Understanding Agency Law: Principal-Agent Relationships, Authority, and Liability, Quizzes of Business and Labour Law

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TERM 1 Order of Principals Agents & Third Parties DEFINITION 1 Principal -> Agent -> Third PartyP1 --> A1 --> <-- A2 <-- P2- The principal agency relationship underlies all employment law, business law and corporate interactions ex. if you buy jeans from Gap the sale person is an agent from gap - Agents have a fiduciary duty (act in best interest) to principal TERM 2 Principal's Liability for Contracts DEFINITION 2 - principal is bound by the acts of an agent if the agent has authority the principal, for reasons of fairness is estopped from denying that the agent had authority the principal ratifies the acts of the agent TERM 3 Authority DEFINITION 3 - principal is bound by acts of an agent if the agent has authority- principle is also bound by the acts of subagents - those hired by the agent- 3 types of authority express implied apparent (agent seems to be authorized but not and principal still bound by agents actions) - relationship doesn't have to be in writing TERM 4 Actual Authority DEFINITION 4 Express Authority and Implied Authority TERM 5 Express Authority DEFINITION 5 - Granted by words or conduct that, reasonably interpreted, cause the agent to believe the principal grants permission for him to act- Any ambiguity about the principal's intent, the courts look at the principal's objective manifestation not his subjective intent ex. A principal puts a note on an agents desk to buy a property in Foxridge but puts it on an unintended agents desk. The unintended agent goes out and buys the property. Even though the sale was by the "wrong" person according to the principal, the contract has to be still gone through with. TERM 6 Implied Authority DEFINITION 6 - Unless otherwise agreed, authority to conduct a transaction includes authority to do acts that are reasonably necessary to accomplish it ex. Boss asked agent to acquire company A but In order to do so the agent has to do more than justsimplybuy company A. Has to do things such as hiring people to ascertain the value of company A and hiring other people that are needed to complete the process. The boss didn't tell the agent (give expressauthority)to hire the people but the agent has implied authority to do such things in order to get the job done. TERM 7 Apparent Authority DEFINITION 7 - A principal can be liable for the acts of an agent who is not, in fact, acting with actual authority, if the principal's conduct causes a third party toreasonablybelieve that the agent is authorized.- Where the principal "holds out" another as possessing certain authority, thereby inducing third parties to reasonably believe that authority exists.- Apparent authority goes hand in hand with estoppel P tells T that A is P's agent and has the power to contract for P. A, in fact, has no actual authority to contract for P. If A contracts with T on P's behalf, P i bound. A, in P's presence, tells T that he is P's agent when in fact she is not. Under these circumstances, P has a duty to correct A'srepresentation if P does not, A will have apparent authority to act on P's behalf. TERM 8 Estoppel DEFINITION 8 - 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. ex. If you have a cousin that is negotiatingendorsementdeals with Nike for you and you know about it as a professional athlete but you don't do anything about it you are bound to the contract. ex. Cam Newton said he didn't know that his father was trying to negotiate where he should play. TERM 9 Ratification DEFINITION 9 - If a person accepts the benefit of an unauthorizedtransactionor fails torepudiateit, then he is as bound by the act as if he had originally authorized it ex. If you accept payment from an endorsement deal organized by your cousin who isn't officially your agent you have just ratified their action. TERM 10 Duties of an Agent DEFINITION 10 - Performance - you have to do your job unless you are performing for free (gratuitousperformance)- Notification - an agent has an obligation to notify the principal as relates to subject matter of the agency- Loyalty - an agent is to be loyal to the principal and can't do deal's behind the principals back ex. if an agent get a gift from a client, they do not own it, it belongs to the principal automatically - Obedience - you have a duty to obey your principal as an agent- Accounting - you can'tcommingleaccounts or embezzle your principal commingling - putting the principals and your personal money together, liable for both if something occurs embezzlement - an agent has control of money and steals it TERM 21 Employer - Employee Relationship DEFINITION 21 - Employee Employer is liable for physical harm caused by the negligence of the agent that are committed within the scope of their employment - Independent Contractor Employer is liable ONLY for negligence in hiring or supervising the Independent Contractor - Regarding an employee one can sue the employer for not in the case of an I.C.. TERM 22 Employee v. Independent Contractor DEFINITION 22 - Does the Employer control the method and manner in which the Employee performs the job?