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BUS 206
Business Law I Southern New Hampshire University Final Project Submission: Case Study Analyses Case Study One Chris, Matt, and Ian, who live in California, have decided to start a business selling an aftershave lotion called Funny Face over the internet. They contract with Novelty Now Inc., a company based in Florida, to manufacture and distribute the product. Chris frequently meets with a representative from Novelty Now to design the product and to plan marketing and distribution strategies. In fact, to increase the profit margin, Chris directs Novelty Now to substitute PYR (a lowcost chemical emulsifier) for the compound in Novelty Now’s original formula. PYR is not FDA approved. Funny Face is marketed nationally on the radio and in newspapers, as well as on the web and Facebook. Donald Margolin, a successful CEO and public speaker, buys one bottle of Funny Face over the internet. After he uses it once, his face turns a permanent shade of blue. Donald Margolin and his company, Donald Margolin Empire Inc., file suit in the state of New York against Novelty Now Inc. and Chris, Matt, and Ian, alleging negligence and seeking medical costs and compensation for the damage to his face and business reputation. It is discovered that PYR caused Margolin’s skin discoloration. The website for Funny Face states that anyone buying their product cannot take Chris, Matt, and Ian to court. Novelty Now’s contract with the three men states that all disputes must be brought in the state of Florida.
Introduction : In this first case study, we see where a chemical in a product was substituted for something else that may have been cheaper, and the chemical turned a customer’s face blue. Chris, Matt and Ian live in California and are selling the aftershave lotion, called Funny Face, online, which is manufactured and distributed by Novelty Now Inc., who is based out of Florida. The customer wanted to sue Chris, Matt and Ian as well as Novelty Now Inc. in his home state of New York, without the four of them possibly having any legal jurisdiction in doing so. When it comes to legal battles, it is important to know right from wrong and also what can be considered a crime, and who can be tried where, based on business proceedings. In this report, we will look into some of the facts, go over jurisdictions, alternative dispute resolutions, any criminal liability and the ethical decision-making process. Rules of Jurisdiction: There are a few different types of jurisdiction that could be handled in this case between Donald Margolin and Donald Margolin Empire Inc. vs. Novelty Now Inc. and Chris, Matt, and Ian. The first type of jurisdiction is Personal Jurisdiction, and this is when the judge has the power or authority to make decisions that affect a person (2019). The next type of jurisdiction is Subject Matter Jurisdiction, and this determines whether not each court has the authority or power over certain types of legal disagreements. The minimum contacts concept is a term used in the United States law of civil procedure to determine when it is appropriate for a court in one state to assert personal jurisdiction over a defendant from another state. With the personal jurisdiction, since the company’s product did make Mr. Donald’s face blue, a judge should have the right to make the decision on whether not to find Novelty Now Inc., Chris, Matt and Ian guilty for negligence and medical costs since Chris, Matt and Ian decided they wanted to make a larger profit by substituting PYR for the compound used in the
defendants could be tried in the state with gaining personal jurisdiction. In the end, Novelty Now, Chris, Matt and Ian should be tried concurrently in New York and in Florida. Alternative Dispute Resolution : Alternative dispute resolution is considered to be methods to resolve a dispute instead of having litigation. If the two parties decide on trying to resolve the issue rather than going to court, two options of alternative dispute resolution for this case would be Mediation and what is known as Facilitation. With mediation, there is typically a mediator that oversees meetings between the parties to try and get a mutual resolution to the dispute. The mediator is a neutral party and facilitates the discussion to help identify the issues of the dispute and helps them make a settlement. Mediation allows for formal meetings to take place with discussions between the parties, and it can happen until there is an agreement or if there is an agreement that they will not agree on a resolution pre-trial. The advantages of mediation are that there is no trial, everyone ‘gets what they believe is right’ and it does not last a long time. Disadvantages of mediation is that you may not get the expected outcome and you have to sit in long meetings. With Facilitation, there is no mediation or discussions between the two parties as most of the contacts are done through a facilitator and it takes place informally through phone or by email. This practice is known as the least formal alternative dispute resolution type. Advantages to facilitation include that both parties are more motivated to get a resolution, group decisions typically yield better results than individual decisions. Disadvantages to facilitation can include facilitators may have unproven assumption or a bias towards one side, facilitators may be against testing people in power for fear of backlash. Mediation would be the type of alternative dispute resolution that the parties would like to go with. They can each take part in discussing with each other in person in relation to the thought process behind changing the formula, how it was not
