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Business Organizations Outline 1 - Agency, Liability of Principal to 3rd Parties in Contract, in Tort, Study notes of Commercial Law

University of Florida (UF)Commercial Law

Business Organizations Outline for Law School. Exam guide for Business Organizations at the University of Florida Levin College of Law specifically. In this section: Agency, Liability of Principal to 3rd Parties in Contract, in Tort and More

Typology: Study notes

2011/2012

Uploaded on 04/27/2012

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Business'Organizations'Outline'

' ' us.docsity.com'

Business'Organizations+Notes!

'

Chapter(1!!Agency!"

I. Who&Is&An&Agent?&

RS&1.01'Agency'Defined,'Agency'is'the'fiduciary'relationship'that'arises'when'one'person'(a'

“principal”)'manifests'assent'to'another'person'(an'“agent”)'that'the'agent'shall'act'on'the'

principal’s'behalf'and'subject'to'the'principal’s'control,'and'the'agent'manifests'assent'or'otherwise'

consents'so'to'act.'

RS&1.02&Parties’'Labeling'and'Popular'Usage,'whether'a'relationship'is'characterized'as'agency'in'

an'agreement'between'parties'or'in'the'context'of'industry/popular'usage'is'not'controlling'(only'

the'above'elements'are)'

RS&1.03&Manifestation,'can'be'through'written'or'spoken'words,'or'conduct'

RS&1.04&Terminology'

• CoagentsG'have'agency'relationships'with'the'same'principal'

• Disclosed'principalG'when'an'agent'and'3rd'party'interact,'the'3rd'party'has'notice'that'the'

agent'is'acting'for'a'principal'

• Undisclosed'principalG'“'“,'the'3rd'party'has'no'notice'that'the'agent'is'acting'for'a'principal'

• Unidentified'principalG'“'“,'the'3rd'party'has'notice'that'the'agent'is'acting'for'a'principal,'but'

does'not'know'the'principal’s'identity'

Gorton&v.&Doty&

Facts:'Doty'lent'her'car'to'the'football'coach'to'transport'players'to'the'game,'and'a'car'accident'

happened'injuring'one'of'the'players'being'transported.''

Issue:'Whether'Doty'lending'her'car'to'the'coach'created'a'principalGagent'relationship'

Holding:'There'was'an'agency'relationship'between'Doty'and'the'coach.''

v Notes:'

• Agency&Elements:&

o Manifestation'of'consentG''

§ Principal'manifests'consent'for'agent'to'act'on'its'behalf'(PàA)'

§ Explicit'or'constructive'

o Assent/ConsentG'

§ (AàP)'

Discover Study notes of Commercial Law University of Florida (UF)

Partial preview of the text

Download Business Organizations Outline 1 - Agency, Liability of Principal to 3rd Parties in Contract, in Tort and more Study notes Commercial Law in PDF only on Docsity!

Business Organizations Notes

Chapter 1-‐ Agency

I. Who Is An Agent?

RS 1.01 Agency Defined-‐ Agency is the fiduciary relationship that arises when one person (a “ principal ”) manifests assent to another person (an “ agent ”) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent manifests assent or otherwise consents so to act. RS 1.02 Parties’ Labeling and Popular Usage-‐ whether a relationship is characterized as agency in an agreement between parties or in the context of industry/popular usage is not controlling (only the above elements are) RS 1.0 3 Manifestation-‐ can be through written or spoken words, or conduct RS 1.0 4 Terminology

Coagents-‐ have agency relationships with the same principal
Disclosed principal-‐ when an agent and 3rd^ party interact, the 3rd^ party has notice that the agent is acting for a principal
Undisclosed principal-‐ “ “, the 3rd^ party has no notice that the agent is acting for a principal
Unidentified principal-‐ “ “, the 3rd^ party has notice that the agent is acting for a principal, but does not know the principal’s identity Gorton v. Doty Facts: Doty lent her car to the football coach to transport players to the game, and a car accident happened injuring one of the players being transported. Issue: Whether Doty lending her car to the coach created a principal-‐agent relationship Holding: There was an agency relationship between Doty and the coach. v Notes:
Agency Elements: o Manifestation of consent-‐ § Principal manifests consent for agent to act on its behalf (PàA) § Explicit or constructive o Assent/Consent-‐ § (AàP)

