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Corporate Veil, Employee Benefits and Rights in Contracts

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1). Years ago, New York law required that every taxicab company carry $10,000 of accident liability insurance for each cab in its fleet. The purpose of the law was to ensure that passengers and pedestrians injured by cabs operated by these companies would be adequately compensated for their injuries. At that time, Jay Colton organized 10 corporations, each owning and operating two taxicabs in New York City. Each of these corporations carried $20,000 of liability insurance. Colton was the principal shareholder of each corporation. The vehicles, the only freely transferable assets of these corporations, were collateral for claims of secured creditors. The 10 corporations were operated more or less as a unit with respect to supplies, repairs, and employees. Sam Walker was severely injured when he was run down by one of the taxicabs. He sued Colton personally, alleging that the multiple corporate structure amounted to fraud upon those who might be injured by the taxicabs. Should the court pierce the corporate veil to reach Colton individually? Explain the arguments of both parties before reaching your conclusion. Explain your reasoning.

2). ZIP Tours, Inc. arranged tours of central Florida's tourist attractions. Cynthia Hooper conducted 29 such tours for ZIP between July 1980 and March 1981. Both Hooper and ZIP considered Hooper an independent contractor. She worked for ZIP only when it needed her services, and could reject particular assignments. She was also free to work for other tour services, and did so. Once Hooper accepted a job from ZIP, she was told where to report and was given instructions about the job. She also had to use a ZIP-furnished vehicle and wear a uniform with the ZIP logo when conducting tours. Aside from ensuring that she departed on time, however ZIP did not tell her how long to stay or what kind of tour to conduct at each tourist attraction. Finally, Hooper was paid on a per tour basis. Hooper later filed a claim for unemployment compensation benefits with the Florida Division of Labor and Employment Security. The Division concluded that she was entitled to these benefits because she was ZIP Tours' employee. Was Hooper an employee or an independent contractor? Explain the arguments of both parties before reaching your conclusion. Explain your reasoning.

3). Frank agrees to build a garage for Sarah for $15,000. Sarah offers either to sign a contract showing her obligation to pay Frank $15,000 or to sign a negotiable promissory note for $15,000 payable to the order of Frank. Would you advise Frank to ask for the contract or the promissory note? Explain your answer, and be sure to address the differences in the rights of assingees of contracts versus holders in due course of negotiable instruments.

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Solution Summary

This in-depth solution address all three scenarios and for the first scenario provides arguments of Sam Walker and principal shareholder in all 10 corporations, and the decision of the court. In the second scenario arguments are provided for Hooper and ZIP tours and references the IRS 20 point checklist to decide on a conclusion. In the third scenario, the function of a contract and a promissory note is explained and suggestions are made for what Frank should do.