Legal Exam 3

Fundamental Rule of Commercial Paper

A possessor has an unconditional right to be paid if the paper is negotiable, properly negotiated to the possessor, the possessor is a holder in due course, and the issuer has no valid defense.

Negotiable Instrument

An instrument that meets the legal requirements for negotiability and may allow a transferee to obtain greater rights than the original holder.

Non-Negotiable Instrument

An instrument whose transferee generally receives the same rights as the person who originally held it.

Six Requirements for Negotiability

The instrument must be written, signed by the maker or drawer, contain an unconditional promise or order to pay, state a definite amount of money, be payable on demand or at a definite time, and be payable to order or bearer.

Ambiguity in Commercial Paper

When terms conflict, words control over numbers, handwritten terms control over typed and printed terms, and typed terms control over printed terms.

Negotiation of Order Paper

Order paper must be indorsed and delivered to the transferee.

Negotiation of Bearer Paper

Bearer paper only needs to be delivered to the transferee

no indorsement is required.

Holder in Due Course (HDC)

A holder who gives value for an instrument, acts in good faith, and has no notice of outstanding claims or defects.

Defenses Against Payment

Defenses may include forgery, bankruptcy discharge, minority, material alteration, duress, mental incapacity, illegality, or being tricked into signing without knowing what the document was and without a reasonable way to find out.

Consumer Exception to Holder-in-Due-Course Rule

The FTC requires consumer credit contracts containing promissory notes to include language preventing subsequent holders from claiming holder-in-due-course status.

Article 9

Article 9 applies to transactions intended to create a security interest in personal property or fixtures.

Debtor

The person who owes the debt in a secured transaction.

Secured Party

The person or business holding a security interest in collateral.

Collateral

Property used to secure repayment of a debt or performance of an obligation.

Security Interest

A legal interest in property that secures repayment of a debt or performance of an obligation.

Attachment

Attachment makes a security interest enforceable against the debtor.

Three Requirements for Attachment

The parties agree to the security interest and the required agreement or possession condition is met

the secured party gives value

and the debtor has rights in the collateral.

Perfection

Perfection generally protects a secured party against competing claims from third parties.

Attachment vs. Perfection

Attachment establishes enforceable rights against the debtor

perfection generally protects the secured party against third-party claims.

Filing

The most common method of perfecting a security interest is filing a financing statement.

Other Methods of Perfection

Depending on the collateral, a secured party may perfect by obtaining possession or control.

Purchase Money Security Interest (PMSI)

A security interest taken by the seller of collateral or by a lender who advances money for the debtor to purchase the collateral.

PMSI in Consumer Goods

A purchase money security interest in consumer goods generally perfects automatically when it attaches.

Buyer in Ordinary Course of Business (BIOC)

A buyer who purchases goods in the ordinary course generally takes them free of a security interest created by the seller, even if that interest is perfected.

Priority: Perfected vs. Unperfected

A perfected security interest generally has priority over an unperfected security interest.

Priority When Neither Interest Is Perfected

The first security interest to attach generally has priority.

Priority Between Perfected Security Interests

The first to file or perfect generally has priority, subject to exceptions.

Secured Party's Rights After Default

The secured party may take possession of the collateral and dispose of it in a commercially reasonable manner or may sue the debtor for the full debt.

Creating an Agency Relationship

A principal and agent mutually consent that the agent will act on behalf of the principal and be subject to the principal's control, creating a fiduciary relationship.

Principal

The person or business on whose behalf an agent acts.

Agent

A person authorized to act on behalf of a principal.

Agent's Four Duties to the Principal

Duty of loyalty, duty to obey instructions, duty of care, and duty to provide information.

Duty of Loyalty

The agent must act in the principal's best interests.

Duty of Obedience

The agent must follow the principal's lawful instructions.

Duty of Care

The agent must perform assigned duties with appropriate care and skill.

Duty to Provide Information

The agent must communicate important information to the principal.

