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Business Organizations
University of Dayton School of Law
Chaffee, Eric C.

Business Organizations
Chaffee
Fall 2011
 
 
I. AGENCY
·         the fiduciary relationship that results from the manifestation of consent that one person (the agent) shall act on behalf of and subeject to the control of another person (the principal).
-The person asserting that there is a principal/agent relationship has the burden of proof.
·         An agency relationship can arise even if the parties do not intend to create one
·         There must be an agreement between the parties that the agent will undertake some act on behalf of the principal, with the understanding that the principal is to remain in control of the undertaking.
Gorton v. Doty
ISSUE: was the coach the agent of appellant while driving her car? Yes.
Agency- relation which exists where one person acts for another (3 forms):
·         The relation of principal and agent
·         The relation of master and servant
·         Relation of employer or proprietor and independent contractor
-The principal is responsible for the actions of their agent.
-The relationship of principal and agent must not necessarily involve some matter of business, but only that where one undertakes to transact some business or manage some affair for another by authority and on account of the later the relationship of principal/agent arises.
-Agency depends on circumstantial evidence.  There is defined amount of control that is necessary.
 
-Offers def. of agency (mutual consent agreement where agent and principal agree to act on their behalf).  You do not need some sort of consideration.  There are certain requirements that may require an agency relationship to be in writing but in general you do not need it in writing.  It is a factually sensitive inquiry as to whether there is an agency. 
 
A. Gay Jenson Farms Co. v. Cargill, INC.
·         Cargill is the PrincipalàWarren is the Agent
ISSUE: is Cargill by its course of dealing with Warren, liable as a principal on contracts made by Warren with the P’s? Yes
·         Cargill, by its control and influence over Warren, became a principal with liability for the transactions entered into by its agent Warren
Agency- the fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act on his behalf to his control, and consent by the other to so act.
·         There must be an agreement to create an agency, but not necessarily a contract between the parties.
·         Provided by circumstantial evidence. The principal must be shown to have consented to the agency since one cannot be the agent of another w/o the consent of the latter.
Elements of agency are found here
·         By directing warren to implement its recommendations, Cargill manifested its consent that Warren would be its agent
·         Warren acted on cargill’s behalf procuring grain for Cargill.
·         Cargill interfered with the internal affairs of Warren which constituted control.
·         A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection w/ the business. 
 
-Consent and control, influence is not enough, you need control. It may matter how the parties characterize the relationship.  Focus should be on the substance rather than terms used.  The diff btw lendor and lendee is much narrower.
 
LIABILITY OF PRINCIPAL TO THIRD PARTIES IN CONTRACT
 
Mill Street Church of Christ v. Hogan
Hogan was employed by the church to do some repairs. Hogan hired his brother to help him with the job and his brother fell and broke his arm. Brother filed a claim under workers comp against the church and the church said that the brother was not an employee of the church and that Hogan did not have the authority to hire his brother. The board found that Hogan did have the authority (implied) to hire his brother.
ISSUE: Did Hogan have the authority to hire his brother? Yes.
-He had the authority to believe that he could hire his brother because he had done it in the past.
 
Actual Authority- may be expressly conferred upon the agent or reasonably implied by custom, usage, or the conduct of the principal to the agent.
·         Express- means that actual authority is contained within the agency agreement
·         Implied- comes from the words or conduct between the principal and the agent.
Apparent Authority- when a principal manifests to a third party that an agent is authorized and the third party reasonably relies on the manifestation. (must be made to a third party)!!!!!
 
-explores agency relationship and the result of the relationship.  Looks at the issue of authority and how authority plays into a principal being liable.  Designed to introduce express actual authority, implied authority, apparent authority.
 
Dweck v. Nasser
-Establishes what it is like to have apparent authority.
-The problem is that the discussion of apparent authority is wrong here. They were focusing on the appearance that was given to the agent, and the appearance that you are worried about here is the appearance to the third party.
 
370 v. Ampex Corp.
Mueller appears to the principle for Ampex, Kays is the agent for Mueller, and Joyce is the owner of 370. 
 
