Business Associations - Berdejo

duty of loyalty- Acting as/on behalf of adverse party

1. Agent has a duty not to act as or on behalf of an adverse party in a transaction connected with the agency relationship. a. A must disclose adverse interest to P so that P may evaluate how to best protect its interests. Agent has to disclose everything to P and provide all material info. b. Ex: Prof is the SBUX VP that is in charge of buying coffee and purchases coffee from a supplies company or farm that Prof has ownership stake in. - Prof is not able to do this. This is an obvious conflict of interest. Prof cannot argue a deal for SBUX where he benefits on the other side of the deal

Gorton v. Doty Facts

(a) HS football game; coach drove teacher's car to an away game and student was injured in an accident on the way. Teacher asked the coach if she needed a car; she offered hers if he drove it, to which he agreed. (b) Gortons sued the teacher as the coach's principal. The coach was the agent and the teacher was the principal while he was driving her car; therefore, teacher was liable for the coach's tort in driving negligently. (c) Evidence of agency relationship: convo b/w teacher & coach. Convo important b/c it contains the assent of both principal & agent.

3 Prongs for Establishing Agency Relationship (applied to Gorton v. Doty)

(a) Principal manifests assent that the agent act on the principal's behalf: Teacher wanted coach to act on her behalf when she said he could use her car if he drove it, rather than driving the kids herself. (b) Agent subject to principal's control: When the teacher told the coach that only he could drive her car, that agent was subject to the principal's control. In doing so, the teacher imposed conditions, which was enough for the court to show control. (c) Agent assented to act on the principal's behalf: Coach assented by saying he would drive her car.

CORP Legal personality:

a. Corporation is an entity with separate legal existence from owners. It makes own decisions; enters into contracts; Can sue, be sued; Owns assets; and is a separate taxpayer these actions are taken by agents of the corporation that have the authority to bind the entities. i. All stuff learned in agency applies in corp. context as well. ii. Corps. Diff from partnerships who are not seen as being separate legal entities frorm the partners

Patterson v. Domino's Pizza (Cal. 2015)

i. Employee sexually harassed by another employee at Thousand Oaks Domino's pizza. Store owned and run by franshisee not by Dominos. P sues owner of store and Domino's, arguing Domino's is the franchisee's principal. ii. Trial court grants summary judgment in favor of Domino's: franchisee was an I/C and tortfeasor was "not an employee or agent of Domino's for purposes of imposing vicarious liability." Court of Appeal reversed. Says D should be liable that have enough control under that operating agreement.SC reverses Appeals. iii. SC adopts instrumentality approach where you look at the specific aspect of the business that cause the harm (from Miller & Modern approach) 1. A franchisor becomes potentially liable for actions of the franchisee's employees, only if it has retained or assumed a general right of control over factors such as hiring, direction, supervision, discipline, discharge, and relevant day-to-day aspects of the workplace behavior of the franchisee's employees. 2. NARROW STANDARD a. Having an operating system in place (setting standards) is not enough to assert control b. Court goes beyond the parties' characterization of their relationship in franchise contract and examined parties' actual course of dealing c. Apply narrow "instrumentality test" in franchise cases i. Here: it is about workplace behavior of employees with rach other iv. Here, look at who controlled this part of the business - this a human resources aspect. For Domino's to be liable, it would have had to retain enough control over how employees were hired

Economic and Financial Rights of Partners

1. Sharing of business' profits and losses 2. Distribution of firm assets a. Periodic draws b. Settlement at dissolution 3. Partnership property 4. Transferable partnership interest

Disclosed Principal

1. At the time of transaction, 3rd party knows : (1) she is dealing with an agent acting for a principal and (2) the principal's identity.

Warren/Cargill Case

(1) Facts & Analysis (a) Company that buys grain from farmers, stores it, & sells grain to terminal operators (direct purchasers). They exchange some of the grain on the market. Although Warren is sketchy, their big asset was having a grain elevator, which is expensive to build/maintain, needs to be located along a railroad w/ K w/ rail line = local monopoly. (b) Cargill was interested in purchasing grain from Warren's area and so had to deal w/ Warren, b/c W had grain elevator for that area. Cargill enters K w/ Warren and gets right of first refusal on grain w/ Warren. Cargill also starts financing Warren's operations, which is part of the deal. Cargill kept lending additional money to Warren; Warren kept selling more grain to Cargill. At one point, Cargill was buying 90% of Warren's grain. (c) Warren eventually goes broke. Cargill loses money due to unpaid loans by Warren. Farmers aren't getting paid by Warren for the grain they gave to Warren to store & sell. Cargill & farmers lost a lot of money. (d) Farmers sue C & W b/c W has no money; although you can always sue the agent, the agent often doesn't have money, so the principal is sued often as well too: C has deeper pockets. Farmers need to establish C & W were in a principal-agent relationship as a threshold matter. (e) Opinion: Warren was the agent; Cargill was the principal. Apply 3 prong test: (i) Prong 1: Agent acts on principal's behalf: C wanted the grain; W got the grain from the farmers & delivered it to C. (ii) Prong 2: Subject to principal's control: C's role as a lender, aggressive financing & restrictive covenants. Enough to satisfy prong: C was telling W how to run its business. Lending relationship is essential to establishing agency relationship b/c W is buying grain from farmers & selling grain to C to make a profit. C exercised control over W (C had rights over how W operated). (iii) Prong 3: Agent manifests assent: W agreed and received the loaned money from C. W has nothing at stake in the case. Court glosses over this prong; assumes that by taking the actions, W manifested assent.

Default Partnership Rules

(1) profits shared equally & losses shared in proportion sharing profits, (2) person can become partner only w/ consent of all other partners, (3) each partner gets a vote, (4) no partner can draw a salary for carrying on partnership business (partners not automatically entitled to a wage for the work they do for the business) unless specified in K. a. Various rules govern relationships among partners and between the partnership and the outside world (most are just default rules meaning the partners have not contracted for something else): i. Each can bind partnership in contracts; partnership also liable for a partner's torts ii. Obligations are personal obligations of partners iii. Fiduciary duties owed to partners iv. Entitled to share control v. Entitled to shared profits & losses

Duty of Loyalty- Duty not to use Principal's Property/Confidential Information

1. Agent has a duty not to i) use P's property or ii) use or communicate P's confidential info for A's own purposes or those of a 3rd party. A has to account for any profits made by the use of such info. even if P is not harmed. Duty does not end when agency relationship terminates... a. This applies to insider trading. b. Ex; SBUX. SBUX moving to a neighborhood raises property value. Agent of SBUX cannot buy property in area before it is announced SBUX is coming, armed with the knowledge that an SBUX is coming to that neighborhood. i. P can recover the gains in this scenario even if P is not harmed. What profits the A makes belongs to P. c. Cannot exploit info learned about P for A's own gain while agent and cannot do after A is no longer an agent. (Duty does not end when agency relationship terminates Unless 1) permission, 2) confidential info becomes general knowledge, 3) general knowledge within a trade)

Duty to Act as Authorized and follow instructions

1. Agent has a duty to take action only within the scope of the agent's actual authority. 2. Agent has a duty to comply with all lawful instructions received from principal concerning the Agent's actions on behalf of the principal. (doesn't affect the rights of third parties if the agent has apparent authority; if agent did not have actual authority, P can sue A for duty breach.) 3. If A's action is beyond the scope of the A's actual authority and causes loss to the P, the A is subject to liability to the principal

Partner's Fiduciary Obligations (General)

a. The fiduciary duties a partner owes to the other partners are the duty of loyalty the duty of care, and the duty to furnish any information about the partnership's business and affairs w/in reason. i. A partner shall discharge his/her duties under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.

PARTNERS MANAGEMENT RIGHTS

(Default rules that can be altered by the K) a. Each partner has equal rights in the management and conduct of the partnership business, regardless of how much each partner works & their capital contributions. i. This is a default rule that can be contracted around. ii. One partner = one vote. (default) iii. Muppet Law Hypo: 1. K & G are partners in a law firm. K tells G that he wants to prohibit G from taking on new clients, signing opinions etc., w/out Ks approval. a. K cannot impose this limitation. He cannot unilaterally change things. He would need a majority vote. If he believed G was losing it, he would have to dissolve the partnership. 2. K writes to all the clients and advises them that he will not be liable for any of G's malpractice. This will not do K any good. K cannot unilaterally take the power away from G of doing the stuff that Partners in a law firm due. Any notice sent to any third parties will not have any legal effect on G's authority or K's or the partnership's liability b. A person may become a partner only with the consent of all of the partners. i. Requires unanimity. c. Resolving differences (if all partners agree, this issue does not arise) i. A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. ii. An act outside the ordinary course of business of a partnership may be undertaken only with the consent of all of the partners. 1. Default is that there is no apparent or actual authority. If partners vote that partners have authority to take extraordinary acts that will be enough to bind the partnership. 2. Partnership can ratify the K 3. Going against the partnership agreement requires unanimity and this is also outside the ordinary course to go against the partnership agreement. a. Dictatorship i. It is OK to agree to a doctorship 1. Partners are free to make an agreement that suits them that gets around CCC/RUPA a. Executive committee making decisions b. Majority approval for matters requiring unanimity under statute

Factors use to determine if a Partnership exists

(substance of relationship and how control and cash flow rights are shared - trumps form 1. Intention of parties 2. Conduct of 3rd parties 3. Economic risk a. Right to share in profits b. Capital contribution c. Obligation to share in losses d. Ownership of property e. Rights/obligations on dissolution 4. Control & management rights

Corporation Key Attributes

- legal personality - separation of ownership and control - limited liability - liquidity - flexible capital structure - tax treatment

Effect of Assigning Partnership interest

1. A transfer of a partner's transferable interest in the partnership does not: a. By itself cause the partner's dissociation or a dissolution of the partnership business. b. Entitle the transferee to participate in the management or conduct of the partnership business, [or] to require access to information c. Transferor retains rights and duties of a partner other than the interest in distributions transferred.

Duty to Provide Information

1. Agent has a duty to use reasonable effort to provide principal with facts that agent knows when agent knows or has reason to know that principal would wish to have the facts or the facts are material to the agent's duties; and the facts can be provided to the principal without violating a superior duty to another person. 2. Has duty to use reasonable effort to provide principal with facts that agent knows when a. Agent knows or has reason to know that principal would wish to have the facts or the facts are material to the agent's duties; AND b. The facts can be provided to the principal without violation a superior duty to another person 3. Rst illustration: P owns Blackacre and lists it for sale w/ A; T makes offer to buy Blackacre for $100K; before T's offer is accepted by principal, A learns S is willing to pay $120K for Blackacre. A has a duty to convey this info to the P. Once P learns of that offer, he likely won't accept T's offer.

Duty of Loyalty- Business Opportunities

1. Agents have a fiduciary duty to the principal not to take personal advantage of an opportunity and not to give the opportunity to a third person. Agent must give that opp. to the principal. People often contract around this rule a. Applicable when either the nature of the opportunity or the circumstances under which the agent learned of it require that the agent offer the opportunity to the principal. i. A should refer the opportunity to the P if either the nature of the opportunity or the circumstances require him/her to do so; ii. A may take an opportunity if he/she full discloses it and the nature of the conflict, and P rejects the opportunity. iii. Example: : SBUX expo in Vegas; A learns about new brewing venture. A can't take that idea and open a business b/c business opp belongs to P (SBUX). Belongs to P b/c of nature of opp, as it is close to SBUX's business. Also look at circumstances: A went to expo as a SBUX employee; people approached A as an agent of SBUX. 1. If opportunity was more removed (i.e., agent approached as a friend or getting an opp re: beer/wine), makes for a more interesting case. Opp likely still belongs to SBUX. b. The remedy for an improperly taken opportunity is simply for the principal to take it from the agent and provide the agent "reimbursement." The word "reimbursement" plainly indicates that the agent is not entitled to any appreciation value of the investment between the time he acquired it and the time the principal took it from him.

