Agency & Partnership

I. Agency A. Intro & Background B. Rights and Duties Between Principal and Agent 1. Principal 2. Agent C. Vicarious Tort Liability 1. Relationship Control 2. Activity Scope of Employment D. Contract Liability 1. Actual Authority 2. Apparent Authority 3. Inherent Authority E. Agents Fraudulent Acts 1. Employers Liability 2. Exculpatory Clause F. The Undisclosed Principal 1. Rights 2. Liabilities G. Agents Liability 1. Authorized Transactions 2. Unauthorized Transactions H. Ratification 1. Nature and Form 2. Requirements I. Termination of Authority 1. Acts of Parties 2. Operation of Law 3. Notice of 3rd Parties

II. Partnership A. Nature and Creation of Partnerships 1. Nature 2. Creation 3. UPA & RUPA B. Partners Property Rights and Creditors Rights KEY 1. Partners Property Rights 2. Partnership Creditors 3. Individual Partners Creditors C. Dissolution and Termination 1. Dissolution a) Causes and Effect b) Continuation of Business 2. Termination a) Winding Up and Liquidation

b) Termination

Agency Law Nature Enterprise Liability Focus - Responsibility 1. Relationship Control; Greater control = Great risk of liability 2. Activity Nexus; Cannot hold employer liable for all employee acts 3. Scope Comparison 1. Agency v. Sale Simple buyer/seller relationships, no agency. 2. Agency v. Debtor/Creditor Simple lender, no agency. 3. Agency v. Bailment Control indicates agency. 4. Agency v. Escrow Control indicates agency 5. Ambiguous Principal See health insurance coverage cases. Relationship: Principal v. Agent Nature 1. Fiduciary Contractual 2. Subject to Agreement Occasionally formal; Performance K. 3. Otherwise Implied C/L; ERISA Principals Duties 1. To Indemnify 2. To Compensate 3. Duty of Care 4. To Treat Fairly, and in Good Faith Agents Duties Biggest Area of Litigation Real World Practice Employer rarely sues employee, may sue agent. 1. To Perform a) With Reasonable Care b) To Follow Instructions 2. Duties of Loyalty Must have Principals best interest at ALL times. a) No Self-Dealing b) Cannot Compete During Relation (possibly after) c) Cannot Preempt Opportunities d) Duty to Disclose Conflicts e) Judgmental (1) Cant misuse trade secrets. (2) May use generally acquired knowledge. 3. To Indemnify if Loss Because of Breach Rarely occurs

a) Remedy, not Duty b) Based on Tradition c) Constructive Court Test 4. Sources of Agent Duties a) Contract b) Statute c) Ethics Vicarious Liability Meaning 1. Strict 2. No Fault Justification For 1. Benefit Risk Absorption 2. Loss Spreading Risk Destruction 3. Safety Risk Prevention 4. Just and Equitable Victim Compensation Approach 2 Part Test 1. Relationship (Control) Master-Servant Rule 2. Activity Scope of Employment Torts Fault Approach; Negligence or Intentional VC Strict Liability; Employer is completely innocent; Exception to tort system Relation 1. Control Servant v. Independent Contractor; 12-factor test 2. Factors No controls over Independent Contractors a. Details b. Distinct Work c. Skill d. Payment 3. Exceptions (to exceptions) a. Negligence b. Inherently Dangerous Activity c. Nondelegable Duty Public Carrier d. Financial Irresponsibility e. Apparent Relation Franchise cases 4. Other Situation a. Joint Enterprise social trip v. profit motive b. Unincorporated Associations National Guard case 5. Independent Contractor Exemption a. No Control = No Liability b. See Prosser on Torts; R2d Agency p. 158

