Agency and Partnership- Limited Liability
1/22/08
Pg. 12-22
“Sleepwell” Motels Problem: Suppose the Owner 25 motels in CA conclude that they will compete with a trade name and some statewide ads. They agree that the hotels must adhere to same high standards and that all motels set room rates at a figure that is consistent with their intended image. The agree to remodel their lobbies to create a common appearance and to form a corporation called sleepy well motels corp., in which they share ownership. Each motel is to pay a fee to the corporation for advertising and policing compliance with standards. If the motels become insolvent is the Great Motel Corp. or any motel liable for debts? Yes, a partnership would bind all to be accountable for the debts but as to how much is another question. What protections would you offer to protect against the outcome? The information should be plainly written in an agreement and insurance for the payment of debts or protections of insolvency could be an option to prevent immense loss. The client changing the name and saying that it’s independently operated/ owned. This reduces the odds that sleep well will be held liable.
A preliminary note on the next case A Gay Jenson Farms:
a) The PL farmers in the next case sold their grain to Warren Crops a local operator then, Warren became insolvent without paying farmers for the grain. The farmers sued Cargill, claiming that Warren had bought the gain as an agent of Cargill. Cargill denied liability.
1. Gay Jenson Farms Co. v. Cargill Inc., Warren Grain & Seed Co., (Minn 1981)
Facts: The PL were 86 farmers, partnerships, and corporate farmers. The DF was Cargill Inc. and Warren Grain & Seed Co. to recover for loses sustained when warren defaulted in the contracts made with PLs for the sale of grain. Warren was owned by Lloyd Hill and Gary Hill. In 1964, Lloyd Hill decided to get financing through Cargill’s Inc. The financing was an open account with a large amount of financing available. Warren became and agent to Cargill’s and was give the right of 1st refusal. Then a contract was modified where Warren was given more credit, and told that any improvements made over 5,000 needed approval. Warren did not exhibit good signs of sound business and got into serious financial problems. After a trial by jury, the judgment was held in favor of the PL’s, and then Cargill appealed. The Appellate court affirmed the judgment for the PL’s.
Issues: Whether Cargill by its course of dealing with Warren became liable as a principal on contracts made by warren with PL’s?
Rule: RES of Agency- states that a agency is the fiduciary relationship that results from manifestation of consent by on person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act. A contract need not be necessary- the existence of agency can be proved by circumstantial evidence which shows the course of dealings of both parties. A creditor who assumes control of his debtors business may become liable as principal for acts done by the debtor: 9 factors point to such a relationship1) recommendations, 2) right of 1st refusal, inability to enter into mortgages without approval 3) Carryout out periodic checks, 4) draft of forms provided with the principals name, 5) financing purchases, 6) Power to discontinue financing, 7) correspondences and criticisms regarding financing, salaries, and inventory, 8) Principals recommendations that the agent needs help.
Analysis: Cargill directed Warren to implement its recommendations to them for consent. Cargill by its control and influence of the Warren became liable as a principal with liability towards transactions entered by Warren. The evidence that convinced the court was that Warren purchased gains, sold grain seed, and stored grain as an agent to Cargill.
Conclusion: The court determined that Cargill was a principal and the Warren was an agent of there’s, and therefore becoming liable for the transactions Warren had done.
2. Questions
(1) Suppose that Pierce says to Abby “buy a thousand bushels of corn for me and Ill pay you the usual commission. Abby is Price non-servant. In Cargill, the PL lawyer put no evidence to support the kind of ordinary non-servant principal agent relationship? Does a relationship exist of a creditor or debtor or principal and agent relationship, why?
(2) What could farmers have done to protect themselves from the risk of non-payment? Not sure. What could Cargill have done to ensure that the grain bought from warren was paid for? The company could have restricted the credit given to the company and could have eventually denied any credit financing of their business. Cargill could have also stepped in considering that they also had access to the records and begun to clean the record by paying off debts.
3. Planning
1) Cargill exercise: How can Cargill avoid liability in the future?
Morris Oil Company, Inc. v. Rainbow Oilfield Trucking Inc, /Dawn
Facts: DF Dawn appeals from a judgment entered in favor for Morris Oil Co., based on the determination that Rainbow was an agent. The trial court decision was affirmed. The Appellant is Dawn the holder of a certificate or public convenience and necessity in the oilfield trucking business in the farming ton area. Rainbow was a NM corporation that established an oilfield trucking business in the Hobbs area. Dawn and Rainbow entered into an agreement that Rainbow would use the certificate in Hobbs, and Dawn would have exclusive rights to operations in NM. All billing services would be made under dawn’s business name. The DF
authority may be necessary in order to implement the express authority. The existence of prior similar practices is one of the most important factors.
Analysis: Bill Hogan had an implied authority to hire Sam Hogan as a helper. The conversation with the church leaders did not specify who could be hired to help.
Conclusion: The decision of the New Workers Compensation is affirmed that Sam was an employee.
b) If a principal tells an agent to do something and they do it, and later they get harmed then they become liable.
The Research Assistant Problem:
a) This case involves a research assistant job where the professor gave authority for his previous researcher to find a replacement. The job information and pay was given but the former assistant did not provide the correct information to the new worker. Who would win? Would it have mattered if the professor had been more direct at what he could tell this student worker he hired?
b) Meegan should win in this situation because there was apparent authority from Fred to get hired. A reasonable person in Freds position would consider the amount of money when he hired the student.
c) You can make the employees know who can make the deals and who cannot. Make the information about these policies in writing and
Lind v. Schenley Industries, Inc.
Facts: Lind the PL is suing Park & Tildford DF for compensation that he asserts is due to him by virtue to a contract expressed by a written memo and supplemented by oral conversations. He also sued for certain expenses incurred when moving from NJ to NY when his position as manager was terminated. he was promoted to assistant manager in NY with Kauffman as his supervisor and that some raises had come thru and he could potentially be informed about any decision favorable to him. Lind was awarded the District Manager job and later he was informed about a 1% commission on sales of the men working under him.
Issue: Did Kauffman have enough apparent authority to allow Lind to detrimentally rely on the 1% commission promised of compensation for his new position?
Rule: Actual authority that the principal expressly or implicitly gave the agent power to act. Apparent Authority generally recognized when a principal acts
