Agency

Question 1

What is a promoter?

Answer 1

A person acting on behalf of an unformed corporation.

Question 2

What is a formed corporations liability for K’s executed by a promoter?

Answer 2

Corporation can be liable under two conditions: 1) EXPRESS ADOPTION - the corporation adopts the K through a Board of Directors resolution, or 2) IMPLIED ADOPTION - corporation has knowledge of and accepts the benefits of the K.

Question 3

What liability does a promoter have?

Answer 3

They are solely liable if a corporation never forms.

Question 4

What duty does a Promoter have?

Answer 4

A promoter is a fiduciary, no secret profits allowed. If Property is acquired before formation and sold to corporation - profit is recoverable if sold for more than fair market value.

If property is acquired after and sold to corporation - any profit is recoverable.

Question 5

What are subscribers?

Answer 5

People with a written agreement to by stock from unformed corporation.

Question 6

What are the limitations on subscribers?

Answer 6

The subscription agreement is irrevocable for 6 months (can’t back out prior to 6 months).

Question 7

An agency relationship is created by

Answer 7

Assent
Benefit
Control

Question 8

Do you need a writing or consideration to form an agency relationship?

Answer 8

No.

Question 9

Who does not have the capacity to be a principal?

Answer 9

A minor or a non legal entity.

Question 10

In a partnership, who is often the principal?

Answer 10

The partnership itself is the principal

Question 11

What are the characteristics of an independent contractor?

Answer 11

i) Bears the risk and benefits from good management;
ii) Maintains a high level of independence;
iii) Is free to work for others;
iv) Agrees to be paid a fixed fee;
v) Receives payment based on results;
vi) Is liable for work performed; and
vii) Accepts responsibility to remedy defects at her own expense.

Question 12

What is a gratuitous agent?

Answer 12

A gratuitous agent is an agent who does not receive compensation.

This does not prevent the creation of an agency relationship, but it generally does prevent the formation of an enforceable contract between an agent and a principal due to the lack of consideration.

Question 13

Is a trustee an agent?

Answer 13

Yes.

A trustee is an agent and is subject to the control of the settlor of the trust or one or more of its beneficiaries. A trustee maintains a fiduciary relationship with and holds property for the benefit of the settlor. Restatement (Third) of Agency § 1.04(10) (2006).

Question 14

What is a subagent?

Answer 14

A subagent is a person appointed by the agent to perform functions assigned to the agent by the principal.

Example: Employees of an advertising firm working on the account of a customer of the firm are presumed to be subagents of the firm.

Question 15

Who does a subagent owe a duty to?

Answer 15

A subagent owes a duty of loyalty to both the principal and the appointing agent.

Question 16

What can happen if a subagent makes a mistake?

Answer 16

The agent is responsible to the principal for the subagent’s conduct. Thus, the agent may be liable for a loss incurred by the principal as a consequence of the subagent’s misconduct.

Question 17

Who can terminate an agency agreement?

Answer 17

Note that termination of an agency relationship may be unilateral. The principal or agent may terminate the agency without the other’s consent.

Question 18

What is the Equal Dignities Rule?

Answer 18

the authorization must be of equal dignity to the underlying transaction. The equal-dignities rule operates to protect the principal against third-party actions.

Therefore, a principal can raise the lack of written authorization as a defense.

It does not apply in a contract action brought by a principal against a third party or in an action brought by an agent against the principal. Restatement (Third) of Agency § 3.02, cmt. b (2006).

Question 19

What is actual authority?

Answer 19

1. Actual Authority

Actual authority may be either express or implied.

a. Express actual authority

Express actual authority can be created via:

i) Oral or written words;
ii) Clear, direct, and definite language; or
iii) Specific detailed terms and instructions.

Question 20

What are the two requirements for actual authority to exist?

Answer 20

For express (actual) authority to exist, the principal’s manifestation must cause the agent to believe that the agent is doing what the principal wants (subjective standard), and the agent’s belief must be reasonable (objective standard).

Question 21

What is implied actual authority?

Answer 21

Implied actual authority allows an agent to take whatever actions (designated or implied in the principal’s manifestations) are properly necessary to achieve the principal’s objectives, based on the agent’s reasonable understanding of the manifestations and objectives of the principal. Restatement (Third) of Agency §2.01, cmt. b (2006).

Example: The authority to interview is implied in the agent’s authority to hire.

Question 22

For express (actual) authority to exist, what two things must exist?

