Business Associations/Corporations Outline

Business Associations
I. Agency
a. Defined: Agency is 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 – Restatement § 1
i. Three major players in an agent relationship:
1. Principal – The one for whom the action is taken
2. Agent – The one who acts—generally expected to be paid
3. Third Party – The one usually initiating the lawsuit – Seeking a deeper pocket than the agent
ii.For a principal/agent relationship to exist, there must be an agreement, doesn’t necessarily have to be a contract.
iii. The existence of a principal/agent relationship may be proven circumstantially by showing a course of dealings between the two parties—principal must be shown to have consented to the agency.
b. Who is an Agent?
i. Gay Jenson Farms Co. v. Cargill
1. Warren buys grain from farmers then sells the grain to Cargill. Cargill extended credit to Warren. The farmers are not getting paid.
2. Generally, a creditor is not liable for the debts of those it extended credit, however a creditor that assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection w/ the business
3. One who contracts to acquire property from a 3rd person and convey it to another is an agent of the other only if it is agreed that he is to act primarily for the benefit of the other, not himself.
4. Factors leaning in favor of a supplier relationship instead of an agent:
a. Fixed price, regardless of cost
b. Acts in his own name and receives title in it
c. Independent business in buying and selling similar property
5. The point at which the creditor becomes a principal is that which he assumes de facto control over the conduct of his debtor – Always a fact-dependent test
a. The court held that Warren was Cargill’s agent and liable for his debts because:
i. Cargill made constant recommendations to Warren
ii.Cargill had a right of first refusal on grain
iii. Warren was unable to enter into mortgages, purchase stock, or pay dividends without Cargill’s approval
iv. Cargill had the right to enter onto Warren’s land for checks and audits
v.Cargill’s determination that Warren needed strong paternal guidance
vi. Cargill financed all of Warren’s purchases of grain
vii. Cargill’s power to discontinue the financing of Warren’s operations
b. Cargill was an active participant in Warren’s operations rather than simply a financier

c. Liability of Principal to Third Parties in Contract

i. Authority – Authority is the power of an agent to affect the legal relations of the principal by acts done in accordance with the principal’s manifestations of consent
1. Three types of authority:
a. Actual Authority – Authority that flows directly from the Principal to the Agent
i. Expressed – “Go and do X” – Principal tells the agent what to do
ii.Implied – “Do what you need to do to accomplish X” – The power to act in ways reasonably necessary to accomplish X
b. Apparent Authority – Manifestations made by the Principal to 3rd parties or to the word – Communication between the Principal and the 3rd party—question is whether the agent reasonably believed that b/c of present or past conduct of the principal that the principal wishes him to act in a certain way or to have certain authority
c. Inherent Authority—a general agent (someone who has the ability to do different things on behalf of the principal) AND an undisclosed principal AND the agent is doing something that general agents in the same situation do, but he does not have the actual authority to do
2. Mill Street Church of Christ
a. Elders hired Bill to paint church. Bill asked his brother Sam to help him paint, Sam broke his arm
i. The court held that Bill had implied, actual authority to hire Sam because Bill needed a helper to paint the church, because Bill had hired Sam before, and because Bill had never been told that he needed to hire someone else
ii.The court also held that Bill had apparent authority because he had hired Sam before and because the church had paid Sam for his work before the accident
iii. Church is liable for his arm being broken.
ii.Apparent Authority – The power to affect the legal relations of another person by transactions with third persons, professedly as agent for the other, arising from and in accordance with the other’s manifestations to third persons – Restatement § 8
1. Lind v. Schenley Industries
a. Lind was told by his immediate supervisor that he would assume the title “District Manager” and would receive a commission of 1% of the sales of the men under him.
i. No actual authority – the immediate supervisor did not have the authority to give Lind a raise
ii.Was apparent authority –
b. An agent can have apparent authority without having actual authority
c. The third party must reasonably that the agent has authority
i. Dissent – Not reasonable to believe that he could receive a salary that quadrupled his present salary and paid him more than any other company executive
2. 370 Leasing Corp v. Ampex
a. Kays, a salesman of Ampex, presented 370 with a written document stating that Ampex would sell to 370 six memory units
b. Kays did not have actual authority – only a manager could had authority to sign contract
c. But the court held that Kays had apparent authority:

i. It is certainly reasonable for third parties to presume that one employed as salesman has the authority to bind his employer to sell
ii.Ampex should have had something on bottom of K that only managers could bind the company
d. An agent has apparent authority sufficient to bind the principal when the principal acts in such a manner as would lead a reasonably prudent person to suppose that the agent had the authority he purports to exercise. If the third party believes the agent has the authority that is sufficient, even if he does not have actual authority
e. Need to make it clear if salesmen do not have the power to bind the company—if they don’t salesmen should have it in their contracts that they don’t have this authority—or put it into the drafts of sales contracts
f. Absent knowledge on the part of 3rd parties to the contrary, an agent has apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct.
iii. Inherent Agency Power
1. Watteau v. Fenwick
a. Humble transferred the ownership of a beerhouse to the defendants, but Humble remained as the manager. The defendants only gave Humble the authority to buy bottled ales and water. But then Humble bought cigars and Bovril
i. No actual authority – Humble did not been granted the power to buy cigars or Bovril
ii.No apparent authority – Defendants had made no manifestations to the third party
b. An undisclosed principal may not rely on instructions given an agent that quality or reduce the agent’s authority to less than the authority a third party would reasonably believe to have under the same circumstances if the principal had been disclosed – § 2.06 (p. 17)
i. To have an inherent agency, you need:
1. Undisclosed Principle – The third party does not know that there is an agency relationship
2. General Agent (does a variety of on-going tasks) – The general agent must be doing something within the normal scope of activity for g