Agency & PartnershipAgency & PartnershipProfessor Donald J. KochanProfessor Donald J. Kochan

Class 3Class 3

Today’s ReadingsToday’s Readings

Pages xxxiii-21Pages xxxiii-21 GlossaryGlossary

Further IntroductionFurther Introduction The Agency RelationshipThe Agency Relationship

General Overview of General Overview of Course MaterialsCourse Materials

This Course covers the fundamentals of the This Course covers the fundamentals of the law of business organizations law of business organizations otherother than than

corporationscorporations. Topics covered will include:. Topics covered will include:

a. the agency relation;a. the agency relation; b. rights and duties between principal and b. rights and duties between principal and

agent;agent; c. vicarious tort liability;c. vicarious tort liability;

d. contractual powers of agents;d. contractual powers of agents; e. fraudulent acts of agents;e. fraudulent acts of agents; f. the undisclosed principal;f. the undisclosed principal;

g. liability of the agent to third persons;g. liability of the agent to third persons;

General Overview of General Overview of Course Materials (cont.)Course Materials (cont.)

This Course covers the fundamentals of the This Course covers the fundamentals of the law of law of business organizations business organizations otherother than corporations than corporations. .

Topics covered will include:Topics covered will include:

h. the doctrine of ratification;h. the doctrine of ratification; i. notice, notification, and imputed knowledge of i. notice, notification, and imputed knowledge of

agency relationship;agency relationship; j. termination of the agency relationship;j. termination of the agency relationship;

k. the creation of a partnership;k. the creation of a partnership; l. the operation of a partnership;l. the operation of a partnership; m. dissociation and dissolution;m. dissociation and dissolution;

n. the limited partnership;n. the limited partnership; o. and the limited liability company.o. and the limited liability company.

GlossaryGlossary

Be sure to read it in full; these Be sure to read it in full; these definitions will play an important definitions will play an important

role in your study throughout role in your study throughout the coursethe course

Note, in particular, the relationships Note, in particular, the relationships between "agent," "employee," and between "agent," "employee," and

"independent contractor.""independent contractor."

Four Major Concerns of Four Major Concerns of Unincorporated BusinessesUnincorporated Businesses

1. Right to manage;1. Right to manage;

2. Avoiding personal liability;2. Avoiding personal liability;

3. Tax treatment; and3. Tax treatment; and

4. Right to cash out.4. Right to cash out.

Introduction to PartnershipIntroduction to Partnership

UPA §6 & RUPA § 101(4) define "partnership" as UPA §6 & RUPA § 101(4) define "partnership" as (basically) an (basically) an associationassociation of two or more of two or more personspersons to to

carry on, as carry on, as co-owners, a businessco-owners, a business for for profitprofit..

a. "Association" implies consent, express or implied.a. "Association" implies consent, express or implied.

b. "Person" includes corporations and other partnerships.b. "Person" includes corporations and other partnerships.

c. "Co-owners" implies control--not capital.c. "Co-owners" implies control--not capital.

d. "A business" implies almost any purposive organization.d. "A business" implies almost any purposive organization.

e. For "profit" implies just that--contrast with agency's e. For "profit" implies just that--contrast with agency's more general concern.more general concern.

Introduction to Partnership (cont.)Introduction to Partnership (cont.)

Prima facie proofPrima facie proof of partnership: receipt of profits of partnership: receipt of profits of a business. This is rebuttable in certain of a business. This is rebuttable in certain

circumstances, however, such as wages, rent, or circumstances, however, such as wages, rent, or repayment of a loan, repayment of a loan,

UPA in all states except Louisiana and the 6 states UPA in all states except Louisiana and the 6 states (as of last count) that repealed UPA when they (as of last count) that repealed UPA when they

adopted the RUPA. This makes the UPA one of the adopted the RUPA. This makes the UPA one of the few really uniform "uniform" acts.few really uniform "uniform" acts.

But note that 6 other states, including CA, adopted But note that 6 other states, including CA, adopted RUPA without repealing UPA.RUPA without repealing UPA.

See Chaps. 11-13.See Chaps. 11-13.

Introduction to Limited PartnershipsIntroduction to Limited Partnerships

Every state but Louisiana has Every state but Louisiana has adopted the Revised Uniform Limited adopted the Revised Uniform Limited Partnership Act in its original, 1976 Partnership Act in its original, 1976 form, or as amended in 1985. Most form, or as amended in 1985. Most states treat the RULPA more like a states treat the RULPA more like a

model act than a uniform one, model act than a uniform one, though, and though, and they tend to make they tend to make

substantial amendments that result substantial amendments that result in considerable variationin considerable variation..

Introduction to Limited Partnerships Introduction to Limited Partnerships (cont.)(cont.)

