contract is unenforceable 0 Contracts will be held enforceable against those who signed it o A party to the unenforceable agreement may pursue an action based on quasicontract or promissory estoppel Quasicontract One party infers a bene t to another party and the other party accepts the bene t knowing what is wanted in return the receiving party must pay the market price for that service If someone loses with trying to pursue an action based on promissory estoppel then they may be able to redeem something based on quasicontract TEST 2 Negligence Duty and Breach Elements of Negligence 0 These elements are 0 Duty Breach Causation and Injury Duty of Care 0 To whom does a person owe a legal duty of care To whom OUGHT a person have a duty of care 1 The reasonably foreseeable victims of the person39s acts and 2 People that have a special relationship with the person Ex doctorpatient safe keeping in a hotel 0 What duty of care is owed General rule quotReasonable Carequot 0 The care a reasonable person with the defendant39s characteristics would exercise 0 Ex If you have a lawsuit against a 12 year old the child is going to be held with the reasonable characteristics of an average 12 year old Professionals are held to the standard of care of members of the profession Care that a similar professional with the same background would exercise 0 The point of negligence law is to prevent injury or risk 0 There is a tradeoff between imposing liability on somebody versus an economically inef cient or unfair approach to make these people liable 0 Special duties of care exist in certain situations Ex Property owners39 duty to people on their property 0 Property Owner s Duty of Care 0 quotlnviteesquot visitors you have invited Business visitors or public invitees on the premises for defendant39s purpose Property owners have a duty to use reasonable care to protect invitees against dangerous conditions on the premises that the owner KNOWS or SHOULD KNOW ABOUT and that invitees are unlikely to discover 0 quotLicenseesquot A person on property with express or implied consent for the licensee39s own purposes social guests doortodoor salesman there for own purposes more than yours 0 People that the property owner does not invite but tolerates Property owners have a duty only to WARN licensees of dangerous conditions on the property that the licensees are unlikely to discover 0 Ex Warning them of a vicious dog that may bite them 0 quotTrespassersquot A person on property without consent Property owners have a duty to avoid willfully or wantonly intentional injuring trespassers once the trespasser39s presence is known 0 Breach of Duty of Care 0 Objective Test Defendant39s actions are measured against the actions of a reasonable person DO NOT CARE IF YOU THINK IT IS RIGHT OR WRONG ALL THAT MATTERS IS WHAT A REASONABLE PERSON WOULD DO 0 Factors to consider 1 Foreseeability of harm o Likely high of negligence possibly occurring or very rare low risk of negligence possibly occurring 2 Seriousness and magnitude of the foreseeable harm 0 Ex Trying to build own nuclear bomb If something goes wrong if the seriousness of the harm is great even if the percentage of it happening is low a reasonable person would not have participated or taken more steps to avoid risk 3 Social utility bene t of defendant39s conduct 0 Great risk vs Great bene t 0 Ex Nuclear powerplant being operated that would help all of community is a great bene t with high risk but a person just making a nuclear bomb for themselves would have low bene t and high risk 4 Ease or dif culty of avoiding risk 0 Overall these are dealing with INTUITIVE DECISIONS BY COURTS o Negligence per se 0 O O Negligence based on violation of law Negligence per se Established duty of care and breach as a matter of law Requires proof that 1 Plaintiff is within the class of people intended to be protected by the law and 2 Plaintiff suffered the sort of harm that the law was intended to protect against Ex Somebody is speeding down road and he loses control and crashes into someone else First factor is satis ed because other motorist that was injured was in the class that intended to be protected by speed limit laws The second factor is satis ed because the crash is the sort of harm that speed limit laws are intended to prevent and protect others from Law says no reasonable person would violate the law hurt a plaintiff that is within a class of people to be protected by the law and harm the plaintiff in the way that they were supposed to be protected against Sometimes people try to sue when they are hurt but are not a part of the class intended to be protected Ex State has smoking laws and says a person shall not smoke inside a building Intended to not have other people get cigarette smoke However the smoke causes a statue to corrode If the owner tries to sue the person smoking for causing corrosion the court is NOT going to hold the smoker negligent because the property owner is not in the class intended to be protected May try to say the damage to the property was foreseeable but it is a stretch Negligence Causation and Res lpsa Loquitur Causann 0 To be liable for negligence the defendant39s acts must be BOTH the ACTUAL CUASE and the PROXIMATE CAUSE of the plaintiff39s injury 0 Actual Cause a quotBut forquot defendant39s breach the injury would not have happened or b defendant39s breach was a quotsubstantial factorquot in causing the injury Chain of events A causes B which causes C etc Ex One person gets simultaneously shot by multiple people There is no quotbut forquot causation because the person would still have been shot by another person but still negligent because they were still both substantial factors in causing the injury DOES NOT MEAN quotAt Faultquot means quotbut forquot ALL YOU NEED IS A CHAIN OF EVENTS o Proximate Cause a injury is quotnatural and probable consequencequot of defendant39s breach or b injury is within quotscope of foreseeable riskquot zone of danger Tries to limit a person39s potential liability to the consequences of their acts that are reasonably foreseeable There may be a list of events that happen but some of the