Business Association Course Outline—Prof. John Coyle Fall 2013
I. Agency
a. Agency Defined
i. Restatement of Agency §1.01—Agency Defined—Agency is the fiduciary relationship that arises when one person (“principal”) manifests assent to another person (“agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act
1. Fiduciary Relationship is one in which a person places complete confidence in another in regard to a particular transaction or one's general affairs or business. The relationship is not necessarily formally or legally established as in a declaration of trust, but can be one of moral or personal responsibility, due to the superior knowledge and training of the fiduciary as compared to the one whose affairs the fiduciary is handling.
2. Fiduciary duties include the duty of care and the duty of loyalty
ii. Restatement of Agency § 1.02—Parties’ labeling and popular usage not controlling
1. An agency relationship arises only when the elements stated in § 1.01 are present. Whether a relationship is characterized as agency in an agreement between parties or in the context of industry or popular usage is not controlling.
b. Agent Fiduciary Duties
i. § 8.01 General Fiduciary Principle—An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship.
ii. § 8.02 Material Benefit Arising Out of Position—An agent has a duty not to acquire a material benefit from a third party in connection with transactions conducted or other actions taken on behalf of the principal or otherwise through the agent’s use of the agent’s position.
iii. § 8.04 Competition—Throughout the duration of the agency relationship, an agent has a duty to refrain from competing with the principal and from taking action on behalf of otherwise assisting the principal’s competitors. During that time, an agent may take action, not otherwise wrongful, to prepare for competition following termination of the agency relationship.
iv. § 8.05 Use of Principal’s Property; Use of Confidential Information—a An agent has a duty, (1) not to use property of the principal for the agent’s own purposes or those of a third party; and (2) not to use or communicate confidential information of the principal for the agent’s own purposes or those of a third party.
c. ACTUAL vs. APPARENT AUTHORITY
i. §2.01—Actual Authority—An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act.
1. Actual authority can be express or implied
ii. §2.03—Apparent Authority— Apparent authority is the 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 . . .
1. Apparent authority can only be created by assertions of the principal to a third party. AGENT CANNOT CREATE APPARENT AUTHORITY!!
2. The manifestation of the principal that apparent authority exists does not have to be made directly to the third party, it can be much more general as long as the belief that apparent authority exists can be traced to the manifestations of the principal.
3. If an agent exceeds his or her bounds, and goes beyond their actual authority but the principal is pleased with the agents actions, they can ratify the actions under §4.01
a. Based on § 4.02 the ratification of the agent’s actions by the principal results in actual authority. The ratification is not effective if it was caused by misrepresentation or other conduct that would make a contract voidable, if the principal ratifies in order to avoid loss, or it diminishes the rights of persons, not subject to the transaction, that were acquired in the subject matter prior to the ratification.
d. Restatement of Agency § 1.04—Terminology
i. Disclosed Principal—A principal is disclosed if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal and has notice of the principal's identity.
1. § 6.01 Agent for Disclosed Principal— When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principle, (1) the principal and the third party are parties to the contract, and (2) the agent is NOT a party to the contract unless the agent and the third party agree otherwise.
ii. Undisclosed Principal—A principal is undisclosed if, when an agent and a third party interact, the third party has no notice that the agent is acting for a principal.
1. § 6.03 Agent for Undisclosed Principal—When an agent acting with ACTUAL AUTHORITY makes a contract on behalf of an undisclosed principal, (1) unless excluded by the contract, the principal is a party to the contract, (2) the agent and third party are parties to the contract, and (3) the principal, if party to the contract, and the third party have the same rights, liabilities, and defenses against each other as if the principal had made the contract personally.
iii. Unidentified Principal—A principal is unidentified if, when an agent and a third party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal's identity.
1. § 6.02 Agent for Unidentified Principal— When an agent acting with actual or apparent authority makes a contract on behalf of an unidentified principle, (1) the principal and the third party are parties to the contract, and (2) the agent IS a party to the contract unless the agent and the third party agree otherwise.
e. Liability for the Agent or Principal
i. §7.01 Agent’s Liability to Third Party— An agent is subject to liability to a third party harmed by the agent's tortious conduct. Unless an applicable statute provides otherwise, an actor remains subject to liability although the actor acts as an agent or an employee, with actual or apparent authority, or within the scope of employment.
ii. § 7.02—Duty to Principal; Duty to Third Party— An agent's breach of a duty owed to the principal is not an independent basis for the agent's tort liability to a third party. An agent is subject to tort liability to a third party harmed by the agent's conduct only when the agent's conduct breaches a duty that the agent owes to the third party.
iii. §7.03 Principal’s Liability in General—
1. A Principal is subject to direct liability to a third party harmed by an agent’s conduct when:
a. the agent acts with actual authority or the actions are ratified by the principal and
i. the agent’s conduct is tortious, or
ii. the agent’s conduct, if that of the principal, would subject the principal to tort liability; or
b. the principal is negligent in selecting, supervising, or otherwise controlling the agent; or
c. the principal delegates performance of a duty to use care to protect other persons or their property to an agent who fails to perform that duty
2. a principal is subject to vicarious liability to a third party harmed by an agent’s conduct when:
a. the agent is an employee who commits a tort while acting within the scope of employment; or
b. the agent commits a tort while acting with apparent authority in dealing with a third party on or purportedly on behalf of the principal.
iv. The principal may recover damages from the agent on a theory of breach of duty of care or loyalty.
II. Partnerships
a. In General
shall reimburse a partner for payments made and indemnify a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the preservation of its business or property.
(d) A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute.
(e) A payment or advance made by a partner which gives rise to a partnership obligation under subsection (c) or (d) constitutes a loan to the partnership which accrues interest from the date of the payment or advance.
(f) Each partner has equal rights in the management and conduct of the partnership business.
(g) A partner may use or possess partnership property only on behalf of the partnership.
(h) A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership.
(i) A person may become a partner only with the consent of all of the partners.
(j) A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the consent of all of the partners.
ii. NOTES:
iii. A partner will not be permitted to recover expenses that benefit the partner individually rather than benefiting the partnership.
iv. Each partner has an equal right to the management of the business and any business performed under the scope of the partnership can only be contravened by a majority of the partners.
d. Authority of the Partners
i. RUPA § 301—each partner is an agent of the corporation and has the authority to act on behalf of the corporation in activities within the “ordinary course of business”.
e. Allocation of Liability in a Partnership
i. RUPA §305—Partnership Liable for Partner’s Actionable Conduct
(a) A partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.
(b) If, in the course of the partnership’s business or while acting with authority of the partnership, a partner receives or causes the partnership to receive money or property of a person not a partner, and the money or property is misapplied by a partner, the partnership is liable for the loss.
ii. RUPA §306—Partners’ Liability
(a) Except as otherwise provided in subsections (b) and (c), all partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.
This is a very important provision. This makes the personal assets of the partner fair game for recovery in a civil suit for damages. This is the key distinction between a GP and other forms of business entities.
(b) A person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person’s admission as a partner.
