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90 Cards in this Set

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What is an agency relationship?

formed by mutual consent of a principal and an agent


Party who employs another person to act on his or her behalf


Party who agrees to act on behalf of another

Stipulations of Agency Relationships

Principal must have capacity to appoint agent

(court can give authority to agent on behalf of insane person, etc.)

Agency only created on lawful purpose -- cannot hire an agent to murder someone.

Principal-Agent Relationship

Formed when employer hires employee and gives that employee authority to act and enter into contracts on his or her behalf


Employer-Employee Relationship

Employer hires employee to perform work - simple as that - does not give them authority to enter into contracts, etc... therefore is NOT an agent.

Ex: Line supervisor may have authority to purchase materials, line worker does not -- line supervisor is agent, line worker is NOT an agent

Independent Contractor

Hired by principal to perform task on their behalf -- is NOT employee -- they operate their own business or profession.

CAN be given agent authority to enter into contracts on principals behalf

Formation of an Agency (4 ways)

Express: authority is epressly given to agent by principal -- can be either written or oral (unless has to be written under certain circumstances)

Implied: authority is implied from conduct of parties -- industry custom, prior dealing precedent, etc. (Real estate broker fixing house for sale while owner is out of town)

Apparent: authority created when principal leads third party to believe agent has authority

Ratification: Acts of "agent" are committed outside the scope of authority, but the principal then says "ok sounds good actually"

Principal's Duties (4)

1) Duty to Compensate: must pay agreed-upon amount to the agent either upon completion or other mutually agreed upon time

2) Duty to Reimburse: If they were authorized, within scope of agency, and necessary to fulfill agent duties

3) Duty to Indemnify: Must compensate agent for any losses caused by poor principal conduct

4) Duty to Cooperate: Must cooperate with and assist agent in performing their duties

Agent's Duties (3)

1) Duty to Perform: Must complete lawful duties expressed in contract and meet standards of reasonable care, skill, and diligence.

2) Duty to Notify: Must alter principal of important information concerning the agency

3) Duty to Account: Must maintain accurate accounting of all transactions undertaken on principal's behalf

Termination of Agency - under what circumstances? (5)

1) Act of Parties: mutual assent, stated time has lapsed, purpose is achieved, occurence of pre-stated event

2) Change in Circumstances: land being sold for $1m, learns there's oil and worth $5m, original agreement changed

3) Impossibility: destruction of subject matter, loss of reqd qualification, law changes, etc

4) Operation of Law: death of principal or agent, insanity of principal or agent, bankruptcy of principal, war b/w principal and agent countries

5) Wrongful Termination: When principal or agent terminates contract and it's against the contract to do so

Notice of Termination

Principal needs to give DIRECT NOTICE - alerting all third parties with whom agent dealt and CONSTRUCTIVE NOTICE - alerting third parties who know about agency even though haven't had direct contact with agent

If principal fails to give notice to third party about agency termination, agent still has apparent authority to bind principal to contracts

Agents Duty of Loyalty (5 breaches)

Agent must do what's in best interest of principal

1) Self-Dealing: Real estate agent hired to buy real estate can't sell his own property secretly to the principal.

2) Usurping an Opportunity: land for sale that fits what principal wants -- agent buys it for himself instead of for principal

3) Competing With Principal

4) Misuse of Confidential Info: Ex: can't carry along to new principal trade secrets or client lists from past principal

5) Dual Agency: Cannot represent both parties with conflicting interest -- cannot represent both buyer and seller

Tort Liabilities for Principals and Agents (list 6)

1) Negligence

2) Frolic and Detour

3) Coming and Going

4) Dual-Purpose Mission

5) Intentional Tort

6) Misrepresentation

Tort: Negligence

Principal is liable for Agent's tortious negligence WITHIN SCOPE OF EMPLOYMENT because of the contract the principal has with the agent

EX: cashier who is negligent -- employee , NOT agent

Tort: Frolic and Detour

Agents personally liable for actions if something happens while on personal errand -- ex: stop at home for lunch on way home from sales pitch

MINOR vs. SUBSTANTIAL -- if home is on the way, then minor -- if it's in Cleveland then substantial

Tort: Coming and Going

Principal is generally NOT liable for injuries caused by agents and employees while they are on their way to or from work

Tort: Dual-Purpose Mission

Principal requests employee or agent to run errand for principal while agent is on personal business -- usually both are held liable if something happens

Tort: Intential Tort

Assault, battery, false imprisonment, etc...

Principal liable IF intentional tort is committed within scope of normal employment -- exceptions are motivation test -- if personal vendetta then principal not held liable.

Tort: Misrepresentation

Fraud or Deceit

Agent makes untrue statement, or is fraudulent, etc. or makes an innocent misrepresenation -- either way, principal is held liable

Independent Contractor Liability

Generally, Principal is NOT liable for torts of independent contractor

BUT - they are liable for dangerous activities they assign to independent contractors AND for negligent selection of indep contractor

Principals ARE liable for contracts entered into by their indep contractors (b/c they're an agent)

Principal Liability for Contracts

Imposition of contract liability depends on if they are ...