Activity - Nexus 1. Scope of Employment Must show actions of servant were within the scope of employment. Nexus between conduct and business a. Time b. Place c. Purpose 2. Negligent Acts a. Deviations Ellicott City Fire case i. Substantial Frolic ii. Slight Detour b. Purely Personal Acts c. Going/Coming Rule to and from work; outside of time/place; but use of cell phones and home computers blurs lines 3. Intentional Torts Key Purpose a. Motive Traditional Rule, must have active role b. Foreseeability Modern trend c. Characteristics of the Business d. Strict Liability e. Implied Contract Exceptions to Independent Contractors Vicarious Liability (engulfing the Rule) 1. Own Negligence Failure to Supervise, Perform Background Check 2. Inherently Dangerous 3. Non-Delegable Duty 4. Financial Irresponsibility In some Jurisdictions 5. Apparent Relation Outward appearances Holiday Inn case 6. Expensive/Realistic Assessment Removes all titles, labels, and categories. Then decides who is most responsible. Contract Liability Concept Approach 1. Relation Principal-Agent 2. Activity Scope of Authority Narrow Relation 1. Representative On Behalf Of 2. Employee 3. Independent Firm/Individual Corp, P/S can also be agent Activity 1. Scope of Authority a. Look at Factors b. Establish Nexus to Business at Hand

c. Actions must Fall within Scope of Employment d. Blurs with Control Issue e. Factors i. Kind of Work - Motive ii. Time & Place - Foreseeability iii. Purpose Characteristics of Business f. Detour Slight Within Scope of Employment g. Frolic Substantive Outside of Scope of Employment h. CTs Personal conduct considered minor deviation to be expected on the job. 2. Actual Principal-Agent a. Express i. Agreement ii. Power of Attorney iii. Bylaws b. Implied i. Position ii. Past Conduct iii. Custom iv. Emergency v. Delegation Hiring of sub-agent? vi. Responsibilities vii. GENERAL RULE No Implied Authority. Look to intent of Parties c. Delegation 3. Apparent (Texaco Case) a. GENERAL RULE Would 3rd person reasonably believe agent had authority to perform? b. Key Manifestation between principal & 3rd party c. Principals d. 3rd Party e. Manifestation f. Position g. Conduct, Past Dealings h. Custom i. Innocent Spouse Theory j. Contract Law k. Also Duty to Inquire 4. Estoppel Koos Bros. Furniture Case a. Tort Law b. Compensation for Loss c. Action Change in position which leads to loss d. NOTE Technical Distinction with Apparent Authority

e. Plead both (in the alternative) to cover bases f. Evidentiary g. Prevents D/Principal from claiming lack of authority h. Procedural Roadblock. Contrast Applied v. Actual v. Apparent Authority Apparent equivalent to Estoppel 5. Inherent (Sawmill Case, Gas Station Case) a. General Agents b. Usual or Incidental to Transaction c. Reasonable Reliance d. Doesnt expand whats under Apparent Authority e. Applies in Undisclosed Principal cases f. Applies in Fraud Cases 6. Intentional Tort Liability a. C/L No Business Purpose - No Liability b. Modern Within Scope, Foreseeable Liability c. Elements i. Time ii. Place iii. Purpose Not serving Employers Purpose d. Foreseeability = Liability e. Character/Nature of the Business f. Enterprise Liability Test/Policy Analysis i. Reasons ii. Protection iii. Deterrence iv. Balancing Factors g. Work Precipitating Causes If work creates situation h. Strict Liability/Implied Contract Rare, but changing (ambulance case, hospital service) i. Theft Intentional Tort i. Generally argue: Time, Place, and Purpose ii. Also argue: Foreseeability, Implied Contract, Failure to perform background investigation 7. Vicarious Liability Focus a. Actual Authority i. Express ii. Implied b. Apparent c. Estoppel d. Inherent

