Select Page

Business Associations
University of South Carolina School of Law
Means, Benjamin

Business Associations Outlines
Means – Spring 2009


The Creation of the Agency Relationship

– Rest §1. Agency; Principal; Agent: the fiduciary relation which results from the manifestation of consent by one person [principal] to another [agent] that the other shall act on his/her behalf and subject to his/her control and consent by the [agent] to so act
o Principal: the one for whom action is to be taken
o Agent: the one who is to act
– Elements:
o (1)P’s manifestation of consent to A
o (2) To a relationship in which A to act on behalf of P
o (3) Subject to P’s control
o (4) A’s manifestation of consent to P
o Note: Consent does not refer to the actual/express creation of an agency relationship, but rather to the idea that the agent will be acting on behalf of the principal
§ Does not matter if P and A believe they are creating an agency relationship – just that the consent to the facts that as a matter of law create an agency relationship
– Agency relationship must involve some matter of business (i.e. transact some business/manage some affair)
o Contract and/or compensation is NOT necessary for agency relationship
– agency is based on the facts and circumstances rather than the intent of the parties
– Vicarious Liability – “the act of a servant is the act of his master where he acts by authority of the master” – Jones v. Hart (1698)
– Creditor-Principal Distinction; Supplier-Agent Distinction (Look at A. Gay Jenson Farms Co. case)
o Rest §14 O: The point at which the creditor becomes a principal is that at which he assumes de facto control over the conduct of his debtor, whatever the terms of the formal contract with his debtor may be
o Rest §14K: Agent v. Supplier
§ Agent: one who contracts to acquire property from a 3rd person and convey it to another, so long as it is agreed that he is to act primarily for the benefit of the other and not for himself
§ Supplier: Factors indicating buyer-supplier relationship rather than agency
· (1) Receipt of a fixed price (no contingency fees)
· (2) Acts in his own name
· (3) Has an independent business in buying and selling similar property
– Cases:
o Gorton v. Dotyà lady who lent her car to a coach to drive kids to a football game is liable for the accident – i.e. the coach was action as her agent
§ Agency – relationship where one person acts for another
§ Definition: “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.”
· Principal is responsible for the actions of his agent
· There does not have to be a formal contract
§ Ownership of car creates a prima facie case against owner bc the presumption is that driver is owner’s agent
§ Here – there was no ev. that the car was loaned or borrowed and thus there was sufficient ev. to find that the coach was the agent of the Δ car owner
§ Dissent – claims that agency involves more than passive permission, it requires a request, instruction, or command – claims this was not satisfied here
o A. Gay Jenson Farms Co. v. Cargill, Inc.
§ Facts: this action was brought against Cargill when Warren defaulted on its debts; Cargill was responsible for providing financing of Warren’s grain business – Cargill provided funds, required financial statements, kept the books for Warren, required permission before Warren could spend more than 5K, required permission before Warren could assume debt or by allowed to declare dividend or sell or purchase stock; Warren shipped 90% of gain to Cargill – Cargill had right to make critical decisions about use of funds,
· Issue: was Warren Cargill’s agent so that Cargill is liable for the debts of Warren? – YES
§ No contract is req’d for agency; no express intent to create agency is required à existence of agency may be shown by circumstantial evidence
§ Here – Cargill’s interference w/ the internal affairs of Warren constituted de facto control
· A creditor who takes control of a debtor’s business may become liable as a principal
· This was NOT a mere buyer-seller relationship – Warren did not really have an independent business

The Agent’s Authority; Liability of Principal to Third Parties in Contract

– Types of Authority
1. Actual Authority: Express and Incidental (or Implied) = P -> A
2. Apparent: P -> 3P
3. Inherent
4. Ratification
5. Estoppel
6. Agent’s Liability on the Contract
– Rest §26. Creation of Authority; General Rule: [A]uthority to do an act can be created by written or spoken words or other conduct of the principal which, reasonably interpreted, causes the agent to believe that the principal desires him to so act on the principal’s account
– (1) Actual Authority: Manifestation from P to A
o Express Authority – Rest §7. Authority: authority is the power to of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him
§ Ex. “sell my car”
o Implied Authority – actual authority, circumstantially proven, which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated
§ Prior conduct allowing an agent to act in a certain way is a key part of implied authority
§ Includes acts necessary to fulfill the principal’s demands
§ Rest §35. When Incidental Authority is Inferred: unless otherwise agreed, authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it
· e.g. place ads, collect money
o Mill Street Church of Christ v. Hogan (1990)
§ F: Bill Hogan (A) was hired to paint church building; he’d performed similar jobs for them in the past and had always been permitted to hire his brother (3P) to help; he did so this time, and brother got hurt, filed worker’s comp. claim (Church is principal)
· The church did not expressly state that Bill could hire Sam this time, but did expressly tell him he could hire someone to help
§ H: Bill Hogan did have implied authority to hire Sam

