Marina Lao – Business Associations Fall 2011 –Seton Hall Law
BA OUTLINE
CHAPTER 1: AGENCY
I. Who is an agent
a. How to decide who is an agent
i. Mutual agreement between P and A that A will act on behalf of P
ii. P controls A
1. Area where there is usually a dispute over when an agency relationship existed
2. Look for day-to-day decisions that relate to operations = who makes the decisions
3. Totality of the circumstances analysis
iii. A is acting in the scope of agency
b. Consequences of Agency
i. Vicarious liability
1. Principal is liable for damages inflicted on third persons by A while A is acting for P
2. A’s damages imputed to P; binding on P
3. Direct liability running from P to 3P
ii. Joint liability
c. Restatement 2nd of Agency: § 1
i. 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 subject t his control, and consent by the other to act
1. In a fiduciary relationship there is the assumption that the agent will act on the best behalf of the principal
2. Agent owes fiduciary duty to P
ii. The one for whom action is to be taken is the P
iii. The one who is to act is the A
d. Why liability is imputed to P
i. P picked A, even if A acted in a way P did not think he would act
ii. Spread risk among those who can bear the loss; P should bear loss over innocent V
e. How to defend against agency
i. Argue the wrongdoer was not the agent of P
ii. Put in the K that the would-be P is not responsible for the actions of the would-be A = relationship created is not an agency relationship
iii. Try to negate the elements:
1. No mutual agreement
2. No control
3. The A’s actions were not within the scope of the agency
4. Always a fact-intensive analysis
II. Liability of Principal to Third Parties in the K
a. Scope of employment
i. Another defense available to the P = what the A did was beyond the scope of the agency
ii. Generally applies in tort cases and respondeat superior cases
b. Scope of authority- comes in when the A is negotiating for the P or speaking on behalf of the P; P can give A 5 types of authority to act for him:
i. Actual authority (§ 3.01) – expressly granted authority from P to A; P assents that A take action on P’s behalf
ii. Implied authority (§ 2.02) – A has authority to act in ways that are necessary and or incidental to achieving P’s objectives
iii. Apparent authority (§ 3.03) – P holds another person out as his A; P takes actions that seem to give a 3P the idea that A is the agent of P and has authority to act on P’s behalf; the P’s actions must lead the 3P to reasonably believe that A is the agent of P
iv. Estoppel (§ 2.05) – closely related to apparent authority; P cannot deny that had authority over A when the P intentionally or carelessly causes such belief or had notice of the belief and that the belief might induce others to change their positions; the person did not take reasonable steps to notify them of the facts
v. Ratification (§ 4.02, 4.02, 4.03) – need a clear act on behalf of the P that says that even though the would-be A did not have the authority to take actions on behalf of the P; the P was okay with the actions = binds the P to A’s actions
1. Need more than silent acquiescence
2. Need an affirmance by the P that P approves the deal
3. Need conduct to justify the reasonable assumption that P assented
4. Need more than just that the P benefited from the A’s actions
c. Undisclosed principal (§ 2.06(2))
i. An undisclosed P may not rely on instructions given to his A that qualify or reduce the A’s authority to less than authority a 3P would reasonably believe the A to have under the same circumstances if the P had been disclosed
ii. So: if the P places limits on A’s authority and a 3P would have no way of knowing of those limits, the P will be bound unless he notifies the 3P of the limits
III. Liability of P to 3P in Tort
a. Servant vs. independent contractor
i. When the A commits a tort, most courts change the label of agent to servant (or employee) and principal to master (employer)
ii. Under the doctrine of respondeat superior (vicarious liability), the master is liable for the torts of his servants that are committed in the course of the master’s employment
1. Not authority cases
2. Looking at whether what the servant did was within the scope of his or her employment
b. Franchise and tort liability
i. Franchise: give to a person a turn-key operation, where the franchisee gets the benefit of the product and brand name, and in return the franchisor gets money
ii. Third party injured at a franchise location; P wants to impose liability on the franchisor
1. On one hand, the F wants to control the franchisee (standardize), but on the other hand, the F does not want to have a master-servant relationship with every franchisee because then the F would be sued constantly and held liable
2. There is a tension between maintaining control over the franchise while still insulating against respondeat superior
iii. To what extent is the tort of the franchisee going to be attributable to the F?
1. “If in practical effect, the franchise agreement goes beyond the stage of setting a standard, and allocated to the F the right to exercise control over the daily operations of the franchise, an agency relationship exists”
2. Looking for F having control over the day-to-day daily operations and details = vicarious liability
3. No bright-line rule; case law inconsistent
4. Difficult for F to be liable for what franchisee does
5. Looking for apparent agency – the F holding out the franchisee as being one in the same as the F and the P reasonably believing he was dealing with the F rather than some independent 3P; says to the P: if you can prove that you reasonably believed you were dealing with the F and not the franchisee, then the F has injured you
6. Looking for control
iv. Possible ways to protect the F
1. Put a sign on the door or otherwise prom
iii. Sources of inter se duties
1. Employment K
2. Duty of GF and FD (§8)
3. Statutes, regulations, case law
4. Principles/morals of the marketplace: what is ethical and honest
iv. Components/creation of a fiduciary relationship
1. Superior knowledge
2. Agreement to act on behalf
3. Type of information (usually confidential)
4. Expectation of trust = not an arm’s length transaction
v. Main areas where there are fiduciary relationships/duties
1. Partnerships = duty to one another
2. Corporations = duty to shareholders and corporation itself
3. LLC = duty to other members
vi. Four possible time periods that come into play in defining the fiduciary duties that are owed by the employee at that time:
1. During the agency/employment: what does the employee owe as a component of their fiduciary duty to their employment
a. The agent sometimes can get personal benefits by virtue of their position/relationship; in a fiduciary relationship, using the position for personal gain breaches the duty of loyalty
i. Framework: is the A using the assets of which he has control, the facilities which he enjoys, or the position which he occupies to get a benefit = if yes, then the benefit is earned through a breach in duty and the employee/A cannot keep it
ii. Merely taking an opportunity received through the position is ok; it’s when the benefit is earned solely by virtue of the position that the fiduciary relationship is breached
b. Part of the duty of care is to do an honest day’s work
2. When the employee is planning to leave
a. Should disclose plans to leave
b. Consult with current employer
c. Be professional, fair, and respectful
d. Do not use contact lists from previous employer
3. Post-employment without a restrictive covenant
4. Post-employment with a restrictive covenant
b. Post-employment and restrictive covenants: 2 Parts:
i. Non-compete
1. Post employment duration provision – how long after the employee leaves can the E legitimately restrict him?
2. Geographical provision – what areas is the employee restricted from working in
3. Courts will blue pencil the restrictive covenant
a. Re-write and edit
b. Scale back provisions to what the court thinks is reasonable
4. Non-use of confidential information
a. Issue: what the confidential information is
b. Employers need to make employees sign post-employment restrictive covenants to protect information
