Agency & Corporations Bar Outline North Carolina
Agency & Corporations Bar Outline North Carolina
Agency & Corporations Bar Outline North Carolina
Bar Outline
Agency refers to the legal relationship whereby an agent is authorized to
represent a principal in business dealing with 3 rd parties.
LIABILITY OF PRINCIPAL FOR CONTRACTS ENTERED INTO BY AGENT
Rule principal liable to 3rd parties for contracts entered into by agent if principle
authorized agent to enter into contract and agent is subject to principals control.
Capacity: principal must have contractual capacity but agent does not b/c hes just
an intermediary. Writing: no writing required by agency law or SoF. Consideration: is
not required.
AUTHORITY
Actual Express principal used words (including oral or private) to express
authority to agent.
Actual Implied authority which agent reasonably believes principal has given b/c
of necessity in order to accomplish task; custom; or prior dealing.
Termination of Actual Authority: (i) after specific time/event or a reasonable time; (ii)
by change of circumstances; (iii) if agent acquires adverse interest; (iv) when agent
say so; (v) when principal says so (unless power of agency coupled w/ interest
which makes the power irrevocable); (vi) death or incapacity or bankruptcy (unless
coupled w/ interest, i.e. agent has own interest).
Delegation: is okay if principal consents (may be express or implied from
circumstances).
Apparent Authority principal cloaked agent w/ appearance of authority & 3 rd
party reasonably relies on appearance of authority. Look at it from 3 rd party point of
view.
Secret limiting instructions: agent has actual authority, but principal secretly limited
authority, and agent goes beyond scope. Principal still liable.
Lingering authority: actual authority terminated, but agent continues to act on
principals behalf. Principal still liable until customer receives notice of termination.
Ratification authority granted after contract entered if: principal has knowledge
of all material facts regarding contract & principal has accepted benefits.
Ratification must be complete as is, no alterations to terms & principal must have
capacity at the time of ratification & at time of original contract b/c ratifications
retroactive. How to ratify: expressly affirming contract; accepting benefits of it; or
suing 3rd party on it.
Extent of Liability no authority no principal liability, agent liable. Authority
principal liable, agent not. BUT, if principal is partially disclosed OR undisclosed
agent & principal liable. Conversely, principal disclosed agent not liable.
Adoption when promoter enters into lease on behalf of corporation that has not
yet been formed; the corporation/principal can adopt the lease; BUT, cannot ratify
the lease because corporation/principal lacked capacity because it wasnt created
yet.
DUTIES AGENT PRINCIPAL
Duties of reasonable care; obey reasonable instructions; loyalty. Loyalty: no selfdealing (benefit to detriment of principal); no usurpation of principal opportunity; no
secret profits. Remedy: losses caused by breach & disgorge profits.
DUTIES PRINCIPAL AGENT
Duties must compensate, reimburse and indemnify agent.
DUTIES PRINCIPAL 3RD PARTY
Duties principal always liable to 3rd party and 3rd party almost always liable to
principal; unless there is an undisclosed principal & agent has special skills.
3RD PARTY AGENT
Duties generally no liability since agent is just an intermediary.
LIABILITY OF PRINCIPAL FOR TORT OF AGENT
Rule principal will be liable for torts committed by agent if (i) principal-agent
relationship exist & (ii) tort was committed by agent w/n scope of relationship. P & A
will be jointly & severally liable to injured party.
Principal/Agent Relationship (ABC)
Assentvoluntary, informal agreement, principal must have capacity.
Benefitagents conduct must be for benefit of principal.
Controlprincipal has right to control agent by having supervisory power.
Subagent: no vicarious liability unless ABC. Borrowed Agent: no vicarious liability
unless ABC. Independent Contractor: no vicarious liability because no power to
supervise performance, except great ultra-hazardous activity and estoppelhold
out independent contractor as agent.
Scope was conduct of the kind agent was hired to perform? Did tort occur on the
job? Did agent intend to benefit principal?
Frolic v. Detour: whether tort occurred on job. Frolic: new and independent
journey outside scope. Detour: mere departure from assigned task within
scope.
Intentional Tort generally outside scope of vicarious liability except: (i)
specifically authorized by principal; (ii) natural from type of employment; (iii)
motivated by desire to serve principal. Liability: agent and principal jointly &
severally liable to 3rd party, but only entitled to one satisfaction. Direct liability:
principal may be directly liable for its own negligence if agent principal failed to
supervise employee or check an employee criminal record/job history.
GENERAL PARTNERSHIPS (GP)
Formation no formalities, can arise from conduct. Definition: an association of 2
or more persons carrying on as co-owners a business for profitregardless of intent.