events are not foreseeable so people can avoid being sued by those that will be damaged at some part of the chain of events 0 lntervening Cause An unforeseeable act or event that occurs AFTER the defendant39s acts that contributes to plaintiff39s injury Ex I am negligent and my negligence causes a person to break their leg Then on the way to the hospital in the ambulance the ambulance driver is speeding and gets into a car wreck The wreck leaves him with a broken neck and lifethreatening issues I would not be held liable because of the negligence or events that injured the person further A A foreseeable intervening cause DOES NOT prevent liability for intervening injury B An unforeseeable intervening cause DOES prevent liability for intervening injury 0 quotThinSkulled Plaintiffquot Rule Defendant quottakes his victims as he nds themquot ie the EXTENT of plaintiff39s injury does not have to be foreseeable Ex If you throw a ball at a group of people it is foreseeable that one will get hit and suffer some type of injury You are still liable if you kill someone even if it is not foreseeable or common that this would happen You are liable for the full extent of their injury if some type of injury was foreseeable 0 Res lpsa Loquitur 0 Defendant may have superior or exclusive knowledge about how an injury occurred 0 Applies where plaintiff shows 1 Defendant had exclusive control of the instrument of harm 2The harm that the plaintiff suffered ordinarily does not occur unless someone has been negligent AND 3 The plaintiff is in no way responsible for himher harm o Creates a presumption that defendant breached duty and caused plaintiff39s injury 0 Ex Causes people to have liability even if the other person does not remember or know it happened For example a doctor leaving a medical instrument in a patient while they were under anesthesia would be assumed negligent because the person had no way of being responsible to do that to themselves 0 Shifts burden to defendant to show it was NOT negligent Negligence Defenses Defenses to Negligence o Contributory Negligence the person who is suing for injury is guilty of contributing to their own injury A plaintiff cannot recover ANYTHING from a defendant if the plaintiff s negligence contributed to hisher injury in any way even if plaintiff 1 and defendant 99 0 Could escape everything if other person was in some way doing something that a reasonable person would not to quotAssumption of riskquot is a complete defense Pretty harsh result because of all or nothing negligence scheme 0 Comparative Negligence quotPurequot A plaintiff can recover whatever portion of its damages are attributable to the defendant s negligence even if 99 plaintiff and 1 defendant and vice versa Mixed A plaintiff can recover whatever portion of its damages are attributable to the defendant s negligence only if the defendant s negligence is 50 or more 0 Could still recover if both 50 ln a mixed system if company 1 is 20 negligent and is suing company 2 who is 10 negligent and also suing company 3 who is 70 negligent they will not be able to get anything from company 2 because company 1 is more negligent than company 2 They can still recover from company 3 quotAssumption of riskquot is a complete defense If you know of any type of risk you lose If you do not you have a chance to recover money 0 Comparative Fault Same as comparative negligence except that quotassumption of riskquot is NOT a complete defense it is merely one factor that the jury considers in comparing fault rather than negligence quotAssumption of riskquot VOLUNTARLY consent to known risk 0 Knowing a car is in bad condition or riding in the car with a drunk driver oExpress Ex exculpatory clause waivers where the risks are written out and that they cannot be held liable or clauses that say they are not going to sue the company 0lmplied Facts showing acceptance of known risk 0 Ex Normally known or person is know that there are certain risks like sitting on the rst base line and the potential of foul balls hitting you 0Complete defense to liability under quotcontributory negligencequot and quotcomparative negligencequot a factor to consider under quotcomparative faultquot Strict Liability 0 Liable for injury without fault or irrespective of fault o A defendant is liable even if the defendant did not intend for the injury to occur and was not negligent was not at fault at all 0 Imposing strict liability is a social policy decision that the risk associated with an activity should be borne by those who pursue it rather than by innocent persons who are exposed to that risk Think of it this way The decision to engage in the activity justi es imposing strict liability for any resulting harm o quotAbnormally dangerousquot activities 0 Activities that entail a high risk of serious harm that cannot be eliminated through reasonable care 0 Restatement factors listed in Reid 1 High degree of risk of harming otherslandproperty 2 Likelihood that the harm that results will be great 3 Inability to eliminate the risk by using reasonable care 4 Extent to which the activity is not in common usage 5 Inappropriateness of the activity to the place 6 Extent to which its value to the community is outweighed by its dangerous attributes 0 Examples blasting stunt ying nuclear waste dangerous chemicals etc 0 People partaking in these activities will be held liable if someone is injured 0 EVEN IF PEOPLE WERE CONTRIBUTORILY NEGLIGENT THEY ARE STILL ABLE TO RECOVER SOMETHING THESE PEOPLE ARE STRICTLY LIABLE 0 Wild Animals 0 Strict liability for wild animals even if in the zoo o Contributory Negligence is not a defense The people with the WILD animals are strictly liable M strict liability for domesticated animals like dogs cats etc 0 Statutory Strict Liability Ex Worker s compensation strict liability on employers for injuries that occur in the scope of employment Defective Products 0 Manufacturing Defects a product that does not meet the manufacturer s own standards 0 Design Defects the product s design poses an undue risk of harm when used as intended quotFeasible Alternativequot test Could the risk posed by the design be