40n rosin.s2012 agency overview

8/16/2019 40N Rosin.S2012 Agency Overview

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Agency & Partnership Outline

Note: periodically the word factor will appear in thisoutline for items which are not actually factors – thiswas for my personal use to help memorize – also, thisoutline is mostly sound, but still needs some minorrevision

!!! Agency !!!

" #ormation of #irms – Agency $elationships1. $est % Agency is the fduciary relation which results rom the maniestation o

consent by principal to agent that the agent shall act on his behal and subject to hiscontrol, and consent by the agent to so act.

a' (utual )onsent Principal must maniest consent and the agent just must

consent. By the agent taking on the task, it is sucient to indicate consent.b' One person will act on behalf of another, and

i' *'g', restaurants in +ouston )enter are not agents of +) becausethey only comply with lease reuirements in the way they operatethe restaurants- they do not act on behalf of +)'

c' .hat person will act sub/ect to the principal0s control

d' "ntent or awareness of the creation of an agency relations "1 NO. reuired 23the 4duciary relation which results from5 not 3is intended5to result from6

. Attributes o the agency relationship (MO says these attributes are required; MDsays these attributes are factors only and not determinative)

a. $est %7 Agent has the power to alter the legal relations between the principaland !rd persons and between the principal and himsel.

i. ".g., power to bind principal to contract, power to settle

ii. P is generally not liable or the agent#s incidental torts, $% or agent#s torts

iii. can do this by acting negligently on his behal, entering a contract, etc. & thesignature on a ' is not dispositi(e & )his can be compared to an attorneyclient relationship. & oten power to alter can be satisfed by consultants whonegotiate or P

b. $est %8 Agent is a fduciary with respect to matters within the scope o hisagency * or the primary beneft o principal+ agent is to act on behal o principaland primarilyprincipally or his beneft -agent cannot beneft itsel.

c. $est %9 )he principal has the right to control the conduct o the agent withrespect to the matters entrusted to the agent. & translator problem & is translatora ser(ant/

i. 0ontrol the result -ultimate outcome or objecti(e but not the minutia oachie(ing the result.

ii. right to set the task, like atty*client

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A. 5ee Green v. H&R loc! & (iewed the abo(e underlined actors todetermine i agency e6isted & was agent

• Basille – did not stipulate like in Green that tax preparer was agent - confdentialrelationships can include business*related ad(isors, ad(isees where

– disparity in position between the parties and inerior party placesprimary trust in other7s counsel

-i Block acti(ely encouraged ta6payers to trust in their ser(ices+

-A no signifcant ta6payer e6pertise

-B ta6payers did not understand 89apid 9eund8 really a loan

-0 ta6payers primarily interested in getting their reunds :uickly

-ii limited holding & ta6 consultantclient is not per se confdential

!. $est % 7 )reation of 2Actual6 Authority- ;eneral $ule: "6cept or thee6ecution o instruments under seal or or the perormance o transactions re:uiredby statute to be authorized in a particular way, authority to do an act can becreated by written or spoealings by Agents A. Firm’s liability in contract for acts of its agent

1. Authority is the agent#s power to bind the principal @by acts done in accordance withthe principal#s maniestations o consent to the agent -authori;ed acts.

. Agent sometimes has power to bind the principal e(en though the agent is notauthori;ed, such as where the agent has apparent authority, or inherent agencypower or where the principal is estopped rom denying the agent#s authority.

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!. An agent who acts beyond the scope o his authority is liable or the acts beyond theauthority. Principal is bound by the authori;ed acts, as ar as they can be plainlyseparated rom the unauthori;ed acts or which A= had no power to bind.

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agent, who owes him money so should be able to reduce any liability !rd party has by the amount owed the !rd party rom the agent

-1 Agent must ha(e been authori;ed to conceal the principal#s e6istence.

- Agent must ha(e been acting within power to bind the principal.

-! )he liability o the agent to the !rd party must e6ist at the time o

contracting -pree6isting claim against the agent.- !rd party can a(oid liability to the undisclosed principal up to the

amount o the obligation o the agent to the !rd party

H. Prête-nom: (“name lending”) The agent was lending their name to theprincipal when the K was made. Under the doctrine of prête-nom,undisclosed principals are not parties to contracts entered into by their

prête-noms. Only the prête-nom may sue or be sued on such contractsthe principals may not sue or be sued in their own names. ! "rench lawsometimes applied in #$, but more often %# controls and the general rule

applies ! Woodlawn Park LP v Doster Const .

-1 Rationale is to avoid potential liability to multiple persons for third pt

". General Rule (also called mandate): the principal can be bound on acontract that was not specifically made on behalf of the principal

. $est % 8@9 !rd party can rescind contract with undisclosed principal i

a. Agent misrepresents not acting or a principal and

i. Armati(e misrepresentation that agent is not acting or a certain principal

ii. 0m. a. E A= !no%s -mere suspicion is not enough !P will not deal with P andails to disclose that he is acting or such P, that could constitute amisrepresentation. 5ome acts ha(e to show knowledge & e.g., historybetween the parties, e6press statement by principal, e6press statement by !rd

party

b. !P must show he would not ha(e dealt with P at time o contracting i he hadknown who P was, or


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. =enerally an undisclosed principal can substitute his perormance or that o theagent unless doing so would substantially change the nature o the transaction romthe perspecti(e o the !rd party.

a. ".g., agent contracts to con(ey real property and contracts to gi(e the agent#swarranty deed? principal steps in and says agent was acting or him and that thebuyer will be getting the principal#s warranty deed

b. ".g., attorney contracts to perorm ser(ices? another attorney steps in and saysthe frst attorney was acting as his agent and the other attorney is going topro(ide the ser(ices

C. Agent’s Liability for Contractual Dealings

a6' Agent0s duty to fully disclose principalDProblems with>'E'A'2doing business as6

1. An Agent can become a party to the contract -making him liable+

a. 9est F !3 * Inless otherwise agreed, an agent does not become a party to the

contract he makes or disclosed principal'b. 9est F !1 * Inless otherwise agreed, an agent does become a party to the

contract he makes or a partially disclosed principal.

c. 9est F ! * An agent purporting to act upon his own account, but in act makinga contract on account o an undisclosed principal, is a party to the contract.

i. the a#ent has a duty to fully disclose the fact of the a#ency and the D of the* if he does not %ant to be liable on an obli#ation. )his e(en applies i it ispartially disclosed. Inder this rule or disclosure, the A and P are alternati(elyliable, but !rd pt will ha(e to make an election of remedies and decide whichone to sue. & the modern trend is joint and se(eral liability

d. But must also consider the agreement o the parties+ language o the contract

and the conduct o the parties and the circumstances.i. a third party can be put on notice o the agency relationship and the EH o the

P i they actually know, should know, or ha(e reason to know

. Problem areas or businesses * )rade James

a. 5ign contracts as the principal dba the trade name "6ample

i. @Principal dba @trade nameA. By+ @person, @title -agent

b. >iling an assumed name certifcation may constitute sucient notice to the thirdparty -not in all jurisdictions

A. 5ome states ha(e a dual inde6ing system. !P has obligation to look intopublic records to fnd the true principal.

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B. 5ome states impose no duty to research assumed names. )oo much o aburden on the !P. Agent knows the inormation and should disclose it i itwants to a(oid personal liability or the contract.

)' No de4nitive authority in .e=as on this point' Probably would sidewith dissent' )ases emphasize the agent0s burden to disclose'

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b. E the principal#s identity was partially disclosed, agent still gi(es E


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a. >orces P to choose between inconsistent remedies.

i. ".g., P makes contract and has two theories or reco(ery? courts re:uire the Pto choose his remedy.

A. 9escission & does not recogni;e e6istence o contract

B. Hamages or breach * recogni;es e6istence o contract

. =enerally only a judgment against the principal operates as an election? PlaintiGsimply telling the agent that he will only get satisaction rom the principal is notenough to constitute an election, unless the agent detrimentally relies on thatrepresentation.

C. "K9 can also protect the undisclosed principal when !P learns o P9#s e6istence andthen gets a judgment against A=.

a. Principal can raise deense that !P has elected his remedy against the agent anddischarged liability against principal.

i. "6ception+ E !P gets judgment against the agent before learning o theprincipal#s identity, this is not an election? !P can pursue the principal orunsatisfed portion but !P must make choice upon disco(ery o the identity o

the principal.' .e=as )ts App' apply the election of remedies in PrincipalDAgency conte=t'

H' =enerally * the a#ent has a duty to fully disclose the fact of the a#ency and the D of the * if he does not %ant to be liable on an obli#ation. )his e(en applies i it ispartially disclosed. Inder this rule or disclosure, the A and P are alternati(ely liable,ha(e to make an election of remedies and decide which one to sue. & moderntrend is joint and se(eral liability *


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0. 9emember Gasselder v' Gapperman & grader repair case* Here, P gaveactual authority to enter a K for up to $3! *** for " to K for a greater a#ount is eyond the scope of authority% then the " is liale for any oligation eyond scope ofhis authority!

