Video: Contractual Liability

In this lesson, Nick Palazzolo, CPA, dives into the complexities of contractual liability within the principal-agent relationship. Exploring the nuances of apparent and actual authority, Nick ensures that these key terms are not just understood but committed to memory through practical, real-world examples such as land purchases in real estate. Distinct scenarios are broken down, from fully disclosed to undisclosed principals, clarifying the varied liabilities in each context. Nick also prioritizes the ability to identify who's who in a transaction, essential for parsing out contractual obligations and potential disputes. Moreover, he underscores the importance of mastering these concepts with the aid of strategic studying advice, suggesting writing out examples to solidify understanding and prepare for the exam.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Contractual liability is an essential aspect of the principal-agent relationship, which refers to the legal responsibility that arises when a principal and an agent enter into a contract with a third party. The liability of the principal and the agent depends on factors such as the agent's authority, disclosure of the principal's identity, and the nature of the principal-agent relationship itself. Let's read through here, see what we've got. Well, principal's liability. A principal is liable if the agent had apparent or actual authority when entering into a contract with a third party on the principal's behalf. Apparent authority occurs when the principal's actions or behavior leads the third party to believe that the agent has the authority to act on the principal's behalf. Actual authority, on the other hand, is the expressed or implied authority granted by the principal to the agent. Again, just a reminder, I want you to understand and memorize that these express and implied authority belong under actual authority, and then apparent authority is a different concept. But knowing the differences, memorizing those definitions, and yes, am I beating them to death to you in these lessons? Oh, you see that I am, you know that I am. These are important, make sure you know them. Now, the agent's liability. The liability of an agent depends on the disclosure of the principal's identity and the agent's authority. Again, I love that example of Walt Disney wanting to buy up a bunch of land in Orlando and using a bunch of random real estate agents that are presumably unrelated, but he's instructing them to go buy up land. Also, just think of one example and stick with it. That's another piece of advice I have for everything in this course and all the other ones. If

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Agency & Contract Law

Module: 2 Concepts, 34 Videos

Principals & Agents: Authority, Duties, and Liabilities Overview

2:02

Introduction to Principals and Agents

3:30

Formation of Agency

5:58

Terms Related to Principals and Agents