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Business Associations/Corporations
University of Iowa School of Law
Kurtz, Sheldon F.

Kurtz – Business Associations – Spring 2012


A. Introduction

Agency relationships – define the rights and responsibilities of individuals who work for or on behalf of a business

B. The Creation of the Agency Relationship

Agency – the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act

1. Intent is not required

2. Manifestation by the P that the A shall act

3. A’s acceptance

4. Must have an agreement but no contract is need

-need one person purporting to act on behalf of another and the agent has to at some level be acting under the control of the principal

C. Liability from the Agency Relationship

1. Tort Liability from the Agency Relationship

Master/Servant Relationship – P is the master A is the servant

Independent Contractor – person acts for another but is not under that person’s control

-may or may not be an agent depends on the level of control

Liability – Master or P is labile for the servants or A actions because of control

-generally, P is not liable for torts of an IC because P does not monitor the work

-P can be held liable for IC torts if inherently dangerous

2. Contract Liability from the Agency Relationship

Disclosed Principal – time of A’s transaction, the third party has notice that the A is acting for a P and has notice of P’s identity

Partially Disclosed Principal – at the time of A’s transaction, the third party has notice that A is or may be acting for a P, but has no notice of the P’s identity

Undisclosed Principal – at the time of A’s transaction, the third party has not notice that the A is acting for a P

A. Liability of the Principal to the Third Party

-P is liable for K between A and 3rd party when P has actual, apparent, or inherent authority to act

I. Actual Authority

Actual authority – arises from the manifestation of a P to A that the A has power to deal with others as a representative of the P

-expressed or implied, may have incidental authority also

-3rd party is bound to the P

II. Apparent Authority and Estoppel

Apparent authority – arises from the manifestation of a principal to a 3rd party that another person is authorized to act as an agent for the P

-may exist even if there is no agency relationship – cannot create one sided agency relationship need offer and acceptance

-power of position – apparent authority created by title – treasurer

-3rd party is bound to the P

Estoppel – when P has not made any manifestations of authority but contributed to the third party’s belief or failed to dispel it and the third party alter his or her position in reliance of the purported authority

-do not need manifestation but need change in position

III. Inherent Authority

Inherent Authority – power of an agent which is derived not from actual, apparent, or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent

-A for disclosed or partially disclosed P has inherent authority to bind P for acts which accompany or are incidental to his powers

IV. Liabilities

Ratification – after the fact actual authority – A acts without authority the P will be liable to the 3rd party if:

1) A purports to act on P’s behalf and

2) P affirmatively treats the A’s act as authorized (express ratification) or the P engages in conduct that is justifiable only if the P is treating the A’s act as authorized (implied ratification)

-P must have relevant facts

-P ratifies A’s actions then 3rd party is bound to the P

-No partial ratification it is all or nothing

Agent Liability – look at the type of principal

-disclosed principal – A is not liable

-partially/undisclosed principal – A is liable

-agent can be liable even if the principal is liable

Ex. – P empowers A to make K, P insist on being undisclosed, A enters into K with 3rd party

-Third party is not liable to the P

-A is labile to the 3rd party

-3rd party is liable to the A

B. Liability of 3rd Party to Principal

Disclosed or partially disclose principal

-3rd party is liable to the P if the A acted with authority, so long as P is not excluded as a party by the K

Undisclosed principal

-3rd party is liable to the P if the A acted with authority, so long as P is not excluded as a party by the K, and the P is not fraudulently concealed or other similar defense

Fraudulent Concealment

-3rd party may avoid the contract if P or A had notice that the 3rd party would not have dealt with the P

Substantially Change

-Undisclosed P cannot bind 3rd party to a K if the P role in the K substantially changes the third parties rights or obligations

C. Liability of the Agent to the 3rd Party

Disclosed P

-A is not a party to the K and not liable to the 3rd party

Partially Disclosed or Undisclosed P

-A is a party to the K

3. some manifestation by the alleged partner is required


-UPA 18 (h) – a majority of the partners have to agree on any difference arising out of ordinary matters and all must consent to extraordinary matters

-hiring of additional trash collection employee over partners objection (2 man firm) is not allowed under 18(h) – Summers v. Dooley

-RUPA 301 – partners bind other partners unless they have no authority to act and the third party has notice of the lack of authority

-A partner in a general partnership cannot deny his liability for the debts of the partnership by informing creditors that he is not liable for a copartner’s purchases occurring in the ordinary course of business – National Biscuit v. Stroud

-RUPA 303 – Stroud could unilaterally file a statement stating authority of partners – good for property but for personal property NABISCO needs notice


2. Sharing of Profits and Losses

-UPA 18(a) and RUPA 401(b) – equal sharing of profits and losses regardless of capital contributions

-If one party contributes capital and the other labor they are viewed equally, the capital contributor is not to recover from the labor contributor if the capital contributor was to receive his payment from the sale and the sale results in a loss – Kessler v. Antinora

3. Liability of the Pship

a. Liability of the Pship

-liable for K entered into on behalf of the Pship by partners with actual or apparent authority, torts under agency laws, misapplication of money or property of a 3rd party

b. Liability of the Partners

-partners have unlimited personal liability for the obligation of the Pship

-UPA – Aggregate

-joint and several for torts

-joint liability for contractual obligations – P must join all partners

-RUPA 307 – Entity

-joint and several for all obligations but need to exhaust Pship assets before going after personal assets

-must bring suit against the partnership

-need personal liability for partner to get assets