Corporations-Trinity Law School
Creation of Agency
(1) There must be AN AGREEMENT but a contract is not necessary. (2) The agreement may result in the relationship being called an AGENCY whether the parties intended the legal consequences of agency or not (3)agency may be proved through course and dealing between the parties (4) MANIFESTATION OF CONSENT OF THE PRINCIPAL THAT THE OTHER PARTY BE THE AGENT the principal must be shown to have consented an agreement may not exist without consent the relationship by one to the other.
Creation of Authority
(1) does the agent reasonably believe because of course of dealing of the principal that the principal wants him to act in a certain way or to have certain authority (2) the nature of the task (3) Implied authority may be necessary in order to implement the express authority--specific conduct by the principal in the past permitting the agent to exercise similar powers is crucial. . . .The person alleging agency has the burden of proving that it exists, established by circumstantial evidence including ACTS and CONDUCT of the parties--course of conduct covering successive transactions
Unocal 2 Part Enhanced Scrutiny Coggins Test because of the omnipresent specter of deceit
1. Directors must show reasonable grounds for believing that a danger to corporate policy and effectiveness exists because of another's stock ownership. 2. Element of Balance reasonable to threat posed. -inadequacy of price -nature and timing of offer -questions of illegality -impact on constituencies: creditors customers employees -risk of non-consummation -quality of securities offered, junk bonds -stockholder interests and expense to long term investors
2 questions for ratification
1. What types of acts constitute affirmation by the principal a. expressed affirmation "so stated' b. implied affirmation acceptance of the benefits at a time when it is possible to decline to accept such benefits 2. What effects should we give to that affirmation a. the principal and the third part are now bound 3. implied affirmation through silence or inaction 4. Principal files a Lawsuit to enforce the contract
Section 2.06 Liability of Undisclosed Principal
1. an undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal's behalf and without actual authority if the principal having notice of the agent's conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts 2. An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent's authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed
The Liability Principal to third parties for the acts of an agent are shown by proof disclosing
1. express or real authority granted 2. implied authority that is to do all that is proper customarily incidental and reasonably appropriate to the exercise of the authority granted 3. apparent authority where the principal by words, conduct, or other indicative manifestations has held out the person to be his agent. The General Rule of Law that the apparency and appearance of authority must be shown to have been created by the manifestations of the alleged principal and not alone and solely by proof of those of the supposed agent.
Partnership
2 or more people associate to carry on as co-owners of a business for profit and they share losses no formal written document is required
Contract
A Contract is a promise or a set of promises for the breach of which the law provides a remedy and for the performance of which the law recognizes a duty. There are elemental principles that demand there be a meeting of the minds and a communication that each party has consented to the terms of the agreement in order for a contract to exist The Quantity is expressed in the document, The Terms are expressed in the document, The Identity of the parties is expressed in the document, The Price is expressly stated in the document, The Subject matter is identified in the document
SILENT PARTNER
A partner who shares in the profits but who has no active voice in management of the firm and whose existence is often not publicly disclosed
Secret Partner
A partner whose connection with the firm is concealed from the public.
Assent
A person manifests assent or intention through written or spoken words or other conduct
OFFER
A promise to do or refrain from doing some specified thing in the future; a display of willingness to enter into a contract on specified terms, made in a way that would lead a reasonable person to understand that an acceptance, having been sought, will result in a binding contract.
CREDITOR/DEBTOR AGENCY
A security holder takes over the management of the debtor's business either in person or through an agent and directs what may or may not be done he becomes a principal liable as a principal for all the obligations incurred during the normal course of business by the debtor who has now become the general agent--the point at which a creditor becomes a principal is that at which he assumes de facto control over the conduct of his debtor.
MEETING OF THE MINDS:
Actual assent by both parties to the formation of a contract.
Hoddeson v. Koos Bros
Agency relationship may exist where a lack of supervision by a principal grants apparent authority to a person not an agent per the principal but perceived to be one by a third party
ACCEPTANCE:
An agreement, either by express act or by implication from conduct, to the terms of an offer so that a binding contract is formed.
Restatement Second of Agency section 195
An undisclosed principal who entrusts an agent with the management of his business is subject to liability to third persons with whom the agent enters into transactions usual in such business and on the principal's account although contrary to the directions of the principal
Apparent Authority
Apparent Authority is the authority the agent is held out by the principal as possessing "a matter of appearances" on which third parties come to rely
Estoppel Theory in Agency
Apparent authority possesses some elements of estoppel, although the two legal concepts are distinct. A principal's liability under apparent authority is justified because the principal's actions reasonably lead a third person to believe that an agent has authority that he does not. However, under a strict estoppel theory, the principal need not make affirmative representations to a third party if the equities at play justify holding the principal liable to an innocent third party.
