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Business Organizations
Rutgers University, Camden School of Law
Laby, Arthur B.

Saturday, October 15, 2011
10:24 AM
I.) 2d Agency §§ 1-2)Agency: [ is a question of fact but where no material facts are at issue is a matter of law]  
·         Fiduciary relationship  
o    a relationship where one acts for the primary benefit of  the principal and 
o    Foregoes personal advantage
o    Duties of loyalty and fidelity
·   Breach of these duties denote disloyalty and infidelity
Not communicating all relevant aspects of transaction to [P] Not accounting to [P] all money and property received or paid out on [P] behalf
May not act for adverse parties or competing parties  w/o [P] consent
·         Can be dual agent to two [P] w/ consent from both
May not act secretively in a transaction on [p] behalf for personal gain
o    Act only in the interest of  the principal
·         Manifestation  by the principal
o    Is a objective test of outward manifestation but also can be subjective intent
·         Has the would be principal said or done something that a reasonable person in the Agent's position would reasonably interpret as consent by [P] that [A] should act on his behalf and/or
·         In response has the would be agent said or done something that a reasonable person in [P] position would reasonably interpret as consent by [A] to act for [P]  
·         Conduct
§  An agent can manifest consent by beginning a requested task or [P] by exercising control
·         Jensenv. Cargill, cargill held liable as principal b/c they controlled operations numerous aspects of the business relationship
·         Parent company created a subsidiary company just to supply needed goods
·   Constant recommendations
·   Right of 1st refusal
·   Stopping other party from entering into other investments
·         Agency relationship may exist even though the parties have no subjective intent
§  Gorton v. Doty, passive permission if you drive you can use my car to take kids to game
·         Don't have to i.d. themselves as [P] or[A]  
·         The  agent shall act on his behalf AND
·         Subject to his control
o    Most important factor in determining is a person is an agent, is the principal's  
Right to control not just control itself.
·         If control is missing can't have an agency relationship
o    Examine how the relationship actually operated to determine control; if it isn't expressly stated 
·         And the agent consent to do so
What Agency is not:
1.      Entities appointed by the courts to act on behalf of a 3rd party
a.       Guardians, executors, Trustees, etc
2.      Those who hold power for their own benefit or the benefit of one who has not created the power
a.       Power of attorney b/c can exercise their power in defiance of him who gave the power
II. Agents Power to Bind the Principal:
A.     Actual Authority:
·         Objective manifestation by the principal
o    Directly or indirectly
·         Indirectly through intermediaries ie; board through managers
·         Through inaction of the principal
·         Followed by the agents reasonable interpretation of that manifestation
o    In light of the facts as he knows or should know them to be at the time of the act and includes his fiduciary duty to the principal
·         Which leads the agent to believe he is authorized to act for the [P] o    Belief must be based on some manifestation of the principal
a. Express Authority/Actual Authority-
·         Provable that the principal has made it clear
·         In express and explicit language
·         To the agent
·         That he desires the act under question to be done
   1.) Formal written instrument {question of law for the ct.}
o    Explicit language must be found in the written instrument to justify the agents actions
·   If actions have no connection with the express language permitting an action, then the [P] is not liable for the [A]  
o    Parole evidence
·   The formal writing is not to be contradicted by parole evidence
·         But if writing is ambiguous evidence is admissible to explain its meaning
    2.) Oral
b. Implied Authority- conferral of authority to do a particular act must be taken as bestowing authority to do
·         All the things  reasonably incidental
·         to performing the expressly authorized act
·         Occupying a particular status
·         Mill st. church v. Hogan, the [P] church intended the [A] to hire an assistant  in giving him authority to paint the church because such powers are necessary to carry out the delegated duty
2.) as is usual or customary and necessary in a position
·         Prove by trade usage
3.) consistent exercise of power not expressly given to [A] , and  [P] knowing of the same makes no objection, has tacitly sanctioned continuation
