Business Organizations (Professor Barros) Spring 2010
I. Basic Questions that Need to be asked
a. Who are the parties?
b. What are they fighting about?
c. What kind of organization is involved?
II. Agency
a. Agency = 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 to the other so to act. (REST 1)
i. Simple definition: one person (principal) can appoint someone else (agent) to act on their behalf; agent in turn owes fiduciary duty to principal
ii. Elements of Agency: (It is relatively easy to establish an agency relationship)
1. Consent by agent to be an agent
a. Consent: Does not have to be an actual K, can be implied
2. Consent of principal to being represented by agent
3. Principal controls agent
a. Control: very fact driven (ex. Veto power over important decisions, coercion, providing other creditors with assurance of payment)
b. MUST BE VIEWED ON TOTALITY OF THE CIRCUMSTANCES (Cargil, Inc.)
i. Cargil got more and more involved controlling his supplier to the point where he was held to be a principal and was thus liable for agent’s debt.
1.
iii. Agency relationship is a “fiduciary relationship”
1. 2 Basic fiduciary duties
a. Duty of care: Competency/Careful
b. Duty of Loyalty: put principal’s interests above agent’s interests
iv. 3 Types of common agency Problems
1. Contract/Authority: Third party trying to hold Principal liable for agent’s actions in contract
a. Example: A signs contract with T on P’s behalf, this is ok if A had “authority” to do so. P will be bound to T for contract A signed if A had “Authority” to act on P’s behalf
2. Tort: T is trying to hold P liable for A’s actions in Tort
a. Essentially dealing with Respondiat Superior
3. Fiduciary Duty Breach: P is suing A for fiduciary duty breach
a. A owes P a duty of care and of loyalty
b. Authority:
i. Ways that agent can bind principle to third parties
ii. For exam, go through all of the types of authority to see if it is established by any of them.
iii. Types of Authority
1. Actual Express Authority
a. Created by P’s action to A, “you can do X”
b. Can be created by written or spoken words or other conduct of the principal
2. Actual Implied authority
a. P says to A, “you can do X.” A has authority to do things not explicitly discussed but that are incidental to doing X. Based on A’s reasonable interpretation of P’s manifestations.
b. When agent is hired to perform a task they have implied authority to do things necessary to complete that task
c. Mills Street Church: painting project where agent hired his brother to help to do job he could not do by himself
d. “Practically necessary to carry out the duties actually delegated”
e. Created by interaction between P and A
3. Apparent Authority
a. P’s spoken or written words or actions manifest to T that A has authority to act for P. T’s belief must be reasonable. A’s power to affect P’s legal relations with T according to T’s reasonable belief.
i. All about what P’s words or actions make T reasonably believe.
ii. Includes inaction or failure of P to disavow authority of A
b. Mill Street Church: even if church had said to A “A you cannot hire your brother” (so no actual authority) there still might be apparent authority if P’s previous conduct or words made T reasonably believe that A has authority
i. But if A acts outside of his actual authority, he may be liable to P for breach of fiduciary duty.
c. 370 Leasing Corp.:
i. In this case salesperson signed K with T
ii. sales people typically have apparent authority to act on business behalf, thus “apparent authority”
iii. Also consider course of dealings
4. Inherent Authority (RARELY USED)
a. NOTE: this idea has been rejected by the latest restatement
b. In this case there was an Inn but the owners of the Inn were not known to the public, A was the face of the business and made deals with T e
the customer
c. Liability
i. Agents liability in Contract
1. Agent’s liability is dependent on the amount to which the principal is disclosed (AT THE TIME OF THE CONTRACT, IF THE AGENT DISCLOSES AFTER THE K IT DOES NOT MATTER)
a. THREE TYPES OF PRINCIPLES
i. Disclosed: “I am acting on behalf of Prof. Dimino”
ii. Undisclosed: “sign a contract and do not disclosed that you are working on anyone’s behalf”
iii. Partially disclosed: third party knows that the agent is working for someone but does not know who that person is
2. To avoid liability as an agent, the agent must disclose that you are acting on someone else’s behalf and you must identify who that someone is
3. Agent is liable if P is “undisclosed” or “partially disclosed”
ii. Principal’s liability to Third Party in Tort (Respondiat Superior)
1. 2 elements: Control or Apparent Agency and Scope of Employment
a. Control
i. This turns on whether there is a employee/employer relationship or an independent contractor
1. Principal is liable for torts of employee but not for torts of independent contractor
ii. Control turns a principal/agent relationship into a master/servant relationship
iii. To determine whether tortfeasor is employee or independent contractor the focus is on CONTROL
