Untitled

• Study notes on agency relationships, duties, termination, liability and business law
• In addition to employment and corporate law

Agency Relationships

• An agent operating under the direction of a principal acts on the principal's behalf.
• Agency relationships typically arise from contracts which don't have to be written, and the agent doesn't necessarily need compensation.
• An agency can be created even without express intent.

Capacity in Agency

• A principal can perform any legally permissible action through an agent.
• An agent's actions legally equate to actions of the principal.
• Businesses can act as a principal through an agent.
• An agent doesn't require legal capacity to contract.

Creation of an Agency

• One party must act for the benefit and under the control of another.
• Evidence of agency includes parties' words, actions, and circumstances.
• No specific formalities generally exist, with agreements being potentially oral and without compensation.

Agent and Principal Power

• No legal capacity is needed to be an agent, but one exception is regulatory.
• Incapacitated agents can avoid agency agreements.
• Any "person" with legal capacity can be a principal.
• Agents can perform actions the principal could, barring some exceptions.

Types of Agents

• Commercial agents typically handle orders for the Principal without maintaining their own inventory and are usually paid a commission.
• They do not usually bear the risk of nonpayment, and often have authority to contract on the principal's behalf.

Employees vs Independent Contractors

• Employees, or dependent agents, are overseen by the Principal on both work objectives and how to achieve them.
• Employers provide detailed instructions on daily tasks.
• Most nations regulate employer/employee relationships with no contract.
• Independent contractors work under their own methods, where the principal controls results but not how they're achieved.
• Principals structure agreements to maintain independent agency and are less liable for torts/crimes with little control over the agent's daily activities.

Duties of Agents to Principals

• Agents have loyalty and must act in another's best interest.
• Agents avoid conflicts of interest and impropriety.
• Agents must maintain confidentiality and obey the Principal's instructions.
• Agents can’t sub personal judgement and must act with ordinary care and common skills.
• Gratuitous agents have a lower standard of care, and must share timely information.
• Agents must provide accurate records of receipts and spending with no commingling.
• Agents who take property are liable for embezzlement or conversion.

Duties of Principals to Agents

• Paying the agent is usually implied even with compensation contingent on results.
• A procuring clause could entitle agents to commission on transactions after agency termination.
• Unless the agent has a chance to earn expected commissions, the Principal cannot terminate the agency when the agent has expenses
• The Principal must reimburse agents acting within their scope of duty and keep records to determine agent compensation.

Liabilities Between Principals and Agents

• Principals can deduct losses from agent pay due to breach of duty, and they also can bring action in court.
• Agents in lawful possession of principal property have a lien for owed compensation.
• Agents can sue to recover compensation, and if a non-compete is violated a Specific Performance will allow an injunction barring them from further competition.

Termination of Agent's Powers

• Agency agreements should address how the agency ends, including mutual assent and specified acts.
• Agency at will allows either party to terminate, despite agreements.
• Coupled with interest exists when agency power is security.
• Termination of agency is restricted based on demographic discrimination.

Termination by Operation of Law

• The law terminates an agency agreement if certain events occur
• Death or insanity of either party
• Bankruptcy of either party (in some cases)
• Objective of the agency becomes impossible or illegal
• Subject matter is lost or destroyed
• Time lapse or an act of parties exists

Notice of Third Persons

• An agent can contracts can bind the Principal
• Unless the third party is aware of agency end, they can bind the Principal.
• Actual notice must be given to avoid the Principal being bound by agent's acts.
• Constructive notice suffices for those aware of the agency but with whom there were no prior dealings.

Liability of Principals and Agents to Third Parties

• The Principal is bound by agent contracts, if the agent had authority to act, and if the Principal ratifies the agent's acts.
• Authority can be actual or apparent, actual authority either expressed or implied.

Authority

• Reasonable belief of the Agent: Actual Authority, Express Authority.
• The principal sets agent's powers that can be oral.
• Some states demand written authority for land sales.
• Attorney-in-fact agents have written authority, known as power-of-attorney.
• Implied Authority: Express authority is incomplete and agent's may react to contingencies.
• Agents have authority to do what's reasonably needed following justifiable belief and inherent power to act in emergencies, in general vs specific agency.
• Apparent authority, reasonable belief of the third party.

Apparent Authority

• Created by principal conduct or trade customs.
• A Third party must reasonably believe alleged agent is allowed to act for the principal.
• Apparent agent has authority Principal fails to let third parties know the relationship isn't what it seems.