intended to literally hurt anyone, and they can come to a mutual resolution, and then Chris, Matt and Ian can then fix the problem moving forward (Newman, 2020). Criminal Liability : Corporations and Corporate officers can be held liable for criminal acts, as they can sue or be sued as well as they are able to commit crimes. If an employee of a corporation commits a crime against another company, the corporation that the employee belongs to, as well as the employee, can be held accountable (Jezierski). It is not often that just one party gets held accountable when it comes to businesses, as the company being the victim may want to pursue legal action against both sides. If a corporate office acted on its own, and if there was money laundering or if they didn’t pay taxes, or even if the product they sold to someone killed somebody, the corporation would be held liable and could be seen in court. Fraud can be looked at as a criminal act and is defined as ‘wrongful or criminal deception intended to result in financial or personal gain’ (Chen, 2020). Fraud consists of elements such as: A representation of fact, Falsity, Materiality, Representer’s knowledge of its falsity, Representer’s intent, Injured parties’ ignorance of its falsity, Injured parties’ reliance on its truth. These elements of fraud are present in this case, as Ms. Margolin did trust the product and not expect to get hurt by it. Chris and Novelty Now Inc. are the parties responsible for this crime (since it does not say whether not Matt and Ian were involved in the decision making), as Chris chose to substitute an original ingredient for PYR, which is a cheaper chemical emulsifier that is not approved by the FDA. Though Matt and Ian were not directly involved, since they had a partnership, they are now held fully liable as well. Using a cheaper solution to gain more profit is not always the best way to go, especially if it a substance that needs to get approval to use. There is criminal liability in this case when Chris decided to substitute out the original compound and when Novelty Now Inc. agreed to it,
safety products wants to sell Sam’s product exclusively. Although Sam and the chain store never signed a contract, Sam verbally told a store manager several months ago that he would ship 1,000 units. Sam comes home from work one day and finds two letters in his mailbox. One is an eviction notice from his landlord, Quinn, telling him he has to be out of the apartment in 30 days because his barking device has been bothering the other tenants. It also states that Sam was not allowed to conduct a business from his apartment. Sam is angry because he specifically told Quinn that he was working on a new invention, and Quinn had wished him luck. The second letter is from the chain store, demanding that Sam deliver the promised 1,000 units immediately. Introduction : In this second case study, we analyze different critical elements in relation to Sam Stevens and the chain store as well as Quinn wanting to evict Sam from his apartment for running a business even though Quinn was told in advance about it and wished him luck. Contracts are always warranted when it comes to owing somebody something or when there is an agreement on whether not something can be done. Valid Contract? Sam Stevens verbally told a chain store manager that he would ship 1,000 units of his new invention, a machine that plays the sound of a barking dog to scare off any potential intruders, and one day came back home from work to a letter of eviction from Quinn, his landlord. This type of contract is a verbal contract and it is not set in stone by either of the parties, as it was by mouth and not via a written contract. There are six elements to have a legal and binding contract, and they consist of: 1.) An offer that specifically details exactly what will be provided , 2.) Acceptance, or the agreement by the other party to the offer presented, 3.) Consideration, or the money or something of interest being exchanged between the parties, 4.) Capacity of the parties
in terms of age and mental ability, 5.) Intent of both parties to carry out their promise, 6.) Object of a contract is legal and not against public policy or in violation of law (Camarneiro, 2019). All elements of the verbal contract meet the criteria for making it a legal and binding contract, as Sam had the capacity at the time of the agreement to be able to fulfill the request of the chain store for the 1,000 units of his invention. Though some things changed after the verbal agreement between the two parties were made, he was still of age, was in the right state of mind, willing and able to carry out the promise, and the purpose of the contract was legal as it did not disobey any law. In the agreement Sam had with the chain store, they would sell Sam’s product exclusively. Quasi-Contract A quasi-contract is defined as ‘an obligation of one party to another imposed by law independently of an agreement between the parties’ (Team, 2018). The elements of a quasi- contract are: 1.) The plaintiff must show evidence of the goods or services they should have been compensated for. 2.) The defendant must have accepted those goods or services and receive some type of benefit from them. 3.) The defendant must have accepted said goods or services under unfair circumstances where the plaintiff didn't receive any compensation. This type of claim cannot come into play within this circumstance due to the defendant having not received a profit off of the goods. The defendant also did not receive any of the goods from the plaintiff as Sam never gave the chain store manager any of the devices. A quasi-contract is an interesting type of deal as it tries to ensure the interest of both parties and making sure it is fair in what they both acquire and that one party does not benefit off of the other party while said party does not receive anything in return.