Duty of Loyalty- Material Benefits Arising out of Agent's Position

1. An agent has a duty not to acquire a material benefit/additional compensation from a third party in connection with transactions conducted or other actions taken on behalf of the principal or otherwise through the agent's use of the agent's position. a. Excess benefits rule: If the A receives anything in excess, then the Principal can get it from the Agent. All agent should receive is the agreed to compensation. Principal does not need to show harm for this type of breach. b. Parties can contract around this rule or it can be overridden by custom (waiter accepting tip example). i. Ann hired by P to work at P's restaurant for hourly wage. Ann gets a $50 tip from one of her tables. Ann can keep this. This is read into her compensation. Argument will be that the excess benefit rule has been contracted around here. It is either expressly contracted around in the employment K. Or can argue custom. In an industry/location a practice is so ingrained it is part of the custom. If the custom is that waitresses can keep tips even if the K is silent on this, it will be seen as stating implicitly that Ann can keep tips.

All Ways in which partnerships can be dissolved

1. By majority vote of partners, if the partnership is a partnership at will. Under RUPA if partnership is at will any partner can force dissolution. Under CA even if it is at will, need a majority vote to dissolve - however if at well can always dissociate just cannot unilaterally force dissolution. (EXAM IS CA FOR PARTNERSHIPS.) 2. By dissociation of a partner through operation of law or by wrongful dissociation, unless a majority of remaining partners agree to continue a. If a partner dies, the partnership is not automatically dissolved, that partner is just dissociated. But the partnership will enter dissolution process unless a majority of the partners vote to continue 3. By unanimous vote of all partners a. All partners can always vote to dissolve even if there is a term 4. By terms of the Partnership agreement 5. By operation of law due to unlawfulness 6. By court order: Economic purpose frustrated; not reasonably practicable to carry on the partnership business

i. Graphic Directions Inc. v. Bush (Colo. 1993) (duty not to compete - duty of loyalty: agent couldn't' solicit clients while still employed)

1. D's, officers of GDI, quit their jobs. Take another employee with them and solicited some of GDI's clients before leaving. Post-departure, client base is reduced and there are lost-sales. GDI sues officers that left to start their own company. Argue that ex-officers, while they were agents of GDI, took steps to compete with GDI by talking to GDI employees and clients to start building their post GDI portfolio. 2. Issue is how much the officers could do in furtherance of their own business before leaving. 3. Court held it was OK for GDI officers to plan their own shop while still employed by GDI b/c this isn't competing, but preparation to compete. The officers could also talk to others advising them they were leaving; BUT they could not start soliciting the principal's clients before leaving the company b/c breach of loyalty. 4. GDI has to prove actual damages from the solicitation (difference from excess benefits rule, where P doesn't have to show damages). GDI not successful in showing damages; establishing breach alone is insufficient 5. In order to get damages for breach of this duty need to establish that there was a breach and that there are damages.

Millsap v. Federal Express (Cal. App. 1991) (independent contractor)

1. F: Fedex flew in and could have a fed Ex employee and Fed Ex truck deliver the package. Fedex chose not to do that. They hired another company, North County Express an independent company, to deliver this package. That company was not using its own trucks and employees - they were hiring someone outside to deliver packages. The delivery driver ("DD") has an accident. The Victim ("V") can sue DD but wants to sue Fedex and North County Express, the company hired by Fedex. 2. Issue = was DD an employee of North County Express? If so, then North County Express will be liable. If not, then North County not liable. 3. Court held that DD was Independent contractor not employee. They went through above factors. a. Reasoning: analyze appearances (Pence & NCE didn't consider themselves to be in an employer-employee relationship), performance (instruction, supervision), financial risks (method of payment, wages, investments), termination (whether NCE can unilaterally end the relationship w/out cause, which indicates how much power NCE has over the relationship). i. Pence was an IC, not an employee, b/c NCE didn't control the manner in which Pence could execute the delivery, but only told him to deliver the package. Pence used his own car, paid for his own gas, insurance & car repairs (bearing financial risks of an independent business), he wasn't given a wage, but rather a lump sum when there were packages to be delivered → all factors point to Pence being an IC. Court focuses a lot on performance and lack of instruction that Pence received to complete his job. NCE didn't have enough control over Pence's performance for him to be an employee. 4. The reason for distinguishing the Independent Contractor ("IC") from the employee is that the P does not supervise the details of the IC's work and therefore is not in a good position to prevent negligent performance.

Jackson v. AEG Live (Cal. App. 2015) (independent contractor)

1. F: MJ was going to do shows in London and he entered into K with AEG. MJ said he wanted Doctor Murray to be his doctor and he wants AEG to make it happen. AEG makes it happen. And things happen and MJ dies via overdoes from the Doctor's Negligence. MJ's family bringsthe case. 2. I: Can family sue AEG live, the promotor/producer of the tour, for the negligence of the doctor? 3. Family argues that the doctor was an employee of AEG Live and the doctor committed a tort. 4. Court holds that Murray was an IC. They looked at how close Murray's relationship was with AEG v. how close he was with MJ. AEG's interactions with Murray were limited, Murray used his own equipment, was not told how to treat MJ by AEG, Murray told police that MJ was his employer, and AEG could only terminate with Murray with cause, and MJ could terminate Murray at any time w/out cause. 5. Appearances: Nobody saw the doctor as even being an agent of AEG. It was more this is MJ's doctor and they just facilitated bringing the 2 together. 6. Performance: AEG did not tell doctor what to do. Doctor used his equipment, own offices, his own assistants. Nothing was really provided to him by AEG. 7. Financial Risk: Payment came from MJ, even though AEG is writing the checks, the money is being deducted from MJ's payment. 8. Termination: Only MJ had the right to terminate Doctor at any time. 9. Not a close call. Very clear that doctor is not employee of AEG. 10. Being a professional matters in the analysis of IC v. employee. Professional work takes skill and if the work you are doing takes skill then it is less likely that your Principal can supervise effectively in terms of how you do your work. If you are professional you have a reputation to protect. So professional has their own incentives to makes sure they do not screw up. In this case it plays an indirect role because Doc had his own business and equipment.

Owens v. Cohen (CA 1941) (partnership operating a bowling alley; court decreed dissolution due to crazy partner)

1. F: Partnership operating a bowling alley in Burbank. Owen put in the money. A lot of the money is a loan about $7000. The idea was that Owen was going to make profits very quickly to pay loan back. It was not a capital contribution; it was a loan. If it was a capital contribution the partner could not get that money back until the very end. By characterizing this contribution as a loan, the partner gets first dibs. The partner has a contractual right to that property. Owen could not get Cohen to perform any of his duties and he could not buy Cohen out. Cohen wants to get the bowling alley for himself. 2. Owen brings suit asking court to dissolve the partnership. Owen had to seek a decree of court to dissolve because he was concerned he did not have the right to dissolve, only had the power. a. If he wrongfully dissolved than Cohen would be in the driver seat and get everything he wanted. Not sure if it is an at will partnership or term partnership. There was no express term - but there may be an implied term = "until the debts are paid off via profits, the $7,000." And at this point that term was not met. 3. Court determines that while the term of the partnership was not expressly fixed, it must be presumed from the agreement the parties intended the relation should continue until the obligations were liquidated. These circumstances negative the existence of a partnership at will. a. Held: when a partner advances a sum of money to a partnership w/ the understanding the amount contributed was to be a loan to the partnership and was to be repaid as soon as feasible from the prospective profits of the business, the partnership is for the term reasonably required to repay the loan. 4. The key with implied terms is that you have to set a line that you know when you crossed it. You do not know how far away that line is, but you will surely know when you cross it and the term will be met.

Perez v. Van Groningen & Sons (employee acted w/in scope of employment)

1. F: Persons job is to use tractor to prepare the fields. Person brings his nephew to the farm and puts him on the tractor, nephew falls and has a bad accident. Farm company told Person not have people in that tractor. 2. Issue: Can Victim sue the farm owner? 3. Establishing Vicarious liability: a. Is Person employee or IC? Uncle/Person was employee. He knew what his job was, when to do it, he has a schedule. Financial risk was with company/farmer because it was Farm Company's tractor, Uncle was just using it. He was paid a wage. Appearance = Uncle definitely knew he was working for the farm. (Go through all factors in analyzing.) b. Was conduct within scope of employment? He had some personal motive, but ultimately, he was driving the truck to tend the fields which is something the employer wanted. At the end of the day the Uncle was doing what he was hired to do. Only difference is that he did it in a negligent manner, by having someone in the tractor when she should not have. That is not enough to absolve Principals. i. P telling the A to be careful and not be negligent is not going to absolve the P for liability of the A's conduct if the A is liable. c. Employer is liable even in a grossly negligent case as well. Ex; Guy is drunk, even though there is a policy that says cannot drink and use tractor, P will still be liable. d. So long as injury to the rider occurs while the driver is carrying out his employer's business, the employer must be held liable under the familiar principle of liability for a servant's torts committed as part of the transaction of the master's business, even though the injury may accrue coincident with behavior contrary to the master's express orders.' Therefore, proof of an employer's authorization of his employee's act is not necessary to show that the act was within the scope of employment. e. There is no requirement that an employee's act benefit an employer for respondeat superior to apply. f. "[W]here the employee is combining his own business with that of his employer, or attending to both at substantially the same time, no nice inquiry will be made as to which business he was actually engaged in at the time of injury, unless it clearly appears that neither directly or indirectly could he have been serving his employer."

Jackson v. Righter (SC Utah 1999) p. 89 (employee did not act w/in scope of employment)

1. F: Third party is ex-husband. He is suing Ex-Wife's employer (Principal) because the wife had affairs with her supervisors. He is suing for alienation of affection. Husband is trying to hold employer liable for this. 2. Establishing vicarious liability supervisors were employees. Need to meet 3 prongs for w/in scope of employment but court says "not within the scope of employment" because Prong 3: a. Act must be of the general kind that the employee was hired to perform; and b. Conduct must be substantially within the time and space limits authorized by employment; and c. Employee must be motivated at least partially by a purpose serving the employer i. In engaging in the affairs, the employees were not motivated by a purpose serving the employer. They were motivated by purely personal reasons which is outside the scope of the employment. 3. Rule: an employee's conduct is usually not in the scope of employment where the employee's motivation for the activity is personal, even though some transaction of business or performance of duty may also occur. 4. How does this reconcile with Lourim? a. It is hard to say the wife would not have engaged in this affair had she not had this job. She would have had this affair anyway, it just happened that it was someone from the office.

Page v. Page (CA 1961 Partnership was at will, but big brother breached fiduciary duty)

1. F: Two partners, brothers H.B. (Plaintiff) and George (Defendant.) Partners in a linen supply. They each invest money; the business suffers losses. Things later improve and the business becomes profitable. Older brother owns other businesses that are owed money. H.B. sues to dissolve and terminate partnership. The partnership owes him a lot of money and he is trying to take advantage of that. Kick the little brother out and basically not pay him anything. Then he can keep the growing business for himself. H.B. claims this is an at will partnership that can be dissolved at any time. 2. Lower court & George compare to Owen and say this is a term partnership because this partnership owes money. Have to keep going until they pay their debts. 3. R: Failed to prove any facts from which an agreement to continue the partnership for a term may be implied. All partnerships are ordinarily entered into with the hope that they will be profitable, but that alone does not make them all partnerships for a term and obligate the partners to continue in the partnerships until all of the losses over a period of many years have been recovered. 4. In Owen there was a fixed sum that had to be paid back, but here it is just saying you have to pay all debts before dissolving. If that was the case all partnership agreements would have an implied term. In other cases that came out like Owen, the courts properly held that the partners impliedly promised to continue the partnership for a term reasonably required to allow the partnership to earn sufficient money to accomplish the understood objective. 5. Comparing Page to Owen a. "In [Owen vs. Cohen] we held that when a partner advances a sum of money to a partnership with the understanding that the amount contributed was to be a loan to the partnership and was to be repaid as soon as feasible from the prospective profits of the business, the partnership is for the term reasonably required to repay the loan." 6. Dissolution & Fiduciary Duties: Older brother has the power to dissolve the partnership by express notice to little brother because it is an at will partnership; if however it is proved that the Older brother acted in bad faith and violated his fiduciary duties by attempting to appropriate to his own use the new prosperity of the partnership without adequate compensation to his co-partner, the dissolution would be wrongful and he would be liable, providing recourse to non-wrongfully-dissolving partners, for violation of the implied agreement not exclude little brother wrongfully from the partnership business opportunity. a. Court is saying you can kick your brother to the curb, but the payment you make him needs to account for that growth that is coming, that larger value for the business that you are trying to appropriate for yourself. This is a fiduciary duty. b. Even if you have the right to dissolve you are still bound by your partnership duty. - still have to exercise that right in good faith.

