Agency & PartnershipAgency & PartnershipProfessor Donald J. KochanProfessor Donald J. Kochan

Class 12Class 12

Today’s MaterialsToday’s Materials

Pages 271-320Pages 271-320

AUTHORITY and AUTHORITY and Contractual Powers of Agents:Contractual Powers of Agents:

Express AuthorityExpress Authority Implied AuthorityImplied Authority

Apparent AuthorityApparent Authority EstoppelEstoppel

Inherent Agency PowerInherent Agency Power

Review of PreliminariesReview of Preliminaries

First question is always, Is there an agency or First question is always, Is there an agency or partnership relationship? What proof?partnership relationship? What proof?

Second question always is what is nature and scope Second question always is what is nature and scope of the relationship?of the relationship?

Third question always is was there a violation of the Third question always is was there a violation of the relationship?relationship?

Fourth question always is, if there is a violation of the Fourth question always is, if there is a violation of the relationship what are the remedies and relationship what are the remedies and consequences, and to who?consequences, and to who?

AuthorityAuthority

Consider reliance factors by third partiesConsider reliance factors by third parties

Consider representations as key to Consider representations as key to making the agent or the principal or making the agent or the principal or both liableboth liable

Consider multiple litigation scenarios to Consider multiple litigation scenarios to make things right (3 v. A, 3 v. P, P v. A, make things right (3 v. A, 3 v. P, P v. A, and A v. P) (we will discuss in class)and A v. P) (we will discuss in class)

Express AuthorityExpress Authority

How is it granted?How is it granted?

How is it proven?How is it proven?

How is it limited?How is it limited?

When and how does it expire?When and how does it expire?

King v. BankerdKing v. Bankerd

Power of Attorney casePower of Attorney case Authorization to convey, bargain, Authorization to convey, bargain,

grant and/or sell propertygrant and/or sell property Does the authorization allow Does the authorization allow “gratuitous” grants of principal “gratuitous” grants of principal

propertyproperty Focus on the SCOPE issues – what is Focus on the SCOPE issues – what is

the breadth of the authority?the breadth of the authority?

King v. Bankerd (cont.)King v. Bankerd (cont.)

““[A]n agent holding a broad power of attorney lacks [A]n agent holding a broad power of attorney lacks the power to make a gift of the principal’s property, the power to make a gift of the principal’s property,

unless that power (1) is expressly conferred, (2) unless that power (1) is expressly conferred, (2) arises as a necessary implication from the conferred arises as a necessary implication from the conferred powers, or (3) is clearly intended by the parties, as powers, or (3) is clearly intended by the parties, as

evidenced by the surrounding facts and evidenced by the surrounding facts and circumstances.”circumstances.”

Focus on the fact-specific nature of the inquiry, the Focus on the fact-specific nature of the inquiry, the need to define the principal’s interest, the original need to define the principal’s interest, the original

agreement, and the correlation between the agent’s agreement, and the correlation between the agent’s action and the agreement with and interest of the action and the agreement with and interest of the

principalprincipal

Lamb v. ScottLamb v. Scott

Power of Attorney casePower of Attorney case Strict Construction/Focused on powers Strict Construction/Focused on powers

expressly grantedexpressly granted See focus on INTENTIONSee focus on INTENTION

““One who accepts a power of attorney One who accepts a power of attorney covenants to use the power for the SOLE covenants to use the power for the SOLE BENEFIT OF the one conferring the power BENEFIT OF the one conferring the power

and to use it in a manner CONSISTENT with and to use it in a manner CONSISTENT with the PURPOSES of the agency relationship the PURPOSES of the agency relationship

created by the power of attorney.”created by the power of attorney.”

Von Wedel v. McGrathVon Wedel v. McGrath

““In the absence of ambiguity or In the absence of ambiguity or incompleteness, we must deal with incompleteness, we must deal with intent as actually expressed in the intent as actually expressed in the document.”document.”

What does that mean?What does that mean?

Why should “specific language” trump Why should “specific language” trump all else?all else?

Page 278, Note 3Page 278, Note 3

““Do and perform every act or thing”Do and perform every act or thing”

Legal Effectiveness or Enforcement?Legal Effectiveness or Enforcement?Why Not?Why Not?

Implied AuthorityImplied Authority

Understand the Restatement commentsUnderstand the Restatement comments

What is “necessary, usual, and proper”?What is “necessary, usual, and proper”?

What does it mean to “act in a manner in What does it mean to “act in a manner in which an agent believes the principal wishes which an agent believes the principal wishes

the agent to act based on the agent’s the agent to act based on the agent’s reasonable interpretation of the principal’s reasonable interpretation of the principal’s

manifestation in light of the principal’s manifestation in light of the principal’s objectives and other facts known to the objectives and other facts known to the

agent”?agent”?

Delegation of AuthorityDelegation of Authority

What is Delegation?What is Delegation?

Master/Servant IssuesMaster/Servant Issues

Necessity and Contingency IssuesNecessity and Contingency Issues

Was the Agent employed or appointed to Was the Agent employed or appointed to delegate?delegate?

