ENTERPRISE ORGANIZATION: VINING
Chapter 1: AGENCY (1-23)
1. Introduction
The most common business organizations are: sole proprietorships, corporations, general and limited partnerships, and limited liability companies.
Sole Proprietorship:
– A business organization that is owned by a single individual, and is not cast in a special legal form of an organization, such as a corporation.
– Likely to have a degree of psychological and sociological identity separate from that of an individual.
– Typically the sole proprietor won’t conduct the business by herself, but will engage various people (salespersons,
mechanics, managers, etc.) that work on her behalf and are subject to her control.
Agent: A person whom 1) by mutual assent acts on behalf of another AND 2) is subject to their control
Principal: The person for whom the agent acts.
Agency law governs: 1) the relationship between agents and principals; 2) the relationship between agents and third persons with whom an agent deals, or purports to deal with, on a principal’s behalf; 3) the relationship between principals and third persons when an agent deals, or purports to deal, with a third person on the principal’s behalf.
Agency is a consensual relationship.
– Agency does not turn on whether the parties think of themselves as or intend to be an agent and principal.
– Agency does not depend upon the intent of the parties to create it, nor their belief that they have or have not done so.
– Agency Requires these factual elements:
1) Manifestation by Principal that the Agent shall act for him.
2) The Agent’s acceptance of the undertaking
3) The understanding of the parties that the Principal is in control of the undertaking
2. Authority
Morris Oil Co. v. Rainbow Oilfield Trucking Co. (1987) (2-6)
Trucking arrangement between two businesses, the agreement said Rainbow was not to become the agent of Dawn and was not empowered to incur or create any debt or liability of Dawn. Court said the moral recitation wasn’t good enough, the factual relationship was what it looked at to determine agency.
A) Agent: a person who acts on behalf and is subject to the control of another.
a. General Agent – an agent who is authorized to conduct a series of transactions involving continuity of service.
b. Special Agent – an agent who is authorized to conduct only a single transaction, or only a series of transactions not involving continuity of service.
B) Principal: a person on whose behalf and subject to whose control an agent acts.
a. Disclosed Principal – if at the time of a transaction between the agent and a third person, the third person knows that the agent is action on behalf of a principal and knows the principal’s identity.
b. Partially Disclosed – if at the time of the transaction the third person knows that the agent is acting on behalf of a principal, but does not know the principal’s identity.
c. Undisclosed Principal – if the agent, in dealing with third person, purports to be acting on his own behalf.
i. Principal is liable for her agent’s authorized activities, even though (because the agent doesn’t disclose who he’s working for) the third party thinks the agent is acting strictly on his behalf.
1. Is held liable because they:
a. They set the events in motion
b. Even if they weren’t held liable the agent could be and then the agent could turn around and sue the principal for indemnification.
Master – a principal who controls or has the right to control the physical conduct of an agent in the performance of the agent’s services.
Servant – an agent whose physical conduct in the performance of services for the principal is subject to the control of the principal. Does not necessarily mean manual labor.
C) Liability of Principal to Third Persons
A principal becomes liable to a third person as a result of an act or transaction by another, A, on the principal’s behalf, if A had actual, apparent, or inherent authority, or was an agent by estoppel or if the principal ratified the act or transaction.
a. Actual Authority – an agent has actual authority to act in a given way on a principal’s behalf if the principal’s words or conduct would lead a reasonable person in the agent’s position to believe that the principal had authorized him to so act.
i. Express – exists to the extent the principal specifies minutely what the Agent is to do.
ii. Implied – authority to take actions not specified, but is inferred from words used, customs, and the relations of the parties.
1. Incidental: authority to do incidental acts that are reasonably necessary to accomplish an actually authorized transaction, or that usually accompany it.
– If an agent has actual authority, the principal is bound even if the third person did not know the agent had actual authority, and indeed even if the third person thought the agent was herself the principal, not merely an agent.
b. Apparent Authority – An agent has apparent authority to act in a given way on a principal’s behalf in relation to a third person, TP, if the words or conduct of the principal would lead a reasonable person in TP’s position to believe that the principal had authorized the agent to so act. Generally goes hand in hand with actual authority.
i. Power of Position – created when P puts A into, or knowingly allows him to occupy, a position which carries with it generally recognized duties.
1. Usually common knowledge that a person in position “x” performs such duties.
c. Agency by Estoppel – This is true when the TP has changed position because of the belief that the transaction was entered into by or for the Principal, IF:
1. He intentionally or carelessly caused such belief, OR
2. Knowing of su
herent authority, so that the principal is bound to the third person, the agent’s liability to the third person depends in part on whether the principal was disclosed, partially disclosed, or undisclosed.
i. Undisclosed Principal – If the principal was undisclosed the general rule is that the agent is bound, even though the principal is bound too. The theory is that the TP must have expected the agent to be a party to the contract because of how the agent presented the transaction.
1. Majority Rule: if the third person, after learning of an undisclosed principal’s identity, obtains a judgment against the principal, the agent is discharged from liability, even if the judgment is not satisfied.
2. Minority Rule: neither the agent nor the principal is discharged by a judgment against the other, but only by satisfaction of the judgment.
ii. Partially Disclosed Principal – If the principal was partially disclosed, the general rule is that the agent as well as the principal is bound to the third person. The theory is that the TP did not know the identify of the principal and so couldn’t investigate the principal’s credit or liability, so he probably expected the agent to be liable either solely or as a co-promisor or surety.
iii. Disclosed Principal –
1. If the principal is bound by the agent’s act because the agent had actual, apparent, or inherent authority, or because the principal ratified the act, the general rule is that the agent is not bound to the third person.
2. If the principal is not bound by the agent’s act, because the agent did not have actual, apparent, or inherent authority, the general rule is that the agent is liable to the third person.
Liability of Agent to Principal
If an agent takes an action that she has NO actual authority to perform, but the principal is nevertheless bound because the agent had apparent authority, the agent is liable to the principal for any resulting damages. Whether the agent is liable to the principal for an act that binds the principal by virtue of the agent’s inherent but not actual authority is an unsettled point.
Liability of Principal to Agent
If an agent has acted within her actual authority, the principal is under a duty to indemnify the agent for payments authorized or made necessary in executing the principal’s affairs.
