Inextinguishable Debt, Unfunded Obligations and Breach of Fiduciary Duty

Inextinguishable Debt, Unfunded Obligations and Breach of Fiduciary Duty – Part 1 of 2

There can be no security where there is fear.
Justice Felix Frankfurter

Please Listen to:  Introduction to “Liberty Defined” (2011) by Ron Paul

[DRAFT – subject to change] As part 1 of 2, this post examines the large question of fiduciary duty as a body of law in the following context:

  • What is a fiduciary?
  • What duties are owed by a fiduciary agent (Congressmen and women) to their principal (i.e., one man or woman they are entrusted to represent)?
  • Who is a principal in a fiduciary relationship and who is an agent?
  • What duties are owed by fiduciary agents to their principals?
  • And what is considered disclosure by a fiduciary, and more important, what is considered the “consent” of a principal to an attempt to bind the principal to a an undisclosed and unfunded debt?

Introduction:  Currently in December 2011, Congress is holding hearings on whether Congressman (House Members and Senators) are bound by “insider trading” rules promulgated by the SEC and other agencies.  During these hearings issues such as securities and funds misappropriation and fraud theories of liability are discussed in relation to Congressional fiduciary relationships in an tipper/tippee context as well as third party relationships.  A reference to a 3 hour C-SPAN covered video of the opening of those hearings is provided below along with PDF references to transcripted statements of 3 initial witnesses in Panel III.

Although the insider trading rules and whether they apply to Congressmen and women is interesting, this post addresses a broader and, in a sense, more troubling issue.  The insider trading hearings references are provided in this post in order to acquaint the reader with a settled body of law and principles since the founding of this county.  The body of law is that of principal, agent and fiduciary relationships.  The tighter principle discussed is that Members of Congress hold their office as a “public trust.”  This has been a settled principle since 1791 and references are given below in support of this long-standing principle.

It is beyond reasonable objection that each House Member and Senator is a fiduciary to the people, individually and collectively.  As James Maskell testified below (12/11/2011) in the quoted transcript provided before Chairman Spencer Bachus at the Committee on Financial Services [see video link below], this “public trust” owed by Congressman and woman to each man or woman is not simply an aphorism.  Out of it arises a duty based, principal agent relationship which he and the other witnesses all agree is a fiduciary in nature and is owed to the people, both individually and collectively.  It is this fiduciary relationship in the context of men and women that is addressed in this post.

What is further analyzed in this post and will be addressed in Part 2 of this series is where a man or woman is harmed financially (i.e. secretively placed in $528,000/household of unfunded debt), absent their express consent, that pecuniary harm gives rise to certain rights, actions and legal defense mechanisms for redress of that harm including without limitation renunciation, cancellation and petition for redress of that grievance.  [See:  HESSICK, F. ANDREW, Standing, Injury in Fact, and Private Rights, Cornell Law Review, Vol. 93:275 (2007).]

“… The law has long distinguished between “public rights” and “private
rights.”  Blackstone defined public rights as those rights held collectively
by the community.13  They include the right to navigate the
public waters of the state and to fish therein, to use the public high-ways,14 and to be free from violations of the criminal laws.15  The legislature
could restrict and regulate these rights16 and could create new
rights by enacting new regulations or criminal statutes.17  A violation
of a public right was a public wrong; the king was the only one injured
by such a violation, and he was the proper prosecutor.18
By contrast, private rights are those rights held by individuals.
Blackstone explained that private rights included the “absolute” rights of personal security, life, liberty, and property,19 as well as “relative” rights which individuals acquired “as members of society, and standing in various relations to each other.”20 The victim of a private wrong
could seek a remedy by bringing the appropriate form of action, such as a writ of trespass or a writ of trespass on the case.21″ [Emphasis added]

This subject is neither addressed in a theoretical sense nor academically.  The fiduciary relationship in focus here is discussed in relation to a factual, recent, highly controversial, and hotly contested battle which took place in Congress and caused USA Today to print the following article:  “U.S. funding for future promises lags by trillions” (06/13/2011) LINK.  In this article the following statements were made”

“… The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for. …  The $61.6 trillion in unfunded obligations amounts to $528,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.” [Emphasis added]

The term “unfunded obligations” is particularly important in this post.  Several paragraphs below are given 4 video links of former United States Comproller General  of the Currency David Walker describing the severity of what an unfunded liability is to Americans, how it may affect them, their children and grand children, none of whom have given their express consent to the economic enslavement $61.7 Trillion in unfunded obligations causes.

A breakdown of how this $528,000/household unfunded liability related in June 2011 and correlates today in December 2011 to an American individual, as part of the debt ceiling, unsolved, crisis in June-July 2011, is provided in this companion USA today article entitled:  “Government’s mountain of debt” (06/17/2011) LINK.

“… Medicare: $24.8 trillion Obligation per household: $212,500 … This demographic burst — combined with the addition of a prescription drug benefit in 2006 and rising health care costs generally — has created an unfunded liability of nearly $25 trillion over the lifetime of those now in the program as workers and retirees. That is the taxpayers’ obligation, beyond what Medicare taxes will bring in or seniors will pay in premiums for Medicare Part B — also called supplemental coverage — that helps pay for doctor visits and other expenses outside the hospital.  That $25 trillion is likely an underestimate, Medicare’s actuaries say, because it counts on 165 cost-saving changes in the health care reform law. Many of these are unlikely to occur — such as cutting physician payments 30% by 2012.

$21.4 trillion Obligation per household  $183,400  Social Security faces the same demographic challenges as Medicare: a rapidly aging population and increased longevity.  Social Security’s long-term shortfall grows about $1.2 trillion annually — a sign of an imbalance between the number of young workers and older beneficiaries, according to the Social Security trustees’ annual reports. The $21.4 trillion unfunded liability represents the difference between all taxes that will be paid and all benefits received over the lifetimes of everyone in the system now — workers and beneficiaries alike.  This is the measure corporations and insurance companies use to assess financial adequacy of their retirement programs.  … In addition, Congress reduces its estimate of Social Security’s shortfall by counting the $2.6 trillion in IOUs the government has issued to the program’s trust fund.  However, the government’s audited books, issued by the Treasury Department, don’t count that money as having any value to the federal government because it is a debt the government has issued to itself — like paying off a car loan with a credit card.” [Emphasis added]

Troubling Facts and Questions.  To repeat, notice that IOUs are described above as “unfunded liabilities” meaning they have no known source for repayment.   (i.e., notes, bonds, guarantees and possible derivatives) created and managed through Wall Street and a held by a self-styled “trust fund” to receive these debts was actually orchestrated out of thin air funded by IOUs and deposited as the trust corpus.  In an unfunded state it is worthless.  In mid-2011, this scheme was orchestrated by Congress with Wall Street insiders, some of whom (traders, securities firms and possibly Congressmen and women) benefited personally.  A blue elephant question in December 2011 is who stands behind the IOUs?  Have they been funded or remain unfunded?  Are these notes?  Are these liabilities?

To add to our ability to answer these questions or at least study them, please watch the following videos of David Walker, Former Comptroller General of the Currency when he answers the question of the meaning of and context for an “unfunded liability.”  (Note these videos were provided on YouTube in 2010 from www.gao.gov  fully one year prior to the 2011 creation of new debt instruments by Congress.)

The videos are not provided as a means of distraction.  These videos are intended to provide a mainstream government insider context that Congressmen and women were on notice of the nature of this mounting “unfunded liability” crisis in 2007 through 2010 per the public and official statements of the  Controller General of the Currency, and they chose not to speak about it to the men or women they represented in mid-2011 when Congress surreptitiously proposed that Americans become liable for $528,000/household in more unfunded liabilities.

