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Business Associations
West Virginia University School of Law
Cummings, Andre Douglas Pond

Business Organization Spring 2011
Professor Cummings
Restatement 2nd of Agency § 1:
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.
–           Do not need valid K between parties; only needs to be an agreement.
–           Compensation is not essential to form an agency relationship
·         Law:
o   One party grants another rights to act on their behalf
o   Under what circumstances the individual can bind on to those actions
o   Triangular
§  Principal—On top
§  Agent
·         Relying on the authority given to it by the principal
·         It gets convoluted when dealing with the kind of authority that an agent has
·         Sec. 1 of the Restatement
§  Third Party
Gorton v. Doty [coach transport football players in teacher’s car] Implies principal liable for torts of agent when agent is acting with the scope of the relationship
Agency—indicates the relation which exists where one person acts for another
Principal Forms:
The relation of principal and agent
The relation of master and servant
The relation of employer or proprietor and independent contractor
What policy reasons do we have respondiate superior?  A principal could have exercised his or her control differently.  It all comes down to control.  Principal had the power to prevent the tort in exercising its control differently.
·         It is a type of a least cost avoider doctrine
Fiduciary Relationship:
Where one acts on behalf of another
High standard of care
Duty of agent to act in the best interest of the principal
Put principal’s best interest above the agent’s own interest
Jenson Farms v. Cargill [major grain co. exercised too much control over smaller co.] When an agency relationship is to be proven by circumstantial evidence, the principal must be shown to have consented to the agency since one cannot be the agent of another except by consent of the latter.
A creditor who assumes control of his debtor’s business may become liable as a principal for the acts of the debtor in connection with the business. Restatement of Agency Sec. 14
Generally, what creditors can do without establishing an agency relationship
1.  Creditors can insist on receiving information on financial reports
2.  Provide counseling on discrete matters
3.  Recommend Consultants
Impermissible or put creditor in jeopardy
1.                  Exercising or maintaining a veto power over important decisions
2.                  Coercing the debtor to put into control a person designated by the creditor
3.                  Assuring other creditors that they will get paid
5 categories of agency authority
a.  actual express authority
b.  actual implied authority
c.  apparent authority
d.  ratification
e.  inherent agency power
Agent has express authority in that the principal has directly instructed agent to so act and agent acts according to that instruction.
[ex]  principal tells agent to do something and agent does it = principal bound
Restatement 2nd § 26:
Conduct by the principal that can be reasonably interpreted by the agent to believe that principal desire to act on the principal’s account
–           It’s what I need to do the get the job done; past practices
–           Actual-implied 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.  Relationship between P and A
Mill Street Church v. Hogan [hired brother to help paint the church] If in order to carry out Principals explicit instructions Agent takes some other steps necessary to carry out those instructions, Principal is bound.  Must be a necessary step.
It is the belief of agent that governs
When is the court going to make the principal responsible if there is no directive given?
A representation from the principal to the third party
Perception of the third party
What did the third party thing
Did the third party belief that authority had been given to the agent to enter into that specific transaction
Going to look at who is the least cost avoider
The most efficient individual or business
Factors in considering implied authority
1.  Prior or similar practice (most important)
2.  Agent’s reasonable belief based on present or past conduct of the principal
3.  Nature of the task or job
4.  Must focus on the agent’s understanding of his authority
5.  Specific conduct by the principal in the past permitting the agent to exercise similar powers
Example:  It’s reasonable to expect that the Browns GM will need to take a plane and get hotel to sign a free agent.
–           Burden of proving agency rests with the person alleging such exists through conduct not statements.
Restatement 2nd § 8:
Arises when a principle 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
            –           What the third party was led to believe
Restatement 2nd § 159:
Principal can be liable for acts of agent even if principal forbids act
–           Principal must manifest agent’s authority – some activity or action for the principal manifest that the agent has authority [The church previously gave Bill permission to hire Same previously]  
Lind v. Schenley Industries [power to give 1% commission] 1.                  The same facts will support a finding of inherent or apparent agency:
a.       Usually it is not necessary for a third party attempting to hold a principle to specify which type of authority he relies upon, general proof of agency being sufficient
Three-Seventy Leasing v. Ampex [all communication about computers shall go through Kay] An agent has apparent authority sufficient to bind the principal when the principal acts in such a manner as would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise. (Common Law Definition)
Absent knowledge on the part of third parties to the contrary, an agent has the apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct…
If there is no information present, the principle is boun

ad that they did so I will affirm the transaction and ratify the contract.”
If the original transaction was not purported to be done on account of the principal, the fact that the principal receives its proceeds does not make him a party to it. 
Transactions can be ratified in the following ways
·                     Actual affirmance
a.       Simply agreeing to the terms
·                     Implied affirmance through acceptance, shown through the benefits of the transaction at a time the benefits could be denied
·                     Implied affirmance through silence or inaction
a.       Cannot repudiate
·                     Applied affirmation through ratification by bringing a lawsuit
The rule requires that the principal must know or have reasonable opportunity to know about the full facts of relation to the transaction
Restatement 2nd § 8b:
Unique occurrences where solely through the lack of the proprietor’s reasonable surveillance and supervision an impostor falsely impersonates in the place of business an agent or servant of his.
Hoddeson v. Koos Bros. [frosted gray hair at the temples case] Where a party seeks to impose liability upon an alleged principal on a contract made by an alleged agent, the party must assume the obligation of proving the agency relationship. It is not the burden of the alleged principle to disprove it.
Liability of a principle to third parties for the acts of an agent may be show by proof disclosing:
Express or real authority which has been definitely granted
Implied authority, that is, to do all that is proper, customarily incidental and reasonably appropriate to the exercise of the authority granted
Apparent authority, such as where the principle by words, conduct, or other indicative manifestations has “held out” the person to be his agent
Common accepted elements for estopple
·                     The principle creates through intentional or negligent acts an a appearance of authority
·                     Reasonable good faith, the victim changed his/her position on reliance of the authority
–           Difference between apparent authority and estopple is the change of position.
–           Agency by estoppel is pretty narrow – duty on the proprietor to use reasonable surveillance
·                     General Rule of law: that the apparency and appearance of authority must be shown to have been created by the manifestations of the alleged principal, and not alone and solely by proof of those of the supposed agent