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Undergraduate 2

Additional Management Flashcards




Strict Liability

liability regardless of fault; imposed in cases involving abnormally dangerous activities, dangerous animals, or defective products. Damages for proximately caused by abnormally dangerous or ultrahazardous activity, serious harm to persons or property that cannot be completely guarded against by the exercise of reasonable care. EX: Blasting/storing explosives

EX: wild animals, liable for harm if owner knows or should have known that the animals were dangerous or had a propensity to harm others.

Product Liability

The legal liability of manufacturers, sellers, and lessors of goods to consumers, users, and bystanders for injuries or damages that are caused by the goods; liable for physical harm or property damage; based on warranty theories of negligence, misrepresentation, and strict liability.

Negligence-manufacturer must exercise due care in designing the product, selecting the materials, using the appropriate production process, assembling the product, and placing adequate warnings on the label informing users of the dangers of which an ordinary person might not be aware. Also extends to the testing and inspection.

Privity of contract not req'd:Person injured by a product need not be the one who actually purchased the product. Manufacturer responsible for any defect.

Mistrepresentation:intentional mislabeling of packaged cosmetics or the intentional concealment of a product's defects would constitute fraudulent misrep; must be of material fact &seller must have had the intent to induce the buyer's reliance on the misrep

Strict Product liability
parties may be liable for the results of their acts regardless of their intentions or their exercise of reasonable care. 1)consumers should be protected aga unsafe products 2)manuf and distributors should not escape liability for faulty products simply because they are not in privity of contract 3)manuf, sellers, of products are in better position than consumers to bear the costs assoc w injuries-pay cost off to consumers in form of higher prices.

Requirements for strict product liability


**All 6 must be present to have strict product liability


1.Product must be in a defective condition when defendant sells it.

2.The defendant must normally be engaged in the business of selling that product.

3.Must be unreasonably dangerous to the user or consumer bc of its defective condition

4.Plaintiff must incur physical harm to self or property by use or consumption of product

5.The defective condition must be the proximate cause of the injury/damage

6. The goods must not have been substantially changed from the time the product was purchased.

Proving a defective Condition
under these req in any action aga a manuf, the plaintiff does not have to show why or in what manner the product became defective. Does have to prove that product became "unreasonably dangerous" since leaving hands of distributor.
unreasonably dangerous product
a product that is defective to the point of threatening a consumer's health and safety. A product will be considered unreasonably dangerous if it is dangerous beyond the expectation of the ordinary consumer or if a less dangerous alternative was economically feasible for the manufacturer, but the manufacturer failed to produce it. 
Product Defects- Restatement (third) of Torts

Manufacturing defects:when product departs from its intended design even though all possible care was exercised in the preparation and marketing of the product; physically flawed, damaged, or incorrectly assembled. EX: glass bottle made to thin and explodes in customers face.

EX: guy bought a ladder, ladder broke while standing on it..misalignment of hole.$667k in damages.

Design Defect:made in conformity with the manuf design itself but nevertheless results in injury to the user bc design improper; creates unreasonable risk, could have been avoided throu adoption of a reasonable alternative design. manuf liable only when harm was reasonably preventable. EX: Table saw cuts Gillespie's fingers off. Claimed the blade guarded defectively designed. He didn't win be proof of a guard with a "better" design would have prevented his injury.

Inadequate Warnings:will be considered defective when the foreseeable risks of harm posed by the product could have been reduced or avoided by the provisions of reasonable instructions or warnings by the seller. EX: Trampoline

Obvious Risks:there is no duty to warn about risks that are obvious or commonly known. Do not add to the safety of a product and could even detract from it by making other warnings seem less significant EX: 11yr dives into shallow end &is paralyzed. manuf can't escape liability for failing to warn about the hazards of diving into a pool simply by claiming that the risk was obvious.

Foreseeable misuses

a seller must warn those who purchase its product of the harm that can result from the foreseeable misuse of the product as well. The key is foreseeability of the misuse. Sellers not req to take precautions of every conceivable misuse, just those that are foreseeable.


