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Business Organizations
University of Dayton School of Law
Chaffee, Eric C.

FALL 2011
A. Proving Agency – Person alleging principle-agent relationship bears burden of proving it. A agency relationship can arise even if the parties do not intend to be an agent and principle to each other, and may not arise even if they intend an aent-principle relatioship but certain conditions are not met. There must be an agreement between parties that the agent will undertake some act on behalf of the principle, with the understanding that the principle is in control of the undertaking.
Fiduciary Relationship – Every agent is a fiduciary. Fiduciaries must avoid conflict of self-dealing, disloyalty, conflicts of interest.
Gratuitous Agent – A person who acts on anothers behalf, but not for personal gain. The gratuitous agent cannot be forced into doing the duty. However, the principle can he held liable for the gratuitous agent’s acts undertakings.
Principle’s duty to his agent.  Duty to compensate, incuding out-of-pocket expenses.
B. Who is an Agent?
(a)   By agreement
(b)   By Ratification – when the principal accepts benefits or affirms on acting for a principle, even tho no actual agency agreement exists.
(c)    Agency by Estoppel – A principal may act in such a way that a third party reasonably believes that somone is the principal’s agent; this is agency by estoppel.
Gorton v. Doty – Agency Arising Use of Vehicle
Issue: Was Garst an agent of D while driving the car? Yes.
• A agency relationship results when someone allows another to act on her behalf and subject to her control. D consented to Garst acting on her behalf. She volunteered the car with the express condition that Garst drive it. She did not sa anything about loaning Garst the car and he said nothing about borrowing it.
• Furthermore, this court has previously held that ownership of a car alone, regardless of owner’s presenc in the car, can be presumption that driver is agent of owner of the vehicle.
A.Gay v. Cargill – Creditor Exersicing control over Debtor – LL 3
Facts:Under agreement, D loaned money and working capitol to Warren, and Warren appointed D its grain agent with Commondity Credit Corp. D had right of first refusal to ourchase grain sold by warren. Warren eventually went into mass debt, D determined Warren falsified documents. A jury found Warren was D’s agent, making D liable for debt to Ps.
Issue: Is D liable as a principal on contracts made by Warren by virtue of its course of dealing with Warren?  Yes. Judgment affirmed.
• The existence of an agency relationship, while denied by both defendants, may be proved by circumstancial evidence tha shows a cour of dealing between the two parties.
• A creditor who assumes control of his debtor’s business may become liable as principal for the acts of debtor in connection with the business. Whatever the tarms of the formal contract, the creditor assumes de facto control over debtor, he becomes principal.
• This relationship went beyond a simple creditor-debtor relationship.
• The principal must be shwon to have consented to the agency relationship. D directed Warren what to do, and Warren consented to the terms.
• Ds argument of supplier-buyer relationship fails also because a requirement is that the supplier shows an independent business. Warrens entire project was financed by D, therefore Warren had no independent business.
C. Liability of Principal to Third Parties in Contract
Actual Authority –May be expressly conferred on the agent, or reasonably implies by custom, usage, or the conduct of the principal to the agent. Such authority can be either (i) express or (ii) implied. Actual comes from the agency agreement. Implied comes from words or conduct between principal and agent. Signified by (i) incidental to express authority (ii) implied from conduct (iii) implied from custom and usage (iv) implied because of emergency
Mill Street v. Hogan – LL 5 – Implied from past conduct
Issue: Did hogan have authority to hire P as assistant? Yes. Affirmed
• It must be determined ewhther the agent reasonably believed that the principal wished him toa ct in a certain way, or to have certain authority. Prior dealings between the principal and agent and the nature of the task to be carried out are factors to be considered.
• Hogan reasonably belived he had authority to hire P to help him finish painting the project. In the past, the churhc allowed him to hire help. It was clear from the nature of the contrac that Hogan was going to need help painting the large space.
• Finally, P believed Hogan had authority to hire him for the project. The hucrhc aven paid D a small amount before the accident while working on the project.
Dweck v. Nasser – LL 6 – Multiple sources of authority
Issue: Did Shiboleth have authority to settle the litigation? Yes.
• There are three sources of an agency relationship in the normal course of dealing business
(i)                 Actual authority, which is expressly granted either orally or in writing
(ii)               Implied authority, which is authority that the agent reasonably believes he has as a result of conduct or words of the principal
(iii)             Apparent authority, which is such power as the principal holds his agent out as possessing or permits him to exercise under such circumstances as to preclude a denial of its existence.
• Here, D granted Shilobeth authority to settle the litigation. He would “blindly” sign the agreement.
• Ds actions in conncetions with 20 years of dealings with Shilobeth establishes at least implied authorty to settle the litigation
• There is a

ntent and full knowledge
Facts: Walter and Mary owend a house. Walter agreed to a price with P, Walter’s attorney drafted it. Ps attorney did not do a title search but later did and found out thathe wife had title to the house. At no time did Walter indicate that he was acting on behalf of his wife as an agent. P took possession of the hosue and made substantial improvements. When he attempted to exercise the option to purchase Ds refused to honor the option. The court found for P and held that even though Mary was not a party to the negotiations or the contract, her husband had acted as her agent in the proceedings. The court further held that Mary had ratified the contract by her conduct. D appeals.
Issue: Do the fact and law support a finding that Wlter acted an agent for his wife, Mary? No.
            Did Mary ratify the contract by her subsequent conduct? No. Judgment reversed.
• The exestence of an agency relationship is a question of fact. An agency relationship is not proven by matiral status alone, not by the fact that the parties owned the land jointly. For an agency relationship to be proven, it must be shown that the principal consented to the agent acting for her, that the agent accepted the undertaking, and that the parties understood that the principal would be in control of the undertaking.
• The trial court found that if no agency relationship existed, Mary ratified the contrac trhgouh her conduct. Ratification requires acceptance of the results of a prior act with intent to ratify, and with full knowledge of all the material circumstances. While Mary observed P using the property and makign improvements, and received rental payments from P, this is not enough to indicate she had knowledge of the terms of the agreement. Therefore, judgment against Mary is set aside. P may, however, proceed against Walter for specific performance or damages, and the case is remanded for a new trial on the issue of relief.
Estoppel – When a principal negligently or intentionally causes a third party to blelieve that his agent has authority to do an act that is actually beyond his authority, and the third party detrimentally relies on the principal’s conduct, the principal is estopped from denying the agent’s authority.