1. Rights of Third Parties a. Basic Rule: third parties do not have any rights b. 2 Exceptions to the rule i.

If you have a third party beneficiary 1. Lets assume that Britt owns a GMC dealership and Spoon enters into contract agreeing to pay Britt $45,000 if Britt will deliver a 2007 GMC Yukon to Jennifer. The contract is between Spoon and Britt. Spoon is called the promisee, Britt is the promisor, and Jennifer is the third party beneficiary. GM Motors will be the incidental third party beneficiary.2 reasons that Spoon would do this a. Attempting to arrange a gift to third person if so, Jennifer is a donee intended third party beneficiary b. Lets assume that Spoon owes Jennifer $50,000 and it is payable immediately. Spoon knows that Jennifer has been looking at particular Yukon and it is 55,000. Britt and Spoon are long time friends, so Britt agrees to sell Spoon the Yukon for 45,000. He contacts Jennifer and says that he will send her the Yukon in satisfaction of the debt. Jennifer is the creditor intended third party beneficiary. 2. 2 Types of third party beneficiaries a. intended third party beneficiary you intend to benefit themin the example above, Jennifer is the intended third party beneficiary. They have rights. b. incidental third party beneficiary in the example above, GM Motors is the incidental third party beneficiary. They do not have any rights. 3. The third partys interest will vest when they learn of the arrangement and they agree to accept the benefits. 4. The Rights of the Third Party Beneficiary vs. Promisor a. Lets assume that Britt refuses to deliver the Yukon to Jennifer and Jennifer sues. The third party rights are derivative; they are no better than or no worse than the rights of the promisee. Any defense the promisor can raise in a suit brought by the promisee, the promisor can raise in a suit brought by the third party. = If Jennifer is suing Britt, Jennifers rights are derivative-no better than Spoons rights. IF Spoon had used duress to get Britt to agree, then Britt can raise suit against Jennifer of duress. Essentially, Spoon and Jennifer have the same. b. Donee intended third party beneficiary cannot sue Spoon which is the promisee. IF Jennifer was a creditor, and Spoon owes Jennifer money. Jennifer decides to accept Yukon as payment. Up until the

moment of delivery of the Yukon, Jennifer can still sue Spoon for original debt 5. Promisee v. Promisor a. Spoon can sue Britt, Jennifer can sue Britt. If Spoon calls Britt and ask to back out of contract, she can say yes so the Yukon will not be delivered. Jennifer sues Britt for not delivering the Yukon. Jennifer will lose b/c her rights are derivative.

Agency Law
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Agency = Fiduciary relationship (closer than a contractual relationship, absolute undivided loyalty) which results from the manifestation of consent by one person to act on behalf of another 2 Parties involved are the (1) Principal (2) Agent

EXAMPLES --Clerk at Wal-Mart (agent) works on behalf of the Wal-Mart Corporation (Principal) --Attorney/Client Relationship --Teacher at CU to CU
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Does consideration matter when it comes to duties of the Agent and Principal? No, same rules apply whether consideration is present or not

Types of Relationships for Agent and Principal

(1)

Master-Server Relationship Principal can be sued If Principal can tell the Agent what to do and how to do it (2) Independent Contractor Can not sue Principal Principal can tell Agent what to do, but not how to do it

EXAMPLES --Tyler contracts a Builder to build a house for the price of $175,000 ; if the builder commits a negligent tort harming a 3rd Party, can a suit be brought against Tyler (principal) as well as Builder (agent)? NO, on basis of Independent Contractor --Clerk at Wal-Mart trips a customer, can suit be brought against the Clerk (Agent) as well as Wal-Mart (principal)? YES, on the basis of Master-Server Relationship Theory of Law allowing 3rd Party to bring suit against Principal : Respondeat Superior --Policy Reasons: (1) Principal is in better position to spread the risk of laws; for example, WalMart could increase prices in order to cover a loss in a law suit (2) Encourage the proper selection and training of employees

What do you need to have an Agency Relationship??

