BA Slide Deck 2 - Agency Principles PDF

1 BUSINESS ASSOCIATIONS AGENCY PRINCIPLES Professor Robert N. Rapp Case Western Reserve University School of Law Gund Hall 220A 216.368.6406 [email protected] All Rights Reserved ...

1 BUSINESS ASSOCIATIONS AGENCY PRINCIPLES Professor Robert N. Rapp Case Western Reserve University School of Law Gund Hall 220A 216.368.6406 [email protected] All Rights Reserved  2 WHO IS AN “AGENT”? WHAT IS “AGENCY”  In simplest terms: An agent is a person who agrees to act on behalf of another, subject to that other’s control, and as authorized by that other –the “principal.”  And “agency…formally stated by legal definition: “[I]s the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal’s behalf and  3 WHAT IT IS… AND IS NOT  It is a consensual relationship –principal and agent having manifested “assent.” A person “manifests assent” or consent through written or spoken words or other conduct. Restatement (Third) §1.03.  It is not a contractual relationship (although it could be).  It happens, arises, when the elements of the definition are present. Whatever it may be called or characterized by the parties doesn’t matter. Restatement (Third) §1.02: “An agency relationship arises only when the elements stated  4 IF IT EXISTS WHAT DOES IT MEAN? WHAT ARE THE SIMPLE LEGAL CONSEQUENCES? 1. A principal is bound by, and liable for, any acts the principal authorized the agent to undertake, just as if the principal had done the act itself. Agent authorized to sign a contract… the principal is liable to the third party on the contract… and the contract is enforceable by the principal against the third party. 2. A principal is liable for a tort (negligence) committed by the agent within the scope of the  5 The PAT Triangle (1) P A (2 (3) ) T (1)Agency relationship between P and A (2) A’s dealings with T (3) Creating legal liability of P  6 BACK TO THE FUNDAMENTALS CREATION OF AN AGENCY RELATIONSHIP “Agency is the fiduciary relationship that arises when one person (a ‘principal’) manifests assent to another person (an ‘agent’) that the agent shall act on the principal’s behalf and subject to the principal’s control, and the agent  7 THERE IS A LOT GOING ON HERE!  Manifested assent [?] by a principal that an agent will act on its behalf and subject to its control, and manifested assent or consent by the agent to so act on behalf of the principal.  “A person manifests assent or intention through written or spoken words or other conduct.” Restatement (Third) Agency § 1.03. Formality? Express agreement? Purposeful undertaking and acceptance? Demonstrable intent? What “other conduct?”   8 SO HOW IS AN AGENCY RELATIONSHIP ACTUALLY CREATED?  One way [easy]: Principal and agent expressly agree to enter into the relationship. The principal outright authorizing an action, wanting and directing the agent to proceed on the principal’s behalf, and the agent agreeing to do that. Purposefulness. Clear intent to establish the agency.  But no contract or formal agreement required. No “employment” or formal engagement required. No writing at all required.  Another way [not so easy]: Implied assent/intent  9 But I just offered him the use of my car! MS. DOTY’S LEGAL SURPRISE WHAT HAPPENED? Gorton v. Doty 57 Idaho 792, 69 P.2d 136 (1937)  10 ESSENTIAL ELEMENTS OF AN AGENCY RELATIONSHIP BETWEEN DOTY AND GARST?  Mutual assent for Garst (agent) to act on Doty’s (principal) behalf? To do what?  Doty could have driven the car herself, but she designated Garst and made it a condition that he drive the car. Doty thereby “at least consented that [Garst] should act for her and in her behalf in driving the car to and from the football game.” (Emphasis added)  “[It] is clear from her act in volunteering the use of her car upon the express condition that he [Garst] should  11 SUBJECT TO DOTY’S CONTROL?  Garst agreed to act on her behalf and subject to her control because she required that he drive the car.  And it was not just her loaning him the car. “[S]he did not say anything whatever to him about loaning her car and he said nothing whatever to her about borrowing it.” He was doing this for her as instructed by her.  Trial court gave a correct jury instruction on the definition of agency and the bottom line is: “[w]here one undertakes to transact some business  12 THE DISSENT (GETS IT) “Agency means more than mere passive permission. It involves request, instruction or command.” (Emphasis added) “It was nothing more than a kindly gesture on her part to be helpful to Garst in arranging transportation for the team. The mere fact that she stated to Garst that he should drive the car was a mere precaution on her part that the care should not be driven by any one of the young boys, a perfectly natural thing for her to do. What can you take away from this case regarding  13 AN AGENCY RELATIONSHIP CAN BE CREATED WHERE NO ONE EXPRESSLY SET OUT TO CREATE ONE A. Gay Jenson Farms Co. v. Cargill, Inc. 309 N.W.2d 285 (Minn. 1981)  Pause for a moment to cement a key thing we are talking about in establishing (or not) an agency relationship.  