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Business Associations
Rutgers University, Newark School of Law
Eakeley, Douglas S.

BA Outline Eakeley Spring 2013


1)      AGENCY:  “Agency is the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control,and the agent manifests assent or otherwise consents so to act.” RESTATEMENT OF THE LAW (THIRD) AGENCY (the “Third Restatement”). § 1.01. There are three parts to this analysis:
a)       manifestation of consent by the principal that the agent act on the principal’s behalf; AND
b)       subject to the principal’s control; AND
c)       ) the agent manifests consent

2)      Non-employee agents: Rule: When a fact pattern involves an independent contractor or a non-employee agent, if the tort occurs in an area over which the principal exercises some control, the principal might still be liable. However, if the tort occurs in an area over which the principal does not exercise control, then there is no liability, unless the activity falls within one of the exceptions.
a)      Exceptions: There are certain situations in which a principal is still liable
(1)    For the torts of an agent who is not an employee and over whom the principal exercises no control. Those situations are:
ii)       ) Inherently dangerous activities
iii)     Non-delegable duties
iv)     Negligent hiring

3)      The agent is always liable for his own negligence.

4)      If the principal is negligent, then the principal is liable for his own negligence, not because of respondeat superior and not because of the principal-agent relationship.
5)      There are various forms of authority through which an agent may bind a principal to an agreement. They include:
a)      ) Actual Authority (both express and implied)
i)        Actual Express Authority involves examining the principal’s explicit instructions.
ii)       ) Actual Implied Authority involves examining the principal’s explicit instructions and asking what else might be reasonably included in those instructions (i.e.implied) to accomplish the job.

b)      ) Apparent Authority
i)        created when a person (principal or apparent principal) does something, says something or creates a reasonable impression (a “manifestation”) that another person (the apparent agent) has the authority to act on behalf of that apparent principal.

c)       Ratification (which is authority granted after the fact)
i)        Did the principal, through word or deed, manifest his assent to (“affirm”) the agreement?
ii)        Given the situation will the law give effect to that assent? Affirmation may be express or implied. (It is often implied by the principal accepting the benefits of the transaction.)
iii)    Ratification does not occur unless
(1)    (a) the act is ratifiable as stated in § 4.03,
(2)    (b) the person ratifying has capacity as stated in § 4.04,
(3)    (c) the ratification is timely as stated in § 4.05, and
(4)    (d) the ratification encompasses the act in its entirety as stated in § 4.07.

d)      ) Liability of an Undisclosed Principal (This type of authority used to be included in the concept of “Inherent Authority”, but that term has been eliminated in the Restatement (Third) of Agency.)
i)        Under this concept, the law will sometimes hold an undisclosed principal liable for certain unauthorized transactions of his agent when a third party has made a “detrimental change in position”, if the principal had notice of the agent’s conduct and that it might induce third parties to change their positions, and the principal did not take reasonable steps to notify the third parties of the facts.

e)       Estoppel (Note that Estoppel is not technically a form of authority, but a doctrine that (as applied in this context) prevents a Principal from arguing that no authority existed. However, even in circumstances in which the Principal might be bound to an agreement by the doctrine of Estoppel, the doctrine may not be used independently by that Principal to enforce the agreement against a third party.)
i)        As used in agency, estoppel involves:
(1)    Acts or omissions (generally wrongful) by the principal, either intentional or negligent, which create an appearance of authority in the purported agent.
(2)    The third party reasonably, and in good faith, acts in reliance on that appearance of authority.
(3)    The third party changes her position in reliance upon that appearance of authority.

6)    In addressing an agency question, involving a principal’s responsibility for an agent’s actions, it might be helpful to use the following questions as an analysis flow chart.

a)      ) Is there a Principal–Agent relationship?
b)      ) If so, does the issue involve a tort or a contract?
i)        Tort
(1)     Is there an Employee (“EE”)—Employer (“ER”) relationship?
(a)    • Did thePrincipal have the rightto exert control over the means and manner in which the Agent performed the task(s)?

(2)     If the Agent is an EE, did the tort occur within the scope of the employment or was it clearly outside the scope (“frolic or detour”)?

(a)    • If the tort was intentional, with no purpose to serve the ER, was it foreseeable (characteristic of the risks that arise from the employment)?

(3)     Even if there is not an EE/ER relationship, is there sufficient control to create a “non-employee agent”, and, if so, did the tort occur within the scope of that control?

(4)    ) Even if there is no control exercised over the Agent, does the event fall into an exception such as an inherently dangerous activity, a non-delegable duty or negligent hiring?

(5)     Even if there is no liability for the Principal under a control analysis, is there a claim for Apparent Agency because the third party reasonably relied on the appearance of agency and was harmed as a result of that reliance?
c)       Contract
i)        ) Did the Principal give Actual Authority to the Agent (either express or implied)?

ii)       ) Did the Principal make some manifestation to the third party creating Apparent Authority?

iii)     ) Was the Principal undisclosed, creating liability of an undisclosed principal (formerly Inherent Agency Power (IAP))?

iv)     ) Did the Principal ratify the contract?
(1)    • Do any exceptions apply (didn’t know all the facts, partial ratification, unfair to third party)?

v)      ) Is Estoppel an issue?
(1)    • Did the Principal do something wrong, or fail to do something, that created an impression with the third party?
(2)    • Did the third party rely and al

EXCEPT where those profits are received as (a) debt service, (b) wages, (c) rent, or (d) annuity.

Formation
Fenwick v. Unemployment: Elements of a partnership:
i.      Right to share in profits
ii.      Obligation to share in losses
iii.      Ownership & control of partnership property
iv.      Community of power in administration


Fiduciary Duty (Duty of Loyalty and duty ofCare)
The duty of loyalty encompasses the obligation of each partner:
i.       To account to the partnership for profits, property or benefits from the conduct (or winding up) of partnership business or the use of partnership property;
ii.      ) To refrain from acting as or on behalf of a party with an adverse interest to the partnership (e.g. avoiding conflicts of interest);
iii.      ) To refrain from competing with the partnership in the subject matter of the partnership business;
iv.      ) To perform all duties to the partnership and the other partners, consistent with the obligation of good faith and fair dealing.

Duty of Care: the duty of care standards in articulated in section 404(c) of the RUPA a partner must not engage in:
i.      ) gross negligence;
ii.      ) reckless conduct;
iii.      ) intentional misconduct; or
iv.      ) a knowing violation of the law.
v.      Also must act with good-faith and fair dealing

a.       Meinhard v. Salmon: Managing partner in a joint venture had a fiduciary duty to inform and allow the investing partner to compete to obtain an opportunity that arose from his status as a partner even though it would vest after the partnership's anticipated termination.

b.      Partnership opportunity: What you should do
) First, disclose the business opportunity to the other partners.
) Second, decide whether or not to act on behalf of the partnership and take the opportunity.