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Agency & Partnership Professor Donald J. Kochan Class 3.

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Presentation on theme: "Agency & Partnership Professor Donald J. Kochan Class 3."— Presentation transcript:

1 Agency & Partnership Professor Donald J. Kochan Class 3

2 Todays Readings Pages xxxiii-21 Pages xxxiii-21 Glossary Glossary Further Introduction Further Introduction The Agency Relationship The Agency Relationship

3 General Overview of Course Materials This Course covers the fundamentals of the law of business organizations other than corporations. Topics covered will include: a. the agency relation; a. the agency relation; b. rights and duties between principal and agent; b. rights and duties between principal and 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;

4 General Overview of Course Materials (cont.) This Course covers the fundamentals of the law of business organizations other than corporations. Topics covered will include: h. the doctrine of ratification; h. the doctrine of ratification; i. notice, notification, and imputed knowledge of agency relationship; i. notice, notification, and imputed knowledge of 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.

5 Glossary Be sure to read it in full; these definitions will play an important role in your study throughout the course Be sure to read it in full; these definitions will play an important role in your study throughout the course Note, in particular, the relationships between "agent," "employee," and "independent contractor." Note, in particular, the relationships between "agent," "employee," and "independent contractor."

6 Four Major Concerns of Unincorporated Businesses 1. Right to manage; 1. Right to manage; 2. Avoiding personal liability; 2. Avoiding personal liability; 3. Tax treatment; and 3. Tax treatment; and 4. Right to cash out. 4. Right to cash out.

7 Introduction to Partnership UPA §6 & RUPA § 101(4) define "partnership" as (basically) an association of two or more persons to carry on, as co- owners, a business for profit. UPA §6 & RUPA § 101(4) define "partnership" as (basically) an association of two or more persons to carry on, as co- owners, a business for profit. 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 more general concern. e. For "profit" implies just that--contrast with agency's more general concern.

8 Introduction to Partnership (cont.) Prima facie proof of partnership: receipt of profits of a business. This is rebuttable in certain circumstances, however, such as wages, rent, or repayment of a loan, Prima facie proof of partnership: receipt of profits of a business. This is rebuttable in certain circumstances, however, such as wages, rent, or repayment of a loan, UPA in all states except Louisiana and the 6 states (as of last count) that repealed UPA when they adopted the RUPA. This makes the UPA one of the few really uniform "uniform" acts. UPA in all states except Louisiana and the 6 states (as of last count) that repealed UPA when they adopted the RUPA. This makes the UPA one of the few really uniform "uniform" acts. But note that 6 other states, including CA, adopted RUPA without repealing UPA. But note that 6 other states, including CA, adopted RUPA without repealing UPA. See Chaps See Chaps

9 Introduction to Limited Partnerships Every state but Louisiana has adopted the Revised Uniform Limited Partnership Act in its original, 1976 form, or as amended in Most states treat the RULPA more like a model act than a uniform one, though, and they tend to make substantial amendments that result in considerable variation. Every state but Louisiana has adopted the Revised Uniform Limited Partnership Act in its original, 1976 form, or as amended in Most states treat the RULPA more like a model act than a uniform one, though, and they tend to make substantial amendments that result in considerable variation.

10 Introduction to Limited Partnerships (cont.) Generally speaking, an LP: Generally speaking, an LP: a. provides freedom from personal liability (like corporation and LLC, but unlike general pship) but only so long as partner does not manage the business (unlike LLC); a. provides freedom from personal liability (like corporation and LLC, but unlike general pship) but only so long as partner does not manage the business (unlike LLC); b. pass-through tax benefits--no double taxation (like general pship and LLC, and unlike corp.); b. pass-through tax benefits--no double taxation (like general pship and LLC, and unlike corp.); c. option of combination of control and ownership (like general pship and LLC, but unlike corporation) if assume liability (unlike LLC); but c. option of combination of control and ownership (like general pship and LLC, but unlike corporation) if assume liability (unlike LLC); but d. documents have to be prepared and filed with state authorities (like corporation and LLC, unlike general partnership). d. documents have to be prepared and filed with state authorities (like corporation and LLC, unlike general partnership). See Chap. 14. See Chap. 14.

