Select Page

Business Associations
University of Kentucky School of Law
Woods, Andrew Keane

Business Associations

Woods

Spring 2015

1. Agency

a. Basics

i. Agency relationship is consensual in nature.

ii. Based on concept that parties mutually agrees

iii. Agent will act on behalf of principal.

iv. Agent will be subject to principal’s direction and control.

v. Agreement can be expressed or implied.

b. Authority

i. Types of Authority:

1. (Express) Actual Authority

a. P tells A to deal with T

b. If P says not to do something, then no actual authority

2. Implied Actual Authority

a. P tells A to do X; it is implied that X might lead A to deal with T

3. Apparent Authority

a. T reasonably infers that A is acting on behalf of P

b. Third party has to think there is a P

4. Inherent Powers

a. Even though T doesn’t know about P, P is bound because it is inherent in A’s job that A would contract with T and P never objected.

5. Even w/o authority, A can still bind P under:

c. Ratification

i. Ex post way of granting authority

1. i.e. P approves of the conduct after the fact

ii. Requires

1. Valid affirmation by P of the acts of A

2. To which law will give effect

3. Can be express or implied by accepting the benefits of the deal, silience of inaction, or bringing suit to enforce the deal

a. Have to accept the benefits with intent ot ratify and with full knowledge

iii. It’s an all or nothing thing: you approve of the whole deal or none of it

d. Estoppel

i. Acts or omissions by the principal, either intentional or negligent, which create an appearance of authority in the purported agent

1. The third party reasonably and in good faith acts in reliance on such appearance of authority

2. The third party changed her position in reliance upon the appearance of authority

ii. 3rd party reasonably and in good faith acts in reliance on apparent authority

e. Issue of undisclosed P

i. Totally disclosed P: 3rd party knows of P’s existence and identity: A is off the hook totally

ii. Partially disclosed P: 3rd knows of P’s existence but not identity: A is a party to any K made and 3rd can choose who to sue

iii. Undisclosed P: 3rd knows no P: A party of the K, 3rd can choose who to sue

f. Agent’s Liability on the K

i. (i.e. A’s liability, not P’s)

1. Atlantic Salmon (A is on the hook b/c of partial disclosure of P)

g. Liability of P to T in Tort

i. Employee v. Independent Contractor

1. Service station cases (similar facts, diff’t outcomes)

a. Basic boil down in the cases is the amount of control P has over A

b. If P controls A, then P will be liable

2. Humble Oil & Refining Co. v. Martin (P liable)

3. Hoover v. Sun Oil Company (P not liable)

4. Murphy V. Holiday Inns, Inc. (P not liable, amazingly)

ii. Tort Liability and Apparent Agency

1. Miller v. McDonald’s Corp (P liable)

iii. Liability of P to T in Tort: Scope of Employment

1. Scope of Employment

i. Was conduct same general nature as hired to perform: characteristic test

ii. Temporal and spatial limits

iii. Motivated by purpose to serve the ER?

1. Forseeability test: look at slides

2. Ira S. Bushey v. U.S.

3. Manning v. Grimsley

iv. Independent Contractors

1. Majestic Realty v. Toti Contracting

h. Fiduciary Duties of an Agent:

i. Care

1. Restatement (Third) § 8.08:

a. Subject to any agreement with the principal, an agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents in similar circumstances.

b. Special skills or knowledge possessed by an agent are circumstances to be taken into account in determining whether the agent acted with due care and diligence.

c. If an agent claims to possess special skills or knowledge, the agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents with such skills or knowledge.

ii. Loyalty (no self dealing; no conflicts)

1. “the agent has a duty to act solely for the benefit of the principal in all matters connected with his agency.” Restatement (Second) § 387.

a. “if a servant takes advantage of his service and violates his duty of honesty and good faith to make a profit for himself, in the sense that the assets of which he has control, the facilities which he enjoys, or the position which he occupies, are the real cause of his obtaining the money as distinct from merely affording the opportunity for getting it ….”

