Business Organizations Outline

Business Organizations Outline Lambert Spring 14

AGENCY

Rest. § 1 Agency

· 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

Principal/Agent relationship is the most basic business organization

· Three questions regarding agents

o How can agents legally bind their principals? Torts and contracts

o How may agents become bound when acting for the principal?

o What duties do agents owe their principals

· The Agency Test

1. Principal must manifest consent,

2. That agent act on principal’s behalf (is the agent acting as the “face” of the principal?) – flexible factor for the courts

3. Subject to principal’s control, and

§ This prong can be satisfied so long as the principal retains control of the objective

§ Principal does not need to control the means

4. Consent by agent so to act

· There is no contracting around principal/agent liability

· Manifestation of consent

o Consent can be manifested without direct communication

o Principal has to manifest consent – agent does not have to manifest, he must merely consent (such as by acting)

· The creation of a principal/agent relationship requires an agreement between the parties, but not necessarily a contract

Rest. Second of Agency § 14O

· A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business

Agency relationship can be inferred from

· Creditor/debtor relationships

· Buyer/supplier

Rest. Second of Agency § 14K buyer/Supplier

· Factors indicating supplier relationship

o Supplier is to receive fixed price for the property irrespective of price paid by him

§ Most important

§ Is the price a retail price (supplier) or a cost-plus price (agent)

o Acts in his own name and receives the title to the property which he is thereafter to transfer

§ A broker/go-between is an agent

§ Taking title and then passing title is a supplier

o Has an independent business in buying and selling similar property

§ Is this transaction similarly conducted for lots of people (supplier) or just for the specific individual (agent)

Liability of Principal to Third Parties in Tort

Principal/Agent Subsets

· Master/Servant

o This relationship must exist for vicarious liability

o Principal controls the means and the end

o Most employee/employer relationships fall under this category

· Employer/Independent Contractor

o Principal controls the end only

o Can have employer/independent contractor relationship without a principal/agent relationship

Rest. Agency § 2 Master; Servant; Independent Contractor

a. A Master is a principal who

o employs an agent to perform services in his affairs and

o who controls, or has the right to control the

ú Physical conduct of the other in the performance of his services

b. A servant is an agent employed by a master to

o perform service in his affairs

o whose physical conduct in the performance of the service is

o controlled or is subject to the right to control by the master

c. An Independent Contractor is

o a person who contracts with another to

o do something for him but

ú is not controlled by the other nor

ú subject to the other’s right to control with respect to physical conduct in the performance of the undertaking

ú May or may not be an agent

· § 219 When Master is Liable for Torts of His Servants

o servant is acting in scope of their employment

o not subject when acting outside the scope of their employment, unless

§ master intended the conduct or consequences, or

§ master was negligent or reckless, or

§ conduct violated a non-delegable duty of the master, or

§ servant purported to act or speak on behalf of the principal and there was reliance upon apparent authority

· § 220 Definition of Servant

1. a servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control

2. factors in determining servant or independent contractors

· extent of control

· engaged in distinct occupation

· kind of occupation and the locality of how that occupation is customarily conducted

· skill required

· length of time person is employed

· method of payment

· work is part of the regular business parties believe they are creating the relation of master and servant

· whether principal is or is not in business

· § 228 General Statement [of Scope of Employment Doctrine]

o Conduct of servant within scope of employment if

1. action is kind employed to perform

2. occurs within authorized time and space

3. is actuated by a purpose to serve the master

ú 1 & 2 are required everywhere

§ if intentional force is used, master expected force to be used

§ Alt. 3 a foreseeability test

ú Does the business enterprise involve a foreseeable risk that this tort will occur?

ú Ira S Bushey & Sons v U.S. (seaman opening valves on drydock)

· Master/Servant in franchise agreements

o Did the franchisor exercise control of the day-to-day operations?

Black Letter Law – Principal liable for actions of agent in scope of employment

· The conduct of the servant is

1. Of the type hired to do

2. Happens on the job, or very close to the job and

3. Majority View

1. Conduct was actuated by a purpose to serve the master

3. Minority View

2. Does the business enterprise at issue have a foreseeable risk of the type of tort occurring

o If force is used

§ The use of force had to not be unexpected by the master (foreseeable)

Frolic & Detour Doctrine

· Frolic

o If a servant temporarily abandons their employment, and during the abandonment commits a tort, the tort is not within the scope of employment

· Detour

o Smal