Bus Law

• Agent


  A person appointed to act for another, usually in contracts
• Principle


  A person on whose behalf an agent acts
• Most common use of an agent

  • To bind the principle in contract with a third party
• Agency


  Arises by express agreement, conduct, or necessity
• Minors


  • Can act as agents
• If one of the parties is an infant


  • The contract may be voidable at the option of the infant, even though the other party may be bound
• Agency by Express Agreement

  1. Agency relationship established by an express oral or written agreement

  2. Governed by contract law so contractual rules must be followed

  3. Advantage is that the terms and conditions are written down
• If the agent fails to maintain the standard required for a particular skill in the performance of his or her duties, he or she may be liable if the failure results in a loss to the principle
• Agency by Conduct or Estoppel

  1. Agency inferred from the actions of a principle

  2. Agency by estoppel: A representation by words or conduct that a person is an agent cannot be later denied if a third party relies on the representation

  3. Apparent authority: The ability of an agent to bind a principle where the principle had not notified third parties of the restricted or terminated authority of the agent
• Agency by Operation of Law

  1. Agency that may arise in certain circumstances out of necessity where it is not possible to obtain the authority of the principle to act

  2. In a true emergency, certain persons may act as agents of necessity on behalf of others and bind them in contract
• Ratification of Contracts by a Principle

  1. When a principle wishes to take advantage of a contract that an agent negotiated on his or her behalf, and that the agent clearly had no authority to do so

  2. If benefits accepted under the contract, then the principle has ratified

  3. Principle must repudiate a contract made by an agent without authority promptly or will be bound by the contract

  4. Effective ratification must be of the whole agreement, not simply of the favorable parts
• Disclosed Agency


  • Agent must clearly indicate to the third party that he or she is acting only as an agent
  • Only principle is liable under the contract
  • Principle can choose to have his or her name not revealed in which case the agent signs under his/her own name or for an unnamed principle
• Undisclosed Agency


  • If the agent fails to disclose they are acting as an agent, the third party may assume that the agent is acting as a principle and therefore may be liable (principle may also be liable)
  • The agent would be entitled to enforce the agreement against the third party if the third party fails to perform the agreement
• Fictitious Agency


  • The third party may sue the agent for breach of warranty of authority if the agent contracts on behalf of a fictitious or non-existent principle and the third party discovers the non-existence of the principle
  • The agent entered into the agreement on behalf of a principle for whom the agent did not have authority to act
  • If the intention of the agent was to deceive the third party, the agent would be liable for fraud
• Principle may be held liable for tort committed by agent if committed in ordinary course carrying out agency agreement
• If the tort is committed outside the scope of the agent's work, only the agent will be liable
• Termination of the Principle–Agent Relationship

  1. Completion of a task

  2. Death of party

  3. A party giving notice

  4. Bankruptcy of principle
• Sole Proprietorship


  A business where the sole owner is responsible for the management, debts, and liabilities of the business
• Partnership


  A legal relationship between two or more persons for the purpose of carrying on a business with a view to profit
• Nature of a Partnership

  • The sharing of net profits of a business is the general rule of the existence of a partnership
  • A partnership is a contractual relationship
  • A partnership is a relationship that is founded on mutual trust
  • A partnership is different than a co-ownership or part ownership
• The rule of estoppel applies in partnership circumstances as well. If a person holds himself out as being a partner, either by words or conduct, that person would become liable as if he was a partner, if the third party, on the strength of the representation, advances credit to the firm
• If a minor enters a partnership and does not repudiate, he or she would be bound by the agreement and also be liable for the debts of the partnership incurred after he or she reached the age of maturity. If repudiated, the minor is not liable for the debts of the partnership unless he or she committed a fraud
• Liability of a Partnership for the Acts of a Partner

  • Every partner is the agent of the firm, meaning that one partner can form a contract with a third party and bind the other partners as well
  • Joint and several liability: One partner's actions or statements create liability for that partner, and for each of the other partners
  • Every partner may bind the firm in contract with third parties, unless the person with whom the partner was dealing knew that he or she had no authority to do so
  • If a particular act is not something that falls within the ordinary scope of partnership business, then only that partner would be liable
  • A firm may also be liable for a tort committed by a partner, if the tort is committed in the ordinary scope of partnership business
  • A new partner is not liable for any debts incurred before the person becomes a partner
  • A retiring partner is not relieved of debts incurred while being a partner, but if proper notice of retirement is given to all persons who had previous dealings with the firm, the retiring partner would not be liable for partnership debts incurred after the date of retirement
• Rights and Duties of Partners to One Another

  • Equal share in capital and profits; partners must also contribute equally towards the losses
  • The firm must indemnify (compensate for damage or loss) every partner is respect of payments made and personal liabilities incurred by him in either the ordinary and proper conduct of the business of the firm or anything necessarily done for the preservations of the business or property of the firm
  • A partner is entitled to interest on excess capital contributions (5%)
  • Every partner may take part in management
  • No new partners with consent of existing partners
  • Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, but no change may be made in the nature of the partnership business without the consent of all existing partners
  • Cannot terminate a partner even with majority vote. The only way to get rid of a partner is to terminate the entire partnership and then form a new one without that member
• A member's relationship with the other parties ends when he or she departs from a partnership and any fiduciary duties also end at that time
• If any partner uses partnership property for personal use to make a profit, the other partners could insist that the profits be turned over to the partnership
• Dissolution of a Partnership

  1. A partnership agreement drawn for a specific term/task would dissolve automatically at the end of the term or completion of the task

  2. Any partner giving notice of dissolution to the remainder of the partners

  3. The death or insolvency of a partner

  4. If a partner is found to be mentally incompetent or of unsound mind, or if a partner becomes permanently incapable of performing his or her part of the partnership business, the other partner may apply to the courts for an order dissolving the relationship

  5. When a partner commits a breach of the partnership

  6. If it can be shown to court that the business can only be carried on at a loss, or that it would be just and equitable to dissolve the relationship
• Once notice of dissolution is given, the assets of the firm must be liquidated, and the share of each partner determined
• Debts must be paid first
• If one partner is solvent, the remaining solvent partners are obliged to satisfy the demands of the creditors in proportion to the ratio of their capital accounts at the time of dissolution
• Once a partnership has been dissolved (or some partners retire and the rest decide to continue with the old firms name), notice must be given to all customers of the firm otherwise the retiring partners may be held liable by creditors who had no notice of the change in the partnership
• After the partnership relationship is terminated, each partner is free to carry on a business similar to the business dissolved
• Limited Partnership


  • A partner who may not actively participate in the management of the firm, but has limited liability (limited partner)
  • A full partner with unlimited liability for the debts of the partnership (general partner)
• Limited Liability Partnership (LLP)


  A partnership where individual partners are liable for the general debts of the partnership and for personal negligence, but not personally liable for the negligence of other partners
• Corporation


  A type of legal entity created by the state
• Nature of a Corporation

  • A corporation acts through its authorized agents, not its shareholders
  • A properly authorized agent may bind the corporation in contract with third parties (officers and directors)
  • Shareholders of a corporation possess limited liability for the bents of the corporation meaning that if the corporation is sued, only the assets of the business are at risk, not the shareholders personal assets
  • Shareholders can elect directors to manage its affairs, who then elect officers which normally have the responsibility to bind the corporation in formal contracts with third parties
  • Shareholders must approve the proposal of major changes in the corporation before it becomes effective
  • Shareholders are free to transfer their shares to another person because the identity of a shareholder isn't that importation
  • A corporation has many advantages over a partnership
  • A corporation continues even if or when shareholders die
  • A corporation is a separate legal existence from shareholders; assets belong to the corporation and not the shareholders
• Methods of Incorporation


  • Royal charter
  • Letters Patent
  • Special-Act
  • General Act
• Shareholders' Agreements


  • An agreement between shareholders of a private corporation concerning management and/or future reorganization of the corporation such as buy-out of interests
  • Sets ground rules between investments
  • Protects minority shareholders
  • Three types: 1) Shareholder and corporation, 2) Shareholder and other shareholders, 3) Shareholders who act as directors
• Methods of Incorporation


  • Royal charter
  • Letters Patent
  • Special-Act
  • General Act
• Royal charter


  Original method used to permit a monopoly or own land