2. Restatement (Third) § 8.04:

a. Throughout the duration of an agency relationship, an agent has a duty to refrain from competing with the principal and from taking action on behalf of or otherwise assisting the principal’s competitors

3. Reading v. Regem

a. Held: The agent was required to pay over to the principal the secret profits made as a result of his misuse of the agency position.

i. The sergeant “[took] advantage of his service and violate[d] his duty of honesty and good faith to make a profit for himself.”

ii. Where “the wearing of the King’s uniform and his position as a soldier is the sole cause of his getting the money and he gets it dishonestly, that is an advantage which he is not allowed to keep.”

iii. Was “the position which he occupies,” “the real cause of his obtaining the money as distinct from merely affording the opportunity for getting it”?

b. The court opines that the sergeant “must not be allowed to enrich himself in this way.”

4. Grabbing and Leaving

a. Comments to Restatement (Third) § 8.05:

i. An agent’s duties concerning confidential information do not end when the agency relationship terminates.

ii. An agent is not free to use or disclose a principal’s trade secrets or other confidential information whether the agent retains a physical record of them or retains them in the agent’s memory.

iii. If information is otherwise a trade secret or confidential, the means by which an agent appropriates it for later use or disclosure should be irrelevant.

iv. Feats of human memory, however commendable and intriguing in many respects, should not be privileged as instruments of disloyal conduct.

i. Termination of Agency Relationship

1. Agreement of parties:

a. The contract between principal and agent states when it will end.

2. Agency at will:

a. At common law, agency relationships presumed to be “at will” and thus terminable at any time by either party after notice.

3. Revocation:

a. Principal revoked authority of agent to act

4. Renunciation:

a. Agent notifies principal they quit

5. Fulfillment of the purpose of the agency relationship:

a. I.e., completion of task.

6. By operation of law:

a. Termination occurs automatically; e.g., upon death of either agent or principal

2. Partnerships

a. Agency concepts in partnership law:

i. Each partner is deemed to be an agent of the other.

1. There may be imputation of liability.

2. Each partner is a fiduciary of the other.

s in the management and conduct of the partnership business.”

ii. Economic Rights

1. UPA (1997) §401(b): “Each partner is entitled to an equal share of the partnership profits… [and losses]”

2. UPA (1997) §807(b): “Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business.”

3. UPA (1997) §502: “The only transferable interest of a partner in the partnership is the partner’s share of the profits and losses of the partnership and the partner’s right to receive distributions.”

f. Management of Partnership

1. UPA (1997) §401(j)

ii. Decision making rules for partnership:

1. Ordinary course of business → majority

2. Outside the ordinary course of business → unanimous

3. Amendment to the partnership agreement → unanimous

iii. Control: partners have equal control

iv. Deadlock

1. Cases illustrate a clash of two principles:

a. All partners are agents of the partnership with power to bind the partnership

b. All partners have equal rights to participate in the management of the partnership

2. As between the partners and some third party, the former principle controls (National Biscuit). As between the partners, the latter controls (Summers).

a. See Covalt v. High, 675 P.2d 999, 1002 (N.M. App. 1983) (“as between the partners themselves … an act involving the partnership business may not be compelled by the co-partner. If the parties are evenly divided as to a business decision affecting the partnership … the power to exercise discretion on behalf of the partners is suspended so long as the division continues. The rule is different, however, as to transactions between partners and third parties.”).

v. Property:

1. Partners get back what they put in;

2. Partners share equally in the profits and losses (after liabilities are paid back, including to partners)

3. UPA (1914) § 18. The rights and duties of the partners in relation to the partnership shall be determined, subject to any agreement between them, by the following rules:

a. (a) Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according to his share in the profits.

b. UPA (1997) § 204 codified the common law, laying out three rules:

i. Any asset acquired in the name of the partnership is partnership property

ii. A transfer directly to the partnership in its own name

iii. A transfer to one or more partners acting in their capacity as partners and the name of the partnership appears on the transfer document

vi. Sidley Austin v. Day: much of this can be contracted around