Other apps of strict product liability

all courts extend the strict liab f manufacturers and other sellers to injured bystanders.

EX: if a defective forklift that will not go in reverse injures passerby, that individ can sue manuf for product liability (& possibly bring negligence aga operator.)

EX: GM buys brake pads from a subcontractor and puts them in chevy w/o changing their composition. If those pads are defective, both the supplier of the brake pads and GM will be held strictly liable for the damages caused by the defect.


Defense to product liability

defendants in product liability suits can raise a #of show that there is no basis for the plaintiff's claim..has not met the req of causation for an action in negligence, defendant not liable. Preemption; no lack of due care.

Assumption of Risk: Defendant must show: 1)the plaintiff knew and appreciated the risk created by the product defect and 2) the plaintiff voluntarily assumed the risk even though it was unreasonable to do so. EX: if a buyer fails to heed to a seller's product recall

Product Misuse: when a product is used for a purpose for which it was not intended. Plaintiff does not know that the product is dangerous for a particular use. EX: using weed-eater to cut down limb.

Comparative Negligence(Fault): compare the negligence or intentional actions of both the plaintiff and defendant when apportioning liability and damages. A defendant may be able to limit at least some of its liability if it can show that the plaintiff's misuse of the product contributed to his injuries..reduces total amn't rewarded to plaintiff

Commonly known dangers: manufacturers need not warn users of dangers that accompany common products such as a knife/matches.

Knowledgable user: particular danger such electrical shock is or should be known by particular users of a product (an electrician) manuf need not warn of dangers. EX: McDonald's adverse health defects

Statute of Limitations and Repose: Product liability claims are not subject to UCC limitation time. Injured party must bring a claim w/in 2-4yrs. Statute of Repose- a statute of limitations that is not dependent on the happening of a cause of action. Statutes of repose generally begin to run at an earlier date and run for a longer period of time.(medical malpractice)

an encumbrance on (claim against) property to satisfy a debt or protect a claim for the payment of a debt. May arise under common law (artisan's lien) or statutory law (Mechanic's liens)
Mechanic's Lien

>Material Lien<

a statutory lien on the real property of another, created to ensure payment for work performed and materials furnished in the repair or improvement of real property, such as a building. EX: Painting of a house for 5K to cover labor and materials. Home owner refuses to pay. The painter is the lienholder and the real property is encumbered(burdened) with a mechanic's lien for the amnt owned. 

Artisan's Lien

Created under common law; a possessory lien given to a person who has made improvements and added value to another person's personal property as security for payment for services performed. In contrast to mechanic's lien, an artisan's lien is possessory. The lienholder must have retained possession of the property to have expressly or impliedly agreed to provide the service of cash, not a credit, basis.

EX: Tenetia leaves her diamond ring at the jeweler's to have her initial engraved in the band. The jeweler is not expected to return the ring until the owner has paid. If the owner never pays, the jeweler places an artisan's lien on the owner and may sell the ring in satisfaction of the debt. 

Writ of Attachment
a court's order, issued prior to a trial to collect a debt, directing the sheriff or other public officer t seize nonexempt property of the debtor. If the creditor prevails at trial, the seized property can be sold to satisfy the judgement.
Writ of exectuion
A court's order, issued after a judgment has been entered against a debtor, directing the sheriff to seize(levy) and sell any of the debtor's nonexempt real or personal property. The proceeds of the sale are used to pay off the judgment, accrued interest, and costs of the sale; any surplus is paid to the debtor.

A legal process used by a creditor to collect a debt by seizing property of the debtor(such as wages) that is being held by a third party(such as a debtor's employer-garnishee). Where part of the the debtor's pay check is withheld and paid to creditor. Or, a third party that hold's funds belonging to the debtor (such as a bank) or has possession of or exercises control over, other types of property belonging to debtor. Almost all types of property can be garnished; tax refunds, pensions, trust funds. Governed by state law.


Two ways a third person promises to pay a debt owned by another in the event the debtor does not pay...

