Business Associations Outline
a. Agency in General
Restatement Section 1.01: Definition of Agency (paraphrased):
An Agency relationship that results from:
· (1) The manifestation of consent by one person (the principal) to another (The agent)
o (a) That the Agent shall act on the Principal’s behalf
o (b) And subject to P’s right of control
· (2) And consent by the Agent to so act
Elements to Establish an Agency Relationship
· (1) Manifestation of Consent
o (a) The A is acting on the P’s behalf
§ P must be getting some benefit from this
o (b) A is subject to P’s control
§ P has imposed SOME form of condition/instructions/ control
§ Section 1 of Restatement defines “control” broadly
· (2) A consents to acting on behalf of P
· Note: If there is a dispute between the “P” and “A” as to whether an agency relationship existed, the court will look to the reasonableness of the party asserting that the relationship’s belief.
Restatement Section 1.02: Parties labeling and popular usage do not control
Gorton v. Doty à Teacher lends her car
· Doty (D) loaned her car to Garst (a football coach) to bring team members to their game. Garst got into an accident and Gorton was injured. Gorton’s father (P) brings suit claiming D is responsible because she was the principal.
· Court found this was more than just a loan by Applying Section 1.01 Test:
o (1) Manifestation of consent:
§ (a) on Doty’s behalf: Court finds that if Gorton hadn’t driven, Doty would have. (kind of a stretch here)
§ (b) Right to control: Doty imposed some conditions for Gorton when she offered (Gorton must drive the car, no one else)
o (2) Gorton consented to borrowing the car.
o Rule: Where one undertakes to transact some business or manage some affair for another by authority and on account of the latter, the relationship of principal and agent arises.
§ Note: In car situations, the fact of ownership alone establishes a prima facie Agency relationship
Gay Jensen Farms v. Cargill, IncàGrain Elevator Creditor becomes Principle
· Cargill (D) in addition to loaning funds to Warren (D) also took control of the day-to-day operations of Warren (D). Warren (D) defaulted on $2m of purchase Ks it executed with local farmers (P).
· Cargill argues their relationship with Warren is merely contractual but court finds liability through Agency Relationship:
o (1) Manifestation of consent:
§ (a) on behalf of: P purchased the majority of grain from A; right of first refusal; financing
§ (b) Right to control: P Brought in consultant for A; P had control over business operations; Right of first refusal.
o (2) Warren consented by continuously accepting more money for more stipulations.
· Rule: Under R § 140, a creditor who assumes de facto control of his debtor’s business may become liable as a principal for the acts of the debtor in connection with the business. Note: this is rare and courts will generally allow creditors to protect their investment.
o Court here found 9 control factors over Warren by Cargill. Taken individually, none would suffice but taken as a whole, they did.
· General Rule in Principal’s Liability in K: P (Principal) is liable to T (Third Party) for a contract that A (Agent) made with T of P’s behalf, if:
o (1) P & A have an agency relationship; and
o (2) A had (actual or apparent) authority to enter into the specific transaction with T.
· What could Cargill have done to avoid liability?
o Terminate Relationship
o Reduce Control
o Add additional control knowing they would be held liable
B. Agency in Contracts (Principal Liability)
Mill Street Church v. Hoganà Painter hires brother for help
· Mill Street Church (D) hired Bill to paint the building. Bill hired his brother Sam (P) for help. While painting, P broke his leg and filed a workers’ comp claim. Board found that Bill had the implied authority to hire P so D was liable for P’s injuries.
o Rule: A person has the authority to do certain acts that will bind the principal based upon past practices and the way the business has operated.
o Here, Bill had Implied Authority (see below) to hire Sam.
Analysis to bind P to the K:
· (1) Establish Agency Relationship between P and A.
· (2) Did A have Authority to enter into an agreement with T?
o (a) Actual Authority; OR
§ R § 2.01: The AGENT reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to so act.
§ (i) Express
· A was actually told by P he had the authority (R § 2.02)
§ (ii) Implied
· Test: The activity is something the A is typically authorized to
uters to 370 Corp (P) despite not having been given the authority to do so by Ampex (D).
o Rule: A salesperson binds his employer to a sale if he agrees to that sale in a manner that would lead the buyer to reasonably believe that a sale had been consummated.
o Apply Test:
§ Agency Relationship between salesperson and D?
· Yesà Employee/ Employer
· No actual authority because employee should have known he didn’t have the authority to K.
· But there is Apparent Authority because 3rd Party buyer reasonably relied on the salesperson.
Watteau v. Fenwickà Hotel-pub K limitations
o Fenwick (D) had authorized Humble as a purchasing agent, but only for bottled ales and mineral waters. Humble used to be the owner (and his name was still on the bar) but was now an employee of D. Humble agreed to purchase cigars and other items from Plaintiff.
o Agency relationship existed (Employee). BUT, here, there was no Actual Authority (Humble was specifically told the limitations of his purchasing power) nor was there Apparent Authority [Plaintiff didn’t even know Principal existed (they assumed Humble owned the bar) and if a third party doesn’t know there is a principal, the third party cannot reasonably trace their belief back to the manifestation of the Agency relationship.]
o Rule: Introduction of a 3rd Category of LiabilityàAn undisclosed principal can be held liable for the actions of an agent who is acting with an authority that is reasonable for a person in the agent’s position regardless of whether the agent has the actual authority to do so.
o In undisclosed principal cases, the principal is liable for all the acts…which are within the authority usually confided to an agent of that character.
§ An employee responsible for purchasing would be held liable here.
§ Note (on the other side): A third party may be bound to the undisclosed principal when there is no affirmative misrepresentation.