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Business Associations
St. Louis University School of Law
Wagner, Constance Z.

Business Associations
Spring 2011
A.      Who is an Agent?
(a)     Notes
1)       Definition
(a)      Agency is a fiduciary relationship that 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. (Cargill)
2)       Types of Agency Relationships
(a)      Principal-Agent- Rest 2nd of Agency §1
(i)            Buyer-Supplier- Rest 2nd of Agency, §14K , §14k comment
(b)     Master-Servant- §2,§220
(i)            Respondent Superior-§219
(ii)          Creditor Debtor-§ 14-0,
(c)      Employer and Independent Contractor
(b)     Restatements
1)       Formation of An Agency Relationship (Gorton)
(a)      Rest 2nd of Agency §1.
(i)            Manifestation of consent (assent) by principal
1.        More than mere passive permission, must have request, instruction or command (Dissent in Gorton)
(ii)          That the agent shall act on principal’s behalf and subject to principal’s control
(iii)         Consent (assent) by the agent so to act for the principal.
2)       Agency vs. Creditor-Debtor (Cargill)
(a)      Rest 2nd of Agency, §14-O
(i)            Creditor who assumes control of his debtor’s business…may become a principal…with liability for acts and transactions of debtor in connection with his business.
1.        The point at which a creditor becomes a principal is that at which he assumes de facto control over the conduct of the debtor, whatever the terms of the formal K may w/ his debtor may be.
(ii)          Veto power OK
1.        a security holder that merely exercises a veto power over the debtor  by preventing purchases or sales above a specified amount does not therefore become a principal
a.        Must look to all the circumstances of the case.
3)       Agency vs. Buyer-Supplier (Cargill)
(a)      Rest 2nd of Agency, Section 14K – Comment (factors indicating one is a supplier, not an agent)
(i)            Receives fixed price for property
(ii)          Acts in own name and receives title to property later transferred
(iii)         Has an independent business
a.        Cargill-this factor–>agency
(c)      Cases
1)       Gorton v. Doty (D loans car to coach)
(a)      Rule: An agreement may result in the creation of an agency relationship although parties did not call it an agency and did not intend the legal consequences of the relation to follow.
(b)     No formal K is required to form an agency relationship; all you need is consent/assent.
(c)      Lesson: Principal is in the best position to control the outcome
2)       Gay Jenson Farms v. Cargill-when a creditor becomes a principle
(a)      Rule: A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business.
(i)            Under the Rest approach, it must be shown that the supplier has an independent business b/f it can be concluded that he is not an agent
1.        All portions of Warren’s operation were financed by Cargill and that Warren sold almost all of its market grain to Cargill, thus the relationship which existed b/w the parties was not merely that of buyer and supplier.
B.       Liability of Principal To Third Parties in Contract
(a)     Authority- “Authority to do an act can be created by written or spoken words or other conduct of the principal which reasonably interpreted causes the agent to believe that the principal desires him to act on the principal’s account.”
1)       Restatements
(a)      Authority
(i)            Actual
1.        express
2.        implied
(ii)          Apparent
(iii)         Inherent
1.        look for undisclosed principal  or
2.        unauthorized acts by the agent
(b)     Rest 2nd of Agency, §7 – Authority
1.        Power of Agent to affect legal relations of Principal done in accordance with Principal’s manifestation of consent to the agent.
(c)      Rest 2nd of Agency, §26 – Creation of Authority
1.        Objective manifestation of P
2.        A’s reasonable interpretation of that manifestation
3.        A’s belief that she is authorized to act for P
(d)     Rest 2nd of Agency, §35 – When Incidental Authority is Inferred (Implied authority) (MillStreet)
(i)            Acts which are incidental, usually accompany, or are reasonably necessary to accomplish a transaction
a.        Fills the gaps in express authority
2)       Cases
(a)      Mill Street Church of Christ v. Hogan-actual implied authority-painter
(i)            Rule: Implied authority-actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated.
