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

Business Organizations Outline


I. Who is an Agent?
a. Gorton v. Doty (Idaho Sup. Ct. 1937)
i. Facts: Doty loaned her cat to Garst, a high school football coach, to transport members of the team to a game. When Garst had a traffic accident in which Gorton was injured, Gorton’s father, as guardian ad litem, sued Doty, arguing that Garst was Doty’s agent while transporting the team in Doty’s car, hence Doty, as principal in the agency relationship, was liable for the injuries resulting from the accident.
ii. Holding: Where one undertakes to transact some business or manage some affair for another by authority and on account of the latter, the relationship of principal and agent arises. The court noted that it is not essential to the existence of authority that there be a contract between the principal and agent or that the agent promise to act as such, nor is it essential to the relationship of principal and agent that they, or either, receive compensation.
b. Test for an Agency Relationship:
i. Business Transaction
ii. Manage some affair for another by their authority
1. To trigger an agency relationship, the 1st person has to manifest consent to 2nd person to be their agent. Then the 2nd person agrees to be the agent for the 1st person’s behalf. Then the 1st person exercises control.
c. Gay Jenson Farms Co. v. Cargill, Inc. (Minn. Sup. Ct. 1981)
i. Facts: Cargill, Inc., in addition to loaning funds to Warren Grain & Seed Co., also took control of the day-to-day operations of Warren.
ii. Holding: A creditor who assumes control of his debtor’s business may be held liable as principal for the acts of the debtor in connection with the business.
II. Liability of Principal to Third Parties in Contract
a. Types of Agency:
i. Actual Agency/ Authority:
1. Express agency: The principal expressly says “you can act on my behalf”
2. Implied agency: The only way a corporation can talk is through a person, and usually these people aren’t quite so explicit in saying “you can act on my behalf.” They say something else like “can you do this for me?”
ii. Apparent Agency: Look at the facts through the eyes of the second person. Does it appear to him that he is the agent of the principle?
1. Agency may be proven through circumstantial evidence, by which the court may look to the conduct of the parties covering a number of successive transactions.
a. Mill Street Church of Christ v. Hogan (Ky. Ct. App. 1990)
i. Facts: The Mill St. Church of Christ hired Hogan to paint its church building. Bill Hogan hired his brother, Sam, to help in completing a difficult part of the job. While painting, Sam broke his leg and filed a claim with the workers’ compensation board. The board held that Sam was an employee of the Church (hence entitled to workers’ compensation benefits) since Bill had the implied authority to hire Sam because such implied authority was necessary to implement Bill’s express authority as an agent of the Church to complete the painting job.
ii. Holding: A person possesses implied authority as an agent to hire another worker where such implied authority is necessary to implement the agent’s express authority.
iii. Implied authority is actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually designated. Apparent authority, on the other hand, is not actual authority, but is the authority the agent is held out by the principal as possessing. It is a matter of appearances on which third parties come to rely.
2. An agent can bind a principal despite a lack of authority to do so if it would seem to a reasonable person that the agent possessed such authority.
a. Lind v. Schenley Industries, Inc. (3d. Cir. 1960)
i. Facts: Lind accepted a management position with Schenley Industries, Inc. based on the assertion of a metropolitan sales manager that Lind would receive bonus commissions on sales.
ii. Holding: An agent can bind a principal despite a lack of authority to do so if it would seem to a reasonable person that the agent possessed such authority.
iii. Inherent Agency: Look from the P’s perspective. What are the normal functions of the principle? Is it reasonable to assume that the agent would be able to conduct those duties?
b. Inherent Agency Power
i. Watteau v. Fenwick (England 1892)
1. Facts: Fenwick had authorized Humble as purchasing agent, but only for specific items, an authority Humble then exceeded.
2. Holding: When one holds out another as an agent, that agent can bind the principal on matters normally incident to such agency, even if he was not authorized for a particular type of transaction.
ii. To determine inherent agency, you have to look at the person’s normal job duties. If they normally do these actions, then there is inherent agency. To avoid being held responsible, the principle must supervise their agents as liability is placed on the person most able to avoid the harm.
c. Estoppel
i. Hoddeson v. Koos Bros. (N.J. Super. Ct. App. Div. 1957)
1. Facts: When Mrs. Hoddeson, intending to purchase furniture, gave cash to a man on the sales floor of Koos Brothers furniture store who held himself out to be a salesperson, but later discovered he was not employed by the store but was a con artist who kept the money, she brought an assumpsit suit against the store, alleging privity of contract on the basis of agency.
2. Holding: To establish agency by estoppel, the appearance of authority must be shown to have been created by the principal and not solely by the supposed agent.
a. The duty of a store proprietor does encompass the exercise of reasonable care and diligence to protect a customer from loss occasioned by the deceptions of an apparent salesman, although the lack of such care was not shown on the evidence in the instant case.
d. Agent’s Liability on the Contract
i. Atlantic Salmon A/S v. Curran (Mass. App. Ct. 1992)
1. Facts: Atlantic Salmon A/S and Salmonor A/S sued Curran for $153,788.50 and $101,759.65, respectively, owing on a contract which Curran had purportedly made as the agent of Boston International Seafood Exchange, but which in fact Curran had made with another company (marketing Designs, Inc.) as a partially disclosed principal.
2. Holding: It is the duty of an agent, in order to avoid personal liability on a contract entered into on behalf of the principal, to disclose not only that he or she is acting in a representative capacity, but also the identity of the principal.
a. If the other party to a transaction has notice that the agent is or may be acting for a principal, but has no notice of the principal’s identity, the principal for whom the agent is acting is a partially disclosed principal.
III. Liability of Principal to Third Parties in Tort

