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Business Organizations
UMKC School of Law
Luppino, Anthony (Tony) J.

 
BUSINESS ORGANIZATIONS OUTLINE FALL 2015

I.                   AGENCY LAW CONCEPTS/ISSUES
A.      Introduction
a.       Agency relationships are the glue that holds business together
b.      Governs the relationships b/twn principals, agents & 3rd parties
c.       Define rts & responsibilities of individuals who work for or on behalf of the biz
d.      Most common is employment
B.      Creation
a.       AGENCY: fiduciary relation which results from the manifestation of consent by 1 person to another that the other shall act on his behalf & subject to his control & consent by the other so to act
i.      Manifestation of assent can be verbal or by conduct
ii.      Special duties & trust/loyalty involved
iii.      Often a K, but doesn’t have to be
b.      Co-Agent: have agency relationships w/ the same principal
c.       Dual-Agent: acts on behalf of more than 1 principal w/ regard to same transactions
d.      Can be with a corporation not only humans
i.      Principal or Agent can be artificial entities
e.       No consideration needed
i.      This is a consensual relationship in which 1 person agrees to act for the benefit of & subject to the control of another person
ii.      Does not require intent
iii.      If the defn exists then there is creation of an agency relationship 
iv.      All that is needed is:
1.      Manifestation by the principal that the agent shall act for him
2.      Agent’s acceptance
3.      Understanding of the parties that the principal is to be in control of the undertaking
f.        Agent: the person who is acting for another
g.       Principal: the person for whom the agent is acting
C.      EMPLOYEE/INDEPENDENT CONTRACTOR
a.       Must look at the degree of control over the person in question
b.      Employee
i.      Performs services & is controlled by the employer
ii.      Employee gets W2 from work wagesà must consider taxes for the employer
iii.      Usually only work for one company
iv.      There is substantial control over an employee- important b/c of liability
1.      G/R: if employee commits a tort, then employer is liable- EXCEPTION is if they frolic & detour [do something outside scope of employment] a.       Employer is liable to injured party b/c of respondeat superior
i.      Not true when the act is outside scope of employment
v.      Is there an entity or person telling another what to do & how to do it?
vi.      Master: principal who employs an agent to perform service in his affairs & who controls or has the right to control the physical conduct of the other in the performance of service
vii.      Servant: an agent employed by the master
1.      Employment relationships are master/servant

c.       Independent Contractor
i.      Just hired by employer, not controlled by him
1.     Work for multiple agents
ii.      Person who K’s w/ another to do something for him but who is not controlled by the other nor subject to the others right to control w/ respect to his physical conduct in the performance of the undertakings
iii.      MAY or MAY NOT be an agent
iv.      Principal is not exercising control over their work/not directly supervising
v.      Usually obtain a 1099 w/ reported income
vi.      Not as much control as shown to an employee, can find control in what the contractor was told to do
vii.      Responsible for tort actions
viii.      Principal is NOT usually liable for torts committed by IC’s
1.     EXCEPTIONS:
a.       When some type of fraud or misrepresentation is involved
b.      Non-delegable duties which are abnormally dangerous
c.       Torts authorized by the principal
2.      Always consider VICARIOUS LIABILITY when looking at entities
d.      Employee VS. Independent Contractor
i.      Care a/b the difference b/c of liability
ii.      Tax law—withholdings for employee
iii.      2 Factors:
1.     Degree of Control – supervising, dictating
2.     More Independent – work for other people
D.     CONTRACT LIABILITY FROM THE AGENT RELATIONSHIP
a.       DISCLOSED PRINCIPAL
i.      If, when an agent & a 3P interact, the 3P has notice that the agent is acting for a principal & knows the principal’s identity
ii.      3P knows there is agent-principal relationship & knows principal’s identity
iii.      3P has to know: (1) person dealing is just an agent & (2) who the principal is
1.      Agent is not responsible for liability of the principal
2.      Principal is liable
b.      UNDISCLOSED PRINCIPAL
i.      If, when an agent & a 3P interact, the 3P has no notice that the agent is acting for a principal
ii.      Unknown to the 3P that there is a principal-agent relationship or the principal’s identity
iii.      3P thinks agent is doing it on his own account
1.      Agent is liable for any K he makes
2.      Principal can be liable if he gave agent actual authority
c.       UNIDENTIFIED PRINCIPAL [Partially Disclosed] i.      If, when an agent & a 3P interact, the 3P has notice that the agent is acting for a principal but does not know the principal’s identity
ii.      3P knows of the principal-agent relationship, but the 3P does not know of the principal’s identity (3P knows dealing w/ agent)
iii.      Agent is liable unless he can get the 3P to let him off the hook
E.      AUTHORITY – LIABILITY OF THE PRINCIPAL TO THE 3P
a.       ACTUAL AUTHORITY
i.      Authority b/twn the principal & the agent to act on behalf of the principal—present when the principal’s words or conduct would lead a reasonable person in the AGENT’S POSITION to believe that the agent has authority to act on the principal’s behalf
ii.      If the agent exceeds actual authority & creates a cost or loss for the principal, then the agent is liable for the principal
iii.      Arises from the manifestation of a principal to an agent that the agent has power to deal w/ others as a representative of the principal
iv.      Authority can be:
1.      Expressed: told the agent what to do- oral/written statements
2.      Implied: inferred from past acts
a.       Incidental: authority to do incidental acts that are related to a transaction that is authorized
3.      Inherent: authority arising out of the relationship in general
b.      APPARENT AUTHORITY
i.      Authority recognized b/twn the principal & the 3P that a person has the authority to act as an agent for the principal—an act by that person w/in the scope of that apparent authority binds the principal
ii.      If principal’s words or conduct would lead a reasonable person in 3P’s position to believe the agent or other person has authority to act on principal’s behalf, the agent or other person has apparent authority to bind the principal, even if the act was not authorized by the principal
1.      It is NOT what the agent tells the 3P
iii.      If a 3P relies on the appearance of authority, the 3P may hold the principal liable for the action of the agent
1.      Can exist in the absence of principal-agent relationship
iv.      Arises from the manifestation of a principal to a 3P that another person is authorized to act as an agent for the principal
v.      Ends when it is no longer reasonable to think the agent still has authority, not just when actual authority is revoked
vi.      Hamilton Hauling v. GAF Corp. [bought 26,000 tons of wood chips] 1.      Facts: 3P- Hamilton Hauling; Principal- GAF; Agent- Bajt; Bajt had actual authority to make purchases for less than $25,000/year & deals for less than a year, he could not sign longer than 1 year K’s; Bajt did not have actual authority to K on behalf of GAF
2.      Did the principal do something to signal to the 3P that purchase agent had certain authority?
a.       This case recognizes that apparent authority can be bigger than actual authority
3.      What agent says a/b his authority is irrelevant & immaterial
a.       Statements by agent in isolation mean nothing w/o something from principal to show manifestation of authority
4.      If 3P had known a/b restrictions then then K is void; if they did not know then they would have to show apparent authority
5.      3 WAYS TO HAVE APPARENT AUTHORITY:
a.       Express/Direct statements
i.      Direct communication w/ the 3P
ii.      EX: appointing a person to a position
iii.      By documents or other indicia
b.      Agent’s position

