Agency and Partnership
Prof. Ricks
Exam: essay and short answers—open book
Jan. 17. 2001
AGENCY AUTHORITY:
I.
Introduction: notes and problems—pg. 4.
A. Fictitious name: needed for more customers and better marketing. Pay a fee
for the name, thus no other corporation can have the same name.
B. If I am a plumber and own a company, can the tort victim have a recourse
against the individual, yes, because the sole proprietorship is fictitious. Sole
proprietor can be held liable so that is why we have entites, to make it harder
to recover against the individual.
C. Borrow the money or equity participation cannot be given by a sole
proprietorship because that makes the person putting in the money a partner.
II.
The Types of Firms:
A.
Sole Proprietorships: is a business owned by a single individual. While
that individual may hire employees or other agents to assist him or her in
conducting business operations, the proprietor is the sole owner of the
business.
1. The business has no legal existence independent of the proprietor.
There is no entity which can sue or be sued or which can shield the
proprietor from personal liability for debts arising out of the business.
2. A sole proprietorship will be subject to general state laws and
regulations such as those governing the operation of the business under
a fictitious name and those requiring licenses and permits for the
operation of certain types of business. It will also be governed by
general principles of agency and employment law whenever the sole
proprietor hires agents or employees to assist with buisness operations.
3. The proprietor has sole control over the business and all decisions
relating to the operations unless that control has been delegated to
agents. All debts of the business are also debts of the proprietor, and
in fact, business assets can be seized to pay for personal debts of the
proprietor.
4. Becausee the business has no separate legal existence, the proprietor
will be able to use the business assets for personal purposes and
personal assets to meet business obligations. There is no need to
segregate the assets or income. All earnings or losses are attributed or
taxed directly to the proprietor.
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5. A sole proprietorship as no separate tax status. It is just treated as an
extention of the owner. The owner is required to report all items of
income and expense on his or her personal income tax return.
6. There is a separate schedule on which to calculate profit and losses
from a business, but there is no separate tax on income earned from
such an enterprise. The income is added to any other taxable income
of the owner.
7. If there is a loss from the business, such loss can generally be deducted
from other taxable income earned by the owner.
III.
Formation of Agency Relationship:
A.
Generally:
1. Rest. 2d §1Agency; Principal; Agent (1) Agency is the fiduciary
relation which results from the manifestation of consent by one person
to another that the other shall act on his behalf and subject to his
control, and consent by the other so to act; (2) the one for whom the
action is to be taken is the principal; and (3) the one who is to act is
the agent.
2. Rest. 2d § 15Manifestations of Consent An agency relation exists
only if there has been a manifestation by the principal to the agent that
the agent may act on his account, and consent by the agent so to act.
B.
Green v. H & R Block:
1. Facts: involves the tax participation and refund services provided by H &
R to thousands of Maryland residents. The issue here was whether H &
R may have a duty to disclose to customers the benefits it receives from
lending institutions to which it refers customers who are seeking a bank
loan in the amount of their anticipated tax refund. The trial court
granted H & R motion to dismiss finding that H &R had no duty to
disclose the benefits because no fiduciary obligation exists between H &
R and its customers. Court of Appeals reverses finding that sufficient
facts have been alleged to warrant a factual determination regarding the
existence of a principal-agent relationship that gives rise to fiduciary duty
to disclose any conflict of interest.
2. Whether an agency relationship exists btween H & R and its taxpayers
customers, in particular those customers who choose to participate in H
& R’s RAL program? the creation of an agency is determined by the
parties agreements and actions.
3. Whiles the agent and the principal must both consent to the
relationship, an agency relationship can be created by express
agreement or by inference from the acts of the agent and principal.
Thus, the relationship may be implied from the words or conduct of the
parties and the circumstances.
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4. this class action lawsuit was filed on behalf of all those in Maryland for
whom H & R block prepared taxes and who participated in its “Rapid
Refund” program by obtaining an Rapid Anitcipation Loan any time from
Jan 1992 to present. H & R’s tax filing services allow customers to obtain
faster tax refunds than would otherwise occur by simply mailing the
return to the IRS.
5. What is the rule? The predominate issue here is whether an agency
relationship exists between H & R and its taxpayers customers, in
particular those who participated in its program.
6. Rest of Agency –“Agency is the fiduciary relation which results from the
manifestitation of consent by one person to another that the other shall act
on his behalf and subject to his control, and consent by the other so to act.
7. The creation of agency relationship ultimately turns on the parties
intentions as manifested by their agreements or action.
8. Three characteristics to the existence of the principal-agent relationship:
(a) the agent’s power to alter the legal relations of the principal; (b) the
agent’s duty to act primarily for the benefit of the principal; and (c) the
principal’s right to control the agent. These factors are not essential
elements of an agency relationship and are not determinative but rather
should be viewed in within the circumstances. These factors should be
viewed within the context of the entire circumstances of the relations.The
appellate court states that there are two fundamental elements for the
creation of the agency relationship: (1) some manifestation or indication
by the principal to the agent that he consents to the agent’s acting for his
benefit; and (2) consent by the agent to act for the principal. The agency
relationship can arise only when there is mutual consent between two
parties that it should arise. Consent may be inferred from words or
conduct. Although some manifestation of the principal’s consent must
actually come to the attention of the agent, the agent need not
necessarily communicate his consent to the principal if under the
circumstances embarking on the purpose of the agency is itself
sufficient indication of consent. So the factors stated by the t.c. are not
exclusive or determinative:
a. Level of control: pg. 21—the control a principal must exercise over an
agent in order to evidence an agency relationship is not so
comprehensive. A principal need not exercise physical control over the
actions of its agent in order for an agency relationship to exist; rather
the agent must be subject to the principal’s control over the result or
ultimate objectives of the agency relationship. Often an agent is left
free from direct supervisory control as he or she furthers the interest of
the principal. The control of the principal does not include control at
every moment; its exercise may be very attenuated and may be
ineffective. In fact, there are circumstances under which very little
control is exercised by the principal.
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b. If it is otherwise clear that there is an agency relation….the principal,
although he has contracted with the agent not to exercise control and to
permit the agent the free exercise of his discretion, nevertheless has the
power to give lawful directions which the agent is under a duty to obey
if he continues to act as such.
c. It is does not matter if H & R as the principal actually exercised the
control, they just have to have the “right to control.”
d. The level of control a principal must exercise over the agent becomes
more clear when it is contrasted with the control exercised by the
master in a master-servant relationship. Ordinarily a principal is not
liable for the incidental acts of negligence in the performance fo duties
comminted by an agent who is not a servant. An agent is a person who
represents another in a contractual negotiations or transactions. A
servant is a person who is employed to perform personal services for
another in his affairs, and who in respect to his physical movements in
the performance of the service is subject to the other’s control or right
to of control. Persons who render service but retain control over the
manner of doing it, are not servants.
e. Unless the act was directed by the principal, the principal is not liable
for incidental acts of negligence by the agent. A principal employs the
agent to accomplish a result but may not have the right to control the
movements. It is a master-servant relationship if the employer has the
right to control and direct the servant in the manner of which the work
must be done. Therefore the level of control which a principal has over
an agent is less. Control in a principal-agent relationship is that the
principal must have the responsibility to control the end result of his
agent’s actions and that is all. Therefore, it is reasonable to conclude
that H & R customer’s retain control over H & R’s ultimate actions
and representations with respect to filing the tax return. This is enough
to make them an agent of the customers.
f. What about altering the relations? The t.c. stated that because H & R
customers actually sign the loan application, and not H & R
themselves, H & R does not have the ability to alter the legal relations
of its customers. Appellate court disagrees and states: when the facts
otherwise demonstrate an agency relationship, that relationship cannot
be negated simply because the principal’s and not the agent’s signature
appears on a document otherwise preparted and negotiated by the
agent. Therefore although it is the customer’s signature on the
application, it is H & R’s roles in implicitly endorsing the contents of
the loan application that lowers the perceived risk to the abkc of
providing the loan—thus H & R plays an intergral part between its
customers and the bank—affecting their customers legal realtions with
a third party (the bank).
9. Rest 2d §12 An agent of apparent agent holds a power to alter the legal
relations between the principal and third person and between the principal
and himself.
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10. Rest. 2d § 13 an agent is a fiduciary with respect to matters within the
scope of his agency.
11. Rest. 2d § 14a principal has the right to control the conduct of the agent
with respect to matters entrusted to him.
12. The party asserting that there is an agency relationship created by
inference has the burden and if only one inference may drawn from the
evidence, the court may find the relationship as a matter of law.
13. Pg. 24—manifestation of consent—how did Block show that they were
acting on behalf of the customers. Manifestation of consent by the
principal that the agent acts on the behalf of them. This is just consent—
no formalities like that with contracts are is needed to form such a
relationship to subject liability. H & R promotes themselves as an agent.
There role is similar to that of an insurance broker who acts as the agent
for its customers seeking insurance. Here the facts show that H & R’s
objective manifestatiosn mutually consented to and intended to form a
principal-agent relationship, the scope of which included obtaining the tax
refund quickly.
14. Courts do not understand that is all that is needed is consent—pg. 29. An
agent is a person authorized by another to act for him, one entrusted with
another’s business. What is the problem with the courts that are not
buying this definition?
Jan. 25. 2001
C.
Basile: get off Website.
1. Same representation made by Block as in Greene and here the t.c. granted
summary judgment to the plaintiffs on the issue on the agency
relationship.
2. What is the law here: whether Block had an agency relationship with
Basile and the rest of the class. What did the court look at the Rest to see if
the three elements were met: (1) the manifestations by Basile that Block
would be acting for her and Block’s accepting of this and understanding
that Basile is the principal. Is it the same as Greene? (consent and
control)—does this court rely on factors? No, Greene is not quite in
reasoning.
3. Understanding of the principal that the agent is in control? Why did the
court say that there was no agency in this case? There is no evidence of
agency here? For one, the court said that all that Block was doing is being
a facilitator to the loan and did not have the authority to alter the legal
relationship.
4. Consent of principal; consent of agent; and control are the elements.
Consent of the principal here was not met. (pg three: there is no showing
that the customers(appellees) intended Block to act on their behalf in
securing the refinancing but Block did so, so then on whose behalf did
they act? Simply introducing them to loan did not create an agency
relationship. There was showing that appellees intended Block to act on
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their behalf in securing the loan. They did not know it was a loan so if
they did not know it was loan, how can they expect them to act on their
behalf.
5. A person deciding to get a loan would go to a bank, customers here did
none of that because Block did it for them, Court seems to say that
because they did not make the decision, they did not have a control—
Ricks thinks that this is wrong because Block did everything for them.
6. Other than the three elements what is another one: trust and loyalty.
7. The ability to alter the legal relationship—the law is clear in Pa.—agency
results only if there is an agreement of fiduciary relationship. They must
agree to have such relationship. They must also have the ability to alter the
legal relations of the principal (Basile)—Block has the ability to alter the
legal relationship of the principal and another, such as the bank. Can
Block alter the legal relations of its customers? Yes. What about between
customers and the IRS. Here Block is discharging a duty of the customers
to the IRS by turning in the tax returns to the IRS so they are in effect
altering the legal relations, aren’t they?
8. The Court said that not agency law should regulate the relationship here,
but the market.
9. Which court is right? Are both courts wrong? Rick thinks that Block is an
agent and grant summary judgment and he would say something like the
fiduciary relationship does not allow the agent to act like an idiot but then
hold for Block as a matter of law because the customer should have been
more aware. He would carve out an exception in this case for “stupid”
principals. Here the test for agency is met, say that they are an agent but
the principal should not be able to recover. Thinks Basile does not make
any sense. Should we change the agency test to make it make sense.
10. What are you if you are not an agent? Some courts will call them
independent contractor thus not servants. Might be lessor, lessee, Buyerseller; dealer and purchaser.
D.
Powers of Attorney:
1. Agency Relationship: Estate of Giannopolous (pg. 125-128)—
missing notes from class
a. Actual authority: has been defined as the power of the agent to
affect the legal relations of the principal by acts done in
accordance with the principal’s manifestatiosn of consent to him.
b. See notes pg. 127-28.
IV.
The Firms Liability in Contract for Acts of Its Agents:
A.
Kasselder v. Kapperman (pg. 81).
1. Facts: Kapperman owns a Gailon road grader that had a defective engine.
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Appellant Schladweiler offered to purchase the grader for the sum of
$8500 and Kapperman said that he would pay up to $3000 to have the
engine repaired and Schladweiler said that hecould have repaired for less
than that and it was discovered that it was not repairable and suggested
that Schladweiler purchase a new engine—Kapperman was not interested
in spending this amount and tried to locate an engine that could be rebuilt.
Schladweiler claims that he is an agent and should not be liable thus,
Kapperman should be liable. Trial court found for Truck Repair who is
the one Schladweiler brought the engine to. Truck Repair spent months of
time and money to repair the engine and did not discuss the increased
costs with Kapperman and Kapperman only authorized $3000. The total
cost was more than $6000. Neither Kapperman or Schladweiler paid the
bill. Truck repair wins. Kapperman has to pay the money even though he
never dealt with Truck Repair because there was an actual agency
relationship between Kapperman and Schladweiler for $3000 but
Schladweiler when agreeing to this amount represented Kapperman to
Truck Repair however Schladweiler exceeded the scope of his agency
authority when he authorised the repairs exceeding the authorized amount.
2. An agency relationship is the representation of one called the principal by
another called the agent in dealing with third persons. This relationship is
either actual or ostensible. It is actual when the principal appoints the
agent and it is ostensibel when the principal by conduct or want of
ordinary care cuases a third party to believe another, who is not actually
appointed to be his agent.
3. This court states that they examine the relations of the parties as they exist
under their agreement or acts: agency is a legal concept which depends
upon the existence of required factual elements: the manifestation by the
principal that the agent shall act for him; the agent’s acceptance of the
undertaking; and the understanding of the parties that the principal is to be
in control of the undertaking.
4. Here Kapperman made no representations or actions to cause Truck
Repair to belive that that was his agent—thus this is not an ostensible
agency. The only proof supporting an agency relationship in excess of the
$3000 was the words and actions of Schladweiler. Ostensible agency for
which a principal may be held liable must be traceable to the principal can
cannot be established solely by the acts or declarations or conduct of an
agent.
5. There is an actual agency relationship between Kapperman and
Schladweiler but only to the extent of $3000.
6. Rule: when an agent exceeds his authority, his principal is bound by his
authorized acts so far only as they can be plainly separated from those
which are unauthorized.
7. So here Schladweiler who exceeded his agency relation is liable to Truck
Repair for the extent in which he exceeded his agency.
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8. Authority is the agent’s power to bind the principal by acts done in
accordance with the principal’s manifestations of consent to the agent.
9. A principal is bound by the authorized acts of his or her agent in entering
into contracts on the principal’s behalf. Only under certain circumstances
will agents have the power to bind the principal by unauthorized acts such
as where the agent has apparent authority or inherent agency power or
where the principal is estopped from denying the agent’s authority.
10. Therefore when an agent enters into an unauthorized contract without
having the power to bind the principal, the principal is not bound by the
contract as actually made by agent.
11. At common law a principal is not bound by the authorized contracts of his
or her agent where the contract is under seal or is a negotiable instrument.
12. A principal must ahave the capacity to give legal consent as well as the
capacity to do the act that he or she is authorizing the agent to do.
13. Business entities such as corporations, partnerships, and limited liability
companies can be principals but must act through human beings, the
entitles are the principals and their human reps are agents, servants or ics.
14. To be an agent, a person needs only the physical or mental capability to do
the thing that he or she has been appointed to do. Even an infant or a
mentally incompetent person might have the capacity to bind a principal to
a contract.
15. See notes: pg 27. An agent holds a power to alter legal relations between
the principal and third persons and between the principal and himself. An
agent is a fiduciary with respect to matters within the scope of his agency.
The principal has the right to control of the agent with respect to matters
entrusted to him.
16. The inquiry begins whether there is an agent. –whether to be able to alter
legal relations between the principal and the agent.
17. Is there an intention by the parties to form an principal and agent
relationship.
B.
Actual Authority: is the power of the agent to affect the legal relations of the
principal by acts done in accordance with the principal’s manifestations of
consent to him.
1. Express Actual Authority: King v. Bankerd:
a. the court said the poa won’t work because it did not meet statute
expectations.
b. What is the approach to the Neo-classical Economics? Let the free market
work and then when it does not work, the law will step in to correct
whatever will not work and then will fix that which does not work.
c. Why do we have all of these regulations: certainty, lessen amount of
litigation. Why do we have power of atty: why doesn’t a broad power of
atty work? A power of atty is written doc by which one party, as
principal, appoints another as as agent (atty in fact) and confers upon
the latter the authority to perform certain specified acts or kinds of acts
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d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
on behalf of the principal. This instrument creates a principal-agent
relationship. The broad power of atty lacks the power to make a gift of
the principal’s property, unless that power (1) is expressly conferred, (2)
arises as a necessary implication from the conferred power, or (3) is
clearly intended by the parties, as evidenced by the surrounding facts
and circumstances.
There are restrictions on power of atty.
Broadly defined: a poa is a written doc by which one party, as principal
appoints another as agent (atty in fact) and confers upon the latter the
authority to perform certain specified acts or kinds of acts on behalf of the
principal. This creates a principal-agent relationship.
One settled rules is that powers of atty are generally strictly construed and
held to grant only those powers which are clearly delinated.
“convey, grant, bargain, and/or sell” –this includes gift doesn’t it? Yes,
although the court thinks it is ambiguous and does not include “gift.”
If you want your power of atty to make a gift you better expressly state it.
Accepted rule of construction is to discount or disregard, as meaningless
verbiage, all-embracing expressions found in powers of atty. Ambiguities
are resolved against the party that makes the instrument.
A general power of atty authorizing an agent to sell and convey property,
although it authorizes him to sell for such a price and on such terms as to
him shall seem proper, does not authorize the agent to make a gift of the
property or to convey or transfer it without a present considerations
inuring the principal.
Mr. Bankard did not intend for King to give the property to his wife
because he made the power of atty specifically to keep from his wife from
getting the property. King thought Bankard was dead and this is the
rationale King used when he conveyed the property to his wife, this is
completely stupid even though agency dies when the person dies.
Therefore the facts and circumstnaces presented here do not give rise to
any inference that King was authorized to make a gift of the property—
that was not the intent of the principal.
Because gifts of the principal’s property are not, in the ordinary course of
business, they are not within the scope of authority granged by the power
of atty.
Suppose that after a principal has authorized an agent to act on the
principal’s behalf in certain matters, the agent encounters unforeseen
circumstances not covered by the principal’s instructions. Suppose further
that it is impractible for the agent to communicate with the principal.
Under Rest § 47, the agent would be authorized to take such acts as the
agent” reasonably believes necessary to prevent substantial loss to the
principal with respect to the interests communicated to the agent’s care.
Issue: whether a guardian may sue fro a divorce on behalf of an
incompetent person? Majority rule in the case of a spouse who is mentally
incompetent as to his property and person, and he may not bring an action
for divorce either on his own behalf or thought a guardian.