When is an Agent an employee for vicarious liability

1. Factors: Analyze appearance, performance, financial risk, and termination. 2. An employee is an agent whose principal controls or has the right to control the manner and means of the agent's performance of work. a. Employee is Agent being bossed around by the P. P both gives instructions and supervises agent. b. Ex: the salesman of broker, while driving T, a prospective customer, to view a house, negligent injures him, the Broker (P) may be liable because salesperson (A) is employee of Broker. But Owner of house (big P) not liable because Broker does not work for Owner. 3. Indicators of Employee Status a. Skill required of the A b. Whether A has a distinct business c. Extent of P's control over work details d. Who provides supplies, etc.? e. Location of the work f. Is A's work part of P's regular business? g. Term of relationship h. Termination i. whether the Principal can unilaterally end the relationship without cause. If the P has this much power to do this courts are more likely to see the Agent to be an employee. i. Is A paid by job or with unit wage? j. P & A's beliefs about relationship

Lourim v. Swensen (SC Oregon 1999) pg. 86 (employee acted w/in scope of employment)

1. Facts: Principal is the Boy Scouts. Agent is a Troop-Leader. Victim (third party) is a child who was sexually abused by Troop leader. Victim sues the Boy Scouts under a theory of vicarious liability. 2. Part 1 of Test: Is A (troop-leader) P's employee? a. Troop-leader was a volunteer. This does not affect the determination of whether he is an agent or employee-agent. Troop leader is agent of the Boy-scouts - acting on behalf of boy-scouts, they controlled his manner and means, controlled his scope of employment. He is an employee 3. Part 2 of Test: Need to meet scope of employment prongs a. Act must be of the general kind that the employee was hired to perform; and b. Conduct must be substantially within the time and space limits authorized by employment; and i. Can probably easily establish because he was working as the Troop-Leader at the time. c. Employee must be motivated at least partially by a purpose serving the employer 4. Court focuses on that the Leader gained trust of the kids by doing his job as a troop leader, so this is an outgrowth of that. His position as an agent gave rise to opportunities to commit this tort. 5. Court says: in the intentional tort context it usually is inappropriate for the court to base its decision on whether the intentional tort itself was committed in furtherance of any interest of the employer or invoked the kind of activity that the employee was hired to perform. 6. H = jury could infer that the assaults were the culmination of a progressive series of actions that invoked the ordinary and authorized duties of a boy scout leader. a. Jury could infer that the Boy Scouts directed Swensen's activities and had the right to control his activities as troop leader. b. It is sufficient that the complaint allege that Swensen did certain acts while acting as a Boy Scout leader and that P was injured while Swensen was acting in that capacity 7. Boy Scouts are in a good position to prevent this type of harm from happening again.

Duty of care, competence, and diligence

1. Subject to any agreement with the principal, an agent has a duty to act with the care, competence, and diligence normally exercised by agents in similar circumstances a. Duty of care is a default rule that applies if the parties have not agreed otherwise. Parties can contract around/easily modify the default rule; principal and agent can agree to set a higher/lower standard of performance or eliminate the duty of care altogether. Courts will uphold these agreements. Absent any such agreement, the duty of care rule applies. 2. When an A is negligent and harms a third party and T can sue the P under vicarious liability, the P can then sue the A for compensation because A has breached the duty of care owed to P. 3. If agent possesses or claims to possess special skills or knowledge, she has a duty to act with the care, competence, and diligence normally exercised by agents with such skills and knowledge. 4. Duty of care also applies to gratuitous agents; agents might seek a contractual clause in this situation for a lower duty of care since they're not getting paid i. Modifying Duty of Care: Rest articulates a broad rule for agreements that P and A may make defining in general terms the standard of care applicable to A across the board for the duty of care. Duty of care rule begins with "subject to any agreement."

British American v. Wirthi. (Excess benefits Rule - duty of loyalty)

1. Sunley (through British American) represented Wirth in making sales. Sunley is suing for unpaid sales commissions under the contract with Wirth. Wirth defended not paying on the grounds Sunley (assumed agent) received excess benefits in the form of bribes to give the business over to a competitor, arguing Sunley needed to give those excess benefits to Wirth. 2. Wirth's argument assumes that he suffered damages and that the bribes were related to the K. For this type of duty breach, principal does not need to show harm. Excess benefits belong to the principal, regardless of whether the principal was harmed or not. W's argument also assumes Sunley is Wirth's agent b/c duties are owed only by agents to principals. 3. H = The acceptance by agent of secret payments to himself for doing what he is already under an obligation to do is obviously destructive to the relationship with his principal and contrary to dealing fairly with customers of the principal.

Town & Country v. Newberry (1958)

1. T & Co: Small corporation engaged in house cleaning. Came up with a special way of cleaning houses that it made it very profitable. Assembly line approach to house cleaning. Customer relationship "impregnated" with "personal and confidential aspect." Knew the clients knew how they liked it to be cleaned. They drum up customer base by cold calling people. This was a very costly and time-consuming way of getting customers 2. Defendants: a. Former employees who leave and start competing business using similar cleaning methods. Took lists when they left to contact T&C customers. They did not contact anyone outside of the list. 3. T&C mad at former employees because: a. While in employ, they made preparations to compete (form company, bought equipment) Did all these things while still being Agents. b. Defendants learned trade secrets during employ and cannot use them now to compete. 4. Court holds: Ds can prepare to compete while still employed by T&C and can use the assembly line method to clean b/c that wasn't a trade secret. BUT: Ds cannot solicit customers from the list b/c that was confidential info that Ds obtained while employees and used it when they were no longer agents and as such Ds breached their duty. They could have called customers they knew, but taking the whole list and using it as their own was not OK.

Duty of Loyalty- Duty not to Compete:

1. Throughout the duration of an agency relationship, an agent has a duty to refrain from competing with the principal and from taking action on behalf of or otherwise assisting the principal's competitors. a. During that time, an agent may take action, not otherwise wrongful, to prepare forcompetition following termination of the agency relationship. There's a difference between competing and preparing to compete b. Preparing to Compete Dos and Donts: i. Agent free to make arrangements for setting up a new business (e.g., arranging for space). 1. But not free to do this during working hours or using Ps property (including confidential information). ii. Agent not free, while still employed, to commence doing business as a competitor or to solicit customers away from the principal. iii. Agent can't lie to principal or try to leave him in a disadvantageous position. c. In order to get damages for breach of this duty need to establish that there was a breach and that there are damages.

Corrales v. Corrales (dissolution v. dissociation)

1. Two brothers - Rudy & Richard. They form the company RC Electronics (RCE). Business was to fix computers. They were partners - Rudy knew more about computers and worked on the computers and fixed them, Richard was more of the money and big ideas guy. Richard was trying to help Rudy. 2. The brothers start fighting because Rudy went behind Richard's back and with his wife and kids created a competing business. Richard is angry and sends Rudy a notice of dissociation. Both Parties act as if the notice of dissociation triggered the Buy-out clause and the brothers are now fighting about that amount and how much Richard should get. 3. Court says no you should not be looking at the Buy-out clause because that only applies if you have a dissociation. The dissociation here is actually a dissolution so they should be winding up because there are only two partners and if one dissociates and leaves the partnership, then only one partner is left, and you cannot have one partner in a partnership. Creditors have a right to be paid in a dissolution before money goes to the partners. If they had done a buy-out, creditors would not get a dime.

Modifying Duty of Loyalty

1. parties can agree to waive or minimize scope of the duty of loyalty; but can't waive it completely and modification is limited to specific types of transactions. Need principal's consent and agent must disclose all material facts. a. Conduct by agent that would otherwise breach duty of loyalty doesn't constitute breach if principal consents to conduct, and i. In obtaining consent, agent acts in good faith and discloses all material facts that would reasonably affect principal's judgment and consent concerns either a specific act or transaction, or acts or transactions of a specified type that could reasonably be expected to occur in the ordinary course of the agency relationship. b. Principal's consent i. For the duty of loyalty the parties can agree to waive or minimize the scope of loyalty; cannot waive it/get rid of it completely. Need principal's consent and agent must disclose all material facts.

Partnership by 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 (payment of money, expenditure of labor, suffering a loss or subjection to legal liability), if o (a) he intentionally or carelessly caused such belief, or o (b) knowing of such belief, did not take reasonable steps to notify them of the facts o i.e. person does not manifest assent but takes some action which causes detrimental reliance by a TP

Partnership : Dissolution

Change in relationship of partners as they cease to be associated in the carrying on of firm's business. Before ending the partnership, have to wind up by liquidating partnership's assets/business in an orderly manner: settling partnership's debts/obligations by paying third party creditors and dividing b/w the partners the balance (remaining assets/money). After the winding up process is complete, the partnership terminates (ceases to exist). i. 3 Causes of Dissolution: (1) By will of a partners or partners (partners decide this is enough and decide to end the partnership) (2) By the occurrence of certain events (Events that were agreed to by the partners that would end the partnership; the death of a partner.) (3) By decree of court on application by a partner (a partner can go to court and ask the court to dissolve the partnership.) ii. A partner always has the power - but not necessarily the right - to dissolve the partnership. A partner can unilaterally decide that the partnership should be dissolved but that does not mean that partner has the right to dissolve it. If dissolution is wrongful, the "bad partner" is liable for damagesto other partners and these partners can continue the business. If you exercise your power to dissolve when you do not have the right, that is the wrongful dissolution. iii. Dissolution caused without violation of the agreement: 1. By the termination of the definite term or particular undertaking specified in agreement, a. Ex: if partnership says this is partnership for 10 years after 10 years have passed any partner can rightfully dissolve the partnership. b. Can also have an implied term - whether you have a term or not may be a tricky question. 2. By the express will of any partner when no definite term or particular undertaking is specified a. If there is no term on the partnership, then it is a partnership at will, then any partner can dissolve at any time 3. By the express will of all the partners either before or after the termination of any specified term or particular undertaking a. Partners can agree unanimously to dissolve the partnership at any time 4. Expulsion of partner per agreement terms 5. Key Q: Is p'ship a "term partnership"? Or is it "at will? iv. Dissolution by Decree of Court (on application by a partner) Can always go to the court and ask the court to dissolve if you do not have right to dissolve if there is a term that has not been met. 1. Court shall decree a dissolution whenever: a. A partner is a lunatic, incapable or has been guilty of conduct prejudicially affecting business b. Partner wilfully or persistently commits a breach of the partnership agreement, or so conducts himself in partnership matters that it is not reasonably practicable to carry on partnership business with him (most common) c. Business can only be carried on at a loss d. Other circumstances making dissolution equitable

Creditor Becoming Principal (Warren Case) and De Facto Factors

Creditor becomes principal at the point it assumes de facto control over the conduct/management of the debtor. C exercised power over W as a lender and therefore crossed the line from creditor to principal A creditor who assumes control of his debtor's business may become liable as a principal for the acts of the debtor in connection w/ the business. Court's are hesitant to find creditor's liable as agents because it would make lending very complicated. De Facto Factors: i. W's inability to enter into mortgages, purchase stock or pay dividends w/out C's approval. (This is actually a common covenant in lending agreements.) ii. C's right of entry onto W's premises to check/audit (common in lending relationships.) iii. C's power to discontinue financing of W's operations. (Common in lending relationships) iv. C's recommendations to W by telephone (not a common thing in lending relationship - but is consistent with how a worried lender would act.) v. C's correspondence and criticism regarding W's finances, officers' salaries and inventor. (not a common thing in lending relationship - but is consistent with how a worried lender would act.) vi. C's determination that W needed strong paternal guidance vii. C's right of first refusal on grain viii. C's financing all W's purchase of grain & op. expenses. (Tells you that Cargill did have a lot of power over Warren. Warren could not survive without Cargill's financing.)

