Chapter 1. Agency
Section 1. Who Is An Agent?
Definition of Agency – <Gorton v. Doty>
1. [Agency Definition] Agency is the fiduciary relationship 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 one so to act. (Restatement, Agency, § 1)
(1) the manifestation of consent : have to have both agent’s consent and principal’s consent, e.g., consent to condition.
(2) the other shall act on behalf of one.
(3) subject to control : control over the manner of agent, e.g., condition.
(4) It is not essential to the existence of authority that there be a contract between principal and agent or that the agent promise to act as such (Restatement, Agency, §§ 15, 16), nor is it essential to the relationship of principal and agent that they, or either, receive compensation
(5) Agency is a matter of fact. à The burden of proving agency is on the plaintiff [Botticello]
a. Marital status cannot in and of itself prove the agency relationship.
b. Nor does the fact that the defendants owned the land jointly make one the agent for the other
(6) One undertakes to transact some business or manage some affair for another by authority, on account of which the relationship of principal and agent arises.
2. Context matters : the fact of ownership alone, regardless of the presence or absence of the owner in the car at the time of the accident, establishes a prima facie case against the owner for the reason that the presumption arises that the driver is the agent of the owner.
(1) avoid liability in the event of accident.
a. Do not lend your car!!
b. Make a indemnification clause in loan agreement (borrower will reimburse the cost)
c. Make sure your insurance coverage over the car accident driven by third party.
Control – < A. Gay Jenson Farms Co. v. Cargill, Inc.>
1. A security holder does not thereby become a principal. However, if he takes over the management of the debtor’s business either in person or through an agent, and directs what contracts may or may not be made, he becomes a principal, since he assumes de facto control over the conduct of his debtor. Restatement (Second) of Agency §14 O (1958).
a. 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.
2. 9 Factors to determine the control – Agency.
(1) Cargill’s constant recommendations to Warren by telephone;
(2) Cargill’s right of first refusal on grain;
(3) Warren’s inability to enter into mortgages, to purchase stock or to pay dividends without Cargill’s approval;
(4) Cargill’s right of entry onto Warren’s premises to carry on periodic checks and audits;
(5) Cargill’s correspondence and criticism regarding Warren’s finances, officers salaries and inventory;
(6) Cargill’s determination that Warren needed “strong paternal guidance”;
(7) Provision of drafts and forms to Warren upon which Cargill’s name was imprinted;
(8) Financing of all Warren’s purchases of grain and operating expenses; and
(9) Cargill’s power to discontinue the financing of Warren’s operations.
3. Factors indicating that one is a supplier, rather than an agent : (1) That he is to receive a fixed price for the property irrespective of price paid by him. This is the most important. (2) That he acts in his own name and receives the title to the property which he thereafter is to transfer. (3) That he has an independent business in buying and selling similar property.
Summary.
1. Definition of Agency
(1) consent by Principal / by Agency
(2) act on behalf of
(3) control – extent of control
2. Control
(1) Independent contractor : over end result
(2) Employment : over the manner à re. tort based liability
3. Agency rationale – Why agency needed?
(1) labor constraint
(2) expertise constraint
(3) cost consideration
Section 2. Liability of Principal to Third Parties in Contract
A. Authority / B. Apparent Authority / D. Ratification
5 Ways to ascertain Authority
Ø The person alleging agency and resulting authority has the burden of proving that it exists.
1. Actual authority.
a. Authority that the principal, expressly or implicitly, gave the agent. [Lind]
2. Implied authority.
a. Implied from circumstances.
b. Actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated [Mills]
c. In examining whether implied authority exists, it is important to focus upon the agent’s understanding of his authority; present or past conduct of the principal (e.g. the past consent to hire); the nature of the task or job. [Mills]
d. Actual authority given implicitly by a principal to his agent [Lind]
3. Inherent authority.
a. Inherent in agency position – the president (commander-in-chief), professor (teaching)
b. A kind of authority arising solely from the designation by the principal of a kind of agent who ordinarily possesses certain powers [Lind]
c. Inherent authority is used to impose liability on the principal when there is neither (actual) authority nor apparent authority. (p.21)
d. In many cases, the same facts will support a finding of “inherent” or “apparent agency.”