-Does the principal provide tools for the employee? Not if I.C.. ex. If you hire someone to fix your porch that is an independent contract relationship TERM 23 Scope of Employment - Authorization DEFINITION 23 - An act is within the scope of employment, even if expressly forbidden, if it is of the same general nature as that authorized or if it is incidental to the conduct authorized TERM 24 Scope of Employment - Detour DEFINITION 24 - An employer will be held liable if it is shown that the employee had gone on a mere detour in carrying out their duties ex. If a worker stops to get coffee and has an accident on the way to work, the court would say it is a detour - Considered a small deviation TERM 25 Scope of Employment - Frolic DEFINITION 25 - An employer will NOT be subject to liability where an employee acts in his or her own right (frolic) rather than on the employer's business ex. Going to adopt a dog that is 50 miles away. That is not on the way at all ex. Stopping off at a bar after work TERM 26 Intentional Torts DEFINITION 26 - An Employer is not liable for the intentional torts of the Employee unless the Employee was motivated, at least in part, by the desire to serve the Employer, or the conduct was reasonably foreseeable (nature of the work gives rise to hostilities) ex.bouncer at Sharkey's , hates customer who she beats up with more force than necessary . Customer can sue Sharkey's because the beating was more than under desire to serve employer. -Employer can ratify intentional torts of an employee if they know all the material facts. ex. If the manager see and doesn't do anything, they might be liable. TERM 27 E-Discovery (**extra**) DEFINITION 27 - One side wants all the information before trial- You have a duty to keep all e-information ex. If someone storms out saying they can't take anymore sexual harassment, at that point you should halt any deleting of emails programs TERM 28 Powers of Attorney DEFINITION 28 - Where someone is charged with representing another on their behalf can be limited for example to just paying bills also can have medic power of attorney - Equal dignities attorney and powers of attorney all need to be in writing TERM 29 Agent's Liability for Torts DEFINITION 29 - Agents are always liable for their own torts, even if the principal is also liable- Agents and principals are jointly and severally liable.- Principal can sue the Agent if the Principal has to pay TERM 30 Jointly and Severally Liable DEFINITION 30 - Means the injured party may sue either one or both as she chooses. TERM 31 Choosing the Form of Organization Based off... DEFINITION 31 - Financing Who will invest in business? Where are you raising your capital? - Tax Issues How much expense can you incur on the front end? How muchform-abilitycan you get through? - Liability Concerns- The entrepreneur's goals (to go public; length of endeavor,transfer-ability) Is it a family business? Is it a farming family business? TERM 32 Types of Business Organizations DEFINITION 32 - Sole Proprietorship- Partnerships General Partnership (GP) Limited Liability Partnership (LLP) Limited Partnership (LP) - Corporations (Corp) Close Corporation (C Corp) S Corporation (S Corp) Professional Corporation (PC) - Other Limited Liability Company (LLC) Joint Venture Business Trusts Cooperative FranchiseTERM 33 Foreign Corrupt Practices Act (FCPA) DEFINITION 33 - Unlawful to bribe foreign officials for purpose of obtaining business.- Exception of FCPA is that you can grease the wheels of bureaucracy /"Grease payments" if you have a contract you can pay officials to make the process go faster - US firms are liable for bribes made by foreign agents if they were aware of the illicit payments or the high probability that such payments were being made TERM 34 Sole Proprietorship DEFINITION 34 - Overview Separate TaxableEntity - No Personal Liability for Owners - Yes (unlimited) Ease of formation - Very Easy (also cheapest) Transferable Interests - No can only sell entire business Perpetual Existence - No (usually lasts as long as proprietor) Other - N/A - Over 75% of all small businesses in our country are soleproprietorship- Default business- Don't have to take into account anyone else's input TERM 35 General Partnership DEFINITION 35 - Overview Separate TaxableEntity - No Personal Liability for Owners - Yes Ease of formation - Easy Transferable Interests - No Perpetual Existence - Depends on partnership aggreement Other - Management can be difficult - An association of two or more persons to carry on as co-owners of a business for profit- Partners are agents of other partners and are agents of someone else. (Torts are liable for both parties)- If you buy into a partnership you are not liable for any preexisting debt- There is a duty of loyalty betweenpartners- Types of Partnerships