Koofers

Final Exam - Flashcards

Flashcard Deck Information

Class:BLAW 2361 - LEGAL ENVIRON
Subject:Business Law
University:Texas State University - San Marcos
Term:Spring 2011
- of -
INCORRECT CORRECT
- INCORRECT     - CORRECT     - SKIPPED
Shuffle Remaining Cards Show Definitions First Take Quiz (NEW)
Hide Keyboard shortcuts
Next card
Previous card
Mark correct
Mark incorrect
Flip card
Start Over
Shuffle
      Mode:   CARDS LIST       ? pages   PRINT EXIT
Discharge A party is discharged when she has no more duties under the contract.
Rescind To terminate a contract.
Commercial Impracticability Claims she should not be forced to rent a space that is useless to her or buy advertising for a restaurant that had closed.
Personal Satisfaction "Good" work may not suffice if it fails to please the promise.
Generated by Koofers.com
Condition Precedent Some even had to occur before she was obligated to pay.
Condition An event that must occur before a party becomes obligated under a contract.
Express Condition No specific words are essential, as long as a condition was intended to be created, a court will enforce it.
Implied Condition Nothing is said about a condition, but it is clear from their agreement that they have implied one.
Generated by Koofers.com
Condition Subsequent The condition must occur after the particular duty arises & defendant must prove the condition occured.
Concurrent Conditions Both parties have a condition to perform simultaneously.
Strict Performance Requires one party to perform its obligations precisely, with no deviation from the contract terms.

(Contract must expressly demand it and such demand must be reasonable)
Substantial Performance Occurs when one party fulfills enough of its contract obligations to warrant payment.

(Usually involving services instead of goods or land)
(A party that fails to perform substantially receives nothing on the contract itself and will only recover the value of the work, if any)
Generated by Koofers.com
When is performance substantial? - How much benefit has the promisee received?
- If it is a construction contract, can the owner use the thing for its intended purpose?
- Can the promisee be compensated with money damages for any defects?
- Did the promisor act in good faith?
Personal Service Contract Permits the promisee to make subjective evaluations of the promisor's performance.

(A court applies a subjective standard only if assessing the work involves personal feelings, taste, or judgement and the contract explicitly demanded personal satisfaction.)
Subjective Standard The promisee's personal views will greatly influence her judgement, even if her judgement is foolish and unfair.

(In all other cases, a court applies an objective standard.)
Objective Standard The promisee's judgement of the work must be reasonable.
Generated by Koofers.com
Good Faith "Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."

- Parties must remain faithful to the agreed common purpose and justified expectations of the other party.
Time of the Essence Clause Generally makes a contract date strictly enforceable.

(Merely including a date for performance does not make time of the essence.)
Breach When one party breaches a contract, the other party is discharged.

(Courts will only discharge a contract if a party committed a material breach.)
Material Breach One that substantially harms the innocent party and for which it would be hard to compensate without discharging the contract.
Generated by Koofers.com
Anticipatory Breach A party makes it unmistakably clear that it will not honor the contract.
Statute of Limitations A statutory time limit within which an injured party must file suit.
True Impossibility Something has happened making it utterly impossible to do what the promisor would do.
Three causes for True Impossibility: 1. Destruction of subject matter.
2. Death of the promisor in a personal services contract.
3. Illegality.
Generated by Koofers.com
Commercial Impracticability Some even has occurred that neither party anticipated and fulfilling the contract would be extraordinarily difficult and unfair to one party.
Frustration of Purpose Some even has occurred that neither party anticipated and the contract now has no value for one party.
Factors deciding Impracticability/Frustration:
  • Mere financial difficulties will never suffice to discharge a contract.
  • The event must have been truly unexpected.
  • If the promisor must use a different means to accomplish her task, at a greatly increased cost, she probably does have a valid claim of impracticability.
  • force majeure clause is significant but necessarily dispositive.
Force Majeure Clause Allows cancellation of the agreement in case of extraordinary and unexpected events.

(The UCC permits discharge only for major, unseen disruptions.)
Generated by Koofers.com
Product Liability Goods that have caused an injury.
Warranty An assurance provided in a sales contract.

Also:

A contractual assurance that goods will meet certain standards.
Negligence Unreasonable conduct by the defendant.
Strict Liability
  • Prohibits defective products whether the defendant acted reasonably or not.
  • The injured person need not prove that the defendant's conduct was unreasonable.
  • Must only show that the defendant manufactured or sold a product that was defective and that the defect caused harm.
Generated by Koofers.com
Express Warranty One that the seller created with his words or actions.