-1 general rule – P is not liale for K which deviate fro# what he consented to, so P

is not liale for K as " could have #adeH. 9estatement F12 says that if A enters into an unauthoried !

"ithout ha#ing po"er to bind $% then $ "ill not be bound& unless%if the only di'erence bet"een the ! as authoried and the ! asmade is the di'erence in amount% or the inclusion or exclusion ofa separable part % the $ is liable upon the ! as it "as authoried tobe made.

-1 * Pi;;a hypo & ingredients are inseparable on same pi;;a, but i twopi;;as are ordered they are separable & liability within the scope oconsent but not or the separable part which is not authori;ed &e6ample o partial authorization

-i so P is liable up to the amount authori;ed, beyond that A isliable.

-ii "6press limitations like those seen in grader case -'assaldermay be more potent to limit scope o A authority to bind & lookor e6press limitations

". Ostensible authority S it is assumed that a party is an agent based onthe circumstances o the situation * might bind P or unauthori;ed acts &some states apply this basic test to determine scope o agency andwhether Agentprincipal relationship e6isted at all

b. $est % 88 ;eneral Principle of "nterpretation: An agent is authori;ed to do,and to do only, what it is reasonable or him to iner that the principal desires himto do in the light o the principal7s maniestations and the acts as heknowsshould know at the time he acts.

c. Actual Authority

i. "6press &maniestation by Principal to Agent directly

ii. Emplied & e.g., agent has implied actual authority to represent the scope o hisauthority to !P, unless Principal instructs Agent not to. F N cm. c

. Huty o loyalty re:uires the Agent to act in the best interest o the principal.

a. Agent is only authori;ed to ma


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which the terms o the authori;ation make no pro(ision and it is impracticable orthe agent to communicate with the principal, he is authori;ed to do what hereasonably belie(es to be necessary in order to pre(ent substantial loss to theprincipal with respect to the interests committed to his charge.

B. (mplied Actual Authority )Authoried *ransactions+1. $est % 8C Fhen "ncidental Authority "s "nferred: Inless otherwise agreed,

authority to conduct a transaction includes authority to do acts which areincidental to it, usually accompany it, or are reasonably necessary toaccomplish it.

a. F !C Agent must ha(e honest and reasonable belie based on maniestations othe principal that he had authority to do the act.

i. %ook at actors * Prior course dealing with the principal, knowledge o theprincipal about what needs to be done, acts and conduct o the parties,totality o the circumstances.

b. Emplied actual authority S Actual authority circumstantially pro(en which theprincipal actually intended the agent to possess and includes such powers as arepractically necessary -incidental to it, usually accompany it or are reasonablynecessary to carry out the duties actually delegated.

. % HH ;eneral $ule: )he authority to appoint agents, subagents or subser(ants othe principal can be conerred in the same manner as authority to do other acts orthe principal, and the interpretation o the maniestations o the principal isgo(erned by the rules generally applicable to the interpretation o authority. & seene6t page 4ill 5treet 0hurch (. Uogan

!. % HJ "nference as to Authority to >elegate Authority: Inless otherwise agreed,authority to conduct a transaction does not include authority to delegate to anotherthe perormance o acts incidental thereto which in(ol(e discretion or the agent7sspecial skill E. such authority, howe(er, includes authority to delegate to a

subagent the perormance o incidental mechanical and ministerial acts.i. 4ill 5treet 0hurch (. Uogan+ the church hiredemployed Bill to do painting? Bill

was the agent o the church. Bill needed help, and in the past he had calledon his brother 5am. )he church suggested another, but he could not beound, so Bill hired 5am again. 5am got hurt and fled a worker#s comp claim.

)he church and insurance company said 5am was not an employee. )he issueis whether Bill had any authority to hire 5am, i so 5am is an employee

A. *=press authority &

-1 Jo clear right to hire brother

-a 9ecognition o need to hire helper

B. implied authority is actual authority circumstantially pro(en which the P

actually intended the A to possess and includes such powers as arepractically necessary to carry out these duties.

0. apparent authority is not actual authority but is the authority the A isheld out by the P to !rd persons as possessing.

-1 the church had knowledge that Bill had hired 5am in the past? thechurch had knowledge that Bill needed help? the e6istence o priorsimilar practices is an important actor S Bill had implied authority tohire 5am.

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C. Agent’s Duties of Care and Loyalty

' "ntroduction to the #iduciary >uties of Agents and1ervants

1. F1! An agent is a fduciary with respect to matters within the scope o his agency

a. A fduciary is a person having a duty, created by his undertaking, to actprimarily for the bene4t of another in matters connected with hisundertaking.

7' >uty of )are

1. F !NN under ordinary circumstances, the promise to act as an agent is interpreted asbeing a promise only to make reasonable eGorts to accomplish the directed results

. F !NO-1 Inless otherwise agreed, a paid agent & has duty to act with standard careand skill and to use any special skill he has, i he has a special skill.

!. $est % 8HH )ontractual >uties: A person who makes a contract with another toperorm ser(ices as an agent or him is subject to a duty to act in accordance with

his promise.. $est % 8H? >uty of )are and 1


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8' >uty of Boyalty

a6 "n general

1. F !MN Agent is subject to duty to act solely or the principal in all matters connectedwith his agency.

a. Agent cannot put agent#s own interests or those o a !rd

party abo(e theprincipal#s.

i. %ook out or dual agency

b. $est % 8JH ;eneral Principle: Inless otherwise agreed, an agent is subject to aduty to his principal to act solely or the beneft o the principal in all mattersconnected with his agency.

c. "ncudes duty to obey P0s reasonable instructions

. )he Huty o %oyalty is a deterrent rule to pre(ent agents rom profting romtransactions conducted or the principal -creates conict o interest?

8' No personal bene4tDpro4t wDo P0s informed consent 21choc< v' Nash6

a. 9e:s or consent * actor

i. 1peci4city re act

ii. >ull disclosure o act o interest and material acts re transaction

A. Ise o pre*printed orm

B. Hid P really know what was signing/

0. Hitto short*orm powers o attorney/

iii.Huty to ensure P gets impartial ad(ice

i(. 5how transaction #A"$ to P

. 4$ o real property as a breach o loyalty

b6 )onKicts of "nterest

1. F !MO Inless otherwise agreed, an agent can act as an ad(erse party to the principalonly i the principal knows the agent is ad(erse?

a. F !MO Agent must disclose to the principal when the agent acts as an ad(erseparty

i. $est % 8J? Acting as Adverse Party Fithout PrincipalLs )onsent:Inless otherwise agreed, an agent is subject to a duty not to deal with hisprincipal as an ad(erse party in a transaction connected with his agencywithout the principal7s knowledge.

. F !O3 ailure to so disclose is a breach o the duty o loyalty. P9 can bring an actionagainst the A= e(en i P9 has suGered no harm and can reco(er any beneftaccrued to A= -disgorgement & P can also reco(er any damages he has suGered.

i. $est % 8?@ Acting as Adverse Party with PrincipalLs )onsent: An agentwho, to the knowledge o the principal, acts on his own account in atransaction in which he is employed has a duty to deal airly with the principaland to disclose to him all acts which the agent knows or should know wouldreasonably aGect the principal7s judgment, unless the principal hasmaniested that he knows such acts or that he does not care to know them.

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ii. $est % 9@H E an agent has recei(ed a beneft as a result o (iolating his dutyo loyalty, the principal is entitled to reco(er rom him what he has sorecei(ed, its (alue, or its proceeds and also the amount o damage causedthereby.

b. 9ogers (. 9obson & dual representation – doctor and #ed#al insurance carrier – & atty's

represent oth! (he & atty's settled the case without consent of doctor client, ut atty's saythat the insurance carrier who actually hired &'s say they have the authority to settle!

i. when a conflict of interest arises the duty of loyalty means to fully disclose toclient/principal of the intent to settle that was contrary to his wishes !

c6 >uty to Account for Pro4ts

1. F !MM An agent who makes a proft in connection with transactions conducted by himis under a duty to gi(e such proft to the principal

a. the duty applies whether or not the principal is harmed or is better oG as a resulto the transaction. %oyalty is to principal? e6ample o @otherwise agreed+ waiterkeeping a tip.

b. $est % 8JJ >uty to Account for Pro4ts Arising Out of *mployment: Inlessotherwise agreed, an agent who makes a proft in connection with transactionsconducted by him on behal o the principal is under a duty to gi(e such proft tothe principal.

d6 Other Aspects of the Agent0s >uty of Boyalty

1. F !O1 & Agent must disclose to principal when agent is representing an ad(erse party

a. $est % 8? Acting for Adverse Party Fithout PrincipalLs )onsent: Inlessotherwise agreed, an agent is subject to a duty to his principal not to act onbehal o an ad(erse party in a transaction connected with his agency without theprincipal7s knowledge.