-Further explanation of the types of authority that is involved here.  Apparent authority is relevant here in these case.  These types of authority are not mutually exclusive (you can have all 3 at the same time). 
 
-Appearance was given to joyce that Kays was who you should deal with.
 
Watteau v. Fenwick
·         The issue in this case is whether an undisclosed principal is liable for the acts of an agent taken in the ordinary course of business even if the principal did not authorize the agent to act nor held the agent out as his agent? Yes
-few cases where inherent authority is used. Focus is on the fact where the p has but the agent in a situation where liability should be placed on the principle.
 
-Person who is managing the bar who look like the owner because it appears that he operates and owns the bar. Told expressly don’t buy a certain drink, as a result he does not have actual authority.  No apparent authority either.  Created a situation where this person could order things for the bar.
 
Inherent authority- thinking about the representations that the persons position communicates to the third party. Whatever his powers are that are inherent to his position. But for the actions of the owners of bar, he would not have been in this position.
 
Test for agency- principle has to consent as to the agent and agent has to consent to acting for principle. 
·         Principle- sufficient control over a party and ability to control the agents action.
 
Botticello v. Stefanovicz
Husband and wife owned farm land as tenants in common and P and the husband agreed to lease the farm with the option to purchase.  P moved in and made substantial imporvements to the farm and then wanted to exercise his right to purchase and D’s refused to execute the contract because the husband did not have the authority to sell the wife’s interest in farm.
ISSUE: Do the facts and law support a finding that Walter acted as an agent for his wife? No. Did Mary ratify the contract by her subsequent conduct? No.
 
-in figuring out in whether or not someone is bound involving an agent, you have to have some type of authority or ratification which comes after the fact.  Test for ratification on page 33:
·         person must intend to affirm the benefit
·         must have awareness of all the material facts (fairness)
 
Ratification- requires ac

Apparent Agency- the test for this is whether the putative principal held the third party out as an agent and whether the plaintiff relied on that holding out.
·         Everything about the appearance of the restaurant ID it with McDonalds and the common image for all of their restaurants.
·         Ultimately, it can be a way of creating liability where actual agency and actual authority do not exist.  It is its own concept and it is relatively new, and this is still open for debate. This seems to satisfy the following two question:
o   Answering two questions (must satisfy both prongs)
§  is an entity an agent
§  is that agent acting within their scope of employment
·         Seems that it makes a lot of situations where the principal will be liable
 
Ira Bushey Case
·         In thinking about liability in employment relationships, you have to think about what is within the scope of the employment of the employee. Test 1. Motive of the employee (help employer through actions) 2. Foreseeablity test (did employer see the possible conduct of liability). Both tests have shortcomings because they cannot encompass everything.
 
Snow Ski Case
·         3. Differentiates a detour v. frolic test.  Detour still has liability for employer and frolic shows that employer is not liable.
 
Grimsley Case
·         The court adopts an 4. interference test (was the assault in response to some sort of interference with the employee’s duties). Test for scope of employment. Employee responds to something that is interfering with that employee’s official duties.  It is hard to apply. Can be applied both broadly and narrowly.  One of the things you may do is look at what the case law says to figure out the test and the factual circumstances surrounding the case.
 
Conoco Case
·         5. Another test for scope of employment discussed on page 540 (important!!!!). More certainty as to the circumstances for an agency relationships. There is still a lack of certainty because it is not an element test, the factors are just weighed.  Scope of employment is something where courts have a lot of discretion in determining. Having an unlikeable client may also weigh against your clients interest.  Rely on agreement between franchisor and franchisee to figure out if there is an agency relationship. Should focus on the facts of the case.
·         Scope of employment factors:
o   The time, place, purpose of the act
o   The act’s similarity to acts which the employee is authorized to perform
o   Whether the act is commonly performed by employees
o   The extent of the employees departure from normal methods
o   Whether the employer would reasonably expect such acts to be performed.
 
Majestic Reality Case
·         Further discussion of a/p. if it is within the scope of employment, the p will be liable. One way to avoid liability is to hire an independent contractor. It once again is a question of control. The more control the more likely it is that there is a a/p relationship. It is a factually sensitive test again.