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Business Association Flashcards


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What is required for an agency (3 things)?
i. P consent
ii. A acts on P behalf
iii. P has control
Rstmt §1
(1) Manifestation of consent by P to A
(2) That the A shall act on P's behalf and subject to his control
(3) And consent by the A so to act
i. Level of control by P required is minimal. P need not exercise physical control, so long as can control result or ultimate objectives.
Rstmt § 3
(1) General agent – involves a continuity of service
(2) Special agent – single or series of transactions not involving a continuity of service
Gorton v. Doty
i. Consideration or compensation not required.
ii. Does require agreement (can be implied from circ evidence)
iii. Condition precedent (requiring coach to drive) established control to form agency.
A Gay Jenson Farms v. Cargill
i. Must be intent for A to act on P’s behalf subject to P’s control; parties do not have to intend the legal consequences of agency relationship
ii. Web of contracts and paternalism: Cargill control over Warren b/c had control over end result, interfering with operations, had the right to make recommendations.
iii. Rstmt 14: Creditor becomes P when he assumes de facto control over the conduct of his debtor.
iv. Planning – weigh risk of liability against biz considerations
Rstmt §144
P subject to liability upon K made by A acting within his authority
Actual Authority
i. Rstmt §7 Definition – Power of A to bind P by acts done in accordance w/ P manifestation of consent to A
ii. Rstmt §26 Creation - Conduct of P vis a vis the agent leads agent rx to believe he has authority to act on P behalf
Implied Actual Authority
Act of putting agent in position leads agent rx to believe auth.
Conduct of P is not enough
Mill Street Church of Christ v. Hogan
1) Past or present conduct of P caused A to rx believe he has authority
2) Church had allowed Bill to hire someone in the past, no indication that church expected differently, Bill needed someone to finish the job – actual authority.
Apparent Authority
i. Rstmt §8 Definition – Power to affect legal relations of another person by transactions w/third persons, professedly as A for the other, arising from the other’s manifestations to third person
ii. Rstmt §27 Creation - Conduct of P vis a vis the third party leads third party rx to believe agent made this K
a. Look at how T learned of A’s alleged authority and ask whether P rx can be said to be the source of that knowledge.
b. Custom could attribute conduct of P. If P deviates, liability falls on P b/c cheaper cost –avoider.
c. P can authorize A to make representation to T that A is P’s agent. That is manifestation of P to T to create apparent authority
Implied Apparent Authority
Act of putting agent in position leads third party to believe A had authority so to act
370 Leasing v. Ampex
a. Don’t need direct communication from P to T.
b. Implied authority by virtue of custom/position: The manifestation was hiring Kays to a position where he could ordinarily/customarily have such powers to contract so it’s reasonable for A to infer he has the requisite authority
d. Planning: make belief unrx by notice (actual or constructive)
Inherent Agency Power
i. Rstmt §8A – power of agent derived not from authority, but solely from the agency relation and exists for the protection of persons harmed by or dealing with agent
a. Usually dealing with undisclosed principle (Watteau)
b. Also where A exceeded authority, but rx foreseeable A would do so
ii. Often overlaps w/apparent authority, but avoids question of manifestation by P to T.
iii. Policy: cheaper cost avoider and P can go after A
Watteau v. Fenwick
a. No actual or apparent authority. P didn’t even know there was a P, so could not have been a holding out by P to T.
b. “The P is liable for all the acts … which are w/in the authority usually confided to an A of that character”
c. Rstmt §195 –
1) “A enters into transactions usual in such business and on P’s account”
2) Bainbridge’s proposal to RS: inherent authority should turn on what P should have reasonably foreseen b/c of symmetry + cheaper cost avoider
Rstmt §219(1)
P is vicariously liable for torts of its A while acting w/in scope of emplymt
i. P not liable for ind contr agent-type except in special circumstances
ii. P never liable for ind contr non-agent type
iii. Servant/ind contractor distinction only impt for tort liability, NOT for K’ual liability.
Rstmt §5
Sub-agency: If power of A includes ability to hire other As, such sub-agents become agents/employees of the principal.
Rstmt §35
Incidental implied authority: Implied authority “includes such powers as are reasonably necessary to carry out the duties”.
If P tells A to tell T that A has authority, apparent authority?
Though P didn’t manifest to T, A had actual authority to make the Principal’s manifestation to T. So it’s as if P made the manifestation. (Even if P revokes actual authority, apparent authority remains.)
Purpose of apparent authority.
The purpose of Apparent Authority is so Third Parties don’t need to constantly confirm with Principal that Agent has authority (Learned Hand)
What are the three considerations of principal's tort liability?
i. Is there an agency relationship b/w P and A?
ii. Is A servant or ind contractor?
iii. If servant, was A acting within the scope of his emplymt?
What is the result of ratification and what does it require?
o If ratified, it’s as though the unauthorized conduct was authorized at the time
o Requires:
§ [1] Agent acts without authority (and no grounds for estoppel)
§ [2] [a] P must [b] knowingly [c] affirm
· Can be express or implied
§ Must disaffirm immediately/promptly upon learning that it has happened
§ Can’t affirm after there’s been a significant change in material facts
§ [3] P must know or have reason to know all material facts
Botticello v. Stefanovicz
· Walter (spouse) had no authority
· Mary didn’t ratify because she didn’t accept the payments or benefits
§ Flies in the face of Outboard Marine Ctr v. Little Glasses Corp. (1959)
· Onus was put on P, who had possession of/access to written documents that he didn’t look at (that would’ve conferred knowledge) and accepted the benefits
Planning: Make sure you insist that all the other side’s partners look at K before you start paying/relying upon the contract.