. F !O &Agent must disclose all material facts regarding the ad(erse representation.

a. $est % 8?7 Acting for Adverse Party with PrincipalLs )onsent: An agentwho, to the knowledge o two principals, acts or both o them in a transactionbetween them, has a duty to act with airness to each and to disclose to each allacts which he knows or should know would reasonably aGect the judgment oeach in permitting such dual agency, e=cept as to a principal who hasmaniested that he knows such acts or does not care to know them.

!. F !O! & )he agent must not compete with the principal whilst acting as agent,without principal#s consent. Hoesn#t matter i agent is doing so on his own time.

Agent can compete ater the agency relationship terminates.a. $est % 8?8 )ompetition as to 1ub/ect (atter of Agency: Inless otherwise

agreed, an agent is subject to a duty not to compete with the principalconcerning the sub/ect matter o his agency.

. F !OC & A= must not use con4dential information about P9 or his own beneft oror anyone else#s? this rule applies during and ater termination o the agencyrelationship -continuing duty

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a. $est % 8?C sing or >isclosing )on4dential "nformation: Inless otherwiseagreed, an agent is subject to a duty to the principal not to use or tocommunicate inormation confdentially gi(en him by the principal or ac:uired byhim during the course o or on account o his agency or in (iolation o his dutiesas agent, in competition with or to the injury o the principal, on his own accountor on behal o another, although such inormation does not relate to the

transaction in which he is then employed, unless the inormation is a matter ogeneral knowledge.

b. $est % 8? sing )on4dential "nformation After .ermination of Agency: Inless otherwise agreed, ater the termination o the agency, the agent+

i. -a has no duty not to compete with the principal?

A. Huty not to compete * *rudential nsurance v +rouch & duty to not usetrade secrets in agents dealings apart rom the principals interest & .ynerule & may not compete with P or incomplete contracts, but still has theright to compete with P or new contracts and business with people he haddealt with pre(iously

-1 Ater termination, agent is no longer subject to the duty not to compete- Preparations to compete & some preparation is ok, e(en though one

is still a fduciary & but there are things that the agent cannot dobeore termination-a 0annot contact customers to take business-b 0annot ask other agents to lea(e with you

ii. -b has a duty to the principal not to use or to disclose to third persons, on hisown account or on account o others, in competition with the principal or tohis injury, trade secrets, written lists o names, or other similar confdentialmatters gi(en to him only or the principal7s use or ac:uired by the agent in(iolation o duty. Eut, )he agent is entitled to use general inormationconcerning the method o business o the principal and the names o the

customers retained in his memory, i not ac:uired in (iolation o his duty asagent?

A. '+O Music v. Harrison#s Music - eatles music case -

-1 0AJJK) disclose confdential ino e(en ater termination-a 0annot use it or own beneft or or beneft o third party-b )o compete with the principal

-i Both are loyalty breaches- 0onstructi(e trust can be imposed on agent to turn o(er business

opportunity to P if the information was actually con4dential &dicta+ @cant use ino ac:uired through the relationship to compete orA#s beneft in a transaction originally undertaken or P#s beneft

-a But i disclosure is made beore terminating agency, P would be onnotice and it may be less o a problemB. A has a duty to account or profts made by the sale or use o trade secrets

and other confdential inormation, whether or not in competition with theprincipal?

0. A has a duty to the principal not to take ad(antage o a still subsistingconfdential relation created during the prior agency relation.

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e6 Principal0s $emedies

1. F 31 Actual damages+ $est % 9@ Biability in .ort for Boss )aused: An agent issubject to liability in tort or loss caused to the principal by any breach o duty.

. F 3! 0onstructi(e )rust+ $est % 9@8 Biability for .hings $eceived in Iiolationof >uty of Boyalty: E an agent recei(es anything as a result o his (iolation o a

duty o loyalty to the principal, he is subject to a liability to deli(er it, its (alue, or itsproceeds, to the principal. -disgorgement

!. F 3 Principal can reco(er the (alue o the use by the agent

a. $est % 9@9 Biability for se of PrincipalLs Assets: An agent who, in (iolationo duty to his principal, uses or his own purposes or those o a third personassets o the principal7s business is subject to liability to the principal or the(alue o the use. E the use predominates in producing a proft he is subject toliability, at the principal7s election, or such proft? he is not, however, liablefor pro4ts made by him merely by the use of time which he has contractedto de(ote to the principal unless he (iolates his duty not to act ad(ersely or incompetition with the principal.

. $est % 9@H PrincipalLs )hoice of $emedies: -1 E an agent has recei(ed a beneftas a result o (iolating his duty o loyalty, the principal is entitled to reco(er rom himwhat he has so recei(ed, its (alue, or its proceeds, and also the amount o damagethereby caused? e=cept that, i the (iolation consists o the wrongul disposal o theprincipal7s property, the principal cannot reco(er its (alue and also what the agentrecei(ed in e6change thereor.

i. - A principal who has reco(ered damages rom a third person because o anagent7s (iolation o his duty o loyalty is entitled ne(ertheless to obtain romthe agent any proft which the agent improperly recei(ed as a result o thetransaction.

f' corporate setting – remedies for breach of 4duciary duty ofagents

' FDIC v Smith – oard of directors is accused of reach of fiduciary duty y reg co##ission thattook over the ank – fed sues oard on ehalf of the ank – P clai#s statute of li#itations as a defnse

• in TX there is special SoL for breach of fiduciary duty concerning statute of li#itations) 4

years, this was added in *+++ so avoid any case law suggesting yr! o. /always re#e#erto check the statute, sheapardi0e1keycite2 – its not tort or contract, ut statutory – generally theo. egins to run in tort when person eco#es aware of the tort, had reason to know, or eennotified

• Hoctrine o Ad(erse Homination+ corporations only act through their ocers and

directors, and those ocers and directors cannot be e6pected to sue themsel(esor to initiate any action contrary to their own interests

o 9ationale+ it is impossible or the corporation to bring the action while it iscontrolled by culpable ocers and directors

o )wo (ersions o the Hoctrine 3 only applies to 5o% Hisinterested 4ajority+ E board o directors is suciently dominated

by ad(erse directors, the corporation is not treated as ha(ing known•


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o 4ajority (iew+ a majority o directors are ad(erseo 4inority (iew+ the entire board is ad(erseL i one

innocent guy knows, the entire corporation knows (iaimputation

• A plaintiG benefts rom a presumption that the cause o action does not accrue or the statute o limitations does notrun so long as the culpable directors remain the majority

• Heendant can rebut that presumption with e(idence thatsomeone other than the wrongdoing directors had knowledgeo the basis or the cause o action, combined with the abilityand the moti(ation to bring an action.

• Because corporation could not act, 5K% tolls until suit may bebrought -the ad(erse agents are no longer in control

5ingle Hisinterested Hirector+ i there is one director with knowledgein a board o directors and that director is ad(erse, P is notresponsible

• 5tatutes o limitations are tolled only so long as there is no

director with knowledge o acts gi(ing rise to possible liabilitywho could ha(e induced the corporation to bring an action.

o PlaintiG has the burden o showing that the culpabledirectors had ull, complete, and e6clusi(e control o the corporation, and must negate the possibility that aninormed director could ha(e induced the corporationto sue.

I' Power of Agents to Eind the #irm by nauthorizedActs

• 9estatement-s – Apparent Authority – "stoppel to Heny Agency – Enherent Agency Power

• Not 9estatement .hird• Ostensible authority

– Ised in some states – Blending o other categories

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B.Apparent Authority )$ has done something tocreate liability+

c' Apparent authority cannot be created by the agent0sconduct

A. "pparent authority all depends on what the third party elieves – (1) the P holds out4that the agent has the authority – P's #anifestation of consent to e ound, (2) 3rd party reasonaly elieved1relied that the P consents to "'s authori0ation, "5& (3) the3rd party #ust actually elieve the agent is authori0ed!

-1 even if " #akes state#ents, " can only ind P if P authori0es it – "gent'sauthority alone cannot create apparent agency

ii. @holds out can be created ! ways S -1 by direct $ to /rd partycommunications -not in the case o Uamilton hauling? by - appointmentto a position "ith customary duties? or by -! prior acts )practice orcourse of dealing+ as bet"een the parties.

1. $est % J Apparent authority is the power to aGect the legal relations o anotherperson by transactions with third persons, proessedly as agent or the other, arisingrom and in accordance with the other7s maniestations to such third persons.

. $est % 7H "6cept or the e6ecution o instruments under seal or or the conduct otransactions re:uired by statute to be authori;ed in a particular way, apparentauthority to do an act is created as to a third person by written or spo


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i. >or actual authority, !P#s state o mind is irrele(ant. A=#s state o mind isrele(ant.

ii. >or apparent authority, A=#s state o mind is irrele(ant. !P#s state o mind isrele(ant.

d. .he 8P0s belief must be reasonable in the circumstances . & BI) !P may

ha(e a duty to in:uire urther to establish a oundation or a reasonable belie.C. .here is no reuirement that there be detrimental reliance from the 8P0s

belief that the agent was authorized'

2. Apparent authority is a two way street: Principal can use apparent authority toenorce the agreement and the !P can use apparent authority enorce theagreement.