Lest anyone think this is an isolated incident consider the following recent lawsuit involving the N.Y. Times:

“MySpace Founder Confirms in Wake of Resignation by The New York Times CEO That A Complaint Was Made In November To The NYT Board & SEC Regarding Potential Violations of Sarbanes Oxley Statue 802 and Federal Racketeering Violations including Obstruction of Justice

New York, NY (PRWEB) December 20, 2011

MySpace Founder Brad Greenspan confirmed today in the wake of the resignation by The New York Times Company CEO Janet L. Robinson, 61, president and chief executive officer since 2004, announced Friday December 16, 2011, that a formal complaint and request for a full investigation was made in November to the Board of Directors. In addition, the Securities & Exchange Commission (SEC) has confirmed to the MySpace Founder the agency has received evidence submitted on November 23, 2011 and forwarded such complaint to the Office of Investor Education and Advocacy (OIEA) to review potential violations by the NYT CEO or other executives of Sarbanes Oxley Statue 802 and/or Federal Racketeering Violations including Obstruction of Justice under File # HO-00178048-HO

Mr. Greenspan is also the largest shareholder in Brown v. Brewer a current 6 year Class Action Federal Securities Fraud and Antitrust case against News Corp and Intermix related to the 2005 Acquisition of Myspace.com. The Class Action case 2:06-cv-03731 is ongoing in Federal Central District in Los Angeles before the Honorable Judge George King. Most recently, Mr. Greenspan has filed for 25+ summary judgement counts on behalf of the Class of over 5000 public shareholders after winning an initial Summary Judgement ruling in June 2010. The MySpace Founder has also filed a Rule 701 Damage Valuation that establishes damages of over $32 billion dollars for Security Fraud and over $96 billion with antitrust claims including both a Clayton Act Section Eight Violation for Interlocking Directors and 2 Sherman Act Violation claims.

“Its incredibly important to have publicly traded media companies follow Federal laws including Sarbanes-Oxley statues, ” said the MySpace Founder “Equally important is an unfettered and uncorrupted free press in America that does not collude against Whistleblowers. I am hopeful and fully expect the Directors of the New York Times to report out on their internal investigation into the matter including working with the SEC if appropriate to bring to light any corruption or improper arrangements with other media companies which may have existed under the former CEO Janet Robinson.”

According to court documents, the MySpace Founder initiated contact with both The New York Times Company Directors and SEC providing significant evidence of an unusual suppression of certain story topics including cutting off coverage of the Brown v. Brewer Federal Class Action case after the New York Times Newspaper reported out on the case in July 2010 after an article was written by Gretchen Morgenson titled “Bidder Beware” covering Judge King’s June 2010 Summary Judgement. The New York Times also refused to contact The MySpace Founder after being supplied evidence that Mr. Greenspan was a victim of Computer Hacking/Intrusion by News Corporation which can be viewed in the pleadings before Judge King including the Motion of Summary Judgement, Motion for 60(b) Fraud upon the Court, & Motion for Intervention viewable at below link:

www.scribd.com/doc/74858285/December-5-2011-Motion-Approval-96-Billion-Damage-Report-Consideration-on-60b4-Motion-Void

The latest Brown v. Brewer Court docket can be seen here:
www.scribd.com/doc/75578171/News-Corp-AntiTrustSecurities-Fraud-Docket-RPT-12-8-11-California-Central-District

The Rule 701 Damage Valuation Report can be viewed at below link:

www.scribd.com/doc/74858285/December-5-2011-Motion-Approval-96-Billion-Damage-Report-Consideration-on-60b4-Motion-Void

Judge George King’s June 2010 Summary Judgement Ruling can be viewed at below link:

www.scribd.com/doc/33263784/2010-6-17-Federal-Judge-George-King-Rules-against-defendants-who-sold-Myspace-to-fox

About The New York Times Company
The New York Times Company, a leading media company with 2010 revenues of $2.4 billion, includes The New York Times, the International Herald Tribune, The Boston Globe, 15 other daily newspapers and more than 50 Web sites, including NYTimes.com, BostonGlobe.com, Boston.com and About.com.

About Brad Greenspan
With over 15 years of related experience, Brad Greenspan is a successful Internet entrepreneur and investor. He is the Founder of MySpace and he is regarded as one of the pioneers of the social networking sector. Brad’s portfolio of start up and early stage companies has covered a broad range of sectors including: Big Fish Games (gaming), Borba Corporation (neutracuticals), Fluid Music (music), Draths (clean technology),BroadwebAsia, (Asian focused online entertainment), and Live Universe (online entertainment).

###

For the original version on PRWeb visit: www.prweb.com/releases/prweb2011/12/prweb9052500.htm

Absent Express Consent, What Does This Mean in a Legal Context of a Fiduciary Relationship?

“If they can get you asking the wrong questions, they don’t have to worry about the answers.”
― Thomas Pynchon, Gravity’s Rainbow

A more troubling question is:  in June-August 2011, did Congress obtain the individual consent of man or woman before purportedly, or even “virtually”, signing their individual names to these notes or debt instruments to the extent of $528,000/household?  The relevance of this question relates to the scope of an agency agreement.  As fiduciaries of each man or woman, each Congressman and woman has a scope of express delegated authority.   Although there are significant reasons to dispute the Census findings reported in the USA Today September 13, 2011 article entitled “Typical U.S. family got poorer during the past 10 yearsLINK, it is important to note that the “median” income of American household was $49,445 in non-inflation adjusted dollars.

“Median household income fell 2.3% to $49,445 last year and has dropped 7% since 2000 after adjusting for inflation, the Census Bureau said Tuesday. Income was the lowest since 1996.

Poverty rose, too. The share of people living in poverty hit 15.1%, the highest level since 1993, and 2.6 million more people moved into poverty, the most since Census began keeping track in 1959.” [Emphasis added]

Inability to Pay.  When the $528,000/household was allegedly created in mid-2011 as a consequence of Congress’ tacit authorization of new debt securities and instrument issuances, absent express consent of each man or woman, where did Congress think the repayment would come from to satisfy the new holders of these debt instruments?

Even if it could be argued that Congress has express fiduciary authority to “virtually” sign the name of each man and woman on these debt instruments or their equivalent; and that is not conceded here they did have the authority, is it even practical or reasonable to consider a current populace in this economy which earns a median income of $49,445/household can ever pay off this debt?  Even if the government took 100% of the income of Americans, it would take 10.67 years to pay this debt down, assuming no interest on the debt instruments.  These debt instruments are interest bearing, and it is likely that calculation is closer to 20 years without taking into effect the rampant inflation Americans are experiencing.

What duties arise in Congress and through and to their agents on Wall Street in creating these debt instruments and obligation to inform existing and new prospective holders of these alleged debts of the impracticality of any repayment of the principal and interest?  What duty arises with respect to each Congressman and woman to inform these prospective debt holders that they have not obtained the informed consent of each America to pay this principal and interest on this unfunded debt to the tune of $528,000/household as of 2011?

Personal Benefits. A second and related question regarding the ongoing December 2011 Congressional hearings on insider trading is the nature of any personal benefit a Congressman or woman may have received as a part of the creation of this $528,000/household unfunded liability scheme.  Is this or should this be a part of the insider trading investigation underway in the House in December 2011?

With advance notice that each Congressman and woman may have had specifically, is it not relevant to investigate whether any Congressman or woman benefited directly or indirectly from the creation of these debt instruments, or any underlying securities issuances, trades, insurance guarantees, either in the United States or abroad?

