AGENCY/ACDEMIC SUCCESS
I.


THE 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 manifests assent
or otherwise consents so to act. (Restatement [Third] of Agency 1.01)
Main elements: Assent, Control and “On Behalf of”
1. Carrier v. McLlarky [AGENCY RELATIONSHIP ESTABLISHED;BREACH
OF DUTY ARGUED]
 Facts: McLlarky sought to find credit for an obsolete water heater for
Carrier, assuming it was still under warranty. McLlarky could not get the
credit. Carrier sued McLlarky in small claims court and won. McLlarky
appealed.
 Issue 1: Was there an agency relationship between Carrier and McLlarky?
(YES).
 Issue 2: Assuming an agency relationship exists, did the agent (McLlarky)
breach the agreement? (NO).
 Rule/Application 1: All elements of the agency relationship were met.
 Rule/Application 2: Under ordinary circumstances, the promise to act as
an agent is interpreted as being a promise only to make reasonable efforts
to accomplish the directed result. If so interpreted, the promisor is not
liable unless he fails to make such efforts as he reasonably can.
(Restatement [Second] of Agency 377, Comment b at 174). McLlarky
stated that he would return the water heater and ATTEMPT to get credit,
not assuring he would get it.
 Conclusion: Although an agency relationship was present, McLlarky
performed his duties as an agent and did not breach the agreement.
Original ruling reversed
2. United States v. Bonds [NO AGENCY; CONTROL ELEMENT MAIN
ARGUMENT]
 Facts: Trainer Greg Anderson would take Barry Bonds blood and urine
samples to BALCO (an organization under investigation for steroid
distribution to athletes) for analysis. Bonds testified that Anderson was his
friend and was providing him with substances including “vitamins and
protein shakes”, “flax seed oil”, etc. Bonds also testifies that Anderson
asked him for blood and urine samples but would only provide urine
samples (blood samples were reserved for his personal doctor). Bonds
believed the urine samples were to test his nutrition and was told by
Anderson that his tests always came back negative. Bonds did admit to
paying Anderson $15,000 a year for training but not as an employee but as
a friend. In 2004, Anderson and BALCO figures were indicted for illegal
steroid distribution. Anderson pled guilty to the charges and admitted to
providing performance enhancing drugs to athletes. The government
indicted Bonds on ten counts of making false statements and one count of
obstruction of justice. Bonds filed a motion in limine to exclude numerous
pieces of evidence the government contends link Bonds to steroids. Bonds
argues that Anderson’s statements were inadmissible hearsay. The
government argued that Anderson’s statements fit a hearsay exception as
Anderson acted as Bonds’ agent. The court ruled against the government.
Government appealed
 Issue: Is there an agency relationship between Bonds and Anderson? (NO)
 Rule/Application: (The established rule in agency law is that an agent is
one who “act(s) on the principal’s behalf and subject to the principal’s
control.”) (Restatement [Third] Agency 1.01) Here, Anderson is not
directly acting under Bonds control when delivering the samples to
BALCO. Furthermore, the testing of the samples was of Anderson’s own
authority and not Bonds’.
 Conclusion: Holding: Bonds never entered into an agency relationship
with Anderson, thus making the hearsay exception inapplicable to
Anderson’s statements. Disposition: District Court is Affrimed. (Majority
Opinion)
 Dissent: “Admittedly, Bonds testified he did not exercise much
supervisory authority over Anderson. But our inquiry is not whether
Bonds exercised his authority, but only whether Bonds had the authority
to exercise in the first place.”
A. AGENCY OR SALE
1. Hunter Mining Laboratories, Inc. v. Management Assistance, Inc. [NO AGENCY;
ALL ELEMENTS ARGUED]
 Facts: Hunter signed contracts with Hubco and Data Doctors, respectively, to
handle and install computer equipment for Hunter. MAI (a manufacturer of
computers) had dealership agreements with Hubco and Data Doctors (which
sold its products). The agreement required the dealers to, inter alia [among
other things], maintain appropriate premises, inform MAI of changes in
management, and to submit monthly reports. MAI reserved the right to
refused to sell to either if they didn’t meet certain credit standards. When
Hubco and Data Doctors both failed to satisfy the agreement with Hunter,
Hunter sued MAI for the breach of contracts. A jury found that MAI was
liable but the trial court found no evidence supporting the jury’s finding of an
agency relationship. MAI’s motion for judgment notwithstanding the verdict
was granted.
 Issue: Was there an agency relationship between MAI and Hubco/Data
Doctors? (NO).
 Rule/Application: In an agency relationship, the principal possess the right to
control the agent’s conduct. Restatement (Second) of Agency § 14. This
principle of agency, however, does not mean that an agency relationship exists
every time one party has a contractual right to control some aspect of another
party’s business. Only when a manufacturer controls the day to day or
operative details of the dealer’s business is an agency potentially created.
Another essential element of agency missing in this case is a fiduciary
obligation on the part of the alleged agents to “act primarily for the benefit of
MAI in matters connected with their undertaking.”
 Conclusion: The relationship between MAI and Hubco/Data Doctors was not
of agency but that of seller/buyer. Judgment notwithstanding the verdict
affirmed.
2. Stansifer v. Chrysler Motors Corp. [NO AGENCY; ON BEHALF OF ELEMENT
ARGUED]
 Facts: Stansifer attempted to sue Chrysler for violation of the Automobiles
Dealer’s Day in Court Act following termination of his dealership. If Fisher
Motors, a distributor and wholesaler of Chrysler cars who entered into a
written agreement with Stansifer, was an agent of Chrysler. If so, then the
written dealership agreement between Fisher and Stansifer was in reality an
agreement between Chrysler and Stansifer, making the Day in Court Act
applicable. Trial court ruled against Stansifer stating that Fisher was not acting
on behalf of Chrysler, rather for its own benefit. Stansifer appealed.
 Issue: Was there an agency relationship between Fisher and Chrysler? (NO).
 Rule/Application: One who receives goods from another for resale to a third
person is not thereby the other's agent in the transaction: whether he is an
agent for this purpose or is himself a buyer depends upon whether the parties
agree that his duty is to act primarily for the benefit of the one delivering the
goods to him or is to act primarily for his own benefit. (Restatement [Second]
Agency 14J). While Chrysler had considerable control over Fisher’s
operation, Fisher was setting the prices for cars with Stansifer for its own
benefit, not Chrysler’s.
 Conclusion: Due to the “on behalf of” not being fufilled, an agency
relationship is not established. Judgment affirmed.
3. United States v. General Electric Co. [AGENCY RELATIONSHIP; CONTROL
ELEMENT ARGUED]
 Facts: Through a system of contracts between General Electric which owned
the patents for electric lamps with tungsten filaments and manufactured most
of those sold and a large number of wholesale and retail dealers in electrical
supplies, the dealers were appointed agents of the company to sell, on
commission, the lamps, which were to be consigned to them by the company,
transportation prepaid; the sales were to be at prices fixed by General Electric,
the dealers to pay all expenses except the original transportation and to
account to the company periodically for the amount, less commission, of all
sales, cash or credit, and all the stock entrusted to the dealers was to remain
the property of General Electric until sold, and to be accounted for by the
dealers. Government sued the company stating that the dealers were
purchasers in disguise and was a violation of trade and the Anti-Trust Law.
 Issue 1: Is there an agency relationship between General Electric and the
dealers? (YES)
 Issue 2: Assuming there is an agency relationship, is General Electric under
violation of the Anti-Trust Law? (NO)
 Rule/Application: Restatement [Third] of Agency 1.01. It is not contested that
the distributors were acting on behalf of and with the permission of General
Electric. As for the control element, General Electric gave its distributors
instructions on how to handle business with potential consumers (agent is to
turn over unsold lamps, cannot control prices of the product, pay the company
the value of the lamps if lost and/or damaged, etc.). Therefore, the control
element is satisfied and an agency relationship is established. Also, due to the
agency relationship, General Electric did not violate the Anti-Trust Law.
 Conclusion: The dealers were genuine agents, not purchasers in disguise, of
General Electric Co. and that the plan was not a device to fix prices after sale
and to restrain trade and exercise monopoly in the lamps in violation of the
Anti-Trust Act. Decree of trial court dismissing the bill is affirmed.
B. AGENCY OR DEBTOR-CREDITOR RELATIONSHIP
1. A. Gay Jenson Farms Co. v. Cargill, Inc. [AGENCY RELATIONSHIP; ALL
ELEMENTS ARGUED]
 Facts: Warren operated a grain elevator and purchased grain from farmers for
resale. Cargill financed Warren for Warren’s operations to the extent that both
defendants’ names appeared on drafts that Warren dispersed. Cargill also had
a significant amount of control over Warren, including approving any
expenditure over $5,000, approving of any stock sale or dividends, and
instructing Warren to explain the nature of any withdrawals on the account.