N. Apparent authority cannot be established when the principal isundisclosed'

M. 5ee Hamilton Haulin# v G' where agent or )rucking co. '#d or M33k per year * hisactual authority was only or Ck o '#s & circumstances there were not enough tocreate apparent agency

Ostensible authority S it is assumed that a party is an agent based onthe circumstances o the situation * might bind P or unauthori;ed acts * Anostensible agency must be traceable to the principle and cannot be establishedsolely by the acts, declarations, or conduct o the agent & like apparent auth. Enthis regard

C. Estoppel )$ has done something to create liability+1. $est % JE A person who is not otherwise liable as a party to a transaction

purported to be done on his account, is ne(ertheless subject to liability to personswho ha(e detrimentally changed their positions because o their belie that thetransaction was entered into by or or him+ -go to @b or elements -do not say

relied in detriment & it#s a diGerent standard than that used in '#si. Estoppel to deny agency S belie o an appearance o authority because

-1 P intentionally or negligently acts to cause such belie -is induced -canbe an armati(e act or omission, - !rd party in => relies -! and changesits positions to its detriment.

• Under pure negligence theory - E the person -P -1intentionally or carelesslycaused such belie, O$ ha(ing notice o such belie, - that )Ps mightchange position, -! no reasonable steps to notiy )Ps o the actsA. 4etalworking 4achinery (. >abco+ P purchased a machine rom H? but P let

it there or almost a year, and H then sold it to another.

-1 mere possession does not gi(e authority -but the I00 F*3! says thatwe do not re:uire merchants to show title & and here we ha(e nomerchant so the I00 does not apply.

b' he intentionally or carelessly caused such belief, or

c'


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a. -not the same as reliance, need actual change in position, not just reliance onstatements by A

!. "stoppel =eneral 9ules

a. 4erely gi(ing possession o property to someone else does not create apparentauthority or estoppelL slight additional circumstances can create apparent

authority or estoppel & such as, gi(ing the indicia o ownership to the agent alongwith the property & -e.g., gi(ing agent the property and the title document to it

b. )) provision: A merchant can only transfer the rights of the entrusterto a buyer' A thief as the entruster had no rights at all so the merchantacuired no rights it could transfer to Euyer'

. "stoppel (. Apparent Authority

a. 4ere ailure to act by P9 can gi(e rise to estoppel. 4ere ailure to act normallydoes not gi(e rise to apparent authority because it is not seen as a maniestationby P9. -4ere ailure to act when the reasonable principal would ha(e, mightcreate apparent authority

b. )o assert estoppel, the !P must ha(e changed his position detrimentally on hisbelie that the agent was authori;ed. (ere entering into the contract is nota change of position' 8P must show he has suered from some damagebased on his belief' U%40+ >idelity was ha(ing fnancial trouble so it sold and assigned all itsloans to >U%40? Hupuis, the borrower, had no idea o the assignment. >U%40 inturn contracted with >idelity to ser(ice Hupuis# loan and all the notes, again she hadno idea. -undisclosed P )his ' ga(e rise to an agency relationship & thus >idelity asA had authority to bind >U%40 as P. >idelity cannot be sued bc o bankruptcy? whichinnocent party will pay/

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i. >U%40 S undisclosed P? >idelity S general agent. 5o the P is liable to the !rdparty.

A. why/ & >idelity is a general agent bc it was appointed to act on behal o>U%40, there was consent, etc. 5er(icing the loan includes acts that areusual or necessary in such transactions.

ii. * cannot be apparent authority bc there can be no holding out when there isan undisclosed P

iii. * cannot be estoppel bc the !rd party cannot ha(e a belie that an agencye6ists i the P is undisclosed

A. the P did not authori;e the A to mismanage the account, A was authori;edto properly ser(ice the loan. Uere the A did recei(e payments but ne(ercredited the account.

i(. this is inherent agency po"er 1 it arises from some agencyrelationships 2 general agents -defned by saying it is not apparentauthority and it is not estoppel.

A. the usual rule is that as between two innocent parties, the loss should all

upon the one who created the enabling circumstances S the P.(. or apparent authority, P must be disclosed* or inherent authority, P can be

undisclosed

8' $est % 8

a' -1 A general agent is an agent authori;ed to conduct a series oftransactions involving a continuity of service'

i. indicates a airly close relationship between agent and principal? no reshauthori;ation re:uired or each transaction -aka enterprise liability& similar to9espondeat 5uperior where only ser(ants can subject principal to liability intort

ii. #actors include the number o transactions, the length o time, and priordealings between the A Q P

b. - A special agent is an agent authori;ed to conduct a single transaction or aseries o transactions not in(ol(ing continuity

. $est % JA "nherent agency is a term used in the restatement to indicate thepower of an agent which is derived not from authority, apparent authorityor estoppel, but solely from the agency relation and e6ists or the protection o !P#s harmed by or dealing with a ser(ant or other agent.

a. )reat Principal as bound merely because o the agency relationship.

b. $emember+ 9espondeat 5uperior+ Principals are (icariously liable or tortscommitted by ser(ants in some situations. )he agent has to be -1 a ser(ant &

principal has right to control his work and - has to commit the tort while actingin the course Q scope o employment. $1 is a form of inherent agency powerfor binding principal in tort'

C. $est % nauthorized Acts of ;eneral Agent A general agent or adisclosed or partially disclosed principal subjects his principal to liability oracts done on his account which usually accompany or are incidental to transactionswhich the agent is authori;ed to conduct i, although they are orbidden by the

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principal, the other party reasonably belie(es that the agent is authori;ed to dothem and has no notice that he is not so authori;ed.

a. "lements -actors o inherent agency

i. A general agent

ii' for a disclosed or partially disclosed principal

iii.Inauthori;ed acts done on behal o the principali(. )he acts are those which usually accompany or are incidental to

transactions which the agent is authorized to conduct

A. Acts must not be too ar remo(ed or the agent#s authori;ed conduct.

(. !P reasonably belie(es A= is authori;ed and has no notice that A= is notauthori;ed.

2. $est % ?9 Acts of ;eneral Agents A general agent or an undisclosedprincipal authori;ed to conduct transactions subjects his principal to liability oracts done on his account, i usual or necessary in such transactions, althoughorbidden by the principal to do them.

a' *lements undisclosed principal' -inherent agency or undisclosed P * actor

i. A general agent

ii. >or an undisclosed principal

iii.Inauthori;ed act done on behal o the principal

i(. Isual or necessary in such transactions

A. )he act was not too ar remo(ed rom what the agent is authori;ed to do.

(. NO belie by !P that A= is authori;ed neccesary because P9 is undisclosed.

H' No fault on part of Principal reuired to be bound by inherent authority2similar to $16' Fith ostensible, apparent authority, and estoppel, thePrincipal is somehow at fault'

E. Liability for epresentations by Agent 1. 9epresentations o P9 to !P are central or defning apparent authority. En contrast,

inherent authority originates rom the customary authority o the person in theparticular A=R relationship and no representations beyond the act o the e6istenceo the relationship need be shown.

. Essue+ Es the principal liable or the representations by the agent/

a' %ikely yes, due to Enherent Agency' n'8, p'7H@, problem based on >yer v' ohnson

b. A= is liable to the !P or his misrepresentations. A= is always liable or his ownmisconduct.

c. A= has liability to P9 i !P reco(ers rom P9. A= must indemniy P9 or any lossdue to a breach o his duty.

i. F !M! an agent is subject to a duty to the principal to act in the principal#saGairs e6cept in accordance with the principal#s maniestations o consent.

ii. F 31 & E agent breaches a duty and causes a loss to the principal, the agenthas a duty to make good on that loss. p.N1

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!. An agent#s alse statements can be attributable to the principal i the agent is actingwithin the course and scope o employment. )he attribution to the principal occursbecause o the inherent power o the agent in that position.

a. Enherent agency power in the contractual conte6t bears a lot o resemblance torespondeat superior. )he principal is bound to a contract under EAP not becausethe principal has done anything wrong, but solely because o the e6istence o theagency relationship. )he EAP re:uirement that the agent be a @general agentseems similar to the re:uirement in respondeat superior that the agent be a@ser(ant. >urther, the EAP re:uirement that the agent#s conduct be @incidentalto the agent#s authori;ed conduct seems similar to the re:uirement inrespondeat superior that the ser(ant commit the tort while acting in the scope oemployment.

b. Policy+ a(oid constant recourse by third persons to the principal, which would becorollary o denying agent any latitude beyond his e6act instructions. !P ought tobe able to rely on agent#s authority without ha(ing to constantly check with theprincipal.

c. F 121 )he act o the agent must usually accompany or be incidental to the

agent#s authori;ed conduct. "s the agent0s action the type of thing that iswithin or not too far removed from his authorized conduct

