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Business Associations
University of Illinois School of Law
Hurt, A. Christine

I. The law of Agency: law structures relationships w/out negotiation
Creation of an Agency relationship
Requirements of agency relationship:
1.      mutual consent (can be formal or informal, express or implied (doesn’t have to have consideration, can be a gratuitous relationship) to
2.      undertake action on behalf of principle and be
3.      subject to control of the principle
a.       even if agent has a lot of discretion in relationship its still an agency relationship as long as principle has control of the goals of the relationship
4.      Also can’t escape from the duties of the relationship by creating some     document that says there is no agency
a.       Court will look to substance of relationship rather than form
Ø If hires some staff, then you’ve created an agency relationship.
§ If person works for a corp./partnership they’re an agent of corp./partnership (not of their boss).
§ The principle is the corporation.
§ When there’s a question as to whether a relationship was formed:
§ Court will look to see if principle was creating an agency relationship (through manifestations) or whether the agent was manifesting consent to this relationship.
o   if I ask you to go get books for me, and you don’t respond back to me but you get the books and bring them to me—then the relationship was created and consented to by action
§ Principle can manifest the relationship through another agent.
o   I ask my assistant to ask you to do something…this creates another agency relationship with the principle (me)).
b.      Basile v. H & R Block, Inc
                                                              i.      Block offered its customers Rapid Refund where bank would advance customers their IRS refunds early at fee, customers not know that Block gets a share
                                                            ii.      no agency relationship b/c customer maintains too much control & Block had no decision making authority to change relationships w/3rd parties; customer no intend for Block to act on their behalf
                                                          iii.      policy:
1.      market self correcting
2.      HR Bl=bank’s agent, so can’t be customer’s agent too b/c conflict of interest
3.      put limits on # of relationships w/fiduc duties; minimize ct involvement
                                                                                                                                      i.      *court is saying b/c HR couldn’t make taxpayer sign the tax forms, couldn’t turn it into gov’t w/out their approval—that HR didn’t have agency b/c it couldn’t bind the principle (the taxpayer)
3. Undisclosed Principal
Ø An agent is liable on a contract entered on behalf of a principal if the principal is not fully disclosed;
Ø agent can be sued for breach of contract w/third party unless the agent discloses both the fact that he is acting on behalf of a principal AND the identity of the principal. (WESTEC case)
Ø Whether or not principal is partially disclosed (same as undisclosed) or completely disclosed is a question of fact.
·         Ex. If I tell you to paint my room for a fee and you do it…and when you try to collect I tell you the house belongs to my roommate so you have to charge her. I’m liable b/c I held myself out as having the authority to bind the principle.
Ø Once someone is an agent 4 consequences can happen:
agent can bind the principle in contract (put these on Prof. Hurt’s tab b/c she’s given me the authority to buy this stuff)
under some circumstances, the Principle is liable for the agent’s torts (Dominoe’s telling pizza drivers, must get pizza there in 29 mins)
knowledge of the agent is imputed to the principle (so a corporation can be held liable for violating a statute that calls for mens rea of knowledge or something b/c its agents can impute their knowledge to it—the entity)
both principle and agent will have fiduciary duties—this is where many of problems in marketplace come from (having to honor these duties)
Agent’s Fiduciary Duties to Principal
a.       principal’s duties
                                                          iv.      perform contract obligations
                                                            v.      good conduct
                                                          vi.      non interference
b.      fiduciary duties of agent
                                                        vii.      duty of full disclosure
                                                      viii.      duty of care (do job) i.e. act w/in scope of princple’s instructions
                                                          ix.      duty of obedience
                                                            x.      duty of loyalty: agent cannot act contrary to interests of principal
1.       don’t compete directly w/your employer
2.      can’t misappropriate profits, property, etc
3.      can’t breach your employers confidentiality
Food Lion v. Capital Cities/ABC
a.       reporters got jobs at FL to do an expose; FL claims breach of loyalty
b.      reporters breached duty of loyalty to FL by promoting ABC’s interests to detriment of FL
4.      HYPO: real FL employee calls AG’s office, employee fired, employer argues breach of loyalty, employee argues public policy exception
5.      violate duty of loyalty by…    
a.       competing w/principal
b.      using trade secrets
6.      duty of loyalty ends when agency principal relationship ends, @ which point OK to compete against former P
7.      non compete agr. limited in scope, time, geography likely OK b/c signed voluntarily & encourages employer to give employee access to info
Principles of Attribution: Ps can be liable for A’s acts b/c agents authorized to act on P’s behalf
Actual Authority: real authority
                                                          xi.      created by a manifestation from principal to agent that P consents to A taking actions on P’s behalf
                                                        xii.      evaluate communications from P to A
                                                      xiii.      express or implied
                                                      xiv.      principals liable for acts of agent taken in scope of employment
                                                        xv.      Castillo v. Case Farms of Ohio, Inc.
