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

Business Organizations
I.                    AGENCY
Agency: indicates the relation which exists where one person acts for another.
                3 Principle forms:
1.       The relation of principle and agent
2.       The relation of master and servant
3.       The relation of employer/proprietor and independent Kor.
Restatement of Agency: is the relationship 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.
Section 1: Who is an Agent
Gorton v. Doty:
–      The son was injured in a car accident while being transported to a school football game.
–      The son’s coach was the driver of the owner’s car (teacher at HS).
o   The son and father’s theory of recovery was based upon the coach, acting as the special agent of the owner.
–       The owner argued that no agency relationship existed, b/c she loaned her car to the coach.
–      However, the ct determined that the evidence supported the finding that the relationship of principal and agent existed between the coach and the owner.
o   Owner did not loan car
o   Allowed to use car
–      The ct affirmed the trial ct’s judgment in favor of the son and the father in their negligence action against the owner.
–      Why blame the teacher? à there is a deep pocket
–      Test given is based on consentà I (agent) will act on your behalf; I (principle) want you to act on my behalf.
–      There is no need for compensation, and no need for a K in an agency relationship.
–      What is the result of the agency relationship? à the principle (the owner of the car)
–      No bright line test for agency, consent and control matter
–      The owner “loaned” the car and no relationship existed.
–      She didn’t give him the consent to act for her.
–      Tipping factor for Judge B might be some kind of express authorization
o   It mattered that she said he must drive the car for the majority.
o   Dissent argues that she didn’t want any teenager driving her car.
Things to take away:
Notion of agent and principle are
–      Agent acts for principle
–      Principle is liable for agent
Whether or not an agency has been performedàcontrol of certain things, consent that the person is acting for the principle.
Doesn’t matter the form the agreement takeàno compensation necessary, no written consent necessary.
A. Gay Jensen Farms Co. v. Cargill, Inc.:
                – The creditor financed the debtor’s grain elevator operation and purchased the majority of the debtor’s grain.
–       At issue was whether the creditor, by its course of dealing w/ the debtor, became liable as a principal on Ks made by the debtor w/ the farmers.
–      The ct found that an agency relationship was established.
o   First, a creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection w/ the business.
§ A creditor becomes a principal when he assumes de facto control over the conduct of his debtor, whatever the terms of the formal K w/ his debtor may be.
o   Second, under the modern view adopted by the ct, since the farmers did not indicate to the creditor that the debtor had settled their account w/ them, the creditor, as principal, was not discharged from liability to the farmers by making a settlement pymt to the debtor.
–      Here, the creditor was an active participant in the debtor’s operations rather than simply a financier.
–      The creditor and the debtor had a paternalist relationship, w/ the creditor making the key economic decisions and keeping the debtor in existence.
–      Cargill was the principle of Warren according to the Restatement of Agency
–      The control that Cargill had over Warren constituted an agency relationship.  (9 factors pg 10-11)
o   Could consent test work? àYes, continually loaned $, couldn’t distinguish b/n the two.
–      If company is dictated to, auditing from other company needs permission to operate eTC.
Things to take away:
–      Control test not consent testàalthough if there was still the same result
o   Strong relationship that Cargill and Warren
–      Parties who form an agency relationship do not always intend to form one.
–      Factual sensitive inquiry as to whether or not an agency relationship has been formed.
*For the principle to be held liable there must be some authority held over the agent for an agency relationship to exist.
Agents Authority:  
1.       Implied Authority: is actual authority circumstantially proven which the principle actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated.
2.       Apparent Authority: on the other hand is not actual authority but is the authority the agent is held out by the principle as possessing.
3.       Inherent: where the agent implies authority against the principle
How to determine implied authority:

t least implied authority to settle the case.
o    Nasser was also likely bound by the attorney’s actions based on apparent authority.
–      There is an argument for Shiboleth that he has implied actual and apparent authority.
o   S could have apparent authority b/c Nasser knowingly permitted S to represent him and speak for him in the past. Nasser created the situation.
–       The motion to enforce the settlement agreement was granted.
DweckàWachtel                             NasseràHeyman (attorney of record), Shiboleth
Things to take away:
–      Pays to document
–      Illustrate the types of authority
–      Delaware has default rule that one who is an attorney of record represent the person who hired them and any agreements they make the client is bound by them.
–      Client has held out, given apparent authority, to speak and act for them.
–      When it comes to actual principles representation to the agent
o   Nasser gave S both actual and implied b/c he told him to go out and settle the case.
–      Apparent is when the principle gives representations to a 3rd party that the agent is someone and they are allowed to do something.
o   Nasser held out to the 3rd parties that S was his attorney.
3 Separate Sources of Agency Relationships:
1.       Actual/Express authority is expressly granted authority either orally or in writing
2.       Implied authority is a derivation of actual authority and often means actual authority either
a.       To do what is necessary, usual and proper to accomplish/perform an agent’s express responsibilities
b.      To act in a manner in which an agent believes the principle wishes the agent to act based on the agent’s reasonable interpretation of the principle’s manifestation in light of the principle’s objectives and other facts known to the agent
3.       Apparent authority “is such power as a principle holds his agent out as possessing pr permits him to exercise under such circumstances as to preclude a denial of its existence”