Law A 514
Instructor: Dwight Drake
Corporations
Basic Agency Concepts
Instruction: Study the excerpts from the Restatement (Third) of Agency (located in the
class supplemental reading materials) as necessary to answer the following questions.
Facts: Refer back to Jane, the caterer, who was the focus of our review of some basic
business concepts. Assume (1) that, at the time Jane started her business, she formed a
corporation, Golden Touch Catering, Inc. (“GTC”) and has conducted all her business
through GTC; (2) that she has always been the sole shareholder, director, president and
chief executive officer of GTC; and (3) that, from the outset, GTC has had one other
fulltime employee, George, who has had the title “Event Coordinator”.
Questions: (Consider each question separately)
1. Jane negotiates a contract with Micro Inc. (“Micro”) to cater 14 product launch
events. Who are the parties to the contract if Micro knows that Jane was acting in
her capacity as CEO of GTC? Is Jane personally liable under the contract?
2. How would your answers in question 1 change if Micro had no knowledge of
GTC and, therefore, assumed Jane was acting as an individual?
3. How would your answers in question 1 change if Micro knew Jane was acting on
behalf of another party, but did not know the identity of the other party?
Extended Facts: Assume Jane is not the one who sourced and negotiated the Micro
agreement. Jane has always told George that he may discuss potential business with a
prospective or existing client, but that he must never make any commitment on behalf of
GTC without first having all the details approved by Jane. Assume that Micro’s VP of
advertising, Doug, and George are neighbors. Doug approached George with the idea of
GTC catering the 14 product launch events for Micro. After advising Doug that he was a
VP of GTC, George discussed all the details with Doug and instantly committed to do the
events without any consultation with Jane. George believed that this was premium
corporate business that would excite Jane and demonstrate his ability to take on greater
sales responsibilities. Plus, he did not want to tell his neighbor this he had to first seek
Jane’s permission before committing GTC. Upon learning of the agreement George
made with Micro, Jane immediately fired George
Questions:
4. Does GTC or Jane have any liability under the agreement that George entered into
with Micro? Does George have any liability to Micro, assuming Doug at all times
knew that George was acting on behalf of GTC and not in his personal capacity?
Does George have any liability to GTC?
Law A 514
Instructor: Dwight Drake
5. How would your answers to questions 4 change if Jane had given Doug the
authority to commit GTC to single event agreements but never multi-event deals?
6. How would your answers to question 4 change if, before approaching George,
Doug had called Jane, as CEO of GTC, to ask “whether it was appropriate to
discuss some potential catering business with his neighbor George” and Jane had
simply responded by saying “By all means”?
7. How would your answers to question 4 change if, after firing George, Jane said
nothing to Micro until the night before the first event and at that time disclaimed
any responsibility on the theory that George had no authority to commit GTC?
8. How would your answers to question 4 change if, after firing George, Jane
determined that the agreement with Micro was an “awesome deal” and called
Doug to confirm all the logistical details?
9. How would your answers to question 8 change if, prior to Jane’s call to Doug,
Doug learned of George’s firing through the neighborhood grapevine and
immediately hired another firm to cater the 14 product launch events? Would
Micro have any liability under the GTC agreement negotiated by George?
More Facts: Assume George (still employed by GTC) attends a party at the local
country club where George discusses, among many other things, the great services
provided by GTC. George gets smashed, attempts to drive home drunk, and negligently
causes an accident that seriously injures Sue.
Questions:
10.
11.
12.
13.
Is Jane or GTC liable to Sue for George’s negligence? Is George liable to Sue,
Jane or GTC?
How would your answers to question 10 change if GTC had catered the country
club event and George had attended the event to “make sure everything was
going OK”?
How would your answers to question 11 change if Jane, aware of George’s
tendency to hit the bottle in the evening, had instructed George to never attend
any evening events catered by GTC and George had no official responsibility
for the event GTC catered at the country club?
Assume the accident and Sue’s injuries were caused by the negligence of
GTC’s lawyer as he was driving to a meeting where the terms of GTC’s
contract with Micro were to be negotiated. Is GTC or Jane liable to Sue for the
lawyer’s negligence?