I"' #irm0s Accountability for noti4cationtoD


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-1 Inless otherwise agreed, an agent is sub/ect to a duty to usereasonable eorts to give his principal information which isrelevant to aairs entrusted to him and which, as the agent hasnotice, the principal would desire to have and which can becommunicated without violating a superior duty to a thirdperson'

276An agent may ha(e a duty to act upon, or to communicate to hisprincipal or to another agent, inormation which he has recei(ed,although not specifcally instructed to do so. .he duty e=ists if hehas notice of facts which, in view of his relations with theprincipal, he should


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7. *ime from "hich noti6cation or 8no"ledge a'ects the principal

1. 'nowledge and notice in(ol(e responsibility o awareness o inormation.Jotifcation is a ormal act intended in itsel to aGect legal relations. -do not need areasonable time or notifcation to be eGecti(e & i it re:uires a response, then there

must be a reasonable time to communicateact. 1hen !no%led#e is e2ective3 Principal attributable with knowledge when

a' % 7HJ .ime Fhen AgentLs Gnowledge Aects Principal

i. P9 is aGected by the knowledge which A= has when acting or him or, i it isthe duty o A= to communicate the inormation and not otherwise to act, P9 isaected after the lapse of such time as is reasonable for itscommunication. 0m. a+ 'nowledge is important only i, because o it, onecan intelligently choose his course o action. & like decision to deend a suit

b' Eefore Principal may be charged with Agent0s


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b. the principal rights are aGected by Xis imputed withY the knowledge o the agenteither -1 when the knowledge occurs within the scope o the agent#s power tobind the principal Xlearn o a material act within their duty to act on behal o PYK9 - when the agent has a duty to gi(e the principal that inormation.9estatement FN.

c. Policy+ imputed knowledge in(ol(es actual authority & knowledge is imputedbecause it is better to put the risk on the careless principal than on an innocent!rd pt & consider also the abo(e elements

d. in corporations there may be problems communicating knowledge between otherremote ocers & the @reasonable time standard should most likely be e6tendedin a case where corp is broad and there are remote agents & rosins "66one6ample

i. Biggs * must allow a reasonable time or the A to pass the ino on to P. )henallow a reasonable time or P to act.

C' *=ception to imputing


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A. All this is most easily seen in the light o when knowledge is imputed to a P(ia agent

-1 %imited to knowledge o those in control

. Noti4cation+ Dvorace! v. Gillies

a. Jotifcation to the agent results in notifcation to the principal i the agent has

actual or apparent authority to recei(e the notifcation at the time the notifcationis gi(en to the agent. Jotifcation to an ad(erse agent is also eGecti(e unless the!P has notice that the agent is acting ad(ersely.

i. $est % 7H Noti4cation- AgentLs "nterests Adverse to PrincipalLs: Anotifcation by or to a third person to or by an agent is not pre(ented rombeing notice to or by the principal because o the act that the agent, whenrecei(ing or gi(ing the notifcation, is acting ad(ersely to the principal, unlessthe third person has notice of the agentLs adverse purposes.

I""' $ati4cation of nauthorized .ransactions

A. A:rmance1. )wo aspects+ can a transaction be ratifed and was it ratifed/

a. 5ee otticello v. 6tefanovic7 & no ratifcation & and no adoptionarmance

i. 0ourt sol(ed it by making U accountable to !rd pt or breach o E


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' Adoptioni. Kccurs when

A. A has purported to bind P to an agreement while lacking power to do so?B. P cannot ratiy A#s unauthori;ed act, bc P didn#t e6ist at time o act or

wasn#t able to authori;e?0. )he original agreement made by A and )P e6pressly or impliedly

empowers P to choose to recei(e the benefts and assume the obligationso the agreement? and

H. P maniests its desire to recei(e the benefts and assume the obligations o the agreement.

ii. Hoes not relate backiii.Hoes not release A rom liability

A. Inless the agreement did so

B. !no"ledge of Agents; e'ect on rati6cation1. 'nowledge only attributed when A= acts within the scope o her authority. 9est F N

says knowledge o A= is attributable to P9 i A= has power to bind or a duty tocon(ey the inormation.

a. E an agent#s knowledge can be attributable to the principal, then that aGects theprincipal#s ability to rescind ratifcation o a transaction.

T' Biability for Frongful Acts of 1ervants2$espondeat 1uperior6

A. (ntroduction

1. $est' % 7?26 $espondeat 1uperiorDIicarious Biabibility 2form of strictliability – liable not because principal has done something wrong ornegligent but simply because of the principalDagent relationship6:

i. this is diGerent rom general agency & there is more control necessary todemonstrate master ser(ant relationship

a. A principal -master is vicariously liable or the torts committed by an agent i

i. the agent is a ser(ant

ii. acting in the course Q scope o his employment.

. A principal is directly liable i negligent in selecting or hiring an agent.

B.


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c. it is actuated, at least in part, by a purpose to ser(e the master, and

i. 0ourts are willing to stretch on scope o employment especially on this actor-purpose to ser(e the master

-1 >raud will limit the denial o liability by master e(en i "" was not actingto beneft the master

d. i orce is intentionally used by the ser(ant against another, the use o orce isnot une6pectable by the master.

i. )orts+ Jegligent, intentional as long as not orce is not une6pectable -5age0lub as opposed to Joah (. Ziehl

ii. )he employer need not ha(e oreseen the precise act or the e6act manner oinjury so long as the general type o conduct may ha(e been reasonablye6pected.

7' $est 77? se as further guidance in helping to determine if the test in %77J is met'

i. -1 )o be within the scope o the employment, conduct must be of thesame general nature as that authorized, or incidental to the conduct

authorized.ii. - En determining whether or not the conduct, although not authorized, is

ne(ertheless so similar to or incidental to the conduct authori;ed as to bewithin the scope o employment, the ollowing matters o act are to beconsidered+

A. whether or not the act is one commonly done by such ser(ants?

B. the time, place and purpose o the act?

0. the pre(ious relations between the master and the ser(ant?

H. the e6tent to which the bi; o master is apportioned between diGerentser(ants?

". whether or not the act is outside the enterprise of the master or, if

within the enterprise, has not been entrusted to any servant?>. whether or not the master has reason to e6pect that such an act will be

done?

=. the similarity in :uality o the act done to the act authori;ed?

U. whether or not the instrumentality by which the harm is done has beenurnished by the master to the ser(ant?

E. the e6tent o departure rom the normal method o accomplishing anauthori;ed result? and

. whether or not the act is seriously criminal.

!. 7 * liability may be e6tended to master where not acting to beneft master when

master pro(ides opportunity and reasonable appearance o apparent authority toact, or i ser(ant misrepresents to deraud a third party who relied on that apparentauthority

i. 4asters are liable wo ault or torts o employees that are within the scope oemploymentA' Ability to control actions of **E' (ust act primarily with an intent to bene4t master

-1 >raud will limit the denial o liability by master e(en i "" was not actingto beneft the master

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0. )ime and placeH. Jormal action or agent to conduct

. >rolic i conduct is so clearly outside the scope o employment? detour i it is only aslight de(iation. Babels only, not analysis. issociation – 2.ermination of Agents6

A. >oluntary *erminations

' "n general, agency relationship terminates in one of three waysa' 26 Ioluntary action of the principal or the agent

i. $est % ? 4anner o 9e(ocation or 9enunciation+ Authority created in anymanner terminates when either party in any manner manifests to the other dissent to its continuance or, unless otherwise agreed, whenthe other has notice of dissent. 0m a+ An agreement that the authority isto be re(oked or renounced only in a particular manner is ineGecti(e? despitesuch an agreement, any orm o maniestation made known to the !rd party is

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eGecti(e. )he authority terminates when either party knows or should know o the maniestation o the other -see F 13, or has been gi(en a notifcation bythe other.

ii. )ermination o the agency relationship occurs when one party has notice thatthe other party maniests dissent to the continuance o the relationship.

A. 4aniestation can be by word or conduct -inconsistent with authoritypre(iously gi(en. Notice to A= means A=


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0. $est % & a change in law o which the agent has notice that will makethe act the subject o the agency illegal

H. $est % 8, 9 & the bankruptcy or substantial impairment o the assetso the agent or principal o which the agent has notice

". $est % C & the outbreak o war o which the agent has notice

3. Lingering Apparent Authority i. /u!aitas v. 'etna +asualty & 6urety +o. - dr malractice case %here a#ent

failed to #ive notice to roer ins. rovider

b. >istinction between general agent and special agent or how lingeringapparent authority is terminated

-1 general agent S authori;ed to conduct a series o transactions -not just one involving a continuity of service. >actors include thenumber o transactions, the length o time, and prior dealings betweenthe A Q P.