There must be mutual manifestations of assent that the agent acts on the principal’s behalf and subject to the principal’s control (as always… Restatement (Third) § 1.01).  14 STRAIGHTAWAY IN JENSEN FARMS: “In order to create and agency there must be an agreement, but not necessarily a contract between the parties…. An agreement may result in the creation of an agency relationship although the parties did not call it an agency and did not intend the legal consequences of the relation to follow. The existence of the  15 MAKING CARGILL LIABLE FOR WARREN- INCURRED OBLIGATIONS  Says Cargill: We are just a creditor of Warren. That much is true. Cargill was financing Warren –loaning money for working capital. A credit line.  We had an agreement with Warren (True) but never consented or agreed with Warren to have Warren act for us as an agent.  Remember the definition of agency: The manifestation of consent by one person to another that the other shall act on their behalf and subject to their control, and the other manifests assent to so  16 IT’S THE CONTROL THING….. WHAT REALLY HAPPENED IN THE RELATIONSHIP?  The agreement to provide financing to Warren is one thing, but Cargill getting into Warren’s business operations to the extent it did is quite another.  Proving agency by circumstantial evidence showing a principal’s consent to the agency.  Said the Court (in so many words): Look at what Cargill was doing vis-à-vis Warren, getting directly involved in Warren’s internal affairs; directing Warren to implement operational recommendations; “totally financing” Warren. This was not an ordinary financing  17 FROM DOTY AND JENSON FARMS….  How an agency relationship can be established, whether the parties purposefully set out to create it or not.  And remembering Restatement (Third) § 1.02: “An agency relationship arises only when the elements stated in § 1.01 are present. Whether a relationship is characterized as agency in an agreement between the parties or in the context of industry or popular usage is not controlling.”  Looking to facts and circumstances, acts and conduct can evidence the requisite § 1.01 elements  18 AGENTS’ “AUTHORITY” Our Rule # 1: Actual Authority When an agent acts with “authority,” their action has legal consequences for the principal. A principal is subject to liability to a third party when the agent acts with actual authority. Actual, or Express, Authority Restatement (Third) § 3.01 “Actual authority… is created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s  19 AND… Restatement (Third) § 2.01 “An agent acts with actual authority when, at the time of taking action that has legal consequences for the principal, the agent reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to so act.  Actual, express, authority is created by the principal and communicated to the agent.  Always keeping in mind –a principal’s liability for the acts of an agent extends to acts carried out  20 ACTUAL AUTHORITY MAY BE EXPRESS… OR IMPLIED Restatement (Third) § 2.02(1) “An agent has actual authority to take action designated or implied in the principal’s manifestations to the agent and acts necessary or incidental to achieving the principal’s objectives, as the agent reasonably understands the principal’s manifestations when the agent determines how to act.”  Succinctly stated: Implied authority is actual authority circumstantially proven, which the principal actually intended the agent to possess,  21 “APPARENT” AUTHORITY  An agent binding a principal even in the absence of actual authority when the third person reasonably believes, based on a manifestation by the principal, that the agent is authorized to act on behalf of the principal.  Always looking from the viewpoint of the third party [!]  Restatement (Third) § 2.03: “Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of  22 APPARENT AUTHORITY THERE ARE TWO ESSENTIAL CRITERIA First: It must appear from the principal’s conduct that the principal held the agent out as possessing sufficient authority to embrace the act in question, or knowingly permitted the agent to act as having such authority. That is… the manifestation must emanate from the principal and must be received by the third person. Second: The party dealing with the agent (“T” in  23 LOOKING AT AUTHORITY GENERALLY…. HOW DID IT PLAY OUT IN MILL STREET CHURCH?  Did Bill have authority to hire Sam?  What “kind” of authority?  Why did it matter for Sam anyway?  The church did not expressly authorize Bill to hire Sam (or anyone else).  