Lemon Laws: A Sweet Deal

Before the advent of "lemon laws" the unlucky purchasers of cars with nagging mechanical problems could only seek recompense through costly and time-consuming litigation against the car dealer and manufacturer. The consumer bore the difficult burden. Often, the results were frustrating.

Spurred by consumers' complaints of a sour deal, state legislatures responded by enacting lemon laws, which give consumers a tough new weapon in this battle.

Lemon laws establish an administrative procedure for consumers who have purchased a vehicle that does not work properly. The dispute is usually heard by an arbitrator instead of a court. The procedure is less formal than a court proceeding and assures the consumer of a speedy resolution to the dispute. Most state laws require car manufacturers to bear the expense of the arbitration system.

While these law generally cover new automobiles for two years from the date of delivery, some state's statutes also apply to used cars purchased from a dealer and to leased cars. During the two-year period, lemon owners are entitled to return the car for a full refund if they can show that the manufacturer failed to eliminate the defect after a reasonable opportunity to do so. In most states, consumers must give the manufacturer four crack at fixing the problem before they can seek a refund. After that, the owner may go through the arbitration process or sue in court.

Proponents say that lemon laws put the squeeze on car manufacturers to respond to consumer complaints. Some consumer activists worry that the arbitration process may be biased in favor of the automobile industry, however. Critics argue that many lemon laws have not gone far enough because they retain the UCC's requirement that the consumer prove that the recurring defect "substantially impairs" the car's value, and that subjectivity and ambiguity remain the standard for winning or losing the claim.

Nonetheless, lemon laws will undoubtedly help hapless consumers who find that their cars are spending more time in the repair shop than on the road.

What Do You Get . . .

. . . when you cross a partnership and a corporation? A hybrid form of business organization called a limited liability company, or LLC.

In recent years, a majority of states have approved LLCs as a new form of business entity. This unique unincorporated business entity combines the most favorable attributes of both partnerships and corporations.

Forming an LLC is very similar to organizing a corporation. Two or more persons may form an LLC for any lawful purpose. To form an LLC, articles of organization must be filed with the appropriate state office. The articles of organization must state the LLCs name, duration, and other information required by the statute or that the organizers deem important to include. The name of the LLC must contain the words Limited Liability Company or the abbreviation L.L.C. or L.C.

LLCs have several unique attributes. Like shareholders of corporations, owners of LLCs, called members, are not personally liable for the obligations of the LLC.

Another major feature of an LLC is the ability to be taxed as a partnership. In order to be taxed as a partnership instead of a corporation, an LLC can possess only four of the following six corporate atttributes:

1. associates,
   
2. an objective to carry on business and divide gains,
3. limited liability,
4. centralized management,
5. continuity of life, and
6. free transferability of interests.

The easiest of these to give up are continuity of life (by choosing a limited duration) and free transferability of interests (by placing restrictions on the transferability of interests). If two of the six corporate attributes are missing, an LLC enjoys the same pass-through tax status of a partnership.

Why should an LLC be used instead of an S corporation or a partnership? Corporations and partnerships are subject to many restrictions and adverse consequences which do not exist with an LLC, including

• S corporations cannot have shareholders other than estates, certain trusts, and individuals (who cannot be nonresident aliens). S corporations can have no more than 35 shareholders, one class of stock, and may not own more than 80 % of another corporation. LLCs have no such restrictions.

• In a general partnership, the partners are personally liable for the obligations of the partnership. Members of LLCs have limited liability.

• Limited partnerships must have at least one general partner who is personally liable for the obligations of the partnerhip (although this can be a corporation). Limited partners are precluded from participating in the management of the business. An LLC provides limited liability to all members even though they participate in management of the business.

LLCs will provide new opportunities and alternatives for doing business, particularly to small and medium-sized businesses and professionals. However, because two or more persons are necessary to form an LLC, sole proprietorships cannot use an LLC as a business entity.

Of Agreement and Consideration

I have always been intrigued by contract law and not as it relates to employment.

One case in particular caught my eye as I surfed contract case law. It was a 1982 case brought before the Supreme Court of Tennessee, Alden v. Presley.

