Select Page

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

I.                    AGENCY(1-14)
a.       Agent à a person authorized to act on behalf of another (the principal)
                                                              i.      Where does this fit with corporations: corporations always  have to act through a natural person; they are legal fictions and the corporation itself can’t do anything.
                                                            ii.      Clarification: just because A does something for B doesn’t make A agent of B.
                                                          iii.      Rule: An agent is a FIDUCIARY for the principal
b.      Law of agency developed as part of the common law.
c.       Creation of the Agency Relationship
                                                              i.      R.2d § 1à an agency relationship is a consensual relationship between a principal and an agent. The relationship is created when (1) the principal consents [manifestation] to have the agent act on the principal’s behalf and under the principal’s control; and (2) the agent consents so to act.
                                                            ii.      Note: there is no contract required to form an agency relationship
                                                          iii.      Basile v. H & R Block, Inc. (Pa. 2000) (p. 3) – majority focus on issue of CONTROL; duty to give information
Facts: Loan processed with Block doing calculations; assuming a refund, three options: 1) file; 2) file with DD; 3) file and get refund anticipation loan (agreement with third party)
Procedural Posture: No agency relationship.
Issue: Is there an agency relationship? What was the scope of the agency relationship? Was there breach of fiduciary duty?
Holding: No agency relationship between Block and its customers because in the end the customer has the ultimate control to either sign or not sign. Signature rule. “The pleadings here do not establish an agency relationship. With specific respect to the RALs, there is no showing that appellees intended Block to act on their behalf in securing the RALs. To the contrary, Block offered appellees the opportunity to file their tax returns electronically with the three options set forth above, only one of which involved RALs. “Mere facilitation.” “Simply introducing appellees to a lender willing to provide a loan is not sufficient to create an agency relationship.”
·         Dissent (Nigro): All three elements of agency exist.
·         Dissent (Saylor): to the extent it is a discrete transaction; fiduciary duty comes from agency relationship related to tax returns.
·         3 Elements for Agency in Pennsylvania:
            (1) The manifestation by the principal that the agent shall act for him
            (2) The agent’s acceptance of the undertaking and
            (3) the understanding of the parties that the principal is to be in control of the undertaking.
·         Rule (PA): The BURDEN of establishing an agency relationship is on the party asserting the relationship.
·         Note re fiduciary duty: an agent must act in good faith in furthering and advancing the principal’s interest.
·         Rule: The special relationship arising from an agency agreement, with its concomitant heightened duty, cannot arise from any and all actions, no matter how trivial, arguable undertaken on another’s behalf; the agent MUST be in a position to bind the principal, or alter the principal’s legal relations or its relationships with third parties.
o        R. 2d Agency § 12: “An agent or apparent agent holds a power to alter the legal relations between the principal and third persons and between the principal and himself.”
§         Rule: An agent can bind the principal legally with third parties.
·         Rule: Under the general agency duty of loyalty, there is a duty to give information.
d.      Agent’s Fiduciary Duties to Principal
                                                              i.      The principal’s primary duties are performance of contract obligations, good conduct, noninterference, cooperation, and indemnification under certain circumstances.
                                                            ii.      The agent’s duties include the duty of care, the duty of disclosure, the duty to obey, and the duty to act within the scope of authority, duty of loyalty
1.      Agent’s duty of loyalty à most important; agent must act “solely for the benefit of the principal in all matters connected to [the] agency” (R. 2d § 287)
a.       Includes duty go keep information belonging to the principal confidential, a duty not to compete with the principal in any matter within the scope of the agency relationship, and a duty not to act as an agent for another with interests that conflict with the principal’s interest.
                                                          iii.      Food Lion, Inc. v. Capital Cities/ABC, Inc. (4th Cir. 1999) (p. 10) – breach of agent’s duty of loyalty
Facts: Suing for breach of loyalty and fraud; ABC employees working to expose Food Lion through working there undercover.
Procedural Posture: Breach of duty of loyalty, triggering tort liability.
Issue: Did ABC defendants breach their duty of loyalty to Food Lion by seeking to document for ABC the unsanitary practices?
Holding: “Because Dale and Barnett had the requisite intent to act against the interests of their second employer, Food Lion, for the benefit of their main employer, ABC, they were liable in tort for their disloyalty.”