eliminated by an alternative design without affecting its usefulness or price quotConsumer expectationquot test Is the product as safe as an ordinary consumer would expect it to be If not then it is a defective design 0 Inadequate Warnings the product fails to warn consumers or quotlearned intermediariesquot about unexpected or hidden dangers 0 To recover a plaintiff only needs to prove 1 The product has a defect 2 The defect is attributable to someone in the chain of manufacturing or marketing supplier or deliverer etc and 3 The defect caused the plaintiff s injury 0 Companies are still liable even if someone breaks in and messes with everything before shipping them out LIMITS ON STRICT LIABILITY 0 Scope of risk Ex If your company blasts mines and you load one of your trucks up with rubble and rock and that truck gets in an automobile accident you are not going to be held strictly liable for that car crash 0 Proximate cause If you engage in an abnormally activity but this activity is not the proximate cause of someone s injury you are not going to be held strictly liable Contributory or quotcomparativequot negligence are not defenses to strict liability o quotAssumption of riskquot is a defense to strict liability in some states 0 In other states UNREASONABLE assumption of risk is treated as fault that reduces the amount a plaintiff can recover Product Liability Product Liability Theories where the buyer can sue the seller 0 Express amp Implied Warranties buyer didn t get what they bargained for o Negligence o Strict Liability Express Warranty under the UCC 0 Express Warrantv created if one of the following is a part of the quotbasis of the bargainquot 1 A promise or affirmation of fact about the goods Assertions of fact not opinion or quotpufferyquot Warranty that goods will be promiseddescribed 2 A description of the goods to be sold or 0 Warranty that goods will conform to the description 3 A sample or model of the goods to be sold 0 Warranty that goods will conform to sample or model 0 Exact representation of picture Some say you have to have relied on what you were told but some courts do not want to delve into the extent to which they relied They require little or no showing of actual reliance They take the view that if the seller made you a promise then they are liable if it does not re ect that promise Many courts say at the very least they have to have heard the misrepresentation or fact about the product CAN BE BROUGHT AGAINST ANY TYPE OF SELLERS MERCHANTS AND NONMERCHANTS Based on what the two people actually talk about and say to each other Implied Warranties Implied warranties are created by law rather than by the seller s words or actions Implied Warranty of Merchantability 0 Seller MUST BE A MERCHANT in the product 0 Merchantability means that the product is t for the ordinary purposes for which such products are used 0 A seller breaches this implied warranty of merchantability by selling a product that is not t for use for the ordinary usespurposes of such products 0 Promise in every transaction required by law that the product they are getting is suitable for ordinary uses for these types of products THE KEEP WORDS ARE ORDINARY USES Defendant would win if sued for a product not being able to do unordinary things 0 ONLY CAN BE BROUGHT AGAINST MERCHANTS Implied Warranty of Fitness 0 Warranty of tness for a particular purpose is implied if 1 Seller has reason to know that the buyer needs a product for a particular purpose 2 Seller has reason to know that buyer is relying on the seller s skill orjudgment to select a product that is suitable for the buyer s purpose and 3 Buyer actually relies on the seller s skill orjudgment in purchasing the product 0 If suing a salesman for selling you something that does not t the particular purpose the company that they are working for will be held liable and be sued 0 CAN BE BROUGHT AGAINST ANY TYPE OF SELLERS MERCHANTS AND NONMERCHANTS Negngnce Ex Asking a neighbor for adhesive for a house project you are relying on them for theirjudgment and they know it is for a particular purpose and they give you something that would not work you can go back to their house and get your money back because they breached the implied warranty of tness 0 Product liability suits based on negligence allege that the manufacturer or seller of a product breached by a duty of care to the plaintiff by failing to eliminate a reasonably foreseeable risk of harm 1 Negligent manufacture of products including improper materials and packaging not the way it was supposed to be created 0 Ex McDonalds calls for coffee to be heated to 110 degrees One McDonalds actually heats it to 150 0 Ex Making a ladder of aluminum to make it light but the aluminum is too thin and the ladder collapses 2 Negligent inspection of products 0 The person who sold it did not use reasonable care to inspect it and if they had used it like a reasonable person would they would have found the problem that caused the injury 3 Negligent failure to provide adequate warnings on products 0 Adequate warnings that were not readily apparent on things like guns or knives etc 4 Negligent design of products Strict Liability Theories o PROFESSOR LEMPER WANTS US TO KNOW IF YOU ARE IN THE BUSINESS OF MAKING ANDOR SELLING PRODUCTS YOU ARE GOING TO BE STRICTLY LIABLE IF YOU SELL A DEFECTIVE PRODUCT 0 Liability without respect to fault is the core concept 0 Restatement Second of Torts A party is strictly liable for harm caused by its product if c 1 The party is engaged in the business of selling the product that harmed the plaintiff Le a merchant and o 2 The product was sold in a defective condition that made it unreasonably dangerous ie more dangerous than consumers would expect it to be Had difficulty differentiating between what products were reasonably dangerous or unreasonably dangerous 0 Restatement Third of Torts A party is strictly liable for harm caused by its product if 0 1 The party is engaged in the business of selling the product that harmed the plaintiff ie merchant and O 2 THE PRODUCT WAS SOLD IN A DEFECTIVE CONDITION 0 Took out the unreasonably dangerous portion Types of