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o. Think about what actions a principal could not authorize an agent to do
because they are too personal or violational? Like military service, voting,
marriage, etc?
2. Neo-Classics Primer:
a. Every individiual necessarily labours to render the annual revenue of the
society as great as he can. In doing so, he neither intends to promote the
public interest nor knows how much he is promoting it. Most of the of the
time, he intends only he his gain but by pursuing his own interest he
frequently promotes that of sociiety more effectually than when he really
intends to promote it.
b. The primary conclusion of classical economics is that “there is a sort of
pre-established harmony between the good of all and the pursuit by each
of his own selfish economic gain.’ This clonclusion rests on five premises:
(1)people act in their own self-interest; (2) in the pursuit of self-interest,
people act rationally; (3) people have access to perfect information
(meaning information necessary to act rationally); (4) people and
resources are freely movable; (5) there are no artificial restrictions on the
marketplace.
c. This assumes all parties are rational and have access to perfect
information.
d. There are objections to this paradigm: (1) no one can agree on what counts
as wealth (though most decision makers are greedy enough to want
money) to be wealthy enough not to care if other ends are not served; also,
other ends are frequently served by other areas of law than transactional
law; (2) if all of the assumptions of neo-classical economics were true, the
courts would have no role to play at all. Parties would be able to maximize
wealth w/o government intervention, and that is all anyone would care
about. Therefore, in some ways the very existence of corporate law is
contrary to neo-classical economics; (3) no one has access to perfect
information. Thereofre, neither courts nor parties to transactions can
decide clearly whether a transaction (or a rule employed in a decision)
promotes wealth or not. Artificial restrictions on the market may exist, and
some participants may begin with less wealth or information than others,
creating inequalities in the marketplace that inhibit free bargaining; (4)
people will act opportunisitically, meaning that they try to take advantage
of others lack of perfect information, failure to act rationally, inability to
move, articialy restrictions on the marketplace, or poorer distribution of
wealth.
3. Implied Actual Authority: Mill Street Church of Christ v. Hogan (pg.
210). All forms of authority that are not express are necessarily implied (
either in-law or in-fact). Only actual authority can be expressly conferred
upon an agent. The other kinds of authority—inherent and
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apparent/estoppel—necessarily arise by implication. Inherent authority is
implied in law.
a. The Church contacted Bill to do some work on the church and when he
reached a part that he could not finish by himself, he contacted his brother
Sam to help him complete the job, Sam then fell off the ladder after it
broke and broke his left arm. Sam filed a suit to recover worker’s comp
and the Church argued that the doctrine of implied authority for the
creation of a employment relationship between Sam and the church.
b. Issue: whether a person hired under the implied authority of an agent
could be the employee for the purposes of the worker’s comp statute. The
contract of employment can be either express or implied.
c. The court found that the Church had knowledge that Bill would have to
hire a helper as he did in the past. Since he had hired his brother in the
past, and had not been instructed differently this time, the church should
be imputed with the knowledge if it is found that its agent had the
authority to hire a helper.
d. Implied authority is acutual authority circumstantially proven which the
principal actually intended the agent to possess and includes such powers
as are practically necssary to carry out the duties actually delegated.
e. Apparent authority on the other hand is not actual authority but is the
authority the agent is held out by the principal as possessing. It is a matter
of appearance on which third parties rely.
f. employee includes agent. Sam here is an agent and employee of the
church and gets to recover under Workers Comp.
g. Actual autority may be express or implied from principal to agent.
h. In examining whether implied authority exists, it is important to focus
upon the agent’s understanding of his authority. It must be determined
whether the agent “reasonably believes because of present or past conduct
of the principal that the principal wishes him to act in a certain way of to
have certain authority.” Another factor to consider is the task or the job.
The existence of prior similar practices is one of the most important
factors. Specific conduct by the prinicpal in the past permitting the agent
to exercise similar powers is crucial.
i. The burden is on the person alleging the agency and must show that it
exists. Agency cannot be proven by a mere statement, but can be
established by circumstantial evidence including the acts and conduct of
the parties such as continuous course of conduct of the parties covering a
number of successive transactions. One must look at what had gone on
before to determine if the agent had certain authority. Then if considering
past similar acts done in a similar manner, it is found that the present
action was taken within the scope of the agent’s authority, the act is
binding on the principal.
j. Here the agency is shown—Bill had in the past been allowed to hire his
brother Sam and it was needed for Sam to help or someone for that matter
because the church could not be painted by one person.
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k. As a general rule, an agent is generally authorized to delegate the
performance of incidental mechanical and ministerial acts but may not
delegate acts which involve discretion or the agent’s special skill. §79 and
80 of Rest.
l. As opposed to agents, servants generally have no implied authority to
delegate their responsibilities.
m. A subagent or subservant is not only the agent or servatn of the principal,
but also the agent or servant of the apointing servant or agent.
n. §5 Comment a: an agent may be authorized to appoint another person to
perform for the principal an act which the agent is authorized to perform
or to have performed. The agreement may be that upon the appointment of
such person the agent’s function as agent is performed, and that thereafter
the person so appointed is not to be the rep of the agent but is to act solely
on account of the principal in which case the one appointed is the agent
and a not a subagent. However, the agreement may be that the appointing
agent is to undertake the performance of the authorized act either by
himself of by someone else and that in doing so will be the agent of the
appointing agent, who will have the responsibility of a principal to that
person. The appointed person is a subagent. The agreement here depends
on the manifestations of the parties as interpreted by the usages between
them, the customs of business and other circumstances.
Jan. 24.2001
Note 2. Pg. 207 De Bueno v. Castro: upheld a transfer without consideration of real
property owned by the principal, a foreign national, under a power of atty granting the
agent the authority. Court held the power of atty could not be used to include conveyance
of property without consideration. Ejusdem Generis: is specific language is before
general then the general language is included in the specific—it does not go outside the
instrument. Is this different than King v. Bankerd? Yes, here agent, principal, and
beneficiary all knew the intent of the transfer and agreed that the transfer was consented
to by the principal—the court here would not look at intent or surrounding circumstances
as the King court did.
C.
Apparent Authority:
1. Rest2: §8: Apparent Authority: is the power to affect the legal relations
of another person by transactions with third persons, professedly as agent
for the other, arising from and in accordance with the other’s
manifestations to such third persons.
2. Rest2 §26: Creation of Authority: General Rule: except for the
execution of instruments under seal or for the performance of transactions
required by statute to be authorized in a particular way, authority to do an
act can be created by written or spoken words or other conduct of the
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principal which, reasonably interpreted causes the agent to believe that the
principal desires him so to act on the principal’s account.
3. Rest2§27 Creation of Apparent Authority: General Rule; except for
the execution of instruments under seal or for the performance of
transactions required by statute to be authorized in a particular way ,
apparent authority to do an act is created as to a third person by written or
spoken workds or any other conduct of the principal which, reasonably
interpreted, causes the third person to belive that the principal consents to
have the act done on his behalf by the person purporting to act for him.
4. Hamilton v. GAF [pg. 236] Issue: whether Bajt, an agent of GAF, had
the authority to execute a contract on behalf of GAF: the contract in
question required GAF, a manufacturer, to purchase a minimum of over
$800,000 of raw materials annually from Hamilton for a period of ten
years.
a. Bajt was a purchasing agent for GAF and his duties were to purchase raw
materials but never as large as the contract at issue—in fact GAF’s
internal policy, buyers at Bajt’s level had authority to make purchase
orders not exceeding $25,000 in amount of one year in duration. Any K in
excess of this, had to be approved in advance of GAF’s corporate
headquaters. Bajt did not get this approval before signing the K. Hamilton
is now holding GAF to the K.
b. Did Bajt have actual authority? No, if we were going to prove this, we
would have depose an officer of GAF and Bajt. Bajt has to believe the
principal, GAF manifested their intent for Bajt to act for them. There has
to be manifestation of consent from the principal to the agent.
c. It is generally held that when a principal “holds out” another as possessing
certain authority, thereby inducing others reasonably to believe that
authority exists, the agent has apparent authority to act even though as
between himself and the principal, such authority has not been granted.
Apparent authority differs from actual authority in that the principal
communicates directly with a third person to create apparent authority; to
create actual authority, the principal communicates directly with the
agent.
d. When a principal has by his voluntary act placed an agent in such a
situation that a person of ordinary prudence, conversant with business
usages and the nature of the particular business, is justified in presuming
that such agent has authority to perform a particular act on behalf of his
principal, the principal is estopped, as against such innocent third person,
from denying the agent’s authority to perform the act.
e. The holding out of the agent’s authority by the principal party may be by
action or inaction. The principal may directly communicate the authority
to a third party or knowingly permit the agent to exercise such authority.
f. What does it mean to rely?
- 13 -
g. The third party must reasonably rely on the authority held out by the
principal. The third party must know of facts demonstrating the principal’s
consent to the agent’s actions.
h. Apparent authority exists only to the extent that it is reasonable for the
third person dealing with the agent to believe that the agent is authorized.
i. Principal manifests to third party that agent has authority to act and the
third party believes and relies on it, reasonably.
j. Also,The third party must actually believe the agent to be authorized.
Apparent authority is that which a reasonably prudent man, using
diligence and discretion, in view of the principal’s conduct would suppose
the agent to possess.
k. The party who claims reliance on a agent’s apparent authority must not
have closed his eyes to warning or inconsistent circumstances. Authority
is not apparent simply b/c the party claiming has acted upon his
conclusion nor simply because it looked so to him. It is where a person of
ordinary prudence, conversant with business usages and the nature of a
particular business acting in good faith and giving notice to all restrictions
brought to his notice, would reasonably rely.
l. What did Hamiltons’ atty not do that should have been done: pg. 241—
atty claims that Bajt’s authority came from his position--there was no
evidence of any sort in this case as to the usual authority of the purchasing
agents generally.
m. Where the agent has some present actual authority, apparent authority
may arise in any of three ways. (1) it is the principal who is responsible for
the information received by the third party; the principal must have
intentionally caused the third party to belive that the agent is authorized to
act for the principal or he should have realized his conduct would create
such a belief on the part of the third party; (2) the information recriev by
the third person may come directly from the principal by letter or word of
mouth, from authorized statements of the agent, from docs or other indicia
of authority given by the principal to the agent, or from third persons who
have heard of the agent’s authority throught authorized channels of
commication. Apparent authority can be created by appointing a person to
a postion, like a manager which carries iwht it generally recognized duties.
OR a person who permits another to do an act in such a way as to establish
in a community a reputation of having authority to act, either by directing
the agent to represent of by directing him to act.
n. Third persons who are aware of what a continuously employed agent has
done are normally entitled to belive that he will continue to have such
authority for at least a limited period in the future and this apparent
authority continues until the third person has been notified or learns facts
which should lead him to belive that the agent should not longer be
authorized.
o. Establishment of apparent authority is by (a) direct, express statements;
(b) by position; (c) prior acts.
- 14 -
p. If a principal puts an agent into or knowingly permits him to occupy a
position in which according to the ordinary habits of persons in the trade
or business, it is usual to have such authority, anyone dealing with him is
jusitified in inferring that he has such authority in the absence of reason to
know otherwise.
q. This is also true if a principal gives apparent authority by virtue of prior
acts and gives an agent authority in that capacity will not be permitted to
deny that such was his agent, authorized to do the act he assumed to do
provided that such act was within the scope of the authority.
r. Apparent authority may result from prior relation of agent and principal.
The principal by allowing the agen to carry out prior similar transactions
may create the appearanc e of authority of the agent to carry out such acts.
–“a person who permits another to do an act in such a way as to establish
in a community a reputation for having authority to act, creates apparent
authority with respect to those who learn of the reputation.
s. Here Bajt did not have apparent authority. There is no evidence to support
Hamilton’s claim that he reasonably relied on Bajt’s authority.
t. A third person cannot reasonably believe the principal consents where the
principal has not taken any action on which such a belief could be based.
u. The modern trend is to give the president of a corporate office both
implied and apparent authority to conduct ordinary business transactions.
Under both modern and traditional—the president may have apparent
authority in looking at how the corporation runs its business, ie, by
customarily permitting president to enter into ordinary business
transactions.
5. Fennel v. TLB:
a. Fennel did not approve the settlement agreement and sues his atty. did
the plaintiff’s atty have apparent authority to settle the case and the
plaintiff was accordingly bound by the settlement agreement?
b. Client is the one who gets to choice or accept or reject the settlement
agreement.
c. Apparent authority is the power to affect the legal relations of another
person by transactions with third persons, professedly as agent for the
other, arising from and in accordance with the “other’s manifestations”
to such third persons.
d. In order to create apparent authority, the principal must manifest to the
third party that he “consents to have the act done on his behalf by the
person purporting to act for him.
e. Rule: a client does not create apparent authority for his atty to settle a
case merely by retaining the atty.
f. Never settled before so there were no prior acts to go one before this
time. What is the atty supposed to do when the atty says he has the
authority to settle—you would not question that he can settle.
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g. 1996—after Fennel—2d Cir says that atty of record who enteres into a
settlement has the accordance to do so and the presumption in is favor
of the atty who settled and the burden is one the other party to show
that the atty did not have the right or authority to settle. What did
Hogan say? What the parties have doen in the past which has been
approved of and prior conducts and the nature of the task will make it
okay.
h. 1997—NY—comment on Fennel—class action case—atty for
plaintiffs (discrinmination case)—plaintiff joined race class and opted
in the class by form and said she wanted to be in age class instead but
never told the other side and the atty settled the one and not the other.
She did not inform defendant, atty that she did not want to be part of
the class that settled so she was bound by the decision.
i. He may ask what to here, start with Fennel and go with all other
decisions—if you are a member of the Ethical panel –what would you
do?
j. Note 1 pg. 244: the attorney in Hallock had the apparent authority to
settle while the atty in Fennel did not because two months went by
before there was any complaint. In Hallock the rule required that attys
attending pretrial conferences have the authority to enter into binding
court settlements on behalf of their clients, a co-plaintiff attened the
conference from which Hallock was absent because of illness and
more than two months passed before P’s made any objection to the
settlement.
k. Some cases hold that where a party’s attorney announces a settlement
in open court the settlement will be presumed valid unless the party
can prove the attorney had not authority to settle.
l. Think about what facts you would want to know in determining
whether a person had apparent authority.
E.
Estoppel:
1.
Rest2 §8B: Estoppel: Change in Position:
(1) A person who is not otherwise liable as a party to a
transaction purported to be done on his account, is
nevertheless subject to liability to persons who have
changed their positions because of their belief that the
transaction entered into by or for him, if:
(a) he intentionally or carelessly caused such belief; or
(b) knowing of such belief and that others might change
their positions because of it, he did not take reasonable
steps to notify them of the facts.
(2) An owner of property who represent to third persons that
another is the owner of the property or who permits the
- 16 -
other so to represent, or who realizes that third persons
believe that another is the owner of the property, and that
he could easily inform the third persons of the facts, is
subject to the loss of the property if the other disposes of it
to third persons who, in ignorance of the facts, purchase the
property or otherwise change their position with reference
to it.
(3) Change of position, as the phrase is used in the restatement
of the this subject, indicates payment of money,
expenditure of labor, suffering a loss, or subjection to legal
liability.
2.
Metalworking v. Fabco:
a. Metalworking purchased from East Coast, a two wheel :wheelabrator”
metalworking machine, for purchase price of $15,000. Metalworking
left it in East Coasts possession for a period of time, who then sold It
to Yoder. If we assume that transferor who had possession(East
Coast) had title, this passed to Metalworkding and had no title to sell
or transfer.
b. What about the problem—pg. 246—(a) thief stole stereo from Owner,
and sold to Merchant—Owner will not get it back and there is more
than mere possession here; (b) Owner left the stereo with Merchant to
be repaired—what is the difference—what makes the buyer
reasonable? Yoder in thecase is buying from a Manufacturer of
Wheelbrator. If you won a stereo and leave a stereo with seller and
then the seller will sell it later—Buyer who buys it later—even though
stereo was only there for fixing—then the buyer did not have any
reason to believe that the seller’s authority is limited. Suppose a thief
brings it in to the store—has the owner made a manifestation to third
party that the store is to sell—no, only if the owner brings it in.
c. Assuming as we must that the transferor East Coast had title, t his
passed to Metalworking and no title remained in East Coast. It is clear
that Yoder in fact acquired no title since when transferred to them,
East Coast had no title.
d. There needs to be some affirmative act on which to base estoppel.
There is no affirmative act here by Metalworking, it simply left the
machine in situs and did nothing actively to give East Coast with any
authority to sell.
e. The issue narrows to the question whether or not simply possession
by East Coast with permission by Metalworking without more and
without respect to the duration of possession is a sufficient basis for
estopping Metalworking form asserting its title?
f. Although mere possession and control of personal property are
not ordinarily sufficient to estop the real owner from asserting his
- 17 -
g.
h.
i.
j.
k.
l.
m.
title against a person who has dealt with the one in possession on
the faith of his apparent ownership, slight additional cirumstances
may turn the scale against the owner and estop him from asserting
title against one who has purchased the property in good faith.
Here in this case there is nothing but possession involved—there is
no indicia of ownership nor title documents in hands of
Metalworking to transfer title to Yoder.
There must be a merchant of a specific type—there MUST be
more than simple possession to create an apparent authority to
sell.
Any entrusting of possession of goods to a merchant who deals in
goods of that kind gives him power to transfer all rights of the
entruster to a buyer in ordinary course of business. \
Notes: pg. 248: Difference btween apparent authority and
estoppel: A person who is not otherwise liable as a party to a
transaction purported to be done on his account, is nevertheless
subject to liability to persons who have changed their positions
because of their belief that the transaction was entered into by or
for him, if: (a) he intentionally or carelessly caused such belief; or
(b) knowing of such belief and that others might change their
positions because of it, he did not take reasonable steps to notify
them of the facts.
Estoppel differs from apparent authority in a couple of ways: First,
estoppel can be based on omissions, not just affirmative conduct. That
includes situations in which the principal is aware that third parties
might believe someone to have authority, and the principal fails to act
reasonably to protect third parties. Second, while merely entering into
a K based on a reasonable belief of authority is sufficient to invoke
apparent authority, it is not a change in position sufficient to invoke
estoppel. Thus, in estoppel, while the conduct necessary to charge a
principal is lower than in apparent authority, the third party must
show something additional: a detrimental change in position.
Distinction of detriment in estoppel. Reliance in Estoppel means
change of positions and reliance in apparent authority means
simply entering into a K. Principal tells third party that he is
hired an agent for sale of house, agent and third party sign and
then the principal wants out—Principal has told the third party
that agent has authority but not told the agent that? Apparent
authority here applies—what about estoppel? No, there has not
been a change of positions from the third party even though they
have signed the K.
Actual authority depends on statement from principal to agent—
rests on consent. Estoppel rests on change of position by the third
party—then does consent matter if you need the change of position
of third party—No—it is different. What about apparent
- 18 -
authority—does it require harm to be done? No, it rests solely on
consent—in the Rest.
n. The line between apparent authority and estoppel is not all that
clear and sometimes the courts mix the two and call it a single
doctrine called “ostensible authority.”
