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Business Organizations
West Virginia University School of Law
Martin, Jena


Who is an Agent

Fiduciary relationship that arises when one person, the principal, manifests assent to another person, the agent, that the agent will act on the principal’s behalf and subject to the principal’s control and the agent consents so to act. (Cargill, Doty, RST 1.01).

§ Start the analysis for CONTRACT and for TORT liability to third parties with this definition; also for the duty of loyalty.

§ Manifestation – a person manifests assent or intention through written or spoken words, or other conduct.

§ You must have agency for EACH TRANSACTION.

§ Burden of Proof is on the person alleging that there was an agency relationship.

§ An independent contractor is not subject to control, just must produce the results.

Gorton v. Duty

Facts: Father sued the owner of the automobile that coach was driving for son’s medical expenses. Owner of the vehicle said that she was not the principal and that she had only loaned her vehicle.

Issue: Was the coach the agency of the appellant?

Rule: Agency is the relationship 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. Ownership alone, regardless of the presence or absence of the owner in the car at the time of the accident, establishes a prima facie case against the owner that the owner is the principal and the driver the agent.

Holding: The coach was the agent of the appellant.

Gay v. Jenson Farms Co. v. Cargill Inc.

Facts: Warren grain, the defendant, obtained financing from the defendant. Warren defaulted on a 2 million dollar contract with the plaintiff. Warren was experiencing financial difficulties so the plaintiff went after Cargill as principal. Cargill argues that Warren was not its agent and it was therefore not principal.

Issue: Was Warren an agent of Cargill?

Rules: Agency is the fiduciary relationship that 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. In order to create an agency there must be an agreement, but not necessarily a contract between the parties. The existence of the agency may be proved by circumstantial evidence which shows a course of dealing between the two parties.

Holding: Yes, Warrant was an agent of Cargill. A number of factors support this. For example: (1) Cargill made constant recommendations to Warrant by telephone; (2) had right of first refusal on grain; (3) prevented Warrant to entered into mortgages to purchases stock without approval; (4) had right of entry on Warren’s premises for periodic checks; (5) criticized Warrant on finances, salaries, and inventory; (6) determined that Warren need strong paternal guidance; (7) name was printed on Warrant’s drafts; (8) financed all of Warren’s purchases and operating expenses; and (9) had the power to discontinue the financing of Warren’s operations.

Liability of Principal to Third Parties in Contract

The PAT Triangle:

1)P ß—–àA; agency relationship between P and A

2)A ß—–àT; A’s dealing with T

3)T ß—–àP; create legal liability of P to T and vice-versa

If 1 and 2 then you have 3. That is the slopped part of the triangle.

Principles of Attribution

A. (Actual) Express Authority

§ Agency that occurs when a principal and an agent expressly agree to enter into an agency agreement with each other.

§ The agent must reasonably believe in accordance with the principal’s manifestation that the principal wishes the agency to act.

§ Must be within the scope of actual authority for liability.

§ Express agency contracts can be either oral or written unless the Statute of Frauds stipulates that they must be written.

§ Look at INTERNAL COMMUNICATIONS between P and A. Ex. P actually says so.

B. (Actual) Implied Authority

§ An agency that occurs when a principal and an agent do not expressly create an agency.

§ The agency is implied from the conduct of the parties.

§ The extent of the agent’s authority is determined from the particular facts and circumstances.

§ Look at INTERNAL COMMUNICATIONS between P and A. Ex. She told me to get the car so I did.

C. Apparent Authority

§ Agency that arises when a principal creates the appearance of an agency that in actuality does not exist.

§ Third party must reasonably believe that the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.

§ When apparent authority is established, the principal is estopped from denying the agency relationship.

§ It is the principal’s actions that create apparent authority.


D. Authority by Ratification

§ An agency that occurs when (1) a person misrepresents himself or herself as another’s agent when in fact she is not (2) the purported principal ratifies the unauthorized act.

§ If it is ratified it will be treated as having been authorized when first entered into.

§ Ratification is not effective in cases where it would be unfair to bind innocent party (ex. a house burning down).

§ Must have knowledge of all key/material elements when you ratify.

§ Its all or nothing. No partial ratification.

§ Ways to Ratify: (1) express affirmation by the principal (2) implied affirmation through the acceptance of benefits (3) implied affirmation through silence or inaction (4) implied affirmation by bringing a lawsuit to enforce contract.

E. Estoppel to Deny Existence of Agency Relationship

§ Third party induced to make detrimental change

§ Agent has no actual authority

§ Principal intentionally or carelessly caused such belief

§ Principal had notice that a belief was created and inducement but did not take reasonable steps to notify third party of the facts. (RST).

§ About equity not agency.

Notes: when an agent has actual authority – principal is solely liable to a third party.

Mill Street Church of Christ v. Hogan

Facts: Hogan was hired by the Church to paint the church building. Hogan approached his brother, Sam, to assist him with the painting as he had done in the past. No mention was made that he could not do so, only that the church has considered hiring Petty as a helper. Sam fell to the floor and broke his left arm. Sam filed a claim under the workers compensation act. The church contends that there was neither implied (actual authority circumstantially proven which the principal actually intended the agent to possess) nor apparent authority (which is not actual authority but is the authority the agent is held out by the principal as possessing) for Bill Hogan, as an agent, to hire Sam Hogan.

