backup of ba i outline
TRANSCRIPT
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Business Associations I
AGENCY
Principles of Agency
What is an Agent?o Definitions
Agencythe fiduciary relation which results from the manifestation of
consent by one person to another that the other shall act on his behalf and
subject to his control, and consent by the other so to act Essential elements
o Consent that the person will be subject to the control of the
other
Either express or implied
o Control of one person over the otherusually the key issue
to determine whether there is an agency relationship
It is not essential that the right of control beexercised, so long as the right actually exists
o Acting on behalf of the principal
Principalthe one for whom action is to be taken
Agentthe one who is to act
o General rule
The principal is liable for the acts of the agent so long as the agent is
acting with authority Is there a principal/agent relationship?
Is the agent acting within his authority?
This language is used for contract, not tort
o Special rules A travel agent is a special agent of the traveler for the purposes of that one
transaction between the parties and all usual duties go with thisrelationship
A real estate agent is primarily the agent of the party who first employs
him
An independent insurance agent is the agent of the insured, not of the
insurance company, and the insured can sue him for breach of contract,
etc.
Proof of the agency relationship cannot be shown by the statements of the
agent alone
Whoever makes the allegation that an agency relationship existshas the burden of proving the relationship
A party who deals with an agent is held to a duty of reasonable
investigation regarding that agents authority
o Buyer-Seller relationships
If a person buys from another with the intention of turning around and
selling it to someone else, there is not an agency relationshipit is abuyer-seller relationship
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Whether the buyer fixes his resale price
Whether title passes from seller to buyer
Whether the buyer is acting primarily for the benefit of the seller or
for his own benefit
How the parties have labeled the relationship (relevant but not
determinative) The amount of control reserved to the seller
Whether the buyer has an independent business
Whether the buyer gets to negotiate the quantity he buys
Whether the buyer always gets all of the sellers goods
The extent to which a middle man is free to negotiate for himself
with the end buyer
Only when a manufacturer controls the day-to-day or operative details of
the dealers business is an agency relationship potentially created
o Distinguished from trusts
A trust cannot be terminated at the will of the donor, but an agency
relationship can be terminated at the will of either party A person can be both an agent and a trustee
When the donor party retains control of the property, an agency
relationship is created, not a trust
A trustee has title to the trust property, but an agent does not have title to
the property of his principal
A trustee is not subject to the control of the beneficiary, but an agent is
subject to the control of his principal
An agency is created by the consent of the principal and the agent, but a
trust may be created without the knowledge or consent of the beneficiary
or of the trustee
General Versus Special Agents
o General rules
The third party has the duty to obtain information of the nature of the
agents authority
The third party must ascertain the nature and authority of the agent and he
cannot rely solely on the statement of the agent
o Definitions
General agentan agent authorized to conduct a series of transactions
involving a continuity of service Broader apparent authority than the special agent
More inherent agency powers than the special agent
Special agentan agent authorized to conduct a single transaction or afinite series of transactions not involving continuity of service
o Rules for special agents
A special agent can bind an undisclosed principal only to contracts made
within the scope of his authority
A special agent for an undisclosed principal has no power to bind his
principal, by contract or conveyances, which he is not authorized to makeunless:
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The agents only departure from his authority is
o In not disclosing his principal, or
o In having an improper motive, or
o In being negligent in determining the facts upon which his
authority is based, or
o In making misrepresentations (if he had the authority tomake representations)
The agent is given possession of goods or commercial documents
with authority to deal with them (like the bona fide purchaser for
value rule in propertythe bfp wins over the principal)
o General agents
Can bind the principal through his representations/misrepresentations if he
is authorized to make representations
Has full power to bind the insurer to the agents contract of insurance or to
issue policies or to accept risks Soliciting agents are special agents and do not have this power
Powers are coextensive with the business entrusted to him, and his
fraudulent act is that of the companys as well
A special agents fraud will be based on vicarious liability, not
agency theory
Sub-Agents
o Definitions
Person appointed by an agent empowered to do so to perform functions
undertaken by the agent for the principal, but for whose conduct the agentagrees with the principal to be primarily responsible
Person whom the agent delegates as his agent to perform an act for theprincipal which the agent has been empowered to perform through his
own representative
o Examples
Real estate broker operating under an exclusive listing contract with the
seller of the property stands in an agency relationship with the seller andthe authority given to the broker by the listing agreement will generally
include the implied authority to appoint a salesperson as a sub-agent to
perform the task assigned to the broker by the listing agent
When you hire a general contractor, it is implied that he will hire
subcontractors, which are sub-agents whom he has the implied authority to
hire on your behalfo Patterns of intent possible with sub-agency
P could intend that A2 is acting independently of A1 and directly under the
control of P, despite the fact that A1 hired A2 A2 is really a co-agent and not a sub-agent
A2 could be acting under A1s control only, and A1 is responsible for his
actions
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A2 is then an agent of both A1 and P and A1 would be liable to P for
A2s actions, and both A1 and P would be liable to third parties for
A2s actions This is the definition of sub-agent under the Restatement
A2 could be strictly A1s agent if P never manifested any intention to A1 to
appoint either a sub-agent or a co-agent P is then generally not responsible for the acts of A2
Vicarious Liability
Introduction
o General rule
A master is subject to liability for the torts of his servants committed while
acting in the scope of their employment
o Justifications for vicarious liability
Compensatorydeep pocket theory, to ensure that the victim will be fully
compensated and the master more likely has the ability to pay
Fairnesssince the servant is generally furthering the business of themaster, it is generally foreseeable as the inevitable result of doing businessand is seen as a business expense, based on the privilege of doing business
Loss spreadingrisk distribution theory, the employer is in the best
position to insure itself against the losses from tortious conduct
Efficiencywill avoid the necessity for detailed and costly judicial
analysis into whether the employer was negligent in hiring, etc. of hisemployees, encouraging careful choice of employees
Employee Versus Independent Contractor
o Definitions
Mastera principal who employs an agent to perform service in his
affairs and who controls or has the right to control the physical conduct ofthe other in the performance of the service
Servantan agent employed by a master to perform service in his affairs