Jan. 29, 2001.
3.
Hypo: When a seller takes stereo equipment to fix it and then sells
it, the buyer who in good faith buys the stereo in good faith owns
the stereo and has all the rights. Apparent authority is what the
seller here has.—it is not real authority. Principal’s liability to the
third party but what about the agent’s liablility to the principal?
Agent signs a K by apparent authority against the principal wishes,
it seems as though the agent should be liable, doesn’t it? This will
come later in the class.
4.
Goldstein v. Hanna:
a. Goldsteins sued respondent Hanna to compel specific
performance of an option to purchase Hanna’s condo. The
parties entered into a lease relating to the condo and this lease
granted the Goldsteins an option to purchase to condo. The
Goldsteins had no direct dealings with Hanna but then
exercised their option to purchase—three days before their
escrow with Hanna was due to close, the Goldstein’s contacted
Mr. Callahan. They advised Callahan Realty that they would
purchase the condo themselves, rather than find another
purchaser.
b. Callahan said that their was no ultimate purchaser and Hanna
testified that he never said Callahan to extend the excrow and
Goldstein came away from the interview that Hanna agreed
with Callahan and then Hanna tried to buy Goldstein’s out and
then Hanna refused to participate in the escrow to allow
Goldstein’s to purchase.
c. What did the lease mean? Did it expressly say in the lease that
the option would be extended? Did the court give Goldsteins’ a
right that was not in the lease. The court found that the doctrine
of equitable estoppel clearly precludes Hanna from claiming
that the Goldstein’s rights under the lease-option agreement
expired on Aug, 29, 1978.
d. Under the Rest 2d § 8B: An equitable estoppel arises under
the following circumstances: A person who is not otherwise
liable as a party to a transaction purported to be done on his
account, is nevertheless subject to liability to persons who have
- 19 -
e.
f.
g.
h.
i.
j.
k.
l.
changed their positions because of their belief that the
transaction was entered into by or for him, if: (a) he (principal)
intentionally or carelessly caused such belief on which the
third person relies and changes position; (b) knowing of such
belief and that others might change their positions because of
it, he did not take reasonable steps to notify them of the facts.
The third person must reasonably rely.
Where there is a duty to speak, silecne can raise an estoppel
quite as effectively as can words. A Duty to speak arises when
another is or may come under a misapprehension regarding the
authority of the principal’s agent.Under such circumstances,
the principal is obligated to exercise due care, and to conduct
himself as a reasonably prudent business person with normal
regard for the interests of others.
What did Hanna do to cause a belief in Goldstein, the third
party? The silence and Hanna had a duty to speak. You can
case a belief in a third party by silence. This comes up in
contract performance.
Rule: A person remaining silent when he ought, in the exercise
of good faith, to have spoken, will not be allowed to speak
when he ought, in the exercise of good faith, remain silent.
In the case of fraud, it sometimes can be actional fraud when
there is misrepresentations.
What did the Goldsteins do to rely and change their positions?
They passed up an opportunity because they thought they had
more time, they acted reasonably.
Silence is sometimes evidence from which assent can be
inferred. In the instant case, during his telephone conversation
with Callahan, Hanna made no effort to assure that the
Goldstein’s were not misled or lulled by his agent’s
representations. Hanna knew the Goldsteins might not hasten
to compel the Aug escrow while assuming they still had several
months to exercise the option. Consequently, Hanna’s silence
and acquience in his agent’s representations manifestly caused
the Goldsteins to do what they otherwise would not have done,
i.e., to permit, at least argueably, a lapse of their valuable
option rights. Here the detriment suffered by the Goldsteins
involves the loss of the benefit of their bargain; the right to
purchase the property for a specified sum—Here equitable
estoppel steps in and precludes Hanna from claiming a
forfeiture of the purchase rights.
Estoppel can be created by ommission where authority –there
needs to be an act.
Persons ordinarily express dissent to acts done on their behalf
which they have not authorized or of which they do not
approve. The doctrine of equitable estoppel is properly
- 20 -
m.
n.
o.
p.
q.
r.
s.
t.
u.
invoked whenever “unconscionable injury would result from
denying enforcement of the contract after one party has been
induced by the other seriously to change his position in reliance
on the contract.
Here the detriment suffered by the Goldsteins involves the loss
of the benefit of their bargain: their right to purchase the
property for a specified sum.
Here Hanna imbued his agent, Callahan with apparent
authority to make the representations in which the Goldsteins
relied. Apparent authority (when in excess of actual authority)
proceeds on the theory of equitable estoppel; it is in effect an
estoppel against the owner to deny agency when by his conduct
he has clothed the agent with the apparent authority to act.
Here the doctrine of equitable estoppel precludes Hanna from
claiming a forfeiture of the Goldstein’s option rights.
There has to be reliance upon what the principal himself has
said or done or at least said or done through an authorized
agent. The acts of the agent in question cannot be relien upon
alone enough to support an estoppel. If his acts are relied upon
there more also be evidence of the principal’s knowledge and
acquiescence in them.
What would you counsel Mr. Hanna to do –if he did object
after the phone with Callahan—he does not think Callahan is
not doing him a good favor—tell Hanna that the principal has
to call the third party—correct for the agent rather then saying
that the agent did not have the power to begin with. So it is the
principal that conveys all the power.
Callahan is accepted to act in one’s interest and that may be
another reason that Hanna did not object.
Is the decision right? Perhaps—Ricks thinks it is—he would
have said that when Callahan had the conversation—Callahan
can interpret Hanna’s silence as implied consent because he
had the authority.
Why do both Goldsteins and Hanna want the property? Make
profit—because the property has gone up.
Note: pg. 252—Hodeson v. Koos---may an imposter cause
liability for another on an agency theory? Yes. Make sure you
get what you paid for before you pay. The proprietor’s duty of
care and precaution for the safety and security of the customer
encompasses more than the diligent observance and removal of
banana peels from the aisles. The duty of the proprierot also
encircles the encircles the exercise of reasonable care and
vigilance to protect the customer from the loss occasioned by
the deceptions of an apparent salesman. The rule that those
who bargain without inquiry with an apparent agent do so at
the risk and peril of an absence of the agent’s authority has a
- 21 -
patently impracticable application to the customer’s who
patronize our modern department stores. If the proprieroty of a
place by his dereliction of duty enables one who is not his
agent to act as one or create the appearance of being one, the
proprietor will not be able to escape liability for the loss
sustained by the customer.
F.
Inherent Agency Power:
1. Rest 2d §8A: Inherent Agency Power: Inherent agency power is a
term used in the restatement of this subject to indicate the power of an
agent which is derived not from authority, apparent authority or
estoppel, but solely from the agency relation and exists for the
protection of persons harmed by or dealing with a servant or other
agent.
2. Dupis v. Federal Home Loan
a. Margaret Dupis signed a promissory note to Fidelity for $156, 000
and she secured the note with a mortage on her home—Fidelity
sold off the note to FHMLC, and Fidelity seviced the loan until it
went bankrupt. Dupis was unaware of the FHMLC assignemtn and
servicing agrement until then—she never received the reamining
amount for home improvement escrow.
b. The parties agreed that Dupis had no knowledge that FHMLC
owned her note and mortgage until after the bankruptcy. Fidelity
did not have apparent authority.
c. If the principal is undisclosed, and A is a general agent, and A is
not doing what he is supposed to be doing or not doing—is the
principal liable? Yes.
d. Inherent agency power—is used to indicate the power of an agent
which is derived not from authority, apparent authority, or
estoppel, but solely from the agency relation and exists for the
protection of persons harmed by or dealing with a servant or other
agent.
e. A principal which will explain the cases can be found if it is
assumed that a power can exist purely as a product of the agency
relation. Because such power is derived solely from the agency
relation and is not based upon principles of contracts or torts, the
term inherent agency power is used to distinguish it from other
powers of an agent which are sustained upon contract or tort
theories.
f. As a matter of agency law, it would be unfair for FHMLC to have
the benefit of Fidelity’s servicing of the note and mortagage
without also making FHMLC responsible for Fidelity’s excesses
and failures.
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g. The real issue here is whether Fidelity should be treated as a
general agent—The restatement gives two choices: general agent
which is an agent authorized to conduct a series of transactions
involving a continuity of service. And special agent—which is an
agent authorized to conduct single transaction or a series of
transactions not involving continuity of service.
h. Continuity of service rather than the extent of discretion or
responsibility is the hall-mark of the general agent. One who is an
integral part of a business organizations and does not require fresh
authorizations for each transaction is a general agent.
i. Fidelity is a general agent for FHMLC with respect to servicing the
loans it sold to FHMLC.
j. Rule: A general agent for an undisclosed principal authorized to
conduct transactions subject his principal to liability for acts done
on his account, if usual or necessary in such transactions, although
forbidden by the principal to do them.
k. Fidelity must be considered a general agent and that FHLMC, as
an undisclosed principal, is subject to liability on agency law
principles for Fidelity’s breaches of contract.
l. Notes;pg. 259: Restatement Section 8A indicates that inherent
agency power is distinct from actual authority, apparent authority,
and estoppel to deny authority and derives solely from the general
agency relationship itself. Consider the Rest section 161 which
states the circumstances in which an agent acting for a disclosed or
partially disclosed principal will be liable for unauthorized acts of
a general agent: Unauthorized Acts of General Agents: A general
agent for a disclosed or partially disclosed principal subjects his
principal to liability for acts done on his account which usually
accompany or a incidental to transactions which the agent is
authorized to conduct if, although they are forbidden by the
principal, the other party reasoanbly believes that he agent is
authorized to them and has no notice that is not so authorized.
m. This case is important because even though the Merrial Doctrine
lets off the hook FHMLC—other lenders will be liable. Pg. 258.
Merrill Doctrine: Government is not partly public or partly private,
depending upon the governmental pedigree of the type of a
particular activity of the maaner in which the Government
conducts it. Whatever the form in which the Government
functions, anyone entering into an arrangement with the
Government takes the risk of having accurately ascertained that he
who purports to act for the Government stays within the bounds of
his authority. Congress establised the FHMLC with specific
powers and the FHMLC has within those powers explictly limited
the authority of its agent. “created as a corporate form especially
created by Congress for defined ends.”She is getting a windfall
- 23 -
n.
o.
p.
q.
G.
because of this doctrine—isn’t she? We are streching the benefits
of beyond all bounds.
§194 Acts of General Agents: a general agent for an undisclosed
principal authorized to conduct transactions subjects his principal
to liability for acts done on his account, if usual or necessary in
such transactions, although forbidden by the principal to do them.
195. Acts of Manager Appearing to be Owner: an undisclosed
principal who entrusts an agent with the management of his
business is subject to liabilityu to third persons with whom the
agent enters into transactions usual in such businesses and on the
principal’s account although contrary to the directions of the
principal.
The principal has to do something to cause the third party to
believe in apparent authority—note—pg. 263 Spears had the
inherent agency power to bind Zanac--- Should Zanac be liable for
the person whofixes the neon sign—no apparent authority here
because at no time did Zanac manifest to Frazier that Spears was
authorized to contract for the servies rendered. Nor may Spears
auhtority to contract be inferred from his authoirty to solicit bids
for the job. Inherent agency power was reasonable because of
Spears position and he was authorized to do things that had to be
doen with the restaurant. Spears, is the general agent for a
partially disclosed principal, may bind the principal under his
inherent agency powers. He was the one that was doing all the
dealings and Zakas said that it was okay to go ahead and repair the
sign. In a case like this, this is tiny little thing—if they were going
to redo the store this would be different—this is such minor thing
and don’t make repairman to have to figure out who owns
everything before they repair—to do this would make the business
slow, wouldn’t it? There would be a problem if you had to go to
the board of directors or the president of the corp every time you
had to make an incidental repair or do a every day business repair
or affair. Incidental business transactions should be able to be
undertaken as was here under inherent agency power.
Does an agent have the inherent authority? This could be an
exam question. See notes—pg., 260—261—what are the
limitations on the agent’s authority—the third party must
reasonably believe. Note 3: pg. 259: geneneral agency duties. Is
the contract an usual one—does the third party know that the agent
has limitations.
Ratification of Unauthorized Transactions:
1.
Rest 2d §82: Ratification: ratification is the affirmance by a
person of a prior act which did not bind him but which was done or
- 24 -
professedly done on his account, whereby the act, as t o some or all
person, is given effect as if originally authorized by him.
2.
Affirmance: Botticello v. Stefanovicz—pg. 427
a. Stef, defendants acquired as tenants in common a farm situated
in the towns of Colchester and Lenanon. Mary would not agree
to sell for less than $85,000. The issue is whether Walter, the
husband acted as an agent for Mary—the trial court said that
she did and the trial court found for the plaintiff. –Mary was
bound by the contract executed by her husband because she
ratified its terms by her subsequent conduct—the trial court
found this.
b. Ratification is defined as the “affirmance by a person of a prior
act which did not bind him but which was done or professedly
done on his account. Ratification requries acceptatnce of the
results of the act with an intent to ratify and with full
knowledge of the material circumstances.
c. The trial court finding neither indicates an intent by Mary to
ratify the agreement, nor establishes her knowledge of all the
material circumstances surrounding the deal. At most, Mary
observed the P occupying and improving the land, received
rental payments from time to time and knew that the use,
occupancy, and rentals were pursuant to a written agreement
she had not signed. None of these facts are sufficient to support
the conclusion that Mary ratified the agreement and bound to
its terms.
d. It is undisputed that Walter had the power to lease his own
undivided one-half interest in the property—Judgement against
Mary is set aside and the court here reversed and held that
Mary never authorized her husband to act as her agent for any
purpose connected with the lease and option to purchase
agreement, so recovery against her is precluded.
e. Botticello can stay there on Walter’s half but Walter cannot
deprive Mary of here use and enjoyment of the land. Did
Walter act for Mary? No.
f. Marital status cannot in and of itself prove the agency
relationship. The fact that one spouse tends more to business
matters than the other does not, absent other evidence of
agreeement or authorization, constitute the delegation of power
as to an agent.
g. Since Walter at no time purported to be acting on his wife’s
behalf as is essential to effective subsequent ratification, Mary
is not bound by the terms of the agreement and specific
performance cannot be ordered as to her.
- 25 -
h. Difference between this case and Goldstein v. Hanna: Mary
knows about the negotiations and she never objects and she
thinks that Walter might have sold the property and she knew
that they had thought about it. It is more reasonable here for
Mary to have known something and she should have objected
to keep her property rights. Is it reasonable for her object? Did
she have to object? Did Mary know what was going on?
i. a woman wrote the opinion—is it a pro-woman decision?
Maybe or maybe not.
j. Footnote in Rakeshaw—because of their marriage, she may be
bound.
k. Why can’t Botticello claim that Mary is an undisclosed
principal? He never said that he was representing her—why
must the person acting as an agent say they are acting as an
agent for ratification to occur or disclose a principal.
Undisclosed principal is someone who the agent does not name
or say that that the agent is acting as agent—you have an
undisclosed principal when you act as agent without saying
you are representing someone and it is partially undisclosed
when the agent says I am acting as an agent for someone else
who will remain nameless. For ratification, WALTER DOES
NOT HAVE TO SAY THAT HE IS ACTING ON BEHALF
OF MARY, HE ONLY HAS TO STATE THAT HE IS
ACTING ON THE BEHALF OF SOMEONE EVEN IF THAT
SOMEONE REMAINS NAMELESS.
l. Why must he say at all that he is acting as an agent in a
ratification case? There is an answer on note 1 pg. 429—we
will be coming back to this issue.
m. May an undisclosed or partially disclosed principal ratify an
unauthorized act? Under the Rest, a person (the ratifer) only
has the right to ratify the act of another (the actor) where (1)
the actor purported to act as an agent and (2) the actor either
identified the ratifier as the principal or intended to act on
account of the ratifier.
n. A principal may affirm a transaction either by electing to be
bound or by conduct. As indicated in Botticello, one type of
conduct constituting an affirmance is the knowing acceptance
by the principal of benefits of the transaction. For acceptatnce
of benefits to constitute affirmance, the principal must have no
claim to the accepted benefits other than through or under the
transaction in question.
o. A ratifier may elect to avoid an affirmance if at the time of the
affirmance the ratifier was ignorant of any material fact
involved in the affirmed transaction. Material facts are those
which substantially affect the existence or extent of the
obligations involved in the transaction.
- 26 -
p. In order to ratify, a principal must have been able to undertake
the transaction both at the earlier time when the agent acted
and at the later time of the act of ratification. For example, a
principal cannot ratify a transaction which the principal could
not have entered into at the time the agent acted.
q. Suppose an agent enters into an unauthorized transaction which
the principal ratifies without indicating to the third party that
the agent had acted without authority. Suppose further that the
same third party again deals with the agent and the agent again
exceeds authority in a similar fashion. The principal may be
bound to the second contract on the basis of the apparent
authority created by the manifestation to the third party that the
agent had the authority to deal. What about if at the time of
ratifying the first transaction the principal advised the third
party of the lack of authority of the agent regarding the first
transaction, would the principal then be bound on a second?
Jan 31, 2001
3.
Rakestraw v. Rodrigues:
a. Rodrigues is a friend of Rakeshaw and Joyce and William
discuss using Joyce’s personal property for collateral for
business and William forged her name to a note when she no
longer agreed to put up her personal property and the loan
company gave the check and it was issued jointly and Joyce
signed the check and Rodigues told the notary that he had seen
Joyce sign the papers for the loan so he lied too. She then
demanded stock and he refused so she went to atty and told
him that the signature was forged and William let Joyce play
some role in the business. She believes she had an interest.
William’s appeal was dismissed for failing to file a brief.
b. The court notes that William’s paycheck was put in a joint
account. Loan company sued her and she cross claimed
against William and Rodrigues.
c. The issues the court deals with involved the application of
traditional principles of agency law. Two basic rules are
involved: (1) ratification by a person of an act purportedly
done on his behalf not only creates the relationship of
principal and agent but also constitutes approval by the
ratifier of the purported agent’s act, relieving such agent of
liability to the ratifier for the act; (2) forgeries can be
ratified thereby relieving the wrongdoer agent of liability to
the principal. Pg. 432.
d. Did Joyce ratify William’s act as her agent? Did William
forge her name acting for the corporation. She is held
- 27 -
e.
f.
g.
h.
i.
responsible for the forgery because she knew about it and
she did not do anything for three years so she ratified the
forgery by not doing anything about it.
The ratification of an act of forgery by one held out to be a
principal creates an agency relationship between such
person and the purported agent and relieves the agent of
civil liability to the principal which otherwise would result
from the fact he acted independently and without
authority.
An agency may be created, and an authority may be
conferred, by a precedent authoritization of a subsequent
ratification. Ratification is the voluntary election by a
person to adopt in some manner as his own an act which
was purportedly done on his behalf by another person, the
effect of which, as to some or all persons, is to treat the act
as if originally authorized by him. A purported agent’s act
may be adopted expressly or it may by adopted by
implication based on conduct of the purported principal
from which an intention to consent to or adopt the act may
be fairly inferrd, including conduct which is “inconsistent
with any reasonable intention on his part, other than that
he intended approving and adopting it.” It is essential that
the act of adoption be truly voluntary in character and
there can be no adoption if the act, although voluntary, is
done only because the purported principal is obligated to
minimize his losses caused by the agent’s wrongful act or
because of duress or misrepresentation by the agent.