8. Punitive Damages Rare 9. Presumption of authority May be rebutted by D/Employer a. Uniqueness of Situation b. Cost of Transaction c. Rareness d. Lease e. Land Purchase Agents Fraud (Grease Monkey case) Contract & Tort Liability Complications 1. Situations 2. Intermix of Contract v. Tort Liability Approaches 1. Narrow v. Broad 2. Tort Scope of Employment 3. Contract a. Apparent Authority b. Position 4. Fairness 5. Foreseeability 6. Time, Place Purpose 7. Elements a. Master Intends Conduct b. Employer Negligent in Hiring/Oversight c. Non-Delegable Duty d. Servant Purports to act on Principals behalf & Apparent Authority Exculpatory Clauses Damages v. Rescission Employer can protect self with clauses; but if past conduct known, may be liable 1. Insurance, Marketing Representatives 2. Puts 3rd Persons on notice that the signed document represents the final agreement. Remarks made by agent are not reliable. 3. Contract Issue a. Reasonable Disclosure b. Unconscionability 4. Protection from Damages Suit a. Rescission Action b. Employers not permitted to benefit from fraudulent transactions. 5. Rules of Interpretation a. Clauses, terms, words b. Real Meaning 6. Exception to Exculpatory Rules

a. b. c. d.

Fraud/Misrepresentation Knowledge and Encouragement Accepts Benefits Inadequate Supervision

Lingering Apparent Authority Principal must notify all parties, customers, others about termination of agency relationship. Duty to Inquire v. Reasonable Reliance Undisclosed Principal Principal may sue, with limits Principals Rights 1. Concept a. Real Estate b. Insurance c. Closely Held Businesses Sole Proprietor incorporates, and then dissolves corp., leaving 3rd Party with a loss 2. Limitations Cannot Enforce a. Express b. Personal Service c. Denial d. Knowledge v. Mere Suspicion; Kelly Asphalt shows mere suspicion not enough; knowledge must be demonstrated 3. Principals Liabilities Fairness to 3rd Parties a. Authorized Transactions i. Election Doctrine; Must sue agent or principal, cant sue both. ii. Majority Decision locks in liability iii. Minority Grinder case b. Unauthorized Transactions Unusual Settings i. Apparent Authority Expanded view ii. Inherent Authority Broad view c. Majority - Suit must include K + Principal 2 Bites at the Apple Rule; BUT if only one part sued, then recovery only permits 1 Bite at the apple. d. Grinder/Minority Holds original Principal liable 4. 3rd Party Rights/Liabilities 5. Exceptions a. Law of Assignments b. No lawsuit permitted if agent claims no representation c. 3rd Party Principal buys through agent where seller normally wouldnt sell to 3rd party d. Performance of Personal Services Accounting, Legal Liability of Agent Contract Law

Authorized Transactions 1. Disclosed Principal a. Agent not liable b. Exceptions i. Assumes liability ii. Signature/Implied Acceptance 2. Agent Liable a. Partially Disclosed Principal Use of Trade Name b. Undisclosed Principal Unauthorized Transactions Implied Warranty of Authority 1. Implied Warranty of Authority Agent has implied warranty of authority to enter into contract, even though agent not a party to the contract. 2. Limitations Express Exclusion Nonexistent Principal 1. Unincorporated Association a. See Little League club example; Telephone Assn. Case b. Promoters are subject to liability 2. Preincorporation Transactions Extent of Duty to 3rd Persons Public Notice = Constructive Notice to all 3rd Parties (Seascape Case) Non-Existent Principal No Liability (Oregon Telephone Case) Ratification One ratification gives agent apparent authority for future transactions. Employer must have full knowledge of Agents conduct to ratify. Advantages 1. Tidy up an existing problem. 2. Solidify agreement that was originally defective.

