Three Law Scenarios

Three Law Scenarios

Your answers should be in a short essay format and include an introduction, body and conclusion. The “grading matrix” that we have used during this course will apply to these answers. You must use at least two sources of law (one of which may be your textbook) in responding to each of the three main sets of facts. If you make any assumptions about the facts of any scenario be sure to identify these assumptions in your answer.


I. John Albert and Matthew Baker have been friends for many years. They have decided to go into business together in Phoenix, Arizona. Each of them has worked as a loan officer for a mortgage lending bank in the past. They believe a new lending company would be prosperous. They decide to open a company and call it the “Lending Store”. They have never owned a business before so need some help getting their business venture started. They know you have recently taken a course about business law and come to you for some business advice.

  1. Albert and Baker are considering the merits of forming the company as a general partnership. Explain what their respective rights would be as to (a) any profits of the company and (b) participating in the management decisions of the company.
  2. If Albert and Baker actually formed a general partnership, explain how this type of business entity would impact each partner on a personal basis with regard to any liabilities owed by the new company.
  3. Another possible approach would be for Albert and Baker to form a corporation for their new business. Explain the steps these individuals would be required to take in order to get the corporation legally formed and ready to open the doors for business.
  4. If Albert and Baker actually formed a corporation, explain what their personal obligation would be for any liabilities owed by the new company.
  5. Albert and Baker are not aware of any other choices for the structure of their new business. Provide them with one more idea for a form of business (other than a general partnership or corporation). Explain some of the advantages and disadvantages of this third form of business entity.

II. Albert and Baker form a corporation and start their business as the Lending Store, Inc. They begin making mortgage loans. They lease a large office building and eventually hire twenty employees. After several months it becomes obvious that one of their more experienced employees, Mary Smith, has some personal problems. Ms. Smith is 60 years old and has a permanent disability that requires her to work from a wheelchair. She is often late for work because of health issues and has some absences each month. She shows up ten minutes late for work one morning and Albert fires her on the spot without explanation. The company then promotes from within and allows John Jones to take Ms. Smith’s position. John Jones is 25 years old. He has no mortgage lending experience but is on time for work every day.

  1. Mary Smith is unhappy about being fired. She is unable to find another comparable job so decides to sue the company to either get her job back or to recover past and future wages. Explain the possible legal claims that Ms. Smith could pursue against the company.
  2. Albert and Baker come to you for advice again. Explain the best defenses the company would have against any legal claims made by Ms. Smith. Include in your explanation what you believe would be the most likely outcome of this lawsuit known as Smith v. Lending Store, Inc.
  3. The other employees of the company are concerned that Mary Smith was terminated unfairly. Some of them are considering joining the White Collar Workers of America Union to protect themselves from a similar fate. Explain the steps these employees would have to take in order to allow a union to represent them in their relationship with the Lending Store, Inc.
  4. Albert and Baker do not prefer to deal with a union and are most concerned that their employees would go on strike and financially damage the company. While a strike may be possible with any union, explain to Albert and Baker some of the circumstances under which the union could not legally go on strike against the company.
  5. The Lending Store, Inc. has now decided to hire a few part-time independent contractors. These persons will take mortgage loan applications for the company at various shopping malls. Explain the type of relationship the company will have with this category of worker. Include in this explanation some of the key differences between an independent contractor and a regular employee of the company.

III. The employees of the Lending Store, Inc. did join the union. The company was profitable for several years. However, the Phoenix economy recently took a severe downturn and business has slowed considerably. Also, a serious incident has occurred with one of their management employees, John Jones. While driving a company car with the Lending Store, Inc. logo printed on the side of the vehicle, this employee was involved in an auto accident. The driver of the other vehicle was seriously injured. The employee admits he purposely hit the other car when this driver shouted negative comments to him about the Lending Store apparently after seeing the company’s name on the vehicle. The employee also admits he had been drinking alcoholic beverages during his lunch hour in violation of company policy. He was on his way home when the accident occurred. The driver of the other vehicle files a lawsuit demanding reimbursement for medical bills and One Million Dollars in “other” damages. He names both John Jones and the company as co-defendants. The company does not have enough insurance coverage to pay for the damages claimed. In addition to this bad news, the poor economy has caused a significant decline in business. Now the company is losing money every month and has almost no cash on hand. The company is unable to pay this accident claim, the monthly rent for office space or its employees’ wages. Because the employees have not been paid for over a month, the employee’s union has threatened a strike. Albert and Baker have not taken their salary for the past six months in order to help the company financially. They are both very concerned that the company may not be able to continue in business given these recent and significant financial setbacks.

  1. Explain the theory of law that would allow the third party injured in the auto accident to make a claim against the Lending Store, Inc. for damages. Include in your explanation the applicability of this general theory of law to the facts of this particular case.
  2. Explain the defenses the company could possibly assert against this third party’s lawsuit. Include in your explanation the applicability of these legal defenses to the facts of this particular case.
  3. What decision do you believe the court would most likely come to with regard to the claims for damages made by the injured driver against (a) the employee and (b) the company? Explain the legal rationale for each decision.
  4. Since Albert and Baker have not been paid for six months, they have serious financial problems of their own. They are considering filing personal bankruptcy. Explain the process they would go through and the impact on their finances if they were to file a Chapter 7 bankruptcy.
  5. Albert and Baker believe they can revive the company into a profitable enterprise again if they have some immediate financial relief. Explain how a Chapter 11 bankruptcy filing by the company would be relevant in this situation. Include in your explanation the likely outcome for the Lending Store, Inc. if it would successfully complete this type of bankruptcy process.

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