Principal's Three Remedies for an Agent's Breach

Recovery of damages, recovery of profits earned through the breach, and rescission of the transaction when legally available.

Principal's Duties to the Agent

The principal must pay the agent as agreed, indemnify the agent for reasonable qualifying expenses, and cooperate with the agent.

Power vs. Right to Terminate Agency

Both principal and agent generally have the power to terminate the relationship, but wrongful termination may violate the agreement and result in damages.

Automatic Termination of Agency

An agency relationship automatically terminates if the principal or agent can no longer perform the required duties or the activity becomes illegal.

Principal's Liability for Contracts

A principal may be liable for contracts entered into by an agent with express, implied, or apparent authority.

Express Authority

Authority granted through the principal's words or conduct that reasonably causes the agent to believe the principal wants the agent to act on the principal's behalf.

Implied Authority

Authority to perform acts reasonably necessary to accomplish an assigned task.

Apparent Authority

Authority that a third party reasonably believes an agent possesses because of the principal's conduct, even if the agent lacks actual authority.

Express vs. Implied vs. Apparent Authority

Express authority is directly communicated

implied authority covers necessary actions

apparent authority arises from the principal's conduct causing a third party to reasonably believe authority exists.

Agent's Liability for Contracts with a Fully Disclosed Principal

The principal is generally liable on the contract, but the agent is not.

Agent's Liability for Contracts with an Unidentified or Undisclosed Principal

Both the agent and principal may be liable on the contract.

Negligent Physical Torts of Employees

An employer is generally liable for an employee's negligent physical tort committed within the scope of employment.

Scope of Employment

An employee acts within the scope of employment when the conduct is authorized or sufficiently related to authorized work, has not been abandoned, and is motivated at least partly by a purpose to serve the employer.

Independent Contractor Liability

A principal may be liable for an independent contractor's intentional or negligent torts if the principal was negligent in hiring or supervising the contractor.

Intentional Physical Torts of Employees

An employer is generally not liable unless the employee intended to serve some employer purpose or the employer was negligent in hiring or supervising the employee.

Nonphysical Torts of Employees

A principal is generally liable for an employee's nonphysical torts only if the employee acted with express, implied, or apparent authority.

Agent's Liability for Torts

Agents are personally liable for their own torts, even when acting on behalf of a principal.

Traditional Common Law Rule of Employment at Will

Traditionally, an at-will employee could be fired for a good reason, a bad reason, or no reason, but modern law prohibits certain unlawful reasons for termination.

Wrongful Discharge and Public Policy

An employee generally may not be fired for refusing to violate the law, exercising a legal right, or supporting fundamental societal values protected by public policy.

Promises During Hiring

Promises made during the hiring process may be enforceable even if they were not approved by the company's highest executives.

Defamation by Employers

Employers may be liable for false and unfavorable employment references, although many states recognize a qualified privilege for certain references.

Family and Medical Leave Act (FMLA)

Provides eligible employees up to 12 weeks of unpaid, job-protected leave during a 12-month period for qualifying reasons involving childbirth, adoption, or serious health conditions.

Pay Transparency Laws

Depending on the applicable law, employers may be required to disclose salary ranges to job applicants or current employees.

Whistleblowers

Employees who report certain illegal or improper workplace conduct may receive protection against retaliation under federal and state laws.

Employee Free Speech

Private-sector employees generally do not have unlimited constitutional free-speech rights at work, but the NLRA protects many nonsupervisory employees who engage in protected concerted activities.

Off-Duty Activities

Without a specific legal protection, employers may sometimes discipline or fire employees for off-duty conduct.

Stored Communications Act (SCA)

Regulates certain access to stored electronic communications. Employer monitoring may be permitted in circumstances involving consent, ordinary business operations, or employer-provided email systems, depending on the applicable rules.

Occupational Safety and Health Act (OSHA)

Aims to ensure safe and healthy working conditions.

Fair Labor Standards Act (FLSA)

Regulates minimum wage, overtime pay, and child labor.