Rule: In examining whether implied authority exists, it is important to focus upon the agent’s understanding of his authority. It must be determined whether the agent reasonably believes because of present or past conduct of the principal that the principal wishes him to act in a certain way or to have certain authority. The nature of the task or job may be another factor to consider. The existence of prior similar practices is one of the most important factors.

Issue: Did Hogan have implied authority to hire Sam?

Holding: Hogan had implied authority to hire Sam as his helper because (1) he had done so in the past (2) even though the church had discussed a different assistance no mention was made to Hogan (3) Hogan needed to hire an assistant to complete the job (4) the church mentioned that Petty would be hard to get ahold of and (5) Sam believed that Hogan had the authority to hire him as had been the practice in the past.

Three-Seventy Leasing Corporation v. Ampex Corporation

Facts: Joyce (only active employee of 370) entered into negotiations with Ampex for Ampex to sell 370 computers so long as credit requirements were passed. At the same time, Joyce began negotiations to lease to EDS Ampex computer core memories. Kays, a salesman of Ampex, and Joyce continued negotiations, which resulted in a written document submitted to Joyce at the direction of Mueller. The document contained a signature block for a representative of 370 and for Ampex. Only Joyce signed. Ampex contends that the document was nothing more than a solicitation which became an offer to purchase and this offer was never accepted by Ampex.

Rule: 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. 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.

Holding: The fact that the document had a signature block for a representative of Ampex which was unsigned at the time it was submitted to Joyce, in the absence of other evidence, negates any interpretation that Ampex intended this to be an offer to Joyce. However, Muellar issued an intra-office memo which stated that Ampex was awarded an agreement by 370 for the purchase of 6 memory united to be installed at EDS. The memo further informed those concerned that all contact with 370 should be handled through Kays. On Nov 17th Kays sent a letter to Joyce which confirmed the delivery dates for the memory units. In the light of this circumstances the lower court did not err by holding that Kays had apparent authority to accept Joyce’s offer on behalf of Ampex.

Note: Apparent authority only exists “when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.”

Watteau v. Fenwick

Facts: Defendant owned a hotel-pub that employed Humble to manage the establishment. Humble was the exclusive face of the business; Humble’s name wa

4) location of work (15) skill.

Scope of Employment Analysis

1. Was the conduct the same general nature as, or incident to, that which the servant was employed to perform (RST § 229)

2. Was the conduct substantially removed form the authorized time and space limits of the employment (“frolic and detour”)

3. Was the conduct motivated by a purpose to serve the master (“motive test”)

4. Was some harm foreseeable, even if not the particular harm

5. “An employee acts within the scope of employment when performing work assigned y the employer or engaging in a course of conduct subject to the employer’s control (RST § 7.07 “course of conduct”)

Note: the scope of employment doctrine is in need of repairs. Basically everything is w/in scope.

If acting within scope, the P’s liability is established, if not then there is no liability.

Other Types of Relationship than Master-Servant

1. non-agent service provider – (aka non-agent independent contractor) operates independently and simply enters into arm’s length transactions and others. For the purposes of tort liability only, P is not liable for acts of this types.

2. Non-employee Agent: (agent type independent contractor) agreed to act on behalf of another, P but is not subject to P’s control over how the result is accomplished. For the purposes of tort liability only, P is not liable for acts of this type.

Humble Oil & Refining Co. v. Martin

Facts: Love left her car at a service station to get the brakes repaired. The station was operated by W.T. Schneider through a “Commission Agency Agreement” with Humble. Love did not correctly secure the car before handing control to the station, and the station did not check the car immediately to secure it. Love’s car rolled downhill, out of the station lot and into Plaintiff’s property, striking Plaintiff and his two children. Humble maintained that they were not liable because Schneider was an independent contractor.

Issue: Is Schneider an independent contractor or does a master-servant relationship exists between Humble and Schneider?

Rule: Determining whether a master-servant relationship exists, rather than an independent contractor relationship, is a question of fact that will be answered in the affirmative when the master exerts a considerable amount of control over the responsibilities of the servant.

Holding: Yes. A master-servant relationship exists between Humble and Schneider. Humble maintained considerable control over Schneider by dictating several important aspects of Schneider’s business. Humble had significant financial control and supervision, rendering Schneider’s station a retail marketing enterprise for Humble’s products.

Hoover v. Sun Oil Company

Facts: Plaintiffs entered Barone’s service station to fill their vehicle with gas. Smilyk, an employee of Barone, negligently started a fire while filling Plaintiffs’ car. Sun Oil contended that the facts of the case indicate that Barone operated the station independently from Sun Oil, and consequently Sun Oil was not responsible for his actions. The station and all of its equipment except for a few things were owned by Sun. The sign bared the Sunoco label and employees wore Sunoco uniforms. Sun’s sale rep visited the station weekly. Barone had NO OBLIGATION to follow the rep’s advice. Barone also assumed the overall risk of profit or loss.

Issue: Is Barone a servant of Sun Oil or does Barone operate his station as an independent contractor?

Rule: A master-servant relationship does not exist when an independent contractor controls the day-to-day operations of the entity that is responsible for damages suffered by a plaintiff.

Holding: Sun Oil is not responsible for the negligence of Smilyk because he is an employee of Barone, who in turn is an independent contractor. Barone, not Sun, controlled all day-to-day operations of the station. Although Sun Oil worked closely with Barone in several day-to-day operations, Barone was not required to follow Sun Oil’s advice.