BA OUTLINE
Fall 2009
(1) AGENCY
Section 1. Introduction
– Sole Proprietorship—a business organization that is owned by a single individual, and is not cast in a special legal form of organization, such as a corporation, that can be utilized only by filing an organic document with the state pursuant to an authorizing statute
– Agent—a person who by mutual assent acts on behalf of another and subject to the other’s control
– Principal—the person for whom the agent acts
– Agency law governs:
o (1) the relationship between agents and principals
o (2) the relationship between agents and third persons with whom an agent deals, or purports to deal, on a principal’s behalf
o (3) The relationship between principals and third persons when an agent deals, or purports to deal, with a third person on the principal’s behalf
– Agency—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 consent so to act
Section 2. Authority
– Morris Oil Co. v. Rainbow—Dawn(P), Rainbow (A), Morris (3rd). Rainbow wanted to operate in county for which it did not have a cert of convenience regarding oil trucking, so they had a K agreement w/ Dawn. Dawn had control over monies made w/ Rainbow made under Dawn’s name. Is there an agency relationship w/ Dawn & Rainbow? YES; there is control
o Is there authority? YES; inherent authority. It is well established that A for an undisclosed principal subjects the principal to liability for acts done on his account if they are usual or necessary in such transaction
§ This is true even if P has previously forbidden A to incur such debts so long as the transaction is in the usual course of business engaged by such A
§ The undisclosed principal is subject to liability to liability to 3RD PARTYs with whom the agent contracts where such transactions are usual in the business conducted by the agent, even if the K is contrary to the express directions of the P…this is the same as saying that when a person contracts with an agent unaware of its contractual limitations, that person may demand performance from the principal
o YES; authority via ratification; case law holds that, even where A improperly purports to bind its P w/o authorization, P becomes bound if it learns the material facts and ratifies the K
§ P may be held liable for the unauthorized acts of his A if P ratifies the transaction after acquiring knowledge of the material facts about the transaction
– NOTE ON AUTHORITY
o 1. Terminology
§ General agent—an agent who is authorized to conduct a series of transactions involving continuity of service
§ Special agent—an agent who is authorized to conduct only a single transaction
§ Disclosed principal—if, when an agent and third party interact, the third party has notice that the agent is acting for a principal and has notice of the principal’s identity
§ Partially disclosed/unidentified—when an agent and 3rd party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal’s identity
§ Undisclosed principal—when an agent and 3rd party interact, the 3RD PARTY has no notice that the agent is acting for a principal
§ Master—in vicarious liability suits for torts, a master is a principal who controls, or has the right to control, the physical conduct of an agent in the performance of the agent’s services
§ Servant—an agent whose physical conduct in the performance of services for the principal is subject to control of the principal (torts)
o Third Restatement uses the terms employer and employee
§ Employee—an agent whose principal controls or has the right to control the manner and means of the agent’s performance of work
§ 3rd Rstmt rule for principal’s vicarious tort liability:
· (1) An employer is subject to vicarious liability for a tort committed by its employee acting within the scope of employment
· (2) An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control…An employee’s act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve the purpose of the employer
§ Respondeat superior—the vicarious liability of a master or employer for the tort of a servant or employee
o 2. Liability of Principal to Third Person
§ Under agency law, a principal becomes liable to a 3RD PARTY as a result of an act or transaction by another, A, on the P’s behalf, if A had actual, apparent, or (traditionally) inherent authority to act on the principal’s behalf in the way that he did, or was an agent by estoppel, or if the principal ratified the act or transaction
· Actual Authority— an agent has actual authority to act in a given way on P’s behalf if the P’s words or conduct would lead a reasonable person in the A’s position to believe that the P wishes the agent so act
o If an A has actual authority and acts within the scope of that authority, the principal is bound
§ Example: boss leaves note on wrong desk, A at wrong desk has actual authority
o Actual authority may be either express or implied
§ Implied Incidental Authority—the authority to do incidental acts that are reasonably necessary to accomplish an actually authorized transaction, or that usually accompany a transaction of that type
o If an A has actual authority, the P is bound even if the 3RD PARTY did not know that the agent had actual authority
§ An undisclosed P is bound by A’s authorized transaction even though the A may have purported to act strictly on his own behalf
· One reason for this: P set the transaction in motion and stands to gain from this
· Another reason: Even if the undisclosed P were not directly liable to the 3RD PARTY, the agent would be…therefore the 3RD PARTY could sue the agent and the agent could sue the P for indemnification of the damages he had to pay to the 3RD PARTY
o thus, allowing 3RD PARTY to sue undisclosed P collapses 2 lawsuits into 1
· Apparent Authority—An A has apparent authority to act in a given way on P’s behalf in relation to a 3RD PARTY, if manifestations of the P to 3RD party (or manifestations by the agent to 3RD PARTY that the principal authorized the A to employ) would lead a reasonable person in 3RD PARTY’s position to believe that the P had authorized the A to so act
