Agency & Partnership Flashcards
Agent Liability in Contract
Liability in Contract: principal becomes liable to third party through the actions of his agent. If agent and principal both consented and agent is subject to principals control.
- Consent and Control are what’s needed
Capacity for Principal or Agent
Capacity: Principal must have contractual capacity (because the contract is between plaintiff and third party) but agent does not (because agent is just intermediary)
- Principal needs capacity, agent doesn’t
Ex: Can harry potter disaffirm a contract mom made with warner brothers on his behalf?
- Yes, because harry as a minor lacks capacity. Principal has to have capacity
Ex: Can mom validly appoint Harry as her agent?
- Yes, Because harry doesn’t need capacity. Agent doesn’t need capacity
Agency and Principal Writing
Agency law requires no writing, but the statute of frauds may
Ex: Taylor Swift hires Hollywood agent Michael Ovitz to be her agent. Is a writing required?
- No not under any law
EX: Taylor hires Mike to be her agent for five years. Is a writing required?
- Yes, statute of frauds (1 year to do a service provision)
Ex: Gilligan authorizes mike to convey his island to 50 cent. Is a writing required?
- Yes, agents authority to convey real property must be in writing
Consideration for Agent and Principal
Consideration is not required
- Some agents get paid for there services but it’s not required by law
Actual Authority
Actual Authority
Creation of actual authority
Express: Principal tells agent to act on plaintiffs behalf
Ex: Frodo tells Gandalf sell the ring. Does Gandalf have express actual authority to sell the ring?
- Yes, and he can do whatever it takes to sell it (ex: advertise, negotiate)
Implied: Plaintiffs conduct leads agent to believe agent has authority
Ex: Beavis, buttheads office manager, buys supplies from kmart without permission, beavies known buttheads has paid without objection. IF beavis keeps buying from kmart is butthead bound?
- No express authority (not told to do it by principal), Yes he is bound because it looks to bevis like butthead has endorsed his behavior, reasonable for him to think he could do it again
Termination of Actual Authority
Termination of Actual Authority: actual authority must exist when agent enters a contract, since actual authority can terminate in one of 6 ways
- After a specified time/event or a reasonable time (doesn’t last forever)
- By change of circumstances (subject matter is destroyed)
- If agent acquires adverse interest (joins a competitor)
- When agent says so (agency is consensual)
- When principal says so unless it is couple with an interest (which would make the power of agency irrevocable)
- By death/incapacity/bankruptcy, unless coupled with interest
Ex: Edward gives bella the irrevocable power to sell his truck. Can he revoke?
- Yes, merely saying power is irrevocable is not enough.
Ex: Edward borrows money from bella and gives her the irrevocable power to sell the truck if he defaults. Can Edward revoke?
- No, because this agency was created for bella’s benefit. She holds the truck as collateral for a loan, as result she has her own interest in the truck
- Benefit for the agent rather then the benefit of the principal, irrevocable
Ex: Edward authorizes bella to sell his truck for 15% commission. Can he revoke?
- Yes, because a fee or commission is not considered an interest in the agency. Does not make it irrevocable
Delegation: Ok if principal consents (may be express or implied from circumstances)
Substitues for Actual Authority
Apparent Authority, Ratification, Adoption,
Substitute for Actual Authority
Apparent Authority: principal leads third party to mistakenly believe agent has authority
- Look at it from the prospective of the (reasonable) third party
Policy: Protects innocent third party who relies on principal holding out agent as agent
Ex: Frodo tells pairs Hilton if you want to buy the ring see Gandalf. Frodo has never given Gandalf authority to sell the ring. IF Paris contracts with Gandalf is Frodo bound?
- Yes, Frodo led Paris to believe that Gandalf had authority
Key Fact: Reasonable belief must be created by principal not by agent alone
Gandalf in Frodos presence, tells Paris he’s frodos agent, though Gandalf has no actual authority. Frodo is silent. IF Paris contracts with Gandalf is Frodo bound?
- Yes because his silence in that statement created apparent authority
Problem: Apparent authority can linger after actual authority ends
Ex: Beavis brought supplies from kmart without permission Butthead paid, but told beavis not to do it again. Bevis does it anyway. Does Beavis have actual authority to bind Butthead again?
