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Agency Rule Blocks

Agency Relationship
An agent is one who acts on behalf of the principal and the principal is the one for whom action is to be
taken. You have a principal-agent relationship when there is: (1assent! meaning an informal agreement
between the A and the "# ($ a benefit! meaning A%s conduct must be for "%s benefit and# (& control!
meaning " must have the right to control the A by having the power to supervise the manner of the A%s
Agent 'uties
An A has a fiduciary duty to act loyally for the "%s benefit in all matters connected with the agency
An agent also has a duty of loyalty
meaning A must put "%s interest ahead of own should there be a conflict.
An agent working for more than one " must
act in good faith with each " and disclose to each " that A acts for the other " and all other facts that
the A knows! has reason to know! or should know would reasonably affect the "%s (udgment.
A has a duty not to compete! not to ac)uire material benefit arising out of agency
and a duty of reasonable care.
*onduct that otherwise would constitute a breach of the duty of loyalty does not constitute a breach if
the " consents to the conduct and A has acted in good faith and disclosed all material facts.
A has a duty not to deal w+ the " as or on behalf of an adverse party! a duty to refrain from competing
w+ the " and a duty not to use or disclose confidential information.

"rincipal 'uties
" has a duty to compensate meaning " has at least an implied duty to pay for the A%s work. ,he duty to
compensate may also be established by agreement. -f no compensation is established by oral or written
agreement! a reasonable fee will be set.
" has a duty to indemnify meaning " is legally financially responsible for e.penses and liability the A
reasonably incurs on behalf of the ".
" has a duty to cooperate meaning " must not interfere with A but cooperate as necessary.
A can bind " in contract with actual authority which is when A reasonably believes! in accordance with
the "%s manifestations to the A! that the " wishes the agent to act. ,his authority can be e.press or
implied. -t is e.press when " e.pressly gives A the power to act on "%s behalf. -t can be implied by the
nature of what A is to do and is reasonably necessary to carry out the "%s e.press directions.

Apparent authority is created by "%s manifestations to &rd parties even when " may not have given A
any authority at all! and may have forbidden A to act. /or there to be apparent authority! manifestations
must of A: be attributable to the manifestations of the "
! get to the &rd party and# lead &rd party to reasonably conclude that A is an A for ".