Warren also sold a majority of its grain to Cargill. Warren had financial
problems that worsened until Plaintiffs began questioning the ability of
Warren to make payments, and Cargill reassured Plaintiffs otherwise. Warren
was forced to close, owing Plaintiffs $2 million. Plaintiffs brought suit against
both, claiming Cargill was a principal of Warren.
 Issue 1: Is there an agency relationship between Cargill and Warren? (YES)
 Issue 2: Assuming there is an agency relationship, is Cargill liable to the
farmers? (YES)
 Rule/Application 1: Restatement [Third] of Agency 1.01. When Cargill
directed Warren to implement its recommendations, consent was established.
In procuring grain for Cargill as part of normal operations, Warren acted on
behalf of Cargill. Control was established when Cargill interfered with the
internal affairs of Warren and also continued to finance Warren’s operating
expenses along with a number of other factors. [Note: These elements are
also found in Debtor-Creditor Relationship]
 Rule/Application 2: A creditor who assumes control of his debtor's business
for the mutual benefit of himself and his debtor, may become a principal, with
liability for the acts and transactions of the debtor in connection with the
business. (Restatement [Second] of Agency 14 O). Due to Cargill being
Warren’s principal, they are liable to the losses suffered by the farmers.
 Conclusion: An agency relationship did exist between Cargill and Warren,
making Cargill liable to the farmers. Judgment affirmed.
C. AGENCY OR BAILMENT (Bailment – the rightful possession of goods by one who
is not the owner)
1. Jones v. Taylor (NO AGENCY; CONTROL AND ON BEHALF OF ELEMENTS
ARGUED)
 Facts: Carl Jones is seeking to recover for damages to his automobile and loss
of rental thereon resulting from a collision between said automobile which
was being driven by Lester Jones (no relation), and a motor vehicle being
operated by defendant, Praley Taylor. Carl Jones was the titled owner of the
vehicle and had been renting the vehicle to Lester Jones for use on his job as a
taxicab driver. Lester Jones does not have control of the car when not using it
as a taxicab. Carl Jones argues that was a relationship of bailment and should
recover. Taylor argues that the arrangement was that of agency, thereby
disqualifying Jones from recovery. Trial court ruled in favor of Taylor.
Appeal followed.
 Issue: Is there an agency relationship between Carl Jones and Lester Jones?
(NO)
 Rule(s)/Application: (Restatement [Third] of Agency 1.01). Whenever
personal property or a chattel is hired out for the use of the hirer, and
exclusive temporary possession is given the latter for use by him without any
control by the owner, a bailment for hire is created. (8 C.J.S. Bailments 8,
p.349.) Carl Jones automobile was hired out to Lester Jones as long as L.
Jones paid C. Jones $12.00 per day for its use as a taxicab. C. Jones retained
no control over the vehicle while it was in L. Jones’ possession and the
plaintiff never asked for the fares that L. Jones received, also eliminating the
on behalf of element and therefore establishes a bailment.
 Conclusion: The relationship between the plaintiff and Lester Jones was that
of bailment and not agency. Therefore, the plaintiff stands to recover for
damages to his automobile. Judgment reversed.
D. AGENCY AND THE LAW OF TRUSTS
*Trust – a fiduciary relationship with respect to property, subjecting the person by
whom the title to the property is held to equitable duties to deal with the property
for the benefit of another person, which arises as a result of a manifestation of an
intention to create it
1. Dierksen v. Albert [AGENCY RELATIONSHIP; CONTROL ELEMENT
ARGUED]
 Facts: Mrs. Albert received control of a corporate stock from her parents (Mr.
and Mrs. Dierksen) with certain elements having to be met. Mrs. Albert
suddenly went missing and her whereabouts are still unknown. However, Mrs.
Albert redelivered the shares to Mr. Dierksen before going missing, declaring
the shares “safer” in his custody. Trial court ruled against this, stating that this
was an express trust and the plaintiffs could not revoke it. Appeal followed.
 Issue: Is there an agency relationship between Mrs. Albert and her parents?
(YES)
 Rule/Application: Restatement [Third] of Agency 1.01. Where one delivers
property in trust in the name of another but retains substantial, detailed
directional control over the trust property, an effective trust is not created. A
relationship characterized by such control is more akin to an agency
relationship, as the Dierksens had the right to control and dispose of the
property at any time during their lifetimes.
 Conclusion: The relationship between the Dierksens and Albert was revocable
at any time and the Dierksens are entitled to a declaration revesting them full
ownership of the stock. Judgment reversed.
E. AGENCY OR ESCROW HOLDER
*Escrow Holder - An escrow account provides a safe place for deeds and funds
throughout a real estate transaction. Purchasing a home or other real estate
often calls for an escrow fund--a special deposit account where funds or deeds
are held until the closing is held or other final conditions are met
1. King v. First National Bank (NO ESCROW; STILL LIABLE TO THIRD
PARTY)
 Facts: Thomas and Linda King agreed to purchase a parcel of real property
from Elmer and Lesta Olson. The Kings and the Olsons met to execute a
deed of trust, promissory note and request for reconveyance. The Olsons
signed and addressed a document named “Collection Instructions” to the
First National Bank of Fairbanks stating that the deed of trust, promissory
note and request for reconveyance were to be deposited with the bank’s
escrow department and accept payments on the note and deposit the rest
into the Olsons’ bank account. Elmer Olson later went to the bank and
altered the instructions to have the Bank credit the entire amount of each
payment to the Olsons’ savings account and the Bank complied. Once the
note was paid, the Kings requested the Bank delivered the deposited
documents and they received all but the deed. The Kings were later
notified by the Fairbanks tax assessor that the state had terminated the
Olsons’ contract due to failure of making the annual payment in October
1971. The Kings sued the First National Bank of Fairbanks. The Bank
wins. The Kings later sought recovery from the Bank.
 Issue 1: Was there an escrow agreement between the Kings and the Bank?
 Issue 2: Was there an agency relationship between the Bank and the
Olsons?
 Issue 3: Assuming an agency relationship exists, did the Bank breach its
duty as an agent to the third party (the Kings)?
 Rule(s)/Application: “An escrow holder…differs from a person receiving
property to be delivered to a third person, either gratuitously or otherwise,
upon the happening of an event,…but who makes no agreement with the
third person.” (Restatement [Second] of Agency 14D, Comment c).
(Restatement [Third] of Agency 1.01). “An agent acting on behalf of one
person may be held liable to a third person for failure to perform a contract
intended to benefit the third person. The third party is justified in relying
on the contract and it may not be changed without his consent.”
(Restatement [Second] of Agency, Appendix 14D at 58). The Kings were
not a party to the agreement with the Bank, thus there was no escrow
agreement. Through the “Collection Instructions” document, The Olsons
entered an agency relationship with the Bank with the Kings serving as
third-party beneficiaries. When the Olsons submitted amended instructions
with the Bank, which the Bank honored, the Bank became liable to the
Kings. The original instructions were intended to protect the Kings’
interest, which the Bank breached.
 Conclusion: Although there was no escrow agreement between the Kings
and the First National Bank, the Bank is still liable to the Kings and
summary judgment should have been denied on the basis of the third party
beneficiary doctrine. The lower court’s decision is reversed in part.
F. AGENCY DISTINGUISHED FROM OTHER RELATIONSHIPS
1. Franchise Relationship: a franchise is defined as “a license from the owner of a
trademark or trade name [the franchisor] permitting another [the franchisee] to sell a
product or service under that name or mark.” (H & R Block, Inc. v. Lovelace)
2. Marriage Relationship: The marriage relationship does not create an agency between
husband and wife because in particular transactions it is not necessarily – or even
usually – the case that one spouse is acting on behalf of and subject to the control of
the other spouse. “While the existence of marital or family ties between the alleged
agent and principal, unaccompanied by any other facts or circumstances, will not
justify an inference of agency, such relationship is entitled to great weight, when
considered with other circumstances, as tending to establish the fact of agency”
(Mays v. Brighton Bank)
3. Property Relationships
a. Co-ownership – This relationship does not in itself establish agency because one
cannot fairly infer that one co-owner consents to another acting on his behalf
merely from the fact that they are joint owners of property.
b. Landlord-Tenant – “The lessee’s status does not make him an agent authorized to
enter contracts on behalf of the lessor” (Frank v. United States). Also, “A lessor’s
knowledge of, and acquiescence in, the making of improvements by the tenant,
are insufficient to establish agency.” (McCombs Constr., Inc. v. Barnes).
However, “…if a lessee makes improvements because it is required to do so under
the terms of the lease, it [becomes] the lessor’s agent.” (Christensen Group v.
Puget Sound Power & Light).
