Corporate Lawyer
Professor Adam Pritchard Fall 2016
1. Agency Analysis Contractual Liability Analysis: “Is the principal bound by agent’s conduct?”
Sequence: (1) First ask whether a agency relationship was formed (within see if A acted on behalf of P by checking status of P) and then (2) ask if he A had authority to bind P.
I: Is there agency relationship?
R: Formation 1.01 = The plaintiff must prove that there was:
Manifestation of mutual consent by both P and A
For A to act on P’s behalf; and
To determine whether the agent acted on behalf of the principal, you need to establish the principal’s status. When dealing with a disclosed or unidentified principal, the question of whether the contract was entered into on behalf of the principal is determined from the perspective of the third party. The question, in other words, is how the third party could reasonably understand the agent’s conduct. By contrast, what matters in the case of an undisclosed principal is the intention of the agent.
A is subject to P’s control
Cargill (nine factors suggesting control)
R: Termination:Either party may terminate the relationship at any time for any reason
Agency will never continue over the objection of one of the parties but may be liable for contractuak damages
I: What type of agency?1.04 (2)
Principal disclosed: TP knows he is dealing with agent and who the P is
Principal undisclosed 2.06: TP does not know he is dealing with agent
If the P remains undisclosed, P cannot rely on instructions given to A that reduce or limit beyond what is typically reasonable (protects the third party’s reliance on A).
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.
This is one version of inherent authority = TP cannot invoke apparent authority as protection here because he does not know identity of P.
Principal unidentified = When third parties know of the principal but not its identity
I: What kind of authority –Agent’s Power to Bind à Did A bind P?
R: Actual = created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s assent that the agent take action on the principal’s behalf
Express § 2.01
P expressly manifests consent to A by spoken or written words or other conduct and reasonable person in A’s position would infer assent from P’s conduct
Implied § 2.02(1)
Acts necessary or incidental to achieving the principal’s objectives, as the agent reasonably understands the principal’s manifestations and objectives”
Can be implied by context (custom, prior practice, course of dealings)
P tells A to do a certain task and that task requires A to do certain things along the way (e.g. P tells A to go buy car – actual authority to buy car, but implied authority to also register → limitation has been put on actual authority and P wants third party to be bound)
R: Apparent § 2.03 = power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.
Arises in 2 circumstances
A person appears to be A even though no agency relationship
Actual agent exceeds scope of his/herauthority
P directly tells TP that A can act on P’s behalf
P tells TP that A has authority; P gives A actual authority but puts idiosyncratic limitation on A’s authority, however third party has no reason to know of that specific limitation.
Protects good faith of TP
apparent authority: White v. Thomas: White instructed Simpson to buy land, purchased 217 acres for more than authorized, then sold 45 to recoup $ to THomas. Thomas knew Simpson acting for white (disclosed P). White ratified purchase, but not sale. Court said no AA, because TP did not have reasonable belief that the P had authorized the sale.
R: Inherent Rst 2nd 8AImposed by law not by P conferring authority on A
Can be inferred by contex, custom or position which may create inherent agency power
Not conferred on agents by principals, but imposed on principals by the law.
Gallant v. Issac. A had power to bind Gallant here, since it ordinarily had power to bind, as part of its general agency, and Isaac did not know things were otherwise in this case.
Difference Inherent and Apparent authority:
Lack of manifestation of authority by P to TP. E.g. Barowner puts guy in charge, does not disclose this to public who thinks guy is the barowner now. Instructs guy to buy everything needed to run bar, except for water. Guy violates instruction and buys water and does not pay water supplier. Water supplier finds out who real barowner is and sues him. Here, inherent authority existed because there was an agency realtionship => guy dealt unfailry with public and water supplier had no way to know who real barwoner was. Since acts by guy were reasonably forseeable by barowner, he is liable.
R: § 2.05 Agency by estoppel: No agency relationship exists. A is not authorized by P and does not have inherent agency power, but P may be bound by A’s actions by estoppel or ratification.
Third party changed her position;
Based on belief that transaction was on behalf of principal; and
Principal intentionally or carelessly caused such belief or did not take reasonable steps to inform third-party that her belief was wrong
2. Agency Tort Liability Analysis: “Is the principal liable for agent’s conduct?”
I: Is there an agency relationship between P and A?
R: See above
I: Agent can bind the principal to torts committed within the scope of the agency à Was the A and actual agent with power to make P liable?
R: Principal is liable for the acts of servant/employee agents, but he is not liable for an independent contractors’ acts.
