AGENCY AGENCY: DEFINITION AND BASIC CATEGORIES WHAT IS AN AGENT? Douglas v. Steele – Allen v. Lindstrom Palmer & Cay/Carswell, Inc. v. Condominium/Apartment Insurance Services, Inc. Hunter Mining Laboratories, Inc. v. Management Assistance Edwards v. National Speleological Society, Inc. Dierksen v. Albert AGENT AS A FIDUCIARY Meinhard v. Salmon Chalupiak v. Stahlman Velten v. Robertson Gussin v. Shockey GENERAL VS. SPECIAL AGENTS Rowen & Blair Elec. Co. v. Flushing Operating Corp. Washington National Insurance Co. v. Strickland SUB-AGENTS Stortroen v. Beneficial Finance Co. McKnight v. Peoples-Pittsburgh Trust Co. VICARIOUS LIABILITY INTRODUCTION Jones v. Hart EMPLOYEE VS. INDEPENDENT CONTRACTOR Santiago v. Phoenix Newspapers, Inc. Home Design, Inc. v. Kansas Department of Human Resources Hardy v. Brantley, M.D. LIMITATIONS ON THE INDEPENDENT CONTRACTOR EXCEPTION Negligent Selection Park North General Hosptial v. Hickman The Borrowed Servant Doctrine Nepstad v. Lambert DePratt v. Sergio Non-Delegable Duty Wilson v. Good Humor Corporation SCOPE OF EMPLOYMENT In General Fiocco v. Carver Meyers v. National Detective Agency, Inc. Intentional Torts Ira S. Bushey & Sons, Inc. v. United States Primeaux v. United States Note: Liability of Employer for Sexual Misconduct Punitive Damages Johnson v. Rogers STATUTORY INROADS ON THE COMMON LAW DEFINITION OF EMPLOYEE Nationwide Mutual Insurance Company v. Darden EEOC v. Zippo Mfg. Co. Saginaw Stage Employees v. City of Saginaw Dana’s Housekeeping v. Butterfield Spicer Accounting, Inc. v. U.S. BASES OF AUTHORITY EXPRESS AUTHORITY Amberg v. Greene IMPLIED AUTHORITY Fort Dodge Creamery Co. v. Commercial State Bank Note: Implied Authority of Corporate Officers New England Educational Training Service, Inc. v. Silver Street Partnership APPARENT AUTHORITY AND ESTOPPEL Jacobson v. Leonard Chase v. Consolidated Foods Corp. Mahoney v. Delaware McDonald’s Corp Foley v. Allard INHERENT AGENCY POWER First Fidelity Bank v. Government of Antigua & Barbuda Note: Fishman – Inherent Agency Power – Should enterprise liability apply to agent’s unauthorized contracts? Gregory – Law on Agency and Partnership Croisant v. Watrud THE EQUAL DIGNITY RULE Commission on Ecumenical Mission of the United Presbyterian Church v. Roger Gray, LTD Travel Centre, LTD v. Starr-Mathews Agency, Inc. RATIFICATION AND ADOPTION Bradshaw v. McBride Southern Oregon Production Credit Ass’n v. Patridge TERMATION OF AGENCY AND NOTICE TERMINATION OF AUTHORITY Walker Bank & Trust Company v. Jones Coman v. Thomas Manufacturing Co. Scroghan v. Kraftco Corporation IRREVOCABLE AUTHORITY Lane Mortgage Co. v. Crenshaw Woolley v. Embassy Suites, Inc. NOTICE AND KNOWLEDGE In re Ocean Developments of America, Inc. Fancher v. Benson Board of Education v. Sargent, Webster, et al. Vail National Bank v. Finkelman RELATIONSHIP BETWEEN PRINCIPAL, AGENT and THIRD PARTIES DUTIES OF AGENT TO PRINCIPAL Duty of Care Maurer v. Cerkvenik-Anderson Travel, Inc. Duty of Loyalty (Secret Commissions, Appropriating Customers, Self-Dealing) Note: Trade Secrets Dubbs v. Stribling & Associates – Self-Dealing DUTIES OF PRINCIPAL TO AGENT LIABILITY OF AGENT TO THIRD PARTY Ingram v. Lupo Moran Travel Bureau, Inc. v. Clair Tri-Professional Realty, Inc. v. Tara Hillenburg Senor v. Bangor Mills, Inc. Grinder v. Bryans Road Building & Supply Co. THE PARTNERSHIP DEFINITION OF PARTNERSHIP Note: Introduction to Partnership Martin v. Peyton Excerpts from Gregory – Law of Agency & Partnership MacArthur Co. v. Stein In re Flight Transportation Corporation Securities Litigation Serapion v. Martinez Impastato v. DeGirolamo, M.D. Excerpts from Gregory – Law of Agency & Partnership THE JOINT VENTURE State v. Houston Lighting & Power Company Excerpts from Gregory – The Joint Venture Easter v. McNabb Maselli v. Ginner Rust v. Kelly Werkmeister v. Robinson Dairy, Inc. UNIFORM PARTNERSHIP ACT Excerpt from Gregory – Uniform Partnership Act (Origins) ENTITY vs. AGGREGATE THEORIES Swiezynski v. Civiello Note: The Partnership – Aggregate vs. Entity Theory PARTNERSHIP CIVIL PROCEDURE The Limited Liability Partnership Head v. Henry Tyler Construction Corporation Zuckerman v. Antenucci Chase Bank of Arizona v. Acosta Catron v. Watson Atlantic Mobile Homes v. LeFever PARTNERSHIP TAXATION RIGHTS AND DUTIES OF PARTNERS RELATIONS BETWEEN PARTNERS UPA §18, §19, §20, §21 and §22 Excerpts from Gregory Schymanski v. Conventz Tellez v. Conventz Covalt v. High Mehl v. Mehl In the Matter of the Estate of Thomas THE PARTNER’S RIGHT TO INDEMNITY Gramercy Equities Corp. v. Dumont THE PARTNER AS A FIDUCIARY Bane v. Ferguson Kuznik v. Bees Ferry Associates Steeby v. Fial RELATIONS OF PARTNERS TO THIRD PARTIES Paneson v. Zubillaga Gibbs v. Breed, Abbott & Morgan Burns v. Gonzalez Sheridan v. Desmond National Biscuit Company v. Stroud Barnes v. McLendon PARTNERSHIP PROPERTY Federal Deposit Insurance Corp. v. Hish Putnam v. Shoaf State v. Sylvester DISSOLUTION, WINDING UP AND TERMINATION IN GENERAL Excerpts from Gregory – Defining Dissolution, Termination and Winding-Up UPA §§29, 30, 31, 32, 33 Note Infusaid Corp. v. Intermedics Infusaid, Inc. UPA §41 and Official Comment Excerpts Fairway Development v. Title Ins. Co. G&S Investments v. Belman (missed class for next 4) Goldstein v. 91st Street Joint Venture RIGHTS OF PARTNERS ON DISSOLUTION UPA §42 Excerpts from Gregory -§42 Lange v. Bartlett Oliker v. Gershunoff Paciaroni v. Crane CONTINUATION AGREEMENTS Martinson v. Holso (SKIPPED THIS) POST-DISSOLUTION PROBLEMS Houstoun v. Albury Jefferson Ins. Co. of NY v. Curle UPA §36 – Effect of Dissolution on Partner’s Existing Liability Wester & Co. v. Nestle 8182 Maryland Associates, Ltd. Partnership v. Sheehan Heinz v. Steffen PARTNERSHIP BANKRUPTCY Excerpts from Gregory – Bankruptcy Eibl – Strategies for Partners under the Bankruptcy Code when the Partnership is Insolvent In re Safren In re Lamb In re Phillips THE LIMITED PARTNERSHIP IN GENERAL ULPA and RULPA RULPA §101,§201,and §304 with Comments Fabry Partnership v. Christensen Douglas v. Steele, COA OK, 1991 (Casebook p. 6) – AGENCY (Basics) – Duty of agents and travel agent FACTS: Steele is travel agent who does business as The Travel Haus, Inc.. Douglas and wife booked trip to Hawaii with her. Agent showed them a number of different trips and they chose that one and paid for the trip and commission. The corporate parent of the Total Hawaii company went bankrupt and was bankrupt when the money was sent to it. According to the facts, the bankruptcy could have been discovered by the agent with some investigation – as a result, Douglas’s sued for the money that was entrusted to the agent and sent to the company without investigation. At a bench trial, these facts were found: 1) Douglas was offered a selection of trips; 2) they relied on the agent’s services; 3) they received nothing for their money; 4) the agent should have pursued a claim against the bankrupt company; 5) agent failed to raise the misjoinder or non-joinder of parties defending at trial. PP: Bench trial awarded judgment for the plaintiffs and agent appeals. ISSUES: Whether a judgment entered individually against a travel agent described as doing business as a corporation is void for uncertainty? Whether a travel agent may be held personally liable for non-delivery of a promised vacation by a non-party tour company? JUDGMENT: Affirmed decision of trial court and held that the agent can be held personally liable and the individual judgment is not void for uncertainty. RULE: An agent has a duty to his principle to discover and disclose material information reasonably obtainable if not obvious. ANALYSIS: Argument – A judgment rendered against Linda Steele dba Travel Haus, Inc. is an improper combination of two legal entities (individual and corporation); therefore, the defendant was not named with sufficient certainty to constitute a valid judgment. Court – She was sued as an individual and defendant as an individual. Argument -is not liable under the law of agency for the Douglases’ loss caused by Total Hawaii’s non-performance. She says she was either an agent for Total Hawaii or Travel Haus and is not liable for breach by either. Court – Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other so to act. -Travel agent = special agent for purpose of one transaction of the traveler. -Duty of Agent = Act with care, skill and diligence a fiduciary rendering that kind of service would reasonably be expected to use (including: information giving, reasonable inquiry; communicate to principals. Here, if the agent knew or with the use of reasonable inquiry could have known of the possible insolvency or impending bankruptcy of Total Hawaii’s parent company, she had a duty to inform. -Agent is not the guarantor to the principal nor does he assume absolute risk of non-performance by third-parties. -Duty to discover and disclose material information reasonably obtainable if not obvious. Here, there was a likely non-disclosure. DISSENT: No knowledge of the insolvency No access to inside information about the insolvency No bankruptcy information (potential or otherwise) No failure to reasonably inquire. Allen v. Lindstrom, Supreme Court of VA, 1989 (Casebook p. 12) – AGENCY (Basics) Real estate agent duty FACTS: 12/84 – Lindstrom owned parcel and gave Coldwell Banker exclusive K for sale at $72K (Stough was main agent) 02/85 – Rush (agent for C/B) showed property to Allen and promised to inform them of any additional activity. 03/85 – McGowan made offers and sellers made counters. Rush took over and informed Allen that agreement was close at $67K. Allen and Lindstrom sales K signed for $68K to close on 8/1/85. 05/85 – Sellers liked McGowan’s terms better and nullified the Allen K because they weren’t told about the offer prior to agreeing to Allen’s. McGowan and Lindstrom sales K for $72K to close on 7/31/85. PP: 08/85 – Allen sues for specific performance and to set aside conveyance. Lis pendens filed in court. 09/85 – McGowan began improvements 09/85 – Allen sued for temporary injunction on McGowan’s improvements. 10/85 – Injunction granted 02/86 – Hearing 03/86 – McGowan sues for alleged wrongful conduct by Coldwell Banker (seller’s agent). 04/86 – Court denies Allen’s suit for specific performance. 05/86 – Lis pendens and injunction removed. McGowan sues Allen for damages resulting from injunction. 08/86 – McGowan’s suit against Coldwell Banker dismissed 09/86 – McGowan gets $45K from Allen due to injunction. Trial court stated that Rush’s actions were imputed to Allen and they were bound. Rush failed to disclose offer to seller. Rush acted adverse to the interest of the seller. K was unfair. Appeal: Allen appeals for S.P. and damages assessed to him and McGowan appeals dismissal of his action against Coldwell. ISSUES: Whether the trial court properly denied purchaser’s request for specific performance? Whether a real estate agent owes a duty to prospective purchaser to communicate a purchase offer to a seller for whom the agent was acting a the exclusive real estate broker? JUDGMENT: Trial court erred because Rush was not Allen’s agent. RULE: ANALYSIS: -Agency is defined as the relationship which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and the agreement by the other so to act. -POWER OF CONTROL IS THE DETERMINING FACTOR IN ASCERTAINING THE ALLEGED AGENT’S STATUS. -There is no presumption that an agency exists. -Generally, a real estate broker or agent is primarily the agent of the party who first employs him. -CASE #1: Specific Performance o Rush and C/B were seller’s agents. Allen did not agree to agency nor control Rush. o Π argument: Because of fraud and misrepresentation, enforcing specific performance would be inequitable. o Court: Allen did not participate in Rush’s conduct; McGowan had knowledge of Allen K and proceeded to improve the land. The court decided to award S.P. suit awarded. -CASE #2: Injunction was proper so no damages should go to McGowan from Allen. -CASE #3: Case against Coldwell Banker o Π Argument #1: McGowan relied upon C/B to transmit offer to seller and the non-transmittal was malicious. o Argument: There was no duty to McGowan. o Court: Sustain the demurrer. o Kidd case: Attorney sued by MD that he sued in malpractice action. Attorney was found only liable to client because: there is a general duty to the judicial system but it is not the type of duty that translates into liability to an adversary for negligence when there is no foreseeable reliance by the adversary on the attorney’s actions. o The duty to public does not include equal liability against a seller’s agent for this case without evidence of reliance and without any direct communication. Professional policing handles this. o Π Argument #2: Third-party beneficiary doctrine which allows benefiting parties as a result of a K to sue. o Court: Limitation to the doctrine is that a third-party must show that the parties to K clearly and definitively intended it to confer a benefit upon him. Palmer & Cay/Carswell, Inc. v. Condominium/Apartment Insurance Services, Inc., COA of SC, 1991 (Casebook p. 19) – Agency (Basics) – Insurance Agency FACTS: CFP (Cal Fed Partners) bought policy from Carswell. Carswell got the policy from C/AIS and Colonial Penn issued the policy. Palmer and Cay bought out Carswell in part. CFP requested cancellation of the policy which P&C told C/AIS about. Colonial Penn credited C/AIS for unearned premium and P&C refunded to CFP but C/AIS never paid P&C the credit (neither did Colonial Penn). PP: P&C sued for recovery of a premium allegedly due as a result of mid-year cancellation of an insurance policy. The trial court granted MSJ for Colonial Penn because it said that CP only had to pay C/AIS and not P&C and P&C issued refund as a volunteer. ISSUE: Was C/AIS, a stated independent contractor, an “agent” of Colonial Penn? JUDGMENT: Reversed and remanded. RULE: One who is appointed to establish a contractual relationship between the principal and third parties is an agent. ANALYSIS: Part One – Is CP paying its own agent (which is not enough to satisfy a debt)? -Documents stated that C/AIS was an independent contractor. -Independent contractors can be agents. -Documents also stated that C/AIS was to be manager for Colonial Penn and it was given binding authority for CP. o “[CP] appoints the Mananger as its legal representative and true and lawful attorney to act in the Company’s behalf.” o C/AIS is given binding authority -A BROKER CAN BE AGENT FOR INSURANCE COMPANY. Part Two – Was P&C obligated to refund the money? -Documents state that the refund was possibly not voluntary. Hunter Mining Laboratories, Inc. v. Management Assistance, Supreme Court of NV (1988) Casebook p. 22 – Distributorships and Agency FACTS: Hunter and Hubco contracted for Hubco to sell, install and customize computers for Hunter. Hubco shut down before it was completed. Hunter hired Data Doctors to finish but they didn’t finish either. MAI (defendant) made the products and licensed the distributors. PP: Hunter sued MAI for breach of K where liability was dependent upon agency relationship between Hubco, Data Doctors and MAI. Jury found implicit agency but court reversed and granted JNOV. ISSUE: Whether a licensed distributor is agent of manufacturer? JUDGMENT: No evidence sustains jury verdict – upholding trial court. RULE: ANALYSIS: -Principal must possess right to control agent’s conduct. -This relationship had some control but the control must be over day to day or operative details. -MAI had no operative controls or over the way the companies conducted themselves. -There was no obligation to act for benefit of MAI once computers were sold to distributor. -Relationship was buyer and seller. -Π Argument – Apparent authority o No reliance on MAI agency when entering into Ks with Hubco and Data Doctors o Hubco and Data Doctors had no authority (apparent or otherwise) to bind MAI to K and their Ks with MAI specifically negated that right. Edwards v. National Speleological Society, Inc., Supreme Court of AL (1987) Casebook p. 25 – Agency and Organizations FACTS: 10/84: Carnes died after falling off a mountain. The fence was maintained by NSS () “grotto”. NSS is an N.P.O. with local groups called grottos. They are considered internal organizations which are by definition chartered by the NSS to promote the purposes of the society. Grottos have to act in the best interest of the organization. PP: Edwards sued the NSS for negligence in repairs and modifications to the fence. NSS filed demurrer and MSJ. The MSJ was granted and Edwards appeals. ISSUE: Whether or not there is an agency relationship which would lead to liability of NSS with its internal organizations to the extent that the NSS has a right to control the internal organizations? JUDGMENT: MSJ affirmed. RULE: ANALYSIS: -MAIN TEST OF AGENCY: Right of Control o It is not essential that the right of control be used, just that it exists. -The constitution and by-laws of the NSS state that each local grotto “shall have complete freedom of action in its organization and fiscal policies.” So, there is no right of control. NOTES: 1. Rose case: No control by MLB over Commissioner of Baseball in disciplinary matters. 