It is well settled in Cal that a principal may ratify the
forgery of his signature by his agent.
Joyce does conced that she became aware of the forgeries
within a few days after endorsing the check so the
requirement of knowledge of the material facts essential to
voluntary ratification is satisfied. Joyce did not elect to
rescind at a time when she was fully informed and had the
powewr to do so, in fact it was not until three years after
the discovery of the forgeries and a complaint filed against
her did she seek relief.
It appears that that she
affirmatively endorsed the fraudlent acts of her husband in
anticipation of benefits to be gained and sought to negate
her endorsement only after benefits failed to materialize as
anticipated.
Did Joyce elect to adopt forgery, she signed the check, she
told atty and she did not do anything until her marriage
failed even though she knew about it three years prior. She
needs to have knowledge of the act before ratification.
- 28 -
j. Botticello—pg.
428: Ratification is defined as “the
affirmance by a person of a prior act which did not bind
him but which was done or professedly done on his
account. Ratification requires acceptance of the reasults of
the act with an intent to ratify, and with full knowledge of
the material circumstances.
k. What about maintaining silence when you should have
spoken? Silence by ratification—some intent to adopt the
act must be shown.
l. Did William purport to act on behalf of Joyce? He is acting
against her not for her when he forges her name when he
knows she is against the loan—go back to the time that he
did the act to see if he purported to act on her behalf.
Generally, the effect of a ratification is that the authority
which is given to the purported agent relates back to the
time when he performed the act. Since he is considered to
be an agent with authority at the time he performed the act,
he does not incur liability for acts done within the scope of
that authority. Purports to act on her behalf at the time he
did the act in order to show ratification—he MUST be
acting on her behalf at the time in order to establish the
agency and principal relationship.
m. Forgies seem to be the paradigm of acting on their behalf
because you are acting in their name and the other party
does not know at the time it is a forgery.
4.
A’s Towing v. Well Service:
a. Whether the phone call that Chevron says is unauthorized
has been ratified—yes: (a) principal’s voluntary election to
adopt the act (at the time of the phone conversations, they did
not try to repudiate the contract nor soon after the conversation;
(b) did Chevron have knowledge of the material
circumstances? Yes; (c) intent to ratify? None of this is
explicit—what is another explanation for the June letter—it is
impossible that Chevron because they do a lot of business with
P &A and so they did want to say anything—Chevron’s
response is that they did not cancel. They did not want to
cancel but they sent out a cancellation letter—why? Chevron
may be thinking that they have do themselves because P & A is
not doing anything so they might as well cancel and do it
themselves. What is P & A’s response? P & A considered the
contract cancelled but the letter does not mean that—consider
it cancelled b/c P &A did not show up. Looks like between
April and June that they did talk. Is there any reason to think
that there is a time pressure to get this job done?
- 29 -
b. Why do we allow ratification at all—this is not apparent
authority so why do we let it go ahead? What is this most like?
This is an equitable remedy. If you elect to adopt the act which
could benefit you, you cannot come back to say that you did
not want it done. What is the doctrine about—what is the
policy? Ordinarily a principal ratifies to protect the relationship
with the third party such as a seller or another party—protects
relationships with trust and builds up trust. Trust in
manifestations—forming an agency relationship in the first
place—whether it comes before or after the relationship does
not matter—manifestations of consent will address this trust.
Ratification and Waiver are the same—one is a postitive
principle and one is a negative principle.
c. The law of La. Is that the unauthorized act of one purporting to
bind a corporation may be implicitly ratified by the corporate
principal through the knowing acquiescence of those having
the authority, so long as the unauthorized act is not violative of
the corporate charter or state law.
d. A ratification may be held to have occrured when corporate
personnel with the authority to bind the corporation acquire, or
are charged with knowledge of the unauthorized act and fail to
repudiate it within a reasonable period of time.
e. Here Chevron acquiesced in the April 9 telephone cancellation
of the contract thereby implictily ratifying it and adopting it as
an act of the corporation. Chevron took not action in the
ensuing weeks that was in any way inconsistent with a
cancellation by telephone April9. Therefore, the individual
who purported to cancel the contract is relieved of liability
because Chevron ratified it. The record further shows that
telephone cancellations with a follow up letter of cancellation
was an accepted practice in contracts of this sort. Chevron
personell with the authority to bind the corporation had
knowledge of the telephone cancellation and failed to repudiate
it within a reasonable period of time.
f. Note: under the Rest: silence or failure to act indicates
affirmance “under such circumstances that, according to the
ordinary experience and habits of me, one would naturally be
expected to speak or act if he did not consent. Should it make a
difference if the claimed affirmance relates to an act of a
stranger as opposed to an actual agent exceeding the scope of
his or her power to bind?
H.
Partial Ratifications: pg. 440
1. Navrides v. Zurich:
- 30 -
a.
b.
c.
d.
e.
f.
g.
h.
i.
In this action against defendant insurance company arising out of
the compromise of a personal injury claim made with the company
by plaintiff’s attorney without her consent, we must decide
whether defendant was discharged from liability where its
settlement draft after delivery to the atty was cashed on plaintiff’s
forged endorsement and the proceeds of the draft appropriated.
Zurich is discharged from the debt—it is well settled that a client
may ratify the unauthorized actions of his attorney, that a principal
may ratify the forgery of his signature by his agent, and that a
principal may ratify the unauthorized act of an agent by bringing
suit based thereon.
Rule: pg. 443: if a principal ratifies part of the transaction, he is
deemed to ratify the whole of it. The reason for this is because the
Ratification is approval of a transaction already taken place.
A principal cannot split the agency transaction into separate parts,
and take the benefits without the burden.
The principal has the power to approve the transaction only as it in
fact occurred, not to reconstruct it to suit his present needs.
Rule: that where an agent authorized to collect a debt owing to his
principal accepts in lieu of cash a valid check payable to the agent,
the debtor is discharged upon payment of the check, although the
agent absconds with the proceeds, since payment to the agent is
equivalent to payment to the principal.
In Rest of Agency: “if an agent who is authorized to receive a
check payable to principal as a conditional payment forges the
principal’s endorsement to such a check, the maker is relieved of
liability to the principal if the drawee bank pays the check and
charges the amount to the maker.
The general rule against partial ratification does not apply to
situations involving distinct or separate acts. In Rodigues, the acts
of William were part of the same transaction. Here, in this case,
although the atty had the power to bind Navides by his forgery of
Navide’s signature, that forgery was a separate act and WAS NOT
ratified by Navides’ ratification of the settlement. Whether
Navrides has ratified the forgery is important in light of the
relation back doctrine and the rule in Rakeshaw v. Rodigues, pg.
431, that a principal’s ratification of an agent’s unauthorized act
exonerates the agent as against the principal.
Ratification exonerates the agent –so can Forsyth be sued by
Ravides because of the forged settlement? No.
- 31 -
Feb. 5. 2001
I.
The Non-Existent Firm[contracts entered into before formation of a
LL firm]: pg. 164:
1. Traditional Approach: Goodman v. Darden:
a. Goodman is a party. The dispositive issue in this case involves
the liability of promoters on pre-incorporation contracts. In
general a promoter is liable on a contract he makes for the
benefit of a not-yet-formed corporations.
b. Rule: all persons who assume to act as a corporation without
authority so to do shall be jointly and severally liable for all debts
and liabilites incurred or arising as a result thereof.
c. Clearly a corporation not yet in existence cannot authorize actions
on behalf of itself.
d. Promoters are not personally liable for pre-incorporation contracts
where the other party knows of the nonexistence of the corporation
and agrees to look solely only to the corporation for payment or
liability.
e. Here, there is no dispute that DDS knew at the time of signing that
the corporation was not yet in existence. The issue then is the
specificity of the agreement to look solely to the corporation.
f. As with any agreement, release of the promoter depends on the
intent of the parties. This determination varies from state to state.
Some jrds require that the contract show clearly on its face that
there is no intent to hold the promoter liable before he is released.
This court says that intent can be express or implied and the
express words like, “I agree to release” do not need to be in the
contract. The burden is on the promoter, as opponent to the
agreement to show by preponderance of all essential facts,
including mutual intent. Where the promoter cannot show an
express agreement, existence of the agreement may be shown by
circumstantial evidence but circumstances must be such as to make
it clear by a preponderance of the evidence that the parties not only
intended but did actually make, the alleged statement.
g. How many of you think that DDS is getting a windfall?
Dissent states that Goodman was a licensed releator and was
experienced.
h. Holding: where a promoter wishes to be released from liability
for contracts he makes on behalf of a corporation not yet
formed, he has the burden of proving the existence of an
agreement to release him. There mere facts of contracting in
the corporate name and payments made to the corporation are
not sufficient to carry that burden.
- 32 -
i. When the corporation is formed it is considered to be an entity
separate from its owner and the owner is not usually liable for
the corporations actions.
j. If the corporation does not exist then the promoter becomes
liable under the contract (pg. 168)-Exception: only if the other
party has to know that the corporation does not exist at the
time and agrees to only look to the corporation for liability or
payment. This exception does not apply here –it is not enough
to just sign on behalf of corporation. The signature line is not
evidence that the parties actually agreed to only look at the
corporation for payment.
k. He told them up front that he was going to form a corporation
and therefore it can be presumed that DDS got an windfall.
l. Why is there a presumption that a person makes a contract
with another—a contract has to be between two people,.They
knew that there was no one on the other side when they
performed and they thought they had agreement.
m. Where a corporation with knowledge of the agreement’s terms,
benefits from a pre-incorporation agreeement excecuted on its
behalf by its promoters, the corporation and the promoters are
jointly and severally liable for breach of the agreement unless
the agreement provides that performance is solely the
responsibility of the corporation or subsequent to the
formation of the corporate entity, a novation is executed
whereby the corporation is substituted for the promoters as a
party to the original agreement. Note pg. 169.
n. it is axiomatic that the promoters of a corporation are at least
initially liable on any contracts they execute in furtherance of
the corporate entity prior to its formation. The promoters are
released from liability only where the contract provides that
performance is to be the obligation of the corporation; the
corporation is ultimately formed and the corporation formally
adopts the K.
o. it is generally recognized that where pre-incorporation
agreement merely indicates that it is undertaken on behalf of a
corporation, the corporation will not be exclusively liable in the
event of a breach. Under such circumstances the promoters of
the corporation remain liable on the contract.\
p. Formation of the corporation following execution of the
contract is a prerequisite to any release of the promoters from
liability arising from the pre-incorporation agreement.
q. Mere adoption of the contract by the corporation will not
relieve the promoters from liability in the absence of a
subsequent novation.
r. Restatement Section 326: Unless otherwise agreed, a person
who in dealing with another purports to act as agent for a
- 33 -
s.
t.
u.
v.
V.
principal whom both know to be nonexistent or wholly
incompetent, becomes a party to such a K.
This rule –we presume that an existing contract was formed
with existing party which keeps the promoter liable unless
there is some intent expressly or impliedly intent to release the
promoter form liability.
Notes on restatement –pg. 168—Know this comment.
Perhaps Goodmans lawyers should have argued that there was
mistake and ask the court to reform the written agreement that
the parties agreeed to let him go and only look to the
corporation for payment.
IS THERE AN AGENCY RELATIONSHIP BETWEEN
PROMOTER AND CORPORATION—NO! an Illinois court
found that the relationship however is similar to that between an
agent and a undisclosed principal.
Liability for Representations by Agents[Authority and Representations]:
A. Cange v. Stotler (re-read).
1. issue here on appeal—is there an agency relationship and what effect does
that have on the limitations? If there is an agency relationship, then it will
not be applied and it will be tolled. In order for this to be true, Stotler and
Co would have to make such represenation to Cange—they (Stotler) must
be bound by Wilson’s statement in order to be estopped from claiming
limitations.
a. How is Wilson the agent? He acted with authority. Defendant argues that
Wilson lacked the apparent authority for his actions to estop Stotler and
Co from asserting the bar of the limitations period. First, defendant argues
that plaintiff has failed to show a single action on Stotler’s part to create
apparent authority of Wilson but plaintiff need not prove any actions on
Stotler and Co’s part besides its allowing Wilson to act as its agent for
handling plaintiff’s account because the trier of fact could find Wilson’s
statements within his inherent authority. Representations of the principal
to the third party to central for defining apparent authority, but in contrast,
inherent authority orginates from the customary authority of a person in
the particular type of agency relationship and no representations beyond
the fact of the existence of the agency need to be shown.
b. The trier of fact could find that it is within the customary authority of an
FCM’s agent handling a customer’s account to make statements of the
account’s correct balance and to promise refunds for lossess from
unauthorized trades. The Plaintiffs reliance on such promises could be
found reasonable..
- 34 -
c. P only need to prove any actions on Stotler and Co’s part besides its
allowing Wilson to act as agent for handling p’s account because the trier
of fact could find Wilson’s statements within his inherent authority.
d. Representations form the principal to the third party are central for
defining apparent authority. But inherent authority originates from the
customary authority of a person the particular type of agency relationship
and no representations beyond the fact of the existence of the agency need
by shown.
e. Unlike actual authority, inherent authority cannot be limited by secret
instructions to an agent restricting his or her customary authority.
f. Two rules for inherent authority: one for disclosed principal or
undisclosed—which applies? The disclosed principal because Cagne
knows Wilson is acting on Stotler’s behalf. Wilson has to be a general
agent for Stotler and then the acts must be usual or incidental. The third
element is that the third party reasonably believes that the agent is
authorized/---Cagne reasonably believed that Wilson was authorized to do
the things that he did. Also, you can make the argument that Wilson was
acting on behalf of the statute so it looked as though he was doing what he
had authority to do.
g. Problem: pg. 266—See 757 P.2d 178: are sellers responsible for selling
Agent’s misrepresentations? Yes, the court found it true on a
respondeat superior theory (see pg. 270 note 3). How about on the
theory of inherent authority: (a) is agent a general agent? Probably;
(b) is the statement about the property being built up to code a usual
statement that a agent would make when selling a hosue? Yes, this
statement is one that most likely would be stated when selling a house
and the third party did they reasonably believe that the seller’s agent
was authorized to make such representations? Most likely it appears
that they would have authority which is inherent. How about the
argument that seller’s agent is not a general agent? Maybe because
this is not a series of transactions but one singular transaction. What
about on the theory of actual authority or apparent authority? It is
possible that there is actual authority that the seller told its agent to
lie, not likely but possible. How about apparent authority? Did the
seller as prinicipal manifest to the purchaser that its agent has the
authority to sell the house. You need the principal to manifest to the
third party that the agent has the authority? This is not really likely
here. Rule: When a principal has by his voluntary act placed an agent in
such a situation that a person of ordinary prudence, conversant with
business usages and the nature of the particular business, is justified in
presuming that such agent has authority to perform a particular act on
behalf of his principal, the principal is estopped, as against such innocent
third person, from denying the agent’s authority to perform the act. Thus,
based on this rule by placing the agent in the position, the principal may
have indicated to the third party that the agent had the authority.
- 35 -
h. Generally, a principle may not be bound by the false representations
of his agent made w/o his knowledge, consent, or authority. However,
an exception to this rule exists if an agent has apparent authority to make a
representation, the question whether such authority existed being one of
fact. A princiapl may be held liable for the tortious conduct of an agent if
the conduct was w/in the scope of employment. An agent is acting within
the scope of employment if he is doing what is necessarily incidental to
the work that has been assigned to him or which is customarily within the
businesss in which the employee is engaged.
VI.
Firm’s Knowledge of the Agent:
A.
Knowledge: pg. 393:
1.
E.Udolf v. Aetna: (read)
a.
b.
c.
d.
e.
f.
g.
this sole issue in this appeal is whether the plaintiff, E.
Udolf was entitled to coverage under certain employee
dishonesty insurance policies issued by the defendants,
Aetna, for the misappropriation of moneis by an employee
of the plaintiff.
Leonard did not know but if corporation knows of Bjork’s
misappropriation, it has to be imputed to it from its
employees to corporations. Does the corporation itself
know anything? No, because it is fiction—there is only
constructive knowledge, no direct knowledge to the
corporation because it is the employees that know.
When will a court impute the knowledge? It should have
been imputed.
Rest: a principal is affected by the knowledge of an agent
concerning a matter as to which he acts within his power to
bind the principal or upon which it is his duty to give the
principal information.
What about the bookkeeper—duty to report dishonesty?
Probably.
Ricks says what the court does not talk about and what they
should—pg. 416: adverse agency: this is an exception to
the general rule that the actions are imputed. .
Circumstances where knowledge may be imputed typically
involve questions of law rather than fact. The general rule
is that whatever knowledge an agent acquires within the
scope of his authority is imputed to the principal.
However, knowledge and misconduct of an agent will not
be imputed to a principal if an agent is “secretly acting
adversely to the principal and entirely for his own or
another’s purposes.” The law does not then presume that
- 36 -
h.
i.
j.
k.
l.
the wrongdoer would perform his usual duty of disclosing
all material facts regarding his action if such disclosure
would reveal his fraud.
Rest also provides that a principal will be held to the
knowledge of an agent who acts adversely to the principal
if: the agent enters into negotiations within the scope of his
powers and the person with whom he deals with reasonably
believes him to be authorized to conduct the transaction; or
, before he has changed his position, the principal
knowingly retains a benefit through the act of the agent
which otherwise he would not have received. The threshold
determination then is whether the agent was “acting
adversely” -Pg. 396 rule: does not always have to be a manager or
someone with control.
Does the adverse agent rule apply, if it does not then the
rule on the bottom of page 394-95 will apply and the
actions will be imputed to the principal.
No knowledge here of the stolen money is imputed because
of the adverse agents: however, here why are they no
adverse agents here: if they are not adverse agents,. Then it
can be imputed to the principal.
Notes –pg. 396-398.
B. Notification:
1. Dvoracek v. Gillies:
a. pg. 400: a notification given to an agent is notice to the principal if it is
given to “an agent authorize to receive it” or to “an agent apparently
authorized to receive it.”
b. case is here to show you the difference between knowledge and notice.
Constructive knowledge does not mean the principal knows something.
c. Notice does not mean constructive knowledge of the contents of the paper.
d. Notes pg. 400-01
e. Problem 8.2 LOOK UP CASE
Feb. 7.2001
I.
Prior or Casually Obtained Knowledge or Notification
A. Davenport v. Correct Man
- 37 -
1. whether Van Dyke in fact knew of the danger and whether any such
knowledge was obtained after Skyworker (employed Van Dyke) and
could therefore be imputed to the corporation.
2. Put in Rule on pg. 402—the court disagrees with the Ohio rule (Texas
and Ala go with Ohio)—!!!!!
3. Ricks does not agree with this rule : the general rule is that relevant
knowledge is imputed to the corporation in such a situation—the
dissent belives the court should lay to rest the Ohio rule that prohibits
courts from imputing to a corporation the knowledge of the corporate
agent which was acquired before that agent was employed by the
corporation.
