Business Law Discussion

I’m working on a business law question and need an explanation and answer to help me learn.

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Please reply to these two students post. I have attached the word document and have included the ORIGINAL POST along with the two student response that you will respond to. Thank you.

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Discussion 10
Original Question
You are Chief Financial Officer (CFO) at Intrepid Investments (II). Your
boss, Ellie Earner, is CEO of II. EE asks you to look into what potential
liability, if any, II may have for her actions over last weekend so she
may discuss this with an attorney.
It seems EE was feeling rather generous after watching her
granddaughter, Annie Actress (AA), perform well at her district high
school speech and debate competition. EE scratched out on a paper
napkin that II would pay AA a $10,000 college scholarship from II’s
petty cash account if AA continued to excel at speech and debate
throughout her high school career. AA needed money now, though, so
she gave the document to Carl Classmate (CC) for $7,000. CC then gave
the document to Sandra Stranger (SS) for $5,000.
AA continued her excellence, and AA told EE she lost the napkin. EE
verbally ordered II to pay AA $10,000.
Inform EE of what liability, if any, II may have to pay AA so EE may
discuss further with an attorney.
First Post by Student;
Discussion 10- Yanier
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In this case we may have a negotiable instrument, even it being a piece of
Napkin. However, there are different scenarios that must be analyzed. As we
look at the form (piece of napkin) it is offered, accepted, considered, consented,
and therefore it is potentially legal. More of so, we must take into consideration
that different jurisdictions may have certain legislation that accept, demand, or
enforce specific form for enforceable contracts in which a piece of napkin may
not qualify.
Looking further into the situation, the specifics of the piece of napkin was a
contract specifically for AA, the fact that AA sold the contract to other entities
makes that contract null and void, think of it like a check, EE wrote the
company check to AA and no one else, therefore AA cannot sell that specific
check to anyone as it only has her name on it. Therefore, in my opinion, we
should not have any legislative issues, more of so, it was definitely unethical for
AA to sell the piece of napkin and it seems as she has made a total of $17,000 in
this scandal.
References
Clarkson, K. W. (2021). Business Law. Boston: Cengage learning.
Lehal, R. (2017, August 14). blog.clausehound.com. Retrieved from Is Your
Agreement Worth The Paper (Or Napkin) It’s Written On?:
https://blog.clausehound.com/is-your-agreement-worth-the-paper-or-napkin-itswrittenon/#:~:text=Well%2C%20actually%2C%20any%20agreement%20that%20is%
20made%20between,when%20enforcing%20the%20agreement%20%28in%20c
ourt%20or%20otherwise%29.
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Second Post by Student;
Discussion 10 – Mie Otake
Contains unread posts
Mie Otake posted Feb 24, 2022 7:18 PM
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As CFO of Intrepid Investments (II), I would inform my boss, the CEO Ellie
Earner (EE), of a few critical points she should be aware of regarding the
company’s potential liability before the meeting with her attorney.
Petty Cash Account:
First, petty cash is used for the company’s expenses that are too small to merit
writing a check or using a credit card. A petty cash fund can be used for office
supplies, cards for customers, flowers, paying for a catered lunch for employees,
or reimbursing employees for expenses. (Investopedia) Petty cash is not suitable
to issue scholarship awards in any amount, and we typically do not keep cash in
the account of more than a few hundred dollars.
Scholarship Programs:
Businesses’ scholarship programs to grant awards to employees or relatives of
employees are treated somewhat differently under IRS rules. If this is the
employee’s benefit, it will be treated as additional compensation and the
program must be offered to all employees. We will have to involve our Human
Resources in this change and seek approval from the board of directors.
Additional requirements to establish a new grant program for non-employees
include IRS approval, the creation of an independent committee to choose
recipients, and the scholarships cannot be used as part of employees’ benefits
packages. (Buzfluent) Offering scholarships to family members of employees is
not currently a program authorized by Intrepid Investments, and the company is
not in the position to make payment to Ellie Earner’s granddaughter, Annie
Actress, at this time.