4. Apparent authority.
a. Reasonable reliance by the 3rd party.
b. The authority the agent is held out by the principal as possessing. It is a matter of appearances on which third parties come to rely [Mills]
c. Arises when a principal acts in such a manner as to convey the impression to a third party that an agent has certain powers which he may or may not actually possess [Lind]
d. Arises 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 actual knowledge on the part of third 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]
e. It is reasonable for third party to presume that one employed as salesman has the authority to bind his employer to sell [370].
f. e.g. P instructed A not to hire a janitor, but local custom allows apartment manager to hire janitors. Local custom is relevant factor.
g. The apparency and appearance of authority must be shown to have been created by the manifestations of the alleged principal, and not alone and solely by proof of those of the supposed agent.[Koos Bros]
h. Agent should act on behalf of principal.
5. Ratification.
a. After the act, change no authority to authority
b. The affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account.” Ratification requires “acceptance of the results of the act with an Intent to ratify, and with Full knowledge of all the material circumstances.” [Botticello]
c. If the original transaction was not purported to be done on account of the principal, the fact that the principal receives its proceeds does not make him a party to it. [Botticello]
· 1,2,3 – focus on Principal & Agency relationship
· 4 – focus on the 3rd party
E. Estoppel
Estoppel – <Hoddeson v. Koos Bros.> Store owner’s negligent surveillance may lead to estoppel
1. Element
i. The principal creates appearance of agency in the agent by intentional or negligence conduct.
ii. 3rd party reasonable relied in good faith.
iii. 3rd party changed his/her position – e.g., spend money.
2. In this case : (i) A proprietor of a place of business by his dereliction of duty enables one who is not his agent conspicuously to act as such and ostensibly to transact the proprietor’s business with a patron in the establishment. (ii) The appearances being of such a character leads a person of ordinary prudence and circumspection to believe that the impostor was in truth the proprietor’s agent. à In such circumstances the law will not permit the proprietor defensively to avail himself of the impostor’s lack of authority and thus escape liability for the consequential loss thereby sustained by the customer.
3. Comparison
Apparent authority
Estoppel
On behalf of principal?
Agent should act on behalf of principal.
Agent should not act on behalf of principal.
Effect
It makes the principal a contracting party with the third party with rights and liabilities on both sides.
It only compensates the third party for losses arising from t
ormity of appearance and standards, designed to cause the public to think of every McDonald’s [McDonald]
(5)
Set the hours of operation.
Independently set the station’s hours of operation, pay scale, and working conditions of his employees
No power to hire or fire employees, to set standards for employee skills or productivity, to supervise employee work routine, or to discipline employees for nonfeasance or misfeasance. [Holiday Inn]
(6)
Agreement’ was terminable at the will of the principal.
Pro-fessor
(1) Language of the K (highly relative but not conclusive)
(2) Intent of the parties (inferred from Language of the K; highly relative but not conclusive)
(3) Control : Control over operational cost; or Control over location
(4) Right to terminate
(5) Uniform (it shows who controls them)
(6) Training (train someone who will represent the company)
(1) No obligation
(2) No written K
(3) Overall risk of profit and loss
(4) The key thing to distinguish type of agency: whether to control.
B. Tort Liability and Apparent Authority (Apparent Agency)
Tort liability of the principal in case of apparent agency – <Miller v. McDonalds’ Corp.>
1. [Apparent Agency in Tort Liability] The test is whether the putative(=recognized) principal held the third party out as an agent and whether the plaintiff relied on that holding out.
a. Restatement (Second) of Agency, § 267 : “One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent / is subject to liability to the third person / for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such.”
2. Apparent agency v. Apparent authority
a. Apparent agency creates an agency relationship that does not otherwise exist.
b. Apparent authority expands the authority of an actual agent.
c. In this case, the precise issue is whether 3K was D’s apparent agent, not whether 3K had apparent authority.
C. Scope of Employment
[Scope of Agency] Look to the foreseeability, inherently related to subject matter of agency.
Reasonably foreseeable acts – <Ira Bushey & Sons, Inc. v. U.S.>
1. Conduct of a servant is within the scope of employment if, but only if: … (c) it is actuated(=motivated), at least in part by a purpose to serve the master. § 228(1) of the Restatement of Agency 2d.
a. Employer should be liable for the risks which arise ‘out of and in the course of’ his employment of labor.
b. In this case : It was foreseeable that crew members crossing the drydock might do damage, negligently or even intentionally. It is immaterial that Lane’s precise action was not to be foreseen. At least it was not shown to be due entirely to his personal life.
2. Restatement Factors to be considered in determining whether can act occurred within the scope of employment.