Generally speaking, an LP:Generally speaking, an LP:

a. provides freedom from personal liability (like corporation and a. provides freedom from personal liability (like corporation and LLC, but unlike general pship) but LLC, but unlike general pship) but onlyonly so long as partner does not so long as partner does not

manage the business (unlike LLC);manage the business (unlike LLC);

b. pass-through tax benefits--no double taxation (like general pship b. pass-through tax benefits--no double taxation (like general pship and LLC, and unlike corp.);and LLC, and unlike corp.);

c. option of combination of control and ownership (like general c. option of combination of control and ownership (like general pship and LLC, but unlike corporation) if assume liability (unlike pship and LLC, but unlike corporation) if assume liability (unlike

LLC); LLC); butbut

d. documents have to be prepared and filed with state authorities d. documents have to be prepared and filed with state authorities (like corporation and LLC, unlike general partnership).(like corporation and LLC, unlike general partnership).

See Chap. 14.See Chap. 14.

Introduction to Limited Liability Introduction to Limited Liability CompaniesCompanies

Created by Wyoming in '77, now adopted by every other state, too. Created by Wyoming in '77, now adopted by every other state, too. But But allowed structures vary widelyallowed structures vary widely. The uniform LLC Act (1996) has . The uniform LLC Act (1996) has

not been adopted very widely (not by California, notably).not been adopted very widely (not by California, notably).

Generally speaking:Generally speaking: a. provides freedom from personal liability (like corporation and a. provides freedom from personal liability (like corporation and

limited pship, but unlike general pship) limited pship, but unlike general pship) regardless of managerial regardless of managerial statusstatus (unlike limited pship); (unlike limited pship);

b. pass-through tax benefits--no double taxation (like b. pass-through tax benefits--no double taxation (like partnership);partnership);

c. option of combination of control and ownership (like general c. option of combination of control and ownership (like general pship and limited pship, but not like corporation) pship and limited pship, but not like corporation) withoutwithout creation creation

of personal liability (unlike pship); of personal liability (unlike pship); butbut d. documents have to be prepared and filed with state authorities d. documents have to be prepared and filed with state authorities

(like corporation and limited pship, not like general partnership).(like corporation and limited pship, not like general partnership).

See Chap. 11.See Chap. 11.

Introduction to the Introduction to the Agency RelationshipAgency Relationship

AgencyAgency Restatement of the Law of Agency, Restatement of the Law of Agency, 3rd (1996) defines agency in § 1.01): 3rd (1996) defines agency in § 1.01): Agency is the fiduciary relation that Agency is the fiduciary relation that

arises when one person (a "principal") arises when one person (a "principal") manifests assent to another person manifests assent to another person (an "agent") that the agent shall act (an "agent") that the agent shall act on the principal's behalf and subject on the principal's behalf and subject

to the principal's control, and the to the principal's control, and the agent manifests assent or otherwise agent manifests assent or otherwise

consents to so act.consents to so act.

Introduction to the Introduction to the Agency Relationship – Agency Relationship –

“On Behalf Of”“On Behalf Of”

On behalf ofOn behalf of: Means what it says:: Means what it says:

a. In other words, the agent acts a. In other words, the agent acts primarilyprimarily for the for the principal's benefit.principal's benefit.

b. It does not invalidate the A/P relation that the agent b. It does not invalidate the A/P relation that the agent might receive remuneration.might receive remuneration.

c. This is what makes the A/P relation a fiduciary one. c. This is what makes the A/P relation a fiduciary one. See Restatement § 13, comment a, quoted at text p. 16, See Restatement § 13, comment a, quoted at text p. 16, n. †: a n. †: a fiduciaryfiduciary is "a person having a duty, created by is "a person having a duty, created by

his undertaking, to act primarily for the benefit of his undertaking, to act primarily for the benefit of another in matters connected with his undertaking."another in matters connected with his undertaking."

Introduction to the Introduction to the Agency Relationship – Agency Relationship –

Control, Consent, and ProofControl, Consent, and Proof

ControlControl: Means what it says. Think of it in terms of : Means what it says. Think of it in terms of subservience.subservience.

ConsentConsent: Implied or express. It can exist even when : Implied or express. It can exist even when the parties don't realize it.the parties don't realize it.

Proof of AgencyProof of Agency 1. Ordinarily a 1. Ordinarily a question of factquestion of fact, but if the facts or not , but if the facts or not

in dispute the court may decide it as a in dispute the court may decide it as a question of question of lawlaw..

2. The party asserting the relationship bears the 2. The party asserting the relationship bears the burden of proof.burden of proof.

Hypos on Page 11Hypos on Page 11 1. 1. landlord tenantlandlord tenant setting: No agency. No consent by landlord. setting: No agency. No consent by landlord.

Landlord-tenant relationship not normally fiduciary and interests Landlord-tenant relationship not normally fiduciary and interests often conflict.often conflict.

2. 2. interpreter's mistakeinterpreter's mistake: Agency. Consent exists; T's reliance on : Agency. Consent exists; T's reliance on A's apparent authority is justified.A's apparent authority is justified.

3. 3. forgetful husbandforgetful husband: No agency. May be fiduciary relationship, : No agency. May be fiduciary relationship, but no consent that one spouse acts on behalf of and under but no consent that one spouse acts on behalf of and under

control of other. Thus, no actual or apparent authorization to control of other. Thus, no actual or apparent authorization to receive notice relating to separate business.receive notice relating to separate business.