·         Rule: An employee owes a duty of loyalty to her employer. Every agent owes a duty of loyalty to his/her principal.
§         Employees are disloyal when: their acts “are inconsistent with promoting the best interest of their employer at a time when they were on the payroll.”
·         Three prongs when disloyal conduct of employee is tortious in North and South Carolina:
(1)   When an employee competes directly with her employer, either on her own or as an agent of a rival company/ direct competition
(2)   When the employee misappropriates her employer’s profits, property, or business opportunities
(3)   When the employee breaches her employer’s confidences
§         Note: satisfied by duel employment here
                                                          iv.      Note: An agent’s fiduciary duty of loyalty to her principal ends the day the agency relationship ends.
1.      Rule: Duty of loyalty is a DEFAULT RULE, meaning that it comes into place when the two parties have NOT agreed otherwise.
a.       Compare to MANDATORY Rule, which cannot be contracted around.
                                                            v.      Problem 1-1 – Non-compete agreements
1.      California law will not enforce a post-employment n on-compete agreement
2.      Most other states (e.g., Mass) will
II.                 AGENCY – PRINCIPALS OF ATTRIBUTION (14-49)
a.       Principals of Attribution
                                                              i.      Principals can be held liable for the tortious actions of their agents; can be required to fulfill contracts into which their agents have entered.
                                                            ii.      Comment to R. 3d § 1.01: “The chief justifications for the principal’s accountability for the agent’s acts are the principal’s ability to select and control the agent and terminate the agency relationship, together with the fact that the agent has agreed expressly or implicitly to act on the principal’s behalf.
1.      Control
2.      Benefit
3.      Consent
                                                          iii.      Actual Authority
1.      Created by a manifestation from the principal to the agent that the principal consents to the agent taking actions on the principal’s behalf (R. 3d § 3.01)
a.       Actual authority may exist even though there is no written contract
(a)    Note: certain authority, like selling real estate requires a written contract.
2.      Express Actual Authority – may be conveyed orally or in writing
3.      Implied Actual Authority – the power to do those things necessary to fulfill the agency.
a.       Castillo v. Case Farms of Ohio, Inc. (W.D. Texas 1999) (p. 16) – implied agency; proper, usual and necessary; principals seeking to narrowly construe agent’s actual authority.
Facts:  ATC contracted with Case Farms to recruit/hire people in Texas to go work in Ohio. Case Farms claims that they didn’t employ the workers at all (were hired by ATC). No written agreement with ATC. There existed an express agency agreement, including hiring and recruiting primarily migrating out-of-state workers for farm.
Procedural Posture: Principal held liable.
Issue: Whether superficial differences (such as which company’s name appeared on P’s pay stub) somehow immunize the company that owns and operates the plant from liability.
Holding: “It is found that Case Farms knew that these duties were PROPER, USUAL, AND NECESSARY, in order to recruit and retain a workforce primarily migrating from out of state.” “ATFC defendants were clearly acting as Case Farms’ agents in all of their actions relating to the recruitment and hiring of workers for Case Farms’ chicken processing plant..”
·         Rule re agency: a principal may be held liable for the acts of its purported agent based on an actual agency relationship created by the principal’s express or implied delegation of authority to the agent.
§         A principal is liable for the action of an agent ONLY if those actions are taken in the scope of the agent’s employment.
§         Express actual authorityà exists “where the principal has made it clear to the agent that he [or she] wants the act under scrutiny to be done.”
§         Rule: Giving an agent express authority to undertake a certain act ALSO includes the implied authority to do all things proper, usual, and necessary to exercise that express authority.
·         Test for implied actual authority: Proper, Usual, and Necessary to carry out the express authority
§         We will need to look at their particular situation on a CBC basis.
·         Rule: Principal is liable, whether or not he was aware of the specific actions.
§         Encourages principal to monitor the agent’s actions.
b.      Apparent Authority and Estoppel àrevolves around notion of MANIFESTATION
                                                              i.      Rule: one person may bind another in a transaction with a third person, even in the absence of actual authority, when the third person reasonably believes – based on “manifestations” by the purported principal – that the actor is authorized to act on behalf of the purported principal.