Winding Up the Partnership

Winding up: liquidating partnership's assets or business (as a going concern) in an orderly manner i. Settling the partnerships debts/obligations

Duty of Loyalty

a. : agent has to put principal's financial wellbeing ahead of the agent's own. P and A can try to contract around the duty of loyalty, but this is subject to specific requirements - not as easy as duty of care. i. General duty of loyalty: Agent has fiduciary duty to act loyally for principal's benefit in all matters connected w/ agency relationship. Agent subordinates his interests (financial and otherwise) to those of the principal and places the principal's interests first as to matters connected w/ the agency relationship. Agent has to give in to w/e is best for the principal, not what is best for the agent. Agent is only entitled to compensation from the principal. Any additional benefits are for the principal. ii. Specific loyalty duties that A owes P: - Material Benefits arising out of Agent's position - business opportunities - Acting as/on behalf of adverse party - Duty not to compete - duty not to use principal's property/confidential information

Fiduciary Duties Owed By Agent (Generally)

a. General fiduciary duty principal i. An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship 1. Agent subordinate his interests to those of the principal and the place principal's interests first as to matters connected with the agency relationship Other categories: - Duty of care, competence, diligence - Duty to Act as Authorized and follow instructions - Duty to Provide Information

Partnership Generally

a. A Partnership is "an association of two or more persons to carry on as co-owners of a business for profit - whether or not the persons intended to form a partnership." i. Co-ownership has 2 parts to it: 2 or more people sharing the profits/risks of business and sharing the management of the business ii. Very easy to form 1. No filings, no written requirement. No intent, no formalities required. 2. No formal requirements to formation: the trier of the facts asks whether a reasonable person would believe the parties intended to act as "co-owners of a business for profit" based on the parties' objective manifestations. 3. Forming Partnerships look very much like how you form P-A relationships. iii. Very flexible 1. Mostly default rules - rules that can be easily contracted around. iv. All the owners will have person liability for the debts and obligations of the partnership 1. Creditors of partnership can access partner's personal assets. v. Pass-through taxation 1. Profits and gains flow to partners and partners pay taxes No tax at entity level. Partnership itself does not pay taxes

Partnership Duty of Care

a. A partner's duty of care is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. Being merely negligent does not violate the duty of care. Partners owe a lower duty (standard a little less demanding) of care than in the standard agency relationship. i. To violate this duty, partner's action must constitute gross negligence or willful misconduct. ii. Unless a stupid decision by a partner was grossly negligent, reckless or intentional, all partners ultimately share the financial loss. 1. Can likely contract around this and have in the agreement that mere negligence will be enough to breach the duty of care. 2. Partners can sue the partner who was grossly negligent, unless the wrongdoing partner was only negligent, then all partners are on the hook for the loss. 3. Third party has to go after assets of the partnership first. Then they can go after the partners. CA is joint and several meaning that the third party can go after every partner - but still have to first try to get your recovery from the assets of the business.

Duties after Termination of Agency

a. After termination, agent is free to compete with principal; Subject to non-compete agreement b. Agent is not free to use or disclose a principal's trade secrets or other confidential information. (unless Principal consents) (duty not to use property lingers.) i. Must account for profits made by sale or use of trade secrets and other confidential info.

Duties After Termination of Agency

a. Agent is free to compete with principal i. Subject to non-compete agreement b. Agent is not free to use or disclose a principal's trade secrets or other confidential information i. Must account for profits made by sale or use of trade secrets and other confidential info

General Rules for Principal's Contract Liability- Authority

a. Agent's acting with Authority can bind the Principal in Contract with 3rd Parties (this is what makes agency relationships valuable for Principal).When dealing with third party K's need to FIRST look for the authority. i. Does not matter what type of authority is present - as long as one type is there the principal will be bound by the agent's act. ii. Burden of proof - whoever is trying to enforce the K is going to have to establish authority. This will often be the third party b. When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal, the principal and the third party are parties to the contract.

Undisclosed Principal Definition and Policy

a. At the time of transaction, third party has no notice she's dealing w/ an agent acting for a principal. If principal is undisclosed, they can't claim a manifestation b/c principal is unknown (no apparent authority). Concern is always to protect the expectation of the third party.

CORP Separation of Ownership & Control

a. Cash flow rights and control rights are not vested in the same bodies, very different from partnership law. Control rights and economic (e.g., cash flow) rights are divvied up among: i. The equity interest in the business belongs to the shareholders. Control rights is mainly on the board of directors. Shareholders get a say who is on the board, but that is pretty much it. As for making business decisions that partners would make, that is the board who makes those decisions. ii. The bigger the corporation the more of a separation that will exist between cash flow and control rights. iii. stockholders (aka "shareholders") - have no role in managing the business under the default rules. Shareholders have no say in how the company is run. iv. board of directors - have ultimate control over the management of the corporation. They will make the important decisions in terms of what the corporation will do and not do. 1. Directors are bound by certain duties they owe to the corporation and to shareholders and the duties will bind their discretion. v. officers (aka "managers" or "executives") - the ones taking care of the day to day business. vi. Centralized management: 1. All corporate powers exercised by the board of directors, which manages business and affairs (authority to act for (and to bind) corporation originates in the board as a collective body; Directors have fiduciary duties to the corporation and the body of shareholders; Have ultimate control rights and give/appoint some of those control rights to officers who run the day to day business under their direction.) 2. Day to day business run by officers (e.g. CEO, CFO) under direction of the board; (they are appointed by the board; Are agents of the corporation (agency law; Have certain types of authority to bind the corporation and owe fiduciary duties to the corporation; In charge of managing the business. Have control rights.) 3. Shareholders (Residual owners) have no say in how a company's run: a. Ownership interests reflected in their shares of common stock which entitle them to: i. Cash Flow Rights: Residual /equity interest - Dividends when and if declared by board [Dividends are periodic distributions of profits from the corporation] Pro-rata share of assets on liquidation (after fixed claims satisfied - after all the debts are paid whatever is left goes to shareholders.) ii. Voting rights (limited): Elect directors; vote on some important matters. Don't participate in managing business; can't act on behalf of the corporation. b. Have no management rights c. Cannot bind the corporation

BINDING PARTERNSHIP IN CONTRACT

a. Each partner is an agent of the partnership for the purpose of its business b. Partner as Agent - Ordinary Course: i. An act of a partner for apparently carrying on in the ordinary course of the partnership business, or business of the kind carried on by the partnership, binds the partnership, unless the partner had no authority to act for the partnership in the particular matter and the person with whom the partner was dealing knew or had received a notification that the partner lacked authority. ii. Every partner has actual and apparent authority to bind the other partner. iii. Partners can vote to limit authority iv. Analyze whether it is within or outside the ordinary course of the Partnership business from the context of the partnership business NOT from the perspective of what a third party thinks the P'ship business is for. c. Partner as Agent - Extraordinary Course: i. An act of a partner that is not apparently for carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership only if the act was authorized by the other partners ii. The partner acting outside the ordinary course of the business would be personally liable. d. Partners' Personal Liability for Partnership Obligations i. All partners are liable jointly and severally for all obligations of the partnership. If a partnership owes money under a K and the partnership assets aren't enough to satisfy the K, then the third party can sue the partners personally for those obligations. ii. New partner not personally liable for obligations incurred before admission

Franchises - Tort Liability (Generally)

a. Torts happen in franchises; franchisee will be liable for torts committed by its employees. Issue is whether franchisor is liable for employee's tort; franchisor will argue the employee belongs to the franchisee, not them. If the franchisor has a principal-agent relationship w/ franchisee, then franchisor will be liable for torts of franchisee's employees. a. Early Approach to the Franchisor-Franchisee Issue of Liability - Courts analogized between this and agency law. (Holiday Inn) b. Modern courts moved past this employee/agency analysis for Franchises i. Focus more on the particular aspect of the business where the tort occurred. ii. For example, in Miller v. McDonald's, court does not read entire Franchise agreement. Court looks at who had control over food preparation. Whoever did should be liable for torts that occur in that area. In the Agreement McDonald's retained control over food preparation. iii. Miller is consistent with current consensus as it focused on the particular aspect of franchisee's business that was alleged to have caused the harm

Nabisco v. Stroud

a. one partner can't unilaterally terminate the other partner's power to undertake actions w/in the ordinary course of business of the partnership, which bind the partnership absent revocation of authority. i. Stroud and Freeman are in in a two-person partnership agreement. Their business is to buy and sell food from manufactures to suppliers. The disagreement between Stroud and Freeman was over Stroud deciding that he did not want to do business with Nabisco and told Nabisco Agent he did not want to do biz with them. And Freeman told the Nabisco Agent they wanted to do business with Nabisco and bought bread. The partnership dissolved following this. They are now arguing over who is personally responsible to Nabisco for $175 for the bread. 1. Nabisco is suing Stroud for the bread money. Stroud argues he is not bound because he told the Nabisco Agent he will not be liable for the bread, they will not buy more bread from them. So, Nabisco was on notice. ii. Freeman's act of ordering bread from Nabisco was an act w/in the ordinary course of business of the partnership. Actual authority was not removed; F had actual authority to order the bread. S telling him not to purchase the bread did not remove actual authority. S cannot unilaterally take away F's authority to make those Ks that are in the ordinary course of business and that they have been previously making (S is the one attempting to change something that they have done w/in the ordinary course of business). This is within ordinary course of business and there is no majority here now because it 1 v. 1. So, Partnership is bound. 1. "In cases of an even division of the partners as to whether or not at an act within the scope of the business should be done, of which disagreement a third person has knowledge, it seems that logically no restriction can be placed upon the power to act. The partnership being a going concern, activities within the scope of the business should not be limited, save by the expressed will of the majority deciding a disputed question; half of the members are not a majority." iii. The key is that one partner cannot unilaterally change things that are occurring within the ordinary course of business - this requires a majority vote. iv. Hypo: what if there was a third partner and Freeman loses on the Nabisco vote. So, Freeman loses his actual authority on the 2-1 vote. Stroud calls Nabisco and says no one is authorized to buy cookies from you from the partnership. Freeman no longer has actual authority, and Nabisco has notice now so now there is no apparent authority either. 1. Partnership not bound, but Freeman would be liable on the contract.

Undisclosed Principal Liability for Apparent Authority

a. seeks to put some burden on the Principal to be more honest with folks to protect the expectations of third parties in these type of situations i. Estoppel Theory: An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on principal's behalf w/out actual authority if the principal has notice of the agent's conduct but did not take reasonable steps to notify them of the facts or intentionally/carelessly caused such belief. P should have let the third parties know what was going on. 1. if the P knows that the A is acting beyond its actual authority, and the P does not take any steps to let the 3rd party know what is going on, and 3rd party makes a detrimental change in position, then the P will liable. ii. Expansion of Apparent Authority (covers third parties where P's not disclosed): An undisclosed principal may not rely on instructions that reduce the agent's authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed. P should not have put the agent in a position where the agent appears to have more authority than they actually do. Burden on P; if they want to remain undisclosed, they have to ensure third parties are not being led astray. 1. If you are an undisclosed P and you put your in Agent in a position where 3rd Parties reasonably believe that the A can enter into that type of K then the P will be liable because he should not have put the A in a position where the A appears to have more authority than the A actually has.