- special agent S not a general agent, usually or one act

ii. Jotifcation to a general agent aGects the principal when the agent has actual

or apparent authority to recei(e the notifcation.iii.Agent does not ha(e actual authority to recei(e notifcation when the agency

relationship is terminated but he can ha(e apparent authority -lingeringapparent authority of general agent.

iv'$est % 7H Apparent Authority of ;eneral Agent

A. Inless otherwise agreed, i the principal has maniested that an agent isa general agent, the apparent authority thereby created is notterminated by the termination o the agent7s authority by a causeother than incapacity or impossibility, unless and until the third personhas notice thereof'

c. %ingering Apparent authority e6ists+

i. %ingering power to bind

A. by some As Q

B. to some )Ps

ii. =eneral Agent

A. Always as to )P#s with no

-1 'nowledge, reason to know or notifcation gi(en to agent

B. By holding A out as a =A, )P7s may reasonably belie(e A continuingauthority. 5ee 9A 1N cmt. a

iii.5pecial Agents * generally no %AA e6ists & but see below or when it does

d' *ective notice for termination of lingering apparent authority of

agents

i' $est % 87 terminating BAA of 1pecial Agent – factor

A. =enerally there is no %AA or special agents unless one o the ollowingcriteria is met+

-1 -a the principal has specially accredited the agent to the third person?

- -b the agent has begun to deal with !P and the principal has notice odealing?

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-! -c the agent is in possession o indicia o authority entrusted to him bythe principal and shown by him to the third person? or

- -d the principal has maniested that the agent has authority torepresent the none6istence o the terminating e(ent and the agentdoes so represent.

B. )o terminate %AA or the abo(e, actual notice to third parties is re:uired toa(oid P liability

ii' $est % 8 Noti4cation to .erminate Bingering Apparent Authority

A. -1 Inless otherwise agreed, there is a notifcation by the principal to thethird person o re(ocation o an agent7s authority or other act indicatingits termination+

-1 -a when the principal states such act to the third person? or

- -b when a reasonable time has elapsed ater a writing stating suchact has been deli(ered by P9 -how to give actual notice to 8rd ptwho res' "t

-a -i to the other personally?

-b -ii to the other7s place o business?-c -iii to a place designated by the other as one in which business

communications are recei(ed? or

-d -i( to a place which, in (iew o the business customs or relationsbetween the parties is reasonably belie(ed to be the place or thereceipt o such communications by the other. & see Dvorace! v.Gillies

B. - Inless otherwise agreed, or a notifcation to be eGecti(e in terminatingapparent authority it must be gi(en by the means stated in 5ubsection -1with respect to a third person+ .hese re' actual notice factor

-1 -a who has pre(iously e6tended credit to or recei(ed credit rom the

principal through the agent in reliance upon a maniestation rom theprincipal o continuing authority in the agent?

- -b to whom the agent has been specially accredited -when P calls upand says this is my agent?

-! -c with whom the agent has begun to deal, i the principal does orshould know? or

- -d who relies upon the possession by the agent o indicia o authorityentrusted to him by the P9.

0. -! "6cept as to the persons included in 5ubsection -, the principal canproperly gi(e notifcation o the termination o the agent7s authority by+-for persons dealing with ;A0s who don0t re' actual notice

-1 -a publication or ad(ertising the act in a newspaper o generalcirculation in the place where the agency is regularly carried on? or

- -b gi(ing publicity by some other method reasonably adapted to gi(ethe inormation to such !P

H. 0omment b+ b. )he re:uirements o 5ubsection -1 are not met by mailinga letter to the third person? the letter or message must reach himpersonally, his place o business, or other designated place? i deli(ered toa person there or elsewhere, it must be deli(ered to a person who has

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authority or apparent authority to recei(e it. )he principles o agency areapplicable and a notifcation gi(en to an agent o the third person withpower to bind his principal by its receipt is notifcation to the principal. 5eeF 2M.

!. 9est !d simplifes the rules around termination? no distinction between general Qspecial A=s.

B. *erminations by operation of la"

0. Death1. 0ommon %aw 9ule $est % 7@ >eath of Principal &

a. -1 )he death o the principal terminates the Xactual and apparentY authority o the agent without notice to him, e6cept as stated in subsections - and -! andin the ca(eat.

i. - Intil notice o a depositor7s death, a bank has authority to pay checksdrawn by him or by agents authori;ed by him beore death.

ii. -! Intil notice o the death o the holder o a check deposited or collection,the bank in which it is deposited and those to which the check is sent orcollection ha(e authority to go orward with the process o collection.

b' .he eect of the common law rule on the agent means that the agenthas breached his implied warranty of authority 2he has no power to bindwhen principal dies6'

c' At CL% death of the $ operates as an instantaneous and absolutere#ocation of the agent’s authority or po"er% unless the agency iscoupled "ith an interest .

i' n case %here PKA ga(e authority to add name to decedent#s 0H#s as ), the 8(would have een an interest, ut the P dies efore the interest was created 9 death

ter#inated the agency and agent had no authority to change na#es! "state o'rempasky

. (odern .rend in some )ourts & in $est' 8d, A; would still have apparentauthority to act' .his authority would last until 8P had notice of the deathof the principal' 6choc! v. 8nited 6tates & remember that there must be somemaniestation rom the principal to !P beore apparent authority will e6ist. E therehas been no maniestation o authority rom principal to !P, there would be noapparent authority. Possible scenarios

i. 6choc! v 86 *


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i. Policy for 1hoc< rule: the point o apparent authority is to protect !Ps basedon maniestations rom the principal. )hey should continue to be protecteduntil ha(e notice o the death. )he risk o termination should all on the estateo the principal and not on the business. Protect business instead o theestate.

ii. $est 8d on p78 2GNOF .+"16

A' .he death of a principal terminates the agent0s actual authority'.he termination is eective only when the agent has notice of theprincipal0s death' .he termination is also eective against a 8Pwith whom the agent deals when the 8P has notice of theprincipal0s death'

!. 9est F 1A cm a Apparent authority. Authority and apparent authority,Lmay e6istconcurrently or there may be one and not the other. En any e(ent, they are createdby independent means, one by a maniestation to the agent, the other by amaniestation to third persons. "f before the termination of authority, therewas no apparent authority, there is none afterwards, unless A; retainsindicia of authority or other basis of apparent authority, in which case the

termination of authority does not aect it' "f there was apparent authoritypreviously, its e=istence is unaected until the


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c. Hurable Uealth*0are PKA & li(ing wills, etc., to gi(e other the power tomake health*care decisions on your behal should you become comatose,etc.

i. )[ * durable PKA gi(es the holder lingering apparent authoritydespite (oluntary re(ocation, incapacity or death\ 5ee below &actual auth. too

ii. 0A * both actual and apparent authority continue until A orthe !P know o death or incapacity.

7' .ermination of the Agency $elationshipD1tatutory$esponses to the >eath "ssue

1. )hree types o statutory responses

a.


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/"2


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c. Agency powers are usually always re(ocable by (oluntary act, e(en i thedocument pro(ides so? the P retains the power to re(oke the agency. .woe=ceptions+

i. where the power is coupled with an interest in the subject mattero the power -the only one not terminated by death?

ii.a power gi(en or consideration or as security -sur(i(es death &like a real estate ' to sell property

!. )erminations by operation o law & statutory e6ample below

a. idelity an! v. Gorson+ person appointed lender as agent to basically o(erseethe entire loan, recei(e notices, and to enter judgment against debtor * this isallowed in PA, but (oid as against public policy in )[ & confess /udgmentclause in a note. )he creditor only has an interest in getting paid, nothingbeyond that, so it can be terminated by death. )he death o the makerP o anote re(okes the power to coness judgment against the makerP.

C. (rre#ocable Agencies

1. "rrevocable Agency * )wo )ypesa. Power coupled with an interest & A power coupled with an interest in the

subject matter o the power, not just an interest in the proceeds rom thee6ercise o the power. -e.g., mortgage granted where mortgager transers title tothe property to the mortgagee and grants a power to sell the property in thee(ent o deault

A. Boo< out for tric< uestion where person owns an individualinterest in property and then signs a PoA for sale & this E5 JK) apower coupled with an interest because the PoA is not coupled to a powero sale & there the subject matter o the power is in the interest o theother persons estate, so the subject matter o the actual power is not tiedto a pre*e6isting interest

ii. )ourts will stretch to classify possession only as power coupled withan interest' e.g., isher v. 49&M+R&+ +o & i grantor deli(ers to the holdero the power the property securing the debt, it creates a power coupled withan interest.

A. 5ee v. O:rien ,a will pro(ided that the option to buy the land would go toD1, i ali(e, then D i ali(e, etc. -primogeniture. All kids agreed thatthe trust should con(ey the land to all o them as )E0, so each got apresent ] interest ** 51 did not ha(e an interest in 5#s ] interest in theproperty so no power coupled with an interest. 5 could (oluntarilyterminate. )he power must be coupled with an interest in the sub/ectmatter of the power.

/*2 the PKA said it was irre(ocable & but was it a power coupled with aninterest/ Jo, they each ha(e an interest in the property? but it mustbe coupled "ith an interest in the sub?ect matter of the po"er .- the su>ect #atter is not the property, it is the separate interests in the property!

