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Business Associations
Rutgers University, Newark School of Law
Dickerson, Claire Moore

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 principal, but not unreasonably.
o If a principal makes agent’s limitations secret, then third party can hold principal responsible. See Watteau v. Fenwick.
o Trade practices or power of position.
o Continuation/Termination: Must give notice than an agent has been terminated.

Inherent Authority
Ø Cases where there is some prenumbral authority beyond actual authority, but not under apparent authority circumstances. In other words, trust in an agent alone gives the agent some authority beyond her mandate.

Mill Street Church of Christ v. Hogan (Ky.App. 1990) (p.14)
Ø Distinguishes implied and appa

Ø No implied actual authority because the position was unique at the time.
Ø Hand says that the case was analogous to a regular concert recital (which ordinarily would not give the agent power to bind the company), but then goes on.
Ø Situation more closely resembles an advertising campaign and therefore is an example of apparent authority.
Ø Note that there is a very subtle distinction in reasoning: there can’t be implied authority in a novel circumstance, because the implication involves an appeal to established custom. However, there can be apparent authority in a novel situation because it can be established by analogy to a familiar situation.

Nogales Service Center v. Atlantic Richfield Company (Ariz. 1980) (p.31)
Ø Classic inherent authority case. A principal can be liable for acts within an agent’s domain even if the principal has forbidden the agent from acting.
Ø Inherent authority most often occurs when there is a “general agent” who is restricted from entering into a particular contract, but whose general domain of authority includes actions like the one entered into.