Liability

Question 1

What is agency?

Answer 1

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.

Question 2

What is control for agency?

Answer 2

The ability to instruct the agent is control.

Question 3

How are agency relationships terminated?

Answer 3

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.

Question 4

What are the parincipal’s obligations

Answer 4

• 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.

Question 5

Agent’s obligations (important for class)

Answer 5

Agents are fiduciaries with respect to matters within the scope of the agency relationship

Question 6

What is actual authority?

Answer 6

Authority that the agent reasonably believes thay have, based on the principal’s manifestations expressed through words or conduct.

Question 7

What is apparent authority?

Answer 7

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.

Question 8

What is undisclosed principal authoerity

Answer 8

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.

Question 9

What determins whether an agent can be held liable?

Answer 9

whether they entered into a contractual obligation with a 3rd party on behalf of a disclosed, unidentified, or undisclosed principal

Question 10

When is a principal liable in a situation of undisclosed principal authority?

Answer 10

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.

Question 11

What is ratification

Answer 11

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.

Question 12

Disclosed principal

Answer 12

When princpal is diclosed only they and the 3rd party are a part of the K

Question 13

Unidentifed principal

Answer 13

When an agent with actual or apparent authority makes a contract on behalf of an unidentified principal, all three are parties to the contract

Question 14

When is a principa unidentifed?

Answer 14

When the 3rd party has notice that the agent is working on behalf of a principal but doesn’t know who they are.

Question 15

Undisclosed parincipal

Answer 15

All three are a party to the K as long as the agent has actual or apparent authority.

Question 16

When is a principal liable for an agent’s tort actions?

Answer 16

○ 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

Question 17

When is someone an employee? (Vicarious liability)

Answer 17

when principal controls or has a right to control how the employee does their job

Question 18

What determins whether an agency relationship exists for franchisors

Answer 18

Has the franchisor exercised sufficient control over the franchisee

Question 19

When can an agency relationship be terminated?

Answer 19

Any time, by either party, for any reason.

Question 20

What is the duty of care?

Answer 20

The duty to act w/ care an ordinarily prudent person would reasonably be expected to exercise in a like position & under like circumstances

Question 21

What is the Business judgment rule?

Answer 21

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.

Question 22

How may a director or officer eliminate or reduce their liability for breaching the duty of care?

Answer 22

An exculpation clause, which will dismiss these complaints for a failure to state a claim

Question 23

What are the DCGL exculpation carve-outs

Answer 23

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

Question 24

What is the duty of loyalty?

Answer 24

a duty of D&Os to act in a manner they reasonably believe to be in the best interests of the corporation

Question 25

What are the two types of duty of loyalty cases?

Answer 25

Interested transactions and corporate opportunity cases.

Question 26

When will an interested transaction not automatically be void/voidable?

Answer 26

§ there has been informed, disinterested board approval; or
§ Informed disinterested shareholder approval; or
§ the transaction is fair to the corporation

Question 27

How do courts analyze common law breaches of fiduciary duties?

Answer 27

Through a fairness review, a judicial inquiry looks into procedural and substantiation fairness.

Question 28

Procedural fairness inquiry

Answer 28

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?

Question 29

Substantiative fairness inquiry

Answer 29

a comparison of the fair market value of the transaction to the price the corporation actually paid or was paid

Question 30

What is corporate opportunity?

Answer 30

Forbids a director, officer, or managerial employee from diverting any opportunity that belongs to the business over to themselves (singer case)

Question 31

Are loans taken out by the corporation included when calculating capitalization for piercing the veil?

Answer 31

Yes