Product Defects 0 Manufacturing defects Product does not meet the manufacturer s own standards 0 Design defects Product s design poses an undue risk of harm when used as intended I quotFeasible alternativequot test Is there a feasible alternative design that would eliminate the risk posed by the product s design quotConsumer expectationquot test Is the product as safe as ordinary consumers would expect it to be 0 Inadequate warnings or instructions Product fails to warn consumers about unexpected or hidden dangers A way of holding the gun or possible back ring Who is strictly liable Merchant and Sells the Defective Product 0 All parties in the distribution chain for a product manufacturers distributors retailers can be held strictly liable for selling a defective product If the manufacturer sells a defective product to a distributor and the distributor sells it to retailers and the retailers sells it to customers Any or all of them could get sued If the customer sues the retailer they would sue the distributor and the distributor would sue the manufacturer 0 A party can avoid liability by showing that the defect occurred AFTER they distributed or sold the product ie the product was not defective when it left their possession 0 Anyone who is a foreseeable user of the product can sue NOT JUST THE PURCHASER Defenses to Product Liability Claims 0 1 Product misuse or modi cation Defense only against UNFORSEEN product misuse or modi cation Defense to warranty negligence and strict liability claims o 2 Assumption of Risk I Defense to warranty negligence and strict liability claims 0 3 Contributory Negligence You were negligent and as a result your own negligence contributed to your injury Defense or limit for negligence claims Courts disagree about whether it is a defense to warranty and strict liability claims Dif cult for him to test on Health Safety and Union Regulations Worker s Compensation 0 Applies to all but the smallest employers typically those with 3 employees or less 0 Worker s compensation only protects employees NOT INDEPENDENT CONTRACTORS Some state laws exempt certain categories of employees or employers o Worker s compensation laws allow injured employees to recover under strict liability Removes the need to prove employer fault and eliminates employer defenses eg assumption of risk contributory negngnce Must be within scope of employment You do not even have to prove that the employer was at fault o Worker s compensation is employees EXCLUSIVE REMEDY against employers for workrelated injuries Unless employer acted intentionally o If something is not under workers compensation the employee may sue the employer in court and have more risk of losing but more possibility to receive more money 0 Injured workers can still sue others who cause or contribute to their injuries Workers compensation would be your exclusive remedy against employer but you would still be able to sue another company if they sold you a defective product that you were using on the job 0 What injuries are covered in workers compensation 0 Employees recover only for WORKRELATED injuries that 1 Arise out of employment 0 Close relationship between the injury and the nature of the employment Employment increased the risk of injury Employment put employee in position to be injured because of their employment 2 Occur in the course of employment 0 lnjury occurred within time place and circumstances of employment 0 Within the quotscope of employmentquot 3 Intentionally selfin icted injuries are NOT covered 0 Occupational Safety and Health Act OSHA o The Occupational Safety amp Health Act requires employers to provide their employees with a workplace and jobs free from recognized hazards that may cause death or serious physical harm o Applies to ALL employers 0 OSHA creates and enforces workplace safety rules and regulations 0 OSHA Rules amp Enforcement 0 OSHA requires employers to train and protect employees especially for hazardous materials and equipment and to report workplace injuries 0 OSHA is authorized to inspect workplaces and issue citations to rms that violate the act and regulations Could be large sums of money or even jail time 0 Family amp Medical Leave Act FMLA o Applies to employers with 50 employees 0 FMLA covers workers who are employed at least 12 months and 1250 hours 0 What does FMLA provide 0 Eligible workers may take up to 12 weeks of unpaid leave during any 12month period for 1 Birth of a child or 2 Adoption of a child or 3 Need to care for a spouse child or parent with a serious health condition or I 4 Employee s own serious health condition 0 Upon return employee must be put in the same or equivalent position as before leave with same work status and bene ts 0 Employers who deny FMLA rights are civilly liable to the affected people and would be sued in civil court 0 Financial Protection 0 Social Security Federal social security system funded by the Federal Insurance Contributions Act FICA which taxes employee income and requires matching amounts by employers Applies to all employers Bene ts include o 1 Oldageretirement o 2 Survivor s bene ts 0 3 Disability bene ts 0 4 Medical bene ts Ex Medicare 0 Unemployment Compensation States administer unemployment compensation under federal guidelines Applies to all employers Funded by state and federal unemployment compensation taxes paid by employers Eligibility is based on employment for a speci ed period of time and earning a minimum amount of income A person is NOT eligible for bene ts if he or she 1 Quits voluntarily without good cause 2 Is red for bad conduct 3 Fails to seek suitable new work or 4 Refuses suitable new work 0 What is suitable for the particular employee 0 ERISA Employers often contribute voluntarily to employee pension plans Employee Retirement Income Security Act ERISA applies to all employers who choose to offer employee pension plans ERISA imposes Fiduciary duties on pension fund managers 0 Recordkeeping reporting and disclosure requirements Mandatory guarantees on funding and fairness in vesting and participation 0 Cannot selectively allow some but not others to participate in the plan Remedies for