(Buyer must demonstrate that what the seller did or said was the basis of the bargain.)
Affirmation of Fact A statement about the nature or quality of the goods.
More likely to be affirmation of fact if:
  • It is specific and can be proven true or false.
  • It is written.
  • Defects are not obvious.
  • Seller has greater expertise.
Description of the Goods An oral or written phrase describing particular characteristics or qualities.

(With a sample or model)
Generated by Koofers.com
Implied Warranty Created buy the Code itself, not by any act or statement of the seller implied in a contract for their sale, if the seller is a merchant with respect to goods of that kind.
Merchantable The goods are fit for the ordinary purposes for which they are used.

  • Unless excluded or modified the seller does have a chance to escape this warranty.
  • The law itself imposes this liability on the seller.
Warranty of Fitness Where the seller at the time of contracting knows about a particular purpose for which the buyer wants the goods, and knows that the buyer is relying on the seller's skill or judgement.

There is (unless excluded or modified) an implied warranty that the goods shall be fit for the purpose.
Particular Purpose The seller must know about some special use that the buyer plans for the goods.
Generated by Koofers.com
Seller's Skill The buyer must be depending upon the seller's skill or judgement in selecting the product, and the seller must know it.
Exclusion or Modification The seller is allowed to modify or exclude any warranties.
Disclaimer A statement that a particular warranty does not apply.
General Disclaimers Stating that the goods are sold "as-is" or "with all faults".
Generated by Koofers.com
Consumer Sales Many states prohibit a seller from disclaiming implied warranties in the sale of consumer goods.
Limitation of Remedy The parties may limit or exclude the normal remedies permitted under the Code.

Consequential Damages Losses stemming from the particular requirements of the buyer.

(An exclusion of consequential damages is void if it us unconscionable.)
Privity When two parties contract.

  • In traditional law, a plaintiff injured by a breach of contract could only sue a defendant with whom he had privity.
  • Privity is a slowly disappearing as a defense.
Generated by Koofers.com
Two important time limits in Statute of Limitations & Notice of Breach:
  • The Code prescribes a four-year statute of limitations.
  • The UCC requires that a buyer notify the seller of defects within a reasonable time.
Two key elements of Duty and Breach:
  • Material
  • Anticipatory
Common claims raised:
  • Negligent Design
  • Negligent Manufacture
  • Failure to Warn
Negligent Design The buyer claims that the product injured her because the manufacturer designed it poorly; law requires a manufacturer to design a product free of unreasonable risks.
Generated by Koofers.com
Negligent Manufacture The buyer claims the design was adequate but that failure to inspect or some other sloppy conduct caused a dangerous product to leave the plant.
Failure to Warn A manufacturer is liable for failing to warn the purchaser or users about the dangers of normal use and also foreseeable misuse; there is no duty to warn about obvious dangers (ex. running someone over with a car).
(Under Strict Liability) Defective condition unreasonable dangerous to the user: Defendant is liable only if the product is defective when it leaves his hands; the manufacturer must provide adequate warnings of any dangers that are not apparent.
(Under Strict Liability) In the business of selling: The seller is liable only if she normally sells this kind of product.
Generated by Koofers.com
(Under Strict Liability) Has exercised all possible care: It is no defense that the seller used reasonable care; if the product is dangerously defective and injures the user, the seller is liable even if it took every precaution to design and manufacture the product safely.
No contractual relation: Privity is not required.
Factors in the Risk-Utility Test:
  • The value of the product.
  • The gravity of the danger (how bad will the harm be).
  • the likelihood that such danger will occur (the odds).
  • The mechanical feasibility of a safer design.
  • The adverse consequences of an alternative design (greater cost, different risks created).
Restatement (third) of Torts: Product Liability
  • In manufacturing cases, a product is defective whenever it departs from its intended design, regardless of how much care was taken.
  • In design and warning cases, a product is defective only when the foreseeable risks of harm could have been reduced by using a reasonable alternative design or warning.
Generated by Koofers.com
Economic Loss Doctrine When an injury is purely economic, and arises from a contract made by two businesses, the injured party may only sue under the UCC.
Two important consequences for corporate buyers:
  • The four-year statute of limitations will apply in all cases of economic loss.
  • Where the sales contract includes proper disclaimers or remedy limitations, a buyer barred from a negligence case may have no remedy at all.
What does a statute of repose do? It places an absolute limit on when a lawsuit may be filed, regardless of when the defect is discovered.
Agency Someone agrees to perform a task for, and under the control of, someone else.
Generated by Koofers.com
To create an agency relationship, there must be:
  • A principal
  • An agent
  • Mutual consent that the agent will act on behalf of the principal, be subject to the principal's control
  • A fiduciary relationship
Principal The person for whom the agent is acting.
Agent The person on behalf of a principal.
A Fiduciary Relationship The beneficiary places special confidence in the fiduciary who is obligated to act in good faith and candor, putting his own needs second.

