Â
Business Associations
Professor K. Prempeh
Fall 2012
Agency
Â
      I.     Introduction
A.   Principles of agency
1.     When can an agent bind the principal?
2.     When is the principal liable for the wrongful acts of the agent?
3.     What are the duties and obligations of agents to their principals and vice-versa?
B.    Analysis of agency problems
1.     Is the problem between the agent and the principal?
2.     Does it involve a third-party trying to hold the principal to an agreement based on the agent’s conduct or on an express agreement?
3.     Does it involve a third-party trying to hold a principal liable for the agent’s torts?
C.    Proving agency
1.     Person asserting principal-agent relationship has the burden of proving it.
2.     The formation of an agency relationship depends on the existence of certain factual elements and not on the intent of the parties involved.
D.   Fiduciary relationship
1.     Every agent is a fiduciary and owes a high standard of care to her principal.
   II.     Who is an Agent?
A.   Creation of the Agency Relationship
1.     Agency exists where:
a.      (1) one person (P) consents that another person (A) shall act on P’s behalf and subject to P’s control, and
b.     (2) A so consents to act. Rest. 2d § 1
2.     An agency relationship can arise even if the parties do not intend to be a principal and agent to each other. Likewise, if certain conditions are not met, an agency relationship may not arise even if the parties so intend.
a.      GORTON
                                                                                                       i.           à Loan of car created an agency relationship even though parties did not intend such a relationship,
b.     CARGILL
                                                                                                       i.           Amount of control exercised by creditor relationship went beyond normal debtor-creditor relationship and became a principal-agent relationship.
                                                                                                     ii.           Cargill was an active participant in Warren’s operations, rather than simply a financier
                                                                                                   iii.           Enumerate more actions that principal CAN take; not what they are prohibited from doing in negative covenants
                                                                                                   iv.           Rest. 2d §220 totality of the circumstances
 III.     Liability of Principal to Third Parties in Contract: Authority, Ratification, and Estoppel
A.   Agency can bind principals to third party contract dealings with agents
B.    Agent’s Authority – power of the agent to affect the legal relations of the principal by acts done in accordance with principal’s manifestation of consent to him
4 sources:
1.     Actual Authority – A à T re: P
a.      Express authority – words communicated
                                                                                                       i.           Actual authority expressly granted (in writing or orally) by the principal
b.     Implied authority (MILL STREET CHURCH)
                                                                                                       i.           Incidental to express actual authority – the agent has the implied authority to perform incidental steps/tasks to carry out the expressly delegated duties. Â
1)Â Â Â Â Â That which is reasonable for the agent to believe based on what reasonably flows from the express authority granted from the principal
                                                                                                     ii.           Factors to consider whether agent’s conduct with third-party is binding on the principal:
1)Â Â Â Â Â Implied authority from conduct
2)Â Â Â Â Â Implied authority from custom and usage
3)Â Â Â Â Â Implied authority because of an emergency
                                                                                                   iii.           Did A reasonably belief he had authority based on P’s manifestations? (Looked at from vantage point of Agent)
2.     Apparent authority (370 LEASING) P à T re: A
a.      When a principal manifests to a third-party that would lead a reasonably prudent man to suppose that an agent is authorized to act on the principal’s behalf, and the third-party reasonably relies on the manifestation.
b.     Principal liable for holding A out as its agent in A’s transaction with Third party (looked at from T’s standpoint; reasonableness of T’s belief)
c.      Principal is least coast avoider because had ability to bind and limit A’s authority and make it known to T
3.     Agency by Estoppel (HODDESON) A à T, P does not stop
a.      Principal is estopped from denying liability for unauthorized acts of A based on some tort-like theory of negligence.