(1)

Capacity: the Principal must have Capacity; an individual or Incorporation can serve as a Principal the Agent does not need to have contractual capacity

--Agent Disqualifications: 1) Agent represents both sides in dispute only if conflict is explained can both sides agree EX = Husband & Wife use the same lawyer in divorce procedure when circumstances are explained by the lawyer and he lets them know that he can not serve both of their best interest in representing them both 2) Agent takes secret profit/bribe 3) If law requires license
(2) (3)

Do NOT need consideration Do NOT need writing

Different Types of Authority

(1) A)

Actual : whatever you reasonably believe that you can do Expressed: any authority communicated directly to the Agent

EXAMPLES --W owns Apartment Complex and hires Leslie as Manager; W tells Leslie she has the right to Lease and collect Rent, those are her Expressed rights --W owns Lot 125 & 126, W wants Leslie to sell 125 but by mistake he tells her to sell 126; her Expressed right is to sell 126, mistake does not take away Expressed rights
B)

Implied: Rights assumed by position given

EXAMPLES --Apartment Manager Leslie assumes she has the Implied rights to contract maintenance bargains --Incidental to the Agents Expressed Rights --Custom in the Industry --Acquiescence never being objected to Ministerial Act = little or no judgement involved --W owns a large Shoe Store, hires Adam as Manager; one act of Adam is taking InventoryCould Adam assume W gave him the right to hire workers to take inventory? Adam could hire because it is a Ministerial ActCould Adam delegate duties for a mult-million advertisement campaign? NO Impossibility --I employ W to build a 20 story building It is a reasonable assumption for W to hire workers to assist in his building because it would be impossible for him to do it himself Authority to Purchase --W ask me to purchase a boat on his behalf Expressed = enter into a contract

for boat Implied = payment for boat, accept delivery Authority to Sell --W aks me to sell a boat on his behalf Expressed = enter into contract Implied = accept payment (not implied to accept personal check), deliver boat
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1.
2. 3.

4. 5.
(2)

How Do You Terminate Actual Authority? Lapse of Time Happening of an Event : agree to work until Cubs win the Series, win the Cubs win the agreement is terminated Change in Circumstances : Jill employs W to sell her boat, the boat sinks authority terminates Breach by the Agent of his fiduciary duties Principal has right to take away Authority of Agent; Agent has right to give up authority Apparent Authority: Principal is holding out to a 3rd person that someone can act on their behalf

EXAMPLE --Holiday Inn in Dunn hire Bill Smith as a Night Clerk from 11:00-7:00, terms of the contract state that Smith is entitled to a break from 3:00-3:30 --During Smiths break, Shane comes in and nobody is working a the desk, so Shane goes behind the desk --a guest comes in the lobby and sees Shane behind the desk and thinks he is the clerk, so she leaves $50,000 worth of jewelry for the Holiday Inn safe --Holiday Inn is liable; the company was negligent EXAMPLE = Lingering Apparent Authority --Lee was Office Manager for XYZ Inc. for 30 years, he was fired --While he was Office Manager he had the Authority to buy things of credit from ABC --after Lee is fired, he goes to ABC and buys 10 laptops on credit --Is XYZ liable for payment of Lees purchase?? --Depends on if XYZ gave ABC proper notice of Lees termination of his job and authority --What is Proper Notice?? (1) Actual any company who ever gave XYZ any credit is entitled to it, means XYZ has to either call or write ABC and notify them of Lees status (2) Constructive Lee goes to Alaska after XYZ fired him, and charges a laptop to XYZ from a purchase made in Alaska from NMF not entitled to Actual notice, but they are entitled to constructive notice = XYZ could run an add in a paperthat said Lee was no longer an employee of XYZ, this would serve as constructive notice to NMF and they would not be able to collect
(3)

Inherent Authority: Agent is disobeying the direction of the Principal, and the Principal is still bound despite the Agents disobeying

EXAMPLE --Avery wants to have a party, she wants to have a band at her party, so she hires W to find a band --Avery tells W not to hire a band for over $500; however, W hires a band for $5000 --Avery is still liable to pay the band $5000 because she is the one hired W under her own decision and will EXAMPLE --Tyler needs a watch, so he asks W to borrow his and W lets him --Tyler sells the watch to me, Is W allowed to get watch back from me? YES --Tylers possession does not give him the right to sell --Tyler needs to borrow a car from W, so W allows him to borrow and signs over the Title to Tyler --Tyler sells the car to me, W can not get the car back from me because there was a transfer of Title --W takes his watch to a Jeweler to get it cleaned, and the Jeweler accidentally sells Ws watch to me --Jeweler is a Dealer of Goods, so W can not get his watch back under the UCC

Ratification

--Situation = W and Tyler pass Alberts car, and W makes the comment that he likes this car and wishes he had it; Tyler lies and says the he is Alberts agent (which he is not) and offers to sell the car to WAlbert is not bound, but could ratify the contract Ratify = choosing to be bound by the contract Adoption --3 people want to begin XYZ Inc., they need a tract of land --1 of the people find a tract of land and purchases it before XYZ Inc. is formed --XYZ Inc. is not bound by the contract, but they could choose to adopt the contract --Difference from ratification is that he Principal was not yet formed