4. Corporate Relationships
a. The Agency Status of Corporate Directors - Although a corporation's shareholders
elect its directors and may have the right to remove directors once elected, the
directors are neither the shareholders' nor the corporation's agents as defined in
this section, given the treatment of directors within contemporary corporation law
in the United States. Directors' powers originate as the legal consequence of their
election and are not conferred or delegated by shareholders. Although corporation
statutes require shareholder approval for specific fundamental transactions,
corporation law generally invests managerial authority over corporate affairs in a
board of directors, not in shareholders, providing that management shall occur by
or under the board of directors. Thus, shareholders ordinarily do not have a right
to control directors by giving binding instructions to them. If the statute under
which a corporation has been incorporated so permits, shareholders may be
allocated power to give binding instructions to directors through a provision in the
corporation's articles or through a validly adopted shareholder agreement. The
fact that a corporation statute may refer to directors as the corporation's "agents"
for a particular purpose does not place directors in an agency relationship with
shareholders for purposes of the common law of agency. In any event, directors'
ability to bind the corporation is invested in the directors as a board, not in
individual directors acting unilaterally.
b. The “Mere Instrumentality” or “Alter Ego” Doctrine Contrasted with Traditional
Agency Liability - It is a well-established principle that a corporation is separate
and distinct as a legal entity from its shareholders, directors and officers and,
generally, from other corporations with which it may be affiliated. Stock
ownership alone in one corporation by another does not create an identity of
interest between the two or create the relation of principal and agent,
representative, or alter ego between the two. Nor does the use of common officers
and directors of itself render one corporation liable for the obligations of another.
These practices are common and exist in most parent-subsidiary relationships.
Generally, before the separate corporate identity of one corporation will be
disregarded and treated as the alter ego of another, it must be shown that it is so
controlled and its affairs so conducted that it is a mere instrumentality of another,
and it must further appear that observance of the fiction of separate existence
would, under the circumstances, sanction a fraud or promote injustice. While,
ordinarily, when multiple corporations are involved, a party seeks to pierce the
corporate veil to hold a parent liable for its subsidiary's acts or the subsidiary
responsible for the acts of its parent,…the doctrine of piercing the corporate veil
is not limited to the parent and subsidiary relationship; the separate corporate
identities of corporations owned by the same parent will likewise be disregarded
in an appropriate case.
G. THE AMBIGUOUS PRINCIPAL PROBLEM
1. Thayer v. Pacific Electric Railway [AGENCY RELATIONSHIP; DUAL
AGENCY]
 Facts: Thayer purchased a precision grinding machine and arranged for its
shipment. The machine was in god condition when delivered to the originating
carrier but arrived damaged. The Pacific Electric Railway’s agent, Hileman,
notified Thayer of the damage, who inspected the machine and had
photographs taken of the damage before it was moved. The bill of lading
required that a written claim for damage must be made within nine months of
the machine’s delivery. A dispute arose over the payment of the freight
charges, with Thayer contending that he not pay them the money owed
because of the damage to the machine. Within a month of delivery, Hileman
went to Thayer’s office and obtained payment of the freight charges, but only
after Hileman annotated the freight bill “Damage on this shipment, 4/20/55,
C.D. Hileman.” The annotated freight bill was kept as part of the permanent
file. Thayer had been provided standard claim forms and was told by Hileman
that they could be submitted when the extent of the damage was ascertained.
Over nine months later, the extent of the damage was ascertained, and
Thayer’s attorney made a written claim for the damages, which was denied
because of the provision on the bill of lading. Thayer successfully brought suit
against Pacific for the damages to the machine and Pacific appealed,
contending in part that the annotated freight bill would not satisfy the written
claim requirement.
 Issue: Is there an agency relationship between Thayer and Hileman? (YES)
 Rule(s)/Application: Restatement [Third] of Agency 1.01. It is not
necessarily always true that a party acting as an agent in a transaction must be
exclusively the agent of one party or the other. When he is requested and
performs duties for each of the parties, with the knowledge and consent of
both, he may very well be considered as an agent for each for the particular
services he renders that principal. (Utah State Univ. v. Sutro & Co.) When
Hileman signed the freight bill at Thayer’s insistence, even though he was an
agent of Pacific, he became Thayer’s agent for the purpose of annotating the
freight bill. The dual agency rule provides that an agent cannot act on behalf
of an adverse party in a transaction without the permission of his principal.
However, there are many situations where one is not the exclusive agent of
one party to a transaction.
 Conclusion: Existence of an agency relationship is a question of fact.
Judgment affirmed.
2. Kilbourn v. Henderson [NO AGENCY]
 Facts: Kilbourn, an employee of the Ohio Turnpike Commission (OTC), was
covered by OTC’s group health insurance plan, which was administered for
OTC by Laura Fitzgerald. Coverage was provided by CNA through the
Henderson insurance agency. After Fitzgerald assured Kilbourn that in-patient
treatment for his alcoholism would be covered by the insurance plan, he
checked into a treatment center. When coverage for that treatment was denied,
Kilbourn filed this suit against Henderson, CNA, and OTC, contending that
Fitzgerald had acted as agent to bind Henderson and CNA by her statements.
The trial court granted the joint motion for summary judgment filed by
Henderson and CNA and denied OTC’s motion of summary judgment. This
appeal followed.
 Issue: Does an employer’s administration of a group insurance plan create an
agency relationship between the employer and the insurance carrier? (NO)
 Rule/Application: The rationale of these cases appears to be that the employer
is acting for its own benefit or for its employees in performing these tasks,
rather than serving the purposes of the insurer, that the real insured is the
employer acting for the employees as a group, that the employer and the
employees are allied in their interests, and that these interests are adverse to
the insurer. (Elfstrom v. New York Life Insurance Co.) OTC’s employee,
Fitzgerald, was not acting for the benefit of Henderson and CNA. Rather, in
administrating the plan, she was acting for the benefit of OTC and its
employees. Therefore, Henderson and CNA are not bound by her statements.
Also, the insurance policy plainly states that it covers treatment for alcoholism
on an outpatient basis, but not on an inpatient basis.
 Conclusion: Fitzgerald was not an agent of Henderson and CNA, thus
dismissing Kilbourn’s claim for recovery. Judgment affirmed.
3. Norby v. Bankers Life Co. [AGENCY RELATIONSHIP]
 Facts: Hoffman, Norby’s employer, was a member of the Association, which
was the policy holder in a group accident and sickness policy issued by
Bankers Life Co. Norby became employed in August 1970, and submitted his
intial application for coverage in September 1970. The policy provided for
partial reimbursement for medical expenses incurred by covered employees
for illness or accidents, including dependent coverage. His initial application
was never transmitted to Bankers. When Norby learned of this, he submitted a
second application, with coverage beginning January 20, 1971, if the first
application was not binding on Bankers. Norby’s child was injured on January
19, 1971, and he made a claim under the policy, which was rejected. Norby
successfully brought an action to recover benefits under the policy, the court
finding that the initial application was binding upon Bankers because
Hoffman was acting as the agent of Bankers in accepting the initial
application. From this decision, Bankers appealed.
 Issue: Will an employer be considered the insurer’s agent to the extent that the
employer, with the insurer’s consent, performs the functions of the insurer in
the administration of a group policy? (YES)
 Rule/Application: An agency relationship is based upon consent by one
person that another shall act in his behalf and be subject to his control.
(Restatement, Agency 2d 1). Administration of a group insurance policy
includes the collecting and remitting of insurance premiums, terminating and
reinstating insurance, assistance in the processing of claims, and to a certain
extent, determining eligibility. When an employer performs a substantial or
significant portion of these duties, the group policy can be considered
“employer-administered.” To the extent the employer (Hoffman), with the
consent of the insurer (Bankers), performs the functions of the insurer, it may
properly be considered the insurer’s agent. In this case, Norby was plainly
elgible except for Hoffman’s mishandling of his initial application, a function
clearly delegated to Hoffman by Bankers.
 Conclusion: Thus, with respect to this function, Hoffman acted as the agent of
Bankers, and as such the initial application was binding on Bankers, entitling
Norby to benefits under the policy. Judgment affirmed.
H. SUBAGENCY – Subagency exists when an agent (A) is authorized expressly or
(more commonly) implicitly by the principal (P) to appoint another person (B) to
perform all or part of the actions A has agreed to take on behalf of P. If A remains
responsible to P for the actions taken, B is a subagent and A is both an agent (to P)
and a principal (to B). B is an agent of P as well as A, which underscores the
importance of P’s express or implied consent to this relationship.
II.
RIGHTS AND DUTIES BETWEEN PRINCIPAL AND AGENT
A. DUTIES OF PRINCIPAL TO AGENT
1. Duty of Exoneration and Indemnification [SUBAGENCY; PRINCIPAL
FOUND LIABLE]
a. Admiral Oriental Line v. United States
 Facts: Atlantic Gulf and Oriental Company employed the Admiral
Oriental Line to fit out the steamship “Elkton” on a voyage out of
Pulupandan. This steamship was owned by the United States and
had been entrusted to the company as ship’s agent under an
operating contract. While Admiral was performing its contractual
duties, a typhoon arose and caused the entire ship, along with its
crew and cargo, to be lost at sea. As a result, the Elkton’s cargo
owners brought suit for damages against Admiral for the losses
they suffered in the storm. Moreover, although the suit was
unsuccessful, Admiral suffered legal expenses in defending the suit
and, as a result, cross-claimed against the Atlantic, contending the
latter, as principal, was responsible for the legal expenses it had
incurred. Subsequently, Atlantic in turn, cross-claimed against the
U.S., contending that the latter was the principal in the whole
venture and as such was responsible to its immediate agent,
Atlantic, for any legal expenses Atlantic might be compelled to
pay Admiral. Notwithstanding these cross-claims’ contentions, the
district court dismissed them both for failure to state a cause of
action. Atlantic and Admiral appealed.