whose physical conduct in the performance of the service is controlled oris subject to the right to control by the master
Independent contractora person who contracts with another to do
something for him but who is not controlled by the other, nor subject to
the others right to control with respect to his physical conduct in theperformance of the undertaking; he may or may not be an agent
o Factors to determine if someone acting for another is a servant or an independent
contractor
Extent of control which by the agreement the master may exercise over thedetails of the work and the degree of supervision
The more control over the details, the more likely he is a servant
Key test is whether the employer has the right of control and
supervision over the work of the alleged employee, and the right todirect the manner in which the work is done, as well as the result
which is to be accomplishednot the actual interference but the
right to do so
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ICs are not subject to the control of the employer except as to the
results or product of his work
Whether or not the one employed is engaged in a distinct occupation or
business
The more specialized and distinct, the more likely he is an IC
The kind of occupation with reference to whether in the locality the workis usually done under the direction of the employer or by a specialistwithout supervision
The skill required in a particular occupation
The more specialized/skilled, the more likely he is an IC
Whether the employer or the workman supplies the tools and place of
work for the person doing the work
ICs supply their own tools
The length of time for which the person is employed
The longer the time, the more likely he is an employee
The method of payment, whether by time or by job
ICs are paid by the job and employees are paid by time
Whether or not the work is part of the regular business of the employer
If regular business, more likely to be an employee
Belief of the parties
Not determinative except that it indicates an assumption of control
by one party and submission in the other
Custom in the community is also important
Whether it furthers the principals business or the others business
ICs have their own business
o Special situation: doctors in hospitals
Where a hospital holds itself out to the public as providing a given service
and where the hospital enters into a contractual agreement with one ormore physicians to direct and provide the service and where the patient
engages the services of the hospital without regard to the identity of aparticular physician, and where as a matter of fact the patient is relying on
the hospital to deliver the desired health care and treatment, the doctrine of
respondeat superior applies and the hospital is vicariously liable for thedamages proximately resulting from the negligence of any physicians
Traditional analysis would result in the physicians being independent
contractors, but in these cases the courts move to an apparent authority
theory Limitations on the Independent Contractor Exception
o Negligent Selection General rule is that no vicarious liability attaches when a physician is an
independent contractor and not an employee or servant of the hospital ifthe patient goes to the hospital specifically for the services of this doctor
Hospital has no right of control
Patient picks the doctor
The doctor is not an employee
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Doctrine of corporate responsibility for the quality of medical care has
been adopted by many courtsa hospital owes a duty to its patients to
exercise reasonable care in the selection of its medical staff and in
granting specialized privileges and to periodically monitor and reviewtheir competency
This is not a vicarious liability theoryit is a negligence theory
o The Borrowed Servant Doctrine
Issuethere are two potential masters and the courts will only hold one of
them liable
General ruleborrowing master, not the loaning master, is liable for the
negligent acts of the loaned servant if the loaned servant becomes aservant of the borrowing master
The master with the primary right of control at the time of the
negligent act is the one who will be held vicariously liable
Crucial question is which employer had the right to control the
particular act giving rise to the injury Orders of the borrowing employer must be commands and not
requests if the worker is to be found to be a loaned servant
Tests to determine when an employee becomes a borrowed servant
Right of control test (majority)
o Assumes to place the responsibility for the servants
negligence on the employer having the right to control the
servants actions at the time the negligent act occurred
Both have a degree of control, but it is based on
who has the control at the time of the act
The special employer has the power to detail how
the job is done Sometimes the courts will look to what caused the
injury
Whose business test (minority)
o At the time of the negligent act, which employers business
was being done or furthered
The problem is that both employers businesses are
being furthered
Focus on the act itself and see whose business is
being furthered the mostquestion of fact
Factors to examine in determining whether the employee is a loaned
servant (making the borrowing master, not the loaning master, liable ifanything goes wrong)
Did the employee consent, actually or implicitly, to work for a
special employer Whose was the work he was performing at the time of the injury
Whose was the right to control the details of the work being
performed
For whose benefit primarily was the work being done
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Dual liability approach (minority view)both the borrowing employer
and the loaning employer may be held liable in tort to the third party who
sustains injuries caused by the negligence of the loaned employee when
the loaning employer retains broad control over the loaned employee andthe borrowing employer has control over the details of the loaned
employees worko Non-Delegable Duty
General rule
The master is not subject to liability for the torts of his servants
acting outside the scope of their employment, unless:
o The master intended the conduct or the consequences
o The master was negligent or reckless
o The conduct violated a non-delegable duty of the master
o The servant purported to act or to speak on behalf of the
principal and there was reliance upon apparent authority orhe was aided in accomplishing the tort by the exercise of
the agency relation Inherent danger exception
In general, the employer of an IC is not liable for physical harm
caused by the acts or omissions of the IC, but there are exceptions
in special situations where the employer is in the best position toidentify, minimize, and administer the risks involved in the
contractors activities
One who employs an IC to do work involving a special danger to
others which the employer knows or has reason to know to be
inherent in or normal to the work, or which he contemplates or hasreason to contemplate when making the contract, is subject to
liability for physical harm caused to such others by the ICs failureto take reasonable precautions against the danger
This exception is not limited to generally hazardous workit is
sufficient that the work involve a risk recognizable in advance of
physical harm to others which is inherent in the work itself or
normally to be expected in the ordinary course of the usual orprescribed way of doing it, or that the employer has special reason
to contemplate such a risk under the particular circumstances under
which the work is to be done If the employer takes all reasonable precautions, he may be
excused from liabilityif he does do so, though, he runs the risk
of losing the IC relationship because he has too much control Peculiar risk doctrine
Employer is subject to liability caused by the actions of its ICs if
the employer fails to exercise reasonable care in preventing the risk
that arises out of the character of the work or out of the placewhere it is to be done
Look to the conduct of other businesses, past history, insurance and
its coverage, etc.