2. TEST FOR AGENCY: Whether the employer has the right to control and direct the servant in the performance of his work and in the manner in which his work is done. Dierksen v. Albert, Superior Court of NJ – Appellate Division (1969) Casebook p. 28: Agent vs. Trustee FACTS: Dierksens transferred to their daughter, Mrs. Albert, who has disappeared, a number of stocks. Under the agreement to transfer, the Dierksens retained the right to buy and sell stock and to retain the dividends if so desired. Mrs. Albert did everything that was asked of her in order to obtain the stock from them. PP: The Dierksens asked the trial court to revest full title in them for the securities. The trial court did designate a trustee to carry on Mrs. Albert’s job as trustee. Trial court stated that the arrangement was an express trust and held Πs could not revoke it in the absence of reservation of a power. ISSUE: Whether or not the relationship was that of trustee and beneficiary or principal and agent? JUDGMENT: Reversed RULE: Where there is control and direction by the “beneficiary” of a supposed trust, it is most likely an agency relationship and not a trust. The agency relationship predominates and the principals of agency are applicable. An agency relationship is terminable at the will of the principal. ANALYSIS: -No particular form of words is necessary to create a trust so long as the intent to create the trust exists and other legal requisites are satisfied. -The essential elements of a valid inter vivos gift are: 1) donative intent; 2) actual delivery of the subject matter; 3) donor strips himself absolutely and irrevocably of all dominion and control over the subject matter of the gift. -Dominion, control and right of disposition of the subject matter of the gift was substantially retained by grantors for their lifetimes. -A gift of equitable interest in property must contain the same elements as a legal gift. -As an agency relationship, the relationship is terminable at any time at the will of the principal. NOTES: 1. Question 2. Revocable trusts and agency: §8 of Agency – An agency is not a trust. (a) A trustee has title while agent does not. (b) An agent acts on behalf of the principal and under his control while a trustee is only supposed to deal with the trust property for the benefit of the beneficiary. (c) An agent may subject the principal to liability while trustee does not subject beneficiary to liability. (d) An agency is created by consent of both and a trust may be created without knowledge or consent of either trustee or beneficiary. (e) An agency can be terminated at the will of either party while trust is not so. (f) Trust does not have to comply with Statute of Wills even though there is reserved power, but the agent cannot dispose of property at the death of the principal. (g) An agent may also receive title to the property and agency law will still apply. Meinhard v. Salmon, Court of Appeals of NY (1928) Casebook p. 32: Agent as a fiduciary FACTS: Gerry leased hotel to Salmon for 20 years beginning in 1902 and ending 1922. Salmon changed the building to use for shops and offices, spending $200K which accreted to the land. Meinhard funded ½ of the changes resulting in a joint venture. Meinhard was to pay ½ of the monies associated with the operation and management of the property and Salmon was to pay him 40% of the net profits for the first 5 years of the K and 50% for the remainder. Losses would be borne equally. Salmon was to have complete management power. Because of this relationship, they were subject to duties of partners (fiduciary – loyalty). When the lease was nearly up, another Gerry was owner of the property as well as much of the surrounding properties. Gerry wanted to get someone else to lease the property and destroy the structures and rebuild. Unable to find any takers for the endeavor, Gerry decided to lease to Salmon with the understanding that after 7 years the buildings would be destroyed and rebuilt. Salmon signed the lease as Midpoint Realty Company on 1/25/22 and had not told Meinhard about it. After lease was final, Meinhard heard about it. PP: Meinhard made demand on the defendants that the lease be held in trust as an asset of the venture stating that he would be equally responsible for the obligations. The defendants refused. Meinhard sued and the trial court awarded him a 25% interest in the lease because the original hotel site was only part of what was in the lease. The appellate court enlarged his share to 50% and additionally his responsibility. Defendants appealed. ISSUE: Whether or not JUDGMENT: Affirmed RULE: Joint venturers as agents of one another owe each other a duty of loyalty and avoidance of using information secretly that has a nexus to the joint venture. ANALYSIS: -Joint adventurers like copartners, owe, while the enterprise continues, the duty of finest loyalty. -This court is unwilling to lower the standard imposed. -The court: Salmon appropriated the deal from Gerry and excluded his co-venturer. -In the absence of notice, he should not have done this. Additionally, Salmon had control of exclusive powers of discretion so he also had the duty to disclose so that the opportunity could be equalized. -Precedent states: one partner may not appropriate to his own use a renewal of lease, though its term is to begin at the expiration of the partnership. A man obtaining his locus standi, and his opportunity for making such an arrangement, by the position he occupies as a partner, is bound by his obligation to his co-partners in such dealings not to separate his interest from their, but if he acquires any benefit, to communicate it to them. -There shall not be abuse of special opportunities growing out of a special trust -“A constructive trust” is the remedial device through which preference of self is made subordinate to loyalty to others. -No need for a guilty mind. As long as there is a nexus between the opportunity and the original business, there is rule of undivided loyalty. -An assignment of interest to another in the joint venture does not destroy the joint venture. DISSENT: -All that is required is fair dealing and scrupulous regard for honesty. -A partner may not for his own benefit secretly take a renewal of a firm lease to himself. -There was no expectancy for renewal here – this was joint venture for fixed term and limited object. Had this been a general partnership it would be different. -Where parties engage in a joint enterprise each owes the other the duty of utmost good faith in all that relates to the joint venture. -The equity Meinhard had was in the prior lease without any right of renewal. -A renewal like the old lease was not possible. NOTES: 1. Question 2. Question 3. Scope of fiduciary duty in a joint venture 4. Question 5. Question 6. Standard of duty Chalupiak v. Stahlman, Supreme Court of PA (1951) Casebook p. 44 – Duty of loyalty. FACTS: Π bought land from Commissioners of Beaver County that totaled about 54 acres. There was another tract next to it also owned by commissioners. Π bought the first tract and had it surveyed and the survey mistakenly stated that he owned an extra 30 acres. Π subdivided land into building lots and sold some to people giving them deeds with general warranty of title. was justice of peace and tax collector and more educated than Π. He drew up documents for people and Π asked him to prepare a deed for a subdivision of the land sold to Adam. Π gave a sketch of the parcels prepared by engineers. noticed that the land didn’t look like the parcel Π owned and asked Π if he was sure he owned it. Π said that his engineer drew the plan and his attorney said he had good title. did not end up drawing up the deed but he did draw up another 4 for the Π upon his request from the erroneous survey. When Π brought his petition for title to the , did not inform Π that defendant had already purchased the land in question. The issue is that defendant prepared deeds for land that the knew the plaintiff did not own. (also prepared Π’s tax returns). ISSUE: What capacity did the defendant act in preparing deeds so as to justify a fiduciary duty? JUDGMENT: For Π. RULE: An agent owes a duty to disclose information and not use information for things adverse to the principal in any transaction. ANALYSIS: -Defendant was more than stenographer or typist but not to the extent of a legal capacity and had liabilities of lawyer in that field. -He was Π’s agent and confidential adviser -acted at Π’s request and on Π’s behalf in drawing the deeds in question, subject to Π’s control. -used knowledge secured during his employ against the principal’s interests by buying the land that Π thought he owned. -profited from knowledge obtained form one who had employed him and therefore violated the duty of loyalty and fidelity owed to Π. -Restatement: Unless otherwise agreed, an agent is subject to a duty to the principal not to use information acquired by him during the course of or on account of his agency to the injury of the principal, on his own account, although such information does not related to the transaction in which he is then employed. -Full disclosure of information is required – He had to inform Π that he planned on taking advantage of the defect. -This cannot stand because of public policy not just fraud. DISSENT: -Plaintiff did not seek any advice from Defendant (had attorneys and engineers). -Defendant was employed only to draw a deed and not even search title and Plaintiff relied on his own lawyers and engineers. -Defendant still had right to purchase the land at a public sale over which he had no control or connection. NOTES: 1. Question 2. Question 3. Question 4. Question 5. Question 6. Question Velten v. Robertson, Colorado COA (1983) Casebook p. 50 – AGENCY AND SALESMAN, DUTY TO DISCLOSE PERSONAL INTEREST FACTS: 1/79: Zimmerman, real estate salesman, asked seller (Robertson) about willingness to sell 10 unit apartment building. Robertson said she might consider selling but would give no exclusive listing. The salesman called Velten , asking about interest in the property. With salesman, Velten and Brady prepared a receipt and option agreement with their signatures. He presented to Robertson who signed. Robertson proposed a number of changes to K which were included in an addendum. Two days later signatures were on the addendum. Neither document required salesman to be paid a commission because he told seller he would be compensated by buyers. In order to pay salesman, buyer signed deed to trust secured by property for $5K and agreed that salesman could get 50% of profits from sale within 1 year (These agreements were not disclosed to the seller). Seller refused to close because she requested a financial statement from the buyers which she though constituted an unaccepted counteroffer. The trial court said it was not such a counteroffer. PP: Seller appeals judgment granted S.P. of K contending that trial court had erred because the salesman failed to disclose his personal financial interest in the property and, because he was her agent, this was breach of duty of disclosure. ISSUE: Whether or not the salesman was the agent of the seller when he received no commission from her for his actions? Whether or not non-disclosure of personal financial interest in a contract is considered breach of loyalty? JUDGMENT: Reversed decision to grant SP. RULE: As to salesmen, where there is contact with the seller, procuring a buyer, preparation of K, obtaining signatures but no commission to be paid by seller, agency is still established. Where agency is established, the agent owes fiduciary duty including full and fair disclosure – especially where he has personal beneficial interest. ANALYSIS: -Precedent on Salesman’s agency: Where broker contacted the seller, said he had a buyer, prepared the K, obtained signatures and was to receive commission, the broker is considered an agent of the seller. -Here, he is also the seller’s agent: Establishment of an agency relationship does not hinge upon the receipt of commission from the seller. -As agent, salesman has fiduciary duty to act with utmost faith and loyalty on behalf of his principals – including full and fair disclosure. NOTES: 1. Question 2. Question 3. Question Gussin v. Shockey, US District Court, Maryland (1989) Casebook p. 51 – AGENCY, FRAUD, MIDDLE-MEN AND COMPENSATION OF AGENT AFTER FRAUD FACTS: -The Gussins (Fred and Paul – Father and Son) arranged for Shockey to assist in buying, maintaining, and selling thoroughbred horses. They relied on his expertise as they were inexperienced in horses. -In 9/84, Shockey approached them suggested mare named Purace – this was when they entered an agreement to assist Gussin’s in purchasing them, placing insurance on them, boarding and caring for them, breeding them, and selling them. He was to tell Gussin what to do and manage their affairs for a fee of 5% on net profits of sales computed by sales price of horse minus purchase price, insurance cost, boarding, training and stud fees. -Shockey admitted to being their agent in the everyday meaning of the word. -Documents memorialized the role including: 2 bills of sale and an insurance document. He also conceded in Request for Admissions that he was their agent. -The Gussins formed a partnership for the purpose of buying horses and supposedly held the horses in the name of the partnership. -The agency relationship lasted from 9/84-11/85 when Gussin sent letter terminating Shockey’s