Business Law Exam #3

Front 1

What is an agency relationship?

Back 1

formed by mutual consent of a principal and an agent

Front 2

Principal

Back 2

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

Front 3

Agent

Back 3

Party who agrees to act on behalf of another

Front 4

Stipulations of Agency Relationships

Back 4

Principal must have capacity to appoint agent

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

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

Front 5

Principal-Agent Relationship

Back 5

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

(DIFFERENT FROM EMPLOYER-EMPLOYEE RELATIONSHIP)

Front 6

Employer-Employee Relationship

Back 6

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

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

Front 7

Independent Contractor

Back 7

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

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

Front 8

Formation of an Agency (4 ways)

Back 8

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

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

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

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

Front 9

Principal's Duties (4)

Back 9

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

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

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

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

Front 10

Agent's Duties (3)

Back 10

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

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

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

Front 11

Termination of Agency - under what circumstances? (5)

Back 11

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

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

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

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

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

Front 12

Notice of Termination

Back 12

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

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

Front 13

Agents Duty of Loyalty (5 breaches)

Back 13

Agent must do what's in best interest of principal

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

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

3) Competing With Principal

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

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

Front 14

Tort Liabilities for Principals and Agents (list 6)

Back 14

1) Negligence

2) Frolic and Detour

3) Coming and Going

4) Dual-Purpose Mission

5) Intentional Tort

6) Misrepresentation

Front 15

Tort: Negligence

Back 15

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

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

Front 16

Tort: Frolic and Detour

Back 16

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

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

Front 17

Tort: Coming and Going

Back 17

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

Front 18

Tort: Dual-Purpose Mission

Back 18

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

Front 19

Tort: Intential Tort

Back 19

Assault, battery, false imprisonment, etc...

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

Front 20

Tort: Misrepresentation

Back 20

Fraud or Deceit

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

Front 21

Independent Contractor Liability

Back 21

Generally, Principal is NOT liable for torts of independent contractor

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

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

Front 22

Principal Liability for Contracts

Back 22

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

Fully Disclosed Agency -

Principal YES Agent MAYBE (if they guarantee)

Partially Disclosed Agency -

Principal YES Agent YES

Undisclosed Agency -

Principal YES Agent YES

Agent Exceeding Scope of Authority -

Principal NO Agent YES

Front 23

Sole Proprietorship

General Partnership

Back 23

BOTH are the default in absence of formality

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

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

Front 24

Rights of General Partners (5)

Back 24

1) Right to Participate in Mngmt

2) Right to Share in Profits

3) Right to Compensation

4) Right to Indemnification

5) Right to Return of Loans

6) Right to Return of Capital

7) Right to Information

Front 25

Duties of General Partners (5)

Back 25

1) Duty of Loyalty

2) Duty of Care

3) Duty to Inform

4) Duty of Obedience

5) Right to an Accounting

Front 26

Liability of General Partners --

Joint vs. Joint Several

Back 26

Joint = for contracts and debts of partnership

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

Front 27

Dissolution of GP

Wrongful?

Notice?

Distribution?

Back 27

Outgoing Gen Partner is not excused from liability

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

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

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

Front 28

Limited Partnerships (LP)

Back 28

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

General - invest, manage, liable

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

Front 29

Limited Liability Limited Partnership (LLLP)

Back 29

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

Front 30

Limited Liability Corporation (LLC)

Back 30

Creatures of State Law -

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

Front 31

Formation of LLC

Back 31

formed by delivering Articles of Organization

can be at-will or term (duration)

Front 32

Certificate of Interest --LLC

Back 32

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

Front 33

Operating Agreement -- LLC

Back 33

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

Front 34

Liabilities of LLC --

Members

vs.

Managers

Back 34

Members NOT personally liable beyond capital contributions

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

Front 35

Limited Liability Partnership (LLP)

Back 35

All partners are limited liability, no general partners

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

Front 36

Corporations

Nature of Corporations

Back 36

Fictitious legal entity that is owned by shareholders

- separate legal person

- free transferability of shares

- perpetual existence

- centralized mngmt -- board selects officers

Front 37

Domestic Corp

Foreign

Alien

Back 37

D - in state

F - out of state or other jurisdiction

A - in other country

Front 38

Difference between LLC and Corp

Back 38

LLC

- Operating Agreement

- Articles of Organization

Corp

- Bylaws

- Articles of Incorporation

Front 39

S Corp

Back 39

No fed tax for income tax purposes

- must be domestic

- cannot be member of group of corps

- <100 shareholders and US citizens

- One class of stock

Front 40

Debt Vs Equity

Back 40

Equity - common vs preferred

Debt -

Debenture - long-term (unsecured)

Bond - long-term (secured)

Note - short-term (either)

Front 41

Dissolution of Corp

Back 41

Voluntary

Admin

Judicial

Front 42

Corp Gov and Sarbanes-Oxley

Back 42

improve governance, prevent fraud, add transparency

Front 43

Voting Rights

Back 43

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

Straight voting vs Cumulative voting

Front 44

Quorum?