Principal/Agent Relationships and Express Agency Authority or Lack Thereof.  SOURCE:  “A consensual relationship created by contract or by law where one party, the principal, grants authority for another party, the agent, to act on behalf of and under the control of the principal to deal with a third party. An agency relationship is fiduciary in nature, and the actions and words of an agent exchanged with a third party bind the principal.  The principal may authorize the agent to perform a variety of tasks or may restrict the agent to specific functions, but regardless of the amount, or scope, of authority given to the agent, the agent represents the principal and is subject to the principal’s control. More important, the principal is liable for the consequences of acts that the agent has been directed to perform.  A voluntary, GOOD FAITH relationship of trust, known as a fiduciary relationship, exists between a principal and an agent for the benefit of the principal. This relationship requires the agent to exercise a duty of loyalty to the principal and to use reasonable care to serve and protect the interests of the principal. An agent who acts in his or her own interest violates the fiduciary duty and will be financially liable to the principal for any losses the principal incurs because of that breach of the fiduciary duty. For example, an agent who accepts a bribe to purchase only the goods from a particular seller breaches his fiduciary duty by taking the money, since it is the agent’s duty to work only for the best interests of the principal.”  [Emphasis added]

Answers are not obtained by putting the wrong question and thereby begging the real one.  — Justice Felix Frankfurter

Lack of Express Agency to Incur $528,000/Household in Unfunded Debts.  In advance of being elected or beginning this Congressional Term, did each Congressman or woman receive express agency authority to enter into this $61.7 Trillion dollar unfunded debt obligation scheme on behalf of any one man or woman they represent?  Some may argue that Congress has implied authority to bind Americans to inextinguishable debt that will, by all calculations, ostensibly enslave them, their children and grand children of no hope of ever being free and at liberty.

“… An agent who has been given possession of securities or other evidences of debts payable to the principal is not thereby authorized to receive payment.  The power to borrow money or to execute and deliver promissory notes is not to be implied.  It either must be granted by express terms or flow as a necessary and inevitable consequence from the nature of the agency actually created.”  SOURCE  [Emphasis added]

What Does the Term “Liberty” Mean in the Declaration of Independence.  If it is Inalienable, How Can it be Reconciled with the What Congress Has Attempted to Do?

The previously cited  USA Today article goes on to report the following additional debt entries which make up a part of the alleged $528,000/household in America, absent express consent (e.g., see what constitutes “consent” defined below).

“Federal debt: $9.4 trillion Obligation per household: $79,900  The federal debt is growing so fast that each household owes $3,500 more today than at the start of the year when the debt clocked in at an average of $79,900 per household.

The federal government’s $9.3 trillion in debt on Jan. 1 (and $9.7 trillion today) is what it owes the public from the Treasury Department’s sales of short-term bills, medium-length notes and long-term bonds.  It includes all debt owed to U.S. investors, money market funds, the central banks of China and Japan, private banks in Europe and others.

It does not include the $4.6 trillion in IOUs the federal government has promised its own programs such as Social Security and federal employee pensions. The effect on taxpayers is the same no matter where the debt lands — on the books of Social Security or Treasury Department.

The federal debt limit Congress and the White House are debating includes both — the debt held by the public plus the internal loans to federal programs, for a total of about $14.5 trillion.” [Emphasis added]

Notice again the complicit relationship between Congress and Wall Street to orchestrate this forced unfunded liability debt scheme.  Again looking at the real question of the source of repayment, the magazine The New American on June 9, 2011 reported concerning the USA Today article previously cited LINK:

“Where is the government going to get the $61.6 trillion — and probably much more since that is the expected cost in 2011 dollars — that it will need to cover all these shortfalls?

In 2009, former Treasury Department economist Bruce Bartlett calculated that “federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by [Social Security and Medicare] under current law over and above the payroll tax.Taxes would have to at least double to cover all the government’s unfunded liabilities, which is politically untenable and would kill the economy if it did take place.

The next option is to borrow the money. But with foreign creditors already skittish about buying more U.S. bonds and America’s credit rating teetering on the brink, who is going to loan Washington $61 trillion more?

In short, there simply is no way that the government can honestly pay everything it has promised, causing Wenzel to remark:

Default is really the only long-term option. It will be done either in straightforward fashion, where the government pays pennies on the dollar for what it owes. Or it will be done in stealth fashion by the Fed printing up dollars to pay for the government obligations, which will create huge price inflation that will screw the average worker and also those on fixed incomes such as retirees.

As bad as the first option is, the second is infinitely worse. Unfortunately, with politicians being notoriously weak-kneed, it is the more likely scenario. This is why the debt ceiling must not be raised and the Federal Reserve must be brought to heel, if not abolished. Only then will spending cuts be forced upon Congress.” [Emphasis added]

The purpose of providing the foregoing quote is to demonstrate to the reader that, at the time, in mid-2011, Congressman and woman had no known source for repayment of the debt ceiling increases nor the  $528,000/household unfunded obligations, except a doubling or even up to an 80% increase in individual taxation.  This being the facts at the time, did Congressmen and women owe each man and woman they represent a fiduciary duty of disclosure regarding their express consent to bind them to an alleged unfunded liability of $528,000/household?

Implication of Treasury Bonds and their Relationship to Unfunded Obligations and Debt.  Why does the Fed buy treasury bonds through the open market instead of directly from the treasury?

SOURCE:  Charles Krohn, Hedge fund programmer

“They don’t just buy from Goldman Sachs — they buy from all the primary dealers in an auction. The primary dealers are the same institutions that are eligible to buy from the U.S. Treasury during monthly bond auctions: banks like Goldman, Morgan Stanley, JPMorgan, Citigroup, etc.

Here’s how the process works:

  • A few days in advance of the auction, the U.S. Federal Reserve provides a list of the specific bonds and amounts they’d like to buy
  • At a specific time, all the primary dealers submit their best offers to the Fed, i.e. they submit the lowest price at which they’d be willing to sell.
  • The Fed buys from those dealers who offer the lowest price.

They buy via auction rather than buying from the Treasury since it increases transparency and helps them get a better price.  The Fed announces the times at which it will buy securities and the price at which it will buy them.  The Fed price in Quantitative Easing is always greater than the market price for the same securities.  Given this information in advance, market participants either (a) unload Treasury bonds from their books at a great profit (since Treasuries are trading at all time highs) or (b) go out into the open market and purchase Treasury bonds that cost less than the Fed’s announced prices, creating an arbitrage effect.

Q: If the market price of an apple is $1.00, and I offer to buy a half a trillion apples for $1.02, how many would you sell me?

A: As many as you bloody can.  I’d be in effect giving you an easy profit of billions.  Especially because the market price will drop after my buying program ceases.

Anyone who can afford to buy up billions in Treasuries in advance of the Fed’s purchases can play (or has a few billion they’d like to short when the Treasury market is at an all time high).”  [Emphasis added]

The unstated point in the foregoing article is the very Americans who are being assessed $528,000/household in “unfunded obligation” debt in June 2011 and thereafter can hardly afford to buy up billions in Treasuries.  Suffice it to say they also have no Treasury accounts to “short”.

Although proof may not be required of the complicit relationship between Congress and Wall Street, this article demonstrates, in the words of the CEO Garzarelli, the extent of Goldman Sachs involvement in US Treasuries in June 2011, and the incredible windfall profits and private table stakes which are always in play when Americans are forced to assume, absent consent, more debt by the raising of the debt ceiling and the forced imposition of more unfunded obligations.

“GOLDMAN SACHS: THE TREASURY BULL RUN IS OVER

1 July 2011 by DJ FX Trader By Min Zeng, DJ FX Trader

  • Goldman’s Garzarelli says yields will rise as the U.S. economy picks up speed in the second half
  • Garzarelli expects Treasurys to post 5% losses in the second half
  • Garzarelli recommends short positions on five-year notes

This week’s heavy selloff in U.S. Treasurys has prompted Goldman Sachs, one of the biggest Treasury bond dealers, to declare that the months-long bull run is dead.

“We think the rally is over,” Francesco Garzarelli, chief interest-rate strategist in London at Goldman Sachs Group Inc., said in an email interview with Dow Jones Newswires on Thursday. Goldman has long held to the view that Treasury prices would fall over the course of this year.

This past week, the Treasury market has sold off in each trading session. The benchmark 10-year note’s yield, which moves inversely to its price, has surged more than 30 basis points to 3.151% Thursday from a six-month low of 2.842% on Monday.

The main triggers for the end to a rally that started in early April were associated with events that reduced the risk of default by Greece, including the crucial passage of necessary austerity measures by the country’s parliament. This prompted investors to rotate out of safe-haven Treasurys and into stocks.

Some stronger U.S. data, such as Thursday’s business outlook index for the Chicago region, added to these trends by boosting the view that the U.S. economy could pick up speed in the coming months, after a soft patch in the first half.

Garzarelli said Treasury yields will rise as he expects the economic numbers to improve in the third and fourth quarters, while U.S. inflation excluding food and energy–a measure closely watched by the Federal Reserve that has been ticking up in recent months–will hold to its higher levels.

Garzarelli said Goldman Sachs expects the U.S. economy to grow at an annualized rate of 2% in the second quarter and accelerate to 3.25% in both the third and fourth quarters of 2011.

In a monthly report, Garzarelli predicted the total returns on U.S Treasurys at negative-5% for the second half, while German bunds–another safe-haven asset–would post a loss of 3%.

Even as Treasurys rallied and yields fell in prior months, Goldman stuck to its forecast for the U.S. 10-year yield to rise to 3.75% by the end of the year while other major dealers reduced their end-2011 yield projections.

Garzarelli recommended clients short the five-year Treasury note in expectation that it will decline in price. That note has been one of the best performing maturities in the Treasury market in recent weeks.”  [Emphasis added]

What is a Fiduciary?

Definition.  A fiduciary duty is a legal duty to act solely in another party’s interests. Parties owing this duty are called fiduciaries. The individuals to whom they owe a duty are called principals. Fiduciaries may not profit from their relationship with their principals unless they have the principals’ express informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciaries’ other clients. A fiduciary duty is the strictest duty of care recognized by the US legal system.  SOURCE:  Legal Information Institute, Cornell School of Law.

Q: Does a Congressman Owe a Fiduciary Duty to Each Man and Woman that He or She is Sent to Washington to Represent? 

A:  Yes.

On 12/06/2011 Jack Maskell was called before Congress and testified before members of the Congress.  Washington, DC.  The House Financial Services Committee held a hearing on congressional insider trading.  The committee looked into allegations Members have enriched themselves through legal stock trades based on non-public information.  The hearing looked at a bill that aims to prevent lawmakers from using information they obtain through work to trade stocks.  A form of the legislation was originally introduced in the House in 2006.  The current bill is H.R. 1148, the “Stop Trading on Congressional Knowledge Act.”  The House Ethics Committee sent a memo stating that members of Congress may be liable as insider traders, whether they obtain nonpublic information as part of their official duties or outside them. A recent “60 Minutes” segment focused on financial transactions involving House Speaker John Boehner (R-OH), Democratic leader Nancy Pelosi (D-CA) and Rep. Spencer Bachus (R-AL).  All three have denied wrongdoing.

Others are now under investigation as it relates to the trading in securities in foreign jurisdictions not technically covered by SEC rules.

“To ride or not to ride? What a stupid question! … If your horse says no, you either asked the wrong question or asked the question to the wrong horse”

C-SPAN.org covered the hearing can be viewed here.  For purposes of this posting on Fiduciary Duty, it is suggested the viewer scroll through the video to 2:42:00 which begins the testimony of Jack Maskell, attorney (since 1973) for the American Law Division of the Congressional Research Service repeated verbatim below and 3:07:15:

Good morning, and thank you Mr. Chairman and Members of the Committee.

My name is Jack Maskell. I am a legislative attorney in the American Law Division of CRS. I have been at CRS since 1973, and one of the areas of law that I cover is governmental ethics and conflicts of interest law.

When questions have come into CRS from time-to-time over the years regardingMembers of Congress and the use of confidential or nonpublic information for their own personal financial benefit, we have approached that issue, generally, as a matter of congressional ethics. Our advice over the years has consistently been that such conduct may be a violation of specific House or Senate ethics rules, as well as contrary to recognized and accepted ethical guidelines and norms in Congress. A recent advisory opinion from the House Ethics Committee, released last week, has confirmed this approach.

Because of allegations over the last number of years with regard to trading in securities of publicly traded companies by Members of Congress, there have been questions raised also about possible violations of the insider trading rules.

I think it is now fairly clear to everyone following this issue that Congress did not “exempt itself” from the insider trading laws:

  • the statutory provisions prohibiting fraud and market manipulation provide no exception for Members,
  • the regulations of the SEC do not express any exemption for Members of Congress,
  • and the case law has not recognized any specific congressional exemption.

When an individual is in a position or has a particular relationship to issuers, to those who are stockholders, or even to a provider of information, as described in the SEC regulations, and that person trades on material, nonpublic information, such person would likely violate the insider trading provisions whether or not he or she is a Member of Congress.

Because of the lack of case law specifically applying the insider trading laws to Members of Congress, — there are certainly some areas for dispute concerning any particular hypotheticals, and how the law would or not apply, especially in relation to information that is not from a private company, insider, or trader, but rather is merely about a potential or proposed congressional action. However, one of the two main points I want to make this morning is that CRS considers that the characterization made by some critics of Congress that the position of a Member of Congress is one which does not involve a public trust, a duty of entrustment, is wrong as a matter of both law and ethics.

I am certainly not the first to say that the office of a Member of Congress involves a public trust. Even before the enactment of the Constitution, James Madison noted in the Federalist Papers the importance of measures to keep Members “virtuous whilst they continue to hold their public trust.” The phrase “public office is a public trust” is recognized explicitly in both the House and the Senate. That phrase is more than merely an aphorism, because it denotes that Members of Congress who wield public power have a fiduciary responsibility to use that power in the interests of the general public who are supposed to be the beneficiaries of that trust.

The Senate, in its Standing Orders, has stated it very nicely:

“It is declared to be the policy of the Senate that … The ideal concept of public office, expressed by the words, ‘A public office is a public trust’, signifies that the officer has been entrusted with public power by the people; that the officer holds this power in trust to be used only for their benefit and never for the benefit of himself or a few ….” (Standing Orders of the Senate, Senate Manual, § 87, S. Doc. 107-1, at 118-119 (2002)).

This fiduciary duty of Members towards the public is one which has been expressly recognized by federal courts. In 1978, the United States Court of Appeals for the Second Circuit applied a fiduciary theory of public trust owed by a Member in a case in which the government moved to have the proceeds from an illegal transaction between a Member of the House and a private party recovered by the government under a theory of a “constructive trust.” The court agreed with the lower court decision to “impose a constructive trust on monies [the Member of Congress] received in breach of his fiduciary duty as a United States Congressman.” (United States v. Podell, 572 F.2d 31, 32 (2d Cir. 1978)).

