Business Associations
Grant
Fall 2014
Unit 1 – Agency Law
Agency—someone who acts in the benefit of someone else.
Agency law affects both unincorporated businesses (sole proprietorships, partnerships) and corporations (separate business entities, run by management, directors, etc.)
Principal and agent – fiduciary relationship that requires consent by both parties.
What are the rights, duties, obligations of agents who act on behalf of principal?
Principal – usually identified by agent = disclosed to 3rd party. If not identified by agent, undisclosed principal.
Agent interacts w/ 3d party via contract or tort. Ask, is this a contract or tort case?
If principal is disclosed, 3d party looks to principal.
If P is undisclosed, agents deals w/ 3d party. 3d party sues agents and can bring in the principal (joinder) as a 3d party. Agent can seek indemnity from principal.
Partially disclosed – 3d party knows of existence of P, but not identity of P. Here, you sue both agent and principal or agent as representative of P.
Types of Agents – To determine what type of agent, look at control & type of performance.
1. Agent – empowered to enter into Ks on behalf of P – results
2. Servant – vicarious liability; master commands actions – control of physical activity
3. independent contractor – enters into Ks on behalf of P, but only result-oriented – P has no control over how IC is to produce the results.
Elements of an Agency Relationship
For an agency relationship to exist, it must be voluntary.
1. Manifestation that the P consents to having another act on his behalf
2. Consent from agent to so act, consent by principal for agent to act. (mutual consent)
3. Control – understanding that P is in control, and agent will follow instructions of P.
Master/servant – vicarious liability. Why? Agency costs – the law will impose responsibility on you regarding their actions either in K or tort.
How to determine if agency relationship exists?
Butler v. Maples (p. 10 of AP)
Shepard is agent for principal Butler. Shepard buys cotton from Maples (3d party). 3d party would want evidence of authority of existence of an agency.
Principal denied Shepard had authority to bind them b/c Shepard acted outside of his agency agreement.
Shepard authorized to buy cotton. Evidence – 1. agreement w/ principal in writing; 2. testimony from witness.
Issue – whether Shepard was a general or special agent. Ct finds Shep was a general agent. Factors: 1. continuity to employment; 2. # of transactions; 3. 3d party reliance (must be reasonable reliance); 4. scope of authority.
Cannot rely only on representations of an agent – 3d party must check (due diligence).
General v. Special Agent
General agent is authorized to conduct a continuing series of transactions over a period of time on behalf of P.
Special agent is authorized to conduct a single transaction or single series of transactions. There is no continuity to services.
Ways agencies are created:
Agency can be created by
1. express (oral or writing) or;
2. implied (conduct). (aka agency by estoppel).
Capacity – minors (voidable)
Goldfinger v. Doherty – minor has agent buy stocks & rescinds
Minor is P, which is OK – only have to give consent.
Issue: Is it agent’s duty to inform 3d party of a principal’s incapacity (minor)?
No. The 3d party must do a ‘due diligence’ search. 3d party alleges that b/c P did not disaffirm the K with the agent, that the agent had authority to buy stock and agent should be held liable. Court disagrees.
If, therefore, the liability of the agent is to be based on his failure to disclose facts in connection with his principal’s lack of full capacity to the other contracting party, it must appear: 1. that the agent knew or had reason to know the facts indicating his P’s lack of full capacity; 2. that the other contracting party was in ignorance thereof and the agent had reason so to believe; and 3. that the transaction is one in which lack of full capacity was a material fact.
Cummings v. Heald, p. 23
Principal asks agent 1 to appoint agent 2. When subagent acts, who is bound? P or appointing agent.
Heald gave notes to atty (Cummings). Atty (Cummings) gave notes to 2nd atty (Kronenke). How did Cummings “take” the notes from Heald? “For collection.” So if atty 1 chooses the wrong agent, then atty 1 bears the risk.
To avoid liability here, use “collection is provisional – sub-agent is your new agent.”
Under UCC 4-201, bank is not liable, as agent t
have the authority to accomplish goal of the agency. Implied by law to protect a 3d party’s reasonable reliance on the agency. Standard is the custom of agents in their locality. Custom – protecting 3d party reliance.
3. Apparent – Communication of P to 3d party which arises from P’s conduct or words creating appearance of authority in the agent. ‘Holding out’ by P that A has authority to act. Agent cannot create apparent authority, only P. Apparent authority can never exist when the P is undisclosed.
Rationals:
a. Contract theory – b/c P has said A has authority, then P creates the agency relationship. Contract b/w the P and the A.
b. Estoppel – 3d party’s justified reliance on P’s communication will estop P from denying agency exists.
4. Implied – Communication from P to A, implied by law, which results from P’s conduct to A that A has authority to so act. A believes, as a result of P’s actions, that A has authority. Protects agent’s reliance on P’s conduct.
5. Emergency – requires 1. emergency; 2. P not available.
Gorton v. Doty, p. 38
Owner of car (teacher) gives coach permission to drive her car to game, only if he drives. Coach gets in wreck. Was the coach an agent of the teacher?
Ct held there was master/servant relationship & teacher is liable for servant’s torts – vicarious liability. Dissent – Agency should be more than mere passive permission. Did teacher control coach’s physical actions? I don’t think so.
But whose business interest is being served? Not teacher, the school is being served. But school board won’t have to pay b/c of sovereign immunity.
