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Business law

Prof. Dr hab. Artur Nowak-Far

Artur Nowak-Far

• professor at WSE

• head of the Chair of European Law

• since 2007- member of the College of the Supreme Chamber of Control

• 2003-2005 advisor on EU matters to the Polish Minister of Agriculture

• 2002-2003 member of Advisory Council of the Minister of Foreign Affairs

• member of the Warsaw Bar

Business law: concept and structures

• „lubrication” function of business law

• „allocation” function of business law

BL: concept and functions

• Hobbes theorem

• Coase theorem

Sources of BL

• International treaties

• Constitutions

• Statutes

• Model/uniform laws

• Cases

Basic structures

• Private law

• Public law

Subject and divisions of subjectmatters within BL is highly

conventional

• eg. Francovich case

• eg. Faccini Dori case

What is BL?

• any regulation/rule which pertains to business activity

Why BL?

• to provide order/basic security in business relationships

• to balance divergent interests of stakeholders

• to provide protection to the most vulnerable

• …

Business Law: The Actors

Individuals: legal roles

• natural persons

• transactors

• consumers

• business people

• plaintiffs/defendants

• …

Ivenell v. Schab case (1981 ECR 133)

• Def-Co (D) employs Plaintiff (a resident of F) to represent Def-Co as its commission agent in France

• the agreement specifies in detail what Plaintiff isexpected to do (no freedom to carry out his ownbusiness on his own)

• after termination of the agreement Plaintiff sues Def-Co in a French Court for payment of commissionsallegedly owed

The Faccini Dori Case

• the Plaintiff enters into an agreement to partake in the foreign language course to be provided by Def-Co (the agreement concluded out of Def-Co’s business premisses

• after a day, the Plaintiff changes her mind and wants to cancel the agreement

Individuals as sole prioprietors/traders

• creation• control• profit distribution• taxation• liability• access to capital

• ATTENTION: the business form not alwaysavailable (reasons: scale/nature of business activity)!

Partnerships

• creation

• taxation

• profit distribution

• liability

• continuity

Limited Partnerships

• general partner

• limited partner

Limited Liability Partnerships

• partners’ liability for one partner’s professional malpractice limited to the extent of the partnership assets

• no unlimited liability of partners

Corporations

• separate actors in the world of business

• liability

• control

• access to capital

• profit distribution

• taxation

• registration

Modalities pertaining to corporations:

• profit distribution (retained earnings v. dividends)

• taxtation (low levels of tax brackets/Sub-chapterS v. Sub-chapter S corporations)

• „corporation in statu nascendi” (in the creationstage)

A question of recognition and continuity (European view)

• Daily Mail case

• Centros case

• Uberseering case

• Inspire Art case

De facto partnerships: Ritchie v. Yurko(570 NE 2d 892 (1991))

• oral statement forming binding partnership agreement

Other business groupings

• tacit partnerships

• joint ventures, strategic alliances etc.

• groupings of economic interests

• cooperatives (an interesting case)

• trusts

Legal Actions

Basic division of actions having legal ramifications

• Unilateral legal actions

• Bilateral legal actions

• Multilateral legal actions

• Non-legal actions having legal effect

A question: What type of action is making a gift?

Contracts: basic elements

• agreement=offer+its acceptance

• consideration

• contractual capacity of parties

• Some jurisdiction require also causa (the underlying and legally recognized reason)

Failure of assent

• Pretended action

• Error

• Act upon deceit

• Duress

• Threat

Cindy Crawford case: extortion of money

• A man wrote a letter to Cindy Crawford describing a terrible situation his ill daughter is (crippled; inability of the family to pay for any more advanced medical treatment)

• In the letter, the man asked Cindy for a charitable donation

• It appeared that the description was totally inaccurate: the daughter is not crippled, etc.)

Express v. implied contracts

• Express – if what is agreed upon has been intended by both parties

• Implied – if whatever significant element not intended

Examples of implied elements of contracts

• purchase of an on-going enterprise (or an organized part of it) giving rise to a „purchase” of employment contracts associated with that enterprise

• purchase of a piece land with an implied burden to clear-up its soil of contaminants

Quasi-contractual relationships

• unjust enrichment

• representation without consent of the represented party

•

Vienna Convention mode of concluding sales contracts

• A proposal for concluding a contract addressed to one or more specific persons - an offer if it is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance.

• A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price.

Vienna Convention: Sales

• A proposal other than one addressed to one or more specific persons is to be considered merely as an invitation to make offers, unless the contrary is clearly indicated by the person making the proposal.

Vienna Convention: Sales

• An offer, even if it is irrevocable, may be withdrawn if the withdrawal reaches the offeree before or at the same time as the offer.

