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

Chapter 1: Agency
 
Section 1: Who Is an Agent?
 
I.       Gorton v. Doby
A.     Facts: Gorton (P) was injured in an automobile accident after Doty (D) loaned her vehicle to Garst to transport Gorton (P) and others to a football game.
B.     Issue: Is an agency relationship created when one loans her vehicle to another on the condition that the other drive the vehicle?
C.     Rule of Law: An agency relationship results from one person’s consent that another will act on his behalf and subject to his control, and the other person’s consent so to act.
D.     Definitions:
1.      Agency-A fiduciary relationship created by express or implied contract or by law, in which one party (the agent) may act on behalf of another party (the principal) and bind that other party by words or actions.
2.      Agent-One who is authorized to act for or in place of another; a representative
3.      Bailee-A person who receives personal property from another as a bailment
4.      Bailment-A delivery of personal property by one person (the bailor) to another (the bailee) for a certain purpose under an express or implied-in-fact contract
5.      Principal-One who authorizes another to act on his or her behalf as an agent
E.      Points of Interest:
1.      Agency indicates a relation where one person acts for another, with 3 principles forms:
i.        The relation of principle and agent;
ii.       The relation of master and servant; and
iii.     The relation of employer or proprietor and independent contractor
2.      Restatement 2nd of Agency §1 Agency; Principal; Agent (This is a fact sensitive inquiry)
i.        (1) Agency is the fiduciary relation, 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.
ii.       (2) The one for whom action is to be taken is the principal.
iii.     (3) The one who is to act is the agent.
3.      When one undertakes to transact some business or manage some affair for another by authority and on the account of the latter, the relationship of principal and agent arises.
4.      It is not essential to the existence of authority that there be a contract between 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
i.        Restatement 2nd of Agency §15 Manifestations of Consent—An agency relation exists only if there has been a manifestation by the principal to the agent that the agent may act on his account, and consent by the agent so to act.
ii.       Restatement 2nd of Agency §16 Consideration—The relation of principal and agent can be created although neither party receives consideration.
5.      There is a presumption that the driver is the agent of the owner
6.      Dissent—sees an agent as one who acts for another by the authority form him, one who undertakes to transact business or manage some affair for another by authority and on account of the later. Therefore, the rule seems to be that one who borrows a car for his own use is a gratuitous bailee and not an agent of the owner.
II.     Gay Jenson Farms Co. V. Cargill, Inc.
A.     Facts: The plaintiffs entered into grain contracts with Warren Grain & Seed Co., which was financed and controlled by Cargill, Inc. (D), a separate entity.
B.     Issue: Is a creditor that assumes control of its debtor’s business a principal that is liable on the debtor’s contracts?
C.     Rule of Law: A creditor that assumes control of its debtor’s business may become liable as principal for the debtor’s acts in connection with the business.”
D.     Definition
1.      Creditor-One to whom a debt is owed; one who gives credit for money of goods
2.      Debtor-One who owes an obligation to another, especially an obligation to pay money
3.      De Facto-Actual-existing in fact; having effect even though not formally or legally recognized
4.      Right of First Refusal-A potential buyer’s contractual right to meet the terms of a third party’s offer if the seller intends to accept that offer
E.      Points of Interest
1.      Here we are looking at control v. consent in the last case. Therefore three elements:
i.        Consent
a.      There must be an agreement which doesn’t necessarily have to come about through a contract
b.      Agreement may result in the creation of an agency relationship even if parties did not call it an agency and did not intend the legal consequences of the relation
ii.       Acting on behalf of the other party
iii.     Control over the other party.
2.      The elements to distinguish a supplier from an agent:
i.        Is to receive a fixed price for the property irrespective of price paid initially
ii.       Acts in his own name and receives the title for property which he is to transfer
iii.     Has an independent business in buying and selling similar property
3.      Here you take the facts and again it is a matter of arguing for or against its existence (a factual argument).
i.        Restatement 2nd of Agency §14O Security Holder Becoming A Principal—A creditor who assumes control of his debtor’s business for the mutual benefit of himself and his debtor, may become a principal, with liability for the acts and transactions of the debtor in connection with the business.
ii.       Restatement 2nd of Agency §14K Agent Or Supplier—One who contracts to acquire property from a third person and convey it to another is the agent of the other only if it is agreed that he is to act primarily for the benefit of the other and not for himself.
 