Sharing profit: creates a presumption of GP. But not lending agreements, wages,
commission.
Partnership by Estoppel (PBE) if no partnership is formed, parties may still be
liable as if they are partners to protect reasonable reliance by 3 rd parties. Note: this
only applies to contracts NOT torts.
RIGHTS & LIABILITIES B/W PARTNERS
Fiduciaries duty of loyalty (no self-dealing, usurping opportunity, secret profits);
duty of care; and duty to render full information about partnership on demand.
Inspection: partners can inspect books; can get accounting when its just and
reasonable.
Remedy action for accountingrecover losses caused by breach AND disgorge
profits.
Partnership Property whether property is owned by partnership or someone
else is determined by intent. No transfer of specific partnership assets w/o
partnership authority, e.g. land, leases or equipment. Personal property: can
transfer profits/surplus owned by individual partners to 3 rd party. Share in Mgmt.:
GPs have right to share mgmt. but may not transfer.
Mgmt. Unless otherwise agreed (UOA), each partner entitled to equal control and
vote.
Salary UOA, partners dont get salary unless winding up.
Indemnification partners have right to be paid back with interest monies the
partner paid on behalf of the partnership.
Profits/losses UOA, profits shared equally; losses shared like profits.
Partners economic interest in partnership is transferable like any other
financial asset.
Outgoing Partner remains liable for existing debts unless released by particular
creditor.
RELATIONSHIP B/W PARTNERS & 3RD PARTY
General Partnership agency: principles apply with regard to torts and contracts.
Partnership is the principal, partner is the agent. Actual authority: created by the
partnership agreement, majority vote of partners, or statute, which makes every
partner an agent for carrying on business in the usual way. Can be negated by
partners. Apparent authority: look at partners title and prior conduct. Ratification by
adoption: if no authority existed at time of contract.
Personal liability for debts of partnership: incoming partner not liable for preexisting debt. But, funds from incoming payments can be used to satisfy prior debt.
Dissociating partner does retain liability for future debts until actual notice given to
creditors OR 90 days after filing notice of disassociation to state.
Other Forms
Limited Liability Partnership (LLP) required to file application with Secretary
of State and pay fee and name must include the words limited liability partnership
or the abbreviation. No liability for underlying obligations of partners, but liability for
own wrongdoing. Distribution of Assets: (i) 3rd party creditors; (ii) partners who
loaned money to partnership; (iii) partners for capital; (iv) partners for profit.
Limited Partnership one or more GP and one or more ltd. Partner.
Requirements: limited partner certificate w/ Secretary of State and pay fee and
must have names of all general partners. Liability: generally, the liability of limited
partner is limited to capital contribution, even if participate in control of LP.
However, the general partner (GP) is personally liable for the LP obligations,
including torts and contracts. GP has right to manage LP. Absent filing: then joint &
several liability for partners, but can avoid future liability by filing certificate or by
withdrawing from LP. Withdrawal: a LP may withdraw only at the time or on the
happening of an event in the LP agreement; otherwise, a limited partner may not
withdraw prior to the time for dissolution and winding up of the LP. Distribution of
Assets: (i) 3rd parties & LP who are creditors; (ii) GP who are creditors; (iii) partners
owed distribution; (iv) capital contributions; (v) profits (if theres anything left).
Limited Liability Companies must file articles of organization (AO) w/ Secretary
of State and pay fee. Must file annual report and pay annual fee as well. The name
must contain the phrase limited liability company or an abbreviation. Members
are owners w/ limited liability for debts and obligations of business + benefits of
personal taxation. Members control, but Article of Organization can delegate to
managers. Limited liquidity (means members cant transfer interest). Limited life
span. No fiduciary duties for members at all unless UOA. Liability for Members: none
except for their own torts. Distributions of Assets: is allocated on the basis of
capital contributions.
PARTNERSHIP DISSOLUTION
Dissolution begins the end of partnership. At willdissolution automatic upon
notice of express will of any 1 GP to dissociate. Not at will: dissolution occurs upon
happening of event specified in agreement OR majority vote of partners to dissolve
w/n 90 days of dissociation of a single partner. Termination: actual end. Winding up:
time between dissolution and termination.
Compensation partners get compensation during winding up. GP retain liability
on expenses entered into to wind up old business w/ creditors. GPs still retain
Incorporators must be one or more natural person. Execute & deliver Articles of
incorporation to Sec. of State.
Name of corp. with some indica of corp. status, e.g. inc. or corp.
Articles of Incorporation contract between State, corp., & shareholders. Must
include name and address of corp., names & address of incorporators, duration,
purpose, structure, number of shares, and name & address of registered agent.
