business law powerpoints

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1 The Nature of Law

The Resolution of Private Disputes Business and The Constitution

Business Ethics, Corporate Social Responsibility, Corporate Governance,

and Critical Thinking

Foundations of American Law

P A R T

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The Nature of Law

P A E T R H C 1 The sacred rights of mankind . . . are written, as with a sun beam in the whole volume of human nature, . . . and can never be erased or obscured by mortal power. Alexander Hamilton, 1775

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Learning Objectives

Types and sources of law Important legal doctrines Classification of law Jurisprudence and legal reasoning Statutory interpretation Limitations on judicial power

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Types and Classifications of Law

Federal, state, and tribal level: Constitution: establishes governmental

structure, specific rights and duties Statute: enacted by legislative body to

regulate conduct Common Law: case law (judge-made) Administrative Law: agency rules to

implement enforcement of statutes

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Issued at the chief executive level: Executive Order: under limited powers

Examples: http://www.whitehouse.gov/news/orders/

Treaty: with other nations, by the U.S. president on behalf of the nation, ratified by the U.S. Senate

Example: The Antarctic Treaty

Types and Classifications of Law
http://www.whitehouse.gov/news/orders/http://www.state.gov/t/ac/trt/4700.htm

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Important Doctrines

Stare Decisis (let the decision stand) is the doctrine of precedent applied in common law

Equity is applied by the judiciary to achieve justice when legal rules would produce unfair results

Federal supremacy: a rule of priority for conflicts between laws that holds the U.S. Constitution is the supreme law of the land Supremacy Clause, Article VI, Section 2, of

the U.S. Constitution

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Classification of Law

Criminal law establishes duties to society Government charges and prosecutes defendant,

who is found guilty or innocent Convicted defendant will be imprisoned or fined

Civil law establishes duties between private parties Plaintiff sues defendant for monetary damages or

equitable relief A defendant will be held liable or not liable

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Classification of Law

Substantive law establishes rights and duties of people in society

Procedural law establishes how to enforce those rights and duties

Public law refers to the relationship between governments and private parties

Private law refers to the regulation of conduct between private parties

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Jurisprudence

Jurisprudence refers to the philosophy of law as well as the collection of laws

Legal positivism: law is the command of a recognized political authority Just or unjust, law must be obeyed

Natural law: universal moral rules bind all people whether written or unwritten Unjust positive laws are invalid

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Jurisprudence

Legal realism defines law as the behavior of the judiciary as they rule on matters within the legal system Thus law in action dominates positive law

Sociological jurisprudence unites theories that examine law within its social context

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Legal Reasoning

Basically deductive, with legal rule as major premise and facts as the minor premise Result is product of the two

Court may stand on precedent or distinguish prior case from current case If precedent inapplicable, new rule

developed

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Statutory Interpretation

Plain meaning rule: court applies statute according to usual meaning of the words

Courts examine legislative history and purpose when plain meaning rule is inadequate

Courts may interpret a statute in light of a general public purpose or public policy

Courts follow prior interpretation of a statute (precedent) to promote consistency

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Limitations on Judicial Power

Courts limited to deciding existing cases or controversies In other words, the dispute must be current

and not yet resolved However, a declaratory judgment allows

parties to determine rights and duties prior to harm occurring

Parties must have standing (direct interest in the outcome) to sue

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Thought Question

What do you think the authors of the U.S. Constitution would think about current legal issues in our society?

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1 The Nature of Law

The Resolution of Private Disputes Business and The Constitution

Business Ethics, Corporate Social Responsibility, Corporate Governance,

and Critical Thinking

Foundations of American Law

P A R T

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The Resolution of Private Disputes

P A E T R H C 2

In case of dissension, never dare to judge till you have heard the other side. Euripides

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Learning Objectives

Identify sources and types of law Identify the law that takes precedence when

two types of laws conflict Differentiate criminal law from civil law Differentiate schools of jurisprudence Describe the role of precedent (stare decisis) Explain major techniques of statutory

interpretation

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The United States has a federal court system and each state has a court system

A Court is established by a government to hear and decide matters before it and redress past or prevent future wrongs

Jurisdiction (the power to hear and speak) may be original (trial) or appellate (reviews trial court)