There are also specific House and Senate ethics rules relative to the use of one’s office for one’s own personal benefit. The Ethics Committee has noted that the language of the House Rules means that Members “may not use their official positions for personal gain.” (House Ethics Manual, at 186 (2008)). Additionally, the House of Representatives has expressly recognized the continued application to the House of the ethical guidelines and standards adopted in the Code of Ethics for Government Service, which provides expressly that any federal official, including a Member of Congress, may “[n]ever use any information coming to him confidentially in the performance of governmental duties as a means for making private profit.”

The ethics rules in the executive branch of government on using information for private gain are similar to these provisions, and, of course, you are probably familiar with the guilty plea this summer by a federal employee who worked for the FDA to insider trading charges. (United States v. Cheng Yi Liang, Crim. No. DKC-11-0530, plea agreement of August 18, 2011 (D.Md. 2011))

The second point I want to make today is about potential problems with enforcing certain measures proposed to address this issue. The express authorization and duty of each House to discipline its own Members for misconduct in Article I, Section 5 of the Constitution is there, in part, because of existence of the provisions of Article I, Section 6 of the Constitution, which help enforce separation of powers by providing that Members of Congress may not be “questioned” in other place regarding their speech or debate in either House. The courts have found that Members of Congress are immune from criminal or civil proceedings for their official legislative activities which are considered “an integral part of the deliberative and communicative process by which Members participate in committee and House proceedings.”1 So, if Congress passes a law in which it delegates to an outside body, such as an independent regulatory agency in the executive branch of government, the responsibility to police congressional activity inside of Congress arising from, for example, hearings, depositions, or even legislative strategy sessions, any outside enforcement authority may encounter some significant evidentiary issues regarding the “Speech or Debate” privilege. Its not a bar to prosecution or to civil action, but it certainly would impact outside enforcement decisions.

I am available to answer questions you may have relative to my testimony.

Thank you.” [Emphasis added]

Panel III Transcripted Statements are available here and are recommended to the reader.

As a Fiduciary Agent, Is Congress Required to Obtain the Individual Consent of Each Man and Woman They Represent When He or She Intends to Place $524,000/Household of Unfunded Debt Upon Them, their Children and their Grand Children?

This question turns upon a more fundamental question recently posed by Professor Stephen Bainbridge, distinguished Professor of Law at UCLA.

“… Of whom are Members of Congress agents or fiduciaries? With whom do they have the requisite relationship of trust and confidence out of which the requisite duty to disclose before trading arises? The only logical candidate is the electorate.”  SOURCE:  “Congressional insider trading errorsProfessorBainbridge.com, Stephen Bainbridge’s Journal of Law, Politics, and Culture. [Emphasis added]

What is Consent?

The term “consent of the governed” has a unique intention, definition and understanding which must be placed in the context of how and why America was founded in 1776.  To assist resort is made to the Declaration of Independence, which recognized the pre-existence of unalienable (contrasted with inalienable rights) endowed by the Creator and vested in each man (an woman) in 1776 and in their posterity in perpetuity.

“…We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.  DECLARATION OF INDEPENDENCE. [Emphasis added]

What Does Consent Mean?

The American Dictionary of the English Language published by Noah Webster in 1828 still serves as a resource used by the Supreme Court of the United States in order to find the Founders original intent and original understanding of terms above highlighted phrases written in the Declaration of Independence (1776), the Constitution (1787) and the Bill of Rights (1791).

“…Finding cases in which Justice Thomas gave weight to evidence of the original objective meaning of constitutional terms was not difficult. Indeed, in one of his most famous constitutional opinions, his concurrence in United States v. Lopez, Justice Thomas sought to discern the original objective meaning of the term “commerce” in the Commerce Clause.39   He asserted, “At the time the original Constitution was ratified, ‘commerce’ consisted of selling, buying, and bartering, as well as transporting for these purposes.”40  Thomas followed this statement immediately with definitions of the word “commerce” from three period dictionaries: an edition of Samuel Johnson’s A Dictionary of the English Language from 1773, an edition of Nathan Bailey’s An Universal Etymological English Dictionary from 1789, and an edition of Thomas Sheridan’s A Complete Dictionary of the English Language from 1796.41 These dictionaries provide some evidence of the original objective meaning of the word “commerce” because they reveal the word’s general usage at the time of the adoption of the Constitution.  This objective meaning is not necessarily what the Framers subjectively intended the word to mean or what the ratifiers subjectively understood it to mean.  In various other cases, Justice Thomas also has consulted period dictionaries and other secondary sources to determine the original objective meaning of terms in the Constitution.  In his dissent in Kelo v. City of New London, he again turned to Samuel Johnson’s dictionary, this time to determine the meaning of the noun “use” in the Fifth Amendment.42   In his dissent in Rothgery v. Gillespie County, he looked at Blackstone’s Commentaries and Noah Webster’s 1828 dictionary for evidence of the original objective meaning of the word “prosecution” in the Sixth Amendment.43   In his concurrence in judgment in Baze v. Rees, Justice Thomas looked at Samuel Johnson’s and Noah Webster’s dictionaries for evidence of the meaning of the word “cruel” in the Eighth Amendment.44   In his majority opinion in United States v. Bajakajian, he used the same two dictionaries to determine the meaning of the term “excessive” in the Eighth Amendment.45   And in his dissenting opinion in Tennessee v. Lane, Justice Thomas looked at two dictionaries from the 1860s for evidence of the meaning of the term “enforce” in section 5 of the Fourteenth Amendment.46
__________________________________________________
Selected Footnotes:
39 See United States v. Lopez, 514 U.S. 549, 585–86 (1995) (Thomas, J., concurring).
40 Id. at 585.
41 See id.at 585–86 (citing SAMUEL JOHNSON, 1 A DICTIONARY OF THE ENGLISH LANGUAGE 361 (4th ed. 1773); N. BAILEY, AN UNIVERSAL ETYMOLOGICAL ENGLISH DICTIONARY (26th ed. 1789); THOMAS SHERIDAN, A COMPLETE DICTIONARY OF THE ENGLISH LANGUAGE (6th ed. 1796)).
42 545 U.S. 469, 508 (2005) (Thomas, J., dissenting) (citing 2 DICTIONARY OF THE ENGLISH LANGUAGE, supra note 41, at 2194).
43 128 S. Ct. 2578, 2596–97 (2008) (Thomas, J., dissenting) (citing WILLIAM BLACKSTONE, 4 COMMENTARIES *289; NOAH WEBSTER, AN AMERICAN DICTIONARY OF THE ENGLISH LANGUAGE (1828)).
44 128 S. Ct. 1520, 1558 (2008) (Thomas, J., concurring) (citing 1 DICTIONARY OF THE ENGLISH LANGUAGE, supra note 41, at 459; WEBSTER, supra note 43, at 52).

For full law review article:   WHICH ORIGINAL MEANING OF THE CONSTITUTION MATTERS TO JUSTICE THOMAS?  New Your University Journal of Law and Liberty (2009) Vol. 4:494

Noah Webster in “The American Dictionary of the English Language” (1828) defines consent as:

Consent  n. [L., to be of one mind, to agree; to think, feel or perceive. See Sense and Assent.]

