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Common Law V. Uniform Commercial Code

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Question:

Determine if the contracts with the businesses will be governed by common law or the Uniform Commercial Code (UCC), and explain why.Analyze whether the owner formed a contract with the businesses, and apply the five essential elements of an enforceable contract. Explain the potential personal liability to Acme Fireworks if a spectator is injured by a stray firework from a fireworks display. Discuss the different employment types and relationships relevant to agency law, and analyze the advantages and disadvantages of each type specific to Acme Fireworks. Explain why Acme Fireworks should not operate as a sole proprietorship. Recommend a new business entity, and provide rationale to support your recommendation.
 
 

Answer:

In the given case study, the owner of Acme Fireworks has received many inquiries from large businesses and the owner of the company wants to create displays of fireworks on a regular basis. The owner has told the inquiries that company could fill the display orders only when the price per display is agreed and decided on. It was discussed that most of the cost for the firework display was for skilled labor, the actual service for setting off the fireworks and insurance. The owner is expecting that there might be the need of hiring new employees; however, he is worried that if the displays do not continue then the company will have to fund the new employees. Additionally, the owner also wants to change the business entity. As a manager of Acme Fireworks, I shall advice the owner of Acme on the below mentioned points:

Common Law v. Uniform Commercial Code:

The principles of contract law are applied and understood across the United States in general. The common law and the Uniform Commercial Code are covered in contract law.  Common law deals with transactions that are related to services, intangible assets, real estate and employment (Callahan et al., 2014). UCC deals with contractual transactions that are related to goods or any kind of tangible object, such as purchase of a bike or car.  The UCC is an evolution of common law and it deals with only those transactions that in which the goods are moveable. The UCC was created to unify the state laws that are related to business to transform them into a single law so that all states could make trade or commerce easier or efficient (Ayres, 2012). In the given case study, “goods” shall be considered as the display of firework, which the owner of the company shall be conducting. The “goods” in this context shall not mean the firework, as they are not being sold independently (McKendrick, 2014). The owner shall be displaying the same, once a particular product or good is displayed it stays no longer movable and this makes the transaction between the owners and the inquiries as part of the common law governance.  Service contracts also form part of the common law, despite the fact that they involve services. According to Courts, goods and services are hybrid contracts as they are a combination of both. In most cases, Court adhere to the common law principles of difference between goods or services and have considered that hybrid contracts involve an element of common law in which UCC shall not be applicable. Hence, in the given case study, the principles of common law shall be applicable (Landa, 2014).

Essentials of a Valid Contract:

The important elements that should be established to view the formation of a legally binding contract are:

Offer: an offer is a “promise” to do something or to abstain from doing something. An offer is made in exchange or in return of a promise to do a certain act. A contract without offer is not a valid contract; this is the first and the most important step of a valid contract. The person who makes the offer is called the offeree and the person to whom it is made is called offeror. In the given case scenario, the inquiries can be considered as the offer that was made to the owner of the Acme Firework (Hillman, 2012).

Acceptance: Once the offer is accepted by the offeror another important step of a valid contract is invoked and this is called acceptance. Acceptance means agreement of the offeror to the offer that is made by the offeree. Hence, acceptance means assent to the terms of the offeree. The acceptance of the offer by the owner can be considered as formation of the legal contract (Martin, 2014).

Consideration: the parties to the contract must provide something to each other that have value and that persuades them to enter into an agreement. This is called consideration. Consideration is the most important part of formation of a valid contract and a contract is considered as void if there is absence of a valid consideration. In this case, consideration can be regarded as the price of the display that was agreed on (Puil & Weele, 2014).

Obligation: the mutuality of obligation doctrine is closely related to the doctrine of consideration. According to the doctrine of mutuality of obligation, either the parties are bound to execute their duties, or the law will treat the contract as if none of the party is bound to perform their duties. This doctrine does not give unrestrained power to the any of the parties to the contract to act in an arbitrary way. The doctrine imposes restrictions on both the parties to the contract to act in an absolute manner. In this case, the mutuality of obligation includes the other terms of the contract that makes the contract fair and just (Ayres, 2012).

 

Competency or Capacity: a natural person who enters into the agreement has the legal capability to be held responsible for the duties that he or she is bound to undertake unless the person is a minor or a person of unsound mind or an intoxicated person. A minor is a person whose age is between 18 to 21 years. In the United States, a contract with the minor is voidable. This means that the contract can be cancelled at the option of the minor. A person of unsound mind is the person who does not have the legal capacity to understand the legal consequences of contract. Likewise, a contract with an intoxicated person is void. The parties to the contract, that is the owner and the businesses have the legal authority and capacity to enter into the contract (Puil & Weele, 2014).

Hence, a valid contract existed between the owner of the Acme Fireworks and the businesses.

Fireworks Injuries

The display of fireworks that can awe audiences can also cause injuries to them when the firework companies fail to take proper step in the manufacturing or igniting of fireworks. However, the injuries that are caused by the fireworks are rare but the misuse or mishandling of the same may lead to many injuries. Spectators who are injured from the fireworks have the right to seek compensation or recover damages from the manufacturer or owner of the fireworks display (Knapp, 2013). The spectators may hold the owner of the firework company liable for negligence. This means that the spectator may file a case against the owner for negligence under tort law. The liability is however, not restricted to the owner of the firework display, the persons who organise the show may also be held liable for failure to provide proper supervision of such activity. Hence, victims may recover damages from the owner of the fireworks. Additionally, individuals who misuse the firework may be held liable and the victims may ask seek compensation from them for the misuse of the fireworks (Twigg-Flesner, 2013).