Elvis Presley, a singer of great renown and a man of substantial wealth, became engaged to Ginger Alden. He was generous with the Alden family, paying for landscaping the lawn, installing a swimming pool, and making other gifts. When his fiancee's mother, Jo LaVerne Alden, sought to divorce her husband, Presley promised to pay off the remaining mortgage indebtedness on the Alden home, which Mrs. Alden was to receive in the divorce settlement. On August 16, 1977, Presley died suddenly, leaving the mortgage unpaid. When the legal representative of Presley's estate refused to pay the almost $40,000 mortgage, Mrs. Alden brought an action to enforce Presley's promise. The trial court denied Mrs. Alden recovery; Mrs. Alden appealed.

The question before the court was this: was Presley's promise to pay the mortgage enforceable?

The answer, of course, was no. The supreme court held that Presley's promise was a gratuitous promise that was not supported by consideration. It was one-way. As such, it was unenforceable against Presley's estate. The court dismissed the case and assessed costs against Mrs. Alden.

Under contract law, gift promises are unenforceable because they lack consideration. The court found that Mrs. Alden had not given any consideration in exchange for Presley's promise. The court also found that the gift promise had not been completed by Presley. Therefore, the unexpected gift promise could not be enforced against Presley's estate.

Ladies and gentlemen - Elvis has left the building!

Yahoo - Putting the Ethical Cart Before the Horse

Recently, Yahoo’s CEO, Jerry Yang, faced blistering criticism at a congressional hearing over Yahoo’s handling of email records. In 2004, Yahoo handed over emails records of journalist Shi Tao to Chinese authorities. Tao used his Yahoo email account to send an email to the U.S. which included information on the government response to the Tiananmen Square massacre. Tao was imprisoned that December by the Chinese government and is serving a 10-year term. How could this happen?

The answer is simple: the lure of overseas markets. Like other corporations, in order to gain access to lucrative Chinese markets, Yahoo signed China's Public Pledge on Self-Discipline for the Internet Industry thereby agreeing to support China¹s system of censorship and control.

But, Yahoo is not the only corporate entity lusting over the potential that the Chinese market promises. Not too long ago Google acquiesced to Chinese government requests and built a special Chinese version of its might search engine, one that screens and filters out words and phrases deemed harmful by government officials.

However, to truly understand Yahoo’s recent ethical dilemma, we need to place all of this in perspective. Let us not forget that it was at a June 12 meeting when Yahoo shareholders criticized then CEO Terry Semel for Yahoo’s declining revenue growth and stock price. The following week Semel resigned and was replaced by Yahoo co-founder Jerry Yang. It was at this same meeting that Yahoo shareholders accepted two proposals specific to its international policies. Shareholders accepted proposals that asked the company to commit to not censor its internet sites in other countries, and establish a committee on human rights.

But is all this too little too late? Can Yahoo shareholders now have it both ways in China’s emerging market?

Yahoo, as with so many other entities, seem to justify their actions with a "when in Rome, do as the Romans do" defense. To enter the Chinese market, executives claim they must comply with local laws. But China's local laws present overseas companies with difficult and ethical choices that would be unacceptable in the West.

So what is the solution? In dealing in the international marketplace, US companies need to first determine an ethical baseline. For example, Seagate Technology says this about international ethics: “Every business must determine its standards in the global marketplace. Once these standards are determined, they must be clearly communicated to employees and enforced. Without clear standards, we place employees, the company, and its reputation at risk.”

In other words, a company must go into an international relationship knowing what its ethical standards will be. From that point on, from that baseline, a company makes decisions within the context of those ethical standards. Clearly, Yahoo’s ethical baseline was nonexistent. Yahoo did what was necessary in order to enter the Chinese market, knowing that Google had already singed on with the Chinese government. Instead of taking a stand, of creating an ethical baseline that would have differentiated it from Google, Yahoo opted to be like Google and like Google failed in its ethical approach.

Think about it for just a second: if Yahoo had drawn an ethical baseline in the sand, and opted out of the Chinese market for ethical reasons, it would then be in a position to present its case before the American public and differentiate itself from Google. Then, it would be up to the American public to reaffirm Yahoo’s ethical baseline and reward it over Google. Ultimately, an organization’s ethical approach is judged in the marketplace.

Unfortunately, as with Google, Yahoo put the ethical cart before the horse.