Liability IssuesLiability Issues

Incidental (Inferred) AuthorityIncidental (Inferred) Authority

““Unless otherwise agreed [or Unless otherwise agreed [or disallowed] authority to conduct a disallowed] authority to conduct a

transaction includes authority to do transaction includes authority to do acts which are incidental to it, acts which are incidental to it, usually accompany it, or are usually accompany it, or are

reasonably necessary to accomplish reasonably necessary to accomplish it.”it.”

Apparent AuthorityApparent Authority

Consider reliance factors by third partiesConsider reliance factors by third parties

Consider representations as key to making Consider representations as key to making the agent or the principal or both liablethe agent or the principal or both liable

Discretion, LeewayDiscretion, Leeway

Economics and Efficiencies in Economics and Efficiencies in RepresentationRepresentation

Smith v. Hansen, Hansen & Smith v. Hansen, Hansen & Johnson, Inc.Johnson, Inc.

Building renovation/leaking wall caseBuilding renovation/leaking wall case

Note on p. 282 the emphasis on “question Note on p. 282 the emphasis on “question of fact” and “substantial evidence” and of fact” and “substantial evidence” and proving “objective manifestations” of THE proving “objective manifestations” of THE principal to define authorityprincipal to define authority

Why was the court talking about Why was the court talking about “reasonable inferences” of the third party?“reasonable inferences” of the third party?

Restatement Sec 27 comment aRestatement Sec 27 comment a

””The information received by the third person may come directly The information received by the third person may come directly from the principal by letter or word of mouth, from authorized from the principal by letter or word of mouth, from authorized statements of the agent, from documents or other indicia of statements of the agent, from documents or other indicia of

authority given by the principal to the agent, or from third persons authority given by the principal to the agent, or from third persons who have heard of the agent's authority through authorized or who have heard of the agent's authority through authorized or

permitted channels of communication. Likewise, as in the case of permitted channels of communication. Likewise, as in the case of [actual] authority, apparent authority can be created by [actual] authority, apparent authority can be created by

appointing a person to a position, such as that of manager or appointing a person to a position, such as that of manager or treasurer, which carries with it generally recognized duties; to treasurer, which carries with it generally recognized duties; to

those who know of the appointment there is apparent authority to those who know of the appointment there is apparent authority to do the things ordinarily entrusted to one occupying such a do the things ordinarily entrusted to one occupying such a

position, regardless of unknown limitations which are imposed position, regardless of unknown limitations which are imposed upon the particular agent.”upon the particular agent.”

Bucher & Willis v. SmithBucher & Willis v. Smith

““Mere relationship” between principal and Mere relationship” between principal and agent sends some signal of authorityagent sends some signal of authority

But what does the “representation of But what does the “representation of some authority” mean? What signals are some authority” mean? What signals are required for a third party to realize there required for a third party to realize there is not authority? What responsibilities are is not authority? What responsibilities are there for the principal to disavow third there for the principal to disavow third party beliefs of agent authority to third party beliefs of agent authority to third parties?parties?

Rosenblum v. Jacks or Better of Rosenblum v. Jacks or Better of Am. West, Inc.Am. West, Inc.

Client Consent Case for LawyersClient Consent Case for Lawyers

““[T]he fact of an attorney’s [T]he fact of an attorney’s employment alone implies no employment alone implies no

authority to settle or compromise the authority to settle or compromise the client’s case.”client’s case.”

When can a principal rescind on a When can a principal rescind on a promise made by an agent?promise made by an agent?

Common Business PracticesCommon Business Practices

How do these affect reasonable How do these affect reasonable reliance?reliance?

What efforts can be taken to avoid What efforts can be taken to avoid invocation of this argument – invocation of this argument – i.e.i.e.

what should you as a principal do?what should you as a principal do?

Duty to InquireDuty to Inquire

The duty to inquire is a defense for the The duty to inquire is a defense for the principal against a third party whose agent principal against a third party whose agent acts outside authorityacts outside authority

The duty to inquire also falls on an agent to The duty to inquire also falls on an agent to ask the principal before acting if he ask the principal before acting if he questions whether he has authority to act in questions whether he has authority to act in the face of ambiguitythe face of ambiguity

Good faith/blind faith/scope are all issuesGood faith/blind faith/scope are all issues

Suaber v. Suaber v. Northland Insurance CompanyNorthland Insurance Company

Car insurance caseCar insurance case

Presumptions of apparent authorityPresumptions of apparent authority

Principal responsibility “knowingly or negligently”Principal responsibility “knowingly or negligently”

How is the presumption rebuttable?How is the presumption rebuttable?

““Apparent authority is power of an apparent agent Apparent authority is power of an apparent agent to affect the legal relations of an apparent principal to affect the legal relations of an apparent principal with a third person by acts done in accordance with with a third person by acts done in accordance with such principal’s manifestations of consent to such such principal’s manifestations of consent to such

third person that such person shall act as his third person that such person shall act as his agent.”agent.”

Foley v. AllardFoley v. Allard

Read for “ordinary prudence” and Read for “ordinary prudence” and “business acumen”“business acumen”

The problems following ask you when The problems following ask you when it matters when the third party knew it matters when the third party knew or should have known that there was or should have known that there was

or was not authority.or was not authority.

