Agency
Agency is created by:
1. Actual authority
a. Agent has actual authority to act on principal’s behalf if principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the principal wishes the agent so act.
b. If an agent has actual authority, and acts within the scope of that authority, the principal is bound.
c. May be express or implied (implied/inferred from words used, customs, and relations of parties – R3rd§2.02)
d. Common type of implied actual authority is incidental authority – authority to do incidental acts that are reasonably necessary to accomplish or usually accompanies an actually authorized transaction.
e. BOUND: even if third person did not know agent had AA, even if thought agent was principal
i. Principal set acts into motion, stood to profit from them
ii. Agent would be liable and could seek indemnification from principal anyway.
f. Literal interpretation of principal’s manifestations does NOT always govern.
g. Agent may act in a way knowingly at variance with principal’s original instruction, if (R3rd§2.02 cmt b)
i. Circumstances have changed since the initial instructions
ii. Were the principal to reconsider the matter, different instructions would have been given
iii. It is impracticable to communicate with the principal for further clarification before action needs to be taken
2. Apparent authority
a. Agent has apparent authority to act in a given way on principal’s behalf in relation to a third person, if manifestations of the principal to 3rd person (or manifestations by the agent to 3rd person that the principal authorized the agent to employ) would lead a reasonable person in 3rd person’s position to believe that the principal had authorized agent to so act.
b. If an agent has apparent authority and act within the scope of that authority, principal is bound.
c. Power of position is created by appointing someone to a position which carries with it generally recognized duties, ordinarily entrusted to one occupying such a position, regardless of unknown limitations.
i. If a principal puts an agent into, or knowingly permits him to occupy, a position in which according to the ordinary habits of persons in the locality, trade or profession, it is usual for such an agent to have a particular kind of authority, anyone dealing with him is justified in inferring that he has such authority in the absence of reason to know otherwise. – R2nd§49 cmt c.
3. Agency by Estoppel
a. A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person’s account is liable to a third party who is induced to make a detrimental change in position because the transcription is believed to be on the person’s account, if:
i. The person intentionally or carelessly caused such belief, or
ii. Having notice of such a belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.
b. So close to apparent authority, can be subsumed in it.
4. Inherent authority
a. Agent may bind a principal in certain cases even when the agent had neither actual nor apparent authority.
b. A disclosed or partially disclosed principal is liable for an act done on his behalf by a general agent, even if the principal had forbidden the agent to do the act, if
i. The act usually accompanies or is incidental to transactions the agent is authorized to conduct, AND
ii. The third person reasonably believes the agent is authorized to do the act.
c. A general agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account, if usual or necessary in such transactions, although forbidden by the principal to do them.
d. Major rationale is based on an analogy to doctrine of respondeat superior in torts.
e. Alternative rationale is based upon principal’s reasonable expectations.
5. Ratification
a. Even if agent has neither actual, apparent, nor inherent authority, the principal will be bound to the 3rd person if the agent purported to act on the principal’s behalf, and the principal, with knowledge of the material facts, either:
i. Affirms the agent’s conduct by manifesting an intention to treat the agent’s conduct as authorized, or
1. Sometimes known as express ratification.
ii. Engages in conduct that is justifiable only if he has such an intention.
1. Sometimes known as implied ratification.
b. Rat. need not be comm. to the 3rd person to be effective, but must be objectively manifested. R3rd§4.01 cmt d.
i. BUT, must occur before either the 3rd person has withdrawn, or there has been a material change in circum. that would make it inequitable to bind 3rd party unless the 3rd party so chooses. R3rd§4.05.
6. Acquiescence
a. If the agent performs a series of acts of similar nature, the failure of the principal to object to them is an indication that he consents to the performance of similar acts in the future under similar conditions. R2nd§43.
b. Acquiescence gives rise to actual authority
c. To 3rd persons that know of the acquiescence, it gives rise to apparent authority.
7. Termination of Agent’s Authority
a. Principal can terminate authority at any time, even if doing so violates contract, even if it had been agreed that the agent’s authority was irrevocable. (EXCEPT: agency (or power) coupled with an interest)
3rd Person’s Liability TO Principal
General rule: if an agent and a 3rd person enter a contract, and agent’s principal is liable to the 3rd person under the contract, then the 3rd person is liable to the principal. R2nd§292, R3rd§§6.01-6.03
MAJOR EXCEPTION: 3rd person NOT liable to undisclosed principal if agent or principal knew that 3rd person would not have dealt with principal if he had known principal’s identity. R2nd§292 cmt c.
Agent’s Liability TO 3rd Person
If agent has entered into contract with 3rd person on behalf of principal, whether agent will be liable to the 3rd person turns in the first instance on whether the principal is bound under the contract.
Where principal is BOUND: (actual, apparent, or inherent authority)
1. Disclosed Principal – if principal had actual, apparent, or inherent authority, or because principal ratified the act, general rule is that agent is not bound to the 3rd person. R2nd§320, R3rd§6.01.
2. Undisclosed Principal – if agent purported to act on his own behalf, general rule is that both agent and principal are bound. R2nd§322, R3rd§6.03.
a. Majority rule – if 3rd person, after learning of P’s identity, obtains judgment against P, agent is discharged from liability, even if judgment is unsatisfied. Undisclosed principal is discharged if 3rd person gets judgment against agent.
b. Minority rule – neither agent nor principal is discharged by judgment against the other, but only by satisfaction of the judgment. Adopted in R3rd§6.09. – BETTER RULE
3. Partially Disclosed Principal – general rule is that the agent as well as the principal is bound to the third person. R2nd§321, R3rd§6.02.
Where principal is NOT BOUND: (NO actual, apparent, or inherent authority)
General Rule: agent is liable to third person.
Theory: agent makes implied warranty of authority to the 3rd person.
Few authorities have held that agent can be liable on the contract itself.
Both R2nd and R3rd adopt implied warranty theory, BUT provide for expectation damages (as if contract theory)
Liability of Agent TO Principal
If agent takes action he has no actual authority to perform, but P is nevertheless bound because the agent had apparent authority, the agent is liable to the P for any resulting damages to the principal. R2nd§383, 3rd§8.09.
Liability of Principal to Agent
If agent acts within actual authority, principal is under dut
des to leave.
Entity Theory – for other purposes a partnership is treated as a separate entity from its individual partners.
1. Capacity to sue or be sued – jurisdictions vary as to whether a partnership can be sued and/or sue in its own name. Ex. If a fed. question is involved, partnership can sue or be sued in its own name.
2. Ownership of property – a partnership can own and convey titles to real or personal property in its own name, without all of the partners joining in they conveyance.
RUPA – unlike the UPA, RUPA expressly states that a partnership is an entity, thus simplifying many partnership rules such as those on property ownership and litigation. (RUPA §201)
The Ongoing Operation of Partnerships
VOTING IN PARTNERSHIP
All partners have equal rights in management (even if sharing of profits is unequal). UPA§18(c)
Summers v. Dooley – S & D operated trash collection partnership, both worked in business and paid a substitute when he couldn’t work. S asked D to hire a third person and D refused, S did it anyway with his own funds, D objected. S sued for reimbursement from partnership funds. S lost, can’t make binding decision over partner’s objections.
Where equal partners exist, then differences on business matters must be decided by a majority of the partners.
Under the UPA, the rule that differences among partners as to ordinary partnership matters are decided by a majority is “subject to any agreement between them.” UPA§18(h).
Often times there are agreements to vest management in senior/managing partners, but doesn’t have to be an express agreement, can be implied from conduct.
Under UPA§18(h), differences can be decided by majority vote, but no act in contravention of any agreement between the partners may be done rightfully without the consent of all the partners.
Under RUPA§401(j), differences can be decided by a majority vote, and any act outside the ordinary course of business of the partnership and an amendment to the partnership agreement both require consent of all of the partners.
Changes in the way the partnership is conducted, not just changes in the way in which it has been explicitly agreed that the partnership will be conducted, may constitute amendments to the partnership agreement.
Participation
UPA§18(e) – all partners have equal rights in the management and conduct of the partnership business.
Absent contrary agreement, every partner must be consulted in partnership decisions. Even if a majority could have voted it in anyway, not consulting minority would violate this.
RUPA§401(f) – each partner has the right to participate in management.
Comment notes that UPA§18(e) requires all partners be consulted.
Contribution and Indemnification
Partner has right to be indemnified by the partnership. (partnership liability)
Partnership has a right to require contribution from one or more partners. (partner liability)
Indemnification – if one partner pays off a partnership debt in full, he is entitled to indemnification from the partnership and contribution from the partners. Partner that pays debt becomes creditor to partnership. UPA§18, RUPA§401
Contribution – contribution may be required when capital is needed such as to pay off a partnership creditor.
Distributions, Remuneration, and Capital Contributions
Each partner, in the absence of agreement, shares profits and losses equally. UPA§18(a).