The rights and obligations of the tenant in a standard lease agreement are that the tenant must pay rent in the timely manner that is agreed upon by the two parties, unless an additional agreement has been made on a month-to-month basis. The tenant may also make changes to the property to make it the way they would like, as long as these changes are not structural or damaging to the property. The tenant may not use the property for any illegal purposes, such as making whiskey, underground casino, etc. as this would allow for the landlord to evict the tenant whenever deemed necessary. Grounds to evict? Within a standard lease agreement, the landlord does have grounds to evict Sam Stevens from the apartment. The landlord does owe it to the other occupants a low noise level environment so they have no disruption of their everyday life. But, in some cases there should have initially been a warning letter to notify Sam that he is being too loud and therefore had time to correct himself and the noise of his machine appropriately at first. If the noise did not lower and the other neighbors were still being bothered, only then could it be deemed for eviction, since Sam is not conducting any illegal business within his apartment and is abiding to the rules. If Sam had been notified and given a warning, that would be one thing, but coming back from work one day and surprised to see an eviction notice in the mailbox is another after allegedly not being told beforehand. In a different instance where a lease agreement states that no business may be run from the apartment, then the landlord would be able to evict Sam Stevens without any second guessing as that would go against what Sam agreed upon. In some instances, zoning laws do not allow you to run a business out of a residence, as it could serve you a major fine or even shut you completely down. Many cities or counties that do allow for residential businesses to take place,
require a license be applied for acknowledging you were given permission to run the business. There may be additional guidelines such as an hour of operations rule. Defenses? The defense that Sam Stevens has against the landlord is that he is a good civilian tenant, goes to work and then comes home to work on his invention. Also, that he has never until today heard of him being an annoyance to anyone of the neighbors. Sam tends to pay his rent on time and has not received any other warnings for any of his other doings. If Sam had informed his landlord and he was given permission to create this new invention, Sam should be able to proceed with doing so. Also, if Sam were to tell his landlord it is an invention and not a business since he has yet to have sold or given away any of the units, this may allow for the landlord to keep him. Sam could be having a new hobby where he was testing out to see which barking noise would have people stay away from his door the best. Case Study Three Jeb and Josh are lifelong friends. Jeb is a wealthy wind-power tycoon, and Josh is an active outdoor enthusiast. They have decided to open a sporting goods store, Arcadia Sports, using Jeb’s considerable financial resources and Josh’s extensive knowledge of all things outdoors. In addition to selling sporting goods, the store will provide whitewater rafting, rock-climbing, and camping excursions. Jeb will not participate in the day-to-day operations of the store or in the excursions. Both Jeb and Josh have agreed to split the profits down the middle. On the first whitewater rafting excursion, a customer named Jane falls off the raft and suffers a severe concussion and permanent damage to her spine. Meanwhile, Jeb’s wind farms are shut down by government regulators, and he goes bankrupt, leaving extensive personal creditors looking to collect.
