BUSINESS ASSOCIATIONS
TELMAN SPRING ‘14
I. AGENCY
a. Who Is An Agent?
i. 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
ii. 3 Types of Agency Relationships:
1. Principal/Agent
2. Master/Servant
3. Employer/Employee
iii. For a principal/agent relationship to exist:
1. Manifestation of consent by the principal to the agent, that the agent will act on the principal’s behalf and subject to the principal’s control
a. Manifestation = assent through written, spoken, or other conduct
b. There must be an agreement (i.e the agent consented to the act)
iv. Case Illustration
1. Cargrill
a. Rule: Generally, creditors are not liable for those debts they extend credit to. However, a creditor that assumes control of the business may become liable as a principal for the acts of the debtors in connection to the business
b. Take Away: Agency relationships need not be expressed but can be inferred through relationship (i.e. debtor/creditor, buyer/supplier)
b. Liability of Principal to 3rd Parties
i. Authority
1. The power of an agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent
2. 3 Types of Authority:
a. Actual = authority that flows directly from the manifestation of the principal to the agent
i. Express = specifically asked to do something
ii. Implied = very contextual; often depending on prior practices or industry customs; do what is reasonably necessary
iii. Incidental = authority to do the things that usually accompany or are reasonably necessary to accomplish the actions authorized
iv. Case Illustration
1. Mill Street Church
b. Apparent = authority held by an agent that affects a principal’s legal relations with 3rd parties when a 3rd party reasonably the agent has authority to act on behalf of the principal
i. Case Illustration
1. 370 Leasing Corp.
c. Inherent
i. Only applies when:
1. There is a general agent
2. There is an undisclosed principal
3. The agent has exceeded his authority
ii. Case Illustration
1. Watteau
ii. Ratification
1. The affirmance by a person of a prior act which did not bind him but which was done on his account
a. Ex: My agent didn’t have the right to enter into this K, but I’m glad she did and I agree to the transaction
2. Requires acceptance by the principal of a prior act with an intent to ratify and with full knowledge of all material facts
3. Case Illustration
a. Botticello
iii. Estoppel
1. Equitable theory that binds the principal even if there is no agency relationship
2. Elements:
a. Principal does something, either intentionally or negligently, to establish the appearance of authority
b. 3rd party reasonably acts in reliance of that authority
c. 3rd party changed her position in reliance upon the appearance of that authority
3. Case Illustration
a. Hoddeson
i. Rule: Businesses have an obligation to make sure that a person is not acting as their agent and therefore can be held liable through estoppel
c. Agent’s Liability on the Contract
i. 3 Situations:
1. Disclosed Principal = agent not liable (only principal)
a. Two Exceptions:
i. All parties agree or it is the clear intent of the parties that the agent is bound
ii. Agent made the K, but exceeded his authority in doing so
2. Partially Disclosed/Undisclosed Principal = agent liable
a. The agent has a duty to disclose to his principal
b. The 3rd party to the K has no duty to inquire as to whom the agent is working for
d. Principal’s Liability to 3rd Party in Tort
i. Servant v. Independent Contractor
1. Servant = agreed to work on behalf of master is subject to the master direct control
2. Independent Contractor = agreed to work on behalf of master but is not controlled by them
a. The key is Control – determined from a totality of the circumstances test
3. Case Illustration
a. Humble Oil – Servant
b. Hoover – Independent Contractor
ii. Franchiser/Franchisee
1. In order to create an agency relationship the franchiser must have control over an alleged instrumentality (i.e. food prep, maintenance, hiring, firing, etc.)
2. Case Illustration
a. Murphy
i. No agency relationship because franchiser (Holiday Inn) had no control over day to day operations
b. Miller
i. Rule: An agency relationship may be created between a franchiser and franchisee based on apparent agency if the 3rd party relied on the authority
ii. Take Away: Regardless of a
r in an existing partnership or with others not actually partners, is liable to any person to whom such a representation is made who has relied on the representation given
ii. Case Illustration
1. Young
e. Fiduciary Obligations of Partners
i. Duty of Loyalty
ii. Case Illustration
1. Meinhard
a. Cardozo: “co-partners owe to one another, while enterprise continues, the duty of the finest loyalty…Not honesty alone, but the PUNCTILIO of an honor the most sensitive”
f. After Dissolution of a Partnership
i. Fiduciary duties are only imposed on partners, not former partners
g. Grabbing and Leaving
i. Partners can do everything to prepare to leave
ii. Permissible acts:
1. Finding a building to lease
2. Preparing a list of clients to contact
3. Hire administrative staff
4. Wrap up work
5. Give notice
iii. Difference b/t partners and associates
1. Associates = taking assets from firm
iv. A partner has an obligation to tell on demand full information affecting the partnership to any partner (Lying is bad!!)
v. Clients have the ultimate right to choose who they want to go with
h. Expulsion from a Partnership
i. A partner can be expelled from a partnership for a bona fide business reason in accordance with a partnership agreement (creating something in the K)
ii. Case Illustration
1. Lawlis
i. Partnership Property
i. Extent of property rights of a partner
1. Partnership as a whole owns the property
2. Has interest in the partnership
3. Right to participate in management
ii. Right to dissolve
1. Partners always have the power to dissolve a partnership, but partners may not always have the right to dissolve it (if partnership is for term)
iii. Once you give away your partnership interest, you have lost your rights to that property
iv. Case Illustration
1. Putnam
