Business Associations Professor Riccio Fall 2014
I. Agency
*Impute liability for actions of agent to principal, generally bc the principal has deeper pockets than agent so 3rd parties injured by agent will want to sue the principal
a. Agency LAF
i. Mutual Agreement
1. Between principal and agent that agent shall act on principal’s behalf
a. Need not be written
b. Labeling the relationship does not matter
ii. Principal controls agent **
1. Or has right to control
2. Generally turn on issue of whether the principal has control over agent
b. Defenses against agency
i. “There was no agreement”
ii. “There was no control”
iii. The acts are not within the scope of agency
1. Ex. when Y gets sued for X’s reckless driving, Y is going to say X was never Y’s agent (X was not doing anything on Y’s behalf
c. Consequences of agency
i. Vicarious liability –imputed liability that goes to the principal on behalf of the actions of the agent (so long as within the scope)
1. Also will matter if they are a employee v. independent contractor
2. X injures someone on behalf of Y—that action (X) can be binding on Y
ii. Spread the risk-penalize the principal who did the action (not going to just leave the burden on the victim)
II. Agency Scope of Authority: Representations and Ratifications
*Whether agency relationship exists so agent can act on behalf of the principal (authority to do something)à when a third party sues the company and company says that the person who performed the act was not an agent because he did not have the authority to do it
*Binding actions of an agent in non-tort situations (contracts)
a. Actual authority: when agent reasonably believes the principal wishes agent to act on the principal’s behalf
b. Implied authority: do what is necessary or incidental to achieving principal’s objectives, which agent reasonably believes
i. Based on Factors: scope of actual authority, task to be done, relationship btw them, and prior course of conduct if any
c. Apparent authority (to third party)
i. Results from manifestations by the P to 3rd party (and 3rd party reasonably believes) that A has authority to perform (holding them out as bring an A)
1. Principal will be bound by that “agent” actions even though they are not an agent
d. Estoppel: Even when no form of authority exists, P may be estopped from denying liability bc of 3rd party’s detrimental reliance on actions of “agent” AND principal’s failure to take action to correct the error
e. Ratification: no principal/agent relationship but P affirms the prior act done by another à need intent
f. Agent Personal Responsibility on Contracts
i. Undisclosed principal: Agent and principal personally liable à principal-agent relationship (if agent is acting w. authority a reasonable person would think they have authority to do
ii. Disclosed Principal: No personal liability à “I am buying the car for Jack”
iii. Partially Disclosed: Personal liability?? Sometimes
1. Informing the party that you are acting for someone else but you do not tell them who it is
III. Agency Scope of Employment: Vicarious Liability for Torts (3rd Parties)
*This is where you need to determine whether there is an agency relationship or whether it is an independent contractor. This determines whether employer can be sued –fact intensive analysis of whether agent acted within the scope of employment
*Case usually turns on issue of control –determining
g. Elements of Vicarious Liability for Torts to 3rd Parties
i. Must be an agent
ii. Determine whether servant or independent contractor
1. Control à Key distinction is nature & extent of control agreed upon
2. If servant = master liable, if non-servant = master/principal not liable
3. Use totality of the circumstances to determine
a. Extent of control
b. Kind of occupation
c. Skill required
d. Whether employer or workman supplies the tools
e. Method of payment
f. Whether work is part of regular business of employer
g. Intent of the parties
iii. Must be acting within scope of employment
1. What kind of work was servant engaged in
2. Did it occur at the workplace; on the clock while working
3. Was the act something commonly done by servant (master would expect?)
4. Tests:
a. (1) Motive/purpose- Did what servant do ultimately done w. motive/purpose to further interest of master rather than servant?
b. (2) Foreseeability- Whether employer, knowingly imperfections of humans, could be said to be aware of the potential that a servant would engage in unauthorized (bizarre) behavior
h. Master-servant: when agreed to work on behalf of aster and subject to master control physical conduct of the servant
i. Independent contractor: contracts another to do something but they are not controlled or subjected to control w. respect to the conduct or performance
i. Agent type- one agrees to act on behalf of P but not subject to control over how the result is accomplished (buy lumber on P’s account)
ii. Non-servant- operates independently and simply enters into arms length transaction w. others (no direction from P)
iii. *Generally not liable
1. Unless: (
. Person who represents himself, or permits another to represent him
2. To anyone as a partner in existing partnership
3. Is liable to any such person to whom they made representation to
4. If person has given credit to the actual or apparent partnership
a. Holding out & causing someone else to think you have an agency relationship
n. Fiduciary Obligations of Partners
i. Duty of loyalty:
1. Duty to partner –esp. when you hold a higher position (managing partner has higher duty-others are putting trust in them)
2. Duty to Partnership- Owe duties to each other so must disclose opportunities that arise for both to have equal chance to take advantage
ii. Duty of care
iii. Duty of good faith (subset duty of loyalty)
1. Subordinate your own interest for the interest and welfare of the group
2. Opportunity arises that can benefit both partners, but one partner takes advantage of it w. out informing the other, FD is breached!
o. LAF- Rights of Partners in Management §401(f)(j)
i. Partnership agreement governs
ii. In absence of partnership agreement, or if silent:
1. Each partner has equal rights to manage partnership
2. As to matters in ordinary course, majority rules
a. Cannot stop the other from doing it
3. As to matters not in ordinary course, then unanimity is needed
iii. Mechanisms to prevent stalemates
1. When there are only 2 partners
a. Address the possibility of a disagreement by giving one party 50.1% control or designate one of the 2 as the managing partner
2. Tiers of partners
a. Equity proprietary partners-HAVE voting rights
3. Managing partners
a. Designate one to have managing rights
4. Designation of 3rd party to resolve matters
p. Partner dissolution
i. Each partner who has not caused the dissolution have right to damage for breach of contract and may continue business so long as pay accordingly
ii. To avoid- set a time limit in the agreement
iii. To avoid- do buy-sell agreement: allows business to go forward w. out dissolution and fund with insurance plan
