Professor Gerla
Business Organizations
Fall 2012
Business Organizations
Chapter 2: Agency and Partnerships
Section 1. Introduction to Agency Principles
A. Identifying the Agency Relationship
1. Basic Definition – the 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 consents so to act.
2. Involves both the element of assent and whether or not the principal has subjective control (very little required) over the agent
3. It must only be the right to control, not actual control
Hypo: When I send a package via UPS, are they my agent?
Answer: The answer is no, but why? It is not due to lack of control. It is because there is no fiduciary relationship. UPS is acting on their own behalf, not the individual who mailed the package.
· You do not have to be aware that an agency relationship exists for it to be recognized as such
· There is not a requirement that the agent be benefitted for an agency relationship to exist
· The more control you have over another’s actions, the more likely they are to not be acting on their own behalf
Besides being an agent, the agent must have authority to act on behalf of the principle in various ways.
Gay Jenson Farms, Co. v. Cargill, Inc.
· Cargill argued that they had either a buyer/supplier relationship or a debtor/creditor relationship
· The court disagreed because they found that Cargill had the right of control and also Gay Jenson did not act as an independent business normally would
· Cargill was more than just a financier as they were not simply seeking to make profits as a lender
· They ruled that it was not a buyer/supplier relationship because it must be shown that the supplier has an independent business before it can be concluded that he is not an agent. Since they sold almost all of its market grain to Cargill (80%) they did not meet this requirement.
· Even though that is only a factor, the court seems to use it as an element
To determine if someone is acting on behalf of the alleged principal:
1. Do they claim to be playing some type of role other than being an agent (what’s normal)
2. How much of what they do resembles actions of someone who is not an agent and how much control does the alleged principle exerts over them (how much control)
B. Fiduciary duty
C. Authority
1. Actual authority – the agent is actually given the authority to bind the principal in the matter the agent does.
a. Express – expressed either verbally or orally
b. Implied – authority that the agent reasonably believes is necessary to carry out the express authority
Factors you can look to in order to determine if the belief is reasonable:
1. Past dealings
2. General ideas associated with a particular position (i.e. cashier is expected to have the authority to accept checks )
3. Norms of the industry
What if there is a conflict between express actual authority and implied actual authority? In this case, the express actual authority trumps the implied actual authority.
2. Apparent Authority – can exist in the absence of actual authority where the principal (not the agent), gives a third party reason to believe that actual authority exists
a. Must be some manifestation coming from the principal that gives the third party a reasonable belief that the agent has actual authority
b. The manifestation can be the appointment of the agent to the position
Factors you can look to in order to determine if the third parties’ belief is reasonable:
1. Past dealings
2. General ideas associated with a particular position (i.e. cashier is expected to have the authority to accept checks )
3. Norms of the industry
4. How usual or unusual is the transaction (very important)
Apparent Authority > Express Actual Authority > Implied Actual Authority
Hypo: Man goes to furniture and wants to purchase an item. Another man who is dressed up asks if they need assistance and takes their money and tells them to return later to pick-up the item. Buyers come back later only to find out that they paid somebody who was not actually an employee.
Answer: They could not find that there was apparent authority. However, they also looked to the idea of agency by estoppel. To have agency by estoppel, there must be detrimental reliance and a reasonable belief.
Agency By Estoppel – must intentionally or negligently cause someone to think
3. Ratification – is the principal’s after the fact approval of the agent’s unauthorized act.
a. Ratification binds the principal and relates back to the time of the unauthorized acts
within the scope of their agency duties with motivation to serve the interests of the principle
Courts were originally very strict on this standard, but have since become much more liberal with it
Liability for Intentional Torts
· Courts originally made a blanket rule that principals were not responsible for the intentional torts committed by their agents within the scope of their agency
· Since that time, courts have evolved to state that some intentional torts can be motivated by a desire to serve the principal, and therefore, we should use the same test they use for negligence.
Section 2. Partnership
The Uniform Partnership Act (UPA) was the original guidelines on partnerships
Since that time, it has been revised several times and now goes by the name Revised Uniform Partnership Act (RUPA)
Every state has a statute defining what a partnership entails
Partnership – an association of two or more persons to carry on as co-owners a business for profit
Is the characterization of the parties as either or a partnership or not determinative? No it is not
If you share in the profits, is there a prima facie case that a partnership exists?
Yes there is, but there are some exceptions
If profits were received in payment:
1. As a debt by installments or otherwise,
2. As wages of an employee or rent to a landlord
3. As an annuity to a widow or representative of a deceased partner,
4. A interest on a loan, though the amount of payment vary with the profits of the business,
5. As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
Read 37-42 and the section on fiduciary obligations on p.21,22
A. What Is A Partnership?
Martin v. Peyton
· Brief Fact Summary. Respondents, William Peyton et al., entered an agreement with a broker, John Hall, to loan Hall collateral to keep his business afloat. Appellant, Charles Martin, interpreted the agreement as forming a partnership.
· Synopsis of Rule of Law. An agreement that offers a degree of control by a first party to protect first party’s assets should not be considered a partnership if factors as a whole indicate that the other party still maintains day-to-day control of the business.