Fully Disclosed Agency -

Principal YES Agent MAYBE (if they guarantee)

Partially Disclosed Agency -

Principal YES Agent YES

Undisclosed Agency -

Principal YES Agent YES

Agent Exceeding Scope of Authority -

Principal NO Agent YES

Sole Proprietorship

General Partnership

BOTH are the default in absence of formality

BOTH have unlimited personal liability -- the individual IS the company

BOTH pay taxes from personal income (GP is FLOW-THROUGH TAXATION)

Rights of General Partners (5)

1) Right to Participate in Mngmt

2) Right to Share in Profits

3) Right to Compensation

4) Right to Indemnification

5) Right to Return of Loans

6) Right to Return of Capital

7) Right to Information

Duties of General Partners (5)

1) Duty of Loyalty

2) Duty of Care

3) Duty to Inform

4) Duty of Obedience

5) Right to an Accounting

Liability of General Partners --

Joint vs. Joint Several

Joint = for contracts and debts of partnership

Joint and Several = for Torts and breaches of trust -- each general partner has individual liability as well as the GP overall has liability

Dissolution of GP




Outgoing Gen Partner is not excused from liability

Wrongful -- one partner pulls out when they're not contractually allowed to do so -- they are liable for damages caused by dissolution

Notice -- actual and constructive notice must be given to any and all third parties

Distribution -- Creditors paid first, then creditor-partners, then capital contributions, then profits

Limited Partnerships (LP)

Has both general partner(s) and limited partner(s)

General - invest, manage, liable

Limited - invest, NO manage, NO liable beyond capital contribution (only liable if effective formation, participation in management, or personal guarantee)

Limited Liability Limited Partnership (LLLP)

Has both general partners and limited partners where BOTH general and limited partners have limited liability and are not personally liable --- debts and obligations only apply to LLLP

Limited Liability Corporation (LLC)

Creatures of State Law -

LLC is separate legal entity distinct from its members. They are treated as an "individual" and can sue/be sued, be liable, enforce contracts, etc

Formation of LLC

formed by delivering Articles of Organization

can be at-will or term (duration)

Certificate of Interest --LLC

Member's ownership interest may be evidenced by a certificate of interest -- equivalent to stock certificate in a corporation

Operating Agreement -- LLC

Regulates affairs of the company and the conduct of its business and governs relationships between members and managers -- may be oral but is usually written

Liabilities of LLC --




Members NOT personally liable beyond capital contributions

Managers NOT personally liable for debts, obligations, liabilities of the LLC they manage

Limited Liability Partnership (LLP)

All partners are limited liability, no general partners

Lawyers, doctors, etc -- all are liable for their own malpractice -- not other partners in the firm


Nature of Corporations

Fictitious legal entity that is owned by shareholders

- separate legal person

- free transferability of shares

- perpetual existence

- centralized mngmt -- board selects officers

Domestic Corp



D - in state

F - out of state or other jurisdiction

A - in other country

Difference between LLC and Corp


- Operating Agreement

- Articles of Organization


- Bylaws

- Articles of Incorporation

S Corp

No fed tax for income tax purposes

- must be domestic

- cannot be member of group of corps

- <100 shareholders and US citizens

- One class of stock

Debt Vs Equity

Equity - common vs preferred

Debt -

Debenture - long-term (unsecured)

Bond - long-term (secured)

Note - short-term (either)

Dissolution of Corp




Corp Gov and Sarbanes-Oxley

improve governance, prevent fraud, add transparency

Voting Rights

Shareholders get vote per share typically -- can vote by proxy if they're not at the meeting

Straight voting vs Cumulative voting


If majority of shares entitled to vote are present, a quorum is there to hold the meeting

Derivative Lawsuits


shareholder brings suit against offending party on behalf of corporation when corporation fails to bring the lawsuit

- was shareholder at time of act

- fairly represents interests of corp

- made written demand

Piercing Corporate Veil

if shareholder dominates corp and uses it for improper purposes, court can disregard corp entity and hold shareholder personally liable for corp's debts

Board of Directors

elected by shareholders

formulate policy decisions

paid annual retainer

- inside director (also officer)

- outside director (not officer of that corp)

Board Meetings

Quorum required to hold board meeting or transact business

Corporate Officers

Appointed by the board

Manage day to day ops of the org

They are AGENTS -- have authority

Duties of Directors & Officers

1) Duty of Obedience - have to act within authority and within bounds set by governing documents (bylaws, articles of incorporation)

2) Duty of Care - Use care and diligence when acting on corporation's behalf (BUSINESS JUDGEMENT RULE)

3) Duty of Loyalty - Cannot do anything with adverse effect on corporation

Ways to breach Duty of Loyalty

1) Usurping corporate opportunity

2) Self-dealing

3) Competing with corporation

4) Making secret profit

Business Judgement Rule

Directors and Officers not liable for honest mistakes of judgement (example: poor business strategy, roll out bad product...etc)

Sarbanes-Oxley Act

1) CEO/CFO certification of financials

2) Reimbursement of bonuses and incentive pay when there are errors

3) Prohibition on personal loans to directors/officers

4) Penalties for tampering w/ evidence - up to 20 yrs in prison

5) Bar from acting as officer or director forever if fraud is committed

Unsecured Debt

Secured Debt

U - credit that does not require any collateral to protect payment of debt

S - credit that requires collateral to secure payment of debt


Owner of real property borrows money from lender and pledges the real property as collateral to secure loan



Mortgagor = debtor (home owner)

Mortgagee = lender (bank)

Recording Statues


Effect of not recording or recording later?