authority to act. -Shockey responded by letter stating he relinquished those duties. -During the agency relationship, 6-7 horses were bought. Shockey would negotiate a base price with the seller above which he could keep the proceeds. He never disclosed this to Gussin. He did this for Purace, Princess Q trio, Past Example package -Shockey said he thought he was entitled to the middle-man portion. He knew he was trusted and relied upon. PP: The Gussins sued for breach of fiduciary duty, fraud and RICO violations. They filed partial summary judgment motion as to liability for kickbacks received by Shockey. The Gussins abandoned all other claims to get this resolved. ISSUE: Whether or not where the purchaser relies on a “buyer” to assist him in finding and evaluating horses creates an agency relationship? If there is an agency relationship, whether or not it created such a fiduciary duty that agent should not have taken commission without revealing to the principal? JUDGMENT: Court grants summary judgment in favor of Π’s for the amount asked for and dismisses additional complaints. RULE: If agent receives any benefit from a transaction where he is serving his principal, the agent must fully disclose any interest he has in the transaction and receive the consent of the principal to proceed even if the principal will ultimately benefit from the transaction. An agent who is guilty of fraud upon his principal, particularly where there is a conflicting interest, concealment, or a willful and deliberate breach of his K…may be denied compensation for his services. ANALYSIS: -Duties of Agent: 1) utmost loyalty and fidelity to the interests of the principal; 2) not to put himself in a conflict of interest position. -Duty not to take advantage of his position as agent – furthering only the interests of the principal -If agent receives any benefit from a transaction where he is serving his principal, the agent must fully disclose any interest he has in the transaction and receive the consent of the principal to proceed even if the principal will ultimately benefit from the transaction. -Shockley violated those duties here – through concealment and benefit. He even had intent to defraud. -Argument: He was still entitled to 5% of the sales prices of horses that were to be sold in the future. -COURT: “An agent is entitled to no compensation for conduct which is a breach of his duty of loyalty; if such conduct constitutes a willful and deliberate breach of his K of service, he is not entitled to compensation even for properly performed services for which no compensation is apportioned.” An agent who is guilty of fraud upon his principal, particularly where there is a conflicting interest, concealment, or a willful and deliberate breach of his K…may be denied compensation for his services. NOTES: 1. Question 2. Question 3. Rules about forfeiture of commission for valuable services: 1) If the services are to be paid for with salary, agent is entitled to be paid for those periods or items properly completed before his renunciation or discharge. 2) With unapportioned services, agent may only get compensation if his breach is not willful and deliberate. 4. Question 5. Not every breach of duty by a fiduciary is a breach of fiduciary duty. 6. Agent’s right to compensation where he has breached his fiduciary duty 7. Question Rowen & Blair Elec. Co. v. Flushing Operaing Corp., COA of Michigan (1976) Casebook p. 59 – General vs. Special Agents FACTS: -Dutch leased a building from Flushing. In order to get the property, D.T. wanted to expand by buying the property but couldn’t afford it so Flushing bought the property and land and leased it to D.T. on 7/2/69 for 10 years starting in October. The lease included a provision for leasehold improvements (a $45K improvement) which would become property of landlord at the end of the lease except for moveable fixtures. -The list of contemplated expenditures was lost prior to trial but seemed to include electrical repairs, structural repairs and other miscellaneous things. -Rowen was hired to do the electrical work by D.T. in 7/69. The oral terms were not put into writing and signed until 4/70. During the time, D.T. made payments on cost-plus basis. D.T. sent the first invoices to Flushing who issued a check payable to both. It was endorsed by D.T. and transferred to Rowen. This was the first Rowen heard about Flushing as they assumed D.T. owned the property. -In 12/69, Flushing sent the last check (because the total equaled $45K). At this point, D.T. was behind on rent and Flushing used up the rest of the $45K for the rent. -In 5/70, D.T. signed a demand promissory note for the debt. Also, seven days before, Rowen filed statement of account and lien with Register of Deeds where both Flushing and D.T. were named without notice served on them within the 10 day period prescribed by law. -Rowen finished work in 5/71 and filed for mechanic’s lien against the property claiming that $39K remained unpaid. PP: A bench trial was held refusing to impose a mechanic’s lien on building owned by Flushing. The critical issue was the validity of the lien against the building which was still owned by Flushing (since this time, DT had gone bankrupt). The trial court held the lien was valid because there was a failure to give statutory notice to Flushing was unnecessary because there was an agency relationship between DT and Flushing. Flushing’s liability was limited to the authority given to DT – which was $10K pursuant to the addendum to the lease. As a result, $17K had already been paid to Rowen so they had already paid that much. ISSUES: Whether the removal of the machinery from the defendant’s building making Rowan’s work non-beneficial to the defendant caused the lien to not result? Whether the $10K limit on the liability was appropriate? Whether there was actually an agency relationship between landlord and tenant in this case? JUDGMENT: The agency claim was not raised on cross-appeal so it is not considered. Affirm trial court. RULE: A special agent, authorized to conduct a single transaction or series of transactions, can only bind an undisclosed principal with contracts made in the scope of its authority. An agent can bind an undisclosed principal in matters where it is not authorized to do so only if: the agent’s only departure is in not disclosing his principal or in having an improper motive or in being negligent in determining the facts upon which his authority is based or in making misrepresentations OR the agent is given possession of goods or commercial documents with authority to deal with them. ANALYSIS: -Trial court: There was an agency relationship between DT and Flushing and that DT’s authority to K was limited to $10K. -DT was acting as a special agent to an undisclosed principal. o “SPECIAL AGENT” = An agent authorized to conduct a single transaction or a series of transactions not involving continuity of service. o A special agent can bind an undisclosed principal only with Ks made in the scope of its authority. o Special agent can only bind an undisclosed principal in Ks or conveyances which is not authorized to do if: 1) the agent’s only departure is in not disclosing his principal or in having an improper motive or in being negligent in determining the facts upon which his authority is based or in making misrepresentations OR 2) the agent is given possession of goods or commercial documents with authority to deal with them. -The $10K limit was not correct because it was only an estimate. Agency was limited to $45K. -DT’s actions do not fall within the exceptions – It was exceeding the money limit and not disclosing the principal. Washington National Insurance Co. v. Strickland, Supreme Court of Alabama (1985) Casebook p. 62 – GENERAL, SPECIAL AND INDEPENDENT AGENTS IN INSURANCE CONTEXT FACTS: 1/15/81: Palmer met with Strickland family about medical insurance. Palmer described plans with 4 different companies including the one with Washington chosen by Strickland. Wife and husband applied for insurance and she received a conditional receipt for $100 stating that effective date of policy was that day. -The Strickland’s testified that Palmer stated they would be covered effective immediately. Mrs. Strickland cancelled another policy she had applied for. -The application and receipt the Strickland’s got stated that no agent was authorized to make or modify contracts, to waive any rights or requirements of the company or to bind the company. 1/19/81: Strickland fell and hurt her ankle. Palmer had not yet sent in the Strickland application which he said he did on 1/22 and Washington declined the policy for Mrs. Strickland because of her being not physically fit. -Palmer stated that his authority with Washington was limited to solicitation of applications and collection of initial premiums. -Martin, general agent for Washington, stated that Palmer had no authority to bind Washington to coverage. -The record shows, however, that Palmer was a licensed agent for Washington in Alabama. PP: Strickland sued Washington and Palmer for fraud and misrepresentation. The jury found for Strickland in the amount of $22.5K. The compensatory damages were only $1,369.14 so the $21K additional money was punitive. Washington moved for directed verdict and JNOV and/or new trial. Washington said that there was insufficient evidence to support allegations of fraud and punitive damages. ISSUE: Whether insurance issuing company could be found liable for misrepresentation of its agent? -Whether the agent was general or special (soliciting) agent or independent agent? JUDGMENT: The motions were properly denied. RULE: A general agency differs from special agency in that there is less power to bind and the scope of the representation is smaller. ANALYSIS: -GENERAL AGENT: Authority to transact all of the business of the principal, or a particular kind or in a particular case. o Authorized to act in those matters that come within the usual and ordinary scope and character of such business o Full power to bind the insurer to the agent’s K of insurance or to issue policies or accept risks o A fraudulent act by the agent is the fraudulent act of the insurer principal as well. o THE LIABILITY IS GROUNDED IN AGENCY LAW. -SPECIAL AGENT: Agents with limited authority o Soliciting Agent: No power to bind. o A fraudulent act by the soliciting agent is the fraudulent act of the insurer principal if the fraud was committed in the scope of his employment. THE LIABILITY IS GROUNDED IN RESPONDEAT SUPERIOR. (Servant/Master) -INDEPENDENT AGENT/BROKER: Not an agent for the insurer at all, but the insured o LIABILITY IS FIDUCIARY DUTY BREACH o May also be agent for insurer if authorized by insurer to make representations and they are made. If they are false, the principal is responsible. -Washington National Argument: Palmer was independent agent. -Court: His being an independent agent was not clear cut like precedent Washington relies upon and the evidence clearly shows that he had no actual or apparent authority to make the representations so he wouldn’t be liable. But the jury had enough evidence to find that Palmer was general or soliciting agent. NOTES: 1. General agent has broader apparent authority that the special agent. 2. Abolition of the difference between special and general agents. 3. There is a presumption in the absence of evidence to the contrary, that an agency is general rather than special, but once the agent is determined to be special, the burden is placed on third-party to determine the scope of the authority. 4. Liability for Unauthorized Acts of Special Agents: Secret instructions by the principal are more effective in limiting special agent’s power instead of general agent. Stortroen v. Beneficial Finance Co., Supreme Court of Colorado (1987) Casebook p. 67 – SUB-AGENTS FACTS: -Π wanted to sell and listed with F.R. agent Panio who was to find them a new home. -Panio consulted a multiple listing service and found them home owned by Beneficial () who had an exclusive listing with Olthoff -Panio helped Πs make offer contingent upon sale of their home. -Beneficial rejected offer and prepped counter-offer given to Olthoff and then Panio. -Carelli made offer of $122K (higher) which wanted to accept. directed Olthoff to withdraw offer to Π and Olthoff left messages with Panio about it. -Panio got Πs to agree to counter and got back to her withdrawal message. Πs filed K with officer and Carellis refused to close and instead went month to month. PP: Π sued and Carelli for breach of K seeking S.P. and vacating order for Carellis. Carelli cross-claimed against and Olthoff. Trial court said Panio was agent of Π and delivery of signed counter to Panio was not sufficient notice to . Trial court held that a principal-agent existed between purchasers and selling broker in connection with the sale and that the purchasers’ act of notifying the selling broker’s associate of the acceptance of the seller’s counteroffer did not constitute notice to the seller of the acceptance. MSJ granted for the defendants. ISSUE: Whether a R.E. broker is an agent of seller or purchaser where R.E. agent was not seller’s listing agency? JUDGMENT: In a multiple listing RE transaction involving residential property, the selling broker or salesperson, in the absence of a written agreement creating a different agency, is an agent of the listing broker and as such is within a chain of agency to the seller. REVERSE AND REMAND RULE: In a typical multiple listing RE transaction, the selling broker or salesperson functions as an agent of the listing broker and, consequently, stands in a sub-agency relationship to the seller. ANALYSIS: -Agency = Mutual Consent -General Agent -Special Agent -Sub-Agent: responsible for both principal and appointing agent; a person appointed by agent empowered to do so, to perform the functions undertaken by the agent for the principal, but for whose conduct the agent agrees with the principal to be primarily responsible. -Notice to agent is notice to principal. -RE Agency: Created by listing agreement; authority usually given to (impliedly) appoint sub-agents; allow to use multiple listing service. -Some courts reject that as sub-agency because it is not a consensual fiduciary relationship. -Traditional Rule: A principal-agent relationship flows from the seller to the selling broker in a multiple listing transaction: Reasons for follow (1) selling broker commission comes from seller not purchaser; (2) Dual agency; (3) No suit against seller for misrepresentation -Listing broker’s subagency arrangement – Manifested like a unilateral K which is accepted when substantial performance has been rendered by offeree. -TERMINATION OF SUB-AGENCY: Expiration of time; expiration of listing agreement; sale of the listed property; withdrawal of consent by either listing broker or seller or other circumstances. -To be buyer’s agent, you must have written agreement. -A selling broker or salesperson may be held liable for wrongful acts causing damage to a third person. -Panio’s efforts = acceptance of sub-agency offer (Special agent) McKnight v. Peoples-Pittsburgh Trust Co., Supreme Court of PA (1948) Casebook p. 77 FACTS: Bank was going to foreclose against theaters. They hired law firm to run the theaters at foreclosure. McKnight had been managing both Roxion and Brighton theaters. He went into service and Herron became manager. McKnight requested additional compensation for running the theaters until they were saleable. PP: McKnight said he was bank’s duly authorized agent and he deserved compensation for services. Bank said that McKnight was employed by RE firm and not the bank so he was not due compensation from bank. ISSUE: JUDGMENT: RULE: ANALYSIS: -Court: No evidence of K relation with bank and control was by George Brothers and not McKnight specifically -At most, McKnight was sub-agent of the bank. -Defining Sub-Agent: A person to whom an agent delegates, as his agent, the performance of an act for the principal which the agent has been empowered to perform through his own representative. (See p. 79) -Agent is responsible for compensation of sub-agent unless principal agrees to it. -Sub-Agent has some powers as agent but not employed directly by principal. NOTES: 1. Possible principal sub-agent relationships Jones v. Hart, Court of King’s Bench (1698) Casebook p. 81 (Vicarious Liability -Where pawn broker’s employee took in and then lost goods, the principal is liable. -Whoever employs another is answerable for him -The act of the servant is the act of his master. NOTES: 1. Origins: Roman Law – Where the owner of slaves was held liable for the torts of his slaves with the principal being ultimately extended to include liability for free sevants as well. 2. Rationale for Vicarious Liability: 1) Compensatory: Master is better loss-bearer than Servant; 2) Fairness: Master benefits from servant’s activities and some liability would be expected (business expenses); 3) Loss Spreading: Master can insure. 