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REVIEW QUESTION #1 ON AGENCY

NOTE: This fact pattern involves a corporation. We will study corporation law in the second half of this course. For now, here is some information to help you understand the fact pattern. Corporations in the United States usually have two levels of management the board of directors and the officers. Under state corporation laws, the shareholders delegate the authority to manage the affairs of the business to the board. Shareholders retain the right to control the corporation in a limited number of circumstances that we will discuss later this semester. The board is responsible for policy making and general oversight of the corporation. The board in turn subdelegates authority on specific management tasks to the corporations officers. Such officers and other employees can be deemed agents of the corporation. ---------------------------------------------------------------------------------------------------A major bridge across the Mississippi River near St. Louis, Missouri was damaged as a result of spring flooding. The government authority responsible for the bridge awarded Concrete Contractors Corporation (CCC) the contract to repair the bridge. The objective was to restore the bridge to operation as soon as possible. The board of directors of CCC met soon after the contract was signed. Lucille Des Peres, the chief executive officer of CCC, attended the meeting, although she was not a member of the board. The board voted to authorize Lucille to enter into subcontracts without approval of the board and to allow her to delegate part of such responsibilities to others. Her authority was limited by the board in the following respect she was not authorized to purchase the cement needed for the project. A member of the board had expertise in buying cement and was directed by the board to shop around to find the lowest possible price for all the cement needed for the project. Lucille then met with her management team to assign responsibilities for the subcontracts. She selected a member of her team named Jimmy Richards to hire concrete-mixing trucks to pick up cement from the CCC storage site and deliver it, mixed and ready to pour, to the bridge repair site. Lucille told Jimmy he could sign contracts for CCC and that trucking companies could contact Lucille directly with any questions. Jimmy was directed to find companies that were reliable and charged the lowest possible price. Lucille told Jimmy that he was required to hire three separate companies for the job and that no single company could handle more than 40 percent of the work. She wanted to avoid becoming overly dependent on any one trucking firm. Jimmy entered into negotiations with several trucking companies, including Ace Trucking Corporation (ATC), which had an excellent reputation for reliability. The ATC representative had called Lucilles office and been informed by Lucilles secretary that Jimmy had authority to hire cement trucks for CCC for the bridge repair project. The representative of ATC offered a ten percent discount on its bid price on the condition that it supply trucks for 60 percent of the job. This was the lowest price that Jimmy had found and he tried to call Lucille to discuss this. Lucille was not in the office. Jimmy decided to accept the ATC bid. In the meantime, Lucille had received a call from Sam Sly, a cement dealer, who offered a very low price for all the cement that might be needed for the freeway project, but stated that he could keep the offer open for only two hours. Lucille tried to call the chairman of the board of CCC about this offer, but she was out of the office. Lucille went ahead and accepted Sams offer and told him she would call him when they needed delivery of the cement. The next morning at 6 AM, Sam loaded the cement into a truck and drove to the CCC storage facility. No employee was working at CCC that early but there was a security guard sitting in a booth at the front gate. When he saw Sams truck, he smiled and waved him through the gate. Sam then dumped the cement in front of the CCC storage building and left. When the board of CCC was informed of these events, it repudiated the contracts. What are the rights of ATC and Sam under relevant principles of agency law?

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SAMPLE STUDENT ANSWER FOR Agency Review Q 1- with COMMENTS

What are the rights of ATC and Sam under relevant principles of agency law? ISSUE #1: Whether Lucille holds an agency relationship with CCC to bind them to the contract with Sam Sly? RULE: As R2d 1 requires: manifestation of consent by one person (principal) to another; that the other shall act on his behalf and subject to his control; and consent by the other (agent) to so act. Moreover, R2d 1.01 states that agency is the fiduciary relationship that arises when one person (principal) manifests assent to another person (agent) that the agent shall act on the principals behalf and subject to his control, and the agent manifests assent or othe rwise consents to so act. ANALYSIS: Here, CCC (principal) stated to Lucille (agent) that she could enter into contracts on behalf of CCC as well as delegate those duties to others (also agents). Here, the principal, CCC board, manifests assent to another, the agent Lucille, to act on their behalf. Lucille understood and agreed to act under the control of CCC. SHE RECEIVED INSTRUCTIONS FROM THE BOARD TO ENTER INTO CONTRACTS SUBJECT TO THEIR LIMITATIONS AND ACTED ON THOSE INSTRUCTIONS. CONCLUSION: An agency relationship has been established. This is a therefore a scope of AUTHORITY agency problem.