Disclosed Principal = 3rd party is aware that they are dealing with an Agent and the
3rd Party knows the identity of the principal EXAMPLE --I work for XYZ, and on behalf of XYZ I contract to sell 100,000 calculators to W for $1 m --there is a Breach of Contract by XYZ --W has the right to sue XYZ, not the right to sue me --3rd Party only has the right to bring suit against the Principal

Partially Disclosed Principal = 3rd Party aware they are dealing with an Agent but
does not know who the Principal is

 Undisclosed Principal = 3rd party not even aware that they are dealing with an Agent
EXAMPLE --For both of these, you have the choice to sue either the Agent or the Principal but not both --there is a breach of contract, 3rd party sued the Agent before they obtain knowledge of the Principal --3rd party wins judgement against Agent and collectsit is too late to sue because compensation has been given --3rd party wins judgement against Agent and does not yet collectit is still possible to sue the Principal if the 3rd party learned the identity of the Principal after suing the Agent --if the 3rd Party finds the identity out of the Principal before he brings suit, then you can not sue the Agent and then sue the Principal --I am an employee of Tyson Chicken, W is a Chicken Farmer --Me, as an Agent of Tyson Chicken, enters into a contract with W to sell baby chicks to him for him to raise 20,000 baby chickens for $40,000 --I owe W $5000 for something unrelated to this contract --W is under an Undisclosed Principal situation, he is under the impression that he is in a contract with me not Tyson Chicken --Tyson Chicken sends W a bill for $40,000; since W did not know he was in contract with Tyson, then he is allowed to deduct $5000 (what I owed him, the Agents debt) from the bill he owes Tyson Who has the right to sue the 3rd Party? --only the Principal has the right to sue the 3rd Party
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Duty of the Agent to the Principal

1. Most Important -- undivided, complete loyalty 2. obedience 3. duty to use reasonable care, Basic Standard of Care = an average, ordinary, reasonable, prudent person with an exception : if you have a special skill or if you claim you have a special skill then you will be held to a higher standard of care

Duty of the Principal to the Agent

1. Compensate the Agent 2. Reimburse the Agent covers expenses of travel and things of the sort, also will cover law suits brought against the Agent in situations of Undisclosed Principals and Partially Disclosed Principals

Tort Liability of the Principal

--the Agent commits a Tort, is the Principal liable??? Respondeat Superior = Theory which allows a 3rd Party to bring suit against the Principal Must Have a:

Master-Server relationship : Court will look at many factors to determine the type of relationship: (a) if person owns his own business he is more likely to be a Independent Contractor (b) the higher of the degree of skill required, the more likely the person is to be an Independent Contractor (c) if the worker supplies his own tools, it is more likely that he is a Independent Contractor (d) if the worker is paid by the job compared to buy the hour, then it is more likely he is a Independent Contractor (e) if the contract provides one way or the other, then the contract will determine the relationship 2) Tort must be committed within the Scope of Employment: the Agent must be doing the work of the Principal when the Tort is committed a Principal can not be sued if the Agent is not working in conjunction with the a job for the Principal
1)

EXAMPLE --Avery graduates and gets a job with Marida Bread as a driver based in Lillington --a Bakery wants bread in Dunn, her specific job is to drive back and forth from Lillington and Dunn everyday her boss specifies that Avery must stay on 421 when delivering the bread --if Avery causes an accident while driving the Marida Bread truck on 421, then the Principal is not responsible --if Avery is in Erwin, 1 mile from 421, only a minor deviation of the Principals instructions, then the 3rd Party could still sue Marida --if Avery were in California and caused an accident then the 3rd Party could sue Marida

Cases where a 3rd Party could sue a Principal in an Independent Contractor situation

--Campbell decides to tear down D. Rich, so they hire a Dynamite Company --the Dynamite Company designed to implode the building, but since the charges were set in a negligent manner the building exploded --when the building exploded it hit a 3rd Party in the head --3rd Party could sue Campbell Exception: if the work to be performed is inherently dangerous then the Principal is liable --Mostashari employed as a Indpendent Contractor to clean my Convient Store --Mostashari accidently trips a customer and seriously injures the 3rd Party --Under normal circumstances, 3rd Party could not sue however, if I knew Mostashari had previously done the same thing, then I could be sued Exception: if you knowingly employ an incompetent Independent Contractor

A 3rd Party can not sue the Principal for a Intentional Tort committed by the Agent

--Clerk at the ShortStop has had a long day and Leslie comes in and begins complaining about everything --Clerk shoots Leslie --Leslie could not sue ShortStop --Exception: if the Clerk had a history of shooting customers, then ShortStop is liable --Avery is the bouncer of the bar --I had too much to drink, and Avery picks me up and throws me through a window and I break my arm --Exception: I could sue the bar (Principal) because the nature of the job itself involves the use of an Intentional Tort