(Agents have a fiduciary duty to their principals)
Generated by Koofers.com
What is not required for an agency relationship?
  • A written agreement.
  • A formal agreement.
  • Consideration.
Equal Dignities Rule If an agent is empowered to enter into a contract that must be in writing, then the appointment of the agent must also be in writing.
Duty of Loyalty An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.

(The Duty of Loyalty applies unless the principal and agent expressly agree to change it.)
Outside Benefits An agent may not receive profits unless the principal knows and approves.

Ex. Will smith buys Hope (employee of BEAT) a car, Hope must tell BEAT and they can decide whether to let her keep it or give it to the company.
Generated by Koofers.com
Confidential Information Agents can neither disclose nor use for their own benefit any confidential information they acquire during their agency.
Competition with the Principal Agents are not allowed to compete with their principal in any matter within the scope of the agency business.
Conflict of Interest between two principals Unless otherwise agreed, an agent may not act for two principals whose interests conflict.
Secretly Dealing with the Principal If a principal hires an agent to arrange a transaction, the agent may not become a party to the transaction without the principal's permission.

Ex. Matt Damon hired Trang to read scripts to decide which one to pick. He doesn't know that she wrote her own script, which is included in the others. She may not sell her own script to him without revealing she wrote it herself.
Generated by Koofers.com
Appropriate Behavior An agent may not engage in inappropriate behavior that reflects badly on the principal.
Duty to Obey Instructions An agent must obey her principal's instructions, unless the principal directs her to behave illegally or unethically.
Duty of Care An agent has a duty to act with reasonable care.

  • An agent with special skills is held to a higher standard because she is expected to use those skills.
  • Gratuitous agents are liable if they  commit gross negligence, but not ordinary negligence.
Gratuitous Agent Not a trained professional and does not get paid.
Generated by Koofers.com
Duty to Provide Information An agent has a duty to provide the principal with all information in her possession that she has a reason to believe the principal wants to know.
3 potential remedies when the agent breaches a duty:
  • The principal can recover any damages the breach has caused.
  • If an agent breaches the duty of loyalty, he must turn over to the principal any profits he has earned as a result of his wrongdoing.
  • If an agent violated her duty of loyalty, the principal may rescind the transaction.
Duties of Principals to Agents:
  • Duty to reimburse the agent
  • Duty to Cooperate
Duty to Reimburse the Agent The principal must indemnify (reimburse) the agent for any expenses she has reasonably incurred.
Generated by Koofers.com
Reimbursable Expenses:
  • Payments made by the agent while carrying out his duties.
  • Torts committed by the agent.
  • Contracts entered into by the agent.
Payments made by the agent while carrying out his duties: A principal must indemnify an agent for any expenses or damages reasonably incurred in carrying out his agency responsibilities.
Torts committed by the agent: A principal must indemnify an agent for tort claims brought by a third party if the principal authorized the agent's behavior and the agent did not realize he was committing a tort.
Contracts Enter into by the Agent: The principal must indemnify the agent for any liability she incurs from third parties as a result of entering into a contract on the principal's behalf, including attorney's fees and reasonable settlement.
Generated by Koofers.com
Duty to Corporate:
  • The principal must furnish the agent with the opportunity to work.
  • The principal cannot unreasonably interfere witht he agent's ability to accomplish his task.
  • Unless the agency contract provides otherwise, the principal is allowed to compete with her agent.
  • The principal must perform her part of the contract.
Five options to termination an Agency Relationship:
  • Term Agreement
  • Achieving a Purpose
  • Mutual Agreement
  • Agency at Will
  • Wrongful Termination
Term Agreement: The principal and agent can agree in advance how long their relationship will last.
Achieving a Purpose: The principal and agent can agree that the agency relationship will terminate when the principal's goals have been achieved.

Generated by Koofers.com
Mutual Agreement: No matter what the principal and agent agree at the start, they can always change their minds later on, so long as the change is mutual.
Agency at Will: If they make no agreement in advance about the term of the agreement, either principal or agent can terminate at any time.
Wrongful Termination: Either party always has the power to walk out, but they may not have the right.