o Control by P over A o A acting on behalf of P

The sticky part in this case is the “control by P over A” Agency No Agency Evidence of control is the precondition/instructions (only coach can drive) No control by Doty-‐ she only asked that the coach drive, she didn’t specify the manner in which he should drive Coach acting on behalf of school
Dissent: thinks that the control element was lacking here, “it needs to be more than just mere permission”
Vicarious liability: P is responsible for the actions of A
A acting on behalf of P à means you are doing something in place of the principal (you are an extension of the principal) A. Gay Jenson Farms Co. v. Cargill, Inc. Facts:
Warren and Cargill entered into a security agreement that provided Cargill would loan money to Warren o Cargill also was appointed as agent for Warren’s transaction with bank, Cargill had rights of first refusal to purchase grain from Warren, and with new contract Cargill could access and inspect Warren’s books and Warren could not make improvements or repairs over $5,000 without consent(management rights)
Plaintiffs brought action against Cargill (as principal) after Warren defaulted on contracts Issue: Whether Cargill, by its course of dealing with Warren, became liable as a principal on contracts made by Warren with plaintiffs. Holding: Cargill’s taking on management roles makes it more than a creditor
- Warren supplying grain to Cargill (rights of first refusal) made them acting on Cargill’s behalf v Notes:
Evidence that Cargill was acting as Principal:
Manifestation of consent (Cargill consenting that Warren would act as its agent) o DO NOT NEED EXPLICIT CONSENT OR SIGNED CONTRACTS to form agency relationship

ACTUAL AUTHORITY: ( based on interactions between Principal and Agent) o Express -‐ in writing or oral o Implied -‐ § 1) to do what is necessary, usual, and proper to accomplish or perform an agent’s express responsibilities or § 2) to act in a manner in which an agent believes the principal wishes the agent to act based on the agent’s reasonable interpretation of the principal’s manifestation in light of the principal’s objectives and other facts known to the agent RS 2.01 Actual Authority -‐ an 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 so to act. RS 2.02 Scope of Actual Authority-‐
- Agent can take action designated or implied in the principal’s manifestations to the agent and acts necessary or incidental to achieving the principal’s objectives, as the agent reasonably understands… RS 3.01 Creation of Actual Authority RS2 35 Incidental Authority-‐ authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it
APPARENT AUTHORITY: (based on interactions between Principal and Third Party) o “Holding Out” à o RS2 8: Apparent Authority-‐ the power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s manifestation to such third persons. § Principal is essentially holding out agent to third party (he is my guy, you can trust him) § Apparent authority depends on the actions between the principal and a third party. The agent’s actions can bind principal/third party. o “Reasonable Belief” à o RS2 27: …apparent authority is created as to a third person by words or conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act or him.

§ Third party has a reasonable belief that agent is acting on behalf of principal-‐ this is based on principal’s actions o Holding out and reasonable belief can coexist o RS 3.03 Creation of Apparent Authority

INHERENT AUTHORITY: o RS2 8A Inherent Agency-‐ the power of an agent which is derived not from authority, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent o Three situations: § Similar tasks-‐ Principal gives agent some authority to do “task x” and agent does some similar task that deviates away from what agent is authorized to do § Independent purpose-‐ the agent does a task not similar to what he or she is authorized to do § Disposal-‐ principal tells agent to take care of toxins (but doesn’t say exactly how they should be disposed) and agent dumps toxins in river o Sole purpose: to prevent inequitable results
RS2 8B and RS 2.05-‐ Estoppel
Crux of Agency problem: “if you want something done right, do it yourself” Mill Street Church of Christ v. Hogan (1990) Facts:
In the past, the church has allowed Bill to hire Sam as his helper.
Bill hired Sam to work as helper and Sam was injured.
Church argued that Bill did not possess implied authority as an agent to hire Sam. Analysis:
To determine whether implied authority exists, it must be determined whether the agent reasonably believes b/c of present or past conduct of the principal that the principal wishes him to act in a certain way or to have a certain authority (circumstantial evidence) o Existence of prior similar circumstances is one of the most important factors. o Note: The person alleging agency and resulting authority has the BOP (Bill) Holding: Bill had implied authority to hire Sam as his helper. To avoid: Church should state that subcontractors/additional help must be approved by Church. Church could have/should have reasonably known that it would take more than one person to complete the job.

o Memo said Kay should be only person who speaks to Joyce o Kay sends letter to Joyce which confirmed delivery dates