1) Surety

2) Guaranty


An express(oral) contract in which a third party to a debtor-creditor relationship (the surety) promises to be primarily responsible for the debtor's obligations.

The surety in the strictest sense is primarily liable for liable for the debt of the principle. Creditor can demand payment from the surety from the moment the debt is due.

EX: Roberto wants to get loan from bank to buy a car but needs his dad to co-sign his signature bC Rob still in college. On the note's due date, the bank can seek payment from either Roberto or his dad, or both jointly.


The guarantor- the third person making the guaranty- is secondarily liable. They can be req'd to pay the obligation only after the principal debtor defaults.

EX: BX Enterprise needs to borrow funds to be able to meet payroll. Skeptical, the bank req's that Dawson, the pres and owner of 70% of company to sign himself personally responsible for payment if BX does not pay off the loan. As a guarantor of the loan, Dawson cannot be held liable until BX Enterprise is in default.

**Needs to be in writing to be enforceable

Defenses of Surety and Guaranty:

-if any material modifications are made in the terms of the orig contract bt the principal debtor and the creditor, w/o first obtaining consent of the surety/guaranty

-A surety/guaranty who is compensated

-if the principal obligation is paid off on behalf of the debtor

-if valid tender of payment is made, and the creditor rejects it with knowledge of the surety/guaranty's existence

-if a creditor surrenders the collateral to the debtor or impairs the collateral while knowing of the surety/guaranty and w/o their consent, surety/guar is released


Rights of the surety/guaranty



The Right of subrogation: The right of a person to stand in the place of (be substituted for) another, giving the substituted party the same legal rights that the original party had. S/G takes the place of the bank.

The Right of Reimbursement: The s/g has the right of reimbursement from the debtor. The legal right of a person to be restored, repaid, or indemnified for costs, expenses, or losses incurred or expended on behalf of another.

The RIght of Contribution: The right of co-surety who pays for more than his or her  proportionate share on a debtor's default to recover the excess paid from other co-sureties.

((Co-sureties-a joint surety; a person who assumes liability jointly with another surety for the payment of an obligation)) 

EX: Two co-sureties are obligated to pay the debt of a debtor. Together, the sureties max liability is 25k..A is 15k and B is 10k.  The debtor owes 10k. A pays it all and can then recover 4k from B

Bankruptcy proceedings



Automatic Stay




Types of Bankruptcy Relief

Chapter 7: the liquidation proceedings(the selling of all nonexempt assets and the distribution of the proceeds to the debtor's creditors)

Chapter 9: governs the adjustment of the debts of municipalities

Chapter 11: governs reorganizations

Chapter 12: (for family farmers)

Chapter 13: for individuals provided for adjustment of the debts of parties with regular income.


Chapter 7



1) Debtor: individuals/partnerships/corp

-petition- the document that is filed with a bankruptcy court to initiate bankruptcy proceedings. If the debtor files the petition, then it is voluntary bankruptcy. If one or more creditors file a petition to force the debtor into bankruptcy, then it is involuntary bankruptcy. Vol- Order of relief :the order relieves the debtor of the immediate obligation to pay the debts listed in the bankruptcy petition. 

-Automatic Stay-the suspension of all litigation and other action by creditors aga the debtor or the debtor's property. The stay is effective the moment the debtor files a petition in bankruptcy..Adequate Protection Doctrine protects secured creditor from losing their security as a result of the automatic stay, req the debtor or trustee to make periodic cash payments. Reaffirmation the automatic stay on secured property terminates 45days after the creditors meeting unless the debtor redeems or reaffirms certain debts. The debtor cannot keep secured property even if he continues to make payments on it, wo reinstating the rights of the secured party to collect on the debt.

-Creditors-to be entitled to receive a portion of the debtor's estate, each creditor normally files a proof of claim with the bankruptcy court clerk within 90 days of the creditor's meeting

-Trustee-appointed after the order for relief in the liquidation proceeding has been entered; collects debtors available estate and reduce it to cash for distribution, preserving the interests of both the debtor and unsecured creditor. Has powers equivalent to that of a lien creditor.

