Business Organizations Outline

 Fundamental Agency Issues ² who is an agent?  Agency 

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When one principal gives his consent that someone else will operate on his behalf and subject to his control, and the agent so agrees to act y Parties need not intend to enter into this relationship or call it agency they just need to intend to act in this fashion y y Contract or business relationship NOT required, anyone can enter into agency Agency law is concerned w/ substance, not form 



Agents are always liable for their own torts, but might be useless to sue (judgment proof) Agency can be terminated at will by either party 

Restatement (second) §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  Agent is basically someone working one someone else·s behalf; mutual consent between the Principal and the Agent; basically allows the principal to be two places at once o When one party agrees to act on behalf of another party subject to that other party·s control 

Gorton v. Doty (1937)   Facts: ( let 4 use her car to drive high school football players to a game; car accident, injured 4·s son, 4 sues ( under agency theory RULE: principle is liable for the actions of the agent to the extent that the principal had done the harm himself; agency in this case is satisfied, ownership of a car is sufficient here for prima facie case y y When one party agrees to act on behalf of another party subject to that other party·s control

Policy: people must be more careful when exhibiting acts of kindness/cooperation, it promotes caution and judgment when doing something like letting another person use your car; more safe cars could be a product of something like this rule 

Jensen Farms v. Cargill (1981)  Facts: 4 farmers sold grain crops/extended credit to Warren (local grain elevator operator), ( is international grain dealer very involved w/ Warren business. Warren bought grain from 4 farmers and sold it to (. Warren became insolvent, didn·t pay 4 for grain, 4 sues ( for Warren·s default on their contracts  RULE: court held ( liable as principal b/c it exercised influence and control over Warren; a creditor who assumes control of his debtor·s business may become liable as a principal for the acts of the debtor in connection w/ the business; y  ( actions were not viewed in isolation, rather in light of all surrounding circumstances

Policy: farmers (and businessmen like them) should be entitled to some form of reasonable reliance in their regular course of business, aka shouldn·t have to be constantly checking the financial stability of those selling grain (and businesses like that) 

Humble Oil & Refining Co. v. Martin

j RULE: an agent has apparent has apparent authority sufficient to bind the principal when the principal acts in such a manner as would lead a reasonably prudent person to supposed that the agent had the authority he purports to exercise.when the third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal·s manifestations y Three-Seventy Leasing Corp. brother injured on the job j RULE: the point of agency is to extend authority. Fenwick j RULE: If you are a principal undisclosed to the 3rd party that your agent is doing business. X parks car in gas station. v. absent knowledge of the third parties on the contrary. the scope that the law settles on what a reasonably prudent agent in that situation would do  4 hired ( to extend 4 powers so they wouldn·t have to be there for every single step of the paint job implied authority to hire ( brother to reasonably get the job done  j  questions of implied authority questions of reasonability Policy: agency extends powers so we don·t have to live in a world where the churches of the world don·t have to oversee every single individual step of a Hogan paint job Apparent Authority ² Restatement (Second) of Agency §8 . but really is just a manager/clerk who performs duties for 4 and reports to 4  Liability of principal to third parties in a contract  Agent·s Authority:   Actual authority ² principal gave express/explicit orders to the agent. irrespective of whether you gave actual or implied authority to enter into those contracts  Applying the modern Restatement of the Law (Second) Agency to this old English case: . Y controls operations of the gas station. ( hires brother to help him w/ job. then you are liable for the contracts which your agent enters into. see additional Restatements below Watteau v. perfectly clear Implied authority ² authority circumstantially proven that show the principal intended for the agent to possess powers that are practically/reasonably necessary to carry out his duties y Mill Street Church v. y y Restatement (second) §8A.  Inherent Authority ² indicates power of an agent is derived solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or another agent. an agent has the apparent authority to do those things which are usual and proper to the conduct of the business . Ampex Corp. with. ( doesn·t sue X or the station attendant b/c X and the attendant both have no $. Hogan j Facts: ( a regular handyman at 4 church. rolls and injures (. walks and talks like the owner.

Koos Bros. although contrary to the directions of the principal  Ratification:  Restatement of the Law (Second) Agency §82: ratification is the affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account. if usual or necessary in such transactions. is given effect as if originally authorized by him  Basically a way for the principal to say ´my agent didn·t have the right to enter into this contract. Independent Contractor y 1) master is a principal employing an agent to perform service in his affairs and controls or has the right to control the physical conduct of the other in the performance of service y 2) servant is an agent employed by master to perform service 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 . y 4 brought this action against ( furniture store to reimburse her for money spent at the store with an alleged imposter salesman. Servant. Restatement (2nd) §194: agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account. but I·m glad he did so. Ill affirm the transaction and agree to be bound by this contract y 2 questions arise: what types of acts constitute an affirmation by the principal? What effect should this affirmation be given?  Estoppel:   Restatement §8B Estoppel-Change of Position Hoddeson v. a party may have a duty of care for the other party to ensure that the other party is not disadvantaged in dealing w/ the party  Agent·s Liability on the Contract  Atlantic Salmon A/S v. whereby the act. Accordingly. as to some or all persons. ( alleges lack of evidence to establish an agency relationship with the imposter third party y RULE: absent proof of an agency relationship. although forbidden by the principal to do them  Restatement (3rd) §195: undisclosed principal who entrusts an agent with the management of his business is subject to liability to third persons with whom the agent enters. Curran y RULE: An agent can be held liable for his actions on behalf of the principal if the agent does not disclose the agency to the third party it is not enough that the third party have the means to ascertain knowledge of the agency or the principals identity  Liability of Principal to Third Parties in Tort  Servant Versus Independent Contractor   Respondeat superior ² a ´masterµ (employer) is liable for the torts of its servants (employees) Restatement (Second) §2 Master.

