Contract Law for Paralegals: Traditional and E-Contracts © 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Chapter 15: Special Forms of Contracts

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved NEGOTIABLE INSTRUMENTS To qualify as a negotiable instrument (commercial paper), the document must meet certain requirements established by Revised Article 3 (Negotiable Instruments) of the Uniform Commercial Code (UCC).

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Negotiable Instruments (continued) If the requirements of Article 3 are met, a transferee who qualifies as a holder in due course takes the instrument free of many defenses that can be asserted against the original payee. In addition, the document is considered an ordinary contract that is subject to contract law.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Functions of Negotiable Instruments Negotiable instruments serve the following functions: Substitute for money Credit device Record-keeping device Most purchases by businesses and many individuals are made by negotiable instruments instead of cash.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Types of Negotiable Instruments  Drafts  Checks  Certificates of Deposit  Promissory Notes

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Drafts A draft is a three-party instrument that is an unconditional written order by one party that orders the second party to pay money to a third party. Drawer of a draft Drawee of a draft Payee of a draft

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Checks A distinct form of draft drawn on a financial institution and payable on demand. Drawer of a check Drawee of a check Payee of a check

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Promissory Notes A two-party negotiable instrument that is an unconditional written promise by one party to pay money to another party. Maker of a note Payee of a note Types of notes: Time note Demand note Installment notes

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Promissory Notes (continued) Collateral required Some notes require posting security May be automobiles, homes, buildings, securities, or other property If maker fails to repay note as due, lender can foreclose and take collateral as payment

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Certificates of Deposit (CD) A two-party negotiable instrument Special form of note created when a depositor deposits money at a financial institution Institution promises to pay back the amount of the deposit plus an agreed-upon rate of interest at set time.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved AGENCY CONTRACTS Agency relationships are formed by the mutual consent of a principal and an agent. Agency is the fiduciary relationship “which results from the manifestation of consent by one person to another that the other shall act in his behalf and subject to his control, and consent by the other so to act.”

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved The Nature of Agency (continued) Agency Law – The large body of common law that governs agency. A mixture of contract law and tort law. Principal – The party who employs another person to act on his or her behalf. Agent – The party who agrees to act on behalf of another.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved The Principal-Agent Relationship Principal Agent Third Party Agency Contract Contract with third party on behalf of principal Principal’s obligation to perform the contract

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Persons Who Can Initiate an Agency Relationship (continued) An agency can be created only to accomplish a lawful purpose. Agency contracts that are created for illegal purposes or are against public policy are void and unenforceable.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Kinds of Employment Relationships Employer-Employee Relationship Principal-Agent Relationship Principal-Independent Contractor Relationship

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Employer-Employee Relationship A relationship that results when an employer hires an employee to perform some form of physical service. An employee is not an agent unless he or she is specifically empowered to enter into contracts on the principal employer’s behalf.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Principal-Agent Relationship An employer hires an employee and gives that employee authority to act and enter into contracts on his or her behalf. The extent of this authority is governed by any express agreement between the parties and implied from the circumstances of the agency.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Principal-Independent Contractor Relationship Principals employ persons or businesses who are not employees to perform certain tasks on their behalf. These persons and businesses are called independent contractors.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Principal-Independent Contractor Relationship (continued) A principal can authorize an independent contractor to enter into contracts. Principals are bound by the authorized contracts of their independent contractors. The crucial factor in determining whether a person is an employee or an independent contractor is the degree of control that the principal has over that person.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Summary: Kinds of Employment Relationships Type of Relationship Description Employer-EmployeeThe employer has the right to control the physical conduct of the employee. Principal-AgentThe agent has the authority to act on behalf of the principal as authorized by the principal and implied from the agency. An employee is often the agent of his employer. Principal- Independent Contractor The principal has no control over the details of the independent contractor’s conduct. An independent contractor is usually not an agent of the principal.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Termination by Acts of the Parties An agency may be terminated by the following acts of the parties: 1. Mutual agreement 2. Lapse of time 3. Purpose achieved 4. Occurrence of a specified event

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Termination by Operation of Law An agency is terminated by operation of law, including: 1. Death of the principal or agent 2. Insanity of the principal or agent 3. Bankruptcy of the principal 4. Impossibility of performance 5. Changed circumstances 6. War between the principal’s and agent’s countries

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Contract Liability to Third Parties A principal who authorizes an agent to enter into a contract with a third party is liable on the contract. The third party can enforce the contract and recover damages from the principal.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Contract Liability to Third Parties (continued) The agent can be held liable in some circumstances. Fully disclosed agency Partially disclosed agency Undisclosed agency

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Fully Disclosed Agency When the third party entering into the contract knows: That the agent is acting as an agent for a principal, and The actual identity of the principal The principal is liable to the third party. The agent is not liable.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Partially Disclosed Agency An agency that occurs if: The agent discloses his or her agency status but does not reveal the principal’s identity, and The third party does not know the principal’s identity from another source Both the principal and the agent are liable to the third party if the principal fails to perform the contract.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Undisclosed Agency An agency that occurs when the third party is unaware of either: The existence of an agency, or The principal’s identity Both the principal and the agent are liable to the third party if the principal fails to perform the contract.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved The right of workers to form, join, and assist labor unions is a statutorily protected right in the United States. LABOR CONTRACTS

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Federal Labor Union Statutes  Norris-LaGuardia Act  National Labor Relations Act  Labor-Management Relations Act  Labor-Management Reporting and Disclosure Act  Railway Labor Act

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Norris-LaGuardia Act Stipulates that it is legal for employees to organize. Removes the federal courts’ power to enjoin peaceful union activity.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved National Labor Relations Act Also known as the Wagner Act or NLRA. Establishes the right of employees to: form, join, and assist labor organizations bargain collectively with employers engage in concerted activity to promote these rights

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Labor-Management Relations Act Also known as the Taft-Hartley Act. Expands the activities that labor unions can engage in. Gives employers the right to engage in free-speech efforts against unions prior to a union election. Gives the President the right to seek an injunction against a strike that would create a national emergency.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Labor-Management Reporting and Disclosure Act Also known as the Landrum- Griffin Act. Regulates internal union affairs and establishes the rights of union members.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Railway Labor Act Covers employees of railroad and airline carriers.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved National Labor Relations Board (NLRB) Administrative body comprised of five members appointed by the president and approved by the senate. Oversees union elections Prevents employers and unions from engaging in illegal and unfair labor practices Enforces and interprets certain federal labor laws. NLRB decisions are enforceable in court.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Collective Bargaining The act of negotiating contract terms between an employer and the members of a union. Collective Bargaining Agreement – the resulting contract from a collective bargaining procedure. The employer and the union must bargain with each other in good faith.

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Subjects of Collective Bargaining Compulsory Subjects Wages Hours Other terms and conditions of employment Illegal Subjects Closed shops Discrimination

Reed/Cheeseman: Contract Law for Paralegals© 2009 Pearson Education, Upper Saddle River, NJ All rights reserved Subjects of Collective Bargaining (continued) Permissive Subjects Size and composition of the supervisory force Location of plants Corporate reorganizations Subjects may be bargained for if company and union agree