(If one party's departure from the agency relationship violates the agreement and causes harm to the other party, the wrongful party must pay damages.)
What kind of agents may quit any time he wants? Gratuitous agents may quit any time he wants, regardless of the agency agreement.
Generated by Koofers.com
Reasons why Principal or Agent can no longer perform required duties:
  • Loss of qualification
  • Bankruptcy (only if it affects their ability to perform)
  • Death or incapacity of the principal or agent
  • Disloyalty of agent
Change in Circumstances: If the changes made undermine the purpose of the agreement, the relationship ends automatically.

Ex. Change of law and/or Loss or destruction of subject matter
Effect of Termination:
  • Duties of the principal and agent that continue after the relationship ends: Principal's duty to indemnify agent
  • Confidential information

Power Coupled with an Interest: Only the agent can terminate the relationship. The principal has neither the power nor the right to terminate.
Generated by Koofers.com
(Lenders) When a lender has the power to sell collateral upon the default of a borrower, the lender appears to be the borrower's agent.
Principal's Liability for Contracts The principal is bound by the acts of an agent if the agent has authority, or the principal, for reasons of fairness, is stopped from denying that the agent had authority, or the principal ratifies the acts of the agent.
"Bound by the acts" of the Agent The principal is liable as if he had performed the acts himself; the principal is liable for statements the agent makes to a third party.
Types of authority:
  • Actual authority : Express & Implied
  • Apparent Authority
Generated by Koofers.com
Actual Authority: An agent is authorized to act for a principal.
Express Authority: Either by words or conduct, the principal grants an agent permission to act.

(In cases of ambiguity about the principal's intent, the courts look at the principal's objective manifestation, not his subjective intent. ACTIONS, NOT THOUGHTS COUNT)
Implied Authority: The agent has authority to perform acts that are reasonably necessary to accomplish an authorized transaction, even if the principal does not specify them.

(Unless otherwise agreed, authority to conduct a transaction includes authority to do acts that are reasonably necessary to accomplish it.)
Apparent Authority: A principal does something to make an innocent third party believe that an agent is acting with the principal's authority, even though the agent is not authorized.

Generated by Koofers.com
Estoppel: No one may claim that a person was not his agent, if he knew that others thought the person was acting on his behalf, and he failed to correct their belief. He is stopped from denying an agency relationship.

(Applies when the alleged principal does not want the benefit of the contract, but delays in telling the innocent third party of the mistake.)
Ratification: A person accepts the benefit of an unauthorized transaction or fails to repudiate it.
Even if an agent acts without authority, the principal can decide later to be bound by her actions as long as:
  • The "agent" indicates to the third party that she is acting for a principal.
  • The "principal" knows all the material facts of the transaction.
  • The "principal" accepts the benefit of the whole transaction, not just part of it.
  • The third party does not withdraw from the contract before ratification.
Subagents: An agent has no authority to delegate her tasks to another unless the principal authorizes her to.

Note:
  • The principal is liable for the acts of the subagent as he is for the acts of a regular agent.
  • The agent is not liable to the principal for the misdeeds of the subagent, unless she was negligent in hiring.
Generated by Koofers.com
Agent's Liability for Contracts: Depends upon how much the third party knows about the principal.
Fully Disclosed Principal: An agent is not liable for any contracts she makes on behalf of a fully disclosed principal.

(A principal is fully disclosed if the third party knows of his existence and his identity)
Unidentified Principal: The third party can recover from either the agent or the principal.

(A principal is partially disclosed if the third party knew of his existence but not his identity)
Undisclosed Principal: The third party can recover from either the agent or the principal.

(A principal is undisclosed if the third party did not know of his existence.)

(A third party is not bound to the contract with an undisclosed principal if the contract specifically provides that the third party is not bound by anyone other that the agent, or the agent lies about the principal because she knows the third party would refuse to contract with him.)
Generated by Koofers.com
Unauthorized Agent: If the agent has no authority (express, implied, or apparent), the principal is not liable to the third party and the agent is.
Respondeat Superior: The principle that an employer is liable for a tort committed by an employee acting within the scope of employment or acting with apparent authority.

Employee A principal may be liable for the torts of an employee but generally is not liable for the torts of an independent contractor.

