Corporations Outline
AGENCY
I. Who is an agent?
A. “Agency” indicates the relationship which exists when one person acts for, and under the direction of another person. 3 principal forms of agency at CL:
1. Principal and agent
2. Master and servant
3. Employer or proprietor and independent contractor.
B. Where this relationship exists, the acts of the agent bind the principal, and the property or benefit of the agent’s actions must be given to the principal.
C. Restatement Second Agency (R2A) § 1 – Legal standard for agency
1. Manifestation of consent by P to A that A shall act:
a) on P’s behalf
b) subject to P’s control
2. A’s consent to so act.
D. Gorton v. Doty (1937) – Schoolteacher loaned her car to the school’s coach to transport the football team to a game. The car got into an accident and the parents of one of the injured players sued the owner of the car. Held: Coach was teacher’s agent.
1. Borderline case: No real manifestation be P’s behalf. Far more resembles a gratuitous bailee than a principal. Even the control was pretty limited, more like a restriction on a very limited matter and did not “control” most aspects of the coach’s driving.
II. Agency Relationships Arising Out of Close Business Dealings
A. R2A § 14O: Creditor becoming a principal.
1. Creditor becomes a principal at that point at which it assumes de facto control over the conduct of the debt
2. 9 factors re control
B. R2A § 14K: Supplier relationships
1. One who contracts to acquire property from a 3rd person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself. (High std.)
C. Where a creditor or purchaser company exerts too much control over the operations of the supplier/debtor company, it can give rise to an agency relationship and the principal may be held liable for the debts of the agent company. (Cargill – grain elevator case)
III. Forms of an agent’s authority to enter into contracts
A. Actual Authority – Actual authority can be express, implied, or incidental. (Mill Street Church – hired brother in the past)
B. Apparent authority – Authority for agent’s unauthorized actions derived from overt actions by principal to 3P. Principal acts in such a manner to give the impression to a third party that an agent has certain powers which he may or may not actually possess. Key is a reasonable belief of authority by T. (Lind – Alcohol salesman compensation package); (3-70 Leasing – expensive computers on credit)
C. Inherent authority– Agent’s authority arises impliedly from the designation or position the agent is granted by the principal. Authority for such decisions is necessary to the fulfillment of the duties of the position. Evolved in response to the anomaly of a 3P who knew little about market and therefore would not know enough to give rise to the belief that the authority was conferred. Generally found in 2 circumstances: undisclosed principals & agents exceeding their authority.
1. R2A § 8A – Indicates the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent.
a) P may have forbidden A to make such a dealing.
b) P have made no overt manifestations to 3P to give him the impression that A had such authority.
c) All that is necessary is that A is P’s agent, and the dealing was one commonly done by persons in A’s position. See comment b to R2A § 181.
2. Undisclosed principal.
a) Agent who negotiates a contract w/ third party can be sued for any breach of the contract unless the agent discloses:
(1) that he is acting on behalf of a principal, AND
(2) the identity of that principal.
b) Watteau v. Fenwick – Pub manager ordered cigars and other items not within his authority.
3. Disclosed principal with agent exceeding his authority in a field where the agents generally do have the authority to enter into the disputed transactions.
a) Kidd v. Thomas Edison – Edison’s A to set up performances of singers to demonstrate the new phonograph.
b) Nogales – Truck stop out west entered into a financing agreement with an oil company to expand and improve the facility and to make it competitive.
D. Ratification
1. R2A § 82 – An affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account. Requires 2 elements to be satisfied:
a) Acceptance of the results with an intent to ratify, and
b) with full knowledge of all material consequences.
2. Must demonstrate an intent to ratify, not just passive acceptance of the results. (Botticello – Husband and wife owned farmland as tenants in common.)
3. A key concept in determining whether permitting or denying are ratification is preventing the principal from having an option to accept or disavow the contract to the principal’s benefit and 3P’s detriment. (See examples in book and slides).
E. Agency by Estoppel
1. R2A § 8B – P can be liable for transaction purported to be on his account to 3Ps who have changed their position in reliance on transaction where:
a) P intentionally or carelessly caused such belief
b) knowing of mistaken belief and that 3Ps may change position, did not take reasonable steps to notify them of the real facts.
2. A principal can be estopped from claiming that a person acting as its agent was not really its agent if the principal was negligent in supervising and ensuring that such imposters or abuses of agency/authority do not occur and the injured party is not at fault. (Hoddeson – Woman scammed by a man posing as a furniture salesman.)
F. Agent’s Liability on the Contract
1. Disclosed principal – Generally none. 2 exceptions:
a) Clear intent by all parties that agent be bound
b) Agent made K, but w/o authority
(1) Party to contract?
(2) Fraud?
(3) Implied warranty of authority
2. Undisclosed principals OR partially disclosed (meaning the other party to a K knows there is a principal behind the agent but does not know the principal’s identity R2A § 4(2)) then the agent is also a party to the K and can be held liable.
a) A treated as party to the K
b) 3P must elect who to sue
3. Atlantic Salmon v. Curran – Sleazeball businessman hid behind fictitious corporations and racked up almost $300K in debt for salmon purchases from Norwegian companies.