Employee Benefit Plan

ERISA (Employee Retirement Income Security Act) most important legislation --Statutory Legislation = any plan established for employees of one or more employers to provide for employees their families or dependents medical care, disability benefits, retirement benefits, annuity benefits, or healthcare services which meet statutory requirements Types of Plans: (1) Self Administered Plan: the employer provides the funds and administers the plan without the benefit of an insurance company or trustee (2) Insurance Plan: employer purchase life insurance or annuity contracts (3) Trusteed Plan: the employer contributes funds to a trustee (a large bank trust department) and the trustee will invest the funds and eventually pay out benefits (4) Split Fund Plan: trustee in part will invest in stocks and bonds and take part of the funds and purchase insurance (5) Non-Contributory: only the employer makes contributions (6) Contributory: both the employer and the employee makes contributions (7) Negotiated Plan: Union negotiates the plan with a number of employers, the employee is a member of a union benefits can transfer as long as you stay in the industry and in the Union (8) Qualified Plan: you have met all of the requirements of ERISA most important requirement to be qualified is that the plan be nondiscriminatory towards highly paid officials, executives, or stock holders --benefits/consequences of Plan being Qualified = (1) when the company makes contributions to the plan, the company can take an income tax deduction for the contribution (2) once the funds are in the plan, they accumulate income tax deferred (3) the plan benefits are taxed only as they are paid out EXAMPLE Qualified Plan --Bill Smith is an employee at my Company

--Comparing $2000 dollar raise or $2000 contributed to my Retirement Plan --$2000 Raise = of that raise, Bill Smith will have a net of $1200 after taxes for him to invest for his own retirement; Smith puts his money in a 7% CD but net after tax is 4% ----- RULE OF 72 = rate of return divided by 72 tells how long it takes for your money to double, for Bill Smith would have double the amount in 18 years which is $2400 and $4800 after 36 years --$2000 Contribution = does not have to be contributed on Bill Smiths personal income taxes, so the trustee has the full $2000 to invest with a 12% rate of return in the stock market as a net ----- RULE Of 72 = Bill Smith will have $16,000 after 18 years and $128,000 after year 36 Why do companies set up Employee Benefit Plans?? (1) To provide for employees who become incapacitated (2) To provide a pension income (3) To allow the employee to share in the profits (4) To enable employees to become part owners (5) To reward employees for distinctive service (6) To encourage creativity (7) To reduce turnover and to attract employees (8) To encourage thrift and economy on the part of employees Types of Employee Benefit Plans 1. Pension Plan (Defined Benefit Plan): EXAMPLE = provide 80% of their average income over the last 5 years of their employment; to have a fully funded plan, how much does the employer need to contribute in order to have the money when retirement comes around, need an actuary to help you calculate based on certain factors --- factors the actuary would consider are (a) the ages of the employees (b) the sex of the employees (c) what is the historical turnover rate (d) the anticipated death rate (e) anticipated rate of return by the trust department --Pension Plan can be Integrated or Non-integrated = is the plan integrated with Social Security Benefits?? EXAMPLE = Drews average income is 100,000 over the last 5 years so he is entitled $80,000 from the company and he is entitled to $22,000 in Social Security ---- if it is Integrated the company only has to pay $58,000, and if it is not, Drew is entitled to the full amount 2. Profit Sharing Plan: no profit, no contribution --Why do companies set up a Profit Sharing Plan (Motivation)?? 1) increase productivity from the employees 2) make the employees feel that they have a real stake in the company 3)

Who is entitled to participate in the Employee Benefit Plan (Profit Sharing)? EXAMPLE --Take McDonalds, you have the Core Management Group and a countless number of workers --I work there one day, and generate 25 cents of profit towards my plan

--Can the company require you to work there before you begin participating in the Employee Benefit Plan?? YES --Core Management Group will state that you must work at McDonalds for 10 years before you can participate in the Plan = most of the benefits if not all would go to Management; can not do this because it is discriminatory --the limit is 1 year that a company can make you work --When you leave after that limit, do you lose your benefits?? If the employee makes contributions, they can not lose what they contributed. The employers contribution will be based on a VESTING schedule to set up percentages of the amount you can receive of your plan 3. ESOP (Employee Stock Ownership Plan): 2 Types (1) Stock Bonus Plan: company gives stock to employees (2) Stock Purchase Plan: company gives a discount to employees in order to them to buy stock 4. Roth IRA = no income tax deduction up front, however, but the income accumulates within the Roth IRA income tax FREE ------ no deduction in the accumulation