Required Acts incorporators must sign & acknowledge articles, deliver to NC
Sec. of State. Must pay filing fee. After filing certificate, corp. is formed, and
incorporators have organizational management to adopt bylaws, and elect directors.
Bylaws not filed with state, and not legally required. If conflict w/ articles of
incorporation, articles control. D or SH can amend, but SH by-law may be amended
only by SH unless the articles or a SH by-law authorizes D to amend it.
De Facto Corp. business that doesnt fulfill filing formalities may nonetheless be
treated as a corporation if organizers have made good faith, colorable attempt to
comply with the corporate formalities and have no knowledge of the lack of corp.
status.
Legal Significance separate legal person; shareholders not liable for debts of
corp. b/c of limited liability. SH is liable only for price of their stock.
Piercing the Corp Veil avoid fraud or unfairness and to render shareholders
liable to 3rd party victim.
Requires: SH treat corp. as their alter ego by failing to observe sufficient corp.
formalities OR corp. is undercapitalized (fail to maintain sufficient funds for
foreseeable liabilities).
Who Liable?: SH active in operation of corp. or D & O. Courts more willing to pierce
for tort victim that contract claimant.
Foreign Corps. corp. incorporated outside state engaging in regular intrastate
business must file certificate of authority w/ Sec. of State. Penalties: civil fines;
cannot bring suit in NC court w/o getting a cert. of authority prior to trial.
ISSUANCE OF STOCK
Consideration: (what the corp. must receive when it issues stock)
Type/Form: any tangible or intangible property, promissory note, services
performed, obligation to perform future services w/ an agreed value.
Par Value: minimum issuance price. No par value means any valid consideration
BOD (Board of Directors) deems is adequate.
Acquiring Par Value Stock w/ Property: ok if BOD values property in good faith as at
least par value.
Consequences: if < par value, Ds (directors) liability for signing off on below par
issuance and Purchaser b/c SHs must pay full consideration for shares.
Officers duty of care and loyalty. Os are agents of the corp. and bind corp. by
authorizing acts. Requirements: Pres., Sec. and Treas. Selected and removed by Ds.
Indemnification for cost, attorney fees, fines, judgments or settlement in the
course of corp. business.
Never: indemnify when D&O loses suit.
Always: indemnify if D&O wins suit.
May: indemnify if: liability to 3rd parties or settlement w/ corp.; D&O shows action in
good faith and conduct in corp.s best interest.; OR court orders indemnification.
Who decides?: majority independent Ds; majority of committee of independent Ds;
majority shares of independent SHS; Board pursuant to Independent Legal Counsels
recommendation.
RIGHTS OF SHAREHOLDERS
Direct Action Ds breached fiduciary duty owed to individual as SH.
Shareholder Derivative Suit SH suing to enforce the corp.s own cause of
action. Requirements: contemporaneous stock ownership when claim arose and
throughout litigation and demand on BOD that they cause corp. to bring suit.
Demand must be rejected or lapse 90 days. Recovery: to corp. but plaintiff gets
attorney fees and expenses.
VOTING
Any owners on record date as determined by BOD, up to 70 days before meeting
date.
Proxy Voting (i) writing; (ii) signed by record SH; (iii) directed to corp. secretary;
(iv) authorize another to vote their shares; (v) valid for 11 months. Revocable unless
proxy says irrevocable and SH passed some interest.
SH Meeting annual meeting, 1 D slot must be elected OR specially noticed
special meeting called by BOD, President, or 10% of voting shares regarding
fundamental corp. change or proposal. Special meeting limited to stated purpose.
Written notice between 10 and 60 days before meeting date and must contain when
and where. Improper notice of meeting: meeting void unless the defect is waived in
a signed writing at any time or by attending the meeting w/o objecting to its being
held.
Quorum majority of outstanding shares at meetings start. Vote: votes in favor >
votes against. Once quorum established for SH meeting, it cannot be broken.
Voting Agreement written agreement to vote shares as required in agreement.
Binding and enforceable; 10 year limit, but can be extended; likely remedy if
breached, specific performance.
Winding up: (1) creditor paid first, (2) dissolution preferences; (3) balance
distributed pro rata among common shares.
FEDERAL SECURITIES LAWS
Anti-Fraud (Rule 10(b)(5)) Elements: interstate commerce/Use of national
exchange; Scienterintent to deceive; deceptionmaterial misrep. OR
misappropriation of material non-public information; in connection w/ actual
purchase or sale of securities.
Insider Trading Tipper: improper purpose + benefit. Tippee: tipper breach and
tippe knew. Misappropriation: govt prosecution for trading on market info in breach
of duty of trust/confidence owed to source of information.