IV. Liability of Principal to 3rd Parties in Tort for Actions of Agent
A. Master - Servant (ER-EE) Relationship
1. R2A § 219(1): Master is liable for servant’s torts committed in the scope of their employment.
2. ER exerts near complete control over how the EE goes about acting on behalf of the ER. Or at least is subject to the control of ER.
3. Liability supported by theory of inherent agency or respondeat superior.
B. Independent Contractor
1. Independent contractors (2 types) – A person who contracts to do something for another who is not controlled by the other as to means and methods of completing the task.
a) Agent-type – IC has agreed to act on behalf of the P. Is subject to limited control by P as to the chosen result. But is not subject to total control by P’s as to how that objective is accomplished.
(1) Ordinarily not liable for actions of agent-type IC, but some exceptions?
b) Non-agent type – IC operates independently through arms-length transactions. Perhaps less control on P’s part, but more importantly, this type of IC has no power to act on P’s behalf. P is not liable at all for the actions of non-agent ICs.
Archaic
/ Servant / Independent Contractor (agent-type) / Independent Contractor (non-agent)Modern / Employee / Non-servant agent
Subject to limited control by P with respect to the chosen result
Has power to act on P’s behalf / Non-agent independent contractor
Perhaps less control on P’s part but NO power to act on P’s behalf
Res 3rd / Employee / Non-employee agent / Non-agent service provider
Level of Liability / P liable if A within scope of employment / P NOT liable except in special circumstances / P is NOT liable in agency law
C. Differentiating between servants, agent-type IC, and non-agent type IC.
1. R2A § 220 Definition of Servant
a) A servant is a person employed to perform services in the affairs of another and who with respect to the physical conduct in the performance of the services is subject to the other’s control or right to control. (Humble Oil – servent, vs. Sun Oil – IC).
b) In determining whether someone is a servant or an independent contractor, the following factors are considered:
(1) P’s control over details of work
(2) A is engaged in a distinct occupation or business
(3) Is work usually done under direction of employer
(4) The skill required in the particular occupation
(a) High skill= contractor
(b) Low skill= employee
(5) Who supplies the instrumentalities, tools, and place of work
(6) Length of time for which A is employed
(7) Method of payment (by time/by job)
(a) Time= employee
(b) Job = Contractor
(8) Is the work part of the regular business of the employer?
(9) Do parties believe they are master/servant?
(10) Is P in same business?
D. Tort Liability for Apparent Agency
1. Elements for apparent agency
a) Principal must hold out the franchisee or IC as its agent, and
b) 3rd party must reasonably rely on that apparent agency.
2. R2A § 267 – One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused be the lack of care for skill of the one appearing to be a servant or other agent as if he were such. (Miller v. McDonald’s (1997) – Woman injured herself by biting into a heart-shaped sapphire in her Big Mac.)
E. Scope of Employment
1. Types of tests for scope of employment
a) Purpose test
b) Economic approach – best cost avoider (like Carroll Towing)
c) Foreseeability test (see Bushey)
2. R2A § 228 – Scope of Employment. A servant’s conduct is not within the scope of employment if it is... too little actuated by a purpose to serve the master. A’s conduct is within the scope of employment if:
a) It is of the kind A is employed to perform.
b) It occurs substantially within the authorized time and space limits (if not – it is a “frolic and detour.”
c) It is actuated, at least in part, by a purpose to serve P.
d) If force is intentionally used by A against another, the use of force is not unexpectable by P. (see below). E.g., bouncers, bodyguards.
3. R2A § 230 – An act, although forbidden, or done in a forbidden manner, may be within the scope of employment.
4. R2A § 231 – Servant’s acts may be within the scope of employment even if consciously criminal or tortious, but serious crimes are outside the scope. (Manning – Orioles pitcher heckled).
5. Liability for agents’ actions even when outside the scope of employment. R2A § 219(2) – A master is not subject to liability for the torts of his servants acting outside the scope of their employment, unless:
a) The master intended the conduct or consequences; or
b) The master was negligent or reckless, or
c) The conduct violated a non-delegable duty of the master
d) The servant purported to act or to speak on behalf of the principal and there was reliance upon apparently authority, or he was aided in accomplishing the tort by the existence of the agency relation.
F. Liability for Torts of an Independent Contractor
1. General Rule: Principal not liable for torts of IC
2. Exceptions:
a) Principal retains control over the aspect of the activity in which the tort occurs (in that case, P is a master)
b) Principal employs incompetent independent contractor (§ 213, 219(2)(b))
(1) Is a financially irresponsible contractor an incompetent one? (Most say NO)
c) Performance of the contractor’s task is inherently dangerous. (Majestic Realty)
d) Duty is non-delegable (Same rationale as § 219(2)(c)) A duty so important to the community that the principal may not delegate (usually applies to certain statutory duties)
V. Fiduciary Obligation of Agents
A. R2A § 13 – An agent is a fiduciary with respect to matters within the scope of his agency. Fiduciary duties include:
1. Duty of care [§ 379]
2. Duty of loyalty
a) Payment from a 3rd party (kickbacks, bribes, tips)
b) Secret profits (Reading)
c) Usurping business opportunities from principle (Singer)
d) Grabbing and Leaving (Town & Country)