Business Organizations - Quiz 2

Question 1

T/F: A principal is liable only for the acts of its agent.

Answer 1

True

Question 2

Elements of Actual Authority

Answer 2

(1) Agent’s reasonable belief; (2) at the time of the action; (3) that they are doing what the principal wants; (4) based on the principal’s manifestations to the agent

Question 3

Elements of Apparent Authority

Answer 3

(1) Third party’s reasonable belief; (2) that an actor is an agent acting on behalf of the principal; (3) based on the principal’s manifestations

Question 4

Elements of Agency

Answer 4

Principals assent to control the agent + agents assent to act on the principal’s behalf = Agency Relationship

Question 5

What two circumstances does apparent authority arise in?

Answer 5

1. One person appears to be an agent of another, even though no agency relationship exists.
2. An actual agent exceeds the scope of his or her authority

Question 6

What is ratification?

Answer 6

When an agent or other person who does not have authority but purports to ct on behalf of a principal and the principal later affirms the act.

Question 7

Elements of Estoppel

Answer 7

If a person is not the principal of someone who purports to be an agent, but (1) the person intentionally or carelessly causes a third party to justifiably believe the person is the principal, or (2) knowing that a third party has such a belief, does not take the reasonable steps to notify the third party that its belief is wrong, and (3) the third party detrimentally relies on its belief, then the person is estopped to deny the agency and is liable to the third party.

Question 8

What liability do principal’s have for agent-made contracts?

Answer 8

ONLY liable for acts of its authorized agent:
1. Contracts made by their authorized agent.
2. Any acts they authorize the agent to take (like performing the act themselves)

Question 9

What liability do employees have for agent-made contracts?

Answer 9

An employer is liable for unauthorized acts of its employees committed in the scope of their employment

Question 10

What liability do third parties have for agent-made contracts?

Answer 10

Are liable to principals on contracts made by the principal’s authorized agents

Question 11

What liability do agents have for agent-made contracts?

Answer 11

Are liable on contracts in addition to the principal if they do not disclose the principal.
- Whether or not the principal is disclosed depends on whether, at the time of the underlying transaction, the other party to the contract had notice that the agent was acting for a principal and knew of the principal’s identity.

Question 12

What is Warranty of Authority?

Answer 12

A person who purports to enter into a contract on behalf of the principal warrants the person’s authority to do so (can be disclaimed by express or implied contract).
If a purported principal is not bound by the contract and does not ratify it, the agent is liable to the third party for damages.

Question 13

Elements of Breach of Fiduciary Duty

Answer 13

(1) Existence of a fiduciary duty; (2) breach of the duty; (3) breach proximately caused the damages

Question 14

What are an agent’s fiduciary duties?

Answer 14

They are obligated to exercise the utmost good faith, loyalty, and honesty toward his principal or employer

Question 15

What does an agent’s duty of loyalty require?

Answer 15

Requires the agent to act solely for the benefit of the principal in matters connected with the agency

Question 16

What does an employee’s fiduciary duties require?

Answer 16

Duty of loyalty: duty to not compete, not disclose confidential information, refrain from acquiring material that benefits from third parties in connection with transactions undertaken on the employer’s behalf.

Question 17

What are Managerial Capacities?

Answer 17

a third party can reasonably believe that a person acting in one of these capacities has the default rule until the third party has some reason to believe the person does not.

Question 18

What are directors managerial capacities (default rules)?

Answer 18

1. The corporation shall be managed by or under the direction of the board of dire tors.
2. On some issues, including charter, amendment, mergers, sale of all or substantially all assets, conversion, and dissolution, the board of directors can only act with shareholder approval.
3. The vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors.
4. The board can act by consent in writing without a meeting, but only if all members concur.

Question 19

What are officers managerial capacities (default rules)?

Answer 19

1. Corporations shall have such officers with such authority as is provided by the bylaws or by resolutions that are consistent with the bylaws.
2. The CEO’s authority extends to all transactions in the ordinary course of the corporation’s business.
3. The CEO/President is presumed authorized to make any contract and to take any other action which the board of directors could authorize or ratify, provided the contract or action is one in the ordinary course of the company’s business.

Question 20

What are partners managerial capacities (default rules)?

Answer 20

1. Partners acting as a group have the authority to manage the partnership’s business
2. Each partner is an agent of the partnership for the purpose of its business

Question 21

What is the scope of coprincipal’s agency?

Answer 21

Two or more persons may, as coprincipals, appoint an agent to act for them in the same transaction or matter.
An agent for coprincipals owes a duty to all of them.
If a coprincipal’s interests come into conflict, the agent may have to withdraw from the relationship.
An agent has a duty to not deal with the principal as or on behalf of an adverse party in the transaction connected with the agency relationship.

Question 22

What liability do parents have for their subsidiaries?

Answer 22

A parent corporation is not liable for the acts of its subsidiaries

Question 23

T/F: A parent company and a subsidiary may have the same directors.

Answer 23

True

Question 24

Under apparent agency, when will an entity structure be liable for the act of another entity strucutre?

Answer 24

When the structure or one of its entities appears to control the manner in which the other entity performs its role

Question 25

When is an employer liable for torts committed by an employee?

Answer 25

An employer will be vicariously liable for torts committed by an employee acting within the scope of their employment.

Question 26

When will a principal be liable for the acts of an independent contractor?

Answer 26

A principal is NOT liable UNELSS: (1) the activity was abnormally dangerous, (2) the principal was negligent, or (3) there is apparent agency.

Question 27

T/F: Franchises are not considered independent contractors of the franchisor

Answer 27

False. They ARE considered independent contractors.

Question 28

When are franchisors liable for franchisee’s acts (actual/apparent authority)?

Answer 28

Actual Authority: franchisors are liable for their franchisees’ unauthorized wrongdoing on an actual agency theory only if the franchisors control, or retain the right to control, the franchisees’ operations.
Apparent Authority: franchisors are liable for their franchisees’ unauthorized wrongdoing if the franchisors appear to control their franchisees’ operations.

Question 29

Elements of Franchisor Apparent Agency

Answer 29

(1) A representation by the purported principal; (2) a reliance on that representation by a third party; and (3) a change in position by the third party in reliance on the representation.

Question 30

T/F: Each sovereign government has the authority to regulate persons, real or artificial, within its borders.

Answer 30

True.

Question 31

What is the internal affairs doctrine?

Answer 31

The law of the jurisdiction of formation of a corporation governs the internal affairs of the corporation.