Business Law II: Exam 2

Agency law

The large body of common law that governs agency; a mixture of contract law and tort law

Principal-agent relationship

A relationship formed when an employer hires and employee and gives that employee authority to act and enter into contracts on the employer’s behalf 

Employer-employee relationship

A relationship that results when an employer hires an employee to perform some task or service but the employee has not been authorized to enter into contract on behalf of the employer

Principal-independent contractor relationship

 The relationship between a principal and an independent contractor who is not an employee of the principal but who has been employed by the principal to perform a certain task on behalf of the principal 

Agency by ratification

An agency that occurs when (1) a person misrepresents him- or herself as another’s agent when in fact he or she is not and (2) the purported principal ratifies the unauthorized act 

 Concept summary of formation agency

Express: Authority is expressly given to the agency by the principal

Implied: Authority is implied from the conduct of the parties, custom and usage of trade, or act incidental to carrying out the agent’s duties 

By ratification: Acts of the agent are committed outside the scope of his or her authority

Apparent: Authority is created when the principal leads a third party to believe that the agent has authority

4 duties a principal owes to an agent

1. Duty to compensate

2. Duty to reimburse

3. Duty to indemnify

4. Duty to cooperate

3 duties agents owe to principal

1. Agents duty to perform

2. Agents duty to notify

3. Agents duty to account 

5 ways a principal agency relationship can be terminated

1. Termination of an agency by an act of the parties

2. Termination of an agency by an unusual change of circumstances

3. Termination of an agency by impossibility of performance

4. Termination of an agency by operation of law

5. Wrongful termination

Frolic and detour

A situation in which an agent does something during the course of employment to further his or her own interest rather than the principals. The principal is relieved of liability if the agent’s frolic and detour is substantial

Coming and going

A rule stating that a principal is generally not liable for injuries caused by its agents and employees while they are on their way to or from work. Principal not reliable

Dual-purpose mission

A situation that occurs when a principal requests an employee or agent to run an errand or do another act for the principal while the agent is undertaking his or her own personal business. The principal is liable

Respondeat superior

A rule stating that an employer is liable for the tortious conduct of its employees or agents while they are acting within the scope of the employer’s authority

Vacurous liability

Liability without fault. Vicarious liability occurs where a principal is liable for an agent’s tortious conduct because of the employment contract between the principal and agent, not because the principal was personally at fault 

Motivation test

A test that determines whether an agent’s motivation in committing an intentional tort is to promote the principal’s business; if so, the principal is liable for any injury caused by the tort 

Work-related test

A test that determines whether an agent committed an international tort within a work-related time or space; if so, the principal is liable for any injury caused by the agent’s intentional tort 

Concept summary of tort liability of agents to third parties

Negligence: Agent reliable. The principal is liable under the doctrine of respondeat superior if the agent’s negligence act was committed within his or her scope of employment 

Intentional tort: Agent liable. Motivation test: the principal is liable if the agent's motivation is committing the intentional tort was to promote the principals business. Work-related test: The principal is liable if the agent committed the intention tort within work-related time and space.

Misrepresentation: Agent liable. The principal is liable for the international and innocent misrepresentations made by an agent acting within the scope of his or her authority. 

Concept summary on contract liability

Fully disclosed: Principal liable. Agent is not unless the agent (1) acts as a principal or (2) guarantees the performance of the contract

Partially disclosed: Principal is liable. Agent is liable, unless the third party relieves the agent’s liability

Undisclosed:  Principal and agent are liable.

Nonexistent: Principal is not liable unless the principal ratifies the contact. The agent is liable for breaching the implied warranty of authority 

Utilitarianism

A theory of ethics stating that people must choose the action or follow the rule that proves the greatest good to society

Kantian ethics 

A theory of ethics stating that people owe moral duties that are based on universal rules, such as the categorical imperative “Do unto others as you would have them do unto you.” 

Social justice theory

A theory of ethics asserting that fairness is the essence of justice. The theory says that each person is presumed to have neutered into a social contact with all others in society to obey moral rules that are necessary for people to live in peace and harmony

Social responsibility of business

A theory stating that corporations and businesses should act with awareness of the consequences and impact that their decisions will have on others 

4 theories of social responsibility

Maximize profits, moral minimum, stakeholder interest, corporate citizenship 

Administrative law

A federal statute that establishes procedures to be followed by federal administrative agencies while conducting their affairs

Delegation doctrine

A doctrine that says that when an administrative agency is created, it is delegated certain powers; the agency can use only the legislative, judicial, and executive powers that are delegated to it

4 steps involved in the rule making process

1. Publish a general notice of the proposed rule in the Federal Register. 

• This includes time, peace and nature of the rulemaking proceeding. Legal authority pursuant to which the rule is proposed. The terms or substance of the proposed rule or a description of the subject and issues invalid

2. Give an interested person an opportunity to participate in the rule making process. This may involve orla hearings

3. Review all written and oral comments. Then the agency announces its final rule in the matter. 

4. Require, in some instances, formal rulemaking. Here, the agency must conduct a trial-like hearing at which the pirates may present evidence, engage in cross-examination, and present rebuttal evidence 

5 powers of administrative agencies

Government License, Judicial authority, Procedural due process, Executive power, Unreasonable search and seizure

Government License

Permission that an administrative agency grants to persons or businesses to conduct certain types of commerce or professions

Judicial authority

Authority of an administrative agency to adjudicate cases in an administrative proceeding

Procedural due process

Due process that requires the respondent to be given proper and timely notice of the allegations or charges against him or her and an opportunity to present evidence on the matter 

Executive power

Power that administrative agencies are granted, such as to investigate and prosecute possible violations of statutes, administrative rules, and administrative orders

Unreasonable search and seizure

Any search and seizure by the government that violates the Fourth Amendment to the U.S. Constitution

Freedom of information act

A federal act that gives the public access to documents in the possession of federal administrative agencies 

Privacy act

A federal act that states federal administrative agencies can maintain only information about an individual that is relevant and necessary to accomplish a legitimate agency purpose 

Sarbanes-oxley act 

Statute that establishes rules to improve corporate governance, prevent fraud, and add transparency to corporate operations