4) Efficiency: Avoids negligent hiring and supervision suits. Santiago v. Phoenix Newspapers, Inc., Supreme Court of AZ (1990) Casebook p. 83 – employee vs. independent contractor FACTS: Deliveryman for PNI hit Santiago, while on his motorcycle. PP: Santiago sued PNI and Frank under agency law. Trial court said Frant was independent contractor. COA agreed stating that the parties can limit their relationship to avoid agency relationship. ISSUE: Can deliveryman be considered employee at time of MVA? RULE: ANALYSIS: Factors used in determining servant-hood 1. EXTENT OF CONTROL 2. NATURE OF WORKER’S BUSINESS 3. SPECIALIZED OR SKILLED OCCUPATION 4. MATERIALS AND PLACE OF WORK 5. DURATION OF EMPLOYMENT 6. METHOD OF PAYMENT 7. RELATIONSHIP OF WORK DONE TO REGULAR BUSINESS OF EMPLOYER 8. BELIEF OF PARTIES Home Design: Notes -Who is a servant/employee is the most often litigated issue in the law of agency. -Vicarious liability and the Issue of Benefit: Critical issue in most cases is the right of control which the master possesses over the activities of the servant. Another issue is whether the activity benefited the master. Example: loaned car to neighbor for her to shop, then it is a bailment, but when I ask her to pick up stuff for me vicarious liability applies. -Family Purpose Doctrine: Parents held liable for the torts of their children while driving the parent’s car. The doctrine today is obsolete largely due to insurance. Hardy v. Brantley, M.D.: Notes -Several theories can be used to impose liability on hospitals: 1) respondeat superior; 2) Apparent authority (ostensible agency/agency by estoppel). Park North General Hospital v. Hickman: Notes -Negligent Selection Nepstad v. Lambert: Notes -Borrowed servant doctrine -Reasons to prefer to sue the “special employer”: general employer may be judgment proof; attempt to get out of being stuck with worker’s comp only -“Captain of the Ship” Doctrine: Plaintiff seeking to hold the attending MD liable for med mal of nurses or others employed by a hospital but working under the MD’s supervision. However, the liability should rest under master and servant concept instead of this. Wilson v. Good Humor Corporation: Non-Delegable Duties – Notes -Peculiar risk doctrine: EXCEPTION to the idea that employers cannot be held vicariously liable for the torts of their independent contractors Fiocco v. Carver, COA of NY (1922) Casebook p. 124 – Scope of Employment (In General) FACTS: -’s shipped merchandise from Manhattan to Staten Island and the driver was to return to the truck. -The driver stopped by mother’s house and drove some kids around. -He stopped again to say hello to friend and when he came back Π was also trying to get on the truck and truck supposedly started up and caught the Π’s foot in the wheel. -Driver says that boy was running after truck and that it was impossible to see him. -Driver also states he was on his way to drop the truck off PP: Jury found that he was in the course of his employment. Ruling was upheld at appellate division and now appealed to this court. ISSUE: JUDGMENT: Complaint dismissed. ANALYSIS: Π Argument – If the jury, if it discredited the driver’s narrative of the accident, was free to discredit his testimony that there had been a departure from the course of duty. -Just the fact that truck belonging to was in the custody of the ’s servant was enough to sustain the presumption that it was being used in the course of his employment. o Rebuttable inference -It is not enough for the employee to be thinking about heading back onto the route that was his duty. -The dominant purpose must be proved to be the performance of the master’s business. -The purpose to return to the garage was insufficient to bring him back within the ambit of his duty. -Whether a servant in charge of his master's truck, but who had departed from the business of his master for purposes of his own, has resumed his relation of servant prior to the accident, depends not alone on location in time and space, but upon whether the dominant purpose is the performance of the master's business. -This was a departure so manifest as to constitute an abandonment of duty exempting the master from liability till duty is resumed. Meyers v. National Detective Agency, DC COA (1971) Casebook p. 126 – Scope of Employment (In General) FACTS: Husband and wife went up to appellant’s car (worked with NDA) and they asked him about the dog he had. He showed them the aggressiveness of the dog. Having seen the car in their area regularly, they talked to him and he let the dog out. The dog bit the husband on the arm. Picard had been told (unwritten regulation) that the use of dogs on security patrols was not authorized. The car was painted with K-9 division for promotional purposes when company anticipated such a division but it had been discarded. Picard since has left the area. PP: At trial, there was directed verdict for NDA because as a matter of law the actions of Picard were outside of the scope of his employment and not in furtherance of the company business. ISSUE: JUDGMENT: Reversed decision of trial court and determined appellant had the right for the case to go to the jury. ANALYSIS: -General Rules o Master is liable for the negligence of his servant if at the time of the negligent act the latter is acting within the scope of his employment, and this liability applies even in instances where the servant, while disobeying his master’s orders injures a third party. o An act committed by a servant solely for his own purposes is outside the scope of employment for unless an assault or other tort is actuated in part at least by a purpose to serve a principal, the principal is not liable. -This case: There was evidence that Picard’s actions were within scope of employment despite disobedience in using the dog. There was an implication that because of the lettering on the car that he was authorized to use a dog. -THE ULTIMATE QUESTION: Whether or not the servant was acting in his employer’s interest when he took the dog from the car to demonstrate how well trained he was? -The state of the employee’s mind at the time the act was committed is material in determining whether that act is within the scope of employment. -He could have been exhibiting the dog’s good training or quality of NDA’s services or both. -If it had been wholly or in part an intention to promote his employer’s interests, it was an act within the scope of his employment for which the employer may be held liable. NOTES: 1. Priest case question 2. Smoking was found to be within the employer’s liability because of the employer’s attempt to exercise control over it. 3. Commuting as part of scope of employment Ira S. Bushey & Sons, Inc. v. US, US COA 2nd Cir. (1968) – Intentional Torts FACTS and PP: -US Coast Guard ship was being overhauled in floating dry dock and a sailor who was drunk turned some wheels on the wall. (Had been drinking heavily and sort of told 2 other people about what he had done) -The valves that controlled the flooding of the tanks were opened and the ship listed, fell off the blocks and fell against the wall. -Parts of the dry dock sank and the ship partially did. -The owner of the dry dock got compensation from the district court. ISSUE: JUDGMENT: US is liable Conduct is only within scope even if only in part to benefit the employer. Nelson case ANALYSIS: -Conduct of intoxicated Coast Guard seaman living aboard Coast Guard vessel while it was in drydock in opening drydock's floodgate valve thereby causing drydock to sink was not so unforeseeable as to make it unfair to charge government with responsibility for damages to drydock. -The K between government and Bushey stated that the personnel would not interfere with the work or the workmen. -Government: Acts were not within the scope of Lane’s employment. o Conduct of a servant is within the scope of employment if, but only if, it is actuated, at least in part, by a purpose to serve the master. -Court: Lane’s turning of the wheels cannot be seen as furthering the master. -Π Policy Argument: o Does it forward the allocation of resources rationale? Nope, although dry dock owners might change their policies. o Does it forward the loss spreading rationale? Just because is better able to afford damages doesn’t mean that they should be responsible. -MOTIVE TEST? -Lane’s conduct was not so unforeseeable that it would be unfair to make the Government responsible – what is reasonably foreseeable in the context of respondeat superior is quite different from that which spells negligence. -THE EMPLOYER SHOULD BE HELD TO EXPECT RISKS, TO THE PUBLIC ALSO, WHICH ARISE OUT OF AND IN THE COURSE OF HIS EMPLOYMENT OF LABOR. Primeaux v. US, 8th Cir. COA (1999) Casebook p. 133 – INTENTIONAL TORTS FACTS: Tribal officer Scott picked up Primeaux in his official car while she was walking because her car was in a snow bank. He then raped her down a side road. PP: Primeaux sued for damages under the Federal Tort Claims Act. The district court found for the government finding that the tortuous conduct was not within the scope of employment as a matter of SD law. The COA reversed and remanded directing them to review under apparent authority. The district court again found for US stating that Scott had not used his apparent authority as tribal police officer to commit the rape. Primeaux appealed and COA reversed and remanded for calculation. Government appealed for rehearing en banc. ISSUE: JUDGMENT: Apparent authority is not a basis for FTCA liability in SD and that the rape was not within the scope of Scott’s government employment. Affirmed the decision of the trial court for the US Government. ANALYSIS: ISSUE 1: APPARENT AUTHORITY -FTCA: Limited waiver of US Government’s sovereign immunity allowing claims against the US for personal injury or death caused by the negligent or wrongful act or omission of any employee of the US Government while acting within the scope of office or employment under circumstances where if the US Government were a private person would be liable in accordance with the law of the place where the act or omission occurred. -SCOPE of EMPLOYMENT determines whether or not US government is liable. -Even if the SD law allows for more private liability without the scope of employment, the government would limit liability to that within the scope of employment. -Conduct within an employee’s scope of employment and conduct relied upon by a third person as consistent with the employee’s apparent authority are distinct bases for imposing vicarious liability on the principal. -Apparent authority occurs outside the scope of employment and therefore is separate. -TWO THEORIES OF VICARIOUS LIABILITY: apparent authority and scope of employment -SD Court: A MASTER CANNOT BE HELD LIABLE FOR HIS SERVANT’S ACTS OR NEGLIGENCE BEYOND THE SCOPE OF HIS EMPLOYMENT, EVEN THOUGH THE INJURY COULD NOT HAVE BEEN COMMITTED WITHOUT THE FACILITIES AFFORDED TO THE SERVANT BY THE MASTER. o Test: If for the benefit of the employer, it is within the general scope of the servant’s employment but if it is not in anyway connected with the service for which he is employed, but for his own particular and peculiar purpose, then the act is not within the scope of employment. -Π Argument: Scope of employment includes both actual and apparent authority. -Leafgreen: A principal may be held liable for fraud and deceit committed by an agent within his apparent authority even though the acts only benefit the agent. However, for an employer to be vicariously liable under the apparent authority doctrine, the employee’s conduct must not be so unusual or startling that it would be unfair to include the loss caused by the injury among the costs of the employer’s business. -Deuchar: An employer is not liable for the acts of a servant who has embarked upon a frolic of his own with no underlying purpose of furthering his master’s business, but the scope of employment question becomes harder when a servant acts for dual purposes both serving the master and his own personal interests. One must then use the doctrine of foreseeability ISSUE 2: SCOPE OF EMPLOYMENT -Did the district court err in finding that the rape was not within the scope of employment? -Lushbough: No scope of employment when car was used for personal errands and got into accident -Red Elk: 13 year old was abducted and raped by ON-DUTY police officer in the car and this was misuse of authority and within the scope of employment. -District court said that this case fell between Lushbough and Red Elk – The cop was off duty but in the car. He was outside of his jurisdiction and not performing a duty. It was committed within a frolic and not in the scope of employment. -It is sufficiently foreseeable to a government employer that on-duty police officers will occasionally misuse their authority to sexually assault detainees. DISSENT: -Tonelli: The court held that a genuine issue of material fact existed as to whether the postal employees who pilfered mail acted within their apparent authority. Just because the act is forbidden or prohibited does not in itself prevent the act from being within the scope of employment. -The officer showed his apparent authority which under other decisions is enough for scope of employment. -Scope of employment definition is misguided. -Government did not argue that apparent authority was not included in scope of employment definition. -Under SD law, apparent authority is an exception to the scope of employment and part of respondeat superior. -WHERE APPARENT AUTHORITY EXISTS, THE THIRD PERSON HAS THE SAME RIGHTS WITH REFERENCE TO THE PRINCIPAL AS WHERE ACTUAL AUTHORITY EXISTS. -FORESEEABILITY in RESPONDEAT SUPERIOR CONTEXT: Not so unusual or startling that it would seem unfair to include the loss resulting from it among other costs of doing business. “Whether the risk was one that may fairly be regarded as typical of or broadly incidental to the enterprise undertaken by the employer?” -There is apparent authority and this is foreseeable. NOTE: Courts have been extremely reluctant to hold employer vicariously liable for the sexual misconduct of employees. 