Pattern of Application 1. Actual 2. Apparent 3. Ratification Concept 1. Problems 2. Justification 3. Effect

Requirements 1. Principals Conduct Affirmance After the Fact a. Express b. Implied i. Accepts Benefits ii. Acquiescence iii. Failure to Object/Punish Wrong/Silence iv. Other Conduct Showing Acceptance 1. Objective Standard 2. Relation of Parties c. Silence i. Accept Benefits ii. Retain Employee after harassment charge d. Special Circumstances i. Willfully Ignorant Imputed Knowledge ii. Assumes Risk of Lack of Knowledge 2. Principals Knowledge Must know the facts and circumstances a. Actual b. Imputed Possible if action failed. Termination of Authority Important to Principal, Ends Liability Concept and Effect By Act of Parties 1. Expiration of Term 2. Accomplishment of Objective 3. Mutual Agreement 4. Unilateral Act a. Power v. Right i. Always has power to terminate ii. May not have right to terminate b. Irrevocable Power Coupled with Interest; Exception c. Fixed Term Principal almost always has power to end relationship. May not always have the legal right. d. No Fixed Term Either party may end relationship; both legal power and legal right. i. Exceptions ii. Employer Contract iii. Damages/Costs iv. Interest v. Agency & Employment Laws Converge 5. Termination By Operation of Law Timing Issue a. Death of Principal b. Incapacity of Principal Durable Power of Attorney NOTE: Brief Incapacity DOES NOT Terminate Agency

6.

7.

8.

9.

c. Principal Declares Bankruptcy d. War Declared Very RARE Effect on 3rd Persons Lingering Apparent Authority a. Must notify 3rd Parties of end of Agency relationship b. Public and Direct Notice(s) i. Newspaper ii. Mailings Employment Contracts a. Strict Employer/Employee Relationship b. Contract Theory Analysis c. Implied Duty of Good Faith and Dealing d. Power to Terminate; Subject to Liability e. Tort Action i. Wrongful Discharge; Possible Remedy ii. Whistleblower Discharge Quantum Merit Century Supply Co. Case a. Value of Payment of Expenses b. Fair or Just Compensation c. Reasonable Compensation OR Reasonable Opportunity to Avail. Notice a. Inform all known clients and customers b. Advertise in newspapers

Partnership Law Background 1. Nature 2. Compared with Other Businesses 3. Aggregate v. Entity Theories a. Taxation Aggregate Theory Partnership is NOT an entity b. RUPA Partnership is an Entity 4. General v. Limited Partnerships 5. Uniform Partnership Act v. Revised UPA Mandatory on P/S v. Gap Filling, Unless otherwise agreed to Creation 1. 2. 3. 4.

Formal v. Informal Intentional v. Unintentional Early Approach Today Whether certain parties should be considered partners; See Ungrateful Brother case. a. Profit-Sharing Litmus Test - Sharing of Net Income (Gross Expenses) Creates Rebuttable Presumption of Partner Status b. Sharing Management/Control c. Joint Ownership d. Other Indicia

e.

Partner v. Creditor/Employee/Supplier/Manager

Property Rights & Creditors Rights Property Rights 1. Partnership Property v. Partners Property a. Importance b. Intention i. Funds ii. Use iii. Title iv. Expenses 2. Specific Partnership Property a. Co-Owners Co-Tenancy Aggregate Theory - Undivided Interest in Property b. Possessory c. Equal Use d. UPA Partners own Property e. RUPA Partnership owns Property 3. Entity Theory Right to Possess and Use Property a. Not Assignable b. Not Attachable c. Can only transfer interest in P/S, not assets of P/S 4. Interest in Partnership UPA & RUPA Interest Only a. Economic b. Profits & Surplus 5. Rules a. Bought Into b. Acquired with Partnership Funds c. Intent of the Parties Guiding Light 6. Factors a. How was Property Purchased? b. Accounting/Books Listed as Asset? c. Taxes Paid d. Funds Used to Operate and Maintain e. Use and Possession Partnership Creditors 1. Partnership Assets 2. Partners Assets 3. Majority Rule - Can go after personal property (individual assets) to receive credit. 4. Minority Rule & RUPA Individual assets only AFTER partnership assets exhausted. Partners Creditors 1. Partners Assets

2. Aggregate Theory Can go after Partnership Property 3. UPA Cant go after Partnership Property 4. UPA Compromise Partnerships Assets a. Assignment of Interest b. Charging Order 5. RUPA Generally Follows UPA Secured creditor can pull P/S assets out of bankruptcy proceeding, sell assets, and recoup monies owed. Courts have wide discretion with Charging Orders.