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Scope of Employment
o In General
General rule
An employer is no longer liable for the negligent acts of its
employees if the employees have diverted from the employers
business until the employees are once again doing the employersbusiness
o Detours are generally okay, but frolics are nottime and
distance aspect
Scope of EmploymentGeneral Statement
Conduct of a servant is within the scope of employment if, but
only if
o It is the kind he is employed to perform,
o It occurs substantially within the authorized time and space
limits,
o It is actuated at least in part by a purpose to serve the
master, ando If force is intentionally used by the servant against another,
the use of force is not unexpectable by the master Conduct of a servant is not within the scope of employment if it is
different in kind from that authorized, far beyond the authorized
time or space limits, or too little actuated by a purpose to serve the
master
Kind of Conduct within Scope of Employment
To be within the scope of employment, conduct must be of the
same general nature as that authorized, or incidental to the conductauthorized
In determining whether the conduct, although not authorized, isnevertheless so similar to or incidental to the conduct authorized as
to be within the scope of employment, the following matters are tobe considered
o Whether the act is one commonly done by such servants
o The time, place, and purpose of the act
o The previous relations between the master and servant
o The extent to which the business of the master is
apportioned between different servants
o Whether the act is outside the enterprise of the master, or, if
in the enterprise, has not been entrusted to any servant
o Whether or not the master has reason to expect that such an
act will be done
o The similarity in quality of the act done to the act
authorized
o Whether the instrumentality of the harm that is done has
been furnished by the master to the servant
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o The extent o departure from the normal method of
accomplishing an authorized result
o Whether the act is seriously criminal
Forbidden Acts
An act, although forbidden or done in a forbidden manner, may be
within the scope of employment A master is liable for the negligence of his servant if at the time of
the negligent act the servant is acting within the scope of hisemployment, and this liability applies even in instances where the
servant, while disobeying his masters orders, injures a third party
o Intentional Torts
General rule
A servant may be acting within the scope of his employment when
he commits an intentional tort, although it is less likely that it will
fall into the scope of employment than a negligent tort
Factors to consider
Extent of the wrong
o An employer is more likely to anticipate minor crimes than
major ones
Foreseeability of the conduct
o Some courts apply this rule
o An employer is liable for the intentional torts of his
employees if they were reasonably foreseeable or
characteristic
Drunk sailor case
o Limited to torts which can be fairly said to be characteristic
of the enterprise
Whether the servants purpose was to serve the master
o A master may be liable for the intentional torts of his
servants if the torts are done, at least in part, with a purposeto serve the master
Drunken boatswain who orders sailor around and
beats him up
Sexual misconduct is obviously not to serve the
master
o Punitive Damages
Approaches to liability of the employer
Always fault rulerecovery is permitted against an employer
whenever he is liable for the same conduct in compensatory
damages
Complicity rulepunitive damages can be properly awarded
against a master or other principal because of an act by an agent if,but only if
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o The principal or a managerial agent authorized the doing
and the manner of the act, or
o The agent was unfit and the principal or managerial agent
was reckless in employing or retaining him, or
o The agent was employed in a managerial capacity and was
acting within the scope of his employment, oro The principal or a managerial agent of the principal ratified
or approved the act Some fault rulebefore an employer may be held vicariously
liable for punitive damages under the doctrine of respondeat
superior, there must be some fault on his part; although the
misconduct of the employee must be willful and wanton, it is notnecessary that the fault of the employer, independent of his
employees conduct, also be willful and wantonit is sufficient
that the plaintiff allege some fault on the part of the employerwhich foreseeably contributed to the plaintiffs injury to make the
employer vicariously liable for punitive damages No fault rulea few states prohibit vicarious punitive damages
altogether
Statutory Inroads on the Common Law Definition of Employee
o Right of Control testcommon law test
Used by ERISA
General characteristics of employers
Select and engage the employee
Pay the wages
Power of dismissal
Power and control over the employees conduct
o Economic Realities testemployees are those who as a matter of economicreality are dependent on the business to which they render service
Used by FLSA and SSA
o Hybrid testright of control and economic realitiesit is the economic realities
of the relationship viewed in light of the common law principles of agency and
the right of the employer to control the employee that are determinative
Used by Title VII
o Relative Nature of the Work testin determining the existence of an employee-
employer relationship, one examines the nature of the claimants work in relation
to the regular business of the employer, focusing on
The nature of the claimants work
Skills required to do the work
The degree to which the work constitutes a separate calling or
enterprise The extent to which the work might be expected to carry its own
accident burden
The relation of that work to the alleged employers regular business
Whether the claimants work is continuous or intermittent
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Whether the duration of the claimants work is sufficient to amount
to the hiring of continuous services as distinguished from the
contracting for completion of a particular job
Bases of Authority
Express Authorityo Definitionexpressed either orally or in writing (some require a writing like
powers of attorney)
o Equal dignity ruleif the underlying contract is required to be in writing, then the
authority to do it must also be in writing
Implied Authority
o Definitionthe authority that an has and/or needs in order to carry out express
authority (a recognition that we can never say everything that we intend)
Actual authority that is circumstantially proven from the facts and
circumstances attending the transaction in question and may be implied
from the words used, from customs, and from relations of the parties
If there is no express authority, then there is no implied authority
o Secret limitations on authority
If not communicated to the third party, will not be binding on the third
partytrue with implied/inherent authority and apparent authority
o Examples
Attorneys authority to negotiate with opposing counsel (not to settle)
Presidents of corporations
Managers of stores
Apparent Authority and Estoppel
o Definitionthe authority that the agent has because the principal has done or
taken some action that leads a reasonable third party to believe that the agent had
that authority A type of circumstantial authoritynot actual
The principal is only liable to those third parties who have no notice of the
secret limitations on the agents authority and who are relying in good
faith on the apparent authority
Can never have apparent authority when the principal is wholly
undisclosed
The principals manifestation is given to the third party, either directly or
indirectly, by words or acts, and not given to the agent, as with expressauthority
o Acts to Focus on to Determine Apparent Authority
If the principal created the appearance of authority by providing businesscards, office space, etc.
