Cpcu 530

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The civil law system

Back 1

A system with comprehensive codes of written laws, or statutes, that apply to all legal questions.

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The common-law system

Back 2

The body of law derived from court decisions as opposed to statutes or constitutions.

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Doctrine of stare decisis

Back 3

The principle that lower courts must follow precedents set by higher courts.

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Synthesis

Back 4

The process of combining the rulings from several legal authorities into a new rule of law that is applied to the new legal problem.

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Threshold cases

Back 5

Cases that present new legal questions (for which no precedent exists)

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T or F: Courts must follow precedent.

Back 6

False. Courts generally do not follow precedent when the earlier rule of law has lost its usefulness or when the original reasons for the rule no longer exist. Absent those reasons, courts may overrule prior decisions only for sound judicial reasons.

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Paul v. Virginia

Back 7

1869, said that insurance is a contract delivered locally and governed by state law rather than federal law. (Modified by South-Eastern Underwriters case in 1944, saying that federal law applies to insurance in some cases.)

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Equity

Back 8

Fairness, or a body of principles constituting what is fair and right.

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Courts of Equity arose in England because of the failure of courts of law to provide adequate remedies in some cases. Equity court decisions are made by judges.

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Criminal Law

Back 9

The branch of law that imposes penalties for wrongs against society

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Civil Law

Back 10

A classification of law that applies to legal matters not governed by criminal law and that protects rights and provides remedies for breaches of duties owed to others.

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3 ways to classify U.S. law

Back 11

- As either criminal or civil law
- By subject matter
- As either substantive or procedural law

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Felony

Back 12

A major crime involving long-term punishment

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Summary offenses

Back 13

Crimes that are neither felonies nor misdemeanors under state law; they usually result in fines but not imprisonment

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Civil law vs. civil-law

Back 14

Civil law is the classification; civil-law is the system based on comprehensive rules/statutes

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Substantive law

Back 15

A classification of law that creates, defines, and regulates parties' rights, duties, and powers

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Procedural law

Back 16

A classification of law that prescribes the steps, or processes, for enforcing the rights and duties defined by substantive law.

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Fifth Amendment Due Process Clause

Back 17

Guarantees notice and hearing before the federal government can deprive any person of life, liberty, or property

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Fourteenth Amendment Equal Protection Clause (the Equal Protection Clause)

Back 18

A part of the Fourteenth Amendment to the U.S. Constitution prohibiting state laws that discriminate unfairly or arbitrarily, and requiring equal treatment to all persons under like circumstances and conditions.

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Constitution Commerce Clause

Back 19

Gives Congress teh power to regulate commerce (trade) with foreign nations and among the states (interstate commerce).

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National Association of Insurance Commissioners (NAIC)

Back 20

An association of insurance commissioners from the fifty U.S. states, the District of Columbia, and the five U.S> territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance depts.

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Original jurisdiction

Back 21

The power of a court in which cases are initiated to hear those cases.

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Diversity jurisdiction

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The authority of federal district courts to hear cases involving parties from different states that involve amounts in controversy over a legal minimum.

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Writ of certiorari

Back 23

An appellate court's order directing a lower court to deliver its record in a case for appellate review.

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Conflicts of law

Back 24

A body of law that resolves questions when states' laws conflict

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Center of gravity rule

Back 25

Applies the law of the state with the most significant relationship to the case.

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Administrative law

Back 26

The statutory laws that grant power to administrative agencies to act and the body of law that is created by administrative agencies themselves.

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Conditions needed for legislature to delegate rulemaking power to an administrative agency and for it to be considered constitutional:

Back 27

- The legislation carefully defines the scope of the delegated power
- The agency exercises its rulemaking power within the defined scope
- The rules are subject to court (judicial) review

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Allegation

Back 28

A claim made in the complaint by the plaintiff specifying what the plaintiff, specifying what the plaintiff expects to prove to obtain a judgment against the defendant

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Complaint

Back 29

The allegations made by a plaintiff in a lawsuit

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Pleading

Back 30

A formal written statement of the facts and claims of each party to a lawsuit

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Cause of action

Back 31

A plaintiff's legal grounds to sue a defendant

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Answer

Back 32

A document filed in court by a defendant responding to a plaintiff's complaint and explaining why the plaintiff should not win the case.

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Counterclaim

Back 33

A complaint brought by the defendant against the plaintiff

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Motion

Back 34

A formal request for the court to take a particular action

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Motion to dismiss

Back 35

A request that a court terminate an action because of settlement, voluntary withdrawal, or procedural defect

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Motion for summary judgment

Back 36

A pretrial request asking the court to enter a judgment when no material facts are in dispute

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Discovery

Back 37

A pretrial exchange of all relevant information between the plaintiff and defendant.

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Deposition

Back 38

A pretrial discovery tool involving oral examination of a witness to produce a written verbatim record.

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Interrogatories

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Specific written questions or requests raised by one party to a lawsuit that the opposing party must answer in writing.

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Subpoena

Back 40

A legal order to a witness to appear at a certain place and time to testify or to produce documents.

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Direct examination

Back 41

Questioning one's own witness during a legal proceeding.

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Cross-examination

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Questioning an opposing party during a legal proceeding to bring out information favorable to the questioner's own position or to challenge the witness's testimony.

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Relevance

Back 43

A quality of evidence that suggests the evidence is more or less likely to be true.

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Materiality

Back 44

A quality of evidence that tends to establish a particular element of the claim that has legal significance.

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Competence

Back 45

A quality of evidence that suggests the source is reliable and the evidence is adequate to justify admission in court

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Hearsay rule

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The rule of evidence that prevents the admission of out-of-court statements not made under oath by a person who is unavailable to testify.

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General verdict

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A kind of verdict that entails a complete finding and a single conclusion by a jury on all issues presented.

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Special verdict

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A kind of verdict reached by a jury that makes findings of fact by answering specific questions posed by the judge. The judge then applies the law to the facts as the jury has found them.

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Res judicata

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(sometimes called claim reclusion)

a doctrine that bars parties to a lawsuit on which final judgment has been rendered from bringing a second lawsuit on the same claim or on related transactions

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Collateral estoppel

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(sometimes called issue preclusion)

bars parties from relitigating an issue on which a court has already ruled, even if the second lawsuit differs significantly from the first.

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Alternative dispute resolution (ADR)

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Procedures to help settle disputes without litigation, including arbitration, mediation, and negotiation.

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Mediation

Back 52

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a mutually agreeable settlement. Mediation in nonbinding.

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Rulemaking

Back 53

The process by which administrative agencies promulgate rules to implement legislative policies. Adjudication is the process by which agencies decide cases and settle disputes.

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3 steps of the Model State Administrative Procedure Act (MSAPA)

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1. Publish a notice of intent to adopt a regulation
2. Provide opportunity for public comment
3. Publish the final regulation

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Legislative rule

Back 55

A type of substantive administrative agency rule that comes from a statutory delegation of authority and that has the same force as a law enacted by Congress of a legislature

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Interpretative rule

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A type of administrative agency rule that interprets statutes, providing guidance for agency staff or regulated parties, but that lacks the force and effect of law and therefore is not binding on individuals.

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Procedural rule

Back 57

A type of administrative agency rule that prescribes procedures for agency operations, legislative rulemaking, and adjudication proceedings.

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Ad testificandum

Back 58

A subpoena to compel a witness to testify is a subpoena ad testificandum (command to testify), usually termed, simply, a subpoena.

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Duces tecum

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("bring things with you")

A subpoena to compel production production of documents or records

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Standing to sue

Back 60

A party's right to sue, as one who has suffered or will suffer a legal wrong or an adverse effect from an action.

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Final order

Back 61

An administrative agency's final conclusion or disposition of any material private right of a party, terminating an agency proceeding.

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Exhaustion of administrative remedies

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The completion of all possible administrative procedures and appeals in a case; required before a party can appeal an agency action to a court.

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Aggrieved

Back 63

A condition in which an order has substantially affected a party's personal rights. (i.e., a federal agency order)

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Contract

Back 64

A legally enforceable agreement between two or more parties in which each party makes some promise to the other

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Four elements for a contract to be legally enforceable

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1. Agreement
2. Capacity to contract
3. Consideration
4. Legal purpose

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Promisee

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The party to a contract to whom a promise is made

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Promisor

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The party to a contract making a promise

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Privity of contract

Back 68

The relationship that exists between the parties to a contract

Front 69

Third-party beneficiary

Back 69

A person who is not a party to a contract but who benefits from it and has a legal right to enforce the contract if it is breached by either of the contracting parties.

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Breach of contract

Back 70

The failure, without legal excuse, to fulfill a contractual promise.

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Unilateral contract

Back 71

A contract in which only one party makes a promise or undertakes the requested performance.

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Bilateral contract

Back 72

A contract in which each party promises a performance.

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Executed contract

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A contract that has been completely performed by both parties.

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Executory contract

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A contract that has not been completely performed by one or both of the parties

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Implied contract

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A contract whose terms and intentions are indicated by the actions of the parties to the contract and the surrounding circumstances.

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Express contract

Back 76

A contract whose terms and intentions are explicitly stated.

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Implied-in-fact contract

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A contract that is not express but that the parties presumably intended, either by tacit understanding or by the assumption that it existed.

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Implied-in-law contract

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An obligation that is not an actual contract but that is imposed by law because of the parties' conduct or some special relationship between them or because one of them would otherwise be unjustly enriched.

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Voidable contract

Back 79

A contract that one of the parties can reject (avoid) based on some circumstance surrounding its execution (e.g., a contract with a minor, or misrepresentation)

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Void contract

Back 80

An agreement that, despite the parties' intentions, never reaches contract status and is therefore not legally enforceable or binding.

Front 81

For contract purposes, an offer is valid if it includes these 3 requirements:

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1. Intent to contract
2. Definite terms
3. Communication to the other party

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Offer

Back 82

A promise that requires some action by the intended recipient to make an agreement

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Offeror

Back 83

The party to a contract who promises to give something in return for a promise or an act by another party.

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Offeree

Back 84

The party to a contract who makes a promise or acts in return for something offered by another party.

Front 85

Test of intent

Back 85

The test of whether the intent has been shown is based on how a reasonable person would interpret the intent, not the party's actual intent.

A general statement of intention that conveys no promise is not an offer. (see good example, p. 2.5)

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First element of a contract (and subparts)

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Agreement

1. Offer
- Intent to contract
- Definite terms
- Communication to offeree
2. Acceptance
- By offeree
- Unconditional and unequivocal
- Offeree's communication of acceptance

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3 parts of an acceptance

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- By offeree
- Unconditional and unequivocal
- Offeree's communication of acceptance

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Factors of duration and termination that help determine whether an offer is binding

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1. Lapse of time
2. Operation of law
3. Offeree's rejection
4. Counteroffers
5. Offeror's revocation

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Operation of law

Back 89

Means that rules of law apply automatically to a situation without any act by the parties.

For example, an offer is terminated if performing a contract becomes illegal after the offer is made.

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Counteroffer

Back 90

A proposal an offeree makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer.

Front 91

T or F: A counteroffer is different from an inquiry/request for more info

Back 91

TRUE. A coutneroffer automatically rejects the original offer; an inquiry/request for more info does not.

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T or F: Offerors must revoke offers to the general public through the same means of communication they used in making the original offers.

Back 92

TRUE. For example, one who has offered a reward in an advertisement can revoke it only through another advertisement.

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Requirements of a valid acceptance

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1. The presentation of an offer by the offeror
2. An acceptance of that offer by the offeree

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Acceptance

Back 94

The assetn to an offer that occurs when the party to whom an offer has been made either agrees to the proposal or does what has been proposed.

Front 95

T or F: An offeree's silence can sometimes count as an acceptance.

Back 95

FALSE. An offeree's silence is not an acceptance.

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Forbearance

Back 96

The act of giving up or the promise to give up a legal right.

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Substantial performance

Back 97

The performance of the primary, necessary terms of an agreement.

Front 98

T or F: Preparations for performance of a contract are not substantial performance.

Back 98

TRUE. Preparations for performance of a contract are NOT substantial performance of that contract.

Front 99

Competent party

Back 99

A party to a contract who has the basic or minimal ability to do something and the mental ability to understand problems and make decisions.

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Types of parties who may lack capacity to contract

Back 100

- Minors
- Insane persons
- Intoxicated persons (under the influence of alcohol or drugs)
- Artificial entities (such as insurers) that are restricted by law or corporate charter from entering into certain contracts

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Restitution

Back 101

The return of specific property by court order.

Front 102

To avoid a contract, a person claiming insanity but not adjudged insane must prove on of these conditions:

Back 102

1. The person did not know that a contract was forming
2. The person did not understand the legal consequences of acts purporting to form the contract

Front 103

T or F: Contracts made by mentally ill people during lucid intervals are NOT binding.

Back 103

FALSE. They ARE binding.

Front 104

The party to a contract with an insane person can enforce the contract by proving these facts:

Back 104

- The sane party lacked knowledge of the insanity
- The contract benefits the insane person

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Ultra vires contract

Back 105

Traditionally, an attempted contract that was not within corporate powers and is thus voidable (means a contract "beyond its power") Most states have abolished the defense of ultra vires, but courts often use the term when discussing corporate concepts in written decisions.

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Consideration

Back 106

Something of value or bargained for and exchanged by the parties to a contract.

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Good consideration

Back 107

Consideration based on natural love or affection, or on moral duty, that is not sufficient to support a contract.

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Valuable consideration

Back 108

The consideration necessary and sufficient to support a valid contract.