violations include civil suits by participants and bene ciaries equitable relief and criminal penalties 0 Fair Labor Standards Act FLSA Applies to all employers and unions Regulates wages and hours by entitling covered employees to 0 1 Speci ed minimum wage and c 2 TimeandahaIf rate for work exceeding 40 hours per week If an employee works more than 40 hours per week there is a presumption that they have to be paid timeandahalf their normal pay rate hourly workers Exemptions Executive administrative and professional personnel paid by annual salary Restricts child labor by employers engaged in interstate commerce by producing goods for such commerce 0 Under 14 Employment prohibited 0 Age 1415 Employment prohibited except when approved by the Department of Labor 0 Age 1617 Employment prohibited only in particularly hazardous occupations 0 National Labor Relations Act NLRA UNIONS AND COLLECTIVE BARGAINING Prohibits employers form 0 1 Interfering with employees rights to form join and assist labor unions 0 2 Interfering with the formation administration or nancing of a union 0 3 Discrimination against employees because of union membership 0 4 Discriminating against employees who le charges or give testimony against the employer for violating labor laws and 0 5 Refusing to bargain collectively with unions 0 Labor Management Relations Act LMRA IN FAVOR OF EMPLOYERS 1 Coercing employees to join unions 2 Forcing employers to discriminate against nonunion members 3 Requiring employees to pay excessive or discriminatory initiation fees or dues 4 Forcing employers to pay for work not actually performed quotfeatherbeddingquot 5 Conducting iega quotsecondary strikesquot against parties that do business with an employer and I 6 Refusing to bargain collectively with employers A state can provide more bene t or protection but not less The federal law sets a minimum or oor 0 Ex Federal minimum wage is 725 States can set it higher than this but not lower 0 Ex Federal statute says nobody under 14 years old can work States cannot make it a statute saying nobody under 12 can work but 12 13 and 14 year olds can work FEDERAL SUPREMACY Job Security and Privacy Employment Law 0 Employmentatwill Rule 0 Traditional quotatwill rule Either party can terminate an employment contract of inde nite duration for any or no reason 0 Does not apply to contracts for employment for a de nite period of time Means you cannot be terminated before the end of that time given you do not perform drastically to be released If you are there is a breach of contract 0 quotAtwill rule is limited today by exceptions 1 Statutory restrictions eg antidiscrimination laws 2 Public policy 3 Implied covenant of good faith and fair dealing 4 Employment promises o In states that recognize exceptions to traditional quotatwill rule a red employee may sue an employer for wrongful discharge or unjust dismissal Public Policy Exception 0 Many states recognize three kinds of public policy exceptions to quotemploymentatwillquot where an employee is red for 1 Refusing to commit an unlawful act basis for lawsuit 2 Performing a public obligation eg jury or military duty whistleblowing 3 Exercising a legal right or privilege eg worker s compensation Basis for suing employee under particular law for violating its provisions but also a claim for wrongful discharge in violation of public policy 0 Whistleblowing o A whistleblower is an employee who publicly discloses dangerous illegal or improper behavior by an employer 0 In Dunn v Enterprise RentACar an employee sued for wrongful discharge claiming he was red for whistleblowing Breach of Good Faith amp Fair Dealing Some states recognize a duty of good faith and fair dealing in employment Prohibits ring in bad faith or that amounts to unfair dealing Very subjective area where law is evolving Ex Lying to an employee for the reason they are being red even if the real reason is not violating a law 0 Breach of Promise O O Courts increasingly nd employers liable for breaking promises made to employees before or during employment Employer who breaks a promise to an employee may be liable for breach of contract Promissory Estoppel employees relying on the promise Cisco v King Employee manuals my establish terms of employment contract Breach of employment contract 0 Employee Privacy 0 O Employers interests in surveillance of the workplace may con ict with employee private interests Unless otherwise speci ed the US Constitution does not apply to private employers Public employees will have more protection than private employees Federal privacy laws typically apply only to federal employees State law covers private sector workers 0 Employee Polygraph Protection Act 0 Applies to private employers and current or prospective employees 0 Prohibits employers from 1 Requiring suggesting requesting or causing employees or prospective employees to take lie detector tests 2 Using accepting referring to or inquiring about the results of lie detector tests andor 3 Discriminating or threatening to discriminate against employees or prospective employees because of the results of lie detector tests or their refusal to take a lie detector test 0 Some employers are exempt Government Nonpro t organizations Private rms with securityrelated interests 0 Ex Hiring a security guard or someone to deliver high amounts of cash in armored trucks Private rms investigating economic loss Drug and Alcohol Testing 0 Generally employees have no protection against private employers who require drug and alcohol tests 0 Testing by public or government employers is legal under the Fourth Amendment if Reasonable basis for suspecting employee drug or alcohol use on the job exists Drug or alcohol use threatens public interest or safety Records and References 0 Most states allow employees to access their personnel les but limit access by third parties 0 Employers who give such information to third parties such as in a reference letter may be liable for civil claims of defamation or invasion of privacy Employer Searches 0 Generally searches by private employers are permissible o A public employee has a reasonable expectation of privacy