Right to terminate the relationship
1.     Principal & the agent both have power to terminate the relationship, but this doesn’t cut off apparent authority from the prior relationship 
a.       In this case you need to let everyone know that the relationship does not exist
2.     If there is a K obligation then neither may have the right to terminate the K & this may be a breach (may be liable for damages)
L.      AGENCY ISSUES
a.       How is the agency relationship manifested?
i.      Manifestation of consent by 1 person to another that the other shall act on his behalf & subject to his control & consent by the other so to act
b.      How are actual & apparent authority manifested/evidenced?
i.      Actual Authority—principal’s words or conduct would lead a reasonable person in agent’s position to believe agent has authority to act on the principal’s behalf, the agent has actual authority to bind the principal
ii.      Apparent Authority—manifested b/twn the principal & the 3P that another person is authorized to act as an agent for the principal
1.     Exists when a principal creates the impression that broad authority exists in an agent when in fact it does not
c.       How is an agency relationship terminated?
i.      When the objective of the relationship has been achieved, when the principal or the agent dies or other circumstances
ii.      A principal can revoke actual authority or the agent can renounce it
d.      What are the effects of termination?
i.      If the agency relationship is based on K, the decision to terminate actual authority may be a breach of K
e.       What is the scope of the agent’s actual authority?
i.      To deal w/ others as a representative of the principal
f.        What is the effect of an agent’s belief as to the scope of her authority?
i.      An agent who agrees to act in accordance w/ that manifestation has actual authority to so act and his actions w/o more bind the principal 
g.       What is the scope of the agent’s apparent authority?
i.      Scope of authority is whatever the principal’s words or conduct would lead a reasonable person in the 3P’s position to believe that the agent or other person has authority to act on the principal’s behalf
h.      What is the effect of a 3P’s belief as to the scope of an agent’s authority?
i.      If the 3P relies on the appearance of authority, the 3P may hold the principal liable for the action of the agent
i.         When do agent’s acts bind the principal to contractual or other obligations or duties &/or affect the principal’s property rights?
i.      Agent purports to act on the principal’s behalf
ii.      Principal affirmatively treats the agents act as authorized OR  
iii.      Principal engaged in conduct that is justifiable only if the principal treats the agent’s acts as authorized
j.         When can an agent enforce a K entered into on behalf of a principal?
i.      When the principal is disclosed or partially disclosed
ii.      Agent acted w/ authority
iii.      Undisclosed if agent had actual authority
1.      EXCEPTION: fraudulent concealment
M.    DOCTRINE OF ESTOPPEL: applies when the principal has not made any manifestations of authority to the 3P at all
a.       Instead the principal is held responsible under the estoppel doctrine b/c the principal contributed to the 3P’s belief or failed to dispel it
b.      Most often the person estopped will be responsible for the 3P’s erroneous belief as the consequences of a failure to use reasonable care, either to prevent circumstance that foreseeably led to the belief or to correct the belief once on notice for it
c.       Principal is held responsible for the 3P’s belief in the agent’s authority b/c of the principal’s manifestations of authority