Agency & Partnership

Co-agent

A co-agent is one of two or more agents of a principal. Co-agents can be in a hierarchical relationship, like that of a president of a corporation and her secretary. Under such circumstances, co-agency appears confusingly like agency because the secretary functions throughout the working day under the direction and control of the president and may even have been hired by the president. Yet the secretary is a co-agent, not the president's agent, because both the president and the secretary work on behalf of their common employer.

General agent

A general agent is an agent authorized by the principal to conduct a series of transactions involving a continuity of service, like a manager of a business.

Agent

An agent is a person (which can include an entity, like a corporation, partnership, or LLC) who acts on behalf of and subject to the control of another.

Apparent authority

Apparent authority is the power of an agent to bind the principal to unauthorized contracts. The power is created by manifestations, which can be subtle and indirect, of the principal to the third party that are reasonably relied upon by the third party.

SUBAGENCY: Misconduct of the subagent •Colony Assocs v. Fred L. Clapp (1983) - P (Colony) hired D (Clapp) to obtain refinancing for an apartment complex that Colony owned. Clapp contacted Global, which represented a lender. Clapp and Global agreed to work on a 50/50 fee split basis. Colony made a $11k deposit but the loan did not go through. Global refused to return the deposit. Suit brought by Colony against Clapp.

Colony prevailed on the reasoning that its agent Clapp, as principal of Global, was liable for the misconduct of Global.

•Kilbourne v. Henderson (Ohio App 1989) - involved group health insurance coverage where the employer's health plan administrator (Fitzgerald) unwittingly overstated the coverage available to an employee (Kilbourne), who incurred substantial medical bills in reliance on coverage. •The health insurance company (CNA) refused to pay the bills. Kilbourne sued CNA, arguing that it was bound by Fitz's statements because she was its agent for those purposes. •

Court granted CNA's MSJ, holding that employer's group insurance plan does NOT create an agency relationship between the employer and the insurance carrier since the employer is acting only for the benefit its employees and the employer's own benefit in promoting better relations with employees.

•The standard of care imposed on the fiduciary depends on whether or not the fiduciary is or claims to be an expert.

If so, he will be judged by the level of skill he has or claims to have.

Duty of Agents to Account to Principal

RS 2d asserts that an agent has a duty to keep and render accounts of money or other things spent or received on behalf of the principal (unless otherwise agreed to) •Agent has a duty to account for money and other things which he has received or paid out on behalf of the principal. The agent should keep records.

The Sole Proprietorship

Simply one person going into business without making any plans for an entity to carry on the business. Business may be carried on in the owner/proprietor's name or given a trade name. Net business income is taxable to proprietor. All loses are indistinguishable from losses related to the proprietor's personal life and thus can be paid from personal assets. Widely used. 22MM non-farm in US in 2008. 2.5 times number of partnerships (3.1MM) and corporations (5.8MM) Nearly half are services, next largest are wholesale and retail trade. Incentive to spend time and money adopting a limited liability form is minimal for a business owned and operated by one person because of the reality that individuals always are liable for their personal wrong-doings and for the contracts they guarantee. It is important to emphasize that liability protection does NOT exist for the personal wrongdoing of an owner in ANY form of business. Thus, limited liability becomes important only when the owner starts to engage the services of others in an agency capacity. Ricks: it isn't a "thing" it is simply a person doing business as themselves. It's not a legal fiction, it's a non-entity. To talk about a sole proprietorship as though it is a legal entity is misleading.

LLC

The acronym "LLC" stands for "limited liability company." This relatively new form of doing business; All states allow the creation of LLCs.

LLLP

The acronym "LLLP" stands for "limited liability limited partnership." It refers to a limited partnership in which not only the limited partners but also the general partners have limited liability.

LLP

The acronym "LLP" stands for "limited liability partnership." It is a recent innovation in the law of partnership, following the widespread adoption of statutes authorizing the LLC. It refers to a general partnership in which the partners have limited liability. All states have legislation providing for the LLP.

Agency

The agency relationship is a consensual relationship created when one person (the agent) acts on behalf of and subject to the control of another (the principal ).

Employee

The term employee is a defined term in the Restatement (Third) of Agency § 7.07 and is used to describe an agent for whose torts the principal is vicariously liable. Thus, an employee is "an agent whose principal controls or has the right to control the manner and means of the agent's performance or work." It replaces the term "servant," used in earlier Restatements of Agency and in many common law cases. The new definition makes clear that the term is not limited to traditional, compensated employees, as the definition goes on to provide that "the fact that work is performed gratuitously does not relieve a principal of liability." The term might also exclude an agent who is an employee for purposes of federal and state laws, but whose principal lacks the right to control the manner and means of the agent's performance of work.

Master

The word "master" is a term of art in the law of agency. It identifies a principal who employs an agent to perform services and who controls or has the right to control the physical conduct of the agent in the performance of the service. A master is vicariously liable for the physical torts of its servant under the doctrine of respondeat superior. The Restatement (Third) of Agency has abandoned this term in favor of the term "employer." See the definition of "employer" above.

Servant

The word "servant" is a term of art in the law of agency. A servant is an agent who is employed to perform service and whose physical conduct in the performance of the service is controlled or is subject to the right of control by the master. Janitors and construction workers are examples of servants, although they are unlikely to appreciate being called servants. In part because the word "servant" is passe in today's language, the word "employee" is usually used in its place. "Employee" is less exact, however, because there are servants who are not employees and employees who are not servants. Despite this possible confusion, the Restatement (Third ) of Agency abandons the term "servant" in favor of the term "employee," albeit one specially defined. See the definition of "employee" above.

•The principal and agent can agree on the appropriate level of care owed.

There is no law against parties to a contract relieving themselves of liability by contract, particularly when they are sophisticated institutions represented by counsel.

Respondeat superior

This Latin phrase means "let the master answer." It is a shorthand and classic expression for the doctrine that a master (or employer) is vicariously liable for the torts of its servant ( or employee) committed within the scope of employment.

Inherent agency power

This is a controversial doctrine in the literature of agency. It states that a general agent has the power to bind a principal to unauthorized acts beyond the customary doctrines of apparent authority and estoppel if the acts done "usually accompany or are incidental to" authorized transactions. The Restatement (Third) of Agency abandons this term.

Business trust

This is a form of doing business through use of a trust. The business trust recently has received significant statutory treatment in some states. At the present time it is infrequently used except in specialized security transactions.

On behalf of

This is an essential element of the agency relationship. It means acting primarily for the benefit of another, not merely benefiting another by one's actions. A person who acts on behalf of another ordinarily is a fiduciary of the other, due to the trust being placed in the actor under such circumstance.

Unidentified principal

This term is employed in the Restatement (Third) of Agency to describe what many courts and the earlier Restatements referred to as a "partially disclosed principal."

EX: you need to repair you roof, ask a friend to help. Friend drops hammer on passerby. Agent? •

YES. Courts have routinely found that the friend is an agent in this situation. Owner of roof has the power to control friend as to the method of repair, and the friend is doing it for the benefit of the roof owner. •Consent can be implied or express •If the agreement is contractual in nature, the principal must have the capacity to consent.

