I. CREATION OF AGENCY
a. For an agency relationship to exist (Restat 3d § 1.01):
i. there must be mutual agreement
i. to the following two points
ii. At common law, formal or informal, express or implied. Restat 3d 1.03. In some states, “equal dignity” rule applies and written consent is necessary.
iii. involves manifestation by or attributable to the principal, and manifestation by the agent
iv. outward manifestations as judged by RP, not subjective, inward thoughts, determine consent
ii. the agent must be acting on behalf of the principal, AND
iii. the agent must act subject to the principal’s control
i. At a minimum, principal must control the goal of the relationship.
ii. Principal need not have total, continuous control over how the agent physically performs
b. no consideration required for an agency relationship to exist
i. Unpaid agents are called “gratuitous agents”; a different standard of care may apply, and they may have increased rights to terminate the agency relationship
c. irrelevant whether the parties understood they were creating an agency relationship or desired to create one (Restat 1.02)
d. Do not say “X the agent of Y” but rather “For the purposes of [specified consequence], X is an agent of Y.” Context is key.
Agency v. Gratuitous Bailment:
Gordon v. Doty (SC of Idaho, 1937, pg. 8)
Facts: D (Doty) “loaned” car to football coach “if he drove it” to the game. Coach crashed and student was injured.
Holding: Because D didn’t want to drive herself, the coach drove on her behalf, and b/c she gave the car subject to the condition that coach drive it, coach was subject to her control; thus, the coach was her agent.
Dissent: The condition that the coach drive the car wasn’t enough to constitute control; the coach was a gratuitous bailee.
· In WA, under Kaynor, the family car doctrine says that if an automobile is (1) owned, obtained, or provided by a parent (2) for customary use by members of the family (3) the accident is caused by a member of the family and is operating the vehicle with the express or implied consent of the parent, then the parent is liable.
Agency vs. Creditor-Debtor Relationship
· If creditor controls debtor enough, there may be an agency relationship, regardless of their explicit agreement.
A. Gay Jenson Farms v. Cargill (SC of Minnesota, 1981, 13)
Facts: Cargill financed Warren, a grain processing co., and let Cargill write checks on its account. Cargill kept the books, did periodic audits, had right of first refusal for grain, purchased most grain, could terminate financing, said Warren needed “strong paternal guidance.” When Warren went under, farmers sued Warren to recover for unpaid debt.
Holding: Cargill controlled Warren to the point that it became a principal. Although creditor-debtor usually ≠ principal-agent and there wasn’t much proof of “on behalf of” element, there was sufficient control to find agency.
· Extremely weird situation to let debtor take money out of your account directly.
Agency vs. Contract Relationship
Green v. H&R Block (C of A of Maryland, 1999, pg. 19)
Facts: H&R Block helped ppl get loans but didn’t disclose kickbacks on the bank’s finance fee and on checks cashed with Sears. Block admitted it was an agent for purposes of preparing taxes, but said that relationship ended when it delivered papers to bank.
Holding: The clients retain enough control over Block to support a finding of an agency relationship b/c Block acted on the client’s wishes, admitted to being an agent for purposes of preparing taxes and did not clearly define an end to that relationship, and emphasized trust in its advertising.
· Less control is required for principal-agent than for master-servant (old distinction)/employee-non-employee
· Controversial decision – many courts held otherwise
· Block could have argued that the taxpayer has no control over it, Block is just providing a service, and therefore the taxpayer isn’t a principal. Instead, it conceded it was an agent for purposes of preparing taxes.
II. AGENCY: LIABILITY IN CONTRACT
Principal’s Liability to Third Parties
Express Actual Authority
· A principal has expressly communicated to an agent the power to perform some act on the principal’s behalf
· Test for scope of authority: Would a reasonable person in the agent’s position interpret the principal’s communication to encompass a particular act? (See Restat 2d § 26, Restat 3d § 2.01, 2.02, 3.01)
Williams v. Dugan – Presumption against power to borrow money
Must be express terms to that effect or flow necessarily and inevitably as a consequence of the agency created
If there is actual authority, an agent can make a binding K regardless of whether the agent is disclosed, partially disclosed, or undisclosed. See Restat 3d §6.01-6.03.
Williams v. Dugan (SC of Massachusetts, 1914, pg. 30)
Facts: POA explicitly gave atty authority to do several things related to Bessie’s property, including paying all taxes and acting “as fully and effectually as I might do if personally present.” Atty borrowed money to pay her taxes; she sued.
