4400 Test 3 In-Class Examples
•Cook's Department Store (P) advertises its barber shop in its store and that its shop is managed by Hunter, a Cook's employee (A) •Hunter is not an employee but actually an independent contractor •Hunter cuts client, Jordan •Can Jordan collect from Cook's?
Apparent Authority. Yes. By advertising that it maintained a barber shop in its store in charge of Hunter, Cook's Department Store has caused third persons reasonably to believe that Hunter is its employee. The store is therefore estopped from asserting the fact that Hunter is not its employee because to allow it to do so would be unfair and unjust to persons who, in good faith and in reliance upon the advertisements, engaged Hunter's services in the mistaken belief that he was an employee of the store. This problem presents a case of agency by estoppel or apparent authority.
•Harvey Hilgendorf was a licensed real estate broker acting as the agent of the Hagues in the sale of eighty acres of farmland. •The Hagues, however, terminated Hilgendorf's agency before the expiration of the listing contract when they encountered financial difficulties and decided to liquidate their entire holdings of land at one time. •Hilgendorf brought this action for breach of the listing contract. •The Hagues maintain that Hilgendorf's duty of loyalty required him to give up the listing contract. Are the Hagues correct in their assertion?
No, the Hagues are not correct. Judgment for Hilgendorf. Since agency is a consensual relationship, a principal has the power to terminate an agency that is not coupled with an interest even though the term of the agency has not yet expired. But without a legal reason for doing so, the principal does not have the right to terminate an unexpired agency contract and may subject himself to liability for doing so. Although an agent's duty of loyalty does require him to place the principal's interests first in dealing with third parties, in the contract of agency itself between the agent and the principal each is acting in his own behalf. The Hagues' financial difficulties did not give them the legal right to terminate the agency relationship, and Hilgendorf was under no duty to relinquish his role as their agent simply because the principal encountered financial problems. Therefore, Hilgendorf may recover damages for breach of the listing contract. Hilgendorf v. Hague, 29 N.W.2d 272 (1980)
•Inventor files patent for a "water flush system to remove cow manure from the floor of a dairy barn." •Invention is a combination of well-known elements (water, sloping floor, collection vessel, etc.) •"The only claimed inventive feature of the [patented] combination of old elements is the provision for abrupt release of the water from the tanks or pools directly onto the barn floor, which causes the flow of a sheet of water that washes all animal waste into drains within minutes and requires no supplemental hand labor." Is this actually patentable?
S.C. says "no." Saraida v Ag Pro Inc. (425 U.S. 273 (1976)) Fails non-obviousness.
•Helper (A) for Gunn (P) delivered two packages of groceries to Reed's porch •A helps Reed with moving cabinet •Damages valuable antique table when moving cabinet •Does Reed have cause of action against P for the damage to the antique?
Tort Liability of the Principal. No. Gunn is liable for the negligent acts of his employee committed within the scope or course of his employment, but is not liable for acts of an employee or agent that are unrelated to performance of the duties he was employed to perform. The duties of the delivery boy included only delivering groceries to the front porch and ringing the bell and not only did not entail carrying the goods inside but certainly did not entail his aiding the customer in a chore such as this. His act was voluntary and merely an act of courtesy, and having so volunteered, the act became a joint enterprise of Mrs. Reed and Helper for the accomplishment of special business of Mrs. Reed which was not the business of Gunn.