4. Notes pg. 403
II.
Knowledge of Agents:
A.
Estate of Sawyer v. Cowell (pg. 437)(re-read case)
1. Corporation cannot have actual knowledge.
2. The court accepts the proposition that in certain circumstances it
is possible for silence to be construed as an affirmance resulting in
ratification. Affirmance alone will not necessarily bind a principal
who acts upon incomplete or inaccurate information. The law is
clear that for ratification of an authorized act to occur so as to
bind the principal, he or she must have actual knowledge of the
material facts being adopted at the time affirmance occurs.
Absent such knowledge, an affirmance may be avoided upon the
principal’s learning the material facts.
3. Is actual knowledge needed for ratification to occur—this case
says so, but that is not the law anywhere else and Ricks does not
belive that this rule will hold up.
4. Notes: pg. 440—the general rules holding a principal accountable
for the knowledge of an agent apply in a ratification context to
prevent the ratifier from avoiding the affirmance. Note, however,
that the principal will not be charged with an agent’s knowledge of
facts relating to the agent’s own authorized acts.
5. Scope of authority—is actual authority is what the principal has
manifested to the third party what she believes that she is
authorized to do.
B.
Kelly Asphalt v. Barber (pg. 89)
1. A contract not under seal, made in the name of an agent as
ostensible principal, may be sued on by the real principal at the
latter’s election.
- 38 -
2. The agent of an undisclosed principal is a party to the contract. An
agent who contracts in his own for an undisclosed principal does
not cease to tbe a party because of his agency.
3. Indeed, such an agent, having made himself personally liable, may
enforce the contract though the principal renounced it.
4. If therefore the contract did not fail for want of parties to sustain
it, the unsuspected existence of an undisclosed principal can
supply no ground for the avoidance of a contract unless fraud is
proved. This is distingusihed from mistake, which renders the
contract void because the contractual tie has never been
completely formed, and fraud which renders it voidable at the
election of the defrauded party.
5. Fraud only becomes important as such, when a sale or contract is
complete in its formal elements, and therefore valid unless
repudiated by the right is claimed to rescind it.
6. If one who is in reality an agent denies his agency when
questioned, and falsely assets that his principal has no interest in
the transaction, the contract, it may be said, becomes voidable not
because of want of parties , but because it has been fraudulently
procured. (pg. 90)
7. Would the result have been different if Barbara had been suing to
rescind instead? If you do, you have to believe in sympathy or
clean hands—see notes—pg. 91-92
8. Problem 2.3
a. why shouldn’t the price go really high—it is going to be an
amusement park? Did the agent misrepresent by not revealing
the principal’s identity? Analogous situation is that you look at
your stock –TWA stock—you sell and the next day you find
out that TWA is merging with American and the stock goes
up. Here we are selling where one party knows the value and
the other knows. TWA executives know that their stock is
going up and they know what it is really worth (they know, the
general public does not).
III.
Agent’s Liabilty for Contractual Dealings:
A.
Agent’s Duty to Fully Disclose Principal:
1.
Clark v. Maddux(read)—pg. 94
a.
the long settled rule in Illinois is that; where an agent in
making a contract discloses his agency and the name of
his principal, the agent is not liable on the contract
unless he agrees to become personally liable.
- 39 -
b.
2.
Here there is no doubt that Garder told the plaintiff
that defendant was representing Arnetta Jenkins.
Copp v. Breskin: pg. 96—re-read
a. client refused to pay the law firm and Copp sued Breskin—
here the principal was disclosed.
b. This case went the other way from Clark. The
circumstances here are different.
c. The clear trend among jrd is to hold the atty liable. (pg.
97)—one court, bound by prior cases siding with the atty,
nevertheless expressed the view that the atty should be
liable in the absence of a disclaimer, because the service
provider deals with the atty, not the client, and generally
accepts employment based on the attys credit, not the
clients.
d. When a litigation service provider contracts with an atty
based on the atty’s credit, and the atty is aware, or should
be aware of this, it should not matter that the client’s
identity is known. The service provider reasonably expects
that the atty will be responsible, as surety or guarantor of
the client’s performance, and any contracy expectation of
the atty is unreasonably if not fraudulent. (pg. 98).
e. An agent may guarantee performance by the principal and
the existence of a guarantee “may be shown by proof of a
custom to that effect.” Custom is determinative of the
parties INTENT where both parties are aware of it, and
neither knows or should know that the other party has an
intention contrary to it.
f. Holding: bottom of 98.
g. There is a feeling among the courts that the factual
requirement showing an agreement to pay is low.
Feb. 12. 2001
I.
Liability of Agents for Wrongful Conduct: (pg. 510).
A.
Civil Liability:
1. Wheeler v. Frito-Lay
a. Frito Lay is liable vicariously under respondeat
superior. Is there any way that Siler can be liable?
Employee still can be liable even if employer is liable
under respondeat superior. They are jointly and
severalably liable.
- 40 -
b. Rest. Second of Agency 242: states that a master is not
subject to liability for the conduct of a servant towards
a person harmed as a result of accepting or soliciting
from the servant an invititation, not binding upon the
master, to enter or remain upon the master’s premises
or vehicle, although the conduct which immediately
causes the harm is within the scope of the servant’s
employer.
c. Why is this different from undisclosed principal case
because for all intensive purposes Frito is a an
undisclosed principal. (pg. 513).
2. Firemans Fund v. Turner (pg. 514)
a. Suborgation—when an indemnifier (such as an
insurance co pays another such as the insured, then the
insured is suborgated rights of the injured party)
indemnifies another person they are suborgated the
rights of the plaintiff. So it is one insurance company
against another.
b. The payment of joint and several judgment by employer
who is solely liable by respondeat superior DOES not
absolve the employee of liability for the same reasons as
the last case.
B.
Agent’s implied Warranty of Authority:
1.
Farm Credit Bank v. FCB: (re-read).
a. bank loans money to partnership (pg. 111).
b. A person who assumes to act as agent for another impliedly
warrants that he has authority to do so; and if therefore he
in fact lacks authority he renders himself personally liable
on the warranty to one who deals with in good faith in
reliance thereon.
c. Bank wants to make the sub lease more attractive to the
third party.,
d. Rest of Agency comment K section 329: states that a cause
of action against an agent for breach of his implied
warranty of authority accurues when the third person
learns that the agent does not have authority or when he
suffers damage or fails to gain the anticipated benefits,
whichever occurs first.
e. A breach of k may be said to be a material failure of
performance of a duty arising under or imposed by
- 41 -
f.
g.
h.
i.
j.
k.
4.
agreement—a tort on the other hand, is aviolation of a duty
imposed by law, a wrong independent of contract.
Imposition of warranty of authority on every agent—what
is the possible policy for this rule? Because if the principal
dies, the relationship dies.
Every person purporting to act for a principal has a duty
toward third parties to refrain from making contracts the
authority for which has not been granted by principal. This
duty does not depend on the existence of a contract; it may
arise under the common law.
The principal dies before the contract is signed and the
relationship dissolves but why is the agent still found to
have breached the warranty of authority? Because this
allows a remedy—is there a loss? Why should be hold the
agent liable? What is the policy?because if it does not fall
on the agent, it will fall on the third party. As between the
agent and third party, the agent knows more therefore, if
the principal dies, the agent is the one that should bear the
liablility because they are the ones to best bear the risk of
liability and because they know the most about the
agreement. Agent knows more about the implied warranty
of authority than the thrird party so should be the one to
bear the risk if the principal dies.
Agent’s liability for the torts he commits does not derive
from the contractual relationship between the principal
and agent, but from the common law obligation of every
person to act or use that which he controls so as to not
injure another.
Court holds that that the plaintiff’s claim for breach of
implied warranty of authority may be considered to sound
in tort.
What if the Corporation fails to pay the fee—should the
agent be held liable to the Sec of state? There is no agency
authority at all if the corporation had been dissolved (this
does not happen very often). See notes pg. 113-114.
Water, Waste, & Land v. Lanham (pg. 101)—READ.
a.
b.
c.
Resolution of the controvery between Westac and
Lanham requires the court to analyze the relationship
between the common law of agency and reach of
statutes governing managers and menbers of a LLC.
Statute on page 104.
Under the common law of agency, an agent is liable on
contract entered on behalf of a principal if the principal
is not fully disclosed. In other words, an agent who
- 42 -
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
negotiates a contract with a third party can eb sued for
any breach of the contract unless the agent discloses
both the fact that he or she is acting on behalf of a
principal and the indentity of the principal. (pg. 10203).
WHO DO YOU THINK THAT SHOULD HAVE
WON? WAS THE DISTRICT COURT RIGHT?
LANAHAM? WHAT ABOUT UNDER AGENCY
PRINCIPLES?
A LLC cannot take advantage of the state LLC statute
unless its agent discloses that it is working on behalf of
the corporation. However, suppose there is no statute at
all? Everyone is one notice(pg, 104). Lanham lost
because agency law says that the statute was not
enough.
In light of the partially disclosed principal doctrine, the
county court’s determination that Clark and Lanham
failed to disclose the existence as well as the identity of
the LLC they represed is dispositive under agency law.
You must disclose that you are representing the
principal and who the principal is. The statute changes
this result according to Lanham because the statute
sattes that everyone is one notice. (pg. 104)
Why should have Lanham won? Because of the plain
language of the statute? Can you make the argument
that the common law agency principles are just wrong?
The court holds that where an agent fails to disclose
either the fact that he is acting on behalf of the principal
or the identity of the principle, the notice provision of
the LLC Act cannot relieve the agent of the liability to
the third party. (pg. 106).
When a third party deals with an agent acting on behalf
of a LLC, the existence and idenity of which has been
dislcosed, the third party is conclusively prsumed to
know that the entity is a LLC and not a partnership or
some other type of business organization. Where the
third party does not know the identity of the principal
entity, however, the situation is fundamentally different
because the third party is without notice and the law
does not contemplate that he has any way fo finding the
relevant records.
Ricks does not like the result in this case and thought
that Laham should have won.
Notes pg. 107-111.
If there is ambiguity in the disclosure—the burden falls
on who? The agent—this probably should be the case
- 43 -
n.
C.
because as between the agent and third party, the agent
is the one that knows the most about the principal.
The note cases do not really discuss the effect of a name
such as PII registered. This is why business entity
statutes which to have specific titles to identify the
nature of the entity.
Election of Remedies:
1.
Orrock v. Crouse (pg. 114)(read)
a.
b.
c.
d.
e.
f.
Is Orracks’s claim barred? No. the prior judgment was
based upon one count of intentional misrepresentation
and one count of breach of contract. Issue: whether the
entry of thejudgment against the agent
on the
intentional misrepresentation count constitutes an
election of remedies which bars a subsequent action for
intentional misrepresentation against the principal for
misrepresentaitons made by the agent. The applicable
rule is that if there is election to pursue one of two
inconsistent theories, mere entry of judgment bars suit
on the second theory. However, if there is an election
between two consistent theories, only satisfaction of a
judgment bars proceedings under the second theory.
This case does not involve an election of inconsistent
remedies. The plaintiffs obtained jdugment against the
agent and now brings suit against the principal under
the same theories of law. A person injured by the act of
an agent for which the principal is liable can bring
separate actions against either one.
Since the remedies against the principal and agent were
consistent, only satisfaction of the claim against one of
them bars an action against the other.
If the principle is liable solely becaseu of the agent’s
conduct the satisfaction of judgment against one ofthem
bars an action against the other.
Since the judgment against the agent on the intentional
misrepresentation count was not satisfied, an action
against the principal on this theory is not barred.
Rule: a person who has dealt with an agent of an
undisclosed principal may elect to hold either the agent
or principal liable, but cannot hold both. This rule
applies only where the principal is undisclosed. An
unddisclosed principal is discharged from liability upon
a contract if the third party, knowing the identity of the
- 44 -
g.
h.
i.
j.
2.
principal, obtains a judgment for breach of k agains the
agent who made the K.
Recovery of judgment against the agent of the
disclosded or partially disclosed principal for failure of
performance of K to which the agent is a party does not
thereby discharge the principal.
If the agent is separably liable, the other party has two
separate causes of action although based upon the same
claim and only satisfaction of the judgment against the
agent terminates the liabiltiy of the principal.
Why is Flynn liable? He is not liable as an agent
because he disclosed his principal, so how is he liable
under a joint and several theory? Why did the court do
this when the agent Flynn disclosed the principal?
Because it was a default judgment and he failed to
defend. So Ricks thinks that the result is absurd
because it holds the agent liable so they can still go after
the principal. However, the court would never go the
other way in holding the principal liable and then still
be able to recover against the agent.
Joint liability means that two parties together have a
single obligation. They can be used simultaneously
together for the entire amount. Several means that each
may be sued separately for the entire amount. Joint and
several liability and you have an judgment against one,
you can still sue the other.
Crown Controls v. Smiley: (pg. 116)(read).
a.
b.
the issue here is if the “election of remedies” doctrine
should be applied when an agent fails to adequately
disclose the identity of the principal on whose behalf he
is contracting.
Apply the election of remedies, and you will only be able
to sue either the agent or principal.
Feb. 14.2001 MISSED CLASS—GET NOTES
Feb. 19.2001
A.
Greeen v. H & R Block: (Part II)—pg. 30. (read)
- 45 -
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
Whether H & R breached their fiduciary duty? Court held yes and
breached the duty of loyalty.
The duties an agent owes to his or her principal are well established.
An agent has a duty to his principal to act solely for the benefit of the
principal in all matters connected to his agency.
Duty of Loyalty: (1) must disclose any information that the principal
may reasonably want to know for the purpose of the conflict; (2) an
agent is under a strict duty to avoid any conflict between his or her
self interest and that of the principal; it is an elementary principal
that the fundamental duties of an agent are loyalty to the interest of
his principal and the need to avoid any conflict between that interest
and his own self interest; (3) act solely for the benefit of the principal;
(4) if agent makes profit, you have to disgorge.
Here H & R was making money at the principal expense and they had
a conflict of interest and did not disclose so there was a breach of
loyalty.
You can have a conflict so long as it is disclosed.
It is the duty of the agent to conduct himself with the utmost loyalty
and fidelity to the interests of his principal; and not to place himself
or voluntarily permit himself to be placed in a position where his own
interests or those of any other person whom he has undertaken to
represent may conflict with the interests of his principal.
An agent who is appointed to sell or to give advice concerning sales
violates the duty if, without the principal’s knowledge, he sells
himself.
One of the primary obligations of an agent to his or her principal is to
disclose any information the principal may reasonably want to know.
Th eobligtion to disclose is strongest when a principal has a conflicting
interest in a transaction connected with the agency.
Unless otherwise agreed, an agent is subject to a duty not to deal with
his principal as an adverse party in a transaction connected with his
agency without the principal’s knowledge. An agent’s failure to
disclose information material to the agency thus constitutes a breach
of the principal –agent relationship.
Where an agent breaches a duty to the principal and profits from the
breach, the principal may maintain an action to recover those profits
for her or himself. An agent cannot make a secret profit out of any
transaction with his principal.
Horse example when the agent had to give the profit back—pg. 32.
If agent is to receive any benefit from a transactions in which he is
serving a principal, the agent must fullydisclose any interest that he
may have…pg. 32.
Pg. 35. An agent who in violation of his duty to his principal uses for
his own purposes or those of a third person assets of the principal’s
business is subject to liability to the principal for the value of the use.
If an agent has areceived a benefit as a result of violating his duty of
- 46 -
14.
B.
loyalty, the principal is entitled to recover from him what he has so
received, its value, or its proceeds, and also the amount of damage
thereby caused.
Notes pg. 33-36
Problem 1.2—pg. 30.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
there is a breach of all four elements of the duty of loyalty. The agent
was acting on his own behalf and not that of the principal and there
was a conflict of interest that was not disclosed and made a profit.
Should the agent have to give up the money?
Is the amount diminimus? When you hire a realtor—what is that you
want them to do?
Is H & R block like the relator?
Perhaps disclosing information may drive people away—won’t this be
a problem. If you are not doing anything unfair by not disclosing,
then perhaps it should be okay.
If the transaction was fair—does it matter if it disclosed.
Should a transaction be allowed to go forward if there is no
disclosure? Go one step further and see if there is a harm. However,
should the agent be penalized, to take away his incentive to do harm
again. This would be the same as a constructive trust theory that the
incentive of the agent should be taken away so the agent discloss the
conflict of interest.
Fair transaction rule vs. Got to disclose.
Such that if the director can show that that the transaction was fair in
corporate law, the conflict of interest no longer matters even if the
director failed to disclose to the shareholders a conflict of interest.
Therefore, there is no harm if the director can show that transaction
was fair. This would be a bright line rule.
The other possibility is that this is an area in which agency stuck to its
original theory: remember the agency theory that the agent is just an
extention of the principal so if the agent took money from the
principal—it is the principal’s money. This is similar to constructive
trust.
If you are not employed at will—a breach of fiduciary duty would be
cause to be fired )(breach of duty of care)—failure to disclose the
conflict of interest is cause to fire an employee.
Pg. 213.
C.
Shock v. Nash: read. Facts are important.
1. pg. 216—durable power of atty continues to work even after principal
becomes incapcitated.
2. The poa at issue here is very broad and says basically she can do
whatever she wants—including putting funds in personal account.
- 47 -
3. Creation of power of atty imposes the fiduciary duty of loyalty on the
atty-in fact.
4. The issue here is whether the agent’s fiduciary duty of loyalty was waived
so as to have permitted her to self-deal or make gratiutious transfers to
herself. (pg. 219).
5. The common law fiduciary realtionship created by durable power of atty
is like the relationship created by trust. The fiduciary principles of trust
law must, therefore, be applied in the relationship between a principal an
her atty in fact. An atty in fact, under the duty of loyalty, always has the
the obligation to act in the best interest of the principal unless the
principal voluntary consents to atty in fact engaging in interested
transaction after full disclosure. CL:What is the remedy: transactions
which violated the fiduciary duty of loyalty were void. Under current law:
these transactions were voidable at the choice of the beneficiary.
6. The constructive trust theory works here because the remedy works. Pg.
220.
7. Duty of Loyalty: must act in best interest of principal.
8. Important: what does the court do with the power of atty: see pg. 222—
seems pretty clear so how does the court get to breach of fiduciary duty
from this language—did she have broad discretion? to deposit funds into
her personal account. She was wrong.
9. Footnote 59—pg. 224—King v. Bankard:
10. Bright line Rule: pg. 223—court did not adopt this rule because they
found that it would not serve the interest of justice. The court is
concerned with the intent of the principal or the grantor. So the court
does not want extrinsic evidence to be let in.
11. Why hold for the Shocks? Ricks thinks that they should have gone back
to court because of the broad power of atty. She may have been justified
in her acts because Irma had the discretion to put money in her personal
account. She was about to draft a new will and thus by not holding for
Irma, the court did not effectuate the intent of the grantor. Joint account
is another reason why Irma should have won. She was justified in
thinking that she could deposit money into her personal account. Irma
was also familiar with the deceased’s financial affairs in which was the
reason for the power of atty. There is kindness and friendship between
the two parties.