 Issue: May an agent, compelled to defend a baseless suit, grounded
upon acts performed in his principal’s business, recover from the
principal the expenses of his defense? (YES)
 Rule/Application: The general doctrine is that an agent may
recover any expenditures necessarily incurred in the transaction of
his principal’s affairs. In this case, Atlantic contractually agreed
with the U.S. to maintain the latter’s ships and keep them in
seaworthy conditions, and coordinate administrative and general
expenses. Moreover, the company employed Admiral to perform
all the principal’s duties under its contract with the U.S in areas
where it has no offices of its own. Hence, in reasonably construing
both contracts, Atlantic was an agent of the United States and
Admiral was an agent of Atlantic. Although the U.S.-Atlantic
contract contained language prohibiting agents of Atlantic from
being agents of the U.S., the U.S. is still responsible for any
expenses Admiral incidentally incurred due to its contractual duties
for Atlantic.
 Conclusion: The U.S. is obligated to indemnify Admiral for its losses
due to being sole principal of the sub-agency involving Atlantic and
Admiral. Atlantic exonerated. Reversed and remanded.
2. Duty to Pay Compensation
a. Express Contract Between Principal and Agent [DEFENDANT
WON]
aa. Roberts Associates (P) v. Blazer International Corp. (D)
 Facts: Blazer International Corp. terminated Roberts Associates,
Inc. as its exclusive manufacturers’ representative for certain parts
sold to the automobile industry. On December 15, 1982, Blazer
sent Roberts a letter confirming its understanding of the scope of
Roberts’ agency relationship and the rate of compensation. The
letter stated that Roberts was Blazer’s exclusive representative for
certain accounts, listed the products sold to those accounts, and
provided that Roberts would be paid a 5% commission on these
items and any other items sold to those accounts. In 1982, Blazer
was awarded a large contract for the Fisher Guide Division of
General Motors. Subsequently, Blazer then reduced its commission
to Roberts. Several years later, Blazer terminated its relationship
with Roberts. Roberts brought suit against Blazer for its
commission, contending that it was Roberts that was responsible
for securing the large Fisher Guide account for Blazer,
notwithstanding that Blazer closed the deal after Roberts was
terminated. Blazer moved for summary judgment on the grounds
that Roberts was not the procuring cause of the Fisher Guide
account.
 Issue: May a sales agent recover commissions only on sales which
were the subject or result of discussions, negotiations, quotations,
or pre-sale customer services in which the sales agent actually
participated? (YES)
 Rule/Application: …the agent is entitled to recover his commission
whether or not he has personally concluded and completed the
sale, it being sufficient if his efforts were the “procuring cause” of
the sale. (Reed v. Kurdziel). Here, Roberts has no valid claim to
commissions on the Fisher Guide account after the date of Roberts’
termination. There is no allegation that Roberts had an exclusive
agency agreement as to the parts sold to the Fisher Guide account
which would preclude Blazer from approaching the accounts
during the life of the agreement. Nor did the 1982 agency
agreement guarantee commissions for all sales to customers
procured by Roberts. It is undisputed that Roberts had nothing to
do with sales to Fisher Guide following its termination.
 Conclusion: As a matter of law, Roberts could not have been the
procuring cause of those sales. Claim dismissed.
b. Implied-in-Fact Contract
aa. McCollum v. Clothier [JUDGMENT FOR PLAINTIFF]
 Facts: Dr. Clothier, held a mortgage upon certain real property,
machinery and equipment of the Kiest Beet Harvester Company of
Hooper, Utah, which company went into bankruptcy in May, 1949.
Clothier instituted foreclosure proceedings and procured judgment.
Before the sheriff's sale was had, J. Grant Iverson who was acting
as attorney for the defendant, talked to the trustee in bankruptcy
about the plaintiff McCollum who had been assisting the trustee in
bankruptcy during the time she was in control of the property and
had been helping in the sale of some of the machinery and
equipment. At Clothier’s request, McCollum went to the premises
and there met Mr. Iverson and Henrietta McGlone, Dr. Clothier's
Idaho attorney. Plaintiff aided then in checking and inventorying
the property. He also discussed with them the fact that he had
interested some persons in buying it. He was told by Mr. Iverson to
continue to line up prospective buyers for the machinery and keep
those he had previously talked to informed as to when the sale
would take place. McCollum's evidence is further that a key to the
premises was given him which he immediately turned over to the
caretaker, Mr. Floyd Simpson, who thereafter opened the premises
for the plaintiff whenever he had a prospect to show the equipment
to; that he continued to actively seek for buyers interested in
purchasing the machinery; that he made several trips to Salt Lake
City and Pocatello, Idaho, either in direct response to Clothier or
his agent's request, or on matters necessary to the successful
completion of the work he was doing for the defendant.
 Issue: Is Clothier liable for compensation of McCollum’s work
under the “implied-in-fact contract” element? (YES)
 Rule/Application: Except where the relationship of the parties, the
triviality of the services, or other circumstances indicate that the
parties have agreed otherwise, it is inferred that one who requests
or permits another to perform services for him as his agent
promises to pay for them. (Restatement of Agency, Vol. 2,
Sec.441). The fact that McCollum had been working previously for
Clothier in a similar capacity, for which he had been paid, coupled
with the request made by the Clothier’s attorney and agent to
continue the work, and the knowledge of Clothier himself that the
work was being done, are all factors which the trial judge could
take into consideration in applying the above rule.
 Conclusion: The evidence is sufficient to support these findings of
the court that there was an implied contract to pay for the
reasonable value of McCollum’s services. Judgment affirmed.
bb. McKnight v. Peoples-Pittsburgh Trust Co. [JUDGMENT FOR
DEFENDANT]
 Facts: By virtue of two foreclosed mortgages, the People's
Pittsburgh Trust Co., hereinafter referred to as the Bank, became
the owner of two theatres. The firm of George Brothers, real estate
consultants, was the agent for the bank in the management of the
said theatres. W. D. George, of the aforementioned firm, placed
one Francis McKnight in charge of the two theatres, in which
position he remained for a period of 10 years, after which time he
entered the military service. During his employment McKnight
received a regular monthly salary, and at the time of his departure
received a testimonial check for $300.00 from George Brothers.
Prior to the time he was separated from the service, he requested
additional compensation from George Brothers for his services in
developing the theatres for sale, which he alleged they had orally
agreed to pay him. When they refused to compensate him further,
averring that full payment had been made for services rendered,
McKnight instituted this action against the bank to recover
additional compensation.
 Issue: Is the bank liable for the compensation of McKnight? (NO)
 Rule/Application: If an agent employs a subagent, the agent is the
employing person and the principal is not a party to the contract of
employment, except where, by express promise or otherwise, he
becomes a surety. He is not, therefore, subject to pay the agreed
compensation . . . (Restatement, Agency, section 458, Comment
"a"). McKnight was acting as an agent to the George Brothers, but
not the bank itself. The relationship between McKnight and the
bank was that of subagency.
 Conclusion: Due to the subagency relationship, the Bank is not
liable to compensate McKnight. Judgment affirmed.
3. Duty of Care - A master is subject to a duty that care be used either to
provide working conditions which are reasonably safe for his servants
and subservants, considering the nature of the employment, or to warn
them of risks of unsafe conditions which he should realize they may not
discover by the exercise of due care. (Restatement [Second] of Agency
492)
4. Social Legislation
a. Worker’s Compensation Legislation (requires employers to pay premiums
for insurance [or set aside reserves] for compensating employees
according to a detailed schedule of recoveries for injuries incurred in the
course of employment.)
b. Other Social Legislation:
 Unemployment Compensation: partially cover the loss of wages
for up to 26 weeks when a worker is involuntarily unemployed for
such non-fault reasons as reduction in the work available
 Laws requiring employers to rehire returning veterans
 The 1964 Civil Rights Act (Fair employment provisions):
forbidding employers of 15 or more employees to discriminate on
the basis of race, color, religion, sex or national origin
 The Age Discrimination in Employment Act: placing restrictions
on employers of 20 or more employees
 Minimum Wage laws
 Laws regulating the relationship between management and
labor
 Employee safety legislation, such as the federal Occupational
Safety and Health Act of 1970, the Federal Mine Safety and
Health Act of 1977, and similar legislation on the state level
 The Employee Polygraph Protection Act (1988)
 The Worker Adjustment and Retraining Notification Act
(1988) [requires 60 days’ notice of plant closings or mass layoffs
for employers of 100 or more)
 The Americans with Disabilities Act of 1990
 The Family and Medical Leave Act of 1993, applicable to
employers of 50 or more employees
5. Duty to Deal Fairly and in Good Faith
a. Taylor v. Cordis Corp. [JUDGMENT FOR DEFENDANT]
 Facts: Taylor was an agent who attempted to nullify a non-compete
covenant he had signed with Cordis, his employer, by alleging that
Cordis had committed a material breach of their contract, enabling
Taylor to cancel the contract. The alleged breach was failing to
inform Taylor of a battery-depletion problem in the heart
pacemakers he was selling on behalf of Cordis. Taylor argued that
Cordis was under a duty to inform its sales staff as soon as it
learned there might be a problem. Instead, Cordis waited until after
it had taken time to investigate and verify complaints, a period of
over a year, before informing Taylor and others. This delay
damaged his reputations by diminishing the confidence the
physicians had in him, Taylor argued.
