Enterprise Organization
Winter 2007
University of Michigan Law School
Professor Beny
Agency. 3
Creation of Agency Relationships. 3
Rights and Duties between Principal and Agent4
Agent’s Power and Authority to Bind Principal7
Ratification. 10
Notice, Notification and Knowledge. 11
Liability on Agent’s Contracts. 13
Tort Liability for the Acts of Others. 14
Agency Cases. 17
Restatement of the Law (2nd) Agency. 23
Partnership. 27
Nature and Formation of Partnership. 27
Effect of Partnership Relationship. 29
Partnership Property and Partners’ Property Rights. 33
Dissolution and Winding Up of a Partnership. 34
Limited Partnerships. 39
Partnership Cases. 42
Limited Liability Companies. 48
Limited Liability Company Cases. 49
Corporations. 51
Characteristics of the Corporation. 51
Liabilities for Transactions before Incorporation. 53
Powers of the Corporation. 54
Management and Control55
Insider Trading. 59
Rights of Shareholders. 60
Capitalization of the Corporation. 65
Distributions to Shareholders. 65
Fundamental Changes in Corporate Structure. 66
Corporations Cases. 66
Agency
Creation of Agency Relationships
Agency: The relationship that arises when one person, the principal, manifests as intention to another person, the agent, that the agent shall act on the principal’s behalf. The manifestation can occur by express or implied agreement.
Disclosed Principal: A principal is disclosed if the person with whom the agent is transacting business knows that the agent is acting for a principal and knows the principal’s identity (§ 4(1)).
Partially Disclosed Principal: A principal is partially disclosed if the person with whom the agent is transacting business knows that the agent is acting for a principal but does not know the principal’s identity (§ 4(2)).
Undisclosed Principal: A principal is undisclosed if the person with whom the agent is transacting business does not know that the agent is acting for a principal (§ 4(3)).
General Agent: A general agent is an agent authorized to conduct a series of transactions involving a continuity of service (§ 3(1)).
Special Agent: A special agent is an agent authorized to conduct only a single transaction or a series of transactions not involving a continuity of service (§ 3(2)).
Subagent: When the agent has the authority (express or implied) to make an appointment, the appointee is a subagent (§ 5). The agent is primarily liable for the subagent but the principal is secondarily liable. If the agent is not authorized to appoint a subagent, the appointee is not a subagent, but rather the agent’s agent, and the principal is not liable for the appointee.
Requirements for Agency Relationship
Consent
Agency relationships are consensual in nature. However, consent can occur after the fact by ratification, and estoppel can serve as a substitute for consent.
Agency by Agreement
Must be based on some indication by the principal to the agent that the principal consents to have the agent act on her behalf. Similar manifestation of consent by the agent to the principal also required.
Agreement may be express or implied
Agency by Ratification
This results whenever the principal accepts the benefits or otherwise affirms the conduct of on purporting to act on the principal’s behalf, even though there is no agency agreement (§ 93).
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Writing Seldom Required
Check Statute of Frauds (land sale)
Proper Purpose
Not illegal or against public policy
Rights and Duties between Principal and Agent
Agent’s Duties to Principal
Contractual Duties
Agent has whatever duties are expressly stated in the agency agreement
Duty to perform
Reasonable care (compensated agent)
As an implied condition in every agency contract, the compensated agent agrees to carry out his agency with reasonable care, in light of local community standards. If the agent has any special skills, he must exercise those skills.
If the agent fails to perform his duties, he is liable for breach of the agency contract. However, if he performs the assigned duties, but in careless or imperfect manner, he may be liable for negligence as well as for breach of contract.
Reasonable care (gratuitous agent)
Generally no duty to perform. However, once the agent begins performance, he must act with the degree of care required for a person undertaking similar tasks without compensation.
No liability for breach of contract if he fails to perform. Can be subject to tort liability if he performs improperly.
Even though a gratuitous agent generally has no duty to perform, if the principal detrimentally relies on the agent’s promise to perform, the principal may recover contract damages
