Gerding-COrporations, Fall 2010
Agency
A. Analysis Framework
a. Is the problem btwn the agent and principle?
b. Does it involve a 3rd party trying to hold the principal to an agreement based on the agent’s conduct or on an express agreement?
c. Does it involve a 3rd party trying to hold a principal liable for the agent’s torts?
B. Who is an Agent?
a. Agent: someone acting on behalf of the principal with consent. (Gorton v. Doty-Δ loans her car to coach, “as long as he drives it”)
i. There is no consideration, profit, nor any manifestation (like a K) that is necessary to establish the principal/agent relationship
ii. Every agent is a FIDUCIARY
iii. Gratuitous agents: perform their services w/o gain.
1. Cannot be compelled to perform the duty they have undertaken
2. Principal may nevertheless be liable for torts of gratuitous agents
iv. Principal is under a duty to compensate his agent and cooperate w/ agent and aid her in the performance of her duties
1. Includes: out-of-pocket costs (unless K says different)
b. There must be an agreement btwn the parties that the agent will undertake some act on behalf of the principal, w/ the understanding that the principal is to remain in control of the undertaking.
i. THIS DOES NOT TURN ON INTENT
1. Ex: football coach=agent when he acted on a parent’s behalf by driving her car to/from a football game, and the parent remained in control by expressly conditioning that only the coach was to drive the vehicle (Gorton v. Doty)
c. Creation of Agency Relationship
i. By agreement
ii. By ratification
1. When principal accepts the benefits or otherwise affirms the conduct of someone purporting to act for the principal, even though no actual agency agreement exists
iii. Agency by Estoppel
1. A principal may act in such a way that a 3rd person reasonably believes that someone is the principal’s agent
iv. Agency can depend on how much control the principal is exercising over the agent (Cargill-grain elevator case)
1. Factors:
a. Creditor assuming control of debtor’s business
b. Creditor interfering in the internal affairs of debtor’s business to a degree that constitutes de facto control
i. Limits on capital improvements w/o creditor’s permission
ii. Review and recommendations on operation/expenses
iii. Providing debtor with drafts/forms w/ creditor’s name on them
iv. Maintaining right of entry to debtor’s premises to carry out checks/audits
c. Rst. 2d (p. 11) factors
2. Buyer-supplier rule: it must be shown that a supplier has an independent business before it can be concluded that he is not an agent.
C. Liability of Principal to 3rd Parties in K
a. Agent’s Authority: after establishing that an agency relationship exists, a 3rd party wanting to hold principal liable must demonstrate the scope of the agent’s authority to act for the principal
i. 3 types of authority
1. Actual (express) authority: when you actually tell someone you want them to be your agent
a. Actual authority contained w/in the agency agreement
b. Focuses on the relationship btwn the principal and the agent
2. (Actual) Implied authority: not explicitly stated, but implied by the words or conduct btwn principal and agent.
a. Not quite so clear what the bounds of the power are
b. Often labeled to signify how it has arisen
i. Incidental to express authority
ii. Implied from conduct
iii. Implied from custom/usage
iv. Implied because of emergency
c. Focuses on the relationship btwn the principal and the agent—what powers the agent believes they have
3. Apparent authority: what the 3rd party believes to be the case
a. Focuses on the 3rd party and what he believes based on some sort of manifestation from the principal
b. There must be some holding out by the principal that causes a 3rd party to reasonably believe that the agent has authority, and the 3rd party must reasonably rely on the principal’s manifestations.
4. Inherent Agency Power
a. Thought to be analogous to the doctrine of respondeat superior in torts
b. Arises from the designation by the principal of a kind of agent who ordinarily possesses certain powers.
c. Based on reasonable foreseeability rationale
i. TEST: whether the principal could reasonably foresee that an agent would take the action she did.
ii. Mitigating Liability (principal)
1. Expressly tell the agent what powers they do not have (Dweck v. Nassar-Kid’s International case where they take for-fucking-ever to settle)—this takes care of express and implied authority
a. STICKS
i. Put a clause in employment K that outlines authority
ii. Say who the authorized signator is in the signature box on employment K
b. CARROTS
i. Tell agent they will only get their bonus if they follow a certain rule
1. This helps align the agent’s and principal’s incentives
2. Tell 3rd party about the agent/principal relationship
a. This takes care of apparent authority
iii. Undisclosed Principals (Watteau v. Fenwick-Victoria hotel w/ beerhouse where agent buys shit he’s not supposed to)
1. Rst. 3d §2.06
iv. Overall Q: When can an agent bind the principal in K?