Dissolution & Termination UPA Any change in relation of partners. 1. Shows Vulnerability of Partnerships 2. Aggregate Theory 3. Impacts Continuted Operation of Business Process 1. Dissolution P/S Continues (On Exam) 2. Winding Up P/S Liquidates (Not on Exam) 3. Terminated Dissolution 1. Meaning 2. Grounds for Proper v. Wrongful a. Term Time Period b. Undertaking Goal Achieved c. Express will with no definite term d. Unlawful Event e. Death/Bankruptcy f. Court Decree i. Incapacity ii. Guilty of Conduct Prejudicing iii. Breach of Partnership iv. Partnership only Losing Money 3. Consequences a. Continuation Agreements

Other Class Notes

Agency Elements

1. Behalf of 2. Control 3. Consent Matter of 1. Degree 2. Judgment 3. Emphasis Marriage doesnt create Agency relationship Licensee v. Agent Corporations Officers are Agents Boards of Directors are not Agents Parent/Subsidiary 2 Arguments, use BOTH 1. Mere Instrumentality Pierce the Corporate veil. 2. Agency where subsidiary acting on corporations behalf. Indemnification does not apply to independent contractors. Tort Law Unholy Trio of Defenses 1. Fellow-Servant Rule Principal not responsible for actions of servants. 2. Contributory Negligence 3. Assumption of Risk Competition Agreement Public Policy 1. Competition 2. Freedom to Contract Stealing v. Clients Choice to Follow Numerous Grey Areas SC Must demonstrate valuable information that can be protected.

Law Firms 1. If you leave firm and clients go after your departure, OK 2. Law firms cannot require restriction agreements Acceptable Clauses Must protect legitimate business interests 1. Customer Lists 2. Property Interests

3. Reasonableness: Time and Space Joint Enterprise No Ongoing Relationship Common Purpose Mutual Right of Control Usually Not Work-Related Usually group of individuals involved in common purpose Libby v. Perry Active Participants Liable Non-Active Participants not Liable C/L Associations not liable Old Rule: Each party responsible for others actions. New Rule: Not responsible for others actions. Business or Non-Business Coming & Going Rule Old Rule If employee injures someone while traveling to/from work, no liability Exception If boss tells you to pick something up on way to/from work Exception Vehicle required for work. Scope of Employment. Future Rule may change Written Power of Attorney (King v. Bankerd) Actual, Express Authority Did Attorney act without authority? Breach of Trust Exceeding Authority CT Looks beyond POA and reviews letter showing no interest in disposing of property.

Agency/Partnership Spring 2000 Professor Raymond J. Wyrsch Exam Notes by Christopher S. Lee
I. Scope of Employment a. An agent is only authorized to employ those means for the purpose usual to the business. The purchaser cannot safely assume that the agent has authority to make extraordinary guaranty or warranty. b. A principal cannot be bound by the unauthorized acts of an agent. c. The owner of a car is not liable for injuries caused by the negligence of an agent unless the agent was engaged in the owners business and acting within the scope of employment.