What is the reality looking through Sam’s eyes?  24 ACKERMAN v. SOBOL FAMILY PARTNERSHIP LLP (A really tough spot for Coe, an attorney with an “abundance of experience and exemplary reputation”)  As their attorney, Coe negotiated a settlement agreement that would bind his clients (Ackerman), who were very involved as plaintiffs in all aspects of their case leading up to the settlement offer that was accepted by Defendants.  Defendants want the settlement agreement enforced. Coe’s clients say not so fast…. Coe did not have  25 YOU “CLOTHED” COE, YOUR LAWYER, WITH APPARENT AUTHORITY TO SETTLE THE LITIGATION….  Said the Court (among many things): “Third parties who interact with the principal through an agent will naturally and reasonably assume that the agent has authority to do acts consistent with the agent’s position or role unless they have notice of facts suggesting that this may not be so.  26 APPARENT AUTHORITY REVIEW POINTS  Apparent authority is authority which a principal, by its acts, representations, manifestations of some sort, has led third parties to believe has been conferred on an agent.  Conduct by the principal which, if reasonably interpreted, would cause a third party to believe that the principal consents to the acts of the agent is sufficient to create apparent authority.  Manifestations of a principal that create apparent authority can be written or spoken words or other conduct.  27 THE THING ABOUT APPARENT AUTHORITY…. IT ONLY EXISTS WHEN THE THIRD PARTY’S BELIEF IS TRACEABLE TO THE PRINCIPAL’S MANIFESTATION But suppose the third party has no idea that a principal even exists? The Undisclosed Principal (Restatement (Third) § 1.04(2)(b)) “A principal is undisclosed if, when an agent  28 LIABILITY OF AN UNDISCLOSED PRINCIPAL  Principals, whether disclosed or undisclosed, are liable on contracts made by their agents acting with actual authority. And third parties are liable to the principal on those contracts.  Actual authority is what matters.  But liability of an undisclosed principal when the agent has no actual authority?  Time for Bovril and Cigars at the Beerhouse: Watteau v. Fenwick  29 Watteau v. Fenwick Jolly Old England (1892)  Mr. Humble –the manager who outwardly looked like the owner of the place-- had authority from the undisclosed principal (real owner) to buy ales and mineral waters from whomever he wanted, but not cigars, Bovril or other things involved in operation of the beerhouse.  However, Humble bought Bovril and cigars from a third party (the plaintiff vendor), did not pay for them, and disappeared.  Plaintiff/vendor learns who the real owner is (Fenwick)  30 LIABILITY OF THE UNDISCLOSED PRINCIPAL AFFIRMED “[O]nce it is established that the defendant was the real principal, the ordinary doctrine as to principal and agent applies –the principal is liable for all the acts of the agent which are usually confided to an agent of that character, notwithstanding limitations, as between the principal and the agent, put on that authority.”  Disclosed or undisclosed principal was irrelevant.  The court speaking about “acts of the agent which are usually confided to an agent of that character” –  31 LOOKING TO THE RESTATEMENTS FOR SOME HELP? Restatement (Second) § 195 “An undisclosed principal who entrusts an agent with the management of his business is subject to liability to third persons with whom the agent enters into transactions usual in such businesses and on the principal’s account, although contrary to the directions of the principal.”  And…  32 Restatement (Third) § 2.06 (1) An undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal having notice of the agent’s conduct and that it might induce others to change their positions did not take reasonable steps to notify them of the facts. (2) An undisclosed principal may not rely on instructions given an agent that qualify or reduce the agent’s authority to less than the authority a third  33 WE’VE LOOKED AT AGENCY-BASED LIABILITY OF A PRINCIPAL BASED ON: 1. Actual, express authority; 2. Actual, implied authority; and 3. Apparent authority, which is the product of the reasonable belief of a third party that the asserted agent has authority to act on behalf of the principal in the circumstances based on some evident manifestation by the principal (Restatement (Third)  34 PRINCIPAL LIABILITY BY REASON OF RATIFICATION Restatement (Third) § 4.01 (1) Ratification is the affirmance of a prior act done by another, whereby the act is given effect as if done by an agent acting with actual authority. (2) A person ratifies an act by: (a) Manifesting assent that the act shall affect the person’s legal relations; or (b) Conduct that justifies a reasonable  35 SOME THINGS ABOUT RATIFICATION….  Ratification may be express, or implied by conduct, but in any case, it must amount to a clear affirmation –conduct that justifies a reasonable assumption that the person has ratified/consented.  