SUB ISSUE: What authority does Lucille hold as an agent? RULE: Actual authority is defined by R3d 3.01 as a principals manifestation to agent that is reasonably understood by the agent t hat expresses principals assent that the agent take action on the principals behalf. [USE R2d Agency Section 26] ADD IMPLIED AUTHORITY FROM R2d AGENCY R2d 8 and R3d 2.03 test for apparent authority requires manifestation from principal; reaching 3 party LEADING TO A REASONABLE BELIEF BY THIRD PARTY THAT AGENT WAS AUTHORIZED TO ACT FOR PRINCIPAL. R2d 8A: The test for inherent authority is if the act is generally done by people in that position with those responsibilities, or would a 3 party have reason to know that Lucille was not allowed to enter the contract. ANALYSIS: -actual authority (express or implied): ANALYZE WHETHER LUCILLE HAD ACTUAL EXPRESS AUTHORITY SHE DID NOT BECAUSE SHE ACTED CONTRARY TO INSTRUCTIONS OF THE PRINCIPAL CCC AND SHE COULD NOT HAVE REASONABLY BELIEVED SHE WAS AUTHORIZED TO ACT OUTSIDE THE SCOPE OF THAT AUTHORITY. Possibly implied because it fills in gaps in her job duties but she acted in direct opposition to the instructions she was given. Therefore, actual IMPLIED authority cant be relied on. -apparent authority When Lucille was contacted by Sam, she had a title within CCC; it could also be manifested if Sam communicated with someone in a position with a title from CCC that shows to the community or caller that they represent CCC. ANALYZE OTHER PARTS OF THE TEST: IT REACHED THE THIRD PARTY SAM AND IT WAS REASONABLE TO BELIEVE SOMEONE WITH THE TITLE CEO COULD TAKE ACTION ON BEHALF OF CCC
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. -inherent authority: a person with Lucilles title would have been assumed under the facts to hold the responsibility and ability to act. STATE WHY IT WOULD BE CONSIDERED CUSTOMARY FOR CEO TO HAVE AUTHORITY TO TAKE ACTION TO CONDUCT ALL BUSINESS MATTERS FOR CCC. CONCLUSION: Sam can bind CCC into the contract through Apparent and Inherent authority on Lucille. ISSUE #2: Whether Jimmy holds an agency relationship with CCC to bind them to the contract with ATC? RULE: INSTEAD OF REPEATING THE RULE YOU CAN SAY SEE RULE SECTION ABOVE UNDER ISSUE #1 SEE COMMENTS ABOVE UNDER RULE SECTION. As R2d 1 requires: manifestation of consent by one person (principal) to another; that the other shall act on his behalf and subject to his control; and consent by the other (agent) to so act. Moreover, R2d 1.01 states that agency is the fiduciary relationship that arises when one person (principal) manifests assent to another person (agent) that the agent shall act on the principals behalf and subject to his control, and the agent manifests assent or othe rwise consents to so act. ANALYSIS: Lucille (agent) delegated a duty EXPRESSLY ALLOWED BY THE BOARD RESOLUTION for contracting for cement trucks to Sam, who thus was an agent of CCC. In many ways, Lucille became the principal and delegated a specific job to Jimmy who became an agent. CCC WAS THE PRINCIPAL, LUCILLE WAS AN AGENT AND JIMMY WAS A SUBAGENT. CONCLUSION: Jimmy is an agent A SUBAGENT OF CCC, definitely of CCC, possibly through Lucille. SUB-ISSUE: What authority does Jimmy hold as an agent? RULE: INSTEAD OF REPEATING THE RULE YOU CAN SAY SEE RULE SECTION ABOVE UNDER ISSUE #1 SEE COMMENTS ABOVE UNDER RULE SECTION. Actual authority is defined by R3d 3.01 as a principals manifestation to agent that is reasonably understood by the agent t hat expresses principals assent that the agent take action on the principals behalf. R2d 8 and R3d 2.03 test for apparent authority requires manifestation from principal; reaching 3 party. R2d 8A: The test for inherent authority is if the act is generally done by people in that position with those responsibilities, or would a 3 party have reason to know that Jimmy was not allowed to enter the contract. ANALYSIS: -actual authority: Jimmy acted expressly in opposition of direction given by Lucille. He cannot have actual authority EXPRESS OR IMPLIED BECAUSE HE COULD NOT HAVE REASONABLY BELIEVED HE WAS AUTHORIZED TO ACT OUTSIDE THE SCOPE OF LUCILLES INSTRUCTIONS AND CANNOT IMPLY AUTHOR ITY OUTSIDE SCOPE OF SUCH INSTRUCTIONS. -apparent authority: Possibly. Manifestation from the principal would be the answer by the secretary THAT REACHED THIRD PARTY ATC AND THAT LED TO THIRD PART ATC REASONABLE BELIEF IN JIMMYS AUTHORITY TO BIND CCC IN CONTRACT. -inherent authority: Jimmy is not a general agent, he was authorized for one specific job. INHERENT AUTHORITY APPLIES TO GENERAL AGENTS AND GENERAL MANAGERS AND HE DOES NOT FALL WITHIN THAT CATEGORY. MIGHT WANT TO SET FORTH THE DEFINITION OF SPECIAL AGENT FOR JIMMY HE WAS AUTHORIZED TO TAKE ONE SPECIFIC ACTION ON BEHALF OF CCC AND DID NOT HAVE GENERAL AUTHORITY TO BIND CCC. CONCLUSION:
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ATC can bind CCC with apparent authority most likely. MIGHT ALSO WANT TO CONSIDER RATIFICATION AND ESTOPPEL.