ile attending an Orioles baseball game, continuously heckled the Orioles’ pitcher, Ross Grimsley, Grimsley pitched a speed ball directly into the mesh screen in from of Manning. The ball went through the screen, injuring Manning, whereupon Manning sued both Grimsley and the Baltimore Baseball Club, his employer, for battery and negligence.
2. Holding: To recover damages from an employer for injuries from an employee’s assault, the plaintiff must establish that the assault was in response to the plaintiff’s conduct which was presently interfering with the employee’s ability to perform his duties successfully.
a. It is rare to hold an employer vicariously liable for an intentional tort like assault and battery. It’s only if the plaintiff had the effect of interfering with Grimsley doing his job, making it impossible for him to do his job, would it be within the scope of the employment and the Orioles be vicariously liable.
IV. Fiduciary Obligation of Agents
a. Duties During Agency
i. General Automotive Manufacturing Co. v. Singer (Wis. Sup. Ct. 1963)
1. Facts: Singer, a consultant and representative of General Automotive, solicited customers on his own behalf.
2. Holding: An agent who draws business away from his principal for his own enrichment is liable to the principal for his profits therefrom.
a. Whether an employee’s side work constitutes a breach of a fiduciary duty depends on numerous variables. Most important of these are the position of the employee (usually, the higher up the employee, the higher the fiduciary duty), and the closeness of the side work to the type of economic activity of the principal.
b. Duties During and After Termination of Agency Herein of “Grabbing and Leaving”
i. Town & Country House & Home Service, Inc. v. Newbery (N.Y. Ct. App. 1958)
1. Facts: Certain employees of Town & Country left, formed a competing company, and utilized customer lists they had obtained from their former employer.
2. Holding: Former employees may not use confidential customer lists belonging to their former employer to solicit new customers.


I. Oldest type of business entity- has recently been abandoned.
a. We study this because:
i. the legal principals of general partnerships re-appear in all other business entities and
ii. it is possible to create one by mistake (and you don’t want to do this as a partner is 100% liable for the death of a partnership.).
II. What is a Partnership? Who are the Partners?
a. Partners Compared with Employees
i. Fenwick v. Unemployment Compensation Commission (N.J. Errors and Appeals Ct. 1945)
Facts: The Unemployment Compensation Commission determined that a written agreement fixing compensation between Chesire and her