Agency, Partnerships, and Limited Liability Entities
Professor Prince
Fall 2012
Class #1 (pgs. 1-22) – Agency Introduction – Who is an Agent?
Agency Terminology
· Agent: The one who is to act for the principal
· Principal: The one for whom action is to be taken
· Agency Liability is strict liability
Agency Defined
· Agency is the fiduciary relationship that arises when one person (the principal)
· Manifests assent to another person (the agent)
· That the agent shall act on the principal’s behalf and the subject to the principal’s control,
· And the agent manifests assent or otherwise consents to so act.
Proving the Existence of Agency Relationship
§ (1) On Behalf Of – Agent is acting on behalf of and for principal (Primarily for principal’s benefit)
o i.e., fast food restaurant is NOT an agent of a mall because the restaurant is not acting primarily for the benefit of the mall, but for itself
§ (2) Control – Agent is subject to principal’s control
§ (3) Mutual Consent – Parties consent to relationship (consent may be EXPRESS or IMPLIED from conduct) (parties may not even realize they have created an agency relationship)
§ NOT all three required to show an agency relationship
§ Consequences – because agency liability is Strict Liability, everything hinges on whether an agency relationship exists
§ Proof of Agency – Question of fact
§ R3d 1.01 à Agency is the fiduciary relationship that arises when one person (principal) manifests assent to another person (agent) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents to act.
§ Risks and Benefits
o Facilitates business to let the Agent act on the Principal’s behalf
o BUT, opens up Principal to potential tort and contract liability for the acts of the Agent
Gorton v. Doty
· Football game, lent care to coach, crashed
o Is there an agency relationship? à YES, woman principal
· The relationship of principal and agent arises where one undertakes to transact some business or manage some affair for another by authority and on account of the latter.
MJ and Partners Restaurant Limited Partnership v. Zadikoff
· P contracts with Michael Jordan to use name for restaurant
· Hired D to run business like a CEO… D secretly discussed with MJ to use name for another restaurant… the issue is CONTROL – How much control did D have over P?
· Agency relationship can be formed by ACTIONS, not just contract – could be agency here
· The existence of an agency relationship is determined based on the actual practices of the parties, and not merely by reference to a written agreement.
Rose v. Giamatti
· Pete Rose sued baseball commissioner in state court, commissioner wanted to remove to Federal Court
· Commissioner was totally independent, which showed a lack of CONTROL
· Court held that the Commissioner was NOT and agent of the MLB
· An agency relationship does not exist if the putative principal places the agent beyond the scope of the principal’s control.
A. Gay Jenson Farms Co. v. Cargill, Inc.
· Farmers sold grain to intermediary who sells to Cargill … Intermediary became insolvent, Cargill stepped in with loans and helped run business
· Cargill intervened with day-to-day operations, and ultimately became Principal of intermediary, who was considered the Agent
· A creditor who assumes control of his debtor’s business may become liable as a principal for the acts of the debtor in connection with the business. REST 2d AGENCY 14.
Class #2 (pgs. 23-39) – Liability of Principal to Third Parties in Contract: Actual Authority AND Liability of Principal to Third Parties in Contract: Apparent Authority
Scope of Agent’s Authority and Whether Agent had Authority to Enter into Contract / Transaction
o Types of Authority that can make the Principal Liable:
o Actual Authority
o Apparent Authority
o Inherent Authority
o Ratification
Actual Express Authority
· Principal tells Agent to do something
· Agent does it
· Principal is bound
· Clearly set out bounds of authority between the Principal and the Agent in express agreement (written or oral contract)
Actual Implied Authority
· If, in order to accomplish what the principal wants, agent has to take additional steps, the principal is bound by AIA
· Basically, if you don’t bother to tell your agent HOW to carry out your instructions, we’ll let him/her carry them out in the usual manner and you’ll be bound by the consequences
· TEST – authority to do whatever is reasonably necessary to accomplish your job
Apparent Authority
· Look here at what the 3rd party reasonably believes about the relationship between the principal and the agent.
