Okamoto, Karl — Business Organizations Fall 2012
AGENCY
I. Agency
· The fiduciary relationship which results from the manifestation of consent by the Principle to the agent that the agent shall act on the Principle’s behalf and subject to the Principal’s control, and consent by the agent so to act.
· Three elements required to show the existence of an agency relationship include:
o A manifestation by the principle that the agent will act for him
o Acceptance by the agent of the undertaking
o An understanding between the parties that the principal will be in control of the undertaking
Gorton v. Doty
Teacher loans coach car, gets in accident – coach agent for teacher
· Relationship of principal and agent arises where one undertakes to transact some business or manage some affair for another by authority and account on the latter
· Not essential to existence of authority there be a contract between principal and agent or agent promise to act as such, nor is it essential for compensation to be received
Gay Jenson Farms v. Cargill
Cargill, by its control and influence over warren, became a principal with liability for the transaction entered into by its agent Warren
· An agreement may result in the creation of an agency relationship even if parties did not call it an agency and did not intend the legal consequences
· The existence of the agency may be proved by circumstantial evidence which shows a course of dealing between the two parties
II. The Agent’s Authority
Mill Street Church of Christ v. Hogan
Church employee hired someone and that someone got hurt. Did employee have authority to hire that someone, yes!
· Express
o Agent actually was given authority by principal. Did the person get authority from board of directors or more senior authority? Were they told to enter into contract? Find it by looking at job description, e-mails, corporations by-laws
· Implied Authority (not the same as Apparent – need to be compared)
o Is actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated
· Apparent Authority
o Not actual, but is the authority the agent is held out by the principal as possessing; it is a matter of appearance on which third parties come to rely. Was it reasonable for third party to believe? Was there notice to the contrary? Was there a duty for third party to inquire?
o It must be determined whether the agent reasonably believes because of present or past conduct of the principal that the principal whishes him to act in a certain way or to have certain authority.
– may consider nature of task or job
– existence of prior similar practices is on of most important factors
o An agent has apparent authority sufficient to bind the principal when the principal acts in such a manner as would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise. Absent knowledge of third party, agent has apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct.
· Inherent Authority (complicated and controversial)
o Courts version of “hey lets do what’s fair” – most common case is that there was an unknown principal – look for unjust enrichment – who is the most appropriate person to bear the costs, principal or third party?
Burden of proof is on person claiming agency existed!
Botticello v. Stefanovicz
Husband and wife owned home, husband entered into lease, wife never signed.
Court:
· Ratificaiton
o The affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account.
o Ratification requires acceptance of the results of the act with an intent to ratify, and with full knowledge of all the material circumstances
o If the original transaction was not purported to be done on account of the principal, the fact that the principal receives its proceeds does not make him a party to it
· Any ratification case involves two critical question:
o What type of acts constitute an affirmation by the principal?
o What effect should we give to that affirmation?
Hoddeson v. Koss Bros. ESTOPPEL
Imposter acted as salesperson in a furniture store
Court:
· Where a proprietor of a place of business by his dereliction of duty enables one who is not his agent conspicuously to act as such and ostensibly to transact the proprietor’s business with a patron in the establishment, the appearances being of such a character as to lead a person of ordinary prudence and circumstances the law will not permit the proprietor defensively to avail himself of the imposter’s lack of authority and thus liability for the consequential loss thereby sustained by the customer
o If principal does intentional or negligent acts that create appearance of authority on behalf of an agent and third party reasonably and in good faith relied on agent being Principal’s agent, principal is liable
III. When Can Third Party Sue the Agent?
·
ions – Franchisor-Franchisee – Third Party relying of Franchisor’s good name
o Lots of scope for argument in employer-employee relationship
o Were they in charge of day-to-day operations?
· That the tort was committed by the agent while acting in the scope of her employment.
o If conduct is within same nature or incidental to task employed to perform, then part of employment
o If so far removed – Frolic indetor then Principal is not held liable.
o Was it motivated at least in part to serve benefit of employer
o Highly factual case-by-case determination
o If it was foreseeable, while on clock, Principal is liable (general theme of courts)
There are exceptions that Principals are not liable for general agents or independent contractors
· Inherently dangerous activities
· Should do a good job in picking Agent – pick one with ability to pay and proper skill (adequate funds to compensate)
Even if Principal is liable for Agents conduct in torts, Agent is also liable.
IV. AGENT’S DUTY TO PRINCIPAL
Agent’s fiduciary duties to Principal
· Account for profits arising out of the employment
· Not to act as, or on account of, an adverse party without the principal’s consent
· Not to compete with the principal on his own account or for another in matters relating to the subject matter of the agency
· To deal fairly with the principal in all transactions between them
· To deal openly with the employer and to fully disclose to the employer information about matters affecting the company’s business
o Although an employee does not owe an absolute duty of loyalty to his or her employer (employee has right to make preparations for a future competing business venture while still employed), at the very least, an employee’s independent enterprise cannot compete or contract with the employer without the employer’s full knowledge.
· Unless otherwise agreed, an agent is subject to a duty to his principal to act solely for the benefit of the principal in all matters connected with his agency.