in areas such as hisher office desk or les but a search of those areas is constitutional if it is reasonable under the circumstances Your area can still be searched and be constitutional to do so if the search is reasonable Requires balancing employee s privacy expectations against government s need to control the workplace o If an employee does not have an expectation of privacy then the fourth amendment is not applied You are not going to be protected Employer Monitoring 0 Employers can monitor workplace by video telephone computer workstation television and metal detectors to make sure employees are not performing bad conduct on employee property or stealing 0 Many rms notify employees that email voicemail Internet use and other activities are subject to monitoring Employee impliedly consents if he or she remains working there Employer Liability for Searches and Monitoring 0 Employers who conduct unreasonable searches or monitoring may be sued for invasion of privacy where 1 Employee has a reasonable expectation of privacy and 2 Employer search or monitoring is unreasonable or serves no legitimate business interest it is not justi ed o EMPLOYEES MUST BAVE A REASONABLE EXPECTATION OF PRIVACY Equal Pay Act and Title VII 0 Equal Pay Act EPA O O O O Applies to all employers and all employees including executive administrative and professional employees Requires equal paycompensationbene ts etc for men and women who engage in quotsubstantially equal workquot 1 Equal effort 2 Equal skill 3 Equal responsibility 4 Same or similar working conditions 0 Women were being undercompensated o Applies EQUALLY to both men and women 0 Ex Male is getting paid less as elementary school teacher Female getting paid less as doctor 0 Deals only with COMPENSATION Defenses Proof that differences in compensation is result of 1 Bona de seniority system or 2 Bona de merit system or 3 Quality or quantity of production Ex piece work or 0 Maybe a male or female makes more product an hour or better product 4 Any factor other than gender quotBona dequot Facially neutral and not discriminatory in purpose or in practice Enforced by the Equal Employment Opportunity Commission EEOC Employees do NOT need to le with the EEOC before bringing a lawsuit EQUAL PAY ACT HAS BEEN MOSTLY SUPERSEDED BY THE TITLE VII ACT 0 Title VII of 1964 Civil Rights Act 0 O O Applies to employers with 15 employees Prohibits discrimination based on race color religion gender or ethnicity national origin Applies to ALL employment decisions Ex hiring ring pay bene ts job assignment promotion training etc EPA DEALS ONLY WITH COMPENSATION WHILE TITLE VII DEALS WITH ALL DEICISIONS 0 Laws have limitations on amounts of employees to satisfy those who just hire people for smaller jobs and feel that they should be able to use own judgment when making these hires 0Title VII Procedure 0 Plaintiffs former tobe or current employees must le a complaint with the EEOC and allow agency to le a lawsuit or obtain resolution 0 If EEOC fails to le suit or resolve the claim in 6 months the plaintiff may obtain a quotright to use letter and le a civil lawsuit 0 Remedies may include compensatory damages reasonable attorney s fees and equitable relief Proving Discrimination Under Title VII 0 Discrimination is reducing the employment opportunities for a person in a protected class Some discrimination occurs daily such as obesity being ugly etc that is not against the law HOMOSEXUALITY is not covered under Title VII but it does not mean the employer will not get in trouble possible state or federal laws 0 Plaintiff must prove discrimination by direct or indirect circumstantial evidence Direct evidence is the easiest form to prove but it is the hardest to get 0 Example of direct evidence An employer saying we do not hire black people 0 Very rare because people lie oTwo methods to prove discrimination by INDIRECT evidence 1 Disparate treatment or 2 Disparate impact Disparate Treatment 0 Plaintiff must show they were treated differently because of race color gender religion or ethnicity o Prima facie case 1 Plaintiff applied and was quali ed 2 Plaintiff is a member of the protected class and 0 Showing you are a member of the racial group that the employer is discriminating against 0 Ex You say they are not hiring Latinos but you are white you will lose You have to say they are not hiring Latinos and prove you are a Latino I 3 Employer rejected plaintiff and kept looking Ex I applied am quali ed and am black You rejected me and kept looking Raises the question of disparate mistreatment o If this happens the burden shifts to employer to show non discriminatory reason for decision because the employee does not have much proof Two bene ts 0 1 Uncovering criteria 2 There may be employers actually making decision on merit and not realizing that there decisions are being biased by their own thoughts 0 MAKES EMPLOYERS BE MUCH MORE SUBJECTIVE AND CONCERNED ABOUT COMPLYING WITH THE LAW 0 Once the employer has identi ed the criteria they claimed to use against not hiring them the plaintiff has the chance to attack that criteria and give examples o If the criteria for not hiring them is uncovered the plaintiff must prove that the employer s reason is a mere pretext for discrimination o Plaintiffs will come up with aggregate evidence by nding proof through other hiring examples and trends of not hiring a certain way 0Disparate Impact 0 Disparate impact occurs if employer has a rule or practice that is nondiscriminatory on its face but the impact of the rule or practice is to disproportionately exclude people in a protected class 0 Plaintiff must show that employment rule or practice has a disparate impact on a protected group of which plaintiff is a member Ex Saying you must have played high school hockey to get hired 98 of people who played hockey have been white so basically all but possible people to be hired are white Suggest possibility that employer made rule in order to exclude a particular ethnic group or race etc o Burden then shifts to employer must show that the rule or practice is 1 Jobrelated for the position and 2 Consistent with business necessity