(The more control the principal has over an agent, the more likely that the agent will be considered an employee)
Scope of Employment Principals are only liable for torts that an employee commits within the scope of employment.
Generated by Koofers.com
Authorization The agent clearly words for the principal but commits an act that the principal has not authorized.
Abandonment the principal is liable for the actions of the employee that occur while the employee is at work, but not for actions that occur after the employee has abandoned the principal's business.
Negligent and Intentional Torts The principal is liable if the employee commits a negligent tort that causes physical harm to a person or property.
Physical Torts A principal is liable for the negligent conduct of an employee that occurs within the scope of employment.
Generated by Koofers.com
Nonphysical Torts Treated more like a contract claim, and the principal is liable if the employee acted with apparent authority.
Agent's Liability for Torts Agents are always liable for their own torts.
Jointly and Severally Liable All members of a group are liable; they can be sued as a group, or any one of them can be sued individually for the full amount owing.
Generated by Koofers.com

List View: Terms & Definitions

  Hide All 127 Print
 
Front
Back
 DischargeA party is discharged when she has no more duties under the contract.
 RescindTo terminate a contract.
 Commercial ImpracticabilityClaims she should not be forced to rent a space that is useless to her or buy advertising for a restaurant that had closed.
 Personal Satisfaction"Good" work may not suffice if it fails to please the promise.
 Condition PrecedentSome even had to occur before she was obligated to pay.
 ConditionAn event that must occur before a party becomes obligated under a contract.
 Express ConditionNo specific words are essential, as long as a condition was intended to be created, a court will enforce it.
 Implied ConditionNothing is said about a condition, but it is clear from their agreement that they have implied one.
 Condition SubsequentThe condition must occur after the particular duty arises & defendant must prove the condition occured.
 Concurrent ConditionsBoth parties have a condition to perform simultaneously.
 Strict PerformanceRequires one party to perform its obligations precisely, with no deviation from the contract terms.

(Contract must expressly demand it and such demand must be reasonable)
 Substantial PerformanceOccurs when one party fulfills enough of its contract obligations to warrant payment.

(Usually involving services instead of goods or land)
(A party that fails to perform substantially receives nothing on the contract itself and will only recover the value of the work, if any)
 When is performance substantial?- How much benefit has the promisee received?
- If it is a construction contract, can the owner use the thing for its intended purpose?
- Can the promisee be compensated with money damages for any defects?
- Did the promisor act in good faith?
 Personal Service ContractPermits the promisee to make subjective evaluations of the promisor's performance.

(A court applies a subjective standard only if assessing the work involves personal feelings, taste, or judgement and the contract explicitly demanded personal satisfaction.)
 Subjective StandardThe promisee's personal views will greatly influence her judgement, even if her judgement is foolish and unfair.

(In all other cases, a court applies an objective standard.)
 Objective StandardThe promisee's judgement of the work must be reasonable.
 Good Faith"Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement."

- Parties must remain faithful to the agreed common purpose and justified expectations of the other party.
 Time of the Essence ClauseGenerally makes a contract date strictly enforceable.

(Merely including a date for performance does not make time of the essence.)
 BreachWhen one party breaches a contract, the other party is discharged.

(Courts will only discharge a contract if a party committed a material breach.)
 Material BreachOne that substantially harms the innocent party and for which it would be hard to compensate without discharging the contract.
 Anticipatory BreachA party makes it unmistakably clear that it will not honor the contract.
 Statute of LimitationsA statutory time limit within which an injured party must file suit.
 True ImpossibilitySomething has happened making it utterly impossible to do what the promisor would do.
 Three causes for True Impossibility:1. Destruction of subject matter.
2. Death of the promisor in a personal services contract.
3. Illegality.
 Commercial ImpracticabilitySome even has occurred that neither party anticipated and fulfilling the contract would be extraordinarily difficult and unfair to one party.
 Frustration of PurposeSome even has occurred that neither party anticipated and the contract now has no value for one party.
 Factors deciding Impracticability/Frustration:
  • Mere financial difficulties will never suffice to discharge a contract.
  • The event must have been truly unexpected.
  • If the promisor must use a different means to accomplish her task, at a greatly increased cost, she probably does have a valid claim of impracticability.
  • force majeure clause is significant but necessarily dispositive.
 Force Majeure ClauseAllows cancellation of the agreement in case of extraordinary and unexpected events.

(The UCC permits discharge only for major, unseen disruptions.)
 Product LiabilityGoods that have caused an injury.
 WarrantyAn assurance provided in a sales contract.

Also:

A contractual assurance that goods will meet certain standards.
 NegligenceUnreasonable conduct by the defendant.
 Strict Liability
  • Prohibits defective products whether the defendant acted reasonably or not.
  • The injured person need not prove that the defendant's conduct was unreasonable.
  • Must only show that the defendant manufactured or sold a product that was defective and that the defect caused harm.
 Express WarrantyOne that the seller created with his words or actions.

