Select Page

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

BUSINESS ASSOCIATIONS CABLE FALL 2016

AGENCY

WHAT’S AT STAKE:

Agency law is about asking when is one party responsible for the actions of another and what rights and obligations do those parties have to one another

One person acting on behalf of another
R.3d §1.01:

Agency is the fiduciary relationship that arises when one person (“principal”) manifests assent to another person (“an agent”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent/ consent to act

When P and A enter an agency relationship, A can act with 3rd parties on behalf of the P, and it creates a legal liability between P & T, even though P did not directly interact with the third party

ELEMENTS (all are necessary):

(1) Manifestation of consent by P to A – so the A can act:

(a) on behalf of the P (this is a low bar- ASK: is it benefiting the P?)
(b) subject to the principal’s control

(2) Agent manifests consent

**** Compensation is not necessary, Need not be in writing, labels/ terminology doesn’t matter, no K required, can be inferred (ie: handing over key, see Doty, Cable agrees with Dissent). Manifest assent happens either orally or through conduct.

Gorton v. Doty

Facts

Doty loaned car to coach and told him only he could drive. He crashed and injured someone

Rule

Doty established CONTROL as a P over the coach as an A, by designating the driver and the specific purpose. She consented with her conversation/ handing the keys and the coach consented by driving. Thus there was an agency relationship

Dissent:

Agency means more than passive permission- it involves request, instruction, or command
P was just doing a favor

Gay Jenson Farms v. Cargill

Facts

Warren purchased grain from farmers (P), doesn’t pay. P argues Warren is an agent of Cargill (searching for deep pockets!) Court finds that Cargill’s dealings with Warren does lead to liability. Not ordinary creditor/debtor relationship- much more control!

Rule

Agency need not arise from a formal contract between the principal and agent and need not be understood as an agency at the time both parties give their consent. Instead, once one party gives its consent to another to permit control over one’s activities, an agency is created and the principal is liable for the agent’s debts

Notes:

The court looked at the relationship and saw these things that tipped the scale in favor of the relationship being an agency:

C gave W business recommendations
C had a right of first refusal
There was a strong paternal guidance
Forms and checks had C’s name on it(this point isn’t always determinative)
In addition, they looked at control overall – it looks like W was an arm of C

Policy considerations:

A contrary decision would deter lenders from lending money if they will be held responsible for all its lendees

How can a P avoid agency liability?

Give up all control
Different legal structure

RESULTING RIGHTS/ RESPONSIBILITIES

A has certain duties and obligations to P
P “….” to A
P is responsible for tortious acts committed by the agent (committed within scope of agency)
A has ability to enter into binding agreements on P’s behalf
A’s knowledge (in the subject matter of the agency) is imputed to the P
****Marriage does NOT automatically give rise to agency relationships!!

HOW A P CAN AVOID AGENCY LIABILITY?

Give up all control
Change legal structure

ATTORNEY’S AS AGENTS?

No, Attorneys can give opinions but can’t make final decisions.Always get client’s approval before transaction

CONTRACT LIABILITY: LIABILITY OF P TO 3RD PARTIES IN A K

:

Need agency relationship AND authority to enter into a K
In K context, we ask: WHO IS BOUND?

We think about what type of authority the agent had.
Types of authority:

Actual authority, apparent, undisclosed Ps, Estoppel, inherent power, ratification

If A acts without authority—- P is not bound

Exceptions: undisclosed P, ratification, and estoppel

A is never bound if A acts within their authority and if the existence and identity of P are disclosed

Only P is bound in this situation

ACTUAL AUTHORITY

R.3d 2.01: Agent can have express or implied permission to enter into a K on behalf of P

Whether spoken, written, or implied through the job nature and/or silence. Actual authority exists when P communicates to A about the activities in which A may engage and undertake.

There is an actual, clearly expressed agency relationship
Look to A’s reasonable belief based on P’s express manifestations and explicit instructions
Ex: Apt owner tells manager to hire gardener.P is bound by K for those services b/c he expressly authorized A to enter into K on P’s behalf

The P did/ said something that a reasonable person would interpret as to enter into a specific contract on their behalf
Looks to A’s reasonable belief and includes acts that are reasonably necessary or incidental to A completing her job.
Ex: P hires A as a manager.Says nothing about hiring a janitor, but if A hires a janitor P is likely bound by that K b/c its necessary/ incidental to P’s authority (it is commonly understood that managers have the authority to hire people).

Mill Street Church v. Hogan

Facts

Church (P) hired Hogan (A) to paint, told A he could hire Petty to help, but A hired Sam (T), as in previous church jobs. T fell from ladder, & worker’s comp only covers T if A had authority to hire T.

Rule

There was actual implied authority to hire same b/c it was (1) it was necessary to hire a second person for this job and (2) H had hired Sam in the past…thus H could have a reasonable belief that he had the authority to hire Sam.

Other Authority?

Express Authority?

Express authority to hire Petty; not to hire Sam

Apparent Authority?

If Sam, in his head believe the Church gave agency to H, then yes.
****TIP: always look for apparent authority even if you’ve found implied

situated to most efficiently reduce the risk of the cost that the A created. It would cost more for the 3rd party to do a lot of due diligence to clarify who had authority
Fairness (undisclosed P gets benefits, so they should bear the burden)
Its apparent agency
Economic efficiency

Watteau v. Fenwick

Facts

Humble (A) sold his bar to Watteau (P), but stayed as manager, kept name on the door, and license, H had no authority to buy supplies, except ales and water, but bought cigars and Bovril. Is W liable to Fenwick (T) for the cigars?

Rule

If a P is going to remain nonexistent then the court is going to bind P to acts of the A that are customarily done by people in A’s job.

Any Authority to buy cigars?

NO express or implied b/c buying cigars was contrary to the express agreement
NO apparent b/c T did not know there was a P and P never did anything to hold Humble out as their A
Undisclosed Principle Authority?— Yes

P can’t reduce authority to less than what T would expect

Authority that is granted after the K has been made.

i.e., situations where an agent enters into an agreement on behalf of the P without any authority.But P likes the K and wants to keep it.
Essentially saying, “My (or purported) agent did not have the right to enter into this K, but I’m glad she did.Accordingly, I’ll affirm the transaction and agree to be bound by the K”

:

Acceptance of the results with:

Intent to ratify and
Full Knowledge of the material circumstances

: Questions to ask:

Did the P manifest his assent to “affirm” the agreement? What types of acts constitute affirmation? (Words or action; ie: P accepting the benefits like the $$$)
What effect do we give affirmation? à Given the situation will the law give effect to that assent?

: R.3d 4.02: both parties are bound to the agreement

Retroactively creates the effect of actual authority

:

P must know at the time of ratification of all the material facts related to the transaction
P cannot partially ratify a transaction— all or nothing
If 3rd party withdraws before P ratifies, the P can no longer ratify
Ratification will be denied when necessary to protect the rights of innocent 3rd parties
R.3d 4.05: Must ratify BEFORE a change in circumstance that would make it inequitable to bind third party

i.e., P owns a building, A sells it to T and the building burns to the ground, P cannot then ratify the K