Requires that mortgage be recorded in county office

- if not recorded then potential issues -- subsequent purchaser issues

other mortgagees who have no notice of prior morgages

Foreclosure Sale

Secured creditor (lender) causes judicial sale of property to pay loan

Deficiency Judgement

permits lender to recover other property or income from defaulting debtor if collateral (foreclosure sale price) doesn't fully repay loan

Right of Redemption

allows debtor to redeem property if they pay full amount of debt after default and before foreclosure

Mechanic's Lien

contractor's, laborer's lien that makes property they've worked on the security for payment for the services they've provided.




Surety - third party promises to be primarily liable (can be sued right away)

Guaranty - third party promises to be secondarily liable (have to sue the other person first)

Collection Remedies

1) Writ of Attachment - permits property seizure while lawsuit is pending

2) Writ of Execution - permits property seizure that is in possession of debtor

3) Writ of Garnishment - permits seizure of property in possession of third parties

Bankruptcy types

Chapter 7 - Liquidation

Chapter 11 - Reorganization

Chapter 12 - Adjustment of Debts - Farmer

Chapter 13 - Adjustment of Debts - Individual

Bankruptcy Petition Types

Voluntary Petition - filed by debtor

Involuntary Petition - filed by creditor(s)

Attorney Certification

Attorneys have to sign off that everything is accurate in the bankruptcy details -- subject to fines and sanctions if issues exist

Counseling -- Bankruptcy



Bankruptcy Schedules

list of secured unsecured creditors

list of all property owned

statement of financial affairs of debtor

statement of debtor's monthly income

current expenses

federal income tax return

Meeting of the Creditors

judge cannot attend - debtor attends and is submitted to questioning by creditors

Bankruptcy Trustee

Legal representative of debtor's estate

must be appointed in Chp 7, chp 12/13

potentially chp 11 if fraud exists

Automatic Stay

Filing of bankruptcy automatically STAYS (suspends) actions by creditors to collect debtor's property

Discharge of Debts

Court says you don't have to pay them back even though bankruptcy proceedings didn't pay them back

Chapter 7 Bankruptcy


debtor's nonexempt property is sold for cash, the cash is distributed to the creditors, and any unpaid debts are discharged

Chapter 7 Exempt Property

Long list --

21k equity in residence

3,4k in vehicle

550 per item -- clothes, books, appliances, animals, instruments -- aggregate up to 11,5k

1,4k Jewelry

lots of other stuff

Barred Discharge

Normally dischargeable debts are NOT discharged --- If debtor made false representation about finances or destroyed records or failed to account for assets or failed to answer questions...etc

Chp 13 Bankruptcy

Rehabilitation form of Bankruptcy that lets debtor plan for payment of unpaid debts in installments -- supervised by bankruptcy court

Chp 11 Bankruptcy

Reorganizes debtor's financial affairs under supervision of bankruptcy court

U.S. Form of Govt -- federal govt and state govts share powers
Delegated Powers
enumerated powers delegated to federal govt when stats ratified the constitution
Separation of Powers
Legislative - Congress - makes laws

Executive - President - enforces laws

Judicial - Judicial - interpret laws

Checks and Balances
built into constitution to ensure no one branch of govt becomes too powerful
Supremacy Clause
Clause of constitution that establishes constitution, federal treaties/laws/regulations are the supreme law of the land
Commerce Clause
Grants congress power to regulate commerce with foreign nations and among several states

- Foreign commerce

- INTERstate commerce

- Native American Tribes

Bill of Rights/Amendments
BOR - 1st ten amendments added in 1791
First Amendment

- Fully protected - cannot be prohibited or regulated by govt

- Limited - may not prohibit but time, place, manner are

- Unprotected - NOT protected and forbidden (fire in open theatre)

First Amendment - Freedom of Religion
Establishment Clause

Free Exercise Clause

Establishment Clause
prohibits govt from establishing a state religion or promoting one religion over another
Free Exercise Clause
prohibits govt from interfering with free exercise of religion in US
14th Amendment

Standards of Review

Equal Protection under the law

1) Strict scrutiny test

2) Intermediate scrutiny test

3) Rational basis test

Due Process
no person deprived of life, liberty, property without due process of law
Substantive - requires that statues, ordinances, regulations are clear and not too broad
Procedural - requires that government give proper notice of legal action before that person is deprived of life, liberty, property