I. The Role of Agency Law in Business Organizations
Restatement Definition – Agency:
The fiduciary relationship that arises when the principal manifests assent to 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.
• Co-agents – have agency relationships with the same principal
• Fully Disclosed Principal – the 3rd party knows who the principal is
– keeps the agent from being responsible since the 3rd party knows who the agent is
Partially Disclosed Principal- agent says they are acting for someone but don’t tell who it is.
Totally Undisclosed Principal- agent acts on behalf of principal, but 3rd party is unaware the agent is acting for the principal.
• Silent Partner – doesn’t disclose involvement (but other partners always tell to avoid
liability)- offers no shield of liability
• Agent has no legal liability unless he acts without authority
Actual Authority – the agent has the authority to act on behalf of the principal. Communication from the principal to the agent the ability to act.
– can be revoked by the principal whenever he wants, except in cases where the parties have contracted for the relationship to last for a certain period of time
– termination of actual authority doesn’t automatically terminate apparent authority
o Express – things actually said (“buy me a car”
o Implied – things logically concluded from what was actually said (“sign these papers,” “take delivery of car”)
Apparent Authority – the 3rd party reasonably believes that agent has authority to act on
principal’s behalf because he has held himself out to the world that he has authority to conduct business on behalf of the principal. There must be a communication from the principal to the third party. Communicate to the world and the authority is binding.
– apparent authority continues until principal tells 3rd parties that relationship no longer exists
– prior transactions are the best way to show apparent authority
• In partnership law, all the partners are assumed to have actual authority to act on
behalf of the company.
– can be a problem if not all the partners like what each other are doing
Employer v. Independent Contractor
Why is it good to be an independent contractor?
o Independent contractors don’t h
– Originally couldn’t have general partners for a corp to avoid liability, but now most states allow this to promote business.
o file certificate of limited partnership with the Secretary of State and pay a fee
o General partners: the “B” types who run the business
§ unlimited liability
o Limited partners: the “A” types who only contribute capital
§ limited liability
§ can’t participate in management
§ can only lose as much as they put in
o limited liability for limited partners
§ not responsible as long as they act properly
o general partners have unlimited liability
• Limited Liability Partnership
– allows application of limited liability to existing partnership without having to change business forms and draft new origination documents
o file with the Secretary of State and pay a fee
o general partners like in general partnership