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BUL 4422: Exam #2
Terms in this set (122)
A claim to property
If a creditor has a lien on a debtor's property....
the creditor has a claim to the property or the proceeds of the sale of the property
When must the claim to property be settled?
Before the property (or proceeds) is distributed to other creditors
Three types of liens:
1. Consensual lien
2. Statutory lien
3. Judicial lien
A secured interest in property created by agreement of the parties
A claim to property created through statute
Two types of Statutory liens:
1. Mechanic's lien
2. Artisan's lien
A claim on real property
A claim on personal property
Legal action whereby a creditor seizes a debtor's property to satisfy the debt
When it comes to a mechanic's lien, generally the contractor must file...
with the country clerk a written notice of the lien on the property within a specific time period.
Usually, the mechanic's lien must be filed within:
60 to 120 days after the delivery of materials or the last work has been completed by the contractor
Mechanic's Lien: If the contractor decides to foreclose on the lien, the contractor...
must give the debtor notice of the foreclosure
Mechanic's Lien: The sale must be...
advertised and must take place within a certain time, usually around six months to two years
Mechanic's Lien: If the proceeds are greater than the debt owed to the contractor...
the surplus proceeds will be returned to the debtor
A court order that satisfies a debt by seizing a debtor's property that is being held by a third party such as a bank or an employer
Both _______ and ___________ laws restrict the amount of money that can be garnished
federal and state laws
Example of an Artisan's lien?
If you take your television to a repair shop, but later you discover that you cannot pay for the repairs.
The repairman may keep your television until you can pay for the parts and labor used in repairing it. If you never make the payment, the repairman is permitted to foreclose and sell your television to satisfy your debt.
A court order that allows a creditor to satisfy a debt by seizing the property of the debtor
Three types of judicial liens:
attachment, writ of execution, and garnishment
A court order permitting a local court officer to seize a debtor's property BEFORE the entry of a final judgement in the underlying case
A judicial order authorizing a local law officer to seize and sell any of the debtor's nonexempt real or personal property within the court's geographic jurisdiction AFTER the entry of judgement in the underlying case
Writ of Execution
How does a mortgage foreclosure work?
The creditor possessing the mortgage (the mortgagee) can foreclose on the property when the debtor (the mortgagor) defaults.
Mortgage Foreclosure: What happens if the proceeds from the sale of property are greater than the debt owed?
the debtor retains the extra money
Mortgage Foreclosure: What happens if the proceeds do not cover the debt?
the mortgagee can seek a "deficiency judgement", an order that permits the creditor to recover property beyond the foreclosed property
Establishes an agency by agreement that gives an agent authority to sign legal documents on behalf of the principal
Power of attorney
A __________ power of attorney grants broad authority, while a ___________ power of attorney give authority only for the specific areas or purposes listed in the agreement.
An agency relationship created by operation of law when one party, by her actions, causes a third party to believe someone is her agent even though that person has no authority to act as her agent.
Apparent agency (also called agency by estoppel)
The Restatement of Agency defines an ______ ________ as "a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking."
Independent contractors cannot enter into contracts on behalf of the principal unless...
the contractor possesses authority from the principal
Does the worker engage in a distinct occupation or an independently established business?
Independent Contractor: Yes
Is the work done under the employer's supervision, or does a specialist without supervision complete the work?
Employee: Employer Supervision
Independent Contractor: Specialist without supervision
Does the employer supply the tools?
Independent Contractor: No
What skill is required for the occupation?
Employee: No specialized skill
Independent Contractor: Great degree of skill
What is the length of time for which the worker is employed?
Employee: Long time
Independent Contractor: Varies
Is the worker a regular part of the business of the employer?
Independent Contractor: No
How is the worker paid?
Employee: Regular payments according to time
Independent Contractor: When the job is completed
In some cases, an agency relationship is not created by an express agreement but is instead implied by the conduct of the parties.
Agency by Implied Authority
Agency by Implied Authority: The circumstances determine the extent of an agent's ability to....
conduct business on behalf of the principal
However, implied authority cannot conflict with...
any express authority
Agency relationships can be formed if and only if:
1. They are being created for a lawful purpose
2. The person who is to act as an agent has contractual capacity
The employer-employee relationship is subject to...
the workers' compensation, workplace safety, employment discrimination, and unemployment statutes, while the employer-independent contractor relationship is NOT.
Who is generally liable in tort for the action of their employees, while they are generally not liable for the actions of independent contractors?
An agent's obligation to act in the interest of the principal
Duty of loyalty
An agent cannot represent both the _________ and a _________ _______ in an agreement, because there could be a conflict of interest.
principal; third party
The agent has to communicate not only offers from third parties but also, under the ________ _________ _________, any information he or she thinks could be important to the principal
Duty of notification
Duty of Notification: If a third party has made an agreement with a principal through an agent and fails to meet the agreement...
the agent must notify the principal in a timely manner
A third party who believes that an agent is acting with actual or apparent authority may sue the principal for any breach of contract
However, if the breach was caused by the agent's negligence...
the principal has a right to indemnification; that is, when sued by a third party, a principal may sue his agent to recover the amount assessed to the third party.