Section 2: Liability of Principal to Third Parties in Contract
 
I.       (Actual) Authority
A.     Mill Street Church of Christ v. Hogan
1.      Facts: Hogan (P) was injured after he was hired by a church employee to paint the inside of the church.
2.      Issue: Does an agent who is told on hire whomever he chooses have implied or apparent authority to hire any person to assist him
3.      Rule of Law: Implied authority is actual authority that the principal intended the agent to possess and includes such powers as are practically necessary to carry out the delegated duties
4.      Definitions:
i.        Actual Authority-Authority that a principal intentionally confers on an agent, including the authority that the agent reasonably believes he or she has as a result of the agent’s dealings with the principal.
ii.       Apparent Authority-Authority that a third party reasonably believes an agent has, based on the third party’s dealings with the principal.  Apparent authority can be created by law even when no actual authority has been conferred.
iii.     Authority-The right or permission to act legally on another’s behalf; the power delegated by a principal to an agent.
iv.    Express Authority-Authority given to the agent by explicit agreement, either orally or in writing.
v.      Implied Authority-Actual authority given to the agent as a result of the principal’s conduct, such as the principal’s earlier acquiescence to the agent’s actions.
5.      Points of Interest–Restatement 2nd of Agency §35 When Incidental Authority Is Inferred—Unless otherwise agreed, authority to conduct a transaction includes authority to do acts which are incidental to it, usually accompany it, or are reasonably necessary to accomplish it.
II.     Apparent Authority
A.     Lind v. Schenley Industries, Inc.
1.      Facts: Lind (P) sued for commissions owed to him under an agreement made with the defendant’s sales manager.
2.      Issue: Does a sales manager charged with exchanging information between higher executives & lower executives have inherent authority to offer compensation i

and ordinary business binds the principal.
4.      Definition
i.        Secret Partner-A partner whose connection with the firm is concealed from the public
ii.       Silent Partner-A partner who shares in the profits but who has no active voice in management of the firm and whose existence is often not publicly disclosed
5.      Points of Interest
i.        If the principal is undisclosed to a third party and that party is unaware of the person with whom he is dealing is actually an agent serving a principal’s interests, apparent authority cannot be established.  Therefore, only those acts specifically authorized by the principal could bind the principal to a third party. If the third party knows that he is dealing with an agent, the agent may bind the principal only if he acts with actual authority or the principal otherwise holds the agent out as having authority
ii.       Once it is established that the defendant was the real principal, ordinary doctrine as to principal and agent applies—the principal is liable for all acts of the agent which are within the authority usually confided to an agent of the like, not withstanding limitations, as between the principal and the agent, but upon that authority.
iii.     Just as a secret partner in a partnership cannot escape liability for the actions and debts of active partners, an undisclosed principal may not avoid liability for actions of an agent incurring usual and ordinary debts necessary to conduct principal business
iv.    Sided with the third party because the principal has the power to prevent this
v.      This case notes that inherent authority and implied authority are not necessarily the same and that the difference between these to are dependent upon the inquiry
B.     Note
1.      Restatement Second of Agency §194 Acts Of General Agents
i.        A general agent for an undisclosed principal authorized to conduct transactions subjects his principal to liability for acts done on his account, if usual or necessary in such transactions, although forbidden by the principal to do them.
ii.       (an undisclosed principle is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principal
2.      Restatement Second of Agency §195 Acts Of Manager Appearing To Be Owner—An undisclosed principal who entrusts an agent with the management of his business is subject to liability to third persons with whom the agent enters into transactions usual in such businesses and on the principal’s account, although contrary to the directions of the principal.
C.     Kidd v. Thomas a. Edison, Inc.
1.      Facts: Kidd (P) entered into a singing contract with Fuller, as was typical in the industry, although Fuller had no actual authority to bind his principal.
2.      Issue: Is a principal bound by an agent’s minor deviations from his actual authority if third parties were unaware that the agent exceeded his authority in entering into contracts on the principal’s behalf?
Rule of Law: If a conduct custom is established in an industry, an agent acting within