(Buyer must demonstrate that what the seller did or said was the basis of the bargain.)
 Affirmation of FactA statement about the nature or quality of the goods.
 More likely to be affirmation of fact if:
  • It is specific and can be proven true or false.
  • It is written.
  • Defects are not obvious.
  • Seller has greater expertise.
 Description of the GoodsAn oral or written phrase describing particular characteristics or qualities.

(With a sample or model)
 Implied WarrantyCreated buy the Code itself, not by any act or statement of the seller implied in a contract for their sale, if the seller is a merchant with respect to goods of that kind.
 MerchantableThe goods are fit for the ordinary purposes for which they are used.

  • Unless excluded or modified the seller does have a chance to escape this warranty.
  • The law itself imposes this liability on the seller.
 Warranty of FitnessWhere the seller at the time of contracting knows about a particular purpose for which the buyer wants the goods, and knows that the buyer is relying on the seller's skill or judgement.

There is (unless excluded or modified) an implied warranty that the goods shall be fit for the purpose.
 Particular PurposeThe seller must know about some special use that the buyer plans for the goods.
 Seller's SkillThe buyer must be depending upon the seller's skill or judgement in selecting the product, and the seller must know it.
 Exclusion or ModificationThe seller is allowed to modify or exclude any warranties.
 DisclaimerA statement that a particular warranty does not apply.
 General DisclaimersStating that the goods are sold "as-is" or "with all faults".
 Consumer SalesMany states prohibit a seller from disclaiming implied warranties in the sale of consumer goods.
 Limitation of RemedyThe parties may limit or exclude the normal remedies permitted under the Code.

 Consequential DamagesLosses stemming from the particular requirements of the buyer.

(An exclusion of consequential damages is void if it us unconscionable.)
 PrivityWhen two parties contract.

  • In traditional law, a plaintiff injured by a breach of contract could only sue a defendant with whom he had privity.
  • Privity is a slowly disappearing as a defense.
 Two important time limits in Statute of Limitations & Notice of Breach:
  • The Code prescribes a four-year statute of limitations.
  • The UCC requires that a buyer notify the seller of defects within a reasonable time.
 Two key elements of Duty and Breach:
  • Material
  • Anticipatory
 Common claims raised:
  • Negligent Design
  • Negligent Manufacture
  • Failure to Warn
 Negligent DesignThe buyer claims that the product injured her because the manufacturer designed it poorly; law requires a manufacturer to design a product free of unreasonable risks.
 Negligent ManufactureThe buyer claims the design was adequate but that failure to inspect or some other sloppy conduct caused a dangerous product to leave the plant.
 Failure to WarnA manufacturer is liable for failing to warn the purchaser or users about the dangers of normal use and also foreseeable misuse; there is no duty to warn about obvious dangers (ex. running someone over with a car).
 (Under Strict Liability) Defective condition unreasonable dangerous to the user:Defendant is liable only if the product is defective when it leaves his hands; the manufacturer must provide adequate warnings of any dangers that are not apparent.
 (Under Strict Liability) In the business of selling:The seller is liable only if she normally sells this kind of product.
 (Under Strict Liability) Has exercised all possible care:It is no defense that the seller used reasonable care; if the product is dangerously defective and injures the user, the seller is liable even if it took every precaution to design and manufacture the product safely.
 No contractual relation:Privity is not required.
 Factors in the Risk-Utility Test:
  • The value of the product.
  • The gravity of the danger (how bad will the harm be).
  • the likelihood that such danger will occur (the odds).
  • The mechanical feasibility of a safer design.
  • The adverse consequences of an alternative design (greater cost, different risks created).
 Restatement (third) of Torts: Product Liability
  • In manufacturing cases, a product is defective whenever it departs from its intended design, regardless of how much care was taken.
  • In design and warning cases, a product is defective only when the foreseeable risks of harm could have been reduced by using a reasonable alternative design or warning.
 Economic Loss DoctrineWhen an injury is purely economic, and arises from a contract made by two businesses, the injured party may only sue under the UCC.
 Two important consequences for corporate buyers:
  • The four-year statute of limitations will apply in all cases of economic loss.
  • Where the sales contract includes proper disclaimers or remedy limitations, a buyer barred from a negligence case may have no remedy at all.
 What does a statute of repose do?It places an absolute limit on when a lawsuit may be filed, regardless of when the defect is discovered.
 AgencySomeone agrees to perform a task for, and under the control of, someone else.
 To create an agency relationship, there must be:
  • A principal
  • An agent
  • Mutual consent that the agent will act on behalf of the principal, be subject to the principal's control
  • A fiduciary relationship
 PrincipalThe person for whom the agent is acting.
 AgentThe person on behalf of a principal.
 A Fiduciary RelationshipThe beneficiary places special confidence in the fiduciary who is obligated to act in good faith and candor, putting his own needs second.

