Business law 1 part three Flashcards
(13 cards)
What is the concept of authority in agency relationships?
Agents represent corporations in contracts and transactions. Rules needed to prevent deception of third parties. Stricter rules for limited liability.
Authority ensures that agents act on behalf of principals to protect third parties from deception.
Define agency.
Fiduciary relationship between principal and agent. Agent acts on behalf of the principal, subject to control. Duty of loyalty and support between principal and agent.
Agency involves trust and responsibility between the parties.
What are the elements of agency?
- Agent: Hired person acting for the principal.
- Principal: Person for whom the agent acts.
- Consent required from both parties.
- Principal liable for agent’s acts due to control.
Consent is crucial for the establishment of an agency relationship.
How does agency function in a corporation?
Various agent-principal relationships. Problems of coordination arise, principal must control agent and this leads to costs. Law is a solution to reduce agency costs.
Agency relationships in corporations can create complexities that necessitate legal frameworks.
What does an agent do in an agency relationship?
Agent acts with third parties, makes decisions, performs work. Principal hires, pays, delegates authority, rewards work.
The agent’s role is central to the functioning of the agency relationship.
What is the duty of loyalty?
Fiduciary duty to act in the principal’s best interest. Appropriate behavior and obedience to instructions. Prohibited from receiving outside benefits without approval. Must keep confidential information, avoid competition with principal, avoid conflicts of interest.
The duty of loyalty is critical in maintaining trust in the agency relationship.
What are the remedies for breach of duties by an agent?
- Principal can recover damages.
- Receive agent’s profits from wrongdoing.
- Rescission of transaction if third party knows of wrongdoing.
Remedies help enforce accountability in agency relationships.
Under what conditions is an agent liable?
Depends on third party’s knowledge of the principal. Fully disclosed principal: Agent not liable. Unidentified principal: Agent or principal may be liable.
The level of disclosure affects liability in agency relationships.
What are the principal’s duties in an agency relationship?
- Duty to pay agent for work done.
- Duty to reimburse reasonable expenses.
- Duty to cooperate with the agent.
The principal’s duties ensure the proper functioning of the agency relationship.
What determines the principal’s liability?
Principal liable for contracts entered by authorized agents. Express, implied, or apparent authorization determines liability.
Authorization type is crucial in establishing liability.
How can an agency relationship be terminated?
- Either party can terminate at any time.
- Term agreement, achieving a purpose, mutual agreement, or wrongful termination.
- Agency at will if no agreement.
- Termination due to inability to perform or illegal activity.
Termination processes can vary based on the specific circumstances and agreements.
What are agency costs in corporations?
Agency relations in a corporation involve shareholders, directors, and various stakeholders. Stakeholders include consumers, employees, suppliers, etc. Agency costs arise from coordinating agents in delegation and control.
Understanding agency costs is essential for managing corporate governance.
What are some remedies for agency issues in corporations?
- Agent constraints can be set ex ante (rules) or ex post (standards like good faith).
- Affiliation terms can be established before (entry) or after (exit) agency relationships.
- Incentive alignment involves trusteeship and removing conflicts of interest (ex ante) or providing rewards like stock options (ex post).
- Appointment rights include selection (ex ante) and removal (ex post) of agents.
- Decision rights involve initiation (ex ante) and veto power (ex post).
- Other remedies include mandatory disclosure of conflicts, public and private enforcement, and reputational consequences.
These remedies aim to align interests and reduce agency costs.
