Business Associations Outline

Business Associations

Huss

Fall 2012

I. Agency

· Agency is the fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act

· Who is an Agent?

A. Agency relationship consists of:

1. Principal – the one who orders action, owner, master

· Can’t force someone to be an agent. Has control over agent

2. Agent – the one who is to acting on behalf of the principal; must agree

· Agreement doesn’t have to be contractual; can result based on behavior

· Non-servant agent is one who agrees to act on behalf of the principal but is not subject to the principal’s control over how the task is performed

B. Test for an Agency Relationship:

1. Agent must consent to act – by behavior or contract

2. Agent must act on the principal’s behalf; and

3. Principal must have control the agent*** key

Gay Jensen Farms Co. v. Cargill

ii.Liability of Principal to Third Parties in Contract

A. The Agent’s Authority

· Actual Authority – express or implied

§ Implied authority – actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are necessary to carry out the duties

§ Express – principal tells agent what to do *control*

· Apparent Authority (deals w/ 3rd parties)- reasonably believe agent has authority to perform duty

§ Principal manifests consent to agent w/ a 3d party

§ This is determined from the view point of the 3rd party

§ Agent representation alone is insufficient to create apparent authority

§ CAN HAVE apparent authority w/out actual authority

***NOTE: Principle is liable for actions of the agent under actual and apparent authority

· Inherent Authority – agent appears as owner; Must have undisclosed principal, or general agent or reasonable belief by third party that agent had authority

§ Undisclosed or unidentified principal and the agent is performing tasks within the normal course of work (both principal and agent become liable)

§ CANNOT be apparent authority – obviously because 3rd party doesn’t know of the principal since they are unidentified

§ General Agent (not specified in certain area), action agent would normally take

§ Situations of inherent authority – (1) general agent acting in similar fashion, but in violation of orders; (2) agent acts for own purpose, but would be ok if authorized; (3) agent departs from authorized method of disposal of goods

Mill Street Church of Christ v. Hogan – Actual Authority

Three-Seventy Leasing Corporation v. Ampex Corp – Apparent Authority to 3rd party

Watteau v. Fenwick – inherent authority

B. Ratification

· Ratification is defined as the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account.

· Must ratify the whole transaction, NOT JUST PART

· No need for ratification if authority exists

§ Therefore you should argue that there was one of the three above authorities

Botticello v. Stefanovicz

C. Estoppel

· Reasonable to believe that agent has authority and it would be harmful to a 3rd party to not enforce an agency relationship

Hoddeson v. Koos Bros.

iii.Liability of Principal to third Parties in Tort

A. Servant versus Independent Contractors

· An agent-type independent contractor is one who has agreed to act on behalf of another, the principal, but not subject to the principal’s control over how the result is accomplished

· Non-agent IC is one who operates independently and enters into arm’s length transactions w/ others

· *KEY* is CONTROL (question of fact)

§ Humble Oil & Refining Co. v. Martin – principal was found liable because owner had substantial control over the independent contractor

§ Hoover v. Sun Oil Company – No control over day to day operation of IC, so therefore Sun Oil was not found liable

· Also look at financial control of certain aspects b/c even though there might be financial control and licensing (Holiday Inn) no control on methods of doing work

· A franchisor can state they do not control day to day to not be liable

B. Tort Liability and Apparent Agency

· If a franchise agreement goes beyond the stage of setting standards and allocates the franchisor the right to exercise control over daily operations, an agency relationship exists

Agency relationship exists outside of a contract based on action and control

Miller v. McDonald’s Corp

C. Scope of Employment

· Owned vs. Franchise/Brand

Manning v. Grimsley

· Under general agency principles a master is subject to liability for the torts of his servants while acting in the scope of their employment. Factors to consider:

1. Time, place and purpose of the act

2. Its similar to acts which the servant is authorized to perform

3. Whether the act is commonly performed by servants

4. The extent of departure from normal methods

5. Whether the master would reasonably expect such an act would be performed

· Even if the conduct was not expected in the course of business, other considerations may outweigh this (Arguello v. Conoco, Inc. – clerk acting on personal racial bigotry that was outside the scope)

D. Liability for Torts of Independent Contractors

· Liability for torts of independent contractor

§ Can’t delegate liability for inherently dangerous activity

· Exceptions to non-liability for independent contractors

1. Incompetent contractor (based on skill)

2. Nuisance per se (inherently dangerous)

3. Control over work being done

· Non-delegable duty

Majestic Realty Assc. v. Toti Contracting Co.

iv.Fiduciary Obligations of Agents

· Fiduciary duty – don’t act adverse to employer while at your job

· Kickbacks against employer (i.e. payoff meat supplier)

· Secret profit issue (i.e. set up company on own and use that to sell to company you work for)

· Using position in a way that doesn’t affect principal, but abusing the position

· Obligation Principal owes to Agent

· Compensation (if reasonably expected)

· Powers agent reimbursement for expenses incurred from principal

· Good faith and due care; Principal has to not prevent from performing task

· Duties During Agency

· The duty of an agent is to disclose to the principal what the principal should rightly know

· **Disclosure is key**

Disclosure would be ok to get approval (any hiding breaches fiduciary duty)

It is ok to prepare to leave employment; just can’t compete while employed/ with employer

Don’t use trade secrets to prepare to leave

Uniform Trade Secrets Act – (1) must be information that is documented; (2) must have economic value; (3) information cannot be readily available or easily gotten; (4) keep secret

· i.e. Amoco geologist send map of secret reserves to someone else

Rash v. J.V. Intermediate, Ltd.

B. Duties During and After Termination of Agency: Herein of “Grabbing and Leaving”

Town & Country House & Home Service, Inc. v. Newberry

II. Partnerships (not favored anymore) – JOINT AND SEVERAL LIABILITY

i. What is a Partner