d. A bookkeeper is not considered to have implied authority to use a car as a traveling salesman. e. The acts of the employee must be authorized to assign liability to the principal. Unauthorized acts do not impute liability on a principal. II. Smoking/Scope of Employment a. The act of smoking is a matter purely personal to the servant. b. The master is not liable for damage caused by a servants smoking when temporarily off duty, or not in the general course of employment. c. Some cases hold a master liable if smoking creates an unreasonable danger to a 3rd persons property. d. Negligence can be imputed to the bailee if damage is caused. e. Negligence can be imputed to the master if the servant has a propensity to smoke ratification of a servants habit. Scope of Employment/Vicarious Liability a. Reasonable for the Jury to believe. b. Was the deviation substantial enough to constitute an abandonment of employment? c. Resumption of duties = Doing Employers business. d. Accidents occurring within the normal spatial bounds of employment are considered vicarious liability. e. Examine the specific times set for scope of employment. f. Examine the specific acts set for scope of employment. g. An employer does not have the duty to supervise an employee whose actions are outside the scope of employment. h. In furtherance of the principals interest. Trade Secrets a. There is an implied contract between an employer and employee that after the service, use of information gained while in service will not be used to the detriment of the former employer. b. Fraud - See Hydro Level v. American Society of Mech. Engineers Contract a. Expressed intention of the parties. b. Consideration of words and acts. c. Silence by Principal indicates acceptance. d. Agency v. Contract i. School is considered a contractual relationship. ii. Students buy education. Not master/servant. Undisclosed Principal a. Authority and Permission. b. If an agent fails to disclose a principal, the 3rd party may hold the principal liable.

III.

IV.

V.

VI.

VII.

Apparent Authority Franchises, Dealership Cases Texaco a. See Crinkley v. Holiday Inn Case - Appearance b. Arises when agent is placed in a position that a person of ordinary prudence believes the agent is authorized. c. The principal is liable for the acts of an agent and apparent agent for breach of warranty. d. Apparent authority can be created through words or conduct leading the 3rdperson to reasonably believe the principal consents to the actions. Agency Termination a. Requires proper notice. b. Contrast agency with supplier relationship. c. Fixed commissions indicate agency relationship. d. Allows Principal to end potential for liability. Ambiguous Principal a. See Clapp Mall Case b. See Cargill and Simpson Cases Creditor/Debtor v. Agency Relationship c. See Norby Insurance Coverage d. See Ripani Actual Authority over loan Associations a. Associations cannot create Agency relationship. Individual must be liable. b. See Libby Case c. See Oregon Telephone note case Independent Contractor v. Employee a. Independent Contractor v. Servant. b. Control of actions. c. Scope of employment. d. Time, actions. e. Payment and withholding. f. Borrowed Servant i. Principal is not responsible for actions of a borrowed servant. ii. The masters responsibilities cannot extend beyond the limits of the masters work. Agents Duty a. Loyalty b. Disclosure of agency and identity of principal. Ratification a. Express or inferred. b. Occurs when principal has knowledge of material facts of unauthorized transactions, and fails to disaffirm.

VIII.

IX.

X.

XI.

XII.

XIII.

c.

Equivalent to an original authorization and confirms what was originally unauthorized. d. Actions must be in furtherance of employment. e. Employer must ratify employees actions. f. Agent ratifying contract without agreement or authority from principal will be bound. XIV. Workers Compensation a. Must be made by entitled party, or legal agent, not by volunteer. b. Ratification validating unauthorized act authorizes transaction. c. Claim filed on widows behalf, without authority, is invalid. d. Principal must give authority to agent to ratify act. Partnership Formation a. Not limited to agreement to share profits. b. Consider ownership of title, real and personal assets. Partnership Property a. Consider Use of Property. b. Consider Intent of Partners use of property. c. Was the property acquired with the intent of use by the partnership?

XV.

XVI.

XVII. Existence of a Partnership a. Nature and contribution of each of the parties. b. Share of the profits indicates partner status. c. Wages of employee, rent to landlord is not considered partner status. d. Degree of management of the enterprise. e. Sharing of both profits and losses. f. In termination, each partner should be repaid contributions, allocated by interest in the partnership. XVIII. Partnership a. Contrasted to Joint Venture See sharing of profits, management. b. Contrast partnership assets v. activities. c. Where the property is kept for a partnership, no single partner can sell the property. d. One partner cannot bind the partnership to a contract unless it is within the scope of the partnership dealings, or falls within the ordinary business transactions of the partnership. e. One partner is presumed to act for all other partners if it is a decision within the scope of the business of the partnership. f. One partner cannot benefit at the expensive of the partnership. XIX. See Also Cases a. Senor v. Bangor Mills Grey area case b. Coker Apartment conversion liability case.