1. Alma W. v. Oakland Unified School District: Did not hold the school district vicariously liable for the molestation of child by the school’s custodian. It applied two pronged test: 1) Whether the act was required or incidental to duties; 2) whether the misconduct could have been reasonably foreseen by the employer? Both were answered in the negative. 2. Mary M. v. City of LA: Court refused to hold city vicariously liable in action where Π was raped by police officer. Court applied same test, but dissent argued that it started off in the scope of his employment. NOTE: Corporate Criminal Liability – Since corporation is intangible legal entity all criminal liability is necessarily vicarious in nature. Corporation will be held criminally liable for criminal conduct of its employees acting within the scope of their employment if the conduct is intended to benefit the corporation. This is often true even when employee violates instructions Nationwide Mutual Insurance Company v. Darden, USSC (1992) Casebook p. 149 – Statutory inroads on the common law definition of employee FACTS: From 1962-1980, Darden operated an insurance agency for Nationwide where he promised to sell only Nationwide insurance in turn for commissions and retirement plan. There were 2 plans for insurance: 1) Deferred Compensation where there was sum credited based on his performance; 2) Extended Earnings where Nationwide paid a sun equal to the total of his policy renewal fees for the previous 12 months. He would forfeit the benefits if within a year of his termination and 25 miles of his prior business location he sold insurance for Nationwide competitors or if he ever induced a Nationwide customer to switch plans. In 11/80, Nationwide terminated Darden and then he became independent insurance salesman and sold competitor’s policies. The company charged that his activities disqualified him from the benefits. PP: Darden sued for benefits which he claimed were non-forfeitable because they already vested under terms of ERISA. Under ERISA section, a benefit plan participant may enforce the substantive provisions of ERISA. A participant is defined as “any employee or former employee of an employer who is or may become eligible to receive a benefit of any type from an employee benefit plan.” So the ERISA claim may only succeed if he was Nationwide’s employee (any individual employed by an employer). District court granted summary judgment to Nationwide because they found that he was an independent contractor and not an employee. The COA reversed because it found the definition inconsistent with the declared policy and purposes of ERISA. (Many employees with long years of employment are losing anticipated retirement benefits…) COA said that all it took to show he was an employee: 1) he had a reasonable expectation he would receive benefits; 2) he relied on the expectation; 3) he lacked economic bargaining power to K out of the benefit forfeiture provisions. Nationwide filed for cert. ISSUE: What does the word “employee” mean in terms of ERISA (employee retirement income security act)? JUDGMENT: Reverse and remand using agency law principles. RULE: ANALYSIS: -Where Congress uses terms that have settled meaning under Common law, a court must infer whether or not to use those terms. -Uses the factors test under Reid -Test from 4th Cir: 1) employee expectations; 2) extent of reliance; 3) lack of bargaining power NOTES: 1. Questions 2. Question 3. Question 4. Question 5. Question 6. Question 7. Revenue Ruling: E.E.O.C. v. Zippo Mfg. Co., US COA 3rd Cir. (1983) Casebook p. 159 – STATUTORY INROADS FACTS: Zippo (lighter manufacturer) has DMs who sell a lot of its products to wholesale distributors and general retailers with 24 districts over the US. There are DM agreements (both for individuals and corporations) for them to sell Zippo products only to wholesalers and retailers in their sales district. They may be terminated bilaterally on 30 days written notice for any reason. (Primarily Zippo terminates for poor sales volume or customer complaints). Terms of Agreements: 1) Pay is straight commission with bonuses based on sales; 2) No reimbursements after initial orientation meeting; 3) No other benefits to the DMs Zippo reports to IRS pay on 1099-NEC (non-employment compensation) and does not withhold income tax on the commissions and no SS tax. All DMs reported as sole proprietors and reported on 1040-C (profit or loss from profession or business) and DMs used Schedule SE to pay their own SS self-employment tax. 1) Zippo does not train; 2) DMs choose hours and vacation; 3) DMs choose business form to operate under; 4) DMs may hire employees without Zippo; 5) DMs provide work facilities (space, furniture, assistance, telephone and car); 6) Zippo gives them stationery, business cards, order forms and samples (not required to be used). Only accountability: DM must meet certain sales volume chosen by Zippo. THE PARTIES: Schelling, Schultz, Weinberg and Matheny were DMs for 10-20 years before being terminated pursuant to 65 year old clause. PP: The DMs brought action with EEOC claiming that Zippo violated ADEA. EEOC appeals the district court’s order granting SJ for Zippo claiming that Zippo violated the Age Discrimination in Employment Act (ADEA) because it terminated district managers (DM) when they turned 65. Because the ADEA only covers employees, the district court found the DM’s to be IK’s and not covered by ADEA. District Court also found that there was no genuine issue of material fact as to the degree of control exerted over DMs by Zippo. ISSUE: Whether the DMs were employees or IK’s? JUDGMENT: Affirmed SJ for Zippo RULE: ANALYSIS: Determination on Exclusivity: -There must be a genuine issue of material fact. -D.C.: Zippo preferred but did not require exclusivity based on other DMs sold other products; no one was fired for selling other products; none of appellants tried to sell other products; it was only a preference. -Π: Zippo required them to only sell Zippo’s and they were therefore economically dependent on Zippo and this was enough to show control. -The exclusivity (were it true) and the economic dependence (were it true) were not enough to make DMs Zippo employees. Congressional Purpose of ADEA -Prohibits only some types of age discrimination -“It shall be unlawful for an employer: to fail or refuse to hire or to discharge any individual or otherwise discriminate against any individual with respect to his compensation, terms, conditions or privileges of employment, because if such individual’s age.” -Clear legislative intent to prohibit age discrimination by employers against employees and applicants for employment. -Before 1947, employee vs. IK was determined by common law test of degree of control over the individual’s work performance exercised by alleged employer over the individual whose status was in dispute. EMPLOYER MUST HAVE DETERMINED WHAT AND HOW. -In 1947, USSC found that the common law right to control test was too narrow so they enacted the economic realities test (Bartels v. Birmingham) o EMPLOYEE: Those who, as a matter of economic reality, are dependent upon the business to which they render service. o Other Factors: 1) Permanency of the Relation; 2) Skill Required; 3) Investment in the facilities for work; 4) Opportunities for profit; 5) Loss from the activities; 6) Degrees of Control. o THE DETERMINATION OF THE EMPLOYER-EMPLOYEE RELATIONSHIP DOES NOT DEPEND ON ISOLATED FACTORS, BUT RATHER UPON THE TOTALITY OF THE CIRCUMSTANCES. -2 Standards o Economic Realities (FLSA) o Hybrid Approach: Right to Control and Economic Realities: It is the economic realities of the relationship viewed in light of the common law principals of agency and the right of the employer to control the employee. Looks at economic realities but focuses on right to control. (Employer’s right to control the means and manner of the worker’s performance is the most important factor under this standard) Other Factors: 1) Kind of occupation; 2) Skill required; 3) Who furnishes equipment; 4) Permanency; 5) Method of Payment; 6) Manner of termination; 7) Annual leave; 8) Work is important to employer; 9) Retirement benefits; 10) SS taxes paid; 11) Intention of parties. -Title VII Cases = Hybrid Approach Which standard in ADEA cases -Appellant’s Argument: Proper standard is economic realities. -ADEA is mix of FLSA and Title VII but most came from Title VII. -Must use hybrid standard o Lack of control by Zippo, etc. -District Court actually applied hybrid test not economic realities standard. NOTES: 1. 3 Tests Developed by Federal Courts to Determine Employee: 1) Traditional common law test of agency; 2) Economic Realities Test; 3) Hybrid Test 2. Oestman: Hybrid standard is still good for ADEA. Dana’s Housekeeping v. Butterfield, CO COA (1990) Casebook p. 170 – STATUTORY INROADS FACTS: In 4/88, while working as private domestic at private home of Dana’s client fell down stairs and hurt ankle and back. She told an employee of Dana’s about injury and sought Worker’s Comp because Dana was her employer. Dana said she was IK. AGREEMENT: Both parties can terminate. Dana will get clients. Claimant cannot establish independent working relationship with home occupiers (with monetary fine if she does). Dana was paid by occupier and paid Dana and claimant. No taxes paid by Dana. PP: Employer seeks review of determination by agency that Butterfield was employee under Worker’s Compensation Act when she was injured. Agency determined that under right to control test and relative nature of work standard that Dana was employer. ISSUE: Whether or not under the right to control test Housekeeping Referral Agency is employer of housekeepers? JUDGMENT: Affirm judgment that housekeeper is employer ANALYSIS: Dana Argument: -ALJ argues that it was referral business and had no control over work in the homes; Dana’s did no housekeeping and only referred people for such work. Court: -FACTORS for Right to control o Termination o Reassign Dana Argument: -Parties characterized themselves in the agreement as employer and IK Court: -Doesn’t matter how they see themselves o No taxes withheld, but paid by the hour Dana Argument: -Relative nature of work test: Determine if a worker is employee through nature of the business -Employee because she is a referral agency. Both Parties: -Finlay: Both the supplier and user of cleaning personnel can be employers under different sections of the Act and that the act allows broad interpretation to get employee under it. NOTES: 1. “Relative Nature of the Work” Test: What the employer does vs. what the employee does for the employer 2. Question 3. Question 4. Question 5. Question Spicer Accounting, Inc. v. U.S., US COA 9th Cir. (1990) Casebook p. 174 – STATUTORY INROADS FACTS: Spicer is president, director and treasurer of TP – Spicer Accounting. In 1985, IRS assessed taxpayer for FICA and FUTA from 1981-1982 in light of allegations by IRS that Spicer was employee of Spicer Accounting. He paid the IRS but not seeks refund. -Spicer CPA since 1957 and president of company since 1973 -He and his wife own company and there was never an employment agreement. -Spicer has never been given a salary but would take dividends and has reported his income as dividend income. -Spicer testified that his services were integral to the operation of the firm and a replacement would cost $16-17K -Spicer said he got payment in the form of dividends rather than income to avoid liability for FICA and FUTA. DECISION: He is employee and cannot avoid FICA and FUTA taxes – Regardless of how an employer chooses to characterize payments made to its employees, the true analysis is WHETHER THE PAYMENTS ARE FOR PAYMENT FOR SERVICES. Amberg v. Greene, California COA (1997) Casebook p. 176 – Basis for authority – EXPRESS AUTHORITY under POA FACTS: -Greene (niece of decedent Huston and residuary beneficiary under decedent’s will) -Amberg was attorney for Huston who got $90K annuity gift. PP: Decedent died in 1993 and court admitted will to probate and appointed Amberg executor. In 5/94, he filed petition seeking transfer of annuity to himself. The children objected to the petition. Two children did not object. Amberg said that she had put him in charge. The trial court found that the gift was OK and Greene says no because (1) the evidence does not support the judgment; (2) gift was void; (3) gift was never completed; (4) court failed to protect the decedent’s estate. JUDGMENT: Gift was void as having been outside Amberg’s authority under his POA. Fort Dodge Creamery Co. v. Commercial State Bank, COA of Iowa (1987) Casebook p. 181 – Bases of Authority: IMPLIED AUTHORITY FACTS and PP: Fort Dodge, Loomis and McManus sued for damages from defendant bank for conversion. They allege that the bank let an employee of Fort Dodge, et al endorse and deposit proceeds from checks in his own non-trust account. Employee was farm manager for each of the farms. Trial court dismissed the petition and now it is appealed. ISSUE: Whether or not DeWall had implied, apparent or express authority? JUDGMENT: Affirm dismissal based on DeWall having implied and apparent authority ANALYSIS: Π Argument – DeWall did not have the authority to endorse the checks and failed to act in accordance with reasonable banking standards. Implied Authority Discussion -Actual authority circumstantially proved -Includes all incidental authority as is necessary, usual, and proper to effectuate the main authority expressly conferred. -Extent is ascertained by fair implication from: 1) the relations of the parties; 2) the nature of the business of the agency; 3) the service to be rendered; 4) the purpose of the transaction to be consummated; 5) surrounding circumstances. -Acquiescence by the principal in a series of acts by the agent indicates authorization to perform similar acts in the future. Court’s Finding -DeWall had implied authority to endorse checks o Agreement gave DeWall complete and undivided charge of property; collect monies; retain 7.5% of all rentals collected less costs. o In order to obey the agreement, it was necessary to cash proceed checks. o They knew about the check cashing for months and did nothing to stop it from continuing. -WHERE AN AGENT HAS PERFORMED ACTS SIMILAR TO THE ONE IN QUESTION, WHICH HAVE BEEN RATIFIED BY THE PRINCIPAL, THE AGENT’S AUTHORITY TO ACT IN SUCH A MANNER MAY BE IMPLIED. -The extent of the authority is for the fact finder and there is substantial evidence supporting the trial court’s finding. NOTE: Implied Authority of Corporate Officers -Sources of authority (express): state corporations code; by-laws and resolutions by the BOD. -Courts have been reluctant to find much implied authority residing in corporate officers. o President: preside at director and shareholder meetings, bind in ordinary business transactions o VP: act in the stead of President if no