-a * to determine, remo(e power and then look or remaining interestin the subject matter & ridge e6ample & no power let no interest inridge

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-b )he interest held by agent must be independent rom his authorityto e6ercise power

2c6#or powers coupled with an interest, voluntary revocations,revocations by death, or incapacity do not wor< to revo


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i. Hen+ Persons & IPA F , 9IPA F 131.13

c' .o carry on as coowners – shared control of the business

i. PA % J2e6' $ules >etermining $ights and >uties of Partners: Allpartners ha(e e:ual rights in the management and conduct o the partnershipbusiness.

ii. $PA % 9@2f6' PA$.N*$L1 $";+.1 AN> >."*1+ "ach partner has e:ualrights in the management and conduct o the partnership business.

d. A business – an activity that rises to the level of being a business 2e'g',not mere coowners of land6 IPA F , 9IPA F 131.1 A business is a series oacts directed towards an end. Isually generating a proft

e' #or pro4t – to maetermining the *=istence of a Partnership:

i. PA %H296, $PA %7@72c6286 persons "ho share pro6ts are presumed to be partners% unless they are being recei#ed in a non-partnershipcapacity )"ages% rent% etc.+. IPA FN- said it was prima acie e(idence.9IPA says it is a rebuttable presumption. -see e actors below to rebut thepresumption

ii. 4ust look to -1 the written agreement or - the conductLto determine i itwas a partnership -need all elements o intent& business& pro6t& co-o"nership of pro6ts% property and control .

b. "6cept as pro(ided by F 12 persons who are not partners as to each other are notpartners as to !P#s

c. oint tenancy, tenancy in common, tenancy by the entireties, joint property,common property, or part ownership does not o itsel establish a partnership,whether such co*owners do or do not share any profts made by the use o theproperty.

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d. )he sharing o gross returns does not o itsel establish a pship, whether or notthe persons sharing them ha(e a joint or common right or interest in anyproperty rom which the returns are deri(ed.

e. )he receipt by a person of a share o the profts o a business is prima facieevidence that he is a partner in the business, but no such inerence shall bedrawn i such profts were recei(ed in payment+ * actor

A. As a debt by installments or otherwise. -e.g., creditor

B. As wages o an employee or rent to a landlord,

0. As an annuity to a widow or representati(e o a deceased partner, -e.g.,law frm

H. As interest on a loan, though the amount o payment (ary with the proftso the business.

". As the consideration or the sale o a good*will o a bi; or other property L

C. Partnership IPA F 2, 9IPA F 3-a -act intensi(e in:uiry to determine i partnershipormed?

a. )here must be an agreement to share profts -necessary prere:uisite but not

defniti(e? other non*partnership relationships also in(ol(e proft sharing?normally sucient to submit the issue to the act fnder. "ntent to sharepro4ts X shared control of the business will generally be enough to 4nda partnership 2but not always P&( )attle6' Actual pro4ts are notreuired'

b. $PA % 7@72c6286 a person who receives a share of the pro4ts o a businessis presumed to be a partner in the business

2. 0onsider n Re eytonics actors to determine Ps

a. )BK0 & says that association as co*owners @creates a partnership regardless owhether parties call it a joint (enture& 1C.3C1

A. )his assoc test is the primary test used by courts to determine i apartnership e6ists & but this is basically an intent element-1 )BK0 incorporates some common law actors to determine i ps e6ists&

1C.3C & because this is what the courts actually do &- >actors or intent to assoc test & (iew them in totality of

circumstances-a look at name of company formed, incorporating names into

the co. name may be seen as e(idence o intent to associate-b pro4t sharing, * this creates a presumption o partnership unless

the money is shared or-A As a debt by installments or otherwise,-B As wages o an employee or rent to a landlord$-0As an annuity to a widow or representati(e o a deceased

Partner

-A As an interest on a loan, though the amount o payment (ary

with the profts o the business,

-B As the consideration or the sale o the good*will o a

business or other property by installments or otherwise

2c6control sharing

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-i someone may be appointed to manage a partnership2d6loss sharing strongest possible evidence of partnership-i pretty clear indicator o a partnership & someone is bearing the

risk o he business-ii in some states and e6press agreement to share losses was

necessary & this was the )[ 0% rule

2A6 now, under .EO) – an agreement to share lossesis not necessary to 4nd a partnership relationship wascreated – .T is NOF a factor state, not an elementstate

-e contribution, see Engram ( Heere * =ontriution, - &? contriuted no#oney or property - ut services #ay e a contriution at co##on law –under (@ law services are not generally a contriution unless its value islaid out clearly in contract, will not Aualify as contriution – instead this isseen as a wage in (@-A its dicult to separate wages due rom ps rom a fnancial

contribution being made (ia timework contribution

- coownership of property in !eytronics &-g e=pression of intent to be partners-! all the abo(e are applied as actors, not elements- )BK0 actors & 1C1.3Ca actors indicating a partnership & proft

sharing, intent to be P#s, control, sharing or agreeing to share lossesand liabilities, contributing money or property to the business

#actors >alton P&(

Pro4t sharing -intent to share profts? necessary butnot determinati(e? creates presumption o partnershipF 3-c-!*-? distinguish partner proft sharing romcompensation proft sharing

Analy;ed,ound intentto share

Analy;ed,agreed toshare proftsbut not losses

Boss sharing – a


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not ha(e to contribute property to be a PJ? a PJ couldsimply pro(ide ser(ices and still be a PJ.

bothcontributedppty

"ntent of the parties


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a. Aggregate & the partnership is not separate and distinct rom the partners? theindi(idual partners are the partnership? partnership is merely a way o describingthe relationship among the partners -like a amily and its members & amilydescribes the relationship o the persons & a noun & a collection o persons

i. Originally under PA pDs was an aggregate & the modern (iew is totreat ps as an entity

b. *ntity & the partnership is an entity separate and distinct rom the partners. Et isa separate legal person with its own rights Q liability. & partnership is a (erbunder this theory

i. $PA % 7@2a6 PA$.N*$1+"P A1 *N.".W + -a A partnership is an entitydistinct rom its partners.

ii. .EO) % C7'@C' PA$.N*$1+"P A1 *N.".W + A partnership is an entitydistinct rom its partners. & generally )BK0 ollows the 9IPA

c. 5wie;ynski (. 0i(iello+ P was injured as an employee o a grocery store -H. 5hefled or workers# comp and was recei(ing it rom the partnership grocery store. Pthen fled a personal injury case against the partnership. E H#s -the partners arethe @employer o P then she gets no more money, bc they are immune underthe workers# comp statute -bc employers are paying insurance to pay the claimo employees and they gi(e up claims against employers or negligence.

i. Es the partnership the employer/ "mployer S person, partnership,corporation.

ii. 0an partners be separately liable rom the partnership/ Aggregate theory#. Entity theory L

d. Approaches to analy;ing partnership liability :uestions

i. 0onceptual analysis o partnerships * Hetermine entity (. aggregate, thenanaly;e acts.

ii. #unctional approach & emphasi;es looking at issues on the merits and

determines which (iew o partnership makes the most sense.A. se functional approach for class

i. Attorneys 2 see la" 6rm hypo abo#e for more info1. "ntityaggregate (iew has particular rele(ance to attorneys 91.1! & attorney or an

organi;ation is the attorney or the organi;ation itsel, not the constituents.

. 0an the partners in a partnership bring suit against the attorney or malpractice/

a. 0onceptual $iew

i. E partnership is seen as an aggregate, the indi(idual partners can sue theattorney.

ii. E the partnership is seen as an entity, only the partnership can sue theattorney, not the indi(idual partners. Arpadi & 0onceptual approach &partnership is an aggregate so indi(idual partners can sue the attorney ormalpractice? i partnership was considered an entity, only it could sue theattorney or malpractice

b. >unctional $iew

i.


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likely to think the attorney was their attorney too, then no, the indi(idualpartners cannot sue the attorney or malpractice? i they did -e.g., i ha(e ewpartners, geographically compact, they all meet with the attorney, might allthink the attorney is their attorney, too, then, yes, they can.

I"' P1hip0s Accountability for noti4cationtoD


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a. Notice to or


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a' PA % ?26' Partner Agent of Partnership as to Partnership Eusiness'

i. -1 *very partner is an agent of the partnership for the purpose of itsbusiness, and the act o e(ery partner, including the e6ecution in thepartnership name o any instrument, for apparently carrying on in theusual way the business of the partnership o which he is a member bindsthe partnership, unless the partner so acting has in fact no authority toact or the partnership in the particular matter, and the person with whomhe is dealing has


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a. Assign the partnership property in trust or creditors or on the assignee7s promise to paythe debts o the partnership,

b. Hispose o the good*will o the business,

c' >o any other act which would maierent

a. ? Actual knowledge -conscious awareness only v' 8@ knowledge -knew orshould ha(e known or notice

b. ? 5cope o ordinary course o business transactions+ limited to the partnershipitsel v' 8@ consideration o the way other businesses o the same kind conductthe business

c' Uandling o e6traordinary acts which re:uire consent o all partners+ ? list v' 8@no list

b6 Partnership by *stoppel 2purported partners, purportedpartnerships6

1. IPA F N. 9ules or Hetermining the "6istence o a Partnership? En determiningwhether a partnership e6ists, these rules shall apply+ -1 *=cept as provided by % persons who are not partners as to each other are not partners as to thirdpersons L

. IPA F 12. Partner by "stoppel?

a.