to operate and succeed o If so plaintiff can still win by showing that a less discriminatory rule or practice is available as an effective alternative but employer refuses to adopt it Employer Defenses Under Title VII 0 Bona de seniority system Downside is that seniority is not a great way to make business decisions because seniority may not have much to do with job performance There are worse things than having legal risk 0 Bona de merit system quality quantity etc Ex Sales jobs where whoever sells the most Ex Professional sports Who performs the best 0 Disparate Treatment Bona de occupational quali cation BFOQ 1 Reasonably necessary for effective job performance and 2 Reasonably necessary for business 0 Ex Needing to be a woman to be a certain type of nurse and not hiring a male because he was not a woman 0BFOQ is intended to be a narrow rare category 0 Do not want many exceptions 0 Race and color are NEVER a BFOQ You could segregate prisoners if you were afraid of a race riot 0Gender IS a BFOQ when we are talking about things like PIayBoy Hooters etc 0 Business based on erotic photographs or services to men so it is essential for business to hire only women as models for magazines oYou CAN refuse to hire people because they are ugly or fat 0 They look at what is the core business and what is necessary to be successful Title VII Part2 Equal Opportunity Legislation 0 1 RaceColor o Prohibits racial and color discrimination No differences between races and color of skin Either one is prohibited Useful for people who are biracial 0 Exception for racial preferences that sometimes called Af rmative Action 1 Are intended to correct racial imbalance involving under representation of minorities in traditionally segregated job categories a particularjob and industry m 2 Don t quotunnecessarily trammelquot the rights of others to create a bar to their advancement 0 Barring advancement hiring ONLY blacks and NOBODY ELSE until they represent the amount of population Dif cult to test on because quotbarring the advancement of othersquot is based on what that particularjudge thinks Judges are skeptical when businesses decide a set number of spots for racial hires They do not like the arbitrarily picking of a number of spots reserved 3 Are only temporary A xed period of time or a set goal Ex 30 are African American 0 You may still have a claim if you are PERCEIVED to be a part of a racial group even if you are not Covers all races and covers direct and anything that could be said to be identi able to a particular race 0 2 SexGender 0 Includes gender stereotyping pregnancy childbirth harassment and favoritism or sexual favoritism but NOT SEXUAL ORIENTATION Some companies have adopted employment policies that say they will not re people based on their sexual orientation and there are some state laws but Title VII does not cover it o Protects both women AND men o Exception for gender preferences that 1 Are intended to correct a gender imbalance involving underrepresentation of one gender in certain job categories 2 Don t quotunnecessarily trammelquot the rights of the opposite gender or create a bar to their advancement m 3 Are only temporary THESE THREE ARE THE SAME AS RACECOLOR EXCEPTIONS o Two major categories of sexual harassment prohibited by Title VII 1 Quid pro quo quotthis for thatquot When an aspect of a job is made contingent on an employee s sexual activity 0 Ex Must have sex with boss in order to get job 2 Hostile work environment When sexual harassment is so severe or pervasive that it creates a hostile and abusive work environment could be very severe and happens only a few times or could be less severe but has happened over a long period of time oA REASONABLE person would have to nd it severe or pervasive 0 Must be unwelcome o Coworker Harassment Employer is liable if it knew or had reason to know of the harassment If did not know or had no reason to know the company is not liable This is why it is important for employees to report sexual harassment oSupervisor Harassment Company s liability are MUCH HIGHER 1 If there is a tangible job detriment including an of cial act leading to constructive discharge leading the employee to quit the employer is strictly liable oEx Some of cial act like cutting pay or being demoted something that affects your employee status The employee CAN QUIT AND STILL SUE 2 If there is NO tangible job detriment including no of cial act leading to constructive discharge the employer is liable unless it can show called the Ellerth Defense o1 Employer exercised reasonable care to prevent or correct harassment and o2 Employee unreasonably failed to take advantage of opportunities to correct or prevent harassment o Ex A reporting system or a person responsible for taking complaints and investigating and the employee did not take advantage of it o If the person who you report to is the one doing the supervising then the company cannot avoid liability because it would be unreasonable for the employee to report to the supervisor who is doing the harassing o If you try to sue because of sexual harassment under Title VII you do not sue the coworker you sue the employer 3 Religion o Protects traditional religious views and moral beliefs sincerely held with the same strength including atheism Even protects if someone creates their own religion and believes in it with the same strength as people follow their religions o Covers beliefs observances and practices Ex Having a Holy Day on a Wednesday instead of a Sunday o Requires quotreasonable accommodationquot of religious beliefs practices or observances UNLESS it would cause the employer quotundue hardshipquot ie more than a minimal burden o4 National Origin Ethnicity o Prohibits discrimination based on 1 Employee s origin or ancestry or 2 Physical cultural or linguistic characteristics of particular nations or ethnic groups Ex Facial hair because of culture or having an accent AD EA amp ADA 0 Age Discrimination in Employment Act 0 Applies to employers with 20 employees 0 Protects workers 40 years of age 0 Does not apply where employers favor older workers even if younger workers are age 40 If an