DANIEL SOKOL
BUSINESS ASSOCIATIONS (5 CREDIT COURSE)
FALL 2013
I. AGENCY
3rd Restatement §1.01 — An agency relationship is created when:
1. The principal “manifests assent” to have the agent act on the principal’s behalf and under the principal’s control, and
2. The agent “manifests assent or otherwise consents” so to act.
o Assent is “intended to emphasize that unexpressed reservations or limitations harbored by the principal do not restrict the principal’s expression of consent to the agent.”
1. CREATION OF THE AGENCY RELATIONSHIP
Nears v. Holiday Hospitality Franchising pg 3 – This case considers whether a franchisor is vicariously liable for actions of a franchisee’s manager
· Court needs to consider whether the franchisor had the right to control, or, in fact did control the acts of the alleged tortfeasor.
o To impose vicarious liability, there must be evidence that such control was exercised.
· Key Issues: Control and Knowledge
o Knowledge:
· Constructive knowledge – a failure to do anything regarding the violation is sufficient to be held liable.
§ A principal cannot turn a blind eye to the knowledge
o Control – how much power and ability did franchisor have in the acts giving rise to the lawsuit? In this case, the court considers:
· Ownership interest
· Commingling of funds
· Involvement in decisions for employment
· Authority to hire or fire
· Who paid wages
· Who did employees report to?
· If there is no control, there is no agency relationship.
· As far as franchisors having standards or trainings for managers:
· Restatement comment d §101: Quality control standards should not be construed to create an agency relationship.
AGENT’S FIDUCIARY DUTIES TO PRINCIPAL
· Principal’s Duties – See Restatement Third of Agency §§ 8.13 – 8.15
· Performance of contract obligations, good faith and fair dealing, and indemnification
· Agent’s Duties – See Restatement Third of Agency §§ 8.07 – 8.12
· Performance of contract obligations, care, competence, diligence, obedience, and disclosure.
· Duty of Loyalty (§8.01) – most important duty.
· The agent must act “loyally for the principal’s benefit in all matters connected with the agency relationship.”
· It includes:
§ §8.03 – A duty not to act as an adverse party to the principal in a transaction connected with the agency relationship.
§ §8.04 – A duty not to compete with the principal in any matter within the scope of the agency relationship
§ §8.05 – A duty “not to use or communicate confidential information of the principal for the agent’s own purposes or those of a third party”
· Ways around the Duty of Loyalty:
§8.06 Principal’s Consent
· For conduct that would normally result in a breach
· In obtaining the principal’s consent, the agent:
· Acts in good faith
· Discloses all material facts that could reasonably affect the principal’s judgment.
· Otherwise deals fairly with the principal
· The principal’s consent refers to a specific act or an act that is expected to occur in the ordinary course of the agency relationship
· An agent who works for more than one principal has a duty
· To deal in good faith with each principal
· To disclose to each principal:
· That the agent acts for the other principal
· All other facts that the agent knows, or should know would reasonably affect the principal’s judgment
· Otherwise to deal fairly with each principal
Food Lion v. Capital Cities/ABC pg. 8 – whether the undercover ABC employees breached a fiduciary duty of loyalty to Food Lion when they posed as employees. YES. Adverse intent is key!
· There was a fiduciary breach in three ways:
· Competition
· Misappropriation of profits or opportunities
· Disclosure of confidential information
· Limiting the General Principal
· A person can hold two jobs and yet perform inadequately – but that is not the same thing as working against the interests of an employer.
· For fiduciary breach, there has to be intent to act adversely.
· ABC employees had the adverse intent of working against Food Lion
· ACTUAL AUTHORITY
When an agent acts with authority, her action has legal consequences for the principal.
· Actual Authority (§§2.01, 3.01)
It is created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s assent that the agent take action on the principal’s behalf.
In other words: the principal manifests consent to the agent to act on their behalf.
· In actual authority, you only care about the principal and the agent; the third party is irrelevant in determining the actual authority created b/w the agent and the principal.