Hoddeson v. Koos Bros
§ Elements of estoppel
· [1] [a] Acts or omission , either [b] intentional or negligent [c] by P, which [d] create an appearance of authority in the [e] purported A
· [2] [a] Third-Party [b] reasonably and in good faith [c] believes/acts on [d] reliance on [e] such an appearance of authority
· [3] [a] T [b] changed her position [c] in reliance [d] upon the appearance of authority
An Agent’s Liability on the Contract
o Disclosed P: A isn't liable unless:
§ Clear intent of all parties was for A to be bound
§ A made contract without authority
· T can sue A – since A gave an implied warranty of authority
o Partially disclosed P: A is treated as a party to the contract:
§ T needs to decide whom to sue
Rstmt §2(2): Servants
Physical conduct in performance of service is controlled or subject to right to control by master
Rstmt §2(3): IC
Person who K w/another to do something for him but who is not controlled or subject to right to control physical conduct in performance of undertaking. May or may not be an agent.
a. P tells A what to do but not how to do it.
b. Agent-type: subject to limited control by P w/respect to chosen result. A has power to act on P’s behalf
c. Non-agent type: less control on P’s part. A has no power to act on P’s behalf.
Sub-agent and Sub-servants Rstmt §5
1) Principal – agent – sub-agent: person appointed by agent empowered to do so for whose conduct the agent agrees w/ P to be primarily responsible
Murphy v. Holiday Inns
1) The language of the K does not control
2) Betsy Len has to be HI servant for HI to be liable to third party for tort. Court treats as agency question and is wrong.
3) BL is independent contractor agent-type.
i) Key issues in relationship were not controlled by HI (cleanliness, safety, insurance)
ii) Physical conduct not controlled by HI, so not servant
Hoover v. Sun Oil
1) Barone was an independent contractor.
2) Cf. Humble
i) B had more discretion
ii) B had more financial risk, i.e. was a residual claimer b/c gets paid after everyone else gets paid.
iii) Servants do not generally take on financial risk.
iv) Residual claims and control go together
3) §220(2) factors: SO gives recommendations, Barone may sell other products, SO owns ppty but not stock, 30 day emplyt termination notice, volume-based rent but capped. (ct didn’t consider §220 but helpful)
4) Control over details; Control or influence over results alone insufficient
Humble Oil v. Martin
1) Humble responsible for operation of the station b/c franchisee is servant
2) §220(2) factors: Humble may give orders, owns stock, H owns ppty and stock, at will emplyt, volume-based rent (ct didn’t consider §220 but helpful)
Scope of employment rule
[1] Was the conduct of the same general nature as, or incident to, that which the servant was employed to perform (RS §229)?
[2] Was the conduct substantially removed from the authorized time and space limits of the employment (“frolic and detour” – substantial departure from the designed limits)?
[3] Was the conduct motivated, at least in part, by a purpose to serve the master
Bushy v. United States
Not within scope of employment b/c did not have purpose to serve ER when opened valves.
b. Foreseeability Test:
1) P liable if some harm is F, even if particular harm was unF.
2) Conduct by servant which does not create risks different from those attendant on the activities of the community in general = no liability.
3) Conduct must relate to emplymt
Rstmt §228(1)(d): Intentional torts
P liable for intentional tort of A if “not unexpectable” by P
Manning v. Grimsley
1) Test: EE assault was in response to the P’s conduct which was presently interfering with EE’s ability to perform his duties successfully
When is it direct, not vicarious, liability?
When a P negligently hires an EE whose undesirable propensities are/should have been known
When is a P liable for torts of IC?
Majestic Realty:
a. P retains control over aspect of work of tort;
b. When hires incompetent contractor; OR
1) Liable for negl hiring
2) Duty of inquiry (background check) only if inquiry notice
c. Where activity contracted for constitutes inherently dangerous
1) Peculiar risk of harm unless takes special precautions
d. Nondelegable duty
1) Duty so impt to community, P should not be allowed to delegate
Rstmt §13
Agent is fiduciary w/r/t matters w/in scope of his agency
a. Interests of P must be put first, even if contrary to personal interests.
Duty of Care
a. Duty in performance of task
b. General std: rx care
c. Rstmt §385 – duty to obey all rx orders of manner of performing; no duty to act illegally or unethically
Duty of Loyalty
a. Kickbacks (RS §388)
b. Secret profits
i) From transactions with P (RS 389)
ii) Use of position (Reading)-- Position in military sole cause of getting the money. Do not have to show injury to P
c. Usurping business opp from P (Singer -- auto biz on side)
d. “Grabbing and leaving”
i. Town and Country: can only take what is in head
Duties of P to A
i. Pay rx compensation for this service in the locality
ii. Duty to reimburse A for expenses
iii. Duty to indemnify A against losses suffered in course of conducting P biz
Rstmt §387
duty to act solely for benefit of P in all matters connected w/agency.
Rstmt §388
profit in connection w/transactions by A on behalf of P go to P
Clover v. Snowbird Ski Resort
Within scope of employment b/c the deviation was not substantial enough to be considered a “total abandonment of his employment”

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