employer favors 50 workers instead of 40 workers they do not have a claim 0 Workers must le a complaint with the EEOC before being able to sue 0 Covers both agebased rules as well as rules that have a quotdisparate impactquot on workers age 40 0 DEFENSES 1 BFOQ Age is correlated to safety 0 Ex Airlines would not hire pilots over 50 years ofage 0 Must be concrete evidence for rules like these 2 Bona de seniority system 3 Any factor other than age 0 Americans with Disabilities Act 0 Applies to employers with 15 employees 0 De nes disability as 1 A physical or mental impairment that substantially limits an individual in a quotmajor life activityquot or 0 quotMajor life activitiesquot include but are not limited to caring for oneself performing manual tasks seeing hearing eating sleeping walking standing lifting bending speaking breathing learning reading concentrating thinking communicating and working 0 quotMajor life activitiesquot includes quotmajor bodily functionsquot including but not limited to immune system digestive bowel bladder neurological brain respiratory circulatory endocrine and reproductive functions 2 Having a record of such an impairment or o If they have a record they are considered as disabled 3 Being regarded as having such an impairment 0 If they are regarded as disabled then they will be considered as disabled in order to avoid discrimination o Prohibits discrimination against guali ed individuals with disabilities An individual is qualified if they can perform the job with a quotreasonable accommodationquot 0 Requires employers to make quotreasonable accommodationquot of an employee s disability unless it would cause the employer an quotundue hardshipquot signi cant difficulty or expense Not the different standard of quotundue hardshipquot for accommodating religion under Title VII more than a minimal burden and accommodating disabilities under the ADA signi cant dif culty or expense 0 Religion beliefs employers do not have to do anything more than something of MINIMAL BURDEN o ADA employers have to do something unless it is SIGNIFICANTLY DIFFICULT 0 An employer can avoid liability by showing that the employer s decision was based on a rule or criteria that are 1 jobrelated and 2 consistent with business necessity quotdisparate impactquot type defense But the employer must show that the employee cannot satisfy the rule or criteria EVEN WITH REASONABLE ACCOMODATION If the employee can satisfy the rule they cannot be excluded Not developed with a discriminatory purpose must be necessary for employees to perform the job and for the business to be operating the way it should be Genetic Information Nondiscrimination Act 0 Prohibits employment discrimination on the basis of an individual s genetic information and prohibits employers from requesting collecting or purchasing genetic information 0 According to the de nitions in the statute quotgenetic informationquot includes results of genetic tests on an employee or the employee s family members as well as the manifestation of a genetic disease or disorder in an employee s family members 0 Does not include information about an employee s age or sex Immigration Reform and Control Act 0 Prohibits employers with four or more employees from refusing to hire or terminating an employee on the basis of national origin or citizenship o This prohibition overlaps with Title VII however a complainant cannot pursue claims under both statutes Mandate applies only to US citizens and Iegalimmigrants o Prohibits employers from knowingly hiring or recruiting unauthorized immigrants To aid in this process employers are required to verify the identity and employment eligibility of every employee through birth certificates and federal l9 forms Uniformed Services Employment and Reemployment Rights Act Prohibits employers of any number of employees or size from discriminating against members of the uniformed military service including reservists and members of the National Guard 0 Grants such employees the right of reemployment following an absence from the workplace for military service for up to ve years 0 As long as the employee provides the employer advance written or oral notice of the leave receives an honorable discharge and makes a timey request for reemployment the employer must reinstate the employee to his rightful position upon his return 0 Under the quotescalator principlequot a returning service member s rightful position is the job that he would have attained had he not been absent for military service with the same seniority status and pay and other rights and bene ts determined by seniority o Incorporates any routine promotions and pay raises the employee would have gotten Defenses o 1 Change in circumstances that renders reemployment quotunreasonable or impossiblequot or Ex Business closed or the position has been completely eliminated o 2 Retraining or accommodating a disabled veteran would impose an quotundue hardshipquot or o 3 The original position carried no expectation of continued employment Ex Seasonal employment or projectbased employment State Antidiscrimination Laws 0 Most states have statutes that parallel Title VII the EPA the ADEA and the ADA 0 Sometimes provide more extensive protection 0 Some states prohibit forms of discrimination not barred by federal law 0 Ex Discrimination based on sexual orientation or political affiliation Retaliation Most of the employment laws described speci cally prohibit employers from retaliating Courts have interpreted laws that do not explicitly contain anti retaliation provisions to include implied antiretaliation protections on the theory that Congress must have intended to protect individuals from retaliation because it is vital to proper enforcement of the law 0 To be protected against retaliation an employee need only have a good faith belief in his claim that the employer violated the law 0 Thus a manager should tread carefully in taking any arguably negative action against an employee who alleges a violation of employment laws regardless of how feeble the manager believes the complaint to be
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