0ingering Apparent Authority is where " terminates the authority of A! but does not inform &" of this
termination. " avoids liability by (1 "ublic notice and ($ 1otifying &rd "arty.
-nherent authority is the e.isting+built in authority that is part of whatever
position+laws+etc. it may apply to.
Apparent Agency or Agency by 2stoppel is when A acts on "%s behalf! but " never told A to act. "
knew that A was acting on his behalf and could%ve stopped A! but failed to do so. A then does
something w+ &rd party! while acting on "%s behalf. As a result! " is liable.
Agent 3 *ontract
-f " is disclosed! there is no agent liability# -f " is partially disclosed! the agent is liable. -f " is
undisclosed! the agent is liable.
Agent 3 ,ort
An agent is always liable for their own intentional torts or criminal conduct because it is outside the
scope of agency but a principal may also be liable if: specifically authori4ed! natural from the nature of
employment! motivated by a desire to serve the " ! or where the agency creates the opportunity for the
" can be liable for unitentional torts of A%s acts through direct liability! where the " intended the
conduct or the conse)uences.
" can be liable for unintentional torts of A%s acts through negligence! where 5aster was negligent or
reckless (knew or should have known but failed to stop the harmful conduct.
" can be liable for unintentional torts of A%s acts through vicarious liability. ,here is vicarious liability:
where an A acts on behalf of a principal that authori4ed it to act# the A is acting w+in the scope of the
agency# and the A is motivated by a desire to aid the ". -t may also be established where A is aided by
the agency relationship or when the servant purports to act or to speak on behalf of the " and there is
reliance upon apparent authority.
" can be liable for unintentional torts through respondeat superior if the A is within the scope of their
employment. 2mployers are not liable for the intentional torts of their employees unless they are
committed with the intent to serve the employer! but are not liable for intentional torts committed
during frolics.
-ndependent *ontractors 3 ,ort
An independent contractor is a person who contracts with another to do something for him but who is
not controlled by the other nor sub(ect to the other%s right to control with respect to his physical
conduct in the performance of the undertaking. 6e may or may not be an agent.
A 5aster is not liable for the torts of an independent contractor because the control and supervision
found in an employer-employee or "-A relationship is lacking. 6owever! if the -* is not an agent!
vicarious liability will be imposed in & circumstances: where the contractor in(ures an invitee to the real
property of the 2mployer! where the contractor is involved in an ultra-ha4ardous activity+non-
delegable! and where the employer is estopped from denying liability b+c he has held out the
independent contractor as if he were simply an employee or agent.
7hen a master retains sufficient control over the daily operations of a servant! apparent agency e.ists.
Apparent agency is one who represents that another is his servant+other agent and thereby causes a third
party to (ustifiably rely upon the care or skill of such apparent agent and is sub(ect to liability to the
third person for harm caused be lack of care or skill of the one appearing to be the servant.
Rights and duties of partners determined primarily by partnership agreement. ,he 8"A serves as a gap-
filler where the agreement is silent.
5embers of a partnership owe a duty of loyalty to each other and so must disclose opportunities that
arise in order for both to have an e)ual chance to take advantage of it.! refrain from dealing as+on
behalf of a an adverse party to the partnership# and refrain from competing w+ partnership.
5embers of a partnership owe a duty of care and so a partner cannot act toward a partnership+other
partners with grossly negligent+reckless conduct! intentional misconduct! or a knowing violation of law.
5embers of a partnership owe a duty of good faith and fair dealing.
'uties can be changed if they are reasonable.
2ach " is A for the partnership and every act of the " carrying with actual+apparent authority binds the
partnership to 9%s for carrying on in the usual way of business of the partnership.
"artner acting for the partnership committing a tort results in all partners being (ointly and severally
A promoter is someone who purports to act as an agent of the business prior to its incorporation.
A promoter will not be liable: if the 9 provides that performance is to be the obligation of the
corporation# the corporation is ultimately formed# and the corporation ratifies the 9! either e.press or
implied! and enters into a novation with the &rd party.
"iercing the *orporate :eil
;enerally! shareholders are not held personally liable under a corporation. 6owever! by piercing the
<veil<! one can attack a shareholder personally. ,o do so! you can attack based on & theories.
/irst! attacking under the instrumentality theory you have to show that the shareholder used the
corporation to commit fraud or some other illegal act. =asically! the <veil< will not protect a
shareholder from liability if they use the corporation to commit an illegal act.
>econd! under the alter-ego theory! a court will pierce the <veil< and let you attack a shareholder
personally if the shareholders treat the corporation as their own! and the corporation as a separate entity
does not apply. ,he corporation has to be its own separate entity and if you do not treat it as such! you
cannot be shielded from liability. An alter-ego may be implied where there are commingling
corporation funds with their own.
/inally! you can attack a shareholder under the undercapitali4ation theory. ,his theory is where the
corp. takes an action that it did not have sufficient funds to support.
A duty of care re)uires that each member of the board when discharging the duties of a director! shall
act in good faith and in a manner the director reasonably believes to be in the best interests of the
corporation. ,he burden of proof is on the plaintiff to rebut the =?R.
A duty of loyalty re)uires the directors to be disinterested and independent in their actions and that they
place the corporations best interest above any personal interest.
A director may not take a business opportunity for his own if: the corporation is financially able to
e.ploit the opportunity# the opportunity is w+in the corp.%s line of business or prospective business# the
corporation has an interest or e.pectancy in the opportunity# the director was given the opportunity in
his capacity as a director.
'erivative @ 'irect 0awsuits
A derivative suit is brought by shareholder on corp.%s behalf and arises from in(ury done directly to the
corporation as an entity.
A direct suit is brought by shareholder! in his name! arising from individual harm.
2nd ;ame 'uties
6ostile ,akeover 'efenses
A hostile takeover is gaining control over a corporaton over the ob(ection of that corp.%s board of
directors by making an offer that likely will result in changing control that the board of directors does
not want to happen. A corporation makes a public offer of cash! usually conditional! to target
stockholders who then tender their stock. ,his is called a tender offer! -.e. A- will pay you this amount if
- get . amount of shares by this date.B ,he endgame is to ac)uire enough shares to control the company
against that target%s wishes.
,he corporation being ac)uired (target may take active measures to prevent the takeover which are
called defensive measures.