Dissociation Generally

a. terminates a partner's rights & obligations in the partnership and requires the partnership to buy out dissociating partner's interest in the partnership. Partner has power to dissociate at any time, rightfully or wrongfully (replaces UPA's tule of partner's power to dissolve); i. Dissolution forces the partnership to be wound-up and eventually terminated. 1. The type of events that lead to dissolution are now fewer because now many things that would have led to dissolution, like death of partner, now only lead to disassociation and the partnership keeps going. ii. The law decides how much the disassociating partner gets iii. Dissociation makes it possible to expel a partner, by judicial decree or under partnership agreement, or for a partner to withdraw, w/o the partnership becoming involved in the process of dissolution. iv. The partnership entity continues, unaffected by the partner's dissociation v. There is a buyout mechanism of the dissociated partner's interest in the partnership.

Partner: Duty of Loyalty

i. A partner's duty of loyalty to the partnership and the other partners includes all of the following: 1. Account for any profit/benefit derived in the conduct of the partnership or the use of its info or property (incl. partnership opportunity) 2. Not dealing as or on behalf of a party with an interest adverse to the partnership 3. Not competing with partnership in partnership before dissolution ii. Contracting around duty of loyalty 1. Can include express standards, categories or types of behavior that anticipate instances of split loyalty 2. Can limit the scope of the partnership business

Partner - Information Duties

i. A partnership shall provider partners access to its books and records. The rights of access provides the opportunity to inspect and copy books and records during ordinary business hours. Partners have rights to any information that affects rights as a partner (Ks, financial statements, accounting books, etc.) bc each partner wants to ensure they are getting their fair share and the capital acct is up to date. 1. In CA you have a proactive duty to provide information that your partners may need a. Each partner and the partnership shall furnish to a partner both of the following: i. Without demand, any information concerning partnership's business/affairs reasonably required for proper exercise of the partner's rights and duties ii. On demand, any other information concerning the partnership's business and affairs, except to the extent ...unreasonable or otherwise improper ...

Two types of Authority:

i. Actual authority - can be express or implied 1. An agent acts with actual authority when the agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent to so act. Focuses on the Agent's reasonable interpretation of the Principal's manifestation. a. "Reasonably" = past practices and customs will mater. Fact specific. b. Third party's belief/knowledge is irrelevant for establishing authority. Focus is on what agent knew and what agent believed. 2. Actual Express Authority a. Principal tells an Agent to take an action, Agent has authority to do the action Principal is then bound b. Judged by Agent's reasonable interpretation of what principal told agent to do. 3. Actual Implied Authority a. The agent has authority to take acts necessary or incidental to achieving the principal's objectives, as the agent reasonably understands the principal's manifestations and objectives when the agent determines how to act. i. Standard is how reasonable the Agent's actions were. If the agent's actions were reasonable then the principal will be bound. ii. Agents have discretion to make decisions within reason as part of the implied authority. b. Ex: If the principal tells the agent "I want you to do X," but if to do X the agent has to do Y, then the agent has implied authority to do Y and express authority to do X. c. Actual Implied Authority by Custom i. If it is customary for a certain type of agent to have certain powers, then the agent has actual (implied) authority to exercise such powers unless the principal expressly directs otherwise. ii. Apparent Authority 1. Focuses on third Party's reasonable interpretation of Principal's intent traceable to Principal's manifestations a. Did the third party believe that the Agent had the authority to act on behalf of the principal. b. Belief has to come from principal's manifestation, which has to come from the principal, but can be communicated via agents (i.e., in corporations, where manifestations are communicated through agents). 2. All that matters is the information that the Third party is getting from the Principal. 3. Don't have to be privy to any conversations b/w principal & agent. Consider the third party's belief based solely on what they know. **AGENT GOING ROGUE - Contracts entered into by agent lacking actual authority can bind principal if agent has apparent authority

Termination of Actual Authority

i. An agent's actual authority may be terminated by: 1. A's death/cessation of existence; automatic, except as provided by law if A is not individual 2. P's death/cessation of existence a. Once A has notice, if P is individual; or b. Automatic, if P not individual, except as provided by law and organizational statutes 3. Principal's loss of capacity (to do an act) a. Once A has notice, if P is individual; or b. Automatic, if P is not an individual 4. Agreement between P&A or the occurrence of circumstances from which A should reasonably conclude P no longer would assent. 5. Manifestation of revocation by the principal to the agent, or of renunciation by the agent to the principal. Effective when other party has notice

P's derivative Liability/Vicarious Liability for agent's torts

i. An employer is subject to vicarious liability for a tort committed by (1) its employee (2) acting within the scope of employment to further employer's purpose while performing work typical of employment. 1. Q's to ask a. 1) Is tort actor an agent? No -> then P not liable b. 2) Agent? Yes -> is Agent Employee? Yes. -> Conduct within scope? Yes. -> Principal Liable.

Dissociated Partner's Liability to Third Parties

i. Dissociated partner is liable for obligations that occurred before dissociation and is not liable for any obligations occurred after dissociation (w/very few limited exceptions) 1. Partner's dissociation does not of itself discharge partner's liability for a partnership obligation incurred before dissociation. a. If you are a departing partner and you want to be relieved of any obligations when you are leaving you have to talk to third party and ask if you can be released from obligations 2. Dissociated partner is not liable for a partnership obligation incurred after dissociation, (except in the limited situation where remaining partners incur obligations after 1 of the partners leaves.) ii. Creditors can expressly release the partner from liability with other partners' consent.

Martin v. Peyton

i. Background: KNK is a brokerage business that's not doing well. PPF has money. A KNK member is friends with a PPF member; KNK member convinces PPF to lend money to KNK. PPF lends $2.5 million loan for 2 years in marketable securities that KNK can use to borrow money from banks. KNK to return securities after 2 years. In return, PPF gets 40% of profits (capped; no less than 100K (floor in interest rate); there's also a ceiling - not entitled to more than $500K) and option to buy equity (become partners of KNK). This is a very risky deal for PPF b/c KNK is financially insolvent; likely that PPF won't be receiving much in return even though PPF gets 40% of profits. PPF does this b/c of friendship. To protect themselves, they impose restrictive covenants on KNK (common in loan agreements; contain promises the company makes to the bank that they won't do risky stuff w/ the business). ii. Creditors of KNK sue to recover the owed money, which KNK can't pay b/c they mismanaged the firm. PPF argues they didn't borrow money from the creditors. Creditor claims PPF is liable b/c PPF was KNK's partner b/c by entering into transactions w/ KNK, they became partners in their business and should therefore be liable for KNK's obligations & debts iii. Rule: A person who receives a share of the profits of a business is presumed to be a partner, unless the profits were received in payment of interest or other charge on a loan, even if the amount of payment varies w/ the profits of the business. 1. Here, profit sharing in agreement raises presumption that there was a partnership. However, PPF's sharing in profits was NOT enough to establish partnership b/c the profits were just a variable interest depending on the business's profits, rather than a fixed interest. PPF also didn't share control over KNK's business. iv. Court analyzes agreement: court considers all factors and aspects of agreement; in this case, control factor was the most important. Issue was whether PPF was a creditor or a partner, which would have required PPF to have control over the business. PPF is not seen as a partner. The factors are not enough. i. Protecting without Controlling 1. Typical lender protection a. Permissions re: change in ownership/leadership b. Inspection rights c. Express limit on specific risky actions d. Counseling on discrete matters 2. Danger zone a. Constant advising b. Veto power over business decisions c. Call option d. Resignations/Designation Management

Dissociation of a Partner

i. By act of a dissociating partner: 1. By right: if the partnership is at will 2. Wrongful dissociation (even partner has the power, might not have the right, but can still dissociate) ii. By operation of law: e.g., death, bankruptcy, incapacity, unlawfulness iii. Within 90 days of... 1. If one partner wrongfully dissociates all the other partners have the right to dissociate. But they have to do this within 90 days of the wrongful dissociation and their dissociate will not be wrongful 2. If partner is dissociated by law, then every other partner has the right to dissociate within 90 days of that event. iv. By terms of partnership agreement 1. Agreement may provide for process for forceful dissociation. Agreement may provide for expulsion rules v. By unanimous vote of all other partners 1. Ex: A partner transfers her economic rights in the partnership, the other partners may agree unanimously to kick out the other person because they will not want that person making decisions without a real stake in the partnership. 2. Limited to specified circumstances vi. By court order- Dissociation by Judicial Decree 1. On application by the partnership or another partner, the partner's expulsion by judicial determination because of any of the following: a. The partner engaged in wrongful conduct that adversely and materially affected the partnership business. b. The partner willfully or persistently committed a material breach of the partnership agreement or of a duty owed to the partnership or the other partners under c. The partner engaged in conduct relating to the partnership business that makes it not reasonably practicable to carry on the business in partnership with the partner.

Dissolution of a Partnership

i. By majority vote of the partners, if the partnership is a partnership at will ii. By dissociation of a partner through operation of law or by wrongful disassociation, unless a majority of remaining partners agree to continue iii. By unanimous vote of all partners iv. By terms of a partnership agreement v. By operation of law due to unlawfulness vi. By court order: 1. Economic purpose frustrated 2. Partner conduct makes it not reasonably practicable to carry on the partnership business

In Re marriage of Hassiepen (1995) (husband and wife formed a partnership)

i. Cynthia and Kevin Divorced. K moves in with and married Brenda. Kevin starts Von Behren Electric. Cynthia sues Kevin to get child support, the amount that K is liable for depends on his income and his wealth. Cynthia says look at Von Behren Electric. Cynthia has incentive to argue that all of VB Electric belongs to Kevin because then all of that can be used to calculate into alimony payments. Kevin has the incentive to say that Brenda owns half of it. The burden is on Kevin to prove the partnership because he is the one asserting that there is a partnership between him and Brenda. ii. Rule: A partnership arises when (1) parties join together to carry on a venture for their common benefit, (2) each party contributes property or services to the venture, and (3) each party has a community of interest in the profits of the venture. iii. Factors Cutting for Partnership: 1. Kevin and Brenda created business together; compared to Fenwick this looks like a partnership bc in Fenwick it was preexisting company; They used Brenda's cards for the business - gives Brenda financial risk; All the money they got from the company was put in joint bank account and that was not used to pay her salary; The duties she formed were integral to the business iv. Factors Cutting Against Partnership: 1. Tax returns did not mention partnership; Business cards said K was sole owner and proprietor; Ks testimony says he is only owner; No partnership agreement. (While the court should consider the absence of written formalities that is only one factor to consider when determining if a partnership exist.) v. Although they did not claim to be partners, the substance of their relationship shows otherwise.

Types of Principals

i. Disclosed: at time of transaction, 3rd party knows that she is dealing with an agent acting for a principal and the principal's identity. Agent is NOT a party to the K unless otherwise agreed. ii. Undisclosed: at the time of the transaction, 3rd party has no notice she is dealing with an agent acting for a principal. Agent is a party to the K. 1. If the principal is undisclosed and the Agent goes rogue and is not acting with actual authority, then the third party may have hard time enforcing that contract against the Principal, because there is no apparent authority because 3rd party does not know there is a Principal behind it and cannot claim they received a manifestation from the 3rd party. a. If the party has no idea that the principal exists, how can there be a manifestation required for apparent authority? iii. Partially disclosed/unidentified: at time of transaction, third party knows she is dealing w/ an agent and knows there's a principal, but has no notice of the principal's identity. Agent is a party to the K unless otherwise agreed. 1. Ex: Open house - dealing with real estate agent, that person is acting on behalf of a partially disclosed Principal. Know you are dealing with an agent that is representing someone but you do not know who that agent is.

Termination of Apparent Authority

i. Termination of actual authority does not by itself end any apparent authority held by an agent. 1. Apparent authority ends when it is no longer reasonable for the third party with whom an agent deals to believe that the agent continues to act with actual authority. P should let entities know when A no longer acts on the P's behalf. a. Lingering apparent authority" fact have bc T still needs to reasonably believe A has authority.