1.  Agreement of the mind to what is proposed or state by another; accord; hence, a yielding of the mind or will to that which is proposed; as, a parent gives his consent to the marriage of his daughter. We generally use this word in cases where power, rights, and claims are concerned. We give consent, when we yield that which we have a right to withhold; but we do not give consent to a mere opinion, or abstract proposition. In this case, we give our assent. But assent is also used in conceding what we may withhold. We give our assent to the marriage of a daughter. Consequently, assent has a more extensive application than consent. But the distinction is not always observed. Consent often amounts to permission.

Defraud ye not one another, except with consent for a time. 1 Corinthians 7.

2.  Accord of minds; agreement; unity of opinion.

All with one consent began to make excuse. Luke 14.

The company of priests murder by consent. Hosea. 6.

3.  Agreement; coherence; correspondence in parts, qualities, or operation.

Such is the worlds great harmony that springs from union, order, full consent of things.

4.  In the animal economy, an agreement, or sympathy, by which one affected part of the system affects some distant part. This consent is supposed to exist in, or be produced by the nerves; and the affections to be communicated from one part to another by means of their ramifications and distribution through the body. Thus, the stone in the bladder, by vellicating the fibers, will produce spasms and colic in the bowels; a shameful thing seen or heard will produce blushing in the cheeks. But many facts indicate that other causes than nervous communication produce sympathy.

Consent, v.i. [L. See the Noun.]

1. Literally, to think with another. Hence, to agree or accord. More generally, to agree in mind and will; to yield to what one has the power, the right, or the disposition to withhold, or refuse to grant.

If sinners entice thee, consent thou not. Proverbs 1.

And Saul was consenting to Stephens death. Acts 8.

Only let us consent to them, and they will dwell with us. Genesis 34.

2. To agree.

When thou sawest a thief, thou consentedst with him. Psalm 1.

3. To assent.

I consent to the law that it is good. Romans 7. 1 Timothy 6.

What Does Unalienable Mean?

Unalienable

a. Not alienable; that cannot be alienated; that may not be transferred; as unalienable rights.

Noted legal dictionaries concur on the meaning of unalienable:

“Things which are not in commerce, as public roads, are in their nature unalienable. Some things are unalienable, in consequence of particular provisions in the law forbidding their sale or transfer, as pensions granted by the government. The natural rights of life and liberty are UNALIENABLE.  Bouviers Law Dictionary 1856 Edition [Emphasis added]

Unalienable: incapable of being alienated, that is, sold and transferred.” Black’s Law Dictionary, Sixth Edition, page 1523:

You can not surrender, sell or transfer unalienable rights, they are a gift from the creator to the individual and can not under any circumstances be surrendered or taken.  All individual’s have unalienable rights. [Emphasis added]

By contrast, compare the term Inalienable as.

Inalienable rights:  Rights which are not capable of being surrendered or transferred without the consent of the one possessing such rights.  Morrison v. State, Mo. App., 252 S.W.2d 97, 101.

You can surrender, sell or transfer inalienable rights if you consent either actually or constructively.  Inalienable rights are not inherent in man and can be alienated by government. Persons have inalienable rights.  Most state constitutions recognize only inalienable rights.”  [Emphasis added]

Q:  Can Unalienable Rights, by Definition be Modified by Legislative Enactments or Even Amendments to the Constitution?

A:  No.  If unalienable rights could be infringed by legislative enactment, amendment or contract, it is self-evident they would not be “unalienable” by definition.

An excellent set of examples is the Thirteenth Amendment and Fourteenth Amendments.

Section 1. Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Section 2. Congress shall have power to enforce this article by appropriate legislation.

That the Thirteenth Amendment is a legislative enactment is beyond reasoned argument.  Consider this however.  Should the Thirteenth Amendment have been drafted 180 degrees in the opposite direction as a means of statutorily creating, endorsing or enforcing slavery of any type, regardless of reason, would that enactment by Congress have been a legislative attempted nullification of one or more of the unalienable rights of life, liberty and pursuit of happiness described in the Declaration of Independence?  The answer is clearly yes it would have been an attempted nullification of perhaps all of them.  It would have destroyed each of the unalienable rights specified in the Declaration of Independence and Congress would be no different than King George and all the complaints levied against him at the time.

Now focusing on the controlling definitional difference between unalienable and inalienable rights, discussion focus is placed on the term “persons” as being a controlling nuance.  Tomes of legal treatises have been written on the origin and meaning of term “person”.  For purposes of this brief posting, the use of the term “person” used for the first time in the Fourteenth Amendment is raised for emphasis.

“Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside. No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Section 2. Representatives shall be apportioned among the several States according to their respective numbers, counting the whole number of persons in each State, excluding Indians not taxed.  But when the right to vote at any election for the choice of electors for President and Vice President of the United States, Representatives in Congress, the Executive and Judicial officers of a State, or the members of the Legislature thereof, is denied to any of the male inhabitants of such State, being twenty-one years of age, and citizens of the United States, or in any way abridged, except for participation in rebellion, or other crime, the basis of representation therein shall be reduced in the proportion which the number of such male citizens shall bear to the whole number of male citizens twenty-one years of age in such State.

Section 3.  No person shall be a Senator or Representative in Congress, or elector of President and Vice President, or hold any office, civil or military, under the United States, or under any State, who, having previously taken an oath, as a member of Congress, or as an officer of the United States, or as a member of any State legislature, or as an executive or judicial officer of any State, to support the Constitution of the United States, shall have engaged in insurrection or rebellion against the same, or given aid or comfort to the enemies thereof.  But Congress may, by a vote of two-thirds of each House, remove such disability.

Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

Section 5. The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.”

The Fourteenth Amendment was ratified July 9, 1868.  Regardless of the date, the use of the term person as opposed to the term men found in the Declaration of Independence is intentional.  This is not intended to be a sexist statement.  Irrespective of the intentioned use of the term person, as with the Thirteenth Amendment, can this Fourteenth Amendment be classified as anything other than a legislative enactment.  Can it be read or enforced in any sense so as to divest any man or woman of the unalienable right to life, liberty and the pursuit of happiness?  Again the answer is no it cannot be used to alienate any of these rights.

So in the face of a man or woman who asserts their own, subjective definition of what constitutes the unalienable right to life, liberty and the pursuit of happiness, can Congress assert authority of any type to tell them what that actually means or as in the case made in this post, purport to state that their fiduciary relationship to that man or woman somehow gives Congress the right to secretly deprive them of $528,000/household?

It is not a question which lends itself to objective analysis or opinion because unalienable rights are endowed by the Creator and cannot be limited by a supposed transference of them to a legislative, executive or judicial body or officer.  Neither Congress, the Executive of Jusicial branches have by inescapable definition of the term “unalienable” the right to determine what is meant to any man or woman by the phrase:  “… certain unalienable rights, that among these is the right of life, liberty and the pursuit of happiness”.  By stronger reason, this is self-evident where the phrase “among these” is understood to signify a non-exclusive list of unalienable rights and not a list limited to life, liberty and the pursuit of happiness.