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Gratuitous promise

Back 109

A promise not supported by valuable consideration and, therefore, not binding

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Most jurisdictions enforce a new promise to pay an existing obligation that has become unenforceable for one of the following 3 reasons:

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1. One of the parties is a minor
2. The promisor is bankrupt
3. The time for payment has ended

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3 types of consideration that are insufficient for forming a binding contract

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1. Past consideration
2. Promises to perform existing obligations
3. Compromise and release of claims

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Bona fide

Back 112

Good faith

Front 113

Contracts without consideration are enforceable when one of these two concepts applies

Back 113

- Promissory estoppel
- Charitable subscriptions

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Accord and satisfaction

Back 114

An agreement (accord) to substitute performance other than that required in a contract and the carrying out of that agreement (satisfaction)

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Promissory estoppel

Back 115

A legal principle that permits enforcement of a promise made without consideration in order to prevent injustice

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3 elements that need to be proven for promissory estoppel to apply

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- A party has made a promise expecting another party to act, or to forbear from acting, in reliance on that promise
- The other party has justifiably relied on the promise to his or her detriment and acts or forbears from acting
- Only enforcement of the promise would achieve justice

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T or F: Wagering contracts and usury contracts are legal contracts.

Back 117

FALSE

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Insurable interest

Back 118

An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred.

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Usury

Back 119

The charging of an illegally high rate of interest on a loan.

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Negligence

Back 120

The failure to exercise teh degree of care that a reasonable person in a similar situation would exercise to avoid harming others.

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Exculpatory clause
(exculpatory agreement)

Back 121

A contractual provision purporting to excuse a party from liability resulting from negligence or an otherwise wrongful act.

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Noncompete agreement

Back 122

An agreement between an employer (the principal) and an employee (the agent) to protect the employer's customers, trade secrets, confidential information, and other items for a specific period after an employee relationship has been terminated

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In pari delicto agreement

Back 123

An illegal transaction in which both parties are equally at fault

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Severable contract

Back 124

A contract that includes two or more promises, each of which a court can enforce separately

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Genuine assent

Back 125

Contracting parties' actual assent to form a contract or their indication of intent to contract by their actions and words.

Front 126

Genuine assent may be lacking if a party was induced to enter a contract by any of five factors:

Back 126

- Fraud
- Mistake
- Duress
- Undue influence
- Innocent misrepresentation

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Fraud

Back 127

An intentional misrepresentation resulting in harm to a person or an organization.

6 elements for legal definition of fraud:
1. A false representation...
2. Of a material fact...
3. Knowingly made...
4. With intent to deceive...
5. On which the other party has placed justifiable reliance...
6. To his or her detriment.

Front 128

Representation

Back 128

A statement of fact or opinion made by the insured when applying for insurance, usually in response to a question from the insurer.

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Material fact

Back 129

In insurance, a fact that woudl affect the insurer's decision to provide or maintain insurance or to settle a claim

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Rescission

Back 130

A legal action that voids a principal's bid.

If the court rescinds the contract, the plaintiff has no further duties under it and is entitled to reimbursement of all payments made to the defendant.

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The concealment defense

Back 131

To assert the concealment defense, the insurer must prove two things:
- The insured knew that the fact concealed was material.
- The insured concealed the fact with the intent to defraud.

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Mistake

Back 132

A perception that does not agree with the facts.

In a contract, it can result in lack of genuine assent.

Front 133

Unilateral mistake

Back 133

A perception by one party to a contract that does not agree with the fact.

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Bilateral mistake

Back 134

A perception by both parties to a contract that does not agree with the facts.

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A contractor who has made a material mistake in a bid on a public works project can retract the bid if both of these events occur:

Back 135

1. The contractor makes the retraction promptly after discovery.
2. The governmental agency involved has done nothing more in reliance on the bid than accept it.

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Duress

Back 136

The use of restraint, violence, or threats of violence to compel a party to act contrary to his or her wishes or interests.

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Undue influence

Back 137

The improper use of power or trust to deprive a person of free will and substitute another's objective, resulting in lack of genuine assent to a contract.

Front 138

Statute of frauds

Back 138

A law to prevent fraud and perjury by requiring that certain contracts by in writing and contain the signature of the party responsible for perming that contract

Front 139

Six situations in which contracts must be written to guarantee enforceability:

Back 139

1. Sale of land or any interest in land
2. Contract cannot be performed within one year
3. Contracts to pay another's debt
4. Contracts in consideration of marriage
5. Contracts by executors of decendents' estates to pay estate debts from executors' own funds
6. Contracts for the sale of goods for $500 or more

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Real property (realty)

Back 140

Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land.

Front 141

Uniform Commercial Code (UCC)

Back 141

Legislation for commercial transactions that provides the trade creditor certain rights and legal remedies in a situation in which a buyer defaults.

A model code that has been adopted in whole or in part by each state. Its purpose is to provide a consistent legal basis for business transactions throughout the United States and its territories. Its articles cover the sale and lease of goods; negotiable instruments; banks and banking; funds transfers; letters of credit; bulk transfers and bulk sales; warehouse receipts, bills of lading, and other documents of title; investment securities; and secured transactions.

Front 142

T or F: The UCC provides that a contract for the sale of goods for $300 or more is not enforceable unless it is in writing.

Back 142

FALSE. The limit is $500.

Front 143

T or F: According to the UCC, no formal written contract is necessary; it may be a simple note or memorandum.

Back 143

TRUE. It may be a simple note or memorandum, and does not have to be a formal written contract.

Front 144

T or F: Oral insurance policies are not valid and enforceable.

Back 144

FALSE. Oral insurance policies are not valid and enforceable.

Front 145

3 purposes of the Parol Evidence Rule

Back 145

- To carry out the parties' presumed intention
- To achieve certainty and finality as to the parties' rights and duties
- To exclude fradulent and perjured claims

Front 146

Oral evidence of prior or contemporaneous agreements is permitted in these situations:

Back 146

1. An essential contract term is missing
2. The written contract contains ambiguous language
3. Fraud or illegality taints a transaction
4. To show that a written document that appears to be a contract never became a contract because of failure of some condition precedent to the agreement. (For example, if delivery is a condition required before performance, oral evidence can be used to show that delivery did not occur.)

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T or F: In interpreting contracts, words are understood in their plain meaning

Back 147

TRUE. They are understood in their plain meaning in interpreting contracts.

Front 148

T or F: Failure to perform one installment is not failure to perform the entire agreement.

Back 148

TRUE. Failure to perform one installment is not failure to perform the entire agreement.

Front 149

When the parties to a contract have made typewritten or handwritten changes in a printed contract form, courts apply this system of priorities (order of 3):

Back 149

1. Handwriting prevails over typewriting
2. Typewriting prevails over printing
3. Words prevail over figures

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Parol evidence rule

Back 150

A rule of evidence that limits the terms of a contract evidenced by a writing to those expressed in writing

Front 151

Ambiguity

Back 151

A contractual provision can be reasonably interpreted in mroe than one way, or the meaning of a provision cannot be determined even by application of all the tools of interpretation

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Assignment

Back 152

The transfer of rights or property

Front 153

Assignor

Back 153

The party to a contract who makes an assignment

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Assignee

Back 154

The individual or entity to whom property, rights, or interests have been transferred

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Course of dealings

Back 155

Refers to interpretations of a contract -- specifically, how similar transactions between the parties have been interpreted before the contract in question.

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Assignor

Back 156

The party to a contract who makes an assignment

Front 157

Course of performance

Back 157

Refers to interpretations of a contract -- specifically, whether the performance of the contract has occurred without either party's objection.

Front 158

Assignee

Back 158

The individual or entity to whom property, rights, or interests have been transferred

Front 159

T or F: To be effective, an assignment requires formality and writing.

Back 159

FALSE. An assignment requires neither formality nor writing. Assignments are transfers and need not be contracts.

Front 160

Course of dealings

Back 160

Refers to interpretations of a contract -- specifically, how similar transactions between the parties have been interpreted before the contract in question.

Front 161

Course of performance

Back 161

Refers to interpretations of a contract -- specifically, whether the performance of the contract has occurred without either party's objection.

Front 162

T or F: To be effective, an assignment requires formality and writing.

Back 162

FALSE. An assignment requires neither formality nor writing. Assignments are transfers and need not be contracts.

Front 163

Third-party beneficiary contract

Back 163

A contract between two parties that benefits a third party

Front 164

Creditor beneficiary

Back 164

A third-party beneficiary owed a debt that is to be satisfied by performance of a contract.

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Doneee beneficiary

Back 165

A third-party beneficiary who receives the benefit of a contract's performance as a gift from the promisee, with the intent of the contracting parties

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Incidental beneficiary

Back 166

A third-party beneficiary who has no contractual rights but benefits from a contract even though that is not the intent of the parties to the contract

Front 167

Rules that apply to 3rd party beneficiary contracts:

Back 167

- A binding contract must exist between the promisor and promisee
- The parties must intend that the third party receive benefits and acquire rights under the contract.
- The parties must take care in each case to clarify to whom the performance is due.
- The beneficiary is always subject to defenses the promisor might have against the promisee

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Tender

Back 168

An offer to perform one's duties under a contract

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Novation

Back 169

The substitution of a third party for one of the original parties to a contract, releasing the original party from rights and obligations under the contract

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Frustration

Back 170

The prevention of the attainment of a goal (can make performance of a contract impossible)

Front 171

Impracticability

Back 171

An excuse for contract nonperformance of which, though possible, would be extremely or unreasonably difficult

Front 172

Impossibility

Back 172

The condition of not being able to occur, exist or be done, and thus a valid excuse for non-performance of a contractual duty.

Front 173

Condition concurrent

Back 173

An event that must occur at the same time as another condition in a contract

Front 174

Condition subsequent

Back 174

An event that, if it occurs, discharges a duty of performance in a contract.

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Repudiation

Back 175

A party's refusal to meet obligations under a contract.

Front 176

Anticipatory breach

Back 176

A party's unequivocal indication before contract performance is due that he or she will not perform when performance is due

Front 177

Material breach of contract

Back 177

Violation of the agreement that would justify an owner's termination of the contract

Front 178

Compensatory damages

Back 178

A payment awarded by a court to indemnify a victim for actual harm

Front 179

Consequential damages

Back 179

A payment awarded by a court to indemnify an injured party for losses that result indirectly from a wrong such as a breach of contract or a tort

Front 180

Punitive damages (exemplary damages)

Back 180

A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act or to deter similar conduct; need not bear any relationship to a party's actual damages

Front 181

Bad faith (outrage)

Back 181

An intentional or reckless act, extreme or outrageous in nature, causing severe emotional distress that results in physical injury; generally applied in suits for breach of insurance contracts.

Front 182

Extracontractual damages

Back 182

A payment awarded by a court that exceeds the usual contract damages for a breach of contract.

Can be awarded when there is a breach of the insurer's duty of good faith and fair dealing in insurance contracts; or when there is intentional infliction of emotional distress on the insured by the insurer's extreme and outrageous conduct.

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Mitigation of damages

Back 183

A duty owed by a n injured party to a claim to take reasonable measures to minimize or avoid additional injury or loss caused by the defendant

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Liquidated damages

Back 184

A reasonable estimation of actual damages, agreed to by contracting parties and included in the contract, to be paid in the event of a breach or for negligence.

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Specific performance

Back 185

A court-ordered equitable remedy requiring a party to perform a certain act, often - but not always - as a result of breach of a contract.

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Injunction

Back 186

A court-ordered equitable remedy requiring a party to act or refrain from acting.

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6 other contract elements specific to insurance

Back 187

- They are conditional
- They involve fortuitous events and the exchange of unequal amounts
- They are contracts of utmost good faith
- They are contracts of adhesion
- They are contracts of indemnity
- They are nontransferable

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Conditional contract

Back 188

A contract that one or more parties must perform only under certain conditions

Front 189

Utmost good faith

Back 189

An obligation to act in complete honesty and to disclose all relevant facts

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MIsrepresentation

Back 190

A false statement of a material fact on which a party relies.

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Incontestable clause

Back 191

Clause that states that the insurer cannot contest the policy after it has been in force for a specified period, such as two years, during the insured's lifetime

Note: If the fraud is particularly vicious, a court can permit proof of fraud even after the contestable period has expired and can find the policy was invalid at the outset

Front 192

Contestable period

Back 192

A period during which an insurer can challenge the validity of a life insurance policy.

Front 193

Contract of adhesion

Back 193

Any contract in which one party must either accept the agreement as written by the other party or reject it

Front 194

Contract of indemnity

Back 194

A contract in which the insurer agrees, in the vent of a covered loss, to pay an amount directly related to the amount of the loss.

Front 195

Principle of indemnity

Back 195

The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured

Front 196

Valued policy

Back 196

A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss), regardless of the actual value of the loss

Front 197

Binder

Back 197

A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued

Front 198

What constitutes unreasonable delay in an insurer's action is a question of fact, not law. A court will consider some important facts:

Back 198

- The distance of the insurer's office from the agent's office at which the applicant submitted the application
- Special difficulties in underwriting the risk
- The insurer's seasonal or other workload problems
- The type of coverage involved

Front 199

Direct-action statute

Back 199

A law that permits a negligence victim to sue an insurer directly or to sue both the insurer and wrongdoer jointly

Front 200

Mortgagor

Back 200

Property buyer who provides (pays) a mortgage (claim against the property)

Front 201

Mortgagee

Back 201

The lender who receives the mortgage in return for providing the funds to purchase the property

Front 202

Mortgage

Back 202

Represents a financial claim against property such as real estate.

Front 203

Lien

Back 203

A creditor's legal right or interest in another's property, usually lasting until satisfaction of the specific debt or duty that the lien secures.

Front 204

Lessor

Back 204

Owner of leased proeprty

Front 205

Lessee

Back 205

Tenant/renter of leased property.

Front 206

Life estate

Back 206

An interest in real property for the duration of a person's life. The person having that interest is a life tenant, and the person who has an interest in the property after the life tenant's death has a remainder interest.

