#11822 - Corporations Attack - Corporations, Agency, and Partnership

*Person: any entity that has legal capacity to possess rights and incur obligations. (Persons, corps, etc)

1) Principal manifests assent to the agent

-Assent = manifestation implied from circumstances, current/prior conduct, written, oral, etc.

-subjective intent irrelevant. Could disclaim agency, but still have it. No K, consideration needed

2) that the agent shall act on the principal’s behalf

-Agent must be acting primarily to achieve principal’s goals (Or at least attempting to do so).

-Favor to A: P lends A her car. A acting as P’s agent (employee?!). (Gorton).

-presumption that when you lend someone your car they’re your A. (get $ from pty w/ insurance)

-procuring grain that P had right of first refusal over, financed by P’s credit. (Cargill).

-Supplier-buyer: supplier not agent if he is acting for himself rather than for the other.

FACTORS: 1) fixed price 2) acting in own name; 3) independent biz => probably not agent.

3) and subject to the principal’s control

Principal may direct the result or ultimate objectives of the agent relationship.

=‘may be exercised by prescribing the agent’s obligations before or after the agent acts, or both’ OR during, can give interim instructions or directions.

-Control: condition precedent on use of car – that agent use it – sufficient. (Gorton).

-Control: creditor-debtor = de facto principal-agent. 1) regular comm. and suggestions; 2) power to control some decisions; 3) other factors (right of 1st refusal on grain, right of entry on A’s premises, P’s name on A’s checks. Active participant, not financier. (Cargill)

-BUT if potential A bears the risk of loss or benefits of profit, usually suggests no P-A control.

4) Agent manifests assent or otherwise consents so to act [for P’s benefit and s/t P’s control]

-no need to communicate. Just needs to act on P’s behalf. No consideration required. Can be gratuitous.

5) POLICIES that make finding of agency more likely.

-principal best able to insure against loss (Gorton – car owners)

-with power comes responsibility (Cargill – benefits+power of owner => liability too)

*BURDEN: is on party asserting agency relationship.

=>IF NO AGENCY => SKIP TO #5, could have apparent agency or estoppel.

-Employee: agent whose physical conduct in performance is controlled or s/t a right of control by master.

-Independent Contractor: person who contracts w/ another to do something for him, but who is not controlled by the other nor s/t the other’s right to control w/r/t his physical conduct in the performance

***Non-agent ICs: operates independently, just enters into arms’ length transactions w/ others.

FACTORS suggesting employee

*can be employee for some purposes, IC for others, depending on what things are controlled.

Ex: McDonald’s is centralized in some things, but security is local, so IC for security.

-P gets share of revenues, or even better revenues and losses (total net) => IC.

Person w/ residual share (who is getting benefits or taking risks) will want more control.

-(Important) custom in the locality – whether this kind of occupation is usually done under the direction of the employer or by a specialist without supervision.

+(Important) less skill required in the particular occupation (easier for P to supervise A).

+extent of control which, by agreement, the master may exercise over the details of the work.

-Day-to day, NOT just the basic objective. Power to fire on short notice suggests ctrl.

+the one employed is not engaged in a distinct occupation or business

+the employer supplies tools and the place of work for the person doing the work

+longer length of time for which the person is employed

+method of payment is by time, rather than by job

+the work is part of the regular business of the employer, (AND they actually have a business)

+parties believe they’re creating a master-employee relationship as opposed to IC (labels of K).

Rationale: ease with which the output can be specified =>, then easier for IC relationship, no need to constantly supervise. Franchises – give them a set standard to comply with, easy to monitor the standard and don’t have to monitor how they achieve it. (Holiday Inn case).

POLICY: Generally, principal should be bound if they are the cheapest cost avoider. (Which is usually when they are idiosyncratic in some regard – key is reasonable 3rd party expectations).

1) FIRST: NATURE OF THE PRINCIPAL. Four options.

Undisclosed: 3d pty is unaware that the agent is acting on behalf of a P. Existence and ID is unknown.

