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

Abraham Cable Business Associations Fall 2012
AGENCY: Basics
P = Principal
A = Agent
T = Third Party
Issue Spotting
Is there an agency relationship between A and P?
Contractual liability?
Tort liability?
AGENCY: Basics
Legal Standard (from Restatement §1)
Agency =
•      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
AGENCY: Basics
•      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
AGENCY: Authority
Categories of Agency Authority
•      Actual Authority
–     Express
–     Implied
•      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
AGENCY: Authority
AGENCY: Authority
•      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.
•      Facts
•      H buys furniture from a nice looking guy at a furniture store
•      Turns out, this “sales person” was imposter
•      I: Is furniture store bound?
•      A:
•      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
•      Either:
•      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)