Front 207

Warranties

Back 207

Statements or promises in a policy that, if untrue, would render the policy voidable, whether or not they are material

Front 208

Three elements are required for a plaintiff insurer to establish false representation:

Back 208

- A statement is made that is false or misleading
- The statement relates to a material fact
- The insurer relies on the false or misleading statement in issuing the policy

Front 209

Many states have enacted statutes to permit a materiality defense based on the effect of an alleged misrepresentation. These statutes fall into two groups:

Back 209

- requiring proof of either:
* an increase of the insurer's risk
* contribution to the insurer's loss, to prove materiality.

Front 210

Differences b/w warranties and representation

Back 210

- Warranties are part of the final insurance contract / Representations are merely collateral, or indirect, inducements to the contract
- The law presumes warranties to be material, and their breach makes the contract voidable / To constitute a valid defense, representations must be proven to be material
- Insurers eithe rwrite warranties in the policy or incorporate them by reference / Representations can be oral, written in the policy, or written on another paper and need not be incorporated by reference expressly
- Warranties require strict compliance, but representations require substantial truth only

Front 211

Affirmative warranty

Back 211

States that specific facts exist at the time the contract forms

Front 212

Continuing (promissory) warranty

Back 212

States that the parties will do certain things or that certain conditions will continue to exist during the policy term

Front 213

Implied warranty

Back 213

An obligation that the courts impose on a seller to warrant certain facts about a product, even though they are not expressly stated by the seller. (Safety is generally an implied warranty for all products.)

Front 214

Waiver

Back 214

The intentional relinquishment of a known right

Front 215

T or F: By definition, an exclusion of a cause of loss cannot be waived.

Back 215

TRUE. Waiver applies only to the relinquishment of a right.

Front 216

T or F: Once an insurer has knowledge of a condition breach, the insurer must act immediately to avoid a waiver.

Back 216

TRUE. It must act immediately to avoid a waiver.

Front 217

Estoppel

Back 217

A legal principle that prohibits a party from asserting a claim or right that is inconsistent with that party's past statement or conduct on which another party has detrimentally relied.

Front 218

T or F: Even parol evidence is not admissible to prove estoppel.

Back 218

FALSE. Parol evidence is admissible to prove estoppel, and it is immaterial whether the words or acts occurred before or after the making of the written contract.

Front 219

Election

Back 219

The voluntary act of choosing between two alternative rights or privileges

Front 220

Differences b/w waiver and estoppel

Back 220

- Waiver is contractual in nature and rests upon agreement between parties / Estoppel is equitable in nature and arises from a false representation
- Waiver gives effect to the waiving party's intention / Estoppel defeats the inequitable intent of the estopped party
- The parol evidence rule applies to waiver / The parol evidence rule does NOT apply to estoppel

Front 221

T or F: If an insurer begins an investigation without issuing a reservation of rights letter to the insured, the insurer has still not waived its right to deny coverage on the basis of the insured's failure to fulfill the obligation to report the loss fully.

Back 221

FALSE: If an insurer begins an investigation without issuing a reservation of rights letter to the insured, the insurer has waived its right to deny coverage on the basis of the insured's failure to fulfill the obligation to report the loss fully.

Front 222

Nonwaiver agreement

Back 222

A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy

Front 223

Reservation of rights letter

Back 223

An insurer's letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it

Front 224

Which article of the UCC governs the sales of goods

Back 224

Article 2

Front 225

Goods

Back 225

Property that is tangible and movable, other than money

Front 226

Statutes of fraud

Back 226

A collection of laws that help prevent parties from becoming involved in fraudulently formed contracts

Front 227

Two situations in which the UCC provides that oral contracts for the sale of goods for $500 or more are enforceable in two situations:

Back 227

- The buyer accepts and receives part of the goods
- The buyer makes partial or full payment for the goods
- A situation in which the goods were manufactured specifically for the buyer:
* The goods are not suitable for resale to others in the ordinary course of business
* The seller has either has made a substantial beginning in manufacturing the goods or has made commitments to procure them

Front 228

Risk

Back 228

The chance of financial loss

Front 229

FOB (free on board) place of shipment

Back 229

The seller delivers goods to the carrier at the seller's risk and expense, and the ownership then shifts to the buyer

Front 230

FOB (free on board) place of destination

Back 230

Ownership passes from the seller to the buyer when the carrier delivers the goods to the buyer's premises

Front 231

FAS (free alongside) vessel

Back 231

Ownership passes from the seller to the buyer when the seller delivers the goods alongside a vessel for loading onto that vessel

Front 232

FOB (free on board) vessel

Back 232

Goods are loaded on board the vessel at the seller's risk and expense, and then ownership passes to the buyer

Front 233

CIF (cost-insurance-freight)

Back 233

The seller is obligated to pay for the insurance and freight charges for delivery to the buyer

Front 234

CAF (cost and freight)

Back 234

The seller is obligated to pay for the freight charges but not for the insurance for delivery to the buyer.

Front 235

COD

Back 235

Collect on delivery. A shipping condition under which the buyer pays when the goods are delivered and has no right to inspect the goods as a condition to acceptance and payment.

Front 236

An affirmation of fact about the goods is this kind of warranty

Back 236

Express warranty

Front 237

Any description of goods in a contract is what kind of warranty?

Back 237

An express warranty

Front 238

A contract based on a sample or model constitutes what kind of warranty?

Back 238

Express warranty

Front 239

Two categories of implied warranty

Back 239

1. Implied warranty of merchantability
2. Implied warranty of fitness for a particular purpose

Front 240

Implied warranty of merchantability

Back 240

An implied warranty that a product is fit for the ordinary purpose for which it is used

Goods must meet 5 qualifications:

1. Must pass without objection in the trade under the contract description
2. Fungible goods, like grain, must be indistinguishable and interchangeble and must be of average quality for the kind of goods sold
3. The goods must be fit for the ordinary purpose for which they will be used.
4. All goods in a lot must be approximately like kind and quality.
5. The goods must conform to the specifications, if any, on the container or label

Front 241

Implied warranty of fitness for a particular purpose

Back 241

An implied warranty that a product is fit for a particular purpose; applies if the seller knows about the buyer's purpose for the product

Front 242

Implied warranty of title

Back 242

An implied promise in a contract for the sale of goods that the seller has legal ownership of goods and has no knowledge of any security interest or other lien on the goods other than those disclosed to the buyer.

Front 243

Draft (check)

Back 243

A type of commercial paper containing an unconditional order by the drawer (person making out the draft)

Front 244

Certificate of deposit (CD)

Back 244

A document issued by a financial institution acknowledging receipt of money and promising to repay it, with interest, at a specific time

Front 245

Promissory note

Back 245

A type of commercial paper containing a written promise to pay money on demand or at a definite future time

Front 246

Trade acceptance

Back 246

A two-party draft used when a seller wants cash immediately but when the buyer cannot provide it until the goods are resold.

Front 247

Primary liability

Back 247

The absolute obligation to pay a negotiable instrument according to its terms

Front 248

Secondary liability

Back 248

The obligation to pay a negotiable instrument only if someone else refuses to pay or to accept the instrument

Front 249

Personal defense

Back 249

A claim to an instrument by any person and any defense that would be effective in a simple contract transaction

Front 250

Real defense

Back 250

A defense of an obligor of a negotiable instrument that may be asserted even against a holder in due course.

Front 251

Warehouse receipt

Back 251

A legal document that provides title to the goods in storage and assures delivery to the holder of the receipt

Front 252

Bill of lading

Back 252

A document acknowledging receipt of goods from the shipper, given by the carrier which includes the terms of the contract of carriage for the goods.

Front 253

Carrier

Back 253

A person or organization in the business of transporting property of others.

Front 254

Bailment

Back 254

The temporary transfer of a property's custody

Front 255

Bailor

Back 255

The owner of the personal property in a bailment

Front 256

Bailee

Back 256

The party temporarily possessing the personal property in a bailment.

Front 257

Warehouse receipt requires nine items of information; the first three are:

Back 257

1. The location of the warehouse where goods are stored
2. Date the receipt is issued to the bailor
3. The receipt number showing a consecutive numbering of all receipts issued by the warehouse operator

Front 258

Consignor

Back 258

The party who is shipping goods

Front 259

Consignee

Back 259

The person or organization that receives property being transported by a carrier.

Front 260

Collateral

Back 260

Cash, or near cash assets, that a principal pledges to secure credit, a loan, or other obligation.

Front 261

Security interest

Back 261

An interest in property (Real or personal) that allows the property to be sold on default to satisfy the debt for which the security interest was given

Front 262

Pledge

Back 262

A security device by which a borrower guarantees payment by delivering collateral to the lender to hold as security for the debt.

Front 263

Chattel

Back 263

Tangible, movable personal property

Chattel paper is a document showing that the possessor (holder) is owed money and has a secured interest in goods of value connected to the debt.

Front 264

Perfected security interest

Back 264

A security agreement that has been filed with the appropriate court to provide the surety a priority interest over others who may also have security interests in the property

Front 265

Constructive notice

Back 265

Knowledge that a person is assumed by law to have because that knowledge could be gained by reasonable observation or inspection.

Front 266

Holder in due course

Back 266

The person to whom a negotiable instrument has been issued or endorsed and who possesses it for value, in good faith and without notice that it may not be valid, can be claimed by another, is overdue, or was previously dishonored.

Front 267

Federal Trade Commission (FTC) Act of 1914

Back 267

Prohibits unfair methods of competition and unfair or deceptive acts or practices that affect interstate commerce. Prohibits unfair or deceptive acts that have no relationship to competition. Does not apply to the insurance industry

Front 268

Sherman Anti-Trust Act of 1890

Back 268

Prevent companies from acting in ways that would hinder free competition by outlawing practices such as unlawful restraints of trade, price discrimination, price fixing, and unlawful monopolies

Front 269

Unfair acts

Back 269

Oppressive or bad-faith conduct

Front 270

Deceptive acts

Back 270

Fraud, deceit, and misrepresentation

Front 271

Unfair methods of competition

Back 271

Antitrust violations such as price fixing and group boycotts, for example

Front 272

Examples of unfair and deceptive insurance industry acts or practices

Back 272

- Misrepresentation and false advertising of policies
- Defamation of competitors
- Boycott, coercion, and intimidation
- Creation of false financial statements
- Unfair discrimination
- Use of rebates
- Issuing capital stock, certificates, or securities, or using advisory board or similar contracts, that promise returns or profits as an inducement to purchase insurance (a sophisticated form of rebate)

Front 273

Magnuson-Moss Warranty Act (1975)

Back 273

Says a producer of goods is not required to provide a warranty; however, if the producer does provide a written warranty, it must conform to certain standards, and must disclose certain things (e.g., how to obtain redress under the warranty, what it will and will not cover, when it expires,e tc.)

Front 274

Full warranty

Back 274

(also known as the 'lemon provision') is a promise to remedy a product defect within a reasonable time and without charge and to refund the purchase price or replace the product if the repairs fail

Front 275

Limited warranty

Back 275

Contains the required disclosures with some limitations on the consumer's rights

Front 276

Consumer Credit Protection Act

Back 276

(aka the Truth in Lending Act); was to ensure that consumers knew the terms and interest rates of their credit transactions.

This act does not replace or preempt state credit disclosure laws unless they are clearly inconsistent with the act, and then only to the extent of the inconsistency.

Front 277

Fair Credit Billing Act

Back 277

(an amendment to the Truth in Lending Act); a person who is dissatisfied with property or services pruchased with a credit card has the right not to pay the remaining amount due if he or she first tries in good faith to return the property or give the merchant a chance to correct the problem.

Front 278

Fair Debt Collection Practices Act

Back 278

(another amendment to the Truth in Lending Act) prohibits unfair and oppressive collection practices by agencies that collect debt for creditors. Collection practices prohibited include using violent or criminal acts, using profane language, calling debtors repeatedly, etc.

Front 279

Fair Credit Reporting Act

Back 279

Requires consumer-reporting agencies to exercise their responsibilities with fairness, impartiality, and respect for consumers' rights. It applies only to consumer reporting agencies taht for money or on a cooperative non-profit basis regularly assemble or evaluate consumer credit information or other consumer information into reports furnished to third parties. Improper use of consumer credit reports can result in both criminal and civil liability.

Front 280

Equal Credit Opportunity Act

Back 280

Prohibits credit discrimination based on age, race, color, religion, national origin, or receipt of welfare benefits.

Front 281

Bankruptcy law

Back 281

The body of federal law that allows debtors who are unable to pay their creditors to divide their assets among their creditors to discharge the debts.

Front 282

Priority of claims made by creditors in liquidator proceedings

Back 282

1. Administrative expenses of the bankruptcy proceeding
2. Unsecured business debts
3. A limited amount of wage claims
4. Contributions to employee benefits plans
5. Claims of unsecured individuals
6. Unsecured claims of governmental units

Front 283

Debts that bankruptcy does NOT discharge include

Back 283

- Certain tax claims
- Money, property, or services obtained by fraud
- Claims for willful and malicious injury to people or property
- Alimony or support
- Most education loans
- Debts incurred in court actions arising from drunk driving

Front 284

Personal property

Back 284

All property that is not real property; it includes both tangible and intangible property

Front 285

Real property

Back 285

Land including structures or rights attached to the land. (Includes rights to water, minerals, and things attached to land, such as buildings, tress, and fixtures that have become part of the realty.)