The U.S. Judicial System

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General jurisdiction courts (i.e., trial courts) hear most types of cases Levels generally classified according to dollar

amount of damages or location Examples: county courts, district courts

Limited jurisdiction courts hear specialized types of cases; appeals from decisions often require new trial in general jurisdiction court Examples: traffic court, tax court, family court

General vs. Limited Jurisdiction

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Subject-matter jurisdiction refers to a courts authority to hear a particular type of dispute

Courts of criminal jurisdiction hear trials of crimes and misdemeanors Offenses against the public at large

Courts of civil jurisdiction hear and decide issues concerning private rights and duties (e.g., contracts, torts), and non-criminal public matters (e.g., zoning, probate)

Subject-Matter Jurisdiction

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Besides subject-matter jurisdiction, court must have either in personam or in rem jurisdiction

In personam jurisdiction requires that defendant be resident of, located within, or acted within physical boundaries of the courts authority

In rem jurisdiction applies when property that is the subject of the dispute is located within physical boundaries of the courts authority

In Personam or In Rem Jurisdiction

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Federal courts must have jurisdiction based on diversity or federal question

Diversity jurisdiction exists when the dispute is between citizens of different states and amount in controversy exceeds $75,000

Federal question jurisdiction exists when the dispute arises under the Constitution, laws, or treaties of the United States

Federal Court Jurisdiction

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Civil Procedure

A set of rules establishing how a lawsuit proceeds from beginning to end

In an adversarial system, the plaintiff bears the burden of proof to prove his/her case by a preponderance of the evidence

Once plaintiff has made a prima facie case (i.e., proved the basic case), the burden of proof may shift to defendant

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Plaintiffs complaint or petition plus the defendants answer or response are known as the pleadings

Defendant may enter a counterclaim against plaintiff or cross-complaint against 3rd party

Other parties may enter the case Motion practice begins

Civil Pre-Trial Procedure

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Discovery: Obtaining evidence from other party through interrogatories, requests for admissions, requests for documents, and depositions Discovery process can be a battleground See Allstate Indemnity Co. v. Ruiz

Pretrial Conference: Where judge will hear and rule on many evidentiary issues, discovery disputes, and other concerns

Civil Pre-Trial Procedure

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Jury Selection Voir Dire or Jury

Questioning Opening

Statement from each party

Civil Trial Procedure

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Plaintiffs case through direct examination of witnesses (defendant performs cross-examination) and defendants case through direct examination (and plaintiffs cross-examination)

Closing argument or summation from each party

Jury verdict


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Trial motions include: motions in limine (motion to limit evidence), voluntary non-suit or dismissal (drop the case), motion for compulsory non-suit or summary judgment

After summation or closing argument, a party may move for a mistrial (injustice or overwhelming prejudice) or directed verdict (weight of evidence leads to only one conclusion)


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Trier of Fact sees material evidence (physical objects, documents), hears testimony of witnesses (who provide factual evidence), and decides outcome of the case based on facts; trier of fact may be judge or jury

Matters of law are issues not of fact, but of law; matters of law decided only by a judge E.g., whether a statute means X or Y, or

one law or another applies to the facts


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After jury verdict, a party may make a motion for new trial, judgment non obstanto verdicto (notwithstanding the verdict) or remittitur (defendant requests judge to reduce amount of damages the jury recommended)

After a judgment has been entered: Losing party may appeal decision to higher court Winning party must have the judgment executed

(carried out) to obtain money, property, or action ordered by the court

Civil Post-Trial Procedure

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Alternate Dispute Resolution

Arbitration: dispute settled by one or more arbitrators selected by the parties to a dispute; relatively formal; Uniform or Federal Arbitration acts typically used

Mediation: parties choose neutral party to aid resolution of dispute

Reference to Third Party: dispute resolution by rent-a-judge, minitrial, summary jury trial, or association tribunal

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Thought Question

If you were served with a lawsuit, what would you do about it?