1.      CF(P) argues ATC(A) just has narrow authority to recruit employees, but not to represent working conditions
2.      P liable for A’s representations b/c implied authority (A can’t recruit workers if no discuss working conditions)
                                                      xvi.      effects of P delegating authority to A
1.      benefits: less work for P, efficiency
2.      costs: potential liability, contract oblig….
3.      risks to 3rd party: if A no have authority to act on behalf of P
Ø Implied authority—b/c of your position you have certain authority to do things just by you being an agent in that position—you do have to have actual authority. These claims are brought when agent binds the principal in something where the agent has actually exceeded there authority.
o   All of the usual and incidental acts accompanying a task are said to be impliedly authorized by virtue of the act that was expressly authorized.
o   Spelling out and expressly authorizing every specific step in the process would be tedious and prone to mistake. T

                                                        iv.      Dias v. Brigham Medical Associates
1.      patient sues BMA b/c dr. negligent, dr. works for BMA
2.      BMA argues not liable b/c
a.       dr. = indep. contractor
b.      BUT if dr. = employee, BMA no control dr.’s treatment choices
3.      respondeat superior liability applies to employer of dr. (BMA) even if employer no control specific treatment choices made by dr. as long as dr. negligent in scope of employment
4.      rationale: put liability on party in best position to avoid loss @ least cost b/c encourages party to take measures to avoid future loss
                                                            v.      Franchisor/Franchisee relationships
1.      if contract explicitly says franchisor NOT liable for franchisee & no fiduciary duties this might est. IC relationship, but not determinative
2.      corporate HQ has lot of control/regulation/monitoring over franchisee
a.       b/c franchisor has lot of controlàfranchisee might be agent
Ø example—franchisee must fry donuts a certain way and this way splatters more hot grease—employee hurt—franchisee could claim ‘forced’ to fry makes it an agent of corp.
b.      but b/c franchisee pays licensing fee might est. independence b/c normally P pays A
                                                          vi.      also consider if non compete clause, b/c if agency relationship would already be fiduciary duty so =superfluous to add to contract
                                                        vii.      When 3rd party is involved especially in tort cases…courts more apt to find agency relationship (so that P can get at deeper pockets of corp.)
1.      reasonableness (apparent agency factors) when document exists saying there is no agency relationship. Would 3rd party have reason to know of this doc? Etc.? does sign say Kristy’s Krispy Kreme and not just Krispy Kreme??
II. General Partnerships
1.  Characteristics of a Partnership:
Unincorporated Biz
2 or more persons
each contributes
each co-owns BIZ
shares profits
Right to co-manage—in a general partnership and you haven’t said anything to the contrary—every partner has the right to manage the business
a.       every party has right to know what is going on in the partnership
b.      has right to be involved in conducting the business
c.       each partner has right to commit the partnership to third parties
d.      each partner has right to participate in decision making which means the right to vote (1 partner = 1 vote)
                                                              i.      under RUPA/UPA ordinary matters requires a majority vote
                                                            ii.      extraordinary matters requires a unanimous vote
Ø these are all default rules; can be changed by agr)
a.       no formalities required to form general partnerships
b.      no require knowledge that forming contract
c.       no require written agr.