Select Page

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

Business Organizations Outline

I. Agency
A. Who’s an Agent
1. Agency Defined – Agency is the fiduciary relationships 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
2. Test
a) Capacity – Agent has the authority to act on behalf of principal
b) Consent – By the Principal to Act as an Agent
c) Writing if Required
3. Example: A Gay Jenson Fars Co. v. Cargill
a) Cargill contacted Warren, a grain elevator operator, to find a certain kind of wheat for them to distribute in their worldwide operation. Warren ended up being an Agent of Cargill b/c Cargill provided advice, inspected records, financed grain purchases and the power to cease funding. Cargill was liable to A Gay for Warren’s nonpayment.
Warren operated a grain elevator involved in the purchase of grain from local farmers
Also stored grain for farmers and sold chemicals, fertilizer and steel storage bins
Also operated a seed business which involved buying seed grain from farmers, processing it, and reselling it
Provided that Cargill would loan money for working capital to Warren on “open account” financing up to a stated limit (originally $175,000)
Warren would receive funds and pay its expenses by issuing drafts drawn on Cargill through Minneapolis banks
Proceeds from Warren’s sales would be deposited with Cargill and credited to its account
Cargill was also given a right of first refusal to purchase market grain sold by Warren to the terminal market
New contract in 1967 – exceeded limit to $300,000
Found to be indebted to Cargill in the amount of $3.6 million
Indebted to plaintiff in amount of $2 million
Plaintiffs alleged that Cargill was jointly liable for Warren’s indebtednesses as it had acted as principal for the grain elevator
Whether Cargill became liable as a principal on contracts made by Warren with plaintiffs
Cargill, by its control and influence over Warren, became a principal with liability for the transactions entered into by its agent Warren
All three elements of agency can be found in the circumstances of this case
Cargill manifested its consent that Warren would be its agent by directing Warren to implement its recommendations
Warren acted on Cargill’s behalf in procuring grain for Cargill as the part of its normal operations which were totally financed by Cargill
Agency relationship was established by Cargill’s interference with the internal affairs of Warren, which constituted de facto control
Factors indicate Cargill’s control over Warren (pg. 10-11)
The 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
There MUST BE an agreement, although NOT necessary to be a CONTACT
Principal must be shown to have consented to the agency since once cannot be the agent of another except by consent of the latter
Relationship was “buyer/supplier” not “principal/agent”
It must be shown that the supplier has an independent business before it can be concluded that he is not an agent
All portions of Warren’s operation were financed by Cargill – Warren sold almost all its market grain to Cargill
This means the relationship was NOT merely buyer/supplier
There WAS sufficient evidence to prove that Cargill was the principal of Warren within the definitions of agency set forth in the Restatement

Control test rather than consent test for agency – but probably would have reached the same conclusion w/ either test
It’s not a bright line test to form an agency
Parties who form agency relationship are not always intending to do so
Factual sensitive inquiry to figure out whether or not an agency has been formed

B. Formation
1. Act of Party –
a) Express – Principal states Agent is my Agent
b) Ratification –
(1) The affirmance by a person of a prior act which did not bind him but which was done or professedly done on his account. RST 2nd Agency § 82
(2) Ratification requires acceptance of the results of the act with an intent to ratify and with full knowledge of the material circumstances
2. By Law – Statute or Estoppel (good-faith reliance)
C. Principals Liability Under Contract
1. Liability is based on Authority – If principal has any type of authority over agent, the principal is liable
2. Types of Authority
a) Actual
(1) Express – Principal states you are my agent
(2) Implied (Inherent) – Agent reasonably believes that she is authorized by the principal to conduct certain activities
(a) Tasks not specifically outlined, but completion of such tasks are inferred from the nature of the job
(b) Generally arises out of customs known to the agent
(c) Example: Mill Street Church of Christ v. Hogan
(i) Hogan was hired to paint for church. He had done so previously and had been able to hire a helper. He asked about hiring a helper this time, no approval or disapproval was given. He hired his brother as he had done so previously. Due to the custom of being able to hire whom he pleased, he has implied authority.
Agent reasonably believes that she is authorized by the principal to conduct certain activities
Person actual says you are

necessary on behalf of the client
Matter becomes confused in this case b/c the default rule in Delaware dos NOT apply
Question becomes traditional analysis of agency and authority
Whether or not Mr. S actually had authority on behalf of Mr. Nasser
When it comes to actual authority what matters is the principals actions toward agent
Discussion at the end of case of apparent authority is worthy of having a BIG RED X drawn through it

Apparent authority is circumstance in which principal makes representation to 3rd party of what he is allowed to do
Doesn’t make sense to hold principal liable for agent’s representations b/c then agent could claim he has authority when he has never even met principal

b) Apparent
(1) Authority that a third party reasonably believes an agent has, based on the third party’s dealings with the principal, even though the principal did not confer or intend to confer the authority
(2) The authority must be shown to have been created by the manifestations of the alleged principal

D. Agents Liability on the Contract
1. Agent is liable if principal is undisclosed or partially disclosed – Agent must reveal to protect himself
E. Liability of Principal in Tort
1. Liable if Servant is within scope of employment
a) Conduct of a servant is within the scope of employment if it is actuated at least in part by a purpose to serve the master
b) Factors to Consider in Determining Scope of Employment
(1) The time, place, and purpose of the act
(2) Its similarity to acts which the servant is authorized to perform
(3) Whether the act is commonly performed by servants
(4) The extent of departure from normal methods
(5) Whether the master would reasonably expect such act would be performed
2. Exceptions to the above requirements:
a) Apparent Agency
One who represents that another is his servant or other agent and thereby causes a third person justifiably to rely upon the care or skill of such apparent agent is subject to liability to the third person for harm caused by the lack of care or skill of the one appearing to be a servant or other agent as if he were such – Think Franchisor/Franchisee – The former could easily appear to be in charge