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Business Associations/Corporations
University of Connecticut School of Law
Mocsary, George A.

Business Organizations

Mocsary

Spring 2012 Final Outline

AGENCY

Generally

1. What is Agency?

a. Rst 1st of Agency § 1 (1914)- Agency is relationship that result from:

i. (1) The manifestation of consent by P to A that A shall act:

1. (a) on P’s behalf, and

2. (b) subject to P’s control; and

ii. (2) A’s consent to act

b. PAT TRIANGLE*: (1) + (2) = 3

i. (1) Is there agency relationship btw P & A?

ii. (2) A’s dealings with 3rd Party (T)

iii. (3) Creation of legal liability of P to T (& vice-versa)

2. Players:

a. Principal (P): the one for whom action is to be taken

i. Partially Disclosed Principal

1. When T has notice that A is/may be working for a P but has no notice of P’s identity. Rst 2d §4.

ii. Undisclosed Principal

1. When T has no notice that A is working for a P. Rst 2d §4

b. Agent (A): The one who is to act

i. General Agent

1. Authorized to conduct series of transactions involving continuity of service. Rst 2d §3(2).

ii. Special Agent

1. Authorized to Conduct a single or series of transactions not involving continuity of service. Rst 2d §3(2).

c. Third Party (T): The one to whom A brings to bear his authority

3. Elements:

a. Manifestation of consent:

i. Assent manifested through writing, speech or other conduct. Rst 3d §1.03

ii. A 2-step process:

1. Manifestation by the P

2. Consent by the A

a. Assent need not be known by P in order for agency relationship to be established.

i. E.g. A emails consent to P who responds w/ out of office reply – agency has been established.

b. Consent established by objective standard—i.e., law looks to outward manifestations rather than inner, subjective thoughts.

i. Can be evinced either through words OR conduct

ii. Best stated as: would someone in position of purported A have reasonably interpreted consent by P for A to act? And, has purported A done or said something that someone in position of purported P would reasonably believe was consent to so act?

c. Consent is in context of business or interpersonal relationship, not to legal label.

i. Intent to form legal relationship of agency is not required; intent to form the type of relationship that invokes agency is.

4. Control:

a. Establishing reciprocal consent btw P & A requires understanding of control.

i. Entire purpose of agency relationship is that A may carry out will of P.

b. Control need not be total or continuous but P must have the right to control the goal of the relationship at a minimum.

c. Being a residual risk bearer usually establishes control.

d. NOTE: There isn’t a set rule that control is prima facie evidence of agency, but it usually controls. But adding residual risk bearing to the picture makes the case a lot stronger. Remember, also, that control and residual risk bearing are often evidence of/proxies for each other. Control often established by a Totality of the Circumstances Analysis.

5. Formation:

a. Requires no formalities but only the existence of the above elements.

b. Contractual Agency Relationships

i. Parties often make Ks regarding agency relationship

ii. Parties have wide latitude to agree to restrict agency in:

1. Setting term for relationship

2. Limiting P’s right of control over A

iii. Distinguishing contractual relationships from agency

1. All Ks establish some receipt of benefit by 1 party to another BUT agency not established unless all of the elements are present.

6. Ending Agency Relationship:

a. Through his express will, P can revoke OR a can renunciate relationship.

b. Relationship automatically terminates at close of term if agency is for particular time.

c. If manifestations creating agency indicate specific objective, agency relationship ends when that objective is achieved.

7. Forms of Agency:

a. Principal & Agent

i. Involves P & non-servant A

1. Non-Servant Agent: agrees to act on behalf of P but is not subject to P’s control over how task is to be performed.

b. Master & Servant

i. Master: employs A to perform service & controls or has right to control the physical conduct of the other in performing the service. Rst 2d §2(1).

1. I.e., right to perform particular tasks as well as right to control how to perform those tasks.

ii. Servant: agent whose physical conduct is controlled or subject to the right to control by the Master. Rst 2d §2(2).

c. Employer & Independent Contractor

i. Independent Contractor: Person who contracts to do something for another but is not controlled or subject to the right to control by the other w/ respect to his physical conduct in performance of the undertaking. Rst 2d §2(3).

8. Agent Liability on the Contract

a. If P is disclosed, A is not liable on the K.

i. W/ disclosed P, T enters K knowing that A is mere representative of P & that P will be obligor.

b. If P only partially disclosed, A is almost always liable on the K.

i. W/o knowing identity of P, T is presumably relying on trustworthiness & credibility of A, not P.

