Firm and Agency

Question 1

Agency Law

Answer 1

a. Agency law may be thought of as a set of standard form rules that provide a backdrop for contracts or market transactions among team members.
i. Governs both relations between team members in a firm and relations between the firm and outsiders

Question 2

b. Agency law and the choice of sole proprietorship form

Answer 2

a. Restatement of agency
i. Firm is created simply by unifying the ownership and control of the team in the hands of one or more owners, referred to as principals, and other team members are employees, generally referred to as agents
ii. Principal signals their entry into the firm by –
1. Investing their own $ to acquire assets needed by the team
2. AND agreeing to employ team members to carry out a portion of the teams work under the control of principal
iii. Team members signal entry by –
1. Agreeing to provide services to the firm subject to the dictates and control of the owner
2. This creates principal agent relationship that unless otherwise agreed can be terminated at will by either party
b. Fiduciary limits on agent’s right of actions
c. Organizing a team via market exchange between autonomous individuals maximizes ability of team to adapt to change but minimal incentive to make team specific investments

Question 3

a. Community Counselling Service, Inc. v. Reilly (1963):

Answer 3

i. As an agent, an employee must prefer his employer’s interest to his own during the course of his employment.
1. Agent cannot solicit business for himself
2. Needs to be candid w/ employer and can’t withhold important info

Question 4

Hamburger v. Hamburger (1995)

Answer 4

i. An employee may make logistical arrangements to compete with her employer while still an employee without violating her duty of loyalty.
1. D used his own notes and remembered info so it was not trade information and he did not violate his fiduciary duty
c. Fiduciary duty obliges the fiduciary to act in the best interest of his client or beneficiary and to refrain from self-interested behavior not specifically allowed by the employment contract
d. Factors considered when enforcing a covenant of post – employment competition contract
i. Special services
ii. General knowledge or expertise acquired through employment in a common calling is not a trade secret
iii. Efficiency and skills which an employee develops through his work belongs to him to the former employer

Question 5

Actual Authority

Answer 5

Principal Manifests Consent to the agent Directly.

i. It can be expressly manifested when principal instructs the agent in writing or orally as to the scope of the agent’s authority.
ii. Can be implied from conduct
1. Ex. Allowing higher discounts by signing off of them
iii. If actual authority exists, principal is bound by agent’s authorized actions even if 3rd party is unaware of agent’s authority

Question 6

Apparent Authority

Answer 6

Agent is without actual authority but the principal manifests his consent directly to the 3rd party who is dealing with the agent.
i. 3rd party will be able to bind the principal on the basis of apparent authority only if the third party reasonably believed that the agent was authorized

Question 7

Inherent Authority

Answer 7

Springs from the desire to protect the reasonable expectations of outsiders who deal with an agent. Gap-filling device used by courts to achieve a fair and efficient allocation of the losses from an agent’s unauthorized actions

Question 8

Estoppel

Answer 8

Failure to dispel that an agency relationship exists.1

Question 9

Ratification

Answer 9

Agent does something clearly not authorized by the principal, principal accepts responsibility for what the principal has done

Question 10

2 categories of disputes (between Principal and 3rd party)

Answer 10

f. Disputes between principals and third parties over the authority of the agents can be divided into 2 categories
i. Cases in which an agent exceeds her authority in an attempt to further the interests of the principal and
ii. Cases involving totally opportunistic action where the agent intentionally misleads both the principal and the third party.

Question 11

Blackburn v. Witter (1962)

Answer 11

i. A principal is liable to 3rd parties for fraud if the principal puts an agent in a position that enables the agent, while apparently acting within his authority, to defraud a 3rd party (apparent/ostensible authority).

Question 12

Sennott v. Rodman & Renshaw (1973)

Answer 12

i. A third party may not recover from a principal under a theory of apparent authority if the third party did not specifically rely on the agent’s capacity to act for the principal.

Question 13

When is a principle liable for an agent’s actions?

Answer 13

i. In Contracts: When a form of agency authority exists
ii. In Torts: Agent always liable for their own tortious acts, but within the scope of employment the principal is liable.

Question 14

When is an agent liable?

Answer 14

i. In Contracts: Disclosure (if A enters into a contract on behalf of the principal and fully discloses entering on behalf of the principal, and identifies the principal, then the agent is not liable.
ii. In Torts: Always liable for their own tortious acts.