· The principal is in the best position to explain what the agent should and should not do
Express and Implied Actual Authority
· Express – may be conveyed orally or in writing
· Implied – the power to do those things necessary to fulfill the agency.
Castillo v. Case Farms of Ohio pg. 14 – How far does implied authority reach to? Were the agent’s actions taken in the scope of their employment?
· Agent hired farmworkers – but there were misrepresentations with regards to housing and transportation.
· Rule – A principal is liable for the actions of an agent only if those actions are taken in the scope of the agent’s employment.
So we need to determine if whether the agent’s actions were implied in the scope of their employment if they weren’t necessarily stated.
There was no written contract – but this is most likely on purpose as an effort by the principal to not be found liable.
But there was other evidence supporting that fact that housing and transportation were in the implied activities of agent recruiters.
Bottom Line: Agent’s actions were “proper, usual, and necessary” to accomplish the express authorization (in this case, to hire the workers and get them to the farm)
· APPARENT AUTHORITY §2.03 Rstmt 3rd
· One person may bind another in a transaction with a third person, even in the absence of actual authority, when the third person reasonably believes – based on “manifestations” by the purported principal – that the actor is authorized to act on behalf of the “purported principal”.
· Purported principal – Apparent authority does not require the prior existence of an agency relationship.
· Manifestation
· §1.03 (Rstmt 3rd) – Written words, spoken words, or other conduct
· It can arise even when the principal does very little
· Communications from the principal need not be directed to third persons before apparent authority is created.
· In practice, all that is required is that the principal allows the agent to represent her own authority
Restatement 3d weakens the manifestation requirement by requiring the third party to have a re
· Implicitly allows partners to contract around default provision.
RUPA
· Partnership is an entity distinct from its partners
· Explicitly allows partners to contract around default provisions. RUPA §307(d)(3)
Important Changes in RUPA from UPA:
· RUPA §203 makes partnership property the property of the entity
· RUPA does away with the UPA rule that the departure of a partner causes a dissolution of the partnership.
· RUPA provides for the merger or conversion of partnerships into limited partnerships.
· FORMATION
· No formalities are required to form a partnership.
· A partnership may be formed “whether or not person intended to form partnership.” – RUPA §202(a)
o See intent above.
o The finding of a partnership can impose personal liability on an individual who did not act or even know of the action of another partner.
Holmes v. Lerner pg. 33 – an oral, informal agreement to split profits is enough to create a partnership.
· Many facts suggested a partnership:
o Initial, oral agreement to start a for profit business
o Meetings were called “board meetings”
o Holmes worked in warehouse with no expectation of getting paid
o Holmes was able to sign for company documents
o Everything that was said by Lerner was “we”
· MANAGEMENT
· Equal Rights – UPA 18(e); RUPA §401(f)
o All partners have equal rights in the management and conduct of the partnership business in the absence of an agreement to the contrary.
· Disagreement – UPA §18(h); RUPA §401(j)
o If partners disagree about ordinary matters, the vote of a majority of partners controls.
· Amendments – UPA requires unanimous consent of partners:
o To authorize amendments to the partnership agreement – UPA §18(h)
o To add new partners – UPA §18(g)
· Extraordinary Transactions
o UPA:
· Lists certain extraordinary transactions that require unanimous consent – UPA §9(3)
· But does not have a general provision covering authorization of extraordinary transactions.
o RUPA:
· “Acts outside the ordinary course of business” require unanimous consent of all partners
· Codifies unanimous consent requirement in RUPA§401(j)
Vecchitto v. Vecchitto pg. 43 – Whether bringing a lawsuit on behalf of the business falls under the “ordinary course of business” of the partnership.
· The agreement didn’t provide for what would happen in the case of filing a lawsuit.
o Plaintiff argues that to require majority consent of the partners when the lawsuit would be against them is meaningless
· Court held that filing a lawsuit on behalf of the business does not fall within the ordinary course of business and thus would require the unanimous consent of all the partners.
