Aviram-BA1-Fall2013
Agency
Agency relationship
· Definition
o R §1.01: An agency relationship is created when A & P manifest assent that A shall act –
§ On P’s behalf
§ Subject to P’s control
o R §1.02: Parties’ labeling & popular usage do not control
o R §4.03: An agency relationship may be created retroactively by P’s ratification, if A purported to act as P’s agent
o Co-agents vs. Sub-agents
§ Co-agents
▫ Agents who have same P
s If P instructs one agent to direct another, one is a superior co-agent & the other is a subordinate co-agent [Rest. 1.04(1),(9)]
▫ A superior co-agent is not the principal of a subordinate co-agent
s Therefore, a superior co-agent isn’t vicariously liable for a subordinate co-agent’s tort
§ Sub-agents
▫ Agents have two Ps: the sub-agent’s principal (i.e., the agent) & the agent’s principal [Rest. 1.04(8)]
· Authority
o The legal power A binds to B
o Actual authority
§ Agent reasonably believes, in accordance with the principal's manifestations to the agent, that the principal wishes the agent so to act.
o Apparent authority
§ A third party reasonably believes the actor has authority to act on behalf of the principal and
§ that belief is traceable to the principal's manifestations.
· Creating
o Factors in Cargill
§ Cargill’s constant recommendations to Warren by telephone
§ Cargill’s right of first refusal on Warren’s grain
§ Warren’s inability to enter into mortgages, to purchase stock or to pay dividends without Cargill’s approval
§ Cargill’s right of entry onto Warren’s premises for periodic audits
§ Cargill’s correspondence & criticism regarding Warren’s finances, officers’ salary & inventory
§ Cargill’s determination that Warren needed “strong paternal guidance”
§ Provision of forms to Warren upon which Cargill’s name was imprinted
▫ FN 7: Warren pays for the grain with drafts (checks) drawn on Cargill
§ Financing all of Warren’s purchases of grain & operating expenses
§ Cargill’s power to discontinue the financing of Warren’s operations
· Exit (Terminating)
o Terminating actual authority
§ Agreement between P & A
§ Law
▫ “the occurrence of circumstances specified by statute”
§ Changed circumstances
▫ “the occurrence of circumstances on the basis of which [A] should reasonably conclude that [P] no longer would assent to [A’s] taking action on [P’s] behalf.”
§ A’s or P’s death/cessation of existence/suspension of powers
▫ A’s death/cessation of existence/suspension of power
s Terminates actual authority
▫ P’s death/cessation of existence/suspension of powers
s Terminates actual authority:
▻ Immediately (except as provided by law) – if P is not an individual
▻ Only when A has notice of P’s death – if P is an individual
▻ Termination effective vs. T if T has notice of P’s death (even if A doesn’t know)
§ P’s loss of capacity
▫ P’s loss of capacity terminates actual authority:
s Immediately – if P is not an individual
s Only when A has notice of P’s permanent/adjudicated loss of capacity – if P is an individual
s Termination effective vs. T if T has notice of P’s permanent/adjudicated loss of capacity (even if A doesn’t know)
▫ P can agree in writing that actual authority will become effective upon P’s loss of capacity, or not be revoked by loss of capacity
§ P’s and A’s power to terminate
▫ Regardless of any agreement between P&A, actual authority is terminated if:
s A renounces authority by manifestation to P; or
s P revokes authority by manifestation to A
▫ Authority is terminated when the other party has notice
▫ If an agreement between P&A does not allow termination of the agency (or specifies a term beyond the time the agency was terminated), the agency is still terminated, but the terminating party might be liable for breach of contract
o Terminating apparent authority
§ Termination of actual authority does not end any apparent authority held by the agent
§ Apparent authority ends when it is no longer reasonable for T to believe that the agent continues to act with actual authority
Relationship between A\P\T
· A' duty to P (Agency solution)
o Fiduciary duty (duty)
§ A & B
▫ A duty that requires an actor (A) to act in the interest of beneficiary (B), beyond what is required of A by contract
s Agent owes principal a FD: “Agency is the fiduciary relationship…” (Rest. §1.01)
§ T
▫ T as plaintiff
s Third party cannot sue an actor (or a beneficiary) for breach of FD, since FD is owed to B, not to T
s Rest. §7.02: A’s breach of duty to P does not make A liable to T
▫ T as defendant
s FD is owed by A, not by T, so P has no claim against T for breach of FD
s However, P has a claim against T for aiding & abetting a breach of FD if P can prove:
▻ A owed a FD to P
▻ A breached the FD to P
▻ Knowing participation in that breach by T; and
▻ Damages proximately caused by the breach
o B's potential challenge vs. A's acts
§ Authority
▫ A’s acts on behalf of B were not permitted by contractual terms between A&B or by terms mandated by law (contractual & political methods)
§ FD
▫ A’s authorized act had an improper purpose, i.e., was not in B’s interests (agency method)
o Actor's potential flaws (breach)
§ Lack of authority
▫ Actual authority, not apparent authority
§ Negligence
▫ Breach of the A’s duty of care (“DoC”)
▫ Action/inaction in which A doesn’t employ sufficient effort/care
§ Self-dealing
▫ Breach of the A’s duty of loyalty (“DoL”))
s Conflict of (self-)interest & duty (“CoI”)
s Unauthorized benefit from fidu
ehalf A acted or purported to act)
s Person who is authorized to approve on behalf of B & doesn’t have CoI with B regarding the behavior that is approved
s Approver must have legal capacity at time of approval [Rest. 4.04]
▫ Act can be approved
s Appropriate scope
▻ Ratification (not consent) must encompass “the entirety of an act, contract or other single transaction” [Rest. § 4.07]
▻ Approval to cure DoL
▸ It must apply to either
◦ A specific act/transaction or
◦ To acts/transactions of a specified type that could reasonably be expected to occur in the ordinary course of the agency [Rest. 8.06(1)(b)]
s A's behavior can be attributed to B
▻ A must have acted or purported to act on B’s behalf [Rest. 4.03]
▻ B must exist at the time of the act [Rest. 4.04]
▻ No public policy reasons to prevent B from approving
▫ Appropriate approval
s Unambiguous
▻ Rest. 4.01(2) – B approves an act by:
▸ Manifesting assent that the act shall affect B’s legal relations; or
▸ Conduct that justifies a reasonable assumption that B consents
▻ Approval requires objective or externally observable indication that B consents to A’s act
▻ Rest. 4.02(2)(b) makes ratification ineffective in favor of A if B ratifies to avoid a loss
▸ So, if B ratifies to avoid a loss, B is liable to T, but A may be liable to B
▸ Not relevant for prior consent
s Informed
▻ Approval is valid only with “knowledge of [all] material facts involved in the original act” [Rest. 4.06, 8.06(1)(a)(ii)]
▸ Unless B was aware of such lack of knowledge
▸ Material facts: Facts that a reasonable person would consider relevant to the decision whether to approve
▻ Rest. 4.02(2)(a) says ratification is ineffective in favor of a person who causes it by misrepresentation or other conduct that would make a contract voidable (duress, undue influence)
s Timely
▻ Ratification ineffective if “circumstances that would cause the ratification to have adverse and inequitable effects on the rights of [T]
▸ T withdraws from the transaction
▸ Material change of circumstances that makes it inequitable to bind T
▸ Ratification after rights have crystallized
▻ The timeliness element is irrelevant for prior consent