Corporation -

a legal entity formed under a state statute by filing articles of incorporation with the proper state office. Articles designate the number and kinds of shares of stock, which may differ, by classes, in such rights as voting, share of profits and property rights on liquidation. Owned by persons who hold shares of stock. As a legal entity it can sue and be sued, own property, and be required to pay taxes on its income. General policy is set by a board of directors (BOD), which is elected by the shareholders. BOD appoints officers, who are employees and run the day to day Can only act thru its employees-agents. The BOD may only act as a group. Individual directors have no authority to establish policy or run the biz unless they are also officers.

•Franchise -

a license from the owner of a trademark or trade name [the franchisor] permitting another [the franchisee] to sell a product or service under that name or mark. It usually includes an exclusive right to sell the product in a specified territory.

subagent

agent of an agent is the agent of both the appointing agent and the principal. •in a subagency situation, sometimes it is helpful to refer to the original principal as the "remote principal" and agent as the "immediate principal" •Notice to an agent given in the course of a transaction which is within the scope of agency is notice to the principal. [So, when the buyers gave acceptance to Panyo (the selling agent), the buyers gave notice to the principal]. •So too, notice to a subagent who is under a duty to communicate the notice to the agent is effective to the same extent as if notice had been given to the agent.

•Unless prevented by public policy, statute, or contract requiring personal performance, what a person can lawfully do himself, he can do through

an agent. •This delegation may be manifested by an express authorization or implied from the circumstances and conduct of the parties.

•A ______________ is an agent paid by commission who ordinarily acts as an intermediary between buyer and seller, does not have control or possession of the property, and does not sell in his or her own name.

broker

Fiduciary Duties of Agents •Big 3 fiduciary duties:

care, loyalty, obedience

Agency Elements: Control

•(2) Control - involves an "element of subservience." Courts' evaluation of this element sometimes seems to depend on the equities of the case in front of it. •Because agency liability is STRICT liability it seems unfair to subject a person (principal) to common law strict liability except under circumstances where action is take both on behalf of and under the control of the principal.

Proof of Agency

•Question of fact. Unless facts are clear and then court will decide as matter of law. •The burden of proof is on the one asserting the existence of an agency relationship. •Sometimes the question is not clear. Courts will often look at the consequences of characterizing the relationship as an agency relationship as a practical matter

DUTY TO DEAL FAIRLY AND IN GOOD FAITH RS 2nd: •"Unless otherwise agreed, it is inferred that a principal contracts to use care to inform the agents of risks of physical harm or pecuniary loss which, as the principal has reason to know, exist in the performance of authorized acts and which he has reason to know are unknown to the agent.

•The duty may require not only warning the agent against physical dangers, as when the principal directs an agent to go to a place which is dangerous, but also disclosing facts which, if unknown, would be likely to subject the agent to pecuniary loss. •Thus a principal employing a factor to sell goods which appear to be but are not sound is subject to liability to the agent if the agent is led to incur personal liability to a buyer through mistaken statements concerning the conditions of the goods.

AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS The Marriage Relationship •An agency relationship is a consensual relationship involving one party acting on behalf of another on a matter entrusted to the acting party. •Marriage is also a consensual relationship involving trust and confidence. But it is not an agency relationship. WHY?

•This is because the spouse is not necessarily acting on behalf of the the other spouse; and not subject to control.

◦Definition of Agency, set forth in 1.01 of RS (3rd) of Agency:

◦Agency is the *fiduciary relationship* that arises when one person (a "principal") manifests *assent* to another person (an "agent") that the agent shall act *on the principal's behalf* and *subject to the principal's control*, and the agent manifests assent or otherwise consents so to act

Partnership

A partnership is an association of two or more persons to carry on as co-owners a business for profit. It can be formed without any papers being filed and without the owners even realizing that they are creating a partnership.

AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS Property Relationships

*Co-Ownership* - not agency because one cannot fairly infer than one co-owner consents to another acting on his behalf merely from the fact that are joint owners of property •Often have different economic interests. *Landlord-Tenant* - not agency in general; but the nature of a lease can change things. •It is possible sometimes for tenant to act as agent for landlords in some cases.

The Limited Liability Partnership (LLP)

- Makes LL available for all partners of a GP if a proper filing is made with the state - In all other respects, LLP is a GP - LL shields LLP partners from vicarious liability for the acts of others. Some states provide "full shields" others "partial shields" (discussed later) -All partners in full shield states may avoid vicarious liability for the debts of the business, just as if they were shareholders of a corporation, simply by filing a certificate at the state office

The Limited Liability Company (LLC)

A hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership. -Offers the benefits of limited liability, taxation as a partnership, and management flexibility. -Must file a document with the state in order to create; considerable variation from state to state. RULLCA (2006 revision of the 1995 Uniform LLC Act) - 18 states adopted so far -Management is shared among owners; owners can form manager-managed LLC -Taxation is pass-through, unless an election is made under the check-the-box regulations to be taxed as a corporation -Exit from the entity need not cause dissolution of the LLC -Organizing document of an LLC is referred to nearly everywhere as an "operating agreement." -LLC is desirable from small businesses due to the enactment of LLC legislation in all 50 state and the flexible management and operational structure of the LLC compared to the corporation ***Single-member LLC doesn't have a separate taxation responsibility***

The Limited Partnership

A partnership with one or more general partners and one or more limited partners. Statutory; very distinct from LLP -Formed by filing document with state office LP has general and limited partners. -General partners are like general partners in a conventional partnership, includes having personal liability for business debts. - Limited and general partners are owners and enjoy the tax benefits of the being partners -Limited partners are not liable; they do not have management rights, although they can contract otherwise -Taxation benefits available to limited and general partners -Exit privileges are more confined for limited partners. -- Under some statutes, limited partners are entitled to a return of their capital after some period after giving notice of withdrawal, unless the partnership agreement specifies otherwise, as most do. -In some cases, the limited partnership interests are, by agreement, freely transferable, and may even be evidenced by certificates and traded on national securities exchanges

Disclosed principal

A principal is disclosed when a third party has notice of the principal's existence and identity. Under such circumstances, the agent acting in the transaction is not a party to the resulting contract in the absence of special facts, like guaranteeing the contract.

Partially disclosed principal

A principal is partially disclosed when the third party has notice that the agent is acting on behalf of someone but does not know the identity of the principal. Under this circumstance it is inferred, subject to agreement, that the agent is a party to the contract. The Restatement (Third) of Agency abandons this term in favor of the term "unidentified principal."

Principal

A principal is the one for whom action is taken. The action is taken on behalf of and subject to the principal's control.

Undisclosed principal

A principal is undisclosed when the third party is unaware that the agent is acting for a principal and thus assumes that the agent is contracting on its own behalf. Under these circumstances the agent is a party to the contract (as is the undisclosed principal).

Borrowed servant

A servant (employee) is borrowed when exposure to vicarious liability for the torts of the employee is shifted from the lending employer to the borrowing employer. The standards for determining when an employee is borrowed are in conflict and confusion in the law of many states today. The majority rule appears to require both a transfer of the allegiance of the employee and control by the borrowing employer before vicarious liability is shifted from the lending employer to the borrowing employer.

Sole proprietorship

A sole proprietorship occurs when a person carries on a business as its sole owner. No forms need be filed with the state in order to create a sole proprietorship. The proprietor is personally liable for the debts of the business and pays income taxes on the net income of the business.

Special agent

A special agent is an agent who is authorized to conduct a single transaction or a series of transactions not involving continuity of service, such as a real estate broker.

The Limited Liability Limited Partnership (LLLP)

A special type of limited partnership that has both general partners and limited partners, where both the general and limited partners have limited liability and are not personally liable for the debts of the LLLP. Statutory; new Must be filed with state. If a filing is properly made, LL is extended to the general partners of a LP in the same manner as it is to partners in an LLP. In all other respects the LLLP is a like a regular LP.

Agency or Sale? •Stansifer v. Chrysler Motors (9th Cir 1973) •Whether Fisher Motors, a distributor and wholesaler of Chrysler cars was an agent of Chrysler when entering into a written dealership agreement with Stansifer

Court held NO: one who receives goods from another for resale to a 3P is not thereby an agent. Whether he is an agent for this purpose or is 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

Admiral Oriental Line v. United States - 86 F.2d 201 (2d Cir. 1936) *FACTS:* Gulf employed Admiral Oriental Line as "ship's agent" in the Philippines, and Line had sent out a steamship which was lost at sea in a typhoon. •The steamship was owned by the US and had been entrusted to Gulf as ship's agent under an operating contract. •Steamship's cargo owners sued Line for its loss. Line successfully defended the suit. •Line claimed that Gulf owed it the expenses of defending the suit on the theory that it had acted as an agent for Gulf. •Gulf answered, and attempted to bring in the US, claiming that the US was the principal, and responsible to Gulf. •So Gulf is saying that US is the principal, Gulf is the agent, and Line is the subagent. Thus, US is ultimately responsible for the costs of defending the suit. *ISSUE*: Can an agent recover the costs of defending a suit from the principal? Also, was Gulf an agent of the United States? •

HELD: An agent, defending suit based on acts performed within the scope of the principal's business, may recover from the principal the expenses of its defense. •The agent's conduct was within the scope of his authority. The right of recovery in all these instances is only an example of the general doctrine that an agent may recover any expenditures necessarily incurred in the transaction of his principal's affairs. •Agency relationships always depend upon the whole setting, like other implications, and there is no reason for saying that a general agent's defense of a suit laid upon his conduct of the principal's affairs is not an incident of the business. •The doctrine stands upon the fact that the venture is the principal's, and that, as the profits will be his, so should be the expenses. •Contract forbids Gulf from profiting, which goes to the conclusion that they are an agent.

United States v. General Electric Co. (US 1926) •FACTS: Bill in equity brought by US in the District Court for the Northern District of Ohio to enjoin GE from violations of the Anti-Trust Act •Govt argument: GE requiring 21,000 distributors of its products to sell at prices fixed by the company, which constituted an unlawful restraint of trade because price competition among distributors was eliminated. •GE argument: no "resale" price maintenance because 21,000 distributors were its agents under consignment contracts, rather than buyers. Title passed directly from GE to purchaser with no intermediate sale to distributor. •

HOLDING - Court finds nothing in the contracts and practice under them which makes the agents anything more than genuine agents. TCt ruling affirmed. •CONCLUSION - Thus, the weight of the evidence supports the Court's holding that the distribution contract, and the sales practices under that contract, are in the manner of an agency relationship between GE (the principal) and its distributors (the agents). •What role does title analysis play in the agency determination? •Important, but not more than the right of distributor to set prices or not. •Is the "agent" able to set own prices, and receive a profit? Strong evidence NOT an agent. •

The Business Trust

Originated in common law Used today primarily for asset securitization ventures in which income-generating assets, such as mortgages, are pooled in a trust, with participation (ownership) interests in the trust sold to investors. Created by placing the assets of a business in trust under trustees who hold title to the property for the benefit of holders of shares in the trust. The holders contribute capital, receiving shares reflecting the extent of each individual's contribution, and thus are the beneficial owners of the trust. Shares can be made freely transferable without disrupting the continuity of the organization. The trustees manage the biz. They sue and are sued in their individual names, and as legal owners of the business are personally liable for obligations incurred in the biz. However, they have a right to reimbursement from the trust assets if the obligation paid does not stem from their own wrongdoing. One concern at common law is the risk of liability of the beneficial owners if they exercise control over the trustees. Liability is based on the reasoning that the trustees become the agents of the beneficial owners under such circumstance. DE resolves this by expressly stating that beneficiaries of a DE biz trust cannot be held responsible for the debts of the trust beyond their original investment. Management is in the hands of the trustees; owners cannot control the trustees in any substantial way without risking liability Liability is limited at common law because they are not the legal owners of the business, and it is limited by statute in DE and some other states. Taxation may be on a flow through basis if business trusts take advantage of the check-the-box change in the tax laws; like public limited partnerships, trusts that are traded on national exchanges are subject to taxation as corporations pursuant to a special provision of the IRC Exit from the trust is accomplished by a routine sale of shares and does not cause a dissolution of the trust.

Subagent

Subagency exists when an agent (A) is authorized expressly or (more commonly) implicitly by the principal (P) to appoint another person (B) to perform all or part of the actions A has agreed to take on behalf of P. If A remains responsible to P for the actions taken, B is a subagent and A is both an agent (to P) and a principal (to B). B is an agent of P as well as A, which underscores the importance of P's express or implied consent to this relationship.

Agent's Lien -

Subject to an agreement otherwise, an unpaid agent rightfully in possession of property of the principal has a lien on it for the amount the agent is due until paid. Can include right to sell after notice. •EX: attorney's lien on documents until paid.

The Admiral Oriental opinion cites to Howe v. Buffalo Railroad in support of the proposition that an agent is entitled to indemnity even if the agent loses the suit brought against him, if his conduct was within the scope of his authority. •P is Howe was a conductor for D Buffalo Railroad. He was instructed not to accept any ticket presented more than 6 days beyond the date of issuance. •He followed the instruction and ejected passenger. P was sued and lost because his employer did not possess the authority it presumed to have. He was arrested. He eventually paid the judgment and sued for indemnity.

The court held he was entitled to indemnity, since he acted in obedience to a D's instructions and in good faith without realizing he was committing a wrong.

Independent contractor

This is an ambiguous phrase in the law of agency. It can mean a nonagent, such as a building contractor who contracts to build something for an owner but who is not subject to control over the physical conduct of the work and who does not act on the owner's behalf, but rather merely benefits the owner by the work being done as performance under an ordinary contract. The phrase "independent contractor" also refers to a nonservant agent, such as a real estate broker or a lawyer, who acts as agent for another but who is not subject to control over the physical conduct of the work. A principal is not liable for the physical torts of a agent (independent contractor). The Restatement (Third) of Agency abandons this term. To determine whether a principal is vicariously liable for the tortious conduct of its agent, the Restatement (Third) has a special definition of the term "employee." If the agent falls within this definition (which focuses on the degree of control that the principal has over the agent), the agent is an employee and the principal has respondeat superior liability for the employee's tortious conduct . The Restatement (Third) also uses the term "nonagent service provider" in some comments to capture one of the meanings of "independent contractor" set forth here.