Duties of P to A
•Compensation - pay per the contract or reasonable value if not specified (but not if it is a gratuitous agent) •Indemnification - pay agent for loses incurred while acting as directed by P •Reimbursement - pay back to agent authorized payments A has made on P's behalf •Safety - provide employee with reasonably safe conditions of employment •Good faith - deal with A fairly and in good faith
Duties of A to P
•Obedience - act only as actually authorized and must obey all lawful instructions and directions of P •Good Conduct - act reasonably and refrain from conduct that is likely to damage the P's interests •Diligence - act with reasonable care, competence, and diligence •Inform - use reasonable efforts to give P information material to the affairs and that P would want to know •Account - maintain and provide an accurate account of money or property agent has received or expended on behalf of P •Fiduciary - utmost loyalty and good faith of P •Conflicts of interests •Self-dealing •Duty not to compete •Misappropriation •Confidential Information •Duty to Account for Financial Benefits
•Chaiken entered into separate but nearly identical agreements with Strazella and Spitzer to operate a barber shop •Under the terms of the "partnership agreement" (title on paper), Chaiken would provide barber chairs, supplies, licenses, while the others perform the cuts •Agreements stated gross returns from the partnership were divided on a percentage basis among the three men •Chaiken would decide all matter of partnership policy •Agreements stated work hours and holidays for Strazella and Spitzer and Chaiken would hold and distribute the money a)What are the arguments that Strazella and Spitzer are partners with Chaiken? b)What are the arguments that Strazella and Spitzer are employees of Chaiken? c)Which arguments should prevail?
ANSWER: Arguments that Strazella and Spitzer are partners with Chaiken include (1) they had entered into a partnership agreement, (ii) they contributed their tools and labor, and (2) they shared gross returns generated by the business. Arguments that Strazella and Spitzer are not partners with Chaiken but are employees of Chaiken include (1) having separate agreements with each barber, (2) sharing gross receipts rather than sharing profits, (3) lack of control by Strazella and Spitzer, and (4) Chaiken setting working hours for Strazella and Spitzer. Strazella and Spitzer are employees of Chaiken. Chaiken v. Employment Security Commission, 274 A.2d 707 (Delaware Superior Court, 1971), A partnership is an association of two or more persons to carry on as co-owners a business for profit. The mere existence of a writing labeled "partnership agreement" and the characterization of its signatories as "partners" does not conclusively establish the existence of a partnership. Rather, the intention of the parties, as explained by the wording of the agreement, is controlling. Here, several aspects of the agreements between Chaiken and the two barbers, when considered as a whole, negate the finding of a partnership arrangement. First, Chaiken reserved the exclusive right to determine partnership policy. Second, distribution of assets upon dissolution of a partnership is to occur only after all partnership liabilities have been satisfied. Here, however, there was no such condition placed on such distributions to Strazella and Spitzer. Third, the agreements set forth holidays and hours of work for the two barbers, subjects not commonly found in partnership agreements. Finally, and of most importance, the agreements provided for a division of gross returns, not of net profits. The intent to divide profits is an indispensable requisite of a partnership. All of these factors taken together negate a finding of partnership intent here. Rather, Strazella and Spitzer are employees of Chaiken.
•Green Grocery Company employs Jones as manager •Jones given authority to purchase supplies and goods for resale and had been doing so from Brown Distributing Company •Previous purchases have been groceries, but Jones (A) contacts BDC and has it deliver color TV to A's house •Jones disappears! •BDC seeks to recover from Green (P) What are we being asked to evaluate? •Was there authority to cause P to have contractual liability? •What are our choices? •Actual or Apparent •What types of Actual?
Actual Implied Authority. No, Green will prevail. Generally, an agent has implied authority to make reasonable and necessary purchases for his principal, who is bound by the act of the agent within the scope of apparent authority. Payment of bills for merchandise sold to an agent by his principal is sufficient to establish apparent authority, especially where this practice is continued over a period of time, and the principal is estopped to deny the agent's authority. It is a generally recognized rule of law that an agent has implied or apparent authority to purchase those items required in the prosecution of the business he represents. The burden is upon the plaintiff, Brown Company, to prove the authority of the agent, Jones, and that she had authority to make the specific purchase in question. The authority to buy one type of goods is insufficient to establish authorization to buy an entirely different type. While a general agent has authority to bind the principal as to matters within the proper scope of the business, the authority is limited to acts customary and usual in the business involved. Here the purchase was different from prior dealings. The set was delivered to the home of the agent and Brown Company is charged with the duty of determining actual authority. The question of acceptance of benefits or ratification is not involved here.
