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

Business Organizations
Rutgers Camden School of Law
Professor Arthur Laby
Fall 2013
The Agency Relationship
Gorton (agency)
Rule: Where one undertakes to transact some business or manage some affair for another by authority and on account of the latter, agency relationship arises
Cargill (agency)
Rule: A creditor who assumes control of his debtor’s business may be held liable as P for acts of debtor in connection with the business
Restatement Provisions:
R3d § 1.01 Agency Defined
                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 principal’s control, and agent manifests assent or otherwise consents so to act.
R3d § 1.02 Parties’ Labeling and Popular Usage Not Controlling
                Agency arises only when elements in 1.01 are present. Characterizing relationship as agency in agreement or in context of industry or popular usage isn’t controlling
R2d § 3. General Agent; Special Agent
1.       A general agent is an agent authorized to conduct a series of transactions involving a continuity of service.
2.       A special agent is an agent authorized to conduct a single transaction or a series of transactions not involving a continuity of service
Kinds of Agency Authority
●        Actual Express Authority  (R3d §2.01)
○        P tells A to do something, A does it, P is responsible as if P did it himself. 3P can enforce K against P even if 3P didn’t know A was acting on P’s behalf.
○        looking at communications between P and A
●        Actual Implied Authority (R3d 2.02)
○        A takes  reasonable steps beyond what’s explicitly authorized by P that A believes are necessary to achieve P’s goals., P still responsible. (sometimes P can’t think of everything A has to do to accomplish P’s task)
■        Reasonable if A’s interpretation accords with how reasonable person in A’s position would would interpret P’s manifestations in light of the context
○        looking at communications between P and A
●        Apparent Authority (R3d 2.03)
○        Need 3-way relationship. 3P reasonably believes A has authority to act on P’s behalf and 3p’s belief is traceable to P’s manifestations. P bound by A’s actions.
○        looking at communications between P and 3P
●        Ratification
○        if P adopts K negotiated by an unauthorized 3P acting as A, P is bound by K
●        Inherent Agency Power
○        P responsible for some actions that weren’t really authorized but are incidental to acts that were authorized
●        Respondeat Superior (R3d 2.03)
○        Employer subject to liability for torts committed by employees acting within scope of employment
■        General State of Scope of Employment (R2d 228)
●        conduct is kind of work servant is employed to perform;
●        occurs substantially within authorized time/space limits;
●        actuated by purpose to serve the master; and
●        use of intentional force is expectable by the master
●        Liability of Undisclosed Principal (R3d 2.06)
○        Undisclosed principal (UP) subject to liability to 3p who is justifiably induced to make a detrimental change in position by A acting, without actual authority, on UP’s behalf if UP had notice of A’s conduct, that it might induce others to change position, and did not take reasonable steps to notify them of the facts (inherent agency)
●         Estoppel to Deny Existence of Agency Relationship (R2d 8B)
1.       3p to transaction done on his account is subject to liability to persons who have changed their position because they believed 3p entered into the transaction IF:
a.       he intentionally/carelessly caused such a belief; or
b.      knowing of such belief, he failed to take reasonable steps to notify them of the facts
2.       If property owner represents to 3ps that another person owns the property, and owner could easily inform 3ps of the facts, owner loses the property if the other person sells the property to 3ps or 3ps change their position
3.       “change of position” means payment of money, labor, suffering, loss, legal liability
Consequences of Creating Agency Relationship: CONTRACT
Mill St. Church (implied authority)
Rule: A has implied authority to hire another worker where such implied authority is necessary to implement A’s express authority.
370 Leasing (apparent authority)
Rule: Salesperson binds employer to a sale if he agrees to that sale in a manner that would lead the buyer to believe that sale had been consummated
Watteau v. Fenwick (inherent authority/undisclo

where servant has agreed (a) to work on behalf of the master and (b) to be subject to master’s control or right to control the “physical conduct” of the servant (the manner in which job is performed, as opposed to result alone).
○     Servants are distinguished from independent contractors, who agree to work on behalf of P but not subject to P’s control over how the result is accomplished. Generally no responsibility for torts of independent contractors.
■     agent type (may carry fiduciary duties) vs. non agent type independent contractors
Servant vs. Independent Contractor
Humble Oil (franchisee’ servant or independent contractor?)
Rule: party may be liable for independent contractor’s torts if he exercises substantial control over the contractor’s operations
Sun Oil (franchisee; agency relationship?)
Rule: Franchisee is considered an independent contractor of the franchisor if the franchisee retains control of inventory and operations
Holiday Inns (franchisee; agency relationship?)
Rule: if franchise contract regulates activities of franchisee as to vest franchisor with control within definition of agency, agency relationship arises even if parties expressly deny it.
Tort Liability and Apparent Agency
McDonalds Corp (apparent agency?)
Rule: Agency relationship may exist where franchisor retains significant control over daily operations of franchisee’s business (actual agency) and insists on uniformity of appearance and standards designed to cause public to think (apparent agency) franchise is part of franchisor’s business
●     Apparent agency vs. apparent authority
○     Apparent agency is distinct concept from apparent authority. Apparent agency creates an agency relationship that does not otherwise exist, while apparent authority expands the authority of an actual agent. In McDonalds, issue was whether 3K was defendant’s apparent agent