o If A has apparent authority and acts within the scope of that authority, the P is bound
§ This is all based on the perspective of the 3RD PARTY
§ EXAMPLE: P write to A telling him to sell Blackacre…P sends copy of this letter to T, a prospective purchaser. A has actual authority to sell and, as to T, apparent authority
o Power of position—apparent authority can be created by appointing a person to a power of position which carries with it generally recognized duties
· Agency by Estoppel—A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person’s account is liable to a 3RD PARTY who is induced to make a detrimental change in position because the transcription is believed to be on the person’s account, if
o (1) The person intentionally or carelessly caused such belief, or
o (2) Having notice of such a belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts
o Very close to apparent authority
· Inherent Authority—here, an A may bind a P even when no actual or apparent authority
o 1. 3rd Restmt 2.02 defines scope of actual authority in expansive manner:
§ A has actual authority to take action designated or implied in the P’s manifestations and acts necessary or incidental to achieving the P’s objectives, as the A reasonably understands them when A determines how to act
§ An A’s interpretation of the P’s manifestations is reasonable if (1) it reflects Any meaning by the A ascribed by the P and, in the absence of any meaning known to A (2) as a reasonable person in A’s position would interpret manifestations in light of the context, including circumstances of which A has notice
§ A may properly act in a way that is knowingly at variance with the P’s original instructions if the A believes that:
· (i) Circumstances have changed since the initial instructions;
· (ii) Were the P to reconsider the matter, different instructions would have been give, AND
· (iii) It’s impracticable to communicated w/ P for clarification before action needs to be made
o Example: P tells A to buy a property near his golf course for 250,000 to make the course look nicer. B comes along and tries to outbid A. A knows that B wants to build a cement factory on the property, so overbids the agreed 250k. He had actual/inherent authority to do so
· Ratification—Even if A has neither actual nor app auth, P will be bound to 3RD PARTY if A purported to act on the P’s behalf, and the P, with knowledge of
r which the A was liable to the 3RD PARTY; AND
o D. Expenses in defending actions brought against the agent by 3RD PARTYs because of the agent’s authorized conduct
Section 3. The Agent’s Duty of Loyalty
– Tarnowski v. Resop
o A made false representations to P regarding jukebox investigation
§ An agent who violates his duty of loyalty is liable to the P for any secret profit earned, as well as the P’s consequential damages, including attorney fees
§ Case law universally holds that any profit made by A during agency belongs to their Ps, even if earned in violation of that agency, and even if P is unharmed
§ Restatement of Agency 407(2) Comments e: P has a cause of action against a disloyal agent who defrauds him, and may recover the secret profit, even if the P has rescinded the fraudulent contract and recovered his payment
§ GENERAL RULE: Rstmt of Agency 407(1): when A violates his duty of loyalty, P may recover not only secret profit, but also any damages caused by the violation
· Recoverable damages from A include: $ improperly expended by P (including the bonus which A received) AND comp. for all business losses
§ GENERAL RULE: Torts: generally holds that damages include all reasonable foreseeable and anticipated consequence
§ Litigation costs and atty fees were held to be “plainly traceable” consequences of an A’s misrepresentation
(2) Partnership
THIS CHAPTER DEALS WITH GENERAL PARTNERSHIPS
Intro
– P-ship long been governed by statute(although it has its roots in CL)
– Until recently, relevant statute was UPA
– In 1994—RUPA (intended to supersede UPA)
o RUPA applies to all p-ships formed after RUPA is adopted in any given state and, after a transition period, to p-ships formed even before RUPA was adopted
o In 2005, about 2/3 states have adopted RUPA
o Some big time states like NY, PA and OH have not made the switch
– Cases here are mostly based on UPA
o Partly b/c RUPA is new and has not spawned much case law; and partly /c RUPA continues many of the rules of the UPA
– As of 2002, there were 780,000 GP’s in the US, with an average of 4 p’s in each p-ship
Section 1. Partnership Formation
– GP is the default relationship when 2+ join together w/o specifying any other type of relationship; if no one actually chooses otherwise, this is the default
o You just need some manifestation of intent to go into business w/someone, and then there exists a GP; a lot often spring up by mistake or inadvertently
– UPA §6: Partnership Defined:
o “an association of two or more person to carry on as co-owners a business for profit”
– UPA § 7: Rules for Determining the Existence of a P-ship
o a. Except as provided by §16, persons who are not partners as to each other are not partners as to 3RD PARTYs
o Joint tenancy, TIC, T by Es, joint property, common prop or part ownership doesn’t of itself establish a p-ship, whether such co-owners do or don’t share any profits made by use of prop
o Sharing of gross returns doesn’t establish a p-ship, whether or not persons sharing them have a joint or common right or interest in any property from which returns are derived
o Receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business” UNLESS profits were received in payment:
§ a. as debt by installments or otherwise
§ b. as wages of employee or rent to L
§ c. as annuity to a widow or representative of a deceased partner
§ d. as interest on a loan, though the amt of payment may vary w/ profits of business
e. as the consideration for the sale of good-will of a business or other
