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Business Associations/Corporations
University of North Carolina School of Law
Hazen, Thomas Lee

1. The Agency Relationship: Agency law governs an agent’s capacity to bind a principal to a K or conveyance and to subject it to liability. Provides a vehicle for an intangible corp to act. Very important because it is the only way a corporation can act. Used to eliminate limited liability.
a. Agency 2d § 1: Agency is the fiduciary relation which results from the manifestation of consent (agreement, but not necessarily a K) by one person (the principal) to another (the agent) that the agent shall act on the principal’s behalf and subject to the principal’s control and consent by the agent so to act.
i. Agency relationship is a fiduciary one
ii. Officers are fiduciaries of corporations
iii. Relationship based on consent (mutual consent)
iv. Runs from the principal to the agent
v. Agent subject to the principal’s control
vi. Principal is responsible for the acts of the agent where the agent is acting within the scope of the agent’s authority
vii. Agency law is the basic building block of corporate law
viii. Principal MUST be shown to have consented to the agency!
b. First ask, is there an agency relationship? Cargill involved a loan in which the P is claiming that the relationship was not just debtor/creditor, but is agent/principal and thus bound principal à s/b liable. Loan in itself is limited liability investment.
i. Cargillà Found Agency Relationship b/c:
1. Benefit: D had a greater interest in the business than just a loan—fruits of the business went to D. Whereas a lender would usually profit only from the business, D profited from both the interest and the sale of the grain.
2. Holding Out: P used the principal’s name on its letterhead and bills. When determining whether there is a holding out, look to the reasonable perception of third parties.
3. Degree of Control and Influence: D exercised much day-to-day control over the business. D made may recommendations, had the power to discontinue financing, had a right of entry onto the premises, etc.
ii. Cargill—All three elements were there
1. consent: directed Warren to implement their recommendations. Cargill manifested its consent that Warren be its agent
2. Warren acted on Cargill’s behalf in procuring grain for Cargill as part of its normal operations which were totally financed by Cargill.
3. control: agency relationship was established by Cargill’s interference with the internal affairs of Warren, which constituted de facto control of the elevator
a. recommendations, right of first refusal on grain, Warren
b. s inability to enter into mortgages, purchase stock or to pay dividends without approval, right of entry to check on things and audit, financing and power to discontinue financing
iii. De facto agency may be found when there is a lack of contract showing agency. In Cargill there was a de facto agency relationship because it was implied from the parties’ conduct.
iv. Agency v. Supplier
1. Factors indicating that one is a supplier rather than agent include (1) that he is to receive a fixed price regardless of price paid by supplier; (2) that he acts in his own name and receives title to the property which he thereafter is to transfer; and (3) that he has an independent business in buying and selling similar property. Restatement of Agency §14K.
c. If there is an agency relationship, was the subject acting within the scope of that relationship? A corporation is only bound if the agent has the authority to perform the act on the principal’s behalf. Authority can only be created by the principal.
i. Ex. Check out clerk at Harris Teeter is an agent but they are not authorized to sell you the store. The scope of their authority does not reach to this.
ii. Types of Authority:
1. Actual: Actual authority runs from the principal to the agent. Agency 2d § 7,26.
a. Express: (written or spoken) the principal specifies the agent’s task directly to the agent, can be through contract
b. Implied: flows from an express grant; inferred from the title or position the principal has given to the agent or the nature an

rity at the same time. By naming someone CEO that creates both
d. Fiduciary Duties: (The agent is a fiduciary, and they are held to extraordinarily high standards. Owe beneficiary a higher standard of care than normal.
i. Duty of Care: A owes P a duty of care in his business dealings.
ii. Duty of Loyalty:
1. Unless otherwise agreed, an agent is under a duty to act solely for the benefit of the principal. Agency 2d § 387.
2. Unless otherwise disclosed and agreed, an agent may not deal with the principal as an adverse party. Agency 2d § 389,390.
3. Unless otherwise agreed, and agent who makes a profit while working for a principal is under a duty to give that profit to the principal. Agency 2d § 388.
a. Relates to corporate opportunity
b. Exception is customary gratuities
4. An A who acquires confidential information during employment has a duty to account for any profits made by the use of such information and held in constructive trust for the principal.
a. Relates to the use of confidential information and insider trading stuff
e. Vicarious Liability: Ps are liable for the actions of their As when the As are acting with authority (within the scope of the agency). Agency 2d § 219.
i. Where litigation arises is in the franchise relationship. For example you can sue McDonalds if it is an agency but not if it is a franchise. This is a question of fact: Is the public reasonably led to believe that the parent corporation is standing behind its safety? (holding out / apparent authority question). The way to avoid this is to give notice that the business is a franchise.
Butler v. McDonald’s Corp: