AGENCY Flashcards
Agency relationship - Formation
A relationship that arises when one person
(principal) manifests an intention that
another person (the agent) act on the
principal’s behalf.
- Requires three elements–
1. Capacity
2. Consent
3. Control
Capacity
Principal requires contractual capacity
- Age of majority and mental capacity
Agent requires only minimal mental capacity
- Agent can be a minor or incompetent
Consent
Generally either an oral or written agreement
Consent is voluntary
Control
This means the right of the principal to
control the agent
The greater the control, the more likely
agent is an employee rather than
independent contractor
Factors:
- Control of manner of accomplishing work
- Supply of tools
- Explicit direction
Authority and Type of Claim
TYPE OF LIABILITY AT ISSUE:
Negligence
- Employee: just apply vicarious liability—which exists if negligence occurred in activity within course and scope of employment/agency (and not on “frolic”)
- Independent contractor: where inherently dangerous activity or non-delegable duty
Intentional Tort
- Vicarious liability if employment authorizes use of force, friction generated, or “furthers purpose” of principal
- Always discuss three types of authority if issue is whether the employment furthers the purpose of the principal
Contractual
- Always discuss at least three types of authority
Types of Authority
Express – The Agent expressly has the express
direction or permission from the Principal to act
Implied – the nature of the Agent’s position
implies authority to act in a particular matter –
either from custom or usage, or by acquiescence
(including a failure to inquire)
Apparent – the Principal communicates by some
statement or act to a third party the apparent
authority of the Agent to act on behalf of the
Principal with respect to that third party
Ratification – the Principal knowingly agrees to
be bound by the unauthorized acts of the Agent;
OR series of occasions of acquiescence
Agent’s Duties to Principal
Undivided Loyalty
- Dual representation (ex.: broker)
- If required by law, licensed person
Strict Obedience to Instructions
- But variance can be ratified by principal
- Multiple variances = implied authority
Reasonable Care (in light of local community standards and taking into account any special skill of the agent)
P’s Remedies for Agent’s Breach:
- Damages
- Accounting for the Agent’s secret profits
- Withholding of compensation
Principal’s Duties to Agent
Duty to reasonably compensate the Agent
and to reimburse Agent for all expenses or
losses reasonably incurred in discharging any
authorized duties
Duties imposed by contract
Duty to Cooperate in carrying out the
purpose of the agency
Agent’s Remedies:
- Damages for breach of contract (subject to duty
to mitigate)
- An agent’s lien in any property the agent holds
Termination of Agency
Termination of the Agent/Principal relationship can be by: - Lapse of time; - Happening of an event; - Change of circumstances; - Breach of fiduciary duty; - Unilateral act; or - Operation of law
Termination
Termination of Authority
- Actual (Express or Implied) authority terminates when
the Agent knows or should have known of the
termination
- Where there is a writing by the Principal given to the
Agent manifesting their authority that is meant to be
shown to 3rd parties, the apparent authority will not
be terminated with respect to the 3rd parties who see
and rely on such writing until Principal communicates
termination to third parties
- Death/incompetency ALWAYS revokes authority,
whether or not known
Irrevocable Agency:
- Agency coupled with an interest (broker commission)
- Power given as security (Trustee under Deed of Trust)
Liability of the Principal and Agent to 3rd Parties on Contracts
- Disclosed Principal: Third party knows the
identity of the principal - Partially Disclosed Principal: the fact, but
not the identity, of the principal is known - Undisclosed Principal: third party believes
the agent is the contracting party and has no
knowledge of the existence of a principal
Undisclosed v. Disclosed Principal
- Agent not liable on contract to 3rd party when acting
for a disclosed principal.
* A disclosed principal is liable on contract when his Agent acts for an improper purpose, or for the 3rd party’s purpose, UNLESS the 3rd party has notice that the Agent is not acting for the P’s benefit.
- Agent IS liable on contract to 3rd party when acting for a partially disclosed principal OR an undisclosed principal.
