Business Associations
Fall 2003 – Prof. Huss
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
3. Third Party – The one usually initiating the lawsuit – Seeking a deeper pocket than the agent
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
3. 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 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
c. Inherent Authority
2. Mill Street Church of Christ
nt 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. Need to make it clear if salesmen do not have the power to bind the company
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
