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Business Associations/Corporations
Temple University School of Law
Wells, Harwell

Corporations – OUTline

I. Agency

A. Creation of Agency Relationship

Agency
arises when:
o (1) “principal” manifests assent to “agent” that agent shall act on principal’s behalf
o AND (2) subject to principal’s control
o AND (3) agent manifests assent or otherwise consents so to act; RST 3 Agency §1.01
Does NOT matter if relationship is actually characterized agency; RST 3 Agency §1.02
o NO contract is required
o NO intent for agency is required
Ex: H&R was taxpayer’s agent where taxpayer retained control over H&R in preparing and filing return; Green v. H&R Block
o Building of trust and actions by H&R to create loan with Mellon shows agency
Ex: H&R was NOT taxpayer’s agent where entering refund anticipation loan was customers’ decision; Basile v. H&R Block
o Agent holds power to alter legal relations between principal and 3d person; Basile citing RST 2 Agency §12
§ Such power did NOT exist (H&R did NOT have power to alter relationship between bank and customer)
o Dissent: agency relationship in filing tax returns AND fiduciary duty is broad enough to compel disclosure of aspects of self interest

B. Agent’s Fiduciary Duties to Principal

Agency
is a fiduciary relationship; RST 3 Agency §1.01
agent has duty:
o to act loyally for principal’s benefit in all matters connected with agency relationship; RST 3 Agency §8.01
§ Breach occurs when employee’s acts are inconsistent with employer’s best interests at time they are on payroll; Food Lion
§ Ex: Tort of breach of duty of loyalty: Food Lion
· 1. when employee competes directly with employer either on her own or as agent of rival company
· 2.when employee misappropriates employer’s profits, property or business opportunities
· 3. when employee breaches employer’s confidences
o NOT to acquire material benefit form 3d party in connection with transaction conducted or other action on behalf of principal; RST 3 Agency §8.02
o NOT to deal with principal as or on behalf of adverse party in transaction connected with agency relationship; RST 3 Agency §8.03
o To refrain from competing with principal and from taking action on behalf of or otherwise assisting principal’s competitors; RST 3 Agency §8.04
§ May take action to prepare for competition following termination of agency relationship; RST 3 Agency §8.04
o NOT to use property of principal for agent’s own purposes or those of 3d party; RST 3 Agency §8,05(1)
o NOT to use or communicate confidential information of principal for agent’s own purposes or those of 3d party; RST 3 Agency §8.05(2)

Principal may consent to act by agent that would otherwise be a breach of duty as above, if:
In obtaining consent, agent
o Acts in good faith; RST 3 Agency §8.06(1)(a)(i)
o Discloses all material facts agent knows or should know; RST 3 Agency §8.06(1)(a)(ii);
AND
o Deals fairly with principal; RST 3 Agency §8.06(1)(a)(iii)
Consent must concerns wither specific act or transaction, or acts reasonably expected to occur in course of agency relationship; RST 3 Agency §8.06(a)(b)

Agent who acts for more than one principal has duty to:
Deal in good faith with each; RST 3 Agency §8.06(2)(a)
Disclose to each:
o Fact that agent acts for other principal; RST 3 Agency §8.06(2)(a)(i)
o All facts agent has reason to know would reasonably affect principal’s judgment; RST 3 Agency §8.06(2)(b)(ii)
Deal fairly with principal; RST 3 Agency §8.06(2)(c)
Ex: reporters (undercover as food handlers for grocery store) breached duty of loyalty to store; Food Lion
o Acted in interest of ABC to detriment of Food Lion

Other duties of agent:
To act with care, competence, and diligence normally exercised by agents in similar circumstances; RST 3 Agency §8.08
o Special skills or knowledge possessed by agent are taken into account in determining whether agent acted with due care and diligence; RST 3 Agency §8.08
To take action only within scope of actual authority; RST 3 Agency §8.09(1)
To comply with lawful instructions received from principal; RST 3 Agency §8.09(2)
To act reasonably and refrain from conduct likely to damage principal’s enterprise; RST 3 Agency §8.10
To provide principal with facts when:
o Agent has reason to know principal would wish to have facts or facts are material to agent’s duties; RST 3 Agency §8.11(1)
AND
o Facts can be provided to principal without violating superior duty owed by agent to another person; RST 3 Agency §8.11(2)

Duties of Principal:
To indemnify agent when:
o In accordance with terms of any contract; RST 3 Agency §8.14(1)
AND (unless otherwise agreed)
o When agent makes a payment
§ Within scope of actual authority; RST 3 Agency §8.14(2)(a)(i)
OR
§ That is beneficial to principal, unless agent acts officioulsy in making payment; RST 3 Agency §8.14(2)(a)(ii)
OR
o When agent suffers a loss fairly should be borne by principal in light of relationship; RST 3 Agency §8.14(b)
To deal with agent fairly and in good faith; RST 3 Agency §8.15
o Includes: providing agent with information about risks of physical harm or pecuniary loss; RST 3 Agency §8.15

C. Principles of Attribution

POLICY: those who gain from other’s actions should be responsible for cost of those actions.

1. Actual Authority

Actual Authority
at time of taking action, the authority agent reasonably believes, in accordance with principal’s manifestation, the principal wishes agent so to act; RST 3 Agency §2.01
created by principal’s manifestation, as reasonably und

stoppel to Deny Existence of Agency
Person who:
o has NOT made manifestation that actor has authority as an agent; RST 3 Agency §2.05
AND
o is NOT otherwise liable as party to transaction purportedly done by actor on person’s account; RST 3 Agency §2.05
o IS subject to liability to a third party who justifiably is induced to make a detrimental change in position because transaction is believed to be on person’s account, if:
§ person intentionally or carelessly caused such belief, RST 3 Agency §2.05(1)
OR
§ having notice of such belief and that it might induce others to change positions, person did NOT take reasonable steps to notify them of facts; RST 3 Agency §2.05(2)
o Ex: company failed to show QVC made an “unambiguous promise,” that company “relied on to its detriment,” and reliance was reasonable and foreseeable by QVC
§ Failed to show a letter from state employee was a promise by QVC
§ Reliance by the company was NOT reasonable considering QVC had said it would be the only one to extend an offer

where state requires agency to be in writing, a 3d party may estop a principal from claiming a lack of such writing when:
o (1) 3d party was induced to make detrimental change in position by reasonable belief that agent has authority to bind principal
o (2) authority to bind is traceable to manifestation made by principal; RST 3 Agency §3.02

two distinctions from apparent authority:
1. estoppel require 3d party to hold principal liable but does NOT give principal any right against 3d party
o resolved by principal ratifying transaction
2. estoppel require 3d party to change position in reliance on principal

Inherent Authority
principal is held liable to extent custom would justify reliance by 3d party
seen in situations where principal has never interacted with 3d party
o very purpose of delegated authority is to avoid constant recourse by 3d persons to principal

Disclosed Principal
when agent acting with actual or apparent authority makes contract on behalf of disclosed principal:
o principal and 3d party are parties to contract; RST 3 Agency §6.01(1)
AND
o Agent is NOT a party to contract unless agent and 3d party agree otherwise; RST 3 Agency §6.01(2)