To be bound by ratification a person must have knowledge of material facts involved in the original act (Restatement (Third) § 4.06). In other words… now you know everything that matters, and now you affirm.  Ratification must be timely. It must precede the  36 Think about this one…. Paula owns a mansion called Whiteacre Manor. Alan, having no authority to do so, enters into a sale contract with Ted for Ted to buy Whiteacre Manor. The next day the mansion burns to the ground. Paula then affirms the contract and says Ted owes the purchase price. Ted says she is too late. Who wins?  37 AND ANOTHER THING ABOUT RATIFICATION….  Ratification must be of the entire transaction. Restatement (Third) §4.07 There is no partial ratification: A ratification is not effective unless it encompasses the entirety of an act, contract, or other single transaction.  38 SOME INSIGHT FROM THE CONNECTICUT SUPREME COURT Botticello v. Stefanovicz 117 Conn. 22, 411 A.2d 16 (1979)  Walter and Mary owned the property as tenants-in- common. Significance?  Walter leased the property (with an option to purchase) to Botticello. But he was not Mary’s agent and had no authority to convey anything for Mary.  No authority…. But did she ratify?  There were a lot of facts. But none sufficient to support the conclusion that she ratified the agreement made by Walter and bound herself to its  39 AGENCY LIABILITY BY ESTOPPEL Or simply stated: The circumstances are such that you cannot deny that someone is or was your agent, and you are bound by what that person did or does. Restatement (Third) § 2.05 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  40 (1) The person intentionally or carelessly caused 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.  41 HODDESON v. KOOS BROS. 47 N.J. Super. 224, 135 A. 2d 702 (N.J. App. 1957) “Where a proprietor of a place of business by his dereliction of duty enables one who is not his agent conspicuously to act as such and ostensibly to transact the proprietor’s business with a patron in the establishment, the appearances being of such a character as to lead a person of ordinary prudence and circumspection to believe that the imposter was in truth the proprietor’s agent, in such circumstances the law will not permit the proprietor defensively to avail himself of the imposter’s lack of  42 The PAT Triangle (1) P A (2 (3) ) T (1)Agency relationship between P and A (2) A’s dealings with T (3) Creating legal liability of P  43 AGENT LIABILITY TO THIRD PARTIES?  The baseline rule in Restatement (Third) § 6.01: “When an agent acting with actual or apparent authority makes a contract on behalf of a disclosed principal, (1) the principal and the third party are parties to the contract; and (2) the agent is not a party to the contract unless the  44 AGENT LIABILITY WHEN ACTING FOR AN UNDISCLOSED PRINCIPAL  The baseline rule in Restatement (Third) § 6.03: “When an agent acting with actual authority makes a contract on behalf of an undisclosed principal… (2) the agent and the third party are parties to the contract…. (Emphasis added).  The agent is the face of the transaction with the third party and is the focus of expectations of the third  45 OTHER SCENARIOS  The Unidentified Principal – Restatement (Third) § 6.02: “When an agent acting with actual or apparent authority makes a contract on behalf of an unidentified principal, (1) the principal and the third party are parties to the contract; and (2) the agent is a party to the contract unless the agent and the third party agree otherwise.” (Emphasis added)  46  The Non-Existent Principal - Restatement (Third) § 6.04: “Unless the third party agrees otherwise, a person who makes a contract with a third party purportedly as an agent on behalf of as principal becomes a party to the contract if the purported agent knows or has reason to know that the purported principal does not exist or lacks capacity to be a party to a contract.”  47 ANOTHER APPROACH TO AGENT’S LIABILITY TO A THIRD PARTY THE AGENT’S WARRANT OF AUTHORITY  Restatement (Third) § 6.10: “A person who purports to make a contract, representation, or conveyance to or with a third party on behalf of another person, lacking power to bind that person, gives an implied warranty of authority to the third party and is subject to liability to the third party for damages  48 PRINCIPAL LIABILITY TO THIRD PARTIES FOR TORTS OF AN AGENT THE BASELINE POINT Restatement (Third) § 7.04 A principal is subject to direct liability to a third party harmed by an agent’s conduct when the agent’s conduct is within the scope of the agent’s actual authority or ratified by the principal; and (1) the agent’s conduct is tortious; or (2) the agent’s conduct, if that of the principal,  49 AND… TORTS BY AN AGENT WITH APPARENT AUTHORITY? Restatement (Third) § 7.08 “A principal is subject to vicarious liability for a tort committed by an agent in dealing or communicating with a third party on or purportedly on behalf of the principal when actions taken by the agent with apparent authority constitute the tort….”  50 RESPONDEAT SUPERIOR Restatement (Third) § 2.04 “An employer is subject to liability for torts committed by employees while acting within the scope of employment.” Restatement (Second) § 219(1) “A master is subject to liability for the torts of his servants while acting in the scope of their employment.” Restatement (Third) § 7.07(1) “An employer is subject to vicarious liability for  51 “EMPLOYMENT” [?]  For us it is all just an agency relationship.  Restatement (Third) § 7.07(3): “[A]n employee is an agent whose principal controls or has the power to control the manner and means of the agent’s performance of the work.”  And for good measure… “[T]he fact that work is performed gratuitously does not relieve a principal of liability.”  No control or power to control the manner and means of performance is what makes an Independent Contractor” relationship, which may or may not be an agency relationship, but is not an employment  52 SCOPE OF EMPLOYMENT? A COMMON ISSUE  Restatement (Third) § 7.07(2)– means “performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control.”  But not “when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.” Restatement (Third) § 7.07(2).  The key point: Acts of an employee can happen entirely outside the agency/employment relationship  53 HAVE YOU HEARD ABOUT… THE “INDEPENDENT CONTRACTOR”?  In agency law, an independent contractor is a person who contracts/engages with another to do something but who is not controlled by or subject to the other’s right or power to control with respect to their conduct in performance of the service or task.  This definition can be found in Restatement (Second) § 2(3), where it also says that an independent contractor “may or may not be an agent.”  You will deal with the independent contractor  54 MAYBE A LITTLE HELP…. [?] Restatement (Second) § 219(2) (2) A master is not subject to liability for torts of his servants acting outside the scope of their employment unless: (a) The master intended the conduct or the consequences, or (b) the master was negligent or reckless, or (c) the conduct violated a non-delegable duty of the master, or (d) the servant purported to act or to speak on behalf of  55 GETTING TO THE BASELINE QUESTION Humble Oil & Refining Co. v. Martin 148 Tex. 175, 222 S.W. 2d 995 (1949) Hoover v. Sun Oil Company 58 Del. 553, 212 A. 2d 214 (1965)  56 IT’S ALL ABOUT CONTROL…. THE BUSINESS OPERATING MODEL  Both service stations were company owned.  In Humble: Schneider, the onsite operator, had a “Commission Agency Agreement.” He sold only Humble products on a commission basis. “Obviously the main object of the enterprise was the retail marketing of Humble’s products with title remaining in Humble until delivery to the consumer.”  Humble imposed a strict system of financial control and supervision “with little or no business discretion reposed in Schneider…”  The agreement “required Schneider in effect to do  57 BUT IN SUN OIL….  Barone leased the station from Sun and operated under a dealer agreement with Sun.  Barone was required to purchase products from Sun for resale but could sell competitive product if he chose to do so.  Barone assumed the overall risk of profit or loss in the business operation.  “The lease contract and dealer’s agreement fail to establish any relationship other than landlord-tenant and independent contractor…. The areas of close contact between Sun and Barone stem from the fact  58 IN THE END….  Case law indicates that the test applied is “whether the oil company has retained the right to control the details of the day-to-day operation of the service station; control or influence over results alone being viewed as insufficient….”  Sun had no control over the details of Barone’s day- to-day operations.  Thoughts on the common “service station” model today. Think about what you see day-to-day “out there.”  It’s all about branding. Control in non-company  59 FRANCHISES AND AGENCY LAW….IT’S ALSO ALL ABOUT CONTROL  Franchisor/Franchisee relationships are invariably defined by agreements which provide for varying degrees of control over some aspects of operating the business. Murphy v. Holiday Inns, Inc.  A “license” agreement requiring, among other things, that the licensee (franchisee) conduct its business in accordance with the Holiday Inns “system.” Requirements regarding what the licensee/franchisee could and could not do in the operation of the  60 PROTECTING THE BRAND VERSUS RUNNING THE BUSINESS  Controls on operation of the business aimed at preserving goodwill and the value of the name – the branded product or service.  For an agency relationship…. Where is the meaningful day-to-day operational control and authority?  In Holiday Inns, where was control (and responsibility) over daily operations and maintenance? Control over the things that matter in actual operations?  “[M]anagement controls and responsibilities customarily exercised by an owner and operator of an  61 BUT COMMONLY IN FRANCHISE AGREEMENTS….  Operating “standards” (e.g., “Basic Operational Requirements”) and/or guidelines. Equipment requirements and specifications.  Specific operational training as applicable.  Operating in conformity with a “Manual.”  Compliance with all applicable laws and regulations.  Franchisor inspections and the right to terminate.  Insurance requirements.  62 CONTROL AND THE VANDEMARK/McDONALDS AND DUNKIN’ DONUTS EXAMPLES  In Vandemark v. McDonalds. McDonalds Corp. did not exercise control of the security measures of an individual McDonalds restaurant in which a customer was robbed.  Same in Dunkin’ Donuts…. No evidence that DD actually mandated specific security equipment or otherwise controlled the steps taken by its franchisees in general to protect employees.  “Although the defendant [franchisor] maintained  63 CONTROL AND MILLER V. MCDONALDS CORP.  The McDonalds’ franchise agreement included standards, policies and practices –including methods and standards for food preparation and handling, and: “[E]vidence would support a finding that [McDonalds] had the right to control the way in which 3K performed at least food handling and preparation. In her complaint, plaintiff alleges that 3K’s deficiencies in those functions resulted in the  64 THE OTHER PART OF MILLER: “APPARENT AGENCY” [?]  A notion of holding out the franchisee as McDonalds’ agent.  This McDonalds the same as every other McDonalds. Plaintiff went to this McDonalds because she relied on the McDonalds reputation and she wanted to obtain the same quality of service, standard of care in food preparation, and general attention to detail that she had enjoyed at other McDonalds restaurants.  Apparent agency? Holding out the franchisee as the franchisor’s agent? Jury could find that McDonalds held out 3K (the franchisee) as its agent, and also that  65 MORE ABOUT RESPONDEAT SUPERIOR VICARIOUS TORT LIABILITY OF AN EMPLOYER Restatement (Third) § 2.04 “An employer is subject to liability for torts committed by employees while acting within the scope of their employment.” Restatement (Third) § 7.07(1) “An employer is subject to vicarious liability for a tort committed by its  66 SCOPE OF EMPLOYMENT Restatement (Third) § 7.07(2)  “An employee acts within the scope of employment when performing work assigned by the employer or engaging in a course of conduct subject to the employer’s control. An employee’s act is not within the scope of employment when it occurs within an independent course of conduct not intended by the employee to serve any purpose of the employer.” (Emphasis added)  67 OUR FAVORITE DRUNKEN SAILOR…. Ira S. Bushey & Sons v. United States  “Lane’s conduct was not so “unforeseeable” as to make it unfair to charge the Government with responsibility.”  Here it was foreseeable that crew members crossing the drydock might do damage, negligently or even intentionally….”  “The employer should be held to expect risks… which arise out of and in the course of [its]  68 A BONUS CONSIDERATION: THE “COMING AND GOING” RULE  Holds that there will not be Respondeat Superior liability for acts occurring in an employee’s normal commute to and from work.  But there are exceptions.  The “required vehicle exception” says that liability will be imposed on the employer when the employer requires the employee to drive his or her vehicle to work so that the vehicle is available for use in fulfilling the employee’s work-related responsibilities.  The “special errand exception” says that Respondeat  69 SKIING WITH CHEF CHRIS AT SNOWBIRD….  A “frolic and detour,” as they say?  He was skiing (recklessly) for pleasure.  Scope of employment?  The old “frolic and detour” idea would take it out of the scope of employment… the idea being that one leaves or abandons the employment. But not applicable here.  “A jury could reasonably find that Zulliger had resumed his employment and that his deviation was not substantial enough to constitute a total  70 AND THEN THERE ARE…. ROSS GRIMSLEY’S BEANBALL (Manning v. Grimsley) BLATANT BAD ACTS AT CONOCO (Arguello v. Conoco, Inc.)  71 GRIMSLEY INTENDED TO DO IT…. HE COMMITTED A BATTERY AGAINST THE PLAINTIFF  In the scope of employment?  “Employee’s assault was in response to…conduct which was presently interfering with the employee’s ability to perform his duties successfully.”  “The jury could reasonably have found that such conduct [constant heckling] had either the affirmative purpose to rattle or the effect of rattling the employee so that he could not perform his duties successfully.”  72 AND IN ARGUELLO v. CONOCO?  