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Business Organizations
Rutgers University, Camden School of Law
Beckerman, John S.

Business Organizations Outline
Rutgers Law, Professor Beckerman, Spring 2009

Agency Law

I. Who is an Agent?
A. Agency is the fiduciary relation which results from
i. Consent by the principle for the agent to act
ii. Agent acting on behalf of the principle (& both parties intend this)
iii. Understanding that the agent is subject to control by the principle.
a. Control only over the goal, not the means of accomplishing it (lawyers).
B. There’s an asymmetrical fiduciary duty (agent has duty to principle, but not vice versa)
C. An agency is inherently hierarchical – The principle controls (Courts will assume this fact)
D. Formation & termination of an agency relationship
i. Unlike a contract (which is negotiated etc.) an agency agreement is created very easily. Once A agrees to do something for P, and A is acting on P’s behalf & is subject to P’s control the agency relationship is created.
a. Gorton v. Doty, 69 P.2d 136 (1937) – woman tells the football coach who needs to transport students to a game to use her car (but only he can drive it). She volunteered the use of her car, no compensation. Accident happens & suit against the woman, as the principle. Agency relationship existed here between woman & coach. Woman consented that coach act in her behalf in driving her car by volunteering her car & her condition that only he drive it shows the control she had.
1. How you describe it makes the diff on whether or not it’s agency:
(a) Gave permission – this is a loan, not agency
(b) Directed – telling him what to do (instructs coach to drive) – this is agency.
2. This is a little extreme b/c it almost looks like it was only a loan. But fact is that insurance is covering the woman, and the boy injured has no insurance. So looks like court just wanted to cover the boy.
3. Solution: if she had specified she is loaning the car to him, then that would have settled it.
b.It is not essential that there be a contract between the principle and agent or that the agent promise to act as such, nor is it essential to the relationship of principle and agent that they, or either, receive compensation.
ii. Agency can be terminated at the will of either party (notion that we don’t like involuntary servitude). Different from contract relationship which you cannot just breach & court will enforce.
E. Creditor-debtor relationship vs. agent-principal relationship
i. A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business
ii. Gay Jenson Farms Co. v. Cargill, Inc., 309 N.W.2d 285 (1981) – Warren (W) is a local firm operating as a grain storage facility & as a middle man between the grain farmers & the worldwide dealer, Cargill (C). W then insolvent; doesn’t pay farmers, and farmers sue C. W & C had an agreement where C finances W, C buys grain from W & C has right of first refusal on the grain.
a. The court found an agency relationship was created here. Existence of an agency may be proved by circumstantial evidence which shows a course of dealing between the two parties.
1. Consent by principle – C consented by directing W to implement certain procedures
2. Agent acting on behalf of principle – W acted on C’s behalf in procuring grain for C, as part of its normal operation which were totally financed by C.
3. Principle exercise control over agent – C had a lot of influence and control over W’s financial situation.
b.An agreement may result in the creation of an agency even though parties didn’t call it an agency and did not intend the legal consequences of the relation to follow.
c. Someone who contracts to acquire something from a 3rd person and convey it to another is an agent only if it is agreed that he is to act primarily for the benefit of the other.
d.Problem – banks giving out loans being subject to agency
1. Difference for a bank is that the lender’s reason for financing is for the interest received. In Cargill, the reason for the financing was to establish a source of market grain for its business & took control of the operation for this purpose.
2. If you’re lending money to a borrower, you would probably take the steps Cargill did to make sure operating properly. Any of the measures Cargill took would be appropriate, but the problem in Cargill is that there is an extraordinary amount of control – too many of these things put together.
II. Agency Power to Bind – Liability of Principle to third parties in contract
A. Actual Authority – principle gave the agent the authority explicitly; completely clear
B. Implied Authority – Implied authority 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.
i. To determine whether implied authority exists, it must be determined whether the agent reasonably believes because of present or past conduct of the principal that principal wishes him to act in a certain way or have certain authority.
a. Sometimes may be necessary to implement express authority
b. Prior similar conduct
ii. Have authority because it’s something that normally goes along with the actual authority given.
iii. Mill Street Church of Christ v. Hogan, 785 S.W.2d 263 (1990) – Church has hired Bill to paint in the past & has previously told Bill he can hire his brother Sam to help. Bill only uses Church’s tools & if he needs something goes to store & charges it to Church’s account. Church hires Bill again, needs help & goes to Church to ask for help. Church says to call Petty, but doesn’t tell Bill he must hire Petty, & told Bill that Petty’s hard to reach. Bill gets his brother Sam to help & Sam falls off a ladder owned by the Church. Church pays Sam for hours worked. Sam wants workers comp, but only employees get it.
a. Bill is an agent of the Church (an employee – Church hires Bill & has control over Bill)
b. Bill didn’t have actual authority to hire Sam, but had implied authority.
1. past conduct – Bill had been allowed to hire Sam for previous work.
2. necessary to implement the express authority – in order to finish the work, Bill had to hire a helper.
3. agent reasonably believed he had the authority – practice in the past; Bill never told otherwise; Church even paid Sam for hours worked.
C. Apparent Authority – when a principle acts in such a manner as to give the impression to a third party that the agent has certain powers which he may or may not actually possess. It is a matter of appearances on which third parties come to rely.
i. 3rd parties have the right to believe the agent has the authority it is reasonable to believe they have.
ii. Lind v. Schenley Industries, Inc., 278 F.2d 79 (1960) – Lind (Π) worked for Park. Park’s vice-president, Herrfeldt (Herr) gave Π job with Kaufman, & told Π that Kaufman would tell him duties and salary. Kaufman tells Π he will get a specified commission, and Herr confirms this. Is kind of commission is not common in the industry (very weird to get it). Π later terminated & sues for the commission. Kaufman didn’t have actual authority to give this commission.
a. Park can be held accountable for Kaufman’s action on the principle of apparent authority. Kaufman is Π’s direct supervisor; as far as Π is concerned, Kaufman is spokesperson for Park. Π reasonable to think Kaufman has authority to offer commission.
iii. Three-Seventy Leasing Corporation v. Ampex Corporation, 528 F.2d 993 (1976) – Joyce, the only employee of 370 corp, is in negotiations to buy HW from Ampex & is speaking to Ampex’s employee, Kays (salesperson). Kays sends Joyce an offer at the direction of Kays’ superior.
a. 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.
b.Absent knowledge on the part of 3rd parties to the contrary, 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.
c. Kays was employed by Ampex as a salesman; it is reasonable for 3rd parties to presume that a salesman has the authority to bind the employer to sell.
d.Ampex’s actions furthered this belief; Document was given to Joyce at the direction of Mueller, Kay’s superior, and also Mueller agreed that all communication with 370 would be through Kays. Doesn’t matter if, internally, Kays really didn’t have this power.
D. Inherent Agency Power – authority that comes from the role/status that comes with being an agent. The agent (in the role/status) ordinarily possesses certain powers.
i. A servant acting within the scope of his employment has inherent authority to commit torts – basically same thing as respondeat superior.
ii. Watteau v. Fenwick, Queen’s Bench (1892) – Humble sold business to Fenwick, but Humble still manager, and Humble name on the door. Humble was only supposed to buy bottled ales and mineral water, but he buys cigars and other supplies on credit. Π, 3rd party, sues to recover payment. 3rd party doesn’t even know Fenwick exists, and that he actually owns it.
a. Rest (2nd) Agency § 194 – an undisclosed principle is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principle.
b. Rest (2nd) Agency § 195 – an undisclosed principal who entrusts an agent with the management of his business is subject to liability to third person with whom the agent enters into transactions usual in such business and on the principal’s account, although contrary to the directions of the principal.
iii. Kidd v. Thomas A. Edison, Inc. 239 Fed. 405 (1917) – Kidd (3rd party) enters into K with Fuller (Δ’s agent) believing she was signing up for an unconditional singing tour/recitals. Δ says that agent’s only authority was to sign her up with specific recitals (be a booking agent), and the dealer would pay for the performance.
a. Custom to hire singers for recitals & reasonable to believe they intend to pay them. Agent in this industry is typically empowered to do these things in this type of situation.
b. J. Learned Hand – “It makes no difference that the agent may be disregarding his principal’s direction, secret or otherwise, so long as he continues in that larger field measured by the general scope of the business entrusted to his case.”
iv. Nogales Service Center v. Atlantic Richfield Company, 613 P.2d 293 (1980) – Π and Δ have been in business in the past. Δ’s employee-agent made oral contract with Π to give Π a discount on gas. Δ disapproves the discount; Π sues for breach of K. Δ argues that agent was not authorized to give this type of discount.
a. Rest (2nd) Agency § 161. A general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on [the principle’s behalf] which usually accompany or are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do them and has no notice that he is not so authorized.

