I.Nature of the Agency Relationship

AGENCY & PARTNERSHIP

OUTLINE

I.NATURE OF THE AGENCY RELATIONSHIP

A.Agent Distinguished from Partner

A partnership is an association of two or more persons to carry on as co-owners a business for profit.
Members of a partnership are liable as principals both in contract and in tort for the acts of a partner which are authorized.
A partner who is active in management or otherwise regularly employed in the business is a servant of the partnership.

B.Agent Distinguished from other Independent Contractors

One who contracts to act on behalf of another and subject to the other’s control except with respect to his physical conduct is an agent and also an independent contractor.
2 types of independent contractors:

Independent contractor as agent- has a fiduciary duty, examples: brokers, attorneys, collection agencies, and selling agencies because they are not subject to control or right to control of the principal with respect to their physical conduct but still owe the basic obligations of agency: loyalty and obedience.
Independent contractor non-agent- do not owe a fiduciary duty, example: builders

C.Agent Distinguished from a Corporate Director

An agent must follow instructions of principal, but corporate directors do not have to follow instructions.
Corporate directors are not subject to another’s control except with regard to the appointment and removal of its officers.
Corporate directors have a fiduciary duty to the corporation, but not to any shareholder individually.
An individual director acting as a member of a board does not act as an agent but is instead a member of the group which supervises the corporation.
Individual directors have no power to act on their own.

D.Agent Distinguished from Vendor

The person acting as a vendor is only an agent if it is agreed that he is to act for the benefit of the principal and not himself.
Factors to determine if one is a vendor and not an agent:

that he is to receive a fixed price for the property irrespective of the price paid by him (this is most important)
that he acts in his own name and receives the title to the property which he is thereafter to transfer
that he has an independent business in buying and selling similar property

The agent may not profit from the agency relationship other than whatever consideration the principal may agree to.
F.C. Adams v Elemer F. Thayer Estate: decedent offered to pay certain price for stock purchased by broker. The decedent’s estate refused to pay the broker. Ct held the broker was not an agent because the broker acted for himself and did not have to account for any profits. (no fiduciary duty). The decedent is not liable as a principal for the broker’s expenses.

Agent Distinguished from Purchaser

One who receives goods from another for resale to a third person is not thereby the other’s agent in the transaction: whether he is an agent for this purpose or his himself a buyer depends upon whether the parties agree that his duty is to act primarily for the benefit of the one delivering the goods to him or is to act primarily for his own benefit.
A consignment situation is difficult. Some factors indicating that a sale has occurred and an agency relationship does not exist are:

That the consignee gets legal title and possession of the goods
That the consignee becomes responsible for an agreed price either at once or when the goods are sold
That the consignee can fix the price at which he sells without accounting to the transferor for the difference between what he obtains and the price he pays.

Who is the Principal?

When someone is conducting a transaction between two people they may be an agent of both if both agree and there is full disclosure or they can be an agent for one party part of the time and another party the other part of the time.

Example: An insurance agent who sells different policies from different companies. He is an agent of the buyer to select the best policy, but an agent of the insurance company to collect payments.
If it is not clear who the principal is the key may be who pays the agent.

Fish v Bloodworth- shall the plaintiff or defendant suffer the wrongdoing of Graham who did not deliver the proceeds of a loan check? If Graham is acting as agent of plaintiff then payment to him was payment to the plaintiff and plaintiff bears the loss. However, if he was acting as agent of the defendant the defendant is responsible and must repay the plaintiff.
Oklahoma Publishing v Video Theatres- Plaintiff billed 3rd party who would forward the bill plus his fees to the defendant. The defendant would then pay the 3rd party who would forward the billed amount to the plaintiff. The 3rd party stopped forwarding the billed amount to the plaintiff and the Ct held the defendant was liable because the 3rd party was acting as their agent. Payment to your own agent is not payment to the plaintiff. Case turns on who pays the fees of the middle man.
National Advertising v Scovil- Nat’l bills Gadd who bills Scovil. Scovil pays Gadd who then subtracts 15% and forwards the remaining 85% to Nat’l. Scovil sent letter notifying Nat’l that Gadd was its agent so when Gadd did not forward Scovil’s payment Scovil is still liable for payment b/c Gadd was their agent.

Agent Distinguished from Person Given a Power for Security

If someone grants power but for the benefit of the power holder, not for the benefit of the power giver then the power holder is not an agent of the power giver.

CONTRACT LIABILITY

Introduction

The question of contract liability is when can an agent or purported agent enter into a contract on behalf of, or purportedly on behalf of, his principal and impose contract liability upon the principal or purported principal.
Always remember third person must take reasonable steps to determine that an individual is an agent and the extent of his authority. The key is reasonableness. This probably does not require more than asking for company identification.
If a person does not make reasonable investigation and it turns out the person is not an agent or lacks the authority he claims the person cannot recover from the principal (although he may have a cause of action against the purported agent).
Agents who hold themselves out as agents give a warranty and if they are not the agent or do not have the authority there may be a COA against the agent. It is an implied-in-law warranty. An agent warrants that:

he is in fact an agent
there exists a principal who is as the agent described him
he has the authority he claims he has

Methods of Contracting

Fully disclosed principal- Unless otherwise agreed a person making or purporting to make a contract with another as agent for a disclosed principal does not become a party to the contract. The agent must disclose:

that he is an agent,

who the principal is and

what the agent is authorized to do.

Moran v Loeffler-Greene Supply- The plaintiff claims the agent intended to bind himself to the contract. This fails to rebut the general rule that an agent for a fully disclosed principal is not a party to the contract.
Copp v Breskin- If lawyer is acting as a fully disclosed agent for a fully disclosed principal then lawyer is not liable for expert witness fees. There are exceptions however:

When expert is retained it is expressly provided for in the contract that law firm will be responsible for fees or
It is implied that law firm will be responsible (by custom, ethics, rules, etc.)

Partially Disclosed Principal- Unless otherwise agreed a person purporting to make a contract with another for a partially disclosed principal is a party to the contract.

A principal is partially disclosed when at the time of the making of the contract the other party has notice that the agent is acting for a principal but has no notice of the principal’s identity.

Undisclosed Principal- An agent purporting to act upon his own account but in fact making a contract on account of an undisclosed principal is a party to the contract. Both the agent and the undisclosed principal are parties to the contract.

Lane v Oklahoma Lincoln- Hotel operator liable for air conditioning repair when acting as an agent for an undisclosed principal, the owner of the building. Subjective intent to serve principal is irrelevant.

Ways By Which Contract Liability May be Imposed

Actual Authority

Actual authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principals manifestations of consent to him.
Express authority- authority is created by an oral or written statement
Implied authority- created from incidental duties and acquiescence, can also be created by custom. Implied actual authority can be withdrawn by specific express instructions to the contrary. Test to determine whether implied actual authority exists is whether acts are reasonably inferred from the job. Factors:

Nature of the business
What is being done in the same industry (custom)

Note illegal industry custom or one which is against public policy cannot create implied authority

Time period

If agent’s authority is ratified the liability of the principal dates back to the time of the first action of the purported agent.
If agent’s authority is affirmed the principal’s liability dates back only to the point of affirmance.
Home State Bank of Hobart v Sullins- Defendant’s agent collected portion of debt and issued a release for the remainder. Bank said agent had authority to collect but not authority to release. Ct said when authority is implied from the job itself the principal has the burden of proving any special limitations and notice to or knowledge by the adverse party.
Anglo American Clothing v Marjories- Agent of Plaintiff negotiated to put jackets in store on a sale and return basis. Plaintiff says agent didn’t have authority to enter into a sale and return contract. Ct found no express actual authority, but there was a question whether implied actual authority existed. Ct said no b/c it was not customary for salesmen in the clothing business to be authorized to enter into sale and return contracts. Note: Store might have claimed apparent authority but this claim fails b/c the agent cannot create apparent authority for himself.

Evans v Skinner- Attny asks client if he can talk settlement, client says yes, attny enters into settlement contract w/out consent, client fires lawyer and wants out of the settlement contract, Ct holds attny did not have express actual authority b/c client said talk settlement not settle. Ct finds there is no implied actual authority b/c it is not customary for a lawyer to settle a case w/out consent from client. Ct also finds no apparent authority b/c other party should have been on notice that attny should consult client.

Apparent Authority

results from a manifestation by a person that another is his agent, the manifestation being made to a third person, not to the agent. (focuses on the manifestations between the principal and the third person)
Apparent authority exists only to the extent it is reasonable for the third person dealing with the agent to believe the agent is authorized
Manifestations can be made directly or to the community through signs, advertising, etc.
Problems with this arise mostly in cases where the principal has discharged the agent.
Jones v World Publishing- ?
Wheeler v Puritan Insurance- People buy insurance from an agent and attempt to collect after home burns. The agent admits he had no actual authority and thus could not create apparent authority. Ct held insurance co. not liable b/c there is no actual authority and an agent cannot create apparent authority.
A-OK Construction v McEldowney- Agent tells ER that she will obtain worker’s comp insurance for him and she never does. ER sues the agent and the agent pleads that he was an agent for a fully disclosed principal and is not party to a contract between the insurance co. and ER. Ct held the agent is liable, not the insurance co.

Estoppel

A principal may be liable even when there is no actual or apparent authority on grounds that a third person has relied on and changed his position b/c of his reasonable belief the purported agent was acting on behalf of the principal if:

the principal intentionally or carelessly caused such belief or

the principal knowing of such belief and that others might change their position did not take reasonable steps to notify them of the facts

Hoddeson v Koos Bros.- When a proprietor of a place of business carelessly lets someone act as if he is an agent and transact business with a patron, the appearance being that the patron will believe the imposter is an agent, the law will not permit the imposters lack of authority to allow the proprietor to escape liability for the loss sustained by the customer.

Goldstein v Hanna- Plaintiffs attempted to exercise option on lease. Agent told plaintiffs that lease terms could be extended and then called the principal and confirmed. The principal remained silent and then tried to claim the lease option had expired. Ct held the principal had a duty to speak and failing to do so can create estoppel. A principal must take reasonable steps to correct. Factors include expense, time, and effort.

Inherent Agency Power

This situation arises only after it is determined no actual, apparent, or estoppel exists.
Public policy is the reason for this doctrine. Respondeat superior, let the master pay.
The other party has to be acting in good faith or reasonably.
3 situations in which inherent agency power arises:

general agent does something similar to what he is authorized to do but in violation of orders

an agent does something for his own purposes in entering into a transaction which would be authorized if he were actuated by a proper motive.
An agent is authorized to dispose of goods and departs from the authorized method of disposal.

Zanac v Frazier Neon Signs- agent had authority to get a price on fixing the sign, but he went ahead and said to fix it. Ct held principal liable under inherent agency power b/c the acts done usually accompany transactions the agent would be authorized to conduct, even though they were forbidden by the principal & the other party reasonably believed the agent was authorized to do the acts.
Crisp v Medler- Client liable when attny ordered entire transcript against her wishes b/c normally an attny has the inherent authority to do this. An attny is empowered with real and apparent authority to bind a client within the scope of employment, absent proof that a third party had actual notice of a limitation on that inherent authority.
Restatement: Acts of Manager Appearing to be an 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 usual in such businesses and on the principal’s account, although contrary to the directions of the principal.
Restatement: Agent Acts for Improper Purpose- A disclosed or partially disclosed principal is subject to liability upon a contract purported to be made on his account by an agent authorized to make it for the principal’s benefit although the agent acts for his own or other improper purposes unless the party has notice that the agent is not acting for the principal’s benefit.
Ocean Accident v Denner- agent stole payments made to principal by defendant. Question was did defendant have to pay again b/c agent was not acting for principal’s benefit? No, unless the other party had notice that he was not acting for the principal’s benefit.

Breach of Warrant of Authority

If you go all the way through the 4 other theories and cannot find the principal liable, then you may attempt to hold the agent liable based on breach of warrant of authority.
Restatement: A person who purports to make and contract, conveyance or representation on behalf of another who has full capacity but whom he has no power to bind thereby becomes subject to liability to the other party thereto upon an implied warrant of authority unless he has manifested that he does not make such warranty or the other party knows the agent is not so authorized.
Aetna Casualty v Wofford- Defendant told agent of plaintiff that as liquidating agent of a dissolved partnership he had the authority to sign a note to pay money owed to plaintiff. He did not have such authority to bind the partnership, but ct said judgment could be secured against defendant individually b/c he misrepresented that he had the authority.

LIABILITY FOR PHYSICAL TORTS

Introduction

Independent Contractors- hired to accomplish a particular job and can use his own methods to do so

Independent contractor non-agent- does not owe principal a fiduciary duty
Independent contractor agent- owes the principal a fiduciary duty

Servant- employed to work for another, person for whom the servant works has the right to control the way in which the job is performed. (It doesn’t matter if they actually exercise control or not)
Basics to remember:

The tortfeasor is always liable for the tort committed regardless of relationship or authorization.
A servant is not an indispensable party to a tort suit against the master.
A principal is liable for the non-physical torts of his agents.
A master has the right of indemnification from the servant.

Is There a Master Servant Relationship?

Restatement: Master has right to control, whether it is exercised or not, the conduct of his agents.
Konick v Berke Moore Co.- Ct adopted modern American rule to establish liability of principal: all that is required is that principal has sufficient control over act or business in general, overruled Massachusetts rule which required control or right to control the specific item or act.
Factors for determining whether one acting for another is a servant or an Independent Contractor:

extent of control the employer exercises over the details of the work
whether or not one is employed in a distinct occupation or business
whether in a given locality work is usually done with supervision or by a specialist with no supervision
skill required in the occupation
who supplies the tools, machinery in the place of work
length of employment (longer time, usually a servant)
method of payment (daily = IC, monthly = servant)
whether work is part of normal business of employer
belief of parties (this is of little significance)
Is principal in the business? (not in business = IC)

Risk of loss test- often used to determine whether a person is an IC or a servant.