Business Law Exam 2 Study Guide

Comprehensive vocabulary flashcards covering Agency Law, Business Organizations, Torts, Contract Formation, and Contract Performance from the Business Law Exam 2 Master Study Guide.

Principal

The person or business being represented in an agency relationship who generally possesses the right to control the agent's work.

Agent

A person authorized to act on behalf of and represent a principal.

Duty of Loyalty (Agency)

An agent's legal obligation to place the principal's interests first within the scope of agency, avoiding secret profits and conflicts of interest.

Disclosed Principal

A principal whose identity and existence are known to the third party at the time of contracting; the principal is the contracting party, and the agent is usually not personally liable.

Partially Disclosed Principal

A principal whose existence is known to the third party, but whose specific identity is not revealed; both the principal and the agent may be held liable on an authorized contract.

Undisclosed Principal

A principal whose existence and identity are entirely unknown to the third party; both the principal and the agent may be held liable once the principal is discovered.

Gorton v. Doty

A legal case establishing that an agency relationship can arise from mutual consent and control—such as conditioning the loan of a car on a specific person driving it—even in the absence of payment or a formal contract.

Actual Express Authority

Authority directly and explicitly communicated by the principal instructing the agent to perform a specific act.

Actual Implied Authority

Authority reasonably necessary for an agent to carry out and accomplish their express assigned duties.

Apparent Authority

Authority created when a principal's words or conduct lead a third party to reasonably believe that an agent has authority to act on the principal's behalf.

Agency by Estoppel (Hoddeson v. Koos Bros.)

A doctrine preventing a principal or store from denying agency when its conduct or inaction created a reasonable appearance of authority that an innocent third party relied upon.

Ratification

A principal's subsequent approval and adoption of an unauthorized act performed by an agent, binding the principal after the fact provided they know the material facts.

Respondeat Superior

A doctrine of vicarious liability holding an employer legally responsible for an employee's torts committed within the scope of employment.

Sole Proprietorship

A business owned by a single individual with no separate legal entity status, subjecting the owner to unlimited personal liability for all business obligations.

General Partnership

An association of two or more co-owners carrying on a business for profit, where partners generally have unlimited personal liability for partnership obligations and can bind ordinary business.

Limited Partnership (LP)

A business structure consisting of at least one general partner with managerial authority and personal liability, and at least one limited partner whose liability is generally limited to their investment.

Limited Liability Partnership (LLP)

A partnership entity where partners are protected from certain partnership liabilities—especially another partner's malpractice or misconduct—while remaining responsible for their own wrongdoing.

Partnership by Estoppel

A legal concept holding a person liable as a partner if they represent themselves, or allow themselves to be represented, as a partner, and a third party reasonably relies on that representation.

Piercing the Corporate Veil

An equitable remedy where a court disregards a corporation's separate legal personality to hold owners personally liable, typically when the corporate entity has been abused or formalities neglected.

Commingling Funds

The improper mixing of personal and business finances, such as paying personal expenses directly from a corporate account, which serves as key evidence for piercing the corporate veil.

Corporate Opportunity Doctrine

A fiduciary duty of loyalty principle preventing corporate officers or directors from taking personal advantage of a business opportunity relevant to the corporation without prior disclosure and approval.

Elements of Negligence

The four required components to establish a negligence claim: Duty, Breach, Causation, and Damages (D-B-C-D).

Res Ipsa Loquitur

A legal doctrine meaning "the thing speaks for itself," allowing negligence to be inferred when an accident ordinarily does not occur without negligence, the defendant had exclusive control of the instrumentality, and the plaintiff did not cause it.

Trespasser

A person who enters real property without permission; the landowner generally owes a limited duty to refrain from willfully or wantonly injuring them.

Licensee

A person permitted on property primarily for their own purposes or as a social guest, to whom the landowner generally owes a duty to warn of known, concealed dangers.

Invitee

A person invited onto property for a business or public purpose (e.g., a customer), to whom the landowner owes a duty of reasonable care, including inspection and warning/protection against hazards.

Eggshell Plaintiff Rule (Benn v. Thomas)

A tort principle requiring the defendant to take the plaintiff as found, making the defendant liable for the full extent of physical harm caused even if a preexisting vulnerability worsens the injury.

Assault

An intentional act causing a reasonable apprehension of imminent harmful or offensive contact, where no physical contact is required.

Battery

An intentional, non-consensual harmful or offensive contact with another person, requiring actual physical contact.

UCC Article 2

The body of statutory commercial law that governs contracts specifically for the sale of goods (movable tangible items).

Lucy v. Zehmer

A contract law case establishing that mutual assent and serious contractual intent are evaluated by outward objective manifestations of words and conduct rather than unexpressed subjective intentions.

Leonard v. PepsiCo

A contract formation case holding that an exaggerated, humorous advertisement does not constitute an objective, serious offer that a reasonable person would believe could create a contract.

Option Contract

A contract where the offeror agrees to keep an offer open for a specified period in exchange for consideration provided by the offeree.

UCC Firm Offer

A signed written assurance by a merchant to keep an offer to buy or sell goods open without consideration for a stated period, or a reasonable time not exceeding three months.

Bilateral Contract

A contract formed by an exchange of mutual promises ("promise exchanged for promise").

Unilateral Contract

A contract formed when a promise is exchanged for performance, where acceptance occurs upon the full completion of the requested act.

Consideration

A bargained-for exchange of legal value, wherein each party gives, does, or promises something of legal value, such as surrendering a legal right.

Promissory Estoppel

An equitable doctrine that enforces a promise lacking consideration when the promisor reasonably induces foreseeable detrimental reliance by the promisee, and injustice can only be avoided by enforcement.

Substantive Unconscionability

Contractual terms that are inherently unfair, oppressive, or one-sided in their substance.

Statute of Frauds

A rule of law requiring certain categories of contracts to be evidenced by a signed writing to be legally enforceable.

MR. SOUR

A mnemonic for contracts falling under the Statute of Frauds: Marriage consideration, cannot be performed within one Year, Sale of land, Executor's personal debt promise, UCC goods at or above threshold ($500$), and Suretyship.

Parol Evidence Rule

A rule of contract interpretation that limits the introduction of prior or contemporaneous outside statements to contradict or alter the terms of a final, fully integrated written agreement.

Void Contract

An agreement that has no legal effect or validity from the very beginning under applicable law.

Voidable Contract

A valid contract that allows a protected party the legal right to either affirm and enforce it or disaffirm and rescind it.

Assignment

The transfer of a contractual right or benefit from the original contracting party to a third party.

Delegation

The transfer of a contractual duty or performance obligation to another party, which generally does not release the delegating party from ultimate responsibility.

Commercial Frustration (Krell v. Henry)

A doctrine discharging contractual duties when an unexpected intervening event completely destroys the shared fundamental purpose of the contract that both parties understood.

Intended Beneficiary

A third party whom the contracting parties deliberately intended to receive a legal benefit under the contract, thereby granting that party enforceable rights.

Incidental Beneficiary

A third party who benefits from a contract only indirectly or by accident, having no legal right to sue or enforce the contract.

Compensatory Damages

A monetary remedy designed to compensate the injured party for actual losses directly resulting from a contract breach or wrong.

Consequential Damages

Special damages awarded for additional foreseeable losses caused by unique circumstances known to the breaching party at the time of contracting.

Specific Performance

An equitable court order compelling a breaching party to perform their exact contractual promise, typically awarded when monetary damages are inadequate, such as in transactions involving unique parcels of real estate.