•Sony Corporation manufactured and sold home video recorders, specifically Betamax videotape recorders (VTRs). •Universal City Studios, Inc. (Universal) owned the copyrights on some programs aired on commercially sponsored television. •Individual Betamax owners frequently used the device to record some of Universal's copyrighted television programs for their own noncommercial use. •Universal brought suit, claiming that the sale of the Betamax VTRs to the general public violated its rights under the Copyright Act. •It sought no relief against any Betamax consumer. •Instead, Universal sued Sony for contributory infringement of its copyrights, seeking money damages, an equitable accounting of profits, and an injunction against the manufacture and sale of Betamax VTRs. Explain whether Universal will prevail in its action.
Copyrights. Judgment for Sony. The sale of copying equipment does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. The product need merely be capable of substantial noninfringing uses. Moreover, an unlicensed use of the copyright is not an infringement unless it conflicts with one of the five exclusive rights conferred by the Copyright Act. According to the act, a "fair use" is not an infringement. Here, the Betamax VTRs were widely used to have television programs time-shifted to suit the VTR owner's schedule. Under the "fair use" doctrine, proof that the noncommercial use of the copyrighted work would be harmful, or, if widespread, would adversely affect the potential market for the copyrighted work, is required to render the use an infringement. Sony demonstrated that substantial numbers of copyright holders of commercial television broadcasts would not object to time-shifting. Also, Universal failed to show that time-shifting would cause any substantial harm to the potential market for, or the value of their copyrighted works. The Betamax then is capable of substantial noninfringing uses. Consequently, Sony's sale of such equipment to the general public does not constitute contributory infringement of Universal's rights. Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984).
•Keller, a professor of legal studies at Rhodes University, is a diligent instructor. •Late one night, while reading a newly published, copyrighted treatise of 1,800 pages written by Gilbert, he came across a three-page section discussing the subject matter he intended to cover in class the next day. •Keller considered the treatment to be illuminating and therefore photocopied the three pages and distributed the copies to his class. •One of Keller's students is a second cousin of Gilbert, the author of the treatise, and she showed Gilbert the copies. May Gilbert recover from Keller for copyright infringement? Explain (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.
Copyrights: Rights. Probably not. It is most probable that Keller will be protected by the Copyright Act's codification of the common law fair use doctrine. Section 107 of the Act provides that it is not an infringement to make fair use of a copyrighted work for purposes of, inter alia, teaching, including multiple copies for classroom use. In determining what is fair use the following factors are to be considered: (1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work. In that Keller taught at a nonprofit educational institution, made use of an insubstantial portion of the whole work (less than two-tenths of a percent) and distributed it to a group of undergraduates who would not likely have otherwise purchased the whole work, it appears that Keller comes clearly within the protection of the fair use doctrine.
•Timothy retains Cynthia, an attorney, to bring a lawsuit upon a valid claim against Vincent. •Recently enacted legislation has shortened the statute of limitations for this type of legal action. •Cynthia fails to make herself aware of this new statute. •Consequently, she files the complaint after the statute of limitations has run. As a result, the lawsuit is dismissed. What rights, if any, does Timothy have against Cynthia?
Duties of Agent to Principal: Duty of Diligence. Judgment would be for Timothy assuming that a lawyer acting reasonably would have had opportunity to discover the revised statute of limitations period. Subject to any agreement with the principal, an agent has a duty to the principal to act with the care, competence, and diligence normally exercised by agents in similar circumstances. Special skills or knowledge possessed by an agent are circumstances to be taken into account in determining whether the agent acted with due care and diligence. Moreover, if the agent claims to possess special skill or knowledge, the agent has a duty to act with the care, competence, and diligence normally exercised by agents with such skill or knowledge. Restatement, Section 8.08.
•Piedmont Electric Co. gave a list of delinquent accounts to Alexander, an employee, with instructions to discontinue electric service to delinquent customers. •Among those listed was Todd Hatchery, which was then in the process of hatching chickens in a large, electrically heated incubator. •Todd Hatchery told Alexander that it did not consider its account delinquent, but Alexander nevertheless cut the wires leading to the hatchery. •Subsequently, Todd Hatchery recovered a judgment of $5,000 in an action brought against Alexander for the loss resulting from the interruption of the incubation process. •Alexander has paid the judgment. Alexander brings a cause of action against Piedmont Electric Co. What may he recover? Explain.