Front 286

Three features of ownership

Back 286

1. The right to exclude all others from use and enjoyment of the property owned
2. The right to pass valid ("good") title to the property
3. The obligations of ownership, such as the obligation to pay taxes and to use property so as not to interfere with others' rights

Front 287

Possession

Back 287

The exercise of custody or control over property and is not, of itself, ownership

Front 288

Intellectual property rights

Back 288

The legal entitlement attached to the expressed form of an idea or of other intangible subject matter

Front 289

Copyright

Back 289

The legal right granted by the United States government to a person or organization for a period of years to exclusively own and control an original written document, piece of music, software, or other form of expression

Front 290

Patent

Back 290

The right granted by the United States government to an inventor or applicant for a limited time period to exclusively own and control a new, useful, and nonobvious invention

Front 291

Accession

Back 291

An increase or addition to property

Front 292

Confusion

Back 292

In property law, the intermingling of goods belonging to different owners.

(Usually arises when fungible goods, such as wheat, belonging to different owners, are mixed so that identification and separation of the goods are impossible.)

Front 293

Gift

Back 293

The voluntary and gratuitous transfer of property without consideration.

Requires three elements:
- Donative intent
- Delivery
- Acceptance

Front 294

Three elements of a gift

Back 294

- Donative intent (donor must intend to make a gift in the present; a promise to make a future gift is not enforceable)
- Delivery (can be actual physical transfer or by constructive delivery, which is delivery implied by law)
- Acceptance (parties rarely dispute acceptance, except when a donee does not want the burdens of ownership such as having to pay taxes)

Front 295

Bailment

Back 295

The temporary possession by one party (the bailee) of personal property owned by another party (the bailor) for a specific purpose, such as cleaning or repair

3 elements:
- the transfer of possession of personal property without transfer of title
- the bailee's acceptance of the bailed property
- the bailee's express or implied agreement to redeliver the property to the bailor or to a designated third person

Front 296

3 elements of a bailment

Back 296

- the transfer of possession of personal property without transfer of title
- the bailee's acceptance of the bailed property
- the bailee's express or implied agreement to redeliver the property to the bailor or to a designated third person

Front 297

Bailee

Back 297

The party that temporarily possesses personal property owned by another party (the bailor)

Front 298

Bailor

Back 298

The party that gives away temporary possession of their own personal property to another party (the bailee)

Front 299

Possessory lien

Back 299

A bailee's right to retain possession of a bailor's property as security for the payment of a debt or performance of a bailor's property as security for the payment of a debt or performance of some other act.

Front 300

Fee simple estate

Back 300

A full ownership interest in property with the unconditional right to dispose of it.

The owner of a fee simple estate can leave the property to heirs and sell, lease, ro use it. The typical owner of a single family home has a fee simple estate.

Front 301

Life estate

Back 301

An interest in which a person, called a life tenant, is entitled to possession of real property and to all income the land produces for the duration of that person's or someone else's life; the interest terminates on the death of the life tenant (or of the other person during whose life the life tenant possesses the property) and does not pass to his or her estate

Front 302

Tenancy

Back 302

A right to possession or ownership, or both, of property

Front 303

Joint tenancy

Back 303

A concurrently owned and undivided interest in an estate that transfers to a surviving joint tenant upon the death of the other.

Front 304

Tenancy by the entirety

Back 304

A joint tenancy between husband and wife

Differs from joint tenancy in that a sale or contract does not sever the tenancy; individual creditors cannot subject the property to a claim; neithe rparty individually owns a portion that can be mortgaged.

Front 305

Tenancy in common

Back 305

A concurrent ownership of property, in equal or unequal shares, by two or more joint tenants who lack survivorship rights.

Differs from joint tenancy & tenancy by the entirety in these ways:
- Involves no survivorship
- Parties can own unequal shares
- Parties need not derive their interests in the same deed from the same grantor

Front 306

Community property

Back 306

Property owned or acquired by both spouses during a marriage by their communal efforts. Each spouse has an undivided one-half interest in the community property.

Front 307

Cooperative ownership

Back 307

Ownership, usually of real property such as an apartment building, by a corporation, the stockholders of which receive long-term proprietary leases to a portion of the property and a property and a proportional vote in its affairs based on the number of shares owned.

Front 308

Condominium

Back 308

A real estate development consisting of a group of unites, in which the air space within the boundaries of each unit is owned by the unit owner, and all remaining real and personal property is owned jointly by all the unit owners.

Front 309

Deed

Back 309

A written instrument that transfers interest in real property.

Front 310

Vendee

Back 310

The purchaser of real property

Front 311

Vendor

Back 311

The seller of real property

Front 312

Grantor

Back 312

One who conveys property to another

Front 313

Grantee

Back 313

The buyer of real property after execution of the deed

Front 314

General warranty deed

Back 314

Contains the grantor's warranty that the title is free of all encumbrances (prior claims on the property), that the grantor has the title being transferred, and that no one else has a better title.

Front 315

Special warranty deed

Back 315

Contains warranties against only those encumbrances and defects in title that might have been created since the grantor took title.

Front 316

Bargain-and-sale deed

Back 316

Transfers whatever interest a grantor has in real property to a buyer for valuable consideration but lacks any guarantee from the seller about the validity of the title; it includes no warranties that the title is free from encumbrances

Front 317

Quit-claim deed

Back 317

Transfers only the title or interest (if any) the grantor has in the land at the time of transfer. Contains no warranties.

Front 318

Mortgagor

Back 318

The person or organization that borrows money from a mortgagee to finance the purchase of real property.

Front 319

Mortgagee

Back 319

A lender in a mortgage arrangement, such as a bank or another financing institution.

Front 320

Foreclosure

Back 320

A legal proceeding to terminate a mortgagor's interest in property; the mortgagee's remedy when the mortgagor defaults on payments.

Front 321

Trust deed (deed of trust or trust indenture)

Back 321

A secured interest in real property that is held by a trustee to protect the lender (beneficiary) until the loan is repaid by the borrower (trustor)

Front 322

Mechanic's lien

Back 322

A lien, granted by law to anyone who repairs a specific piece of property, that secures payment for the repairs

Front 323

Adverse possession

Back 323

The claim of ownership of land by possession that is exclusive, open, hostile, unpermitted, and continuous for a statutory period

Front 324

Lateral support

Back 324

A property owner's right to have land supported by the land adjacent to it

Front 325

Subjacent support

Back 325

A property owner's right to have land supported by the earth below it.

Front 326

Trade fixtures

Back 326

Fixtures and equipment that may be attached to a building during a tenant's occupancy, with the intention that they be removed when the tenant leaves

Front 327

Improvements and betterments

Back 327

Alterations or additions made to the building at the expense of an insured who does not own the building and who cannot legally remove them

Front 328

Incorporeal interest

Back 328

A nonmaterial interest in real property

Front 329

Easement

Back 329

A nonpossessory right to use another person's real property for a particular purpose

(e.g., to access a road)

Front 330

Profits a prendre

Back 330

A right or privilege to enter another's land and take away something of value from its soil or from the products of its soil

Front 331

License

Back 331

The permission to use real property for a particular purpose

Front 332

Zoning

Back 332

A government's regulation of building construction and occupancy and of land use according to a comprehensive plan

Front 333

Exclusionary zoning

Back 333

The act of restricting land use either by prohibiting additional building or by requiring high standards

Front 334

Spot zoning

Back 334

A provision in a general zoning plan that assigns a different use for a small area of land than that of the surrounding area

Front 335

Special exception

Back 335

A land use explicitly permitted by a zoning ordinance but subject to certain limitations

Front 336

Variance

Back 336

An exception to the strict application of a zoning ordinance to permit a use that is not permitted otherwise

Front 337

Hardship variance

Back 337

An exception to the application of a zoning ordinance for lots that, because of size, topography, or other physical limitations, do not conform to the ordinance requirements for the zone

Front 338

Use variance

Back 338

An exception to the application of a zoning ordinance to permit an otherwise prohibited use within the zone.

Front 339

Nonconforming use

Back 339

A land use that is impermissible under current zoning restrictions but that is allowed because the use was lawful before the restrictions took effect

Front 340

Building codes

Back 340

Local ordinances or state statutes that regulate the construction of buildings within a municipality, county, or state

Front 341

Eminent domain

Back 341

The right of a a government to seize private property for public use

Front 342

Condemnation proceeding

Back 342

A legal procedure by which a government body seeks a court's permission to seize private property by eminent domain

Front 343

Estate for years

Back 343

A landlord-tenant estate created for a definite period

Front 344

Tenancy at will

Back 344

A landlord-tenant estate in which the tenant has permission to occupy a premises as a landlord desires

Front 345

Periodic tenancy

Back 345

A landlord-tenant estate with no fixed termination date and automatic renewal until one of the parties gives notice of intent to terminate

Front 346

Holdover tenant

Back 346

A tenant who has a lease for a number of years and, at the expiration of the lease, continues to occupy the premises

Front 347

Tort

Back 347

A wrongful act or an omission, other than a crime or a breach of contract, that invades a legally protected right

Front 348

Tortfeasor

Back 348

A person or organization that has committed a tort

Front 349

Defendant

Back 349

The party in a lawsuit against whom a complaint is filed

Front 350

Plaintiff

Back 350

The person or entity who files a lawsuit and is named as a party

Front 351

Legal duty

Back 351

An obligation imposed by law for the preservation of the legally protected rights of others.

Front 352

Statute

Back 352

A written law passed by a legislative body, at either the federal or state level.

Front 353

Common law (case law)

Back 353

Laws that develop out of court decisions in particular cases and establish precedents for future cases

Front 354

Reasonable person test

Back 354

A standard for the degree of care exercised in a situation that is measured by what a reasonably cautious person would or would not do under similar circumstances

Front 355

Common carriers

Back 355

Airlines, railroads, or trucking companies that furnish transportation to any member of the public seeking their offered services

Front 356

Proximate cause

Back 356

A cause that, in a natural and continuous sequence unbroken by any new and independent cause, produces an event and without which the event would not have happened

Front 357

A high degree of care legally necessary in two situations:

Back 357

1. Common carriers (e.g., bus operators) must exercise the utmost caution
2. People who handle or store dangerous materials, such as explosives, must exercise care commensurate with the risk associated with the materials' dangerous character

Front 358

Scott v. Shepherd

Back 358

the "lighted squib" case; found that the one who commits a wrongful act is responsible for the ordinary consequences that can foreseeably flow from the act. The person is not liable for results that could not have been reasonably foreseen.

(the defendant, Shepherd, threw a lighted squib (a type of firecracker) into a crowd. It feel near Y, who picked it up and threw it near Z, who in turn threw it near Scott, where it exploded, injuring Scott.)

Front 359

But for rule

Back 359

A rule used to determine if a defendant's act was the proximate cause of a plaintiff's harm based on the determination that the plaintiff's harm could not have occurred but for the defendant's act

Front 360

Substantial factor rule

Back 360

A rule used to determine proximate cause when two parties' acts coincide to cause a loss by determining which act is the substantial factor in causing the harm

Front 361

Proof of defendant's responsibility

Back 361

An injured person cannot succeed in a lawsuit merely by proving that harm resulted from another person's act. The plaintiff still must prove by a preponderance of the evidence that the defendant caused the harm.

Front 362

Foreseeability rule

Back 362

A rule used to determine proximate cause when a plaintiff's harm is the natural and probable consequence of the defendant's wrongful act and when an ordinarily reasonable person would have foreseen the harm.

Front 363

Intervening act

Back 363

An act, independent of an original act and not readily foreseeable, that breaks the chain of causation and sets a new chain of events in motion that cause harm

Front 364

Concurrent causation (concurrent causation doctrine)

Back 364

A legal doctrine stating that if a loss can be attributed to two or more independent concurrent causes - one or more excluded by the policy and one covered - then the policy covers the loss.

Front 365

Negligence per se

Back 365

An act that is considered inherently negligent because of a violation of a law or ordinance.

Front 366

Res ipsa loquitur

Back 366

A legal doctrine that provides that, in some circumstances, negligence is inferred simply by an accident occurring.

Front 367

Exclusive control

Back 367

The control of only one person or entity; in tort law the control by the defendant alone of an instrument that caused harm (e.g., an exploding carbonated beverage bottle when only the bottler had control of it ahead of time)

Front 368

Contributory negligence

Back 368

A common-law principle that prevents a person who has been harmed from recovering damages if that person's own negligence contributed in any way to the harm

Front 369

Comparative negligence

Back 369

A common-law principle that requires both parties to a loss to share the financial burden of the bodily injury or property damage according to their respective degrees of fault

Front 370

Last clear chance doctrine

Back 370

A defense to negligence that holds the party who has the last clear chance to avoid harm and fails to do so solely responsible for the harm

Front 371

Assumption-of-risk defense

Back 371

A defense to negligence that bars a plaintiff's recovery for harm caused by the defendant's negligence if the plaintiff voluntarily incurred the risk of harm

Front 372

Pure comparative negligence rule

Back 372

A comparative negligence rule that permits a plaintiff to recover damages discounted by his or her own percentage of negligence, as long as the plaintiff is not 100 percent at fault

Front 373

50 percent comparative negligence rule

Back 373

A comparative negligence rule that permits a plaintiff to recover reduced damages so long as the plaintiff's negligence is not greater than 50 percent of the total negligence leading to harm

Front 374

49 percent comparative negligence rule

Back 374

A comparative negligence rule that permits a plaintiff to recover reduced damages so long as the plaintiff's negligence is less than the other party's negligence

Front 375

Slight versus gross rule

Back 375

A rule fo comparative negligence that permits the plaintiff to recover only when the plaintiff's negligence is slight in comparison with the gross negligence of the other party

Front 376

Release

Back 376

A legally binding contract between the parties to a dispute that embodies their agreement, obligates each to fulfill the agreement, and releases both parties from further obligation to one another that relates to the dispute

Front 377

Situations in which a court will uphold an exculpatory clause

Back 377

- The exculpatory clause is not adverse to a public interest and is not against public policy
- IF the party excused from liability is not under a duty to perform, as is a public utility or common carrier, for example
- If the contract does not arise from the parties' unequal bargaining power or is not otherwise unconscionable

Front 378

Gross negligence

Back 378

An act or omission that completely disregards the safety or rights of others and is exaggerated or aggravated in nature

Front 379

Immunity

Back 379

A defense that, in certain instances, shields organizations or persons from liability

Front 380

Sovereign immunity (governmental immunity)

Back 380

A defense to negligence that protects the government against lawsuits for tort without its consent

Front 381

Proprietary function

Back 381

A local government's act that is not considered part of the business of government and that could be performed by a private enterprise

Front 382

Governmental function

Back 382

An act that can be performed only by government

Front 383

Four possible major classes of immunities that may be available as defenses

Back 383

- Sovereign, or governmental, immunity
- Public official immunity
- Charitable immunity
- Intrafamilial immunity

Front 384

Federal Tort Claims Act (FTCA) of 1946

Back 384

Provides a limited waiver of governmental immunity for claims against the federal government. This law provides the only means for suing for damages and collecting them from the United States government in any cause in which the government, if it were a private person, would be liable.