president. o Secretary: no power to bind, just minute keeping, notification and certification. o Treasurer: no implied authority, just keeping money and disbursement as authorized in the by-laws. -Where there is continuing course of dealing by corporate officers (president or GM), which is known and acquiesced to by the BOD, may create implied authority to engage in specific transaction. New England Educational Training Service, Inc. v. Silver Street Partnership, Supreme Court of VT (1987) Casebook p. 184 – IMPLIED AUTHORITY – Attorney-client negotiations FACTS: Defendant owns the land and Π has a mortgage on it. didn’t know about the mortgage because it was misindexed. Π filed for foreclosure when no negotiation measures worked. Testimony in the case showed that the principal of Silver Street (Heaton) hired Evans (attorney) to solve problem and gave him general authority to act. Evans said the same thing and added that they never accepted the $10K offer that he was originally authorized to give. PP: Trial court granted summary judgment in the foreclosure action to the plaintiff because the settlement agreement made by the parties’ attorneys was enforceable. states that the agreement had not been expressly authorized by the principal. ISSUE: Whether an attorney could without express authority bind his client to a settlement amount and agreement? JUDGMENT: Reversed RULE: The retention of an attorney to represent one’s interest in a dispute with instructions to conduct settlement negotiations, without more, does not confer implied authority to reach an agreement binding on the client. ANALYSIS: -It is for the client to decide whether he will accept a settlement offer. -An attorney has no authority without the permission of his client to dismiss a case with prejudice or do any act that will have the effect of irrevocably renouncing or barring his client’s right of action. -Π argument: Defendant’s counsel had permission, or authority, from his client to enter into the agreement. -Court: There was no evidence showing that there was express authority to enter into the particular agreement -IMPLIED AUTHORITY: It is actual authority circumstantially proven from the facts and circumstances attending the transaction in question. -Π argument: The retention of an attorney with express authority to negotiate a settlement, which defendant’s attorney had in this case, combined with extensive history of negotiations, implies the power to reach a binding agreement. -Court: Distinction between authority to conduct negotiations and his authority to bind the client to a settlement agreement without express permission. o The retention of an attorney to represent one’s interest in a dispute with instructions to conduct settlement negotiations, without more, does not confer implied authority to reach an agreement binding on the client -APPARENT AUTHORITY: Must be evidence that there is conduct on the principal’s part which could reasonably be relied upon by Π as a manifestation of the authority of its agent to conclude a binding settlement agreement o Retention of an attorney with instructions to negotiate towards settlement could not be reasonably relied upon as the basis for apparent authority to settle the case. o An “atmosphere of offers” is not a substitute for conduct on the part of the principal which can support a finding of apparent authority to settle. NOTES: 1. The employment of an attorney, by itself, does not imply authority to settle the client’s case. Courts have found the authority in the following cases: a. Leffler v. Bi-State: Where an attorney had represented to the opposing party that he had the authority to settle then it was incumbent upon the principal to prove that the attorney did not have the authority to settle the case since it is presumed to be authorized. b. Barton v. Snellson: A settlement entered into by an attorney was binding on the client although the attorney had never expressly stated that he had the authority to settle his client’s claim because he acted and gave the other party the reasonable impression that he did have such authority. 2. Ratification: A client may be bound if the court finds that, knowing of her attorney’s action, she ratified the purported settlement. a. Thompson v. D.C. America: The court held that the plaintiff was bound by the terms of the settlement agreement forwarded by defendant’s attorney on the ground that by accepting the payment from his own attorney he ratified the attorney’s conduct. 3. Courts are hesitant to uphold no authorization where a third party has been misled. Artha Management v. Pereira: A client challenging his own attorney’s authority to settle a case bears the burden of proving by affirmative evidence that the attorney lacked authority. APPARENT AUTHORITY AND ESTOPPEL: Restatement §8: Apparent authority is the power to affect the legal relationships of another person by transactions with third-person, professedly as agent for the other, arising from and in accordance with the other’s manifestation to such third persons. Comment (a) -Power may be greater or smaller than that resulting from the authority given. -There may be no fiduciary duty if apparent authority is found. -Only exists with regard to those who believe and have reason to believe that there is authority (there can be no apparent authority created by an undisclosed principal. Jacobsen v. Leonard, US District Court (E.D. of PA) (1976) Casebook p. 189 – APPARENT AUTHORITY FACTS: Leonard called Π about a job opening about which Π was interested. Π arranged to visit. Leonard wrote Π offering him the job, but the terms were not acceptable to Π. Leonard promised some changes in the offer so Π accepted and made arrangement to move. Leonard told him that the offer was not acceptable to others in the hospital and revoked it. PP: Jacobsen sued Leonard and Jefferson Medical College for breach of K where Π was to become part of the staff. At trial, the jury found for the Π. Jefferson filed for JNOV or new trial. ISSUE: Whether or not Leonard had apparent authority in hiring Jacobsen? JUDGMENT: Granted ’s motion for JNOV RULE: A principal who has been held to give someone apparent authority is only bound to third persons who have relied thereon in good faith or to third persons who have no notice of limitations upon an agent’s authority. ANALYSIS: Apparent Authority -Leonard did not have express or implied authority but Π said that he had apparent authority. -Apparent Authority: Power to bind a principal which the principal has not actually granted but which he leads persons with whom his agent deals to believe that he has granted. -Principal who has invested an agent with apparent authority is only bound to third persons who have relied thereon in good faith or to third persons who have no notice of limitations upon an agent’s authority. -Π knew that application for employment had to be reviewed by appointment committee. While it may be true that plaintiff subjectively believed that it was not possible for the appointment committee to turn him down, he is charged with the knowledge that Dr. Leonard did not possess the final hiring authority. -Tanner: All of the Ks signed by the Π and GM contained a statement that the station official signing the agreement certified that he has the authority to make the agreement. In this case, however, Π had both oral and written notice of limitations upon Leonard’s hiring authority. -A principal may confer on his agent, as much or as little authority, as he sees fit, imposing thereon such limitations as he thinks desirable, and that such limitations, even in the case of the so-called general agent, will be binding and conclusive upon third persons who know of them. Other Arguments -Jury instructions were not accurate -Expert testimony of customary hiring practices at medical colleges should have been allowed o They would have to establish that Π had actual knowledge of the customs and usages with respect to hiring practices in medical colleges. o They would also have to establish Π was regularly or actively involved in hiring activities to such a degree that he could be said to be bound by the customs or usages in that activity. -“All authorities agree that for a party to be bound by a custom or usage that modifies or supplants a written agreement, that party must have actual or constructive notice of the custom or usage.” -Expert testimony here was properly excluded. NOTES: 1. Was plaintiff reasonable? 2. Question 3. Question Chase v. Consolidated Foods Corp., US COA 7th Cir. (1984) Casebook p. 194 – APPARENT AUTHORITY in a Corporation FACTS: Newman, VP, Secretary and General Counsel of , drafted an agreement for Chase to buy Fuller Brush. It was called a letter of intent and signed by both parties and it was also drafted subject to a “definitive agreement” and approval by the BOD. The agreement also allowed Chase to terminate it and he did in October. Another agreement was drawn up in November which was in the form of a letter stating that it confirms the understanding of the “salient” economic terms of the offer to acquire. It was signed by both parties and left a number of issues for subsequent negotiation. Both agreements state a formula to determine the price of the company and it contained a clause stating that Chase owed $5 million in cash. Chase had to borrow the money so Newman sent him a letter for his lenders that stated that the BOD ratified the agreement to sell Fuller Brush (Board had not approved it). Things went bad and said Chase couldn’t come up with the money and Chase said they decided to keep Fuller because it started making money. PP: Chase claimed that had broken K with him to sell him the Fuller Brush Company. Jury found for and Chase appeals claiming error in instructions and exclusion of evidence. The error in instructions came from apparent authority Was the 11/17 agreement a K to sell Fuller to Chase? The Jury said no, but Chase said that was found because of erroneous jury instructions – no instruction on apparent authority. JUDGMENT: Affirmed decision of trial court RULE: In order to invoke apparent authority, the third party must reasonable have believed that the agent was authorized in good faith and must not have knowledge to the contrary. ANALYSIS: -Chase knew that Newman didn’t have the authority by himself to bind the corporation. NOTES: 1. Question 2. Question 3. Question 4. Question Mahoney v. Delaware McDonald’s Corp., US COA 8th Cir. (1985) Casebook p. 198 – APPARENT AUTHORITY FACTS: 1. Π owned 2 buildings. Baringer approached him about the possibility of locating a McD’s in one of the buildings (Baringer was real estate representative for McD’s). 2. Baringer said that his buildings were not large enough and he suggested that he could buy the other building and lease it to McD’s. 3. In 3/79, they all met to discuss a lease of the building. Baringer told him that any lease would have to be approved through St. Louis office and then the main headquarters. 4. In 5/79, Mahoney started the process of buying the building. A few days later, he met with Baringer and agreed to 20 year lease, rent amount and occupancy date. Mahoney also told Baringer about the option on the purchase to buy. 5. In 6/79, Baringer told him the lease would be there soon. By the end of June, Mahoney had not yet gotten the lease and he called Baringer to tell him the option would expire on 7/1. Baringer told him that they have a deal and so Mahoney exercised the option. 6. On 7/2, Mahoney picked up the lease, but they had changed the rent and it was a different lease form. Mahoney called Baringer to object and Baringer agreed to change back to the original agreement. Mahoney agreed to one different term. 7. The lease was hence redone and sent back to Mahoney who signed it and returned it. On 7/31, Mahoney closed on the property. 8. In 8/79, Doran (sr. manager for McD’s) inspected the building and said it was unacceptable. Second thoughts were expressed on the purchase. On 10/12/79, the higher-ups terminated negotiations and returned the lease to Mahoney. 9. He leased the building then to a sub shop who terminated by leaving in the middle of the night in 12/81. He tried to sell the buildings. Finally, his wife opened a café on the ground floor of the building. ISSUE: Should the principal be bound by the statements of its agent in this circumstance? PP: Mahoney claimed that he incurred $736K in expenses related to the purchase of the building. McDonald’s appeals from judgment finding them liable to Dr. Mahoney under promissory estoppel for failing to execute lease upon newly purchased building. McD’s argues error because: 1) magistrate found Baringer to have apparent authority to act on its behalf; 2) he found that liability existed under doctrine of promissory estoppel and 3) the amount of damages was incorrect. JUDGMENT: Affirm except for damages RULE: Apparent Authority can result in promissory estoppel. ANALYSIS: Apparent Authority -Exists when a principal has created such an appearance of things that it causes a third person reasonably and prudently to believe that a second person had the power to act as the principal’s agent. -Argument: It was not reasonable to assume that Baringer had authority to act because of Mahoney’s knowledge that the lease had to be approved by 2 other offices. -Court: Disagree -Promissory Estoppel: 1) promise; 2) detrimental reliance on the promise; 3) injustice can only be avoided through enforcement of the promise. (Promise will only be satisfied where promisor should reasonably expect to induce action or forebearance of a definite and substantial nature. -Argument: None of the elements of promissory estoppel were present. (Court disagrees). Mahoney could not have reasonably relied on Baringer’s statements because he knew that he didn’t have the authority to enter into a lease. Promissory estoppel does not apply because it is barred by SOL and waived in 10/3 letter. -COURT: He purchased the building only when assured by Baringer that there was a deal and the events with surrounding circumstances were enough to invoke promissory estoppel. -Damages: reimbursement for expenses and the remedy can be limited as justice requires. -Once apparent authority was found, they discussed reliance damages which are limited – are these the only damages that one can get under apparent authority. Foley v. Allard, Minnesota Supreme Court (1988) Casebook p. 204 – APPARENT AUTHORITY FACTS: Foley met Allard through friends in 11/83 and she saw him daily. Foley had received $10K to forestall foreclosure on residential property she owned. Foley told her he could double her money through investments and guaranteed no risk with principal to be returned by 11/83. No one told her he was affiliated with Steichen as a stockbroker but that he only had a conference room with desk and phone privileges at the brokerage. He did have trading authority over one Steichen account. Foley gave him a check for $10K because he told her Steichen wouldn’t take a personal check. Bank gave him a check which he deposited in the Steichen account he had. In mid December, Allard told her that he lost her money. She called Steichen for a record of the loss who told her there was no account there. The receptionist at Steichen remembers about 5 calls for Allard from Foley but not all were to