BUSINESS ASSOCIATIONS OUTLINE
Professor Johnson
Fall 2012
AGENCY
1) WHO IS AN AGENT?
a) We believe there should be legal consequences when one person has control over another
b) Agency is the fiduciary relationship that results from the manifestation of consent that one person (A) shall act on behalf of and subject to the control of another person (P) (RS2- 1)
i) IE It exists where:
(1)P consents that A shall act:
(a) On P’s behalf, AND
(b)Subject to P’s control, AND
(2)A consents to so act
ii) “Manifestation of consent” requirement is the objective
(1)It doesn’t matter what the P truly intended. Rather, it depends on what the A believed the P intended
(2)An agency relationship can arise even where the P subjectively intended no such relationship
(a) EX. Purely contractual relationship can become so strong that it evolves into agency
iii) Case
(1)Gorton v. Doty: P teacher created an agency relationship w/ A coach when she conditioned use of her car for transport of school team to his being the driver. P-T consented to A-c acting on her behalf in driving her car.
(a) On the other hand, is A really driving the car for P’s benefit? No, A drives for benefit of the school in transporting team. There is no real benefit to P.
(i) Policy Reasons: P was the cheapest cost avoider—the best person to prevent the harm/negative externalities
c) COMPARING AGENTS TO OTHERS
i) Existence of agency is a question of fact
(1)It may be proved by circumstantial evidence showing a course of dealing b/w the 2 parties (Gay Jensen v Cargill)
ii) Principals v. Creditors
(1)When a creditor assumes de facto control over his debtor, he becomes a principal. This by itself can establish an agency relationship. (RS2- 14O)
(i) The law treats the debtor as the agent and the creditor s the principal. As a consequence, the creditor becomes liable for the D’s debts to other creditors
(b)EX. Factors Evidencing Agent, not Creditor (Cargill)
(i) P’s constant recommendations
(ii)Need for P’s approval in making business decisions
(iii) P’s right of entry into A’s premises
(iv) P’s power to discontinue financing of A’s operations
(c) Factors Evidencing Creditor, Not Agent
(i) D is to receive fixed price for the property irrespective of price paid by him
(ii)D acts in his own name and receives the title to the property which he will then transfer
(iii) D has an independent business in buying and selling similar property
(2)2 Types of Creditors:
(a) Voluntary Creditor: is a creditor that agrees to extend loan or in some other way expects repayment on terms it has negotiated with the party
(b)Involuntary Creditor: tortfeasors; people owed money as a result of liability
(3)Case: Gay Jenson v. Cargill
(a) It is not essential to the existence of authority that there be a K b/w P and A or that A promise to act as such. An agreement may result in creation of an agency relationship although the parties didn’t intend to call it that (Gay Jensen)
(b)F: Dealer of grain entered K withW in which D loaned money to W and W appointed D its grain agent.
(c) Court found an agency relationship despite D’s insistence on pure contract b/c K had become so strong that it turned into agency relationship.
(i) Court found above factors influential, D continuously interfered in W’s internal affairs to a degree constituting de facto control.
2) Consequences of Creating an Agency Relationship: LIABILITY OF P TO 3RD PARTIES IN A K & A’s LIABILITY
a) After establishing that an agency relationship exists, a 3rd party wanting to hold the P liable must demonstrate the scope of the A’s authority to act for the P. An A has the right to bind the P only to the extent that the P has authorized the A to do so.
b) AGENTS AUTHORITY:
i) These are often argued in the alternative—e.g. X had actual authority, so Y is bound. But even if X didn’t have actual, he had apparent authority, so Y is bound, and even if X didn’t have apparent, he had inherent, so Y is bound.)
ii) Types of Authority
(1)ACTUAL Authority: may be expressly conferred or reasonably implied by custom, usage, or conduct of the P to the A. Such authority can be express or implied
(a) EXPRESS Authority (RS 26): is actual authority containing w/in the agency agreement, expressly granted by the P.
