Agency & Partnership Professor Donald J. Kochan

Agency & PartnershipProfessor Donald J. Kochan Class 12

Today’s Materials • Pages 271-320 • AUTHORITY and Contractual Powers of Agents: • Express Authority • Implied Authority • Apparent Authority • Estoppel • Inherent Agency Power

Review of Preliminaries • First question is always, Is there an agency or partnership relationship? What proof? • Second question always is what is nature and scope of the relationship? • Third question always is was there a violation of the relationship? • Fourth question always is, if there is a violation of the relationship what are the remedies and consequences, and to who?

Authority • Consider reliance factors by third parties • Consider representations as key to making the agent or the principal or both liable • Consider multiple litigation scenarios to make things right (3 v. A, 3 v. P, P v. A, and A v. P) (we will discuss in class)

Express Authority • How is it granted? • How is it proven? • How is it limited? • When and how does it expire?

King v. Bankerd • Power of Attorney case • Authorization to convey, bargain, grant and/or sell property • Does the authorization allow “gratuitous” grants of principal property • Focus on the SCOPE issues – what is the breadth of the authority?

King v. Bankerd (cont.) • “[A]n agent holding a broad power of attorney lacks the power to make a gift of the principal’s property, unless that power (1) is expressly conferred, (2) arises as a necessary implication from the conferred powers, or (3) is clearly intended by the parties, as evidenced by the surrounding facts and circumstances.” • Focus on the fact-specific nature of the inquiry, the need to define the principal’s interest, the original agreement, and the correlation between the agent’s action and the agreement with and interest of the principal

Lamb v. Scott • Power of Attorney case • Strict Construction/Focused on powers expressly granted • See focus on INTENTION • “One who accepts a power of attorney covenants to use the power for the SOLE BENEFIT OF the one conferring the power and to use it in a manner CONSISTENT with the PURPOSES of the agency relationship created by the power of attorney.”

Von Wedel v. McGrath • “In the absence of ambiguity or incompleteness, we must deal with intent as actually expressed in the document.” • What does that mean? • Why should “specific language” trump all else?

Page 278, Note 3 • “Do and perform every act or thing” Legal Effectiveness or Enforcement?Why Not?

Implied Authority • Understand the Restatement comments • What is “necessary, usual, and proper”? • What does it mean to “act in a manner in which an agent believes the principal wishes the agent to act based on the agent’s reasonable interpretation of the principal’s manifestation in light of the principal’s objectives and other facts known to the agent”?

Delegation of Authority • What is Delegation? • Master/Servant Issues • Necessity and Contingency Issues • Was the Agent employed or appointed to delegate? • Liability Issues

Incidental (Inferred) Authority “Unless otherwise agreed [or disallowed] authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.”

Apparent Authority • Consider reliance factors by third parties • Consider representations as key to making the agent or the principal or both liable • Discretion, Leeway • Economics and Efficiencies in Representation

Smith v. Hansen, Hansen & Johnson, Inc. • Building renovation/leaking wall case • Note on p. 282 the emphasis on “question of fact” and “substantial evidence” and proving “objective manifestations” of THE principal to define authority • Why was the court talking about “reasonable inferences” of the third party?

Restatement Sec 27 comment a ”The information received by the third person may come directly from the principal by letter or word of mouth, from authorized statements of the agent, from documents or other indicia of authority given by the principal to the agent, or from third persons who have heard of the agent's authority through authorized or permitted channels of communication. Likewise, as in the case of [actual] authority, apparent authority can be created by appointing a person to a position, such as that of manager or treasurer, which carries with it generally recognized duties; to those who know of the appointment there is apparent authority to do the things ordinarily entrusted to one occupying such a position, regardless of unknown limitations which are imposed upon the particular agent.”

Bucher & Willis v. Smith • “Mere relationship” between principal and agent sends some signal of authority • But what does the “representation of some authority” mean? What signals are required for a third party to realize there is not authority? What responsibilities are there for the principal to disavow third party beliefs of agent authority to third parties?

