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Business Associations
University of Iowa School of Law
Yockey, Joseph W.

Business Associations
Professor Joseph Yockey
Fall 2010
University of Iowa College of Law
 
Agency
·         Intro/Agency Defined
o   RST 3RD Agency § 1.01
§  Agency is 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.  
o   Gorton v. Doty
§  An agency relationship results from one person’s consent that another will act on his behalf and subject to his control and the other person’s consent so to act.
o   A. Gay Jenson Farms Co. v. Cargill
§  A creditor that assumes control of its debtor’s business may be may become liable as principal for the debtor’s acts in connection with the business.
o   Transaction costs- costs of doing a deal; economic equivalent of friction
o   Agency Costs- the costs that result when an agent does something in her own self interest and to the detriment of the principal.
·         Liability of Principal to Third Parties in Contract
o   RST 3rd Agency § 2.06 Liability Of Undisclosed Principal
§  (1) An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal's behalf and without actual authority if the principal, having notice of the agent's conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
§  (2) An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent's authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.
o   RST 3rd Agency § 6.01 Agent For Disclosed Principal
§  When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal,
ú  (1) the principal and the third party are parties to the contract; and
ú  (2) the agent is not a party to the contract unless the agent and third party agree otherwise.
o   Mill Street Church v. Hogan
§  Implied authority is actual authority that the principal intended the agent to possess and includes such powers as are practically necessary to carry out the delegated duties.  
o   Watteau v. Fenwick
§  Undisclosed tavern owner is liable for his agent’s debts owed to an unknowing cigar vendor.
§  When a principal is undisclosed to 3rd parties, the actions taken by an agent in furtherance of the principal’s usual and ordinary business binds the principal.
§  Principals liability is justified because the 3rd party often relies on the principal’s resources which were entrusted to the agent without 3rd party’s knowledge.
o   Types of Authority
§  Actual
ú  Agent knows he has the principal’s authority
§  Apparent
ú  No actual but third party reasonably believes from the principal’s actions that authority exists then actual
§  Implied
ú  Actual authority that the principal never formally conferred but that can be inferred based on the authority granted and past conduct between agent and principal.
§  *** If 3rd party knows that authority does not exist, any inference of authority is destroyed. ***
·         Agency by Estoppel- Liabilities of Principals to Third Parties in Tort
o   RST 3rd Agency § 1.03 Manifestation
§  A person manifests assent or intention through written or spoken words or other conduct.
o   RST 2nd Agency § 219 When Master Is Liable For Torts Of His Servants
§  (1) A master is subject to liability for the torts of his servants committed while acting in the scope of their employment.
§  (2 ) A master is not subject to liability for the torts of his servants acting outside the scope of their employment, unless:
ú  (a) the master intended the conduct or the consequences, or
ú  (b) the master was negligent or reckless, or
ú  (c) the conduct violated a non-delegable duty of the master, or
ú  (d) the servant purported to act or to speak on behalf of the principal and there was reliance upon apparent authority, or he was aided in accomplishing the tort by the existence of the agency relation.
o   RST § 2nd Agency 220(2)
§  In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered:
ú  (a) the extent of control which, by the agreement, the master may exercise over the details of the work;
ú  (b) whether or not the one employed is engaged in a distinct occupation or business;
ú  (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
ú  (d) the skill required in the particular occupation;
ú  (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
ú  (f) the length of time for which the person is employed;
ú  (g) the method of payment, whether by the time or by the job;
ú  (h) whether or not the work is a part of the regular business of the employer;
ú  (i) whether or not the parties believe they are creating the relation of master and servant; and
ú  (j) whether the principal is or is not in business
o   Vicarious Liability
§  “For whoever employs another, is answerable for him, and undertakes for his care to all that make use of him. The act of a servant is the act of his master, where he acts by authority of the master.” Jones v. Hart (1698)
§  Respondeat Superior:  “A master is subject to liability for the torts of his servants committed while acting in the scope of their employment.” Restatement (Second) § 219(1)
o   Hoddeson v. Koos Brothers
§  Proprietor is estopped from claiming lack of authority if reasonable diligence could have prevented the actions.
§  If a business proprietor by his dereliction of duty enables one who is not his agent to act conspicuously as such and to transact the proprietor’s business with a patron in the establishment, estoppel prevents the proprietor from defensively available himself of the imposter’s lack of authority in order to escape liability for the customer’s consequential loss.
§  In order to prove agency by estoppel…
ú  (1) Acts or omissions by the principal, either intentional or negligent, which create an appearance of authority in the purported agent;
ú  (2) The third party reasonably and in good faith acts in reliance on such appearance of authority; and
ú  (3) The third party changed her position in reliance upon the appearance of authority.
o   Humble Oil & Refining v. Martin
§  Owner is liable for an operator’s negligence if the owner directs the manner under which the station i

§ 389 ACTING AS ADVERSE PARTY WITHOUT PRINCIPAL’S CONSENT
§  Unless otherwise agreed, an agent is subject to a duty not to deal with his principal as an adverse party in a transaction connected with his agency without the principal’s knowledge.
§  Comment:
ú  The rule stated in this Section applies . . . to transactions in which the agent is acting entirely for himself and to those in which he has such a substantial interest that it reasonably might affect his judgment….
o   Reading v. Regem
§  A sergeant must surrender illegal bribes received because of his employment position.
§  A servant is accountable to his master for profits he obtains because of his position, if the servant takes advantage of his position and violates his duty of good faith and honesty to make htie profit for himself.
o   General Automotive v. Singer
§  D is liable to his employer for profits derived from an undisclosed competing business.
§  An agent owes his principal the duty of good faith and loyalty not to act adversely to his principal’s business interests in the furtherance of his own.
§  Generally agent violates fiduciary duty to his principal if agent endeavors in a competing business while employed by the principal.
ú  Crucial element in this case was D’s failure to disclose potential sales to the principal.
 
Partnerships
·         Intro
o   UPA § 6 Partnership Defined
§  A partnership is an association of two or more persons to carry on as co-owners a business for profit.
§  But nay association formed under any other statute of this state, or any statute adopted by authority, other than the authority of this state, is not  partnership under this act, unless such association would have been a partnership in this state prior to the adoption of this act; but this act shall apply to limited partnerships except in so far as the statues relating to such partnerships are innocent herewith.
o   UPA § 15 Nature of a Partner’s Liability
§  All partners are liable
ú  Jointly and severally for everything changeable to the partnership under sections 13 and 14.
ú  Jointly for all other debts and obligations of the partnership; but any partner may enter into a separate obligation to perform a partnership contract.
o   RUPA § 202(a) Formation of a Partnership
§  a) Except as otherwise provided in subsection (b), the association of two or 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.
o   Fenwick v. Unemployment Compensation
§  A partnership is not formed by merely agreeing to share business profits.
§  A partnership is an association of two or more persons to carry on as co-owners of a business for profit.