Many local jurisdictions have enacted similar tort claim acts.

Front 385

Administrative act (discretionary act)

Back 385

An act, a decision, a recommendation, or an omission made by a government official or agency within the authority of that office or agency.

Front 386

Ministerial act

Back 386

An act that is directed by law or other authority and that requires no individual judgment or discretion about whether or how to perform it.

Front 387

T or F: A majority of states have accepted the doctrine of charitable immunity, particularly as applied to hospitals.

Back 387

FALSE. A majority of states have REJECTED the doctrine of charitable immunity, particularly as applied to hospitals.

Front 388

Interspousal immunity

Back 388

A defense to negligence that grants immunity to one spouse from the other spouse's lawsuit for torts committed before, during, and after the marriage.

Front 389

Parent-child immunity

Back 389

A defense to negligence that grants immunity to parents from their children's lawsuits for torts.

Front 390

Statute of limitations

Back 390

A statute that requires a plaintiff to file a lawsuit within a specific time period after teh cause of action has accrued, which is often when the injury occurred or was discovered

Front 391

Statute of repose

Back 391

A statute that requires a plaintiff to file a lawsuit within a specific time period after a wrongful act by a defendant, such as improper construction of a building, regardless of when the injury occurred or was discovered

Front 392

Trespasser

Back 392

A person who intentionally enters onto the property of another without permission or any legal right to do so

Front 393

Nuisance

Back 393

Anything interfering with another person's use or enjoyment of property

Front 394

Attractive nuisance doctrine

Back 394

A doctrine treating a child as a licensee, or guest, rather than a trespasser on land containing an artificial and harmful condition that is certain to attract children

Front 395

Invitee

Back 395

Person who enters a premises for the financial benefit of the owner or occupant

Front 396

Licensee

Back 396

A person who has permission to enter onto another's property for his or her own purposes

Front 397

Express license

Back 397

The oral or written permission to enter onto another's land to do a certain act, but not the granting of any interest in the land itself

Front 398

Implied license

Back 398

The permission to enter onto another's land arising out of a relationship between the party who enters the land and the owner

Front 399

Public invitee

Back 399

A person invited to enter onto land as a member of the general public for a purpose for which the land is open to the public

Front 400

Business invitee

Back 400

An individual who has express or implied permission to be on the property of another for the purpose of doing business

Front 401

Intentional tort

Back 401

A tort committed by a person who foresees (or should be able to foresee) that his or her act will harm another person

Front 402

Battery

Back 402

Intentional harmful or offensive physical contact with another person without legal justification

Front 403

Assault

Back 403

The threat of force against another person that creates a well-founded fear of imminent harmful or offensive contact

Front 404

False imprisonment

Back 404

The restraint or confinement of a person without consent or legal authority

Front 405

False arrest

Back 405

The seizure or forcible restraint of a person without legal authority

Front 406

Intentional infliction of emotional distress

Back 406

An intentional act causing mental anguish that results in physical injury.

Front 407

Negligent infliction of emotional distress

Back 407

An unintentional act causing mental anguish that results in physical injury

Front 408

Libel

Back 408

A written or printed untrue statement that damages a person's reputation

Front 409

Slander

Back 409

A defamatory statement expressed by speech

Front 410

Defamation

Back 410

A false written or oral statement that harms another's reputation

Front 411

Publication

Back 411

In tort law, the communication of a defamatory statement to another person

Front 412

Sullivan v. NYT

Back 412

Public officials suing news media for libel must prove that the statement was false and, further, that the defendant made it with knowledge of its falsity or with reckless disregard for its truth or falsity.

Front 413

Defenses for slander & libel

Back 413

- The statement was the truth
- The defendant made or printed a retraction (can reduce damages)
- The statement had absolute, conditional, or qualified privilege

Front 414

Absolute privilege

Back 414

Applies to statements made in judicial and legislative proceedings, executive officers' communications, and spousal communications, and when consent was given by the injured party

Front 415

Conditional or qualified privilege

Back 415

Statements made without malice as a matter of public interest, in petitions concerning appointments, in common interest communications, as fair comment on matters of public concern, and by credit reporting agencies

Front 416

Product disparagement, or trade libel

Back 416

An intentional false and misleading statement about the quality of a plaintiff's product, resulting financial damage to the plaintiff

Front 417

Invasion of privacy

Back 417

An encroachment on another person's right to be left alone

Front 418

Placing a hidden microphone, eavesdropping, tapping of telephone lines, using telephoto lenses, and using similar types of surveillance can constitute unlawful invasion if the intrusion would be ___________?

Back 418

If the intrusion would be highly offensive to a reasonable person.

Front 419

Public disclosure of private facts

Back 419

Tort involving gossip columns or similar dissemination of stories about a plaintiff's private life. A right to sue depends on the plaintiff's public prominence; an entertainer or politician, for example, is not entitled to privacy to the same degree as an ordinary citizen

Front 420

Publicity placing plaintiff in a false light

Back 420

Tort involving the use of a statement that has been taken out of context or which is based on information that is not true.

The defendant has presented the publicity in such a way that the plaintiff has good cause to be offended, even if the plaintiff's reputation is not damaged.

Front 421

Unauthorized release of confidential information

Back 421

Sometimes courts treat unauthorized release of confidential information as a tort separate from invasion of the right of privacy, although it contains many of the same elements

Front 422

Appropriation of plaintiff's name or likeness

Back 422

Tort based on one's rights to one's own name and likeness. Anyone who makes unauthorized use of another's name or likeness for publicity or commercial gain may be liable, but most courts base the tort on the defendant's commercial benefit.

Front 423

Defenses to invasion of privacy

Back 423

- Plaintiff previously published the info
- Plaintiff consented to publication
- Plaintiff is a public figure, or the information is public knowledge
- The info was part of a news event
- The publication would not offend an individual of ordinary sensibility
- Matters were disclosed in judicial proceedings
- The info is of public interest, such as the public's right to know

Front 424

Bad faith

Back 424

A breach of the duty of good faith and fair dealing

Front 425

Injurious falsehood

Back 425

A group of torts involving disparagement that causes harm to any kind of legally protected intangible property right.

Differs from defamation primarily in that the plaintiff must prove botht the falsity of the statement and the actual damage or loss, while defamation might not result in actual damages

Front 426

Interference with relationships between others

Back 426

A category of intentional tort, which can refer to either personal or business relationships of other parties.

Front 427

Malicious interference with prospective economic advantage

Back 427

A tort involving intentional interference with another's business, ro with another's expected economic advantage.

Front 428

Malice

Back 428

The intent to do a wrongful act without justification or excuse.

Front 429

Unfair competition

Back 429

Use of wrongful or fraudulent practices by a business to gain an unfair advantage over competitors

Front 430

Interference with employment

Back 430

An unjustified intentional act that interferes with another's valid or expected business relationship

Front 431

Alienation of affection

Back 431

A third party's interference with the husband-wife relationship. A spouse has a right to sue a person who persuades the other spouse to leave the marriage. (Some states have eliminated this action.)

Front 432

Personal injury (interference with family relationships)

Back 432

A spouse, or both spouses together, can sue a third person for causing personal physical injury to one spouse.

Front 433

Loss of consortium (interference with family relationships)

Back 433

Loss of husband-wife services, companionship, and comfort. The amount of damages is based on the spouses' existing relationship.

Front 434

Examples of other intentional torts

Back 434

- Interference with copyright, patent, or trademark
- Interference with right to use one's own name in business
- Misuse of legal process

Front 435

Wrongful-life action

Back 435

A lawsuit by or on behalf of a child with birth defects, alleging that, but for the doctor-defendant's negligent advice, the parents would not have conceived the child or would have terminated the pregnancy so as to avoid the pain and suffering resulting from the child's defects

Front 436

Wrongful-pregnancy action (wrongful-conception action)

Back 436

A lawsuit by a parent for damages resulting from a pregnancy following a failed sterilization

Front 437

Malicious prosecution

Back 437

The improper institution of legal proceedings against another

Front 438

Probable cause

Back 438

The grounds that would lead a reasonable person to believe that the plaintiff committed the act for which the defendant is suing

Front 439

Malicious abuse of process

Back 439

The use of civil or criminal procedures for a purpose for which they were not designed

Front 440

Trespass

Back 440

Unauthorized entry to another person's real property or forcible interference with another person's personal property.

Front 441

Private nuisance

Back 441

An unreasonable and unlawful interference with another's use or enjoyment of his or her real property

Front 442

Public nuisance

Back 442

An act, occupation, or structure that affects the public at large or a substantial segment of the public, interfering with public enjoyment or rights regarding property

Front 443

Intentional nuisance

Back 443

Purposeful interference with another party's enjoyment of his or her property

Front 444

Nuisance per se

Back 444

An act, occupation, or structure that is a nuisance at all times and under any conditions, regardless of location or surroundings

Front 445

Conversion

Back 445

The unlawful exercise of control over another person's personal property to the detriment of the owner

Front 446

Strict liability (absolute liability)

Back 446

Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, o rinappropriate

Front 447

Ultrahazardous activity (abnormally dangerous activity)

Back 447

An activity that cannot be performed safely even if performed with reasonable care; if harm results, the performer may be held strictly liable

- It has a high degree of risk of serious harm
- It cannot be performed without the high degree of risk
- It does not normally occur in the area in which it is conducted

Front 448

Environmental law

Back 448

The body of law that deals with the environment's maintenance and protection

Front 449

Toxic tort

Back 449

A civil wrong arising from exposure to a toxic substance

Front 450

Products liability

Back 450

A manufacturer's or seller's liability for harm suffered by a buyer, user, or bystander as a result of a product that has a dangerous manufacturing defect or design defect or that is not accompanied by a warning of an inherent hidden danger

Front 451

In a products liability lawsuit based on strict liability, the plaintiff must prove five elements:

Back 451

- The seller was in the business of selling products
- The product had a defect that made it unreasonably dangerous, meaning dangerous to an extent beyond that which would be contemplated by the ordinary user who has common knowledge about the product. (Not all courts require this element.)
- The product was dangerously defective when it lef tthe manufacturer's or seller's custody or control
- The defect was the proximate cause of the plaintiff's injury
- The product was expected to and did reach the consumer without substantial change in condition

Front 452

Three major types of product defects can lead to liability suits

Back 452

- Defect in manufacture or assembly
- Defect in design
- Failure to warn

Front 453

Defect in manufacture or assembly

Back 453

When a product does not correspond to the original design (product defect that can lead to liability suits)

Front 454

Defect in design

Back 454

When a product corresponds to the design, and the manufacturer built the product exactly as intended, but the design itself is faulty, and the injury has resulted from the design defect (product defect that can lead to liability suits)

Front 455

Failure to warn

Back 455

The product is defective in neither design nor manufacture, but it poses some inherent danger about which the manufacturer has failed to provide adequate warning (product defect that can lead to liability suits)

Front 456

State of the art defense

Back 456

Defense in products liability lawsuits. The defendant claims that its product was safe according to the state of the art at the time the product was made.

Front 457

Active negligence

Back 457

A plaintiff's voluntary use of a defective product with knowledge of the potential danger resulting from the defect

Front 458

Assumption of risk

Back 458

A defense to negligence that bars a plaintiff's recovery for harm caused by the defendant's negligence if the plaintiff voluntarily incurred the risk of harm.

Front 459

Passive negligence

Back 459

A plaintiff's failure to discover a product defect or to guard against a possible defect.

Front 460

Plantiff's knowledge defense

Back 460

If the person who uses the product has knowledge of the product that is equal to the manufacturer's knowledge, the manufacturer has no duty to warn

Front 461

Special damages

Back 461

A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages

Front 462

Loss of wages and earnings

Back 462

The compensatory damages to compensate a plaintiff for any loss of income directly related to a tort.

Front 463

General damages

Back 463

A monetary award to compensate a victim for losses, such as pain and suffering, that do not involve specific measurable expenses

Front 464

Pain and suffering

Back 464

Compensable injuries that are difficult to measure, such as physical and mental distress and inconvenience associated with a physical injury

Front 465

Emotional distress

Back 465

A highly unpleasant mental reaction resulting from another person's conduct, for which a court can award damages

Front 466

Wrongful death action

Back 466

A legal cause of action that exists for the survivor of the deceased

Front 467

Survival statute

Back 467

A statute that preserves the right of a person's estate to recover damages that person sustained between the time of injury and death

Front 468

Joint tortfeasors

Back 468

Two or more parties who commit a tort together in circumstances that can make it difficult to distinguish the fault or harm caused by one wrongdoer from the caused by another.