Liability of Principal to Third Parties in Tort

I. Servant VS Independent Contractor
A. A master is subject to liability for the torts of his servants committed while acting in

ppearing to be a servant or other agent as if he were such.
a. Question for jury whether McDonald’s held 3K out to be its agent & whether Π justifiably relied on that representation
1. (Representation) Everything about the appearance of the restaurant identified it with McDonald’s – this image the McDonald’s had worked to create – reputation, etc.
2. (Reliance) General public not expected to understand how franchise works. McDonald’s cannot ignore its own efforts to lead the public to believe that all McDonald’s are the same.
III. Scope of Employment
A. Conduct of a servant is within the scope of employment if it is actuated, at least in part, by a purpose to serve the master.
i. Ira S. Bushey & Sons, Inc. v. United States, 398 F.2d 167 (1968) – Sailor (works for U.S.) arrived back at his ship drunk, and negligently caused damaged to the ship & drydock (owned by Π). U.S. argues it’s not liable b/c sailor acting outside scope of employment.
a. The sailor’s conduct was not so unforeseeable as to make it unfair to hold the government liable. The employer should be held to expect risks, to the public also, which arise ‘out of and in the course of’ his employment of labor. It is foreseeable that a drunken sailor might cause damage while crossing a drydock on the way back to his ship.
B. A servant’s acts may be within the scope of employment although consciously criminal or tortious (except serious crimes). A servant’s use of force against another is within the scope of employment if the use of force is may be expected by the master.
i. Ex: the owner of a nightclub probably would be held liable for injuries inflicted by a bouncer in ejecting someone from the bar. The owner presumably hired the bounder for the very purpose of using force to eject drunken or otherwise undesirable patrons.
ii. Manning v. Grimsley, 643 F.2d 20 (1981) – professional baseball game, pitcher threw a ball at Π & injured him (Π heckling him, and evidence that pitcher did it intentionally). Court found employer liable for pitcher’s action b/c he was acting within the scope of his employment.
a. To recover damages from an employer for injuries resulting from an employee’s assault, it must be shown that the assault was in response to the Π’s conduct which was presently interfering with the employee’s ability to perform his duties successfully.
1. The heckling was conduct that had affirmative purpose to interfere with employee’s performing his duties successfully, and the pitcher’s assault was not a mere retaliation for past annoyance, but a response to continuing conduct which was presently interfering with his ability to pitch in the game.
IV. Statutory Claims
A. Just b/c an employee behaves in an unacceptable manner (i.e. against company policy and/or law) does not mean that the conduct is obviously outside the scope of employment.
B. Factors to consider to determine whether an employee is acting within scope of employment:
i. The time, place and purpose of the act
ii. Its similarity to acts which the servant is authorized to perform
iii. Whether the act is commonly performed by servant
iv. The extent of departure from normal methods
v. Whether the master would reasonably expect such act would be performed
C. Arguello v. Conoco, Inc., 207 F.3d 803 (2000) – Several incidents of racial discrimination by employees working at gas stations with the Conoco name. Conoco not liable b/c stores were independently owned. Since Conoco did not control the details of daily operations of those stores, there was no agency relationship.
i. Time & place – Employee acted while on duty as an employee
ii. Purpose – Employee acted while carrying out her employment duties
iii. Although employee departed from normal methods of her duties and the conduct was not expected, it took place while employee was carrying out her normal duties as a clerk.
iv. No evidence that Conoco would have expected the employee to act this way.
V. Liability for Torts of Independent Contractors
A. Ordinarily when a person engages an independent contractor (who conducts an independent business by means of his own employees), he is not liable for the negligent acts of the contractor in the performance of the contract, but there are exceptions:
i. When landowner retains control of the manner & means of the work contracted for
ii. Where he engages an incompetent contractor
iii. Where the activity contracted for constitutes a nuisance per se.
B. Liability imposed upon a landowner who engages an independent contractor to do work which is inherently dangerous (a nuisance per se).