– (2) Apparent Authority: Manifestation from P to 3P
o e.g. P says to 3P, “A has authority to sell my car”
o Rest §8. Apparent Authority: Apparent authority is the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to such third persons
o Authority that the agent is held out by the principal as possessing
§ A matter of third party appearances
o Note – belief that the 3rd party has the authority must be “reasonable”
o Lind v. Schenley Industries, Inc.
§ F: guy’s direct superior told employee that he would get a certain amount of compensation, he did not actually have the authority to make this offer
§ H: employer is liable for the increased compensation
§ Apparent authority – principal acts in such a manner as to convey the impression to a third party that an agent has certain powers which he may or may not actually possess
§ Here – the principal is liable under the theory of “apparent” authority
· Employee’s direct superior told him about the raise, the employee had been told to go to that person for the details of his new assignment/salary – it thus appeared to Π that his superior was the spokesman for the company
– Actual v. Apparent
o Actual (express or implied)
§ P à A [third party perceptions are not relevant] o Apparent
§ P à 3P [even if agent did not have power, principal caused third party to believe that agent had the authority] – (3) Inherent Authority: arises from the designation of a principal of a kind of agent who ordinarily possesses certain powers
o Does NOT require a manifestation by the principal (could exist even where the principal is undisclosed)
o Rest §8A. Inherent Agency Power: Inherent agency is a term used in the restatement of this subject to indicate the power of an agent which is derived not from authority, apparent authority, or estoppel, but solely from the agency relations and exists for the protection of persons harmed by or dealing with a servant or other agent.
o Rest §194. Acts of General Agents: an undisclosed principal is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principal
o Rest §195. Acts of a Manager Appearing to be Owner: an undisclosed principal who entrusts an agent with the management of his business is subject to liability to 3rd persons with whom the agent enters into transactions usual in such business and on the principal’s account, although contrary to the directions of the principal
o generally found when there is an undisclosed or partially disclosed principal
o Note: Prof. Means, as well as the 3rd Restatement, do not like the notion of inherent agency, and would, instead, take a broader approach to apparent authority
o Watteau v. Fenwick (1892)
§ F: Humble transferred beerhouse ownership to Ds, but remained their manager, and his name remained above the door; under the agmt b/w parties, Humble only had authority to buy bottled beer and mineral water; P seeks to recover the price of goods (cigars and bovril) which Humble ordered and sold at/through the bar
§ Issue: is the principal liable where the agent acts outside the scope of their agmt, but within the scope of his position so as to represent to a 3rd party that he has the authority, and the 3rd party did not even know of a principal? -> Yes, through inherent agency
§ the principal is liable for all the acts of the agent which are usually within the authority of an agent of that character (even if the agent exceeds limitations placed on his actions by the principal)
§ [Note – this has to be an “inherent” rather than “apparent” agency case because the P did NOT make any manifestations to the third party] – (4) Ratification: the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account.
o affirmance by P of A’s “unauthorized act”
§ e.g. after A offers to sell P’s car to 3P, P says “great deal I’m all for it”
o Elements:
§ 1) acceptance of the results w/ intent to ratify
§ 2) with full knowledge of all the material circumstances
o requires acceptance of the results of the act with an intent to ratify, and with full knowledge of all the material circumstances
§ Del

Two Types
§ (1) Agent-Type: Independent contractor acts on behalf of P, BUT not subject to P’s control on method
§ (2) Non-Agent: Independent contractor operates independently in arms-length transactions
o Test: whether the company has retained the right to control the details of the day-to-day operation of the independent contractor
§ Control or influence over results alone is insufficient
§ Also look to see who bears the risk of loss
– Note – when looking at control we are concerned with the right to control, not necessarily whether or not that control was actually exerted (so if P has right to control A then P is liable for As acts whether or not P was exercising any control)
– Note – some cts will find a M-S relationship as to some aspects of the relationship but not to others (e.g. maybe just food preparation in the McDonalds case)
o E.g. Vandermark v. McDonald’s Corp (Supp 1-2) – the court focuses on whether there was a M-S relationship as to the “instrumentality” that caused the harm (in this case whether McDonald’s had control of the security operations of a franchise after Π was injured in a robbery)
– Agency v. other fiduciaries: “it is the element of continuous subjection to the will of the principal which distinguishes the agent from other fiduciaries and the agency agmt from other agmts”
o The test for determining whether a K est. an agency relationship: the nature and extent of control agreed upon
– Rest §220. Definition of Servant:
o (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.
o (2) In determining whether one acting for another is a servant or an independent contractor, the following matters of fact, among others, are considered:
§ (a) the extent of control which, by the agreement, the master may exercise over the details of the work;
§ (b) whether or not the one employed is engaged in a distinct occupation or business;
§ (c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
§ (d) the skill required in the particular occupation;
§ (e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
§ (f) the length of time for which the person is employed;
§ (g) the method of payment, whether by the time or by the job;
§ (h) whether or not the work is a part of the regular business of the employer;
§ (i) whether or not the parties believe they are creating the relation of master and servant; and
§ (j) whether the principal is or is not in business.
– Humble Oil & Refining Co. v. Martin (1949)
o F: Love dropped her car off at Humble’s service station, and before any station employee had touched it, gravity caused it to roll off the premises, across the street, and hit the Martins; Humble claims he’s not liable b/c the station was run by an independent contractor
o Issue: Is Humble liable as the principal for the negligent acts of Schneider and Manis in running the station? – Yes
o H: Schneider, and therefore Manis, were agents of Humble – Humble exercised considerable control over the course of business at the station
§ Δ had power to control the details of the operation of the station and thus this was not just an independent contractor relationship
· Contract allows Δ to require duties of Schneider (“independent contractor”)
· Purpose of business was marketing of Δ’s products, Δ had strict financial control – little business discretion left to Schneider
o Schneider really only controlled some of the hiring, discharge, and payment practices
o Schneider’s occupancy was terminable at will of Δ
· This was Δ’s business – Schneider was his servant just as a store clerk is the servant of store owner
– Hoover v. Sun Oil Company (1965)
o F: Ps rec’d injuries from a fire at service station operated by Barone; the fire started at the rear of P’s car when being filled with gasoline (Smilyk, an employee of Barone, was apparently negligence and dropped a cigarette)