Front 469

Contribution

Back 469

The right of a tortfeasor who has paid more than his or her proportionate share of the damages to collect from other tortfeasors responsible for the same tort

Front 470

Uniform Contribution Among Joint Tortfeasors Act (UCAJTFA)

Back 470

Provides that, when two or more persons become jointly or severally liable in tort for the same injury or damage, or for the same wrongful death, they have a right of contribution among them even though the plaintiff has not recovered judgment against all or any of them.

The act creates rights in favor of tortfeasors wh ohave paid more than their pro rata share of their joint liability for the amount of the excess. It provides that, in assessing pro rata liability, the relative degree of fault is not a consideration.

Front 471

Enterprise liability (industry-wide liability)

Back 471

An expanded liability concept requiring each member of an industry responsible for manufacturing a harmful or defective product to share liability, when a manufacturer at fault cannot be identified

Front 472

Alternative liability

Back 472

An expanded liability concept that shifts the burden of proof to each of several defendants in a tort case when there is uncertainty regarding which defendant's action was the proximate cause of the harm

Front 473

Market share liability

Back 473

An expanded liability concept that applies when a product that has harmed a consumer cannot be traced to a single manufacturer; all manufacturers responsible for a substantial share of the market are named in the lawsuit and are liable for their proportional share of the judgment

Front 474

Concert of action

Back 474

An expanded liability concept that applies when all defendants acted together or cooperatively

Front 475

Conspiracy

Back 475

An expanded liability concept that applies when two or more parties worked together to commit an unlawful act

Front 476

Joint venture

Back 476

A business association formed by an express or implied agreement of two or more persons (including corporations) to accomplish a particular project, such as the construction of a building

Front 477

Vicarious liability

Back 477

A legal responsibility that occurs when one party is held liable for the actions of a subordinate or associate because of the relationship between the two parties

Front 478

Negligent entrustment

Back 478

The act of leaving a dangerous article with a person who the lender knows, or should know, is likely to use it in an unreasonably risky manner

Front 479

Negligent supervision

Back 479

A parent's failure to exercise reasonable control and supervision over his or her child to prevent harm to others

Front 480

Family purpose doctrine

Back 480

A liability concept that holds the owner of an automobile kept for the family's use vicariously liable for damages incurred by a family member while using the automobile

Front 481

Good Samaritan law

Back 481

A statute providing that a person will not be liable for civil damages as a result of rendering aid to an injured person, without compensation, at the scene of an accident

Front 482

Class action (class action lawsuit)

Back 482

A lawsuit in which one person or a small group of people represent the interests of an entire class of people in litigation

Front 483

Mass tort litigation

Back 483

A class-action suit based on tort law rather than on contract law

Front 484

T or F: A contract is essential to form an agency

Back 484

FALSE. A contract is NOT essential to form an agency

Front 485

An agency relationship can be established in three ways:

Back 485

- By appointment
- By estoppel
- By ratification

Front 486

Fiduciary relationship

Back 486

Relationship b/w agent + principal, referring to the position of trust the agent holds relative to the principal

Front 487

Principal

Back 487

The party in an agency relationship that authorizes the agent to act on that party's behalf

Front 488

Agent

Back 488

The party that is authorized by the principal to act on the principal's behalf

Front 489

Agency

Back 489

A legal, consensual relationship that exists when one party, the agent, acts on behalf of another party, the principal

Front 490

Power of attorney

Back 490

A written document that authorizes one person to act as another person's agent or attorney-in-fact

Front 491

Agency by estoppel

Back 491

An agency relationship created by a principal's words or conduct that cause a third party to reasonably believe that an agency exists.

Front 492

Ratification

Back 492

Creation of an agency relationship resulting when a principal adopts the act of another who has purported to act for the principal and has neither power nor authority to perform the act for the principal

Front 493

Difference b/w ratification and estoppel

Back 493

Ratification establishes the agency relationship. In contrast, an estoppel does not create an agency relationship but only protects the third person from a loss that would result if the agency were denied

Front 494

Actual authority

Back 494

Authority (express or implied) conferred by the principal on an agent under an agency contract

Front 495

Express authority

Back 495

The authority that the principal specifically grants to the agent

Front 496

Implied authority

Back 496

The authority implicitly conferred on an agent by custom, usage, or a principal's conduct indicating intention to confer such authority

Front 497

Apparent authority

Back 497

A third party's reasonable belief that an agent has authority to act on the principal's behalf

Front 498

Agent's duties to a principal

Back 498

- Loyalty
- Obedience
- Reasonable care
- Accounting
- Information

Front 499

Principal's duties to an agent

Back 499

- Agreed-on period of employment
- Compensation
- Reimbursement for expenses
- Indemnity for losses

Front 500

Ministerial duties

Back 500

The routine or mechanical tasks performed by agents; an agent can delegate the performance of these tasks to someone else.

Front 501

Agency termination can be accomplished in one of several ways (7):

Back 501

- Just cause
- Lapse of time
- Accomplishment of purpose
- Revocation
- Renunciation
- Death or incapacity
- Changed circumstances

Front 502

Death or incapacity can terminate an agency in three ways:

Back 502

- The death of either principal or agent terminates the agency
- The incapacity of the principal terminates the agency
- The principal has the right to terminate the agency upon learning of the agent's incapacity

Front 503

Disclosed principal

Back 503

A principal whose existence and identity are known to the third party dealing with the agent

Front 504

Partially disclosed principal

Back 504

A principal whose existence is known, but whose identity is not known, to the third party dealing with the agent

Front 505

T or F: A third party cannot sue the principal for nonpayment under a contract if the principal has made a good-faith settlement of the account with the agent.

Back 505

TRUE. A third party CANNOT sue the principal for nonpayment under a contract if the principal has made a good-faith settlement of the account with the agent.

Front 506

T or F: A third party can sue the principal if, having learned of both the principal's existence and the principal's identity, the third party expresses the intention to hold the agent liable for the contract.

Back 506

FALSE. A third party CANNOT sue the principal if, having learned of both the principal's existence and the principal's identity, the third party expresses the intention to hold the agent liable for the contract.

Front 507

Employee

Back 507

A person hired to perform service for another under the direction and control of the other party, called the employer

Front 508

Independent contractor

Back 508

A person (or organization) hired to perform services without being subject to the hirer's direction and control regarding work details

Front 509

Respondeat superior

Back 509

"let the master answer"

The legal principal under which an employer is vicariously liable for the torts of an employee acting within the course and scope of employment

Front 510

Joint and several liability

Back 510

The liability of multiple defendants either collectively or individually for the entire amount of damages sought by the plaintiff regardless of their relative degree of responsibility.

Front 511

T or F: A principal who commits a tort against a third party is directly liable to that party for any resulting harm.

Back 511

TRUE. A principal who commits a tort against a third party IS directly liable to that party for any resulting harm.

Front 512

T or F: Agents are generally laible for their own torts.

Back 512

TRUE. Agents generally ARE liable for their own torts. (some exceptions)

Front 513

Generally, an agent is not liable to a third party under a contract made on a disclosed principal's behalf. Except in six situations:

Back 513

- The agent warrants by implication that he or she has actual authority to act on the principal's behalf
- The agent acts on behalf of a minor/mentally incompetent person
- The agent purported to act personally and not for a principal
- Third party asks agent to agree to personally guarantee the contract
- Third party pays money to an agent who has no authority to collect it and the agent does not turn over the money to the principal
- Agent is liable for fraudulent or malicious acts that harm a third party

Front 514

Generally, a principal is not liable for the torts of agents that are independent contractors. 3 exceptions:

Back 514

- A principal who negligently enters into an agency with an independent contractor that is unsuitable or incompetent can be held liable for resulting harm to third parties
- Certain duties are considered so important that responsibility for them cannot be delegated to another party
- A principal who hires an independent contractor to perform highly dangerous activities, for example building demolition, must ensure that the contractor takes appropriate safety precautions

Front 515

When an agent makes a material misrepresentation to a third party in a transaction, the third party can rescind (avoid) that transaction. A third party can also elect to recover in tort for any harm resulting from the misrepresentation. A principal may be liable to a third party for misrepresentations by an agent in two situations:

Back 515

- A principal intended that an agent make a misrepresentation
- When an agent has actual or apparent authority to make true statements about a particular subject, the principal is vicariously liable for any misrepresentations made by the agent even if the principal did not direct or condone the misrepresentation

Front 516

Insurance producer

Back 516

Any of several kinds of insurance personnel who place insurance business with insurers and who represent either insurers or insureds, or both

Front 517

Insurance agent

Back 517

A legal representative of one or more insurers for which the representative has a contractual agreement to sell insurance

Front 518

General agent

Back 518

An agent that transacts all of a principal's business of a particular kind or in a particular place

Front 519

Special agent

Back 519

A person or an entity that is employed to act for the principal in a specific transaction or only for a particular purpose or class of work

Front 520

Soliciting agent

Back 520

An insurance producer whose authority is limited by contract with an insurer to soliciting applications for insurance and performing other acts directly incident to those activities

Front 521

Broker

Back 521

An independent producer who represents insurance customers

Front 522

T or F: A broker can be both an agent and an insured's representative

Back 522

TRUE. There are two such instances. First, through apparent authority, the broker is legally the insurer's agent if the insurer allows the broker to act in a manner leading a reasonable third party to believe that the broker is the insurer's agent. Second, some state statutes provide that, for some specific purposes, a broker is the insurer's agent.

Front 523

A court might not bind an insurer by a producer's knowledge in these circumstances:

Back 523

- When no actual agency relationship exists between the producer and insurer
- When the agent has supplied false information

Front 524

Oral contracts must contain sufficient agreement on essential terms, such as these:

Back 524

- Subject matter of the insurance
- Loss exposures insured
- Premium
- Insurance contract duration
- Coverage amount
- Identity of parties

Front 525

T or F: If the evidence does not reveal that the producer selected an insurer before the loss, the contract does not bind any insurer.

Back 525

TRUE. The insured has no coverage but can sue the agent for errors and omissions and seek damages equivalent to the loss.

Front 526

Duties owed by produces to their customers

Back 526

- Follow instructions
- Procure insurance
- Maintain coverage
- Place insurance with a solvent insurer
- Advise

Front 527

Producers' defenses to liability in a claim that the producer failed in his/her responsibility and caused damage to the customer (5):

Back 527

- The producer assumed no duty to the customer
- The producer did not breach a duty to the customer
- The insruance customer was partly at fault
- The insurance customer failed to read the policy
- Insurance was not available to the customer

Front 528

Producer has 4 duties to the insurer

Back 528

- Disclose risks
- Follow instructions
- Loyalty and accounting
- Transmit information properly

Front 529

T or F: If a producer binds coverage contrary to explicit insurer instructions, the insurer must provide coverage but can sue the producer for the amount of the loss.

Back 529

TRUE. If a producer binds coverage contrary to explicit insurer instructions, the insurer must provide coverage but can sue the producer for the amount of the loss.

Front 530

Four exceptions to the employment-at-will doctrine

Back 530

- Public policy exception
- Implied-contract exception
- Covenant-of-good-faith exception
- Statutory exception

Front 531

Employment at will

Back 531

A legal doctrine under which an employer may terminate any employee at any time for any reason or for no reason.

Front 532

Wrongful discharge

Back 532

A cause of action an employee may have against an employer for illegal termination of employment

Front 533

Examples of grounds for firing that fall under the public policy exception to employment-at-will

Back 533

- Refusing to commit perjury at the request of the employer
- Filing a workers compensation claim after being injured on the job
- Applying for medical leave specifically provided under state or federal law
- Refusing to participate in illegal price-fixing
- Refusing to violate another employee's or a customer's privacy without permission

Front 534

Common-law system

Back 534

A legal system in which the body of law is derived more from court decisions as opposed to statutes or constitutions

Front 535

Bona fide occupational qualification (BFOQ)

Back 535

The minimum qualification, under federal antidiscrimination laws, that an employee needs in order to be able to perform the duties of a particular job

Front 536

Age Discrimination in Employment Act of 1967

Back 536

Prohibits discrimination, on the basis of age, against persons age forty or older. Extends to all aspects of employment. Applies to employers with twenty or more employees in an industry affecting interstate commerce.

Front 537

Older Workers Benefit Protection Act (OWBPA)

Back 537

Amends the ADEA; prohibits age discrimination in the offering of benefits, but allows employers to reduce benefits to older workers when such "age-based reductions in employee benefit plans are justified by significant cost considerations"

Front 538

Civil Rights Act of 1866

Back 538

Also known as Section 1981; gave "all people within the U.S> jurisdiction for the same rights as white citizens". Applied to all aspects of employment. Allows for recovery of compensatory and punitive damages in a potentially unlimited amount.

Front 539

Civil Rights Act of 1871

Back 539

Established the right to bring suit for monetary damages for a violation of civil rights by individuals acting under state or federal authority. The law is very rarely applied to private employers.

Front 540

Civil Rights Act of 1964

Back 540

(amended in 1991) Extended the basis for protection against discrimination to include religion and sex. Title VII of the Act (titled "Equal Employment Opportunity") governs most employment discrimination actions.

Front 541

T or F: Title VII applies to the U.S. government and to any corporation wholly owned by the U.S. Likewise, it applies to any religious group regarding employment of individuals of a particular religion to perform work connected with the group's activities, including educational institutions associated with it.

Back 541

FALSE. Title VII DOES NOT apply to the U.S. government or to any corporation wholly owned by the U.S. Likewise, it DOES NOT apply to any religious group regarding employment of individuals of a particular religion to perform work connected with the group's activities, including educational institutions associated with it.

Front 542

Disparate impact theory

Back 542

A legal basis for an employment discrimination complaint requiring the plaintiff to establish that an apparently neutral employment practice or criterion, applied equally to all individuals, operated to exclude a disproportionate number of the protected class.

