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Business Associations
University of California, Hastings School of Law
Cable, Abraham J.B.

Abraham Cable for Business Associations Fall 2011

Deep Pockets Cases

Does an Agency Relationship Exist:

R1.01: Manifestation of consent by P to A that A shall act On P’s behalf and Subject to P’s control and A consents to so act. No need for explicit mention of “agency” or a contract between the parties. When a tort has been committed by an alleged agent we have to meet the more stringent control test under respondeat superior, however, when the alleged agent has bind the Principle in a contract with a 3rd party we instead have to meet the more stringent authority test. Rationale: The person in control is in the best position to regulate the agent.

· Doty (football game): Conversation+Keys=Manifestation

o Cargill (Grain): Directed Warren to implement recommendations i.e. reducing inventories, improving collection of account receivables, reduction of specialty grains, terminology did not control.

· Doty: On P’s behalf (benefit?)=Very low bar=Goodwill?

o Cargill: Warren obtained Grain for Cargill-local knowledge. Cargill’s name appeared on checks and forms.

· Doty: Subject to P’s Control=Coach can only drive and only to the game. Driver, Purpose

o Cargill: Micromanaged Warren-controlling salaries, inventories, finances-when to declare dividends, capital expenditures-improvements-where to focus on-“core”, strong paternal guidance; right of first refusal, checks w/ Cargill’s name on it-Control-best in position to regulate agent.

· Garst(coach) drove.

Lender-Creditor: A security holder who merely exercises veto power over the business acts of his debtor by preventing purchases or sales above specified amounts does not thereby become a principal. If he takes over the mgmt. of the debtor’s business and directs what K’s may or may not be made, he b/c a principle. Cargill “Aggressive financing” • “Unique fabric

Buyer-Supplier: One(Warren) who contracts to acquire property from a 3rd person(farmers) and convey it to another(Cargill) is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself. Factors:

o No “independent business” • All financing from Cargill • Almost all business with Cargill

Actual Authority: R2.01 Establishing agent’s authority when liability between P & T is contractual.

· Express Authority (Dutiful agent)R2.02: Looks to the reasonable expectation of A based on the express representation made by P.

o (Mill Street Church): P=you could hire Petty-A=hired someone else-prob not.

o (Nasser): Yes: Based on the rep made to A-“Do what you want or what you understand, he can talk in my name, blindly sign a settlement at their direction.” Don’t have to be exact words.

o (370) Did Kays have the express authority (inter-office memo). Managers testified that sales people did not have authority to get into contracts.

o Watteau: He was specifically told not to sell anything else but ale and mineral waters.

· Implied Authority R2.02: (Dutiful agent/maybe Rogue): Looks to A’s reasonable belief and includes acts that are necessary or incidental to express manifestation.

o (Mill street Church-ladder) “Bill hired his brother in previous church jobs in the past.” Custom, past practice. “Church told Bill he COULD hire Petty” A reasonable person could mean you could hire Sam. NECESSITY-it is more than a one person job-it is the type of job that requires another person. Even paid 30 dollars.

o (Nasser-no competition clause) Long standing relationship of over 20 years where A had settled cases on P’s behalf. Past practices

o Watteau: No, because A was specifically told not to buy the items so no implied.

o 370: Salesman (A) whether he was specifically told-otherwise it may be so.

· Apparent Authority (Rogue Agent): R2.03 Looks to T’s reasonable belief traceable to P’s manifestation. Custom, Past practices. If there is an understanding in the world about your agents power it is your duty to let the world know that his powers are limited. Holding out to the third party.

o Mill street: A had hired T in the past and T was compensated by P.

o Nasser: Holding out to the third party-not all the way there-not holding out to the world but to the 3rd person. Told the husband of T, brothers of T.

o Watteau:(cigars): No, T did not even know that P existed-(undisclosed principal).

o 370: Custom: Sales reps are usually allowed to enter into agreements-company did nothing to dispel that notion.

o Botticello: TIC and Spouses are not customarily seen as having the authority to act for one another.

· Undisclosed Principal(Rogue Agent): R2.6(2) Undisclosed principal can’t rely on instructions to agent that reduce authority to less than a third party would expect if the agent were disclosed. A is liable also. The principal is liable for all the acts which are within the authority usually confided to an agent of that character.

o Watteau: (Name of “A” was on the door and the license was under A’s name-reasonable person would expect that someone working at a beerhouse with his name all over the place would be able to enter into a contract for cigars and Bovril.

· Ratification (Imposter): 4.01, 4.03, 4.05, 4.06: The affirmance of a prior act professed to be done on the person’s account. By acceptance of results with intent to ratify and full knowledge of material facts before the 3rd party withdraws and before material change in the circumstances that would make it inequitable to bind the third party.

o Bottecelli: Did he purport to be the agent?-just by his act-TIC-, wife did not know about the option to buy-did not have knowledge of material facts. Nothing inconsistent with H leasing his half.

o Lady comes home somebody had someone cut her lawn-she walks in ands says thank you-probably not b/c it was already done.

· Estoppel to Deny Existence of Agency Relationship (Imposter): A person cannot deny agency relationship even though there wasn’t one and is subject to liability to a 3rd person who justifiably is induced to make a detrimental change in position if the

o The person intentionally or carelessly caused such belief, or

o Having notice of such belief and that it might induce others to change their positions; the person did not take reasonable steps to notify them of the facts.

§ Hoddeson: furniture store-40-50 min transaction, lady never asked for a receipt.

Liabilities of Principles to 3rd parties in Tort

Vicarious-Respondeat Superior

· Respondeat Superior: R3)2.04 An employer is subject to liability for torts committed by employees while acting within the scope of employment

· Employee: R3)7.07(3): An employee is an agent whose principal controls or has the right to control the manner and means of the agent’s performance of work. Whether the principal controlled the precise part of the business that resulted in plaintiffs injury-Miller v Mcdonalds.

o R2nd 220: Whether EE/IC consider the following factors:

•(a) P may exercise control over details of A’s work

· Humble: Schneider was required to make reports and perform other duties in connection with the operation of said station that may be required of him from time to time by company -Humble. buis hours-too broad

· Sun Oil: Gave recommendations

•(b) A does not engage in distinct business

· Humble: Supplies/ Owns all of stock

· Sun Oil: B may sell other p

persons to carry on as co-owners a business for profit forms a partnership, whether or not the persons intend to form a partnership.

o Co-ownership: Implicates control and management.

o Fenwick: Fenwick had exclusive mgmt rights, she did not share in the losses. Upon dissolution she received nothing.

UPA 202(c): In determining whether a partnership is formed, the following rules apply:

The sharing of gross returns does not by itself establish a partnership/ is it coming out of the expenses or after all the expenses are paid they are getting paid. Does not share in the overall economic picture.

Do they share in both the profits and losses?

Share of the profits of a business is presumed to be a partner in the business, unless the profits were received in pmt:

Of a debt by installments or otherwise;

For svc as an independent contractor, or of wages or other compensation to an employee; etc

Of interest or other charge on a loan, even if the amount of pmt varies with the profits of the business. (Depending on how much money they make they’ll pay back the interest or principal)

UPA 306: All partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law.

Martin v Peyton: Did they have management and control of the business-did they share in the profits and losses and did they make mgmt decisions?

Veto rights-not deciding which transactions they should get into but have the right to veto.

Inspect the books but may not initiate any transaction as a partner may do.

They may not bind the firm by any act of their own.

Peyton gets share of profits but capped-this could go to 202(c)

Fenwick/Southex: Factors to consider:

Then intention of the parties and the agreement itself:

i. Southex-the contract merely stated “agreement” instead of “partnership agmt. Was for a fixed term-not a indefinitely.

ii. Right to share profits-not conclusive

iii. Share in the losses: Fenwick no/SEM paid for all operating costs and indemnify.

iv. Mgmt decisions: SEM responsible for lionshare.

v. Conduct toward 3rd parties: Southex and RIBA’s assoc was never given a name-never filed a partnership tax return.

vi. Property sharing: No tangible property only intangible-clientle-intangible would have to have a clear contractual intent for partnership.

Partnership by Estoppel:

A representation/holding out that one person is a partner of another

The representation came from defendant

Reasonable and good faith reliance on the rep by the plaintiff

A detrimental change in position based on that reliance.

· Young v Jones:

1. Brochure was ambiguous

2. US entity involvement in the brochure unclear

3. No evidence of reliance-letter head?-no b/c they didn’t show past dealings or what they heard-that’s why they relied on it