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Chapter 5

Employer-Employee Law

The Fair Labor Standards Act = wages and hours.

The National Labor Relations Act = collective bargaining (i.e., unions) activities.
The Taft-Hartley Act = labor relations.
The ADA prohibits discrimination; it does not govern wages and hours.

Subrogation is the right a surety has by which he succeeds to the creditor's rights against the principal
when the surety pays the principal's obligations.
Exoneration is the right a surety has against the debtor to force the solvent debtor to pay a debt when the
debtor refuses to do so.
Contribution is a right one surety has against his co-sureties to force them to pay their share of the debt.
Attachment is not a right of suretyship, but rather is a remedy imposed against property of someone who
owes a creditor money.

Some contracts have to be in writing because they can easily be denied by the other party in contempt of
the contract. An example is the "Promises to pay debts barred by Statute of Limitations", which states
that "a promise to pay a debt barred by the statute of limitation is enforceable if it is in writing, but to the
extent of the writing". There are six contracts that require some type of writing to be enforceable. Both
parties on these contracts need not sign the writing, but only the party to be charged (i.e. party trying to
avoid the contract) must sign.

The six contracts are: “MYLEGS”

1) Contracts where the consideration is marriage

2) Contracts which by their terms cannot be performed within one year
3) Contracts involving interest in land
4) Contracts by executors or similar representatives to pay estate debts out of personal funds.
5) Contracts for sale of goods for $500 or more, AND
6) Contracts to act as surety (i.e. to pay the debts of another)

When the statute of frauds is involved, contract law requires that the contract be in writing. The six major
contracts that must be in writing are marriage, contracts that will take more than one year to complete,
anything involving interests in land, contracts by executors, sales of goods for $500 or more, and to act as
a surety.

Some contracts have to be in writing as an act of law. Many contracts that are only oral should be put in
writing so that all parties are protected and all parties are completely clear on the terms.

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Chapter 6

Subrogation is the right a surety has by which he succeeds to the creditor's rights against the principal
when the surety pays the principal's obligations.
Exoneration is the right a surety has against the debtor to force the solvent debtor to pay a debt when the
debtor refuses to do so.
Contribution is a right one surety has against his co-sureties to force them to pay their share of the debt.
Attachment is not a right of suretyship, but rather is a remedy imposed against property of someone who
owes a creditor money.

To be negotiable, an instrument must:

1. Be in Writing
2. Signed by the maker (note) or drawer (draft)
3. Can be payable on demand or definite time
4. Payable to the bearer or to the order of
5. Must be in money
6. Unconditional promise to pay
7. No other unauthorized instruction

A writ of attachment is simply an order by the court to a sheriff to seize a person's property. It can be
applied to either personal property or real property, and so it can be used when a person owns no real
property. Garnishment is an order to a third person who holds property of the debtor to turn the property
over to a creditor. The property involved usually is a debt, such as wages. There is no requirement that
the property be the debtor's real property.

A composition of creditors is agreement between a debtor and at least two creditors that the creditors will
take less than full payment to discharge their debts. It results in discharge of the debts in full because a
contract is created by the cross-promises of the parties (i.e., the cross-promises serve as consideration,
so the preexisting duty rule is avoided). An assignment for the benefit of creditors is a transfer of some or
all of a debtor's property to a trustee, who then uses the property to pay off creditors. There is no
discharge of debts here because no contract is formed with the creditors to take less than full payment.

Homework Reading – Documents of Title & Letters of Credit

Article 7:
- Warehouse Receipts: represent goods stored in a warehouse
- Bills of Lading: represent goods that are being transported by a carrier
- Purpose is similar to the commercial paper
- Commercial paper = safe way to transfer cash
- Warehouse receipts and bills of lading = safe way to transfer title to goods that are stored or
being transported
- Person who holds title has right to have the goods represented by the document delivered to him
by issuer of doc.
- An issuer who delivers goods pursuant to doc title is not liable for misdelievery if it is
subsequently discovered that the person to whom the goods were delivered was not actually
authorized to receive them

- Issuer of title is bailee (a person who holds goods belonging to another – the bailor)
- No required for issuer to be licensed or bonded

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Negotiability – negotiable if goods are delivered to order or bearer:
- Negotiable if “bearer” or “to the order of” a named person
- Similar to commercial paper, advantage to holding title:
o A holder of a duly negotiated document of title (similar to HDC) is subject to only a few
o To be a holder of duly negotiated document of title:
 Give present value for title
 Take the title in good faith
 Without any notice of an adverse claim or defense
 Purchaser must obtain it in the regular course of business or financing

***Must know what makes a title negotiable – it is negotiable if by its terms goods are to be delivered to
“bearer” or “to the order of” a named person.

