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Business Associations/Corporations
Wayne State University Law School
Keller, Sharon Faye

Agency Law

I. Who is an Agent?
A. Agency is the fiduciary relation which results from
i. Consent by the principle for the agent to act
ii. Agent acting on behalf of the principle (& both parties intend this)
iii. Understanding that the agent is subject to control by the principle.
a. Control only over the goal, not the means of accomplishing it (lawyers).
B. There’s an asymmetrical fiduciary duty (agent has duty to principle, but not vice versa)
C. An agency is inherently hierarchical – The principle controls (Courts will assume this fact)
D. Formation & termination of an agency relationship
i. Unlike a contract (which is negotiated etc.) an agency agreement is created very easily. Once A agrees to do something for P, and A is acting on P’s behalf & is subject to P’s control the agency relationship is created.
a. Gorton v. Doty, 69 P.2d 136 (1937) – woman tells the football coach who needs to transport students to a game to use her car (but only he can drive it). She volunteered the use of her car, no compensation. Accident happens & suit against the woman, as the principle. Agency relationship existed here between woman & coach. Woman consented that coach act in her behalf in driving her car by volunteering her car & her condition that only he drive it shows the control she had.
1. How you describe it makes the diff on whether or not it’s agency:
(a) Gave permission – this is a loan, not agency
(b) Directed – telling him what to do – this is agency.
2. This is a little extreme b/c it almost looks like it was only a loan. But fact is that insurance is covering the woman, and the boy injured has no insurance. So looks like court just wanted to cover the boy.
3. Solution: if she had specified she is loaning the car to him, then that would have settled it.
b.It is not essential that there be a contract between the principle and agent or that the agent promise to act as such, nor is it essential to the relationship of principle and agent that they, or either, receive compensation.
ii. Agency can be terminated at the will of either party (notion that we don’t like involuntary servitude). Different from contract relationship which you cannot just breach & court will enforce.
E. Creditor-debtor relationship vs. agent-principal relationship
i. A creditor who assumes control of his debtor’s business may become liable as principal for the acts of the debtor in connection with the business
ii. Gay Jenson Farms Co. v. Cargill, Inc., 309 N.W.2d 285 (1981) – Warren (W) is a local firm operating as a grain storage facility & as a middle man between the grain farmers & the worldwide dealer, Cargill (C). W then insolvent; doesn’t pay farmers, and farmers sue C. W & C had an agreement where C finances W, C buys grain from W & C has right of first refusal on the grain.
a. The court found an agency relationship was created here. Existence of an agency may be proved by circumstantial evidence which shows a course of dealing between the two parties.
1. Consent by principle – C consented by directing W to implement certain procedures
2. Agent acting on behalf of principle – W acted on C’s behalf in procuring grain for C, as part of its normal operation which were totally financed by C.
3. Principle exercise control over agent – C had a lot of influence and control over W’s financial situation.
b.An agreement may result in the creation of an agency even though parties didn’t call it an agency and did not intend the legal consequences of the relation to follow.
c. Someone who contracts to acquire something from a 3rd person and convey it to another is an agent only if it is agreed that he is to act primarily for the benefit of the other.
d.Problem – banks giving out loans being subject to agency
1. Difference for a bank is that the lender’s reason for financing is for the interest received. In Cargill, the reason for the financing was to establish a source of market grain for its business & took control of the operation for this purpose.
2. If you’re lending money to a borrower, you would probably take the steps Cargill did to make sure operating properly. Any of the measures Cargill took would be appropriate, but the problem in Cargill is that there is an extraordinary amount of control – too many of these things put together.
II. Agency Power to Bind – Liability of Principle to third parties in contract
A. Actual Authority – principle gave the agent the authority explicitly; completely clear
B. Implied Authority – Implied authority is actual authority circumstantially proven which the principal actually intended the agent to possess and includes such powers as are practically necessary to carry out the duties actually delegated.
i. To determine whether implied authority exists, it must be determined whether the agent reasonably believes because of present or past conduct of the principal that principal wishes him to act in a certain way or have certain authority.
a. Sometimes may be necessary to implement express authority
b. Prior similar conduct
ii. Have authority because it’s something that normally goes along with the actual authority given.
iii. Mill Street Church of Christ v. Hogan, 785 S.W.2d 263 (1990) – Church has hired Bill to paint in the past & has previously told Bill he can hire his brother Sam to help. Bill only uses Church’s tools & if he needs something goes to store & charges it to Church’s account. Church hires Bill again, needs help & goes to Church to ask for help. Church says to call Petty, but doesn’t tell Bill

on the door. Humble was only supposed to buy bottled ales and mineral water, but he buys cigars and other supplies on credit. Π, 3rd party, sues to recover payment. 3rd party doesn’t even know Fenwick exists, and that he actually owns it.
a. Rest (2nd) Agency § 194 – an undisclosed principle is liable for acts of an agent done on his account, if usual or necessary in such transactions, although forbidden by the principle.
b. Rest (2nd) Agency § 195 – an undisclosed principal who entrusts an agent with the management of his business is subject to liability to third person with whom the agent enters into transactions usual in such business and on the principal’s account, although contrary to the directions of the principal.
iii. Kidd v. Thomas A. Edison, Inc. 239 Fed. 405 (1917) – Kidd (3rd party) enters into K with Fuller (Δ’s agent) believing she was signing up for an unconditional singing tour/recitals. Δ says that agent’s only authority was to sign her up with specific recitals (be a booking agent), and the dealer would pay for the performance.
a. Custom to hire singers for recitals & reasonable to believe they intend to pay them. Agent in this industry is typically empowered to do these things in this type of situation.
b. J. Learned Hand – “It makes no difference that the agent may be disregarding his principal’s direction, secret or otherwise, so long as he continues in that larger field measured by the general scope of the business entrusted to his case.”
iv. Nogales Service Center v. Atlantic Richfield Company, 613 P.2d 293 (1980) – Π and Δ have been in business in the past. Δ’s employee-agent made oral contract with Π to give Π a discount on gas. Δ disapproves the discount; Π sues for breach of K. Δ argues that agent was not authorized to give this type of discount.
a. Rest (2nd) Agency § 161. A general agent for a disclosed or partially disclosed principal subjects his principal to liability for acts done on [the principle’s behalf] which usually accompany or are incidental to transactions which the agent is authorized to conduct if, although they are forbidden by the principal, the other party reasonably believes that the agent is authorized to do them and has no notice that he is not so authorized.