b.     A holding himself out to T at P’s agent (P not holding out). P could have prevented A’s holding out, yet negligently failed to do so
                                                                                                       i.           Different from undisclosed principal: T aware that there is a P
c.      The principal is estopped from denying the agent’s authority when:
                                                                                                       i.           (1) the principal negligently or intentionally creates an appearance of authority in the purported agent, and
                                                                                                     ii.           (2) the third-party reasonably and in good faith relies upon such appearance of authority, and
                                                                                                   iii.           (3) the third-party detrimentally changes her position in reliance upon the appearance of authority.
d.     HODDESON – liability for an imposter under agency by estoppel
                                                                                                       i.           à An imposter salesman does not possess sufficient apparent authority to bind the store. However, when a store owner’s negligent surveillance (dereliction of duty) enables someone who is not his agent to pose as such and transact business with customers, then estoppel prevents the store owner using the imposter’s lack of authority to escape liability for the customer’s loss.
4.     Inherent agency power/liability of undisclosed principals – catch all (WATTEAU) A à T, P unknown
a.      P liable if it could have have reasonably foreseen that A would take the action she did
b.     Hinges on T’s reasonableness that persons in A’s position has authority to act as they did based on A’s ordinary course of conduct
c.      Used when neither actual authority/apparent authority/estopped applies, and UNFAIR to leave plaintiff with loss
                                                                                                       i.           Undisclosed principal – principal whose existence is unknown to third party
1)     Rest. 2d §194: liable for acts of agent done on his account for ordinary course of business, even if prohibited by the principal
2)     Rest. 2d § 195: liable to third-parties with whom the agent enters into transactions in the usual course of business even if the agent’s actions are contrary to the principal’s directions.
3)Â Â Â Â Â Principal is the cheapest cost avoider and could have taken steps to prevent the risk of harm to a third-party.
4)Â Â Â Â Â Unlike in Estoppel, T is not even aware that there is a P behind A.
                                                                                                     ii.           Partially Disclosed (unidentified) principal – principal whose existence is known but whose identity is not known
C.    Ratification (another theory that suffices to establish agency)
1.     Makes one an agent after the fact who did
ent contractors
a.      General Rule à Principals not liable to third parties in tort for acts of independent contractors
b.     Principal hires someone to do a certain job or achieve a specific objective. The principal retains no right of control over the independent contractor as to how the work is performed. The independent contractor determines for herself how she will achieve the end goal.
                                                                                                       i.           No respondeat superior
                                                                                                     ii.           MAJESTIC REALTY à Principal only liable if negligent in selecting independent contractor or if the contractor is to perform ultra hazardous acts involving grave risk of danger (constituting nuisance per se)
c.      HOOVER – Hoover was injured when his car caught fire while being filled with gas.
                                                                                                       i.           Barone sold primarily Sun Oil and advertised using the Sunoco name, but he also assumed the risk of profit or loss in his business operation, independently determined his own hours of operation, and determined the pay scale and working conditions of his employees.
                                                                                                     ii.           à Sun Oil had no control over the day-to-day operation of the service station. Sun Oil was not liable.
                                                                                                   iii.           à Facts indicated that Barone was an independent contractor.
                                                                                                   iv.           Barone alone assumed overall risk of loss in his business operation
3.     Recap: in HUMBLE and HOOVER, what are the factors that we need to distinguish a master-servant relationship from a principal-independent contractor relationship?
a.      Is this distinction determined by:
                                                                                                       i.           A totality of the circumstances?
                                                                                                     ii.           The hours of operation?
                                                                                                   iii.           Who has title to the goods?
                                                                                                   iv.           The economic realities of the relationship?
                                                                                                     v.           WHO IS LEASE COST AVOIDER?
b.     DIFFERENCE BETWEEN SERVANT AND INDEPENDENT CONTRACTOR => differing natures and degrees of control exercised by the principal. Principal controls servant in operation of daily tasks; independent contractor operates independently
c.      Instrumentality Test = focus is on location of incident/how incident occurred/who performed control over that activity
C.    Franchise agreements: tort liability and apparent authority
