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Business Associations
Rutgers University, Newark School of Law
Wagner, Robert E.

Introduction to Agency

Monday, January 09, 2012

6:06 PM

Forms of Business Organizations

o Sole Proprietorships

o Partnerships

o Corporations

Restatement § 1.01 Paraphrased

o It’s a relationship that results from:

· The manifestation of consent by one person [the Principal] to another [the “agent”]

§ That the agent shall act on P’s behalf

§ And subject to P’s right of control

· And consent by the agent to so act

o Everywhere

· Sole proprietor with one employee

· Attorney and client

· Business owner and employee

The Agency Relationship

Monday, January 09, 2012

6:31 PM

p. 1-23

1. Who Is an Agent?

Gorton v. Doty Idaho 1937- Father and son filed suit against teacher for expenses incurred and injury to son as result of accident. Jury found for father and son, hospital motioned for new trial and it was denied for each case. Appeal from Judgment and denial of new trial. Coach drove the teacher’s car to the game with the kid in it.

Q. Was the coach agent of the teacher while driving her car from soda Springs to Paris,and in returning to the point where the accident occurred. She loaned him the car, did not pay him, he didn’t pay her. School paid for the gas. She asked if he had all the cars he needed, then said he can use hers if he drove it.

Agency indicates the relationship which exists where on person acts for another. 3 principal forms:

1. The relation of principal and agent

2. The relation of master and servant; and

iii. the relation of employer or proprieter and independent contractor.

This case handled first point only. Rest. 1. “agency” is the relalationship 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. Principal responsible for acts of his agent. Not necessary tahht they receive compensation or they be in K. Teacher said you can use my car if you drive, he accepted. Willi v. Schaefer- ownership alone with owner absent, implies driver is agent of the owner.Upheld.

Dissent- didn’t agree that there was agency -agent is one who acts for another by authority from him, one who undertakes to transact business or manage some affair for another by authority and on account of the latter. Agency means more than passive permission- involves request, instruction or command. One who borrows car for his own use is a gratuitous bailee and not an agent of the owner.

A. Gay Jenson Farms Co. v. Cargill, Inc. Minn. 1981- Farmer said pov that it sold grain to Warren as agent of Cargrill. Cargrill says they sold to Warren who then sold to Cargrill. Warren is insolvent so Farmers are seeking to collect money for unpaid grain bill from Cargrill. Judgement entered in favor of plaintiffs, appeal. Affirmed.

· Control, on behalf of, consent (three elements)

· A manifestation of consent by Cargill that Warren act:

§ On Cargill’s behalf: How?

· By procuring the grain for Cargill as part of its ordinary operations, which operations were financed by Cargill

· In general, what a creditor/supplier can do is

· What is likely to put it in jeopardy is

§ A veto power over most important issues

§ Coercing the debtor into putting in control a person designated by the creditor

§ Providing other creditors assurance of payment or

§ Wearing multiple “hats” (creditor, supplier, customer, landlord, etc.)

2. Liability of Principal to Third Parties in Contract

Mill Street Church ofChrist v. Hogan Ky 1990- (pg 14)- guy hired his brother to help him paint church, brother fell. Granted workman’s cop, church appealed that he wasn’t an employee of church and that the man they hired didn’t have the authority to hire him. In the past they had let him hire his brother to help. First have to determine whether he had the apparent or implied authority to hire his brother. Court found he did, upheld.

Dweck v. Nasser Del. Ch. 2008- Nasser disputes his acceptance of settlement based on attorney’s acceptance claiming ttorney Shiboleth did not have the authority to accept. In normal course of dealing there are three sources of an agency relationship:

i. actual authority is expressly granted either orally or in writing

ii. implied authority is a derivation of actual, beens “actual authority either 1) to do what is necessary or 2) to act in a manner in which agent believes the principal wishes the agent to act based on the agent’s reasoable interpretation of the principals’ manifestiation in light of the principal’s objectives and other acts known to the agent.

iii. apparent authority is such a power as a principal holds his agent out as possessing or permits him to exercise under such circumstances as to preclude a denial of its existence.

o Agency exists if:

· A manifestation of consent by Doty to Garst that Garst shall act

§ On Doty’s behalf

§ Subject to Doty’s control

· Garst’s consent to so act

o Evidence?

Hypothetical: “On Behalf of”


6 Analysis Questions (p. 6)

o Analysis question 3


Agency in General

Restatement Section 1.01: Definition of Agency

ntract that A (Agent) made with T of P’s behalf, if:

· (1) P & A have an agency relationship; and

· (2) A had (actual or apparent) authority to enter into the specific transaction with T.

· What could Cargill have done to avoid liability?

· Terminate Relationship

· Reduce Control

Add additional control knowing they would be held liable

Type of Authority

Wednesday, January 11, 2012

6:06 PM

· Actual Authority vs Apparent Authority

· Restatement § 2.02 (1)

· Agency in Contracts (Principal Liability)

· Mill Street Church v. Hoganà Painter hires brother for help

· Mill Street Church (D) hired Bill to paint the building. Bill hired his brother Sam (P) for help. While painting, P broke his leg and filed a workers’ comp claim. Board found that Bill had the implied authority to hire P so D was liable for P’s injuries.

· Rule: A person has the authority to do certain acts that will bind the principal based upon past practices and the way the business has operated.

· Here, Bill had Implied Authority (see below) to hire Sam.

· Analysis to bind P to the K:

· (1) Establish Agency Relationship between P and A.

· (2) Did A have Authority to enter into an agreement with T?

· (a) Actual Authority; OR

· R § 2.01: The AGENT reasonably believes, in accordance with the principal’s manifestations to the agent, that the principal wishes the agent to so act.

· (i) Express

· A was actually told by P he had the authority (R § 2.02)

· (ii) Implied

· Test: The activity is something the A is typically authorized to do and the AGENT reasonably believed he had the authority to act. (R § 2.02)

· (b) Apparent Authority

· R § 2.03: A THIRD PARTY reasonably believes the actor/agent has the authority to act on behalf of the P and that belief is traceable to the P’s manifestation.

· This belief must take place at the time of the transaction

· Note: After a P terminates A, P must still be concerned with being bound through Apparent Authority. Measures of all A’s former contacts should be advised.