IMPLIED AUTHORITY:
Authority given to the agent as a result of the principal's conduct, such as the principal's earlier acquiescence to the agent's actions.
EXPRESS AUTHORITY:
Authority given to the agent by explicit agreement, either orally or in writing.
ACTUAL AUTHORITY:
Authority that a principal intentionally confers on an agent, including the authority that the agent reasonably believes he or she has as a result of the agent's dealings with the principal.
APPARENT AUTHORITY:
Authority that a third party reasonably believes an agent has, based on the third party's dealings with the principal. Apparent authority can be created by law even when no actual authority has been conferred.
Restatement Second Section 14 comment o
Control when a party exercises control over the daily operations of the business then it is an agency relationship
Restatement of Agency § 4(2) - partially disclosed principal.
If the other party [to a transaction] has notice that the agent is or may be acting for a principal but has no notice of the principal's identity, the principal for whom the agent is acting is a partially disclosed principal.
Implied Authority is Actual Authority
Implied Authority is Actual Authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated
Restatement Second of Agency section 14 K comment a
It must be shown that the supplier has an independent business before it can be concluded that he is not an agent.
Rule 10b 5 A private right of action under Exchange Act section 10(b) and Rule 10b-5
It shall be unlawful for any person, directly or indirectly by the use of any means or instrumentality of interstate commerce or of the mails or of any facility of any national securities exchange (b) to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security registered. . . .any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors
Atlantic Salmon A/S v. Curran
Misrepresentation of corporation if the agent is contracting for an undisclosed or partially disclosed principal they must disclose the identy of the principal or they are personally liable
Ratification-is a means by which the principal can say, "my agent didn't have the right to enter into this contract, but I'm glad she did. . . .I'll affirm the transaction and agree to be bound by the contract."
Ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account. And, requires the acceptance of the results of the act with an intent to ratify, and with full knowledge of all the material circumstances. Ansonia v. Cooper Restatement (Second), 1 Agency section 82 (1958)
Botticello v. Sefanovicz
Ratification is the affirmance by a person, of a prior act done on his behalf, which did not bind the principal at the time the act was committed and the principal could choose to be later bound
How to Ratify
Ratification requires affirmance by a person with full knowledge of the material terms of a prior act which did not bind him but which was done or professedly done on his account.
The Law of Partnership is a branch of the law of agency. Partners are considered to be agents of the partnership with power to incur obligations on behalf of the partnership. All partners are liable as principals for partnership obligations.
The agency rules relating to undisclosed principals and to the power of agents to bind their principals apply to partnerships, a person who becomes a partner cannot escape liability for partnership debts by concealing his or her membership in the partnership and any partner can incur debts for which the other partners will be liable even if forbidden by the partnership agreement.
Agency
The fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other so to act
AUTHORITY:
The right or permission to act legally on another's behalf; the power delegated by a principal to an agent.
Reasoning: the existence of an agency relationship is a question of fact. Restatement Second, 1 Agency section 1 comment b (1958)
Three Elements are required for agency: (1) a manifestation by the principal (Mary) that the agent (Walter) will act for her; (2) acceptance by the agent (Walter) of the undertaking, and (3) an understanding between the parties (Mary, principal and Walter, agent) that the principal will be in control of the undertaking.
Duties During and After Termination of Agency: Herein of "Grabbing and Leaving"
Town & country House & Home Service Inc. v. Newbery can't take trade secrets or customers when you leave
Corporation
a legal entity shielding individuals from liability; however when one person is the corporation that is partially disclosed or is an undisclosed principal then that principal cannot escape liability when acting as the agent of the corporation because a partially disclosed agent is party to the contract unless the agent discloses their limited authority and their representative capacity
Respondeat Superior
a master (employer) is liable for the torts of its servants (employee)
Doctrine Respondeat Superior
a master (employer) is liable for the torts of its servants (employees)
when does a master/servant relationship exist
a master - servant relationship exists where the servant has agreed to a. work on behalf of the master b. to be subject to the master's control or the right to control the "physical conduct" of the servant , the manner in which the job is performed
Agent as Party to the contract may subject themselves to personal liability
a person purporting to make a contract with another for a partially disclosed principal is a party to the contract it is the duty of the agent if he would avoid personal liability on a contract entered into by him on behalf of his principal to disclose not only that he is acting in a representative capacity but also the identity of his principal
Poison pill
a plan by which shareholders receive the right to be bought out by the corporation at a substantial premium on the occurrence of a stated triggering event
Ratification-authority
after the fact, all or nothing the principal either ratifies or repudiates in the entirety cannot be parceled out
Independent contractors
agents and non-agents agent type independent contractor has agreed to act on behalf of another the principal but not subject to the principal's control over how the result is accomplished that is over the "physical conduct" of the task. A non-agent independent contractor one who operates independently and simply enters into a arm's length transaction with others.
