Business Associations Outline
Fall 2011
I. Agency
A. Who is an Agent?
Restatement Second § 1 Agency: Principle; Agent
(1) Agency is the fiduciary relation, which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.
(2) The one for whom action is to be taken is the principal
(3) The one who is to act is the agent.
Restatement Second § 2 Master; Servant; Independent Contractor
(1) A master is a principal who employs an agent 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 the service.
(2) A servant is an agent employed by a master to perform service in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the master.
(3) An independent contractor is 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 the performance of the undertaking. HE MAY OR MAY NOT BE AN AGENT.
1. Key points:
-A principle is responsible for the acts of his or her agent.
-Agent is subject to control by principle.
-Doesn’t have to be a business transaction. “One undertakes to transact some business or manage some affair for another by authority and on account of the later, the relationship of principal and agent arises.” Gorton v. Doty
-No contract needed (Circumstantial Evidence is sufficient to establish agency relationship).
Gorton v. Doty
Facts: Doty volunteers her car for football game, only Garst is allowed to drive. Garst hits P, P sues Doty saying she’s liable b/c she’s principle.
Issue: is there an agency relationship?
Hold: Ct holds yes.
Rational: Decision doesn’t make much sense b/c she doesn’t really have control. Cheapest cost avoider case. But ct says no K is needed, just has to manage some affair by authority
Conditional language in Ms. Doty’s offer (condition precedent that Garst should drive the car)
Dissent: Statement of condition isn’t sufficient to create an agency relationship
This decision was policy-oriented
Cheapest Cost Avoider Theory: Court will impute liability because otherwise remedy would cost too much to society. Want to ensure owners of cars are responsible.
In Doty- she had insurance so no personal liability would fall upon her
Review questions pg 6.
2. Distinguishing Agency from Other Types of Relationships
Restatement Second § 14O Security Holder becoming Principle
A creditor who assumes control of his debtors business for the benefit of himself or mutual benefit may become liable as principle for the acts of the debtor in connection with the business.
POINT IS WHEN CREDITOR ASSUMES DEFACTO CONTROL.
Advisory notes: if he takes over management of debtors business. The point at which the creditor becomes a principal is that at which he assumes defacto control over the conduct of his debtor whatever the terms of the formal contract with his debtor may be.
Court points to 9 Factors: (By themselves don’t show control, but taken together, the court decided sufficient control)
1. Recommendations
2. First Right of Refusal
3. Inability to enter into mortgages, purchase stock or to pay dividends without Cargill’s approval
4. Cargill’s right of entry for periodic audits
5. Correspondence showing criticism of Warren’s finances
6. Strong Paternal Guidance
7. Cargills name imprinted on drafts/forms
8. Financing of Warrens purchases of grain/operating expenses.
9. Cargill’s power to discontinue the financing of Warrens operations.
Restatement Second § 14K Agent v. Supplier
Factors indicating one is a supplier rather than an agent are:
1) fixed price for property irrespective of price paid by him
2) he acts in his own name and receives title to the property which he thereafter is to transfer.
3) he has an independent business in buying and selling similar property.
Key Points:
Control is the main factor. VERY FACT SENSITIVE. Look to three elements of agency in Restatement §1
A. Gay Jenson Farm Co. v. Cargill, Inc.
Facts: Cargill receives grains and interest. Cargill starts to tell Warren how to run their business and made demands in terms of the lending arrangement.(negative covenants) AKA Rights of First Refusal,- offered grain first and at a better price, Demanded right to look through records, Put names on drafts. List on pg 9
Issue: Did Cargill turn into principle?
Hold: Yes
Rational: Cargill exercised control through its covenants and actions. Some judicial activism..poor farmers, exploitation. Jury trial in rural farm country
3 elements of agency exist- 1) Cargill manifested consent that warrant would be its agent, 2) Warren acted on Cargill’s behalf 3) Cargill’s interference- subject to control
B. Liability of Principal to Third Parties in Contract
PAT triangle 3 parties
Principle liability links to third party..See chart
Agent has power to bind the principal (produce a change in a given legal relation) between the principal and third parties.
The agents conduct is attributed to the principal
1. Agent’s Authority
§ 7 Authority- Authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him.
§ 26 Creation of Authority; General Rule- authority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principals account.
-Objective manifestation by the principal
-Followed by the agent’s reasonable interpretation of that manifestation
-Leads the agent to believe that it is authorized to act for the principal.
A. Actual Aut
om express/ implied authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.
NO ACTUAL AUTHORITY
NO IMPLIED AUTHORITY
Disclosed Principal:
Rest Second 161: a general agent for a partially disclosed/disclosed principal subjects his principal to liability for acts done on his account 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.
Undisclosed principal:
Restatement (Second) of Agency § 194: an undisclosed principle is liable for the acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by principle.
2.06
§ 8- Second Restatement
2nd restatement § 195: Undisclosed principle who entrusts agent with the management of his business is subject to liability to third persons 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.
PRINCIPAL IS LIABLE REGARDLESS OF WHAT AGENT-DOES
IF MANAGER & USUAL COURSE OF BUSINESS.
2nd Rest. 194 –Acts of General Agents:–similar to above, except without management requirement.
Principal is subject to liability if:
USUAL OR NECESSARY, ALTHOUGH FORBIDDEN.
*This resembles the Watteau Ruling
Restatement (Third) of Agency § 2.06 Liability of Undisclosed Principal
1. An undisclosed principle is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
NOTICE REQUIREMENT
2. Undisclosed principle may not rely on instructions given to an agent that qualify or reduce agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed.
Can’t just SAY PRINCIPLE limited authority (amount of authority is what a third party would reasonably believe).
