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Business Associations
University of Illinois School of Law
Williams, Cynthia

Agency
Agent – any person who is authorized to act on behalf of a principle.
–          Is there an agency relationship?
o    The party asserting the agency relationship has the burden of establishing that one exists
 
Restatement §1. Agency Principal; Agent
Agency is the 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
NOTE: If the agreement results in the factual relation between the parties to which are attached the legal consequences of agency, an agency relation exists although the parties did not call it agency and did not intend the legal consequences.
 
Inward looking consequences – relate to the relationship between the principal and agent that are largely governed by the contracts between the parties and the law of fiduciary duties.
 
Outward looking consequences – relate to the relationship among the principal, the agent and a third party and governed by principals of attribution.
–          The chief justifications for the principal’s accountability for the agent’s acts are the principal’s ability to select and control the agent and to terminate the agency relationship, together with the fact that the agent has explicitly or implicitly to act on the principal’s behalf
o    Important concepts of agency relationship:
§ Control
§ Benefit
§ Consent
–          The agency relationship changes the firm’s relationship with third parties primarily because under certain circumstances the firm will be responsible for the contracts and torts that the agent creates
–          Actual Authority: created by a manifestation from the principal to the agent that the principal consents to the agent taking actions on the principal’s behalf
o    Because agents have authority to act for the principal, the principal can be responsible for the contracts that the agent enters
§ Authority can be given to the agent either expressly or implicitly
·         Look to the communications between the principal and the agent
o    Express actual authority: may be conveyed orally or in writing
o    Implied actual authority: everything that is necessary to fulfill the agency
–          Apparent Authority: one person may bind another in a transaction with a third person, even in the absence of actual authority when the third person reasonably believes, based on the “manifestations” by the purported principal, that the actor is authorized to act on behalf of the purported principal
o    There is no requirement that there be a pre-existing agency relationship
§ Can happen when:
·         The person appears to be an agent, even though he does not qualify under the definition of an agent
·         The agent acts beyond the scope of their actual authority
o    Manifestations from the principal to a third party that the agent has authority and he actually does not
§ Can come from:
·         Directly from the principal by letter or word of mouth
·         From authorized statements of the agent
·         From documents or other indicia of authority given by the principal to the agent
·         From third persons who have heard of the agent’s authority from authorized or permitted channels of communication
§ The conduct does not need to actually use the words authority and does not have to consist of words targeted specifically to a third party
·         Creation of authority can come by way of manifestations through an intermediary that reach the third party
·         Can come from placing a person in a certain position
o    What signs are there that would lead a reasonable person to believe that an agent had authority? (Business card, letter head etc.)
§ A reasonable third party would believe that the agent had authority
·         Manifestation could be putting an agent in a position where it would be reasonable to believe that he had the level of authority normally associated with that position
o    Keys to finding apparent authority:
§ The manifestation emanates from the principal and is received by a third party
§ The scope of the agent’s apparent authority depends on the third person’s reasonable interpretation of the manifestation
·         To decide reasonableness courts will consider:
o    Prior dealings between the parties
o    Customs that apply in that particular setting
o    The nature of the proposed transaction
–          Implicates the same issues of control, benefit and consent
o    Control in this case is the principal’s control over the third party’s expectations
o    Benefit allowing third parties to act on the manifestations from is that it allows third parties to rely on the manifestations from the principal without requiring investigation into the actual scope of authority thus “greasing the wheels” of commerce
o     Consent
–          Actual or apparent authority can bind the principal
–          Respondeat superior liability
o    The main consequence of finding an employer-employee relationship is that an employer is liable for the torts committed by an employee within the scope of employment
o    Usually the basis for the liability of principals for the torts of their agents
§ Generally vicarious liability
·         Does not mean that agent is not responsible only that the principal is also responsible
§ Must decide if there is an employee/employer relationship or an independent contractor relationship
·         There is no respondeat superior liability for an independent contractor
§ Independent contractors: people who act on behalf of another but who are not employees §2 Restatement
·         Factors to consider for independent contractors §220(2) Restatement
o    Where the work is done
o    Whose tools are used
o    Who directs the specific work
o    How the person is paid
§ It is not enough to classify a relationship as an independent contractor one
o    In a franchise situation something that the big corporation has direct control over may make them liable
–          Estoppel
o    Requires the third party to change position in reliance on the principal
§ Apparent authority does not require detrimental reliance
o

hip ends
o    None compete contracts: (must be REASONABLE) to be enforced
§ Limited in time
§ Sensible geography
§ Necessary to protect the employer’s interests
§ NOTE: Trade secrets are protected seperately
o    When the agent is working in a field where you develop specific human capital, the non-compete agreement limits the ability of the agent to use human capital in other jobs
 
Food Lion
–          The breach of the duty of loyalty occurs when:
o    Employee competes directly with the employer
o    Employee misappropriates the employer’s profits, property or business opportunities
o    The employer breaches the employer’s confidences
§ Stealing trade secrets
§ Stealing property or information
–          The agent has a duty to put in the interests of the principal’s before his own
–          The duties required can be modified through contract
–          When an agent is an agent of more than one company loyalty to one company that is adverse to another is a tortuous breach of loyalty
o    There must be intent to act adversely to one employer
–          Hypo: If employees of Food Lion also wanted to be food suppliers what would they have to do?
o    They would need to disclose to the principal what they wanted to do and then get consent from the principal to do so
Summary
–          The importance of the agency relationship is that it creates fiduciary duties within the firm
–          Agents cannot compete, they have a duty of loyalty and cannot use confidential information or steal from the firm
–          An affirmative duty to disclose decreases monitoring costs for the firm
–          Agency reduces transaction costs in that the cost of negotiating some of the protections that the principal agency relationship provides are unnecessary
Costello v. Case Farms
–          Express authority to do something creates implied authority to do everything necessary and proper to accomplish the express authority
o    Apparent authority will turn on the reasonable belief that the person had authority
o    What types of authority would a person in that position normally have?
§ If the authority is the type a person in the position of the agent would normally have then it is more likely reasonable to assume they have that authority
Bethany v. QVC
–          Disclosed Principal – when an agent and a third party interact the third party has notice that the agent is acting for a principal and has notice of the principal’s identity.