I. Agency
A. Who Is an Agent?
1. Three forms of Agency: (1) principal and agent; (2) master and servant; (3) employer/proprietor and independent contractor
2. Creation of Agency: “agency“ is the relationship which results from
a. consent by one person (the principal) that another person (the agent) act (i) on the principal’s behalf, and (ii) subject to the principal’s control; and
b. the agent’s consent to so act.
3. Forming an Agency Relationship:
a. Agency does not require the involvement of business, necessitate a contract or promise between principal and agent, or require that either receive compensation.
Gorton v. Doty (Idaho 1937): Jury found that football coach was agent of parent, who lent her car to the football coach under the particular circumstances that he would be the only person to drive the car. The court held that agency only requires that one undertakes to transact some business or manage some affair for another by authority – on the latter, the relationship of principal and agent arise
b. Agency may result even though it is not termed as such and even though the parties did not intend for it to result (Gay Jenson Farms).
c. Agency can be shown by circumstantial evidence of a course of dealing between two parties, although the principal must have consented to the agency
d. Control can evidence a principal/agent relationship and control of a debtor’s business can lead to a creditor becoming liable as principal for the acts of the debtor.
Gay Jenson Farms Co. v. Cargill, Inc (Minn 1981),appellant sough financing of his grain elevator business from Cargill and as Cargill became more involved in appellant’s financial operations consent was manifested when Cargill directed Warren to implement its recommendations. Warren acted on Cargill’s behalf in procuring grain for Cargill as part of its operations which was totally financed by Cargill. Furthermore, an agency relationship was formed when Cargill interfered with the internal operations of Warren
B. Liability of Principal to Third Parties in Contract
1. Authority – LO Page 4
a. Actual Authority: authority that the principal, expressly or implicitly, gave the agent
i. Actual Implied Authority
ii. Actual Express Authority
b. Implied Authority (Between Principal and Agent): actual authority which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated (Mill Street Church of Christ)
i. Elements to show Implied Authority
o 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
o The nature of the task or job
o The existence of prior similar practices And Specific conduct by the principal in the past permitting the agent to exercise similar power
Mill Street Church of Christ v. Hogan (Ky 1990): Plaintiff was hired by the church to do painting and in the past he had been allowed to hire his brother to assist, however, the church failed to communicate that, for this particular task, they had another person in mind other than the plaintiff’s brother. Implied authority can be taken from the agent’s understanding of his authority – Does agent reasonably believe b/c of present or past conduct of principal that principal wishes him to act in a certain way or have certain authority?
2. Apparent Authority: Between Principal and 3rd Party – Arises when a principal 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 (Lind v. Schenley). Exists only to the extent that it is reasonable for the third party dealing with the agent to believe that the agent is authorized. The third party must also believe the agent to be authorized (Restatement 2d of Agency § 8). 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 (Three-Seventy Leasing Corp.). Requires manifestations by the principal to the third party of the agent’s authority
o The difference between the principal and agent relationship is that there is a third party involved. There is a representation from the principal to a third party that the agent has the authority to do certain things.
Lind v. Schenley Industries, Inc (3d Cir 1960): Plaintiff could reasonably believe that his manager, as an agent, had the apparent authority from the Vice President, as the principal, to set the terms of plaintiff’s compensation at 1% commission based on sales. The court found that plaintiff could reasonably rely upon the authority of his manager (agent) based on the communication between principal and plaintiff, that his manager was to designate the salary and responsibilities.
Three-Seventy: Joyce, from 370 corp., negotiated with Kay’s to buy computers for 370 Corp. Kay’s apparent authority to bind the principal arose when Kay’s supervisor sent out a corporate memorandum stating that all contacts with 370 corp. are to go through Kay’s. The court found that third parties can reasonably expect one employed as salesmen have the authority to bind his employer to sell. The facts indicated that Joyce wished to deal with Kay’s and that Kay’s supervisor acquiesced the request. Apex never communicated to Joyce information for Joyce to suspect Kay’s lack of authority.