Holding: Although the POA contains a broad grant of power, the court interprets narrowly and holds that since the right to borrow money is not among the enumerated powers, it is not within the POA’s scope.
· court reads narrowly b/c fraud, abuse, and unequal bargaining power used frequently in similar situations.
· atty probably could have argued implied actual authority b/c he was explicitly given power to do similar things
Implied Actual Authority & Apparent Authority
· Implied authority: When P does not expressly confer authority, but P’s words or conduct “reasonably interpreted, cause the agent to believe” he has authority. (Restat 2d § 26, Restat 3d § 2.01, 3.01)
· Apparent Authority (Restat 3d §3.03): when
o a TP, at the time of making the K, reasonably believes the actor has authority to act on behalf of the principal, AND
o that belief is traceable to the principal’s manifestations
§ Express statements of authority, prior acts, and position itself are all relevant
o When A acts under apparent authority, A will be liable to P for breach of his duty of obedience (to act w/in the authorized scope)
o
Essco Geometric v. Harvard Industries (8th Cir., 1995, pg. 32)
Facts: For 20 years, Best served as purchasing manager for Harvard and made orders from Diversified. Gray replaced him as purchasing manager. Harvard instituted “world class purchasing plan” and required manager to sign off on all purchases of over $50. Gray entered 2-year requirements K w/ Diversified based on their superior prices and quality. Partway through performance, Harvard stopped buying from Diversified.
Holding: (1) Gray could have implied actual authority b/c he was trying to comply w/ the world class plan of lowering costs and increasing quality, and failing to have manager sign off didn’t matter b/c just a formality. (2) Gray could have apparent authority b/c he did what the previous manager had done for 20 years and what other purchasing managers in the industry did (although a 2 year requirements K was slightly unusual).
· WA case says that for apparent authority to exist, the third party must have actually, subjectively believed the agent was authorized and must demonstrate that this belief was reasonable.
Inherent Authority
· Inherent authority not included in Restat 3d, a fuzzy idea.
· Kidd v. Thomas Edison (SD of NY, 1917, pg. 41) – singers, recitals and contracts
Scope of authority measured by the whole setting not necessarily specific agreement
Makes no difference that agent may be disregarding principals direction, secret or otherwise, so long as he continues in that larger field measured by the general scope of the business entrusted to his care
Mostly now taken as apparent authority
Undisclosed Principals
· Restat 3d corollary to inherent authority. Restat 3d §2.06.
· When an A has no actual or inherent authority, the undisclosed principal can still be liable if :
o TP is justifiably induced to make a detrimental change in position, AND
o P has notice of the agent’s conduct, AND
o P did not take reasonable steps to notify TP of the facts.
o
Mo
an employee?
a. Servants vs. Independent Contractors
i. If the employer’s right to control the activities of an employee extends to the manner in which a task is to be performed, then the employee is not an independent contractor
Factors indicating whether someone is an employee or not
Cuts toward employee status
Cuts toward non-employee status
P & A have agreed the P may exercise control over details of A’s work
A is engaged in a distinct occupation or biz
Type of work done by A is customarily done under a P’s direction
Type of work done by A is customarily unsupervised
A does unskilled work
A does skilled work
P supplies tools & workplace
A supplies tools & workplace
A works for P for a long time
A works for P for a short time
A paid based on time worked
A paid job by job
A’s work is part of P’s regular business
P & A believe they’re creating an employment relationship
P is “in business” – does ongoing business
P not in business
Vandemark v. McDonald’s Corp. (Supreme Court of New Hampshire, 2006, Supplement Item 2)
Facts: P was working as a janitor at McDonald’s and was assaulted on his nightshift; emergency button didn’t work. McDonald’s had told the franchisee that they weren’t in compliance with security measures and “recommended” remedial action, but the K and lease said the franchisee wasn’t an agent.
Holding: The franchisee was not an agent b/c there was no evidence that McDonald’s had control over the specific security aspect of the business; having the contractual right to require that the franchisee buy its equipment and keep the store safe and wholesome wasn’t enough to establish agency.
· old definition of agency doesn’t fit new, complex relationships
b. Borrowed Servant Doctrine (pg. 70, Restat 3d § 7.03, cmt. 2)
i. When A is employed by B (general employer), who contracts A’s work out to C (special employer), who’s liable? Courts split, but it comes down to a factual determination of who controls the employee more.
ii. “Liability s be allocated to the employer in a better position to take measures to prevent the injury suffered by the third party. An employer is in that position if the employer has the right to control an employee’s conduct.” Restat 3d § 7.03, cmt. 2.