Principal neglects to inform the third party that the agent no longer has the
authority and the principals actions in the past create a course of conduct
The actual words of the principal may give the agent apparent authority
beyond what he originally intendedgive him what he wants and I will
pay
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Failure of the principal to do something when a reasonably prudent person
would do somethingfailing to take back POA papers
o Differences between apparent authority and estoppel
Dont have to show a change of position with apparent authority
Apparent authority is real authority and will get you expectation damages
for a breach of contract In an apparent authority situation, the principal has rights to enforce the
contract, but not in an estoppel situation
Courts may not find enough for apparent authority and still be able to use
estoppel argument
Inherent Agency Power/Inherent Authority
o Definitionthe authority that an agent has simply because of the position that he
occupies, based on what this type of agent usually does
Designed to protect innocent third parties
A third party must reasonably believe that an agent of this type would
have this type of authority based on customary practice
Based on what agents of this kind can typically do
A term used in the restatement to indicate the power of an agent which is
derived not from authority, apparent authority, or estoppel, but solely from
the agency relation itself and exists solely for the protection of personsharmed by or dealing with a servant or other agent
o Acts of Manager Appearing to be Owner
An undisclosed principal who entrusts an agent with the management of
his business is subject to liability to third persons with whom the agent
enters into transactions usual to such businesses and on the principalsaccount, although contrary to the direction of the principal
o Unauthorized Acts of General Agents
A general agent for a disclosed or partially disclosed principal subjects hisprincipal to liability for acts done on his account which usually
accompany or are incidental to transactions which the agent is authorized
to conduct, if although they are forbidden by the principal, the other partyreasonably believes that the agent is authorized to do them and has no
notice that he is not so authorized
The Equal Dignity Rule
o If the underlying contract has to be in writing, then the agents authority to
negotiate the contract has to be in writing as well
o The act creating the agency shall be executed with the same formality (and need
have no more) as the law prescribes for the execution of the act for which the
agency shall be created Ratification and Adoption
o Definitions
Ratificationthe affirmance by a person of a prior act which did not bind
him but which was done or professedly done on his account whereby the
act as to some or all persons is given effect as if originally authorized byhim
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Relates back to the time the unauthorized act occurred and is
sufficient to create the relationship of principal and agent
Requires the principal to have knowledge of all the material facts
and an intent to ratify
Cannot later be revoked or recalledit is binding
When an agent exceeds his authority, a principal is not boundunless he ratifies the act committed
When this conflicts with the equal dignity rule, the equal dignity
rule wins
Affirmanceeither
A manifestation of an election by one on whose account an
unauthorized act has been done, to treat the act as authorized, or
o Express conduct
Conduct by him justifiable only if there were such an election
o Implied conductwhen the principal takes a position
inconsistent with non-affirmation, with full knowledge of
the material factso What Acts Can be Ratified
An act which, when done, could have been authorized by a purported
principal, or if an act of service by an intended principal, can be ratified if,at the time of affirmance, he could authorize such an act
An act which, when done, the purported or intended principal could not
have authorized, he cannot ratify, except an act affirmed by a legal
representative whose appointment relates back to or before the time ofsuch act
o Purporting to Act as Agent as a Requisite for Ratification
Ratification does not result from the affirmance of a transaction with a
third person unless the one acting purported to be acting for the ratifier Cannot have ratification if the principal is wholly undisclosed
An act of service not involving a transaction with a third person is subject
to ratification if, but only if, the one doing the act intends or purports to
perform it as the servant of another
o Who Can Affirm
To become effective as ratification, the affirmance must be by the person
identified as the principal at the time of the original act, or, if no personwas then identified, by the one for whom the agent intended to act
o Adoption
When a corporation comes into existence, it can treat the actions of the
promoter of its own, but this is technically not ratification because theprincipal did not exist at the time the acts were done
o Methods and Formalities of Affirmance
Except as below, affirmance can be established by any conduct of the
purported principal manifesting that he consents to be a party to thetransaction, or by conduct justifiable only if there is ratification
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Where formalities are requisite for the authorization of an act, its
affirmance must be by the same formality in order to constitute a
ratification (the equal dignity rule)
The affirmance may be made by an agent authorized to do so
o Failure to Act as Affirmance
An affirmance of an unauthorized transaction can be inferred from afailure to repudiate it
o Effect of Ratification; In General
The liabilities resulting from ratification are the same as those resulting
from authorization if, between the time when the original act was
performed and when it was affirmed, there have been no change in the
capacity of the principal or third party or in the legality of authorizing orperforming the original act
o Relation Back in Time and Place
The liabilities of the parties to a ratified act or contract are determined in
accordance with the laws governing the act or contract at the time andplace it was done or made
Whether the conduct of the purported principal is an affirmance depends
upon the law at the time and place when and where the principal consentsor acts
Termination of Agency and Notice Termination of Authority
o There is no specific requirement to do anything specific to terminate an agency
relationshipa principal has an absolute right to terminate the agency
relationship at any time
All you have to do is tell the agent its over, but this may only terminateexpress authority
Telling just the agent does not terminate apparent authority
May have to give notice to third parties
Actual notice to those third parties with whom the agent has had