Conflict of Interest and Self-dealing:
The CEO’s action here could be deemed self-dealing, involving the
misappropriation of company assets. “Self-dealing is a situation where one takes
action in an official capacity which involves dealing with oneself in a private
capacity and which confers a benefit on oneself.” (Wiki) Without moving
through the appropriate channels for scholarship programs or employee benefit
packages; this could be a violation of the company’s code of conduct policies.
The Draft:
There are a few points to address for EE regarding the draft she issued on behalf
of the company. First, her action could be subject to a violation of company
policy. While she may be an authorized agent with authority to bind the
company if EE wrote the draft on behalf of II and did not indicate her agency
status on the draft, the holder in due course (HDC) can hold the agent personally
liable. (Miller, Clarkson 2019) As made clear, the company will likely deny this
payment, and EE’s most significant liability is that of being secondarily
liable for compensation should the original draft be produced.
If the draft does not include a date, it will be a negotiable instrument if it were to
be found and claimed by someone other than her granddaughter. The maker of
the draft could be liable for payment and, in this case, that liability will likely
fall to EE.
If the draft was, in fact, transferred to other individuals despite AA’s claim of it
being lost, the individual holding the draft at the present time would likely be
deemed a Holder in Due Course (HDC). This is important because “the person
(HDC) obtaining payment or acceptance is entitled to enforce the instrument or
is authorized to obtain payment or acceptance on behalf of a person who is
entitled to enforce the instrument.” (Miller, Clarkson 2019) Regardless of who
owns the draft, as long as the instrument was taken in good faith without notice
of defenses or defects and value was provided (which are all the case in the
underlying scenario), the instrument will be negotiable, and someone will be in
a position to collect payment. The company may be primarily liable but should
deny payment, which will fall to EE as secondarily liable.
Along with these various problems and, given the fact that the original draft has
been lost (non-delivery of the instrument), II sees no corporate liability and
should be defensible in denying payment. This is where II’s corporate attorney
and EE’s attorney can help each party to assess when this becomes a dispute
between the company, EE, and the holder of the draft.
References:
Clarkson, K. W., & Miller, R. L. (2019). Business Law: Text and Cases (15th
Edition). Cengage Learning
US. https://ccis.vitalsource.com/books/9780357129746
Kenton, W. (n.d.). Petty Cash.
Investopedia. https://www.investopedia.com/terms/p/pettycash.asp
How to Establish Scholarship Under IRS Rules. (n.d.).
Bizfluent. https://bizfluent.com/how-5328719-establish-scholarship-under-irsrules.html
Self-dealing. (2020, August 7). Wikipedia. https://en.wikipedia.org/wiki/Selfdealing
Cossin, D., & Lu, A. H. (2017, May 18). The four tiers of conflict of interest
faced by board directors. IMD Business School. https://www.imd.org/researchknowledge/articles/the-four-tiers-of-conflict-of-interest-faced-by-boarddirectors/
Difference Between Holder and Holder in Due Course (HDC) (with
Comparison Chart). (2016, June 30). Key
Differences. https://keydifferences.com/difference-between-holder-and-holderin-due-course.html
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Discussion 11
Original Question
You are an executive for Best Burgers (BB). You sell and manage BB’s
franchises. You negotiate a deal to sell a franchise to Frieda Flipper (FF)
for one million dollars.
FF writes BB a personal check for $100,000, and she borrows $900,000
from Lucky Lender Bank (LL). The payee’s slot on the personal check is
left blank, and FF hands the check to your receptionist, Sam Slippery
(SS). SS fills in his name, deposits the check in his personal account,
withdraws it once the check clears, and skips town. You confront FF
about the check and threaten to close the franchise. In retaliation, FF
stops paying on the note.
Discuss the strengths and weaknesses in trying to recover the million
dollars.
First Post by Student;
Woemmel – Disc 11
As far as the $100,000 check, FF has written a bearer instrument instead of a pay to order check.
Because no payee has been specified on the check, any holder of the instrument can claim payment
(UCC Article 3-109(a)(2). Unfortunately, because FF did not exercise ordinary care in completing the
instrument, the bank was not liable for cashing the check.