(distinct from disparate impact theory)

Front 543

Disparate treatment theory

Back 543

A legal basis for an employment discrimination complaint requiring the plaintiff to establish the employer's practice of intentionally treating individuals differently solely because of their sex, race, color, religion, or national origin

Front 544

Quid pro quo sexual harassment

Back 544

A practice whereby an employer demands or expects sexual favors in exchange for continued employment, workplace advancement, or other job-related benefits

Front 545

Hostile work environment

Back 545

An environment that exists when an employee is subjected to harassment that is so severe or pervasive that it alters the conditions of his or her employment and creates an abusive working environment.

Front 546

Civil Rights Act of 1991

Back 546

- Persons alleging unlawful intentional discrimination can now recover potentially unlimited compensatory and punitive damages
- Plaintiffs can recover compensatory and punitive damages in suits alleging intentional discrimination
- Made it easier for plaintiffs to prove their case (by adjusting the burden of proof)
- Allowed for jury trials in compensatory damages cases

Front 547

Affirmative action plan

Back 547

A written plan that the federal government requires of employers with federal contracts, detailing how the employer will meet hiring goals for groups the law protects from discrimination.

Comes from Executive Order 11246

Front 548

Equal Pay Act

Back 548

Prohibits employers from paying lower wages to employees of one sex than it pays to those of the other sex for work requiring equal skill, effort, and responsibility and performed under similar working conditions.

Front 549

Immigration Reform and Control Act of 1986

Back 549

Prohibits employers and employee-referral services from hiring, employing, or referring aliens not authorized to work in the U.S.

Front 550

Rehabilitation Act of 1973

Back 550

Prohibits employers with federal government contracts exceeding $2500 from discriminating against disabled persons who are otherwise qualified to fulfill the contract.

Front 551

Americans with Disabilities Act

Back 551

Prohibits discrimination against qualified individuals with disabilities. Applies to all aspects of the employment process. Applies to all employers with fifteen or more employees and engaged in a business affecting interstate commerce, governments and government agencies, employment agencies, and labor organizations.

Front 552

Uniformed Services Employment and Reemployment Rights Act of 1994

Back 552

Ensures that persons who serve or have served in the Armed Forces, Reserves, National Guard, or other "uniformed services" do not experience a disadvantage in their civilian jobs upon return from active duty, and are not discriminated against in employment based on their military service

Front 553

Jury Systems Improvement Act

Back 553

An employer may not discharge, threaten to discharge, intimidate, or coerce any employee who misses work due to jury duty

Front 554

The Consumer Credit Protection Act

Back 554

Prohibits termination due to an order of garnishment of any employee's wages

Front 555

Norris-LaGuardia Act of 1932

Back 555

Prohibited any federal district court from issuing an injunction in a labor dispute until all efforts to resolve the issue through negotiation were exhausted.

The act also prohibits employers from requiring an employee, as a condition of employment, to promise not to join a union.

Front 556

National Labor Relations Act (NLRA) of 1935

Back 556

(aka Wagner Act) was the first law to require recognition of labor unions and protected employees from economic retaliation based on union membership.

Front 557

Collective bargaining

Back 557

A process by which employees, represented collectively by a union, negotiate (bargain) with the employer on a labor contract dealing with wages, hours, and working conditions.

Front 558

If a union exists, you MUST collectively bargain for the following aspects of employment:

Back 558

- Wages
- Hours
- Other terms of employment

By contrast, the following are examples of bad faith in collective bargaining:
- Refusal by either side to enter into negotiations on mandatory issues
- A take-it-or-leave it approach by the employer from the time of the first bargaining conference
- Participation in a lengthy series of bargaining conferences with no intention to enter into an agreement

Front 559

Arbitration

Back 559

An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a settlement, which can be final and binding.

Front 560

Primary boycott

Back 560

Occurs when customers or vendors are encouraged to stop doing business with the employer in support of the union's position. A boycott is often enforced by picketing as union members stand or protest outside the employer's premises.

Front 561

Secondary boycott

Back 561

Occurs when unionized employees apply a boycott against one employer to pressure that employer to stop doing business with another. Under a secondary boycott, the employees refuse to work on or with materials coming from or going to the second employer. Made illegal by the Taft-Hartley Act of 1947 and strengthened by the Landrum-Griffin Act of 1959.

Front 562

Occupational Safety and Health Act of 1970 (OSH Act)

Back 562

An act passed by Congress in 1970 to ensure every employee a safe place to work by setting safety standards for employers and imposing penalties for violation of the standards.

Front 563

OSH Act General Duty Clause

Back 563

Each employer:

- shall furnish to each of his employees employment and a place of employment which are free from recognized hazards that are causing or are likely to cause death or serious physical harm to his employees
- shall comply with occupational safety and health standards promulgated under this Act

Front 564

Fair Labor Standards Act (FLSA)

Back 564

Establishes requirements relating to minimum wage, overtime compensation, child labor, and equal pay for men and women. States may also establish laws regarding wages and work hours, provided the requirements meet or exceed federal laws.

Front 565

Nonexempt employee

Back 565

An employee who is paid by the hour and who receives hourly overtime pay

Front 566

Exempt employee

Back 566

An employee who is paid a salary and who does not receive overtime pay

Front 567

Family Medical Leave Act

Back 567

Requires employers to provide employees with unpaid leave time for circumstances covered under the act. Employers must offer eligible employees up to 12 weeks of unpaid leave in a 12-month period, with no loss of any employment benefits accrued prior to leave.

Covered absences include parental leave following a birth or an adoption; an employee's serious health condition; or a serious health condition of the employee's spouse, child, or parent.

Employers bear the responsibility to decide whether an absence qualifies for FMLA

Front 568

Employee Retirement Income Security Act (ERISA)

Back 568

Intended to safeguard employee pensions

Front 569

COBRA

Back 569

Consolidated Omnibus Budget Reconciliation Act; ensures that terminated employees may still have access to health insurance benefits

Front 570

Health Care and Education Reconciliation Act of 2010

Back 570

Places requirements on emloyers for the purpose of expanding the availability and affordability of healthcare coverage

Front 571

Drug-Free Workplace Act of 1988

Back 571

Requires federal contractors with contracts of $100K or more and all federal grantees to establish drug-prevention programs and to maintain a drug-free workplace in compliance with the act.

Front 572

Employee Polygraph Protection Act of 1988

Back 572

Prohibits most private-sector employees from requiring or even requesting employees or applicants to submit to lie detector tests, or from inquiring about or considering the results of any such test

Front 573

Title III of the Omnibus Crime Control and Safe Streets Act of 1968 and the Electronics Communications Privacy Act of 1986 combine to prohibit this act:

Back 573

intercepting any wire or oral communication in a place of business engaged in interstate commerce.

Interception of communication is permissible, however, if one of the parties to a conversation has consented to monitoring

Front 574

Emotional sanctum

Back 574

Intrusion into an employee's private affairs -- may create privacy exposures

Front 575

Primary advantage of incorporation

Back 575

It limits the owners' liability for the corporation's contracts and torts

Front 576

Other advantages, other than limited liability, of incorporating:

Back 576

- Possible tax advantages
- Easier to sell or transfer ownership
- Easier to raise capital
- Perpetuity beyond the death of owners

Front 577

Pierce the corporate veil

Back 577

A court act of imposing personal liability on corporate officers, directors, and stockholders for the corporation's wrongful acts

Front 578

Long-arm statutes

Back 578

Statutes that some states have enacted that allow residents to sue, in their own state's courts, people or entities (including corporations) who are not physically present in the state but who have minimum contacts there.

Front 579

Bond

Back 579

A long-term debt instrument that requires the issuer to pay a set annual rate of interest and to repay the borrowed sum on a specified date.

Front 580

Common stock

Back 580

An ownership interest in a corporation that gives stockowners certain rights and privileges, such as the right to vote on important corporate matters and to receive dividends

Front 581

Preferred stock

Back 581

Stock that is generally nonvoting but that has priority over common stock, usually regarding dividends and capital distribution if the corporation ends its existence

Front 582

Par value

Back 582

An arbitrary dollar value that an organization assigns to its shares

Front 583

Stock rights

Back 583

Short-term options to purchase corporate shares.

Often given to current stockholders to encourage purchase of a proportional quantity of new stock, often at less than market prices

Front 584

Stock warrants

Back 584

Similar to stock rights, but evidenced by a negotiable instrument, typically issued with preferred stocks or bonds.

Front 585

Stock options

Back 585

Typically used to provide deferred compensation for corporate executives, they permit executives to purchase a certain number of shares at a stated price, relative to status or salary.

Front 586

Preemptive rights

Back 586

Rights, when given, of existing stockholders to purchase the portions of a new issue of stock relative to an individual stockholders to purchase the portions of a new issue of stock relative to an individual stockholder's total outstanding share of the same class of stock

Front 587

Treasury stock

Back 587

A corporate stock issued as fully paid to a stockholder and subsequently reacquired by the corporation to use for business purposes

Front 588

T or F: A corporation may reacquire issued securities by repurchasing them. This reacquisition is known as redemption.

Back 588

TRUE: A corporation may reacquire issued securities by repurchasing them. This reacquisition is known as redemption.

Front 589

Sarbanes-Oxley Act

Back 589

2002; intended to ensure the credibility of financial requirements and include these provisions:

- Created the Public Company Accounting Oversight Board to establish and oversee standards for auditors of public companies
- Indpendence of the audit committee of a public company's board of directors
- Certification of corporate financial reports by the company's chief executive and chief financial officers
- Rapid, current, and transparent reporting

Front 590

T or F: Board decisions that would change the terms of the contract between the corporation and its stockholders do not require stockholder approval.

Back 590

FALSE. Board decisions that would change the terms of the contract between the corporation and its stockholders DO require stockholder approval. Examples include:

- Amendments to the articles of incorporation
- Mergers or consolidation
- Dissolution of the corporation

Front 591

Inside director

Back 591

A corporate officer that serves on the corporation's board of directors

Front 592

Outside director

Back 592

A member of a corporation's board of directors who is a corporate officer and who may not necessarily be connected with the corporation

Front 593

Ultra vires

Back 593

An act of a corporation that exceeds its chartered powers.

Under corporate law, a contracted entered into ultra vires is illegal. Also, if the corporation loses money in an ultra vires activity, the directors who authorized the activity are personally liable for the loss. Today, the doctrine of ultra vires is rarely an issue for private corporations.

Front 594

Typical items included in the Articles of Incorporation

Back 594

- Corporate name
- Duration (usually perpetual)
- Purpose (usually broadly stated)
- Number, classes, and par (face) value of shares
- Provisions, if any, for the stockholders' right to purchase a proportionate share of newly issued stock
- Provisions, if any, restricting the transferability of shares
- Registered office or place of business and registered agent
- Number, names, and addresses of the initial board of directors
- Names and addresses of incorporators

Front 595

Duties of directors and officers under ERISA

Back 595

- Act solely in the plan participants' interest
- Exercise the care and skill of a reasonable person conducting a similar enterprise
- Diversify investments unless it is clearly unreasonable to do so
- Act in accordance with the plan documents

Front 596

Insider Trading Sanctions Act of 1984

Back 596

Imposes a civil penalty on anyone who deals in securities based on "material, nonpublic" information

Front 597

Stockholder decisions

Back 597

- Electing board members and, in many states, removing them without cause
- Approving changes to the articles of incorporation
- Making or amending bylaws
- Approving loans to the corporation's directors, officers, or agents
- Ratifying (approving) board actions
- Suing directors for mismanagement

Front 598

Shareholder derivative suit

Back 598

A lawsuit brought by one or more shareholders in the name of the corporation

Front 599

Class actions

Back 599

When a transaction damages many people, one or more damaged persons can file a representative suit on behalf of all (thus avoiding multiple suits on the same factual and legal questions)

Front 600

Direct actions

Back 600

A stockholder might file suit to seek remedy for direct harm.

FOr example, a stockholder might file a direct action for harm sustained while engaged in company business.

Front 601

Dividends

Back 601

Shares of corporate profits paid to stockholders

Front 602

3 ways corporations may cease to exist

Back 602

Merger
Dissolution
Reorganization

Front 603

Share exchange merger

Back 603

When a corporation acquires all of another corporation's outstanding shares in return for shares of the acquiring corporation.

A share exchange plan must be adopted by the board of directors of the "disappearing" corporation and approved by the stockholders of teh corporation whose shares are being acquired, but it does not have to be approved by the stockholders of the acquiring corporation.

Front 604

Takeover

Back 604

The assumption of control by one corporation over another through merger, acquisition, or some other type of transaction

Front 605

Tender offer

Back 605

A purchase offer made directly to the shareholders of the target, typically at an offer price greater than the current market price

Front 606

Conglomerate merger

Back 606

A merger of two orgs that are not competitors or linked as customer and supplier

(i.e, a merger b/w a paint retailer and a carpeting retailer)

Front 607

2 differences b/w insurance company mergers and other corporation mergers

Back 607

- Regulated corporations, such as insurance companies, can engage in only one type of business; insurers can merge only with companies in the same business
- State departments of insurance must approve insurance company mergers

Front 608

The Revised Model Business Corporation Act (RMBCA) provides that stockholders can file suits to dissolve a corporation on these grounds

Back 608

- The directors are deadlocked, the stockholders cannot break the deadlock, and irreparable injury to the corporation either has occurred or might occur
- The directors' or officers' acts are illegal, oppressive, or fraudulent
- The stockholders are deadlocked in voting power and have failed to elect directors for two successive meetings
- The corporate assets are being wasted or misapplied

Front 609

Chapter 11 of the Bankruptcy Reform Act of 1978

Back 609

Allows a corporation to be placed under federal bankruptcy court supervision for reorganization purposes. May be voluntary or involuntary. May result in restructured org or termination through bankruptcy liquidation.

