Business Associations – Spring Semester 2013 – Matt Vega
The Law of Agency
Creation of an agency relationship
i. An agent is any person who is authorized to act on behalf of another (the principal)
1. Principal: the one for whom action is being taken
2. Agent: the one taking the action
ii. The test for agency relationship – 3d Rst
1. Control
a. The one usually seen. If the court can show that I control someone I am more likely to be liable for their actions
2. Assent (not as concrete as consent)
a. Does not have to be a contract, can be words or behavior
3. Agent should act on the principals behalf for the benefit of the principal
a. Agent is primarily acting for the principal à cannot require that they only work for the principal because everyone is also working for themselves
b. This is a factor, but is not conclusive
iii. Inward looking consequences:
1. Relates to the relationship between the principal and the agent. And, are largely governed by the contracts between the parties and by the law of fiduciary duties
iv. Outward looking consequences:
1. Relate to the relationship among the principal, the agent, and a third party. Are governed by various principles of attribution
v. U.S. vs. Cyberheat
1. Liability only attaches if there is a valid agent
a. Payment alone is not enough because of independent contractors
b. If no k, look to the three factors: control, benefit, assent
2. To prove a violation the plaintiff does not have to prove conscious avoidance, just that the violations did not occur by accident.
a. In other words, not that there was intent to have an agency relationship
3. Creation of an agency depends on the parties intentions (demonstrated by express agreement of inference)
a. Intentions = intent to do the kinds of things that result in assent, control, and benefit à not intent to be in an agency
b. Look to the substance of the relationship not the title
Agents fiduciary duties to principle
i. Principals duties include: Performance of contract obligations, good faith and fair dealing, and indemnification under certain circumstances
ii. Agents duties: performance of k obligations, care, competence, diligence, obedience, and disclosure
1. Loyalty to the principal:
a. Do no communicate confidential information
b. No competition
c. Not to act as an adverse party
2. The duty of loyalty is limited to the scope of the agency
a. Rst 3d § 8.01: general fiduciary principle
i. An agent has a fiduciary duty to act loyally for the principals benefit in all matters connected with the agency relationship
b. Rst 3d § 8.02: material benefit arising out of position
i. An agent has a duty not to acquire a material benefit from a third party in connection with transactions conducted or other actions taken on behalf of the principal or otherwise through the agent’s use of the agents position
c. Rst 3d § 8.03: acting as or on behalf of an adverse party
i. An agent has a duty not to deal with the principal or on behalf of an adverse party in a transaction connected with the agency relationship
d. Rst 3d § 8.04: competition
i. Throughout the duration of an agency relationship, an agent has a duty to refrain from competing with the principal and from taking action on behalf of or otherwise assisting the principal’s competitors. During that time, an agent may take action, not otherwise wrongful, to prepare for competition following termination of the agency relationship
e. Rst 3d § 8.05: Use of principals property: use of confidential information
i. An agent has a duty
1. Not to use property of the principal for the agent’s own purposes or those of a third party; and
2. Not to use or communicate confidential information of the principle for the agent’s own purposes or those of a third party
ii. This extends even after termination of employment
3. Food Lion vs. Capital Cities
a. An employer who deliberately acquires an interest adverse to his employer is disloyal
b. Disloyalty has been considered a tort three times:
i. Employee competes directly with employer
ii. Employee misappropriates her employers profits
iii. Employee breaches her employer’s confidences
c. An employer can still work two jobs, this opinion is limited to when the employee has the intent to act against the interest of one of their employers for the interest of another
d. Someone who works for 2 people as an agent has a duty to:
i. Deal in good faith
ii. Disclose to each principal the fact that they are acting for both, and other facts effecting judgment
iii. Otherwise to deal fairly with each of the principals
Principles of attribution
i. Agents bind principles by acting with authority à in a lot of senses authority defines the scope
ii. Power: ability for any agent to effect a principals legal relations
iii. Sources of power
1. Actual Authority:
a. An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principals manifestations to the agent, that the principal wishes the agent to act
2. Implied authority:
a. Actual authority either
i. To do what is necessary, usual, and proper to accomplish or perform an agent’s express responsibilities, or
ii. To act in a manner in which an agent believes the principal wishes the agent to act based on the agent’s reasonable interpretation of the principal’s manifestation in light of the principal’s objectives and other facts known to the agent
b. Express authority gives implied authority to do all things proper, usual, and necessary to exercise that express authority
i. Not a reasonable interpretation if the action is not necessary, proper, and usual – OR incidental
ii. Necessary, proper, and usual is as a cumulative. Incidental is a separate test
iii. The key is using the facts given to make something necessary, proper and usual to exercise the express authority
3. Scope of authority:
a. An agent has actual authority to take action designated or implied in the principal’s manifestations to the agent and acts necessary or incidental to achieving the principal’s objectives, as the agent reasonably understands the principal’s manifestations and objectives when the agent determines how to act
b. An agent’s inte
ificant changes in the RUPA
a. RUPA § 203 makes partnership property the property of the entity, no of the individual partners
b. Does away with the UPA rule that departure of a partner causes dissolution of the partnership
c. RUPA provides for the merger or conversion of partnerships into limited partnerships
Formation
i. § 202(a) a partnership is an association of 2 or more persons to carry on as co-owners of a business for profit
1. Irrelevant whether or not the partners intended to form the relationship
2. Co-owner is more about control than profit sharing
a. The sharing of gross returns does not automatically mean partnership (§ 202(c)(2))
b. § 202(c)(3) – a person who receives profits is a partner unless meets an exception
c. Profit sharing à profits not revenues
i. A landlord shares in revenue, but is not necessarily a partner. Also commission based employees are not necessarily partners
ii. Partnerships may be implied from circumstances
iii. Holmes vs. Lerner (Urban decay)
1. An express agreement to divide profits is not a prerequisite to prove the existence of a partnership
2. Unless otherwise agreed upon partners share equally in profits and liabilities
Management
i. In the absence of an agreement to the contrary, all partners have equal rights in the management and conduct of the partnership business
ii. UPA § 9: Partner agent of partnership as to partnership business
1. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership unless the partner is so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority
iii. Now, under the RUPA § 301(1): partner agent of partnership
1. Each partner is an agent of the partnership for the purpose of its business. An act of a partner, including the execution of an instrument in the partnership name, for apparently carrying on in the ordinary course the partnership business or business of the kind normally carried on by the partnership binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority
a. Agent of the partnership, not of each other