Duties of Principal to Agent: Indemnification/Reimbursement. Judgment for Alexander. In general, a principal has an obligation to indemnify an agent whenever the agent makes a payment or incurs an expense or other loss while acting as authorized on behalf of the principal. The contract between the principal and agent may specify the extent of this duty. In the absence of any contractual provisions a principal has a duty to reimburse the agent when the agent makes a payment within the scope of the agent's actual authority. Restatement, Section 8.14 In collecting the accounts and discontinuing service Alexander was acting within his actual authority. A principal is under a duty to indemnify and reimburse his agent for expenses incurred by or resulting from authorized acts of the agent if not illegal or not known by the agent to be wrongful. Accordingly, Alexander has a right of reimbursement from Piedmont Electric Co. for $5,000.
•Parker, the owner of certain unimproved real estate in Chicago, employed Adams, a real estate agent, to sell the property for a price of $250,000 or more and agreed to pay Adams a commission of 6 percent for making a sale. •Adams negotiated with Turner, who was interested in the property and willing to pay as much as $280,000 for it. •Adams made an agreement with Turner that if Adams could obtain Parker's signature to a contract to sell the property to Turner for $250,000, Turner would pay Adams a bonus of $10,000. •Adams prepared and Parker and Turner signed a contract for the sale of the property to Turner for $250,000. •Turner refuses to pay Adams the $10,000 as promised. •Parker refuses to pay Adams the 6 percent commission. In an action by Adams against Parker and Turner, what is the judgment?
Fiduciary Duty. Decision against Adams on both actions. Adams owes an overriding duty of utmost loyalty and good faith to Parker, his principal. An agent has a fiduciary duty to act loyally for the principal's benefit in all matters connected with the agency relationship. Restatement, Section 8.01. The problem presents a flagrant violation of Adams's duty in this regard when he agreed with Turner to attempt to obtain Parker's signature to a contract to sell the property to Turner for $250,000 when Turner was willing to pay $280,000 for it. Even though authorized to sell the property for $250,000 he was under a duty to obtain a higher price if possible or at least inform the principal of Turner's willingness to pay a higher price. Adams's agreement with Turner, for all practical purposes, made him the agent of Turner as well as of Parker. A disloyal agent cannot recover compensation from either party. If permitted to recover the $10,000 from Turner, he would be under the duty of a fiduciary to account for the full $10,000 to Parker. A principal is entitled to recover secret profits from a disloyal agent.
•Conrad and Darby were competitors in the business of dehairing raw cashmere, the fleece of certain Asiatic goats. •Dehairing is the process of separating the commercially valuable soft down from the matted mass of raw fleece, which contains long coarse guard hairs and other impurities. •Machinery for this process is not readily available on the open market. •Each company in the business designed and built its own machinery and kept the nature of its process secret. •Conrad contracted with Lawton, owner of a small machine shop, to build and install new improved dehairing machinery of increased efficiency for which Conrad furnished designs, drawings, and instructions. •Lawton, who knew that the machinery design was confidential, agreed that he would manufacture the machinery exclusively for Conrad and that he would not reproduce the machinery or any of its essential parts for anyone else. •Darby purchased from Lawton a copy of the dehairing machinery that Conrad had specially designed. What are Conrad's rights, if any, against (a) Darby and (b) Lawton? Explain.
Trade Secrets. Conrad is entitled to an injunction and/or damages against Lawton and, possibly, Darby. There is no indication that the machine has been patented. Nevertheless, the process and the new, improved machine used therein are trade secrets. Lawton has appropriated these trade secrets in violation of his agreement with Conrad. The issue here is whether Darby has also appropriated these trade secrets by purchasing a copy of the dehairing machine. In a case based on these facts, the defendant (Darby) was held to be liable for the tort of appropriation of trade secrets. Atlantic Wool Combing Co. v. Norfolk Mills, Inc., 357 F.2d 866 (1st Cir. 1966).