Front 610

Partnership

Back 610

A for-profit business entity jointly owned by two or more persons who share ownership and profits (or losses), although not necessarily on an equal basis

Front 611

Joint venture

Back 611

An unincorporated association of two or more persons (legally defined as individuals, groups, companies, or corporation) established to conduct a single transaction or a series of related transactions (as compared with an ongoing business involving many diverse transactions)

Front 612

Common name statute

Back 612

A law that permits service of process on a partnership by serving any one of the partners

Front 613

A partnership by estoppel results if three elements are present

Back 613

- A person who is not a partner purports to be a partner or permits others to think he or she is a partner
- The third party deals with the entity in justifiable reliance on a belief that it is a partnership or that the person who purports to be a partner is actually a partner
- The third party changes his or her legal position because of reliance on that belief, for example, entering into a contract

Front 614

Examples of wrongful dissolutions (in which the innocent partners can choose to either wind up the business and hold the at-fault partner liable for breach of contract damages or continue the business for the remainder of the partnership term):

Back 614

- A partner becomes bankrupt
- A partner is guilty of conduct that harms the operation of the business, such as competing with the partnership, embezzlement, or breach of the fiduciary relationship.
- A partner willfully or persistently breaches the partnership agreement

Front 615

Limited partnership

Back 615

A form of partnership made up of one or more general partners, who have unlimited liability, and one or more limited partners, whose liability is limited to the amount of capital they have contributed to the partnership

Front 616

Order a partnership's assets are distributed upon dissolution:

Back 616

1. Partnership creditors
2. Partners' advances
3. Each partner's capital (if partnership assets are insufficient, the loss of capital is deducted from each partner's capital contribution according to each partner's share of the profits)
4. Surplus to the partners, divided in the same proportion as profits

Front 617

Limited partnership

Back 617

A form of partnership made up of one or more general partners, who have unlimited liability, and one or more limited partners, whose liability is limited to the amount of capital they have contributed to the partnership.

Front 618

Limited liability partnership

Back 618

A partnership limiting each partner's personal liability for acts or omissions of other partners.

Differs from a limited partnership in that it limits liability for each partner. However, this limitation does not apply in situations such as individual acts of negligence or wrongful acts by a withdrawing partner.

Front 619

Limited liability company (LLC)

Back 619

A form of business entity that provides its owners the limited liability of a corporation and the tax advantages of a partnership

Front 620

Unincorporated association

Back 620

A voluntary association of individuals acting together under a common name to accomplish a lawful purpose

Front 621

Associations differ from partnerships in several ways (4)

Back 621

- An association cannot usually hold title to real property or execute a lease in the association's name
- A member's withdrawal does not cause dissolution
- Any expense-sharing or profit-sharing in an association is frequently other than per capita
- An association's individual members do not have authority to participate directly in its day-to-day management

Front 622

Volunteer Protection Act

Back 622

Those who provide voluntary services are immune from liability in many instances

Front 623

Ways an association can be dissolved:

Back 623

- By members' vote
- By the death or withdrawal of a majority of the members
- By court action on application of creditors or members, or for illegal conduct
- By the expiration of a period stated in the articles

Front 624

Liabilities of unincorporated associations

Back 624

Individual members can be liable for both torts and contracts arising form the association's activities. Association members are jointly and severally liable for torts for torts committed by the association's agents and employees acting within the scope of their employment

Front 625

Ownership of assets of unincorporated associations

Back 625

Individual members have rights in the association assets

Front 626

Foreign trade

Back 626

The importing and exporting of a product from one country to another.

(It is the most common method used to participate in international business, and, compared with other methods, is the one that requires the lowest level of investment and entails the least amount of business risk).

Front 627

Business risk

Back 627

Risk that is inherent in the operation of a particular organization, including the possibility of loss, no loss, or gain

Front 628

T or F: Most exports do not require a license and are sent to other countries under the No License Required (NLR) designation

Back 628

TRUE. Most exports DO NOT require a license and are sent to other countries under the No License Required (NLR) designation

Front 629

Tariffs

Back 629

A tax, or duty, assessed on goods imported into the U.S.

Front 630

Ad valorem

Back 630

A percentage of the price, added to the sales price of the goods (applies to tariffs)

Front 631

Quotas

Back 631

Limits on the amount of a good that may be imported into the U.S>

Front 632

Licensing

Back 632

A method of controlling imports, which is granted by a country's government. By requiring a license to conduct business, the government ensures that a good will be imported into the country on more favorable terms than if domestic companies competed for the goods for use or resale

Front 633

Prohibited imports

Back 633

Goods that are illegal to be imported and sold in the U.S. (Marijuana, cocaine, etc.)

Front 634

Force majeure

Back 634

(superior force); often international sales contracts will include this type of clause, which frees all parties from obligation when an extraordinary even tor circumstance beyond the control of the parties (such as war, strike, riot, earthquake, or volcanic eruption) prevents one or both parties from fulfilling their obligations under the contract

Front 635

Cash in advance

Back 635

Funds deposited prior to receipt of the goods.

This is a double disadvantage to the buyer.

Front 636

Open account

Back 636

A rotating charge account under which the buyer settles the account at determined intervals.

An open account is usually established only if there is a long-term relationship between buyer and seller.

Front 637

Draft

Back 637

A written order by a first party, called the "drawer" (the seller, to the second party, called the "drawee" (the buyer), to pay funds to a third party, called the "payee" or to the bearer of the draft.

Front 638

Letter of credit (LOC)

Back 638

The buyer establishes credit with a local bank, which then contacts a bank in the seller's country, establishing a credit in favor of the seller. The seller then receives a letter of credit in confirmation of the credit.

Front 639

Types of foreign contractual relationships

Back 639

- Product licensing
- Franchising


(In comparison with foreign trade) these relationships increase business risk and resource commitment.

Front 640

Product licensing

Back 640

A permission granted by one company to another to manufacture its product or to use its distribution facilities or technology

Front 641

Franchising

Back 641

Occurs when one company assigns to another the right to supply its products or services within a market. A franchise is a contract entered into for a specific time period.

Front 642

Foreign direct investment

Back 642

Occurs when a company in one country acquires control over assets located in another country

Front 643

Foreign portfolio investment

Back 643

Occurs when a company purchases foreign stocks, bonds, or other financial instruments

Front 644

Joint venture (international trade)

Back 644

In the international trade context, a joint venture involves shared ownership and control of a foreign operation. Joint ventures allow a company to enter either a geographic or product market and to acquire technology or revenue that would not otherwise be within reach

Front 645

Resource seekers

Back 645

Companies that enter a foreign market seeking that country's resources, such as oil reserves, lower-cost labor, or technology

(a category of company seeking direct foreign investment)

Front 646

Market seekers

Back 646

Companies that enter a foreign market to acquire new customers outside their own countries' boundaries

(a category of company seeking direct foreign investment)

Front 647

Market followers

Back 647

Companies that follow their customers into foreign countries, a common trend in service industries such as insurance and banking

(a category of company seeking direct foreign investment)

Front 648

Civil law (or Roman-Germanic law)

Back 648

Uses comprehensive codes and statutes to form the backbone of a legal system. This system relies heavily on legal scholars to develop and interpret the law. In the civil-law system, a judge is a civil servant whose function is to find the correct legislative provision within a written code of statutes and apply it to the facts presented in a case

Front 649

Preliminary stage

Back 649

Involves submission of pleadings and appointment of a hearing judge

(first stage in a civil-law case)

Front 650

Evidence stage

Back 650

A hearing judge takes evidence and prepares a written summary of the proceedings

(second stage in a civil-law case)

Front 651

Decision stage

Back 651

The presiding judge decides the case based on the record provided by the hearing judge, the counsels' briefs, and arguments

Front 652

Public international law

Back 652

A law that concerns the interrelation of nation states, and that is governed by treaties and other international agreements

Front 653

Private international law

Back 653

A law that involves disputes between individuals or corporations in different countries; is also referred to as 'conflicts of law'

Front 654

In any legal dispute arising between parties from different countries, these two issues must be considered:

Back 654

- Whether a court in one country will recognize the decision of another country's court
- Whether a court has the right to hear the legal dispute

Front 655

Comity

Back 655

The practice by which one country recognizes, within its own territory or in its courts, another country's institutions

Front 656

Two things that courts in international cases must determine:

Back 656

- Whether they have jurisdiction over the person or entity (in personam jurisdiction) and over the subject matter (in res jurisdiction)

Front 657

In personam jurisdiction

Back 657

Jurisdiction over the person or entity

Front 658

In res jurisdiction

Back 658

Jurisdiction over the subject matter

Front 659

Functions and powers of the UN General Assembly

Back 659

- Consider and make recommendations on the principles of cooperation
- Initiate studies and make recommendations to promote international political cooperation
- Elect, jointly with the Security Council, the judges of the International Court of Justice
- Appoint the secretary-general (on recommendation of the Security Council)

Front 660

UN Security Council

Back 660

Primary responsibility is to maintain international peace and security

Front 661

UN Economic and Social Council

Back 661

Responsible for promoting higher standards of living, full employment, and economic and social progress through many other UN agencies

Front 662

International Court of Justice

Back 662

UN body; comprises fifteen judges elected to 9 year terms

Front 663

Three ways the International Court of Justice can hear disputes when a concerned country has accepted jurisdiction:

Back 663

- By the conclusion of a special agreement between parties to submit the dispute to the ICJ
- By virtue of a jurisdictional clause, typically, when the countries in question are parties to a treaty
- Through the reciprocal efforts of declarations the countries have made under a law providing that each has accepted the jurisdiction of the ICJ as compulsory in the event of a dispute with another country that has made a similar declaration.

Front 664

The World Trade Organization

Back 664

Deals with trade rules among nations. The WTO's existence depends on agreements that most of the world's trading nations have negotiated and ratified. The WTO's goal is to help producers of goods and services, exporters, and importers conduct their business.

Front 665

Dumping

Back 665

The act of selling a large quantity of goods at less than fair value, including selling goods abroad at less than the market price at home.

WTO has taken actions against dumping.

Front 666

General Agreement on Tariffs and Trade (GATT)

Back 666

The WTO's umbrella agreement for trade in all goods. It has annexed dealings with specific sectors, such as agriculture and textiles. It has also annexed dealings with specific issues, such as state trading, product standards, subsidies, and actions taken against dumping.

Front 667

General Agreement on Trade in Services (GATS)

Back 667

WTO agreement; sets forth the principles that allow service providers (banks, insurers, etc.) wanting to do business abroad to enjoy the same principles of free and fair trade that originally applied to trade in goods.

Front 668

Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS)

Back 668

WTO's intellectual property agreement which sets forth rules for trade and investment in ideas and creative work.

States how all intellectual property should be protected in international business and trade.

Front 669

Common Market

Back 669

The European Union's member countries' single, unified market in which goods, services, people, and capital can move freely across borders

Front 670

Repatriation of earnings

Back 670

The process by which a U.S. parent company moves earnings from its foreign-based affiliates back to the U.S. to the parent company or to its stockholders

Front 671

Foreign Corrupt Practices Act (FCPA)

Back 671

IN general, the FCPA prohibits payments to foreign officials to obtain or keep business

Front 672

Pegged currency

Back 672

A currency based on the fixed exchange rate of another country's currency

Front 673

Expropriation

Back 673

Means a government's lawful acquisition of property without the owner's consent.

(Usually refers to a government's takeover of private property, often without fair compensation, but usually with a legal assertion that the government has a right to do so.)

Front 674

Tax holiday

Back 674

A partial or total exemption from corporate income tax, or an exemption for a number of years.

Front 675

Border tax adjustments

Back 675

Rebates on exports and taxes on imports.

These are instruments governments use to establish a 'tax-neutral' setting for international trade and investment.

Front 676

Inversion

Back 676

aka expatriation or reincorporation. The process by which a corporate entity established in a low-tax country purchases the shares and/or assets of a domestic corporation. Allows the domestic company to change its legal location and become a foreign-based corporation

Front 677

Transfer price

Back 677

The price one part of a company charges for products and services it provides to another part of the same company.

Under transfer pricing laws, companies are required to charge another affiliate or division the same price it would demand in an arm's length transaction -- that is, a transaction between two unrelated entities. Many experts believe transfer pricing is the most important international tax issue facing multinational corporations.

Front 678

Tax haven

Back 678

A country whose regulations offer financial and business incentives encouraging organizations from other countries to do business there.

Front 679

Bearer share

Back 679

A corporate share that is owned by the holder of the share certificate and is not registered; therefore, ownership remains private

Front 680

Registered share

Back 680

A corporate share on which records are kept indicating the share's owner and its selling and buying price

Front 681

Democratic rule

Back 681

A form of government by the people through elected representatives

Front 682

Nonparty democracy

Back 682

A form of government in which elected representatives have no political party affiliation

Front 683

Parliamentary democracy

Back 683

A form of government involving rule by a prime minister and an elected parliament

Front 684

Presidential democracy

Back 684

A form of government in which the citizens directly elect a president

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Multiparty democracy

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A form of government in which representatives may be elected from several or many political parties

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Junta

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A form of government by a group of military officers governing a country after seizing power

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Martial law

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The assumption of control of a country by the military

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Monarchy

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A form of government led by a hereditary chief of state with powers varying from absolute to ceremonial

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Absolute monarchy

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A form of government led by a single ruler who selects advisers for assistance

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Constitutional monarchy

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A form of government with a parliament, or a democratic legislative body, but with a monarch as a formal or ceremonial head of state

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Single-party government

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A form of government that constitutionally permits only one specific political party

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Theocratic government

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A form of government based on a religious doctrine and often led by religious leaders

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Transitional government

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A temporary form of government used when a country is rebuilding its government, usually as a result of war