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Business Associations
University of Toledo School of Law
Chaffee, Eric C.

Professor Eric Chafee    Business Associations         Fall 2013
Agent: a person who by mutual assent acts on behalf of another and subject to other’s control.
Principal: Person for whom the agent act
–       An agreement is required for agency (offer and acceptance only (Gordon) – No consideration is required
o   No need to have a contract or business context
–       Circumstantial evidence of control can be used to find agency(Cargill)
o   When no master servant agreement
Requirements for an Agency Relationship:
–          Agency Agreement is:
1) Manifestation by P that the A should act for the P
2) A’s acceptance of the manifestation or undertaking
3) A understands that P is in control
Agency Test is a two-step inquiry:
·         First off you need someone who is an agent?
§  Consent and control
·         Second we limit the liability of the principal to three circumstances:
§  Actual authority (express and implied) representations of P to A
§  Apparent authority : representations of P to 3d
§  Inherent authority representations A to 3d based on position P put A in.
–          Agency powers do not require that the parties intend to create an agency relationship or even believe that an agency relationship exists
·         Agency is a factual relationship that may exist regardless of the “actors’” attempts to avoid it.
Liability of Principal
Scope of Authority
Actual Authority – Express and Implied
1)    Express Authority (easier to prove)
a.       Someone explicitly says you have the power to do something
2)    Implied Authority (Mill Street Case)
–       P make representation to the agent
–       Authority proven by circumstantial evidence as given to agent by principal  
Apparent Authority (Three Seventy)
–       P makes representation to the third party
–       Blurriness between apparent authority & implied actual authority (On exam argue both)
–       Ex. Giving an agent a contract with your company logo on it
–       In cases of apparent authority the principal is liable because they created the problem.
                                        i.      Without them having an agent this situation would never have existed
Inherent Authority (Watteau case)
–       Principal placing the agent in a position to communicate authority to third party
–       Derived, not from actual authority, apparent authority or estoppel but solely from the agency relationship and exists for the protection of persons harmed by dealing with a servant or other agent (Third parties)
–       Principal liable because the fact agent was put in this position allowed the problem to occur
–       Not everyone thinks this should exist
Ratification  (Bodicello)
–          Principal may be liable to a third party thru ratification
–          Ratification is defined as the affirmance by  a person of a prior act which did not bind him but was done or professedly done on his account (Restatement)
·         First off look at if they accepted benefit of the transaction (intent to ratify) and
·         Secondly whether the person had knowledge of all the material facts
Estoppel (Hodeson v. Cuz Brothers)
–          Circumstances under which no agency and no authority but estoppel is used to prevent principal from denying the existence of the relationship
–          Estoppel is an equitable remedy
–          Estoppel based on dereliction of duty
·         Principal should know that someone’s acting on their behalf.
Agents Liability on the Contract
Agent’s Liability (Atlantic Salmon)
Default rule is the principal is only liable and the agent is not
–          Exception: there is a partially disclosed or undisclosed principal
·         Principal will still be liable, but agent will also be
–          Disclosed Principal: When A and 3d interact, the 3d has notice that A is acting for a P and has notice of the P’s identity
–          Partially Disclosed  Principal: When A and 3d interact, 3d has notice agent is acting for a P, but doesn’t have notice of the P’s identity
–          Undisclosed Principal: When A and 3d interact, 3d has no notice that the agent is acting for a P
–          Exam: Principal can blame agent because they didn’t disclose who they were working for
Liability of Principal to Third Parties in Torts
Humble Case (agent case so principal liable):
–          Agency is a test based on control (to act under someone’s control & agent has to accept your control)
–          Agent versus independent contractor is a factually sensitive inquiry
·         Limiting control may make it appear more like an independent contractor than agent
·         Master servant relationship: servant agrees to work on behalf of master and be subject to the control of the master (control in a manner in which the job is completed)
§  Control of the books and finances
·         Independent contractor : knows the end result but would have a say in how to comp

g from an employee’s assault :
·         Must show employee’s assault was in response to the plaintiff’s conduct which was presently interfering with the employee’s ability to perform his duties successfully.
§  Interference must be in the form of an affirmative attempt to prevent employee from carrying out his assignments
Arguello v. Conoco, Inc.
–          Use this to find principal liable for act of the agent
–          Some of the factors used when considering whether an employee’s acts are within the scope of employment are [All of the factors DO NOT have to be met][ Will be on EXAM):
1) Time, place and purpose of the act
2) Similarity to acts which the servant is authorized to perform
3) Is act commonly performed by servants?
4) Extent of departure from normal methods  
5) Would master reasonably expect such act would be performed?
Majestic Realty Associates, Inc. v. Toti Contracting Co.
–          Principal generally not liable for torts of independent contractor
·         Exceptions when a principal would be liable for the acts of an independent contractor:
§  When principal retains control over manner and means of doing the work
·         Landowner hires someone to work on land while maintaining control
§  When principal engages a, known or should have known, incompetent independent contractor
§  Activity constitutes nuisance per se
§  The activity contracted for is inherently dangerous (nuisance per se and can be done safely)  or ultra hazardous
·         Involves serious risk of harm which cannot be eliminated by the exercise of utmost care
·         Something ultra-hazardous (not be done safely even with precautions) will always be inherently dangerous but something inherently dangerous (can be done safely with precautions) will not always be ultra-hazardous
o   Dangerous act wouldn’t result in principal being liable for an independent contractor but ultra hazardous would result
§  Distinguish on Exam