Business Associations Outline

Business Associations Outline Fall 2013

A. Agency Law:

a. Concerned w/ the relationship of principal (person in charged w/ the relationship) and agent (person doing the work) – Largely common law

i. Agent is the holder of power to affect the legal relations of the principal w/n the scope of the agent’s agreement

1. special agent – the agency is limited to a single act or transaction

2. general agents – the agency contemplates a series of acts or transactions

b. Legal Concept:

i. Parties intention can only be partial – ex: if they act as an agency relationship the it is an agency relationship

ii. Fiduciary relationship – first establish if there is an agency relationship

iii. Transaction perspective – you don’t want your client to stumble into a relationship b/c the other party would have an ability to bind your client and your client may be liable for torts

c. Restatement (Third) of Agency:

i. §1.01 – Agency Defined

1. Agency is the fiduciary relationship that arises when one person (principal) manifests assent to another person (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.

ii. §1.03 – Manifestation

1. A person manifests assent or intention through written or spoken words or other conduct

a. Requires a manifestation of:

i. Consent by both parties

ii. Definition of what acts the person is going to do on behalf of the principal

d. What to ask?

i. First ask is there an agency relationship; then,

ii. What is the type of authority

e. Jenson Farms Co. v. Cargill:

i. Warren – operated a grain elevator. Entered into a security agreement w/ Cargill. Cargill was appointed as Warren’s grain agent for certain transactions. Cargill continuously reviewed Warren’s operations and expenses. Warren contracted on Cargill’s behalf, but continued to be in debt. Plaintiffs alleged that Cargill was jointly liable for Warren’s indebtedness as it had acted as a principal for Warren. Trial Court ruled in favor in Plaintiffs.

ii. An agency agreement may be created even though the parties did not call it an agency and did not intend the legal consequences of the relation to follow. The existence of the agency may be proved by circumstantial evidence which shows a course of dealing between two parties.

iii. Professor said look at these facts:

1. Cargill’s determination that Warren needed “strong paternal guidance”

a. This could be one of degree, but usually a finance company would not get heavily involved.

2. Right of first refusal on grain

a. You could argue that Cargill is trying to have their cake and eat it too. You can look at as they fully don’t want to acquire this grain elevator company.

b. Why should it matter that Cargill made the loan to preserve access to the grain?

i. This is not quite the same thing as being a normal lender. Usually a lender does not do this.

3. Putting Cargill’s name on letterhead/checks/forms?

a. Puts an impression that Warren is a subsidiary of Cargill

4. Professor says he could argue that almost every one of the remaining ones are consistent with a lending agreement. So basically w/ subtle changes, Cargill could have avoided this problem.

iv. Warren would not be held liable, b/c the principal will be held liable (Cargill). The principal is only liable when:

1. Agent is acting in authority

2. Principal ratifies the fact.

f. Kinds of Authority

i. Restatement Third of Agency §2.01 – Actual Authority

1. 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 principal’s manifestations to the agent, that the principal wishes the agent so to act.

a. Actual includes expressed or implied. There is a penumbra around it.

b. Ex: RA is told to send a package to NY – incidental cost would be implied or incidental to the expressed authority. The RA would need to get to New York somehow so he takes the path. However, a tricky question arises if the RA goes to Newark airport and take a helicopter. However, if he was told that the package needs to get to NY in 20 minutes, a helicopter may be reasonable.

ii. Restatement Third of Agency §2.02 – Scope of Actual Authority

1. (1) 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.

2. (2) An agent’s interpretation of the principal’s manifestations is reasonable if it reflects any meaning known by the agent to be ascribed by the principal and, in the absence of any meaning known to the agent, as a reasonable person in the agent’s position would interpret the manifestations in light of the context, including circumstances of which the agent has notice and the agent’s fiduciary duty to the principal.

3. (3) An agent’s understanding of the principal’s objectives is reasonable if it accords w/ the principal’s manifestations and the inferences that a reasonable person in the agent’s position would draw form the circumstances creating the agency.

iii. Restatement Third of Agency §2.03 – Apparent Authority

1. Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations w/ third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.

iv. Inherent Authority – third restatement wants to abolish this – this is slightly used only in extreme fact patterns (Big insurance firm v. little guy)

1. Restatement Second of Agency §8A – Inherent Agency Power

a. Inherent power is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority or estoppels, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.

2. Equitable safety valve fo