· General criteria:
o The principal must in some way hold out the agent as possessing certain authority
o The 3rd party must reasonably believe the agent has such authority
· TEST – Would a 3rd party reasonably believe that agent had authority to consent to agreement or sign contract or enter into a transaction?
o Objective Manifestations by Principal to 3rd party
o Belief is objectively reasonable
§ Specific indications (pattern of prior dealings, other indicia) or Positional authority
· Positional – general manager, president, partner, attorney (?)
· Answering the phone at a business? – Rebuttable presumption that person answering has authority to speak regarding matters of general business carried on at the establishment. Can rebut by showing that agent disclaimed authority to speak on those matters or by showing that 3rd party was not acting in Good Faith or had no reason to believe that Agent had authority to speak on that matter.
· Agent’s own words do not establish Apparent Authority – has to be more than Agent who can misrepresent scope of authority
Mill Street Church of Christ v. Hogan (Implied Authority)
· Painter at church, supposed to hire another person, hired brother instead, as he had in the past, brother gets hurt painting, court held Implied Authority – the brother was an employee of the church.
· Agency can be established by circumstantial evidence including the acts and conduct of the parties such as the continuous course of conduct of the parties covering a number of successive transactions.
Karl Rove & Co. v. Thornburgh
· Special election, Thornburgh’s committee had agreement with Rove Co. to do direct mailing for campaign. Does Thornburgh have joint and several liability for the obligation?
· Dickman authorized the contract, had ran Thornburgh’s campaigns.. Was Dickman an agent? à YES, supported by the evidence
· The fact that Dickman was authorized to make decisions on behalf of the campaign was enough to make Thornburgh a principal
· A member of an association is personally responsible for a contract entered into by a nonprofit association only if, given a principal-agent relationship, the member as principal authorized, assented to, or ratified the contract.
Lind v. Schenley Industries Inc.
· Lind was sales rep for liquor store co.; was told he was getting a 1% commission on all sales, relied on this for 2 years; was promoted by Herrfeldt, who told him to go to Kaufman who would tell him salary info
· Was not getting commission for 5 years, then decided to raise the issue
· Was an apparent authority issue.. Could Lind reasonably believe that Kaufman had the authority to state salary information? à Herrfeldt and Kaufman are agents of the company.
· Inherent agency is a form of agency that comes with a kind of authority arising solely based on the designation by the principal of a kind of agent who ordinarily possesses certain powers.
Class #3 (pgs. 39-58) – Liability of Principal to Third Parties in Contract : Inherent Authority; Ratification
Inherent Authority
· Authority derived SOLELY from the agency relationship and exists for the protection of persons harmed by or dealing with an agent.
o Not derived from actual or apparent authority
· Used to indicate power of Agent derived not from actual or apparent authority, but solely from agency relationship. Acts done on Principal’s account, which are incidental to transactions, which the agent is authorized to conduct. Even if forbidden by the Principal, the 3rd party reasonably believes that the Agent is authorized to do them and has NO NOTICE to contrary
· 3 Elements
o (1) Agent acted within usual scope of authority as Agent
o (2) 3rd Party reasonably believed AND
o (3) 3rd Party had NO NOTICE to the contrary
· Courts are critical of Inherent Authority, R3d abandons the concept in favor of Apparent Authority
What is Ratification
· It is the affirmative of an act done originally without authority. It binds the principal in all respects, as would any authorized activity of an agent.
· Its effect is to relate back to when the transaction was set up and say it was ok, the principal agrees to be bound
How to Ratify a Transaction:
· Express affirmation by the principal
· Implied affirmation through acceptance of the benefits of the transaction at a time when it is possible to decline to accept such benefits
· Implied affirmation through silence or inaction – a principal can’t wait forever before repudiating an unauthorized transaction, a rule is based largely on notions of economic fairness
· Implied affirmation through bringing a lawsuit to enforce the contract
Can a principal ratify only a portion of a transaction?
· Not really. A principal must ratify the entire transaction or repudiate it entirely.
