BUSINESS ASSOCIATIONS
HECKER
FALL 2017
Agency
**Unless Otherwise Noted, § References in Section I. Agency are to Rest. (3d) of Agency**
Introduction & Definitions
Source of Law: No codification of agency law; have Restatement (3d) of Agency
Agency (§ 1.01): Agency is the fiduciary relationship that raises when one person (a “principal” or “P”) manifests assent to another person (an “agent” or “A”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act
Elements: (1) Fiduciary relationship; (2) mutually consensual; (3) A acts on P’s behalf; and (4) subject to the P’s control; [and (5) A acts loyally & for the benefit of P]
(1) Fiduciary relationship:
Essence of fiduciary relationships = fiduciary has the ability to exercise discretionary authority or discretionary control over some other person or some other person’s property
Duties: As someone’s fiduciary, have (1) duty of care & (2) duty of loyalty à See (5) below
Can come out of K, but even if no K, the law superimposes a “fidcuiarness” on certain parties
Examples:
Legal guardian of another person—guardian has right to control the person & that person’s assets until they reach age of majority
Trustee of a trust—trustee is given legal title to property subject to enforceable obligations to use that property for the benefit of the trust beneficiary
Managers of businesses—e.g., corporate directors, have long been held to be fiduciaries; business & affairs of every corporation shall be managed by the BofD à corporate/statutory grant to manage the business, but directors do not own the business (S/H do), so directors are fiduciaries of S/H
(2) Mutually consensual: IF EITHER party withdraws consent then relationship ENDS (EVEN if have contracted not to withdraw consent—can break/breach K & withdraw consent under common law of agency)
Manifestation (§ 1.03): A person manifests assent through written or spoken words or other conduct
(3) A acts on P’s behalf: For most part (subject to some exceptions), act of an A will be treated as an act of the P
(4) Subject to P’s control: If disagreement, P is the boss
[(5) A acts Loyally & for benefit of P: [NOT in definition of Agency, but see below)]
General Fiduciary Principle (§ 8.01): An A has a fiduciary duty to act loyally [and with due care] for the P’s benefit in all matters connected w/ the agency relationship
Can be informal: When elements in definition of agency are met, have agency relationship—what parties call the relationship is NOT controlling (see § 1.02—Parties’ Labeling & Popular Usage NOT Controlling); could have express or implied agency relationship
Who can enter agency relationships: Any PERSON, which includes businesses, so two business could have agency relationship; one business & one person; etc.
Person (§ 1.04(5)): A person is (a) an individual; (b) an organization or association that has legal capacity to possess rights & incur obligations; (c) a gov’t political subdivision, or instrumentality or entity created by gov’t; or (d) any other entity that has legal capacity to possess rights & incur obligations
THREE Relationships: In ANY given set of facts, consider the following three relationships
Agency Relationships: Elements of definition of agency met
Whether ‘er-‘ee or P-IC agency relationships = impt. w/r/t whether P is VL in tort
If ‘er-‘ee & ‘ee commits tort w/in scope of employment à VL for ‘er
If NOT ‘er-‘ee & A commits tort à No VL for P (unless non-delegable duty)
Employer-Employee: ADD
Key = P has right to control manner & means of A’s performance of work
Employee for Purposes of § 7.07 (§ 7.07(3)(a)): An ‘ee is an Agent whose Principal controls or has the right to control the manner and means of the Agent’s performance of work
Comment f to § 7.07: List of factual indicia to determine whether an agent is an employee or IC à No one factor is dispositive, but rather a totality of the circumstances looking at the all factors
Extent of control A and P have agreed P may exercise over details of the work;
Whether A is engaged in a distinct occupation or business;
Whether A’s type of work is customarily done under a P’s direction or w/o supervision;
Skill required in A’s occupation;
Whether A or P supplies the tools required for the work and place to perform it;
Length of time during which A is engaged by a P;
Whether A is paid by the job or by the time worked;
Whether A’s work is part of the P’s regular business;
Whether P and A believe that they are creating an employment relationship;
Whether the principal is or is not in business; and
Extent of control P has exercised in practice over the details of the A’s work