Three types of Power of Attorney?
1. Special power of attorney
2. General power of attorney
3. Durable power of attorney
Grants the agent express authority over specifically outlined acts
Special power of attorney
Allows the agent to conduct all business for the principal
General power of attorney
Specifies that the agent's authority is intended to continue beyond the principal's incapacitation or death
Durable power of attorney
A principal whose identity is known to a third party. The third party is aware that the agent is making an agreement on behalf of the principal.
A principal whose identity is not known by a third party, although the third party is aware that the agent is making an agreement on behalf of a principal.
Partially disclosed principal (also called unidentified principal)
Latin for "let the superior speak"; the principal by which liability for harm caused by an agent/employee is held by the principal/employer
If an agent makes a substantial departure from the course of the employer's business...
the employer is not liable
Courts often refer to an employee's substantial departure as
a "frolic of his own"
Unauthorized Acts of Agents: If an agent has no authority to act on behalf of a principal but still enters into a contract with a third party....
the principal, regardless of the classification, is not bound to the contract unless the principal ratifies the agreement
When the agent exceeds his authority to act on behalf of the principal...
the agent will likely be personally liable to the third party
Tort Liability & the Agency Relationship: An agent who commits a tort that injures a third party is...
personally liable for his or her actions, regardless of both the classification and the liability of the principal
The __________ may also be held liable for the agent's authorized or unauthorized acts.
Establishing employer liability factors:
1. Did the employer authorize the employee's act?
2. Did the act occur within the time and space limits of employment?
3. Was the act performed, at least in part, on behalf of the employer?
4. To what extent were the employer's interests advanced by the act?
5. To what extent were the private interests of the employee involved?
6. Did the employer provide the means (tools) by which the act occurred?
7. Did the employee use force not expected by the employer?
8. Did the employer know that the act would include the commission of a serious crime?
Right of indemnification: If the third party is able to establish employee negligence such that the employer is liable...
the employer has the right to recover from the employee any damages paid to the third party as a result of the employee's negligence
Two types of "Notice of Agency Termination":
1. actual notice
2. constructive notice
Notice of agency termination that is given by directly informing third parties, either orally or in writing.
Notice of agency termination that is usually given by publishing an announcement in a newspaper
A principal whose existence is not known by a third party. That is, the third party does not know that the agent is acting on behalf of a principal
To establish employer liability...
the third party must show that the wrongful act occurred within the scope of the employment
Employer Liability for Employee Torts: The courts consider several factors in determining that element including...
whether the act occurred within the time and space limits of employment
Why might an entrepreneur choose to create a sole proprietorship over other forms of business organization? (3)
(1) opening a sole proprietorship requires very few legal formalities.
(2) a sole proprietor has complete control of the management of the organization, with freedom to hire employees, determine business hours, and expand or change the nature of the business.
(3) the sole proprietor keeps all the profits from the business. These profits are taxed as personal income of the sole proprietor.
A voluntary association between two or more people who co-own a business for profit
The _______ _________ ________ governs partnerships in most states in the absence of an express agreement.
Uniform Partnership Act
Types of Partnerships:
1. General Partnership
2. Limited Partnership
3. Limited Liability Partnership
5. Joint Venture
Characteristics of Corporations (4):
1. A separate legal entity: while the corporation can be sued and can be held liable for its debts, shareholders cannot.
2. The corporation is not dissolved when shareholders die.
3. The corporation must pay taxes on its profits, and its shareholders must pay taxes on the dividends (distribution of those profits) they receive from it.
4. Must be created according to state law.
An unincorporated business that is taxed like a partnership, with the members paying personal income taxes, but has the limited liability of a corporation
Limited liability company (LLC)
Characteristics of a Limited Liability Company (LLC):
1. Considered a citizen of every state in which its members reside
2. Formed under state law
3. Owners of LLC ("members") pay personal income taxes on shares they report
4. No limitation on number of owners permitted in LLC which is an advantage over an S Corp.
5. Formed by filing articles of organization in the state in which members want to establish their LLC.
Organization formed by individuals who pool resources to gain a market advantage
Partnership agreement in which company members hold transferable shares while all the goods of the company are held in the names of the partners
Joint stock company
Organization governed by a group of trustees who operate the trust for beneficiaries
Investment group that comes together to finance a specific large project
Relationship between two or more persons or corporations that is created for a specific business undertaking
A contractual agreement where the owner of a trademark, trade name, or copyright (the franchisor) allows another person or entity (the franchisee) to use that trademark, trade name, or copyright, under specified conditions or subject to particular limitations, in selling goods or services.
A relationship where the franchisee operates under the franchisor's trade name and is identified as a member of a select group of dealers that engages in the franchisor's business
Chain-Style Business Operation
Franchisor helps franchisee establish a business (using franchisor's business name, and franchisor's standard "methods and practices")
Chain-Style Business Operation
What happens in situations where there are no articles of partnership?