dealings Constructive notice to everyone elseposting in the newspaper
Authority of an agent terminates according to the terms of any agreement
the principal and agent may have entered into during the agency
A principal is privileged to discharge before the time fixed by the
contract of employment an agent that has committed such a
violation of duty that his conduct constitutes a material breach ofthe contract
If the termination of the agency relationship breaches a contract, then the
non-breaching party has the right to seek damages
o Requirement of notice
When the agent as begun to deal with a third person, the agents apparent
authority cannot be terminated unless the third person has notice of the
termination
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Similar notice of termination is required when the principal has entrusted
the agent with a writing which manifests the agents authority and which is
meant to be shown to the third party
o Death or Incapacity of the Principal
Death revokes agency even if the agent does not know that the principal is
deadanything the agent does after the death of the principal is withoutauthority, either express or apparent
General rule is that incapacity also revokes agency
There is a question whether temporary incapacity revokes agency
or not
Irrevocable Agency
o General rule
Agency coupled with an interest is not revocable
Requires security and consideration
o Securityagency power is granted to the agent as security
for the protection of the agent or a third person
o Considerationthe agent gives consideration for theagency power
o Definition
An agency coupled with an interest exists when the agent has a vested
interest in the subject matter of the agency and is given authority toexercise a power over the subject matterthis cannot be revoked
o Examples
Interest in profits is not enoughany kind of monetary compensation is
not enough
Interest in land is enough to create this
Right to manage building in which A rents a floor is given to A as a means
of preserving his interest in the building A had a power (to manage the building) coupled with an interest
(the 20 year lease) and the agency is not revocable
o Termination of Irrevocable Agency
Not terminated by:
Revocation by the principal
Surrender of the power by the agent if he holds it for another
person
Death or incapacity of either the principal or the agent
Terminated only by surrender by the agent (if capable) or if its terms
become illegal, or if the terms are met Notice and Knowledge
o General rule
The principal will be charged with the knowledge of the agent
Except when
The agent is not acting on the principals behalf
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The agent has been defrauded into not telling the principal or has
been deceived into believing that the principal already knows
o Imputed knowledge
A principal will not be liable on the basis of imputed knowledge unless the
knowledge attributed to him is that of a person who can reasonably be
identified as his agento Agent acting adversely to the principal
Knowledge and misconduct of an agent will not be imputed to a principal
if an agent if an agent is secretly acting adversely to a principal and
entirely for his own or anothers purpose
Not all activity by the agent which results in some personal benefits to him
is considered adverse to the interests of the principal
A principal will be held to the knowledge of an agent who acts adversely
to the principal if The agent entered into negotiations within the scope of his powers
and the person with whom he deals reasonably believes him to be
authorized to conduct the transaction, or Before he has changed his position, the principal knowingly retains
a benefit through the act of the agent, which otherwise he wouldnot have received
If the agent is a sole actor (the sole representative of the principal), the
principal will be charged with the agents knowledge if the principal
benefits, even if the agent is entirely adverse
The Relationship between Principal, Agent, and Third Parties
Duties of Agent to Principal
o The Agent as a Fiduciary
Agency relationship is one founded on trust and reliance Principals fiduciary duties
Compensation of agent for the agents duties
Reimbursement for advances made by the agent on behalf of the
principal
Duty of reasonable care to prevent injury to the agent
Duty to deal fairly and in good faith with the agent
Duty to follow social legislation
Agents fiduciary duties
Duty to use reasonable care and skill that a regular agent of that
type would do
Duty to disclose all information
Duty to engage in good conduct
Obey the reasonable instructions of the principal
Duty to keep and render the accounts
Duty to act with the highest degree of faith and loyalty
o Duty not to compete
o Duty not to act for an adverse party
o Duty not to use the principals confidential information
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o Duty to keep the principals property separate
o Duty of Care
Agent has a duty to act with the care, skill, and diligence the fiduciary
rendering that kind of service would reasonably be expected to use
Duty to promptly communicate all information
Duty to disclose material dangers known to the agent
o Duty of Loyalty
Secret Commissions
Includes the duty to not put himself in such a position where his
interests may conflict with the interests of the principal
Duty to act solely for the benefit of the principal on matters within
the scope of his agency
Cannot accept secret commissions because the agent is taking
advantage of his position and acting on his own behalfmakes nodifference if the principal actually suffered damages
Agent has to forfeit his commissions to the principal
Appropriating Customers An agent is under a fiduciary duty not to use or disclose trade
secrets of his employer
An agent also has a duty not to appropriate customers of his
employer even in the absence of a non-competition agreement
Self-Dealing
Agent has the duty to refrain from self-dealing until the agency
relationship is terminated Duties of Principal to Agent
o An agent may recover any expenditures necessarily incurred in the transaction of
his principals affairs
o An agent compelled to defend a baseless suit grounded upon acts performed in hisprincipals business may recover from the principal the expenses of his defense
o An agent has the right to indemnification
o Contracts
Agents are entitled to recover commissions on a sale only when his efforts
can be shown to be the procuring cause if the contract doesnt say when
the agent gets the commissions
Where the principal enters into a nonexclusive representation agreement
with the agent, he is not precluded from competing with the agentpersonally or through another agent
o Types of exclusive representation agreements
An exclusive right to sellconfers on the agent the sole right to sell in a
certain geographical areathe agent gets commissions no matter who