= 7.07(3)) principal controls or has the right to control the manner and means of the agent’s performance of work
All servants/employees are agents
Independent Contractor
Non-servant agent
Subject to limited control by P with respect to particular transaction
Power to act on P’s behalf
Non-agent independent contractor
No power to act on P’s behalf
Independent contractors may be agents
See Humble (Car rolled of Schneider’s Gas station and hit Martin and kids. Humble owned gas station and had K with Schneider to run it. Court said Schneider is Humble’s agent because Humble has financial control and supervision and K was terminable at will) & Hoover (Barone operated service station. Sun owned service station. fire in plaintiff’s car. Barone was allowed to sell competitor products and had lots of control over daily operations, Court said Barone was indepnedent conrtactor so Sun was not liable).
I: If employee (or non servant agent) was conduct within scope of employment?
Employee acts within scope of employment when:
Performing work assigned by the employer OR
Engaging in a course of conduct subject to the employer’s control
P wanted A’s conduct
P was negligent or reckless in hiring A
Duty that P ows cannot be delegated
P aided in the commission of tort
3. Agency Fiduciary Duties Analysis “Has the agent breach his fiduciary duty owed to the principal?”
I: Has the agent breach his fiduciary duty owed to the principal?
R: The following fiduciary duties are owed by the agent:
Duty of loyalty: R: 8.01 An agent has a fiduciary duty to act loyally for the principal’s benefit in all matters connected with the agency relationship. Encompasses selflessness and protectiveness.
An A has a fiduciary duty to act loyally for the P’s benefit in all matters connected to the agency
Duty not to acquire a material benefit (R3d A 8.02): From a TP party in connection with a transaction conducted or other actions taken on behalf of the principal or otherwise through the agent’s use of the agent’s position.
Agent is entitled to reasonable compensation but no other profits, unless P consents.
Duty to not be adverse (R3d A 8.03):
rtners are agents of the partnership)
Partners have a duty to share benefit that arises from the partnership = belongs to partnership
Meinhard v. Salmon (Salmon leased premises. Partnership w/ Meinhard. Salmon as manager, Meinhard provided funds. Owner leased larger tract to Salmon. Court said Salmon should’ve disclosed opportunity to Meinhard. Ordered Salmon to allot shares to Meinhard subject to Meinhard contributing pro rata share of capital and Salmon maintaining his management position. Court assumes Salmon got info about 2d contract bc of the partnership and not Salmon’s management skills)
R: RUPA provides the following fiduciary duties:
Duty of loyalty RUPA 404(b)
Partner’s duty of loyalty limited to:
Profits and benefits – 404(b)(1)
A partner is to hold as trustee any profit, property, or benefit derived by them in the conduct or dissolution (but NOT formation) of the partnership. Partners can negotiate at the inception but once formed cannot appropriate assets.
Adverse Party – 404(b)(2)
Self-Dealing: Refrain from acting as or on behalf of a party having an interest adverse to the partnership.
Competition – 404(b)(3)
Refrain from competing with the partnership in the conduct of the partnership business before its dissolution.
Limitations on Duty:
Partners may specify types of activities that do not violate the duty of loyalty, if not manifestly unreasonable (103(b)(3)).
Care – RUPA 404(c)
Partners must only refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
Limits on duty: Partners may not “unreasonably reduce” duty of care (103(b)(4)).
Good Faith and Fair Dealing– RUPA 404(d)
The duties to the partnership should be discharged consistent with the obligation of good faith and fair dealing.
No vioaltion of duties if self-interested! Ability to be self-interested – UPA 404(e)
Partner does not violate a duty…merely b/c the partner’s conduct further his own interest
What are the Partners Information Rights?
Corporate Opportunity: In line with 403(c)(1), a partner is obligated to disclose to the partnership any opportunities that are presented to them before deciding whether to pursue the opportunity for himself. Must act with utmost “punctilio of honor”.
I: Have the duties been contractually modified?
RUPA as a Default – RUPA 103(a)
The provisions of RUPA govern only where the partners have not modified their relationship via a partnership agreement.
Partnership Agreement
Limits on Partnership Agreement – RUPA 103(b)
Info: Can’t unreasonably restrict access to books and records under 403(b)
Loyalty: Can’t eliminate completely but:
May identify specific types or categories of activities that do not violate the duty if not manifestly unreasonable.
All members or a number specified in the agreement may ratify a specific act/transaction that would otherwise violate the duty.
Care: Can’t unreasonably reduce the duty of care
Good Faith: Can’t eliminate, but may specify the standards it should be measured by if they are not manifestly unreasonable.
Third Parties: A partnership agreement can’t restrict the rights of third parties