                                                            ii.      Apparent authority may be the basis for liability in TWO SITUATIONS:
1.      Where persons APPEAR to be agents, even though they do not qualify under the definition (apparent agency)
2.      Where agents act BEYOND THE SCOPE of their actual authority.
                                                          iii.      R. 3d § 1.02 – new definition: “A person manifests consent or intention through written or spoken words or other conduct if the person has notice that another will infer such consent or intention from the words or conduct.”
1.      Implication of this new definition – communications from the principal need not be directed to third persons before apparent authority is created.
                                                          iv.      TWO KEY POINTS to Finding Apparent Authority
1.      The manifestations (however defined) must emanate from the principal (or purported principal) and must be RECEIVED (either directly or indirectly) by the th

ent contractor à a fact specific inquiry
a.       The extent of control which, by the agreement, the master may exercise over the details of the work
b.      Whether or not the one employed is engaged in a distinct occupation or business
c.       The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision
d.      The skill required in the particular occupation
e.       Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work
f.       The length of time for which the person is employed
g.       The method of payment, whether by the time or by the job
h.      Whether or not the work is a part of the regular business of the employer
i.        Whether or not the parties believe they are creating the relation of master and servant
j.        Whether the principal is or is not in business.
3.      Where does all of this fit into corporations??? (p. 33) Whether shareholders who control a corporation can be treated as the “principal” of the corporation (“agent”) for purposes of respondeat superior analysis, and therefore made personally liable for torts committed by the corporation’s employees.
                                                            v.      Dias v. Brigham Medical Associates (Mass. 2002) (p. 34) – Institutional liability for doctor malpractice; modern trend to de-emphasize particularized inquiries into control where there is an established employer-employee relationship (an efficiency); evolution of agency law.
Facts: Parents, administrator of estate of their son, claim D, Brigham Medical Associates (BMA) was vicariously liable under the theory of respondeat superior for the alleged medical malpractice of one of its physician faculty members. Alleged negligent care resulted in stillbirth of their son after pregnant wife was in car accident. The doctor was a member of BMA and, as such, had been assigned by BMA and was then responsible for on-call coverage at the hospital.
Procedural Posture: Superior Court granted summary judgment for BMA (claiming P would have to show that BMA/corporation exercised, or had the right to exercise, direction and control over the doctor’s decision). Judgment vacated and remanded.
Issue: Once employment is established, the only remaining issue is whether the doctor was working for BMA at the time of the alleged negligent treatment, i.e., whether his treatment of the P was within the scope of his employment by BMA.
Holding: “Because we conclude that traditional respondeat superior liability applies to the employer of a physician, and that to establish such liability it is not necessary that the employer have the right or ability to control the specific treatment decisions of a physician-employee, we vacate the judgment and remand the case for further proceedings.” “Because BMA admitted that Dr. Schlitzer is its employee, the judge erred in holding that, as a matter of law, BMA could not be held liable for his alleged negligent acts because of BMA’s inability to exert direction and control over his clinical decisions.”
·         Two requirements for respondeat superior: 1) employer-employee relationship; and 2) acting within the scope of employment.
§         The doctrine of respondeat superior evolved to place the burden of liability on the party better able to bear that burden.
·         Factors to consider whether an employee-employer relationship – See R. 2d 220(2) above
·         “Although a corporate entity may not control the precise treatment decisions of physicians, the entity should not be able to escape liability for physician malpractice.”
o        Broadened scope of liabilityà an employer need not CONTROL the details of an employee’s tasks in order to be held liable for the employee’s tortious acts.
o        Rule: Once an employer-employee relationship is established, further analysis of an employer’s right to direct and control is unnecessary for responsibility to be imputed on principal (for respondeat superior/vicarious liability in tort)
§         Establishing employer-employee relationship allows you to short circuit some other forms of analysis.
                                                          vi.      Meyer v. Holley (U.S. 2003) (p. 37) – individuals who own shares of a corporation or are an officer are not personally liable for a corporation’s debts
Facts: Interracial couple prevented from obtaining a house, for racially discriminating reasons. Filed suit against the agent and the corporation for which he worked, THEN ALSO the president and sole shareholder of the corporation. Fair Housing Act claim.