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2 Crimes

Intentional Torts Negligence and Strict Liability

Intellectual Property and Unfair Competition

Crimes and Torts

P A R T

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Intentional Torts

P A E T R H C 6

The good have no need of an advocate. Phocion

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Define tort and explain types of wrongfulness

Understand concept of damages Understand elements of intentional

torts that interfere with personal or property rights, including assault, defamation, invasion of privacy, nuisance, and trespass

Learning Objectives

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A tort is a civil wrong that is not a breach of a contract

Four types of wrongfulness are involved: Intent Recklessness Negligence Strict liability

Definition of a Tort

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Standard of proof that plaintiff must satisfy in a tort case is preponderance of the evidence standard

A plaintiff who wins a tort case usually recovers compensatory damages for the harm suffered as a result of defendants wrongful act

Particularly bad behavior may result in an award of punitive damages

The Basics

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Battery Assault Intentional Infliction of Emotional Distress False Imprisonment Defamation Invasion of Privacy Misuse of Legal Proceedings Deceit (Fraud)

Interference with Personal Rights

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Intentional and harmful or offensive touching of another without the persons consent No liability if person consented

Contact is harmful if it produces bodily injury, but battery includes nonharmful contact that is offensive (reasonable person standard) Example: Howard v. Wilson case

Battery
http://law.justia.com/cases/mississippi/supreme-court/2011/co70710.html

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Assault occurs when there is an intentional attempt or threat to cause a harmful or offensive contact with another person, if the attempt causes a reasonable apprehension of imminent battery in other persons mind

Irrelevant whether threatened contact really occurs, as long as plaintiff had apprehension of immediate or imminent contact Plaintiff must actually see or feel the potential

contact

Assault

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Most courts allow recovery for emotional distress even if no other tort is proven

All courts require the wrongdoers conduct to be outrageous before liability is imposed

Most courts apply reasonable person test See Durham v. McDonalds Restaurants of

Oklahoma, Inc.: Court applied elements of intentional infliction of emotional distress to facts involving a managers allegedly inappropriate treatment of an employee

Intentional Infliction of Emotional Distress
http://law.justia.com/cases/oklahoma/supreme-court/2011/462293.htmlhttp://law.justia.com/cases/oklahoma/supreme-court/2011/462293.html

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False imprisonment is intentional confinement of another for an appreciable time without his or her consent confinement must be complete, though a few

minutes is enough no liability if plaintiff consented to confinement

Example: Pope v. Rostraver Shop and Save Defendants conduct did not constitute a

confinement as required by the elements of false imprisonment and plaintiff never tested the reasonableness of her belief of confinement

False Imprisonment
http://scholar.google.com/scholar_case?case=4677859106695631135&q=Pope+v.+Rostraver+Shop+and+Save&hl=en&as_sdt=2,34&as_vis=1

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Defamation is an 1) unprivileged 2) publication of 3) false and defamatory 4) statements concerning another person

Libel refers to written defamation and slander refers to oral defamation

Truth is a complete defense in a defamation case

Defamation

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Another defense to defamation is privilege (Calor v. Ashland Hospital Corp.) Examples: statements made by

participants in judicial proceedings, by officials in the course of their duties, by one spouse to the other in private, and fair and accurate media reports (fair comment) of defamatory matter that appears in proceedings of official government action or originates from public meetings

Defamation
http://caselaw.findlaw.com/ky-supreme-court/1536596.html

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New York Times Co. v. Sullivan (1964): the U.S. Supreme Court held that when a public official brings a defamation case, s/he must prove the usual elements of defamation and actual malice (a First Amendmentbased fault requirement) Actual malice means knowledge of falsity or

reckless disregard for the truth (See Kipper v. NYP Holdings Co.)

Rule of this case extended to include a public figure, but does not include private figures

Defamation & Free Speech
http://www.oyez.org/cases/1960-1969/1963/1963_39/http://scholar.google.com/scholar_case?case=3278435783448383626&hl=en&as_sdt=2&as_vis=1&oi=scholarr

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Invasion of privacy refers to four distinct torts: Intrusion on Solitude or Seclusion

Applies only with reasonable expectation of privacy

Public Disclosure of Private Facts False Light Publicity Commercial Appropriation of Name or

Likeness (See C.B.C. Distribution & Marketing, Inc. v. Major League Baseball Advanced Media, L.P.)