agreement in principal test
an investor not be overwhelmed by excessively detailed and trivial information; disclosure of preliminary merger discussions are inherently tentative disclosure of their existence could mislead investors and foster false optimism
Standard of materiality under the securities laws
an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote
Restatement Second of Agency Section 194
an undisclosed principal is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principal
A private-cause of action exists for a violation of section 10(b)
and rule 1b-5 and constitutes an essential tool for enforcement of the 1934 Act's requirements
Rash v. J.V.
can't use position with principal for personal gain
Atlantic Salmon A/S v. Curran
corporation protection will not protect an individual from liability when they are the only employee
Agency by estoppel
does not establish an agency relationship but prevents arguing a lack of agency as a defense: obligation to an invitee removes caveat emptor. Here only the principal is bound Principal has no cause of action in the estoppel situation
A Master Servant Relationship Restatement Agency Sections 1 and 2
exists where the servant has agreed to: a. work on behalf of the master b. be subject to the master's control or right to control the physical conduct of the servant--the manner in which the job is performed
Humble Oil & Refining Co. v. Martin
failed to set brake vehicle rolled into a family causing injuries. The scope and amount of dominion and control exerted over the daily activities is the determining factor to determine if there is in fact an agency relationship and if there is vicarious liability applies
Is a partnership an aggregate or an entity
in California a partnership is an entity
Hoover v. Sun Oil Company
in this case there was a fire causing injury to a third party the outcome turns on control but here there was little control and no vicarious liability
Responsibility to Disclose
it is the agents' responsibility to disclose their authority and limitations unless they wish to be held personally liable
Rule 10b-5
it shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange (a) to employ any device, scheme, or artifice to defraud (b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made not misleading or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security
Watteau v. Fenwick
liability of an undisclosed principal
the requirement of "agreement in principle"
limits the scope of disclosure obligations it helps preserve the confidentially of merger discussion provides a usable bright-line rule for determining when disclosure must be made
Requirements for a violation of rule 10b-5
manipulative or captive scienter in connection with the purchase or sale duty to disclose
Third circuit test
preliminary merger discussions do not become material until "agreement-in-principle" as to the price and structure of the transaction has been reached between the would-be merger partners; information concerning any negotiations not yet at the agreement in principle stage could be withheld or even misrepresented without a violation of rule 10b-5
5 basic categories of agency
principal/agent/third party 1. Actual Authority - express 2. Implied Authority-is true actual authority that is implied if it is needed to carry out the principal's explicit instructions 3. Apparent authority depends upon a communication between a principal and a third party 4. Ratification is authority after the fact: at the time of affirmation the principal must know the material facts of the transaction if they don't know all the facts there is no ratification accepted through acceptance of the benefits it is an all or nothing proposition novation is needing to renegotiate a new contract opposite ratification
agency by estoppel
solely through the lack of the principal's reasonable supervision a mistake by the agent is made and a third party relies on that mistake a principal shall be liable
Reading v. Regem
solider escorting trucks profiting from the use of his uniform is a violation of his fiduciary duty of loyalty he may not profit for himself and not benefit the principal
Revlon Duty of Loyalty
the board must obtain the best price based upon reasonable investigation and good faith
Inherent Agency Power
the power of an agent which is derived not from authority apparent authority or estoppel but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent
Business Judgment Rule
there is a presumption that directors make business decisions when they act as informed members in good faith believing the action taken was in the best interest of the company
To fulfill the materiality requirement
there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available
Section 10(b) applies
to any security, including securities of closely held corporations that generally are not subject to the Exchange Act and to transactions in government securities
Joint Venture
turn on scope and duration scope-terms and control duration-length of the project term of time termination-once the object is achieved/the project is over
An agent has apparent Authority
when he has apparent authority sufficient to bind the principal when the principal acts in such a manner as would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise
