Gen Bus 301 - Lectures 17.1 - 17.6 (Relationship of Principal and Agent)

Creation of Agency Relationships and Scope of Agent's Authority - Creation of Agency by express or implied agreement

**may or may not be a contract Results in grant of actual actual authority

Connes v. Molalla Transport System, Inc. (1992) - Interpretation

An employer's liability for negligent hiring is based on the employer's hiring a person under circumstances antecedently giving the employer reason to believe that the person would create an undue risk of harm to others in carrying out his employment duties.

Creation of Agency Relationships and Scope of Agent's Authority - Results in apparent authority of the agent from perspective of third parties

Apparent authority may coincide with agent's actual authority Apparent authority may exceed/be less than agent's actual authority The alleged agent may not be an agent at all (but "principal" has created impression that agency exists)

Tort Liability of Principal and Agent - Vicarious (derivative) or imputed liability of principal (based on "respondent superior")

Let the superior respond for the acts of the subordinate See wrongful acts of other employees which will be imputed to the employer (principal) But the wrongful act of the employee who committed the tort will also be imputed to the employer (principal) provided the following requirements be satisfied:

A.E. Robinson Oil Co., Inc. v. County Forest Products, Inc. (2012) - Decision

Judgment affirmed but modified to remove the award of attorney fees.

Connes v. Molalla Transport System, Inc. (1992) - Decision

Judgment affirmed.

Schoenberger v. Chicago Transit Authority (1980) - Decision

Judgment for C.T.A. affirmed.

Rubin v. Yellow Cab Company (1987) - Decision

Judgment for Yellow Cab affirmed.

Contract Liability of Principal and Agent - When can agent be liable for contracts entered into on behalf of a principal? - Agent acts for undisclosed principal

**Agent does not know that agent is an agent Same rules as partially disclosed principal situations

Contract Liability of Principal and Agent - When can agent be liable for contracts entered into on behalf of a principal? - Agent acts for partially disclosed principal

**Third party knows of agency but does not know identity of principal a. Third party must make election when identity of principal becomes known b. If agent held liable, agent can recover from principal c. Important to always indicate that you are entering into the contract as an agent --note your capacity on any written contracts (e.g., "sales manager," "purchasing agent," "president," etc.) and identify your principal's legal identity ("ABC Manufacturing Corp.") and not just the principal's trade name ("ABC Super Parts")

Contract Liability of Principal and Agent - Principal liable if contract was entered into within scope of authority as reasonably perceived by third party

**i.e., within agent's apparent authority Regardless of whether agent had actual authority

Obligations of Principal and Agent to Each Other - Agent to Principal

1. Abide by agreement --e.g., employment contract 2. Follow lawful and reasonable instructions of principal 3. Carry out agency using reasonable care --i.e., perform the specified duties with the same skill, care, and professionalism as a reasonable person in the same position would provide 4. Duty to account to principal for any money in agent's possession that belongs to principal 5. Duty to notify principal of any information learned by agent that bears on agency 6. Undivided loyalty

Obligations of Principal and Agent to Each Other - Principal to Agent

1. Abide by agreement --e.g., employment contract 2. Maintain true account of any money owed to agent 3. Reimburse expenses incurred by agent 4. Warn agent of dangers --physical or financial 5. Indemnification (indemnify agent for any losses or expenses)

Termination and Required Notice to Third Parties - Effect of termination

1. Agent's actual authority terminates 2. But agent may continue to have apparent authority 3. Types of notice required to cut off rights of third parties against principal because of agent's continuing apparent authority --generally not required if termination was by operation of law

Termination and Required Notice to Third Parties - By operation of law

1. Death (or dissolution) or incompetency of principal agent 2. Bankruptcy 3. Change of law 4. Loss or destruction of subject matter of agency

Termination and Required Notice to Third Parties - Termination of acts by third parties or as a result of their agreement

1. Fulfillment of purpose 2. Lapse of time (per agreement of after reasonable period of time) 3. Upon the occurrence of a specified event 4. Mutual agreement of the parties 5. Act of one party alone --"power" versus "right" to do so --employer rightfully or wrongfully fires employee, or employee rightfully or wrongfully quits

Obligations of Principal and Agent to Each Other - Agent to Principal - Undivided Loyalty - Sanctions for violation of duty of loyalty are severe

1. Termination of agent 2. Principal can recover compensation paid to agent during the period of time that agent was disloyal 3. Principal can recover secret profits made by agent

Tort Liability of Principal and Agent - Examples of liability theories against principal requiring traditional tort/negligence analysis arising from other acts of agents which may also may be a cause of the accident

1. The employee is instructed by a supervisor to commit the tort --obviously an unusual situation **this wrongful act will be imputed to the employer (principal) 2. Negligent supervision of the employee (agent) by a supervisor who is acting on behalf of the employer (principal) and this wrongful act is imputed to the employer (principal) 3. Negligent entrustment of a dangerous piece of equipment or other instrumentality to the employee by a supervisor who is acting on behalf of the employer (principal) and this wrongful act is imputed to the employer (principal) 4. Negligent hiring practices by employer (principal) which results in an unqualified employee being hired --this wrongful act by the employees who did the hiring will be imputed to the employer (principal)

Limitations on Agent's Authority - The Issue of Perspective - Who bears the risk that no agency in fact exists?

1. The third party bears the risk that the "agent" is not really an agent 2. This is true unless apparent authority has been created by "principal" --then "agent" has apparent authority and principal will be bound

Typically, the Principal is a Legal Entity - a Corporation, for example

A corporation is formed (a legal entity, not a natural person, which the is the principal) | | | V The corporation's affairs are governed by a board of directors (natural persons) | | | V The Board elects officers (natural persons) who are agents of the corporation | | | V Third Parties Come into Contact with the Corporation (the Principal) through their Interactions with the agents of the corporations | | | | V Either through contract disputes or tort disputes

Schoenberger v. Chicago Transit Authority (1980) - Interpretation

A principal is not bound by an agent if the agent has neither actual authority nor apparent authority, either of which types of authority must come from the conduct or words of the principal, unless the principal ratifies the unauthorized contract.

Limitations on Agent's Authority - The Issue of Perspective - What do third parties have a right to believe about an agent's scope of authority?

Agent has usual and customary grant of authority given the nature of the agency relationship --e.g., the assumed authority of the president of IBM, the assumed authority of a bartender, etc. Third parties not bound by "secret" limitations unless they know of them

Obligations of Principal and Agent to Each Other - Agent to Principal - Agent must indemnify...

Agent must indemnify the principal for any loss caused by the agent's breach of a duty owed the principal

Creation of Apparent Authority: General Rule

Apparent authority to do an act is created as to a third person by written or spoken words or any other conduct of the principal which, reasonably interpreted, causes the third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him The general rule to consider in determining whether an agent is such authority as the principal was states in this way: "Apparent authority in an agent is such authority as the principal knowingly permits the agent to assume or which he holds his agent out as possessing...." "it is such authority as a reasonably prudent man, exercising diligence and discretion, in view of the principal's conduct, would naturally suppose the agent to possess."

Limitations on Agent's Authority - The Issue of Perspective - The Issue

Are the contracts binding on the principal? --Of course, third parties want the contracts to be binding on the principal because they have greater security that the contract will, in fact, be performed.

Alexander v. FedEx Ground Package System, Inc. (2004) - Interpretatino

Because FedEx has the broad right to control the manner in which its drivers' perform their work and the other factors do not strongly favor either employee status or independent contractor status, the drivers are employees as a matter of law under California's right-to-control test.

Doctrine - Background - Other relationships distinguished - Employee/employer

Broad meaning --exact nature of relationship depends on facts and circumstances

Obligations of Principal and Agent to Each Other - Agent to Principal - Undivided Loyalty - No conflicts of interest

Cannot have any conflicts of interest and cannot be improperly benefited at the expense of the principal

Creation of Agency Relationships and Scope of Agent's Authority - Creation of Agency by express or implied agreement - Two aspects of actual authority - Express Authority

Defined by the spoken or written word --e.g., an employment agreement, written or oral

Contract Liability of Principal and Agent - When can agent be liable for contracts entered into on behalf of a principal? - "Agent" acts for a non-existent or incompetent "principal"

Example: You sign a contract as "President of Acme Corporation." However, Acme Corporation has not yet been formed. Therefore, you are personally liable on the contract because no principal actually exists.

Alexander v. FedEx Ground Package System, Inc. (2004) - Facts

FedEx Ground Package System, Inc. ("FedEx"), contracts with drivers to deliver packages to its customers. FedEx's Operating Agreement ("OA") governs its relationship with the drivers. The OA requires the drivers to wear FedEx uniforms, drive FedEx-approved vehicles, and groom themselves according to FedEx's appearance standards. FedEx tells its drivers what packages to deliver, on what days, and at what times. Drivers must deliver packages every day that FedEx is open for business and must deliver every package they are assigned each day. Although drivers may operate multiple delivery routes and hire third parties to help perform their work, they may do so only with FedEx's consent. Drivers are compensated according to a somewhat complex formula that includes per-day and per-stop components. FedEx trains its drivers on how best to perform their job and to interact with customers. The OA requires drivers to conduct themselves "with integrity and honesty, in a professional manner, and with proper decorum at all times." They must "[f]oster the professional image and good reputation of FedEx." A driver's managers may conduct up to four ride-along performance evaluations each year. Drivers must follow FedEx's "Safe Driving Standards." Drivers enter into the OA for an initial term of one, two, or three years. At the end of the initial term, the OA provides for automatic renewal for successive one-year terms if neither party provides notice of their intent not to renew. The OA may be terminated for cause, including a breach of any provision of the OA. The OA requires drivers to submit claims for wrongful termination to arbitration. FedEx requires its drivers to provide their own vehicles, specifically approved by FedEx. The OA allows FedEx to dictate the "identifying colors, logos, numbers, marks and insignia" of the vehicles. FedEx requires vehicles to have specific dimensions, and all vehicles must also contain shelves with specific dimensions. FedEx offers a "Business Support Package," which provides drivers with uniforms, scanners, and other necessary equipment. Purchase of the package is ostensibly optional, but more than 99 percent of drivers purchase it. FedEx contends its drivers are independent contractors under California law. Plaintiffs, a class of FedEx drivers in California, contend they are employees and filed a class action asserting claims for employment expenses and unpaid wages on the ground that FedEx had improperly classified the drivers as independent contractors. The district court granted summary judgment to FedEx on the employment status issue. Plaintiffs appealed.

Obligations of Principal and Agent to Each Other - Agent to Principal - Undivided Loyalty

Fiduciary duty --typically would only apply to officers, directors or key employees --Burbank Grease Services v. Sokolowksi, 2006

A.E. Robinson Oil Co., Inc. v. County Forest Products, Inc. (2012) - Facts

Galen R. Porter, Jr., is the sole shareholder in County Forest, a corporation formed in 1986. In 2004, Porter and a vice president of A.E. Robinson Oil Co., Inc., orally agreed that A.E. Robinson would begin delivering fuel products to G.R. Porter & Sons, another corporation with which Porter was involved. In 2005, Porter began operating a fuel delivery business as Porter Cash Fuel but never registered that name with the Secretary of State. Porter testified that he intended to operate Porter Cash Fuel as a trade name of County Forest and not as a separate sole proprietorship. Porter ordered fuel and gas over the phone from A.E. Robinson in a series of transactions that continued for three years. Several types of writings confirmed these oral agreements. Within two days after A.E. Robinson delivered its products, it mailed invoices directed to Porter Cash Fuel. A.E. Robinson also regularly sent Porter Cash Fuel statements of account. Further, an authorization for direct payment listed "Porter Cash Fuel" and bore two signatures, one of which belonged to Porter. None of the writings made any reference to County Forest, and none indicated the corporate status of Porter Cash Fuel. All of A.E. Robinson's dealings were with Porter or with Porter Cash Fuel; it had no reason to believe it was dealing with County Forest. Over the years of this business relationship, A.E. Robinson added terms to the bottom of its invoices asserting its entitlement to financing charges, collection costs, attorney fees, and court costs. Although Porter never expressly agreed to these terms, when Porter paid sporadically, some of the payments were applied to financing charges, and Porter never complained. Ultimately, the business relationship deteriorated, and A.E. Robinson refused to deliver any more products. A.E. Robinson sued County Forest and Porter, seeking payment on the account. Following a non-jury trial, the court entered judgment for A.E. Robinson jointly and severally against County Forest and Porter in the amount of the invoices plus financing charges and attorney fees. County Forest and Porter appeal from the entry of that judgment.

Creation of Apparent Authority: General Rule - Example

I hire you as VP of Marketing replacing an employee who was fired. I explain that your job is to "run our marketing operation." We do not enter into a written employment agreement. Your hiring is announced in the local newspapers and local periodicals. I provide you with the business cards and a company car. You are to report to me. The sales force and certain related administrative staff will report to you. I direct you to develop a marketing plan and related budget for my approval. I approve the plan and direct you to implement it consistent with the budget. The plan contemplates the hiring of additional salespersons and advertising using various forms of media (TV, radio, etc.) I do not expressly give you authority to establish the compensation of the additional salespersons you interview and hire, or to negotiate and agree on the cost of media advertising. What express authority do you have? What implied authority do you have? What apparent authority do you have?

Relationship of Principal and Agent - Opening

If our legal system did not recognize the concept of agency, the economics of our lives would not even remotely resemble what we take for granted --entering into transactions with persons who are routinely acting on the behalf of corporations, partnerships, other legal entities and individuals

Tort Liability of Principal and Agent - In the context of the employment relationship...

In the context of the employment relationship, the employer is the principal and the employee the agent

Doctrine - Background - Other relationships distinguished - Independent contractor

Independent contractor (who may or may not be an agent) is not physically controlled by person who engages independent contractor (compare master/servant relationship)

Doctrine - Background - Legal relationship

Involving an agent who is under the control of, and who is authorized to act on behalf of, another person (a legal or natural person), the principal, which authority may include the authority to enter into contracts on behalf of the principal

Contract Liability of Principal and Agent - When can agent be liable for contracts entered into on behalf of a principal? - Exceeds Authority

Is agent going to be liable to principal (because agent had apparent authority and, as a result, principal is bound)... ...or directly to third party (because there was no apparent authority and agent is liable based on breach of the warranty that agent has authority)

Master versus Servant versus Independent Contractor

Master --A principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service Servant --An agent employed by s 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 Independent Contractor --A person who contracts with another to do something for him but who is not controlled by the other nor subject to the other's right to control with respect to his physical conduct in the performance of the undertaking. He MAY OR MAY NOT be an agent.

Doctrine - Background - Utility of Agency

Multiply our economic activities by acting through others (our agents)

Tort Liability of Principal and Agent -Compare independent contractor relationship

No high degree of control --no imputed liability **exceptions for inherently dangerous activities, like blasting, crop-dusting, etc.

Tort Liability of Principal and Agent - Vicarious (derivative) or imputed liability of principal (based on "respondent superior") - Requirements - Must have master/servant type of relationship (high degree of control)

Not merely an independent contractor relationship --typical employment arrangement is a master/servant relationship

Tort Liability of Principal and Agent - Effect of an employee's violation of rule of employment

Principal not protected because there was a rule of employment which prohibited the conduct engaged in by the agent --but strengthens cause of action by employer versus employee for breach of employment agreement

Creation of Agency Relationships and Scope of Agent's Authority - Apparent Agency - Principals through their actions...

Principals through their actions create apparent authority --Agents do not

Tort Liability of Principal and Agent - Everyone is liable for his/her own torts

Real issue is vicarious (or imputed) liability or principal for acts of agent --you're not off the hook because you were negligent while on the job

Doctrine - Background - Degree of control determination

Relevant to issue of imputed tort liability --will tortuous acts of the subordinate be imputed to the principal?

Doctrine - Background - Scope of authority determination

Relevant to issue of whether contract is binding on principal or only on the agent

Creation of Agency Relationships and Scope of Agent's Authority - Apparent Authority - Results in apparent authority of the agent...

Results in apparent authority of the agent (i.e., the appearance of authority) from perspective of third parties --remember that third party does not know what the agent's actual authority is

Rubin v. Yellow Cab Company (1987) - Facts

Rubin, the plaintiff, was driving on one of the city's streets when he inadvertently obstructed the path of a taxicab, causing the cab to come into contact with his vehicle. Angered by the plaintiff's sudden blocking of his traffic lane, the defendant taxi driver exited his cab, approached Rubin, and struck him about the head and shoulders with a metal pipe. Rubin filed suit against the cab driver to recover for bodily injuries resulting from the altercation. He also sued the Yellow Cab Company (Yellow Cab), asserting that the company was vicariously liable under the doctrine of respondeat superior. The trial court ruled in favor of Yellow Cab, and the plaintiff appealed.

Schoenberger v. Chicago Transit Authority (1980) - Facts

Schoenberger applied and interviewed for a position with the Chicago Transit Authority (C.T.A.). He met several times with Frank ZuChristian, who was in charge of recruiting for the C.T.A. Data Center. At the third of these meetings, ZuChristian informed Schoenberger that he wanted to employ him at a salary of $19,800 and that he was making a recommendation to that effect. When the formal offer was made by the placement department, however, the salary was stated at $19,300. Schoenberger did not accept the offer immediately but instead called ZuChristian for an explanation of the salary difference. After making inquiries, ZuChristian informed Schoenberger that a clerical error had been made and that it would take some time to correct. He urged Schoenberger to accept the job at $19,300 and said that he would see that the $500 was made up to him at one of the salary reviews in the following year. When the increase was not given, Schoenberger resigned and filed this suit to recover damages. The trial court ruled in favor of C.T.A., and Schoenberger appealed.

Doctrine - Background - Other relationships distinguished - Master/servant

Servant under physical control of master --typical employment relationship

Alexander v. FedEx Ground Package System, Inc. (2004) - Decision

Summary judgment for FedEx is reversed; case is remanded to the district court with instructions to enter summary judgment for plaintiffs on the question of employment status.

Connes v. Molalla Transport System, Inc. (1992) - Facts

Terry Taylor was an employee of Molalla Transport. In hiring Taylor, Molalla followed its standard hiring procedure, which includes a personal interview with each applicant and requires the applicant to fill out an extensive job application form and to produce a current driver's license and a certificate from a medical examiner. Molalla also contacts prior employers and other references about the applicant's qualifications and conducts an investigation of the applicant's driving record in the state where the applicant obtained the driver's license. Although applicants are asked whether they have been convicted of a crime, Molalla does not conduct an independent investigation to verify the statement. Approximately three months after Taylor began working for Molalla, he was assigned to transport freight from Kansas to Oregon. While traveling through Colorado, Taylor left the highway and drove by a hotel where Grace Connes was working as a night clerk. Observing that Connes was alone in the lobby, Taylor pulled his truck into the parking lot and entered the lobby. Once inside, Taylor sexually assaulted Connes at knifepoint. Although Taylor denied any prior criminal convictions on his application and during his interview, police and court records obtained since these events show that Taylor had been convicted of three felonies in Colorado and had been issued three citations for lewd conduct and another citation for simple assault in Seattle, Washington. Connes sued Molalla on the theory of negligent hiring, claiming that Molalla knew or should have known that Taylor would come into contact with members of the public, that Molalla had a duty to hire and retain high-quality employees so as not to endanger members of the public, and that Molalla had breached its duty by failing to investigate fully and adequately Taylor's criminal background. The district court granted Molalla's motion for summary judgment. The Court of Appeals upheld the lower court's ruling, holding that Molalla had no legal duty to investigate the nonvehicular criminal record of its driver prior to hiring him as an employee. Connes appealed.

Creation of Agency Relationships and Scope of Agent's Authority - Apparent Agency - The principal creates impression...

The principal creates impression in minds of third parties that an agency exists or that an agent has a certain scop of authority --e.g., an employer creates the impression that a car salesperson has certain authority with respect to the negotiations/sale of an car on behalf of the dealership --or a Fortune 500 company creates the impression that its CEO has certain authority to act on behalf of the company because of his title

A.E. Robinson Oil Co., Inc. v. County Forest Products, Inc. (2012) - Interpretation

To avoid personal liability on a contract, an agent must disclose that he is acting as an agent and reveal the identity of his principal.

Creation of Agency Relationships and Scope of Agent's Authority - Creation of Agency by express or implied agreement - Two aspects of actual authority - Implied (incidental authority)

To do what is customary and in addition to express warranty

Rubin v. Yellow Cab Company (1987) - Interpretation

Under respondeat superior, an employer's liability for torts extends only to torts committed within the scope of employment.

When Incidental Authority is Inferred

Unless otherwise agreed, authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.

Limitations on Agent's Authority - The Issue of Perspective - What does a/an...

What does an agent have a right to believe about his/her scope of authority? What does principal have a right to believe about agent's scope of authority?

Doctrine - Background - Agency is based on the concept of delegated authority

You can authorize another person to perform on your behalf

Obligations of Principal and Agent to Each Other - Agent to Principal - Undivided Loyalty - No conflicts of interest - Examples

You set up a competing business without telling your employer You use your employer's equipment (e.g., computer system) to benefit yourself You received a "kick-back" or some other form of gratuity from a customer of your employer (without disclosure to your employer) You enter into contracts with your employer through an entity that you control (without disclosure to your employer) You share your employer's confidential business information with a computer

Termination and Required Notice to Third Parties - Effect of termination - Types of notice required to cut off rights of third parties against principal because of agent's continuing apparent authority

a. Actual notice to those who have had contact with agency in the past --"customers" ...most vulnerable cases --notice must be received to be effective b. Constructive notice to the public in general who may have merely known of the existence of the agency --"potential customers"...notice in trade journal, newspaper

Tort Liability of Principal and Agent - Vicarious (derivative) or imputed liability of principal (based on "respondent superior") - Requirements - Tort must have been committed within employee's "scope of employment"

a. If outside scope, only employee is liable to third party; if within scope, employer and employee are jointly and severally liable to third party b. "Scope of employment" - look at nature of relationship...consider these factors --During working hours? --On job location? --Using equipment of employment? --Foreseeable by principal? --"But for" agency, would the tort have occurred? --Motivation of employee? --Within authorized or unauthorized range of conduct?

Contract Liability of Principal and Agent - When can agent be liable for contracts entered into on behalf of a principal? - If agent has no actual authority

a. Principal not liable to third party b. Agent potentially liable to third party based on either or these two theories 1. Misrepresentation (tort) --did agent advise third party that he had authority? 2. Breach of implied warranty of authority (contract) --Agent impliedly warrants that he has the necessary authority when he enters into the contract with third party

Doctrine - Background - Most principals are legal entities

e.g., corporations, partnerships, LLCs ...which conduct business activity by and through organizational charts comprised of natural persons

Doctrine - Background - Agency may be based on contract

e.g., employment agreement Agency may be based on contract or just an agreement that is non-contractual --running an errand for your parents **you are your parent's agent for the purpose of accomplishing the errand