Select Page

Business Organizations
University of Connecticut School of Law
McCoy, Patricia A.

 
I.      Agency
 
A.    A Principal (P–Pal) is responsible for the acts of his or her Agent
B.     Restatement of Agency
1.      Agency is the relationship 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. (Doty; Cargill, Inc.)
2.      It is not essential to the existence of authority that there be a K b/t P–Pal or agent or that the agent promise to act as such; nor is it essential to the relationship of P–Pal & agent that they, or either, receive compensation
C.    Examples of Agency Relationships
1.      Principal and agent;
2.      Master and servant (employer and employee);
3.      Employer or proprietor and independent contractor;
4.      Agency principals extend and apply to relationships between partners; [Uniform Partnership Act § 4 (1914) (“The law of agency shall apply under this Act.”); UPA § 9 (“Every partner is an agent of the partnership . . . .”), and relationships between Corp directors and officers as agents on one hand and Corp shareholders as their principals.
D.    Burden of Proof
1.      Party bringing an action under theory of agency liability bears burden of proving that agency relationship exists to establish liability by alleged principal. [Hoddeson]  
E.     Gorton v. Doty (Idaho 1937) [Actual Agency à General Principal of Agency] 1.      Facts:
a.      Teacher lends her car to coach to transport kids; there’s an accident and the coach didn’t drive the car. Ms. Doty did not use the word lend or loan – she said you can use the car as long as you drive it
2.      Holding:
a.      Doty is liable
3.      Reasoning:
a.      Coach seen as Doty’s agent, he is not a borrowee.
b.      The point of contention was that the use of the car was not for Ms. Doty (Agent’s) behalf, as for control all she said was that Coach drives but did not mention how
c.       Ct à “as long as you drive it” was enough to subject coach to Ms. Doty’s control; she controlled him as the principal
d.      Ms. Doty wants to characterize this as not an agency:
Ø A loan: she wants to characterize this as a “lender/borrower” relationship
4.      DISSENT: Gratuitous bailor–bailee relationship not a principal agent relationship
Ø Ct see this as principal–agent, the Ct in this way takes a subjective view
b.      The real outcome
5.      Legal Test of Agency – 3 Elements:
a.      A manifests consent [Did P–Pal consent for the agent to act on P–Pal’s behalf?] b.      B shall act on A’s behalf, subject to A’s control [Is the agent subject to P–Pal’s control?] c.       B gives consent [Did the agent consent to act on the principal’s behalf and under P–Pal’s control?]  
 
6.      IMPORTANT:
a.      P–Pal fully liable for the actions of his agent, as long as actions giving rise to the prospective liability were authorized by P–Pal. This includes all acts w/in the scope of agency. So, if agent crashes a car that he’s authorized by the P–Pal to drive, P–Pal will generally be liable for any damages resulting from the accident, despite fact that agent wasn’t specifically “authorized” to crash car à Doty
7.      Public Policy:
a.      Encourages ppl to be responsible w/ their possessions à maybe Doty should have driven her own car
b.      Creates incentive for ppl to buy liability insurance à now addressed by leg
 
F.     A. Gay Jenson Farms Co. v. Cargill, Inc. (Minn. 1981) [ACTUALY AGENCY Overstepping the Lender/Borrower Relationship to Become Principal/Agent] 1.      Facts:
a.      Cargill: huge international grain trader&Warren: the little tiny grain farm
b.      Cargill loans Warren to stay afloat & supply Cargill w/ grain, loans continue to get larger and larger
Ø Cargill begins to fear that it won’t be able to get its $$ back from Warren
c.       Cargill begins to clamp down on Warren à Evidence of Control:
Ø Cargill gets access to Warren’s books
Ø Starts to gain control over major decisions
Ø Sets pay scale of its officers
Ø Basically Cargill begins to exercise daily control over Warren
d.      Farmer’s Arg: b/c Cargill was so involved Cargill was actually responsible for Warren’s downfall, Farmers can’t go after Warren b/c Warren went bankrupt.
e.       Cargill’s Arg: it is a lender/borrower or supplier/purchaser relationship and not a principal/agent relationship
2.      Basis of Agency Relationship: Broad degree of control over agent’s operations.
3.      Holding:
a.      Maybe there was some supplier/purchaser relationship going on, but there was a lot more such that Cargill exercised control to extent of a principal over an agent 
Ø Most lenders don’t go into the lendee’s business and take over
Ø Ct noted that Cargill really wanted access to this grain
Ø IMPORTANT: Ct takes a “Totality of the Circumstances” approach
4.      Rule:
a.      The normal lender/borrower relationship can turn into a principal/agent relationship if the lender exercises too much control
b.      Agency is 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. In order to create an agency there must be an agmt, but not necessarily a K b/t the parties.
c.       An agmt may result in the creation of an agency relationship although the parties didn’t call it an agency and didn’t intend the legal consequences of the relations to follow.
 
G.    Liability of Principal to Third Parties in Contract
1.      Authority
a.      Authority is power of the agent to affect the legal relations of the P–Pal by acts done in accordance w/ P–Pal’s manifestations of consent to him Rest 2nd of Agency § 7
2.      Three Types of Agency Authority:
a.      Actual Agency: authority that the alleged P–Pal explicitly or implicitly assigned to the alleged agent.
Ø Express auth

to help him paint the church.
e.       Lind v. Schenley Industries, Inc. (3d Cir. 1960) [Apparent Agency] Ø Facts:
¯ Mr. Lind is suing his old employer
¯ Mr. Lind was promoted to be the head of liquor sales for all of Metropolitan NY. He says he was promised a 1% commission of all gross sales on all ppl he supervised.
Ø Holding:   
¯ There was apparent consent: the manager was allowed by the company to promise the employee’s compensation package.
Ø Reasoning:
¯ Manager had “apparent authority” to offer an employee a salary raise where the manager was the employee’s direct supervisor, was the person who transferred communications from high–level executives, and a high–level executive previously told the employee to see the manager for information about his salary
·         True P–Pal: The entity Park and Tilford, Kaufman was Lind’s boss, there is evidence that Kaufman told Lind that he’d get a bonus & there were some other mangers that got such a bonus. VP said go see Kaufman about your salary.
¯ Park and Tilford’s argument: Kaufman did not have the power to offer that commission, i.e. no express or implied consent.
¯ Lind’s argument: apparent authority: usually your boss tells you your entire commission, Herfeldt said that Lind should talk to Kaufman about his compensation
Ø NOTE: Now there is usually an explicit provision in most employee handbooks that says only the president can authorize commission, i.e.
f.       Watteau v. Fenwick (UK 1892) [Inherent Authority/Undisclosed Principal] Ø Facts:
¯ Beer house had Humboldt’s name all over it, Fenwick’s name is nowhere to be seen. 
¯ Humboldt had the authority to buy bottled ale and mineral water from anyone, but had to buy anything else from Fenwick. Humboldt did not follow this and bought cigars from Walteau. Walteau did not get paid.
Ø Holding:
¯ Ct rules for Walteau based on inherent authority
Ø Reasoning:
¯ Walteau’s Arg: I thought that the real owner was Humboldt and owners usually get to buy from any source they want.    
¯ Inherent & Apparent Authority do not overlap here because agent did not disclose existence of principal
Ø Rule
¯ When the person who looks like they are in charge places an order and Walteau acts on that there is an agency relationship
¯ Undisclosed P–Pal: when a P–Pal hides its ID it is still responsible for all the actions of the agent.