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Business Associations/Corporations
Rutgers University, Newark School of Law
Dickerson, Claire Moore

I. Introduction: Unincorporated Business

A. Sole Proprietorship (Agency)

1. What is an Agent?

Restatement 2d Agency

Rst. 2d. Sec. 1: Agency; Principal; Agent
(1) Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
(2) The one for whom action is to be taken is the principal.
(3) The one who is to act is the agent.
-Agency includes an employee relationship.

Test for Agency

1) Manifestation by the principal that the agent will act for him;
2) Acceptance by the agent of the undertaking
3) Understanding between the parties that the principal will be in control of the undertaking

Gorton v. Doty (p.1)
Facts: Gorton (P) was injured in an automobile accident after Doty (D) loaned her vehicle to Garst to transport Gorton (P) and others to a football game. Gorton (P) (Student in car) sues Mom/teacher, claiming coach was agent of Mom.
Rule: An agency relationship results from one person’s consent that another will act on his behalf and subject to his control, and the other person’s consent to act.
A principal-agent relationship not only arises when one transacts business for another, but also when one is generally authorized to manage some operation for another person. Def. here volunteered her care on the express condition that Garst drive it. She could have driven the car herself but wanted Garst to drive it specifically. No contract is needed. When a driver has control over another person’s car, whether the owner is present or not, the driver’s permissive use of the vehicle is a prima facie case of agency. Affirmed.
-Consent – she consented to use of the car.
-Control – she conditioned use of her car on the coach driving.
-The Court makes a point of her failure to tell the coach that she was “loaning” the car. Perhaps if there had been a formalization of a borrowing, then perhaps she would have been excused.
-If plaintiff merely “loaned” her car, then there is no agency.
-Form v. Substance: This case was about form.
– Mrs. Doty should have had a rental agreement w/ the coach which placed no conditions upon his use of the car and control is his and disclaiming liability and requiring him to represent that he had his own insurance and that he will indemnify her if there is an accident.

A. Gay Jenson Farms Co. v. Cargill (p.2)
Facts: The plaintiffs entered into grain contracts with Warren Grain and Seed Co. which was financed and controlled with Cargill (D), a separate entity and A. Gay Jenson Farms (P) sued Cargill as principle.
Rule: A creditor that assumes control of its debtor’s business may become liable as principal for the debtor’s acts in connection with the business.
Once one party gives its consent to another to permit control over one’s activities, an agency is created and the principal is liable for the agent’s debts. Cargill insisted on Warren listening to its recommendations for Warren’s operations which established Cargill’s control over Warren’s operations. Warren sold nearly all of its incoming grain to Cargill (D), indicating that the two were not separate enterprises. Affirmed.
-The Court cites R.2d (Agency) on p. 11 and says that suppliers must show an independent business before it can be shown he is not an agent. Cargill had an agency relationship at the point that they exercised defacto control over Warren. Warren was acting as an extension of Cargill. Form vs. Substance: Cargill had great form but substantively they were in control.
-Cargill entered into the decision-making process of Warren. However, it is normal for a lender to look at the risks the borrower is taking on.
-When Cargill guarantees the farmers payment from Warren, they sort of put themselves into a position to represent Cargill.
-Questions of what agent does also rests on reasonability.
-Patty owns an agency. Two employees: Alfonse and Gesto. Alfonse is an idiot and Gesto is a great seller. Patty accidentally puts a note meant for Gesto on Alfonse’s desk to sell her car. Alfonse sells her car for a third of its value. Is Patty obligated to sell the car for a third of its value to the customer? You would have to look at what a reasonable person would do. If the manifestations are sufficient, then Alfonse had the Authority to sell the car.

Rst. 2d. Sec. 2: Master; Servant; Independent Contractor

Rst. 2d. Sec. 3: General Agent; Special Agent
Every now and then, the Restatement of Agency (2nd) makes a distinction between acts done by a “general” agent and acts done by a “special” agent. The Restatement defines a general agent as “an agent authorized to conduct a series of transactions involving a continuity of service.”

2. Agent =s Authority & Duty

Rst. 2d. Sec. 2: Master; Servant; Independent Contractor

Rst. 2d. Sec. 3: General Agent; Special Agent

Rst. 2d. Sec. 7: Authority (Principal-àagent)
-Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him.

-Hypo: Here is $15, go to store and buy essential groceries. Agent now goes to the store and buys a CD instead. Agent now took or stole the $15. The only thing they had the authority to do was buy the groceries.

Rst. 2d. Sec. 8: Apparent Authority (Principalà3rd Party(From 3rd Party’s Perspective)
-Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to such third persons.
– Read sections 8 and 27 together: To create apparent authority a principal must write, say, or do something that the third person could reasonably interpret as giving the (apparent) agent authority to act on the principal’s behalf. Apparent authority might exist even when there is no agency relationship between the principal and the person who appears to be an agent of the principal.
-**Ex. apparent authority – it is reasonable for parties to believe a salesman has authority to bind employer to sell. Buyer was never informed that salesman did not have authority to make sale, therefore letter confirming delivery date was construed to mean sale occurred binding defendant.
-**-Under the context of actual authority, the princ

The affirmance by a person of a prior act which did not bind him but which was done or proffessedly done on his account. Ratification requires acceptance of the results of the act with an intent to ratify, and with full knowledge of all the material circumstances.

1) Was the act done on the party’s behalf?
2) Did the party accept the act or the benefits of the act?
3) Did the party have full knowledge of all the material circumstances?

Rst. 2d. Sec. 219: When Master Is Liable For Torts of His Servants
-In order to show agency in tort liability, you need to show that the principal had a greater level of control.

Rst. 2d. Sec. 379: Duty of Care and Skill
1) “Unless otherwise agreed, a paid agent is subject to a duty to the principal to act with standard care and with the skill which is standard in the locality for the kind of work which he is employed to perform and, in addition, to exercise any special skills that he has.”
2) “Unless otherwise agreed, a gratuitous agent is under a duty to the principal to act with the care and skill which is required of persons not agents performing similar gratuitous undertakings for others.”

Rst. 2d. Sec. 387: General Principle (Duty of Loyalty)
(1) Rest. §387: “Unless otherwise agreed, an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency.”

Rst. 2d. Sec. 388: Duty to Account for Profits Arising Out of Employment
Payment from T (kickbacks, bribes, tips)

B. Partnership

1. Formation

Uniform Partnership Act (1914) Sec. 6: Partnership Defined

UPA § 6: A partnership is an association of two or more persons to carry on as co-owners a business for profit.

UPA Sec. 7: Rules for Determining the Existence of a Partnerhip

Rst. Uniform Partnership Act (1997) Sec. 202: Formation of Partnership

To Summarize: A PARTNERSHIP is an association of two (2) or more persons who want to carry on as co-owners as business for profit.

· There is no definitive test which courts apply to determine whether a PARTNERSHIP exists. Courts look to all the attendant facts and circumstances.
· See Wood v. Phillips, 2001 WL 1637293 (Ala. 2001) (no settled test for determining the existence of a partnership; determination is made by reviewing all the attendant circumstances, including the right to manage and control the business).
· When examining the facts and circumstances, courts look at the following elements:
 Sharing of Profits (Reward)
 Sharing of Losses (Risk)