At Will - ends when they want to Term - ends after established period of time Estoppel - courts construe a partnership - In an agreement if you don't have who has the most stake in the partnership specified then you have to by default share the money and losses equally (if TERM 46 Liability Issues DEFINITION 46 - Business Judgment Rule (BJR) - Directors and Officers Liability- Inside director (CEO, agent) , outside director (invited to serve on the board)- Business is inherently risky ex. Company named IBM, you are shareholder, IBM goes and acquires another international corporation Prestige Inc. , figure can reconstruct it and turn out profit in 5 years, yr 6 you see that it's not working out as plans, drops share prices in half action Can we sue? Yes. Derivative - Piercing the Corporate Veil - Shareholders Liability TERM 47 Business Shield = BJR DEFINITION 47 ex. You as an excutive spent lots of money in marketing to push product that turns out to be harmful Can you be held personally liable? You are going to raise BJS - BJR protects manages and decisions they make as long as they act in good faith ex. CitiGroup, shareholders sued board of directors due tosub- primemortgages, says they are personally liable - Judgment rule in the board favor with BJRS ex. Lindel Corp, sell business to international business, shareholder said didn't go out and find another buyer before simply selling it.Judges said you can't sue because didn't break BJRS. TERM 48 Manager's Fiduciary Duties DEFINITION 48 - Duty of Loyalty Managers (directors, officers) must act without conflict of interest - Duty of Care Managers must act with the care that an ordinarily prudent person would take in a similar situation Must act in a manner they reasonably believe to be in the best interest of corporation TERM 49 Business Judgment Rule DEFINITION 49 - BJR applies if Manager took reasonable steps to become informed about the matter Had a rational basis for his or her decision Did not have a conflict of interest b/t his or her personal interest and that of thecorporation - Ask yourself the three question after a manager decision ex. Company A has Erica who sits on board of directors, she also sits on board of directors of company B. A entering into contract with company B, if company A is harmed shareholders will sue Erica or the contract can be rescinded. ex. canoffer it up to disinterested board members thereis a conflict of interest b/t two companies Erica sits on.Ericasays she can't be part of the decisions ex. can say decisions are fair for both companies, take a chance if itdoesn'twork out. Court rules as fair TERM 50 Duty of Loyalty is Violated in the event of: DEFINITION 50 - Self Dealing by the Manager ex. if loan is given at really low interest rate but could have been given as higher interest rate to more successful company, Erica could be open up to liability - Competing with the Corporation You can't be both on the board of Pepsi and Coca-cola - Insider Trading- Manager Usurping a Corporate Opportunity ex. You buy something that would be great for the company for yourself, judge can rescind contract and manager has to pay for harm such as legal fees Can ask company, "do you want to purchase this opportunity first?" If they don't you can purchase it. TERM 51 Duty of Care is Violated if: DEFINITION 51 - Did not act with the same care an ordinary person would take in a similar situation- No Rational Business Purpose ex. Wrigley field did not have lights at one time, manager didnt want to do it because thought would bring an unsavory crowd which would bring down market value of area and land Had a rational argument for business - Decision was illegal ex. bribe to keep mouth shut about operating on Sunday due to law in area - Uninformed Decision ex. Erica is on board A, A looking to acquire company B, company Bturns out to be a flop, worth 2 million not 10 million offered We have to ask, did she make an informed decision? ex. Corporate counsel - if you have someone to point finger out (ex. outside lawyer hired) you are good TERM 52 Legal Options for Shareholders DEFINITION 52 - Derivative suits - brought by shareholders or directors against a corporation on behalf of a corporation to remedy a wrong to the corporation- Direct Suit - only where one's own rights are violated ex. Corporation refused to open up books. Shareholder had to file direct lawsuit to remedy that so that they can open up the books You can't look at books and use information in bad faith TERM 53 Derivative Lawsuits DEFINITION 53 - If you as a shareholder brought a lawsuit and won would gets the money? All the proceeds go towards the corporation - Demand must be made on the Board - you have to demand corporation/board to fix the problem first Sometimes you don't have to make a demand on the board, board won't entertain lawsuit, it is clearly futile by shareholder sights - If manager has to fight a lawsuit their defense is paid due to indemnification clause, if lose very few companies require manager to pay back