Bearer title is negotiated by delivery alone.

Order document requires delivery of the document plus a valid signature of the person named on the
Forgery of the person’s signature is not proper negotiation. The warehouseman or carrier is liable to the
true owner if the goods are delivered to one who presented a document with a forgery.

Person transfers a title (like commercial paper) makes warranties:

- Document is genuine
- No knowledge of any fact that would impair the document’s validity or value
- Negotiation or transfer is rightful and effective

Negotiable title delivery requirements:

Issuer delivers documents to whoever is legally in possession of the document or to a party designated
by the holder.
- Bearer documents = goods must be delivered only to party possessing the bearer document
- Order documents = goods must be delivered only to the order of that party or to one holding a
document propertly endorsed by that party
Carrier/warehouse takes possession of document
Goods delivered with missing title = warehouse/carrier liable for any damages

Non-negotiable titles delivery requirements:

Goods delivered to party named in document (not the one possessing the document)
Party named is consignee
Carrier/warehouse doesn’t take possession of document

Warehouse Receipt
Title issued by warehouseman entitling a named person, order, or bearer of receipt to delivery of stored
Warehouse receipt must include:
- Where the goods are being stored (location)
- Date the receipt was issued
- Number of the receipt
- Who is to receive the goods (negotiable = bearer, order / non-negotiable = specified person)
- Fees and storage rates
- Description of goods or packaging containing them
- Warehouseman’s signature or that of an authorized agent
o If any terms missing, warehouseman is liable for any loss caused by the missing

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o Receipts may cointain other toerms but should not impair the warehouseman’s delivery
and due care
o Warehouseman owes a duty of at least ordinary care and is liable for damage caused by

***Warehouse receipt:
Who – who is to receive the goods?
What – a description of the goods and number of receipt
When – the date the receipt was issued
Wehre – where the goods are being stored
How much – the fees and storage rates must be stated
Signed – the signature of the warehouseman or agent must be included

Alterations of warehouse receipt:

- A blank in the warehouse receipt is filled out without authority, a purchaser of the receipt who
gives value and does not know of the unauthorized completiuon is entitled to envorce the receipt
as completed
- Other alterations are ineffective
- Issuer is liable for only the original terms of the receipt

Warehouseman’s lient:
- Lien on the stored gooeds for storage charges, insurance, labor, and other expenses reasonably
incurred in storage
- If negoatiable receipt issued, the lien is limited against a person to whom the receipt has been
duly negotiated to charges set in the receipt or to reasonable storage fees
- Lein is lost if the warehouseman voluntarily delivers the goods

Enforcement – Sale:
- Warehouseman may enforce his lien by selling the stored goods at a public or private sale
- Notice of the charges owed and details of the sale must first be given to the all interested parties.
Sale must be commercially reasonable

Bill of Lading
A title issued by a carrier
Identify the goods being shipped and its destination
Include the name of consignor (person from whom goods were received) and consignee (who goods will
be delivered to)

Common law – common carrier has a high standard of care. Carrier is insurer of goods, and liable for all
damages to the goods that occur during shipment, regardless of cause
Carrier may limit its common law liability by inserting in the bill of lading a provision limiting liability (i.e. up
to $100)

If unauthorized person fills in blank on bill of lading or alters it, it is enforceable only to original terms

Carrier has lien on the goods covered by the bill for storage and transprotaiton charges and expenses
incurred in storing it
The lien is limited to the charges set in the bill, or to reasonable charges.
Lien can be lost by delivery and enforced in the same manner as the warehouseman’s lien (discussed

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Liability for misdating, misdescription, and nonreceipt of goods:
Holder to whom a negotiable bill of lading has been duly negotiated (a cosignee of a nonnegotiable bill
who has given value in good faith) may recover damages from the issuer:
- If holder/consignee relies on the bill’s erroneous description of the goods or an erroneous date on
- If goods are not delivered
Exception = to the extent the bill indicates that the issuer truthfully did not knwow this information
The shipper guarantees its description of the goods it delivered to the carrier/issuer of the bill of lading
and must indemnify the carrier/issuer for losses caused by errors in this information

Letters of Credit = a promise, usually by financial institution on behalf of customer, to pay money out if
certain documents are presented

Letters of credit are as payment for goods in transactions.

Seller may ask, during the negotiation of aprties, that payment should be through letter of credit
Buyer will then go to the bank and apply for the letter
- In the application, buyer will indicate what docs the seller will have to present in order to be paid
- Bank must pay if the docs are presented to it
Sales could be domestic or international

Standby letters of credit. Function like guarantee or bond.