 Issue: Did Cordis breach the duty to deal fairly and in good faith
element in his contract with Taylor? (NO)
 Rule/Application: The court recognizes that a principal has a duty
to deal fairly and in good faith with an agent and to provide the
agent with any information which might subject the agent to
physical or pecuniary loss in dealing with the product. In this case,
Cordis was under a duty to inform its sales staff of defects but only
after, in the exercise of reasonable diligence, it had fairly
concluded that a specific product presented a threat of harm to
others. Cordis’s notification of Taylor had been timely, thus in
effect granting an employer reasonable time to investigate and
verify the validity of complaints before being under duty to inform
its agents.
 Conclusion: Cordis did not breach duty to deal fairly and in good
faith element, thus keeping the non-compete covenant in effect.
Injunction issued.
b. Deonier & Associates v. Paul Revere Life Insurance Company
[JUDGMENT FOR PLAINTIFF]
 Facts: Principal (Paul Revere) failed to inform its agent (Deonier &
Associates) that if a policyholder failed to properly disclose a preexisting condition on an insurance application and that
policyholder filed a claim based on that condition more than two
years after the policy issued (thus possibly triggering the policy’s
incontestability clause), Paul Revere intended to deny coverage.
Paul Revere’s legal position, based on a 1975 federal court
decision (the Forman defense), was that the policyholder’s
nondisclosure voided coverage notwithstanding the incontestability
clause. In the litigation in question, Paul Revere denied coverage
based on the Forman defense and, together with Deonier, was sued
by the policyholder. Deonier filed a cross-claim against Paul
Revere, arguing that Paul Revere’s failure to inform her that it
would invoke the Forman defense under such circumstances
breached a fiduciary duty that Paul Revere owed to her. The
District Court disagreed and ordered summary judgment in favor
of Paul Revere.
 Issue: Did Paul Revere violate duty to deal fairly and in good faith
element in agency relationship with Deonier? (YES)
 Rule/Application: Unless otherwise agreed, it is inferred that a
principal contracts to use care to inform the agent of risks of
physical harm or pecuniary loss which, as the principal has reason
to know, exist in the performance of authorized acts and which he
has reason to know are unknown to the agent. His duty to give
other information depends upon the agreement between them.
(Restatement [Second] of Agency 435). The duty may require not
only warning the agent against physical dangers, as when the
principal directs an agent to go to a place which is dangerous, but
also disclosing facts which, if unknown, would be likely to subject
the agent to pecuniary loss. Thus, a principal employing a factor to
sell goods which appear to be but are not sound is subject to
liability to the agent if the agent is led to incur personal liability to
a buyer through mistaken statements concerning the condition of
the goods. (Restatement [Second] of Agency 435, comment “a”).
In this case, there was a likelihood that a policyholder would fail to
properly disclose a pre-existing condition, would file a claim after
the two-year incontestability period expired, a Montana court
would rule that the incontestability clause precluded a denial of
coverage (in other words, reject the Forman defense) and, as a
result of all this, a Paul Revere agent who sold the policy would
incur liability to the policyholder for failing to inform the
policyholder of this possibility.
 Conclusion: Summary judgment in favor of Paul Revere was error.
Paul Revere had a duty to inform its agents of its intention to
invoke the Forman defense, presumably before the agent sold its
health insurance policy.
B. DUTIES OF AGENT TO PRINCIPAL
1. Duty of Good Conduct and to Obey – an agent is subject to a duty not to
act in a manner that makes continued friendly relations with the
principal impossible. Also, the agent must not bring disrepute to the
principal. The agent must obey all reasonable directions of the principal.
The duty to obey is unique to agency in the commercial world and
distinguishes the agent from all other fiduciaries.
2. Duty to Indemnify Principal for Loss Caused by Misconduct – A principal
has an action in tort or in contract against an agent who wrongfully
causes it loss, as where the agent negligently damages the property of the
principal, or exceeds his authority, or by negligence or fraud causes the
principal to be liable to a third person, or violates a duty of loyalty owed
the principal. Thus, a servant is subject to a duty to indemnify the master
for damages the master had to pay resulting from the servant’s
negligence while acting within the scope of employment.
3. Duty to Account – Unless otherwise agreed, an agent is subject to a duty to
keep, and render to his principal, an account of money or other things
which he has received or paid out on behalf of the principal. (Restatement
[Second] of Agency 382)
4. The Fiduciary Duties of Agents
a. Commencement of Fiduciary Relationship - A relationship between an
agent and a principal also has temporal dimensions that define the scope of
the agent's duty to provide information to the principal. Ordinarily, an
agent does not have a duty to furnish information to the principal until an
agency relationship as defined in § 1.01 has been formed. As a
consequence, a prospective agent ordinarily may negotiate contract terms
with a prospective principal without furnishing the prospective principal
with all information possessed by the agent that may be of use to the
prospective principal. Moreover, a prospective agent is not subject to
duties of disclosure that stem from an agent's duties of loyalty as stated in
§§ 8.02-8.05, and, in particular, is not treated as an agent dealing as an
adverse party with the principal as stated in § 8.03. On the other hand, it
may be open to question precisely when an agency relationship has been
formed, especially when the prospective principal and agent have
interactions extending over some period of time, followed by execution of
a formal contract. Moreover, if the creation of the relationship between an
agent and a principal involves peculiar trust and confidence, and the
prospective principal relies on the prospective agent to deal fairly with the
prospective principal, the prospective agent is subject to a duty to deal
fairly in arranging the terms of the agency relationship, as if the
prospective agent were an agent dealing as an adverse party with a
principal, with the principal's knowledge. See § 8.06. The duty to deal
fairly may require a prospective agent to furnish the prospective principal
with information that is not otherwise reasonably available to the
prospective principal and that is material to the principal's decision
whether to engage the agent. (Restatement [Third] of Agency 8.11
comment “c”)
b. Duty of Care - The standard of care imposed on the fiduciary depends on
whether or not the fiduciary is or claims to be an expert in the area to
which his fiduciary duty relates. When the fiduciary either has or procures
his appointment by asserting that he has skill beyond that of the ordinary
prudent person, he will be judged by the level of skill that he has or that he
claims to have, whichever is higher. – (Garbish v. Malvern Fed. Sav. &
Loan Ass'N,)
c. Duty of Disclosure
1. Estate of Eller v. Bartron [JUDGMENT FOR PLAINTIFF]
 Facts: A real estate agent (Bartron) served as the seller's (Eller)
agent for two sales of the same house. The initial purchaser,
Brian Pierce of Pierce/O’Neill Ltd., a real estate firm,
submitted a bid for the house and, the same day, hired the
Eller's agent, Bartron, to serve as Pierce's agent for the second
sale. A few days later, Bartron convinced Eller to accept the
Pierce’s bid without disclosing his conflict of interest or
Pierce’s interest in flipping the house. After one day of trial
concerning Eller’s complaint against Bartron alleging, inter
alia, breach of fiduciary duties, the trial judge granted Bartron's
motion for a directed verdict. The court held that because Eller
raised issues o
 f material fact concerning whether Bartron breached his
fiduciary duties to the seller, the court remanded the case for a
new trial.
 Issue: Did Bartron breach his fiduciary duty of disclosure to
Eller? (YES)
 Rule/Application: The existence of an agency relationship
empowers an agent to act on behalf of his principal. When
accompanied by trust that the agent will use the principal's
confidential information to pursue the principal's ends, that
relationship also imposes fiduciary duties on the principal... An
agent who acquires a position adverse to the principal, but fails
to disclose it, simultaneously breaches the duties of loyalty and
care. Bartron’s failure to explain his dual agency role to Eller
prevented her from having an opportunity to assess her
risks. Bartron's agreement to act as the seller for
Pierce/O'Neill's second transaction affected the weight Eller
should assign to his views, so Bartron had a duty to refuse to
act for Pierce/O'Neill until he informed Eller of his opportunity
to benefit and secured Eller's consent. When Eller consented to
dual agency, she consented only to Bartron representing her
and the buyer in a single transaction. Eller's contractual
consent to Bartron representing her and a buyer's interest in a
single sale does not remove Bartron's duty to fully disclose his
January 22 agreement to serve as Pierce/O'Neill's agent to
resell the house. A real estate agent who accepts a dual agency
represents both the seller and the agent in a single transaction.
