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Business Associations
University of Illinois School of Law
Williams, Cynthia

I.                   Agency
a.       Creation
                                                              i.      Agent= any person who is authorized to act on behalf of another (principal)
                                                            ii.      Consensual relationship between a principal and an agent
                                                          iii.      R. 101à agency fiduciary relationship created when:
1.      Principal manifests assent to have the agent act on the principal’s behalf and under the principal’s control; AND
2.      Agent manifests assent or otherwise consents so as to act
                                                          iv.      No contract required; no requirement of intent to enter into an agency relationship
                                                            v.      Consequences of agency
1.      Internal:
a.       Agent has fiduciary duties to principal (duties of care, loyalty, full disclosure)
b.      Default rule: imposed by agency law without a contract
2.      External:
a.       Agents can change relationship of principal to the outside world through the existence of authority
b.      May enter into a K that the firm must fulfill, and can cause liability by engaging in tortious behavior
                                                          vi.      Factors for finding agency relationship:
1.      Principal’s right to control the agent
2.      Alleged agent’s duty to act primarily for the benefit of the principal
3.      Alleged agent’s power to alter the legal relations of the principal
b.      Fiduciary duties
                                                              i.      Agent owes principal three fiduciary duties:
1.      Duty of loyaltyà fundamental fiduciary duty
a.       Duty not to use or communicate confidential information of the principal for the agent’s own purposes or those of a third party
b.      Duty not to compete with the principal in any matter within the scope of the agency relationship
c.       Duty not to act as an adverse party to the principal in a transaction connected with the agency’s relationship
d.      Duty of loyalty ends the day the agency relationship ends
                                                                                                                                      i.      However: duty to keep information confidential attaches to the information and does not end with the end of employment
2.      Duty of careà do one’s work with the diligence, care, skill required for that work
a.       The duty to work hard, and make decisions based on full information
3.      Duty of disclosureà affirmative duty of agent to come forward with “economically significant information”
                                                            ii.      Additionally, agent is required to act in good faith for each of the 3 fiduciary duties
1.      Subjective aspect- person must believe they are acting in the best interests of the organization they represent
                                                          iii.      Duty to the public
1.      Courts will normally narrowly construe the duties to the public
2.      Courts prefer that fiduciary duty to the company be followed before one is owed to the public
                                                          iv.      Principal’s remedy for breach of fiduciary duties:
1.      Damages & disgorgement of profits
                                                            v.      Principal’s duties to agents:
1.      Performance of contractual obligations
2.      Good faith & fair dealing
3.      Indemnification under certain circumstances
c.       Principles of attribution
                                                              i.      Doctrine of authorityà employer is responsible for the actions and contracts of employee, in the realms in which the agent has actual or apparent authority
1.      Vicarious liabilityà person/entity has liability for someone else’s actions
                                                            ii.      Rationale for principal’s accountability for acts of the agent:
1.      Principal’s ability to select and control agent
2.      To terminate the agency relationship, together with
3.      The fact that the agent has agreed expressly or implicitly to act on the principal’s behalf
4.      Control, benefit, consent
                                                          iii.      Actual authority
1.      Actual authorityà action taken in accordance with the principal’s manifestations to the agent and that the principal wishes the agent so to act
2.      Created by manifestations from the principal to the agent that the principal consents to the agent taking actions on principal’s behalf
3.      Express v. Implied
a.       Express- conveyed orally or in writing
b.      Implied- power to do those things necessary to fulfill the agency
                                                          iv.      Apparent authority & estoppel
1.      Person may bind another in a transaction with a third person, 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
2.      Apparent authority does not require the prior existence of an agency relationship
3.      Basis for authority when:
a.       Where persons appear to be agents, even though they do not qualify under the definition
b.      Where agents act beyond the scope of their actual authority
4.      Manifestations from principal:
a.       R. 1.03à a person manifests consent or intention through written or spoken words or conduct
b.      Communications from principal need not be directed to third persons before apparent authority is created
c.       Manifestations may reach the third party through an intermediary, as long as the manifestations are traceable to the principal, or simply by placing a person in a certain position (i.e. manager)
5.      Key points:
a.       Manifestations must emanate from the principal (or purported principal)
b.      Scope of agent’s apparent authority depends on the third person’s reasonable interpretation of that manifestation
                                                                                                                                      i.      Considerationsà prior dealings b/w parties, custom, nature of proposed transaction
                                                            v.      Vicarious liability
1.      Respondeat superiorà 7.03(2)(a)
a.       Employer is liable for torts committed by an employee within the scope of employment
b.      R. 2.04à scope limited to employment relationship b/c employer has the right to control how work is done
c.       Employee= an agent whose principal controls or has the right to control the manner and means of the agent’s performance of work
                                                                                                                                      i.      R. 7.07(3)(a)
d.      Elements of respondeat superior liability:
                                                                                                                                      i.      Master and servant voluntarily entered into their relationship
                                                                                                                  

         ii.      Exception for employees who are paid for their services out of profits of the firm
b.      If creditors receive payments from the profits of the firm, courts will refrain from finding that a partnership has been formed
c.       Management
                                                              i.      In the absence of contrary agreement, all partners have equal rights in the management and conduct of the partnership business
1.      UPA 18(e), RUPA 401(f)
                                                            ii.      If partners disagree about ordinary matters within the scope of the partnership business, majority vote controls
1.      UPA 18(h), RUPA 401(j)
                                                          iii.      Unanimous consent of partners required to:
1.      Authorize amendments to the partnership agreement- UPA 18(h)
2.      Add new partners- UPA 18(g)
3.      Certain extraordinary transactions- UPA 9(3)
a.       Most courts reason from existing provisions that any extraordinary transaction requires the unanimous consent of partners
                                                          iv.      Right to information- RUPA 403(c)
1.      Affirmative duty to provide material information (i.e. economically significant information)
2.      Allow some limitation on the information- 403(c)(2)
a.       Important for joint ventures b/w competitors
d.      Fiduciary duties
                                                              i.      UPA
1.      21à fiduciary duties of partners
a.       Partners must not steal from the partnership
b.      Supplemented by CL & other sections of UPA
2.      19à provides access to partnership records
3.      20à requires partners to render “true and full information” about the partnership to other partners
4.      22à right to an accounting under certain specified circumstances, and when “other circumstances render it just and reasonable”
5.      No duty of care, although some courts have implied this duty
                                                            ii.      RUPAà changes statutory structure of fiduciary duties
1.      404à partners owe duty of loyalty and care
2.      Duty of loyalty- 404(b)
a.       Anti-theft duty
b.      Prohibition against self-dealing
c.       Prohibition against competing against the partnership
d.      Way to comply with duty of loyalty is disclosure
e.       Allowed to narrow the duty of loyalty further by contract, but may not eliminate the duty completely
3.      Duty of due care- 404(c)
a.       Conduct showing gross negligence, recklessness, intentional misconduct, or knowing violation of the law violates duty
b.      Partners may modify duty by contract, but cannot unreasonably reduce the duty of care
4.      Obligation of good faith and fair dealing- 404(d)
a.       Nonwaivable
b.      But, parties may “determine the standards by which performance is to be measured if the standards are not manifestly unreasonable”