Agency & Corp (High) Flashcards
Actual Authority
A principal is bound to contracts if he conveys express or implied actual authority. Express is based on an explicit statement or writing.
Implied authority: 1) agent believes he is entitled to act due to necessary or incidental action; 2) agent acted similarly in prior dealings; OR 3) it is customary for agents in that position to act that way.
Apparent Authority:
Principal is bound to contracts if agent has apparent authority from principal: 1) holding out another as having authority, AND 2) third party reasonably relies on that authority. Holding out may occur when: 1) position or title indicating authority, 2) previous authority without known revocation, OR 3) appearance of authority.
Scope of Employment
Based on employer control. Scope of employment met when: 1) performing work assigned by the employer, 2) engaging in a course of conduct subject to employer’s control, OR 3) authorized or incidental to employment.
- Outside scope: 1) independent and 2) not intended to serve any employer purpose.
- Intentional torts: generally not within scope unless: 1) specifically authorized by employer, 2) driven by desire to serve employer, OR 3) result of naturally occurring friction from type of employment.
Partnership Formation
General partnership created when 1) two or more persons, 2) as co-owners, 3) carry on a business for profit. Subjective intent or formalities irrelevant. Partnership presumed if there is agreement to share profits equally.
Limited Partnership must be filed with secretary of state including limiting language.
Personal Liability of Partners
General partners are personally, jointly and severally liable for partnership obligations. Incoming partners are not personally liable for obligations incurred prior to admission, but may lose capital contributions. Outgoing partners remain liable until release, novation, or payment.
Promoter Liability
A promoter who signs pre-incorporation contracts remains personally liable until 1) novation or 2) explicit contractual provisions.
The corporation is not liable until it adopts the contract expressly or impliedly via 1) knowing material terms and 2) accepting the benefits of contract.
Shareholder Liability
Generally, corporate actors are not personally liable for obligations of the corporation.
BUT court will pierce the corporate veil when: 1) corporation is acting as the alter ego of the shareholders; 2) shareholders failed to follow corporate formalities, 3) corporation was inadequately capitalized at inception, OR 4) to prevent fraud.
Business Judgment Rule
Subjective and objective test: 1) good faith, 2) reasonable belief that action is in best interest of corporation, AND 3) care that a person in like position would reasonably believe appropriate.
Directors’ Duty of Care
Directors must be reasonably informed on decisions they make. Directors may rely on the reasonable advice of qualified advisors. Breaches result in personal liability.
Duty of Loyalty
Director or officer must act in best interests of corporation without personal conflict. Directors are forbidden from: 1) entering into conflicting interest transactions, 2) usurping a corporate opportunity, OR 3) trading on inside information.
Conflicting Interest Transaction
Conflicting Interest Transaction: director or family member 1) is a party to action, 2) has beneficial interest impairing judgment, OR 3) is involved with another entity conducting business with corporation.
Self-interest breaches duty of loyalty UNLESS approved by a majority of disinterested directors OR shareholders. If not, director must prove the transaction as a whole was fair.
Corporate Opportunity Doctrine
1) corporation has interest/expectancy, or 2) is within the corporation’s line of business. Must be presented to board first to avoid violation of duty of loyalty.
(No defense if corporation could not have taken it.)