Agent's agent

This sometimes confusing phrase describes the situation where a person acts on behalf of and subject to the control of an agent for another (the agent's principal) but is not responsible to and does not have the power to create liability for the agent's principal. The phrase is confusing because a subagent (see below) also is an agent of an agent. (The difference is that the subagent is also the agent of, and thus possesses the power to create liability for, the remote principal. ) The confusion can be dispelled only by seeing the language in context. Although sometimes ambiguous, the phrase can serve the useful purpose, once a situation is analyzed, of sharply delineating the relationship of the parties in just a few words.

Employer

This term is used in the Restatement (Third) of Agency to describe a principal who is vicariously liable for the torts of its "employee" agent. See the definition of "employee." The term "employer" replaces the term "master," used in earlier Restatements of Agency and in many common law cases. As used in the Restatement (Third) of Agency, the term "employer" includes principals who, for other purposes (such as coverage under various federal and state laws regulating the relationship), are not "employers."

Control

To exercise authority over; dominate; direct; regulate. This word has different meanings in the law of agency depending upon context. If, for example, the issue being pursued is liability for the physical torts of another, a special kind of control, over physical conduct and over the details of the activity, is required.

•Fiduciary is defined as

a person who has a duty, created by his undertaking, to act primarily for the benefit of another in matters connecting to the undertaking •This includes: •Duty to account for money or property received on account of the principal •Duty of full disclosure •Cannot compete with the principal or prefer his own interests •Cannot sell property to principal without disclosing own interest •Duty to use normal care •Most break fiduciary duty down into three categories •(1) care •(2) disclosure •(3) loyalty

ALWAYS start by using the elements of an agency relationship in your analysis. Plug in facts. 4 ELEMENTS OF AN AGENCY RELATIONS

a) the principal's assent b) the principal's right to control c) the agent acting on the principal's behalf or benefit; and d) the agent's consent

Agency or Sale? [quote from Mechem, Law of Agency (1914)] These doubtful cases are to be determined, not by the name which the parties have seen fit to apply to their contract but

by its true nature and effect. •

listing broker

contracts with the property owner to list the property for sale

•If the creation of the relationship between an agent and a principal involves peculiar trust and confidence, and the prospective principal relies on the prospective agent to deal fairly with the prospective principal, the prospective agent is subject to a duty to

deal fairly in arranging the terms of the agency relationship, as if the prospective agent were an agent dealing as an adverse party with a principal, with the principal's knowledge. •The duty to deal fairly may require a prospective agent to furnish the prospective principal with info that is not otherwise reasonably available to the prospective principal and that is material to the principal's decision whether to engage the agent. •Begins when the agent and principal agree that the agent will act on the principal's behalf and subject to the principal's control. •Does it ever begin before? •Casebook: it might. Martin case. •Stock broker contract has "foreign service" fee that was actually additional commissions. •Ricks: strange decision; because customers wouldn't pay until they hired broker as agent. No need to decide if there was a fiduciary duty before contract. •Ricks - pretty clearly established that it can. •EX: duty of confidentiality/conflict avoidance to prospective client even when rejecting them as a client. •Thus, fiduciary duty exists where no agency relationship exists.

•An agent has a duty to notify the principal of a claim against the agent and give the principal the opportunity to

defend the claim. Failure to do so may affect the agent's ability to obtain reimbursement. •If the principal and agents are co-defendants represented by separate counsel, the agent may not obtain reimbursement for his or her separate defense costs unless it is shown that joint representation would have left the agent's interests unprotected.

Historically an agent employed to sell goods entrusted to his possession and control by consignment was called a ...

factor; he sold the goods in his own name and was paid by commission.

The Partnership (AKA "General Partnership" "GP")

formed when two or more persons carry on as co-owners a business for profit. -No documents need be filed. Default form for two or more people engaged in a biz. All other alternatives of doing business in unincorporated form (besides sole proprietorship) require filing documents with designated state office -Partners have equal rights to manage the business, unless they agree otherwise -Personally liable for the debts of the firm -Taxation is on flow-through basis -Partners can exit a biz whenever they desire, although contractual liability to fellow partners may result. - -Cashing out may be difficult due to absence of a ready market, so contractual buyout arrangements are common. -If no such arrangement exists, a departing partner has a liquidation right against the partnership -Unless otherwise agreed, partners share income and losses equally and must unanimously agree on new partners. -Each partner is a general agent of the partnership.

What element of the agency relationship is missing in the franchise relationship?

the "on behalf of" element. •The parties (franchisor and franchisee) have different purposes and objects. Franchisee acts not for franchisor, but for its own behalf. •However, just calling it a "franchise" doesn't insulate it from being determined to actually be an agency relationship. •Have to ask: who's making money for whom and how? •If paid in gross sales, not profits, that's an indication that there's NOT an agency relationship. •Gross sales is total sales regardless of costs. •Profits is sales minus costs. •Part of franchisee's costs is royalties and percentage profits.

•In order to establish subagency, a principal must know or have reason to know that

the agent will hire someone else to act on behalf of the principal and consent, expressly or impliedly, to such arrangement. •If there is no knowledge, or knowledge but no consent and no estoppel to deny consent, the actor is an agent's agent, not a subagent, and has no indemnity rights against the remote principal.

Debts of a corporation are usually satisfied only out of

the assets of the corporation. Thus, the shareholders, BOD, officers are enjoy limited liability in the sense they are not personally liable for the debts of the biz. Corporations are required in most states to file reports with the state and to operate with a certain degree of formality. Corporations have perpetual life. BOD manages the corporation, assisted by officers appointed by the board. Thus ownership and control are separated in a corporation, although individual owners can become members of the board. Taxation is a problem due to the double taxation created by the corporate form. Income generated by a corporation is taxed first to the corporation. Then, when income is distributed to the shareholders, usually in the form of dividends, it is taxed again as income to the shareholders. Exiting the business and cashing out is extremely easy when the shares of a corporation are publicly traded. Exit is more difficult for closely held corporation where there is no established market in the shares, and usually depends on contractual buyout arrangements. The corporate form is most widely used for large businesses where there is a need to accumulate substantial amounts of capital and where there is a public market for trading the shares of a corporation. Closely held corporations are used when limited liability for owners of the business was so important that it outweighed the income tax and operational irritations and drawbacks

selling broker

the broker who obtains a contract for sale of the property

Agency or Sale? The essence of agency to sell is ...

the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal, who remains the owner of the goods and who therefore has the right to control the sale to fix the price and terms, to recall the goods, and to demand and receive their proceeds when sold, less the agent's commission, but who has no right to a price for them before the sale or unless sold by the agent.

•A subagent is entitled to indemnity against either

the immediate or the remote principal (as in Admiral Oriental).

Agency or Sale? The essence of sale is

the transfer of the title to the goods for a price paid or to be paid. Such a transfer puts the transferee, who has obtained the goods to sell again, in the attitude of one who is selling his own goods, and makes him liable to the person from whom he received them as a debtor for the price to be paid and not liable as an agent for the process of the resale.

•Standard of care applied to a gratuitous agent should reflect

what is reasonable under the circumstances. Considerations include the skill, experience, professional status of the agent. Thus, the duty of care may be the same as if the principal compensated the agent.

•The question of who had title to the goods played an important role in Hunter, Stansifer, and GE cases, and in the test posed by Mechem, doubtless for the reason that one who has title to property is more likely to deal with it on his own behalf than in a representative capacity. •Title is not always determinative, however. •The subsequent history of the GE case casts doubt on the use of the consignment arrangement as a device to avoid the antitrust laws, at least with regard to unpatented products. •The ultimate test, as noted in the RS 2d 14j, is .....

whether the actor is acting primarily for his own benefit or for the benefit of the other party when acting pursuant to the arrangement between parties. •

Agency Elements: "On Behalf Of"

•(1) On behalf of: acting party must be acting on behalf of the principal in order to create the special powers and liabilities that accompany the agency relationship. •Merely benefiting another by one's conduct does not qualify; it is too far removed in degree. But distinguishing actions that merely benefit persons and actions taken on behalf of persons is not always easy. •Does "on behalf of" mean for their benefit, or as if they are doing it (in place of them). •Not resolved in the case law •Tenants in a shopping center are not agents of the shopping center landlord (Clapp) because the tenants are not carrying out the affairs of the landlord simply because by pursuing their business it benefits the landlord. •Court looks to the relationship that's established. Mall owner/tenant relationship. Court finds this a normal relationship, and not agency •Also, important that the mall takes a percentage of GROSS sales, NOT profits.

Agency Elements: Consent

•(3) Consent - consent of both parties to the agency relationship is necessary. •Cannot be an "unwitting agent"; if the existence of an alleged agency relationship is unknown to the agent, the agent's authority is without scope or definition •However, consent can exist where the parties fail to recognize they have created an agency relationship. EX: person asks friend to return for credit goods recently purchased. Creates legal obligations they might be unaware of •Agency relationship here because the return is for credit; and the credit is for the person who owned the item. The benefit runs to the principal, not the friend. •

Duty to Indemnify Principal for Loss Caused by Misconduct of Agent

•A principal has an action in tort or contract against an agent who wrongfully causes it loss. •This occurs when the agent •1) acts tortiously and subjects the principal to liability under respondeat superior (indemnification) •2) acts outside of its authority and subjects the principal to contract liability (indemnification), or •3) violates a duty of loyalty (action from breach of duty) •Where the agent negligently damages the property of the principal, or exceeds his authority, or by negligence or fraud causes the principal to be liable to a 3P, or violates a duty of loyalty. •It is not contrary to public policy to permit an employer, who is held liable without fault on its part, to obtain indemnity from an employee at fault. •The employer or "masters" right of indemnification has been criticized. •Unfair and unjust to hold an employee liable for mere inadvertence so long as he was rendering faithful service to his employer. •Misallocate costs to put the loss on the employee; losses occasioned by unintended accidents instead should be left on the business and passed on to the persons who choose to benefit from the business, the customers.

AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS Corporate Relationships

•Agency Status of Corporate Directors: although a corporation's shareholders elect its directors and may have the right to remove directors once elected, the directors are neither the shareholders' nor the corporation's agents. •Directors' powers originate as the legal consequence of their election and are not conferred or delegated by shareholders. •The fact that a corporation statute may refer to the directors as the corporation's agents for a particular purpose does not place directors in an agency relationship under common law •In a corporation, the board of directors is the principal, the CEO is the agent. •BOD is the part of the corporation that acts as principal. The directors themselves are not agents of anyone. •An individual board member has no status individually other than as a member. •Corporate officers ARE agents of the corporation. CEO, CFO. Authorized to be agents by BOD.

SUBAGENCY

•Agents acting for other agents. •Gets tricky, because one person is functioning in a dual capacity, acting both as agent and as principal. •Different from co-agency, where two agents both act for one principal. Sometimes in co-agency one agent is in a superior position to the other and gives order to the other, so that the relationship looks confusingly like subagency.

DUTY TO DEAL FAIRLY AND IN GOOD FAITH Deonier & Assocs. v. Paul Revere Life Ins. Co. •FACTS: Vestal enrolled in Paul Revere disability insurance through insurance agent Deonier. Paul Revere (PR) denied Vestal's claim (based on her diagnosis for major depression which rendered her unable to work) because of a pre-existing condition. •Vestal expressly disclosed her treatment for insomnia/depression while in law school prior to her insurance application. •PRE-EXISTING CONDITIONS CLAUSE: They act like they can't exclude anything you disclose; but they define "sickness" as anything that happens AFTER you start the policy. So if you have symptoms before issuances of policy, that's not "sickness." This is the Forman defense. •INCONTESTABLE CLAUSE: sounds like they won't contest anything after 2 years of policy. But pre-existing conditions limitation. •Her insurance application stated that any pre-existing conditions that were undisclosed on the application would not be covered. •Vestal sued both Deonier and PR. PR and Deonier settled with Vestal. •Deonier had crossclaimed against PR for breach of fiduciary duty and sought indemnity for legal expenses related to defending against Vestal's claims. Deonier claimed that PR had acted with actual malice and committed fraud, entitling Deonier to punitive damages.

•ISSUE 1: Deonier asserts that PR breached fiduciary duty by not informing Deonier of its intention to invoke the Forman defense. •Court: DCt should have considered whether PR had knowledge that it might assert the Forman defense in order to deny coverage on a policy sold by Deonier, and if so, that there was a risk that Deonier would incur pecuniary loss as a result of her giving unknowingly misleading statements concerning policy coverage. •PR clearly was aware that it might assert a Forman defense in MT as its corporate counsel published a paper in 1987 to that effect, years before Vestal's claim in 1991. •ISSUE 2: Did the District Court err when it refused to decide the issue of the legality of PR's disability policy? •Court: the incontestability clause bars insurers from denying coverage for a disability, whether or not the causative sickness first manifested itself before the policy's date of issue. •Court further holds that PR's assertion of the Forman defense to deny Vestal's claim violated MT law. •Finally, the court ruled that PR owed Deonier indemnification for legal expenses. •The lower court decision in Deonier proceeded on the basis that the insurer as principal owed a fiduciary duty to its agent. •Not all courts would agree; and it is worth noting that the MT SCt did not characterize the duty as fiduciary (though it agreed a duty was owed).

SUBAGENCY: Stortroen v. Beneficial Finance Co. (CO 1987) •involved subagency in the real estate brokerage context. •Ricks like this case. Thinks this is representative of how agency issues come up. (p55) •Decision turned on the characterization of the relationship between a listing broker (who contracts with the property owner to list the property for sale) and a selling broker (the broker who obtains a contract for sale of the property) in a multiple listing setting, where property is listed by the listing broker on a multiple listing service, inviting any broker to show and sell it in return for a percentage of the commission. •Here, Panyo (the selling broker) got a buyer to sign a contract to buy the property. Then a different selling broker got a higher price. Is the seller broker a subagent of the principal seller/owner of land?

•HELD: selling broker was an agent of the listing broker and a subagent of the seller, even though the selling broker and the seller had never met with the result that notice to the selling broker of acceptance of an offer bound the unwilling seller. •"We hold that in a multiple listing real estate transaction involving residential property, the selling broker or salesperson, in the absence of a written agreement creating a different agency relationship, is an agent of the listing broker, and as such, is within a chain of agency to the seller." [i.e. a subagent] •"A subagent is a person appointed by an agent empowered to do so, to perform functions undertaken by the agent for the principal, but for whose conduct the agent agrees with the principal to be primarily responsible." •A subagent is the agent of both the appointing agent and the principal. •Notice to an agent given in the course of a transaction which is within the scope of agency is notice to the principal. [So, when the buyers gave acceptance to Panyo (the selling agent), the buyers gave notice to the principal]. •So too, notice to a subagent who is under a duty to communicate the notice to the agent is effective to the same extent as if notice had been given to the agent. •Under traditional agency principles, a listing contract which authorizes the listing broker to list the property with a multiple listing service permits the listing broker to create a subagency with other members of the multiple listing service.

DUTY TO DEAL FAIRLY AND IN GOOD FAITH Taylor v. Cordis Corp. (MS Dist- 1986) •FACTS: Taylor (P) filed an action for declaratory judgment that a non-competition agreement in his employment contract with Cordis crop (D) is void and unenforceable. Cordis counterclaimed for preliminary injunction to enforce the agreement. •Cordis sells pacemakers and Taylor was hired as a salesman. The contract had a non-compete clause for one year after ending employment. •P testified that he became increasingly concerned with problems and defects in D's pacemakers [subject to several FDA recalls], and that he was losing his reputation in medical community because of the problems. Further, he alleged that D was not timely in providing info to salespeople about problems. •P voluntarily resigned and sued P for breach of the duty of good faith and fair dealing in failing to provide P with timely info relating to pacemaker problems. P began immediately working for a competitor business.

•HOLDING/RULES •a principal has a duty to deal fairly and in good faith with an agent and to provide the agent with any information which might subject the agent to physical or pecuniary loss in dealing with the product. •The principal's good faith duty to the agent also demands that the principal must maintain a standard of conduct which will not harm the agent's business reputation or reasonable self-respect. •This court does not agree with Taylor's construction of the principal's good faith duty to inform the agent of product problems. •The duty cannot be interpreted to require the principal to distribute to the agent copies of consumer complaints relating to product performance or to report the progress of all ongoing research into product efficiency. •The duty to inform its sales agents of product problems attached only when the company, in the exercise of reasonable diligence, knew that specific product defects posed a threat of harm to consumers and a concomitant threat to the professional reputation of the sales agent. •Principal's duty of good faith also demands they do nothing to harm the biz reputation of agent •This court's analysis supports the company. Court seems to be taking a pro-employer position.

AGENCY OR SALE?: Hunter Mining Labs. v. Mgmt. Assistance, 104 Nev. 568, 763 P.2d 350 (1988) •FACTS: Hunter (P) hired Hubco and Data Doctors to install software. They didn't. P sues Management Assistance Inc (MAI) for breach of contract, claiming that Hubco and Data Doctors were agents of MAI. •ISSUE: Whether any evidence, viewed in the light most favorable to Hunter (due to JNOV), tends to support the jury's finding of agency and its verdict against the MAI companies.

•HOLDING: No evidence supports agency relationship finding. •MAI/Hubco dealership agreement gives MAI some control over how Hubco handled MAI products (monthly reports, right to monitor ads of its products, etc.). But these are standard manufacturer/distributor agreements that protect MAI's goodwill and products, and DO NOT create an agency relationship. •"Control" in an agency relationship means more than this. Things like controlling business expenditures, customer rates, a share of profits, etc. •Also, there was no fiduciary obligation on the part of the alleged agents to act on behalf of MAI. Companies acted independently in their own names for their own interests. •Finally, DD and Hubco had no authority to create a contractual relationship between MAI and customers. •LAW: In an agency relationship, the principal possess the right to control the agent's conduct. This principle of agency, however, does not mean that an agency relationship exists every time one party has a contractual right to control some aspect of another party's business

DUTIES OF AGENT TO PRINCIPAL: Failure to Disclose COI: Estate of Eller (Del. 2011) •FACTS: A real estate agent sold a woman's house below market value, and then resold it the same day to another buyer for a profit, getting large commission. The woman sued the agent for breach of fiduciary duty. Agent didn't disclose COI. In contract, seller waived right to object to dual agency. 2nd buyer said that he only paid higher price because of side deal to improve house

•HOLDING: The agent violated the fiduciary duties of loyalty and care by not informing the original seller of his plans to flip the house the same day. •If dual agency was consented to, what's the problem? •Here, Bartron violated loyalty and care by taking such a low price for the the initial sale in order to get a higher commission for the second sale. Put him in a position of having a conflicting interest with the seller. He advanced his own interests ahead of those of the principal. No disclosure of his personal interest. •RULES: Agents owe their principal a duty to disclose certain info, namely, info that is relevant to the affairs of agency entrusted to the agent, in other words, all facts the agent knows or should now will affect the principal's judgment. Unless principal states that he doesn't want to know •A rule for conflicts: agents owe principals a duty to avoid gaining an interest adverse to their principal - not to put herself in a position antagonistic to the principal concerning the subject matter of the agency •An agent who acquire a position adverse to the principal but does not disclose it breaches both loyalty and care

THE AMBIGUOUS PRINCIPAL PROBLEM: Norby v. Bankers Life Co., 304 Minn. 464 (1975) •FACTS: Hoffman Brothers got an insurance policy from Bankers Life Co. for its employees that reimburses a portion of medical bills for employees and their dependents. •Plaintiff Norby, an employee, claims a medical expense of $3,460.49 for medical bills relating to his child's injury. •P filed out the insurance forms correctly, but his employer failed to transmit the forms. This was discovered and corrected, but led to a delay in his coverage so that he was one day short of covering the medical bill. •ISSUE: Whether an employer may be held to be acting as an agent of a group insurer for the purposes of accepting insurance applications from eligible employees. •If so, then the insurer is bound by the employer-agent's action.

•HOLDING: Yes, Hoffman was acting as an agent in collecting and delivering applications for insurance. •Rule: To the extent the employer, with the consent of the insurer, performs the functions of the insurer, it may properly be considered the insurer's agent. •LAW: An employee who otherwise satisfies the conditions of a group plan may maintain an action against the insurer as a third-party beneficiary. •An agency relationship is based upon consent by one person that another shall act in his behalf and be subject to his control. •In determining whether an employer acts as agent for a group accident and sickness insurance provider, the use of the terms, "employer-administered" and "insurer-administered" is not necessarily of determinative significance, for it would seem that few insurance plans for employee groups are likely to be wholly one or the other. •The focus, instead, should be on which specific and relevant administrative functions are performed by the employer on behalf of the insurer, with respect to the particular ground asserted for noncoverage or nonpayment under the policy. An employer may be considered an agent of an insurer for some purposes but not for others. •Whenever it is established that the employer and employee have colluded adversely to the insurer, no agency may be found to exist. Any authority of an agent clearly terminates if, without knowledge of the principal, he acquires adverse interests or if he is otherwise guilty of a breach of loyalty to the principal. A principal is not bound by an agent's actions where the agent acts adversely to the principal, and the party with whom the agent deals is aware of such adverse dealing

•Contract law recognizes that the implied covenant of good faith and fair dealing is a party of every contract. This is important in agency.

•It serves to preserve the expectations of the parties and is based on the express provisions to which the parties have consented. •However, one cannot generally base a claim for breach of the implied covenant of good faith and fair dealing on conduct authorized expressly by the agreement. •Generally only implied when the other party has acted arbitrarily or unreasonably, thereby frustrating the fruits of the bargain the party reasonably expected. •This requires an assessment of the parties' reasonable expectations at the time of contracting and not rewriting the contract to appease a party who later wishes to rewrite the contract after discovering he got a bad deal. Parties have the right to enter into good and bad contracts and the courts enforce them both. •The covenant is not an equitable remedy for rebalancing economic interests after events that could have been anticipated, but were not, later adversely affected one party.

DUTIES OF AGENT TO PRINCIPAL: Duty of Care •Carrier v. McLlarky (NH 1997) [also in Chapter 1, now emphasizing the duty of care aspect] •FACTS: D installed water heater in P's home. D told P that he thought old unit was under warranty, and that he would try to obtain a credit against the cost of the new water heater from the manufacturer. D then returned old unit, but has not given the P the desired credit. D claims he did not do so because he didn't receive payment from manufacturer. •P sued D in small claims for replacement value of water heater. •Issue: Whether the D breached the duty of care owed to the principal

•LAW: Agents have a duty to conduct the affairs of the principal with a certain level of diligence, skill and competence. •A determination that an agent was not sufficiently diligent is a question of fact which will not be disturbed by an appellate court unless it can be said that no rational trier of fact could come to the conclusion. •Under ordinary circumstances, the promise to act as an agent is interpreted as being a promise only to make reasonable efforts to accomplish the directed result. •The duties of an agent toward his principal are always to be determined by the scope of the authority conferred. •The degree of skill required by an agent in pursuit of the principal's objective is limited to the level of competence which is common among those engaged in like business or pursuits •An agent cannot be held liable to the principal simply because he failed to procure for him something to which the latter is not entitled. •HOLDING: The D is not liable because he made reasonable efforts for the principal; he cannot guarantee a result for the principal.

United States v. Bonds (9th Cir. 2010) •FACTS: Barry Bonds tested positive for performance enhancing drugs. He swore under oath he had not, so the govt is prosecuting him for perjury. To succeed the govt must prove the test results (from BALCO labs) actually came from Bonds. •FBI raided BACLO and discovered evidence that linked trainer Greg Anderson to Bonds, including blood and urine tests that showed positive tests for Bonds. •Bonds testified he had known Anderson since grade school and hired him as a trainer, who provided him with protein shakes, flax seed oil and a cream, but never knew they contained steroids. Testified that he thought the blood tests were to detect nutritional deficiencies. •When Anderson refused to testify against Bonds, this created an obstacle. The government wanted to introduce BALCO director James Valente's testimony that Anderson told him for each sample that "this blood/urine comes from Bonds." •This is an out of court statement offered to prove the truth of the matter asserted, and thus hearsay. •Govt argues that agent hearsay exception applies (FRE 801(d)(2)(D) - statement is not hearsay if it is offered against a party and is a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship). •ISSUE: Thus, the court must determine if an agency relationship existed between Bonds and Anderson; whether Anderson acted as Bond's agent when he delivered blood to BALCO. If so, Anderson's statements can be admitted as exception to hearsay rule.

•LAW: An agent is one who acts on the principal's behalf and subject to the the principal's control •To form an agency relationship, both the principal and the agent must manifest assent to the principal's right to control the agent. •HOLDING: It is clear that Anderson did not act subject to Bonds' control, so he is not an agent and the hearsay exception does not apply. •Problem with dissent's argument: No indication that Anderson agreed to Bond's control. This is the key issue, not whether Bonds had the capacity to assess Anderson's performance and give him instructions. •We do not maintain there needs to be an explicit agreement, but there must be at least some manifestation of assent to the principal's right to control. •Here, the tests were done at Anderson's initiative, not Bonds'. •LAW: •Agency is the fiduciary relationship that arises when one person, the principal, manifests assent to the agent for the agent to act on the principal's behalf and subject to the principal's control, and the agent agrees or otherwise consents. •In short, agency requires: •a) the principal's assent •b) the principal's right to control •c) the agent acting on the principal's behalf or benefit; and •d) the agent's consent •An agent's relationship with a principal may result in the agent learning info about the principal's health, life history, and personal preferences that the agent should reasonably understand the principal expects the agent to keep confidential. An agent's duty of confidentiality extends to all such info concerning a principal even when it is not otherwise connected with the subject matter of the agency relationship. •Ricks argues that most of the facts do not show the agency relationship the dissent contends. Also, the longstanding friendship explains the friends actions without a need for agency.

AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS The Franchise Relationship

•NOT generally an agency. Basically a license to use intellectual property in particular territory. •Franchisors are often sued for tortious conduct of their franchisees, on the theory that the franchisee is an agent of the franchisor. •Generally, the franchisor prevails. •Often includes considerable control for the franchisor: over manager training, menu items, where to purchase supplies, inspections, appearance of premises, hours, etc. However, court in Slates found that the relationship was not an agency relationship, holding that service of process on the franchisee of a claim against the franchisor was ineffective.

•RS recognizes a limit to indemnity obligations of principal:

•Principal's duty to indemnify does not extend to losses that result from the agent's own negligence, illegal acts, or other wrongful conduct •Agent's right to indemnity, unless expressly agreed to, depends on reasonable inferences drawn from circumstances. The court will consider the customs of the business and nature of the particular relation. •Does a principal whose agent is being sued have standing to enter the suit and raise defenses, on the reasoning that the agent's right to indemnity creates an interest in the litigation? •Shank (TX 1988) - denied principal that right, saying the principal can demand of his agent the opportunity to defend the agent, but has no standing to enter the lawsuit and assert defenses to 3P's claim against agent in an action independent of that right.

•Subagents - does agent have right to receive compensation from remote principal?

•RS 2d: If an agent employs a subagent, the agent is the employing person and the principal is not a party to the contract of employment, except where, by express promise or otherwise he becomes a surety. He is not therefore subject to pay the agreed compensation. •Agency and Employee are NOT the same thing. •Agency is a common law concept. Law is pretty uniform. •Employment is defined quite differently among jx.

AGENT OR ESCROW?

