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Business Organizations
University of Dayton School of Law
Gerla, Harry S.

I. Who is an agent?
a. Gorton v. Daty
i. Consideration is not necessary in a business relationship for principal agent relationship
ii. This case turns on control – principal’s ability to control the agent
iii. An agency relationship results when one person allows another to act on his behalf and subject to his control. D consented to Garst acting on her behalf in driving her car to and from the football game. She volunteered the use of her car, with the express condition that Garst drive it.
iv. Ownership of a car alone, regardless of the owner’s presence in the car at the time of the accident, establishes a prima facie case against the owner because there is a presumption that the drive is the owner’s agent.
b. Gay Jenson Farms Co. v. Cargill, Inc.
i. Warren thinks they are an intermediary for Cargill
ii. Cargill says no agency existed with the exception of financing
iii. The existence of an agency relationship may be proved by circumstantial evidence that shows a course of dealing between the two parties.
iv. 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. Whatever the terms of the formal contract, when the creditor assumes de facto control over his debtor, he becomes a principal.
v. Under the Restatement 2d of Agency, it must be shown that a supplier has an independent business before it can be concluded that he is not an agent.
c. Do you need a contract to be an agency? No. You do need one for certain situations where one is needed or expected. The law varies from jurisdiction to jurisdiction. Particularly in a statute of frauds case, a contract is usually required
d. The principal (the main party) must have the capacity to contract as a minimal requirement. The agent (the one acting on behalf of the principal) just has to have some form of capacity, meaning they cannot be a vegetable or just isn’t there mentally. What would happen if he didn’t have contractual capacity? Any time an agent doesn’t have the capacity, the agreement is voidable. Difference between being void and voidable – being void means it is invalid and can virtually be ripped up, and voidable means the other party has the power to accept or void it
e. How do you prove an agreement? Ratifying a person’s act, holding someone out. The agent always works within the scope of the principal’s actions.
f. Estoppel – if the principal holds out the person as being their agent
g. Under statute – sometimes if a statute says there must be an agent (purported by law)
II. Liability of Principal to Third Parties in Contract
a. Authority
i. Mill Street Church of Christ v. Hogan
1. Issue is whether Bill had authority to hire on Sam.
2. Court focused on: whether the agent had the reasonable belief that he had the authority to hire a sub-agent, nature of the task, prior similar practices, circumstantial evidence
3. Implied authority
4. Inherent sometimes viewed as actual because it involves and extension of what is allowed and going beyond themselves
ii. Actual authority
1. Express authority – when the principal staright up tells the other person, you are my agent, this is what I want you to do
2. Implied authority (inherent authority) – reasonably believes that she is authorized by the agent that she is allowed to do certain things
a. Incidental to express authority – prior acquiescence by the principal, can resolve when needed to take emergency measures, allows for given authority in cases ministerial acts, gives authority to accept and sell goods, gives authority to give general warranties as to fitness and quality; deliver where there is authority; manage investments in accordance with prudent investment standards
3. Termination of actual authority – upon being fired; given a new position; expressly stated in record/contract; express removal of responsibilities;
a. Fired – one of parties says I don’t want you as my agent, I don’t want to be your principal
b. Specific terms as to when something is going to terminate
c. Breach of fiduciary duty
d. Operation of law – death, etc.
b. Apparent Authority
i. Lind v. Schenley Industries, Inc.
ii. Three-Seventy Leasing Corporation v. Ampex Corporation
1. Someone with apparent authority, the principal is equally bound; even if the principal expressly says don’t enter this deal and they made it look so that they have the power to enter the deal, they are still bound by that.
c. Inherent Agency Power
i. Watteau v. Fenwick [1893] 1 Queen’s Bench 346 (1892).
1. If it is in the usual scope of the person’s authority then it doesn’t matter what the person does
2. This is apparent authority (because he had explicit instructions to buy only water and stuff for ales)
3. Rule from this case: Liability is based on authority
ii. Restatement 2d of Agency § 194 states that an undisclosed principal is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principal.
iii. Restatement 2d of Agency § 195, “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 business and on the principal’s account, although contrary to the directions of the principal.”
iv. Kidd v. Thomas A. Edison, Inc.
1. This is either inherent or apparent authority
2. If someone exceeds their authority, but in a usual circumstance would have the power to make this decision, then the principal is going to be on the hook
v. Nogales Service Center v. Atlantic Richfield Company
1. Restatement 2d of Agency § 8A
2. Restatement 2d of Agency § 161
3. If you don’t make your record during trial, you are out of luck – no one argued jury instructions during the trial, they waited until after
4. If an agent is acting within the scope of his authority, the principal is going to be on the hook
vi. Problem 1 page 35
1. (a) Allie may have the apparent authority to increase the pay because Zelda would assume Allie had the authority to offer; Allie may have the inherent authority because she had hired other assistants based on what the going rate was at the time; Exceeded the scope of authority based on what any other person student would say
2. (b) Not the same result; more explicit instructions given and her authority is spelled out for her
3. If the ad said Allie will be conducting the hiring interviews – would be assumed she had the power to raise the pay rate
vii. Rules of agency and authority are designed to protect; any time there is actual authority, the principal is the one who is going to suffer harm
d. Ratification
i. Botticello v. Stefanovicz
1. You have to have full knowledge (material facts, benefits, etc.) to ratify.
e. Estoppel
i. Hoddeson v. Koos Bros.
1. Court rejected apparent authority argument – has to be some act of principal; principal has to somehow garb the agent in apparent authority for there to be apparent authority
2. Court used an estoppel doctrine – the proprietor cannot hide behind the preposterou

