Yablon Sp03 Corporations Outline - SK

Yablon Sp03 Corporations Outline - SK - I AGENCY PRINCIPLES...

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1 I. A GENCY P RINCIPLES A. General Ideas: Who is an Agent? What Does Agency Mean? 1. A Principal Can Acquire Obligations as a Result of Actions of the Agent …In contract, tort and criminal law. 2. Rest. 3 rd § 1.01 Agency Defined : Agency is the fiduciary relationship that arises when one person (“a principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assents or otherwise consents so to act. 3. Rest. 2 nd § 13 Agent as a Fiduciary : An agent is a fiduciary with respect to matters within the scope of his agency. 4. Rest. 2 nd §14 Control by Principal : A principal has the right to control the conduct of the agent with respect to matters entrusted to him. 5. No Contract is Needed to Create an Agency Relationship 6. Example If Professor Yablon asks student X to sell a book for him and to get the best price possible, and then X offers the book to Y who accepts the offer, is Yablon required to sell the book to Y? Yes, because X is an agent for Yablon (the principal). B. Tort Liability and Agency Relationships An agent who commits a tort can create vicarious liability for the principal. For example, if you are hit by a Dominoes Pizza truck, you can sue the driver and Dominoes because the driver is an agent for the principal (Dominoes). C. Lawyers are Special Agents…Independent Contractors An independent contractor is a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking. An independent contractor may or may not be an agent. D. Agency Costs 1. Definition of Agency Costs: Costs Incurred by the Agent Acting in his Own Self Interest Rather than the Best Interest of the Principal
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2 2. Rule = The Principal is Liable for all Agency Costs For example, Professor Yablon tells student X to sell a book for him. Student X sells it to Y for $100 and uses the money to buy a ticket to Argentina. Does Yablon still have to give the book to Y? Yep. Yablon may have an action against student X for breach of fiduciary duty, but he is still obligated to turn the book over to student Y. square4 Note that agents have a fiduciary duty to the principal!! 3. Minimizing Agency Costs Since corporations are fictitious entities, they can only act through agents. Therefore every action taken (and contract entered into) by a corporation is actually taken by an agent. This means that agency costs are a big problem for corporations (since everyone including the CEO is an agent). There are ways to minimize the chances of agents shirking and thus keep agency costs down… square4 Profit sharing schemes (e.g., if you give someone stock options it reduces their incentives to shirk because if the company does well, they will do well too); and square4 Monitoring.
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