- No, told him not to do it again
Does Beavis have apparent authority to bind Butthead again?
- Yes, look at it from third party perspective: Beavis had bough supplies from them before and butthead had paid for them, so its reasonable for kmart to think bevies can do it again
How can butthead destroy this apparent authority?
- He can tell kmart that beavis has no authority to bind him
Note how much harder it is to destroy apparent authority- because apparent authority can exist in the minds of many third parties
- Principal has to go around all tell third parties that agent can’t bind him anymore while in apparent authority he just has to tell the third party it’s cut off
Ratification substitute for actual authority
How to ratify: even if agent had no authority principal can ratify by expressly affirming the contract, accepting the benefit of it or suing third party on it
Requirements:
- Knowledge: Principal must have knowledge of all material facts
- All or Nothing: principal must accept entire transaction
- Capacity: Plaintiff must have both at the time of ratification and at the time of original contract because ratification’s retroactive
- ratifying party is a party to the contract from the very beginning
Ex: a promoter enters a lease on behalf of corporation that has not yet been formed. Can the corporation once it’s been formed ratify the Lease?
- No, Corporation did not have contractual capacity when the promoter entered the lease. It didn’t even exist so it couldn’t have capacity
Intervening rights: Since ratification is retroactive, we must protect the intervening rights of a bona fide purchaser
Ex: Lucy, acting without authority, sells Desi’s car fro $6,000. Desi later agrees to sell it to John Wayne for $5,000. Can Desi ratify Lucy’s sale when he learns about it?
- He’d like to (for the extra $1,000) but he can’t cut off Waynes intervening rights if Wayne was a bona fide purchaser (ie wayne didn’t know about the earlier sale)
Adoption substitute for actual authority
A promoter enters a lease on behalf of a corporation that has not yet been formed. Can the corporation once formed adopt the lease?
- Yes, can adopt lease as own once it’s formed
What’s the difference between ratification and adoption?
- Adoption is not retroactive, Adopting party is liable on contract only form moment of adoption and forward
If the corporation does adopt the lease is the promoter automatically relieved of liability?
- No, just means corporation is liable too
Principal- Agent Relationship of Parties
Agent is a fiduciary even a gratuitous agent owes principal duties of loyalty (must put principals interest above her own), care (sliding scale, depending on any special skills agency may have) and obedience
Principal: must pay (unless gratuitous), reimburse and indemnify agency
Remedies: wide rage available (ie a constructive trust where agent breaches the duty of loyalty
- Property is treated as if at had been placed in a constructive trust created for the benefit of the principal (where the agent breaches duty of loyalty by breaching duty and buying property itself instead of for the principal
Principal- Third Part Relationship
assuming actual authority or a substitute
Principal is liable to third party
Third party is liable to principal (generally always) unless agent has special skills (or special reputation) and plaintiff is undisclosed (third party does not know about plaintiffs existence). Third party thinks its contracting with agent for agents skill, but actually agent is negotiating for someone else
Ex: Pam hired Rachel ray to cater her wedding to Jim. In fact, Racheal was acting on behalf of Peg bundy. Pam had no clue. Does Peg have any rights against Pam?
- No, because 1. Rachel has special skills and 2. Peg was undisclosed, pam thought she was dealing with Rachel to get rachel’s service, had no idea Rachel was negotiating for someone else. Third party not liable to principal
Third Party-Agent Relationship
Generally no liability (since agency is just a go-between)
Test: was tort committed by a servant acting within the scope of employment? If so, the master and servant are jointly and severally liable
Servant or independent contractor: Employer not liable for Independent Contractor
Did employer have the right to control how employee did job (even if never exercised?) Who supplied tools/workplace? Was the job party of the employers regular business? Was it long-term? How much skill was required? Was payment made in regular intervals, like a salary of by the job?
Ex: I accidently knock over the podium and injure an Aggie sitting down in front. Is barbri liable?
- No, Only I’m liable. I’m an independent contractor
Ex: Macys hires lucy to demonstrate cosmetics at its store on weekends for 2 months for $2,000. Lucy jabs trixie in the eye with an eyebrow pencil while chatting with Ethel. Is macys liable?