Back 44

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

Front 45

Derivative Lawsuits

reqmts

Back 45

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

- was shareholder at time of act

- fairly represents interests of corp

- made written demand

Front 46

Piercing Corporate Veil

Back 46

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

Front 47

Board of Directors

Back 47

elected by shareholders

formulate policy decisions

paid annual retainer

- inside director (also officer)

- outside director (not officer of that corp)

Front 48

Board Meetings

Back 48

Quorum required to hold board meeting or transact business

Front 49

Corporate Officers

Back 49

Appointed by the board

Manage day to day ops of the org

They are AGENTS -- have authority

Front 50

Duties of Directors & Officers

Back 50

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

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

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

Front 51

Ways to breach Duty of Loyalty

Back 51

1) Usurping corporate opportunity

2) Self-dealing

3) Competing with corporation

4) Making secret profit

Front 52

Business Judgement Rule

Back 52

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

Front 53

Sarbanes-Oxley Act

Back 53

1) CEO/CFO certification of financials

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

3) Prohibition on personal loans to directors/officers

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

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

Front 54

Unsecured Debt

Secured Debt

Back 54

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

S - credit that requires collateral to secure payment of debt

Front 55

Mortgage

Back 55

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

Front 56

Mortgagor

Mortgagee

Back 56

Mortgagor = debtor (home owner)

Mortgagee = lender (bank)

Front 57

Recording Statues

Purpose?

Effect of not recording or recording later?

Back 57

Requires that mortgage be recorded in county office

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

other mortgagees who have no notice of prior morgages

Front 58

Foreclosure Sale

Back 58

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

Front 59

Deficiency Judgement

Back 59

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

Front 60

Right of Redemption

Back 60

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

Front 61

Mechanic's Lien

Back 61

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

Front 62

Surety

vs

Guaranty

Back 62

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

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

Front 63

Collection Remedies

Back 63

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

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

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

Front 64

Bankruptcy types

Back 64

Chapter 7 - Liquidation

Chapter 11 - Reorganization

Chapter 12 - Adjustment of Debts - Farmer

Chapter 13 - Adjustment of Debts - Individual

Front 65

Bankruptcy Petition Types

Back 65

Voluntary Petition - filed by debtor

Involuntary Petition - filed by creditor(s)

Front 66

Attorney Certification

Back 66

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

Front 67

Counseling -- Bankruptcy

Back 67

Prepetition

Postpetition

Front 68

Bankruptcy Schedules

Back 68

list of secured unsecured creditors

list of all property owned

statement of financial affairs of debtor

statement of debtor's monthly income

current expenses

federal income tax return

Front 69

Meeting of the Creditors

Back 69

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

Front 70

Bankruptcy Trustee

Back 70

Legal representative of debtor's estate

must be appointed in Chp 7, chp 12/13

potentially chp 11 if fraud exists

Front 71

Automatic Stay

Back 71

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

Front 72

Discharge of Debts

Back 72

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

Front 73

Chapter 7 Bankruptcy

Back 73

Liquidation

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

Front 74

Chapter 7 Exempt Property

Back 74

Long list --

21k equity in residence

3,4k in vehicle

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

1,4k Jewelry

lots of other stuff

Front 75

Barred Discharge

Back 75

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

Front 76

Chp 13 Bankruptcy

Back 76

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

Front 77

Chp 11 Bankruptcy

Back 77

Reorganizes debtor's financial affairs under supervision of bankruptcy court

Front 78

Federalism

Back 78

U.S. Form of Govt -- federal govt and state govts share powers

Front 79

Delegated Powers

Back 79

enumerated powers delegated to federal govt when stats ratified the constitution

Front 80

Separation of Powers

Back 80

Legislative - Congress - makes laws

Executive - President - enforces laws

Judicial - Judicial - interpret laws

Front 81

Checks and Balances

Back 81

built into constitution to ensure no one branch of govt becomes too powerful

Front 82

Supremacy Clause

Back 82

Clause of constitution that establishes constitution, federal treaties/laws/regulations are the supreme law of the land

Front 83

Commerce Clause

Back 83

Grants congress power to regulate commerce with foreign nations and among several states

- Foreign commerce

- INTERstate commerce

- Native American Tribes

Front 84

Bill of Rights/Amendments

Back 84

BOR - 1st ten amendments added in 1791

Front 85

First Amendment

Back 85

Speech

- Fully protected - cannot be prohibited or regulated by govt

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

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

Front 86

First Amendment - Freedom of Religion

Back 86

Establishment Clause

Free Exercise Clause

Front 87

Establishment Clause

Back 87

prohibits govt from establishing a state religion or promoting one religion over another

Front 88

Free Exercise Clause

Back 88

prohibits govt from interfering with free exercise of religion in US

Front 89

14th Amendment

Standards of Review

Back 89

Equal Protection under the law

1) Strict scrutiny test

2) Intermediate scrutiny test

3) Rational basis test

Front 90

Due Process

Back 90

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