1.The Right to Possession of the Debtor Property. EX: Trustee needs to obtain inventory of debtor's business..notify the debtor, change the locks, hire a security guard.

2.Avoidance Powers-set aside a sale or other transfer of the debtor's estate

3.Voidable Rights- EX: Blane sells boat to Igna. Igna writes a checks she knows will bounce. Blane has right to avoid that transfer and recover the boat. Trustee has right to recover boat from Igna which becomes part of debtor's estate.

4.Preferences- trustee is allowed to recover payments made both vol and invol to one creditor in preference over another. an insolvent debtor must have transferred property, for a preexisting debt.

-Discharge-from debtor's point of view, the purpose of a liquidation proceeding is to obtain a fresh start thru discharge of debts. Once assets distributed to creditors, the debtors remaining debts are then discharged, meaning that the debtor is not obligated to pay them, certain debts he are not dischargeable such as..willful or malicious conduct or fraud, embezzlement, larceny, DUI, taxes, fines, child support, student loans, luxury items


Chapter 11




In a reorganization, the creditors and the debtors formulate a plan under which the debtor pays a portion of its debts and the rest is discharged. The debtor is allowed to continue business.

Workout-an out of court agreement bt a debtor and creditors in which the parties work out a payment plan or schedule under which the debtor's debts can be discharged. 

Debtor in Possession (DIP) -in ch 11 bankruptcy proceedings, a debtor who is allowed to continue in possession of the estate in property (the business) and to continue business operations. DIP's role is like that of a trustee in liquidation. the DIP is entitled to avoid preferential payments made to creditors and fraudulent transfers of assets; can decide whether to cancel or assume prepetition executory contracts or unexpired leases

**Reorganization Plan::

1.Filing the Plan: Only debtor may file a plan w/n first 120 days (to 18mos); propose how to pay everybody off.

2.Acceptance and Confirmation of the Plan: 2/3 of the creditors has accepted the plan. Confirmation is conditioned on the debtor's certifying that all postpetition domestic-support obligations have been paid in full. Even if creditors have accepted, court may refuse to confirm it if it is not in best interest of creditors.

3.Discharge- the plan is binding on confirmation he does not discharge individual debtors. Individual must complete the plan prior to discharge.


Chapter 13

Individuals Repayment Plan


"Adjustment of Debts of an Individual with Regular Income"

Individuals who owe fixed unsecured debt of <336K or fixed secured debts of <l,010,000. Less expensive/less complicated 

1.Filing- initiated only by voluntary petition by debtor to by the conversion of a CH7 petition. A trustee who will make payments under the plan, must be appointed. Automatic stay in effect. Although the stay applies to consumer debt, it does not apply to any business debt incurred by the debtor.

2.The repayment plan

3.Time allowed for Repayment- 3to5 years must begin payment w/n 30days after filing or court will turn into liquidation case or dismiss petition. 

4.Confirmation of the Plan-20to45 days.interested parties(creditors) may object to the plan. Dependent on the debtors certification that postpetition tax returns have been filed. Court will confirm it..

-secured creditors have accepted plan

-if plan provides that secured creditors retain their liens until there is payment in full or until the debtor receives discharge.

-if debtor surrenders the property securing the claims to the creditors.

5.Discharge-after completion of all payments, the court grants a discharge of all debts provided for by the repayment plan. 


Chapter 12

Family Farmers/fishermen


A family farmer one whose gross income is atleast 50%farm dependent and whose debts are at least 80%farm related. Must not exceed 3,544,525. A family fisherman is defined as one whose gross income is at least 50%dependent on commercial fishing operations and whose debts are 80% fishing related. Must not exceed 1,642,500.

1.Filing Petition-Similar to filing for Repayment under CH13. The debtor must file a plan not later than 90days after the order for relief. The filing acts as an automatic stay aga creditors and co-obligors actions aga the estate.

2.Content and Confirmation-must be confirmed or denied w/n 45days of filing the plan. The plan must provide for payment of secured debts at the value of collateral

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