Invasion of Privacy

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Three intentional torts protect people against the harm that can result from wrongfully instituted legal proceedings: Malicious prosecution: wrongful institution of

criminal proceedings Wrongful use of civil proceedings: wrongfully

instituted civil suits Abuse of process: imposes liability on those who

initiate legal proceedings, whether criminal or civil, for a primary purpose other than the one for which the proceedings were designed

Misuse of Legal Proceedings

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Deceit (or fraud) is the formal name for the tort claim available to victims of knowing or intentional misrepresentations Often tied to a breach of contract claim Requires proof of false statement of material

fact, knowingly or recklessly made by defendant with intent to induce reliance by the plaintiff, along with actual, justifiable, and detrimental reliance on plaintiffs past

Deceit (Fraud)

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Trespass to Land Private Nuisance Conversion

Interference with Property Rights

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Any unauthorized or unprivileged intentional intrusion upon anothers real property, including physically entering plaintiffs land, causing another person or object to do so, remaining on the land after ones right to remain has ceased, and invading airspace above land or subsurface below Intent required for liability is simply the intent to

be on the land, so a person may be liable even if the trespass resulted from a mistaken belief that entry was legally justified

Trespass to Land

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Involves some interference with plaintiff s use and enjoyment of the land

Unlike trespass to land, nuisance does not require a physical invasion of the property Includes odors, noise, smoke, light, vibration

Liability requires the interference to be intentional, substantial and unreasonable

Private Nuisance

Stephens v. Pillen concerned odor from hog farming operations
http://caselaw.findlaw.com/ne-court-of-appeals/1312738.htmlhttp://caselaw.findlaw.com/ne-court-of-appeals/1312738.html

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Defendants intentional exercise of dominion or control over plaintiffs personal property without plaintiffs consent through: Acquisition Removal Transfer to another Withholding possession Destruction or alteration Use

Conversion

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Thought Question

For several intentional torts, such as defamation or false imprisonment, there may be rights belonging to the defendant, such as free speech or protection of property. How should a judge or jury balance these interests?

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2 Crimes

Intentional Torts Negligence and Strict Liability

Intellectual Property and Unfair Competition

Crimes and Torts

P A R T

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Negligence and Strict Liability

P A E T R H C 7

Mistakes are a fact of life. It is the response to error that counts. Nikki Giovanni

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Learning Objectives

Identify the elements of negligence Define the reasonable care standard

and the role of for eseeability Explain whether a defendant has

breached a duty of reasonable care and applicable defenses

Understand special doctrines and injuries in the law of negligence

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Elements of a negligence claim are:

1. Defendant owed a duty of care to plaintiff,

2. Defendant committed a breach of duty,

3. Breach was actual and proximate cause of the injury experienced by plaintiff

Negligence

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In general, a defendant owed the plaintiff a duty of reasonable care if the plaintiff would foreseeably be at risk of harm from the defendants conduct A duty may arise if a special relationship

existed between the parties Examples of a special relationship:

doctor-patient, lawyer-client, accountant-client

Duty of Due Care

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If a duty exists, then the question is whether the defendant acted as a reasonable person of ordinary prudence would have acted under the same or similar circumstances Reasonable person standard

The test focuses on defendants behavior, not defendants intent Reckless behavior may be unreasonable

Breach of Duty of Due Care

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Based on the duty a property owner or tenant has to those on the property

Duty varies with type of person on property

Invitee (business visitor or member of the public) Owner or tenant must exercise

reasonable care for safety of his/her invitees

Premises Liability Cases

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Licensee (those on property for his/her own purpose) Owner or tenant obligated only to warn

licensee of hidden, dangerous conditions Trespasser (those on property illegally)

Owner or tenant owes no duty, but may not willfully injure trespassers

Premises Liability Cases

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The defendants violation of such laws may create a breach of duty and may allow the plaintiff to win the case if the plaintiff (1) was within the class of persons

intended to be protected by the statute or other law, and

(2) suffered harm of a sort that the statute or other law was intended to protect against

Negligence Per Se

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Injuries may include bodily or emotional injury, and property or economic damage

Causal link between the alleged misconduct and the injury requires: Actual cause: plaintiff would not have

been hurt but for defendants breach of duty (act or omission)

Proximate cause: plaintiffs injury was foreseeable consequence of defendants act or omission

Causation and Injury

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An event that occurs after initial breach of duty may worsen a plaintiffs injury Example: plaintiff injured in accident and

while unconscious, a thief steals the plaintiffs wallet

If latter event is foreseeable, defendant will be deemed liable

If latter event not foreseeable, defendant will be absolved from liability Example: Stahlecker v. Ford Motor Co.