Rosenblum v. Jacks or Better of Am. West, Inc. • Client Consent Case for Lawyers • “[T]he fact of an attorney’s employment alone implies no authority to settle or compromise the client’s case.” When can a principal rescind on a promise made by an agent?

Common Business Practices • How do these affect reasonable reliance? • What efforts can be taken to avoid invocation of this argument – i.e. what should you as a principal do?

Duty to Inquire • The duty to inquire is a defense for the principal against a third party whose agent acts outside authority • The duty to inquire also falls on an agent to ask the principal before acting if he questions whether he has authority to act in the face of ambiguity • Good faith/blind faith/scope are all issues

Suaber v. Northland Insurance Company • Car insurance case • Presumptions of apparent authority • Principal responsibility “knowingly or negligently” • How is the presumption rebuttable? • “Apparent authority is power of an apparent agent to affect the legal relations of an apparent principal with a third person by acts done in accordance with such principal’s manifestations of consent to such third person that such person shall act as his agent.”

Foley v. Allard • Read for “ordinary prudence” and “business acumen” • The problems following ask you when it matters when the third party knew or should have known that there was or was not authority.

Herbert Construction Co. v. Continental Insurance Co. • Office Tower case – Insurance and bonding case • Duty of Inquiry not necessary if there is “reasonable reliance” on an agent’s representation. • Compare with the next case, Continental Insurance Co. v. Gazaway and realize these are very fact-specific • Read Note 4 on Page 302 for important background principles

Gizzi v. Texaco • Vehicle repair and sale case; personal injury when the brakes failed • Apparent authority and agency by estoppel issues • Note this is only an appeal of a directed verdict – facts never litigated; Do you understand why that is important?

Gizzi v. Texaco (cont.) • Majority finds that there must be “a reasonable reliance by the third person that the alleged agent is authorized to bind the principal” before the principal can be held liable. • “The manifestations of the principal may be made directly to the third person, or may be made to the community, by signs or advertising.” • Were the slogans or advertisements “indicia of control” to the reasonable consumer? • Note the dissent’s focus on the “ordinary prudence” and reasonable consumer test – placing a level of responsibility on the third party • Was there “justifiable reliance”?

Estoppel and Hoddeson v. Koos Bros. • Furniture salesman and promise of delivery case • Is the proprietor responsible for his salesman’s promises? • Note the court’s focus on the adequacy of evidence in assumpsit • Again, Estoppel requires evidence of justifiable reliance to hold the principal responsible

Hoddeson v. Koos Bros. (cont.) • “Certainly the proprietor’s duty of care and precaution for the safety and security of the customer encompasses more than the diligent observance and removal of banana peels from the aisles. Broadly stated, the duty of the proprietor also encircles the exercise of reasonable care and vigilance to protect the customer from loss occasioned by the deception of an apparent salesman.” • But what about caveat emptor?

Restatement (Third) on Estoppel Section 2.05 Estoppel to Deny Existence of An Agency Relationship “A person who has not made a manifestation that an actor has authority as an agent and who is not otherwise liable as a party to a transaction purportedly done by the actor on that person’s account is subject to liability to a third party who justifiably is induced to make a detrimental change in position because the transaction is believed to be on the person’s account, if: (1) the person intentionally or carelessly cause such belief, or (2) having notice of such belief and that it might induce others to change their positions, the person did not take reasonable steps to notify them of the facts.” • Break down all the elements in the above . . .

Inherent Agency Power • Understand it as an independent theory and read the notes and do the problems • But recognize it is a disfavored theory

Concluding Thoughts • Revisit the preliminaries above • Authority issues pervade liability concerns and you must understand the various theories • Realize that the alleged agent may be individually liable even if the alleged principal is not • But also realize the principal is often the deeper pocket

Agency & Partnership Professor Donald J. Kochan