Answer 22

1. ) The principals manifestation must cause the agent to believe that the agent is doing what the principal wants (subjective standard)
2. ) and the agents belief must be reasonable (objective standard)

Question 23

Is a principals unexpressed subjective intent regarding an agents authority effective?

Answer 23

No

Question 24

Must the principals manifestation reach the agent to create actual authority?

Answer 24

Yes, such as through another agent of the principal.

Question 25

Does the awareness of the agents authority by a third party determine the nature or extent of the authority?

Answer 25

No

Question 26

Can agents delegate either express or implied actual authority to a third person?

Answer 26

Only with the principals express authority.

Question 27

What does apparent authority focus on?

Hint: which actor

Answer 27

Apparent authority focuses on the reasonable belief of the third party.

Question 28

What are the factors for the reasonable belief of a third party?

Answer 28

i) Past dealings between the principal and the agent of which the third party is aware;
ii) Trade customs regarding how a similar transaction is normally accomplished;
iii) Relevant industry standards;
iv) The principal’s written statements of authority;
v) Transactions that do not benefit the principal; or
vi) Extraordinary or novel transactions for the principal or similar types of principals.

Question 29

How may an agents actual authority be terminated?

Answer 29

i) The principal’s revocation;
ii) The principal’s agreement with the agent;
iii) A change of circumstances;
iv) The passage of time;
v) The principal’s death or suspension of powers;
vi) The agent’s death or suspension of powers;
vii) The principal’s loss of capacity; or
viii) A statutorily mandated termination.

Question 30

In Agency law, how do we deal with a Secret Limiting Instruction?

Answer 30

Agent has actual authority, but the principal secretly limited authority, and agent goes beyond the scope - the principal is still liable.

Question 31

What are the duties of an agent to a principal?

Answer 31

Reasonable care; obey reasonable instructions; loyalty - no self dealing.

Question 32

What is required for the formation of a general partnership?

Answer 32

It can arise from conduct, no formalities required.

Sharing profit creates the presumption of a general partnership, except for lending agents, wages, and commissions.

Question 33

A promoter is personally liable, but what are the two exceptions?

Answer 33

1. ) Novation - the corporation and the 3rd party contract agree to substitute the corporation for the promoter.
2. ) Adoption - the corporation takes the benefit of the contract.

Question 34

What is the “Ultra Vires Act”?

Answer 34

Occurs when a corporation has a narrow purpose and acts outside the scope of that purpose.

A shareholder can file suit to enjoin the action or take action against the officer, director, or employee who engaged in the act.

Question 35

What is a De Jure Corporation?

Answer 35

Exists when the statutory requirements for incorporation are met

Question 36

What is a De Facto Corporation?

Answer 36

Attempted to incorporate and ran business believing it was incorporated.

Question 37

What is a Corporation by Estoppel?

Answer 37

a third party entered into a contract with the corporation as though it was properly incorporated; the third party is estopped from asserting that the corporation was not formed appropriately

Question 38

L and M improperly file articles of incorporation, and in good faith thought that had formed “Data, Inc.” They got a loan from the bank, who looked at their books before issuing the loan. Then Data, Inc. defaults. Can the bank claim that data inc. was not a corporation and go after L and M?

Answer 38

No, because they dealt with Data, Inc. as if they were a corporation, and had the opportunity to discover they were not, but didn’t.

Question 39

An agent requires ______ capacity.

Answer 39

Minimal.

Question 40

A principal requires ______ capacity.

Answer 40

Contractual.

Question 41

A principal is liable to third parties for contracts of the agent if there is (types of authority)

Answer 41

Authority, either: 1) actual (express or implied), 2) apparent, or 3) ratification.

Question 42

A principal is liable for an agent’s torts if?

Answer 42

Within the scope of agency and employer/employee relationship

Question 43

An agent can be liable as a party to a contract if:

Answer 43

The identity of the principal is not disclosed.

Question 44

A principal has what duties?

Answer 44

Duty not to interfere and duty to indemnify agent for losses in scope of agency.

Question 45

Conduct within the scope of employment is…

Answer 45

Acts that the employee is employed to perform - OR - that were intended to profit or benefit the employer.

Careful instructions directed to the employee do not insulate the employer from liability—even when the employee acts counter to the instructions—if the employee is acting within the scope of employment.

Question 46

How does a principal ratify an agent’s action?

Answer 46

(i) the principal must ratify the entire contract;
(ii) the principal and the third party must have legal capacity to enter into the contract;
(iii) the ratification must occur before the third party withdraws from the contract;
and (iv) the principal must know the material facts of the transaction.

Question 47

An agent has what duties?

Answer 47

Duty of care and loyalty.