Ratification

• Ratification creates liability for unauthorized agent acts and is a question of intent
• Ratification can be implied by actions or failure to act, even if the agent acted on behalf of the Principal.
• The Principal must have had the capacity to act when ratification occurs.
• Only the entire act can be ratified releasing the agent of liability to PR or third parties.

When, Why, and Effect of Ratification

• This occurs when an Agent exceeds authority or is a Non-agent

• An agent/non-agent acts on behalf of the principal, at/before the Principal's capacity to act at ratification

• The Principal must ratify before a third party cancels, and they must know all material facts

• This occurs when a Principal demonstrates intent to ratify by:

• Expressing intent

• accepting benefits or

• Failing to repudiate after discovering the act

• The effect is the same as if it was originally authorized:

• The agent or non-agent released from liability and the principal is bound by / benefits from assuming liability.

Principal's Liability for Agent's Representations

• The Principal is bound by Agent representations, expressly authorized, reasonably necessary to accomplish agency's purposes, and usual/customary in the business handled.
• Exculpatory clauses can give notice of agent's lack of authority.

Principal's liability for notice / payments to the agent

• Notice to the agent is notice to the principal if related to the agency business.
• Agents have a duty to inform the principal of knowledge gained.
• Paying an authorized agent discharges debts owed to the principal, unless they collude with a third party

Contract Liability of the Agent

• The agency represents the principal in contracts, where generally just the principal and third party are bound and the agent is not.
• The agent is personally liable for a contract if they act without authorization.

Liability of Agent Without Authority

• Liability is imposed if the agent exceeds authority-based implied warranty, regardless of their intent or knowledge.
• The Principal is incompetent (corporation not yet formed, or acting on behalf of an insane or incapacitated person) or the agent agrees to be liable.

Duty and Disclosure

• Agents can make contracts in their own name or guaranty contracts made for the principal, so they must avoid personal liability by disclosing the principal's identity
• The principal is undisclosed when usually not known, the agent liable because the third party assumes the agent is contracting (teh agent can recover from the principal)
• If the principal is partially disclosed, the third party knows they're dealing with an agent but not the principal's identity, rights and duties are the same as with undisclosed principals

Liability for Torts and Crimes

• Agents are personally liable for torts/crimes when acting for principal
• Principals may be liable for agent torts/crimes under respondeat superior (vicarious liability): based on if act was within agency limits, if same nature as authorized responsibilities, if agent acting to benefit Principal, or if Principal ordered tort/criminal act.

Principal Liability

• Direct liability on the principals own tort from Negligent hiring or supervision
• An agent does not have to commit a crime even if directed by a principal

Employment Laws: Historical Background

• Early laws controlled/restricted workers with wage maximums, no minimums.
• The Industrial Revolution changed work, nature, and conditions
• The 20th Century brought socio-political movements pressing for more/better worker protections.

Workers' Compensation

• State No Fault Laws (early 1900s): Employers are liable for injuries within the scope of employment without regard to fault
• The employer gives up right to negligence defenses, but has limited payments with no pain and suffering/punitive damages.
• Employers must provide disability income, medical treatments, and scheduled amounts for specific injuries/death.
• Only employees are covered and only for proven work-related injuries while small employers may be exempt.

OSHA

• Occupational Safety and Health Act of 1970: applying to all types of businesses
• It seeks to protect the health/safety of employees imposing a duty on employers to prevent workplace hazards
• Employers must record fatalities/injuries requiring hospitalization and keep injury logs.
• The Secretary of Labor may set detailed regulatory standards - enforced by the OSHA (US Dept of Labor)
• Family and Medical Leave Act (1993): job security with serious health conditions.
• Employers of 50+ employees must provide up to 12 weeks unpaid leave for serious illness, care for family, or military family crisis; the employee's job is protected during leave.

Health Insurance

• Public Law 99-272 (1986) (COBRA) continues availability of health insurance at group rates to certain terminated employees.
• Affordable Care Act (2010) “ObamaCare” allows those up to age 26 stay on their parent's health insurance, people not denied coverage for pre-existing conditions, establishes individual/employer healthcare mandates.

Fair Labor Standards Act (1938)

• Minimum wage and overtime requirements: Time and a half for hours >40/week for employees excluding sales, professionals, and executives.
• Time worked includes "suffered or permitted" work.
• States have minimum wage laws exceeding federal standards and may limit wage garnishment.
• Oppressive child labor is prohibited.