Partners- Distribution of Firm assets:

i. Draws: This is how partners can get their hands on the profits they are entitled to have under the capital accounts. Amount of draw is often contemplated by agreement. Amount of the draw is subtracted from the partner's capital acct. 1. Unless specified in partnership agreements, partners are not entitled to any salary or to withdraw their share of profits periodically. a. Partners are not entitled to a salary because of the work they do for a partnership. But this is a just a default rule and you can contract around this and give partners a salary. b. When the agreement is silent on draws and salary, the way this issue is addressed is via majority vote to determine how and when and who can draw. 2. Agreement can also allow for periodic "draws" which amounts are deducted from the capital account. 3. A drawing account is used when the partners have agreed to permit themselves to make withdrawals from their own capital accounts. Partners do not have a right to unilaterally make with draws. 4. A "capital call" is a call by the partnership for the partners to make additional capital contributions. i. Rules for distribution: 1. If the business (or All assets) is sold for cash, each partner is entitled to receive an amount equal to his or her entry in the capital account. a. Capital account: running balance that starts with each partner's capital contribution and i. Adds share of profits or additional contributions ii. Subtracts shares of losses or draws 2. Any excess or deficit relative to capital account balance is shared in accordance with each partner's share of gain and share of loss. 3. In winding up a partnership's business, the assets of the partnership shall be applied to discharge its obligations to creditors (creditors get paid first), including partners who are creditors. Any surplus shall be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions. 4. The profits and losses from the liquidation of the partnership assets shall be credited and charged to the partners' accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner's account. a. A partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner's account.

Modifying Duties of Care & Info, and Loyalty in Partnership Agreement

i. Duty of care: The partnership agreement may not unreasonably reduce the duty of care. OK to absolve actions taken in good faith, believing they were in the best interests of the partnership. Not OK to absolve intentional misconduct. Can almost have blanket waivers of this duty. ii. Info duty: Partnership agreement may not unreasonably restrict the right to be furnished w/ info. iii. Duty of Loyalty: Partnership agreement may not completely eliminate duty of loyalty, but may, if not manifestly unreasonable, identify specific types/categories of activities that don't violate duty of loyalty, or all of the partners or a number or percentage may authorize/ratify, after full disclosure of all material facts, a specific act/transaction. 1. Cannot just waive this duty or say the duty to present partnerships does not apply in this partnership. Cannot have blanket waivers of this duty in the partnership agreement. Can try to identify specific activities and actions that will not be seen as violating the duty of loyalty. a. Can include express standards, categories, or types of behavior that anticipate instances of split loyalty b. Can limit the scope of the partnership business

Partners- Sharing of business' profits and losses

i. Each partner is entitled to an equal share of the partnership profits and is chargeable with a share of the partnership losses in the proportion to the partner's share of the profits. (unless contract around this [default rule].) 1. This means unless the partners provide otherwise by agreement, they will share equally in both the profits and losses regardless of how much capital they contributed when they joined. 2. Ex: Agreement says 60/40. Agreement is silent as to the losses, so losses will be shared 60/40. But Partners could agree to share losses 50/50. ii. Even though partners are "entitled" or "chargeable," they do not receive/pay money as the partnership makes or losses money. Contributions made to the firm and revenues earned by it are "partnership property." These are reflected in the partnership capital account (keeps track of partner's initial contribution, and then adds/subtracts each partner's share of the profits and losses). Partners not entitled to get profits as they come in, earn a salary for business work, or make withdrawals unless specified in the agreement. iii. Absent a contrary agreement, a partnership will have no obligation to distribute the profits or compensation until dissolution.

Intentional Torts and Scope of Employment

i. Early common law: intentional torts not within scope of employment ii. Modern law: even intentional torts can be seen as falling within the scope of employment. 1. Courts Look at if underlying conduct was motivated by purpose to serve the Principal a. Can broaden what "serving" means b. Can stretch facts to fit definition 2. Other courts expand to "foreseeable" intentional torts a. "direct outgrowth" of employee's instructions b. Job provided "opportunity" to commit tort 3. Split as to importance of "personal motivation." Modern law had reduced the importance of the person motive.

Fenwick v. U. Comp Comm'n (1945) (employee not a partner; profits were labor compensation)

i. F: Fenwick and Chesire are in a partnership agreement called United Beauty Shoppe. Fenwick owned the shop and Chesire was his receptionist and she asked for a raise, but he could not afford that so instead, he offered to give her a percentage of the profits and call her a partner. They agreed to that and signed a partnership agreement. The Unemployment Compensation Commission is suing because businesses that have 8 or more employees have to make unemployment payments. If Chesire was counted as an employee she would be employee number 8, if counted as a partner, she is not an employee, then there is only 7 employees and they would fall under that threshold. 1. Fenwick has the burden of establishing that there is a partnership bc whoever is asserting that a partnership exists has the burden of proving that one does exist. ii. Fenwick argues: 1) we had a partnership agreement, 2) Chesire gets 20% of the profits. 1. Just calling it a partnership agreement is not enough. iii. Rule: a person who receives a share of the profits of a business is presumed to be a partner, and Chesire gets 20% of the profits. However, that presumption applies unless the profits were received in payment of wages or other compensation to an employee. C didn't get 20% b/c she was a co-owner, but rather b/c that was her compensation as an employee. Also, just calling it a partnership is not enough. Need to also look at characteristics of relationship to see if there is co-ownership (i.e., shared control over the business). iv. Need to look at if they share control because partners share control. v. How do these factors cut as to whether they were really partners? 1. The parties associate themselves into a partnership - this makes it look like a partnership 2. No capital investment shall be made by Chesire. - this makes it look less than a partnership 3. Control and management of the business vested in Fenwick. - this make it look less like a partnership because Chesire had no real control or management 4. Chesire is to act as cashier and reception clerk at a salary of $15 per week and a bonus at the end of the year of 20% of the net profits, if the business warrants it. - she's only sharing on the upside, just profits not sharing in losses. Cuts against her being a partner 5. As between the partners Fenwick alone is to be liable for debts of the partnership. - this cuts against Chesire being a partner 6. Both parties shall devote all their time to the shop. - makes it look more like a partnership because they are both working on this equally, but sometimes do have this with employees as well. Leans to partnership but not a strong point for that. 7. Books are to be open for inspection of each party. - Cuts toward being a partnership. Normally employee doesn't have this power. 8. Salary of Fenwick is to be $50 per week and at the end of the year he is to receive 80% of the profits. - this points toward partnership because implies that Fenwick and Chesire are sharing profits 80-20. vi. Chesire had no economic risk, she was just getting compensated for her work. If the business went belly up, she wouldn't lost anything. She had no real control over anything - thus employee not partner.

Murphy v. Holiday Inns (old approach of using agency/employee analysis to determine liability)

i. F: Murphy, slipped and fell at a Holiday Inn and Murphy is suing Holiday Inn. However, Holiday Inn Inc., does not own the hotel. Betsy-Len, the Franchisee, owns the hotel and hired the employees. Murphy is not suing Betsy-Len because she has no money, so P is going after Holiday Inn. ii. Betsy and Holiday Inn are in a franchisee-franchisor relationship. Court analyzes K to determine how much control the franchise K gives Holiday Inn (whether Betsy-Len is Holiday Inn's employee). iii. Franchise K expressly denies that the parties are principal-agent. K gave Holiday Inn powers to approve location and plans, receive quarterly reports on operations and franchisee retained records, and periodic inspections to assure quality standard and compliance. iv. Holiday Inn did not have enough control of the hotel. They did not have the power to control daily maintenance of the premises, control franchisee's current business expenditures, fix rates, or demand profit shares, or hire/fire franchisee's employees, determine wages/working conditions, set standards for employee skills or productivity.

Richert v. Handly (Wash. 1958) (default rule applies - profits shared equally; losses shared in proportion to partner's share of the profits)

i. F: Partnership that harvests and sells timber. Total Initial capital contribution is $26,000. Richert puts in: $26,000. Handly puts in: labor and his own equipment ii. Business loses $12,000. So there is $14,000 left iii. Court follows default rule: - profits shared equally; losses shared in proportion to partner's share of the profits. iv. Court holds that they share losses equally because they are splitting profits 50/50 and losses are split like you split profits 1. $12,000 has to be split between the two. 2. Richert gets: All of the $14,000 because of his initial capital investment. Has to lose $6,000, but Richert gets $6,000 from H's loss. Ends with $20,000. 3. Handley gets: Has to assume a loss of $6,000 as well. Meaning he has to pull out $6,000 from his own money to give to Richert. 4. Richert ends with $20,000 and Handley ends up -$6,000.

Meinhard v. Salmon

i. F: Salmon knew real estate and New York very well. But Salmon did not have the money he needed to exploit an opportunity he learned about. So he joined with Meinhard who had money. Meinhard works in wool, does not know about real estate. They enter into a partnership to manage a hotel. The owner of the hotel is Louisa Gerry. The idea was that Salmon and Meinhard would manage the hotel for the 20 year lease and also further develop the building the hotel was in, into a mini mall. They had agreement about how they would split profits, and Salmon would be the manager of the hotel. In the beginning Salmon got more of the profits and then after a few years they would split 50/50. Louisa Gerry passes away and the son Elbridge Gerry inherits the building. And we are approaching the end of lease and he has ideas. He wants to take the lot to the hotel and merge it with the lot next-door that he owns and do a massive development. Elbridge has difficulty finding someone to go in on this idea with him, and then just asks Salmon if he wants in on it. And Salmon says yes. 1. Salmon does not tell Meinhard of the conversation he has with Elbridge or that he has signed on to do. Salmon signed the agreement with Elbridge in just his name. Meinhard feels betrayed like he was losing out on a good business deal, so Meinhard sues Elbridge. At this point this was likely a very profitable opportunity. ii. Rule: coadventurers are subject to fiduciary duties akin to those of partners. iii. Analysis: Salmon had a duty to disclose the business opp to Meinhard b/c they were in a partnership. In not doing so, Salmon breached his fiduciary duties of care (failing to provide timely info about the business opp) and also breached the duty of loyalty to Meinhard (b/c Salmon appropriated for himself an opp that belongs to the partnership) (Self-dealing raises the specter or breach of the duty of loyalty.) iv. Salmon did not disclose to Meinhard that he had learned of this business opportunity. He should have told Meinhard as soon as he learned of that opportunity. At the very least, Meinhard deserved the chance to know and that much he was denied and that was enough to establish a breach of duty by Salmon. v. Determining if an opportunity belongs to the partnership/should have been disclosed: 1. If it's clear that an opportunity falls within the scope of the partnership, then one partner cannot take it for himself, he'll have to share the opportunity. But if it is an opportunity outside the partnership then the partner does not have to share it. 2. Factors to consider to define the scope of the partnership: a. Geographic location (Here, the fact that this was the same business in the lot right next door makes it look like it was part of the business.) b. Type of business (Here, partnership was real estate & this opp. was real estate.) c. Partner status (i.e. manager) d. How partner learns of opportunity (Here, reason he learned of opportunity was because of his association with the partnership.) This always has some weight on determining if you can take the opportunity for yourself e. During or near end of partnership. Timing matters. (Here, the fact that this came very close to the end of the partnership makes it less of a partnership opportunity.) f. General partners v. joint venture (How you define the partnership) i. Ex: A is the oil business and B is as well. A&B enter into general partnership to drill oil. They could make it less general - a partnership to drill oil only in Oklahoma. ii. Could have a very narrow partnership with a clear expiration date and that is a joint venture. A is bringing B in only to drill this one specific hole in Oklahoma. Partnership rules still apply but only to that very narrow joint venture. iii. How general v. narrow the partnership is will also help define the scope