BUT also do not too fixated on explicit control (sometimes ‘er’s right to control may attenuated; see last ¶ in comment (f))—e.g., Steve Jobs was an ‘ee of the corporate person & the BofD had right to tell him what to do
Principal-Independent Contractor
IC as Agent b/c relationship & some kind of control by P, making it an agency relationship, BUT NOT level of control in ‘er-‘ee relationship where P’s control extends to manner & means by which A performance work
NOT Agency Relationships
Note: For our class, focused on whether A an ‘ee or not & does not matter whether IC agent or IC non-agent w/r/t respondeat superior (does matter whether agent or non-agent for special VL under § 7.08 & for K considerations); only time that it makes a difference as to whether IC agent or IC non-agent = as btw. the Principal and Agent (or Non-Agent) à If IC is Agent, then Agent owes fiduciary duties to the Principal & Principal owes some duties to the Agent vs. if IC is not an agent, then non-agent IC does not owe fiduciary duties & “Contractee” does not own the duties
“Contractee”-Independent Contractor
IC NOT Agent b/c no control by Contractee other than contracting for end result
IC is responsible only for producing a result and whoever is contracting w/ the IC has NO right to control anything about the relationship—just contracting for the end product/result
Types of Principals (§ 1.04(2)):
Generally: In classifying into categories, focused on what third party knows about P WHEN T & A interact (NOT later)—“at the time an agent and third party interact” (e.g., at time A & T are entering into K)
Category of principal = impt. w/r/t relationships btw. parties in K
Types of P’s
Disclosed P: A principal is disclosed if, when an agent and third party interact, the third party has notice that the agent is acting for a principal and has notice of the principal’s identity
T has notice that A is acting for a P (v. A acting for themselves) AND has notice of the P’s identity
Notice (§ 1.04(4)): A person has notice of a fact if the person [1] knows the fact; [2] has reason to know the fact; [3] has received an effective notification of the fact; or [4] should know the fact to fulfill a duty owed to another person. . . . à ANY one of four is notice & includes reason to know (i.e. given all the facts, if you did not have eyes & ears closed you would know it) or should know in order to fulfill a duty to another person (i.e. affirmative duty to inquire & find out based on your duty to the other person); also there is difference btw. knowing something (subjective cognitive awareness) v. having received a letter or email that states the fact but person who received it did not read it
Note: Notice is similarly defined in RUPA (see § 102)
Undisclosed P: A principal is undisclosed if, when an agent and third party interact, the third party has NO notice that the agent is acting for a principal
Opposite of disclosed à T thinks A is the other party to the deal
Unidentified P (aka Partially Disclosed P used in Rest. (2d)): A principal is unidentified if, when an agent and third party interact, the third party has notice that the agent is acting for a principal but does not have notice of the principal’s identity
Disclosed, BUT lacking notice of the principal’s identity (the anonymous P)
Common example = buying publically traded securities through broker on the stock market
Principal’s Relationships w/ Third Parties—IN TORT
The Tortfeasor is ALWAYS Liable, but Q of whether anyone else in addition is liable
§ 7.01 (A is subject to liability to a third party harmed by A’s tortious conduct); TORTFEASOR IS ALWAYS LIABLE, assuming the elements of the tort are met
Summary of Principal’s Liability à § 7.03 Principal’s Liability—In General
(1) A P is subject to direct liability to a T harmed by an A’s conduct when:
(a) as stated in § 7.04, the A acts w/ actual authority or P ratifies A’s conduct AND
(i) the A’s conduct is tortious, or
(ii) the A’s conduct, if that of the P, would subject the P to tort liability, or
(b) as stated in § 7.05, the P is negligent in selecting, supervising, other otherwise controlling the A;
(c) as stated in § 7.06, the P is delegates performance of a duty to use care to other person or their property to an A who fails to perform that duty
(2) A P is subject to vicarious liability to a T harmed by an A’s conduct when:
(a) as stated in § 7.07, the A is an ‘ee who commits a tort while acting w/in the scope of employment
(b) as stated in § 7.08, the A commits a tort when acting w/ apparent authority in dealing w/ a T on or purportedly on behalf of the P