·         Course of dealing
(B.) Apparent Authority:  power held by [A] or other actor to affect [P] legal relation with a 3rd party where
·         [P] manifests (holding out) to a 3rd party
o    Through intermediaries ie; secretary sends letter to dealer on behalf of [P}
o    By position ie; by putting [A] in a particular role. In light of local custom and business standards
§  Three Seventy v. Ampex; Ct. held the contract for enforceable through Apparent authority b/c sales person was dealing with the buyer and made the offer which was accepted even though  [p] told buyer couldn't sign contract
o    By position w/in an organization ie; CEO, Manager, President
o    By acquiescence in [A] conduct by reinforcing [A] bx in areas where has no authority to act upon 3rd parties
·         And 3rd party reasonably believes  that [A] is authorized to act on behalf of [P]  
o     3rd parties belief must be reasonable
o    3rd party has a duty to inquire when manifestation by [P] is ambiguous
o    3rd party can't rely on[A] conduct as [P] manifestation
§  Plausible bx by [A] will support 3rd party claim
§  Implausible bx will undercut it
·         And that 3rd parties belief is traceable to [P] manifestations
o    Can exist with Actual Authority
§  Ie; when [P] manifest to [A] and that manifestation is over heard and justifiably relied upon by 3rd party. Both actual and apparent authority exists
o     Can extend [A] power to bind beyond the scope of [A] actual authority
§  Ie ; [P] authorizes [A] to spend X amount at an auction house but b/c of  [P] holding out of [A] the auction justifiably believes [A] can exceed x amount
o    Can exist where no actual agency exists
§  Ie;  [P] sends letter to car dealer that [A] will by car for him. Later [P] tells [A] not to by car but never informs dealer. If, [A] buys a car [P] is bound by the contract
(C.) Estoppel
2nd §8B Estoppel Change of Position:
·          a person who is otherwise  not liable to a transaction done on his account , is nevertheless liable to  3rd parties
·         who act in relia

2nd §82 Ratification:
·         Affirmance by [P] of a
o    Express
o    Implied ie; acceptance of money or obtaining a benefit
o    Conduct ie; failing to sue or lack of repudiation
·          prior  unauthorized act which did not bind [P]  
o    At the time of the unauthorized act [P] must have existed and must have had the capacity to originally authorize the act
·          Acceptance of the results of the act with
·         an intent to ratify and
must occur before the 3rd party shows an manifestation to withdraw
must occur before any change in circumstance that would make it inequitable to bind the 3rd party, unless the 3rd party wishes to be bound
occur before a specific time that determines whether a 3rd party is deprived of a right or subjected to liability
·         with full knowledge of all material circumstances
o    Material fact- so affect the existence and the extent of obligation involved in the transaction that knowledge of them is essential to an intelligent election to become party to the transaction
§  Under R2d Material Fact is Not Knowledge Of:
1.      The legal effect of ratification
2.      Value of the transaction  or transactions desirability, other than important representations made by the 3rd party as they entered into the transaction
   III.) Distinction between Employees and Non –Employees Independent Contractors
Employee- an [A] employed by a [P] to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of this service
Independent Contractor- a person who contracts with another to do something for him but who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in performance of the undertaking
·         Manner and control of doing the job is entirely to the contractor
A.)Determining whether is Employee or Independent Contractor
a.) Right to Control Test (Most important): Does [P] have the right regardless of his acts to control the manner and outcome
                                                                                  i.            Choose right to control test when [P] does not exercise actual day to day control
b.) Actual Control Test: Does [P] exercise control over the manner and outcome of  work
      i. who has the risk of loss
      ii. paying of utilities
      iii. who provides the tools necessary for employment
      iv. who set the hours of operation
      vii. frequent implemented suggestions
      viii. Sending people for frequent inspection
Humble Oil & Refining Corp v. Martin, Contract between the parent co. and subsidiary repudiated control over an aspect but was ineffective in showing no control b/c had control over many day to day activities