Liability Flashcards
What is agency?
the fiduciary relationship that arises when one person (principle) manifests assent to another (the agent) that they shall:
* act on the principle’s behalf & subject to the principal’s control; AND
* the agent manifest assent or otherwise consents to the act.
What is control for agency?
The ability to instruct the agent is control.
How are agency relationships terminated?
Either party can end the relationship at any time or for any reason by communicating to the other that the relationship is over.
effective on notice & possible even if K to the contrary.
What are the parincipal’s obligations
- a duty to reimburse or indemnify the agent for any promised payment
- Duty to reimburse for any payments made within the scope of actual authority
- Principal must deal w/ agents fairly & ingood faith
- Must co-operate w/ agent and not unreasonably interfere w/ agents duties.
Agent’s obligations (important for class)
Agents are fiduciaries with respect to matters within the scope of the agency relationship
What is actual authority?
Authority that the agent reasonably believes thay have, based on the principal’s manifestations expressed through words or conduct.
What is apparent authority?
When a 3rd party reasonably believes that the actor has authority to act on the Principal’s behalf, and that belief is based on the principal’s manifestations.
What is undisclosed principal authoerity
3rd party is interacting with an agent but believes they are interacting with a principal. Principal may be held liable for actions outside the scope of actual authority in certain cases.
What determins whether an agent can be held liable?
whether they entered into a contractual obligation with a 3rd party on behalf of a disclosed, unidentified, or undisclosed principal
When is a principal liable in a situation of undisclosed principal authority?
3rd party justifiably induced to make detrimental change by an agent acting on the principal’s behalf and without actual authority if the principal
* had notice of conduct and that it might induce a change in position
* did not take reasonable steps to notify them of the facts.
What is ratification
Affirming an party’s prior acts, making it as if they were done with actual authority. Done by:
1. Manifesting assent to the act; OR
2. by conduct that justifies a reasonable assumption that the person consents.
Disclosed principal
When princpal is diclosed only they and the 3rd party are a part of the K
Unidentifed principal
When an agent with actual or apparent authority makes a contract on behalf of an unidentified principal, all three are parties to the contract
When is a principa unidentifed?
When the 3rd party has notice that the agent is working on behalf of a principal but doesn’t know who they are.
Undisclosed parincipal
All three are a party to the K as long as the agent has actual or apparent authority.
When is a principal liable for an agent’s tort actions?
○ The agent acts with actual authority to commit a tort
○ When the principal ratifies the agent’s conduct
○ Direct or strict liability when activity is inherently dangerous
When is someone an employee? (Vicarious liability)
when principal controls or has a right to control how the employee does their job
What determins whether an agency relationship exists for franchisors
Has the franchisor exercised sufficient control over the franchisee
When can an agency relationship be terminated?
Any time, by either party, for any reason.
What is the duty of care?
The duty to act w/ care an ordinarily prudent person would reasonably be expected to exercise in a like position & under like circumstances
What is the Business judgment rule?
The BJR creates a rebuttable presumption that the directors acted on an informed basis, in good faith, & in the honest belief that the action was in the best interests of the corporation.
How may a director or officer eliminate or reduce their liability for breaching the duty of care?
An exculpation clause, which will dismiss these complaints for a failure to state a claim
What are the DCGL exculpation carve-outs
1) a breach of the duty of loyalty
2)an act or omission not in good faith or against the law
3) any transaction in which a director or officer gained an improper personal benefit
What is the duty of loyalty?
a duty of D&Os to act in a manner they reasonably believe to be in the best interests of the corporation
What are the two types of duty of loyalty cases?
Interested transactions and corporate opportunity cases.
When will an interested transaction not automatically be void/voidable?
§ there has been informed, disinterested board approval; or
§ Informed disinterested shareholder approval; or
§ the transaction is fair to the corporation
How do courts analyze common law breaches of fiduciary duties?
Through a fairness review, a judicial inquiry looks into procedural and substantiation fairness.
Procedural fairness inquiry
focuses on the internal corporate process followed in obtaining approval by directors or shareholders. Is the cooperation adequately informed? has there been a deep analysis of the transaction?
Substantiative fairness inquiry
a comparison of the fair market value of the transaction to the price the corporation actually paid or was paid
What is corporate opportunity?
Forbids a director, officer, or managerial employee from diverting any opportunity that belongs to the business over to themselves (singer case)
Are loans taken out by the corporation included when calculating capitalization for piercing the veil?
Yes
