BUSFIN 3500 Chapter 12 11 9 2012 thru 11 16 2012 Business Associations Agency o Someone who is acting on behalf of principal referred to as employers and employees o Agency is not contractual relationship it is a mutual relationship o Recall in contract law that statute of frauds needs some agreements in writing Agreement must be in writing to be contract o An agent acts on behalf of another o Part for whom an agent is acts is the principal o Creation of Agency Relationship when agency is formed they are given authority from principal Express Authority In form of words o Oral o Written Power of attorney Attorney is another word for agent Can have power of attorney over property or over the person Can be limits on authority Can be binding on Third party Implied Authority The test for find the agency s implied authority is the reasonable person test Look at principal from agents eyes Authority that is not expressed in words but the authority a reasonable person would see fit for the agency based on the relationship between principal and agent More than would be found in expressed authority Apparent Authority Derived from the perspective of the third party Hamilton Hauling Inc vs GAF Corporation o Bajt is the purchasing agent for GAF o Bajt makes long term contract with Hamilton o GAF says Bajt had no authority to make deal and does not honor it o Hamilton Sues and loses Ratification Principal may approve actions taken by agent after the fact Agents are characterized as fiduciaries A fiduciary holds a position of trust and is held to the highest standard of the law All others stem from fiduciary duty Highest duty the law can impose upon someone Duty that someone should act with complete and utter loyalty to someone else Principal and Agent Relationship o Duties of Agent to principal Breach of fiduciary duty is forfeit of job o To not breach fiduciary duty you need Full disclosure to principal Consent of principal o Obedience Not blind obedience An agent owes a duty to obey the principal s instructions o Care o Loyalty Agent must exercise proper skill and care in carrying out agency responsibilities Subject to negligence for anything less Basically law of negligence Agent may not act against the principal s interest or in any way engage in self dealing Duty to comply with the contract and to reimburse the agent for expenses and o Accounting o Duties of Principal to Agent Account for all monies generated by agency losses incurred as a result of the agency o Contract compliance Any breach results in liability to agent o Reimbursement Principal and Third Party Relationship o Contracts Principal is liable for contracts entered not by his or her agent Authority o Expressed o Implied o Apparent If the third part is on notice or should reasonably know that the agent lacks authority the principal would not be bound Principal is normally liable for the tortuous acts committed by the agent within the scope of the agency Known as respondeat superior Let the master respond Principal is not liable for the crimes of an agent Agent and Third Party relationship o Liability of Principals and Agents for Contracts Agents who enter into written contracts must clearly designate their authority to avoid liability Agents are liable to third parties for their torts Termination of Agency Relationship o May terminate under the terms of the agency contract o Mutual Consent o Unilateral Termination o Torts o Crimes Always has party to end relationship but may be responsible for damages from breach of contract o Principal must notify third part of any termination of agencies so that there is no question of authority Sole Proprietorship o Owned by a single person o Owner has exclusive control over operations o May hire employees to act as agents o Owner exposed to unlimited liability Partnership Primarily Statuary o Two or more persons more complex than sole proprietorship o UPA uniform partner act An association of two or more personas to carry on as co owners a business for profit More to this than you would think based on definition Section 6 of partnership Act Rules to determine existence of partnership o Sharing of gross returns does not of itself establish a partnership whether or not the persons sharing them have a joint of common right or interest in any property from which the returns are derived o The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business but no such inference shall be drawn if such profits were received in payment o Formation of Partnership Does not require a formal written agreement Articles of partnership Helps avoid conflicts with rights and responsibilities of partners In absence all partners share profits losses equally If this conduct occurs without intent of being in partnership may still be held liable for duties of partnership Example business or person owes money Business or person is either insolvent or bankrupt Creditor will bring lawsuit against someone more solvent and will try to find partners of business who would be obligated to pay Cases occur when something goes wrong Advise Sit down with attorney to draft partnership agreement When looking an attorney looking for someone with knowledge and experience Have you ever formed a partnership on this kind of a business o Rights of Partners Partnership property Each partner has a right to possess partnership property in furtherance of the partnership business Capital Contributions Profit sharing UPA says they are divided evenly unless otherwise specified Management Participation Each partner has an equal right to participate in the management of the partnership may be altered by agreement Vote of majority on ordinary decisions Needs unanimous consent on extraordinary conditions Obligations of Partners Fiduciary relationship to each other Fiduciary duty of loyalty Relationship to Third Parties of the partnership property o One partner may not exclude other partners from the benefits Partnership is principal partners are agents and third party is third party Partners are jointly liable on the contracts of the partnership Partners are jointly and severally liable for torts Apparent partnerships o Anyone poses as a partner with partners having no knowledge is liable o Anyone poses as a partner with partners having knowledge makes partners knowing liable Termination of Partnership Dissolution o Change in the relation of the partners caused by any partner ceasing