12. The court in looking for intent of principal ---did they not discount every
fact which lead them toward that intent? If none of the facts above in (11)
will not come in, then what is the difference btween this and the bright
line rule? Courts reasoning on page 225. Ricks does not like the court’s
decision here. He does not think that the court pays much attention to the
intent of the principal and that the court’s reasoning looks a lot like the
bright line rule that they refused to adopt.
13. Notes pg. 228-231.
14. King v. Bankerd—pg. 204: this case did not follow the bright line rule but
look at the facts and circumstances.
- 48 -
15. Rules: (1) King rule which looks at what is clearly intended by the
parties as evidenced by the facts and circumstances: (2) Shock rule—
follow King but does not consider any facts: (3) Bright line rule.
D.
Problem 4.5 –pg. 214: Son says that mother intended to transfer all assets to
him and had witnesses testify to this effect and then the son was sued from
breach of fiduciary duty. Kunewa v. Joshua. Can you prove that the mother
did not intend to transfer all assets to son? Maybe not.
Feb. 21.2001
Assignment: 2/26: I.G.3 through 485
Assignment: 2/28: I.G.4
A.
Rogers v. Robson: pg. 231
1.
2.
3.
4.
Rogers, doctor, named defendant in medical mal case; discovery
shows that he was not negligent. He said that he did not want the case
settled. The law firm settled the case anyway and the insurance
company that was defending Roger is the same insurance company
that was paying the opposing party law firm. Law firm continued to
represent both the insured and the insurance company.
Did the law firm have a duty to disclose the fact that they were going
to settle. Yes, Why? Because there was two clients (insured and
insurance co.)—But why does it have to be disclosed because the
insurance company, don’t they have the right to settle on their own?
What does P Rogers have to gain to send it back if the ins. co. can
settle on their own anyway? The right to be entitled to full disclosure
stems from the atty-client relationship and this is not affected by the
extent of insurer’s authority to settle without the P’s consent.
No disclosure was made to the P and the P was not given the
opportunity to elect what course to pursue, the court does not need to
speculate what recourse, if any, plaintiff under the terms of the
insurance policy.
Note 1: during the term of the agency, an agent may not, without the
informed consent of the principal, act on behalf of persons whose
interests conflict with those of the principal. The agent may not act on
behalf of an adverse party in a transaction connected with the agency.
In addition, the agent if prohibited from acting on behalf of any third
person whose interests conflict with those of the principal, even if the
third person is not engaging in a transaction with the principal. OF
course, the collary is that one may serve as a dual agent, provided that
both principals are advised of the planned dual representation and to
- 49 -
5.
6.
7.
II.
agree to allow it. Bottom line: the agent must disclose when there is a
conflict and must get consent.
The doctor is still free to get rid of the insurance co counsel even
though the ins co has the right to settle without his authority.
Insurance company will go away by waiving the coverage. He wanted
to fire his insurance company and they will go away if he waives
coverage. What damages does he have from his inability to fire the
whole company.
What did he lose by having a settlement against him? His reputation,
no insurance.
ABA rendered an ethics opinion on this issue: whether an lawyer
hired by insured represents insured or both insurance co and insured;
lawyer loyalty to client and may represent both but if the insured does
not want to settle, the atty must disclose the clients right to settle
before settling with the ins. co.
Liability For Wrongful Acts of Independent Contractors:
A.
Non-Liability for Acts of Independent Contractors—pg. 531.
1.
why do we have respondeat superior? What is the policy
behind it? Is vicarious liability a good thing? Results from
master/servant relationship.
a.
b.
c.
d.
e.
f.
2.
control of the master over the servant’s actions.
Employer is better apt to bear the risk of the employee
actions because the employee is acting in furtherance of
the employer’s requests. It is more fair for the employer
to bear the risk than the employee because the employer
gets the benefit. Foreseeable benefits. Therefore, if the
employee is working in the course of business and
injures an innocent third person, the employer who
benefits from the employee—to bear the risk than the
innocent third person.
Employer is a better risk spreader.
Employer has all the evidence.
Employer is the first available deep pocket.
Employer and employee are one(master/servant)
Kane Furniture v. Miranda:
a.
pg. 532—elements to determine whether one is acting
for another is a servant or an independent contractor:
(i)extent of control, which by the agreement, the master
may exercise over the details of the work;
- 50 -
(ii) whether or not the one employed is engaged in a
distinct occupation or business.
b.
c.
note1—pg. 535.
What policy is it that dominates the doctrine of
respondeat superior? The most important factor the
court said is the first one. (pg. 532)—the extent of the
control that the master has over the details the work.
3.
Pamperin v. Trinity: pg. 536—med. Mal test.
a.
under doctrine of respondeat superior, a master is
subject to liability for the tortious acts of his or her
servant (committed within the scope of employment). A
servant is one who is employed to perform service for
another in his affairs and who, with respect to his
physical conduct in the performance of the service, is
subject to the other’s control or right to control.
b.
The right to control is the dominant test in determining
whether an individual is a servant.
c.
Court found that control did not exist here—Trinity
does not exercise any control over the manner in which
Lakeview’s radiological services are provided. A
hospital is not in a position to, and generally does not,
exercise control over a radiologist’s performance of his
or her professional activities.
d.
Notes pg. 538-540.
4.
Thompson v. U.S.—pg. 454
a. notes pg. 456-457.
b. He was practicing—motive in firing gun was practice. So
the shooting was within the scope of his federal
employment.
c. The court here drew an inference—In Schriver—there was
only witness and that was shooter and he testifed that it was
an accident and there was horseplay—was this the same as
the kind authorized in course of employment. Court said
that notwithstanding that there was only one witness, the
jury found that the respondeat superior theory applied and
the jury could infer that it was exercising his discretion of
the use of the gun. The court allowed the jury to infer that
the theory applied—so basically all the evidence is that the
gun is shot and this allows the jury to make an inference.
Feb.26, 2001
- 51 -
A.
Thompson v. U.S.
1.
2.
police officer pretended to quick draw and shot someone accidentally.
Was he acting in the scope of his employment—pg. 456 Restatement
section228 sets forth the general for determining whether a servant’s
act is within the scope of employment: (Use this test on Exam).
(1) Conduct of a servant is within the scope of employment if, but only
if:
(a) it is of the kind he is employed to perform;
(b) it occurs substantially within the authorized time and space
limits;
(c) it is actuated, at least in part, by a purpose to serve the master;
and
(d) if force is used by the servant against another, the use of foce is
not unexpectable by the master.
3.
(2) Conduct of servant is not within the scope of employment if it is
different in kind from that authorized, far beyond the authorized
time or space limits, or too little actuated by a purpose to serve the
master.
Restatement 229 expands the general test:
(1) To be within the scope of the employment, conduct must be of the
same general nature as that authorized, or incidental to the
conduct authorized;
(2) In determining whether or not the conduct, although not
authorized, is nevertheless so similar to or incidental to the
conduct authorized as to be within the scope of employment, the
following matters of fact are to be considered:
4.
5.
(a) whether or not the act is one commonly done by such servants;
(b) the time, place, and purpose of the act;
(c) the previous relations between the master and the servant;
(d) the extent to which the business of the master is apportioned
between different servants;
(e) whether or not the act is outside the enterprise of the master
or, within the enterprise, has not been entrusted to the servant;
(f) the extent of departure from the normal method of
accomplishing an authorized result; and
(g) whether or not the act is seriously criminal.
Notes pg. 457.
Liability did not result here—found that he was acting within the
scope of his employment. If this case were to be appealed—what
would you say on appeal?
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6.
7.
8.
9.
10.
B.
The government was held liable here even though the fact that the
officer violated an express policy prohibiting officers from drawing
their weapons in the station house –Rest. §230—An act although
forbidden, or done in a forbidden manner, may be within the scope of
employment.
Just because it is not authorized does not mean that it is not within the
scope of employment.
Rest §239: a master is not liable for injuries caused by the negligence
of a servant in the use of an instrumentality which is of a substantially
different kind from that authorized as a means of performing the
master’s service, or over the use of which the master is to have no
right of control.
Why does the judge make this decision? It is discretionary. What does
Thompson’s estate get if judgment was found for US?
Which policy does this case serve? Master put the instrumentality in
the sevants hands so should bear the loss; master is is in better
position to bear the loss; deep pocket; master is the one that controls
the environment.
Henderson v. AT & T Info Systems:
1.
2.
3.
4.
5.
6.
Was Zuckerman acting within the scope of his employment—apply
test on 456.
Under the doctrine of respondeat superior, an employer is vicariously
liable for the negligent acts of its employee if those acts are committed
within the scope of employment. To be within the scope of
employment the conduct of the employee must be of a kind the actor
is employed to perform, occur during a period not unreasonably
disconnected from the authorized period of employment, in a locality
not unreasonably distant from the authorized area, and actuated at
least in part by a purpose to serve the master.
He was not acting within the scope of the employment—although he
was told to get to school, he was not told how to get there and it was
his choice on how to get there.
The fact that he was given a specified amount for reimbursable
mileage does not mean that AT & T required him to travel a certain
route and he made the journey when he wanted, at his convenience.
The control test fails: for an employer to be liable for its employee’s
negligence in an automobile accident, the employer must have had the
right to control the servant in its vehicle’s operation, or else the use of
the auto was of such vital importance in furthering the master’s
business that his control over it might reasonably be inferred. (pg.
462).
The general rule is that absent special circumstances, an employer
will not be vicariously liable for the negligent conduct of his employee
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7.
8.
9.
10.
11.
12.
13.
C.
occurring while the employee is travelling to and from work. (pg.
460).
Why did Henderson lose: because AT &T is not liable because absent
special circumstances, an employer will not be liable for acts of
employee occuring to and from work.
What should the court found to find AT &T liable? That he had to
use the car. Express and implied consent to the use of the automobile
or right to control the auto.
Consent, right of control and inferred rule for the auto rules.
Notes pg. 463-464
Can you ever make the workplace so safe that there would not be
respondeat superior? Liability is not based on fault—ask yourself if
you did not impose liability upon employer or did not have respondeat
superior—how long would the employer then care about being
careful? Employers will be more careful if they are strictly liable. This
supports the policy that employers have the control and they can
effect change. It is saying that the responsibility lies on the employer.
This is similar to product liability theories.
Hypos:
a. basketball tournament at high school and one high school
provided transportation to and from the high school where the
tourney was. There was an accident of students driving to a
students house—sued the school district—is it liable? Why
shouldn’t the school district be liable? The better insurer in this
case would be the person who owned the vehicle in which the
students were travelling—this is not intentional. Why else?? There
is no agency relationship here.
b. The school district does not have any right to control how she
drives her car? You can ride the bus or ride with Tonya. The court
held that there was liability on these facts.
Sage Club v. Hunt:
1. Sage Club is liable here.
2. A master is subject to liability for the intended tortious harm by a servant
to the person or things of another by an act done in connection with the
servants employment, although the act was unauthorized if the act was
not unexpectable in view of the duties of the servant.
3. Court holds that an employer may be held liable for the intentional tort
of an employee if the employee is acting within the scope of employment.
4. An importtant factor in deciding a principal’s liability for his agent’s
intentional torts is whether the use of force is not unexpectable by the
master.
5. Where the nature of the employment is such that the master must
contemplate the use of force by the servant, the master will be held liable
fo the wilfull act of the servant even though he had no knowledge that the
- 54 -
act would take place. The employer need not have foressen the precise act
or exact manner of injury as long as the general type of conduct may have
reasonably expected.
6. Notes on Manning v. Grimsley: pg. 466-467.
7. Notes 467-470.
D.
Abuse of Position:
1.
Burlington v. Ellerth:
a.
b.
c.
when is an omission actionable?
Rules on pg. 477-478.
There was no relationship and this is not it.
Feb. 28.2001
A. Burlington v. Ellerth (pg. 472).
1. Ellerth worked in office with two people and boss and her boss reported to
another person in another city, Slowik and Slowik sometimes made
comments that Ellerth job depended on sexual favors and such. During the
time that she worked she did not tell anyone with authority about Slowik’s
behavior except her husband and coworkers. She sued Burlington, trial court
granted summary judgment in favor of employer and appellate court revesed
now it is at the Supreme court.
2. Does the general rule for vicarious liability apply (meaning that within the
scope of employment?) Sexual harassment is not generally within the scope
of employment. However, there are cases of course where a supervisor
engages in unlawful discrimination with the purpose mistaken or otherwise
to serve the employer.
3. Why was this not within Slowik’s course of employment? Is it really part of
his job?
4. The general rule is that sexual harassment by a supervisor is not conduct
within scope of the employment.
5. Scope of employment does not define the only basis for employer liability
under agency principles. In limited circumstances, agency principles impose
liability on employers even wheere employees commit torts outside the scope
of employment. The principles are set forth in the much cited § 219(2) of the
Restatement: (2) a master is not subject to liability for the torts of his
servants acting outside the scope of their employment, unless: (a) the master
intended the conduct or the consequences, or (b) the master was negligent or
reckless, or (c) the conduct violated a non-delegable duty of the master, or (d)
the servant purported to act or to speak on behalf of the principal and ther
- 55 -
was reliance upon apparent authorityor he was aided the tort by the
existence of the agency relation. (pg. 478).
6. Holding: An employer is subject to vicarious liability to a victimized
employee for an actionable hostile environment created by a supervisor with
immediate (or successively higher) authority over the employee. When no
tangible employment action is taken, a defending employer may rasise an
affirmative defense to liability or damages, subject to proof by a
preponderance of the evidence. The defense comprises two necessary
elements: (a) that the employer exercised reasonable care to prevent and
correct promptly any sexually harassing behavior and (b) that the plaintiff
employee unreasonably failed to take advantage of any preventive or
corrective opportunities provided by the employer or to avoid harm
otherwise.
7. If he says you will get the promotion if you give me sex, how is it not within
scope of employment. (quid pro quo)—if the agent is within the scope of
employement thwn the principal is liable. (pg. 477, ie—supervisor acting in
scope of employment where employer has a policy of discouraging women
from seeking advancement and sexual harassment was simply a way of
furthering that policy.)EXAM Q.
8. Slowik had not promoted her because she did not advance sex. This is a
tangible employment action—pg. 480 Tangible employment actions are the
means by which the supervisor brings the official power of the enterprise to
bear on subordinates. A tangible employment decision requires an official act
of the enterprise, a company act. The decion in most cases is documented in
official company records and may be subject to review by higher level
supervisors. The supervisor often must obtain the imprimatur of the
enterprise and use its internal processes. For these reason, a tangible
employment action taken by the supervisor becomes for Title VII purposes
the act of the employer.
9. Do you think because there is tangible employment action the supervisor and
employer are egos of one another?
10. Why does affirmative defense apply when there is no tangible employment
action taken? Because it depends on the standard of care. Is this a vicarious
liability standand—a hostile environment? No, the defendant has to prove
that the employer was reasonable. This is more like negligence.
11. Why is the employee’s negligence relevant”? If Burlington wanted to set up a
reporting procedure to make here reporting reasonable what would they
have to do? What kind of grievance method? An 800 number—report to
someone other than supervisor.
12. There is no affirmative defense available when the supervisor’s harassment
culminates in a tangible employment action, such as discharge, demotion,
and undesirable reassignment.
13. Does the court ever define what agent in the agency relationship means?they
followed agency principles but on pg. 481—they do not explain what this
means and how it relates to the holding they get to—why is this? Did not
want to overrule Meritor. They are not bound by the Restatment but they
- 56 -
follow it anyway and they cannot define it and then reach a conclusion. Why
don’t they just say here is what we are going to follow? The court has done
what they wanted while paying homance to the Restatment.
14. The rule of vicarious liability for tangible employement action cases work
because it is within the scope of the employment.
15. What the court means that a hostile work enviroment and a careful employer
are mutually exclusive. So if you really do have such hostile work
environment and the employee does report—the employer is liable. You
cannot have both. Only one or the other.
16. After this case—1999 case—employee reported all incidents to personnel
office manager who notified human resource director who then investigated
the complaint (interview witnesses, etc.). then issued a verbal and written
reprimand to the prepetrator—and said that he would apologize to her.
What discipline –retaliation. They then promote her. She came out better
jobwise now. This is made companies very sensitve to the issue of sexual
harassment. Employees have got to show what is happening –documentation.
17. Notes pg. 483—484.
B. Stopes v. Hertigage House:
1. issue: whether, as a matter of law, Hertiage may be subject to liability for its
employee’s wrongful acts under the doctrine of respondeat superior as
traditionally applied.
2. Liable for employee’s criminal acts?
3. Trial court held that he was not acting within the scope of his employment.
Griffin was actuated with the purpose to serve the master by molesting this
child right?
4. Pg. 487 –Rule: Employer is liable for tortious or criminal acts of employee.
5. Example –when a customer was raped by a delivery man following an
argument over the terms of the delivery. The scope of employment question
was found to be a question of fact rather than a question of law for the court,
whether the assual stemmed from purely and solely personal sources or arose
out of the conduct of the employer’s business.
6. The court stated that cases of this sort: are decided on the basis that a master
is liable for an assault arising out of, and committed in the course of
employment even though it is accompanied by or motivated in part by
emotions or passion, savagery or personal revenge. (pg. 488).
7. Standard from Parker—pg. 273—know rules.
8. Keep women from jobs and keep them from staying.
9. Some sexually harassment which is not conduct is just as bad—demeaning
women is just as the same.
10. Strobes case is more egerigious.
11. Note case—Mary M—pg. 489.
12. See other notes pg. 490-496.
13. Different result in note 3…did not follow Mary M.
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14. Rule pg. 494—in the hospital context—we don’t apply this rule as we do in
fraud cases.
C. Non-Delegable Duties:
1. Kleeman v. Rheingold:
a. atty is not relieved from liability if process is ineffective. This is a NY case
and no other case follows this case and in fact, Maryland disagrees with
this.
b. Rule on pg. 547.
c. When the responsibility is so important to the community and so fraught
with danger that the employer should not be transferred—non-delegable
duty(pg. 547).
March 5, 2001
A. Non-Delegable Duties:
1. Notes pg. 550-553
2. Problem 11.4—repo man.
3. Problem 11.5: pg. 553
a. Good Humor has been engaged in the street sale of ice cream products
for over 35 years. –Good Humor financed the trucks and the venders
could sell the ice cream where they wanted and when they wanted and the
Good Humor did not supervise.
b. Court said that there was no vicarious liabiliity but the appellate court
reversed said that Good Humor is liable because the ice cream parking
and truck is “inherently dangerous.” See pg. 553—then footnote 10 on
page 559: Good Humor is liable. The test employed by the courts of
appeals seems more appropriately suited to determining whether an
activity is abnormally dangerous within the meaning of §520—(a) the
inability to eliminate the risk by the exercise of reasonable care; (b) can
the exercise of it be safe when it is made in a proper and workmanlike
manner. 757 F. 2d 1293. Can the danger be eliminated? If not, then it is
inherently dangerous.
c. Pg. 561 test: (a) that the activity in question presented a special or
peculiar danger to others inherent in the nature of the activity or the
particular circumstances under which the activity was to be performed;
(b) that the danger was different in kind from the ordinary risks that
commonly confront persons in the community; (c) that the employer
knew or should have known that the special danger was inherent in the
nature of the activity or in the particular circumstances under which the
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d.
e.
f.
g.
h.
i.
activity was to be performed; and (d) that the injuyr to the plaintiff was
not the result of the collateral negligence of the defendant’s independent
contractor.
