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Business Organizations
University of Dayton School of Law
Huffman, Mary Kate

BUSINESS ORGANIZATIONS –HUFFMAN- SUMMER 2011
 
CHAPTER 1: AGENCY
 
SECTION 1: WHO IS AN AGENT? [Agency exists where one person acts for another]  
Restatement S 1: agency is fiduciary relation which 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
 
Three Forms:
1.      Relation of Principal and Agent
2.      Relation of Master and Servant
3.      Relation of Employer/Proprietor and Independent Contractor
 
Principal & Agent Relationship
 ** Agent has ability/authority to bind the principal in K **
 
Three parties:
a.       Principal
b.      Agent
c.       Third party
 
 
Three elements required to show existence of Principal-Agent relationship:
A.      Manifestation by the Principal that the Agent will act for him
a.       Need not be verbal or in writing (actions suffice)
b.       Agent is still acting on Principal’s behalf even if Agent receives benefit out of the deal
c.       A must be acting primarily on behalf of P[don’t focus on who gets paid, focus on actions that are anticipated or contracted] B.      Acceptance by the agent of the undertaking
a.       Need not be verbal or in writing (actions suffice)
C.      An understanding between the parties that the principal will be in control of the undertaking
a.       Requires some level of subservience
·         These elements are generally fact-sensitive, and questions of fact for jury
o   Q of law: determines law applicable to case, judge
o   Q of fact: finder of fact, usually jury, sometimes judge
 
Example: A gets B starbucks without any compensation – A has third party relationship between starbucks; B has relationship with starbucks also
S 14: Principal has right to control the conduct of the Agent
S 15: agency relation exists only if there has been a manifestation by the P to the A that the A may act on his account, and consent by the A so to act
S 20: Capacity of Principal
·         Principal needs capacity, Agent needs not à Agent is under control of Principal, and Agent is not entering into an actual K, but is entering on behalf of P
·         Legally Delegable: If you can legally do something on your own behalf, you can hire an agent to do those things on your behalf (cannot have an agent to legally murder someone or purchase illegal drugs)
o   UNLESS: personal service Ks à must be performed only by person designated (EX: Kanye West is Ked to perform at my party, and only he may perform to complete K) IF identity of person in K is material, only they may fulfill the K
a.       In order to delegate, P must have capacity to do so
b.      In order to act on P’s behalf, A need NOT have capacity to enter into any K
 
Control: setting a price for a product sold to a third-party seller is not exerting control
 
Agent is typically supposed to enter into third-party Ks on behalf of P themselves
 
Whether an A-P relationship exists:
·         Gay Jenson Farms
·         Mill Street Church of Christ
 
Dweck v Nesser: be careful how broad a control you give; did Sch have authority to enter into settlement and thus hold Nasser to the terms of the settlement?
 
 
SECTION 2: LIABILITY OF PRINCIPAL TO THIRD PARTIES IN K
 
A.      THE AGENT’S AUTHORITY
 
Actual Authority: what P actually told A to do; what was clearly told to do; can also be implied (express or implied); Implied authority is a kind of actual authority (what is the scope of your actual authority- what was implied?)
S 26: Authority, general rule (reasonable person test for what agent believes)
 
Apparent Authority:
S 27: Creation of Apparent Authority (what third party reasonably believes; what has P done that indicates to third party that A can act on behalf of P)
 
Lingering Authority: authority that actually no longer exists
How do you end apparent authority: EX employee is fired and continues to pass out business cards stating his authority (previous); originally created by reasonable belief of authority, so you must reasonably let everyone know the employee doesn’t work there anymore
 
Inherent Authority: no actual authority at all
S 8A: Inherent Agency Powers
Fair thing to do would be to find actual authority; catch-all doctrine of fairness to protect an innocent third-party
REVIEW FROM PREVIOUS CLASS:
 
Mutual assent relationship in P-A
Only control over end result à the result, NOT how its done
P-A: bind in K
M-S: can bind in tort
 