sells the items, even the principal
An exclusive agencythe principal is prohibited only from employing
other agents to sell the goods of propertyhe can sell them himself andnot be liable to the agent for commissions
Liability of Agent to Third Party
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o General rule
Principal is liable for the acts of the agent whether he is disclosed,
partially disclosed, or undisclosed (assuming that the third party has found
out about the principal)
An agent is not liable to the third party for acts which are within the scope
of his authority (if the agent is outside the scope of his authority, he will beliable to the principal unless the principal knew he was acting without
authority)
Agent is liable under K law for acts done for wholly undisclosed
principals because the agents name is on the K If agent says he is acting on behalf of a principal but is not, the
agent is liable based on
o Breach of warranty of authoritycontract action, where the
agent mistakenly believed he had authority
o Fraud or misrepresentationtort action, where the agent
knew he had no authority
Agent making a K on behalf of the principal (if disclosed) is notliable for nonperformance of the K
An agent incurs personal liability regardless of disclosure of the principal
when the agent contracts in his own name rather than on behalf of theprincipal
o Disclosure of Principals
Definitions
Disclosed principalthe other party knows both that the agent is
acting for a principal and the principals identity
Partially disclosed principalthe other party knows that the agent
is acting for a principal, but has no notice of the principals identity
Wholly undisclosed principalthe other party has no notice thatthe agent is acting for a principal
Disclosed principala person making or purporting to make a K with
another as agent for a disclosed principal does not become party to the K
Partially disclosed principala person purporting to make a K with
another as agent for a partially disclosed principal is a party to the K
Undisclosed principalan agent purporting to act upon his own account,
but in fact making a K on account of an undisclosed principal, is a party tothe K
Both the principal and the agent are liable in the last two situations
o Agent who warrants authority
A person who purports to make a K, conveyance, or representation onbehalf of another who has full capacity but whom he has no power to bind,
thereby becomes subject to liability to the other party upon an implied
warranty of authority, unless he has manifested that he does not make suchwarranty, or the other party knows that the agent is not authorized
o Unauthorized acts of general agents
A general agent for an undisclosed principal authorized to conduct
transactions subjects his principal to liability for acts done on his account,
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if usual or necessary in such transactions, although forbidden by the
principal to do them
o Third party can sue both the agent and the principal and get judgments against
both, but can only get satisfaction from one
PARTNERSHIP
Principles of Partnership
Definition
o Partnership Defined (UPA 6)
Association of 2 or more people who carry on as co-owners a business for
profit
Factors
2 or more people acting together
Contribution of moneyas opposed to a loan
o Contribution of services can be the capital contribution ifthe agreement says so
How decisions are madecontrol
Sharing of profitsprima facie evidence that it is a partnership
Sharing of losses
Intent of the parties to do those things that look and act like a
partnership Right to review the books and records
Entitlement to get accounting of activity
Things that do not make a partnership
Joint tenancy, tenancy in common, joint property
Sharing of gross returns
Repayment of debts, payment of wages
Sharing of profits as compensation for services does not make you
a partner
o Partner Agent of Partnership as to Partnership Business (UPA 9)
Every partner is an agent of the partnership for the purpose of its business
and he binds the business unless he had no authority and the third party
knew he had no authority
o Nature of partners liability (UPA 15)
All partners are liable in tort and in contract jointly for everything
chargeable to the partnership
If the liability is from the wrongful act or breach of trust by a partner, thenthe partners are jointly and severally liable
The Uniform Partnership Act
o Enacted to regulate the rights and duties of partners against third parties more
precisely than at common law
o UPA applies in the absence of an agreement to the contrary (the partnership
agreement)
Entity Versus Aggregate Theories
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o Entitysees the partnership as a separate entity that can sue and be sued
o Aggregatebases everything on the separate partners (still do this for taxes)
Rights and Duties of Partners
Relations Between Parties
o Rules Determining Rights and Duties of Partners (UPA 18) Each gets his contribution repaid (whether it was by capital or advances)
and shares equally in profits after all debts paid, and must contribute to the
losses according to his share in the profits
Partners are entitled to indemnification from the other partners
Partners get interest on any advances they make to the partnership from
the date it was made
An advance is anything in excess of the agreed-upon capital
contribution
Partner gets interest on his capital contribution from the date it was to be
repaid
Each has equal management rights No compensation for acting in the business except for winding up
Unless the partnership agreement says so
No right to get more money upon dissolution just because you did
more either
No one can become a member of the partnership without all of their
consent
Majority gets to decide differences for ordinary matters, but all must
consent to a change from the agreement
Status quo wins if all do not consent to a major change
o Partnership Books (UPA 19)
To be kept at PPOB and all have the right to access themo Duty of Partners to Render Information (UPA 20)
Partners have to give true and full info to any partner or his legal
representative
o Partner Accountable as Fiduciary (UPA 21)
Partners must account to the partnership for any benefit and act in a
fiduciary manner toward the partnership and the other partners
Partners remain fiduciaries until they are no longer partners
o Right to an Account (UPA 22)
Every partner has the right to an accounting of the affairs
If he is wrongly excluded
As part of the agreement
As provided by 21
Whenever it is just and reasonable
The Partners Right to Indemnity
o General rule:
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The partnership must indemnify every partner in respect of payments
made and personal liabilities reasonably incurred by him in the ordinary
and proper conduct of his business or for the preservation of his business