their actual income permitted by law. LLCs can also place the membership interests in a living trust, and LLCs also avoid double taxation as they only have to file taxes through the entity. Some disadvantages of an LLC include that owners of the LLC may have to pay more in taxes than that of a corporation since salaries and profits of an LLC are subject to self-employment taxes. Since an LLC does not get double taxed, the profits gained are automatically placed into a member’s income without having to move the figures around. Lastly there are just about no fringe benefits, meaning that if a member has group insurance or medical reimbursement plan, the benefits are seen a taxable income. Some advantages within a partnership are that the start-up costs are low and it is easy to establish. More capital is available for the business between partners and not having to spend the hefty start-up price. Partners’ business affairs are held privately. In the future it is easier to change the business structure if wanted. Some of the disadvantages include the debts of the business being unlimited, and therefore falls onto the partners as their liability. The risk of disagreement and possible friction among the partners. Each partner is known as an agent within the partnership and therefore can be held liable for the actions made by other partners. The last disadvantage can be where partners decide to join or leave and then the partnership assets would have to be valued, and this can become a costly matter. A sole proprietorship has its advantages and disadvantages as well, but is considered to be the most common and simple type of business entity. Advantages include that the sole proprietor has absolute control over each facet of the business, even including the final decision- making process without having to consult anyone else. Sale of business can be made at the discretion of the sole proprietor. Formal business requirements are far and few between. No corporate tax is needed within a sole proprietorship. Some disadvantages of the sole
proprietorship business entity include that the sole proprietor can be held responsible for all debts and obligations owed by the company. All the responsibilities and decision-making falls on the sole proprietor to get taken care of. And lastly, investors do not typically invest in a sole proprietorship, so the funding falls on the profit and on the sole proprietor for providing. A Limited Partnership is another business entity option that is not a bad idea to get into. Some advantages of this entity include the capital is quite large, since all partners will invest and therefore the scope for the company increases automatically. Also, this type of entity faces limited liability for losses. This means that the partners are not personally held liable for the debt the company runs into. They are only held liable for the amount they initially invested into the company. This allows for personal assets not to be put on the line for a method of repayment. The ‘important’ workload is shared among partners and is not just on the shoulders of one individual. A couple of disadvantages to limited partnership is that the limited partners do not have much say in the decision-making process. The general partner is liable for more within the debts of the company and therefore would have to pay up more than a limited partner. A disagreement can be grounds for a breach of agreement, and if such disagreements mount up, it could lead to the business failing altogether (Prakash, 2020). Specific Business Entity Recommendation : Jeb is not wanting to take part in the day-to-day operations of the store or the excursions, therefore, the best type of business entity that Jeb and Josh should have would be a Limited Partnership. A limited partnership type of business entity only allows for you to be responsible for what you placed into the company and nothing more when it comes to satisfying any debts in which the company owes. This would help Jeb in knowing that whatever he pitches in to help Josh get Arcadia Sports up and running, that is all he would
Camarneiro, A. (2019, September 25). The elements of a valid contract. Retrieved February 03, 2021, from https://www.lawdepot.com/blog/the-elements-of-a-valid- contract/ Chen, J. (2020, October 15). Fraud Definition. Retrieved January 19, 2021, from https://www.investopedia.com/terms/f/fraud.asp Jezierski, C. (n.d.). Corporate Liability in United States. Retrieved January 19, 2021, from https://globalcompliancenews.com/white-collar-crime/corporate-liability-united- states/Making Ethical Decisions: Process. (2016, May 14). Retrieved January 20, 2021, from https://blink.ucsd.edu/finance/accountability/ethics/process.html Newman, M. (2020, October 21). Types of ADR - Alternative Dispute Resolution: Miller Law Firm. Retrieved January 20, 2021, from https://millerlawpc.com/alternative- dispute- resolution/#Mediation Nykiel, T. (2020, September 30). General partnership: Easy to form but lots of liability. Retrieved February 15, 2021, from https://www.nerdwallet.com/article/small- business/general-partnerships Prakash, P. (2020, December 16). Business entity types and how to choose the right one. Retrieved February 15, 2021, from https://www.justbusiness.com/legal/business- entity#:~:text=There%20are%20various%20types%20of,how%20that%20company %20is %20taxed. Promissory estoppel - definition, types, and practical examples. (2020, May 07). Retrieved February 04, 2021, from https://corporatefinanceinstitute.com/resources/knowledge /other/promissory-estoppel/
Rights and duties of landlords and tenants. (n.d.). Retrieved February 04, 2021, from https://saylordotorg.github.io/text_introduction-to-the-law-of-property-estate- planning- and-insurance/s16-02-rights-and-duties-of-landlords.html#:~:text=Both %20landlords %20and%20tenants%20have,in%20a%20safe%2C%20livable %20condition.&text=The %20tenant%20has%20duties%20as,property%20for%20an%20illegal %20purpose. Team, C. (2018, October 29). Quasi contract - definition, examples, meaning, and cases. Retrieved February 03, 2021, from https://legaldictionary.net/quasi-contract/What is personal jurisdiction? Why is it important? (2019, March 15). Retrieved January 19, 2021, from https://www.womenslaw.org/laws/preparing-court-yourself/court-system- basics/personal-jurisdiction/basic-info-and-definitions- When will a promise or statement be considered a binding contract? (2018, February 20). Retrieved February 03, 2021, from https://www.findlaw.com/smallbusiness/business- contracts-forms/when-will-a-promise-or-statement-be-considered-a- binding.html#:~:text=When%20a%20Statement%20or%20Promise,it%20was%20a %20completed%20contract.
