Select Page

Business Organizations
Rutgers University, Camden School of Law
Laby, Arthur B.

Corporations Outline

Law of Agency

1. General Introduction

General Observations
Ø Relationship of agency and authority is viewed as position of status, not of contract.

Gorton v. Doty (Idaho 1937) (p.1)
Ø Facts: Pre-mandatory automobile insurance case. Involved person loaning car to another on condition that only that other can drive it. Is the other an agent of the car’s owner?
Ø Court imposed a structure of relationship regardless of the agreement between the parties.

A. Gay Jenson Farms Co. v. Cargill, Inc. (Minn. 1981) (p.7)
Ø Facts: Case arose out of financial collapse of Warren Seed & Grain Co. Defendant had loaned money and exercised significant influence over operations.
Ø “Control” is used as the touchstone for the existence of an agency relationship.
Ø The lender began to become involved in the day-to-day business of the borrower.
Ø Agency deals with a set of conditions, not a single factor.

2. Contractual Obligations

General Observations
Ø How do you defend against employees who use their delegated authority irresponsibly?
o Employee handbook including guidelines
o Require approval by the Board or a third party
o Internal audits of employee’s transactions
Ø Note that when a business sets up an interface such as a telephone hotline or a website, it may be liable under a theory of apparent authority even if it is “captured” by an unauthorized person.

Actual Authority
Ø Expressed: Verbally or through writing granting agency.
Ø Implied: If an action is so understood between two people, it creates a legally binding agency relationship. There is implied authority to do those things that are inherent in the job.

Apparent Authority
Ø Ability to bind a principal against the principal’s will.
Ø Note that apparent authority is rooted in status and not in a notion of estoppel (i.e., misrepresentation of fact).
Ø Ways in which apparent authority can arise:
o Continued course of dealing: Actions of principle give third party impression that an agent is acting on behalf of principal. Third party is responsible for initially checking with pr

n would have supposed that the agent has the authority he purports to exercise.
o Note: Listening to the agent’s representations of her authority may not be enough. If it is reasonable to do so, the third party should check with the principal.
Ø This case shows that if you sit on a contract, you may still be responsible for it.

Watteau v. Fenwick (Q.B. 1892) (p.25)
Ø Facts: Case where a pub manager held himself out to be independent, but was actually bound by a principal and was not authorized to enter into contracts.
Ø Inherent authority might be necessary in cases where the agent pretends not to have a principal but actually does. However, the agent does not have the power to enter into an agreement with the third party. The third party would want to get at the principal, even though the case would be neither actual nor apparent authority.