Workers' Compensation

Provides benefits to employees who suffer qualifying work-related injuries or illnesses.

COBRA Health Insurance Continuation

Allows eligible former employees and dependents to continue employer-sponsored group health coverage for a limited period, commonly 18 months after certain qualifying events, generally at their own expense.

Social Security

Provides benefits to eligible retired workers, disabled workers, and qualifying family members of disabled or deceased workers.

Unemployment Compensation

Provides temporary financial assistance to eligible unemployed workers. Eligibility depends on state law and the circumstances of job separation.

NLRA Section 7

Protects employees' rights to organize, join unions, bargain collectively, and engage in protected concerted activities.

NLRA Section 8

Makes certain employer actions unfair labor practices, including interfering with protected employee rights, discriminating because of protected union activity, and refusing to bargain when legally required.

Collective Bargaining

Employers and unions must bargain in good faith over mandatory subjects such as wages, hours, and other terms and conditions of employment, but they do not have to reach an agreement.

Equal Pay Act

Generally prohibits paying employees of one sex less than employees of another sex for equal work under similar working conditions, subject to statutory exceptions.

Title VII of the Civil Rights Act of 1964

Prohibits covered employers with generally 15 or more employees from discriminating based on race, color, religion, sex, or national origin.

Disparate Treatment

Intentional discrimination in which an employee or applicant is treated less favorably because of a protected characteristic.

Disparate Impact

A seemingly neutral employment policy disproportionately harms a protected group and may violate the law if the applicable legal requirements are met.

Hostile Work Environment

Workplace harassment based on a protected characteristic that is sufficiently severe or pervasive to alter employment conditions.

Sexual Harassment

Unwelcome sexual advances, requests for sexual favors, or other unwelcome verbal or physical conduct of a sexual nature that violates the applicable legal standard.

Retaliation Under Title VII

Adverse action against a person for opposing unlawful discrimination, filing a discrimination complaint, or participating in an investigation or proceeding.

Religious Accommodation

Employers must reasonably accommodate sincerely held religious beliefs and practices unless doing so would impose an undue hardship under the applicable legal standard.

Sex Discrimination

Title VII prohibits discrimination based on sex, including unlawful sex stereotyping.

Sexual Orientation and Transgender Status

Title VII's prohibition against sex discrimination includes discrimination based on sexual orientation and transgender status.

Appearance Standards

Employers may establish dress codes and appearance standards, but they must comply with applicable antidiscrimination and accommodation laws.

Attractiveness Discrimination

Federal law does not generally prohibit decisions based solely on attractiveness, but appearance rules cannot be used as a pretext for unlawful discrimination.

Weight Discrimination

Weight-based decisions are not automatically prohibited under federal law, but may violate the ADA when connected to a qualifying disability or violate state or local law.

Hair and Beards

Hair and facial-hair rules must comply with applicable discrimination and accommodation laws, including protections related to race, religion, and medical conditions.

Pregnancy Discrimination Act

Prohibits covered employers from discriminating because of pregnancy, childbirth, or related medical conditions.

Pregnant Workers Fairness Act

Generally requires covered employers to reasonably accommodate known limitations related to pregnancy, childbirth, or related medical conditions unless doing so would impose an undue hardship.

Parental Status Discrimination

Discrimination based on parental status may violate Title VII when it involves unlawful sex discrimination.

Parental Leave

Employers generally must provide equal bonding leave to similarly situated mothers and fathers.

Background and Credit Checks

Employers must comply with applicable antidiscrimination laws and FCRA requirements when using background or consumer reports.

National Origin Discrimination

Title VII prohibits discrimination against individuals because of their national origin.

Reverse Discrimination

A claim that an employment decision unlawfully disadvantaged someone because of a protected characteristic, including race or sex.

Merit Defense to Discrimination

An employer may justify an employment decision based on legitimate differences in qualifications or performance, provided the decision is not discriminatory.