Employee Retirement Income Security Act “ERISA” (1974)

• ERISA is designed to prevent pension fund abuses/injustices
• Defined benefit pension funds vest and cannot be taken away, with both employer/union pension plans covered.
• The Pension Protection Act (2006) reformed rules for funding defined benefit pension plans.

Collective Bargaining and Union Activities

• Norris-LaGuardia Act (1932) (offset advantage to explorers): Prohibits "Yellow Dog Contracts" and court strike injunctions.
• Wagner Act or National Labor Relations Act (1935): Protects worker rights to organize
• The NLRB conducts elections for employees on union representation and hears charges of unfair labor practices.
• Bargaining unit: A union certified as the exclusive representative after winning a majority vote.
• "Taft-Hartley Act” or Labor Management Relations Act (1947): Passed for more equalized excessive union power.
• "Landrum-Griffin Act” or Labor Management Reporting and Disclosure Act (1959): A further union check

Unfair Labor Practices

• Employers cannot interfere with union rights, discriminate due to union membership, or refuse to bargain
• Employees cannot coerce other employees or the employer to only hire employees in the union, refuse to bargain, or strike for illegal purposes

Employment Discrimination

• Equal Pay Act of 1963: Prohibits gender discrimination in pay
• Title VII of the Civil Rights Act of 1964 (amended 1972): Prohibits discrimination based on race, color, religion, sex or national origin with Intentional/disparate impact discrimination
• Sexual harassment is a form of discrimination, often quid pro quo or hostile work environment.

Government Intervention

• The EEOC exists to enforce / process complaints
• (BFOQ) may allow hiring based on certain things, excluding race.
• The Civil Rights Act of 1991 expanded remedies and reversed decisions limiting employee rights (overseas employees).
• Age Discrimination in Employment Act (1967): Companies with 20+ employees can't discriminate based on age for individuals 40+
• The Americans with Disabilities Act (1990), amended in 2008, forbids discrimination based on disability, protecting qualified individuals with a physical/mental impairment while overturning prior decisions limiting ADA protections.
• Genetic Information Nondiscrimination Act of 2008: Prohibits collecting employee/applicant genetic information.

Employment at Will

• Employers can fire most employees "for any reason or no reason" based on public policy, implied and expressed terms, or duty to serve in good faith.

Employee Privacy

• Employees have privacy rights, and the Employee Polygraph Protection Act of 1988 prohibits private bosses from using lie detectors against employees.
• Drug use tests by public employees/applicants protected by the 4th Amendment may violate rights.
• Private employees have limited protection but may respond with tort or wrongful termination.

Forms of a Business

• These include Sole Proprietorship, Partnerships, Corporations, Limited Liability Companies, Limited Liability Partnerships, and Franchising Businesses
• A sole proprietorship is a business operated by someone on their personal property, and owners may hire employees; unlimited liability.
• A partnership is voluntary with 2+ persons and no express agreement is required, and each partner has equal profit / loss sharing.

Corporations and Taxation

• Personal partnerships limit liability for some, but there must be both general and limited liability partners.
• Corporations are separate and distinct "artificial persons" who acquire, convey property, and litigate.
• A corporation is taxable with shareholders paying tax on dividends, where S-Corporations are an exception taxed as a partnership with strategies minimizing double taxation.

Formation

• Sole and personal partnerships can be formed / terminated with few requirements + operate across states with fewer requirements.
• Corporations must file state articles of incorporation complying with regulations.

Partnerships: General

• No express partnership agreement is required.
• Each partner is co-owner with right to share in profits and with responsibility for losses. Partners are not usually employees or paid wages.

Partnerships: Limited LLLP

• This has attributes of a personal partnership but limits liability to all partners.

Financing and Management

• Corporations can often secure financing more easily than other business forms.
• Corporations are more flexible in management arrangements.
• Minority partners in close corporations have little power and can be frozen out of decision making.
• Continued life of the corporation isn't affected by death / bankruptcy.
• Good will is preserved more easily when a corporation changes hands rather.

Liquidity of Investment

• Investments in publicly held corporations are easily sold/exchanged.
• Majority and General Shareholder have opportunity ot sell their shares.

Limited Liability Companies: LLC

• These enjoy partnership tax benefits and limited corporate liability with unrestricted numbers of members and shared management, distinct from limited partnerships.
• LLC are formed by filing state articles of organization, must include llc in name and include members.
• transferable but transferee are not guaranteed to become members / stated duration.