On January 28, when Bartron convinced Eller to accept
Pierce/O'Neill's offer even though it was significantly beneath
the price she expected, Eller did not know she was dealing with
a conflicted advisor. Eller thought Bartron expected to receive
a commission as the seller's agent and one as the buyer's agent.
She did not know he also expected to receive another
commission—as the seller's agent for an immediate resale of
the same property. Therefore, Eller did not consent to a
situation where she might reasonably expect Bartron to
recommend she sell the property for less than his estimate of its
market value.
 Conclusion: Bartron violated the duty of disclosure of his
agency relationship with Eller. Judgment reversed and remand
for a new trial.
d. Duty of Loyalty
i.
Loyalty During the Relationship
ii.
1. Gelfand v. Horizon Corp. [JUDGMENT FOR
DEFENDANT] (Relator [Gelfand] sold property to wife and
sold again for a large commission; the duty of loyalty demands
that he disclose the true buyer to the principal [Horizon
Corp.])
Post-Termination Competition
1. Town & Country House & Home Service v. Newberry
[JUDGMENT FOR PLAINTIFF;INJUCTION TO
ENJOIN COMPETING BUSINESS DENIED]
 Facts: Town & Country sought injunctive and other
relief after former employees formed a competing
house cleaning service (Newberry) using many of
plaintiff's methods and persuaded several of plaintiff's
customers to switch companies. The appellate court
granted broad injunctive and other relief and defendants
appealed.
 Rule/Application: The court stated that plaintiff was
entitled to injunctive relief because their customer list
was a trade secret, plaintiff had expended great amounts
of time and energy to develop it, and the contents of the
list were not easily discernable from any other source.
The information became known to defendants only
because of their employment by plaintiff. Therefore
plaintiff was entitled to enjoin defendants from further
solicitation of its customers and to receive damages
corresponding to the profits defendants made by
reasons of the customers they enticed away from
plaintiff. Plaintiff was not, however, entitled to enjoin
defendants from operating a competing business.
 Conclusion: The court affirmed the judgment and
determined that plaintiff was entitled to enjoin
defendants from soliciting its former customers, and to
recover such damages or loss of profits as were
established to have resulted from those that had been
solicited; however, the court dismissed the remainder of
the complaint.
2. Robbins v. Finlay [JUDGMENT AFFIRMED FOR
DAMAGES; REVERSED FOR VIOLATION OF
COVENANT TO COMPETE] (Covenants not to compete
are enforceable if carefully drawn to protect only the legitimate
interests of the employer [trade secrets, goodwill of business,
or extraordinary investment in training/education of employee].
iii.
In this case, however, there was no indication that defendant
had intentions to violate/access the interests of the plaintiff]
Dealing at Arm’s Length:
(1) Conduct by an agent that would otherwise constitute a
breach of duty as stated in §§ 8.01, 8.02, 8.03, 8.04, and 8.05
does not constitute a breach of duty if the principal consents to
the conduct, provided that
(a) in obtaining the principal's consent, the agent
(i) acts in good faith,
(ii) discloses all material facts that the agent knows, has reason
to know, or should know would reasonably affect the
principal's judgment unless the principal has manifested that
such facts are already known by the principal or that the
principal does not wish to know them, and
(iii) otherwise deals fairly with the principal; and
(b) the principal's consent concerns either a specific act or
transaction, or acts or transactions of a specified type that
could reasonably be expected to occur in the ordinary course of
the agency relationship.
3.
Pappas v. Tzolis [JUDGMENT FOR DEFENDANT]
 Facts: Tzolis, who had formed a limited liability company
(LLC) with Pappas and Ifantopoulos, and who had
purchased his former co-members’ interests in the LLC,
contended their claims for breach of fiduciary duty, unjust
enrichment, conversion, and fraud and misrepresentation
arising from the sale of their interests were barred by their
certification in closing documents, that Tzolis had “no
fiduciary duty” to them, and they were “not relying on any
representation” by him
 Issue: Where there is a buyout of LLC membership
interests, are claims of breach of fiduciary duty, fraud and
misrepresentation, and unjust enrichment brought by the
sellers barred where the LLC’s operating agreement
provided that members could engage in business ventures
and investments of any nature whatsoever, whether or not
in competition with the LLC, without obligation of any
kind to the LLC or to the other members, and where the
sellers certified at closing that the buyer had “no fiduciary
duty” to them and they were “not relying on any
representation” by the buyer? (YES)
 Rule/Application: As to the breach of fiduciary claim,
where a principal and fiduciary are sophisticated entities
and their relationship is not one of trust, the principal
cannot reasonably rely on the fiduciary without making
additional inquiry. Here, Pappas and Ifantopoulos were
sophisticated businessmen represented by counsel, and
their own allegations make it clear that at the time of the
buyout, the relationship between the parties was not one of
trust, so that reliance on Tzolis’s representations as a
fiduciary would not have been reasonable. Therefore, the
release contained in the Certificate was valid, and the cause
of action alleging breach of fiduciary is barred.
 Conclusion: Tzolis had no fiduciary duty to Pappas to
based on the operating agreement and the Certificate.
III.
CONTRACTUAL POWERS OF AGENTS
A. AUTHORITY
1. Express Authority - An agent's power to act on behalf of a
principal, explicitly granted by an agreement between the agent and
principal.
a. King v. Bankerd [JUDGMENT FOR PLAINTIFF; EXPRESS
AUTHORITY VIOLATED (POWER OF ATTORNEY)]
 Facts: Bankerd executed a power of attorney to King, an attorney
and colleague, to convey a home which he jointly owned with his
wife as a tenant by the entirety. This power of attorney provided, in
part, that King had the power to “convey, grant, bargain, and/or
sell” Bankerd’s property “on such terms as to him”, King, “may
seem best”. Sometime later, King, after Bankerd had separated
from his wife and King had tried unsuccessfully to locate him,
gratuitiously conveyed Bankerd’s interest in the home to Mrs.
Bankerd, in turn, sold the property to a third party for $62,500.
After determining what had occurred, Bankerd filed this suit for
damages against King, alleging breach of trust and breach of
fiduciary duty in King’s gratuitous conveyance of Bankerd’s
interest in the subject property, in violation of the power of
attorney. After the completion of the discovery proceedings, both
parties moved for summary judgment. Trial court granted
summary judgment to Bankerd against King and awarded
$13,555.05 in damages on the basis that King had negligently
violated the fiduciary relationship that existed between those two
parties. The Court of Special Appeals affirmed, holding that the
broad language of the power of attorney did not authorize the
conveyance without consideration in favor of Bankerd. This appeal
followed.
 Issue: Unless otherwise expressed or implied, does a general power
of attorney that authorizes an agent to sell or convey property on
terms that he deems are proper imply a sale for the principal’s
benefit? (YES)
 Rule/Application: “Even if a general discretion is vested in the
agent, it is not deemed to be unlimited. But it must be exercised in
a reasonable manner, and cannot be resorted to in order to justify
acts, which the principal could not be presumed to intend, or which
would defeat, and not promote, the apparent end or purpose, for
which the power was given.” Adams’ Express Co. v. Trego. “A
power of attorney conferring authority to sell, exchange, transfer or
convey real property for the benefit of the principal does not
authorize a conveyance as a gift or without a substantial
consideration.” In this case, since the express language of
Bankerd’s and King’s power of attorney agreement did not
authorize King to convey gratuitously Bankerd’s property away,
then the language must be construed so as to protect Bankerd’s
interest in the property. Moreover, the surrounding circumstances
do not evidence an intent by Bankerd to grant King the power to
convey gratuitously away his property.
 Conclusion: Hence, since there is no genuine dispute as to any
material fact with respect to the powers Bankerd granted King,
then the trial court did not err in granting Bankerd’s motion for
summary judgment. Judgment affirmed.
b. Lamb v. Scott (EXPRESS AUTHORITY VIOLATED [POWER OF
ATTORNEY])
 Facts: Lamb was given a durable power of attorney by her mother.
When her mother became incapacitated, Lamb later executed a
deed transferring her mother’s farm to herself and her sister. Scott
was Lamb’s stepbrother, who claimed to be a joint owner of the
property described in the deed. The trial court granted Scott’s
request that the deed be set aside. Lamb appealed the court’s
decision to declare the deed void.
 Issue: Does one who accepts a power of attorney covenant 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? (YES)
 Rule/Application: “To authorize a conveyance of real estate, a
power of attorney must be plain in its terms. Where such power is
specifically conferred, it does not authorize a conveyance by the
donee to himself, unless such power is expressly granted. It will
not be implied.” Lamb was without power to convey land to
herself because Lamb’s power of attorney did not specifically state
that she could do so. The property division is defined under the
terms of the will, which was written after the power of attorney
was executed.
