*Business Associations*
I. The Law of Agency
a. Introduction
i. Proving Agency
1. Can arise even if the parties do not intend to be agent and principal.
2. There must be an agreement between the parties that the agent will undertake some act on behalf of the principal, with the understanding that the principal is to remain in control of the undertaking.
ii. Fiduciary Relationship
1. Agent owes a high standard of care to the principal. Fiduciaries must avoid conflicts of interest, self dealing, disloyal acts, etc.
b. Creation of the Agency Relationship
i. Creation
1. By agreement
2. By ratification
a. When principal accepts the benefits or otherwise affirms the conduct of someone purporting to act for the principal, even though no actual agency agreement exists.
3. By estoppel
a. A principal may act in such a way that a third person reasonably believes that someone is the principal’s agent—there is reliance.
ii. Agency arising from use of a vehicle
1. Gorton v. Doty [football coach, borrowed car, accident]
a. Agency is the fiduciary relationship 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. Restatement of Agency § 1
i. Doesn’t have to be a contract.
ii. X and Y agree that Y will do something for X subject to X’s control over Y.
b. In this case, D says G can use the car to the game IF G drives it. Purpose + who executes the purpose is what D says to G. There is an agreement but there is no contract.
c. If there is a limitation on the agreement then Garst is subject to D’s control.
i. He could use it if HE drives.
iii. Creditor exercising control over debtor
1. Gay Jenson Farms Co. v. Cargill [grain dealer, contract]
a. Cargill is Warren’s Creditor. Cargill was micro-managing Warren to the extent that they exercised control over their business. By its control and influence over Warren, D became a principal with liability for the transactions entered into by its agent, Warren.
i. Need to find affirmative control not only negative covenants in telling Warren what not to do.
ii. Managing the key operations for example “Cargill’s power to discontinue the financing of Warren’s operations”
iii. “strong paternal guidance”
c. Liability of Principal/Agent to Third Parties in Contract: Sources of Authority of Agents
i. Actual Authority
1. Actual Express Authority
a. Actual authority contained within the agency agreement (expressly granted by the principal)
b. Clear manifestation communicated to the agent giving him the authority to do a particular thing for the principal.
2. Actual Implied Authority
a. Reasonably infer from the nature of the conduct that you have authority to do something.
b. Implied authority comes from the words or conduct between the principal and the agent. It is often labeled to signify how it has arise (1) incidental to express authority (2) implied from conduct (3) implied from custom and usage and (4) implied because of emergency.
c. Implied from past conduct
d. Mill St. Church of Christ v. Hogan
i. ChurchàBill Hogan
1. Express authority to paint the church.
ii. Bill Hogan àSam Hogan
1. To help paint church. P fell from his ladder and broke his arm. Can only get Workers Comp if he is deemed an employee of the church when the accident occurred.
iii. Past course of dealing because Bill had hired Sam before with the knowledge of the church.
iv. It must be determined if the agent reasonably believed that the principal wished him to act in a certain way to have certain authority. Restatement §33. It must be reasonably inferable by the express authority he had.
v. P reasonably believed that Hogan had authority to hire him for this project, as he had done in the past. The church even paid P for the short time that he worked before the accident occurred.
ii. Apparent Authority
1. Results when a principal manifest to a third party that an agent is authorized and the third party reasonably relies on the manifestation. There must be some holding out by the principal that causes a third party to reasonably believe that the agent has authority, and the third party must reasonably rely on the principal’s manifestations.
2. Apparent Authority of a Supervisor
a. Lind v. Schenley Industries
i. No actual authority.
ii. Agent communicates something to the third party [manifestation] making third party believe that Kaufman is an agent of the company. P reasonably believed that Kaufman spoke for the company. Thus, D, the company, can be held accountable for Kaufman’s actions on the principle of apparent authority.
3. Apparent Authority to Accept a Contract
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…Further, absent knowledge on the part of third 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.
iii. Inherent Agency POWER (not authority)
1. Imposes liability on the principal when there is neither authority nor apparent authority. Respondeat Superior.
2. Undisclosed Principal
a. Can be disclosed by
i. Existence of a principal
ii. Identity of a principal
b. Not all inherent agency involves undisclosed principals.
3. General Agent
a. As opposed to a special agent (give authority to do a specific transaction).
b. Continuity of service, in that position of service for an undefined period of time (managers of factories, etc). These are the people who are generally able to impose inherent agency power on their principals.
Type of P
Existence of P
Identity of P
Disclosed
Yes
Yes
theless subject to liability to persons who have changed their positions because of their belief that the transaction was entered into by or for him if
i. He intentionally or carelessly caused such belief or
ii. Knowing of such belief and that others might change their positions because of it, he did not take reasonable steps to notify them of all the facts.
b. Change of position, as the phrase is used in the restatement…indicates payment of money, expenditure of labor, suffering a loss or subjection to legal liability.
2. §2.05—estoppel to deny existence of agency relationship
a. A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person’s account is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person’s account if
i. The person intentionally or carelessly caused such belief or
ii. Having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.
3. When a principal negligently or intentionally causes a third party to believe that his agent has authority to do an act that is actually beyond his authority and the third party detrimentally relies on the principal’s conduct, the principal is estopped from denying the agent’s authority.
4. Estoppel v. Apparent Authority
a. Apparent Authorityàmakes a contracting party with the 3rd party with rights and liabilities on both sides
b. Estoppelàonly compensates 3rd party for losses arising out of reliance; doesn’t create enforcement rights.
5. Store owner’s negligent surveillance may lead to estoppel
a. Hoddeson v. Koos Brothers
i. The proprietor of a place of business has a duty of care for the safety and security of its customers. This duty extends to reasonable care and vigilance to protect the customer from loss occasioned by the deceptions of an imposter salesperson operating on D’s premises.
vi. Agent’s Liability on the contract (depends on the status of his principal)
1. Disclosed Principal
a. An agent who purports to contract for a disclosed principal is not personally liable on the contract.
b. §6.01 Agent For Disclosed Principal
i. When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal,