4. 4. Nail-stealing neighborNail-stealing neighbor: Agency. Consent, behalf of, and : Agency. Consent, behalf of, and control elements all exist. NB: A decided to steal the nails only control elements all exist. NB: A decided to steal the nails only

afterafter charging the nails to P's account. If had entered the charging the nails to P's account. If had entered the relationship with intent to appropriate fruits of contract for relationship with intent to appropriate fruits of contract for

herself, she would have had no authority to act for P or represent herself, she would have had no authority to act for P or represent to third party that she does. See Chap. 4.to third party that she does. See Chap. 4.

Carrier v. McLarkeyCarrier v. McLarkey

Installment of water heater case and return of old water Installment of water heater case and return of old water heater for creditheater for credit

““Whether an agency agreement has been created is a Whether an agency agreement has been created is a question of fact.” -- Key point that facts matter to (a) question of fact.” -- Key point that facts matter to (a) decide if the relationship exists, then (b) must determine if decide if the relationship exists, then (b) must determine if there is a breachthere is a breach

Level of diligence by agent issuesLevel of diligence by agent issues

Promise to act as an agent and “reasonable efforts” issuesPromise to act as an agent and “reasonable efforts” issues

The "behalf of" element is at issue, here. The plumber did The "behalf of" element is at issue, here. The plumber did act on Carrier's behalf, but was found to not be in breach.act on Carrier's behalf, but was found to not be in breach.

Violette v. ShoupViolette v. Shoup Financial planner and investment caseFinancial planner and investment case

This shows limits of This shows limits of CarrierCarrier doctrine; merely doing doctrine; merely doing a favor will not suffice to make one act "on behalf a favor will not suffice to make one act "on behalf

of" another. How do you distinguish it from of" another. How do you distinguish it from

““A person does not become the agent of another A person does not become the agent of another simply by offering help or making a suggestion.”simply by offering help or making a suggestion.”

Control, control, control – THE key issueControl, control, control – THE key issue

M.D. & Assoc. V. SearsM.D. & Assoc. V. Sears

Control and Authority KeyControl and Authority Key

Landlord/Tenant Extension of Lease Case/Notice and Exercise of Landlord/Tenant Extension of Lease Case/Notice and Exercise of Option Case/Picking up mail caseOption Case/Picking up mail case

““The existence of agency and the authority of an agent can be The existence of agency and the authority of an agent can be implied by proof of facts, circumstances, words, acts, and the conduct implied by proof of facts, circumstances, words, acts, and the conduct

of the party to be charged with agency. The prior conduct of the of the party to be charged with agency. The prior conduct of the parties is a factor to be taken into account . . .” parties is a factor to be taken into account . . .”

Note that Paula Fraley was not really Hogg's agent; they were more Note that Paula Fraley was not really Hogg's agent; they were more like co-agents of Dr. McLane, their principal and employer. What is like co-agents of Dr. McLane, their principal and employer. What is

the difference? She worked on behalf of McLane, not Hogg.the difference? She worked on behalf of McLane, not Hogg.

This case stands for the proposition that agency relation can be This case stands for the proposition that agency relation can be implied by conduct. implied by conduct. "The key to authority implied from course of "The key to authority implied from course of conduct is the knowing acquiescence of the principal in the past conduct is the knowing acquiescence of the principal in the past

acts."acts." P. 15. P. 15.

Why is Consent to the Agency Why is Consent to the Agency Relationship Important?Relationship Important?

Binding the Principal IssuesBinding the Principal Issues

Relationship to ControlRelationship to Control

Relationship to AuthorityRelationship to Authority

Liability Issues Related to ConsentLiability Issues Related to Consent

Restatement (Third) of AgencyRestatement (Third) of Agencysection 1.01section 1.01

““Agency is the fiduciary relationship that Agency is the fiduciary relationship that arises when one person (a ‘principal’) arises when one person (a ‘principal’)

manifests assent to another person (an manifests assent to another person (an ‘agent’) that the agent shall act on the ‘agent’) that the agent shall act on the

principal’s behalf and subject to the principal’s behalf and subject to the principal’s control, and the agent manifests principal’s control, and the agent manifests

assent or otherwise consents so to act.”assent or otherwise consents so to act.”

Analyze all the elements of this descriptionAnalyze all the elements of this description

Concluding RemarksConcluding Remarks Understand the basicsUnderstand the basics

Realize the fact-specific natureRealize the fact-specific nature

Always remember to define whether there is an agency Always remember to define whether there is an agency relationship, whether it was fulfilled, whether there is a relationship, whether it was fulfilled, whether there is a breach, whether there are liability issues between the breach, whether there are liability issues between the

agent and principal, and whether there are liability agent and principal, and whether there are liability issues between the agent and third parties and issues between the agent and third parties and

whether there are liabilities between the principal and whether there are liabilities between the principal and third parties as a result of the activities of an agentthird parties as a result of the activities of an agent

Put a star in your notes to revisit and be able to Put a star in your notes to revisit and be able to distinguish between these issues between an agency distinguish between these issues between an agency

relationship and a partnership relationship.relationship and a partnership relationship.