73 BACK TO THE “INDEPENDENT CONTRACTOR” THING The General Rule A person who engages an “independent contractor” to do something and who exercises no control over the manner or method the independent contractor performs the work is not liable for negligence of the independent contractor in performance of the work.  The point being…. The principal is not directing or controlling or authorizing the negligent act.  Independent contractors exercise discretion and  74 PRINCIPAL LIABILITY FOR TORTS OF AN INDEPENDENT CONTRACTOR Majestic Realty Associates, Inc. v. Toti Contracting Co.  The baseline principle: A person who engages an independent contractor to do something and who exercises no control over the manner or method the independent contractor performs the work is not liable for negligence of the independent contractor in performance.  Then come three exceptions: (1) The person  75 FIDUCIARY DUTIES OF AGENTS AGENCY RELATIONSHIPS ARE FIDUCIARY RELATIONSHIPS  Restatement (Third) § 1.01: Agency is the fiduciary relationship that arises when…”(Emphasis added).  Restatement (Second) § 13: “An agent is a fiduciary with respect to matters within the scope of the agency.” (Emphasis added)  As one court said it: “The relationship of principal and agent implies trust or confidence by the principal in the agent, and the agent is obligated to  76 THE FIDUCIARY DUTIES OF AN AGENT  The duty of loyalty: The duty to act loyally for the principal’s benefit in all matters connected with the agency relationship. Restatement (Third) § 8.01.  The duty not to acquire a material benefit from a third party in connection with transactions or actions taken on behalf of the principal, or otherwise through use of the agent’s position. Restatement (Third) § 8.02.  The duty not to deal with the principal as or on behalf of an adverse party. Restatement (Third) §8.03.  During the agency relationship the duty to refrain from  77 AND ….  The duty not to use the principal’s property for the agent’s own purposes or a third party’s purposes; and the duty not to use or communicate the principal’s confidential information for the agent’s own purposes or a third party’s purposes. Restatement (Third) §8.05.  And most fundamental: The duty to take action only within the scope of the agent’s actual authority (remembering, however, what is implied actual authority), and to comply with all lawful instructions of the principal or person designated by the principal. Restatement (Third) § 8.09.  78 BUT WAIT-- THERE’S MORE….  The duties to act with care, competence, and diligence normally exercised by agents in similar circumstances. Restatement (Third) § 8.08.  The duty of “good conduct” –to act reasonably and to refrain from conduct that is likely to damage the principal’s enterprise. Restatement (Third) 8.10.  The duty to provide the principal with information that the agent knows or has reason to know, or should know, the principal would want to know when  79 ON POINT, AND ALL ABOUT THE DUTY OF LOYALTY, WE LOOKED AT:  Reading v. Regem – The agent receiving secret profits. Using his position as an agent to make personal profits… “The servant being unjustly enriched by virtue of his service without his master’s sanction.”  Rash v. J.V. Intermediate, Ltd. – The agent has a “general duty of full disclosure respecting matters affecting the principal’s interest and a general prohibition against using the relationship to benefit his personal interest… except with full knowledge and consent of the principal.” Refrain from competing.  Town & Country House & Home Service, Inc. v. Newbery – Solicitation of customers previously serviced to  80 A PRACTICAL POINT OR TWO  The “grabbing and leaving” duty of loyalty problem more often than not arises when there has been preplanning –conspiring to leave and preparing to grab. It isn’t a matter of just leaving.  And the “grabbing” is not just announcing/advertising your new business. It is overt targeting/solicitation activity and aggressive communication.  It involves clearly taking advantage of something “proprietary” to gain competitive advantage right  81 WHAT ABOUT DUTIES OF A PRINCIPAL… OWED TO THE AGENT?  Do agency-based fiduciary duties run both ways?  Restatement (Third) § 8.15 says it: “A principal has a duty to deal with the agent fairly and in good faith, including a duty to provide the agent with information about the risks of physical harm or pecuniary loss that the principal knows, or has reason to know, or should know, are present in the agent’s work but unknown to the agent.”  What is the “Duty to Indemnify” referred to in § 8.14?  82 THE END/TERMINATION OF AN AGENCY RELATIONSHP?  Restatement (Third) Footnote – Page 17.  Principal and agent mutually agree to terminate.  Assuming no contract… either principal or agent terminates.  Principal’s death or legal incapacity.  The law –may compel termination.  Agency for a defined purpose or task will terminate when the defined purpose of the agency has been fulfilled.