Legal Issues in Business Organizations

Legal Issues in Business Organizations Part I

Read the scenarios and the questions that follow. Identify and analyze the legal issue(s) as instructed. Apply legal concepts and make potential arguments as directed using laws, cases, examples, and/or other relevant scholarly materials. Consider using short headings (consult APA materials) to separate the topics.  Summarize the facts; do not copy the scenarios into the paper. After you have answered the questions propose recommendations to help the organization avoid at least three of the issues identified in the scenarios in the future. Support your answers with information from the textbook and at least three scholarly sources other than the text and course lectures. By Week 3, Day 6, prepare a 5 to 8-page paper that identifies the legal issues and potential solutions and answers all questions presented, supported by relevant legal authority. Properly cite all sources using APA format. This assignment requires application of the concepts learned in Weeks 1–3 and is worth significantly more than previous assignments.

Part 1 – Business Organizations

Donny Woods, Jamaica Johnson and Gerald Smith met while working at Applebee’s and attending college in Tampa. Donny and Jamaica attended South University to study business, while Gerald attended the Art Institute for culinary management. The three friends were tired of working for someone else and planned to open their own restaurant and bar in a growing area of Tampa.

• Analyze three types of business organizations Woods, Johnson and Smith might consider for starting their new restaurant. Be sure to consider at least one limited liability option. Explain the advantages and disadvantages of each type. 
• Select one type of business for Woods, Johnson and Smith and provide support for your choice. Based on your selection for the business type, create a name for the business. Replace [Restaurant Name] found in future scenarios with the name you selected for your restaurant.

Part 2 – Dishonored Checks

The restaurant provides catering services to local businesses. Corporate clients paid by check or electronic transfers. A new customer paid for a catering order with a check for $575, made payable to [Restaurant Name]. Woods took the check to the bank the next afternoon and was informed that the customer’s bank issued a stop payment on the check. 

• Evaluate the restaurant’s options related to the stop payment on the customer’s check and the potential liability of the customer and customer’s bank.

Part 3 - Liability on Negotiable Instruments

Woods, Johnson and Smith hired a bookkeeper, Janie Johnson, and gave her general authority to issue company checks drawn on Bank of America so that Johnson can pay employees’ wages and other company bills. Johnson decides to cheat her employers out of $7,500 by issuing a check payable to the Bayfood Distributors, one of the suppliers of seafood and fresh local produce. Johnson does not intend for Bayfood to receive any of the money, nor is Bayfood entitled to the payment. Johnson indorses the check in Bayfood’s name and deposits the check in an account that she opened in Wells Fargo Bank in the name “Bayfood Dist. Co.” Wells Fargo accepts the check and collects payment from the drawee bank, Bank of America. America charges [Name of Restaurant] account $7,500.  Johnson transfers $7,500 out of the Bayfood account and closes it. [Name of Restaurant] discovers the fraud and demands that their account be re-credited.

• Evaluate which party bears the loss.

Part 4 – Breach of Contract

Woods ordered 10 tables to seat parties of two, 25 square tables to seat parties of four, 5 tables to seat larger parties and 150 chairs. The tables were specially ordered to contain the logo of the restaurant. Woods paid for the entire shipment when placing the order; however, the supplier was responsible for making the shipping arrangements. The tables and chairs arrived three weeks later; however, five were scratched and damaged. Seven of the chairs were missing.   

• Analyze the restaurant’s options related to the damaged tables and missing chairs. Be sure to address the applicability of the UCC to the transaction.

Part 5 – Product Liability

After some of the customers complained of becoming sick after eating at [Restaurant Name], it was determined that the hamburger meat was contaminated with E. coli, a bacteria that causes abdominal cramping, fever and other gastrointestinal discomfort.    

• Analyze at least one basis for a lawsuit the customers who became sick from eating the tainted food could file against the restaurant.

Part 6 – Holder in Due Course

Joe Craftsman had a bank account with Wells Fargo. On November 8, Craftsman received a check for $18,500 from [Restaurant Name] as payment for construction work done at the restaurant to bring it up to the county code requirements. Craftsman deposited the check at Wells Fargo on November 9 and was permitted to draw the funds up to November 12. Craftsman wrote checks totaling $9,500, which Wells Fargo cleared. On November 12, [Restaurant Name] stopped payment on the check as a result of a contract dispute over the modifications at the restaurant. Craftsman's account was then overdrawn once the check was denied clearance by [Restaurant Name’s] bank. Wells Fargo brought suit against both Craftsman and [Restaurant Name] to collect its loss. [Restaurant Name] counterclaims against Craftsman for breach of contract on the restaurant modifications. Wells Fargo maintained that it had given value and was a holder in due course and, as such, it was not required to be subject to the contract dispute or stop payment order.

• Justify the validity of the claims made by each party.  Determine which party should win the case and provide support for your choice.

Part 7 - Recommendations

• Conclude your paper by justifying suggestions for [Restaurant Name] to help prevent future occurrences of these types of legal problems and ethical issues, if applicable. Be specific in your recommendations.

Support your answers with appropriate research, reasoning, cases, laws, and other relevant examples. Submit the paper in APA format and properly cite sources on a separate page using APA.