Most case law on this subject is understood by legal scholars to be sui generis, particularly when relating to what are or are not unalienable rights.  The reason for a sui generis approach to this is due to the fact that the phrase and what it means is actually subjective to the man or woman being declaring what they are.  Case law supports this understanding that no legislative enactments whether amendment, statute, rules or regulations may alter, take, limit or compromise the unalienable rights of a man or woman provided they are asserted.  Although there are numerous case law references, several should suffice for this posting:

“… Men are endowed by their Creator with certain unalienable rights,-‘life, liberty, and the pursuit of happiness;’ and to ‘secure,’ not grant or create, these rights, governments are instituted.  That property which a man has honestly acquired he retains full control of, subject to these limitations:  First, that he shall not use it to his neighbor’s injury, and that does not mean that he must use it for his neighbor’s benefit; second, that if the devotes it to a public use, he gives to the public a right to control that use; and third, that whenever the public needs require, the public may take it upon payment of due compensation.  BUDD v. PEOPLE OF STATE OF NEW YORK, 143 U.S. 517 (1892) [Emphasis added]

“…The dissemination of the individual’s opinions on matters of public interest is for us, in the historic words of the Declaration of Independence, an “unalienable right” that “governments are instituted among men to secure.”  History shows us that the Founders were not always convinced that unlimited discussion of public issues would be “for the benefit of all of us” but that they firmly adhered to the proposition that the “true liberty of the press” permitted “every man to publish his opinion…” Respublica v. Oswald, 1 Dall. 319, 325 (Pa.). CURTIS PUBLISHING CO. v. BUTTS, 388 U.S. 130 (1967) [Emphasis added]

“… Among these unalienable rights, as proclaimed in that great document, is the right of men to pursue their happiness, by which is meant the right to pursue any lawful business or vocation, in any manner not inconsistent with the equal rights of others, which may increase their prosperity or develop their faculties, so as to give to them their highest enjoyment.  The common business and callings of life, the ordinary trades and pursuits, which are innocuous in themselves, and have been followed in all communities from time immemorial, must therefore be free in this country to all alike upon the same conditions.  The right to pursue them, without let or hinderance, except that which is applied to all persons of the same age, sex, and condition, is a distinguishing privilege of citizens of the United States, and an essential element of that freedom which they claim as their birthright.  It has been well said that ‘THE PROPERTY WHICH EVERY MAN HAS IN HIS OWN LABOR, AS IT IS THE ORIGINAL FOUNDATION OF ALL OTHER PROPERTY, SO IT IS THE MOST SACRED AND INVIOLABLE. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property.  It is a manifest encroachment upon the just liberty both of the workman and of those who might be disposed to employ him. . . The right to follow any of the common occupations of life is an unalienable right, it was formulated as such under the phrase ‘pursuit of happiness’ in the declaration of independence, which commenced with the fundamental proposition that ‘all men are created equal; that they are endowed by their Creator with certain inalienable rights; that among these are life, liberty, and the pursuit of happiness.’ This right is a large ingredient in the civil liberty of the citizen. To deny it to all but a few favored individuals, by investing the latter with a monopoly, is to invade one of the fundamental privileges of the citizen, contrary not only to common right, but, as I think, to the express words of the constitution. It is what no legislature has a right to do; and no contract to that end can be binding on subsequent legislatures. . . BUTCHERS’ UNION CO. v. CRESCENT CITY CO., 111 U.S. 746 (1884) [Emphasis added]

The constitution expressly declares, that the right of acquiring, possessing, and protecting property is natural, inherent, and unalienable.  It is a right not ex gratia from the legislature, but ex debito from the constitution. . . Where is the security, where the inviolability of property, if the legislature, by a private act, affecting particular persons ONLY, can take land from one citizen, who acquired it legally, and vest it in another? VANHORNE’S LESSEE v. DORRANCE, 2 U.S. 304 (1795) [Emphasis added]

Part 2 – Inflation and the Lost Value of Property [to be continued]

Appendix 1:  Authority of Agents

An agent is a person authorized by the principal to act on the principal’s behalf and under the principal’s control[i].  For an agency relationship to arise, the principal manifests assent to the agent that the agent will act on the principal’s behalf and subject to the principal’s control.

An agency relationship may be implied from the words and conduct of the parties and the circumstances of the case evidencing an intention to create the relationship irrespective of the words or terminology used by the parties to characterize or describe their relationship[ii].

Agency is the fiduciary relation which results from the manifestation of consent by one person, a principal, to another, an agent, that the agent should act on the principal’s behalf and subject to the principal’s control, and consent by the agent so to act[iii].

To establish a principal-agent relationship, one has to show that[iv]:

  • a principal consented, expressly or impliedly, to an agent’s acting on the principal’s behalf, and
  • the agent was subject to the principal’s control.

The principal must intend that the agent acts for him, and the agent must intend to accept the authority and act on it.

The power of the agent results from the manifestation of the principal’s consent, and extends no further than such manifestation[v].  Additionally, the scope of an agent’s actual authority is determined by the intention of the principal or by the manifestation of that intention to the agent[vi].  The rules of contract interpretation apply in determining the scope of an agent’s powers[vii].

The authority of an agent may be actual or apparent[viii].  Actual authority is created by the principal’s manifestations to the agent, whereas apparent authority is created by the principal’s manifestations to a third party.

Actual authority is the power of the agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent to him/her[ix].  Actual authority is authority that the principal expressly grants to the agent or authority to which the principal consents[x].

Actual authority may be express or implied[xi].  Express authority is created when the principal explicitly tells the agent what to do and implied authority consists of those powers incidental and necessary to carry out the express authority.  Absent an express grant of authority, the relationship may result from implied or apparent agency.

The authority given to the agent need not be in writing[xii].  In Weathersby v. Gore, 556 F.2d 1247 (5th Cir. Miss. 1977), the court observed that proof of agency does not depend upon a written agreement.  Further, in the absence of express written terms creating the relationship, the existence of an agency is a factual question

Every delegation of authority carries implied authority to do all acts naturally and ordinarily done which are reasonably necessary and proper to carry into effect the main authority conferred[xiii].  The authority of an agent will not be extended beyond that which is given in terms, or is necessary and proper to carry the authority given into full effect[xiv].

An agent is one who has all the powers of his principal, as to the business in which s/he is engaged, and may conduct it conversant with the lawful customs and usage of that particular business[xv].  An agent who has a bare power or authority must execute it himself and cannot delegate his authority[xvi].  However, an agent may employ clerks and sub-agents, whose acts, if done in his name, and recognized by him/her, either specially, or according to his/her usual mode of dealing with them, will be regarded as his/her acts, and, as such, binding on the principal[xvii].

Apparent authority is authority that is conferred when the principal affirmatively, intentionally, or by lack of ordinary care causes third persons to act upon an agent’s apparent authority[xviii].  Apparent authority is created by the conduct of the principal which causes a third person reasonably to believe that another has the authority to act for the principal[xix].  The principal is liable only where there has been an appearance of authority created by himself[xx].

A finding of apparent authority requires evidence that a principal has communicated directly with the third party or has knowingly permitted its agent to exercise authority.  One who deals with another as a principal without knowledge of the existence of an agency for another cannot invoke the doctrine of apparent authority against the real principal[xxi].

The doctrine of apparent authority rests upon the principle of estoppel, which forbids one by his/her acts to give an agent an appearance of authority which s/he does not have and to benefit from such misleading conduct to the detriment of one who has acted in reliance upon such appearance[xxii].

To hold the principal liable under apparent agency theory, it must be establish that:

  • the principal manifested consent to the exercise of such authority, [xxiii]
  • the third person acting in good faith had actually believe that the agent possessed such authority, [xxiv]
  • the third person, relying on such appearance of authority, has changed his/her position and injured or suffered loss[xxv].

Thus, there are three essential elements to apparent authority[xxvi]:

  • a representation by the principal,
  • a reliance on that representation by a third party, and
  • a change in position by the third party in reliance on the representation.

The principal is estopped to deny the authority of the agent, because s/he has permitted the appearance of authority in the agent and thereby justified the third party in relying on that appearance of authority as though it were actually conferred upon the agent[xxvii].