Principal Directly Liable: P’s have direct liability for continuing to have dangerous A acting on their behalf
Authorized/P gives A Authority for Tort or Ratifies A’s Tort
§ 7.04 Agent Acts with Actual Authority: A P is subject to liability to a T harmed by an A’s conduct when the A’s conduct is within the scope of the A’s actual authority or ratified by the P; and (1) the A’s conduct is tortious, or
(2) the A’s conduct, if that of the P, would subject the P to tort liability
Example: Hiring hitman
P’s is Negligent in Conducting Activity Through A
§ 7.05(1) P’s Negligence in Conducting Activity Through A: P who conducts activity through A is subject to [direct/personal] liability for harm to a T caused by A’s conduct if the harm was caused by P’s negligence in selecting, training, retaining, supervising, or otherwise controlling A
P’s Duty is Non-Delegable
§ 7.06 Failure in Performance of Principal’s Duty of Protection: A P required by contract or otherwise by law to protect another CANNOT avoid liability by delegating performance of the duty, whether or not the delegate is an A
Inherently dangerous/ultra-hazardous activities w/in torts: Certain kinds of activities carry much grater risk of harm than normal; if special care is taken, danger won’t happen, but w/ regular care, danger could happen, SO if person does not take special care & danger happens, you are liable àif you hire someone to do this (e.g., hire IC / delegate performance) à CANNOT delegate the liability/P CANNOT use IC to perform these sorts of activities & try to insult herself from liability/duty is personal to P
Example: crop dusting w/ chemicals; blowing up building; installation of elevators (someone falls down elevator shaft when open); power lines; etc.
Principal Vicariously Liable
Reasoning for VL: While tortfeasor will always be liable (& tort victim wants this—more D’s the better), but then Q of btw. two faultless parties (tort victim (LEAST at fault) & ‘er), who should bear the risk of tortfeasors conduct à ‘er (had control over ‘ee, benefited from ‘ee working for them, loss spreading, cost of doing business, etc.)
If tort victim sues tortfeasor & collects judgment, should be the end b/c economic loss is where it belongs, BUT this is the unusual case
More typically, tort victim sues ‘er & ‘er pays judgment (loss not where it belongs—payment btw. to faultless parties) à In theory, ‘ee should then pay ‘er (putting loss where it belong) à ‘ee has liability to ‘er under § 8.08 Duties of Care, Competence, & Diligence as A has duty to P to act w/ the care, competence, and diligence normally exercised by A’s in similar circumstances
Bottom Line: ‘ee/tortfeasor breached a duty not only to tort victim, but ALSO breached a separate duty to ‘er, so ‘er can try to collect from ‘ee, BUT making ‘er VL b/c tort victim is party least at fault
Also Note: P’s complaint will usually include both negligent hiring (direct liability for ‘er) & respondeat superior (VL for ‘er)
Respondeat Superior (“Let the Superior Respond”): In certain situations (see two elements), ‘er will be liable for torts of ‘ee’s even if ‘er did not do anything wrong/is w/out fault
§ 7.07 Employee Acting w/in Scope of Employment: (1) An employer is subject to vicarious liability for a tort committed by its employee acting w/in the scope of employment. (2) An employee acts w/in the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control. An employee’s act is NOT w/in the scope of employment when it occurs w/in an independent course of conduct not intended by the employee to serve any purpose of the employer
§ 2.04 Respondeat Superior: An employer is subject to liability for torts committed by employees while acting w/in the scope of their employment
Two elements = (1) employee and (2) acting w/in scope of employment
(1) Employee
acting reasonably, sometimes P is going to be bound by K’s that they did not want
Statute of Frauds: Under SOF, certain kinds of K’s have to be in writing; need to look at underlying SOF law to determine if A needs have to have a separate writing granting A authority to sign P’s name to the underlying contract depends on relevant SOF
§ 3.02 Formal Requirements: If the law requires a writing or records signed by the P to evidence an A’s authority to bind a P to a K or other transaction, the P is NOT bound in the absence of such a writing or record. A P may be estopped to assert the lack of such a writing or record when a T has been induced to make a detrimental change in position by the reasonable belief that an A has authority to bind the P that is traceable to a manifestation by the P