discuss business. Foley got no documents showing that Allard worked with Steichen. She did nothing to investigate into Steichen. PP: Foley sued Allard for securities violations because Allard posed as Steichen broker, induced her to invest and then lost most of her money. There was a default judgment against Allard for $43K in 3/85. Foley also alleged that Steichen had materially aided Allard in fraudulent scheme by allowing him to receive phone calls and conduct business on their premises. She also plead that they had negligently given Allard apparent authority to transact business and was estopped therefore from denying agency relationship. Steichen was granted SJ finding no supporting facts for that conclusion. The COA reversed holding that there was a genuine issue of material fact about the negligence in allowing Allard to transact business in their location and aiding him. ISSUE: Whether there was a question of fact as to aiding and abetting and claim of apparent authority? JUDGMENT: Reversed COA. RULE: Where principal shows no affirmative course of conduct by the to constitute holding out of agent, apparent authority is not proved. Additionally, a third party has a duty to inquire into the agency relationship. ANALYSIS: SJ Claim: -Upheld Apparent Authority: -Π Argument: Steichen negligently clothed Allard in apparent authority and therefore should be estopped from denying an apparent authority relationship. -Apparent Authority: Authority which a principal hold holds an agent out as possessing or knowingly permits an agent to assume. -Requirements: Held the agent out as having authority OR must have knowingly permitted agent to act on its behalf; party must have actual knowledge that agent was held out as having such authority OR had been permitted to act; Proof of the authority must be found in the conduct of the principal. -Argument: Follow Truck Crane Service case where could held that a party who deals with an agent is held to reasonable investigation regarding that agent’s authority. -Π Argument: Follow Sauber where court held that apparent authority existed by virtue of one telephone call. She says that Truck Crane hinges upon the fact that Π had been put on notice to inquire about the agent. -Sauber: When an employee of the business place answers the phone at such established place of business and purports to act for such concern, a presumption arises that such person has authority to act. -Reasons for this Holding: Allard wasn’t employee or agent; Foley had no assurances that Allard could act on behalf of Steichen; there was no affirmative course of conduct by the to constitute holding out of the agent. NOTES: 1. Apparent Authority vs. Estoppel: Apparent authority is based on someone being bound by what he says and not what he intends. Estoppel is based on the same things but based on compensating for loss to those relying on the words. Although they are not the same thing, often courts state that apparent authority is based on estoppel. 2. Hoddeson v. Koos Brothers: Guy said he was salesman and took cash deposit but in reality was an imposter whose presence was unknown to the owners of the store. The court found no apparent authority because he was not held out as agent by the store. BUT defendant was estopped to deny the existence of the agency relationship because he was negligent in not ascertaining the presence of the “salesman”. INHERENT AGENCY POWER: Restatement §8(A): Inherent agency power is a term used to indicate the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent. Comment (a): Rationale – Tort rule: One is liable for what he intentionally causes. Contract Rule: One who manifests assent to another is bound by the resulting transaction. Restitutional principles: Some require a principal to surrender property by which he has been unjustly enriched. Lastly, the power may not rest in tort, K or other so it can be assumed that a power can exists purely as a product of the agency relationship. “The term inherent agency power is used to distinguish it from other powers of an agent which are sustained upon K or tort theories.” First Fidelity Bank v. Government of Antigua & Barbuda, US COA 2nd Cir. (1989) Casebook p. 210 – INHERENT AGENCY POWER FACTS: In 11/83, the predecessor to Π loaned $250K to Jacobs, Antigua’s ambassador who signed the loans as “representing the Government of Antigua and Barbuda – Permanent Mission. The purpose for the loans supposedly was to renovate the embassy in NY. He stopped repaying the loans in 1985 and in 9/85 the bank called government officials in Antigua seeking repayment. Then the bank wrote to ambassador and prime minister threatening legal action. Supposedly the secretary to the prime minister said that Jacobs was authorized to negotiate a settlement (along with in-house counsel). No settlement was reached and the bank sued for repayment. Antigua did not respond conceding however that it was properly served. Bank met with Jacobs and Healy (attorney) and they acknowledged that there was no defense and that the proceeds had been used to fund a casino. Once the bank tried to levy on Antiguan account in NY, Jacobs wrote to court and asked for settlement and Jacobs and bank agreed to one and signed consent order. The consent order included a complete waiver of sovereign immunity signed on behalf of the Government of Antigua and Barbuda by Jacobs and by Healy. Bank received $70K payment but then in 1/88. payments stopped again. When the bank tried to levy on other Antiguan accounts, Antigua filed with the court to dismiss consent order stating that it was not bound by Jacobs because he had acted without authority in borrowing the money and consenting to the settlement. If this was found to be true, it still had sovereign immunity. The motion was denied. PP: Government of A&B appeals a decision denying its motion for relief. Fidelity Bank had a default judgment against Antigua in a suit on a note made by the ambassador to the UN and had then entered into a consent order with ambassador on his country’s behalf. ISSUE: To what extent do the actions of Antigua’s ambassador bind the country? JUDGMENT: Reverse and remand. Case is remanded for trial on the facts ANALYSIS: -Π Argument: Jacobs possessed actual authority to bind Antigua. -Π Argument: Even if there was no actual authority, he nevertheless had ample apparent authority to bind Antigua. o He had power inherent in the ambassadorship o An ambassador to the UN possesses the same privileges and immunities as diplomatic envoys to the US. -An ambassador has the power to bind the state he represents in international agreements. -A state can be bound by the unauthorized actions where lack of authority is not obvious. -A person’s position as ambassador and nothing more should not be dispositive. -The possession of authority does not validate every exercise of it. -A state is responsible for any violation of its obligations under international law resulting from action or inaction by any official, employee, or other agent of a government or of any political subdivision acting within the scope of authority or under color of such authority. o Only applies to violations of international law. o Breach of commercial contract is not violation of international law. -An ambassador’s actions under color of authority do not as a matter of law automatically bind the state that he represents. o The facts have to be examined and the agency law provides proper examination of those facts. -Did Jacobs have the apparent authority to borrow and waive the immunity? o Apparent agency exists where third parties have been caused to believe that the principal consents to the acts. o An appointment to a position with generally recognized duties may create apparent authority. o This decision requires factual inquiry into what the third person saw. -The fact that he was an ambassador is just a factor in determining whether he had apparent authority. -Argument: Jacobs exceeded his authority in borrowing and waiving immunity. DISSENT: -A person’s role as UN ambassador does not automatically entitle him to bind his government in all cases. -Inherent Agency Power: Indicates the power of an agent which is derived not from authority, apparent authority or estoppel, but solely from the agency relationship and exists for the protection of persons harmed by or dealing with a servant or other agent. -Will the relationships between US and other countries be better served by ensuring that an ambassador can promptly obtain the goods and services needed to operate his embassy or mission even if on occasion a government is held responsible for incurring liabilities that were neither authorized nor condoned OR by obliging third parties to ascertain from the foreign government in each instance whether there is actual authority? -This should be a case of apparent authority as well because the bank was reasonable in its belief of authority. Antigua should be bound. NOTES: 1. Agency law is flexible enough that the fact that a person is an ambassador can be given weight in determining the extent of his apparent authority. 2. Question 3. Question 4. Kahn v. Royal Banks: Wife said that the husband lacked actual authority to do so because it was a breach of fiduciary duty. The court found that the husband had apparent authority and had inherent agency power to act on behalf of his wife. FISHMAN: Inherent Agency Power – Should Enterprise Liability apply to Agents’ Unauthorized Contracts -Resulted from cases where apparent agency was found where there was no affirmative action by the principal to warrant it. -Enables the courts to avoid limitations of apparent authority -Too confusing to justify the benefits REUSCHLEIN & GREGORY: Law of Agency and Partnership -Inherent Agency Power extends liability too far -Rarely necessary to protect the valid interests of third parties Croisant v. Watrud, Supreme Court of Oregon (1967) Casebook p. 220 – INHERENT AGENCY POWER FACTS: The defendants (including deceased husband) ran an accounting practice with 2 offices. Deceased ran branch office. Croisant was owner of sawmill, timberlands and other property over which she had control delegating some business matters to others. In 1955, she employed the company for advice on tax matters and preparation of income taxes and deceased was primarily in charge. In 1956, she sold her sawmill and her business resulted in collections and disbursements on the remaining property and in the sale of the business. In 1957, She moved to CA and arranged for deceased to make collections for her, make certain disbursements, keep her finances and prepare taxes. He was to deposit monies into her timber company account. She learned that her husband had induced deceased to make unauthorized payments out of the account to him. She told decedent not to do that anymore, but he continued. Decedent told her about them in 1958 and she found out her husband was unfaithful. Later, she and her husband reconciled and traveled Europe but on their return she found out the financial misdoings were still going on. Additionally, she found out that decedent had taken money too. Decedent told her of the misdoings and abuse of the trust. Decedent was killed while hunting. PP: Croisant sued the ex co-partners of her husband for an accounting and appeals the court’s decision on behalf of the defendants. The trial court held that the trust was an independent trustee employment, separate and distinct from the activities in which the partnership itself was engaged. ISSUE: Whether or not the actions of an agent of a partnership can be imputed on the partnership when the partnership has no knowledge of the actions and does not authorize same? JUDGMENT: Reverse and Remand RULE: A general agent for disclosed (partially or otherwise) subjects his principal to liability for acts done on his account which usually accompany OR are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do and has no notice that he is not so authorized. This is based on the third party’s belief under the facts and circumstances. ANALYSIS: -After she became involved in the partnership, decedent worked on the account by himself. -After he started doing the other things – Do the subsequent services become part of the partnership business or under separate arrangement only for decedent’s services? Argument 1 for liability: Defendant’s assented -Accountants do not normally handle trustee services for clients – as a result, liability cannot be premised on a manifestation by the defendants that they assented to be bound for such services. Argument 2 for liability: Inherent Agency Power -“The power of an agent which is derived, not from authority, apparent authority or estoppel, but solely from the agency relation and exists for the protection of persons harmed by or dealing with a servant or other agent – based neither upon the consent of the principal nor upon his manifestations.” -Scope of principal’s liability under Inherent Agency Power: “A general agent for disclosed (partially or otherwise) subjects his principal to liability for acts done on his account which usually accompany OR are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do and has no notice that he is not so authorized.” o Does fund handling “usually accompany” accountancy? o Were the services “incidental to transactions”? -If a third person reasonably believes that the services he has requested of a member of an accounting partnership are undertaken as a part of the partnership business, the partnership should be bound for a breach of trust incident to that employment even though accountants wouldn’t have thought that the services isn’t usual. -Reasonableness of a third person’s belief should be tested, not by the profession’s own description, on the facts and circumstances of the case. -This Case: It is reasonable for her to have believed he was doing things under the partnership. Decedent never told her that he was handling this separately. -The partnership owed Croisant a duty of loyalty because there was a confidential relationship where money or property was entrusted. -Crosiant was not estopped because she continued to use decedent after learning of his unauthorized payments to her husband. NOTES: 1. Just because the principal has not said anything to the client about the agent’s powers does not forbid the principal from being liable. 2. Croisant: Emphasis on the reasonableness of the third party’s belief that the agent is authorized to bind the partnership to the act in question and that it is irrelevant whether members of the profession customarily perform that kind of activity. 