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Business Organizations
University of Baltimore School of Law
Schwidetzky, Walter D.

BUSINESS ORGANIZATIONS OUTLINE

Schwidetsky

Spring 2011

(1) AGENCY

General

a. Agency defined/ Creation

1. Fiduciary Relationship

2. P manifests assents (directly or indirectly) to A

3. That A shall act on Ps behalf and subject to Ps control

4. And A manifests assent (direct/indirect) to so act

i. KEY à Principals manifestation must reach A

ii. If principal manifests assent to the agent and the agent consents to act on P behalf, agency exists even if P is unaware that A consented

b. Test

1. If reasonable person would conclude that outward manifestation creates an agency relationship, then one exists

c. Issues in agency

1. Power of A to bind P to agreement with 3rd party and power of P to enforce agreement made between A and 3rd Party

2. Right V. Power à A powers to bind P may be greater than As right to bind P

i. Ex. P has A buy shirts but tells him not to buy pants, if A buys pants A still binds P, though A had no RIGHT but had POWR

3. Depend on type of authority that A has

i. Generally, A with appropriate authority would be able to bind P to agreement with 3d party as well as 3d parties to P

d. Types of Agents/Principals

1. Paid Agents

2. Gratuitous Agents

i. Generally treated same as paid agents, except:

1. Termination is different

2. Standard of care (SOC) is different according to some older cases

a. Gratuitous agents only liable for gross negligence

b. Paid agents – normal SOC applies – ordinary negligence

3. By definition, there is no contractual limitation on termination of the relationship

a. Gratuitous agents may be estopped from terminating the relationship

3. Agents

i. Must sever interests of P and not of A (fiduciary relationship)

ii. Notice to A is generally notice to P

iii. Facts known by agents are generally imputed to P even if A forgets or A learns them off the job

iv. Facts that agents didn’t know but should have known (A was simply negligent) are generally not imputed to P

v. Imputation of info. Always goes from A to P, not other way around (such as sideways

4. Principals

i. Disclosed

1. 3rd party knows that agency exists and who P is

ii. Unidentified

1. 3rd party knows that agency exists and that A is acting on behalf of P but doesn’t know who P is

iii. Undisclosed

1. 3rd party doesn’t know that A is acting for P, nor does he know that agency exists

2. even if P is unidentified or undisclosed, 3rd party can still sue P even though 3d party didn’t know agency existed or who P is

3. EXCEPTIONS when 3rd party not bound

a. Rendering performance for P would be more burdensome on 3d party than for rendering performance for agent

b.

i. If A fraudulently represents that he is not acting for P AND

ii. 3rd party would not have made K if they knew who P was AND

iii. A or P knew that 3rd party wouldn’t have made K if they knew who P was

4. Then 3rd party would likely not be bound

Binding Principal to 3rd parties and through information

a. Types of Authority: binding the principal

1) Actual Authority

i. Evaluates only relationship b/t P and A

ii. A must have this authority at time that transaction took place in order to bind parties

iii. Most commonly formed through direct communication

iv. Agent must:

A. Believe actual authority exists

B. Based on manifestation from P

C. A beliefs must be reasonable

v. Agent acting with Actual authority: notice to A is notice to P

A. EXCEPTION

1. If agent is acting adverse to Ps interests AND

2. P doesn’t know A is acting adverse to Ps interests

3. Cannot impute knowledge to the P in this case

2) Apparent Authority

i. Elements

A. Manifestation from P

B. Must reach 3rd party AND

C. Cause 3d party to reasonably conclude that A is Ps agent

1. Apparent authority can arise:

i. A persons position within the organizational structure

ii. Or the position that P puts A in

2. Objective standard à look from 3rd parties perspective base don outward manifestations

3. This kind of authority can actually exceed actual authority because it can exist even where no actual authority exists

i. However, manifestation from apparent A only is normally not enough to create apparent authority à MUST BE SOME MANIFESTATION FROM P TO 3RD PARTY