• Until a contract is concluded an offer may be revoked if the revocation reaches the offeree before he has dispatched an acceptance.

Vienna Convention: Sales

• However, an offer cannot be revoked:(a) if it indicates, whether by stating a fixed time for acceptance or otherwise, that it is irrevocable; or(b) if it was reasonable for the offeree to rely on the offer as being irrevocable and the offeree has acted in reliance on the offer.

Vienna Convention: Sales

• A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.

Vienna Convention: Sales

• If, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed.

Vienna Convention: Sales

• A reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect.

Warranties: types

• Warranty of title (legal conformity)

• Express warranty (physical description conformity being part of a contract)

• Implied warranty (arising by virtue of law under certain circumstances, even if not included expressly in the contract)

Implied warranties

• of merchantability

• of fitness for a particular purpose

• of trade usage (packages, wrap-ups, info etc.)

Warranties exteded onto third parties

• Household members

• Reasonable and foreseeable user

• Anyone injuried by the product

Warranty disclaimers and waivers

• scope/extend

• time

• failures

Negotiable instruments

Negotiable instrument

• a written document…

• containing the signature of the creator…

• …that makes an unconditional promise or order…

• to pay a sum certain in money…

• …at either time certain or on demand

Types of negotiable instruments

• demand instruments

• time instruments

Examples:

• certificate of deposit

• cheque (US. Eng. „check”)

– cashier’s cheque

– traveler’s cheque

– certified cheque

Remuneration

• Facere („doing”)

• Ommittere („not doing”, „ failing to do”)

• Pati („accepting what is going on”)

– yet generally payment of money certain in amount

Why instruments are „netogiatble”?

• „Negotiability” refers to transferability of rights to a negotiable instrument

• Negotiability could be of an order instrument of a bearer instrument

Order v. bearer instrument

• Order instrument – payable to a given (specified) payee

• Bearer instrument – payable to any person possessing the instrument

– Which bears an important difference in delivery of the instrument to be effectively negotiated

Endorsement

• Endorsement should be done together with delivery to be negotiated

• an instrument could be endorsed many times (if no space on the instrument, an allonge can be attached to it)

• You can prohibilit further endorsements either by stating limited use of an instrument…

• or by specifying the limitation to a person…

• or by specifying the condition on which an endorsement can be made…

• or by requesting bank certified endorsement

Holder in due course doctrine

• Holder in due course is a possessor of an instrument who is entitled to the money specified in it irrespective of any problem which might have arisen in the original transaction being a reasons for rising that instrument

– an evidence that negotiable instruments are not required to have causa (but see an example of India)

Requirement for holder in due course

• Holder of a complete and authentic instrument

• Has taken the instrument for value

• Has taken the instrument in good faith

• The instrument does not bear any notice of defects

BANKRUPTCY AND REORGANISATION

Business Bankruptcy in Spain • initiated by court on a special motion of either

debtor or creditor(s)

• rhe basis for the motion is that „the business is beyond restoration” (the state of quiebra)

• the court checks up whether the business is indeed in the state of definite insolvency and then whether the insolvency is fraudulent or negligent

• If the insolvency is not either fraudulent or negligent, the business is declared bankrupt.

Bankruptcy by liquidation

• The bankrupting party turns over all assets to a trustee

• In the moment the petition for bankrupcy is registered by court, all creditor litigation against the debtor must stop (yet, some proceedings do not stay)

• after some time, the court determines the list of debts (in US law this has a format of creditors’ meeting)

Priority claims among unsecured creditors (US) – first on the list

• unpaid domestic support obligations (e. g. alimony)

• court costs, trustee fees, lawyers’ fees, administrative expenses associated with bankruptcy

• any regular debts which arose in the period between filling the petition and the appointment of the trustee

Collection action and exemptions

• trustee adopts the liquidation strategy and sells respective assets of the liquidated business to pay off debts according to the list of crreditors

• Exempted from sales and collection are assets specifically listed in legislation

Assets exempt in Poland

• minimum subsistence salary/wage

• some personal belongings (e. g. underwear)

• one bed, one table and two chairs

• assets needed to continue professional activity

Preferential payments and fraudulent transfers

• PP – any monies received by discretionally selected creditor short before bankruptcy (in US – 90 days prior bankrupcy)

• FT – any transfer of prioperty intended and efffective to defraud creditors

Reorganisation

• an agreement registered with the court between the debtor and creditors…

• …involving a reorganisation plan to handle the creditors’ claims…

• …allowing the debtor to carry on his/her business (debtor in possession, DIP)

• the court gets involved (removes the DIP status and appoints a traustee) only if matters mismanaged

Recovery plan

• classes of claims and interests in the debtor’s property

• classes of creditors and their treatment

• means for execution of the agreement