Suppose if you cannot eliminate risk no matter how careful you are—
what is the difference between that and a reckless tort?
What about flying in a two seater plane over the mountains of Colorado
in a unpressurized plane in Jan? is this inherently dangerous—under the
footnote 10 standard? Can you eliminate the risk and still do the activity?
You can eliminate the risk by ordinary care? Huddleston—pg. 554. (notes
pg. 566-569).
Driving is just as dangerous over the mountains says the dissent.
Flying over the mnts in Colorado in those circumstances is inherently
dangerous.
Pg. 568—when contractor is brought in to remodel or repair, the danger
to the store customer increases thus it would be consistent to to hold the
storekeeper laible for the negligence of the contractor.
In addition to vicarious liability being imposed bc of the duty of a
storekeeper to keep its premises in a safe condition for its customers
another.
B. Brandt v. Missouri: pg. 569:
1. The issue here is whether as a matter of law, Brandt was injured performing
work which was not inherently dangerous? If at the time of the injury, he
was performing work from a position of safety and the casaulty could have
been avoided by ordinary care in the performance of his duties then the
decision was available as a matter of law.
2. How was the danger created here? By not bolting down—the danger was
created by not doing anything. Therefore work is not inherently dangerous
unless it started with danger and required preventive care to make safety.
3. Here—the general rule is that one who contracts with an independent
contractor is not liable for the negligent acts of the IC> the exception to this
rule is the “inherent danger doctrine” –
4. The doctrine applied here is the collateral risk or collateral negligence
doctrine, under which a non-negligent employer is not liable for an
independent contractor’s negligence where (a) the independent contractor’s
negligecne consists solely in the improper manner in which he does ht work,
and (b) the independent contractor’s conduct creates a risk of harm which is
not inherent in or normal to the work;and(c) the employer had no reason to
contemplate the contractor’s negligence when the contract was made.
5. See notes –pg. 571.
C. Apparent Authority/ Estoppel:
1. Sampson (handout—print off website)
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a. In general, an employer is not legally responsible for the negligence acts
of an independent contractor.
b. The parties have sitpulated that the doctor here in this case is not an
employee but an independent contractor.
c. The issue here is whether there is a an issue of fact as to whether the
doctor is vicariously liable?
d. Doctor was an independent contractor and she signed a form contract.
e. The billing and consent form.
f. She loses on the second prong.
g. There is no evidence to show that the doctor had osentisble or apparent
authority. She would not understand that the independent contractor
that was a doctor.
h. Do you think that she reasonably thinks that the hospital is liable? Yes,
she was reasonable—the hospital is the one that hires the doctors.
i. How could the factfinding be the other way? What kind of affirmative
conduct are you looking for supposing you are representing Sampson?
You want to prove that the doctors are ostensibly or apparently
employees and not independent contractors—“our doctor” –the clothing
of the doctor. Hospital Ads.
j. The court does not pay any attention to whether the patient is reasonable
in thinking that that the doctor is an employee and not an independent
contractor.
k. Difference btween 267 and 429 on page 584—note 1. Is there anything in
429 about conduct of employer that causes the belief? No, that is the
difference. The court adopted 267 and rejected 429.
l. See notes pg. 585-586.
m. Does the court take into account that the doctor probably has malpractice
insurance.
n. Why isn’t the hospital’s care inherently dangerous? Isn’t emergency
room care inherently dangerous? Common, although still be risky.
o. The court does not trust a jury to make the distinction btween a doctor
who is an employee and that of an independent contractor.
p. The facts might change in as follows: El Paso court—evidence
distinguishing Sampson and holding the hospital liable –there was no
signs displayed in the reception room or otherwise. In Sampson there was
a consent form that said that the doctors were Ics, here there was a
consent form that said the same, but such language is not enough to show
the relationship between the doctor and the hospital in order to show the
plaintiff in this case that the hospital would not be liable for negligent
acts—the nurse here also said “our doctors.” This court held the hospital
liable notwithstanding Sampson.
q. Some courts think that emergency room care is a non-delegable duty.
r. There are three rules—the Texas S. Ct rule, El Paso Rule (Providence
Memorial Hospital), and 429, and non-delegable duty rule. On exam
argue them all and state which is the best one.
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D. Volkman v. DP (pg. 587)(re-read).
E. Voluntary Termination—pg. 677
1. Zukaitis v. Aetna:
a.
b.
c.
d.
Does notice to Larson count as to notice to Aetna---evne though fired.
The rule is that a revocation of the agent’s authority does not become
effective as between the principal and third person until thei receive
notice of the termination. (pg. 679). Liability here because of actual or
apparent authority? There was no actual authority but there was
notice. Once mutual consent disappears, the agency relationship goes.
Larson an general or special agent? General.
680-82 notes
March 7, 2001.
Assignments: 3/19—II. C.1 though 292; 3/21 II.C.2
A.
Estate of Kentucky(pg. 684)
1. It is well established as the general rule that the death of the principal
operates, as an instantaneous and absolute revocation of the agent’s
authority or power, unless the agency is coupled with an interest. Hence,
any act done by the agent, as such after the principal’s death will not
affect the estate of the latter.
2. The death of the principal puts an end to the agency and terminates the
agent’s authority to act for the principal unless the agency is coupled with
an interest. Here, the decedent died before the agent created the joint
tenancy.
3. Agency is personal relation; necessarily ending with the death of the
principal; the former principal is no longer a legal person with whom
there can be legal relations. One cannot act on behalf of a non-exist
person.
4. Consider an Optioner gives an option on the contract to the Optionee and
the Optioner dies, is the option still valid? Yes—the offer stays open after
the optioner dies, and if this is the case, then why does the agency
relationship cease when the a party dies if in contract, the contract can
form after death of a party to the contract.
5. Suppose she had sold the house, then we have the purchaser of the house
who is unable to take the property and will sustain contract damages if
cannot get the price for the house, who will pay the damages? the agent is
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stuck because it is a breach of the warranty of authority—because the
agent is the one in the best position to know if the principal is dead or
alive; however what about if it is between the principal and the agent and
the principal dies? The principal is the better of the two to bear the
burden. (note 2—pg. 685).
6. How would you protect yourself from being liable? What about between
the agent and the third party? The agent is in the better position to bear
the risk.
7. Agent is liable for this action; because they are in the position to know the
status of the principal.
B.
Incapacity:
1.
Campbell v. U.S.
a.
b.
c.
d.
e.
f.
g.
h.
i.
issue: whether the bonds were actually owned by Campbell at
his death.
Texas law indicates that Texas courts would hold that when
Campbell became comatose, the power of attny did not
immediately terminate but rather continued effective for some
brief period, subject to disaffirmance by Campbell’s executrix
after his death.
It is settled that when a principal is adjudicated insane, the
authority of his agent to act for him is terminated.
Government relies: Essentially the loss of capacity by the
principal has the same effect upon the authority of the agent
during the period of incapacity as has the principal’s death.
Here the authority of the Son to purchase the bond for his
father, like any other contract or conveyance executed on
behalf of a person lacking mental capacity was voidable not
void.
Restatement: the agent of one who becomes mentally
incompetent to act on his own account or to appoint an agent
does not necessarily lose authority to act for the principal.
Very brief periods of insanity caused by temporary mental or
physical illness of the principal do not destroy the power of a
previously appointed agent to act in his behalf.
When should the agent not feel secure? When they have reason
to know of the mental incapacity.
There is authority contrary to this case which says that
incapacity ends the agency but the rule here is not a bad rule.
Why should capacity have any effect at all?
What if he lived on and on—would Campbell junior have
authority? The court implies on pg. 688 that it is voidable but
refuses to go any further and would not create a voidable
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j.
C.
transaction for longer than a brief period. An extended period
would terminate the agency.
Notes pg. 689. So for the brief period of time, it is voidable.
Commentary suggests that courts should look at each case
individually to see how long the period of time to see if the
agency relationship had been terminated yet. If there is going
to be error then—err on the side that there is not going to be
authority to have the relationship.
Irrevocable Agencies:
1.
Voluntary Terminations; Lee v. O’Brien:
a. Dawson wins. The agency here was terminated—the issue is : what
sort of thing would cause it not to be terminable? If the agency
were to be created with an interest.
b. As a general rule, that an agent’s authority to act for a principal is
always revocable at the will of the principal; and may at any time
be put an end to by withdrawing the authority; unless the
authority be coupled with an interest; or has been conferred on
the agent for a valuable compensation moving from him to the
principal.
c. Agency powers: (i) authority coupled with an interest in the
subject matter of the agency; (ii) compensation from agent to the
principal; (iii) security(someone pays to be your agent).
d. Two kinds of interest which may be coupled with an agency to
make it irrevocable: one is: an interest not amounting to a
property or estate in the thing itself, but still an interest in the
existence of the power or authority to act with reference to it, not
for the purpose of earning a commission by the exercise of the
power, but because the agent has parted with value, or incurred
liability or assumed obligations at the principal’s request or with
his consent looking to the exercise of the pwer as the means of
reiumbursement indemnity or protection—the other is: (pg. 694).
e. Hanna does not have an authority with an interest because she
only has the interest in her ¼ therefore the interest does not lie in
the whole land.. An example is when debtor gives creditor a power
to sell Blackacre but Creditor has no lien or other inters in
Blackacre, other than the power to sell it on default, Creditor’s
power is not coupled with an interst but would be given for
consideration or as security. Note 3.
f. Note 2—pg. 695—Powers Coupled with an interest: an agent’s
power was coupled with an interest, and thus irrevocable, only
where the agent had a separate interst in the subject matter of the
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g.
h.
i.
j.
k.
power that arose independently of the agency powers and it
protects that interest.
The reason for these three powers to be distinct is to prevent the
agency from terminating on death. This is to protect the agent’s
interest in the property.
If you are the debtor and give the creditor power to sell house but
not an interest in the house the power of the Creditor to sell the
house goes away upon death.
Pg. 697—case(get rule).
What about a contingency agreement? If either client or atty dies
before the agreement is settled? All of the lawyers actions are
compensation from the agent to the principal. The lawyer pays out
expenses to settle the case. Thus the lawyer is compensating the
client. Thus if it is agency coupled with an interest, then the agency
stays after death but if it is just compensation—it does go away at
death.
The agent has to have a property interest in the subject matter
itself? The subject matter in a contingency agreement is the cause
of action—the lawyer does not have an interest in the cause of
action or the subject matter, thus it is not coupled with an interest.
How about taking an assignment? Lawyer—30 and client –70—
the assigment would not be a taking an interest in the subject
matter of the case; It is prohibited by the ethic rules for an atty to
take an interest in the subject matter of the case. The contingency
agreement is just like the relator situation. You have a contractual
right to payment; but you do not have a property right to the
funds.
March 19, 2001.
I.
Partnerships—
A. Swienzynski v. Civiello: pg. 38
1.
2.
3.
does the partnership have any legal identity separate from its
partners? No, here each partner has equal control as to the work.
The UPA recognizes that title to real property owned by the
partnershoip may be held in the names of all the partners. (pg. 41).
This case holds that a partnership is no considered an entitly
separate from its members, except in limited circumstances. The
entity theory governs only in matters of procedure (pg. 40).
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4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
The aggregation theory controls in matters relating to the
substantive liabilities and duties of the partners.
Partnership is defined as an association of tow or more persons to
carry on as co-owners a business for profit. To state that they are coowners is to state that they each have the power of ultimate control.
UPA does not make a legal partnership an independent juristic
entity and whatever recognition is given therein to the entity theory
is solely for proceudral or conveyancing purposes.
Is this case correct or not? Should they be partners and equal
landowners.
Why didn’t the partnership own the land?
Partnership is not an entity for purposes of workers compensation
law. Partners are jointly and severally liable for the debts of their
partners.
Suppose there is another landowners other than those here; does this
change the result in the case? Suppose she is a not a partner; just a
landowner—thus, should C& C get off just because there may be
another landowner? The land is treated as a profit making
enterprise. IF the landowners themselves treat it as separate profit
making enterprise—why shouldn’t they bear the burden of
landownership? They should because if they do not then they will be
getting the benefit of the land without bearing the burden.
The reason that they kept the landowners separate from the
partnership is probably because there was a tax advantage.
Should it be an entity or aggregate theory? Exam Q…
Notes: pg. 42-45
B. Partnerships:
1. Dalton v. Austin:
a.
b.
c.
d.
e.
f.
g.
the testimony between the P and D on whether there was a
partnership was conflicting.
The court found that a partntership existed. There was evidence
that a partnship existed here:
Partnership is defined as a an association of two or more persons
to carry on as co-owners as a business for profit.
Why is a partner not merely an agent?
The court says here that there can be a partnership without a
profit.
Profit—motive such as an employee working for commission.
An agent does not have control—the principal does; however a
partner has control where an agent does not. Did Dalton have
control here? Yes.
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h.
i.
Texas Code: art. 6132b-2.03(a)(2)—even if they don’t call
themselves a partnership—the court can still find them a
partnership.
Notes pg. 134.
2. Chariton Feed & Grain v. Hardner—pg. 135
a. the issue here is whether the trial court erred in holding a landlord
under the usual stock-share lease liable to a livestock feed supplier
on the theories of a partnership, agency and unjust enrichment.
b. Should it be a lease or partnership? To determine whether a
partnership was intended: (1) an association: (2) earning of
profits; (3) and co-ownership of profits, property and control.
c. Why didn’t Davidson having control establish the partnership?
Pg. 140-142. Was there any control at all? Pg. 143.
d. Harder’s control is that at issue—he is the one that is said to be a
partner? He did not have control of the operation at all.
e. What about the argument of estoppel?
f. When the feed store calls and asks whether Harder is a partner
and he says yes, they don’t think that it matters.
g. Why don’t they just say if it is a lease, it is a lease, thus
partnership law does not apply.
3. P & M Cattle Co. v. Holler:
a.. the issue her is whether the parties to this appeal were parties to a
joint venture or partnership agreement to share losses as well as
profits from a cattle purchase, feed and sell operation.
c. Here look at UPA section 7 (pg. 147) to determine whether there
was a partnership and the court did not find one.
d. The court centered on the issue of intent and stated that the
parties must intend to create the relationship of a joint adventure
of partnership. (pg. 147).
e. Even a written agreement that the parties intended a partnership
is only evidence but not conclusive (take this back to Dalton v.
Austin).
f. Notes pg. 149—presumption of partnership.
g. What is a partner and what is not one? This could be a short
answer on an exam on whether this is a partner—use the
definition of partnership and go through the analysis…How do
you know whether it is a partnership or not? Go through each of
the elements on pg. 146-47. IF you had to list facts –which ones
would you talk about? [facts are important]—reiterate all facts
back onto the exam. Do the parties have choice as to whether they
are a partnership or not? What if they don’t?
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h. Say in Holler—who would you rule for? [only looking at the
facts]—the other way? Because the parties here may have thought
they were partners? Who would hold against Holler? Looks like a
joint venture—more than a partnership? If it were a partnership
he would still be liable. The way that the court views it—either
way joint venture or partnership—Holler would have been liable.
i. What facts would the court look at whether there was a
partnership—(1) control; (2) some sort of investment by each of
the parties; (3) profit and loss share; (4) evidence of intent in the
contract; either implied or express; (5) show intent—contract
language; surrounding circumstances; a joint bank account; tax
returns; conduct of parties showing of partnership—management
(pg. 147).
j. The damaging factor in Dalton may have been the investment—
disputed as to whether one was ever formed.
k. On exam—write out all the factors and then look at factors—
analyze.
March 21, 2001.
A. Partnerships: pg. 286
B. Partners as Agents:
1. Burns v. Gonzalez:
a.
b.
c.
d.
e.
f.
the trial court held that the note was an obligation of the partnership.
Under UPA § 9(1)—Every partner is an agent of the partnership for
the purpose of its business, and the act of every partner, including the
execution in the partnership name of any instrument, for apparently
carrying on in the usual way the business of the partnerhip of which
he is a member, binds the partnership, unless the partner is so acting
has in fact no authority to act for the partnership in the particular
matter, and the person with whom he is dealing has knowledge of the
fact that he has no such authority.
Here, Bosquez had no authority to bind the partnership by executing
a negotiable instrument.
His act in executing the note would bind the partnership if such act
can be classified as an act for apparently carrying on in the usual way
the business of the partnership.
When he signed the note—did he act in a way to benefit the
partnership? Should he be held liable?
A partner binds the firm absent an express limitation of authority
known to the party dealing with such partner, if such act is for the
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g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
purpose of apparently carrying on the business of the partnership in
the way in which other firms engaged in the same business in the
locality usually transact business, or in the way in which the
particular partnership usually transacts its business.
The act of partner for apparently carrying on in the usual way the
business of the partnership binds the firm.
The burden of proof is on the person seeking to hold the nonparticipating partner accountable. Thus the burden of proving the
usual way in which ad agencies transact business was upon Burns.
The principle of imposing liability on the non-acting party, be he
partner or ordinary principal, is that he has held out the actor as
being empowered to perform acts of the nature of the act in question.
In the case of an ordinary agent, “holding out” is established by
showing that the principal placed the agent in a position which
ordinarily carries with it generally recognized powers. The agent will
then have as far as thir parties are concerned, the power to do the
things ordinarily done by one occupying such a position unless the
third party has knowledge of limitations on the powers of the agents.
Pg. 290..
Take the third party view which would be the apparent authority
view .
Do you think Burns thought Bosquez had the authority to sign the
note? Probably so when the court found that Bosequez did not have
the authority—isn’t the court stating that Burns did not put up
enough facts.
Did the court ever consider what Burns knew or did not know? Not
really –other than the fact that he may have been holding out—pg.
291—
Does a third party even need to know that a partnership exists—why
isn’t this a reasonable interpretation—Ricks does not think the court
is discussing apparent authority—even though they say they do. It
seems as though it should be apparent authority even though it really
is not.
Court did not find either that Gonzalez is liable be ratification.
2. Kansallis Finance v. Fern:
a.
b.
is the third element required or not? In the context of partnerhip , the
person acting and the persons who might be held liable for his actions
usually stand on an equal footing and may be thought of as equally
implicated in a joint enterprise.
Both servants and partners are categorized as agents of their
principals. In the partnership context, while each partner is the agent
of the partnership, he also stands in the role of a principal—a
reciprocity that is lacking in the master-servant relation.
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c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
Same principles here as respondeat superior.
Finding that the action was within the scope of the partnership, the
issuance of the letter must satisfy a three-prong test: It must have: (1)
been the kind of thing a law partner would do; (2) occurred
substantially within the authorized time and geographic limits of the
partnership and (3) been motivated at least in part by a purpose to
serve the partnership.