Inherent Agency: catch-all fairness doctrine developed by court; applicapble when there is no authority at allà instead designed to lay resposbility on the one who plaed agent in position to do act (unauthoritzed); makes P liable for unauthorized act that P but A into
 
B.      RATIFICATION: no express authority or no actual authority
·         Boticello case (pg 31)
·         When we ratify an act of someone purporting to act on our behalf, we accept the benefit of K
·         Must know material facts surrounding K before you can affirm it
·         Silence can, at times, show affirmance of K; not favored way so it needs to be connected to someone else like prior relationship, industry custom, etc.; must be coupled
·         Once you get benefit of K, cannot wait forever before it automatically ratifies
·         NO partial ratification (S 4.07) à either accept it ALL or NONE of it; cant take all the good stuff and leave all the bad stuff**
·         Occurs when prev unauth act where agent purports to act on behalf of P and the P makes an act in furtherance of the agreement; no actual previous agreement
 
C.      ESTOPPEL: because of your actions/negligence, you have led someone to believe there was authority, and you are denied the ability to allege there is no authority
·         Related to ratification à look at Restatements of ratification
·         Actions of purported P + reasonable belief of third party
 
D.     AGENT’S LIABILTIY ON THE K
·         Fully Disclosed P (S 6.01): once K is formed, A has nothing to do with it and essentially disappears (the P-TP relationship is all that’s left)
·         Partially Disclosed P (S 6.02): A is liable for K when he doesn’t fully disclose P; A should have disclosed P; A has some legal ability to sue P over K; all three parties to K
o   A keeping P secret when they know TP won’t otherwise do business when him: A is bound by K no matter, but TP can get out by alleging fraud (if its material to the issue) à only TP can get out of K
·         Undisclosed P (S 6.03): P has to manifest that A can act on his behalf, so there can n

pace parameter) ex: goes to bank in Oakwood for work then wants to go across the street for lunch at DLM
·         Look at foreseeability of employee’s actions to determine frolick or detour
·         Getting Lost: “you are actuated to serve your master” à if you get lost, you are still serving your master because you did not intentionally frolick
 
H.     INDEPENDENT CONTRACTORS
·         When you have control over the end result only, there may be an independent contractor relationship
·         Some degree of control, but no control over IC’s actual work
·         CASE NOT IN READING: Majestic Realty Assoc’s, Inc. v Toti Contracting Co.
o   Inherently dangerous activity à always liable
·         Microsoft Case:
o   Issue: whether Microsoft workers were ICs or employees
·         IC or EMPLOYEE FACTORS:
o   ICs do not have a fixed place of work
o   Type of skill that lends itself to being an IC: skilled trade person engaged in physical labor
o   Whether master exercises control over the details of work: employer has no control over details of job of IC
o   Whether work done under direction of employer or independently: what is common in the industry
o   Do they supply their own tools of trade?
o   What is the duration of job?
o   Method of payment: paid for job (contract price), paid per hour, weekly salary
o   Whether or not their work is part of the employer’s regular work à is it consistent with the work of the person who hired them (ex: is plumbing a regular part of my work as the employer à no, so he’s likely an IC)
 
There are certain activities that are non-delagable: any duty you have to client that cannot be delegated (doctors, lawyers); if you ask someone else to do non-delagable duty, you are always responsible for those repercussions
Thursday, May 19, 2011
 
TERMINATING AN AGENCY RELATIONSHIP
 
There may be something in the A-P K that withholds the right to terminate the agency relationship
Assuming there is a relationship, they may do several of the following:
·         Both parties can mutually agree to rescind the K
·         Terminate agreement by operation of agreement (two year K ends at the two-year point)
·         Terminate because the agreed-upon task has been performed
·         P can revoke A’s authority (assuming they have authority to do so)
o   If P revokes authority, it is only effective upon P’s notification to A
·         Agent can renounce authority to act on behalf of P
o   A may have right to renounce authority, but may not have contractual right to renounce authority
o   If A renounces their authority, they may no longer enter into Ks on behalf of P