ESSCO Geo v. Harvard Industries

i. Facts: Diversified is the Third Party who would provide foam to Harvard Industries, the Principal. The Agent is Gray, the Purchasing Manager for Harvard. Gray enters into K with Diversified - a very large K on behalf of Harvard. Then Harvard's President after learning of K says no that K has not been duly authorized, going to go with a different company. 1. President argues that when he became Pres. he instituted a series of policy changes that require that certain orders be approved in writing by the president. His argument is that he told all employees they could not enter into certain big Ks without his signing and he did not sign it or approve it, so the K cannot be binding on Harvard. ii. I = Did Gray have actual or apparent authority to bind Harvard in that contract with Diversified? 1. Actual Authority = Harvard can argue that Gray did not have actual authority because he knew of the new policies about requiring approval in writing from the Pres. Since Gray is aware of those policies there is no chance he could believe he had the authority to single-handedly enter into that K. a. Court says even though the company had that policy, it is not clear that the policy had been informed or that Gray had been told he had to follow the policy. There was evidence that policy had not been enforced across the board. So Gray had actual implied authority to bind Harvard. 2. Apparent Authority = Customarily, Harvard Purchasing Managers usually have the authority or power to enter into these types of contracts. That is enough for apparent authority. Harvard did not inform Diversified of that new policy. 3. Lesson for Harvard Pres is that if you are going to install new policies that seek to cut back Agents discretion, then you have to (1) enforce that policy internally and (2) let third parties know that you have instituted this new policy. Cutback of actual authority does not affect apparent authority if the third party is not aware of the cutting back of the agent's authority; apparent authority remains unless T has notice of A's lack of authority.

a. Hoddeson v. Koos Bros (estoppel theory for apparent authority of an undisclosed principal - customer justifiably induced to make a detrimental change in position by agent.)

i. Facts: Plaintiff (Ms. Hoddeson) went to a furniture store (D's store). At the store she is approached by a man wearing a gray suit. All the salesman in that store wore a similar gray suit. He asks her what she wants and then shows her some furniture. She picks furniture and D says the furniture is not in stock today, but can take the order and when it arrives, will deliver it. So, P pays for the furniture, and D pretends to be accepting the order and writes the order down on some paper. P does not ask for receipt. The entire transaction takes 30-40 minutes. Eventually P realizes that the furniture is not coming. She goes back to the store and they say there is no record of your order and that guy does not work here, we do not know who you were talking to. The guy who she bought furniture from was an imposter. P is trying to enforce K because she paid, and she wants the furniture. D is saying no there's no K here. ii. None of the authority theories that can bind P apply: 1. Apparent authority does not work because it is not traceable to the Principal. There is no manifestation by the principal that could lead a T to believe that the guy in gray had the authority to bind the principal. iii. Estoppel to Deny Existence of Agency Relationship: principal is responsible for false belief and liable to the third party, even though the agent isn't a real agent, b/c the third party justifiably believes the person is acting as an agent. Third party's belief was formed and caused by the principal. P is estopped from denying agency relationship to escape liability. 1. Estoppel Theory Applied: A Principal who has not made a manifestation that an actor has authority as agent, is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person's account if a. Principal intentionally or careless caused such belief; or b. Having notice of such belief and that it might induce others to change their positions, the Principal did not take reasonable steps to notify them of the facts c. (if all this met is met the principal is estopped from denying the Agency Relationship to escape liability.) 2. Third party must establish that it has made a detrimental change in position, need to have lost something and the reason they lost something is because they believed they were acting with an agent. 3. H = Where the imposter was able to enter D's business, act as a salesman, and conduct a sale, D cannot escape liability by asserting lack of authority. D carelessly caused P's false belief because did not take necessary precautions to ensure imposters did not pretend to be salesmen.

Summers v. Dooley (undertaking an act w/in the ordinary course of the partnership business requires majority vote by the partners)

i. Facts: Summers & Dooley have a partnership that collects trash. Summers hired somebody. Dooley disagrees with this and does not want an employee. Summers pays the employee out of pocket. Now he wants the partnership to reimburse him for it. Dooley says no. Dooley wins. Summers did not have authority to hire that person. ii. D wins b/c S did not have authority to hire the new employee → this act occurred w/in the ordinary course of business & thus required a majority vote by the partners. iii. Seems inconsistent with Nabisco: In Nabisco Case the P was a third party. Here this is just a partnership dispute. If it was the employee suing this might be different. Court might find that the employee can bind the partnership. But here it is just a case between partners.

Udall v. TD Escrow (Wash. 2007) (auctioneer had apparent authority to sell the house for erroneous price)

i. Facts: Third Party = Udall. Udall won at a foreclosure auction conducted by Agent. Agent was retained by Principal, TD Escrow, to sell the property. Udall wins the auction but does not get the title right away, enters into K for title with Agent. But Principal does not want to give Udall the title because the Agent started the bid at $59,000 but should have started it at a much higher price. Udall is trying to enforce that K against TD (Principal.) TD is arguing that Agent was not authorized to make that bid at that price. ii. Principal loses because apparent authority is analyzed via third person's belief. Principal can make manifestation by putting agent in charge of a transaction or situation. From Udall's perspective it is reasonable for him to assume that the person controlling the auction is authorized to sell the house at the price that is announced. K is binding on the Principal because there is apparent authority even though there was no actual authority for selling the house. iii. Need to look at if it is reasonable for the third party to assume that the agent had the authority to enter into a K or whether third party should have inquired.

Agent's Liability when Acting without Actual Authority

i. If A lacks actual authority and the P is bound b/c of apparent authority, the Agent is not bound by the Agreement but, P may recover damages from A b/c A disobeyed P. ii. If A lacks actual authority and apparent authority but represents otherwise, A is liable to T if P refuses to ratify K. P not bound by K. A breached warranty of authority. 1. Implied warranty of authority 2. 3rd Party must not be aware of lack of authority

Kovacik v. Reed (Cal 1957) (ignores the default rule: follows the CA role - sole laborer didn't have to bear losses)

i. K&R entered into a general partnership to operate a kitchen remodeling business. K contributes $10k, but no services. R contributes $0, but will do all work. Agreed to share profits equally but made no provision for allocating losses. K dissolves because the partnership is losing money. K claims partnership has lost $8,680. ii. Based on the law Reed was entitled to half the profits so he should be entitled to half the losses. So he should pay K half of the $8680 - $4340. Under Richert Court would agree with K that he should get the $4340 from Handley. iii. Court says: K you are right that is the general rule, however profits are shared losses must be shared. But says this is a special situation because 1 partner is putting in all the money and 1 is putting in all the labor. Not fair to say that the labor partner is not putting anything at risk or contributing anything. R put his labor/human capital in and he risked that he might not get compensated for that labor. iv. "Where one party contributes money and the other contributes services...the parties have, by their agreement to share equally in profits, agreed that the value of their contributions - the money on one hand and the labor on the other - were likewise equal; it would follow that upon the loss . . . of both money and labor, the parties have shared equally in the losses." 1. Where one partner contributes the money capital as against the other's skill and labor, neither party is liable to the other for contribution for any loss sustained. Upon loss of the money, the party who contributed it is not entitled to recover any part of it from the party who contributed only services. 2. The parties have, by their agreement to share equally profits, agreed that the values of their contributions - the money on the one hand and the labor on the other - were likewise equal. 3. The services-only partner does not share in loss of the amount initially invested by the capital-only partner v. Court here is not changing the rule that partners should share losses equally, but what they are saying is that you cannot value R's contribution at $0 because it's not fair and does not make economic sense. vi. There is no way of valuing the labor but if you have two partners going into to share 50/50 profits, then if one partner is putting up all the money and one is doing all the labor than its fair to say that the money and labor are equally valued. vii. Exam - Partnership Law will be CA law - so analyze under this rule and default rule 1. Under Kovacik rule assume that the labor is valued at the same as the money put up by the other partner. viii. RUPA 401 is similar to UPA 18 1. Each partner is entitled to equal share of profits and chargeable with a share of losses in proportion to share of the profits 2. The official comments reject Kovacik a. The default rules apply, as does UPA § 18(a), where one or more of the partners contribute no capital, although there is case law to the contrary." ix. Exceptions to the Kovacik Rule: 1. Courts do not apply the Kovacik rule where: a. Service partner was compensated for his work b. Service partner made a capital contribution, even if that contribution was nominal i. The opposite is not true. If the money only partner contributes some labor that does not necessarily take you out of this rule

Independent Contractors - when should Agents be liable for Independent Contractors

i. Majestic Realty v. Toti (NJ 1959) 1. F: City acquires a few blocks to build a parking lot, but blocks had buildings on them. City hires to Toti to demolish the buildings. While demolishing buildings a Toti employee "goofed" and caused bad damage to Majestic's Building. 2. Is Toti an employee of the city? No, even though an Agent and acting under City's control as to the goal of the contract, the City is not controlling the manner and means in terms of how Toti performs its job. This job requires expertise and Toti is bringing its own tools and materials. It's an Independent contractor ("IC"). 3. Is Toti liable for employee's tort? Yes. (analyze this and city's liability if exam question. Analyze everyone's liability). 4. General rule: If Agent is IC, Principal is not liable for torts committed by IC. But there are exceptions: a. Principal retains (right to) control over the aspect of the work in which the tort occurs b. Principal selects incompetent contractor i. The tort has to result to the type of incompetence of the person c. Activity contracted for is a "nuisance per se" (inherently dangerous or ultra-hazardous. i. Nuisance per se: inherently dangerous activity - activity that creates a peculiar risk of harm to others unless special precautions are taken. 1. Liability if IC was negligent ii. When P hires IC to engage in an inherently dangerous activity and because of IC's negligence there was harm then the Principal is liable. iii. This last exception is the problem for the City here.

Miller v. McDonalds (Or. App. 1997) (Franchisor not liable - modern approach)

i. Miller bit into a foreign object (a heart shaped sapphire stone) while eating her Big Mac at a McDonalds restaurant operated by a local franchisee. She sued McD, the franchisor. ii. Trial courted granted McD summary judgment on grounds that it didn't own or operate restaurant. iii. Appellate court: certain factual issues preclude SJ. Tort happened in food preparation; goal is to determine who had control over the food preparation (whether McD's retained enough control over the food preparation). Focuses more on activity of food preparation as opposed to the overall relationship between the franchisee/franchisor. iv. Miller runs contrary to prevailing rule that quality and operational standards contained in franchise K are generally insufficient to support franchisor vicarious liability. a. Kerl v. Rasmussen i. Court observed: 1. Miller appears to run contrary to the prevailing rule that quality and operational standards contained in a franchise agreement are generally insufficient to support franchisor vicarious liability 2. Miller is consistent with current consensus as it focused on the particular aspect of the franchisee's business that was alleged to have caused the harm a. Vandemark v. McDonald's (N.H. 2006) (consistent with Miller and modern approach - franchisor not liable) i. Employee is injured during a robbery. Employee sues McD's arguing franchisee was McD's agent. ii. "The ... weight of authority construes franchiser liability narrowly, finding that absent a showing of control over security measures employed by the franchisee, the franchiser cannot be vicariously liable for the security breach. ..."

Partners: Contracting around Defaults

i. Money and service partners are free to adopt any rule they want for sharing of losses. ii. Could do any of the following: 1. All capital losses to be borne by the capital partner alone (Kovacik rule) 2. Sharing of capital losses in accordance with sharing of profits, i.e., equal (default rule) 3. Allocate capital losses as per some ratio.

Dissociated Partner's Power to Bind

i. Once partner is dissociated, they no longer have actual authority to bind the partnership because they are no longer a partner. But there may still be apparent authority to bind partnership ii. For two years after dissociation, partnership is bound by an act of dissociated partner that would have bound partnership before dissociation if: 1. 3rd party did not have notice of the partner's dissociation; and 2. 3rd party reasonably believed that the dissociated partner was then a partner iii. Dissociated partner liable to the partnership for any damage caused from such obligation.

Partnership Property

i. Ownership of Partnership Property: A partner is not a co‑owner of partnership property and has no interest in partnership property that can be transferred, either voluntarily or involuntarily 1. Any property that is deemed partnership property belongs to the partnership. 2. The partners have no individual interest in the property. ii. Partnership Property = Any asset acquired in the name of the partnership 1. If the partnership is not named, property acquired by a partner, if the document transferring title indicates buyer was acting in capacity as partner, is partnership property 2. Property purchased with partnership funds is presumed to be partnership property

Rights of Partner in Partnership

i. Partner's interest in the partnership means all of a partner's interests in the partnership, including the partner's transferable interest and all management and other rights. ii. Transferable Property Interest 1. Partners can only transfer their economic rights a. Only thing a partner can sell or assign is the partner's share of the profits and losses and the right to receive distributions i. The interest is personal property ii. ONLY FINANCIAL RIGHTS ARE TRANSFERRABLE 1. Transferable: share of the profits and losses and the right to receive distributions 2. Management rights cannot be transferred. 3. If you transfer the economic rights, you are still a partner because you are not transferring your management rights.