Around same time Joyce also began negotiations with EDS which resulted in verbal commitment to lease six Ampex units to EDS
Principal-‐ Ampexà Agent-‐ Kay [and Third Party-‐ 370 ] Holding:
The document was an offer to purchase when signed by Joyce and it was later accepted by reps of Ampex (Kay) Reasoning:
Kays had apparent authority to accept the offer , and did accept offer through course of conduct (interactions between principal and third party) o Ampex employed Kays as a salesman, reasonable for third party to presume that one who is employed as salesman has the authority to sell o Absent knowledge of the third party to the contrary, the agent has apparent authority to do those things which are usual and proper to the conduct of the business she is employed to conduct. o Limitations of the agent MUST be disclosed to the third party o Signature block-‐ nothing in document indicates Kays did not have authority to sign on behalf of Ampex o Intra-‐office memo informed everyone that all contact with 370 would be handled by Kays o [B/c of the principal’s manifestations, 370 reasonably believed Kays had the authority to accept offer] v Notes:
How could you argue that Kays did not have proper authority? o You could argue Kays’ actions were not on behalf of the principal (the contract was not benefitting the principal) o How does the fact that 370 already leased the memory play into the analysis? § There could be an equitable or estoppels argument made on behalf of EDS Watteau v. Fenwick à Inherent Authority (Undisclosed Principal) Facts:
Humble sold business to defendant (Watteau), but remained defendant’s manager o License taken out in Humble’s name and name over door o Agreement: said Humble did not have authority to buy any goods except bottled ales and mineral waters

Fenwick brought action against Watteau to recover price of goods delivered for which Humble took money and ran
Principal-‐ Watteauà Agent-‐ Humble (third party: Fenwick) Findings:
Key thing courts look for is what type of authority the agent had: o Humble did not have express authority (he was not allowed to buy cigars) o Humble did not have implied authority (he was expressly told he can’t buy cigars) o Humble did not have apparent authority (b/c this needs to be based on the principal’s manifestations, and the plaintiffs did not know there was a principal)
The court found inherent authority -‐ which is what is used in the case of an undisclosed principal (b/c it is unfair to the innocent third-‐party) v Notes:
The defendants could argue that buying cigars is not part of the industry custom
Is it a good idea to have undisclosed principals? o Some people don’t want everyone to know what they invest inà there are a myriad of reasons why people do this o However, it could be bad in these type of agency liability cases RS2 195 Acts of Manager Appearing to be Owner
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 usually in such business and on the principal’s account, although contrary to the directions of the principal. RS 2.06 Liability of Undisclosed Principal

B. Ratification

RS2 82 Ratification-‐ the 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

o Ratification is consenting to what the agent has done

RS 4.01 Ratification-‐ A person ratifies by: o Manifesting assent that the act shall affect the person’s legal relations, or o Conduct that justifies a reasonable assumption that the person so consents RS 4.02 Effect of Ratification-‐ Ratification creates the effects of actual authority RS 4.03-‐4.08 More Ratification Restatements

Hoddeson went to furniture store where she was approached by a man in a gray suit who inquired as to which furniture she was interested and then took her order, accepting a cash payment (no receipt)
Furniture never cameàstore contends the man was an imposter who was impersonating a salesman without their knowledge Findings:
None of the traditional agency theories existed here, but the court found that estoppels, which gives color to instances of apparent authority, precluded the defendant’s denial of liability o Where through the lack of the proprietor’s reasonable surveillance and supervision an imposter falsely impersonates in the place of business an agent or servant of his v Notes:
If this was an employeeà the employee is automatically the agent of the employer
There is a sector of people who do not think this case came out correctly-‐ there is a lot of uneasiness about estoppels theory
There is no bright line ruleà this is decided on a case by case basis

III. Liability of Principal to Third Parties in Tort

A. Servant versus Independent Contractor

General Rules:

Generally a principal is vicariously liable for actions of their employees
Generally a principal is not liable for actions of an independent contractor RS 2.04 Respondeat Superior -‐ an employer is subject to liability for torts committed by employees while acting within the scope of their employment RS 7.01 Agent’s Liability -‐ an agent is subject to liability to a third party harmed by the agent’s tortuous conduct (even though the actor acts as an agent or employee) RS 7.02 Principal’s Liability -‐
- Principal is subject to direct liability to a 3rd^ party harmed by agent whenà o Agent acts with actual authority or principal ratifies conduct (and conduct is tortious) o The principal is negligent in selecting, supervising, or controlling agent
- Principal is subject to vicarious liability “ “à

o The agent is an employee who commits a tort while acting within the scope of employment or o Agent commits a tort when acting with apparent authority RS 7.07 Employee Acting Within Scope of Employment -‐ an employer is subject to vicarious liability for a tort committed by its employee acting within the scope of employment

An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control
An employee’s act 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
For the purposes of this sectionà an employee is an agent whose principal controls or has the right to control the manner and means of the agent’s performance of work