b. Ratification-a person may affirm or ratify a prior act supposedly done on his behalf by another that was not authorized at the time it was performed. Ratification causes the agent’s act to be treated as if the principal had authorized it at the outset. (Botticello v. Stefanovicz-husband and wife selling property and wife doesn’t want to sell for the price her husband does)
i. REQUIRES FULL INTENT AND KNOWLEDGE
ii. EXPRESS:
1. Elements:
a. Act had to be done on principal’s behalf
b. Intent to ratify
c. Principal had to have knowledge of all material consequences
iii. IMPLIED:
1. 3 ways:
a. Accepting benefits (Botticello)
b. Implied through silence
c. Implied through litigation
c. Estoppel
i. When a principal negligently or intentionally causes a 3rd party to believe that his agent has authority to do an act that is actually beyond his authority, and the 3rd party detrimentally relies on the principal’s conduct, the principal is stopped from denying the agent’s authority.
1. DIFFERENT FROM APPARENT AUTHORITY
a. Apparent authority makes the principal a contracting party w/ the 3rd party w/ rights and liabilities on both sides.
b. Estoppel only compensates the 3rd party for losses arising from the 3rd party’s reliance; it creates NO enforcement rights in the principal against the 3rd party.
c. Example: Hoddeson v. Koos Bros.-fake salesman at furniture store
ii. This is always sort of a last ditch to hold principal liable
iii. Normally you have to find a chain of authority (either actual or apparent) that links the principal to the 3rd party.
1. This chain cannot be broken—i.e. the agent cannot make their own authority
2. EXCEPTION: estoppel
d. Agent’s Liability on the K—an agent’s liability on a K depends on the status of his principal
i. Disclosed Principal-an agent who purports to K for a disclosed principal is not personally liable on the K. In such a case, the agent negotiates the K in the name of his principal, and the agent is not a party to the K. The parties’ intent is that the principal be bound.
BRAND
b. To ensure that the individual franchises uphold the brand, the HQ will impose certain standards/quality that each location must observe
c. The locally-owned franchises must enter into a franchise agreement
i. Pay franchise fee, and sometimes a % of sales to HQ in exchange for being able to use the brand
4. The HQ for any of these franchises is selling:
a. A license (pure IP)—allow you to use the McD’s sign and call yourself McD’s
b. Supplies—burgers, fries, sauce, etc.
c. Financing
d. Management training
5. The locally-owned business pays a franchise fee, and sometimes also a % of sales to the HQ
b. Tort Liability and Apparent Agency
i. Franchisor liability (Miller v. McDonald’s Corp.-∏ seeking damages from McD’s bc there was a sapphire in her Big Mac at a McD’s franchise)
1. Justifiable, detrimental reliance on the part of the 3rd party
2. Representation as the agent
3. Key here is centrally imposed uniformity
a. No requirement that a ∏ would have to show that she knew that the Corp owned both the particular injuring franchise as well as all other franchises she had visited, and that she went to that franchise for that reason.
ii. How to limit liability for the principal
1. Make sure corp doesn’t take any profits from the franchise
2. Put proprietor’s name in the franchise name-“John Doe’s Finest Motel”
a. Con: looks cluttered on the sign
3. Put on the sign that it is locally owned and operated
a. Con: might deter some people from going there since it kind of implies that it might not have the same uniform standards as the main corporation
4. Point system (carrot)
5. Fines (stick)
c. Scope of Employment
i. For respondeat superior to apply, the amployee must have committed the tortious act within the course and scope of employment.
1. Employee must have been engaged in work for the employer of a type that he was supposed to perform, during work hours.
ii. Rst. §228(1)—conduct of a servant is within the scope of employment if, but only if (c) it is actuated, at least in part, by a purpose to serve the master
iii. Rst. factors:
1. Authorization of the act by employer
2. Time, place, purpose of act
3. Whether act was commonly performed by the employees
4. Extent to which the employer’s interest and the employee’s interest was involved
iv. Bushey foreseeability standard—“Lane’s conduct was not so unforeseeable as to make it unfair to charge the government with responsibility”
1. In other words, it suffices to show that the conduct arose out of and in the course of employment
2. This essentially is a rule of strict liability for the torts of an employee as long as any connection of time and space could be made btwn the conduct and the employment
3. Con: this standard is really broad and might open the door to liability on the part of “masters” that will be difficult for them to protect against
v. Battery committed by an employee
1. Manning standard (Rst. §231)—where a ∏ seeks to recover damages from an employer for injuries resulting from an employee’s assault, what must be shown is that the employee’s assault was in response to ∏’s conduct which was presently interfering with the employee’s ability to perform his duties successfully.
a. Thus, if ∏’s conduct WAS interfering with employee’s ability to perform his duties, then the master MAY be liable (Manning v. Grimsley-pitcher lobbed a ball at heckling fans in the stands at Fenway)