Different types of Employment and Relevancy with Agency Law:

The most common type of employment is full time, part time or temporary employees. The owner of the Acme Fireworks currently has fifteen employees and they are currently working for this company. However, the working conditions have not been specified and there is no clear indication as to what type of employee do they fall under. The employees of Acme are paid on hourly basis or are paid on yearly salary. Employees who work on hourly or yearly basis shall have the benefits of social and federal security. Regular state taxes shall be deducted from their payment checks and they shall be given the benefit of medical insurance depending whether the company offers that benefit or not (Poole, 2014). These are the basic employment benefits and this may differ from one employee to the other employee and may differ from the type of employment. When an employee is hired at any given organisation then he is given a description that states the job description for which he or she is hired. It is the duty of the employee to follow the directives of the employer. If the employee does not follow the directives of the employer then he or she may be terminated from the company (Chen-Wishart, 2012).

Independent Contractors:

Independent contractors have many advantages. The owner does not have to provide any benefits with any employment benefits. This may include things like not having to deduct the taxes of payroll or any other additional liability or coverage. The owner can cancel the contract at any point of time and he has no obligation to provide severance package or pay bonus to the employee (Andrews, 2016). The only hitch in hiring independent contractors is that they have to pay 25 percent to 30 percent higher than the regular paid wages. The reason behind this is that they carry their own responsibility and liability. For the shorter period, this is more expensive but independent contractors are paid a certain amount of money for the fulfilment of their duties. They are also paid incentives if the terms of their agreement have specified that they are eligible for payment of incentives. Hiring of independent contractors can be beneficial to the owners as they give them the opportunity of saving a lot of money. The owners should consider the above-mentioned points when hiring the contractors during the peak season such as New Year’s Eve (Gallagher et al., 2012).

Employee v. Independent Contractor:

Both employees and independent contractor receive payment after completion of their work. However, an employee is subject to strict working conditions whereas an independent contractor does not have specific terms of the contract. An employee is given many benefits such as pay roll taxes and other insurances whereas an independent contractor cannot avail any benefits from the employment (Burton, 2012). Keeping in mind the kind of business Acme Firework is involved in, employment contracts may be the most advantageous kind of contract for the employees whereas for the owner, the hiring of independent contractors may be beneficial for them. For the employees the associated benefits of employment lures them and for the owner the short term economic saving lures them in hiring independent contractors especially at the peak season (Poole, 2014).

Recommendation:

Acme Fireworks should operate as LLC or a limited liability company. A LLC offers the protection of liability to the corporation without combing with the burdensome formalities of the organisation. It is because of this reason that a LLC has become very popular and is regarded as one of the best business kind. The working tradition in a LLC is very flexible. LLC can be divided as either corporations or partnerships (Chen-Wishart, 2012).  It is easy to manage a LLC by making it a partnership firm as there is a division of responsibilities between the partners and both the partners are restricted because of their liabilities they hold. The liability in a partnership LLC is only until the amount of their investment. LLC can also establish board of directors and can have officers or presidents just like a corporation. LLC can also hold shares and it can make their shares available to the shareholders for investment. LLCs can hold regular meetings to discuss the working and policies of the company (McKendrick, 2014). However, they may also chose ignore such formalities. Hence, it is advisable for Acme to change their company from sole proprietorship to a LLC. The working culture and manner of a LLC is much more regularised than a sole proprietorship.

Conclusion:

The company, Acme fireworks, is expanding in the wake of new opportunities and the company has to understand the best sources available that may help in expanding their business. The firm is in need of employees and it is important for the company to understand the kind of employees that they have to hire that suits the needs of the growing company. The contract of Acme is legal in nature that is guided by common law principles. 

 

References:

Andrews, N. (2016). Sources and General Principles of English Contract Law. In Arbitration and Contract Law (pp. 165-175). Springer International Publishing.

Ayres, I. (2012). Studies in Contract Law. Foundation Press.

Burton, S. J. (2012). Principles of contract law.

Callahan, D. J., Chiow, J. M., Kramer, L. B., & Zamaray, O. S. (2014). A REVIEW OF RECENT DECISIONS OF THE UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT: AREA SUMMARY: 2013 GOVERNMENT CONTRACT LAW DECISIONS OF THE FEDERAL CIRCUIT. Am. UL Rev., 63, 1307-1957.

Chen-Wishart, M. (2012). Contract law. Oxford University Press.

Gallagher, M., Giles, J., Park, A., & Wang, M. (2013). China's Labour Contract Law: Implementation and implications for China's workers. Human Relations, 1-39.

Hillman, R. A. (2012). The richness of contract law: An analysis and critique of contemporary theories of contract law (Vol. 28). Springer Science & Business Media.

Hunter, H. (2015). Modern Law of Contracts.

Knapp, C. L. (2013). Unconscionability in American Contract Law: A Twenty-First Century Survey. UC Hastings Research Paper, (71).

Landa, J. T. (2014). A theory of the ethnically homogeneous middleman group: an institutional alternative to contract law (with an Afterword).Handbook of East Asian Entrepreneurship, 82.

Martin, C. H. (2014). Every1's Guide to Electronic Contracts-Contract Law on How to Create Electronic Signatures and ContractsCharles Martin was frustrated with one-sided and confusing contracts offered by companies on websites and in emails. After years of practicing contract law, and of teaching and writing about electronic contracts, he decided to write a book for consumers, employees and businesses about those contracts. Every1’s Guide shows consumers, employees and businesses how to protect themselves against unfair ....

McKendrick, E. (2014). Contract law: text, cases, and materials. Oxford University Press (UK).

Poole, J. (2014). Textbook on contract law. Oxford University Press, USA.

Puil, J. V. D., & Weele, A. V. (2014). Contract Law and Tort Law. InInternational Contracting: Contract Management in Complex Construction Projects (pp. 285-292).

Twigg-Flesner, C. (2013). The Europeanisation of contract law: current controversies in law. Routledge.

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