Terms, Rules, & Concepts Flashcards
3 requirements for a principlal-agent relationship
- Principal indicates that the agent should act on the principal’s behalf
- The agent is subject to P’s control
- Agent manifests consent to act for P
See 3rd Restatement
Who are the three parties in a principal-agent relationship
- Principal (P)
- Agent (A)
- Third Party (T)
What questions do you ask to determine if P is bound by A’s actions
- is there a principal/agent relationship?
- Did A have authority?
- Were A’s actions within the scope of A’s authority?
What is express authority?
P describes what P wants A to do (either verbally or in writing)
Express actual authority: actually described
Implied actual authority: would have described, but P doesn’t have to describe every detail.
What is apparent authority?
appears to a third party that the agent has the authority to bind the principal and belief is traceable to the principal’s manifestations
5 types of authority
- Actual authority
- Apparent authority
- Liability of undisclosed Principal
- Ratification
- Estoppel
Define ratification
Affirming an agent’s prior act done without authority
Difference between estoppel and apparent authority
Estoppel requres a detrimental reliance.
apparent authority does not require detrimental reliance
when is an employee acting within the scope of their employment?
When the employee is performing work
or
Engaging in course of conduct subject to the employer’s control
§7.07
When is an employee NOT acting within the scope of their employment?
when the employee acts within an independent course of conduct not intended by the employer
Birkner criteria for “Within the scope of an agent’s employment”
- Employee must be about the employer’s business and duties assigned by the employer
- Employees conduct must occur substantially within the hours and boundaries of employment
- Employees conduct must be motivated at least in part by the purpose of serving employers interest
When is a principal liable for the tortious actions of an Independent contractor?
Generally, P is not liable for actions of IC UNLESS: 1. P exercises control 2. Inherently dangerous activity 3. Non-delegable duty 4. Negligent hiring
Define Frolic
When an employee leaves employment to do something for personal reasons.
Define detour
when an employee is still engaged in employment but only slightly strays from the direct assignment
Elements of Estoppel (agency)
1) P’s acts or omissions are intentional/negligent and create appearance of authority
2) 3rd party reasonably and in good faith:
- Acts in reliance on appearance of authority and
- Changes position in reliance on A’s appearance of authority
When can a principal be liable for an employee’s tortious conduct?
Respondeat superior
principal is typically liable if tort is done within the scope of employment
When can a principal be liable for a non-employee agent’s tortious conduct?
Principal is typically not liable unless:
1) control
2) inherently dangerous
3) non-delegable duty
4) Negligent hiring
Elements of Apparent Agency (w/ franchises)
1) Franchisor/P acted in a way to lead a reasonable person to believe franchisee and/or employees were franchisor’s e’ees/agents;
2) Plaintiff believed franchisee operator and/or employees were franchisor’s agents or servants;
3) Plaintiff detrimentally relied upon skill & care of allegedly negligent franchisee and/or e’ees
Define partnership
“an association of two or more persons to carry on as co-owners of a business for profit.”
What are some characteristics of a partnership?
Profit sharing Contribution Participation in management Risk of loss Absence of alternative classification
What are some features of a partnership?
Liabilities control Returns Tax treatment Fiduciary duties Distinct Entity
What is a joint venture?
a business endeavor undertaken by two or more parties.
What is a partnership by estoppel
Elements:
1) Manifestation by non-partner creating impression that she is a partner
2) 3rd party reasonably believes non-partner is a partner
3) 3rd party detrimentally relies on non-partner’s manifestations.
Give examples of an inherently dangerous activity?
Wrecking ball to demo a property.
Majestic Realty Assocs., Inc v. Toti Contracting Co
What are the three stages of an ending partnership?
Dissolution, winding up, and termination.
What is it called when a partner leaves the partnership?
Dissociation
what is “going concern” value?
the value of the partnership as an operating entity (without the dissociated partner).
what is the liquidation value?
value if one sold all of the partnership assets.
Describe liability of an undisclosed principal in regards to agency.
1) P had notice of A’s conduct that might induce a 3rd party to make detrimental
2) 3rd party made a detrimental change in reliance on the agreement
3) P didn’t take reasonable steps to notify 3rd party
What are the default rules for partnerships on day-to-day, big, and huge decisions?
each partner can make D2D decisions.
Requires majority vote for big decisions.
requires unanimous vote for huge decisions (selling all assets).