3. Question 4. Question 5. Question Commission on Ecumenical Mission of the United Presbyterian Church v. Roger Gray, Ltd., Court of Appeals of NY (1971) Casebook p. 227 – EQUAL DIGNITY RULE FACTS: Vartan owned Realty Corp that owns commercial property and Harry was managing agent for 20 years. Harry performed the following duties: collecting rent; negotiated leases; arranged for bids and contracts for word done. Vartan gave him power by letter for six years after Vartan’s death to manage the property. Harry extended Gray’s lease for 3 more years and signed in 2/66. In 5/66, Π landlord was given outstanding shares of company by gift. On 11/67, title was deeded to Π landlord. PP: Π learned of the extension in 8/66 and in 1/69 Π was sold the lease. Gray let Π know about lease. Π sued for judgment declaring the lease extension invalid. The trial court said that extension had no legal effect and the COA reversed. ISSUE: Whether the “managing agent” of plaintiff landlord’s predecessor in interest, who purportedly executed a store lease extension agreement by informal letter, was an agent and if so, if there was evidence he had authority to execute the extension agreement? JUDGMENT: Upheld trial court in stating that lease was not valid. RULE: A satisfactory written authorization for agent within requirements of statute of frauds must at the very least give express authority to execute documents in the determinate class of transaction. ANALYSIS: -Law in question: SOF with leases of more than 1 year. -Agent must be authorized in writing. -argument: Statute doesn’t apply when agent is employee of corporation. -Court: Disagrees and says that SOF Controls -Whether the statute of frauds requires than an employee acting as an agent be authorized in writing before he may execute certain kinds of instruments? o Specific Issue: Does the act of extending the lease fail for lack of compliance with the SOF as to his own authorization? o The employee is not able to bind just because he is an employee -Whether the employee-agent in this case had any kind of writing sufficient to comply with the statute? o An agent must be authorized in writing to bind to a lease that is required to be in writing under the SOF. o The writing must at the very least give express authority to execute documents in a determinate class of transaction. o RULE: The writing need not be in any special form; but it must contain a sufficient expression of an intent to confer authority to execute the very contract which the agent undertakes to execute Writing authorizing agent’s signature must contain express language. DISSENT -Whether Harry was sufficiently authorized in writing to execute the lease extension as agent for the corporation? -Authority to lease land or chattels is inferred from authority to manage the subject matter if leasing is the usual manner of dealing with it. (Restatement) -Inference that he could make contracts and leases. At the least, this is a question of fact. NOTES: 1. Question 2. There is an exception to the equal dignity rule for corporate officers. 3. Krause: Parol authority may create an agency relationship which will permit the agent to bind the principal by a written contract to sell real estate, but such parol authority must be clear and express. Travel-Centre Ltd. v. Starr-Mathews Agency, Inc., COA of GA (1986) Casebook p. 234 FACTS and PP: After lessee entered into oral renewal lease agreement with lessor’s agent, sublessee obtained purchase option from lessor. Lessee and Lessor’s agents then signed written lease back dated to expiration of prior lease. After sublessee exercised the purchase option, lessee sued to establish validity of renewal lease. Trial court declared said that ownership was subject to the renewal lease. Sublessee appealed. COA reversed and remanded. On remand, the trial court held that property was subject to oral lease and sublessee again appealed. JUDGMENT: Under the equal dignity rule, former owner’s agent was unable to effect anything other than tenancy at will. ANALYSIS/RULES: -Under equal dignity rule, former owner’s agent was unable to effect anything other than tenancy at will, where the former owner was natural person rather than corporation. NOTES: 1. GA Current Statue: Abrogates the equal-dignity rule if an instrument under seal is not otherwise required. 2. Question Bradshaw v. McBride, Supreme Court of UT (1982) Casebook p. 237 – RATIFICATOIN AND ADOPTION FACTS: Parkinson was owner and divided land into 1/8th for children as tenants in common. The children are the defendants here. Bradshaw used the tract with permission. Daughter arranged to sell land including the tract to the Bradshaws. There was conflicting evidence as to what was being sold. No written contract existed. Daughter told the other children she had gotten a check from Bradshaw. Earnest money agreement had been signed only by the Bradshaws. Some children signed the deeds but others refused. PP: Π says that Bradshaw took possession and installed pipe and sought specific performance of RE K. appeal because there was 1) lack of jurisdiction over the 8 co-owners; 2) insufficient evidence to show that the daughter entering into the oral K was an agent for the other co-owners; 3) insufficient part performance of the oral contract to satisfy the SOF; and 4) an absence of evidence showing which water rights were appurtenant to the land being sold. JUDGMENT: There was no ratification and no part performance – Judgment for defendants. RULE: General Rule: One who deals with an agent has the responsibility to ascertain the agent’s authority despite the agent’s representations A principal may impliedly or expressly ratify an agreement made by an unauthorized agent. A deliberate and valid ratification with full knowledge of all the material facts is binding and cannot afterward be revoked or recalled. This requires the principal to have knowledge of all material facts and the intent to ratify A purported principal may not be willfully ignorant, to escape ratification if the circumstances are such that he could reasonably have been expected to dissent unless he were willing to be a party to the transaction ANALYSIS: -Argument: Pipe actually caused harm to the land because it deprived other parcels of water and there was not actually anything of value placed on the land. -Π Argument: He passed up opportunities to purchase other land. -Argument: Daughter is not the authorized agent for the other children. -General Rule: One who deals with an agent has the responsibility to ascertain the agent’s authority despite the agent’s representations. -Π Argument: Defendants ratified the oral K. -Rule: A principal may impliedly or expressly ratify an agreement made by an unauthorized agent. A deliberate and valid ratification with full knowledge of all the material facts is binding and cannot afterward be revoked or recalled. This requires the principal to have knowledge of all material facts and the intent to ratify. -Under some circumstances, failure to disaffirm may constitute ratification. o A purported principal may not be willfully ignorant, to escape ratification if the circumstances are such that he could reasonably have been expected to dissent unless he were willing to be a party to the transaction. -In order to enforce an oral agreement, same kind of authorization that is required to clothe an agent initially with authority to K must be given by the principal to constitute a ratification of the unauthorized act. -Where law requires the authority to be given in writing, the ratification must also generally be in writing. NOTES: 1. Question 2. Question 3. Question 4. When the equal dignity rule conflicts with the doctrine of ratification, the equal dignity rule wins. Southern Oregon Production Credit Ass’n v. Patridge, COA of Oregon (1984) Casebook p. 242 FACTS and PP: Foreclosure of security agreement – Trial court found the agreement unenforceable and liability of underlying notes had to be determined. Defendant appeals liability on promissory notes that her husband signed. JUDGMENT: Affirmed decision that wife ratified actions of husband. RULE: A principal must have knowledge of the material facts and an intent, express or implied, to ratify. ANALYSIS: -argument: She didn’t sign the notes and husband did so without her authorization. -Π argument: Estoppel, ratification and unjust enrichment. -There was evidence in a letter she wrote to the Credit Ass’n that she knew material terms of the note and ratified them. -The trial court could have inferred from the letter that the defendant was aware of the terms of the loan agreements and intended to ratify her husband’s act of making her liable on the loans. NOTES: 1. Question 2. Question 3. Restatement §85(1): Ratification does not result from the affirmance of a transaction with a third-person unless the one acting purported to be acting for the ratifier. There is no need for existing agency relationship at the time of binding. Walker Bank & Trust Company v. Jones, Utah Supreme Court (1983) Casebook p. 259 – TERMINATION OF AUTHORITY FACTS and PP: Bank brought action against credit card holders for expenses incurred by holders’ estranged spouses. The trial court granted MSJ for Bank and card holders appealed. The COA held that notification to credit card issuer that spouse was no longer authorized to use the credit card did not make spouses’ subsequent use of the card unauthorized so as to entitle card holder to statutory limitation of liability, since way to protect against misuse of card is to surrender cards and close account. JUDGMENT: Affirmed judgment for the bank RULE: Apparent Authority exists where person creates appearance that causes third-party to believe reasonably that the other party has power to act Dissent: It is well recognized that apparent authority exists only to the extent that the principal represents to a third person that another is one’s agent ANALYSIS: -Π Argument: Hubby’s use was not unauthorized. o Definition of unauthorized: Use of a credit card by a person other than the cardholder who does not actual, implied or apparent authority for such use and from which the cardholder receives no benefit. -Argument: Hubby was authorized user and notification to bank rendered hubbys unauthorized. -Π Argument: Unauthorized use is use by person who doesn’t have any authority and notification had no effect. -Apparent Authority exists where person creates appearance that causes third-party to believe reasonably that the other party has power to act. DISSENT: -Princpal revoked apparent authority by notifying bank. It is well recognized that apparent authority exists only to the extent that the principal represents to a third person that another is one’s agent. -Hold for cardholders because they terminated authority. Coman v. Thomas Manufacturing Co., Supreme Court of NC (1989) Casebook p. 266 FACTS: Plaintiff was employed by the defendant and drove for them. Defendant required plaintiff and other drivers to violate the DOT regulations by driving for periods of time in excess of that allowed by regulations and to falsify records to show the defendant were in compliance with the regulations. Upon plaintiff’s refusal to violate the regulations, he was told that his pay would be reduced by at least 50% and such reduction being tantamount to a discharge of the plaintiff. PP: Trial court dismissed complaint for failure to state cause of action and plaintiff appealed. The COA held that at-will employe3e alleging that he was discharged for refusing to operate truck in violation of federal law and to falsify records stated cause of action for wrongful discharge. RULE: Ordinarily an employee without a definite term of employment is an employee at will and may be discharged without reason. However the employee at will rule is subject to certain exceptions. Statutes may proscribe the discharge of an atwiil employee in retaliation for certain protected activities. NOTES: 1. Sheets: The majority found wrongful discharge but the dissent argued that it should be left up to legislature. Other states refuse to recognize the tort of wrongful discharge of an employee at-will. Most courts prefer to impose liability based on contract by finding a breach of implied covenant of good faith. Scroghan v. Kraftco Corporation, COA of KY (1977) Casebook p. 272 FACTS: Appellant was fired after telling employer he was intending to attend law school at night. JUDGMENT: For employer RULE: Where the discharge is for activity that is private concern of employee, the court refused to hold that there was wrongful discharge. If the discharge is for activity that is of public community interest the cause of action may survive. ANALYSIS: -A K of employment for an indefinite period may be terminated at will by either party. Lane Mortgage Co. v. Crenshaw, CA COA (1928) Casebook p. 273 – IRREVOCABLE AGENCY FACTS: Hotel Company located a lot of land in LA. In order to get a lease on the lot the Hotel Company secured the services of the Lane Company which secured a lease for the Hotel Company for 99 years upon the condition that a building costing not less than 250k be erected upon the premises. As part of the same transaction the Hotel Company agrees to give Lane Company a lease free of rent for 20 years on the second floor of the building to be rejected and the Lane Company agreed, in addition to securing the lease, to finance the construction of the building through a bond issue of 200k. The lease from the owners to the Hotel Company contains many conditions and restrictions, a violation of which results in a forfeiture of the land lease and of he building if erected. Therefore, whatever value or worth is attached to the Lane Company lease was conditional upon compliance with the terms of the land lease. Also, if the Hotel Company tired of its bargain with Lane and could bring about an apparent forfeiture, Lane Company would be left with no recourse unless advised of the facts. After negotiating for and agreeing upon the 20-year lease, it was specifically made a part of the same transaction that a power should be given to Lane Company whereby it could protect and render secure and valuable the lease agreed upon. Power given was the sole and exclusive agency to manage the building to be erected, thus giving to Lane Company the ability to protect the lease against a forfeiture of the land lease by reason of the building or any portion being used in a way that would not comply with the conditions of the land lease. Also contained within the power was the right to collect rentals and apply it to the extinguishments of various obligations of the Hotel Company under the land lease including Procuring insurance PP: The Plaintiff (Lane Company) sought injunctive relief to secure the benefits to which it alleged itself entitled under the written contract. The Plaintiff also asked the court to declare the legal rights and duties of the respective parties under the declared contract. The trial court denied the injunctive relief sought and declined to enter any declaratory judgment because the power given was a naked power revocable at will by the Hotel Company or its successors and not a power coupled with an interest which is not revocable at will of the principal and even survives the principal’s death. RULE: Exclusive agency for management of building as to part of which agent had lease free of rent for 20 years held irrevocable as “power coupled with interest”. “Power coupled with interest” is power which forms part of K and is security for money or performance of act and such power is irrevocable. PRINCIPAL HAS NEITHER RIGHT NOR POWER TO REVOKE AGENCY COUPLED WITH INTEREST. NOTES: 1. Question 2. Restatement §14(H): One who holds a power created in the form of an agency authority, but given for the benefit of the power holder or of a third person, is not an agent of the one creating the power. §138-139: Power given as security is the equivalent of the common law concept of power coupled with an interest 3. Question: Test for Power Coupled With an Interest 4. Q