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partner and he is not , then he is liable to that /rd party "ho relies onthe representation and gi#es credit to the partnership.

B. .raditional estoppel rules apply & still need reasonable reliance by !rd pt & i unreasonable, then no liability

ii. Fhen a partnership liability results and person obtaining credit is not

a P, he is liable as though he were an actual member o the partnership.A. or public representation there must still be reliance * so the one

who relies must ha(e knowledge o the public representationso But it is not necessary that the public representation be made

directly to the !rd pt in reasonable detrimental reliance "stoppel does not inter(ene to protect people who ha(e no

knowledge o the representation

• Pri(ate representationso Uow to pri(ately hold out * actors

5ignature cards or accounts with name on it Payment accounts with name on it )elling people one is a partner in con(ersation 4anager telling people that one is a partner

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Being seen going in and out o the oceii. there was enough e(idence to pro(e there was a pri(ate

holding*out.

iii. public holding out or consent to a public holding out -donot ha(e to pro(e there was consent to represent to aspecifc person in contrast to pri(ate holding out -mustpro(e a specifc reerencerep to that person.

i(. a public holding out may relie(e proo o consent, butdoes not relie(e proo o reasonable reliance by thethird party.

. A person is liable i

a. -1 )here is a representation that the person is a partner in actual orpurported partnership'

b. - 5poken, written or conduct*based representation made by or with theconsent of the purported partner. 0onsent can be implied but

i. IPA+ a mere ailure to act does not create consent & merely knowing you#(e

been held out as a partner is not enough to say you ha(e consented.ii. 9IPA F !3M+ a mere ailure to act also does not create consent.

A. But. ailure to act in circumstances where the reasonable person wouldha(e corrected the mistaken belie might be seen as consent. -estoppeltheory

c. !P, on the faith of the representation, e=tends credit to the actual orapparent partnership.

i. !p has to rely on the representation.

ii. 0redit has been interpreted broadly & an e6ecutory contract that says, @Eagree to e6tend you credit in the uture is sucient to be @e6tending credit

A. 9IPA F !3M-a is liable to a person to whom the representation is made, i

that person, relying on the representation, enters into a transaction with the actual or purported partnership 2Not /ust e=tend credit6 – PAand .EO) only reuire e=tending credit dierent

d' Public broadcast of the representation

i. !P has to show that it detrimentally relied on the public representation ine6tending the credit. "stoppel always re:uires detrimental reliance.

ii. )o be liable, the partnership does not ha(e to ha(e knowledge that therepresentation has come to the attention o this !P.

A. 9IPA F !3M-a @purported partners S a person who purports to be a partner )or consents to being represented by another as a partner+ is liable to the !rd party to whom the representation in made if

the /rd party relies on that and enters into a transaction.e. %iability e6tends to

i.


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C. Analysis

a. Hoes an actual partnership e6ist/

i. Jo F 12-1-b purported partner and other consenters

ii. Res

A.


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in contra(ention o any agreement between the partners may be done rightullywithout the consent o all the partners.

a. >ierence as to ordinary matters connected with partnership may be decidedby a ma/ority vote o the partners. Heault rule is+ 1 (ote per partner -F 1M-epartners ha(e e:ual rights to control, unless modifed by partnership agreement.F 1M? $PA % 9@2f6,2/6

b. .EO) % C7'7@?2a6 & deault rule is a ma/orityininterest -partners get same(ote ^ as their current percentage in the profts o the partnership

i. All P0s still have an eual share in management of the pDs

ii. E. .EO) % C7'7@72c6 & deault rule, partners share profts e:ually -creditaccount? P#s also share losses the same way they share profts -chargeaccount? Heault rule on share o profts is IPA F 1M-a, 9IPA F 31-b &Agreement otherwise must be in writing

A' .o avoid a consensus when you0re not in ma/ority, partner mustdissolve and send out notice to avoid lingering partnership power

E' i B goes ahead outside the majority (ote, and '#s with another -anunauthori;ed act then the partnership will not be liable -under IPA FO-1i B has no authority and the !rd party knows that he has no authority.-under 9IPA it is i the !rd party had been notifed. )his is a breach of4duciary duty o obedience.

)' 9emember under )BK0 though that deault rules or (oting are majority ininterest

c. "f the partner acts


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partnership agreement

an e=traordinarytransaction

Inanimous 1M-h Inanimous 31-j Inanimous1C.3O-b

Addition o newpartners

Inanimous 1M-g Inanimous 31-i Inanimous 1C.31

"T' (anagerial >iscretion and #iduciary >uties

A. Duty of Loyalty - ,eneral $artnerships 2 6duciary dutiesgro" out of the po"er to act on behalf of another personas a trustee

' PA % 7

a. "(ery partner must account to the partnership or any beneft, and hold astrustee or it any profts -fduciaries deri(ed by him without the consent ofthe other partners -unanimous consent rom any transaction connectedwith the formation, conduct, or liuidation o the partnership or rom any

use by him o its propertyL

i. 1* is basically the essence o the duty o loyalty

ii. "f 4duciary duties are breached, the breaching P is disgorged of bene4ts gained from trans'

A. Policy * %ooking to deter breaches by remo(ing benefts

b. 0ardo;o & Meinhard v 6almon & )e6as rejects the idea o uncompromising rigidity* rhetoric o some cases -meinhard & but in general i you see 0ardo;o or4einhard :uoted, person who breached loses

i. P is a trustee

A. @Huties stricter than the morals o the market place

B. P has duty o the @fnest loyalty-1 @Jot honesty alone, but the punctilio o an honor most sensiti(e

- @Incompromising rigidity

c. 5ee also & "nea ( 5uperior court where amily Ps ormed to buy building & onenewly admitted P claims rent is below >4$ on part o the building being rented toanother solo practice lawyer P & breach o duty o loyalty unless other P#sconsented ater ull disclosure o all material acts

7' #iduciary duties supplementing partner duties to each other under PA %7 2general agency principles added to % 76

a. >uty of loyalty & partners are considered fduciaries o each other? each partnerhas a duty o loyalty to each other partner? occupy a position o trust

b. ASrmative >uty of full disclosure & disclose when dealing on own account-acting ad(erse and disclose all material acts regarding the transaction. 9est. F!O3

c. >uty to account for all pro4tsDbene4ts gained through the agencyrelationship without consent of the other partners 9est F !M3.

i. 5tarr (. Ent#l 9ealty+ Uarris was a real estate broker who brokered the dealbetween a third party and the Uarris# partnership. )he other partners weredoctors who simply in(ested in the partnership or ta6 purposes. Uarris was

Page C! !*un*1 1+12+33 P4


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the president and owner o the company that brokered the deal and was torecei(e a commission on the deal. Uarris also recei(ed an interest in theproperty. P#s claim that he breached his fduciary duties as a partner.

A. PA %726 is a remedy section, but partners are agents or thepartnership and they ha(e fduciary duties owed to each other and thepartnership -agency S A owes duty o loyalty to P to act or beneft o P.

B. partners account to the partnership -all the partners or any benefts orprofts recei(ed? without consent o all partners. 5ot allo"ed to getsecret pro6ts. 5cope is any transaction in ormation, conduct, andli:uidation.

d. )onsent of all partners is reuired unless the partnership agreementspecifes otherwise.

e. >uty of due care & to conduct partnership business with due care? breach bygross negligence, reckless and willul misconduct.

i. IPA F 1 does not list a duty o care but courts typically impose a duty o careon partners to each other.

• 8ohnson v! 7uck -

4anaging P buys out other P at low price. 4isrepresents andfails to disclose

financial condition of P1s and the prospects of P1 property – 7uck sells property for huge profit and #all is uilt there

• Ps can deal with P1 or other Ps• only in good faith, full disclosure and fair price• burden of proof on P!

• Jote+ other P was inactive in business• 9esult would ha(e been diGerent under 9IPA info as 3-b-1 P5 property,

– 3!-c+ must urnish without demand• ino re partnership#s business and aGairs• 9easonably re:uired or e6ercise o rights and duties under P5

agreement Q 9IPA• (7:= *B!3) furnish info on reAuest

• 7ut see Walter v Holiday Inns where withholding info oth P's had eAual access to was ok ecause they were oth sophisticated usiness#en

8' $PA % 9@92a6

a. )he only 4duciary duties a partner owes to the partnership and theother partners are the duty of lo

40n rosin.s2012 agency overview

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