(b)IMPLIED Authority: comes from words (written or spoken) or conduct b/w the P and A causing A to reasonably believe P desires him to act on P’s account – Hogan
(i) Incidental Authority (RS 35) is inferred: Unless otherwise agreed, A’s authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it
(ii)Factors to Consider:
1. Nature of task
2. Whether need to carry out express authority
3. Similar past position
4. Specific past conduct by P
(c) Case: Mill Street Church v. Hogan
(i) P hired A to paint church. A hired S to help, as had in past b/c needed it.
(ii)H:
1. Actual authority circumstantially proven, which the P actually intended the A to posses and includes such powers as are practically necessary to carry out the duties actually delegated.
2. Implied authority from past dealings
(2)APPARENT Authority (27): is the power to affect the legal relations arising from the P’s manifestations to 3rd parties
(a) Results when a:
(i) P manifests/holds out to a 3rd party that an A is authorized to act on P’s behalf,
(ii)Causing TP to reasonably believe that the A has authority,
(iii) And causing TP to reasonably/detrimentally rely on P’s manifestation.
(b)Case: Hogan
(i) S reasonably believed that A had authority to hire him, as he had done in past. P even paid S for short time her worked before accident.
(3) INHERENT Authority (8a): Arises when P designates a kind of A who ordinarily possesses certain authority, but in fact does not possess it
(a) Test: It is based on reasonable foreseeability rationale: test is whether the P could reasonably foresee that A would take the action he did
(i) Why make P liable? B/c it’s a better idea for P business owners to be liable than creating a tremendous burden for TP to investigate and discover secret instructions
(b) It exists solely for the protection of persons harmed by or dealing with the A
(i) This recognizes that it is inevitable that in the course of performing duties, either by mistake, negligence, or misinterpretation of instr
P
(b)To avoid personal liability, the A must:
(i) Disclose that he is acting in a representative capacity, AND
(ii)Disclose the identity of his P
ii) Case
(1) Atlantic Salmon v. Curran involved a partially undisclosed P. Determined it is not the TP’s duty to seek out the identity of the P, it is the A’s duty to fully reveal it. The fact that TPs could have easily determined the name of the P is irrelevant
4) Consequences of Creating an Agency Relationship: LIABILITY OF P TO T IN TORT
a) FRANCHISER-FRANCHISEE is an arrangement where the franchiser supplies the franchisee w/ a brand identification or business identity, and controls the distribution of its goods or services through a K which regulates the activities of the franchisee in order to achieve standardization.
i) Risk of Profit/Loss is on the Franchisee
ii) Control Test: If franchise agreement gives the franchiser too much control over the day-to-day operation of business, an agency relationship arises such that the franchiser may be held liable for the torts of the franchisee
iii) Case
(1) Murphy v. Holiday Inns: slip and fall
(a) Franchisor only had control over the brand, but no control over day-to-day management. Had no power to control maintenance of the premises, prices, or business expenditures, and no share of profits, so therefore, no agency.
b) SERVANT OR INDEPENDENT CONTRACTOR?
i) LAF To determine if P is liable:
(1)Establish whether this is a Master-Servant or Independent Contractor relationship:
(a) Master-Servant is form of agency involves a servant who, under the control of his master, renders some sort of service. The master retains control or right of control over the manner in which the servant performs services.
(i) Often employer-employee.
1. Servant = Employer; Master = Employer
(b)Independent Contractor: is a person who contracts w/ a P to do a certain job or achieve a specific objective BUT the P retains no right of control over the IC as to how the work is performed. The IC determines how to achieve the end goal.
(i) To determine whether M-S or IC, consider the following facts:
1. Extent of control which M may exercise over details of the work
2. Whether employee is in distinct occupation/business
3. Whether this kind of job is usually done by servant or IC within this locality
4. Skill required
5. Who supplies the instrumentalities, tools, and place of work
6. Length of employment
7. Method of payment
8. Whether work is part of regular employer business hours
9. Parties’ intent
10.Whether P is or is not in business