hwa>>r say). Interference so severe that it would constitute a nuisance under any circumstances; a nuisance regardless of location or circumstances of use, such as a leaky nuclear-waste storage facility
2. Toti was an independent contractor which are not usually held liable, but there is an exception
3. Three different exceptions to liability of an independent contractor
a. Where the landowner retains control of the manner and means of the doing of the work which is the subject of the contract (sounds a lot like the general rule of an agent)
b. Where in engages an incompetent contractor (trial attorney goofed and didn’t include anything about this
c. Where, as noted in the statement of the general rule, the activity contracted for constitutes a nuisance per se
4. Ultra-hazardous is not the same as nuisance per se
5. What makes something inherently dangerous? Something that involves a peculiar risk of harm; an activity which can be carried on safely only by the exercise of special skill and care, and which involves grave risk of danger to persons or property if negligently done
6. Agents can be held liable for the torts in rare circumstances for the torts of their independent contractors
IV. Fiduciary Obligation of Agents
a. Duties During Agency
i. Reading v. Regem
1. Does it matter that it was an illegal activity? No.
2. If you breach your duty of loyalty, even if the act is illegal or it is something the principal wouldn’t have done, the principal gets the money
3. Agents duties
a. Duty of loyalty
b. Duty of candor – duty to disclose basic facts
c. Duty of care – you have to go ahead and be careful whatever you do as an agent; accomplish acts reasonably carefully (how you actually accomplish the task)
ii. General Automotive Manufacturing Co. v. Singer
1. What sort of duties did he breach? Duty of loyalty – he had obligation to General Automotive Manufacturing; he also had a duty of candor to disclose basic facts
2. Where there are breaches of loyalty and candor, the agent could through very simple tasks (like including it in their contract or by telling the employee what they are doing) avoid liability
b. Duties During and After Termination of Agency: Herein of “Grabbing and Leaving”
i. Town & Country House & Home Service, Inc. v. Newbery
1. Specific issue is the customer list
2. You can’t take things from previous employer that are specific to that employer

I. What is a Partnership? And Who Are the Partners?
a. Partners Compared with Employers
i. Fenwick v. Unemployment Compensation Commission
1. Elements in determining whether a partnership exists
a. Intention of the parties
b. Right to share in profits
c. Obligation to share in losses
d. Ownership and control of the partnership property and business
e. Community of power in administration