What does the duty of care protect against?
i. Gross negligence
ii. Reckless conduct
iii. Intentional misconduct
iv. Knowing violation of the law
define the duty of loyalty
1) Partners must account to partnership for profits, property and benefits from partnership business or property (or winding up)
2) Partners can’t act as/on behalf of those with interests adverse to partnership
3) Partners can’t compete with partnership in subject matter of partnership business
Types of partnerships:
General partnership
Limited partnership
when can a limited partner be held liable for partnership’s actions?
4 approaches:
1) Control rule: Limited partner sho exercises significant control can incur liablility (like general partner)
2) ULPA: limited partners only incur personal liability for participating in management if they take other action to incur liability
3) 3rd party POV:
I) Limited partner participates in control
II) 3rd parties are aware that limited partner participates in control
III) 3rd party does business with limited partner with reasonable belief that lp is a general partner
Even if 3 part test is met, limited partner only exposed to liability respecting 3rd party limited partner did business with
4) Safe harbors
What are examples of safe harbor activities for limited partners?
1) Act as a contractor, agent, or employee of LP or gp of LP
2) Serve as officer, director, or shareholder of corporate gp of LP
3) Consult or advise gp
4) Act as LP’s surety/guarantor
5) Attend partner meeting
6) Vote
7) Wind up the partnership
When will a promoter not be bound on K?
When there is clear intent that the promoter not be bound or when promoter can’t perform (e.g. send a rocket to space)
explain express ratification in regards to corporate liability.
corporations will become liable only if they ratify (express or impled) the K made by promoters.
Promoters are released from liability only if there is a novation.
T/F: Piercing the corporate veil is available against both private and publicly traded companies?
False: You cannot Peirce the corporate veil against publicly traded companies.
Give a few examples of the corporate formalities
a. Sharholders select directors
b. Formal meetings of shareholders and board of directors (at least annual)
c. Separate bank account; don’t commingle funds, separate corp deals form personal deals
d. Adequate capitalization
e. ID business as corporation (Inc., incorporated, etc.)
Rule for piercing the corporate veil?
1) Is unity of interest and ownership such that separate personalities of corp and individual shareholders no longer exist; and
2) Would an inequitable result occur if the acts are treated as those of corp alone?
Define the duty of care
A director must:
1) act in good faith
2) act in a manner s/he reasonably believes to be in the best interest of the company.
Define business judgment rule:
Directors are not liable to the corp or shareholders for actions within the scope of their authority if the acts are made:
1) in good faith
2) with reasonable skill and prudence
3) with reasonable belief they are in the corp’s best interest
Substantive exceptions to business judgment rule:
FICBEW Fraud Illegal or wrongful conduct Conflict of interest Bad faith Egregious decision Waste
procedural exceptions to business judgment rule:
Board makes no decision
Board makes an uninformed decision
Affirmative defenses to business judgment rule:
Action was good for the corporation
Action was fair (intrinsic fairness or entire fairness standards)
No damage
Bad faith
Subjective bad faith:
1) fiduciary conduct motivated by an actual intent to do harm
2) Lack of due care or fiduciary action taken solely by reason of gross negligence but w/o bad intent
3) intentional dereliction of duty or conscious disregard for one’s responsibilities
Corporate opportunity doctrine
Fiduciary can’t take a corporate opportunity for self without first offering it to the company.
Ways to cleanse a conflict of interest:
- Following full disclosure, it is approved by a majority of the disinterested directors.
- Following full disclosure to SHs entitled to vote on it, the SHs vote in good faith to approve the transaction.
- If it is fair to the corporation as of the time it is authorized, approved or ratified by either the board, a committee, or SHs.
Line of business test (corporate opportunity)
Where is corporation now & where might it logically expand in the future considering financial constraints.
Fairness test (corp opportunity)
If fiduciary takes a corporate opportunity would it violate what is considered fair and equitable by corporate standards?
Incapacity defense (corp opportunity)
corp was unable to take advantage of an opportunity (bankrupcy, lack of finances)
Source defense (corp opportunity)
Opportunity came to director in a personal capacity, not in the corporate capacity as a director.
dominant shareholder:
individual or parent corporation that owns > 50% of the corporation.
T/F: can the actions of a dominant shareholder be cleansed by the board of directors?
No, b/c the dominant shareholder was likely the one who appointed a majority of the directors on the board.