The courts may look at other documentation to determine whether a partnership existed
What kind of documentation may be used to identify the existence of a partnership and/or the terms of a partnership?
Informal documentation, such as e-mails, notes, and memos
Most states recognize two situations in which a Partnership by Estoppel exists:
Situation where non-partner will be held liable as a partner:
(1) when a third party is aware of and consents to a misrepresentation of partnership, and
(2) when a nonpartner has represented himself or herself as a partner and a third party reasonably relies on this information to his or her detriment. The nonpartner can be held liable for the third party's damages.
The partners must work for the benefit of the partnership and not engage in any actions or business that could undermine or compete with the partnership. The duty of obedience is an example of a ________ _________. The partners must obey the partnership agreement, if they disobey the agreement, they can be held liable for any losses.
Partnership Rights & Responsibilities (3):
1. Unless otherwise stated in the partnership agreement, all partners have a right to participate equally in the management of the partnership.
2. If the partnership agreement does not establish another division of profits, all partners share equally in both profits and losses.
3. Unless otherwise agreed, no partner will receive a salary for participation in the business regardless of the amount of time and effort put in.
How do partners own the partnership property?
As tenants in property, which means they own it as a group.
Any property brought into or acquired by the partnership is considered...
property of the partnership
Property in the name of an individual partner but purchased with partnership funds will be considered....
An order that entitles a creditor to collect a partner's profits
Partners must have access in all partnership books and records and be allowed to make copies of them. Unless otherwise agreed, the records must be kept at the principal business office.
Right to inspect books
Each partner has a Right to an Accounting in four circumstances:
(1) Whenever the partnership agreement provides for an accounting.
(2) Whenever the copartners wrongfully exclude a partner from the partnership or from access to the books.
(3) Whenever any partner fails to disclose a profit or benefit from the partnership, thus breaching his or her fiduciary duty.
(4) Whenever circumstances render an accounting "just and reasonable."
Each partner is an _________ for partnership
Partners have actual authority to...
bind partnership in an agreement
According to UPA, if a partnership is liable...
each partner has unlimited personal liability. That is, all partners are jointly liable for the partnership's debts.
What is a partnership?
According to the Uniform Partnership Act (UPA), a partnership is an association of two or more persons to carry on as co-owners in a business for-profit.
Before any partnership can be considered completely terminated, it must go through the...
dissolution stage and the winding-up stage
The change in the relation of partners caused by any partner's ceasing to be associated with the carrying on of the partnership's business.
The process of completing unfinished partnership business
Three causes of a partnership dissolution
1. Act by a partner
2. Operation of the law
3. Act of the court
A partner withdraws from the partnership at will. A partner withdraws or is expelled according to the partnership agreement (e.g., once the partnership has achieved a certain objective or a certain amount of time has passed).
Act by a partner
A partner dies. A partner is adjudicated bankrupt. The partnership engages in an activity that becomes illegal.
Operation of the law
A partner is adjudicated insane. Continuing the partnership becomes impractical. A partner is incapable of carrying out the duties established by the agreement. The court dissolves the partnership for other reasons.
Act of the court
Two types of partnership dissolution:
Rightfully dissolved and Wrongful dissolution
A term applied to the dissolution of a partnership in a way that does not violate the partnership agreement
A partnership dissolution that violates the partnership agreement
What must a partner who intends to dissolve or withdraw from the partnership do?
Give the other partners notice of this intent
What happens once the partnership is dissolved?
The partner no longer has actual authority to bind the partnership.
What happens if the partnership does not notify third parties of the dissolution?
The partner can still have implied authority to bind the partnership.
What must the partners do when winding-up the business?
The partners must still fulfill their fiduciary duty to one another and disclose all information about the partnership assets.
If a partnership has been rightfully dissolved, who can request a winding-up?
Any partner can request a winding-up; however, a partner who wrongfully dissolves a partnership has no such right.
During the winding-up process, what can partners engage in?
Business that competes with the partnership business.
Winding-Up the Business: According to the UPA, distribution of liquidated assets must take the following order:
(1) Payment to creditors of the partnership
(2) Payment of refunds or loans to partners for loans made to the firm
(3) Payment to partners of the capital they invested
(4) Payment of profits distributed to partners on the basis of the partnership agreement
The Life Cycle of a Partnership is:
(4) winding up, and
(5) termination or continuation
A partnership consisting of at least one general partner and at least one limited partner in which the general partners assume all liability for the partnership's debts and the limited partners assume no responsibility beyond their originally invested capital.
Limited Partnership (LP)
What are the consequences of dissolution?
If the partnership does not notify third parties of the dissolution, the partner can still have implied authority to bind the partnership (but not actual authority).
How is an LLC similar to a limited partnership?
Each member has limited liability dependent on the investment he or she makes, while still receiving the tax breaks often afforded to those in a partnership.
Because LLCs are new, the _________ that has been drafted to govern them has not been accepted by many states.
Uniform Limited Liability Company Act
Sets with similar terms
Agency and Partnership
BLAW 420 - CH32-34, 36-38
BLAW chapter 37
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