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An important doctrine concerning causation is res ipsa loquitur (the thing speaks for itself)

Res ipsa applies when: (1) defendant has total control of the instrument of harm, (2) harm would not occur in absence of negligence, and (3) plaintiff not responsible for his own injury Example: after abdominal surgery, patient

complains of pain in abdomen and X-ray shows surgical clamp left in abdomen


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Contributory negligence is the plaintiff s failure to exercise reasonable care for his/her own safety Example: auto accident in which

defendant rear-ended plaintiff but alleges that plaintiff was talking on a cell phone and not driving carefully

Defenses: Contributory Negligence

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Contributory negligence used to be a complete defense, but most states enacted comparative negligence systems in which a court or jury determines relative negligence of parties and awards damages in proportion to each partys degree of negligence

See Berberich v. Jack

Comparative Negligence
http://law.justia.com/cases/south-carolina/supreme-court/2011/26955.html

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Assumption of risk is plaintiffs voluntary consent to known danger Example: plaintiff snowboards

and breaks leg during a fall Exculpatory clause: plaintiff

expressly assumes risk of injury by a contract term that attempts to relieve defendant of a duty of care otherwise owed to plaintiff

Defenses: Assumption of Risk

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Liability without or irrespective of fault Thus, a defendant is liable even though

s/he did not intend to cause harm and did not act recklessly or negligently

Basic for product liability cases

Strict Liability

7-18

Imposing strict liability is a social policy decision that risk associated with an activity, especially abnormally dangerous activities, should be borne by those who pursue it, rather than by innocent persons who are exposed to that risk

Strict Liability

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Thought Question Does tort law have a useful purpose in

society? Do the remedies make sense?

20-2

4 Formation and Terms of Sales Contracts

Product Liability Performance of Sales Contracts

Remedies for Breach of Sales Contracts

Sales

P A R T

20-3

Product Liability

P A E T R H C 20 A manufacturer is not through with his customer when a sale is completed. He has then only started with his customer. Henry Ford, founder of Ford Motor Company, in My Life and Work (co-written with Samuel Crowther, 1922)

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Learning Objectives

Explain what is required to create an express or implied warranty

Identify major categories of product liability claims based in negligence

Differentiate strict liability claims from those based on negligence theory

Describe the role of comparative negligence

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Product liability law is partly grounded in contract law and partly grounded in tort law

Contract theories are based on an express or implied warranty

Tort theories are based on arguments of negligence or strict liability

Product Liability Theories

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UCC 2313(1): express warranty may be created in any of three ways: If affirmation of fact or promise about

goods becomes part of the basis of the bargain

Statements of value or opinion and sales puffery do not constitute a warranty

Advertisements may contain statements of warranty as well as sales puffery

Express Warranty

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Two other express warranties: A description of the goods that

becomes part of the bargain creates an express warranty that the goods will conform to description

A sample or model of goods to be sold creates an express warranty that goods will conform to sample

Express Warranty

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Implied warranties are created by operation of law rather than sellers express statements Warranty of merchantability [UCC 2-314(1)]

Seller must be a merchant in the goods of the kind sold

Warranty of fitness for a particular purpose [UCC section 2315]

Seller must know the goods are to be used for special purpose

Implied Warranties

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In implied warranty cases, plaintiff argues that seller breached warranty by selling unmerchantable goods and plaintiff should recover damages Privity of contract between consumer and

manufacturer is not required

Merchantability, essentially, is that goods must be fit for the ordinary purposes for which such goods are used

Implied Warranty of Merchantability

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Warranty of fitness for a particular purpose implied if: (1) seller has reason to know a particular purpose for which buyer requires the goods; (2) seller has reason to know that buyer is relying on sellers skill or judgment for the selection of suitable goods; and (3) buyer actually relies on sellers skill or judgment in purchasing the goods See Moss v. Batesville Casket Co.