A principal who require an agent to transact his business, and can
only get that business done if third parties deal with the agent as if
with the principal, cannot complain if the innocent third party suffers
loss by reason of the agent’s act. Similarly the master who must put
an instrument into his servant’s hands in order to get his business
done, must also bear the loss if the servant causes harm to a stranger
in the use of that instrument as the business is transacted.
Here the court does not find that apparent authority is not here—
why? Because the jury found against it so this court could not do
anything.
Was this within the scope of employment? This test asks the question:
is this the kind of thing that in a general way employees of this knid
do in employment of this kind. It does not ask a different question:
whether a reasonable person in the victim’s circumstances in the
particular case would have taken the agent to be acting within the
principal’s authority. And so there arises the possibility of vicarious
liability where the victim transacted business or otherwise dealt with
an agent who lacked even apparent authority in the particular
matter.
Is apparent authority the same as vicarious liability? No, but this
court thinks that it may be—the court is taking the two concepts and
intertwining them. Is the third prong required for the showing of
apparent authority? No, so then if apparent authority is vicarious
liability then then the third prong is not required here either. The
court messes the two concepts.
You can be acting within the scope of employment without having
apparent authority to do so.
Court holds –pg. 299.
They do not really care what §9 of the UPA says because they are
going to apply vicarious liability and respondeat superior. The court
looks at §4(3)—the law of agency shall apply here.
What would you do to write an opinion here to fix what the last two
cases discuss?
Difference between an agent and a servant? Degree of control by the
principal to control the method and the result. Does any law firm have
the right to control how a lawyer proceeds? No, this would be
unethical.
Section 9 is not to happily drafted—but you have to apply the
language and when you get to “apparently following course of
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business”—some courts are following Burns (apparent authority) and
some don’t follow this. Courts are not consistent with their theories.
March 26, 2001
A. Estoppel:
1. Cheesecake Factory v. Baines:
a. Must Baines pay? yes
b. Partner by Estoppel: pg. 304: when a person, by words spoken or written
or by conduct represents himself, or consents to another representing him
or anyone, as a partner in an existing partnership or with one or more
persons not actual partners, he is liable to any such person to whom such
representation has been made, who has, on the faith of such
representation, given credit to the actual or apparent partnership, and if
he has made such representation or consented to its bening made in a
public manner he is liable to such person, whether the representation has
or has not been made or communicated to such person so giving credit by
or with the knowledge of the apparent partner making representation of
consenting ot is being made.
c. When a partnership liability results, he is liable as though he were an
actual member of the partnership; when no partnership liability results,
he is liable jointly with the other person, if any, so consenting to the
contract or representation as to incur liability otherwise separately.
d. When a person has thus been represented to be a partner in an existing
partnership, or with one or more persons not actual partners, he is an
agent of the persons consenting to such representation to bind them to
the same extent and in the same manner as though he were a partner in
fact, with respect to person who rely upon the representation. Where all
themembers of the existing partnership consent to the representation, a
partnership act or obligation results; but in all other cases it is the joint
act or obligation of the person acting and the persons consenting to the
representation.
e. Representations must be made by the purported partner or with the
purported partner’s consent.
f. Was it enough the Cheesecake factory though Baines was a partner?
Because of the pattern of activity that he took after the representation
was made.
g. Does the statute require that the representations be made in a public
manner and if it is made public does Cheesecake have to show reliance?
The court does not buy the argument that Baines is liable regardless of
whether it relied on such representations.
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h. The statututory test for partnership by estoppel requires that (1) credict
must have been extended on the basis of partnership representations or
(2) that the alleged partner must have made or consented to
representations being made in a public manner whether or not such
representations were actually communicated to the person extending
credit.
i. Statute requires that a person be represented or consent to be
represented.
j. There must be a representation made publicly but the creditor does not
know of it. ..Rule: if a person has made such representation or consented
to its being made in a public manner he is liable to such person, whether
the representation has or has not been made or communicated to such
person so giving credit by or with the knowledge of the apparent partner
making representation or consenting to its being made. [this extends
liability beyond the c/l test of reliance so that when one has by his acts or
conseent to the acts of others allowed or caused the general community to
believe that he is a partner then he is such by estoppel even though this
particular creditor may not have heard the representation. Pg. 306.
k. What must be held out? [see rule pg. 310)—the fact that there is a
partnership. Rule—what will solidify the holding such that it will not be
reversed on appeal? There should be at least a presumption of reliance
on the defendant’s financial responsibility subject to possible rebuttal by
a showing of complete indifference on the part of the plaintiff to the
representation.
l. Did Cheesecake have to rely on the fact that Baines was a partner or is it
enough that they relied on the existence of the partnership?
m. The test for reliance is not whether it would have been good business
practice to advance credit relying solely on Baine’s being a partner.
There are many factors that may go into the decision of whether to
advance credit.
n. Court required evidence of reliance on Baines being a partner within the
partnership.
o. Is public representation enough? Not according to this court.
p. The court holds that reliance still needs to be shown when representations
of partnership are made publicly.
q. Did they actually have to rely under this statute? Pg. 304. “thus
represented” does not necessarily mean reliance.
r. What did Baines do publicly to show that he was a partner? He said it
publicly. Cheesecake factory has to show that they relied on the statement
that he was a partner.
s. Baines is claiming that you could not have relied on my credit because
they did not know anything about Baines—they only thing that
Cheesecake factory knows is that he a partner—thus Cheesecake is
claiming that all that is needed is that they relied on the fact of the
existence of the partnership.
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t. Holding: the only question is whether it was reasonable for one of the
factors to be that Baines was a partner. Thus, must there be reliance on
Baines being a partner? Reliance is required here the court states, thus
the issue becomes reliance on what? Cheesecake had to rely on the fact
that he was a partner and this was an established business [pg. 309310]—that Baines is gong to be financially responsible, thus they are
relying on that even though they did not do a credit check. They
reasonably believed that Baines to be the proprietor of an established
business. Two rational inferences can be drawn here: first as a proprietor
of an established business, Baines would have experties that could be
helpful in the financial affairs of the sports bar. Second, they can
reasonably expect Baines to be financially responsible. There is enough
evidence at trial to show that or support a rational inference that
Cheesecake Factory reasonably relied on Baine’s being a partner.
u. Creditor has to show that the there is evidence of a partnership and that
Baines is a partner and will be held financially responsible.
v. Test Q: So there has to be a showing that Cheesecake is completely
indifferent to the fact that Baines is a partner.If you are Baines and you
want to show on remand[if the case was remanded] that Cheesecake was
indifferent to the fact that Baines is a partner? What kinds of questions
would you ask at trial? Ask Baines whether or not he was a partner—in
other words how can you negate that Baines being a partner was a
factor? Know how to show indifference? There is a presumption of
reliance on the defendant’s financial responsibility, subject to possible
rebuttal by a showing of complete indifference on the part of the plaintiff
to the representation. [this rule is like the Cali Rule that if there is a
existence of partnership, it is irrebuttable presumption].
2. Problems : 6.3, 6.4. and 6.5 [work through these]—answer to 6.5 is uncertain.
[6.5—remember this that reliance is necessary but courts are not sure if
detriment is, the statute does not say—it can be read either way, some courts
have said yes it is; section 16 of the RUPA—is supposed to be based on
estoppel and not on apparent authority as the two concepts are
distinguishable from each other].
3. With respect to knowledge of a partner—at the end of section 12-of UPA—it
says on pg. 60 of the Supp. –except in the case of fraud comitted by
partnership[this may be like the adverse agent doctrine in Udolf];
4. 1.02(f)—contains the same limitations—
B. Partners as Managers:
1. National Biscuit v. Stroud:
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a. the court looks at this as a general partnership—thus what either partner
does with a third person is binding on the partnership. Rule pg. 314.
b. General partnership: the partnership is by operation of law, a power to
each to bind the partnership in any manner legitimate to the business.
c. Here Freeman bound the partnership on his purchases of the bread. So
thus Stroud has to pay. If Freeman did something that he was not
authorized to do—he should have to pay –right? No, what is the
difference between a partnerhip and an agency? There is a duty of loyalty
but there is no duty of obediance because they are equal and they each
have equal control or division in the partnership—rule pgl. 315.
d. Section 9 of UPA: every partner is an agent of the parternship for the
purpose of its business, and the act of ever partner, including the
execution in the partnership name of any instrument, for apparently
carrying on in the usual way the business of the partnership so acting has
in fact no authority to act for the partnership in the particular manner,
and if the person with whom he is dealing has knowledge of the fact that
he has no such authority.
e. All the partners have equal rights in the management and conduct of the
partnership business.
f. In cases of an even division of the partners as to whether or not an act
within the scope of the business should be done, or which disagreement a
third person has knowledge, it seems that logically no restriction can be
placed upon the power to act.
2. Covalt v. High:
a.
Can a partner recover damages against his co-partner for the copartner’s failure or refusal to negotiate and obtain an increase in the
amount of rental of partnership property? No.
b.
High did not breach his fiduciary duty? Holding –pg. 319.
c.
When Covalt resigned as officer—he continued to remain as
shareholder. –each party’s confict of interest was known to the other.
d.
Either one could act in Stoud.
e.
They are equal partners—they hold eachother liable and either one of
them can act.
f.
Which one is right.
g.
The rule in Texas is different—we don’t talk about number of
partners but the interest each partner has.
March 28, 2001
A. Duty of Loyalty:
1. Schock v. International Realty:
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a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
Defendant had to disclose the receipt of the broker’s commission. He
has a duty of loyalty.
Rule: which requires an accounting for secret profits applies to
commission and discounts secretly obtained by a partner on
purchases made by him for the firm.
The case here involves purchases for the partnership resulting in
secret commissions or discounts. Where a secret discount is withheld
by one parter on purchases which he has made on behalf of the
partnership, the entire amount of the discount must be accounted for.
Partnerships are different from agency because both the partners
have control.
It appears from the t estimony that most of the Ps knew or should
have known Harris and International were in the real estate business
and that a realtor’s commission in some amount would normally be
paid to some Realtor on this transction.
Rule [pg. 363]—UPA § 21: provides that every parther must account
to the partnership for any benefit and hold as trustee for it any profits
derived by him without the consent of the other partners from any
transaction connected with the formation conduct of liquidation of the
partnership or from any use by him of its property.
What is the problem with not disclosing? Because then there is no
consent and then he must account. What is the remedy? Must pay the
amount to the Ps.
One of the fundamental duties of any partner who deals on his own
account in matters within the scope of his fiduciary relationship is the
affirmative duty to make a full disclosure to his partners not only of
the fact that he is dealing on his own account, but all of the facts
which are material to the transaction.
The consent must be informed consent.
An action for accounting gives the partners what they are entitled to.
Notes pg. 366.
B. Ownership of the Firm versus Ownership of Assets: pg. 621
1. Suppose you are representing a partner and you understood the property to
be held by the partners as tenants in common or with personal property with
the partners having a joint tenancy with right of survivorship. Quitclaim
deed in order to convey such property.
2. IF property was held in the common law way—did property law treat
partnership as an aggregate or entity? Aggregate.
3. Putnam v. Shoaf:
a.
Partnership property rights here under UPA 24: (1) rights in specifict
partnership property; (2) interest in the partnership; and (3) right to
participate in management.
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b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
Mrs. Putnam conveyed her property and the issue was whether she
intended to convey her interset in the partnership to the Shoaf’s.
The Shoafs agreed to take her interest and then the company was in
debt and the Shoafs agreed to be liable for all debts prior to Mrs.
Putnam coming in.
Who wins? The Shoafs. Here the court found that the interest from
Putnam to the Shoafs was conveyed. She had a interest in the
partnership property –she did not convey the right to sue the
bookkeeper and bank for the embezzled money, did she? Thus, if she
did not convey it, its hers.
§ 8 of the UPA. [see rules pg. 624]—the real interest of a partner, as
opposed to that incidental possessory right before disscussed, is the
partner’s interst in the partnership which is defined, as “his share of
the profits and surplus and the same is personal property. Therefore,
a co-partner owns no personal specific interest in any specific
property or asset of the partnership. The partnership owns the
property or the asset. The partners interst is an undivided interst, as a
co-tenant in all partnership property. That interest is the partners
pro rata share of the net value or deficit of the partnership. For this
reason a conveyance of partnership property held in the name of the
partnership is made in the name of the partnership and not as a
conveyance of the individual interest of the partners.
Partnership used to be an extension of a person which could not own
property.
Which party want to treat partnership property as aggregate?
Putnam. Court holds that the entity[the partnership holds] the
property so if you have sold your interest in the entity, you have sold
all assets and interest you hold.
Is it possible to the other way on these statutes?
If it was an aggregate—the creditor could go against the individual
partners in the personal assets—this is what the UPA wanted to get
away from when they changed the law to apply to entities.
Why the SOF applies here—to land. –no the statute of frauds does not
apply here. See notes pg. 626-628. The interest in the partnership is
considered personal property so there is no reason for it be in
writing—so under UPA 26—the SOF will not apply.
What is the revised Code on this? Partnership property is owned by
whom? It is real property? Is it an entity or aggregate under UPA?
An entity—distinct from its partners.
Should it be held as an aggregate or entity as a general rule and does
it matter? Liability purposes are different. –good test question. Why is
real property treated different than interest in profits of the property.
–helpful to the creditor if they can come in and seize the property.
The partnerhsip property could be merely an personal asset.
Maybe it is that the court does not want partner to be able to hurt the
other partners by going into debt.
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o.
Real estate is treated different than any other partnerhsip? Not
necessarily. Why treat property different than profits and losses and
liability for torts? To protect the other partners.
C. Rights of Assignees and Creditors:
1. Assignments: Bauer v. Blomfield Comp. (pg. 647).
a.
b.
c.
d.
e.
f.
g.
Partners consented to Bauer’s assignment. Was Bauer a partner? No.
Bauer only had the assignment which entitled him to receive the
partnership profits to which the Holdens would other wise be entitled.
Bauer sues claiming that his rights as an assignee were violated. He
may have rights but he was only a partner. See UPA. 27; Rupa 503.
He cannot have any managerial impact as an assignee. Partners have
management rights and Bauer has none of these so therefore he
cannot be a partner.
What kind of duty does the dissent say should exist? A duy of good
faith and fair dealing.
Notes pg. 652.
Non recourse loan—no personal liability of the borrower.
Holden is being deprived of partnership funds—Bauer should have
sued Holden.
D. Charging Orders; 91st Street v. Goldstein:
1. Court says that a charging order is the sole remedy against the partnership
interest—the exclusive method of reaching a partners interest in a
partnership however UPA §28 states redemption and foreclosure as other
methods.
2. Is the charging order appealable? No –it is not a final order.
Assignment: pp. 628-42; and II.H.2: III.B.
April 2, 2001
A. Charging Orders—pg. 652(read this section over)
1. Problem: 13.8:
a.
b.
c.
Connie can go to a court and ask for the court to enter a charging
order.
Will Connie be entitled to half the partnership property? A partners
interest in partnership property? Profits and distribution.
Is Connie entitled to more than her partnership interest—see pg. 655-§28. Can the court order foreclosure on the charging order? And
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d.
e.
f.
g.
Can Connie go the court to get relief? Only a charging order? Why
would Connie foreclose? What would that give her? This is the issue
in Baybank. Baybank obtained a judgment against the Connor’s and
they wanted the interest and requested a charging order. The trial
court granted the charging order and dissovled the partnership to
satisfy the debt. UPA 28, 32, and 6 were relied on by the court.
Right to Dissolution: Baybank v. Catamount (pg. 667)--Was the
charging order in Baybank proper? UPA § 28 applies to a partnership
not a limited partnership and since there is a limited partnership here,
what is the appropriate code? §703—pg. 669. –the court may charge
partners with payment of the unsatisfied amount…So if the charging
order is proper under 703, you don’t need 28. IF something is not in
the limited partnership act, what authorizes us to look at the UPA?
1105 of the RULPA; and 6 of UPA—pg. 669. UPA shall govern when
there is no provision in the limited partnership act.
Why order a foreclosure? While charging order is in place, the
creditor has all the rights as an assignee in the partnership—would a
creditor have any more rights after foreclsure of a charging order
than before? What is that the receiver receives and if you foreclose
what is the point of the receiver? Foreclosure sells the property
interest in the partnership. All creditors want the money—they do not
want the property—look at analysis on pg. 670-671. As a creditor
holding a charging order, Baybank has to the extent of the interest
charged, only the rights of an assignee of the partnership to the extent
of the the unsatisfied amount. §703 but if it is foreclosed upon, then
Baybank becomes the transferee--§32(2)—thus can then or will be
entitled to a dissolution of East Street. This provision allows the court
to order dissolution on the application of the purchaser of the
partners’ interest. The creditor here should foreclose because they can
then file for dissolution and receive what they are entitled. But here in
this case, the creditor cannot foreclsose. §802.—here the court found
that because East Street can carry on its business in conformity with
its partnership agreement—there cannot be a dissolution
No charging orders provision in Texas partnership act. 7.03—there is
a charging order provision for limited partnership. Can a creditor of
a limited partner foreclose? The partnership interest may be deemed
returned anytime before foreclosure. No dissolution unless as
transferee under limited partnership interest. So you own it but
cannot dissolve.
Notes pg. 672-673. KNOW 723-26.
B. Problem: pg. 628—Distributions on Liquidation: (handout)
1. Assets on left(company) and liabilities and equity on right(who owns it)—
balance sheet(the right and left sides should equal each other).
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C. Parker v. Northern Mixing Co. (pg. 629)---re-read.
1. UPA 40(b)(2)—
2. Pg. 631—what did the t.c. do? The court is talking about personal liability
not partnership liability—what should the court have done? Why was this
wrong? Almost all of the rules here are default rules—they can be opted out
of. Absent any agreement—do they share losses as they do profits? The result
of the ruling for Douglas is what? Until you can see that there is a capital
loss, the case does not make any sense at all.
3. Equity: Ike—134, 477 and Douglas 7500—141, 9777 but the assets only equal
93,876. Equity after losses--Douglas 16,500 and Ike will 110,427—so then
assuming Douglas can pay, the equity must equal the assets.
4. They started with 141,9777 less 93,876—48,101 which is then divided by 2—
24,050.
5. The key is to see that we are taking away the capital losses.
6. Douglas thought he was making 2500 a month and ends up in the hole
16,500. IS this the right result –why was the court right? Why should it be
this way? What does the court say about the 7500? What is the ruling here?
Whether there was an existence of the agreement for Douglas to be paid for
services rendered or whether the amount was a contribution. If he got paid
for want he did and it was not a contribution to the partnership—so what is
the holding? He should not have gotten the 7500 contribution—what if he
said going into the partnership that he will work—labor and cash have the
same effect as to contribution. Suppose the court did not say his services
would be contract or contribution? UPA 18(f)—thus if there was no
agreement—no partner is entitled to any renumeration in the partnership.
Isn’t contribution some renumeration? Yes. So he may not get anything—
RUPA—401—(pg. 106 of Code)—is credited to the amount that the partner
contributes. (money and property—there is no mention of services)—401(h)
mimics UPA 18(f)—so if you follow the code –it seems as though Douglas got
nothing so therefore it seems as though Douglas was improperly
compensated.
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