 Conclusion: Holding: Lamb had no authority to make changes to
her mother’s deed without explicit consent. Judgment affirmed.
2. Implied Authority – is often used to mean actual authority either (1) to do
what is necessary, usual, and proper to accomplish or perform an agent’s
express responsibilities or (2) 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.
a. Delegation of Authority – The relation of master and servant cannot be
imposed upon a person without his consent, express or implied. The
exception to this rule is that a servant may engage an assistant in case of
an emergency, where he is unable to perform the work alone. Kirk v.
Showell, Fryer & Co., Inc.
b. Incidental Authority – Unless otherwise agreed, 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. Restatement
(Second) 75b.
B. APPARENT AUTHORITY
a. H.H. Taylor v. Ramsay-Gerding Construction Company [APPARENT
AUTHORITY FOUND]
 Facts: In 1998, plaintiffs, H.H. (Todd) Taylor and his wife, C.A.
Taylor, began construction of a hotel in Lincoln City. They hired
Ramsay-Gerding Construction Company as their general contractor.
Pursuant to the stucco installer's recommendation, Ramsay-Gerding
proposed using a stucco system called “SonoWall,” manufactured by
ChemRex, Inc., and plaintiffs approved that proposal. During
construction, plaintiff Todd Taylor grew concerned about possible
rusting of the galvanized fittings that were included in the stucco
system. Ramsay-Gerding's representative, pursuant to communications
with the stucco installer, brought Mike McDonald, ChemRex's
territory manager for Oregon, to the meeting as a ChemRex
“representative.” When Taylor was still unconvinced, McDonald
stated, “Mr. Taylor, did you know you're getting a five-year
warranty?” By the end of that meeting, Taylor agreed to go forward,
with the addition of the corrosion inhibitor. In July 1999, after
construction had been completed, but before all construction funds had
been disbursed, McDonald sent a letter to the stucco installer on
ChemRex letterhead. The letter stated, in part, “This letter is to
confirm that [ChemRex] will warrantee the Sonowall stucco system
for five years covering the material and labor on this project starting in
March of 1999,” and was signed “Mike McDonald, Territory Manager
OR.” The stucco installer eventually sent that letter to RamsayGerding, who sent it to plaintiffs, and McDonald stated at trial that he
had intended the warranty to extend to plaintiffs. By the spring of
2000, the employee had realized that the discoloration was rust and
contacted Taylor. In the summer of 2000, Taylor informed RamsayGerding of the problem, and representatives from ChemRex and the
stucco installer came to the hotel to examine the stucco system.
However, no one ever fixed the problem. In 2001, plaintiffs initiated
this action against Ramsay-Gerding for breach of the construction
contract. In August 2003, plaintiffs amended their complaint to add a
claim against ChemRex for breach of express warranty. The jury
found for plaintiffs on the breach of warranty claim, which necessarily
included a determination that McDonald had apparent authority to
provide the warranty. The Court of Appeals reversed.
 Issue: Did McDonald have apparent authority to extend a warranty to
Taylor on behalf of ChemRex? (YES)
 Rule/Application: ”[a]pparent authority to do any particular act can
be created only by some conduct of the principal which, when
reasonably interpreted, causes a third party to believe that the principal
consents to have the apparent agent act for him on that matter.”
Because of McDonald's position and his actual authority to help allay
plaintiffs' concerns about rust, it was reasonable for plaintiffs to infer
that one of the ways in which McDonald had authority to allay their
concerns was by warranting the system for five years. That is
particularly true here, because there was evidence in the record that
five years was a reasonable length of time for such a warranty.
 Conclusion: The Taylors provided sufficient evidence to prove that
McDonald acted with apparent authority in extending the warranty.
Judgment reversed and remanded for further proceedings.
b. Smith v. Hansen, Hansen & Johnson, Inc. [NO APPARENT AUTHORITY]
 Facts: To build a glass wall as part of a building renovation, Hansen,
Hansen & Johnson purchased salvage glass from Fentron, through its
agent, Foster, who was employed by Fentron as a manager of
manufacturing services, Foster’s duties included purchasing material
needed for manufacturing but not selling products to customers.
However, Foster led Hansen, a partner in HH & J, to believe that
Foster had authority to sell materials on behalf of Fentron. HH & J
made checks payable to Foster at his request, in part because he said
the glass was at a salvage yard and was about to be destroyed. After
the new wall was finished, it began to leak. After the owner of the
building obtained redress from HH & J, HH & J sued Fentron for
reimbursement plus other damages. The trial court ruled for HH & J.
Fentron appealed.
 Issue: Will manifestations to a third person support a finding of
apparent authority only if they caused the one claiming apparent
authority to subjectively believe that the agent had authority to act for
the principal and that subjective belief was reasonable? (YES)
 Rule/Application: “[a]pparent authority to do any particular act can
be created only by some conduct of the principal which, when
reasonably interpreted, causes a third party to believe that the principal
consents to have the apparent agent act for him on that matter.” The
evidence in this case does not support a reasonable inference that
Foster had apparent authority to sell materials and designs on
Fentron’s behalf or that HH & J’s subjective belief that Foster was
authorized by Fentron was objectively reasonable. When Foster
requested that the check be made payable to him personally and stated
that the glass was at a salvage yard, not in Fentron’s control, HH & J
was put on notice that further inquiry of Fentron was needed.
 Conclusion: There was no reasonable inference into whether Foster
had apparent authority from Fentron to install salvage glass. Judgment
reversed with directions to dismiss the complaint.
c. Sauber v. Northland Insurance Co. (APPARENT AUTHORITY)
 Facts: Sauber (plaintiff) purchased a car from his brother. The brother
had insurance on the car through Northland Insurance Co. (Northland)
(defendant), which was still in effect when Sauber purchased it. Sauber
contacted Northland to inquire whether he could drive the car under
the insurance policy already in place. Sauber spoke with a lady at
Northland who he stated told him he could drive the car under the
policy. The car was thereafter wrecked. Northland refused to pay
under the policy. Sauber and his brother filed suit. The brother’s suit
was dismissed. Sauber’s suit went to trial and the jury returned a
verdict for Sauber. Northland filed a motion notwithstanding the
verdict and a motion for a new trial. The trial court denied Northland’s
motion notwithstanding the verdict, but granted Northland’s motion
for a new trial. Northland appealed the denial of its motion. Sauber
appealed the trial court’s grant of Northlands motion for a new trial.
 Issue: Is an employee answering a business telephone presumed to
have authority for any duties which are assumed by such employee?
(YES)
 Rule/Application: Apparent authority is the power of an apparent
agent to affect the legal relations of an apparent principal with respect
to a third person by acts done in accordance with such principal’s
manifestations of consent to such third person that such agent shall act
as his agent. Serres’ lack of actual authority is immaterial. Where an
employer has placed an employee in a position to do injury to the
public, it is ultimately liable. Having clothed the employee with
apparent authority, it is bound by it absent a showing of bad faith. It is
not necessary to identify the employee so long as it can be shown that
the call was made to the business number.
 Conclusion: Serres possessed apparent authority and judgment rested
on the determination of the jury. The jury accepted the plaintiff’s
version and the credibility of witnesses along with the weight of their
testimonies was for a jury to decide. Verdict for plaintiff should stand.
Judgment affirmed.
d. Foley v. Allard (NO APPARENT AUTHORITY)
 Facts: Allard offered to double $10,000 Foley had obtained to
forestall foreclosure on residential property which she had sold. He
guaranteed there was no risk and that he would return at least her
principal amount before she needed it. No one told Foley that Allard
was employed or formally affiliated with Steichen & Company as a
stockbroker, although she believed him to be. Allard was actually
Steichen’s customer, with phone privileges at the brokerage house.
After Allard told Foley he had lost her money, she filed suit, alleging
that Steichen had negligently clothed Allard with apparent authority to
transact business by taking his messages. The court granted Steichen’s
motion for summary judgment. The court of appeals reversed.
Steichen appealed.
 Issue: Is a presumption of apparent authority raised by the fact that an
agent answers the business phone and purports to act for the business?
(YES)
 Rule/Application: Apparent authority is the power of an apparent
agent to affect the legal relations of an apparent principal with respect
to a third person by acts done in accordance with such principal’s
manifestations of consent to such third person that such agent shall act
as his agent. In this case, the presumption of apparent authority is
refuted because Foley never visited Steichen’s offices, transacted any
business during calls made and/or received on Steichen phones, or
investigated the company beyond checking to see if it was listed in the
yellow pages. The fact that Allard gave Foley no records or
documents, that she made her check payable directly to Allard, that
she received assurances of no risk, and that she was charged no
commission were all highly irregular activities that would have acted
as signals to a person of ordinary prudence.
 Conclusion: Allard possessed no apparent authority to act as an
authorized agent for Steichen. Judgment reversed and summary
judgment for Steichen is reinstated.
e. Herbert Construction Co. v. Continental Insurance Co. (NO JUDGMENT)
 Facts: Dixon issued a performance bond for Michaels, a subcontractor
used by Herbert Construction Co., designating Continental Insurance
as surety and signing as attorney for Continental. When Michaels filed
for bankruptcy, Continental refused to perform as surety since it had
revoked Dixon’s agency privileges prior to issuance of the bond.
