Select Page

Business Associations/Corporations
University of South Carolina School of Law
Freeman, John P.

CHAPTER ONE – Introduction
Major Uniform Statutes
·         Uniform Partnership Act – 1914, 1997
·         Uniform LL Company Act – 1996
·         Model Business Corporation Act – 2002
Agency Law
·         Why do we need to know agency law?
o        A corporation is an artificial entity. ALL people involved with a corporation are AGENTS of the corporation.
·         1.01 – Agency – The fiduciary relationship that arises when one person (the principal) manifests assent to another person (an 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 to so act.
o        Every single agent is a FIDUCIARY. Being an agent increases your obligations, which increases you risks.
o        § 1.02 – Labeling of a relationship is NOT controlling. You look to the nature of the agreement not what is in writing. Reality trumps verbiage.
·         1.04 – Terminology
o        (1) Co-agents – have agency relationship with the same principal – may be applied by the Principal or to another Agent actually or apparently authorized by the principal to do so
o        (2)(a) Disclosed Principal – if, when an Agent and a Third Party interact, the Third Party has NOTICE that the Agent is acting for the Principal AND has notice of Principal’s identity.
o        (2)(b) Undisclosed Principal – if, when the Agent and Third Party interact, the Third Party has NO notice that the Agent is acting for a Principal
o        (2)(c) Unidentified Principal – if, when the Agent and Third Party interact, Third Party has NOTICE that Agent is acting for a Principal, but NO notice of the Principal’s identity
o        (3) Dual agent; Joint principal – dual agent acts on behalf of more than one Principal with regard to the same transaction – such Principals are JOINT Principals
o        (5) Notice – Person has notice of a fact if the person knows the fact, has reason to know the fact, has received effective notification of the fact or should know the fact to fulfill duty owed to another
§         Notice of a fact that an Agent knows or has reason to know is IMPUTED to the Principal as stated in §§ 5.03 and 5.04. A notification given to an agent is effective as notice to the principal as stated in §5.02(1).
§         This is broader than just knowledge.
o        (6) Person – an individual, organization/association, that has legal capacity to possess rights and incur obligations, a government/political subdivision/ instrumentality/ entity created by government, or any other entity that has ACTUAL AUTHORITY
·         2.01 Actual Authority – 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 Principal’s manifestations to the Agent, that the Principal wishes the Agent to so act.
·         2.02 Scope of Actual Authority –
o        (1) agent has actual authority to take action designated or implied in the Principal’s manifestations and acts necessary or incidental to achieving the Principal’s objectives, as the Agent reasonably understands them when the Agent determines how to act.
o        (2) agent’s interpretation of the Principal’s manifestations is reasonable if it reflects any meaning known by the Agent to be ascribed by the Principal and, in the absence of any meaning known to the agent, as a reasonable person in the Agent’s position would interpret the manifestations in light of the context, including circumstances of which the Agent has notice and the Agent’s fiduciary duty to the Principal.
o        (3) Agent’s understanding of Principal’s objectives is reasonable if it accords with the Principal’s manifestations of the inferences that a reasonable person in the Agent’s position would …
·         2.03 Apparent Authority – power held by an Agent or other actor to affect a Principal’s legal r

is authorized to act as an agent for the principal
o        That other person has apparent authority and an act by him within the scope of that apparent authority binds to the principal to a third person who is aware of the manifestations by the principal and believes the person is authorized to act on behalf of the principal. The person with power to act in this situation should perhaps be called an “apparent agent” but typically he is described as an agent, one with apparent authority to act.
o        Apparent authority arises when a person represents that someone else is his agent when that is not the case, or, more commonly creates or permits the creation of the impression that broad authority exists when it in fact does not.
§         The theory is hat if a third person relies on the representation or appearance of authority, that person may hold the putative principal liable for the action of the putative agent. The principal is bound by the agent’s act within the scope of his apparent authority in this situation even though the act was not in fact authorized by the principal.
o        NOTE: Apparent authority CANNOT be created by the mere representation of the putative agent.
·         2.11 Inherent and Incidental Authority
o        Inherent Authority – arises from the agency itself and without regard to either actual or apparent authority – may be viewed as authority arising by implication from the authority actually or apparently granted.
Incidental Authority – authority to do individual acts that relate to a transaction that is authorized