Note: Comment b to § 3.02 says that this rule also applies to apparent authority
Example: Assume have a K for subject matter that is covered by SOF;
P is the party that is going to be charged under the K and P has signed the K à OK
Same P, but P has appointed A as an agent & A signs for P (“P by A”) & no question that it was A who signed for P à Whether A needs have to have a separate writing granting A authority to sign P’s name to the underlying contract depends on relevant SOF
Bottom line: If SOF does not apply to underlying transaction at all, then rule is N/A, BUT if SOF applies & requires a signature, then look at the SOF w/r/t whether the P’s granting of power to the A must also be in writing
K.S.A. § 33-105: If a deed is signed by “P by A” à under K.S.A. § 33-105 & manifestation giving A authority to sign on behalf of the P MUST be in writing
Statute says writing two times—for the deed & for P manifestation to A
K.S.A. § 33-106: Specific items that must be in writing (e.g., K that cannot be performed w/in one year, guaranties, etc.); if one of these items signed “P by A” à under 33-106 && manifestation giving A authority to sign on behalf of the P MUST be in writing
K.S.A. § 84-2-201: K for sale of goods > $500 à Manifestation giving A authority does NOT have to be in writing; the K has to be written & signed & can be signed by the agent (“P by A”), BUT A does NOT have to have written authority (any kind of manifestation—written, spoken, conduct, etc. is sufficient)
K.S.A. § 84-2a-201: Leases > $1K (most common type of leased item covered by this statute = car) à Same as K.S.A. § 84-2-201
Note: First two are from the 19th century v. second two are from 20th century, so why the difference? May be that first stuff is more important so want in writing, but might also be change in times/what willing to put up w/
Types of Authority
Generally:
Two kinds of authority—actual & apparent—both of which depend on manifestations that originate w/ P (A &T cannot create on their own)
Manifestation (§ 1.03): A person manifests assent through written or spoken words or other conduct
i.e. something written, spoken, conduct à and reasonable belief that principal has consented to have agent act in given way
One is not “better” than other from T’s point of view: If A has EITHER kind of authority, there is a binding K, breach, etc. àActual is not any “better” than Apparent/Apparent is not inferior from the third party’s point of view
Not mutually exclusive: Two types of authority are NOT mutually exclusive; in many factual situations in the real world, the agent has both actual & apparent authority
Terminology:
If someone uses “authority” w/out actual or apparent & it is someone literate in business orgs/this area of law, it means ACTUAL AUTHORITY
May see express actual authority v. implied actual authority à means actual authority in both cases; NO such thing as express v. implied apparent authority
Be careful NOT to say implied when meaning apparent
Actual Authority (P à A): Principal's manifestations to Agent
Words (Express)
Written
Spoken* (* = beware of statute of frauds)
Conduct (Implied)*
Position (usual/customary/incidental) (what OTHER similar Principals & Agents do)
Note: Mere fact of hiring A to for position X or X job is enough to give authority if nothing to contrary is said to act in customary manner à this is the manifestation
Example: Cashier at grocery store à when buying produce at store & paying cashier, relying on appearances b/c possible that that person did not have actual authority (not worth costs of verifying person’s identity), but did have apparent authority based on position à usual & customary for the type of transaction & job
Note: P’s manifestation of putting A in cashier position manifests to both A that A has the typical powers of that position AND to public/potential T’s
History (knowing acquiescence/failure to object) (what THIS Principal & Agent have done in the past)
§ 2.01 Actual Authority: An A acts w/ actual authority, when at the time of taking action that has legal consequences for the P, the A reasonably believes, in accordance w/ P’s manifestations to the agent, that the P wishes the A so to act
§ 3.01 Creation of Actual Authority: Actual authority is created by a P’s manifestations to an A that, as reasonably understood by the A, expresses the P’s assent that the A take action on the P’s behalf
Apparent Authority (P à T): Principal's manifestations TO THIRD PARTY
Words
Written
Spoken*
