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Business Associations/Corporations
St. Louis University School of Law
Wagner, Constance Z.

BA Fall 2008, Wagner

1.Who is an Agent
· Gorton v. Doty (P. 1)
o Facts: Appellant (D) loaned her car to a coach on the condition that he drive in order to transport members of the football team to a football game. En route to the game they were in a car accident in which coach died and respondent (P) was injured.
o Procedural History: P (and his father) sued D for the injuries suffered as a result of the accident. The trial court found that there was an agent relationship between D and coach so that D would be liable to P for coach’s negligence in causing the accident. D moved for a new trial and was denied the motion. D then appealed the judgment and the denial
o Issue: 1) Was the coach an agent of D when she asked him if he had enough cars and offered her own on the condition that he drive it? 2) Did the court err in denying the motion for a new trial when P made a statement to the jury suggesting that D was insured and would therefore not have to pay herself?
o Holding: 1) For respondent (P). The coach did in fact act as an agent of appellant (D) because she exercised control over him when she said that he was to drive the car. 2) For respondent (P). The comment was first brought up by D so she could not complain of the language used. More importantly , however, the jury was instructed to disregard the comment.
o Dissent: Appellant’s condition that coach drive the car was not an act of control as much as a preference that the younger kids not drive it. Moreover, the comment made in court was prejudicial to appellant.
o Notes:
· She could not point to the conversation to show that this was a loan on behalf of the school and not her own.
· Restatement 3rd, Agency. § 1.01 Agency Defined (Not quoted)
a. Principal manifests assent (consent) to another person (an “agent”) that
b. the agent shall act on the principal’s behalf and subject to the principal’s control, and
c. the agent manifests assent or otherwise consents so to act.
· Did the dissent disagree with the test applied or how it was applied?(P. 6, Q. 1)
§ With how it was applied. Disagreed on for who’s benefit the car was driven. Also disagreed on consent.
· How would you plan for the future if you were her attorney? (P. 6, Q. 3)
§ Make it clear that it is not a principle agency relationship but rather a loan
§ Liability waiver
§ Gratuitous bailment character does not necessarily mean that there is no principle-agent liability
· A. Gay Jenson Farms Co. v. Cargill, Inc. (P. 7)
o Facts: Plaintiffs= farmers who sold their wheat to Warren Seed and Wheat. Defendant= Cargill which loaned money to and exercised control over Warren. Warren bought from the farmers and sold primarily (the bulk, about 80 %) to Cargill. Cargill had been financing (continuously extending the credit limit–Open account financing). As a condition of the financing, Cargill had a lot of say on the business affairs of Warren. Warren eventually went bankrupt and defaulted on payment to the farmers.
o Procedural History: the farmers sued Cargill for the payments based on an agency relationship between Warren and Cargill. They argued that Warren bought the grain as an agent for Cargill.
o Issue: Did Warren act as an agent of Cargill when it purchased grain primarily for the purpose of selling to Cargill and Cargill financed them to keep them afloat while also exercising control over how Warren it operated?
o Holding: Yes. Cargill exercised extensive control over the business dealings of Warren. This included constant recommendations, a right of first refusal, warren’s inability to enter into mortgages or buy/sell stocks without Cargill’s consent, among others. Also, the course of dealing in the business would suggest agency
o Notes
· Agency = “the fiduciary relationship that 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…” (P. 9)
· “A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business.”
· “We hold that all three elements of agency could be found in the particular circumstances of this case. By directing Warren to implement its recommendations, Cargill manifested its consent that Warren would be its agent. Warren acted on Cargill’s behalf in procuring grain for Cargill as the part of its normal operations which were totally financed by Cargill. Further, an agency relationship was established by Cargill’s interference with the internal affairs of Warren.”
§ Course of dealing was one of agent-principle.
· Why couldn’t the farmers go straight after Cargill without the need for the principle-agent relationship?
§ Cargill was NOT a party to the contracts on default– Warren was.
· Some of the control factors on P. 10 go beyond the typical debtor-creditor relationship to agent-principle.
· Agency v. Creditor-Debtor
§ When a creditor goes too far in control, it creates a principle-agent relationship.
§ Restatement 2nd of Agency, Section 14 O
· Creditor who assumes control of his debtor’s business…may become a principal…with liability for acts and transactions of debtor in connection with his business
· Veto power OK
· Agency v. Buyer- Supplier
§ Restatement 2nd of Agency, Section 14 K
· One who contracts to acquire property from a third person and convey it to another is the agent of the other only if agreed that he is to act primarily for the benefit of the other and not for himself.
§ Restatement 2nd of Agency, Section 14 K – Comment
· Receives fixed price for property
· Acts in own name and receives title to property later transferred
· Has an independent business
o PLANNING: What could Cargill have done to protect itself in the future?
· It is possible to exercise some control but it should be consistent with lender control over a debtor– follow trade custom.
· Limit control.
· Calling the loans and forcing them into bankruptcy would not necessarily have been the solution because of Warren had come to depend on their course of dealing (continuously extending the credit) Cargill might then have been liable for forcing Warren into bankruptcy.
2.Liability of Principle to Third Parties
· Authority
o Types of Authority
· Actual
§ Express
§ Implied
· Apparent
· Inherent (this on

here was room to doubt the reasonableness of believing that Kaufman had the authority to offer such a commission when it more than tripled his salary and in fact made it more than that of Kaufman himself.
· The trial court entered a judgment NOV against Kaufman because of this unreasonableness but the appellate court did not seemed faced by it and reversed.
· “Actual authority’ means, as the words connote, authority that the principal, expressly or implicitly, gave the agent. ‘Apparent authority’ arises when a principal acts in such a manner as to convey the impression to a third party that an agent has certain powers which he may or may not actually possess. ‘Implied authority’ has been variously defined. It has been held to be actual authority given implicitly by a principal to his agent. Another definition of ‘implied authority’ is that it is a kind of authority arising solely from the designation by the principal of a kind of agent who ordinarily possesses certain powers. It is this concept that is called ‘inherent authority’ by the Restatement.”
· Three-Seventy Leasing Corporation v. Ampex Corporation (P.22)
· Facts: 370 met with Ampex to buy six computer core memories. At the same time, 370 met with EDS to sell the six computer memories. 370 head, Joyce, met with Kays, a representative of Ampex that Joyce had specifically asked for and negotiated the deal. Kays gave Joyce a contract with signature blocks for both companies which Joyce signed. Ampex never signed and never delivered the computer memories.
· Arguments
§ Ampex argued that Kays never had the authority to enter into such a contract and that the K Joyce signed needed the signature of the Ampex head to be accepted; that Joyce’s signature was merely an offer to purchase which needed to be accepted by Ampex. Moreover, Kays did not have the authority to authorize the sale. No actual Authority.
§ 370 argued that Kays had apparent authority; that Joyce had no reason to believe that Kays did not have the authority to bind Kays.
· Issue: Did Kays have to authority to enter into the contract as an agent of Ampex and bind Ampex?
· Rule: “An agent has apparent authority sufficient to bind the principal when the principal acts in such a manner as would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise… Absent knowledge on the part of third parties to the contrary, an agent has the apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct…”