Business Associations Outline
Fall 2010
Agency
· Restatement §1: Agency is a fiduciary relationship that results from the mutual manifestation of consent the one person (agent) shall act on behalf of and subject to control of another (principal)
· Agency gives the Agent authority to bind the Principal
· May be created by written words, orally, or other conduct by P which, reasonably interpreted, causes A to believe P desires A so to act on P’s account
Authority of A & Liability of P in K
· Actual authority: P must have empowered A, expressly or implicitly to act on P’s behalf
o Looks at communication between P and A
o Express: P telling A explicitly what to do or knowingly acquiescing to A’s acts
o Implied: Unless otherwise agreed, authority that is incidental or reasonably necessary to carry out express authority
§ Restatement §35: Unless otherwise agreed, authority to conduct a transaction includes authority to do acts which are incidental to it.
§ Reasonably necessary: within context of that authority & that transaction
· Context: custom of industry, relations of parties, conduct of P-A
§ Essco Geometric v. Harvard Industries: suggest that custom and relations of parties establishes parameters of implied actual authority
· Apparent authority: Created by words or conduct of P that causes 3rd party to reasonably believe that purported A has the authority to act for P, and to reasonably and in good faith rely on the authority held out by P.
o Looks at communication between P and 3rd party
o Agent can have apparent authority without having actual authority
o 3 ways to establish:
§ Principal expressly and directly telling 3rd person that A has authority
§ Prior acts: allowing A to carry out prior similar transactions
§ Position: P allows A to occupy a position that traditionally carries a particular kind of authority
o 3rd party has no obligation to investigate A’s authority, but must reasonably believe it.
o Effect: gives A the power to bind P, but not the right to bind P
§ Although P is bound to 3rd party by apparent authority, P can usually hold A liable for breach of duty
· Ratification: P accepts A’s action on his behalf, even though he had not authorized it
o Act is then given the effect as though it was originally authorized
o Restatement §82: affirmance by a person of a prior act which did not bind him but which was done, or professedly done, on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.
o Restatement §83: affirmance may be:
§ Manifestation of election by one on whose account an unauthorized act has been done to treat the act as authorized (oral or written) OR
§ Conduct by him justifiable only if there were such an election (accepting the benefits)
o Requirements:
§ P must know all terms of the deal
§ Original transaction must be done on account of P—3rd party must believe he was dealing with P’s agent
§ P must intend to ratify
· Inherent Agent Power:
o P is liable for all acts of A which are within authority usually confided to A of that character, notwithstanding limitations as between P&A put upon that authority
§ Restatement §8A: indicates the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protections of persons harmed by or dealing with a servant or other agent
o Look at communication between A and 3rd party
o Relatively narrow rule that serves to protect a 3rd party who innocently deals with A, usually not knowing P exists.
o 3rd party must have believed A had this power and in most situations A would have had this power
o Argument of last resort
o Watteau v. Fenwick: 3rd party was unaware of the P, so no apparent authority, and although P put A in charge of managing bar, he expressly forbade him from purchasing items on credit, so no actual authority. Court said P can’t have benefit of secret limitation, still liable to 3rd party through inherent agency power
· Estoppel: prevents unfairness to the 3rd party
o When P has intentionally or negligently caused or allowed a 3rd party to believe that his A has authority to do something he cannot, the 3rd party detrimentally relied on this so it would be unjust to allow P to deny A’s authority
o Requirements:
§ P must do something wrong (i.e. act negligently)
§ 3rd party must reasonably rely on this
§ 3rd party must have changed its position in reliance of this, to its detriment
o Hoddeson v. Koos Bros.: court found P liable for allowing someone to impersonate a salesman in the furniture store and collect money from 3rd party believing he was purchasing furniture from an agent. P had duty to prevent someone from acting as an agent in their store.
Liability of Agent in K
A’s liability depends on classification of P
Disclosed P definitions: Restatement §4
Fully Disclosed P: 3rd party must know agent is acting as agent and know who the P is.
Partially Disclosed P: 3rd party has notice that agent is or may be acting for a P, but has no notice of P’s identity
Undisclosed P: 3rd party has no notice that A is acting for a P
Fully disclosed: Restatement §320
If A making K with 3rd party for a disclosed P, A is not a party to the K, unless otherwise agreed
A is NOT liable
Ways to disclose P:
Give actual notice of P
Giving a biz card as an A for a P
Actual knowledge, or what should be to a reasonable man, is the test
Partially disclosed: Restatement §321
If A makes K for partially disclosed P, A is party to K, unless otherwise agreed
A is liable
Undisclosed P: Restatement §322
If A purports to act on his own account, but is actually make a K on account of an undisclosed P, A is party to K
A is liable
Atlantic Salmon: A has a duty to give 3rd party notice of existence of P; to avoid personal liability, A must disclose that he is acting as an A and the identity of P
Can get around by making other agreements
Ex: 3rd part
azardous)
P negligent in telling IC how to do something, both P and IC can be liable
Scope of Employment for Master-Servant
Bushey test: If employer could foresee the conduct of the employee happening, then employer will be liable for the action if it arises out of the course of employment.
Court here rejects the motive test (for purpose to serve master)
Conduct within scope of employment: Restatement §228
Of the kind he is employed to perform
Within authorized time and space
Actuated by a purpose to serve the master (Bushey rejects, but still in MO)
Force intentionally used by servant against another, it was not unexpected by master
Kind of conduct within scope of employment: Restatement §229
Determining when servant’s conduct, although not authorized, is so similar or incidental to the conduct authorized as to be considered within scope of employment:
Whether act is commonly done by similar servant
Time, place and purpose of act
Relations between master & servant
Whether master has reason to expect that such act will be done—foreseeability (Bushey)
Similarity between act done and act authorized
Frolic and Detour
If conduct was simply a “detour” from duties as an employee, within scope
If conduct was a personal “frolic”, it was outside the scope of employment
Was employer negligent? P can still be liable if negligent
Franchise situations
Conflicting goals:
P wants absolute control over their trademarks and brand BUT
P does not want to be liable for franchisee’s actions.
In the agreement, if franchisor had the right to control the method by which franchisee performed its obligations under the agreement, it was master-servant and an actual agency
When agreement goes beyond stage of setting standards and gives franchisor right to control daily operations
Apparent authority: Manifestation by P that creates a reasonable belief by 3rd party that A may bind P
P does or says something to make it look like A is servant
Letting franchisee use logo in ads or signs guarantees a certain level of quality
Franchisor is liable for failing to ensure that such level of quality was delivered to the 3rd party by way of franchisee
3rd party must show reliance on indications of authority and that reliance was reasonable.
Humble Oil: even if K expressly states independent contractor, if evidence points to master-servant, P is liable for A’s negligence