BUSINESS ASSOCIATIONS GENERALLY
I. Types of Structures:
A. Sales:
1. Pros: you get your $ right away.
2. Cons:
a. If you haven’t gotten paid yet, and the company goes bankrupt, you will lose all $.
b. You don’t have control over your goods.
B. Consignment:
1. Pro: you have some control over your goods, and you may even get the goods returned back.
C. Company set-up (your own shop):
1. Employment Relationship:
a. Advantages/Disadvantages:
(1.) People might not be as willing/adamant to sell your product if they don’t
get anything out of it…thus, if you could give the employee a stake in the
company/commission.
(2.) Business owners have costs, overhead.
(3.) You can control who you hire/fire.
2. Master/Servant relationship:
a. Pro: to company set-up is that it is your stuff! You have control over marketing, $, etc.
b. Con: direct liability goes to you…everything from slip and fall to products liability.
(1.) Humble Oil: Car backed over family…owner was liable for K’s actions b/c
he had substantial control over the K’er.
II. AGENCIES
A. An agency relationship consists of:
1. Principle= the one who orders the actions.
2. Agent= the one who is to act.
B. Tests for an agency:
1 Agent must consent to act,
2. Agent must act on the principal’s BEHALF, and
3. Principal must have CONTROL over the agent.
a. KEY is in determining if principal has control (both actual and the right of control).
b. i.e. asking friend to buy you a drink at the bar is a principal/agent relationship.
C. TYPES of Agents: (Troubles arise when you have principal, agent, and 3rd party.)
1. Independent CONTRACTOR: may or may not be the principal’s agent. Contracts w/ principle
to do something, but is NOT controlled by them.
a. However, if you give the K’er $ and say “go buy wood w/ this,” he is acting as your
agent. BUT, he can only act in the capacity that you gave him.
b. Key is whether the principal (or owner) has substantial control over K’er. Q. of fact.
2. Employees: key to determining whether an employee is an agent is:
a. How much CONTROL you have over that person. (control= pay checks, weekly;
scheduled breaks; social security)
b. No per se rule on when an employee can make an employer liable, however, look at:
(1.) If the employee is acting in the SCOPE OF EMPLOYMENT…if he is not,
then the employer is probably safe.
(2.) Look at 219 of Restatement 2nd of Agency
(3.) State statute.
3. Franchises: key in determining if a franchise is a principal/agent relationship is control…both
the RIGHT of control and ACTUAL control. Look at factors:
a. Employment issues. (hire, fire, wages)
b. Maintenance
c. Finances
d. Training (common in franchise Ks, not really control)
e. Marketing (common in franchise Ks, not control)
f. Trade name use (same)
g. Manual for running the business (if so specific…may go to control, becomes jury/Q)
h. Control (Billops: b/
ay or may not actually posses, and the belief is reasonable.
b. Agent has apparent authority to bind principal when the principal acts in such a
manner as would lead a reasonably prudent person to suppose that agent had the authority
he purported to exercise.
3. Inherent Authority: now called…ESTOPPEL of Undisclosed Principal.
a. New View: you have a situation where you have an undisclosed principal and the agent
is doing things in the normal course of work (look at usage, custom, and conduct).
(1.) Policy: inherent authority comes b/c it would be unfair if undisclosed
principle and then limitation of authority could prevail and defeat an action
of person dealing w/ the agent and then discover had principal.
(2.) Thus, policy is don’t protect principal b/c they are in a better position to
prevent the harm.
b. TESTED when: undisclosed principal, general agent, reasonable belief by 3rd party.
4. Situations:
a. General agent does something similar to what he is authorized to do but in violation of
orders.
b. An agent acts purely for his own purposes in entering into a transaction which would
be authorized if he were motivated by a proper purpose.