- An undisclosed principal is NOT liable on contract when his Agent acts for an improper purpose, or for the 3rd party’s purpose—otherwise, undisclosed principal is liable for contract properly entered into by agent
Secret Limiting Instructions
For example—principal tells only the agent
what his lowest selling price is.
Principal is bound even if agent acts beyond
the scope of the limiting instructions and, for
example, agrees to lower selling price
So, if agent agrees with third party to a
lower selling price, principal is bound—
though principal can sue agent for breach of
duty of obedience
Agency and Partner Liability
Agency and Partnership Liability
- A partnership is liable for the acts and omissions
of any partner acting in the ordinary course of
the partnership business or with authority of the
other Partners
- Apparent authority of partner
- In a general partnership, all partners are jointly
and severally liable for all obligation of the
partnership - In a limited partnership or an LLP, partners’
liability is limited to their capital accounts in the
partnership
Agency and Corporate Liability
When considering the authority of a corporate
officer to bind the corporation, consider and
analyze all three types of agency
- Express authority—B/D resolution
- Implied authority—depends on office (Ex.: President
has authority to manage day-to-day affairs, hire
employees; CFO has authority to sign checks) - Apparent authority—officer has apparent authority
with 3rd persons if ordinary course of business - Exceeding authority—officer can be sued BY EITHER
CORPORATION OR THIRD PARTY for implied warranty of authority
Partnership
START with ordinary partnership formation
A partnership is (1) an agreement among two
or more persons (2) to carry on as co-owners of a business (3) for profit.
IRAC each part of this rule
ONLY AFTER deciding entity is a partnership,
discuss type of partnership (GP or LP or LLLP)
Limited partnerships, LLPs and LLLP’s require
formalities
- Formal writing
- Filing of documents with the Secretary of State
General Partnership
General provisions for General Partnership(GP)
- All partners have equal rights in the management (majority rule) and conduct of the partnership
- Disagreements relating to ordinary matters connected with the partnership business may be decided by a majority of the partners
- No act in contravention of the partnership agreement may be done without the consent of ALL the partners.
All partners contribute something to the partnership, and absent an agreement, profits and losses are divided equally
Apparent authority—any partner can bind partnership for contracts in the ordinary course of partnership business, in the absence of knowledge of third party of lack of authority
A partnership is also bound by a partner’s contractual or tortious acts after dissolution if the party with whom the partner deals does not have notice of the dissolution
Partner Duties
Partners are in a fiduciary relationship to
each other
Partners owe a duty of loyalty, requires a
partner to act in good faith and to act fairly
toward each other
Duty of loyalty is three-fold:
- Refrain from dealing with the partnership as or
on behalf of a party adverse to the partnership;
- Refrain from competing with the partnership;
and
- Account for profits, property, opportunities or
other benefits derived by the partner in
conjunction with the partnership business.
Dissociation
Is the change is relationship among the partners
caused by any partner ceasing to be associated
with the carrying on of the business
Can occur voluntarily – when partners decide to
dissolve, or a partner voluntarily withdraws
Can occur involuntarily – when a partner dies or
becomes adjudged incompetent or is expelled
from the partnership
On dissociation– ceasing partners are paid their
capital account and share of profits
Does not necessarily cause the dissolution of the
partnership
Partnership DIssolution
An at-will partnership may be dissolved by
any partner by his express will – “I quit”
Acts that will cause dissolution:
- Some acts of dissociation
- The express will of at least half of the remaining
partners to wind up the business
- Express consent of all partners to wind up the
business
- Expiration of the term
Limited Liability Companies (LLC)
Taxed like a partnership, but enjoy the limited
liability like shareholders and directors of a
corporation
Primarily governed by operating agreements that
control most aspects of business and
management
An LLC is an entity distinct from its members
Formed by filing Articles of Organization with
the State. Must include:
- Statement that the entity is an LLC;
- Name, which must include LLC, street address of the
office and the registered agent for service of process
and the names of all members
Defective formation = Probably General
Partnership
