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Business Associations/Corporations
University of San Diego School of Law
Partnoy, Frank

1.       Agency
a.       Gorton v. Doty
                                       i.            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.
                                     ii.            Rule: 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.
1.       Agency indicates the relationship which exists where one person acts for another. 
2.       Three principal forms of the agency relationship are
a.       Principal and Agent
b.      Master and Servant
c.       Employer/Proprietor and Independent Contractor
3.       Note: You do not have to intend to create an agency relationship to have one
b.      Gay Jensen Farms Co. v. Cargill, Inc (Minn. 1981)
                                       i.            Facts: 
1.       Warren Grain & Seed Co. operated a grain elevator whereby it purchased and stored grain from A. Gay Jenson Farms Co. (P), and other local farmers for resale on the Minneapolis Grain Exchange. Warren entered into a financing agreement with Cargill, Inc. (D) to loan Warren money for its operations.
2.       Warren paid its operating expenses with checks from Cargill’s accounts, and the checks were in the names of both companies. In return proceeds from Warren’s grain sales were deposited in Cargill’s account.
3.       Cargill was appointed as Warren’s agent for transacting with a credit corp., and Cargill had a right of first refusal to purchase Warren’s grain that was sold on the market.
4.       Later Warren was required to provide Cargill with annual financing statements so that Cargill could audit Warren’s accounts. Warren wasn’t allowed to make any business decisions without Cargill’s permission.
5.       Cargill also gave Warren periodic recommendations concerning improvements. Eventually Warren was selling 90% of its grain to Cargill, and its debts continued to exceed its credit line with Cargill, so Cargill decided to make drastic changes to Warren by giving them a manager to work with them every day.
6.       Eventually Warren’s operations succumbed to financial problems, and Warren owed PL’s $2 million for past grain sales.
7.       Unable to collect form Warren, PL’s sued Cargill as the principal.
                                     ii.            Issue: Is a creditor that assumes control of its debtor’s business a principal that is liable on the debtor’s contracts.
                                   iii.            Rule: Yes, 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. Agency need not arise from a formal contract, and need not be understood as an agency at the time both parties give their consent.
                                    iv.            Rationale: Cargill by its control and influence over Warren, became a principal with liability for the transactions entered into by its agent Warren.
1.       By directing Warren to implement its recommendations, Cargill manifested consent that Warren would 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.       Cargill’s interference with the interneal affairs of Warren constituted defacto control of the elevator.
c.       Mill Street Church of Christ v. Hogan (Ky. 1990): Actual Authority – Implied Authority
                                       i.            Facts: Hogan (P) was injured after he was hired by his brother, a church employee, to paint the inside of the church.
                                     ii.            Rule: 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.
1.       Implied authority existed because of the indication that further help was needed, prior hiring situations, and the

sonably prudent person to suppose that the agent had the authority he purports to exercise.
                                   iii.            Rationale: Ampex reinforced this belief by submitting the agreement and directing all communications through the Ampex Agent. Any limitations were not communicated to Three-Seventy.
f.        Watteau v. Fenwick (1892): Inherent Agency
                                       i.            Facts: 
1.       For years, Watteau (P) had sold cigars and other products on credit to Humble, who operated a tavern. After Humble sold his tavern to Fenwick (D), Humble remained as the manager and operated the tavern in his own name, but was not authorized to purchase Watteau’s goods on behalf of Fenwick. 
2.       Unaware that Fenwick had purchased the tavern, Watteau continued to sell his goods to Humble on credit. Watteau sued Fenwick to recover the outstanding balance on goods sold to the tavern. The court awarded judgment to Watteau.
                                     ii.            Rule: When a principal is undisclosed to third parties, the actions taken by an agent in furtherance of the principal’s usual and ordinary business binds the principal. Custom leads to inherent agency.
                                   iii.            Undisclosed Principal Restatement of Agency 194-195: 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. An undisclosed principal is subject to liability for agent manager’s transactions if they are usual in such business and on the principal’s account.