or property
Only for the ordinary and proper conduct in the course of business
Have to show fraud in order to not have to indemnify your partnero Wrongful Acts
Partnership Bound by Partners Wrongful Act (UPA 13)
If a partner, acting in the normal course of business, commits a
wrongful act that injures a third party, then the partnership is liable
to the third party to the same extent that the partner is
Partnership Bound by Partners Breach of Trust (UPA 14)
Partnerships is bound if a partner misuses a third persons money
within the scope of his apparent authority, or if the partnership
misuses the money Relations of Partners to Third Parties
o Ordinary course of businessconsider factors Character of the business (external view)
Manner in which it is usual to carry on the business (external view)
Manner this particular business has been carried on (internal view)
Going to come down to knowledge level of knowledge/notice the
partner has will shape whether they are bound Third parties can bind the partnership
But the point is whether its in the ordinary course of business if
its not, should raise some red flags
o Intentional torts
Never a part of the ordinary course of business of a partnership
Therefore the partnership is not liable for a partners intentional torts Partnership Property
o Definitions
Partnership propertyall property originally brought into the partnership,
or subsequently acquired by purchase or otherwise, on account of the
partnership, is partnership property
Property acquired with partnership funds is partnership property
unless another intention is shown Any estate in real property may be acquired in the partnership
name A conveyance to a partnership in the partnerships name without
words of inheritance passes the entire estate to the grantor unless acontrary intention appears
o Extent of Property Rights of a Partnership
The property rights of a partner are
His rights in specific partnership property
o The right to possess or use it for partnership purposes, but
not for other purposes without the consent of the other
partners
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o Co-owners of this property hold as tenants in partnership
o Cannot be encumbered for personal debts, but can be for
partnership debts
o Stays with the partnershipit is not assignable except as a
whole, and stays when a partner dies unless hes the last
one and then it goes to his heirs His interest in the partnership
o Share of the profits, surpluses and lossesthis is personal
property
o Can be assigned
His right to participate in the management of the partnership
o Partnership Interest
Conveyance of your interest in the partnership does not dissolve it, nor can
the assignee participate in the management of the partnership (unless there
is an agreement)
Assignee just gets the rights to the profits
Assignee gets full value of his interest upon dissolution of the partnershipo New Partner Liability
When a new partner is admitted to an existing partnership, he is liable for
all obligations of the partnership arising before his admission, except that
this liability can only be satisfied out of partnership property (he is notpersonally liable)
Dissolution, Winding Up, and Termination
In General
o Definitions
Dissolution
The change in relation of the partners caused by any partnerceasing to be associated with the other partners
Partnership is not terminated by dissolution
Terminationthe point in time when all partnership affairs are wound up
Winding upthe time between dissolution and termination
o Causes of dissolution
Without violation of the agreement
End of a term or undertaking specified in the agreement
Express will of any partner when no definite term is specified
Express will of all of the partners, either before or after the term
specified
By the expulsion of any partner from the business if there is a
power to do this in the agreement
In contravention of the agreement
By express will of any partner at any timeyou always have the
power but not necessarily the right
o Dissolution by Court
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On application by a partner to the court, the court shall decree a
dissolution if:
Partner has been declared a lunatic in any judicial proceeding
Partner is incapable of performing his part of the agreement
Partner has been guilty of such conduct that prejudices the carrying
on of the business Partner willfully or persistently breaches the agreement or is not
reasonably practical to carry on the business with Partnership can only be carried on at a loss
o Effect of Dissolution on Partners Authority
Dissolution terminates all authority to act for the partnership except for
winding up Rights of Partners on Dissolution
o Contribution
Each partner is liable for his share of any liability created by any partner in
the partnership
You may have to pay extra to one of the partnerso Power to bind the partnership upon dissolution
Only to the extent that the partner is winding up the affairs of the
partnership
o Existing liability
Dissolution does not discharge any partner from existing liability unless he
has an agreement with the creditor
o Rules for Distribution in settling accounts after dissolution
Liabilities ranked in order of payment as follows
Those owed to creditors not partners
Those owed to partners other than for capital or profits (partners as
creditors) Capital contributions
Profits
Continuation Agreements
o Liabilities of Persons Continuing the Business in Certain Cases
If one or more of the partners is replaced or is gone, and the departing
partner has assigned his rights, and the business continues, then thecreditors of the first partnership become the creditors of the new
partnership
Same rule applies when there is only one partner left and he continues the
business as a sole proprietorship
Same rule applies if the retiring or dead partner did not assign his rightsbut the business continues with his consent
Any change in membership dissolves the partnership and creates a new
partnership The property of the old partnership becomes the property of the
partnership continuing the business
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o Rights of retiring partners of estates of deceased partners when the business is
continued
When a partner dies or retires and the business is continued without
settlement of accounts between the departing partner and the partner(s)
continuing the business, then he may have the value of his interest at the
date of dissolution ascertained and shall receive as an ordinary creditor thevalue of his interest in the dissolved partnership with interest or in lieu of
interest, the profits attributed to the use of his right in the property of thedissolved partnership
Post-Dissolution Problems
o When one partner renews a note made to a partnership after dissolution, the note
is seen as a personal debt to him, and not to the other partnersthe old note has
been satisfied by the new one