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SAMPLE STUDENT ANSWER FOR Agency Review Q 1

What are the rights of ATC and Sam under relevant principles of agency law? ISSUE #1: Whether Lucille holds an agency relationship with CCC to bind them to the contract with Sam Sly? RULE: As R2d 1 requires: manifestation of consent by one person (principal) to another; that the other shall act on his behalf and subject to his control; and consent by the other (agent) to so act. Moreover, R2d 1.01 states that agency is the fiduciary relationship that arises when one person (principal) manifests assent to another person (agent) that the agent shall act on the principals behalf and subject to his control, and the agent manifests assent or othe rwise consents to so act. ANALYSIS: Here, CCC (principal) stated to Lucille (agent) that she could enter into contracts on behalf of CCC as well as delegate those duties to others (also agents). Here, the principal, CCC board, manifests assent to another, the agent Lucille, to act on their behalf. Lucille understood and agreed to act under the control of CCC. SHE RECEIVED INSTRUCTIONS FROM THE BOARD TO ENTER INTO CONTRACTS SUBJECT TO THEIR LIMITATIONS AND ACTED ON THOSE INSTRUCTIONS. CONCLUSION: An agency relationship has been established. This is a therefore a scope of AUTHORITY agency problem.

SUB ISSUE: What authority does Lucille hold as an agent? RULE: Actual authority is defined by R3d 3.01 as a principals manifestation to agent that is reasonably understood by the agent that expresses principals assent that the agent take action on the principals behalf. [USE R2d Agency Section 26] ADD IMPLIED AUTHORITY FROM R2d AGENCY R2d 8 and R3d 2.03 test for apparent authority requires manifestation from principal; reaching 3 party LEADING TO A REASONABLE BELIEF BY THIRD PARTY THAT AGENT WAS AUTHORIZED TO ACT FOR PRINCIPAL. R2d 8A: The test for inherent authority is if the act is generally done by people in that position with those responsibilities, or would a 3 party have reason to know that Lucille was not allowed to enter the contract. ANALYSIS: -actual authority (express or implied): ANALYZE WHETHER LUCILLE HAD ACTUAL EXPRESS AUTHORITY SHE DID NOT BECAUSE SHE ACTED CONTRARY TO INSTRUCTIONS OF THE PRINCIPAL CCC AND SHE COULD NOT HAVE REASONABLY BELIEVED SHE WAS AUTHORIZED TO ACT OUTSIDE THE SCOPE OF THAT AUTHORITY. Possibly implied because it fills in gaps in her job duties but she acted in direct opposition to the instructions she was given. Therefore, actual IMPLIED authority cant be relied on. -apparent authority
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When Lucille was contacted by Sam, she had a title within CCC; it could also be manifested if Sam communicated with someone in a position with a title from CCC that shows to the community or caller that they represent CCC. ANALYZE OTHER PARTS OF THE TEST: IT REACHED THE THIRD PARTY SAM AND IT WAS REASONABLE TO BELIEVE SOMEONE WITH THE TITLE CEO COULD TAKE ACTION ON BEHALF OF CCC . -inherent authority: a person with Lucilles title would have been assumed under the facts to hold the responsibility and ability to act. STATE WHY IT WOULD BE CONSIDERED CUSTOMARY FOR CEO TO HAVE AUTHORITY TO TAKE ACTION TO CONDUCT ALL BUSINESS MATTERS FOR CCC. CONCLUSION: Sam can bind CCC into the contract through Apparent and Inherent authority on Lucille. ISSUE #2: Whether