Select Page

Business Organizations
Rutgers University, Camden School of Law
Ryan, Patrick J.

Business Organizations
Ryan – F’ 2005

I. Agency
a. Relationship Formation
i. Elements:
1. Consent – manifestation of consent by one person to another that
a. Contract – voluntary relationship is required but not written K
b. Compensation – not needed
2. Authority – the other shall act on his behalf; and
3. subject his control and consent by the other so to act.
ii. Forms:
1. Principle and Agent
a. Definition: Where one undertakes to transact some business or manage some affair for another by authority and on account of the latter, the relationship of principal and agent arises
b. Business/Commercial – not restricted to commercial situations
i. Gorton v. Doty (p. 1)
1. Doty gave her car to football coach, Garst, to use to transport the kids to a game on the condition that he was the one to drive it. Court found that an agency existed; it was not loaned. Gorton was injured in a car accident.
2. Dissent: it was a loan, the fact that she said only he should drive it, doesn’t make it an agency b/c she just didn’t want one of the boys to drive it.
3. Misidentified the principal and agent b/c of liability rules
2. Creditor/Debtor Relationship
a. Rule: Creditor can become an agent if it assumes de facto control over the debtor.
i. Gay Jenson Farms Co v. Cargill, Inc. (p. 7) – Warren would buy from farmers and sell to Cargill; Warren went insolvent and farmers were not paid.
1. Shows the consequences of needing agents to do the work and of “lender liability” where Creditor controls the Debtor.
2. Court found that an agency relationship existed between Cargill and Warren
3. Three elements of agency were there b/c consented to when implementing recommendations; acted on behalf in getting grain contracts; and interfere in affairs of warren
4. Court found that, as creditor, Cargill had de facto control over Warren.
3. Buyer/Supplier Relationship (non-agency)
a. receives a fixed price for the property irrespective of price paid by him
b. Acts in his own name and receives the title to the property which he thereafter is to transfer
c. has an independent business in buying and selling similar property
4. Master and servant; and
5. Proprietor and independent contractor
b. Is Principal Bound By the Contract to 3d Party?
i. Breakdown
1. Actual Authority
a. Express – written or oral
b. Implied Authority B/w P and A.
i. Powers are necessary for carrying out the job. No express approval but it can be inferred implicitly.
2. Apparent Authority – B/w 3d party and P (reasonable understanding)
a. P acts in a way (words, conduct, etc – held out person to be agent)
b. To convey to 3d party (reasonable understanding of P’s relationship with A)
c. That A has certain powers which may not have
3. Inherent Agency Power – B/w P and A
a. P gives A authority
b. P hides
c. A goes beyond the authority P gave him
i. Agent did something wrong; can go against principals explicit wishes
d. Will injure 3d party
ii. Authority (Three types)
1. Actual Authority – describes what P causes A to believe is the scope of A’s authority
a. Express – written or parol
i. Gorton v. Doty – told him to drive the car
b. Implied Authority – actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated.
i. Have to look at past or present actions of the principal
1. Mill Street Church of Christ v. Hogan (p. 14)
a. Talking about his authority to hire his brother; Church said to hire someone
b. Bill Hogan was hired by church to paint it; hired his brother Sam to help who was then hurt
c. Court held that Bill had implied authority to hire his brother b/c in the past he had hired his brother; needed to hire someone; Sam believed Bill had authority to hire him
2. Apparent Authority
a. Rule: Arises when
i. a principal acts in such a manner as
ii. to convey the impression to a third party
iii. that an agent has certain powers which he may or may not actually possess. (Reliance type of theory)
1. Hogan – had painted for them before; nothing on the church door that said if you’re not a member of the church you can’t work for us; had worked there before.
2. Lind v. Schenly Industries, Inc.(p. 20)
a. Kaufman told Lind that he would be given 1% commission after he was given a promotion to district manager.
b. Court held that Kaufman had apparent authority b/c Lind was told that Kaufman would talk to him about his salary
c. Dissent – no apparent authority b/c commission would have more than quadrupled his salary
b. Agency Authority and Failure of Contract
i. Three-Seventy Leasing Corporation v. Ampex Corporation (p. 22)
1. Kays, rep of Ampex, at the direction of Mueller, Kay’superior, sent a document to Joyce to buy computers which Joyce was then going to sell to EDS.
2. Minimize Exposure: Ampex needed to train its agents to take lower profiles or shift deals to higher levels.
a. For example – train agents to tell customers that everything has to go through marketing
3. Court concluded that Kays had apparent authority to accept Joyce’s offer and did so with a Nov 17 letter confirming delivery dates.
4. Kays was a salesman and was selling; Mueller said all communication would go through kays
c. Restatement
i. Actual Authority
ii. Apparent Authority
1. inherent authority – if principal hires the agent, and there’s not express authority, or implied; still you can’t appoint a vice president without having them have the authority to make decisions.
2. Inherent agency” is a combined law/fact categorization attaching liability to P’s use of particular types of agency without specific control or definitions.
3. Complex organization and responsibility for its employees’ efforts on its behalf
3. Inherent Agency Power
a. Setup: Fully detailed express actual authority is i

t; ARCO did not lower price
b. Not overturned b/c there was no objection
iii. Ratification
1. Definition:
a. Affirmance by a P of a prior act which did not bind him, but which was done or professionally done on his account. – Restatement §82
2. Elements:
a. acceptance of the results of the act with an intent to ratify; and
b. with full knowledge of all the material circumstances
c. Must be Purported to be Done on Behalf of Principal:
i. If the original transaction was not purported to be done on account of the principal, the fact that the principal receives its proceeds does not make him a party to it – Restatement §98, comment f
1. Botticello v. Stefanovicz (p. 36) – Walter and P signed an agreement to sell farm for $85,000.00. Neither of them knew that Walter owned it as a tenant in common with his wife. P moved in; made improvements; then exercised option to purchase. Mary never let Walter act as her agent for jointly held property. Mary did not ratify it b/c she did not have the intent; nor did she know all of the material circumstances
iv. Agency by Estoppel a/k/a Tortious Dereliction of Duty to Prospective Customers
1. Between P and 3d party purchaser
2. Elements
a. P creates, negligently or intentionally, by act, word, or omission, the appearance of authority
b. 3d party reasonably and in good faith (can’t know about farse; can’t “should have known”) acts in reliance on this appearance
c. 3d party “changes position” in reliance upon appearance
i. Hoddeson v. Koos Bros. (p. 40)
1. woman went to buy bedroom set, but paid a con artist.
v. Agent’s Liability on the Contract (Disclosing Principal)
1. Breakdown
a. If you’re an A for a fully disclosed P, K is between P and 3d party
i. That’s the expectation and goal
b. No P, then K is between 3d party and A
c. Otherwise, who’s the counterpart to the K?
i. Burden placed on most efficient cost bearer (A, not 3d party)
2. Agent’s Duty to Disclose
a. Agent will be liable on the K, unless he discloses: (1) that he is acting in a representative capacity, (2) but also that identify of his principal
b. Atlantic Salmon A/S v. Curran (p. 43)
i. Salmon is owed money for salmon sold to Boston International Seafood Exchange. D contends that he was acting as the agent of Marketing Designs, Inc.
Pub Owner case – if 3d party had sued the pub owner, he would have been