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

Professor Chaffee Fall 2010
·         Agency is a fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. [Restatement of Agency §1] o   NEED: consent & control
·         In order to create an agency, there must be an agreement, but not necessarily a contract between the parties.
·         Need to look at the actual relationship to see if agency exists (may exist even if the parties didn’t intend to create an agency relationship)
·         Three principal forms:
o   1. Principal and agent;
o   2. Mater and servant; and
o   Employer/proprietor and independent contractor
·         A master-servant relationship exists where the servant has agreed to
o   1. Work on behalf of his master, and
o   To be subject to the master’s control or right to control the “physical conduct” of the servant (that is, the manner in which the job is performed, as opposed to the result alone)
·         An agent-type independent contractor
o   One who has agreed to act on behalf of another, the principal, but not subject to the principal’s control over how the result is accomplished (this is, over the “physical conduct” of the task)
·         An non-agent independent contractor
o   One who operates independently and simply enters into arm’s length transactions with other.
·         Three elements required to show the existence of an agency relationship:
o   1. A manifestation by the principal that the agent will act for him;
o   2. Acceptance by the agent of the undertaking, and
o   3. An understanding between the parties that the principal will be in control of the undertaking.
·         A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business [A Gay Jenson Garrms Co.] ·         The person alleging agency and resulting authority has the burden of proving it exists.
o   May be proved by circumstantial evidence
o   Is a question of fact
o   Must be proven by a fair preponderance of the evidence
·         Marital status cannot in and of itself prove the agency relationship
·         An attorney of record in a pending action who agrees to the settlement of a case is presumed to have lawful authority to make such an agreement. [Dweck v. Nasser] ·         Possible for courts to have different results based on jurisdiction
·         An agent for one instance doesn’t mean they are an agent for all instances.
·         A number of courts have applies the right to control test to a franchise relationship.
o   If the franchise agreement goes beyond the stage of setting standards, and allocates to the franchisor the right to exercise control over the daily operations of the franchise, an agency relationship exists.
o   Under the right to control test, it does not matter whether the principal actually exercises control; what is important is that it has the right to do so.
·         Can have multiple types of authority at the same time.
·         Actual
o   Express
§ Expressly granted authority either orally or in writing.
o   Implied
§ a derivation of actual authority and often means actual authority either:
·         to do what is necessary, usual, and proper to accomplish or perform an agent’s express responsibilities, or
·         To act in a manner in which an agent believes the principal wishes the agent to act based on the agent’s reasonable interpretation of the principal’s manifestation in light of the principal’s objects and other facts known to the agent. [Dweck v. Nasser] § To determine if it exists, it is important to focus on the agent’s understanding of his authority.
·         It must be determined whether the agent reasonably believes because of a present or past conduct of the principal that the principal wishes him to act in a certain way or to have certain authority.
·         The nature of the task or job may be another factor to consider. [Mill Street Church v. Hogan] § Implied authority may be necessary in order to implement the express authority.
·         The existence of prior similar practices is one of the most important factors.
·         Specific conduct by the principal in the past permitting the agent to exercise similar powers is crucial. [Mill Street Church v. Hogan] § This may be proven by evidence of acquiescence of the principal with knowledge of the agent’s acts, and such knowledge and acquiescence may be shown by evidence of the agent’s course of dealing for so long a period of time that acquiescence may be assumed. [Dweck v. Nasser] ·         Apparent
o   Is such power as a principal holds his agent out as possessing or permits him to exercise under such circumstances as to preclude a denial of its existence. [Dweck v. Nasser] o   Is not actual authority but is the authority the agent is held out by the principal as possessing.
o   It is a matter of appearances on which 3rd parties come to rely
o   An agent has apparent authority sufficient to bind the principal when the principal acts in such a manner as would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise.
§ Absent knowledge on the part of 3rd parties to the contrary, an agent has the apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct. [370 Leasing Corp] o   Apparent agency v. apparent authority
§ Apparent agency creates an agency relationship that does not otherwise exist.
§ Apparent Authority expands the authority of the actual agent.
·         Inherent
o   Indicates the power of an

ther the act is commonly performed by servants;
o   4. The extent of departure from normal methods;
o   5. Whether the master would reasonably expect such act would be performed.
·         Determine scope of employment
o   Motive test
§ EE motivated to benefit ER
o   Foreseeability test
o   Detour or Frolic Test
·         Liability will be imposed upon the landowner in spite of the engagement of an independent contractor if the work to be done constitutes a nuisance per se.
·         Liability will be imposed on a landowner who engages an independent contractor to do work which he should recognize as necessarily requiring the creation during its progress of a condition involving a peculiar risk of harm to failing to take those precautions. [Restatement §416] o   Such work may be said to be inherently dangerous (an activity which can be carried on safely only by the exercise of special skill and care, and which involves grave risk of danger to persons or property if negligently done).
o   It is important to distinguish an operation which may be classified as inherently dangerous from one that is ultra-hazardous (necessarily involves serious risk of harm which can’t be eliminated by the use of utmost care and is not a matter of common usage).
§ This distinction is important because liability is absolute where the work is ultra-hazardous.
·         An agent has a duty not to acquire a material benefit from a third party in connection with transactions conducted or other actions taken on behalf of the principal or otherwise through the agent’s own purposes or those of a third party. [Restatement (Third) of Agency §8.02] ·         An agent has a duty not to use property of the principal for the agent’s own purposes or those of a third party. [Restatement (Third) of Agency §8.05] ·         Agent is liable for the amount of profits, etc. he received in breaching his fiduciary duties to the principal.
A former EE may not solicit his former ER’s customers who are not openly engaged in business in advertised locations or whose availability as patrons can’t readily be ascertained but whose trade and patronage have been secured by years of business effort and advertising, and the expenditure of time and money, constituting a part of the good will of a business