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Business Associations/Corporations
St. Louis University School of Law
Fogel, Bradley E.S.

Business Associations Outline
I. Introduction
a. First determine which of the following 3 problems is involved
i. Is the problem between the agent and the principal?
ii. Does it involve a 3rd party trying to hold the principal to an agreement based on the agent’s conduct or on an express agreement?
iii. Does it involve a 3rd party trying to hold a principal liable for the agent’s torts?
b. Proving Agency
i. The person asserting that there is a principal-agent relationship has the burden of proving it
ii. Whether an agency relationship has been created is NOT dependent on the intent of the parties
iii. Agency can arise even if parties do not intend to be agent and principal to each other, and may not arise even if the parties so intend if certain conditions are not met
iv. There must be an agreement b/w 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
c. Fiduciary Relationship
i. Every agent is a fiduciary, and owes a high standard of care to her principal; they must avoid conflicts of interest, self-dealing, disloyal acts, etc.
d. Who is an agent?
i. Agency = the fiduciary relationship that results from the manifestation of consent that one (agent) shall act on behalf of/subject to control of another (principal)
ii. “Manifestation of consent” is objective—it does not matter what the principal truly intended, but rather, the agency relationship depends on what the agent believed the principal intended
iii. Thus, an agency relationship can arise even where the principal subjectively intended no such relationship, and the power to bind the principal can arise even absent consent
e. Ways for an actual agency relationship to be formed
i. By agreement
ii. By ratification
1. When the principal accepts the benefits or affirms the conduct of someone purporting to act for the principal, even though no agreement exists
iii. Agency by Estoppel
1. A principal may act in such a way that a 3rd person reasonably believes that someone is the principal’s agent

II. Authority & Liability of Principle in Contract
a. After establishing an agency relationship exists, a 3rd party wanting to hold the principal liable must demonstrate the scope of the agent’s authority to act for the principal
b. Sources of authority
i. Actual authority → may be expressly conferred on the agent, or reasonably implied by custom, usage, or the conduct of the principal to agent
1. Express authority
a. Actual authority contained within agency agreement (principle-agent)
2. Implied authority
a. Comes from the words or conduct b/w agent and principal
3. (Cook v. Polineni) → Agency relationship is created by written/spoken words, or other conduct by the principal, which reasonably interpreted, causes the agent to believe the principal desires him to act
a. Actual authority is about communication b/w principal and agent, it does NOT have to include the 3rd party
4. What is implied actual authority?
a. Those powers incidental and necessary to carry out the express authority (incidental and necessary is context specific)
ii. Apparent authority → results when a principal manifests to a 3rd party that an agent is authorized, and the 3rd party reasonably relies on the manifestation (Esco)
1. The principal expressly tells the 3rd person that the agent has authority
2. The principal by prior acts, grants the agent authority
3. The principal by position can create apparent authority
4. (Esco Geometric v. Harvard) → The custom and the relations of parties can establish implied actual authority. Apparent authority is est. by telling 3rd person that 2nd person has authority, by prior acts, and position
a. For an agent to have actual authority, he must establish that the principal has empowered him (express or implied) to act on the principal’s behalf
b. A reasonable jury could conclude that Harvard created the appearance of authority through a combination of position and prior acts.
c. The industry custom presumed that the purchasing manager possessed the authority to bind the company
d. MO law imposes no duty on a 3rd party to investigate a purported agent’s authority if a “person of ordinary prudence” could reasonably believe that the agent had such authority
e. Apparent authority sometimes goes to whether a reasonable jury could conclude that the principal created the appearance of authority through a combination of position and prior authority
5. Res. of agency → the agent’s representations alone are insufficient to create apparent authority
i. Inherent agency power → 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 protection of persons harmed by or dealing with a servant or other agent
1. Pretty narrow rule, will not come up often
2. (Watteau v. Fenwick) → The principal is liable for all the acts of the agent which are within authority usually confided to an agent of that character
a. The liability of a principal for the acts of his agent, done contrary to his secret instructions, depends upon his holding him out as his agent—that is, upon agent being clothed w/ apparent authority to act for principal
ii. Ratification → A person may affirm or ratify a prior act supposedly done on his behalf by another that was not authorized at the time it was performed
1. Ratification causes the agent’s act to be treated as if the principal had authorized it at the outset
2. Ratification is all or nothing, all is ratified or none is ratified
3. (Botticello v. Stefanovicz) → 3 elements required to show the existence of an agency relationship: manifestation by principal that agent will act for him, acceptance by agent of the undertaking, understanding b/w parties that principal is in control of undertaking
a. Marital status cannot in and of itself prove the agency relationship, nor does fact that D’s owned land jointly make one agent for the other
b. Ratification requires intent and full knowledge
iii. Authority by Es

answerable to the agent for breach
i. Where there is intention of the parties, express or implied, to form a contract of agency for a specific time, the K shall exist for a definite time
ii. Does the agent once fired, still have power?
1. No, where the agent has no interest in the subject matter of the agency, the principal has the power to revoke the agency at any time, at least before performance by the agent
2. The agent cannot insist upon acting for the principal after the principal has withdrawn his confidence and no longer desires agent’s aid
iii. The principal can fire an agent on a definite contract, but that does not mean he is not contractually liable for expenses incurred by the agent acting in his duty
iv. If principal terminates agency even in breach of K, the agent no longer has power to bind him, so the principal would not be liable to the 3rd party if the agreement occurred after the termination…but could be liable to the agent for salary and/or expenses
c. (Beebe v. Columbia Axle) → If it appears that agent, induced by his appointment, has in good faith incurred expense and devoted time/labor in the matter of agency w/o having sufficient opportunity to recoup such, the principal is required to compensate him
i. The agent shall be afforded a reasonable opportunity to avail himself of the primary expenditures and efforts put forth to the end of executing authority conferred to him, and if such opportunity is denied, principal shall compensate
IV. Tort Liability
a. Master-Servant relationship
i. Exists where the servant has agreed:
1. To work on behalf of the master and
2. To be subject to the master’s control or right to control the “physical conduct” of the servant
ii. Respondeat Superior
1. A doctrine which imposes strict, vicarious liability on a principal when:
a. A agent’s tort has caused physical injury to a person or property
b. Tortfeasor agent meets criteria to be considered a “servant” to principal
c. The tortious conduct occurred within servant’s “scope of employment”
i. Actuated, in part, by a purpose to serve the master
2. The ultimate determining factor is whether the principal controls or has the right to control agent’s “physical conduct in performance of agency services”
b. Independent contractors:
i. 2 types
1. Agent → one who has agreed to act on behalf of another, the principal, but not subject to the principal’s control over how the result is accomplished