Applicant promises to do somthing (i.e. construct a road) and obtains letter of credit from a reliable bank
The bank promises to pay the beneficiary (i.e. pay the municipality hired) if beneficiary presents
documents showing that the applcatnt did not fulfill the promise

Standby letters of credit are also used at auctions.

Auctioneers selling expensive items don’t take personal checks.
Bidder cannot get a certified check because there is no way of knowing how much the check should be
Instead, bidder will obtain a letter of credit from a bank, which the auctioneer may draw against.

Independence Principle
- Advantage of the letter of credit = banks obligation to pay is separate from the performance of the
underlying transaction
- Seller presents documents, and bank is obligated to pay, even if it knows that goods being
delived by seller do not conform the contract.

Letters of credit = UCC (Uniform Commercial Code)

International letters of credit = UCP (Uniform Customs and Practices)

Applicant  Party requesting the letter of credit

Beneficiary  Party to whom letter of credit is to be paid
Issuer  Party issuing letter of credit (usually a bank)
Adviser  Passes letter of credit from beneficiary to issuer (in beneficiary’s own country)
- Verifies the authenticity of letter of credit
Confirmer  Bank near beneficiary authorized to pay (usually same as adviser)
- Bank near the beneficiary, liable to beneficiary as though it were the issuer
Nominated person  any person whom issuer authorized to pay/accept, and issuer agrees to reimburse

Requirements of letter of credit:

- Promise to pay upon presenting certain documents
- Cannot include non-documentary condition (if it does, then that condition is disregarded)
- Issued in any form (written, electronic)

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- Authenticated by signature or by some other method agreed to by the parties

Additional terms (not required):

- Expiration date
- List of docs to present (i.e. bill of lading, invoice, insurance)
- Place where presentation of docs to be made

Consideration is not required to issue, amend, or transfer a letter of credit.

- If letter of credit has no expiration date, it expires one year after issuance
- If letter of credit says it is perpetual, it expires five years after it is issued
- Letters of credit can be revocable or irrevocable. If nothing is said, assume irrevocable
- May be negotiable or non-negotiable
- Letters of credit may be payable on sight or at a later time (time draft)
- Letter of credit is effective when issued. After issuance, may not be cancelled or amended unless
beneficiary or confirmer consents.

Issuer’s Duties:
- Assure proper docs are presented and to pay out the money due
- If docs comply, the issuing bank must honor the letter and pay, even if the buyer thinks the goods
will be non-conforming and instructs the bank not to pay
- Docs must strictlkyk conform to terms stated in letter of credit, otherwise bank should not honor
o Exception: if docs do not strictly conform, bank must still pay if the deviation is so minor
there is no chance that the bank could suffer harm based on the non-conformity
- If docs conform on face, issuer must pay unless a court has prohibited payment
- If issuer acts in good faith, it will not be liable for paying out on forged or materially altered
- If issuer dishonours the docs, issuer must return the docs or hold them at the disposal of the
- Issuer that wrongfully dishonours is liable for the damages caused (collection costs, attorney’s
- When issuer pays out, it is precluded from recovering the money paid out, even if it subsequenltly
discovers a discrepancy in the docs

Issuer’s Rights:
- Issuer property pays out is entitled to be reimbursed by the applicant. Issuer takes the docs free
of claims by beneficiary
- Beneficiary’s warranties:
o If presentation is honoured, the beneficiary of a letter of credit warrants to the issuer that
the documents do not include a material forgery
o The beneficiary also makes a warranty to the applicant that the drawing on the letter of
credit does not violate any agreement between the applicant and the beneficiary
o Court can award damages if a warranty is breached

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Chapter 7

Chapter 9 is for municipal debt adjustment; a family farmer cannot seek relief under this chapter.

An accountant is prohibited from showing the workpapers to anyone without the client's permission,
1. Lawful subpoena.
2. Surviving member of the firm.
3. Quality control panel.
4. AICPA/State Trial Board.
5. Court proceedings.

The elements of constructive fraud:

1. Misrepresentation of a material fact.
2. Defendant acts with gross negligence or recklessly.
3. Intent to induce plaintiff's reliance.
4. Actual and justifiable reliance by plaintiff.
5. Damages.

Actual fraud requires intent ("scienter").

Tying arrangement: a seller requires the buyer to purchase one product to obtain another.

Exclusive dealing contract: a seller of goods requires the buyer to promise not to deal in goods of a

Horizontal merger: when one competitor merges with another competitor to establish market power or
restrict competition.

Vertical restraints: agreements between industry players that are on different marketing levels.

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