(Agents have a fiduciary duty to their principals)
 What is not required for an agency relationship?
  • A written agreement.
  • A formal agreement.
  • Consideration.
 Equal Dignities RuleIf an agent is empowered to enter into a contract that must be in writing, then the appointment of the agent must also be in writing.
 Duty of LoyaltyAn agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.

(The Duty of Loyalty applies unless the principal and agent expressly agree to change it.)
 Outside BenefitsAn agent may not receive profits unless the principal knows and approves.

Ex. Will smith buys Hope (employee of BEAT) a car, Hope must tell BEAT and they can decide whether to let her keep it or give it to the company.
 Confidential InformationAgents can neither disclose nor use for their own benefit any confidential information they acquire during their agency.
 Competition with the PrincipalAgents are not allowed to compete with their principal in any matter within the scope of the agency business.
 Conflict of Interest between two principalsUnless otherwise agreed, an agent may not act for two principals whose interests conflict.
 Secretly Dealing with the PrincipalIf a principal hires an agent to arrange a transaction, the agent may not become a party to the transaction without the principal's permission.

Ex. Matt Damon hired Trang to read scripts to decide which one to pick. He doesn't know that she wrote her own script, which is included in the others. She may not sell her own script to him without revealing she wrote it herself.
 Appropriate BehaviorAn agent may not engage in inappropriate behavior that reflects badly on the principal.
 Duty to Obey InstructionsAn agent must obey her principal's instructions, unless the principal directs her to behave illegally or unethically.
 Duty of CareAn agent has a duty to act with reasonable care.

  • An agent with special skills is held to a higher standard because she is expected to use those skills.
  • Gratuitous agents are liable if they  commit gross negligence, but not ordinary negligence.
 Gratuitous AgentNot a trained professional and does not get paid.
 Duty to Provide InformationAn agent has a duty to provide the principal with all information in her possession that she has a reason to believe the principal wants to know.
 3 potential remedies when the agent breaches a duty:
  • The principal can recover any damages the breach has caused.
  • If an agent breaches the duty of loyalty, he must turn over to the principal any profits he has earned as a result of his wrongdoing.
  • If an agent violated her duty of loyalty, the principal may rescind the transaction.
 Duties of Principals to Agents:
  • Duty to reimburse the agent
  • Duty to Cooperate
 Duty to Reimburse the AgentThe principal must indemnify (reimburse) the agent for any expenses she has reasonably incurred.
 Reimbursable Expenses:
  • Payments made by the agent while carrying out his duties.
  • Torts committed by the agent.
  • Contracts entered into by the agent.
 Payments made by the agent while carrying out his duties:A principal must indemnify an agent for any expenses or damages reasonably incurred in carrying out his agency responsibilities.
 Torts committed by the agent:A principal must indemnify an agent for tort claims brought by a third party if the principal authorized the agent's behavior and the agent did not realize he was committing a tort.
 Contracts Enter into by the Agent:The principal must indemnify the agent for any liability she incurs from third parties as a result of entering into a contract on the principal's behalf, including attorney's fees and reasonable settlement.
 Duty to Corporate:
  • The principal must furnish the agent with the opportunity to work.
  • The principal cannot unreasonably interfere witht he agent's ability to accomplish his task.
  • Unless the agency contract provides otherwise, the principal is allowed to compete with her agent.
  • The principal must perform her part of the contract.
 Five options to termination an Agency Relationship:
  • Term Agreement
  • Achieving a Purpose
  • Mutual Agreement
  • Agency at Will
  • Wrongful Termination
 Term Agreement:The principal and agent can agree in advance how long their relationship will last.
 Achieving a Purpose:The principal and agent can agree that the agency relationship will terminate when the principal's goals have been achieved.

 Mutual Agreement:No matter what the principal and agent agree at the start, they can always change their minds later on, so long as the change is mutual.
 Agency at Will:If they make no agreement in advance about the term of the agreement, either principal or agent can terminate at any time.
 Wrongful Termination:Either party always has the power to walk out, but they may not have the right.

(If one party's departure from the agency relationship violates the agreement and causes harm to the other party, the wrongful party must pay damages.)
 What kind of agents may quit any time he wants?Gratuitous agents may quit any time he wants, regardless of the agency agreement.
 Reasons why Principal or Agent can no longer perform required duties:
  • Loss of qualification
  • Bankruptcy (only if it affects their ability to perform)
  • Death or incapacity of the principal or agent
  • Disloyalty of agent
 Change in Circumstances:If the changes made undermine the purpose of the agreement, the relationship ends automatically.

