Select Page

Business Associations
St. Johns University School of Law
Baynes, Leonard M.

Business Organizations

I. Agents and Employees
a. An Introduction to the Organization of Business
i. Fowler v. Pennsylvania Tire Company:
1. a tire distributor, Martin, became bankrupt Martin’s business was taken over by a bankruptcy trustee-an individual appointed by the court, in this case, to liquidate the assets of the business and distribute among the creditors the cash realized by the liquidation. Penn Tire was the manufacturer and supplier of the certain tires held by Martin at the time the bankruptcy trustee took possession of the business. The question is whether Penn Tire had retained title to the tires (under a consignment), in which case it can retrieve the tires, or had transferred title to Martin (under a conditional sales contract), in which case (because Penn Tire failed to perfect any security interest) the tires are an asset of Martin, to be sold for the benefit of all creditors. The majority concluded that Penn Tire retained title to the tires and that consequently the tires did not become assets of the bankrupt, Martin, that could be sold for the benefit of all the creditor. If Penn Tire had lost, it would have been entitled, along with other general creditors, to its pro rata share of the assets (ultimately cash) available for distribution. The majority reasoned as follows: The transaction took the form of a consignment; the contract was cast in terms of consignment. Therefore Penn Tire retained title to the tires. Therefore Martin’s other creditors have no claim to them; the tires simply do not belong to Martin. The dissent argued that regardless of form, the transaction in practice had the indicia of a sale and should be treated as a sale.
2. Today, under the UCC §2-236, Penn Tire would lose without regard to whether it had retained title to the tires.
3. UCC §2-236(3) provides, “Where goods are delivered to a person [Martin] for sale and such person maintains a place of business at which he deals in goods of the kind involved, under a name other the name of the person making delivery [Penn Tire], then with respect to the claims of creditors of the person conducting the business the goods are deemed to be on sale or return,” and under UCC §2-236(2) are “subject to the claims of the buyer’s [Martin’s] creditors…while in the buyers possession.
4. Business Settings and Alternatives: Suppose owners of Penn Tire think of themselves first as tire makers, then begin to think about how to sell the tires. Consider the various ways they might do so
a. The selling process could be organized “within the firm.” Penn Tire could establish its own sales outlets, hire managers and sales people, etc.
b. The selling process might be organized “across market.” Penn Tire could sell its tires to independent distributors.
b. Employee Versus Independent Contractor
i. the doctrine of respondeat superior= a “master” (employer) is liable for the torts of its servants (employees). A master-servant relationship exists where the servant has agreed (a) to work on behalf of the master and (b) to be subject to the master’s control or right to control the “physical conduct” of the servant.
ii. An agent-type independent contractor is one who has agreed to act on behalf of another, the principal, but not subject to the principal’s control over how the result is accomplished.
iii. A non-agent independent contractor is one who operates independently and simply enters into arm’s length transactions with others.
iv. Key element in each of the relationships is control
v. Different types of authority
1. Actual authority- look to the words, speech and conduct. The relationship between the principal to agent “do this”
a. ex. Keyfood store manager tells head of general non-food products says we need to make sure we order Halite. Tells him to do the ordering. Tells him to order 50,000lbs then store manager changes his mind. Is there a contract between Keyfood and Halite company? Yes-Keyfood bound, Actual authority
2. Implied authority- derived from

s subject to termination by either party. Minimum and maximum monthly rental price set as well as determined by sales. Permission to sell competitor’s products. Barone went to the Sun Oil school for service operators and received weekly visits from a Sun sales representative, but was under no obligation to take the advice of these people. Barone was an independent contractor. The test to be applied is that of whether the oil company has retained the right to control the details of the day-to-day operations of the service station; control or influence over results alone being viewed as insufficient.
2. contracts terminable at will of either party and control of operation of hours are key elements.
viii. Gizzi v. Texaco
1. the plaintiff, Gizzi, bought a used Volkswagen van from the operator of a Texaco station, Hinman for $400. Hinman agreed to perform repairs on the van, including work on the brakes. Himan completed the work and Gizzi drove away in the van. Shortly thereafter the brakes failed and Gizzi was injured. According to the court, it was plain that in selling the van Hinman was acting on his own behalf and not as an agent of Texaco. The court did not consider whether in performing the brake repairs Hinman acted in fact as a servant-type agent of Texaco. The issue framed on appeal was only whether Hinman was apparently as agent of Texaco for performing the repairs. The court cited Texaco’s nationwide slogan, “trust your car to the man who wears the Texaco star,” and the prominent of Texaco signs and insignia at Hinman’s station, and concluded that the evidence of apparent agency was sufficient to permit the case to go to a jury.