Implied Warranty of Fitness for a Particular Purpose

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Product liability suits based on negligence allege that manufacturer or seller breached a duty to plaintiff by failing to eliminate a reasonably foreseeable risk of harm: negligent manufacture of the goods (including

improper materials and packaging) negligent inspection negligent failure to provide adequate warnings negligent design

Negligence Theory

20-12

American Law Institute published section 402A of Restatement (Second) of Torts (1965) Most important reason is socialization-of-risk

strategy: strict liability makes it easier for plaintiffs to prove breach of duty and sellers pass on costs in higher prices

Another reason: stimulates manufacturers to design and build safer products

Strict Liability Theory

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Published in 1998, basic rule is: One engaged in the business of selling or otherwise distributing products who sells or distributes a defective product is subject to liability for harm to persons or property caused by the defect.

Three kinds of product defects: manufacturing defects, inadequate warnings or instructions, design defects

Restatement (Third) of Torts

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Federal Magnuson-Moss Warranty Act applies to sales of consumer products more than $10 per item: If written warranty, it must be full or limited Full warranty promises to (1) remedy any defects

in the product and (2) replace product or refund purchase price if, after reasonable number of attempts, it cannot be repaired

Seller who gives a limited warranty is bound to whatever promises it actually makes

Other Product Liability Theories

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A sellers misrepresentation about a material fact about the product a fact that would matter to a reasonable buyer may invoke liability to a buyer

Industrywide liability: plaintiffs bypass problems of causation that exist where several firms within an industry manufactured a harmful standardized product, and plaintiff cannot prove which firm produced the injurious product

Other Product Liability Theories

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Consequential damages: personal injury, property damage, indirect economic loss (e.g., lost profits or lost business reputation), and noneconomic loss, such as pain and suffering, physical impairment, mental distress, loss of enjoyment of life, loss of companionship or consortium, inconvenience, and disfigurement

Damages

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Basis-of-the-bargain damages: Buyers of defective goods loss of full value for

the goods purchase price is direct economic loss (value of goods as promised under the contract minus value of goods as received)

Punitive damages: Intended to punish defendants who have

acted in an especially outrageous fashion, and to deter them and others from so acting in the future

Damages

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Product liability disclaimer is a clause in the sales contract whereby the seller attempts to eliminate liability it might otherwise have under the theories of recovery described earlier in the chapter

Remedy limitation is a clause attempting to block recovery of certain damages Example of time limitation: 30 day

warranty

Disclaimers

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Three main defenses in a product liability suit are the overlapping trio of product misuse, assumption of risk, and contributory negligence What could happen on a

construction site? What defenses would exist?

Defenses

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Most states require fact-finder to apportion damages based on relative fault of plaintiffs and defendants percentage shares of the total fault for the injury Plaintiff is awarded total provable damages

times defendants percentage of fault Green v. Ford Motor Co.: fact-finder shall

apportion fault to injured person only if fault of injured person is a proximate cause of injuries for which damages are sought

Comparative Negligence
http://www.in.gov/judiciary/opinions/pdf/02081102bd.pdf

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Preemption defense rests on a federal supremacy premise, that federal law overrides state law when the two conflict Riegel v. Medtronic, Inc.: state claims by

plaintiffs preempted by federal statute dealing with medical devices

Courts mixed whether to treat regulatory compliance as full defense or mere factor in determining defendants liability

Preemption and Regulatory Compliance
http://www.supremecourtus.gov/opinions/07pdf/06-179.pdf

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Thought Question

What is your opinion of product liability lawsuits? If you were injured by a defective product, would you file a lawsuit against the manufacturer?

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8 The Agency Relationship

Third-Party Relations of the Principal and the Agent

Agency Law

P A R T

35-3

The Agency Relationship

P A E T R H C 35

Ive got an ego and all that, but I know I need help. So I go and hire the very best people. H. Ross Perot, EDS founder Inc. magazine (Jan. 1989)

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Learning Objectives

Know how an agency relationship is created and terminated

Distinguish employees from nonemployee agents

Recognize when an agent risks breaching a fiduciary duty

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Agency is a two-party relationship in which one party (agent) is authorized to act on behalf of and under the control of another party (principal)

Anybody may be an agent or principal, but the agreement is voidable by minors and the mentally incapacitated

Overview

35-6

An agent can bind his principal only when the agent has authority to do so

Two forms: actual or apparent authority Actual authority is express or implied

Express authority is created by the principals actual words (written or oral)

Example: I want to hire you as my real estate agent to sell my house.