However, apparent authority does not arise where the lack of the agent’s authority is known, or should be known to the party dealing with the agent[xxviii].  Furthermore, a principal is never bound where the person dealing with the agent knows, or has reason to know, that the agent is exceeding his authority[xxix].

Authority for an agent to make a specified contract includes, authority to make it in a usual form and with usual terms and to do other acts incidental to its making which are, under like circumstances, usually done[xxx].  However, authority incidental to authority to make a contract does not include authority to perform it or accept performance, to transfer or assign it, to bring suit upon it, to alter its terms, to rescind it, or to waive its conditions or otherwise diminish or discharge the obligations of the third person.

An agent may be authorized to purchase personal property for the principal.  When an agent has authority under an agency agreement to purchase goods from a third party on the principal’s behalf, or if the principal retained the benefits of the transaction, then the principal is liable to the third party[xxxi].

A selling agent is authorized to do whatever is necessary and usual to carry out the purpose of the agency.  A selling agent may bind his/her principal if s/he does not exceed the power with which s/he is actually or ostensibly vested[xxxii].

Ordinarily, authority to sell will not authorize a sale for anything but money, and does not authorize an exchange[xxxiii].  Where the authority to perform specific acts is given in the power, and general words are also employed, such words are limited to the particular acts authorized[xxxiv].

In Payne v. Jennings, 144 Va. 126 (Va. 1926), the court held that a real estate agent is generally a special agent of limited powers, and those dealing with him/her deal at their risk.  Further, his/her only authority is to secure a purchaser who will take the property at a price fixed by the owner.  S/he cannot, unless expressly or impliedly authorized, execute a contract of sale on behalf of his/her principal.

In Krug v. Deering Implement Co., 239 Iowa 157 (Iowa 1948), the court held that authority to manage land empowers the agent to lease in the ordinary form for ordinary terms, but not to make an unusual lease.  However, authority to lease lands is not to be implied or inferred merely from an authority to sell the subject-matter, to take charge of it, or to receive rents from it.

As to whether an agent has authority to receive payments on behalf of his/her principal, the rule is that, unless otherwise agreed, authority to receive payment is inferred from authority to conduct a transaction if the receipt of payment is incidental to such a transaction, usually accompanies it, or is a reasonably necessary means for accomplishing it[xxxv].  An agent who has been given possession of securities or other evidences of debts payable to the principal is not thereby authorized to receive payment.

The power to borrow money or to execute and deliver promissory notes is not to be implied.  It either must be granted by express terms or flow as a necessary and inevitable consequence from the nature of the agency actually created[xxxvi].

An agent who has authority to pay the debts of his/her principal, to disburse money, to settle with creditors or even to bind him/her by a contract or agreement to pay money, is not authorized to sign negotiable paper, by which his/her principal will be bound.  The power of binding by promissory negotiable notes can be conferred only by the direct authority of the party to be bound, with the single exception where, by necessary implication, the duties cannot be discharged without the exercise of such a power.

Further, an agent have no power to bind the principal for medical or surgical services and care rendered at the direction of the agent, unless the principal owes to the ill or injured person some duty of care and protection.

A power of attorney authorizing the execution of mortgages, bonds, warrants, bills, notes, etc., and generally to do all things whatsoever relating to the concerns and business of the constituent, confers authority upon the attorney to execute a bond and warrant of attorney to confess judgment for a bona fide debt owing by the constituent[xxxvii].

[i] Koricic v. Beverly Enters. – Neb., 278 Neb. 713 (Neb. 2009)

[ii] id

[iii] Forgeron, Inc. v. Hansen, 149 Cal. App. 2d 352 (Cal. App. 4th Dist. 1957)

[iv] Bar Plan v. Cooper, 290 S.W.3d 788 (Mo. Ct. App. 2009)

[v] Wen Kroy Realty Co. v. Public Nat’l Bank & Trust Co., 260 N.Y. 84 (N.Y. 1933)

[vi] id

[vii] Kiewit/Tulsa-Houston v. United States, 25 Cl. Ct. 110 (Cl. Ct. 1992)

[viii] Bar Plan v. Cooper, 290 S.W.3d 788 (Mo. Ct. App. 2009)

[ix] Hardcore Concrete, LLC v. Fortner Ins. Servs., 220 S.W.3d 350 (Mo. Ct. App. 2007)

[x] Institute for Business Planning, Inc. v. Standard Life & Acci. Ins. Co., 242 F. Supp. 100 (W.D. Okla. 1965)

[xi] Hardcore Concrete, LLC v. Fortner Ins. Servs., 220 S.W.3d 350 (Mo. Ct. App. 2007)

[xii] Richardson v. St. Joseph Iron Co., 5 Blackf. 146 (Ind. 1839)

[xiii] Medley v. Trenton Inv. Co., 205 Wis. 30 (Wis. 1931)

[xiv] Patterson v. Page Aircraft Maintenance, Inc., 51 Ala. App. 122 (Ala. Civ. App. 1973)

[xv] South Carolina Cotton Growers’ Co-op. Ass’n v. Weil, 220 Ala. 568 (Ala. 1929)

[xvi] Rohrbough v. United States Export Co., 50 W. Va. 148 (W. Va. 1901)

[xvii] id

[xviii] Koricic v. Beverly Enters. – Neb., 278 Neb. 713 (Neb. 2009)

[xix] Moriarty ex rel. Trustees of the Local 727, I.B.T. Pension Trust v. Smits Funeral Homes, 1997 U.S. Dist. LEXIS 5794 (N.D. Ill. Apr. 21, 1997)

[xx] Smith-Perry Electric Co. v. Transport Clearings of Los Angeles, 243 F.2d 819 (5th Cir. Tex. 1957)

[xxi] id

[xxii] Patterson v. Page Aircraft Maintenance, Inc., 51 Ala. App. 122 (Ala. Civ. App. 1973)

[xxiii] Moriarty ex rel. Trustees of the Local 727, I.B.T. Pension Trust v. Smits Funeral Homes, 1997 U.S. Dist. LEXIS 5794 (N.D. Ill. Apr. 21, 1997)

[xxiv] Wells Fargo Business Credit v. Ben Kozloff, Inc., 695 F.2d 940 (5th Cir. Tex. 1983)

[xxv] Greene v. Hellman, 51 N.Y.2d 197 (N.Y. 1980)

[xxvi] Mobil Oil Corp. v. Bransford, 648 So. 2d 119 (Fla. 1995)

[xxvii] Orlando Exec. Park v. P.D.R., 402 So. 2d 442 (Fla. Dist. Ct. App. 5th Dist. 1981)

[xxviii] Texas Co. v. Peacock, 77 Idaho 408 (Idaho 1956)

[xxix] Gaines v. Murphy, 239 S.W.2d 453 (Ky. 1951)

[xxx] Craswell v. Biggs, 160 Ore. 547 (Or. 1938)

[xxxi] N. K. Parrish, Inc. v. Southwest Beef Industries Corp., 638 F.2d 1366 (5th Cir. Tex. 1981)

[xxxii] Myers v. Stephens, 233 Cal. App. 2d 104 (Cal. App. 1st Dist. 1965)

[xxxiii] Maixner v. Travelers Ins. Co., 133 Neb. 574 (Neb. 1937)

[xxxiv] Billings v. Morrow, 7 Cal. 171 (Cal. 1857)

[xxxv] Pampegian v. Richmond, 319 Mass. 216 (Mass. 1946)

[xxxvi] Williams v. Dugan, 217 Mass. 526 (Mass. 1914)

[xxxvii] North River Bank  v. Rogers, 22 Wend. 649 (N.Y. Sup. Ct. 1840)

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