Note
· The principal must know (or have reason to know), at the time of the alleged affirmation, the material facts relating to the transaction
Watteau v. Fenwick
· To establish an agency in fact for an undisclosed principal, show that the agent’s conduct was within the reasonable scope of the agent’s authority.
Kidd v. Thomas A. Edison, Inc.
· D hired Fuller as agent to hire singers for recitals; Singers not aware of purpose of recitals
· Fuller enlists singers for advertisement; P (one of the singers) believed that terms of engagement would be similar to other ones for entrance fees, and had not received any indication otherwise; D did not intend to engage P under normal terms that P
APPARENT AUTHORITY to succeed, the P must prove that the manifestation that a particular person was authorized to act on behalf of the principal came from the principal
o Remanded for a new trial for estoppel – P should have been allowed to prove that the event would not have happened had the store exercised reasonable surveillance over its place of business
o The duty of a proprietor encompasses the exercise of reasonable care and vigilance to protect the customer from loss occasioned by the deceptions of an apparent salesman, but absent a representation from principal to third party, the imposter is not principal's agent.
Trustees of the American Federation of Musicians and Employers Pension Fund v. Steven Scott Enterprises, Inc.
o P – Trustee of pension fund for musicians; Scott owns company that employs musicians; Scott signed CBA’s, requires him to make contributions to the fund; Sent checks / settlement agreements to fund, checks were cashed; President was authorized to accept checks, but not enter settlement agreements (only the board of trustees could do that)
o Scott argues that Trustees should be estopped from denying that it is bound to the settlement agreements
o Held à Trustee estopped
o A principal may be estopped from denying apparent authority if (1) the principal's intentional or negligent acts, including acts of omission, created an appearance of authority in the agent, (2) on which a third party reasonably and in good faith relied, and (3) such reliance resulted in a detrimental change in position on the part of the third party.
Atlantic Salmon A/S v. Curran
o D held himself out as representative for seafood distributors (non-existent or dissolved at some point)
o Held à D is personally liable; Duty of the agent to inform other party who the actual principal is, or else the agent is liable
o It is the duty of the agent, if he would avoid personal liability on a contract entered into by him on behalf of his principal, to disclose not only that he is acting in a representative capacity, but also the identity of his principal.
o An agent can be held personally liable for actions on behalf of the Principal if the agent does not disclose the principal
Humble Oil & Refining Co. v. Martin
o Dropped car at service station; car rolled down hill and injured 3 people
o Who is liable à Just the gas station (franchisee) – or is Humble Oil also liable?
o Question of CONTROL – Humble controlled many aspects of the day-to-day operations – just saying “this is an independent contractor” is not alone sufficient to negate guilt – look to the evidence
o Held à master – servant relationship is found here
o The terms of a contract can indicate a principal-agent relationship despite an express claim to an independent contractor relationship.
Hoover v. Sun Oil Company
o Fire at gas station; Barone operates gas station; Sun argues that Barone is independent contractor
o Smilyk (Barone employee) caused the fire
o This case is very similar to the Humble Oil case; but opposite outcome because station owner had more day-to-day control; and no evidence of master-servant relationship in the contract
o Here, Barone made all the decisions (including hiring), and controlled day-to-day operations; the day day-to-day operations, and who controls these is very important in determining whether or not an agency relationship is born
o The test of whether a principal-agent relationship exists is whether the putative principal maintains control over the conduct of the purported agent.
Murphy v. Holiday Inns, Inc.
o Betsy-Len Corporation owned a Holiday Inn; slip and fall occurred; Is Holiday in a Principal?
o NO à Master-servant relationship; Holiday Inn does not control day-to-day operations (hiring and firing, etc.), provides advertisements and sets certain standards
o The regulatory provisions of a franchise contract, when they do not dictate control over day-to-day operations, do not constitute control within the definition of agency.
Parker v. Domino’s Pizza
o Car crash while delivering pizza for J & B Enterprises, who ran a Dominoes franchise
o A franchise agreement can contain terms and guidance so specific that an agency relationship arises – Question of Fact here – Remanded