Jimmy holds an agency relationship with CCC to bind them to the contract with ATC? RULE: INSTEAD OF REPEATING THE RULE YOU CAN SAY SEE RULE SECTION ABOVE UNDER ISSUE #1 SEE COMMENTS ABOVE UNDER RULE SECTION. As R2d 1 requires: manifestation of consent by one person (principal) to another; that the other shall act on his behalf and subject to his control; and consent by the other (agent) to so act. Moreover, R2d 1.01 states that agency is the fiduciary relationship that arises when one person (principal) manifests assent to another person (agent) that the agent shall act on the principals behalf and subject to his control, and the agent manifests assent or otherwise consents to so act. ANALYSIS: Lucille (agent) delegated a duty EXPRESSLY ALLOWED BY THE BOARD RESOLUTION for contracting for cement trucks to Sam, who thus was an agent of CCC. In many ways, Lucille became the principal and delegated a specific job to Jimmy who became an agent. CCC WAS THE PRINCIPAL, LUCILLE WAS AN AGENT AND JIMMY WAS A SUBAGENT. CONCLUSION: Jimmy is an agent A SUBAGENT OF CCC, definitely of CCC, possibly through Lucille. SUB-ISSUE: What authority does Jimmy hold as an agent? RULE: INSTEAD OF REPEATING THE RULE YOU CAN SAY SEE RULE SECTION ABOVE UNDER ISSUE #1 SEE COMMENTS ABOVE UNDER RULE SECTION. Actual authority is defined by R3d 3.01 as a principals manifestation to agent that is reasonably understood by the agent that expresses principals assent that the agent take action on the principals behalf. R2d 8 and R3d 2.03 test for apparent authority requires manifestation from principal; reaching 3 party. R2d 8A: The test for inherent authority is if the act is generally done by people in that position with those responsibilities, or would a 3 party have reason to know that Jimmy was not allowed to enter the contract.
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ANALYSIS: -actual authority: Jimmy acted expressly in opposition of direction given by Lucille. He cannot have actual authority EXPRESS OR IMPLIED BECAUSE HE COULD NOT HAVE REASONABLY BELIEVED HE WAS AUTHORIZED TO ACT OUTSIDE THE SCOPE OF LUCILLES INSTRUCTIONS AND CANNOT IMPLY AUTHORITY OUTSIDE SCOPE OF SUCH INSTRUCTIONS. -apparent authority: Possibly. Manifestation from the principal would be the answer by the secretary THAT REACHED THIRD PARTY ATC AND THAT LED TO THIRD PART ATC REASONABLE BELIEF IN JIMMYS AUTHORITY TO BIND CCC IN CONTRACT. -inherent authority:

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Jimmy is not a general agent, he was authorized for one specific job. INHERENT AUTHORITY APPLIES TO GENERAL AGENTS AND GENERAL MANAGERS AND HE DOES NOT FALL WITHIN THAT CATEGORY. MIGHT WANT TO SET FORTH THE DEFINITION OF SPECIAL AGENT FOR JIMMY HE WAS AUTHORIZED TO TAKE ONE SPECIFIC ACTION ON BEHALF OF CCC AND DID NOT HAVE GENERAL AUTHORITY TO BIND CCC. CONCLUSION: ATC can bind CCC with apparent authority most likely. MIGHT ALSO WANT TO CONSIDER RATIFICATION AND ESTOPPEL.

*GUIDELINES FOR ANSWERING REVIEW QUESTIONS* Use IRAC and IRAC headings Set forth the issue and subissues. Recite relevant legal rules; here recite the tests for creation of agency relationship and each form of authority. Cite to authority (R2d Agency) or case law for each point of law. Analyze facts in light of each test. If a multipart test, show how each part is met. Reach a conclusion for each issue and subissue and set if forth.