Dixon had doctored a valid power of attorney form signed before the
revocation. Continental had, however, made no effort to inform
individual clients or the public at large of the revocation. Herbert filed
suit. The district court awarded damages and partial summary
judgment to Herbert while denying Continental’s cross-motion for
summary judgment and dismissal. Appeal followed.
 Issue: Under apparent authority, must the third party establish that the
principal was responsible for the appearance of authority and that third
party reasonably relied on the agent’s representations? (YES)
 Rule/Application: “Although the principal is entitled to have indic[i]a
of authority retuned to him upon termination of the relation, if he is
unsuccessful in accomplishing this the risk of the deception of third
persons who have otherwise no notice of the termination rests upon the
principal.” (Restatement [Second] of Agency 130 comment [a]).
Whether or not Continental could have taken further precautions to
remove Dixon’s indicia of authority, or bears any responsibility for not
preventing the subsequent doctoring of the reacquired power of
attorney form, presents a substantial question of material fact for a jury
to decide. A genuine issue of material fact also exists as to whether
Herbert reasonably relied on Dixon’s appearance of authority.
Continental may not, however, be held liable solely for failing to
notify third parties that Dixon’s authority had been revoked.
 Conclusion: Affirmed (Continental’s denial). Vacated (Summary
judgment for Herbert). Remanded for further proceedings.
f. Continental Insurance Co. v. Gazaway (NO APPARENT AUTHORITY)
 Facts: Continental Insurance Co. had revoked the authority of its
attorney to write bonds. Nevertheless, two months later, the attorney
issued a guardianship bond to Gazaway, who was later found to have
wasted the entire estate of her ward. The court found that the bond had
been legally issued and that Continental and Gazaway were jointly and
severally liable for the amount covered by the bond. On appeal,
Continental contended that the probate court erred in holding it liable
on the bond.
 Issue: Do persons dealing with a limited agent have the duty to
examine the agent’s authority? (YES)
 Rule/Application: “The term ‘primarily’ denotes that all the authority
the person so signing possesses is contained in a written power of
attorney.” In this case, the attorney issued the bond as attorney-in-fact
for Continental. One signing as attorney-in-fact does not purport to be
a general agent of the corporation. He was, at best, a limited agent.
Continental did nothing to knowingly cause or permit the attorney to
act as its agent. The lack of diligence of both the probate court and the
guardian preclude a finding of justifiable reliance
 Conclusion: Judgment reversed
 Dissent: There is sufficient evidence to support the probate’s court
finding that the attorney was Continental’s ostensible agent when he
issued the surety bond.
C. ESTOPPEL – 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 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.
(Restatement [Third] of Agency 2.05)
D. THE INHERENT AGENCY POWER CONCEPT – A general agent for a
disclosed or partially disclosed principal 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
them and has no notice that he is not so authorized. (Restatement [Second] of
Agency 8A)
a. AutoXchange.com, Inc. v. Dreyer and Reinbold, Inc. (INHERENT AGENCY
FOUND)
 Facts: Dreyer & Reinbold, Inc. purchased several automobiles from
AutoXchange.com, Inc. In its negotiations with AutoXchange, Dreyer
& Reinbold dealt exclusively with Ellingwood, AutoXchange’s
corporate officer and minority shareholder. At Ellingwood’s request,
Dreyer & Reinbold paid the purchase price directly to Automative
Finance Corporation (AFC), AutoXchange’s floorplan lender and
secured creditor, which would ensure Dreyer & Reinbold’s receipt of
free and clear title to the vehicles. Dreyer & Reinbold’s payment to
AFC was credited to AutoXchange’s account by AFC following
receipt of the purchase price. Under the terms of the financing
agreement between AutoXchange and AFC, AutoXchange was
required to hold the proceeds of the sale of any floor planned vehicles
in trust for AFC, and to transfer those proceeds to AFC within fortyeight hours of the sale. AutoXchange brought suit against Dreyer &
Reinbold, asserting numerous tort claims arising from Dreyer &
Reinbold’s compliance with Ellingwood’s request, which,
AutoXchange claimed, was made in bad faith under the circumstances.
The trial court granted partial summary judgment to Dreyer &
Reinbold, finding that Ellingwood had apparent and inherent authority
on which Dreyer & Reinbold could reasonably rely. The state’s
intermediate appellate court granted review.
 Issue: Does a corporate officer and minority shareholder have
apparent and inherent agency authority on which a party to a
transaction may reasonably rely where the corporate officer holds
himself out as the company’s sole negotiator and acts within the usual
and ordinary scope of his authority, and where the other party is not on
notice that the officer does not have such authority? (YES)
 Rule/Application: (Restatement [Second] of Agency 8A). Although
only Ellingwood communicated with Dreyer & Reinbold,
AutoXchange indirectly communicated, through its act of letting
Ellingwood be the sole negotiator, that Ellingwood had authority to do
so. Therefore, Ellingwood had apparent authority to instruct Dreyer &
Reinbold to make payment directly to AFC. He also had inherent
authority. Here, Ellingwood, as a corporate officer, was authorized to
sell automobiles, so he was acting within the usual and ordinary scope
of his authority. Also, because Ellingwood was the sole negotiator of
the transaction, the formulation of payment terms was a necessary
accompaniment to the ordinary scope of his authority. Here, too,
Dreyer & Reinbold’s reliance was reasonable because Ellingwood had
always been the sole negotiator on its transactions with AutoXchange,
and since AutoXchange placed Wllingwood in the position of
corporate officer and sole negotiator, Dreyer & Reinbold should not be
required to scrutinize too carefully the mandates of this agent, who did
nothing more than what is usually done by a corporate officer. Finally,
there was no evidence that Dreyer & Reinbold was on notice of any
limitations on Ellingwood’s authority. Rejected, too, is AutoXchange’s
argument that Ellingwood’s reason to change the payment terms, i.e.,
so Dreyer & Reinbold could receive clear and free title to the vehicles,
should logically have put them on notice that Ellingwood did not have
inherent agency authority to direct AutoXchange’s funds. If
AutoXchange’s reasoning were followed, commerce would be
impeded, since a third party would always have to inquire of the
principal whether the agent had authority.
IV.
THE UNDISCLOSED PRINCIPAL
A. RIGHTS OF THE UNDISCLOSED PRINCIPAL – When an agent acting
with actual authority makes a contract on behalf of an undisclosed principal,
(1) unless excluded by the contract, the principal is a party to the contract; (2) the
agent and the third party are parties to the contract; and (3) the principal, if a party
to the contract, and the third party have the same rights, liabilities, and defenses
against each other as if the principal made the contract personally, subject to 6.056.09 (Restatement [Third] of Agency 6.03).
1. Assertion of Rights by the Undisclosed Principal – As is made clear by
Restatement (Third) 6.03, when a contract is made by an agent for an
undisclosed principal, the principal can enforce the contract. One important
application of this concept is that if the principal notifies the third party who
entered into the contract with the agent to make payment under the contract
directly to the principal, the third party is bound to do so, and payment to the
agent after such notice will not relieve the third party of liability to the
principal.
2. Parol Evidence Rule – Notwithstanding the rule of law that an agreement
reduced to writing may not be contradicted or varied by parol, it is well settled
that the principal may show that the agent who made the contract in his own
name was acting for him. This proof does not contradict the writing; it only
explains the transaction. But the agent, who binds himself, will not be allowed
to contradict the writing by proving that he was contracting only as agent,
while the same evidence will be admitted to charge the principal. Ford v.
Williams. Parol evidence is forbidden, however, if the contract by its terms
excludes the principal as a party. (Restatement [Third] of Agency 6.03,
comment c.)
3. Sealed Contracts – Unless a statute provides otherwise, a principal has rights
under and is subject to liability on a contract whether or not the contract is
under seal. This is so whether the principal is disclosed, unidentified, or
undisclosed. (Restatement [Third] of Agency 6.03, comment f) .
4. Exceptions:
a. Kelly Asphalt Block Co. v. Barber Asphalt Paving Co.
 Facts: Kelly Asphalt Block Co. wanted to purchase asphalt blocks
from its competitor Barber Asphalt Paving Co. but feared
rejection. It appointed an agent, Booth, who obtained a price and
quotation from Barber Asphalt, and ordered them in his name. The
order was accepted by defendant, the blocks were delivered and
paid for by Booth with money from Kelly Asphalt. But the blocks
were un-merchantable. Barber Asphalt refused to return the
purchase price, asserting that it would not have sold them at all if it
had known Kelly Asphalt was the true buyer. Judgment for Kelly
Asphalt. Barber appealed.
 Issue: Where an agent fraudulently represents to a third party that
he is contracting on his own behalf and thus conceals the identity
of his principal, may the third party rescind the contract? (YES)
 Rule: