Abraham Cable Business Associations Fall 2012
P = Principal
A = Agent
T = Third Party
Is there an agency relationship between A and P?
Legal Standard (from Restatement §1)
• 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
• Manifestation of consent by P?
– Contract not required
– Gorton had a conversation w/ Doty
– Gorton gave Doty her keys
• A’s consent?
– Doty drove Gorton’s car
• A acting on P’s behalf?
– Dissent, no
– Majority, yes
• Subject to P’s control?
– Majority held that P manifested control over A b/c P
– Designated the driver
– Designated purpose
• P’s manifestation of consent
– Directed Warren to implement recommendations
– Terminology of agreements didn’t control
• A acting on P’s behalf
– Procured grain for Cargill (think about benefits)
– Cargill’s name appeared on checks and forms
• Subject to P’s control?
– Not ordinary creditor-debtor relationship
• Ex. business improvement recommendations; Right of first refusal, criticisms of finances, salaries and inventory, “Strong paternal guidance,” providing draft forms with (Cargill’s name)
– Not ordinary buyer-supplier relationship
• No “independent business”
• All financing from Cargill
• Almost all business with Cargill
Categories of Agency Authority
• Actual Authority
• Apparent Authority
• Undisclosed principals (Restatement (Third))
– A.k.a. inherent authority (Restatement (Second))
Why Does Authority Matter? Restatement §6.01-6.03
• When A acts with actual or apparent authority, P and T are bound
• For the most part,* P isn’t bound if A acts outside authority
• (A acting within authority is generally not bound, if existence and identity of P are disclosed)
*Undisclosed principal liability, ratification, and estoppel are exceptions
• Did Bill have actual express authority to hire Sam?
– Probably not, b/c express instructions referred to Petty
• Did Bill have actual implied authority to hire Sam?
– Yes based on necessity and past transactions (as interpreted by Bill)
• Did Bill have apparent authority to hire Sam?
– Yes based on past transactions (as interpreted by Sam)
AGENCY: Undisclosed Principals
Undisclosed Principals a.k.a. Watteau-Fenwick Liability
Undisclosed P can't rely on unusually narrow instructions to agent
• Did Humble have actual express authority to order cigars and bovril?
– No, b/c this was contrary to the express agreement with Watteau
• Did Humble have actual implied authority to …?
– No, again, b/c the express agreement was clear
• Did Humble have apparent authority to …?
– No, b/c T here didn’t even know P existed (undisclosed principal)
• C: Watteau must pay for the cigars and bovril
• R: Undisclosed principals are liable to Third Parties for the unauthorized acts of their Agen
inconsistent with H leasing his 1/2
AGENCY: Ratification & Estoppel
Hoddeson v. Koos Bros.
• H buys furniture from a nice looking guy at a furniture store
• Turns out, this “sales person” was imposter
• I: Is furniture store bound?
• No apparent authority:
• Store did not hold out as agent
• No undisclosed principal (Watteau) liability
• No underlying agency relationship
• No Ratification
• Store never accepted the results
• The court’s rule: Alleged P can’t deny agency when reasonable surveillance and supervision would’ve stopped imposter
• Restatement §2.05:
• T detrimentally relies on imposter and
• Alleged P intentionally or carelessly caused belief or
• Alleged P was on notice and didn’t take reasonable steps
Liability of Principals to 3rd Parties in Tort (Vicarious Liability)
• Respondeat Superior: An employer is subject to liability for torts committed by its employees while acting within the scope of their employment (Restatement §2.04)
• Definition of Employee: Agent + principal controls or has right to control manner and means of work (Restatement §7.07(3))
• Scope of Employment: Doesn’t include independent course of conduct not intended to serve employer’s purposes (Restatement § 7.07)