Herbert Construction Co. v. Herbert Construction Co. v. Continental Insurance Co.Continental Insurance Co.

Office Tower case – Insurance and bonding Office Tower case – Insurance and bonding casecase

Duty of Inquiry not necessary if there is Duty of Inquiry not necessary if there is “reasonable reliance” on an agent’s “reasonable reliance” on an agent’s representation.representation.

Compare with the next case, Continental Compare with the next case, Continental Insurance Co. v. Gazaway and realize Insurance Co. v. Gazaway and realize these are very fact-specificthese are very fact-specific

Read Note 4 on Page 302 for important Read Note 4 on Page 302 for important background principlesbackground principles

Gizzi v. TexacoGizzi v. Texaco

Vehicle repair and sale case; personal Vehicle repair and sale case; personal injury when the brakes failedinjury when the brakes failed

Apparent authority and agency by Apparent authority and agency by estoppel issuesestoppel issues

Note this is only an appeal of a directed Note this is only an appeal of a directed verdict – facts never litigated; Do you verdict – facts never litigated; Do you understand why that is important?understand why that is important?

Gizzi v. Texaco (cont.)Gizzi v. Texaco (cont.)

Majority finds that there must be “a reasonable Majority finds that there must be “a reasonable reliance by the third person that the alleged agent is reliance by the third person that the alleged agent is authorized to bind the principal” before the principal authorized to bind the principal” before the principal can be held liable.can be held liable.

““The manifestations of the principal may be made The manifestations of the principal may be made directly to the third person, or may be made to the directly to the third person, or may be made to the community, by signs or advertising.”community, by signs or advertising.”

Were the slogans or advertisements “indicia of control” Were the slogans or advertisements “indicia of control” to the reasonable consumer?to the reasonable consumer?

Note the dissent’s focus on the “ordinary prudence” Note the dissent’s focus on the “ordinary prudence” and reasonable consumer test – placing a level of and reasonable consumer test – placing a level of responsibility on the third partyresponsibility on the third party

Was there “justifiable reliance”? Was there “justifiable reliance”?

Estoppel and Estoppel and Hoddeson v. Koos Bros.Hoddeson v. Koos Bros.

Furniture salesman and promise of Furniture salesman and promise of delivery casedelivery case

Is the proprietor responsible for his Is the proprietor responsible for his salesman’s promises?salesman’s promises?

Note the court’s focus on the Note the court’s focus on the adequacy of evidence in assumpsitadequacy of evidence in assumpsit

Again, Estoppel requires evidence of Again, Estoppel requires evidence of justifiable reliance to hold the justifiable reliance to hold the principal responsibleprincipal responsible

Hoddeson v. Koos Bros. (cont.)Hoddeson v. Koos Bros. (cont.)

““Certainly the proprietor’s duty of care and Certainly the proprietor’s duty of care and precaution for the safety and security of the precaution for the safety and security of the

customer encompasses more than the customer encompasses more than the diligent observance and removal of banana diligent observance and removal of banana peels from the aisles. Broadly stated, the peels from the aisles. Broadly stated, the duty of the proprietor also encircles the duty of the proprietor also encircles the

exercise of reasonable care and vigilance to exercise of reasonable care and vigilance to protect the customer from loss occasioned protect the customer from loss occasioned

by the deception of an apparent salesman.”by the deception of an apparent salesman.” But what about caveat emptor?But what about caveat emptor?

Restatement (Third) on Restatement (Third) on EstoppelEstoppel

Section 2.05 Estoppel to Deny Existence of An Agency Section 2.05 Estoppel to Deny Existence of An Agency RelationshipRelationship

““A person who has not made a manifestation that an actor has A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a authority as an agent and who is not otherwise liable as a

party to a transaction purportedly done by the actor on that party to a transaction purportedly done by the actor on that person’s account is subject to liability to a third party who person’s account is subject to liability to a third party who

justifiably is induced to make a detrimental change in position justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person’s because the transaction is believed to be on the person’s

account, if: (1) the person intentionally or carelessly cause account, if: (1) the person intentionally or carelessly cause such belief, or (2) having notice of such belief and that it might such belief, or (2) having notice of such belief and that it might

induce others to change their positions, the person did not induce others to change their positions, the person did not take reasonable steps to notify them of the facts.”take reasonable steps to notify them of the facts.”

Break down all the elements in the above . . .Break down all the elements in the above . . .

Inherent Agency PowerInherent Agency Power

Understand it as an independent Understand it as an independent theory and read the notes and do the theory and read the notes and do the

problemsproblems

But recognize it is a disfavored But recognize it is a disfavored theorytheory

Concluding ThoughtsConcluding Thoughts

Revisit the preliminaries aboveRevisit the preliminaries above

Authority issues pervade liability concerns and Authority issues pervade liability concerns and you must understand the various theoriesyou must understand the various theories

Realize that the alleged agent may be Realize that the alleged agent may be individually liable even if the alleged principal is individually liable even if the alleged principal is

notnot

But also realize the principal is often the deeper But also realize the principal is often the deeper pocketpocket