•The Coca-Cola Company manufactures a carbonated beverage, Coke, made from coca leaves and cola nuts. •The Koke Company of America introduced into the beverage market a similar product named Koke. •The Coca-Cola Company brought a trademark infringement action against Koke. •Coca-Cola claimed unfair competition within the beverage business due to Koke's imitation of the Coca-Cola product and Koke's attempt to reap the benefit of consumer identification with the Coke name.
Trademark Infringement. Yes, judgment for Coca-Cola. The name Coke has become associated with a specific product in the minds of consumers. The community assumes that any product named Coke comes from a single source. The name has acquired a secondary meaning which emphasizes the product more than the producer. The original producer, however, is entitled to derive the profits from the consumer response to its product. Even though the name Coca-Cola was derived from its ingredients, the name of the beverage is associated with the final product by consumers and may not be duplicated by another manufacturer. The Coca-Cola Co. v. The Koke Co. of America, 254 U.S. 143, 41 S.Ct. 113, 65 L.Ed. 189 (1920).
•Paula instructed Alvin, her agent, to purchase hides •Alvin ordered from Ted in Alvin's own name •Ted learns of Paula as P, sends bill to Paula •Ted sues Paula and Alvin, what result?
Undisclosed Principal. Second Restatement: Ted is entitled to recover the price either from Alvin or Paula, but not both of them. Upon learning of the undisclosed principal, Ted may treat Alvin as the agent and hold the principal (Paula) liable or he may disregard Paula and hold Alvin with whom he contracted liable as a principal. Ted may bring suit against Alvin and Paula, but before conclusion of the trial must make an election as to which one he wishes to take judgment against.
•April 5, Handy contracted to purchase land with the intent of forming an LLC with Ginsburg and McKinley for the purpose of building a residential community on property •April 21, learned the property contained federally protected wetlands •Handy, Ginsburg, and McKinley abandoned construction plans and decided to sell property •Placed sign that read "Excellent Development Potential" •Unaware of wetlands, Pepsi acquired an option to purchase from Handy on August 5 •August 18, Handy, Ginsburg, and McKinley formed Willow Creek Estates, LLC •Handy never disclosed wetlands issue despite questions about quality of land •September 4, Willow Creek, LLC took title to property and then sold to Pepsi four months later for big profit •Pepsi now suing a)What are the arguments that Handy, Ginsburg, and McKinley are not individually liable to Pepsi for fraud? b)What are the arguments they are individually liable to Pepsi for fraud? c)Who should prevail?
a) Handy, Ginsburg, and McKinley, as members and/or managers of a limited liability company (LLC), are not obligated personally for any debt, obligation, or liability of the LLC solely by reason of being a member or acting as a manager of the LLC. b) Handy, Ginsburg, and McKinley committed the fraud before the LLC had been formed and thus are individually liable. c) Handy, Ginsburg, and McKinley are individually liable to Pepsi for fraud. This problem is based on the unpublished opinion The Pepsi-Cola Bottling Company of Salisbury, Maryland v. Handy, Court of Chancery of Delaware (2000), 2000 WL 364199. The issue presented is whether the defendants are being sued "solely by reason of being a member" of Willow Creek LLC where the claim is based upon fraudulent acts committed by the LLC members before the LLC was formed and took title to the property. "To express it in terms of the facts at bar, if a person makes material misrepresentations to induce a purchaser to purchase a parcel of land at a price far above fair market value, and thereafter forms an LLC to purchase and hold the land, can that person later claim that his status as an LLC member protects him from liability to the purchaser * * *? I think not. * * *" Because the facts alleged in the complaint establish that the LLC was not formed (and the property was not acquired by the LLC) until after the allegedly critical wrongful acts had been committed, it follows that the defendants could not have been acting "solely as members of the LLC when they committed those acts. Therefore the defendants are not protected by [the LLC statute].