1. EXCEPTION

a. Agent accurately describes actual authority which later terminates, but A doesn’t advise 3rd party of termination of authority

4. Apparent authority and fictional entitled

i. Fictional entity can ONLY act through its agent (ie cant manifest assent to 3d party on its own) – such acts COULD create the manifestation of assent from P to 3d party for apparent authority purposes

ii. Notes

A. Though A may try to bind P, if there Is no actual or apparent authority à P NOT BOUND

B. BUT if A previously had actual authority, but no longer has it, since A previously had it, 3rd party may still believe

C. such authority exists

D. IF A exceeds actual authority and 3d party REASONABLYT believes that A has the authority, P may still be bound because A had apparent authority to Act

E. Limited circumstance when complete inaction by P gives rise to apparent authority

1. Someone asserts that apparent agent has the authority ( when A doesn’t)

2. P must HEAR these assertions

3. 3rd party REASONABLY believes that A has apparent authority

4. P does NOTHING to dispel the belief

F. Duty of inquiry

1. Even if 3rd party reasonably believes there is apparent authority, sometimes 3rd party may have duty of inquiry to further inquire into whether there is a manifestation by P!

b. Estoppel

i. Principal:

A. Intentionally or recklessly causes 3rd party to believe someone is an agent or

B. Knows or Should have known that 3rd party believes A has authority

ii. Principal does NOTHING to correct 3rd party belief

iii. 3rd party must show detrimental reliance

iv. then P can be liable to 3rd party

c. Inherent power

d. Ratification

i. Even if A acted w/o actual or apparent, P can still be bound if he in some way ratifies As act à P ratifies the deal even though A had NO actual or apparent

A. Ex. Janitor at apartment c

changed

3. RUPA relies on case law to fill statutory gaps

b. Partnership Agreement

1) Can be written, oral, or implied

i. RUPA 101(7)

2) Initial agreement must have unanimous consent

ii. Agreement may provide that less votes are required for amendments to the agreement

3) Agreement cannot negate

iii. Fiduciary duties of duty of care and loyalty

iv. Duties of good faith and fair dealing

c. Classic Partnership

1) Unincorporated Business association of

2) 2 or more partners

3) each person brings “something to the party”

4) Partners are Co-owners, i.e. they “own” P’s assets

i. RUPA distinguishes the entity from its partners, so partners are not really co-owners, they just own assets

ii. Partners also Co-manage – every P has a right to fully participate in the Ps affairs, subject to Ps agreement

5) Share in Profits

iii. If only share in revenues, THEN NOT A PARTNER

iv. Note à RUPA address requirement partners share in losses

1. RUPA 401(b) à Each partner entitled to an equal share of Ps profits and is chargeable with a share of the Ps losses in proportion to the Ps share of profits (can be amended in Ps agreement)

2. 401(b) à Losses shared same as profits unless provided for in the agreement

d. Types of Partnerships

1) Partnership “At Will”

i. Any partner may quit at any time

2) Partnership for “Term”

ii. Set period of time during which P/s will exist (i.e. 5 years)

3) Partnership for Undertaking”

iii. P/s for a particular purpose, venture, or undertaking (i.e. real estate development)

4) Partnership is generally the principal and partners are the agents (regular agency rules apply)

iv. RUPA 201(a)

1. A partnership is distinct from its partners

v. RUPA 202(a)

1. Definition of partnership

a. Association of 2or more persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership

i. Note à sharing profits is vital to definition (don’t CONFUSE WITH SHARING REVENUES)

vi. RUPA 202(c)(3)

1. Someone who receives a share of profits is presumed to be partner unless profits payment of:

a. Debt

b. Services

c. Rent

d. Annuity, retirement or health benefits

e. Interest on a loan

f. Sale of goodwill of business

2. These are protected categories

3. If you are not in protected category, you must rebut the presumption that you are not a partner