Business Associations
Fogel Fall 2010
I. Agency
A. Parties
i. Agent
ii. Principal
iii. Third party
B. Creation of agency
a. Actual authority – express (principal – agent)
*“An agency relationship may be created by written words, spoken words, or other conduct of the PRINCIPAL ‘which reasonably interpreted, causes the AGENT to believe the principal desires the agent to act on the principal’s account.’
*Agent does an act principal explicitly told him to do
*Cook v. Polineni
*Secretary was not agent to doctor (could not receive service) as he never authorized her to carry out such an act.
b. Actual Authority – implied (principal – agent)
*Express authority àimplied authority. Implied authority “encompasses the power to act in ways reasonably necessary to accomplish the purpose for which express authority was granted.”
*Restatement § 35 – “Unless otherwise agreed, 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.”
*Implied authority = authority to take a cab to a car dealership when (expressly) authorized to purchase a car.
*Essco Geometric v. Harvard Industries (Foam)
*Purchase manager (PM) agreed to buy foam from P. Boss of PM required that he authorize any purchase over $50. (PM worked for D)
*Court held could be implied authority (to perform his job, it is reasonably necessary for him to make a purchase. The job implies the agency).
*Custom and industry standards à imply that purchase manager had actual authority
c. Apparent Authority (principal – third party)
*Restatement §27 and “Apparent authority is created by the conduct of the PRINCIPAL which causes the third party to reasonably believe that the purported agent has the authority to act for the principal and in good faith rely on the authority held out by the principal.”
*3 methods to establish apparent authority
*expressly – principal outright tells third person that the agent is his agent
*prior acts (of principal)
NOTE: Essco Geometric – apparent authority exists b/c PM had the power to purchase foam before
*position – employee at store such as a fast-food counter worker.
*Ratifiacation
*Rest. §82 – affirmance by a person of a prior act which did not bind him but which was done on his account, where by the act is given effect as if originally authorized by him.
*Affirmance
* Rest. §83 – Affirmance is either (1) election by principal to treat act as authorized or (2) conduct by the principal (which would happen) only if there were such an election.
e.g. Cashing a check for acts of an agentl is the most common form of affirmation.
*Botticello v. Stefanovicz
*Husband agrees to sell land to buyer.
*Wife owns land (in common) with Husband.
*No actual authority as W never told H to act as agent
*No apparent authority as W never talked to Buyer.
*There is no ratification by W of H’s action because H never held himself out as W’s agent.
NOTE: An “agent” must hold himself out as working for principal.
*Inherent Agency power
*Watteau v. Fenwick ( English)
*Agent (Humble – H) sold his bar to D (principal), but still operated the bar. D forbid H from purchasing anything oth
xv. Rest § 126/130/– Apparent authority condition on an event continues until third party has notice of event occurring; apparent authority based on a power of attorney (paper) continues unless third party has notice of termination;
xvi. Irrevocable Agency
* The only time an agency authority is irrevocable is when
(1)the parties agree it is irrevocable and
(2) the agent has an interest of the subject matter of the agency.
*X owns house with mortgage. X loses insurance. Bank can act as X’s agent and purchase insurance, make X pay for it, and X cannot terminate bank’s authority.
*Chamberlain v. Grisham
*P was a real estate agent. P agreed to list and sell D’s hotel. The agency was for one year and if P sold it, P would receive 10%. If D sold it on his own, P would receive 5%. D fired P and then sold the hotel.
*Court held that D was liable for the 5% because the agency agreement was irrevocable for 1 year. P’s opportunity to earn the commission along with the 5% provision and the definite term made the agreement irrevocable.
*Beebe v. Columbia Axle
*Principal hired agent for indefinite period (oral contract) and then Principal terminated agreement.
*Court held that a principal has an almost unlimited right to terminate an agency agreement.
*Exceptions:
