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Agency and Unincorporated Organizations
John Marshall Law School, Chicago
Hynes, James P.

I. The Agency Relationship
– An agency relationship comes into existence when there is a manifestation by the principal of consent that the agent act on his behalf and subject to his control and the agent consents to so act.

II. The general Partnership
– A partnership is an association of two or more persons to carry on as co-owners a business for profit.
– All that is required it an agreement, explicit or implicit, between two or more people to act as co-owners of a business for profit.

III. The Limited Liability Company
– LLC is an unincorporated business organization providing its members with pass through tax treatment, limited liability, and the ability to actively participate in firm management.

1. Who is an Agent?
– Agency relationship – “the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act.”

2. Breaking down the definition
– “A person” – not only natural person but also legal persons.
A corporation can serve as either a principle or as an agent.
– The requisite “manifestation” and proof of agency
– The principal must manifest to the agent the principal’s consent that the agent should act on the principal’s consent that the agent should act on the principal’s behalf and subject to the principal’s control.
– The requisite manifestation of consent need not be made in writing or even orally, but may be implied from the parties’ conduct.
– The agent need not communicate its consent to so act to the principal.
– The burden of proof is on the party claiming an agency relationship exist.
– The necessity of “consent”
– There must be an agreement between the principal and agent in order for an agency relationship to come into existence, but there need not be a contract between the parties.
– The agreement need not be supported by legal consideration.
– The agreement can be purely gratuitous.
– There need not be a formal or written agreement between the parties, because there are no formalities associated with the creation of an agency relationship.
– The capacity required to form an agency relationship differs from the capacity necessary to make a binding contract.
– The principal must consent that the agent shall act on the principal’s behalf and subject to the principal’s control.
– The agent must consent to so act.
– Unlike contract law, there does not need to be a meeting of the minds as between agent and principal.
– “On behalf of” the principal
– The agent must be acting primarily for the principal’s benefit, not for the agent’s own benefit or that of another party.
– The agent need not produce an actual benefit for the principal, so long as there was an expectation at the outset that the agent would strive to do so.
– Dual agency rule provides that an agent may not act on behalf of an adverse party to a transaction connected to the agency relationship without the consent of the principal.
– “Control” by the principal
– A principal need not exercise physical control over the actions of its agent” so long as the principal may direct “the result or ultimate objectives of the agent relationship.”

B. Illustrations and Applications
1. The Gratuitous Act of Kindness
– In Gorton v. Doty, She said that he might use mine if he drove it.
The court inferred that Doty manifested her consent that Garst act on her behalf from the fact that, instead of driving the car herself, she volunteered the use of her car subject to the requirement that Garst be the driver.
MJ concluded that Coach was to be subject to Doty’s control from the mere fact that she set a condition precedent on the use of the car, that he be the driver of the car.

2. The creditor and its debtor
– In Cargill, the issue was whether an agency relationship existed between Cargill and Warren.
The court held that an agency relationship existed.
First, the court concluded that Warren acted on Cargill’s behalf by procuring grain, over which Cargill had a right of first refusal.
Second, the court concluded that Cargill had the requisite control over Warren, as evidenced by Cargill’s frequent recommendations as to how Warren’s business should be conducted.
Finally, the court ignored the issue of whether Warren agreed to act on Cargill’s behalf and subject to its control. The court inferred Warren’s consent from Warren’s course of conduct.

3. The manufacturer and its dealers
– In Hunter, the court held that no evidence supported the jury’s verdicts against the MAI companies given missing elements of an agency relationship.
First, the court noted that for an agency relationship to exist, the principal must possesses the right to control the agent’s conduct. The court found that MAI had no power to control operative details such as the dealers’ business expenditures, customer rates, employee relations or installation procedures.
Second, the court held that an essential element of the agency relationship is a fiduciary obligation on the part of the agent to act primarily for the benefit of the prinicipal.

4. Baseball and its commissioner
– The court concluded that Giamatti was no acting as an agent for MLB with regard to such disciplinary functions, because the constituent clubs agreed to allow a completely independent commissioner to govern disciplinary matters.

5. Corporate officers and Directors
– Corporate employees, officers are agents of the corporation.
However, neither individual director nor even the board as a whole are regarded as agents of the corporation.
– As for the board, when it acts collectively, the board functions as a principal rather than as agent.
Unless SH approval is required, after all, the act of the board is the act of the corporation.

C. General v. Special Agents
– General agent as one who is authorized to conduct a series of transactions involving a continuity of service.
– Special agent is one who is only authorized to conduct a single transacti

binding contract by virtue of Ampex’s inaction. First, Ampex had never notified Joyce that Kays lacked authority to make this contract. Second, by virtue of Mueller’s intra-office memo, Ampex had acquiesced in Joyce’s request that all communications be channeled through Kays.
– The requisite manifestation can be made where the principal authorize the agent to state that he is authorized.
– It can be implied from a course of conduct.
If principal allows its agent to carry out a series of transactions over an extended period of time, such that a third party would reasonably believe that the most recent transaction also was authorized, apparent authority exists.
– It can be created by custom.
Two conditions must be satisfied.
(1) The third party must know that the principal has placed the agent in a certain position.
(2) It must be customary for an agent in that position to have authority to enter into the type of agreement in question.
– Third party must reasonably believe that the agent was authorized to act.
– A third party on notice that the principal has restricted the agent’s authority, such as where the principal has instructed the agent not to exercise powers customarily associated with the agent’s position, cannot satisfy the reasonable belief requirement.
– A third party lacking such notice have any affirmative duty to inquire into the scope of the agent’s authority?
– Some cases hold that the third party does have a duty of exercising “reasonable diligence” to “verify an agent’s authority to enter contracts on behalf if its principal.”
– Other cases, however, hold that the duty of inquiry extends only to actual authority.
– The better view is that the court should ask whether, given the totality of the circumstances, it was reasonable for the third party to believe the agent had authority without making any inquiry into the scope of the agent’s authority.
– Restatement makes clear that reliance is not required.
– Although the restatement view is the better one, note that a third party’s lack of reliance could be used as evidence that third party did not believe the agent was authorized to act.
– Cheaper cost avoider concept
– Where an activity generates losses, society wants to reduce the size of those losses in the cheapest possible way. ( the party who could have most cheaply taken precautions against the loss)
– Principal often will be the cheaper cost avoider