I.) Agency: (Note pgs. 2-4) The fiduciary relationship that arises when one person (principal) manifests assent to another person (agent), that the agent shall act on the principals behalf and be subject to the principal’s control, AND the agent manifests assent or otherwise consents to so act.
○ principal-agency relationship trumps contracts
○ in the event of a tort action the principal is reliable when the agent is working within the scope of his/her employment
○ Contracts–A principal is liable to a third party on a contract entered into by her agent on the principals behalf if the agent had actual, apparent, or inherent authority to act on the principal behalf or the principal ratified the agent’s behavior.
■ Actual authority: Where the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the principal wished the agent would act. This is a contractual authority consisting of an agreement between the agent and the principal; however the contract here is ambulatory, focusing on the reasonability of the agents interpretation of his authority at the time he acts.
● when the principal and agent relationship is express or implied
● May have inherent authority certain things that usually accompany the actual authority given
○ equitable rational–it’s inevitable that agents will do certain things that are customary that will be harmful to the principal
■ supported on foreseeability and equitable grounds
■ when we have actual authority the principal is bound even if the third party does not know there is the principal
■ the relationship b/w principal and agent is ambulatory so the question is about when the agent and third party made their deal not principal and agent.
○ LIABILITY: Where the agent’s actions are within the scope of employment/ custom in the industry the principal is bound.
■ Conduct is of the kind he is employed to perform,
■ conduct occurs substantially within authorized time and space limits;
■ Conduct is actuated, at least in part, by a purpose to serve the master, AND
■ if force is intentionally used by the servant against another, the use of force is not unexpected by the master
■ ALSO,
● if conduct is outside the scope of employment it is different from what is authorized, far beyond space and time limits or too actuated by a purpose to serve the master.
■ Agent-Third party- depends on whether the principal is liable to the third person
● IF principal is bound AND Undisclosed (Where a third party dealing with the agent has no notice that the agent is not acting on his own behalf, but on the behalf of a principal instead.)
○ Agent IS bound
■ third party did not know there was a principal so they are looking to the agent and expecting the agent to be bound
■ Both Agent and Principal are bound but NO WINDFALL–the third party can only recover from either the agent OR the principal , other party is alleviated.
● IF principal is bound to a third party and is Disclosed (where the third party is aware that the agent is acting on behalf of the principal AND they know who the principal is.):
○ Agent IS NOT bound
○ Third-party expects to be bound to the principal and not the agent.
○ If principal is bound to a third party and the principal is Partially Disclosed/ Un-identified Principal (where the third party is aware that there is an agent who is acting on behalf of a principal but does not know of the principals identity.)
■ Agent IS bound
○ Liability is only for actions w/in the scope of employment
■ liability is to the third party not the principal in this respect.
● Cases:
○
h a buy-out.
■ Holding: Liquidation of assets under UPA is unduly harsh as it will create a fire sale of business assets., causing the partnership to lose it’s overall value. Forced liquidation is contrary to public policy. RUPA buyout was permitted.
○ Farnsworth v. Deaver: (128)
■ Dispute surrounding the dissolution of a failed partnership between two couples, the Farnsworths and the Deavers. Regarding the repayment of capital accounts
■ In winding up the partnership makes a distribution to each partner in an amount equal to the positive balance in the partner’s capital account. Where there is a negative balance in a partner’s capital account. A partner is required to remove his account from its negative position by reimbursing the partnership an amount equal to that partner’s negative balance.
■ The partnership suffered a capital loss, i.e., the debts exceed its assets. In calculating the balance of the capital accounts where a partnership suffered a capital loss, the debt must be satisfied by the partners in direct proportion to their share of the profits. Thus, because the Farnsworths and Deavers had agreed to split profits 50/50, the partners would also split the loss 50/50, and that sum would be offset against the capital due each partner. The Deavers’ pro-rata share of the loss was greater than the proceeds in their capital account, creating a negative balance. The court ordered the Deavers to reimburse the partnership an amount equal to that negative balance.
