1. Agency
An agency is a consensual fiduciary relationship that arises when a principal manifests an intention that an agent shall act on the principal’s behalf. Both must consent to the relationship, and both must have capacity; the principal needs contractual capacity, but the agent needs only minimal mental capacity. No writing or other formalities are required.
Binding Authority
A principal will be bound by the acts of his agent if the agent acted with authority. There are three types of authority: actual, apparent, and ratification: Actual authority is based on what the agent reasonably believes he has based on his dealings with the principal. Apparent authority arises when the principal holds out another as having certain authority, causing the third party to believe that authority exists. Ratification is authority given by the principal and acceptance of a transaction after the transaction has taken place. Actual authority can be express or implied: Express authority is that specifically contained in the communication from the principal to the agent that grants authority. Implied authority is that which the agent reasonably believes he has based on the actions of the principal. Actual express authority can be subject to limiting instructions. A principal can unilaterally terminate his agent’s actual authority by communicating to the agent that the agency is at an end. However, mere communication to the agent is not sufficient to terminate an agent’s apparent authority. To terminate an agent’s apparent authority, the principal must personally notify third parties he knew had dealings with the agent and must publish notice for all others. Even these steps are not sufficient to terminate apparent authority if the principal has given his agent a writing manifesting the agent’s authority. To terminate apparent authority in such cases, the principal must collect the writing from the agent.
Generally both the principal and the agent are liable on a contract entered into by an authorized agent on behalf of an undisclosed principal (i.e., a principal whose existence and identity are unknown to the third party.)
The independent contractor/employee distinction is important only in cases of tort liability, not contractual liability. The parties’ characterization of the relationship is not necessarily binding. The single most important factor is whether the principal has the right to control the manner and method in which the agent does his job. An employee is subject to the supervision of the principal in the details of the employee’s work, whereas an independent contractor follows his own discretion.
Courts hold principals liable for an agent’s misrepresentations of the agent’s authority if the agent had any type of authority to make the representation.
Death or incompetency of the principal immediately terminates all authority of the agent even if the agent and/or third party with whom the agent deals is unaware of the principal’s condition. Notice is not required to terminate an agent’s powers upon the death of the principal.
The principal owes the agent a duty of indemnification for any legal liability reasonably incurred by the agent in acting for the principal, unless the liability was due to the agent’s own fault. A principal owes the agent a duty of reasonable compensation for the agent’s services unless the agent has agreed to act gratuitously. If the agent has breached his fiduciary duty, the principal may refuse to pay the agent for compensation attributable to the particular transaction in question. An agent owes his principal a number of duties, including the duty to follow reasonable instructions. A compensated agent can be held liable for breaching this duty.
Alabama Notes
The law of agency applies to partnerships.
An agency relationship is a fiduciary relationship which results from:
1) the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and
2) consent by the other to act.
Agency is determined by the facts and not by how the parties characterize their relationship. An agent must have either express, implied or apparent authority to act. An agent may have apparent authority to bind a principal, or the agent’s authority may be implied from his office or position.
An agent owes a fiduciary duty to his principal to act at all times with due regard to the interest of the principal, with the utmost good faith, loyalty, and honesty. An agent must account to his principal for property and profits entrusted to him.
A general agent is one who has authority to transact all of the business of the principal, and the powers of the general agent are co-extensive with the business entrusted to his care, authorizing him to act for the principal in all matters coming within the usual and ordinary scope and character of such business.
If an agent enters a contract on behalf of a disclosed principal, the agent binds either the principal or himself to the contract, but not both. If the agent fails, for lack of authority, to bind the principal, then he is personally liable on the contract. If the agent succeeds in binding the princ
or or an employee, the important factors include:
(1) the extent of the reserved right of control—not actual control—by the putative master over the work of the putative servant,
(2) whether the servant is engaged in a distinct trade or business,
(3) whether it is a type of work usually done under the direction of the putative employer or by a specialist without supervision,
(4) the skill required of the putative employee,
(5) whether the employer or employee supplies tools, place of work, etc.,
(6) the length of time the person has been under contract,
(7) the method of payment, and
(8) whether the work is part of the regular business of the putative employer, among others.
An independent contractor’s employment is non-exclusive, has limited authority, and is free to select for himself the time and manner of doing his work.
2. General Partnerships
Alabama Note: The Revised Uniform Partnership Act (“RUPA”) has been enacted in Alabama, effective January 1, 2001.
A. Creation/Existence
A partnership is an association of two or more persons to carry on as co-owners of a business for profit (whether they intended their relationship to be a partnership or not). No formal agreement is required to create a partnership, and it is generally not necessary for a partnership agreement to be in writing. UPA provides that the receipt of a share of the profits is prima facie evidence that a person is a partner (under the RUPA, a person who receives a share of the profits is presumed to be a partner).
Alabama Notes
The existence of a partnership is a hybrid question of law and fact. No single fact or circumstance is conclusive.
A partnership is created by agreement, express or implied (therefore no one can become a partner without the consent of all other partners). Although it is a contractual relationship, no writing is required, and an agreement may even be inferred from the facts and circumstances, without express words of agreement.
The most important characteristics of partnerships are sharing of
(1) profits and losses;