3. Inherent Agency Power: Liability of Undisclosed Principal to 3rd Parties – Arises in cases where there are not sufficient manifestations by the principal to the third parties to satisfy the requirements of apparent authority (but inherent agency is a subset of apparent agency, although not vice versa). An undisclosed principal is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principal.
a. Burden of Proof for Plaintiff Against Undisclosed Principal: Where the principals have enabled their agent to hold himself out as the proprietor of the business, they are undisclosed principals; so to charge an undisclosed principal with the acts of the agent, the plaintiff need only show that the goods supplied were within the reasonable scope of the agent’s authority (Watteau v. Fenwick)
b. Restatement (Second) of Agency § 194-195: An undisclosed principal is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principal. An undisclosed principal who entrusts an agent with the management of his business is subject to liability to third persons with whom the agent enters into transactions usual in such business and on the principal’s account, although contrary to the directions of the principal.
c. Rationale for Inherent Authority: Inherent power exists to protect the third persons harmed by or dealing with a servant or agent. Because agents are fiduciaries acting generally in the principal’s interest it is fairer that the risk of loss for disobedience should fall upon the principal rather than upon third persons. Occurs when: (1) an agent does something similar to what he is authorized to do, but in violation of orders; (2) where an agent acts purely for his own purposes in entering into a transaction which would be authorized if he were actuated by proper motive; or (3) where agent is authorized to dispose of goods and departs from the authorized method of disposal
d. Difference between Apparent Authority and Inherent Agency is whether there are sufficient manifestations by the principal to 3rd party. If there are not then it is most likely an inherent agency relationship. In inherent authority there is no disclosed principal but under Apparent authority there is and under apparent authority the principal makes manifestations to the third party.
Kidd v. Thomas A. Edison (S.D.N.Y. 1917): It makes no difference that the agent may be disregarding his principal’s direction, secret or otherwise, so long as he continues in that larger field measured by the general scope of the business intrusted to his care.
4. Ratification – Ratification is a
s, set standards for employee skills or productivity, supervise employee work routines, or discipline employees for nonfeasance of misfeasance (Holiday Inns Inc.)
b. Independent Contractor – Independent Contractors are either agent-types, who have agreed to act on behalf of the principal, but not subject to the principal’s control; or non-agent-types, who operate completely independently and enter into arm’s length transactions with others.
Hoover v. Sun Oil Company: Court found service station owner to be an independent contractor despite the fact that he sold sun products under the sun label, he used very little of competitor products, he advertised in the phone book under the Sunoco label, and the Sonoco agent visited he station frequently. Because station owner was in charge of the day-to-day operations and assumed all the risk of loss and profits.
c. Exceptions where the principal is liable for the Independent Contractor
i. if the principal controls or has the right to control the physical performance of the task, the employee is a servant not an independent contractor and the principal can be held liable;
ii. the principal can be held liable if the employed an incompetent independent contractor; or
iii. where the performance involves inherently dangerous activity (inherently dangerous – creation of a condition involving peculiar risk of harm to others unless special precaution are taken …).
2. Tort Liability and Apparent Agency- One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care and skill of such apparent agent is subject to liability to the third person for harm caused by lack or skill or care è Consider – whether the putative principal held the third party out as agent and whether the plaintiff relied on that holding out
Miller v. McDonald’s Corp (Ore App 1997) – Franchisors become liable for franchisee’s negligent acts in agency relationships where franchisor has the right to control the method by which franchisee performs its obligations under the franchise agreement; Franchisors that demand franchisees to be uniform in appearance and operation may be holding out franchisees as apparent agents
3. Scope of Employment– the employer should be held liable for risks which arise out of and in the course of his employment of labor (Bushey).
a. Elements of Scope of Employment: (1) consider the time, place and purpose of defendant’s actions; (2) whether the acts were similar to those authorized by the alleged principal to perform; (3) the extent of departure from normal methods; (4) whether the conduct of the employee was could have been reasonably expected by the employer (Conoco)
Arguello v. Conoco (5th Cir 2000) – Appellants brought suit against Conoco for incidents of racial discrimination by employees of defendant. The suit arose out of three separate incidents in Texas gas stations. Smith’s behavior occurred while inside the Conoco station where she was employed while the customers were completing a transaction. Conoco authorized defendant to interact with customers during transactions. Whether the conduct was reasonable expected by Conoco is a factor that the jury may outweigh by other factors.
b. Liability for servants