a.        Apparent authority-not actual authority but is the authority the agent is held out by the principal as possessing. It is a matter of appearances on which third parties come to rely
(b)     Apparent Authority
1)       Restatements
(a)      Rest 2nd of Agency, §§8 & 27 – Apparent Authority; Creation of Apparent Authority
(i)            Objective manifestation from one party (apparent principal)
(ii)          Which reaches a third party
(iii)         Causing the third party to reasonably believe that another party (apparent agent) is authorized  to act for the apparent principal
(b)     Rest 3rd of Agency, §2.03
(i)            3P reasonably believes actor has authority to act on behalf of P and that belief is traceable to P’s manifestations
a.        Agent may bind principal even if outside the scope of actual authority granted.
(c)      Rest 3rd of Agency, §2.03, comment C (trumps restrictions P has privately imposed on agent)
(i)            manifestations can constitute explicit statements that
a.        P makes directly to 3P and
b.       Statements made by others concerning an actor’s authority that reach 3P and are traceable to the P. 
·         Objective manifestation may be written or spoken words or conduct, may also be directly to third party or made to the public generally, by signs, by advertising, by allowing agent to state he is authorized, by continuously employing the agent.
2)       Cases
3)       Lind v. Shenley Industries Inc,-definition of actual/apparent authority-1% commission-breach of K
(a)      Rule: An agent can bind a principal despite lack of authority to do so if it would seem to a reasonable person that the agent possessed such authority.
1.        Absent knowledge on the part of 3rd 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 do.
4)       370 Leasing Corp v. Ampex-negotiations to buy computers-breach of K
(a)      Rule: It is reasonable for 3rd parties to presume that one employed as a salesman has the authority to bind his employer to sell. A salesperson binds his employer to a sale if he agrees to that sale in a manner that would lead the buyer to believe that a sale had been consummated.
(c)      Inherent Agency Power
1)       Restatements
1)       Rest 2nd of Agency, §§8A, 161,194, 195 (summary)
(a)      Principal liable for acts done on his account that usually accompany or are incidental to transactions agent authorized to conduct
(b)     Exists for the protection of persons harmed by or dealing with a servant or other agent
(c)      Covers actions by General Agent or General Manager
1.        §3: General Agent = agent authorized to conduct a series of transactions involving continuity of service
(ii)          Rest 2nd of Agency§ 8A-Inherent Agency Power
1.        Inherent agency power is a term used to indicate the power of an agency which is derived not from authority, apparent or estoppel, but SOLELY from the agency relations and exists for the protection of persons harmed by or dealing w/ a servant of other agent.
(iii)         Rest 2nd of Agency § 161-Unauthorized Acts of General Agent (disclosed or partially disclosed principal)
1.        A general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on his account which usually accompany or are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do them and has no notice that he is not authorized.
(iv)         Rest 2nd of Agency § 194-Acts of General Agents (Undisclosed principal) (Watteau)
1.        A general agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account, if usual or necessary in such transactions, although forbidden by the principal to due them
(v)          Rest 2nd of Agency § 195-Acts of Managers Appearing to be Owner
1.        An undisclosed principal who entrusts an agent w/ the management of his business is subject to liability to 3rd persons w/ whom the agent enters into transactions usual in such businesses and on the principal’s account, although contrary to the directions of the principal
(vi)         Rest 3rd of Agency §2.06-Liability of Undisclosed Principal
1.        reasonable belief by the third party and the authorization of the agent
2.        reasonable belief as to the scope of the agent’s authority and similar circumstances
3.        what is customary for an agent w/ that particular kind of job title
2)       Cases
(a)      Watteu v. Fenwick-undisclosed principle-cigars-what is customary for the agent to do for the principle.
(i)            Rule: When one holds out another as an agent , the agent can bind the principle on matters normally incidental to such agency, even if he was not authorized for that particular type of transaction. (R 194, R 195, R 3rd 2.06).