Ex. Change of law and/or Loss or destruction of subject matter
 Effect of Termination:
  • Duties of the principal and agent that continue after the relationship ends: Principal's duty to indemnify agent
  • Confidential information

 Power Coupled with an Interest:Only the agent can terminate the relationship. The principal has neither the power nor the right to terminate.
 (Lenders)When a lender has the power to sell collateral upon the default of a borrower, the lender appears to be the borrower's agent.
 Principal's Liability for ContractsThe principal is bound by the acts of an agent if the agent has authority, or the principal, for reasons of fairness, is stopped from denying that the agent had authority, or the principal ratifies the acts of the agent.
 "Bound by the acts" of the AgentThe principal is liable as if he had performed the acts himself; the principal is liable for statements the agent makes to a third party.
 Types of authority:
  • Actual authority : Express & Implied
  • Apparent Authority
 Actual Authority:An agent is authorized to act for a principal.
 Express Authority:Either by words or conduct, the principal grants an agent permission to act.

(In cases of ambiguity about the principal's intent, the courts look at the principal's objective manifestation, not his subjective intent. ACTIONS, NOT THOUGHTS COUNT)
 Implied Authority:The agent has authority to perform acts that are reasonably necessary to accomplish an authorized transaction, even if the principal does not specify them.

(Unless otherwise agreed, authority to conduct a transaction includes authority to do acts that are reasonably necessary to accomplish it.)
 Apparent Authority:A principal does something to make an innocent third party believe that an agent is acting with the principal's authority, even though the agent is not authorized.

 Estoppel:No one may claim that a person was not his agent, if he knew that others thought the person was acting on his behalf, and he failed to correct their belief. He is stopped from denying an agency relationship.

(Applies when the alleged principal does not want the benefit of the contract, but delays in telling the innocent third party of the mistake.)
 Ratification:A person accepts the benefit of an unauthorized transaction or fails to repudiate it.
 Even if an agent acts without authority, the principal can decide later to be bound by her actions as long as:
  • The "agent" indicates to the third party that she is acting for a principal.
  • The "principal" knows all the material facts of the transaction.
  • The "principal" accepts the benefit of the whole transaction, not just part of it.
  • The third party does not withdraw from the contract before ratification.
 Subagents:An agent has no authority to delegate her tasks to another unless the principal authorizes her to.

Note:
  • The principal is liable for the acts of the subagent as he is for the acts of a regular agent.
  • The agent is not liable to the principal for the misdeeds of the subagent, unless she was negligent in hiring.
 Agent's Liability for Contracts:Depends upon how much the third party knows about the principal.
 Fully Disclosed Principal:An agent is not liable for any contracts she makes on behalf of a fully disclosed principal.

(A principal is fully disclosed if the third party knows of his existence and his identity)
 Unidentified Principal:The third party can recover from either the agent or the principal.

(A principal is partially disclosed if the third party knew of his existence but not his identity)
 Undisclosed Principal:The third party can recover from either the agent or the principal.

(A principal is undisclosed if the third party did not know of his existence.)

(A third party is not bound to the contract with an undisclosed principal if the contract specifically provides that the third party is not bound by anyone other that the agent, or the agent lies about the principal because she knows the third party would refuse to contract with him.)
 Unauthorized Agent:If the agent has no authority (express, implied, or apparent), the principal is not liable to the third party and the agent is.
 Respondeat Superior:The principle that an employer is liable for a tort committed by an employee acting within the scope of employment or acting with apparent authority.

 EmployeeA principal may be liable for the torts of an employee but generally is not liable for the torts of an independent contractor.

(The more control the principal has over an agent, the more likely that the agent will be considered an employee)
 Scope of EmploymentPrincipals are only liable for torts that an employee commits within the scope of employment.
 AuthorizationThe agent clearly words for the principal but commits an act that the principal has not authorized.
 Abandonmentthe principal is liable for the actions of the employee that occur while the employee is at work, but not for actions that occur after the employee has abandoned the principal's business.
 Negligent and Intentional TortsThe principal is liable if the employee commits a negligent tort that causes physical harm to a person or property.
 Physical TortsA principal is liable for the negligent conduct of an employee that occurs within the scope of employment.
 Nonphysical TortsTreated more like a contract claim, and the principal is liable if the employee acted with apparent authority.
 Agent's Liability for TortsAgents are always liable for their own torts.
 Jointly and Severally LiableAll members of a group are liable; they can be sued as a group, or any one of them can be sued individually for the full amount owing.
36, "/var/app/current/tmp/"