When an agreement. v. not what the parties call it. Inc. held. Schneider appears to be the gas station owner. Martin y Love parks her car in gas station. operated by Schneider. walks. ( had . purpose is to create standardization and uniformity to achieve the brand in all franchises nationwide y y Franchise agreement does not insulate from agency relationship master-servant liability Murphy v. j 4 slipped/fell/injured in hotel. land is owned by Humble Schneider nothing more than an employee performing duties y Humble is liable as Master Rule: determining a master-servant relationship. gas station attendant is judgment proof. ( not liable for negligence of an employee of Barone who is in turn is an independent contractor and not a servant of ( j the operation is an arm·s length contractual relationship. rather than independent contractor relationship. the principal. Sun Oil Company y Station employee negligently caused a fire on 4 car. but not subject to the principal·s control over how the result is accomplished j non-agent independent contractor ² operates independently and simply enters into arm·s length transactions with others  Agency relationship exists based on what the relationship actually is. both gained equally from their relationship y RULE: no master-servant relationship here when independent contractor controls the daily operations of the entity responsible for damages  Franchise Agreement: franchisee agrees to operate its business in certain ways in return for use of the license. Holiday Inns. considered as a whole. answered in the affirmative when the master exerts considerable control over the responsibilities of the servant  Hoover v. all for Humble·s benefit. ( had license agreement (franchise) with hotel operator no control over daily operations etc j RULE: when establishing agency relationship through contracts (franchise).y 3) independent contractor contracts w/ another to do something for him but isn·t controlled by the other nor subject to the other·s right to control j agent-type independent contractor ² agrees to act on behalf of another. talks. and acts like he·s owner y Humble actually controls significant operations at the station and had strict financial control and supervision. Love is judgment proof. the nature and extent of the control agreed upon determines if agency exists purpose of contract was to achieve standardization and uniformity of the brand for both parties· benefit. through an agreement with Humble. is a question of fact. establishes an agency relationship. car rolls down hill and injures Martin·s family. court found insignificant indicating a master-servant relationship. the parties cannot effectively disclaim it by formal ´consentµ  Humble Oil & Refining Co.

v. McD·s a franchise owned by 3K. Inc. not necessarily for tort seems like  Tort Liability and Apparent Agency  Miller v. which arise out of and in the course of employment of labor  Manning v.y Policy issue of franchise agreement is that business present themselves as one entity for advertising purposes. Grimsley y y Court held pitcher·s employer liable for throwing at a fan who was heckling him during a game RULE: employer liable for damages resulting from an assault by an employee when the assault was in response to 4·s interference of that employee·s duties y Restatement (second) Agency §231: An act may be w/in the scope of employment although consciously criminal or tortuous (comments indicated serious crimes exempt) y Restatement (second) Agency §228(1)(d): conduct of servant w/in scope of employment if the use of intentional force on another is not unexpected by the master  Statutory Claims  Factors to consider when deciding if employee was acting w/in the scope of employment: . McDonalds Corp. by a purpose to serve the master y Policy says employers should be held to expect risks. at least in part. Bushey & Sons. and then turns it around for tort purposes and tries to split into separate entities fraud acceptable for K purposes. y 4 seeking damages from McD·s for a stone she bit into in her food. liable for damage done by the sailor to a third party dock y RULE: conduct of a servant is w/in the scope of employment if it·s actuated. j Question for the jury whether McD·s held 3K out to be its agent and whether 4 reasonably relied on that representation  Scope of Employment   Restatement (second) Agency §228 and 229 Ira S. an agency relationship exists this is known as the Control Test under Actual Agency y Question of Apparent Agency arises from Restatement §267 ² 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 cause by the lack of care of skill of the one appearing to be a servant or other agent as if he were such. who had an explicit agreement saying no agency relationship. United States y Sailor·s drunken conduct not so unforeseeable as to make it unfair to hold the govt. McD·cs did have an agreement w/ 3K w/ thorough operating guidelines y RULE: if the franchise agreement goes beyond setting standard and gives the franchisor the right to exercise control over the daily operations of the franchise. to the public also.

exceptions: y y y  When land owner retains control of the manner and means of the contracted work When he engages and incompetent contractor Where the activity contracted for is a nuisance per se Majestic Realty Associates. Inc. they were independently owned and ( didn·t control daily operations. meaning liability cannot be delegated to another party. although innocent of any direct negligence.com/doc/16459948/Business-Organizations-Outline-Spring-2009 . place. Toti Contracting Co. that person is not liable for the negligent acts of the independent contractor in the performance of the contract. scope of employment question is one of fact for the jury to decide y RULE: once a master-servant relationship is established. v. y ( hired by Authority Parking to demolish bldg next to 4 bldg. court held no master-servant relationship between Conoco-branded stations. should bear the burden of damages over a third party that is completely innocent (4 here) http://www. purpose of the act similarity to acts which the servant is authorized to perform whether the act is commonly performed by the servant the extent of departure from normal methods whether the master would reasonably expect this act to be performed Arguello v. a master is subject to liability for the torts of the servant when the servant is acting w/in the scope of their employment ² Restatement (second) §219  Liability for Torts of Independent Contractors  Ordinarily when a person engages an independent contractor (who conducts an independent business by means of his own employees). y After several racial incidents at gas stations under ( name. Conoco Inc. damage incurred to 4 bldg during the process court held Authority liable for ( negligence b/c the work was inherently dangerous. its nature poses high risk to the general public y y RULE: Some actions are so inherently dangerous that their liability cannot be delegated Policy: the party hiring the contractor.y y y y y  time.scribd.

10/8/2010 4:18:00 PM .

10/8/2010 4:18:00 PM .