Agency Authority

35-7

Agent has implied authority to do whatever it is reasonable to assume that the principal wanted the agent to do given principals statements and surrounding circumstances Example: a person hired as general

manager in a restaurant will have broad authority to run the business while a person hired as a cashier will have limited authority

Implied Authority

35-8

Apparent authority arises when principals conduct leads a third party to believe that an agent (who lacks actual authority) is authorized to act a certain way and the third party reasonably relies on the appearance (cloak) of authority

To protect third parties, agency law allows agents to bind a principal on the basis of apparent authority

Apparent Authority

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An agency-based case may depend on whether a person who contracts with the principal is an employee (servant) or independent contractor

No clear distinction, but the Reid factors (listed in Eisenberg v. Advance Relocation & Storage, Inc.) aid in decision making: right to control physical details of the work, skill required, source of tools, location, schedule control, duration of relationship, payment method, benefits, tax treatment of hired party, uniqueness of work

Employee or Independent Contractor?

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Since agency is a fiduciary relationship of trust and confidence, an agent has a duty of loyalty to the principal

Agent must (1) avoid conflicts of interest with the principal, (2) maintain confidentiality of information received from the principal The duty of confidentiality survives agency

Duties of Agent to Principal

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Conflicts of interest include self-dealing, competition with the principal, or acting for another party

Agents must obey the principals reasonable instructions for agency business, exercise the degree of care and skill standard for the job, promptly communicate to the principal matters reasonably relevant or material to the agency business, and duty to account

Duties of Agent to Principal

35-12

A written agency contract normally states the duties the principal owes the agent, but law implies certain duties on the principal:

1. To compensate the agent 2. To reimburse the agent for money spent in

the principals service 3. To indemnify the agent for losses suffered in

conducting the principals business

Duties of Principal to Agent

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Termination by act of the parties includes: At a time or event stated in the

agreement When agency was created to

achieve a special purpose and the purpose was achieved

By mutual agreement of the parties

At the option of either party

Termination of Agency

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Termination by operation of law includes: Serious breach of the agents duty of loyalty Principals permanent loss of capacity or

agents loss of capacity to perform agency business

Change in value of agency property or subject matter (including loss or destruction)

Changes in law making the agency illegal Changed business conditions or outbreak of

war

Termination of Agency

35-15

After agency terminates, agents express and implied authority ends Caution: ex-agents may retain apparent

authority that could bind a former principal Principals should reduce risk of liability for

third parties relying on ex-agents apparent authority by actual or constructive notice to third parties about agency termination

Effect of Agency Termination

35-16

Thought Questions

Have you been an agent or a principal?

Do you think the agency rules of liability are fair?

What are the ethical issues involved in an agency relationship?

36-2

8 The Agency Relationship


Agency Law

P A R T

36-3


P A E T R H C 36 We intend to conduct our business in a way that not only meets but exceeds the expectations of our customers, business partners, shareholders, and creditors, as well as the communities in which we operate and society at large. Akira Mori , President and CEO Mori Trust Co., Ltd. (Japan)

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Learning Objectives

Know when an agent has authority to bind a principal to a contract

Understand when an agent may be liable on contracts s/he makes for the principal

Recognize when an agents conduct makes a principal liable for torts committed by the agent

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An agents actual authority may be express (by words) or implied (by conduct)

Apparent authority arises if communications by principal to third party creates reasonable appearance of authority in the agent

See Opp v. Wheaton Van Lines, Inc.: Plaintiff sued Wheaton for damages and the

company alleged her ex-husband had actual or apparent authority to limit coverage

Actual v. Apparent Authority
http://caselaw.findlaw.com/us-7th-circuit/1203621.html

36-6

In ratification, a principal becomes obligated for an unauthorized act done by an agent or person posing as an agent Act in question usually is contract creation