11 Introduction to Limited Liability Companies Created by Wyoming in '77, now adopted by every other state, too. But allowed structures vary widely. The uniform LLC Act (1996) has not been adopted very widely (not by California, notably). Created by Wyoming in '77, now adopted by every other state, too. But allowed structures vary widely. The uniform LLC Act (1996) has not been adopted very widely (not by California, notably). Generally speaking: Generally speaking: a. provides freedom from personal liability (like corporation and limited pship, but unlike general pship) regardless of managerial status (unlike limited pship); a. provides freedom from personal liability (like corporation and limited pship, but unlike general pship) regardless of managerial status (unlike limited pship); b. pass-through tax benefits--no double taxation (like partnership); b. pass-through tax benefits--no double taxation (like partnership); c. option of combination of control and ownership (like general pship and limited pship, but not like corporation) without creation of personal liability (unlike pship); but c. option of combination of control and ownership (like general pship and limited pship, but not like corporation) without creation of personal liability (unlike pship); but d. documents have to be prepared and filed with state authorities (like corporation and limited pship, not like general partnership). d. documents have to be prepared and filed with state authorities (like corporation and limited pship, not like general partnership). See Chap. 11. See Chap. 11.

12 Introduction to the Agency Relationship Agency Agency Restatement of the Law of Agency, 3rd (1996) defines agency in § 1.01): Agency is the fiduciary relation that arises when one person (a "principal") manifests assent to another person (an "agent") that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents to so act. Restatement of the Law of Agency, 3rd (1996) defines agency in § 1.01): Agency is the fiduciary relation that arises when one person (a "principal") manifests assent to another person (an "agent") that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents to so act.

13 Introduction to the Agency Relationship – On Behalf Of On behalf of: Means what it says: On behalf of: Means what it says: a. In other words, the agent acts primarily for the principal's benefit. a. In other words, the agent acts primarily for the principal's benefit. b. It does not invalidate the A/P relation that the agent might receive remuneration. b. It does not invalidate the A/P relation that the agent might receive remuneration. c. This is what makes the A/P relation a fiduciary one. See Restatement § 13, comment a, quoted at text p. 16, n. : a fiduciary is "a person having a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with his undertaking." c. This is what makes the A/P relation a fiduciary one. See Restatement § 13, comment a, quoted at text p. 16, n. : a fiduciary is "a person having a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with his undertaking."

14 Introduction to the Agency Relationship – Control, Consent, and Proof Control: Means what it says. Think of it in terms of subservience. Control: Means what it says. Think of it in terms of subservience. Consent: Implied or express. It can exist even when the parties don't realize it. Consent: Implied or express. It can exist even when the parties don't realize it. Proof of Agency Proof of Agency 1. Ordinarily a question of fact, but if the facts or not in dispute the court may decide it as a question of law. 1. Ordinarily a question of fact, but if the facts or not in dispute the court may decide it as a question of law. 2. The party asserting the relationship bears the burden of proof. 2. The party asserting the relationship bears the burden of proof.

15 Hypos on Page landlord tenant setting: No agency. No consent by landlord. Landlord-tenant relationship not normally fiduciary and interests often conflict. 1. landlord tenant setting: No agency. No consent by landlord. Landlord-tenant relationship not normally fiduciary and interests often conflict. 2. interpreter's mistake: Agency. Consent exists; T's reliance on A's apparent authority is justified. 2. interpreter's mistake: Agency. Consent exists; T's reliance on A's apparent authority is justified. 3. forgetful husband: No agency. May be fiduciary relationship, but no consent that one spouse acts on behalf of and under control of other. Thus, no actual or apparent authorization to receive notice relating to separate business. 3. forgetful husband: No agency. May be fiduciary relationship, but no consent that one spouse acts on behalf of and under control of other. Thus, no actual or apparent authorization to receive notice relating to separate business. 4. Nail-stealing neighbor: Agency. Consent, behalf of, and control elements all exist. NB: A decided to steal the nails only after charging the nails to P's account. If had entered the relationship with intent to appropriate fruits of contract for herself, she would have had no authority to act for P or represent to third party that she does. See Chap Nail-stealing neighbor: Agency. Consent, behalf of, and control elements all exist. NB: A decided to steal the nails only after charging the nails to P's account. If had entered the relationship with intent to appropriate fruits of contract for herself, she would have had no authority to act for P or represent to third party that she does. See Chap. 4.

16 Carrier v. McLarkey Installment of water heater case and return of old water heater for credit Installment of water heater case and return of old water heater for credit Whether an agency agreement has been created is a question of fact. -- Key point that facts matter to (a) decide if the relationship exists, then (b) must determine if there is a breach Whether an agency agreement has been created is a question of fact. -- Key point that facts matter to (a) decide if the relationship exists, then (b) must determine if there is a breach Level of diligence by agent issues Level of diligence by agent issues Promise to act as an agent and reasonable efforts issues Promise to act as an agent and reasonable efforts issues The "behalf of" element is at issue, here. The plumber did act on Carrier's behalf, but was found to not be in breach. The "behalf of" element is at issue, here. The plumber did act on Carrier's behalf, but was found to not be in breach.

17 Violette v. Shoup Financial planner and investment case Financial planner and investment case This shows limits of Carrier doctrine; merely doing a favor will not suffice to make one act "on behalf of" another. How do you distinguish it from This shows limits of Carrier doctrine; merely doing a favor will not suffice to make one act "on behalf of" another. How do you distinguish it from A person does not become the agent of another simply by offering help or making a suggestion. A person does not become the agent of another simply by offering help or making a suggestion. Control, control, control – THE key issue Control, control, control – THE key issue

18 M.D. & Assoc. V. Sears Control and Authority Key Control and Authority Key Landlord/Tenant Extension of Lease Case/Notice and Exercise of Option Case/Picking up mail case Landlord/Tenant Extension of Lease Case/Notice and Exercise of Option Case/Picking up mail case The existence of agency and the authority of an agent can be implied by proof of facts, circumstances, words, acts, and the conduct of the party to be charged with agency. The prior conduct of the parties is a factor to be taken into account... The existence of agency and the authority of an agent can be implied by proof of facts, circumstances, words, acts, and the conduct of the party to be charged with agency. The prior conduct of the parties is a factor to be taken into account... 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 the difference? She worked on behalf of McLane, not Hogg. 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 the difference? She worked on behalf of McLane, not Hogg. This case stands for the proposition that agency relation can be implied by conduct. "The key to authority implied from course of conduct is the knowing acquiescence of the principal in the past acts." P. 15. This case stands for the proposition that agency relation can be implied by conduct. "The key to authority implied from course of conduct is the knowing acquiescence of the principal in the past acts." P. 15.

19 Why is Consent to the Agency Relationship Important? Binding the Principal Issues Binding the Principal Issues Relationship to Control Relationship to Control Relationship to Authority Relationship to Authority Liability Issues Related to Consent Liability Issues Related to Consent

20 Restatement (Third) of Agency section 1.01 Agency is the fiduciary relationship that arises when one person (a principal) manifests assent to another person (an agent) that the agent shall act on the principals behalf and subject to the principals control, and the agent manifests assent or otherwise consents so to act. Analyze all the elements of this description

21 Concluding Remarks Understand the basics Understand the basics Realize the fact-specific nature Realize the fact-specific nature Always remember to define whether there is an agency relationship, whether it was fulfilled, whether there is a breach, whether there are liability issues between the agent and principal, and whether there are liability issues between the agent and third parties and whether there are liabilities between the principal and third parties as a result of the activities of an agent Always remember to define whether there is an agency relationship, whether it was fulfilled, whether there is a breach, whether there are liability issues between the agent and principal, and whether there are liability issues between the agent and third parties and whether there are liabilities between the principal and third parties as a result of the activities of an agent Put a star in your notes to revisit and be able to distinguish between these issues between an agency relationship and a partnership relationship. Put a star in your notes to revisit and be able to distinguish between these issues between an agency relationship and a partnership relationship.


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