Partners: How to Treat Capital Losses

i. Partners who share profits equally share losses equally ii. Creditors paid first iii. A partner shall contribute an amount equal to any access of the charges over the credits in the partner's account

Partnership tort liability

i. Partnership is liable for the loss or injury caused as a result of a wrongful act of a partner acting in the ordinary course of business of the partnership or with authority of the partnership. All Partners are personally liable for the obligation of the partnership. If a partner commits a tort and the partnership is liable for the tort and the partnership does not have enough to cover that loss, then the V can go after the other partners. ii. Key issue: What is in the ordinary course? (Bc if it does not happen within the ordinary course that the partnership is not liable.) i. Gearhart v. Angeloff (Ohio 1969) 1. Have three partners 2 guys and 1 guys wife. A patron at the bar was shot by one of the Partners. There was another guy causing a ruckus in the bar, and the bar owner/partner tried to get him out and he shot at the rowdy patron, and accidentally shot someone else - the patron. Patron is suing all of the partners. 2. The court said that all the partners are liable. Partners acting within the scope of the business are jointly liable for a tort occurring within the ordinary course of business and the maintenance of order in the bar was a normal business activity. ii. Roach v. Mead (Or. 1986) 1. Two partners ended into a sketchy deal with one of the clients. Partner 1 flees and takes the money from the client. Client sues Partner 2. 2. Court says this was w/in ordinary course of biz because Partner 1, should have advised the client that this is a risky deal, and that didn't happen here. It was sort of malpractice. So, Partner 2 is liable.

Kessler v. Antinora (Ct. Apps. NJ 1995) (creatively follows rule while ignorning it based on parties' agreement)

i. Partnership to build and sell a residential home K puts up money and A just puts in labor. A not entitled to a salary, just going to receive 40% of the profits. Business does not do well and loses money. ii. Court wants to reach the same outcome as the Kovacik case. Does not want A to have to pull from his own funds to fund the loss. Court feels Kessler should bear the loss. This court is not willing to just disregard the rule. Wants to follow the rule but still reach the outcome it wants to reach. iii. Distribution: Upon a sale of the house, and after deducting all monies expended by Kessler, the parties shall dived the net profits 60% to K and 40% for A. 1. Court says that since the parties negotiated something diff from the statute, that the agreement should control. Per the parties' agreement profits are shared 60-40 and that losses are not shared.

Ratification

i. Ratification = is the affirmance of a prior act done by another, whereby the act is retroactively given effect as if done by an agent acting with actual authority 1. Once P ratifies, the 3rd Party is bound from the time the K was signed (exceptions below) 2. Can work in situations where the person acting on behalf of P was not even in an Agent. a. Ex: Prof enters into a deal for Ricky Martin with Muppet Labs, and Ricky Martin ratifies that K, it will be as if at the time Prof entered that K with Muppet labs that Prof was acting as Ricky's Agent. 3. If P wants to ratify, they have to ratify everything, the entire K - all or nothing. i. Affirmation Nuances 1. Ratification can be express. Principal can expressly manifest that they want to be bound by the K. 2. Affirmance can be implied by conduct that justifies a reasonable assumption of consent such as: a. Accepting/retaining benefits (when it is possible to decline them) b. Silence/failure to act (cannot wait forever) c. Bring lawsuit to enforce 3. Ratification not valid if made without knowledge of material facts involved in original act when the person unaware of such lack of knowledge i. Ratification and the 3rd Party Limitations 1. Ratification will not be effective where it would be unfair to bind the 3rd party to the contract: a. Prior to ratification, (1) 3rd party manifested intent to withdraw from transaction or (2) there is a material change in circumstances (between transaction and ratification) that would make it inequitable to bind 3rd party.

Partnership Agreement CCC 16103

i. Relations among the partners and between the partners and the partnership are governed by the partnership agreement. To the extent the partnership agreement does not otherwise provide, this chapter governs relations among the partners and between the partners and the partnership. Parties can contract around the default rules. But default are the standard rules

Franchise Policy Concerns

i. Risk prevention: liability should arise from control or right to control the harmful activity ii. Residual interest: franchisor should be liable because it has a relatively large interest in the successful operation of the franchisee iii. Deep pocket/Risk spreading: any supplier with deep pocket and any connection to the accident should be held liable iv. Appearances: Franchiser should be liable because it creates the appearance of responsibility

Scope of Employment for P's liability in tort vicarious liability

i. Scope of Employment - Part 2 of Test 1. An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer's control 2. Once determine that the person is an employee, determine if acting w/scope: Three prongs have to be present: a. Prong 1: Act must be of the general kind that the employee was hired to perform; and b. Prong 2: Conduct must be substantially within the time and space limits authorized by employment; and c. Prong 3: Employee must be motivated at least partially by a purpose serving the employer 3. An employee's act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer. 4. When is agent's conduct within the scope of employment? a. 1. Act must be of the general kind that the employee was hired to perform; AND b. Conduct must be substantially within the time and space limits authorized by the employment, AND c. Employee must be motivated at least partially by a purpose of serving the employer 5. Frolic & detour (goes to Prong 2): employee's travel during the workday that is not w/in the scope of employment has long been deemed a frolic of the employee's own. a. De minimis departures (detours) from assigned routes are not frolics. b. Frolic may also consist of activity on an employer's premises and within working hours c. Principal sends A & B out to deliver boxes. Along the way they take a small detour for tacos (half an hour). On the way out of the taco place they have an accident. Is the employer liable? i. Courts will say they were just on a mere detour. Still going from point A to B. They never abandoned employment. They stopped for lunch at a place 15 minutes from the highway. So still within scope of employment d. Now, employees drive 3 hours away to go gamble at a casino mid work shift. They get into an accident. There the courts will say they abandoned employment and were not acting within employment. e. When the detour is too big it becomes a frolic and the employees have abandoned their employment.

P's Direct Liability for agent's torts

i. Types of direct liability 1. A's tortious conduct is within the scope of A's actual authority or ratified by P: a. Example: I own apartment building and tenant hasn't paid. I tell manager to throw tenant's items off balcony. Manager is liable for throwing tenant's items off balcony; Owner is also directly liable b/c he told A to throw items off. 2. Harm caused by P's negligence in selecting, training, supervising, or controlling A. a. Example: I own apartment building and hire a manager who gets enraged easily and physically assaults them and I know/should know he's prone to doing that. When manager beats up tenant, I'm directly liable due to my negligence 3. P delegates performance of a duty to use care to protect other persons or their property to an agent who fails to perform this a. Non-delegable duties; Toti case. P is automatically liable for A breaching duty of care. Example: A conducting dangerous activities; P owes duty to public to conduct those activities in a careful manner to minimize harm; this duty is non-delegable. b. If agent is independent contractor, P is not directly liable for torts committed by the contractor or contractor's employees unless: P retains right/control over aspect of the work in which the tort occurs; P selects incompetent contractor (negligent hiring); Activity is dangerous "nuisance per se."

Effect of Partner's Dissociation

i. Upon a partner's dissociation.... 1. Partner's right to participate in management and conduct of the partnership business terminates. All of his or her control rights disappear 2. Partner's duty of loyalty terminate so can compete w/ partnership. 3. Partner's duty of loyalty under and duty of care under continue only with regard to matters arising and events occurring before the partner's dissociation

a. Buying Out the Dissociated Partner

i. Upon dissociation, partnership has to purchase the dissociated partner's interest in the partnership. 1. Buyout price is what partner would receive on dissolution if assets were sold at a price equal to the greater of (i) the liquidation value or (ii) the value based on a sale of the business as a going concern. a. Whichever of the values from (i) or (ii) is higher you take that number and do a hypothetical dissolution, such as how much goes to creditors first and then split whatever is left and that is the partner's buy out price. 2. Often people negotiate the buyout price and this section is a backup if a price cannot be negotiated. 3. Any damages resulting from a partner's wrongful dissociation are offset from this buyout price. 4. Where it's an "at-will" partnership and there is no partnership agreement with provisions that would override the default rules, upon dissociation, a partner is entitled to receive the greater of her share of the going concern value of the partnership or the liquidation value of the partnership within 120 days of the dissociation. ii. Partner who wrongfully dissociates before end of a term not entitled to payment until the end of term (there is an exception if you can prove that partnership can afford to pay you off and will not be harmed in doing so, then you might be able to get your money sooner.)

Principal Tort Liability Generally

i. When agent acts w/ actual or apparent authority acting on behalf of P, the T is bound to the K ii. Undisclosed principal: T generally still bound by the K except when T can show he would not have entered the K if he knew who the principal was and the agents knew this about the T. Generally not about the terms of the K, but about dealing w/ the principal. T has no duty to inquire about the P, but he must show fraudulent inducement into the K and that the P & A knew what they were doing and hiding what was going on to induce T into the K. iii. Ratification - Once P ratifies the 3rd Party is bound from the time the K was signed. There are exceptions: 1. A material change between time K is signed and ratified by the P that would make it unfair for 3rd party to live up to the K.

Third party bound to Principal in Contract

i. When agent acts w/ actual or apparent authority acting on behalf of P, the T is bound to the K ii. Undisclosed principal: T generally still bound by the K except when T can show he would not have entered the K if he knew who the principal was and the agents knew this about the T. Generally not about the terms of the K, but about dealing w/ the principal. T has no duty to inquire about the P, but he must show fraudulent inducement into the K and that the P & A knew what they were doing and hiding what was going on to induce T into the K. iii. Ratification - Once P ratifies the 3rd Party is bound from the time the K was signed. There are exceptions: 1. A material change between time K is signed and ratified by the P that would make it unfair for 3rd party to live up to the K.

If partner wants to dissolve:

i. argue partnership is at will (no term or particular undertaking, meaning partner can dissolve at any time). If that fails, argue that express/implied term has been met. If that fails, argue the court should dissolve it by decree. If that fails, partner can still dissolve b/c partner has the power, even if lacking the right. But since the partner doesn't have the right, partner needs to worry about consequences of wrongful dissolution: 1. After Wrongful dissolution: ex-partners have rights to damages for partner's breach and can choose to (1) liquidate the partnership property/assets and distribute proceeds to partners; or (2) continue business until term is met and pay bad partner value of interest (pay off the wrongfully dissolving partner). Partner who wrongfully dissolves gets the value of his interest in the partnership (excluding goodwill) less any damages caused. Business should ideally be worth more than the sum of the assets.

In determining whether a partnership is formed, the following rules apply:

i. the sharing of gross returns does not by itself establish a partnership even if the persons sharing them have a joint or common right or interest in property form which the returns are derived ii. a person who receives a share of the profits of a business is presumed to be a partner, unless the profits were received in payment for... 1. a debt by installments or otherwise 2. wages or other compensation to an employee; for services as an independent contractor 3. In payment of interest or other charge on a loan, even if the amount of payment varies with the profit of the business iii. There is a presumption if a person is receiving a share of the profits of the business then it is presumed that you are partner. (Profits = revenue - costs.) If only sharing revenues (just a percentage of the sales) then the presumption does not apply. A true partner shares profits but also losses 1. This presumption can be rebutted iv. Courts look at if the partners are sharing control and risk. Form matters but substance of the relationship really matters.

Agency Elements

real contract Fiduciary relationship arises when: (1) principal manifests assent to an agent that the agent shall act on the principal's behalf, (2) subject to the principal's control, and (3) the agent manifests assent/otherwise consents to act subject to P's control. - assent can be verbal or expressed by conduct - there is no need for a formal contract or compensation (parties do not even have to intend to create an agency relationship) - a contract can modify the legal duties owed to principal (ie: can waive the duty or care or modify the duty of loyalty)