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

BUSINESS ORGANIZATIONS
CUMMINGS
SPRING 2012
AGENCY
A.    AGENCY RELATIONSHIP
a.       A party has to agree to act on behalf of other party
b.      Control of the principal party
c.       3 parties – principle, agent, 3rd party
d.      Gorton v. Doty,1937, football school team in the traffic accident:
                                                              i.      Consent → you can drive my car
1.      What can evidence consent?
a.       Expressed words
b.      conduct
                                                            ii.      Control → I don’t want kids driving the car. You drive the car
                                                          iii.      Courts will disregard what is written and look into behavior and substance.
                                                          iv.      No good advice could be given in this case b/c substance is the agency. May be the school district which is insured could get the car, not the natural person.
1.      What relationship the parties actually established?
2.      The parties’ self-selected label is never dispositive and is relevant only as a window on the underlying reality.
3.      Disclaimers could not help if principal-agent relationships have been established: “You can hang a sign on a pig and call it a horse, but it’s still a pig.”
e.       Fiduciary relationship:
                                                              i.      Agree to act on behalf of another
                                                            ii.      Represent other
                                                          iii.      Duties:
1.      Care
2.      Loyalty
3.      Disclosure
4.      To act in the best interests of the principle, principle’s interests are above the agent’s interests.
a.       Serving the principal’s interests is the primary purpose of the relationship.
f.       A. Gay Jenson Farms v. Cargill, 1981, farmers against multinational grain company
                                                              i.      Facts: Cargill used Warren as a supplier of grain. Warren satisfied global demand. Warren went through the bankruptcy. Farmers sued Cargill though they supplied to Warren. Cargill credited Warren. Cargill is an alleged Principal trying to disclaim principal-agent relationship.
                                                            ii.      Held: Cargill was the principal of Warren. The relationship was far beyond typical creditor relationship due to control → there was a line b/w creditor and principal which was crossed. “De facto” control over Warren. 
1.      Counseling Warren – possibly, not crossing the line of control
2.      Crossing the line of control:
a.       Exercising veto power over major decisions
b.      Coercing debtor to put specific persons in control
c.       Providing other creditor’s insurance of payment → promising farmers to pay Warren’s debts
                                                          iii.      When a creditor exercises extensive control over the operations of its debtor, that control can by itself establish an agency relationship.  As a consequence, the creditor becomes liable for the debtor’s debts to other creditors.
                                                          iv.      How to avoid control? → less engage into day-to-day business
B.     TYPES OF AUTHORITY
a.       Actual
                                                              i.      Express → principal expressly told the agent what to do, clear-cut authority
                                                            ii.      Implied → what the agent understands or believes he is authorized to do
1.      Incidental work or behavior agent has to undertake
2.      Mill Street Church (1990):
a.       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. Implied authority may be necessary in order to implement the express authority. 
b.      Parties never expressly discussed the authority of Hogan. The church did not expressly say to go and find smb to do the work. But in the past the church allowed Bill to hire Sam. Bill believed that he had authority to hire Sam b/c of the past custom.
b.      Apparent authority
                                                              i.      RST 2, § 8
                                                            ii.      RST 3, § 2.03
                                                          iii.      There should be some kind of communication from the principal to 3rd parties to create apparent authority. Expectation of agency
                                                          iv.      Dweck v. Nasser:
1.      Agency situation. Naser told Shiboleth several times to do whatever Shiboleth wanted with settlement.
2.      Actual authority → Nasser told Shiboleth to settle agreement. “Do what you want, I’ll sign what you negotiate.
3.      Implied authority → Shiboleth reasonable believed he had power to act.
4.      Apparent authority → deals with beliefs of third party. We have to link it to the third party.
a.       Nasser told third persons that Shiboleth would sign the settlement.
                                                            v.      370 Leasing Com. v. Ampex Co. (1976):
1.      Sale of computers to the leasing company which leased computers to other companies. $600K. 6 computers. Relationship b/w Joyce (370) and Kays (Ampex) who was the low-level salesman in Ampex. Ampex repudiated K: “no deal” b/c Kays was not authorized to sell computers. In office memo, Ampex told about sale of computers and that the deal would be handled through Kays. Ampex: no K, only solicitation of the offer by Joyce. But the agent signed K.
2.      Actual express authority: lacking
3.      Implied authority:  lacking b/c memo did not authorize Kays to sign K
4.      Apparent authority:  yes.
a.       Rule: 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… Absent knowledge on the part of third parties to the contrary, an agent has the apparent authority to do those things which are usual and proper to the conduct of the business which he is employed to conduct.
b.      Reasoning: (1) Kays was employed by Ampex in the capacity of a salesman. → it is reasonable for third parties to presume that the salesman has the authority to bind his employer to sell; (2) Ampex did nothing to dispel the belief that Kays was authorized to sell →
(a) Kays, at the direction of Mueller, submitted the document to Joyce for signature;
(b) the document contained a space for signature by an Ampex representativ

                               ii.      Employer is always liable for the employee within the scope of the employment
                                                          iii.      Independent contractors:  not are going to bind employers. BUT in some cases → agency relationship b/c of control of the principal
                                                          iv.      RST 2, 219
                                                            v.      Humble Oil & Refining: day-to-day control over activities of the independent contractor → the lost status of independent contractor → employee, not the independent contractor. Issue: who really controls how the profits are made? Humble was really responsible for day-to-day business
                                                          vi.      Hoover v. Sun Oil Company: issue of control. Does it represent day-to-day control or is it just a system?
                                                        vii.      Franchise model:
1.      Liability shield:
a.       If no control over day-to-day operations
2.      Business model: franchise fee → you pay for the opportunity to make business, you pay rent.
3.      You have to have pretty consistent brand. People should get what they expect. The fine line is difficult.
                                                      viii.      Murphy v. Holiday Inns (1975): the kind of control. System protection → uniformity. What really matters is the system. Issues: what protects the system? what constitutes control?
C.    LIABILITY IN AGENCY RELATIONSHIP
a.      Franchise → no liability if no day-to-day control over the franchisee’s operations → clear demarcation of liability
                                                              i.      Arguello v. Conoco → franchisor’s control over franchisee: day-to-day operations, micro-management control.
                                                            ii.      Touchstone: day-to-day control over brand stores
                                                          iii.      Business planning perspectives:
1.      To avoid control → “independently owned and operated” disclaimer
2.      Arm’s length relationship
3.      Due screening
b.      Employer – employee relationship→ respondeat superior if
                                                              i.      within the scope of employment
1.      Test for the “scope of employment”:
a.       Foreseeability standard, Ira s. Bushey (sinking of the ship):  whether the employee’s conduct is foreseeable by the employer?
b.      Purpose test, Grimsley (pitcher assaulted spectators): whether the employee acted in advancing the employer’s interests?
c.       engaged in the activities she was hired to, Conoco II