BUSINESS ORGANIZATIONS OUTLINE
I. AGENCY
A. Agency defined
1. Agency is the fiduciary relation 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.
2. 3 Elements (Boticello)
i. Manifestation of the principal that they will act for him;
ii. Acceptance by the agent of the undertaking; and
iii. Understanding between the parties that the principal will be in control of the undertaking.
B. Who is an Agent?
1. 3 Relationship Forms
i. Principal and agent §1
a. The one for whom action is to be taken is the principal.
b. The one who is to act is the agent.
ii. Master and servant
a. Master §2
1) A principal who employs an agent to perform services in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.
b. Servant §2
1) An agent employed by a master to perform services in his affairs whose physical conduct in the performance of the service is controlled or is subject to the right to control by the master.
iii. Employer or proprietor and independent contractor
a. Independent contractor §2
1) A person who contracts with another to do something for him bit who is not controlled by the other nor subject to the other’s right to control with respect to his physical conduct in the performance of the undertaking. He may or may not be an agent.
2) Key is control
C. Liability of Principal to Third Parties in Contract
1. Types of Principals
i. Disclosed
a. Agent is not liable for the acts of the agent.
ii. Partially disclosed (unidentified)
a. Agent identifies that there is a principal, but doesn’t indentify who the principal is.
iii. Undisclosed
a. Agent never mentions that they are working for a principal.
b. Both are liable
c. Inherent agency power
1) Principal should still be on the hook because the agent is in a position to act on behalf of the principal…especially because the principal remains undisclosed.
2) Restatement 2nd of Agency §195 (inherent agency power)
i) An undisclosed principal who entrusts an agent with the management of his business is subject to liability to 3rd 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.
d. Liability of undisclosed principal
1) Restatement 3rd of Agency §2.06 – Liability of Undisclosed Principal (rejects inherent agency power)
i) (1) an undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
2) Should notify 3rd parties before contract has been entered into.
2. Agent’s Authority
i. Actual authority
a. Implied
1) “Things I forgot to tell you about but are necessary for you to carry out what I’ve asked you to do.”
b. Express
1) Agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to so act.
ii. Apparent authority
1) Power held by an agent or other actor to affect a principal’s legal relations with 3rd parties when a 3rd party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to principal’s manifestations.
2) Need 2 things
i) Manifestation by the principal that the agent can act on behalf of the principal.
ii) Reasonable belief that agent has authority to act on principals behalf.
3. Ratification §82, 83
i. Affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account, whereby the act, as to some or all persons, is given effect as if originally authorized by him.
ii. Acceptance of the results of the act with intent to ratify, and with full knowledge of all the material circumstances.
a. Intent to ratify
b. Full knowledge of all material circumstances
iii. Affirmance is either
a. A manifestation of an election by one on whose account an unauthorized act has been done to treat the act as authorized, or
b. Conduct by him justifiable only if there were such an election.
iv. Botticello v. Stefanovicz
a. M and W were TIC. P became interested. Asking price was $100,000. P counter offered $75,000. M rejected, wouldn’t take less than $85,000. P & W agreed on $85,000. M and W refused to honor. W never represented he was acting for his wife as her agent.
b. No facts to support conclusion that Mary ratifies agreement, binding herself to the terms
1) No indication of intent to ratify.
2) No indication of M’s knowledge of all material circumstances.
3) Receipt of benefits doesn’t constitute ratification where other requisites are not present.
4. Estoppel
i. 3 Elements
a. Creation of appearance of authority
b. Reasonable and good faith belief
c. Reliance and change in position based on belief of that authority
ii. Agency by estoppel
a. Where proprietor enables one to act as though they’re an agent of his business w/ a patron of his establishment, as such to lead the ordinary person to believe the person to truthfully be the principal’s agent, law won’t permit proprietor to avail himself of the false agent’s lack of authority and escape liability.
iii. Hoddeson v. Koos Bros
a. Furniture Store Case – girl buys furniture from someone who is not employed by the store – girl brings suit because she really likes/wants the furniture.
5. Agent’s Liability on the Contract (Atlantic Salmon)
i. Agent who wants to avoid personal liability on a contract entered into on behalf of his principal has a duty to:
a. Disclose that he is acting in a representative capacity; AND
b. Identity of his principal.
D. Liability of Principal to Third Parties in Tort
1. Servant v. Independent Contractor
i. 3 broad classifications – determines liability
a. Servant
1) Master/servant, employer/employee
2) Principa
m;
b. Occurs substantially within the authorized time and space limits;
c. Actuated, at least in part by a purpose to serve the master; AND
d. Any force intentionally used by servant is not unexpectable by the master.
ii. Employee Acting within Scope of Employment § 7.07 (2)
a. An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to employer’s control. An employee is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.
1) Restatement 3rd rejects 2nd’s “time and space limits” factor
i) Doesn’t encompass working circumstances not readily cabined by temporal or spatial limitations.
ii) Many employees interact with 3rd parties on behalf of an employer even though they aren’t situated on employer’s premises or continuously or exclusively engaged in assigned work.
iii) This interpretation may be more useful in contemporary situations, while R.2nd may be more useful in old-fashioned sitations.
iii. Relationship of Scope of Employer’s Control to Scope of Employment
a. Principal must have a certain amount of control over the agent’s physical performance in order for employee status to exist.
b. Control will not necessarily extend to every aspect of employee’s tasks
1) It is possible for servant’s scope of employment to include areas in which master doesn’t control.
iv. Factors to consider in determining whether conduct is within the scope of employment, even though not authorized, but similar or incidental to authorized conduct: §229
a. Whether or not the act is one commonly done by such servants;
b. Time, place and purpose of the act;
c. Previous relations between master and servant;
d. Extent to which business of master is apportioned between different servants;
e. Whether or not act is outside the enterprise of the master or, if within the enterprise, has not been entrusted to any servant;
f. Whether or not master has reason to expect that such an act will be done;
g. Similarity in quality of the act done to the act authorized;
h. Whether or not the instrumentality by which the harm is done has been furnished by the master to the servant;
i. Extent of departure from the normal method of accomplishing an authorized result; and
j. Whether or not the act is seriously criminal.
v. Reasonable Foreseeability
a. Ira S. Bushey & Sons, Inc. v. U.S.
1) Judge crafts new test – Reasonable Foreseeability