Partially disclosed: 3d pty reasonably should have known that the person with whom he was dealing was acting as an agent on behalf of the principal, but doesn’t know the ID of principal

No principal at all. (Atlantic Salmon).

=>Whenever there is not a disclosed principal (and no contract out of the default) => A is bound.

-IF A had authority => P is bound too

-IF A didn’t have authority=>P is not bound (absent inherent authority or ratification)

Atlantic Salmon: looked at purpose of rule to expand. You assume you are dealing with agent unless some other person is disclosed.

-Disclosed P (there is a P and 3P knows ID):=> P is bound to 3P

-Atlantic Salmon: avoid shady shit. Basically, unless there is a P and 3P knows who it is, A should be bound to the 3P.

Agent generally not bound to 3P. UNLESS EITHER

-Parties contract out of the default – clear intent that A be a party to the contract.

-A had no auth., and P refuses to ratify K. MAJ let 3P get compensation from the agent.

(implied warranty of authority unless 3P knows no auth; breach of K, tort for deceit,.).

DISCLOSED Principal is bound to contract (and A isn’t) if A had ANY of the below.

2) SECOND. WAYS IN WHICH PRINCIPAL CAN BE BOUND TO THIRD PARTY

Agent reasonably believes the principle has consented to a particular course of conduct.

-EXPLICIT Actual Authority:

Creation: principal tells agent he has the authority in question (oral/written).

-even if P didn’t intend to confer authority.

Scope: strictly construed - limit to the business actually intended by the parties, specific language prevails over general grants.

-IMPLICIT Actual Authority

Agent reasonably believed that the action was within the scope of his authority in light of the principal’s objectives and other facts known to the agent? Examples…

*UNLESS express instructions otherwise.

-incidental auth. to use means reasonably necessary to carry out P’s express objective.

-customary agent powers in the trade/community;

-course of dealing in similar transactions (ex: this transaction delicate, so no urchin).

-the less similar, the less strong the evidence of course of dealing.

Church of Christ v. Hogan: Agent employee had implied authority in two ways.

-incidental: the job required two men. So authority to hire a helper.

-conduct: past practice was to hire his bro. Church had to specifically instruct him not to.

*even if there was no actual agency relationship anymore.

Rationale: prevent P from avoiding contractual obligations they don’t like by claiming they gave some private instructions to their A that took away actual authority. If A doesn’t follow your private instructions, you’ll be bound to 3P, but can sue agent.

1) Principal held out the agent as possessing certain authority

*Actual authority for some things can lead to apparent authority for others. (370 Leasing).

Express: clear letter to 3rd party stating that the agent has authority.

Implied thru inaction of P when A asserts that there is such an agency relationship to 3rd party.

Ampex: apparent authority thru P’s inaction. 1) held out by placing A in position where such authority was customary. 2) reasonable: Never told 3P party that A lacked authority, memo saying that A would be channel for all of P’s communications w/ 3P.

Implied thru course of conduct: P allows A to carry out a series of transactions over an extended period of time, => 3P can reasonably believe that most recent transaction is authorized.

Implied thru custom: (NEXT PAGE)

(Apparent authority implied thru custom).

Rationale: the idiosyncratic owner who goes against custom should be the one that has to take precautions – rather than potential third parties. And P can always sue A.

=3P knows P put A in position that has generally recognized authority to enter into the agreement in question.

-Knowledge solely from manifestations of A?

OK if A had actual authority to make the manifestations at issue

Authorized manifestations can imply authority broader than that which is actually authorized. (370 Leasing).

IF NOT, then could still be inherent authority.

370 Leasing: Apparent authority 1) implied thru custom – employee’s title was sales rep=>suggests authority to make sales; 2) implied thru inaction – P met w/ 3P and A, said A had actual authority to negotiate and didn’t say he lacked authority to close.

2) Third party reasonably relied on the agent having such authority

Practically, 3P likely won’t argue that they weren’t listening to the reasonable manifestation.

a) 3P had notice from principal that agent lacked such authority? => not reasonable

b) Reasonable diligence? (split)3P has duty to exercise reasonable diligence to verify A’s authority-IF...