Limited Partnership LLLP:

• These are easy to organize around existing partnerships, filing LLLP form and maintaining insurance.
• Personal assets may be sheltered against malpractice claims stemming from the wrongdoing of person assets. Personal assets may be sheltered against malpractice claims stemming from the wrongdoing of other persons involved.

Franchises

• Franchisors develop a product / service and become a "brand" outlet based on a contract.
• Franchising combines small business and larger firm advantages with more resources and marketing impact with standard methods.

Franchises: complaints and Regulations

• Adhesion contracts and antitrust violations, as well as disputes of contract terms.
• Federal & state governments protect automobile service stations and regulate franchising w/ franchise statutes.
• Franchising in foreign countries is permitted but presents challenges.

Creation of Partnerships

• Share of profits creates presumptive evidence for lack of other evidence towards existence of partnership.
• Sharing of partnership management exists, so you can be a partner without being one.
• Articles of partnerships are not required, but is beneficial to have.

Authority of Partners

• Each partner has an equal voice in management.
• A Majority rules unless the act is outside of ordinary.
• Authority to act for a partnership can be Express, Implied, or apparent.

Partnership Property

• Property belongs to the partnership if title / possession was transferred in its name, to a partner naming the partnership, or indicating the partner's status.
• Partners have a “partnership interest" in property while creditors cannot attach partnership property with court order.

Rights and Duties

• A partner is not entitled to a salary, and partner compensation consists of profit shares
• Partners have duty of loyalty & good faith, duty of business care, and the duty to exercise reasonable care And skill when dealing with the partnership's funds
• Partners liable for their negligence + account for money + must keep funds and books accurate

Enforcing Partnership Rights and Liabilities

• The Firm/Partnership is primarily liable for contracts, per RUPA [Revised Uniform Partnership Act], but partners are jointly reliable if the partnership cannot pay.
• For liability for Torts Respondeat superior applies where partnership are liable for torts done during course of business
• Liability for Crimes -Partnership and individual partners may be liable for finis

Disassociation and Winding Up

• Parties who wrongfully disassociate lose the right to demand dissolution and winding up, but winding up happens as assets are liquidated.
• Parties have fiduciary duties when winding up and under RUPA partners are paid for their duties and under RUPA partners are paid for this
• A continuing partnership is liable for debts incurred and former parts may become liable for future debt
• When assets remain during loss: Assets are paid to creditor first, proceeds from sole are distributed pro acta
• Dissolution by agreement requires state consent to dissolve.
• Limited Dissolution may occur if failed payment of franchise taxes, or the action of dissolving the corporation automatically.

Corporation Formation

• Corporation are an intangible ‘artificial’ person existing completely distinct from workers and can own and convey property in their own name- be sued and sure- implement by laws
• Model Business Corporation Act ( MBCA) is used by the majority of states and the MBCA was completely revised in 1984- promoters may begin with an idea or convert with an existing sole proprietorship
• Promoter aren’t agents- and can be sued for liability of contract even after the creation of corporation

Who Can Incorporate

• States may require at least 3 adults to serve as Incopraters: MBCA had since relaxed rule to only 1 (single p-ship, uninc, assoc, corp)
• State secretary of state certificate = corporation has legally compiled; has board meetings after approval
• States popular to incorporate Business friendly Delaware- promoters seek tax corporate, corporation law,
• Delaware and Ohio, most popular to incorporate –( Business friendly)
• To incoperate: prepare for article, signing, fill out, hold meeting

Corporate by Laws

• Duty of officer+ power- directors+ officer held liable if corporation damaged by acts outside their scope
• Duty diligently- board meeting care as ordinary prudent person
• Arm length transaction- transaction with in corporation, terms must be same as 3rd party

Close Corporations

• Stock may be held by friends of family
• Shares not easily given for public sale- requires restraints transfer

Governing Issues

• Governing the directors in corporate to corporate- fiduciary to those treated unfairly
• Deadlock results if shareholders cannot meet and exclude other
• Terminate + Dissolution needed if there is not a failure

The Board of Directors

• Boards recognize that all cooperate must be managed under direction on boaard members

Corporate Officers

• Includes the officers and position to manage corporate minutes / authorize

Crimes

• Contract is illegal if crime is committed
• Directors officer had crimes