Article 3-309(a)(3) states we can enforce the instrument if “it is unlawful possession of an unknown
person or a person that cannot be found or is not amenable to service of process” However, since
the instrument has already been paid, it is unlikely that we will recover under this section.
Also due to FF’s failure to exercise ordinary care, she is liable for breach of contract because she has
not met her obligation to pay for the franchise. Her defense may be that she exercised ordinary care
by handing the check to a responsible party at the company. However, FF should have exercised due
diligence in properly indorsing the check as payable to BB and sealing the check in an envelope to
ensure its safe delivery.
Alternatively, we could file suit against SS for conversion. Recovery from this method is unlikely since
he has fled and we may not be able to find him or subject him to the jurisdiction of the courts.
References:
https://www.law.cornell.edu/ucc/3/3-109
https://www.law.cornell.edu/ucc/3/3-309
Liability of Parties legal definition of Liability of Parties (thefreedictionary.com)
Second Post by Student;
Discussion 11 Steve B.
Contains unread posts
Steve Bengmo posted Feb 23, 2022 1:25 PM
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When SS deposited the amount to his personal account and
withdrew the money, it created a negative float in the company’s
accounts. A negative float occurs when there is a net deficit from
checks that have been deposited but have not cleared bank records
(Peters, 2021). Trying to recover the losses that emerge from such
actions leads to several benefits and drawbacks. The case of SS is an
example of check fraud, which involves people gaining money from
checks that were not intended for them. Check frauds are both costly
to the banks and the drawer. According to the class text, each year, the
number of check frauds increases, and businesses and banks lose
millions of money trying to recover the lost funds.
For instance, in this case, BB lost one million dollars to SS, and
recovering such an amount is necessary for BB to continue its
operations without the risk of bankruptcy. In most cases, businesses
that lost more than ten thousand sterling pounds risked going
bankrupt if they failed to secure redress from the banks ( Brignall,
2021). However, in 2019, half of the banks agreed to comply with the
contingent reimbursement model (CRM), which is a new code of
conduct. CRM is created to allow victims more consistent and fairer
redress and to refund victims who have abided by specific obligations
prior to and during the payment process (Brignall, 2021). Therefore,
even if 70% of cases of check fraud are not reimbursed by the banks,
most of them agree to partial or full repayment (Brignall, 2021).
Besides, the check fraud resulted from the payer’s failure to fill in the
payee’s slot. Thus, the burden will not be much on BB than it would be
on FF. Besides, “The customer has a duty to examine account
statements with reasonable care on receipt and to notify the bank
promptly of any unauthorized signatures or alterations” (Clarkson &
Miller, 2021). The long-term outcome of a successful recovery process
will give BB and FF the chance to maintain their business relationships
and continue operating the franchise.
However, on the negative side, the high possibilities of failure to
recover the money may present to both BB and FF a hard choice to
continue their businesses. In most cases, trying to recover the lost
million dollars would lead to a long-time battle between the parties
involved (Brignall, 2021). In this case, FF, BB, and LL. This battle can
lead to reputational loss and damaged operational sustainability as
more assets are assigned to the course of money recovery, which may
not reflect operational and strategic goals (Clarkson & Miller, 2021). To
prevent such occurrences in future dealings, FF must ensure that
account changes, such as adding names or changing addresses and/or
other information, are authorized by the customer in writing, or in a
way that guarantees that the customer is requesting the change
(Clarkson & Miller, 2021). Otherwise, with the increasing rate of insider
check frauds, experiencing similar cases can be a common experience.
The impacts are various and they can be both long-term and shortterm, costing both parties large amounts of money in the recovery
process, which can add to the losses already suffered.
References:
Brignall, M. (2021). Victims of fraud: how to get your money back from
your bank. the Guardian. Retrieved 23 February 2022, from
https://www.theguardian.com/money/2021/oct/02/victims-fraud-howto-get-your-money-back-bank.
Clarkson, K., & Miller, R. (2021). Business Law: Text and Cases (15th
ed.). Cengage.
Peters, K. (2021). What Is a Negative Float? Investopedia. Retrieved 23
February 2022, from https://www.investopedia.com/terms/n/negativefloat.asp.