(1) Agency and Partnerships
I. Agency Definition
– fiduciary relationship b/w 2 people based on one person (principal) consenting to another (the agent) acting on his/her behalf within the scope of authorized authority.
II. Principal Vicarious Liability for Agent’s Acts
– a principal will be vicariously liable for the acts of an agent, if the agent was acting w/in the scope of authority
A. Identifying Agency Relationship
1. Cargill, Inc.
a. lender relationship v. agency relationship
-important distinction b/c, if agency relationship, then principal liable for the breach of K and torts of agent
b. Cargill finances Warren BUT loan conditional on 1) 1st right of refusal, 2) may check books
c. arguments supporting establishment of lender relationship
1) Intrusions in Warren’s business relate to securing investment
2) 1st right of refusal permits better loan terms
>>>>>this is what a lender does
d. arguments for supporting establishment of de facto agency relationship
1) agency relationship can be implied from parties’ conduct – i.e. “principal” given exclusive interest in buying all of the “agents” grain
>>>>this is what a principal does
B. Identifying Scope of Agent’s Authority
1. Actual Express Authority (AEA) – Principal tells the agent to do something and the agent does it. The principal is bound.
a. The 3d party can enforce against the principal even if the 3d party didn’t know about the principal or that the agent was acting on his behalf.
1) EX. Pepsi (the principal) tells A (the agent) to negotiate an advertising K with Britney Spears. If a K is negotiated, Pepsi is bound.
2. Actual Implied Authority (AIA) – Must be some actual authority somewhere.
a. A is empowered to do things necessary to carry out express authority.
1) Inherent in agents position (e.g. cashier is implied to be able to accept cash and checks for deposit)
2) Agents past course of conduct ratified by principal (so implied that agent can do it in the future)
3. Apparent Authority (AA) – apparent authority is about the message being conveyed to people
-BLL: (1) would a reasonable person believe agency relationship exists; (2) did plaintiff believe that; (3) did plaintiff rely on that belief
-arguments for/against establishment of apparent authority: –
-limit liability based on nature of harm. For example, (1) coffee too hot = McDonald’s corporate held liable b/c sets standards for coffee temperature; (2) kid cuts arm on glass from broken window at McDonald’s = McDonald’s corporate not liable because no standards/regulation/control over window
-full liability b/c businesses responsible to society for messages that the business gives off
4. No Authority, but Ratification: principal’s after the fact approval of the agent’s unauthorized act by (a) express: expressly validating actions or (b) implied: taking benefits from agent’s actions
(1) agency relationship exists?
(2) agent acting w/in the scope of authority?
-analyze the facts to determine which legal theory (1-3) fits best
-if yes to both, then principal vicariously liable for agents breach of K or tort
A. What is a partnership?
(1) association of two or more persons
(2) to carry on as co-owners
(3) a business for profit
B. When is a partnership formed?
– look to (a) control (not one partners control over another partner, but a “partners” control of the “partnership”) and (b) participation.
-lender will not be found to be a partner of lendee unless lender exercises too much control over the business and participation in the business
-K stating no partnership formed powerful evidence, but not dispositive evidence
B. Liability of Partnership
1. Unlimited liability (this is why so dangerous)
2. Joint and several (this is why so dangerous)
C. Fiduciary obligations between partners
a. partners owe a fiduciary duty to each other: “duty of the highest loyalty.”
1) Partner “A” violated his fiduciary duty to Partner “B” because did not inform B of a deal related to the joint venture between A and B. Stated differently, subject matter of deal was an extension and enlargement of the subject matter of the joint venture between A and B, thus fiduciary duty requires A tell B of deal.
b. So what is required of Partner “A”?
III. Limited Partnership
A. Entity with a general partner who operates the business and one or more limited partners who contribute investment capital but don’t participate in management
1. Limited Liability – liability of limited partners is limited to amt of their investment; general partner has unlimited liability
2. Separation of ownership and control – limited part5ners do not become part of management; therefore, they may invest in an enterprise they don’t have time or expertise to manage
3. Expenses – filing to state upon commencement of the business of the limited partnership, and accounting may be more complicated than in a simple partnership
1. Unlimited liability – general partner has unlimited liability (may be limited by making general partner a corporation)
2. Transferability – a limited partner can not usually readily sell his or her ownership interest unless it is registered under (or exempt from) the federal securities laws with all their attending expenses and liabilities
IV. Limited Liability Company
A. Incorporated partnership that allows members to actively participate in management or to be passive if they wish
1. Limited Liability – limited to amt of investment
2. Separation of ownership and control – maximum flexibilty, owners may (if agreement permits), but don’t have to manage
3. Expenses – charter must be obtained from state, acct may be more complicated than in simple partnership
4. Taxes – may be passed through to members, avoiding double taxation
1. Transferability – transfer restricted by operating agreement terms, and state and federal securities laws
V. Limited Liability Partnership
A. Another form of incorporated partnerships (popular with law firms)