(b)     Nogales Services Center v. Atlantic Richfield Company  -truckstop-unauthorized action -inherent agency-R 8.
(i)            Rule: a principal can be bound by a general agent based on his position as such, even if he lacks express or apparent authority for the commitment at issue.
(d)     Ratification
1)       Restatements
(a)      Rest 2nd of Agency, Section 82, 83, 91
(i)            Retroactive approval of a previously unauthorized act
(ii)          Affirmance through words, conduct, silence indicating consent

Murphy v. Holiday Inn (Franchisor-Franchisee)-slip and fall
(i)            Rule: If a franchise K so regulates the activities of a franchisee as to vest the franchisor w/ control w/in the definition of agency, a P/A relationship arises even if the parties expressly deny it.
a.        Holding: No agency relationship created. There was some control by Holiday Inn, but the control only related to the system of standardization. Betsey Lynn (independent K) had financial control and control over employee relations.
(b)     Tort Liability and Apparent Agency
1)       Restatements
(a)      Rest 2nd of Agency, §267-Apparent Agency
(i)            One who represents another as his servant or agent
(ii)          Causing a third party to justifiably rely on care or skill of such agent
(iii)         Is liable for harm caused by lack of care or skill of such agent
(b)     Rest 3rd of Agency,§7.08
(i)            principal is subject to vicarious liability by agent in dealing or communicating with 3P on or purportedly on behalf of principal when actions taken by agent with apparent authority constitute the tort or enable the agent to conceal its commission
2)       Cases
(a)      Miller v. McDonald-Big Mac-Ring
(i)            Test: Under R §267,  the crucial issue is whether the principle held the third party out as an agent and whether the P relied on that holding out.
a.        What is compelling in the K, is the potential or legal right to control, not the actual exercise of control
(c)      Scope of Employment
1)       Restatements
(a)      Rest 2nd of Agency, §228(1) – When conduct is within the scope of employment
(i)            Of the kind he is employed to perform
(ii)          Within authorized time and space limits
(iii)         Purpose to serve the master
(iv)         If force intentionally used, use of force not unexpectable by the master
(b)     Rest 2nd of Agency, § 228(2) – not within scope if different in kind from that authorized, far beyond the authorized time or space limits, too little actuated by a purpose to serve the master.
(c)      Rest 2nd of Agency §229. Kind of Conduct Within the Scope of Employment
(i)            To be within the scope of employment, conduct must be of the same general nature as that authorized, or incidental to the conduct authorized.
(ii)          In determining whether or not the conduct, although not authorized, is nevertheless so similar  to or incidental to the conduct authorized as to be within the scope of employment, the following matters of fact are to be considered.
1.         Whether or not the act is commonly done by servants
2.        Time, place & purpose of act
3.        Previous relations/dealings between P & A (Master-Servant)
4.        The extent to which the business of the master is apportioned between different servants
5.        Whether or not the act is outside the enterprise of the master or, if w/in the enterprise, has not been entrusted to servant
6.        whether or not the master has reason to expect that act will be done
7.        the similarity in quality to act authorized
8.        whether or not the instrumentality by which the harm is done has been  furnished by master
9.        the extent of departure from the normal methods of accomplishing an authorized result;
10.     whether or not the act is seriously criminal.
(d)     Restatement 3rd of Agency, §7.07
(i)            Employer vicariously liable for torts of employee acting within scope of employment
(ii)          Scope of employment = performing work assigned by employer or engaging in course of conduct subject to employer’s control
(iii)         Scope of employment ≠ occurring within independent course of conduct not intended by employee to serve any purpose of the employer
2)       Cases
(a)      Ira S. Bushey  & Sons, Inc., v. United States-drunk seaman (forseeability test)
(i)            Holding: Seaman’s conduct was not so unforeseeable as to make it unfair to charge the gov’t w/ the responsibility.
(ii)          Note-Clover v. Snowbird Ski Resort-ct rejects the forseeability test, instead ct looks at how far actions deviated from scope of employment