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Business Associations
West Virginia University School of Law
Cummings, Andre Douglas Pond

Chapter 1: AGENCY

Communication between the principal, third party, and the agent is key to resolving disputes of authority.

Judges usually primarily motivated by who they want to win and then seek to establish the requisite authority.

Actual Express Authority:
– The agent has Express Authority in that the Principal has directly instructed the Agent to so act and the Agent Acts according to the instruction,
· The principal tells the agent to do X and the Agent does X. Principal is bound.

Actual Implied Authority:
– If , in order to carry out the Principal’s explicit instructions, Agent takes some other steps necessary to carry out those instructions. Principal is bound
– Agent does have authority, but has not explicitly been told he or she has such authority
· “reasonably interpreted, causes the agent to believe that the principal desires him so to act on the principal’s account.” – Restatement 2d of Agency §26

Apparent Authority:
– Agent does not have authority to bind principal (no actual authority, express or implied). Principal bound because Third Party is led to believe that agent was authorized. Restatement 2d of Agency § 8
· Apparent Authority depends on communications between Principal and Third Party

Inherent Agency Power:
– Inherent Agency Power (inherent Authority): No actual authority and no holding out. Principal bound because of appearance of authority.
– Principal’s are responsible for some acts of their Agents which, while unauthorized, are nonetheless quite close to (or incidental to) that which they are authorized to do.
· Generally applies to general agents (§ 194) and managers (§ 195)

If principal chooses to adopt a contract negotiated by an unauthorized person purporting to act as Agent, then Principal is bound, as is the Third Party.

Agency by Estoppel
– Elements of estoppel:
1) principal creates through intentional or negligent act, an appearance of authority in the purported agent (imposter); and
victim changed her position in reasonable good faith reliance on appearance of authority.

Section 1: Who is an Agent?

Gorton v. Doty (1937)

Facts: Gorton (P) was a football player in high school, and was transported to and from a football game in a car driven by his coach, Richard Darst, which was loaned to Darst by a woman, Miss Doty (A). Doty, a teacher at the school, had asked the coach, Garst, if he needed any more cars to transport the players, and told the coach he could use her car but only if he drove the car (rather than the players). On the way to the game, the vehicle was involved in an accident and Gorton sued Doty to recover damages.

Issue: Was the coach (Garst) the agent of the appellant while and in driving her car and in returning to the point where the accident occurred?

Important Dicta:

1. Agency indicated the relationship which exists where one person acts for another. There are three principle forms:
1. The relation of principal and agent
2. The relation of master and servant
3. The relation of employer or proprietor and independent contractor.

2. Agency is the fiduciary relationship which 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 of agency section 1)

3. An agent is someone that acts on someone’s behalf.

Rule: It is not essential to the existence of authority that there be a contract between principal and agent or that the agent promise to act as such, nor is it essential to the relationship of principal and agent that they, or either, receive compensation.

Rule 2: (from Willi v. Schaefer Hitchcock Co) The fact of ownership alone, regardless of the presence or absence of the owner in the car at the time of the accident, establishes a prima facie case against the owner for the reason that the presumption arises that the driver is the agent of the owner.

· Agency means more than mere passive permission, It involves request, instruction or command. Ms doty simply loaned her car as a kind gesture and she was insuring that no kids would be driving her car by saying that Mr. Garst should drive.
· Garst was a gratuitous bailee rather than an agent of the owner.
· Bailee: A person who receives personal property from another as a bailment, which is a delivery of personal property by one person to another for a certain purpose un

an active participant in Warren’s business operations, Cargill would not have been liable as a principal. Because Cargill exercised control over Warren’s business decisions, the relationship transcends that of a debtor and creditor. Cargill s liable as Warren’s principal. Affirmed.

Analysis: a lender may be liable for a borrower’s debts if the lender exhibits control over the borrower’s business. The lender is liable if its control affects the borrower’s management decisions beyond those necessary to protect the lender’s investment.

Definitions: Agency is a fiduciary relationship that results from the manifestations of consent by one person to another that the other shall act on his behalf and subject to is control, and consent by the other so to act…
· In order to create an agency there must be an agreement, but not necessarily a contract between the parties…an agreement may result in the creation of an agency relationship although the parties did not call it an agency and did not intend the legal consequences of the relation to follow.

AC: Cargill manifested its consent that it would be Warren’s agent. When Cargill told the farmer’s (third party) YOU WILL GET PAID. This solidified the agency relationship.
AC: always look for communications between principal and third party (called a “manifestation”)
AC: how do you restructure so you can once again buy grain from third parties?
· Keep it a strict financing operation
· Maintain debit/credit relationship

AC: What can a creditor do?
· Can safely request financial reports
· Can provide counseling on discreet matters
· Recommend consultants
AC: What can’t the creditor do?
· Veto power over important decisions
· Coercing debtor into putting a certain person into management positions
· Assuring creditors that they will be paid (third parties)