- Lucy works at Macys, at there store, not much skill is required. Makes her look like a servant. But on the other hand job is short term and she is paid in lump sum. Make Lucy look like independent contractor.
- Look at the next issue in the hypo to decide. Just pick one
Scope of Employment
Master is not automatically liable for Servant’s Torts. Master is liable only if servant was acting within scope of her employment
Usual Task: If servant was doing a usual task, the tort was within the scope
Deviation: The issue will be, how substantial was the deviation
Detour: a minor deviation is usually within the scope
Frolic: A substantial deviation is usually outside the scope
Ex: A truck driver for Arco, goes to pub nine blocks off her route for a beer. Returning to her route she hits a pedestrian. Sue finishes by 5pm,the usual time. Is arco liable?
- No, Because Sue was on a frolic. But when the accident occurred Sue was returning to her route and she finished on time so maybe arco should be liable (policy. Pg.5)
Intentional Torts: Servants intentional torts are outside scope unless forces is used to further master’s business, master ratifies use of force, or maser authorized servant to commit tort (ex: servants intent is not generally imputed to master)
Liability: Master and Servant are jointly and severally liable to Third Part (ie can sue Servant alone or master alone or join them as defendants, but is entitled to only one total satisfaction)
Ex: From whom can the pedestrian recover if the accident was within the scope of Sue’s employment?
- Can get all of his damages from Sue alone or Arco alone or join them both together as defendants (joint liability)
Ex: IF the pedestrian recovers from Arco, Does Arco have any rights against sue?
- Has the right to be paid back or indemnified by Sue because she was the tortfeaser, if sue doesn’t have any money though, Arco will be left to pay for everything
Ex: IF the pedestrian releases sue, is Arco automatically released from vicarious liability too?
- No, Releasing the servant does not automatically release the master
Ex: Fred borrows Barneys full time Gardner. While working in Fred’s backyard, the Gardner negligently injures a passerby. This involves the “borrowed servant doctrine” (where one master borrows servant from another master). Who’s liable: Barney (original master) or Fred (the borrower Master)
- Fred the borrower master is liable if he had the right to control the Gardner when the accident occurred (right to control is the most important factor in a tort case)
Direct Liability Master/ Servant
Master is liable for its own negligence if master fails to properly train or supervise employees or check an employees criminal record or job history
Ex: Dominos hired Dennis without checking his driving record. He had 2 DWIs. Drunk on a frolic, Dennis injures Wilson. Is dominos liable? If so on what theory is it liable?
- Dominos is not vicariously liable for Dennis’s negligence because he was on a frolic
- But Dominos is directly liable for its own negligence because it failed to check out dennis’s driving record in advance
Agency Outline
Contract: Is a principal liable to a third party on contract entered into by an agent?
- Did the agent have actual or apparent authority at the time of the contract or did the principal ratify or adopt the contract later on?
- If so, the principal is liable on the contract( but the agent is not)
Tort: is an employer liable for a tort committed by an employee?
- Was a tort committed by a servant in the scope of employment?
- If so, the master and the servant are jointly and severally liable to the third party
General Partnerships
Formation: an association of two or more persons to carry on as co-owners a business for profit, whether they intended to form a partnership or not
Factors: To Determine who is a partner look to the following factors:
- Capital: A capital contribution is not required to be a partner
- Control: The right to control may be enough, even if control is never exercised (because owners usually have the right to control operations)
- Sharing Profits: Just one factor, no presumption of partnership
EX: Rob bakery owes Pillsbury money, but Rob and the firm are insolvent. Pillsbury claims Rob’s sweetie Cher is a partner because she receives 20% of the profits. Is
Pillsbury correct?
- Sharing in profits is just one factor in determining if Cher is partner, no presumption
What if Cher is getting profits as wages, rent, repayment of debt, or interest on a loan?
- Getting profits for any of these reasons is not a factor
What if Cher were getting 20% of the gross receipts not 20% of the profits
- Sharing gross receipts is not a factor
Writing for General Partnership
Partnership law does not required one but the Statute of Frauds may
Ex: Ice T and Ice Cue form a partnership to record several rap albums. IS a writing required?
- No, not by any law
What if they agreed that their partnership was to last for two years?
- Falls within Statute of Frauds 1 year provision, writing is required (not by partnership law, but SOF law)