o Partners continue to be liable for any debts created while they were partners
unless there is an agreement with the other partners and the creditors that the oldpartner will no longer be liable
Novation
Partners whose obligations have been assumed are not liable if the creditor
shows his assent like a change in the nature of the payment of such
obligations
LIMITED PARTNERSHIPS
In General
Definition
o A partnership composed of one or more people who control the business and who
are personally liable for partnership debts (the general partners), and one or morepeople who contribute capital and share profits but who cannot manage thebusiness and who are liable only for the amount of their contribution
Liability to Third Parties
o Limited partner is not liable for the obligations of a limited partnership unless he
is also a general partner or participates in the control of the business (but then
only liable to persons who transact business with him reasonably believing he is a
general partner)
o Limited partner is not participating in the control of the business by:
Contracting or being a shareholder or agent or employee
Consulting Guaranteeing loans
Attending meetings
Voting on stuff like
Dissolution or winding up
Sale of assets
Incurrence of indebtedness
Change of business nature
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Admission or removal of GP or LP
Changing partnership agreement
Business matters
Winding up
Formation of Limited Partnership
o By statuteo Requires certificate in writing and filed appropriatelynot formed until this is
filed
o If you do it wrong according to the statute, the LP will be liable as GP to third
parties who didnt know it was a LP
People who thought they were a limited partner
o If you make a contribution believing that you are a LP and not a GP, you do not
assume the liability if you
Cause appropriate certificate to be filed
Withdraw from future equity participation in the business by filing a
withdrawal
o A person who made such contributions is liable as a GP to any third party whotransacted business with them before the withdrawal or filing of certificateshowing that he is not a GP, but only if the third party believed in good faith that
he was a GP at the time of the transaction
Limited Partnerships with Corporate General Partners
General rule
o If a limited partner is an officer of the corporation that was the general partner, the
limited partner does not become a general partner (per exception in RULPA
303)
CORPORATIONS
Formation Incorporators
o One or more people may act as incorporator by delivering the articles of
incorporation to the secretary of state for filing Articles of Incorporations
o Must include
Name, number of shares, address, and name and address of incorporators
o May include
Directors, bylaws, etc.
Incorporation
o Corp is formed upon filing of the articles unless delay is specified
Liability for Preincorporation Transactions
o Everyone purporting to act as or on behalf of a corporation, knowing there was no
corporation under this Act, is jointly and severally liable for all liabilities created
Existence of Corporation
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Doctrine of de facto corporation gives the officer limited liability and is used when there
are elements showing
o Existence of laws authorizing incorporation
o Effort in good faith to incorporate under existing laws
o Actual use or exercise of corporate powers
Doctrine of estoppel is used when the third party thought it was dealing with acorporation and gives the officers limited liability
Promoters are liable for their actions unless they have an agreement saying that they are
not liable Alter Ego Doctrinewhether a parent company is liable for its subsidiarys liabilities
o Must show that the parent and subsidiary act as a single economic entity
Whether the corporation was adequately capitalized for the corporate
undertaking
Whether the corporation was solvent
Whether dividends were paid, corporate records were kept, officers and
directors functioned properly, and other corporate formalities were
observed Whether the dominant shareholder siphoned corporate funds
Whether in general the corporation simply functioned as a faade for the
corporate shareholder
o Must show that an overall element of injustice or unfairness is present
Corporate veil
o General rule
Courts will disregard the corporate form or pierce the corporate veil
whenever necessary to prevent fraud or to achieve equity Can do this to a parent corporation as well as to a human owner
This holds the owner responsible despite legislature saying there is
limited liabilityo When the corporate veil will be pierced
Such unity of interest and ownership that the separate personalities of the
corporation and the individual no longer exist, AND
The failure to maintain adequate corporate records and to comply
with corporate formalities
The commingling of funds or assets
Undercapitalization
One corporation treating the assets of another corporation as its
own
Such that adherence to the fiction of separate corporate existence would
sanction a fraud or promote injustice Must show unjust enrichmentsome wrong beyond a creditors
inability to collect
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LIMITED LIABILITY COMPANIES
In General
Definitions
o
Limited Liability Company as Legal Entity A LLC is a legal entity distinct from its members
o Organization
By one or more persons
By delivery of articles to the Secretary of State
Begins when the articles are filed
Intentto permit individuals to operate a business entity somewhere between a
partnership and a corporation and still maintain limited liability for the members of the
LLC
o All of the corporate structure without the limitations (dont have to have board of
directors)
o All of the freedom of a partnership without the liability The LLC constitutes a separate legal entity that cannot represent itself in court, but must
act through its agents
UNINCORPORATED ASSOCIATIONS
In General
A candidate or other member of an unincorporated political association or committee is
not personally liable simply by virtue of his membership
o Unless he actually authorized, assented to, or ratified the obligation
Unless you are in a state that allows you to sue an unincorporated association, you cannotsue it because it is a nonentity
Members suing the association
o Old common law rulea member of an unincorporated association cannot sue the
association for the negligence of another member
Suing other members is like suing yourself because of the co-principal
theory
o New ruleunincorporated associations are amenable to suits by their members,
subject to the principals of comparative fault Third parties suing
o At common law and in the majority of jurisdictions today, an unincorporated
association is not a legal entity, so cannot sue or be sued, so the agent ispersonally liable because you cannot be an agent for a nonexistent entity