Who is an Agent?

9. Gorton v. Doty (1)- Teacher Doty loaned her car to Coach Garst to transport students. Garst crash, died, & injured students father sued Doty claiming she was Garst’s Principal. Ct. held for Gorton (Doty liable). Doty moved for mistrial b/c P implied she had insurance à Ct placed burden on party most able to pay for it.

a. Takeaway: (1) Definition of agency; (2) Like all legal standards, courts are willing to manipulate to get favorable outcome.

b. Applying Rst 1st of Agency (above) to this case:

i. (1) Doty offered car to Garst

1. (a) Court was confused here and wasn’t explicit…claimed it was to “enable football team to play” (although Prof think she may have had other purpose.

2. (b) Doty told Garst he was only one allowed to drive her car

ii. (2) Garst drove Doty’s car

10.Debt v. Equity:

a. Debt is fixed claim; right to receive payments at stated amount/time. Idea is debt is fixed & you’re entitled to get debt back before equity holders are entitled to get anything out of business. Equity stake is residual claim on business (Equity stakeholders are residual risk bearers; share of what’s left over after debts have been paid off and in addition, share of business profits so equity-holders are residual risk-bearers.)

b. Ex. You own a house worth $100k; $20k down payment, $80k mortgage.

i. SO this means that Home = $100k, Debt = $80k, Equity = $20k

1. If you sell at this point, you get $20k and Bank gets $80k

ii. Now you make a $10k payment on the loan

1. Home still – $100k, Debt = $70k, Equity = $30k

2. You’ve essentially bought $10k of the debt, turning it into your equity

iii. The house appreciates by $5k

1. Home value = $105k, Debt = $70k, Equity = $35k

2. You own house & took risk by investing in house so your Equity increases

11. Agent v. Supp

AA for statements made by A. (Lind & Ampex cases)

c. Mill Street Church v. Hogan (14)- Church hired Bill to paint building, when Bill needed helper, he had convo w/ church Elder about possibility of hiring another helper, X (although Elder never said he had to hire X). Bill hired brother, Sam fell off broken ladder & broke his left arm. Court states there is no AEA but establishes Authority via AIA & AA:

AIA

AA

“Actual (implied) authority is circumstantially proven” (pp 15)

Not actual authority (pp 15); P, in it’s mind, didn’t actually want A to do whatever A did

P actually intended A to possess authority & includes such powers as are practically necessary to carry out delegated duties (pp 15)

Nonetheless, P holds A out as having authority. In other words, P tricking world into thinking that A has authority; “Matter of appearances on which T comes to rely” (what others see/think) (pp 15)

Key: Signal from P to A that A has authority

Key: Signal received by T

i. Ct established AIA by (1) looking at past dealings btw Church & Bill; & (2) Bill reasonably believed he could hire Sam.

ii. Ct also thinks Bill had AA to hire Sam based on past practices b/c it would be unfair given Sam’s “reasonable perception”.

d. Dweck v. Nasser (16)- Dweck sued business partner Nasser when she realized he invested in competing business. Each party had their own counsel & litigation was stagnant until Shiboleth, Nasser’s long-time attorney & friend, was called in. D told Shiboleth and his other attorney to “get it done” & when Shiboleth settled the case, D denied he had ever given him authority to do so. P- Nasser; A- Shiboleth; T- Dweck.

i. AEA (21)- D said Shiboleth “can talk in my name”, “do what you want or what you understand”, “get it done”.

1. Rst 3d Agency states “P’s manifestation to A…reasonably understood…expresses P’s assent.” Since D & Shiboleth had 20+ year relationship, this seems to be reasonable granting of authority.

2. Although Ct mentioned D agreed 7 times, that doesn’t matter b/c it came after settlement; it is more ‘ratification’ than ‘granting authority’.

ii. AIA- same analysis as AEA

iii. AA- What communication occurred from P to T?

1. When Shiboleth/A acted on behalf of Nasser/P in talking to Dweck/T. P also communicated to other parties (like T’s brother & husband) that he would “blindly sign” whatever A brought him. (NOTE that T would’ve had to have actual knowledge that Shiboleth was A that could act on P’s behalf for this to work; Spouses/siblings/etc…aren’t automatic agents for one another.)