Ratification relates back to contract creation and binds principal as if agent had authority

May be express or implied Basic contract law applies

Ratification

36-7

An agents liability for a contract depends on the nature of the principle: Agent who represents a disclosed principal is

not liable on contracts made for the principal Agents are liable on contracts made for a

partially disclosed principal unless parties agree otherwise

An agent is liable to third parties on contracts made for an undisclosed principal

Contract Liability of Agent

36-8

If agent contracts for a competent and existing principal but lacks authority, the principal is not bound

The result is unfair to a third party, so the agent is bound on the theory of an implied warranty of authority to contract

See In re Interbank Funding Corp. v. Chadmoore Wireless Group Inc.

Implied Warranty of Authority

36-9

A principal may be liable for a tort in four circumstances: Direct liability for torts Respondeat superior Independent

contractor activities Misrepresentation

Principals Tort Liability

36-10

A principal may incur direct liability for an agents torts because the principal is at fault and liability need not be imputed Example: sales agent merely applied the

dealerships deceptive sales policies

Direct Liability

36-11

The doctrine of respondeat superior (let the master answer): a principal who is an employer is liable for torts committed by agents (1) who are employees and (2) who commit the tort while acting within the scope of their employment Principal liable for employees negligent

and intentional torts A rule of imputed or vicarious liability

Respondeat Superior

36-12

Generally an employees conduct is within the scope of employment if the conduct meets each of four tests: Conduct was of the kind that the employee

was employed to perform Conduct occurred substantially within the

authorized time period Conduct occurred substantially within the

location authorized by the employer Conduct was motivated at least in part by

the purpose of serving the employer

Scope of Employment

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Since a principal does not control the work of an independent contractor, a principal is not liable for an independent contractors torts except: A principal may be directly liable for

negligent retention of an independent contractor (e.g., hiring a dangerously incompetent independent contractor)

Liability for Torts of Independent Contractors

36-14

A principal may be liable for agents false statements directly (intentionally or negligently) or vicariously (agent authorized to make true statements on the subject)

Example: misrepresentation about the safety of medical devices by sales personnel

Liability for Misrepresentations

36-15

Agents liable for their torts except when: Agent exercises a privilege of the principal

(e.g., uses an easement) Agent takes privileged action to defend his

person or principals property Agent makes a false statement in conduct of

principals business but doesnt know the falsity of the statements

Third parties are injured by defective tools or instrumentalities furnished by the principal

Tort Liability of Agent

36-16

Thought Questions

Do you think the doctrine of respondeat superior is good policy? Why or why not?
Chap001 (1)Slide Number 1Slide Number 2The Nature of LawLearning ObjectivesTypes and Classifications of LawTypes and Classifications of LawImportant DoctrinesClassification of LawClassification of LawJurisprudenceJurisprudenceLegal ReasoningStatutory InterpretationLimitations on Judicial PowerThought QuestionChap002Slide Number 1Slide Number 2The Resolution of Private DisputesLearning ObjectivesSlide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Civil Procedure Civil Pre-Trial Procedure Civil Pre-Trial Procedure Civil Trial Procedure Civil Trial Procedure Civil Trial Procedure Civil Trial Procedure Civil Post-Trial Procedure Alternate Dispute ResolutionThought QuestionChap006Slide Number 1Slide Number 2Intentional TortsLearning ObjectivesSlide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20Slide Number 21Slide Number 22Thought QuestionChap007Slide Number 1Slide Number 2Negligence and Strict LiabilityLearning ObjectivesSlide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Thought QuestionChap020Slide Number 1Slide Number 2Product LiabilityLearning ObjectivesSlide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Slide Number 16Slide Number 17Slide Number 18Slide Number 19Slide Number 20Slide Number 21Thought QuestionChap035Slide Number 1Slide Number 2The Agency RelationshipLearning ObjectivesSlide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Thought QuestionsChap036Slide Number 1Slide Number 2Third-Party Relations of the Principal and the AgentLearning ObjectivesSlide Number 5Slide Number 6Slide Number 7Slide Number 8Slide Number 9Slide Number 10Slide Number 11Slide Number 12Slide Number 13Slide Number 14Slide Number 15Thought Questions

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