Business Associations OUTLINE
FIRST: IDENTIFY THE PARTIES!!!
– Principal (parent)
– Agent (subsidiary)
– Third party if any
I. Agency = generally indicates the relation which exists where one person acts for another.
a. AGENCY ELEMENTS:
1. A manifestation of consent by one person (the principal) that another person (the agent) act on the principal’s behalf and
2. Acceptance by the agent of the undertaking and
3. the acts of the agent will be subject to the principal’s control.
i. Principal = a person on whose behalf the agent acts
ii. Agent = person who acts on behalf of the P and is subject to the P’s control
4. The agent’s consent to so act
a. No need for a contract or promise b/t principal or agent or require that either receive compensation.
b. THREE FORMS: (Gorton v. Doty)
1. principal and agent
2. master and servant
3. employer or proprietor and independent contractor.
c. AGENTS & AGENCY RELATIONSHIPS
1. Agent = a person who acts on behalf of another (principal) and is subject to the principal’s control (Part 1 of Agency elements)
a. Principals are liable for the acts and the debts of an agent (Gay Jensen Farms)
b. Test to determine agent relationship: consent by Principal to another that that person act on the principal’s behalf and subject to the principal’s control.
c. Circumstantial evidence may be used to analyze the course of dealings b/t the two parties (factors: control, contact between parties, nature and terms of agreement; Gay Jensen Farms)
d. Agency may result even though it is not termed as such and even though the parties did not intend for it to result.
e. Control can show evidence an agency relationship and creditor may become liable as the P for the acts of the debtor.
2. Nonservant principal/agent relationship = a relationship where an agent acts on behalf of another but is not subject to other party’s control over how the objective is achieved)
II. LIABILITY OF PRINCIPAL TO THIRD PARTIES
(2 parties = ACTUAL OR IMPLIED ACTUAL)
a. Actual Authority
i. The agent has actual authority to act on the P’s behalf
ii. Actual authority is authority that the P gives the agent, express or implied.
iii. Actual authority can also be construed if P’s words or conduct would lead a reasonable person to believe that the P had authorized him to act….and therefore we have..
b. Implied Actual Authority
1. An agents actual authority which the principal actually intended the agent to possess and
2. includes such powers as are practically necessary to carry out the duties actually delegated.
3. Determined by:
i. Agent’s understanding of his authority & reasonable belief (does he reasonably believe b/c of present or past conduct that principal wishes him to act in a certain way?)
ii. Nature of the task or job
iii. Existence of prior similar practices (he was able to hire a helper in the past; Mill St. Church)
(3 parties = APPARENT OR INHERENT)
c. Apparent Authority = requires manifestations by the principal to the third party of the agent’s authority
i. Requirements:
1. Principal
2. Makes a manifestation
a. Gestures
b. Symbols (like wearing a company uniform)
3. to the third party
4. suggesting that the agent has certain powers/duties
ii. Reasonableness: Restatement of Agency 2nd: it must be reasonable for the 3d party dealing with the agent to believe that the agent is authorized. Reasonableness is an important factor.
1. Reasonableness= an agent has the apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct. (Ampex)
iii. Apparent authority arises when a principal acts in such a manner as to convey the impression to a third party that an agent has certain powers which he may or may not actually possess. (Lind)
iv. The customary extent of an authority can comprise a contract (Kidd). The customary nature of the job you are dealing with can be critical in proving apparent authority
d. Inherent Authority Agency Power
i. Must have an UNDISCLOSED PRINCIPAL
ii. Inherent agency power derived solely from agency relationship and exists for the protection of the innocent 3d party (Nogales)
iii. To charge an undisclosed principal with the acts of the agent, the third party need only show that the goods supplied were within the reasonable scope of the agent’s authority (Watteau)
1. Principals are responsible for some acts of their agents which, while unauthorized are close to (or incidental to) that which they are authorized to do.
2. Inherent authority arises in cases where:
a. there are not sufficient manifestations by the principal to the third parties (undisclosed P)
b. to satisfy the requirements of apparent authority
c. inherent agency is a subset of apparent agency (due to undisclosed P) although not vice versa
3. If it’s a forbidden act = not within the reasonable scope of agent’s authority.
4. Public policy rationale = protects the innocent third party
5. Key:
a. Inherent authority when usual or necessary transactions performed by agent: undisclosed principal is liable for acts of an agent done on his account, whether or not they were forbidden by the P.
b. Inherent authority when agent entrusted with mgmt of the business and enters into usual transactions with a 3d party: undisclosed principal subject to liability to third persons with whom the agent enters into transactions usual in such business and on the P’s account although contrary to the directions of the P.
i. Restatement 2nd of Agency
6. Inherent Agency = occurs when (either 1, 2, or 3)
1. an agent does something similar to what he is authorized to do but i
; and,
a. she gave him the $
3. the third party changes her position in reliance upon the appearance of authority
a. again, she gave him $
ii. Agency by estoppel involves the P’s failure to take reasonable care of a third party
1. REASONABLE RELIANCE IS A FACTOR
2.
g. Agent’s Liability on the Contract
i. PARTIALLY DISCLOSED P: If the other party to a transaction has notice that the agent is or may be acting for a principal but has no notice of the P’s identity, the P for whom the agent is acting is a partially disclosed P.
ii. A person purporting to make a contract with another for a partially disclosed P is a party to the contract.
iii. To avoid personal liability, the agent must disclose that he is acting in a representative capacity and the identity of his P. (Atlantic Salmon)
iv. ALWAYS tell people who you’re working for so you’re not stuck with liability
III. Liability of Principal to Third Parties in Tort
a. Types of Agency Relationships
i. Master-Servant
ii. Independent Contractor
b. Master- Servant Relationship: evidenced by:
1. CONTROL by master of servant, e.g. setting hours of operation; holding title to goods sold, paying for operating costs
a. Control is evidenced by: (examples)
i. Power to control daily maintenance of the premises
ii. Business expenditures
iii. Set customer rates
iv. Demand a share of the profits
v. Hire or fire employees
vi. Determine employee wages or working conditions
vii. Set stds. For employees skills or productivity