•Why is an escrow is NOT an agent? Even though we usually call an escrow an agent. •Under an escrow contract, the escrow must hold the property until the terms are met. •Typically, the property is put in escrow, then the purchase price is put in escrow. When everything else is met, the escrow releases the property to the buyer and the money to the seller. •Point is to put property/money outside the reach of the parties temporarily. •When real property is trading for money, it's common to put the property/money into the control of someone else to keep transaction secure by putting the items into the control of a 3P. •This CANNOT happen if the "escrow" is actually an agent of one of the parties. •Thus being and agent or escrow is mutually exclusive. •Escrow is a 3 parties relationship, unliked agency, which is two: P and A

Carrier v. McLlarky (NH 1997) FACTS: Defendant water heater tech offers to try to trade in old water heater for a credit. Plaintiff agrees, but D is not able to get credit. P sues. ISSUE: Agency relationship created?

•RULES •Whether an agency agreement has been created is a question of fact. •An agency relationship is created when a principal gives authority to another to act on his or her behalf, and the agent consents to do so. •The granting of authority and consent to act need not be written, but "may be implied from the parties' conduct or other evidence of intent." •Here, both the testimony and documentary evidence submitted by the parties support a finding that an agency agreement had been formed. •LAW: Agents have a duty to conduct the affairs of the principal with a certain level of diligence, skill, and competence. •"A determination that an agent was not sufficiently diligent is a question of fact that will not be disturbed unless it can be said that no rational trier of fact could come to the conclusion that the trial court has reached." •"Under ordinary circumstances, the promise to act as an agent is interpreted as being a promise only to make reasonable efforts to accomplish the directed result." Restatement (Second) of Agency § 377, comment b at 174 (1957). The court's own findings show that the defendant did make a reasonable attempt to obtain a refund for the plaintiff. Specifically, the court found that after agreeing to act on behalf of the plaintiff, "the defendant then gave the old water [heater] to [a supplier] to return it to the manufacturer." •The record shows only that the defendant was charged with returning the defective water heater for a possible credit; he did not guarantee that a credit would be obtained. •Analysis: There was an agency relationship created in this case because Carrier (the principal) gave authority to McLlarky (the agent) to attempt to obtain a credit based on the old water heater's warranty. •The agency relationship here is beyond dispute. P owns the water heater. She controls the water heater all the way up until its given to the manufacturer. At any moment prior, she could get it back. By taking the home owner's property, the plumber has agreed to act on behalf of the P, and is subject to the P's control.

AGENCY OR DEBTOR-CREDITOR RELATIONSHIP Jenson Farms Co. v. Cargill, Inc. (MN - 1981) •Facts: Warren, grain elevator company, contracted with several local farmers (plaintiffs) to purchase grain for resale. Warren took out loans from Cargill, which became increasingly involved in Warren's finances and operations and making business recommendations to Warren. By the mid-1970s, Warren was shipping 90% of its grain to Cargill. •Warren subsequently went bankrupt. The farmers who sold grain to Warren sued Cargill for recovery of $2 million, alleging that Cargill had acted as principal for the grain elevator and was thus liable for its agent Warren's contractual obligations. At trial, the jury found in favor of the farmers. •Issue: Is a creditor liable as a principal for the contracts of a debtor when the creditor takes control of the debtor's business functions?

•Rule of Law: A principal-agent relationship exists between a creditor and debtor when the creditor intervenes in the business affairs of the debtor.•Holding: Yes. When a creditor exerts control over the operations of a debtor, a principal-agent relationship is created between the parties, and the creditor is liable for the contractual obligations of the debtor. •Cargill contends that its business dealings with Warren were nothing more than that of a typical creditor-debtor relationship. •But, the record shows that the main purpose of Cargill's financing of Warren was to obtain a source of grain for its business, not to make money from its loans to Warren. •Cargill kept purchasing grain from Warren while increasing its financing of Warren, even when it became apparent that Warren was becoming a great financial risk. •Cargill also asserts that its relationship with Warren was that of a buyer-supplier, not a principal-agent. •However, in order for two businesses to have a strict buyer-supplier relationship, they must be independent businesses. •In this instance, Warren's operations were financed by Cargill, Cargill established control over Warren's operations, and Warren sold nearly all of its grain to Cargill. •Hence, Warren's business was not independent from Cargill's. Therefore there was ample evidence for the jury to find a principal-agent relationship in this case, and the decision of the district court is affirmed.

THE AMBIGUOUS PRINCIPAL PROBLEM

•Sometimes the facts are confusingly neutral on the issue of for whom the agent is acting. •EX: group insurance, where an employer contracts for and administers a group policy for employees. If the employer makes a mistake in administering a policy or gives bad advice to an employee, resulting in loss to the employee, who bears the loss? •Turns on the agency status of the employer, who appears to be acting on behalf of both the employee and the insurance company. Courts are split.

Liability of the remote principal for the mistakes or misconduct of the subagent •Blanchette v. Cataldo - involved liability for the filing of nearly 2,000 groundless lawsuits by an employee of a claims agent hired by the defendant freight receivers to file claims on their behalf.

•The TCt didn't impose liability of the freight receivers because the claims agent's employee while indirectly an agent of the receivers was not their employee. *The decision was reversed on appeal* on the reasoning that "a principal's liability for the acts of its agents' employees - its subagents - is normally the same as its liability for the acts of the agents themselves."

DUTIES OF AGENT TO PRINCIPAL: Fiduciary Duties of Agents

•The agents acts on behalf of the principal •How much of what follows is loyalty? •Ricks thinks they can all be tied to loyalty. •Not to bring disrepute onto principal •Duty not to act in a way that makes continued friendly relations with the principal impossible •Agent must obey all reasonable directions of the principal •EX: realtor has no duty of obey instructions to engage in race discrimination •The relationship of principal and agent ordinarily is based on a contract of a special nature, because an agent is a fiduciary and is subject to the directions of the principal.

•Duty of Principal to Pay Compensation to Agent

•Typically defined contractually between principal and agent. •Sometimes services are rendered by one party on behalf of another without a contract. Can the party rendering services bill the other party? •Court: Except where the relationship of the parties, the triviality of the services, or other circumstances indicate that the parties have agreed otherwise, [or if given gratuitously], it is inferred that one who requests or permits another to perform services for him as his agent promises to pay for them. •It is NOT an element of a principal/agent relationship. It can be evidence of agency. EX: ask a friend to return something for credit; there's agency even though no compensation. •Once the agent has performed an act on behalf of the principal, if there's no agreement otherwise, there could be a cause of action •Basically an "unjust enrichment" rule.

DUTIES OF AGENT TO PRINCIPAL: Commencement of Fiduciary Relationship •When does it begin?

•While the general rule governing pre-agency contacts does NOT require disclosure of the terms of a prospective agent's compensation, facts can be established which would support imposition of a fiduciary duty upon a prospective agent applicable to preagency contacts. •The agency relationship involves a special trust and confidence on the part of a principal in the subsequent fair dealing of an agent, the prospective agent may be under a fiduciary duty to disclose the terms of his employment as an agent. •A fact is material if it is one which the agent should realize would be likely to affect the judgment of the principal in giving his consent to the agent to enter into the particular transaction on the specified terms.