(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) di
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”?
1) Only Disclosure